Investment performance measurement recognition and analysis: the successful case of an insurance company

This section gives a brief overview and provides a context for our results. Detailed background material, complete with definitions and equations, is given in subsequent chapters of this thesis. It begins with quantitative techniques and concludes with qualitative approaches to introduce the subsequent study. Many professionals would claim to be able to perform their jobs in financial field – mainly buying and selling relevant products– very profitabily, without using much maths or accounting. On the other hand, the different dealing areas may be very complex and it is essential to get a grasp of investments’ performance measurement and recognition in order to understand how a financial firm’s position relates to its peers in given markets. Almost all mathematics concepts in this thesis regarding performance measurement can be reduced to two basic ideas. The first concerns the “time value money”: a hunderd dollars is worth more if I have it in my hand today than if I do not receive it until next year; or alternatively, for a given amount of cash which I will receive in the future, I can calculate an equivalent “present value” now. The second is the “no free lunch principle”: in theory it should not generally be possible to put together a series of simultaneous financial transactions which lock in a guaranteed no-risk profit. For example if a dealer buys an interest rate futures contract and simultaneously reverses it with an FRA , he will in general make no profit or loss if we ignore minor mechanical discrepancies and transaction costs. With this preface much of the difficulty lies in seeing through the confusion of market terminology and conventions. At the same time another crucial topic relates to the treatment reserved to investement figures within accounting books. Last November the 12th, 2009 the International accounting standard board (IASB) published the first phase of IFRS 9 Financial Instruments, the accounting standard that will replace IAS 39 Financial Instruments: Recognition and Measurement. This fact launched a new chapter in the history of financial statements under IFRS. Therefore the above two mentioned topics define the core of this thesis. In fact the entire work as been split in two main pillars, a quantitative approach dedicated to invetsement performance measurement & analysis and a qualitative approach conceived to understand the reasoning beyond asset derecognition and classification in accounting.