Colin Holmes, managing director at Moody's Analytics, explains how the solutions provider can help insurers get the most value from implementing the IFRS accounting standard for insurance contracts
What do your clients typically report as their main challenges with IFRS 17?
The issues involved with IFRS 17 can be split into two elements. In the first place, it is a new standard, and like Solvency II, it requires new business processes that firms must design, implement and operationalise. Second, this creates a significant change to reported financials, creating a new set of metrics that insurers must use for running their businesses and communicating with investors – creating another challenge. Of course, it is not just about IFRS 17. On the asset side of the balance sheet there is IFRS 9 to prepare for, and this is an area where our credit modelling expertise positions us well to support insurers in managing this change alongside IFRS 17. At Moody's Analytics, we see our role as offering solutions to firms to deal with all these challenges.
How can Moody's Analytics help insurers with IFRS 17 implementation?
Our teams have a long-track record, both in delivering enterprise software that supports the process, and in delivering the complex actuarial and financial modelling that is central to IFRS 17. Our 'vendor-maintained' approach – which is markedly different to most solution providers – is to build this expertise into our software solutions, delivering comprehensive solutions that add value by reducing implementation cost and risk, and that support our customers running effective operations.
Since IFRS 17 is principles-based, how can Moody's Analytics help insurers interpret the standard?
If IFRS 17 was a set of rules explaining exactly how to do calculations, in one sense, the industry's challenge would be much easier! However, this might not lead to the most helpful outcomes in terms of representing financial performance. The actuaries in our firm, and more broadly in the industry, add great value to this process by developing appropriate interpretations of the standard that do ultimately provide insight on firms' financial performance. This is undoubtedly a challenge, but I suppose if it was easy it would not be so interesting!
What new IFRS 17 functionality is Moody's Analytics planning to launch this year?
Our primary focus right now is on supporting our customers as they move towards the preparation of financial statements under IFRS 17 and we continue to develop functionality that will enable firms to do this. Part of this is evolving modelling solutions as clarity emerges around interpretation of the standard. As an example, following the IASB's recent clarification on treatment of profit-sharing contracts, we are developing a methodology to help our customers deal with this challenging technical area.
Another key element for firms is selecting the discount rates to be used in the calculations. We have recently launched our IFRS17 discount rates service which addresses methodology and operational challenges for firms, and is creating a lot of interest.
Finally, looking further ahead, firms' financial planning processes will need to evolve in order to support the change from IFRS 4 to IFRS 17. We have existing capabilities in this area and are engaging with customers to understand their needs, as the focus evolves from the calculation of actuals, towards risk and financial management under IFRS.
