Enterprise Risk Management Technology Guide 2019 :: Aptitude Software: Technology to simplify IFRS 17 compliance

Aptitude Software: Technology to simplify IFRS 17 compliance

Brian Heale, senior insurance/IFRS 17 consultant at Aptitude Software, explains why the granularity of data required by the new accounting standard can be a problem area for insurers

How does IFRS 17 cause headaches for re/insurers?

Brian HealeWe now have approximately a dozen clients implementing IFRS 17 and working with these insurers to address IFRS 17 implications has unearthed a number of common themes.

One of the key issues is getting correct data at the right level of granularity. It still seems to be a major problem, even though a lot of work has been done to improve data quality, governance and access to data under Solvency II.

IFRS 17 requires new calculations as well as new, granular data sets and data groupings. This is particularly true for general insurers adopting the premium allocation approach (PAA), since under the current UPR approach modelling is undertaken at a highly aggregated level, for example, loss reserving and pricing. Sourcing the data and getting it allocated at the required level will be challenging, particularly in the actuarial area.

This impacts the collection of data from source systems and requires complex cost and insurance allocations.

Also, results data needs to be stored on a current and historic basis and managed effectively to be available for analysis, planning and forecasting. This is critical to produce disclosures, internal management objectives and external market reporting.

How can Aptitude Software help insurers implement IFRS 17?

We offer a fully functional solution, which is client configurable and includes a set of detailed accelerators. In all our years of addressing various regulatory requirements, we’ve found that having a flexible solution that can accommodate an organisation’s wide range of business requirements is important.

IFRS 17 requires potentially vast amounts of data, particularly in the form of cash flows. Aptitude’s solution can quickly and efficiently process full monthly cashflows in performant schedules - which can result in billions of rows of cash flows - or it can operate on a present-value basis. The latter approach can reduce the rows of actuarial data by a factor of twentyfold.

Solvency II required a considerable amount of change for insurers in terms of capital modelling, but I think IFRS 17 is perhaps more wide-ranging since it impacts profit emergence and revenue.

For example, we see many insurers looking at how they can improve their actuarial and finance processes and provide more granular information on key metrics.

An IP-rich solution like Aptitude’s can also help mitigate the scarcity of skilled resources and the need to report under multiple bases by automating IFRS 17 and other reporting processes.

What are the obstacles surrounding IFRS 17 projects?

One of the key risks for insurers is meeting the timeline associated with IFRS 17. It requires getting all the data, making a range of decisions including accounting choices, and configuring a solution.

As IFRS 17 is a large project, it’s critical not only to choose the right solution, but also to have professional project management.

Insurers also need to look at the scale of the changes required. Looking at this logically, it would be ideal to have a dedicated IFRS 17 target operating model. While we have seen some of the bigger insurers developing that approach, we have not seen it implemented by the mid-tier and smaller insurers.

For most of our clients, there is a requirement to reconcile, or at a minimum compare, IFRS 17 with Solvency II. This is primarily because profit (IFRS 17) and capital (Solvency II) are inter-related from a key performance indicator perspective.

It will take time and effort for Insurers to evaluate the synergies between their existing Solvency II systems and any new IFRS 17 solutions.

Another important point is that actuaries and accountants at insurers have, historically, not been particularly well integrated. The reality is now they will have to work more closely together as the actuarial numbers are now effectively driving organisations’ profits and revenues.

 

Amanda Steward

T: +44 (0)20 7496 8196

E: [email protected]