IFRS 17 for general insurers – what’s all the fuss about?

23 June 2017

 Blog snapshot:

  • General insurers should not underestimate the impact of IFRS 17 for insurance contracts
  • There will be significant financial and operational impacts for general insurers
  • General insurers need to invest time now to assess the size of their IFRS 17 project

 

“IFRS17 is the biggest shake-up of insurance reporting for decades", said our global IFRS17 leader, Alex Bertolotti recently. Whilst the life insurance industry rightly grabs more of the headlines, the impact on the general insurance industry should not be under-estimated.

Ahead of a breakfast seminar we’re hosting on Tuesday 27 June 2017 (click here for details and to register), below I have explained some of the practical and operational challenges that you will need to consider.

 

What’s the big deal?

IFRS17 for insurance contracts will be effective 1 January 2021 and, without question, it will bring about significant financial and operational changes that will impact all parts of your firm and the way that business is managed. Wherever you work in your organisation, you will need to understand IFRS17. More than ever before, greater collaboration, understanding and knowledge sharing between functions will be needed.

Financial impact

The basis for measuring liabilities will change (e.g. explicit reserve margins will no longer be allowed and discounting will be needed in almost all cases) and the presentation of the balance sheet and income statement will be transformed. Expect to see changes in the emergence of profit over time, with knock-on impacts on dividends, tax and remuneration. Much more detailed disclosures, including analyses of change and a requirement to disclose reserve strength, will provide greater transparency to the readers of financial statements.

Operational impact

More complex measurement models will mean finance and actuarial processes may need to change fundamentally. This could lead to additional data requirements and greater levels of system complexity.

It’s not all bad news. You may be able to use existing Solvency II processes and you may be able to use a simplified measurement approach (the Premium Allocation Approach, or PAA), which could help to reduce the impact and cost. This would need careful thought and planning though, because it may not be possible for all of your business and, even if it is, many of the above challenges will still exist in some shape or form.

 

Key decisions

As you would expect, your IFRS17 journey will be defined by certain key decisions and the sooner these are made, the easier it will be to navigate a course to IFRS17 implementation.

  • Choice of measurement modelIs the simplified approach allowed and, if so, do you want to adopt it?
  • Risk adjustmentHow will you calculate the risk adjustment and what level of confidence will be targeted? Critically, both the approach and the confidence level will now be disclosed.
  • Discounting options – How will you set your IFRS17 discount rates and will you choose to recognise changes in discount rate through the income statement or through other comprehensive income (OCI)?
  • Level of granularity – At what level of granularity will business be measured, managed and reported? This could impact both the financial and operational aspects of your business.

 

So what should you do now?

Whilst this is almost certainly not the news that general insurers want to hear, especially coming off the back of the hard work that has gone into implementing Solvency II, I would encourage all firms to spend the time now to learn about the new standard and form a view of the likely size of your IFRS17 project. It may be relatively simple. On the other hand, it may require a lot of work. The sooner you know this, the easier it will be to plan with confidence for a successful and efficient IFRS17 implementation in the lead up to 2021.

Look out for future blogs, where my colleagues and I will explore some of the specific points raised above in more detail. In the meantime, feel free to get in touch with any queries you might have.

 

Graham Oswald | IFRS 17 Actuarial Services Director
Profile | Email | +44 (0)20 7804 7373

 

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