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IFRS 17 Update Webinar 25 March 2020

© 2020 Deloitte AG. All rights reserved.

2

IFRS 17 Update Breakfast

Agenda


Topic Timing

Opening the webcast and welcome 9:00 – 9:05

Outcome of IASB re-deliberations 9:05 – 9:30

What’s next? 9:30 – 9:40

Implementation challenges – our experience so far 9:40 – 9:50

Questions & closing 9:50 – 10:00

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IFRS 17 current status

4

2017 2018 2019 2020 2021 2022 2023 2024

Implementation period Reporting

IFRS 17

standard issued

May 2017

Publication of

Exposure Draft

26 June 2019

Expected publication of

revised standard in Q2

2020

Start of IFRS 17

comparative

period

IFRS 17 effective

1 January 2023

EU endorsement

expected (Q3/4 2021)

First IFRS 17 compliant

annual reports

published

IASB decides to defer

IFRS 17

November 2018

IFRS 17 Current status

Timeline

IASB re-deliberations

completed March 2020

© 2020 Deloitte AG. All rights reserved

5

Outcome of the IASBre-deliberations

6


List of finished topics – discussed during an earlier breakfast

TopicDiscussed during

meetingTentatively

finalised

Six topics for which no substantive deliberation was required December 2019

Expected recovery of insurance acquisition cash flows December 2019

Reinsurance contracts held — recovery of losses December 2019

Scope exclusion for credit cards January 2020

Transition — the prohibition from applying the risk mitigation option retrospectively

January 2020

Business combinations—contracts acquired in their settlement period January 2020

Interim financial statements January 2020

Additional specific transition modifications and reliefs January 2020

7


List of finished topics

Topic Discussed during meeting

Tentativelyfinalised

CSM attributable to investment services — coverage units for insurance contracts without direct participation features, disclosures and terminology

Feb 2020

The level of aggregation—annual cohorts for some specific insurance contracts (no changes)

Feb 2020

Applicability of the risk mitigation option—non-derivative financial instruments at fair value through profit or loss

Feb 2020

Additional specific transition modifications and reliefs Feb 2020

Other topics raised by respondents Feb 2020

Proposed minor amendments Feb 2020

Proposed effective date of IFRS 17 March 2020

Proposed extension of the IFRS 9 Financial Instruments temporary exemption in IFRS 4 Insurance Contracts

March 2020

8


CSM attributable to investment services

• The criteria for when a contract provides an investment-return service

in the proposal were somewhat amended:

1. An investment component or right to withdraw exists;

2. The insurer expects the investment component to include an

investment return;

3. The insurer expects to perform investment activity to generate

the return

• The staff did not deem changes required with regard to the concerns

around operational complexity

Issue

All 12 Board members agreed with the proposal, 2 were absent

Proposal

Decision

• The Exposure Draft proposed that also investment-return services

should be taken into consideration for coverage units, for contracts

without participation features

• The Exposure Draft also specified the criteria for when those contracts

can be considered to provide an investment-return service

• Most respondents were supportive of the proposal, however they had

concerns about (1) the specified criteria, and (2) the operational

complexity

9


The level of aggregation — annual cohorts

• The staff performed four analyses:

a) The steps required to apply the requirement to contracts with

intergenerational profit sharing

b) Costs and benefits for contracts with different features

c) Features of a contract that might result in costs outweighing the

benefits, and for those contracts:

d) Whether IFRS 17 should include an exemption

• Based on the four analyses, the staff proposed not to change the

annual cohort requirement

Issue


Proposal

Decision

• Both IFRS 17 and the Exposure Draft require the three profitability

buckets to be divided into annual cohorts

• Stakeholders expressed concerns that:

1. This will not provide users of financials with useful information;

2. This is a major challenge, and costs will not outweigh benefits;

3. It is unnecessary, because an insurer can achieve the same outcome

without applying the requirement

10


Applicability of the risk mitigation option

• Extend the risk mitigation option for VFA contracts, to permit the use of

the option when the insurer mitigates the effect of financial risk on the

fulfilment cash flows using non-derivative financial instruments

measured at fair value

Issue


Proposal

Decision

• The risk mitigation option allows an insurer to recognise in P&L some or

all of the changes in the effect of financial risk on VFA contracts that

would otherwise adjust the CSM of those contracts

• Per IFRS 17 and the Exposure Draft, the risk mitigation option can be

applied to derivative financial instruments and to reinsurance contracts,

but not to other types of contracts

• Stakeholders argued that IFRS 9 allows using non-derivative financial

instruments as hedging items, and that the mechanics of the risk

mitigation option are comparable to hedge accounting

11


Additional specific transition modifications and reliefs

To amend the transition requirements for the MRA to:

a) Permit an entity to determine whether an investment contract meets

the definition of an investment contract with discretionary

participation features using information available at transition date,

instead of at inception;

b) Specify that if there is insufficient information to identify whether a

reinsurance contract was acquired before or at the same time as the

insurance contracts, the assumption is it is acquired later, and the

reinsurance contract would not have a loss-recovery component;

c) For entities that choose not to change the accounting estimates from

previous interim financial statements, if there is insufficient

information to apply this choice retrospectively, the CSM, loss

component and amounts related to insurance finance income and

expenses can be determined at the transition date as if no interim

financial statements were prepared before transition

Issue

All 12 Board members present agreed with the proposals a and b. 11 Board

members agreed with proposal c

Proposal

Decision

• The IASB received much feedback related to transition, and wished to

ease implementation without reducing usefulness of information

12


Other topics

a) Amend paragraph B66(f), to clarify that income tax payments and

receipts that are chargeable to the policyholder under the terms of the

contract should be included in the fulfilment cash flows

b) Retain, unchanged, the requirement to adjust the CSM of VFA

contracts for the changes in time value of money and financial risks

not arising from the underlying items

c) For contracts that change their nature over time, no new requirements

or educational materials will be added

d) Retain, unchanged, the requirements related to the other topics

described in the staff paper

Issue


Proposal

Decision

• The ‘other topics’ topic deals with feedback from respondents relating to

areas that the IASB did not consider when developing the Exposure Draft

13


Proposed minor amendments

• The IASB staff listed 11 topics for which respondents expressed

concerns or asked for clarifications

• For four topics, changes to the Exposure Draft were proposed. The

three most relevant of these topics are:

a) A clarification to par. B134, that if an entity applies the

disaggregation option, it should include in P&L the amount that

matches the income or expenses included in P&L for underlying

items, wherever in P&L these are reported

b) The amendment to B96(c) (which clarifies that CSM is not

adjusted for differences between expected and actual caused by

the time value of money and assumptions that relate to

financial risk) should also apply to loans to policyholders

c) The amendment should specify that the entity should present

experience adjustments for premium receipts that relate to

current or past service as insurance revenue

• One of the concerns was the definition of ‘NDIC’. This definition was

not changed.

Issue


Proposal

Decision

• The Exposure Draft proposed several minor changes to IFRS 17

14


Proposed effective date of IFRS 17

• The staff discussed three main themes in the feedback:

a) Concerns about a further deferral

b) The view that more time is required for implementation

c) The view that there should be a consistent effective date

worldwide

• Based on their analysis, the staff’s proposal was to set the effective

date of IFRS 17 even one year later than proposed effective date in the

Exposure Draft, so to 1 January 2023

Issue

Twelve out of 14 Board members agreed with the proposal. One Board

member was absent.

Proposal

Decision

• The original effective date was 1 January 2021

• The Exposure Draft proposed an effective date of 1 January 2022

• Even this postponed effective date posed a challenge for both the EU

endorsement process and for many insurers

• However, many implementation projects are underway, and postponing

the effective date with another year would have a large impact on those

implementation projects

• All regulators were against further delay, most insurers were in favour

15


Proposed extension of the IFRS 9 temporary exemption

• The staff prepared an analysis, weighing the cost and benefits of

extending the exemption, aligning the effective date of IFRS 9 for

insurers with the effective date of IFRS 17

• The staff proposed to extend the fixed expiry date of the temporary

exemption in IFRS 4 from applying IFRS 9 to annual reporting periods

beginning on or after 1 January 2023

Issue

Twelve out of 14 Board members agreed with the proposal. One Board

member was absent.

Proposal

Decision

• The effective date of IFRS 9 is 1 January 2018

• Insurance companies are exempted, and are allowed to keep applying

IAS 39, and implement IFRS 9 simultaneously with IFRS 17

• If the effective date of IFRS 17 is shifted to 1 January 2023, this would

imply insurers can apply the exemption for another year

• However, the Board always stated that this exemption is not granted

automatically

16

What’s next?

17

What’s next?

IASB procedures

IASB to continue with the due process

The IASB staff will begin to draft the amendments to IFRS 17

There will be no re-exposure of the amendments approved

Any sweep issues identified during the balloting of the amendments will be brought for discussion at a future meeting

Amendments are expected to be issued in the second quarter of 2020

18

What’s next?

EU endorsement process

EFRAG to prepareadvice on the EU endorsement

An overall assessment of IFRS 17 for relevance and reliability needs to be completed

EFRAG is still running its own case studies, to determine the effect of certain requirements in IFRS 17 on European insurance companies

Endorsement for the extension of the exception for IFRS 9 to follow the fast track to be completed before the end of 2020

19

What’s next?

Open topics per the EFRAG and the industry

Although Insurance Europe and the EFRAG have expressed their approval of some of the IASB’s decisions, there are topics that are considered to be unresolved issues, from the perspective of the industry and EFRAG.

Annual cohort requirement for

contracts with intergenerational

risks sharing

Determination of

coverage units

Prohibition to apply the risk

mitigation approach

retrospectively on transition

Mutualisation

20

Implementation challenges –our experience so far

© Deloitte LLP and affiliated entities.

IFRS17 Program Success Factors

Key:

Program Governance

Solution & Transition Approach

Strong Sponsorship & Program Leadership

IFRS17 Programs are driven top down and success relies heavily on:

• A strong sponsorship with clear governance & accountability

• A pivotal and reduced leadership team that can steer the project and foster efficient decision making.

Realistic budget

While strong budget controls, in particular around scoping, are critical, successful IFRS17 programs are built on realistic, appropriate budgets that recogniseand reflect the expected complexity, compliance nature and resource challenges.

Technology first, process optimisation later

IFRS 17 results in complex IT system, data and process impacts across the entire Finance landscape and teams. The process aspects are critical but in many cases they depend on the new architecture & data requirements: these should be the initial priority.

Use Cases

Uses cases are powerful accelerators to structure business requirements, progress in solution testing and secure implementation – using real numbers and real data.

Constant iteration & agile

An agile approach is a key enabler for IFRS17 transformation programs, to help deal with the inherent uncertainty of a Standard that is not yet fully agreed, IT solutions that are not yet complete, and financials that change as the business does.

“Real” financial illustrations ASAP

• "Numbers first"! The context of full-entity results, showing restated opening shareholder equity and expected profits, under both central and possible shock scenarios, gives an irreplaceable sense of direction for the program.

• It also allows key IFRS17 methodology items to be discussed on the basis of real impacts.

Well-defined data model, incl. CoA

The definition of data requirements, including across all reporting and calculation dimensions, is a major challenge. Early stabilization of consistent CoA and KPI requirements and definitions is critical, followed by a clear view of the granularity, frequency & speed of delivery.

Coordinating actuaries, accountants & IT

Enhancing the "One team" spirit must be a top priority as Workstreams tend naturally to work in silos on large scale transformation program.

IFRS 17 with its focus on more robust and granular actuarial data requires a closer integration of actuarial processes into Finance and deep alignment with Data & systems.

Balancing short term & long term vision

Define the 2022 deliverables primarily to bring robust compliance with reliable, business-driven reported financials.

Without diverting from the above, also leverage IFRS 17 as a driver for standardization, centralization and optimization across Finance beyond compliance, and as an enabler for the next step to Digital Finance (cloud, automation, predictive analytics, AI,…).

Whole wall end-to-end data flow picture

A consistent view of end-to-end functional processes and alignment with the data flow and underlying Architecture are key for the project success. Making this very visual to the full team – such as through a wall chart – will help clarify the understanding of the scope, responsibilities, dependencies and interactions.


The Real World


Start Early

It is really hard to predict the numbers without actually running them

What happens if the level of reported profit changes a lot?

What can be done to minimise the change in reported profit?

Learning: understanding then influencing the answers to these questions takes time


Real Numbers

• Meaningful coverage: As much as the full company as practical & meaningful

• Assets & liabilities: Both IFRS 17 and IFRS 9

• Numbers that matter: Balance Sheet, Income Statement & core KPIs

• Historical figures: Restatements & bridging analysis vs current IFRS

• Future figures: Expected results in the next 1-3 years, including new business

• Scenarios: Base case plus shocks to understand volatility management

• Optimisation: Managing the move from current IFRS to future IFRS

• Presentation of results: Impact on Annual Report and Investor Relations packs



Key:

Program Governance






Realistic budget




Use Cases


















Sub-Ledger Build: a Prototype-driven Approach

Methodology &

confirmation of

Use Cases

Prototyping &

development of

Use Cases

Subledger Validation

with Use Cases

(gap analysis)

Full data model

development & testing

Accounting operations

definition & testing

IT environment: selection, design, build, validation & testing

• Sign off requirements• Propose methodology• Agree Use Cases, ie set of

accounting & business events & features types for validation

• Deliver Prototype• Sign off methodology• Release to Subledger team

• Deliver Subledger functionality (requirements, calculations, postings)

• Deliver subledger data requirements & handling

• Deliver subledgeraccounting operations (closing process, reversals, adjustments, audit,…)

• Deliver subledger IT set up (systems, ETLs, cloud, security, governance,…)

• Outside Subledger• Main outputs are E2E Prototype

& business specifications• Owned by accountants &

actuaries

• Inside Subledger• Main outputs are the

Subledger & ETLs• Owned by IT, with

support from accountants & actuaries



Key:

Program Governance






Realistic budget




Use Cases


















Working Together is Essential

• This can only be delivered by accountants, actuaries, controllers & investor relations working together…

• …with senior management (“the ones on the stage”)

• This is harder / less natural than it might sound

• Doing financial illustrations is a great way to “practice” this…

• …and to identify improvements to processes & responsibilities for the future


Working Together is Essential

• All sub-ledgers need to be built by a combination of:

• Accountants, actuaries, controllers & investor relations

• Data & process specialists

• Functional IT specialists

• IT platform specialists

• Using an “End-to-End Prototype” is a great way of identifying who needs to work on which part, in a “safe” environment that everyone can visualise, understand and sign off, before going deep into the IT

32

Appendix

33

IASB meeting on 25-27 February 2020

Available documentation


Agenda papers available

• Agenda Paper 2: Cover note

• Agenda Paper 2A “Contractual service margin attributable to investment services”

• Agenda Paper 2B “Level of aggregation — annual cohorts for insurance contracts with intergenerational

sharing of risks between policyholders”

• Agenda Paper 2C “Applicability of the risk mitigation option—non-derivative financial instruments at fair

value through profit or loss”

• Agenda Paper 2D “Minor amendments”

• Agenda Paper 2E “Additional specific transition modifications and reliefs”

• Agenda Paper 2F “Other topics raised by respondents to the Exposure Draft Amendments to IFRS 17”

34

IASB meeting on 17-19 March 2020

Available documentation


Agenda papers available

• Agenda Paper 2: Cover note

• Agenda Paper 2A “Effective date of IFRS 17 and IFRS 9 temporary exemption in IFRS 4”

• Agenda Paper 2B “Due process steps and permission to balloting”

• Agenda Paper 2C “Overview of the amendments to IFRS 17”

This publication has been written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the contents of this publication. Deloitte AG accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

Deloitte AG is an affiliate of Deloitte NSE LLP, a member firm of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”). DTTL and each of its member firms are legally separate and independent entities. DTTL and Deloitte NSE LLP do not provide services to clients. Please see www.deloitte.com/ch/about to learn more about our global network of member firms.

Deloitte AG is an audit firm recognised and supervised by the Federal Audit Oversight Authority (FAOA) and the Swiss Financial Market Supervisory Authority (FINMA).


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