Existing mark-to-market accounting rules were primarily responsible for volatile results at Canadian life insurers in 2011, rather than the conversion to International Financial Reporting Standards, says A.M. Best Co.
According to a new report from A.M. Best, interest rate movements and equity-market volatility dramatically impacted reported valuations of both assets and liabilities of Canadian life insurance companies. And, it says this volatility in the insurers’ earnings was due more to the mark-to-market accounting rules that were already in place, rather than the conversion to IFRS.
The Canadian life insurance industry has now completed the first phase of the convergence to IFRS, it notes. And, while there were numerous adjustments to balance sheets as a result of adoption of IFRS, A.M. Best notes that the direct impact on the financial results for the year was, for the most part, “relatively modest”.
“This is because when converting to IFRS, any changes in the carrying value of the invested assets that support insurance liabilities are offset by a corresponding change in the insurance liabilities,” it says.