Revision of FINMA’s SST Circular

in Financial Services, 22.06.2016

On 31 May 2016, FINMA opened the consultation phase for the new SST circular which closes on 12 July 2016. The new SST circular will replace the current SST circular 2008/44 from 1 January 2017 and is a complete revision. It includes many changes which impact the insurance industry.

The new SST circular is part of the second revision package issued by FINMA in response to the new Insurance Supervision Ordinance (“ISO”) enacted on 1 July 2015.

What are the main changes and potential implications of the new SST circular?

In our view, the changes impact several areas, clustered as follows:

 

FINMA SST Circular implication areas

 

 

Significant Changes

The significant changes in the SST circular are as follows:

  • Clarifications and new specific assumptions to be applied to the valuation at the end of the one-year SST period. Since this may have material impacts – in particular in Group Life business – there will be a transition period until 1 January 2020
  • New SST Ratio definition in line with Solvency II concerning the allocation of the Market Value Margin. This increases the SST Ratio for companies in the green zone
  • Further documentation requirements for Internal Models and the Internal Model application process
  • Additional reporting of stress tests to FINMA and
  • Various additional minor amendments

The first point is considered to be the most important change which may have material impacts in terms of solvency and implementation efforts, in particular for Group Life business. The interpretation and consequences of this change are not yet fully clear and further discussions within the insurance industry are needed.

The second area where we expect significant efforts for the companies is the Internal Model application process and and the internal model maintenance. The new circular lists additional requirements in order to obtain unconditional approval for the Internal Model.

There are various additional amendments in the new SST circular, the fact sheet linked below summarizes the main changes. Note, there are additional minor changes which required actuarial consideration for the next year SST exercise.

Timeline and Milestones

The timeline and milestones related to the new SST circular are:

  • 31 May 2016 – 12 July 2016: Consultation phase
  • 1 January 2017: Planned effective date
  • 30 April 2017: Submission of SST 2017 based on the new SST circular (except for the new valuation at the end of the one-year SST period) and
  • 1 January 2017 – 1 January 2020: Transition period for the implementation of the new valuation methodology at the end of the one-year SST period.

Related Circulars in Consulation Phase

The second revision package includes three additional circulars issued on 31 May 2016 in the consultation phase, which are planned to enter into force as at 1 January 2017:

  • “Responsible Actuary” on the requirements for the Responsible Actuary
  • “Corporate Governance Insurers” on corporate governance, risk management and internal control systems and
  • “Business Plans Insurers” on the requirements for the business plans submitted to FINMA.

Conclusion

The new SST circular introduces some significant changes impacting 2017 and beyond which we have considered in the fact sheet linked below. The currently ongoing consultation phase provides the industry the opportunity to comment on the changes by the closing date of 12 July 2016.

 

 

Further information: