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Moody's: Accounting Disparities Make Insurer Comparisons Difficult

Differences between U.S. and Canadian insurers' financial reports are mainly d

A major credit rating agency recently announced that the reason Canadian life insurers' financial statements showed higher volatility than those from U.S.-based companies was primarily the difference in corporate accounting

A major credit rating agency recently announced that the reason Canadian life insurers' financial statements showed higher volatility than those from U.S.-based companies was primarily the difference in corporate accounting standards.

Because insurers in Canada file reports according to the International Financial Reporting Standards, they have to adjust the value of their insurance liabilities every period, taking into account mortality, lapse rate change and other underlying assumptions, according to Wallace Enman, Moody's vice president and senior credit officer. U.S. insurers only have to recalculate their reserves if a premium deficiency pops up, he added.

"As market fluctuations apply to insurers on both sides of the 49th parallel, the underlying economics of the U.S. and Canadian insurers would be affected equally," said Enman. He predicted that without a change in economic conditions, the differing results would eventually coverage, and U.S. insurers' bottom lines would either start reflecting Canadian firms' losses, "or the Canadian insurers will reverse recent charges if they do, for example, if interest rates rise."

Last month, Moody's had issued a separate report that predicted that insurers' creditworthiness would not be affected by new GAAP accounting rules that will go live in the first quarter of next year - an attempt by the Financial Accounting Standards Board to close the gap between the U.S. and international standards, according to NU Online News Service. 

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