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The Swiss Solvency Test

Origins and introduction

The Swiss Solvency Test is the best-known product of the reform. Its development began before the new statute was adopted. In the autumn of 2002 the Federal Office of Private Insurance launched an analysis project on the reorientation of insurance supervision before starting, in the spring of 2003, the SST project in cooperation with the industry, consulting firms and academics. Once the mathematical models had been completed in the summer of 2004, a first field test was run with ten selected insurance companies. A second field test followed in the early summer of 2005 with forty-five companies. The SST was introduced with the revised supervisory law on 1 January 2006.1

The introduction was gradual. Insurers had several years to build their models and processes before the SST became mandatory for all insurers subject to it on 1 January 2011. From the start, the Swiss supervisor presented the test as an instrument with two aims. It should promote good risk management within insurers while giving the supervisor an early warning when available capital fell short of what the risks required. The first fact sheet stressed that a shortfall did not mean insolvency: “If the available risk-bearing capital is less than the necessary target capital, this does not entail the insolvency of the enterprise.”2 This point has practical importance. The SST ratio is a supervisory signal that triggers graduated measures, whereas insolvency remains a legal concept tied to over-indebtedness and illiquidity.

Mechanics: risk-bearing capital and target capital

The SST rests on a total balance sheet approach. Once all assets and liabilities have been valued consistently with market prices, the insurer must show that its available capital, the risk-bearing capital, is at least as large as its required capital, the target capital. The consolidated Insurance Supervision Act puts this requirement at statutory level: an insurer must have sufficient solvency, which is the case when its risk-bearing capital is at least as large as its target capital. Before 2024 the SST was anchored mainly in the ordinance and in FINMA circulars. Its elevation into the statute was one of the less conspicuous but more significant elements of the 2022 revision.3

The technical document published by the Federal Office in 2006 defined the risk-bearing capital as “the difference between the market-consistent value of the assets and the discounted best estimate of the liabilities”. Target capital consisted of two components. The first was the expected shortfall of the change in risk-bearing capital over one year at a confidence level of 99 per cent. The second was a market value margin that represented the cost of the regulatory capital that a third party would need to hold while running off the portfolio. The choice of expected shortfall over value at risk was deliberate. The White Paper described expected shortfall as a more conservative measure because it measures the average loss across the worst cases, including their severity beyond the threshold at which they begin.4

The revised Supervision Ordinance of 2023 reformulated the protection level in plain terms as the average capital at risk in the one per cent worst scenarios. It also laid down principles for market-consistent valuation, requiring the use of current data and information from transparent markets, and empowered FINMA to specify risk-free interest rate curves for the major currencies. FINMA summarises the result as follows: the SST uses a risk-based, total balance sheet approach with market-consistent valuation, models possible changes over one year and requires an insurer to be able to meet its obligations “even under unfavourable conditions, with an appropriately high probability”. In its public fact sheet, the authority translates this into the image of an insurer that remains financially unscathed even when faced with a once-in-a-century negative event.5

Standard models and internal models

Insurers may calculate their target capital with standard models prescribed by FINMA or, where the standard model does not capture their risk situation adequately, with internal models approved by the authority. FINMA maintains standard models for life, non-life and health insurance, for market and credit risk, for reinsurance and for captive insurers. The large Zurich groups use internal models. Zurich Insurance Group reported an SST ratio of 259 per cent as at 31 December 2025, up from 253 per cent a year earlier, and explained that the ratio is calculated with the group’s internal model, which is subject to FINMA’s review and approval. Swiss Re reported an SST ratio of 250 per cent for its 2026 SST, after 257 per cent in 2025 and 269 per cent in 2024, again on the basis of an internal model that FINMA reviews and approves.6

Mid-sized groups often work with adjusted standard models. Baloise, before its merger with Helvetia, reported a group SST ratio of 204 per cent as at 31 December 2024, with risk-bearing capital of 8,732 million francs and target capital of 4,274 million francs. It described its approach as an adjusted standard model that had been subject to various changes in the past.7 These published figures show how far the SST has moved from a supervisory calculation to a public indicator. Analysts compare SST ratios across groups, rating agencies read them, and boards set target ranges that inform dividend and buy-back policy.

The approval and ongoing review of internal models is one of FINMA’s most resource-intensive tasks in insurance. In its annual report for 2025 the authority described material reviews involving a deeper analysis of internal models and checks on the correct application of standard models. During 2025 it also reviewed the parameterisation of the standard model for losses on the basis of comprehensive industry data. The same report noted that the SST reports submitted showed mostly consistent solvency figures, while health insurers saw moderate declines because of updated assumptions on inflation and cancellation rates. Two small insurance companies reported solvency shortfalls, both of which were resolved through capital increases.8

Intervention thresholds and the low-interest period

FINMA uses predefined intervention thresholds based on the SST ratio in order to identify solvency problems in good time and to require corrective measures. When risk-bearing capital falls below target capital, FINMA requires the insurer to take measures, for example to reduce its risks or to transfer its portfolio to another insurer. The intensity of such measures grows as the ratio falls further. The 80 per cent threshold has acquired a special legal significance because the revised ordinance of 2023 uses it as a trigger for the conversion or write-down of Tier 1 capital instruments.9

The period of very low and negative interest rates after the financial crisis of 2008 tested this mechanism. Life insurers with long-term guarantees saw their SST ratios fall sharply because the market-consistent value of their liabilities rose as interest rates declined. In September 2012 FINMA proposed temporary relief. For three years insurers could discount certain obligations with a risk-based curve in place of the risk-free curve, and FINMA would refrain under certain conditions from prohibiting dividends for companies with SST ratios between 80 and 100 per cent. Companies with ratios above 60 per cent could, subject to conditions, continue to write new business.10 Critics saw in this relief a softening of the economic principle at the heart of the SST. Supporters regarded it as a pragmatic bridge that prevented forced sales of assets and allowed insurers to adjust their business models. The episode showed that a market-consistent regime is exposed to pressure precisely when markets move against the industry.

Revisions of 2015, 2017 and 2024

The SST has been revised several times. A revision of the Supervision Ordinance that entered into force on 1 July 2015 prepared the recognition of Swiss supervision as equivalent to Solvency II. It was followed by a set of FINMA circulars in 2016 and 2017. Circular 2017/3 restructured the SST calculation. The market value margin was henceforth deducted from risk-bearing capital, whereas it had previously been added to target capital, which produced higher SST ratios and brought the Swiss approach closer to Solvency II.11

The revision of 2024 changed the architecture of the rules once more. The Federal Council’s revised ordinance of 2023 moved key SST principles into the ordinance, while FINMA transferred technical provisions on the SST, tied assets, technical provisions and the transparency of life insurers from circulars into its own ordinance. FINMA announced that it would repeal five circulars and totally revise others, including Circular 2016/6 “Life insurance” and Circular 2017/3 “SST”. The final texts, published in July 2024, entered into force on 1 September 2024. The revised ordinance also reorganised the recognition of risk-absorbing capital instruments. It replaced the former upper and lower supplementary capital with a Tier 1 and Tier 2 structure, in which Tier 1 instruments must be perpetual and convert or be written down when the SST ratio falls below 80 per cent.12

Notes

  1. Federal Office of Private Insurance (FOPI), White Paper of the Swiss Solvency Test, November 2004, https://www.finma.ch/FinmaArchiv/bpv/download/e/WhitePaperSST_en.pdf. The White Paper names Philipp Keller of the FOPI as contact person and lists the consulting firms involved in the first field test. FOPI, “Risk-based supervision – the Swiss Solvency Test (SST)”, fact sheet, https://www.finma.ch/finmaarchiv/bpv/download/e/FactSheSST_e.pdf, which gives the dates of the two field tests, the number of participants and the introduction on 1 January 2006. ↩
  2. FINMA, “Swiss Solvency Test (SST)”, https://www.finma.ch/en/supervision/insurers/cross-sectoral-tools/swiss-solvency-test-sst/, which states that the SST was introduced in 2006 and has been mandatory since 1 January 2011. FOPI, “Risk-based supervision – the Swiss Solvency Test (SST)” (cited above). ↩
  3. VAG, consolidated version as at 1 September 2024 (cited above), Art. 9: “Ein Versicherungsunternehmen muss über eine ausreichende Solvabilität verfügen. Die Solvabilität ist ausreichend, wenn das risikotragende Kapital mindestens so gross ist wie das Zielkapital.” SVV, “Was ändert sich mit dem revidierten VAG?”, https://www.svv.ch/de/was-aendert-sich-mit-dem-revidierten-vag, which mentions the statutory anchoring of the solvency provisions, including the SST, in Art. 9 VAG. ↩
  4. FOPI, Technical document on the Swiss Solvency Test, version of 2 October 2006, https://www.finma.ch/finmaarchiv/bpv/download/e/sst_techdok_061002_e_wo_li_20070118.pdf. The document also describes the standard models for market risk (with 74 risk factors), credit risk (based on the Basel II standardised approach) and insurance risk. FOPI, White Paper of the Swiss Solvency Test (cited above), on the choice of expected shortfall as risk measure, the one-year horizon and the market-consistent valuation of assets and liabilities. ↩
  5. Federal Department of Finance (EFD), explanatory report on the amendment of the Supervision Ordinance (AVO), Bern, 2 June 2023, https://www.newsd.admin.ch/newsd/message/attachments/79175.pdf, commenting on the SST provisions, the valuation principles and the power of FINMA to set risk-free curves. FINMA, “Swiss Solvency Test (SST)” (cited above). FINMA, fact sheet “Swiss Solvency Test (SST)”, 1 January 2024, https://www.finma.ch/en/~/media/finma/dokumente/dokumentencenter/myfinma/faktenblaetter/faktenblatt-schweizer-solvenztest-sst.pdf. ↩
  6. FINMA, “Swiss Solvency Test (SST)” (cited above), listing the standard models and the requirement of separate documentation and validation for internal models. Zurich Insurance Group, media release of 29 April 2026 on the Financial Condition Report 2025, https://www.zurich.com/media/news-releases/2026/2026-0429-01. Swiss Re, “Solvency”, https://www.swissre.com/investors/solvency-ratings/solvency.html. Swiss Re notes that its SST ratio may fluctuate significantly from one reporting date to the next. ↩
  7. Baloise Group, “Swiss Solvency Test as at 31 December 2024 – at a glance”, https://www.baloise.com/dam/jcr:453e6c43-1f0d-47e8-992f-a0dfdde74453/SST-YE-2024-At-a-glance.pdf. ↩
  8. FINMA, Annual Report 2025, “Measures for promoting stability”, https://report.finma.ch/2025/en/finmas-core-tasks/measures-for-promoting-stability, on SST reviews, the parameterisation of the standard model and the solvency shortfalls of two small insurers. ↩
  9. FINMA, “Swiss Solvency Test (SST)” (cited above), on the predefined intervention thresholds. FINMA, fact sheet “Swiss Solvency Test (SST)”, 1 January 2024 (cited above), which gives risk reduction and portfolio transfer as examples of the measures FINMA may require. Hansjürg Appenzeller and Vanessa Isler, “Update on Risk-Absorbing Capital Instruments under the Revised Insurance Regulations”, CapLaw-2023-57, https://caplaw.ch/2023/update-on-risk-absorbing-capital-instruments-under-the-revised-insurance-regulations/, on Art. 37 of the revised AVO and the SST ratio of 80 per cent as trigger. ↩
  10. FINMA, press release “FINMA schlägt temporäre Erleichterungen beim Schweizer Solvenztest vor”, 19 September 2012, https://www.finma.ch/en/news/2012/09/mm-rs-2013x-sst-erleichterung-20120920. The relief was to be contained in a new circular supplementing Circular 08/44 “SST” from 1 January 2013. ↩
  11. Petra Ginter, “Equivalence with Solvency II: Revision of FINMA Regulations for (Re-)Insurers”, CapLaw-2017-25, https://caplaw.ch/2017/equivalence-with-solvency-ii-revision-of-finma-regulations-for-re-insurers/. The article also covers the own risk and solvency assessment (Circular 2016/3), group supervision (Circular 2016/4) and public disclosure (Circular 2016/2). ↩
  12. FINMA, press release “La FINMA révise son ordonnance et ses circulaires dans le domaine de l’assurance”, 22 August 2023, https://www.finma.ch/en/news/2023/08/20230822-mm-anh-avo-finma/. FINMA, press release “FINMA publishes revised ordinance and circular affecting the insurance sector”, 10 July 2024, https://www.finma.ch/en/news/2024/07/20240710-mm-finma-folgeregulierung-vag-avo/. Appenzeller and Isler, CapLaw-2023-57 (cited above), on the Tier 1 and Tier 2 classification under Art. 37 of the revised AVO and the group-level provisions of Art. 198d. ↩

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.

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