In a further move to bring its accounting procedures up to date, Lloyd’s announced it would adopt UK Generally Accepted Accounting Principles (GAAP) beginning January 1, 2005.
It also plans to eventually adopt International Accounting Standards (IAS) “when there is more clarity on the proposed standard on accounting for insurance contracts,” said the annoucment. It indicated that by doing so it “should minimize the impact to the Lloyd’s market in terms of costs and new systems.”
By adopting the U.K. standards Lloyd’s definitively abandons its three-year accounting system and moves to annual accounting for its statutory reporting for both syndicates and the Lloyd’s global accounts. “The move is in line with the commitment by the Lloyd’s Franchise Board for syndicate accounts to be more transparent and comparable with the accounts of their global industry peer group,” said the bulletin.
“Moving to annual accounting from three-year accounting, which has been unique to this market, will make it easier for the industry to compare Lloyd’s performance to our peers. It is a positive step in line with Lloyd’s commitment to create greater transparency,” stated Andrew Moss, Director of Finance at Lloyd’s. “We will continue to work closely with the market and the accounting profession to ensure the change is implemented smoothly, and we are grateful for their positive input to date.”
Simon Sperryn, CEO of the Lloyd’s Market Association noted: “Having worked with Lloyd’s to develop the proposal to adopt UK GAAP, we are pleased with the Franchise Board’s decision. We believe that the use of UK GAAP will significantly improve the understanding of the market’s performance.”
Lloyd’s has been considering the adoption of annual accounting and the U.K. standards since September 2002, when its members voted to adopt a set of reforms outlined by the Chairman’s Strategy Group, which included such a proposal.
Lloyd’s bulletin explained the change as follows: “Under the annual basis of accounting, the result is determined at the end of the financial year reflecting the profit or loss of providing insurance cover during that year, i.e. in relation to premiums earned during that period (including the anticipation of losses arising on cover to be provided in subsequent periods in respect of commitments entered into prior to the end of the financial year) and any adjustments to the profit or loss of providing insurance cover during earlier financial years.”
The system differs markedly from Lloyd’s traditional three-year accounting basis, under which “all premiums and claims and associated expenses are related to the underwriting year in which the policy incepts and the determination of the underwriting result is deferred until the year of account is closed at the end of three years.”
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