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AIA

Confusion over new insurance accounting rules

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10th Mar 2009
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The row over whether MCEV should be adopted continues, as Axa chief admits the standard is ‘confusing’.

Three of the UK’s biggest insurers have refused to adopt the controversial new Market Consistent Embedded Value (MCEV) accounting standards recently adopted by other key players.

Prudential, Legal & General and Standard Life said they would not report their full year figures under the new accounting measure MCEV.

MCEV requires the firms to use a stricter standardised system of reporting that will allow for greater comparison of their balance sheets. It also calls for investment profits to be recorded as they occur, rather than estimating their future returns.

Last week Axa’s chief financial officer Denis Duverne (who was also chairman of the CFO when the standard was created) told journalists: "MCEV is a good instrument, but the past few days show that it is not well understood nor accepted by analysts and investors, and the absence of harmonisation between players can create some confusion. In particular, MCEV is by construction highly volatile”.

In November last year, Citigroup predicted that moving to MCEV would cut Prudential’s new business profits from £292m to just £12m, and that Legal & General could suffer a profit slump from £343 to £17m under the new rules.

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