By David Castleden, Current Head of Accounting Policy & Advisory and Greg Douglas, Actuary, Old Mutual.
Disclaimer: The views expressed below are those of the authors only and not the views of Old Mutual plc or its subsidiaries. No reliance should be placed on the information contained in this presentation and therefore no liability is accepted for it by the presenters, Old Mutual plc or any of its subsidiaries.
David: I am currently the Head of Accounting Policy and Advisory for Old Mutual plc having had a career which spans twenty years in the provision of accounting advice to a broad sector of clients. I have been involved in the implementation of several accounting standards during that time including the transition from local standards to IFRS.
Greg: I am currently Head of Group Actuarial Risk at Old Mutual plc, providing oversight of actuarial reporting across Solvency II, embedded value and IFRS reporting bases. Since joining Old Mutual in 2001, I have held a variety of roles, including responsibility for development projects within financial and risk transformation initiatives.
What challenges do you see with IFRS 17 implementation into a business?
The impact of implementing IFRS standards is often mis-sold to different functions in the business. It is unquestionable that the impact of IFRS 17 will have a profound impact on each and every organisation and each organisation will be affected by it in a unique way. The issue is that many people think one solution fits all – whereas, because of the complexity of each organization, the design and the approach to implementing IFRS 17 will need to be tailored for each business. We must remember that there has been limited global consistency in the determination of insurance provisions in the past.
A key observations is that it is dangerous to view the implementation of IFRS 17 as a minimum compliance exercise. As the range of impacts of the standard are so broad, a comprehensive project should be undertaken when implementing the standard.
At the IFRS 17 conference, you will be speaking on your insight regarding ‘Discussing approaches to embedding IFRS 17 into the business and day to day management practices’. Why is this a key concern right now? And what are the essential things to remember?
The key issue is that if you fail to plan in sufficient detail – you plan to fail. Certain current short term solutions that are being designed and proposed may cause a lot of pain in the future given their narrow focus. The understanding of what is required, and by whom, is critical – and until people understand in a lot of detail what the implications of the standard are – they are often not able to adequately vocalise concerns.
A comprehensive (cross-functional) organisational understanding is required with common language from all key stakeholders. Any residual concerns should be raised constantly during the programme to ensure that there is adequate time to address key issues arising.
How can IFRS 17 produce opportunities to transform the business?
The engagement on IFRS 17 issues provides an opportunity for key stakeholders (incl. Board and Audit Committees) to further their understanding of insurance products and the organisation’s business model. This should lead to a more robust debate on key issues and the realignment of cross-functional objectives to achieve the business strategy.
IFRS 17 presents a significant opportunity to transform the operational modus of the business – focusing on data processes and definitions to ensure that there is only ‘one source of the truth’ will have an immense impact on organisational efficiency.
In addition, IFRS 17 will require a new collaborative approach between teams that traditionally worked in silos (e.g. actuarial and accounting teams), and will also drive the consideration of new teams with a mix of traditional skills and expertise, both providing the opportunity to improve organisational efficiency.
Why might it be difficult to compare standards across different jurisdictions?
Different features of insurance products together with different accounting bases and regulatory mechanisms makes comparisons extremely difficult. The new standard should assist, but the industry will need to navigate a principles based approach, with many different implementation options, including the determination of accounting balances on transition.
How do you see the financial landscape evolving over the next 6-12 months?
From a financial reporting perspective, with the knowledge of IFRS 17 spreading across the industry, it should be expected that more teams of people will be mobilised to tackle various impacts of implementing the new standard. Financial transactions taking place (including business transfers and reinsurance) will also be viewed from the perspective of the new standard to mitigate potential adverse implications.