Mazars: Trends in financial reporting

International insurance groups shift focus from efficiency and cost control to client satisfaction, digital and capital management, the latest Mazars findings state.

2014-11-19 13:50:09

According to the latest Mazars' international study on the insurers' financial reporting practices across Europe, there is a tendency visible in the last three years for the management of large groups to shift the annual reports' approach from focusing on efficiency and cost control, key elements during the financial crisis, towards client satisfaction, digital and capital management.

The conclusions of the Mazars study "Key Points of the financial communication of insurance groups -2014" are based on the comparative analysis of the annual reports for 2013 and previous years published by 16 large European insurance and reinsurance groups that issue accounts under IFRS (International Financial Reporting Standards). The sample includes the European players listed among the financial companies that pose systemic risk to the global financial system (established by the Financial Stability Board).

By comparison, local insurers focus attention in their 2013 annual reports mostly on the compliance with the existing regulation framework.

Razvan Butucaru, Financial Advisory Services Director, Mazars Romania: "Taking into account the way in which they present the activity results, local insurers are looking mostly to comply with the regulations in force and less <> the readers of the annual reports by providing additional information which may offer a broader view on their activities, such as corporate governance, corporate social and environmental responsibility or business performance."

The study is relevant for the Romanian insurance market as all local insurers will have to prepare financial statements in accordance with the International Financial Reporting Standards starting 1 January 2015 and to implement Solvency II requirements starting 1 January 2016. Solvency II will introduce a new, harmonized EU-wide insurance regulatory regime covering authorisation, corporate governance, supervisory reporting, public disclosure and risk assessment and management, as well as solvency and reserving.

Rene Schob, Country Managing Partner, Mazars Romania: "Mazars' international study on the financial communication approach of the large insurance groups highlights the best practices on reporting and the current trends and challenges for this industry. Our study's conclusions bring relevant and very useful examples and learning points with regard to the standards that local insurers will have to comply with in their future activity".

Since the beginning of the financial crisis, investors have been keeping a close eye on the large insurance groups' capital, their interest being related both to the capital adequacy and the management and control effectiveness, against a background marked by important regulatory changes and stress on the debts markets. Mazars study reveals that solvency and capital management are now the focal point of the insurers' financial communication, taking more and more significant place in their annual reports.

Although local insurance companies usually present the capital management indicators and ratios required by local regulations in their annual financial statements, the upcoming Solvency II implementation will create the need for additional information to be disclosed.

According to the Mazars study, international insurance groups prove to place a higher importance on communicating performance indicators than local companies. In addition to the IFRS accounts, international players also use other metrics. Life insurers, for instance, emphasize on the Embedded Value as one of the main performance measurement of their life insurance activities. The study shows how this indicator has evolved in time and what other similar indicators sampled insurance groups use.

Razvan Butucaru: "Only some local insurance companies (mainly those companies that already issue financial statements in accordance to IFRS) present the Embedded Value in their annual reports as well as a sensitivity analysis of this indicator to various factors (e.g. maintenance expenses; mortality rate etc.). Performance measurement indicators and sensitivity analysis should be used by all insurance companies in the financial statements, in order to give readers a comprehensive perspective on the quality of their activity and the risks attached".

The large insurance groups have prepared their financial statements for 2013 within a stable framework that awaits the adoption of IFRS 4 Phase II (still subject to debate) and against a changing economic and regulatory context influenced by the Solvency II implementation.