The revised Statement complies with the Accounting Standards Board (ASB) Policy and Code of Practice for industry developed SORPs. It takes effect for accounting periods beginning on or after 1 January 2004 but earlier adoption is encouraged.
The Statement sets out best accounting practice for insurance undertakings and significantly updates the previous version issued by the ABI in 1998. Changes include:
* The provisions on accounting for reinsurance contracts have been improved, so that any significant reinsurance element should not result in a net credit to the profit and loss account at inception:
* The introduction of new disclosures on estimation techniques, uncertainty, and contingent liabilities that are consistent with FRS 12 (Provisions, Contingent liabilities and Contingent assets) and FRS 18 (Accounting policies).
* Recognition that gross rather than net premium methods are the preferred basis on which the valuation of insurance liabilities should be undertaken.
Commenting on the revised SORP, Peter Vipond, the ABI’s Head of Financial Regulation and Taxation said:
"The new SORP is a valuable upgrading of the previous version and goes a long way to reflect best accounting practice for insurers within the constraints imposed by current legislation."
"From 2005 the provisions of the IASB’s interim phase I International Financial Reporting Standard on accounting for insurance contracts will take effect, to be followed by a final phase 2 standard later on.
"Our view is that, going forward, a full fair value standard based on an embedded values approach for life business will be the best way for IASB to ensure that the requirements of investors are satisfied".
