Less than half of senior insurance executives from companies around the world believe the U.S. should abandon U.S. GAAP standards in favor of International Financial Reporting Standards, according to a new survey.
The survey, conducted by the Economist Intelligence Unit on behalf of Deloitte’s member firm in the United Kingdom, asked more than 200 senior executives from insurance companies around the globe about how they are preparing for IFRS. The survey found that only 47 percent of the respondents want the U.S. to abandon its national accounting standards in favor of IFRS.
The U.S. Financial Accounting Standards Board and the International Accounting Standards Board have made insurance contracts one of their priority convergence projects, but they remain far apart on the standards. The Securities and Exchange Commission released a final staff report on the IFRS work plan last week, and noted that U.S. GAAP has more fully developed guidance on insurance accounting than IFRS, which generally avoids having industry-specific standards.
The Deloitte report noted that despite significant progress, the two boards have struggled to reach an agreement on all issues. This has resulted in a slip in the timetable for implementation of what could be the first set of global accounting rules for insurance companies.
Given the potential consequences these rules will have on insurance companies, more than half of respondents rated the uncertainty around the timeframe for implementation of the new IFRS for insurance contracts (IFRS 4 Phase II) and for financial instruments (IFRS 9) as their biggest concern. However, many insurers are stuck in a ‘wait and see’ mode, with 56 percent saying they will wait until the standards are final before starting their projects to implement the new rules.
“The extended uncertainty surrounding the completion of a converged insurance project has hampered insurers’ desire to prepare for this major implementation challenge. Several insurers in our survey said they will be able to look at the business impact of the standards only from next year,” said Francesco Nagari, global IFRS insurance leader at Deloitte, in a statement. “This implementation will be a considerable undertaking in terms of IT systems and processes, not to mention the effect on investors’ perception of insurers’ profitability.”
Nagari sees benefits in having a single set of accounting standards. “If the implementation is well managed, an insurer could use the increased transparency and global consistency in terms of company reporting to its advantage. The new rules will level the playing field for investors who would be able to compare insurers globally and with other companies in different sectors. Today’s insurance reporting is fragmented and it creates a barrier for general investors to consider insurance shares. This results in a higher cost insurers have to pay when they want to raise capital and the new accounting rules could address this issue. Indeed, many insurers are considering whether the benefits justify the costs. Insurers have pushed long and hard for an accounting regime that meets their needs. Now they just need to make sure it delivers the benefits.”
Despite the impact of future changes in insurance accounting standards, executives at two-fifths of the insurance companies surveyed said their board has no awareness of or involvement in these accounting changes.
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