Description: Insurance company financial reporting and performance measurement are going through a significant transformation. Insurers are beginning to look at their business based on what many refer to as the “economic value framework.” Under this framework insurance companies determine the economic value of the capital invested in their business and the economic value of earnings to derive a risk-adjusted return on capital. Standard setters, primarily European insurance regulators through Solvency II and the International Accounting Standards Board through IFRS Phase II, propose adopting many of these concepts for solvency and performance reporting.

Description: U.K. life insurers writing participating business have, since the end of 2004, been required by their regulator, the Financial Services Authority FSA, to value their assets and liabilities on a market-consistent basis. The purpose of this paper is to explain the new valuation approach based on market-consistent values and its rationale set out the issues faced by life insurers in implementing the new regime and explain how these issues have been addressed by insurers.

Description: The paper explores developments through 2006 in the application of market-consistent concepts to the measurement of fair values of liabilities for financial reporting purposes.

Description: This paper describes the Federal Income Tax FIT treatment of reserves historically. Then it describes Principles-Based Reserves PBR. Finally, it discusses issues in the treatment of PBR under FIT.

Description: In 2007 the International Accounting Standards Board IASB released a discussion paper proposing a new accounting model for insurance contracts, known as the current exit value model. One aspect of the proposed accounting model is that claim liabilities would need to include explicit margins satisfying certain criteria. Currently it is common for U.S. medical insurers to include explicit margins in their claim liabilities. However, we demonstrate that the margin approach most commonly used today by U.S. medical insurers does not satisfy the objectives articulated in the IASB discussion paper regarding the role of margins. We then propose a new formula for including explicit margins in U.S. medical insurance claim liabilities in a manner that is more compatible with the principles articulated in the IASB discussion paper. Finally, we illustrate our proposed claim liability formula using an example drawn from real-life data.

Description: This paper will provide demonstrations of the following three statements: That the calculation of principles-based reserves should ignore federal income taxes That the currently required statutory deferred tax calculation would need to be changed to permit an appropriate deferred tax asset to accompany such reserve so that the result can be correctly principles-based on a post-tax basis That the Tax DAC, pursuant to Section 848 of the Internal Revenue Code, is effectively a negative tax reserve.