Integrating Implementation For IFRS 17 And LDTI
Integrating Implementationfor IFRS 17 and LDTI
Integrating Implementation for IFRS 17 and LDTI International Financial Reporting Standard (IFRS) 17, issued bythe International Accounting Standards Board (IASB) in May 2017,introduces for the first time a single insurance accounting modelfor all types of insurance contracts under IFRS. The key objective isto make insurance accounting transparent and consistent acrossthe globe and align insurance accounting with IFRS accountingof other industries to improve comparability. As of now, over 120countries have adopted or permitted IFRS 17.U.S. is one of the few countries that have decided not to adopt IFRS17. In fact, in August 2018, the U.S. Financial Accounting StandardsBoard (FASB) issued its own Accounting Standards Update(ASU) 2018-12, also known as Targeted Improvements for LongDuration Contracts (LDTI). LDTI amends the existing accountingrequirements under US Generally Accepted Accounting Principles(USGAAP) for certain long-duration insurance contracts such aslife insurance, disability income, long-term care, and annuities. Itrepresents the most significant change in the past four decades tothe U.S. insurance accounting framework.Both IFRS 17 and LDTI are expected to be effective starting January20221. The U.S. is the largest insurance market in the world wherealmost all large global insurers have a footprint. U.S. multi-nationalinsurance companies have extensive operations in countrieswhere local IFRS reporting is mandated and USGAAP reportingis not acceptable for compliance with local laws. Against thisbackdrop, having a different U.S. insurance accounting standardcreates some complications and challenges. Specifically, for thosepublic companies headquartered in the U.S., their internationaloperations need to file under USGAAP for consolidated reporting thus need to implement LDTI, while having to implement IFRS 17for local country reporting. For those public companies operatingin the U.S. but headquartered in a country that adopts IFRS 17, theU.S. subsidiary will need to implement LDTI if it’s a SEC registrant,while supporting its parent for IFRS 17 reporting.In addition, there are other changing regulations globally thatcompound the challenges for global insurers, such as changesin local capital regulations (Hong Kong RBC, Korea ICS etc.),U.S. FASB’s current expected credit loss (CECL) model, andU.S. statutory modifications toward principal-based reserving.These changes demand substantial implementation efforts thatcan squeeze an organization's limited finance, IT and actuarialresources. It also creates opportunities to leverage intersectionsof these regulations to maximize synergies and resources forimplementation time and cost savings. In this new issue of DeloitteInsurance Accounting Insights, we will focus on synergies that canbe gained through the integrated implementation of IFRS 17 andLDTI for global insurers affected by both standards.Comparing IFRS 17 and LDTIIFRS 17IFRS 17 is applicable to insurance and reinsurance contractsissued by a company, reinsurance contracts that a company holds(“ceded reinsurance”), and investment contracts with discretionaryparticipation features (“DPF”) that it issues, provided that thecompany also issues insurance contracts.Figure 1: IFRS 17–Summary of General Measurement Model (often referred to as the Building Block Approach)1. Both the LDTI and IFRS 17 Regulation are currently in the process of a public due process regarding their effective dates. This publication is written with theanticipation that both proposed dates of 2022 will be confirmed at the end of the consultation process.02
Integrating Implementation for IFRS 17 and LDTI There are variations and simplifications for certain insuranceproducts but the General Measurement Model is essentially theone model that is introduced under IFRS 17. This model utilizescurrent assumptions, and includes a risk adjustment for nonfinancial risks and a contractual service margin that releases overtime into profits. It requires identification of contract groups at avery granular level for measurement purpose, at which profits andlosses are recognized. There are also significant changes on thepresentation and disclosures of financial information. On 26 June2019, IASB published an Exposure Draft, 'Amendments to IFRS 17'to address concerns and implementation challenges. The ExposureDraft’s publication follows an assessment of 25 concerns, identifiedduring the IASB's meeting in October 2018, of areas of IFRS 17that global stakeholders recommended to the IASB for potentialimprovement. Following its assessment, the IASB has proposed anumber of targeted amendments, including a one-year deferral ofthe IFRS 17 effective date to 1 January 2022. Comments were dueby 25 September 2019.2Our analysis shows that while US GAAPis moving closer to a current valueframework, for long-duration contracts,there are still fundamental differencesin the framework between IFRS 17and LDTI. LDTIThe goal of LDTI (or ASU 2018-12) is to improve, simplify, andenhance the financial reporting of long-duration contracts,providing users with more useful information about the amount,timing and uncertainty of cash flows. Figure 2 provides an overviewof the changes.LDTI introduces significant changes on the valuation of longduration contracts, including the use of current cash flowassumptions and discount rates, a new retrospective unlockingapproach for liability for future policy benefits, simplification of theDAC model, and introduction of a new concept called market riskbenefit that’s subject to fair value measurement. The end resultof these technical impacts is a significant increase in financialstatement disclosures. New disclosures covering significant detailon liability roll-forwards, separate account, market risk benefitattribution, and DAC roll-forwards will be required under LDTI.Comparison of Accounting RequirementsIn order to assess the operational overlap in implementing the twostandards, Deloitte compared conceptual frameworks and keytechnical areas of IFRS 17 and LDTI. Our analysis shows that whileUS GAAP is moving closer to a current value framework, for longduration contracts, there are still fundamental differences in theframework between IFRS 17 and LDTI.Figure 2: LDTI—Summary of Targeted Improvements and The Impact2. Deloitte responded to the IASB’s proposed amendments in a comment letter that can be found here: mentletters/2019/ifrs-1703
Integrating Implementation for IFRS 17 and LDTI Figure 3: Key Differences between IFRS 17 and LDTIIn addition to the key methodology and conceptual differencesnoted above, for requirements surrounding technical topics suchas discounting, disclosures, and liability components (IFRS 17building blocks versus LDTI future policy benefit liability, marketrisk benefit, and deferred profit liability), there are also varioustechnical differences between the two standards. Due to themany conceptual and technical differences, there is no easyway to identify the deltas or any shortcuts to derive results forone standard based on those for the other. While it may seemnecessary to carry out two separate and parallel implementationefforts, we believe there are a number of operational synergies inan integrated implementation journey for the two standards.Leveraging Operational SynergiesThe new IASB and FASB pronouncements will have a pervasiveimpact on global insurers’ operating model. Because both FASBand IASB approaches address similar considerations, companiesthat need to dual-adopt are finding opportunities for synergiesas they refine their approach to implementation. They will beable to align policy decisions while simultaneously adopting bothstandards without needing to worry about two separate fullimplementation plans.We believe there are a number ofoperational synergies in an integratedimplementation journey for thetwo standards.For several areas—especially as it relates to process design,modeling system/technologies, data availability and storagecapabilities, and reporting solutions—the work companies doto prepare for IFRS 17 compliance may be able to be leveragedfor LDTI to enhance efficiencies, increase cost savings, reduceresource requirements and, limit the amount of reworks and timeneeded to reconcile the results of the two standards.04
Integrating Implementation for IFRS 17 and LDTI Processes and System DesignGiven the accounting changes prescribed by these standards,insurers may seek to leverage similar processes across bases. Forexample, they may leverage a centralized method and approach toderiving discount rates for LDTI and IFRS 17 discounted cash flows.In such scenarios, although the standards may apply differentrates and apply the rates in different projection tools, convergingthe process to deriving these rates will facilitate a more integratedenvironment and eliminate the need for parallel businessprocesses and controls. Additional process changes that may bemade consistently across standards may include: Certain actuarial software vendors offer projection or valuationmodels for these standards that, while separate modules, offersolutions that can operate under a single control andtechnology environment. System logic and account mapping changes may be updatedin conjunction across standards to support technical reportingrequirements. Several finance software vendors have specializedcalculation solutions for IFRS 17 and also for LDTI to some extent. To the extent that a single vendor solution is used in the valuationof liabilities for LDTI and IFRS 17, the related process flow – fromdata origination in administrative systems through posting intothe general ledger – can leverage similar interfaces and handoffsto ensure consistent transformation routines. Consolidation of data repository and reporting solutions canenable consistent back-end storage, reporting, and analysis.In these instances, the processes, controls, and target operatingmodels that reflect changes to the reserving, finance, and reportingprocesses can be designed to govern across standards and basesof accounting.Actuarial Systems and ModelingSpecific modeling and valuation applications may be needed tosupport updated estimations, risk adjustments, and discount ratesassociated with these standards. While likely to require separatemodeling modules to execute the disparate reservingmethodologies, the best estimates cash flow generation enginemay remain consistent for both standards. LDTI and IFRS 17 mayrequire insurance-specific vendor decisions and softwareintegration for compliance. As a result, modeling alternativesshould be contemplated in tandem so that multiple reservingplatforms or procurement of multiple modules are not required tosupport the standards Data Quality and IntegrationData will play a central role in the implementation of bothstandards. These regulatory changes each require calculations toconsider additional data by requiring insurers to unlock liabilities.In addition to the frequency at which these standards requireupdates/unlocks to their calculations, insurers will face greater dataneeds to execute these calculations: LDTI liability calculations may require significantly larger datavolume and granularity of data as the standard states thatcohorts cannot “group contracts from . . . different issue years but[must] group contracts into quarterly or annual groups.” This maysignificantly increase the number of cohorts—and correspondingcohort-level data—from current US GAAP. Disclosures will alsosignificantly increase the volume of data through the need toproduce granular disaggregated roll-forwards acrossinsurance balances. IFRS 17 will require significantly more data due to the need tomeasure and report insurance liabilities under the variantsof the building block approach, increased use of market datacompared to prior IFRS requirements, the requirement tosegment portfolios based on annual profitability groups, and therequirement for a new method of presenting insurance revenue.IFRS 17 disclosures will also require more extensive disclosuresthan are currently required.Additionally, because LDTI and IFRS 17 requirements areadopted retrospectively and require an intensive review of bothhistorical loss data, current conditions, and forecast/projectionresults, additional IT resources may be needed to support theimplementation of the standards. New data extracts, processes,reconciliations, and controls will be required as an input to futurestate reserving processes. Back-end data storage and reporting tothe ledger will need to be updated, scaled, and ideally automated.As a result, these new requirements will significantly impact theneed to extract, manage, and store data. By considering the needscollectively, insurers may favour common technology solutionssuch as data warehouses or unstructured databases with thecapabilities to address the new additional data needs.Financial Reporting and DisclosuresLDTI and IFRS 17 require insurers to expand on existing disclosurerequirements. Under LDTI, future required disclosures includedisaggregated tabular roll-forwards, reconciliations to core financialstatements, and other statistical information across insurancebalances on a quarterly and annual basis. Similarly, IFRS 17 requiresnew detailed roll-forward disclosure tables to be published, at leastat an operating segment level, and a reconciliation of the balancesheet items and movements to the respective financial statements.05
Integrating Implementation for IFRS 17 and LDTI To comply with these requirements, companies’ reporting andgovernance frameworks may need to be redefined or new toolsmay need to be implemented to facilitate an efficient reportingprocess. Defining a new architecture for the data repository,sub-ledger, and general ledger should be at the center of insurers’reporting strategy as strong solutions will facilitate a smoothproduction run and minimize the operational risk of generatingthese additional disclosures. New required roll-forward disclosures will increase the amount ofanalysis and the number of model runs Analyzing these disclosures and determining a managementreporting framework will allow actuaries to design, automate,and minimize the number of runs needed to perform these rollforwards and analysis.–– LDTI prescribes that the assumption unlocking should occur atthe beginning of the period–– Under IFRS 17, the order of operations for roll-forward are notprescribed outside of CSM amortization.–– Companies should consider whether assumption unlocking forIFRS 17 also should occur as of the beginning of the period inorder to minimize the number of runs required. Similar synergies would exist for reporting actual experienceand ensuring a consistent order of operations will be vital tominimizing the number of required valuation runs.Policy DevelopmentAccounting/Actuarial policies will need to be established/modified.Under both standards, assumptions are required to stay current.Data sourcing for discount rates, the technique to develop ayield curve and a unit of account are common topics for whichaccounting policies can be designed in an integrated fashion.Assessing functional impactsEach of the standards may individually drive changes in the wayinsurers manage their business, as many anticipate significantshifts in the timing and volatility in which earnings will emerge.Certain functions sit at the intersection of these impacts. Toeffectively manage these changes, functions may need to reevaluate the tools and analytics currently applied in today’sdecision-making processes. While these changes will be felt acrossthe organization, the following represent those functions that maybe most impacted by the intersection of the changes: Investment management: Insurers with a more US GAAPcentric investment strategy may consider adjustments to theirasset portfolios and derivative/hedging strategies given thede-linking of the asset portfolio from the liability discount rateunder LDTI. However, even those with an IFRS-focused strategymay seek to refine their investment strategy in consideration ofvolatility shifts across accounting bases. Risk management: Many insurers heavily leverage reinsuranceas a means of managing risk and/or earnings patterns. Underthese standards, insurers may therefore seek to evaluate their US GAAP-basis and IFRS-basis impacts to determine whetheradditional reinsurance is desired to more effectively managetheir risk. Product design and pricing: On a US GAAP basis, the delinking of the insurance discount rate from the asset portfoliowhen measuring earnings for post-adoption business and theprospective LDTI measurement models may cause insurers tore-evaluate their pricing on current and future products. On anIFRS-basis, insurers will similarly face a new measurement modeland may consider shifts in their portfolio pricing and risk appetitedue to the IFRS 17 requirement to segment based on profitabilityat initial recognition date. Treasury/capital management: Under US GAAP and IFRSaccounting, insurers may experience significant shifts in volatilityof both earnings and equity that could impact leverage targets,capital flexibility, required capital, hedging, and cost of capital.Under LDTI, macroeconomic assumptions that were lockedin the previous USGAAP accounting for certain business willbe periodically unlocked under LDTI. IFRS 17 also introducesa greater use of market data to update assumptions usedin determining the contractual service margin of the relatedcontracts and could therefore impact company-specificcapital management.Given the scope of these changes, a broad plan that effectivelyleverages the interdependencies between these standards canhelp insurers manage the changes both at adoption date andprospectively. Understanding the comparison and synergiesbetween the two standards can also help insurers better explainand rationalize the differences in IFRS 17 vs. LDTI earnings. Tofacilitate a more effective implementation, insurers should reviewtheir respective impact assessments to identify areas of overlap,and leverage those in pursuit of an integrated, end-to-end designto implement multi-purpose processes and controls that convergeacross standards.Moving forwardSmart compliance seeks the optimal trade-off between achievingminimum compliance and a desired level of sustainable futureefficiencies. Considering the timeline for implementation, thebreadth of the prescribed changes, and companies’ time andresource constraints, some insurers plan for short-term solutionsthat will enable required reporting. However, others are lookingto broaden and modernize their minimum compliance effortsto develop an effective future-state operating model. Whileachieving full modernization prior to the new standards’ effectivedates is likely to be unfeasible for many of these insurers, inparticular those global insurers subject to both IFRS 17 and LDTI,those working to kick-start smart compliance will evaluate theircurrent framework for capability gaps and then balance thecost and timeline implications to realize maximum value fromtheir implementation efforts. IFRS 17 and LDTI address similarconsiderations, this basic fact gives a logical basis for companiesthat need to dual-adopt to actively consider leveraging potentialsynergies between the two standards in theirimplementation planning.06
Integrating Implementation for IFRS 17 and LDTI Your contactsDarryl WagnerPartnerActuarial & Insurance SolutionsUnited States 1 860 725 3165dawagner@deloitte.comLarry DanielsonPartnerTechnology & OperationsUnited States 1 973 602 5290ldanielson@deloitte.comHui ShanSenior ManagerActuarial & Insurance SolutionsUnited States 1 860 725 3606hshan@deloitte.comGlobal IFRS Insurance NetworkFrancesco NagariPartnerGlobal IFRS Insurance LeaderChina 852 2852 1977fnagari@deloitte.co.ukDavid Ogl
Insurance Accounting Insights, we will focus on synergies that can be gained through the integrated implementation of IFRS 17 and LDTI for global insurers affected by both standards. Comparing IFRS 17 and LDTI IFRS 17. IFRS 17 is applicable to insurance and reinsurance contracts issued by a company, reinsurance contracts that a company holds
(a) IFRS 9 Financial Instruments (Part A); and (b) IFRS 15 Revenue from Contracts with Customers (Part B). Introduction 2 IFRS 17 is effective from 1 January 2021. An insurer can choose to apply IFRS 17 before that date but only if it also applies IFRS 9. 3 The paper considers components of IFRS 9 and IFRS 15 that are relevant to the
IFRS 17 basics IFRS 17 is the new accounting standard for Insurance Contracts published 18 May 2017 Replace the interim standard IFRS 4 (not standardized across jurisdictions) EU endorsement still under process Go-live 1st January 2022 18 May 2017 IFRS 17 Publication Effective application of IFRS 17 & IFRS 9 1st January 2022 IFRS 17 Go-live ! Transitory
1 Overview of IFRS 9 and implementation plan in Thailand 2 IFRS 9 Classification and Measurement 3 IFRS 9 Impairment 4 IFRS 9 Hedge accounting 5 Transition requirements (with applying IFRS 9 with IFRS 4 phase II) 6 Concluding remark
New IFRS Standards—IFRS 16 Leases Page 1 of 26 . Agenda ref 30E STAFF PAPER June 2019 IASB Meeting Project Comprehensive review of the IFRS for SMEs Standard Paper topic New IFRS Standards—IFRS 16 Leases CONTACT(S) Yousouf Hansye ykhansye@ifrs.org 44 (0) 20 7246 6470
IFRS and US GAAP: similarities and differences IFRS first-time adoption IFRS 1, First-Time Adoption of International Financial Reporting Standards, is the standard that is applied during preparation of a company's first IFRS-based financial statements. IFRS 1 was created to help companies transition to IFRS and provides practical
Bruksanvisning för bilstereo . Bruksanvisning for bilstereo . Instrukcja obsługi samochodowego odtwarzacza stereo . Operating Instructions for Car Stereo . 610-104 . SV . Bruksanvisning i original
Adopting IFRS – A step-by-step illustration of the transition to IFRS Illustrates the steps involved in preparing the first IFRS financial statements. It takes into account the effect on IFRS 1 of the standards issued up to and including March 2004. Financial instruments under IFRS – A guide through the maze
academic writing setting and culture in their respective learning establishments do not prepare them for the conventions of English writing. Abbas (2011) investigated metadiscourse terms and phrases to understand the socio-cultural variances of Arabic and English-speaking researchers. Abbas analysed seventy discussions of linguistic academic journals composed by native speakers of Arabic as .
