IFRS 17 Insurance Contracts (IFRS 17) is a new accounting standard which establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts and investment contracts with discretionary participation features issued. This standard supersedes IFRS 4 Insurance Contracts and is effective for annual periods beginning on or after 1st January 2021.

Tracy Lister
Associate Director

T  +27 11 038 3706
+27 76 255 1501
tracy.lister@qedact.com

The standard significantly alters the annual financial statements for issuers of insurance contracts and may result in significant changes to existing infrastructure. At a high-level these include changes to:
  • Accounting systems and processes
  • Actuarial valuation systems
  • Quantity and quality of data collected
  • Data repositories to store the new data collected and the output of the accounting and actuarial processes required to complete the current and future financial reporting calculations
  • Enterprise risk management frameworks
  • Overview of IFRS 17

    The objective of the standard is to ensure that entities provide relevant information in a way that faithfully represents those contracts. This information provides a basis for users of financial statements to assess the effect that contracts within the scope of IFRS 17 have on an entity’s financial position, financial performance and cash flows.

    At QED, we have recognised the need for a separate team specialising in IFRS 17 so that we can assist our clients to move to the new reporting standard. We tailor our assistance to the individual needs of each client, by offering them a basket of products from which to choose the combination that best suits them. These products include:

  • Interactive training workshops
  • These workshops provide you, as a participant, with an understanding of all aspects of the standard as it relates to your specific product suite.

  • Infrastructure gap analysis
  • We identify infrastructure gaps through a series of interviews and interactive workshops.

  • Product classification and documentation
  • We have developed insurance and reinsurance contract tools that enable you to identify the IFRS Standard and valuation methodology applicable for each  product or reinsurance contract or component thereof.

    Excel-worked examples

    We have developed a number of models that demonstrate the mechanics of IFRS 17 for various products. These demonstrate the general model, the variable-fee approach and the premium-allocation approach – from the projection of cash flows through to financial statements and disclosure notices.

    Actuarial and IFRS 17 specific software enhancement/development

    In recognising the need for all actuarial software to be enhanced in order to determine IFRS 17 assets and liabilities, and because additional IFRS 17 tools will be needed to produce the accounting ledger entries, we provide services and support in all of these development areas for our clients. This would include the integration of any new software developed or purchased into the entity’s existing infrastructure.

    Product profitability assessments

    The profit stream and the profitability of products may be altered by IFRS 17. We can perform product profitability assessments as required. We can also assist with the design or redesign of products to meet a desired profit criterion under IFRS 17.

    Discount rate and risk adjustment for non-financial risk methodology and calibration

    Companies need to decide the approach they wish to take to determine the discount rate applicable to their insurance contracts. Either a top-down or a bottom-up approach is needed for each group of insurance contracts where discounting is applicable. In addition, insurers need to include a risk adjustment for non-financial risk within it IFRS 17 liabilities. The risk adjustment represents the compensation an insurer requires for being exposed to non-financial risks arising from its various products. We assist our clients through the decision making and calibration process.