IFRS17/9 Steering

 

With the introduction of IFRS17, the core foundation of insurance companies changes to an economic accounting approach. Swiss Re have proposed that modeling every business activity with a consistent economic model be at the center of the organization in the publication ‘The Economics of Insurance at the beginning of the century.’

In the years following, mainly driven by the construction of internal models, more insurance companies started adopting the idea in their own environment. However, the outside perspective to investors and other external stakeholders remained a nominal accounting view. This led to discrepancies between the internally used economic model and the externally used nominal KPIs. Ultimately resulting in messages becoming blurred because certain business decisions made sense in an economic view, but not in a nominal view.

With the introduction of IFRS17/9, external reporting will be based on an economic accounting approach. This implies that the internal and external view of the business will be harmonized. Communication of the business plan and the performance metrics will incorporate the same model internally and externally.

Leverage your Investment

 

To date, IFRS17/9 implementations have cost most companies millions, and the question is how such big investments can be monetized going forward. We have seen with many of our advanced clients how beneficial an economic model is in the center of the company, and how you can create a full business steering framework to leverage the economic model for literally every activity performed in the company.

Ideally the economic model follows the entire lifecycle of the business from:

  • Planning
  • Pricing and underwriting the business
  • Reserving / valuation
  • Accounting
  • Risk management
  • Performance measurement (actual vs plan)

So that the impact of every business decision can be quantified in terms of its impact on the economic balance sheet of the company.

Adapt the Existing Business Processes

 

The existing processes for business planning, performance measurement, liquidity planning, dividend planning, are based on IFRS4. All these business processes along with many others need to be changed and adapted to the new IFRS17 standard.

We provide you standardized models for all your business processes under IFRS 17/9 to get you started with planning and performance measurement after going live in Q1 2023.

Use cases

 

Performance Management

Performance management is the basis for successfully steering an insurance company. Historic performance should influence future business plans, pricing, as well as risk management. Monitoring the economic value of the company is also essential for managing capital and capacity levels and is important for investor communications.

The methodology used in performance measurement should be the same as that used in valuation and accounting. This ensures minimal discrepancies between the internal and external view of the performance of an insurance company. Old KPIs used to evaluate performance will lead to a discrepancy between internal and external view, and we recommend discontinuing legacy KPIs.

Because IFRS17 has been designed for accounting, the interpretation of company performance must be elaborated and applied. The Systemorph IFRS17 Steering module has been optimized for performance measurement under IFRS17. It contains pre-defined KPIs and lets companies using it also implement their own custom KPIs.

Business Planning
The IFRS17 standard includes a notion of ‘New Business,’ which reflects only additional business generated from existing policies. ‘Actual New Business,’ recorded in the business plan, is not included in the standard.

For proper business planning, existing IFRS4-based planning processes need to be replaced in 2023 by new planning processes feeding into the IFRS17 balance sheet projections. Ideally, the planning process can be combined with the calculation engine to deliver a variety of projections over a certain planning time horizon. This leads to effective planning of all the company financials such as:

  • Liquidity planning
  • Capital planning (including dividend payments)
  • Capacity planning

We accompany you on your journey into the new economic model beyond the closing process to ensure you can best leverage the investment you have made into IFRS17/9.