For a journey that started back in 2001[1] surely we must be in the final straight by now?! For most companies however, the finish line still feels quite far away.
The implementation challenge has a number of different angles, as illustrated by some of the common questions I have been receiving in recent months.
Will there be an extension?
The Exposure Draft published this summer contained a number of proposals, including accounting for reinsurance on onerous contracts, allocation of acquisition costs to renewals and additional transition reliefs. However, some commentators noted that the proposals don’t go far enough[2].
One of the key proposals is to defer the effective date by one year to 2022. For companies with IFRS 17 programmes in their infancy, a one year deferral may be met with a big sigh of relief. For those further along the journey (who are also the ones feeling the size of the challenge the most), it is an opportunity to highlight a number of remaining technical challenges with the standard and ask for further time to tackle these. Some challenged that the annual cohorts do not provide useful information for certain contracts. You must be thinking, there is no chance of re-opening that topic…or is there?
What should I focus on next?
Many companies are considering where to invest their resources to make the most out of an extra year. Understandably, the primary focus so far was on methodology and CSM-related technical and system decisions. This is now expanding to cover some of the related areas – investment in actuarial analysis tools (granularity requirements of IFRS 17 make this a necessity, not a choice!) and closer alignment of accounting and actuarial capabilities, both in terms of processes, systems and teams. One area that very few are tackling at the moment but warrants more attention is the financial planning and analysis capability – IFRS 17 introduces significant complexities that need to be addressed in budgeting and forecasting methodology, processes and systems.
What’s the industry view on KPIs in an IFRS 17 world?
Will my peers continue to publish existing metrics? What will the IFRS 17 metrics be? What will analysts look for and expect in results presentations? The questions go on. The honest answer is that there is no clear view yet – companies take years to perfect their investor relations strategies and I suspect it will be the same with IFRS 17, with KPIs and disclosures evolving after the go-live date.
In this preparatory period, my advice would be to carry out extensive analysis to understand the impact of IFRS 17 under various scenarios and identify potential levers for managing these impacts (e.g. through changes to reinsurance structures). The next step is then to engage with the users of your financial reporting – for example, your investors and analysts - to start demonstrating and discussing how to arrive at the underlying performance of your business from published IFRS 17 results.
Join us at the joint ABI-KPMG IFRS 17 event, when we will discuss these topics (and more) with IASB members, the FRC and a panel of IFRS 17 reporters.
[1] In September 2001 a new standard for insurance contracts was added to the IASB agenda.
[2] Source: IASB Agenda ref 2A, October 2019, Amendments to IFRS 17 – Outreach Summary.