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Understanding IFRS 17 : Are you ready for what is to come?

 


The new IFRS standard for Insurance contracts, IFRS 17 (previously called IFRS 4 Phase II), is due to come into effect for annual reporting periods on or after 1 January 2021, replacing the current standard - IFRS 4 Phase I.

The standard aims to address current inconsistencies in accounting treatments across different insurers and enhance the comparability of financial reporting among entities, jurisdictions and capital markets. This will improve the relevance and transparency of financial reports and address areas in the current regulations where up to date information and the risks associated with insurance contracts are not fully taken in to account. This will help to reflect a complete view of the effect of insurance contracts on a company’s financial position.

IFRS 17 will affect all current IFRS reporters (excluding those in the US) and will have a large impact on many areas within companies. The new regulations will see changes to the liability measure and profit recognition of insurance contracts as well as a likely need for changes to companies’ modelling systems and data storage requirements. The increased disclosure requirements and the interactions and dependencies between the Finance, Actuarial and Risk teams will likely mean a review of resources and efficiencies across the departments.

IFRS 17 will certainly have a significant impact on actuarial models, challenging them even more following their recent Solvency II related transformations. Models will need to handle volumes and granularity of calculations which are not common practice for most reporting functions. Many of the existing tools in place may no longer be efficient enough to deal with these requirements. Managing and using detailed assumptions like yield curves for each annual cohort of policies will also be a challenge. The question in the mind of all actuaries is how do we get the models to do so much more, while keeping runtime and processes reasonable?

How MBE can help:

  • Actuarial Expertise – within the IFRS 17 standards there are options regarding the calculation methods, how to transition from IFRS 4 Phase I to IFRS 17 and the reporting of profit. MBE can provide technical assistance in understanding the standards, assessing the options available to insurers, and facilitating the integration of new methodologies.

     

  • Operational Efficiencies – there is an expectation that the timeline for reporting will be more onerous than it is currently, given the necessary co-ordination of the Finance, Actuarial and Risk teams and the increased disclosure requirements. MBE can assist in reengineering processes and operations, identifying key areas for improvement to reduce the impact of the new regulations on resource requirements. 

  • Technology Solutions – with the need to adjust system modelling functionality and increased data storage requirements, MBE can review the current modelling framework, hardware and IT setup, advise on optimal system solutions, and use modelling possibilities to improve runtime, clarity and consistency.

Explore our IFRS 17 Information Library

“Regulatory reforms have the ability to greatly enhance the risk management framework of an insurer.  We aim to help clients prepare for IFRS 17 in a way that adds value far beyond compliance.”
Andries Beukes, MBE Director