The law of reinsurance in Switzerland

Contract law: Article 101 VVG and the Code of Obligations

The Swiss Federal Act on Insurance Contracts of 2 April 1908 (Versicherungsvertragsgesetz, VVG, SR 221.229.1) contains a short provision that defines the legal framework for the entire reinsurance industry in Switzerland. Article 101 VVG provides that the Act does not apply to reinsurance contracts, nor to private legal relationships between insurance companies not subject to supervision and their insured parties, with certain exceptions. For the relationships thus excluded, the general law of obligations applies.¹ The exclusion survived the partial revision of the VVG that entered into force on 1 January 2022, which modernised the law for consumers and small businesses but left the treatment of reinsurance unchanged.²

The rationale is simple. The VVG contains numerous provisions, many of them mandatory, that protect the policyholder: rules on pre-contractual information, on the consequences of non-disclosure, on the notification of claims and on the insurer’s right of recourse. Between two professional insurers, such protection is unnecessary and could even be harmful, since it would restrict the freedom of the parties to design the complex contracts that reinsurance requires. The same approach is found in other civil law countries. German law excludes reinsurance from its insurance contract act in § 209 VVG, and Helmut Heiss has pointed out that the Swiss Article 101 and the German § 209 are typical of civil law jurisdictions, which leave reinsurance to general contract law and to the customs of the trade.³

A reinsurance contract governed by Swiss law is therefore an innominate contract under the Code of Obligations. The general part of the Code applies: the rules on formation, interpretation, error, performance and breach. Its interpretation follows the principles developed by the Federal Supreme Court for contracts in general, beginning with the real and common intention of the parties and, where this cannot be established, applying the principle of trust. What fills the gaps is above all the custom of the reinsurance market. The duty of utmost good faith, the principle that the reinsurer follows the fortunes of the cedant, the reinsurer’s right to inspect the cedant’s records and the obligation of the cedant to cooperate with the reinsurer in the handling of large claims are all standard features of reinsurance practice, although no Swiss statute mentions them.

The reliance on custom has a cost. Heiss notes an almost total lack of case law on reinsurance in civil law jurisdictions and quotes the New York Court of Appeals, which described reinsurance in 1990 as “a field in which differences have often been settled by handshakes and umpires”. Common law courts have been less indulgent. An English judge, Justice Eve, complained as early as 1915 that reinsurance wordings were “made up … of paragraphs culled from several precedents and strung together without any accurate estimate of their relative consistency”.⁴ In a market that followed the maxim “deal now, details later”, terms that appear uniform may carry different meanings depending on whether they are read under New York or English law.

The Principles of Reinsurance Contract Law

This situation gave rise to a project with strong roots in Zurich. In July 2015 a group of academics and practitioners approached the International Institute for the Unification of Private Law (UNIDROIT) with the proposal to formulate principles of reinsurance contract law. The project was led by Anton K. Schnyder and Helmut Heiss of the University of Zurich, which acted as lead agency, together with Martin Schauer of the University of Vienna and Manfred Wandt of the University of Frankfurt am Main. Funded by the Swiss National Science Foundation, the German Research Foundation and the Austrian Science Fund, the drafting committee included professors from Brazil, Europe, Japan, Singapore, South Africa and the United States, while advisory groups represented reinsurers, primary insurers and brokers.⁵

The first version of the Principles of Reinsurance Contract Law (PRICL) was published in 2019 and made freely available online. It connects to the UNIDROIT Principles of International Commercial Contracts and contains rules on the mutual duties of the parties, including utmost good faith, confidentiality, disclosure, payment of premium, documentation, notification of claims and settlement, as well as rules on remedies for breach based on proportionality and on the aggregation of losses by “event” and “(common) cause”.⁶ Later work extended the Principles to further subjects such as allocation, follow the fortunes and follow the settlements, claims cooperation, time bars and termination. An edition edited by Helmut Heiss and Manfred Wandt was published under the date 2025.⁷

The Principles are soft law. They apply only if the parties choose them. Heiss has explained that their full effect depends on arbitration, because national conflict-of-laws rules such as the Rome I Regulation allow parties to incorporate non-state rules only by reference, as contractual terms subordinate to mandatory national law. Before an arbitral tribunal, by contrast, the parties can choose “rules of law” in the sense of Article 28(1) of the UNCITRAL Model Law, so that the Principles may govern the contract, subject only to internationally mandatory rules and public policy.⁸ For a Swiss seat the same result follows from Article 187(1) of the Private International Law Act, which allows the arbitral tribunal to decide according to the rules of law chosen by the parties.⁹ For practitioners in Zurich, the combination of a Swiss seat, Swiss law as the default and PRICL as a set of agreed rules is an option that deserves consideration in treaty wordings with counterparties from different legal traditions.

Supervision of reinsurers

Although reinsurance contracts escape the VVG, reinsurers themselves are fully subject to prudential supervision. The Federal Act on the Supervision of Insurance Companies of 17 December 2004 (Versicherungsaufsichtsgesetz, VAG, SR 961.01) and the Insurance Supervision Ordinance of 9 November 2005 (Aufsichtsverordnung, AVO, SR 961.011) apply to insurance and reinsurance companies alike. This was not always so. Under the older legislation, reinsurers had to satisfy only a general requirement to offer the “necessary guarantee” in terms of solvency, organisation and management, so that the Federal Office of Private Insurance had to fill the gaps through informal standards such as minimum capital requirements. The VAG of 2004, in force since 2006, brought reinsurers under a comprehensive regime of corporate governance, risk management, internal control and a responsible actuary. At the time the Federal Office supervised around 70 reinsurance entities, of which some twelve were professional reinsurers and some 58 reinsurance captives, and gross reinsurance premiums written in Switzerland amounted to about 34.8 billion francs in 2004, roughly a third of all Swiss insurance premiums.¹⁰

The general history of Swiss insurance supervision is the subject of Chapter IV of this Part. For reinsurers, three features of the current law are particularly relevant. The first is the principle of proportionality in supervision. Because the clients of reinsurers are exclusively insurance companies with professional expertise, the revised VAG, in force since 1 January 2024, extended the supervisory reliefs available to reinsurers in Article 35 VAG. The Swiss Insurance Association explained this with the argument that reinsurance clients need less protection than consumers. The implementing rules are contained in Article 1d AVO, which the Federal Department of Finance described in its explanatory report of 2 June 2023 as granting simplified supervision to reinsurers “mit geringer Grösse und Komplexität”, provided the statutory minimum requirements are met.¹¹

FINMA has set out the practical consequences. Relief applies to reinsurers in supervisory categories 4 and 5 that comply with the principles of proper corporate governance and the regulatory requirements on risk management, internal control and internal audit and that are not subject to supervisory measures. Eligible companies benefit from simplified reporting under the Swiss Solvency Test for up to three consecutive years, reduced disclosure obligations, case-by-case reductions in audit frequency and scope and exemption from several regular surveys, among them those on corporate governance, the internal control system, the own risk and solvency assessment and nature-related financial risks. They must confirm their compliance with the conditions annually by 30 April.¹² Large reinsurers such as Swiss Re, which fall into the higher supervisory categories, remain subject to the full regime.

The second feature is the Swiss Solvency Test. The SST, binding since 1 January 2011, applies a risk-based, total balance sheet approach to reinsurers as to primary insurers. Once assets and liabilities have been valued in a market-consistent way, the required capital is derived from the possible changes of the balance sheet over one year. FINMA provides standard models for reinsurers, including captive reinsurers, but the large reinsurers use internal models approved by FINMA.¹³ For a global reinsurer, the internal model is where the economics of diversification described in Section VIII are translated into regulatory capital. The Group SST ratio of 250 per cent that Swiss Re reported for 1 January 2026 means that its risk-bearing capital exceeded the required target capital by a factor of two and a half.

The third feature is international recognition. By its Delegated Decision (EU) 2015/1602 of 5 June 2015, the European Commission recognised the Swiss solvency and prudential regime as fully equivalent to Solvency II under Article 172 (reinsurance), Article 227 (group solvency) and Article 260 (group supervision) of Directive 2009/138/EC. It was the first equivalence decision under Solvency II. Its practical importance for reinsurers lies in Article 172: EU supervisors must treat reinsurance contracts concluded with Swiss reinsurers in the same way as those concluded with EU reinsurers.¹⁴ For a reinsurance centre whose clients are largely outside Switzerland, this recognition is a key element of market access, since European cedants would otherwise face higher capital charges or collateral requirements when ceding business to Zurich.

Notes

1. Art. 101 VVG (SR 221.229.1), text as in force 2024, reproduced at swissrights.ch, https://www.swissrights.ch/gesetze/Artikel-101-VVG-2024-DE.php. The official text is available on Fedlex under https://www.fedlex.admin.ch/eli/cc/24/719_735_717/de. ↩
2. Swiss Federal Council, media release “Bundesrat setzt revidiertes Versicherungsvertragsgesetz in Kraft”, 11 November 2020, https://www.admin.ch/de/nsb?id=81093, which puts the revised VVG into force on 1 January 2022. Schweizerischer Versicherungsverband, synopsis of the partial revision (“Änderung vom 19. Juni 2020”), https://svv.ch/sites/default/files/media/documents/2020-06/20200619_Synopse%20Teilrevision%20VVG%20Schlussabstimmung_de.pdf. The swissrights.ch reproduction of Art. 101 VVG cited in the preceding footnote shows no amendment of that article later than 2004. ↩
3. Helmut Heiss, “The Principles of Reinsurance Contract Law (PRICL)”, Scandinavian Studies in Law, https://www.ius.uzh.ch/dam/jcr:8de5ebeb-d50d-45de-8c36-304a82bd66f5/Heiss,%20PRICL_Scandinavian%20Studies%20in%20Law.pdf. ↩
4. Helmut Heiss, “The Principles of Reinsurance Contract Law (PRICL)”, Scandinavian Studies in Law, https://www.ius.uzh.ch/dam/jcr:8de5ebeb-d50d-45de-8c36-304a82bd66f5/Heiss. quoting the New York Court of Appeals (1990) and Eve J (1915). ↩
5. UNIDROIT, “Reinsurance Contracts”, https://www.unidroit.org/work-in-progress/reinsurance-contracts/. Heiss, “The Principles of Reinsurance Contract Law (PRICL)”, https://www.ius.uzh.ch/dam/jcr:8de5ebeb-d50d-45de-8c36-304a82bd66f5/Heiss,%20PRICL_Scandinavian%20Studies%20in%20Law.pdf. ↩
6. Heiss, “The Principles of Reinsurance Contract Law (PRICL)”, https://www.ius.uzh.ch/dam/jcr:8de5ebeb-d50d-45de-8c36-304a82bd66f5/Heiss. ; UNIDROIT, “Reinsurance Contracts”, https://www.unidroit.org/work-in-progress/reinsurance-contracts/. ↩
7. Helmut Heiss and Manfred Wandt (eds.), Principles of Reinsurance Contract Law (PRICL) 2025 (Rome: UNIDROIT, 2025), https://www.pricl.org/s/PRICL-2025.pdf. The edition covers, among other subjects, loss allocation, loss aggregation, follow the settlements and follow the fortunes, claims handling and the duration and early termination of the contract. ↩
8. Heiss, “The Principles of Reinsurance Contract Law (PRICL)”, https://www.ius.uzh.ch/dam/jcr:8de5ebeb-d50d-45de-8c36-304a82bd66f5/Heiss,%20PRICL_Scandinavian%20Studies%20in%20Law.pdf. ↩
9. Swiss Arbitration Association, English translation of Chapter 12 PILA (as in force from 1 January 2021), https://www.swissarbitration.org/wp-content/uploads/2021/05/20210129-Chapter-12-PILA_Translation_English.pdf, Art. 187(1): “The arbitral tribunal shall decide the dispute according to the rules of law chosen by the parties or, in the absence thereof, according to the rules of law with which the dispute has the closest connection.” ↩
10. Bundesamt für Privatversicherungen (BPV), “Die Aufsicht über die Rückversicherer”, archived on the FINMA website, https://www.finma.ch/FinmaArchiv/bpv/d/themen/00504/00604/index.html?lang=de. ↩
11. Schweizerischer Versicherungsverband (SVV), “Was ändert sich mit dem revidierten VAG?”, https://www.svv.ch/de/was-aendert-sich-mit-dem-revidierten-vag. Eidgenössisches Finanzdepartement, Erläuternder Bericht zur Änderung der Aufsichtsverordnung (AVO), Bern, 2 June 2023, https://www.newsd.admin.ch/newsd/message/attachments/79175.pdf. ↩
12. FINMA, “Relief for reinsurers”, https://www.finma.ch/en/supervision/insurers/small-insurers-regime-and-relief-for-insurers/relief-for-reinsurers/. ↩
13. FINMA, “Swiss Solvency Test (SST)”, https://www.finma.ch/en/supervision/insurers/cross-sectoral-tools/swiss-solvency-test-sst/. ↩
14. CMS, “European Commission recognises the Swiss insurance supervision system as equivalent to the Solvency II Directive”, https://cms.law/en/che/publication/european-commission-recognises-the-swiss-insurance-supervision-system-as-equivalent-to-the-solvency-ii-directive. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.