New Accounting Standards: the Fair Value of Life Insurance Liabilities

In this dissertation we present an overview of the proposals of the International Accounting Standards Board for measurement of insurance assets and liabilities at market value. The Board has not yet finalised a standard for insurance contracts, but a Draft Statement of Principles has been published, providing indication of how fair value accounting will be implemented. We focus on life insurance liabilities and discuss many implementation issues from an actuarial perspective. First, we cover the underpinnings of the Board’s proposals, underlining the differences that they present with other accounting standards and reporting methodologies. Then, we deal with measurement issues, outlining the key features of the valuation approaches proposed. Finally, we present an example based on an insurance product sold in the italian market to show the differences between prudential, embedded value and fair value reporting.