Chris Seekings | The Actuary | July 31, 2018<\/p>\n
Insurers face a significant challenge ensuring they do not introduce \u201cartificial noise\u201d or volatility into their financial reporting under the incoming accounting standard IFRS 17.<\/p>\n
That is the message from an annual insurance summit hosted by Moody\u2019s Analytics, with panellists warning that constructing new discount rates<\/a> under IFRS 17<\/a> could create \u201caccounting mismatches\u201d.<\/p>\n The regulation requires insurers to use fair value and market-consistent approaches for liability valuations, but it is thought firms may struggle to be consistent across their whole business.<\/p>\n \u201cThere is likely to be significant scope for accounting mismatches arising from the varied treatment of different aspects of their business,\u201d Moody\u2019s Analytics senior director of research, Nick Jessop, said.<\/p>\n \u201cCareful consideration has to be made to constructing discount rates for insurance contracts to ensure that the net finance results clearly and exclusively reflect changes in economic conditions.\u201d<\/p>\n Following a recent assessment of yield curve construction methods, Jessop recommended that insurers think carefully about estimates of credit risks and illiquidity.<\/p>\n \u201cProliferation of yield curves, reusability of analytics produced in each step of the calculation, data availability, suitability, and ease of automation considerations are also important,\u201d he added.<\/p>\n The summit revealed that more companies are now looking to how their Solvency II<\/a> infrastructure can be used for business projection and optimisation, moving beyond compliance.<\/p>\n \u201cIt is about looking at how insurers can maximise the investments that they made to deal with Solvency II for financial decision-making apparatus to run business more effectively,\u201d panel moderator, Colin Holmes, said.<\/p>\n It was also found that low interest rates <\/a>continue to drive boardroom discussion, and that a growing number of firms are looking to better understand the dynamics of value creation.<\/p>\n Moody\u2019s Analytics senior director of product development, Brian Robinson, said insurers must understand the impact of macro-type events on business, from political uncertainty<\/a> to recessions.<\/p>\n \u201cAssessing the impact of each scenario allows management to develop and test forward-looking action plans that can be implemented in response to particular events,\u201d he added.<\/p>\n Other key topics discussed at the summit included the importance of data<\/a> management and \u201cbreaking down silos\u201d in organisations by bringing risk, actuarial and finance together.<\/p>\n