Captive insurance companies active in Switzerland are set to benefit from the partial revision of the Insurance Oversight Act (IOA), which regulates the supervision of re/insurance undertakings and insurance intermediaries in Switzerland.
The IOA aims to protect insured parties from the risks of insurer insolvency and abuses.
The revision areas of the IOA include new possibilities to restructure, consumer protection-based regulatory and supervisory concept, and insurance intermediation.
Under the revisions, captives that are subject to Swiss supervision will profit from regulatory relief when they provide insurance or reinsurance services exclusively to companies of their group that are not active in the professional insurance business of third parties.
Diana Lafita, attorney at law at Loyens & Loeff, an international law and tax firm with offices in Switzerland and the Benelux, explained: “In particular, they will be relieved from establishing tied assets and an organisation fund, as well as from affiliating with an Ombudsman – the latter being a requirement for insurers and independent insurance intermediaries under the revised IOA.”
For the part of the risks which captives do not underwrite from the same group of companies as described above, Lafita suggested that captives may still profit from a similar regulatory relief on request of the Swiss Financial Market Supervisory Authority (FINMA), if the relevant policyholders qualify as professional clients under the revised IOA.
Professional clients are mainly clients that have professional risk management with certain exceptions.
She said: “For the part of the insurance business where the mentioned relief does not apply, the standard regulatory provisions apply, following like this the principle of proportionality.”
In order to be able to profit from the regulatory relief, captives must state in which business they will be acting within six months from the entry into force of the IOA. Lafita noted: “They will be able to choose between a) wholesale business with professional clients; b) intra-group captive business as described above and c) non-professional business (with no regulatory relief). A mixture is allowed with the consequences as mentioned above.”
Reinsurance captives that are established outside of Switzerland are already excluded from Swiss supervision under the current regime.
Under the current regime, reinsurance captives established in Switzerland are subject to regulatory relief according to which tied assets provisions do not apply.
According to Lafita, the regime of relief for reinsurance will continue under the revised IOA and will be aligned with the new relief for intra-group captive re/insurance and professional clients. “The main effect of the new provisions relates, therefore, to direct insurance captives domiciled in Switzerland or abroad. Direct insurance captives domiciled abroad are mainly subject to Swiss supervision when they insure risks located in Switzerland,” she added.
Lafita explains that mixing insurance and reinsurance risks within captives subject to Swiss supervision also allows a proportional approach, the provisions on tied assets not applying to the reinsurance part of the business.
Revision areas
Under current law for the right to restructure, applicable insurance law obliges the Swiss Financial Market Supervisory Authority (FINMA) to order bankruptcy proceedings as soon as an insurance undertaking gets into financial difficulty.
However, the Federal Council suggested that restructuring would be better from the insured parties' standpoint, as they generally have an interest in seeing their insurance policies continue.
The proposed right to restructure closes this gap and should strengthen consumer protection.
For consumer protection-based regulatory and supervisory concepts, the bill proposed the introduction of client categorisation.
The Federal Council explained that insurance undertakings should benefit from relaxed supervisory requirements if they deal solely with professional clients, for example, large companies with professional risk management that do not have a special need for protection. In addition, the Federal Council noted that there is the possibility for small insurance undertakings with innovative business models to be either wholly or partly exempted from supervision.
On insurance intermediation, the Federal Council stated that the legislation on intermediation should be modernised and consumer protection strengthened, in particular by introducing a general requirement to affiliate to an ombudsman.
It also stated that there are to be new special requirements on avoiding conflicts of interest, and, for independent insurance intermediaries, on disclosing compensation from insurance undertakings or third parties.
The federal council said: “As regards the sale of certain insurance-based investment products, special conduct rules and a duty to provide information will be introduced – as has already been done for financial instruments under the new Financial Services Act.”
During the consultation, the bill met with a positive response overall, according to the federal council.
