LONDON (Reuters) - A top accounting rule-setter said it won’t back down on forcing insurers in Europe and elsewhere to give markets a more current snapshot of liabilities on their books.
Insurers worry the reform being thrashed out by the International Accounting Standards Board (IASB) will inject more volatility into their financial statements, making it harder to invest in long-term projects that would help economic recovery.
But IASB Chairman Hans Hoogervorst said the new standard, set to be finalized next year, will be an improvement.
“Where it leads to more volatility, it is probably a reflection of real economic risk,” Hoogervorst said in a speech to an accounting industry body in London on Tuesday. “Only adequate levels of capital can deal with this risk; accounting standards should not serve to cover it up.”
The new standard will propose that insurers use current interest rates when measuring the liabilities they face from honoring policies on their books, Hoogervorst said.
Currently, many insurers are using “outdated” interest rates, some dating back a decade, he said, adding: “Markets will gain much more insight into how effective insurers are in matching their liabilities with their assets.”
He dismissed complaints from insurers the new rule, which will be put out to consultation this quarter, would discourage long-term investments.
Policymakers are hoping insurers will tap their huge pools of assets, totaling 5.4 trillion euros ($7 trillion) in Europe alone, to invest in infrastructure as banks shy away from lending to conserve capital.
Some insurers have made a counter proposal to measure liability using the yield the company expects on its assets.
“We call this ‘hope and wish accounting’,” Hoogervorst said.
The IASB’s accounting rules are used in more than 100 countries and are mandatory for insurers such as Aviva (AV.L), Axa (AXAF.PA) and Allianz (ALVG.DE) in the 27-country European Union. ($1 = 0.7682 euros)
Reporting by Huw Jones; Editing by David Holmes