Validating your IFRS 17 program
Validating your IFRS 17 program
IFRS 17 introduces new liability measurement models with robust risk and discount calculations. Significant parts of the model require ongoing updating and revision to reflect emerging experience and changing economic circumstances. The standard’s operational impact is particularly significant. Insurers have to compile, organize, and assess additional policy data, project more granular cash flows, and develop new disclosures and presentations that are completely unlike the ones they’ve used previously.
Considering these daunting changes, we expect that senior management and board members will demand that the company’s IFRS 17 program undergo rigorous testing and validation. Fortunately, over the last several years, there have been significant enhancements in model risk management that insurers can use to address this demand. Supported by regulatory guidance and their own experience and practical learnings, insurers have established comprehensive model validation procedures and capabilities. Applying them in an organized and effective combination with development testing and audit can significantly enhance the quality of IFRS 17 published results.
What should insurers do now?
- Connect with your MRM team. Model risk departments usually plan in advance for the models that will need validation or revalidation in the coming year. Given the importance of and high risk associated with IFRS 17 implementation, planning for its validation should already be in progress.
- Working with your MRM team, identify program documentation needs early on and communicate those needs to the third-party vendors that supply key model components. Ensure that all participants recognize that documentation of the model and the review process are critical to achieving your collective goal.
- Ask your MRM team to outline the validation testplan and identify opportunities for coordinating development testing and validation. A cooperative effort between development, validation and audit review can minimize the risk of model error and promote the effectiveness and efficiency of IFRS 17 preparation and compliance.
Contact us
Jules Krijgsman van Spangenberg
Actuarial Senior Manager , PwC Netherlands
Tel: +31 088 792 6711
