Optimus Think

LDTI Article 7 – How the Right Governance Strategy Can Achieve More Than Just LDTI Compliance


Reading the standard, for the experienced, is a relatively straightforward exercise. However, interpreting the requirements of the standard into actual operationalized procedures is a much more complex task, especially when considering the long-term implications of an LDTI implementation, and the continued impact across multiple functions.

Accounting for LDTI is not simply a change in the DRs and CRs, but rather a new view to grouping, aggregating, and presenting insurance policies.  The implications of changes in assumptions, discount rates, and MRBs will need to be tracked at the grouping level in order to meet the increased financial statement disclosure requirements.  Many finance departments will look to capture these additional details in their GL or experience a wholesale change in their internal review and reporting structures.

Developing detailed requirements to capture what’s expected within the change to LDTI and ensuring a clear understanding of how the impact will be on an end-to-end perspective is key. Mapping those to the data requirements for the new standard is the baseline minimum change.

In this seventh and final article of our LDTI series, we explain how a sound strategy allows for more than LDTI compliance and sets the stage for success beyond mere implementation.

Why Does Compliance Require a Strategy?

Given the diverse requirements of the LDTI and the variance between understanding and implementing the new standard, insurers need to consider sound planning prior to implementation in order to achieve successful compliance.

Here are a few of the key implementation realities that insurers are faced with as they seek to comply with the new standard:

  • Through our experience in many cross-functional programs similar to and including LDTI, we have seen that the theoretical interpretation can be often unachievable without significant changes to policy admin systems or other components of your end-to-end infrastructure.
  • As many companies have tried to avoid letting an accounting standard define the operational processes of running their business, many have looked at the best way to reflect requirements in a more streamlined future state target operating model.

Streamline and Strategize

To ensure the appropriate alignment is in place, strong cross-functional program management needs to be in place to facilitate the conversations between finance, actuarial, and technology functions.  This will also require determination of what the build is that you are looking to achieve, whether it be Minimum Viable Product (MVP)/base compliance, optimization, or a full transformation.

Stepping into the LDTI transformation journey through a fast follower strategy allows for efficient implementation and optimization by utilizing the data and practices of other insurers within the industry. The chart below illustrates how this strategy works within the desired build for insurers. Yet, we often see clients focus on the “sweet spot” of optimization, leveraging the new standard as a catalyst for change.

The Right Strategy Reaps Benefits

The right strategy will allow you to achieve more than the base compliance and put the right building blocks in place for you to continue to transform your business well after compliance is achieved.

Ultimately, aligning your business objectives with the requirements of the standard can be an important task that requires specific skill sets in business and technology architecture to work through.

Bottom Line for Insurers

In due course, many front-runners have worked through building the right LDTI compliance strategy with various levels of help from consultants and subject matter experts to help achieve their goals. On the other hand, this experience can be integral for insurance companies who may not be as far along in their implementation, helping them avoid some of the pitfalls and surpass the theoretical to provide actual implementation insights.

Leveraging the learnings of others, having strong program governance and management in place, and investing early on will result in a much better outcome.

Insurers who plan for success and track their progress toward achieving their strategy and compliance goals will succeed, whereas those who do not invest in structuring their LDTI program, are likely the ones to experience a delayed headache that will come down the line.

By consulting with experts and with those who have supported the front runners in LDTI compliance, you can ensure that you receive the highest benefit from your investment in meeting the requirements.

Optimus SBR’s Financial Services Practice

Optimus SBR is an independently owned management consulting firm that works with organizations across North America to get done what isn’t. Our Financial Services Group provides strategic advisory services, process improvement services, risk management services, and project management support to leading Financial Institutions, insurers, asset managers, and pension funds.

Contact us for more information on LDTI

Peter Snelling, Senior Vice President, Business Development

This piece was developed in partnership with BDO and Valani Global.

Optimus SBR, BDO, and Valani have come together to establish accelerators for the LDTI journey.  Our accelerators do not only meet the compliance needs of LDTI, but also advance an insurer forward in the areas of financial transformation, operations modernization, and data innovation.

Service Partners

With access to a global knowledge base and professional expertise, BDO offers extensive value to their clients across all segments of the insurance and financial services industry.

Valani Global supports life insurance companies in achieving their financial risk management goals through implementations of Moody’s Analytics solutions including AXIS and RiskIntegrity for IFRS 17.

Optimus Think