Fair Value versus Amortized Cost Measurement and the Timeliness of Other-than-Temporary Impairments: Evidence from the Insurance Industry

2017 ◽  
Author(s):  
Urooj Khan ◽  
Stephen G. Ryan ◽  
Abhishek Varma
Keyword(s):  
Insurance Industry ◽  
Fair Value ◽  
Cost Measurement

Fair Value versus Amortized Cost Measurement and the Timeliness of Other-Than-Temporary Impairments: Evidence from the Insurance Industry

2019 ◽  
Vol 94 (6) ◽  
pp. 285-307 ◽  
Author(s):  
Urooj Khan ◽  
Stephen G. Ryan ◽  
Abhishek Varma
Keyword(s):  
Insurance Industry ◽  
Spillover Effects ◽  
Fair Value ◽  
Data Availability ◽  
Security Level ◽  
Life Insurers ◽  
Cost Measurement ◽  
Accounting Recognition ◽  
Value Measurement ◽  
The Impact

ABSTRACT We investigate the impact of recurring fair value versus amortized cost measurement for accounting recognition purposes on the timeliness of insurers' other-than-temporary (OTT) impairments of non-agency residential mortgage-backed securities (NAMBS) around the 2007–2009 financial crisis. Unlike largely predetermined amortized cost measurement, recurring fair value measurement requires firms to invest in information and control systems to assess relevant economic conditions and estimate fair values quarterly. We expect these systems discipline insurers' OTT impairments. Exploiting statutory requirements that PC (life) insurers measure securities with NAIC designations from 3 to 5 at fair value (amortized cost) and disclose security-level accounting information, we predict and find that PC insurers record timelier OTT impairments of the same NAMBS with NAIC designations of 3 to 5 than life insurers. We predict and find weaker evidence of spillover effects to the timeliness of OTT impairments of the same NAMBS with NAIC designations of 1 or 2. JEL Classifications: G22; M41. Data Availability: Data are available from public sources cited in the text.

Auswirkungen der anhaltenden Niedrigzinsen auf das Versicherungswesen

2015 ◽  
Vol 64 (2) ◽  
Author(s):  
Heinrich R. Schradin
Keyword(s):  
Interest Rates ◽  
Life Insurance ◽  
Insurance Industry ◽  
Fair Value ◽  
Cash Flows ◽  
Capital Adequacy ◽  
Data Set ◽  
Life Insurers ◽  
Low Interest Rates ◽  
German Life

AbstractFocusing the perspective of German life insurance industry, this article starts with a brief description and discussion of the financial impact of the persistently low interest rate environment. Based on an empirical data set of German life insurers, the author illustrates actual limitations to generate sufficient investment income for to meet the given specific financial guarantees. Moreover, the core problem, caused by the use of volatile timingrelated interest rates for to evaluate long-term cash flows, becomes obvious. The currently observed regulatory interventions are trying to overcome the existential consequences of the so-called fair value measurement. In consequence, the author derives four central theses:1. Life insurance in Germany suffers from insufficient capital adequacy.2. Persistent low interest rates threaten the fulfillment of financial guaranty commitments of German life insurers.3. The generally accepted principals of economic evaluation do not satisfy to the traditional business model of German life insurers.4. Under a business perspective, the development of new life insurance products is inevitable.

scholarly journals Valuation of Variable Long-term Care Annuities with Guaranteed Lifetime Withdrawal and Limited Hospitalization Coverage Benefits and Two Investment Funds

2021 ◽  
Author(s):  
Sara Moosavi ◽  
Amir T Payandeh
Keyword(s):  
Long Term Care ◽  
Numerical Study ◽  
Population Aging ◽  
Insurance Industry ◽  
Fair Value ◽  
Monte Carlo Algorithm ◽  
Innovative Product ◽  
Investment Funds ◽  
Term Care

Abstract Population aging on the one hand and increasing of expenditures for medical services via technology development on the other hand have created some problems for the insurance industry and have converted it into one of the most risky areas. Thus, it is obvious that designing the innovative product is one of the most basic needs in the field of health insurance. This study proposes a new variable annuity product that includes the benefits of guaranteed lifelong withdrawal benefit option, long-term care coverage and limited hospitalization coverage. This innovative product has been evaluated under two investment funds. A Monte Carlo algorithm has been employed to calculate the fair value of the product and numerical study has been conducted to illustrate the capability of this product. The innovative product may provide a more comprehensive solution for the aging problem of the population that is challenging in the current societies.

Fair value accounting impact on decision-usefulness of accounting information: evidence from accounting standards update 2016–01 on the USinsurance industry

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Scott McGregor
Keyword(s):  
Stock Prices ◽  
Value Relevance ◽  
Insurance Industry ◽  
Forecast Error ◽  
Fair Value ◽  
Forecast Errors ◽  
Content Type ◽  
Earnings Volatility ◽  
The Impact ◽  
Equity Securities

Purpose The purpose of this study is to evaluate the impact of ASU 2016–01 on the predictive value, the confirmatory value and the value relevance of earnings. One of the key provisions of ASU 2016–01 is the requirement that all changes in unrealized gains and losses on all equity securities are recognized in income instead of other comprehensive income (OCI) as under prior guidance (SFAS 115). Because many companies in the insurance industry are large holders of equity securities, the sample for this study consists of firms from the insurance industry. Design/methodology/approach The author compares the change in earnings volatility and analysts’ forecast error for the periods before and after adoption of ASU 2016–01, and the relationship between the percentages of assets invested in equity securities for both earnings volatility and analysts’ forecast error. Further, the author tests the price reaction at the time of the release of earnings using an event study. The author also tests the value reliance of earnings measured by the correlation of earnings and stock prices, as well as the change in earnings and stock returns. The association between investment gain/loss components of earnings, and OCI, with stock prices and returns is tested for value relevance. Findings The findings of this study show that earnings volatility and analysts’ forecast errors increased in the period after adopting ASU 2016–01 and an initial overreaction to earnings releases. Further, the investment gain/loss components of earnings and OCI are not value-relevant in this study and including unrealized gains/losses on equity securities in income decreased value relevance of earnings in the post-adoption period, particularly for firms with large equity investment portfolios. Research limitations/implications This study is limited to one industry and only represents the impact of ASU 2016–01 on that industry. Thus, there are opportunities to extend the research to other industries. Furthermore, the time-period of study since adopting ASU 2016–01 is limited to only two years and with the passage of time, a greater sample of post-ASU 2016–01 will be available for testing. Practical implications Standard setters considering recognizing fair value changes on all investment securities in income should consider the findings of this study. Further, industry participants affected by ASU 2016–01 should consider improving explanation of earnings to mitigate the initial misunderstanding of earning announcements found in this study. Originality/value To the best of the author’s knowledge, this is the first study on the effects of ASU 2016–01 on volatility of earnings, earnings forecast errors, market reactions to earnings releases and the value relevance of earnings. This paper fills a gap in prior research by studying the effects of fair value on reported earnings, which is limited in prior research. This study contributes to the growing field of research on fair value accounting.

Impairment Questions and Answers

1997 ◽  
Vol 2 (2) ◽  
pp. 4-5
Keyword(s):  
Insurance Industry ◽  
Organized Labor ◽  
Injured Workers ◽  
Disability Benefits ◽  
Uniform System ◽  
Questions And Answers

Abstract Controversy attends use of the AMA Guides to the Evaluation of Permanent Impairment (AMA Guides) in defining injured workers’ permanent partial disability benefits: States desire an efficient, nonsubjective way to determine benefits for nonscheduled injuries and are using the AMA Guides to define the extent of disability. Organized labor is concerned that use of the AMA Guides, particularly with modifications, does not yield a fair analysis of an injured worker's disability. From its first issue, The Guides Newsletter emphatically emphasized and clearly stated that impairment percentages derived according to AMA Guides criteria should not be used to make direct financial awards or direct estimates of disability. The insurance industry and organized labor differ about the use of the AMA Guides in defining permanent partial disability (PPD). Insurers support use of the AMA Guides because they seek a uniform system that minimizes subjectivity in determining benefits. Organized labor is particularly concerned about the lack of fairness of directly equating impairment and disability, and if the rating plays a role in defining disability, additional issues also must be considered. More states are likely to use the AMA Guides with incorporation of additional features such as an index to PPD.

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