Insurance industry representatives are offering their initialtake on how the Financial Accounting Standards Board should goabout creating new accounting rules for insurance contracts.

The Norwalk, Conn.-based FASB recently asked for comment, dueNov. 16, which would help it decide whether to work on an insurancepolicy accounting project either on its own or with theInternational Accounting Standards Board, London.

Topics that FASB noted in its invitation include accounting forthe time value of money and the “unbundling” of insurancecomponents from financing components in insurance contracts.

Additionally, FASB hopes for comment on use of cash flowaccounting for both short-duration and long-duration contracts,rather than the unearned premium method for short-durationcontracts and the lock-in method for long-duration contracts.

The GNAIE supports the creation of an international standard forinsurance contracts accounting and is “participating in the jointeffort of the FASB and the IASB to converge standards, and this isan important part of that work,” according to Jerry de St. Paer,executive chairman for the Group of North American InsuranceEnterprises and senior vice president-finance with insurer AmericanInternational Group, both in New York.

One point that Mr. de St. Paer recently made during apresentation to the International Association of InsuranceSupervisors of Basel, Switzerland, is that assigning value to aninsurance liability assuming it is the amount that an insurer wouldexpect to pay to a third party to transfer rights and obligationsignores the absence of efficient markets for most insuranceliabilities.

Other points he made during the presentation include:

o A question on how policyholder dividends are accounted for inways he said produce the “wrong value of future cash flows.”

o The unbundling of insurance policy liabilities.

GNAIE is representing the American Council of Life Insurers,Washington, on this issue, according to spokesman Whit Cornman.

Bill Boyd, financial regulation manager with the NationalAssociation of Mutual Insurance Companies in Indianapolis, notedthat although mutual insurance companies file financial statementsbased on statutory accounting, the FASB often sets the pattern formatters of statutory accounting.

“It might be early for this review to take place,” according toMr. Boyd, since “not all the mechanisms and considerations are inplace.”

There are those in the international markets that would like tosee this completed, but “they don't speak for all Americanbusiness.”

Among the concerns he cites are the costs associated with theconversion to the new system and the lack of access of smallerbusiness to world capital markets.

“It is not quite ripe for all American business to be subject toan international accounting standards setter,” Mr. Boyd said.

The FASB is weighing whether to participate with IASB on aninsurance contracts project.

The FASB request is different from an IASB request for comment,according to Jim Olsen, director of insurance accounting andinvestments with the Property Casualty Insurers Association ofAmerica based in Des Plaines, Ill.

Both are soliciting comments due on Nov. 16, but the IASB isasking for specific comments while the FASB call for comment isfocused on whether it should work with the IASB on the insurancecontract paper, he added.

Among the specific issues that are under consideration with theIASB document is whether insurance liabilities should befair-valued, he adds.

The questions the FASB raises for comment leave a “back door”for comment on the IASB project and ask what is a suitable startingpoint, according to Steve Braodie, vice president-financiallegislation and regulation with PCI.

Mr. Olsen said “it might be a reasonable place to start, but isit a reasonable place to end?”