Implementing AASB 17

Tackling AASB 17 in Life Insurers

In recent years we have helped a number of life companies with projects providing guidance, resources and implementation support. The most urgent challenge for life companies, including a number of friendly societies, has been to implement AASB / IFRS 17, the new global accounting standard for insurance contracts.  Where a life company offers products with an insurance risk element, AASB 17 forces it to apply the standard to all of its contracts, including capital guaranteed investment account contracts.  Implementing the new standard is a major project and requires a significant amount of actuarial expertise and resources.

Observations and learnings from our AASB17 project experience

  • The amount of detailed investigation / assessment work up-front required by clients’ own accounting and actuarial staff, and external advisers has been huge – even more than most pessimists including ourselves envisaged.
  • Engage with your auditors early on proposed documented methodologies to ensure they have had time to think deeply and give feedback about your proposed approaches.
  • Determine materiality – insurer’s views and auditors views.
  • Document your analysis of every AASB17 element thoroughly with full rationale for your approach – e.g. coverage period, contract boundary, risk adjustment approach etc.
  • Many of the data requirements for input to actuarial systems are already there – through member level data and past reporting assumptions for Margin on Services reporting. But AASB 17 requires these inputs to be grouped and reported (output) as multiple cohorts. Changes to data recording and storage systems may be needed to enable the depth of reporting required in the AASB 17 financial statements and disclosures.
  • Pre-existing Actuarial systems for Margin on Services reporting are a sound foundation for AASB 17. Fulfillment cash flow identification and their projection are largely already in place for most products.
  • The devil is in the detail. Contract boundaries, product terms etc are not always what they first seem. Another reason to fully document rationale and evidence for methodology decisions.
  • Risk adjustment methodology and calculations can piggyback off capital stress testing scenarios.
  • Remember that APRA reporting based on AASB17 starts with the September 2023 quarter end.
 

Observations from International Congress of Actuaries sessions on IFRS17

The Congress was held at the end of May in Sydney and there was a session entitled IFRS-17 – Now the Rubber Hits the Road.  Dr Andreas Barckow, Chairman of the International Accounting Standards Board, and a panel of analysts, preparers and regulators, discussed the progress of data collection for IFRS 17, the upcoming first issue of IFRS 17 results and the implications the new standard has for actuaries.

 Our key takeaways from this global perspective were:

  • Accountants, actuaries and auditors have all struggled with interpreting the standard and the objective of consistency is a long way from being achieved. This has happened within insurers, within countries and between countries / jurisdictions across the globe!
  • Dr Barckow expected it will take some years before market consistency emerges. He is not overly concerned, given that it is a principles based standard – he sees the reliance is on auditors’ interpretations and judgement.
  • The pain and cost of implementation has and is being deeply felt.
  • AASB 17 results can be very difficult to check / review from a reasonableness perspective because of the extent of the change in basis from historical reporting.
 

We look forward to helping more Australian life insurers successfully deal with local and global challenges through our actuarial expertise.

Sean and Neekhil

Sean, Neekhil and the team at McGing Advisory & Actuarial provide a wide range of consulting services across superannuation, wealth management, life insurance, actuarial, risk management, investments and governance.