Insurance companies in the US are pretty strictly regulated as it is. I don't think they need to be ratched down further.

Of course it's primarily done by the states.

Regulatory capture, how does it work?

/Remember, zero taxes and zero regulation will mean infinite job growth, kids.

ZAZ: No YOU'RE a Towel

I think it's more like they are being told to value Greek bonds at fair market value instead of face value, and that makes their books show a loss of value despite no loss of cash.

How is this different than the impairment rules in the US?

HEY MAN THOSE CRIMINALS HAVE MORE FREEDOM THAN WE DO. WAAAAAAAAAH

No YOU'RE a Towel: So putting cash into a savings account is considered a loss?

I hate Accounting.

Just imagine how much money they are losing by not investing it in Greek junk bonds!

Pardon me if I don't exactly trust the American accounting system.

Reserves? For an insurance company???

Bah!! We haven't required serious reserves for banks or insurance companies for a decade, and look, we're doing fi......


nevermind

Wow, you guys are all way off.

But that's okay, insurance accounting is pretty arcane and obscure. I happen to know alot about this, so here's the basics of TFA:

Life insurance involves very long duration liabilities - think about a whole life policy where you pay a premium every year in order to get a death benefit in 40 or so years.

The present value of these liabilities vary as interest rates fluctuate - rates go down, the insurer's liability for some future death benefit goes up.

Canadian insurers are required to basically mark their liabilities to market each period -so when rates go down like they did in the 3rd quarter, the liabilties go up, and that increase in liabilities reduced earnings. US GAAP permits more 'smoothing' of such fair value changes into earnings.

Anyway, this is an incredibly boring topic for a fark thread - I can't think of a lamer topic than insurance accounting.. Surprised it was greenlit.

Jacobin: Bah!! We haven't required serious reserves for banks or insurance companies for a decade, and look, we're doing fi......

Stop right there. Insurers aren't subject to the same rules as banks; we can't show fairly liquid reserves and the state(s) takes us over without so much as a 'hello'.

Ken VeryBigLiar: Jacobin: Bah!! We haven't required serious reserves for banks or insurance companies for a decade, and look, we're doing fi......

Stop right there. Insurers aren't subject to the same rules as banks; we can't show fairly liquid reserves and the state(s) takes us over without so much as a 'hello'.

That must be why insurers like to incorporate in Florida. They have a very busy liquidator down there, but that's kind of like............AFTER they've gone broke and screwed policy holders.

That must be why insurers like to incorporate in Florida. They have a very busy liquidator down there, but that's kind of like............AFTER they've gone broke and screwed policy holders.

Insurance carriers have to file in every state they are licensed in.

Jacobin: That must be why insurers like to incorporate in Florida. They have a very busy liquidator down there, but that's kind of like............AFTER they've gone broke and screwed policy holders.

They definitely DO NOT like to incorporate in Florida. Those are the blighted, blood suckers of the industry. Most smart insurers have priced themselves out of the market intentionally.

ZAZ: Debeo Summa Credo

What's the significance of the earnings figure beyond a press release? Is it taxable as income when the value goes up $2 billion after the next interest rate fluctuation?

Oh, boy, tax accounting is another point of confusion. I don't know how Canadian taxes work but in the US taxable income for insurance companies differs significantly from GAAP income. Basically they structure the rules to prevent insurers from taking the full taxable loss for increases in reserves, because it would essentially entail an interest free loan to the insurer from the govt. The 'marks' on the reserves probably don't impact the tax liability in Canada.

Debeo Summa Credo: Canadian insurers are required to basically mark their liabilities to market each period -so when rates go down like they did in the 3rd quarter, the liabilties go up, and that increase in liabilities reduced earnings.

I'm guessing this is an IFRS rule that will adopted in the US at some point in the future.

minoridiot: Debeo Summa Credo: Canadian insurers are required to basically mark their liabilities to market each period -so when rates go down like they did in the 3rd quarter, the liabilties go up, and that increase in liabilities reduced earnings.

I'm guessing this is an IFRS rule that will adopted in the US at some point in the future.

Under current IFRS, there is no actual accounting standard for accounting for insurance products. Every country that uses IFRS just uses their legacy GAAP for valuing insurance liabilities. So this is a C-GAAP rule.

The US FASB and the IASB are working on a joint insurance project right now, and if it were adopted as proposed, it would be different, however more similar to the C-GAAP rules than current US GAAP rules.

This is why the best way to measure a business is by cash flow. In common practice, however, the Income Statement is done first (according to all the accounting tricks in the book not the least of which is the treatment of capex and depreciation), then the balance sheet, then cash flow as a balancing entry.

The problem is that cash flow fluctuates wildly from quarter to quarter depending on bonus payouts, capital projects etc, and investors need to actually understand the business.

If / when I ever become the cfo of a firm, I will make it a priority to switch from Income Statement to Cash Flow reporting. The Income Statement is too often a lie. The Cash Flow statement can't be.

The Illuminati .... inventors of accounting

ZAZ: The more gain (in the engineering sense) you put into a system, the more likely it is to go unstable. If Canada is turning down the knob, we should borrow some of their regulators.

The world is about to borrow the current head of the Bank of Canada:

Link
Link

Feel free to make whatever carny jokes to your heart's content--we sure do!

And Canada hasn't had to bail out a single bank while the rest of the world flops around like a flounder.

We're AWESOME!!!

H31N0US: This is why the best way to measure a business is by cash flow. In common practice, however, the Income Statement is done first (according to all the accounting tricks in the book not the least of which is the treatment of capex and depreciation), then the balance sheet, then cash flow as a balancing entry.

The problem is that cash flow fluctuates wildly from quarter to quarter depending on bonus payouts, capital projects etc, and investors need to actually understand the business.

If / when I ever become the cfo of a firm, I will make it a priority to switch from Income Statement to Cash Flow reporting. The Income Statement is too often a lie. The Cash Flow statement can't be.

So how do you evaluate an insurance company who might record liabilities for reserves that won't be monetized for a number of years? By your measure, an insurer that incurred huge long tail liability losses (like environmental, product liability, or asbestos) that aren't actually going to be identified and paid for a decade or more would look better than a property insurer who pays claims soon after the loss occurs. There are numerous other instances of where cash flows don't necessarily represent the true earnings of the company. Accrual accounting was created because cash flow reporting wasn't representative of underlying economics.

/plus, your cash flow basis wouldn't comply with GAAP. I hope the company you are CFO of isn't an SEC registrant.

FTFA: Manulife said that had it reported under U.S. accounting rules

BAHAHAHAHAHAHAHAHAHAHAHAHAHAHAAHAHA.............

**GASP**

BAHAHAHAHAHAHAAHAHAHAHAHAHAHAHAAHHAHAHA.

US Accounting Rules? The ones with dozens of rules for revenue because they can't agree on a principle by which it should be recognized? The ones that created Round-Tripping? The ones that had Enron pile debt into special interest offshore companies, record the sales as profit and neglect to consolidate the wholly owned entities back into the parent? The one with more bright line tests than should be considered sane? Those rules?

There is a reason that most of the rest of us have principled accounting rules like Canadian GAAP or IFRS and why we don't use the American rules. Our rules are determined via a collection of certified accountants that operate in the field. FASB rules are at the beck and call of Congress. That alone makes them untrustworthy.

For these companies, whine somewhere else. Those rules require you to be sane so try to leave them be, hmmm?

Azmodan Kijur: US Accounting Rules? The ones with dozens of rules for revenue because they can't agree on a principle by which it should be recognized? The ones that created Round-Tripping? The ones that had Enron pile debt into special interest offshore companies, record the sales as profit and neglect to consolidate the wholly owned entities back into the parent? The one with more bright line tests than should be considered sane? Those rules?

You're aware round-tripping and Mark-to-market accounting don't really have any application to insurers?

Azmodan Kijur: US Accounting Rules? The ones with dozens of rules for revenue because they can't agree on a principle by which it should be recognized? The ones that created Round-Tripping? The ones that had Enron pile debt into special interest offshore companies, record the sales as profit and neglect to consolidate the wholly owned entities back into the parent? The one with more bright line tests than should be considered sane? Those rules?

You mean other nations don't allow their bankrupt institutions to buy whatever accounting rule changes they need to make them look profitable?

Azmodan Kijur:
There is a reason that most of the rest of us have principled accounting rules like Canadian GAAP or IFRS and why we don't use the American rules. Our rules are determined via a collection of certified accountants that operate in the field. FASB rules are at the beck and call of Congress. That alone makes them untrustworthy.

This is totally incorrect. IFRS is MUCH more subject to political interference than US GAAP. We had an absolute clusterfark of a congessional hearing on fair value accounting in the spring of '09 where idiot cogressmen of both parties read the riot act to the FASB head about the impact that 'mark-to-market' accounting had on financial statements. Well, the FASB went back up to Connecticut and barely changed mark-to-market rules (do not believe that mark-to-market was suspended or any nonsense lik e that - it wasn't even close to suspended, to the chagrin of the banks and other financial firms.).

One of the biggest issues that US investors have with IFRS is the political influence that the EU has over standard setting. In late 2009, the IASB rushed through a new financial instruments accounting rule that expanded the use of amortized cost in place of fair value, in response to pressure from politicians. But they didn't go far enough for the EU, in fact the EU has yet to endorse the new rules because they felt they were still too focused on fair value!

People who think that the US FASB is more subject to political interference than the IASB just don't know what they are talking about. And 'principles based' rules aren't unanimously considered preferable to rules based accounting. (new window)

Here's the take from the banking regulator called in to clean up the Savings and Loan debacle of the late 80's.

Honest accounting is the prerequisite effective financial regulation. The administration stood by while Bernanke, the Chamber of Commerce, and the specialized bank lobbyists used Congress to extort the Financial Accounting Standards Board (FASB) to pervert the accounting rules so that banks would not have to recognize their losses. The administration knows that perverting the accounting rules in this manner harms the public in many ways. Not recognizing losses creates fictional bank income and capital. Banks that are deeply insolvent and unprofitable are able to claim to be solvent and profitable. This allows the banks to evade the Prompt Corrective Action law and makes it more difficult for regulators to prevent expensive bank failures. It also allows the controlling officers to pay the officers tens of billions of dollars in bonuses that the officers have not earned. The same accounting scam makes the administration's (self) vaunted "stress tests" a sham. Obama can end the banks' accounting scams and end these anti-regulatory disasters at any time because banking regulators have the power to impose regulatory accounting principles that would restore honest accounting and restore effective bank regulation. I shouldn't have to keep emphasizing this, but honesty in accounting is also essential to integrity - and integrity is essential to everything.

BullBearMS: Here's the take from the banking regulator called in to clean up the Savings and Loan debacle of the late 80's.

Honest accounting is the prerequisite effective financial regulation. The administration stood by while Bernanke, the Chamber of Commerce, and the specialized bank lobbyists used Congress to extort the Financial Accounting Standards Board (FASB) to pervert the accounting rules so that banks would not have to recognize their losses. The administration knows that perverting the accounting rules in this manner harms the public in many ways. Not recognizing losses creates fictional bank income and capital. Banks that are deeply insolvent and unprofitable are able to claim to be solvent and profitable. This allows the banks to evade the Prompt Corrective Action law and makes it more difficult for regulators to prevent expensive bank failures. It also allows the controlling officers to pay the officers tens of billions of dollars in bonuses that the officers have not earned. The same accounting scam makes the administration's (self) vaunted "stress tests" a sham. Obama can end the banks' accounting scams and end these anti-regulatory disasters at any time because banking regulators have the power to impose regulatory accounting principles that would restore honest accounting and restore effective bank regulation. I shouldn't have to keep emphasizing this, but honesty in accounting is also essential to integrity - and integrity is essential to everything.

Black is completely wrong about the "perversion of accounting rules allowing tha banks to avoid losses". Nothing of the sort happened. The vast majority of the banks reported that the new rules had no impact on fair value. Because, in fact, the FASB stuck to its guns and didn't throw out fair value accounting.

Unless black is referring to some other instance than 2009, of which I am not aware, he is wrong and likely guilty of laziness in not researching this topic but just relying on sensationalist pundits who likewise ignored the substance of the rule change to claim that the FASB caved.

And we have all seen how well relaxed rules have worked in the US.

Debeo Summa Credo: Black is completely wrong about the "perversion of accounting rules allowing tha banks to avoid losses". Nothing of the sort happened. The vast majority of the banks reported that the new rules had no impact on fair value. Because, in fact, the FASB stuck to its guns and didn't throw out fair value accounting.

Do you really think anyone buys your lying corporate shill BS?

Here's a bit more truth from banking regulator, William K. Black. Anything that pisses off the Wall Street shills is something everyone should know more about.

In March 2009, Congress, with the explicit encouragement of Federal Reserve Board Chairman Bernanke and the implicit acceptance of the Obama administration, successfully extorted the Financial Accounting Standards Board on behalf of the banking industry to force it to change the banking rules so that banks did not have to recognize losses on their bad assets until they sold them. Normal accounting rules sensibly require banks to recognize losses on bad loans when the problems with the loans are not "temporary." The losses at issue in the recent crisis were caused by system-wide fraud and the collapse of the largest financial bubble in world history. They were not temporary-moreover, they were (and are) massive. If banks had recognized these losses as they were required to do under pre-existing accounting rules, many of them would have had to report that they were unprofitable, badly undercapitalized, or even insolvent.

Gimmicking the accounting rules so bankers could lie about their asset values has caused the usual severe problems. First, it allows CEOs to pretend that unprofitable banks are profitable and so continue to pay themselves massive bonuses. This is not only unfair; it contributes to a broadly criminogenic environment. Second, it leads banks to hold onto bad home loans and other assets at grossly inflated prices, preventing markets from clearing and prolonging the recession. This is the Japanese scenario that led to the country's "lost decade" (now extended). Third, it makes it harder for regulators to supervise vigorously, should they try to do so, because many regulatory powers are triggered only when losses occur with the resulting failure to meet capital requirements. Indeed, the assault on honest accounting was launched with the express purpose of evading the Prompt Corrective Action law, passed in 1991 on the basis of bitter experience: when savings-and-loan CEOs who had looted "their" institutions were allowed to remain in control of them by using fraudulent accounting, the losses and the fallout of the S&L crisis kept growing. Fourth, it embraces dishonesty as an official policy. Indeed, it implies that the solution to the accounting fraud that massively inflated asset valuations is to change the accounting rules to encourage the massive inflation of those same asset values. Effective regulation is impossible without regulatory integrity; lying about asset values destroys integrity.

Here's what the New York Times had to say about the change when this change was made:

The change seems likely to allow banks to report higher profits by assuming that the securities are worth more than anyone is now willing to pay for them. But critics objected that the change could further damage the credibility of financial institutions by enabling them to avoid recognizing losses from bad loans they have made.

Critics also said that since the rules were changed under heavy political pressure, the move compromised the independence of the organization that did it, the Financial Accounting Standards Board.

Debeo Summa Credo: Black is completely wrong about the "perversion of accounting rules allowing tha banks to avoid losses". Nothing of the sort happened. The vast majority of the banks reported that the new rules had no impact on fair value. Because, in fact, the FASB stuck to its guns and didn't throw out fair value accounting.

Holy crap you are a lying sack of shiat.

Four days after U.S. lawmakers berated Financial Accounting Standards Board Chairman Robert Herz and threatened to take rulemaking out of his hands, FASB proposed an overhaul of fair-value accounting that may improve profits at banks such as Citigroup Inc. by more than 20 percent.

Debeo Summa Credo: Wow, you guys are all way off.

Actually a couple of posters above you made a couple of astute, if sarcastic observations and for a guy who says he knows a lot about the subject, you swung and missed a couple of times.

But that's okay, insurance accounting is pretty arcane and obscure. I happen to know alot about this, so here's the basics of TFA:

Life insurance involves very long duration liabilities - think about a whole life policy where you pay a premium every year in order to get a death benefit in 40 or so years.

The present value of these liabilities vary as interest rates fluctuate - rates go down, the insurer's liability for some future death benefit goes up.

Canadian insurers are required to basically mark their liabilities to market each period -so when rates go down like they did in the 3rd quarter, the liabilties go up, and that increase in liabilities reduced earnings. US GAAP permits more 'smoothing' of such fair value changes into earnings.

Anyway, this is an incredibly boring topic for a fark thread - I can't think of a lamer topic than insurance accounting.. Surprised it was greenlit.

The insurance company's liabilities are pretty easily calculated. If you claim to know a little about the business then you'd know that modern actuarial cables allow a fairly accurate prediction of when and how much they have to pay out.

The problem isn't in fluctuation in their liabilities, it's been more what they do with their customers monthly premiums in the intervening years while they're waiting for them to die. Perhaps you just stated it clumsily but interest rate changes (it's hard to get them any lower after all) have had little to do with the problems besetting insurance companies, it's been lack of capitalization just like the other financial entities and the change to International Accounting Standards Board practices that Canadian insurance companies operate under will help rectify that with "mark to market" and other restrictions on the time shifting of debt.

As for your contention that the GAAP rules are less onerous well...doh, but this is changing too. By 2016 the SEC will be enforcing International Financial Reporting Standards nation wide. Some systemically important institutions were already supposed to be on IFRS rules but at one point the GOP was blocking funding to implement that change and I'm not sure if it's true yet.

Debeo Summa Credo: IFRS is MUCH more subject to political interference than US GAAP.

Oh.

You're one of those.

/forget it

Debeo Summa Credo: People who think that the US FASB is more subject to political interference than the IASB just don't know what they are talking about

The Chamber of Commerce and bank lobbyists made the cover up of bank losses their top regulatory goal. Their strategy was to get Congress to extort the Financial Accounting Standards Board (FASB) to force a change in the accounting rules so that banks did not have to recognize loan losses.

House Financial Services Capital Markets Subcommittee Chairman Paul Kanjorski (D., Pa.) held a hearing in March 2008. The hearing was a bipartisan assault on FASB. Kanjorski demanded the prompt adoption of the cover up. Otherwise, he promised the prompt passage of legislation to remove the FASB's power to set accounting rules.

The Chamber, of course, is a fierce opponent of the Obama administration. Nevertheless, the administration took no action to counter the Chamber's unprincipled attack on accounting principles. Bernanke gave open approval to the Chamber's efforts to cover up bank losses. The Obama administration took the exceptional step of nominating Bernanke, a conservative anti-regulatory Republican, for an additional term as Fed Chairman.

The administration found the cover up useful to its campaign to use stress tests to restore confidence in the banking system. If the banks had been required to recognize their losses the stress tests would have shown that many of the largest banks were insolvent or on the verge of insolvency. The stress tests were shams based on fictional, grossly inflated asset values. Cover ups make for strange bedfellows.

Al Hashshashin: Oh.

You're one of those.

If by "one of those" you mean the sort of Wall Street shill who claims that our economic collapse "just happened" and that nobody on Wall Street did anything illegal to cause it, then you are correct.

BullBearMS: Here's a bit more truth from banking regulator, William K. Black. Anything that pisses off the Wall Street shills is something everyone should know more about.

In March 2009, Congress, with the explicit encouragement of Federal Reserve Board Chairman Bernanke and the implicit acceptance of the Obama administration, successfully extorted the Financial Accounting Standards Board on behalf of the banking industry to force it to change the banking rules so that banks did not have to recognize losses on their bad assets until they sold them. Normal accounting rules sensibly require banks to recognize losses on bad loans when the problems with the loans are not "temporary." The losses at issue in the recent crisis were caused by system-wide fraud and the collapse of the largest financial bubble in world history. They were not temporary-moreover, they were (and are) massive. If banks had recognized these losses as they were required to do under pre-existing accounting rules, many of them would have had to report that they were unprofitable, badly undercapitalized, or even insolvent.

Gimmicking the accounting rules so bankers could lie about their asset values has caused the usual severe problems. First, it allows CEOs to pretend that unprofitable banks are profitable and so continue to pay themselves massive bonuses. This is not only unfair; it contributes to a broadly criminogenic environment. Second, it leads banks to hold onto bad home loans and other assets at grossly inflated prices, preventing markets from clearing and prolonging the recession. This is the Japanese scenario that led to the country's "lost decade" (now extended). Third, it makes it harder for regulators to supervise vigorously, should they try to do so, because many regulatory powers are triggered only when losses occur with the resulting failure to meet capital requirements. Indeed, the assault on honest accounting was launched with the express purpose of evading the Prompt Corrective Action law, passed in 1991 on the basis of bitter experience: when savings-and-loan CEOs who had looted "their" institutions were allowed to remain in control of them by using fraudulent accounting, the losses and the fallout of the S&L crisis kept growing. Fourth, it embraces dishonesty as an official policy. Indeed, it implies that the solution to the accounting fraud that massively inflated asset valuations is to change the accounting rules to encourage the massive inflation of those same asset values. Effective regulation is impossible without regulatory integrity; lying about asset values destroys integrity.

Here's what the New York Times had to say about the change when this change was made:

The change seems likely to allow banks to report higher profits by assuming that the securities are worth more than anyone is now willing to pay for them. But critics objected that the change could further damage the credibility of financial institutions by enabling them to avoid recognizing losses from bad loans they have made.

Critics also said that since the rules were changed under heavy political pressure, the move compromised the independence of the organization that did it, the Financial Accounting Standards Board.

Debeo Summa Credo: Black is completely wrong about the "perversion of accounting rules allowing tha banks to avoid losses". Nothing of the sort happened. The vast majority of the banks reported that the new rules had no impact on fair value. Because, in fact, the FASB stuck to its guns and didn't throw out fair value accounting.

Holy crap you are a lying sack of shiat.

Four days after U.S. lawmakers berated Financial Accounting Standards Board Chairman Robert Herz and threatened to take rulemaking out of his hands, FASB proposed an overhaul of fair-value accounting that may improve profits at banks such as Citigroup Inc. by more than 20 percent.

Don't you ever get tired of being completely wrong on everything?

I know this is an obscure subject so your ignorance is excusable here, but I'm telling you:

- fair value rules were barely changed- the issue was how to value illiquid securities that weren't trading and how frequently you could ignore "fire sale" prices. The resulting change, made after the march 2009 (not 2008, I don't know where that came from), barely moved the needle.

There was a separate change made to accounting for impaired securities, that was an improvement and would have happened regardless of te congressional hearings.

And ill agree that the congressional hearings were a joke. Kanjorski, bachus, capuano, and kaptur all looked like complete idiots in arguing against fair value (the only guy who came out well IMO was
Grayson). But the point is the FASB didn't cave, then later actually proposed much stricter fair value rules in the context of a joint financial instrument project with the IASB.

There, now that I've educated you on this topic you are now just slightly less of an ignorant farkwad. You're welcome.

I can't believe I'm wasting my time responsing to you idiots. Let's actually look at how the banks financial statements were impacted by the "cover up of bank losses" . Here are the financial filings done right after the rule change of a few of the firms who are frequent targets of Farker ire. Let's see how this dastardly plot allowed them to avoid losses:

From BoA 1st Quarter 2009 10-Q

On April 9, 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-4 "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP FAS 157-4). FSP FAS 157-4 provides guidance for determining whether a market is inactive and a transaction is distressed in order to apply the existing fair value measurement guidance in FASB Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements" (SFAS 157). In addition, FSP FAS 157-4 requires enhanced disclosures regarding financial assets and liabilities that are recorded at fair value. The Corporation elected to early adopt FSP FAS 157-4 effective January 1, 2009 and the adoption did not have a material impact on the Corporation's financial condition and results of operations.

Citibanks 1Q 2009 10-Q

In April 2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly." The FSP reaffirms that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The FSP also reaffirms the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. The adoption of the FSP had no effect on the Company's Consolidated Financial Statements.

Goldman Sachs 1q 2009 10Q

FASB Staff Position No. FAS 157-4. In April 2009, the FASB issued FSP
No. FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly." The FSP provides guidance for estimating fair value when the volume and level of activity for an asset or liability have decreased significantly. Specifically, the FSP lists factors which should be evaluated to determine whether a transaction is orderly, clarifies that adjustments to transactions or quoted prices may be necessary when the volume and level of activity for an asset or liability have decreased significantly, and provides guidance for determining the concurrent weighting of the transaction price relative to fair value indications from other valuation techniques when estimating fair value. The FSP is effective for periods ending after June 15, 2009. Because the firm's current fair value methodology is consistent with FSP No. FAS 157-4, adoption of the FSP will not affect the firm's financial condition, results of operations or cash flows. The firm will adopt the FSP in the second quarter of fiscal 2009 to comply with the FSP's disclosure requirements.

You can go on and on. It took a real stretch to interpret the new rules (FAS 157-4) as changing the fair value of underlying assets. I'm sure some banks did, but the vast majority said it had no effect or wasn't material. The lesson here is take inflammatory blog posts or financial columns written by sensationalists with a grain of salt. In this instance, those people were either wrong or jumped to conclusions before reading the new rules and seeing what the actual effect was.

Al Hashshashin: Debeo Summa Credo: Wow, you guys are all way off.

Actually a couple of posters above you made a couple of astute, if sarcastic observations and for a guy who says he knows a lot about the subject, you swung and missed a couple of times.

But that's okay, insurance accounting is pretty arcane and obscure. I happen to know alot about this, so here's the basics of TFA:

Life insurance involves very long duration liabilities - think about a whole life policy where you pay a premium every year in order to get a death benefit in 40 or so years.

The present value of these liabilities vary as interest rates fluctuate - rates go down, the insurer's liability for some future death benefit goes up.

Canadian insurers are required to basically mark their liabilities to market each period -so when rates go down like they did in the 3rd quarter, the liabilties go up, and that increase in liabilities reduced earnings. US GAAP permits more 'smoothing' of such fair value changes into earnings.

Anyway, this is an incredibly boring topic for a fark thread - I can't think of a lamer topic than insurance accounting.. Surprised it was greenlit.

The insurance company's liabilities are pretty easily calculated. If you claim to know a little about the business then you'd know that modern actuarial cables allow a fairly accurate prediction of when and how much they have to pay out.

Actuaries can point to when, approximately, insurance companies will have to pay out their claims. But at what value do you carry those claims at on your balance sheet today? Clearly, a company would rather have a $1,000 obligation in 40 years than a $1,000 obligation coming due tomorow. That is the subject of the accounting difference in the TFA.

The problem isn't in fluctuation in their liabilities, it's been more what they do with their customers monthly premiums in the intervening years while they're waiting for them to die. Perhaps you just stated it clumsily but interest rate changes (it's hard to get them any lower after all) have had little to do with the problems besetting insurance companies, it's been lack of capitalization just like the other financial entities and the change to International Accounting Standards Board practices that Canadian insurance companies operate under will help rectify that with "mark to market" and other restrictions on the time shifting of debt.

The topic of TFA is volatility under CGAAP vs. US GAAP. Canadian GAAP is more volatile because they mark their liabilities to market, whereas under US GAAP rules such fluctuation is smoothed over time. When interest rates decline, the present value of a long dated insurance liability goes up. You get that, right? Under C-GAAP, that increase in PV of liability goes straight to earnings, under US GAAP it doesn't unless the contract as a whole becomes unprofitable.

To offset this, Canadian insurers choose to carry the assets supporting liabiliteis at fair value through earnings. So a bond with duration of 20 years will go up in value if rates decline, and that change will go through earnings, offsetting some of the loss on the insurance contracts. Since present value changes of liabilities don't affect earnings for US insurers, they choose to classify fixed income securities in the 'available for sale' bucket, which is marked to fair value each period, however the change goes to other comperhensive income, a compenent of equity, rather than through earnings.

My comments have nothing to do with the solvency of US insurers vs Canadian insurers. It's just an accounting discussion. FWIW, I prefer the canadian model.

As for your contention that the GAAP rules are less onerous well...doh, but this is changing too. By 2016 the SEC will be enforcing International Financial Reporting Standards nation wide. Some systemically important institutions were already supposed to be on IFRS rules but at one point the GOP was blocking funding to implement that change and I'm not sure if it's true yet.

Debeo Summa Credo: IFRS is MUCH more subject to political interference than US GAAP.

Oh.

You're one of those.

/forget it

It hasn't been decided whether we're going to IFRS yet. Companies are opposed because its a pain in the farking ass. But many investors are opposed to our conversion to IFRS as well, citing concerns that the IASB is more beholden to political interference than the US FASB.

I agree that 2009 congressional hearing was an utter disgrace and an embarrassment. Kanjorski, Capuano, Kaptur, Bachus, and others really looked like stupid assholes for trying to interfere with independent standard setting. Thought I wish the FASB chair had told them to go fark themselves right there, in the end the change they put through was not a gutting of fair value rules, as the company excerpts I posted above prove.

Read this guy's blog. He's an academic, writes a little opaquely sometimes. But he's wholly in favor of fair value, but virulently opposed to IFRS conversion, in part due to political interference:

Link (new window)

I just love it when providing the truth pisses off the Wall Street shills.

If you want to know some actual truth, then read some William K. Black. As the senior banking regulator who cleaned up the Savings and Loan mess, he understands exactly what is happening in our banking industry and is happy to explain what is going on.

For bonus points, he's not an obvious Wall Street shill either.

BullBearMS: I just love it when providing the truth pisses off the Wall Street shills.

If you want to know some actual truth, then read some William K. Black. As the senior banking regulator who cleaned up the Savings and Loan mess, he understands exactly what is happening in our banking industry and is happy to explain what is going on.

For bonus points, he's not an obvious Wall Street shill either.

So you're ignoring the excerpts from actual filings that indicate that the fair value rule change had no effect on financials.

It's as objective evidence as you are going to get, and directly contradicts Black.

Perhaps the fact that objective evidence contradicts Black's opinion on this should make you question whether his other views are evidentially sound.

Debeo Summa Credo: BullBearMS: I just love it when providing the truth pisses off the Wall Street shills.

If you want to know some actual truth, then read some William K. Black. As the senior banking regulator who cleaned up the Savings and Loan mess, he understands exactly what is happening in our banking industry and is happy to explain what is going on.

For bonus points, he's not an obvious Wall Street shill either.

So you're ignoring the excerpts from actual filings that indicate that the fair value rule change had no effect on financials.

It's as objective evidence as you are going to get, and directly contradicts Black.

Perhaps the fact that objective evidence contradicts Black's opinion on this should make you question whether his other views are evidentially sound.

Actually, from the moment you claimed that nobody on Wall Street had done anything illegal despite the massive systemic fraud that brought down our financial system, I knew that your other opinions on financial matters would consist of nothing but lies.

I'm not sure who you think you are fooling at this point.

BullBearMS: Debeo Summa Credo: BullBearMS: I just love it when providing the truth pisses off the Wall Street shills.

If you want to know some actual truth, then read some William K. Black. As the senior banking regulator who cleaned up the Savings and Loan mess, he understands exactly what is happening in our banking industry and is happy to explain what is going on.

For bonus points, he's not an obvious Wall Street shill either.

So you're ignoring the excerpts from actual filings that indicate that the fair value rule change had no effect on financials.

It's as objective evidence as you are going to get, and directly contradicts Black.

Perhaps the fact that objective evidence contradicts Black's opinion on this should make you question whether his other views are evidentially sound.

Actually, from the moment you claimed that nobody on Wall Street had done anything illegal despite the massive systemic fraud that brought down our financial system, I knew that your other opinions on financial matters would consist of nothing but lies.

I'm not sure who you think you are fooling at this point.

Ah, another non-answer. Why are you ignoring the excerpts from public filings that I posted? Is it because it conflicts with your predetermined view?

I'm not trying to fool anyone. I'm just hoping to correct erroneous
views. There are others who are
at least interested in potentially
improving their incomplete
understanding.

Not you though. You're apparently a farkin retard.

So, if I've understood this whole shamoozle even after the American chest beating bickersons hijacked it, in laymans terms our govnmt forces insurance companies to sock away enough capital to actually do what they are paid to, which is pay out benefits, in times of financial instability? Then they are whining like petulant 5 year olds that the Americans get to cheat and screw their customers so why not them? Pish tosh. I love my Canada "hugs country"

Ohlookabutterfly: So, if I've understood this whole shamoozle even after the American chest beating bickersons hijacked it, in laymans terms our govnmt forces insurance companies to sock away enough capital to actually do what they are paid to, which is pay out benefits, in times of financial instability? Then they are whining like petulant 5 year olds that the Americans get to cheat and screw their customers so why not them? Pish tosh. I love my Canada "hugs country"

Yeah, no, you don't understand correctly. The article has nothing to do with socking away capital or screwing over customers. Just how you report earnings to investors.

But canada's accounting rules are better, in this instance, and in my opinion. So you can still be proud.

Most boring thread on fark, ever.

Ohlookabutterfly: So, if I've understood this whole shamoozle even after the American chest beating bickersons hijacked it, in laymans terms our govnmt forces insurance companies to sock away enough capital to actually do what they are paid to, which is pay out benefits, in times of financial instability? Then they are whining like petulant 5 year olds that the Americans get to cheat and screw their customers so why not them? Pish tosh. I love my Canada "hugs country"

Your country does not allow it's financial institutions to commit so much widespread fraud that they bring down the entire financial system and then change the accounting rules to cover it up.

This is why your country didn't fall into the same hole ours did.

You have reason to be proud.