A question we have been asked recently is what will be the effect of Covid-19 on IFRS 17 preparations? To answer this we need to make some assumptions:

• You have not yet started on your IFRS 17 implementation project. Some insurers are well on their way already, so for them this timing could be less.
• The earliest you will be able to start on IFRS 17 implementation is January 2021 (assuming movement control orders, lockdowns and whatnot are cleared up by then, leaving you time to think about IFRS17). We are assuming that for the remainder of 2020, it would be desirable to have little or no heavy expenditures due to the unknowns of Covid19.
• You are using external consultants, with at least some of the experts from different countries (thus with short term travel disruptions). 
• You will not need to stall IFRS 17 development due to financial considerations from 2021 onwards (i.e. likely challenges in business volume and possibly experience due to Covid-19 causing you to freeze such projects for the time being).
• You will start IFRS17 on 1 January 2023, and your first financial year end will be 31 December 2023. In some countries audited financial statements are required at mid-year, but this is ignored for this discussion. 
• You will require external resources to manage this project and also for the software solution, though you will also allocate internal resources to assist.
• The timing is for an average company working diligently and efficiently to complete the IFRS17 implementation. The implementation of new IT systems is famous for being stressful and having time overruns. Thus it would be better to have buffers in the timing for implementation wherever possible.

The short answer is that if we were asked this question before Covid19 we would have said yes, you have time to implement IFRS17 considering the expected strains on resources (internal as well as external resources with so many insurers worldwide implementing at the same time).  However, with the current climate of uncertainty with Covid19 putting strains on solvency, investment returns and new business targets it is unlikely insurers will want to start implementation in 2020. Even in 2021 it is likely there will be travel restrictions and other residual effects from Covid19. The sections below give an idea of the work which will go on during IFRS17 implementation and an idea of the time required.

Stage One: Initial work

The first step will be getting moving. This starts with hiring an IFRS17 team to manage the project. This team would have actuarial, accounting, IT and project management resources. This team then needs to put a project plan together, put together an RFP for the software solution, provide time for potential providers to submit proposals and then organizing presentations and choosing a software provider (or multiple providers if a different actuarial solution is needed from the IFRS17 engine).  Before putting the proposal together, the IFRS17 team will need to understand user requirements, current system gaps and limitations, system architecture and governance requirements as well as business and functional needs with the software.  If a detailed gap analysis has been performed this development work will be very quick, but our experience thus far is that gap analyses have not generally been performed to the level of detail and usefulness required in an actual implementation, thus additional work will likely be required. A reasonable minimum time required for this is likely to be three months, with six months being more realistic for many insurers. 

At the same time this first step is going on the actuarial team can be performing the financial impact analysis and position paper. These again might have been completed already but likely more detail being required. Initial training to your staff will likely be performed during this first step as well since the various IFRS17 teams will depend on your staff for data and decision making at key points in time.  Higher level training to your board and senior management is also likely.

Step 2: Software and system initial development

For step two, your actuarial implementation team will be onboard and using the position paper and other preparatory work design the actuarial system to provide the required cash flows. The team implementing the IFRS17 engine will also be onboard determining the data they require and the outputs they will need to provide for the various financial statements and disclosures under IFRS17. In addition to actively working with these teams to ensure they stay on schedule and are having their questions answered and managing the flow of information from your internal resources, the resources of your IFRS17 management team will also be busy with other tasks. The accounting resource will be designing the primary financial statements and disclosures under IFRS17, feeds and mapping into the general ledger, and a new chart of accounts and how they can be incorporated into the existing chart of accounts. The actuarial resource will oversee the design and documentation of IFRS17 actuarial models. This is needed independently of the work performed by the actuarial implementation team as the work of the actuarial implementation team will need to be checked. The actuarial resource will also work with the accounting resource to organize processes to ensure assumptions used in the IFRS17 calculations are monitored and revised regularly. The IT resource will be actively working with the various implementation teams to ensure data is upgraded to be sufficient for the IFRS17 calculations. The IT resource will also be designing the data preparation layer and staging area as well as outbound ETL. The user acceptance testing (UAT) strategy, performance testing strategy and operational acceptance testing strategy will also be performed. 

The completion of this stage is when the actuarial cash flow and IFRS17 engines are completed and ready for testing. The timing for this stage is dependent on a lot of factors including the quality of your data and the extent the IFRS17 system needs to integrate or replace your existing system. A minimum time would be six months, with one year being more likely (a LOT of insurers will be implementing at the same time, meaning your external resources are likely to be stretched with other projects as well).    

Step 3: User Acceptance Testing

Step three is about user acceptance testing. The actuarial and accounting resource will be busy with user acceptance testing validation. The actual runs will be from the actuarial implementation team and IFRS17 engine implementation team, but the actuarial and accounting resources will oversee this and check the results with their own calculations. The actuarial resource will also be designing and documenting processes relating to the actuarial calculations and cash flow generation. The accounting resource will be documenting accounting entries for feeds into the general ledger as well as preparing and documenting new finance processes. This will also be the time for documentation of all processes related to IFRS17 and documentation of all options taken with reasoning. The IT resource will be available as a resource during the user acceptance testing.  There would be advanced training for your staff, senior management and the Board as part of this step. This step can take anywhere from two months to six months to complete.

Step 4: Transition and Comparatives

In this step the transition calculations will be put together along with the comparative statements (prior year financial statements which will be side by side with the current year financial statement). The actuarial and finance resources will be working together with such tasks as:

• Design of the transition methodology including data requirements and extracts
• Developing guidance notes for the transitional calculation, approach and methodology
• Support the design of the transition model and provide signoff
• Assessment of transition results and preparation of documentation
• Support the development of comparative requirements and preparation of financials including disclosure notes for transition and obtain signoff by your external auditor

The IT resource will also be available in an advisory capacity during this process. The actual runs during this step will be from the actuarial implementation team and IFRS17 engine implementation team, though it would be expected that your own internal team would be gaining competency with the software and systems involved.  An important aspect of this step is facilitating the review and clearance of your external auditors of all processes and technical accounting papers. This is vital in order to ensure no surprises during the first financial year end under IFRS17. The timing for this step could take anywhere from four to ten months.

Step 5: Finalization

The final step is finalization in time for the first financial year end. Final training will be conducted to ensure your own team is competent to perform all tasks required of them. The actuarial and accounting resource would remain onboard during the first financial year end calculation under IFRS17 and assist in board presentations, especially the transition from the first calculation performed during the transition stage and putting in place tools and processes for explaining the change in results. This step would likely take 2 months to complete. 

Thus to answer the initial question in this article: yes there is still enough time to complete IFRS17 implementation. It will require diligently sticking to schedules and hitting the ground running by January 2021. Waiting beyond January exposes significant risk of not completing the project on time. Of course the timing here is for an average company, taking into consideration the expected stretching of resources during this period as IFRS17 is brought online worldwide. We would be happy to discuss this in more detail with you, at Hassan.Odierno@actuarialpartners.com or https://www.linkedin.com/in/hassan-scott-odierno/