Insurers Contest International Financial Reporting Standards(IFRS).
Canadian Insurers are persuading the Canadian government and regulatory bodies to steer the reporting requirements in their favour. In summary, insurance industry representatives would like an amendment of International Financial Reporting Standards which Canadian government has already agreed to comply with but wants to effect no sooner than 2013.
The companies believe that the new rules will prepare way for big instability to the capital/equity ratio in annual (quarterly) comparisons. Unfortunately, not only would this make the comparisons substantially more difficult, but it would also stop comparisons to statements calculated under the old rules.
LSM Insurance think the latter is not solid defense though, as the the companies would most certainly be called for to re-calculate passed few periods’ statements using the brand new rules exactly for the aim of rational benchmark, as is the case with most changes of the rules. Nevertheless, a change of rules will definitely mean bigger amount of administrative power costs during the transition at the very least.
As to the volatility of capital, the FP reports that the the companies are requiring a two-layer accounting system that allows capital to be counted based on a various pack of standards than the IFRS. This sure makes sense since the levels of capital reserves are monitored and controlled by the OSFI. Should there be too big instability of capital reserves, the insurers may be subdued to change the reserves more often which avoid optimal capital management.
In extreme cases, substandard amount of capital may prompt OSFI to deem an insurance company bankrupt. Now, it is far from possible to find the exact result of IFRS on c/e instability, as the new rules are currently under development by the IASB. Nevertheless, the insurance bodies are expecting that a two-layer regulations, which is used in the Anglo-Saxon countries will mitigate any such worries.
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