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MCEV principles delayed until 2011

UK life assurers will not have to adopt the new market consistent embedded value accounting standard until 2011.

Insurers were required to adopt the new rules for the year-end 2009 results. Aviva, Old Mutual and Scottish Widows have already implemented them.

But the CFO Forum, the group of European finance directors that developed the rules, has decided implementation should be delayed.

Money Marketing reported in April that the CFO Forum was reviewing the MCEV principles in light of turmoil in stock markets.

The CFO Forum said: “The MCEV principles were designed during a period of relatively stable market conditions and their application could, in turbulent markets, lead to misleading results.

“We have therefore agreed to conduct a review of the impact of turbulent market conditions on the MCEV principles, the result of which may lead to changes to the published MCEV principles or the issuance of guidance.”

The main areas the Forum reviewed were implied volatilities, the cost of non-hedgeable risks, the use of swap rates as a proxy for risk-free rates and the effect of liquidity premia.

The CFO Forum has not updated its website detailing the plans to delay the adoption. A statement is expected later today.

Fitch senior director David Prowse says the decision results in two years of confusion for investors and analysts.

He says: “The CFO Forum clearly had to act. However, this delay means investors and analysts now face two years of confusion. One of the CFO Forum’s stated aims for MCEV at the 2008 launch was to eliminate the diversity of approaches to embedded value reporting. It has evidently failed. What we have is ongoing inconsistency. What we need is tighter guidance around the MCEV Principles and fast.”



A split verdict

Industry experts say split-caps could return to the fore as high earners look to shield themselves from the high income tax sting unleashed in the Budget.

Personal effects

The debate around the appropriateness of qualifications and the need for ongoing development has never been so actively debated. From the Chartered Insurance Institute’s calls to end the “alphabet soup” of qualifications to the latest proposals put forward by the FSA in its feedback statement on retail distribution review.


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