IFRS 17 Implementation in Spain and Portugal: Local Challenges and Insights

With less than a year to go before the IFRS 17 compliance deadline, our experts from ADDACTIS Ibérica and Portugal have answered a series of questions related to the multiple implementations of IFRS 17 carried out by our clients in Spain and Portugal in order to better understand the challenges encountered and identify best practices for future projects.

Let’s read their vision of the state of progress.

“There is indeed, a marked difference between these two markets. While in Spain the application of the Standard is only mandatory for those companies that are required to report under the International Reporting Standards, mainly listed companies and Groups, in Portugal the application of the Standard is a mandatory for all insurance companies. The reason being that the Portuguese Accounting Standards for Insurance Companies (or PCES – Plano de Contas para as Empresas de Seguros) adopted or transitioned to IFRS.

As a result, all companies have had to mobilize their human and financial resources in race to comply with the Standard independently from their size, current resources and practices.”

“Regarding their challenges, we are seeing among our clients a wide variety of preparation and readiness to carry out a project of this magnitude. We have been in discussions and planning with companies since early 2018 who today continue to to move forward with their project. But we have also recently started the implementation project in quite a few other companies. Generally, the project is more advanced in bigger entities since they were preparing their journey since much earlier. Smaller companies or those with less complexity (fewer lines of businesses) have taken more time to launch the project.”

“Some of our clients face challenges, mainly due to what has not been clearly identified before, such as operational constraints, footprint of prior decisions and existing IT investments.

As an international solution provider, we are committed to providing a holistic view of the project through an in-depth knowledge of standard requirements, operational constraints, and business monitoring forecasts.”

“Our advice to companies that have delayed their projects or are encountering critical barriers is, adjust the plan, focus on the core bits of the workflow and finalize automation in parallel with a slightly delayed workstream.

“Business requirements, accounting papers and stochastic frameworks for calculating the risk adjustment are confronted, discussed, and reconciled. You have to juggle your IT, actuarial and accounting departments. You must bring everyone to the table and be tactically adept at retaining the best of these worlds. You need to choose a provider which is able to understand all your tenants and provide flexible implementation to meet speed and agility requirements for a successful IFRS 17 journey”.

“We are seeing quite a few common issues or difficulties in the implementation projects, some of which are directly related to or impact on our ongoing project at the client but also, the issues that companies are facing in other areas of the project, either internally or with other providers of the whole chain.

In this sense, we tend to speak in terms of:

• Purely actuarial coverage, meaning all the needed processes to produce estimations of future cashflows and Risk Adjustment (one of the newer concepts introduced by the Standard) or,
• End-to-End, meaning all the processes required, from actuarial estimations to pure IFRS 17 calculations, such as Contractual Service Margin roll forward, Loss Component, Analysis of Change to the transformation of these economic figures into accounting movements that can be directly integrated into the company’s general accounting platform.

In all these scenarios, we aim for fully automated processes, from data entry to all kinds of output”.

Our IFRS 17 journey began nearly 20 years ago when we launched our first reserving software – IBNRS® – in 2003.
Over the years, we have been able to acquire a strong and recognized expertise in reserving calculation, and IFRS17 has been the logical extension of our offer.
In 2017, we created our internal Taskforce composed by R&D experts, actuaries and accountants, software designers… We have now succeeded in answering the main questions of insurers regarding IFRS 17: how to understand the regulation and above all, how to transform all the principles into a standard and flexible end to end solution covering all the topics: Actuarial (Cash Flow/RA /CSM engine), Finance (Subledger), andIT (ETL and Dataflow of the process).

Present in the Spanish and Portuguese markets since 2011, Addactis supports insurers throughout their value chain with its actuarial software solutions, including the addactis® IFRS 17 solution.

Addactis is becoming a preferred solution partner for insurance companies of all size in their IFRS 17 implementation program worldwide. Addactis teams are experiencing an increasing demand and the Spanish & Portuguese market are no exceptions. Indeed, 46% of local Portuguese companies have already chosen the addactis® IFRS 17 solution, as well as the Top 5 Spanish and Portuguese insurance companies.

This positioning gives Addactis and our teams a global vision of the state of the market’s progress and of the issues related to the deployment of the Standard.