of declines in equity and bond values during the first half of
2008, but notable was a significant variation in net profit
declines with a number of UK insurers such as Aviva and Prudential
reporting losses while many Continental insurers’ net profits
remained positive.
However, accounting classification of assets and the accounting
treatment with regard to impairment of securities under
International Financial Reporting Standards (IFRS) rules must be
taken into account when making comparisons, stressed rating agency
Moody’s. Moody’s explained that assets classified as available for
sale (AFS) would see changes in valuation taken through
shareholders’ equity while those classified as trading assets see
changes in fair value recorded directly through the profit and loss
account (P&L).
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The rating agency said that most UK life insurers tend to classify
the vast majority of financial assets as trading assets and in the
first half of 2008 significant reductions in value in these
insurers’ equity and fixed income securities were taken via the
P&L, contributing to net IFRS-basis losses for a number of
players.
In contrast, many continental insurers treat a higher proportion of
assets as AFS, such that overall reported IFRS net income remained
strongly positive, but changes in revaluation reserves in
shareholder’s equity showed sharp negative movements.
