IASB's Jones: Insurance accounting is broken

NEW YORK (Reuters) - Current accounting rules for insurance companies are so different from those in other industries that they may not show investors the true economic realities the firms are facing, a top international accounting rulemaker said on Tuesday.

“Insurance accounting around the world is broken,” said Tom Jones, vice chairman of the International Accounting Standards Board, at a Pace University accounting conference in New York.

To support his point, Jones said he believed the price-to-earnings ratios of insurance companies, a financial measure often used by investors to value a firm, would be much higher if insurance company bookkeeping was clearer.

However, he added that accounting rulemakers faced a challenge in revising insurance accounting standards.

Using fair-value, or mark-to-market, accounting could be troublesome for insurance company assets, contracts and liabilities that lack a ready market, Jones said. The IASB has preferred a measure known as “current exit value” for insurance contracts, but how close that would be to fair-value accounting is still a matter of debate.

The London-based board, which sets International Financial Reporting Standards, aims to make its rules more principle-based, so Jones said industry-specific standards often posed a dilemma for the rulemakers.

“We obviously have to take into account genuine differences, but we do have to make sure there is common ground,” Jones said.

Last year, the IASB released a preliminary discussion paper on accounting for insurance contracts, saying at the time that it would help address complaints that insurance accounting is a “black box” and varies too widely among different countries. It does not expect to implement a new standard on insurance accounting before 2010.

The Financial Accounting Standards Board, which sets U.S. accounting rules, is considering whether to add an insurance accounting project to its agenda.

Reporting by Emily Chasan; Editing by Lisa Von Ahn