Thefourcornersofinsurancereporting

HowlifeinsuranceCFOscansteertheirbusinesstonewheights

02

Contents

Thefourcornersofinsurancereporting04

Connectingthecorners–data,systemsandprocesses06

Operationaldimension:

bridgingaccounting,value,economicandregulatoryviews08

Timedimension:

plan,forecastandactualreporting08

Integratinghistoricalfinancialreporting

withplanningandforecastinginlifeinsurance09

Historicalfinancialreportingasabaseline09

Planningandforecastinginamulti-dimensionalframework09

Conclusion10

Contacts10

Thefourcornersofinsurancereporting

03

Deloitte’scollaborationwiththelifeinsurancesectoroverthepast

twodecades,aperiodofinvestmenttocopewithregulatoryand

businesschallengesofunprecedentedintensity,demonstratesthat

lifeinsurancechieffinancialofficers(CFOs)arenowbetterpositioned

thanevertobuildmoreeffectivesteeringframeworks.

Thepast20yearsoflifeinsurance

regulationfocussedonreported

profitsandmeasuresofcapital.

Thisisnotsurprisinggiventhese

metricsdeterminealifeinsurer's

returnoncapital(ROC)—byfar

theirmostimportantperformanceindicator.Deloitte’s“fourcorners

ofinsurancereporting”framework("fourcornersframework")coalescesallrelevantfacts,enabledbyvariousreportingbaseshavingbecome

morehomogenous,toempowerlife

insuranceCFOstomaximiseROC.Thefourcornersframeworkallowslife

insurerstoexplaintheirresultsand

preparecoherentplansandforecastsacrosstwointerconnecteddimensionsofROC.Furthermore,itenableslife

insurerstointuitivelyidentifyareas

whereunderlyingdata,systems

andprocessescanbeimprovedto

achievemoregranular,fasterreportingcapabilitiesthatelevatethebusinesscontributionofthefinanceand

actuarialfunction.

Thefourcornersofinsurancereporting

04

Thefourcorners

ofinsurancereporting

TheimplementationofIFRS17hasbeenchallengingforthelifeinsuranceindustry.TheeffortlifeinsurersputintoIFRS17wasunprecedentednotjustfortheirindustry,butarguablyforanysectoroftheglobaleconomy.Deloitte'sproprietarydataindicatesthatfrom2017to2023,whenIFRS17cameintoeffectinmanyjurisdictions,insurers

investedUSD15billiontoUSD20billioninpreparationandimplementation—withlifeinsurersaccountingformorethanhalfofthissum.Thisiscorroboratedbyresearch

DeloitteconductedwithEconomistImpact1andan

estimateofIFRS17implementationinvestmentbyWillisTowersWatson2.

Insurers,regulatorsandotherstakeholdersinthe

over20yearsspentestablishingIFRS17asanewhigh

quality,comprehensiveandgloballyacceptedaccountingstandardexpectedittoyieldsubstantialbenefits.Thesebenefitsarenowbeingrealised:IFRS17'sconsistent

financialreportingandtransparencyonthedriversoflifeinsurers'financialperformanceareattractinginvestorstothesector.Thestandard'stransparentcomparabilitybetweendifferentlifeinsurers,andbetweenlifeinsurersandcompaniesinothersectors,isreducingthecost

ofcapitalforlifeinsurerstogrowtheirbusinesses.Lifeinsurers'IFRSprofitabilityisthefirstdimensionofthefourcornersframework.

Amidtheglobalmodernisationofinsurancesolvencycapitalregulations,drivenbytheneedforgreatertransparency,

risksensitivityandalignmentwithinternationalfinancial

reportingstandards,solvencycapitalisthesecond

dimensionofthefourcornersframework.ThedevelopmentandimplementationofIFRS17,particularlyitsbuilding-

blocksapproachforvaluinginsurancecontracts,has

hadasubstantialinfluenceonthemodernisationof

globalregulations.Theoverallmodernisationofsolvency

regulationshasbeenshapedbytheemphasisonrisk-basedvaluation,improvedsolvencyreportingandenhanced

policyholderprotection,leadingtomilestonesincluding

thefinalisationattheendof2024oftheInternational

AssociationofInsuranceSupervisors(IAIS)InsuranceCapitalStandard(ICS).

Designedasarisk-basedmeasureofcapitaladequacyforInternationallyActiveInsuranceGroups(IAIGs),theICSwasextensivelymonitoredandrefinedoverthepastfiveyearsastheIAISincorporatedfeedbackfrompublicconsultationsandsupervisoryassessmentstoenhancethestandardandensureitsconsistentimplementationacrossjurisdictions.TheIAISwillbeginassessingimplementationin2026,withjurisdictionevaluationssettostartin2027.ThefinalisationofICSwasaleaptowardsgreaterregulatoryconvergenceandfinancialstabilityintheinsurancesector.Infinalising

theICS,theIAISstrovetoensureitssolvencyframeworksremainalignedwithevolvingaccountingstandardslikeIFRS17andtheirinfluenceonhowinsurersmeasureliabilitiesandcapitaladequacy.

1.

/global/en/Industries/financial-services/perspectives/global-ifrs17-insurance-survey.html

2.

/en-il/news/2023/09/ifrs-17-disrupting-business-as-usual-for-insurers#:

~:text=The%20total%20cost%20faced%20by,reporting%20into%20business%20as%20usual.%E2%80%9D

Thefourcornersofinsurancereporting

05

Profitabilityandcapital,thefirsttwodimensionsofthefourcornersframework,representthetwoelementsofROC,

arguablythemostimportantindicatorofalifeinsurer’s

financialperformance.ThefinaltwodimensionsarebasedontwologicallycorrelatedfacetstoassessingROC:

01.Theexternalfacet:ReturnderivedfromanIFRS-

basedprofitdimensionandacapitalamountderived

fromaregulatedrisk-basedcapitalbalancesheet,

bothsubjecttoscrutinybyauditorsandregulators.

02.Theinternalfacet:Lifeinsurancebusinesses

assessprofitonavalue-basedreportingbasis(e.g.,an

existingembeddedvaluereportingbase)generated

fromdeployingtheireconomiccapitalorother

internalcapitalmeasures.Thisfacetisoftenpresentedasanalternativeperformancemeasuretothe

externalfacet.However,itissubjecttoalowerlevelofconsistency,extentofdisclosuresanddegreeofscrutinybyauditorsandregulatorsthantheexternalfacet,thusshouldbeseenasaninternallyfocusedperformanceindicator,inthemain.

Theimagebelowshowshowthefourcornersframeworkisanchoredtothereturnoncapitalindicator,whichinturnisbasedonlifeinsurancebusinesses'externalandinternalstakeholdergroups.Importantly,internalstakeholdershaveaccesstothefullsetofperformanceindicators:

TheFutureofReportinginInsurance

Thefourcornersframeworkrepresentstheoverarchingbusinessframeworkthateachinsurancecompanywillprogressivelyconvergeto

Externalfacing

Internalfacing

Pro?t

IFRS-/

LDTI-basedpro?t

Value-basedpro?t

(e.g.embeddedvalue)

Capital

Regulated

risk-basedcapital

Economiccapitalor

otherinternalcapital

measures

Thefourcornersofinsurancereporting|Connectingthecorners-data,systemsandprocesses

06

Connectingthecorners–data,systemsand

processes

Eachofthefourcornersofinsurancereportingisconnectedtotheotherthreefromaneconomic,intellectualandoperationalperspective.

Lifeinsurersfinancialmetricsreportedtoexternal

stakeholdersarethelogicalstartingpointtounderstandtheeconomicandintellectualperspective.ThisisbecausetheCFOandChiefActuaryplayavitalroleinensuring

clear,precisereconciliationbetweenfinancialreporting

underIFRS17andthecalculationsrequiredformodernrisk-basedcapital(RBC)regimes.Thesetworegimes,

whileconverginginseveraldimensions,theyhaveresidualdifferencesintheirtreatmentofliabilities,discount

rates,riskadjustmentsandcapitalrequirements.Seniorfinancialleadersmusthaveadeepintellectualgraspofhowthesesimilaritiesanddifferencesinteract.

ReconciliationinvolvesunderstandinghowIFRS17’s

contractualservicemargin(CSM)andriskadjustment

translateintocapitalrequirementsunderanRBC

framework,suchasSolvencyII,ICSortheHongKong

RBCregime.Thisrequiresamulti-dimensionalapproach,ensuringfinancialmetricsalignacrossprofitability,

solvencyandrisksensitivity.TheDeloitte’sfour

cornersframeworkdeliversgreaterbenefitswhenthis

reconciliationisrobustfromeveryperspective—financialreporting,regulatorycapital,economicvaluationand

strategicdecision-making.

ToachievethesebenefitstheCFOandChiefActuarymustfullyunderstandthesimilaritiesanddifferencesamongeachreportingbasis.Thisinvolvesdetailed

analysisoffinancialdataandstresstestingassumptionswhileensuringROCcalculationsreflecttheapplicableprofitabilityandcapitalvaluationrequirements.

Thisknowledgeshouldbecascadedthroughouttheorganisation,ensuringthatfinance,actuarial,risk

managementandinvestmentteamshaveashared

understandingofhowtheseregimesinteract.This

createsastrongstructurewithintheinsurertoenableeffectivecapitalallocation,strategicplanningand

regulatorycompliance.

ThechallengesofreconcilingIFRSreturnand

regulatorycapitalextendequallytoalifeinsurer’s

alternativeperformancemetrics,suchasembedded

value(EV)andeconomiccapital(EC).Thesemetricsareessentialinassessingthelong-termfinancialhealthofaninsurerandguidingstrategicdecisionsoncapital

allocation,riskmanagementandbusinessgrowth.Thisaddsevidencetoourassertionthattogether,thefourcornersshapeaninsurancereportingframeworkthatcanhelplifeinsurersmaintainfinancialstabilitywhileoptimisingshareholdervalue.

Thereareatleastfiveadditionalchallengesin

economicallyandintellectuallyreconcilingtheseexternalmetricstomoreinternallyfocussedmeasurements.EachcreatesanoperationalchallengewhichtheCFOandChiefActuarycanturnintoanopportunitytoelevatetheir

functions'contributiontothegrowthandprofitabilityofalifeinsurancebusiness:

Thefourcornersofinsurancereporting|Connecting

thecorners-data,systemsandprocesses

01.DataConsistency&Integration

UnliketraditionalEVcalculations,IFRS17adopts

amarket-consistentvaluationapproachtomany

elementsofreportedamounts.Tomaintain

consistency,insurersmustensurefinancialdata

flowsseamlesslybetweenIFRSreporting,regulatorycapitalassessmentsandinternalEVandECmodels.

02.RiskSensitivity&CapitalAllocation

ECframeworksassesscapitaladequacybasedonriskexposure,oftenusingstochasticmodelling

todeterminetherequiredcapitalbuffer.IFRS17,however,requiresthatinsurerscalculateCSMandregulatorysolvencyratiosbyaligningrisk-basedcapitalmeasureswithaccountingprofitability.

03.EV&ShareholderReturns

EVrepresentsthepresentvalueoffutureprofitsfromexistinginsurancecontracts,excludingnewbusinesspotential.TheIFRS17profitrecognitionmodelaffectshowinsurerscalculateEV,requiringadjustmentstodiscountrates,riskmarginsandpolicyholderbehaviourassumptions.

04.OperationalComplexity&SystemIntegration

Insurersmustharmoniseactuarial,financeandrisk

managementsystemstoensureIFRS,regulatory

capital,EVandECcalculationsarealigned.

Thisrequiresadvancedmodellingcapabilities,automationandcross-functionalcollaboration.

05.StrategicDecision-Making

Thereconciliationofthesemetricsimpacts

capitaldeployment,productpricingand

investmentstrategies.Toenableeffective

decision-making,insurersmustensureROC

calculationsreflectbothaccountingprofitabilityandrisk-adjustedeconomicvalue.

Thisillustratesthatthedata,systemsandprocessesofa

businessarecrucialtoreconcilingIFRS17,RBCregimes,EVandEC.TheabilityoftheCFOandChiefActuarytomaintainintellectualcontroloversuchreconciliationdependsnotonlyontheoreticalknowledgebutalsoonpracticalexecution

withinthecompany’sdatainfrastructure,actuarialmodels,financesystemsandworkflows.

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Thefourcornersofinsurancereporting|Connectingthecorners-data,systemsandprocesses

08

Operationaldimension:

bridgingaccounting,value,

economicandregulatoryviews

EffectivereconciliationbetweenIFRS17,anRBCregime,EVandECrequirestheseamlessintegrationofinsurers'financialreporting,capitalmanagementandpolicy

administrationsystems.Thediagramofthefourcornersframeworkshowssystemanddataconnectorslinkingeachcornerwiththeotherthreecorners.Becauseof

theeffortsofallstakeholdersinshapingIFRSandthenewRBCregimesinformedbyICS,thesefourcornersaremorehomogenousthanever,andthebridging

ofviewstheyrepresentismoreattainablethaneverforlifeinsuranceCFOsandchiefactuaries.Thisis

evidencedbythestronglogicalanddataoverlapof

eachcorner.Executivescannowrelyonafinanceandactuarialfunctionthatnavigatesseamlesslyacross

thefourcornerstoaddresstheneedsofinvestors

andotherkeyexternalandinternalstakeholders.

IFRS17implementationhasgivenrisetoacompellingopportunityforCFOsandchiefactuariestoadvancethestatusoftheirfunctionsacrossfiveelementsofaninsurancebusiness:

01.SystemArchitecture&DataFlow

Insurersmustmaintainhigh-qualitydatasystemsforaccurateextraction,validationandtransformation

offinancialfigures.TheIFRS17approachtorevenuerecognition—throughtheCSM—requiresdifferent

calculationsfromapproachesusedincapital

assessments,suchasapurerisk-adjustedpresent

valueapproachlikethoseadoptedinSolvencyIIorICS.Thisrequiresdatagovernanceframeworkstoensurecalculationsflowsmoothlyfromonebasistoanother.

02.Operational&Process

ComplexityOptimisation

Thetransitionbetweenreportingbasesrequiresmultipledepartments,includingfinance,actuarial,riskandITteamstoworkinsync.Developing

standardisedreconciliationtemplates,deployingautomationanddesigningaudittrailsfor

adjustmentscanstreamlineprocessesandreduceoperationalfriction.

03.Automation&ScalableTechnologySolutionsGiventhecomplexityofIFRS17,insurersmust

investinadvancedactuarialandfinancialreporting

systems,includingcloud-basedcomputational

platformsforreal-timescenarioanalysis.EnsuringreconciliationlogicisembeddedinthesesystemshelpseliminatemanualerrorsandensurestheCFOandChiefActuarycanclearlyarticulateaccountingandregulatoryfinancialimpacts.

04.OrganisationalKnowledge&Training

Astrongoperationalfoundationmustbe

cascadedthroughouttheorganisation,ensuring

everyteam—fromjunioraccountantstosenior

executives—understandshowfinancialmovementsunderIFRS17translateintocapitalrequirements

underRBCframeworks.Frequentcross-functionaltrainingprograms,knowledge-sharingsessions

andoperationalsimulationshelpreinforcethisorganisation-wideunderstanding.

05.StrategicDecision-MakingEnabledbySystems

Reconcilingdifferentframeworksisnotjustan

accountingexercise—itimpactsstrategiccapital

allocation,investmentdecisionsandproductpricing

strategies.Insurerswithoptimalsystemworkflows

cangaindeeperinsightsintohowprofitability,

solvencyratiosandROCinteract,leadingtomore

informeddecision-makingbyleaders.

Ultimately,theabilitytobridgeIFRSandEVaccountingprofitabilitywithregulatoryrisk-basedcapitalandEC

adequacyrequiresintellectualrigorandsophisticated

systems.Awell-integratedoperationalandtechnologicalinfrastructureensuresreconciliationisaccurate,efficientandtransparent,enablingleaderstocommunicate

financialresultsconfidentlyanddrivestrategicactions.

Timedimension:

plan,forecastandactualreporting

Aftersomuchchangeinexternalreportingbythelife

insurancesector,itsexecutiveshavedisplayedaclear

appetiteformoreforwardlooking/forecastedreportsandcommentary.Inthefinanceandactuarialfunctions,thereisatightfocusonexplainingresultsbuttheemphasisonprojectingforwardandworkingwithbusinessleaderstounderstandperformanceprospectshasbenefitedless

fromtheinvestmentsinIFRS17andtheotherexternallyfacingreportingbasesimplementedinthelastfewyears.

Thefourcornersframeworkaddressesthisneedanditsmoreacutemanifestationinthelifeinsuranceindustry's

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Thefourcornersofinsurancereporting|Connecting

thecorners-data,systemsandprocesses

postIFRS17era,inwhichthechallengeforfinance

andactuarialfunctionsarecompoundedbyadditional

complexityarisingfromamoreuncertaingeopolitical

environment.Forfinancetotakeitsplaceasamore

strategicfunctionasopposedtoaback-officeutility,it

needstotakeaforwardlookingandbusinesspartnershipperspectivewhilecontinuingtodeliverpreciseactual

financialinformationandanalysis.

Thetimedimensionturnsthefourcornersframework

intoatri-dimensionaldiagramwhereactualandhistoricalreportingarethefoundationuponwhicheachcornercanbebuilt,whichinturnsupportsplanningandforecastingattheupperendoftheverticaldimension.

Integratinghistoricalfinancial

reportingwithplanning

andforecastinginlifeinsurance

Linkingthefourcornerswithactualandforecastedfinancialdataasshowninourdiagramremindsusthatlifeinsurersoperateinacomplexfinanciallandscapewherestrategic

planningandforecastingisinformedbyhistoricalfinancial

reporting.Intoday’sreportingenvironment—dominatedbyIFRS17,evolvingRBCregimesinspiredbyICSprinciples,EVreportingandECmodels—insurersmustensurethatpastfinancialdataislinkedeffectivelytofutureprojections.Thisisessentialforcapitalmanagement,profitabilityanalysisandlong-termsustainability.

Historicalfinancialreportingasabaseline

Historicalfinancialreportingprovidesinsurerswithkeyinsightsintoprofitabilitytrends,riskexposuresandpolicyholderbehaviour.UnderIFRS17,financial

statementsnowreflectamarket-consistentvaluationapproach,emphasisingtheCSMandriskadjustments.Thisshiftrequiresinsurerstoreassesspastfinancial

resultsandalignthesewithnewmeasurementmodels.

EVreporting,widelyusedacrossseveralmarkets,offersalong-termperspectiveonaninsurer’sfinancialhealthbycapturingthecurrentvalueoffutureprofitsfromexistingpolicies.ECmodels,ontheotherhand,providearisk-

sensitiveviewofcapitaladequacy,enablinginsurersto

maintainsufficientreservestowithstandfinancialshocks.

Planningandforecasting

inamulti-dimensionalframework

Toplanandforecasteffectively,lifeinsurersmust

integratehistoricalfinancialdatawithforward-lookingriskassessments.Thisinvolves:

Aligning

01.IFRS17MetricswithBusiness

Projections

?Insurersmustforecastprofitabilitybased

onIFRS17CSMreleasepatterns,ensuring

revenuerecognitionandexpectedpolicyholderbehaviourarealigned.

?Historicalclaimsexperienceandpolicyholder

retentionrateshelprefinecashflowprojections.

-

02.RiskBasedCapital&StrategicCapital

Allocation

?RBCregimes,inspiredbyICSprinciples,requireinsurerstoassesssolvencyratiosbasedon

historicalandfutureriskexposures.

?Insurersusepastfinancialdatatooptimisecapitalallocation,ensuringcompliancewithregulatoryrequirementswhilemaintaininggrowthpotential.

03.EV&ECinDecision-Making

?EVreportinghelpsinsurersevaluatelong-

termprofitabilitytoguideproductpricingandinvestmentstrategies.

?ECmodelsincorporatehistoricalvolatilityand

stresstesting,enablinginsurerstoforecast

capitalneedsunderdifferentmarketconditions.

Thefourcornersofinsurancereporting|Conclusion&Contacts

10

Conclusion

InareportingenvironmentshapedbyIFRS17,

RBCregimes,EVandECmodels,lifeinsurersmust

seamlesslyintegratehistoricalfinancialreporting

withplanningandforecasting.Thisrequiresamulti-

dimensionalapproach,ensuringpastperformance

informsfuturestrategicdecisionswhilemaintaining

regulatorycomplianceandfinancialstability.By

leveragingdata-driveninsights,insurerscanenhancecapitalefficiency,profitability,andlong-termresilienceinanevolvingfinanciallandscape.

Thefourcornersofinsurancereportingframework—IFRSreturn,regulatorycapital,EVreturnandEC—whencarefullyalignedtoinalogicalframeworkasDeloittesuggests,offera360-degreeviewofaninsurer’sfinancialhealth.This

alignmentisbeneficialifappliedwithintegritytothetimedimensionofinsurancereportingfromactualtoforward

lookingdata.Achievingthesebenefitsrequiresintellectualrigour,operationalefficiencyandsophisticatedsystems,

enablinginsurerstonavigateregulatoryrequirementswhileoptimisingshareholdervalue.

Contacts

DeloitteInsuranceFinanceandActuarialTransformationLeaders

FranckBarbarella

GlobalInsuranceFinanceandActuarialTransformationLead

frbarbarella@.hk

SimonWalpole

GlobalActuarialLead

srwalpole@deloitte.co.uk

ChristopherAlm

EMEAInsuranceFinanceandActuarialTransformationLead

ChAlm@deloitte.de

FrancescoNagari

DeloitteGlobalLeadIFRSInsuranceContracts

andAsia-PacificInsuranceFinanceandActuarialTransformationLead(mainauthor)

frnagari@.hk

GarethEvans

EMEAInsuranceFinanceandActuarialTransformationLead

gevans@deloitte.co.uk

BryanBenjamin

AmericasInsuranceFinanceandActuarialTransformationLead

bbenjamin@

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