FINMA Circular 2008/15 Mergers of Health Insurers

Laupenstrasse 27, 3003 Bern Tel. +41 (0)31 327 9100, Fax +41 (0)31 327 9101 www.finma.ch Circular 2008/15 Mergers of Health Insurers Mergers, Splits, Conversions and Asset Transfers of Health Insurers under KVG in the Area of Supplementary Health Insurance under VVG Reference: FINMA-Circular 08/15 "Mergers of Health Insurers" Issued: 20 November 2008 Entry into force: 1 January 2009 Last amendment: 20 November 2008 Concordance: formerly BPV-Directive 4/2005 "Mergers of HI" from December 2005 Legal Basis: FINMAG Art. 7 Para. 1 Let. b VAG Art. 3, 62 FusG Addressees BankG VAG FINIG FinfraG KAG GwG Others Banks Financial Groups and Conglomerates Other Intermediaries Insurers Ins. Groups and Conglomerates Intermediaries Asset Managers Trustees Administrators of Collective Assets Fund Management Custodian Securities Firms Non-custodian Securities Firms Trading Venues Central Counterparties Central Securities Depositories Transaction Registers Payment Systems Participants SICAV KmG for KKA SICAF Custody Banks Representatives of Foreign KKA Other Intermediaries SRO SRO-Supervised Audit Firms Rating Agencies X

Table of Contents 2/6 I. General Rz 1–8 II. Mergers (Absorption Mergers) Rz 9–21 A. Documents to be Submitted to the FINMA Rz 10 B. Requirements in the Area of Supplementary Insurance Rz 11–17 a) Licenses Rz 12 b) Bound Assets Rz 13 c) VAG Reserves and Provisions for VVG Business Rz 14 d) Business Plan Rz 15 e) VVG Contracts Rz 16 f) Cancellation by Policyholders Rz 17 C. Obligations Arising Towards the FINMA After the Merger Rz 18–21 III. Asset Transfers Rz 22–23 Relationship Between Asset Transfer under the Merger Act (FusG) and Transfer of Business under the Insurance Supervision Act (Art. 62) Rz 22–23 IV. Splits, Conversions, and Combination Mergers Rz 24

3/6 I. General In addition to the supervision by the BAG, for health insurers active in the supplementary insurance sector, the FINMA must also be contacted as the competent supervisory authority in the event of a merger, split, conversion, or asset transfer. 1 It should be noted that the documents requested below by the FINMA must be submitted directly to the FINMA. 2 Generally, the following should be observed: • The FINMA does not grant formal approval pursuant to Art. 3 Para. 2 VAG for mergers, splits, and conversions in the supplementary health insurance sector. 3 • Adjustments to the business plan in connection with a merger, split, conversion, or asset transfer must be submitted to the FINMA for prior approval (e.g., consolidated tariff). 4 • The FINMA examines whether the health insurer possesses the necessary license for supplementary insurance business pursuant to Art. 3 Para. 1 VAG in the event of an acquisition of supplementary insurance. 5 • For contracts in the area of supplementary insurance, there is no right of cancellation by the insured in the event of mergers and splits. A merger or split does not constitute a transfer of business within the meaning of Art. 62 VAG. The latter presupposes that both legal entities remain in existence after the process, which is not the case here. In this respect, the rules of Art. 62 VAG do not apply, in particular not the right of cancellation under Art. 62 Para. 3 VAG. 6 • In the event of merger and split, private law contracts cannot be unilaterally changed by the health insurers without the consent of the policyholders. 7 Specific information regarding the merger, split, conversion, and asset transfer in the area of supplementary health insurance is provided in Sections II–IV. 8 II. Mergers (Absorption Mergers) In the context of mergers, the FINMA examines whether the interests of the collective body of insured persons are safeguarded in the area of supplementary insurance. Health insurers are therefore obliged to inform the FINMA in advance and comprehensively about impending mergers. This applies to those health insurers under KVG, of which one or both merger partners operate supplementary insurance in addition to social health insurance. 9 A. Documents to be Submitted to the FINMA After the conclusion of the merger contract, the following documents must be submitted directly to the FINMA:

• a copy of the legally valid merger application of both insurers;
• the draft merger contract;
• the most recently prepared balance sheets of both insurers as well as the merger balance sheet;
• the confirmation of the preliminary examination by the competent commercial register office that the requirements of the Merger Act have been met; 10

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• information on the target amount and coverage values of the Bound Assets of the transferring and the acquiring health insurer;
• submissions regarding necessary changes to the business plan;
• a draft of the intended customer information. B. Requirements in the Area of Supplementary Insurance A requirement for approval pursuant to Art. 3 Para. 2 VAG by the FINMA exists in the event of a merger of two health insurers under VAG. The merger of two health insurers under KVG with supplementary insurance, however, is not subject to the approval requirement pursuant to Art. 3 Para. 2. The FINMA nevertheless examines whether the following prerequisites necessary for the operation of supplementary insurance are met. 11 a) Licenses The acquiring health insurer must possess a license from the FINMA (or possibly the former competent supervisory authority) for the operation of VVG supplementary insurance business (lines No. 1 and 2) if it wishes to merge with a health insurer with supplementary insurance business. If the acquiring health insurer does not possess the necessary license, it must apply for the license to operate supplementary insurance prior to the merger. 12 b) Bound Assets The acquiring health insurer must show a single bound asset as of the time of the merger, which consists of the two bound assets of the transferring and the acquiring health insurer. The coverage values of the Bound Assets of the transferring health insurer must be fully transferred to the "Bound Assets" bank account of the acquiring insurer as of this date. 13 c) VAG Reserves and Provisions for VVG Business VAG Reserves and provisions of the transferring health insurer pass to the acquiring health insurance company by universal succession. The acquiring health insurer must show VAG Reserves and provisions in the opening balance sheet as of the time of the merger, which consist of the VAG Reserves and provisions of the transferring and the acquiring health insurer. 14 d) Business Plan The business plan of the acquiring health insurer must correspond to the new circumstances. If this is not the case, the acquiring company must submit a corresponding application (business plan changes must be submitted for approval in cases pursuant to Art. 5 Para. 1 VAG and communicated to the FINMA in cases of Art. 5 Para. 2 VAG). 15 e) VVG Contracts The VVG insurance contracts of the transferring health insurer pass to the acquiring health insurer by universal succession. They must be continued unchanged – subject to a contractual right of cancellation by the insurer. The intended customer information and handling of complaints in connection with 16

5/6 the merger must ensure the protection of the interests of the insured. f) Cancellation by Policyholders A merger does not constitute a transfer of business according to the established supervisory practice of the FINMA, and therefore does not trigger a right of cancellation by the policyholders (cf. Rz 6). The FINMA nevertheless recommends that the insurers show leniency. 17 C. Obligations Arising Towards the FINMA After the Merger Bound Assets (for mergers taking place on 1 January): The acquiring health insurer must show a single bound asset as of the time of the merger (1 January), which consists of the two bound assets of the merged and the merging health insurer. The notification regarding this bound asset must be made within three months after 1 January. 18 Free Assets (for mergers taking place on 1 January): The acquiring health insurer must provide proof of these reserves and provisions (forms EF1) as of the time of the first reporting to the BAG after the merger has taken place. 19 Reporting Obligation: If the transferring health insurer has not yet submitted the reporting to the FINMA regarding its last fiscal year at the time of the merger, this obligation lies with the acquiring health insurer. In this case, the acquiring health insurer is therefore responsible for preparing the last reporting of the transferring health insurer. 20 Supervisory Fee: If the transferring health insurer has not yet paid the supervisory fee for its last fiscal year at the time of the merger, this obligation lies with the acquiring health insurer. In this case, the acquiring health insurer must therefore pay the last supervisory fee of the merged health insurer. 21 III. Asset Transfers Relationship Between Asset Transfer under the Merger Act (FusG) and Transfer of Business under the Insurance Supervision Act (Art. 62) If a health insurer intends to transfer a complex of assets through asset transfer, this must be done in accordance with the provisions of the FusG. The BAG is solely responsible as the institutionally competent supervisory authority for this process. An asset transfer under FusG does not require approval from the FINMA. 22

6/6 However, if the asset transfer covers part or the entirety of the insurance portfolio of the transferring insurer, Art. 62 VAG continues to apply and thus the requirement for consent from the FINMA pursuant to Art. 62 Para. 1. Should such a case occur, the "Checklist for Transfer of Business Supplementary Health Insurance" should be requested from the FINMA. 23 IV. Splits, Conversions, and Combination Mergers Splits, conversions, and combination mergers of health insurers under KVG in the area of supplementary insurance have previously been rare events; they are therefore not treated in this circular. Should such a case occur, however, the FINMA is happy to assist. 24