The inaugural year for IFRS 17 implementation is upon us now. 1 January 2023 is a date that has echoed in the insurance industry for the last few years. One might expect that insurance companies, at least some, will open their 2023 books with IFRS 17 general ledger entries. However the reality in our region is far from it; there is much to be done by most insurers and the East African insurance industry at large to fully meet the requirements.
Top 10 questions that Boards and Senior management should be asking themselves:
Where are we against our implementation plan and do we need to rebase/ re-prioritise activities?
Do we have the right resources in place and what traction can they make in the first quarter?
Has our implementation partner dedicated the right resources to us?
Is our auditor aligned?
Do we have the right IFRS 17 engine in place?
Are the actuarial models updated?
Are we clear on our systems capabilities and enhancements required?
What is our communication strategy on the impact of the transition?
Do we understand the disclosure requirements and are we clear on what needs to be included in the FY 2022 accounts in relation to IFRS 17?
Are the budgets we set still appropriate?
Wherever you are in your IFRS 17 implementation journey, the above questions need to be answered. We share here our thoughts based on the wealth of experience working with clients locally and from the learnings of the projects across PwC globally.
1. Is the implementation plan still appropriate – given this is the year of implementation there is no room for inefficiencies or delays anymore. It is critical to ensure that the right activities are prioritized, whilst allowing for the multiple interdependencies and critical resources that are working on your IFRS 17 project.
2. Resources – This cannot be overemphasized! Individuals with IFRS 17 knowledge are limited and in very high demand. We have already seen musical chairs being played in the industry with significant movement of talent and intense head hunting. It is imperative that you manage your internal resources effectively to allow for a smoother implementation journey. It is also important to acknowledge that Q1 tends to be dominated by year-end and regulatory reporting work which puts added pressure on key staff.
3. Implementation partner – There is no secret that there is heavy reliance on consultants to support the implementation of IFRS 17. As a buyer of their services you have every right to ask and ensure that they will continue to provide you with dedicated resources.
4. Auditor – Ultimately IFRS 17 is a reporting standard and your auditor will need to sign off that you have met the requirements. So if you’ve not engaged your auditor yet, the time to do so is NOW! It is important to agree with your auditor a plan for the audit work which aligns with your implementation plan. Given the scale of IFRS 17, the areas of optionality and policy choices involved, early involvement of the auditor would only make the process smoother. Also, the year end 2022 disclosures need to include a narrative explaining the impact of the new standard; as such depending on the extent of the disclosures planned the auditors will certainly need to perform additional procedures and IFRS 17 related reviews.
5. IFRS 17 engine – Whether internally developed or externally procured, this needs to be in place. With the end in mind, the quicker you get to producing comparatives the faster you will understand the impact, be able to bring stakeholders along and appreciate the data and systems implications to the fullest. In our region, most insurers will use externally sourced tools - many insurance companies have already signed contracts with vendors. Whether you have identified the right tool or not, two things remain critical: one, ensure the tool you procure is fit for purpose for your business and two, that the tool provider is accessible!
6. Actuarial models – Actuarial models will need to be updated to meet the new measurement requirements. In particular, the outputs from these models will form inputs to the IFRS 17 engine. Some firms will have the capacity to update these internally, others will rely on consultants and some have considered outsourcing this in the short to medium term. Companies should ensure these models are robust and have been extensively and independently validated as they will likely have the most significant inputs feeding into the financial statements.
7. Data and systems – Anyone deep into the IFRS 17 implementation will unanimously agree that this is the pain and backbone of getting the implementation right. Most, if not all, insurance companies have spent significant hours extracting, validating and manipulating data to get it IFRS 17 ready. This is no mean feat. And this is not a one-off exercise; it is our new way of reporting. Systems upgrades, streamlining data processes and automation needs to be prioritized to allow for timely reporting in a business as usual context. Otherwise insurance companies will be spending weeks on end obtaining data at each reporting period.
8. Communication strategy – A fundamental aspect of this preparation is how you communicate the impact of this transition to external stakeholders - investors and users of financial statements - with clarity and transparency. Some of the salient information you should ensure you communicate to the market includes:
- comparison with IFRS 4 and current regulatory reporting
- changes in accounting policies and significant judgments,
- impact on existing KPIs, the new KPIs and what they mean for the business
- status on the progress of IFRS 17 implementation
9. Disclosures – IFRS 17 materially changes the entire financial statements including both the quantitative and qualitative disclosures. With this being the year of implementation, it is crucially important that the disclosures are well thought out and designed as early in the year as possible (if not done so already). This gives clarity to all the stakeholders involved as to the end goal and allows core project teams to ensure that their work being done can produce the disclosures needed. Also remember that your year end 2022 financial statements will need to include IFRS 17 related disclosures to provide a narrative explaining the impact of the new standard.
10. Budgets – What we learnt from our region and globally during the implementation of IFRS 9 for banks is that initial budgets created were not sufficient and for most banks more money was spent in the implementation and post implementation stage. We are already seeing this with IFRS 17 globally, where companies that have advanced further have been spending more than originally planned. Whilst we have the benefit of learning lessons from these advanced markets, it is important to remember that a project of this magnitude can readily demand more monetary resources. The way to reign this in as much as possible is ensuring it is spearheaded by the right individual(s) in the organization and having effective oversight and governance over the project.
Year end 2023 will be the first full set of accounts we will look at on an IFRS 17 basis. For many that are not far into their implementation journey these will be cobbled together like a patch work solution to meet the requirements. Others that started early and have dedicated resources will fare better. Either way, we do expect there will be IFRS 17 post implementation work that will carry on for the coming few years as we fully appreciate the standard and bed it down across the industry.
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