Even to those tasked with understanding it, the insurance industry can seem opaque. After in-depth interviews with 43 financial analysts who cover the insurance sector, New York-based PricewaterhouseCoopers finds a widespread dissatisfaction with the current insurance financial reporting framework.
The report, "Making Sense of the Numbers," details what analysts say they believe is inadequate disclosure of relevant information on balance sheets, income and cash flow statements, as well as management's discussion and analysis. Indeed, a consensus emerged for a new, insurance-specific reporting structure that reflects the economic realities and unique underlying business models of insurance companies.
"The true financial condition of insurance carriers seems to be uncertain to analysts, shareholders and the entire investment community," says Donald Doran, partner, PricewaterhouseCoopers insurance practice. "We believe insurers need a new and improved approach to financial reporting applied consistently around the world that meets the challenges facing such a diverse and complex industry, as well as the needs of their stakeholders."
The International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) are working jointly to develop a single, new standard of reporting that will address recognition, measurement, presentation and disclosure requirements for insurance contracts, and provide investors with more useful information to make informed decisions, the report notes.
According to PricewaterhouseCoopers, marking-to-market might increase earnings volatility, but many participants said they would like both the book value and the fair market value to be clearly disclosed in either the primary statements or notes.
"There appears to be room for improvement in reporting in the insurance industry," says Stephen O'Hearn, partner, PricewaterhouseCoopers insurance practice. "We believe stakeholders want a better understanding of the drivers of the insurance business and a much clearer view of where their profitability is coming from. To the extent that there is ongoing debate about the future direction of reporting standards, it is essential that industry and standard-setters work together to achieve a workable solution."
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