IFRS 17 InsuranceContracts establishes the principle for the recognition, measurement, presentation, and disclosure of insurance contracts within the scope of the standard. IFRS 17 was issued in May 2017 and applies to annual reporting periods beginning on or after 1 January 2023.
The standard has been for more than 20 years in development and will result in a complete overhaul of accounting for insurance contracts. This standard supersedes the IFRS 4, which served as an interim standard that allowed insurance companies to measure insurance contracts with different accounting policies and also allowed local GAAP practices. This resulted in limited comparison possibilities between insurance and non-insurance sectors.
Implementation Challenges and Impact
In order to comply with IFRS 17 one of the main challenge facing insurers is to satisfy the various requirements of both actuarial and finance department and data at a more granular level with various calculation engines.
IFRS 17 choices and interpretations
Suitable approach to be chosen for different group of
contracts/products Consistency and transparency
There will be a single measurement model with three variations based on material features of the contract:
- General measurement model (long term contracts, fixed and guaranteed benefits)
- Premium allocation approach (short term coverage – simplified accounting for the coverage period)
- Variable fee approach
Key judgements on the model:
- Contract boundary
- Portfolio definition
- Cash flow types including acquisition costs
- Discount rate (top-down, Bottom-up and assetdependent
- Risk adjustment (technique, diversification and reinsurance)
- Groups and mutualisation
- The new IFRS 17 calls for a substantial increase on the audited data points to support a more consistent and transparent financial reporting regime.
- Additional data requirement to meet the calculation need for IFRS17
- New sub-ledgers would often be necessary to achieve compliance and create a sufficiently robust internal control environment
- Policy administration system need upgrades to feed the new presentation
Interaction with IFRS 9 and transition:
- Qualified insurers can defer the IFRS 9 implementation to January 1st 2023
- IFRS 17 is mandatory from January 1st 2023
Impact of fair value gains and losses:
- Choice of P&L and OCI
- Duration mismatch and impact on key estimation decisions affected by financial variables
- Transition calls for a significant restatement effort due to the need to data mining for reconstructing historical financial
Lessons learned from impact assessments
Early planning, design of the future operating model and data flows are key
With SAP S/4 HANA for Financial Products Subledger (FPSL), you can create one standardized, central database for the shared integrated process between operational, actuarial, and financial worlds. This dedicated multi-GAAP, multi-currency, and multi-entity accounting supports the valuation of insurance contracts following national and international accounting principles.
With a centralized accounting rule engine and specialized calculators, the financial products sub-ledger helps ensure data quality, completeness, and accuracy. Our actuarial team has facilitated the cash flow modeling process and working in proximity to our team of accountants to help built the IFRS 17 reporting requirements.
Overiew of an integrated SAP FPSL within an SAP environment and
ithin a simplified IT infrastructure
Proposed To-be Architecture
Data from source systems like Actuarial data, market data, policy administration is extracted, transformed, and loaded into SAP FPSL. Based on measurement models and grouping of contracts the Best estimate cash flow (BECF) calculation is done through Estimates Cash Flow preparation (ECP) content from SAP PaPM (Profitability and Performance Management). ECP supports the transformation from an actuarial extract towards the sub-ledger accounting requirements. FPSL then reads the accounting data provided and based on process runs determines the specific postings that need to be calculated and accounted for like Initial Recognition of contracts, Subsequent measurements, Unwinding, Profit recognition (Contractual service margin). After the process run and postings, FPSL sends the aggregated G/L documents to the SAP General Ledger which can be used for reporting and disclosure requirements.
The key to a successful IFRS17 implementation is an integrated solution connecting
the finanace, actuarial and risk systems with technical know-how.
Our Offering & Solution
The SAP S/4 HANA Financial Products Sub Ledger (FPSL) is the core standard SAP solution for IFRS 17.
Many Big and medium size Insurance companies have chosen to implement SAP S/4 HANA for Financial Products Subledger (SAP FPSL) for their IFRS 17 accounting and reporting compliance requirement.
Combining our expertise on technology & knowledge of IFRS 17, ConVista has created a special IFRS 17 packaged cloud-based solution which delivers the following core offerings:
ConVista Rapid Deployment Solution for IFRS17
- FPSL system set-up based on pre-configured defined package scope.
- Pre-defined data model catering the need Of IFRS17 reporting and disclosure requirements
- Integrated data load layer with pre-defined data intake template based on IFRS17 business use cases
- Pre-built and integrated tool to generate and adjust BECF (Best estimate cash flow) with FPSL processes
- Pre-built SAC Reports for Change analysis, Financial Statement. Data Intake and Subledger Postings.
- Automated Test tool using pre-defined test cases and test data
- Pre-delivered interfaces for integration to SAP General Ledger
- One-week hands-on training with in-depth training materials
- Extended hyper care support for three months