NU Online News Service, Sept. 11, 2:08 p.m.EDT

An International Accounting Standards Board proposal on howinsurers should value their risks has drawn fire from anorganization of major life and property & casualty insuranceand reinsurance companies.

The critical comments by the Group of North American InsuranceEnterprises (GNAIE) were sent to IASB in advance of the group'sSept. 18 meeting, which is slated to consider the measurement basisfor insurance contracts.

According to GNAIE, in developing an international accountingstandard for insurance contracts, "IASB staff diverged from themore appropriate Contract Fulfillment Value approach supported bythe coalition of insurers and the U.S. Financial AccountingStandards Board (FASB)."

Doug Barnert, the spokesman for GNAIE said under the conceptfavored by his organization "you put on books what you think yourliability is going to be" based on the number of policies aninsurer holds and actuarial estimates.

The IASB staff, he said, is favoring developing accounting basedon immediate settlement or transfer of insurance obligations, whichGNAIE says almost never occurs and is a largely theoreticalconcept.

IASB's staff concept assumes, he said, that an insurer can sellits contracts to somebody else. But, in the United States, he notedthere is not a free and open market to develop fair value andinsurers are closely regulated by their insurance commissioner ofdomicile.

GNAIE favors a standard where an insurer will assess what theythink they are going to pay policyholders. "Not what you thinksomeone would pay to stand in your shoes and buy your claims fromyou."

Mr. Barnert said the IASB has been divided on the issue in thepast, and three years ago when the issue came up it was 7 to 6 withone abstention, and GNAIE was "very surprised when IASB cameforward with "this theoretical hypothetical model."

GNAIE Executive Chairman Jerry de St. Paer, in the letter sentWednesday to IASB Chairman David Tweedie, said, "The IASB couldtake a significant step toward convergence of internationalaccounting standards if it is able to reach the same conclusionthat the FASB reaches for the measurement approach for insurancecontracts."

GNAIE pointed out that FASB's approach is based on settlementwith the policyholder pursuant to the terms of the insurancecontract, including the service element of the contract and,therefore, is fundamentally different than a measurement approachthat is based on immediate settlement or transfer of insuranceobligations.

"GNAIE believes there are fundamental problems with attemptingto measure insurance contracts using the pending IAS 37 approach,and those problems cannot be addressed as well in such ameasurement approach as they could be in the CFV approach," saidMr. de St. Paer.

He further noted that the FASB has tentatively agreed on the CFVapproach. The letter pointed out that IASB staff has acknowledgedthat the FASB is unlikely to change this position, at least in thenear term, and that it may be necessary to include both measurementapproaches in the exposure draft on an insurance contracts standardif the IASB agrees with its staff recommendation.

In light of its concerns, "GNAIE respectfully asks the IASB toconsider the issues that remain to be resolved in the IAS 37project and the problems with attempting to apply such an approachto insurance contracts," said Mr. De. St. Paer.

"GNAIE is optimistic that such consideration will lead toconclusions similar to those reached by the FASB and will be asignificant step toward convergence of international accountingstandards."