Achieving compliance with the new reporting standard for insurance contracts

Clients have previously come to us for advice and support to adapt to new IFRS requirements. The timescale for IFRS17 compliance is now clear and it’s time to address the changes that are required to your data infrastructure and reporting solutions to achieve that compliance. 

We recently spoke at the SAS Forum UK 2019 about the finer points of IFRS 17 and highlighted some of the areas that are often overlooked. Click here to request a download of our presentation.

Challenges you may be facing:

  • How do I plan my IFRS17 solution project?
  • What approach to build a data solution for IFRS17? 
  • How do I assess my current data solution and readiness for IFRS17?
  • Do I have the skills needed to build a solution myself?
  • What training would be needed for my team?
  • What are the best approaches to Data Integration, transformation and retention?
  • What are the benefits of using a specialist partner to build my IFRS17 solution?

IFRS17 support from Dufrain:

  • Data Integration & Transformation
  • Data Audit Review
  • Project Management
  • Data Solution, Design, Build & Deployment
  • Design / Build of Data Transformation and Calculation Processes
  • Analytics Expertise
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IFRS17 Overview:

The International Accounting Standards Board (IASB) has issued a new standard IFRS17 that sets the requirements for reporting financial information on insurance contracts. IFRS17 will be effective for reporting periods starting on or after 1st January 2021. IFRS17 seeks to address the deficiencies in the current IFRS4 standard disclosures which lack transparency and makes it difficult for investors and analysts to assess the ongoing profitability of insurance contracts for a firm. Also, IFRS4 does not ensure consistency between firms, jurisdictions and perhaps even portfolios within a firm.

What needs to be done under IFRS17:

  • Insurance contracts will need to be grouped into similarly profiled portfolios and further segmented as sub-groups of each portfolio, based on an assessment of their profitability
  • New reporting rules will be introduced that requires the profit performance to be split out between that earned by providing insurance coverage and the profit due to investment returns or changes to financial expenses
  • Insurance contracts will need to be recognised as a balance sheet item “Insurance Obligation”, valued using the sum of the following three components. PV of future cash flows, Risk adjustment for future cash flows and the expected unearned profit (Contractual Service Margin)
  • The standard requires updates to the Fulfilment Cash Flows (PV cash flows & risk adjustment) at each reporting date, applying the latest estimates and market information. Changes to expected future premiums and claims could also impact the profitability and results in an update to the Contractual Service Margin
  • Impacts to the overall Insurance Obligation due to changes to the economic environment must be reflected in the financial statements
  • The discount rate for the valuation of future cash flows will need to use a “current rate” whereas IFRS4 was not specific and permitted the use of historic rates

Common IFRS17 challenges:

  • Data Integration – Portfolios may be split over multiple platforms or systems and have significant differences in data. Ensuring consistent treatment across portfolios requires a robust understanding of the data and a process to correctly integrate it
  • Granular Calculations – Existing systems of portfolio measurement may only function at an aggregated level. The new standard may require changes to use a more granular approach, so contracts are appropriately grouped and measured
  • Volatility Risks – A by-product of more complex and regularly updated valuations is the risk of balance sheet volatility. Managing those P&L risks requires thorough analysis, forecasting and monitoring processes
  • Reporting Timescales – With a more complex and calculation heavy data process, the timeliness of reporting outputs may be a new concern. New faster processes to handle data acquisition, transformation and end user presentation may be necessary
  • Skills Gaps – Not having significant in-house delivery, technology data skills & experience gaps or challenges with resource capacity
  • Data Quality – Issues with the standard of data is a typical problem and we can help you to ensure data quality within your IFRS data solution project, using best practice Data Management principles we have developed over hundreds of projects
  • Data Control Framework – We can help you to overcome challenges of evidencing effective controls over portfolio data and building a governance framework to provide control over other sources such as parameter inputs, that will change over time

Get in touch by completing the form above to find out how we can help you comply with the new IFRS17 Standard.