IFRS 17 Implementation Survey: A case study for MFSA licenced firms

03/05/21

Introduction to this survey

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Demographics

Participants of the survey consisted entirely of insurance companies registered with the Malta Financial Services Authority (“MFSA”). We received a total of 45 responses from entities which varied in size and business type. The nature of the respondents can be summarised as follows

40% of total respondents issue contracts greater than 12 months

89% of total respondents write business predominantly outside Malta
71% of total respondents make use of outsourced management services in relation to their finance function
Respondents included a good mix of smaller insurers writing up to €4million (33% of respondents) and larger insurers writing above €40million of premium (45% of respondents).

31% of respondents indicated that they will be making use of the premium allocation approach (“PAA”) only while only 7% will solely choose the General Measure Model (“GMM”). The remaining 62% have either already decided on making use of 2 or more approaches, have selected one approach and might opt for additional approaches, or are undecided.

Level of Preparedness and IFRS 17 Section

Regulatory bodies have set the IFRS 17 implementation date to financial year 2023. We have assessed the preparedness of respondents in this regard.

67% of Respondents were very confident that their implementation will be ready with the remainder split between having some or most aspects still outstanding.

33%The local regulator asked companies to submit an impact assessment by the end of 2020 which included a request for financial impacts. At the time of responding (Q4 2020) almost a third of respondents indicated that they had not yet started working on this. Only 2% had completed the exercise.

31% of respondents have not yet evaluated whether their current systems are fit for purpose

Respondents who had completed their system evaluation (69%) were further asked to evaluate on the outcome of this process and responded as follows:

Respondents who indicated that they are purchasing a new system or outsourcing their systems development were asked if they already selected a vendor. The responses were as follows:

Skills and Resources

The implementation of IFRS17 is considered by many in the industry to be a challenging task. This section considers respondent’s approach in relation to this by analysing the company’s (human) resources, strategy for implementation, and future costs.

64% of respondents are not planning to increase headcount as a direct result of IFRS17. This is more pronounced for captive insurers.
73% of respondents do not have a process for estimating the cost of implementing IFRS17 or the process is only an indicative one.
When comparing expected IFRS 17 implementation costs to that of Solvency II respondents answered as follows:

It was interesting to stratify the responses by the respondents' expected IFRS 17 measurement approaches. We have noted that respondents that are planning to make use of Variable Fee Approach (VFA) indicated that they will also be using the GMM.

Furthermore, irrespective of model choice, insurance entities which outsource their finance function tend to assume lower expected costs for IFRS17 against Solvency. In fact, they form the majority of the “IFRS17 investment will be lower than that of Solvency II” population in the above graph. On the other hand, 54% of unmanaged entities believe that IFRS17 implementation costs will surpass Solvency II implementation costs and a further 23% believe that the costs for the two regimes will end up being similar.

When asked which department leads the IFRS17 implementation project, results varied. 29% respondents stated that their actuarial functions will be taking lead, while a further 29% of respondents indicated that it would be their accounting function. 36% of respondents are planning to consider a blended function approach. The remaining 6% of respondents selected external parties or specific groups to lead.

It was interesting to note that on the basis of responses received, actuarial functions are perceived to have the most ‘advanced’ knowledge of this accounting change. Boards and Committees on the other hand have a clear need to upskill with 64% of respondents indicating that knowledge is limited.

Respondents indicated that their actuarial function is most knowledgeable about IFRS17 and boards are least.

67%

of respondents stated that they will not be running any IFRS 17 training while 22% have already completed it. The remaining 11% are yet to start training or are undergoing it.

Respondents were asked which areas of their managerial structure they believe would be impacted by IFRS17. In aggregate, 87%+ of respondents believe that their actuarial, accounting, and IT related departments would be impacted. Interestingly, other areas do not (in aggregate) purpose the 5% mark.