PD16 David Congram - Institut canadien des actuaires

Canadian
Institute
of
Actuaries
L’Institut
canadien
des
actuaires
2007 Annual Meeting ● Assemblée annuelle 2007
Vancouver
2007 Annual Meeting
Assemblée annuelle 2007
PD -16
Developments on International Accounting
Standards from a P&C and Life
Perspective
Concurrent Session PD 16
16:00 – 17:30
Speakers
David J Congram
David J Oakden
Neil Parkinson
June 28, 2007
Insurance Public Accounting
in Canada - 2007
• Assets effectively IAS 39 Financial Instruments
has been implemented – mixed measurement
model
• Liabilities for Insurance Entities remains
unchanged. This includes both investment
products and insurance.
– Involves discounting of future cash flows
– Requires projection of cash flows on realistic expected
assumptions
– Margins for adverse deviation
– Linkage of assets and liabilities
• In 2011 we expect to move to International
Financial Reporting
Today’s Agenda
• IASB – Discussion Paper – Preliminary
views on Insurance Contracts
– Neil Parkinson
• IAA – Exposure Draft - Measurement of
Liabilities for Insurance Contracts:
Current estimates and risk margins.
– David Oakden
• IASB and FASB – Discussion Paper SFAS 157 Fair Value Measurements
– David Congram
• Questions and Discussion
IASB – Discussion Paper –
Preliminary views on Insurance
Contracts
Neil Parkinson
• Insert presentation
IAA – Exposure Draft – Measurement
of Liabilities for Insurance Contracts:
Current estimates and risk margins.
David Oakden
• Insert presentation
IASB and FASB – Discussion Paper
SFAS 157 Fair Value
Measurements
David Congram
What is Fair Value - 157?
• How should it be Measured?
– US GAAP
– Current IASB Standards
• When does it apply?
• When is it coming?
What is Fair Value?
• US GAAP
“The price that would be received for an
asset or paid to transfer a liability in a
transaction between marketplace
participants at the measurement date”
(SFAS 157.5)
• IFRS
“The amount for which an asset could be
exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s
length transaction.” (IAS 39.11)
How to measure
• Key Points
–
–
–
–
Exit price basis.
In the principal market.
From perspective of market participant.
Focus economic value.
• Relevant to insurance and investment
contracts, even with no relevant and
reliable exit market.
• Insurance contracts would be primarily a
marked-to-model basis.
Market
• Two types of Market
– Wholesale – Business to Business (Exit)
– Retail – Business to Consumer (Entry)
• Use assumptions a market participant
would use in pricing, including risk.
• Entity Specific inputs are alright if not
inconsistent with what market participants
would use.
Market Participant
•
•
•
•
Independent of the reporting entity
Knowledgeable
Able and willing to transact
For a liability would assume a
transfer to participants of
comparable non performance risk
Valuation approach
• May be consistent with market, income or
cost/replacement approach and multiple
methods may be used.
• Appropriate for the circumstances
• Inputs
¾ Level 1 – quoted prices
¾ Level 2 – other market observable
¾ Level 3 – based on best available information
• Lowest Input determines the category and
disclosure
• Recognition issues
Comparison of Fair Value
Characteristics
Topic
•
FAS 157
IAS 39
Definition
Uses an exchange
notion
Uses a settlement
notion
Reference Entity
Market Participant
Market Participant
Method
Market then
Valuation technique
Level 1 – observable
Level 2 – comparable
Level 3 – model
Cash Flows
All a market participant
would consider
All a market participant
would consider
Discount Rates
Risk free but
adjustment for credit
and any risk premium
Prevailing returns of
same term and
characteristic
Demand Deposit Floor
No
Yes
Closing Comments
• These are exposure and
discussion drafts
• Canadian initial reactions
• Structural Issues
IASB – Discussion Draft
Initial reactions
• Building blocks similar to Canada but unlinked
• Current Exit Value Method
– Concept of Reference Entity versa Entity Specfic
– When using Level 3 implications of accounting
constraints Tax, future premiums and dividends
– Is it Fair Value and implications
– Alternatives and mixed measurement
•
•
•
•
Discount Rates
Handling Credit Risk
Service margins
Multinational’s
Structural - Canada
• Single financial report – Solvency and
Capital Requirements
• Role of Accounting Standards
– AcSB intends to adopt IFRS in Canada
• Applicability of Actuarial Standards
–
–
–
–
Risk margins
Discount rates
Adoption IAA principle based guidance
Position of ASB
• IAIS and IASB favors convergence
• Role of OSC and OSFI