September 28, 1999
New York, NY

SEC Scrutinizes Life Insurers' Reporting
Deborah Whitmore, Partner, AABS Group, Ernest & Young

The Securities and Exchange Commission is taking a closer look this year at life insurance company filings when it spots parts of reports that aren't clear.

In particular, the SEC is taking a second look to check for earnings that appear overstated in order to meet analysts' expectations, accounting estimates that seem to be arbitrarily adjusted and aggressive accounting practices, said to Deborah Whitmore, a partner with Ernst & Young.

"The SEC is concerned it is seeing an erosion in the quality of income reporting," she said Tuesday at a conference in New York co-sponsored by CIBC World Markets and A.M. Best Co. "The quality of reporting in the United States is essential to the health of our markets. If you erode the quality of reporting, you erode trust."

To address issues of reporting, the SEC this year issued Staff Accounting Bulletin No. 99. Some areas likely to be scrutinized are restructuring charges and deferred acquisition costs. She said the SEC has recently had pointed questions about long- and short-duration contracts and has been checking to see whether reserving methodologies are consistent with the length of contracts. "So if you're going to make the argument that you have long-duration contracts, then reserve for them," she said.

In response to a question about the practice of "smoothing" earnings reports, Whitmore said the SEC isn't dedicated to smoothing and doesn't consider volatile earnings to be a bad thing. Steady growth in earnings should be reported only if it's part of the underlying business, she said.

She encouraged insurers to provide the kind of information the SEC wants to see. "You don't want the embarrassment of a restatement or be subject to criminal charges," she said.