IFRS17 may be an accounting standard, but getting ready for it requires serious actuarial input.
The January 1, 2021 live date for the new international insurance accounting standard, IFRS17, is somewhat deceptive. The reality is that, due to the need for comparatives, companies that report on a calendar year basis will have to produce a complete set of numbers for 2020 as well. For insurers looking at performing a full dry run, that means being ready as early as 2019. That is right around the corner!
Insurers making preparations for IFRS17 implementation will soon find out—if they haven’t already— that accountants and auditors are going to need serious help from actuaries.
A whole new world
Under IFRS17, insurance reporting will be a whole new world. This is particularly the case for life insurers with longer-term guarantees where the impact of IFRS17 is expected to be greater. But wherever they are in the preparation process, there’s plenty for insurers to do between now and 2021 (with the exception of those in the U.S., where IFRS17 wasn’t adopted, but will apply to U.S. subsidiaries of international companies headquartered in IFRS17 jurisdictions).
These are just a few of the components of IFRS17 that are waiting to potentially trip up implementation teams where actuaries are left on the sidelines or brought in too late.
IFRS17 interpretation: Since IFRS17 standards are very broad, many decisions will have to be made during the implementation of this new principle-based reporting framework. Actuaries have detailed knowledge of the current statutory reporting regime and they can quantify the impacts of the implementation decisions before companies go live and avoid surprises.
Gaps: Current actuarial valuation and reporting systems will most likely not be adequate to fulfill IFRS17 requirements. Reporting and valuation systems gaps need to be identified early, as well as data gaps. A set of pragmatic steps needs to be developed to fill those gaps. Actuaries and accountants need to work in tandem on the determination of what needs to change, how it needs to change and which software will be most comprehensive and easy to implement.
How to communicate results: Actuaries are typically involved in presenting financial results to the Board and other important stakeholders. Since IFRS17 is very different from current financial reporting, these types of communication will become more challenging, at least in the beginning. Companies are expected to conduct education sessions with their executives and their Board to help them understand how the accounting landscape is changing. Actuaries will need to be involved to help ensure the main stakeholders are equipped to understand results and to bridge the gap between current financial reporting and IFRS 17.
Broad business implications: Beyond the short-term reporting impact, IFRS17 could have a profound impact on the way companies will manage their business. There could be radical changes in the way products are designed and priced, how assets supporting liabilities are selected and the emphasis on asset liability matching, the level of capital needed and how risks are quantified and managed and, possibly, which lines of business continue to make sense to operate. Actuaries are well equipped to advise in all these areas and can apply their analytical skills to solve these dilemmas.
With IFRS17 having such wide-ranging implications for insurers, companies need to be getting their actuaries involved in the thick of the action to prepare for implementation. The clock is ticking and their expertise will be crucial.
Hélène Pouliot is the Insurance Consulting and Technology business leader for Willis Towers Watson in Canada.