Instructions for specific itemsInstructions for specific items

Instructions for specific items

While these instructions apply to all life insurance companies, including friendly societies, not all items may be applicable to both: some items may not be applicable to friendly societies while others may not be applicable to life insurers.

Principal Amount

The principal amount refers to the face value or gross amount of a given off-balance sheet transaction and not the fair value. The principal amount must be reported as a positive value, even for short positions in derivative financial instruments.

Fair value

The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s-length transaction. The fair value should be able to be determined through observation of similar transactions, quoted market prices, independent valuations or if there is no readily observable market, through the ability to liquidate the investment or through assessing the net present value of future cash flows.

Record the aggregate fair (or market) value of the derivative exposure/position by summing the absolute fair value of each exposure, for each of the items listed.

For the purposes of valuing derivative exposures, for this form, fair value should represent an estimate of the amount, which could be expected to be received from the disposal of the derivative instrument in an orderly market, ignoring transaction costs. It is not necessarily related to the nominal value of the derivative.

Market value

Market value is defined for accounting purposes as a subset of fair value and is determined as follows:

(i) the quoted market price in an active and liquid market; or

(ii) when there is infrequent activity in a market, the market is not well established, small volumes are traded relative to the asset or liability to be valued, or a quoted market price is not available – an estimate of a price for the asset or liability in an active and liquid market.