(Remarks for a Follow-On Presentation to the Spring 2012 NCOIL meeting held in Biloxi, MS.)
DOUGLAS WM. BARNERT, PRESIDENT, BARNERT GLOBAL LTD.
INTERNATIONAL INSURANCE ISSUES COMMITTEE
CHAIR: SEN. CARROLL LEAVELL, NM (NCOIL PRESIDENT, 2012)
9:45 A.M.-11:00 A.M.
Friday, July 13, 2012
(Adirondack A/B/C, Lobby Level)
NCOIL Burlington, VT Summer Meeting
Good Morning. My name is Doug Barnert and I've been asked by the NCOIL staff to present a continuation of a discussion we began in this committee earlier this year at the meeting in Biloxi.
We are picking up where we left off at that point in time--the ever-evolving discussion on the development by the International Accounting Standards Board (the IASB) of an international accounting standard on insurance contracts that might influence and could eventually replace the current accounting standard promulgated by the Financial Accounting Standards Board (the FASB) for use by stockholders and the one promulgated by the State Insurance Commissioner, working with the NAIC, for use in regulatory/prudential/solvency regulation.
QUALITY VS. CONVERGENCE.
There is a general agreement around the world that quality standards, like apple pie, are the best answer. Pressure will come when it seems that proponents of quality are simply using that argument to delay the adoption of a standard.
In a meeting of the IFRS Trustees this week, IASB Chairman Hans Hoogervorst described the continuous transitioning of the IASB's efforts. Understanding that the IASB is in its 11th year of operation, Chairman Hoogervorst, (a self-described, long-time "politician" in his native Netherlands, gave an informative narrative--detailing the first five years of this process, calling them "the European cooperation years."
The FASB (US)/IASB projects were limited to simpler issues – basically: take one or the other. Major focus was on Europe since the European Commission had voted to require IFRS for the consolidated statements of all public companies—for the twenty five European Union countries.
In the second ten years, the IASB, FASB, and now, add the SEC, agreed on a Memorandum of Understanding that indicated major standards that would be completed in that five-year period. While not including the insurance contracts project*, it did include:
1) financial instruments,
2) revenue recognition,
4) liability measurement, and
5) financial statement presentation
– effectively all the reporting issues that would have to be determined in an insurance contracts standard. I'll talk about the progress of that effort in a moment.
IASB Chairman Hoogervorst then said that the next five years – the first year now passed, would be the "half-decade of Asia." During this period, the IASB would focus on working with various standard setting bodies and financial regulators to bring the Asian economies of the world into the 21st century.
Hans said about the Insurance Contracts project that there will not be a converged result, but that there has been important progress, such as Other Comprehensive Income or "OCI," will be handled in a similar way—progress, perhaps, but not perfection. He expects deliberation to be done by year-end 2013. Those of who monitor the global situation sense that Hans is still wary of what kind of document would be issued.
Explain difference between a:
• Review draft;
• Continue discussions.
• ED=Exposure Draft (which can be IASB/International-only; FASB-US-only or, in many cases, a "JOINT Exposure Draft"
• Educational Sessions, again, either US, International or—and these can be the most interesting exchanges—Joint Educational Sessions, which involve very detailed questions taking in the panoply of scenarios from the Global Marketplace.
In his recent remarks, Hans Hoogervorst didn't specify when the insurance contracts standard would be done, though he did give estimates on most of the other projects.
Chairman Hoogervorst did offer his perspective that as the convergence projects wind down, he hopes to transition the bilateral relationships with national standard setters. As examples, the German Accounting Standards Board or the French Accounting Standards Board undergo that "transition" to more collective or "regional" approaches. (This might be a reference to the regionalization concepts I referred to in Biloxi –and a full report is available for those interested in more details, on the Barnert website)
However, when pressed a little at the Monitoring Board meeting, Hans said he didn't expect the relationships with FASB and the Japanese to end, just change. Currently, the IASB has meetings with the FASB and the Accounting Standards Board of Japan (ASBJ) on a quarterly basis in various trading locations. Less frequent meetings occur with other national standards boards.
Explain the origins and function of the Monitoring Board.
At the Monitoring Board meeting on Thursday, European Union senior financial services regulator, Michel Barnier, emphasized that the current major projects should be completed by the end of 2013--to maintain creditability going into the next phase of IASCF funding discussions with the EU.
PROGRESS = FINANCIAL SUPPORT
Monsieur Barnier suggested that, in adjusting its consultation arrangements, the IASB maintain contact with "prudential regulators" – in our case the state insurance commissioners and possibly the Federal Insurance Office. In Michel's scenario, this would also include banking regulators, as well as national standard setters, i.e., the FASB and its counterparts around the world (NSS) in addition to securities regulators – the US SEC and its counterparts around the world (IOSCO.)
QUESTIONS AND CLARIFICATIONS
I asked Candace and Susan if we might leave some time at the end of my remarks for questions that some of you may have about "what standard setting bodies" I am referring to and "which financial regulatory bodies" we are talking about here, with the understanding that this subject matter may be new to some of you, while others have followed the progress of these issues for many years.
As in any advanced informational exchange-- and I've been known to make casual observations to my colleagues in this field to this effect that I WISH that these topics were covered in B-School—but I digress. The point is that as the chestnut goes: There are no "stupid questions…"
I've had the good fortune of knowing some of the members of this august body for many of the what are now four decades since my early years, as a Deputy Commissioner at the Texas Insurance Department, as well as having an opportunity to make, as we all continually do at NCOIL, many new acquaintances. I'd like to thank you for the opportunity to speak to you today, and, with the permission of the Chair, open the floor for any questions or comments from the Committee and other members and participants.
Sample Question 1
*What is the "Insurance Project?"
How do the International "Supervisors" weigh in on these issues and what incentives to the various entities have to 'work and play well with others," as it were…
Many in this room have observed, both as lawmakers and experts in their communities, the constantly shifting economic landscape regarding member countries in the European Union. As one who is always traveling and interacting with the range of entities you described, Doug, what do you see as some possible scenarios of an "endgame?"
I heard your presentation in Biloxi and want to know what you meant when you recommended that we in NCOIL should "publish (white) papers…?" Do you have any suggestions on how this research and compilation might be:
d. from what sources this research might be drawn from: Trade Groups; Foundations/Think Tanks; University/Academia; proactive companies with experience…
We've covered a lot of ground today and I believe we have a unique opportunity, with the wealth of experience represented by the committee members as well as participants from very many segments of our industry.
So what do YOU think the effect of this rapidly shifting landscape will have on your community—or your segment of the Industry?
(Committee and Participants Feedback)
Thank you, President Leavell, for giving me another opportunity to speak to this committee--and I remain available, as I have through the years, to serve as a resource for NCOIL, and this very significant committee. I will be in Burlington for the next few days, so please feel free to discuss any of these issues with me offline or contact my staff after we've all gone home, and we will always respond in a timely manner. Thank you.