How budgeting and forecasting work together under IFRS 17 to build resilient strategies

Author: Masimba Zata, Director - Product Management, Moody's

In previous blogs, we explored how the IFRS 17 standard is rewriting the rules of insurance financial planning and how high-performing financial planning and analysis (FP&A) teams are moving beyond spreadsheets to embrace automation, integration, and insight-driven decision-making. 

Now we’re switching focus to a foundational question for insurance finance teams: How do budgeting and long-term forecasting differ in the context of IFRS 17, and why does it matter?

If you'd like to read the previous two blogs, here are the links: How can IFRS 17 help drive strategic financial planning? and What modern financial planning and analysis teams do differently — and why it matters. 

 

The shifting FP&A landscape

For many insurance finance professionals, the arrival of IFRS 17 meant adapting to new complexities, operational overhauls, and a persistent compliance cycle. However, the new standard also unlocks opportunities — richer data, standardized methodologies, and a shared language across actuarial, finance, and risk functions.

This transformation spotlights the tools and techniques FP&A teams rely on to guide the business. Two of the most important are budgeting and long-term forecasting; both are essential, but they serve distinct purposes, operate on different timelines, and require different mindsets. Under IFRS 17, understanding the difference between the two is more important than ever.

 

Budgeting and forecasting: The two sides of financial planning

Let’s level-set. Budgeting and forecasting are sometimes used interchangeably, but in modern insurance finance, they are different disciplines.

Budgeting is the process of setting financial targets, typically for a single year. The budget acts as a financial blueprint, setting premium pricing strategies, expense limits, and capital allocations that align with corporate goals. In many ways, it’s a promise to the board and stakeholders: “Here’s what we plan to achieve this year.”

Long-term forecasting, by contrast, is looking ahead — often three, five, or even 10 years into the future. Forecasts explore how different scenarios, market conditions, and strategic choices could shape the financial trajectory of the business. Where the budget pertains to the next 12 months, the forecast encompasses the next decade.

Why does this matter under IFRS 17? The standard increases the granularity and frequency of financial analysis and demands that insurers connect short-term performance with long-term sustainability.

 

Budgeting precision in the short term under IFRS 17

With IFRS 17, budgeting has become more sophisticated. Annual budgets now require insurers to set targets across newly standardized metrics: cash flows, risk adjustments, and contractual service margins (CSMs).

Short-term financial planning under IFRS 17 supports annual budgeting and forecasting cycles, tightly aligning with corporate planning timelines. Budgets help insurers:

• Set premium pricing strategies that reflect current risk and regulatory assumptions
• Establish expense targets and capital allocations for the year ahead
• Deliver against board-approved plans and communicate expectations to stakeholders

Budget variance analysis, which compares actual performance with forecast targets, allows management to adjust strategies in real time. Insurers gain near-term insights into profit drivers, loss ratios, and operational efficiency, all of which are vital for course corrections.

IFRS 17’s granular requirements make budgeting more accurate but also more complex. The days of simply rolling forward last year’s numbers are gone. Budgeting is now data-driven, collaborative, and tightly integrated with actuarial and risk inputs.

 

Long-term forecasting for strategic value

While budgets keep the business on track in the short term, insurers can unlock strategic value through long-term forecasting. Forecasting helps insurers understand how today’s decisions will play out over multiple years under a range of possible futures.

Under IFRS 17, long-term forecasting supports:

• Multi-year, multi-scenario planning to assess the impact of economic, regulatory, and market changes
• Strategic planning and capital optimization
• Stress testing for regulatory and internal risk management
• Credit rating analysis at major agencies, where IFRS 17 forecasts can contribute to assessments of long-term profitability, capital adequacy, and financial resilience
• Alignment of long-term financial objectives with business strategy

Forecasting tools built for IFRS 17 allow insurers to efficiently run and reprocess multiple versions of projections, compare results, and evaluate the implications of new business, changes in assumptions, or external shocks. Things have come a long way from the static, spreadsheet-driven forecasts of the past. Forecasting can now be dynamic and scenario-driven, supporting bold, forward-looking decisions.

 

The role of scenario testing and risk management

Long-term forecasting is about resilience: How will your business perform in a downturn? What if new regulations require higher capital reserves? What if market conditions shift dramatically?

Scenario testing under IFRS 17 allows insurers to assess financial resilience, test strategies, and demonstrate to regulators and boards that they are prepared for an uncertain future. The ability to run “what if” analyses at scale — without rerunning heavy actuarial models every time — separates high-performing FP&A teams from the pack.

 

Automation and collaboration drive operational efficiencies

Both budgeting and forecasting have undergone a quiet revolution. The days of managing everything in spreadsheets are almost behind us. With IFRS 17, automation is becoming essential for success.

Operational efficiency means automating and streamlining the budgeting process, reducing manual effort, improving turnaround times for financial reports, and enhancing collaboration between actuarial and finance teams with a unified data model.

Integration is just as critical for long-term forecasting. Cloud-based platforms now offer seamless data flows between actuarial, risk, and finance systems, enabling scenario analysis, stress testing, and consolidated results in a fraction of the time.

 

Comparing budgeting and long-term forecasting: A strategic view

So what’s the key difference between budgeting and long-term forecasting? Timeline is the most obvious differentiator, but it’s not the only one.

The power of integrating both

It’s tempting to view budgeting and long-term forecasting as rivals for attention or investment. In reality, they are complementary. Budgeting keeps the business focused on near-term objectives and operational discipline, and forecasting ensures those objectives are aligned with long-term strategy and risk management.

Under IFRS 17, the two disciplines are brought closer together. The same data sources, methodologies, and platforms can support both. Strategically focused FP&A teams use annual budgets as a checkpoint on the road to long-term objectives, continually updating forecasts based on actual results, emerging risks, and new opportunities.

One of the often-overlooked benefits of IFRS 17 is its alignment of previously siloed functions. Budgeting, forecasting, actuarial input, and risk management no longer happen in isolation. Under the new standard, everyone must work from a common set of assumptions and data. This shared foundation fosters collaboration, improves transparency, and helps organizations respond to challenges with increased agility.

 

Making the case for modern forecasting solutions

IFRS 17 has set a high bar for financial planning in insurance. Meeting the standard requires FP&A teams to elevate their role, integrating annual budgets with dynamic, long-term forecasts and real-time scenario analysis.

Modern platforms, such as Moody’s RiskIntegrity™ Financial Forecast, are designed to operationalize these best practices. By seamlessly integrating with actuarial systems, automating data import, and facilitating scenario testing, these tools allow insurers to progress beyond manual processes and siloed spreadsheets.

As returning readers have seen throughout this blog series, the decision to modernize is about transforming the way insurance finance works — unlocking opportunity, providing a clear point of view, and acting with the confidence that only robust, integrated planning can provide.

Under IFRS 17, insurers that embrace change and a culture of collaboration aided by powerful, modern platforms should be well-positioned to turn regulatory obligations into a strategic opportunity.

As you look ahead to your next planning cycle, ask yourself: Are your budgeting and forecasting processes working together? Are you set up to respond quickly to change, test assumptions, and guide your business with conviction?

Want to learn more about how to turn IFRS 17 into a strategic advantage? Moody’s is a proven leader in IFRS 17 solutions, with extensive experience in addressing regulatory requirements and driving business insights.

Get in touch and speak to a member of the Moody's team, or visit the website for more information.