Download - IFRS 17 Insurance Contracts Breakfast Briefing Series · 2020-02-12 · IFRS 17 Insurance Contracts Introduction & Context Assumption that insurers have started their IFRS 17 journey

IFRS 17 Insurance ContractsBreakfast Briefing Series5 September 2017

2 © 2017 Deloitte Ireland. All rights reserved.

IFRS 17 Insurance Contracts

Meet our team

Welcome and Introduction

Eimear McCarthyPartner - Audit and AssuranceE: [email protected]: +353 1 417 2685

David WalshManager – ConsultingE: [email protected]: +353 1 417 3943

Danny GaffneyDirector – Finance TransformationE: [email protected]: +353 1 417

Carla DunneSenior Manager - Audit and AssuranceE: [email protected]: +353 (0) 1 417 3863

Maaz MushirManager - Audit and AssuranceE: [email protected]: +353 1 417 2234

mailto:[email protected]







Agenda

.

Agenda Items Speaker

Introduction Eimear McCarthy

Business Impact Assessment David Walsh

Data Management David Walsh / Maaz Mushir

Systems / IT Impacts Carla Dunne

Programme Delivery / Lessons Learned Danny Gaffney

Closing remarks Eimear McCarthy



Introduction & Context

Assumption that insurers have started their IFRS 17 journey or are soon to begin

Previous three sessions have unlocked the technical requirements of the standard – both from an actuarial and finance perspective

Purpose of this session is to understand all other areas of the business impacted by IFRS 17

Focus of attention is on Data Management, Systems/IT impacts & Programme Delivery

Close with Q&A

Business Impact Assessment



Business Impact AssessmentHigh level overview

• Document the “As-Is” position of the existing financial reporting processes, data and systems

• Define and validate the “To-Be” positions that align to your requirements

• Conduct a gap analysis which identifies the gaps which need to be addressed

BIA Objectives

What is a BIA?• An exercise carried out to determine the

expected impacts of IFRS 17 on the elements of a business

Outputs from BIA

• Implementationn Roadmap

• Detailed cost and resourcing estimates

• Heatmap of impacted areas across each component of the operating model

Heat-maps

Spider-web Analysis

13

• Key observation …

















0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1. Contract Definition 2.Best Estimate Cashflow (incl. Contract recognition

& boundaries)

3. Unbundling

4. Discounting

5. Risk Adjustment

6. Contractual service margin

7. Onerous contracts

8. Simplified Approach

9. Reinsurance Measurement

10. Presentation (OCI Reporting)

11. Disclosure

12. Acquired portfolios

13. Transition 4

14. Classification & Measurement

15. Impairment

16. IFRS 9 - Classification and measurement

17. IFRS 9 - Transition

18. IFRS 9 - Impairment Current State

Summary Resource/Cost

Estimate


TrainingCurrent state

workshops

Perform gap

analysis vs.

target state

Validation

workshops

1 2 3 4

Provide training to key stakeholders of the IFRS 17 BIA on the relevant areas.

This training will ensure a common ground and understanding of the requirements of IFRS 17.

Through available documentation (e.g. system landscape, ICS) and workshops with selected stakeholders, gather the current state of the areas relevant for the IFRS 17 BIA: processes, systems & models, and data.

Compare current state with company's Target Operating Model

Run validation workshops with the involved stakeholders to validate proposal for the target state and confirm the gaps with the current state.

We use a wide ranging selection of

IFRS 17 training materials, tailored to

leverage existing knowledge of IFRS 17

and related concepts (S2, MCEV)

• Overview of the target state.

• List of gaps identified between the current state and the target state for the IFRS 17 relevant areas.

• Assessment of the effort required to remediate the gaps (incl. heat map) and to implement the target state.

• Overview of the profiles needed to remediate the gaps (actuarial, modellers, process expert, etc.) and for the implementation.

• Roadmap for closing the gaps and implementation

5. End to end processes: What are the end to end processes for each business unit and for group for the following areas of data

(e.g. sources, tools and processes, storage, reporting, etc.)?

- Policy data

- Claims data

- Premium data

6. Reconciliation: What reconciliation processes and tools are in place for the following?

- Source to data warehouse

- Solvency II to financial reports

7. Reporting: How is financial reporting performed for each business unit and for group (e.g. tools used, extendibility, use of

manual tools such as Excel and Power Pivot, IFRS requirements already considered)?

8. Data volumes: What are the data volumes for source systems, data warehouse (if applicable), Solvency II and finance

systems?

9. Existing challenges: What are the existing pain points in the financial reporting operating model (e.g. working day timetable

challenges, data quality issues, systems gaps, etc.)?

IFRS Compliance

10. Governance and control: What governance processes are in place for data used by Finance for each business unit and for

group?

- Do governance processes applied for Solvency II apply to the data used in the end to end premium and claims processes?

- What controls are in place at source-level to ensure the quality of data?

- What controls are in place in the data warehouse and supporting architecture?

11. Reporting on old business: Is there any active business on legacy systems not integrated into the data warehouse (e.g. legacy

life business or other long-tailed insurance)? What types of business and what volumes?

12. Granularity of data: Is granular policy, premium and claims data available for all policies (particularly binders, packages,

reinsurance contracts, etc.)?

13. Multiple reporting bases: Does the current systems landscape provide flexibility to report financial figures on multiple bases

(e.g. GAAP, IFRS Solvency II)? Can these be reconciled?

Activities

Tools and accelerators @ Deloitte

Our gap analysis tool brings all technical requirements in a logical order and serves as check list to assure full IFRS 17 compliance

Outcome

We use our knowledge of your existing finance systems and IT landscape to focus on the significant points

We use our gap-analysis templates that have been successfully applied with global insurers in their IFRS 17 impact assessments

Implementation

Plan

5

The final report will contain the gaps identified during the assessment.

It will also include an estimate of the remediation actions in terms of effort and necessary resources, as well as a roadmap for closing the gaps.

Business Impact Assessment 5 steps to delivering an BIA




Business Impact Assessment Lessons Learned so Far

Systems & Data are key

• IFRS 17 will bring a myriad of

additional data requirements

• Legacy systems will not be able

to cope with these additional

requirements

• Retrospective approach layers

on complexity

Train Staff - IFRS 17 is Complex

• Train staff early

• It will take time to educate the

business and market

• Use resources available

Planning takes time so start

• Secure resources

• Secure budget

• Develop roadmap

• Prepare for re-plans & contingencies

Financial Statement Impact

• Full IFRS 17 disclosures from

2021

• Requires two years of

comparatives i.e. 2020 & 2019

• Your primary statements will look

completely different

Policies & Processes

• The impacts on these are

not to be underestimated

• New processes & policies

will have to be designed

and rolled out for Day 2

Start early, start small & keep it simple

• Complex regulatory change

implementations take

significant time and effort



The impact of IFRS 17 will be pervasive to your business and touches much more than just actuarial and

finance. Below is an illustrative of expected effort required across the business

Business Impact Assessment Lessons Learned so Far (Continued)

Data Management


Agenda

Overview of the current insurance data environment from a financeand actuarial perspective

The new era of insurance financial reporting heralded by IFRS 172Impact of IFRS 17 on data and systems3Key takeaways4

1


The current insurance data environment presents both challenges and opportunities

Current insurance data environment

Advent of “Big Data” where there is significant digital information being generated and stored

Drives for operational / finance transformation projects on the rise

Ever demanding regulatory requirements – Sol II, IFRS 17, IFRS 9 and RBC reform

Demanding customers wanting more information about insurance contracts

More granular and larger volumes of data in the actuarial and finance functions to support compliance

1

Added complexity to financial and solvency reporting3

Quality data i.e. accuracy and auditability2

Process efficiency, reporting deadlines & op costs impacted

4Facts


The current insurance data environment presents both challenges and opportunities

Current insurance data environment

Advent of “Big Data” where there is significant digital information being generated and stored

Drives for operational / finance transformation projects on the rise

Ever demanding regulatory requirements – Sol II, IFRS 17, IFRS 9 and RBC reform

Demanding customers wanting more information about insurance contracts

Quality data i.e. accuracy and auditability2

4

Opportunities

Springboard for investing in sophisticated DMS

Scalable & flexible

Data Automation

Facts


Drivers of complexity

Impact on data and systems

Why is data such a huge issue for IFRS 17?




More reporting due to explicit

building blocks


Block 1: Expected Future Cash

Flows (unbiased

probability-weighted mean)

Block 4:Contractual Service

Margin

Block 3:Risk Adjustment

‘Fulfilment cash flows’

Total IFRS Insurance Liability

Block 2:Time value of money

Explicit calculation and reporting of the building blocks.

Increase in data requirements for each building block, e.g.

discount rates varying by nature of liability cashflows;

locked rates for interest accretion to CSM;

additional data required for the calculation of risk adjustment etc.

More reporting due to explicit building blocks





building blocks


Calculation and reporting of

CSM

Groups of Portfolio A

Onerous

No significant

possibility of

becoming

onerous

Issue year 1 Issue year 2 Issue year N…

Other

Pro

fita

ble

Onerous

No significant

possibility of

becoming

onerous

Other

Onerous

No significant

possibility of

becoming

onerous

Other

…

…

…

Grouping of insurance contracts by issue year.

Calculations performed at group level.

More data needed to perform these calculations (e.g. historical interest rates from point of inception)

Calculation and reporting of CSM





building blocks



CSM

More calculations needed for each group.

Need to track data and impacts of assumption changes by groups.

-

50

100

150

200

Calculation and reporting of CSM





building blocks



CSM

Granularity of accounting

disclosure and postings

Total IFRS Insurance liability Sources of profits under IFRS 17?

Insurance serviceresult

Profit =

Finance result

Release of CSM

Change in Risk adjustment

Experience variances from expected cash flows

Investment income

Insurance finance income or expenses

‘Fulfilment cash flows’

Block 3: Risk adjustment

Block 2: Time value of money

Block 1:

Expected future

Cash flows

(unbiased probability weighted mean)

Block 4:

Contractual Service Margin (CSM)

More complex flows of data from actuarial and accounting systems.

Inability of accounting systems in their “current form” to handle IFRS 17 reporting.

Granularity of accounting disclosure and postings





building blocks



CSM



Need for historical data on

transition

Historical assumptions (discount rates, demographic assumptions etc.).

Historical data from policy administration systems.

Historical expense information.

Information about expectations of profitability at inception.

Amortisation of CSM.

and the list goes on……..

Need for historical data on transition





building blocks



CSM



Need for historical data on

transition


The following are some critical data a data management impacts resulting from 17 requirements


Explosion of Data Volumes

Data Quality - Control framework

Increased Granularity of Data

Management information

• Data output will grow significantly. Do you have the capacity to maintain?

• Efficiency of processing increased volumes of data critical

• Efficient processes, controls & governance to support the inflow of data and it must be at an acceptable cost

• Need for accuracy and auditability of processes and data used in financial and solvency reporting

• Reconciliations of the different reporting balances to stakeholders e.g. Investors and analysts

Increase data used in analytics

Leverage the new IFRS 17 finance & actuarial data to enhance the quality of business insights

Enhance business decision making processes

Complex measurement approach to insurance contracts

Greater transparency of the reported numbers

Source systems may not have data attributes needed. Estimates / Assumptions to fill gaps


In order to business impact assess the IT infrastructure you should ask yourself three key questions…


How can an entity leverageits current IT infrastructure?

What data management solutions (DMS) can an entity invest into to address business and compliance needs?

What are the business and compliance needs?


You might include the following business needs resulting from IFRS 17

Business Requirements at a glance



Technical and business fit

• Assesses whether the current system is an appropriate platform that can meet the current and future business requirements and IFRS 17 technical and operational requirements.

• Each system is scored against technical and business suitability.

• A score is awarded for these dimensions out of 5 (where a score of 1 indicates the system is not suitable at all and 5 indicates it is highly suitable) to meet the current and future business requirements and IFRS 17 technical and operational requirements.

Replace

Re-assess Retain

Re-platform

Business fit

Tech

nic

al fi

t

High-5

Low-1

3

High-53

A critical step for insurance companies will be to perform an IT assessment.


Other key considerations to carry out the impact on IT infrastructure are as follows…


• Maturity of IT infrastructure.

• The nature, size and complexity of business operations

• The Maturity of an insurance market and regulatory environment.

Co

mp

an

y A

Co

mp

an

y C

Co

mp

an

y B



• Data centralisation solutions

− DWH

− Unstructured database

− Sub ledgerC

om

pan

y A

Co

mp

an

y C

Co

mp

an

y B


Summary


Challenges Key questions

Solutions DMS that enhance data integration and automation.

How can an entity leverageits current IT infrastructureto address business and compliance needs?

What data management solutions (DMS) can an entity invest into to address business and compliance needs?

What business needs does an entity have to address as a result of IFRS 17 requirements?

Fragmented

and complex

legacy IT

infrastructure

1High

operational

costs

2Diluted

ownership of

critical data

3


How will you address the data and system requirements?

Key takeaways

There will be an explosion of data volumes.

There is a range of data management solutions

available and there is no “one size fits all”

solution. 2Begin with the end in mind. Think strategic, not

tactical. An opportunity exists to drive operational

transformation. 3

1

Systems / IT Impacts


“AS – IS” Systems Architecture

The current systems architecture will vary across insurers. Below is an illustrative example of a life insurer.

Assumptions

EDW exists which

consolidates source

system data

Actuarial modelling

exists – most of which

can be leveraged in

the building of new

IFRS functionalities

Statutory & Sol II are

populated via the GL

i.e. multi gaap

functionality exists

Significant number of

manual adjustments at

period ends

Lots of work done in

excel to produce final

reporting

Reporting timelines

are tight as-is

Significant time spent

reconciling & very little

time for analytical

review

Source

Systems

Policy Admin

Asset Data

Investment

Management

Actuarial

Transactional

Data

Warehouse

Acquisition layer

Standardised

layer

Target

Systems

General Ledger

Consolidation

Other Disclosures

Reporting

Statutory

Solvency II

MI

Harmonisation

Group Reporting


System Requirements

We have highlighted examples of system requirements, split into business requirements and technical requirements…

Grouping Efficiency

Calculations Automation

Flexibility Management Information

Data Governance Integration

Interdependencies Scalable


“TO – BE” System Architecture

This is an illustrative example of the future IT / Systems architecture of an insurer under IFRS 17

Source

Systems

Policy Admin

Asset Data

Investment

Management

Actuarial

Transactional

Data

Warehouse

Acquisition layer

Standardised

layer

Target

Systems

General Ledger

Consolidation

Other Disclosures

Reporting

Statutory

Solvency II

MI

Harmonisation

Key changes

IFRS technical requirements

Group Reporting

IFRS 17

Components

CFs

Discounting

Risk Adjustment

CSM

Grouping of

Contracts

Presentation


IFRS 17 Architecture Considerations

Additional points

• IFRS 17 updates not just for financial reporting e.g. pricing models, capital planning, forecasting and scenario analysis

• Aggregate level calculations may need to be allocated to underlying cohorts e.g. manual adjustments

• Having more systems adds complexity and harder to make results available for all purposes

• Single system more efficient for companies with multiple actuarial models

Stage Actuarial Systems Accounting Systems

Cashflow Projection Native functionalityMany users and usages

Not a fit for accounting systems

Discounting Native functionality Simple to add for deterministic modelsMore complex for stochastic models

Risk Adjustment Typically set at a high level of aggregation and would need allocation to cohorts

Dependent on actuarial systems to calculate but could do allocation

Grouping by Cohort System updates needed Easy to aggregate using underlying databases e.g. tagging

CSM / Loss Tracking Inputs needed for prior reporting period data Tracking values is a natural fitLoss component requires calculation

Presentation Providing data only, not final accounts New chart of accounts neededDrill down and analysis can be added

Where should IFRS 17 be calculated?


Existing Solutions

Technology Vendors are designing solutions.

Programme Delivery


Agenda

Quantitative: How have other industries dealt with IFRS change –Deloitte IFRS 9 Survey

Qualitative: IFRS Programmes are complex in reality - lessons learned2

1


This survey captures the view of 91 banks from Europe, the Middle East and Africa, Asia Pacific and the Americas.

IFRS 9 Banking Survey

What do you see as the 3 biggest challenges faced by your IFRS 9 Programme?


Sourcing Data, data modelling and system architecture are seen as the biggest tasks required for implementing this IFRS.



The majority of respondents are expecting a change in existing systems or introduction of new systems.



The estimated total costs for full implementation has increased year-on-year as the programmes have developed over time.



What does a large IFRS Programme Structure look like?


Learnings from other projects, applied to the IFRS 17 programme, will affect the set up, planning and approach and will avoid common pitfalls.

Key Takeaways

Start early – No movement in Go-Live dates. Budget, resourcing or scope will need to be sacrificed if you fall behind

Define robust Business Requirements

Decide strategic versus tactical IT Architecture

Proper and regular communications with executive stakeholders. Simulate outputs early.

Implementation is a programme effort –continuous delivery focus required

Work with vendors/ advisors you trust

Others are struggling too – now is the time to attend plenty of events/ round tables

Simple, standardised, centralised. Design good, not great.

Integrated approach: IT, Actuarial, Finance, Change – One Team

Start with the end in mind – business readiness to the forefront

Capacity planning feeds reliable budgeting processes.

Remember – nobody has implemented IFRS 17 before – no tried and tested approach. What is best for your business

Closing Remarks


Experience with other projects of significant regulatory and financial reporting change has highlighted the need for careful planning. Implementation of IFRS 17 projects will require significant collaboration from Actuarial, Finance, Investor relations, Risk and IT functions.

How you could plan your IFRS 17 project

2017 2018 2019 2020 2021

Preliminary plan, design and budget approval

Business and Financial Impact

Assessments

Revised plan and design

Staff Training

Implementation (Actuarial models, Finance systems,

Systems integration, Data sourcing, Data repositories, Data flows, Process and

control redesign etc.)

Check / UAT / user

training

Transition

Finalise comparatives

Finalise OBS

Parallel runs

Go Live!


Takeaways

1) Start Small, Start Early & Keep it Simple

2) Expect an explosion of Data volumes and IT spend on system changes to accommodate these volumes

3) Not just a Finance or an Actuarial project. Mobilise a cross functional team incorporating everyone impacted by IFRS 17


IFRS 17 Team

Contacts

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a private company limited by guarantee, and its

network of member firms, each of which is a legally separate and independent entity. Please see

www.deloitte.com/ie/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its

member firms.

With nearly 2,000 people in Ireland, Deloitte provide audit, tax, consulting, and corporate finance to public and private clients

spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings

world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex

business challenges. With over 210,000 professionals globally, Deloitte is committed to becoming the standard of excellence.

This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, Deloitte Global Services Limited, Deloitte Global Services Holdings Limited, the Deloitte Touche Tohmatsu Verein, any of their member firms, or any of the foregoing’s affiliates (collectively the “Deloitte Network”) are, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

© 2017 Deloitte & Touche. All rights reserved

http://www.deloitte.com/ie/about

Download - IFRS 17 Insurance Contracts Breakfast Briefing Series · 2020-02-12 · IFRS 17 Insurance Contracts Introduction & Context Assumption that insurers have started their IFRS 17 journey

Top Related