Insurers’ Earnings Volatility Tied to Equities Accounting Change
Jun 12, 2018
Many insurers and reinsurers are facing some earnings volatility in 2018 due to a change in accounting requirements for equity securities, Fitch Ratings said in new market commentary.
According to Fitch, companies with significant equity investments are particularly affected in terms of reporting their net earnings.
Here’s what created the volatility: A new requirement beginning Jan. 1, 2018 that companies recognize changes in the fair value of equity investments through their income statement. Before, companies could reflect the changes directly onto the balance sheet through accumulated other comprehensive income. As Fitch noted, gains and losses on equity investments were previously only recognized through the income statement when they were realized through a sale or impairment.