Considerations For Ascertaining Term Insurance in a Fair Value Context

Abstract

Much has been written and discussed about fair-value determination and accounting for fund products. This chapter delves into these concepts for a life insurance product by addressing a Monte Carlo approach to fair-value determination and reporting using a simple term insurance product. We look at the major risk elements of a term insurance product and establish a Monte Carlo method that addresses these risks. We look at the results of an initial valuation, age the block, and present successive financial results and statements. Issues regarding the presentation of fair-value results are identified and addressed. Finally, implementation issues and anticipated consequences for the financial reporting actuary are discussed.