IFRS 17

Introduction

The objective of IFRS 17 is to ensure that Insurance companies provide relevant information that faithfully represents insurance contracts

The Standard establishes principles for the following activities for insurance contracts

  • Identification of contracts that fall within the scope
  • Aggregation of contracts into groups of similar risk characteristics
  • Recognition of the contracts in the books
  • Measurement of fulfillment cash flows and contractual service margin and subsequent re-measurement
  • Modification / De-recognition of contracts
  • Presentation in the Statement of Financial Position

IFRS 17 has far reaching impact not just on the technical calculations but also on other aspects of the Business including, Actuarial, Finance, Tax, Information Technology, Human Resource and last but not the least Financial Performance

We offer the following services with respect to IFRS 17 implementation

Current State Understanding – A detailed understanding of the current activities and processes of the Company

  • Identify, through analysis of the balance sheet/other financial statements and reports as well as discussions, the type and nature of instruments held by Company.
  • Assess the product profile and corresponding characteristics
  • Identify teams / departments within the organization; impacted by conversion to IFRS including Finance, Actuarial, IT, HR, Underwriting, Distribution etc. and establish discussions / workshops to understand the current processes including, but  not limited to :
    • Classification and Measurement Categories for Insurance Liabilities and Financial Assets & Liabilities;
    • Reserving Approaches and Actuarial Methodologies
    • Methodology to measure amounts, timing and uncertainty of future cash flows;
    • Policy Data and IT infrastructure
    • Investment, Actuarial and accounting policies etc.
    • Current level of disclosures

GAP Analysis – Comprehensive Gap and Assessment Report including recommendations on Policy, Procedures, Methodologies to adopt IFRS 17

 Perform a comprehensive diagnostic across all elements of infrastructure – governance, policies and procedures, methodologies, data, systems requirements, etc.. to identify gaps between the existing framework and those that are required by IFRS 17 requirements

Identify the various non-data related aspects in Company which will be impacted by the proposed IFRS 17 adoption. These may include:

  • Governance – for example: role of committees and departments in implementation of the valuation / reserving approach
  • Policies and Procedures – for example: reserving and write-off policy, valuation policy, product program guide, accounting policy, etc..
  • Methodologies – for example: actuarial / reserving models to measure insurance liabilities

Review the data availability and adequacy of Company to ensure that it can be used by the project team in IFRS 17 implementation

Evaluate whether current financial reporting and other applications can accommodate measurement, accounting and reporting under IFRS 17

Quantitative Impact Analysis – Impact on  Balance Sheet and Income Statements

  • Identify the sub-portfolios at which the measurement shall be carried out.
  • Agree on the granularity of calculation on the of basis availability of information.
  • Agree on the assumptions required for estimation of fulfillment cash-flow.
  • Select a reporting date and collect data for carrying out the impact assessment.
  • Measure the insurance liability on the basis of the agreed assumptions and data.
  • Compare the impact on the income statement due to adoption of new Standard.

Portfolio Grouping

Group insurance portfolio as per the IFRS 17 requirements by defining criteria for classification

  • Onerous contracts
  • Profitable contracts
  • Others
  • Further bifurcate these into yearly pools.

Extract policy and actuarial data from the source system for each of these pools

MEASUREMENT METHODOLOGIES AND ASSUMPTIONS

  • Agree on key assumption for estimation of fulfillment cash flow
  • Define the approach for estimation of risk adjustment and discount rate
  • Agree up on the calculation of Contractual Service Margin

IMPACT EVALUATION

  • Measure the Insurance Liabilities as per IFRS 17
  • Assess the impact on Total Comprehensive Income
  • Provide insights into drivers of financial impact

Experience

We have been actively involved in the IFRS 17 consultation space with a number of clients in the UAE and KSA where we are also assisting them with ensuring compliance with the regulatory road map for IFRS 17 implementation which includes financial impact assessments and parallel reporting.

We possess the capability and resources to assist insurers in developing and implementing a complete IFRS 17 solution to ensure that they are live by January 1st, 2023.