Accounting and Solvency Convergence – Dream or Reality?

For some time now the International Association of Insurance Supervisors has been working towards the harmonization of solvency assessment regimes worldwide. Having developed a common structure for solvency assessment, it is now working on more detailed requirements which will take the form of international supervisory standards. At the same time as this work has been progressing, work has been ongoing at the International Accounting Standards Board on Phase II of its Insurance Contracts Project. This project will result in an international financial reporting standard for insurance contracts. This article discusses the desirability of having a single methodology that can be used for financial reporting for both solvency assessment and general-purpose financial reporting purposes. It goes on to argue that, while absolute convergence is neither likely nor necessarily desirable, current indications are that the dream that a single model can form the basis for both reporting regimes might still be realized. This in turn would promote greater transparency and therefore enhance credibility in financial reporting by insurers. The Geneva Papers (2007) 32, 332–344. doi:10.1057/palgrave.gpp.2510135