IASB's revised proposals on accounting for insurance contracts, announced yesterday, have been welcomed by the accountancy profession as providing greater transparency and consistency, but there are concerns over the challenges insurers will face in implementing the new standard.

Hitesh Patel, chairman of ICAEW's insurance committee, described IASB's exposure draft (ED) as a 'long-awaited milestone' and said: 'This project has been running for fifteen years, which is understandable given the complexities involved. Both the industry and investors really need a more complete and comprehensive standard, so it is heartening to see the latest draft which means we are most of the way towards a complete standard.'

Gail Tucker, global accounting services financial instruments leader at PwC, agreed that IASB's proposals mark a 'significant step towards achieving a single accounting model, which will enable better global comparability,' but cautioned that this could prove demanding to implement.

'Today's proposals from the IASB are set to have a significant impact on insurance companies - they fundamentally change the accounting by all entities that issue insurance contracts. Combined with regulatory changes such as Solvency II, adopting this new standard will be a significant challenge for the industry. As a consequence, insurers will need to overhaul their systems and performance reporting,' Tucker said.

Francesco Nagari, Deloitte's global IFRS insurance leader, agreed saying: 'These proposed changes will impact the insurance industry more than any previous change in financial reporting. Insurers should use the exposure draft to assess the potential implications for their business, looking specifically at how their profit profile, data, systems and market communications may have to adapt. This is the first step on a long implementation road ahead, so insurers will need to take action now to achieve a smooth transition and to prepare investors to the new reporting basis.'

Joachim Kolschbach, KPMG's global IFRS insurance leader, is another who maintains IASB's proposals represent 'the biggest ever financial reporting change for most insurers.'

Kolschbach said that they would affect the way in which insurers report their profitability and financial position and would likely result in an overall increase in volatility in profit or loss and equity for most insurers as a result of having to continually remeasure insurance contract liabilities at a current value, rather than on an historical cost basis.

In addition, those insurers writing long-term life business with options and guarantees may need to report changes in these items' value in the income statement. As a result, there may be debate as to whether other changes in the insurance liability should also be presented in other comprehensive income (OCI) and about the residual volatility expected in both earnings and equity.