New Rules Could Lead to Erratic Earnings for Insurance Accounting
(EMAILWIRE.COM, July 03, 2013 ) Dublin, Ireland -- The FASB is trying to increase volatility for reported profits in a lot of insurance companies as well as lower the revenue for rapidly growing insurance companies that may feel like they are not subject from insurance accounting rules.
The new rules would hold the companies responsible for contracts that are seen as insurance policies or that look similar to insurance to policies, which is defined as accepting significant risk from another party - such as a driver or a homeowner - by which the policyholder agrees to pay certain compensation in the event of an unforeseen accident or liability in the future.
Now, the new rules will include warranties and mortgage guarantees that banks hand out for certain products, but not all that seem like insurance will be covered. Accounting rules for creditdefault swaps will not change.
According Leslie F. Seidman, the FASB chairman, the new standard will hopefully bring greater consistency and relevance to the accounting side of contracts and policies. Another important change will be for life insurance companies and when they recognize revenue. Instead of recognizing premiums when they are received, they will do so overtime, as the insurance is being provided to policyholders.
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