InsuranceERM Annual Awards 2023 - UK & Europe

The complete IFRS 17 solution

Andreas Schroeder, global IFRS 17 life technology leader at WTW, and David Patton, its leader for ICT global finance advisory, explain how the solutions provider can help insurers with IFRS 17 implementation

How can WTW help insurers implement IFRS 17?

Andreas SchroederAndreas Schroeder: We have been shaping actuarial reserving and cashflow modelling for MCEV and Solvency II for decades, and cashflows are at the heart of the new standard. WTW supported the insurance industry ten years ago in lobbying for solutions relating to their biggest concerns, which were the choice of the discount curves, the OCI option and the treatment of the with-profits business, which ultimately converged into the variable fee approach. We have baked all these experience into our IFRS 17 solution.

Our solution design and consultants help our clients to not only be compliant, but also to parameterise the most practical interpretation of the standard for their needs. We also support our clients with automation and governance through our Unify software.

Our reporting and accounting framework completes our IFRS 17 solution as being the parenthesis around our engines to realise pre-mapped disclosure reports, posting and analytics capabilities out of the box.

David Patton: WTW is well known in the insurance industry for the breadth of its actuarial consulting skills, combined with its technological capabilities. The creation of a solution for dealing with IFRS 17 was therefore a natural fit for WTW.

What was also clear was that IFRS 17 is very much a joint effort between accountants and actuaries in the insurance world. Therefore, as well as investing in the build of the IFRS 17 calculations, WTW invested in growing its accounting skill base to guide the technology development and manage the integration process into clients' downstream systems, including the general ledger.

How are insurers approaching IFRS 17 KPIs?

Andreas Schroeder: Most insurers are upgrading the definition of components of their KPIs towards the new regime or introducing new KPIs. We assume new business values for the IFRS 17 portfolios will be replaced by a new contractual service margin (CSM) recognised in the period. The analysts' interest in the CSM generation and release patterns will be high.

David PattonHowever, our recent disclosure analysis of 33 insurers has also shown that most insurers expect no or limited impact on their dividend paying capacity, cash generation and capital requirements from the introduction of IFRS 17.

David Patton: Whilst we are seeing new metrics, we are also observing the adaptation of existing approaches and metrics to fit with the new, very detailed and explicit IFRS 17 calculations. This reduces the strain of trying to make the various stakeholders try and 'learn' new approaches to the assessment of business performance.

What changes will IFRS 17 make in the way insurers communicate to their external stakeholders?

Andreas Schroeder: The top line insurance revenue will be driven by actuarial assumptions and projected cashflows and the new concept of the CSM, its release and the release of the risk adjustment. CFOs with an actuarial background will have an advantage here to communicate this paradigm shift. Initially, we expect intense discussions regarding opening balance sheets and first P&L results. On mid-term, communication efforts are likely to reduce because the IFRS 17 insurance service results will become more predictable.

David Patton: Initially, IFRS 17 communications will be more technical in nature, especially around the differences between old and new KPIs, other reporting bases, and any changes in accounting policies that have been made. But this will reduce over time and the performance of the business itself will return to being the only focus, albeit with more results data available externally and on a more transparent and comparable basis.

Does WTW plan to develop its IFRS 17 solutions this year?

Andreas Schroeder / David Patton: We continue to include new features and functionality into our IFRS 17 solution and in 2023 we will also be focusing on further improving automation for validation and results analysis. The latter will be encapsulated within Financial Results Analyser, a software product we are planning to launch soon that will leverage our successfully deployed reporting asset technology components.