Spotlight on CFO Survey #18: CFOs Preparing for New Financial Reporting Standards

Results are in from the latest survey of North American Life Insurance CFOs by the Tillinghast insurance consulting practice of Towers Perrin. This is number 18 in a series of pulse surveys and the third survey conducted in 2007.

Respondents report a new level of familiarity with principles-based regulation of reserves and capital. Fully 92% of respondents indicate that they "understand the basics of new principles-based regulation" in 2007, up dramatically from only 40% a year earlier.  

And while most CFOs don't expect full implementation of the new regulatory framework until 2010 or later, more than half report that they are actively preparing for it. This, too, is a marked change from a year earlier, when most companies were in a wait-and-see mode.

Skepticism and Challenges

Still, shifting to principles-based regulation won’t be easy, according to the survey. Cost is one obvious hurdle, and the benefits are not all that clear:

• Most CFOs (79%), for example, believe they will need to dedicate significant resources to improve modeling capabilities.
• Even more (87%) see a need to develop hedging programs.
• Almost 80% remain concerned that the new regulation will lead to a lack of comparability of results across companies.

Other Key Findings

These other survey findings will also have particular importance for CFOs in the coming year:

• Market-consistent financial reporting is gaining ground, spreading beyond the subsidiaries of multinationals. The most popular methodologies are embedded value (EV), value of new business (VNB) and economic capital (EC).
• Few CFOs (8%) are very knowledgeable about the IASB discussion paper, issued last May, giving the organization’s preliminary views on accounting for insurance contracts. We believe this is cause for concern, given the ongoing drive for convergence in global accounting standards.