The Globe and Mail

Canadian insurers are expected to come out fighting against a new set of proposed accounting rules that has just been released.

The London-based International Accounting Standards Board has issued a draft of changes to the accounting regime for insurance contracts.

“A fundamental review of insurance accounting was long overdue, with current practice resulting in financial information that is impenetrable to all but the most expert of users,” stated Sir David Tweedie, chairman of the IASB.

The exposure draft is open for comment until the end of November, and Canada’s life insurers are expected to work hard before then to convince the accounting standard setters that they believe that aspects of the new rules will do more harm than good.

The insurers currently ensure that the time horizon of their assets matches their liabilities (for instance, if they sell a 30-year annuity, they will match that with a similar term bond). The new rules threaten to separate the two sides of the balance sheet, so that assets and liabilities move separately, increasing volatility.

The changes would likely also impact how the companies calculate their long-term commitments, and Canadian insurers – which sell substantially more long-term guaranteed products than their European counterparts – say the new rules could be so detrimental that it will no longer make sense for them to offer some of those long-term products.

Both Julie Dickson, the head of Canada’s banking and insurance regulator, and Jim Flaherty, the finance minister, had written to the IASB urging it to consider the position of Canadian insurers.

Peter Martin, director of accounting standards at the Canadian Accounting Standards Board – which has pledged to adopt the IFRS regime – said that it will take some time before the proposals can be fully understood.

“In a topic as complex as this, you have to really read carefully and think about what’s being proposed,” he said. The board’s own insurance accounting task force will meet to go through the draft.

Despite their disappointment in the rules, at least some Canadian insurance executives say they are still optimistic that they will succeed in making their case as it appears that the draft is very preliminary and that the IASB is open to feedback. The insurers intend to present the accounting board with figures that demonstrate the impact the rules will have on their results. The rules are not expected to take effect until 2013 at the earliest.