BestWeek: Quest for Global Insurance Contract Standard Hinges on Compromise

Two accounting standards boards continue working to craft a single, global standard for insurance contracts that, if agreed upon, would have significant ramifications for insurers, according to the most recent issue of BestWeek U.S./Canada. The costs for U.S. life insurers to implement the broader accounting standards convergence — including standards on revenue recognition and financial instruments — may be more than $1 billion, the American Council of Life Insurers predicts.

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But as the U.S.-based Financial Accounting Standards Board and the London-based International Accounting Standards Board work diligently toward a unified standard, meeting at least twice a month, it is uncertain whether the goal actually will be achieved. The implications for insurers are many, said A.M. Best Assistant Vice President Steven M. Chirico , who is also a certified public accountant. The costs of implementation include reconfiguring the chart of accounts, changing the closing process, retraining staff, possibly hiring new staff, and purchasing new accounting systems, which could run into the millions of dollars for big insurance companies, Chirico said.

Also included in the issue are six pages of exclusive coverage from the National Association of Insurance Commissioners’ Spring National Meeting in Austin, Texas. Among the hot topics were its solvency assessment proposal, which seeks to bring the United States’ requirements for how insurers disclose the risks facing their companies more in line with Solvency II. Regulators also discussed revisions to U.S. corporate governance requirements in light of the International Association of Insurance Supervisors’ Insurance Core Principles.

In BestWeek Europe, delegates who will gather in DubaiApril 10-11 for the 6th Annual World Takaful Conference will be discussing a market that has grown rapidly in recent years. Vasilis Katsipis , general manager, analytics, at A.M. Best Europe – Rating Services Ltd., said the development of takaful insurance has varied from such relatively mature markets as Malaysia to newer entrants in the Middle East. “For a big part of the population in the Muslim world insurance was not an option for quite some time,” he said.

And in BestWeek U.S./Canada, the reorganization of Chartis, including a new management team, is a positive step forward for the company as it continues to distance itself from the tarnished image of American International Group Inc., industry observers told BestWeek. Chartis, AIG’s flagship property/casualty business, said the company is reorganizing into two major global groups — commercial and consumer — to better serve clients. Peter D. Hancock , who joined AIG 14 months ago as executive vice president of finance, risk and investments, has been tapped to lead Chartis as CEO. He succeeds Kristian P. Moor , a 30-year AIG veteran, who has been named vice chairman of Chartis, and will report to Hancock.

Dan Weedin , an insurance consultant with Poulsbo, Wash.-based Toro Consulting Inc., said the move continues the distancing of Chartis from AIG and its 2008 $182 billion government bailout.

“I think time has healed some of those wounds,” Weedin told BestWeek. “When all the AIG stuff hit, most of it had nothing to do with the insurance operations. The property/casualty piece was pretty strong, but got dragged down with the AIG name. This news is pretty positive.”

BestWeek is published by A.M. Best Co. for insurance professionals. To subscribe, visit http://www.ambest.com/sales/BestWeek.

Founded in 1899, A.M. Best Co. is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.