On Accounting Standards and Fair Valuation of Life Insurance and Pension Liabilities
Scandinavian Actuarial Journal, Vol. 104, No. 5, pp. 372-394, 2004
Posted: 12 Dec 2012
Date Written: December 11, 2012
Abstract
The actuarial profession is increasingly teaming up with financial economists for a fruitful cooperation on the proper valuation of life insurance and pension (L&P) liabilities. This has been a natural consequence of a recent sharply increased focus on market values in financial reports of L&P companies from regulators, standard setters, the financial press, stakeholders, and others with an interest in the L&P business.
This article provides a financial economist’s point of view on recent developments in relation to the fair valuation of L&P liabilities. The role of accounting standards and the background for the international harmonization in this field are first discussed. We then review and explain the concept of fair value and provide a general view on appropriate techniques for estimating fair values of L&P liabilities in accordance with the definition of the concept. The paper also contains a section which briefly reviews recent and quite innovative regulatory initiatives in relation to market value reporting in the Danish market for life and pension insurance.
Keywords: accounting standards, fair value, financial valuation, regulation
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