|
|
 BACK |
 |
| Sam Gutterman~David Rogers~Larry Rubin~David Scheinerman, United-States |
| Download |
Summary: |
| Over the last decades, accounting standard setters have given greater emphasis to the use of fair value as a financial reporting measurement basis. Among the reasons for this trend are the increased importance of the financial markets as a source of capital and funds for risk-taking and a growing emphasis on economic related values. Many accounting standard setters have reached the conclusion that properly established and reliably measured fair values for financially-related assets and liabilities provide more meaningful information than alternative approaches for the users of financial statements. We explore recent developments in the application of market consistent concepts to fair values used for financial reporting purposes. We present a set of criteria that should be useful to evaluate proposed fair value measurement methods where input based on prices observed in an active market with reliable transaction prices are not available. Based on these criteria, we examine one approach that might serve as a basis for fair value measurement of life insurance contracts liabilities and other financial instruments issued by insurance companies. To support our examination we have used the current treatment of a funding agreement issued in a Funding Agreement backed Note Issuance Program (FANIP), an investment contract, under U.S. GAAP as a model. We expand on this model to a 20 year term insurance contract to illustrate the concepts involved as applied to insurance contracts. In part this illustrates that a consistent approach to the measurement of these two types of contracts is practical and we contend desirable. In the examples given, the price for risk was held constant over the contract duration for simplicity of illustration. Nevertheless, in the case in which it would be appropriate for this margin to vary over time, we believe it can be easily adapted. Several additional issues that are relevant to fair value measurement are discussed. The risk margin is assessed in relation to a theoretical treatment of expenses implied by the transaction price of a contract. Possible alternative treatments of the credit standing associated with a funding agreement as part of a FANIP is explored. We also discuss the advantages of elimination of the demand deposit floor, although we recognize that without changes to fair value measurement guidance to non-insurance contracts, this may introduce an inconsistency of treatment between types of contracts. |
| |
| Date: 1 June - Time: 16;15 to 17:45 - Room: 252A |
| Theme: Comptabilité des assurances~Update on Accounting |
|
|
|