ICS – IAIS – Documents – Stakeholders

ICS – Insurance Core Principles – IAIS – Documents – Stakeholders

• 2015 0205 – ManuLife / IAIS – Determination of discount rates for Insurance Capital Standard, IAIS Stakeholder Meeting – 10p
  • Choice of discount rate is among the most important decisions impacting the level and behaviour of the insurance capital metric
  • Beyond deep and liquid markets, observable rates are not reliable or do not exist at all – need to be constructed
  • Small changes in the long-term discount rate cause large movements in reserves for companies offering significant long term products
  • These reserve movements are only partly offset by asset movements as availability of matching long-term fixed income assets is often limited
  • Volatility of reserves would result in volatile and misleading capital ratios
  • “3-bucket approach” proposed for the construction of the discount curve based on principles to be consistently applied across jurisdictions:
  • The investment challenge: Liabilities are often longer than available fixed income assets
  • This approach may be acceptable also to IASB for IFRS 4 Phase II
  • Summary of Key Themes
    • Discount rate determination will influence investment choices of companies and will impact the viability of long term insurance products
    • Excessive reliance on “markets” where their signals are not reliable could destabilize reported capital and encourage inappropriate action