GLOBAL IFRS 17 READINESS ASSESSMENT

SURVEY RESULTSQ3 2018

2 3GLOBAL IFRS 17 READINESS ASSESSMENT REPORT

KNOWING WHERE WE CAME FROMIn January 2018 we published the Global IFRS 17 Readiness Assessment (GIRA) to report on where

insurers were on the journey to IFRS 17 compliance. Widely regarded to be the biggest change to

insurance accounting ever, firms were grappling with understanding the regulation and looking to

understand future budget and resource considerations. Fast forward to September 2018 and we’ve

revisited our base of over 150 insurers to see where progress has been made.

It’s been almost a year and a half since the IFRS 17 standard was ratified and our data shows that much progress has been made on compliance efforts. Insurers have been hard at work assessing their current environments and delving into the intricacies of the Standard. However, there are many challenges still to overcome and our data shows that vendor selection dates have slipped a bit from expectations outlined in our January 2018 report. In this updated report, we look at how far insurers have come in the last 8 months and the progress that still must be made.

GLOBAL IFRS 17 READINESS ASSESSMENTSURVEY RESULTSSEPTEMBER 2018

CONTENTS

Knowing where we came from 3

Survey results: Progress to the peak 4

Challenges on the road 8

Chatter from the trail 10

Reaching the IFRS 17 summit will bring strategic benefits 11

Will IFRS 17 teams reach the summit in time? 12

48%

8%

53%

87% of companies have completed an impact analysis or are in the process versus 78% at the start of the year.

There are regional differences in project statuses. Over 53% of North American companies and 48% of European companies have at minimum started designing a solution versus just 8% of APAC organizations.

48% of surveyed insurers have reached the solution design or implementation phase compared with 22% in January’s report.

Q1201822%

Q1201878%

Q3201848%

Q3201887%

4 5GLOBAL IFRS 17 READINESS ASSESSMENT REPORT

HOW INSURERS IN DIFFERENT REGIONS ARE PROGRESSING

PRE-IMPACT ANALYSIS 13%22.4%Q3 2018Q1 2018

IMPACT ANALYSIS 39%55.3%Q3 2018Q1 2018

IMPLEMENTATION 11%8.2%Q3 2018Q1 2018

SOLUTION DESIGN 37%14.1%Q3 2018Q1 2018

Breaking insurers out by region illustrated some very clear patterns. North America (NA) and Europe remain well ahead in project progress when compared with Asia Pacific (APAC). Over 53% of NA companies and 48% of European companies report being at the latter two project stages (solution design and implementation) versus just 8% of APAC organisations.

A recent IFRS 17 report from Deloitte observes, “Asian respondents report a much higher difficulty than their European counterparts with a number of key complex facets of bringing insurers into IFRS 17 compliance. Insurers in Asia are having greater difficulty particularly with reviewing the operating model of actuarial, finance and risk functions, educating and training staff and preparing investor relations and financial communications for shareholders and markets.”

The last six months have seen North American, particularly Canadian insurers, make significant progress. With just 15% of North American insurers reporting that they were at the latter two stages in our January report, that number is now 53% putting them roughly in line with the project status of European insurance companies.

SURVEY RESULTS: PROGRESS TO THE PEAK

HOW IFRS 17 PROJECTS ARE PROGRESSING

Since our January report, our respondents have reported real and significant progress in their IFRS 17 expedition. Insurers are making headway in defining projects, assembling a team and moving into vendor selection. Overall, 48% of those surveyed have reached solution design or implementation compared with the 22% of insurers who had reached this stage in January. However, the percentage of insurers at the implementation stage did not move much which indicates many are still working through project specifications and vendor evaluations.

Life Insurance Non-Life Insurance

8% 8%

16%13%

44%

37%35%

39%

0%

10%

20%

30%

40%

50%

Pre-Impact Analysis

Impact Analysis

SolutionDesign

Implementation

Insurers <3bn GWP Insurers >3bn GWP

0%

10%

20%

30%

40%

50%

Pre-Impact Analysis

Impact Analysis

SolutionDesign

Implementation

11% 13%14%

3%

42%39%

44%

34%

Insurer project status by type

Percentage of survey respondents at each project stage: Q1 2018 vs. Q3 2018

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Pre-Impact Analysis

Impact Analysis

Solution Design

Implementation

EUROPEQ3 2018

Q1 2018 23%

6%

49% 20% 8%

46% 36% 12%

NAQ3 2018

Q1 2018 19%

9%

66% 5% 10%

38% 50% 3%

APACQ3 2018

Q1 2018 30%

33%

62% 8%

59% 8%

Insurer project status by region

HOW INSURERS OF DIFFERENT SIZES ARE PROGRESSING

Insurer project status by size

2021 countdown underway: Insurers prepare for IFRS 17 implementation (Deloitte)

6 7GLOBAL IFRS 17 READINESS ASSESSMENT REPORT

When we surveyed insurers at the end of 2017 for our first report, the majority of insurers, 55%, reported that they would be making an IFRS 17 vendor selection in Q1 or Q2 of 2018 with no insurers indicating they would select a vendor in 2019. While some certainly have moved forward to the implementation phase, our data shows that vendor selection dates have slipped.

Over a quarter of respondents have now pushed their software selection dates into the first half of 2019.

Given this, it is not surprising that many indicated that meeting the compliance deadline was one of their top concerns. Mary Trussell, Global Insurance Change Lead for KPMG remarked, “We are seeing insurers concerned about meeting the deadline – 35% of insurers included in our recent survey reported that it will be challenging or highly challenging to meet their planned implementation date. Late starters will face multiple challenges, they’ll have more ground to make up and may have a hard time securing resources in an already tight market.”

WHEN INSURERS EXPECT TO MAKE A VENDOR DECISION

Expected vendor decision date

“70% of respondents who

plan to buy a solution have not

yet selected a vendor.”

– KPMG, In it to win it: Feedback from insurers on the journey to

IFRS 17 and IFRS 9 implementation

one year in

CRITICAL ROLE OF ADVISORS

Among our surveyed insurers over 62% of those who have kicked off projects are working with one of the Big 4 Advisors. This reflects the fact that IFRS 17 is a significant accounting change with hurdles around business processes, stakeholder education and change management – in addition to technology. Furthermore, while the vast majority of the Standard is relatively straight forward there will be a number of accounting choices and judgment decisions each insurer will have to make. These interpretations will set the framework for the project.

0%

10%

20%

30%

40%

50%

% o

f ins

urer

s

Q3 2018 Q4 2018 Q1 2019 Q2 2019

26%

46%

5%

22%

8 9GLOBAL IFRS 17 READINESS ASSESSMENT REPORT

CHALLENGES ON THE ROADIn our January 2018 GIRA report, one insurer, when asked what he saw as his primary challenge, responded, “Figuring out how my life became defined by the evil acronym IFRS 17!” While we do think insurers are starting to feel more confident about the Standard, the challenges below are real and can feel overwhelming.

Cross-functional teaming is required

IFRS 17 will require collaboration between multiple departments with Finance, Actuarial and IT playing significant roles. Each group will have a different set of needs and challenges and will need to work together in concert to achieve compliance. In addition to these departments, survey respondents wrote in over 20 additional departments that are playing a role in IFRS 17 projects including Tax, IFRS 9 Teams, Pricing, Decision Support and Operations.

Given this it’s not surprising that collaboration skills and programme management and leadership were two of the top three skills reported as ‘most needed for your organization to be successfully IFRS 17 compliant’ in a recent Deloitte whitepaper.

Operational accounting challenges abound

From identifying different levels of granularity between systems to finding data gaps, compiling all the policy, actuarial and financial data on a current and historic basis will be a major challenge. Additionally, insurers need to establish a new IFRS 17 Chart of Accounts (COA) and a robust processing sequence to generate the correct model results, the correct financial balances on your COA and the correct disclosures.

Insights from a trailblazer“In line with our mission to deliver best-in-class insurance in our markets, FWD’s proactive attitude to IFRS 17 and IFRS 9 is designed to empower our future growth. Thanks to a rigorous evaluation, we believe our chosen approach to implement broader improvements across our finance processes will reinforce our position as a leading pan-Asian insurer. Aptitude Software’s commitment to the Hong Kong and wider Asian market was highly valued, and we were impressed by the amount of “out of the box” IFRS 17-specific intellectual properties.”

– Richard Poon, FWD Group Finance Director

10 11GLOBAL IFRS 17 READINESS ASSESSMENT REPORT

REACHING THE IFRS 17 SUMMIT WILL BRING STRATEGIC BENEFITS

“We are an international Life, Non-life and Reinsurance group with many different reporting bases. We started the IFRS 17 program in 2016 and quickly became aware of its complexities and far-reaching implications. We therefore designed an approach which aimed to use the significant investments required for IFRS 17 as the base to further upgrade our market value reporting environment. This should support us in delivering better and faster information at significantly lower cost levels. The Aptitude Software IFRS 17 solution and partnership is one of the core elements to enable us in this endeavor.”

– Group Finance Director, International Insurance Group

“Don’t underestimate the amount of time it takes to find the required data to fulfil the extensive IFRS 17 primary financials and disclosure requirements.”

– EY, Implementing IFRS 17: Experiences from the field

“The organizations that have got furthest with their projects (generally, larger insurers) are the ones feeling the time challenge the most — the more they do, the more they realize how complex the task is and how much work is involved.”

– KPMG, In it to win it: Feedback from insurers on the journey to IFRS 17 and IFRS 9 implementation one year in

“We see organizations undergoing assessments to understand data, people, process and technology impact of IFRS 17 across the organization. The critical path to implementation is getting the right granularity of data from source systems and selecting the technologies, so we see clients starting with curating data and IFRS 17 tool selection. Many are also looking to leverage this disruption to standardize data across the Enterprise, as well as to streamline processes across Actuarial and Finance.”

– Angela Borth, Senior Director, Financial Services, Workday

“IFRS 17 is a truly collaborative project between Actuarial, Accounting and IT - complete with its own brand new jargon.”

– Lisa Penfound, IFRS Program Director, Co-operators Group Limited

“The market is maturing, and insurers are no longer asking ‘Do you do it,’ they are now asking ‘How do you do it?’ The RFPs are far more detailed than before and the questions in presentation are more knowledgeable.”

– Nick Cromie, Financial Services Sales Director, Aptitude Software

“Implementing IFRS 17 compliance reporting, is a major financial transformation for any insurance customer, which will impact at all three models (Business, Operations and Technology.) Aptitude Software’s solution can be considered as core financial transformation (technology model) built for this purpose. This will help in building increased granularity and a robust sub-ledger system, a “single source of truth” for all Financial and Management reporting.”– Anindya Sundar Dhar, Associate Director, Cognizant

“The combined challenges of the requirement to inter-lock, competing business priorities, lack of available talent and under-invested infrastructure has made Asia implementation of IFRS 17 particularly challenging in the available time. However, we have observed that awareness and planning activities on IFRS 17 implementation have significantly increased over the past 3 months.”

– PWC, IFRS 17 Implementation Insights

“It is almost like there is now a new financial language that insurance companies must learn to speak to their stakeholders, and the dictionary and grammar are in IFRS 17. Just as when you learn a new language you have to dedicate a lot of time to it and you have to practice, similarly the work that the consultants we are trying to hire are going to be doing is to help insurance companies understand what they need to do to change the way they communicate their financial performance.”

– Francesco Nagari, Global IFRS Insurance leader, Deloitte

Insurers are realizing there may be a silver lining to the challenges of IFRS 17 and are feeling much more positive about the benefits of implementing the Standard. Francesco Nagari, Global IFRS Insurance leader at Deloitte observes, “When we ran this survey in 2013, only 21% of survey respondents saw the benefits of adopting IFRS 17. Most respondents clearly felt at that time that the cost of compliance would outweigh the benefits. However, in our latest survey we found that 93% now feel they will benefit from complying with the Standard. That’s a huge shift in optimism.”

The ‘silver lining’ of IFRS 17 includes benefits like the alignment of internal teams and business processes, increased financial control, streamlined reporting and better information. Some organizations are even using IFRS 17 to drive broader strategic change. Over 66% of respondents said they wanted to use IFRS 17 to make improvements to finance architectures or as a catalyst to transform their architecture.

Perhaps reflective of the cross-divisional nature of IFRS 17, 84% of organizations reported running projects from the group level while only 16% are being run through regional sub divisions.

IFRS 17 Implementation Insights Series 1 – Business Case and Project Planning for Asia

In it to win it: Feedback from insurers on the journey to IFRS 17 and IFRS 9 implementation one year in

2021 countdown underway: Insurers prepare for IFRS 17 implementation (Deloitte)

CHATTER FROM THE TRAIL

GLOBAL IFRS 17 READINESS ASSESSMENT REPORT12 13

Unless the IFRS standard board makes a delay announcement in the coming weeks, IFRS 17 must be live and implemented on 1 January 2021. This gives insurers some two-and-a-half years from now until the Standard effective date. However, insurers will need to produce IFRS 17 accounts for the 2020 year-end to give themselves a prior-year comparison come 2021. Thus, in reality most insurers have 18 months at best to get ready – not a long time given the complexities involved and other conflicting priorities in an insurer.

The good news is that progress is being made. Over the next 6-9 months we expect to see most insurers settling on a technology vendor and kick off implementations in earnest. Reflecting this progress, we expect future versions of this report to focus more on sharing emerging best practices and illustrating how leading insurers are overcoming IFRS 17 implementation challenges.

More and more, insurers are realizing that IFRS 17, while challenging, is also an opportunity. Laura Hay, Global Head of Insurance at KPMG observes, “IFRS 17 shines a new light on the business decisions and strategies of the insurers that it relates to as well as into their finance and actuarial processes — use the transition as a catalyst for innovation and to develop your emerging leaders.” One of our favorite quotes comes from one of our roadshow attendees in Toronto who commented that his finance team is embracing the challenge rather than fearing it. They see it as “massively career defining.”

This is your moment and we’re looking forward to helping you each step of the way.

WILL IFRS 17 TEAMS REACH THE SUMMIT IN TIME?

Interested in learning more?Download our eBook, The IFRS 17 Guide: On the journey to compliance for more on how to approach your IFRS 17 project and mitigate operational accounting challenges.

14 15GLOBAL IFRS 17 READINESS ASSESSMENT REPORT

Website: IFRS 17 resources pagewww.aptitudesoftware.com/IFRS-17-insurance-standard

eBook: The IFRS 17 Guide to Complianceinfo.aptitudesoftware.com/ebook-the-ifrs-17-journey-to-compliance

Blog: Industry and customer learningsblog.aptitudesoftware.com

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