The Ledger

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The Ledger

Posted by Sarah Werner

FASB announces potential LDTI deferral

The Financial Accounting Standards Board (FASB) announced a potential deferral to their standard, Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI) on July 17. 

Should the decision become final, it would push the compliance date for public companies to January 1, 2022 – a one-year deferral – with all other entities receiving a two- or three-year deferral. 

This decision highlights that FASB has recognized the broad and significant impact of LDTI on insurers and the huge amount of work it will require around data, systems, business processes to get it right. 

This has a similar feel to the deferral granted to IFRS 17-affected insurers in November of 2018, which gave them an additional year to tackle the huge compliance initiative.  In the case of the IFRS 17 delay and now, the likely LDTI delay, our advice and the advice of most advisors and early movers is not to slow down! This delay may give you just the time you need to comply if you continue to move forward without delay. 

LDTI introduces significant changes 

For many Insurers, the core requirements of LDTI will highlight the lack of investment in and flexibility of finance systems that have been in place over the last few decades. 

There are also more wide-reaching, general changes which include the need to explain increased volatility, access a much deeper level of data granularity and manage a significant increase in the disclosures required by the standard. 

Addressing these challenges will likely require more than just a change to the actuarial environment. With significant budget dollars already allocated and a delay likely, more insurers may look at the compliance initiative as a chance to pursue a wider finance transformation effort to position their organization for the future of digital finance and take advantage of the chance to drive additional automation and efficiencies. 

Lessons Learned from IFRS 17 

Through countless conversations with Insurers and over the course of 13 Global IFRS 17 projects, we’ve learned a few lessons that can be applied to the LDTI compliance process, now that companies will have more time to gather requirements, select solutions and implement.  

  • Planning and preparation will take longer than you think. Time needs to be dedicated to interpreting the standard and articulating requirements and policies that may be unique to different companies. 
  • Qualified resources may not be abundant given that everyone is needing the same expertise at the same time. 
  • Satisfying the need for granular data will be a challenge, especially if several legacy or siloed systems are in place.
  • The pace of progression is much quicker when there is close collaboration between actuarial, accounting and IT teams - early and throughout the project.
  • The flexibility of IFRS 17 solutions is proving to be an essential part of successful projects. Pay special attention to solution flexibility during evaluations.  This is likely to be critical for LDTI as well.
  • Many insurers doubted they would see value from IFRS 17 initiatives. This thinking has shifted with over 90% of insurers believing they will benefit from IFRS 17.

David Fourie, Insurance Financial Practice Lead at KPMG observed that both IFRS 17 and LDTI will, "require an overhaul to core finance and accounting systems in order to provide the level of detail, disclosures and financial control demanded by the regulations." 

Hopefully Insurers can take advantage of the extra time given to take a deep look at the broader benefits that can be achieved through a digital finance transformation that delivers LDTI compliance and can flexibly address whatever business change the future brings. 

For more information on LDTI please visit our resources page 

You may also be interested in these blog posts:

Is your General Ledger under too much pressure?

Five benefits of using a subledger for LDTI

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