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IFRS not to blame for Canadian life insurance volatility

In Canada, IFRS implementation coincided with volatile earnings in the life in

As Canadian life insurance companies converted to International Financial Reports Standards in 2011, many reported a period of volatile earnings. But a new report from insurance rating firm A.M. Best Company indicates there were other factors at play that contributed more to the trend than IFRS-C conversion.

Because of the complicated nature of life insurance accounting practices, which involve actuarial tables, taxes and regulations, the Canadian Accounting Standards Board has been phasing in IFRS regulations for the industry. Phase I of this plan has been completed, according to A.M. Best. Despite the changes corresponding with a period of sharp declines in income and regulatory capital, however, the new regulations were not to blame.

"The Canadian Accounting Standards Board requires IFRS-C reporting for interim and annual financial statements relating to annual periods beginning on or after January 1, 2011," according to A.M. Best. "However, for now, Canadian Generally Accepted Accounting Principles continues to be acceptable for investment companies or segregated accounts of life insurance companies in Canada."

It was the existing market-to-market insurance accounting standards that drove earnings volatility during 2011, rather than IFRS implementation, according to A.M. Best. The report is a clear example for CFOs and financial executives around the world who are reticent about implementing new IFRS regulations. Though there may be a period of volatility associated with the transition, it may not be the fault of IFRS.