Calculating global risks – how to overcome the challenges of staggered IFRS 17 deadlines

RNA Analytics Spokesperson – Alex Tsai, Head of Greater China

New changes are fast approaching financial reporting. With the arrival of IFRS 17, a completely new set of standards, calculations and criteria will apply. Following the recent extension of the implementation date, insurers across the globe are re-evaluating the input needed to transition from the old frameworks to the new.

Headline implementation will challenge many areas of business function for financial and actuarial teams. From adapting internal capabilities to managing the complexity and disruption that the new rules will bring about, IFRS 17 will induce an increase in balance sheet volatility and a need to attain accurate information with the necessary level of detail. In addition to these wide-ranging and difficult tasks, there is a considerable challenge posed by companies in different countries being at varying stages of readiness, which in itself could lead to more costly implementations.

Looking East, the picture is mixed when reviewing the levels of preparation and readiness. In Hong Kong, despite a prolonged period of civil unrest and more recently COVID19-related disruption, there is evidence of steady progress. Hong Kong is working to the global schedule, leaving insurers there with a two-year window until 2023. For global companies there with headquarters in Europe, preparations are thought to be going well. The same may not be said for local insurers, however, where a sense of urgency has not yet become apparent.

In Taiwan, meanwhile, implementation has been observed to be somewhat varied, with many insurers looking for a three-year extension until 2026 and regulators keeping a watchful eye on progress among local insurance organisations. Right now, firms are beginning to formulate implementation plans, which is itself a requirement of the local regulator as part of the monitoring process. In terms of its own deadline, therefore, progress seems positive.

In Mainland China, a local version of the standard will be released by the end of this year, despite some initial concerns about its adoption. Though the schedule for that is not yet firm, the industry is scaling up to have the resources to head it up both internally and externally.

Part of a cautious approach in the region has been to look at every detail of IFRS 17, as well as to learn from other countries. In the case of both China and Taiwan, they are looking to Korea (which is working to the global schedule). In that sense, these two countries are far from behind, and this efficient approach will save them time and resources in the long run.

IFRS 17 is set to have a considerable impact on revenue recognition and capital structure, something that many insurance companies in Taiwan and China have been conscious of for almost two years, in anticipation of the new standards.

Additionally, before IFRS 17 was introduced to this market, asset liability management was quite a new concept for insurance companies in Asia. This will have fundamental impacts on product offerings – particularly for those with direct links to investment portfolios. Whereas products in both Hong Kong and Taiwan already reflect some of these changes and moving forward, some will no longer be financially or operationally viable. It is also likely that life insurers will feel much of the pressure here, rather than non-life.

With much of the Asia-Pacific (APAC) region set to delay implementation by up to four years, there will of course be more time to think about the role that technology may play.  Many life and non-life insurers are showing a keen interest in all the latest developments in technology development for the arena, including a broader interest in the changing role of the actuary.

As it currently stands, with countries and companies at such different stages of preparation, there is much work to do before the original purpose of IFRS 17 can be fulfilled and utilised to its full potential. Such varied levels of progress with implementation makes reconciling numbers and providing investors with clear financial statements a very difficult task, both for insurers and investors.

For today’s life and non-life insurers, RNA Analytics has the consultancy expertise, the global reach and the ability to deliver bespoke, and scalable software solutions that help organisations overcome the challenges of IFRS 17. With a reach that extends from the UK across Europe and into South Korea, Taiwan, China, Japan and Hong Kong, our actuarial teams are poised and ready to support.