The International Accounting Standards Board is undertaking a project to develop an Accounting Standard for Insurance. The basis for these proposals is that assets and liabilities should be shown at fair values (market values for quoted instruments). This is an updated version of a paper, prepared by a Working Party established by the General Insurance Research Organisation (GIRO) of the General Insurance Board of the actuarial profession of the United Kingdom, which was first presented to the GIRO Conference in October 2002. This paper summarises and comments upon the principal features of the proposals as they have emerged up to February 2003. The paper considers the implications for general insurance companies of these proposals. In particular, it examines the concept of market value margins, and the practical issues that insurance companies are likely to encounter in implementing them. The emphasis of the paper is on reporting for general insurance business, although many of the principles apply equally to life assurance.

There is currently no international standard for profit reporting in life insurance companies. The paper sets out the issues which an international standard for life companies will need to address, bearing in mind compatibility with existing International Accounting Standards, in particular IAS 32 Financial Instruments: disclosure and presentation, IAS Exposure Draft E62 (now IAS 39); Financial instruments; recognition and measurement and the discussion paper of March 1997 prepared by the Steering Committee on Financial Instruments entitled ‘Accounting for Financial Assets and Financial Liabilities’. The paper discusses possible approaches to the issues which arise and comments on each, ending with some final conclusions.

The International Accounting Standards Board (IASB) is introducing new International Financial Reporting Standards (IFRS) which aim to make financial statements more useful. The process has generated considerable debate. This paper is a contribution to the debate, in the particular context of insurance accounting, and attempts to provide a coherent framework for accounting theory which makes a clear distinction between retrospective statements required for administrative accountability, fair value for current market transactions and to measure value creation, and a prospective prudence required to protect policyholders, depositors and other creditors. It is argued that the IASB's founding purpose to provide a single set of accounts is therefore incoherent; different purposes require different numbers. This also implies that fair value accounts should attempt to value intangible assets. In this context, actuarial analyses of surplus would greatly assist in measuring whether model assumptions are appropriate.