1. Facts and figures

The Liechtenstein insurance centre continues to enjoy robust growth. Of the 37 insurance companies operating at the end of 2007, 19 are active in the life business, 13 in the indemnity insurance business and 5 in the reinsurance business. Of these 37 insurance companies, however, 11 operated exclusively as captive insurers. And of these 11, 5 operated as reinsurers and 6 as direct insurers.

The principal field of activity of Liechtenstein insurance companies is life insurance. In the year 2007 this accounted for a premium volume of approx. CHF 6.62 billion, or 95.9 % of the total Liechtenstein insurance sector.

Capital assets invested for clients in conjunction with investment funds or unit-linked insurance policies totalled around CHF 20.97 billion in the year 2007. The balance sheet total of insurers active in Liechtenstein amounted to approx. CHF 23.76 billion in 2007.

2. Regulatory framework

2.1 General overview

This growth in the Liechtenstein insurance sector rests on the one hand on Liechtenstein's accession to the European Economic Area (EEA) on 1 May 1995. Shortly after joining the EEA, Liechtenstein brought its insurance supervision laws into line with European standards. This means insurance companies domiciled in Liechtenstein have free access to the EEA. The business activities are subject to a wholly EU-conform insurance supervision which is based upon comparable minimum standards.

On the other hand, Switzerland and the Principality of Liechtenstein also concluded an agreement concerning direct insurance which came into force on 1 January 1997. This agreement enables Liechtenstein and Swiss insurance companies to act as direct insurers in the respective other country.

A number of non-domestic insurance companies have already taken advantage of the unique benefits of having access to the Swiss market as well as to the market of the EEA by founding subsidiaries in Liechtenstein. It is also possible to offer insurance products on the free market for services, instead of via subsidiaries.

2.2 Overview of the individual insurance types

2.2.1 Direct life insurers

The deregulated insurance supervisory authority in Liechtenstein and the liberal statutory framework make it possible to offer innovative insurance products in the Principality. These include e.g. capitalisation products which may not be offered in Switzerland and in other EEA member states.

2.2.2 Direct indemnity insurance

Liechtenstein is especially suitable for direct indemnity insurance, in particular in special fields such as comprehensive insurance solutions for art collections or financial institutions.

2.2.3 Reinsurance

As the statutory insurance supervisory provisions are only partially applicable to reinsurance, the reinsurance business is able to develop within a liberal and flexible environment.

2.2.4 Captives

The benefits which Liechtenstein presents for captives is the fact that in addition to advantageous fiscal operating conditions, Liechtenstein-based captives are able to operate in Switzerland as direct insurers or reinsurers and can directly insure risks in Switzerland and throughout the EEA.

Liechtenstein deliberately promotes the establishment of captives by distinguished parent companies. For example, captives of the following parent companies have been established in Liechtenstein to date: Clariant, Novartis, Rieter, Syngenta, Swisscom, Swiss Railways (SBB) and Schindler.

2.3 Relevant statutory provisions

In the field of insurance law, the following laws and ordinances are of particular relevance:

  • Act on Supervision of Insurance Undertakings (Insurance Supervision Act, ISA)
  • Ordinance on Supervision of Insurance Undertakings (Insurance Undertakings Ordinance, ISO)
  • Act on Insurance Contracts (Insurance Contract Act, ICA)
  • Act on International Insurance Contract Law (International Insurance Contract Act, IICA)
  • Law on Persons and Companies (Personen- und Gesellschaftsrecht, PGR)
  • Act on Professional Due Diligence in Financial Transactions (Due Diligence Act, DDA)
  • Ordinance on the Due Diligence Act (DDO)
  • Act on National and Municipal Taxes (Tax Act)
  • Act on Insurance Mediation (Insurance Mediation Act)
  • Ordinance on Insurance Mediation (Insurance Mediation Ordinance)
  • Act Concerning the Supervision of Institutions for Occupational Pension Schemes (Pension Fund Act)
  • Ordinance Concerning the Imposing of Supervision Fees and Charges Pursuant to the Financial Market Authority Act

Particular attention is drawn to the provisions of Art. 44 and 59a ISA as well as Art. 77-79 ICA:

Art. 44 ISA places insurance secrecy on a comparable footing to bank secrecy, thus guaranteeing the unlimited protection of the private sphere of the policyholder.

Art. 59a ISA contains provisions pertaining to the bankruptcy of an insurance company. Para. 1 thereof stipulates that in the event of the bankruptcy of the insurer, the technical insurance provisions shall constitute special assets which shall be used to satisfy the insurance claims.

Art. 77-79 ICA regulates the insurance claims of insurance beneficiaries within the framework of bankruptcy or pledging proceedings brought against the beneficiaries. In these cases, for example, the benefit entitlement arising out of an insurance policy expires. If spouses, life-partners in a marriage-like relationship or descendants of the policyholder are beneficiaries, then neither their beneficiary entitlement nor that of the policyholder may be pledged or included in the bankruptcy assets. In the case of a life insurance policy, it is essentially the case that in the event of the bankruptcy of or execution against the policyholder, the spouses or descendants shall enter into his rights and obligations arising out of the insurance agreement.

2.4 Recent regulatory developments

The Liechtenstein Finance Conglomerate Act and the Liechtenstein Finance Conglomerate Ordinance came into force on 1 November 2007. These implement the Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 in respect of the additional supervision of banks, insurers and securities companies of a financial conglomerate, as well as the amendment of further directives. The supervision operates in parallel to the respective supervisory authority of e.g. banks and insurers.

Implementation of the Reinsurance Directive 2005/68/EC is still pending. This contains new supervisory provisions for professional reinsurance companies which operate exclusively as reinsurers. Implementation of this directive could encourage professional reinsurers to set up operations in Liechtenstein for the first time.

In order to keep the insurance centre attractive, the introduction of protected cell companies (PCC) is also currently being studied.

3. Supervision and licensing obligations

The supervisory authority for the activities of Liechtenstein insurance companies within the EEA and in Switzerland is the Liechtenstein Financial Market Authority (FMA; www.fma-li.li). This exercises the "single-license principle" or the "home country control principle".

Art. 12 ISA stipulates the licensing obligations. In accordance with these, insurance companies which are subject to the supervision of the FMA require a separate licence from the supervisory authority for each individual insurance class which they operate, and must obtain this licence before commencing business operations. Of particular importance in this respect are the minimum capital provision and organisation fund requirements. The minimum capital provision for insurance companies is determined in accordance with Art. 14 ISA, and is stipulated by the supervisory authority on a case-by-case basis.

In the case of life insurance companies, the supervisory authority requires fully paid-in minimum capital of CHF 5 million, while the respective figure for reinsurance companies ranges from CHF 5 million to CHF 10 million. In the indemnity insurance field, the minimum capital is set at between CHF 0.5 million and CHF 1 million per insurance class, whereby the level of the minimum guarantee fund for capitalisation is stipulated. A reinsurance captive is required to have fully paid-in minimum capital of CHF 1.6 million at its disposal.

As a rule, when commencing business operations, insurance companies are obliged to establish an organisation fund amounting to 20 % to 50 % of the necessary minimum capital (Art. 18 Para. 1 ISO). In the case of captives, the level of the organisation fund is stipulated on a case-by-case basis.

4. Taxes and fees for insurance companies

Domestic insurance companies are subject to ordinary capital and income tax. The former amounts to 0.2 % of the paid-in equity capital. Income tax amounts to between 7.5 % and 15 % of net earnings. In the case of distributions of over 8 %, however, this is increased by 1 %, while in the case of distributions of more than 24%, this rises to 5 % of the taxable capital. A reduced tax rate applies to insurance associations (Art. 76 ff. of the Tax Act).

Ordinary income and capital tax does not apply to insurance companies which are active in Liechtenstein (branch offices). These pay a tax of 1 % on premium revenues from life or annuity insurance policies, and 2 % on all other premium revenues generated in Liechtenstein (Art. 82 of the Tax Act).

In accordance with Art. 82a of the Tax Act, special rules apply to captives. These pay a capital tax of 0.1 % on the company's equity capital. In the case of capital in excess of CHF 50 million, the tax rate is reduced to 0.075 %, while in the case of capital in excess of CHF 100 million this is reduced to 0.05 %.

Attention also needs to be paid to the Swiss Stamp Duty Act. Due to the 1923 customs union between Switzerland and Liechtenstein, this also applies to Liechtenstein in addition to further statutory instruments.

The fees for insurance companies and insurance brokers are set out in the Fee Ordinance of the Financial Market Authority.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.