AASB 17 insurance contracts update

For the past few years, life insurance companies have been diligently planning and developing the system changes necessary to support the new accounting standard AASB 17 – Insurance Contracts.  It remains one of the larger challenges life insurance companies are tackling today as the start date of this standard approaches. These challenges include:

  • Amending administration, accounting, and actuarial systems to:
    • capture new data items
    • calculate a wide range of reporting variables
    • store the new data and variables
    • report and disclose the required output
  • Understanding and implementing the extensive changes to APRA’s updated capital and reporting frameworks, including:
    • the regulatory capital calculations
    • use of AASB 17 accounting policies and principles for reported financial statement information required by APRA
    • additional data reporting requirements for APRA’s capital assessments and profitability monitoring
    • revised life insurance prudential standards, including extensive revisions to LPS 340 – Valuation of Policy Liabilities.

However, these requirements do not simplify the already complex process of AASB 17 implementation. There are a range of approaches for reporting variables, nuances from company to company, and the interaction with the Life Act. These are examples of the discussions needing to take place sooner rather than later. They must be implemented before Day 1.

For late starters, who have struggled with interpreting the standard, the experience of others in your life insurer network and consultants with hands on experience, will be highly beneficial to achieving the reduced timeframe and provide guidance on the many intricacies which require a good level of understanding to navigate efficiently.

The cost of the implementation, as with any major regulatory change, can be severe. Further, any system change needs to be carefully planned and managed, including thorough testing to minimise the risk of possible errors. AASB 17 has multiple systems, several changes and additions across data, calculations reporting, and disclosing, which multiplies the price. Resource shortages for specialist AASB 17 IT, accounting, and actuarial people, inflate the cost further. These are costs which will need to be recouped from future profitable business.

So back to the grindstone to meet the AASB 17 challenge and next year’s fast approaching moment of truth.

Sankarshan

About the Author:

Sankarshan Muralitharan is an actuarial analyst at McGing and has worked on a number of AASB / IFRS 17 projects for life insurers and friendly societies.