Description: The implementation of the IFRS 17 insurance accounting standard has brought significant changes to the financial reporting landscape of insurance companies. With new disclosure requirements and altered profit analysis, understanding and interpreting future profitability have become a topic of concern for the industry. While stability remains a key objective for insurance companies, the earning patterns might become more volatile especially when the contractual service margin (CSM) is exhausted, and a loss component (LC) needs to be established. Reinsurance, a common risk mitigation tool, can play a pivotal role in managing earnings volatility and minimizing losses for onerous measurement units. In this article, we propose a new key performance indicator (KPI) called “loss recoverability” to assess the performance of reinsurance treaties in achieving these objectives. We explain how this KPI can be utilized in multiple scenarios to evaluate the effectiveness of reinsurance strategies and pursue stability in earning patterns.

Description: This article is an abstract of the Deloitte whitepaper “Financial KPIs in the New World” that will be published in January 2023. It provides a market view of how the new Financial KPIs will be integrated in the insurers’ decision-making process and about the main challenges and opportunities for insurers’ management and external stakeholders in the jurisdictions that have adopted IFRS17 and in particular countries in the EMEA region.

Description: The September 2014 Issue of the Financial Reporting Section's newsletter, The Financial Reporter

Description: Businesses across the board have been drastically impacted by the effects of COVID-19 over the course of 2020, and insurance was not immune. Perhaps most relevant to this industry’s current capital and liquidity concern is the prevailing low interest rate environment. This has been a global trend in the last decade, and treasury rates in much of the developed world are at or near zero. Reduced investment returns limit an insurer’s ability to achieve their desired return on equity, eliminating previously profitable strategies that depended on the leverage of life and annuity balance sheets. Focus and activity have instead shifted to other methods to counteract the low interest rate markets and accompanying capital strain. Examples include increased mergers and acquisitions (M&A) activity within the insurance industry and an increasing focus by private equity firms in the insurance market for asset-intensive products, both of which reflect the goal of increasing yield rates on capital.

Description: Describes how the mantra of 'tax cuts will pay for themselves" along with the political unwillingness to cut spending (extant since the 1980s), has led to this increasing debt problem in the U.S., reaching $17 trillion at time of writing. Other countries are behaving in a similar fashion, and it can be only a matter of time before the globe may reach another crisis, this time based on excessive government debt coupled with fewer interested investors.

Description: A discussion of life insurance securitizations and how they can be structured to provide surplus relief associated with onerous reserve requirements.

Description: This article discusses the current state of the IAIS' initiative on their group Insurance Capital Standard.

Description: This dialogue discusses the history and purpose of section 811(a) and its historic role in the computation of life insurance company taxable income and, in particular, reserves.

Description: This article notes that life insurance companies have long used sophisticated techniques for appraising capital investment, and explores the question of whether these techniques can be applied to other industries.

Description: In this paper the author develops techniques for measuring GAAP return on total capital by line of business, where total capital includes “benchmark surplus,” the amount of statutory surplus set aside, in addition to reserves, to support in-force business. The author also shows how GAAP returns relate to the internal rate of return the actuary may have calculated to describe expected profitability on a statutory basis. Includes discussion and author’s review of discussion. From Transactions of Society of Actuaries 1982 Volume 34.