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