Portfolio Transfers and Commutation - Alternatives to Run-Off

Transcription

1 Portfolio Transfers and Commutation - Alternatives to Run-Off Zurich, 23rd March 2018 Dr. Herbert Palmberger, M.C.J.

2 Table of Contents 1. Transfer of Run-off Portfolios 2. Commutation 3. Establishment of an Insurance Undertaking in order to transfer a portfolio to this insurance undertaking 4. Sale of Insurance Undertaking in Run-Off 2

3 1. Transfer of Portfolios Regulated in Art. 62 Insurance Supervision Act (ISA; Versicherungsaufsichtsgesetz, VAG) Concerns Swiss Portfolios Transfer to Swiss or foreign insurance undertaking by contract Approval by FINMA necessary (Art. 62 para. 1 cl. 1 ISA) Approval only granted if interests of the insureds on the whole are preserved FINMA defines conditions of the portfolio transfer (para. 2) 3

4 1. Transfer of Portfolios 1.1. Issues Interests of the insureds preserved on the whole? ( Interessen der Versicherten insgesamt gewahrt? ) (Art. 62 para. 1 cl. 2 ISA) Insurance contracts must not be amended Insurance contracts are transferred to the new insurer at the moment of approval Surrogate: Insured must be informed by the new insurer of the transfer within 30 days from the opening of the approval. Afterwards, the insured may terminate the contract within three months (Art. 62 para. 3 ISA) Exception: No right of termination if portfolio transfer, from an economical perspective, does not lead to a change of the insurer. Example: Transfer to subsidiary of the insurance company 4

5 1. Transfer of Portfolios 1.1. Issues What is transferred? / What ist not transferred? The tied assets or equivalent assets (Art. 19 para. 2 ISA) FINMA may define something different Securing of the claims from the insurance contracts (Art. 17 para. 1 ISA) Not transferred: Reinsurance contracts of the transferring undertaking How are the tied assets defined? Insurance technical reserves plus appropriate extra amount, which is defined by FINMA (Art. 18 ISA, Art. 68 AVO) Extra amount generally 4 % of reserves, however at least CHF ,00 5

6 1. Transfer of Portfolios 1.1. Issues Policyholder outside Switzerland Convention between Switzerland and EU : Article 24: Policyholders in the EU are bound by transfer pursuant to Art. 62 in Switzerland if FINMA certifies that the acquiring insurance undertaking, under consideration of the transfer, disposes of the necessary solvency margin. This means obversely: Swiss policyholders, under the prerequisites of Art. 24 of the Convention, have to accept portfolio transfers within the EU in accordance with the legal provisions in the respective country if the supervisory authority in this country issues a certificate of solvency for this undertaking. 6

7 1. Transfer of Portfolios 1.1. Issues Other countries: Foreign policy holders have to accept Swiss transfer of portfolio. Obversely, the same applies to Swiss policyholders. Need of issuance of solvency certificate (as in Art. 24 of the convention CH/EU) does not apply 7

8 1. Transfer of Portfolios 1.1. Issues Tax issues Judgment of European Court (EuGH) of Transfer of Reinsurance Contracts is Subject to VAT (file number C 242/08 Swiss Re ) Service subject to VAT Swiss Re Germany AG transfers 195 reinsurance contracts to Swiss Re in Switzerland. Policyholders were insurers located in the EU and in third countries Financial Court Munich: Portfolio transfer is no delivery, but another performance not exempt from VAT Federal Financial Court: No business transfer on the whole exempt from VAT ( Keine nicht steuerbare Geschäftsveräußerung im Ganzen ). 8

9 1. Transfer of Portfolios 1.1. Issues EuGH: Service No (Re-)Insurance revenue exempt from tax No takeover of liabilities respectively claims exempt from tax No other banking or financial revenue No relocation of the place of performance to the seat of the service receiver in Switzerland No other catalogue service, which would be subject to the principle of the place of the receiver (Empfängerortprinzip) Therefore: General rule as to the location: Transfer of portfolio subject to VAT (in Germany 19 %), due to the fact that transferring company has its seat in Germany. 9

10 1. Transfer of Portfolios 1.1. Issues Consequences: Contracts have to be designed in a way that a sale of the company (or at least a part of the company) is given, which is exempt from VAT. Further elements of the company have to be transferred. Design of the transfer depends on the individual case. 10

11 1. Transfer of Portfolios 1.1. Issues Warranties Transferring insurer is liable vis-á-vis acquiring insurer for appropriateness of the reserves. Otherwise legal consequences of Art. 192 et seq. OR (Right of Obligations): Claims for damages, reversal of the performances (Rückabwicklung) However: Knowledge of the acquirer excludes warranty claims, e.g. after due diligence (Art. 200 OR) 11

12 1. Transfer of Portfolios 1.2. Reinsurance Art. 35 ISA: Wide exceptions from need of approval by FINMA, in particular: Simplifications for foreign undertakings Exceptions from provisions about tied assets Exceptions for single classes of insurance (legal expenses, elementary, motor) No need of approval for transfer of portfolios (Art. 62 ISA is not applicable to reinsurance) 12

13 2. Commutation 2.1 Definition Process, by which the insurer agrees with its reinsurer or a reinsurer with its retrocessionaire by way of conclusion of a commutation agreement upon the finalization of the reinsurance relationship. 13

14 2. Commutation 2.1 Definition Formal termination of the reinsurance contract per se, Normally termination of a liability period of the reinsurer exceeding the contract period and Settlement of the losses occurred within the liability period. 14

15 2. Commutation 2.2 Effects Legal: Finalization of all rights and duties of both parties at the agreed point in time Factual: Loss reserves exit, as far as reserves exist 15

16 2. Commutation 2.3 Pros & Cons Pro: Legal Finality Con: Legal disputes may arise (e.g. scope of commutation may be unclear in case of unclear description of commuted business General Clause vs. List of contracts) 16

17 3. Establishment of an Insurance Undertaking in order to transfer a portfolio to this insurance undertaking Interesting if no buyer can be found, and seller does not want to keep the contracts Approval by FINMA necessary (Art. 3 ISA) Application for Approval (Genehmigungsgesuch) and business plan must be filed (Art. 4 ISA) Business Plan Forms A to R and attachments Generally in one of the official languages 17

18 3. Establishment of an Insurance Undertaking in order to transfer a portfolio to this insurance undertaking 3.1 Business Plan Forms A to R (Art. 4 ISA) A: Articles of Association (or Incorporation) B: Organisational structure and geographical areas of activity C: In case of insurance activities abroad: Licence issued by responsible foreign supervisory authority D: Financial resources and technical provsions E: Annual financial statements of last three fiscal years or opening balance sheet 18

19 3. Establishment of an Insurance Undertaking in order to transfer a portfolio to this insurance undertaking 3.1 Business Plan Forms A to R (Art. 4 ISA) F: Holdings (Persons holding at least 10% of the capital or voting rights or who exert significant influence) G: Persons entrusted with ultimate management, supervision, control and conduct of business or, for foreign companies, the General Representative) H: Responsible actuary I: Independent auditor J: Outsourcing of important functions 19

20 3. Establishment of an Insurance Undertaking in order to transfer a portfolio to this insurance undertaking 3.1 Business Plan Forms A to R (Art. 4 ISA) K: Planned insurance classes and nature of the risks to be insured L: National Bureau of Insurance (motor liability) M: Assistance Services 20

21 3. Establishment of an Insurance Undertaking in order to transfer a portfolio to this insurance undertaking 3.1 Business Plan Forms A to R (Art. 4 ISA) N: Reinsurance plan or retrocession plan O: Estimate of costs required to build up the insurance company P: Projected balance sheets and projected income statement for the first three fiscal years Q: Details of risk identification, limitation and monitoring 21

22 3. Establishment of an Insurance Undertaking in order to transfer a portfolio to this insurance undertaking 3.1 Business Plan Forms A to R (Art. 4 ISA) R: Rates and general terms and conditions of insurance Important: FINMA may demand further information and documentation if necessary for the evalutation of the application. (Art. 4 Abs. 4 VAG) 22

23 3. Establishment of an Insurance Undertaking in order to transfer a portfolio to this insurance undertaking 3.2 Additional Requirements for non-domestic insurance undertakings (Art. 15 ISA) only primary insurance Licence to conduct business in the home country Establishment of a branch in Switzerland and appointment of a General Representative CHF 3 Mio. minimum capital at the seat (Art. 8 ISA) and sufficient solvency margin (Art. 9 ISA), which comprises also the business in Switzerland 23

24 3. Establishment of an Insurance Undertaking in order to transfer a portfolio to this insurance undertaking 3.2 Additional Requirements for non-domestic insurance undertakings (Art. 15 ISA) only primary insurance Organisational Fund for establishment of the branch in Switzerland. FINMA defines the amount of the organisational fund in the individual case (Art. 10 ISA). Deposit of surety in the amount of a certain percentage of the solvency margin with regard to the domestic business. FINMA defines this percentage. 24

25 4. Sale of Insurance Undertaking in Run-Off Approval by FINMA necessary (Art. 3, 4 ISA) To be filed: Application for approval and changes to the business plan Business plan forms, as far as changes to the busniess plan are made 25

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