IFRS 17 and the risk agenda
Overview
Looking at IFRS from the perspective of the risk agenda, three issues in particular warrant insurers’ attention:
- The IFRS 17 measurement model is not exactly the same as most insurers’ economic models but close enough that companies should be prepared to explain and routinely reconcile the differences.
- US insurers with business in IFRS locales should consider how their US business would fare under an IFRS 17 measurement model.
- IFRS 17’s more transparent and reconfigured income statement adds more strategic risk to traditional insurance business models.
A risk agenda perspective inevitably points to three actions insurers should take sooner rather than later.
- First, add ERM and economic capital experts to the transition team. With so many commonalities to economic capital modelling, it would be wasteful to “reinvent the wheel” when much work has already been done on best-estimates, discount rates and risk charges. Additionally, letting IFRS diverge from economic capital, without a clear explanation of why and how much, is sure to be problematic when explaining reported results.
- Second, within the next few years, the profit components of insurers’ businesses and the amount of risk taken and risk-capital committed will be clearly displayed. Feigning surprise when results are actually published is not a viable course of action. It will be better to know as soon as possible how insurance businesses will look under this new spotlight, as well as engaging in actions to address potential problems before the horse has left the barn.
- Third, risk departments should incorporate the transition to IFRS 17 into their own planning. For example an integrated reporting model that supplies both accounting and risk reporting purposes should deliver information faster and more cost effectively. Accordingly, risk departments should consider how to effectively utilize this more timely information and newly available resources in order to better manage risk.
How PwC can help
Our insurance risk and capital management practice advises insurers on assessing, monitoring and managing risks from all sources. Multi-disciplinary teams provide comprehensive services in all key risk areas:
- Actuarial
- Financial
- Operational
- Regulatory and compliance
PwC’s professionals also address risk management framework components, including strategy, governance and organization, measurement and analytics, reporting, and systems and data infrastructure.
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