How insurers are handling IFRS 17 reporting requirements

This is the first quarter insurers are reporting financial results under IFRS 17, but insurers remain focused on familiar, pre-IFRS 17 business metrics, a KPMG Canada partner said during Insurance Bureau of Canada’s (IBC) 26th Financial Affairs Symposium.

“While we have IFRS, the vast majority of users who are looking at our business aren’t as focused on that and still want to understand the core business operations,” said Bobby Thompson, partner in KPMG Canada’s audit practice. “And what that’s really done is it’s put a lot of emphasis on some of the metrics that we’re familiar with.”

For example, in press releases announcing 2023 Q1 financial results, some insurers prominently feature metrics like gross written premiums, or “operating results, how the company did and where it’s headed,” Thompson said. In other cases, IFRS 17 is not mentioned until later or toward the bottom of the release.

“That’s a consistent trend across the whole market. The reason why I think you see a lot of the press releases focus on those key operational and business drivers is because that is how the board views its business, and they’re trying to learn [IFRS 17] in that context.”

There is a desire to normalize results as opposed to redefine them, Thompson added. In other words, insurers are trying to understand what IFRS 17 means to their fundamentals and how to track “apples to apples” before and after the insurance accounting standard came into place. “That’s really the trend and I think that’s going to persist.”

Nevertheless, almost all insurers—about 96% of the industry—filed their IFRS 17 requirements on time, Darrell Leadbetter, senior director, insurance and pension supervision at OSFI shared during the morning session.

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From a P&C key performance indicator (KPI) perspective, significant changes were not expected in many areas, such as combined, claims and expenses ratios, and operating income. “Ultimately, the KPIs we’re seeing have a foot in the past, and maybe on the life side more so have a foot towards the future.”

One KPI in particular—gross written premiums—will likely remain key, Thompson suggested. “This metric I don’t expect to change in my career,” he said. “I could be wrong… but I will say that this is one that people are anchored to. I just don’t see it going away.”

Generally speaking, when reading a set of financial statements, “I’m really dissecting the insurance results from the investment results to see how much compensation I’m getting from my investments versus how much I’m recovering on the premiums,” Thompson said.

IFRS 17 implementation involved a lot of effort from the industry. “One of the things I’ll say that I noticed coming out of Q1 is people worked really, really hard,” Thompson said.

Many insurers took a small lift in their minimum capital test (MCT) or life insurance capital adequacy test (LICAT) calculations. “I think as certain refinements are made, there may be strengthening of reserves in key areas that may drive a small walk back; not material walk back, but a small walk back.”

Thompson anticipates “a big wave of refinements and efficiencies” in IFRS 17 reporting over the next couple quarters, and perhaps even into year end.

“For a lot of people, they MacGyvered this quarter, which means they put it together with shoestrings and bubble gum and got it across the finish line and did what they had to do — lots of manual adjustments,” he said. “I can’t tell you the number of people who called and said, ‘I have what seems to be a material error in my financial statements and I’m trying to figure out where it comes from in the system.’

Smaller and mid-sized companies in particular (less so for the largest companies) will need to make refinements to their IFRS 17 reporting requirements, Thompson said.

“There also wasn’t that strategic chance to look back and say, ‘Does this reflect what we actually did in the quarter?’ especially if you don’t have public company reporting obligations. I think a lot of the C-suite and board are going to be looking for more of that reflection.”

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