; Supervision of Private Insurance in Sweden
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Supervision of Private Insurance in Sweden


  • pg 1

Supervision of Private
Insurance in Sweden

This report has been prepared by Finansinspektionen. It describes the situation as regards
insurance matters as of 15 October 2001. It does not in general deal with the transitory
rules for life insurers that are only valid until 31 December 2001.

Comments and questions regarding the report can be sent by electronic mail to


Part One: General



Part Two: Supervision of the Company



Chapter 1. Establishment and cross-border activities

Chapter 2. Prohibition against business other than insurance

Chapter 3. Licensing

      3.1. Nature and form of licence
      3.2. Conditions for licensing
             A. Legal conditions
                     a) Legal form of company
                     b) Articles of association
                     c) Documents on which contracts are to be based
                     d) Additional requirements in the case of a foreign
             B. Financial conditions
                     a) Share capital or initial fund
                     b) Working capital
                     c) Initial guarantees (fixed guarantees)
             C. Conditions as to balance sheet and accounts etc.
             D. Technical conditions


Chapter 1. Examination of annual returns and other documents

      A. Legal
      B. Financial
             a) Nature and amount of financial guarantees required in
                course of business
                    i) Adjustment of share capital or initial fund

                      ii) Reinstatement of working capital
                      iii) "Legal" reserves
                      iv) Technical provisions
                      v) Adjustable guarantees
              b) Allocation of assets in balance sheet to cover financial
                      i) Guarantees in respect of which the allocation
                         of assets is not prescribed
                      ii) Guarantees in respect of which the allocation
                          of assets is prescribed
                      iii) Valuation of assets
                      iv) Deposits
              c) Verification of financial guarantees
       C. Balance sheet and accounts, etc.
       D. Technical
       E. Economic

Chapter 2. Inspection at place of business


Chapter 1. Circumstances, forms and consequences of
           suspension and cessation of business

       A. Voluntary suspension and cessation of business
              a) Voluntary suspension - total or partial
              b) Voluntary cessation - total or partial
       B. Compulsory suspension and cessation of business
              a) Compulsory suspension - total or partial
              b) Compulsory cessation - total or partial
              c) Company's right of appeal

Chapter 2. Transfer of contracts and transfer of the company

Chapter 3. Winding-up


Part Three: Contracts of Insurance


       A. Direct insurance
       B. Reinsurance



       A. Compulsory insurance with private insurers
       B. Freedom to take out insurance abroad


Part Four: Duties, Taxes and Other Compulsory




Part Five: Organisation of Supervision and Professional


       A. Official organisation
       B. Advisory bodies
       C. Assistance by independent experts


       A. Professional organisation
       B. Organisation of the insurance market
       C. Relations with supervisory authorities



1. Applying to contracts of insurance

B. Applying to insurance companies

Part One: General


The first step towards legislation on the conduct         this reason mainly, a new law, based on the
and government supervision of insurance                   same principle, was enacted in 1917.
companies was to a large extent taken by the in-
surance industry itself. Soon after the                   It was not until 1927, after studies made in
appearance in the middle of the nineteenth                collaboration with the other Scandinavian
century of private insurance in modern form, it           countries, that a general law on contracts of
was felt that the lack of special regulation had          insurance was enacted. Before then there were
many harmful effects. Almost anyone could act             special provisions on contracts only in the case
as an insurer. Even though the Government,                of marine insurance. They were incorporated
when confirming articles of association of new            with some amendments into the new law of
companies, usually retained a right to appoint a          1927. The law covers all direct insurance
special inspector, it did happen, particularly in         contracts to which a private insurance company
marine insurance, that companies failed because           is a party, with certain exceptions in the case of
of lack of experience of risks, insufficient rein-        consumer non-life insurance and motor liability
surance, or other reasons, or that the public was         insurance as provided for in the special act
defrauded in other ways. The existence of                 governing this field.
irresponsible competitors constituted a serious
hazard for those companies, which adhered to              Public controversy on the insurance industry
sound business practices.                                 was intensified during the 1930's and the 1940's.
                                                          Time-consuming work by various committees,
Although a scheme for insurance legislation was           which started during the 1930’s, resulted in new
presented by the Insurance Association in 1879,           legislation. It included an Act of 1948
the Government was content to issue an                    concerning Swedish insurance companies and
Executive Order in 1886 on the control of                 an Act of 1950 on foreign insurance companies
insurance companies, appointing a part-time in-           operating in Sweden.
spector, whose functions were almost purely
statistical. It was not until 1903 - and then again       The general debate continued, however, during
after pressure from insurance circles, and after          the following decades and work by committees
studies made in collaboration with other                  resulted in various amendments during the years
Scandinavian countries - that the first law on the        and eventually in the present legislation on the
operation of insurance companies was enacted              operation and supervision of insurance
along with a separate law on foreign insurance            companies: the Insurance Business Act of 1982,
companies operating in Sweden. It entered into            with later amendments. The Act of 1950 on
force in 1904 when the Swedish Private                    foreign insurance companies operating in
Insurance Supervisory Service was established             Sweden has been replaced by the Act of 1998
as an independent state agency. This legislation,         on foreign insurance companies operating in
which covered all classes of insurance, was               Sweden.
concerned entirely with the financial soundness
of the insurers. It did not, however, give the            The Insurance Business Act contains not only
Supervisory Service sufficient legal powers. For          provisions relating to the supervision of the
                                                          insurance industry or otherwise exclusive to this

industry, but also provisions corresponding to
those in the Companies Act or certain other             Other important provisions concerning the
general legislation governing other commercial          operation and supervision of insurance
undertakings.                                           companies are contained in an Act on
                                                        compulsory motor liability insurance of 1975,
As regards licensing conditions, an important           amending an earlier Act of 1929. A proposal in
change was made in 1985, when the principle of          1949 to set up a semi-public monopoly
need adopted in 1948 was rejected. Under the            company for motor liability insurance was
principle of need, motivated by earlier excessive       shelved by the Government, and no other
establishing of new companies, no new                   nationalisation plan has appeared since.
company proposing to transact business in
traditional classes could be admitted unless            During 1990 amendments to the Insurance
there was a need for more competition in the            Business Act were introduced in order to allow
particular class of insurance in which the              for unit-linked life insurance. In the same year
company intended to work. This test was                 an Act on Insurance Brokers was enacted,
strictly applied by the licensing authorities and       placing insurance brokers under supervision. On
led to a high degree of concentration and a             1 July 1991 the Supervisory Service was
strong reduction in the number of companies             merged with the supervision of banks and other
operating nation-wide on the Swedish insurance          credit institutions into Finansinspektionen, the
market.                                                 Financial Supervisory Authority of Sweden.
                                                        This merger was accompanied by legal changes
Since the principle of need was rejected, the           that from 1 August 1991 permit financial
licensing authorities only consider whether a           conglomerates: insurance companies may hold
new or extended business will fulfil the                shares in credit institutions and vice versa, and
requirement of sound insurance activities.              both types of companies may be owned by a
Agencies and branches of foreign insurance              holding company, thus forming a financial
companies are in this respect subject to the            group, cf. Part Two, II, Ch. 2.
same rules as Swedish companies. For EEA
(European Economic Area) insurers, however,             For five years since October 1990 the Insurance
home country control and the principle of one           Committee under the Ministry of Finance
single licence is valid, according to the third         reviewed certain aspects of the Insurance
generation    EC     (European    Community)            Business Act. Priority was given to the
insurance directives as implemented into                amendments required under the Agreement on
Swedish legislation.                                    the EEA, in force since 1 January 1994. In a
                                                        first step, several amendments were made to the
The insurance sector as well as other sectors           Insurance Business Act and to the Act on
was affected by a movement towards increasing           Foreign Insurance Companies.
consumers' protection in the 1970's. It was
found that there was a need for improving the           The final report of the Insurance Committee
previously mentioned Insurance Contracts Act            was published in October 1995. It treated
of 1927, and this law is now supplemented by            several important questions, such as the
the Consumer Insurance Act of 1980. The new             conditions under which life insurance companies
act applies to contracts of non-life insurance          may pay dividends to shareholders, and the
which consumers enter into with insurance               conditions under which insurers may raise
companies, mainly as individuals. A review of           capital   by     issuing    debt    instruments.
the Act on Insurance Contracts has resulted in a        Corresponding amendments were made to the
proposal, which was sent on hearing during              Insurance Business Act as of 1 January 2000.
1993. Amendments to the legislation is,
however, still pending.

Other legislation on insurance includes special          Act of 1972 on Friendly Societies (provident
legislation on insurance in time of war and the          and mutual-benefit institutions).


There oldest principle underlying the legislation        the value of the policy. Other beneficiaries than
on the operation of insurance companies is the           policyholders shall also be given the information
principle of solvency. In its present form it is         they need.
named the principle of stability and states that
insurance business must be conducted so that             Finally, the principle of good insurance
solvency, liquidity and the control over                 standard was introduced as a requirement for
insurance risks, investments risks and business          the way in which insurance business shall be
risks are sufficient with respect to the volume          conducted. There is no longer any general
and nature of the business.                              principle of soundness or any criterion of
                                                         contribution to sound market development.
The second main principle used to be the
principle of equity. It was introduced into the          The principal goals of financial supervision are
Insurance Business Act around 1948, but it was           to contribute to the stability and efficiency of
removed by the amendments to the Act in year             the financial system and to promote good
2000. At present the principle remains only in           consumer protection. The scope of insurance
the Motor Liability Insurance Act. The principle         supervision embraces all aspects of insurance
of equity requires that the cost to the                  business: legal, financial, technical and
policyholder should be equitable. The more               economic matters, including accounting.
general principles of equitable policy conditions
and equitable claim settlements still apply to           Insurers have to produce statements of various
contract law.                                            kinds in a prescribed form. Finansinspektionen
                                                         has clearly defined powers to examine the ac-
In long-term life insurance, premiums have by            counts of a company and all relevant documents
tradition been required to be sufficient with a          of whatever kind and also to take measures in
margin and consequently the principle of equity          certain specified situations. It can appoint its
has been applied to the bonus system, which has          own auditors and actuaries and has a special
been expected to reflect each policyholder’s fair        responsibility for supervising the investment of
share of total assets. This principle still holds,       assets covering the technical provisions.
but the amendments of year 2000 make it clear            Otherwise there are no detailed rules and
that policy conditions may state other principles        Finansinspektionen is consequently allowed
for the profit sharing. This is connected with an        rather wide discretion. By an ordinance from
additional principle introduced in year 2000, the        the Government it also has the power, and
principle of transparency, which says that the           sometimes the obligation, to issue regulations as
information to policyholders and presumptive             complement to legislation. It can also publish
customers, in both life and non-life business,           guidance, separately or integrated with
shall be adapted to the nature of the policy and         regulations.
show in a clear way the policy conditions and

Part Two: Supervision of the Company


The supervision dealt with in this report                   a natural person, must be registered, and is
concerns only private insurance. Social                     normally associated with an insurance broker
insurance is administrated by special agencies.             firm, which has to be registered as well.
Social insurance covers guaranteed and income-              Insurance brokers have to meet certain
related pensions, health insurance and industrial           requirements as regards professional indemnity
injuries. There are also special arrangements for           insurance, professional qualifications and fit-
unemployment insurance. Nevertheless, private               and properness. The brokers are allowed to
insurance plays an important role, which seems              collect premiums and assist clients in settling
to be increasing as some benefits from social               claims, but they are not allowed to administrate
insurance are subject to reduction. Employers'              such assets. They must inform the client about
and employees' associations also have agreed                the commission from the insurer, if the client so
upon benefits, the Second Pillar, supplementing             requires.
the social insurance cover. This includes
pension plans, group life and industrial injuries.          The Insurance Business Act does not define
Other group and individual insurance                        insurance business. In uncertain cases it is a task
arrangements are also widespread.                           for Finansinspektionen to determine whether a
                                                            licence is needed for an intended business. It is
Private insurance is mainly carried out by                  also authorised to prohibit unlicensed insurance
insurance companies, but there are also friendly            activities.
societies (provident and mutual-benefit
institutions). These societies still play a certain,        The Insurance Business Act makes no
though diminishing role in the sphere of                    difference in principle between direct insurance
pensions, other life insurance and sickness                 and reinsurance. Technical guidelines have to be
insurance. They are of different types and sizes,           notified for life business, while their adoption by
from small local funeral expense funds or                   the Board of Directors is sufficient for non-life
sickness funds to nation-wide pension                       business. The appointment of an actuary is
institutions. The friendly societies are subject to         required for both types of business. The
the Act on Friendly Societies of 1972 and are               solvency rules and the regulations for technical
supervised by Finansinspektionen. They are                  provisions are valid for all types of business. A
legally different from insurance companies in               pure reinsurance company that does not
that they may not act on the market and provide             reinsure life business or long-term non-life
insurance on a commercial basis. There are also             business is exempted from the requirement on
pension funds that play a role in securing                  technical guidelines and some investment
pension commitments but they are supervised                 regulations.
by local county administrative boards.
                                                            Supervision covers all classes of direct
This report deals mainly with the insurance                 insurance as well as reinsurance. Furthermore it
companies. The main principles concerning the               covers all private insurance companies. Certain
supervision of insurance brokers will be                    small local companies undertaking livestock
mentioned just briefly. An insurance broker is              insurance need only submit annual returns and
defined as an independent intermediary paid                 comply with certain other requirements.
either by commission from the insurance
company or by fee from the client. An insurance             As regards foreign non-EEA insurers,
broker has to be registered and supervised by               supervision is limited to direct insurance. No
Finansinspektionen. Every insurance broker, as              licence is needed for a foreign insurer to

exclusively transact reinsurance business in               For an EEA insurer the EC insurance directives
Sweden. It is possible for a branch of a foreign           are followed. This means that supervision is
company licensed for particular classes of direct          being exercised by the home country.
insurance to transact reinsurance as well, but
the reinsurance activities will not be supervised.         The activities of Swiss insurers in Sweden are
                                                           regulated in accordance with the special
                                                           arrangements between Switzerland and the EC,
                                                           as implemented in Swedish law.


Chapter 1. Establishment and cross-border activities

Every Swedish insurance company must have a
legal business office, the location of which is to         As for non-EEA insurers, cross-border activities
be fixed in the articles of association. As regards        without authorisation are only possible through
branches of foreign companies, the legal                   intermediation by an independent insurance
business address will be that of the branch or of          broker or for the case when insurance is sought
the general agent as representative of the                 actively by the policyholder. Otherwise they can
company.                                                   operate only through an insurer authorised in
                                                           Sweden with whom they have an agreement of
Cross-border activities are possible for EEA               co-operation or if they both belong to the same
insurers after the prescribed notification                 group of companies. Authorisation from
procedure to the home country authority of the             Finansinspek-tionen is then needed.

Chapter 2. Prohibition against business other than insurance business

According to the Insurance Business Act, an                institutions and financial companies in order to
insurance company must confine its business to             form financial conglomerates.
insurance, unless there are special reasons for an
exception. Such reasons are generally                      A life insurance company may also write
considered to exist in the case of certain                 sickness and accident insurance if it did so at the
activities, such as assisting other insurance              time of the conclusion of the EEA agreement 2
companies in their activities, constructing                May 1992, and provided such business is kept
residential or office buildings intended as                separated from the life business. A non-life
permanent investments; letting or leasing the              company may not, except in the case of
company's technical equipment or some other                annuities arising out of accident and sickness
transaction designed to ensure proper use of               insurance or liability insurance (structured
such equipment or of the company's staff.                  settlements), undertake life-related business.
There are no formal obstacles, however, that               Unit-linked life business can, as a result of the
prevent an insurance company from conducting               year 2000 amendments, be combined with
other business through a subsidiary.                       other, "traditional", life business, but it has
                                                           hitherto been conducted by specialised unit-
There is no longer any limits on ownership and             linked proprietary (share-holders') companies.
an insurer may acquire the shares of credit

This restriction does not apply to life branches          companies. A shareholders' company must be
of foreign insurers.                                      registered either as a public or a private
All classes of insurance may be written by
shareholders' companies as well as by mutual

Chapter 3. Licensing

3.1 Nature and form of licence

Any company transacting direct insurance                  the licence issued by the home-country
business in Sweden must have a licence                    authorities valid also in Sweden.
(authorisation) to do so. A licence is also
required for a Swedish company transacting                According to the Insurance Business Act a
reinsurance business.                                     licence may be issued for a limited time. In
                                                          practice this has so far been done only in a few
To obtain a licence, a Swedish company has to             special cases. A licence may under certain
comply with requirements as to the form and               circumstances be withdrawn by Finans-
content of articles of association, and the               inspektionen or by the Government (cf.
financial status. There is further the condition          IV.1.B.c. below).
that the intended business should fulfil the
requirements of the Insurance Business Act,               As a general rule a licence is issued in respect of
regulations    and     guidelines   issued    by          specified classes of insurance. Since 1994 the
Finansinspektionen and any other legislation              insurance classes of the EC directives are used.
applicable to an insurance company.
                                                          The rules governing licensing of reinsurance
The licensing authority is Finansinspektionen. If         business are restricted to Swedish companies,
the licensing involves matters of principal nature        and are in principle the same as for direct
or particular importance, the decision is referred        insurance. Thus, a licence will always be
to the Government. If an existing insurance               needed, specifying the classes of reinsurance,
company wishes to extend its business to new              which the company may undertake. The classes
classes of insurance, the procedure is principally        correspond to those of direct insurance
the same.                                                 mentioned above. The licence can cover all
                                                          classes of reinsurance, but it may also be
As regards the admission of foreign companies,            restricted to reinsurance of certain specified
the rules of licensing are the same as for a              classes, e.g., the same classes in which the
Swedish company, except for EEA insurers, for             company is licensed to do direct business.
which the principle of one single licence makes

3.2. Conditions for licensing

                                                          A foreign insurer establishing a branch or an
a) Legal form of company                                  agency should be an insurance company, but an
                                                          EEA insurer may also be an association of
The general rule is that insurance business may           individuals, such as the U.K. association
be transacted only by shareholders' insurance             Lloyd's.
companies or mutual insurance companies.

b) Articles of association                               f)    estimates relating to premiums or
                                                               contributions and to claims (e.g. in the
A domestic company seeking a licence must                      form of a simplified forecast profit and
draw up and adopt articles of association and                  loss account),
submit them with the application for the licence         g)    a forecast balance sheet,
to Finansinspektionen for approval. The law              h)    estimates relating to the financial
lists several matters that must be regulated in                resources intended to cover underwriting
the articles.                                                  liabilities and estimates of the capital base
                                                               and required solvency margin.
A foreign company will have to produce its
articles of association to Finansinspektionen            For life insurance the requirements are similar,
when applying for a licence. As mentioned                but in the forecast for the first three financial
earlier, the licensing procedure for EEA insurers        years, items (e) and (f) are replaced by:
is the responsibility of the home country
authorities.                                              *)    a plan setting out detailed estimates of
                                                                income and expenditure in respect of
c) Documents on which contracts are to be                       direct business, reinsurance acceptances
based                                                           and reinsurance cessions.

The application for a licence - for domestic as          d) Additional requirements in the case of a
well as foreign non-EEA companies - must be              foreign company
accompanied by a plan of the intended business.
The information in the business plan shall make          A foreign non-EEA company seeking a licence
the statement of the business contents as given          to transact life business in Sweden must show
in the articles of association more complete.            that it carries on such business in the country of
                                                         origin. The corresponding requirement is valid
The business plan should comply with the                 for non-life business. The documents required
requirements of the EC insurance directives.             are essentially those required by the first and
For non-life business the plan should contain the        second generations of EC insurance directives.
following points:                                        For non-life business the following is required:

a)    the nature of the risks which the company          a) the articles of association and a list of the
      proposes to cover,                                       directors and the managers of the insurer,
b)    the guiding principles as to reinsurance,          b) a certificate issued by the competent
c)    the items constituting the minimum                       authorities of the head office country,
      guarantee fund,                                          specifying the classes or lines of insurance
d)    estimates relating to the expense of                     which the insurer is entitled to carry on,
      installing the administrative services and               and stating the risks which the insurer
      the organisation for securing business, and              actually covers and the financial resources
      the financial resources intended to cover                intended to cover the expenses of
      them,                                                    installing the administrative services and
                                                               the organisation for securing business,
and in addition, for the first three financial           c) a business plan such as described above,
years:                                                         replacing items (c) and (h) with the state
                                                               of the solvency of the insurer, and
e)    estimates relating to expenses of                        including the balance sheet and profit and
      management other than cost of                            loss account of the insurer for each of the
      installation, and in particular current                  past three financial years.
      general expenses and commissions,

The requirement for life business are similar.           A shareholders’ company must register no later
The insurance business in Sweden of a non-               than six months after the licence has been
EEA insurer must be managed by a general                 granted. The share capital must be fully paid up
agent approved by the authorities. The general           before registration can be made and business
agent must produce a letter of attorney from the         can be started. Similarly, for a mutual company
applicant company. If a foreigner, the general           the guarantee capital must be paid up before
agent must prove that he or she is not                   registration can be made. The guarantee capital
prohibited from carrying on business in general          of a mutual company must be returned to its
in Sweden. The general agent is regarded as the          subscribers as soon as the financial condition of
representative of the company and his or her             the company so permits, but it is possible to
legal business address will be that of the               raise new guarantee capital later. It is allowed
agency. An EEA insurer can be represented by a           to pay interest on the guarantee capital to the
general agent, by a branch office or, in the case        subscribers.
of an insurance association, such as Lloyd's, by
a general representative.                                Foreign companies: For an EEA insurer, the
                                                         home country authorities are responsible for
According to Swedish legislation, all legal              supervision and the capital requirements of the
proceedings connected with the branch will fall          home country apply. For a non-EEA insurer,
under the jurisdiction of Swedish courts. The            the same rules apply as for domestic companies.
foreign company is not required to make any
formal written acknowledgement of such                   b) Working capital
                                                         Swedish legislation contains nothing regarding a
B. FINANCIAL CONDITIONS                                  special working capital in addition to the share
                                                         capital or guarantee capital.
a) Share capital or initial fund
                                                         c) Initial guarantees (fixed guarantees)
Domestic companies: There are no detailed
rules as to the amount of the share capital. The         Initial guarantees are required only in the case
minimum amount required will be settled by the           of foreign non-EEA insurers. Before obtaining a
authorities in each individual case, with regard         licence, such an insurer must make a deposit at
to the classes of insurance, the prospective             a Swedish bank in manner and on terms
amount of business and other relevant                    approved by Finansinspektionen, in securities
circumstances. The EC requirements for the               that this authority has accepted, of an amount
minimum guarantee fund must, however, always             equivalent to 300 times the price-linked basic
be met.                                                  amount, an index linked to consumer prices. For
                                                         the year 2001, 300 price-linked basic amounts
The rules governing mutual companies are                 are     equivalent    to    SEK     11,070,000,
similar. A mutual company, unless special                approximately 1,050,000 € by October 2001.
reasons exist for an exception, must have a
guarantee capital, the minimum amount of
which will be settled in each individual case            C. CONDITIONS AS TO BALANCE SHEET
according to considerations analogous to those           AND ACCOUNTS ETC.
that apply to a shareholders' company. The EC
requirements for the minimum guarantee fund              As mentioned, a foreign non-EEA company
must, however, always be fulfilled also in this          applying for a licence must submit the balance
case.                                                    sheet and profit and loss account of the insurer
                                                         for each of the past three financial years, or the

time the company has been in existence, if less          For life insurance in EC classes I.b or IV and
than three years.                                        having a premium fixed for at most five years,
                                                         the requirement of technical guidelines may be
D. TECHNICAL CONDITIONS                                  dispensed with.

In the case of life insurance, the company must          The actuarial bases can at all times be examined
notify Finansinspektionen of the technical               by Finansinspektionen. Several aspects can be
guidelines, with an analysis of the consequences         examined, such as the mortality tables used, the
for policyholders, old and new, no later than            technical rate of interest and other risk items,
when they are applied for the first time. Such           loading for different kinds of operating ex-
guidelines state the principles, but not all the         penses, the effect of bonus distribution, etc.
details, for:                                            Actuarial bases vary between companies and
• premiums                                               premium rates differ. Finansinspektionen has
• technical provisions,                                  issued regulations concerning the maximal
• surrender values and policy loans,                     interest rate to be used for calculating technical
• distribution of surplus,                               provisions. It is presently fixed at 3 per cent
• reinsurance accepted and ceded, including              before taxes, in accordance with the third EC
    limits for self-retention, and                       life insurance directive.
• solvency.
                                                         The rules are the same for foreign non-EEA life
Dividends to shareholders or guarantors can be           companies operating in Sweden, except that no
paid if this is regulated in the articles of             technical bases for the calculation of bonus need
association.                                             to be notified.


It is the duty of Finansinspektionen to ascertain        annual returns which must be submitted to
that insurance companies remain solvent and              Finansinspektionen before 1 August and, in
conduct their business in accordance with laws           addition, inspections at the place of business.
and regulations.                                         Some companies have a special auditor
                                                         appointed     by    Finansinspektionen.    Each
Supervision implies consideration of legal,              company, except pure reinsurance companies
financial, technical and economic matters. As            that do not reinsure life business or long-term
already mentioned, the Swedish legislation has,          non-life business, must keep a record of the
as far as domestic companies are concerned,              assets covering the technical provisions and
laid down the principles of stability,                   follow certain investment regulations, although
transparency and good insurance standard.                there is no formal hypothecation of such assets.
                                                         Regulations concerning such a record have been
Supervision of the business of a licensed                issued.
insurance company involves examination of the

Chapter 1. Examination of annual returns and other documents

A. LEGAL                                                 The legal aspect of supervision covers any
                                                         changes made in the course of business in the
                                                         documents submitted at the time of licensing.

Among such changes may be noted, primarily,               equalisation reserve with tax effects, could also
changes in the articles of association and                be mentioned, cf. Part Four, I.
technical guidelines. Finansinspektionen can ask
for any kind of insurance contract documents              In the case of motor liability insurance, there
and is in general notified of all major changes in        used to be a provision that all surplus, as
the general policy conditions in the main classes         calculated according to a scheme prescribed by
of insurance.                                             the Government, should be appropriated to a
                                                          special regulating fund, which was to be used
B. FINANCIAL                                              only to cover debit balances in the scheme. The
                                                          view was, that the motor liability insurance,
a) Nature and amount of financial guarantees              being compulsory, should not be used as a
required in course of business                            source of ordinary business profits. Since 1991
                                                          appropriations to the regulating fund can no
i) Adjustment of share capital or initial fund. If        more be made. If a company ceases to write
a company's financial condition gives cause for           motor liability insurance it may not freely
concern, Finansinspektionen may enjoin the                dispose of its regulating fund. Thus, if the mo-
company to take such steps as may be                      tor liability insurance portfolio is transferred to
necessary, cf. Chapter 2. If more than two-               another insurer, the regulating fund must be
thirds of the share capital of a shareholders'            transferred with the portfolio. If the motor
company is lost, the company will have to be              liability business should be closed down for
wound up unless the loss is made good within a            other reasons, the regulating fund must be used
certain time, or a reduction of the share capital         - in a manner prescribed by the Government - to
is resolved. Apart from this case, the legislation        defray expenses arising out of the motor liability
contains nothing about adjustment of the share            insurers' common responsibility for damage
capital or initial fund, but such measures may be         caused by uninsured or untraceable vehicles.
considered natural.                                       Only where the withdrawal of the licence is due
                                                          to circumstances outside the company's control,
ii) Reinstatement of working capital. The                 may the company retain one-third of the
Swedish legislation contains, as already stated,          regulating fund or such greater part of it as the
no provisions regarding working capital.                  Government may allow.

iii) "Legal" reserves. Domestic companies. In             Foreign companies. The provisions regarding
traditional life insurance business for which the         the regulating fund in motor liability insurance
articles of association do not allow dividends to         also applied to foreign companies before 1991,
shareholders or guarantors, all profit must be            but since then there is no requirement for such a
appropriated either directly to policyholders as          fund to be held.
guaranteed or conditional bonus, or to the
solvency reserve (Sw. ‘konsolideringsfond’) for           iv) Technical provisions. Domestic companies.
future use. A shareholders’ company, life or              There is an explicit provision in the Insurance
non-life, may establish a reserve fund or share           Business Act regarding the establishment of
premium account. As regards mutual                        technical provisions. Thus, an insurance
companies, the amount of the reserve fund and             company must in its balance sheet among other
the rules for making appropriations to it may be          liabilities account for the technical provisions.
contained in the articles of association and thus         These provisions must for non-life business
be approved by the authorities. Among the                 comprise provisions for unearned premiums,
"legal" reserves in non-life insurance companies,         including provisions for unexpired risks
the     voluntary      safety     reserve   (Sw.          (premium deficiency), outstanding claims and
‘säkerhetsreserv’), a kind of contingency or              irrevocably allocated bonus.

In the case of life business, the technical                 companies. As regards the share capital or
guidelines, including the principles for                    initial fund and "legal" reserves, the only rule is
calculating technical provisions are to be                  that they must be shown as liabilities in the
notified to Finansinspektionen and are subject to           balance sheet. There is no requirement as to the
à posteriori control.                                       allocation of specific assets to them. In
                                                            accordance with the EC directives, there are
There are no explicit rules as to the methods of            some limitations as to items allowed to make up
calculating technical provisions in non-life                the guarantee fund in life insurance.
business other than the general requirement that
provisions for unearned premium and                         Foreign non-EEA companies. Items of the
outstanding claims must be estimated with all               capital base that are equal in amount to the
due caution and that approximate methods of                 solvency margin must consist of assets localised
calculation must be checked at suitable                     within the EEA; furthermore, one third of such
intervals. It is expected that established actuarial        assets must be localised in Sweden.
methods will be used when available and
applicable.                                                 ii) Guarantees in respect of which the
                                                            allocation of assets is prescribed. The technical
The EC directive on the annual accounts of                  provisions net of reinsurance ceded for
insurance undertakings (91/674/EEC) is                      insurance business, other than unit-linked life
followed as regards the optional discounting of             business or conditional bonus, must be covered
outstanding claims. Except for annuities                    by assets specifically allocated for the purpose.
(structured settlements) discounting have rarely            For non-life risks located within the EEA and
been applied.                                               for life activities pursued there, such assets must
                                                            be localised within the EEA. For other non-life
Foreign non-EEA companies. It is required that              risks and other life activities, assets covering
assets covering the technical provisions must be            technical provisions must be localised in
localised to Sweden (cf. b.ii below). As regards            Sweden.
life insurance and annuities arising out of
accident and sickness insurance or motor                    Localisation may, however, be outside EEA if
liability insurance, the mathematical bases for             this cannot be assumed to impair the
the technical provisions do not have to be                  preferential rights to assets for policyholders
notified to Finansinspektionen but can be                   and if such localisation also in other ways is
subject to à posteriori control.                            deemed to be secure.

v) Adjustable guarantees. A foreign non-EEA                 A register of the assets used for covering the
life insurance company shall make an additional             technical provisions is to be kept by the
deposit if the initial guarantee deposit of 300             company. The primary purpose of the register is
price-linked      basic      amounts       (Sw.             to constitute a basis for checking that the
‘prisbasbelopp’) has to be adjusted due to                  investment rules are complied with (cf. V
changes in this index or if gross premium                   below, however). These investment rules are in
written exceeds this amount. The additional                 accordance with the EC directives. They are
deposit follows the same rules as the initial               given in the Insurance Business Act and express
deposit.                                                    the principles of spread and diversification of
                                                            assets as well as the general principle of
b) Allocation of assets in balance sheet to                 matching cash flows. The rules include a list of
cover financial guarantees                                  admissible assets. On a few points these rules
                                                            are supplemented by regulations issued by
i) Guarantees in respect of which the allocation            Finansinspektionen, essentially concerning
of assets is not prescribed. Domestic                       currency matching (EC rules), definition of

admissible foreign countries (the OECD                     policyholder is free to decide in which Swedish
countries and Saudi Arabia), and details about             investment funds or foreign investment fund
the register.                                              companies registered by Finansinspektionen and
                                                           available in the market the premiums are to be
Some details of the investment rules could be              invested. The insurer may, however, restrict the
mentioned:                                                 number of such funds or foreign companies in
                                                           the conditions of the insurance contract.
•   Finansinspektionen has the right to exclude
    a particular reinsurance cover being used in           iii) Valuation of assets. Changes in legislation
    the net calculation of technical provisions, if        entered into force 1 January 1996. As a result of
    the transfer of risk is not satisfactory.              the implementation of the EC directive on
•   The investment spread rules accept shares              annual accounts of insurance undertakings,
    to an amount corresponding to 25 per cent              companies may chose between the main
    and property or property-related assets to             principles: valuation at cost or at actual value in
    25 per cent of the net technical provisions.           the balance sheet. The actual value is usually the
•   Investment in a single piece of property or            current market value. In checking the assets
    in a single type of share is limited to 5 per          covering technical provisions, actual value is to
    cent.                                                  be used for a large group of assets.
•   For bonds issued by governments of
    admissible countries, there are no                     Securities deposited by foreign non-EEA
    investment limitations.                                insurers as initial and additional guarantees are
•   Currency hedges are accepted as a means to             valued according to customary practice.
    comply with the matching rules.
                                                           iv) Deposits. As already mentioned, initial and
It should finally be mentioned that derivative             additional guarantees of foreign non-EEA
instruments cannot be used for direct                      insurers must be deposited at a Swedish bank
investment to cover technical provisions,                  and be invested in assets approved by
although their effect on the value of assets may           Finansinspektionen.
be taken into account. A general provision in
the law, applicable to all investments, states that        c) Verification of financial guarantees
derivative instruments such as options and
futures may be used for reducing risk and for              The annual returns to Finansinspektionen
efficient portfolio management. Prudence in                contain an itemised list of all investments,
such use follows from general principles                   indicating whether the respective securities are
mentioned earlier. Proper internal control and             registered as assets covering the technical
risk management are expected to be in force.               provisions.

The rules are in general the same for foreign              Finansinspektionen quarterly also receives a
non-EEA companies. The initial deposit may be              report of any changes in the investment
used for covering the technical provisions,                portfolio from the larger insurance companies.
provided that the deposit consists of admissible           In other quarterly reports a simple sensibility
assets. The localisation requirements are,                 test is applied to the actual value of all assets.
stricter and require all assets covering the
technical provisions to be localised in Sweden.            C. BALANCE SHEET AND ACCOUNTS ETC.

As regards unit-linked life insurance, the                 Domestic companies. The annual accounts
technical provisions are essentially made up of            (balance sheet and profit and loss account)
the mathematical reserve, which corresponds to             published by the company must be in a
the market value of the fund units. The                    prescribed form. Certain important items, such

as premiums, claims, and technical provisions              Sweden must be submitted to the supervisory
must be broken down on main types of in-                   authority.
surance, as part of an analysis of the profit or
loss of the year. These accounts together with
additional annual returns must be submitted to             D. TECHNICAL
Finansinspektionen within five to seven months
after the close of the accounting year, as a rule a        In the case of life insurance, any change in the
calendar year.                                             technical guidelines must be notified to
                                                           Finansinspektionen no later than when they
The annual returns to Finansinspektionen are               begin to be applied.
broken down in some detail, for several types of
domestic insurance and for insurance abroad                In the case of motor liability insurance, there is
and reinsurance. Under the corresponding                   no requirement that the premiums should be
headings these annual returns analyse the                  notified      to     or    be    approved      by
business result with respect to premiums,                  Finansinspektionen. The Ordinance on Motor
claims, operating expenses, investments, etc.              Liability Insurance does, however, put upper,
                                                           qualitative, limits on premium levels.
All these annual data are used for supervision
purposes and to a certain extent for public                For non-life business in general, the law
statistics.                                                contains no explicit requirements on reporting
                                                           changes in tariffs etc. to the authorities. The
The balance sheets, profit and loss accounts and           Insurance Business Act does, however, give
appropriation accounts are, except in the case             Finansinspektionen general powers to call for
of minor local companies, published by                     any information regarding the business,
Finansinspektionen.                                        including the technical guidelines.

For life insurance there is a quarterly reporting          Finansinspektionen can require information re-
of certain other items, such as sales and cash             garding the method for calculating the technical
flow, which also are published by the insurance            provisions. In the case of life insurance, the
industry itself. For non-life insurance, premiums          annual returns include details of allocation and
received, claims paid and an estimate of the               payment of bonus, and new business. The
technical provisions are reported quarterly.               appointed actuary may be required to report on
                                                           the calculation of the mathematical reserve and
According to the Insurance Business Act all                certain other reserves. An actuarial report on
insurance companies must cause their accounts              the actual results as compared with the
to be audited by independent auditors. In all              assumptions of the bases for technical
nation-wide companies and major local                      provisions, with respect to mortality, investment
companies at least one of the auditors must be a           yields, operating expenses, etc must be
qualified accountant. In such companies,                   submitted.
besides the auditors appointed by the company
itself, Finansinspektionen may appoint an                  All domestic insurance companies, except
additional auditor who works with the                      certain small local companies, are required to
company's own auditors. The auditors' report               submit a solvency statement annually, in early
must be submitted with the annual accounts.                May. Agencies of non-EEA insurers may also
The company may also appoint additional lay                be required to report their solvency. For the
auditors.                                                  larger domestic non-life insurers, quarterly
                                                           reports containing an estimate of the technical
Foreign non-EEA companies. An annual report                provisions and of the market value of assets
in prescribed form on the company's business in            make a coarse quarterly check of solvency

possible. A quarterly reporting of the difference          When costs exceed the value of loading, the
between the market value of assets and the sum             matter may be taken up for consultation.
of policyholders' asset shares (including bonus)
has been developed for life insurance companies            Professional, i.e. full-time, agents are as a rule
and is published by the insurance industry itself.         remunerated partly by fixed salaries and partly
                                                           by commission. Remuneration of insurance
The technical aspect of supervision is based on            brokers and part-time agents customarily takes
the annual returns and other periodical reporting          the form of a commission.
from the companies, as well as on other statis-
tical data, which may from time to time be                 It is the duty of the board of directors and the
requested by Finansinspektionen. Whenever any              managing director of a company to ensure that
serious deviation from the fundamental                     the acquisition of business is conducted
principles is observed, Finansinspektionen                 according to sound business practice.
approaches the management or the board of the
company concerned, in order to discuss appro-              The law does not prevent free competition
priate measures.                                           between insurance companies. On the contrary,
                                                           competition as to price and quality, as far as it is
E. ECONOMIC                                                compatible with the principle of stability, is
                                                           encouraged. There is a general anti-trust
The annual returns contain information that                legislation, which does not apply to the labour
serves as a basis for the study of important               market or public policy, but which otherwise
aspects of the insurance market and the                    covers all branches of production, distribution
structure of the insurance industry.                       and services, including the insurance industry.

As to the remuneration of agents, the terms are            Insurers are not required to submit any
regulated by negotiations, to be freely settled            advertising material to the authorities.
between the parties, without any intervention by           Finansinspektionen, as a rule, does not intervene
the supervisory authority. In life insurance, the          in this field. Should, however, obviously
loading for operating expenses in the technical            improper or misleading advertising come to the
bases can be compared with actual                          notice of the authority, through complaints or
administrative costs, including sales costs.               otherwise, Finansinspektionen may make such
                                                           representations as it considers justified.

Chapter 2. Inspection at place of business

At unspecified intervals, companies are to be              bodies, claims settlement committees and
inspected        by       representatives        of        similar organisations.
Finansinspektionen. The inspectors shall have
access to all information available in books,              The annual returns and other reporting from the
correspondence, minutes, contracts, internal               insurance company constitute, together with
statistical and cost analyses, etc. In general, the        inspection on site, the machinery for
power to obtain information is unlimited except            ascertaining whether companies remain solvent
by the authority's own capacity to use it and the          and conduct their business in accordance with
moral obligation not to burden the companies in            the laws and regulations. A system for analysing
a manner which would be harmful to the                     the data of the annual returns and other
interests of policyholders. The obligation to              reporting is used and is being further developed.
provide information and to keep documents
available for inspection applies also to rating

Large groups are given priority in supervision           Finansinspektionen may prohibit or restrict the
but there are plans for inspections and a                disposal of the assets of an insurance company
capacity for ad hoc tasks.                               in the following cases:

Finansinspektionen may issue such admonitions            1. the company does not follow the rules on
concerning the conduct of an insurance                      assets covering the technical provisions,
company as it may find necessary.                        2. the available solvency margin is less than
                                                            one third of the required solvency margin or
If any one of the following conditions is                   the company does not fulfil the requirements
fulfilled, then Finansinspektionen shall enjoin             on the guarantee fund,
the company to take such measures within a               3. the available solvency margin is less than the
specified time as the case may require:                     required and there are particular reasons to
                                                            assume a further deterioration of the
1. there has been a default in complying                    financial situation, or
   with the Act on Insurance Business or                 4. it is deemed necessary for protecting
   with any regulation regulating the                       policyholders’ interests in case of a decision
   business, or with the company's                          to withdraw the licence.
   articles of association,
2. the company's articles of association                 Finansinspektionen may withdraw the licence to
   or technical guidelines, technical bases              undertake business in the following situations:
   for calculations or investment
   guidelines for assets covering                        1. The requirements for being licensed are no
   technical provisions are no longer                       longer fulfilled,
   adequate in view of the size or the                   2. An approved plan or scheme for restoring
   character of the business,                               the solvency has not been followed in due
3. the business in force is insufficient for                time or
   necessary equalisation of risks,                      3. The company in other cases seriously
4. anyone member of the board of                            disregards regulations applicable to its
   directors or the general manager are                     business.
   no longer deemed to be fit and proper.
                                                         In cases of principal interest the decision to
The EC rules apply when the available solvency           withdraw the licence may be referred to the
margin is less than the minimum solvency                 Government.
margin and require the submission of a plan for
the restoration of a sound financial position. If        The corresponding rules regarding foreign non-
not even the guarantee fund is available, a              EEA companies are mainly the same, except
short-term re-financing scheme is required.              that they are limited to the branch or agency in
Such plans and schemes must need the approval            Sweden and omit the references to the articles
of Finansinspektionen.                                   of association and sufficient equalisation of
If within the specified time the company fails to
comply with the injunction and the matters               In practice, the power to issue injunctions as
complained of in the injunction are not                  prescribed in the law has been used sparingly.
otherwise rectified, then Finansinspektionen             The fact that Finansinspektionen has this power
shall report the matter to the Government in             does, however, give it more weight in
cases of principal importance.                           negotiations. The usual measure is to send
                                                         admonitions to the companies. These
                                                         admonitions are usually public documents in the
                                                         sense that any newspaper or any citizen has a

right to see them. In severe cases an admonition        Finansinspektionen may      convene    such   a
may contain an injunction that the admonition           company meeting directly.
should be read out at the next company
meeting. Finansinspektionen has the right to            Almost all correspondence and other documents
send its own representatives to any company             received by Finansinspektionen, as well as
meeting and may order a special meeting of the          outgoing documents, are public in the sense that
board of directors to be convened and send its          any person is entitled to see them. The major
own representatives. Finally, the supervisory           exceptions from this rule concern reinsurance
authority may require the board of directors to         treaties, business secrets in companies'
convene an extraordinary company meeting,               documents and information pertaining to the
and, if the board fails to comply,                      relations between a company and individual


Chapter 1. Circumstances, forms and consequences of suspension and cessation of business

A.  VOLUNTARY     SUSPENSION                 AND         2. the articles of association specify
CESSATION OF BUSINESS                                       circumstances in which business must
                                                            cease and such circumstances are
a) Voluntary suspension - total or partial                  present.

There are no specific provisions in the Swedish          In both these cases the law requires the
legislation regarding suspension of business.            company to be wound up.
Consequently, if a company suspends the
writing of new business in some or all classes of        Apart from these cases, voluntary cessation of
insurance, it is under no formal duty to report          business has no direct consequences. The law
this step to Finansinspektionen; yet, such a             only prescribes formalities for the liquidation or
report will probably be made in practice. There          winding-up of the company as such.
will be no consequences with regard to the
licence. There is, however, an exception from
these general rules in case of motor liability           B. COMPULSORY SUSPENSION                     AND
insurance. Since this is a form of compulsory in-        CESSATION OF BUSINESS
surance entrusted to private insurers, a company
with a licence for it is bound to issue motor            a) Compulsory suspension - total or partial
liability policy to any person on demand. Thus,
the issue of policies in this special class of           Swedish legislation contains nothing regarding
insurance may not be suspended or ceased                 suspension of business.
unless the licence is withdrawn.
                                                         b) Compulsory cessation - total or partial
b) Voluntary cessation - total or partial
                                                         The licence may be withdrawn as described in
There are no provisions in the Swedish                   III.2 In addition, it can be withdrawn by
legislation stating directly any consequences of         Finansinspektionen in the following situations:
a voluntary cessation of a part of the business;
thus the position will be about the same as in           1. the company fails to apply to
the case of suspension. The licence will stand              Finansinspektionen for registration within
provided that the articles of association are not           six months after the licensing,
altered as to exclude any classes of insurance           2. the company has not started business within
specified in the licence. If the articles of                a year from the licensing and has not within
association should be so altered, however, the              the same period refrained from the licence,
licence will lapse automatically in respect of           3. the application for registration has not been
such classes. As regards motor liability                    carried through, or
insurance see above.                                     4. the company has not been conducting
                                                            business for the last six months.
As regards voluntary cessation of the total
business, provision is made for the following            Partial withdrawal of a licence is provided for
two semi-compulsory cases:                               only in the case of compulsory motor liability
1. the articles of association specify a                 insurance. Thus a licence for this class of
    time when business must cease and                    business may be withdrawn under the Act on
    such time has elapsed or,

motor liability insurance, without the licence for
other insurance business being affected.                  In case of other non-life classes, business may
                                                          continue so far as may be necessary for a proper
If the licence for the entire business is                 winding-up. Thus, current insurance policies
withdrawn, the company must be wound up, see              will continue to be administered, i.e., premiums
Chapter 3.                                                will be collected and claims paid, until the
                                                          contracts expire. Also, a transfer of the
Besides this case and the cases of semi-                  portfolio may be arranged during the winding-
compulsory cessation mentioned above, a                   up stage.
company must be wound up if the entire
insurance portfolio has been transferred to               In the case of life business, see Chapter 3 as
another insurer, see Chapter 2, or if the licence         regards administration and transfer of portfolio
to undertake business has been granted for a              in the case of liquidation.
limited time only, and such time has expired
without a new licence being granted in the                c) Company's right of appeal
                                                          A decision to withdraw a licence can be made
In the case of the withdrawal of a licence to             by Finansinspektionen or by the Government.
transact motor liability insurance, the                   Appeal can be made to the administrative court
policyholders must take out new insurance                 of appeal (Sw. ‘kammarrätt’). For other
within 30 days after the publication of the               decisions by the supervisory authority, appeal
withdrawal decision in the official gazette. The          can be made to a county administrative court
old policies will be cancelled accordingly.               (Sw. ‘länsrätt’).

Chapter 2. Transfer of contracts and transfer of the company

The Act on Insurance Business deals with the              without prejudice      to   the   rights   of   the
voluntary transfer of an insurance portfolio.             policyholders.
There are no special provisions regarding the
transfer of the company as such. If the transfer          A transfer agreement shall be approved if:
comprises a company's whole insurance
portfolio, it will implicitly be equivalent to the        1. policyholders right will not be weakened,
transfer of the company. The transfer will in this        2. the receiving company possesses the
case be followed by the compulsory winding-up                required solvency margin after the transfer
of the company.                                              and
                                                          3. the competent authorities in countries where
A transfer agreement must be approved by an                  risks to be transferred are situated or
ordinary meeting of shareholders or members of               services are to be provided approve of the
the transferring company, after which it must be             transfer or refrain from commenting upon it.
notified to the Finansinspektionen for decision
and for registration with the registration                If it is not considered that the application should
authority. Within four months after registration,         to be immediately refused, Finansinspektionen
the boards of directors of both companies must            must publish a notice containing particulars of
apply for permission to carry out the transfer.           the transfer in the official gazette and in local
Finansinspektionen may order the companies to             papers that it may find suitable for the purpose.
produce any further particulars necessary to              In this notice the policyholders and annuitants
show that the transfer can be carried out                 concerned in the proposed transfer are given the
                                                          opportunity to notify Finansinspektionen

whether they have any objections to the                   fact arise. If the transfer comprises a company's
transfer, within a prescribed time of not less            whole insurance portfolio, it is usually
than one month.                                           accompanied by the transfer of all the assets and
                                                          liabilities of the transferring company.
In practice, consent will never be granted unless
the transfer of the portfolio is accompanied by a         When the transfer is completed it will be the
corresponding transfer of assets and liabilities;         duty of the receiving company to notify each
thus the case of a transfer without                       policyholder and annuitant concerned.
corresponding assets and liabilities should not in

Chapter 3. Winding-up

There is some overlap between bankruptcy                  or voluntary. One or more liquidators must be
under the ordinary insolvency legislation and             appointed at a general company meeting. The
liquidation under the Insurance Business Act.             same meeting must appoint one or more
The winding-up procedure is essentially the               liquidation auditors as well. Finansinspektionen
same, when the bankruptcy leads to a surplus.             may appoint an additional liquidator and an
Finansinspektionen should be kept informed                additional auditor in non-life insurance
about a bankruptcy, and has a right to appoint a          companies. In life insurance companies
representative. In the case of a life insurance           Finansinspektionen shall always appoint an
company, such an appointment is mandatory.                additional liquidator. If the company does not
                                                          within a certain time use its opportunity to
If a company decides to cease business                    appoint liquidators, they will be appointed by
voluntarily and the portfolio is not transferred          the court instead.
to another company, the company can allow the
insurance policies to continue to expiry and              The liquidators must administer, liquidate and
decide to wind up the company afterwards, or it           realise all assets and settle liabilities. As soon as
can decide to wind itself up immediately. Even            they have done this, they must draw up a report,
in the last case, business in non-life classes may        which, after being scrutinised by the auditors,
continue so far as is necessary for a proper              will be presented at a general company meeting.
                                                          A transfer of the portfolio to one or several
A voluntary winding-up requires a resolution of           other insurers should be arranged when a life
a general meeting of the company. Even in the             insurance company has been declared bankrupt
case of a compulsory winding-up, the law                  or has gone into liquidation, cf. Chapter 2 above
assumes that it is the company itself that has            on transfers. If such a transfer cannot be
taken the decision. In this case, however, only           effected on acceptable conditions within one
one company meeting (with a simple majority)              year from the date of bankruptcy or liquidation,
is required.                                              assets may be sold and the proceeds will be
                                                          distributed among the policyholders and
If more than two-thirds of the share capital of a         annuitants. The plan for such a procedure must
shareholders' company is lost, the company                first be approved by Finansinspektionen.
must be wound up, unless the loss is made good
within a certain time, or a reduction of the share        If a foreign non-EEA company winds up its
capital is resolved.                                      branch in Sweden, it must appoint a
The procedure for winding-up is mainly the                representative to represent it in relation to the
same as for non-insurance companies; it is also           policies in force in Sweden. If the company fails
the same whether the winding-up is compulsory             to meet its Swedish liabilities, the initial and

additional deposits may be used. These deposits          will be a separate administration of the portfolio
may not be released until the company has                by Finansinspektionen. Also in the case of the
proved that all liabilities arising out of the           voluntary cessation of the business of such a
Swedish business have been settled, unless other         branch, a separate administration may be
guarantees are substituted for the deposits and          prescribed by Finansinspektionen, if the
are approved.                                            representative of the company does not carry
                                                         out his duties in accordance with the law, or if
There are special rules with regard to foreign           such a step is otherwise considered necessary in
non-EEA branches transacting life business. If           order to protect the interest of the
the licence for such business is withdrawn, there        policyholders.


As far as domestic companies are concerned                 of the company, including property located
there is a preferential right in Sweden only to            abroad, with such restrictions only as may be a
the registered assets corresponding to the                 consequence of the preferential rights
technical provisions of life insurance or of               mentioned above or, as regards branches of
annuities (structured settlements) arising out of          Swedish companies abroad, of preferential
accident and sickness insurance, motor liability           rights due to the legislation in other countries.
insurance etc. In these cases the preferential
right is absolute.                                         In the case of foreign non-EEA insurers, initial
                                                           and additional deposits may be used only for
As regards other classes of insurance, in general          payment of claims under insurance contracts
non-life classes, there are no preferential rights         belonging to the Swedish branch, for the
at all of the policyholders. Thus, creditors under         payment of fines etc., which may be imposed on
insurance policies have no greater right to the            the Swedish branch or its general agent or any
assets than do other creditors. No distinction is          other representative, or, in the case of a
made between Swedish citizens and foreigners,              separate administration for life insurance, to
nor between property located in Sweden or                  meet the administratorship's claims against the
abroad. Thus all creditors, regardless of                  company.
nationality, may enforce their rights on all assets

Part Three: Contracts of Insurance


                                                         There are rules in the 1980 Act regarding the
The contract of insurance is governed by two             right of a consumer to take out such insurance
special laws, The Insurance Contract Act of              as the insurer normally provides, unless there
1927 and The Consumer Insurance Act of 1980.             are special reasons for not providing insurance.
A unified Insurance Contract Act is expected
some time in the future.                                 A number of rules deal with the consequences
                                                         of not paying the premiums under the contract
These acts together apply to all insurance               and what may be called the secondary duties of
contracts to which a private insurance company           the insured. They relate to misrepresentation
is a party. The 1980 Act applies to contracts            and non-disclosure at the time of taking out the
which consumers enter into with insurance                insurance, failure to comply with special
companies principally for private purposes and           prescriptions from the insurer, intentional or
which may be assigned to one of the following            negligent causing of the event insured and fraud
types of insurance: household insurance,                 in connection with the settlement of the loss. A
homeowner's      insurance,    holiday    home           common feature of these rules is that they
insurance, travel insurance, motor liability             provide that the insured shall not lose any of the
insurance, motor vehicle insurance and yacht             indemnity to which she is entitled under the
insurance.                                               insurance contract, unless she has acted at least
Reinsurance treaties are excluded from the 1927
Act. There are certain divergent rules in the            An important problem concerns the control of
case of motor liability insurance as provided for        insurance conditions. There is no requirement
in the Motor Traffic Damage Act of 1975.                 that Finansinspektionen should approve in-
                                                         surance conditions, but one of its tasks is to
The purpose of the 1927 Act is to safeguard              examine such conditions as part of its general
policyholders, beneficiaries and third parties           supervision and the correspondence of the terms
having an interest in the performance of the             of the insurance contract with the provisions of
contract. Most of its provisions are not of an           the law. In co-operation with the insurance
imperative character, the parties being free to          industry guidelines in this matter have been
enter into agreements that differ or set aside           drawn up.
such provisions.
                                                         If Finansinspektionen finds that a matter should
There are no express provisions in the 1927 Act          be brought to the Market Court, it informs the
regarding supervision of insurance contracts.            Consumer Ombudsman about it. The National
Finansinspektionen can, however, require to be           Board for Consumer Policies may also take the
shown any documents relating to the business,            initiative in such matters.
and thus contract documents as well. By virtue
of this provision and of its powers to take              B. REINSURANCE
action if the conduct of a company gives rise to
serious criticism, Finansinspektionen may                The reinsurance contract is subject only to the
intervene also in the contracting field.                 general rules of the ordinary law of contract.


The settlement of disputes relating to the
performance of contracts of insurance is                   There are special arrangements with respect to
exclusively a matter for the regular courts. In            the settlement of personal injury cases in motor
consequence, the judgement of most individual              liability insurance. The arrangements apply to
cases lies outside the competence of                       serious injury, i.e. cases of disablement and loss
Finansinspektionen, which only deals with                  of provider, as well as matters of principle. All
principal issues regarding the organisation and            such cases are submitted to the semi-public
routines of claims settlement.                             Road Traffic Injuries Commission supported by
                                                           all companies.
Besides       Finansinspektionen      the  Public
Complaints Board has a special section for non-            Finansinspektionen makes use of the complaints
life insurance with representatives of consumers           it is informed of, in order to find out whether
and the insurance companies. A complaint can               there are any systematic mistakes in the way a
be tried free of charge for the consumer. The              company handles the settlement of claims.
decisions of the Board take the form of                    Consumers' reactions also nowadays often
recommendations but the insurers generally                 communicated from the Insurance Bureau for
comply with the recommendations. If the                    Consumers' Enquiries, an institution founded
policyholder disapproves of the decision of the            jointly by the National Board for Consumer
Board or if the insurer does not comply with the           Policies, Finansinspektionen and the insurance
recommendation of the Board, the policyholder              industry, with the task of offering the public
still has a right to appeal to a court.                    general advice and information.


Insurance is not subject to any restrictions as            business. A few per cent of all motor vehicles
regards the choice of insurer.                             are uninsured each year. The insurers are
                                                           charged with a fee for these by a special
The Swedish insurance legislation does not                 organisation, see Part Five, II.A below. As for
prevent insurance contracts from being                     EEA insurers' branches or freedom to provide
expressed in foreign currency. There is,                   services, cf. B below and Part Two, II 3.2.D.
however, a tax on life insurance premiums paid
abroad, cf. Part Four.                                     The Motor Traffic Damage Act gives injured
                                                           third parties a right of direct action against the
The insurance brokers have the same freedom                insurer.
to choose insurers as their clients have, which
means that they can assist their clients in finding        The Act on Motor Race Insurance regulates the
solutions with insurers not licensed to operate in         corresponding field of compulsory insurance,
Sweden.                                                    which resembles that of motor liability
A. COMPULSORY             INSURANCE         WITH
PRIVATE INSURERS                                           The Nuclear Liability Act and the Maritime Act
                                                           deal with other fields, viz. nuclear liability and
Motor liability party insurance is entirely                oil pollution at sea, where provisions of
entrusted to private insurers, domestic and                compulsory insurance are given. These Acts are
foreign, with a special licence for this class of

in accordance with the international conventions          after having made the prescribed notification to
ratified by Sweden.                                       the home country authority of its head office, cf.
                                                          Part Two, II, Chapter 1. A non-EEA insurer
Commercial airline activities require liability           must be licensed by Finansinspektionen in order
insurance in practice. Provisions governing               to actively provide services, cf. the same
environmental      damage    insurance     are            passage. There are few if any common good
incorporated in the Environment Protection Act            regulations, but marketing legislation must be
and the Ordinance on Environmental Damage                 followed and the indexation rules for indemnity
Insurance. A 10-year construction insurance               annuities (structured settlements). There is also
valid from the completion is required for                 a principal prohibition of excessive benefits in
constructors of buildings.                                sickness annuities.

Compulsory liability insurance is required by             As regards motor liability insurance, it must be
law for insurance brokers and real estate                 written by a domestic or foreign non-EEA
brokers, and according to the regulations of the          insurer with a licence for this class, or by an
bar association for lawyers.                              EEA insurer using a branch in Sweden or the
                                                          freedom to provide services. In the latter case,
B. FREEDOM TO TAKE OUT INSURANCE                          the requirements of the EC directives regarding
ABROAD                                                    local representative (in the case of provision of
                                                          services) and membership in the Motor Liability
In general, there is nothing in the Swedish               Insurance Association must be satisfied, cf. Part
insurance legislation that prevents a person or a         Five, II A.
company from taking out insurance directly
abroad. A foreign insurer without a licence to            Motor race insurance similarly requires a
undertake insurance in Sweden may not in                  Swedish licence or can be provided by an EEA
general actively provide insurance services. An           insurer using a branch in Sweden or the
EEA insurer may, however, establish a branch              freedom to provide services.
to insure risks or provide services in Sweden


As previously mentioned, the general social               from a list administered by the Premium Pension
insurance system in Sweden provides a large               Authority (PPM).
part of the security needed by individual citizens
in different situations. The Social Insurance             There are some life insurance companies which
Board or other public institutions do not                 confine themselves exclusively to providing
compete with the private insurance sector. As a           pensions and certain other payments for
part of the recent reform of the pension system,          employees under a collective scheme.
there is, however, a mandatory unit-linked                Employers and employees are partners in these
pensions saving in which the insured has the              companies. There are also a number of private
option to choose external investment funds                life insurers and friendly societies working in the
                                                          same field.

Part Four: Duties, Taxes and Other Compulsory Contributions


Taxation policy in Sweden in some respects                 policyholder; hence, within fairly wide limits,
encourages people to buy pension insurance.                they are not subject to inheritance taxes.
This policy is reflected in personal tax
reductions for policyholders as well as in special         As regards company taxation, life insurance
yield taxation rules for life insurance and                business is not subject to any tax on business
pensions.                                                  profits, with the exception of unit-linked
                                                           business and certain group life assurance and
As regards the personal tax reductions,                    sickness or accident business, which are taxed
premiums for pension insurance may to a                    as non-life business.
certain level, usually in the range of half a basic
amount or approximately 2,000 Euro, be                     The tax on yields (Swedish: ‘avkastningsskatt’)
deducted from the income on which the                      is based on the average interest rate on
ordinary income tax is based. Employers have               Government Loans during the year preceding
similar possibilities when arranging pension               the year of assessment and on the market value
schemes that comply with certain requirements              of assets at the beginning of the year of
as to maximum benefits, etc. In the case of                assessment. The tax rate differs between two
premiums for pension insurance issued by an in-            categories of life insurance:
surer not licensed in Sweden, a special
permission from the National Tax Board is                  •   15 per cent as regards pension insurance
needed, but rarely granted.                                    (and other pensions savings or provisions
                                                               for pension debts) with tax deductible
Premiums for life insurance and sickness                       premiums
insurance outside an admitted pension plan,                •   27 per cent as regards other life insurance.
accident or unemployment insurance are not
deductible.                                                The same rules apply to Swedish life branches
                                                           of foreign companies.
Pension insurance policyholders are exempt
from property tax on their balances with the               With respect to non-life business, insurance
insurers (mathematical reserve, etc.). Other life          companies, in principle, have to pay income
insurance, including life insurance taken out              taxes according to the same rules as apply to
with foreign insurers by Swedish residents, is             other companies. In the calculation of net
subject to property tax.                                   income or profit for taxation purposes special
                                                           consideration is given, however, to the
Pension benefits arising from the type of                  particular conditions of the insurance industry.
pension insurance that gives the right to tax              Thus, a deduction is allowed for appropriations
deduction are taxed as earnings. Other                     to technical provisions and according to detailed
payments from life insurance payments are                  rules, to the safety reserve, cf. Part Four, I.
untaxed, except certain benefits of endowment
type, e.g. in the case of death, sums due under            In the case of foreign non-life insurers, taxable
personal insurance policies will as a rule be              income has been fixed at a certain percentage of
payable directly to a named beneficiary and thus           the premium income for direct insurance in
will not fall into the estate of the deceased              Sweden, the percentage being 2 per cent for all
                                                           classes. Changes are being discussed.


In conjunction with the Tax Reform of 1991, a            however, to the degree that taxation in the
tax of 15 per cent was imposed on premiums               home state is comparable with Swedish rules.
paid abroad for life insurance in companies
outside Sweden. The tax rate can be reduced,             A salary tax of 24,26 percent is levied on
                                                         certain excess pension costs.


All companies, both domestic companies and               the contribution is fixed and amounts to SEK
Swedish branches of foreign non-EEA com-                 20,000.
panies, must pay a contribution towards the
expenses      of     Finansinspektionen.     The         The insurance brokers have to pay fees to
contribution is calculated differently for               finance their supervision. The fee is paid per
domestic and foreign insurers. The ceiling for           person and is SEK 5,000 for a whole year.
the contribution is given by a set of regressive
rates for domestic non-local insurers, ranging           The benefit of free group life insurance from the
from 1 per mille for the lowest layer to 0.1 per         employer entails a tax that is levied on the
mille for the top layer. The rates are applied to        insurer. The tax rate is 45 per cent of 95 per
the balance sheet total and the minimum amount           cent of the premium, or in certain cases, 81,83
is SEK 20,000. For foreign non-EEA insurers              per cent on benefits.

Part Five: Organisation of Supervision and Professional Organisation


A. OFFICIAL ORGANISATION                                  tor-General as chairman and has presently the
                                                          following members:
Supervision of insurance companies and of the
friendly societies is the responsibility of               •   two Members of Parliament,
Finansinspektionen, which is an independent               •   a representative of the Bank of Sweden,
State agency. Its work is governed only by                •   a representative of the National Board for
legislation and by Government Ordinances,                     Consumer Policies,
which must be published. Final decisions on               •   three other members with financial and
matters of principle may rest, however, with the              business experience, and
Government. Administrative courts resolve                 •   two representatives of the employees.
complaints raised against decisions taken by
Finansinspektionen.                                       B. ADVISORY BODIES

Finansinspektionen has a total staff of about 170         There are no permanent advisory bodies.
persons, of which about 40 work in the
Department of Insurance and Mutual Funds.                 C.  ASSISTANCE          BY     INDEPENDENT
This department is divided into four units                EXPERTS
named after the corresponding area of
responsibility:   Licensing     &     Regulating,         Finansinspektionen is at liberty to turn to
Supervision, Risk Analysis and Operative Risks.           independent experts and does use this possibility
The Board of         Finansinspektionen settles           from time to time.
matters of principles. The Board has the Direc-


A. PROFESSIONAL ORGANISATION                              Insurance brokers have a separate organisation.

The large nation-wide companies are members               All companies transacting motor liability
of a general federation of insurers, the Swedish          insurance - domestic companies as well as
Insurance           Federation          (Sveriges         Swedish branches of foreign companies - are
Försäkringsförbund), the object of which is to            required to be members of the Motor Liability
deal with matters of common interest to                   Insurance Association (Sw. ‘Trafiksäkerhets-
Swedish insurers. The local companies have, on            föreningen’). The main objects of this
their side, two different but parallel                    association are to take care of matters
organisations to look after their special                 connected with the insurers' common
interests. In addition, there is an association of        responsibility for damage caused by uninsured
general agents of Swedish branches of foreign             owners or drivers of vehicles or untraceable
insurance companies. Since 1994 insurers with             drivers that have caused accidents, and to take
licensed agencies or branches in Sweden may,              measures to facilitate insurance arrangements
with the consent of the Board, join the Swedish           for foreign cars visiting Sweden or Swedish cars
Insurance Federation as members.                          going abroad.

There are labour market federations for                 •   Actuarial Research
negotiations between insurers on the one hand           •   Policy Conditions
and employees and employed agents on the                •   Accident and Sickness Insurance
other hand.                                             •   Marine Insurance
                                                        •   Nuclear Insurance Pool
                                                        •   Life Insurance Taxation
B. ORGANISATION OF THE INSURANCE                        •   Transport Insurance Pool
                                                        In addition, the Swedish Actuarial Society, the
There are several industry organisations for co-        Swedish Insurance Society, and the Insurance
operation within the framework of competition           Bureau for Consumers' Enquiries (cf. Part
legislation or for more general contacts, e.g.          Three, II) should be mentioned.
within the following areas:
                                                        C. RELATIONS WITH THE SUPERVISORY
•   Personal Injury of Liability Insurance              AUTHORITIES
•   Emergency
•   Marketing Executive Officers                        Relations between the organisations of the
•   Legal Expenses                                      insurance market and Finansinspektionen are
•   Fire Protection                                     not regulated by any legislation but are
•   Accounting                                          conducted on an informal basis They include
•   Insurance Law                                       regular information as well as co-operation in
•   Insurance Medicine                                  committees and ad hoc groups.
•   Insurance Statistics




Act 1927:77 on Insurance Contracts
Act 1980:38 on Consumer Insurance
Act 1993:645 on Applicable Law for Certain Insurance Contracts

Acts 1967:663, 1967:667 on Indexation of Motor Liability Indemnity Annuities
Acts 1971:14, 1973:213, 1973:214, 1973:219, 1973:220 on Indexation of Indemnity Annuities

Act 1968:45 on Nuclear Liability
Act 1993 on Liability Insurance for Building Construction
1994 Maritime Act
Environmental Code, Chapter 33


Act 1972:262 on Friendly Societies
Act 1982:713 on Insurance Business
Ordinance 1982:790 on Insurance Business
Act 1989:508 on Insurance Brokers
Act 1998:293 on Foreign Insurers’ Business in Sweden
Act 1999:890 on Insurance Business during Time of War or War Threat

Act 1975:1410 on Motor Traffic Damage
Act 1976:357 on Motor Race Insurance
Ordinance 1976:359 on Motor Liability Insurance


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