Fair Valuation of Liabilities

Hairs, C.J.; Belsham, D.J.; Bryson, N.M.; George, Carri; Hare, D. J. P.; Smith, Debra; Thompson, S.

doi:10.1017/s135732170000372x

Cited by 28 publications

(9 citation statements)

References 3 publications

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“…It may not be possible to make the same accounting figures objective, realistic and prudent. Within the English speaking actuarial world, Hairs et al (2002) and the discussion provides confirmation that there is widespread agreement on the need for different fair and prudential accounts. That discussion also confirms the existence of some opposition to the publication of fair value, and possibly some confusion about the place of retrospective accounts.…”

Section: " Introductionmentioning

confidence: 87%

Unfinished Accounting Issues: Incorporating Fair Value and Prudence in Accounting Theory

Asher¹

2006

Ann. actuar. sci.

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The International Accounting Standards Board (IASB) is introducing new International Financial Reporting Standards (IFRS) which aim to make financial statements more useful. The process has generated considerable debate. This paper is a contribution to the debate, in the particular context of insurance accounting, and attempts to provide a coherent framework for accounting theory which makes a clear distinction between retrospective statements required for administrative accountability, fair value for current market transactions and to measure value creation, and a prospective prudence required to protect policyholders, depositors and other creditors. It is argued that the IASB's founding purpose to provide a single set of accounts is therefore incoherent; different purposes require different numbers. This also implies that fair value accounts should attempt to value intangible assets. In this context, actuarial analyses of surplus would greatly assist in measuring whether model assumptions are appropriate.

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Section: " Introductionmentioning

confidence: 87%

Unfinished Accounting Issues: Incorporating Fair Value and Prudence in Accounting Theory

Asher¹

2006

Ann. actuar. sci.

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“…Hairs et al (2002) described it as: "Capital requirement determined in a (more or less) scientific way, having regard to the risks to which the business is exposed.'' 2.1.2 While economic capital measures may vary in detail, they share the following core features: ö They specify a certain level of security.…”

Section: What Is An Economic Capital Measure and What Is Its Purpose?mentioning

confidence: 99%

Modelling Extreme Market Events. A Report of the Benchmarking Stochastic Models Working Party

Frankland

Smith

Wilkins³

et al. 2009

Br. Actuar. J.

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This paper focusses on some practical issues that can arise when developing methodologies for calculating benchmark figures for extreme market events, particularly in the context of the Financial Services Authority's ICAS regime. The paper limits discussion to equity and interest rate risks. Whilst not intended to constitute formal guidance, it is hoped that the material contained within the paper will be useful to practitioners. The paper acknowledges the role of prior beliefs in the choice of data to be used for modelling and its influence upon the ensuing results.

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“…2.1.3 We refer the reader to Altmann & Vanderhoof (1998), van Bezooyen et al (2000, Grosen & Jorgensen (2000), Hare et al (1999), Hairs et al (2001), Jarvis et al (2001), Abbink & Saker (2002), Blight et al (2003), Dullaway & Needleman (2004), Kipling & Moran (2003), Muir & Market Consistent Valuation of Life Assurance Business Waller (2003) for the by now well-rehearsed list of influences leading insurers towards market consistent valuations of assets and liabilities, and for the various uses to which these valuations may be put.…”

Section: Three Motivationsmentioning

confidence: 99%

Market Consistent Valuation of Life Assurance Business

Sheldon¹,

Smith²

2004

Br. Actuar. J.

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In recent years there has been a trend towards market consistent valuation in those institutions for which actuaries have responsibilities. The larger United Kingdom with-profits insurance companies are now preparing realistic balance sheets, both for internal purposes and also at the request of the Financial Services Authority. International accounting standards have been moving to a fair value approach. Pension fund accounting under FRS 17 has also moved in this direction.In this paper we examine the reasons for the adoption of market consistent valuation and discuss some of the commercial implications and corporate valuation. We consider the methods and assumptions which can be used to develop market consistent valuations of cash flows typically encountered in the liabilities of financial institutions, together with some of the problems inherent in the calibration of models used for the valuation of these cash flows. The volatility assumption is crucial to the valuation of options and guarantees, and we discuss the relationship between historical and implied volatility.While most insurance companies initially adopted formulae to value their with-profits guarantees, several offices are now using a Monte Carlo simulation approach for their realistic balance sheets. The Monte Carlo approach enables allowance to be made for management discretion in bonus and investment policy, as well as policyholder actions. However, in many cases it is possible to develop analytical formulae for cash flows approximating those payable under insurance contracts.The valuation formulae have implications for the hedging of embedded guarantees. The authors discuss the construction of hedges for financial risks in with-profits funds, the separate perspectives of policyholders and shareholders, possible funds in which to hold hedging instruments, limitations of capital market hedging tools and the effect of taxation on hedge effectiveness.

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Fair Valuation of Liabilities

Cited by 28 publications

References 3 publications

Unfinished Accounting Issues: Incorporating Fair Value and Prudence in Accounting Theory

Unfinished Accounting Issues: Incorporating Fair Value and Prudence in Accounting Theory

Modelling Extreme Market Events. A Report of the Benchmarking Stochastic Models Working Party

Market Consistent Valuation of Life Assurance Business

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