Written by Optimus in partnership with Valani Global, BDO and KR Consulting.
The statutory requirements of IFRS 17 are forcing a massive disruption and ultimately a transformation within the insurance industry. No IFRS compliant insurer will be able to escape the profound changes in their operating model, accounting policies, and subsequent accounting system outputs and flows. This extends to connectivity and alignment with and actuarial systems and outputs—all underpinned by IT systems construct data and reporting requirements.
Many of our clients originally underestimated the work needed to comply with the standard. For most short-term business, the premium allocation approach (PAA) can be used and it generally gives bottom- line results similar to current practice.
However, even the simplest, monoline property and casualty insurers have realized there are significant complexities in practice. These include:
- Demonstrating PAA eligibility for contracts.
- Reinsurance and contracts that are not PAA eligible.
- Discounting and risk adjusting incurred but not reported (IBNR)/claims reserves.
- Aggregation—choice of IFRS 17 portfolios (by line of business, geography, risk profile, etc.) and groups within portfolios (onerous, non-onerous, may be onerous, etc.).
- Reporting transactions and profitability by underwriting year for each portfolio and group.
- Significantly increased disclosure requirements, and changes to financial reporting.
Here are a few of the key implementation realities that insurers are faced with as they seek to understand how their product features and mix will drive compliance with the standard:
- Analysis of all insurance contracts for PAA eligibility.
- Consideration of any features including experience rating, renewal options, etc.
- Assessment of non-PAA accounting and its impact for any longer duration contracts (such as construction or warranty contracts) and many types of reinsurance.
- Assessing the impact of different aggregation choices (IFRS 17 portfolios and groups)
- Assessing the criteria for determining onerous contracts or group.
- Adjusting IT and financial reporting systems to track groups of policies by many different criteria—year of issue, aggregation levels for onerous contract testing, and matching to specific reinsurance contracts.
With the deadline to compliance fast approaching, insurers need to be rapidly examining and acting on their compliance plans. We, along with our partners, can provide the solutions you need to meet the required IFRS 17 deadlines. (This is the fourth in a series of seven articles.)
Valani Global's Services
Valani Global supports life insurance companies in achieving their financial risk management goals through implementations of Moody’s Analytics solutions including AXIS and RiskIntegrity for IFRS 17.
Contact us for more information on our IFRS 17 Program.
Nazir Valani, President & Co-Founder
With access to a global knowledge base and professional expertise, BDO offers extensive value to our clients across all segments of the insurance and financial services industry.
KR Services specializes in the practical application of international financial reporting and actuarial standards in the developing world.