The purpose of this document is to discuss the policies a reporting entity should have when it comes to reporting to the supervisory authority

Transcription

1 Slvency Assessment and Management: Pillar 3 Sub Cmmittee Reprting Task Grup Discussin Dcument 17 (v 3) Reprt t Supervisrs Undertaking s reprting and disclsure plicy EXECUTIVE SUMMARY 1. INTRODUCTION The purpse f this dcument is t discuss the plicies a reprting entity shuld have when it cmes t reprting t the supervisry authrity The abve is highlighted within the Level II implementatin guidance fr Slvency II published by CEIOPS, specifically in Level II text 1, par and This will be cmpared t the IAIS Insurance cre principles dealing with reprting and disclsure. These are ICP9 and ICP INTERNATIONAL STANDARDS: IAIS Insurance Cre Principles ( ICPs ) ICP20 ICP20 establishes the fundamental requirements fr disclsure by insurers. The fundamental requirements are based n the fllwing: The supervisr requires insurers t disclse relevant, cmprehensive and adequate infrmatin n a timely basis in rder t give market participants a clear view f their business activities, perfrmance and financial psitin. This will enhance market discipline and understanding f the risks t which an insurer is expsed and the manner in which thse risks are managed. ICP9.3 T help ensure the accuracy f infrmatin, the supervisr further requires that: the apprpriate level f an insurer s senir management is respnsible fr the timing and accuracy f the financial and statistical reprting as well as ther reprts required t be submitted. inaccurate financial and statistical reprting be crrected as sn as pssible certain reprts and infrmatin be subject t audit and/r actuarial review at a minimum, an audit pinin t be prvided n annual financial statements. 1 CEIOPS Advice fr Level 2 Implementing Measures n Slvency II: Supervisry Reprting and Public Disclsuere Requirements (Octber 2009)

2 3. EU DIRECTIVE ON SOLVENCY II: PRINCIPLES (LEVEL 1) Article 35(5) f the Level I text requires that Member States shall require insurance and reinsurance undertakings t have apprpriate systems and structures in place t fulfil the requirements laid dwn in paragraphs 1 t 4 as well as a written plicy, apprved by the administrative, management r supervisry bdy f the insurance r reinsurance undertaking, ensuring the nging apprpriateness f the infrmatin submitted. Article 55(1) f the Level I text requires that Member States shall require insurance and reinsurance undertakings t have apprpriate systems and structures in place t fulfil the requirements laid dwn in Articles 51 and 53 and Article 54(1), as well as t have a written plicy ensuring the nging apprpriateness f any infrmatin disclsed in accrdance with Articles 51, 53 and 54. Article 55(2) f the Level I text requires that The slvency and financial cnditin reprt shall be subject t apprval by the administrative, management r supervisry bdy f the insurance r reinsurance undertaking and be published nly after that apprval. Article 53(1) f the Level I text states: Supervisry authrities shall permit insurance and reinsurance undertakings nt t disclse infrmatin where: (a) by disclsing such infrmatin, the cmpetitrs f the undertaking wuld gain significant undue advantage; (b) there are bligatins t plicy hlders r ther cunterparty relatinships binding an undertaking t secrecy r cnfidentiality. 4. MAPPING ANY PRINCIPLE (LEVEL 1) DIFFERENCES BETWEEN IAIS ICP & EU DIRECTIVE ICP20 discussed the technical requirements f public disclsure, but des nt cncern itself with the methdlgy, prcesses etc f the disclsure. ICP9.3 has specific requirements, but the requirements cmpliment rather than cntradict Slvency II. 5. STANDARDS AND GUIDANCE (LEVELS 2 & 3) Principle 1 (RTS) Level II text par : The undertaking s r grup s written plicy shall ensure that the undertakings have apprpriate gvernance prcedures and practices in place s that the infrmatin reprted t the supervisry authrity is cmplete, cnsistent and accurate. ICP9.3 has certain specific requirements being: the apprpriate level f an insurer s senir management is respnsible fr the timing and accuracy f the financial and statistical reprting as well as ther reprts required t be submitted. inaccurate financial and statistical reprting be crrected as sn as pssible certain reprts and infrmatin be subject t audit and/r actuarial review at a minimum, an audit pinin t be prvided n annual financial statements. These requirements d nt cntradict the level II guidance, but rather cmpliment it. Basically, these are all items that yu wuld expect in the written plicy that an entity needs t have (fr instance, the requirement t crrect errrs and t have the infrmatin audited speaks t the accurate in cmplete, cnsistent and accurate). Page 2 f 8

3 We agree that the Level II text is best practice and can be accepted. Hwever, we nte that the plicies shuld nt be t specific, but allw fr flexibility in the prcess. Principle 2 (RTS) Level II text par : The written plicy shall als ensure that the reprting requirements are cmpleted within the timeframes established in the Directive. We agree with the principle that the plicy shuld ensure that the reprting requirements are cmpleted within the required timeframe.. Supprt Principle 3 (RTS) Level II text par : Regarding the quantitative reprting templates undertakings are expected t develp within their reprting plicy a stable internal system thrugh which undertakings are able t accurately cmplete the quantitative reprting templates requested by supervisrs in rder t facilitate the supervisry analysis and cmparisn thrughut the years. We agree with the principle that the plicy shuld ensure that the reprting requirements are cmpleted within the required timeframe. We supprt this principle. The wrding stable internal system shuld be replaced with stable internal prcess, as sme cmpanies use mre than ne system. Principle 4 (SFCR) Level II text par. 3.73:. The written plicy, which shall be apprved by the administrative, management r supervisry bdy, shall ensure that the disclsure requirements are cmpleted within the timeframes established in the Directive hence the written plicy shall set ut deadlines fr cmpletin f the varius drafting cmpnents f the prcess and allw sufficient time fr review and apprval by the administrative, management r supervisry bdy befre publicatin. We agree with the principle that the plicy shuld ensure that the reprting requirements are cmpleted within the required timeframe. Als, having the plicy set ut the varius deadlines fr drafts will facilitate the prcess, as all parties are aware f deadlines. In practice, ne wuld Page 3 f 8

4 expect the plicy t refer t the varius deadlines, but nt t set the deadlines (hw wuld the plicy fresee the different requirements fr each year ging frward?). We generally supprt the principle. Hwever, level II guidance shuld nt require insurers t include specific deadlines in the written plicy as this wuld make the written plicy cumbersme t maintain. It is furthermre recmmended that the plicy als deals with interim deadlines, t ensure that the final deadline is met (this being a general principle t demnstrate a rbust prcess). We further recmmend that the time plan shuld allw fr the Bard t review the auditr s reprt. Principle 5 (SFCR) Level II text par.3.74: Undertakings and grups shall use their reprting and disclsure plicy t utline their view f infrmatin already available in the public dmain that they believe is equivalent in nature and scpe t the infrmatin requirements in the SFCR. The issue addressed here is that the entity may already be disclsing infrmatin fr ther purpses (fr instance IFRS4, IFRS7 r King III), that may be equivalent t a specific disclsure requirement f Slvency II. The Level 1 text permits undertakings t make use f r refer t this equivalent infrmatin in the SFCR, as set ut in Article 53(3). This shuld ensure that there is n duplicatin f effrt fr undertakings in prducing these disclsures. Nte that level II text par states: Supervisry authrities wuld expect that any equivalent infrmatin is replicated in full in the undertaking s disclsure dcument t avid the situatin where the SFCR cntains a number f hyperlinks t the equivalent infrmatin. Including the infrmatin in full assists readers f the SFCR s they have all the infrmatin in ne place and d nt cntinually have t refer t ther dcuments r find ther surces f disclsure. We generally agree with the fact that crss-referencing be kept t a minimum. Hwever, we nte that where it is very cumbersme t replicate the infrmatin, the entity culd allwed, by exceptin, t reference t it thrugh the use f hyperlinks. The principle stated in par is that the reprting and disclsure plicy shuld utline an entity s view f what is already available in the public dmain. The plicy may fr instance state that Slvency II disclsure requirement xxx is met by disclsure xxx in the financial statements. The plicy shuld deal with the fact that the reprt must be suitable fr public disseminatin. In supprt f par In respect f par 3.67, we suggest that the entity cpy the CONTENT f the relevant equivalent disclsures int its SFCR, as ppsed t (1) using hyperlinks r (2) supplying phtcpied cpies. I.e., the infrmatin wuld be equivalent, but the SFCR needs t be a cmplete dcument n its wn. The SFCR is a public dcument, and hence, phtcpying pages frm fr instance the financial statements wuld nt lead t a prper presentatin. Hwever, we nte that where it is very cumbersme t replicate the infrmatin, the entity culd allwed, by exceptin, t reference t it thrugh Page 4 f 8

5 the use f hyperlinks. Principle 6 (SFCR) Level II text par.3.75: The undertaking r the grup shall ensure additinal, vluntary infrmatin prvided under Article 51 f the Level 1 text is cnsistent with the infrmatin reprted under Article 35 at the same date. The idea f cnsistency in reprting is basic and must be adhered t. An entity cannt prvide vluntary infrmatin t the public which cntradicts the infrmatin given t the Regulatr. We supprt the principle Principle 7 (SFCR) Level II text par. 3.76: Unless in relatin t a capital add-n, the SFCR, r any ther public disclsure, shall nt cntain any cnfidential infrmatin sent by the supervisry authrity t the undertaking withut prir permissin frm the supervisry authrity fr the undertaking t disclse such infrmatin. We supprt the principle. The Regulatr shuld indicate when infrmatin it sends t the insurer is cnfidential as this may nt always be bvius t the insurer. Principle 8 (SFCR) Level II text par. 3.77: Nn-disclsure f infrmatin in specific cases, as prvided fr in Article 53 f the Level 1 text, shall be permitted by the supervisry authrity, and explicitly mentined, alng with its reasns, in the SFCR. This decisin n permissin shall be made fllwing an explicit request by the undertaking r the grup t the supervisry authrity. This decisin n permissin shall stay valid as lng as the cntent f the nn-disclsed infrmatin and the reasns fr nn-disclsure persist, prvided that the undertaking shall be required t disclse this infrmatin if the reasns fr nn-disclsure n lnger apply. The principle here is that entities shuld als use their disclsure plicy t set ut their view n the specific infrmatin they intend nt t disclse, under the circumstances set ut in Article 53(1) f the Level 1 text. In CEIOPS view, the nn-disclsure f infrmatin in the circumstances set ut in Article 53(1) shuld be an exceptinal event. As set ut in Article 53(2), such nn-disclsures shuld be permitted by the supervisry authrity, and explicitly mentined, alng with the reasns fr nn-disclsure, in the SFCR. This permissin, if the supervisry authrity agrees, has t be granted fllwing an explicit request by the undertaking. It shuld stay valid as lng as the cntent f the nn-disclsed infrmatin and the reasns fr nn-disclsure persist, prvided that the undertaking shall be required t disclse this infrmatin if it lses its character f cnfidentiality r cmpetitrs wuld n lnger gain a significant advantage frm its disclsure. Page 5 f 8

6 The plicy shuld specifically deal with the fact that the Bard needs t be aware f areas f nn-disclsure and subsequent request t the regulatr. We supprt the principle. The plicy shuld specifically deal with the fact that the Bard needs t be aware f areas f nn-disclsure and subsequent request t the regulatr. 6. ASSESSMENT OF AVAILABLE APPROACHES GIVEN THE SOUTH AFRICAN CONTEXT 6.1 Discussin f inherent advantages and disadvantages f each apprach Principle 1 Level II text par : The undertaking s r grup s written plicy shall ensure that the undertakings have apprpriate gvernance prcedures and practices in place s that the infrmatin reprted t the supervisry authrity is cmplete, cnsistent and accurate. The current reprting requirements, d nt address gvernance issues pertaining t written plicies. Hwever, there are questins in the statutry return that address system f gvernance. Having a written plicy fr reprting will imprve gvernance and the audit trail. Hwever, we nte that the plicies shuld nt be t specific, but allw fr flexibility in the prcess. Principle 2 Level II text par : The written plicy shall als ensure that the reprting requirements are cmpleted within the timeframes established in the Directive. Fr current reprting requirement, the insurers are expected t furnish the FSB with their financial infrmatin n quarterly and/r annual basis r by any date prescribed by the FSB. Hence the requirement des nt place mre requirements n insurers, it basically asks fr that the insurer s plicy be drawn up in such a way that the regulatr s timelines are met. We supprt this principle. Principle 3 Level II text par : Regarding the quantitative reprting templates undertakings are expected t develp within their reprting plicy a stable internal system thrugh which undertakings are able t accurately cmplete the quantitative reprting templates requested by supervisrs in rder t facilitate the supervisry analysis and cmparisn thrughut the years. We agree with the principle but suggest that insurers be allwed t have a stable internal prcess as an alternative t a stable internal system. The wrding stable internal system shuld be replaced with stable internal prcess, as sme cmpanies use mre than ne system. Page 6 f 8

7 Principle 4 (SFCR) Level II text par. 3.73:. The written plicy, which shall be apprved by the administrative, management r supervisry bdy, shall ensure that the disclsure requirements are cmpleted within the timeframes established in the Directive hence the written plicy shall set ut deadlines fr cmpletin f the varius drafting cmpnents f the prcess and allw sufficient time fr review and apprval by the administrative, management r supervisry bdy befre publicatin. We agree with the principle that the plicy shuld ensure that the reprting requirements are cmpleted within the required timeframe. Als, having the plicy set ut the varius interim dealines will facilitate the prcess. In practice, ne wuld expect the plicy t utline the deadlines, but nt t set the specific deadlines. It is furthermre recmmended that the plicy als deals with interim deadlines, t ensure that the final deadline is met (this being a general principle t demnstrate a rbust prcess). We further recmmend that the time plan shuld allw fr the Bard t review the auditr s reprt. Principle 5 (SFCR) Level II text par.3.74: Undertakings and grups shall use their reprting and disclsure plicy t utline their view f infrmatin already available in the public dmain that they believe is equivalent in nature and scpe t the infrmatin requirements in the SFCR. The principle stated in par is that the reprting and disclsure plicy shuld utline an entity s view f what is already available in the public dmain. The plicy may fr instance state that Slvency II disclsure requirement xxx is met by disclsure xxx in the financial statements. The advantages f being able t use infrmatin prepared fr ther public dcuments are that it saves n resurces, and it ensures that a cnsistent message is being sent. Hwever, practically this shuld be dne in such a manner that the SFCR remains an independent stand-alne dcument. Hence, the full cntent f a disclsure requirement may be cpied int the SFCR, but it is recmmended that hyperlinks r cpied pieces f ther disclsure be avided. Hwever, we nte that where it is very cumbersme t replicate the infrmatin, the entity culd allwed, by exceptin, t reference t it thrugh the use f hyperlinks. Principle 6 (SFCR) Level II text par.3.75: The undertaking r the grup shall ensure additinal, vluntary infrmatin prvided under Article 51 f the Level 1 text is cnsistent with the infrmatin reprted under Article 35 at the same date. The idea f cnsistency in reprting is basic and must be adhered t. An entity cannt prvide vluntary infrmatin t the public which cntradicts the infrmatin given t the Regulatr. Principle 7 (SFCR) Level II text par. 3.76: Unless in relatin t a capital add-n, the SFCR, r any ther public disclsure, shall nt cntain any cnfidential infrmatin sent by the supervisry authrity t the undertaking withut prir permissin frm the supervisry authrity fr the undertaking t disclse such infrmatin. We supprt the principle. The supervisry authrity wuld need t make clear t the insurer when infrmatin it sent the insurer was cnfidential. Page 7 f 8

8 Principle 8 (SFCR) Level II text par. 3.77: Nn-disclsure f infrmatin in specific cases, as prvided fr in Article 53 f the Level 1 text, shall be permitted by the supervisry authrity, and explicitly mentined, alng with its reasns, in the SFCR. This decisin n permissin shall be made fllwing an explicit request by the undertaking r the grup t the supervisry authrity. This decisin n permissin shall stay valid as lng as the cntent f the nn-disclsed infrmatin and the reasns fr nn-disclsure persist, prvided that the undertaking shall be required t disclse this infrmatin if the reasns fr nn-disclsure n lnger apply. The principle here is that entities shuld als use their disclsure plicy t set ut their view n the specific infrmatin they intend nt t disclse, under the circumstances set ut in Article 53(1) f the Level 1 text. The advantage f having this in the disclsure plicy ensures that it is dcumented and apprved by the regulatr at an early stage. The plicy shuld specifically deal with the fact that the Bard needs t be aware f areas f nn-disclsure and subsequent request t the regulatr. 6.2 Impact f the appraches n EU 3rd cuntry equivalence N/A 6.3 Cmparisn f the appraches with the prevailing legislative framewrk N/A 7. RECOMMENDATIONS The recmmendatins are cnsistent with IAIS best practice and level II advice. In drafting secndary legislatin, specific rules shuld be avided. Level II detail shuld be principles based. This will avid a situatin where insurers are frced t d specific activities merely fr cmpliance reasns, when there is n benefit frm a regulatry perspective. Page 8 f 8