A.M. Best Special Report: Financial Crisis Tests European Union`s Reporting Standards

OLDWICK, N.J.--(Business Wire)--
Since the adoption in 2005 of International Financial Reporting Standards (IFRS)
Phase I for publicly listed insurance companies in the European Union, A.M. Best
Co. believes very little has been achieved in terms of increased cross border
comparability and market consistent measurements. In general, adoption of Phase
I not only has given rise to inconsistencies and accounting mismatches, but also
has fostered a false impression about the homogeneity of the reported numbers
across the industry.

* Of concern is that under IFRS the quality and level of detail of the
information provided varies significantly from company to company.
* From A.M. Best`s ratings point of view, this situation has increased the need
for closer interaction with rated companies and for more detailed data.
* No rating action, however, can be attributed directly to the adoption of the
new accounting standards.
* Confusion has been exacerbated by the ability of multinational groups to
consolidate figures calculated under different bases. Most significant are the
inconsistencies in the treatment of insurance liabilities and intangibles such
as deferred acquisition costs (DAC) and the valuation of financial assets. The
latter has been particularly troublesome during the current market dislocation
when proxies to market values have had to be found.

* "Unbundling" of insurance and investment products is less prevalent among
Continental European insurers than it is with insurers in the United Kingdom.
* Ambiguity on product classification not only distorts top-line figures, but it
also has a significant impact on the way financial assets backing particular
types of contracts are classified and valued. Classification of products also
affects the methodology used for valuing liabilities and the treatment of
associated intangible assets (DAC and the value of business acquired).
* On the Continent, where liability valuation rules tend to be prescribed by
local regulators and less closely linked to market economic indicators, the
argument that IFRS has introduced an accounting mismatch between assets and
liabilities appears justifiable.
* A.M. Best believes that in principle, there should not be significant room for
discretion in the valuation of assets backing pure protection or unit-linked
products. In both cases, a fair value through profit-and-loss category ought to
be considered appropriate.

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Founded in 1899, A.M. Best Company is a global full-service credit rating
organization dedicated to serving the financial and health care service
industries, including insurance companies, banks, hospitals and health care
system providers. For more information, visit www.ambest.com.

Analyst
Carlos Wong-Fupuy, +(44) 20 7397 0287
carlos.wong-fupuy@ambest.com
or
Public Relations
Jim Peavy, 908-439-2200, ext. 5644
james.peavy@ambest.com
Rachelle Morrow, 908-439-2200, ext. 5378
rachelle.morrow@ambest.com

Copyright Business Wire 2009