A challenging year for insurers

Published in: IFRS 17

Companies: Aptitude Software

IFRS 17 has been a significant hurdle facing the Insurance industry for almost four years now. However, 2020 saw the added challenges of a global pandemic, a faltering global economy and political uncertainty which added additional complications to an already challenged industry.


Aptitude Software remains committed to helping finance and accounting teams within the insurance industry solve for compliance and deliver business value. Aptitude was recently recognised for the strength of their IFRS 17 and LDTI Solutions and named a Category Leader in the Insurance Risk Systems for IFRS 17 and LDTI Compliance, 2020: Market Update and Vendor Landscape, a Chartis Research report that assesses leading vendors of IFRS 17 and LDTI solutions.

After welcoming FWD as the first IFRS 17 client in early 2018, Aptitude Software is now implementing its IFRS 17 Solution across 46 countries – including Pan-American Life Insurance Group, and Great Eastern Life. Over the last 36 months, our global IFRS 17 implementations have informed our approach and reinforced our ability to help insurers navigate the challenges and seize the opportunities inherent in the standard.

Aptitude adds second IFRS 17 Solution to product portfolio

Aptitude was the first to market with a comprehensive solution, the Aptitude IFRS 17 Solution, to address compliance and build the foundation for a digital finance department. It is the most mature solution on the market and is the solution of choice for many insurers across the globe. Differentiators include over 20 years of built-in, insurance specific IP – calculations, business events, processes, and templated disclosures – which accelerate and de-risk the implementation process.Matt Edwards

Recently Aptitude announced a second product, Aptitude IFRS 17 Comply, in response to a market need for a simplified, pre-configured version of the existing Aptitude IFRS 17 Solution. It is designed for insurers that are looking for a faster, more standardised path to IFRS 17 compliance, while laying the foundation for future transformation projects.

Aptitude IFRS 17 Comply delivers cost effective, efficient compliance with flexible deployment options including SaaS, private cloud, and on-premise deployment models. It contains all the functionality required to achieve compliance for P&C insurers, life insurers and reinsurers. It is easily integrated into existing finance and actuarial technology landscapes with minimum disruption and supports compliance under GMM, VFA and PAA. The solution also includes a subledger with a rich, highly granular data model that can serve as the foundation for progressive finance transformation at a future date, protecting the investment and enabling future strategic value beyond compliance.

Matt Edwards, head of strategic alliances and partnerships at Aptitude Software has collaborated closely with Big 4 advisors to define a pre-packaged IFRS 17 solution for a partner-led delivery to enable rapid and efficient IFRS 17 compliance. Matt comments:

"As the standard effective date approaches, there remain a good number of P&C and life insurers who are yet to come to market for an IFRS 17 vendor solution. We believe that Aptitude IFRS 17 Comply will be a strong fit for these insurers, who are likely to be looking for a faster route to IFRS 17 compliance, whilst at the same time leaving the door open to future transformation projects. We have packaged our extensive IFRS 17 project experience across both life and general insurers, incorporating key project accelerators and the critical capabilities to meet the standard. The product is focused on the core configuration required to provide a simple path to compliance for our clients in as short a time as possible".

Aptitude Calculate selected by insurers looking to plug the calculation and allocation gaps in actuarial solutions

Aptitude Calculate (AC) is a stand-alone calculation and rules engine that fully supports automated allocations and calculations by entity, LOB, portfolio/cohort, contract or any other dimension required. It is scalable, highly performant and empowers finance business users to perform complex and multidimensional calculations, conversions, and allocations.

While Aptitude Calculate is a solution that adds value to organisations across multiple industries, Insurers are finding multiple use cases associated with IFRS 17 compliance. These include:

  • Generate cost allocations using two different driver methodologies – equal split expense allocation and apportioned expense allocation – using IFRS 17 portfolios and policies.
  • Run a sensitivity analysis using different allocation methodologies to see the effects on General Ledger costs allocated and contract level allocations.
  • Automate the run of four required calculation models using policy level splits, inputs and drivers from actuarial systems
  • Build complex calculations as a single rule-set that can be automatically applied as required.

The next article goes into more detail on the challenges associated with calculations and allocations for IFRS 17.



The Aptitude Solution approach to IFRS 17: The value of an accounting hub

Both the Aptitude IFRS 17 Solution and Aptitude IFRS 17 Comply include a robust Accounting Hub, composed of multiple components including standardised APIs, a financial data store, configurable posting engine, rich subledger and a reporting/extract layer. Together they provide a configurable, IP-rich solution, critical for meeting the data, calculation and reporting demands of IFRS 17.

In addition to supporting the granularity and data volume requirements of IFRS 17, an accounting engine and subledger can address the many complexities inherent in these types of accounting transactions. Depending on the needs of the Insurer and the desired functionality beyond the core IFRS 17 requirements, an accounting hub can also help address complexities around multi-currency/FX, complex entity structures, consolidations, allocations, reconciliations, reinsurance and multi-GAAP reporting.

"The implementation of the Aptitude IFRS 17 Solution will ensure we are able to comply with IFRS 17 which is key for doing business in the regions we operate. We also believe it will position us to continue to build on our broader finance transformation journey" Alvaro Muñoz, Pan-American Life Insurance Group

Furthermore, IFRS 17 requires measurement and re-measurement of the performance of contracts over the life of that contract. This requires the intrinsic capability to store the results of the calculation at each measurement period and provide a fully auditable process as the calculation changes over time. A subledger provides the capability to manage this process with full transparency, providing an audit trail of changes which can be accessed simply and easily and where required can be tracked back to the transaction level.

The accounting and actuarial worlds will now have to work in unison to a much greater degree than ever before, particularly as the adoption of IFRS 17, and therefore a successful IFRS 17 implementation, will have a marked impact on insurers' future profitability profiles and therefore share price. For now, we are seeing many insurers adopt an accounting driven approach to IFRS 17 reporting while at the same time enhancing their actuarial capabilities.

Examples of insurers reaching IFRS 17 compliance with Aptitude Software

A European Insurance Group selected the Aptitude IFRS 17 Solution in 2016 to position the organisation to successfully adopt IFRS 17. Now that they are ready to adopt the standard, they are expanding their use of the Aptitude Accounting Hub (AAH) to drive business value beyond compliance. Project goals include consolidating data feeds from over 30 back office systems directly into AAH, bypassing the legacy GLs and leveraging AAH's Multi-GAAP capabilities by generating both Group and regional reporting out of one centralized system. Once complete they will have a centralised, standardised data foundation feeding the group General Ledger while still maintaining the regional statutory and management reporting required.

FWD Group chose Aptitude Software to address the complex changes associated with IFRS 17 based on its commitment to the APAC region and the amount of built-in, IFRS 17 intellectual property and project accelerators within the solution. In 2019, FWD became one of the first insurers across the globe known to enter UAT (User Acceptance Testing) under the new standard. Utilising the built-in IP of the IFRS 17 Solution has allowed them to progress through implementation at pace, leaving them time to test and assess surrounding processes and system requirements before the compliance deadline.

A large global Insurer, headquartered in the US, selected AAH as a part of a strategic, enterprise-wide finance modernization project and to prepare the organisation to tackle IFRS 17 reporting as required by their parent company. Now live, AAH has streamlined and centralised data and accounting processes that previously involved generating accounting out of hundreds of disparate policy admin and actuarial systems. They have reduced the number of variable annuity accounting rules from more than 16,000 to just over 800, the number of manual journal entries and the time it takes to generate end of period accounting and reporting.

Stay the course

2020 likely saw the last IFRS 17 delay to be granted by the IASB so insurers will need to be in compliance with IFRS 17 by 1 January 2023.

The standard does an excellent job of highlighting the manual-heavy, disparate and siloed systems and processes that are currently in place in many organisations. So much time, energy and cost are being poured into maintaining the status quo and it is more obvious than ever before that this cannot continue. IFRS 17 is demanding positive change.



IFRS 17 calculation and allocation gaps - the top 3 challenges and how to address them

There is no shortage of challenges associated with IFRS 17. The data, systems, judgement application, and business process complexity of the Standard has been well documented.

Recently, however, several less documented challenges have arisen at some of the global IFRS 17 projects live today. These issues include filling calculation gaps not addressed in existing actuarial and source systems and managing the cost allocations necessary for compliance.

This is particularly driven by the requirements to apply allocation rules to data like expenses, risk adjustments, and even certain cashflows to ensure the granularity of data meets the IFRS 17 calculation and disclosure requirements. In addition, many insurer's source systems are not flexible in their output nor automated which means additional supplementary calculations need to be performed. These can include generating fulfilment cash flows from payment patterns for the LIC or converting accident year data into underwriting year data.


      1. Data preparation

Data preparation is a huge aspect of IFRS 17. Much of the input data needed for IFRS 17 is held in multiple source systems relating to the various types of insurance, premiums, claims and expenses data required. Most insurers have started to understand the complexities of bringing data out of actuarial solutions, translating it and mapping it to their target IFRS 17 solutions, but some have only recently realised the additional functional logic that is required to ready the data.

While some insurers already have existing cost allocation capabilities running from their GL processes, the required data points for IFRS 17 are often not available in those systems or the timing of its availability doesn't lend itself to use for IFRS 17. In addition, many insurers were able to make do with spreadsheets but this approach is heavily manual and likely unsustainable under the new standard. One insurer we are working with currently has 80+ allocations based on a complex array of interactive spreadsheets and this will grow considerably under IFRS 17. Already they are struggling to make the changes necessary to meet the compliance requirements

       2. Increase in volumes, complexity and audit requirements

For many insurers, the initial approach to allocations and certain calculations was to look to their existing extract, transform and load (ETL) processes to build the necessary rules. This is now proving almost impossible in many projects.

The complexities of simply gathering and validating data from multiple sources is using up the resources pool. More importantly, the actuarial and finance teams have realised that the complex nature of the rules, the extensive audit requirements, and the need to manage these rules over time to keep on top of the changing business requirements make an IT-heavy, ETL approach very complex to implement and ultimately not sustainable.

      3. Interpretations

Allocations and interim calculations will have a material impact on IFRS 17 results. Cost allocations can make a profitable cohort/contract become onerous, or vice versa while the granularity of the unit of account, particularly at the portfolio level, can hide certain sensitivities.

What has also emerged with insurers is the need to undertake "what-if" analysis to assess the impact that potential allocation/calculation methodologies will have on the IFRS 17 results. Thus, the ability to generate and perform tests based on different assumptions and drivers prior to implementation is critical. This relates to both transition balances and the impact on future reporting period results.

Running these sorts of simulations is much more difficult when attempting to manage allocations and calculations using spreadsheets, rigid ETL tools, or enterprise resource planning allocation tools that are often too aggregated.

Overcoming allocation and calculation gap challenges – lessons learned

Insurers who have worked to map out allocation and calculation requirements under IFRS 17 have learned some key lessons that can be applied across a range of processes.

Prioritise flexibility

When considering where allocations and gap calculations should be done, prioritise flexibility. A rules-based data mapping tool can increase the automation of allocations and calculations and can allow dimensions and attributes to be added dynamically from existing data sources and structures available. Rules can then be chained together in any combination to build the allocations and calculations necessary for IFRS 17, while still giving finance the ability to change these rules without the need for IT.
Be prepared to be flexible on dimensions, drivers and rules:

Dimensions: Need to define the granularity and attributes of allocations, e.g. for APRA reporting or IFRS 17 allocations to open cohorts (NB, lapses, cancellation, etc.)
Drivers: Support for multiple methodologies and calculation types
Rules: The ability to perform "what-if" modelling to compare results will be a big benefit – make sure you can do this

Keep an eye on performance

Depending on granularity, the volume of data required to deliver allocation results to comply with IFRS 17 can be massive. This can and will have architectural implications for data transfer mechanisms and network capacity. This can also affect timing implications for batch processing and performance so ensure the system you choose can scale with demand and can maintain a high level of performance in the face of high data volumes.

Look to automate as much as possible

Choosing an approach that automates allocations and calculations processes can greatly speed reporting timescales, reducing resource requirements and getting reporting into the hands of analysts and decision-makers faster. For many, the alternative is loading in multiple spreadsheets at run time. With the right tool, automation can extend beyond IFRS 17 compliance processes to other reporting regimes and result in more efficient scenario planning, and more granular management information.

Aptitude Calculate efficiently addresses calculation gaps and cost allocation requirements

Aptitude Calculate (AC) is a stand-alone tool, capable of integrating with any upstream or downstream systems. It fills holes between source systems, actuarial engines, IFRS 17 accounting solutions, and reporting tools to undertake the significant challenges of cost allocations and gap calculations. Indeed, AC seems to be the missing link in many insurers IFRS 17 architectures – fitting between their actuarial, finance and source systems and their IFRS 17 calculation engine and accounting tools.

Aptitude Software IFRS 17 Solutions