New accounting model for life insurers seeks greater transparency paid KPMG_US
Accounting Standards Update No. 2018-12
By and large, these changes will make it easier for investors and other stakeholders to compare different insurers on more of an apples-to-apples basis.Let’s look first at these changes as they relate to life insurance, a product involving a promise of payment that may not occur for several decades. The assumptions used by insurers to measure the liabilities for their policyholders’ future benefits extend decades into the future.
That’s good news for both investors and companies as it provides a current view of the liability without introducing unnecessary noise into earnings. “Many investors felt the current accounting model was not very transparent, making it difficult for them to understand what was on the books, while companies were worried about earnings volatility caused by movements in interest rates,” explained Edward Chanda, national sector leader for insurance at audit firm KPMG LLP in the United States.
By and large, these changes will make it easier for investors and other stakeholders to compare different insurers on more of an apples-to-apples basis. “The changes are a step in the right direction for investors in terms of providing more consistency between companies and greater transparency about the assumptions,” said Laura Gray, principal and leader of KPMG’s actuarial practice.
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