Fair Value Accounting for GMxB Riders Shaio-Tien Pan SOA Antitrust - - PDF document
Equity-Based Insurance Guarantees Conference Nov. 5-6, 2018 Chicago, IL Fair Value Accounting for GMxB Riders Shaio-Tien Pan SOA Antitrust Compliance Guidelines SOA Presentation Disclaimer Sponsored by Fair Value Accounting for GMxB Riders
Chicago, IL
SOA Antitrust Compliance Guidelines SOA Presentation Disclaimer
Sponsored by
SHAIO-TIEN PAN
Actuarial Director, PwC
2018 EBIG Conference (Session 3B) 5 November 2018 (1530 – 1700 hours)
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GAAP LTDI – History & background
approach for insurance contracts evolved over the decades, often in response to new product features.
accounting for insurance contracts.
comprehensive new standards for insurance.
toward making ‘targeted improvements’ for long-duration
account, liability calculations, DAC amortization, loss recognition, and revenue recognition.
redeliberated in 2017-18, with significant changes made; the effective date has been announced to be 2021 for public companies. The final version was released August 15, 2018
GAAP LTDI objectives
1.Improve the timeliness of the
liability for future policy benefits with assumptions updates
2.Simplify and improve the
accounting for GMxB in variable contracts
3.Simplify DAC amortization 4.Improve the effectiveness
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FASB Long-Duration Targeted Improvements (LDTI) – History and adoption timeline
2014 2015 2016 2016 2018 2019 2020 2017 2021 2022 Beyond
February 2014 FASB decided to drop its comprehensive insurance project and focus on targeted improvements August 2014 FASB begins re-deliberations
targeted improvements based on scope agreed upon in April 2014 1st half 2016 Re-deliberations completed in March 2016; FASB votes to draft a revised document for exposure September 2016 FASB exposure draft issued with comment period ending 12/15/16 March 2017 Public roundtable August, October, and November 2017 Board Meetings to discuss tentative decisions June 2018 Final deliberations August 2018 Issuance of final standard 2021 Public companies Effective January 1, 2021 2022 Private companies Effective January 1, 2022
Who does it affect? All public and private companies that report on a US GAAP basis. Further secondary impacts to any firms that have adopted a modified US GAAP basis. When does it take effect? Adoption dates are the following for calendar year-end companies:
Jan 1, 2021
Jan 1, 2022 Early adoption is acceptable What will be required? Three years comparative income statements at date of first reporting after adoption (e.g. for public companies comparative will be required from 2019).
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FASB Long-Duration Targeted Improvements (LDTI) – overview of changes
than-nominal capital market risks
income
risk recognized in OCI
liability roll forwards and information about significant inputs, judgements and assumptions.
Targeted Improvements for Long-Duration Contracts
for non-participating traditional and limited- payment insurance contracts.
credit risk) fixed-income instruments.
recognition testing.
constant basis over the life of the contract, independent of profitability
What is changing?
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GAAP LTDI - Impact on Annuity GMxB’s
GMx MxB Current G GAA AAP New G GAAP VA GMDB SOP03-1
event Ma Market R Risk Be Benefit ( (MR MRB)
air V Val alue
P/L, except changes in instrument- specific credit risk recognized in Other Comprehensive Income
those MRBs shall be bundled together as a single compound market risk benefit
Note: FIA’s index crediting feature is not considered MRB, and will continue to be accounted for as embedded derivatives under ASC 815
VA GMAB FAS 157 VA GMIB
feature net settlement VA GMWB/GLWB
FIA GMxB Typically SOP 03-1
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Transition
○
Transition Date: 1/1/2019 2019
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Adoption in 2021 would require adjustment to the 2020 and 2019 comparative periods
○
Ful ull r ret etrosp spec ective e method must be used for MRB
○
Benefit of hindsight may be used for the full retrospective method to the extent that assumptions in prior periods are unobservable or otherwise unavailable and cannot be independently substantiated.
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GMxB Financial Impact Assessment
Opening Eq g Equity ty a at Tran ansit itio ion Profi fit Em t Emergence (New b w business) Ear arnin ings V Vola
lity Tota tal Eq Equity ty Vola
ility Variable Annuity Adverse Adverse Adverse Adverse FIA with GMxB Adverse Adverse Adverse Adverse
(GMDBs, GMIBs, etc) will now be measured at fair value under the new definition of Market Risk Benefits (MRBs)
financial impacts of the new guidance
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FASB LDTI – Implications for insurers
LDTI will impact all aspects of an insurer’s operations - going beyond just the finance and actuarial functions including product design and distribution, capital management and hedging, strategic planning, commercial decisions and market communications
Strategic Implications
sensitivity
Implementation & Transition Challenges
Technical Challenges
risk benefits
Business Operation Challenges
points; historical data points needed for transition
infrastructure
Top LDTI
items
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Implications on GMxB Hedging