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IFRS, UK GAAP and Solvency II Barnett Waddingham Kim Durniat 15 November 2012 Agenda •  Update on where we are with t...

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IFRS, UK GAAP and Solvency II Barnett Waddingham Kim Durniat

15 November 2012

Agenda •  Update on where we are with these •  What we expect to happen in 2013 and beyond •  Discussion on implications

UK GAAP •  The future of UK GAAP •  New UK GAAP – 1 January 2015

•  Mind the Gap published in January 2012 •  Introduction of SII will render current UK GAAP obsolete •  At time of publishing IFRS was expected after SII but now who knows? •  Short term solution •  Long term solution

•  ED expected in 2013

IFRS - Insurance Contracts •  ED in H1 2013 •  Full text of standard •  Limited questions and do not intend to revisit other aspects after exposure

Core Proposal – Measurement of insurance contract liability Residual margin Risk adjustment

Total liability

• 

Quantifies the unearned profit arising from the contract that the insurer expects to earn as it fulfils the contract

• 

Quantifies the difference between the certain and uncertain liability

Time value of money

•  An adjustment that reflects the time value of money

Cash flows

•  The amounts the insurer expects to collect from premiums and pay out as it acquires, services and settles the contract, estimated using up-to-date information

Changes since July 2010 ED •  Presentation •  Volume information and changes in discount rate

•  Measurement •  Unlocking the residual margin •  Participating contracts

•  Transition

IFRS - Timelines •  H1 2013 Publish targeted exposure draft •  Q4 2013 begin redeliberations •  H2 2014 publish IFRS Proposed effective date 1 January 2018? •  Early adoption permitted and restate comparatives

Where is Solvency II? Some definitions: •  “Omnibus II” – a piece of European legislation that amends the Solvency II directive •  The “Trilogue” – The European Parliament, European Commission and European Council. They must agree Omnibus II •  “Long-Term Guarantees Assessment” (LTGA) – a quantitative impact study carried out by the larger European insurance companies 8

Where is Solvency II? •  28 January 2013: LTGA launched by EIOPA •  31 March 2013: Participants in LTGA to submit information •  14 June 2013: EIOPA to report results of LTGA to the European Commission •  12 July 2013: EC to report to the rest of the trilogue •  10 June 2013: European Parliament vote on Omnibus II 9

Long-Term Guarantees Assessment •  Report balance sheet (Assets, technical provisions, own funds, SCR, MCR) •  13 scenarios in total covering: •  •  •  •  •  •  •  10

Different methods for extrapolating swap rates Different matching adjustments Different counter-cyclical premiums Different transitional measures YE 2011 YE 2009 (“during” the financial crisis) YE 2004 (“normal” market conditions)

Questions •  Which do you think will be first - Solvency II or IFRS? •  Have your firms been focusing on IFRS? Is it on the board’s agenda? •  What will the implications be on data, systems and processes? •  What do you need to be doing now?

Contact us Please contact us: •  Kim Durniat 020 7776 3885 [email protected]