KAMRAN FOROUGHI: Welcome to our (Re)thinking Insurance podcast. I'm your host, Kamran Foroughi. And I'm delighted to be joined today by my guests, Teresa Murphy and Urvi Nagda. Welcome both, and thank you for joining me.
TERESA MURPHY: Hi, Kamran. Lovely to see you again.
URVI NAGDA: Thank you for having me, Kamran.
KAMRAN FOROUGHI: You're very welcome. Great to see you both. This is a first of a two-part podcast series focusing on IFRS 17. And for those of you not close to it, IFRS 17 is a new global accounting standard for insurance business applying to insurance companies that is applicable in most of the world now, that came into effect for most of the world in 2023, and we had the first set of year end 2023 full year publications under IFRS 17 just being published in February, March and April this year.
And in this episode, we'll be exploring the key findings from our analysis of these disclosures that was finalized around about end May. There is a two-part series in IFRS 17, and our next one will be focusing on our analyst survey, their own views of IFRS 17, the main users, and we completed that survey in June.
Just for a bit of background, our insurance consulting technology business at WTW has worked with a lot of insurers over the years, helping them implement IFRS 17. Close to 200 insurers globally and over 80 insurers have bought our IFRS 17 technology to help them deliver IFRS 17 results.
I am our global IFRS 17 advisory leader, having oversight on our consulting work around the world. We support insurers, consulting technology, and outsourcing around IFRS 17. And just buy a bit more background of our guest today, Teresa is our UK IFRS 17 advisory lead, and Urvi has been supporting our global advisory group for a number of years now, leading this and previous disclosure analysis work with a team, and thank you both for coming.
Urvi, I might turn to you first, leading the day-to-day analysis of our disclosures. Can you describe what we did, why we did it, and how did you and your team go about it?
URVI NAGDA: For the disclosures analysis, we analyzed the publications of 89 insurers and reinsurers around the world, covering both the life and non-life industries. These insurers we covered are headquartered in 21 countries across all major continents, and included 34 large multinationals, primarily headquartered in Europe, but also Asia-Pacific and Canada.
We were particularly interested in analyzing the year end 2023 publications, as these were many insurers first year-end IFRS 17 disclosures. The aim of our analysis was to understand and analyze the key IFRS 17 information that was being published for the first time. I was leading a team of graduates and junior analysts to perform this exercise, who were mainly based across UK and India.
KAMRAN FOROUGHI: Thank you very much, Urvi, and I'd just like to take the opportunity to thank the whole team who worked with you on this, and it's great that we've now got a team who are well-versed in insurance publications and annual reports and IFRS 17 disclosures familiar with their terminology and interpreting the results. Urvi, very interesting. What was your experience of actually being involved with this exercise.
URVI NAGDA: I found this exercise very interesting because I was able to understand the various approaches used by global insurers when adopting IFRS 17. It also felt a little bit like we're a part of history. We're seeing the first ever set of annual IFRS 17 disclosures.
I will say it was slightly difficult to gather all the data because different insurers publish the key information at different times. For example, we had many insurers who did not publish analysis of movement or sensitivities in their preliminary disclosures, and chose to show this detail in their annual reports, which were published several weeks later.
Also, as the key information was shown in different places, it made it slightly more challenging to find at times. Overall, this experience has been very insightful, and I'm looking forward to see how the disclosures change over time, and with IFRS 17 being adopted in more countries.
KAMRAN FOROUGHI: Thank you very much, Urvi, and I must admit, I sort of echo those thoughts. Personally, I've been involved in some aspects of the IFRS 17 project for almost the last 25 years, so absolutely get your point about history being made, and actually good to see this turn from theory into practice.
And I found the point you made and your team's observations around key information only being available much later really, really interesting. And I've known for many years how important sensitivity is in analysis movement are to interpreting numbers. So the fact that these are now only out several weeks later for many companies , makes harder to compare and contrast the sector from the results sort of later in the reporting cycle, so you see how that develops.
Teresa, you had the role of overseeing the project and provided ongoing review, and obviously very well versed in IFRS 17 implementations and results analysis generally. What would you say are the two or three most interesting or surprising aspects of this exercise for you?
TERESA MURPHY: Yeah, Thanks. It's been a really interesting analysis, and as you said, Kamran, the team have done really well. For me, notably, there was a material variation in the KPIs and growth metrics being used. You really have to read the definitions really carefully. Are they including the CSM in the adjusted equity or not?
This has made it really hard for users of the accounts, both in terms of comparison and developing understanding of the results and what to do with them. And I know in the analysis that Urvi and the team put together, they noted five different new business KPIs just being used around the multinationals, so a big variation there.
I think one of the interesting things as well is, and I know IFRS 17 has been really painful for people and there's been a lot of work and there is a lot of disclosure, I think the feeling is there's probably still more disclosure that might be needed, and so there's not quite enough yet.
And I think it's in different places and more on the sensitivities would be quite useful because I think there's some unusual results there, more with reconciliations to other key metrics, be it capital or embedded value, they are there for some and not for others. And for those who are doing them, there's quite different variations in how they're showing them.
And interesting enough areas where you've got sort of run off of the new business CSM and run off of the risk adjustment are not really mentioned at all in the disclosures. So I think there is still a need to go a bit further and more granular information that could be provided to be helpful.
I think, again, another sort of really interesting point is since the transition date, the IFRS 17 equity and profits have looked better, typically driven by better market performance than when we looked at them in 2023 rather than 2022.
But it's quite varied when you look at different companies and different regions. I think we have to accept with over 17, there will continue to be more volatility in the results, but the reasons for that volatility could vary quite a lot between different types of companies and different types of business.
So managing that variety and that volatility and communicating well will be really key for me in terms of insurers moving forward, and particularly for some where they're not really viewing that as their key business metric.
KAMRAN FOROUGHI: Yeah thank you, Teresa. Very, very interesting. And that reminds me that part of our activity in our global advisory group over the last few years is to conduct some very deep dive surveys of insurers on their implementation programs, and in fact, we were getting numbers of close to 300 insurers globally taking part, so extraordinary sort of insight into how programs went.
And I remember that the last one we did, which I think we finalized September last year, 2023, we had an estimate that cumulative costs of implementation across the sector was over $20 billion. So roughly, I think about $20 billion has been spent so far globally on implementing of something quite an extraordinary number.
So in that context and what you just said, it's some quite interesting observations that there's still more work to be done in the areas of clarity and disclosure and explaining the results. So still more work to be done.
Quite interesting as well, you touched on right at the end limited business impact, and certainly seen quite a few insurers making very clear that IFRS 17 to date has had very limited impact on key business decisions or dividend paying capacity or things like that.
They have clearly been positives. I mean, the fact that the life industry is now disclosing run off of contractual service margins, and the non-life insurers using the relevant measurement models. And I know the analysts have got some sort of mixed views on life versus non-life, which we'll come to in this next podcast. But what do you think that means in terms of insurance next steps? Teresa, what do you think insurers should be doing going forward?
TERESA MURPHY: I think some really great points there, and I think there is a lot of useful information in those reports and accounts. And so perhaps another one is to actually listen to the feedback from the analysts. I know we will have more on this, but more insightful and consistent communication and more reconciliations and sensitivity. So the user of the accounts understand it and know what to do with it.
And I think from a business perspective, using IFRS 17 for more than just a compliance exercise, I think people can, once they get through rid of the operational side, think about really the meaningful analysis and forecasting they can do for their business, how they link all their metrics together, and that really supports the internal understanding. And once you get that, you get better market communications as well.
KAMRAN FOROUGHI: Yeah, that's a really good point, Teresa, actually because we all know that insurers use a range of metrics, some IFRS-related equity profit type metrics, but also many non-IFRS related. Helping the user explain those links and reconciliations, I think, would be really valuable.
Thank you. Maybe if we have one parting thought from each of you today, given all the work we've done with insurers, given our implementation survey, given Urvi the detailed disclosure analysis that you and your team performed over recent months. And if there's one suggestion for insurers going forwards with regard to IFRS 17 implementation and application, what would that be? Maybe we start with you, Urvi, and then move to Teresa.
URVI NAGDA: I would say coming from the perspective of reading the publications, we saw some insurers who are publishing their disclosures in a quote unquote "user friendly format" where they had sections dedicated to covering the key IFRS 17 information. It would be good to see more insurers choosing to adopt a similar format and sort of learning from industry best practice.
KAMRAN FOROUGHI: Yeah, I agree with that, Urvi. I've certainly seen the odd sort of large multinational CFO forum group that has had very clear standalone financial sort of supplements where they have all the key information in one place. So that's a good observation. Teresa, what do you think insurers should be doing?
TERESA MURPHY: I think for me, if I think about the different regions because they're in quite different positions, I think sort of probably within EMEA I think, the short term, I would be asking or suggesting people focus on making IFRS 17 BAU more manageable and efficient. And once you've got that, that's allowing you time to utilize the extra insights that IFRS 17 can provide and you focus actually just on running your business in the best way you can.
For Asia-Pacific, who are probably in the midst still of actually going through implementation, it's really to try and learn from the mistakes and all those things that we did within UK and EMEA to actually take those learnings and actually improve your implementation process and have a smoother running to BAU.
KAMRAN FOROUGHI: Thank you very much, Teresa and Urvi for your answers and for joining me today. It's great to hear your thoughts. And to all our listeners, thanks for joining us.
Just a reminder, if you work for an insurance company or wish to discuss any of this content in more depth with any of our IFRS 17 experts, including the three of us, please do get in touch with your usual WTW consultant or email ict@wtwco.com, and don't forget all our IFRS 17 published materials are on our website. So if you wish to visit that, please go to wtwco.com/ifrs17.
And if you enjoyed this episode, do subscribe to hear future episodes and you'll get a nice reminder about our second IFRS focused episode coming out soon where we will be exploring the key findings from our very recent analyst survey. Thank you very much.
SPEAKER: Thank you for joining us for this WTW podcast, featuring the latest perspectives on the intersection of people, capital, and risk. For more information, visit the Insights section of wtwco.com.
This podcast is for general discussion and/or information only, is not intended to be relied upon and action based on or in connection with anything contained herein should not be taken without first obtaining specific advice from a suitably qualified professional.
