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Abstract

European insurers who have to establish financial statements under IFRS must apply a temporary international accounting standard for insurance contracts which provides a flawed picture of their business. The IFRS long-term project for insurance is still under preparation by the IASB. The standard should not be issued until mid-2009 following a discussion paper to be submitted for comments in the first quarter 2007. The insurance industry has been involved for several years in a proactive way, including participation in the International Insurance Working group set up by the IASB. The European CFO Forum has proposed principles on which the international accounting standard for insurance should be based. The key elements are as follows: the insurance liabilities should be valued on a market consistent measurement including the management's best estimate of future cash flows discounted at a risk-free rate and a margin for risks and uncertainties; the profit should be recognized as the insurer is released from risks, and services are provided to the policyholders over the term of contracts and not at inception. Participating contracts liabilities should be based on an economic valuation. Liabilities should be reassessed at each closing. If applied, the CFO Forum's principles would have positive impacts for the investors and other users of the financial statements while entailing huge operational implications. The proposals from the European industry for accounting are closely linked to the proposals for Solvency II that the European Commission is preparing in the meantime: the measurement of the insurance liabilities proposed for both purposes by the CFO Forum, the CRO Forum and the CEA is the same. The American insurers members of the GNAIE and four Japanese Life Insurance groups have made similar propositions for accounting but with some differences that are under debate with the CFO Forum.