Regulation

Regulatory agencies

Identify the regulatory agencies responsible for regulating insurance and reinsurance companies.

The Swedish Financial Supervisory Authority (SFSA) is the regulator in charge of supervising insurance and reinsurance companies.

It is responsible for supervision, authorisations, sanction assessments, regulations and reporting matters for insurance firms, insurance intermediaries and mutual benefit societies.

Also, the SFSA is responsible for certain supervision of pension foundations. Further, it is responsible for the national coordination, evaluation and follow-up of supervision related to money laundering.

Formation and licensing

What are the requirements for formation and licensing of new insurance and reinsurance companies?

Companies offering financial services in Sweden are required to apply for a licence issued by the SFSA to operate a business. In a licence application, the SFSA reviews the company’s capital situation, business plan, owners and corporate management, among other things. The company’s operating activities may require additional licences from the SFSA.

 

Insurance and reinsurance providers

All insurance and reinsurance providers must be authorised by the SFSA or another financial supervisory authority within the European Economic Area. The provider can apply to the SFSA for advance notice on whether authorisation is necessary for the planned business.

The following requirements must be met for an insurance provider to obtain authorisation:

  • the provider must be a limited liability company, a mutual insurance company or an insurance association;
  • the provider’s articles of association or by-laws must comply with relevant laws and regulations, and otherwise contain the specific provisions that are required concerning the scope and nature of the planned activities;
  • the planned business must be assumed to comply with other applicable laws and regulations;
  • whoever directly or indirectly holds shares representing 10 per cent or more of the company’s share capital or voting rights, or otherwise holds shares allowing a significant influence over the management of the company, must be deemed appropriate to have such significant influence over the management of the company;
  • a person that shall act as a board member, managing director or key position holder of the company must be deemed to have sufficient knowledge and experience, and be otherwise appropriate to participate in the management of the company;
  • the provider must not have a close relationship with another entity if that prevents effective supervision of the provider’s company; and
  • the provider must have a certain amount of funds depending on the kind of insurance being provided.

 

Insurers and reinsurers that are authorised in another country within the European Economic Area are not required to apply for authorisation in Sweden. They are instead subject to a specific notification process before they may conduct cross-border activities or carry out insurance business through a branch or agent.

Other licences, authorisations and qualifications

What licences, authorisations or qualifications are required for insurance and reinsurance companies to conduct business?

When the SFSA has licensed a company to conduct insurance business, no further authorisations are required as long as the business is carried out within the scope of the business plan without any alterations or amendments that the SFSA would need to approve. There are, however, ongoing requirements for insurance and reinsurance providers as regulated by the Insurance Business Act (IBA) and the Insurance Contracts Act (ICA), including:

  • sound asset management;
  • appropriate and sufficient funding;
  • appropriate information to policyholders and other persons who are entitled to compensation pursuant to insurance;
  • a sound and responsible system of governance;
  • compliance with the principle of stability; and
  • maintenance of good insurance standards.
Officers and directors

What are the minimum qualification requirements for officers and directors of insurance and reinsurance companies?

Under the IBA, insurers and reinsurers are required to maintain adequate policies and procedures to comply with the fit and proper requirements. An insurer or reinsurer is thus required to ensure that its board of directors, the chief executive officer, any deputies for these positions and the persons responsible for, or conducting, work within any of its key functions (compliance, risk management, actuarial and internal audit) are at all times considered fit and proper for their assignment within the company.

‘Fit and proper’ means that any person assuming a position as covered by the previous paragraph should fulfil the following requirements:

  • his or her professional qualifications, knowledge and experience are adequate to enable sound and prudent management (fit); and
  • he or she is of good repute and integrity (proper).

 

The board of directors should also be assessed collectively, meaning that its members collectively shall possess appropriate qualifications, experience and knowledge about, at least:

  • the insurance and financial markets;
  • the business strategy and business model;
  • the system of governance;
  • financial and actuarial analysis; and
  • the regulatory framework and requirements.

 

Also, there is a general requirement for insurers and reinsurers to have procedures in place for assessing the skills, knowledge, experience and personal integrity of relevant personnel other than those mentioned above.

Capital and surplus requirements

What are the capital and surplus requirements for insurance and reinsurance companies?

Swedish rules on capital and solvency requirements can be found in the IBA and SFSA regulations, which implement the Solvency II Directive. Insurance and reinsurance companies are required to have a capital base, consisting of basic own funds and ancillary own funds, which at least equal the solvency capital requirement (SCR). The SCR is the minimum basic own funds required to ensure that the insurance company will be able to meet its obligations over the following 12 months with a 99.5 per cent probability. The SCR may be calculated either according to a statutory standard formula or an internal model, in which case the internal model must be approved by the SFSA.

There is also a minimum capital requirement (MCR), which establishes a floor that an insurance company must not fall below. The MCR must never be less than a statutory required guarantee amount, which varies depending on whether the insurance company provides life insurance, non-life insurance, reinsurance or captive insurance. The guarantee amount for direct non-life insurance companies currently ranges between €2.5 million and €3.7 million. The guarantee amount for direct life insurance companies is €3.7 million. For reinsurance companies that do not provide captive insurance, the amount is €3.6 million.

Reserves

What are the requirements with respect to reserves maintained by insurance and reinsurance companies?

The provisions on technical reserves in the Solvency II Directive have partly been implemented in the IBA. Under these provisions, insurance and reinsurance companies must establish technical provisions to cover their insurance obligations. The value of the technical provisions must correspond to the amount the insurance or reinsurance company would have to pay if the insurance obligations were transferred to another insurance or reinsurance company. The calculation of the technical provisions must be based on prudent, reliable and objective assumptions of the risks, interest rates and operational costs of the company. Further, separate technical provisions must be made for different kinds of insurance risks. Detailed rules on the management and calculation of technical provisions are provided in implementation regulations issued by the SFSA. Reference should also be made to the Commission Delegated Regulation (EU) No. 2015/35, which sets out rules relating to technical provisions.

Product regulation

What are the regulatory requirements with respect to insurance products offered for sale? Are some products regulated by multiple agencies?

Broadly, there are several laws and regulations governing insurance products; for example, the ICA, the Distance and Doorstep Sales Act, the Marketing Act, the Insurance Distribution Act (IDA) and other acts governing contract terms. The ICA is the main legislation governing insurance products and contains, inter alia, provisions governing the insurer’s duty to provide information, the policyholder’s duty of disclosure, rights under the insurance contract, limitation of the insurer’s liability, premium payments, claims handling. The provisions of the ICA are mandatory for the benefit of the policyholder unless otherwise stated in the ICA. Further, the IDA, which implements the Insurance Distribution Directive, contains provisions regarding, inter alia, information and documentation requirements, product approval processes, remuneration, marketing, cross-selling and tie contracts, and the provision of product fact sheets. Also, the Packaged Retail and Insurance-based Investment Products (PRIIP) Regulation may be mentioned. Under the regulation, PRIIP manufacturers must produce a key information document regarding their products, which sets out certain key information and risks concerning such PRIIP products. The regulation is supplemented by a Swedish statute in which the SFSA is specifically appointed supervisory authority. Under the supplementing statute, the SFSA has the right to order adjustments and sanctions if a PRIIP manufacturer fails to comply with the regulation.

The terms and conditions of insurance policies are generally not subject to regulatory pre-approval by the SFSA or any other agency. However, the SFSA may naturally review insurance policies in exercising its regulatory and supervisory powers. Also, the Swedish Consumer Agency is responsible for the supervision of certain of the above-mentioned acts in relation to, for example, contract terms, and marketing and information requirements in so far as they relate to consumers.

Regulatory examinations

What are the frequency, types and scope of financial, market conduct or other periodic examinations of insurance and reinsurance companies?

The SFSA conducts a risk assessment of all insurance undertakings and groups on an annual basis. The first step of this assessment is a quantitative analysis of the periodic reporting to the SFSA. The second step is a qualitative assessment in which the SFSA takes into consideration the risks and factors in an undertaking or a group that are not captured by the quantitative analysis. These may include previous supervisory experience, knowledge of significant events at the undertaking, the group or of the insurance market in general, or analysis of other qualitative reporting. All the undertakings and groups are then ranked on a basis of the overall risk assessment. This ranking serves as the basis for the coming year’s supervision and the preparation of supervisory plans. A supervisory plan, which can include individual undertakings or groups, or a large number of undertakings or groups, presents the supervisory activities that the SFSA will carry out during the year. The activities are adapted to the operations of each undertaking and their identified risks. Depending on what the supervision uncovers, supervisory measures may be taken. The SFSA may carry out supervisory activities and take supervisory measures at any time of the year, if and when called for.

Investments

What are the rules on the kinds and amounts of investments that insurance and reinsurance companies may make?

The IBA provides general rules on the investments that insurance and reinsurance companies may make. Insurance and reinsurance companies must make their investments in accordance with the prudent person principle, which means that they may only invest in assets and instruments of which risk the company can identify, measure, monitor and control. Investments must not be made in a manner that makes the company dependent on a certain asset, issuer or geographic region. Investments in derivative instruments are admissible to the extent they reduce the risk, or facilitate efficient management of the risks and liabilities, of the insurance company. Investments in assets or instruments that are not listed on a regulated market must be kept at a prudent level. Assets held to cover the technical provisions of the company shall be invested with due regard to the nature and duration of the insurance or reinsurance liabilities.

Change of control

What are the regulatory requirements on a change of control of insurance and reinsurance companies? Are officers, directors and controlling persons of the acquirer subject to background investigations?

An acquirer must obtain the approval of the SFSA before either:

  • acquiring, directly or indirectly, 10 per cent or more of the share capital or voting rights of an insurer or reinsurer;
  • increasing its direct or indirect holdings to, or above, 20, 30 or 50 per cent of the share capital or voting rights of an insurer or reinsurer; or
  • obtaining the possibility to exercise significant influence over the management of the insurer or reinsurer.

 

The SFSA will approve the acquisition if both the acquirer is deemed fit and proper to exercise a significant influence over the management of the insurer or reinsurer, and the acquisition is financially sound.

The SFSA must provide its decision on an application for acquisition within 60 business days of the day the application is deemed complete. The assessment period can be extended if additional information is required to make a decision.

A direct or indirect owner must notify the SFSA in writing if it decides to reduce its holdings:

  • in full (only if the holding is equal to or greater than 10 per cent of the company’s share capital or voting rights); or
  • below any of the thresholds listed above.

 

Acquisitions or increases in holdings of non-EEA insurers authorised to conduct business in Sweden are not subject to the SFSA’s approval. However, the SFSA must be notified of proposed acquisitions and changes in control of these insurers.

Financing of an acquisition

What are the requirements and restrictions regarding financing of the acquisition of an insurance or reinsurance company?

There are no specific requirements or restrictions regarding financing of the acquisition of an insurance or a reinsurance company. However, as part of the SFSA’s approval regime, the acquirer must disclose how the acquirer intends to finance the acquisition and present sufficient proof of the intended financing.

Minority interest

What are the regulatory requirements and restrictions on investors acquiring a minority interest in an insurance or reinsurance company?

There are no restrictions on investments, or direct or indirect holdings of less than 10 per cent of the share capital or voting rights of the insurance or reinsurance company, unless the acquirer of the minority interest can exercise significant influence over the management of the insurance or reinsurance company, or the direct or indirect holdings exceed any of the specified thresholds. In such cases, or if the investment directly or indirectly amounts to 10 per cent or more of the share capital or voting rights, a change of control approval regime will apply.

Foreign ownership

What are the regulatory requirements and restrictions concerning the investment in an insurance or reinsurance company by foreign citizens, companies or governments?

There are no specific regulatory requirements or restrictions concerning the investment in a Swedish insurance or reinsurance company by a foreign citizen, company or government. However, a foreign natural or legal person making such an investment must fulfil applicable requirements governing the assessment of qualified owners.

Group supervision and capital requirements

What is the supervisory framework for groups of companies containing an insurer or reinsurer in a holding company system? What are the enterprise risk assessment and reporting requirements for an insurer or reinsurer and its holding company? What holding company or group capital requirements exist in addition to individual legal entity capital requirements for insurers and reinsurers?

The Swedish supervisory framework relating to groups containing an insurer or a reinsurer was updated through the Swedish implementation of the Solvency II Directive. The current supervisory framework for groups is focused on the respective group as a whole, rather than on the individual companies of the group. Each company is, however, subject to individual supervision in addition to group supervision. In other words, group supervision constitutes a supplement to the rules concerning individual supervision.

Group supervision applies for insurance companies that are parent companies or have ownership interests in at least one other insurance company, insurance companies that share common management with at least one other insurance company, and insurance companies whose parent company is an insurance holding company or mixed financial holding company with its seat within the European Economic Area. If a group contains several insurance companies on different levels, the group supervision framework shall only apply to the insurance company at the top of the group.

Group supervision entails the following special framework:

  • special solvency provisions apply to the group;
  • reporting requirements apply, meaning that significant risk concentrations and significant transactions within the group must be reported to the SFSA at least annually. The SFSA decides for each individual group what constitutes relevant risk concentrations and transactions;
  • special management, risk management, internal control and reporting provisions apply; and
  • a report for the operations and solvency of the group must be published at least annually.
Reinsurance agreements

What are the regulatory requirements with respect to reinsurance agreements between insurance and reinsurance companies domiciled in your jurisdiction?

The ICA explicitly excludes reinsurance contracts from its scope of application. A reinsurance contract is subject to general contract law principles and is not governed by any specific regulatory requirements.

Ceded reinsurance and retention of risk

What requirements and restrictions govern the amount of ceded reinsurance and retention of risk by insurers?

There are no such requirements or restrictions.

Collateral

What are the collateral requirements for reinsurers in a reinsurance transaction?

There are no specific collateral requirements in a reinsurance transaction under Swedish law.

Credit for reinsurance

What are the regulatory requirements for cedents to obtain credit for reinsurance on their financial statements?

The financial reports of insurance companies are governed by the Act on Annual Accounts in Insurance Undertakings, and the regulations and guidelines issued by the SFSA. The Act on Annual Accounts in Insurance Undertakings contains a model balance sheet structure, which insurance companies must use. Reinsurers’ share of the insurance companies’ technical provisions shall be treated as an asset of the ceding company according to the prescribed balance sheet structure. For the cedent to take credit for reinsurance on their financial statements, there must be an actual reinsurance agreement that effectively transfers the risk to the reinsurer.

Under the IBA, insurance companies must establish a solvency balance sheet for solvency purposes. The reinsurers’ share of the insurance companies’ technical provisions shall be included among the assets in the solvency balance sheet. Detailed rules on the calculation of the reinsurers’ share of the technical provisions are provided in SFSA regulations and the Commission Delegated Regulation (EU) No. 2015/35.

Insolvent and financially troubled companies

What laws govern insolvent or financially troubled insurance and reinsurance companies?

The IBA implements the Solvency II Directive regarding solvency requirements for insurance and reinsurance companies. Consequently, the IBA includes provisions relating to insolvent and financially troubled insurance and reinsurance companies.

The bankruptcy procedure is regulated in the Bankruptcy Act and the priority of claims by the Rights of Priority Act.

Claim priority in insolvency

What is the priority of claims (insurance and otherwise) against an insurance or reinsurance company in an insolvency proceeding?

Under the Swedish implementation of the Solvency II Directive, insurance companies must keep a register of the assets used to cover the company’s technical provisions. The assets taken up in this register at the time of the initiation of an insolvency proceeding are subject to special priority rights.

This special priority right means that claims based on an insurance policy, as well as claims for a premium refund if the insurance policy is cancelled or invalid, rank higher than most other claims by other creditors. Liens relating to aircraft and sea vessels, as well as rights of retention, however, rank higher.

Intermediaries

What are the licensing requirements for intermediaries representing insurance and reinsurance companies?

Swedish insurance distributors must be authorised by the SFSA to conduct insurance distribution in Sweden. The term ‘insurance distribution’ includes providing advice on insurance policies, other preparatory work before the conclusion of an insurance contract, entering into insurance contracts, and administrating and assisting the fulfilment of an insurance contract. However, claims adjusters do not require authorisation.

To obtain authorisation, a company must be financially stable, have professional liability insurance, have appropriate management and employees, and may not have such contacts that could impair the efficient supervision of the company. Management and employees may not appear in the criminal register, and they must have an adequate level of knowledge and competence for the business. Further, they must be continuously trained and up to date with the industry.

In addition to the authorisation, insurance distributors must also register with the Swedish Companies Registration Office.

A tied ancillary insurance intermediary does not need authorisation. Nevertheless, such intermediaries must still be registered with the Swedish Companies Registration Office.

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