WTW Survey: IFRS 17 disrupting business as usual for insurers
Insurers have revealed major post-implementation challenges still need to be overcome after reporting their half-year 2023 results under IFRS 17 for the first time, according to a worldwide survey by WTW (NASDAQ: WTW).
The study, which polled 235 insurers from 37 countries/markets and is believed to be the industry’s most comprehensive IFRS 17 survey, includes 160 (68%) reporting for the first time during 2023.
Key findings:
IFRS 17 progress: While material progress has been made, survey participants state that much work remains post-implementation.
Major challenges ahead as IFRS 17 moves into production: Data, availability of skilled resources and systems/technology remain the three greatest challenges.
Barriers to understanding and explaining results: Only 55% of 2023 reporters feel “very confident” in explaining IFRS 17 simple scenario results to senior management or investors. This falls to only 18% and 9% when explaining complex scenarios and extreme scenarios respectively. More than half of 2023 reporters are not ready to perform business planning/P&L projections based on IFRS 17/9.
Far from “business as usual”: With almost 70% of 2023 reporters expecting a longer working-day timetable (WDT), most insurers recognised substantial work is required to move IFRS 17 into business as usual reporting to address critical issues. Besides shortening the WDT, this includes material system/process improvements, as well as developing a greater analysis and understanding of IFRS 17 results.
Dividend-paying capacity unaffected: Nearly all 2023 survey participants declared that dividend-paying capacity has been unaffected by IFRS 17.
The total cost faced by the global insurance industry to implement the IFRS 17 accounting standard is now estimated to be US$21-27bn. This represents a substantial 15% increase compared to the previous assessment made in 2022. Average cumulative programme costs for the largest multinationals are now predicted to be US$240m each, and US$30m each for the remaining insurers.
Kamran Foroughi, Global IFRS 17 Advisory Leader at WTW, said: “With insurers facing hefty costs to implement IFRS 17, future investments need to be strategic and targeted, delivering quick and tangible benefits. Substantial operational efficiencies also need to be found to maximise the benefits of IFRS 17 and move the reporting into business as usual.”
Leading Canadian life insurance companies jointly release an update on the new IFRS 17 accounting standard
Three Canadian life insurance companies, Great-West Lifeco Inc., Manulife Financial Corporation and Sun Life Financial Inc., (together referred to as the “Companies”), jointly announced today that they have released a document entitled “Overview of earnings presentation and reporting under the new IFRS 17 accounting standard” regarding IFRS 17, Insurance Contracts, which takes effect on January 1, 2023.
The adoption of this global accounting standard is expected to enhance the reporting of insurance business under IFRS as issued by the IASB. The Companies note that the adoption of IFRS 17 will not change the underlying fundamentals of their businesses, their financial strength, or ability to pay claims.
The document provides the Companies’ collective view on certain presentation and reporting concepts expected under IFRS 17, including a simplified view of the income statement, an illustration of the drivers of earnings analysis, and definitions of select key performance indicators.
IFRS 17 delayed by another year – PwC comments
Commenting on the International Accounting Standards Board’s (IASB) decision today to further defer the effective date of IFRS 17 Insurance Contracts to 1 January 2023, Alex Bertolotti, global IFRS 17 leader at PwC, said: “The IASB’s decision to further defer the effective date to 1 January 2023 is a welcome one.
“It recognises the practical difficulties for many insurers in implementing the significant changes brought about by IFRS 17. The extra year gives some insurers a chance to consider how to derive more business value from their extensive IFRS17 projects.
“For others, it will de-risk the delivery timetable. The additional time will also be welcome as insurers consider how they can use IFRS 17 to tell a clearer and more understandable story about their company.” The IASB is expected to issue the amendments to IFRS 17 around the middle of the year.