By Danielle Atherton and Brian O'Loughlin
Over the past 12 months the impact of transitioning to IFRS 17 has become increasingly apparent. Gaining this information was initially difficult as insurers gave broad indications and qualitative information on key metrics such as shareholder equity and Contractual Services Margin (CSM).
However, at YE22, known or reasonably estimable impacts needed to be disclosed under IAS 8. This requirement, along with more time to understand and evaluate the impact of IFRS 17, has enabled insurers to better provide details on; the implications of IFRS 17, how existing KPIs have changed and new KPIs that have been introduced.
Further information emerged through investor presentations ahead of HY23 reporting where most insurers provided more detail on transition impacts and the implications for the 2022 comparative period.
Our analysis last month revealed three key themes including; differing HY practices, differing KPI definitions and the potential challenges ahead of YE reporting.
At HY23, the types of disclosures and level of detail included within these disclosures differed between insurers. This was expected given limited disclosure requirements for interim reporting and the IFRS 17 basis being used for the first time. We also saw differences in KPI definitions from updated definitions of existing KPIs, such as adjusted operating profit and combined ratio, to differing definitions for new metrics such as New Business Value based on the CSM.
The Financial Reporting Council (FRC) in the UK also recently conducted a Thematic Review on IFRS 17 interim disclosures. This review outlined areas for improvement for insurers including making accounting policies company-specific, providing sufficiently detailed disclosure of significant judgements and estimates, providing methods and assumptions used to measure contracts at the transition date and determining appropriate levels of aggregation that provide the most useful disclosure to readers of the accounts. A helpful, albeit additional, ‘to do’ list for the year-end ahead.
In terms of potential challenges ahead, insurers who provided limited IFRS 17 disclosures at HY23 will have more to do for YE23 to complete the work necessary to populate both 2022 and 2023 mandatory disclosures for the year end accounts. In addition, subsidiaries that report on an IFRS, as opposed to a UK GAAP basis, will need to externally report under IFRS 17 for the first time at YE23.
Despite the level of effort required, there are things that insurers can and should be doing as they prepare for YE23 reporting.
While IFRS 17 disclosures at HY23 were, to some degree, voluntary, additional year-on-year IFRS 17 comparative disclosures are mandated at year-end for group and in-scope subsidiary accounts. As it’s mandatory that these are disclosed, insurers need to be clear on what they are and how they will be produced and will need to provide oversight of the likely narrative to the Audit Committee / Board.
As you prepare for year-end, reach out to your local PwC contact to hear about these focus areas. We’re continuing to support Life, General Insurance and Reinsurance firms with their final sprints ahead of FY23 reporting, both as their auditor or implementation partner.