Play by Finances Rules for Data and Raise Your Actuarial Game

As an accounting regulation, IFRS 17 demands unprecedented levels of connectivity and collaboration between insurers’ actuarial and finance departments, especially in the way they manage their data. Data governance has rarely been a strong suit for actuaries. So their challenge will be not only to play as a team but also to raise their game – by applying finance’s rigorous standards of control to actuarial modeling.

Accountants’ financial controls have been under the regulatory microscope since the WorldCom and ENRON scandals, which lead to legislation like Sarbanes-Oxley that insists on efficient, documented controls. Under the increased demands of IFRS 17, actuaries will also need to demonstrate robust controls, either embedded in, or wrapped around their systems – and less reliance on unmanaged spreadsheets.

The convergence of financial and actuarial practices engenders a need for consistency between them. Finance systems and actuarial systems both contain assumptions, such as yield curves or assumed inflation rates, which must be aligned for the combined outputs to make sense. Actuaries tend to fragment their data across different bases, groupings and calculation types, and then distribute them across large grids to speed up the calculations. Now, they need to reverse this fragmentation and find a common language to pass information coherently between themselves and finance. For example, they need to assign data from results to lines in the chart of accounts.

Therefore, to support convergence and consistency under IFRS 17, actuaries will need to:

• Provide for common assumptions information, shared between accounting and actuarial systems, with a clear link between the input assumptions and the calculations that use them.
• Ensure reproducible and traceable results, with locked-down data that demonstrates links between inputs and outputs.
• Add governance data to reporting data, so that reports can show not just results, but the steps and approvals that led to those results.
• “Translate” the large, distributed data sets produced by actuaries into the specific values needed by the finance team, through controlled mapping mechanisms.
• Implement robust reconciliation processes to check the completeness and accuracy of any data transfers between systems.
• Allow for both volume and granularity in data retention and storage policies. Each new regulation requires new metrics to be calculated, increasing the amount of data that needs to be stored, and IFRS 17 is no exception. However, the introduction of grouping for IFRS calculations, particularly the contractual service margin, may make storage requirements less significant than early estimates suggested.
• Put in place a controlled, documented process for any mechanisms used to make actuarial adjustments to data before it is published.

By following these recommendations for data management, insurers will be in a far stronger position to achieve compliance with IFRS 17. But there is a greater opportunity here, namely for actuaries to move their data systems and processes into the same, premier league of governance and control as the finance department. Taking their cue from regulation in this way will, in turn, help them increase efficiency, ensure accuracy, support collaboration and, above all, create a more robust and meaningful framework for risk management.