Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-27T05:35:15.840Z Has data issue: false hasContentIssue false
  • English
  • Français

Fair Valuation of Liabilities

Published online by Cambridge University Press:  10 June 2011

C.J. Hairs ,
D.J. Belsham ,
N.M. Bryson ,
C.M. George ,
D.J.P. Hare ,
D.A. Smith  and
S. Thompson
C.J. Hairs
Affiliation:
15 Waldegrave Road, Bickley, Bromley, Kent BR1 2JP, U.K. Tel: +44(0)20 8467 0378; Fax: +44(0)20 8285 0002; E-mail: ChrisHairs@aol.com
Get access Rights & Permissions [Opens in a new window]

Abstract

A project to develop an Accounting Standard for Insurance, with the aim of enhancing understandability, relevance, reliability and comparability of general purpose financial reporting for insurance worldwide, is being progressed by the International Accounting Standards Board. The basis of the proposals is that assets and liabilities be shown at fair values (market values for quoted instruments). This paper, prepared by a Working Party established by the Life Board of the United Kingdom actuarial profession, summarises and comments upon a number of the principal features of the proposals, as they have emerged up to September 2001. The paper goes on to consider how a system of reporting for prudential regulatory purposes might be built upon a fair value general reporting base, summarising the thinking of a number of other bodies, proposing certain principles and suggesting lines of development. The appendices to the paper discuss a number of issues in further depth and present some illustrative results of some investigations into applying fair value methods in practice. The emphasis of the paper is on reporting for life assurance business, although many of the principles apply equally to general insurance.

Keywords

Fair ValueEntity SpecificFinancial ReportingMarket Value MarginReplicating PortfolioRisk-Based CapitalStatutory Solvency ReportingStochastic MethodsDeflatorsWith-Profits
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 8 , Issue 2 , 01 June 2002 , pp. 203 - 299
Copyright
Copyright © Institute and Faculty of Actuaries 2002

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

International Accounting Standards Committee (1999). Issues Paper: Insurance. Issues Paper website ‘http://www.iasb.org.uk/cmt/0001.asp?s=100301903&sc={A0BC0C3E-A986–11D5-BE6B-003048110251}&n=1001#issues’Google Scholar
A selection of responses to/comments on the Issues Paper — see below for website address, where many more can be found.Google Scholar
American Academy of Actuaries (2000). Comment letter 84.Google Scholar
European Commission (2000). Comment letter 134.Google Scholar
Exley, C.J., Mehta, S.J.B. & Smith, A.D. (2000). Comment letter 92.Google Scholar
Faculty and Institute of Actuaries (2000). Comment letter 72.Google Scholar
International Actuarial Association (2000a). Comments on the Issues Paper (including 10 attached papers on particular issues). Comment letter 103.Google Scholar
International Actuarial Association (2000b). General overview of a possible approach to insurance liabilities valuation and capital requirements. Comment letter 103.Google Scholar
Joint Response — Institute of Chartered Accountants in England & Wales (ICAEW), Faculty and Institute of Actuaries, Institute of Chartered Accountants Scotland (ICAS) and Association of British Insurers (UK) (2000). Comment letter 80.Google Scholar
International Association of Insurance Supervisors (2000). Comment letter 112. Website source of links to comment letter: ‘http://www.iasb.org.uk/cmt/0001.asp?s=100301903&sc={A0BC0C3E-A986–11D5-BE6B-003048110251}&n=3225’Google Scholar
Basel Committee on Banking Supervision (2001). Overview of the New Basel Capital Accord. Website link ‘http://www.bis.org/publ/bcbsca02.pdfGoogle Scholar
Cairns, A.J.G. (2001). From financial economics to fair valuation. Proceedings of the 11th International AFIR Colloquium, Toronto, 1, 135–166. Website link ‘http://www.ma.hw.ac.uk/~andrewc/papers/ajgc27.pdfGoogle Scholar
Casualty Actuarial Society Task Force (2000). White paper on fair valuing property/casualty insurance liabilities. Website link ‘http://www.casact.org/research/tffvl/index.htm’Google Scholar
Clay, G.D., Frankland, R., Horn, A.D., Hylands, J.K., Johnson, C.M., Kerry, R.A., Lister, J.R., Loseby, R.L. & Newbould, B.R. (2001). Transparent with-profits — freedom with publicity. B.A.J. 7, 365–465 and 725–746.Google Scholar
Davies, H. (2001). Insurance Institute of London Annual Luncheon — Speech by Howard Davies. Website link ‘http://www.fsa.gov.uk/pubs/speeches/sp75.html’Google Scholar
Dowd, K. (1998). Beyondvalueatrisk: the new science of risk management. Wiley, New York.Google Scholar
Englander, S. (2000). Conceptual approach to a fair value of insurance. Private correspondence.Google Scholar
Financial Services Authority (2000a). A new regulator for the new millennium. FSA website.Google Scholar
Financial Services Authority (2000b). Some aspects of regulatory capital. FSA website.Google Scholar
Financial Services Authority (2000c). Building the new regulator — Progress Report 1. FSA website.Google Scholar
Financial Services Authority (2001a). Consultation paper 97 — integrated prudential sourcebook. FSA website.Google Scholar
Financial Services Authority (2001b). Individual capital ratios for banks. FSA website.Google Scholar
Forfar, D.O. & Masters, N.B. (1999). Developing an international accounting standard for life assurance business. B.A.J. 5, 621–698.Google Scholar
Forfar, D.O. (2000). Comments on FASB document — statement of financial accounting concepts no 7 — using cash flow information and present value in accounting measurement. Available on request from Life Board of the Faculty and Institute of Actuaries.Google Scholar
Girard, L.N. (2000a). Market value of insurance liabilities and the assumption of perfect markets in valuation. North American Actuarial Journal, 4, 1.Google Scholar
Girard, L.N. (2000b). Market value of insurance liabilities and the assumption of perfect markets in valuation. The Fair Value of Insurance Business, Kluwer Academic Publications. 7–113.Google Scholar
Girard, L.N. (2002). An approach to fair valuation of insurance liabilities using the firm's cost of capital. North American Actuarial Journal, 6(2), 18–46.CrossRefGoogle Scholar
Hare, D.J.P., Dickson, J.A., McDade, P.A.P., Morrison, D., Priestley, R.P. & Wilson, G.J. (1999). A market-based approach to pricing with-profits guarantees. B.A.J. 6, 143–213 and 721–735.Google Scholar
Hibbert, A. J., Mowbray, P. M. & Turnbull, C. (2001). A stochastic asset model & calibration for long-term financial planning. Faculty and Institute of Actuaries website.Google Scholar
Hylands, J.F., Clay, G.D., Forfar, D.O., Hinton, P.H., Jenkins, J.A., & Webber, D.M. (1993). Joint Actuarial Working Party — Risk-based capital — interim report. Proceedings of 1993 life convention, ‘Life — an assured future', of the Faculty and Institute of Actuaries, 595–633.Google Scholar
International Association of Insurance Supervisors (1999). On solvency, solvency assessments and actuarial issues. IAIS website (under Publications).Google Scholar
International Association of Insurance Supervisors, and others (2001). Multidisciplinary Working Group on Enhanced Disclosure, Final Report to the I AIS, BCBS, IOSCO and CGFS of the G-10 central banks. IAIS website (under Publications).Google Scholar
Jarvis, S., Southall, F. & Varnell, E. (2001). Modern valuation techniques. Paper presented to the Staple Inn Actuarial Society.Google Scholar
Joint Working Group of Standard Setters (2000). A consultation paper incorporating the JWG's draft standard. Website link: http://www.asb.org.uk/publications/publicationproject.cfm?upid=39Google Scholar
Martin, G. & Tsui, D. (1999). Fair value liability valuations. Australian Actuarial Journal, 5, 351–489.Google Scholar
Needleman, P.D. & Roff, T.A. (1995). Asset shares and their use in the financial management of a with-profits fund. B.A.J. 1, 603–688 and 2, 5–18.Google Scholar
Scott, P.G., Elliott, S.F., Gray, L.J., Hewitson, T.W., Lechmere, D.J., Lewis, D., & Needleman, P.D. (1996). An alternative to the net premium valuation method for statutory reporting. B.A.J. 2, 527–621.Google Scholar
Urmston, M.N., Black, A.G., Chadburn, R.G., Chamberlain, A.J.M., Frankland, R., King, R.W., Sheard, J.M. & Orton, T.R. (2000). Resilience Reserves Working Party Report. Faculty and Institute of Actuaries website www.actuaries.org.uk/index2.html under Library & Publications → Conferences → 2000 Life Convention.Google Scholar
Wright, P.W., Burgess, S.J., Chadburn, R.G., Chamberlain, A.J.M., Frankland, R., Gill, J.E., Lechmere, D.J. & Margutti, S.F. (1998). A review of the statutory valuation of long-term insurance business in the United Kingdom. B.A.J. 4, 803–864 and 1029–1058.Google Scholar