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Global IFRS Insurance Survey 2013

Discover insights from the 2013 Global IFRS Insurance Survey on insurers’ preparations for the new accounting standards, highlighting challenges, benefits, and the need for organizational change.

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Global IFRS Insurance Survey 2013

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  1. Global IFRS Insurance Survey 2013 • Gaining momentum:Insurers’ preparations for the new IFRS accounting rules • Francesco Nagari • Deloitte Global IFRS Insurance Lead Partner • 17 December 2013 A research programme by the Economist Intelligence Unit on behalf of Deloitte

  2. EXECUTIVE SUMMARY • The waiting game is over • Cost is the key • Adoption heralds sweeping organisational change • Insurers see mixed benefits • Boardroom understanding of change is low • Standards are better for investors • Global framework proves elusive 2 Source: Economist Intelligence Unit

  3. 1. Will your company have to comply with IFRS, US GAAP or both? • 80% of survey respondents will have to comply with IFRS only • 20% of survey respondents will have to comply with both IFRS and US GAAP • 15% of respondents from the Asia-Pacific region will have to comply with both IFRS and US GAAP, compared to 9% of European respondents and 54% of North Americans. 3 Source: Economist Intelligence Unit

  4. 2. What do you think are the most challenging aspects of IFRS Insurance Contracts? Select up to three. • Cost is the most challenging aspect of IFRS Insurance Contracts and IFRS for financial instruments, according to 39 percent and 35 percent of respondents, respectively. • Technical challenges and concerns about the potential for political interference are more evenly balanced in 2013, suggesting that senior executives and their teams are more focused on finding practical solutions to their IFRS implementations now that the uncertainty over the timing and content of the standards has diminished. 4 Source: Economist Intelligence Unit

  5. 3. What do you think are the most challenging aspects of the new IFRS for Financial Instruments (IFRS 9)? Select up to three. • Cost is the most challenging aspect of IFRS for Financial Instruments as well (according to 35% of respondents) • As is the case for insurance contracts, technical challenges and concerns about the potential for political interference are more evenly balanced in 2013, suggesting that senior executives and their teams are more focused on finding practical solutions to their IFRS implementations now that the uncertainty over the timing and content of the standards has diminished. 5 Source: Economist Intelligence Unit

  6. 4. Do you agree or disagree with the following statements? Rate on a scale of 1 to 3 where 1 is agree and 3 is disagree. • 79% of respondents agree financial reporting requirements to inform shareholders about an insurer’s performance and solvency requirements to protect an insurer’s policyholders should be aligned with only minimal reconciling items • 62% say although solvency requirements should be different from financial reporting requirements, the latter should be consistent with the insurer’s economic capital requirements and own risk self-assessment • Only a third of respondents (33%) think it is reasonable that financial reporting and solvency requirements are significantly different given the different stakeholders they serve 6 Source: Economist Intelligence Unit

  7. 5. Do you agree or disagree with the following statements? Rate on a scale of 1 to 3 where 1 is agree and 3 is disagree. • 64% of respondents say IFRS for financial instruments and insurance contracts should be adopted by the US in place of US GAAP, and 60% of respondents think that before issuing a new standard on insurance contracts, the IASB should conduct field testing, including a cost/benefit analysis • More than half of respondents say it is worth making some compromises to harmonise financial instruments and insurance contracts accounting under IFRS and US GAAP because the benefits of consistency and freedom from accounting arbitrage would be considerable 7 Source: Economist Intelligence Unit

  8. 6. For each of the following accounting changes, do you believe the impact on your organisation will be high, medium or low? • It is not just the cost of implementing IFRS that has increased since 2012, but the overall impact as well. • Last year, only 10% of respondents said that the impact of the accounting standard on insurance contracts would be “high” on their business—the majority (66%) thought it would be “medium”—but in 2013, 66% say that it will be “high.” 8 Source: Economist Intelligence Unit

  9. 7. What level of involvement / awareness of upcoming accounting change is there at your organisations’ board level? • This perception of the increased impact that the standards will have on the business has been matched by only a moderate rise in awareness and involvement of the board: from 11% who said that company boards were highly aware in 2012, to 29% in 2013. • On the other hand, there now seem to be few boards who are not aware at some level of the challenges facing their organisations. 9 Source: Economist Intelligence Unit

  10. 8. Do you agree or disagree with the following statements? Rate on a scale of 1 to 3 where 1 is agree and 3 is disagree. • It is perhaps surprising that despite the added cost and complexity—and in the absence of complete agreement between the standard-setters on important details of their insurance contracts rules—66% of respondents say that the business benefits of adopting the standards outweighed the expected implementation costs. However, many of the changes, even those that increase complexity, have been at the request of the industry, so their benefits are likely to be clear. • Last year, only 21% of survey respondents thought the benefits of adopting the new “Insurance Contracts” IFRS/US GAAP accounting standards outweigh the expected implementation costs 10 Source: Economist Intelligence Unit

  11. 9a. How long do you require between the new Insurance Contracts and Financial Instruments standards being published by the IASB and the required implementation date? - Insurance Contracts • 88% of survey respondents say that they will complete their projects within three years. • Non-life insurers and reinsurers are slightly more confident than their life and composite counterparts about completing within three years (91%, 91%, 88% and 86%, respectively). 11 Source: Economist Intelligence Unit

  12. 9b. How long do you require between the new Insurance Contracts and Financial Instruments standards being published by the IASB and the required implementation date? - Financial Instruments • 86% of survey respondents say that they will complete their projects within three years. • Last year, only 75% of survey respondents said they would complete their projects (for both Insurance Contracts and Financial Instruments) within 3 years 12 Source: Economist Intelligence Unit

  13. 10. When do you expect to start your IFRS Insurance Contracts project? • In 2012 only 3% of insurers said that they had started implementation, and 57% said that they would wait for the IASB to issue the standard in completed form. • This year, 58% of respondents say they have begun preparations, even though the IASB has not yet completed its deliberations. • UK and Italian insurers are slightly behind their European counterparts, with 38% and 52%, respectively, having begun preparations, while the Spanish and Germans lead the way with 93% and 79%, respectively, having already started. 13 Source: Economist Intelligence Unit

  14. 11. What is the status of the following elements of your IFRS / US GAAP Insurance Contracts implementation? For each one, indicate [not started, in progress, start in next 6 months] • For those who have started their preparations, work has begun on the various different facets of the project, from educating and training staff, to conducting high-level business-impact assessments, and reviewing the operating models for actuarial, financial and risk functions. 14 Source: Economist Intelligence Unit

  15. 12. Do you plan to have a single integrated programme that will both implement and manage the transition to the new accounting requirements, including those from Insurance Contracts and Financial Instruments aligned with new solvency and capital adequacy regime that may become applicable to your jurisdiction (such as Solvency II within the European Union)? • Almost 62% of survey respondents say that they do not plan to run a single integrated programme combining the IFRS and Solvency II projects to implement and manage the transition to the new accounting regimes, adding further pressure on budgets • Last year, 47% of survey respondents said they did not plan to have a single integrated programme 15 Source: Economist Intelligence Unit

  16. 13. The new IFRS / US GAAP on Insurance Contracts and Financial Instruments make reference to insurance entities’ business models to derive financial reporting requirements. This is similar to what insurance supervisors are attempting to introduce in new solvency/risk regulations. Is your organisation expected to increase the integration between financial and risk functions? • Integration work on the finance and risk functions is underway in 51% of businesses, with a further 8% saying that they intend to begin integration within the next six months. 16 Source: Economist Intelligence Unit

  17. 14. Do you plan to change your financial reporting, administrative and/or actuarial systems as part of the implementation of IFRS / US GAAP Insurance Contracts and Financial Instruments, and if so to what extent? • For over half of the businesses in this year’s survey, the new IFRS and US GAAP rules on insurance contracts and financial instruments are driving change in their business models. • In 2012, 42% of survey respondents said they would change their financial reporting, administrative and/or actuarial systems as part of the implementation of IFRS / US GAAP Insurance Contracts and Financial Instruments 17 Source: Economist Intelligence Unit

  18. 15. The adoption of the new IFRS is expected to take over three years from now. What is your estimated total global budget (including internal costs, new systems and external fees for professional services and new technology licenses) to meet the new IFRS / US GAAP Insurance Contracts and Financial Instruments requirements, approved or otherwise? • Insurers now estimate that implementation is going to be much more expensive. In the 2012 survey, the majority of respondents said that their project could be completed for less than €10m (US$14M). However, the average expected expenditure in 2013 is between US$25M-50M (41 percent). • 52% of non-life insurers said the expected expenditure would be between US$25-50m, compared to 36%, and 46% for life and reinsurers 18 Source: Economist Intelligence Unit

  19. 16. How many FTE (Full Time Employees) do you predict to be involved in delivery of your IFRS / US GAAP Insurance Contracts and Financial Instruments project during implementation? • 58% of survey respondents say between 26 to 50 FTE will be involved in the delivery of their IFRS/US GAAP Insurance contracts and Financial Instruments project during implementation (in 2012, the majority of respondents said between 0 and 25 employees would be involved). • These 58% of survey respondents were mainly composed of life and non-life insurers as 53% and 69% of life and non-life insurers predicted 26 to 50 FTE would be involved in the project, compared to 18% for reinsurers 19 Source: Economist Intelligence Unit

  20. DEMOGRAPHICS Source: Economist Intelligence Unit

  21. Contact details • Francesco Nagari • Deloitte Global IFRS Insurance Lead Partner • +44 20 7303 8375 • fnagari@deloitte.co.uk • @Nagarif • Deloitte Insights into IFRS Insurance (i2ii) • www.deloitte.com/i2ii IFRS 4 Phase II Comment letter – Webcast (October 2013)

  22. This seminar and the accompanying hand-outs cover topics only in general terms and are intended to give a wide audience an outline understanding of issues relating to accounting applicable to entities in the insurance sector, and therefore cannot be relied on to cover specific situations; applications of the principles set out will depend on the particular circumstances involved. Furthermore, responses given in the seminar to questions are based on only an outline understanding of the facts and circumstances of the cases and therefore do not form an appropriate substitute for considered specific advice tailored to your circumstances. We recommend that you obtain professional advice before acting or refraining from acting on any of its contents. We would be pleased to advise you on the application of the principles demonstrated at the seminar and other matters to your specific circumstances but in the absence of such specific advice cannot be responsible or liable. Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu ('DTT'), a Swiss Verein, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk\about for a detailed description of the legal structure of DTT and its member firms.

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