The Swiss Financial Market Supervisory Authority FINMA has opened consultation on the new Insurance Bankruptcy Ordinance FINMA (IBO-FINMA). Since the Insurance Supervision Act (ISA) has been amended as part of the deposit protection scheme bill on 1 September 2011, FINMA has become responsible for the opening and execution of bankruptcy proceedings over insurers, reinsurers and brokers which are subject to FINMA supervision. Accordingly, the IBO-FINMA will be a necessary implementation of the authority granted to FINMA under the revised ISA. As the amended ISA includes, however, only the basic principles, i.e. the conditions for the opening of a bankruptcy as well as certain principle steps on the bankruptcy proceeding, the new IBO-FINMA shall supplement these provisions in more detail.
By Petra Ginter (Reference: CapLaw-2012-33)
In case of a justified concern that an insurer, a reinsurer or broker is over indebted or has serious liquidity problems, FINMA must open bankruptcy proceedings, provided there is no probability of restructuring or the restructuring has failed. FINMA has to publicly announce the bankruptcy and has to appoint a bankruptcy liquidator being subject to FINMA supervision and reporting. For the execution of the bankruptcy proceedings, FINMA applies the respective provisions of the Debt Enforcement and Bankruptcy Act (DEBA); it can also issue orders or make arrangements in its own discretion and in deviation of the DEBA rules (see articles 53 and 54 ISA).
In order to protect the policy holders in the event of an insurer bankruptcy, the ISA, and the IBO-FINMA respectively, set forth specific rules: On the one hand, the claims of the policyholders which are contained in the books of the insurer are deemed registered without any action of the policyholder being required and the claims which must be secured by the insurer by means of tied assets are to be classified as preferred to other privileged claims (i.e. they are senior to the first class claims according to article 219 DEBA) and settled beforehand. Only a surplus of tied assets would go into the bankrupt’s estate. On the other hand, it is intended that the bankruptcy dividends will be paid to policyholders from tied assets in full or in part prior to the schedule of claim becoming legally effective. These specialities would only apply to insurers as pure reinsurers are not required to allocate and hold tied assets.
Identical to the bankruptcy of a bank or securities dealer, the IBO-FINMA applies the principle of universality, i.e. the bankrupt’s estate of an insurer, a reinsurer or broker over which the bankruptcy has been opened in Switzerland covers all assets which belong to the bankrupt at the time of the opening of bankruptcy, irrespective of whether they are located in Switzerland or abroad. In addition, every creditor is entitled with the same rights and privileges to participate in the bankruptcy in Switzerland, irrespective of his/her nationality or residence/domicile. This principle applies not only to the creditors of the headquarter being domiciled in Switzerland, but also to creditors of a Swiss or foreign branch.
While the Swiss Banking Act gives, as far as banks and securities dealers are concerned, FINMA the authority to issue implementing regulations on both, bankruptcy and restructuring, the ISA, and the IBO-FINMA respectively, only provide rules on the bankruptcy of insurance companies, reinsurers and brokers. The ISA explicitly states that the restructuring rules according to the DEBA will not apply to insurers, reinsurers and brokers. The reason for this is that with the new IBO-FINMA to be enacted a supplementary restructuring procedure will become obsolete as the revised financial market laws will give the FINMA sufficient authority for timely intervention.
The consultation period for the IBO-FINMA ended on 30 June 2012.