Fair valuation of life insurance company liabilities
Historically, accounting authorities have prescribed a high degree of consistency between the asset and liability sides of balance sheets. However, a significant departure from that premise occurred in May, 1993 with the issuance of Statement of Financial Accounting Standards (SFAS) No. 115. According to SFAS 115, certain classes of assets are to be carried at ‘fair value’, while other assets and all liabilities remain at book value. The scope of SFAS 115 includes financial institutions and consequently, insurance companies are also required to abide by the standard.
KeywordsInterest Rate Cash Flow Option Price Market Interest Rate Generally Accepted Accounting Principle
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