IFRS 4 phase II

Getting ready for IFRS 4 phase II by :

  • Providing the appropriate actuarial models
  • Getting the right organisation in place
  • Adapting your systems for a fast close

What?:

Insurance companies in the EU are preparing for the IFRS 4 Phase II regulations with implementation due by 2012. Although the final standards have still to be set, a lot of principles are already clear. Whether it will be called "current exit value" or "current fulfilment value" measuring insurance liabilities will always be model based. The model will contain three building blocks:

  • Current unbiased probability weighted estimates of future cash flows
  • Discounting by using current market discount rates
  • An explicit unbiased estimate of the margin required for Bearing risk and providing services.

Why?

IFRS 4 phase II is mandatory and it will impact the whole of your company.

Impact on the company's public and steering figures:

  • More volatility due to revaluation at each reporting date
  • Potential day one profit and losses, Unbundling of products, profit sharing, ...
  • The management information system and budgeting or planning of the company.

Organisational impact:

  • The accounting and regulatory reporting team will consist of a mix of accountants and actuaries.
  • The company will need an actuarial team that keeps the models running, up to date in a constant review cycle, and most of all auditable.
  • This team will not exclusively serve IFRS purposes. It seems natural to exploit the synergies with other domains as solvency and other capital applications; embedded value; ALM; Budgeting; Management information systems; reinsurance and even pricing..

Impact on your systems:

The IFRS measurement model will not be a model on its own. It has to be part of a broader model management framework (MMF) that tackles issues as fast close; Flexible classification of products (unit of account) and auditable figures. A strong, reliable, robust and totally integrated data warehouse will be needed as well as a modelling and scenario generating tool.

Who?

As IFRS 4 Phase II will be obligatory in Europe, all insurance companies -life and non-life- will have to implement it.

How?

  • Assess the current reserves and implement the necessary adaptation in the current reserving methods of the company to avoid an overly large single shock at the moment of transition from IFRS I to IFRS II.
  • Analyse the way your company handles :
    • Belgian GAAP and IFRS I Accounting and fast close
    • Reserving and LAT testing
    • Data warehousing and management information systems
    • Solvency II models
  • In function of what is already in place recommend adaptations or add-ons to the existing systems.
  • Recommend changes in the organisational structure of the actuarial and accounting departments.
  • Organise courses to upgrade the skills of the company's actuarial staff
  • Plan the project of building models, or plan the project of enhancing the existing models to make them IFRS II compliant.
  • Implement the model management framework of review and validation.
  • Go through the normal phases of a project: Development; Test; Validation and Production.
  • Documentation and transfer of know-how

The advantages of Elips Actuarial Services ?

Our experience

  • IFRS is a relatively new subject. Elips Actuarial Services is carefully monitoring the evolution of the discussion paper.
  • Elips has an experienced actuary, due to his role in an IFRS taskforce.
  • Elips actuarial services has experienced actuaries in Solvency II modelling. Given the great affinities between Solvency and IFRS this is a major asset.
  • Our team of specialists is "multi-tools"

Guaranteeing results

We guarantee that we will deliver what is asked for, and that we will do this in in line with the promised budget and timing.

Project management

Elips Actuarial Services is the natural partner in this business case, due to our experience in similar Solvency II projects. We can deliver the actuarial know-how in a mixed management team of actuaries and accountants. We can take the lead or work under your company's dedicated staff. We can offer both a complete, or a specific projects service.

The transfer of know-how - formation

We always work in close cooperation with your local team. It is important that they will be capable of upgrading or changing the models independently if necessary. By providing the necessary training we guarantee a smooth transfer to your local team.

Elips Actuarial Services References

  • IFRS is a relatively new subject. Our actuaries were involved in the project of implementing it in the companies they came from.
  • IFRS has a lot of similarities with Solvency. For the latter, we have successfully carried out several projects. As we believe the integration of both projects is important, the knowledge acquired by performing Solvency exercises is a major asset.