Federal Office of Private Insurance FOPI
Federal Office of Private Insurance FOPI
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Glossary
Accident Insurance Act
Federal Act on Accident Insurance of 20 March 1981. Regulates mandatory accident insurance, personal insurance which deals with the economic consequences of occupational and non-occupational accidents, as well as occupational ill health. With the benefits it makes up for damages relating to health and gainful employment should the insured person have an accident or suffer occupational ill health. Accident Insurance in accordance with the Federal Act on Accident Insurance is offered by the Swiss National Accident Insurance Fund (SUVA) as well as approved private accident insurance companies.
AHV
Old Age and Survivors’ Insurance (AHV). The federal Old-Age and Survivors' Insurance (AHV) has existed since 1948. It has been revised several times. Together with Invalidity Insurance, the AHV represents the ‘first pillar’ of the three-pillar concept. It is designed to provide a basic level of provision. The AHV is one of the mandatory insurances. All people living or working in Switzerland are mandatorily insured. The AHV pays old-age and survivors' pensions, together with allowances for severe incapacity and financial assistance to pensioners. All insured persons and their survivors are entitled to such payments.
Asset Liability Management
Balanced management of balance sheet items on the assets side (assets such as capital investments) and on the liabilities side (liabilities such as obligations). The goal of asset liability management is to minimise any risks arising from non-concurring structurisation of the assets and liabilities sides concerning duration, currency, creditworthiness and other important structural features.
BVG
The Federal Act on Occupational Old Age Survivors’ and Invalidity Pension Fund (BVG), as the mandatory second pillar of the three-pillar concept, regulates occupational pension plans for employees. The pension plan, in conjunction with AHV/IV payments, should enable the elderly, survivors and invalid persons, to maintain their usual living standards. All employees subject to AHV are insured from a specific minimum AHV salary upwards as per employer. The most important benefits of the BVG are the payment of old-age, widows’ pensions and orphans’ pensions together with invalidity pensions.
Capital adequacy requirement
Capital adequacy requirement is the term for reserves for current insurance contracts. The capital adequacy requirement should cover the obligations of the insurer arising from the insurance contract. Interest is paid using a technical interest rate. Reserves stem mainly from insurance contracts in which larger amount of funds are saved or used up (e.g. in the case of mixed life insurance or pension insurance). Reserves also accumulate in the case of risk insurance without savings components, when the risk premiums are calculated as constant premiums during the entire duration of the contract. The insurers must let the risk premiums, calculated too high at the start, accumulate as interest with the premiums which are later too low.
Collective foundations
The pension insurance coverage schemes of employers not having their own pension funds can become affiliated to collective institutions for occupational pension plans. The National Substitute Pension Plan, association institutions and collective foundations belong to the collective institutions. There are autonomous collective foundations and those managed by the private life insurance companies. Collective foundations are subject to the BVG and come under the supervision of the Federal Office for Social Security (FOSS).
The collective foundations of the private life insurance companies do not have their own assets for when they offer full protection contracts. In the case of full protection contracts, the private life insurance company assumes all relevant risks in particular it guarantees interest on the BVG mandatory saved pension capital at the minimum interest rate and transfers this upon reaching pensionable age using the BVG pension conversion rate into a guaranteed pension. The capital investments then remain with the insurer and are then, in accordance with the Insurance Supervision Act, invested.
The collective foundations of the private life insurance companies mainly have actuarial duties: they accept contributions form the affiliated pension insurance coverage offices and forward these to the insurers, conversely they receive benefits due from insurers and surplus participation and forward these to the pension insurance coverage offices in accordance with the agreements in the association agreement. The private life insurance companies which manage these funds are under the supervision of the Federal Office of Private Insurance.
Combating money laundering
Art. 305 bis of the Swiss Criminal Code, as well as the Money Laundering Act constitute the basis for combating money laundering. Supervisory activities in the financial sector within the scope of the preventive system of combating money laundering for financial intermediaries defined in the Money Laundering Act are shared between the following supervisory authorities:
- - Swiss Federal Banking Commission (SFBC);
- - Federal Office of Private Insurance (FOPI);
- - Swiss Federal Gaming Board (SFGB) and
- - Money Laundering Control Authority (MLCA).
Reports of suspected cases of money laundering are forwarded to the Money Laundering Reporting Office, in the Federal Department of Justice and Police, which then carries out the corresponding investigations.
Conversion rate
Percentage used to calculate the annual BVG old-age pension. The annual BVG old-age pension is obtained by multiplying the BVG saved pension capital by the conversion rate. The conversion rate for the mandatory section and the one for the non-mandatory section may differ. The conversion rate for the mandatory section of the saved pension capital is determined by parliament through legislation based on the average life expectancy (BVG, Art. 14). The first BVG revision makes provisions for a rate reduction from 7.2 to 6.8 by the year 2015.
Corporate Governance
Philosophy of responsible corporate management with the goal of promoting trust in the management of public limited companies listed on the stock exchange and this by adhering to rules of fairness and transparency.
Corporate governance consists of rules and principles of good business management which seek to achieve a balance between management and control at the highest corporate levels.
Federal Act on Health Insurance
In January 1996 the Health Insurance Act introduced mandatory rules for social health insurance (basic insurance). Health insurance funds are subject to supervision by the Federal Office of Public Health. Health insurance funds which offer additional insurance to the social health insurance are subject for this part of health insurance to supervision by the FOPI.
Federal Office for Social Security (FOSS)
The FOSS is responsible for the AHV, invalidity insurance, supplementary benefits, occupational pension plans (pension funds and collective institutions), loss of income allowance for persons doing military service, civilian service and civil protection duty, and family allowances in the agricultural sector. In 2004, the Sickness and Accident Insurance division was transferred from the Federal Office for Social Security to the Federal Office of Public Health. The Confederation spends almost CHF 12.8 billion on social welfare.
Federal Office of Public Health (FOPH)
Its goal is to promote the general health of all people. In 2004 the Sickness and Accident Insurance division was transferred from the Federal Office for Social Security to the Federal Office of Public Health.
Financial conglomerate
A group of companies which forms an economic unit or are connected in some other way through influence or control. As well as at least one insurer, the group must also consist of a bank or a securities dealer. As a rule, the conglomerate companies are subject to uniform monetary and investment policies which are defined by the management of the dominant company. The links within the financial conglomerate lead to mutual dependencies.
FINMA
Integrated Financial Market Supervision. The Swiss Federal Banking Commission (SFBC), the Federal Office of Private Insurance (FOPI) and the Money Laundering Control Authority (MLCA) should be merged organisationally within this authority. The new authority will be equipped with a system of sanctions: it will be able to take sanctions against those insurers, financial intermediaries or banks which do not comply with the rules.
General insurance conditions
General insurance conditions. Provisions applicable to the contracting parties. General insurance conditions are bound to the mandatory provisions of the Insurance Contract Act and, in the case of life insurance and supplementary health insurance, are also subject to approval by the FOPI (see Preventive Product Monitoring).
Gross premium
Net premium plus expense loadings.
IAIS
International Association of Insurance Supervisors based in Basel.
IASC
International Accounting Standards Committee. Sets global standards in international accounting.
Insurance brokers
Insurance brokers are, regardless of their job title, people who in the interests of insurance companies or independently provide or conclude insurance contracts.
Insurance Contract Act
Insurance Contract Act, which, within the scope of the Swiss Civil Code, essentially regulates the contractual relations between insurance companies and insured parties.
Insurance Supervision Act
Insurance Supervision Act. Regulates state supervision of insurance companies. Its aim is to protect insured persons in the case of insurance company insolvency and violations.
Integrated supervision
Supervision of groups which include insurance companies and financial service providers which are subject to supervision such as banks and securities dealers.
Investment rules
Legal provisions regulating investments by private insurance companies and pension funds, to guarantee security, returns and liquidity.
Lead coordinator
Carries out sectoral supervision in a conglomerate and coordinates supervision at the group level with other supervisory authorities. In the case of Swiss insurance-dominated conglomerates, the FOPI is the lead coordinator.
Minimum interest rate
Minimum required interest rate for mandatory saved pension capital in occupational pension plans. The level of the minimum interest rate is set by the Federal Council depending on spot interest rates on Swiss Confederation bonds and the situation on the capital market. At the moment the minimum interest rate is 2.5%.
Minimum quota
The minimum share of returns on assets and profits in the risk or cost process that must be credited to the insured parties in life insurance agreements in occupational pension plans. Parliament set this rate at 90%. Sometimes the minimum quota is also referred to as the legal quote.
Net premium
Gross premium minus administration costs.
Ordinance on Supervision
Ordinance on Supervision. Implementing legislation to the Insurance Supervision Act, revised in 2004 and 2005. Expected to enter into force on 1 January 2006, together with the Insurance Supervision Act.
Pension funds
In-house pension schemes, together with collective foundations, association institutions and the National Substitute Pension Plan constitute the bodies responsible for occupational pension plans. They are subject to the BVG and are monitored by the Federal Office for Social Security (FOSS). In contrast to the private life insurance companies, which offer group life insurance (includes reinsurance coverage of occupational benefit funds) and are subject to supervision by the FOPI, pension funds may temporarily be underfunded.
Portfolio transfer
Transfer of insured pools of an insurer to other companies. The goal here is for the takeover company to provide the necessary financial and organisational guarantees so that the claims from insured persons can be fulfilled in the future as well.
Preventive product monitoring
The supervisory body examines and approves insurance products, including tariffs and general insurance conditions before they are used for the first time. With the introduction of the new Insurance Supervision Act, this is only applicable in the case of reinsurance coverage in occupational pension plans, in supplementary health insurance and in insurance against damage caused by natural forces.
Projected retirement assets
Hypothetical saved pension capital in accordance with BVG, which is calculated at the point in time when the insured person becomes an invalid: saved pension capital available at the time of the invalidity plus the amount of the retirement credits up to the statutory retirement age without interest. The remaining retirement credits are calculated on the basis of the coordinated salary of the final insurance year. The projected retirement assets serve as a calculation basis for invalidity and survivor pensions (in the event of death, the hypothetical invalidity pension at that point in time is decisive).
Reinsurance
A direct insurer operating in everyday business transfers a portion of the risk to a reinsurer. The part which it continues to retain is the net retained line, that part which has been transferred, for which a premium is paid to the reinsurer, is called a cession or second risk.
Risk management
Identifying, detecting, examining, evaluating and managing risks, which in some way could affect the company. The goal is to calculate these risks and to control them pre-emptively.
Security funds
Special assets of the life insurance companies to act as a guarantee against potential insurance liabilities, as calculated for the technical reserves.
SFBC
Swiss Federal Banking Commission (SFBC). Supervises banks, investment funds, mortgage institutions and the securities sector. Through a special directive of the Federal Council, the SFBC is an independent administrative authority of the Confederation, which is not integrated into the central administration but has, for administrative purposes, been assigned to the Federal Department of Finance.
Solvency
Capacity of the insurer to pay. This is dependent upon (amongst other things) the adequate size of the technical reserves, the capital reserves and the extent of reinsurance.
Solvency margin
Minimum extent of the unencumbered resources dependent upon business volume and determined according to legal regulations. This serves to cover general business risks, which are not covered or are only insufficiently covered by the technical reserves.
Special assets
Assets managed separately from the net assets to cover claims from the insured persons.
SST
Swiss Solvency Test. This term denotes a new approach for ascertaining the ability of insurers to handle risks. With SST, the FOPI is carrying out a change to risk-based solvency supervision. A pivotal quantity of SST is the so-called target capital. With the introduction of SST, risk management will be promoted in insurance companies and will be professionalized. SST will probably be introduced on 1 January 2006, together with the new Insurance Supervision Act.
Sub-coordinator
Sectoral supervision in the case of conglomerates, whereas the lead coordinator additionally coordinates supervision at company level with other supervisory authorities. In the case of insurance-dominated conglomerates, banking supervision is sub-coordinator.
Surplus participation
If the interest earned is above that of the cautiously calculated technical interest rate, the insured persons receive a surplus share as a bonus (increase in benefits), as a savings certificate (interest-bearing accumulation) or as a reduction in the current premiums.
Swiss Insurance Association
Swiss Insurance Association is the umbrella organisation of the private insurance industry. Direct insurers and reinsurers, both large and small and working nationally and internationally are affiliated to the Swiss Insurance Association.
Target capital
Pivotal quantity in the Swiss Solvency Test (SST). The SST determines the target capital which is required to cover the risks involved with sufficient security. Target capital acts as a warning signal: if the available risk-bearing capital is less than the required target capital, this does not signify that the company is insolvent. This means either the required target capital has to be built up over a specific period of time or the level of risk has to be reduced to such a degree that the resulting target capital can be covered by the risk-bearing capital available.
Technical interest rate
Minimum rate of interest, guaranteed for the duration of the contract, and with which the reserve in the life insurance is subject to interest annually compounded.
Technical reserves
Reserves for obligations entered into, including the remote consequences of loss-entailing occurrences, as well as future benefits deriving from life insurances and invalidity pensions (reserve). On the balance sheet they show the claims expected.
Three pillar concept
Is the Swiss system of old Age, survivors’ and invalidity insurance (AHV/IV). This system has been anchored in the Federal Constitution since 1972 (Art. 34 quater) and is based on the idea of three pillars. AHV/ invalidity insurance constitutes the first pillar, a general state insurance to provide a basic standard of living. The second pillar consists of the occupational pension plan. Together with the first pillar, its goal is to enable the usual standard of living to be maintained. The third pillar is that of private coverage, which each individual organises depending upon his or her wishes and requirements.
US-GAAP
US Generally Accepted Accounting Principles. US accounting principles. Applicable to all companies listed on a US stock exchange.
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