SWITZERLAND Law and Practice Contributed by: Peter Ch Hsu, Daniel Flühmann and Tiffany Ender, Bär & Karrer
of bankruptcy proceedings and for the interpretation of beneficiary clauses (Articles 79 et seq ICA). 6.6 Consumer Contracts or Reinsurance Contracts Insurance contracts (including consumer contracts) are generally subject to the provisions of the ICA – eg, information duties of insurance undertakings as well as mandatory and semi-mandatory provisions that limit the contractual freedom of insurance undertak- ings (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 Switzer- land, 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 gener- ally (and often internationally) recognised reinsurance customs and standards. 7. Alternative Risk Transfer (ART) 7.1 ART Transactions Alternative Risk Transfer (ART) includes, in particu- lar, 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 trans- fer is effected by way of conclusion of a risk transfer contract between the insurance undertaking/reinsur- ance undertaking and a special purpose vehicle (SPV). The insurance undertaking/reinsurance undertaking 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 insurance undertaking/reinsurance undertaking and the SPV, and (ii) the SPV and investors is contro- versial in Swiss legal literature, as is the question of whether the investors are subject to insurance super-
vision. Since the entry into force of the revised ISA, an insurance SPV with a registered office in Switzerland falls within the scope of insurance supervision (Article 2 paragraph 1 litera e ISA). A company is deemed to be a relevant SPV under the ISA if it (i) is not an insur- ance undertaking; (ii) assumes risks from insurance undertakings; and (iii) fully hedges the risks by issuing financial instruments where the repayment or payout claims of the holders or creditors of such financial instruments are subordinated to the risk assumption obligations of the SPV (Article 30e paragraph 1 ISA). The contract between the insurance undertaking/rein- surance undertaking 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 Con- tract and 6.6 Consumer Contracts or Reinsurance Contracts ), at least in such cases where no or only a low risk remains with the insurance undertaking/rein- surance undertaking. The contract between the SPV and investors, however, is unlikely to qualify as an 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) reinsurance undertaking abroad is not decisive. insurance contract under Swiss law. 7.2 Foreign ART Transactions The SST explicitly provides for the recognition of reinsurance and retrocession in the context of quan- tified risk transfers (Article 40 paragraph 2 ISO). Con- sequently, 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 undertaking/reinsurance undertaking’s solvency capital. Moreover, the risk transfer through ILS may be cred- ited to the insurance-related reserves or, if the transfer agreement cannot be qualified as a reinsurance con- tract, it may be treated as a derivative financial instru- ment. Because reinsurance undertakings in Switzer- land – unlike direct insurance undertakings – do not
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