GNAIE endorses fair value accounting recommendations

The Group of North American Insurance Enterprises (GNAIE), an organization of major life and property/casualty insurers and reinsurers, has endorsed the Group of Thirty’s recommendations on fair value accounting.
The Group of Thirty, established in 1978, is a private, non-profit, international body composed of senior representatives of the private and public sectors and academia.
In a report issued last week, Financial Reform: A Framework for Financial Stability, G30 called for the re-evaluation of fair value accounting standards. Their recommendations included:
•    developing more realistic guidelines for dealing with distressed markets;
•    principles-based regulation;
•    full transparency in the manner in which reserves are determined and evaluated; and
•    financial institutions should dedicate wholly adequate resources to the valuation and price verification processes.
Jerry de St. Paer, executive chairman of GNAIE, said the G30 fair value accounting recommendations were “a meaningful step in adding clarity to the ongoing examination of the proper way to account for assets in disorderly markets.”
The GNAIE said its “position continues to be that the application of fair value accounting measurements to an inactive, illiquid and disorderly market for structured credit products helped fuel the worldwide credit crisis.”
Although the fair value measurements “did not cause the global credit crisis,” GNAIE adds, “unreliable, and non-transparent fair value measurements served as a powerful accelerant.”
GNAIE recommends that when markets are not active, liquid or orderly, there should be a temporary migration from fair value accounting to an amortized cost/incurred loss methodology.