Research partner

The Heart of IFRS 17 Compliance

Why data and data architecture are vital in
addressing insurers’ technology challenges
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About Oracle Financial Services
Oracle Financial Services is a subsidiary of
Oracle Corporation. It is a retail banking, corporate
banking and insurance technology solutions
provider for the banking industry.

Its data-driven financial services solutions

are designed to help businesses build digital
ecosystems, and to gain insights to enable better
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3 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
Table of contents
1. Executive summary 6

2. IFRS 17: Overview and regulatory context 7

3. The insurers’ response 10

4. Technology and process challenges 13

5. The centrality of data architecture 16

6. Conclusion 22

7. How to use research and services from Chartis 23

8. Further reading 24

4 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
List of figures and tables
Figure 1: IFRS 17 – measurement models and contract features 8

Figure 2: Mapping IFRS 17 compliance 8

Figure 3: Regional trends in insurance standards 11

Figure 4: Measurement models and contract features 13

Figure 5: The diverse requirements of IFRS 17 16

Figure 6: A heterogeneous data system 17

Figure 7: Data types in the IFRS 17 compliance value chain 18

Figure 8: Heterogeneous database connections 18

Figure 9: Data warehouse++ 19

Figure 10: An integrated data warehouse 19

Figure 11: Insurance storage systems 20

Figure 12: Data context 20

5 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
1. Executive summary
International Financial Reporting Standard (IFRS) In this report we examine these, and other, trends
17 (and its US counterpart US GAAP1 Long- and dynamics. After providing a brief overview of
Duration Targeted Improvements [LDTI]) have been IFRS 17, we explore the major shifts in architectural
significant milestones in insurance accounting and components occurring in insurers. We then
insurance risk infrastructure. The standards have consider the reason why long-term success for
substantially modified the trajectory of insurance insurance firms (as far as IFRS 17 compliance is
firms’ technology and operational requirements. concerned) requires a heterogeneous, flexible and
IFRS 17 establishes a varied set of new accounting scalable data-management framework. We also
rules, defines new process requirements, and lay out the most effective components of a data
necessitates a vast range of new calculations. warehouse for IFRS 17 compliance, and consider
These new calculations will impact insurers’ centralized versus distributed data frameworks.
technical capabilities, such as their actuarial A key strand of our effective data management
modeling systems and accounting engines. story is the importance for insurers of versatility
when they are confronted with diverse database
In this report we focus on the centrality of data types. Versatility also supports adaptability, which
management for long-lasting effective compliance for insurers can enable better system and platform
with the new standards. We make the case that integration.
for institutions implementing new IFRS 17 systems
or modernizing their legacy platforms, it is vital to
pay attention to the flexibility of data management
and the scalability of computation. While IFRS
17 compliance entails many process and rule
changes, as the implementation date looms closer
it is clear that the biggest shift for insurers will
be in the elements of technology architectures.
Interviews conducted by Chartis reveal highly
fragmented implementations when it comes to
IFRS 17 compliance within insurance businesses.
This fragmentation is more intense for large
insurers with multiple regional operations.

1
Generally Accepted Accounting Principles

6 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
2. IFRS 17: Overview and regulatory context
Regulatory context • Products that do not include insurance as a
contract feature, but which provide insurance
The accounting standard IFRS 17 (issued by the coverage (such as credit cards), will be excluded
International Accounting Standards Board [IASB] from IFRS 17.
in 2017) was initially set for implementation
in 2021, but after two deferrals the effective • Eligibility for the variable fee approach (VFA) can
implementation date is now January 2023. IFRS 17 be assessed at contract level rather than group
(which replaces IFRS 4) is the first comprehensive level.
global accounting standard for insurance
and reinsurance contracts, and represents a
supervisory move toward complex risk-based IFRS 17: an overview
standards (so-called ‘risk-aware accounting’).
At its core, the aim of IFRS 17 is to standardize IFRS 17 will affect different contract types –
the diversity of accounting practices that were contracts with direct participation features,
authorized under IFRS 4. The IASB developed IFRS long-term contracts and short-term contracts – in
17 to unite the globalized insurance industry and different ways (see Figure 1), although long-term
improve the comparability of its valuations, and the contract issuers, especially those with direct
extent of the principles-based standard reflects the participation features, will feel the brunt of the
complexity and variation of the insurance contracts impact.
it has been designed to measure.
Interaction with other regulations and
For insurers and reinsurers, compliance will come standards: the IFRS 9 effect
at substantial cost, and will put pressure on their
three core technology systems: accounting, data How prepared for compliance an insurer is will be
management, and actuarial modeling. Effective impacted by the Solvency framework of its region
IFRS 17 compliance is an especially data-intensive (see Figure 2). Compliance will also be affected
process, and will depend on firms having a strong by how IFRS 17 interacts with other accounting
core data management and reporting framework. standards, notably IFRS 9.
An institution’s compliance stage will depend
on a variety of factors, including institution type, While IFRS 17 focuses on the liability side of a
operating region and, to a lesser extent, the impact firm’s balance sheet, IFRS 9 is its counterpart on
of the COVID-19 pandemic. the asset side. Combined, these two standards
provide a new up-to-date market-adjusted view of
Throughout the transition process, the IASB has a firm’s balance sheet, and lay the foundation for
engaged continuously with the industry. As a result new market-based asset and liability management
of this, it has developed a series of amendments (ALM) practices.
designed to address various industry concerns
and challenges. The IASB issued the final, revised Although the IFRS 9 implementation date for
version of IFRS 17 in June 2020. Some of the banks was January 2018, insurers can opt for an
amendments it features include the following: exemption, and have until 2023 to prepare their
compliance efforts. Those institutions that have
• The deferral of the effective date to 2023 (the not opted for an exemption will have complied
deferral also includes IFRS 9 for insurers). with IFRS 9 in 2018. The deferral of IFRS 9 to
2023, alongside IFRS 17, highlights the importance
• The way that profit is recognized for investment of a coordinated response to both standards.
services, and the clarification of what is It also signifies that the standards are part of
considered an ‘investment component’. a wider regime of ‘risk-aware accounting’, and
are intended to transform the way that balance
• The way acquisition costs are recognized. sheets are recorded and presented. To comply
with both IFRS 17 and IFRS 9, insurers will have to
• Held reinsurance contracts, as well as make important decisions about their accounting
derivatives, can now be recognized in profit and strategy and underlying technology.
loss using the fair value approach.
Many insurers may choose to closely coordinate
their IFRS 17 and IFRS 9 implementations, an

7 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
Figure 1: IFRS 17 – measurement models and contract features
Short-term contracts of less than
Contracts with direct participation Long-term contracts without 12 months. Contracts longer than
features (i.e., unit-linked products) direct participation features 12 months are subject to
projected liability.

S
S

The VFA The GMM The PAA

• CSM: accumulated interest is • CSM: estimates need to be • Cash flow: the remaining
represented through direct remeasured each reporting period. liability is calculated by
adjustments to the CSM. • Risk adjustment: non-financial applying a pattern for incurred
• Financial assumptions: the VFA risk calculations need to be claim costs.
requires repeated calculations to integrated into the fulfilment • Cash flow: premium allocation
measure how changes to the cash flows to reflect liability recognized over time as
underlying items affect fee uncertainty. revenue. Subject to changing
fluctuation. • Discount rate: insurers can risk patterns.
• Risk adjustment: non-financial choose between the ‘top-down’
risk calculations need to be or ‘bottom-up’ methodologies.
integrated into the fulfilment Firms can recognize the impact
cash flows to reflect liability of changes in the discount rate
uncertainty. in either P&L or other
• Discount rate: interest rate comprehensive income (OCI).
changes can be accounted for • Cash flow: unbiased probablity-
under the variable fee. However, weighted calculation, composed
the rate is not locked in at of the pay-out obligation, the
inception and must be premium rate of the contract, and
repeatedly calculated over the any underlying financial asset.
life of the contract.
Source: Chartis Research

approach that offers multiple benefits. By adopting Core technology is key

such a comprehensive approach, insurers can
identify early accounting mismatches that may Regardless of the implementation strategy a
occur between their IFRS 17 and IFRS 9 reporting. firm adopts, both standards require key core
This approach is also useful when assessing technology components. IFRS 17 and IFRS 9
balance sheet volatility that may arise from both span the finance and risk functions in an
compliance – a key concern for insurers. To offset
these mismatches insurers can use a variety of Figure 2: Mapping IFRS 17 compliance
strategies, such as hedge accounting and adapting IFRS 9 will have a big impact on insurers, requiring them to use
product features. forward-looking impairment projections when accounting for assets.

Another advantage of a combined approach to IFRS 9

Solvency Assessment and
IFRS 17 and IFRS 9 approach is that it enables a Management (South Africa)
comprehensive view of the balance sheet, which IFRS 13

insurers can use to achieve effective ALM. By

aligning their asset and liability measurement IFRS
Regional
practices and accounting policy choices, insurers solvency IFRS 19
can improve their ALM processes. frameworks
Solvency II (EU)
A closely coordinated response to IFRS 17 and IFRS 17
IFRS 9 may not make sense for all institutions, IFRS 15

however. For some insurers, there is too much

separation between the respective teams
responsible for asset measurement and liability Life and General Insurance
measurement, and this separation extends to Capital (LAGIC) (Australia)
budget distribution. Source: Chartis Research

8 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
institution, so effective compliance demands
a shared scalable data infrastructure that can
handle diverse data, and plenty of it. Both IFRS
17 and IFRS 9 require strong, flexible accounting
engines and cash-flow generation functionality. The
modeling at the center of each standard, however,
differs considerably. While IFRS 9 compliance is
built on expected credit loss (ECL) calculations and
stress-testing frameworks, IFRS 17 compliance
depends on discount rate modeling and non-
financial actuarial calculations. But they both
require the integration of computational engines
into the accounting system.

9 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
3. The insurers’ response
This section focuses on insurers’ varying
responses and approaches to IFRS 17 compliance, ‘There will be a reaction in insurers’ product design. Some of the effects will
and the factors underpinning these differences. be explicit, but others will take time to emerge, as insurers look to make
We argue that the main drivers of an institution’s their products as capital-efficient as possible in the revised IFRS world.’
response to compliance are its type and product
mix. We also discuss how the regulatory and CRO, large global European bancassurance firm
reporting environment in which insurers operate
(the regional trends), and the sophistication of
their existing technology, will also affect how
they respond. Finally, we also consider how The sophistication of existing
regional differences in technology and operations
can intensify compliance the fragmentation of
technology
implementation approaches within businesses.
The maturity of an insurer’s various technology
segments is shaped significantly by institution type
Key drivers of an insurer’s and region. The life insurance market has a strong
legacy of core predictive analytics from a mortality
response: institution type and perspective, however strong product design issues
product mix and challenges are present. General insurance
firms are accustomed to data-intensive processes
The impact of IFRS 17 on insurers is strongly and have strong infrastructures; however, IFRS
defined by their product portfolio. The three 17 still presents a huge data challenge. Firms in
measurement models outlined by IFRS 17 give mature insurance markets (such as Europe) that
specific directions about how to account for have complied with Solvency regimes will have
different types of contracts and their features. a head start when it comes to their existing data
Life insurers will face the biggest challenge. The infrastructure technology. Our interview data
premium allocation approach (PAA) is the simplified highlights that insurers that have already complied
option for general insurers – for which 12 months with Solvency II are leveraging their Solvency II
or less is the most common contract length. data marts for IFRS 17.

Another strong dynamic in terms of compliance

programs is the relative maturity of larger firms, The impact of COVID-19 on
many of which have had IFRS 17 programs running
for at least two years.
compliance
Another factor that will affect an insurer’s
Regional trends: the regulatory readiness to comply with IFRS 17 is the COVID-19
pandemic, which is likely to have long-lasting
and reporting environment in effects on insurers’ balance sheets. The squeeze
which insurers operate on profit margins that insurers will feel could even
lead to cuts in technology and implementation
The greater the divergence from existing practices budgets. A more likely outcome of the pandemic,
that IFRS 17 compliance represents, the more however, will be delays in the transition
work there is for insurers to do. Firms in regions process. Insurers in regions where technology
that have previously been governed by standards infrastructures will require a costly overhaul may
and directives based on a risk-aware approach struggle to stabilize their business while making
to insurance contract valuation may find the the necessary investment in tools and technology.
transition less of a challenge, both operationally Although most insurers’ compliance teams will
and technically (see Figure 3). However, readiness not face budget cuts, many may have to deal with
to comply with IFRS 17 does not necessarily some level of resource diversion. Businesses are
determine the maturity of an insurer’s compliance tackling immense volatility in the market, as well
journey. Insurers in South Korea, for example, as pressure on their IT systems as a result of
identified the magnitude of work to be done working-from-home policies.
promptly, and started early as a result.

10 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
Figure 3: Regional trends in insurance standards
India
Europe
• Complying under Ind AS 117.
• Mature insurance market.
• The Indian insurance market has had
• 31.1% of the world’s insurance premiums in 2016.
rapid growth in recent years as
• Relatively high proportion of life insurance business, especially in Italy and
companies and governments push to
Scandinavia.
extend insurance to wider demographics.
• French life insurance sector will have a high degree of VFA eligibility due to
• Unit-linked products are a popular form
its rapidly growing market for unit-linked products.
of life insurance contract in India, so
• European insurers benefit from their experience with Solvency II compliance.
insurers will have to contend with
• European insurers are generally ahead in terms of their compliance stage.
accounting for variable fees.

Canada
• Major IFRS 17 market.
• 2.44% of the world’s
insurance premiums in 2016.

• South Africa - which has a a large life insurance

market - is by far the largest insurance market in
Africa.
• Compliance in parallel with the South African
Solvency Assessment and Management (SAM)
framework (2016).
• Unlike Solvency II and LAGIC, SAM risk
calculations do not have a high degree of
overlap with IFRS 17.
Australia
• Complying under AASB 17.
Asia • Relatively large life insurance market. Unlike
• Asian insurers in South Korea, Singapore and parts of Europe and Asia, it is not saturated with
Malaysia were quick off the compliance mark and investment-style contracts.
conducted early gap analyses. • Australian insurers are accustomed to stringent
• Asian insurers have more to do than their regulatory oversite by the Australian Prudential
European counterparts. Regulation Authority (APRA).
• Asian insurers do not generally have the same level • Compliance in parallel with the Life and General
of sophistication in their technology infrastructure. Insurance Capital (LAGIC) adequacy framework.
• Rapid growth means they do not have the same • Procedural bottlenecks associated with
experience when it comes to market-adjusted overseas headquarters.
accounting and regulatory compliance.
• A key operational issue for Asian insurers is that
their headquarters are based overseas, creating
procedural bottlenecks.
• South Korea in particular has an especially large
direct-participation contract market. Measuring
these contracts using the VFA will affect the
long-term attractiveness of the products.

Source: Chartis Research

The pandemic is unlikely to directly impact ‘Regulators are going in the right direction (stress tests, scenarios), even if
the viability and execution of insurers’ IFRS it’s the early stages. Requirements for scenario testing, stress testing and
17 programs, especially those at larger firms. reverse testing could increase in the future.’
However, the priority treatment that digitalization
programs are receiving may affect how IFRS 17 CRO, European re-insurance firm
programs are run. While digitalization programs
have often been run in parallel with those for IFRS
17, the perception that firms must improve their are putting on digitalization is increasingly shifting
operational resilience in the face of COVID-19 may the focus of IFRS 17 programs to their underlying
make digitalization a priority. As a result, these architectural elements.
initiatives may receive larger budgets, and IFRS 17
programs may be significantly influenced by them, Market volatility can affect insurers’ discount-rate
or have to align closely with their processes and methodologies, especially for those that already
goals. These programs can range from operational have compliance processes up and running. The
digitalization to the digitalization of reporting and two approaches to discount rate modeling are
actuarial processes. The emphasis some firms ‘top-down’ and ‘bottom-up’. To model the rate, both

11 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
 Interview highlight – fragmented technology implementations

Our previous IFRS 17 research has highlighted how implementations of IFRS 17 compliance
have been fragmented. Our current interview data sheds light on the extent of the
fragmentation of systems. Fragmentation is partly an effect of and response to the diversity of
systems insurers have, and the componentized nature of compliance.

In the case of globally distributed organizations, an IFRS 17 program will often be specific
to particular jurisdictions. A single business may use multiple technology vendors for
implementation. Fragmentation does not just occur in different compliance segments, it is
also governed by regional practices and preferences. Although insurers have had to identify
gaps in their technology architectures, they do not necessarily want to ‘change what they
know’. Overhauling systems when regional operations are accustomed to existing systems and
providers is not always straightforward or desirable. For vendors and insurers alike, existing
architectures will heavily influence the nature of future ones.

There will also be some degree of consolidation for globally distributed organizations. Parent
organizations will influence smaller or less strategically vital satellite operations. Organizations
that operate in a prominent and large market are more likely to retain an independent
implementation program, based on their existing technology or their specific market needs.

The trend toward fragmented implementations emphasizes that there is no exact blueprint
for IFRS 17 compliance. Insurers and vendors alike must assess their particular situation and
develop a custom-built approach.

rely on portfolios of assets with similar cash flows

or liquidity characteristics. As COVID-19 represents
a tail-end risk, insurers may face difficulties in
accurately calculating the discount rate in the
middle of a pandemic.

A key business decision that insurers will

have to make is how to adapt to the delayed
implementation date. Firms may want to take
advantage of the longer schedule – but delays can
be costly. If possible, insurers should continue at
their scheduled pace, and use any extra time for
valuable ‘dry runs’.

12 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
4. Technology and process challenges
This section outlines the key organizational and and risk adjustments. However, while Solvency
technology challenges facing institutions. IFRS 17 II is similar in some ways to IFRS 17 – both are
compliance is a complex process composed of moves to incorporate financial and insurance
various segments that require their own custom risk into balance sheet figures – their functional
response. Insurers’ decisions not only affect the overlaps should not be overestimated. IFRS 17 is
efficiency and effectiveness of their compliance, characterized by its complexity, and institutions
they can also significantly change the appearance will have to custom-plan the allocation of roles
of their balance sheets. and responsibilities, and coordinate processes
between their finance and risk functions (see
The extent and complexity of IFRS 17 will create Figure 4).
a number of challenges for institutions as they
work out their compliance strategies. The standard Figure 4: Measurement models and contract
will create a more transparent view, with market- features
adjusted figures, which will generate new business
decisions for institutions. Because of IFRS 17’s
rules and procedures, and its principles-based
Finance Risk
nature, institutions will have to make important
• Accountant • Actuary
decisions about accounting and methodology. • Audit manager • Risk manager
Personnel

Here we discuss the impact that IFRS 17 will • Balance sheet • Yield curves
have on institutions’ internal organizations, and • General ledger • Risk assumptions
how their processes will have to adapt. We also • Chart of accounts • Market data
Data
provide a high-level overview of the key technical
challenges in three broad areas: • Accounting rules • Cash-flow projection
• Contract grouping • Risk assumptions
• CSM calculation • Discount rate
• Accounting engines. • Acquisition cost Processes • CSM calculation
amortization
• Actuarial systems. Source: Chartis Research

• Data management and reporting. The IFRS 17 compliance flow requires continuous
integration and cooperation between different
functions. It may necessitate repeated calculations
Impact: coordinating risk and that will increase the level of ongoing cooperation
required between finance and risk. The VFA
finance was designed by the IASB to account for the
fluctuating fees caused by variations in the
Although IFRS 17 is essentially an accounting performance of the underlying items of a direct
standard, its many components straddle both participation contract. An institution must therefore
the risk and finance functions. The impact of continuously update its financial assumptions
compliance will be felt mostly by the finance side, when there is a significant change in conditions.
but compliance will also demand a high level of In addition, under the VFA the discount rate is not
coordination between finance and risk. For many locked in, which demands repeated economic
insurers, achieving the necessary coordination will scenario generation to calculate the rate.
require them to create new supporting processes
and replace traditional siloed approaches. Insurers will need to plan and adopt processes that
suit their specific needs. Some will have to adapt
A key change introduced by IFRS 17 is the actuarial models to fit lower levels of granularity
requirement for institutions to update their than they were initially developed for. An important
assumptions and estimates at the end of each aspect of finance and risk coordination will be
reporting period. For some institutions, the level the integration of actuarial figures into accounting
of integration of actuarial and financial modeling systems. Calculations such as the contractual
into the calculation of accounting figures will be service margin (CSM) and risk adjustment
unprecedented. Insurers in the European Union (RA) will need to be translated into IFRS 17
(EU) will be accustomed to using actuarial and accounting entries. All firms will have to ensure
financial modeling to calculate solvency capital a greater degree of collaboration, which will have

13 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
implications for their processes and technology insurers is accommodating the necessary data
infrastructures. granularity and drill-down capability.

Flexibility can be achieved using integration

The technology perspective functionality, and by developing a sub-ledger. A
sub-ledger enables institutions to store data in
In terms of technology, the complexities and scope more diverse formats and at a greater level of
of IFRS 17 demand flexibility and scalability. These granularity than that offered by a general ledger.
core requirements apply across the technology It also gives institutions a more in-depth view of
infrastructure, including the accounting engine, the how accounting figures for groups of contracts
data management and reporting system and the are fluctuating according to changing rules and
actuarial engine. business events. Another way to approach
accounting-system flexibility is through the
The componentized nature of the IFRS 17 adaptability and configurability of the business
compliance value chain presents a variety of event manager – this is especially important for
integration challenges, as institutions generally multi-GAAP support. The accounting engine will
adopt multiple systems and providers instead of also need to support the mapping of data to
a single end-to-end architecture. Institutions must accounting templates.
implement systems that have been designed with
software connectors and data adapters and, where Integration with other accounting and regulatory
possible, open application programming interfaces outputs is also beneficial for parallel reporting, and
(APIs) that can manage the integration of different is an important consideration for an insurer’s ALM.
technology components. Systems will need to Institutions will use a variety of actuarial modeling
manage the integration of: providers, and the accounting engine must be
able to integrate outputs from separate calculation
• Actuarial engine outputs into the accounting engines.
framework.

• IFRS 17 business events into accounting rules. Actuarial and risk-modeling

• The sub-ledger into the general ledger.
challenges
• Different data types from disparate sources. IFRS 17 presents a number challenges for insurers’
actuarial functions. Models will have to be adapted
• IFRS 17 figures into reporting and disclosure to the new regime of repeated calculations
templates. and contract aggregation rules. To calculate the
discount rate, insurers are required to develop a
IFRS 17 is one of several drivers of insurance methodology that uses either the ‘bottom-up’ or
technology trends, and insurers will require the ‘top-down’ approach; they must also source
flexible, scalable and extendible technology to the appropriate input data.
address the calculations, granular data and ALM
demands it will create. The structure of actuarial and risk modeling in
insurance has been shifting in the past few years,
The following sections outline the specific due in part to new Solvency regimes and IFRS 17
challenges that insurers face in their core itself. However, there are wider trends surrounding
technology areas as they transition to IFRS 17. the actuarial function, including new market-based
ALM practices. The new standard for actuarial
engines is the ability to process heterogeneous
Accounting challenges data and different computational styles, and to
support a shared environment with analytics
The challenges that arise from designing and (stress testing and economic scenario generation).
implementing an IFRS 17-compliant accounting The industry is also experiencing more demand
engine stem largely from the need for flexibility, as for actuarial engines that can compute a large
well as the need to process the required scale and number of variables across multiple decisions. An
scope of data. Insurers will need flexible designs investment in computational power and efficiency
to accommodate foreign exchange support, user will be vital for insurers that offer unit-linked
system configurability, multiple business lines and life insurance products. The complexity of life
multi-GAAP reporting. Another key challenge for insurance products continues to increase as the

14 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
unit-linked market grows, and this is increasing insurer’s ability to enact controls, and supports
insurers’ reliance on option-theoretic modeling. efficient and accurate auditing.

Data management challenges

Data management systems must provide certain
essential elements: data repositories, integration
and reconciliation, validation, data models, and
mapping and tagging. IFRS 17 calculations require
data from a large cross-section of the insurance
process, including actuarial systems, trading
systems, claims administration and accounting
systems. Insurers must implement a data model
that can support the variety of different data types
that compliance entails. A core data management
framework is critical for overall workflow support.
The data model and data warehouse framework
that specific insurance firms implement should be
designed with their unique requirements in mind.

Compliance will also produce large volumes of

information, as both the actuarial and accounting
functions will continuously create data, often
for the same calculations but from different
perspectives. IFRS 17 calculations will require
the repeated manipulation of data. Because of
the time-sensitivity of calculations, and the data
flows from multiple sources, heterogeneous data
architectures are ideal candidates. Heterogeneous
data architectures can also improve the flexibility
of sub-ledgers, as they not only capture a wide
array of data, they also enable a degree of client
configurability.

Regulatory and management reporting

challenges

Insurers adopt different approaches when

managing their reporting. Thus the nature of
various reporting architectures (the level of
centralization and the respective trade-offs) can
differ.

In the next section we consider the trade-offs of

centralization versus the distributed model, and
explore the mechanisms used to ensure that the
data architecture is built to tackle inevitable shifts
along the centralization/distribution scale.

Automating the reporting process that covers

the extent of IFRS 17, including the different
measurement models and the full range of
calculations, is key for a successful implementation
project. By automating the process, insurers can
speed up what are otherwise daunting reporting
requirements. This approach also improves an

15 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
5. The centrality of data architecture
While IFRS 17 entails various core technology ‘Data has always been central to our business. We need more data sharing,
requirements, in this report we focus on the sitting within a trusted central body, and more effective standards and tools.’
importance of a central data architecture. Chartis
views data architecture as the crucial component Quantitative analyst, Canadian life insurer
at the heart of any successful IFRS 17 program.
In this section we will explore the changes that
IFRS 17 has introduced, and their technical attractive option, as it can organize and store data in
consequences for insurers’ data architectures. different ways to suit different data characteristics
(see Figure 6). A ‘multi-model’2 or ‘polyglot’
A strong core data architecture enables insurers database3 system can support heterogeneous
to control diverse requirements (see Figure 5). In data models in one centralized integrated system.
this section we focus on the design of an effective Different types of data models have various trade-
data architecture, considering the different offs, and it is vital that insurers fit the correct models
components of data management that can to specific data and application use cases.
address the divergent elements discussed in the
previous section. These include: data repositories, Insurers will also need to store accounting data
integration and reconciliation, validation, data and manage its access and integrity. Accounting
models, and mapping and tagging. figures such as cash flows, discount rates, cohort
CSM measurements and risk adjustments must
be stored and processed for reporting. However,
Designing the right data because IFRS 17 requires repeated calculations
as conditions change over time, institutions will
architecture need to implement a compute architecture that
can respond to frequent new calculations and data.
When it comes to designing the right data model for One approach is to implement data models that
IFRS 17 compliance, one size does not necessarily are compatible with in-memory processing.
fit all. The diverse requirements of IFRS 17
compliance require a range of data use cases. The The IFRS 17 compliance data flow is made up of
various types of data format that compliance entails many different layers (see Figure 7). Constructing
can make a heterogeneous database architecture an an effective data architecture depends on its

Figure 5: The diverse requirements of IFRS 17

‘Top-down’
or Data
‘bottom-up’ extraction
approach
Aggregation Discount
Data mapping
of contracts rate
Separation Cost Liability
of insurance allocation measurement Drill-downs
components
Risk-free General
CSM CSM
rate ledger
calculation amortization
calculation integration
Accounting policy Fulfilment Acquisition
Scenario cost
cash-flow
analysis amortization
projection
Process Initial
Measurement Onerous loss
model testing recognition
approach
Calculation Interest
accretion
P&L/OCI

Source Chartis Research

2
Supports heterogeneous databases with a single model.
3
Supports a single database with multiple models.

16 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
Figure 6: A heterogeneous data system
Heterogeneous data system

Graph

Key / Value
Document

Relational

Column-based Benefits (supports):

• Conectivity analysis
Benefits (supports): • Complexity
• Scalability Benefits (supports): • Data relationship
• Flexibility • Semi-structured data handling
• Processing • Flexibility • Flexibility
• Fast results Benefits (supports):
distribution • Easy integration of
• Consistency
new data
• Business rules and policies
at a granular level
Benefits (supports): • Complexity
• Efficient storage • Data relationship
of data handling
• Fast data retrieval
Source Chartis Research

compatibility with the type of data involved in the the interest-curves database, which enables
different steps and processes. Essentially, insurers institutions to keep a set number of interest-rate
must implement appropriate data models and curves for a defined period of time. To achieve
structures for different data types. On top of this, this, they will need to be structured in a uniform
insurers need to link these heterogeneous data database with volumetric consistency and multi-
models into an effective framework. dimensional accommodation.

The type of data involved, and its characteristics, However, when handling cash-flow data, firms
dictate the structure and database that should be used must ensure that the index structure is optimal,
in storage, access and processing. Important data even when the number of instruments varies
characteristics include, volumetric uniformity, whether over time. The index structure can be expressed
the data is multidimensional, and the data structure. as a separate database with its own architecture,
or it can be a different instantiation of the same
Cash-flow data, for example, is in an array structure. database – but it must be a separate structure.
Cash flows are indexed to each individual cash-flow
array, so each point is itself an array. Consequently, Investment data, by contrast, requires a data
cash flows require a database that supports model that describes the asset classes covered
complex arrays. Some databases, however, are and the associated coverage rules per business
optimized to support single dimensional arrays and sub-unit. Investment data must have limits and
cannot support multi-dimensionality. compliance rules set against it, making an SQL/
relational database suitable. Actual investment
Cash-flow databases can create time series, since data that tracks investment history is best held in
organizations create cash flows daily. However, an array database. Thus the ideal investment data
the amount of data produced daily is not stable, structure consists of two parts: an array database
making cash-flow data volumetrically non-uniform. linked to a relational database.
Insurers need a database structure that can handle
this volumetric inequality across time. Some time-
series databases and data frameworks are highly Versatility is key
optimized to handle volumetric equivalence – such
as the kind used for market data environments. Accommodating heterogeneous data models
One example of a standardized framework is requires versatility, and data management systems

17 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
Figure 7: Data types in the IFRS 17 compliance value chain

Legacy Investment Actuarial Policy / finance Third-party

systems systems systems systems systems

SQL framework Data mapping

Data lake

S S

Cash-flow and scenario generation

Multidimensional array
Array database
SQL and array database
Expected Realized Yield Investment Credit
cash flows cash flows curves data risk

VFA PAA

GMM

Measurement
Document-object model
Multidimensional array
- large array database
Balance sheet P&L Ad-hoc / notes
(technical provisions) (technical provisions) reconciliation

Sub-ledger

General ledger

Array dataset -
hierarchical database

Source Chartis Research

can achieve this through their integration capacity. integration can be achieved by implementing a
Due to the componentized nature of insurers’ IFRS heterogeneous service that can support a multi-
17 software adoption, integrating third-party data database environment (see Figure 8).
sources is a vital feature of an application. Such

Figure 8: Heterogeneous database connections

Queries Queries
API API
Multi-dimensionl Document-object model
array database
Data Data

Third-party Heterogeneous Database Heterogeneous Third-party

server Gateway server Gateway server
server server

Data Data

System Array database Hierarchical database System

driver Agent Agent driver
generic code generic code
Source: Chartis Research

18 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
Building a data warehouse Figure 9: Data warehouse++

The data warehouse is a crucial component

of IFRS 17 compliance. It is also a good Integration and automation

representation of the complexity that emerges

from handling many different types of data and
the varying approaches to accommodating that Data accuracy
diversity. Reconciliation

Data
Under IFRS 17 and risk-aware accounting regimes warehouse
more generally, data warehouses need to pack in
Auditability of data
many more functions than basic data warehouses. Mapping functions
Chartis has assessed the ideal components of an
effective data warehouse in the context of IFRS 17,
which we have termed ‘data warehouse++’ (see
Availability of
Figure 9). historical data

Data warehouse++ highlights the need for a data Source: Chartis Research
lineage and auditability framework to ensure the
integrity of stored data. The data warehouse must of mapping that feeds into the data warehouse.
also be able to handle time-series analysis and Legacy system data in particular will be held
data-quality analysis. These functions can help in formats that are incompatible with the data
in the provision of data accuracy, auditability and warehouse model. Users need to use data
availability, and in the management of historical mapping to separate, organize and restructure the
data. data at this level prior to storage (see Figure 10).

Although various sources feed into the data From an architectural standpoint, the need for data
warehouse, the data structures they produce mapping and data integrity functionality means
may vary. Source systems will require some form that data warehouses should be relational with,

Figure 10: An integrated data warehouse

Document object model Policy data

Assumption Actuarial
Array and hierarchical engines
data
Actuarial /
Actuarial finance data Forecasting
Array and hierarchical engines
data

Financial Consolidation
Hierarchical
data engines

Volumetrically Historical Disclosure

standardized array data data engines

Aggregation
External
Big Data
data

Management IFRS Solvency II

reporting reporting reporting

Multidimensional array Document object Multidimensional array

model as an
overarching structure
with a supporting
hierarchical structure

Source: Chartis Research

19 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
Figure 11: Insurance storage systems

Life systems Pensions P&C systems Health systems

Source: Chartis Research

in effect, array-oriented capabilities. Ideally, data Business as usual: what happens when the data framework is
warehouse++ should encapsulate multiple styles wrong?
of storage and management (see Figure 11).
If a firm lacks a core data architecture, what challenges might
it face? Chartis makes the case that, for insurers, IFRS 17
Centralized versus distributed necessitates a detailed look at the underpinnings of their data
data frameworks architecture (see Figure 12). Firms must ensure that they align
their business requirements with technical criteria such as
flexibility, scalability and the ability to handle vast amounts of
Another core consideration when implementing heterogeneous data. An architecture that supports flexibility and
a data framework is the level of centralization scalability is crucial for insurers managing a range of activities.
versus distribution. The optimal balance These include: effective reporting, merger and acquisition activity,
between centralized and distributed will vary by risk and finance integration, adapting to changing IFRS 17 specifics
organization, and there are benefits and downsides and shifting interpretations, and product design.
to each. Generally, an approach that involves a
high level of centralization and lower levels of Figure 12: Data context
distributed data frameworks is an effective one for
controlling IFRS 17 compliance data.
Data context Issues
Centralization has several advantages, but in
the main it enables a single view of the entire
firm. From an integrity standpoint, users can Historical data is stored
Inefficient and low performance
make translations in one place, without creating in relational stores
a convoluted sprawl of formatting changes over
time. Auditability and data quality are held in a Yield curve data is in
Inefficient and low performance. Yield
centralized sphere, allowing users to log and curves are complex arrays. Structured-
simple array format
index array databases are more suitable
manage data journeys. However, centralization
comes with a serious disadvantage – by
centralizing input data mapping, organizations also Creating complex queries is
All data is array database
centralize output mapping. Different data verticals very challenging
(such as market data, yield curves and cash flows)
are also pushed together. By pushing distinct No encapsulation layer
components together, centralized data frameworks above hierarchical data High query type, low flexibility
can create points of intense complexity. A in accounting platforms
centralized approach will also require analysts from
different domains to contribute to the same central Challenging query programming. No
Only hierarchical database flexibility. The management of complex
data model. Data analysts are not necessarily relationships is very challenging
suited to working across different verticals, and
this can cause operational tensions. Source: Chartis Research

Distributed data frameworks reduce the and the side effects of the data model are less
complexity of each individual data store, of a concern. Distributed frameworks, therefore,
because they are not shoehorned together. By enable rapid, easier development that allows
implementing a distributed framework, firms multiple firms to participate in the development.
can save a significant amount of design time, However, the complexity of a distributed

20 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
framework can intensify quickly, and can be
difficult to manage. To create many sub-models
and sub-data frameworks, organizations must
have some kind of central framework as a planning
element. Essentially, having centralization and
distribution in binary opposition exacerbates the
negative aspects of both approaches.

A combination of both approaches – ideally

centralization at a high level and distribution at a
low level – is the most effective strategy. Insurers
are at an advantage compared with banks,
because it is relatively easier for insurers to build
single-jurisdiction software platforms from a data
standpoint.

21 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
6. Conclusion
As insurers get to grips with the IASB’s detailed
new accounting rules, they also need to reassess
how they manage the data that comes with the
standard. We have analyzed IFRS 17 compliance,
its challenges and opportunities, through the
lens of data management. The highly fragmented
nature of implementations, as well as regional
trends, support our view that compliance requires
a custom approach.

Nevertheless, there are some broad

commonalities and key components of effective
data management for IFRS 17 compliance. We
have identified two concurrent approaches that
broadly encompass effective data management:

• From an operational standpoint, the enhanced

coordination of risk and finance.

• In terms of technology implementation,

meanwhile, the key elements are flexibility,
versatility and scalability, fostered at the design
stage.

22 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
7. How to use research and services from Chartis
In addition to our industry reports, Chartis offers customized information and consulting services.
Our in-depth knowledge of the risk technology market and best practice allows us to provide high-
quality and cost-effective advice to our clients. If you found this report informative and useful, you
may be interested in the following services from Chartis.

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Our offering is grounded in our market-leading be powered by quantitative survey fieldwork,
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specific issues and concerns our clients are facing. clients can tap our insights to gain a much deeper
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In today’s highly competitive market, it is no
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Working with our clients, we generate compelling, to vendors and the institutions they serve, or on
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23 | The Heart of IFRS 17 Compliance © Copyright Infopro Digital Services Limited 2021. All Rights Reserved
8. Further reading

Insurance Risk Systems for IFRS 17: The Next Stage in IFRS 17 Technology
IFRS 17 and LDTI Compliance, Risk-Aware Accounting Solutions, 2019: Market
2020: Market Update and and Vendor Landscape
Vendor Landscape

Technology Solutions for Chartis Risk Bulletin: RiskTech100® 2021

Credit Risk 2.0: Vendor The Technology Impacts
Landscape, 2019 of COVID-19

For all these reports, see www.chartis-research.com

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