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FINMA’s «Swiss Solvency Test » : A Software used by 100+ Swiss Insurers

Our team collaborated with FINMA, the Swiss Financial Market Supervisory Authority, to produce a software tool that allowed them to introduce a new capital requirement model for the Swiss Solvency Test.

The Swiss Solvency Test (SST) risk-based capital requirement regulation for the swiss insurance market. It dictates the minimum extra capital that swiss insurance companies must hold in their balance sheet.

The Problem

2018, FINMA wants to introduce new complex quantitative risk management models to :

  • Assess the risks due to financial market volatility on an insurer’s balance sheet.
  • Aggregate the impact of financial market risks with risks from life, health, and non-life insurance factors as well as with counterparty credit default risks to obtain a capital requirement figure.

There was no available option to implement such new regulatory models in a simple way. Some of the problematics :

  • High computational and conceptual complexity (Monte-Carlo) of the new approach.
  • Lack of a standardized & pragmatic solution to assess the capital requirement.
  • No operational framework for data transfer and strict process under FINMA’s SST circular.
  • No widespread quantitative knowledge to handle this complexity in the insurance market, thus no way to get a smooth industry acceptance.

The Solution

A now industry standard open-source software:

  • Distributed by FINMA.
  • Used by FINMA and 100+ insurers to evaluate their capital requirement.
  • Installed on over 100+ IT systems without any issue.
  • Completed in under 5 months.
  • Based on a simple Excel reporting template.
  • The regulation was successfully implemented in the swiss insurance market in less than 1 year after the start of the collaboration.

Learning Outcomes

In addition to the technical challenges, both from a quantitative and IT perspective, the project built our ability and experience in tackling multi-disciplinary, multi-stakeholder projects and in delivering high-quality solutions under strict time, technological and operational constraints. In addition, due to the critical role of the delivered solution, we developed a strict framework to ensure 100% correctness of our quantitative software specification and implementation.

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