Challenges and Best Practices for IFRS 17 Implementation

As the IFRS 17 standard took effect in 2023 in some countries, our experts have been actively assisting clients with their implementation projects. We have gathered valuable post-implementation feedback from numerous insurance companies.

Recognizing the critical role played by all stakeholders in ensuring the success of the IFRS 17 journey, our experts will shed light on the key insights we have gained from our implementations.

Figure: LinkedIn poll results from 26 different insurers.

In the realm of system and project management, the following key considerations have emerged:

• • Data Availability stands out as a primary bottleneck in many projects, particularly in instances where data needs to be sourced from various systems.
  • Implementation deadlines are often underestimated. Successful projects are those that have allocated enough time for unforeseen developments, as well as for knowledge transfer throughout the project and transition analyses.
  • System Providers’ Limitations: many companies realize that system providers do not offer comprehensive solutions, necessitating additional calculations.
  • Underestimation of Efforts: the market initially underestimated the efforts needed to implement the PAA measurement model.
  • Book Closing Compliance: Closing the books within the same or shorter timeline becomes a consistent challenge due to increased demands.
  • Parallel Runs: parallel runs consume more resources than anticipated but prove valuable for understanding results and preparing comparatives.
  • Initial Results’ Interpretation: initial results often lack clarity. Reconciling with existing GAAP or regulatory results becomes necessary.
  • Regulatory Requirements: despite the new standard’s objective of improving comparability and consistency in financial statements, comparing different options and methodologies remains challenging.

• • The financial and transition impact is higher on life insurance companies compared to general insurance: The financial impact of IFRS 17 is more pronounced for life companies (lower revenue, several expenses due to the incorporation of the non-Distinct Investment Component, Impact on transition due to CSM and RA) however their results are expected to be less volatile.
  • Dividend and Capital Management Expectations: IFRS 17 does not have significant impacts on dividend and capital management policies.
  • GI Companies’ Technical Results Improvement: GI companies generally experience improved technical results, influenced by interest rates and discounting, with a smaller impact observed during the transition.
  • Onerous Contracts Reporting Less Significant: Reporting on onerous contracts, a major IFRS 17 change, is observed to be less of an issue for most companies.
  • Alignment with SII Framework: European clients and their international subsidiaries prefer options close to the Solvency II (SII) framework for operational efficiency and ease of results bridging between frameworks.
  • Preferred Measurement Model: For portfolios where the Premium Allocation Approach (PAA) is applicable, it is often selected as the preferred measurement model.
  • Discounting Approach: The bottom-up approach is more popular for discounting, aligning with expectations given the structure of the SII rate.
  • RA Methodologies Diversity: Diversity is observed in Risk Adjustment (RA) methodologies, with Confidence Level-based techniques gaining popularity for their simplicity alongside the use of Cost of Capital (CoC).
  • Accounting Policy Choices Variation: Anglo-Saxon influenced countries with assets on Fair Value through Profit and Loss (PnL) generally avoid Other Comprehensive Income (OCI), a more popular option in continental Europe.
  • Transition Approach Maximization: Clients strive to maximize the use of retrospective approaches (Full and Modified) during transition, resorting to the Fair Value approach only when necessary due to a lack of available information.

• • Consider Investor Story and Market Communication: Choices in system and policies have a direct impact on performance measurement and key performance indicators (KPIs). Communicate these choices effectively to stakeholders.
  • Recognize the natural advantage of being a follower in the IFRS 17 world: Utilize the experiences gained by companies, consultants, auditors, and system providers that have paved the way. Structure your project to adapt this collective experience to the local market, avoiding unnecessary challenges.
  • Early Transition Planning: Allow for an early transition from the change organization to the business-as-usual organization. Involve and train individuals who will be responsible for running systems and calculating results post-implementation.
  • Early Consideration of Performance Measurement and KPIs: Recognize the importance of performance measurement and KPIs. Although these aspects often come into focus late in the process, it’s crucial to consider them early in the decision-making process for a comprehensive understanding.

Various IFRS 17 solutions exist in the international market, categorized into accounting models, actuarial models, and internal models, which entail a complex operational process.

Addactis offers an end-to-end solution adaptable to your specific needs. Our technical and software experts in France and internationally support our clients throughout the implementation of the standard, the operational process, and post-implementation analysis.

Addactis IFRS 17Hub has led more than 50 IFRS 17 implementations around the world in recent years, during which its experts have acquired solid and recognized expertise to support insurers on their IFRS 17 journey.

Get an overview of our out-of-the-box solution in video and find out how Addactis experts can support you and help you with your IFRS 17 project.