Actuarial and finance modernization - Including LDTI and IFRS 17

Insurers face unprecedented changes in financial reporting. How will you rethink your business models and operations?

How to benefit from LDTI deferral

The July 17, 2019 announcement of a potential deferral of the effective date of the FASB’s Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI) standard of one year (i.e. January 1, 2022) for large SEC filers and a two or three year deferral for all other entities, provides welcome relief to insurers. It will help them effectively and efficiently adopt LDTI requirements and optimize their significant investments to deliver compliance and operational benefits to their organizations. The announcement follows lobbying efforts by the industry and the FASB’s outreach to a dozen companies to gain a deeper understanding of the implementation challenges under original timelines. (The FASB originally gave companies 28 months to adopt.)

PwC conducted an industry LDTI Readiness Survey. The overwhelming majority of respondents supported a deferral. Our findings are noted in the graphic below.

Areas of focus for LDTI implementation

A key question arising from FASB’s announcement is how to benefit from the delay in implementation. PwC has identified 12 areas of focus:

1. Adjust project plan based on the revised timing

2. Revisit strategic modernization opportunities (e.g. actuarial platform conversions, process automation and data management improvements)

3. Develop more robust testing/dry runs plans and control frameworks

4. Perform more robust financial modelling to assess impacts of accounting policy decisions on key KPIS 

5. Further assess strategic opportunities created in an LDTI world (e.g. strategic acquisitions/divestments, product development, hedging, etc.)

6. Allocate more time to think through secondary impacts (e.g. hedging, product development and operating income)

7. Reconsider opportunities to optimize resources mix and skills (e.g. greater potential to onboard key resources through backfill)

8. Increase efforts to develop and execute robust change management and training plans

9. Revisit ability to leverage or accelerate in flight projects to support synergies in delivery

10. Consider the implications on internal and external communications

11. Review auditor engagement models to allow more time for feedback cycles

12. Most importantly, don’t lose momentum

 

The attention insurers place on each of these areas will largely depend on their individual circumstances, choices of LDTI approach, available resources, and project progress. However, each of these will allow insurers to de-risk and/or improve program ROI by delivering additional business capabilities, leveraging synergies with inflight programs, and allowing more informed decision making relative to the strategic implications on their business models.

This delay is a significant opportunity. We encourage all insurers to maintain momentum with their LDTI project implementations. There is still a significant amount to do and much to improve upon. To stand still at this stage would be to fall behind.

For further information and a summary of the outcomes of the FASB Board meeting, please refer to PwC's insurance alert.

What compels insurance companies to re-evaluate and modernize their actuarial and finance functions?

Especially in light of LDTI and IFRS 17.

  • rigorous expectations from regulators and standards setters
  • increased demands for more relevant and useful information
  • improvements in analytics
  • the need for operational transformation

The impacts of each are pervasive throughout actuarial, finance, risk, marketing and distribution, IT and other functional areas. PwC believes that when these areas work together, they can create an insurance operating model that is nimble, agile and future-proof. Your company will be able to manage and adapt to change as part of standard business practices.

How PwC can help

With PwC, insurers can prepare for future operational, business, regulatory and market demands by focusing on how to improve finance, operational, actuarial and risk functions. We have:

  • a record of success helping insurers modernize their operations;
  • a practical and successful approach to helping companies plan for and respond to regulatory, operational and strategic change, including LDTI and IFRS 17 compliance;
  • an interdisciplinary team of subject matter specialists who have experience helping clients prepare for and address strategic, operational, financial, actuarial, risk and regulatory imperatives;
  • extensive expertise in finance, actuarial and risk management process improvement, data and technology transformation, regulatory and financial reporting consulting, and business strategy formulation and design.

LDTI: A catalyst for radical transformation

By seizing the opportunity LDTI offers to transform core finance and actuarial platforms, prescient insurers can enjoy a more agile business and lower operational costs.

PwC can help you design systems and processes to produce LDTI financials, facilitating a smooth transition to new reporting and the telling of your company’s unique story.

Watch our award-winning video to find out how LDTI is a catalyst for radical transformation.

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Contact us

Matt Adams

Insurance Practice Leader, PwC US

David Honour

Actuarial Modernization Leader, PwC US

Richard de Haan

Actuarial Leader, PwC US

Mary Helen Taylor

Partner, Assurance , PwC US

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