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Meet the challenges of IFRS17 with CCH® Tagetik

Apr. 7 2021 by Auke Jan Hulsker, Founder & Consultant - Sofia Consulting / Grazia Cafagna, Director - Financial Services Solutions Management - CCH Tagetik

Performance Management Reporting & Compliance

While most insurance companies are on the case with IFRS 17 implementation, there still are plenty which have work to do. You know who you are! This is the first in a series of articles focusing on lessons learned from implementing IFRS 17 with CCH Tagetik 

The challenges of IFRS 17 

IFRS 17 1

So, where does the complexity lie in implementing IFRS 17? What are the key challenges? First of all, IFRS 17 requires insurance entities to calculate the so-called contractual service margin or CSM. The CSM is the unearned profit and is the aggregate of the present value of future cashflows belonging to the different groups of insurance contracts including a risk adjustment. The CSM is a new concept and insurance companies typically lack the capability to calculate it. It’s a system challenge asking to be resolved. Calculating CSM requires data for expected and actual cashflows on the level of the unit of account. Large volumes of historical data are needed in particular for calculating the transition opening balance of the CSM within a full-retrospective approach. Historical locked-in rates, non-economic assumption changes and other historical data might not be available. 

Next to challenges of availability and quality of historical data are those of the operating model – who is going to be responsible for the CSM engine and Accounting hub? Will it be the actuarial department, accounting or a combination of both? How is the CSM process going to look and what knowledge and tools are needed to execute tasks like analyzing CSM/Loss results and postings? 

In contrast to Solvency II, IFRS 17 is principle based, which basically means a very large number of technical decisions need to be made on how to apply the standard. Many of these decisions relate to actuarial calculations and the level of detail required for the analysis of movements of CSM. Along the way requirements will likely change due to, for instance, amendments of the IFRS 17 standard or new insights within the insurance company. In a complex project like IFRS 17, changing requirements can be very challenging. 

Requirements not only impact the calculation of CSMother systems are also impacted in the reporting value chain, like risk engines, the G/L, and the consolidation system or even policy systemsSo it’s very important that the different sub-projects within the IFRS 17 program work harmoniously to make sure they alignHow do you maintain oversight of such a complex and large-scale program like IFRS 17? It’s a challenge for sure. 

The balance sheet and P&L of insurance companies are going to look completely different as a result of IFRS 17 (and IFRS 9 for that matter). Premiums are no longer revenue and insurance companies will have to define a completely new set of KPIs and redefine management information. 

1 Jan 2023 is the current date for IFRS 17 to come into effect. Assuming a parallel run is planned for 2022, insurance companies only have 2021 to complete their IFRS 17 project. Considering everything that still needs to be done, how do you become compliant in timeAnd how can you leverage the lessons learned from insurance companies that are ahead of the game in implementation? 

The CCH Tagetik IFRS 17 solution

IFRS 17 NEW

CCH Tagetik has developed an IFRS 17 solution that covers all the main building blocks for calculating CSM out-of-the-box, producing postings and including a complete set of pre-defined disclosures for the annual external financial statements. It also comes with a cash flow generatorfunctionality to unwind, unlock and release CSM as well as a set of Qlik Sense analysis reports that allow insurance companies to analyze movements of CSM and underlying cash flows. It also covers all of the latest amendments for all of the IFRS 17 measurement models.  

Insurance companies using CCH Tagetik don’t have to re-invent the wheel. Why? Because they don’t have to design, implement and maintain the complex CSM calculations, postings and disclosures themselves. These are all included in the out-of-the box solution and maintained by CCH Tagetik. Several insurance companies have already completed at least one dry-run or UAT using CCH Tagetik. Some of them are already in the final stages and preparing to go to production. 

Several features have been introduced in the CCH Tagetik IFRS 17 solution as a result of cooperation with different insurance companies in their implementation projects. 

So, using the CCH Tagetik IFRS 17 solution will give insurance companies a head-start because of time savings in implementation. On top of this CCH Tagetik maintains its IFRS 17 solution centrally. 

There are many challenges around data. CCH Tagetik’s IFRS17 solution includes a host of pre-built validation rules to assure data quality and provides a full audit trail so users can track down the source of any data, whenever they choose. And CCH Tagetik software offers extensive possibilities for setting-up workflows including security authorizations based on the insurance-specific CSM operating model and governance framework. 

Partner point of view IFRS 17

Want more info on what needs to change, how to manage data, and what a smooth implementation looks like? Read the whitepaper: Are You Ready for IFRS 17? 

IFRS 17 NEW

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