Global IASB Lags, London Confab Hears

A single standard is still several years away, he explained, since Phase II of the IASB's plan for International Financial Reporting Standards (IFRS) for insurers stalled in early 2003 and would effectively have to start afresh in the next few months.

Mr. Upton told delegates he was aware of the pressing need for a global insurance accounting standard but listed some of the obstacles in the way of achieving that goal.

Obstacles he mentioned included agreeing on a definition of fair value accounting. A possible timeframe, he said, was for a standard to be developed within three years and implemented in five, but he added: "That's a hope and a wish. That ain't a professional opinion."

Delegates at the seminar, on questions of greater uniformity in regulation and, in particular, accounting standards, were in broad agreement that these would be desirable.

Global consolidation within the industry means that more and more large insurance companies are being created and each has to comply with several different regulatory jurisdictions and reporting standards with all the additional costs they involve, it was noted.

The European Union (EU) has already made progress toward streamlining regulation within its 25 member states, panel member David Strachan, director of Insurance Firms Division at the Financial Services Authority, the UK regulator, told the seminar. Both regulators and insurers will benefit from a single system of EU regulation in terms of costs and efficiency, he added.

The head of the U.S. branch of a Dutch life insurer told the meeting that a U.S. federal system of insurance regulation is needed and pressure is building in support of such an initiative.

Don Shepard, chief executive officer of AEGON N.V. USA, part of the Hague based group, noted that currently the U.S. has the most complicated and cumbersome system in the world because of different approaches in all 50 states.

"We have a lot of first-class regulators in our system in the U.S., but there are just too many of them," he said, noting that the current set-up adds to costs and creates much duplication. "I think we would be better off with one well-staffed and powerful regulator," said Mr. Shepard.

Most of the 500 delegates agreed with those sentiments, although some pointed out that the quality of regulation varies greatly from one state to another.

IIS delegates were in broad agreement that much could be done to simplify regulation?and the sooner the better.

Many also welcomed corporate governance initiatives such as the Sarbanes-Oxley Act in the United States and the Cadbury, Greenbury and Higgs reports in the UK. These, it was hoped, would raise standards, thereby reducing the pressure for regulators to step in and act, or in the opinion of many overreact, when the industry gets things wrong.

Ted Collins, Managing Director of Moody's Corp. USA, speaking at the session, defended rating agencies against charges of exerting too much power over insurers but conceded that some national regulators do rely more heavily than others on agencies' opinions.

To keep outside interference to a minimum, Mr. Collins advised insurers to pay more attention to risk management, as the banks have already done. "Insurers need to incorporate the risk management process into day-to-day operations. When that happens, it will be obvious who is running the industry," he said.

His comments came during a panel session titled "Who's running this industry anyway?"