During the summer, Canadian life insurance companies were lobbying the federal government to move the principles in their favour. In summary, insurance companies demanded an amendment of IFRS which our government is prepared to implement but wants to effect not before 2013.
The industry believes that the new rules will introduce big volatility to the c/e ratio in annual (quarterly) comparisons. The problem is, not only would this make period-to-period comparisons more challenging, but it would also stop comparisons to statements prepared under the previous rules.
The people at LSM Insurance think the latter is weedy defense though, as the the industry would most possibly be called for to make new calculations for previous few periods' results applying the new order precisely for the purposes of rational comparability, as is the case with most alternations of the standards. Nonetheless, a shift of rules will surely bring bigger amount of administrative expenses in the time of the change at the bottom end.
As to the volatility of capital ratios, the FP says that the the companies are pledging for a 2-tier accounting rules that permits capital to be counted based on a various pack of standards than the IFRS. This makes sense since the levels of capital backups are monitored and regulated by the Canadian regulatory body - OSFI. Should there be too big volatility of capital reserves, the insurance companies may be asked to re-check them more often which put off ideal capital management.
In serious situations, malnourished capital may push OSFI to consider an insurer bankrupt. Today, it is far from possible to find the exact effects of IFRS on c/e volatility, as the new rules are currently being developed by the International Accounting Standards Board (IASB). Nevertheless, the insurers are believing that 2-tier rules, which is in place in the Anglo-Saxon countries will erase any such worries.
An additional tool for overcoming future crises the insurance industry might use is embedded contingent capital mentioned in a previous article.
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