Description: Actuaries are accustomed to considering how much conservatism is appropriate in their estimates, whether made for pricing or for mea- surement of liabilities. In the proposals for a new standard on accounting for insurance contracts, this conservatism is referred to by the International Accounting Standards Board IASB and the Financial Accounting Standard Board FASB of the United States as the risk adjustment.

Description: Generally accepted accounting principles 'GAAP' are those that apply to external financial reporting of publicly owned business enterprises. The principles that constitute GAAP vary between stock and mutual insurers, from product class to product class, and according to the purchase status of the business. This paper highlights additional reading materials that provide concise information regarding GAAP principals.

Description: Understanding the Deferred Acquisition Cost (DAC) asset balance movements from one reporting period to the next can be a challenge when reportinged under FAS 97. The mechanics of FAS 97 call for an amortization ratio (i.e., k factor) that forces the amortization of the DAC asset to be matched to the earnings received over the life of the product. However, the fact that the k factor is dynamically set results in “unlocking” components of the DAC rollforward. This article shows how the basic equation for the amortization ratio can be used to derive equations that provide insights into what the DAC balance represents. Furthermore, partial derivatives of these equations are used to show how unexpected changes in the Estimated Gross Profit (EGP) stream impact the amortization and unlocking components of the DAC rollforward.

Description: This paper explores a reserving technique in which profits are recognized as a percentage of assets. Followed by a discussion of the paper.