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: Political figures and journalists have tended to blame deregulation and greed for the credit crisis. However, we would like to suggest that these were not the primary cause of the credit crisis. The real cause of the crisis was faulty regulation and arrogance. Flawed regulation in the over-reliance on complicated capital models and arrogance in believing that the complex mathematical formula in risk models overcame the limitations on input availability and enabled companies to capture returns that were greater than the cost of capital, have led Wall Street by creating CDOs and similar instruments to repackage risks and take out the systematic excess risk charges as profits, and have also allowed companies to run “prudently” on leverage ratios that were in hindsight over the limit.

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.