Regulatory requirements | The Federal Office of Private Insurance, the Swiss supervisory authority, launched the Swiss Solvency Test (SST) project in spring 2003 with the aim of creating new solvency requirements focusing on economic and risk-related aspects.
A solvent insurance company is in a position to meet its payment obligations on time. This requires a minimum level of freely available equity which serves to cover general business risks that are not or not sufficiently covered by the technical reserves. Under the previous Swiss solvency requirements, the minimum level is determined in relation to the business volume. In the case of life insurance companies, this amounts to roughly 4% of the mathematical reserves.
The new SST was given a legal foundation on 1 January 2006 with the introduction of the revised supervisory law and the associated ordinance (AVO). Since then, Swiss Life has been legally obliged to implement an SST. The risk categories that Swiss Life has been using for several years to steer economic risk are congruent with the corresponding categories of the Swiss Solvency Test. In the year under review, Swiss Life again met the solvency criteria required by the SST. In the internal risk reporting, SST figures are established as estimates during the year, too. Solvency considerations are integrated in the risk management process insofar as the Group Chief Financial & Risk Officer and the Group Chief Investment Officer introduce measures to reduce the necessary risk capital if the economic solvency rate drops below a defined threshold.
At a multi-national level, the European Union is aiming to set up a risk-based solvency supervision mechanism with its Solvency II project. On 10 July 2007, an initial draft of the corresponding directive was published by the European Commission. The intention is to have Solvency II integrated into national legislation by 2012. Although Swiss Life is domiciled in a non-member state, the EU’s regulations with regard to third-party states are extremely important. The EU’s framework directive moreover provides for modernised group supervision, based on the principle of equivalence. The Swiss insurance industry is trying to have this principle applied to all insurance companies regardless of where their head office is domiciled so as to create equal competitive conditions for all.
