Assessing earnings under new accounting model for long-duration insurance contracts

In 2018, the Financial Accounting Standards Board (FASB) released Accounting Standards Update 2018-12 (ASU 2018-12), Targeted Improvements for Long-Duration Contracts. It represents a fundamental change in the measurement and reporting of long-duration insurance contracts that will alter the incidence and volatility of reported income and equity.

In this paper, Milliman’s François Dauphin and William Hines illustrate the potential impacts of ASU 2018-12 relative to current US GAAP accounting with respect to four blocks of business: level term insurance, single premium immediate annuities, long term care insurance, and universal life insurance. They followed the income emergence over a five-year period under both accounting standards using a valuation process a company might follow including the random termination of individual policies, issuance of new policies, cash flow assumption updates and movements in market yield rates. The results show the importance of having accurate information on which to base the key decisions that need to be made well in advance of the January 1, 2021 implementation date, and that required calculations from actuarial systems will increase in order to meet the new requirements and explain the emergence of income.

Solvency II analysis of United Kingdom and Gibraltar non-life insurers

In 2018, (re)insurance companies across the European Union (EU) published their second set of Solvency II public reports, the Solvency and Financial Condition Reports (SFCRs). In this report, Milliman’s Derek Newton, Flavien Thery, and Marc Smillie summarise those SFCRs as they relate to non-life insurers regulated in the United Kingdom and in Gibraltar. Their results includes a comparison of the 2017 year-end SFCRs with the 2016 year-end SFCRs.

Milliman named verification agent for first time ever insurance-linked securities instrument governed by French law

Milliman has been appointed as the verification agent for France’s first reinsurance sidecar, named 157 Re 19. This compartment of the Mutual Securitisation Fund bearing insurance risks (fonds commun de titrisation à compartiments supportant des risques d’assurance) known as “FCT 157 Re“ assumes a 25% quota share of CCR Re’s worldwide property catastrophe portfolio and will provide CCR Re with Solvency II regulatory credit.

Milliman is pleased to have been named the verification agent for 157 Re 19, the first reinsurance vehicle of its kind governed by French law. Milliman is well-positioned in this role given our global expertise in insurance-linked securities and property catastrophe.

Why is operational resilience important?

Advances in technology have enabled insurers to operate in a dynamic digital world. However, a reliance on technology, cloud-based platforms, outsourcing, and remote working increases a firm’s vulnerability to operational risks. This interconnected system allows risks to spread and increases exposure to single points of failure. This environment has caused a surge in the number of cyberattacks.

As a response, operational resilience has become a focal point for regulators in Europe. Multiple regulatory and industry bodies have recently released discussion and consultation papers on the topic. Operational resilience refers to the ability of firms to prevent, respond, recover and learn from operational disruptions.

In this paper, Milliman consultants discuss the regulatory landscape related to the issue. They also offer several steps firms can take to improve their operational resilience.

Analysis of Dutch insurers’ Solvency and Financial Condition Reports: Year-end 2017

In this report, Milliman consultants provide a summary of the key solvency information of the main life and non-life insurance entities in the Netherlands based on Solvency and Financial Condition Reports as per year-end 2017. It also compares the figures per year-end 2016 and 2017 of these insurance entities in the Netherlands as well as the main figures of the largest consolidated insurance groups.

Solvency and Financial Condition Reports shed light on M&A transactions

One of the results from Solvency II has been the requirement for all European insurers to publish standardised annual information in the form of the Solvency and Financial Condition Report (SFCR). The public availability of SFCRs for EU insurers allows us to gain new insights into transactions. In this article, Milliman’s Jeremy Kent and Ed Morgan illustrate the sorts of analyses which are possible by looking at a sample of 24 transactions in Europe over the last couple of years across a wide range of EU markets.