Financial analysts who cover the insurance sector are generally dissatisfied with the current financial reporting framework for the insurance industry.

A new report by PricewaterhouseCoopers, based on interviews with 43 analysts who cover the insurance industry, found that many believe there is inadequate disclosure of relevant information on balance sheets, income and cash flow statements, as well as management’s discussion and analysis. The overwhelming consensus is that a new reporting structure is needed that reflects the economic realities and unique business model of insurance companies.

The Financial Accounting Standards Board and the International Accounting Standards Board are working to develop a new standard that would address the recognition, measurement, presentation, and disclosure requirements for insurance contracts and provide more useful information. The two boards plan to issue an exposure draft of the new standard by April 2010.

Nearly all the analysts interviewed from the U.S. and three-quarters of those in the rest of the world think that insurance is distinctive enough to deserve its own reporting model. Of those who support a distinct model, slightly more than half prefer a different approach for the life insurance and non-life insurance business, and nearly three-quarters would like aspects of a particular contract that has different risk and earnings profiles, such as savings and investment management services, to be accounted for separately, as opposed to being bundled and presented as a whole.

Most analysts said they would like to see profit recognition over the life of the contract in line with the unwinding of the associated risks. They said they believe this would give a better indication of how management judges the contract’s current profitability.

“The true financial condition of insurance carriers seems to be uncertain to analysts, shareholders and the entire investment community,” said PricewaterhouseCoopers partner Donald Doran. “We believe insurers need a new and improved approach to financial reporting applied consistently around the world that meets the challenges facing such a diverse and complex industry, as well as the needs of their stakeholders.”

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