NU Online News Service, Dec. 29, 1:31 p.m.EDT

Proposed changes in U.S. accounting standards aimed at bringingthem in line with those used by European firms would "radicallytransform" the accounting methodology used by property and casualtyand life insurers, according to an investment banking firm.

An investor's note from Sandler O'Neill & Partners, aspecialist in financial firms, said the proposed new standard wouldalso increase earnings volatility and "alter the relevance ofhistorical valuation measures, such as book value andreturn-on-equity."

Sandler O'Neill officials said in the note that the "goal ofthese new standards is to increase transparency, while the exactresult of these standards would be to significantly decreasetransparency, in our view."

The firm went on to say that, "We quite prefer the current GAAPaccounting standards and/or one that correctly allows an investorto analyze a company's underwriting and investment performanceindividually."

Sandler O'Neill's views on the issue were contained in a commentletter written by Joe Longino, a principal at Sandler O'Neill &Partners, sent to Financial Accounting Standards Board on Dec. 15on behalf of the firm in response to FASB's paper, "PreliminaryViews on Insurance Contracts," on Sept. 17.

Sandler O'Neill said its observations were a result of a jointcontract with the International Accounting Standards Board torevise accounting standards for insurance contracts. IASB publishedan exposure draft titled "Insurance Contracts," on July 30.

A major concern with the proposed changes is that it might notprovide users of financial statements with "a consolidated view ofa company like what GAAP standards convey currently," according toMr. Longino.

Specifically, such items such as premiums and losses might nolonger be on the income statement for the longer-tail writers onboth the life and p&c side.

He wrote that his view is that the new method will provide abifurcation between the risk and residual margins.

Each segment of the business would have an independent incomestatement and each of these could look different, he said.

Sandler O'Neill officials said their main concerns with theproposed changes are with the increased volatility that investorswill have to absorb and might not be indicative of the underlyingbusiness "as well as the potential lack of apples-to-applescomparisons between companies."

The firm added that, "While we do not like the proposed changes,we view the merging of standards used by IASB and FASB asinevitable."

They added that it is "just a matter of what form it takes andhow detrimental it is to the insurers."

The investment note also stated that, "We offer the caveat thatwe are relatively new to these proposed changes and are stilltrying to educate ourselves on the potential brave new world forinsurance accounting standards.

"Our message to investors is that more study is needed by theFASB, insurance companies, investors, and by us," the firmadded.