FINMA Circular 2017/5 Business Plans - Insurers

Laupenstrasse 27, 3003 Bern Tel. +41 (0)31 327 91 00, Fax +41 (0)31 327 91 01 www.finma.ch Circular 2017/5 Business Plans - Insurers Requirements for the business plans of insurance companies Reference: FINMA-Circular 17/5 "Business Plans - Insurers" Issued: 7 December 2016 Entry into force: 1 January 2017 Last amendment: 26 June 2024 [Amendments are marked with * and listed at the end of the document] Legal basis: FINMA Act Art. 7 para. 1 lit. b, 29 Insurance Supervision Act (VAG) Art. 4–6 Insurance Supervision Ordinance (AVO) Art. 5

Addressees Bank Act (BankG) Insurance Supervision Act (VAG) Financial Market Infrastructure Act (FINIG) Financial Market Infrastructure Act (FinfraG) Collective Investment Schemes Act (KAG) Anti-Money Laundering Act (GwG) Others

Banks Financial groups and conglomerates Persons under Art. 1b Bank Act Other intermediaries Insurers Insurance groups and conglomerates Intermediaries Asset managers Trustees Managers 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 Custodian banks Representatives of foreign KKA Other intermediaries SRO SRO-supervised Audit firms Rating agencies X

Table of Contents 2/16 I. Purpose II. Scope III. General Provisions A. Overview of business plan notifications B. Initial authorizations (Art. 4 para. 1 VAG) C. Business plan amendment (Art. 5 VAG) D. Common provisions for initial authorizations and business plan amendments IV. Elements of the business plan A. Articles of association (Art. 4 para. 2 lit. a VAG) B. Organization, local scope of activity (Art. 4 para. 2 lit. b VAG) C. Insurance activity abroad (Art. 4 para. 2 lit. c VAG) D. Financial provision, reserves (Art. 4 para. 2 lit. d VAG) E. Annual financial statements, opening balance sheet (Art. 4 para. 2 lit. e VAG) F. Ownership structure (Art. 4 para. 2 lit. f VAG) G. Senior management (Art. 4 para. 2 lit. g VAG) H. Responsible actuary (Art. 4 para. 2 lit. h VAG) I. Audit firm (Art. 4 para. 2 lit. i VAG) J. Outsourcing (Art. 4 para. 2 lit. j VAG) K. Lines of business (Art. 4 para. 2 lit. k VAG) L. National Insurance Bureau, National Guarantee Fund (Art. 4 para. 2 lit. l VAG) M. Tourist assistance services (Art. 4 para. 2 lit. m VAG) N. Reinsurance (Art. 4 para. 2 lit. n VAG) O. Start-up costs (Art. 4 para. 2 lit. o VAG) P. Pro forma balance sheets, pro forma income statements (Art. 4 para. 2 lit. p VAG) Q. Risk management (Art. 4 para. 2 lit. q VAG) Rz 1 2 3-10 3 4 5-6 7-10 11-82 11-12 13-17 18-32 33-36.5 37-45 46-47 48-49 50 51 52 53-54 55 56 57-59 60-64 65-68 69-81

Table of Contents 3/16 R. Tariffs, General Insurance Conditions (Art. 4 para. 2 lit. r VAG) V. Transitional provisions Rz Rz 82 83-85

4/16 I. Purpose This circular aims to concretize the provisions of the Insurance Supervision Act (VAG; SR 961.01) regarding the authorization application and the business plan (Art. 4 VAG). It specifies the requirements that insurance companies must meet to obtain authorization to conduct business (initial authorization; Art. 3 and 6 VAG) or to obtain approval for the amendment of individual elements of the business plan (business plan amendment; Art. 4 and 5 VAG). 1 II. Scope This circular applies to insurance companies with their seat in Switzerland and branches of foreign insurance companies that apply for authorization to conduct business under Art. 3 and 6 VAG (initial authorization) or approval for individual elements of the business plan under Art. 4 in conjunction with Art. 5 VAG (business plan amendment). It also applies to a limited extent to health insurers under the institutional supervision of the Federal Office of Public Health (FOPH), insofar as supplementary insurance to the mandatory health insurance is offered (Art. 2 para. 2 lit. b VAG, Art. 34 para. 5 Health Insurance Supervision Act [KVAG; SR 832.12]). With regard to Art. 4 para. 2 lit. g VAG, this circular also applies to insurance groups and conglomerates (Art. 71bis and 79bis VAG). 2* III. General Provisions A. Overview of business plan notifications The following table provides an overview of the business plan elements under Art. 4 VAG to be submitted to FINMA. 3*

Business plan element	Initial insurer	Reinsurer	Health insurers	Branches	Groups/Conglomerates
Lit. a Articles of association	X				3
Lit. b Organization	X			4
Lit. c Activity abroad	X	X
Lit. d Financial provision, reserves	X		5		5
Lit. e Annual financial statements, opening balance sheet	X
Lit. f Ownership structure	X			X
Lit. g Senior management	X				6 X
Lit. h Responsible actuary	X
Lit. j Outsourcing	X
Lit. k Lines of business	X

5/16 Lit. l National Insurance Bureau / National Guarantee Fund | X | | | 7 X | 7 Lit. m Assistance services | X | | | 8 X | 8 Lit. n Reinsurance | X | X | | | Lit. o Start-up costs | X | | | | Lit. p Pro forma balance sheets | X | | | | Lit. q Risk management | X | | | | Lit. r Tariffs, GIC | X | | | 9 X | 9 X | 9

1 Under institutional supervision of the FOPH; insofar as supplementary insurance to the mandatory health insurance is offered. 2 The business plan notifications are limited to the business activities of the branch, unless otherwise noted. 3 Only for property insurers and only for initial authorization, articles of association (or statutes) of the foreign insurance company. 4 Only subsequent notification of the organization approved by the FOPH. 5 Limited to the reserves. 6 Only the person with general power of attorney. 7 Only for insurance line B10. 8 Only for insurance line B18. 9 Only for occupational pension and for supplementary insurance to social health insurance.

B. Initial authorizations (Art. 4 para. 1 VAG) In the case of an initial authorization (new establishment, relocation of seat to Switzerland, establishment of a branch), the insurance company must comprehensively and understandably present its planned business activities to FINMA in the application under Art. 4 para. 1 VAG, so that the assessment for the authorization can be based on this. 4 C. Business plan amendment (Art. 5 VAG) In the case of a business plan amendment under Art. 5 VAG, the change in the business plan must be presented understandably in the application. 5 As a relevant fact under Art. 5 of the Supervision Ordinance (AVO; SR 961.011), either its legal effectiveness (Art. 4 para. 2 lit. b, c, d, j, l, m, n, q VAG), the taking note of the event (Art. 4 para. 2 lit. f VAG) or the appointment (Art. 4 para. 2 lit. g VAG) applies. 6 D. Common provisions for initial authorizations and business plan amendments FINMA makes the following distinctions when collecting information: 7 • authorization-required business plan information, which is covered by FINMA's approval and must be submitted for approval or notified to FINMA upon initial authorization and upon any subsequent change (Art. 5 VAG); 8 • notification-required information, which the insurance company submits to FINMA for its knowledge, without these information being subject to a requirement for approval; 9 • supplementary information, which is collected only once or which the insurance company records appropriately in its files, without having to communicate it to FINMA. 10

6/16 IV. Elements of the business plan A. Articles of association (Art. 4 para. 2 lit. a VAG) All amendments to the articles of association must be submitted to FINMA for approval prior to implementation (Art. 5 para. 1 VAG). In the case of stock corporations, they must be approved by FINMA prior to entry in the commercial register, and in the case of cooperatives, prior to resolution by the general meeting. 11 FINMA particularly reviews the purpose clause and the legal form for insurance supervisory law compliance and whether the articles of association as a whole do not violate the interests of the insured. 12 B. Organization, local scope of activity (Art. 4 para. 2 lit. b VAG) a) Organization The insurance company has an organizational structure in Switzerland that is appropriate to its size and the complexity and scope of its business operations. 13 The insurance company describes in the business plan at least the functions relevant to the business operated, their organizational integration into the insurance company, the assigned tasks, competencies, responsibilities, and reporting lines. Functions that are combined, not led independently, or outsourced must be explained. 14 b) Local scope of activity The insurance company provides information on the insurance activities exercised domestically and abroad. 15 c) Affiliated companies In the case of economically affiliated companies under uniform management, the insurance company, which is not subject to group or conglomerate supervision by FINMA, provides additional information. It should be evident from this which companies are directly connected to the insurance company. 16 d) Health insurers Health insurers submit to FINMA those documents and any subsequent changes thereto for their knowledge, which they must submit to the FOPH for approval under Art. 7 para. 2 lit. b KVAG. The submission obligation applies as soon as the FOPH has granted the corresponding authorization by order or upon expiration of the deadline (Art. 8 para. 2 KVAG). 17

7/16 C. Insurance activity abroad (Art. 4 para. 2 lit. c VAG) a) Insurance activity abroad Insurance activity abroad is determined by the location of the insured risk. The location of the risk is determined by: 19 • in the insurance of real estate including items co-insured within a building: by their location; 20 • in the insurance of land, air, and water vehicles: by their registration or licensing; 21 • in the insurance of travel and holiday risks (regardless of the line of business) with a maximum contract duration of four months: by the state in which the policyholder concluded the contract; 22 • in all other insurances and reinsurance: by the seat or residence of the policyholder at the time of contract conclusion or in the event of significant changes to the coverage scope. 23 Under what conditions insurance activity abroad is permitted is assessed according to the law of the country of activity. Compliance with the respective legal system is ensured independently by the insurance company and documented accordingly. 24 b) Proof and notification in the business plan The proof under Art. 4 para. 2 lit. c VAG can be provided by: 25 • submitting the operating license of the supervisory authority of the country of activity; 26 • submitting a certificate from the supervisory authority of the country of activity, if the activity in that country is not subject to licensing and is compatible with the legal system of the country of activity; 27 • submitting a legal assessment by a qualified expert written in a Swiss official language or in English. 28 The renewal of a time-limited operating license is not a business plan amendment. 29 The revocation of an operating license or the non-renewal of an operating license is subject to notification. 30 No notifications under Art. 4 para. 2 lit. c VAG are required for reinsurance activities. The insurance company ensures the supervisory law compliance of its reinsurance activities and documents this. 31

8/16 A foreign insurance company that conducts its business activities only abroad from Switzerland must also provide proof that the home country supervisory authority agrees with the establishment of the branch in Switzerland (Art. 20 para. 1 AVO). 32 D. Financial provision, reserves (Art. 4 para. 2 lit. d VAG) a) Principles of capital strategy as well as capital planning and management The insurance company has an internally documented capital strategy and planning adapted to its business activities. In the case of an initial authorization, the capital strategy and planning must be outlined in the business plan in broad terms. 33 The insurance company reports significant negative changes regarding the financial provision. In particular, capital outflows within the framework of the statutory accounting within a financial year that exceed the profit allocable and distributable for this financial year by 50% must be reported. 34 The capital planning is anchored in corporate governance and integrated into the control structures of the insurance company. 35 b) Technical insurance reserves – Scope of information in the business plan Repealed 36* Models, methods, and assumptions for the formation and release of technical insurance reserves are to be described in the principles in the business plan. The details required for the calculation must be recorded transparently and understandably in an attachment (Reserving Policy, technical documentation, or similar). 36.1* If a technical insurance reserve in life insurance is sufficient only if a complex management concept for the covering assets can be realized, this concept must be described in the business plan. 36.2* For the technical insurance reserves concerning supplementary insurance to social health insurance, the use of funds freed up by the release of technical insurance reserves must be recorded in the business plan. This applies in particular to the use of technical insurance reserves no longer needed under Art. 45 AVO-FINMA. 36.3* The plan for the refund of a portion of the age reserves under Art. 155 para. 2 AVO is part of the business plan. 36.4* Changes to the models, methods, and assumptions for the formation and release of technical insurance reserves, the effects of which on the technical insurance reserves are not insignificant, are considered business plan amendments and must be reported to FINMA (Art. 5 para. 2 VAG). 36.5*

9/16 E. Annual financial statements, opening balance sheet (Art. 4 para. 2 lit. e VAG) a) New establishment Insurance companies seeking an initial authorization for insurance activities submit an opening balance sheet in accordance with the appendix to the Insurance Supervision Ordinance-FINMA (AVO-FINMA; SR 961.011.1). The organizational fund (Art. 10 VAG) must be shown separately. 37 The insurance company demonstrates that the minimum capital has been paid in and is freely available to it. 38 It demonstrates that the tied assets are correctly pledged. 39 b) Relocation of seat In the case of a relocation of seat from abroad to Switzerland, the insurance company submits the balance sheet, the income statement (profit and loss account), and any other components of the annual financial statements according to the corresponding accounting regulations of the last three years. If the annual financial statements are not based on internationally recognized accounting standards (IFRS, US GAAP, or comparable regulations) and deviate significantly from the requirements of AVO-FINMA regarding the structure, the insurance company transcribes the statements. The audit reports on the annual financial statements must also be submitted. 40 The insurance company submits an opening balance sheet in accordance with the appendix to AVO-FINMA. The organizational fund must be shown separately. 41 The insurance company demonstrates that the minimum capital has been paid in and is freely available to it. 42 It demonstrates that the tied assets are correctly pledged. 43 c) Establishment of a branch The foreign insurance company submits the annual financial statements of the last three years (cf. Rz 40) and an opening balance sheet adapted for the branch in accordance with the appendix to AVO-FINMA. The organizational fund must be shown separately. 44 Insurance companies – with the exception of property insurance companies with their seat in the EU – provide proof that the deposit under Art. 5b AVO-FINMA has been posted. 45

10/16 F. Ownership structure (Art. 4 para. 2 lit. f VAG) a) Direct and indirect participation An indirect participation exists if further participation relationships are interposed, leading to an indirect participation of at least 10% of the capital or voting rights. The decisive factor is not a purely arithmetic consideration of indirect participations, but one that takes into account the actual control relationships in the general meeting (shareholders' meeting, etc.) of the interposed companies. 46 b) Significant influence on the business activities of the insurance company Significant influence can be exercised in particular through financial, personnel, and/or organizational interlinkages that can lead to the dependence of the insurance company. 47 G. Senior management (Art. 4 para. 2 lit. g VAG) Art. 4 para. 2 lit. g VAG covers, regardless of the legal form and organization of the insurance company or insurance group or conglomerate and the designation of the position in individual cases, all leading decision-makers and/or persons with responsibility; in the case of branches, however, exclusively the person with general power of attorney. 48* The insurance company appoints these persons in accordance with the applicable supervisory law provisions and FINMA-Circular 2017/2 "Corporate Governance - Insurers". 49 H. Responsible actuary (Art. 4 para. 2 lit. h VAG) The insurance company appoints the responsible actuary in accordance with the applicable supervisory law provisions and FINMA-Circular 17/4 "Responsible Actuary". 50 I. Audit firm (Art. 4 para. 2 lit. i VAG)

• 51 J. Outsourcing (Art. 4 para. 2 lit. j VAG)
• 52

11/16 K. Lines of business (Art. 4 para. 2 lit. k VAG) The insurance company states in the application for the operation of a line of business the planned insurance coverages to be offered within this line. Insurance coverages offered later in an already authorized line of business do not need to be reported. 53 The insurance company states in the application for each line of business whether business under Art. 4 para. 2 lit. k No. 1–3 in conjunction with Art. 5 para. 1 VAG is to be concluded. 53.1* If a planned new insurance coverage cannot be assigned to an authorized line of business, an application for the operation of the corresponding line of business must be submitted as part of a business plan amendment (Art. 5 para. 1 VAG). 54 L. National Insurance Bureau, National Guarantee Fund (Art. 4 para. 2 lit. l VAG) If mandatory motor vehicle liability insurance is operated, the membership in the National Insurance Bureau (Art. 74 para. 1 Road Traffic Act [SVG; SR 741.01]) and the National Guarantee Fund (Art. 76 para. 1 SVG) must only be confirmed in the application for insurance line B10. 55 M. Tourist assistance services (Art. 4 para. 2 lit. m VAG) The insurance company demonstrates that it can provide the contractually promised material benefits itself or through specialized service providers and network organizations. 56 N. Reinsurance (Art. 4 para. 2 lit. n VAG) a) Reinsurance/Retrocession plan Reinsurance or retrocession includes traditional and alternative reinsurance solutions. The insurance company defines a reinsurance or retrocession strategy based on the business and risk strategy as well as the capital requirement and documents this accordingly. It describes therein the desired scope of reinsurance coverage, the different reinsurance concepts, and their mutual coordination. Furthermore, it sets out the defined processes, responsibilities, and competencies for the selection of reinsurers and the desired diversification. Within the framework of the business plan, the reinsurance or retrocession strategy must be outlined in broad terms. 57

12/16 b) Risk management and controlling of reinsurance receivables The insurance company outlines in broad terms the risk management process regarding the specific risks in reinsurance and its integration into the general, overarching risk management processes. In particular, the criteria and methods for setting limits for current and latent reinsurance receivables against reinsurers and reinsurance groups should be described. 59 O. Start-up costs (Art. 4 para. 2 lit. o VAG) a) Amount of the organizational fund Based on the submitted planning under Art. 4 para. 2 lit. p VAG, the organizational fund must be sufficiently capitalized so that the specified minimum capital is always covered by assets throughout the entire planning horizon of at least 3 years. In the case of branches, the organizational fund must cover all losses from the start-up phase. The insurance company must credibly demonstrate to FINMA that this condition is met throughout the entire start-up phase. If there are uncertainties in the planning, the organizational fund must be increased appropriately. 60 FINMA sets the amount of the organizational fund at a minimum of 20% of the specified minimum capital (Art. 11 para. 1 AVO). If the insurance company justifies special circumstances and there are sufficient guarantees for a regular business operation, this threshold may be undercut. 61 b) Permissible investments The organizational fund must be invested in liquid and valuable assets due to its purpose. Permissible are liquid funds according to recognized accounting standards. 62 c) Measures If the organizational fund shows an underfunding of 20% compared to the planned target during the course of business operations, the insurance company must immediately top up the organizational fund with additional funds to the planned target (Art. 11 para. 3 AVO), or demonstrate to FINMA that the organizational fund is still sufficiently covered based on the submitted planning. 63 The insurance company explains in the context of the initial authorization how this refinancing can take place. 64

13/16 P. Pro forma balance sheets, pro forma income statements (Art. 4 para. 2 lit. p VAG) a) Pro forma balance sheets The pro forma balance sheets (including appendices) for the planned business closures of the first 3 years must be submitted in accordance with Art. 5a AVO-FINMA and the appendix to AVO-FINMA. Only materially significant positions are to be listed. 65 b) Pro forma income statements The pro forma income statements (including appendices) for the planned business closures of the first 3 years must be submitted in accordance with Art. 5a AVO-FINMA and the appendix to AVO-FINMA. Only materially significant positions are to be listed. 66 Additionally, the start-up costs must be shown separately by expense item, and the acquisition and administrative costs must be shown separately for each. 67 c) Cash flow statement In the cash flow statement for the planned business closures of the first 3 years, the cash flow from operational insurance activities must be shown separately in addition to the total result. 68 Q. Risk management (Art. 4 para. 2 lit. q VAG) The organization of risk management

14/16 must be described in the business plan. The insurance company describes the risk management process, including the identification, assessment, monitoring, and reporting of risks, as well as the integration into the overall corporate governance. The description must include the risk appetite and risk tolerance levels defined by the insurance company. 69 The insurance company must describe how it ensures that the risk management process is independent and that the risk management function has sufficient authority and resources. 70 The insurance company must describe how it integrates the risk management process into its strategic planning and decision-making processes. 71 The insurance company must describe how it monitors the effectiveness of the risk management process and how it reports on risks to the senior management and the board of directors. 72 The insurance company must describe how it handles extreme but plausible events (stress testing) and how it incorporates the results into its risk management and capital planning. 73 The insurance company must describe how it manages the risks associated with outsourcing, including operational, legal, and reputational risks. 74 The insurance company must describe how it manages the risks associated with its investment activities, including market, credit, and liquidity risks. 75 The insurance company must describe how it manages the risks associated with its underwriting activities, including pricing, selection, and claims management risks. 76 The insurance company must describe how it manages the risks associated with its reinsurance activities, including counterparty risk and concentration risk. 77 The insurance company must describe how it manages the risks associated with its technology and IT systems, including cyber security and business continuity risks. 78 The insurance company must describe how it manages the risks associated with its compliance with legal and regulatory requirements, including anti-money laundering and counter-terrorism financing risks. 79 The insurance company must describe how it manages the risks associated with its human resources, including key person risk and talent management risks. 80 The insurance company must describe how it manages the risks associated with its reputation and brand, including crisis management and communication risks. 81 R. Tariffs, General Insurance Conditions (Art. 4 para. 2 lit. r VAG) The insurance company must submit its tariffs and general insurance conditions to FINMA for approval. The tariffs and general insurance conditions must be transparent, understandable, and non-discriminatory. 82 V. Transitional provisions The requirements of this circular apply to applications submitted after the entry into force of this circular. Applications submitted before the entry into force of this circular are subject to the provisions in force at the time of submission. 83 Insurance companies that have already submitted a business plan to FINMA before the entry into force of this circular must adapt their business plan to the new requirements within 12 months of the entry into force of this circular. 84 Health insurers that have already submitted a business plan to FINMA before the entry into force of this circular must adapt their business plan to the new requirements within 24 months of the entry into force of this circular. 85

Amendments to this circular:

• The section on "Technical insurance reserves" has been updated to include new requirements for the description of models, methods, and assumptions (Rz 36.1* to 36.5*).
• The section on "Senior management" has been updated to clarify the scope of Art. 4 para. 2 lit. g VAG (Rz 48*).
• The section on "Business plan notifications" has been updated to clarify the distinction between authorization-required, notification-required, and supplementary information (Rz 7-10).
• The section on "Scope" has been updated to include health insurers under the institutional supervision of the FOPH (Rz 2*).
• The section on "Overview of business plan notifications" has been updated to reflect the current requirements for different types of insurers (Rz 3*).

These amendments entered into force on 26 June 2024.