The Search for an International Accounting Standard for Insurance: Report to the Accountancy Task Force of the Geneva Association

This paper seeks to provide an understanding of the background to the search for an international standard for insurance contracts, which was initiated by the International Accounting Standards Committee (IASC) in 1997 and is still proceeding under its successor, the International Accounting Standard Board (IASB). To do this the paper traces the evolution of the fair value initiative of the IASC/IASB which at the outset was envisaged for all financial instruments, but over time has been amended as the standard setters realized that there would be major problems of implementation, after listening to the views of preparers, particularly the commercial banks, and users, including financial services regulators. The paper identifies the origins of the fair value framework as emanating from an earlier accounting framework based on current values that was intended to be applied generally to all enterprises. The current value initiative, although conceptually sound, has only been adopted in part, again because of problems of implementation. The theoretical underpinning of the current value and fair value accounting approaches are discussed. The paper attempts to show why any early resolution to the insurance contracts project has proved so difficult. This difficulty is evidenced by the fact that insurance contracts have been excluded from the scope of the accounting standard for financial instruments in the United States, FAS 133, as it was clearly recognized that there is no ready market to trade and hence determine fair values for insurance contracts. It concludes by addressing some general factors that must be kept in focus when developing an international accounting standard and some particular factors that should be considered if there is to be a workable and transparent system of financial reporting which captures the economic substance of the commercial operations of insurance companies. Part of the suggested solution is to integrate the insurance contract project more into the revised proposed standard for all financial instruments, IAS 39, and for the IASB to work more closely with insurance companies, especially with their in-house accountants and actuaries. This greater co-operation is now possible as the project moves into the field testing stage. The Geneva Papers on Risk and Insurance (2003) 28, 151–175. doi:10.1111/1468-0440.00215

The curious case of the Occidental and Regal : the evolution of solvency and disclosure standards in the Australian life insurance industry

In 1990, the Australian life insurance industry was rocked by a scandal that threatened to destabilize consumer confidence in the ability of insurance providers to meet policyholder liabilities. The incident highlighted the nature of the agency problems that arise when conditions of asymmetric information exist. It revealed systemic weaknesses in accounting, solvency and disclosure standards as they applied to life insurers. This article uses an evolutionary concept of agency to analyse government and industry responses to this event. It is argued that initial adaptive responses stabilized the industry and averted a more serious crisis. Longer term innovative responses led to the introduction of a new and more rigorous approach to reporting and solvency standards, which has improved information flows and agency outcomes.<br /