The Swiss Solvency Test and its Market Implications

Martin Eling, Nadine Gatzert and Hato Schmeiser
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Nadine Gatzert: Institute of Insurance Economics, University of St. Gallen, Kirchlistrasse 2, St. Gallen 9010, Switzerland
Hato Schmeiser: Institute of Insurance Economics, University of St. Gallen, Kirchlistrasse 2, St. Gallen 9010, Switzerland

The Geneva Papers on Risk and Insurance - Issues and Practice, 2008, vol. 33, issue 3, 418-439

Abstract: In this paper, we first discuss the characteristics and major benefits of the Swiss risk-based capital standards for insurance companies (Swiss Solvency Test), introduced in 2006. As the insurance industry is one of the largest institutional investors in Switzerland, changes to its asset and liability management as a result of the new regulatory framework could have striking economic effects. Thus, we further examine significant market implications for the Swiss economy due to possible changes in the asset and liability management of Swiss insurance companies. We investigate resulting effects on the Swiss capital market, focusing on bond, real estate, stock, foreign exchange markets, and the situation in case of a capital market crisis. Furthermore, we analyze potential consequences to corporate financing and product design. Most of the considered consequences result from the transition of past (in principle, not risk-based) supervision to risk-based supervision and can thus be generalized to other supervision systems, in particular Solvency II. The Geneva Papers (2008) 33, 418–439. doi:10.1057/gpp.2008.20

Date: 2008
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