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Enhancing Financial Disclosure for Consumer Protection

Learn about the importance of transparent, timely, and reliable financial disclosures in protecting consumers. Understand specific disclosure requirements for managing risks and complying with regulatory standards. Discover key elements and standards for presenting financial information effectively.

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Enhancing Financial Disclosure for Consumer Protection

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  1. How to Present Financial Information/ The Role of Disclosure Mr. Edward Rivera, Esq. Deputy Commissioner of Insurance of Puerto Rico Brasil, Rio de Janeiro May 2007

  2. THE AIM OF FINANCIAL INFORMATION DISCLOSURE: CONSUMER PROTECTION

  3. FORM AND QUALITY OF THE DICLOSURE

  4. FORM AND QUALITY OF THE DICLOSURE • The information should be: • Open • Transparent • Public disclosure should also be: • Reliable • Timely

  5. HIGHER LEVEL OF RISKS CONVEY SPECIFIC DISCLOSURE REQUIREMENTS

  6. HIGHER LEVEL OF RISKS CONVEY SPECIFIC DISCLOSURE REQUIREMENTS • Higher level of disclosure • Risks inherently involved in the business • These risks, pertinent to the very nature of our business cause: • A higher degree of estimation in regards to liabilities; • The possibility of systematic underestimation or overestimation of liabilities (ex. The pandemic), and, • A significant time span between estimation and actual total of liabilities.

  7. International Association of Insurance Supervisors (IAIS)

  8. IAIS – PRINCIPLE 26

  9. IAIS – PRINCIPLE 26 Information, Disclosure and Transparency states “The supervisory authority requires that insurers disclose relevant information on a timely basis in order to provide interested parties with a clear picture of its business activities and its financial condition and to promote a better understanding of the risks involved.”

  10. IAIS – PRINCIPLE 26 • Public disclosure and transparency as an overlay • The supervisory regime should identify which solvency information should be made public • safe, sound and efficient manner

  11. QUALITY OF DISCLOSURE

  12. QUALITY OF DISCLOSURE • Relevant • Timely • Reliability It is material enough for a market participant to consider in making an investment or transacting with the company. Information reported as soon as practicable after it is known by the company. Quarterly reports or intra-period reports may provide an additional tool to the supervisor. Disclosure may be delayed for a short period to allow for verification.

  13. QUALITY OF DISCLOSURE • Comprehensive • Reliable Market participants can form a well rounded picture of the insurer’s financials, performance, ownership and governance arrangements. Faithful to the financial situation it seeks to represent. verifiable neutral complete

  14. CLEANER CLEANER QUALITY OF DISCLOSURE • Accessible • Transparent Disseminated well enoungh so that market participants take adequate notice. Sufficient risk bearing capital available to meet its insurance obligations with an undisputed degree of probability.

  15. DISCLOSURE VS. PROTECTION OF CONFIDENCIAL INFORMATION: A REGULATOR’S PENDULUM

  16. DISCLOSURE VS. PROTECTION OF CONFIDENCIAL INFORMATION: A REGULATOR’S PENDULUM • Public Disclosure • Confidential Reporting The idea is to have open and transparent disclosure of an insurer’s compliance with regulatory requirements while showing to the public that they are appropriately carrying out the responsibility to manage their risks and protect their policyholders.

  17. DISCLOSURE VS. PROTECTION OF CONFIDENCIAL INFORMATION: A REGULATOR’S PENDULUM • Regulator’s ordinarily paternalistic approach • Balanced regulatory process • Responsibility • Risks it undertakes • Enterprise Risk Management • Regulation based on risk assessment

  18. WHAT SHOULD BE DISCLOSED?

  19. WHAT SHOULD BE DISCLOSED? • Financial position • Financial performance • Risk exposure and risk management • Basic business and corporate governance information

  20. HOW THE INFORMATION IS PRESENTED?

  21. HOW THE INFORMATION IS PRESENTED? Accordance to generally accepted national and international standards.

  22. HOW THE INFORMATION IS PRESENTED? • National Association of Insurance Commissioners (the NAIC) • Uniformity • Blanks forms prescribes the form and content of the information to be included • The International Accounting Standard Board (IASB) • standards specifically for insurance contracts • IAIS, has advanced three standards on disclosures concerning technical performance and risks: • IAIS No. 9, dealing with Non-Life insurers and Reinsurers; • IAIS No. 12 for life insurers, and • IAIS No. 11 concerning investment risks and performance for Insurers and Reinsurance

  23. HOW THE INFORMATION IS PRESENTED? Disclosure Relevant Comparable Timely Consistent Reliable Accessible Comprehensive Key Elements

  24. HOW THE INFORMATION IS PRESENTED? • Standard 9 • Be divided by Business Classes • Include an Analysis of Technical Performance • State Reserve Adequacy information Requires that information be shown using development triangles • Number of claims • Risk Concentration information • Reinsurance information • Capital information • Sensitivity, Stress Testing and Scenario Analysis

  25. HOW THE INFORMATION IS PRESENTED? • Standard 12 • Company Profile • Technical Risks • Technical Provisions • Capital Adequacy Position • Organization of the Business • Profit Sharing

  26. HOW THE INFORMATION IS PRESENTED? • Standard 11 • Disclosures concerning investment risks and performance for Insurers and Reinsurance • Market transparency • Market discipline • Investment Risks • investment objectives, policies and management • risk exposure • asset class segregation, description and profiling • performance measurement However it is not intended that this standard should conflict with accounting requirements. Instead, this standard may be viewed as providing additional insurance-specific disclosures that insurers should make.

  27. CASE STUDY: PUERTO RICO

  28. CASE STUDY: PUERTO RICO 1. Annual Report as required by Article 3.310 of the Insurance Code of Puerto Rico • These blanks, among other data, require detail disclosure of the following information: • Financial Statements detailing for each item; • for each business line; • investments: acquired or sold; • notes to the financial statements • notas a los estados financieros explicando en forma resumida sus políticas y prácticas de contabilidad; • development of loss reserves per class of business • etc.

  29. CASE STUDY: PUERTO RICO • Certified Financial Statements • Quarterly Financial Reports • Annual Certification of Insurer’s Stockholders • Statistical Reports • Ad Hoc Reports

  30. CONCLUSION

  31. How to Present Financial Information/ The Role of Disclosure Mr. Edward Rivera, Esq. Deputy Commissioner of Insurance of Puerto Rico Brasil, Rio de Janeiro May 2007

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