2016年-普华永道全球_The_wait_is_nearly_over__IFRS_17_is_coming_are_you_prepared_for_it__6页_269kb

IFRS 17: The Wait is Nearly Over?

Core Content

IFRS 17, previously known as IFRS 4 Phase II, is a new insurance contracts accounting standard that is expected to be issued in early 2017 with an effective date of 2021. This standard will significantly change how insurers account for insurance contracts, introducing a more consistent and transparent approach compared to the current IFRS 4, which allows for a wide variety of accounting policies.

Main Points

• Standard Overview: IFRS 17 applies to all insurance contracts and introduces the Building Blocks Approach (BBA), a discounted cash flow model with a risk adjustment and deferral of up-front profits through the Contractual Service Margin (CSM), which cannot be negative.
• Key Changes:
  • Profit recognition will be based on changes in the initial building blocks.
  • Changes in future cash flows and risk adjustments are recognized in the CSM, while changes in past and current services affect the income statement.
  • Discount rate changes can be recognized in Other Comprehensive Income (OCI) or Profit and Loss (P&L), offering a way to reduce volatility.
• Alternative Models:
  • PAAA (Participating Accounting Approach): For participating business where policyholder liability is linked to underlying returns.
  • Simplified Model: For short-term contracts (coverage period up to one year), similar to unearned premium accounting.
• Impact on Different Contracts:
  • Applies to long-term and whole life insurance, protection business, inflation-linked annuities, US-style universal life, reinsurance, and certain general insurance contracts.
  • Short-term general insurance, life and group contracts, unit-linked, variable annuities, and equity index-linked contracts are also covered.
• Challenges:
  • Implementation Complexity: The transition will be challenging and may require more than three years.
  • System and Data Requirements: Increased granularity and retrospective analysis of data.
  • Resource Planning: Need for internal coordination and external skilled resources.
  • Market Expectations: Managing investor and analyst expectations during and after the transition.
  • Policy Choices: Decisions around OCI usage and simplified models may affect tax positions and financial performance.
• Opportunities:
  • Operational and Financial Optimisation: IFRS 17 allows for certain simplifications and judgements.
  • Transparency: Enhanced disclosure requirements will improve transparency in financial reporting.
  • Strategic Planning: Early consideration of IFRS 17 can influence product design, remuneration policies, and business planning.

Key Areas of Focus

• Impact Assessment: Crucial for understanding the transition timeline, resource needs, and financial implications.
• Project Planning: A structured approach is recommended to manage the implementation effectively.
• Education and Awareness: Training tailored to current products and IFRS 17 requirements is essential.
• System and Data Preparation: Insurers must prepare for more granular and retrospective data collection and analysis.
• Tax Considerations: Policy choices under IFRS 17 may impact tax positions, requiring careful evaluation.

Next Steps

• Gap Analysis: Identify differences between current systems and future IFRS 17 requirements.
• Impact Assessment: Evaluate financial and operational implications, including profit profiles, equity changes, and volatility.
• Roadmap Development: Create a detailed roadmap with milestones, resource planning, and budget allocation.
• Early Action: Large insurers are already assessing the impact and planning for implementation. Others are beginning with high-level analyses.

Industry Activity

• Insurers are focusing on education, impact assessment, project planning, and integration with existing projects like finance transformation.
• The IASB is conducting field testing to identify interpretation issues and operational difficulties.
• There is a growing recognition that IFRS 17 will impact areas beyond finance, such as product design, remuneration policies, and business planning.

Contact Information

• Alex Bertolotti - Global IFRS Insurance Leader
  T: +44 (0)20 7213 1253
  E: alex.bertolotti@uk.pwc.com

• Kirsty Ward - Partner - Accounting
  T: +44 (0)20 7804 2999
  E: kirsty.a.ward@uk.pwc.com

• Graham Oswald - Director - Actuarial
  T: +44 (0)20 7804 7373
  E: graham.oswald@uk.pwc.com

• Gail Tucker - Partner - Accounting
  T: +44 (0)20 7212 3867
  E: gail.l.tucker@uk.pwc.com

• Dominic Veney - Partner - Actuarial
  T: +44 (0)20 7804 3573
  E: dominic.veney@uk.pwc.com

• Tom Brown - Partner - Finance and Technology
  T: +44 (0)20 7804 0722
  E: tom.r.brown@uk.pwc.com

Conclusion

IFRS 17 is a significant shift in insurance accounting, requiring comprehensive preparation and planning. Early action, structured project planning, and a focus on both financial and operational impacts will be critical for successful implementation. The standard offers opportunities for optimisation but also presents substantial challenges that must be addressed proactively.