Sunday, October 17, 2010

LHATF Actuaries Want To Weigh In on IASB Proposal

Actuaries are discussing how to weigh in on international accounting standards that some insurers say will have a significant impact on the way business in the United States is done.

During the fall meeting of the National Association of Insurance Commissioners, Kansas City, Mo., actuaries were cautioned that changes proposed by the International Accounting Standards Board, London, could limit products available to consumers.

South Carolina regulator Leslie Jones asked why regulators need to be concerned about this proposed standard and what effect it will have effect it will have on the United States market.

By using a risk-free rate in discounting, valuation conditions will be created that could limit insurers’ desire to offer long-term products in the United States, according to Ed Stephenson of Barnert Global, representing the Group of North American Insurance Enterprises, New York. Stephenson warned that the same thing has happened in other jurisdictions.

Stephenson said that there is still a lot of work that needs to be done in this area before the IASB advances this concept. He noted that creating one model doesn’t adequately capture the nuances of both the life insurance and property-casualty industries. He also noted that reinsurance in general is not well understood in project. Rather, he continued, it creates potential arbitrage by which reinsurers would recognize upfront profits but ceding companies would not.

Another concern Stephenson cited was the potential to require unbundling of insurance contracts for accounting purposes, a proposed standard which he says is unclear. It is not certain how it will affect universal life products, he added. In fact, Stephenson continued, many of the ideas are new and untested and need far more study to determine the potential effects on insurance industry.

South Carolina’s Jones and Larry Bruning, a Kansas regulator and LHATF chair, said that it is important to weigh in on these issues and that regulators need to have a group of regulators to follow what is going on and to get up to speed so that they can comment on the proposal before the December deadline. Donna Claire, representing the American Academy of Actuaries, Washington, said that the Academy has been following these issues and could provide assistance to any group that is formed.

Other regulators including Tomasz Serbinowski of Utah and Richard Marcks of Connecticut said that it would be difficult to provide insight on the issue because the issue is complex and would require a significant commitment of time to understand. Other LHATF members said that is exactly why a small group of two to three LHATF regulators is needed to track the issue.

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