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IPE special report May 2018

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Swedish regulator targets creative accounting

SWEDEN – The Financial Supervisory Authority (FI) has decided to sharpen up regulations on insurance companies giving misrepresentative financial information in their year-end results.

The Swedish authority says that it has become increasingly common for insurers to give a bright view on their economic situation by risk-transfer through re-insurance, when the financial outlook does not turn out as good as had been hoped for.

The latest case of an insurance company hiding its annual results behind a risk-transfer re-insurance contract has sparked the Stockholm based regulator into action.
“This is an actual case, where an insurance company asked us, whether they had found an acceptable solution in a so called financial re-insurance contract. It was obvious when I looked at it, that this was a case of risk-transfer and not just a financial position,” says Jarl Symreng, head of insurance and funds at FI.

The Swedish regulator wants to force financial re-insurers to give detailed information on the effects of the re-insurance on the results, the company’s capital and other key issues.
“I consulted the UK and US regulations on the subject in this specific case, and concluded that it was internationally accepted as re-insurance, on which we don’t have detailed regulations in Sweden,” says Symreng.

“The regulation, however, says that accountants should always give a true and fair value on the situation in the company. With that as a basis I looked at it [the insurance company’s_solution] and found that it was a real re-insurance, but if you would do anything else, the accounting would be affected so as to not give a true and fair situation on economic value of the company. In addition, the company has to give the accountants information on how these things would affect the results, equity and so on,” he adds.

There have been other similar problems before, but rule dodging has become more usual as competition has tightened in recent years and economic growth is slowing down. Symreng wants to give possible re-insurers some guidelines on how not to do it.
“I have a slight fear that as we are in a situation where the margins aren’t growing anymore and core capitals in companies aren’t as big as they were some years ago, a growing interest in creative accountancy solutions has arisen,” says Symreng.
“And therefore I found it necessary to do something in this case, not just to this company, but to go out and say that we are working on this issue. We will definitely come out with some regulations this year in this area,” he continues.

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