Insurance Companies Question International Financial Reporting Standards(IFRS).
Insurers are demanding the Canadian government to steer the accounting principles/reporting requirements in their favour. In summary, the companies wish an amendment of International Financial Reporting Standards which Canada has already agreed to comply with but wants to effect no sooner than 2013.
The companies reason that the new principles will implement huge volatility to the capital/equity numbers in annual (quarterly) checks. Unfortunately, not only would this make the comparisons substantially more problematic, but it would also stop comparisons to results prepared under the previous rules.
LSM Insurance argues the latter is weedy justification though, as the insurance industry representatives would most probably be called for to re-calculate recent few periods’ outcomes using the new order precisely for the purposes of rational comparison, as is the situation with most amendments of the standards. Nevertheless, a change of regulations will definitely bring more administrative costs in the time of the shift at the very least.
As to the volatility of capital figures, the Financial Post says that the insurers are proposing a 2-tier accounting system that permits capital to be calculated based on a various pack of rules than the IFRS. This sure does make sense since the sums of capital backups are observed and controlled by the OSFI. Should there be huge volatility of capital reserves, the insurers may be needed to alter the reserves more often so that prevents optimal capital management.
In extreme cases, malnourished amount of capital may awake OSFI to consider an insurer bankrupt. In these days, it is almost impossible to identify the exact result of IFRS on c/e volatility, as the new regulations are still being developed by the IASB. However, the insurance companies are expecting that a 2-tier system, which is used in the Anglo-Saxon countries will erase any such concerns.
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