The Swiss Financial Market Supervisory Authority FINMA is putting the new circular "Temporary Adjustments to the Swiss Solvency Test (SST)" into effect on 1 January 2013. The adjustments focus on two key points: on the one hand FINMA is adjusting the interest curve, while on the other hand it is adapting the intervention thresholds below which it requests correction.
Following the amendment of the Insurance Supervision Ordinance (ISO) by the Federal Council on 30 November 2012, FINMA can now allow adjustments to be made to the interest curve during this extraordinary low interest phase.
New interest curves with counterparty credit risk allowed
The new circular "Temporary Adjustments to the Swiss Solvency Test (SST)" allows insurance companies to value their obligations from in-force business by using interest curves with counterparty credit risk. To avoid creating any misdirected incentives, the adjustments apply only to in-force business and not to the writing of new business. This measure will provide considerable relief for the companies affected. Similar efforts are also being made in the European Solvency II project. The new regulation is valid for a period of three years: starting in 2016, insurance companies must again use risk-free interest curves to value their obligations.
FINMA lowers intervention thresholds
Up until 2016, FINMA will also alleviate certain measures in place to counteract falling below defined threshold values under the current SST provisions and will temporarily grant companies longer deadlines to reach their target threshold values again (see also press release dated 20 September 2012).
The consultation on the Circular stirred relatively little interest and FINMA only received a small number of responses. All the respondents generally welcomed FINMA's proposal. By making a few material and formal adjustments to the draft circular, FINMA was able to take account of the few critical responses and suggestions for improvements.
Triggered by low interest rates
The new circular will help the insurance sector to react better to the persistently low interest environment. Life insurance companies in particular are faced with the challenge of financing the fixed interest rate guarantees of current insurance contracts in this low interest environment. Moreover, the temporary adjustments will reduce any competitive disadvantages in the European market.
FINMA is putting the new circular "Temporary Adjustments to the Swiss Solvency Test (SST)" into effect on 1 January 2013. The Circular will supplement the existing FINMA Circular 08/44 "SST", which will remain in force.
Tobias Lux, Media Spokesperson, phone +41 (0)31 327 91 71, email@example.com