• Thomas Schneider, Partner |

January 2022 marks the opening balance sheets under IFRS 17. Bringing fundamental accounting changes for entities that issue insurance contracts, this is a major hurdle for many. How prepared are Swiss insurers for the new rules that enhance transparency around their financial positions and risks?

Opening balance sheets under IFRS 17 take effect this month. As the pressure grows on those Swiss insurance groups that report under IFRS, KPMG has benchmarked the world's leading insurers to gauge how prepared they are. From a group of 25 global insurers and national champions that have been running IFRS 17 implementation programs for several years, one thing is clear: much more needs to be done to achieve a successful transition, and time is running out.

In our survey of 25 insurers across 16 jurisdictions including Switzerland, we asked insurance executives about four phases of their IFRS 17 implementation. These phases correspond to key blocks of tasks from project launch to go live: 1. Setup, impact assessment and design; 2. Implementation: build, configure and test; 3. Implementation: dry runs; and 4. Optimization: building comparatives and readiness for going live.

The results are striking: 44 percent of respondents have completed end-to-end dry runs of their IFRS 17 systems and solutions across pilot sites and 28 percent have completed multiple iterations of end-to-end test runs. Most of the companies we spoke to are further behind, still completing configuration and systems integration testing.

What is the current state of play?

Understandably, it is in the fourth activity block where most work still needs to be done. Our survey suggests the level of preparedness is generally quite low – lower than might be hoped for as we enter 2022. 

From our conversations with insurance groups here in Switzerland, this is no surprise. Companies recognize that there is a lot still to do. Systems integration testing is taking longer than initially anticipated before the amendments required under IFRS 17 can be reflected. This is partly a resourcing issue as many projects await further inputs and detail from teams in the business. 

Seven steps to accelerate progress

Our own insights into IFRS 17 requirements, and our takeaways from discussions with our clients, suggest seven steps companies should take right now. These steps will help accelerate their IFRS 17 journeys and position them for a successful implementation.

1. Validate plans for transition

The complexity of IFRS 17's transition requirements should not be underestimated from a technical or operational point of view. Nor should the effort required to build the opening IFRS 17 balance sheet, including refinements and rework. Companies should not delay transition planning and should use pilots to assess, test and validate plans and resource requirements.

2. Take the time to analyze, explain and understand the drivers of results

Experienced resources that know the business should be involved to ensure thorough preparedness and to secure the full extent of information needed.

3. Allow sufficient time to test updated processes and controls

This includes processes and controls over interim reporting where these differ from the year-end financial close process. 

4. The time for a reality check is now

Future plans and resource allocations should be challenged. Management should be clear about what is working well and what is not, and incorporate this into updated plans and resource requirements. An honest stock of the implementation status is helpful, including whether any warning lights are starting to flash.

5. Secure resources now

Identify the resources that are needed for remaining testing and parallel running in order to accelerate progress and reduce project risk. Resource demands will become more acute as the project nears its end, and insurers may find that there is still a lot of ground to cover but a smaller pool of available talent. 

6. Work in focused short sprints in parallel, not in series

Multiple tasks should proceed in parallel rather than sequentially, to speed up progress in a compressed time frame. Front runners in the project should define the working assumptions, continually reviewing and refining them as interpretations evolve, rather than back-end loading.

7. Build basic first, then refine and optimize

Simplifications and workarounds may be appropriate as an interim measure to build the opening balance sheet and comparatives. Many insurers started out with ambitious plans to use IFRS 17 to revamp their finance operations. Rather than getting to the target end state in one leap. However, it may be more realistic to focus on building to a basic specification first and focusing on optimization, refinement and efficiency later. The ambition to revamp is still valid and should be pursued – but the reality is that it may be more resource-intensive than expected.

In summary, there is a lot still to do before Switzerland's insurance companies can say they are ready for IFRS 17. As we progress through 2022, contingencies are being used up, running the business remains challenging, potential points of failure have multiplied, and resourcing needs are becoming critical. With careful resource management and a sharp focus on the end goal, however, there is still time to get things finished. 

Learn more about this topic in our factsheet: The pressure is rising (PDF).

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