Earnings, Historical-Cost Book Values, and Fair-Value Disclosures in the Valuation of Stock Life Insurance Companies

Michel, Mary

doi:10.1007/978-1-4615-4623-8_5

Cited by 2 publications

(3 citation statements)

References 5 publications

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“…Michel (2000) suggests that although both life insurers and property-casualty insurers hold similar investment securities, the accounting of their liabilities is different. She asserts that the liabilities of property-casualty insurers are closer to their fair value than are the liabilities of life insurers, and the empirical results suggest that fair value disclosures of debt securities were not value relevant for life insurers during the period between 1991 and 1997.…”

Section: The Fair Value Disclosure Requirementsmentioning

confidence: 97%

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Analyst Earnings Forecasts for Publicly Traded Insurance Companies

Fan

Yeh

2006

Rev Quant Finan Acc

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Several trends in the insurance and financial services industry, including demutualizationconsolidation, and deregulation, have attracted increasing attention from investors and financial analysts. This paper investigates the accuracy of the earnings forecasts of financial analysts for insurance companies. Our empirical results indicate that analyst forecasts outperform random walk time-series forecasts. Furthermore, we find that both disagreement over earnings forecasts among analysts and the relative forecasting error in the mean forecasts is smaller for life insurers than for property-casualty insurers, whereas the relative errors for forecasts for multiple-line insurers are in between the two. Forecasting error is a negative function of firm size and the number of analysts who are following a company, and is a positive function of the disagreement among analysts.Analyst forecasts have a timing advantage over the random walk model. Our results also suggest that the fair value reporting requirement (SFAS 115), which has been in effect since 1994, has enhanced the accuracy of analyst forecasts. The SFAS 115 has improved the superiority of analyst forecasts over the random walk forecasts for life insurers, but not for property-casualty insurers, and there is a weak improvement for multiple-line insurers. Copyright Springer Science + Business Media, Inc. 2006analyst forecasts, insurance companies, fair value reporting,

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Section: The Fair Value Disclosure Requirementsmentioning

confidence: 97%

“…In addition, for safety considerations, life insurers invest most of their assets in fixedincome securities, and mostly hold them until maturity (Michel, 2000). In historical cost accounting, the value of the liabilities of longer-term policies is less volatile, given the stable mortality of these firms.…”

Section: The Fair Value Disclosure Requirementsmentioning

confidence: 99%

Analyst Earnings Forecasts for Publicly Traded Insurance Companies

Fan

Yeh

2006

Rev Quant Finan Acc

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“…Prior research has demonstrated the importance of measuring both financial assets and liabilities consistently at fair value (Linsmeier et al, 1998). However it has not conclusively demonstrated whether fair-value disclosures are value relevant for market-to-historical-cost book ratios in the property casualty industry (Petroni and Wahlen, 1995); the U.S. life insurance industry (Michel, 1999) or the U.K. life insurance industry (Horton and Macve, 1999 value of insurance liabilities on an actuarially objective and verifiable basis poses difficult conceptual and practical issues, given that there is generally no liquid, active secondary market in the liabilities arising from most types of insurance contracts.…”

Section: The Iasb's Proposalsmentioning

confidence: 99%

International Diversity in Measuring the Fair Value of Life Insurance Contracts

Klumpes

O’Brien

Reibel

2009

Geneva Pap Risk Insur Issues Pract

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the U.K. and the U.S.A. Relative to statutory-based accounting principles, existing GAAPs allow insurance firms to match income to expenses over the term of an insurance contract in order to provide a more ''realistic'' basis for reporting to shareholders. However, those GAAPs do not employ a coherent and consistent view of how to measure the fair value of a life insurance firm's business. The International Accounting Standards Board (IASB) has tentatively concluded that fair value should be used in accounting for insurance contracts. This paper discusses how existing GAAPs differ from fair values and simulates their impact on the profits emerging on a simple endowment policy. We also consider Solvency II as providing a broader conceptual fair value-based framework within which additional risk-related disclosures can address currently unresolved conceptual and practical problems in implementing fair value for insurance contracts and related financial instruments. These recommendations are likely to bear upon current deliberations by the IASB on financial instruments and life insurance accounting.

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Earnings, Historical-Cost Book Values, and Fair-Value Disclosures in the Valuation of Stock Life Insurance Companies

Cited by 2 publications

References 5 publications

Analyst Earnings Forecasts for Publicly Traded Insurance Companies

Analyst Earnings Forecasts for Publicly Traded Insurance Companies

International Diversity in Measuring the Fair Value of Life Insurance Contracts

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