Less than 20% of chief financial officers consider themselves very knowledgeable about the new GAAP statutory principle-based framework, while 24% say that key personnel within their company know very little about the plans, according to a recent survey.
The report by Towers Watson also shows that although life insurance CFOs know their companies will be subject to GAAP regulations, some have concerns about the new rules — both in terms of the impact on the competitive landscape and their readiness.
Generally Accepted Accounting Rules are a set of accounting rules used to standardize the reporting of financial statements.
The report also finds that only 60% of respondents have started preparing for VM-20, the principle-based requirement for life reserves, and most of these have just begun testing the impact based on existing interpretations. The other 40% of responding companies have not started planning or analyzing. Only 53% expect to be ready to produce results under VM-20 by 2013.
“While somewhat alarming, these results may reflect the fact that effective dates for many of the principle-based requirements are either still unknown or at least three years away,” says Craig Buck, Americas Life practice leader at Towers Watson. “It is critical for companies to evaluate the impact of the new reserving and capital requirements well in advance of the effective date to better understand the potential implications, including changes to their product-specific and overall reserve and capital position.”
CFOs are also concerned about the impact that the looming rule changes will have on the competitive landscape of life insurance. New regulations will make results more difficult to compare across organizations and favor large companies at the expense of small ones, 71% believe, while 52% indicate that they expect the regulations to result in the proliferation of alternative capital structures, with many anticipating higher capital requirements.
Even so, CFOs remain fairly positive about first quarter growth in GAAP net revenue and GAAP net income. While 60% expect increases of at least 4% in new life and annuity premiums, 31% predict a decrease. However, respondents are much more optimistic about growth in new life premiums than in new annuity premiums.
Nearly 40% of the program's 64 registered members participated in the survey.
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