The standard, draft FRS 103, brings together UK generally accepted accounting practice and accounting standard FRS 27, that deals with the fallout from Equitable Life and the Association of British Insurers’ statement of recommended practice.
It also sets a clear distinction between UK accounting standards and the changes being developed by the International Accounting Standards Board, which focuses on the treatment of assets and liabilities in an insurance company’s accounts.
This process, which has been under development for 20 years, is aimed at the volatility of assets, what effect this has on the sustainability of firms, and whether liabilities move around in the same way.
Melanie McLaren, executive director of codes and standards for the FRC, said: “We’re giving some stability. It’s not affecting the bottom line so it will give [companies] planning certainty.”
She added that it made it clear on the state of play for the context of changes to standards on an international level. The standard is in draft form and open to consultation.
Insurance companies have to treat their accounts differently to other businesses because the assets arrive regularly in the form of premiums, but the liabilities are paid out in an unpredictable manner, sometimes many years after the premiums are paid.
Adviser view
Roy McLoughlin, partner of London-based Master Adviser, said: “Stability is vital because we’re asked by customers about insurance companies’ strength. We’re doing due diligence ourselves because if you recommend an insurance company that goes out of business, it’s going to be bad for you.”
