Some insurers are in the advanced stages of completion and in the process of moving IFRS 17 into business as usual (BAU) reporting, while those who have completed their IFRS 17 implementation have already disbanded their project teams. This means that preparing the publication of the first external quarterly, half-yearly, and annual results will be an immediate area of focus in 2023. As IFRS 17 statements are published for the first time, much scrutiny is expected by key stakeholders, shareholders, investors, competitors and regulators.
Q1 2023: what's happening now?
Insurers have been focusing on achieving their annual results for the 2022 financial year, the last set under IFRS 4. Many insurers have published the key accounting changes, including qualitative and quantitative impacts of IFRS 17, as part of their disclosures as required under IAS 8 in their 2022 annual results.
Insurers that do report on a quarterly basis will need to finalise their work on the preparation of their first IFRS 17 reporting and be ready to be published at the start of Q2 2023. These entities will be leading the way and will expect welcome scrutiny not only by analysts and the investor community but also the market participants and other stakeholders including regulators.
Achieving this has required continued effort throughout the quarter.
The agenda for the second quarter
For the majority of insurers, the first IFRS 17 results will be within their half-yearly reporting. This period will include a significant amount of communication with their auditors regarding external disclosures.
Published disclosures will include the opening IFRS 17 position, any adjustment to opening equity on the transition to IFRS 17 and the overall results under IFRS 17, along with a business review for the first half of 2023. The preparation and publication of the disclosures under IFRS 17 will require some level of education for relevant stakeholders (such as analysts, and investors) in order to familiarise them with the new metrics and avoid misinterpretations.
Recently, it's been observed that more insurers have come forward with a high-level impact analysis of IFRS 17 on the business, key accounting policies applied, impact on opening equity, dividend policy, and solvency position, however, more can be expected.
As the project period morphs into business as usual, insurers will need to ensure that necessary knowledge is retained post-closing, including any lessons learnt, and start planning the post-reporting cycle activities in their various project teams and programmes.
Key points for Q3
The majority of insurers will be externally publishing their first IFRS 17 disclosures. This will be the culmination of years of effort in developing new models and processes, ensuring transitions are clearly explained, and developing KPIs and presentations.
Half-year results tend to be pitched at a higher level; for the first set of detailed results, with the appropriate level of governance and controls. It will be when the financial year-end results are published in Q1 2024. Preparation for this complete year's reporting will commence during this quarter. Insurers will aim to conclude their strategic solutions and approaches, thereby replacing any tactical solutions adopted for HY 2023, where possible.
Communication with auditors regarding audit planning kicks off in this quarter, with the review of process, controls and governance around data and systems, and provisional Q4 assumptions and approaches. Insurers are likely to benchmark and/or compare the half-year results with their peers and the wider industry to assess their position. Final tweaks are expected to be brought in during this quarter.
A look ahead to the fourth quarter
Activities started in previous months will continue in Q4 2023, with auditors reviewing Q3 and drafting Q4 financial statements. Insurers’ focus will be on the technical details - derivation of Q4 and year-end technical assumptions and approaches. IFRS 17 is a very technical standard, which introduces a number of new technical concepts and approaches. For example, the central aspect of it's establishing a contractual service margin (CSM). Special efforts may be required to process assumption derivation in line with the methodologies adopted. Additionally, significantly more assumptions for different groups of contracts will need to be derived and agreed upon due to the granular calculation approaches under IFRS 17. The sustained effort during this last quarter shouldn't be overlooked.
IFRS 17 CSM analysis of change and the impact on KPIs
The outlook for the start of 2024
Insurers will be focusing on the production of their first financial year-end results, ensuring audit reviews are completed and relevant management information (MI) and key performance indicators (KPIs)/alternative performance measures (APMs) are compiled for internal and external stakeholders.
The run-up to this period is likely to involve a number of ongoing developments, support, and completion of activities to enable smooth and complete model runs, detailed, and clearly set out an analysis of change (AoC), enabling storage of required data volumes and ensuring appropriate governance, reviews and controls have been followed. We've set out below some of these activities:
Activities in the period leading to the first full year of IFRS 17 reporting:
- Improving and/or accelerating the Working Day Timetable (WDT)
- Updating and transitioning the MI pack on an IFRS 17 basis for the Board and senior management – the MI packs will include comparisons or bridges to IFRS 4 to draw performance parallels between the old and new regime
- Boards and Senior Management to have received appropriate IFRS 17 training on the interpretations of these new set of results – this training is expected to be continuously updated to allow for gaps based on any significant changes in the business (eg, new reinsurance contracts held arrangement)
- Developing and moving into financial planning and budgeting on IFRS 17 basis
- Reconsidering resources for finance teams (accounting and actuarial), particularly around the reporting (quarterly or half-yearly and annually) and considering appropriate team re-structure or organisational design
- Auditors will be keen to understand better the appropriate governance around processes and controls to mitigate any risks regarding IFRS 17 reporting
- Consideration of reinsurance arrangements and their potential impact on the IFRS 17 balance sheet
The activities above will be key over the period leading to the full first-year IFRS 17 disclosures and are likely to continue beyond this time.
What's happening in other markets?
Several jurisdictions have considered phased or delayed adoption of IFRS 17, eg, China and India. Insurers who already have implemented IFRS 17, will support their subsidiaries in such jurisdictions to implement IFRS 17 for local reporting.
As we embark on the first year post the effective date, we're confident in the progress the insurance industry has made to ensure a successful transition to one of the most complex accounting changes.
While the first set of IFRS 17 results appears to be the culmination of years-long development, we expect activities to continue throughout the year and beyond. Therefore, insurers should look to plan ahead for the year and ensure they are prepared to meet best practices.
For more insight and guidance, get in touch with Simon Perry and Natalia Mirin.
