The Association of British Insurers has published a new SORP (statement of recommended practice) on accounting for insurance business. This follows the receipt of "negative assurance" from the Accounting Standards Board.

The new SORP replaces the one issued in 1990 and reflects changes in European accounting requirements for insurers which became effective in the UK in 1995. Its main purposes are:

· To narrow the range of accounting practices and so enhance the usefulness of accounting information published by insurers.

· To provide guidance on certain provisions of the Companies Act 1985, where the wording requires clarification or might lead to differing interpretations resulting in an inappropriate diversity of accounting practices.

Mark Boléat, ABI's Director General, said:

"The publication of the new SORP represents a major advance in accounting for insurance business in the UK. In addition to enhancing the usefulness of insurers' published accounts, it should influence the work which the International Accounting Standards Committee (IASC) has initiated on a new International Accounting Standard (IAS) for insurance."

The new SORP, which should be read in conjunction with the Companies Act and in particular its provisions relating specifically to insurance undertakings, incorporates recommendations on the accounting treatment and disclosure of premiums, claims and expenses.

After extensive consultation within the industry and outside on the appropriate accounting treatment, it has been possible to include for the first time recommendations on accounting for investments and investment return in the SORP.

The SORP does not include the ABI proposals for a new method of accounting for shareholders' profits from long term (i.e. life) insurance business (the "achieved profits method"). These are being developed as a separate exercise and an exposure draft will be issued for comments in due course.

Notes

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