For Life Insurance Reserve Accounting Measurement Issues

The measurement of insurance liability is the core issue in insurance accounting. Life insurance reserve is the main part of the liability in life insurance company. This paper systematically analyses the accounting measurement of life insurance reserve. Nowadays, the domestic research of evaluating life insurance reserve is mostly in the subject of actuarial science. There are few papers researching the issue from the view of accounting. There are nearly no paper which are relevant to the practical measurement of life insurance reserve. Therefore, this paper consults the fruits in actuarial science and international accounting. Because the research in this paper lays particular stress on accounting theory, mathematics reasoning is short. Certainly, the paper is helpful to the research of insurance accounting in China.This paper firstly introduces the life insurance and life insurance reserve, then discusses the rules and research of IASB and FASB. Three measurement approaches offered by IASB are discussed in detail in this paper. They are Current Exit Value, Current Fulfilment Value and Updated IAS37 Model. This paper follows the current situation of overseas, which will offer a lot of useful information to our research and work.The analysis in accounting theory starts from the accounting purpose, which is to offer useful information to help decision-making. Therefore, the measurement of life insurance reserve has to be fair and dependable. Fair value is a hot issue in accounting nowadays. This paper analyses the nature of fair value, and elects the suitable measurement attribute of life insurance reserve. Because of the particularity of life insurance, the measurement attribute of life insurance reserve is current value of the future cash flows. For life insurance reserve, the current value presents entity-specific value instead of fair value. This paper discusses the measurement purpose of life insurance reserve. The purpose unifies the measure approaches, and brings guidance to practice. Following this consideration, this paper analyses the least four factors in measurement of life insurance reserve. The four factors are net future cash flows, time value of money, risk adjustment and residual margin.Some new rules about insurance accounting are issued by Chinese government in Dec, 2009, which request insurance companies in China to calculate insurance reserve by GAAP, considering the cash flows of insurance contract, time value of money and margins. These rules eliminate some former blemishes. On one hand, the accounting information is more comparable between industries. On the other hand, it's in favor of the insurance company's development in capital market. This paper analyses the problems about measurement of life insurance reserve in China after the new rules had been applied, then gives some advices to ensure the validity of the new rules issued by supervisor in Dec,2009. The problems mainly materialize in the basic theory and measurement model, which arose some problems in disclosure and comparability. The advices are related to the measurement model, disclosure and comparability.There are five parts in this paper. Part 1 is introduction, which introduces the base situation of the research in this paper. Part 2 briefly introduces the basic information of life insurance and life insurance reserve. Part 3 comparatively expounds the international instance, then analyses the measurement approaches of life insurance reserve offered by IASB. Part 4 is analysis in accounting theory, which systematically expounds the accounting measurement theory of life insurance reserve. Part 5 mentions the matters in practice about measurement of life insurance reserve in China, expatiates on the problems after the first adoption of the new rules, then presents some proposals to the accounting measurement of life insurance reserve.