2 Alignment of IFRS and Solvency II_2
Content
Insights into IFRS Insurance IFRS 4 Phase II and IFRS 9 Alignment With Solvency II
Contents IFRS 4 Phase II and IFRS 9 alignment with Solvency II
3
Impacts of IFRS changes on the Solvency II Pillars
5
Pillar 1
5
Pillar 2
5
Pillar 3
5
Our experienced IFRS Insurance team
6
Global IFRS Insurance Team
6
Belgium
6
France
6
Germany
6
Ireland
6
Italy
6
Luxembourg
6
Netherlands
6
Finland
6
Norway
6
Sweden
6
Spain
6
Switzerland
6
UK
6
Canada
6
Africa - Western Central
6
Africa - South
6
Central Europe
6
Korea
6
Cyprus
6
Iceland
6
Israel
6
Japan
6
Middle East
6
Contact details for further information on this factsheet
7
About Deloitte
8
IFRS 4 Phase II and IFRS 9 alignment with Solvency II
We consider the following eight factors to be key factors when considering Solvency II alignment with IFRS.
Whilst elements of the traditional revenue account presentation remain under the new IFRS
External financial and regulatory reporting
requirements, the mechanics of recognition have significantly changed to a margin-based approach. The profit and loss attribution under Solvency II is similar but the principle of profit recognition in IFRS (profit is recognised with the fulfilment of the obligations under the in-force policies) is different from the principle of surplus recognition under Solvency II (measured on an hypothetical exit value of the in-force policies). This key difference requires appropriate processes and controls and additional modelling for the IFRS profit.
Compliance Activities
Strategy and Governance
Currently IFRS permits different valuations of insurance liabilities within the same group. This will terminate with the new IFRS for Insurance and will introduce a new meaning for valuation compliance.
The management of both assets and liabilities form an integral part of a company’s strategy for both profit and capital volatility management. Early planning could be required given the high potential for the new IFRS financial instrument standard mandating adoption ahead of the new IFRS insurance standards.
Incentivisation and remuneration of employees will need to be recalibrated within the Solvency II and IFRS frameworks as well as the wider entity level strategy and governance structures.
People and Culture
Educating both management and staff on how an insurer’s success is measured under both Solvency II and IFRS will require a significant investment in training that will enable the alignment of behaviours to the new capital and profit metrics. Additionally, we need to consider organisational implications in terms of culture, changes to peoples’ roles and responsibilities and rewards and benefits.
6 May 2013
3
Insurers will need to consider how and what to communicate for the revised IFRS profit targets and consider the level of linkage with future strategic risk appetite
Market Reporting
The ability to frequently understand and monitor the drivers of the changes between the two bases will be key to ensure transparency to external as well as internal stakeholders.
There will be additional pressure to the existing Solvency II timescales to produce simultaneously, the
Process
IFRS statements and disclosures to permit sufficient time to analyse and reconcile the results.
The data requirements for IFRS and Solvency II overlap. However IFRS introduces data that was not
Data
contemplated in the Solvency II data model and requires similar parameters to be calibrated differently.
Cost hierarchies and cost allocation systems will need updating to provide an appropriate level of direct acquisition costs incurred at portfolio level, as well as the separation of any overhead elements between the liability valuation bases.
Systems
Additionally, developing a residual margin amortisation model which can be updated at each reporting date will have significant system implications, especially as no equivalent base exists under Solvency II.
6 May 2013
4
Impacts of IFRS changes on the Solvency II Pillars
The most significant impacts of IFRS on Solvency II will be:
Pillar 1
Refinement of the Solvency II calculations.
New calculations (e.g., Residual margin).
Flexibility around existing systems to meet IFRS Insurance requirements (e.g., insurance vs investment contracts scoping, direct acquisition costs).
New systems. Target Operating Model (TOM) and WDT impacts layered onto Solvency II and the need for robust reconciliations (Solvency II to IFRS).
Liability data requirements are likely to be more granular than those for Solvency II.
Increased need for scarce and costly resources (e.g., Actuarial).
Pillar 2
Minimal impact due to IFRS. The economic balance sheet offers under Pillar 2, greater similarities to IFRS valuation than the Pillar 1 balance sheet. This is due to the more limited regulatory requirements on the parameters used for the Pillar 2 economic balance sheet.
All of the impacts will influence the design of the TOM affecting process, data and technology.
Pillar 3
6 May 2013
New reporting requirements for IFRS could be built onto/alongside the Solvency II reporting requirements.
5
Our experienced IFRS Insurance team Global IFRS Insurance Team Deloitte has proven experience delivering common data m odels and storage infrastructure. W e have experience working with a number of organizations to define and implement insurance data solutions for IFRS. Deloitte is uniquely positioned to serve as your partner.
May 13
Belgium Dirk Vlaminckx [email protected] + 322 8002 146
France Jerome Lemierre [email protected] + 331 5561 4078
Germany Frank Engeläender [email protected] + 492 1187 722402
Ireland Glenn Gillard [email protected] + 353 1417 2802
Italy Andrea Paiola [email protected] + 390 1155 97204
Luxembourg Thierry Flamand [email protected] + 352 45145 4920
Netherlands Hans de Witt [email protected] + 318 8288 4235
Finland Martin Faarborg [email protected] + 452 1276 558
Norway Eivind Skaug [email protected] + 472 3279 355
Sweden Goran Engquist [email protected] + 467 5246 2194
Spain Jordi Montalbo [email protected] + 34 93 280 4040
Switzerland Sabine Betz [email protected] + 415 8279 6881
UK Francesco Nagari [email protected] + 44 20 7303 8375
Canada Neil Harrison [email protected] + 1 416 601 6307
Africa - Western Central Oduware Uwadiae [email protected] + 234 8056 018887
Africa - South Yuresh Maharaj [email protected] + 271 1209 6204
Central Europe Dariusz Szkaradek [email protected] + 482 2511 0331
Korea Lee, Jae Seog [email protected] + 822 6676 1162
Cyprus Andreas Andreou [email protected] + 357 2236 0686
Iceland Thorsteinn Gudjonsson [email protected] + 354 580 3087
Japan Arata Otake [email protected] + 819 0603 58857
Middle East Samir Madbak [email protected] + 971 6574 1052
Israel Ran Feldboy [email protected] + 972 3608 5478
6
Contact details for further information on this factsheet
Louis Jordan Vice Chairman of Deloitte UK Louis is responsible for establishing our Insurance Practice here in the UK and w as the Global Head of Insurance across the firm. Louis is the Global Lead Client Service Partner on two of our largest financial services clients and leads the Deloitte EMEA Solvency II and IFRS practices across EMEA. He has over twenty years of experience in consulting to financial services companies. Louis’ major areas of expertise is in the arena of Business Transformation, Cost Reduction and Merger & Acquisition. Contact: Louis Jordan [email protected] +44 20 7303 8284
Francesco Nagari Global IFRS Insurance Lead Partner Francesco Nagari is a partner in Deloitte LLP based in London and took the position of Global IFRS Insurance Leader in October 2008. In that capacity he is a member of the London IFRS Centre of Excellence of Deloitte. He qualified in Italy as dottore commercialista (1991) and revisore contabile (1995) and a chartered accountant in the UK with the ICAEW (2011). He speaks Italian, English, French and Portuguese. Contact: Francesco Nagari [email protected] +44 20 7303 8375 More
Michel de la Bellière EMEA Solvency II Lead Partner Michel de la Bellière re-joined Deloitte in 2006, having previously worked for Deloitte Consulting between 1995 and 2003. He brings more than 17 years of experience in consulting for the insurance industry in France and in the US. His clients include some of the largest insurers on the F rench market. He has worked both in the P&C and health & life segments, for insurers as well as brokers. In addition to leading Deloitte’s Solvency II Initiative in France, Michel chairs Deloitte’s European S olvency II Working Group. Contact: Michel de La Bellière [email protected] : +33 (0) 1 40 88 29 95 More
Francesca Smith Global Solvency II and IFRS Insurance Lead Director Francesca Smith is a Board level strategic change management director. She has extensive experience leading strategy and large scale complex change working at Board level. Francesca was a finalist in The Sunday Times “Women in Business” Competition and is an alumna of Cambridge University and the Harvard Business School. Contact details: Francesca Smith [email protected] +44 7909 888 535 More
May 13
7
About Deloitte
World map – our locations
Asia Pacific Australia (includes Papua New Guinea) China (includes the Chinese mainland, Hong Kong SAR, and Macau SAR) Fiji Guam (includes Federated States of Micronesia, the Republic of the Marshall Islands, the Northern Mariana Islands, and the Republic of Palau) India Indonesia Japan Korea Malaysia New Zealand (includes Fiji and the Cook Islands) Pakistan
Philippines Singapore Taiwan Thailand Vietnam Canada EMEA Albania Algeria Austria Azerbaijan Bahrain Belarus Bosnia and Herzegovina Bulgaria Croatia Cyprus Czech Republic Denmark
Egypt Estonia Finland France FYR Macedonia Gaza Strip/West Bank Georgia Germany Gibraltar Greece Hungary Iceland Ireland Israel Italy Jordan Kazakhstan Kenya (includes Tanzania and Uganda) Kyrgyzstan Kuwait
Latvia Lebanon Libya Lithuania Luxembourg Malta Moldova Morocco Netherlands Nigeria Norway Oman Poland Portugal Qatar Romania Russia Saudi Arabia Serbia and Montenegro Slovak Republic Slovenia
South Africa (includes Angola, Botswana, Malawi, Mozambique, Namibia, Swaziland, and Zimbabwe) Spain Sweden Switzerland Syria Tunisia Turkey United Arab Emirates United Kingdom Uzbekistan Yemen LACRO Argentina Aruba/Netherlands Antilles Bahamas Barbados
Bermuda Brazil British Virgin Islands Cayman Islands Chile Colombia Costa Rica Ecuador Guatemala Jamaica Mexico Nicaragua Panama Paraguay Peru Uruguay Venezuela United States
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. More than 195,000 professionals are committed to becoming the standard of excellence. This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this publication, r endering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication. © 2013 Deloitte Global Services Limited
Contents IFRS 4 Phase II and IFRS 9 alignment with Solvency II
3
Impacts of IFRS changes on the Solvency II Pillars
5
Pillar 1
5
Pillar 2
5
Pillar 3
5
Our experienced IFRS Insurance team
6
Global IFRS Insurance Team
6
Belgium
6
France
6
Germany
6
Ireland
6
Italy
6
Luxembourg
6
Netherlands
6
Finland
6
Norway
6
Sweden
6
Spain
6
Switzerland
6
UK
6
Canada
6
Africa - Western Central
6
Africa - South
6
Central Europe
6
Korea
6
Cyprus
6
Iceland
6
Israel
6
Japan
6
Middle East
6
Contact details for further information on this factsheet
7
About Deloitte
8
IFRS 4 Phase II and IFRS 9 alignment with Solvency II
We consider the following eight factors to be key factors when considering Solvency II alignment with IFRS.
Whilst elements of the traditional revenue account presentation remain under the new IFRS
External financial and regulatory reporting
requirements, the mechanics of recognition have significantly changed to a margin-based approach. The profit and loss attribution under Solvency II is similar but the principle of profit recognition in IFRS (profit is recognised with the fulfilment of the obligations under the in-force policies) is different from the principle of surplus recognition under Solvency II (measured on an hypothetical exit value of the in-force policies). This key difference requires appropriate processes and controls and additional modelling for the IFRS profit.
Compliance Activities
Strategy and Governance
Currently IFRS permits different valuations of insurance liabilities within the same group. This will terminate with the new IFRS for Insurance and will introduce a new meaning for valuation compliance.
The management of both assets and liabilities form an integral part of a company’s strategy for both profit and capital volatility management. Early planning could be required given the high potential for the new IFRS financial instrument standard mandating adoption ahead of the new IFRS insurance standards.
Incentivisation and remuneration of employees will need to be recalibrated within the Solvency II and IFRS frameworks as well as the wider entity level strategy and governance structures.
People and Culture
Educating both management and staff on how an insurer’s success is measured under both Solvency II and IFRS will require a significant investment in training that will enable the alignment of behaviours to the new capital and profit metrics. Additionally, we need to consider organisational implications in terms of culture, changes to peoples’ roles and responsibilities and rewards and benefits.
6 May 2013
3
Insurers will need to consider how and what to communicate for the revised IFRS profit targets and consider the level of linkage with future strategic risk appetite
Market Reporting
The ability to frequently understand and monitor the drivers of the changes between the two bases will be key to ensure transparency to external as well as internal stakeholders.
There will be additional pressure to the existing Solvency II timescales to produce simultaneously, the
Process
IFRS statements and disclosures to permit sufficient time to analyse and reconcile the results.
The data requirements for IFRS and Solvency II overlap. However IFRS introduces data that was not
Data
contemplated in the Solvency II data model and requires similar parameters to be calibrated differently.
Cost hierarchies and cost allocation systems will need updating to provide an appropriate level of direct acquisition costs incurred at portfolio level, as well as the separation of any overhead elements between the liability valuation bases.
Systems
Additionally, developing a residual margin amortisation model which can be updated at each reporting date will have significant system implications, especially as no equivalent base exists under Solvency II.
6 May 2013
4
Impacts of IFRS changes on the Solvency II Pillars
The most significant impacts of IFRS on Solvency II will be:
Pillar 1
Refinement of the Solvency II calculations.
New calculations (e.g., Residual margin).
Flexibility around existing systems to meet IFRS Insurance requirements (e.g., insurance vs investment contracts scoping, direct acquisition costs).
New systems. Target Operating Model (TOM) and WDT impacts layered onto Solvency II and the need for robust reconciliations (Solvency II to IFRS).
Liability data requirements are likely to be more granular than those for Solvency II.
Increased need for scarce and costly resources (e.g., Actuarial).
Pillar 2
Minimal impact due to IFRS. The economic balance sheet offers under Pillar 2, greater similarities to IFRS valuation than the Pillar 1 balance sheet. This is due to the more limited regulatory requirements on the parameters used for the Pillar 2 economic balance sheet.
All of the impacts will influence the design of the TOM affecting process, data and technology.
Pillar 3
6 May 2013
New reporting requirements for IFRS could be built onto/alongside the Solvency II reporting requirements.
5
Our experienced IFRS Insurance team Global IFRS Insurance Team Deloitte has proven experience delivering common data m odels and storage infrastructure. W e have experience working with a number of organizations to define and implement insurance data solutions for IFRS. Deloitte is uniquely positioned to serve as your partner.
May 13
Belgium Dirk Vlaminckx [email protected] + 322 8002 146
France Jerome Lemierre [email protected] + 331 5561 4078
Germany Frank Engeläender [email protected] + 492 1187 722402
Ireland Glenn Gillard [email protected] + 353 1417 2802
Italy Andrea Paiola [email protected] + 390 1155 97204
Luxembourg Thierry Flamand [email protected] + 352 45145 4920
Netherlands Hans de Witt [email protected] + 318 8288 4235
Finland Martin Faarborg [email protected] + 452 1276 558
Norway Eivind Skaug [email protected] + 472 3279 355
Sweden Goran Engquist [email protected] + 467 5246 2194
Spain Jordi Montalbo [email protected] + 34 93 280 4040
Switzerland Sabine Betz [email protected] + 415 8279 6881
UK Francesco Nagari [email protected] + 44 20 7303 8375
Canada Neil Harrison [email protected] + 1 416 601 6307
Africa - Western Central Oduware Uwadiae [email protected] + 234 8056 018887
Africa - South Yuresh Maharaj [email protected] + 271 1209 6204
Central Europe Dariusz Szkaradek [email protected] + 482 2511 0331
Korea Lee, Jae Seog [email protected] + 822 6676 1162
Cyprus Andreas Andreou [email protected] + 357 2236 0686
Iceland Thorsteinn Gudjonsson [email protected] + 354 580 3087
Japan Arata Otake [email protected] + 819 0603 58857
Middle East Samir Madbak [email protected] + 971 6574 1052
Israel Ran Feldboy [email protected] + 972 3608 5478
6
Contact details for further information on this factsheet
Louis Jordan Vice Chairman of Deloitte UK Louis is responsible for establishing our Insurance Practice here in the UK and w as the Global Head of Insurance across the firm. Louis is the Global Lead Client Service Partner on two of our largest financial services clients and leads the Deloitte EMEA Solvency II and IFRS practices across EMEA. He has over twenty years of experience in consulting to financial services companies. Louis’ major areas of expertise is in the arena of Business Transformation, Cost Reduction and Merger & Acquisition. Contact: Louis Jordan [email protected] +44 20 7303 8284
Francesco Nagari Global IFRS Insurance Lead Partner Francesco Nagari is a partner in Deloitte LLP based in London and took the position of Global IFRS Insurance Leader in October 2008. In that capacity he is a member of the London IFRS Centre of Excellence of Deloitte. He qualified in Italy as dottore commercialista (1991) and revisore contabile (1995) and a chartered accountant in the UK with the ICAEW (2011). He speaks Italian, English, French and Portuguese. Contact: Francesco Nagari [email protected] +44 20 7303 8375 More
Michel de la Bellière EMEA Solvency II Lead Partner Michel de la Bellière re-joined Deloitte in 2006, having previously worked for Deloitte Consulting between 1995 and 2003. He brings more than 17 years of experience in consulting for the insurance industry in France and in the US. His clients include some of the largest insurers on the F rench market. He has worked both in the P&C and health & life segments, for insurers as well as brokers. In addition to leading Deloitte’s Solvency II Initiative in France, Michel chairs Deloitte’s European S olvency II Working Group. Contact: Michel de La Bellière [email protected] : +33 (0) 1 40 88 29 95 More
Francesca Smith Global Solvency II and IFRS Insurance Lead Director Francesca Smith is a Board level strategic change management director. She has extensive experience leading strategy and large scale complex change working at Board level. Francesca was a finalist in The Sunday Times “Women in Business” Competition and is an alumna of Cambridge University and the Harvard Business School. Contact details: Francesca Smith [email protected] +44 7909 888 535 More
May 13
7
About Deloitte
World map – our locations
Asia Pacific Australia (includes Papua New Guinea) China (includes the Chinese mainland, Hong Kong SAR, and Macau SAR) Fiji Guam (includes Federated States of Micronesia, the Republic of the Marshall Islands, the Northern Mariana Islands, and the Republic of Palau) India Indonesia Japan Korea Malaysia New Zealand (includes Fiji and the Cook Islands) Pakistan
Philippines Singapore Taiwan Thailand Vietnam Canada EMEA Albania Algeria Austria Azerbaijan Bahrain Belarus Bosnia and Herzegovina Bulgaria Croatia Cyprus Czech Republic Denmark
Egypt Estonia Finland France FYR Macedonia Gaza Strip/West Bank Georgia Germany Gibraltar Greece Hungary Iceland Ireland Israel Italy Jordan Kazakhstan Kenya (includes Tanzania and Uganda) Kyrgyzstan Kuwait
Latvia Lebanon Libya Lithuania Luxembourg Malta Moldova Morocco Netherlands Nigeria Norway Oman Poland Portugal Qatar Romania Russia Saudi Arabia Serbia and Montenegro Slovak Republic Slovenia
South Africa (includes Angola, Botswana, Malawi, Mozambique, Namibia, Swaziland, and Zimbabwe) Spain Sweden Switzerland Syria Tunisia Turkey United Arab Emirates United Kingdom Uzbekistan Yemen LACRO Argentina Aruba/Netherlands Antilles Bahamas Barbados
Bermuda Brazil British Virgin Islands Cayman Islands Chile Colombia Costa Rica Ecuador Guatemala Jamaica Mexico Nicaragua Panama Paraguay Peru Uruguay Venezuela United States
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. More than 195,000 professionals are committed to becoming the standard of excellence. This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this publication, r endering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication. © 2013 Deloitte Global Services Limited
