Joachim Kölschbach, 9th IAIS Annual Conference, Santiago de Chile, 10th October 2002

2. IFRS for Insurance ContractsCurrent status of the project Joachim Kölschbach, 9th IAIS Annual Conference, Santiago de Chile, 10th October 2002

3. Agenda • Milestones of the insurance project • Scope of an IFRS insurance and implication for financial statements • Current status • Timetable for phase I: components which should be realised by 2005 • Timetable for phase II

4. 4th quarter 1999 Issuespaper 1st quarter 2002 Draftstatementof principles 4th quarter 2002 3rd quarter Exposuredraft 2003 Final IFRS Originally estimated timetable for an IFRS Insurance Contracts

5. Scope of insurance project • Accounting for insurance contracts, NOT for all aspects of accounting by insurance companies but including presentation and disclosure issues • Accounting for general purpose financial statements, NOT regulatory requirements • Accounting by (re)insurersANDpolicyholders

6. Scope of Insurance Standard DAC Insuranceassets/liabilities All insurancecontracts IFRS No. XXXInsuranceaccounting Technicalprovisions Presentation/Disclosure Other financialinstruments (e.g. investments) Other assets/liabilities Other IAS Fixed/intangible assests APPLICABLE TO ALL ENTITIES

7. Deferral &Matching Asset &Liability Fair Value • Traditional approach • Emphasis on income statement • Expenses are deferred to match future income • IAS Framework • Emphasis on balance sheet valuation • Profit or loss results from changes in value of assets and liabilities • Possible gain on sale • Proposed approach for financial instruments • Consistent with asset & liability approach Implication for financial statements - Recognition

8. Implication for financial statements - Recognition Deferred acquisition costs Does not qualify as an asset Unearned premiums Does not represent a liability Cat & Equalisation Provisions Does not represent a liability Incurred claims Present value of future claim payments Provisions for unexpired risks Present value of future claim payments under existing contracts

9. Implication for financial statements • Investments: • IAS 39,Financial Instruments: recognition and measurement • Scope: all financial instruments in all industries • Exceptions: rights and obligations under insurance contracts • Measurement: Fair value Exceptions: - held-to-maturity investments - loans and receivables originated by the enterprise - financial asset whose fair value cannot be reliably measured

10. Implication for financial statements - Measurement • Two possible measurement approaches within asset & liability approach of the DSOP: • Entity-Specific Value - if IAS 39 is still in force • Fair Value - if IAS 39 is replaced by a standard which requires “full fair value”

11. Implication for financial statements - Measurement Assumption: Actual best estimate of all future events has impact on value and time of future cash flows Entity-Specific Value Fair Value Whose assumptions: Insurance company, based on the characteristics of the actual portfolio Market, based on the characteristics of the actual portfolio No underlying of unrealistic assumptions. In practice, utilisation of insurance company’s assumptions, if they do not contradict the market assumptions

12. Current Status Criticism by insurance industry and Insurance Associations: • discount rates • reliability • high volatility of results Adoption / Application of a compehensive IFRS Insurance before 2005 has become unrealistic

13. Current Status • EU (regulation 1606/2002/EG): implementing IFRS is mandatory for consolidated financial statements of all listed companies by 2005 • Similar developments in other countries • Difficulties might occur, if the IFRS for insurance contracts is not implemented and fully recognised by 2005 • IASB: Investigation, whether some components of the project can be put in place by 2005

14. Current Status • Division of the insurance project into two phases: • Phase I: components which can be realised • by 2005 • Interim Solution • Phase II: components which have to be realised • after 2005 • DSOP Proposals

15. 2nd quarter 2004 4th quarter Final IFRS 2002 Board Deliberations on phase I to be completed 4th quarter 2nd quarter 2003 2003 Exposure Draft Board to complete redeliberations for final IFRS Possible timetable for phase I

16. Objectives of phase I • Accelerate some pieces of the project that will be needed anyway for phase II • Avoid requiring insurers to make major changes • Eliminate some existing practices incompatible with the framework • Avoid creating an interim IFRS on recognition and measurement • Avoid delaying phase II

17. Components which may be realised phase I • Presentation and Disclosure • Confirmdefinitionsand scope exemptions in other IFRS • Application of IAS 39 to those contracts that do not qualify as insurance contracts • Guidance on „Participating“ falling into IAS 39 • Guidance on embedded derivatives included in a host insurance contract • Elimination of catastrophe and equalisation provisions • Review of the implications for entities issuing insurance contracts in the absence of an IFRS for insurance contracts

18. 2nd quarter 3rd quarter 2004 2003 3rd quarter Board to complete redeliberations for final IFRS 2003 Exposure Draft Field Test Possible timetable for phase II 2002 Board to conclude on Measurement objectives

19. ABCD