Insight Life Solutions: IFRS 17 Benchmarking Survey (Series 2)

In 2023, Insight Life Solutions conducted a series of surveys to seek South African life insurers’ views on specific IFRS 17 topics.

The surveys aimed to summarise the progress made to date on IFRS 17 implementation and industry thinking on topics where the Standard allows discretion. From May to July, Insight Life Solutions conducted detailed discussions with almost all of the respondents to obtain further clarity and commentary on their survey responses.

A total of 16 entities, mostly life insurers and bancassurers, participated in the series, with between 7 and 13 respondents to each question.

It is hoped that participants will use the results to benchmark their approach against the rest of the market, as well as against their own future decisions as IFRS 17 implementation matures, discussion around these topics settles, and industry consensus is reached.​ The results collected from these surveys have been compared to the corresponding 2022 results where applicable. The respondents were not exactly the same between our 2022 and 2023 surveys, so the longitudinal comparison is not precise, but we hope that it will give an indication of trends in the market. 

This report sets out the survey responses. In summary:

Progress

For most topics, respondents were generally between having produced indicative numbers and finalising an approach internally. All respondents had made a start on each of the topics applicable to them. Most respondents were comfortable with their progress on the calculations required by the standard and are now starting to consider other reporting metrics, like their KPIs, embedded value and business planning.  Generally, as expected, larger insurers and those with a December year-end were further progressed in their IFRS 17 implementation than smaller insurers and those with later financial year-ends.

Transition

Progress on transition appears more advanced compared to 2022 with just under 60% of respondents having finalised an approach internally or received sign-off from external auditors.  Over half of those surveyed expect equity to be higher under IFRS 17 at transition than under IFRS 4.

Risk Adjustment

Over 60% of respondents have selected a Value at Risk (VaR) approach (single equivalent scenario or stress and correlation), up from less than 40% in 2022. The most popular targeted confidence levels are 75% and 80%, with the extremes lying at 60% and 90%.  There seems to be a general trend downwards from 2022 when the most popular targeted confidence level was 85%.

Discount Rates

A third of the respondents are using the SARB published risk free rates as their risk-free rates for IFRS 17. Insurers associated with banks tend to derive their own curves for this purpose. The majority (over 60%) of respondents plan to use the start of period yield curves as their locked in yield curves rather than a weighted average. Operational simplicity seems to be the driving factor for this decision.

Reinsurance

No respondents expect major changes to their reinsurance arrangements, with changes being restricted to things like updating treaty terms. Most respondents are calculating the risk adjustment for reinsurance as the difference between the gross and net risk adjustment. This year, half of those surveyed did not report experiencing any challenges in accounting for the loss-recovery component for the purpose of valuing reinsurance contracts (compared to less than 20% in 2022).

KPIs

Most respondents foresee Operating Profit, Return on Equity and VNB being their top KPIs under IFRS 17. They tend to be focusing on the same KPIs they had under IFRS 4 and explaining any differences from the old standard.

EV

All respondents who plan to report on embedded value (EV) under IFRS 17 and have decided on methodology will base EV on an IFRS 17 balance sheet (the remainder are unsure or will not be producing EV at all).

Business Planning

More than 80% of respondents have either performed some kind of business plan or plan to do so within the next year. More than 70% of respondents expect to be able to use existing business planning tools and methodologies in an IFRS 17 environment to a reasonable degree.

To view the full report please click here