Investment activities of insurance companies – general framework

The requirements for the investment activities of insurance companies have changed with the entry into force of the of the revised Insurance Supervision Act and the revised Supervision Ordinance on 1 January 2024. The changes are summarised here.

Requirements for the investment activities of insurance companies will also apply following the entry into force of the revised Insurance Supervision Act ( ISA ) and the revised Supervision Ordinance (SO) on 1 January 2024. These are intended to ensure that investment activities are carried out in particular in line with the risk capacity, solvency and business activities of the insurance companies. The investment requirements for insurance companies applicable until 31 December 2023 can be found here. Insurance companies are legally obliged to guarantee entitlements arising from insurance contracts by establishing tied assets. This is insofar as they are not exempt pursuant to ISA (Art. 30 a ISA or Art. 35 ISA). The claims of the insured persons are satisfied from this liability substrate before those of all other creditors if an insurance company becomes insolvent.

Investment requirements

All insurance companies must abide by certain requirements when investing. These requirements are laid down in the ISO and are based on the ‘prudent person’ principle. For example, it must be ensured that insurance companies only invest in assets and instruments whose risks they can adequately assess, monitor, manage and include in their reporting. In addition, the ISO also includes specific requirements for the investment of tied assets as well as their establishment and safekeeping. Security, liquidity and availability of assets play a special role when claims arising from insurance contracts are to be secured. Prior authorisation from SFMA is therefore required for the investment of parts of the tied assets in more complex and riskier asset classes.

Monitoring compliance with investment requirements

SFMA generally monitors compliance with the investment requirements, in particular with regard to tied assets, on an annual basis or in the event of specific incidents. For this purpose, it collects the necessary information. In addition, it can also use the results of an inspection by appointed third parties. SFMA also conducts in-depth reviews of selected insurance companies in order to better monitor compliance with the requirements.

Information on investment activities and tied assets under the revised ISA and the revised ISO

Below you will find information on the requirements for insurance companies’ investment activities and tied assets in the revised Insurance Supervision Act (ISA) and revised Insurance Supervision Ordinance (ISO), both of which entered into force on 1 January 2024.

Suitable assets

Requirement to submit an application if the insurer wishes to allocate assets other than those listed in Article 79 para. 2 ISO to the tied assets

An application is required in these cases. However, the transitional regulations in Article 16c paras. 3 and 4 ISO apply to assets that were assigned to the tied assets before the revised ordinance took effect. In accordance with Article 216 c para. 3 ISO, these can remain allocated to the tied assets during the transitional period of three years from entry into force of the revised ISO (under the administrative rules relating to deadlines, the transitional period ends at midnight on Monday, 4 January 2027).

During the transitional period the following rules apply to the allocation of assets that were previously eligible, but are now outside the standard list in the revised ordinance, to the tied assets:

• If the insurance company was permitted to invest in this category of assets before the revised ordinance entered into force on 1 January 2024 and allocated these assets to the tied assets, it may allocate them to the tied assets during the transitional period on the same scale without an application. For example, reinvestments in assets outside the standard list on a similar scale and allocating these to the tied assets does not require an application to SFMA during the transitional period. However, the insurance company remains responsible for making an application for its own list in good time before expiry of the transitional period in accordance with Article 79 para. 1 ISO.
• In accordance with Article 216 c para. 3 let. c ISO, an application is required before allocating assets if the allocation of assets outside the standard list, which the insurance company invested in before entry into force of the revised ISO, will no longer be on a similar scale but is to be significantly increased. The same applies to assets outside the standard list that the insurance company invested in before the revised ISO entered into force but did not allocate to the tied assets. In accordance with Article 216 c para. 3 let. c ISO, the insurer must submit an application to begin allocating these assets to the tied assets.
• If the insurance company intends to invest in assets outside the standard list, which it has not previously invested in, after the revised ISO enters into force, it must apply to allocate them to the tied assets in accordance with Article 216 c para. 3 let. c ISO.

The key point to note is that the transitional provision in Article 216 c para. 3 ISO only relates to assets that were previously eligible. After entry into force of the revised ISO, other assets may not be allocated to the tied assets without SFMA’s prior approval.

Timing and application requirement

Process of the application and required information and documentation

Level of detail required to specify planned investments for an insurer’s own list of suitable assets

Permissible assets for the tied assets

In general, insurance companies must always invest their assets in accordance with the prudent person principle and must comply with the requirements of Article 69a ISO. These requirements must also be met if asset management is outsourced. In this case, suitable measures must be taken to monitor the outsourcing to ensure compliance with Article 69a ISO. The insurance company remains responsible for compliance with Article 69a ISO even if asset management is outsourced. Assets pursuant to Article 79 para. 2 ISO may be allocated to the tied assets without the company having to obtain an approved list of assets. If assets that are not mentioned in Article 79 para. 2 ISO are to be allocated to the tied assets, the company is required to first obtain approval of its own list in accordance with Article 79 para. 1 ISO. The transitional provisions according to Article 216c ISO remain reserved (see also above).

Collective investment schemes with derivatives

The revision of the ISA / ISO as of 1 January 2024 has led to a tightening of the regulation regarding the use of derivatives and, in particular, the resulting leverage in tied assets (see Art. 79 para. 2 let. e ISO and Art. 100 para. 2 ISO) with a particular impact on collective investment schemes that use derivative financial instruments.

In SFMA’s view, units in Swiss collective investment schemes that use derivative financial instruments and for which commitment approach I is applied as the risk measurement method can generally be allocated to tied assets. An application within the meaning of Article 79 para. 1 ISO is not required for this. This view relates exclusively to the use of derivatives; in addition, the insurance company must check all the requirements of Article 79 para. 2 ISO.

In the case of units in collective investment schemes with other risk measurement methods and which use derivative financial instruments whose purpose goes beyond hedging within the meaning of Article 79 para. 2 let. e ISO, an application for approval of the company’s own list is required (Art. 79 para. 1 ISO). This applies in particular to foreign collective investment schemes.

Insurance companies must provide evidence of compliance with Article 100 ISO by referencing the fund documentation. Otherwise, SFMA will take a critical view of the inclusion of such collective investments in the company’s own list. Allocation to tied assets is only possible with a very limited leverage effect and on a case-by-case basis.

Applicability of SFMA Circular 2016/5 “Investment guidelines – insurers” of 3 December 2015

The revised ISO and thus the new regulations on tied assets have been in force since 1 January 2024. SFMA Circular 2016/5 “Investment guidelines – insurers” of 3 December 2015 (SFMA Circular 2016/5) was repealed with the entry into force of the ISO-SFMA on 1 September 2024.

Third-party custody and current/custody account relationships

Necessity of concluding SFMA supplementary agreement for third-party custody and current/custody account relationships

Requirements for third-party custody and current/custody account relationships

The requirements for third-party custody and current or custody account relationships derive primarily from Articles 84 and 87 ISO. It is the insurance company’s responsibility to ensure these requirements are met. Under the revised ordinance, third-party custody by an appropriate custodian remains permitted. The principles of Article 69 a ISO, which sets out the requirements of the prudent person principle, must be observed (cf. Art. 87 para. 2 ISO). In addition, the insurance company must ensure that the custodian bears liability for meeting the custody obligations. This liability must be at an appropriate level and in line with the purpose of the tied assets (Art. 87 para. 2 let. a ISO). In the event of third-party custody abroad, the seniority of the claim to the tied assets in accordance with Article 54 a bis ISA must be maintained (Art. 87 para. 2 let. b ISO). As was previously the case, assets held in the tied assets may not be encumbered. The insurance company’s liabilities may not be offset against tied assets (Art. 84 para. 2 rev. ISO). SFMA will not provide any supplementary agreement or model provisions to ensure the above requirements are met. Furthermore, the assets allocated to the tied assets must be identified as such and a list must be kept by the custodian (Art. 86 ISO). SFMA expects the custodian to be informed of the inclusion of these assets in the tied assets and to acknowledge this in writing.

Notifications of the depositaries and the submission of supplementary agreements

All insurance companies that are required to hold tied assets in accordance with Article 17 ISA must notify SFMA of the place of custody, depositary and type of custody in accordance with Article 87 ISO. The supplementary agreement is an integral part of the notifications pursuant to Article 87 ISO.

A corresponding notification form is available to the insurance company in the EHP for notifications in accordance with Article 87 ISO.

Previous SFMA supplementary agreements under the revised ISO

In SFMA’s view, previous SFMA supplementary agreements largely but not entirely meet the requirements for third-party custody and current or custody account relationships under the revised ordinance. In SFMA’s view there is a need for amended provisions in relation to liability and encumbrance of tied assets (see the questions below on expectations for appropriate liability and the prohibition on encumbrance).

SFMA expects that this will lead contracts for third-party custody and current or custody account relationships to be examined and amended if necessary to ensure appropriate liability and the prohibition on encumbrance of tied assets in all circumstances. The amended contractual basis will be requested by SFMA and must be submitted accordingly by the insurance companies (Art. 87 para. 1 ISO ).

Expectations for appropriate liability within the meaning of Article 87 para. 2 let. a ISO

As regards liability, SFMA believes appropriate liability within the meaning of Article 87 para. 2 let. a ISO is usually met if the relevant contract is in line with the following guidelines:

• The contract contains no (or at least no significant) agreements that reduce or qualify liability in connection with custody of the tied assets.
• The contract contains at least the same liability that applies by virtue of the relevant legislation to the asset held in the tied assets (e.g. liability provisions of the Intermediated Securities Act for book-entry securities).
• For third-party custody, i.e. authorised use of a sub-custodian, the liability must comprise responsibility for due care in selecting and instructing the sub-custodian and the monitoring of ongoing compliance with the selection criteria. This standard of liability should apply at a minimum between the primary custodian and the first sub-custodian, irrespective of whether it is a domestic or foreign sub-custodian.

Exceptions to the prohibition on encumbrance (Art. 84 para. 2 ISO)

Deadline for implementing contract amendments for third-party custody and current or custody account relationships

Reinsurers’ shares for establishing tied assets in non-life insurance (art. 68 para. 2 iso)

Application process

The application form is available on the EHP. The application must include detailed information on the reinsurers’ shares of the provisions (e.g. contractual basis and fair values) and confirmations of compliance with the requirements for the reinsurers’ shares.

The reinsurers’ shares of the provisions requested to establish tied assets can still be listed in a separate Excel file. Reinsurers or reinsurers’ shares that have already been approved do not need to be listed. The Excel file is uploaded as an attachment in the EHP and submitted via the EHP together with the application form. The Excel file template can be downloaded from the application form.

If the application is approved, SFMA will communicate in writing its authorisation of the reinsurers’ shares of the provisions for establishing tied assets.

Necessity of an application

The establishment of tied assets with reinsurers’ shares of the provisions in non-life insurance requires an application to be submitted to SFMA (Art. 68 para. 2 ISO ). SFMA’s authorisation relates to the individual reinsurers’ shares of the provisions, provided they comply with the general requirements (see below), in particular the limitations set out in Article 83 para. 3 of the ISO.

SFMA expects an application in accordance with Article 68 para. 2 ISO in the following cases:

1. A new reinsurance contract is concluded;
2. An existing reinsurance contract is renewed. No application is required for the renewal of an already approved reinsurance contract if the renewal is limited to commercial aspects only and the general requirements for the reinsurers’ shares of the provisions continue to be met. In particular, no application needs to be submitted if (i) the contracting parties remain unchanged, (ii) the subject matter of the contract, i.e. the risks or hazards assumed, remain unchanged and (iii) the consideration of the reinsurers’ shares continues to take place within the counterparty limit;
3. The assessment of the reinsurance company’s creditworthiness changes from credit rating level 4 to credit rating level 5 (cf. Art. 61 ISO-SFMA ).
4. In the case of already authorised reinsurers’ shares, it is foreseeable that the counterparty limit will be exceeded (e.g. following an extraordinary loss event), which makes a temporary exception to the counterparty limit necessary.

The application can be submitted to SFMA as soon as the corresponding contractual basis is in place. With regard to creditworthiness, the application must be submitted immediately after the change occurs.

General requirements for the reinsurers’ shares of the provisions for the establishment of tied assets

In the case of non-life insurance, SFMA may, upon request, authorise the reinsurers’ shares of the technical provisions in whole or in part to be allocated to tied assets (Art. 68 para. 2 ISO ). SFMA authorisation has up to now been granted in accordance with the requirements of SFMA Circular 16/5 (margin no. 160 ff.). SFMA Circular 16/5 will be repealed as part of the revision of the ISO-SFMA. From 1 January 2026, SFMA will therefore base its authorisation of the reinsurers’ shares of the provisions for the establishment of tied assets on the general requirements for tied assets in accordance with Art. 70 ff. ISO.

Following the authorisation of the reinsurers’ shares of the provisions for the establishment of tied assets, these shares form part of the tied assets and are included with the other assets in the composition of the tied assets. Together with the other assets, they therefore have to fulfil the statutory function of tied assets, meaning that their intrinsic value must be ensured. This also reflects SFMA's approach to supervision based on client protection. In this respect, the consideration of the requirements for the value of the tied assets in the reinsurers’ shares authorised for the establishment of tied assets is reasonable and appropriate.

Limitation of reinsurers’ shares of the provisions in tied assets

Reinsurers’ share of provisions at Group companies

Already authorised reinsurers’ shares of the provisions in tied assets

Reinsurers’ shares of the provisions of already authorised reinsurers may initially continue to be used to establish tied assets within the framework of the provisions of SFMA Circular 16/5 margin no. 160 ff., i.e. even after the repeal of SFMA Circular 16/5.

However, as of 1 January 2026 SFMA expects a new application in accordance with Article 68 para. 2 ISO for changes to reinsurance relationships with already authorised reinsurers, in particular in the following cases:

1. A new reinsurance contract is concluded with the already authorised reinsurer;
2. An existing reinsurance contract with the already authorised reinsurer is renewed;
3. The assessment of the already authorised reinsurer’s creditworthiness changes.

In assessing this application, SFMA will be guided by the general requirements for tied assets pursuant to Article 70 ff. ISO (see also above).

SFMA expects insurance companies to review their reinsurance relationships authorised in tied assets with regard to the aforementioned requirements and, if necessary, make appropriate adjustments or submit new applications to SFMA in accordance with Article 68 para. 2 ISO, as well as inform SFMA how and within what timeframe the new requirements will be implemented.

Conceptual basis

Detailed supervisory topics