The Swiss federal parliament has approved, on 18 March 2022, a partial revision to the Insurance Supervisory Act (expected to enter into force in July 2023), which introduces a dedicated restructuring regime for insurance companies. At the same time, a draft Insurance Recovery and Resolution Directive is under consideration in the European Union.
This edition of Advestra Insights looks at the way in which either legislation addresses certain key topics in restructuring an insurance company.
1 OVERVIEW
1.1 Status of Swiss and EU legislation
On 18 March 2022, the Swiss federal parliament approved the final bill for a partial revision of the Insurance Supervisory Act1 ("rev-ISA"). The Federal Department of Finance and the Swiss Financial Market Supervisory Authority FINMA have already published2 and/or are expected in due course to publish consultation drafts and then final versions of changes to implementing ordinances and regulatory guidance, and the new rules are expected to enter into force as of 1 July 2023.
In parallel, the European Commission published its draft of an Insurance Recovery and Resolution Directive ("D-IRRD") in September 2021, together with reform proposals for the Solvency II regime.3 Previously, the European Insurance and Occupational Pensions Authority (EIOPA) had provided advice to the Commission to adopt a harmonised resolution regime. The draft directive was subject to a consultation procedure until January 2022.4 It will next be debated in the European Parliament and the Council.
1.2 The new Swiss restructuring regime
The current law disapplies the general insolvency law regime in the case of insurance companies, and grants FINMA insolvency jurisdiction over them (instead of the courts and authorities tasked with insolvency measures over other companies). The FINMA only has the powers, however, to order "protective measures" (art. 51 ISA) or to initiate bankruptcy proceedings (art. 53 ff. ISA). No explicit restructuring powers currently exist for Swiss insurance companies.
The adopted revision of the Insurance Supervisory Act remedies this situation by introducing a dedicated restructuring regime, which is generally modelled on the respective provisions of the Banking Act,5 but departs from them in certain respects to take account of the characteristics of an insurance business. It is applicable for Swiss licensed insurance companies and Swiss branches of foreign insurance companies, Swiss-domiciled ultimate parent companies of an insurance group or conglomerate, and Swiss-domiciled entities within an insurance group or conglomerate that undertake significant functions for regulated activities.
The insurance restructuring regime, similarly to that for banks, authorizes a transfer of assets and liabilities to a third party and a bail-in of debt (by way of write-down or conversion to equity); in addition, FINMA will be authorized to adjust existing insurance contracts, in particular by restricting or cancelling rights of the insured party. This last right has led to some political debate, but was confirmed in the parliamentary hearings.
1.3 The EU's draft directive
The proposed new directive would apply to EU (re)insurers as well as to EU-based holding companies of insurance groups and conglomerates, and thereby create an EU-wide harmonized recovery and resolution framework for such undertakings. It would require each Member State to designate an insurance resolution authority (which may or may not also be the insurance supervisory authority), and to enact laws giving that authority a minimum harmonised set of powers. Resolution proceedings pursuant to the directive are conceived as an alternative to general corporate insolvency procedures under each Members State's domestic law, which will remain available for insurance companies.
The resolution powers to be afforded to national resolution authorities include the placing of a company in run-off (i.e. prohibiting the writing of new business), a transfer of shares or assets and liabilities to a purchaser, to a bridge institution or to a publicly-controlled asset management vehicle, and bail-in (by way of write-down or conversion to equity). Authorities will also be empowered to cancel or modify the terms of contracts, to cancel, reduce or restructure insurance claims, and to require group entities to provide operational services or facilities to support the entity in resolution.
2 COMPARATIVE TOPICS
2.1 Supervisory vs. resolution authorities
Under the special insolvency regimes that Swiss law provides for financial market participants (banks, securities firms, insurers, financial market infrastructures etc.), the role of the resolution authority is universally bestowed on their supervisory authority, FINMA, without any specific arrangements being required by law for the separation of the two roles.
The draft IRRD, in contrast, requires each EU Member State to designate a "resolution authority", but leaves it to each Member State to decide whether or not these should be the same authorities that also exercise prudential supervision over insurers. This creates the need for multiple provisions in the IRRD regarding consultation and joint decision-making between such authorities, where they are distinct. Conversely, where the same authority assumes both supervisory and resolution functions, it is specified that "adequate structural arrangements should be put in place to separate those functions [...] and to ensure operational independence" (Recitals para. (15) D-IRRD), "to avoid conflicts of interest" (art. 3 (3) D-IRRD).
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Footnotes
1 SR 961.01.
2 Federal Department of Finance, Media release of 17 May 2022 'Privatversicherungen: EFD eröffnet Vernehmlassung zur Änderung der Aufsichtsverordnung'.
3 European Commission, Media release of 22 September 2021 'Reviewing EU insurance rules: encouraging insurers to invest in Europe's future'.
4 See e.g. for a critical assessment by the trade federation of European insurers: Insurance Europe, Views on EC proposals on establishment of an Insurance Recovery and Resolution Directive (19 January 2022).
5 SR 952.0.
6 Botschaft zur Änderung des Versicherungsaufsichts-gesetzes (VAG) vom 21. Oktober 2020, BBl 2020 9015.
Originally published May 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
