Thus, the changes should be considered by more than just the accounting and finance professionals as they have some serious implications for executives at board level.
Amongst other considerations, executives should consider impacts on asset-liability management, profit profiles and product offerings.
The changes required by the proposals will undoubtedly have a significant impact on the insurance technology landscape and insurers may be challenged by system changes as they may need to tackle their legacy systems. IT costs could easily make up a significant portion of the overall transition costs, with many of these budgets allocated to actuarial systems or process changes.
The proposals are likely to have a weighty impact on closing processes and reporting timetables. With proper planning, such costs could be a worthwhile investment and yield wider benefits.
Implementation of the standard will certainly require executives to reconsider their human resourcing needs. The proposals are expected to place a heavy demand on experienced actuarial, finance and IT resources.
For non-life products, particularly for long-tailed casualty lines of business, the change in discounting methodology is likely to change the timing of profits. Also, increased earnings volatility resulting from the proposed measurement model means there may be a shift in focus towards more traditional protection products.
Shareholders and analysts will need to undergo a period of reorientation on how the proposed changes will affect reported results and dividend policies.
Insurers can already start getting ready for the changes by keeping their board, audit committee and senior management informed on how profound the change is likely to be. They can put processes in place to ‘future proof’ current changes to accounting, policy administration and actuarial modelling systems in readiness for the anticipated changes and this could coincide with system changes required to achieve the Solvency Assessment and Management (SAM) requirement of the Financial Services Board.
This will help them to budget for any possible system changes and allow for any additional systems development time ahead of implementation.