Are you ready for the FINMA Circular 2025/3 Liquidity?

Background

The revised Insurance Supervision Ordinance (ISO), effective from 1 January 2024, supplemented the liquidity requirements for insurers. FINMA has used the amendment to the ordinance to completely revise FINMA Circular 2013/5 "Liquidity - Insurers" with the objective of specifying supervisory practice and expectations regarding liquidity requirements for insurance companies in a comprehensive principle-based manner.
The revised FINMA Circular 2025/3 "Liquidity - Insurers" came into force on 1 January 2025. Compared to the previous version, the new circular increases the level of detail in documentation and includes additional elements such as a contingency funding plan and liquidity reporting to FINMA for all insurers.

Overview of the requirements

In the new circular, FINMA divides the requirements for insurers into six principle-based areas:

• Governance
• Liquidity management & planning
• Liquidity reserves
• Liquidity risk management
• Liquidity controlling & monitoring
• Contingency funding plan

The following provides a comprehensive overview of the requirements outlined in the new FINMA circular for the six areas, as well as the anticipated impacts on liquidity management.

1. Governance
FINMA Circular 2025/3 "Liquidity - Insurers" outlines specific documentation and governance requirements. Insurers must document their organisational and operational structure for liquidity and risk management, including reporting lines. This documentation must define clearly the roles, responsibilities and authority of the board of directors, executive board, independent control functions, internal audit, and other relevant units. This structured approach will help to maintain the insurer's liquidity position and to align with broader business objectives. The board of directors is responsible for approving and reviewing the organisation’s liquidity management strategy and overall risk appetite, while the executive board must implement necessary measures and report regularly on the liquidity situation.

2. Liquidity management & planning
To manage liquidity and prevent shortages, insurers need to make an annual assessment of their liquidity needs based on their projected business activities. Liquidity positions should be planned and assessed over a one-year time horizon (and in some cases, also over a horizon of one month). Planning uncertainties must be addressed by maintaining increased liquidity potential, and volatile cash outflows require additional, highly secure liquidity reserves validated through stress testing. Insurers with significant multi-currency flows must account for exchange rate risks and maintain appropriate additional reserves. Furthermore, assets in the liquidity potential must be categorised by maturity and marketability, and valued prudently, with regular reviews. All liquidity planning activities must be documented, and planned values reconciled against actual values at the end of each planning period. This proactive approach enables organisations to anticipate and manage potential liquidity issues and maintain resilience in variable market conditions.

3. Liquidity reserves
Maintaining sufficient liquidity is essential for insurers. They need to maintain adequate reserves of highly liquid assets to cover short-term needs. These reserves should be sufficient based on liquidity planning, considering the organisation’s business model and transactions. The composition of these reserves must be consistent with its defined risk appetite, risk tolerances, and potential stress scenarios, and should be adequately diversified. There must be no restrictions on the use of these reserves, and their amount, composition, diversification, and transferability must be reviewed regularly and documented. In addition, insurers must ensure immediate and direct access to these assets and the functionality of related operational processes. This approach should help organisations remain responsive to short-term liquidity needs, safeguarding their financial stability.

4. Liquidity risk management
To ensure robust liquidity management practices, insurers need to define and document their risk appetite, strategy, and governance framework. The executive board is responsible for managing liquidity based on this strategy, including establishing policies and processes to control and limit liquidity risk. The board of directors must approve the risk appetite, specifying minimum liquidity levels and coverage ratios. A comprehensive liquidity risk management framework must be in place, including regular reviews and independent assessments. This comprehensive approach ensures that insurers can identify potential risks early and take proactive measures to maintain financial stability.
Insurers must conduct regular stress tests and scenario analyses, document the results, and report them to the executive board and board of directors. Additionally, they must define measures, processes, and responsibilities for timely intervention in critical situations.

5. Liquidity Controlling & monitoring
The new Circular includes a requirement to measure and monitor liquidity risk on an ongoing basis, and insurers will need to define specific procedures tailored to their individual circumstances. Given the potentially critical nature of liquidity risks, it is essential that these risk management processes are integrated into the internal control system and subject to regular review.

Key points:
• Continuous measurement and monitoring: Liquidity risks must be continually analysed and monitored.
• Individual procedures: Insurance companies should define their own measurement, control, and management procedures, based on their specific circumstances.
• Integration into the internal control system (ICS): The processes for liquidity management and liquidity risk management must be integrated into the ICS and reviewed regularly.

6. Contingency funding plan
FINMA Circular 2025/3 "Liquidity - Insurers" clarifies the requirements of Art. 98a para. 3 ISO: insurers must maintain a documented contingency funding plan to ensure swift action in response to liquidity stress events.
The plan should include early warning indicators, potential funding solutions, and a tiered escalation process with specific measures for each crisis level. It must detail operational processes for transferring liquidity and assets, define roles and responsibilities, and establish procedures for timely information flow and communication strategies. The executive board must approve the plan, which should be reviewed and updated annually, with the board of directors kept informed of any updates.

Timeline and reporting requirements

Reporting to FINMA according to Art. 89a para. 4 ISO must be prepared annually by a cut-off date of 31 December and submitted to FINMA at the latest by 30 April of the following year. The elements of the report are specified by FINMA in advance for individual insurers, taking into account their supervisory category, business activities and risk exposure. Extraordinary changes in the liquidity situation must be reported immediately. Reporting is standardised via FINMA's EHP platform.

Most relevant Implications
The implementation of FINMA Circular 2025/3 "Liquidity - Insurers" is progressing rapidly, and insurers need to address the new requirements in a timely and efficient manner. Similar to the interlocking gears of a precision timepiece, all processes must integrate seamlessly to ensure the company’s compliance. The following chart provides a concise summary of the regulatory requirements.

How we can support
If you have already implemented the requirements and are aware of the issues outlined in this article, you will be fully compliant with the new circular. However, if you have not yet done so, or if you have urgent questions, we shall be happy to support you!
Deloitte has successfully supported numerous insurers in Switzerland in meeting liquidity and risk management requirements, achieving compliance, and ensuring long-term resilience against liquidity risks. Our areas of support include conducting regulatory Gap-assessments, assisting in the updating and implementation of processes and controls, and conducting readiness assessments.

Authors

• Nadejda Groubnik, Partner, Audit & Assurance Insurance
• Sandy Göbler, Director, Audit & Assurance Insurance
• Gabriel Schwab, Senior Manager, Audit & Assurance Insurance
• Edison Dauti, Senior Manager, Audit & Assurance Insurance