IFRS

The International Financial Reporting Standards for insurance (IFRS 4) continue to evolve. In parallel, IFRS 7 (Financial Instruments) has defined treatment of insurers assets and investment contracts. There are clear indications with the Solvency II text that the new Solvency II standards aim to be consistent with the developments within IFRS4.

Companies have been using Prophet to report under IFRS 4 Phase I since 2007 - the calculations at that stage were very consistent with local GAAP. However the aim of producing financial reports consistently with how management saw the risks faced by the company and consistently across the whole group, led clients to better understand both the functionality and the limitations of their models and assumptions.

The increased prominence of this reporting has pushed insurers to follow advances in Embedded Value Reporting and to strengthen their asset-liability modelling under a consistent reporting basis. This has been of particular prominence in Asia Pacific, where Solvency II type modelling is at an earlier stage in comparison to the European market.

iWorks Prophet supports our clients’ growth in this area, through the Asset Liability Strategy library in the recent 7.3.5 release of the library a number of improvements were added around asset dealing and asset reporting making it easier for customers to report asset values on additional bases during their ALM projections as well as perform more complex investment strategies. These developments make it easier to track fundamental asset values (Market values, historic cost, amortised book value…) as well as customise the functionality to allow more complex asset value combinations based on these fundamental values.

We understand that our clients will need to move swiftly. Despite several outstanding issues, the US Securities and Exchange Commission continues to support a single set of high-quality global accounting standards and the convergence of  US GAAP with IFRS. As has been learnt in Europe with the move to Solvency II, this will require a major change for many companies. Companies should be acting now and discussing with their software providers, both about their capability to meet the calculation requirements, but also to introduce the controls and software needed to ensure analysts are convinced by the company’s commentary on their own risk management.