Michael Shean
Insurance SME
Michael works closely with insurance firms based in the UK and Europe to transform their operations, data management, accounting, and client reporting. Michael has experience in developing world-class solutions for investment operations and has helped many clients streamline their middle- and back-office processes.
Michael has a bachelor’s degree in investment management and accounting from Stellenbosch University and a post graduate in financial analysis and portfolio management from the University of Cape Town in South Africa.
Clearwater recently conducted an industry survey to examine the readiness of the industry for International Financial Reporting Standard 9. IFRS 9 has been delayed along with IFRS 17 to January 2023.
The message from Clearwater’s survey report is clear: there is plenty that insurers should be doing now.
This was the view shared by PwC in its updated advice (Ref: “IFRS 9 for insurers”, April 2020) calling on insurers to act now. The PwC report identifies key actions that insurers should be doing now across each of the key IFRS 9 areas of classification and measurement, impairment and disclosures.
Why Now?
IFRS 9 has been delayed but we see urgency from our clients and industry experts to start preparations for implementation.
Potential mismatches between IFRS 9 and 17 should be identified and resolved in advance using comparative information generated in the two years leading up to the January 2023 date. There are disclosures that are already required by IFRS 9 insurers.
At a minimum, insurers need a full year of parallel running before they go live in January 2023. There is a significant amount to be done to get insurers to that point. Industry indicators and our survey findings suggest that the expected timeline is a minimum of 12 months, and in some cases longer. Based on the implementations Clearwater has completed to date, however, our clients’ estimated implementation period is reduced to 6 to 9 months.
Impairment and disclosure are where most cost and time will be needed in preparation. Insurers need to interpret the new impairment requirements and analyze the impact on their investment portfolio. Once they have ascertained what data is required and where it will be sourced from, new systems or modifications to existing systems are likely to be required. Collaboration with existing and potentially new third-parties (e.g. asset managers and system providers) should also be factored into the timeline.
The Data Challenge
More data is required under IFRS 9. This data brings a higher level of transparency but our survey identified that procuring this data is where insurers will face the biggest challenges, specifically data calculation around ECL, reporting and disclosures, data collection around SSPI data, and accounting policy changes.
PwC reported that, “IFRS 9 and IFRS 17 will require extra data and are expected to tighten reporting timetables. Aligning IFRS 9 and IFRS 17 implementation can provide an important foundation for modernizing the finance function, enabling insurers to proactively address these challenges. The potential benefits of modernization include faster year‑end close, real-time performance data and deeper insights into commercial threats and opportunities.”
Clearwater for IFRS 9
Clearwater is a SaaS based investment accounting and reporting solution. We have an out-of-the-box solution with the IFRS 9 data points and reports that have been validated and tested and are ready.
Clearwater’s centralized data approach helps clients alleviate the data challenges and reduce the implementation timeline. Data is at the core of the solution — Clearwater aggregates, validates, and reconciles investment data on a daily basis. All insurer’s portfolio data including the new IFRS 9 data points is stored in one place. This means that insurers have one central data source that houses all their accounting data and journals to perform the necessary calculations and easily generate their IFRS 9 disclosure reports.
The View from Beyond
Insurers that have already implemented have seen the benefits of early adoption, as described in a recent case study conducted by Clearwater (Adopting IFRS 9: A Case Study for Insurers) in conjunction with J.P. Morgan Asset Management. “As some insurers may see a minimal impact from the new reporting standard at first, it’s probably worthwhile taking a gradual approach to the transition to IFRS 9 to reduce workload and ensure timely implementation before the regulatory deadlines. The objective is to have everything in working order, with a robust business-as-usual structure and reliable quarterly updates, even if the initial impact is relatively limited. Ultimately, while the change to IFRS 9 is challenging, it is well worth the upfront efforts.”
To learn more, download the 2020 IFRS 9 Survey Report.