Swiss Market Update at 31st December 2012
In 2012, doubts concerning the ability of some countries to stay in the Euro zone have maintained the large differences in the interest rates observed within Europe. Whereas German and Swiss interest rates remain at a very low level, those observed in Spain, Italy and Portugal are particularly high and remain an economic burden in these countries. Since the Swiss National Bank (SNB) established a cap on the Swiss Franc in September 2011 and has defended it by buying foreign currencies, the exchange rate of the Swiss Franc against the Euro has remained close to the cap. The equity markets rose in 2012. In particular, the SMI reached its highest value since the beginning of 2010.
The low interest rate environment in Switzerland remains very challenging for life insurance companies, forcing them to show creativity in developing new products. While Solvency II has been delayed until 2015 or 2016, some changes have been made to the Swiss Solvency Test, when FINMA temporarily allowed insurers to use the swap rate and not government bond yields as the reference for discount rates in certain parts of the solvency calculations from 2013 to 2015. This measure could increase the solvency ratios substantially.