Switzerland, one of the worlds’ (re)insurance hubs, continues to attract new players. Today, we are giving you a first glimpse of our latest study. Authors: Adrian Halter, Florian Liebe, Silvan Andermatt
Low premium rates and investment yields, and geo-political change such as BREXIT, US tax reform, and the need for Asian (re)insurers to diversify, are all driving (re)insurers to reconsider their global footprint and location strategy. Switzerland is the world’s third largest (re)insurance center, with a well-trained multi-lingual talent pool of about 20,000 employees in the industry. As per its 2016 Insurance Market Report, FINMA supervised 55 reinsurance companies, including 27 captives, with a total gross premium volume of CHF 51 billion (the above figures do not yet include inbound reinsurance branches, such as Partner Re or Axis). As a result, Switzerland continues to see an inflow of (re)insurance companies, new platforms to tap into the European market, and off-shore captives being repatriated.
The key drivers for Switzerland’s success as a (re)insurance hub are the access to a highly qualified and multi-lingual workforce, its location in the heart of Europe, and favorable and stable political, legal, regulatory and tax systems, all ideally matched to the long-term nature of the reinsurance business. Switzerland is therefore an ideal location to create a single platform to expand into the continental European reinsurance market, to profit from the opening of select high growth markets in Latin America and in Asia, and to write specialty business of a global nature, such as credit & security and agricultural risk.
Regulatory and solvency requirements
The Swiss insurance regulator (“FINMA”) is highly regarded, both in the industry and by target market regulators. Its approach is business-minded and solution-oriented, with a willingness to engage with the applicant. It strives for transparent rules, such as its recent Outsourcing Circular. In principle, all material functions can be outsourced, provided they are supervised and controlled by the insurer. Furthermore, Swiss solvency regulation is equivalent to EU Solvency II, therefore avoiding the necessity to run two different solvency regimes in parallel. The Swiss Solvency Test (SST) is a mandatory risk-based economic solvency regime, requiring a stochastic model and based on the economic balance sheet.
The regular effective tax rate in Switzerland varies between 12% and 24%, depending on the taxpayer’s place of business. Special tax regimes such as holding or mixed company status offer significantly reduced rates. As part of the ongoing Swiss corporate tax reform, these regimes are expected to be abolished in the foreseeable future. Transition relief (“step-up”) and compensatory measures such as reduced ordinary tax rates will preserve the attractiveness of the Swiss tax system and maintain its ability to compete with other financial services centers such as Ireland, Luxembourg and Belgium (Lloyds). Other key features are Switzerland’s extensive network of double taxation treaties and the generally excellent and cooperative relationship between tax authorities and tax payers.
In response to both the pressures and the opportunities outlined above, the challenge for (re)insurance groups is to revisit their global location strategy. Time is of the essence to avoid competitive disadvantage. At the same time, there is a clear trend away from offshore locations and towards favorable and stable onshore locations. Switzerland offers a compelling overall value proposition as a platform to enable the next stage in your corporate growth strategy. EY has assisted a number of groups from evaluation through successful implementation, leveraging its global reach as well as its excellent access to FINMA and the Swiss tax authorities.