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Realistic reporting of life insurance company policy liabilities and profits: developments in Anglo-American countries

Published online by Cambridge University Press:  20 April 2012

M. B. Adams  and
C. N. W. Scott
M. B. Adams
Affiliation:
Massey University, New Zealand
C. N. W. Scott
Affiliation:
Deputy Superintendent of Insurance, Cayman Islands
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Abstract

This paper examines international developments in life insurance generally accepted accounting practice (GAAP) for policy valuation and profit recognition in four major Anglo-American markets—the U.K., Australia, the U.S.A. and Canada. Each valuation method examined has its advantages and disadvantages with respect to the needs of preparers and users of the annual corporate reports of life insurance companies. The paper documents that the statutory basis and U.S. GAAP are considered to have substantive deficiencies. In contrast, the U.K. accruals method, the Australian margin on services method and Canadian GAAP have much to commend them, particularly with regard to their flexibility to accommodate valuation adjustments for unexpected events. Nevertheless, from the preparers' point of view, the systems which would have to be developed to facilitate the U.K. accruals and Australian margin on services methods would be difficult and costly to implement. Profit reporting under Canadian GAAP is also sensitive to changes in actuarial reserving assumptions. The authors conclude that, since national preferences in actuarial and accounting practices are inevitable and because the product-market structures of life insurance markets are so distinctive, international harmonisation of life office GAAP is unlikely to occur for a very long time.

Keywords

Policy ValuationProfit RecognitionProfit EmergenceLife Office GAAPAnglo-American Countries
Type
Research Article
Information
Journal of the Institute of Actuaries , Volume 121 , Issue 2 , 1994 , pp. 441 - 458
Copyright
Copyright © Institute and Faculty of Actuaries 1994

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References

REFERENCES

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