04 December 2009
Published in: Accounting - tax
More guidance needed for better EV reporting
More guidance is needed on market‐consistent embedded value (MCEV) to produce better consistency in embedded-value reporting, Fitch Ratings has said in a special report.
Fitch said it recognizes the value of EV reporting. The agency makes use of EV to analyze insurers' long‐term profitability, to identify risks and as a component of its assessment of capital adequacy. And Fitch considers MCEV to be the most theoretically correct form of EV.
However, the CFO Forum has postponed mandatory adoption of MCEV reporting by two years, from end‐2009 to end‐2011, while it reviews the MCEV treatment of illiquidity premiums and various other issues, including the use of market‐implied investment volatilities. Fitch says it's good news that MCEV will apparently allow insurers to take some credit for illiquidity premiums on assets expected to be held to maturity to back illiquid liabilities.
But in the meantime, Fitch expects inconsistency to continue, with insurers using a variety of approaches and most major insurers continuing with some of European embedded value.