The development of life assurance accounting and regulation in the UK: reflections on recent proposals for accounting change

At its beginnings in the late sixteenth century, UK life insurance was originally short-term, often one-year, insurance. Its development into a long-term investment medium exposed a tension between the emerging commercial accountancy conventions for stating financial position and results, based on past transactions, and the forward-looking,actuarial approach needed for the valuation of the business for solvency verification and for decisions about distributions. It is argued here that the first Companies Act in 1844 included insurance companies (unlike banks) with the generality of companies, and subjected them to the same accounting and auditing requirements, by default, as there was not yet sufficient confidence in the techniques and standing of actuaries to rely on specialist actuarial valuations. But the resulting confusion over how to present life insurance company accounts led to gradual recognition of the special nature of the public interest in insurance companies, and the nature of the accounting...