Life insurers face new capital rules
Life insurers are facing the possibility of new, stricter rules governing financial reporting. The rules deal with market consistent embedded value and are more rigorous than those currently used. There is concern from insurers that they could substantially cut the value of some companies.
The rules are being scrutinized by the CFO Forum, a group of Chief Financial Officers representing the major European insurers. The Group had agreed upon Market Consistent Embedded Value (MCEV) Principles earlier which were intended to deliver a market consistent approach to financial risk and a greater focus on disclosing cash emerging from covered business. At the time Aviva’s CFO said “Embedded value remains key to measuring the performance of longterm business and I believe that the new guidance will help improve consistency and comparability of embedded value disclosures across the industry“.
Recent financial turmoil has required Forum members to conduct a review of MCEV Principles. It was felt that since the Principles were designed when markets were stable, their use during current, turbulent market conditions could give misleading results. One of the key features of the new rules prevents insurers including higher returns expected from riskier assets in profit forecasts. Implementation of the rules during turbulent markets could cut the value of some life insurers by up to 3o percent in addition to effecting their solvency capital.
It’s reported that Legal and General are hoping to delay implementation of the new rules.
Aviva has a webpage answering questions on MCEV.
