IFRS 17 Implementation Benchmarking Survey 2020 Smart followers need to move faster Contents Executive summary .......................................................3 IFRS implementation timeline ........................................5 Key findings 1. Implementation and readiness ...............................6 2. Budgets and sponsors ...........................................9 3. Implementation challenges ....................................11 4. Technology and providers ......................................13 5. Implementation approaches ..................................16 6. Investor relations and IFRS 17 ...............................21 Lessons learned from successful implementations ...........22 Contacts ......................................................................23 2 | IFRS 17 Implementation Benchmarking Survey 2020 Executive summary The results of EY’s IFRS 17 Implementation findings relative to the challenges and current readiness levels for entities in different regions and at different stages of the project. Benchmarking Survey 2020 confirms that It also includes recommended actions for how insurers can move the new standard is proving to be quite a forward on their IFRS 17 implementation journeys. challenge for most insurers. For further insights into IFRS 17, including how your organization compares to these research results, please contact your local EY This is not surprising, given that IFRS 17 is the most significant representative (see page 23). change to insurance accounting requirements in over 20 years (see sidebar). Along with the complexity of the standard, the uncertainty About the EY IFRS 17 about the elements of IFRS 17 that are not yet finalized makes implementation extremely difficult. Significant investments of Implementation Benchmarking both cash and management time are required. Even though the implementation deadline has been extended again, there is clear Survey 2020 urgency for insurers to finalize implementation planning and move Objective: Understand where insurers are in their implementation on to executing those plans. journeys and identify the common challenges and focus areas for the market The survey findings clarify the state of IFRS 17 readiness on the front lines of implementation. The clear takeaways for insurance number of participating insurers (including life, composite, leaders in charge of implementation programs include: 45 reinsurance and non-life businesses) • 66% of respondents classified themselves as “smart followers.” With the exception of some large global insurers, countries across Europe, Asia and the Americas most insurers are behind where they need to be in their 19 implementation project. Notes: • The size of budgets varies widely and depends largely on the • Data about budgets and software and technology vendors featured complexity of the business, as well as different definitions of in this report includes both survey results and inputs from other IFRS 17 costs. Given the large number of unknowns in IFRS 17 EY research. implementation, the overall spend is likely to be much higher • Findings are based on the expected effective date of 2022, which than originally estimated. is based on the proposed amendment in the June 2019 Exposure • Data and systems are top of mind as insurers plan their IFRS Draft (ED). 17 implementations. Significant data must be processed and stored to meet the new measurement and reporting requirements. Sourcing quality data at the level of granularity required by IFRS About IFRS 17 17 is proving to be the most significant implementation challenge. In May 2017, the International Accounting Standards Board • More than 50% of insurers have not yet selected an IFRS 17 (IASB) issued IFRS 17 Insurance Contracts (IFRS 17, or the system or vendor. For those that have, there are a few leaders standard) — the most significant change to insurance accounting among the system vendors available. All software solutions are requirements in over 20 years. still works in progress that present a degree of risk at this stage of development. At the time of publication, IFRS 17 is still not finalized, and the final amendments are expected to be issues in the second The following report provides more detail into these and other quarter of 2020. However, following the IASB Board meeting in March 2020, the IASB confirmed the effective date of IFRS 17 has been deferred to 1 January 2023. 3 | IFRS 17 Implementation Benchmarking Survey 2020 IFRS 17 Implementation Benchmarking Survey 2020 results confirm that there is much work for insurers to do, especially relative to data challenges. of respondents classified themselves 66% as “smart followers” of respondents have completed detailed 14% planning with 32% significantly advanced 54% are in the early stages of planning have completed the implementation and 11% testing phase of insurers that have made a vendor decision have opted for Sub-Ledger solutions as their 80% preferred IFRS 17 solution the position of granularity required for IFRS 17 reporting and measurement among all #1 data sourcing challenges of respondents plan to mitigate resource 45% shortages with the use of consultants 4 | IFRS 17 Implementation Benchmarking Survey 2020 IFRS 17 implementation timeline assuming an implementation date of 1 January 2023 Phase 2: 2020 Phase 3b: 2021/2022 Solution End-to-end test Phase 5: 2023 design and validate Full IFRS 17 • Deploy IFRS resources • pdate o actuarial models completed BAU reporting • Develop accounting policies • pgrade o systems completed • IFRS go live • Complete etaile • Integrate test production environment • Develop YE 2021 IFRS gap analyses • Create year-en (YE 2019 test 17 balance sheet • Create business requirements balance sheet with comparatives document • Develop quarterly proforma • Develop YE 2021 IFRS • Decide on technology platforms statements and isclosures 17 isclosures • Complete venor assessment • Provide training on requirements, • Execute quarterly systems an processes or testers • Develop IFRS production runs reporting solutions • Complete systems integration testing • Perform project close • Design solution architecture an user acceptance testing • Close IFRS 4 reporting • Develop transition to parallel • Develop etaile an archive reporting environment implementation roamap environment • Develop target operating 1 January 2021 1 January 2022 model (TM) YE 2020 opening Previous 1 January 2023 May 2017 balance sheet implementation deadline Delayed • Buil assumption implementation deadline IFRS 17 Issued management capability Original implementation deadline 2017 2018 2019 2020 2021 2022 2023 Phase2 Phase 1: 2017–2020 Phase 3a: 2021 Phase 4: 2022 Impact Build and Transition and assessment unit test parallel runs • Analysis o IFRS requirements an implications • Review timeline or changes ue to • Implement TOM delaye implementation ate • Complete financial and operational impact analyses • Perform parallel quarterly runs o en • Develop initial gap analyses • pgrade ata warehousing capabilities to en IFRS reporting process • Decide on contractual service margin (CSM • Complete enterprise ata lake an • Create YE 2020 opening balance sheet data interfaces development (actuarial vs. finance-driven) • Develop quarterly proforma statements • Develop IFRS implementation budget an resources • Design an implement accounting and isclosures rules/journal entry logics • Develop high level implementation roadmap • Provide training on requirements, • Develop CSM engine systems and processes • pdate actuarial models • Provide training on requirements, • pdate chart o accounts (COA an systems an processes or go live an analysis of earnings business as usual (BAU) • Document accounting policies, • Transition to go live an BAU judgments an methoologies • Develop proforma statements and isclosures • Embe governance an controls throughout organization 5 | IFRS 17 Implementation Benchmarking Survey 2020 Key finding 1 Implementation and readiness: Most insurers are lagging in their implementations and are unsure about meeting the deadline Most survey respondents have classified themselves as “smart How would you classify your company’s response to IFRS 17? followers.” However, the reality is that most insurers are behind where they need to be. Only 60% have completed gap analyses and impact assessments. Only slightly more than 10% have Involuntary Leader significantly advanced into implementation and testing. laggard 20% Larger insurers tend to be further along in build phases 5% compared to their smaller peers. Almost all large insurers have reached the build phase in their implementation programs, and some implementation “leaders” — primarily in Asia and Europe Purposeful laggard — are in the execution and dry-run stage. Compared to European Smart follower insurers, Asian organizations tend to be slightly more advanced 9% in phases 1 and 2 of implementation. 66% To ensure readiness for the implementation date, it’s important that insurers continue with their implementation efforts and do not fall any further behind with their programs. Where are you in the following implementation phases? (Answers as of July/August 2019) Not starte Starte Significantly advanced Complete Phase 1 – gap analysis an impact assessment 2% 14% 25% 59% Phase 2 – etaile planning an esign 9% 45% 32% 14% Phase 3a – implementation an testing 48% 39% 11% 2% Phase 3b – transition an parallel run 82% 16% 2% Phase 4 – postimplementation support *Based on responses from July/Aug 2019 98% 2% 6 | IFRS 17 Implementation