change in the way companies recognise derivative value on the balance sheet, a insurance accountants said.

Oftentimes changes in the underlying value of a derivative are not reflected while the hedge is in place, Ernst & Young's national director for insurance accounting and auditing, Dave Holman, attending the firm's annual market update at the Hamilton Princess, said Thursday.

It is anticipated FASB will ultimately publish a statement on derivatives. The move is currently in consultation stage.

Under the proposed change, a company "would have to carry the instrument at fair value'' when the hedge is in place, Mr. Holman said.

Mr. Holman, with the firm's New York office, is a member of Ernst & Young's insurance steering committee and is the firm's representative on the AICPA insurance companies committee as well as member of the National Association of Insurance Commissioners emerging issues and reinsurance study groups.

This is a "major change'' effecting any entity that uses derivatives, he said.

Derivatives are financial instruments, like futures, whose value is based on another security.

Companies filing financials under generally accepted accounting principles (GAAP), will ultimately have to "indicate on an ongoing basis how much the derivative instrument is worth,'' Jeffrey Webb, a partner with Ernst & Young's international office in New York, seconded to the firm's Bermuda office a year ago, added.

As well as the mechanical effect, more importantly, there is a potential volatility to results, he said.

The change is also an issue for banks and investment companies as many of their clients use derivatives. And as banks and other companies are looking at client's balance sheets, they will have to understand the change, he said.

The move to tighten the criteria for derivatives is part of a ongoing FASB effort to examine all financial instruments, Mr. Webb said.

The tightening could effect financial statements filed after 1997.

Formed in 1973, FASB is an independent self-regulatory agency responsible for establishing and interpreting GAAP.

Other current developments cited by the insurance accountants included; UK GAAP moving toward annual reporting and away from filing every three years, a recent FASB announcement on reserves applicable to companies buying insurance companies, and the Securities and Exchange Commission streamlining securities registration requirements.