The Property Casualty Insurers Association of America's boardhas approved a set of principles to guide development ofinternational accounting standards.

Jim Olsen, director of insurance accounting, said PCI opposedthe “mark-to-model” basis that he believes the InternationalAccounting Standards Board will support.

“Key to our approach is that property and casualty insuranceaccounting must reflect the way the insurance business is actuallyconducted,” Mr. Olsen said.

Under a “mark-to-model” approach, a company's liabilities arevalued under a complicated formula involving variable factors suchas inflation and risk of repayment.

Under the current valuation system, companies value theirliabilities according to 100 percent of their present value, whichMr. Olsen said makes for greater consistency and comparability ofliabilities.

Among the principles adopted:

o Different accounting standards are appropriate forproperty-casualty and for life insurers because of the fundamentaldifferences between their insurance contracts.

o The total liabilities for a property-casualty insurancecontract consist of pre-claim (unearned premium) and post-claim(loss and loss adjustment expenses) liabilities, each of which mustbe adequate to pay the expected obligations.

o Measurements related to property-casualty insurance contractsshould be made on a portfolio basis to reflect the risk-sharingconcept of insurance using accepted actuarial methodologies and thelaw of large numbers.

The Financial Accounting Standards Board and the InternationalAccounting Standards Board have been working toward convergence ofinternational accounting standards and U.S. Generally AcceptedAccounting Principles for the past several years. The IASB isexpected to release a “discussion paper” shortly, which summarizesthe decisions it has reached in its project to develop a uniforminternational insurance contracts accounting standard.