Description: ongoing discussion of the proper interest rate to use in discounting liability cash flows to reflect credit risk of the insurer in a fair value accounting system

Description: Since insurance contract liabilities are uncertain in amount, an estimate is required. And under most accounting frameworks, the estimate of an uncertain amount should contain some sort of margin for uncertainty. This paper provides a mathematical connection between that margin and the market price of risk as measured by the cost of capital. The connection makes use of the theory of utility and an exponential utility curve.

Description: Analysis of IASB position on the discount rate to use in computing the Fair Value of Insurance Liabilities

Description: Discussion rebutting the Dec. 2004 issue of The Financial Reporter article titled, “On the Fair Value of Insurance Liabilities,” authored by Don Solow. That article expressed disagreement with the position of the International Accounting Standards Board and the Financial Accounting Standards Board to reflect the value of “own credit risk” in the fair valuation of insurance liabilities.