To ease its transition to the new insurance contract accounting standard IFRS 17 for all its entities worldwide, Manulife will use a module developed by Moody’s Analytics, a unit of the rating agency. In an interview, Moody’s Analytics Head of Insurance Strategy and IFRS 17 Solutions underlined the importance of this issue for Canadian insurers.
Specializing in business intelligence and analytical tools for businesses, Moody’s Analytics offers RiskIntegrity IFRS 17 to all insurers worldwide regardless of their size, in both P&C insurance and credit insurance, along with reinsurers.
This module includes an actuarial component called AXIS IFRS 17, which simplifies the posting of accounting entries to the general ledger in IFRS 17 format. This solution makes it easier to adapt accounting and actuarial data to the IFRS 17 format, the company says.
Manulife must implement IFRS 17 in several parts of the world, not only in Canada. And time is running out. This accounting standard for insurance contract presentation takes effect on Jan. 1, 2022. Although the deadline has already been postponed by one year, many experts still find the transition period very tight.
The delay results from pressure exerted by interest groups around the world. Notably, the Canadian Life and Health Insurance Association (CLHIA) had asked for a two-year deferral.
Manulife needs support
“We have been working on defining our needs for new solutions to meet IFRS 17 requirements and, after a preliminarily trial with Moody’s Analytics, we decided to continue to partner with Moody’s Analytics for their RiskIntegrity IFRS 17 solution and AXIS IFRS 17 Link Module to support us in implementing the new standard,” Jon Bradbury, IFRS 17 Systems Delivery lead at Manulife, explained.
Christophe Burckbuchler, Head of Insurance Strategy and IFRS 17 Solutions at Moody's Analytics, is delighted that Manulife has chosen his firm’s solution “Our existing relationship with Manulife laid the foundation for this collaboration and we look forward to working with their team on another successful project,” he says.
Canada: a major market for Moody’s Analytics
In an exclusive interview with Insurance Journal, Burckbuchler revealed that Canada is fertile ground for opportunities for Moody’s Analytics. He declined to name his other Canadian clients. “While we have a global presence, we have a significant customer base in Canada, which presents a good starting point and foundation for fruitful discussions with our customers about IFRS 17”
While RiskIntegrity IFRS 17 can handle input from multiple upstream systems, it has been designed to be directly fed by the AXIS actuarial system, which is widely used by life insurers, reinsurers, and consulting firms for pricing, reserving, asset and liability management (ALM), financial modeling, capital calculations, and hedging.,” adds Mr. Burckbuchler.
Canada contending with old systems
Canada faces particular challenges not found in other regions. Moody’s Analytics discussed this issue widely with Canadian decision-makers, leveraging its relations with consulting firms and associations such as the Canadian Institute of Actuaries, and the CLHIA, Burckbuchler says.
The level of preparation may also differ. In Europe, most of the insurers have been through some of the challenges of Solvency II, such as improving data quality. In Canada, LICAT is happening, but the impact on the systems is less significant compared to IFRS 17. And actually there haven’t been major impact on insurance systems in Canada for quite a while.
IFRS 17 brings about big change, and the level of preparation of the systems to embrace IFRS 17 is different to what we’ve seen in Europe where there has already been a lot of focus on data quality and availability.
Coming in 2019: granularity and urgency
The fact that IFRS 17 is principle-based leaves many open questions, Burckbuchler says. “As IFRS 17 is principle-based, parts of the standard leave decisions as to methodology and application to the entity, such as the number and scope of contract groups created, which in turn will impact the granularity of calculation and reporting processes.”
As the deadline of Jan. 1, 2022 approaches, the changes are creating a sense of urgency. “The one-year delay is a good thing for the industry as it does give insurers and other stakeholders more time to understand the complexities of the standard”, says Burckbuchler. “However, given the significance of the changes required under IFRS 17, insurers should not slow down implementation. They should be moving ahead with upgrading and supplementing existing systems, preparing new feeds for ledgers…Large companies started this process some time ago, including in Canada and elsewhere”, he adds.
In the USA, where the standard doesn’t apply, some insurers might have to deal with IFRS 17 because they are part of a larger global group or have branches in jurisdictions where they need to report under IFRS 17. We’re in contact with them as many of them are existing clients. But it is not likely to be as big as a market as elsewhere.