IFRS Convergence: The Role of Stochastic Mortality Models in the Disclosure of Longevity Risk for Defined Benefit Plans

In recent years, the International Accounting Standards Board (IASB) and its International Financial Reporting Standards (IFRSs) have made great strides toward achieving global accounting convergence. Various countries, including Japan and Canada, are either adopting or converging their national standards with IFRSs. The IASB is now undertaking a comprehensive review of the accounting standards on post-employment benefits, an important part of which is about quantitative disclosures of longevity risk. In this paper we examine how stochastic mortality models may assist with such disclosures. Specifically, we present three concepts that can help defined benefit plans identify the materiality of their longevity risk exposures: (1) longevity value-at-risk, (2) probability of longevity deficit, and (3) the probabilistic corridor rule. We illustrate these concepts with a hypothetical pension plan in Japan.