Saturday, January 15, 2011

This Week’s Happenings

Accounting Changes

Two major accounting bodies intend to publish a proposed joint approach on credit impairments of loans and other financial assets managed in an open portfolio, according to an announcement by the International Accounting Standards Board (IASB), London, and the US Financial Accounting Standards Board (FASB), Norwalk, Conn.

Accounting for credit losses determines how non-performing loans that are measured under amortized cost should be impaired, according to FASB and IASB. Both International Financial Reporting Standards and U.S, Generally Accepted Accounting Principles currently apply an ‘incurred loss’ approach to loan loss provisions, whereby specific evidence of a loss is required before a loan can be impaired, according to the two organizations. This approach was criticized during the recent financial crisis for preventing entities from accounting for expected losses early enough.

Although both boards proposed moving to a more forward-looking approach to accounting for impairment, they proposed different models. Following intensive joint discussion of the responses each board received on its original proposals the boards will shortly seek views on a common approach that incorporates elements of each of their original models. The Boards will also conduct extensive outreach with constituents about the operationality of the proposal and usefulness of the resulting information, they say.

The boards will propose an impairment model based on accounting for expected losses. This approach provides a more forward looking approach to accounting for credit losses, they say.

American International Group

American International Group, New York, says that it has fully repaid the roughly $21billion outstanding credit facility of Federal Reserve Bank of New York , and exchanging various forms of government support into common shares, resulting in the U.S. Treasury Department owning approximately 92 percent of AIG's common shares. AIG expects that over time the Treasury Department will sell its stake in AIG subject to market conditions

Standard & Poor's Ratings Services reacted to the announcement by stating that its ratings on AIG (AIG; A-/Negative/A-1) and AIG's insurance subsidiaries are not affected by the company's announcement to proceed with its recapitalization plan on Jan. 14, 2011. We view the successful execution of the planned asset sales and the accelerated repayment of the U.S. government as a positive credit development and consistent with our expectations at the current rating level. Previously, AIG was expected to complete its repayment to the U.S. government toward the end of 2013.


Robert A. DiMuccio, chairman, president and chief executive officer of Amica Mutual Insurance Company in Lincoln, was elected as the new chair of the Property Casualty Insurers Association of America (PCI), Des Plaines, Ill. During its annual meeting in Colorado Springs, Co. and Sandra Parrillo, president and CEO of Providence Mutual Fire Insurance Company in Providence, was sworn in as the newest chair of the board of directors of the National Association of Mutual Insurers (NAMIC), Indianapolis, at its annual convention in San Diego.

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