Global insurance rule held hostage to accounting splits

By Huw Jones

LONDON, Dec (Shanghai: 600875.SS - news) 17 (Reuters) - The first single global capital rule for cross-border insurers will have to value assets in two ways due to a failure to merge accounting standards and a desire to keep U.S. support.

Leaders of the Group of 20 economies (G20) pledged in 2009, at the height of the financial crisis, to forge common approaches to regulating markets, banks and insurers so that supervisors can compare firms to spot risks and act fast.

The aim of the capital rule, which takes effect from 2019, is to ensure companies hold enough capital to honour commitments to policyholders at all times and to shield taxpayers from having to bail out any insurer in trouble.

The International Association of Insurance Supervisors (IAIS), which groups supervisors from the G20 and other countries, published a consultation on how the new global capital rule could be written for firms including Generali , Aviva (Other OTC: AIVAF - news) and MetLife (NYSE: MET - news) .

IAIS executive committee chairman Felix Hufeld said there would be no single approach to valuing assets, the basic arithmetic that determines how much capital should be held against them.

"The IAIS is discussing two valuation methodologies in parallel," Hufeld told a media conference call on Wednesday.

Having two different valuation methods could make it harder to come up with consistent implementation to ensure proper comparability in capital requirements among insurers.

This reflects the lack of a single global accounting rule for insurers.

The International Accounting Standards Board (IASB) - which writes book-keeping rules for over 100 countries, including the EU - and the U.S. Financial Accounting Standards Board (FASB) look set to adopt differing accounting reforms for insurers.

U.S. insurance regulators are also lukewarm towards a global capital rule and forcing American insurers to comply with a rule not compatible with U.S. accounting standards is a non-starter for the world's biggest insurance market.

The U.S. National Association of Insurance Commissioners, which represents state-level insurance regulators, has said that as long as accounting differences remain, the development of a global capital rule must take them into account.

The IAIS hopes that over time there will be alignment in valuation methods for insurers as accounting rules converge.

The G20 has been putting pressure on the IASB and FASB for years to converge their book-keeping rules, but the United States has refused to give up sovereignty over accounting standards in favour of the London-based IASB.

The IAIS also published a report looking at risks in the insurance market, saying it remains well capitalised and profitable, with no build-up of systemic risk seen. (Editing by Pravin Char)