Insight
5 strategies to capitalize on the LDTI extension
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Van Beach, Principal, Milliman.
On July 17, 2019, the Financial Accounting Standards Board (FASB) announced it will extend the timeline to implement the Targeted Improvements for Long Duration Contracts (LDTI), moving the go-live date to January 1, 2022. The original timeline was aggressive, forcing companies to address several hard realities to meet the deadline. With an extra year, how should companies respond? Below we list five strategies to capitalize on the extension, ranging from conservative to aggressive.
The original timeline was a wake-up call that spurred the industry to action. LDTI is now firmly in focus, with the substantial implementation challenges much better understood. This is a unique opportunity. Companies need to decide how they will attempt to capitalize on the FASB extension:
A conservative approach where the LDTI implementation is pursued ahead of schedule may not seem sexy, but if there are unknowns that cause delays, that prudence may be rewarded. Reducing cost is also always is good idea, and in many situations is the most certain way to add value.
On the other hand, a practical approach where the core implementation plan remains intact, but additional analysis is conducted to better understand the methodology choices, explain impacts, and educate leaders and senior management will pay dividends for many companies who were feeling panic at the thought of standing in front of the investor community to explain results. If value from operational efficiencies is not obvious, putting effort towards additional analysis may drive the greatest returns through better methodology choices and deeper understanding of LDTI financial drivers.
Finally, an aggressive approach to implement LDTI not only to comply with the new requirements but create systems and processes that generate value through efficiency and insights across all actuarial and reporting functions has the potential to drive value for years. Armed with greater information and understanding, and offered another chance to choose their path, some may attempt to try to leapfrog their peers with new technology, new systems, new approaches to data or other aggressive initiatives.
The right answer will depend on each company’s situation, and mix-and-match strategies that combine two or more of the options are also possible approaches. While the strategies each entail some risk, one thing is certain – complacency is not an option.