The US Securities and Exchange Commission recently announced There will be some additional cost, but the long-term effect will
a ‘Roadmap’ towards adoption of International Financial Reporting reduce the charge to capital.
Standards. What do you see as the benefits and disadvantages of
convergence in financial reporting standards for your business and the
Mike McGuire, chief financial officer, Endurance Specialty Holdings Ltd.
Bermudian market in general?:
The benefits of accounting convergence have been widely discussed
and reported. They include global consistency and increased
Maurice Kane, senior vice president, finance & treasury,
comparability for financial statement users and a simplification
Tokio Millennium Re
of the accounting process for companies that have to report using
In theory, the convergence to one set of accounting standards
multiple versions of GAAP. Conceptually, I would tend to agree that
for the whole industry should be a positive force. It should lead to
convergence is beneficial. However, I also think there are a lot of
consistency and transparency of reporting across all players in the
risks for companies and markets when making wholesale changes to
Bermuda market. In an evermore global industry, it should allow
accounting methods.
Bermuda companies to compete on an even platform with their
international competitors.
Firstly, the change to new principles of accounting will require
significant investments in education, training, and the processes and
Clearly, there will be a cost in terms of human resources and IT
systems of those preparing and auditing financial statements to ensure
development. Concerns also exist as to the availability of accountants
that it is successfully implemented. Secondly, those reviewing the
with sufficient International Financial Reporting Standards (IFRS)
financial statements will need to be similarly educated; at this time,
experience, especially in an already tight Bermuda employment market.
within the US financial markets, IFRS is not widely understood or
I believe the reinsurance industry’s biggest concern will be the
utilised. Finally, with respect to insurance accounting, the core
outcome of the consultation process for Phase II of IFRS 4. The proposed
principles under IFRS are currently being debated in an IASB Insurance
fair valuing of insurance liabilities, using an exit value as currently
Contracts Discussion Paper. This could fundamentally change industry
proposed, has many detractors and could lead to a crisis of confidence
accounting if current proposals in the paper are adopted.
in the IFRS standards as a whole within the industry.
David Greenfield, chief financial officer, Axis Capital
Fred Donner, chief financial officer, RenaissanceRe Holdings Ltd.
I think that there would be tremendous benefits to having similar
We generally support the convergence to one accounting model. standards across the globe, such as comparability of companies in
As companies go global, compatibility becomes extremely desirable. different countries. However, the complexity of implementing this
However, within the re/insurance industry, there are some issues would be phenomenal. It will not be easy to achieve convergence across
that the International Accounting Standards Board needs to resolve. the different legal, regulatory, cultural and language environments of
But overall, we welcome a move towards global standardisation of various countries.
financial reporting.
It is important to remember that the IFRS is a very young set of
standards, compared with its counterparts. There is wide debate around
Joe Roberts, group chief financial officer, Max Capital Group Ltd.
principles versus rules, but more crucial is the fact that IFRS has a
In principle, a common set of accounting standards, such as IFRS,
shorter history than the FASB standards. The questions that arise with
is very desirable—even more so in our industry, because we operate
such young standards and the global aspirations are whether they have
in a global market, covering Europe, the US, Japan and Australia.
been adequately tested, and once they are layered with all the legal,
Comparability of financial statements and information is critical.
regulatory, cultural and language differences, whether they will still be
Most Bermuda companies operate under US GAAP, which is a
consistent in practice across all countries.
codified set of standards. IFRS is also codified, but it requires the use
Another important issue would be the effect on tax regimes. Many
of more professional judgement in applying the standards. The US is
tax regimes are reliant on local accounting standards, and many regions
a particularly litigious society, so the question arises as to who will be
employ local accounting practices to support their tax structure and
accountable when there is inconsistency. That will put more pressure
objectives. A key question would be: how can this convergence simplify
on CFOs and the regulators. Of course, IFRS does not yet include an
the tax recordkeeping, or will that remain a separate set of books?
accepted insurance standard. It is still being worked on.
I think the aim of the new standards is worthwhile, but I believe there
The SEC wants us to adopt IFRS in 2014. Therefore, 2012 comparatives
is still a significant amount of work to achieve it.
would have to be compliant. This timeline is fast approaching and may
not be easily achieved.
Richard Houghton, chief financial officer, Aspen Insurance
I think IFRS will help Bermuda in the long run. Making Bermuda’s
Holdings Limited
financial reporting compliant with IFRS, together with the
Yes, regulators are under a huge amount of pressure, but that comes
implementation of Solvency II, will continue to help Bermuda’s
with the current market conditions. I see this all as part of the cost of
evolution and its reputation as a premier financial centre.
doing business, of operating in this space. We are very interested in the
move towards convergence and we have to be part of the discussion.
Nick Cardinez, chief financial officer, Hannover Re (Bermuda)
That said, while there is uncertainty, it is difficult to plan. That makes
We adopted IFRS in 2005. Complete convergence, if it is possible, will it difficult for everyone, investors, regulators and companies alike. The
clearly provide a uniform basis and a level playing field. sooner we get clarity the better for everyone.
Bermuda Re/insurance . February/March 2009 19
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