A new insurance accounting standard, Long Duration Targeted Improvements (LDTI), is coming into force in the US. Time is ticking for life insurers to ensure that their financial data – from policy and claims transactions, and actuarial systems – meets compliance requirements by the deadline. 

Most life insurance companies will have to be LDTI-compliant by the end of 2024. Public companies have already had to comply since January 2023. 

While a year and a half might sound like a long time, LDTI is a very complex implementation. The regulation introduces a more granular level of reporting, meaning your system must be capable of capturing, processing, and converting this data into reports and insights that inform decision making and comply with regulations.  

At SAP Fioneer, we provide the leading solution in the financial subledger space to support LDTI requirements. We see first-hand the benefits of LDTI and what it can bring to your company, and understand the importance of having the right tools to capture and report data effectively.   

In this article by Mainak Patel, Senior Principal at SAP Fioneer, we outline the benefits of LDTI, and how providers such as SAP Fioneer can help you comply effectively and efficiently. 

Optimal LDTI reporting  

While some private life insurers may not be required to comply, there are advantages in doing so. For instance, if you plan to seek capital through an IPO or other capital markets, GAAP-based financial statements are preferred. This should factor into the decision as part of the overall cost/benefit analysis.  

In addition, adopting GAAP financials can strengthen the integrity and consistency of senior management compensation calculations and various key performance indicators. And, of course, the broader implication of complying with LDTI by leveraging a comprehensive solution is the resulting automation and improvement in your financial reporting process.   

So compliance carries significant operational benefits that go well beyond simply fulfilling the regulatory requirements.  

Preparation for ESG requirements  

LDTI may also open the door for similar regulatory requirements that are of equal granularity. ESG reporting is likely to reach the US soon and many FSIs are already beginning to disclose their ESG impact.  

ESG reporting requires capabilities such as the ability to accurately account for a company’s carbon footprint and reporting other information to evaluate whether an insurer is making socially responsible investments or how its underwriting practices encourage or discourage risks beneficial to society. Soon, US regulators will likely require insurers and fund managers to provide this ESG reporting data.  

Companies that prepare for LTDI effectively are, therefore, also preparing themselves for potential ESG reporting and other parallel regulations. By collecting granular data in a subledger, insurers can ensure they are ready to meet future requirements for capturing ESG data. 

Streamlined reporting and forecasting 

Given the impending enforcement, there is a real need to step up preparations for LDTI now. If you are looking to create your own solution for LDTI, you may not have enough time. And if you are looking for an external platform provider, you’ll need time to introduce and embed it within your own systems landscape.   

At SAP Fioneer, we offer a subledger that captures financial details of business transactions. These can be customer premiums, claims or projected cash flows. Our ledger then processes these transactions and cash flows, producing granular accounting data at a policy or group level as per LDTI requirements.  

The feedback we’ve heard from clients using our ledger for LDTI is that they like the flexibility provided by our solution and our content accelerators, alongside the fact you can manage multiple accounting bases, and forecasting, planning and simulation in a single platform (SAP Financial Products Subledger).  

Reduction in costs  

On average, companies using our platform experience a 40% reduction in audit costs, enjoy streamlined financial reporting processes, and reap the benefits of 10x faster data processing – resulting in increased productivity of financial staff.  

Our product is constantly evolving, and we will be adding enhancements that allow finance executives to forecast more effectively. These improvements make it simpler to apply market assumptions, enabling them to see how different scenarios could play out.

In a world changing faster than ever, the ability to adapt swiftly has become a critical competency for businesses. Our platform is designed to provide that agility, helping you to navigate the future. 

LDTI brings new opportunities  

I believe the introduction of LDTI is a positive step, promising significant benefits for consumers, investors, and companies themselves.  

By mandating heightened reporting standards, it fosters a new level of transparency. And this clarity enables analysts and investors to better gauge the full health of an enterprise. If they spot a systematic weakness in a company, it can quickly be brought to the attention of a regulator. They can then demand corrective action. This can be improving underwriting practices, building up capital reserves or delaying certain expenditures to ensure adequate solvency.   

An insurance company’s foremost obligation is to its policyholders. When a beneficiary makes a claim due to the passing of a loved one, it is imperative that the insurer can fulfill its obligation by paying the claim. Thus, confidence in insurers’ financial health is fundamental to their ability to protect policyholders and beneficiaries. In this way, LDTI plays a crucial role by mandating robust and granular reporting. This provides much deeper insights into insurers’ financial health.  

LDTI heralds a new era of financial transparency, and companies that effectively implement these changes stand to benefit from better reporting that can prove their financial health and make it easier to adjust to changing business conditions.  

At SAP Fioneer, we’re ready to help you on your growth journey while safeguarding the integrity of your financial data.  

Download our whitepaper to find out more about LDTI and how the increased reporting requirements can benefit your organization. 

With over 20 years of consulting and technology experience, Mainak Patel has developed an expertise for leveraging technology to create meaningful business value through transformational change – rethinking insurance processes. At SAP Fioneer, Mainak has been working with large and mid-sized insurers to identify operational challenges and position solutions to resolve them. Prior to joining SAP Fioneer and SAP, Mainak led planning and consulting efforts at leading US insurers.

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