Developments in insurance supervision in Switzerland
Key points to remember
- Foreign reinsurance companies remain excluded from the scope of the Insurance Supervision Act (LSA).
- The new rules aim to strengthen the protection of policyholders, while introducing exemptions for professional clients and aligning Swiss rules with those of the EU with regard to investment products.
- The new rules will introduce a new reorganization regime for insurance companies and insurance intermediaries.
1. ISA reform
The law on insurance supervision of 17 December 2004 (IS A) is now the subject of its most comprehensive reform to date. Following a prior consultation procedure, the Federal Council proposed on October 21, 2020 the ISA reform project (ISA bill). The National Council as the first chamber of the Swiss Parliament examined the proposal in early May 2021.
2. Cross-border activities
2.1 Insurance companies domiciled abroad
Under the ISA bill, the scope of the Swiss insurance and reinsurance supervision remain unchanged for insurance companies domiciled abroad which offer their insurance services in Switzerland or from Switzerland.
Consequently, reinsurance companies domiciled abroad, but active in Switzerland, remain excluded from Swiss regulations (art. 2 (2) (a) LSA). This is the case even if the foreign reinsurance company has a branch in Switzerland. The provisions proposed in this regard during the consultation procedure, according to which foreign reinsurance undertakings with a branch in Switzerland would have been subject to the LSA, were deleted in the legislative process. However, in order to be able to meet international requirements that may require supervision of branches of foreign reinsurance companies, the Federal Council will be empowered to supplement secondary legislation in this area.
The ISA bill clarifies that state-owned or state-guaranteed export risk insurance companies are excluded from the scope of Swiss insurance supervision laws.
2.2 Insurance intermediaries domiciled abroad
To date, insurance intermediaries domiciled abroad and registered in the register of insurance intermediaries are not required to establish a presence in Switzerland. Under the new rules, a non-Swiss untied insurance intermediary (insurance broker) will have to establish a Swiss branch or, in the case of a natural person not acting for an insurance broker with a Swiss branch, have a Swiss domicile (Article 41 (2) (a) ISA Bill). However, FINMA may grant exemptions from this requirement in justified cases.
3. New exemptions from prudential obligations
3.1 Commercial relations with professional clients
About the reinsurance company, exemptions from certain requirements of the LSA already in place will continue to apply (section 35 LSA).
The revised ISA will again allow insurance companies to direct insurance sector classify the insured in professional and non-professional insured. For their business with professional policyholders (known as wholesale business), insurance companies may benefit from certain exemptions (article 4 (2) (k) in combination with article 30a of the ISA bill). To the extent that an insurer does business with professional and non-professional insureds in the same legal entity, the exemptions only apply to business with professional insureds.
The definition of “professional policyholder” is intended to be similar – but not identical – to that of a professional client within the meaning of the federal law of June 15, 2018 on financial services (FinSA). Professionally insured persons are persons within the meaning of article 98a (2) (b â f) of the revised federal law of April 2, 1908 on insurance contracts (LCA), applicable from January 1, 2022. According to the current wording, this includes (i) financial intermediaries within the meaning of the Banking Act of 8 November 1934 (BanqueA) and the Collective Investment Schemes Act (we understand that the intention is that at least the houses of securities, fund management companies and collective asset managers within the meaning of the law on financial institutions of June 15, 2018 (LEFin) are or will be treated as equivalent to these financial intermediaries), (ii) companies of ‘insurance within the meaning of the ISA, (iii) foreign companies subject to prudential supervision equivalent to the supervision of the persons referred to in (i) and (ii)), (iv) public enterprises, institutions and foundations with professional risk management, and (vii) companies with professional risk management. As they do not have a professional risk management function, pension schemes would not qualify as professional policyholders.
For business with professional policyholders, the insurer is exempt from the obligation to constitute and maintain a related heritage or to join a mediator’s office.
3.2 Captives and ad hoc vehicles
Direct insurance or intra-group reinsurance companies (called captives) may benefit from exemptions from regulatory obligations (article 30d of the ISA bill).
Furthermore, according to the Federal Council’s proposal, ad hoc insurance companies (for example ad hoc vehicles assuming insurance risks for the issuance of cat bonds) are entirely excluded from the scope of the LSA ( article 2, paragraph 2, point g) LSA Invoice). However, the first chamber of the Swiss Parliament has now decided to leave ad hoc insurance companies within the scope of the LSA (article 30e of the ISA bill).
3.3 Other exemptions
The intermediation of ancillary insurance contracts will be newly regulated. They remain unsupervised, provided that the insurance intermediation relates to insurance of minor importance and complementing a product or service (Article 2 (2) (f) of the ISA bill). The ISO is supposed to specify the conditions (eg regarding the maximum amount of damage, premium or duration).
The Federal Council is also empowered to supplement secondary law by exempting small insurance companies from supervision, provided certain conditions are met (Article 2, paragraph 5, LSA). This could become relevant in the future, especially in the case of innovative business models in the insurtech industry.
4. Client protection for qualifying life insurance products
The new rules introduce provisions for investor protection in âqualified life insurance policiesâ, i.e. insurance contracts with an investment product profile (Article 39a of the draft law ISA). These rules aim to create a level playing field with the investment products regulated by FinSA and to bring Swiss law into line with EU regulations.
Accordingly, (i) insurers will have to prepare a Key Information Document (KID) (Article 39b of the ISA Bill), which, among other things, must contain information on and the characteristics of the qualified life insurance product. , the risk and return profile, costs and associated authorizations and approvals; (ii) marketing materials for qualifying life insurance policies should be clearly labeled as such and include a reference to the KID (Article 39i of the ISA Bill); and (iii) before recommending a qualified life insurance product and subject to certain exceptions, the insurer or intermediary should verify its suitability for the client (section 39j ISA Bill).
5 Insurance intermediaries
The concept of linked and unrelated insurance intermediaries will be newly defined at ISA level as opposed to secondary law (article 40 of the ISA bill). An unrelated insurance intermediary has a fiduciary relationship with policyholders and acts in their interest (broker) unlike a tied insurance intermediary (agent).
As before, unrelated insurance intermediaries must be registered with FINMA. However, contrary to the regulations in force, linked insurance intermediaries can only register with FINMA. However, contrary to the regulations in force, linked insurance intermediaries will only be able to register if they plan to start an activity abroad requiring registration in the Swiss register (art. 42 para. 4 LSA).
To be registered, insurance intermediaries must in particular (i) have their registered office, domicile or branch in Switzerland (see for foreign insurance intermediaries 2.2) and (ii) enjoy a good reputation and be in a able to meet obligations under the ISA.
Regarding the acceptance of benefits by insurance intermediaries from insurance companies or other third parties, the ISA bill will only allow unrelated insurance intermediaries who are also remunerated. for their services by policyholders to receive and retain these incentives if policyholders provide an express waiver in this regard (after having been previously informed of the type and amount of the incentive as well as the calculation parameters including at least the bands passers-by). On request, insurance intermediaries disclose the amounts actually collected.
6. Introduction of an insurance company reorganization procedure
The ISA bill also introduces a reorganization procedure for failing insurance companies and insurance intermediaries. These procedures correspond conceptually to those applicable to banks and securities firms under BankA.
If there is a well-founded fear that an insurance company is over-indebted or has serious liquidity problems, FINMA can order protective measures, initiate reorganization proceedings or – if there is no prospect of restructuring. at least partial insurance business – order bankruptcy the insurance company.
During a reorganization procedure, FINMA may, among other things, appoint a person responsible for the restructuring and approve a restructuring plan. FINMA may take measures such as ordering portfolio transfers, restructuring the capital or ordering certain or modifications of insurance contracts, taking into account the requirement of equal treatment of creditors. The termination of reinsurance contracts can be deferred for a maximum of four months.
In accordance with the rules applicable to banks and securities firms, the reorganization procedure under the ISA bill also adopts a safe haven rule, according to which protective measures or reorganization procedures do not affect (i) contractual rights netting or clearing (e.g. rights relating to close-out netting under framework contracts for over-the-counter derivatives, securities lending or repo transactions), (ii) private selling rights securities with a market value provided as collateral, and (iii) rights to âcarryâ positions or margin, provided they have a market value. However, by analogy with the rules applicable to banks and securities firms, FINMA has the power to order the suspension of termination rights and the exercise of rights protected by the safe harbor for a maximum period of two working days ( article 52g ISA law).