Reinsurers are companies which insure insurers. In many cases they are more broadly diversified, both geographically and by sector, than primary insurers. They are therefore better positioned to absorb the financial impacts of major loss events (e.g. natural disasters).
Types of reinsurance contracts
A reinsurance contract covers individual risks or an entire portfolio and is concluded on either a proportional basis (i.e. with sharing of premiums, losses and costs) or a non-proportional basis. Depending on how the contract is framed, the focus is either on risk transfer or risk financing. The long-term relationships between primary insurers and reinsurers also enable the former to take advantage of the latter's expertise.
With some exceptions (e.g. the absence of any requirement relating to tied assets), the Insurance Supervision Act treats reinsurers in the same way as primary insurers. FINMA applies the regulations accordingly, which means that it has some discretionary scope in dealing with the particular features of the reinsurance business.
Reinsurers domiciled in Switzerland must be licensed to conduct reinsurance activities. This rule does not apply to insurance companies registered outside Switzerland which only offer reinsurance in Switzerland.
Reinsurance captives which are authorised in Switzerland and only cover the risks of their own group also require a licence.