Do you agree that the discount rate used by the insurer for non-participating contracts should reflect the characteristics of the insurance contract liability and not those of the assets backing that liability? Why or why not?

The G100 agrees that the discount rate used for measuring non participating contract liabilities should reflect the characteristics of the liabilities, rather than the assets backing those liabilities. Because the non participating liabilities themselves are unaffected by the assets backing them, the measurement of the liabilities should also be unaffected except when adjusting for liquidity, which is discussed below.

Do you agree with the proposal to consider the effect of liquidity, and with the guidance on liquidity? Why or why not?

The G100 agrees with the proposal to consider the effect of liquidity when determining discount rates because for certain life insurance contracts, such as annuity business the liquidity premium is taken into account in the design of the contract and secondly is an aspect of the operation of the contract (namely the investment of the underlying assets).

Without an allowance for liquidity premium, the insurance liability would be overstated and the contract would appear loss making, when in fact this is not the case.

Some have expressed concerns that the proposed discount rate may misrepresent the economic substance of some long-duration insurance contracts. Are those concerns valid? Why or why not? If they are valid, what approach do you suggest and why? For example, should the Board reconsider its conclusion that the present value of the fulfilment cash flows should not reflect the risk of non-performance by the insurer?

The G100 agrees with the Board's conclusion that the present value of the fulfilment cash flows should not reflect the risk of non-performance by the particular insurer, otherwise an insurer which has stronger financial standing is required to hold higher liabilities than an insurer of lesser strength.

Do you agree that the risk adjustment should depict the maximum amount the insurer would rationally pay to be relieved of the risk that the ultimate fulfilment cash flows exceed those expected? Why or why not? If not, what alternatives do you suggest and why?

The G100 agrees in principle. However, using the word maximum suggests the highest value in a range, which is conservative and it is suggested replacing maximum with the term expected value.

Paragraph B73 limits the choice of techniques for estimating risk adjustments to the confidence level, conditional tail expectation (CTE) and cost of capital techniques. Do you agree that these three techniques should be allowed, and no others? Why or why not? If not, what do you suggest and why?

Consistency and comparability between insurers is best achieved if only one technique is allowed. However, for practical reasons, we agree that limiting the choice of techniques to the three methods is appropriate and adequate for the difference in size of insurers and the types of insurance contracts written.

The G100 recommends that:

• Under the confidence interval method and the conditional tail expectation method, the probability of sufficiency (PoS) should be prescribed in the standard to ensure comparability rather than using disclosure as a means of informing the user of the financial statements of the differences in the PoS. Differences in the level of the POS can lead to excessive variation in the risk margin level and reduce the transparency of financial statements.
  
  
• Under the cost of capital method, the standard should specify that it is economic capital that should be used in calculating the risk margin, not statutory capital. The standard should provide specific guidance as to how the required rate of return on capital can be determined, e.g. sovereign government bond rate plus equity premium. Lack of clarity in this area could lead to significant variation in risk margins and resulting reduction in comparability and usefulness of financial statements.
  
  

Do you agree that if either the CTE or the cost of capital method is used, the insurer should disclose the confidence level to which the risk adjustment corresponds (see paragraph 90(b)(i))? Why or why not?

The cost of capital percentage should be disclosed if the cost of capital is used. If the confidence interval or conditional tail expectation method is used, then the probability of sufficiency should be disclosed.

While we agree that the disclosure of the confidence interval to which the risk adjustment corresponds would add to the comparability of financial statements, this requirement has the potential to impose a significant amount of extra work on companies that choose to use the cost of capital method, as the confidence interval is not readily available from the cost of capital method.

Do you agree that an insurer should measure the risk adjustment at a portfolio level of aggregation (i.e. a group of contracts that are subject to similar risks and managed together as a pool)? Why or why not? If not, what alternative do you recommend and why?

The G100 agrees that the risk adjustment should be applied at the portfolio level and not at the contract level because this is an important concept in insurance. However whilst this allows for diversification within a portfolio, it does not allow for diversification benefit between one portfolio and others, which is also an important concept in the insurance business.

Is the application guidance in Appendix B on risk adjustments at the right level of detail? Do you have any comments on the guidance?

No. It is unclear what the minimum acceptable level of sophistication that insurers need in determining the distribution of outcomes. This sophistication can range from simply assuming a particular distribution with no validation to a fully stochastic multi-period model.

Do you agree that an insurer should not recognise any gain at initial recognition of an insurance contract (such a gain arises when the expected present value of the future cash outflows plus the risk adjustment is less than the expected present value of the future cash inflows)? Why or why not?

Yes. The G100 agrees that an insurer should not recognise any gain at initial recognition of an insurance contract as no service has been provided. This approach is consistent to the revenue recognition proposals in Exposure Draft ED/2010/6 Revenue from Contracts with Customers.

Do you agree that the residual margin should not be less than zero, so that a loss at initial recognition of an insurance contract would be recognised immediately in profit or loss (such a loss arises when the expected present value of the future cash outflows plus the risk adjustment is more than the expected present value of future cash inflows)? Why or why not?

Yes. The G100 agrees as this treatment is consistent with the fulfilment obligations of the insurer and with the revenue recognition proposals in Exposure Draft ED/2010/6 Revenue from Contracts with Customers.

Do you agree that an insurer should estimate the residual or composite margin at a level that aggregates insurance contracts into a portfolio of insurance contracts and, within a portfolio, by similar date of inception of the contract and by similar coverage period? Why or why not? If not, what do you recommend and why?

Yes. The G100 agrees that the insurer should estimate a residual (or composite) margin at the portfolio level. This is consistent with the principle that a unit of account for insurance contracts is a portfolio (not an individual contract). However, the requirement that the residual margin be maintained and run off by a cohort of policies of similar inception and coverage period would introduce unnecessary complexity for little benefit to the user of the financial statements.

Do you agree with the proposed method(s) of releasing the residual margin? Why or why not? If not, what do you suggest and why?

The G100 agrees with the proposed method of releasing the residual margin in accordance with paragraph 50. However, we believe that the residual margin should not be locked in at inception and should be remeasured at each reporting date.

Under the proposed approach, changes in assumptions in remeasuring the present value of fulfilment cash flow are immediately recognised in profit and loss, ignoring the ability of the unamortised residual margin to absorb this adjustment. This presents a scenario where losses are reported for a change in assumptions for profitable contracts where the unamortised locked-in residual margin is sufficient to absorb this adjustment. By not allowing re-measurement of the residual margin at each reporting date, the financial statements may not reflect the true financial performance of the insurance contracts.

Do you agree with the proposed method(s) of releasing the composite margin, if the Board were to adopt the approach that includes such a margin? Why or why not?

We agree with the proposed method of releasing the composite margin as specified in the Basis of Conclusions. However we believe the composite margin should not be locked in at inception for the reasons described above.

Do you agree that interest should be accreted on the residual margin? Why or why not? Would you reach the same conclusion for the composite margin? Why or why not?

We agree interest should be accreted on the residual margin and the composite margin, because it recognises the time value of money.

Should the Board (i) require, (ii) permit but not require, or (iii) not introduce a modified measurement approach for the pre-claims liabilities of some short-duration insurance contracts? Why or why not?

The Standard should require a modified measurement approach for the pre-claims liabilities of some short-duration insurance contracts. This best ensures comparability and consistency of approach across the industry.

Do you agree with the proposed criteria for requiring that approach and with how to apply that approach? Why or why not? If not, what do you suggest and why?

The G100 agrees with the proposed criteria for requiring that approach and with how to apply that approach. However we believe that the proposed criteria should be applied to a portfolio of contracts as opposed to an individual contract and the reinsurance contracts should be measured on the same basis as the underlying insurance contracts. Where the underlying insurance contracts can adopt the modified measurement approach, then the reinsurance contract should be allowed to adopt this approach.

Do you agree that the measurement of insurance contracts should include participating benefits on an expected present value basis? Why or why not? If not, what do you recommend and why?

Yes.

Should financial instruments with discretionary participation features be within the scope of the IFRS on insurance contracts, or within the scope of the IASB's financial instruments standards? Why?

Financial instruments with discretionary participation features should be within the scope of the IFRS on insurance contracts.

Do you agree with the proposed definition of a discretionary participation feature, including the proposed new condition that the investment contracts must participate with insurance contracts in the same pool of assets, company, fund or other entity? Why or why not? If not, what do you recommend and why?

The G100 agrees as this will allow for participating investment contracts to be accounted for on a basis that is consistent with the terms of the participating investment contracts and their management.

Paragraphs 64 and 65 modify some measurement proposals to make them suitable for financial instruments with discretionary participation features. Do you agree with those modifications? Why or why not? If not, what would you propose and why? Are any other modifications needed for these contracts?

The G100 agrees with the modifications proposed in paragraphs 64 and 65. We recommend the addition of a third condition that the residual margin for a financial instrument with discretionary participation feature should be released on the basis of the expected timing of incurred claims and benefits, if that pattern differs significantly from the passage of time and the contract does not involve significant investment risk as provided in paragraph 65(c).

Do you agree with the definition of an insurance contract and related guidance, including the two changes summarised in paragraph BC191? If not, why not?

We agree except for the inclusion of certain financial guarantee contracts.

Do you agree with the scope exclusions in paragraph 4? Why or why not? If not, what do you propose and why?

Yes.

Do you agree that the contracts currently defined in IFRSs as financial guarantee contracts should be brought within the scope of the IFRS on insurance contracts? Why or why not?

No. Contracts defined in IFRSs as financial guarantee contracts should not brought within the scope of the IFRS on insurance and should rather remain within the scope of IAS39. The current recognition and measurement requirements in accordance with IAS 39 Financial Instruments: Recognition and Measurement and IAS 37 Provisions, Contingent Liabilities and Contingent Assets are sufficient and adequate for the accounting for financial guarantee contracts. When combined with the disclosure requirements under IFRS 7 Financial Instruments: Disclosures, users of financial reports may find the information presented and disclosed more useful and easier to comprehend than the current proposals.

Do you agree with the proposed disclosure principle? Why or why not? If not, what would you recommend, and why?

Yes.

Do you think the proposed disclosure requirements will meet the proposed objective? Why or why not?

The disclosure requirements are onerous and insurers would require significant investment in accounting and actuarial infrastructure to capture, reconcile movements and report the items required. In addition, the number and complexity of disclosures may reduce usefulness of the accounts and we recommend that the presentation and disclosures be simplified and be relevant to the users of the financial statements.

Are there any disclosures that have not been proposed that would be useful (or some proposed that are not)? If so, please describe those disclosures and explain why they would or would not be useful.

No.

Do you support an expected loss model for reinsurance assets? Why or why not? If not, what do you recommend and why?

No. We do not agree with the proposal as paragraph 45 states that if a reinsurance treaty is profitable to the cedant, the present value of the profit should be recognised immediately. In our view recognising a profit on establishment of a reinsurance treaty is inconsistent with the general accounting principles of not recognising profit until services are provided.

Do you have any other comments on the reinsurance proposals?

No.

Do you agree with the proposed transition requirements? Why or why not? If not, what would you recommend and why?

Under the modified approach, applicable to most General Insurance, the main impact of the transitional arrangements would be a write off of deferred acquisition costs to retained earnings at transition. However there are broader implications for long term business.

In addition, under the proposals different rules would apply to contracts depending on when they were written.

The G100 does not support the setting the residual margin to zero on transition. The disadvantage of the proposed approach is that the emerging profitability of the transition portfolio will be artificially understated. As this understatement can be significant, the propose approach is expected to have a large range of adverse implications including:

• life insurance business will appear less profitable than it actually is, which may adversely impact insurance company valuations and the ability of insurers to raise capital;
  
  
• investors will have difficulty assessing the true profitability of an insurer which will limit an investor's ability to accurately value a company or identify better performing insurers.
  
  

If the Board were to adopt the composite margin approach favoured by the FASB, would you agree with the FASB's tentative decision on transition (see the appendix to the Basis for Conclusions)?

We do not support the FASB rules on transition for similar reasons to those outlined above.

Is it necessary for the effective date of the IFRS on insurance contracts to be aligned with that of IFRS 9? Why or why not?

Yes. This is for practical and cost reasons.

Please provide an estimate of how long insurers would require to adopt the proposed requirements.

Our members indicate that it would take at least 3 years to implement the proposed requirements from the time it is issued.