All signs are that 2019 will be another challenging year for the insurance industry, especially given the recent accounting standard updates (ASUs) and regulatory trends. Globally, regulators are paying more attention to the original objectives of Solvency II and identifying areas for improvement in accounting and risk management.
The ongoing implementation of the International Accounting Standards Board’s (IASB) IFRS 17 standard has given multinational insurers the opportunity to make structural changes to improve risk aggregation and integration across business functions, including actuarial and finance. The main operational issues with IFRS 17 implementation revolve around adopting an appropriate measurement methodology to calculate reserves, while aggregating risk and deploying data from different functions.
Although these regulatory and accounting changes have emanated from Europe, they are having an impact in other geographies, too, including the US.
In the US, the new ASU 2018-12 standard on long-duration contracts announced by the Financial and Accounting Standard Board (FASB) adopts a similar framework to IFRS 17 for measurement and modelling of deferred acquisition costs. This will spawn challenges, including of new processes, calculations, and analytics for finance and actuarial models, along with the inevitable issues around statutory reporting.
Finally, the trend in the insurance industry to move towards less liquid assets such as private equity, debt and alternative investments has necessitated more robust controls and frameworks to manage liquidity risk.
In that spirit, in March 2019, the UK’s Prudential Regulation Authority (PRA) published consultation paper CP4/19 on liquidity risk management for insurers.
We expect this trend of sharper focus on liquidity risk to continue.