IFRS 17 Insurance ContractsBreakfast Briefing Series5 September 2017
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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
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IFRS 17 Insurance Contracts
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
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IFRS 17 Insurance Contracts
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
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IFRS 17 Insurance Contracts
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 …
• Key observation …
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• Key observation …
• Key observation …
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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
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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
IFRS 17 Insurance Contracts
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IFRS 17 Insurance Contracts
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
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IFRS 17 Insurance Contracts
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
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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
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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
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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
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Drivers of complexity
Impact on data and systems
Why is data such a huge issue for IFRS 17?
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Drivers of complexity
Impact on data and systems
More reporting due to explicit
building blocks
Why is data such a huge issue for IFRS 17?
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
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Drivers of complexity
Impact on data and systems
More reporting due to explicit
building blocks
Why is data such a huge issue for IFRS 17?
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
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Drivers of complexity
Impact on data and systems
More reporting due to explicit
building blocks
Why is data such a huge issue for IFRS 17?
Calculation and reporting of
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
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Drivers of complexity
Impact on data and systems
More reporting due to explicit
building blocks
Why is data such a huge issue for IFRS 17?
Calculation and reporting of
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
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Drivers of complexity
Impact on data and systems
More reporting due to explicit
building blocks
Why is data such a huge issue for IFRS 17?
Calculation and reporting of
CSM
Granularity of accounting
disclosure and postings
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
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Drivers of complexity
Impact on data and systems
More reporting due to explicit
building blocks
Why is data such a huge issue for IFRS 17?
Calculation and reporting of
CSM
Granularity of accounting
disclosure and postings
Need for historical data on
transition
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The following are some critical data a data management impacts resulting from 17 requirements
Impact on data and systems
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
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In order to business impact assess the IT infrastructure you should ask yourself three key questions…
Impact on data and systems
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?
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You might include the following business needs resulting from IFRS 17
Business Requirements at a glance
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Impact on data and systems
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.
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Other key considerations to carry out the impact on IT infrastructure are as follows…
Impact on data and systems
• 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
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Impact on data and systems
• Data centralisation solutions
− DWH
− Unstructured database
− Sub ledgerC
om
pan
y A
Co
mp
an
y C
Co
mp
an
y B
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Summary
Impact on data and systems
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
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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
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“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
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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
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“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
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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?
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Existing Solutions
Technology Vendors are designing solutions.
Programme Delivery
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Agenda
Quantitative: How have other industries dealt with IFRS change –Deloitte IFRS 9 Survey
Qualitative: IFRS Programmes are complex in reality - lessons learned2
1
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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?
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Sourcing Data, data modelling and system architecture are seen as the biggest tasks required for implementing this IFRS.
IFRS 9 Banking Survey
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The majority of respondents are expecting a change in existing systems or introduction of new systems.
IFRS 9 Banking Survey
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The estimated total costs for full implementation has increased year-on-year as the programmes have developed over time.
IFRS 9 Banking Survey
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What does a large IFRS Programme Structure look like?
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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
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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!
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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
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IFRS 17 Team
Contacts
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