Swiss Solvency Test (SST)

Unlike Solvency II, which stops at a 99.5% value-at-risk, the Swiss Solvency Test looks at the tail of the distribution. It came into force on January 1, 2011, and is applied by FINMA, the Swiss Financial Market Supervisory Authority. Target capital is the one-year expected shortfall at 99% of the change in risk-bearing capital, that is, the average loss in the worst 1% of cases, plus a market value margin pricing the cost of transferring the liabilities to a third party. Risk-bearing capital is the difference between assets and liabilities valued at market, after deducting that margin. The SST ratio, risk-bearing capital divided by target capital, must exceed 100%. Companies use a standard model published by FINMA, or an approved internal model, which large groups and reinsurers nearly all have: Swiss Re and Zurich have used one for a long time. The test also imposes prescribed scenarios, including a pandemic scenario and natural catastrophe scenarios, and requires a full report every year. It differs from Solvency II in its risk measure, in a differently computed risk margin, and in an organization more centered on each company's own model.