A Q&A guide to insurance and reinsurance law in Switzerland.
The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in [jurisdiction].
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This Q&A is part of the PLC multi-jurisdictional guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-mjg.
Switzerland provides an attractive environment for insurance and reinsurance undertakings. Many of the global key players are based in Switzerland.
The institutions subject to the supervision of the Swiss Financial Market Supervisory Authority FINMA include (2010 to year end 2011, Insurance Market Report 2011, FINMA):
24 life insurance undertakings, including branches of foreign insurance undertakings (previous year: 25). Two undertakings dominate the market with a combined market share of over 53%.
124 non-life insurance undertakings, including branches of foreign insurance undertakings (previous year: 126).
27 reinsurance undertakings (previous year: 27).
35 reinsurance captives (previous year: 35).
Nine insurance groups (previous year: eight), with total gross premiums of CHF107.6 billion (previous year: CHF111.6 billion).
Important market trends and legal developments over the last 12 months include:
Abandoning what would have been a landmark development in the legislative landscape of the Swiss insurance market, the fundamental revision of Switzerland's century old Insurance Contract Act (ICA) was stopped. In September 2011, the Swiss Federal Council had adopted a legislative proposal involving comprehensive amendments to the ICA. This proposal was passed on to the chambers of Swiss parliament for debate. In October 2012, the National Council (the large chamber of Swiss parliament), rejected the proposal and instructed the Federal Council to work out a proposal for a partial revision of the ICA limited to necessary changes. In March 2013, the Council of States (the small chamber of Swiss parliament), agreed with the large chamber. It is now unlikely that there will be a complete overhaul of the ICA in the near future. However, new regulations are anticipated in the context of a new Financial Services Act (see Question 36).
In 2011, the provisions of the Swiss Federal Act on the Supervision of Insurance Companies (ISA) concerning liquidation and insolvency of insurance undertakings were amended to grant FINMA the authority to initiate and conduct bankruptcy proceedings in respect of insurance undertakings (previously, the regular courts were competent). In addition, with effect from 1 January 2013, the new Ordinance on Insurance Bankruptcy (IBO-FINMA) came into force, implementing the statutory provisions and providing for further rules on bankruptcy proceedings in respect of insurance undertakings. IBO-FINMA clarifies certain aspects of general bankruptcy law in the specific context of an insurance undertaking, particularly with regard to the handling of the tied assets in the event of bankruptcy.
In the context of the historically low interest environment, FINMA has enacted a circular introducing temporary adjustments to the Swiss Solvency Test (SST), with effect from 1 January 2013 (FINMA- Circular 2013/2). The new circular:
allows insurance companies to value their obligations stemming from existing insurance business by using interest curves with counterparty credit risk (as opposed to risk-free interest curves), providing considerable relief to the companies affected;
adapts intervention thresholds under the current SST provisions below which FINMA demands correction and temporarily grants companies longer deadlines to reach their target threshold values again. The temporary adjustments are valid for a period of three years (see Question 9).
FINMA has also enacted Circular 2013/5 on basic principles for recording liquidity risks and liquidity reporting for insurers, with effect from 1 January 2013. The circular specifies the supervisory provisions for risk management by setting out principles on cash flow reporting for insurers.
There were some minor changes to the ISA and the Swiss Federal Ordinance on the Supervision of Private Insurance Companies (ISO), also with effect from 1 January 2013, in the wake of changes to the rules concerning financial reporting in the Swiss Code of Obligations (CO).
The trend of relocations of reinsurance business into Switzerland continued, particularly the establishment of Swiss reinsurance branches.
The Swiss regulatory framework includes two main legislative acts, supplemented by a number of implementing ordinances:
The Swiss Federal Act on the Supervision of Insurance Companies (ISA), (substantially revised in 2006), the Federal Ordinance on the Supervision of Private Insurance Companies (ISO) and the FINMA-Ordinance on the Supervision of Private Insurance Companies (ISO-FINMA) provide the regulatory requirements for insurance and reinsurance undertakings and insurance intermediation in Switzerland. The FINMA-Ordinance on Insurance Bankruptcy (IBO-FINMA), which entered into force on 1 January 2013, is an addition to this body of rules.
The Insurance Contract Act (ICA), which applies to insurance contracts and regulates the civil law relationship between insurer, policyholder and insured. It dates back to 1908. The proposal to fundamentally revise it was recently stopped in Swiss parliament (see Question 1).
FINMA also issues circulars on the application of financial market legislation, including insurance legislation.
Specific rules apply to insurance groups and insurance conglomerates (in particular, Article 64 et seq, ISA, Article 191 et seq, ISO on insurance groups and Article 72 et seq, ISA, Article 204 et seq, ISO on insurance conglomerates).
Two or more companies constitute an insurance group if all of the following conditions are met (Article 64, ISA):
At least one company in the group is an insurance company.
The companies are, as a whole, primarily engaged in the field of insurance.
The companies constitute an economic unit or are otherwise connected to each other through influence or control.
Two or more companies constitute an insurance conglomerate if all of the following conditions are met (Article 72, ISA):
At least one company in the group is an insurance company.
At least one company in the group is a bank or securities dealer of major economic importance.
The companies are, as a whole, primarily engaged in the field of insurance.
The companies constitute an economic unit or are otherwise connected to each other through influence or control.
If a Swiss company belongs to an insurance group or conglomerate in the manner set out above, FINMA can impose its consolidated supervision on the insurance group or conglomerate, if one of the following conditions is met (Article 65, ISA):
The group is effectively managed from Switzerland.
The group is effectively managed abroad, but is not subject to an equivalent group supervision there.
Consolidated group supervision applies in addition to FINMA's individual supervision over the Swiss insurance undertakings (or other regulated Swiss entities) in a group or conglomerate.
FINMA is the supervisory authority for the Swiss financial market, including insurance and reinsurance within the scope of ISA. FINMA was established in 2009 by the Federal Act on the Swiss Financial Market Supervisory Authority (FINMASA), as a unified supervisory authority, merging the functions of the former Federal Office of Private Insurance (FOPI), the Swiss Federal Banking Commission (SFBC) and the Anti-Money Laundering Control Authority. As a result, FINMA supervises not only insurance undertakings, but also other financial institutions such as banks, securities dealers and collective investment schemes under the relevant regulations.
Swiss insurance legislation lacks a specific definition of the term insurance or contract of insurance. The Swiss Federal Supreme Court has defined a contract of insurance as a contract under which an insurer promises an economic performance to an insured (or a third person) in case of the realisation of a risk in exchange for payment of a premium. (for example, Swiss Federal Supreme Court decision 124 III 382, page 397).
The basic defining elements for an insurance contract are the transfer of risk against payment. Transfer of risk means that the insured must have an interest that he is protecting against a certain danger by means of the insurers' economic performance. The Swiss Federal Supreme Court has added two further elements from a regulatory point of view:
The requirement that the insurance contract must be an autonomous agreement (in contrast to the situation where the obligation to pay on realisation of a risk is ancillary to or a simple modality of a contract).
The insurer compensates the risks according to the laws of statistics.
The ICA contains a variety of mandatory and non-mandatory provisions regarding the contract of insurance. In the absence of specific ICA rules, the Swiss Code of Obligations (CO) applies to insurance contracts.
By contrast, reinsurance contracts are excluded from the scope of the ICA. They are subject to the provisions of the CO to the extent that Swiss law applies.
The ICA applies to all insurance contracts except for:
Contracts excluded from the scope of the ICA are subject to the provisions of the CO (Article 101, paragraph 2, ICA).
Insurance undertakings must take the legal form of a company limited by shares (Aktiengesellschaft), or a co-operative (Genossenschaft) (Article 7, ISA). The predominant form of corporate organisation in the Swiss insurance market is the company limited by shares.
Both Swiss insurance and reinsurance undertakings and insurance undertakings domiciled abroad are supervised under the ISA in respect of insurance activities conducted in or from Switzerland (subject to differing provisions in international treaties) (Article 2, paragraph 1, ISA). Insurance undertakings domiciled abroad engaged only in reinsurance activities in Switzerland are exempt from supervision under the ISA (Article 2, paragraph 2, ISA).
While basic regulatory requirements are, in principle, the same for all supervised institutions, the following points are worth noting:
The minimum capital requirements differ depending on the scope of insurance activities (Article 8, ISA).
The ISA contains supplementary provisions which only apply to certain types of insurance activities (Versicherungszweige) (Article 31 et seq, ISA).
Additional requirements apply for foreign insurance undertakings (Article 15, ISA) (see Question 9).
Companies engaged only in the reinsurance business are exempt from certain regulatory requirements under the ISA (for example, the provisions on tied assets (gebundenes Vermögen) (Article 35, ISA). Special provisions apply to the consolidated supervision of insurance groups and insurance conglomerates (see Question 2).
Insurance and reinsurance undertakings are in principle only allowed to engage in activities directly related to their primary business (Article 11, paragraph 1, ISA). However, FINMA can approve the conduct of other activities if it considers they do not compromise the interests of the insured (Article 11, paragraph 2, ISA). A stricter rule applies to insurance undertakings active in primary life insurance, which are limited to supplementary engagements in accident and health insurance (Article 12, ISA).
Insurance companies that have obtained a specific licence within the subset of life insurance licences are allowed to conclude capitalisation contracts. These are contracts where the insurers do not carry any biometric risks, that is, risks related to the duration of an insured person's life or on an insured person's disability or state of health (Appendix 1, ISO, classification A.6). The insurers offering such contracts remain under insurance supervision and do not fall under banking supervision. They are not, however, allowed to call such contracts "insurance contracts".
If an insurance undertaking seeks to acquire an equity stake in a non-insurance undertaking, a specific notification and approval process applies (see Question 12).
FINMA's approval is required for the transfer of a Swiss insurance portfolio (in whole or in part), from one insurance undertaking to another. Approval is only granted where FINMA considers that the interests of the insured are protected (Article 62, paragraph 1, ISA).
Within 30 days of notification of FINMA's approval, the acquiring insurance undertaking must individually notify the insured persons affected by the portfolio transfer about the transfer and their right of termination. An insured has the right to terminate the insurance contract within three months after that notice (Article 62, paragraph 3, ISA).
The approval requirement does not apply to reinsurance undertakings (Article 35, ISA).
An insurance undertaking falling within the application of the ISA, must obtain an insurance licence from FINMA before commencing any insurance activities (Article 3, paragraph 1, ISA). The insurance undertaking must submit a formal application to FINMA accompanied by a business plan (as defined by ISA) to obtain a licence (Article 4, paragraph 1, ISA).
Licence requirements. The ISA defines the financial and organisational requirements necessary to obtain an insurance licence from FINMA. Certain additional requirements apply to foreign insurance undertakings seeking to become active in the Swiss market. The ISO further substantiates the requirements contained in the ISA.
An insurance undertaking domiciled in Switzerland must meet the following financial requirements:
Minimum capital between CHF3 million and CHF20 million, depending on the classes of insurance that are part of its business plan. FINMA determines the actual capital requirement in each individual case (Article 8, ISA and Articles 6 to 10, ISO).
Sufficient free and unencumbered capital resources in relation to all of its activities (solvency margin). The solvency margin is determined by reference to (Article 9, ISA):
the specific risk exposure;
the classes of insurance operated;
the volume and geographic scope of business;
internationally recognised principles.
The ISO stipulates two methods for determining and evaluating compliance with solvency requirements (Articles 21 to 53, ISO):
Solvency I. The necessary capital resources are determined by the volume of business (required solvency margin) and the creditable capital resources (available solvency margin);
The Swiss Solvency Test (SST). The necessary capital resources are determined in relation to the risks to which an insurance undertaking is exposed (target capital) and the creditable capital (risk-bearing capital).
The two methods are applied in parallel (that is, insurance undertakings must comply with both Solvency I and SST requirements).
Maintain an organisational fund to cover the costs of establishing and developing the business or an extraordinary business expansion. The organisational fund usually amounts to up to 50% of minimum capital (as defined above) at the start of business operations and should generally settle at an amount around 20% of minimum capital later on. The exact minimum amount is determined by FINMA in each individual case (Article 10, ISA and Article 11, ISO).
Maintain sufficient insurance-related reserves (versicherungstechnische Rückstellungen) for all of its business activities (Article 16, ISA). In addition, the insurance undertaking must secure claims under insurance contracts with tied assets (gebundenes Vermögen) (Article 17, ISA). The required amount of tied assets is equal to the insurance-related reserves plus an appropriate surcharge (Article 18, ISA). For life insurance activities, the surcharge, in principle, amounts to 1% of the insurance-related reserves used as the basis for determining the required amount of the tied assets. For non-life insurance, the surcharge amounts to 4% of the insurance-related reserves and further specific reserves according to the business plan, but at least to CHF100,000 (Article 1, paragraph 1, ISO-FINMA). The surcharge does not apply to life insurance if the insurance undertaking does not bear any investment risk (Article 1, paragraph 2, ISO-FINMA). The provisions concerning tied assets are not applicable to reinsurance undertakings (Article 35, ISA).
An insurance undertaking domiciled in Switzerland must meet the following organisational requirements:
It must have the legal form of either:
a company limited by shares;
a co-operative (Article 7, ISA) (see Question 5).
The persons responsible for its direction, supervision, control and management must pass FINMA's fit and proper test (that is, be of good standing and provide assurance of proper business conduct) (Article 14, ISA).
It must be organised in a manner that allows it to recognise, limit and monitor all significant risks (Article 22, ISA). The ISO substantiates this requirement with detailed provisions on risk management (Articles 96 to 98, ISO and FINMA- Circular 2008/32 on corporate governance, risk management and the internal control system within the insurance sector).
It must appoint a responsible actuary and provide this person with access to all business records (Article 23, ISA). The responsible actuary must ensure that:
the solvency margin is calculated correctly;
the tied assets meet the requirements;
accurate accounting information is used;
sufficient insurance-related reserves are established (Article 24, ISA).
It must establish an effective internal control system and an internal audit function which is independent from management (Article 27, ISA). In addition, the insurance undertaking must appoint a licensed audit firm to review its conduct of business (Article 28, ISA).
Article 15 of the ISA contains additional requirements for foreign insurance undertakings engaging in insurance business in Switzerland. They must (subject to differing rules in international treaties):
Be authorised to engage in insurance business in the country where they are domiciled.
Establish a presence in Switzerland and appoint a general agent (Generalbevollmächtigter), who must be of good standing and must provide assurance of proper business conduct. The general agent must:
reside in Switzerland;
have authority for, and be entrusted with, the actual management of the office for all of the Swiss business;
possess the knowledge necessary to manage the insurance undertaking (Article 16, paragraph 3, ISO).
Have a minimum capital under Article 8 of the ISA and comply with solvency requirements under Article 9 of the ISA at the registered office in its home jurisdiction, also taking into account its business activities in Switzerland.
Dispose of an organisational fund in Switzerland in accordance with Article 10 of the ISA (see above), and the corresponding assets.
Lodge a security deposit with the Swiss National Bank (SNB) which is proportionate to the solvency margin related to the business in Switzerland. FINMA determines the proportion and stipulates the calculation, the place of deposit and the creditable assets. Under Article 15 of the ISO, the security deposit amounts to 10% of the solvency margin related to the business in Switzerland, with a minimum of between CHF40,000 and CHF600,000 depending on the specific class of insurance. Based on the Agreement between the Swiss Confederation and the European Economic Community on direct insurance other than life insurance, the security deposit requirement does not apply to EU-based insurance undertakings engaged in non-life insurance intending to conduct insurance business in Switzerland.
Business plan. The business plan of an insurance undertaking regulated by FINMA must contain the following information (Article 4, paragraph 2, ISA):
The articles of incorporation.
The management structure and the geographic scope of business.
In the case of an insurance activity outside of Switzerland, the licence from the responsible foreign supervisory body or an equivalent certification.
Information about financial resources and reserves.
The financial statements for the last three financial years, or the initial balance sheet of a newly established insurance undertaking.
Information about the persons who:
directly or indirectly own at least 10% of the capital or voting rights of the insurance undertaking; or
are able to significantly influence its business activities in any other way.
The names of the persons entrusted with the ultimate management, supervision, control and conduct of the business or, for foreign insurance undertakings, the general agent's name.
The name of the responsible actuary.
The name of the audit firm and the persons responsible for the specific audit assignment and, if the insurance undertaking is part of an insurance group or an insurance conglomerate, the organisation of the assignment of the audit firm of the insurance group or the insurance conglomerate.
The contracts or other arrangements through which any of the insurance undertaking's significant functions are outsourced.
The classes of insurance intended to be operated and the nature of the risks to be insured.
Declarations of accession to the National Insurance Office (Nationales Versicherungsbüro), and the National Guarantee Fund (Nationaler Garantiefonds), if applicable.
The reinsurance plan or, in case of an active reinsurance company, the retrocession plan.
The expected costs of establishing the insurance undertaking.
The plans for the balance sheets and income statements for the first three financial years.
Information about the recognition, limitation and monitoring of risks.
The premium scale and the general business terms and conditions which will be used in Switzerland for the insurance of all risks in occupational pension plans and supplementary insurance to the mandatory health insurance, if applicable.
Specific regulatory requirements apply to insurance intermediaries. Insurance intermediaries are defined as persons offering or concluding insurance contracts on behalf of insurance undertakings or other persons (often the insured: Article 40, ISA). FINMA maintains a register of insurance intermediaries (Article 42, ISA), and entry on the register is subject to certain qualifications. Whether an insurance intermediary must register with FINMA depends on whether it qualifies as an independent intermediary (that is, an insurance broker), or as a tied insurance intermediary (that is, an insurance agent). Independent insurance intermediaries (unlike tied insurance intermediaries), are defined as being neither legally, nor economically, nor in any other way dependant on an insurance undertaking (Article 43, paragraph 1, ISA and Article 183, ISO).
As a result, independent insurance intermediaries must register on the FINMA register (Article 43, paragraph 1, ISA). Tied insurance intermediaries can register if they wish to (for example, for marketing reasons), but are not obliged to do so (Article 43, paragraph 2, ISA).
Proof of sufficient professional qualifications (Article 44, paragraph 1a, ISA).
Proof of professional indemnity insurance with an annual policy limit for all damages up to at least CHF2 million (or equivalent financial security; Article 44, paragraph 1b, ISA and Article 186, ISO).
In addition, insurance intermediaries must meet the following personal requirements (Article 185, ISO):
Capacity to act (Handlungsfähigkeit).
No criminal record involving activities incompatible with the business of an insurance intermediary.
No outstanding certificates of unpaid debts (Verlustscheine).
Insurance intermediaries must provide the insured with the following information (on a durable medium, usually a physical information leaflet, allowing the insured to store the information for future reference):
The intermediary's identity and address.
Whether the insurance coverage offered is provided by one or several insurance undertakings, and which insurance undertakings are involved.
Their contractual relationships with the insurance undertakings on whose behalf they act, as well as the names of these insurance undertakings.
The name of the person who can be held liable for negligence, mistakes or incorrect information in connection with their activities as insurance intermediaries.
Information on the processing of personal information, in particular the purpose, scope and recipients of that data, as well as information regarding its storage.
Insurance intermediaries are prohibited from engaging in any intermediary activities in Switzerland for the benefit of insurance undertakings which have not been granted a licence from FINMA for insurance activities in Switzerland even though they fall within the scope of the ISA (Article 41, ISA).
Insurance undertakings only engaging in reinsurance activities in Switzerland that are domiciled outside of Switzerland are exempt from supervision under the ISA, and from the licensing requirement in Switzerland (see Question 6).
Insurance undertakings domiciled abroad which do not have a subsidiary in Switzerland are not subject to supervision if they only engage in Switzerland in the following classes of insurance (Article 1, paragraph 2, ISO):
Coverage of insurance risks in connection with maritime transport, air transport and cross-border transportation.
Coverage for risks located abroad.
Coverage for war risks.
Insurance undertakings that are subject to a special supervision under Swiss Federal law are also exempt from supervision under the ISA (for example, certain registered social security institutions) (Article 2, paragraph 2b, ISA). FINMA can also apply a de minimis exemption in certain circumstances (Article 2, paragraph 3, ISA), though this is rarely used in practice.
The exemptions (see above, Insurance/reinsurance providers) apply in a similar way to insurance intermediaries. Insurance intermediaries representing only the interests of a single insured person or entity (and any companies controlled by that person or entity) are also exempt from supervision (Article 2, paragraph 2c, ISA).
The business plan submitted to FINMA, with the application for a licence must include information on the persons who, directly or indirectly, either:
Own at least 10% of the capital or voting rights of the insurance undertaking.
Are able to significantly influence its business activities in any other way (see Question 9).
FINMA considers this information when assessing licence applications by applying a "fit and proper" test.
Insurance undertakings domiciled in Switzerland intending to acquire a participation which exceeds certain thresholds in another business must notify FINMA. Intended acquisitions or reductions of participations in insurance undertakings domiciled in Switzerland which reach or cross over certain thresholds must be reported to FINMA by the respective buyer(s) and seller(s) (see Question 12).
There are no specific restrictions on ownership or control.
The ISA contains certain notification requirements concerning equity participations in or by insurance undertakings (Article 21, paragraphs 1 to 3, ISA):
An insurance undertaking domiciled in Switzerland intending to acquire a participation in another business must notify FINMA if that participation equals or exceeds the thresholds of 10%, 20%, 33% or 50% of the capital or voting rights of the other business.
A person or entity intending (directly or indirectly) to acquire or reduce a participation in an insurance undertaking domiciled in Switzerland must notify FINMA if the participation equals, exceeds or falls below the thresholds of 10%, 20%, 33% or 50% of the capital or voting rights of the insurance undertaking. A notification must also be filed in the event that the participation in the insurance undertaking no longer qualifies it as a subsidiary.
Following notification, FINMA can prohibit acquisitions or changes to participations, or subject them to conditions, if the nature and scope of the participation could endanger the insurance undertaking or the interests of the insured (Article 21, paragraph 4, ISA).
Since FINMA is not subject to any deadline under the ISA concerning when it can issue conditions or prohibit participations, it can be useful to seek FINMA's consent in advance to eliminate uncertainties.
Further disclosure and takeover obligations exist under the Federal Act on Stock Exchanges and Securities Trading (SESTA), where the securities of an insurance or reinsurance undertaking are listed in whole or in part on a Swiss stock exchange. In addition, further duties and restrictions under the Federal Act on Cartels and other Restraints of Competition (Cartel Act), may apply, depending on the circumstances.
There are no specific approval or notification requirements.
Licensed insurance undertakings must report amendments to the following elements of their business plan to FINMA for prior approval (Article 5, paragraph 1, ISA):
The articles of incorporation.
The name of the responsible actuary.
The name of the audit firm and the persons responsible for the audit assignment.
The intended classes of insurance and the nature of the risks to be insured.
The premium scale and the general business terms and conditions which will be used in Switzerland for the insurance of all risks in occupational pension plans and supplementary insurance to the mandatory health insurance.
Intended capital increases or reductions require an amendment of the articles of incorporation and must therefore be reported to FINMA for prior approval.
Also subject to FINMA's prior approval are any changes to the business plan resulting from a merger, spin-off or reorganisation of an insurance undertaking.
All other amendments to the key elements of the business plan under Article 4, paragraph 2, ISA must be reported to FINMA and are considered approved if FINMA does not initiate a review of the submission within four weeks after receiving the notification (Article 5, paragraph 2, ISA).
Registered insurance intermediaries must report any changes to the information in the register of intermediaries (for example, change of name or address, represented insurance undertakings or termination of intermediation activities) to FINMA within 14 days of that change (Article 189, ISO).
FINMA, can revoke the licence of a supervised insurance undertaking if it no longer fulfils the licence requirements or if it seriously violates regulatory provisions (Article 37, paragraph 1, FINMASA). Furthermore, FINMA can initiate regulatory procedures and apply sanctions under Article 29 et seq of the FINMASA.
An insurance licence can also be fully or partially revoked if an insurance undertaking has ceased its business operations in the corresponding insurance classes for more than six months (Article 61, ISA). In that case, the insured are entitled to withdraw from the insurance contracts with that insurance undertaking (Article 36, ICA).
The ISA and the FINMASA also provide for the following criminal sanctions:
Anyone who wilfully carries out an activity requiring a licence, recognition, or registration under Swiss financial market laws without first obtaining a licence, recognition or registration is liable to a custodial sentence of up to three years or to a monetary penalty (Article 44, paragraph 1, FINMASA). Persons acting negligently are liable to a fine of up to CHF250,000 (Article 44, paragraph 2, FINMASA).
Imprisonment of up to three years or a monetary penalty will be imposed on any person that intentionally (Article 87, ISA):
fails to submit amendments to the business plan for FINMA's prior approval under Article 5, paragraph 1 of the ISA or who fails to notify FINMA of changes to the business plan under Article 5, paragraph 2 of the ISA;
removes or encumbers tied assets with the consequence that the required amount is no longer covered;
commits other acts which reduce the value of the tied assets.
Persons acting negligently in these instances will be punished with a fine of up to CHF250,000 (Article 87, paragraph 2, ISA). Repeated violations within a five-year period are subject to a minimum monetary penalty of at least 45 daily penalty units (Tagessätze) (Article 87, paragraph 3, ISA).
A fine of up to CHF500,000 can be imposed on any person that intentionally (Article 86, ISA):
violates a notification duty under Article 21 of the ISA (see Question 12);
fails to deliver the annual financial report and the regulatory report within the specified time period;
fails to establish the insurance-related reserves required by supervisory law or approved in a specific case.
Persons acting negligently in these instances are punished with a fine of up to CHF150,000 (Article 86, paragraph 2, ISA). Repeated violations within a five-year period are subject to a minimum fine of CHF10,000 (Article 86, paragraph 3, ISA).
Additional sanctions can apply (for example, with respect to violations of the Swiss Criminal Code and the Swiss Anti-Money Laundering Act).
Insurance intermediaries that intentionally conclude or broker insurance contracts on behalf of an insurance undertaking that is not licensed to conduct insurance activities in Switzerland are liable to imprisonment of up to three years or a monetary penalty. In cases of negligence, a fine of up to CHF250,000 can be imposed (Article 87, paragraphs 1a and 2, ISA).
Insurance intermediaries violating a disclosure obligation towards the insured under Article 45 of the ISA (see Question 9), are liable to a fine of:
Up to CHF500,000 in cases of wrongful intent.
Up to CHF150,000 in cases of negligence (Article 86, paragraphs 1e and 2, ISA).
Finally, the sanctioning provisions of FINMASA and other Swiss laws as outlined above can also apply to insurance intermediaries (see above, Insurance/reinsurance providers).
There are no specific restrictions on the persons to whom insurance or reinsurance contracts can be marketed or sold. However, life insurance is null and void if the person whose life is covered in that insurance does not consent to the insurance, in writing, before the insurance contract is concluded.
With regard to potential customers who are not domiciled or resident in Switzerland, applicable international treaties as well as local laws and regulation must be considered. Switzerland has entered into a treaty with the Principality of Liechtenstein enabling insurers domiciled in either country to provide services on the territory of the other country under a uniform licence.
There are no specific statutory monitoring requirements. However, the reinsurance contract between the insurer and the reinsurer can contain relevant provisions.
There are no specific statutory disclosure or notification requirements. However, the reinsurance contract between the insurer and the reinsurer can contain relevant provisions.
The validity of the insurance contract is not subject to compliance with any particular form, though the application for an insurance policy and acceptance by the insurer are customarily produced in writing. However, the insurer must:
Issue a policy to the insured stating the rights and duties of the parties (Article 11, ICA).
Inform the insured about the identity of the insurer and the main content of the insurance contract prior to the conclusion of the contract (subject to the insured's right to terminate if that duty to inform is not complied with by the insurer (Article 3f, ICA).
Article 3 of the ICA lists the key elements of the contract that must be explained to the insured:
The insured risks.
The scope of insurance coverage.
The premiums due and any other duty of the policyholder.
The duration and methods of terminating the contract.
The methods, principles and bases for calculating and distributing the surplus profits.
The surrender and transformation values.
The handling of personal data, including purpose and type of data collections as well as data recipients and data storage.
On the insured's request and against reimbursement, the insurer must provide the insured with a copy or transcript of the statements made by the insured in the application for the insurance contract or delivered in any other form, which were determining for the conclusion of the insurance contract (Article 11, paragraph 2, ICA).
See above, Form and content requirements. Most insurers use their own general insurance terms and conditions as a basis for their insurance contracts. For certain types of insurance, standard terms have been published by the Swiss Insurance Association, which may give some general guidance on what terms and conditions one can expect in such types of policies (see Question 22).
Both facultative and treaty insurance are common in the Swiss market.
Reinsurance contracts often contain "access to records" or "right to audit" clauses as well as "follow the fortunes" or "follow the settlements" clauses. Various forms of claims control clauses are often found in facultative reinsurance.
Certain provisions of the ICA cannot be contractually modified, including (Article 97, ICA):
Rules and restrictions regarding the premium payment obligation upon premature cancellation of the insurance contract.
Place of performance.
The due date of insurance claims.
Tacit renewal of insurance contracts.
Rules relating to overinsurance or double insurance.
Rules concerning replacement value.
Rules concerning the assessment of damage.
Assignment and pledge of personal insurance claims.
Rules relating to insurance policies on the life of another person.
Other provisions contained in the ICA cannot be modified to the disadvantage of the policyholder or the insured (Article 98, ICA):
Rules and restrictions regarding the application for insurance.
The insurer's duty of information to the insured and the insured's right to cancel the contract of insurance.
Consequences of default in the payment of premiums.
Place of payment.
Aggravation of risks with or without the policyholder's involvement.
The insurer's liability for his intermediaries.
Rules relating to justifying the insurance claim.
Rules concerning partial damage.
Rules concerning the statute of limitations.
A statutory pledge of the injured third party in the area of indemnity insurance.
The insurer's right of recourse.
The policyholder's right of withdrawal in the area of life insurance.
Rules relating to the conversion and surrender of life insurances.
On a more general level, Article 2 of the Swiss Civil Code states that every person must act in good faith in the exercise of its rights and in the performance of its obligations.
There are no specific supplemental customer protections which are generally included in insurance contracts by insurers in Switzerland. Individual contracts may contain certain customer-friendly terms, such as a right of withdrawal from the contract within a defined time span.
The Swiss Insurance Association publishes standard terms (in German and French), for different types of indemnity insurance contracts (third-party liability insurance, property insurance, technical insurance and transport insurance), on its website (www.svv.ch/de/politik-und-recht/recht).
The triggering events are usually defined in the insurance contract. Upon the occurrence of the insured event, the insured must notify the insurer as soon as he knows about the event and his insurance claims (Article 38, paragraph 1, ICA). If he violates that duty by fault, the insurer is entitled to reduce the indemnification by the amount by which the indemnification would have been reduced in case of a notice on time (Article 38, paragraph 2, ICA).
If such a right has not been included in the insurance contract, it only exists where it is explicitly provided for in the law. An aggrieved third party usually has a direct claim against the insurer in the areas of mandatory liability insurance, such as:
Motor liability insurance (Article 65, paragraph 1, Federal Road Traffic Act).
Mandatory liability insurance for, for example:
fuel and gas pipes;
In these cases, not only is there a direct claim provided, but this direct claim is also combined with the exclusion of the insurer's right to raise objections against the third party's direct claim on the basis of the ICA or the insurance contract (the insurer will have to take recourse against the policyholder or the insured).
If there is no explicit rule providing for a third party claim, the third party still has a lien on the claim of the insured person against his liability insurer. The insurer has the right (but not the obligation), to compensate the affected third party directly, without the consent of the insured (Article 60, paragraph 1, ICA).
A third party can also benefit from insurance cover where the insurance contract itself contains a provision to that effect.
Claims based on an insurance contract are, in principle, subject to a statute of limitations of two years from the date of the triggering event which raises the obligation to provide indemnification. This statute of limitations cannot be contractually shortened (Article 46, ICA).
As reinsurance contracts are not subject to the ICA, the provisions of the Code of Obligations (CO), apply. As a result, the statute of limitations for claims based on reinsurance contracts is ten years from the day on which the claim becomes due (Article 127, CO). This limitation period cannot be contractually altered (Article 129, CO).
The time limits above do not extinguish the claim, but, when invoked by the defendant, render the claim unenforceable.
There are no specific rules relating to reinsurance contracts. A policyholder can make a direct claim against a reinsurer to the extent that the reinsurance policy provides for that event (cut-through clause).
If the insured is in breach of one of his obligations under the insurance contract or under the ICA, the insurer is entitled to reduce the indemnification (for example, if the insured causes the insured event intentionally or in a grossly negligent way (Article 14, ICA).
In certain circumstances, the insurer can terminate the contract by written notice (for example, if the insured omits to notify, or incorrectly notifies, the insurer of a significant risk factor (Article 6, ICA).
The insured can terminate the insurance contract by written notice if the insurer does not perform its duty to inform the insured of the identity of the insurer and the material content of the insurance contract (see Question 18), prior to the conclusion of the contract (Article 3f, ICA). This termination right expires four weeks after the insured has become aware of the breach of duty by the insurer, and in any case one year after the breach of duty (Article 3a, paragraph 2, ICA).
Punitive damages are not available under Swiss law. Further, a Swiss court cannot award punitive damages even if the applicable foreign substantive law provides for those damages (Article 135, paragraph 2, Swiss Private International Law Act (SPILA)). As a result, the insurability of punitive damages has found very little attention in Swiss legal literature.
In the case of the insolvency of insurance and reinsurance undertakings, the provisions of the Swiss Federal Statute on Debt Enforcement and Bankruptcy (DEBA), are applicable to the extent that the more specific provisions of the ISA (Article 51 et seq, ISA), do not provide otherwise (Article 54, paragraph 2, ISA). As from 1 January 2013, the provisions of the ISA are supplemented by the IBO-FINMA.
FINMA can adopt protective measures to safeguard the interests of the insured where an insurance undertaking or an insurance intermediary does not comply with the provisions of the ISA, an implementing ordinance or an order of FINMA, or if it appears that the interests of the insured are otherwise endangered (Article 51, paragraph 1, ISA).
In particular, FINMA can (Article 51, paragraph 2, ISA):
Prohibit the unrestricted disposition of the insurance undertaking's assets.
Order the deposit or blocking of assets.
Assign, in whole or in part, the responsibilities and authorities of the officers and directors of an insurance undertaking to a third person.
Assign the portfolio of insurance policies and the related tied assets to another insurance undertaking (with the consent of that insurance undertaking).
Order the liquidation of the tied assets.
Demand the dismissal of the persons entrusted with the ultimate management, supervision, control or conduct of the business, or the general agent, as well as the responsible actuary, and prohibit them from engaging in any further insurance activities for a maximum of five years.
Remove an insurance intermediary from the register.
Assign assets to the tied assets that are required by Article 18 of the ISA.
Order the extension of the terms of payment and the adjournment of due dates in cases of financial distress.
If FINMA revokes an insurance undertaking's licence, it becomes subject to liquidation (Article 52, ISA). FINMA appoints and oversees the liquidator.
Where there is good cause to suspect that an insurance undertaking is overindebted or has liquidity problems and where recapitalisation is not possible, FINMA will revoke the licence and initiate bankruptcy proceedings (which are then published) (Article 53, paragraph 1, ISA).
Insurance claims that can be recognised from the insurance undertaking's records are deemed to have been submitted in the bankruptcy proceedings. The claims where security was provided in the form of tied assets will be the first to be covered by the proceeds of the tied assets. Any remaining proceeds become part of the bankruptcy estate (Article 54a, ISA and Article 26, IBO-FINMA). In some cases, transferring insurance portfolios under Article 62 of the ISA before a liquidation can be a way of protecting the interests of the insured.
Additional provisions apply to the insolvency of life insurance undertakings (Article 55 et seq, ISA).
Swiss statutory law does not provide for any "drop down" of insurance coverage of an excess insurer in the case of the insolvency of an insurer belonging to an underlying layer of coverage. However, an excess insurer and the insured can contractually agree to a "drop down".
A creditor can set off mutual debts (Article 213, paragraph 1, Federal Statute on Debt Enforcement and Bankruptcy (DEBA)). However, in certain circumstances a set-off is not permitted (for example, where a creditor of the bankrupt did not become debtor of the bankrupt or the bankrupt estate until after the opening of bankruptcy proceedings).
From an insurance law perspective, it must be noted that an insurer cannot set-off its liabilities against claims which are counted towards the tied assets (Article 84, paragraph 2, ISO), since the tied assets serve as security for the claims of the insured under the insurance contracts (there are specific rules concerning the use of proceeds from tied assets in insurance bankruptcy proceedings) (Article 54a, ISA). Consequently, the insurer must ensure that its counterparties cannot declare set-off against liabilities if the insurer's claim against the counterparties forms part of the tied assets (for example, by contractually excluding set-off in these circumstances).
Under the Federal Stamp Tax Act, stamp taxes are levied on the payment of insurance premiums. However, several types of insurance are exempt from this tax (for example, stamp taxes are not levied on reinsurance (Article 22, Federal Stamp Tax Act).
Insurance and reinsurance turnovers are exempt from Swiss VAT without the possibility to reclaim input VAT (input VAT refers to the VAT on purchases of goods and services used to carry on the business, which can usually be reclaimed if taxable turnovers are made).
Generally, the ordinary Swiss tax regime applies to insurance and reinsurance providers. Consequently, insurance undertakings are subject to:
Corporate income tax, which is assessed based on the income according to the statutory profit and loss statement in accordance with the provisions of the CO.
Corporate capital tax, which is assessed based on the equity according to the statutory balance sheet in accordance with the provisions of the CO and any deemed equity.
Foreign insurance and reinsurance undertakings with activities in Switzerland can apply for preferential tax regimes. In Switzerland, losses can be carried forward seven years for tax purposes. The applicable tax rates depend on the canton and municipality where the insurance or reinsurance undertaking is domiciled.
Private law disputes between insurance undertakings or between insurance undertakings and the insured are, in principle, subject to the jurisdiction of the civil courts (Article 85, paragraph 1, ISA). The regular courts can hear disputes arising out of insurance contracts. However, some cantons have established a specialised commercial court, which is the appropriate venue for commercial disputes and disputes relating to the law of commercial companies and co-operatives (Article 6, Swiss Code of Civil Procedure (CCP)). In general, the commercial court decides on disputes where both parties are registered in the Swiss Commercial Registry or in an equivalent foreign registry. However, under certain conditions, the commercial court can be chosen by a non-registered claimant (Article 6, CCP).
Furthermore, the parties can agree on an arbitration clause (see Question 34).
Arbitration clauses in insurance and reinsurance agreements are, in principle, enforceable, as any monetary claims can be submitted to arbitration proceedings, both in disputes with or without an international element (Article 177, paragraph 1, SPILA and Article 354, CCP). Arbitration clauses must be put in writing or agreed by a means of communication which permits them to be evidenced by text (Article 178, paragraph 1, SPILA and Article 358, CCP).
In disputes without an international element, choice of forum clauses are, in principle, admissible under the CCP rules. However, where an insurance contract qualifies as a consumer contract under Article 32 of the CCP, a choice of forum can only be made in an agreement which is entered into after the dispute has arisen (Article 35, paragraph 1a, CCP). An insurance contract may qualify as a consumer contract if the insurance relates to services or goods for usual consumption (for example, an insurance for household contents or private liability insurance).
If a dispute with an international element falls within the scope of the Lugano Convention, the relevant jurisdiction in insurance matters is determined by the provisions set out in Articles 8 to 14 of the Lugano Convention. A choice of forum can only be made in an agreement which is (Article 13, Lugano Convention):
Entered into after the dispute has arisen.
Structured to allow the policyholder, the insured or a beneficiary to bring proceedings in courts other than those indicated in Articles 8 to 14 of the Lugano Convention.
Concluded between a policyholder and an insurer, both of whom, at the time the contract is concluded, are domiciled or habitually resident in the same contracting state, and which has the effect of conferring jurisdiction on the courts of that state even if the harmful event were to occur abroad (provided that such an agreement is not contrary to the law of that state).
Concluded with a policyholder who is not domiciled in a contracting state, except insofar as the insurance is compulsory or relates to immovable property in a contracting state.
Related to a contract of insurance insofar as it covers one or more of the risks set out in Article 14 of the Lugano Convention (for example, any loss of or damage to seagoing ships, installations situated offshore or on the high seas or aircraft arising from perils which relate to their use for commercial purposes).
These provisions do not apply to reinsurance matters.
If a dispute with an international element falls outside of the scope of the Lugano Convention, the provisions of the SPILA, apply. In principle, the relevant jurisdiction is determined based on the rules regarding contracts (Articles 112 and 113, SPILA). Under these rules, choice of forum clauses are admissible in principle. However, if the insurance contract qualifies as a consumer contract under Article 120 of the SPILA, the consumer cannot waive jurisdiction at its domicile or usual place of residence in advance (Article 114, paragraph 2, SPILA).
Swiss courts apply the SPILA with respect to the choice of applicable law in an international dispute. In principle, choice of applicable law clauses are permissible (Article 116, SPILA). The choice of law must be explicit or clearly evident from the contract or the circumstances. Furthermore, the choice of law can be made or modified at any time. However, where an insurance contract qualifies as a consumer contract, a choice of applicable law clause is not admissible (Article 120, paragraph 2, SPILA).
Further to the provisions of the SPILA, Articles 101b and 101c of the ICA state specific conflict of laws rules with regard to direct insurance. However, the scope of application of these rules is very limited, as they only apply to insurance contracts covering risks situated in a state which has entered into an international treaty with Switzerland regarding the recognition of regulatory requirements and measures ensuring that equivalent rules apply in that contracting state when compared to Switzerland (Article 101a, ICA). Such an international treaty currently exists between Switzerland and the Principality of Liechtenstein.
The rejection by both chambers of Swiss parliament of the proposed fundamental revision of the ICA on 7 September 2011 means that it is now unlikely that there will be a complete overhaul of the ICA. However, new regulations are anticipated in the context of legislative plans for a Financial Services Act (see Question 1).
Main activities. The SVV, a private Swiss association, is an umbrella organisation representing the private insurance industry. Members are small and large, national and international, primary insurers and reinsurers.
Main activities. SVVIA is a private association representing persons working in the insurance field service.
Main activities. ASDA is a private association representing insurance specialists at all levels of private, health and social insurance.
Main activities. SIBA is a private association representing insurance brokers in Switzerland.
Main activities. The Swiss Ombudsman of Insurance is a foundation established by the Swiss Insurance Association in 1972. Its main functions are to mediate complaints, disputes and claims in connection with or arising out of private insurance contracts and to provide guidance and advice to insurance customers. It aims to facilitate the settlement of claims and the resolution of disputes.
Description. Homepage of the Swiss Federation containing the systematic collection of federal acts and ordinances as well as international treaties. The homepage is available in German, French and Italian and a reduced version in Romansh. Selected acts and ordinances are available in English.
Bär & Karrer Ltd
Professional qualifications. Switzerland (Zurich bar), 2002; US (New York Bar), 2005 (not practising)
Areas of practice. Insurance; banking; financing; capital markets; M&A transactions.
Bär & Karrer Ltd
Professional qualifications. Switzerland (Zurich Bar), 2011
Areas of practice. Insurance; banking; financing; M&A transactions.