Since 1 January 2005, international financial reporting standards are effectively applicable to EU listed companies. And yet, the uncertainty surrounding accounting rules for quoted insurers remains. The latest turmoil derives from the fair value option within IAS 39 which provides for the possibility of measuring financial assets and liabilities at fair value with the movement from one period to another recorded through the profit and loss account.

Both the IASB Exposure Draft of April 2004 and the "carved out" version of IAS 39 which the European Commission endorsed in November already limited the circumstances in which the fair value option could be applied for financial liabilities. This was done mainly at the request of banking regulators.

Now, following broad disagreement, the IASB has developed a new preliminary approach to find a solution suitable for the various interested parties. CEA welcomes the more principles based approach but regrets that it would restrict the fair value option for both financial assets and liabilities. CEA supports the principle of retaining the unlimited fair value option in IAS 39.

Most European insurers make frequent use of this option for both financial assets and liabilities as a tool for providing more relevant information and simplifying the processes. They have been preparing for IAS 39 in the version including the unlimited fair value option. Such a fundamental U-turn would pose major changeover difficulties.