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Sandy Reid BSc (Hons) FFA
Chief Actuary
Heng An Standard Life
EV Disclosure
Who needs to disclose?
When do I need to do it?
What do I need to disclose?
Which areas may cause me difficulties/concern?
Where do I start?
How can I cope?
Disclosure – CIRC Regulation [2005]83
Who needs to disclose?
All Life, Pension & Health Insurance Companies operating in China
Only exemptions are companies for whom the following 2 conditions are both met
i) In Business less than 3 years
ii) Premium Income in last year below 200 Million RMB
if i) and ii) both met, don’t have to submit an EV report
Disclosure – CIRC Regulation [2005]83
When do I need to do it?
Before 1st July 2006 for 2005 year-end Embedded Value report
For 2006 y/e EV report and onwards, by 30th April each year.
100 days left!
Disclosure – The Guidelines
Sections 64 to 72 of the Guidelines cover “Disclosure”
Applies to the EV reports submitted to the CIRC
EV result calculated/submitted at company level
At least once a year
Aim of the disclosures
Understand the movement over the period
Understand the main risks and how they influence the results
Enable comparisons with other companies
Determine the credibility of the results
What do I need to Disclose? (Minimum)
Calculated Results -  “the numbers”
Free Surplus
Required Capital
VIF
Embedded Value
Value of New Business
Methodology  - “the approach”
Overview of Covered Business
Participating Approach
Cost of Capital Approach
New Business Approach
Approach to Expenses and future pattern
What do I need to Disclose?(Minimum)
Assumptions
Earning rate, RDR
Asset allocation
Mortality/Morbidity
Lapses & Expenses
+ The basis for the derivation of the above
+ Reasons for changes
Analysis of Change in EV – see Final Session
Sensitivities
As Prescribed in Regs
Variations in Earning Rate, RDR
Expenses
Disclosure - Sign Off/Other
No external Audit Opinion required
Sign Off by Company Signing Actuary to confirm EV Report:
“reasonable, true, no major omissions”
Calculated Results disclosed to Public should be same as those in this report, if not, explain to CIRC
Aggregate Results for industry may be published by CIRC, company identity not disclosed
What Areas Cause Me Difficulties/Concern?
Many?
Where do I Start?
How do I cope?
Some Comfort
This is new to many of us
Including CIRC
First step down the road to a more transparent, professional industry in China
Only need to calculate Opening EV!
(and document all methodology, assumptions, sensitivities)
Some Comfort
CIRC will review initial results may discuss teething issues with EV task force in Autumn
For 2006 y/e EV, many companies may choose to re-state their 2005 y/e EV before performing their Analysis of Change
Example - Disclosure
The EV task force committee has developed a simple model to illustrate the disclosure requirements
A guide to help you, no one correct approach.
Example - Background
In this example, the company commenced writing business at the start of 2001.
The company sells three simple products only:
Non Participating Endowment (Regular Premium)
Participating Whole Life (Regular Premium)
Participating Bancassurance Endowment (Single Premium)
Example - Assumptions
Example Disclosure Calculated Results at 31st Dec 2004
See also Analysis of Change, Line 17, in next session  -  split between Net Worth and VIF
Example Disclosure - Methodology
The value of the in-force and one year’s new business are calculated as the present value of the projected stream of future after tax distributable profits for the existing business in-force at the valuation date and for one year’s new business respectively.
Distributable profits are those profits arising after allowance for the policy reserves on the required PRC statutory reserving basis and after allowance for solvency margins at 100% of the required regulatory minimum level.
The values calculated have been determined using a deterministic discounted cash flow methodology.  This methodology makes implicit allowance for the cost of investment guarantees  and policyholder options, asset/liability mismatch risk, credit risk and the economic cost of capital through the use of a risk-adjusted discount rate.
Example Disclosure – Methodology (cont’d)