Discount Rates in Financial Reporting - A Practical Guide (2013)

Tiivistelmä

The time value of money is significant to economics and in turn to the current value of projected cash flows. Recent decades have seen a growth of knowledge and available information in the areas of finance and capital markets. There still remains a need for more widespread understanding of the important aspects, from a conceptual perspective and the practical techniques relating to the discounting process in actuarial practice. The primary areas of application include financial reporting for insurance contracts and the financial reporting of pension/employee benefit plans. The objective of this monograph is to help fill this void.

Many of the methods transcend national borders and are relevant in any country. For this reason, we have not focused on practice in a specific country. However, parameters and assumptions have been illustrated for specific regions and countries, and case studies have been included as practical illustrations of the various methods in use. Readers can develop their own parameters and assumptions based on the current and historical experience of each one’s specific economic environment.

In many cases, technical formulas used in this document were obtained from other publications, as noted in the References section at the end. Additional information should be obtained from the source documents. We are not promoting one method or technique over any other, and other techniques are possible. Our goal is to provide commonly used or developing methods in financial reporting. To that end, this monograph covers the following five major parts:

• General methodology
• Current applications, including economic scenarios, life, non-life and pension examples, and country-or region specific issues
• Recommended procedures for the evaluation of results audits, peer reviews and communication
• A number of case studies that show various applications of real situations
• References and additional resources available to the reader

It is intended for practitioners in the insurance, pension and employee benefit sectors.

This monograph is sponsored by the International Actuarial Association (IAA). The author team is Milliman, Inc. (Milliman).