Solvency II: Clear regulations for third countries create advantages for all

Zurich, 4 december 2007 – The Council of the European Union will debate the Solvency II Project for the first time today. The basis for this is the European Commission’s Solvency II draft framework directive. Regulations concerning group supervision constitute a key issue in the debate.

The Swiss insurance industry welcomes a flexible, principle-based, European-wide, harmonized supervisory system. Competitiveness among European insurers will be comprehensibly strengthened through risk-based capital requirements. At the beginning of 2006 the Swiss Solvency Test (SST) was introduced with the revised Insurance Supervisory Act. In most respects the SST is highly comparable to Solvency II and constitutes a key component of Swiss insurance supervisory. The Swiss body of rules and regulations takes all fundamental risks of an insurer into consideration. Risk diversification, ceding of risks and hedging techniques are acknowledged to be risk management tools. Moreover, the SST allows for the explicit calculation of structural risks on the balance sheet and promotes active asset liability management. With the introduction of the SST, Switzerland was one of the very first countries to introduce comprehensive risk-based supervisory.

The principal of equivalence in group supervision ensures a level-playing field

The principle of equivalence in the reciprocal recognition of supervisory regimes for group supervision is of high importance. On the basis of the principle of equivalence, it must be ensured that the group supervisor within the EU can supervise subsidiaries in non-EU countries and vice-versa. It is indispensable for third country supervisors whose supervisory regime has been deemed to be equivalent by the EU, to also be able to carry out supervision of subsidiaries based in the EU. This pragmatic approach of equivalence presupposes collaboration between the European Union and supervisors outside the European Union. The Federal Office of Private Insurance, the Swiss supervisory authority, currently has long-standing and constructive cooperation with the European Commission as well as the supervisory authorities in the individual member states.

The principle of equivalence minimizes competitive distortion and ensures a level-playing field for all insurers irrespective of where the company is based. With comparable risk management systems, efficient capital allocation can follow pure economic principles. As a result, consumer protection will be strengthened beyond the European Union borders.

European Insurers earn a premium volume of EUR 10 billion in Switzerland

As a non-EU country, it is a key request of the Swiss insurance industry that further development of the SST be parallel to the Solvency II concept, and where meaningful and possible, both supervisory regimes be harmonized for the mutual benefit of the industry and the consumer. Due to close economic interconnection, stable framework guidelines and good reciprocal relationships are of utmost importance.

In direct life and non-life business, a premium volume of EUR 10.03 billion was earned in Switzerland in 2005 by insurers with headquarters in the EU. This represents 33% of the total Swiss volume in this area. Conversely, Swiss insurers in the EU generated a premium volume of EUR 25.5 billion, which represents 2.7% of the total EU premium volume as well as 50% of total foreign business by Swiss direct insurers.