Financial reporting

We assist insurers in addressing new and existing requirements by assessing the financial and business impacts of guidance, building implementation plans, and implementing the relevant requirements across areas of financial reporting change (e.g., insurance contracts and principles-based reserves). Changes in regulatory and reporting requirements will place significant demands on actuarial, finance, and risk departments, so we focus on providing our clients with insights into various accounting changes and their business impacts, modeling services to assess the impact of reporting changes on balance sheets and profit and loss statements, impact and readiness assessments, and implementation assistance.

Key financial reporting concerns currently facing insurers are:

Insurance contracts

Insurers currently use a variety of approaches to measure the value of the contracts within their U.S. GAAP and/or IFRS financial statements. Proposed guidance from the FASB and IASB provide new standards that would require fundamental change in accounting and how information is presented to stakeholders, including business leaders, investors, and rating agencies.

Such changes include revised approaches to financial reporting, which would require updated strategies to deal with increased financial statement volatility, significant changes to disclosures, and new analysis requirements; business strategy, including stakeholder education, product design, and budgeting functions; operations, including new or revised financial, IT, and actuarial controls and processes as well as functional area resources and staffing; and upgrades or overhauls of systems, including reporting methods, actuarial infrastructure, risk management, and data management capabilities.

Potential issues

  • A lack of understanding of the insurance contracts accounting standard and implications for stakeholders
  • Development of and/or enhancements to models for existing and new business needed to conform with the proposed standard
  • The need for an impact analysis of the proposed standard with regard to implementation and transition
  • Desire for a deeper understanding of the impacts on product design and risk management brought about by the proposed standard
  • Implementation planning assistance required to develop appropriate strategies to address and respond to reporting changes, disclosures, increased volatility, etc.

How we can help

  • Develop, with you, a business strategy that accounts for the standard’s impact on profit signatures and product and risk management
  • Evaluate whether your finance and accounting functions are adequately prepared for changes to GAAP and IFRS accounting changes and recommend steps to address, especially for risk and reporting elements
  • Offer deep and relevant experience that provides independent insights and support to your analysis
  • Provide an accelerated analysis of the range of implementation and reporting implications to meet timeframes
  • Lower business risk for insurers by increasing your understanding of how changes to insurance contracts accounting fit with overall changes in risk, finance, and actuarial
  • Leverage a proven approach to help you better align actuarial resources with changing business and reporting requirements
  • Provide balance in the assessment of the level of investment necessary to achieve compliance while recognizing the uncertainty of timing and scope of required changes

Our services

  • Product and profit signature analysis
  • Illustrative financial statements development
  • Modeling and peer review
  • Risk management and mitigation for earnings and balance sheet volatility
  • Diagnostics for resource needs and business unit alignment
  • Impact assessments for risk, finance, and actuarial and related integration plan development
  • Valuation model development

Principles-based reserves

The NAIC’s adoption of the current version of the Valuation Manual − a first step towards principles-based reserves for life products − will require a significant review of systems, processes, data, and governance for pricing and valuation. It will also introduce increased volatility to statutory earnings to which management will need to respond.

The application of the Valuation Model means that insurers need to evaluate their organization broadly to ensure that they are able to meet the upcoming requirements as well as understand ongoing reporting requirements. Given the short timeframe relative to the changes insurers may need to take, and because all life products are in scope − thus affecting all insurers issuing individual life products − key areas of consideration for carriers include experience analysis and data, margins, systems capabilities, asset modeling, reinsurance, reporting and management information, and governance and controls. Due to its encompassing scope, insurers are struggling to understand the full effects of the new regulations and identify how to respond and begin compliance efforts.

Potential issues

  • A lack of organizational understanding of the new Valuation Manual and its requirements
  • New responsibilities will be imposed on the actuaries, company management, and the Board related to principles-based valuation
  • New data requirements will be needed to prepare experience studies, calculate policy reserves, report financial results, and respond to data calls, increasing demands on current staff and/or requiring additional staff
  • Process will be needed to address policy assumptions and margins at issue and on an ongoing basis to meet the requirements of the Valuation Manual
  • Increased volatility in financial results, affecting reported earnings and capital requirements, may result
  • Implementation of new actuarial models to comply with the new requirements may be required

How we can help

  • Enhance understanding by the Board and executive management of principles-based reserve requirements and their business implications to help you prepare for a more uncertain earnings future
  • Evaluate the actuarial skill needed to ensure your ability to implement new Valuation Manual requirements and develop valuation models to comply with the new requirements
  • Identify targeted investments to make in valuation systems and processes to comply with new reserving requirements
  • Consult on the introduction of new products to take advantage of more appropriate reserve levels, including the pattern and volatility of earnings emergence
  • Develop frameworks and implementation plans for better coordination between product development and asset management to reduce earnings volatility due to asset/liability mismatch
  • Offer insightful financial analysis and key performance indicators to explain reported results

Our services

  • Tailored training for actuaries, management, and the Board
  • Implementation training for principles-based reserves
  • Data integrity, controls, systems, process, and governance reviews
  • Assumption development
  • Product profit signature modeling
  • Model builds (as required in the Valuation Manual)
  • Model validation (as required in the Valuation Manual)
  • Peer review of product development and pricing processes