We always knew that changing accounting rules was poor Regulation. Now we know that it is also poor accounting.
In this Commentary by Jonathan Weil, "Insurers' Biggest Writedowns May be Yet to Come" (Bloomberg.com Thursday, August 20, 2009), commentary is extended regarding Profit and Loss Statements by Health and Life Insurance Companies, and news is reported that may affect our lives.
Mr. Weil comments regarding something I learned about myself for the first time, called "deferred acquisition costs, or DAC". Id. These debits are accounted as credits. But apparently only by Insurance Companies. Such as the Health and Life Insurance Companies identified by Mr. Weil in his Commentary. In basic terms, these particular costs include various commissions and other expenses connected with obtaining new and renewal Insurance Premiums. The Insurance Companies are allowed to put these debits on their books as a credit, i.e., as an asset rather than as the cost they are. Id.
The news reported by Mr. Weil is old but new. In a little-reported decision in May of this year, the United States Financial Accounting Standards Board announced that it "is scheduled to release a proposal during the fourth quarter to overhaul its rules for insurance contracts." Part of the proposed overhaul of rules for Insurance Policies is to eliminate the DAC rule, which is apparently unique to Insurance Companies in any case. Id. "What's at stake isn't the real value of the industry's assets, but investors' perceptions of how much they're worth." Id.
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