As the 1st of January 2023 implementation deadline for IFRS 17 is fast approaching, African insurers and reinsurers are at various stages of their implementation processes. Whether you are a large or small (re)insurer, IFRS 17 is going to fundamentally change the way financials are being presented and have a drastic impact on your entity’s reporting processes. IFRS 17 touches on all aspects of the business. We certainly see Finance, Actuarial, IT and even Underwriting teams having to step up to the plate, but what about the Risk Management area? Do we have a part to play in this regime change?
IFRS 17 is often regarded as a standard to merely comply with, check the boxes, ensure it will pass an external audit, and move on. However, as risk professionals, we owe it to our entities to help them leverage any additional benefits from the significant financial outlay they are making. We should get them to see it as an investment and not a sunk cost. Over and above tracking the usual project execution risks, we as Risk Managers should be asking ourselves, “what can I be doing to help my organisation make the most of this change in regime?”:
Common Benefits of IFRS 17
A reminder of the commonly stated benefits of IFRS 17 to an individual entity:
a) It should be a truer reflection of your profits
b) It should be a catalyst for more collaboration between teams within an organisation
c) It should be an opportunity to streamline your processes and incorporate any much needed modernisation in your systems
d) It should allow for better governance within the organisation with better documentation and stated policies
e) With the large amount of data and central databases needed for quick reference, it should also allow for better consistency within teams, including terminology.
Benefits of IFRS 17 for Risk Managers
As Risk Managers working in the (re)insurance industry in Africa, we shouldn’t lose sight of these benefits. We should advocate for entities to view IFRS 17 from a value-add rather than a compliance perspective. If you think through some of the requirements, particularly splitting business into profitability groupings as well as focussing on the ultimate projection of profitability (not just reported to date), this standard actually opens up a huge opportunity for entities to better monitor performance in their books.
It is true, many African entities will struggle to comply, particularly as a lack of appropriate data and inadequate systems may inhibit their ability to do so. Those that are able to overcome this, and ensure professionals throughout their organisations are appropriately trained on the impacts of their actions as well as the value-add of IFRS 17 to the business, will reap significant benefits.
With IFRS 17, it will be more difficult to cross-subsidise within the financials, this will allow entities to better isolate poor-performing business from the rest of the book and put remedial actions in place faster for specific areas. If every entity can reflect on this and use the standard for what it is truly intended, overall, we will end up with much healthier (re)insurance companies across the continent, giving the insurance industry a much-needed boost.
As risk professionals, it will be up to us to work with business owners to identify such opportunities and build dashboards that will enable decision-makers to synthesise the information easily. This will enable the entity to identify the areas of the business which will need remedial attention, or alternatively, areas that could be growth opportunities.
Involvement of Risk Managers in IFRS 17 Implementation
On the flip side, from a regulatory and compliance perspective, there are indeed a few areas that will need risk management teams to be more involved. With IFRS 17 having a larger focus on the timing and uncertainty of future cash flows, there are many risk areas that have to be elaborated on in specific detail within the disclosures to the financial statements.
The risks usually expected during the course of insurance and reinsurance business for which the IFRS 17 disclosures are concerned include Insurance risks (pricing, reserving, catastrophe risk) and Financial risks (market, credit, liquidity risk). Now for each type of risk identified, IFRS 17 requires each entity to disclose both quantitatively and qualitatively:
• its exposure and how the exposure arises,
• its objectives, policies and processes for managing the risk, and the methods used to measure the risk,
• any changes in the above compared to the previous period.