The Swiss Financial Market Supervisory Authority FINMA has opened a consultation on the Circular "Temporary Adjustments to the Swiss Solvency Test (SST)". The adjustments focus on two areas: on the one hand FINMA is planning to adjust the interest curve, while on the other hand it is adapting the intervention thresholds below which it steps in and requests correction. In order to adjust the interest curve, it is necessary to change the Insurance Supervision Ordinance, ISO; SR 961.011). The consultation on this Ordinance is being opened by the Federal Department of Finance today. Both consultations will close on 19 October 2012.
The FINMA Circular aims at tackling two major difficulties confronting the insurance sector. First, the persistently low interest environment has posed considerable problems for life insurance companies in particular: financing the fixed interest rate guarantees of current insurance contracts is proving very demanding. On the other hand, the mandatory introduction of the new solvency requirements of the European insurance regime Solvency II has been delayed which sets Swiss insurers at a competitive disadvantage. For these reasons, FINMA is proposing temporary adjustments to the SST.
Interest curve to evaluate insurance obligations.
By making specific changes to the ISO, FINMA should have the possibility to enable insurers to evaluate their insurance obligations differently during this extraordinary low interest phase other than with risk-free interest curves. Similar endeavours have also been undertaken in the European Solvency II project. The discounting envisaged with risk interest curves provides noticeable relief for the companies affected. The rules defined in the draft circular will be valid for a period of three years. Thereafter, starting in 2016, insurers must again use risk-free interest curves to evaluate their obligations. In order to ensure transparency, insurance companies must also provide FINMA with results based on a risk-free interest curve during the period of validity of the new Circular. The adjustments foreseen when calculating the SST interest curves apply only to in-force business. Any obligations arising from the writing of new business are to be evaluated with risk-free interest rates as has previously been the case. In doing so, FINMA wants to prevent causing any misdirected incentives.
As a second measure, FINMA foresees temporarily relaxing the supervisory intervention ladder. FINMA will alleviate measures in place to counteract the undershooting of defined threshold values under the SST Circular and will grant the companies longer deadlines to again reach the target threshold values. For instance under certain conditions, FINMA will refrain from banning an insurance company from making dividend payments and distributing surplus participation to policy holders if its SST ratio is between 80% und 100%. Moreover, companies with an SST ratio of over 60% may, as prescribed in the Circular, continue to write new business if they adhere to certain conditions.
FINMA Circular "SST" will remain in force.
Under the condition that the ISO will be changed, FINMA is planning on bringing the new Circular "Temporary Adjustments to the Swiss Solvency Test (SST)" into force on 1 January 2013. The Circular will supplement the existing FINMA Circular 08/44 "SST" which is to remain in force.
Tobias Lux, Media Spokesperson, phone +41 (0)31 327 91 71, firstname.lastname@example.org