Strategic perspectives on IFRS 17

What insurers should be thinking about now (and maybe are not)

Insurance companies are currently struggling through the technical detail, identifying the impacts from this new standard on their data flows, actuarial models and systems, as well as the processes and controls in place. Yet, a critical consideration is to address the strategic consequences of IFRS 17.

This article will first discuss the strategic choices that have to be made with respect to the IFRS 17 implementation, taking into account the operational
impact. Thereafter, this article will focus on the investor story and the perspective of insurance sector investors and analysts, through the dividend capacity linkage to IFRS earnings and the CSM at transition.

Strategic choices regarding the implementation of IFRS 17

IFRS 17 results in a fundamental revisiting of the financial reporting processes of insurance companies that are reporting under IFRS, with impacts that go beyond the finance domain. IFRS 17 requires much more data at a more granular level, which is a big driver for operational impacts.
The first question that comes up can be: what is the ambition of the IFRS 17 implementation? Is the aim to have a minimum viable solution, having as few operational impacts as possible, or is IFRS 17 the driver of a fundamental Financial Transformation? The latter should lead to a more automated, robust and controlled end-to-end financial reporting process, deriving greater benefits from the greater insights that IFRS 17 is meant to enable. Some insurers are choosing to align different reporting frameworks for efficient and effective reconciliations as a way of getting more benefits from what can be seen as a sunk cost of compliance.

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