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Jerry M. de St. Paer Executive Chair
Douglas Wm. Barnert Executive Director
Group of North American Insurance Enterprises 40 Exchange Place, Suite 1707 New York, NY 10005 UNITED STATES
++1-212-480-0808 [email protected] www.gnaie.net
December 23, 2010 To: Interested Parties in a Converged International Insurance Accounting Standard In its comment letter to the IASB regarding the Exposure Draft on Phase 2, IFRS 4, Insurance Contracts, the IAIS called for a technical group to be created and to meet as soon as possible to review all the discussions on discount rate and work to resolve this threshold issue. The discussions thereon are likely to be critical to further discussion on the rest of the provisions of the standard. Since that letter, there have been three IASB/FASB roundtables where representatives of all elements of the insurance industry were represented to discuss the responses. In preparing for those discussions, there was strong support within the industry for the use of the “Business Model” concept first adopted by the IASB in IFRS 9, Financial Instruments, as the basic objective of the standard. With that as the objective, the questions of Discounting – which contracts to discount, what discount rate should be used and whether to lock-‐in the discount rate – and Presentation (e.g. margin vs. traditional approach and use of OCI) would then follow the Business Model of the entity. To accomplish its supervisory goals, the IAIS Insurance Contracts Subcommittee will meet in London at the UK FSA on 12-‐14 January 2011. Its agenda will include further discussion on the discounting issue. In preparation for that, insurers have had several calls and decided they would support the recommendations of the IAIS Insurance Contracts Subcommittee for an early technical meeting. The insurers suggest that its agenda would be to discuss the Business Model, Discounting and Presentation issues. It will be held on Tuesday 11 January 2011, 09:00 – 18:00 in London in a location to be determined. Supervisors, Board Members/Staff, Insurers, Accounting Firms and actuaries will be invited. Key issues for the Technical Meeting are:
a) Business Model approach: With the adoption by the IASB and the recent decision by the FASB to be inclined to support the use of the Business Model for Financial Instruments Classification and Measurement, should it also be the appropriate principle for insurance contracts accounting?
b) What would the Business Model principle be for: i) Classification and Measurement
1) Assets 2) Liabilities
c) How does the Business Model affect the discussions on discounting?
December 23, 2010 Technical Meeting
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d) Which insurance contracts should be discounted? e) What rate should be used to discount those contracts that should be discounted?
i) Risk Free Rate ii) Liability premium iii) Corporate Bond Rate iv) Asset – Discount rate v) Other possibilities? vi) Are there alternatives that all parties can live with?
f) What are the combinations of IFRS 9 and IFRS 4 that might work? i) Cost-‐Cost ii) Current – Cost iii) Cost -‐ Current iv) Current – Current (with OCI)
g) How do you handle changes in the valuation of assets and liabilities (Day 2)? i) Current methods for assets. ii) Current proposals for liabilities. iii) Should any assumptions be locked-‐in? iv) Current or non-‐current book? v) Portfolio discussions.
If you would be interested in attending this meeting, please RSVP as soon as possible. Depending on the size of the response, we will want to adjust the meeting room size. An organizing committee will be formed to work on the agenda and supporting papers. Please indicate in your response if you would be interested in organizing the meeting. Thank you for considering this opportunity to pull our thoughts together on these important issues. Best personal regards for a happy and health holiday season. /s Douglas Wm. Barnert Executive Director DWB: mtf
