Legerity recently hosted a webinar examining the primary design and implementation considerations for ceded reinsurance under IFRS17.

IFRS17 is itself a complex accounting standard, however, the challenges of how to implement reinsurance arrangements in the optimal way are testing even the most advanced implementations.

IFRS17 requires you to separate the accounting for ceded reinsurance, as opposed to previous reporting standards where underlying insurance and reinsurance contracts could be bundled together. Several areas are particularly challenging in measuring reinsurance contracts such as netting of cashflows, pre-coverage cashflows and defining the contract boundary.

“The ambiguity around the Reinsurance requirements within the standard is causing delays to methodology decisions and ultimately implementation.

Whilst reinsurance within the standard has gone through consultation and revision, the main challenge remains the need to model and calculate a CSM for reinsurance treaties separately to the underlying contracts.”

KPMG - UK Life Finance of the Future 2019 Benchmarking Reports (December 2019)

During the webinar, we asked an audience of 350 insurance specialists at what stage their firms were in tackling reinsurance within their IFRS17 projects.

Not Started 12%
Thinking About Design 37%
Started Implementation 34%
Final Stages 4%
Not Sure 12%

Early Stages

12% of the audience have yet to start tackling reinsurance, and a large part of the audience – 37% – are thinking about design, so almost half the respondents are in earlier stages of tackling the challenges of reinsurance on their IFRS17 programs.

Some of the key considerations we have observed, regarding reinsurance, to think about during the design phase:

  • Ceded Reinsurance CSM can be asset or liability
  • Accounting for risk adjustment for ceded reinsurance as an asset
  • Non-performance reserve to be included in the measurement of FCF
  • Create a link for calculations for reinsurance loss recovery component
  • Ability to report business with and without reinsurance
  • Where underlying contracts PAA but reinsurance GMM, try to apply the PAA principles to measure the reinsurance loss recovery component

Implementation Phase

It was good to see that a third – 34% – of the audience have started implementing reinsurance. Our experience of implementation, particularly around ceded reinsurance, is that it can take some time and there are several hurdles to overcome.

The Reinsurance Loss Recovery Component (RLRC) is an example of such a hurdle – a technical topic that is a really important part of implementing IFRS17. The RLRC is the gain allowed in a reinsurance group to partially offset a loss component recognised in an onerous underlying contract group or groups.

As with many parts of the standard, the RLRC is one of the more challenging aspects that tends to get addressed at the end of projects.  This can be an issue where the approach for the RLRC affects aspects of the design already implemented and tested.

Final Stages

Well done to the 4% in the final stages of implementing reinsurance. You are ahead of the market.

The January 2023 deadline for IFRS17 is fast approaching, so identifying an effective route to compliance is now a pressing need for many firms.

FastPost Express is everything you need to be IFRS17 compliant, quickly, with no fuss.

It reduces your implementation time, complexity and expense; giving you regulatory peace of mind and a clear path into the future as your business evolves.

FastPost Express gives you an enterprise grade IFRS17 solution, preconfigured, and SaaS delivered, from a team with a track record of success.

To view an online recording of our Challenges of Reinsurance for IFRS17 webinar please click here.

Contact Us

To find out more about Legerity FastPost, our IFRS17 Foundation solution, or how we can support your organisation on its finance transformation journey, please get in touch at info@legerityfinancials.com.

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