The Swiss legal framework for private insurance is based in particular on the laws and regulations set out below.

Federal Regulations

The Federal Insurance Contract Act (ICA) and, subsidiarily, the Swiss Code of Obligations (CO) govern the contractual relationship between insurer, policyholder and insured (Article 100 paragraph 1 ICA). The ICA applies to direct insurance contracts underwritten by insurance undertakings subject to supervision by the Swiss Financial Market Supervisory Authority FINMA (FINMA; Article 101 paragraph 1 No 2 e contrario ICA). Reinsurance contracts are outside the scope of the ICA and are consequently only subject to the general contract law provisions of the CO (Article 101 paragraph 1 No 1 ICA; see 6.6 Consumer Contracts or Reinsurance Contracts). The partially revised ICA entered into force on 1 January 2022.

The Federal Insurance Supervision Act (ISA) sets out the regulatory requirements for insurance and reinsurance undertakings and insurance intermediaries. On 1 January 2024 the revised ISA and ISO entered into force.

Supplemental Ordinances

The ISA is supplemented by the following implementing ordinances:

• the Federal Ordinance on the Supervision of Private Insurance Companies (ISO);
• the FINMA-Ordinance on the Supervision of Private Insurance Companies (ISO-FINMA); and
• the FINMA-Ordinance on Insurance Bankruptcy (IBO-FINMA).

Other Provisions

In addition to the core insurance laws and ordinances listed above, other bodies of law contain relevant provisions with regard to insurance and reinsurance (eg, general consumer protection law, data protection law or the law against unfair competition). Furthermore, Switzerland is a party to three international treaties on direct insurance that supersede the ISA (see 3.1 Overseas-Based Insurers or Reinsurers):

• the Agreement of 10 October 1989 between the Swiss Confederation and the European Economic Community (now the EU) on Direct Insurance other than Life Insurance (EU Direct Insurance Treaty);
• the Agreement of 19 December 1996 between the Swiss Confederation and the Principality of Liechtenstein on Direct Insurance and Insurance Intermediaries (Liechtenstein Direct Insurance Treaty) that is supplemented by the agreement of 10 July 2015 on insurance against natural disasters by private insurance undertakings; and
• the Agreement of 25 January 2019 between the Swiss Confederation and the UK on Direct Insurance other than Life Insurance (UK Direct Insurance Treaty) (to enter into force once the EU Direct Insurance Treaty ceases to apply to the UK).

FINMA further specifies matters of insurance regulation in numerous circulars (not binding for Swiss courts; however, the courts in Switzerland often take the circulars into account when interpreting the laws and ordinances). In addition, FINMA publishes less formal guidance documents and FAQs on supervisory matters.

Switzerland is a civil law country; however, precedent cases of Swiss courts still play an important role in interpreting and developing the statutory law (Article 1 paragraph 2 Swiss Civil Code).

General

Swiss insurance supervisory law is codified in the ISA and its implementing ordinances (see 1.1 Sources of Insurance and Reinsurance Law), FINMA being the overall competent licensing and supervisory authority. In general, the ISA applies to (Article 2 paragraph 1 ISA):

• Swiss-domiciled insurance and reinsurance undertakings;
• foreign-domiciled insurance undertakings engaging in insurance business in or from Switzerland (see 3.1 Overseas-Based Insurers or Reinsurers);
• insurance intermediaries (see 5. Distribution);
• insurance groups and insurance conglomerates (see 2.2 The Writing of Insurance and Reinsurance); and
• swiss-domiciled insurance special purpose vehicles.

Exemptions

Certain specific types of activities and undertakings are exempted from the scope of application of the ISA, namely (Article 2 paragraph 2 ISA):

• insurance undertakings domiciled abroad that only engage in reinsurance activities in Switzerland (see 3.1 Overseas-Based Insurers or Reinsurers);
• public insurance undertakings and private insurance undertakings that are regulated by special federal legislation;
• foreign government-owned or state-guaranteed export risk insurance undertakings (ECAs);
• certain insurance intermediaries who are in a relationship of dependence with a policyholder;
• certain insurance co-operatives (Versicherungsgenossenschaften) that existed on 1 January 1993;
• certain associations (Vereine), organisations (Verbände), co-operatives (Genossenschaften) and foundations (Stiftungen) that conclude contracts with their members, members of co-operatives or beneficiaries on transactions of a collateral nature, in particular on sureties or guarantees; and
• insurance intermediaries, if their activities are limited to insurance contracts of minor importance and supplement a product or service (so-called “annex insurance”).

Other regulatory bodies exist – eg, in the area of mandatory health insurance (the Federal Office of Public Health), pension schemes (the Federal Occupational Pension Supervisory Commission) or certain cantonal building insurances (supervisory authority of the relevant Swiss canton).

Insurance and reinsurance undertakings that are within the scope of application of the ISA must obtain an insurance licence from FINMA before engaging in any regulated activities – ie, writing insurance and reinsurance business (Article 3 paragraph 1 ISA). The main licence requirements are set out below.

Organisational Requirements

Organisational requirements are as follows:

• in principle, legal form as a company limited by shares (Aktiengesellschaft) or a co-operative (Genossenschaft; Article 7 ISA);
• good standing and assurance of proper business conduct by the persons responsible for direction, supervision, control and management of the insurance undertaking (Article 14 ISA; Article 12 et seq ISO);
• organisational precautions to avoid conflicts of interest (Article 14a ISA; Article 14b et seq ISO);
• organisational structure allowing the recognition, limitation and monitoring of all significant risks (Article 22 ISA; Articles 96 to 98a ISO; FINMA-Circular 2017/2 Corporate Governance – Insurers);
• appointment of a responsible actuary who has access to all business records (Article 23 ISA);
• effective internal control system and an internal audit function that is independent from management (Article 27 ISA); and
• appointment of a licensed audit firm to review the conduct of business (Article 28 ISA).

Financial Requirements

Financial requirements are as follows:

• minimum capital between CHF3 million and CHF20 million (Article 8 ISA; Articles 6 to 10 ISO);
• sufficient solvency margin (Swiss Solvency Test (SST); Article 9 to 9c ISA and Articles 21 to 53b ISO);
• maintenance of an organisational fund (Organisationsfonds) (Article 10 ISA; Article 11 ISO);
• sufficient insurance-related reserves (versicherungstechnische Rückstellungen) for all business activities (Article 16 ISA; Article 54 et seq ISO);
• claims based on insurance contracts to be covered at all times by tied assets (gebundenes Vermögen; Article 17 et seq ISA; Article 1 ISO-FINMA); and
• maintenance of sufficient liquidity in order to be able to satisfy all of its payment obligations, even in stress scenarios (Article 22 ISA; Article 98a ISO).

Other Requirements

Building on the basic regulatory requirements, certain additional requirements or reliefs apply depending on the specifics of the case or the business. These include:

• additional provisions (eg, regarding the scope of admissible activities or the preventive control of insurance tariffs), which apply to specific classes and types of insurance only (Article 31 et seq ISA; Article 120 et seq ISO);
• additional requirements, which apply to foreign insurance undertakings (Article 15 ISA; see 3.1 Overseas-Based Insurers or Reinsurers); and
• the exemption of companies, engaging in reinsurance business only, from certain regulatory requirements under the ISA, inter alia from the requirement to maintain tied assets.

Special provisions apply to the consolidated supervision of insurance groups and insurance conglomerates (Articles 64 et seq and 72 et seq ISA; FINMA-Circular 2016/4 Insurance Groups and Conglomerates). FINMA may impose consolidated supervision on an insurance group or insurance conglomerate under certain conditions (Articles 65 and 73 ISA). Consolidated group supervision applies in addition to FINMA’s individual supervision over the Swiss insurance undertakings (or other regulated Swiss entities; Articles 66 and 74 ISA).

Insurance premium payments are subject to stamp taxes if:

• the policy is part of a Swiss portfolio of an insurance undertaking subject to Swiss insurance supervision or of a Swiss insurance undertaking enjoying public law status; or
• a Swiss policyholder concluded the policy with a foreign insurance undertaking not subject to Swiss insurance supervision (Article 21 Federal Stamp Tax Act (STA)).

Several types of insurance are exempt from this tax, including, in particular, premiums on reinsurance policies (Article 22 STA). In principle, the stamp tax amounts to 5% of the cash premium, with the exception of life insurance policies, where it amounts to 2.5% (Article 24 STA).

Meanwhile, insurance and reinsurance turnovers are exempt from Swiss VAT (Article 21 paragraph 2 No 18 Value Added Tax Act).

General

Insurance undertakings with a registered seat abroad engaging in insurance activities in or from Switzerland fall within the scope of the ISA (see 2.1 Insurance and Reinsurance Regulatory Bodies and Legislative Guidance), unless an international treaty provides otherwise (Article 2 paragraph 1 littera b ISA; see below) or an exemption under the ISA applies (eg, foreign insurance undertakings engaging only in reinsurance activities in Switzerland (Article 2 paragraph 2 littera a ISA)), regardless if conducted cross-border or through a Swiss branch office; foreign insurance undertakings that have not established a branch office in Switzerland if their insurance activities in Switzerland exclusively covers:

• insurance risks in connection with ocean shipping, aviation and cross-border transports;
• risks located abroad; and/or
• war risks (Article 1 paragraph 2 ISO).

To safeguard the potential for innovations within the Swiss financial market, the Swiss Federal Council can exempt insurance undertakings from supervision under certain conditions, in particular in de-minimis cases (Article 2 paragraph 5 littera b ISA). An insurance activity is deemed to take place in Switzerland, irrespective of the place and circumstances of the conclusion of the contract, if:

• the policyholder or the insured is a natural person or a legal entity domiciled in Switzerland; or
• the insured goods are located in Switzerland (Article 1 paragraph 1 ISO).

Foreign insurance undertakings that fall within the scope of the ISA are required to obtain a licence from FINMA prior to taking up insurance activities in or out of Switzerland (Article 3 paragraph 1 ISA) and are subject to ongoing supervision by FINMA (Article 2 paragraph 1 littera b ISA; Article 3 littera a Federal Act on the Swiss Financial Market Supervisory Authority). Compared to a Swiss-domiciled insurance undertaking (see 2.1 Insurance and Reinsurance Regulatory Bodies and Legislative Guidance), a foreign insurance undertaking seeking to obtain a licence to be active in or from Switzerland has to fulfil additional regulatory requirements (subject to differing rules in international treaties; Article 15 paragraph 3 ISA). It is, in particular, required to establish a branch in Switzerland and appoint a general agent (Generalbevollmächtigter) for that branch (Article 15 paragraph 1 littera b ISA). The general agent has to be a Swiss resident and has to have the knowledge necessary to operate in the insurance business (Article 16 ISO). Furthermore, the foreign insurance undertaking has to comply with the additional licence requirements (see Article 15 ISA).

International Treaties

The EU Direct Insurance Treaty (Agreement of 10 October 1989) facilitates the access of EU insurance companies to the Swiss market. While it does not exempt them from a Swiss licence requirement in connection with the establishment of a Swiss insurance branch, relief is granted.

Under the Liechtenstein Direct Insurance Treaty (Agreement of 19 December 1996), insurance undertakings domiciled in Liechtenstein may engage in direct insurance business in Switzerland either on a pure cross-border basis or through a Swiss branch office without requiring a FINMA licence.

Brexit

Switzerland and the UK concluded the UK Direct Insurance Treaty (Agreement of 25 January 2019) that guarantees freedom of establishment for insurance undertakings operating in the field of direct insurance by converting the content of the EU Direct Insurance Treaty to apply to the bilateral relationship between Switzerland and the UK post-Brexit. The content of the agreement between Switzerland and the UK is essentially the same as in the agreement between Switzerland and the EU (Agreement of 10 October 1989 between the European Economic Community and the Swiss Confederation concerning direct insurance other than life assurance). The direct insurance agreement between the UK and Switzerland entered into force on 1 January 2021.

In Switzerland, fronting is, in principle, permitted. Swiss law does not provide for a specific retention obligation on the part of the cedent in fronting arrangements.

In recent years, transaction activity in Switzerland has been noticeably high. Several insurance groups have restructured, consolidated and realigned their group operations. Further, several private equity investors have been active buyers of insurance and reinsurance undertakings, including in particular businesses in run-off (and such buyers have become increasingly accepted by FINMA as qualified or controlling investors in insurance undertakings). Moreover, several transactions and co-operations in the insurtech space have been closed. Further, an innovative reinsurance solution to hedge interest rate commitments has been applied in a large volume transaction as a novelty in the Swiss market. Under the agreement, the reinsurer has taken over the market and insurance risks of a legacy portfolio of individual life insurance products, within the framework of quota share reinsurance. In addition, a certain consolidation in the Swiss insurance brokerage industry can be observed.

General

In Switzerland, insurance and reinsurance products may be distributed directly (ie, by the insurance and reinsurance undertakings themselves) or through insurance intermediaries. Insurance intermediaries in the meaning of the law are persons who offer or conclude insurance contracts in the interest of insurance undertakings or other persons (Article 40 paragraph 1 ISA). The law furthermore distinguishes between so-called tied and untied insurance intermediaries (regarding the distinction between brokers and agents see 6.3 Intermediary Involvement in an Insurance Contract).

Registration

Untied insurance intermediaries are insurance intermediaries that are in a fiduciary relationship with the policyholders and act in their interest (Article 40 paragraph 2 ISA; obligation to register in the public register of insurance intermediaries maintained by FINMA). All other insurance intermediaries are considered tied insurance intermediaries (Article 40 paragraph 3 ISA; according to the revised ISA, tied insurance intermediaries are no longer able to register, unless the exception applies that a registration is required for activities abroad) (Article 41 and 42 ISA).

For an intermediary to be eligible for registration in the FINMA register, certain requirements must be fulfilled, including the demonstrable capacity to act (Handlungsfähigkeit), proof of appropriate professional qualifications and professional indemnity insurance (Article 41 paragraph 2 ISA in conjunction with Article 184 et seq ISO). In addition, insurance intermediaries (both tied and untied) are subject to information duties vis-à-vis the insured (see 6.1 Obligations of the Insured and Insurer).

Registered insurance intermediaries are not subject to ongoing prudential supervision by FINMA, but FINMA may examine them from time to time to verify their compliance with regulatory requirements. Furthermore, in case of any indication of irregularities, FINMA may take enforcement action.

Any intermediary activities in Switzerland for the benefit of insurance undertakings that fall within the scope of the ISA but are not licensed by FINMA to carry out insurance activities in or from Switzerland are prohibited (Article 44 ISA).

When concluding an insurance contract, the policyholder has a duty of disclosure which is limited in its content and scope by the written questions provided by the insurer (Article 4 paragraph 1 ICA). The insurer has to proactively seek information as the policyholder need not disclose any facts that the insurer has not asked about. The policyholder must answer the questions and in this context inform the insurer in writing of all facts relevant to the assessment of the risk, to the extent and as they are known or should have been known to them when the contract was concluded. Facts are considered relevant for the risk assessment if they may potentially influence the insurer’s decision to conclude the contract at all or on the agreed terms (Article 4 paragraph 2 ICA).

An insurer must inform the policyholder, prior to conclusion of the contract, of:

• the identity of the insurer; and
• the main content of the insurance contract (Article 3 paragraph 1 ICA).

It may delegate its information obligations (eg, to an insurance intermediary). However, in relation to third parties (including the policyholder) the insurer remains solely responsible for the performance of the information obligation as Article 3 ICA is mandatory and cannot be contractually modified to the disadvantage of the policyholder (Article 98 ICA).

Furthermore, information duties apply to insurance intermediaries, who must provide their clients with information on, for example, the intermediary’s identity and address, its contractual relationships with the insurance undertakings on whose behalf it acts and the names of these insurance undertakings on a durable medium before taking up any intermediation activity (Article 45 ISA).

If the policyholder breaches its information duty pursuant to Article 4 ICA and misinforms or fails to inform the insurer of a material risk factor, the insurer may terminate the contract by written notice within four weeks after it becomes aware of the breach of the information duty (Article 6 ICA). The contract is terminated retroactively, and the insurer is not liable to pay any benefits under the insurance contract and may reclaim insurance benefits already paid together with default interest of 5%. Despite a breach of the duty of disclosure by the policyholder, an insurer may not terminate the contract in circumstances described in Article 8 ICA – eg, if the insurer knew or should have known the incorrect or concealed fact or concluded the contract even though the policyholder did not answer a question (Article 8 ICA).

If the insurer fails to comply with its information duty pursuant to Article 3 ICA, the policyholder has the right to terminate the insurance contract by written notice (Article 3a paragraph 1 ICA). This right of termination expires four weeks after the policyholder becomes aware of the breach of duty, but no later than two years after the breach of duty (Article 3a paragraph 2 ICA).

The information duties of the insurance intermediary are supervisory duties and their breach may expose the insurance intermediary to administrative and criminal sanctions, including punishment with a fine of up to CHF100,000 if the breach is committed intentionally, and up to CHF50,000 if committed negligently (Article 86 ISA). Furthermore, this breach may also result in civil liability for the intermediary.

An insurance intermediary is either a tied intermediary or an untied intermediary (see 5. Distribution). In an untechnical sense, tied insurance intermediaries are often referred to as insurance agents and untied insurance intermediaries are often referred to as insurance brokers, indicating the typical set-up of the contractual relationship between the insurance intermediaries, the insurance undertakings and/or the policyholders. However, the contractual qualification pursuant to Swiss private law does not always correspond with the qualification pursuant to Swiss insurance supervisory law.

An insurance agent has a dominant contractual relationship with an insurance undertaking and primarily acts in its interest and/or on its behalf. The knowledge of the insurance agent is, in principle, attributed to the insurance undertaking (Article 34 ICA). The insurance undertaking pays the insurance agent the remuneration agreed in their contract.

An insurance broker is typically in a contractual relationship with both the insurance undertaking and the policyholder but acts primarily in the interest and/or on behalf of the policyholder, to whom it owes diligent advice on suitable insurance from an adequate spectrum of available products. The behaviour of an insurance broker towards the policyholder is, in principle, attributed to the policyholder. However, the broker’s remuneration/commission is typically paid by the insurance undertaking with which the policy is ultimately concluded.

The commission is typically priced into the insurance premiums the insured pays to the insurance undertaking. Consequently, from an economic perspective, it is the insured that ultimately pays the insurance broker. This regularly entails potential conflicts of interest which must be adequately mitigated by the broker; in this regard, the ISA provides for mitigating measures (Article 45a and 45b ISA; see 12.1 Additional Market Developments).

Elements of an Insurance Contract

There is no specific statutory definition of the term insurance or contract of insurance. Based on precedent cases of the Swiss Federal Supreme Court, the following five elements characterise an insurance contract.

• Risk transfer – the insured person must have an interest which they protect against a certain risk through the economic performance of the insurers.
• Payment of a premium – the premium is, in principle, the price the insured (or the policyholder) pays in exchange for the performance by the insurer in the event that the insured risk materialises.
• Performance by the insurer/cover – the insurer must be under an obligation to perform to the insured or another beneficiary if the insured risk materialises.
• Independence of the operation – the insurance contract refers to an independent operation that is not an ancillary agreement or a mere feature or term of a non-insurance contract (eg, a warranty for a purchased good is usually not an insurance).
• Compensation of risks according to the laws of statistics (Systematic Business Activity).

The first three elements are generally considered to be the defining and essential elements of an insurance contract (essentialia negotii), while the last two are particularly relevant from a supervisory law perspective.

Form Requirements

The insurance contract, in principle, need not comply with any particular form requirements to be valid, with some exceptions (eg, a third person whose life is covered under the life insurance has to agree to the insurance in writing before the insurance contract is concluded (Article 74 paragraph 1 ICA)). Nevertheless, the application for an insurance policy and acceptance by the insurer are usually in writing. In addition, the insurer must issue a policy to the insured stating the rights and duties of the parties (Article 11 ICA) and on the insured’s request and against reimbursement, the insurer must provide a copy or transcript of the insured’s statements in the application, which were determining for the conclusion of the insurance contract (Article 11 paragraph 2 ICA).

Mandatory Provisions

A number of mandatory provisions (and provisions that are mandatory for the insurer only) in the ICA limit the freedom of content for insurance contracts (see Article 97 and 98 ICA). Furthermore, insurance-specific grounds for nullity (eg, the prohibition of retroactive insurance) (Article 10 ICA), as well as general restrictions on the freedom of content (eg, Article 20 CO) apply.

Collective Insurance Contract

A collective insurance contract is generally described as a legally uniform contract that insures several persons or several independent objects (Article 3 paragraphs 3 and Articles 7, 31 and 95a ICA). It might be an indication of the existence of a collective insurance contract if, for example, the insured is not identical to the policyholder.

In principle, the same rules as for individual insurance contracts apply. However, there are certain provisions in the law that are specific to collective insurance, inter alia the following.

Information duties

If the collective insurance contract grants a direct entitlement to benefits to persons other than the policyholder, the policyholder is under an obligation to inform the insured about:

• the essential content of the agreement (needs to be determined on a case-by-case basis and is not identical with Article 3 paragraph 1 ICA);
• any amendments; and
• its termination, whereby the insurer has to provide the necessary information (Article 3 paragraph 3 ICA).

Breach of the information duty

If the information duty of the policyholder is only breached in respect of a part of the insured objects or persons, the insurance remains effective for the remaining part, provided that the insurer would have insured this part alone under the same conditions (Article 7 ICA).

Requirements for entering into the insurance contract

Some legal authors suggest that the requirement that the person whose life is covered by the life insurance has to agree in writing (Article 74 paragraph 1 ICA), is limited to individual life insurance and does not extend to collective life insurance.

Insurance for the Benefit of Third Parties

A policyholder may, in principle, appoint a third party as beneficiary without the consent of the insurance undertaking (Article 76 paragraph 1 ICA). Even if a third party is appointed as beneficiary, the policyholder may freely dispose of the entitlement; the right to revoke the appointment of the beneficiary only lapses if the policyholder has signed a written waiver of revocation in the policy and has handed the policy over to the beneficiary (Article 77 ICA). Unless the policyholder disposes otherwise, the beneficiary obtains a separate claim against the insurance undertaking (Article 78 ICA). There are also specific provisions on the attachment of an insurance claim and the opening of bankruptcy proceedings and for the interpretation of beneficiary clauses (Articles 79 et seq ICA).

Insurance contracts (including consumer contracts) are generally subject to the provisions of the ICA, eg, information duties of insurers and mandatory and semi-mandatory provisions that limit the contractual freedom of insurance undertakings (see 6.1 Obligations of the Insured and Insurer and 6.2 Failure to Comply with Obligations of an Insurance Contract).

Reinsurance contracts are excluded from the scope of the ICA (Article 101 paragraph 1 No 1 ICA). In Switzerland, as in many other countries, there is no specific and distinct reinsurance contract law. Reinsurance contracts are governed by the general provisions of the CO (Article 101 paragraph 2 ICA) and by generally (and often internationally) recognised reinsurance customs and standards.

Alternative Risk Transfer (ART) includes, in particular, the passing on of insurance risks to investors on the capital market through securitisation, including – eg, the issuance of insurance-linked securities (ILS) such as catastrophe bonds (Cat Bonds) or industry loss warranties (ILW). In many cases, the risk transfer is effected by way of the conclusion of a risk transfer contract between the insurer/reinsurer and a special purpose vehicle (SPV) specially created for this purpose. The insurer/reinsurer transfers its own risk while the SPV agrees to pay an agreed amount upon occurrence of a certain trigger. The SPV then issues bonds in the capital market, the term, interest and repayment of which are linked to the occurrence of the trigger.

The exact legal nature of the contracts between (i) the insurer/reinsurer and the SPV, and (ii) the SPV and investors is controversial in Swiss legal literature, as is the question of whether the SPV and/or the investors are subject to insurance supervision. The contract between the insurer/reinsurer and the SPV on the one hand will generally fulfil all requirements of an insurance/reinsurance contract (see 6.4 Legal Requirements and Distinguishing Features of an Insurance Contract and 6.6 Consumer Contracts or Reinsurance Contracts), at least in such cases where no or only a low risk remains with the insurer/reinsurer. As Swiss law does not provide for a tailored regulatory regime nor for a specific exemption from insurance supervision for (insurance) SPVs, ART securitisations are typically handled through other financial centres. The contract between the SPV and investors, however, is unlikely to qualify as an insurance contract under Swiss law.

A risk transfer agreement is treated as a reinsurance contract under Swiss law if it fulfils all five insurance contract criteria (see 7.1 ART Transactions). This is generally the case for ILS transactions. The place of domicile or the qualification of the counterparty as a (regulated) reinsurer abroad is not decisive.

The SST explicitly provides for the recognition of reinsurance and retrocession in the context of quantified risk transfers (Article 40 paragraph 2 ISO). Consequently, if the risk transfer through ILS fulfils the requirements of a reinsurance contract, the cover claims against SPVs may, in principle, be credited to the insurance/reinsurance undertaking’s solvency capital.

Moreover, the risk transfer through ILS may be credited to the insurance-related reserves or, if the transfer agreement cannot be qualified as a reinsurance contract, it may be treated as a derivative financial instrument. Because reinsurance companies in Switzerland – unlike direct insurance companies – do not have to form tied assets, it is much easier for them to effectively resort to risk transfer through ILS.

The rules applying to the interpretation of insurance contracts and general insurance terms and conditions (GTC) under Swiss law correspond with those applicable to the interpretation of contracts in general (Article 100 paragraph 1 ICA). The same applies to reinsurance contracts (Article 101 paragraph 2 in conjunction with Article 101 paragraph 1 letter a ICA). This means that the starting point of every interpretation is the wording of the agreement (ie, grammatical interpretation), based on the usual meaning of the words and expressions used. Furthermore, not only the wording but the mutually agreed true intention of the parties is decisive (Article 18 paragraph 1 CO).

To establish the true intention of the parties under Swiss law, all relevant circumstances must be taken into consideration. These include, in particular:

• the place, time and other circumstances of the formation of the contract;
• the behaviour of the parties previous to the formation of the contract and during contract negotiations, including possible drafts of the contract;
• the behaviour of the parties after the formation of the contract, such as performance of an obligation under the contract;
• the interests of the parties at the formation of the contract; and
• the prevailing custom in the industry.

The relevant clause must not be interpreted separately, but within the context of the entire agreement. If the true intention of the parties cannot be established, their behaviour must be interpreted in accordance with the principle of good faith: the true intention is replaced by the intention that reasonable parties would have agreed on.

GTC form an integral part of the insurance contract if the parties have accepted them in the context of the conclusion of the insurance contract in advance. Additional rules apply to GTC, such as the “rule of unusual clauses” (Ungewöhnlichkeitsregel) and the rule of ambiguity (Unklarheitsregel).

In the context of consumer contracts, the use of GTC that, to their detriment and contrary to the requirement of good faith, provides for a significant and unjustified imbalance between contractual rights and contractual obligations, is prohibited by unfair competition law (Article 8 Swiss Federal Act Against Unfair Competition).

Swiss law does not require warranties to be specifically identified as such.

In Switzerland, parties may agree that the liability of the insurer is subject to the condition that the policyholder has complied with certain specific obligations. However, the insurer may not deny coverage based on a breach of a condition precedent, if the breach cannot be regarded as the fault of the policyholder (Article 45 paragraph 1 ICA). The insurer may not deny coverage if the policyholder’s breach of its duty to reduce the risk or to prevent an increase in risk did not influence the occurrence of the feared event and/or the scope of the insurer’s obligation (Article 29 paragraph 2 ICA).

The ICA itself provides for certain obligations of the policyholder. Accordingly, the insured is obliged to notify the insurer as soon as it becomes aware of the occurrence of the insured event and of the claims under the insurance policy (Article 38 paragraph 1 ICA). In principle, late notification does not have any legal consequences for the insured except where it is at fault and the delay leads to an increase in the loss.

In severe cases, the compensation may be forfeited entirely. Furthermore, in the event of gross negligence causing the insured event, the insurer may reduce the compensation (Article 14 paragraph 2 ICA). If the insured event is caused intentionally, the compensation can be refused entirely (Article 14 paragraph 1 ICA).

In Switzerland, the parties to an insurance contract often seek out-of-court settlements, and litigation and arbitration are relatively rare. An insured may also consult the Swiss Ombudsman of Private Insurance and of Suva (the Ombudsman) if the insurance undertaking is a member company (the Ombudsman has no decision-making powers).

If no out-of-court settlement can be reached, claims under insurance contracts need to be settled in civil proceedings. They are, in principle, subject to the jurisdiction of the civil courts (Article 85 paragraph 1 ISA), unless the contract provides for an arbitration clause (see 9.5 The Enforcement of Arbitration Clauses).

In a domestic context, the general rules of the Swiss Civil Procedure Code (CPC) apply and, in principle, the ordinary court at the domicile or registered office of the defendant, or at the place where the characteristic performance must be rendered, has jurisdiction (Article 31 CPC). There are only a few insurance-specific (Article 38 paragraph 1 CPC with regard to motor vehicle or bicycle accidents) and consumer-specific provisions (Article 32 paragraph 1 CPC).

Usually, the policyholder has a direct claim against the insurance undertaking – eg, under a collective accident or health insurance contract (see 6.5 Multiple Insured or Potential Beneficiaries), and an unnamed beneficiary (in whose favour the policyholder concluded the insurance contract) has an independent claim against the insurance undertaking if the accident or illness occurs (Article 95a ICA). In this case, the beneficiary can take direct proceedings against the insurance undertaking. The same applies in principle to insurance for the benefit of third parties (Article 78 ICA).

Statute of Limitations

Claims based on an insurance contract are, in principle, subject to a statute of limitations of five years from the date of the triggering event that raises the obligation to provide indemnification. However, the statute of limitation for collective insurance for per diem indemnity for sickness (Krankentaggeldversicherung) is restricted to two years. The statute of limitations cannot be contractually shortened (Article 46 ICA).

Reinsurance contracts are not subject to the ICA (see 6.6 Consumer Contracts or Reinsurance Contracts). Therefore, the general provision of the CO on the statute of limitations for contractual claims of ten years running as of the day on which the claim becomes due applies to claims based on a reinsurance contract (Article 127 CO). This limitation period cannot be contractually altered (Article 129 CO).

Domestic Disputes

In a domestic context, choices of forum are, in principle, admissible (Article 17 CPC). However, if an insurance contract qualifies as a consumer contract under Article 32 CPC, a choice of forum can be concluded only after a dispute has arisen (Article 35 paragraph 1 littera a and paragraph 2 CPC).

International Disputes

The Lugano Convention

Switzerland is a contracting state of the Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (“Lugano Convention”). The Lugano Convention applies if there is, inter alia, a connecting factor to a contracting state. The connecting factors need to be determined separately for each provision in the Lugano Convention. Please note that as a result of Brexit, the United Kingdom is no longer a contracting state of the Lugano Convention.

The Lugano Convention provides for special jurisdiction rules with regard to insurance matters (Article 8 et seq Lugano Convention; however, these provisions do not apply to reinsurance matters). It provides, in particular, that the policyholder, insured or beneficiary may also sue an insurer domiciled in a contracting state in the courts in their own domicile. If the (defendant) insurer is not domiciled in a contracting state, a fiction of domicile is assumed nonetheless if a branch, agency or other establishment exists in the contracting state (Article 9 paragraph 2 Lugano Convention). A choice of forum is only possible to a limited extent – eg, only if the choice of forum was concluded after the dispute had arisen (Article 13 Lugano Convention).

Swiss Private International Law Act

In the context of a dispute that does not fall within the scope of the Lugano Convention, the general provisions of the Swiss Private International Law Act (PILA) apply. The jurisdiction pursuant to the PILA is determined on the basis of the contractual agreement (Articles 112 and 113 PILA) and choice of forum clauses are generally admissible (Article 5 PILA). However, if an insurance contract qualifies as a consumer contract pursuant to Article 120 PILA, the consumer cannot waive in advance the jurisdiction at their domicile of residence or usual place of residence (Article 114 paragraph 2 PILA).

Choice of law

When determining the choice of law in an international dispute, Swiss courts apply the PILA. Under the PILA, choice of law clauses are generally admissible (Article 116 PILA), if they are explicit or clearly evident from the contract or the circumstances. However, if an insurance contract qualifies as a consumer contract, choice of law clauses are inadmissible (Article 120 paragraph 2 PILA).

In principle, before the commencement of litigation proceedings, a conciliation proceeding (Schlichtungsverfahren) has to take place (Article 197 et seq CPC). If no agreement can be reached during the conciliation proceeding, the conciliation authority grants authorisation to proceed with litigation. Within three months, the plaintiff has to initiate proceedings before the ordinary court by filing the statement of claim (Articles 209, 220 CPC). An exchange of written submissions (Articles 221, 222, 225 CPC) is in general followed by the main hearing, where the parties present their claims and legal arguments and evidence is taken (Article 228 et seq CPC). Afterwards, the court renders the final decision (Article 236 CPC).

Against a final decision of the ordinary court, the losing party may file an appeal (Berufung) or an objection (Beschwerde) with the superior cantonal court, if the requirements have been met.

Final decisions of the superior cantonal court are, under certain conditions, subject to appeal before the Swiss Federal Supreme Court.

Rules that differ from the procedure described above apply, in particular, to proceedings before a Commercial Court, where, inter alia, no conciliation proceedings are required (Article 198 littera f CPC) and – because it is the only cantonal court – the decision may only be appealed directly to the Swiss Federal Supreme Court. Further differences apply to – eg, disputes in simplified (Article 243 et seq CPC) or summary proceedings (Article 248 et seq CPC; as opposed to ordinary proceedings).

The enforcement procedure in Switzerland differs depending on the type of judgment that is to be enforced: the enforcement of cash and surety payments is governed by the Swiss Federal Debt Enforcement and Bankruptcy Act (DEBA; Article 335 paragraph 2 CPC), while any other claims must be enforced in accordance with the CPC (Article 337 et seq CPC). In order to enforce claims under insurance contracts, which are typically cash payments, the creditor has to file an application for debt enforcement (Article 67 paragraph 1 DEBA) and take further steps under the DEBA.

Enforcing Foreign Judgments

Enforcement within the scope of the Lugano Convention

With regard to the enforcement of foreign judgments, Switzerland is, inter alia, a contracting state of the Lugano Convention. Under the Lugano Convention, as a general principle, a judgment of a contracting state is enforceable in any other contracting state, where the creditor requests a declaration of enforceability. The procedure to gain a declaration of enforceability could be described as follows: the creditor must produce a copy of the judgment that satisfies the conditions necessary to establish its authenticity (Article 41 in conjunction with Article 53 Lugano Convention). At this stage, the debtor does not participate in the proceeding and therefore cannot raise any objections and the decision is declared enforceable without delay (Article 41 Lugano Convention). However, both parties may appeal against the decision (Article 43 No 1 Lugano Convention).

In this second proceeding, any potential objections of the debtor (eg, if the recognition of the judgment is manifestly contrary to public policy) are examined (Article 45 paragraph 1 in conjunction with Article 34 Lugano Convention). However, the foreign judgment may not be reviewed as to its substance (Article 45 paragraph 2 Lugano Convention). Moreover, in principle, the jurisdiction of the foreign court is not reviewed, with the exception of insurance matters (Article 35 Lugano Convention). Therefore, a review of the jurisdiction takes place for insurance contracts, but not for reinsurance contracts. The actual enforcement of the judgment itself is not subject to the Lugano Convention but rather to the law of the state enforcing the judgment – ie, with regard to Switzerland pursuant to the DEBA or the CPC.

Enforcement without treaties

If no international or bilateral treaty applies, a foreign judgment is only enforceable in Switzerland if it has been recognised pursuant to Article 25 et seq PILA. A foreign judgment is recognised if:

• the courts or authorities of the country where the decision was rendered had jurisdiction from a Swiss law perspective;
• the judgment is final and absolute; and
• there are no grounds for refusal (Article 25 PILA).

Upon the request of the creditor, the recognised judgment is declared enforceable (Articles 28 and 29 PILA). The actual enforcement is governed by the DEBA or the CPC.

Only in the event that neither international treaties nor the PILA provide otherwise, the CPC applies to the recognition, declaration of enforceability and enforcement of foreign judgments as so-called lex fori (Article 335 paragraph 3 CPC).

In Switzerland, in principle, any monetary claim can be submitted to arbitration proceedings in an international context (Article 177 paragraph 1 PILA). The admissibility to arbitration in a domestic context requires an arbitrable claim (Article 354 CPC). Consequently, arbitration clauses in insurance and reinsurance agreements are generally enforceable, if the arbitration clause is in writing or in any other form allowing it to be evidenced by text (Article 7 and Article 178 paragraph 1 PILA; Articles 61 and 358 CPC). The revision of the PILA (entry into force on 1 January 2021) does not change this.

Regarding the enforcement of foreign arbitral awards, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC), to which Switzerland is a party, applies. The NYC applies irrespective of whether the award is rendered in another contracting state or not (Article 194 PILA). Foreign arbitral awards have to be recognised in principle (Article III NYC). However, the NYC also provides grounds for objections to the enforcement (Article V NYC). Grounds pursuant to paragraph 2 must even be observed ex officio (ie, they do not have to be put forward by the other party).

The requesting party must submit the duly authenticated signature of the award and the signature of the arbitration agreement together with the application for recognition or enforcement (Article IV paragraph 1 NYC). Moreover, if the arbitral award is not written in an official language of Switzerland, a translation must be enclosed. According to the Swiss Federal Supreme Court, awards in English do not have to be fully translated; a translation of the holdings of the court is sufficient. The procedure for the enforcement of the foreign arbitral award is governed by domestic law – ie, in Switzerland by the CPC or the DEBA (Article III NYC).

Alternative dispute resolution has steadily gained in importance and is ideally suited for large liability cases where very unequal parties are involved, and the injured party tends not to be able to afford long disputes.

If the insurance undertaking is a member company, the insured may refer to the Ombudsman before commencing litigation proceedings (see 9.1 Insurance Disputes over Coverage).

In Switzerland, mediation, where an impartial third party helps to resolve disputes by facilitating settlement negotiations, is not very established in commercial matters (including insurance and reinsurance matters), and the mediator has no decision-making power. Upon request of all parties, mediation may replace conciliation proceedings (Article 213 CPC). The parties may also request mediation at all times during the court proceedings (Article 214 paragraph 2 CPC). However, the court cannot oblige the parties to mediate their dispute but only recommend that they do so (Article 214 CPC).

Punitive damages are not available under Swiss law. However, there are certain specific provisions under Swiss law that generate results that may, to a very limited extent, seem similar, such as the disgorgement of profits under supervisory law.

Further, a Swiss court, in principle, cannot award or enforce the full award of punitive damages even if the applicable foreign substantive law provides for those damages as this usually constitutes a violation of Swiss public policy.

An insured’s claim becomes due four weeks after the date on which the insurer has received sufficient information to assess whether the claim is correct (Article 41 paragraph 1 ICA). As soon as the claim is due, the insured may demand payment from the insurer and may put the insurer in default by sending a reminder (Article 102 paragraph 1 CO). No reminder is necessary if an expiry date has been agreed (Article 102 paragraph 2 CO). Default triggers the obligation to pay interest that amounts to 5% per annum in the absence of any other agreement (Article 104 CO) and possibly further damages that arose because of late payment, such as the cost of obtaining “replacement money” (Article 103 CO).

To the extent that the insurance undertaking has paid compensation to the policyholder, the policyholder’s claim against third parties is transferred to the insurance undertaking, save for certain exceptions (Article 95c paragraphs 2 and 3 ICA). In other words, the insurance undertaking subrogates to the policyholder’s claims against the third parties and the insurance undertaking can thus assert the claims against the third parties. According to the Swiss Federal Supreme Court, this applies not only to claims in tort (unerlaubte Handlung), but also to claims arising from causal and strict liability (Kausal- und Gefährdungshaftung).

The question of whether subrogation also applies to the policyholder’s contractual claims against the third party has not yet been clarified by the Swiss Federal Supreme Court; however, according to prevailing doctrine, it can be assumed that the insurance undertaking subrogates to the policyholder’s claims in this case as well. However, the policyholder benefits from a quota privilege; in the event of subrogation, the claim of the policyholder has priority over the claim of the insurance undertaking. The latter can only enforce its claim once the claim of the policyholder has been fully satisfied.

Insurtech combines traditional insurance business with modern technologies and fosters alternative business models and distribution channels, inter alia in the following areas:

• Contract management/digital brokers offer brokerage of insurance policies through online platforms and mobile apps and facilitate the management of insurance policies for the customer (eg, Knip in Switzerland).
• Comparison portals offer easy comparison between various (insurance) products and provider types (eg, Comparis, Anivo and wefox in Switzerland).
• Peer-to-peer insurance enables grouping of insured persons (eg, Versicherix in Switzerland).
• Health insurance uses health data originating from a new data source.
• On-demand insurance offers short-term and situation-related insurance (eg, Simpego in Switzerland).

Furthermore, insurtech encompasses new technology solutions for insurance undertakings, enabling them to increase efficiency of their own value chain through the use of artificial intelligence, blockchain applications or Internet of Things (IoT) devices. In Switzerland, for example, the B3i Initiative, cardossier or Fizzy are examples of blockchain-based insurtechs that, in particular, aim to automate the insurance business.

If an insurance undertaking participates in an insurtech start-up, the licensing and information requirements pursuant to the ISA must be observed (see 4. Transaction Activity). In addition to the insurance business, the insurance undertaking is allowed to conduct business that is related to the insurance business. Moreover, insurance undertakings have to obtain FINMA permission to conduct business that is unrelated to the insurance business (Article 11 paragraph 1 ISA).

Since 2016, the Swiss Federal Council has gradually been introducing regulatory reliefs for fintech and insurtech businesses.

In particular, the Swiss Federal Council is able to exempt insurance undertakings with innovative business models from supervision (Article 2 paragraph 5 letter b ISA). The ISO provides for relief and exemption from supervision (see Article 1e et seq ISO; see 12.1 Developments in Insurance Law).

Emerging risks are new risks that are not recognisable or only recognisable to a very limited extent (eg, health risks regarding asbestos). Their damage potential is difficult to estimate and there is often a long time gap between the cause and the occurrence of the consequences or the realisation of the risk. The full damage potential usually only crystallises at a later point in time. Dealing with emerging risks poses a major challenge for society, the regulator and the insurance industry.

In connection with emerging risks, the question arises, in particular, as to who should be liable for risks that were not identifiable, according to the state of the art in science and technology, at the time of their placement on the market (so-called development risks). In Switzerland, liability may, inter alia, arise from contractual law, the Swiss Federal Product Safety Act (ProdSA), the Swiss Federal Product Liability Act (PLA) or the employment relationship. In this context, the statute of limitation plays a major role. The limitation period varies depending on the basis of the claim, eg:

• general non-contractual liability – three years after the injured party has become aware of the damage and of the liable person or in principle ten years after the date on which the damage was caused (Article 60 CO);
• product liability – three years after the injured party has become aware of the damage, the mistake and the identity of the producer (Article 9 PLA) or ten years after the date on which the product that caused the damage was placed on the market (Article 10 PLA); and
• contractual liability – in principle ten years (Article 127 CO).

With the entry into force of the new rules on 1 January 2020, the statute of limitations has partially been extended (eg, the absolute statutes of limitations for claims based on long-term health damage or death were extended from ten to 20 years (eg, in the case of asbestos; Article 60 paragraph 1bis CO)).

Generally speaking, measures to address emerging risks can be taken at the level of the legislature or by the insurers themselves. Risks can, for example, be countered by means of regulatory prohibitions, restrictions or conditions regarding the handling of certain technologies or, indirectly, by the introduction of strict liability in favour of the injured (ie, as is the case in the field of nuclear energy).

From the perspective of the insurer, new policy types have been developed in respect of emerging risks, such as policies to cover computer and network hacking risks, data or identity theft or loss of reputation. The Swiss market still shows substantial room for development in the area of emerging risks.

On 1 January 2024, the revised ISA and ISO entered into force. The revised ISA has, in particular, introduced the following amendments to the law:

• specific disclosure rules for investment-linked life insurance products (eg, requirement for base information leaflet) and rules of conduct for the distribution of such products (Article 39a et seq ISA);
• new distinction of “professional policyholders” – insurance undertakings that provide services to professional policyholders only benefit from various regulatory reliefs (Article 30a et seq ISA);
• expanded information duty of untied insurance intermediaries to inform the policyholder about certain circumstances (see Article 45 and Article 45b ISA);
• organisational requirement and information duty of insurers and insurance intermediaries regarding conflicts of interest (Article 14a and 45a ISA);
• regulation on restructuring and bankruptcy of insurance undertakings (Article 52a et seq ISA);
• to safeguard the potential for innovations within the Swiss financial market, the Swiss Federal Council can exempt insurance undertakings from supervision under certain conditions (Article 2 paragraph 5 littera b revISA);
• new regulation on insurance group supervision (Article 67 ISA);
• new legal basis for the Swiss Federal Council to subject Swiss reinsurance branches of foreign insurers to a FINMA licence requirement (with supervisory reliefs) should this be required in the future because of recognised international standards (Article 2 paragraph 5 littera a ISA); and
• insurance special purpose undertakings are expressly listed as not subject to insurance supervision law according to Art. 2 paragraph 1 littera e ISA (insurance special purpose undertakings are companies that underwrite risks from insurers and cover them by issuing subordinated debt instruments (eg, cat-bonds)). 

The proposal of the Swiss Federal Council to require insurance undertakings and insurance intermediaries to affiliate with an Ombudsman’s office has been rejected by the Swiss Parliament.

Moreover, in the third quarter 2024, the revised ISO-FINMA will enter into force. The ISO-FINMA will be amended to reflect the changes to the revised ISA and ISO, including – eg, the provisions concerning the Swiss Solvency Test (SST), tied assets and technical provisions. In parallel, various FINMA circulars in the area of insurance will be amended.

Following the revision of the ISA and ISO, IBO-FINMA, which regulates bankruptcy proceedings for insurance companies, will also be revised and is expected to enter into force in the first quarter of 2025. For further information please refer to the list of FINMA’s pending regulation projects (status as of 1 July 2023), available at www.finma.ch.