The share performance of most insurers continues to be disappointing. While this is principally a reflection of economic uncertainty and market volatility, confusing market reporting has also played a part by making it difficult for analysts and investors to judge the company strategy and discern the true value being created within the business. Investors’ underlying concern is that disjointed disclosures may be symptomatic of poor management information and a lack of strategic coherence.
The planned new IFRS insurance standard (IFRS Phase II) will bring welcome standardisation across insurer’s market reporting. But it will have important implications for product design, the trajectory of earnings and how your business is judged by analysts and investors.
Synergies with Solvency II
A key focus of the continuing debate within Europe over IFRS for insurance contracts is how closely the basis of measurement will correspond to Solvency II
. Alignment between IFRS and Solvency II
would open up valuable synergies in data management, modelling and investor relations and enable companies to avoid the expense and disruption of 'digging up the road twice'.
Cutting through to the real value
We can help your business to sharpen its financial reporting. This includes developing a better understanding of analyst expectations, conveying a more coherent statement of your strategic direction to investors and providing them with the telling information they need to track and rate progress.
We recognise that the complex nature and long-term duration of life insurance business demands a ‘dashboard’ of multiple measures rather than a single measure.
We can help you to identify and refine the particular metrics that best reflect the value being created within your business and provide a clear link between value, cash, capital and risk.
In turn, corporate insurers and reinsurers are finding it difficult to stand out from a largely undifferentiated pack. We can help you to develop and communicate a differentiated strategy that plays to your company strengths.
Rethinking strategy and reporting to tackle investor concerns
Over the last decade, the price/earnings and price/book ratios of many European insurers have fallen to low and undifferentiated levels, and many stock prices have become excessively driven by short-term macro issues. While the main factor behind this has been the exceptionally challenging market and economic backdrop, seemingly unconnected disclosures and reporting bases have been a major contributory factor.
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Gearing up for the new IFRS
The original timetable has been put back to allow more time to secure a consensus on outstanding issues including how to address potential earnings volatility.
Full convergence between IFRS and US GAAP insurance accounting now seems unlikely, though there will be a number of common features in the new standards.
Further consultations on IFRS Phase II are due in 2013 (‘re-exposure draft’), ahead of the likely publication of a finalised standard in early 2014. While your business would then have three years to implement the new standard, early adoption would be possible.
One of the key considerations is therefore whether to bring the timetables for IFRS Phase II and Solvency II Pillar 3 implementation into line within your business as far as is possible to avoid digging up the road more than once. The added benefit would be to bring a relatively early end to a period of substantial financial reporting change and disruption and allow you to focus on the core business.
It will also be important to consider whether the returns on products being written now could change once IFRS Phase II and Solvency II go through.
The underlying challenge is how to look at the business when the ‘language’ of management information and criteria for judging performance are set for so much change and potential complication. How will this affect the way you make decisions and are frontline teams ready for the ramifications?