FINMA Circular 2024/1 Swiss Solvency Test (SST)

Laupenstrasse 27 3003 Bern Tel. +41 (0)31 327 91 00 www.finma.ch Circular 2024/1 SST Swiss Solvency Test (SST) Reference: FINMA-Circular 24/1 "SST" Issued: 26 June 2024 Entry into force: 1 September 2024 Concordance: formerly FINMA-Circular 17/3 "SST" of 7 December 2016 Legal Basis: FINMA Act Art. 7 para. 1 lit. b, 29 para. 1 Insurance Supervision Act (VAG) Art. 9a and 9b, 14a Ordinance (AVO) Art. 40, 43 para. 1, 7, 45 para. 1, 2, 3, 46, 47 para. 1, 50 and 53b FINMA Ordinance (AVO-FINMA) Art. 7, 12, 21 and 24

Addressees BankG VAG FINIG FinfraG KAG GwG Others

Banks X

Financial Groups and Conglomerates X

Persons under Art. 1b BankG X

Other Intermediaries X

Insurers X

Insurance Groups and Conglomerates X

Intermediaries X

Asset Managers X

Trustees X

Administrators of Collective Assets X

Fund Management Companies X

Custodian Securities Firms X

Non-Custodian Securities Firms X

Trading Venues X

Central Counterparties X

Central Securities Depositories X

Transaction Registers X

Payment Systems X

Participants X

SICAV X

KmG for KKA X

SICAF X

Custodian Banks X

Representatives of Foreign KKA X

Other Intermediaries X

SRO X

SRO-Supervised Entities X

Audit Firms X

Rating Agencies X

I. Subject Matter II. Scope of Application III. Governance IV. Publications and Announcements by FINMA A. Standard Models B. Requirements for Annual SST Determination and Reporting C. Announcements V. Examination of SST Reporting by FINMA A. Examination B. Feedback VI. Examination of SST Models by FINMA A. Summaric and Material Examinations B. Result of the Examination

Para 1 2 3 4-11 4-5 6-10 11 12-19 12-15 16-19 20-31 20-25 26-31

I. Subject Matter This circular describes the supervisory practice regarding publications and announcements by FINMA on standard models and SST reporting, scenarios, as well as the examination of SST reporting and SST models.

II. Scope of Application This circular applies to all insurance companies under Art. 2 para. 1 lit. a of the Insurance Supervision Act (VAG; SR 961.01) and to insurance groups and conglomerates subject to group or conglomerate supervision ("groups") under Art. 2 para. 1 lit. d VAG in conjunction with Art. 65 and 73 VAG.

III. Governance Insurance companies define the organizational structure, processes, and reporting lines for the SST. In doing so, they document the tasks, competencies, and responsibilities of the governing body and its possible committees, the management, independent control bodies and control functions, internal audit, and other relevant business or organizational units. The documentation, regulations, processes, and controls are to be integrated into the overarching enterprise-wide risk management. In cases of shared responsibilities, tasks, competencies, and responsibilities must be clearly assigned, and internal reporting lines and overall responsibility must be defined. The essential processes and requirements must be captured by the internal control system and controlled regularly.

IV. Publications and Announcements by FINMA A. Standard Models Standard models include explanatory documents and binding templates. FINMA regularly reviews whether standard models, including their parameters and implementation, should be further developed or supplemented as a result of new findings. It cooperates with the affected insurance companies in an appropriate manner during the review and further development.

B. Requirements for Annual SST Determination and Reporting The requirements for annual SST determination and reporting include the SST minimum granularity under Art. 24 para. 1 of the Insurance Supervision Ordinance-FINMA (AVO-FINMA; SR 961.011.1), the standard models and changes thereto, including parameter updates, and prescribed scenarios under Art. 43 para. 1 of the Supervision Ordinance (AVO; SR 961.011). The publication of requirements and the notification of the scope and deadlines for supplementary requirements by FINMA takes place six months before the submission deadline for the next annual SST reporting.

The publication of supplementary requirements generally takes place no later than three months before the submission deadline for the next annual SST reporting. FINMA may, in exceptional cases, make adjustments to the requirements and supplementary requirements after the deadlines according to paras. 7 and 8. FINMA publishes an overview of the annual SST determination and reporting on its website. It contains the modalities, requirements, and deadlines for the next annual SST determination and reporting and the files to be submitted by insurance companies. It also draws attention to any subsequent adjustments to requirements according to para. 6 and any further upcoming SST determinations such as shadow calculations, field tests, etc.

C. Announcements As far as possible, FINMA notifies an insurance company no later than six months before the submission deadline for the next annual SST reporting if this company must use the currently ordered or approved SST model with adjustments, capital add-ons on the target capital, or capital deductions on the risk-bearing capital, or with the aggregation of scenarios, for the next annual SST determination.

V. Examination of SST Reporting by FINMA A. Examination Based on the SST reporting, FINMA can make assessments of the insurance companies' SST determinations regarding: • the formal and substantive requirements for SST reporting under Art. 24 AVO-FINMA; and • the justifiable application of the prescribed or approved SST model. If FINMA identifies deficiencies in the SST reporting, it may reject the SST reporting for revision and resubmission to the insurance company.

B. Feedback FINMA notifies insurance companies in writing, and generally within six months after the submission deadline of the last SST reporting, if it: • has identified deficiencies in the SST reporting; or • applies add-ons to the target capital or deductions to the risk-bearing capital to the submitted SST determination. FINMA only applies add-ons or deductions if they are material.

VI. Examination of SST Models by FINMA A. Summaric and Material Examinations For an internal model or a material change to an internal model, insurance companies present the model or the change, as well as the scope and structure of the model documentation, to FINMA before submitting the approval application. The model presentation takes place after FINMA has recognized the need for an initial approval of an internal model, the insurance company has developed the model or the change, and the documentation is available in a comprehensible structure. FINMA notifies an insurance company if a model presentation can be waived. FINMA examines an approval application under Art. 12 AVO-FINMA for the use of an internal model, a material model change to an internal model, or an adjustment to a standard model summarically (summaric examination). In the summaric examination, FINMA assesses based on the submitted application whether the quantitative, qualitative, and organizational requirements (Art. 46 para. 1 lit. b AVO) are met. FINMA may subject models and SST determinations (also with standard models) that have undergone a summaric examination to material examinations. In material examinations, FINMA informs the affected insurance companies in advance about the scope, purpose, and preliminary planned format of the material examination. FINMA may expand the scope or purpose of the examination. In such a case, it informs the affected insurance companies.

B. Result of the Examination In the notification of the result of the summaric or material examination to the affected insurance company, FINMA sets out: • key points of the examination carried out; • important findings and consequences; • whether the insurance company may continue to use the examined model in the SST for the time being, possibly under ancillary conditions such as adjustments or add-ons or deductions. If a summaric or material examination concludes that the insurance company cannot continue to use the examined model for the time being, FINMA establishes an SST model under Art. 47 para. 1 or 53b AVO as a transitional model. FINMA grants affected insurance companies the opportunity to comment on the result of the examination within a reasonable period.