56% of insurers see data calculation as biggest IFRS 9 challenge

Written by Adam Cadle

06/08/2020

56% of insurers see data calculation as the biggest IFRS 9 challenge, a new survey from Clearwater has revealed.

Forty-eight per cent said reporting, 33% mentioned data collection and 35% highlighted accounting policy changes as a major challenge.

The calculation of expected credit loss presents a new challenge which requires a change to current processes and operating models. Nine per cent expect to modify their existing system, 20% will implement a new system, 17% will calculate it manually and 15% will outsource it to a new or existing provider.

Debt instruments must now pass the SPPI test to receive amotised cost or FVOCI. Thirty-five per cent of insurers will look to their asset manager for their SPPI data, followed by 28% who expect to get this data from their third-party market data provider.

Fifty-seven per cent of insurers said they will need to modify their existing systemes or implement new systems to produce their reporting disclosure. A further 17% will look to outsource this to a new or existing provider.

The survey also showed that 44% do not expect a change in their investment strategy as a result of IFRS 9. “This may change as they look to restrict FVPL securities from their portfolio,” Clearwater said.

For those insurers that have already embarked on IFRS 9 implemenation, 2% have seen their costs decrease, 35% have seen their costs stay at a budgeted level, 35% have seen their costs rise in the last 12 months and 30% are unclear on expected costs.

The survey was completed in February 2020 and received 46 responses from the global insurance industry. Respondents work in organisations including non-life insurers (48%), life insurers (15%), composite life and non-life insurers (20%), with the remaining being Lloyd’s managing agent or syndicates, captive insurers, re-insurers, and asset managers.

Respondents invest in a wide range of financial instruments including corporate bonds, government bonds, equities, mutual funds and ETFs, cash, derivatives, real estate, and commodities. Their investment portfolio size varied as follows: less than $1bn (41%); $1–20bn (33%); $21–100bn (6%); $101–500bn (18%); and more than $500bn (2%). Respondents were spread globally with 54% based in the UK and Europe, 44% in North America/Canada, and 2% in Asia.

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