Switzerland: Insurance & Reinsurance: Law And Practice

Last Updated: 27 March 2019
Article by Peter Hsu, Tiffany Ender and Daniel Flühmann

Most Read Contributor in Switzerland, July 2019

1. BASIS OF INSURANCE AND REINSURANCE LAW

1.1 Sources of Insurance and Reinsurance Law

The Swiss legal framework for private insurance is based on the following laws and regulations:

  • The Federal Insurance Contract Act ("ICA") and, subsidiarily, the Swiss Code of Obligations ("CO") govern the contractual relationship between insurer, policyholder and insured (art 100, para 1, ICA). The ICA applies to direct insurance contracts underwritten by insurance undertakings subject to supervision by the Swiss Financial Market Supervisory Authority (FINMA; art 101, para 1, no. 2 e contrario, ICA). Reinsurance contracts are outside the scope of the ICA and are consequently only subject to the general contract law provisions of the CO (art 101, para 1, no. 1, ICA; see Section 6.6 below). A partial revision of the ICA ("Draft revICA"), a law that at its core dates back to 1908, has been proposed and was at the time of writing being deliberated in Swiss parliament (see Section 12 below).
  • The Federal Insurance Supervision Act ("ISA") sets out the regulatory requirements for insurance and reinsurance undertakings and insurance intermediaries (see Section 2 below). Recently, a draft partial revision of the ISA ("Draft revISA") has been published for public consultation (see Section 13 below).
  • The ISA is supplemented by the following implementing ordinances:

    1. The Federal Ordinance on the Supervision of Private Insurance Companies ("ISO");
    2. The FINMA-Ordinance on the Supervision of Private Insurance Companies ("ISO-FINMA"); and
    3. The FINMA-Ordinance on Insurance Bankruptcy.
  • In addition to the core insurance laws and ordinances listed above, other bodies of law contain relevant provisions with regard to insurance and reinsurance, eg general consumer protection law, data protection law or the law against unfair competition. Furthermore, Switzerland is a party to two international treaties on direct insurance that supersede the ISA (see Section 3.1 below):
  • The Agreement of 10 October 1989 between the Swiss Confederation and the European Economic Community (now EU) on Direct Insurance other than Life Insurance ("EU Direct Insurance Treaty"); and
  • The Agreement of 19 December 1996 between the Swiss Confederation and the Principality of Liechtenstein on Direct Insurance and Insurance Intermediaries ("Liechtenstein Direct Insurance Treaty") that is supplemented by the agreement of 10 July 2015 on insurance against natural disasters by private insurance undertakings.

The Swiss supervisory authority, FINMA, further specifies matters of insurance regulation in numerous circulars. Given their nature as administrative directives, FINMA circulars are not binding for Swiss courts. However, as a practical matter – and acknowledging the role and standing of FINMA as the main Swiss financial regulator – the courts in Switzerland often take the circulars into account when interpreting the laws and ordinances referred to above. In addition, FINMA publishes less formal guidance documents and FAQs on supervisory matters.

Switzerland is a civil law country. However, precedent cases of Swiss courts still play an important role in interpreting and developing the statutory law (article 1, paragraph 2 of the Swiss Civil Code).

2. REGULATION OF INSURANCE AND REINSURANCE

2.1 R egulatory Bodies and Legislative Guidance

Swiss insurance supervisory law is codified in the ISA and its implementing ordinances (see Section 1 Basis of Insurance and Reinsurance Law), FINMA being the overall competent licensing and supervisory authority. In general, the ISA applies to:

  • Swiss domiciled insurance and reinsurance undertakings;
  • foreign domiciled insurance undertakings engaging in insurance business in or from Switzerland (see 3.1

Overseas-Based Insurers or Reinsurers);

  • insurance intermediaries (see Section 5 Distribution); And
  • insurance groups and insurance conglomerates (see 2.2 The Writing of Insurance and Reinsurance ; art 2, para 1, lit a-d, ISA). Certain specific types of activities and undertakings are exempted from the scope of application of the ISA, namely:
  • insurance undertakings domiciled abroad that only engage in reinsurance activities in Switzerland (art 2, para 2, lit a, ISA, see 3.1 Overseas-Based Insurers or Reinsurers);
  • public insurance undertakings (eg cantonal building insurance companies);
  • private insurance undertakings that are regulated by special federal legislation (eg pension institutions or health insurance undertakings offering compulsory health insurance only; art 2, para 2, lit b, ISA); and
  • certain insurance co-operatives (Versicherungsgenossenschaften) with a very limited scope of business where the insured are at the same time members of the co-operative (art 2, para 2, lit d, ISA).

2.2 The Writing of Insurance and Reinsurance

Insurance and reinsurance undertakings that are within the scope of application of the ISA must obtain an insurance licence from FINMA before engaging in any regulated activities, that is in particular writing insurance and reinsurance business (art 3, para 1, ISA). The licence requirements include, in particular, the following:

Organisational requirements:

  • legal form as a company limited by shares (Aktiengesellschaft) or a co-operative (Genossenschaft; art 7, ISA);
  • good standing and assurance of proper business conduct by the persons responsible for direction, supervision, control and management of the insurance undertaking (art 14, ISA; art 12 et seqq, ISO);
  • organisational structure allowing to recognise, limit and monitor all significant risks (art 22, ISA; art 96 to 98a ISO; FINMA-Circular 2017/2 Corporate Governance – Insurers);
  • appointment of a responsible actuary who has access to all business records (art 23, ISA);
  • effective internal control system and an internal audit function which is independent from management (art 27, ISA); and
  • appointment of a licensed audit firm to review the conduct of business (art 28, ISA).

Financial requirements:

  • Minimum capital between CHF3 million and CHF20 million, depending on (i) the classes of insurance (Versicherungszweige) that are part of the business plan, and (ii) further specifics of the individual case (art 8, ISA; art 6 to 10, ISO);
  • sufficient solvency margin, ie sufficient free and unencumbered capital resources in relation to all insurance activities (art 9, ISA), to be ascertained pursuant to the methodology of the Swiss Solvency Test ("SST"; art 21 to 53a, ISO; the SST is the Swiss solvency standard recognised by the European Commission as a standard equivalent to Solvency II with effect from 1 January 2016 (Commission Delegated Decision (EU) 2015/1602 of 5 June 2015));
  • maintenance of an organisational fund (Organisationsfonds) to cover the costs of establishing and developing the business or an extraordinary business expansion (art 10, ISA; art 11, ISO);
  • sufficient insurance-related reserves (versicherungstechnische Rückstellungen) for all business activities (art 16, ISA; art 54 et seqq, ISO);
  • claims based on insurance contracts have to be covered at all times by tied assets (gebundenes Vermögen; art 17, ISA), the required amount of assets to be assigned being equal to the insurance-related reserves plus an appropriate surcharge (art 18, ISA; art 1, ISO-FINMA); and
  • maintenance of sufficient liquidity in order to be able to satisfy all of its payment obligations, even in stress scenarios (art 98a, ISO). Building on the basic regulatory requirements, certain additional requirements or reliefs apply depending on the specifics of the case or the business, such as:
  • additional provisions eg regarding the scope of admissible activities or the preventive control of insurance tariffs, apply to certain classes and types of insurance (art 31 et seqq, ISA; art 120 et seqq, ISO);
  • additional requirements apply for foreign insurance undertakings (art 15, ISA; see 3.1 Overseas-Based Insurers or Reinsurers);
  • companies engaging in reinsurance business only are exempt from certain regulatory requirements under the ISA (eg, notably, the provisions on tied assets; art 35, ISA);
  • special provisions apply to the consolidated supervision of insurance groups, and insurance conglomerates (art 65 and 73, ISA; FINMA-Circular 2016/4 Insurance Groups and Conglomerates). An insurance group consists of two or more companies, whereby (i) at least one company in the group is an insurance company, (ii) the companies are, as a whole, primarily engaged in the field of insurance and (iii) the companies constitute an economic unit or are otherwise connected to each other through influence or control (art 64, ISA). In the case of an insurance conglomerate, the insurance group additionally includes at least one bank or securities dealer of major economic importance (art 72, ISA). FINMA may impose consolidated supervision on an insurance group or insurance conglomerate, if, alternatively, the group or conglomerate is either effectively managed from Switzerland or, whilst effectively managed abroad, is not subject to equivalent consolidated group supervision there (art 65 and 73, ISA). Consolidated group supervision applies in addition to FINMA's individual supervision over the Swiss insurance undertakings (or other regulated Swiss entities; art 66 and 74, ISA).

Procedurally, to obtain an insurance licence, an insurance undertaking has to submit a formal application to FINMA accompanied by a regulatory business plan (art 4, para 1, ISA). The latter must include information on the type of business the insurance undertaking intends to write, its management and organisational structure, its geographic scope of business and the persons directly or indirectly owning at least 10% of the capital or voting rights of the insurance undertaking or that are otherwise able to significantly influence its business activities (art 4, para 2, ISA).

Upon being granted an insurance licence, the insurance undertaking has to comply with all licence requirements on an ongoing basis. Amendments to the regulatory business plan must be reported to (and approved or not objected to by) FINMA (see Section 4 Transaction Activity).

2.3 The Taxation of Premium

Insurance premium payments are subject to stamp taxes if (i) the policy is part of a Swiss portfolio of an insurance undertaking subject to Swiss insurance supervision or of a Swiss insurance undertaking enjoying public law status; or (ii) a Swiss policyholder concluded the policy with a foreign insurance undertaking not subject to Swiss insurance supervision (art 21, Federal Stamp Tax Act ("STA")). Several types of insurance are exempt from this tax, including, in particular, premiums on reinsurance policies (art 22, STA). In principle, the stamp tax amounts to 5% of the cash premium, with the exception of life insurance policies, where it amounts to 2.5% (art 24, STA).

Meanwhile, insurance and reinsurance turnovers are exempt from Swiss VAT (art 21, para 2, no 18, Value Added Tax Act).

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