Swiss Re reinsurance CFO suggests solution to onerous disclosure requirements

Swiss Re CFO for reinsurance Gerhard Lohmann decried onerous financial disclosure requirements in a co-authored article and proposed a solution set to save time and capabilities.

In an article received by Intelligent Insurer and written together with his colleague Markus Seifert, Lohmann said that insurance and reinsurance CFOs are tied up with producing financial statements for myriad audiences.

Regulators need to ensure that an insurer's obligations towards policyholders and creditors are met at all times, while investors are more interested in the value of the company today and its future earnings potential, he explained. This complexity has led to a diversity of different accounting standards and complying with these multiplying requirements can be time-consuming and challenging.

In the last decade, the prevailing traditional accounting standards have been complemented with economic accounting standards to better illustrate the financial condition of a company in our industry, Lohmann said. This includes Market Consistent Embedded Values (MCEV) or statements resulting from economic solvency frameworks such as Solvency II or the Swiss Solvency Test. With the recent issuance of IFRS 17, insurance accounting will finally embrace economic reporting and another economic valuation framework will come into practice.

To make the accounting process more efficient, Swiss Re developed a new method called Baseline Delta Approach (BDA). The BDA represents a true Multi-GAAP approach and at its core is about splitting accounting entries into two components, Lohmann explained. First, a denominator common to all valuations (the Baseline) and second, a component specific to a given valuation (the Delta). This enables a concurrent closing process in which the baseline is booked first as a common component to all valuations and then in an immediate second step the respective Delta(s) are booked. In this manner, today's interdependencies of a sequential closing process can be overcome, leading to significant acceleration, he argued.

“The BDA is a comprehensible and intuitive Multi-GAAP approach that emphasizes the common and specific components of accounting data across various accounting standards supporting a concurrent close of multiple valuations and automated walks between valuations,” Lohmann said.

“As the approach is based on a granular and integrated data model it can also support a seamless production of future financial statements - including a cash flow statement - as well as a variance analysis, which is needed for IFRS 17.”

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