Regulations amending Finansinspektionen’s regulations and general guidelines (FFFS 2019:23) regarding annual accounts at insurance undertakings and institutions for occupational retirement provision (FFFS 2022:7)

Finansinspektionen's Code of Statutes Publisher: Chief Legal Officer Eric Leijonram, Finansinspektionen, Sweden, www.fi.se ISSN 1102-7460 1

Regulations amending Finansinspektionen’s regulations and general guidelines (FFFS 2019:23) on annual accounts at insurance undertakings and occupational pension undertakings; decided on 15 March 2022.

Finansinspektionen prescribes, pursuant to Sections 4, 5, 7 and 8 of the Ordinance (1995:1600) on annual accounts at credit institutions, securities companies and insurance undertakings, regarding Finansinspektionen’s regulations and general guidelines (FFFS 2019:23) on annual accounts at insurance undertakings and occupational pension undertakings, that Chapter 1, Section 2 and Section 3 of Annex 4 shall have the following wording, and that a new section, Chapter 6, Section 5, and a new heading immediately preceding Chapter 6, Section 5, shall be introduced with the following wording.

Finansinspektionen also issues the following general guidelines.

Chapter 1 Section 21 In these regulations and general guidelines, the following terms mean:

1. direct insurance undertaking: insurance undertakings that exclusively or principally conduct direct insurance business,
2. undertaking: insurance limited companies, mutual insurance companies, insurance associations, occupational pension limited companies, mutual occupational pension companies, occupational pension associations and financial holding companies when applying the provisions on consolidated accounts, as well as branches and operations conducted from fixed establishments by general agents or general representations when applying the provisions on annual accounts or annual financial statements, unless otherwise stated,
3. insurance undertaking: undertakings that have permission to conduct insurance business in accordance with the Insurance Business Act (2010:2043),
4. approved international accounting standards: international accounting standards adopted by the European Commission in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (the IAS Regulation),
5. international accounting standards: International Accounting Standards (IAS), International Financial Reporting Standards (IFRS), interpretations from the Standing Interpretations Committee (SIC) and interpretations from the IFRS Interpretations Committee (IFRIC Interpretations),

1 The amendment means, among other things, that the first paragraph of the general guidelines is deleted. FFFS 2022:7 Issued for publication on 21 March 2022

FFFS 2022:7 2 6. investment contracts: insurance contracts that are accounted for as financial instruments in accordance with IFRS 9 Financial Instruments, 7. life insurance undertaking: the same as in the Insurance Business Act, 8. listed insurance undertaking: insurance undertakings covered by Article 4 of the IAS Regulation, 9. listed occupational pension undertaking: occupational pension undertakings covered by Article 4 of the IAS Regulation, 10. unlisted insurance undertaking: insurance undertakings that are not listed insurance undertakings, 11. unlisted occupational pension undertaking: occupational pension undertakings that are not listed occupational pension undertakings, 12. occupational pension undertaking: undertakings that have permission to conduct occupational pension business in accordance with Chapter 2, Section 11 of the Act (2019:742) on occupational pension undertakings, and 13. occupational pension business: occupational pension business conducted in accordance with Chapter 1, Section 4 and Chapter 2, Section 11 of the Act (2019:742) on occupational pension undertakings.

General Guidelines The undertakings covered by Article 4 of the IAS Regulation are undertakings whose securities are admitted to trading on a regulated market within the European Economic Area (EEA).

Chapter 2 Application of international accounting standards

General Guidelines

1. All undertakings should apply approved international accounting standards unless otherwise required by law or other legislation, or follows from these regulations and general guidelines.

Clarifications are provided for the following standards: IFRS 17 Insurance Contracts. An undertaking should not apply the standard. IAS 33 Earnings per Share. The standard need only be applied by undertakings covered by the standard's scope.

International accounting standards that are not approved may be applied to the extent that they do not conflict with approved standards, law, other legislation or these regulations and general guidelines.

2. All undertakings should apply the recommendation RFR 2 Accounting for Legal Entities from the Council for Financial Reporting, unless otherwise follows from law, other legislation or these regulations and general guidelines.

Statements from the Council for Financial Reporting (UFR) should be applied in the same way as RFR 2, unless otherwise follows from law, other legislation or these regulations and general guidelines.

3. In addition to what follows from point 2, international accounting standards are applied with the following limitations due to the Act (1995:1560) on annual accounts at insurance undertakings: a) Undertakings are not accounted for as parent and subsidiary undertakings if there is no ownership interest. See Chapter 1, Section 3 of the Act on annual accounts at insurance undertakings and Chapter 1, Section 4 of the Annual Accounts Act (1995:1554). If an undertaking lacks an ownership interest but still has controlling influence over another undertaking, the former undertaking should provide supplementary information to give a true and fair view. See Chapter 2, Section 2 of the Act on annual accounts at insurance undertakings and Chapter 2, Section 3 of the Annual Accounts Act. In such a case, the latter undertaking should state which undertaking has controlling influence without ownership interest and how the influence can be exercised. b) The accounting of an instrument or its parts as a liability or equity, in accordance with the economic substance of the terms, is not applied by the issuer to the extent that the instrument concerns what shall be classified as equity according to law or other legislation. See Chapter 3, Section 4 of the Act on annual accounts at insurance undertakings and Chapter 3, Sections 10 a and 10 b of the Annual Accounts Act. The issuer should provide information in a note about the classification in accordance with the economic substance. c) Investment assets for which policyholders bear risk shall, according to the Act on annual accounts at insurance undertakings, always be valued at fair value. See Chapter 4, Section 2 of the same Act. d) Prepaid acquisition costs for insurance contracts shall, according to the Act on annual accounts at insurance undertakings, under certain conditions be recognized as an asset. See Chapter 4, Section 8 of the same Act. e) Write-downs made before the Act on annual accounts at insurance undertakings entered into force may not be reversed. See point 5 in the transitional provisions upon the introduction of the Annual Accounts Act. Information about a write-down not being reversed for this reason and the assessment of the effect on the undertaking's position and result should be provided in a note. f) IFRS 8 Operating Segments need not be applied in the annual accounts, regardless of whether the undertaking prepares consolidated accounts or not. For insurance undertakings and occupational pension undertakings whose business covers several insurance branches, there are instead provisions on profit and loss analysis in Chapter 2, Section 1 and Chapter 6, Section 3 of the Act on annual accounts at insurance undertakings and Chapter 6, Section 3 of these regulations and general guidelines. g) Information on equity according to Chapter 3, Section 4 of the Act on annual accounts at insurance undertakings may be provided in a note, in a balance sheet, in a statement of changes in equity or in a statement specifying other comprehensive income. If the information is provided only in a statement of changes in equity or in a statement specifying other comprehensive income, a note reference to that statement should be provided.

FFFS 2022:7 4 h) An unlisted insurance undertaking or an unlisted occupational pension undertaking need not prepare a cash flow statement, compare IAS 1 Presentation of Financial Statements.

4. In addition to what follows from points 2 and 3, international accounting standards, the recommendation RFR 2 Accounting for Legal Entities from the Council for Financial Reporting and statements from the Council for Financial Reporting (UFR) are applied with the following adjustments. a) Spot purchases and spot sales should be accounted for on the trade date even if not required by law. Regarding transactions on the Swedish market, spot purchases and spot sales refer to agreements with delivery within two banking days on the money and bond market, stock market, commodity market and foreign exchange market. b) Such Investment Assets (C) that are not financial instruments may be revalued to fair value by insurance undertakings and occupational pension undertakings with support from special provisions in the Act on annual accounts at insurance undertakings. Buildings and Land (C.1) can therefore be valued at fair value, if all assets in the item are valued in the same way. See Chapter 4, Section 5 of the same Act. Business properties may, unlike what is stated in international accounting standards, be accounted for and valued in the same way as investment properties. If the exception is utilized, the information about an alternative valuation based on acquisition cost according to Chapter 4, Section 7 of the same Act should be provided divided between business properties and investment properties. c) What is stated about retained earnings in international accounting standards or in the recommendations from the Council for Financial Reporting should instead refer to the consolidation reserve in life insurance undertakings and occupational pension undertakings that are not allowed to distribute profits. See Chapter 3, Section 4 of the Act on annual accounts at insurance undertakings. d) Holdings for trading according to IFRS 9 Financial Instruments should be accounted for as Holdings for trading purposes according to the Annual Accounts Act. e) An undertaking should not apply point 2 on IFRS 9 in RFR 2 Accounting for Legal Entities. f) An undertaking may apply the relief rules in IFRS 1 First-time Adoption of International Financial Reporting Standards, to the extent that it is compatible with point 2 on IFRS 1 in RFR 2 Accounting for Legal Entities. g) Even undertakings that apply the exemption from IAS 19 Employee Benefits in RFR 2 Accounting for Legal Entities, and that account for defined benefit pension plans according to the principles stated there, may account for the interest part of the year's pension expense as operating expense according to Chapter 3, Section 9. Regardless of what follows from approved international accounting standards or RFR 2, IAS 19 or point 1 on IAS 19 in RFR 2 need not be applied to insurance undertakings' and occupational pension undertakings' insurance contracts concerning post-employment benefits to own employees.

FFFS 2022:7 5 h) An undertaking should not apply point 1 on IAS 32 in RFR 2 Accounting for Legal Entities regarding the classification of a financial instrument, such as liability versus equity. Instead, point 3 b should be applied.

5. An unlisted insurance undertaking or an unlisted occupational pension undertaking, whose total assets for the two most recent financial years do not exceed 1,000 price base amounts according to Chapter 2, Section 7 of the Social Insurance Code (2010:110), need only provide information according to the following approved international accounting standards: – IFRS 7 Financial Instruments: Disclosures, – IFRS 13 Fair Value Measurement, – IAS 1 Presentation of Financial Statements, to the extent that it concerns information on capital, and – IAS 40 Investment Property, with the addition that appears in point 3 regarding IAS 40 in RFR 2 Accounting for Legal Entities.

The provisions in the first paragraph should not be applied if the undertaking – prepares consolidated accounts or is covered by such, – has an international connection, – is a life insurance undertaking conducting business concerning occupational pension insurance according to point 2 in the transitional provisions to the Act (2015:700) amending the Insurance Business Act (2010:2043), or – is an occupational pension undertaking.

The undertaking should state in the report on applied accounting principles whether it has applied these provisions.

In the second paragraph, an international connection means that the undertaking – conducts cross-border business or has a branch abroad, – is part of the same group as at least one foreign financial company (an insurance undertaking, occupational pension institution, credit institution or securities company), or – has such business concerning property insurance, reinsurance of property insurance or business conducted in occupational pension institutions, and that is conducted from fixed establishments by general agents or general representations according to Chapter 2, Section 8 of the Bookkeeping Act (1999:1078).

Regardless of the first paragraph, branches to a foreign company need not provide any information according to approved international accounting standards or RFR 2 Accounting for Legal Entities.

The exception in the fifth paragraph may also be applied to such business concerning property insurance, reinsurance of property insurance or business conducted in occupational pension institutions, and that is conducted from fixed establishments by general agents or general representations according to Chapter 2, Section 8 of the Bookkeeping Act.

Chapter 4 Section 32 The reinsurer's share of insurance technical provisions shall be recognized at amounts corresponding to the reinsurer's liability for insurance technical provisions according to concluded reinsurance contracts.

2 The amendment means that the first paragraph of the general guidelines is deleted.

FFFS 2022:7 6 The reinsurer's share of insurance technical provisions shall be written down to its recoverable amount, if an insurance undertaking's or an occupational pension undertaking's accounted values according to an agreement on given reinsurance of property insurance or given reinsurance of occupational pension insurance significantly exceed the sum of expected future payments (+), payments (−) and market reinsurance premium (+) for future reinsurance protection (the recoverable amount [+/-]).

If the recoverable amount is negative and cannot be taken into account through a write-down, the amount shall be accounted for as an increase in the item Liabilities concerning reinsurance (HH.II). The write-down or liability increase shall charge the period's result.

The recoverable amount shall be calculated according to an accepted actuarial method.

Payments shall be discounted only if the reinsurer's liability concerns insurance technical provisions that have been discounted.

The write-down or liability increase shall be reversed when there has been a significant change in the assumptions that led to the decision on write-down or liability recognition.

A reversal may not result in the accounted value exceeding what would have been accounted for in the balance sheet if the insurance undertaking or occupational pension undertaking had not made any write-down or liability recognition. The reversal shall be accounted for as income in the profit and loss account.

In the application of the second–fourth paragraphs, reinsurance contracts that have a direct connection with each other shall be valued together.

General Guidelines The second paragraph is also applicable when the value of a reinsurance contract has been accounted for as a liability in the balance sheet. When a negative recoverable amount significantly exceeds the accounted liability, a liability increase is thus accounted for.

By market reinsurance premium is meant the premium that, considering the circumstances when the reinsurance contract was concluded, would have been determined between knowledgeable parties who are independent of each other and who have an interest in the transaction being carried out. The premium concerns the transfer of insurance risk and covering the reinsurer's costs and profit margin.

When an insurance undertaking or an occupational pension undertaking assesses whether calculations are made according to an accepted actuarial method, it should consider the application in the calculation of insurance technical provisions according to Sections 6–16. In discounting future payments, the insurance undertaking or occupational pension undertaking should use the interest assumptions stated in Section 14 regarding discount rate.

It follows from the section that reinsurance contracts are in principle valued individually. Such reinsurance contracts that have a direct connection with each other are however valued collectively according to the fifth paragraph. It should be considered that such a connection exists if the contracts can naturally be regarded as a unit because they concern reinsurance of the same insurance risk.

Section 6 For insurance contracts, insurance technical provisions shall be accounted for according to Chapter 4, Section 9 of the Act (1995:1560) on annual accounts at insurance undertakings, and the provisions in Sections 7–16.

FFFS 2022:7 7 Deviations from the first paragraph may be made to calculate life insurance provisions according to Section 7 and when discounting future payments concerning provisions for unsettled claims according to Section 14 if a) it is compatible with Chapter 4, Section 9 of the Act on annual accounts at insurance undertakings, b) the deviation gives an accounting that is more relevant but not less reliable or more reliable but not less relevant, and c) information is provided in a note about which deviation is made, the reasons for the deviation and the effect on the relevant items in the balance sheet, profit and loss account and profit and loss analysis as well as relevant key figures.

Calculation of insurance technical provisions shall be performed by an actuary or other specialist with sufficient actuarial knowledge based on recognized actuarial methods.

General Guidelines An insurance undertaking or occupational pension undertaking may divide insurance contracts into an insurance part and a deposit part if the undertaking can value the deposit part separately.

The undertaking may also divide insurance contracts into a discretionary part and a guarantee part and account for them separately. The premiums for the contracts need not be divided but may be accounted for as premium income in full.

Regarding deviations that give a more relevant and reliable accounting than the accounting previously applied, there is guidance in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

The undertaking's calculations of life insurance provisions and discounting of unsettled claims need not fully comply with the criteria in the standard.

The provisions in Section 6, second paragraph are applied, among other things, to interest for calculating insurance technical provisions.

An undertaking intending to apply the exception in Section 6, second paragraph, should as soon as possible submit a written report to Finansinspektionen with such information as stated in Section 6, second paragraph c.

Amounts other than those stated in Sections 19 and 20 of Annex 4, which may be credited as rebates and which do not follow from insurance contracts, should be accounted for as equity until the general meeting has determined the amount.

The amount should then be transferred from equity to conditional or guaranteed rebate.

Chapter 6 Information on risks

Section 5 An undertaking shall, according to Chapter 6, Section 1 of the Act (1995:1560) on annual accounts at insurance undertakings, provide information on certain significant risks and uncertainty factors that the undertaking faces.

FFFS 2022:7 8 General Guidelines The undertaking should also provide information on the nature and extent of insurance risks, both before and after the risk is reduced through reinsurance, and market risks. The information should be provided in the form of a sensitivity analysis showing how the result and equity are affected by changes in relevant risks. The undertaking should state which methods and assumptions it uses when preparing the sensitivity analysis.

Chapter 7 Section 5 An undertaking referred to in Section 4 shall apply the following provisions in these regulations in consolidated accounts: a) Chapter 2, Sections 1 and 2 on repurchase transactions and acquired insurance portfolios, b) Chapter 3 on balance sheet and profit and loss account, c) Chapter 4, Sections 1–16 on valuation rules, d) Chapter 5 on notes etc., and e) Section 2, first paragraph d and e on the management report.

General Guidelines The undertaking should apply approved international accounting standards used in the annual accounts of the parent company or in the annual accounts of subsidiary companies included in the consolidated accounts in the consolidated accounts. This applies unless otherwise required by law or other legislation, or follows from these regulations and general guidelines.

Clarifications are provided for the following standards: a) IFRS 3 Business Combinations and IFRS 10 Consolidated Financial Statements should be applied in the consolidated accounts for holdings with ownership interests to the extent that they are compatible with Chapter 7, Sections 1–4 of the Act (1995:1560) on annual accounts at insurance undertakings. b) IFRS 16 Leases may be applied in the consolidated accounts even if the standard is not applied in the annual accounts. c) IFRS 17 Insurance Contracts should not be applied in the consolidated accounts. d) IAS 19 Employee Benefits should be applied in the consolidated accounts regardless of whether the standard is applied in the annual accounts. Also statements from the Council for Financial Reporting (UFR) related to IAS 19 should be applied. This does not however apply to insurance undertakings' and occupational pension undertakings' insurance contracts concerning post-employment benefits to own employees. e) IAS 27 Separate Financial Statements should not be applied in the consolidated accounts.

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These regulations and general guidelines enter into force on 1 January 2023.

ERIK THEDÉEN Greta Wennerberg

FFFS 2022:7 10 Annex 3 Section 4 Item B.II – Other intangible assets. The item comprises

1. capitalized expenses for development work and similar,
2. concessions, patents, licenses, trademarks and similar rights and assets,
3. leaseholds and similar rights, and
4. advances concerning intangible assets.

General Guidelines What may be accounted for as intangible fixed assets and what is goodwill is stated in Chapter 4, Section 1 of the Act (1995:1560) on annual accounts at insurance undertakings, compare Chapter 4, Section 2 of the Annual Accounts Act (1995:1554).

Complementary rules are found in approved international accounting standards, compare IAS 38 Intangible Assets and the Council for Financial Reporting's recommendation RFR 2 Accounting for Legal Entities.

A contractual right to manage financial assets for others is an example of such a similar right referred to in point 2. It may also be accounted for when companies divide insurance contracts into an insurance part and a deposit part.

Intangible assets that arise when insurance contracts are acquired via a business combination or in a portfolio transfer may also be accounted for here.

Section 25 Item H.II – Prepaid acquisition costs. The item comprises such acquisition costs that have a connection with the underwriting of insurance contracts that, according to Chapter 4, Section 8 of the Act (1995:1560) on annual accounts at insurance undertakings, shall be recognized as an asset.

General Guidelines A contractual right to manage financial assets belonging to someone else should be accounted for under Other intangible assets (item B.II).

Prepaid acquisition costs attributable to investment contracts may be accounted for under this item. The same applies to the deposit part when a company divides a contract into an insurance part and a deposit part.

Section 32 Item AA.IV – Consolidation reserve. Here, life insurance limited companies, mutual life insurance companies and life insurance associations that are not allowed to distribute profits account for such amounts that may be used for loss coverage and other purposes that follow from provisions in the articles of association according to Chapter 11, Section 19, Chapter 12, Section 70 and Chapter 13, Section 22 of the Insurance Business Act (2010:2043).

Here, occupational pension limited companies, mutual occupational pension companies and occupational pension associations that are not allowed to distribute profits account for such amounts that may be used for loss coverage and other purposes that follow from provisions in the articles of association according to Chapter 10...