Insurance Reporting

Media Workshop held on December 10, 2003

For outsiders and for people who are beginning to deal with this issue, insurance accounting looks like a closed book. The most frequent expressions heard in this regard are "complicated", "inpenetrable", and "static". With a comprehensive primer on insurance accounting, three renowned experts proved this wrong. They introduced issues and concepts germane to the insurance industry to journalists and familiarized them with the Zurich position on international accounting standards.

Kevin Senior, Partner Global Financial Services - Insurance at Ernst & Young, briefly highlighted the differences between the profit & loss account and the balance sheet of insurance, banking and manufacturing companies. By examining the differences of local and international accounting standards applied by Swiss insurance companies, he pointed out the pitfalls in comparing the various balance sheets although there is a trend toward harmonization.

Jon Bardola, Zurich's Head of Actuarial Support, Life and Financial Services, introduced the concept of the embedded value, an evaluation method crucial to shareholders who want to deduce the actual earnings of a life insurance company from the reported figures. Earning trends in the life insurance business differ greatly from those of other sectors as life insurance policies are generally based on long-term contracts. Traditional (statutory) accounting results can be misleading because of the influence of the company's new business or the early surrender of life insurance policies. For this reason, the concept of the embedded value was developed several years ago in the Anglo-Saxon world. The embedded value provides a basis for determining the long-term earnings outlook for a life insurance company. It represents the value of the life insurance portfolio for the shareholders, although future new business (sometimes referred to as goodwill) is not included in the calculation.

Louis Mannello, Group Controller at Zurich, pointed out that Zurich is a strong supporter of the International Accounting Standards Board (IASB) and International Financial Reporting Standards (IFRS) and that it was one of the few international financial services companies which voluntarily adopted IFRS (former International Accounting Standards (IAS)) as the primary basis for accounting in 1997. By looking at the salient issues of international accounting standards and the impact they will have on the companies' accounting policies in the next couple of years, he demonstrated that insurance accounting is everything but static.

Louis Mannello outlined Zurich's position on the IASB Exposure Draft 5. He said that Zurich agrees with the need for transparency and appropriate disclosure and recognizes the IASB to develop a new and consistent model for insurance contracts because it should enhance understanding of the insurance industry. However, he also indicated that there are still some open issues as far as practicality, high costs and timing of implementation of the standards are concerned. These developments will have to be monitored closely.

Documentation

Title	Speaker/Author	Language			Size/Format
Insurance Accounting (personal comments)	Kevin Senior Partner at Ernst & Young	en			1.0 MB / pdf
Einführung in den Embedded Value	Jon Bardola Zurich Financial Services		de		344 KB / pdf
Embedded Value Enhances Transparency	Jon Bardola Zurich Financial Services	en	de		43 KB / pdf
Proposed Changes in Insurance Accounting Rules	James J. Schiro Zurich Financial Services	en			30 KB / pdf