## EXECUTIVE SUMMARY

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---

### Overview and Context
- The insurance industry’s overall premiums account for 60 percent of the Swiss GDP.
- The industry adapted to a long period of low interest rates and managed the impact of the COVID 19 pandemic.
- The sector has generally been profitable and maintained a solvency position well above the minimum requirement.
- Industry concentration and strong international presence remain prominent features.
- Five Swiss insurers have been identified as Internationally Active Insurance Groups (IAIGs).
- The technical note (TN) covers private insurers supervised by the Swiss Financial Market Supervisory Authority (FINMA).
- Basic healthcare insurers are supervised by the Federal Office of Public Health (FOPH); cantonal insurers providing basic property and natural peril coverage are regulated at the canton level.
- FINMA is empowered by law to carry out supervisory activity; the Federal Council approves FINMA’s strategic objectives.
- The note focuses on areas within FINMA’s jurisdiction and comments on progress with respect to recommendations made in previous FSAPs.

### Major Risks and Vulnerabilities
- Major risks prioritized for supervision include:
  - market risk
  - interest rate risk
  - inflation
  - climate risk
  - operational risk (particularly cyber)
- Many risk drivers are linked to international activities and presence outside Switzerland, including international geopolitical events and changes in the world economy, particularly in recession or stagflation scenarios.

### Regulatory Framework and Supervisory Practice
- The Swiss regulatory framework for insurers is generally robust, with extensive requirements for corporate governance, risk management, and internal controls.
- FINMA employs a risk-based and forward-looking supervisory approach with generally robust intervention powers drawing from sectoral legislation.
- FINMA’s insurance supervision arm includes experienced and knowledgeable experts.
- Noted supervisory practice issues:
  - Limited on-site visits for smaller and lower risk-assessed insurers.
  - Extensive reliance on external auditors for supervisory audits.
  - Enforcement actions can be suspended, creating challenges for timely and effective intervention.
- Specific supervisory limitations highlighted:
  - Outsourcing supervisory work to external auditors can create conflicts of interest and influence from supervised entities.
  - Enforcement appeal process places the onus on the supervisor to show that the regulatory decision should not be suspended pending appeal.
  - Lack of powers to impose fines and administrative penalties hinders supervisory effectiveness.

### Solvency Framework and Capital Adequacy
- The Swiss Solvency Test (SST) is a complex risk-based capital adequacy regime capturing market, credit, and insurance risks.
- The SST has been continuously improved over the last ten years and recent reforms strengthen it.
- Compliance with capital adequacy is reinforced through several standard models; FINMA allows for partial and full internal models.
- FINMA can impose capital add-ons for other risks, such as operational risks.
- FINMA can require insurers to adapt the standard model or use partial internal models where the standard model does not reflect an insurer’s risk profile.

### Gaps, Areas for Improvement, and Institutional Needs
- Reduce reliance on external auditors for supervisory work:
  - Reconsider extensive reliance on outsourcing of supervisory work to external auditors.
  - Limit outsourcing and ensure FINMA fully determines the scope and outcome of outsourced work to retain and leverage institutional knowledge.
- Increase resolution planning:
  - FINMA should develop resolution plans and apply resolution planning to identified insurance groups.
  - Amendments to the Insurance Supervision Act (ISA) enable FINMA to require groups’ support for developing resolution plans.
  - FINMA has not designated which insurers or insurance groups (other than all IAIGs) must have resolution plans in place.
- Strengthen enforcement and appeal powers:
  - Revise the appeal process to eliminate the automatic suspension (suspensive effect) of supervisory decisions upon appeal unless a defined high threshold is met (for example, clear illegality).
  - Empower FINMA to impose fines and administrative penalties.
- Supervision resourcing and on-site work:
  - Expand the range of risk-focused on-site visits across all categories of insurers within a reasonable timeframe.
  - Assess resource needs to meet supervisory obligations in number and skill set.

### Key Recommendations (excerpted)
- FINMA should continue building what has already been put in place for climate risk supervision (¶27).
  - Priority: M (FINMA)
  - Timeframe: I
- Strengthen suitability requirements to ensure that all the heads of control functions are subject to suitability review (¶50).
  - Priority: M (FINMA/FDF)
  - Timeframe: MT
- Increase legal powers to manage significant owners who no longer meet suitability requirements on an ongoing basis (¶49).
  - Priority: M (FINMA/FDF)
  - Timeframe: NT
- Broaden the responsibility of individual insurers’ board members to act in the best interests of policyholders as well as the insured (¶50).
  - Priority: M (FINMA/FDF)
  - Timeframe: NT
- Reconsider the extensive reliance on outsourcing supervisory work to external auditors (¶62).
  - Priority: H (FINMA)
  - Timeframe: NT
- Expand the range of risk-focused on-site visits across all categories of insurers within a reasonable timeframe (¶63).
  - Priority: H (FINMA)
  - Timeframe: MT
- Assess resource needs to meet supervisory obligations (both in terms of number and skill set) (¶64).
  - Priority: H (FINMA)
  - Timeframe: MT
- Complement existing preventative and corrective powers with a system of administrative penalties, including fines (¶70).
  - Priority: H (FINMA/FDF)
  - Timeframe: NT
- Revise the existing appeal process for regulatory decisions to eliminate the automatic suspension of supervisory decisions in the event of legal appeal (¶71).
  - Priority: H (FINMA/FDF)
  - Timeframe: NT
- Review regulations and guidance on risk management to ensure that the requirements 16.6. and 16.6b (explicit counterparty risk appetite statement) and 16.7. (macroeconomic conditions as part of underwriting policy) in ICP 16 are met (¶101).
  - Priority: H (FINMA/FDF)
  - Timeframe: MT
- Implement the requirements for insurers and IAIGs to develop liquidity risk management plans considering ICP 16.9 and CF16.9d (¶1023).
  - Priority: H (FINMA)
  - Timeframe: NT
- All IAIGs should have a recovery plan developed and non-IAIGs which are identified by FINMA to be required to have recovery plans should develop recovery plans (¶103).
  - Priority: H (FINMA)
  - Timeframe: MT
- Resolution plans for IAIGs should be developed as soon as practically possible, where deemed necessary by FINMA (¶121).
  - Priority: H (FINMA)
  - Timeframe: NT
- The necessary processes, guidance (internal or published where needed) and tools be developed to complete the comprehensive insurance resolution framework in line with ICP 12 (¶122).
  - Priority: H (FINMA)
  - Timeframe: NT

### 2019 FSAP Follow-up (selected)
- Increase the frequency of assessments of FINMA’s operational effectiveness by the Swiss Federal Audit Office (SFAO).
  - Priority: M (FINMA/SFAO)
  - Timeframe: NT
- Require that basic mandatory health insurance and supplementary health insurance be provided by two separate legal entities (FDF, FINMA) (¶22).
  - Priority: M (FINMA/FDF)
  - Timeframe: NT
- Systematically collect relevant information on exposures towards the banking sector, in particular with regard to contingent convertible bonds (FINMA).
  - Priority: M (FINMA)
  - Timeframe: NT
- Continue to provide public information on the objectives, principles and processes of insurance supervision and increase market information available to the public to make insurance supervision more transparent.
  - Priority: M (FINMA)
  - Timeframe: NT

*Source: EXECUTIVE SUMMARY, Switzerland — Technical Note on Insurance Regulation and Supervision.*

### EXECUTIVE SUMMARY __________________________________________________________________________ 4

### EXECUTIVE SUMMARY

### Overview and Context
- The insurance industry’s overall premiums account for 60 percent of the Swiss GDP.
- The industry adapted to a long period of low interest rates and managed the impact of the COVID 19 pandemic.
- The sector has generally been profitable and maintained a solvency position well above the minimum requirement.
- Industry concentration and strong international presence remain prominent features.
- Five Swiss insurers have been identified as Internationally Active Insurance Groups (IAIGs).
- The technical note (TN) covers private insurers supervised by the Swiss Financial Market Supervisory Authority (FINMA).
- Basic healthcare insurers are supervised by the Federal Office of Public Health (FOPH); cantonal insurers providing basic property and natural peril coverage are regulated at the canton level.
- FINMA is empowered by law to carry out supervisory activity; the Federal Council approves FINMA’s strategic objectives.
- The note focuses on areas within FINMA’s jurisdiction and comments on progress with respect to recommendations made in previous FSAPs.

### Major Risks and Vulnerabilities
- Major risks prioritized for supervision include:
  - market risk
  - interest rate risk
  - inflation
  - climate risk
  - operational risk (particularly cyber)
- Many risk drivers are linked to international activities and presence outside Switzerland, including international geopolitical events and changes in the world economy, particularly in recession or stagflation scenarios.

### Regulatory Framework and Supervisory Practice
- The Swiss regulatory framework for insurers is generally robust, with extensive requirements for corporate governance, risk management, and internal controls.
- FINMA employs a risk-based and forward-looking supervisory approach with generally robust intervention powers drawing from sectoral legislation.
- FINMA’s insurance supervision arm includes experienced and knowledgeable experts.
- Noted supervisory practice issues:
  - Limited on-site visits for smaller and lower risk-assessed insurers.
  - Extensive reliance on external auditors for supervisory audits.
  - Enforcement actions can be suspended, creating challenges for timely and effective intervention.
- Specific supervisory limitations highlighted:
  - Outsourcing supervisory work to external auditors can create conflicts of interest and influence from supervised entities.
  - Enforcement appeal process places the onus on the supervisor to show that the regulatory decision should not be suspended pending appeal.
  - Lack of powers to impose fines and administrative penalties hinders supervisory effectiveness.

### Solvency Framework and Capital Adequacy
- The Swiss Solvency Test (SST) is a complex risk-based capital adequacy regime capturing market, credit, and insurance risks.
- The SST has been continuously improved over the last ten years and recent reforms strengthen it.
- Compliance with capital adequacy is reinforced through several standard models; FINMA allows for partial and full internal models.
- FINMA can impose capital add-ons for other risks, such as operational risks.
- FINMA can require insurers to adapt the standard model or use partial internal models where the standard model does not reflect an insurer’s risk profile.

### Gaps, Areas for Improvement, and Institutional Needs
- Reduce reliance on external auditors for supervisory work:
  - Reconsider extensive reliance on outsourcing of supervisory work to external auditors.
  - Limit outsourcing and ensure FINMA fully determines the scope and outcome of outsourced work to retain and leverage institutional knowledge.
- Increase resolution planning:
  - FINMA should develop resolution plans and apply resolution planning to identified insurance groups.
  - Amendments to the Insurance Supervision Act (ISA) enable FINMA to require groups’ support for developing resolution plans.
  - FINMA has not designated which insurers or insurance groups (other than all IAIGs) must have resolution plans in place.
- Strengthen enforcement and appeal powers:
  - Revise the appeal process to eliminate the automatic suspension (suspensive effect) of supervisory decisions upon appeal unless a defined high threshold is met (for example, clear illegality).
  - Empower FINMA to impose fines and administrative penalties.
- Supervision resourcing and on-site work:
  - Expand the range of risk-focused on-site visits across all categories of insurers within a reasonable timeframe.
  - Assess resource needs to meet supervisory obligations in number and skill set.

### Key Recommendations (excerpted from Table 1)
- FINMA should continue building what has already been put in place for climate risk supervision (¶27).
  - Priority: M (FINMA)
  - Timeframe: I
- Strengthen suitability requirements to ensure that all the heads of control functions are subject to suitability review (¶50).
  - Priority: M (FINMA/FDF)
  - Timeframe: MT
- Increase legal powers to manage significant owners who no longer meet suitability requirements on an ongoing basis (¶49).
  - Priority: M (FINMA/FDF)
  - Timeframe: NT
- Broaden the responsibility of individual insurers’ board members to act in the best interests of policyholders as well as the insured (¶50).
  - Priority: M (FINMA/FDF)
  - Timeframe: NT
- Reconsider the extensive reliance on outsourcing supervisory work to external auditors (¶62).
  - Priority: H (FINMA)
  - Timeframe: NT
- Expand the range of risk-focused on-site visits across all categories of insurers within a reasonable timeframe (¶63).
  - Priority: H (FINMA)
  - Timeframe: MT
- Assess resource needs to meet supervisory obligations (both in terms of number and skill set) (¶64).
  - Priority: H (FINMA)
  - Timeframe: MT
- Complement existing preventative and corrective powers with a system of administrative penalties, including fines (¶70).
  - Priority: H (FINMA/FDF)
  - Timeframe: NT
- Revise the existing appeal process for regulatory decisions to eliminate the automatic suspension of supervisory decisions in the event of legal appeal (¶71).
  - Priority: H (FINMA/FDF)
  - Timeframe: NT
- The regulations and guidance on risk management should be reviewed to ensure that the requirements 16.6. and 16.6b (explicit counterparty risk appetite statement) and 16.7. (macroeconomic conditions as part of underwriting policy) in ICP 16 are met (¶101).
  - Priority: H (FINMA/FDF)
  - Timeframe: MT
- Implement the requirements for insurers and IAIGs to develop liquidity risk management plans considering ICP 16.9 and CF16.9d (¶1023).
  - Priority: H (FINMA)
  - Timeframe: NT
- All IAIGs should have a recovery plan developed and non-IAIGs which are identified by FINMA to be required to have recovery plans should develop recovery plans (¶103).
  - Priority: H (FINMA)
  - Timeframe: MT
- Resolution plans for IAIGs should be developed as soon as practically possible, where deemed necessary by FINMA (¶121).
  - Priority: H (FINMA)
  - Timeframe: NT
- The necessary processes, guidance (internal or published where needed) and tools be developed to complete the comprehensive insurance resolution framework in line with ICP 12 (¶122).
  - Priority: H (FINMA)
  - Timeframe: NT

### 2019 FSAP Follow-up (selected)
- Increase the frequency of assessments of FINMA’s operational effectiveness by the Swiss Federal Audit Office (SFAO).
  - Priority: M (FINMA/SFAO)
  - Timeframe: NT
- Require that basic mandatory health insurance and supplementary health insurance be provided by two separate legal entities (FDF, FINMA) (¶22).
  - Priority: M (FINMA/FDF)
  - Timeframe: NT
- Systematically collect relevant information on exposures towards the banking sector, in particular with regard to contingent convertible bonds (FINMA).
  - Priority: M (FINMA)
  - Timeframe: NT
- Continue to provide public information on the objectives, principles and processes of insurance supervision and increase market information available to the public to make insurance supervision more transparent.
  - Priority: M (FINMA)
  - Timeframe: NT

*Source: EXECUTIVE SUMMARY, Switzerland — Technical Note on Insurance Regulation and Supervision.*

### INTRODUCTION AND BACKGROUND

### INTRODUCTION AND BACKGROUND

### A. Scope and Approach
- This Technical Note (TN) provides an update on the Swiss insurance sector and an analysis of several aspects of the regulatory and supervisory system as part of the 2025 Financial Sector Assessment Program (FSAP) for Switzerland.
- The TN drew on virtual and on-site discussions in Switzerland from October 28 to November 12, 2024.
- The analysis is guided by the Insurance Core Principles (ICPs) and the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) issued by the International Association of Insurance Supervisors (IAIS) in November 2019.
- ICP and ComFrame focus areas referenced in the TN include:
  - Suitability, Corporate Governance, and Internal Control (ICPs 5, 7, 8);
  - Supervisory Review (ICPs 9 and 24);
  - Preventative and Corrective Measures and Enforcement (ICP 10);
  - Solvency Supervision (ICPs 14, 15, 16, 17);
  - Group Supervision and Cross Border cooperation (ICPs 24 and 25);
  - Exit from the Market and Resolution (ICP 12).
- The TN has two main sections:
  - Section 1: extensive description of the market and risks (subsections A–E covering recent developments and potential risks; market structure, products and performance; institutional arrangements; status of previous FSAP recommendations; Swiss requirements and practices in six key regulatory/supervisory areas).
  - Section 2: assessment of Insurance Core Principles and the Common Framework for IAIGs.
- The analysis was informed by a detailed questionnaire and a self-assessment prepared by FINMA and the FDF covering ICPs 5, 7, 8, 9, 12, 14, 15, 16, 17, 23, 24, and 25, and by anonymized examples of supervisory practices and assessments.
- The TN is not intended as a detailed assessment of observance of all ICPs; analysis is based on laws, regulations and supervisory practices in place in November 2024.
- TN authorship: prepared by Charles Michael Grist, IMF Short-term Expert, with support from Suzette Vogelsang, IMF Senior Financial Sector Expert, Monetary and Capital Markets Department.

### B. Market Structure, Insurance Products, and Industry Performance
- Market size and rankings:
  - Insurance assets accounted for more than 8 percent of the country’s financial sector assets at the end of 2023.
  - Total premiums written by Swiss insurers exceeded CHF 140 billion in 2023.
  - Swiss market ranked 17th largest globally in 2023.
  - Switzerland ranked 5th of 72 countries for insurance density in Swiss Re 2024 survey and 17th for insurance penetration among the 72 countries surveyed.
- Insurance penetration and density (selected 2023 figures from Swiss Re—SIGMA 3/2024):
  - Switzerland: Life Penetration 2.9 percent; Life Density US$ 2,832; Non-life Penetration 4.0 percent; Non-life Density US$ 3,998; Total Penetration 6.9 percent; Total Density US$ 6,830.
  - Germany: Total Penetration 5.5 percent; Total Density US$ 2,910.
  - France: Total Penetration 8.7 percent; Total Density US$ 3,867.
  - Italy: Total Penetration 7.1 percent; Total Density US$ 2,708.
  - United Kingdom: Total Penetration 9.7 percent; Total Density US$ 4,759.
- Number and types of supervised entities (active insurers supervised by FINMA, year-end counts):
  - Total Supervised Entities: 2019: 198; 2020: 195; 2021: 193; 2022: 189; 2023: 194.
  - Life Insurance (Total): 2019: 19; 2020: 19; 2021: 17; 2022: 18; 2023: 18.
  - Non-life Insurance (Total): 2019: 118; 2020: 116; 2021: 118; 2022: 115; 2023: 117.
  - Reinsurance (Total): 2019: 50; 2020: 24; 2021: 50; 2022: 46; 2023: 48.
  - General Insurers with Supplementary Health Operations: 2019: 11; 2020: 10; 2021: 10; 2022: 10; 2023: 11.
- Scope of FINMA supervision and other supervisors:
  - FINMA does not supervise all insurers active in Switzerland. Insurers offering compulsory fire and elemental perils (accounting for more than CHF1 billion in annual gross premiums) are independent private insurers under cantonal responsibility.
  - Compulsory health insurers and other social insurance providers (36 compulsory insurance funds providing more than CHF 40 billion in basic health insurance each year) are supervised by the Swiss Federal Office of Public Health (FOPH) through the Federal Social Insurance Office (FSIO).
  - Some basic health insurers sell supplementary insurance; supplementary market declined to approximately CHF 400 million in 2023 from about CHF 2 billion in 2019.
  - Foreign-based reinsurers with no physical presence in Switzerland doing business with Swiss insurers are not licensed or regulated by FINMA.
- Market concentration and product mix (2023):
  - Life insurance: approximately 18.3 percent of premiums written in 2023; top 6 life insurers account for 85.3 percent of life premiums.
  - Non-life insurance: 43.8 percent of premiums written; top 8 non-life insurers underwrite 82.7 percent of non-life premiums.
  - Reinsurance: 37.9 percent of premiums written in 2023.
  - About 35 percent of total non-life premiums written and most reinsurance business are with non-Swiss clients.
- Premium trends (Gross premiums written by FINMA insurers, Million CHF):
  - Life: 2019: 32,022; 2020: 26,750; 2021: 24,989; 2022: 26,149; 2023: 25,847.
  - Non-life: 2019: 45,858; 2020: 46,692; 2021: 48,838; 2022: 51,455; 2023: 61,435.
  - Reinsurance: 2019: 51,288; 2020: 45,564; 2021: 45,559; 2022: 51,261; 2023: 53,315.
  - Total: 2019: 129,168; 2020: 119,006; 2021: 119,387; 2022: 128,865; 2023: 140,598.
  - Total gross premiums grew by 8.9 percent from 2019 to 2023.
  - Covid-19 impact visible in decline of gross premiums during 2020 and 2021; total gross premiums for 2023 reached levels above Covid-19 except for life business.
  - Non-life and reinsurance premium increases driven by inflationary increases and increases in real estate property values; life sector decrease driven by decline in group occupational pension schemes and insurers’ reluctance to offer investment return guarantees on individual savings products.
- Life insurance product composition (2023):
  - Group life insurance products: 61 percent of life premiums; more than 93 percent of these represent Group Life Occupational Pension Schemes.
  - Individual life insurance products: 17 percent of life premiums (mainly traditional individual endowment/savings).
  - Unit linked insurance products: 11 percent.
  - All other life insurance products: 11 percent.
  - Maximum technical interest rate legally caps guaranteed rate; many new products offer no guarantees on investment returns.
- Non-life product composition and trends:
  - Property insurance (including fire and natural hazard coverage) and health insurance together account for more than half of non-life premiums.
  - Motor business is smaller relative to many other European countries; number of cars decreasing.
  - Growth areas include legal protection insurance, credit and surety insurance, and apartment rental security deposit insurance.
- Reinsurance market:
  - Swiss reinsurers are highly international; domestic business below 5 percent.
  - Reinsurance gross premiums composition: property reinsurance 30 percent; life reinsurance 27 percent; casualty reinsurance 16 percent; motor vehicle reinsurance 10 percent; all other reinsurance 17 percent.
  - Insurers and reinsurers may write reinsurance business in classes they are authorized to write.
- Market participants:
  - Five Swiss insurance groups identified as IAIGs since 2016.
  - 18 foreign IAIGs have licensed insurance entities in Switzerland (insurance subsidiaries or branches): seven with American home supervisors; seven with European home supervisors; three with Japan as home supervisor; one with Australia as home supervisor.
  - FINMA considers traditional insurance activities as not systemically important and has not identified a domestically or globally systemically important insurer domiciled in Switzerland.
  - Lloyd’s of London licensed to write direct insurance and reinsurance business in Switzerland except for life, sickness, and legal expense insurance; Lloyd’s has a special license granted in 1947 and is supervised under branch rules; Lloyd’s is the 16th largest non-life market participant.
- Concentration and interconnectedness (2023):
  - Top five life insurers held a 78 percent share of life sector assets.
  - Top five non-life insurers had a 74 percent share of non-life assets.
  - Top five reinsurers held an almost 90 percent share of reinsurance sector assets.
  - Top five insurers in each sector are all members of insurance groups.
  - Linkages with other parts of the financial sector are significant; ownership linkages with banking sector generally limited.
- Distribution channels:
  - Distribution dominated by agents and brokers; tied agents control most retail lines; brokers control most large commercial and industrial risks.
  - Digital channels (websites, applications), bancassurance, and B2B-cooperations remain low in Switzerland (less than 5 percent).
  - Bancassurance accounts for approximately one percent of insurance distribution.
- Profitability (Return on Equity, ROE, 2023):
  - Life insurers ROE: 11.5 percent in 2023 (compared with 8.1 percent in 2020 and 9.5 percent in 2021).
  - Non-life ROE: 22.5 percent in 2023.
  - Reinsurance ROE: 18.9 percent in 2023 (up from 2.1 percent in 2022).
  - Life industry experienced underwriting losses each year since 2019 but offset by investment income.
- Solvency and capital adequacy (Swiss Solvency Test, SST):
  - SST ratios by sector (2019–2023, SST Ratio is available capital to risk-based capital requirement):
    - Life: 2019: 201; 2020: 207; 2021: 236; 2022: 243; 2023: 223.
    - Non-life: 2019: 271; 2020: 241; 2021: 264; 2022: 303; 2023: 277.
    - Reinsurance: 2019: 199; 2020: 189; 2021: 203; 2022: 256; 2023: 263.
    - Total: 2019: 226; 2020: 216; 2021: 238; 2022: 270; 2023: 254.
  - Average solvency ratio for all insurers increased by 12 percent between 2019 and 2023, though it decreased by approximately 6 percent between 2022 and 2023.
  - In 2023, SST ratios for each sector component were more than twice the minimum prescribed SST of 100 percent.
  - SST increases 2019–2023: reinsurance +32 percent; life +10 percent; non-life +2 percent.
- Tied assets and coverage:
  - System of tied assets requires insurer reserves/technical provisions for life and non-life to be invested in prescribed lower risk asset classes; proceeds used to cover claims in event of liquidation.
  - Tied asset coverage ratio: 2019: 112 percent; 2021: 114 percent; 2022: 113 percent; 2023: 113 percent.
  - FINMA conducts at least one annual verification of tied assets (calculation, existence, allocation, valuation, compliance with supervisory law).
- Industry investments and asset mix:
  - Insurance industry investments total CHF 528,272 million in 2023 (down 2.5 percent from CHF 541,749 million in 2019).
  - Investment shares by sector (2023): life 54 percent (down from 56 percent in 2019); non-life 28 percent (up from 26 percent in 2019); reinsurance 18 percent (up from 17 percent in 2019).
  - Investment composition (2023): fixed income securities 43 percent of investments, split between corporate bonds 54 percent and government bonds 46 percent.
  - Average return on investments in 2023: 2.95 percent (down from 4.7 percent in 2019).
  - Use of derivatives largely for currency hedging and to a lesser extent interest rate hedging; legal requirements on derivatives use (Article 109 ISO).
- Real estate and mortgage exposures:
  - Life insurers’ real estate and mortgages account for approximately 24 percent of life insurers’ investments in 2023; approximately 14 percent is real estate.
  - In the EU, real estate investments comprise 10.5 percent of life insurer assets (contrast).
  - FINMA’s CESSI identified insurers' real estate exposure as a potential systemic risk and increased supervision; recent regulatory changes limit exposure to real estate investments and mortgages and address security, quality, liquidity and profitability.

### C. Risks and Vulnerabilities
- Stress testing:
  - An assessment of risks and vulnerabilities of the Swiss insurance sector will be performed in the insurance stress tests as part of the FSAP; a separate technical note will cover stress test results.
- International and macro drivers:
  - Many risk drivers are international in scope (geopolitical events, world economy changes).
  - Inflation impacted non-life insurers through higher technical provisions and, in some cases, higher premiums—particularly motor and supplementary health lines.
  - FINMA views stagflation as an increasing risk and has focused on major stagflation scenarios in the past 3-year stress tests.
- Interest rate risk (impact mostly on life insurers):
  - Increasing interest rates positively impact liabilities and negatively impact assets.
  - An increasing interest rate environment might result in increases in lapses and surrenders.
  - Life insurers in Switzerland are allowed to make deductions from surrender values for interest rate risk and a partial claw back of sales costs, with deductions capped at not more than one third of the surrender value.
  - Tax deductibility of premiums and surrenders is allowed only in very specific circumstances (e.g., use of surrender value for investment in residential property for own use).
  - Life insurers have reduced and in most cases removed investment guarantees on savings policies.

*Source: INTRODUCTION AND BACKGROUND, 1cheea2025008-source-pdf.*

### Box 1. Switzerland: Climate Risk Supervision

### Box 1. Switzerland: Climate Risk Supervision

### Overview
- Climate change and other sustainability risks are receiving considerable attention in Swiss financial supervision.
- FINMA included sustainable development of the Swiss financial Centre in its strategic goals for 2021-2024 by considering climate-related risks in its supervisory work and urging financial institutions to tackle these risks transparently.

### FINMA organization and Sustainable Finance unit
- FINMA has created a central Sustainable Finance unit to facilitate cross-division exchange and knowledge transfer on climate-related risk.
- The Unit is made up of representatives from the various divisions within FINMA who are dedicated to this topic (currently 4-5 people).

### Regulatory Requirements
- FINMA has addressed climate related risks in a few circulars and guidance covering disclosure requirements and risk management and corporate governance.
- FINMA has issued a new circular 2026/01 "Nature-related financial risks" wherein FINMA requires institutions (including insurers) to:
  - consider the impact of climate and other nature risks on their strategy and to consider related legal and reputational risks;
  - regularly assess whether their business strategy, business model, risk tolerance and risk management are in line with their sustainability-related public statements and legal obligations.
- The new circular includes explicit requirements regarding the inclusion of material nature-related financial risks in an insurers ORSA covering the impact on:
  - (i) the overall risk profile and capital requirements be included in the scenarios within the ORSA and addressed under the risk mitigation measures.

### Supervisory Approach
- During 2019/2020 FINMA performed an initial qualitative assessment of climate-related financial risks for the Swiss financial market covering both physical and transition risks.
- The heatmap published by FINMA summarizes the findings for the insurance sector.
- The survey concluded that for physical risk the societal risks (e.g. protection gap) are significantly higher than the direct physical risks for insurers.
- The most material transition risk for insurers stems from their involvement on the capital markets.
- Results from the survey are used by FINMA for:
  - its annual bilateral engagements with the larger insurers; and
  - its half-yearly expert panel discussions with industry representatives covering climate-related financial risks.
- FINMA is currently performing its first data collection on climate risks focusing on:
  - general risks assessment and outlook;
  - on the asset side: risk appetite for investment portfolios including transition planning as well as risk limits to carbon intensive sectors;
  - on the liability side: risk appetite on underwriting (including natural catastrophe events per geographical region) and risk limits on underwriting in carbon intensive sectors.

### Data collection, on-site inspections, and supervisory tools
- On-site inspections focusing on how climate-related risks was considered in the risk management, actuarial, and other functions of insurers were conducted at some insurers.
- FINMA conducts annual bilateral engagements and half-yearly expert panel discussions with industry representatives.
- FINMA’s earlier assessment covered both physical and transition risks and produced a heatmap for the insurance sector.

### Natural Perils Pool
- The Natural Perils Pool is a voluntary pool set up in 1936 and currently has 12 private insurers as members, covering 90 percent of the natural perils market.
- The aim is to spread the climate related risk among participants for segments of the population with the greatest need of protection (such as the inhabitants of the alpine regions of Switzerland) from floods, avalanches, and similar natural hazards.
- The pool enables its participants to offer natural perils insurance at standard premium rate determined on the value of the house and not considering the location.
- Losses incurred are shared amongst the members according to their market share in Switzerland.

### Recommendations
- FINMA should continue building what has already been put in place for climate risk supervision, including:
  - collecting data and improving data quality;
  - reviews of climate stresses in the ORSA reports; and
  - providing feedback to the industry.

*Source: FINMA.*

### 38. The Insurance Contracts Law has also been partially amended in recent years and

### 38. The Insurance Contracts Law has also been partially amended in recent years and 

### Amendments to the Insurance Contracts Law
- Various changes came into force on January 1, 2022.
- Most important amendments include:
  - Changes to the conclusion of the insurance contract (i.e. introduction of a right of withdrawal).
  - Termination rights.
  - Limitation provisions.
  - Direct claims rights for third-party liability insurance.
- Stated objectives of the amendments:
  - Enhance consumer protection.
  - Improve the position of policyholders.
  - Address industry concerns related to insurance contracts, such as adaptation requirements to facilitate electronic commerce.

### Status of Previous Assessment Recommendations (2019 FSAP)
- General progress: implementation progressing well, with a few key recommendations outstanding.
- Key policy moves:
  - More key features of the capital adequacy system (the SST) moved from circulars to ordinance in 2019, improving legal certainty and enforceability.
  - Under the ISA, the Federal Council and FINMA can pass and implement regulatory Ordinances; FINMA circulars provide guidance on interpretation and implementation.
  - FINMA implemented ORSA requirements in 2016 and uses aggregated ORSA information in macroprudential analysis and entity supervision; further standardization of ORSA templates is planned.
  - FINMA improved transparency through better information and notes on its website.
  - FINMA and the Federal Office of Public Health (FOPH) increased information sharing and interagency cooperation; recent insurance law amendments elevated this responsibility to a legal requirement.
  - Examples of increased cooperation: selected staff secondments, hiring of some FINMA employees at FOPH, collaboration on audit plans, bi-annual sessions, and numerous specialized issue discussions.

- Table 6: Status of 2019 Recommendations (summarized)
  - 1. Lay down more key SST features in legally binding Ordinances, and make insurance regulation more transparent (FDF, FINMA). — Fully implemented
  - 2. Systematically collect relevant information on exposures towards the banking sector, in particular with regard to contingent convertible bonds (FINMA). — Not implemented
  - 3. Require that basic mandatory health insurance and supplementary health insurance are provided by two separate legal entities (FDF, FINMA). — Not implemented
  - 4. Use aggregated ORSA findings as input for macroprudential surveillance (FINMA). — Fully implemented
  - 5. Strengthen regulation of business conduct, create corresponding competences for supervision by FINMA, and allocate sufficient resources to this task (Government). — Partly implemented
  - 6. Intensify the analysis of group-specific risks, including liquidity risks and the fungibility of capital (FINMA). — Fully implemented
  - 7. Increase the frequency of assessments of FINMA’s operational effectiveness by the Federal Audit Office (Federal Audit Office). — Not implemented
  - 8. Intensify further the technical cooperation between FINMA and the FOPH (FINMA, FOPH). — Fully implemented
  - 9. Strengthen the analytical framework for assessing operational risks and prescribe capital add-ons if needed (FINMA). — Fully implemented
- Notable outstanding items:
  - Recommendation 2 (systematic collection of insurer exposures to the banking sector, especially contingent convertible bonds) — Not implemented. FINMA aims to collect more information but currently deems interconnectedness limited based on available data.
  - Recommendation 3 (separate entities for basic mandatory health insurance and supplementary health insurance) — Not implemented legislatively. FOHP reported supplementary premiums written by basic health insurers decreased from about 2 billion CFH to 400 million CFH following a split of one FOHP insurer into two entities (one supervised by FOHP and one supervised by FINMA).
  - Recommendation 7 (increase frequency of Federal Audit Office assessments of FINMA’s operational effectiveness) — Not implemented; decision rests with the Federal Audit Office.

### Regulation and Supervisory Oversight — Suitability, Corporate Governance, and Internal Control
- Suitability and governance
  - FINMA performs detailed suitability assessments for all new board members and senior management of insurers; insurers must notify FINMA of significant changes affecting suitability.
  - Suitability framework does not automatically extend to heads of all control functions (except the Actuarial function, which has a well-defined process). Heads of control functions may be subject to suitability checks if part of senior management; otherwise they may not be.
  - Significant owners are subject to initial suitability checks for integrity and financial soundness. If a suitability issue arises after initial approval, it is not clear that the supervisor has strong legal powers (e.g., to require divestiture).
- Corporate governance
  - Requirements are robust at both solo entity and group level; legal basis and FINMA guidelines are comprehensive.
  - Current Swiss requirements compel individual board members to exercise a duty of care to the insurer, but acting in the interests of policyholders is not explicitly required. FINMA considers the requirement to act in the best interests of the insurer and policyholders as implicit, citing Art 716a Code of Obligations para 5; Art 14 ISA; ISA and ICA; and rules on conflict of interest (art. 717a Code of Obligations) and (art. 717a ISA).
- Risk management and internal control
  - Insurers required to have a risk management system and an internal control system covering all foreseeable risks, updated annually by the Board.
  - Internal control requirements include effective compliance processes; Article 96 of the ISO requires that internal control mechanisms ensure all legal standards and internal regulations are adhered to and include an effective compliance function.
  - FINMA requires insurers and insurance groups to verify the effectiveness of internal controls and risk management annually; external auditors assess the system of internal control and report as part of the annual regulatory audit report.
  - The head of the group-wide risk management function must periodically (at least annually) assess adequacy of the group risk management system (FINMA-Circular 2017/2 no. 41).
- Outsourcing and control functions
  - Comprehensive supervision of outsourcing at solo and group level; every material outsourcing/sub-sourcing must be submitted for FINMA approval and is registered on the FINMA-Database.
  - The FINMA-Database shows that 42 percent of outsourcing arrangements are intragroup.
  - Main outsourced functions: asset management, compliance functions, and information technology.
  - Insurers and groups must establish four distinct control functions: risk management, compliance, internal audit, and actuarial. This requirement has been significantly strengthened since the 2014 assessment.
- Recommendations (paragraph 53)
  - FINMA and the FDF should extend legislative requirements to:
    - Strengthen existing suitability requirements to ensure that the heads of all control functions are subject to suitability review - on initial and ongoing basis.
    - Increase legal powers to manage significant owners who no longer meet suitability requirements on an ongoing basis.
    - Broaden the responsibility of individual insurer Board members to act in the best interests of policyholders as well as in the best interest of the insured.

### Supervisory Review
- Supervisory framework and approach
  - Swiss supervisory framework is risk-based and solvency-focused, supported by strong reporting powers and extensive risk-based off-site and on-site supervision.
  - Supervisory category and intensity established for each insurer based on size, complexity, customer segment, and perceived risk profile; insurers are rated from one to five (one = highest intensity, five = lowest).
  - Each institution has a key account manager (primary FINMA contact) who reports to a senior supervision manager; key account managers are generally rotated every five years.
  - FINMA uses a Standard Operating Procedures (SOP) application as a repository of supervisory information.
- Off-site reporting and monitoring
  - Off-site reporting requirements are extensive for both solo entities and insurance groups; additional reporting prescribed for IAIGs.
  - FINMA conducts stress testing exercises and surveys; results analyzed using the FINMA Rating for Insurance Companies (FRV) / Business Intelligence (BI) cockpit.
- On-site supervision
  - Onsite teams include supervision staff and specialists; inspections are targeted to specific risk areas or supervisory concerns.
  - Major groups receive as many as four or five targeted onsite inspections per year; lower supervisory intensity insurers receive less attention.
  - Onsite inspections typically last approximately 2 months including preparation and communication of findings. Results are recorded in the FRV/BI Cockpit.
  - Supervisory cycle is annual; insurers must report significant changes or events as they occur.
- Regulatory audits and mandatories
  - FINMA supplements supervisory resources with private audit firms and mandatories; regulatory audits are performed annually by the external auditor per FINMA instructions and supervised by FINMA.
  - FINMA may appoint audit mandataries for specific topics; selection of independent audit firms for such mandates is performed by FINMA, which defines scope and provides instructions.
  - Over the last three years the mandatory hours were on average less than one percent of the total audit hours charged.
  - FINMA conducts on-site inspections on all topics using its own resources.
- Resource considerations
  - Scope of supervision is expanding and areas of focus are becoming more complex; resource constraints can limit FINMA’s ability to expand work. Specialist resources need to be a high organizational priority.

### Macro-Prudential Supervision
- Data inputs used by FINMA for macro-prudential work (gathered annually and supplemented by ad hoc requests):
  - General macroeconomic data.
  - Survey data from insurers on top Risks and risk scenarios.
  - Data collected for and generated from the FINMA Risk Barometer.
  - Review and analysis of aggregated ORSA information.
  - Detailed real estate and mortgage survey information.
  - Stress test information including top-down, and bottom-up approaches.
  - SST-Scenario analysis information and insights from SST model maintenance, model surveillance, and approval processes.
  - External work and discussions with other Swiss institutions, e.g. SNB, academic community.
  - Information from the FRV database.
  - Market data, e.g. Bloomberg (e.g. for the specification of scenarios).
- Data exchange
  - Data is exchanged with the Federal Statistical Office, the Federal Department of Finance, the Federal Department of Health, and relevant international organizations like the IAIS.
- Macro-prudential tools and processes
  - Tools and procedures used:
    - A module within the FRV-Database that encompasses macro-economic information.
    - SST-scenario testing and analysis.
    - FINMA risk barometer providing an overview of the most important risks over a time horizon of up to three years.
    - CESSI—Concept for the identification of Emerging, Sector-wide and Systemic risks in the Insurance sector:
      - CESSI developed over the last four years to identify and analyze emerging, sector-wide and systemic risks.
      - Utilizes information from individual insurers on major own risks and risk scenarios to identify potential sector scenarios.
      - Attempts to quantify potential sector wide or systemic risk impacts through stress testing.
      - Uses bottom-up and top-down stress tests and utilizes both inward and outward facing risks.
      - Includes feedback loops and critical states/ tipping points as part of its analysis.

*Source: IMF, FSAP 2019.*

### 64. FINMA has processes in place for discussing the results of its macroprudential

### 64. FINMA has processes in place for discussing the results of its macroprudential supervision and uses this information in developing and applying supervisor practices

### Supervisory processes and use of CESSI
- FINMA used CESSI in 2021 to assess and mitigate three sector wide and potentially systemic risks.
- FINMA used CESSI to gauge the potential systemic importance of the insurance sector and individual insurers and insurance groups to financial sector stability.
- FINMA provides public information on the insurance sector through publications like the Insurance Sector Report and the cross sectoral “Risk Monitor.”

### Recommendations on supervisory resourcing and onsite coverage
- 5. FINMA should reconsider the scale of outsourcing of supervisory work to external auditors. FINMA should reduce reliance on the work of external auditors, while having explicit power to specify their work program and the outcomes. Reducing the outsourcing of supervision should be consistent with the organizational goals of staff development and allow FINMA to maintain and leverage institutional knowledge within the supervisory organization.
- 66. FINMA also needs to increase the number and type of onsite examinations it undertakes to cover all insurers within an appropriate period (e.g. three years). FINMA should develop a tailored supervisory approach for smaller entities or entities with a risk assessment rating of category 3 or higher to ensure that on-site inspections are sufficiently frequent to support its risk assessment.
- 67. FINMA should also assess resource needs to meet supervisory obligations (both in terms of number and skill set). Such an assessment should focus on resources needed to be fit for purpose in the future versus its current resources (considering both numbers and skills) to identify any shortcomings. This will allow for the development of a strategic workforce plan.

### Preventative and corrective measures and enforcement — legal powers and practice
- FINMA generally has strong legal powers in insurance supervision and capacity to carry out preventative, corrective measures, and effective enforcement.
- FINMA monitors overall regulatory compliance of insurers including insurance groups to identify regulatory shortcomings at an early stage; shortcomings are addressed and corrective action requested and monitored using progress reports (See Article 29 of FINMASA).
- If unresolved, FINMA may escalate to protective measures (see Articles 51 and 51a of the ISA) and/or formal enforcement proceedings. Article 51 of the ISA allows preventative or corrective measures where an insurance undertaking or intermediary fails to comply with the Act, an ordinance, or orders issued by FINMA; it also extends to non-compliance with requests or where interests of insured persons appear jeopardized.
- FINMA has greater powers in insurance supervision compared to bank supervision. ISA allows measures to safeguard the interests of insured persons including but not limited to:
  - Suspending or cancelling an insurers license;
  - Prohibiting the free disposal of the insurance company's assets;
  - An order to freeze assets;
  - Transferring all or part of the powers vested in the governing bodies of an insurance company to a third party;
  - Transferring an insurance portfolio and the associated tied assets to another insurance company with the latter's consent;
  - Ordering the realization of the tied assets;
  - Demanding the dismissal of the persons entrusted with the overall management, supervision, control or of an insurer; and
  - Removing an intermediary from the register.
- FINMA can require restoration of compliance where activities are conducted without the necessary license (see Article 31 of FINMASA); it has used this power frequently.
- The Enforcement Committee (composed of FINMA's directors, heads of enforcement and supervisory policy and legal experts, and the head of the relevant supervision department) is responsible for taking enforcement action. For IAIGs, FINMA as group-wide supervisor coordinates with other involved supervisors if needed.

### Identified enforcement gaps and appeal process concerns
- Two significant areas where enforcement powers should be improved:
  - Authority to establish administrative penalties to deal with minor contraventions.
  - Ability to impose significant fines for major contraventions against entities or individuals.
- Advantages of administrative penalties: quicker application, less costly, flexible and can be determined based on severity.
- Appeal process concern: when an insurer appeals a supervisory decision, the onus is on the supervisor to show the regulatory decision should not be suspended pending the appeal; this may inhibit timely corrective action.
  - Suggested alternative: exempt FINMA’s supervisory measures from automatic suspension in the event of legal appeal; onus should be placed on the regulated entity to show why suspension is necessary.
- Recommendations:
  - 73. Complement existing preventative and corrective powers with a system of administrative penalties, including fines. FDF/government should extend the legislative requirements to allow the imposing of administrative penalties and fines as an addition to existing enforcement powers.
  - 74. Revise the existing appeal process for regulatory decisions to eliminate the suspensive effect of a measure imposed by FINMA in the event of an appeal, unless a defined high threshold is met such as clear illegality. The onus should be placed on the appellant to make the case for suspension of the supervisory decision under appeal.

### Solvency supervision — SST framework and key elements
- Solvency requirements are strong in quantitative and qualitative areas. The Swiss Solvency Test (SST) is the backbone of the solvency system, incorporating valuation and capital adequacy requirements; valuation of assets and liabilities for capital adequacy is established in regulation and is market consistent.
- SST timeline and status:
  - Introduced in 2006; legally binding on all Swiss insurers in 2011 after a five-year transition period.
  - Subject to revisions and refinements in 2015 and 2022.
  - Effective January 2016, the European Union recognized Switzerland's regulatory and oversight regime regarding private insurers (e.g., Swiss Solvency Test, SST) as equivalent to European law in three areas of Solvency II: solvency calculation, group supervision and reinsurance.
- SST mechanics:
  - The SST ratio = risk-bearing capital (available capital) to target capital (required capital).
  - Risk-bearing capital derived from SST “Net Asset Value” = market consistent valuation of assets minus market consistent valuation of liabilities, using prescribed valuation methodology.
  - Market consistent values: marked-to-market or marked-to-model where market prices not available.
- Recent SST changes and Tiering of capital instruments:
  - Detailed requirements for some debt instruments with risk absorbing characteristics to qualify as additional risk-bearing capital or to reduce target capital.
  - Instruments categorized into two tiers:
    - Tier 1 – Instruments must be converted into equity or written-off in case of a Trigger-Event;
    - Tier 2 – Payments must be deferred in case of a Trigger-Event.
  - Inclusion of these instruments does not appear to have had a major impact on the level of protection by the solvency measure.
  - In 2024, the SST of 14 out of the 128 companies (incl. groups) reported Tier 2 capital of CHF 10,500 million ( CHF 5,900 million excl. groups). For 7 companies, the amount of Tier 2 capital is bigger than 10 percent of the insurers risk-based capital and for one insurer it is bigger than 20 percent. All of these insurers comply with regulatory capital requirements by very substantial margins.
- Valuation of liabilities:
  - Market consistent value of liabilities = best estimate + market value margin (Article 30 (2) of the ISO).
  - Best estimate = expected value of discounted future guaranteed cash-flows, based on the relevant risk-free interest rate term structure without spread-adjustments (Articles 30 and 31 of the ISO).
  - Calculation must be based on up-to-date and credible information and must not contradict liquid market data (Article 25 of the ISO); only data known on the reference date may be used (Article 1(2) of the ISO).
  - Market value margin corresponds to a capital cost provision using a capital cost of 6 percent for the entire capital requirement for the entire run-off of the portfolio.
- Valuation principles:
  - Valuation addresses recognition, derecognition and measurement; market consistency yields economic valuation on both sides of SST balance sheet and reflects risk adjusted present values of cashflows.
  - Technical provisions exceed the current estimate by a market value margin based on cost of capital; do not reflect insurer’s own credit standing; include allowance for embedded options and guarantees.
- Target capital:
  - Target capital measures risk exposure during the next twelve months after the valuation date; estimates economic capital required to support risks.
  - Minimum risk categories: market risk, credit risk, and insurance risk (Articles 9(a) and (b) of the ISA and Article 22 of the ISO).
  - Insurers must use a standard model developed by FINMA reflecting the insurer’s risk profile, or seek FINMA approval to use an internal model.
  - FINMA has published several standard models and technical documentation, e.g.:
    - Standard Life Model;
    - Standard Non-life Model;
    - Standard Health Insurance Model;
    - Standard Reinsurance Model; and
    - Standard Reinsurance Captive Model.
  - If standard models cannot reflect a specific risk profile, the insurer must develop an internal model (partial or full) that meets SST principles and requires FINMA approval.
  - At present 2 insurance groups use full internal models. Less than 20 insurers use partial internal models for anything but natural catastrophe risks.
- FINMA oversight of internal models:
  - Ongoing adequacy ensured by annual reviews, including material reviews (deep dives). On average, about 8 of such material reviews are done per annum and about 10 experts within the risk management function of FINMA are involved.
  - Annual reviews of SST reporting of insurers with internal market risk models are benchmarked against SST standard model. Companies may be requested to adjust models if scenario sets do not capture relevant macro-economic scenarios (e.g., aggregation of an additional scenario to the one year risk capital distribution).
- SST solvency condition and reporting:
  - An insurer satisfies the SST solvency condition at the reference date (typically December 31) if orderly run-off of business is possible at the end of a one-year period after the SST filing reference date, assuming no new business or other revenue sources after the one-year period.
  - Insurers and groups must report major changes in SST during the one-year reporting period. The trigger depends on SST level and size of change (e.g., trigger for insurers with an SST of over 190 percent is 33 percent).
- Group SST approaches:
  - Consolidated group SST: group modelled as a single consolidated entity; solvency condition met if consolidated entity’s risk bearing capital ≥ target capital.
  - Granular group SST: group modelled as network of granular entities; solvency condition met if for each granular entity risk bearing capital ≥ target capital.
- Improvements noted:
  - Use of risk-free yield curves to value liabilities and elimination of some temporary measures that allowed deviations previously.

### Investments
- Investment activities appear conservative; recent changes offer greater flexibility.
- Investment requirements defined mainly in ISA and ISO-FINMA; legislative provisions revised with ISA and ISO effective from 1/1/2024, and ISO-FINMA effective from 1/9/2024.
- Regulatory impacts on investments:
  - Implicit requirements from the SST: SST requires insurers to measure and hold capital against asset risks, so higher risk investments require more capital.
  - Explicit investment principles applicable to all insurers: general prudency principles and specific rules when using derivatives (Art. 69a ISO and Art. 100 ISO).
- Article 69a ISO requires insurers to:
  - Invest assets to ensure security, quality, liquidity and profitability, and ensure availability where held;
  - Invest assets held to cover liabilities in a way adequate to the nature and term of the liability and in the best interest of policyholders and beneficiaries.
  - Ensure adequate portfolio diversity and avoid undue dependence on any single issuer, group, asset class, market, geographic region, or undue risk concentration.
- Tied assets and investment plans:
  - Insurers must submit investment plans for tied assets to FINMA; plans must follow prudent investor approach and be consistent with security, liquidity and diversification rules.
  - Tied assets back insurance policy reserves and are subject to stricter rules on security, unencumberedness, netting prohibition, and legal access.
  - FINMA can approve a list of assets suitable for tied assets; otherwise investments restricted to simple asset classes by Article 79 ISO.
  - Although limits broadened with the prudent person approach, FINMA staff indicate most insurers continue investing consistent with previous narrower limits.
- Permitted tied asset classes (unless special permission granted by FINMA, Article 79 ISO):
  - Cash, deposits with maturity up to one year and money market investments at banks;
  - Bonds issued by borrowers with good credit worthiness;
  - Shares, profit participation certificates, participation certificates or share certificates of cooperatives and similar securities, provided they are traded on a regulated market and can be sold in the short term;
  - Domestic residential and commercial properties directly owned by the insurance company;
  - Derivative financial instruments insofar as these serve to hedge the value of the corresponding tied assets; and
  - Units in collective investment schemes whose investments can be separated and segregated in the event of bankruptcy, be sold at any time, are comprised of investments in the above asset classes and are offered for sale by an appropriate and regulated asset management company.

### Enterprise Risk Management (ERM)
- Insurance law requires insurers and insurance groups to establish ERM frameworks to identify, report and manage risks within their risk management systems; frameworks must provide for all reasonably foreseeable and relevant material risks and consider risk dependencies and material concentrations.
- ERM frameworks must be proportional to size, complexity and sophistication and appropriate for quantification of risk for risk management, capital management and solvency purposes.
- Risk management and internal control system requirements in Article 96 of the ISO; documentation requirements in Article 97 ISO require description of company-wide risk management and related tasks including:
  - Competencies and responsibilities;
  - Requirements for risk management;
  - Risk policy, including risk-bearing capacity and appetite;
  - Procedure for identifying the main risks and presentation of the method, instruments and processes for measuring, monitoring and managing them;
  - Presentation of applicable limit systems for risk exposures and control mechanisms;
  - Internal guidelines on risk management and associated processes.
- Group-wide ERM frameworks required to be as consistent as possible across group legal entities. Articles 195 and 196 of the ISO apply relevant requirements to group entities; Articles 193 and 194 define intra-group transactions and monitoring (group must report all important intra-group transactions to FINMA before becoming legally effective). Further details in ISO-FINMA.
- Quantification requirements:
  - Swiss-domiciled insurers and groups must be able to measure at least insurance risks, market risks, and credit risks (Article 9a(3) of the ISA).
  - Further company-specific risks (e.g., concentration risks, operational risks) are included as part of the SST (see Article 43 para. 4 and Article 53b of the ISO). Depending on situation, liquidity risks may also be included.
- Operational and liquidity risks:
  - Insurers must identify, assess, monitor and document operational risks and evaluate them at least once a year.
  - Insurer must always have sufficient liquidity to meet payment obligations even in stress; submit an annual liquidity planning report to FINMA.
  - Article 98a ISO requires insurers to carry out liquidity planning at least as part of annual capital planning, considering cash outflows from off-balance sheet transactions and contingent liabilities and adverse scenarios and stress tests; must have an emergency concept to deal with liquidity bottlenecks.
- Supervision of operational and liquidity risks:
  - Supervision carried out through off-site and on-site work; insurers subject to extensive reporting including detailed biannual governance survey and biannual internal control survey to target areas for examination.
  - Governance survey has built-in rating system to identify areas for follow-up.
  - FINMA conducts liquidity analysis annually with two instruments: liquidity reporting and liquidity stress testing.
  - Market-wide stress-scenarios with liquidity dimension defined annually by FINMA and applied to larger insurance groups (including all IAIGs); results discussed with top management of participating companies.
  - Over the past three years FINMA did not have to take serious actions against an insurer due to liquidity problems.

### Stress testing and ORSA
- FINMA requires insurers and insurance groups to perform stress testing to assess resilience of the total balance sheet; stress tests are integral to the SST process.
- Stress testing included as part of ORSA requirements. Within ORSA the insurer must analyse impact of various downside scenarios (stress tests) including at least one scenario which could pose an existential threat to the insurer.

*Source: 1cheea2025008-source-pdf - 64. FINMA has processes in place for discussing the results of its macroprudential supervision and uses this information in developing and applying supervisor practices*

### 100. In accordance with Article 96 of the ISO, ERM frameworks are required to ensure tha

### 1cheea2025008-source-pdf - 100. In accordance with Article 96 of the ISO, ERM frameworks are required to ensure tha

### Enterprise Risk Management (ERM) framework requirements
- ERM frameworks must ensure that business activities are conducted within the insurer’s risk management framework, including risk appetites, risk limits, and regulatory and economic capital requirements (Article 96 of the ISO).
- For insurance groups, FINMA circular 2016/2 sets out minimum requirements regarding communication on identification, assessment, control, and monitoring of substantial risk exposures including risk appetite.
- ERM requirements extend to:
  - Insurer and group ALM policy requirements;
  - Investment requirements including an investment strategy, limits, and rules to ensure compliance;
  - Underwriting policy requirements;
  - Claims management requirements for insurance groups;
  - Reinsurance strategy for insurance groups;
  - Requirements for a group wide actuarial policy and actuarial function;
  - Requirements for group liquidity reporting, stress testing and requirements for adequate levels of group liquidity levels.

### ORSA (Own Risk and Solvency Assessment) and scenario analysis
- ORSA must be Board approved and assess adequacy of current and likely future solvency position.
- Under Article 96a of the ISO, the ORSA assessment must cover:
  - all reasonably foreseeable and relevant material risks to which the insurer or insurance group is exposed during its three-year planning period;
  - its total capital requirement considering its overall risk profile;
  - its compliance with the requirements for technical provisions and tied assets;
  - the appropriateness and effectiveness of the entity’s risk management system.
- Insurance Group-wide ORSAs must also consider:
  - the legal and management structures of the group;
  - group-wide economic capital models;
  - risk aggregation;
  - the fungibility of capital and the transferability of assets within the group;
  - the outputs of the economic capital model and the regulatory capital requirements.
- Scenario analysis:
  - is a major component of ORSA and must include assessment of insurers’ resilience against macroeconomic stresses through scenario analysis;
  - must analyse material risk concentration in terms of risk categories, risk drivers, types of business, geographical factors, and counterparties.
- ORSA results for insurers and insurance groups must:
  - include the entity’s total capital requirement based on the overall risk profile, considering the insurer's risk tolerance, business planning and risk minimisation measures (FINMA-Circular 2016/3 no 28);
  - be used in the development of the business strategy and in business planning for the regulated entity including its ability to continue in business (FINMA-Circular 2016/3 no 11);
  - be incorporated into the entity’s decision-making processes (FINMA-Circular 2016/3 no 11);
  - assist in group wide recovery planning.

### Recommendations on risk management and liquidity
- Review regulations and guidance on risk management to ensure all requirements in ICP 16 are met, including:
  - an explicit counterparty risk appetite statement;
  - extending underwriting policy requirements to address any material relationship with macroeconomic conditions.
- Finalize and implement requirements for insurers and IAIGs to develop liquidity risk management plans considering ICP 16.9 and CF16.9d, including revision of FINMA Circular 2013/5 and its coming into force.
- Identify non-IAIGs where a recovery plan should be developed, and ensure all IAIGs have a recovery plan developed.

### Group-wide supervision and cross-border cooperation
- FINMA establishes group supervision with close cross border cooperation; insurance groups are prominent in the Swiss market.
- FINMA currently supervises six insurance groups and one insurance conglomerate, of which five have been identified as IAIGs.
- Under the ISA, two or more companies form an insurance group if:
  - at least one is an insurance company;
  - they are mainly active in the insurance sector;
  - they form an economic unit or are otherwise linked by influence or control.
- ISA empowers FINMA to place insurance groups and conglomerates under group supervision if:
  - the group is managed from Switzerland; or
  - it is managed from abroad but is not subject to equivalent group supervision requirements there.
- Group supervision is in addition to solo supervision; major legislative powers are in Articles 65 and 73 of the ISA.
- Insurance groups must have extensive risk management and internal control systems and maintain separate risk management, compliance, actuarial and internal audit functions at the Group level; they are required to submit group SST filings.
- IAIG identification and supervision:
  - Five Swiss-led IAIGs were identified in 2019 by FINMA using IAIS criteria;
  - FINMA reviews the market at least annually to assess IAIG identification and places the list of identified IAIGs in the public domain;
  - identification as an IAIG includes supervision of all entities in the group.
- Reporting and notification:
  - Under Article 192 of the ISO, insurance groups must report their legal structure to FINMA each year listing all companies in the group; FINMA may request more frequent reports;
  - the group must notify FINMA of creation, acquisition, or sale of a significant participation by a group member; FINMA determines what constitutes a significant participation on a case-by-case basis.

### Supervisory colleges, cooperation, and Crisis Management Groups (CMGs)
- FINMA has established extensive supervisory colleges for insurance groups it leads, providing reasons and judgements concerning the head of the insurance group and involving other supervisors in scope determination.
- FINMA participates in supervisory colleges for Swiss subsidiary insurers or branches that are part of 11 foreign-led insurance groups.
- For Swiss-led supervisory colleges:
  - FINMA and college participants have written cooperation and coordination agreements, supplemented by bilateral agreements where needed;
  - FINMA organizes an annual in-person meeting, virtual interim meetings, and ad hoc meetings as required;
  - colleges function as permanent platforms and maintain a joint workplan including major activities, joint on-sites, information collection (qualitative and quantitative) and joint risk analysis.
- FINMA’s participation in foreign-led supervisory colleges is selected on a risk-based and proportionate approach considering:
  - the importance of the solo entity in the Swiss market;
  - its interaction with the group;
  - the importance of the Swiss entity for the group.
- Crisis Management Groups:
  - FINMA established Crisis Management Groups for all five IAIGs where it is the group wide supervisor since 2022;
  - CMG members are a subset of college members, meet at least annually, and share work with the supervisory college;
  - supervisory college agreements amended to include CMG objectives and responsibilities;
  - an Emergency Plan includes triggers at both legal entity and group level, procedures for assessment and management of the crisis, and public communication.
- FINMA cooperates with group wide supervisors and host supervisors in crisis situations via supervisory colleges and bilaterally if necessary.

### Exit from the market and resolution framework
- ISA amendments from 2023, in force January 1, 2024, provide increased powers for resolution of insurers and insurance groups; restructuring requirements established to enable FINMA, as liquidation and resolution authority, to restructure an insurer or group instead of ordering bankruptcy.
- Voluntary resolution (Article 60 of the ISA):
  - an insurer wishing to waive its license must submit a resolution plan to FINMA and cease writing new insurance business;
  - the resolution plan must cover settlement of financial obligations arising from insurance contracts, funds made available for this purpose, and the person responsible for this task;
  - FINMA reviews plans to safeguard insured persons’ interests and, if approved, monitors the plan and withdraws the license.
- Resolution powers (Article 51 of the ISA) include, but are not limited to:
  - the power to prohibit the free disposal of the insurance company's assets;
  - the power to order the deposit or freezing of insurer assets;
  - the power to transfer all or part of powers vested in governing bodies to a third party;
  - the power to transfer the insurance portfolio and associated tied assets to another insurer with consent;
  - the power to order realization of tied assets;
  - the power to demand dismissal of persons entrusted with overall management, supervision, control or business management or of general representative(s) and the responsible actuary and prohibit them from exercising any further insurance activity for a maximum of five years;
  - the power to remove an intermediary from the register;
  - the power to order the deferral and postponement of the due date.
- Articles 52d-52f of the ISA describe how liabilities may be restructured in a resolution scenario.
- Principle of resolution framework:
  - No creditor be worse off than in liquidation (NCWOL).
  - Article 52d prevents policyholder claims backed by tied assets from being reduced as part of a resolution plan; in liquidation policyholders receive high priority through tied asset provisions, and for policies not backed by tied assets, general priority under law applies.
- Implementation status and expectations:
  - FINMA has not yet decided which insurance groups will be required to complete resolution plans;
  - FINMA expects that once designation is made, a resolution plan is required for an IAIG, established and carried out through CMG infrastructure;
  - the ISA requires insurance groups to have information systems and processes that allow for implementation and monitoring of resolution plans by the supervisor.

### Recommendations on resolution
- FINMA should require and apply resolution plans to the designated groups and clearly communicate expectations to IAIGs, insurers and insurance groups that will be subject to resolution planning; after designation, resolution plans should be developed and operationalized as soon as possible.
- Develop the necessary processes, guidance (internal or published where needed) and tools to complete the comprehensive insurance resolution framework in line with ICP 12 requirements, and internally equip supervisors with the process, guidance, and tools to effectively supervise the framework; where helpful, FINMA should publish guidance for insurers to clarify expectations.

*Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1cheea2025008-source-pdf.pdf*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1cheea2025008-source-pdf.pdf_