FASBIASB Field testing white paper 11 October 2013

Life Insurer Comments on Field Testing of
FASB and IASB Insurance Contracts Proposals
11 October 2013
All rights reserved. The whole, but no part thereof, of this publication may be
reproduced, stored in a retrieval system, or transmitted, in any form or by any means
(photocopying, electronic, mechanical, recording, or otherwise), without the prior
written permission of any member of the Group.

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11 October 2013
Mr. Russell G. Golden
Chairman
Financial Accounting Standards Board (FASB)
401 Merritt 7
PO Box 5116
Norwalk, CT 06856-5116
Mr. Hans Hoogervorst
Chairman
International Accounting Standards Board (IASB)
30 Cannon Street
London EC4M 6XH
United Kingdom
Re: Field testing of the FASB Proposed Accounting Standards Update – Insurance
Contracts (Topic 834) and the IASB Exposure Draft (ED) – Insurance Contracts
Dear Mr. Golden and Mr. Hoogervorst
On 20 June and 27 June 2013, the IASB and the FASB, respectively, released EDs on the
accounting for insurance contracts. Both Boards requested feedback on the proposed
standards and results of field testing on or prior to 25 October 2013. In late 2012, we advised
both the IASB and FASB of our intention to complete field testing during the exposure draft
period and that we expected the benefits would include:
a. Extensive analysis of the potential effects on a wide range of real product portfolios over
different economic scenarios;
b. Identification of data and operational issues, thereby allowing the Boards to evaluate the
costs and benefits of the proposed guidance and what should be the appropriate effective
date of the standards;
c. Identification of interpretive issues and the need for clarification in final guidance through
interactive discussion of the field-testing processes and results;
d. User feedback through discussions of our field-testing results with financial statement
users, including capital market and rating agency analysts; and,
e. Enhanced industry knowledge through reviews of our testing results with other companies
and trade associations.

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We are fully committed to helping the Boards achieve the goal of aligned high quality global
accounting standards. As a result, we have spent significant time and effort to complete field
testing of both the IASB and FASB proposals within the exposure draft response period. With
the assistance of a third-party consultant, field testing on the EDs was performed to cover a
wide range of products and several possible economic scenarios. The results of our testing
along with key findings and observations are the subject of this document.
In this document, we do not provide comments on all aspects of the EDs, but instead we focus
on areas where we encountered uncertainty interpreting the guidance, challenges applying it,
or outcomes that were not reflective of our expectations or the underlying economics of the
business. We categorized our key findings and observations in our executive summary under
three main themes (Discount Rate, Complexity and Convergence) and focused on where:
a. The results produced were either not in line with our expectations or not reflective of actual
economics;
b. The proposals of the Boards may add more complexity than the perceived benefit warrants;
and,
c. The non-convergence between the FASB and IASB would result in significant additional
cost, while producing no additional benefit.
Considering the complexity of our business and the interactive nature of our assets and
liabilities, evaluating the effects of the proposed accounting guidance for both financial
instruments and insurance contracts together is the only way to gain an in-depth
understanding of the impacts of the proposed accounting for insurance contracts on our
business. Due to time and resource limitations, we have not evaluated the impacts of all
aspects of the Boards’ proposals related to financial instruments for the purposes of this field
test.
In order to publish this report on a timely basis we have focused our efforts on completing and
analyzing our field test results. As such, the Group (working with the consultant) had to make a
number of simplifying assumptions and has not yet fully developed all possible solutions to the
issues identified. We have concluded that while many of the principles underlying the standard
are sound, once we looked into the details there are a number of significant issues that need to
be addressed before the issuance of a final standard.
Our executive summary provides key findings and observations from the field testing and the
recommendations or alternatives that we believe the Boards should consider in response to
certain of those key findings and observations. In certain areas, we have not concluded on a
recommendation or alternative proposal, but believe that, with due consideration, alternatives
could be established. We would welcome the opportunity to work with the Boards to develop
and test such alternatives.
We once again thank you for the opportunity to respond to your proposals and your
consideration of our key findings, observations and recommendations. Should you have any
questions or would like to meet with us regarding the contents of this letter, either separately or
together, please do not hesitate to contact us.

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Very truly yours,
Steve Roder
Senior Executive Vice President and Chief Financial Officer
Manulife Financial
John C. R. Hele
Executive Vice President and Chief Financial Officer
MetLife, Inc.
John T. Fleurant
Executive Vice President and Chief Financial Officer
New York Life Insurance Company
Peter Sayre
Senior Vice President and Principal Accounting Officer
Prudential Financial, Inc.

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Contents
1. Executive Summary 1
2. Introduction 14
3. Methodology and Approach 16
3.1 Scope....................................................................................................................................... 16
3.2 Key Baseline Modeling Techniques and Assumptions............................................................... 18
3.3 Key FASB/IASB-Specific Modeling Techniques and Assumptions............................................. 20
4. Segment-Level Results 24
4.1 Differences between Current U.S. GAAP and the Proposals ..................................................... 24
4.2 Traditional Life Segment ........................................................................................................... 25
4.2.1 Key observations ...................................................................................................................... 25
4.2.2 Discussion of results................................................................................................................. 25
4.3 Retirement Segment................................................................................................................. 29
4.4 Participating Segment............................................................................................................... 33
4.5 Variable Annuity Segment......................................................................................................... 37
5. Key Observations on Discount Rate Impacts 41
5.1 Observations on Discounting Longer-Duration Cash Flows ....................................................... 41
5.2 Observations on Potential Accounting Mismatches ................................................................... 44
6. Findings and Observations 45
6.1 Initial and Subsequent Measurement of the Insurance Liability (Asset)...................................... 45
6.1.1 Expected future cash flows ....................................................................................................... 45
6.1.2 Current discount rates............................................................................................................... 47
6.1.3 Market risk premiums (adjustments for expected and unexpected defaults)............................... 52
6.1.4 Risk adjustment (IASB)............................................................................................................. 54
6.2 Recognition of Insurance Contract Revenues, Expenses and Other Comprehensive Income
(Subsequent Measurement)...................................................................................................... 56
6.2.1 FASB margin............................................................................................................................ 56
6.2.1.1 Driver for release ..................................................................................................................... 56
6.2.1.2 Adjusting the FASB margin...................................................................................................... 57
6.2.2 IASB contractual service margin and unlocking......................................................................... 58

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6.2.2.1 Driver for release ..................................................................................................................... 58
6.2.2.2 Unlocking the contractual service margin ................................................................................. 59
6.2.3 Changes in discount rates — non-asset-impacted cash flows (OCI) .......................................... 62
6.2.4 Changes in discount rates — unlocking the interest accretion rate (FASB)................................ 63
6.2.5 Changes in discount rates — cash flows impacted by returns on assets the entity is not required
to hold (IASB) ........................................................................................................................... 65
6.2.6 Splitting fixed and variable cash flows (IASB)............................................................................ 65
6.2.7 Loss-making contracts.............................................................................................................. 66
6.2.8 Acquisition costs....................................................................................................................... 68
6.3 Insurance Contracts Revenue and Expense Presentation ......................................................... 70
6.3.1 FASB earned premium ............................................................................................................. 70
6.3.2 IASB earned premium............................................................................................................... 71
6.3.3 Observations concerning both approaches................................................................................ 72
6.4 Other Specific Topics................................................................................................................ 73
6.4.1 Transition.................................................................................................................................. 73
6.4.2 Separation of non-insurance components ................................................................................. 74
6.4.3 Portfolio.................................................................................................................................... 75
6.4.4 Contract boundary .................................................................................................................... 76
Appendix A – Detailed Methodology and Approach 77
Appendix B – Detailed Results 89
Appendix C – Earned Premium Presentation 110
Appendix D – Glossary 112
Each member of the Group has independently provided data to a third-party consultant
under strict confidentiality protocols for the purpose of aggregation and simulation to
provide field testing of the Exposure Drafts on the Accounting for Insurance Contacts
published by the FASB and IASB. The field testing results are not financial information
relating to any individual company or the companies in aggregate and should not be
relied upon separately or in conjunction with information filed by the companies in any
jurisdiction under securities regulation or for any other purpose.

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1. Executive Summary
In late June 2013, the International Accounting Standards Board (IASB) and the Financial
Accounting Standards Board (FASB) (collectively, the Boards) both released Exposure Drafts
(EDs) on the accounting for insurance contracts.
Manulife, MetLife Inc., New York Life and Prudential Financial Inc. (the Group or we) are fully
committed to helping the Boards achieve the goal of aligned high quality global accounting
standards. The Group performed field testing of both the IASB and FASB proposals (with the
assistance of a third-party consultant, “the consultant”) within the exposure draft response
period. The results of this field testing exercise along with key findings and observations are
the subject of this document.
understanding of the impacts of the proposed accounting for insurance contacts on our
test, but we expect that, as currently proposed, they could result in more invested assets
reported at fair value with impacts of changes in fair value reported in pretax income. This
outcome would compound the accounting mismatches we observed in pretax income during
this field testing.
Nine product lines were selected for our testing, representative of typical products written by
life insurance companies in North America. We then engaged the consultant to collect and
review the data necessary to perform the field testing, and to do so in a manner that would
preserve the confidentiality of each Group member’s competitive information. All products
tested utilized the building block approach, reflecting the long-term nature of most of our
products. We tested the results over the December 2007 to December 2012 period and
provided historic U.S. Generally Accepted Accounting Principles (U.S. GAAP) results for
comparative purposes.
To replicate the level of aggregation expected for actual financial reporting, and to preserve the
confidentiality of each Group member’s individual product data (both from each other and the
public), the consultant scaled and combined the data received from the Group members,
ultimately presenting it under four operating segments prior to it being released to the Group.
The observations at the segment level are generally consistent with the observations for the
underlying products and each Group member is amenable to confidential sharing of company-
specific information with the Boards, at their request, should the Boards deem that beneficial.
Our scope did not include product lines using the premium allocation approach and
reinsurance.
In order to publish this report on a timely basis we have focused our efforts on completing and
number of simplifying assumptions (highlighted in Sections 3 and 6 of this document) and has
not yet fully developed all possible solutions to the issues identified. We have concluded that
while many of the principles underlying the standard are sound, once we looked into the details

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there are a number of significant issues that need to be addressed before the issuance of a
final standard.
We have summarized our top concerns into three main themes: Discount rate, Complexity and
Convergence.
1. Discount Rate:
The discount rate is the most significant assumption in the measurement proposals. While the
Other Comprehensive Income (OCI) solution introduced in the proposed standards is intended
to reduce the accounting mismatch between assets and liabilities, when combined with our
interpretation of the discount rate methodology, it produced extreme unwarranted volatility in
both pretax income and accumulated other comprehensive income. Below we outline the five
key drivers of the volatility:
a. Effect of market consistent rates on long-dated cash flows (refer to Sections 5.2 and
6.1.2)
For longer duration insurance contracts, expected future cash flows often extend
beyond the point on the yield curve where observable market interest rates are derived
from active markets and, in many cases, beyond the point where observable market
interest rates exist at all.
While the guidance is not explicit, our interpretation of the rate to be used was a market
consistent discount rate, consistent with a fair value measurement principle that
maximizes the use of observable inputs. In our testing, we held constant the last point
on the observable market yield level for the periods beyond the last observable point.
As the last observable rate was updated each period, the rate used on all cash flows in
the unobservable period was updated by the same amount. We do not believe that
these market-consistent rates are a good predictor of future rates, a view history
substantiates. This assumption change from period to period resulted in the extreme
short-term volatility.
To demonstrate the sensitivity of the assumption, we calculated the impact of a parallel
upward shift of 50 basis points for all tenors on the yield curve after year 20 and also
after year 30. To demonstrate the impact of a potential solution, we calculated the
impact of grading to a long-term average rate starting in year 15, with the long-term rate
(6% used for illustrative purposes) held constant after year 30 and also grading to the
same long-term rate starting in year 30 with the long-term rate held constant after year
40. We believe the scenario where we graded the discount rates to long term averages
resulted in movements in the insurance liability that were more consistent with the long-
term nature of the business.

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1
* Note, in addition to assets held as Available-For-Sale (AFS), certain assets are also recorded at fair
value with changes recorded in pretax income and at amortized cost.
The margin established at inception is also heavily dependent on the prevailing interest
rate environment at inception. During a period of market volatility, long duration policies
written a few quarters apart, with nearly identical terms and risks, would be expected to
have similar cumulative profits over the lifetime, but could end up having a very different
pattern of underwriting profit and investment earnings over that time period.
We recommend that the discount rate grade to a long-term average rate
beginning at the point at which observable inputs are less relevant. This would
be accompanied by required disclosure of the methodology and significant
assumptions used, as well as sensitivities to alternative assumptions.
b. Effect of all discount rate changes required to be in OCI (refer to Sections 5.2 and 6.2.3)
Asset and Liability Management (ALM) is a key activity designed to monitor and actively
manage the investment and reinvestment risk related to fulfilling insurance contract
obligations. Derivative gains and losses and realized investment gains and losses, both
of which may be neutral from an economic view (i.e., an ALM view), are reported in
pretax income, while impacts of changes in discount rates for the liabilities are reported
in OCI. Therefore, even when assets and liabilities are reasonably matched from a
duration perspective, the accounting would show a much different result. This result
distorts the true performance of the company.
1
All financial information is presented in currency units (CUs).

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U.S. statutory reporting addresses this issue by amortizing certain realized
investment gains and losses over time as a yield adjustment to the remaining
asset portfolio. A solution would be to provide the option to reflect changes in
discount rates in pretax income.
c. Reset of rates for participating contracts (refer to Sections 6.2.4 and 6.2.5)
The FASB approach for prospectively adjusting the interest accretion rates on
participating business for changes in expected future crediting rates appears to result in
a more consistent recognition of OCI for invested assets and the insurance liability. The
IASB approach for such contracts, which updates the discount rate used for accreting
interest in pretax income to the current liability discount rates, results in an accounting
mismatch.
The Group has not developed a recommended solution, but would favor the
FASB approach with certain adjustments.
d. Margin or contractual service margin (refer to Sections 6.2.1 and 6.2.2)
One of the segments tested demonstrated that where the Margin (FASB) or Contractual
Service Margin (CSM) (IASB) represents a large amount in proportion to the total
liability, an accounting mismatch is created in OCI. This is because the margins are not
updated for changes in discount rates, whereas the assets supporting the business are
generally accounted for as available for sale securities with changes in fair value
reported in OCI. This issue is observed in the Traditional Life Segment – products with
long dated gross cash flows that are backed primarily by long duration fixed income
assets.
The Group has not developed a recommended solution to address this concern.
e. Adjustments to top–down discount rates (refer to Section 6.1.3)
Our field testing also uncovered an issue related to the top-down discount rate
deductions that could further contribute to unwarranted volatility. When using a top-
down discount rate, we based the deductions from the asset yields on historical
averages for the purposes of field testing. When one company in the Group updated
these assumptions during the financial crisis, this generated volatility in OCI (see
Retirement Segment chart on the previous page). These results indicate that if changes
to the top-down discount rate are made each reporting period based on fluctuations in
asset spreads, rather than just when there is a reason to believe that the default or
other market risk has changed, there would be unwarranted volatility reported each
period.
We recommend that the deductions for the top-down discount rate use
assumptions that are based on historical experience rather than period to period
fluctuations in asset spreads.

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2. Complexity:
The complexity of the proposals makes it difficult to explain results in a meaningful way to
management and to users. In addition, without fundamental changes to actuarial models and
systems, the complexity could impact our ability to produce financial statement and related
disclosure amounts that are certifiable and explainable by management and prepare and file
our quarterly financial statements within reasonable time frames. Given our experience with
this testing, three years is probably not enough time to fully implement the standard. The
primary areas of complexity are:
a. Insurance contract revenue (refer to Section 6.3)
The proposed standards have a complex definition of insurance contract revenue under
the building block approach, designed to capture the pattern of “earned premium”
consistent with the proposed revenue recognition standard. The methodologies
outlined in the proposed standards are largely untested in practice. Due to the
complexity involved, we only had time to test this methodology on one product line.
Under both the FASB and IASB proposals, the determination of insurance contract
revenue requires tracking of “unearned” premium, which itself requires tracking of
inception-to-date earned premium. Additional complexities involve the tracking of
paid/incurred claims and expenses, particularly under the FASB model due to the
locked-in margin. In order not to double-count claims and expenses, the FASB
approach also requires tracking, on a year-by-year basis from inception, the reversal of
the effects of amounts previously recognized in net income when assumptions changed.
The removal of the investment component (IASB) or estimated returnable amounts
(FASB) seems straightforward in concept, but identification, measurement and
“removal” of such amounts is not currently performed for contracts without an explicit
account balance. To implement this aspect of the proposals would require significant
changes in data requirements and actuarial models to implement in practice.
The Group does not believe that the proposed insurance contract revenue models yield
results that faithfully represent the performance of our business in a given accounting
period. As such, we do not believe that the complexity of the approach, the costs and
efforts involved in calculating the amounts, and, more importantly, explaining the
outcome to users, is commensurate with any additional benefit produced.
We are working together with the American Council of Life Insurers (ACLI) to
formally present an alternative presentation approach to the Boards to address
these concerns.
b. Bifurcation of cash flows (refer to Section 6.2.6)
Under the IASB proposal, cash flows that vary directly with certain underlying items but
are not contractually linked are treated differently than other cash flows. Due to a variety
of challenges, including complications getting data on a split basis and a lack of clarity

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as to which cash flows would not be directly related to asset returns; we were unable to
apply the provisions of the proposed IASB guidance in this area during our testing.
We recommend that the requirement to bifurcate cash flows in the IASB model,
other than those contractually linked to a fixed percentage of underlying items,
be eliminated to conform to the FASB model.
c. Unlocking the contractual service margin (refer to Section 6.2.2)
We had difficulty applying the IASB guidance related to unlocking the CSM, particularly
the various provisions of paragraph B68. A number of partial exceptions to unlocking
the CSM and exceptions to those exceptions contained in B68 were difficult to interpret
and appear to require treating related cash flows differently. These complications can
be significantly reduced by refining the definition of cash flows subject to CSM
unlocking.
We recommend limiting CSM unlocking to changes in future assumptions that
impact future cash flows, other than changes in credited rates which should be
addressed in OCI, and eliminating the special exceptions in paragraph B68.
d. Separate accounts (refer to Section 6.3)
Policyholder investments in separate accounts are similar in nature to mutual funds, but
due to a small level of expected mortality risk in the base contract, under the proposed
models the related base fees and expenses would have a very different accounting
basis than a third-party asset management company essentially performing the same
services. This would be the result of the requirement of the insurance contract
proposals (IASB and FASB) for quarterly re-measurement through net income of the
present value (PV) of all expected future fees and expenses associated with managing
policyholder investments. While the IASB proposal would record the quarterly re-
measurement through the CSM versus pretax income under the FASB proposal, this
only eliminates volatility in pretax income and equity if there is sufficient CSM to absorb
the impact.
In addition, the FASB proposal, contrary to current U.S. GAAP, requires the reporting of
gross investment income and an equal and offsetting gross interest expense when all
investment performance is completely passed on to the policyholder. The requirement
to report the gross amounts on the face of the statement of comprehensive income is
misleading (as the insurer is not a principal, but is effectively acting as an agent) and
would result in increased complexity in production (e.g., producing cash flow
information).
The Group is currently considering possible solutions to the issue related to the
asset management fees. The presentation issue can be addressed by retaining
the current U.S. GAAP presentation requirement, where investment income is
netted against amounts credited to policyholders in the statement of
comprehensive income.

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3. Convergence:
The detailed differences between the International Financial Reporting Standards (IFRS) and
U.S. GAAP proposals would result in additional cost to those companies who have
subsidiaries required to report under a different basis than the parent company and diverged
practices could continue to cause confusion in the markets.
We recommend that the Boards continue to strive for a standard that is substantially
converged. We also stress the importance of a quality standard that has been
appropriately tested. In our view, the Boards should focus on addressing the issues
raised during the re-deliberation process and then address the key differences between
their two standards. The following table summarizes some of the more detailed
convergence opportunities highlighted by our testing.
Convergence
opportunity IASB proposal FASB proposal
The Group’s
recommendation
Participating
contracts –
bifurcation of cash
flows (refer to
Sections 6.2.5 and
6.2.6)
Requires splitting of cash
flows between those that
are fixed, those that vary
indirectly with returns on
underlying items and
those that vary directly
with returns on underlying
items.
Within contracts with
cash flows that are
contractually linked to
underlying items, all cash
flows that vary directly
with underlying items,
whether or not
contractually linked, are
measured by reference to
the carrying amount of
the underlying items.
The FASB model does
not require splitting
cash flows between
those that are fixed and
those that vary with
returns on underlying
items.
Only contractually
linked cash flows that
vary directly with
underlying items are
measured by reference
to the carrying amount
of the underlying items.
Does not require
splitting any other cash
flows.
FASB proposal

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Convergence
The Group’s
recommendation
Acquisition cost
presentation (refer
to Section 6.2.8)
Included in fulfillment
cash flows.
Un-expensed acquisition
costs included in
fulfillment cash flows are
recognized as an
expense in pretax income
using the same pattern as
the CSM release.
Excluded from
fulfillment cash flows.
Recorded as a direct
adjustment to the
margin. The margin is
reduced by un-
expensed acquisition
costs and increased by
un-paid acquisition
costs. The un-
expensed acquisition
costs are recognized
as an expense in
pretax income using
the same patterns as
the margin release.
IASB proposal
Margins unlocking
(refer to Sections
6.2.1 and 6.2.2)
The CSM is adjusted for
favorable and
unfavorable changes
between current and
previous estimates of the
present value of future
cash flows if they relate to
future coverage or
services.
The margin is not
adjusted for changes
between current and
previous estimates of
future cash flows.
We recommend
unlocking the
margin for
changes in future
assumptions that
impact future
cash flows, other
than those that
impact future
credited rates.
Portfolio definition
(refer to Section
6.4.3)
The IASB definition of
portfolio refers to
contracts that “are
managed together as a
single pool”.
The FASB definition of
portfolio refers to
contracts that “are
expected to have a
similar duration and
expected pattern of
release from risk”.
We believe that
both Boards
should converge
to a principle and
not a restrictive
definition.
Transition –
margin/CSM (refer
to Section 6.4.1)
“20/20” hindsight in
determining risk
adjustment and CSM at
transition when full
retrospective method is
impracticable.
“20/20” hindsight not
permitted in
determining margin at
transition when full
retrospective method is
impracticable.
IASB proposal

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Convergence
The Group’s
recommendation
Transition – financial
asset classification
(refer to Section
6.4.1)
Limited retrospective “re-
adoption” of the financial
instrument classification
and measurement
standard upon adoption
of the insurance contracts
guidance – only allowed
to change to fair value
option designations if an
accounting mismatch is
eliminated or significantly
reduced.
Complete retrospective
“re-adoption” of the
financial instrument
classification and
measurement standard
upon adoption of the
insurance contracts
guidance.
FASB proposal
Additional findings and observations are outlined in Sections 5 and 6 of this document.

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Summary Results by Segment
The following graphs show the pretax income/(loss) and pretax comprehensive income/(loss)
for the segments tested. We make the following observations for each:
Traditional Life Segment (Refer to Section 4.2)
a. The updating of cash flow assumptions at each reporting date resulted in volatility in pretax
income under the proposed FASB standard but less so under the proposed IASB standard,
as the unlocking of the CSM mitigated the volatility.
b. The OCI amount related to the insurance contract liability (asset) moved in the same
direction as that of the investment assets because the fulfillment cash flows were in an
asset position and no OCI was calculated on the margin/CSM. This is particularly apparent
in 2009, 2010 and 2011 results.

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Retirement Segment (Refer to Section 4.3)
a. Liability cash flows on products in this segment extend longer than the available assets
and, therefore, the liabilities were more sensitive to changes in discount rates than the
assets backing them. Additionally, carrying values of certain assets backing the liabilities
were not correlated with discount rates further contributing to disconnect between
insurance liabilities and assets backing them.
b. The volatility in OCI was extreme due to changes in discount rates over the studied period.
As noted previously, this was driven by our interpretation of the proposals to use a market
observable discount rate and the approach taken for the field testing to keep the last point
on the observable market yield curve level for the periods beyond the last observable point.
c. The impact of changes in discount rates created volatility in the risk adjustment and,
therefore, in pretax income under the IASB proposal.

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Participating Segment (Refer to Section 4.4)
a. During the period tested, dividends and policyholder crediting rates were changed. For
IASB testing purposes we assumed all cash flows vary directly with the underlying assets.
As such, pretax income was significantly more volatile under the IASB’s proposal than
under the FASB’s proposal.
b. Pretax income volatility was also created by the impact of changes in discount rates on the
IASB risk adjustment.
c. For reasons similar to the Retirement Segment, total pretax comprehensive income was
very volatile under both proposals.

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Variable Annuities Segment (Refer to Section 4.5)
a. The insurance liability, which included the base contract fees (i.e., mortality and expense
charges (M&E) and investment management fees) and riders that are accounted for under
ASC 944 (SOP 03-1) (and not under ASC 815 (FAS 133)) under current U.S. GAAP, was
more volatile under the proposed EDs than current U.S. GAAP. Under both models income
was extremely sensitive to movements in equity markets (evident in 2008 and 2009) and
interest rates (evident in 2011).
b. It was a coincidence that the IASB and FASB models produced similar pretax income
results in 2008 through 2010. The impact of not unlocking the margin under the FASB
model was offset by the difference in treatment of changes in discount rates (FASB model
reflects the change in OCI vs. IASB through pretax income).

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2. Introduction
On 20 June and 27 June 2013, the IASB and the FASB, respectively, released EDs on the
accounting for insurance contracts. The EDs represent proposed changes to current U.S.
GAAP and IFRS. Both Boards requested feedback on the proposed standards and results of
field testing on or prior to 25 October 2013. The IASB requested focused feedback on specific
changes from the previous ED released by the IASB in 2010 (2010 ED), while the FASB
requested feedback on all areas. This document assumes a base understanding of the Boards’
proposals as outlined in their respective EDs and should be read in conjunction with the EDs.
Any decisions made by the Boards during re-deliberations after the comment period could
significantly change the proposed models, thus reducing the utility of this document.
The Group’s field testing project was a joint effort of four global financial services companies
with leading life insurance operations in the United States, Canada, Asia, Europe and Latin
America. Together, the companies in the Group, reported aggregate total assets and equity of
US$2.3 trillion and US$158 billion, respectively, as of 31 December 2012.2
In the United States
alone, the Group held US$1.6 trillion of total statutory admitted assets as of 31 December
2012, which accounted for about 30% of the total net admitted assets in the United States life
insurance industry.3
Together, the Group’s product offerings include individual and group life and health insurance,
property and casualty insurance, participating and non-participating contracts, and annuities.
Most of the companies in the Group have had experience preparing financial statements under
both U.S. GAAP and IFRS, and the field testing discussed herein addressed the requirements
under both accounting frameworks.
The companies in the Group are fully committed to helping the Boards achieve the goal of
aligned high quality global accounting standards. As a result, we have spent significant time
and effort to complete field testing of both the IASB and FASB proposals within the exposure
draft response period spanning six months and involving the effort of more than 50 individuals
in finance, actuarial and other key functions. The extent of resources dedicated to this effort
should be considered when reading this paper, particularly when observations around
feasibility and practicality are made.
understanding of the impacts of the proposed accounting for insurance contracts on our
2
Based on published 2012 annual reports. MetLife, Inc.; New York Life; and Prudential Financial, Inc. report
consolidated U.S. GAAP financial statements, while Manulife Financial reports consolidated IFRS financial
statements.
3
Figures calculated from “Top 200 U.S. Life/Health Insurers (Ranked by 2012 admitted assets)” table in A.M.
Best Company’s Best’s Review magazine, July 2013 Issue, pages 26-28.

15
test.
Nine product lines were selected for our testing, representative of typical products written by
life insurance companies in North America. We then engaged a third-party consultant to collect
and review the data necessary to perform the field testing, and to do so in a manner that would
preserve the confidentiality of each Group member’s competitive information. All products
tested utilized the building block approach, reflecting the long-term nature of most of our
products. We tested the results over the December 2007 to December 2012 period and
provided historic U.S. Generally Accepted Accounting Principles (U.S. GAAP) results for
comparative purposes.
To replicate the level of aggregation expected for actual financial reporting, and to preserve the
confidentiality of each Group member’s individual product data (both from each other and the
public), the consultant scaled and combined the data received from the Group members,
ultimately presenting it under four operating segments prior to it being released to the Group.
Our scope did not include product lines using the premium allocation approach and
reinsurance.
In order to publish this report on a timely basis we focused our efforts on completing and
number of simplifying assumptions (highlighted in Sections 3 and 6 of this document).

16
3. Methodology and Approach
3.1 Scope
The Group selected nine products for purposes of the field test. The selected products are
considered to be representative of typical products sold by life insurance companies in North
America.
To understand the impact of the proposed EDs on the financial results over a range of real
economic scenarios, including the recent financial crisis, we applied the requirements of the
proposed EDs to historic U.S. GAAP financial data from 31 December 2007 through 31
December 2012 (study period).
Each of the companies in the Group provided the consultant with actual historic financial
results and actuarial modeling information for the individual products they were responsible for
field testing. For purposes of presenting the results of our field test in this document, the
product-level financial results were combined by the consultant into four segments as follows.
Segment Product Product overview
Applicable
current U.S.
GAAP accounting
Traditional Life Term Term life business with
related term riders.
ASC 944 (FAS 60)
Whole Life (WL) WL contracts without
participation in returns on
underlying items.
ASC 944 (FAS 60)
Participating Participating Whole
Life (Par WL)
Par WL block with riders
including paid-up additions
(PUAs), options to purchase
paid-up additions (OPPs) and
term riders. Product does not
include any profit sharing with
shareholders.
ASC 944 (FAS 120
and SOP 95-1)
Universal Life No
Lapse Guarantee
(ULSG)
Block of Universal Life
policies with secondary
guarantees.
ASC 944 (FAS 97
and SOP 03-1)

17
Segment Product Product overview
Applicable
current U.S.
GAAP accounting
Variable Annuity Variable Annuity
(two blocks tested)
(VA)
Two blocks of VA policies,
riders including variations of
guaranteed minimum death
benefits (GMDBs),
guaranteed minimum income
benefits (GMIBs) and
guaranteed minimum
withdrawal benefits
(GMWBs).
ASC 944 (FAS 97)
for base contract
ASC 944 (SOP
03-1) and ASC
815 (FAS 133) for
riders
Retirement Single Premium
Immediate Annuity
(SPIA)
Non-par payout annuities with
a term-certain component.
ASC 944 (FAS
60/FAS 97) limited
pay
Retirement Income
(RI)
RI product similar to an
endowment with benefit
payment at maturity in payout
annuity structure.
ASC 944 (FAS 60)
Long-Term Care
(LTC)
LTC block including individual
and group long-term care.
ASC 944 (FAS 60)
For purposes of the field testing:
1. Transition to the proposed guidance was assumed to occur on 31 December 2007.
2. The guidance was applied to:
a. Six statements of financial position as of 31 December 2007 through 2012
b. Five statements of pretax income for the years ended 31 December 2008 through
2012
3. Comparative statements were developed to present current U.S. GAAP, proposed FASB,
and proposed IASB presentation of financial results by segment, including:
a. Statement of financial position
b. Statement of pretax income4
c. Roll-forwards of the insurance contract balances5
4. We performed sensitivities to test alternative interpretations, judgments or assumptions to
evaluate their impact on the financial information described above.
4
Due to time and data limitations, we were unable to develop insurance revenue presentation for all the products,
except one, as required by ASC 834-10-35-12 and 55-172, and used the 2010 ED/Discussion paper margin
presentation with some modifications (e.g., inclusion of interest accretion on cash inflows line item).
5
Required by proposed ASC 834-10-50-5 and IASB ED, paragraph 74.

18
Time constraints and the extent of differences between the proposals and current U.S. GAAP
limited our testing to products using the Building Block Approach (BBA) methodology, as
described by the EDs. We did not test products using the Premium Allocation Approach (PAA)
and deemed reinsurance out of scope for field-testing purposes.
In this document, the Group explains the determination and use of certain market and non-
market assumptions over others (e.g., discount rates). We also describe difficulties and
implications around the application of complex and/or judgmental interpretations of the
proposed guidance (e.g., separation of non-insurance components).
Due to time and system restrictions associated with the field testing, we were unable to apply
certain requirements or perform a comprehensive analysis of systems or data needs for
applying the EDs requirements. In cases where we used simplifying assumptions, these were
noted.
3.2 Key Baseline Modeling Techniques and Assumptions
Certain assumptions were made in order to reflect the requirements of the proposed guidance
or to simplify the requirements of the proposed guidance, as necessary. General assumptions
outlined below were applicable to most of the products, and the detailed description of our
methodology and approach for each product is presented in Appendix A.
Topic Key techniques and assumptions
Separation of
components
a. We did not separate any investment components
b. For variable annuities, we bifurcated certain options and
guarantees as embedded derivatives and valued them under ASC
815 (FAS 133) or IFRS 9.6
Portfolio a. For transition, we combined business issued in 2007 and prior into
a single portfolio.
b. We assumed that contracts issued in 2008 and subsequent years
contained similar risks and were thus grouped into portfolios by
issue year for each product.
6
Existing U.S. GAAP and IFRS requirements for unbundling embedded derivatives may currently result in
different treatment under each framework. For the purposes of field testing, we did not re-evaluate or change the
current accounting treatment for unbundling embedded derivatives when presenting our results under the
proposals in the EDs.

19
Topic Key techniques and assumptions
Cash flows For unbiased probability-weighted estimate of future cash flows:
a. We projected fulfillment cash flows based on current in-force files,
current models and assumptions that reflected each company’s
best estimates at the time of valuation. Each valuation reflected
information known to each company at the valuation date, and
actual experience that emerged over the study period was
reflected in the results.
b. We projected fulfillment cash flows based on a single best
estimate for demographic assumptions (e.g., mortality or
morbidity).
c. We used single best estimate assumptions for expenses.
d. We used stochastic interest and equity scenarios where indicated
for some products.
Refer to Section 3.3 for a description of acquisition cost estimation.
Discount rates used to
measure the
insurance contract
liability (or asset)
We used a top-down approach for discount rate determination. For a
majority of the products, the discount rate was based on the returns
of the asset portfolio (or reference asset portfolio) and defined as:
a. Future gross investment market yield
b. Less expected defaults (based on historical averages for the
purposes of field testing)
c. Less an assumed spread for the risk surrounding expected default
losses (except for products where the risk is shared with the
policyholders and therefore attributed some of the risk to the
policyholders)
For subsequent measurements, we updated the discount rate to
reflect the economic environment and asset assumptions as of the
valuation date. Given the use of the top-down approach, we based
the discount rate on the returns of the asset portfolio (or reference
asset portfolio) as defined above. Additionally, we made a baseline
assumption that the discount rate tail was set equal to the 30 year
rate for all tenors after year 30 (i.e., the end of the observable period).
Other topics a. We deemed ceded reinsurance out of scope for this project.
b. We tested insurance contract revenue and expense presentation
under the FASB model only for a single product, Par WL.

20
3.3 Key FASB/IASB-Specific Modeling Techniques and Assumptions
Topic
Key FASB-specific techniques
and assumptions
Key IASB-specific techniques
and assumptions
Margin (FASB)/CSM
(IASB) – Initial
measurement
a. If there was a gain at issue, we determined the margin or CSM as
the excess of the PV of cash inflows over the PV of cash outflows,
less the risk adjustment for CSM only.
b. For simplicity, we developed the margin at transition based on an
average ratio of margin on new business from the subsequent
years covered by the study period.
i. We determined an average ratio of margin to a product-specific
driver (e.g., the face amount or PV of benefits (depending on
the product)) of new business cohorts in subsequent years for
each product.
ii. We adjusted this ratio where necessary to reflect the fact that
the transition cohort was no longer in its first year.
iii. We applied the average of the subsequent year factors to the
transition cohort to determine the margin to be established at
transition.

21
Topic
and assumptions
and assumptions
Margin (FASB)/CSM
(IASB) – Subsequent
measurement
a. We released the margin at the
portfolio level where possible.
Where data limitations
existed, portfolios were
grouped and the margin was
released at the product level.
b. We identified a risk driver
based on each product’s
pattern of release from risk.
c. At the end of each period, we
prospectively revised the
margin release pattern for
changes in estimates of future
cash flows.
d. We did not re-measure the
margin for changes in
estimates of future fulfillment
cash flows.
e. We accreted interest on the
margin based on the same
yield curve that was used to
discount the cash flows that
was locked-in at issue.
a. We released the CSM at the
portfolio level where possible.
Where data limitations
existed, portfolios were
grouped and the margin was
released at the product level.
b. For simplicity, we assumed
that drivers for most products
were the same as those used
to amortize the FASB margin.
c. At the end of each period, the
CSM release pattern was
prospectively revised for
changes in estimates of future
cash flows.
d. We adjusted the CSM to
reflect the impact of changes
in estimates of future
fulfillment cash flows
(prospective unlocking).
e. We accreted interest on the
CSM based on the same yield
curve that was used to
discount the cash flows that
was locked-in at issue.
accrete interest –
contracts with no
discretionary
participation features
a. We accreted interest on fulfillment cash flows using interest
accretion rates locked-in at issue for each portfolio.
b. At transition, we estimated a locked-in interest accretion curve
intended to represent a blend of historical rates that would have
been locked-in over time.

22
Topic
and assumptions
and assumptions
contracts with
contractual links to
returns on underlying
items that the insurer
is required to hold
a. For contracts with contractual
links to returns on underlying
items (i.e., VA), we did not
model the segregated fund
asset or liability, so interest
accretion rates were
established at inception and
not adjusted subsequently.
a. For contracts with contractual
and direct links to returns on
underlying items that the
insurer is required to hold (i.e.,
VA), we were unable to split
cash flows between those that
are fixed and those that vary
directly or indirectly with
returns on underlying assets,
so we treated all cash flows as
varying directly with
underlying assets.
b. We used current rates to
accrete interest on fulfillment
cash flows.
contracts with
discretionary
participation features
a. For discretionary participating
products (i.e., Par WL and
ULSG), we reset rates used to
cash flows upon changes in
crediting rates or dividend
scales. These rates were
reset to recognize the
adjustments to crediting or
dividend rates on a level-yield
basis over the remainder of
the contracts’ life.
a. For discretionary participating
products (i.e., Par WL and
ULSG), due to practical
limitations, we were unable to
split cash flows between those
that are fixed and those that
vary directly or indirectly with
returns on underlying assets,
so we treated all cash flows as
varying directly with
underlying assets.
b. We used current rates to
cash flows.
Acquisition costs a. We assumed that qualifying
acquisition costs were
consistent with those
determined under current U.S.
GAAP.
b. Acquisition costs were
amortized using a pattern
consistent with the release of
the margin.
a. We assumed that acquisition
costs were consistent with
those determined under
current U.S. GAAP for all
except two products.
b. For the product where we
presented insurance contract
revenue, we used FASB
acquisition cost amortization
expense as a simplifying
assumption.

23
Topic
and assumptions
and assumptions
Risk adjustment N/A a. Established and re-measured
at a product level. The
product-level risk adjustment
was then allocated to
portfolios as necessary based
on a driver relevant to that
product.
b. We used a cost-of-capital
approach to estimate the risk
adjustment using each
company’s internal capital
models.
c. We re-measured the risk
adjustment each period based
on updated assumptions at
the time of valuation.

24
4. Segment-Level Results
For each segment, we present current U.S. GAAP financial information in comparison to the
financial information determined using the proposed FASB and IASB EDs, including analysis
of:
a. Pretax income/(loss)
b. Other comprehensive income (OCI)
c. Pretax comprehensive income/(loss)
d. Change in insurance liability, and
e. Components of insurance liability.7
Segment results are driven by specific characteristics and features of the products tested as
well as the impact of product aggregation into the segment results. Similar tests on different
products could lead to different results.
4.1 Differences between Current U.S. GAAP and the Proposals
Valuing the insurance liability (asset) using the present value of projected cash flows produces
substantially different liabilities than those produced by current U.S. GAAP due to fundamental
differences in the models:
a. The discount rates under the proposed models are based on the liability characteristics
while the current U.S. GAAP reserves are either not discounted or are discounted with
rates that are typically based on asset portfolio yields locked-in at inception of the contract.
b. Provisions for adverse deviations (PADs) on best estimate assumptions are used for some
products under current U.S. GAAP (ASC 944 (FAS 60)) but not under the proposed
guidance in the EDs.
c. The non-economic assumptions are unlocked under the proposed EDs unlike current U.S.
GAAP for some products (ASC 944 (FAS 60)).
d. A gross premium valuation approach is applied under the proposed models rather than the
net premium valuation approach (ASC 944 (FAS 60)) or the benefit ratio approach (ASC
944 (SOP 03-1)) used under current U.S. GAAP.
e. Deferred acquisition costs are implicitly considered by the proposed models while explicitly
considered under current U.S. GAAP (ASC 944 (FAS 60, FAS 97, and SOP 95-1)).
f. Realized gains and losses are the primary driver of volatility in pretax income under current
U.S. GAAP (ASC 944 (FAS 60 and FAS 97)), while changes in assumptions generally drive
pretax income volatility under the proposed guidance.
7
All financial information is presented in currency units (CUs).

25
4.2 Traditional Life Segment
4.2.1 Key observations
a. The updating of cash flow assumptions at each reporting date resulted in volatility in pretax
income under the proposed FASB standard but less so under the proposed IASB standard,
as the unlocking of the CSM mitigated the volatility.
b. The OCI amount related to the insurance contract liability (asset) moved in the same
direction as that of the investment assets because the fulfillment cash flows were in an
asset position and no OCI was calculated on the margin/CSM. This is particularly apparent
in 2009, 2010 and 2011 results.
4.2.2 Discussion of results
In 2009 and 2012 significant changes in assumptions drove volatility in pretax income for
proposed FASB results. The unlocking of the CSM absorbed the impact of the assumption
updates in both years, mitigating volatility in IASB pretax income (refer to Exhibit 4.2.2A):
a. In 2009, since the FASB margin was locked-in, the positive impact of the assumption
update was recorded in FASB pretax income, while the unlocking of the IASB CSM
absorbed the assumption update and IASB pretax income was not impacted.
b. In 2012, an assumption change impacted pretax income under the FASB model, but again,
the IASB CSM absorbed this change, reducing the volatility in IASB pretax income.
As shown in Exhibit 4.2.2A, the IASB pretax income aligned closer with the pattern of current
U.S. GAAP results as the IASB CSM absorbed the impact of assumption changes and they did
not impact pretax income.
The FASB/IASB OCI balance prevented pretax income volatility related to the insurance
liability (asset) due to movements in current discount rates, as shown in Exhibit 4.2.2B. In
2008, the large increase in the insurance liability, driven by changes in the discount rates, was
captured in OCI and did not impact pretax income. The reversal of the short-term fluctuation in
interest rates in 2009 and drop in interest rates in 2012 was also captured in OCI.
As shown on Exhibit 4.2.2E, the present value of fulfillment cash flows for this segment was in
an asset position during the study period which led to the segment being in a net insurance
asset position in 2009, 2010 and 2011 for both the FASB and the IASB as well as 2012 for the
IASB only. This resulted in a mismatch in movement of OCI as the changes in the insurance
contracts asset resulting from current discount rate changes and the unrealized gains and
losses on invested assets moved in tandem rather than in opposite directions (see Exhibit
4.2.2B).
The graphs shown on the following pages support our analysis.

26
Exhibit 4.2.2A
Exhibit 4.2.2B

27
Exhibit 4.2.2C
Exhibit 4.2.2D

29
4.3 Retirement Segment
a. Liability cash flows on products in this segment extend longer than the available assets
and, therefore, the liabilities were more sensitive to changes in discount rates than the
assets backing them. Non-parallel movements between asset and liability discount rates
(i.e., the top-down spread is not constant) caused additional volatility in equity under the
proposed standard. Carrying values of certain assets backing the insurance liabilities were
not correlated with discount rates (e.g., mortgage loans carried at amortized cost) further
contributing to the apparent mismatch between insurance liabilities and assets backing
them.
b. The volatility in OCI was extreme due to changes in discount rates over the studied period.
As noted previously, this was driven by our interpretation of the proposals to use a market
observable discount rate and the approach taken for the field testing to keep the last point
on the observable market yield curve level for the periods beyond the last observable point.
c. The impact of changes in discount rates created volatility in the risk adjustment and,
therefore, in pretax income under the IASB proposal.
As shown in Exhibit 4.3.2A, the proposed EDs resulted in lower pretax income in all years
except 2011 for the IASB when there was a favorable change in the risk adjustment (Exhibit
4.3.2E). Profit emergence was extended over a longer period of time under the proposed EDs
primarily due to the inclusion of the annuitization period within the contract boundary for the RI
product. Though the impact was small for the years shown, the difference in profit emergence
pattern would further develop over time.
Reflecting discount rate driven changes in the insurance liability in OCI moved the discount
rate related volatility out of pretax income (Exhibit 4.3.2B). The impact of asset/liability
mismatches reflected in OCI was significant, as the long-term insurance contract liabilities for
this segment are more sensitive to changes in discount rates than the assets supporting them.
Additional volatility in OCI was caused by the adjustment for expected and unexpected
defaults to the top-down discount rate not being constant, which led to variance in movements
of discount rates impacting the change in the insurance liability in OCI. A similar movement
was not observed in the unrealized gain/(loss) on the assets, so the impact on OCI was
greater in one direction. Furthermore, certain assets backing liabilities in this segment had
carrying values that were not correlated with movements in the discount rates (e.g., real
estate, commercial mortgage loans at amortized cost, etc.), which contributed to the further
mismatch between the AOCI balances for invested assets and insurance liabilities.
The graph in Exhibit 4.3.2E shows volatility in the risk adjustment caused by the changes in
interest rates (refer to Section 6.1.4). Unlike the use of OCI for discount rate related changes in
present value of cash flows, there is no mechanism in the IASB ED for removing from pretax
income the volatility in the risk adjustment related to discount rates.

30
The graphs shown below and on the following pages support our analysis.
Exhibit 4.3.2A
Exhibit 4.3.2B

31
Exhibit 4.3.2C
Exhibit 4.3.2D

33
4.4 Participating Segment
a. During the period tested, dividends and policyholder crediting rates were changed. For
IASB testing purposes we assumed all cash flows vary directly with the underlying assets.
As such, pretax income was significantly more volatile under the IASB’s proposal than
under the FASB’s.
b. Pretax income volatility was also created by the impact of changes in discount rates on the
IASB risk adjustment.
c. For reasons similar to the retirement segment, total pretax comprehensive income was very
volatile under both proposals.
For FASB field testing purposes, we reset interest accretion rates for discretionary participating
products included in this segment upon changes in expectations of interest crediting rate
(ULSG) or expected dividend rates (Par WL). Interest accretion rates were reset to a single
level-yield rate8
eliminating any immediate impact of change in discount rate assumptions from
pretax income.
For purposes of IASB field testing, we assumed all of the cash flows directly varied with the
underlying assets and the entire change in insurance contract liability due to changes in
discount rates, including the impact of changes in crediting/dividend rates, was reflected in
pretax income. We made this simplifying assumption due to challenges interpreting the IASB
guidance as noted in Section 6.2.5 and since, in our view, the majority of the products’ cash
flows were directly dependent on underlying assets. This assumption increased volatility of the
IASB pretax income (despite the impact of the CSM unlocking) as compared to current and the
proposed FASB results (Exhibit 4.4.2A).
The 2011 results highlight the difference between the FASB and IASB field testing
methodologies used. Under the IASB results, the increase in insurance liability driven by a
large decrease in interest rates was immediately reflected in pretax income (Exhibit 4.4.2A),
while the same increase in insurance liability was seen in OCI in 2011 FASB results (Exhibit
4.4.2B).
The use of OCI for the FASB results moved the volatility due to changes in discount rates out
of pretax income (Exhibits 4.4.2A and 4.4.2B). The impact of asset/liability mismatches
reflected in OCI was notable, particularly in 2011, as the long-term insurance contract liabilities
for this segment are more sensitive to changes in discount rates than the assets that support
them. Additionally, certain assets backing liabilities in this segment had carrying values that
were not correlated with movements in the discount rates, which contributed to the mismatch
in the OCI changes.
8
Proposed ASC 834-10-35-25.

34
The risk adjustment also increased due to changes in discount rates in 2011 (see Exhibit
4.4.2E and refer to Section 6.1.4) which created additional volatility in IASB pretax income (see
Exhibit 4.4.2A).
The graphs shown below and on the following pages support our analysis.
Exhibit 4.4.2A
Exhibit 4.4.2B

35
Exhibit 4.4.2C
Exhibit 4.4.2D

37
4.5 Variable Annuity Segment
a. The insurance liability, which included the base contract fees (i.e., mortality and expense
charges (M&E) and investment management fees) and riders that are accounted for under
ASC 944 (SOP 03-1) (and not under ASC 815 (FAS 133)) under current U.S. GAAP, was
more volatile under the proposed EDs than current U.S. GAAP. Under both models income
was extremely sensitive to movements in equity markets (evident in 2008 and 2009) and
interest rates (evident in 2011).
b. It was a coincidence that the IASB and FASB models produced similar pretax income
results in 2008 through 2010. The impact of not unlocking the margin under the FASB
model was offset by the difference in treatment of changes in discount rates (FASB model
reflects the change in OCI vs. IASB through pretax income).
Pretax income was more volatile under the proposed EDs than current U.S. GAAP as shown in
Exhibit 4.5.2A. Under the EDs, the large pretax loss in 2008 was caused by an increase in the
insurance liability due to the value of the guarantees shifting as a result of the sharp equity
market drop and increased implied market volatility. The market recovery in 2009 resulted in a
decrease in the insurance liability and a corresponding increase in pretax income (see Exhibit.
4.5.2A and E).
As shown in Exhibit 4.5.2C and Exhibit 4.5.2E the magnitude of the change in present value of
cash flows was comparable between proposed FASB and IASB results. We noted that while
we generally would not expect the FASB and IASB proposals to produce similar pretax income
results for VAs, similar earning patterns emerged in 2008, 2009 and 2010 (Exhibit 4.5.2A) due
to differences in the models producing offsetting impacts on pretax income, as follows:
a. For IASB field testing we determined that all of the cash flows for the VA base contract and
riders vary directly with the underlying assets and as a result, all changes in the insurance
liability related to discount rates were reflected in pretax income.
b. All changes in estimates of future cash flows under the FASB results were recorded in
pretax income, whereas changes in estimates related to M&E charges were recorded
against the CSM under the IASB model. (We interpreted paragraph B68 of the IASB ED to
indicate that assumption changes impacting rider reserves were excluded from CSM
unlocking.)
c. The impact of changes in estimates of future cash flows reflected in FASB pretax income in
2008, 2009 and 2010 was comparable to the total of changes in estimates of cash flows,
changes in risk adjustment and changes in discount rates that were recorded directly in
IASB pretax income, which led to similar FASB and IASB pretax income results in those
years (see Exhibit 4.5.2A).
As pricing assumptions established at the beginning of 2008 did not account for the substantial
changes in equity markets that occurred during the year, business issued in 2008 generated
losses at issue. As such, no CSM was established on the policies issued in 2008. As market

38
conditions subsequently changed, a CSM was established on these contracts in 2009 without
first reversing the loss through pretax income. The level of the CSM was relatively consistent in
years 2010 through 2012, but it was more volatile with the reduction and subsequent addition
of CSM in 2008 and 2009 (Exhibit 4.5.2E). Generally, the IASB CSM absorbed pretax income
volatility because it moved in the opposite direction of the present value of cash flows. The
amortization of the FASB margin was lower in years when the risk profile of the VA policies
increased (e.g., 2008 and 2011) and higher in years when the risk profile of the VA policies
decreased, as more margin was being amortized when the entity was being released from risk.
Additionally as shown on Exhibit 4.5.2E, the IASB risk adjustment increased at a steady pace
during the study period, driven by new sales and changes in current discount rates.
The graphs shown below and on the following pages support this analysis.
Exhibit 4.5.2A

39
Exhibit 4.5.2B
Exhibit 4.5.2C

40
Exhibit 4.5.2D
Exhibit 4.5.2E

41
5. Key Observations on Discount Rate Impacts
The business model of life insurance companies involves matching of assets and liabilities, by
duration and cash flow, and the ALM process is a fundamental component of the operations of
any life insurer. The results presented in Section 4 emphasize the importance of establishing a
yield curve to discount fulfillment cash flows that accurately reflects the economics of such a
business model. In certain circumstances, intentional or unavoidable mismatches in the
amount or duration of cash flows have real economic consequences for an entity. Both Boards
have acknowledged that an ideal accounting model accurately reflects these economic
mismatches, but removes or minimizes accounting impacts that are not reflective of actual
economics.
We observed two areas of our field testing, in particular, that appeared to produce accounting
results that we did not believe to be reflective of underlying economics, each of which is
discussed in detail below. Sections 6.1.2 and 6.1.3 include additional findings and
observations from our field testing with respect to discount rates.
5.1 Observations on Discounting Longer-Duration Cash Flows
The fulfillment cash flows of many insurance contracts are projected to occur many years into
the future and, in certain cases, the length of time between contract inception and claim or
benefit payment can exceed 20–30 years. In particular, the majority of cash outflows for payout
annuity, retirement and long-term care products are often projected to occur 30–60 years after
contract inception. As such, tenors on the yield curve used to discount these fulfillment cash
flows must be determined, even though there may be no such points on observable yield
curves currently available.
For our baseline testing we set all tenors on the yield curve beyond the last observable point
equal to that point. This was partly for simplicity and consistency, but also in recognition that
other methodologies may have been inconsistent with each other and with the Boards’ stated
objective that the discount rate reflects only the characteristics of the insurance contract
fulfillment cash flows.
To determine the quantum of the impact that these long-dated points on the yield curve can
have, we performed a sensitivity test on the Retirement segment. We adjusted points on the
discount rate curve beyond 20 and 30 years for an upward parallel shift of 50 basis points. The
table on the following page presents these impacts on the present value of fulfillment cash
flows at 31 December 2012, which would appear to be more than inconsequential.

42
Table 5.1A
Impact on present value of
Tenor Impacted FASB IASB
30+ years -5.1% -5.5%
20+ years -8.3% -8.9%
Cash flows associated with insurance contracts utilizing the building block approach can be
divided into the following three general categories, based on duration:
a. Those cash flows that can be reasonably matched with cash flows from invested assets or
derivatives, where recognition in OCI of a mismatch is appropriate;
b. Those cash flows that cannot be reasonably matched due to lack of readily available
assets/derivatives in the market, but where there are observable rates (i.e. an inactive or
less active market); and,
c. Those cash flows that cannot be matched with cash flows from invested assets or
derivatives (i.e. beyond the period where interest rates are observable).
Most of the volatility that we observed in OCI for certain segments is emanating from
categories (b) and (c) above (refer to Exhibit 5.1A). We have interpreted the guidance as
requiring the discount rates for these periods as being either current observable rates or an
extrapolation of such rates. While these rates may be appropriate in a fair value measurement
model, they may be less relevant in a fulfillment cash flow model, as current indication of
market rates well into the future, may not be an accurate indication of actual interest rates in
those future periods.
Current practice under U.S. GAAP (loss recognition testing) and current Canadian actuarial
standards utilize expected long term rates which are more consistent with long term averages.
Both Boards have acknowledged the challenge of establishing points on the yield curve for
longer-duration cash flows, stating that:
“When observable market variables are not available or do not separately identify the
relevant factors, an entity uses estimation techniques to determine the appropriate discount
rates taking into account other observable inputs, where available. For example, the entity
may need to determine the discount rates applied to cash flows that are expected beyond
the period for which observable market data are available using the current, observable
market yield curve for shorter durations.”9
Both Boards also write in the Basis for Conclusions for their respective EDs:
“for points on the yield curve in which there are no observable market prices, an entity
should use an estimate that is consistent with U.S. GAAP guidance on fair value
measurement, particularly for Level 3 fair value measurement… because forecasts of
unobservable inputs tend to put more weight on longer term estimates than on short-term
9
ASC 834-10-55-96 and IASB ED paragraph B71.

43
fluctuations, that would counteract concerns that current period fluctuations in discount
rates exaggerate the volatility of very long-term liabilities”10
.
We performed a second sensitivity to quantify the impact that an alternative approach would
have on the measurement of the insurance contract liability for the Retirement segment.
Instead of setting all later tenors equal to the last observable point on the yield curve (i.e., 30
years), we selected a longer-term assumption (6% used for illustrative purposes) and graded
to that point over years 16–30 and separately from years 31–40.
Our decision to grade to longer-term assumptions from years 16 – 30 or 31 - 40 was based on
fair value measurement guidance. The fair value hierarchy gives priority to Level 1 inputs, then
Level 2 inputs before allowing for Level 3 inputs, but acknowledges that “Unobservable inputs
shall be used to measure fair value to the extent that relevant observable inputs are not
available, thereby allowing for situations in which there is little, if any, market activity for the
asset or liability at the measurement date.”11
The result of our sensitivity testing is provided in the graph below.
Exhibit 5.1A
* Note, in addition to assets held as Available-For-Sale (AFS), assets are also recorded at fair
value with changes recorded in pretax income and at amortized cost.
As demonstrated by the graph above, the volatility that was being caused by our baseline
approach is mitigated by the sensitivities we performed. This would appear to support an
10
FASB ED BC151 and IASB ED paragraph BCA81.
11
ASC 820-10-35-53.

44
approach similar to the sensitivity that we performed, though we note that the methodology
and inputs used may need to be refined to improve their consistency and reliability across all
products and entities.
5.2 Observations on Potential Accounting Mismatches
The Boards attempted to respond to the concerns of the preparers and users of the financial
statements of life insurance entities by introducing concepts described earlier in this document
as (a) the top-down approach to determining a discount rate and (b) the OCI solution for
mitigating pretax income volatility due to changes in discount rates. The Boards’ efforts on this
front are welcome, but certain aspects of the proposals in the EDs may still result in accounting
mismatches.
In theory, even if an insurer held an asset portfolio whose cash flows were perfectly matched
with the insurance contract fulfillment cash flows in terms of currency, amount, and timing, an
accounting mismatch would result in the current measurement model. As noted above, the
Boards understand and have acknowledged this point and have taken steps in the proposals
to mitigate the accounting mismatch but have not removed it altogether. We acknowledge that
the Boards rejected the use of asset-based rates due to their stated objective that a discount
rate reflect only the characteristics of the liability, but the mismatch that results from de-
coupling the asset returns from the liability discount rate still produces an accounting mismatch
that impacts the financial results and position of insurers.
We believe that the Boards’ stated objective was based on the notion that the valuation of an
insurance contract liability (asset) should be independent of the varying investment strategies
employed by different entities to avoid inconsistency between entities’ reported results. We
also believe that a methodology could be established that does not reduce consistency
between entities’ results, while also recognizing the very real linkage between the assets an
insurer holds and the liabilities it issues. Any other methodology introduces accounting
mismatches that could inaccurately represent the economics of the business.
When entities use derivative instruments to hedge movements in insurance contract liabilities,
for fair value hedges, current U.S. GAAP requires measuring the hedging instruments at fair
value with movements recorded in pretax income, while for cash flow hedges, movements in
the hedging instrument are recorded in OCI until the hedged transaction occurs (or does not
occur). Certain aspects of the proposed measurement model prohibit recognition of
movements due to market factors (particularly interest rates) in income, which is inconsistent
with the treatment of fair value hedge derivatives. This relationship could be considered further
by the Boards.

45
6. Findings and Observations
This section sets out the key findings and observations from our field testing. In the course of
the project, we gained an improved understanding of the impacts of the proposed standards
and an understanding of the practicability and feasibility of the requirements of the proposals in
the EDs.
We do not provide comments on all aspects of the EDs but instead we focus on our key
findings and observations in areas where we encountered uncertainty interpreting the
guidance, challenges applying it, or outcomes that were not reflective of our expectations or
the underlying economics of the business.
We have divided this section into subsections based on the following four aspects of the EDs:
6.1 Initial and subsequent measurement of the insurance liability (asset)
6.2 Recognition of insurance contract revenues, expenses and other comprehensive
income (subsequent measurement)
6.3 Insurance contract revenue and expense presentation
6.4 Other specific topics
Each section is separated further into specific issues and includes references to relevant
sections of the EDs, a description of our approach to applying the guidance, any simplifying
assumptions or judgments made during testing and observations we noted as a result of the
testing. We describe certain challenges faced in interpreting and/or applying the guidance,
financial outcomes that were inconsistent with our expectations and potential alternatives our
field-testing approach considered, either qualitatively or through a quantitative sensitivity test.
Throughout this section, language from the FASB ED is used when the requirements between
the FASB and the IASB are the same. References to the location of guidance are included for
both the FASB and IASB EDs. Where there are significant differences in substance (as
opposed to simply terminology), those differences and their impacts are explicitly commented
on within the relevant subsections.
6.1 Initial and Subsequent Measurement of the Insurance Liability (Asset)
6.1.1 Expected future cash flows
Guidance
Cash flows used in the measurement of the insurance contract liability shall represent “the
present value of the unbiased, probability-weighted estimate of future cash inflows and
outflows that will arise as the entity fulfills the insurance contract.” Estimates of cash flows
should “(a) reflect the perspective of the entity but, for market variables, be consistent with
observable market prices, (b) incorporate, in an unbiased way, all available current information
about the amount, timing, and uncertainty of all cash flows that will arise as the entity fulfills the

46
insurance contract, and (c) include only those cash flows that arise within the boundary of
existing contracts (that is, all cash inflows and all related cash outflows that the entity will incur
directly in fulfilling a portfolio of insurance contracts).”12
Approach and simplifying assumption
In all cases, for practical purposes, we used currently available cash flow projection models for
the portfolios of products that were tested.
For simplicity, the field-testing results did not adjust expense cash flows for impacts of
overhead allocations.
Observations
Our experience indicates that, upon actual application of the proposed guidance, most, if not
all, of the actuarial models that were currently available would require fundamental changes to
(among other things):
a. Modify them to meet the measurement requirements of the EDs, including the objective of
a probability-weighted mean (this includes stochastic modeling for situations where
stochastic scenarios are required);
b. Allow for anticipated expansion of inputs, whether for additional policyholder data and/or
attributes or for economic or non-economic assumptions;
c. Incorporate the processing power and data-storage capacity that would be required to
perform multiple runs for every portfolio to produce financial results and earnings
attributions at each reporting date; and,
d. Incorporate the required level of processes, procedures and controls to produce financial
statement and related disclosure amounts that are certifiable and explainable by
management and auditable within reasonable time frames for timely and accurate internal
and external financial reporting.
Where a consolidated entity reports under U.S. GAAP and its subsidiaries are required to
report under IFRS (or vice versa), the upgrades or changes described above would have to be
built considering the fundamental differences between the models that are presently proposed
by the FASB and IASB (e.g., treatment of overhead expenses, acquisition costs and portfolio
definitions, etc.).
Among other things, system upgrades would need to take into account the implications of any
changes in definitions of portfolios, contract boundaries, estimated returnable amounts (FASB)
or non-distinct investment components (IASB). Such system upgrades are possible if the time
and resources are available to implement them, but the extent of resources and time required
to do so should not be underestimated.
Proposals related to acquisition costs, separation of non-insurance components, contract
boundary and portfolio could have significant impacts on cash flows and cash flow models.
These topics are covered separately later in this document.
12
Proposed ASC 834-10-30-2 to 4 and IASB ED, paragraph 22.

47
6.1.2 Current discount rates
This section provides additional detail on our approaches and findings related to the discount
rates used at inception of an insurance contract and subsequently for balance sheet and
comprehensive income purposes.
Interest rates and corporate bond spreads moved significantly throughout the five year period.
The impact of the change in the yield curve on the segment results is discussed in Section 4.
Table 6.1.2A
Rates at 31 December (%) 2007 2008 2009 2010 2011 2012 30 Sep
2013*
U.S. Treasuries13
:
10 year 4.03 2.21 3.84 3.30 1.88 1.76 2.62
30 year 4.45 2.68 4.64 4.34 2.90 2.95 3.69
U.S. Corporate A13
:
10 year 5.78 6.32 5.45 4.86 4.08 3.01 3.88
30 year 6.40 6.75 6.18 5.90 4.94 4.25 4.89
* Note that 30 September 2013 rates were not used for our field testing, but have been
included for reference as they increased from 2012 to be between 2010 and 2012 rates.
Guidance
The EDs require that the measurement of the cash flows reflect the time value of money using
the discount rates that reflect the characteristics of the insurance contract liability and are both:
a. “Consistent with observable current market prices for instruments with cash flows whose
characteristics reflect those of the insurance contract liability in terms of, for example,
timing, currency and liquidity”
b. Exclusive of “any factors that influence the observed rates but are not relevant to the cash
flows of the insurance contract”14
While the EDs do not prescribe a method for determining discount rates, two methodologies
are discussed:
a. Top-down – A yield curve that reflects current market rates of returns either for the actual
portfolio of assets the entity holds or for a reference portfolio of assets with characteristics
similar to those of the insurance contract liability adjusted to remove market risk premiums
for the assets included in the portfolio and differences in timing of cash flows
13
Interest rate data obtained from Bloomberg.
14
Proposed ASC 834-10-30-11 and IASB ED paragraph 25.

48
b. Bottom-up – A risk-free yield curve adjusted for differences in liquidity characteristics
between the reference assets used to obtain the risk-free rates and insurance contract
liability15
The EDs state that:
“When observable market variables are not available, an entity uses estimation techniques
to determine the appropriate discount rates, taking into account other observable inputs,
where available. For example, the entity may need to determine the discount rates applied
to cash flows that are expected beyond the period for which observable market data are
available using the current, observable market yield curve for shorter durations.”16
In their basis for conclusions, the Boards also note that:
“for points on the yield curve in which there are no observable market prices (especially for
liabilities that are expected to be settled many years from the reporting date), an entity
should use an estimate that is consistent with existing U.S. GAAP guidance on fair value
measurement, particularly for Level 3 fair value measurement.”17
The EDs also require entities to “maximize the use of current observable market prices of
instruments with similar cash flows”.18
Approach
We used the top-down methodology for every product tested.
a. We developed yield curves for each product line using either an actual or reference asset
portfolio held to back the insurance liabilities consisting primarily of fixed income securities
but also including equities and alternative asset classes.
b. We determined market yields at various tenors on a yield curve produced for a portfolio of
assets by referencing the asset allocation assumed when pricing the product or a target
allocation developed by the investment department of the entity.
c. If there were tenors on the yield curve of the asset portfolio (actual or reference) that were
not available in the observable period, then we interpolated market spreads for the
additional tenors as appropriate.
d. No explicit adjustments for timing differences of the manner of those in the ED example
were made to the top-down yield curves, nor could we think of a situation in which it would
be necessary to do so.
e. We held the last point on the observable market yield curve level for periods beyond the
last observable point. As the last observable rate was updated each period, the rate used
on all cash flows in the unobservable period was updated by the same amount. After
internal discussion of potential alternatives, we determined that this approach was
consistent with the language in the EDs.
15
Proposed ASC 834-10-55-94 to 95 and IASB ED paragraph B70.
16
Proposed ASC 834-10-55-96 and IASB ED paragraph B71.
17
Proposed ASC 834 BC151 and IASB ED paragraph BCA81.
18
Proposed ASC 834-10-55-93 and IASB ED paragraph B69.

49
f. Where equities or other alternative assets were included in the asset portfolio, we used
long term rates of return as the starting point and adjusted to remove risk margins
unrelated to the liability.
g. For VA products, because the segregated funds were not modeled, we used the risk-free
rate without adjustment for the discount rate as a proxy for the top-down approach
assuming risk-neutral returns.
Observations – implementation issues
In performing our field testing we identified the following practical and conceptual challenges
for initial implementation:
a. Determining the yield curve to the last observable tenor for an actual (or reference) asset
portfolio (methodology and data limitation);
b. Extrapolating points on the yield curve beyond the period where rates are observable in the
market (methodology limitation); and,
c. Estimating market risk premiums to be removed from a top-down yield curve, even in
periods where overall market rates are observable, e.g., expected and unexpected default
risk premiums (methodology limitation).
The degree of effort required for actual implementation would be substantial and could impact
an entities’ ability to meet the anticipated effective dates of the proposed guidance.
Observations – comparability of actual (or reference) yield curves
In all years except 2008, the top-down yield curves produced were relatively consistent
between entities and products. While the market dislocation experienced during the second
half of 2008 was an unusual event, such events could occur again in the future, resulting in
different liability measurements of similar products issued by different entities. The
practicalities of providing comparable information under these conditions might be overcome
through disclosures.
While noting that small differences in yield curves can have a significant impact on
measurement (particularly for very long duration liabilities), some variability between entities
and, even, products will always exist due to the complex and judgmental nature of measuring
market risks.
The following graphs show the top-down yield curves used in 2007, 2008 and 2012 as
independently derived by the companies in the Group. The letters A–F in these graphs refer to
individual products in no particular order.19
19
There are only six curves presented as two products used the same curve and VAs are not included due to the
use of risk-free rates.

50
Exhibit 6.1.2A
Exhibit 6.1.2B

51
Exhibit 6.1.2C
Observations – impact of changes in interest rates on cash flows more than 20 years out
The results observed in Section 4 that indicated the noticeable impact of longer-dated points
on the yield curve on the measurement of fulfillment cash flows, we tested the sensitivity of
both the liability and total comprehensive income of a change in the discount rate assumption
used to discount cash flows beyond the point where observable rates are the best indicator of
market assumptions. To do this, we calculated the fulfillment cash flows for one segment
(Retirement) at 31 December 2012 assuming a 50 basis point increase in rates after all tenors
greater than 30 years and after 20 years. We assumed that the asset OCI was unchanged.
The impact on the fulfillment cash flows is presented in the table below.
Table 6.1.2D
Impact on present value of
Tenor Impacted FASB IASB
30+ years -5.1% -5.5%
20+ years -8.3% -8.9%
The sensitivity test demonstrates the significance that even a relatively small change in
discount rates in periods far into the future can have a material impact on the present value of
fulfillment cash flows if the duration of the insurance liabilities is very long.

52
Given the potential lack of correlation between current market rates and what will actually
happen 20 or 30 years from now, an alternative measure could be the incorporation of long-
term historical averages, supported by disclosure of the sensitivity of OCI to current rates.
Observations – adjustments for differences in timing of cash flows
When applying the top-down methodology, the ED requires adjustments for the differences
between the timing of the cash flows of the assets in the portfolio and the timing of the
fulfillment cash flows.20
The FASB ED provides an example of how adjustments for timing
differences might be made by substituting certain instruments with others that result in an
asset portfolio with cash flows exactly matched in terms of timing.21
This approach would only
be possible if points on the yield curve of the asset portfolio where no input was observed can
be supplemented with an input from the yield curve of an asset that was observable, but not
previously included in the asset portfolio.
Our interpretation of this requirement was that such an adjustment would only be required if
discounting was based on a single discount rate rather than a yield curve or an actual portfolio
without sufficient investments to provide all observable points. Although the ED only explicitly
requires this adjustment for top-down discount rates, we believe that it would be applicable to
bottom-up rates as well.
Observations – other
As drafted, the margins established would be heavily dependent on the prevailing interest rate
environment at inception. If historical levels of interest rate volatility persist, long duration
policies written a few quarters apart, with identical terms and risks, would have significantly
different margins at inception. However, the ultimate profit on the policies would be very similar
as the policies share the same interest rate experience over the several decades they are in-
force. Separate disclosure of margin revenue and interest income and expense would present
this inconsistency on the face of the statement of comprehensive income.
Use of a discount rate that better reflects management’s expectations of returns in the longer
end of the curve would result in a closer representation in the margin of the expected profit at
issue to which performance should be measured against.
6.1.3 Market risk premiums (adjustments for expected and unexpected defaults)
Guidance
When applying the top-down methodology, the EDs require that:
“Entities remove factors that are not relevant to the insurance contract liability, such as
market risk premiums for the assets included in the portfolio. Depending on the
characteristics of the liability, market risk premiums might include compensation for
expected credit risk losses, or unexpected credit risk losses (the risk of losses exceeding
20
Proposed ASC 834-10-55-94c and IASB ED paragraph B70(a)(ii).
21
Proposed ASC 834-55-98 to 102.

53
the expected value) and other investment risks taken by the entity, unless those risks can
reduce the cash flows passed to the policyholder.”22
The EDs also require that entities:
“maximize the use of observable market prices,” and “when observable market variables
are not available or do not separately identify the relevant factors, an entity should use
estimation techniques to determine the appropriate discount rates taking into account other
observable inputs, where available. [and that] market prices for credit derivatives may
introduce factors that are not relevant to determine credit risk meaning that an entity may
need to establish its own method to determine the credit risk component”.23
Though not explicitly included in the EDs or in the bases for conclusions (although arguably
implied by IASB ED paragraph BCA 81), the Boards indicated that “historical default data will
be a key component in determining expected credit losses, but this needs to be adjusted to
reflect current conditions if applicable.”24
The EDs also require that “to the extent that the amount, timing or uncertainty of cash flows
arising from an insurance contract depends wholly or partly on the performance of specific
assets, the discount rates used in measurement of the insurance contract liability shall reflect
that dependence.”25
Approach and simplifying assumptions
We utilized historical averages of actual default data to calculate expected default risk
premiums and, in one case, to remove historical prepayment risk present in the asset portfolio.
Because the data used for quantifying expected default risk premiums resulted in a constant
spread as opposed to a term structure, we utilized that rate for every tenor on the curve.
Some companies in the Group held this spread fixed in all calendar years tested, while others
temporarily adjusted expected default risk during the 2008 – 09 financial crisis, reversing the
adjustment after the crisis. We agreed that each approach had merits, but that each company
in the Group could apply judgment in selecting the approach deemed most reflective of the
characteristics of the insurance cash flows.
For practical purposes, we set the risk premium for unexpected defaults to be 20 basis points
as an approximation.
Because there is no established, consistent and reliable methodology for reflecting cash flow
dependencies in discount rates, a proxy was used to adjust unexpected default premiums for
applicable products based on an indicative level of risk-sharing between insurer and
policyholder.
Observations
In general, the approach used reflected changes in the price of liquidity, particularly during the
financial crisis. When observable market asset yields rose and then fell during the most recent
22
Proposed ASC 834-10-55-94b and IASB ED, paragraph B70(a)(i).
23
Proposed ASC 834-10-55-96 and IASB ED, paragraph B71.
24
Joint Board Meeting Papers 5A/63A, dated 11 April 2011.
25
Proposed ASC 834-10-30-12 and IASB ED, paragraph 26(a).

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