Optimizing Systems for IFRS 17 Reinsurance Reporting

As the January 2023 “go-live” date for IFRS17 rapidly approaches (well, certainly rapid for the Insurance market), consultants have spent many hours and industry experts have written large scores of papers to aid insurers in moving to this new accounting framework. This blog explores the system implications of providing granular reinsurance reporting to meet IFRS17 reporting requirements.
At TAI, our core purpose is to empower life insurers to optimize the administration of their reinsurance programmes. We provide systems that automate over 90% of manual processes, providing seriatim level reporting to reinsurance partners and internal stakeholders. Our solutions focus on delivering administrative efficiencies and reducing financial and operational risk.

The advent of IFRS17 presents a number of challenges for insurers worldwide:

• Transition—First, there’s the transition from existing accounting procedures to the new IFRS17 requirements.
• Data Extraction and Reporting—Then, there’s the matter of actually extracting the required data from the systems and treaties. Let’s break this into two sections— Reinsurance Systems and Treaties.

Reinsurance Systems—Outside North America, the industry uses a myriad of commercial and homegrown systems/modules for reinsurance. Those lucky enough to have systems built around seriatim (policy level) data should find it relatively easy to extract the required data.

For those with systems that only generate summary level reinsurance reporting, there are generally three options to address IFRS17 reporting:

• Adapt existing systems to generate seriatim reporting
• Significantly increase headcount to process reinsurance data manually at a seriatim level.
• Buy a new reinsurance administration system/RE module that supports seriatim reporting.

Options one and two both have advantages and disadvantages.

• Do you sink considerable money, effort, and time into adapting your existing system? While this may be the less costly option, can it be done? Do you have a high degree of confidence in success?
• Or, do you significantly increase your headcount to process the data manually? That’s a great short-term solution, but can the data be processed accurately? Does this solution inherently increase your risk if it can’t? What’s the longer-term solution?

Treaties—Under IFRS17, insurers need to import specific treaty terms (such as termination and repricing features) into their valuation models, matching treaties with individual policies.

From our experience, treaty volumes, formats, and storage vary considerably across the globe. These factors contribute to the complexity in extracting relevant data from the treaties and importing it into valuation models:

• Treaty Volumes—We have encountered insurers with a handful of treaties whose volumes run into the thousands, and that’s before treaty addendums are taken into account.
• Paper—Although the industry is gradually moving towards digital, some still rely on paper treaties. These can become a problem, however, if their quality degrades over time. We find this is especially prevalent among clients using treaty photocopies.
• Digital—More insurers are moving to a digital format. At its simplest, this consists of creating a PDF of their treaties. Other insurers have stored them in databases.

How do you extract the required information from each treaty and import it into your valuation model to match it against the relevant policies? We see two potential solutions:

• Manual—Employ a team to pour over each individual treaty and addendum to find the relevant information. This option can be resource and time intensive, but thankfully, it should be a one-off exercise.
• Technology—Utilize third party software to scan and automatically extract the required information from each treaty.

Over the past year, TAI has been working with a number of clients globally who are moving to IFRS17 accounting standards. We work in close partnership with each client to understand their requirements and deliver a tailored solution for their business.

We are proud to offer a range of IFRS17 solutions to new and existing clients. These range from new IFRS17 reporting feeds, seriatim-based reinsurance systems, and most recently, our Treaty Digitization tool, powered by artificial intelligence, which scans, stores, administers, and exports data from an entire treaty library.

Talk to us about our IFRS17 reinsurance solutions. www.taire.com