White Paper on Fair Valuing Property/Casualty Insurance Liabilities

This white paper was undertaken by the CAS Task Force on Fair Value Liabilities in reaction to recent developments by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Committee (IASC). it is meant to be an objective discussion of the issues surrounding the fair valuing of property/casualty insurance liabilities, particularly in the United States. While the recent FASB and IASC proposals are mentioned and quoted, the white paper is meant to be applicable to the "fair value" issue in general, wherever the issue appears. The paper begins with an introduction and background, including a definition of "fair value." In general, fair value is defined as the market value, if a sufficiently active market exists, or an estimated market value otherwise. Most definitions also include a requirement that the value reflect an "arms length" price between willing parties, so as to eliminate "fire sale" valuations. Most observers agree that a sufficiently active market does not exist in most cases for property/casualty insurance liabilities. Hence, estimation methods have to be used to determine their fair value.