Aleksandra E. Wysocka: For several years now, the world and Poland have been talking about the introduction of new financial reporting standards for insurance companies - IFRS17. What does it mean?
Arkadiusz Kramza: - As the date of application of these standards is approaching inexorably, the topic is more and more often on the agenda of insurers and is slowly becoming "hot".
Why was it decided to change the reporting standards so thoroughly?
A.K.: - Practically everyone agrees that, from the perspective of the insurance industry, the existing standards were, to put it mildly, far from coherent and did not allow for a meaningful comparison of the results of various insurance groups operating on financial markets around the world. The goal of the new standards is to harmonise reporting in order to make the data comparable. The rules are to be made more consistent, and the role of arbitrary expert judgment in assessing insurers’ performance is expected to decrease in favour of objective measures. These were the assumptions. It is true that through many years of work on new standards, a very complicated solution has been developed that is not entirely clear to everyone who did not directly participate in its creation.
Does IFRS17 have to be implemented by all insurance companies in Poland?
A.K.: - IFRS17 applies to those insurers who report using international accounting standards. In Polish conditions, this includes companies belonging to international financial groups and concerns mainly reporting to the parent group.
How are Polish insurers preparing for the implementation of the new reporting standards?
Jakub Świniarski: - Very differently. The best situation is for those companies with close capital connections with groups that have already started the implementation procedure. Our practice shows that for subsidiaries of foreign companies it is a well-recognised topic in terms of substance. They know the new standard and focus on details, which will translate into the practical preparation of calculations. These companies are also in the process of analysing the impact of IFRS17 on future financial results. This is often done by transforming the models developed in connection with Solvency II. On the other hand, practically no one has a set of data to be converted according to the new standard yet.
Will the implementation of new reporting standards require major changes in companies?
A.K.: - The new standards affect practically all areas of activity. There are areas waiting for a real revolution. When it comes to IT solutions that support data flow, insurers are really at the beginning of the road. Time is short, so hardly anyone can afford to build their own IT solutions from scratch. The biggest barrier is time. The implementation of IFRS17 in 2022 requires the use of data for 2021, and the opening balance of 2021 is also the closing balance of 2020. And that is next year.
J.Ś.: - On one side, IT solutions with the right granularity of data processing are a challenge, and on the other, actuarial teams developing new ways of analysing and storing data.
Will daughter companies of international insurance groups operating on the Polish market receive ready reporting tools in accordance with the new standards?
J.Ś.: - Such solutions will be provided, but there is a high probability that, they will be used mainly for reporting, and will not necessarily support local management processes in accordance with IFRS17. This is how it looks throughout Central and Eastern Europe.
PwC has also prepared an IT solution that will help insurers to report in accordance with the new rules. Please tell us more about this.
J.Ś.: - Our team of analysts has been working for two and a half years to create an advanced calculation tool that is able to recalculate all IFRS17 measures in those areas that will no longer be subject to change.
And can something still change?
A.K.: - There are ongoing discussions on several topics, which is why we assumed that it would be optimal to create a flexible solution that could be easily updated and adapted to changing guidelines. However, the fundamental feature of this system is that it is completely ready for operation. This is very important, considering how little time it takes to implement. It is very difficult or even impossible to create something from the very beginning with an independent supplier, discuss the philosophy of new standards and the methodology of specific calculations. It's too late for that.
J.Ś.: - It is also important that the system was created by practitioners for practitioners. We have gained experience during dozens of consulting projects in various markets. We are aware that the needs of companies are different and data with a very different degree of aggregation will be processed. Some insurers may want to recalculate the contract after the contract because these are local regulatory requirements.
Has this tool been implemented anywhere yet?
A.K.: - We have just started implementation in a large international insurance group. The project will take about one and a half years. A good fit to the data model is crucial. Ready algorithms hidden in the system must be supplied with appropriately prepared data. Therefore, in the specification process, we determine the sources of data origin and automate the flow of data to the system.
J.Ś.: - The system can also be used to calculate the impact of various business decisions on financial results in compliance with the new standards. This significantly enriches our range of consulting services.
Can Polish insurers face any sanctions for not complying with the new reporting standards on time?
A.K.: - The consequences will definitely be at the group level.
And what is the probability that the implementation of IFRS17 will be postponed?
A.K.: - Even if insurers get an additional year to harmonise reporting with the new regulations, there is still little time and it would be unwise to postpone it.
How is it possible to find out more about the IT tool you have prepared for insurers?
A.K.: - Feel free to contact us, either in person or through the product page www.pwc.pl/ifrs17. And we wish all readers a lot of patience in all their implementations in the coming year and of course, many successes in the market, which is increasingly regulated.
Thank you for the conversation.
Aleksandra E. Wysocka
Director, PwC Poland
Tel: +48 519 504 424
Senior Manager, PwC Poland
Tel: +48 519 507 212