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Royal & SunAlliance feels pain of IFRS

Royal & SunAlliance, the insurance company, has said a move to IFRS will reduce the value of its assets by £400 million ($764 million). The primary cause is the company's £525 million pension deficit which, under IAS 19 – the reporting standard that deals with employee benefits - will have to be recognised on the balance sheet. The pension fund deficit at year end 2004 has not materially changed since the same time the previous year.

The company will also have to reclassify certain insurance contracts as derivatives, reducing net assets by £100 million. These have previously been offset by so-called claims equalisation provision that provides for claims which do not arise. These are prohibited under IFRS.

Adhering to international reporting standards also means the company will no longer be allowed to recognise long term returns on its investments in the balance sheet. Instead all investments will be treated as available for sale – increasing volatility and further reducing the value of its assets.

 

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