International Actuarial Association Page1 ASSOCIATION ACTUARIELLE INTERNATIONALE INTERNATIONAL ACTUARIAL ASSOCIATION IASB Board Meeting June 22, 2006 Presented by Sam Gutterman, FSA, FCAS Chairman, IAA Committee on Insurance Accounting

International Actuarial Association Page2 The IAIS paper Other insurance regulatory issues Key issues needing further actuarial assessment Items to be covered

International Actuarial Association Page3 The IAIS paper The IAA strongly supports the desirability of having one set of liabilities for regulatory and general purpose financial reports −For that purpose, we encourage active dialogue between the IASB and the IAIS −At a minimum, common definitions and methodology −Any differences should be publicly explained Continued concern regarding effects of mismatch of measurement of assets and liabilities Appropriate disclosure is a key element in the success of any new measurement system

International Actuarial Association Page4 The IAIS paper The liability for insurance contracts should be determined on a prospective basis, reflecting −Current estimates −Time value of money −Appropriate risk margins −Features and characteristics of the contract and the insureds −All expected cash flows, including guarantees, options, embedded derivatives and embedded assets Observable market inputs should be used to the fullest extent possible

International Actuarial Association Page5 The IAIS paper Both insurer and policyholder behavior should be reflected in recognition and measurement −Imposition of a cash value floor is inconsistent with the recognition of policyholder behavior Similar or related contracts issued by an insurer should be measured using a consistent framework −Measurement of the liability of insurance contracts should be consistent with that of long-term savings contracts Expected future cash flows from DPFs that retroactively adjust the price to reflect experience should be recognized in the liability −Sensitive to the wide variety of participating contracts

International Actuarial Association Page6 Other insurance regulatory issues In 2005 the IAA published the book “A Global Framework for Insurer Solvency Assessment” −Describes the principles and methods involved in quantifying the total funds needed to provide a certain level of confidence to policyholders and shareholders that policyholders’ obligations will be satisfied −Emphasizes a total balance sheet approach, for which liabilities and the income statement play an important role IAA members are currently assisting IAIS and Solvency II, regarding liabilities and solvency assessment

International Actuarial Association Page7 Key issues needing further actuarial assessment The IAA currently has Working Groups established addressing − Risk/profit margins, assessing  Cost of capital approach  Quantile (statistical) approach  We do not expect to endorse a single method, but will explore the methods and limitations of both – we expect an emerging convergence − Use of internal models − Relationship between actuaries, auditors and regulators − Discretionary participation features – in process of formation Will continue working with the IAIS on issues listed in paragraph 101 of their paper Concepts of economic capital and enterprise risk management are developing rapidly