Model changes sometimes sound simpler than they really are. One constant in our IFRS 17 projects is that change ends up being more complex and require more resources than anticipated.
- The new accounting standard results in many of the income elements to be derived from the roll forward of the policy liability. Where systems used to deal with one set of policyholder data at a time, they will now need to handle two: one from the start of the period and one from the end of the period. Also, in order to properly reflect income in each quarter, policy movements of the period will need to be tracked as well. System providers have been working hard for a long time on their systems in order to handle this enormous increase in data to be treated. And all is not completely done yet. This means that modeling changes are being implemented at the same time as the core of the software is being modified. It leads to the need to regularly upgrade software versions—a task that will add multiple validation steps along the way as you will want to reconcile the pre- versus post-upgrade calculations.
- New calculations need to be programmed in the actuarial software. Some may be similar or consistent with the approach and the basic structure of the system. Others will be more complex to program. Again, providers have been hard at work programming all these new calculations. However, all this new functionality needs to be tested and vetted at the same time the implementation project is in full gear. This will put significant strain on your actuarial resources.
- Some products will see the way the valuation of their liabilities become more complex, requiring more detailed information and additional assumptions to be made before the valuation can be performed. Products with traditionally short horizons will end up being valued under the general measurement model approach will no doubt be among those causing headaches for actuaries involved in the projects. In addition to the changes to their core, actuarial systems will need to interact with a much larger number of other systems. Where traditionally, one source file could suffice in some circumstances to perform the valuation and where the output was relatively simple, the new environment will bring a much-heightened level of challenge for the actuaries. Sources of data are likely to be more numerous and come from a wider range of system types. That’s a direct consequence of the amount of additional data that needs to be treated. Also, a new intermediate system will be implemented: the contractual service margin (CSM) engine. This system will require a very detailed amount of information from the actuarial software in order to perform the calculation of the CSM and related loss component.