James Emejo in Abuja
The Commissioner for Insurance/Chief Executive, National Insurance Commission (NAICOM), Mr. Sunday Thomas, has inaugurated the Nigerian Actuarial Society Discount Rate Committee (NAS-DRC) to establish a standardised basis for determining discount rate factors for use by the insurance industry and other stakeholders in the financial services sector.
He said the proposed template will be particularly helpful in the implementation of the International Financial Reporting Standard 17 (IFRS 17), and insurance contracts.
Speaking while inaugurating the committee, the NAICOM boss pointed out that the move would enhance accountability, prudence and comparability in financial reporting and thereby support the stability of the Nigerian financial system.
He noted that the membership of the committee was suitably drawn from representatives of NAS, NAICOM, actuarial representatives of audit firms, as well as Resident Actuaries of Insurance Operators (with annuity business).
The committee’s terms of reference were to determine the risk-free yield curve for use by the insurance industry, and provide commentary on any market movement that might impact the determination of the risk-free yield curve.
Thomas said the deliberations and activities of the NAS-DRC will bring about the desirable impact on the Nigerian financial system.
According to him, “It is apparent the role of Actuaries in the implementation of IFRS 17 cannot be overemphasised, likewise the need for credible, prudent, consistent and sustainable discount rate devoid of possible manipulation by different stakeholders if left to determine same for individual company’s use.”
Essentially, the discount rate factor is a concept used to calculate the present value of future cash flows and is commonly applied in actuarial science and risk analysis to determine the value of insurance policies, annuities, or other financial instruments with long-term payout structures.
The concept takes into account the time value of money, which means that a dollar received in the future is worth less than a dollar received today – money can be invested or earn interest over time.
By applying a discount rate factor, insurers can adjust the future cash flows to their present value, reflecting the economic reality that future payments are worth less than their nominal values.