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Switzerland's compensation rules apply to insurers

Posted On: Nov. 11, 2009 11:19 AM CENTRAL

BERN, Switzerland—Large Swiss insurers’ compensation plans must be designed, implemented and disclosed according to financial institution regulations that the Swiss Financial Market Supervisory Authority issued Wednesday with an effective date of 2011.

In a circular, the Swiss authority, known as FINMA, said compensation should be structured so that it does not encourage unacceptable risk-taking. “Remuneration creates incentives. Such incentives must not serve to incite the taking of inappropriate risks, the infringing of applicable law or regulations, internal rules, or the violation of agreements,” according to FINMA.


The rules that go into effect Jan. 1, 2011, apply to banks and other financial services institutions that include insurers with equity capital of at least 2 billion Swiss francs ($1.97 billion).

Reacting to the rules, the Swiss Insurance Assn. said is pleased that small and medium-size insurers will be exempt, but expressed concern about treating affected insurers just like banks.

Erich Walser, president of the Zurich-based association, said in a statement that it remains to be seen how the rules may affect the international competitiveness of large Swiss insurers.

Financial institutions must apply the rules to compensation of all employees and boards of directors, the circular states. It calls for risk management and human resources personnel to be part the design and implementation of pay plans across all sectors of a firm.

The regulations state that the structure and level of payment must be aligned with the company’s policies on risk-taking. How an individual’s pay is set must be determined according to his or her strategic or operational responsibility and should consider the risks for which the person is responsible, the circular states.

Bonuses and other pay based on performance or certain targets should be reduced or omitted if a company performs poorly, although the rules do not give performance thresholds.

Companies are required to report to FINMA by April 30, 2011, on their compliance with the regulations.


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