International Solvency and Accounting (E) Working Group
March 29, 2008
The Task Force received interim conference call minutes and reports on International Association of Insurance Supervisors (IAIS) Solvency issues, IAIS Insurance Contracts issues, and the International Accounting Standards Board (IASB) activities. The Task Force also heard a report from the Society of Actuaries (SOA) on a field test conducted on the IASB insurance accounting proposals and a report on Solvency II.
Report on IAIS Solvency Subcommittee
Multiple solvency papers are being drafted and adopted at the IAIS. Standards and guidance papers on the structure of capital, enterprise risk management, and internal models have been forwarded to the IAIS Technical committee for consultation. Work on capital resources and asset/liability valuation will be discussed at the next meeting. The U.S. is helping to draft an overview paper on solvency issues that can be thought of as the introductory chapter to all of the solvency papers. The working group also discussed the need for the IAIS solvency papers to address the impact of issues such as subprime and credit markets. A group issues paper is being written by the IAIS which is in addition to the Principles paper that was previously discussed by the E and G Committees. We will work to make sure all of the major group issues are explored.
The IAIS Solvency Subcommittee will hold a meeting in May in San Francisco. The IAIS Subcommittee will be invited to present at the NAIC’s working group meeting.
Report on Insurance Contracts Subcommittee and IASB activities
The IAIS Insurance Contracts Subcommittee continues to discuss the IASB's Insurance Contracts project. In discussions regarding comments made to the IASB, the concept of value in settlement vs. transfer value, requests for field testing of the IASB proposals, boundaries of the contract (and therefore what cash flows to include) and the critical interaction with a number of other projects (especially revenue recognition and financial statement presentation) were discussed. There was a general feeling that the Board is moving towards allowing more consideration of entity specific cash flows.
There was discussion, and much concern, about the push by the IASB to try to get an exposure draft issued by June 2009 and standard by June 2010. Few thought that this timing would give sufficient time for considered due process regarding the many open issues.
Interested parties suggested the NAIC ask FASB to join the IASB in the insurance contracts project, and to do so quickly. The hope is that if FASB were involved there may be more due process and more ability for field testing.
SOA Field Test on IASB insurance accounting proposals
The SOA researched the IASB insurance contract accounting proposals and, while there are numerous issues that are not yet decided, the SOA made some assumptions to do the field test. The value is to have actual application to study rather than to continue discussion in theory.
Solvency II Update
The Working Group discussed some issues in the European Union’s Solvency II, including the differences in the U.S. system with accounting, internal models, group issues, and third country issues.
Action items: