ABSTRACT

The insurance industry will be affected like no other industry by the accounting standards setters’ objective of introducing fair value measurement. The International Accounting Standards Board (IASB) aims to measure all financial instruments, including insurance contracts, at fair value. However, unlike most financial instruments, insurance contracts are not traded on a liquid market. Therefore, the fair value of an insurance contract has to be measured as discounted future cash flows, with estimations about future cash flows that will contain actuarial assumptions in addition to market variables. The IASB holds the view that the fair value of an insurance contract should be based on a ‘hypothetical market’, as this is assumed to be more useful information for investors.1