Description: This paper identifies and discusses certain critical GAAP issues, such as the development of appropriate valuation assumptions, the applicability of the lock-in principle, and the evaluation of recoverability of deferred acquisition cost. In addition, the paper describes a valuation procedure that may be used to implement prospective changes to current valuation assumptions for in-force policies. From Transactions of Society of Actuaries 1981, Vol. 33.

Description: The American Academy of Actuaries identified two general approaches to the purchase accounting problem in its Interpretation I-D. The approaches are referred to therein as the defined initial reserve method and the defined valuation premium method, and the Interpretation does not show favoritism toward one or the other. This paper submits a 'best' method, arrived at through the following steps: 1. The purchase accounting problem is defined, 2. The effects of the defined initial reserve method and the defined valuation premium method on the ensuing profit projection and resulting balance sheet are examined, and 3. One method is shown to be the most consistent mechanically and most consistent with generally accepted accounting principles 'GAAP'. Finally, this paper discusses a few of the considerations in setting the actuarial assumptions to be used for purchase accounting. The task is slightly less difficult when using the method suggested as best. From Transactions of Society of Actuaries 1982, Vol. 34.