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Accounting for European Insurance M&A Transactions: Fair Value of Insurance Contracts and Duplex IFRS/U.S. GAAP Purchase Accounting

Author

Listed:
  • Karsten Paetzmann

    (BDO, Fuhlentwiete 12, Hamburg 20355, Germany.)

  • Christine Lippl

    (KPMG, Ganghoferstrasse 29, Munich 80339, Germany.)

Abstract

IFRS requires that for purchase accounting purposes, insurance liabilities are measured at their “fair value”. Purchase accounting for insurance contracts proves to be a challenging topic for standard setters, preparers, and users, given the absence of specific guidance in IFRS for this particular case. Recent developments, in particular the 2010 IFRS Insurance Contract Exposure Draft, the 2010 Solvency II QIS 5 Technical Specifications and the 2009 Market Consistent Embedded Value (MCEV) Principles, may be seen as providing relevant techniques in this context but do not present clear guidance specifically for fair values as required for purchase accounting purposes. This paper compares fair value as required for purchase accounting within the current IFRS Phase II process, the proposed Solvency II regulations and the practical actuarial concept of MCEV. Potential investors may benefit from this as discretionary elements in M&A transaction accounting, and their implications should be taken into account early in the transaction process of insurance companies.

Suggested Citation

  • Karsten Paetzmann & Christine Lippl, 2013. "Accounting for European Insurance M&A Transactions: Fair Value of Insurance Contracts and Duplex IFRS/U.S. GAAP Purchase Accounting," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 38(2), pages 332-353, April.
    • Handle: RePEc:pal:gpprii:v:38:y:2013:i:2:p:332-353
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    Cited by:

    1. Yang‐Che Wu & Ming Jing Yang, 2018. "The effectiveness of asset, liability and equity hedging against catastrophe risk: the cases of winter storms in North America and Europe," European Financial Management, European Financial Management Association, vol. 24(5), pages 893-918, November.

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