The Fair Value of Insurance Liabilities by Robert C. Wilkins (auth.), Irwin T. Vanderhoof, Edward I.

By Robert C. Wilkins (auth.), Irwin T. Vanderhoof, Edward I. Altman (eds.)

This booklet explores theoretical and useful implications of reflecting the reasonable worth of liabilities for insurance firms. moreover, the contributions speak about the disclosure of those values to the monetary and regulatory groups and auditing companies that are really calculating this illusive yet very important variable. It combines contributions via amazing practitioners from the assurance, accounting and finance fields, with these of sought after lecturers. one of many primary subject matters of the gathering is that sufficient disclosure of the real fiscal worth of assurance corporation liabilities is either attainable and fascinating. at any place attainable, the coverage valuation technique is wedded with sleek monetary thought. for instance, using alternative pricing conception is utilized to insurance firms, the place the genuine worth of the firm's liabilities is a severe variable. tools comparable to money move, earned revenue and oblique are explored.

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119-A (ED 119-A). The American Academy of Actuaries Committees on Life Insurance Financial Reporting (COLIFR) and Property and Liability Financial Reporting (COPLFR) submitted comments on ED 119-A, and ultimately testified before the FASB. A major theme of communication with the FASB was that accounting principles should be applied consistently to both sides of the balance sheet. At one point, it was noted that if fair values of liabilities were required, the actuarial profession had the training and tools available to make the computations.

The company discovered that its portfolio did not track Treasuries very well. That is, the spread of its portfolio relative to Treasuries was volatile because the spreads relative to Treasuries of the corporate bonds in which it had invested changed from time to time. The problem may be called 'index disconnect'. One solution would be to find an appropriate corporate bond index. Rather than use an index, the company decided it would like to use the market yield on its own asset portfolio as a discount rate.

In the analysis that follows, the present values of the liabilities have been calculated at three different spreads over Treasury: 0, 50, and 100 basis points. In addition, the discount rate that would equate the present value of liabilities to the single premium less acquisition costs is also shown. This spread will represent the spread to Treasuries that the net premium received would need to earn to fund the projected liability cash flows. This spread is also called the 'cost of funds' spread.

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