American Council of Life Insurers 101 Constitution Avenue, NW, Washington, DC 20001-2133 (202) 624-2324 t (866) 953-4097 f mikemonahan@acli.com www.acli.com

Michael Monahan Senior Director, Accounting Policy October 16, 2014 Hans Hoogervorst, Chairman International Accounting Standards Board 30 Cannon Street London EC4M 6XH, United Kingdom Re: Discussion Paper DP/2014/1 Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging Dear Mr. Hoogervorst: The American Council of Life Insurers (ACLI)1 appreciates the opportunity to comment on the Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging – Discussion Paper (“DP”), issued April 2014. The following represents our general comments and answers to the DP questions for preparers of financial statements. ACLI appreciates that IASB recognizes the importance of dynamic risk management of open portfolios and, accordingly, dynamic hedging activities and the need for a specific accounting approach to represent dynamic risk management in entities’ financial statements. However, ACLI is concerned that there are a number of uncertainties in the DP, such as issues related to hedge effectiveness, which needs to be more operationally feasible to apply than in the current guidance. The DP is largely based on a balance sheet that assumes assets and liabilities are measured at amortized cost, which is not the case for life insurance entities (i.e., a significant portion of a life insurer’s assets are measured fair value FV-OCI). Under the IFRS 4 Exposure Draft (IFRS 4 ED), long-term insurance liabilities are proposed to be measured under the building blocks approach at current value which includes the contractual service margin (CSM) component. Adjusting the CSM may create anomalous effects when options and guarantees are hedged. Hedging instruments are reported at fair value through net income, with no mechanism analogous with CSM unlocking and with no OCI. Therefore, CSM unlocking to offset cash flow changes related to hedged risks creates an accounting mismatch.

1 The American Council of Life Insurers (ACLI) is a Washington, D.C.-based trade association with more than 300 legal reserve life insurer and fraternal benefit society member companies operating in the United States. ACLI advocates in federal, state and international forums. Its members represent more than 90 percent of the assets and premiums of the U.S. life insurance and annuity industry. In addition to life insurance, annuities and other workplace and individual retirement plans, ACLI members offer long-term care and disability income insurance, and reinsurance. Its public website can be accessed at www.acli.com.

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Without a broad hedging solution, insurers will report significant non-economic financial statement volatility reported in profit or loss related solely to the accounting mismatch from the different accounting afforded the options and guarantees and the derivatives used to hedge them. This is why we believe hedging solutions will need to be developed specifically for the insurance industry. In summary, ACLI encourages IASB to continue its work to resolve these issues, and urges IASB to continue to recognize that an entity’s business model should be a consideration in any final standard. We welcome your feedback and questions on our submission. The following Appendix provides responses to the specific DP questions for respondents. Sincerely,

Michael Monahan Senior Director, Accounting Policy cc: Yuji Yamashita, IASB Visiting Fellow Mariela Isern, IASB Senior Technical Manager Jeffrey Gabello, FASB Project Manager Nick Milone, FASB Practice Fellow Jacob Hager, FASB Postgraduate Technical Assistant

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APPENDIX QUESTIONS FOR RESPONDENTS Section 1—Background and introduction to the portfolio revaluation approach (PRA). Question 1—Need for an accounting approach for dynamic risk management Do you think that there is a need for a specific accounting approach to represent dynamic risk management in entities’ financial statements? Why or why not? ACLI Response: Yes. We believe a specific accounting approach for risk management is needed by reporting entities to reflect the underlying economics of their risk management activities in the financial statements. However, the emphasis should be on macro hedge accounting (versus dynamic) that addresses risk mitigation. The interest rate risk management strategies set forth in the DP arises from banks. Other financial institutions may have different exposures that they manage. Life insurers face several market risks and utilize several mitigating tools: Key market risks embedded in insurance liabilities

Source Issues Mitigating tools

Interest rate risk Guarantees and asymmetric payout of life policies. Re-investment risk. Options embedded in life policies. Options sold to customers of life policies.

Fixed income securities might not be available for specific maturities (or not available at all for longer duration insurance liabilities), and credit/spread risk has to be borne.

Swaps Swaptions Forward starting swap Forward starting bonds Interest rate floors Constant maturity swaps Constant maturity options Equity investments, real estate, alternative investments

Equity risk (product related) Options sold to customers of life policies. Guarantees sold to or embedded in life policies. Annuities

Options Equity investments Credit default swaps Futures contracts Total return swaps

Other market risks

Credit spread

Liquidity needs in case of lapse in life policies.

Fixed income securities might have limited liquidity.

Credit default swaps

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Default risk Issuer of fixed income securities.

Realized gains and impact on book yield.

Equity investments, real estate, alternative investments

Investments in underlying assets.

Speed of execution. Exposure to risk profile is not necessarily linear.

Equity options Future contracts Forward contracts

Foreign currency risk FX mismatch between assets and liabilities

Cross Currency Swaps Foreign Exchange Forwards

The main sources of interest rate exposure for life insurers are:

• Guaranteed Liabilities – traditional insurance provides long term guaranteed benefits in exchange for often guaranteed premiums. These products generate exposure to declining interest rates as, when rates drop, insurers earn lower returns on their reinvestment of premiums and maturing financial assets.

• Adjustable Rate Products – returns are passed through to policyholders, typically by adjusting crediting rates. Minimum crediting rate guarantees and book value withdrawal options leave insurers exposed to decreases or increases in rates accordingly.

• Variable Annuity Products – these products allow policyholders to invest in mutual fund-like investments, and may have guaranteed withdrawal, income, accumulation or death benefits. These embedded options create exposure to interest rate market risks.

• Fixed and Equity Indexed Annuity Products – these products allow policyholders to participate in indexed returns. These embedded options create exposure to both interest rate and equity market risk.

The main sources of equity exposure for life insurers are:

• Variable Annuity Products – these products allow policyholders to invest in mutual fund-like investments, and may have guaranteed withdrawal, income, accumulation, and death benefits. These embedded options create exposure to equity market risks.

• Equity Indexed Annuity Products – these products allow policyholders to participate in indexed returns. These embedded options create exposure to equity market risks.

Question 2—Current difficulties in representing dynamic risk management in entities’ financial statements (a) Do you think that this DP has correctly identified the main issues that entities currently face when applying the current hedge accounting requirements to dynamic risk management? Why or why not? If not, what additional issues would the IASB need to consider when developing an accounting approach for dynamic risk management? (b) Do you think that the PRA would address the issues identified? Why or why not?

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ACLI Response: The main focus of the DP is on interest rate risk management and, thus, does not address other risks and their respective risk management activities. Therefore, it is uncertain if the DP has identified the main issues entities currently face when applying the current hedge accounting requirements to dynamic risk management activities. Further, the proposal is largely based on a balance sheet approach that assumes assets and liabilities are measured at amortized cost. For life insurance contracts and life insurance entities, this is not the case. Under the IFRS 4 ED, long-term insurance liabilities are proposed to be measured under the building blocks approach at current value. The current value of an insurance contract as proposed includes fulfillment cash flows, a risk adjustment, discounting, and a contractual service margin (CSM), which represents estimated risk-adjusted unearned profit in the contract. The insurance industry has proposed that the CSM be unlocked for changes in estimates of all future cash flows to present a cohesive accounting approach for returns shared with policyholders and management fees. Insurance liabilities will include the current value of any options and guarantees embedded within the insurance contracts. When returns from underlying items are shared with policyholders, the CSM should be adjusted for changes in the underlying items, as those returns were used in determining the initial CSM. Adjusting the CSM may create anomalous effects when options and guarantees are hedged. Hedging instruments are reported at fair value through net income, with no mechanism analogous with CSM unlocking and with no OCI. Therefore, CSM unlocking to offset cash flow changes related to hedged risks creates an accounting mismatch. Without a broad hedging solution, insurers will report significant non-economic financial statement volatility reported in profit or loss related solely to the accounting mismatch from the different accounting afforded the options and guarantees and the derivatives used to hedge them. This is why we believe hedging solutions will need to be developed specifically for the insurance industry. To provide a workable hedging solution for insurance contracts, we believe an exception to the general proposed principle of unlocking the CSM is warranted. The change in value of the options and guarantees should change with the change in value of the derivative instrument in the financial statements. Differences between current and prior estimates of the present value of future cash flows attributable to options and guarantees, if hedged with a financial instrument, should be allowed to be presented in profit and loss to match the change in value of the derivative instrument that is also recorded in profit and loss. The proposed exception would apply to both participating and non-participating contracts. This approach is consistent with the concept of the PRA. However, this may not ultimately be addressed within IFRS 4 and, if not, should be addressed within macro hedging. Further, a majority of an insurer’s assets may be held at FV-OCI, and we believe the macro hedging solution must be extended to assets measured at FV-OCI. The IASB might also consider the documentation and audit requirements when developing an accounting approach for dynamic risk management. For example, can the risk managed as described in paragraph 1.30 (p. 16) and 2.2.2 (p. 24) be clearly identified and isolated? Section 2—Overview. Question 3—Dynamic risk management Do you think that the description of dynamic risk management in paragraphs 2.1.1–2.1.2 is accurate and complete? Why or why not? If not, what changes do you suggest, and why?

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ACLI Response: No. The following two items are recommended changes:

In paragraph 2.1.1, the DP states that dynamic risk management is undertaken for open portfolios. For insurance companies, dynamic risk management is not necessarily based on whether the portfolio of insurance contracts or embedded derivatives related to insurance contracts is open or closed. Instead, it is based on whether there is dynamic sensitivity to a hedged risk, such as interest rates or equity prices. For example, a closed portfolio of insurance contracts may have more sensitivity to interest rates when equity prices decline and guarantees are more in the money. Therefore, the definition should be expanded to include not just open portfolios, which applies to banks, but to any portfolio where sensitivity to the hedged risk may change dynamically. Additionally, in paragraph 2.1.2 (c), the DP states that only risk arising from external exposures is included within the managed portfolio. In general, exposure to risk resulting from hedged items is external. The contract creates a risk to changes in interest rates or equity market, which are external factors. What might not be external is the hedging instrument used to hedge the exposure. Instead, an entity could offset a risk created by external factors from one product with the risk created by external factors from another product to result in an internal hedging transaction. Thus, the DP should state that only hedging instruments purchased from external parties may be used to apply this PRA macro hedging approach. It seems as though the concept of internal versus external hedging instruments should be included within the scope of the guidance, and not within the definition of dynamic risk management.

Section 3—The managed portfolio. Question 4—Pipeline transactions, EMB and behaviouralisation Pipeline transactions (a) Do you think that pipeline transactions should be included in the PRA if they are considered by an entity as part of its dynamic risk management? Why or why not? Please explain your reasons, taking into consideration operational feasibility, usefulness of the information provided in the financial statements and consistency with the Conceptual Framework for Financial Reporting (the Conceptual Framework). EMB (b) Do you think that EMB should be included in the PRA if it is considered by an entity as part of its dynamic risk management? Why or why not? Please explain your reasons, taking into consideration operational feasibility, usefulness of the information provided in the financial statements and consistency with the Conceptual Framework. Behaviouralisation (c) For the purposes of applying the PRA, should the cash flows be based on a behaviouralised rather than on a contractual basis (for example, after considering prepayment expectations), when the risk is managed on a behaviouralised basis? Please explain your reasons, taking into consideration operational feasibility, usefulness of the information provided in the financial statements and consistency with the Conceptual Framework.

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ACLI Response: (a) Pipeline transactions – We believe pipeline transactions should be included in the PRA if they are

considered by an entity as part of its dynamic risk management. From a conceptual perspective, such transactions are not far removed from unrecognized probable forecasted transactions for which hedge accounting is allowed under IFRS 9.

ACLI considered transactions that are allowed under hedge accounting in IFRS 9 (and IAS 39) and the accounting for those transactions. Under IFRS, it is possible to hedge the fair value of an unrecognized firm commitment or the cash flows of an unrecognized, highly probable forecasted transaction, where there is no binding contractual commitment by either party if the transaction meets other requirements for hedge effectiveness and hedge accounting conditions.

1. When an unrecognized transaction is designated as a fair value hedge, the gain or loss on

the hedging instrument is recognized in profit or loss (or OCI, if the hedging instrument hedges an equity instrument for which the entity has elected to present changes in fair value in OCI). The hedging gain or loss on an unrecognized hedged item is recognized as an asset or liability with a corresponding gain or loss recognized in profit or loss. When the hedged item is recognized, the initial carrying amount is adjusted to include the cumulative change in the fair value of the hedged item that was recognized in the statement of financial position.

2. When an unrecognized transaction is designated as a cash flow hedge, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized directly in OCI and the ineffective portion of the gain or loss on the hedging instrument is recognized in profit or loss. In this way, the derivative during the period when the asset or liability is unrecognized is appropriately reflected at fair value, but to the extent that the hedge is effective, it does not affect current period profit or loss. Once the financial asset or liability is recognized, the gains or losses that were recognized in OCI are reclassified to profit or loss over the period or periods in which interest expense or income is recognized. Any portion not expected to be recovered is reclassified to profit or loss immediately.

Based on these two approaches under IFRS 9, under the PRA, two possibilities exist:

1. Treat this similar to an unrecognized firm commitment forecasted transaction designated as a fair value hedge and record the change in the fair value of the hedging instrument through profit or loss. Also, recognize as an asset or liability, on the statement of financial position, changes in the fair value of the hedged items with a corresponding impact to profit or loss, and recognize these assets or liabilities together with pipeline transactions, as they become recognized. The practice of recognizing assets and liabilities for unrecognized transactions that may not take place has already been established by IFRS 9 (and IAS 39 before it). The challenge arises in determining how much to recognize as an asset or liability related to the unrecognized pipeline transactions and how much of the recognized asset or liability to record with each pipeline transaction. Conceptually, it would make sense to estimate a volume of transactions, record the asset or liability based on that estimated volume and reflect adjustments to recognized transactions based on that estimated volume. An entity could adjust its expectations, but an adjustment to profit and loss and derecognition of a portion of the recorded asset or liability should be recorded to reflect this change in expectations, since the previous hedging portfolio was based on the original expectations. In this way, the success or failure of the hedging program would be accurately reflected in the financial statements.

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2. Under the proposed PRA, both the “hedged item” and the “hedging instruments” are measured for changes in the designated risk. Though the practice of recognizing assets and liabilities for unrecognized transactions is established already within IFRS, some may believe that recognizing amounts for transactions that may not meet the definition of highly probable would be inappropriate, as proposed by the initial PRA model presented in paragraph 2.2.3 of the DP. Using a recognition approach consistent with cash flow hedging in IFRS may alleviate this concern. Under this approach an entity would measure the amount that estimated pipeline transactions would be affected by changes in interest rates. An amount, less than or equal to the amount of the change in the fair value of the dynamic hedging portfolio, would be recognized in OCI and any portion above that amount would be recognized directly in profit or loss. The amount reflected in profit or loss would be ineffectiveness of the dynamic hedging activities. As transactions emerge, the amount initially recorded in OCI would be recycled to profit or loss, together with recognition of the pipeline transactions. To the extent that hedged volumes are inconsistent with actual volumes of transactions, or that the level of the hedged risk (such as an interest rate) on issued instruments is inconsistent with forecasted amounts, a portion of the amount recognized in OCI would be recognized in profit or loss. An allocation approach would be required to allocate OCI to profit or loss over the period of the expected recognition and to measure the true-up from expected to actual volumes and rates. While neither approach is simple, it is operationally feasible on a portfolio basis and conceptually consistent with IFRS 9 for hedging unrecognized transactions. Additionally, it serves the intended purpose of hedging the yield on those pipeline transactions and reflects the success or failure of those dynamic risk management activities in the financial statements in a useful way.

(b) Equity Model Book – We believe hedging for equity model book should be included in the PRA as part of dynamic risk management. However, the approach could be more intuitive than that proposed in the DP.

Banks are not the only entities to dynamically hedge net income exposures to interest rates, equity market, or other risks. It appears that this proposal is addressing dynamic risk management resulting from asset-liability management (ALM) mismatches where either all or some of the portfolio is recognized on an amortized cost basis or, in the alternative approach, on a fair value through OCI basis. In these situations, interest income and expense are recognized in profit or loss (for interest rate risk) or if the assets or liabilities are sensitive to equity market risks, the assets or liabilities may be sensitive in unbalanced ways or in ways that are not reflected in profit or loss, despite the risk existing. Because the assets and liabilities are mismatched and not reflected at fair value through profit or loss, dynamic risk management activities that address this ALM mismatch reflect the change in all future cash flows at once, while the assets and liabilities reflect those changes through cash flows received or paid over time. In this situation, the assets and liabilities creating the mismatch are recognized. The mismatch is reflected through the cash flows received over time. Given that the assets and liabilities creating the mismatch are identifiable by the reporting entity, the PRA, as proposed, seems like it would appropriately present the financial position of the entity. Both the assets and liabilities could be remeasured each period for changes in the hedged risk and that portion recognized in profit or loss, which could be matched against the change in the fair value of the hedging instruments reflected at fair value through profit or loss. It seems less appropriate to create a synthetic “equity” portfolio on which to apply the dynamic risk management. Under current hedge accounting, the excess of assets

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over liabilities or the excess of liabilities over assets would be designated as the hedged item. To the extent the hedged risk is not the same on assets or liabilities, it may be most appropriate to combine the assets and the liabilities into a single portfolio to be remeasured together, rather than just remeasuring the excess for dynamic risk management.

(c) Behaviouralisation - For the purposes of applying the PRA, the cash flows should be based on

behaviouralised expectations. From a conceptual perspective, most IFRS valuations, such as fair value measurements, are performed on a best estimate basis. Best estimates include behaviouralisation. For example, when measuring the expected fair value of a guaranteed minimum accumulation benefit (GMAB) as an embedded derivative recorded at fair value through profit or loss, applying the principles of IFRS 13, the measurement includes market risks (as reflected by forward interest rate curves and other market measurements) and policyholder behavior or expectations (such as mortality and lapse). When measuring a provision under IAS 37, an entity considers the range of possible outcomes to arrive at an estimate of the most likely amount. The most likely amount recorded may be higher or lower than the best estimate based on whether more possible outcomes are higher or lower than that estimate. This approach also considers behaviouralisation. The consideration by insurance entities of lapse behaviors by policyholders is extremely similar to the consideration of prepayment behaviors by banks, though one is measuring a liability, while the other is measuring an asset. In either situation, failing to consider behaviouralisation will result in over-hedging in dynamic risk management. Since the purchase of derivative instruments is not free and over-hedging would create additional economic risks, it would not be appropriate for entities to dynamically risk manage in a way that ignores expected behavior. Therefore, it is important that behaviouralisation is included to replicate expectations for dynamic risk management and reflected in the PRA to provide the most appropriate financial information to users of financial statements. Paragraph 3.4.2 (p. 28) of the DP states that “using a behaviouralised approach for the PRA does not change the measurement of the demand deposit liability itself in accordance with applicable IFRSs.” If the PRA would remeasure the portfolio of hedged items (demand deposit liabilities, in this example) for the change in fair value due to the hedged exposure and record that change as an adjustment to the demand deposits, how would using a behaviouralised approach for the PRA not change the measurement of the demand deposit liability? This statement is confusing and seems inaccurate.

Question 5—Prepayment risk When risk management instruments with optionality are used to manage prepayment risk as part of dynamic risk management, how do you think the PRA should consider this dynamic risk management activity? Please explain your reasons. ACLI Response: Most insurance entities do not purchase one-sided derivatives to manage prepayment (or lapse) risk. Instead, insurance entities dynamically hedge the combined equity and interest rate risk, which drive lapse behaviors. However, it seems theoretically appropriate to apply the PRA to prepayment risks. For entities holding assets where prepayment risk drives a reinvestment risk, such as for mortgages, significant prepayment is often due to declines in interest rates. However, it would be complex. There are at least two possible approaches that might be applied:

1. The less complex choice might be to combine the options, interest rate swaps, and other derivatives used to manage the interest rate risk into a single dynamic hedge portfolio, then to

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measure the change in the fair value of the hedged item for changes in interest rate (or a portion of the interest rate risk, if not fully hedged). In theory, if prepayments occur, the options would pay and would be removed from the hedging portfolio, and if the entity was correct in its assumptions, an offsetting amount of assets would prepay and be removed from the asset portfolio. In this situation, it seems like the changes in fair value could be reflected appropriately in a combined fashion.

2. Another approach would be to apply a bottom-layer approach as discussed in question 7. Question 6—Recognition of changes in customer behaviour Do you think that the impact of changes in past assumptions of customer behaviour captured in the cash flow profile of behaviouralised portfolios should be recognised in profit or loss through the application of the PRA when and to the extent they occur? Why or why not? ACLI Response: Yes, changes in past assumptions of customer behaviour captured in the cash flow profile of behaviouralised portfolios should be recognized in profit or loss through the application of the PRA. The IASB’s Review of the Conceptual Framework for Financial Reporting defines the purpose of the statement of profit or loss as follows:

“To be useful, information about recognized items of income and expense should help users of financial statements to understand the return that the entity has produced on its economic resources and how efficiently and effectively management has used the entity’s resources. This information helps users to assess the entity’s prospects for future returns.”

The impact of a change in assumptions is an important factor in the company’s ability to manage its resources, and therefore should be reflected in profit or loss. This is conceptually similar to accounting for insurance contracts, where changes in cash flows related to current and past events are recognized immediately in net income, while changes in cash flows related to future events are recognized on the statement of financial position. Question 7—Bottom layers and proportions of managed exposures If a bottom layer or a proportion approach is taken for dynamic risk management purposes, do you think that it should be permitted or required within the PRA? Why or why not? If yes, how would you suggest overcoming the conceptual and operational difficulties identified? Please explain your reasons. ACLI Response: Life insurers adjust projected insurance contract liabilities for future expectations (e.g., insurance sales, lapses, surrenders, death/illness, etc.) at a portfolio level, since life insurers do not know in advance the individual contracts that will terminate, but have reasonable expectations for such future events. Insurers employ behaviouralisation to portfolio cash flows to reflect expectations about these non-market risks, such as lapse, surrenders, and mortality or morbidity. Applying the PRA to the entire portfolio without considering these policyholder behaviors would not reflect the underlying risk management practices of insurers. Life insurers use derivatives to manage asset-liability duration gap (i.e., hedging a net position) within pre-established risk tolerances which govern the amount of derivative notional required or permitted to offset the net impact of changes in the underlying hedged risk (e.g., interest rates). As such, in the absence of a proposed model that more closely reflects the underlying asset-liability duration gap risk management practices deployed by life insurers, a bottom layer or

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proportional type approach would be more aligned with the underlying risk management practices of life insurers and should be permitted within the PRA. However, a model that reflects the life insurer’s underlying risk management practices (i.e., asset-liability duration gap risk management) would be the preferred solution and should be further considered by the IASB. We do not believe that tracking and operational complexity can be entirely eliminated under the approaches discussed in the DP. For example, the bottom layer approach would require tracking when actual terminations of the hedged risk positions fall below the pre-established levels (i.e., over-hedging situations) and the proportional approach would require tracking in situations when the proportion hedged changes. Alternatively, with the assumption that insurance contract liabilities are recorded through OCI for changes in value related to interest rate risk and profit or loss for changes related to all other components (as proposed in IASB’s 2013 ED for Insurance Contracts), when the derivatives are lower than exposed insurance contract liabilities hedged, the “effective” fair value of derivative instruments should be deferred in OCI to match changes in insurance liabilities. The fair value of the derivative positions that are greater than the exposed insurance liabilities hedged, as determined by risk management practices, should be recorded in profit or loss as part of ineffectiveness. The “effective" fair value of hedging instruments deferred in OCI should impact profit or loss similar to insurance liabilities that are being hedged. A bottom layer or proportion approach should be optional. Existing guidance includes criteria that must be met to apply a bottom layer approach, but application of that approach is optional. For the PRA, we considered the information in existing guidance and in the DP and concluded:

• A bottom layer approach should be permitted, but not required within the PRA.

• Consistent with other guidance permitting bottom layer approaches, certain criteria needs to be established for the election of a bottom layer approach. However, the criteria to be established should accommodate the dynamic nature of risk management practices for an open portfolio.

• Additionally, the bottom layer should be revalued with respect to the hedged risk, including prepayment risk. In theory, the amount of prepayment risk would be minimal in the bottom layer as the bottom layer contains items least likely to prepay. However, it would be inappropriate to ignore embedded options in the contracts. The approach to valuing the prepayment risk would take into consideration the entire portfolio of hedged items and include the risk that the bottom layer would be breached in the fair value measurement. In a stochastic model, this change in fair value related to prepayment risk in the bottom layer would only include the discounted cash flows in scenarios after the bottom layer is breached. Using the example in the DP, the effect on the fair value of the bottom layer would be measured using the prepayment cash flows from scenarios where more than CU40 had already been prepaid and averaged together with all of the scenarios where that amount was $0. This approach would not require detailed tracking of groups of layers and could be applied in a dynamic risk management situation.

• Tracking layers in a detailed way and performing an amortization approach related to those layers does not seem as though it would provide more relevant information than the above.

Question 8—Risk limits Do you think that risk limits should be reflected in the application of the PRA? Why or why not?

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ACLI Response: We agree that entities define risk limits and purposefully decide not to hedge certain exposures. We believe the risk limits should be determined based on the actual defined risk management practices (i.e., “grid point sensitivity” / dollar duration, etc.) of the entity and not defined by the accounting standards. However, we do not believe risk limits should be reflected in the application of the PRA. This would place pressure on risk managers to have wider than appropriate risk limits. Also, unhedged risks should be reflected in an entity’s financial statements using the accounting usually applied under existing standards, even if those risks are within limits set by the entity. Otherwise, it will not be clear to financial statement users that unhedged risks exist, since the setting of risk limits could eliminate real volatility in profit or loss or cash flows. Question 9—Core demand deposits (a) Do you think that core demand deposits should be included in the managed portfolio on a behaviouralised basis when applying the PRA if that is how an entity would consider them for dynamic risk management purposes? Why or why not? (b) Do you think that guidance would be necessary for entities to determine the behaviouralised profile of core demand deposits? Why or why not? ACLI Response: Yes, core demand deposits should be included in the managed portfolio on a behaviouralised basis when applying the PRA. Insurance liabilities, with respect to behaviouralisation, are similar to core demand deposits, particularly on participating contracts. (See Question 3, where this is discussed in more detail.) There should not be any difference between assets and liabilities for purposes of applying behaviouralisation. To the extent that portfolios move dynamically and are hedged together for similar risks, the portfolio of dynamic risk management derivatives and portfolio of liabilities, where some are added and some removed, would likely not experience a cliff effect as described in 3.9.8. Even in portfolios where no new contracts are added to the hedged items, since the portfolio was open at one point, it seems unlikely that contracts would fall off in a cliff. Since entities already consider behaviouralisation in determining how to hedge portfolios in order to avoid expensive over- or under-hedging, guidance about how entities should determine the behaviouralised profile seems unnecessary. Question 10—Sub-benchmark rate managed risk instruments (a) Do you think that sub-benchmark instruments should be included within the managed portfolio as benchmark instruments if it is consistent with an entity’s dynamic risk management approach (ie Approach 3 in Section 3.10)? Why or why not? If not, do you think that the alternatives presented in the DP (i.e., Approaches 1 and 2 in Section 3.10) for calculating the revaluation adjustment for sub-benchmark instruments provide an appropriate reflection of the risk attached to sub-benchmark instruments? Why or why not? (b) If sub-benchmark variable interest rate financial instruments have an embedded floor that is not included in dynamic risk management because it remains with the business unit, do you think that it is appropriate not to reflect the floor within the managed portfolio? Why or why not?

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ACLI Response: ACLI could not think of practical situations where a sub-benchmark interest rate would be included in a swap or other derivative instrument. However, none of the approaches presented in the DP for handling this situation seemed appropriate, for the following reasons:

• Using a sub-benchmark interest rate to discount something would generally not result in a fair value measurement, as defined by IFRS 13.

• It is inappropriate to pretend cash flows are different than they are.

• It is inappropriate to ignore embedded options when performing fair value measurements.

• Using a benchmark or higher rate to discount cash flows of a sub-benchmark instrument would result in recognizing all profits in the derivative at the inception of the hedging relationship.

Section 4—Revaluing the managed portfolio. Question 11—Revaluation of the managed exposures (a) Do you think that the revaluation calculations outlined in this Section provide a faithful representation of dynamic risk management? Why or why not? (b) When the dynamic risk management objective is to manage net interest income with respect to the funding curve of a bank, do you think that it is appropriate for the managed risk to be the funding rate? Why or why not? If not, what changes do you suggest, and why? ACLI Response: We agree with the PRA as it applies to the management of interest rate risk (i.e., it is present value-based as is the forward curves that determine fair value of the particular interest rate index, such as the funding rate). Thus, for management of interest rate risk exposures, the hedge accounting mechanics in the DP should provide results that are consistent with risk management reporting (i.e., effective offsetting). However, revaluation calculations may differ for other types of managed risks and thus, the DP should be expanded to address those types of risks. Question 12—Transfer pricing transactions (a) Do you think that transfer pricing transactions would provide a good representation of the managed risk in the managed portfolio for the purposes of applying the PRA? To what extent do you think that the risk transferred to ALM via transfer pricing is representative of the risk that exists in the managed portfolio (see paragraphs 4.2.23–4.2.24)? (b) If the managed risk is a funding rate and is represented via transfer pricing transactions, which of the approaches discussed in paragraph 4.2.21 do you think provides the most faithful representation of dynamic risk management? If you consider none of the approaches to be appropriate, what alternatives do you suggest? In your answer please consider both representational faithfulness and operational feasibility. (c) Do you think restrictions are required on the eligibility of the indexes and spreads that can be used in transfer pricing as a basis for applying the PRA? Why or why not? If not, what changes do you recommend, and why?

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(d) If transfer pricing were to be used as a practical expedient, how would you resolve the issues identified in paragraphs 4.3.1–4.3.4 concerning ongoing linkage? ACLI Response: We have no comment at this time. Question 13—Selection of funding index (a) Do you think that it is acceptable to identify a single funding index for all managed portfolios if funding is based on more than one funding index? Why or why not? If yes, please explain the circumstances under which this would be appropriate. (b) Do you think that criteria for selecting a suitable funding index or indexes are necessary? Why or why not? If yes, what would those criteria be, and why? ACLI Response: We have no comment at this time. Question 14—Pricing index (a) Please provide one or more example(s) of dynamic risk management undertaken for portfolios with respect to a pricing index. (b) How is the pricing index determined for these portfolios? Do you think that this pricing index would be an appropriate basis for applying the PRA if used in dynamic risk management? Why or why not? If not, what criteria should be required? Please explain your reasons. (c) Do you think that the application of the PRA would provide useful information about these dynamic risk management activities when the pricing index is used in dynamic risk management? Why or why not? ACLI Response: This may be proprietary information that may not be disclosed. Section 5—Scope. Question 15—Scope (a) Do you think that the PRA should be applied to all managed portfolios included in an entity’s dynamic risk management (i.e., a scope focused on dynamic risk management) or should it be restricted to circumstances in which an entity has undertaken risk mitigation through hedging (i.e., a scope focused on risk mitigation)? Why or why not? If you do not agree with either of these alternatives, what do you suggest, and why? (b) Please provide comments on the usefulness of the information that would result from the application of the PRA under each scope alternative. Do you think that a combination of the PRA limited to risk mitigation and the hedge accounting requirements in IFRS 9 would provide a faithful representation of dynamic risk management? Why or why not? (c) Please provide comments on the operational feasibility of applying the PRA for each of the scope alternatives. In the case of a scope focused on risk mitigation, how could the need for frequent changes to the identified hedged sub-portfolio and/or proportion be accommodated?

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(d) Would the answers provided in questions (a)–(c) change when considering risks other than interest rate risk (for example, commodity price risk, FX risk)? If yes, how would those answers change, and why? If not, why not? ACLI Response: We do not fully agree with any of these alternatives. We think that the PRA should be restricted to circumstances in which an entity has undertaken risk mitigation through hedging (i.e., a scope focused on risk mitigation), and furthermore that hedge accounting should continue to be elective in nature so that even if an entity has undertaken risk mitigation through hedging the PRA should be an election. Question 16—Mandatory or optional application of the PRA (a) Do you think that the application of the PRA should be mandatory if the scope of application of the PRA were focused on dynamic risk management? Why or why not? (b) Do you think that the application of the PRA should be mandatory if the scope of the application of the PRA were focused on risk mitigation? Why or why not? ACLI Response:

(a) The objective of macro hedge accounting should be to represent the effect of an entity’s risk management activities in the financial statements, and to reduce accounting mismatches created by the application of various IFRS. As such, the scope of macro hedge accounting should be based on “risk mitigation”.

(b) The application of the macro hedge accounting should be optional. The same principles used

and conclusions reached for the optional application of general hedge accounting model should also be relevant to the macro hedging model. Mandatory application of macro hedging model would create a hierarchy between general hedge accounting model and macro hedging model. As long as a general hedge accounting model and macro hedging model is not applied to the same risk exposure simultaneously, an entity should have the option to either elect the general hedge accounting model, macro hedging model, a combination or neither depending on the business needs, capabilities, and unique circumstances as reflected within the underlying risk management practices of that entity. Although the optional application of the macro hedge accounting model could lead to a lack of comparability between entities, conceptually it is not different from the optional application of the general hedge accounting model, which could also lead to a lack of comparability between entities. In addition, if application of the macro hedge accounting model is mandatory, the lack of comparability may not be eliminated due to the diversity of hedging strategies deployed by each entity.

Question 17—Other eligibility criteria (a) Do you think that if the scope of the application of the PRA were focused on dynamic risk management, then no additional criterion would be required to qualify for applying the PRA? Why or why not? (i) Would your answer change depending on whether the application of the PRA was mandatory or not? Please explain your reasons. (ii) If the application of the PRA were optional, but with a focus on dynamic risk management, what criteria regarding starting and stopping the application of the PRA would you propose? Please explain your reasons.

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(b) Do you think that if the scope of the application of the PRA were to be focused on risk mitigation, additional eligibility criteria would be needed regarding what is considered as risk mitigation through hedging under dynamic risk management? Why or why not? If your answer is yes, please explain what eligibility criteria you would suggest and, why. (i) Would your answer change depending on whether the application of the PRA was mandatory or not? Please explain your reasons. (ii) If the application of the PRA were optional, but with a focus on risk mitigation, what criteria regarding starting and stopping the application of the PRA would you propose? Please explain your reasons. ACLI Response: (a) (i) (ii) We do not support these scope or application alternatives. (b) We think that if the scope of the application of the PRA were to be focused on risk mitigation with optional application that there should be some additional eligibility criteria regarding what is considered as risk mitigation through hedging under dynamic risk management. (i) We do not support this application alternative. (ii) We have no comment at this time. Section 6—Presentation and disclosures. Question 18—Presentation alternatives (a) Which presentation alternative would you prefer in the statement of financial position, and why? (b) Which presentation alternative would you prefer in the statement of comprehensive income, and why? (c) Please provide details of any alternative presentation in the statement of financial position and/or in the statement of comprehensive income that you think would result in a better representation of dynamic risk management activities. Please explain why you prefer this presentation taking into consideration the usefulness of the information and operational feasibility. ACLI Response:

(a) We prefer the separate presentation of aggregate adjustments for both assets and liabilities. We believe this is less operationally burdensome, is more consistent with an insurer’s risk management focus (i.e., the hedging of net positions) and retains the balance sheet valuation of assets and liabilities that facilitates a user’s assessment of an insurer’s ability to generate future net investment income.

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(b) The example provided is not a typical hedging strategy employed by life insurance entities. Nonetheless, we believe the reporting of gross amounts (e.g., actual interest income) is more appropriate, for the reasons consistent with our response to question 18a above.

(c) As noted in our response to question 2, the proposal is largely based on a balance sheet that assumes assets and liabilities are measured at amortized cost. For life insurance contracts and life insurance entities, this is not the case. Under the IFRS 4 ED, long-term insurance liabilities are proposed to be measured under the building blocks approach at current value. The current value of an insurance contract as proposed includes fulfillment cash flows, a risk adjustment, discounting, and a contractual service margin (CSM), which represents estimated risk-adjusted unearned profit in the contract. The insurance industry has proposed that the CSM be unlocked for changes in estimates of all future cash flows to present a cohesive accounting approach for returns shared with policyholders and management fees. Insurance liabilities will include the current value of any options and guarantees embedded within the insurance contracts. When returns from underlying items are shared with policyholders, the CSM should be adjusted for changes in the underlying items, as those returns were used in determining the initial CSM. Adjusting the CSM may create anomalous effects when options and guarantees are hedged. Hedging instruments are reported at fair value through net income, with no mechanism analogous with CSM unlocking and with no OCI. Therefore, CSM unlocking to offset cash flow changes related to hedged risks creates an accounting mismatch. Without a broad hedging solution, insurers will report significant non-economic financial statement volatility reported in profit or loss related solely to the accounting mismatch from the different accounting afforded the options and guarantees and the derivatives used to hedge them. This is why we believe hedging solutions will need to be developed specifically for the insurance industry. To provide a workable hedging solution for insurance contracts, we believe an exception to the general proposed principle of unlocking the CSM is warranted. The change in value of the options and guarantees should change with the change in value of the derivative instrument in the financial statements. Differences between current and prior estimates of the present value of future cash flows attributable to options and guarantees, if hedged with a financial instrument, should be allowed to be presented in profit and loss to match the change in value of the derivative instrument that is also recorded in profit and loss. The proposed exception would apply to both participating and non-participating contracts. This approach is consistent with the concept of the PRA. Further, a majority of an insurer’s assets may be held at FV-OCI, and we believe the macro hedging solution must be extended to assets measured at FV-OCI.

Question 19—Presentation of internal derivatives (a) If an entity uses internal derivatives as part of its dynamic risk management, the DP considers whether they should be eligible for inclusion in the application of the PRA. This would lead to a gross presentation of internal derivatives in the statement of comprehensive income. Do you think that a gross presentation enhances the usefulness of information provided on an entity’s dynamic risk management and trading activities? Why or why not? (b) Do you think that the described treatment of internal derivatives enhances the operational feasibility of the PRA? Why or why not?

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(c) Do you think that additional conditions should be required in order for internal derivatives to be included in the application of the PRA? If yes, which ones, and why? ACLI Response:

(a) We do not believe internal derivatives should be presented in the financial statements because they would not present any additional useful information to the users of financial statements and such treatment is inconsistent with all other internal transactions that are eliminated when preparing consolidated financial statements.

(b) No, for purposes of the entity, the external hedging of the net position is the only relevant hedging that occurs.

(c) Consistent with our responses above, we do not think it is appropriate to include internal derivatives within the financial statements.

Question 20—Disclosures (a) Do you think that each of the four identified themes would provide useful information on dynamic risk management? For each theme, please explain the reasons for your views. (b) If you think that an identified theme would not provide useful information, please identify that theme and explain why. (c) What additional disclosures, if any, do you think would result in useful information about an entity’s dynamic risk management? Please explain why you think these disclosures would be useful. ACLI Response: We have no comment at this time. Question 21—Scope of disclosures (a) Do you think that the scope of the disclosures should be the same as the scope of the application of the PRA? Why or why not? (b) If you do not think that the scope of the disclosures should be the same as the scope of the application of the PRA, what do you think would be an appropriate scope for the disclosures, and why? ACLI Response: We have no comment at this time. Section 7—Other considerations. Question 22—Date of inclusion of exposures in a managed portfolio Do you think that the PRA should allow for the inclusion of exposures in the managed portfolios after an entity first becomes a party to a contract? Why or why not? (a) If yes, under which circumstances do you think it would be appropriate, and why?

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(b) How would you propose to account for any non-zero Day 1 revaluations? Please explain your reasons and comment on any operational implications. ACLI Response: We have no comment at this time. Question 23—Removal of exposures from a managed portfolio (a) Do you agree with the criterion that once exposures are included within a managed portfolio they should remain there until derecognition? Why or why not? (b) Are there any circumstances, other than those considered in this DP, under which you think it would be appropriate to remove exposures from a managed portfolio? If yes, what would those circumstances be and why would it be appropriate to remove them from the managed portfolio? (c) If exposures are removed from a managed portfolio prior to maturity, how would you propose to account for the recognised revaluation adjustment, and why? Please explain your reasons, including commenting on the usefulness of information provided to users of financial statements. ACLI Response: We do not agree with the criterion that once exposures are included within a managed portfolio they should remain there until derecognition as it does not reflect the dynamic risk management of an open portfolio. By their very nature, the exposures in an open portfolio and the underlying risk management strategies change over time. For example, as a result of changes in either risk management strategies or business environment, a lower level of exposure is required to be managed for the underlying risk. (See Question 7, where this is discussed in more detail.) Question 24—Dynamic risk management of foreign currency instruments (a) Do you think that it is possible to apply the PRA to the dynamic risk management of FX risk in conjunction with interest rate risk that is being dynamically managed? (b) Please provide an overview of such a dynamic risk management approach and how the PRA could be applied or the reasons why it could not. ACLI Response: We have no comment at this time. Section 8—Application of the PRA to other risks. Question 25—Application of the PRA to other risks (a) Should the PRA be available for dynamic risk management other than banks’ dynamic interest rate risk management? Why or why not? If yes, for which additional fact patterns do you think it would be appropriate? Please explain your fact patterns. (b) For each fact pattern in (a), please explain whether and how the PRA could be applied and whether it would provide useful information about dynamic risk management in entities’ financial statements.

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ACLI Response: 1. The PRA should be available for dynamic risk management other than banks’ dynamic interest

rate risk management, including multiple risks which are managed jointly. Frequently, entities hedge both the interest rate and equity market risks of insurance contracts using a variety of instruments that are rebalanced daily or even multiple times per day. Because some elements of insurance contracts react both to interest and equity market risks, when one factor changes, the portfolio sensitivity of the other factor also changes. Such hedged risks generally cannot qualify for hedge accounting because the hedging is done on a portfolio basis and is often done dynamically. Since the portfolio of hedging instruments changes, while the portfolio of hedged items (insurance contracts) may change due to lapse, death, or newly issued contracts, current options of hedge accounting are not effective. Under the IFRS 4 ED, changes in fulfillment value due to changes in discount rates are proposed to be recorded through either Other Comprehensive Income (OCI) or through profit or loss based on an accounting policy election for groups of similar portfolios. Often, an insurance entity is only exposed to significant interest rate or equity market risk on a portion of the insurance contract and dynamically hedges only that portion. There are several situations where insurance contracts are dynamically risk managed and should be included in the macro hedging project: Guaranteed Minimum Income Benefits (GMIBs) on variable annuity contracts and Guaranteed Minimum Death Benefits (GMDBs) on both variable and fixed annuity contracts– GMIBs and GMDBs are included as part of the insurance cash flows because the embedded derivatives are themselves considered insurance contracts. Therefore, these are accounted for as part of the insurance contract under current accounting practice and will be accounted for as part of the insurance contract cash flows as proposed under the IFRS 4 ED. Many companies are using either U.S. GAAP or local statutory accounting to measure insurance contracts today. Under U.S. GAAP, GMIBs are measured based on a benefit ratio model, which is not a fair value measurement approach. Changes in the value are classified as change in reserve. Interest rates and equity market risks are not fully reflected in the value. This creates an accounting mismatch. However, because GMIBs and GMDBs are measured separately from other parts of an insurance contract, it would be possible to use one of the proposed PRA through profit or loss approaches to measure the GMIBs or GMDBs for changes due to interest rate and/or equity market risks to match the hedge and to classify those profit or loss amounts together with the applicable hedges to reflect a more complete picture of the risk management activities. Under the IFRS 4 ED, GMIBs and GMDBs are proposed to be measured using a fulfillment cash flow approach as part of the overall cash flows of the insurance contract. There are two possible approaches that could be used to apply macro hedging to this situation:

a. Strip out the GMIB or GMDB from the cash flows of the insurance contract and record it at fair value to match the hedge. The challenge with this approach is the more cash flows are stripped out of the insurance contract value, the less clear it is that the sum of the parts will add up to the entire fulfillment value of a contract and the less clear it is how the contractual service margin would be calculated.

b. Classify an “effective” portion of the dynamic hedge in Other Comprehensive Income to match the change in the fulfillment cash flows. “Effectiveness” could be measured by reclassifying to OCI the effective portion of the derivative hedging instruments measured under the PRA (based on the change in the fair value of the GMIB compared to the change in fair value of the hedge), but the insurance liability could remain undisrupted and any volatility based on ineffectiveness of the dynamic hedge at managing the risk of the GMIB would continue to be classified in profit or loss.

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2. Guaranteed Minimum Withdrawal Benefits (GMWBs) and Guaranteed Minimum Accumulation Benefits (GMABs) accounted for as part of the insurance contract – Certain GMWBs and GMABs are accounted for separately as embedded derivatives at fair value. In these situations, hedging activities match with the features and risk management activities are accurately reflected in the entity’s profit or loss. In certain situations, there may be lifetime payments involved and these features may be considered insurance contracts. This situation becomes exactly like GMIBs and GMDBs with the same considerations.

3. No Lapse Guarantees and other Secondary Guarantees on Universal Life contracts – Under the U.S. GAAP model currently employed by many IFRS-reporting entities, no lapse guarantees on universal life contracts are measured based on the expected additional benefits to be paid on contracts with this feature after the account value is reduced to $0 in excess of assessments deemed to relate to this feature. That value might be $0 or might be quite significant. Benefits are paid only upon death during the no lapse period, which may be a period certain or may be a lifetime benefit. An entity might hedge these guarantees. Similar to GMIB and GMDB, this measurement is not consistent with a fair value and creates an accounting mismatch. Since these are measured separately under current accounting, measuring the feature at fair value for the changes due to equity markets or interest rates would be possible and the PRA could be applied. Also similar to GMIB and GMDB, under the IFRS 4 ED, these cash flows are proposed to become part of the insurance contract cash flows and similar arguments apply to application of the PRA.

4. Par Contract Guarantees – Admittedly, this issue might get addressed when the par contracts measurement model is determined, but for now that is unclear. Insurance companies do significant hedging of guarantees within par contracts, which can create massive accounting mismatches under existing accounting standards such as US GAAP. Risks included are minimum interest guarantees on many par contracts, variable annuity guarantees (such as guaranteed income, death, withdrawal or accumulation benefits), and secondary guarantees on certain universal life contracts (which keep the contract in force under certain conditions even if the account balance is zero). To the extent that hedged risks are impacted by OCI or unlocked CSM, which would not impact the hedging instruments, there could be similar mismatches under the proposed insurance accounting model unless the par contracts model makes effective provision for this. These hedged risks generally cannot qualify for hedge accounting because the hedging is done on a portfolio basis (after all, we do not know which specific contracts will terminate in the next period, but we have expectations of the aggregate terminations, as well as future new sales), and is often done dynamically (where the hedging instruments are rebalanced regularly – possibly daily, or even several times a day – to reflect updated exposure to interest rate, equity and volatility). The OCI option doesn’t necessarily fully address this issue because OCI must be elected for the entire portfolio, and OCI may be appropriate for most of the cash flows in the insurance portfolio except for those relating to the hedged risk. Additionally, the OCI option does not address the issue that the cash flows related to the hedged risk could be offset by CSM unlocking.

5. Interest rate risk – This could impact both participating and non-participating contracts. Insurers often use derivatives to hedge the reinvestment risk related to long term guaranteed contracts. This seems conceptually similar to the interest rate risk described in the macro hedging discussion paper. Again, this is often done on a portfolio level, since we do not know in advance the individual contracts that will terminate, but we have reasonable expectations for future terminations and new business. Further, to the extent OCI is appropriate for the non-hedged cash flows in the contract, and the hedged cash flows are subject to CSM unlocking, there could be accounting mismatches.

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6. Future New Products – The insurance contracts standard is being developed with a principles-

based approach, but informed by the types of insurance contracts that are in force today. Even if the insurance contracts standard addresses all the hedging issues described above, future contract types that we cannot anticipate today may require more general hedging solutions. Thus, we would be reluctant to exclude insurance contracts from the macro hedging project, even if the insurance contracts standard were to address all the issues we know about today, because it is possible that future developments may require a more general solution consistent with banks.

Another important issue is hedging combined risks. Here is an example: Many variable annuity contracts contain guaranteed minimum income benefits (GMIB). Without the guarantee, policyholders can always convert their current account balance to a lifetime payout annuity at current rates. However, with the GMIB, if the account balance has declined, the policyholder can convert a minimum guaranteed amount to a payout annuity, albeit at conservative rates, such as 2% interest and low mortality. Thus, if the equity market goes down, the GMIB can go in the money. Yet, even if the minimum amount is greater than the actual account balance, if interest rates are high enough the policyholder may still be better off converting his current account balance at current rates, rather than converting the higher minimum amount at conservative rates. For example, if the current account balance is CU 100 and the minimum balance is CU 110, but current interest rates are 6%, the policyholder would likely get a higher payout by converting the CU 100 actual balance for a payout annuity priced at 6% and realistic mortality than converting the CU 110 minimum balance for a payout annuity priced at 2% and conservative mortality. We, therefore, are exposed to not only equity risk, but also jointly to interest rate risk, because the guarantee generally only pays off if both equity prices and interest rates fall.

Section 9—Alternative approach—PRA through other comprehensive income. Question 26—PRA through OCI Do you think that an approach incorporating the use of OCI in the manner described in paragraphs 9.1–9.8 should be considered? Why or why not? If you think the use of OCI should be incorporated in the PRA, how could the conceptual and practical difficulties identified with this alternative approach be overcome? ACLI Response: We have no comment at this time.