What areas of insurance will be most affected by IFRS 17?

IFRS 17 will bring significant change in reporting for insurers, bringing both benefits such as better insights into business performance and challenges such as faster, more efficient and better controlled processes. Its broad scope means it will not just impact insurers’ finance departments, but will also affect other functions such as actuarial, IT and data systems.

To ensure the seamless implementation of IFRS 17 by 2021, a number of key decisions will need to be made. For example, building awareness within your company, ensuring that staff are equipped with the necessary technical skills, performing impact assessments on actuarial modelling, data warehouses and financial reporting systems, and kicking off projects to implement the changes needed across affected processes. The disclosures required under the new standard are more onerous than previously required. Therefore, an early understanding of what needs to be disclosed and what external observers will interpret from them is essential to make key decisions early on and avoid surprises.

The challenges arising from the new standard are different for life insurers and general insurers. General insurers will be able to adopt the simpler Premium Allocation Approach (PAA) for the bulk of their business, whereas life insurers will have to apply the full IFRS 17 requirements. However, some non-life multi-year contracts may not be eligible for this simplified treatment where the PAA does not provide a reasonable approximation, and insurers may want to consider alternatives to avoid the burden of having to implement the full IFRS 17 for small portions of their portfolios.  

General insurers will see their reporting requirements increase whether they adopt the PAA or not. Expected changes for general insurers include discounting of liabilities, unwinding of discount, changes in the levels of aggregation, separate disclosure of liabilities gross of reinsurance and reinsurance recoveries and calculation of the risk adjustment, among others.

Those who do not apply the PAA will need to consider the Contractual Service Margin, its run-off and how it is recognised in the new ‘statement of comprehensive income’. The new standard requires a greater level of disclosure about the company’s own expectations of the cost of settling claims as well as disclosure of the significant judgments in applying the standard. This means that the actuarial teams are likely to be more involved in the reporting process than they have been previously. Finally, a retrospective valuation of the claims provision will be required on transition, with potential balance sheet consequences.

If implementation is managed effectively over the next few years, the new standard can offer significant benefits for insurers going forward. We can help non-life insurers ease the challenges that the new standard is likely to pose, so please get in touch with us to arrange a meeting.

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