Unraveling insurance financials amid accounting change

Setting the targets

Despite recent regulatory changes for transparency, insurers struggle to communicate performance through financial statements. They juggle multiple valuation bases, leading to a disconnect between accounting regimes and product economics, which impacts daily operations, strategic decisions, and long-term value creation.

Simple, clear insurance performance metrics can help companies bridge this gap. When identifying North Stars, organizations should consider their goals, capabilities, and competitive position. Some insurers prioritize short-term growth to maximize top-line revenues and market share. Others focus on long-term returns, accepting short-term volatility. Still others aim for profitability by targeting niche markets.

Below is an overview of key metrics and frameworks that can help guide a company in defining its North Stars: 

Eliminating the noise

Industry catalysts have highlighted the issue of excessive measuring of metrics. Now is the time for reinsurers to reassess their practices and focus on why they produce KPIs. While accounting information is necessary for explaining results and satisfying stakeholders, it should not drive transformation efforts. Instead, companies should prioritize KPIs that align with their strategic goals, such as improving capital generation. By eliminating metrics that do not contribute to these goals, organizations can avoid the illusion of success from suboptimal KPIs. This shift allows for better long-term strategies and improved decision-making, enhancing overall company performance.

KPIs that truly matter

Defining a portfolio of KPI indicators in insurance is crucial, but successful transformation requires investment in the right capabilities, tools, and technologies. For instance, robust scenario modeling is essential for projecting capital strain. Many organizations still rely on manually produced metrics, but enterprise systems can automate these processes, improving controls and calculations. These systems integrate with existing finance and actuarial tools, democratizing information and ensuring a single source of data truth.

(Re)insurers can benefit from recent accounting projects to streamline data sourcing and cleaning, enhancing data accuracy and availability. A modernized technology stack supports advanced analytics and quicker decision-making. Improved governance is needed to manage KPI indicators in insurance with formal oversight, offering real-time monitoring and reporting for continuous oversight.

While some systems offer out-of-the-box solutions, additional design and configuration are often required. Investing in ancillary tools and technologies is essential for delivering a transformed KPI portfolio and creating a more data-driven reporting function.

Let’s get moving

Most companies are overwhelmed by numerous KPIs for measuring success and managing performance. Catalysts like accounting changes, economic volatility, and M&A trends have led both insurers and reinsurers alike to reassess their KPIs. Recent transformations have made generating KPIs easier with platforms like Anaplan, Oracle, SAS, and Workiva offering out-of-the-box reporting functionality.

Day-to-day operations often produce hundreds of metrics, many of which lack value. While some KPIs are essential for reporting and compliance, they may not align with strategic goals. Understanding the purpose and timing of metrics is crucial. 

In our latest report, learn more about why insurers should carefully consider their strategy moving forward before modernizing around ingrained or popular KPIs. 

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