Standard bearer – Leading the IFRS 17 charge

With wins for regulatory reporting, economic scenario generation, Solvency II and stress-testing products in the 2018 Risk.net Market Technology Awards, Moody’s Analytics is well positioned to meet the demands of changing regulation such as IFRS 17. Colin Holmes, managing director of insurance solutions, discusses some of the solutions to meet these challenges

Now that Solvency II is largely in place, European insurers are looking for solutions that enable them to make effective decisions in a world where Solvency II capital is just one of many metrics to manage. In other parts of the world, the expected introduction of economic solvency regimes is creating similar challenges. In addition, the International Financial Reporting Standard for insurance contract accounting (IFRS 17), issued in May, is already impacting insurers globally.  

In this environment, insurers are increasingly demanding solutions that provide them with insight into the impact of external factors. They are also looking to address ‘what-if’ questions and scenarios from senior management relating to their balance sheets, and the capital implications of their decisions and external factors. Typically, firms can only answer these questions with manual effort, creating delays of days or weeks, and with ad hoc calculations that undermine confidence in results.  

Insurers today are required to run an increasing number of scenarios, for example for the Swiss Solvency Test (SST), Solvency II, market consistent embedded value (MCEV) and the Own Risk and Solvency Assessment (Orsa). Often the timelines for these scenarios overlap. Processing such complex analyses is time-consuming, and the required timelines are becoming tighter. As a result, firms continue to invest in solutions that offer speed and run-time benefits, as well as the ability to accurately value liabilities and produce high-quality validations.

The changing regulatory landscape and current market environment are also creating challenges for the establishment and management of insurers’ investment strategies. Insurers want to understand the impact of investment strategies on regulatory capital requirements, finance and risk metrics, identify new investment strategies to enhance yield, access alternative or illiquid assets and design a framework for more integrated modelling of assets and liabilities. Platforms that improve portfolio and capital strategy while enabling asset-liability management (ALM) to be fully integrated into the business’s management, support financial management across the insurance, finance, risk and investment functions, will continue to be a focus for insurers.

The new IFRS 17 accounting standard becomes effective for the 2021 reporting year. The standard applies a principles-based approach, which requires interpretation, and practices are likely to evolve differently in different markets. IFRS 17 is going to have a significant impact that extends far beyond the finance department. The calculation and disclosure requirements are driving closer alignment between actuarial and finance departments. As firms implement the new financial reporting process, they will need to change the way they measure financial performance. 

Moody’s Analytics is well placed to support insurers in meeting these demands, given its breadth and depth of experience across actuarial modelling, software and economics. With our vendor-maintained approach to software, we are constantly enhancing our existing solutions and developing new capabilities. For example, our new RiskIntegrity™ Insight software enables managers to address what-if questions, providing a controlled, robust solution that uses existing modelling to generate business insight. Our portfolio modelling suite meets the needs of investment and ALM teams in constructing and monitoring asset portfolios. And, for IFRS 17, we are developing software to calculate the contractual service margin. 

We continue to invest in our core business while building out these new capabilities. As an example, we have continued to enhance our economic scenario generation Automation Module to increase its flexibility and performance, for instance, by adding more parallelisation capabilities to reduce run times. These capabilities, alongside our latest innovations, give Moody’s Analytics a unique ability to help the industry meet its most pressing challenges.

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