IFRS 17: Tinder for insurance accountants and actuaries?

Businesswoman check data in smartphone and tablet

As the International Accounting Standards Board (IASB) irons out a number of kinks in International Financial Reporting Standards 17 (IFRS 17), one thing that won’t change is the need for actuarial and finance teams to work seamlessly to hit reporting deadlines once it’s implemented.

A matter of time

It’s been a long road already, but it appears a launch date may be in sight for IFRS 17, the new, almost global, insurance accounting standard. While there is still some uncertainty over its final form, the IASB is expected to release its amended Exposure Draft in June 2019. This will address a whole range of issues raised by the industry in response to the previous draft and will also set a new expected implementation date of 1 January 2022.

This will leave insurers with a lot to do in just over two years, even those that have moved beyond gap analysis and are in an implementation phase.

But the ultimate test of any preparations will be insurers’ ability to produce IFRS 17 numbers on time. And because of the nature of the standard, actuarial and finance teams and systems will have to interact closely, firstly to achieve simply that but, just as importantly, to create adequate time for review. Planning decisions made now will almost definitely help or hinder those objectives.

It’s all about investors

That’s because, in trying to introduce a standard that means insurers will report results more like other industries, the IASB has created a different beast for insurers to tame. It considerably blurs the lines between accountants’ and actuaries’ responsibilities in an effort to clarify results for investors.

It will be chief financial officers (CFOs) who will have to own the IFRS 17 results message, but they will be heavily reliant on actuaries for the substance. The bottom line is that processes put in place will not only have to support cooperation and very tight timelines, but also give the CFO the wherewithal to present a coherent, sensible results story in front of the investor community.

Probable pinch points

So where are the pinch points likely to be in this new world of actuarial and accounting overlap?

  1. Timeframes — IFRS 17 numbers will have to be produced to a similar timetable as Generally Accepted Accounting Principles (GAAP). For European insurers, it’s like doing the Solvency II quarterly reporting templates in three days.
  2. Data capture — IFRS 17 requires more varied and more granular data, notably to provide a consistent and detailed allocation of expenses over contract periods.
  3. Investor communications — board members will need initial hand holding to be able to explain IFRS 17 numbers clearly to investors.
  4. Planning/business key performance indicators — some will be similar to existing accounting regimes, but others will require detailed actuarial input.
  5. Managing assumptions — any inconsistency of assumptions, or approximations that result in volatility from one reporting period to the next, will show up in reconciliations and financial statements — and will therefore need revisiting or explaining.
  6. Interpretation and explanation of results — commentary on financial statements will require sifting of vast amounts of detail to address issues that could potentially be red flags to investors, such as unexpected patterns of profit earning or unexpected losses.

Where insurers spend their time will have a significant effect on meeting deadlines, but also on their ability to provide credible and detailed commentary for investors.

Ideally, insurers will be in a situation where they are able to think about the numbers, rather than struggling with production. Those that can spend time on whether things look right, and why certain things are happening in the results, should be in a far stronger position to deal with what IFRS 17, and an investor community getting to grips with it, will throw at them.

For insurers to do that, and to be able to drill into the data, models and assumptions that will crucially underpin IFRS 17 numbers, they may need to rely on increased levels of automation to drive process efficiency and avoid duplication of effort.

With this in mind, Willis Towers Watson has developed an IFRS 17 process architecture, based around a number of our proprietary software products and managed in our Unify workflow environment. This aims to make number production as slick as possible and leave as much time to interpret and think about the results as possible.

Two worlds collide…or should at least

The rationale behind the architecture is that it’s hard not to conclude that IFRS 17, even while its exact requirements remain unclear, will be a whole lot harder for insurers whose actuaries aren’t working hand-in-glove with the CFO and finance team, and whose systems don’t actively support cross-working and process efficiency.

Preparation needs to be a truly collaborative effort.

Neil BruceNeil Bruce is a senior director in Willis Towers Watson’s Insurance Consulting and Technology business. He spends a lot of his time shepherding insurers through their financial and regulatory reporting obligations, including IFRS 17.

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