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ASSOCIATION ACTUARIELLE INTERNATIONALEINTERNATIONAL ACTUARIAL ASSOCIATION

IASB Board MeetingJune 22, 2006

Presented by Sam Gutterman, FSA, FCASChairman, IAA Committee on Insurance Accounting

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• The IAIS paper

• Other insurance regulatory issues

• Key issues needing further actuarial assessment

Items to be covered

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The IAIS paper

• The IAA strongly supports the desirability of having one set of liabilities for regulatory and general purpose financial reports

− For that purpose, we encourage active dialogue between the IASB and the IAIS

− At a minimum, common definitions and methodology− Any differences should be publicly explained

• Continued concern regarding effects of mismatch of measurement of assets and liabilities

• Appropriate disclosure is a key element in the success of any new measurement system

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The IAIS paper

• The liability for insurance contracts should be determined on a prospective basis, reflecting

− Current estimates− Time value of money− Appropriate risk margins− Features and characteristics of the contract and the

insureds− All expected cash flows, including guarantees, options,

embedded derivatives and embedded assets

• Observable market inputs should be used to the fullest extent possible

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The IAIS paper

• Both insurer and policyholder behavior should be reflected in recognition and measurement

− Imposition of a cash value floor is inconsistent with the recognition of policyholder behavior

• Similar or related contracts issued by an insurer should be measured using a consistent framework

− Measurement of the liability of insurance contracts should be consistent with that of long-term savings contracts

• Expected future cash flows from DPFs that retroactively adjust the price to reflect experience should be recognized in the liability

− Sensitive to the wide variety of participating contracts

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Other insurance regulatory issues

• In 2005 the IAA published the book “A Global Framework for Insurer Solvency Assessment”

− Describes the principles and methods involved in quantifying the total funds needed to provide a certain level of confidence to policyholders and shareholders that policyholders’ obligations will be satisfied

− Emphasizes a total balance sheet approach, for which liabilities and the income statement play an important role

• IAA members are currently assisting IAIS and Solvency II, regarding liabilities and solvency assessment

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Key issues needing further actuarial assessment

• The IAA currently has Working Groups established addressing− Risk/profit margins, assessing

Cost of capital approach Quantile (statistical) approach We do not expect to endorse a single method, but will explore the methods

and limitations of both – we expect an emerging convergence− Use of internal models− Relationship between actuaries, auditors and regulators− Discretionary participation features – in process of formation

• Will continue working with the IAIS on issues listed in paragraph 101 of their paper

• Concepts of economic capital and enterprise risk management are developing rapidly