FINMA’s new Public Disclosure rules pose challenges for insurers

in Financial Services, 19.07.2016

Beginning in financial year 2016, Swiss insurance companies will have to meet new minimum disclosures requirements. The rules – set out in the FINMA circular 2016/02 “Offenlegung Versicherer (Public Disclosure)” – are part of the Swiss regulators’ ongoing policy of bringing Swiss supervision into line with its European Union peers under the Solvency II equivalence framework. They mirror the annual Solvency and Financial Condition Report required under Solvency II.

What are the new minimum requirements?

All but the smallest companies and captive reinsurers in Switzerland must publish a report on their financial position. This report should incorporate information about the following:

  • The company’s business activities
  • Its financial performance
  • Corporate governance and risk management
  • Qualitative and quantitative information on the company’s risk profile
  • The valuation of assets and liabilities, including a comparison of those values under the company’s selected accounting convention and the market value principles of the Swiss Solvency Test
  • Solvency and capital management

When are the new rules effective?

In respect of 2016 companies must submit their reports to FINMA by June 2017. FINMA will then determine whether and how these will be made public. For the following year, companies must individually post their reports to their websites by 30 April 2018.

For reinsurers currently reporting only under statutory GAAP, the requirement in 2018 to report audited numbers publically by 30 April may mean that they will have to accelerate their reporting timetable. For all companies, considerable planning will be required: it is likely that SST reporting, financial reporting and (where applicable) Solvency II reporting will all fall in the same period.

What do companies need to be thinking about? 

Depending on the company’s previous disclosure obligations (for instance, listed groups have published some of this information already) and their strategy in respect of transparency toward the market and customers, these disclosures may pose some implementation and communication challenges.

Data Governance: The disclosures incorporate quantitative and qualitative information from multiple sources – for instance financial reporting, the SST, ORSA – and will need to be consistent with numbers published and provided to FINMA and others from other sources (e.g. public announcements, FIRST reporting, audit reports, meetings with regulators). Stakeholders will be confused if reports are inconsistent. This highlights the need for companies to have one coordinated source for reporting all this information off of one platform.

FINMA clearly places the responsibility for approving the disclosures with the Board so we see Boards and Audit Committees needing to think about the governance and review process for this information. We see the potential for Boards to seek external assurance on the integrity of reporting systems and accuracy of the reported information, even though there is no formal audit requirement.

Presentation: Companies will have to work out how to present the information:

  • One consolidated document containing all the information
  • A document that refers to other information already made publically available supplemented by additional disclosures required by the circular

Which GAAP?: The circular allows companies to use either the statutory or another standard (IFRS/Swiss GAAP FER/US GAAP) as the basis for some of the disclosures. The accounts used need to have been audited.

Companies will have to decide what makes sense for them. We expect groups to use the IFRS accounts, and individual companies to use the statutory OR accounts. But companies which do individual IFRS accounts may choose otherwise.

Presentation: For larger companies, disclosures such as intra-group transactions and processes, will likely prove to be onerous. Furthermore, companies will need to pay particular attention to certain disclosures which will be made for the first time:

  • Differences between the valuation of their investments under solvency rules (=market values) and that disclosed in the accounts used in the public disclosures
  • Differences between the valuation of their technical provisions under solvency rules (=market values) and that disclosed in the accounts used in the public disclosures

Conclusion

Analysts, regulators and other stakeholders may well welcome the increased transparency that these new rules will generate. For companies, they will have to think strategically about how detailed the information will be:

  • The bare minimum to comply with the legislation; or
  • More detailed information to give a complete view of the organization’s activities and strengths.

For Boards, finance and risk management teams the challenge of managing detailed additional disclosures while providing a consistent external message just got harder.

 

 

Further information: