June 11th, 2009

FIT Intelligence Update

Posted at 9:00 AM ET

The Financial Accounting Standards Board (FASB) continues to work on the Insurance Contracts project. The FASB has indicated that it will not support current exit value for reserving, but is favoring fulfillment value instead. Fulfillment value represents the amount that will actually be paid as claims become due (essentially the present value of expected losses plus a risk margin). Measurement of fulfillment value would use expected cash flows (i.e., a probability-weighted average of possible cash flow results) rather than a “best estimate.” In addition, a company should use all information available, including industry and market information and the company’s own historical data.

Standard & Poor’s (S&P) just published its latest views on the reinsurance sector. Even though S&P found the reinsurance sector overcapitalized on December 31, 2007, it thought that capitalization was merely adequate on December 31, 2008, especially if there is a series of substantial catastrophes in 2009.

Statements concerning, tax, accounting, legal or regulatory matters should be understood to be general observations based solely on our experience as reinsurance brokers and risk consultants, and may not be relied upon as tax, accounting, legal or regulatory advice which we are not authorized to provide. All such matters should be reviewed with your own qualified advisors in these areas.

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