2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver 2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

PD -16 Developments on International Accounting Standards from a P&C and Life Perspective Concurrent Session PD 16 16:00 – 17:30 Speakers David J Congram David J Oakden Neil Parkinson June 28, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Insurance Public Accounting in Canada Assets effectively IAS 39 Financial Instruments has been implemented – mixed measurement model Liabilities for Insurance Entities remains unchanged. This includes both investment products and insurance. –Involves discounting of future cash flows –Requires projection of cash flows on realistic expected assumptions –Margins for adverse deviation –Linkage of assets and liabilities In 2011 we expect to move to International Financial Reporting

Today’s Agenda IASB – Discussion Paper – Preliminary views on Insurance Contracts –Neil Parkinson IAA – Exposure Draft - Measurement of Liabilities for Insurance Contracts: Current estimates and risk margins. –David Oakden IASB and FASB – Discussion Paper - SFAS 157 Fair Value Measurements –David Congram Questions and Discussion

Neil Parkinson IASB – Discussion Paper – Preliminary views on Insurance Contracts

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David Oakden IAA – Exposure Draft – Measurement of Liabilities for Insurance Contracts: Current estimates and risk margins.

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IASB and FASB – Discussion Paper SFAS 157 Fair Value Measurements David Congram

What is Fair Value - 157? How should it be Measured? –US GAAP –Current IASB Standards When does it apply? When is it coming?

What is Fair Value? US GAAP “The price that would be received for an asset or paid to transfer a liability in a transaction between marketplace participants at the measurement date” (SFAS 157.5) IFRS “The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.” (IAS 39.11)

How to measure Key Points –Exit price basis. –In the principal market. –From perspective of market participant. –Focus economic value. Relevant to insurance and investment contracts, even with no relevant and reliable exit market. Insurance contracts would be primarily a marked-to-model basis.

Market Two types of Market –Wholesale – Business to Business (Exit) –Retail – Business to Consumer (Entry) Use assumptions a market participant would use in pricing, including risk. Entity Specific inputs are alright if not inconsistent with what market participants would use.

Market Participant Independent of the reporting entity Knowledgeable Able and willing to transact For a liability would assume a transfer to participants of comparable non performance risk

Valuation approach May be consistent with market, income or cost/replacement approach and multiple methods may be used. Appropriate for the circumstances Inputs  Level 1 – quoted prices  Level 2 – other market observable  Level 3 – based on best available information Lowest Input determines the category and disclosure Recognition issues

Comparison of Fair Value Characteristics TopicFAS 157IAS 39 DefinitionUses an exchange notion Uses a settlement notion Reference EntityMarket Participant MethodMarket then Valuation technique Level 1 – observable Level 2 – comparable Level 3 – model Cash FlowsAll a market participant would consider Discount RatesRisk free but adjustment for credit and any risk premium Prevailing returns of same term and characteristic Demand Deposit FloorNoYes

Closing Comments These are exposure and discussion drafts Canadian initial reactions Structural Issues

IASB – Discussion Draft Initial reactions Building blocks similar to Canada but unlinked Current Exit Value Method –Concept of Reference Entity versa Entity Specfic –When using Level 3 implications of accounting constraints Tax, future premiums and dividends –Is it Fair Value and implications –Alternatives and mixed measurement Discount Rates Handling Credit Risk Service margins Multinational’s

Structural - Canada Single financial report – Solvency and Capital Requirements Role of Accounting Standards –AcSB intends to adopt IFRS in Canada Applicability of Actuarial Standards –Risk margins –Discount rates –Adoption IAA principle based guidance –Position of ASB IAIS and IASB favors convergence Role of OSC and OSFI