Theme: Insurers Contest IFRS.
July 31, 2010Canadian Insurers are persuading the federal government to drive the reporting rules in their direction. In summary, the companies demand an amendment of the standards which our main regulator has already agreed to put in use but wants to effect not before 2013.
Insurers argue that the new order will summon big instability to the c/e figures in year-to-year (quarterly) comparisons. The problem is, not only would this make period-to-period comparisons substantially more challenging, but it would also prevent comparisons to results calculated under the old standard.
LSM Insurance argues the the second one is weedy plea though, as the insurance industry representatives would most possibly be asked to re-calculate previous few years outcomes using the fresh rules exactly for the purposes of logical comparison, as is the situation with most alternations of the standards. Nonetheless, a change of rules will definitely mean more massive amount of administrative power expenses in the time of the change at the bottom end.
As to the volatility of capital ratios, the Financial Post says that the the industry are proposing a 2-layer accounting environment that permits capital to be calculated based on a various set of rules than the International Financial Reporting Standards. This sure does make sense since the sums of capital backups are checked and controlled by the OSFI. Should there be excessive instability of reserves, the insurance companies may be force to revise them more often which avoid optimal capital management.
In serious cases, substandard amount of capital may force OSFI to consider an insurance company bankrupt. Currently, it is unfeasible to describe the exact result of International Financial Reporting Standards on c/e instability, as the new rules are still being prepared by the International Accounting Standards Board. However, the insurance bodies are relying that a 2-layer system of rules, which is used in the Anglo-Saxon countries will downgrade any such beliefs.