GIM2020 - Accounting framework: Insurance Accounts Directive

Before the coming into force of the European Insurance Accounts Directive (IAD) in 1991 (91/674/EEC), the accounts of a general insurance company were similar to those of other trading companies and included a balance sheet, general business revenue account and a profit and loss account. The IAD, however, aimed to harmonise the presentation and underlying principles of the accounts of insurance companies across the European Union, and it set out a prescribed format for both life and non-life insurance business.

The intention of the IAD was to enable members, creditors, debtors, policy holders and their advisors and the general public to compare the financial strength of insurers across the European Union, thus assisting in the development of the single internal market in financial services. It prescribed rules on the valuation of assets and liabilities and on disclosure requirements, and laid down specific rules regarding certain situations, e.g. discounting of provisions for claims outstanding. The IAD did, however, contain a number of options, exercisable by the member states, which reflected past differences in accounting practice. For example, in relation to the valuation of investments there was an important member state option as between the use of current market value and historical cost. Insurers based in countries that traditionally used historic cost (e.g. Germany) did not need to disclose full market values before 1999. In the UK, the market value option was chosen, although, as an alternative, fixed interest securities could be amortised from cost to redemption value over the period to the redemption date.

Exemptions from audit requirements available to small and medium sized companies within the EU are not available to insurance companies.