Federal financial regulators say that proposed changes to international accounting standards for insurance contracts could have unintended consequences, and that standards setters should allow more time for implementation.
In an October letter sent to the International Accounting Standards Board (IASB), the Office of the Superintendent of Financial Institutions (OSFI) defends the current accounting methodology used in Canada. “We feel the Canadian experience is valuable to the IASB’s work to complete a standard on insurance contracts,” it says.
And, it voices some concerns about the proposed new standard. For one, it notes that under the IASB’s current proposals, it “would likely need to make significant adjustments to the financial statements for regulatory capital purposes.”
“Moreover, the adjustments in question may have the effect of relaxing rather than constraining the assumptions that lie behind the requirements of the standard,” it says.
OSFI indicates that “some adjustments and clarifications are required to the proposals in order for Canada to continue to be able to use one set of financial statements for regulatory purposes.”
“We are concerned with how the top-down approach could be interpreted and applied to long-duration insurance contracts, how an insurers’ asset-liability management is presented under these proposals, and the possibility that Canada may be one of the few countries with a well-developed insurance industry that would adopt the revised IFRS on the effective date prescribed by the IASB,” it says.
Indeed, it notes that European regulators delayed the implementation of another recent accounting change, whereas Canadian regulators adopted it immediately. “The Canadian insurance industry is concerned a similar outcome may result if the EU takes a similar decision for [these proposals],” it notes.
“Canadian insurers compare themselves against U.S., European, and Japanese peers. Given Canadian insurers will be impacted by any new standard, we ask the IASB to allow additional time for implementation… by all jurisdictions and that all major economies with well-developed insurance industries implement at the same time,” it says.
OSFI also notes that a longer transition period will also allow preparers, auditors and actuaries to discuss interpretation issues in order to ensure that the revised standard is implemented as intended; and to allow auditors and standard setters to develop guidance to ensure that it is consistently applied.
It also calls on the IASB to try and keep the standard as simple as possible “to provide the appropriate amount of flexibility while facilitating its use by insurers and their stakeholders.”