Articles - One more year so can we stop thinking about IFRS17 for now


On 14 November 2018, the IASB announced a deferment of the IFRS17 implementation date by a year, with some still calling for a two year delay.You could almost hear a collective sigh of relief as more and more insurers begin to turn their attention to what is turning out to be a more complicated accounting standard than they first thought.

 By Wan Hsien Heah, FIA, Associate and Consultant at Barnett Waddingham

 This coming so closely after the implementation of Solvency II has meant that most European firms are now exhausted and/or reluctant to consider any major operational changes arising from IFRS17 in the first instance.

 On the non-life insurance side, there was talk in the market of being practical with IFRS17, even before the announcement of the deferment. There is nothing wrong with being practical – unless it defers a problem into the future.

 Example of practical issues
 Take for example the Premium Allocation Approach (PAA). Non-life insurers who have looked at the PAA may well rub their hands with glee over the existence of the simplification as a means of avoiding process change. After all, if one could use existing Unearned Premium Reserve (UPR) calculations as a proxy in IFRS17, then why would you not? You may not because you would still have to prove that the PAA is similar to the Building Blocks Approach (BBA). The PAA is also not applicable to the claims provision or to long term contracts. As insurers would have to build processes for the BBA approach anyway, they could consider incorporating the premium provision calculations into that very process.

 “How about the approach of not implementing any system changes but instead using the existing Solvency II process to come up with IFRS17 compatible results? ”

 While IFRS17 was created in the image of Solvency II, it is not equivalent to Solvency II. For example, the concept of the Contractual Service Margin (CSM) is new and the calculations behind that more involved, especially if you disclose the discount unwinding in the financials. It points towards a system driven solution, especially where firms have a high volume of policies going back several years or a complicated structure owing to legacy mergers.

 Timing
 Let us also not forget that while the standard is now expected to come into force on 1 January 2022, insurers should ideally have comparatives ready in time for that date. In practice, that means having an IFRS17 solution in place for 1 January 2021. If insurers adhere to best practice, then you would build in at least two quarters of dry runs ahead of January 2021. That leaves less than two years to implement a non-trivial standard on top of the existing GAAP and Solvency II Business As Usual processes, Brexit and other uncertainties in the current market climate. The one year deferment was therefore much needed, and not a signal to leave solution formation for your future self!

 What’s next?
 Sounds like a lot to do? It is! Insurers need to act quickly while weighing up how practical their solutions are versus how much pain they would have to take in the future.

 The good news is that there are tools and accelerators to help insurers understand how to navigate the path ahead without kicking the can into the long grass. All that they have to do is act now.

Back to Index


Similar News to this Story

Machine intelligence influence on risk
Doctor Jeffrey Bohn the Head of the Swiss Re Institute talks about machine intelligence's influence on risk measurement, management and markets
Current Progress in Connected Claims Investment
Welcome to the second piece in our series about Connected Claims transformation. For this report, Insurance Nexus surveyed and interviewed over 600
Government fires starting pistol for collective DC schemes
The Department for Work and Pensions (DWP) published a consultation on implementing collective defined contribution (CDC) schemes which closed on 16 J

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.