Goals of Solvency II and Insurance IFRS
Establishing a single regulatory framework within the EU
Goal of Solvency II: To establish a single regulatory framework within the EU to protect insurers’ policyholders via adequate capital and consistent risk management standards
Goal of Insurance IFRS: To establish a single financial reporting framework across all IFRS jurisdictions that helps insurers’ investors via transparent and comparable financial statements
- The substantial change in the external reporting environment for insurers offers the opportunity to transform the suite of management information utilized to run the business. Seizing this opportunity with a wider transformation of the Actuarial and Finance functions, and the embedding of the new reporting language across all other functions and Business Units, could provide the business with a greater decisional agility and responsiveness to both opportunities and threats. Embracing the change from Solvency II and IFRS Insurance regulations in a holistic manner could give companies a competitive edge.
- Synergies from implementing IFRS Insurance and Solvency II in a coordinated fashion include minimization of the amount of ‘re-working’ of the data, systems and processes; cost reduction and an increase in the effectiveness of the Actuarial and Finance functions; readiness for new IFRS Insurance requirements; lower running costs across data management and modelling: improved investors relations.
- Planning ahead to realize these synergies is essential to ensure successful implementation of both regimes and, as a minimum, to build a framework for both financial reporting and enterprise risk management that is capable of full compliance with the new requirements in a sustainable and cost-effective way.
- The expectations of the investor community may suddenly be a problem insurers would have to deal with: being ready to deal with them would help building competitive advantage. For example as soon as Solvency II results are available, investors are likely to infer the new IFRS information by using their own judgment to adjust Solvency II figures. Consideration of strategies for the early adoption of IFRS Insurance requirements is a potential that the current timetables offer. Insurers could plan to release Solvency II and IFRS Insurance results at the same point in time to provide investors with a new presentation of profit and capital.
Although attractive this outcome is, it requires rigorous and early planning. A blueprint setting out the journey to achieve full implementation is an activity that insures should engage with now.