1. 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

2. 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.

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

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

5. 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

6. 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 + =

7. 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

8. 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

9. 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.

10. 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

11. 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

12. 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

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

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

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

16. 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

17. 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

18. 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

19. 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

20. 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.

21. 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.

22. 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.

23. 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.

24. 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.

25. 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

26. 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

27. 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