FINMA Circular 2018/4 Tariffing – Occupational Pension

Laupenstrasse 27 3003 Bern Tel. +41 (0)31 327 91 00 Fax +41 (0)31 327 91 01 www.finma.ch Circular 2018/4 Tariffing – Occupational Pension Business-plan-based determination of savings, risk, and cost tariffs, surrender values, and general insurance conditions in occupational pension Reference: FINMA-Circular 18/4 "Tariffing – Occupational Pension" Issued: 1 November 2018 Entry into force: 1 December 2018 Concordance: formerly FINMA-Circular 08/12 "Swissness principle occupational pension" and FINMA-Circular 08/13 "Tariffing risk insurance occupational pension", both dated 20 November 2008 Legal bases: FINMA Act Art. 7 para. 1 lit. b Insurance Contract Act (VVG) Art. 3, 7, 47, 90, 91 Insurance Supervision Act (VAG) Art. 4 para. 2 lit. d and r, 36, 37, 38, 39, 46, 84 Ordinance on Insurance Supervision (AVO) Art. 1, 63, 117, 119, 120, 122, 123, 127, 128, 130, 132, 146 FINMA Ordinance on Insurance Supervision (AVO-FINMA) Art. 2 Occupational Pension Act (BVG) Art 53e, 53f Occupational Pension Ordinance 2 (BVV 2) Art 16a Ordinance on Financial Services and Financial Institutions (FZV) Art. 8

Addressees BankG VAG FINIG FinfraG KAG GwG Others Banks Financial groups and conglomerates Other intermediaries Insurers Insurance groups and conglomerates Brokers Asset managers Trustees Administrators of collective assets Fund management Custodial securities firms Non-custodial 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 2/5 I. Subject matter II. Scope III. Principles IV. Terms V. Savings tariffs A. Conversion rates B. Assumption of old-age and survivors' pensions C. Mortality tables D. Assumption of disability and disabled children's pensions VI. Risk and cost tariffs VII. Special cases VIII. Surrender values and the "Swissness" principle IX. Final and transitional provisions Rz 1 2-3 4-8 9-11 12-17 13-14 15 16 17 18-25 26-27 28-30 31-32

3/5 I. Subject matter This circular describes the parts of the tariffing and the general insurance conditions to be determined in the business plan for the area of occupational pension in Switzerland. This means the coverage of risks of occupational pension schemes with their seat in Switzerland. II. Scope This circular applies to the tariffs and general insurance conditions of occupational pension according to insurance line A1. In the application, the applicant must specify which portfolios the tariffs and general insurance conditions are to apply to. III. Principles The business plan according to Art. 4 para. 2 lit. r of the Insurance Supervision Act (VAG; SR 961.01) includes a description of the tariffs from which all premiums and benefits, including surrender values, can be clearly recalculated. The business plan also includes the general insurance conditions associated with the tariffs, in which the surrender values are to be described clearly and comprehensibly. Tariffs and general insurance conditions must be consistent. The tariffs and general insurance conditions according to Art. 4 para. 2 lit. r VAG are part of the technical part of the business plan and thus fall within the area of responsibility of the responsible actuary. The policyholder is clearly and transparently informed of the duration of the validity of the tariffs at the time of contract conclusion; this includes in particular the transparency regarding which contractual parties have the option to terminate or not renew. The determination of surrender values must be communicated to the customer in a clearly comprehensible manner. IV. Terms Class-based and experience rating includes risk-appropriate premium differentiation based on contract-specific loss experience. The technical premium results from current and recognized second-order bases, class-based and experience rating, and the inclusion of safety margins. The contract premium results from the technical premium after the application of non-insurance-technical surcharges and discounts.

4/5 V. Savings tariffs Savings tariffs include guaranteed interest rates, conversion rates, as well as bases for the assumption of old-age and survivors' pensions and disability and disabled children's pensions. Guaranteed interest rates apply to the crediting of old-age savings and for freedom-of-choice policies. In the case of conversion rates and the assumption of old-age and survivors' pensions as well as disability and disabled children's pensions, technical interest rates, biometric and demographic bases, and costs are addressed. A. Conversion rates In the case of full insurance, the technical interest rates are determined based on the expected return of the portfolio as a essential component with an appropriate safety margin. In other cases, the technical interest rates are to be determined based on risk-appropriate new money yields at the time of annuitization. B. Assumption of old-age and survivors' pensions In the assumption of old-age and survivors' pensions, the technical interest rates are oriented towards risk-appropriate new money yields at the time of assumption. C. Mortality tables In the scope of Rz 13, 14, and 15, recognized insurance-technical bases are to be used as mortality tables, and the tariff costs must cover the expected costs. D. Assumption of disability and disabled children's pensions Recognized insurance-technical bases are applied for the assumption of disability and disabled children's pensions. VI. Risk and cost tariffs The risk tariff includes, among other things, the insurance of the adjustment of risk pensions to price development according to Art. 36 of the Federal Act on Occupational Old Age, Survivors' and Disability Pension Plans (BVG; SR 831.40). The tariffs covering the risks of death and disability must each have a sufficient margin. If the tariffs for death and disability cover ongoing benefits, their present values are to be determined prudently, and recognized insurance-technical bases are to be applied for widow and widower mortality. The technical interest rates are to be determined based on the term of the corresponding benefits and risk-appropriate new money yields. The determination of cost parameters is to be designed such that they cover the expected costs.

5/5 Class-based and experience rating may only change the margin slightly. The contract-specific loss experience may only flow into the risk-appropriate premium differentiation to the extent that this can be justified by insurance-technical reasons. The tariff application contains this proof. Non-insurance-technical surcharges and discounts on the technical premium are permitted, provided that the surcharges and discounts are within a small range and provided that the contract premium covers the expected expenditure. The total surcharges and discounts over the entire portfolio may only move within a small margin. VII. Special cases Stop-loss contracts insure against excessive losses for the risks of death and disability. The premium is to be determined based on a total loss distribution and with recognized insurance-technical bases. The deductible must be greater than the expected loss. The premiums for the insured benefits of contracts with income-expenditure statements are to be determined tariff-wise. VIII. Surrender values and the "Swissness" principle The redemption provisions are to be regulated in the tariff and described in the general insurance conditions. If ongoing pensions are surrendered, the tariffs according to Rz 15–17 are applied to determine the surrender values. Surplus participation is to be taken into account. IX. Final and transitional provisions This circular applies to tariffs that come into application from 1 January 2020. The implementation of Rz 13 and 14 takes place at the latest with the tariffs that come into application from 1 January 2024. Rz 25 is to be implemented at the latest with the tariffs that come into application from 1 January 2022.