Many organizations use regulatory change initiatives as a catalyst for Finance Transformation and indeed in the case of FASB’s latest accounting standard – an update to Topic 944 (ASU 2018-12), otherwise known as LDTI – the conversations happening now are largely centered around how to improve and transform the finance function.
What is LDTI? Visit our LDTI resources page.
As part of Insurers’ LDTI initiatives, many are considering addressing shortcomings in their existing system infrastructure. This could include changes to upstream systems, foundational systems, data flows or business and control processes. Investments required to address regulatory initiatives are often simply too great not to expect resultant business improvements in the quest to reach compliance and beyond.
Pushing beyond required LDTI Actuarial System updates
As you may have read in our previous post, LDTI will require far more than just focusing on the Actuarial environment to address specific changes, such as Disclosure substantiation, Liability measurement, Market Risk Benefits and Deferred Acquisition Cost Amortization.
Broader changes are essential to allow organizations to access a deeper level of data granularity and to be able to store and access this data over time. The data will be key for the process of unlocking assumptions for Liability Measurement for example, but also crucial for Disclosure substantiation and disaggregated roll forwards. Therefore, processing this data for accounting & disclosures in an efficient, controlled and timely manner is going to ease the burden on Insurers who are already operating within tight reporting timelines.
Insurers are starting to recognize LDTI as the perfect opportunity to invest in their finance infrastructure & architecture to complement the required updates to actuarial systems.
Introducing, the value of the subledger
A subledger is a core component of a finance digital transformation for many multi-national companies. While subledger technology has been around for quite some time, upcoming regulatory changes in the insurance industry, such as IFRS 17 and LDTI, are leading to increased conversations about their benefits.
So, what are some of the benefits of having a subledger?
A subledger is essentially a database used to store a detailed subset of double entry accounting transactions with a focus on required controls throughout. It has drilldown features and can contain enormous volumes of data at the lowest, most granular level and feed entries into General Ledger(s) – Cloud or on premise – for accounting and reporting. It can also feed data into Business Intelligence (BI) tools and tools leveraging Artificial Intelligence.
For Insurers, subledger technology can enhance and replace manual accounting processes, consolidate disparate data sources and relieve overburdened General Ledgers. A subledger is the foundation for an efficient Finance Architecture and a solid control environment.
Given the relatively low regulatory-driven requirement for significant investment in Insurance Finance Infrastructure over the last few decades, now is a good time to consider implementing a good subledger to address the upcoming challenges introduced by LDTI.
Here’s some of things you can expect from an accounting subledger:
A solid finance foundation for consolidation and efficiency
Recently, a large Insurer in the Netherlands used the Aptitude Accounting Hub for their IFRS 17 project. In addition to striving to support upcoming compliance initiatives, a subledger allowed them to remove duplicate transformation logic engines and unnecessary layers between their source systems and multiple GL platforms. This allowed them to effectively reallocate 20+ team members to other, more valuable activities.
A solid finance foundation for finance certified control
One of the key challenges of LDTI is the extension to the detail required for Disclosure reporting and the requirement to tie outputs back to the Financial Statements, whilst maintaining visibility and controls for audit purposes. Insurers and Actuarial System providers recognize that Actuarial solutions alone are not enough to address all the requirements of a finance control environment. A subledger can deliver the necessary finance certified data outputs whilst maintaining required controls and traceability back to inputs.
A solid finance foundation for centralization of accounting policy.
Large insurers will likely want to avoid having their accounting residing in multiple platforms. Centralizing accounting rules and all finance impacting transactions in a subledger will give the business the controls, auditability and security they need.
A solid finance foundation for insights to the business
A subledger retains vast amounts of ledger certified data, including any required manual journal entries, allowing you to keep General Ledgers ‘light’ and feed the appropriate data to analysis and reporting tools. With the ability to access detailed data patterns, insights are deeper and richer.
A solid foundation to achieve compliance and beyond
A subledger can retain data lineage at both an individual policy and cohort level which will help Insurers to better explain volatility and track actuarial model runs and accounting outputs in a controlled, timely and auditable manner.
For insurers looking to comply with LDTI and drive additional holistic business benefits, it certainly makes sense to invest in a good subledger now.
We’d love to walk you through some client examples and illustrate how a subledger solution could help you to comply with LDTI and achieve all the additional business benefits.
Interested in reading more?
LDTI resource page
What is a subledger?
For US GAAP reporting insurers, LDTI is coming quickly