IFRS 17 implementation – Preparation strategies ahead of 2022

With the IFRS 17 deadline fast approaching, firms have little time to adapt to a massive increase in data volumes, as well as perform calculations and generate reports. Stefan De Lombaert, Global IFRS 17 Lead at SAS, discusses the main challenges to implementation and how processes are being adapted accordingly, how technological solutions can aid firms looking to change the way they measure financial performance, and the likelihood of the industry meeting the January 2022 implementation deadline

What is IFRS 17 and how would the proposed deferral of its deadline impact implementation?

Stefan De Lombaert, SAS

Stefan De Lombaert, SAS: IFRS 17 is scheduled to be applied on or after January 1, 2022. It will have implications on financial disclosures and profound operational impacts on all aspects of the organisation.

The industry faces tough challenges in understanding the operational impacts on data, systems and processes:

• Data management, storage, data quality and archiving
• Systems architecture
• Actuarial and accounting processes that will support the future reporting process.

Insurers will soon need to implement significant technical and practical changes to appropriately respond to these challenges. 

SAS believes the most efficient way to approach this will be via an integrated operating model and technology platform for actuarial and finance, enabling insurers to work as a unified team with a single seamless calculation and reporting system.

 

What IFRS 17 implementation challenges are firms currently facing?

Stefan De Lombaert: IFRS 17 will have several impacts on insurance groups, causing uncertainty around the following:

• Which technological solution to employ to best meet the standard. In this regard, firms have two options:
  • Build out the new capabilities by extending actuarial tools or GLs, or both.
  • Introduce an end-to-end solution comprising a process orchestration tool, a strong data management platform, a CSM calculator, a sub-ledger and a set of disclosures.
• Where to find staff to successfully implement the new standard, considering that:
  • Implementation teams require the full-time attention of a multidisciplinary internal team, assistance of external subject matter experts and personnel from its technology provider.
  • Companies moving faster will have access to better resources, while slow deciders will face difficulties in ensuring the necessary resources.
• How to marry the finance requirements with the performance deep-dive analysis, the planning and budgeting needs, and the what-if requirements before and after transition:
  • A recent survey found that 84% of insurers expect much more than complete compliance from their IFRS 17 projects, including:
    • A review of planning and budgeting needs.
    • Testing various options during transition.
    • The ability to analyse profitability on a highly detailed level.

 

What are businesses required to do to change their processes to meet IFRS 17?

Stefan De Lombaert: The new standard will require, at the very least, IT, actuarial and finance departments to work much more closely together, eliminate manual procedures, store data at a very detailed level and undertake the process in a much shorter time than they are used to.

• Actuaries will have to run models more often, redefining modelling granularity.
• Finance will have to become acquainted with a new chart of accounts, and work with both a GL and a sub-ledger.
• Everybody will have to take a fair share of responsibility in a more complex process.

 

Is consensus emerging from the industry on interpreting the principles-based approach?

Stefan De Lombaert: The Transition Resource Group (TRG) within IASB is closing the gap between this principles-based approach and the remaining divergences in the industry. The big four auditors play an important role; unless they are in accord, it will be difficult to achieve rapid consensus between insurance companies active in different markets.

The proposed deferral from 2021 is subject to public consultation, which is expected in 2019. IASB has been discussing potential amendments to IFRS 17 in December 2018. 

Over the coming months, SAS will monitor the extent of any proposed amendments to the standard and make changes to its solution, though no
major changes are expected.

 

How advanced are the technological solutions helping firms change the way they measure financial performance?

Stefan De Lombaert: SAS considers this a major game-changer, only achievable with an integrated operating model and technology platform for actuarial and finance.

There are two approaches to this, both of which we support. A company can decide to run a second calculation at a level below the contract group or can allocate down the CSM from contract group level to a more granular level. Going forward, all analytical techniques can consequently be used to deep-dive into all (combinations of) dimensions available.

 

What is the impact of the calculation and disclosure requirements?

Stefan De Lombaert: The most important impact is that many extra data items are generated – CSM, loss components, risk adjustments and present values of cashflows, plus all their movements from contract inception to contract derecognition. All of these items need to make it to accounts to be stored, analysed and disclosed.

However, since the changes introduced by IFRS 17 are so important and fundamental, it is anticipated that multiple what-if questions will need to be answered: the impact of a PAA versus a building-block approach (BBA), other comprehensive income (OCI) or P&L amortisation schemes, increase/decrease of reinsurance, more internal or external reinsurance, the impact of an increase in lapses, and so on.

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