CIA Annual Meeting Assemblée annuelle de l’ICA

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CIA Annual Meeting Assemblée annuelle de l’ICA

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CIA Annual Meeting Assemblée annuelle de l’ICA June 29 & 30, 2006 Ÿ Les 29 et 30 juin 2006 Ottawa, Ontario Jonathan Simmons, Richard Gauthier Session PC-4 Impact on Discounting

Impact of Discounting due to New Asset Valuation Source New Asset Valuation is dictated by Section 3855 of the CICA Handbook 3855: Financial Instruments - Recognition and Measurement This Section establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives.

Impact of Discounting due to New Asset Valuation Genesis Why 3855? Does it match IFRS? Does it match US GAAP?

Impact of Discounting due to New Asset Valuation When 3855 impacts financial statements issued in 2007 Management must take action on Jan 1 2007 First impact will be on statements issued in Q1 2007

Impact of Discounting due to New Asset Valuation What needs to be done Insurers have to categorized their investments in 3 groups Held for Trading Available for Sale Held to Maturity

Impact of Discounting due to New Asset Valuation Why? Depending on the categorization, income from investment will be accounted differently Net Income Other Comprehensive Income Total Comprehensive Income + =

Impact of Discounting due to New Asset Valuation Why? Depending on the categorization, income from investment will be accounted differently Net Income Other Comprehensive Income Total Comprehensive Income + = Still the focal point of performance by Investors

Other Comprehensive Income Impact of Discounting due to New Asset Valuation Where does the income go? Other Comprehensive Income Net Income Held to Maturity Change due to Amortization (amortized cost) nil Investments Held for Trading Change due to Market Value change (Fair Value) nil Available for Sale Change due to Market Value change Change due to Amortization

Impact of Discounting due to New Asset Valuation Where is it accumulated? Balance Sheet Net Income + Other Comprehensive Income = Retained Earnings Total Comprehensive Income Accumulated Other Comp. Inc.

Impact of Discounting due to New Asset Valuation Balance Sheet Valuation Held to Maturity Amortized Value Investments Held for Trading Market Value Available for Sale

Impact of Discounting due to New Asset Valuation Balance Sheet Valuation Assets Liabilities Available for Sale Market/Fair Value Held For Trading Market/Fair Value Equity Held to Maturity Amortized Value Other Assets

Impact of Discounting due to New Asset Valuation Balance Sheet Valuation Assets Liabilities Available for Sale Market/Fair Value How to apportioned? Held For Trading Market/Fair Value Equity Held to Maturity Amortized Value Other Assets

Market Value of Investments Impact of Discounting due to New Asset Valuation Important relationships Interest Rate Market Value of Investments

Impact of Discounting due to New Asset Valuation Important relationships Interest Rate Market Value of Investments Actuarial Liabilities

Impact of Discounting due to New Asset Valuation Important relationships Interest Rate Market Value of Investments Actuarial Liabilities

Impact of Discounting due to New Asset Valuation Income Statement Impact Other Comprehensive Income Actuarial Liabilities Discount Rate Net Income Held to Maturity Change due to Amortization nil Book Yield Held for Trading Change due to Market Value change nil Market Yield Available for Sale Change due to Market Value change Change due to Amortization Market Yield

Impact of Discounting due to New Asset Valuation Income Statement Impact Other Comprehensive Income Actuarial Liabilities Discount Rate Net Income Held to Maturity Change due to Amortization nil Book Yield Match Held for Trading Change due to Market Value change nil Market Yield Available for Sale Change due to Market Value change Change due to Amortization Market Yield

Impact of Discounting due to New Asset Valuation Income Statement Impact Other Comprehensive Income Actuarial Liabilities Discount Rate Net Income Held to Maturity Change due to Amortization nil Book Yield Match Held for Trading Change due to Market Value change nil Market Yield Available for Sale Change due to Market Value change Change due to Amortization Market Yield

Impact of Discounting due to New Asset Valuation Income Statement Impact Other Comprehensive Income Actuarial Liabilities Discount Rate Net Income Held to Maturity Change due to Amortization nil Book Yield Held for Trading Change due to Market Value change nil Market Yield Mismatch Available for Sale Change due to Market Value change Change due to Amortization Market Yield

Impact of Discounting due to New Asset Valuation Held For Trading Market Value of Investments Actuarial Liabilities Interest Rate Retained Earnings Acc. Other Comp. Inc.

Impact of Discounting due to New Asset Valuation Held For Trading Market Value of Investments Actuarial Liabilities Interest Rate Retained Earnings Acc. Other Comp. Inc.

Impact of Discounting due to New Asset Valuation Available For Sale Market Value of Investments Actuarial Liabilities Interest Rate Retained Earnings Acc. Other Comp. Inc.

Impact of Discounting due to New Asset Valuation Available For Sale Market Value of Investments Actuarial Liabilities Interest Rate Retained Earnings Acc. Other Comp. Inc.

Impact of Discounting due to New Asset Valuation Held to Maturity Market Value of Investments Actuarial Liabilities Interest Rate Retained Earnings Acc. Other Comp. Inc.

Impact of Discounting due to New Asset Valuation The Real Choices Other Comprehensive Income Actuarial Liabilities Discount Rate Net Income Held to Maturity Change due to Amortization nil Book Yield Held for Trading Change due to Market Value change nil Market Yield Available for Sale Change due to Market Value change Change due to Amortization Market Yield

Impact of Discounting due to New Asset Valuation Income Statement Impact Other Comprehensive Income Actuarial Liabilities Discount Rate Net Income Held for Trading Change due to Market Value change nil Market Yield Available for Sale Change due to Market Value change Change due to Amortization Market Yield

Impact of Discounting due to New Asset Valuation OSFI OSFI Requirement: A documented and monitored Investment policy that minimize risk Held for Trading Less Volatile Net Income Investments Available for Sale More Volatile Net Income