UK insurance companies will have a significant advantage over their European rivals when it comes to implementing new EU-wide reporting standards, according to a report published by analyst Fitch this week.
The principal advantages of the forthcoming International Financial Reporting Standards, which aim to provide an EU-wide set of standards for insurance companies, include transparency, consistency and improved management, according to Fitch.
But it predicts that the UK will face no serious struggles in implementing the standards, both because of reforms instituted as a result of previous EU directives and due to regulatory reform by the FSA.
The changes will be introduced in two phases, with the first taking effect in 2005, largely laying the ground for more substantial changes under phase two in 2007 or 2008.
Eventually, insurers will be forced to more completely measure assets against future liabilities on their balance sheets, something the UK life sector is already being compelled to do through the FSA's reforms to the industry.
The ABI agrees with the assessment by Fitch. It says while the immediate effect on the UK remains unclear, the sector should implement the standards without too much difficulty.
Fitch analyst and author of the report Andrew Murray says the ratings agency does not anticipate any changes to insurance companies' ratings although it will maintain a watching brief as the new standards have an impact on balance sheets.
ABI manager of financial reporting Deryck Wright says: “We in the UK think the fair-value methodology is superior and the most appropriate. We want to get on with phase two and on the grounds of practicality require the endorsement of phase one as soon as possible.”
Murray says: “In terms of ratings, we envisage no changes as a result of the IFRS. We will find out more as the companies try to educate the market in the next 12-24 months.”