a.r.a.s. 3.1 valuation guidelines life insurance annual statement composition and valuation...
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A.R.A.S. 3.1 valuation guidelines
Life Insurance Annual Statement Composition and Valuation Guidelines
Life insurance companies
Table of Contents Consolidation Affiliates ARAS work papers File description and valuation Admissibility Assets Provision for doubtful collection Technical provisions Life Accident & Sickness provision
Table of Contents (cont’d) External auditor’s role External auditor’s opinion External actuary’s role Reconciliation sheet Access to guidelines Call for comments
Consolidation Line-by-line consolidation of fully or partially
owned (majority interest) insurance subsidiaries is not permitted
These should be reported as an asset (line 2.2) on the balance sheet and valued based on the equity method
Line-by-line consolidation is allowed for fully or partially owned (majority interest) subsidiaries not engaged in the insurance business
Affiliates Affiliates are defined to be:
entities that are fully or partially owned by the company
entities that fully or partially own stocks of the company
entities on which the full or partial owners of the company have control
entities of which the majority of the supervisory and/ or managing directors also represent the majority of the supervisory and/ or managing directors of the company
Affiliates (cont’d) The respective balances with affiliates should be
reported on one of the following accounts, without netting: Loans and other interest bearing receivables due
from affiliates Non-interest bearing receivables due from affiliates Payable to affiliates
Except: Balances with affiliated (re)insurance companies
regarding reinsurance business Balances with affiliated brokerage companies
regarding sale of insurance policies
ARAS work papers Work papers used to complete ARAS should be
kept on site These work papers include a reconciliation of
accounts in the company’s general ledger/ trial balance to accounts in ARAS
Work papers should be kept at a minimum for Files 103, 105 and 110.
Work papers should be kept for a minimum of 2 years
File description and valuation All Files in ARAS have been described
Detailed description of accounts in Files 103, 105 and 106
Valuation guidelines provided for each account in File 103
A Glossary of terms is provided
Admissibility of Assets Admissibility requirements are imposed on the
following balance sheet asset accounts: Intangibles: non-admissible International stocks: only investment grade
admissible International bonds: only investment grade
admissible International investment funds/ pools: only
investment grade admissible Local investments (stocks, bonds, funds):
admissibility subject to impairment test
Admissibility of Assets (cont’d) Admissibility requirements are imposed:
Mortgage loans: excess balance above 70% of current appraised market value is non-admissible except excess ≤ amount secured by Guarantee
Fund Collateral loans: excess of outstanding balance
above fair value of pledged assets is non-admissible
Interest and non-interest bearing due from affiliates: excess above applicable limits is non-admissible
Admissibility of Assets (cont’d) Admissibility requirements are imposed :
Deposits at foreign banks: only deposits at banks rated investment grade are admissible
Reinsurance recoverable on paid claims: amounts non-admissible if the insurer may not receive them due to insolvency of reinsurer or disputes about amount of coverage
Company should report in File 102, line 1: total balance of non-admitted assets that weren’t
reported in the Statement, divided between the several asset classes
Provision for doubtful collection Agents & Brokers Debit Balances:
not less than those receivables which are in excess of 90 days past due.
Uncollected premium/ term life & health insurance policies: non-installment premium: not less than those
receivables which are in excess of 90 days past due. installment premium: which are not paid on the
agreed installment date, the provision should not be less than those installments which are in excess of 90 days past due.
Technical provisions Life Principles based approach Generally accepted actuarial method Based on prudent, reliable and consistently
applied principles, including: Probability weighted future contract CF Discounting of CF at market interest rate Up-to-date objective data and realistic
assumptions Current mortality & morbidity tables All expenses that will be incurred in servicing
insurance obligations
Technical provisions Life (cont’d) Unamortized deferred acquisition cost:
equally amortized over the life of the policy to match the premium income stream, with a maximum of 10 years
Unamortized capitalized premium reduction: fully amortized within 8 years as follows:
In the year that the reduction was granted and the 3 following years by 15% each year;
In the last 4 years by 10% each year.
Technical provisions Life (cont’d) Ceded provisions
non-admissible if the insurer may not receive these amounts due to insolvency of reinsurer or disputes about amount of coverage
Technical provisions Life (cont’d) Liability Adequacy Test (LAT)
Test done by company to determine whether the reported provisions at year-end are adequate
The minimum requirements are: Test considers current estimates of all future
contractual cash flows, and of related cash flows Test is done on the level of portfolio of contracts that
are subject to broadly similar risks and managed together as a single portfolio
If test shows that reported provision is less than the calculated LAT-amount, the entire deficiency should be recognized in the profit & loss account
Results of LAT should be submitted to CBCS
Accident & Sickness Provision Calculation based on a non-actuarial approach
is permitted
The actuarial approach is preferred when it involves periodic payments caused by long tail claims due to for example critical illnesses
Liability Adequacy Test (LAT)
External auditor’s role Article 26, paragraph 2 of National Ordinance:
Provide auditor’s opinion on the Life Statement
Mark hard copy Life statement for identification purposes
External auditor’s role (cont’d) The external auditor should be authorized by
the company by a provision in the contract to: Supply the CBCS with written information about
the company reasonably considered necessary in order for the CBCS to comply with her duties. [when asked by CBCS]
Agree with the CBCS on the conditions or circumstances encountered during his duties which warrant informing the CBCS a.s.a.p. [voluntarily supplied to CBCS]
CBCS will send copy of received info to the company
External auditor’s opinion The Statement is based on own accounting
and reporting principles Certification of the Statement should be based
on the Life valuation guidelines! ‘According to notes’ opinion CBCS proposed a standard unqualified
‘according to notes’ opinion to be issued on the Statement
External actuary’s role Issuance of opinion on
the value at year-end of all technical provisions the fact that the comparison of mortality
experience have been reproduced correctly
Signing of the hard copy files 117 and 125
Reconciliation sheet Regards a reconciliation of the reported Total
Assets, Total Equity and/ or Net Results in the Statement with corresponding values in the company’s own financial statement
To be submitted with the Statement if a difference exists
Not applicable to local branch offices which don’t issue own financial statement
Access to guidelines Go to www.centralbank.an ‘Click’ on the ‘Login’ icon on the ribbon
Username: autoflow Password: CentralBank2
‘Click’ on link ‘Annual Reports Automated Statements (ARAS)’
Access folder ‘ARAS 3.1’
Call for comments 6 weeks available to submit comments
starting today Only via [email protected] Proposal:
Onshore insurers: joint response via N.A.V.V. Int’l insurers: joint response via C.I.A.C. Non-affiliated insurers: separate response External auditors: joint response via N.A.V.A. External actuaries: separate response