Swiss Solvency Test (SST)
The risk based solvency system in Switzerland
The SST is mandatory for all insurance companies domiciled in Switzerland together with their branches.
The SST answers the following question:
How much capital do I need at the beginning of the year in order to be able to cover the liabilities at the end of the year with 99% security?
This capital amount is the target capital and has to be compared with the available, the so called risk bearing capital.
The key characteristics of SST are:
- The SST is based on a market-consistent valuation of the assets and the liabilities
- The risks that are taken into account are market, insurance and credit risk
- The expected shortfall of the market-consistent one year profit & loss statement is used as the risk measure.
- The Swiss regulator offers a standard SST model, but the companies are required to use internal models if the standard model is not adequate
- Extreme scenarios have to be evaluated and the impact on the target capital has to be estimated
- A risk margin, based on the cost of capital approach has to be added to the target capital
- A comprehensive SST report has to be sent to the Swiss regulator
