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Insights into

IFRS Insurance

IFRS 4 Phase II andIFRS 9 Alignment

With Solvency II

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Contents

IFRS 4 Phase II and IFRS 9 alignment with Solvency II 3

Impacts of IFRS changes on the Solvency II Pillars 5

Pillar 1 5

Pillar 2 5

Pillar 3 5

Our experienced IFRS Insurance team 6

Global IFRS Insurance Team 6

Belgium 6

France 6

Germany 6

Ireland 6

Italy 6

Luxembourg 6

Netherlands 6

Finland 6

Norway 6

Sweden 6

Spain 6

Switzerland 6

UK 6

Canada 6

Africa - Western Central 6

Africa - South 6Central Europe 6

Korea 6

Cyprus 6

Iceland 6

Israel 6

Japan 6

Middle East 6

Contact details for further information on this factsheet 7

About Deloitte 8

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6 May 2013 3

IFRS 4 Phase II and IFRS 9

alignment with Solvency II

We consider the following eight factors to be key factors when considering Solvency II

alignment with IFRS.

Whilst elements of the traditional revenue account presentation remain under the new IFRS

requirements, the mechanics of recognition have significantly changed to a margin-based approach.

The profit and loss attribution under Solvency II is similar but the principle of profit recognition inIFRS (profit is recognised with the fulfilment of the obligations under the in-force policies) is different

from the principle of surplus recognition under Solvency II (measured on an hypothetical exit value

of the in-force policies). This key difference requires appropriate processes and controls and

additional modelling for the IFRS profit.

Currently IFRS permits different valuations of insurance liabilities within the same group. This will

terminate with the new IFRS for Insurance and will introduce a new meaning for valuation

compliance.

The management of both assets and liabilities form an integral part of a companys strategy for both

profit and capital volatility management. Early planning could be required given the high potential for

the new IFRS financial instrument standard mandating adoption ahead of the new IFRS insurance

standards.

Incentivisation and remuneration of employees will need to be recalibrated within the Solvency II and

IFRS frameworks as well as the wider entity level strategy and governance structures.

Educating both management and staff on how an insurers success is measured under bothSolvency

II and IFRS will require a significant investment in training that will enable the alignment of behaviours

to the new capital and profit metrics.

Additionally, we need to consider organisational implications in terms of culture, changes to peoples

roles and responsibilities and rewards and benefits.

External financialand regulatory

reporting

Compliance

Activities

Strategy and

Governance

People and

Culture

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6 May 2013 4

Insurers will need to consider how and what to communicate for the revised IFRS profit targets and

consider the level of linkage with future strategic risk appetite

The ability to frequently understand and monitor the drivers of the changes between the two bases will

be key to ensure transparency to external as well as internal stakeholders.

There will be additional pressure to the existing Solvency II timescales to produce simultaneously, the

IFRS statements and disclosures to permit sufficient time to analyse and reconcile the results.

The data requirements for IFRS and Solvency II overlap. However IFRS introduces data that was not

contemplated in the Solvency II data model and requires similar parameters to be calibrated differently.

Cost hierarchies and cost allocation systems will need updating to provide an appropriate level of

direct acquisition costs incurred at portfolio level, as well as the separation of any overhead elements

between the liability valuation bases.

Additionally, developing a residual margin amortisation model which can be updated at each reporting

date will have significant system implications, especially as no equivalent base exists under Solvency

II.

Market Reporting

Process

Data

Systems

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6 May 2013 5

Impacts of IFRS changes on the

Solvency II Pillars

The most significant impacts of IFRS on Solvency II will be:

Pillar 1

Refinement of the Solvency II calculations.

New calculations (e.g., Residual margin).

Flexibility around existing systems to meet IFRS Insurance requirements (e.g., insurance vs

investment contracts scoping, direct acquisition costs).

New systems.

Target Operating Model (TOM) and WDT impacts layered onto Solvency II and the need for robust

reconciliations (Solvency II to IFRS).

Liability data requirements are likely to be more granular than those for Solvency II.

Increased need for scarce and costly resources (e.g., Actuarial).

Pillar 2

Minimal impact due to IFRS. The economic balance sheet offers under Pillar 2, greater similarities to

IFRS valuation than the Pillar 1 balance sheet. This is due to the more limited regulatory

requirements on the parameters used for the Pillar 2 economic balance sheet.

All of the impacts will influence the design of the TOM affecting process, data and technology.

Pillar 3

New reporting requirements for IFRS could be built onto/alongside the Solvency II reporting

requirements.

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May 13 6

Our experienced IFRS

Insurance team

Global IFRS Insurance Team

Deloitte has proven experience delivering common data models and storage infrastructure. We have

experience working with a number of organizations to define and implement insurance data solutions for

IFRS. Deloitte is uniquely positioned to serve as your partner.

BelgiumDirk Vlaminckxdvlaminckx@deloitte.com+ 322 8002 146

FranceJerome Lemierrejlemierre@deloitte.fr+ 331 5561 4078

GermanyFrank Engelenderfengelaender@deloitte.de+ 492 1187 722402

IrelandGlenn Gillardggillard@deloitte.ie+ 353 1417 2802

ItalyAndrea Paiolaapaiola@deloitte.it+ 390 1155 97204

LuxembourgThierry Flamandtflamand@deloitte.lu+ 352 45145 4920

NetherlandsHans de WittHdeWitt@deloitte.nl+ 318 8288 4235

FinlandMartin Faarborgmfaarborg@deloitte.dk+ 452 1276 558

NorwayEivind Skaugeskaug@deloitte.no+ 472 3279 355

SwedenGoran Engquistgengquist@deloitte.se+ 467 5246 2194

SpainJordi Montalbojmontalbo@deloitte.es+ 34 93 280 4040

SwitzerlandSabine Betzsbetz@deloitte.ch+ 415 8279 6881

UKFrancesco Nagarifnagari@deloitte.co.uk+ 44 20 7303 8375

CanadaNeil Harrisonnharrison@deloitte.ca+ 1 416 601 6307

Africa - Western CentralOduware Uwadiaeouwadiae@deloitte.com+ 234 8056 018887

Africa - SouthYuresh Maharajymaharaj@deloitte.co.za+ 271 1209 6204

Central EuropeDariusz Szkaradekdszkaradek@deloittece.com+ 482 2511 0331

KoreaLee, Jae Seogjaeslee@deloitte.com+ 822 6676 1162

CyprusAndreas Andreouaandreou@deloitte.com+ 357 2236 0686

IcelandThorsteinn GudjonssonThorsteinn.Gudjonsson@deloitte.is+ 354 580 3087

IsraelRan Feldboyrfeldboy@deloitte.co.il+ 972 3608 5478

JapanArata Otakearata.otake@tohmatsu.co.jp+ 819 0603 58857

Middle EastSamir Madbaksmadbak@deloitte.com+ 971 6574 1052

mailto:dvlaminckx@deloitte.commailto:dvlaminckx@deloitte.commailto:jlemierre@deloitte.frmailto:jlemierre@deloitte.frmailto:fengelaender@deloitte.demailto:fengelaender@deloitte.demailto:ggillard@deloitte.iemailto:ggillard@deloitte.iemailto:apaiola@deloitte.itmailto:apaiola@deloitte.itmailto:tflamand@deloitte.lumailto:tflamand@deloitte.lumailto:HdeWitt@deloitte.nlmailto:HdeWitt@deloitte.nlmailto:mfaarborg@deloitte.dkmailto:mfaarborg@deloitte.dkmailto:eskaug@deloitte.nomailto:eskaug@deloitte.nomailto:gengquist@deloitte.semailto:gengquist@deloitte.semailto:jmontalbo@deloitte.esmailto:jmontalbo@deloitte.esmailto:sbetz@deloitte.chmailto:sbetz@deloitte.chmailto:fnagari@deloitte.co.ukmailto:fnagari@deloitte.co.ukmailto:nharrison@deloitte.camailto:nharrison@deloitte.camailto:ouwadiae@deloitte.commailto:ouwadiae@deloitte.commailto:ymaharaj@deloitte.co.zamailto:ymaharaj@deloitte.co.zamailto:dszkaradek@deloittece.commailto:dszkaradek@deloittece.commailto:jaeslee@deloitte.commailto:jaeslee@deloitte.commailto:aandreou@deloitte.commailto:aandreou@deloitte.commailto:Thorsteinn.Gudjonsson@deloitte.ismailto:Thorsteinn.Gudjonsson@deloitte.ismailto:rfeldboy@deloitte.co.ilmailto:rfeldboy@deloitte.co.ilmailto:arata.otake@tohmatsu.co.jpmailto:arata.otake@tohmatsu.co.jpmailto:smadbak@deloitte.commailto:smadbak@deloitte.commailto:smadbak@deloitte.commailto:arata.otake@tohmatsu.co.jpmailto:rfeldboy@deloitte.co.ilmailto:Thorsteinn.Gudjonsson@deloitte.ismailto:aandreou@deloitte.commailto:jaeslee@deloitte.commailto:dszkaradek@deloittece.commailto:ymaharaj@deloitte.co.zamailto:ouwadiae@deloitte.commailto:nharrison@deloitte.camailto:fnagari@deloitte.co.ukmailto:sbetz@deloitte.chmailto:jmontalbo@deloitte.esmailto:gengquist@deloitte.semailto:eskaug@deloitte.nomailto:mfaarborg@deloitte.dkmailto:HdeWitt@deloitte.nlmailto:tflamand@deloitte.lumailto:apaiola@deloitte.itmailto:ggillard@deloitte.iemailto:fengelaender@deloitte.demailto:jlemierre@deloitte.frmailto:dvlaminckx@deloitte.com

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May 13 7

Contact details for further

information on this factsheet

Louis Jordan

Vice Chairman of Deloitte UK

Louis is responsible for establishing our Insurance Practice here in the UK and was the

Global Head of Insurance across the firm. Louis is the Global Lead Client Service Partner

on two of our largest financial services clients and leads the Deloitte EMEA Solvency II

and IFRS practices across EMEA. He has over twenty years of experience in consulting to

financial services companies. Louis major areas of expertise is in the arena of Business

Transformation, Cost Reduction and Merger & Acquisition. Contact: Louis Jordan

ljordan@deloitte.co.uk +44 20 7303 8284

Francesco Nagari

Global IFRS Insurance Lead Partner

Francesco Nagari is a partner in Deloitte LLP based in London and took the position of

Global IFRS Insurance Leader in October 2008. In that capacity he is a member of the

London IFRS Centre of Excellence of Deloitte. He qualified in Italy as dottore

commercialista (1991) and revisore contabile (1995) and a chartered accountant in the UK

with the ICAEW (2011). He speaks Italian, English, French and Portuguese. Contact:Francesco Nagarifnagari@deloitte.co.uk +44 20 7303 8375 More

Michel de la Bellire

EMEA Solvency II Lead Partner

Michel de la Bellire re-joined Deloitte in 2006, having previously worked for Deloitte

Consulting between 1995 and 2003. He brings more than 17 years of experience in

consulting for the insurance industry in France and in the US. His clients include some of

the largest insurers on the French market. He has worked both in the P&C and health &

life segments, for insurers as well as brokers. In addition to leading Deloittes Solvency II

Initiative in France, Michel chairs Deloittes European Solvency II Working Group. Contact:

Michel de La Bellire mdelabelliere@deloitte.fr: +33 (0) 1 40 88 29 95More

Francesca Smith

Global Solvency II and IFRS Insurance Lead Director

Francesca Smith is a Board level strategic change management director. She has

extensive experience leading strategy and large scale complex change working at Board

level. Francesca was a finalist in The Sunday Times Women in Business Competition

and is an alumna of Cambridge University and the Harvard Business School. Contact

details: Francesca Smithfrsmith@deloitte.co.uk +44 7909 888 535More

mailto:ljordan@deloitte.co.ukmailto:ljordan@deloitte.co.ukmailto:fnagari@deloitte.co.ukmailto:fnagari@deloitte.co.ukmailto:fnagari@deloitte.co.ukhttp://www.deloitte.com/FrancescoNagarimailto:mdelabelliere@deloitte.frmailto:mdelabelliere@deloitte.frhttp://www.deloitte.com/micheldelabellierehttp://www.deloitte.com/micheldelabellierehttp://www.deloitte.com/micheldelabellieremailto:frsmith@deloitte.co.ukmailto:frsmith@deloitte.co.ukmailto:frsmith@deloitte.co.ukhttp://www.deloitte.com/FrancescaSmithhttp://www.deloitte.com/FrancescaSmithhttp://www.deloitte.com/FrancescaSmithmailto:frsmith@deloitte.co.ukhttp://www.deloitte.com/micheldelabellieremailto:mdelabelliere@deloitte.frhttp://www.deloitte.com/FrancescoNagarimailto:fnagari@deloitte.co.ukhttp://www.deloitte.com/FrancescoNagarimailto:ljordan@deloitte.co.uk

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