IFRS 17 solutions provider of the year: Oracle Financial Services

The transition to the International Financial Reporting Standard 17 (IFRS 17), which affects insurance contracts, remains a challenge for firms as it is a radical departure from current accounting standards.

IFRS 17 gives investors and stakeholders a realistic view of an insurer’s or reinsurer’s risk exposure, profitability and financial status. The new standard, which replaces IFRS 4 on accounting for insurance contracts, requires firms to measure insurance contracts using updated estimates and assumptions that reflect the timing of cashflows and uncertainties relating to insurance contracts.

IFRS 17 expects profits to be recognised as it delivers insurance services and insurance contract profits that it expects to recognise in the future.

To achieve compliance quickly and efficiently, insurers are looking for an approach that incorporates risk into the decision-making process. Oracle Financial Services’ IFRS 17 Analyzer helps insurance companies do just that.

Oracle has a dedicated team of more than 50 developers working with analysts and product managers, including actuarial experts and qualified accountants.

Although the International Accounting Standards Board has again delayed the implementation of IFRS 17 to January 2023, meeting this standard remains a challenge.

Geetika Chopra, product strategy at Oracle Financial Services, says IFRS 17 has introduced many new concepts in calculating insurance liability and the release of profit. “Further, IFRS 17 being a principles-based standard, the calculations differ from product to product and from entity to entity needing complex modelled cashflows for the required calculations and disclosures,” she says.

Oracle’s IFRS 17 Analyzer solution addresses specific regional nuances and offers prebuilt content developed by in-house actuarial experts and accountants for the General Measurement Model, Variable Fee Approach and Premium Allocation Approach approaches.

The solution can conduct parallel runs for the direct insurance, and the reinsurance held computations and check for inter-relation computation based on the onerousness of the underlying contracts.

Also built in is a seeded chart of accounts and a standard set of accounting journals that will aid the knowledge gap the new standard introduces.

It is designed to be extensible and transparent to meet the needs of auditors and stakeholders. Oracle says the application is a white box end-to-end accounting solution for insurance contracts and financial instruments, with downstream sub-ledgers for IFRS 9, 13 and 17.

Using the IFRS 17 Analyzer, firms can calculate each contract’s net liability by using the present value of the cashflows, risk adjustments and assumptions. The prebuilt templates for the computation of contractual service margin (CSM) and liability of incurred claims in the Analyzer’s user interface help insurers start the implementation process with minimal configurations.

Chopra says this is critical as these implementations involve multi-disciplinary teams working together, which may require tweaks in the computations to be user-specific.

The CSM, profitability and liability numbers should be reflected in postings into a general ledger. The process of converting the numbers in postings can be error-prone unless the system is seamless. This is why, Chopra says, most insurers need an end-to-end application rolling downstream into a general ledger, with a sub-ledger capability within their IFRS 17 solution.

Oracle’s IFRS 17 Analyzer also comes with a sub-ledger functionality and a sample set of charts of accounts and accounting rules. “These accounting rules are designed to cater to the complexities of accounting for onerous contracts turning profitable at a future date and vice-versa. The solution also comes with a productised interface with Oracle’s accounting hub for an end-to-end seamless architecture for downstream accounting,” he says.

IFRS 17 also requires the data to be at a much granular level and from multiple sources. Oracle’s insurance data model consolidates data from various source systems, such as, policy administration, claims management, actuarial systems, market data providers, enterprise data, and so on.

The Analyzer can receive these cashflows from multiple actuarial runs and transaction systems at any granularity and convert these to specific variables required for IFRS 17 computations.

The model can be extended to serve as a platform for sourcing and provisioning insurance-related risk, finance and actuarial data, and cater to various business use cases of an insurance enterprise.

The system validates input data through pre-configured data-quality checks and a reconciliation framework to ensure balances between transaction and analytical systems match before it is used for computing and reporting.

Oracle says its investments in next-generation architecture and cloud-based applications will place its accounting applications on the new technology stack in the next year or two. Clients looking for cloud availability can now choose multiple options to fit their needs; for example, they can opt for cloud-managed services.

One of the judges for this category says there is good synergy between Oracle’s IFRS 17 Analyzer and its other solutions, and notes that its cloud-based applications are still developing. Another judge says Oracle has a large installed base of insurance customers who have good experience with its core products.