Most reinsurance and insurance companies have started or are about to start implementing the IFRS 17 Standard, a finance transformation and modernization program, according to a PwC survey.
The survey includes 17 respondents from organizations with both national and multinational market focuses, including composite (Life and Non-life) insurers and reinsurers.
80% of respondents agree that one of the top benefits post-implementation is the improved interaction between finance and actuarial departments.
Over two-thirds of respondents report major improvements in creating complex models, integrating IT systems, and managing large-scale transition projects.
Despite these benefits, challenges remain. Resource constraints are a significant issue identified by many respondents.
75% of respondents cite the greatest key person dependency risk in actuarial expertise, and 69% identify this risk in those with a technical understanding of the Standard.
Additional challenges include the need for manual workarounds to meet deadlines and a lack of automation.
The majority of participants are satisfied with their control environment, but there are still challenges around resource constraints, manual processes and operational/technical difficulties. 56% of participants flagged the complexity of IFRS 17 as limiting how they can leverage it as part of their decision making process.
65% of participants are considering a change in their finance or actuarial software within the next 5 years.
With an expected spend of €1.1 bn (based on the answer from 15 participants), the transformation journey is far from over. This creates a wide range of opportunities for the finance and actuarial function to invest in the technology and skillset of the future.
The Standard is not yet widely adopted. 38% of respondents report that the handover from implementation teams to regular staff has not yet happened.
Preparing compliant information is complex. Time constraints for calculating and reporting results are a major issue for half of those surveyed.
IFRS17 has been a long time coming for many, but valuable lessons have been learned. Improved collaboration between finance and actuarial teams will benefit insurance firms as they modernize and pursue efficiency
Alex Bertolotti, Insurance Leader at PwC UK
Insurers’ efforts around Finance Transformation have mainly focused on the immediate priority of IFRS 17 compliance.
The IFRS 17 requirements could result in accounting mismatches and volatilities in profit and loss—a direct consequence of the insurer’s reinsurance management strategy and contracts entered into today.
IFRS 17 is the newest IFRS standard for insurance contracts and replaces IFRS 4 on January 1st 2022
It states which insurance contracts items should by on the balance and the profit and loss account of an insurance company, how to measure these items and how to present and disclose this information.
With IFRS 17’s anticipated mandatory effective date of 1 January 2023 moving ever closer, all types of businesses, not just registered insurance businesses, need to start evaluating the impact of the Standard now.
Fitch have stated that the first public comments from Dutch insurer – ASR, on the implications of IFRS 17 support Fitch Ratings’ view that the new standard will not affect insurers’ business models in the near term.
European insurers said that it does not plan to use IFRS 17 to “steer its business”, citing the inherent volatility of metrics calculated under the new accounting standard.
However, it will instead continue to focus on organic Solvency II capital creating, underlying business performance and existing segment-specific metrics, such as the non-life combined ratio.
With IFRS 17 due to take effect for accounting periods starting from 1st January 2023, Fitch have said that they expect that insurers, analysts and investors will need at least a couple of years to develop enough confidence in IFRS 17 to use it as a basis for decision-making.
The survey results may help insurers and other stakeholders gain insight into the implications of IFRS 17 on their finance and actuarial functions, as well as new finance transformation initiatives.
The analysis and commentary included in this survey are based on responses provided by survey participants.
This document should not be used as a substitute for consultation with professional advisers. Information received from respondents has not been verified by PwC.
The detailed analysis for each of the 37 questions asked, as well as other key observations, is available by reaching out to your PwC contact.
