IFRS 17

Is our (re)insurance industry going to comply successfully?

The implementation date of 1 January 2023 has come and gone.

Is the (re) insurance industry in East Africa ready? The short answer is: No.

Are we going to get there? Mostly yes, even if it is a patch work solution for many with post implementation work carrying on after. Insurers and reinsurers across East Africa are at different stages of readiness. Majority of the larger and listed players are in the phase of running numbers. However it is worth noting that running numbers alone does not indicate that the company is nearly there. For all companies, running their numbers ranges from testing sample contracts, to sample portfolios to full portfolio runs; and this entire process is immensely involving and iterative with feedback loop and remediation back to data, systems, approach, assumptions and outcomes themselves. If there is one thing we have learnt from more advanced insurance industries and players that are further ahead is that this phase can be anything from 6-12 months to 2- 3 years depending on the complexity of the business written. Given where we are, we simply don’t have this luxury of time. In this article we share our views on some of the most pertinent challenges companies are facing right now and how you can navigate these to ensure you keep your IFRS 17 project from getting derailed. 

Both internal teams and consultants are extremely stretched and there is key dependency risk on certain individuals. There is no magic formula here, but keeping your internal teams motivated will be vital. Consultants are also stretched and they are more likely to readily support companies that are doing their homework and working alongside the consultants as opposed to waiting for them to do everything - the latter of which can risk significant project delays.

We have often spoken about the scarcity of actuaries especially those with IFRS 17 experience. However, as more companies are running numbers and trying to prepare their chart of accounts and design their new disclosures, the need for IFRS 17 technical accountants is critical and these are equally scarce in our markets. Planning for this input and pre-empting the effort required will be important to ensure you lock down the right resource.

These exist across the board in varying degrees of severity. The ability to make sensible assumptions to compensate for this is critical to ensure the project keeps moving forward.

Given the complexity of the standard, reviews are as important if not more important in some cases than the work itself. Two key areas where we see the majority of the issues arising:

1. incorrect or misinterpreted data requirements and
2. model errors such as the model logic being wrong. You need to ensure that there is sufficient time for internal reviews, group reviews (where appropriate) and auditor reviews. Further you need to ensure these reviews are carried out by suitable individuals. Also, it is imperative that you bring the auditor along in the journey and ensure you are already engaging them; remember the audit test will likely be the toughest hurdle from a review perspective.

Directors, investors and other stakeholders are not only concerned about implementing IFRS 17 successfully, but also what happens to key metrics. Of particular importance are return on equity numbers, capital implications, changes to net asset values and tax obligations. Regulators in our region have not yet disclosed expected changes to regulatory reporting requirements, capital requirements and any revisions to tax computations, all of which creates more uncertainty. At the moment companies should focus on ensuring their stakeholders continue to have a deeper understanding and more familiarity of the IFRS 17 numbers so they can understand some of the other implications more readily as our industries move forward on these.

Most insurance companies seem to be spending more than they originally budgeted for and this is really what we had expected given the long term and complex nature of IFRS 17. This also aligns to what we have seen from the more developed insurance industries where players are further ahead. There is now a very short window to ensure you are compliant with IFRS 17 as year-end 2023 will be the first full year that will be audited in the new standard. Thus, companies will inevitably spend where there is need to ensure they meet this deadline. To ensure you are spending in the right places you need to ensure you have a strong internal team, led by the right individual(s) that immerse themselves in the project to understand the activities that need to be performed and gaps that exist.