There is no doubt about it - accounting subledgers are a hot topic of conversation in the world of insurers. And from what we have seen, it's IFRS 17 which is shining this new-found spotlight on subledgers and subledger strategy.
In this short blog we will explore the reasons why IFRS 17 compliance is highlighting the requirement for a subledger and why the shift to digital is finally providing subledgers - a piece of software that has actually been around for at least 15 years - with their time to shine.
IFRS 17 is arguably the most complex regulation to hit insurers since Solvency II, possibly ever. The weight and impact of the standard affects multiple departments across insurance businesses. The challenges will be significant and alter how insurers manage data, processes, governance, audit and how they align actuarial and accounting departments.
Even the most basic approach to complying with this regulation is going to take a significant amount of effort and budget. The truth is, the standard does an excellent job of highlighting the manual-heavy, disparate and siloed systems and processes that are currently in place in many organizations. So much time, energy and cost is being poured into maintaining the status quo and it is more obvious than ever before that this cannot continue. IFRS 17 is demanding positive change.
The positive impact of compliance
It’s not a surprise that savvy insurers are looking at the situation with an optimistic view and see this as the perfect opportunity to consider and renovate their overall finance systems architecture. The effort to comply is expected to be significant – why not take the strategic route, gain control of your systems and embark on project that will provide additional strategic benefits? If a finance transformation is part of your plans in the next 3-5 years – bringing these two projects together starts to feel like the common-sense approach.
Deloitte, in a recent white paper, state, ‘’We believe that IFRS 17 is a unique opportunity to invest not only in compliance, but in a modern accounting approach.’’
Why use a subledger to meet compliance?
When an essential regulatory standard is treated as a strategic step-change, you start to see the potential benefits of a fully digitized financial system. The shift from manual to automated, the single view of financial data, all calculations & multi-GAAP/operational reporting centralized.
This is where the subledger enters the conversation. A subledger provides a vast, multi-faceted data foundation that is able to store and consolidate millions of transactions from all groups and entities using a single measurement model required for IFRS 17. It also has multiple other uses that both fulfill IFRS 17 requirements and bring wider benefits.
How a subledger supports IFRS 17 compliance:
- A subledger consolidates, optimizes and standardizes data from any source system. The data is enriched with modelling parameters, for example, the identification of onerous contracts as required by IFRS 17. It can also combine actuarial & accounting data, forecast & actual data and, if available, external market data. It provides a single place for a rich, granular collection of financial data.
- A subledger can generate calculations for cash-flows. The granular level of data stored in the subledger can be used to generate best-estimate cash flows. It uses the data along with implied allocations from expenses, taxes and investment income etc. to explain the movements it observes - a requirement for any IFRS 17 solution.
- A subledger handles all calculations for Multi-GAAP accounting. Taking the actual and projected cashflows, the subledger prepares multi-GAAP valuations. It can handle complex calculations including the CSM required for IFRS 17.
- A subledger generates bookings and reports to feed out to general ledgers, management reporting and analysis tools. By maintaining detailed data and handling complex calculations and reconciliations, it naturally takes stress off general ledgers. This allows for GL consolidation and/or cloud migration and provides the accuracy and auditability of ledger quality data.
How a subledger supports finance and business requirements:
Along with being able to handle the complex requirements of IFRS 17 a subledger can also provide the following;
- A single-view of finance across the entire organization including real, forecasted, transactional and customer data.
- Real-time access to granular data which can be used for advanced analytics & business decision making.
- Simulation of what-if scenarios using detailed data for better business decisions.
- An efficient and future-ready finance department with fully automated, low maintenance, faster systems which deliver better TCO and allow the business to more easily address changes like M&A and future regulatory requirements.
Subledgers have been creating efficient finance departments for many years but we truly believe that the complexities of IFRS 17 and the shift to digital are now making subledgers a necessity for any finance department wishing to remain relevant.
Aptitude has a multi-dimensional, multi-GAAP, detailed accounting subledger that forms part of our Accounting Hub. It has the scale, speed and capacity to handle vast amounts of transactional level data in a structured way that is accessible fast and of auditable quality. It has been used in insurance companies for over 15 years – with best practices, processes, and industry specific events all captured and incorporated into the product for a functionally rich, out of the box solution.
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