With IFRS 17 now fully adopted across Europe, insurers have transitioned from legacy IFRS 4 practices to a consistent framework for insurance contract accounting. While the standard brings greater transparency and comparability, the post-implementation phase has revealed deep operational and strategic challenges — shaped by Solvency II alignment, regulatory diversity, and system strain.
Key Challenges for European Insurers:
- Solvency II Alignment Gaps Although IFRS 17 and Solvency II share foundational principles around risk and valuation, differences in scope, discounting methods, and contract boundaries demand careful reconciliation to avoid inconsistencies in financial and regulatory reporting.
- Data Demands & Technology Shortfalls Many insurers underestimated the volume, granularity, and quality of data required. Integrating actuarial, finance, and IT systems remains a significant hurdle, with manual workarounds still prevalent.
- Accounting Policy Transformation IFRS 17 requires a complete overhaul of accounting policies and actuarial methodologies. European insurers continue to grapple with PAA eligibility, reinsurance treatment, and risk adjustment calibration.
- Disclosure Complexity & Investor Clarity Initial reporting cycles exposed inconsistencies in how insurers interpret and disclose metrics like the Contractual Service Margin (CSM) and coverage units. Boards and investors are calling for clearer, more comparable narratives across jurisdictions.
- Regulatory Fragmentation Regulatory engagement varies widely across Europe. Some authorities mandate detailed pro forma statements and financial impact assessments, while others offer minimal guidance — creating uneven expectations and compliance burdens.
Strategic Priorities Ahead:
- Automate & Streamline Replace manual processes with scalable, integrated solutions to reduce risk and improve efficiency.
- Strengthen Governance & Controls Enhance documentation, model validation, and internal controls to meet audit and regulatory standards.
- Reconcile with Solvency II Build robust reconciliation frameworks to ensure consistency between IFRS 17 and Solvency II reporting.
- Elevate Stakeholder Communication Refine disclosures and build investor confidence through transparent, well-structured financial narratives.
- Leverage Data for Strategic Insight Use IFRS 17 data flows to inform pricing strategies, product development, and performance management.