There are a number of areas of International Financial Reporting Standard (IFRS) 17 where the International Accounting Standards Board has allowed firms to make choices on their approaches. This paper by Milliman consultants focuses on the approaches available under IFRS 17 for the derivation of the discount rates for use in the various calculations required by the Standard.
On December 20, 2012, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) that discusses changes to the ways banks recognize and account for potential credit losses (the ASU is “Financial Instruments—Credit Losses,” Subtopic 825-15). A simple summary of the update is that the FASB proposes that banks and other financial institutions modify recognition of impairment from a “probable loss” to a “lifetime of loss” estimate.
For mortgages, this means changing the base of the impairment provision from a provision for losses arising from the current delinquency inventory to a provision for all mortgages, recognized at origination. Impairment provisions for delinquent loans are typically estimated using a roll-rate model based on recent experience.
Milliman’s Eric Wunder and Jonathan Glowacki provide a methodology to estimate credit losses (including losses on loan repurchases) for the lifetime of a loan in this article.