Insurance & Reinsurance 2023 Comparisons

The Swedish legal system is a hybrid, with similarities to both civil law and common law systems. Although the most fundamental source of law is statutory, Swedish private law heavily relies on case law. However, the courts will generally afford great weight to preparatory works and the intentions of the legislator when interpreting statutory law.

There are several key regulatory acts that apply to insurance and reinsurance undertakings in Sweden, in particular the Insurance Business Act (2010:2043) (the IBA), which to a large extent implements the Solvency II Directive. Insurance distribution is regulated under the Insurance Distribution Act (2018:1219) (the IDA).

Together with a few other acts, the IDA implements the Insurance Distribution Directive (the IDD). Foreign insurance undertakings conducting insurance business in Sweden are primarily governed by the Foreign Insurance Activities Act (1998:293) (the FIAA). Insurance and reinsurance undertakings are also subject to other legislation on consumer protection, marketing and distant sales contracts, for example, as well as data protection.

Insurance contracts and most aspects of the relationship between insurer and insured are governed by the Insurance Contracts Act (2005:104) (the ICA). However, the ICA does not apply to reinsurance contracts (see 6.6 Consumer Contracts or Reinsurance Contracts).

The Swedish Financial Supervisory Authority (the SFSA) regulates insurance and reinsurance undertakings as well as insurance intermediaries. Its primary aim is to ensure the stability of the financial system and to safeguard and further the development of consumer protection. The SFSA co-operates with the European Insurance and Occupational Pensions Authority (the EIOPA).

The SFSA also issues regulations and general recommendations. Where the regulations are binding, the general recommendations apply on a comply or explain basis – ie, the regulated subjects are expected to follow them or explain any departures. The sanctions available to the SFSA include the issuance of remarks, warnings, orders to undertake or refrain from undertaking certain actions and administrative fines.

Regarding insurance undertakings, the SFSA may revoke the authorisation to conduct insurance business and wholly or partially restrict the insurance undertaking’s right to dispose of its assets in Sweden and decide on how the insurance business should be conducted.

Insurance Business

Under the IBA, insurance business may not be conducted without authorisation from the SFSA; doing so may result in sanctions from the SFSA (see 2.1 Insurance and Reinsurance Regulatory Bodies and Legislative Guidance).

Insurance business is not statutory defined under Swedish law, and whether an activity constitutes insurance business must be assessed on a case-by-case basis. However, through preparatory works, legal literature and case law, the prevailing view is that a business must meet the following cumulative criteria to constitute an insurance business:

• the business must be conducted commercially;
• the activity must entail a binding commitment by the insurance undertaking to indemnify the insured;
• the commitment must be contingent upon the occurrence of an uncertain event;
• the insurance undertaking must make the insurance commitment in return for a premium; and
• the insurance commitment must be compensatory – ie, it must serve to protect the insured against negative economic effects.

Moreover, the public interest in the authorities supervising and monitoring the business must be considered when deciding whether a business should qualify as insurance business.

Finally, regardless of whether the above criteria are met and the public interest assessment, some activities may still fall outside the scope of insurance business (such as insurance-like undertakings ancillary to a main undertaking concerning vehicles, travel services or construction, for example).

There are, however, exceptions from the authorisation requirement to conduct insurance business. For example, a foreign insurance undertaking within the EEA may generally passport its licence under the principle of single state authorisation within the EEA (see 3.1 Overseas-Based Insurers or Reinsurers).

When an undertaking is authorised to conduct insurance business, it may issue insurance contracts concerning any type of customer (consumer, SME or corporate), as the law does not differentiate between categories of customers. However, the authorisation is only valid for a specific insurance class within life or non-life, or, in certain specified cases, a combination of insurance classes within both. In addition, an insurance undertaking may only conduct insurance business and operations arising directly therefrom.

Regulations for Insurance Businesses

An insurance undertaking must comply with comprehensive and strict prudential regulation, including a solvency and minimum capital requirement, which are risk-sensitive and adapted to the individual insurance undertaking’s aggregate risk level. The prudential regulation also includes a qualitative prudent person principle, with which the insurance undertaking must comply in regard to its investments, for example, as well as various more specific investment regulations concerning the location of assets, risk diversification, investments in derivatives and unlisted assets, among other things.

In addition, the IBA requires insurance undertakings to comply with several Swedish general standards and principles, which do not follow from the Solvency II Directive. However, many requirements are overlapping – eg, to maintain satisfactory financial stability (stabilitetsprincipen), abide by generally accepted insurance business standards (god försäkringsstandard) and provide sufficient information when selling insurance products.

Importantly, an insurance undertaking may only assume debt if it serves an intention of increasing the efficiency of the capital management or is otherwise required for the insurance business. The insurance undertaking’s total debt must also be limited concerning the extent of the business and the size of the capital base. In special circumstances, the SFSA may grant exceptions from the requirement that the total debt must be limited, but such exceptions are rarely granted in practice.

Insurance undertakings are also subject to an array of comprehensive requirements regarding corporate governance and outsourcing, as well as fit and proper requirements for management and individuals responsible for central functions (eg, compliance, internal control and risk management).

Under Swedish tax law, there is generally no taxation of premiums, except premiums on motor insurance (trafikförsäkring) and group life insurance. Insurance premiums are also exempt from VAT.

Secondary Establishments and Cross-Border Activities

Pursuant to the FIAA, which implements the EU principle of single-state authorisation, an EEA-based insurance undertaking may conduct insurance business through a secondary establishment in Sweden or cross-border activities.

As for secondary establishments, the EEA insurance undertaking may commence its business in Sweden two months after the SFSA has received the notification from the home state authority. Regarding cross-border activities, insurance business may commence as soon as the SFSA receives notification from the home state authority. Due notification is necessary for EEA insurance undertakings regardless of whether they will conduct business actively in Sweden or merely passively accept business from Swedish insureds.

Reverse Solicitation

Under the FIAA, a third-country insurance undertaking may conduct insurance business in Sweden passively by way of so-called reverse solicitation without a licence or notification. However, a third-country insurance undertaking may only undertake active measures on the Swedish market pursuant to specific authorisation from the SFSA through a branch or a general agent (ie, not through cross-border services). Insurance undertakings wishing to establish a branch office in Sweden must appoint a branch manager and must register the branch with the Swedish Companies Registration Office (the SCRO) before commencing business.

A general agent on the other hand is an individual or entity whose task is to lead and manage the foreign insurance undertaking’s insurance business in Sweden. The foreign insurance undertaking can only be represented by one general agent, who must be a resident or have its registered office in Sweden.

Regardless of whether the third-country insurance undertaking opts for a general agent or a Swedish branch, it needs the SFSA’s authorisation to conduct insurance business on the Swedish market. Unless otherwise stated below, the same provisions apply to third-country branches and general agents.

Marketing Licences

Alternatively, third-country insurance undertakings may apply for a specific marketing licence, which allows the marketing of insurance products on the Swedish market by way of the intermediation of another insurance undertaking that is licensed to conduct insurance business in Sweden. The third-country insurance undertaking must then either be part of the same group as the relevant, licenced insurance undertaking or have entered into a co-operation agreement with that insurance undertaking for the marketing of the third-country insurance undertaking’s insurance products on the Swedish market.

Brexit

The Brexit trade and security deal between the EU and the UK came into force on 1 May 2021, but provides little clarity for insurance companies. At the time of writing, no decision has been made on so-called equivalence or the extent to which UK firms will be allowed to continue to sell their services into the single market from their UK establishments. Therefore, UK insurance undertakings must comply with the aforementioned Swedish provisions on third-country insurance undertakings.

Although historically not a generally accepted market practice in Sweden, fronting now appears to be generally accepted under Swedish law. The fronting insurance undertaking must be directly liable towards the insured in order for the arrangement to constitute insurance. If the fronting insurance undertaking does not assume risk, it may be questioned whether the business is in line with the Swedish provisions under which insurance undertakings may not conduct other business than insurance business, for example.

Acquisition of Shares

The SFSA’s prior approval is required before shares can be acquired in an insurance undertaking that would result in a qualified holding. Under the IBA, a qualified holding is a direct or indirect ownership in a company if the ownership represents more than 10% of the value of the company or more than 10% of the voting rights of the company, or otherwise facilitates a substantial influence over the management of the company. Approval is also required if a qualified holding increases to 20%, 30% or 50% of the shares or the voting rights in the company, or if the insurance undertaking becomes a subsidiary. Approval is only granted if the acquirer is deemed suitable to exercise substantial influence over the company’s management and it can be assumed that the acquisition is financially sound.

An insurance undertaking may wholly or partially transfer a portfolio of insurance policies to another Swedish insurance undertaking or a foreign insurance undertaking authorised to conduct insurance business in Sweden or in another EEA country. Portfolio transfers are subject to procedural rules and SFSA approval.

Consolidation of Undertakings

An ongoing trend regarding insurance M&A is the consolidation of smaller insurance undertakings by way of mainly portfolio transfers to the major Swedish insurance undertakings. A likely explanation for this is an increased difficulty for smaller insurance undertakings to conduct cost-effective insurance business on the Swedish market under an ever-increasing regulatory burden. The benefits of scale appear to give larger insurance undertakings a competitive edge, enabling them to take over smaller portfolios and integrate them into their existing business.

Current Status of the Sector

During recent years, the Swedish insurance market has seen several significant transactions, including acquisitions, listings, portfolio transfers of insurance undertakings and acquisitions of insurance intermediaries. As the M&A market in general has experienced a slowdown, the number of transactions within the insurance sector (similar to other sectors) is likely to decrease. Nonetheless, given potential synergies as well as the nature of the insurance market, consolidations of smaller insurance undertakings and intermediaries may continue as the drivers in transactions within the insurance sector.

Regulations

Insurance distribution conduct is mainly regulated by the IDA and regulations issued by the government and the SFSA in Sweden. The IDA has a broad scope and applies to those who:

• give advice regarding insurance and conduct other preparatory work before the conclusion of insurance contracts;
• assist in the entering into of insurance contracts; and
• assist in the administration or performance of an insurance contract.

In some respects, the IDA goes beyond the IDD’s minimum requirements – eg, stricter regulations regarding occupational pensions that are exposed to market fluctuations. Some of the regulations regarding insurance-based investment products are also applicable to occupational pensions exposed to market fluctuations.

Insurance Distribution

Insurance distribution conduct requires some form of authorisation. Authorisation may be obtained either by independent licence from the SFSA or by becoming tied to one or more insurance undertakings via a distribution agreement where the insurance undertaking registers the insurance intermediary as such with the SCRO. A tied intermediary may not commence its distribution before such registration.

The distribution agreement must stipulate that the insurance undertaking is liable for any pure economic loss that the distributor is liable for to customers as a consequence of the distributor’s intentional or negligent breach of duties under the IDA. The insurance undertaking must also make sure that the management of the tied distributor has sufficient knowledge and experience to conduct insurance distribution.

However, the distribution of insurance-based investment products or occupational pensions exposed to market fluctuations always requires a licence from the SFSA, regardless of whether the insurance intermediary is tied to one or more insurance undertakings. Also, a distributor tied to one or several insurance businesses may not distribute competing products issued by another insurance business.

The IDA requires insurance distributors to conduct their business under generally accepted insurance distribution standards, design their systems of remuneration to avoid conflict with the duty to safeguard customers’ interests, and disclose information regarding both the insurance distributors’ business and the distributed insurance product before the customer enters into the insurance contract, among other activities.

Insured's Duty to Disclose Information

The ICA stipulates that before entering into, renewing or extending an insurance contract, the insured must, upon the insurance undertaking’s request, disclose information that may affect whether the insurance undertaking will issue the insurance policy. This obligation continues throughout the insurance period. The insured must answer the insurance undertaking’s questions truthfully.

Regarding information on matters that obviously affect the risk assessment, an insured that is not a consumer must provide the information even without the insurance undertaking’s request, and both consumer and non-consumer insureds must correct any previously provided information if the insured realises that it is incorrect or incomplete. If the insured has breached its duty to disclose through intent or negligence, insurance compensation may be reduced. If the insured has acted deceitfully regarding its duty to disclose, the contract is void.

Furthermore, under the ICA, a consumer insurance contract may stipulate that the insured must expeditiously disclose any increase in risk. Failure to do so may result in a reduction of the insurance compensation. Regarding commercial insurance contracts, such a duty exists regardless of whether it is explicitly stated in the contract.

Insurer's Duty to Provide Information

Before entering into an insurance contract, the insurance undertaking has a duty to provide certain information under the ICA and the IDA – eg, information that facilitates the insured’s assessment of whether it needs the insurance product in question. The information should give an overview of the insurance coverage and must clearly state notable exclusions.

During the insurance period, the insurance undertaking must provide the insurance policy’s terms and conditions and other circumstances that are of importance to the insured. If the insurance undertaking fails to emphasise certain terms of a consumer contract (eg, unexpected or material limits to the insurance coverage), it cannot invoke such terms.

Regarding commercial insurance contracts, the insurance undertaking may omit to disclose the requisite information concerning consumer contracts, if it can be assumed that the insured has no need of the information.

See 6.1 Obligations of the Insured and Insurer.

An intermediary may be involved in the negotiation of the insurance contract on behalf of either the insured or the insurer. The intermediary’s obligations would then stem from the IDA (see 5. Distribution), the contract between the intermediary and the insured/insurer, and general principles of contract law, such as the agent’s duty of loyalty towards its principal.

However, regardless of on whose behalf they are acting, the intermediary always has certain obligations towards the customer of insurance products under the IDA, and must adhere to generally accepted insurance distribution standards, which include:

• taking account of the interests of the customer;
• only recommending insurance solutions that are appropriate for the customer; and
• providing the customer with information regarding the distributed insurance product as well as the intermediary’s business and the way in which the intermediary is remunerated.

There is no statutory definition of an insurance contract under Swedish law, and no explicit legal requirements that must be fulfilled for a contract to constitute an insurance contract. Guidance may possibly be sought in the widely accepted definition of insurance business (see 2.2 The Writing of Insurance and Reinsurance). However, under general contract law, insurance contracts may in theory be entered into by two parties, neither of which conducts insurance business.

For something to be insurable, it must constitute a legal interest. Consequently, it is not possible to insure the risk of unsuccessful criminal activity, for example.

If a contract is deemed to constitute an insurance contract, the ICA applies and imposes several obligations on both insurer and insured.

Parties that are not insured may still be beneficiaries of an insurance contract under Swedish law. For example, the use of named beneficiaries is fairly common in life insurance policies.

In addition, pursuant to the ICA, a third party with a security interest in real property or a ground lease is essentially entitled to any insurance compensation available under an insurance policy that covers the value of the property in question. As long as the insurance policy does not stipulate otherwise, a security interest in movable property may also ensure a right to compensation under such an insurance policy.

When there are multiple beneficiaries to an insurance policy, a creditor with a security interest in real property or a ground lease may receive compensation from the insurance undertaking even if the underlying debt is not due for payment. However, if the creditor’s security does not decrease significantly as a consequence of the insured event, the owner of the property may still have first priority over any available insurance compensation, unless agreed otherwise.

The ICA, IDA and IBA impose duties to provide the beneficiaries to an insurance contract with required information before the contract is made and during the contractual relationship.

The contracting parties have greater contractual freedom regarding commercial insurance contracts compared to consumer insurance contracts. The ICA imposes more onerous obligations on the insurer and more lenient obligations on the insured in consumer contracts than commercial contracts regarding, for example, the insurer’s provision of information, the insured’s disclosure of information regarding the insured risk, exclusions and the effects of breaching contractual or legal obligations.

Reinsurance contracts are governed not by the ICA but by the Contracts Act (1915:218) (the CA). This gives the contracting parties greater contractual freedom as the often mandatory provisions in the ICA do not apply between the parties. However, contractual freedom is not without limit under the CA.

Although practical experience suggests that it is not frequently used, the CA contains a provision to the effect that a court may ignore or adjust a clause in a contract if it finds the clause unreasonable regarding the contract as a whole, circumstances at the time of conclusion of the contract, or circumstances that have occurred after that. In practice, English reinsurance case law and practice appear to influence the construction and application of reinsurance contracts under Swedish law.

From a Swedish perspective, ART is a collective term encompassing both financial reinsurance and other forms of transfer of risk to the international capital markets, such as industry loss warranties. ART typically serves as an alternative to traditional insurance or reinsurance as a way of transferring risk. Although the Swedish ART market is still at the nascent stage of its development, it appears that ART has developed in areas where the insurance and reinsurance markets have traditionally not responded adequately to customer needs and wishes.

One of the issues with ART is its regulatory treatment and to what extent it will be effective in terms of meeting an insurance undertaking’s solvency requirements. The Solvency II Regulation is applicable in Sweden and expressly recognises financial reinsurance as a risk-mitigating technique, and that it serves to provide regulatory credit to the extent that it meets certain criteria set out in the Solvency II Regulation.

ART to other jurisdictions may be treated as reinsurance for Swedish insurance undertakings to the extent that the contract fulfils the Solvency II Regulation requirements for recognition as a risk mitigant.

The Nature of Insurance Contracts

Insurance contracts are primarily governed under specific legislation (the ICA), in addition to the CA, which applies to contracts in general. As with contracts in general, insurance contracts stipulate the parties’ obligations. The insured’s main obligation is the timely payment of a premium and the insurer’s is to bear the risk for the occurrence of an unwanted event. If the risk materialises, the insurer must pay insurance compensation to the insured. For insurance contracts, a factor of uncertainty is key, as to if, when or to what degree the insured event will occur.

Whereas contractual freedom is the main rule in general contract law, this is not always the case for insurance contracts. For example, some types of insurance are compulsory (eg, motor insurance), and the ICA imposes a contractual obligation (kontraheringsplikt) on the insurer for certain consumer insurances.

Against this backdrop, insurance contracts arguably have special features compared to other contracts.

Method for Interpretation

There is no statutory guidance for the construction of contracts but the method for construing contracts under Swedish law is well established in case law. Insurance contracts are mainly interpreted in the same way as other contracts, and the ultimate source for determining the content of an insurance contract is the common intention of the parties at the time of the conclusion of the contract. However, since insurance contracts are typically based on standard forms that are not subject to much (if any) individual negotiation, the common intention of the parties is often not practically possible to establish. Instead, the typical starting point for construing an insurance contract is the language thereof.

The objective meaning of the insurance contract should in turn be understood via the normal meaning of the wording itself. The following aspects, amongst others, may be taken into consideration:

• the systematics of the contract;
• the purpose of the contract as a whole and the specific clause(s) under scrutiny; and
• non-mandatory law or professional practice.

The interpretation of the contract should also give a fair and reasonable result. If an assessment of these factors fails to yield a result, a general principle of contract construction may be used – eg, the in dubio, contra proferentem rule (oklarhetsregeln), meaning that a vague or ambiguous clause should be construed against the person who drafted it.

Since Swedish procedural law allows for the free sifting of evidence, extraneous evidence is admissible for the construction when there is a dispute over the meaning of an insurance contract. Therefore, external circumstances (eg, prior negotiations or written communication relating to the agreement) may be used by the court when determining the meaning of the contract.

Warranties are set out in insurance contracts as a way for the insurer to make its promise of cover conditional – ie, to limit the risk or burden of the insurer. As the basis for the promise to assume risk relies on complex calculations, it may indeed be necessary to condition the cover to some extent. This serves to make the insurer’s actuarial assessments more accurate and to enable it to charge the correct premium for each specific risk.

While true warranties are not usually set out in Swedish insurance contracts, other important standard conditions may be noted in this context. For example, insurance contracts often include specific standards (eg, locking the doors of business premises, having satisfactory alarm systems or that electric installations are done professionally) to which the insured must adhere in order for the insurer to remain fully liable for the insured risk. This type of condition (säkerhetsföreskrifter) is regulated under the ICA.

The insurance contract may stipulate that if the insured fails to comply with these standards the insurer is free from liability to the degree such damage would be limited by the insured following the standards. If the insurer fails to emphasise these conditions to the insured, they cannot be used against the insured. In some insurance contracts, there is a cap on the amount by which failure to adhere to the stipulated standards may reduce the insured’s liability.

Conditions precedent do not have a distinct definition under Swedish insurance contract law. However, pursuant to the ICA there are certain provisions under which the insurer may reject a claim regardless of whether it has suffered any prejudice.

For example, there is an obligation on the insured to disclose certain information to the insurer in most insurance contracts (see 6.1 Obligations of the Insured and Insurer). If the insured has been fraudulent or deceitful in providing such information, or has failed to provide such relevant information to the insurer, the contract will normally be considered void.

Dispute Resolution

Disputes over coverage are often addressed in the general court system. However, arbitration is not uncommon when it comes to disputes concerning commercial insurance contracts. To the extent that reinsurance disputes lead to formal proceedings, which are rare nowadays, practical experience suggests that arbitration is the preferred route for reinsurance disputes.

The Swedish general courts recognise two types of private law legal actions:

• claims for specific performance; and
• claims for declaratory judgment.

In other words, an insured may seek a judgment by which the insurer is obligated to pay a certain sum under an insurance contract, or a judgment declaring an insurer liable to pay insurance compensation.

Disputes between consumers and businesses, such as insurance undertakings, may be submitted to the National Board for Consumer Disputes (ARN), which is a public authority that functions in a manner similar to a traditional court. However, ARN only submits non-binding recommendations on how disputes should be resolved. From experience, insurance undertakings often comply with ARN’s recommendations.

Preclusion and Time Limits

An insurance claim will become time-barred under the ICA if the insured has not taken legal action against the insurer within ten years after the event that gave rise to the insured’s right to insurance compensation. However, provided that the insured has reported an insurance claim to the insurer within those ten years, the insured will always have a period of six months to bring legal action against the insurer after the insurer formally declines to pay insurance compensation. Therefore, if the insurer declines to pay insurance compensation nine years and 11 months after the event that gave rise to the insured’s right to insurance compensation occurred, for example, the insured will have six months to take legal action against the insurer (rather than only one month).

In commercial insurance contracts, a time limit for the reporting of claims may be stipulated in the insurance contract (however, the limit may not be less than one year after the circumstances that gave rise to insurance compensation). Furthermore, the insurer may require, in writing, that the insured must take legal action within a certain time period (not shorter than one year), to bring an end to insurance claims.

For insurance contracts that were concluded before 1 January 2015, the limitation period is three years after the insured became aware that the insurance claim could be made, or ten years after the earliest point in time at which the claim could be made, unless the circumstances that gave rise to the claim for insurance compensation occurred after 1 January 2015 (in which case the new provisions will apply instead).

Third-Party Rights

The general rule under Swedish contract law is that an agreement is binding only between the parties to the agreement (ie, it confers rights and obligations on these parties only). As this main rule also applies on insurance contracts, the ICA stipulates no general right for a third party to claim insurance compensation from the insurer under an insurance policy. However, there are a few exceptions to the main rule – eg, for creditors with a security interest in the insured property (see 6.5 Multiple Insured or Potential Beneficiaries).

The ICA also stipulates that, if the insured is legally obliged to hold a liability insurance (which is the case for insurance intermediaries, lawyers and real estate agents, for example), a third party against whom the insured is liable is entitled to claim insurance compensation directly from the insurer. A motor vehicle insurance policy is also required by law, and enables a third party to bring claims directly against the insurer.

Furthermore, under the ICA, a third party also has direct access to the liability insurance if:

• the insured has been declared bankrupt or an order has been issued for public composition; or
• the insured is a legal entity that has been dissolved.

If a dispute falls under the Brussels/Lugano Regime, Swedish courts will resolve disputes over jurisdiction under those rules. There are also other Swedish statutes that explicitly give Swedish courts jurisdiction over specific areas. For example, under the FIAA, foreign insurance undertakings that conduct insurance business in Sweden must adhere to Swedish law and answer before the Swedish courts.

If the dispute does not fall under any EU regulation or a convention to which Sweden is a party, and no other statutes regarding jurisdiction are applicable in the specific case, disputes over jurisdiction will be resolved by the analogous application of Swedish statutes on jurisdiction. In general, for a Swedish court to have jurisdiction, the dispute must have a connection to Sweden, and the Swedish judicial system must have an interest in resolving the dispute.

For insurance contracts covering risks situated in Sweden, the Rome I Regulation restricts choice of law. The main rule is that Swedish law applies to the insurance contract, although there are notable exceptions to this main rule under the Rome I Regulation. Furthermore, parties to an insurance contract covering a large risk generally have full autonomy concerning the choice of law.

Application

Litigation in Sweden is initiated by submitting an application for a writ of summons with a district court that has jurisdiction over the dispute. If a member of the Swedish Bar (advokat) represents the claimant, the ethical guidelines of the Swedish Bar Association (Sveriges advokatsamfund), as a main rule, require the legal representative to issue a letter of demand to the opposing party before submitting the application for a writ of summons to the district court (or requesting arbitration under an arbitration clause). The application should contain:

• a precise claim;
• a detailed description of the circumstances that are invoked in support of the claim;
• information regarding the invoked evidence;
• information on what the evidence is invoked to prove; and
• information regarding the circumstances that render the court competent to hear the dispute.

If the application fulfils these requirements and is not obviously unfounded, the district court will issue a writ of summons and serve the respondent the summons, after which preparatory proceedings are initiated, under which the respondent will be ordered to submit a reply.

Preparatory Proceedings

The preparatory proceedings are intended to clarify the following:

• the parties’ claims and the circumstances invoked in support thereof;
• invoked evidence;
• whether further investigation or other measures are necessary before the conclusion of the case; and
• whether it is possible for the parties to find an amicable solution to the dispute.

The preparatory proceedings usually include several exchanges of written submissions and an oral preparatory hearing.

After the preparatory proceedings have been closed, a party may generally only invoke new circumstances or evidence if it has a valid excuse for not invoking the circumstance or evidence earlier, or if the continuation of the proceedings are not substantially delayed if the invocation is allowed.

Oral Hearings and Judgments

As a last step in the proceedings before the judgment, a main oral hearing is normally held, in which the parties present their cases including written evidence and any witnesses are heard. Swedish hearings are characterised by orality, immediateness and concentration. Insofar as is possible, a hearing should be conducted without delay. The court must base its judgment on what has been invoked during the main oral hearing. During the hearing, the parties are only allowed to submit or read from written submissions or sources if the court finds that doing so is suitable for the understanding of a statement or favourable for the proceedings.

District court judgments can be appealed to a Court of Appeal, whose judgments in turn may be appealed to the Swedish Supreme Court. Leave to appeal is required in both of these instances.

Judgments by Swedish courts are automatically enforceable in Sweden. As a general rule, foreign judgments may only be enforced if they fall within the scope of a convention to which Sweden is party or an EU regulation. If a judgment falls within the scope of such a convention or an EU regulation, an application may be lodged with a district court to make the judgment enforceable in Sweden.

Judgments under the Brussels Regime (eg, Regulation (EU) No 1215/2012) are automatically enforceable in Sweden if the court proceedings were initiated on or after 10 January 2015. If the court proceedings were initiated before then, an application must be lodged with a district court to make the foreign judgment enforceable in Sweden.

Arbitration clauses in commercial insurance and reinsurance contracts are enforceable in Sweden. There is a precedent that suggests that an arbitration clause may be ignored if enforcement of the arbitration clause would lead to unreasonable results due to the balance of power between the parties. However, if even possible, invalidating an arbitration clause would likely be out of the question unless the balance of powers between the parties is so uneven that it resembles an actual consumer contract rather than a commercial contract.

Arbitration clauses in consumer contracts are not enforceable, except in a few special circumstances – eg, if the contract is a group insurance contract and a group representative has represented the insureds.

Sweden is party to the New York Convention, so arbitral awards rendered in foreign jurisdictions are generally enforceable in Sweden in the same manner as a judgment from a Swedish court, subject to the New York Convention and the Swedish Arbitration Act (1999:116). To enforce an arbitration award from a foreign jurisdiction in Sweden, an application must be lodged with the Svea Court of Appeal.

It is common for parties to an insurance dispute to settle their differences in good faith. The Swedish courts have a duty to actively work towards finding an amicable solution between parties at dispute, if possible and appropriate. If the parties agree, the courts may also initiate mediation between them. Mediation is also available through the Stockholm Chamber of Commerce. Furthermore, there is generally nothing preventing the parties from agreeing on and independently appointing a mediator. However, practical experience suggests that meditation between parties in an insurance dispute is rather rare.

The ICA imposes an obligation on insurers to handle insurance claims expediently. The main rule is that the payment of claims should be made at the latest one month after the insured has reported the claim and presented the evidence that may reasonably be required to determine the insurer’s liability to pay insurance compensation. If it is obvious that the insured is entitled to at least a certain sum, the insurer must pay that sum immediately. In commercial insurance contracts, the insurer and the insured may agree to terms that depart from the obligations laid down in the ICA regarding late payment of claims.

The insured is entitled to interest on the insurance compensation if the insurer is late with its payment. Under general contract law, the insurer may also become liable to pay damages for losses that the insured incurs due to the insurer’s late payment.

Insurers must adhere to generally accepted insurance standards under the IBA. Improper delay in settling claims may amount to a breach of said standards and could result in sanctions by the SFSA, at least in flagrant cases.

The ICA includes a statutory right of subrogation for insurers – ie, they are entitled to pursue recoveries for loss actually incurred by the insured and indemnified by the insurer under the relevant insurance policy. The insurer assumes the insured’s claim for damages against the third party that has caused the insured’s loss (or against another insurer).

However, the insurer will not assume a better position than the insured against the third party and, thus, the insurer will not be able to claim compensation that exceeds the damages that the third party is liable against the insured for. Regarding life insurance, the insurer is not able to pursue its rights of recovery for insurance of fixed sums.

Generally, the insurance policy may limit the insurer’s right of subrogation, which may also be limited due to the Recourse Agreement (Regressöverenskommelsen) made between several Swedish insurance companies, or due to any contracts under which the insured has waived any future rights of recovery.

The area of insurtech has seen a steady rise in recent years, although 2021 and 2022 saw investments in insurtech decrease somewhat. The impression is that Sweden is well positioned for new, innovative solutions within insurtech, being one of the world's most advanced digital economies with a well-developed fibre network. Insurtech companies have made established insurance companies aware of shortcomings in digitalisation, which seems to have led the latter to increase digitalisation efforts and collaborations with insurtech companies.

In some areas of the insurance sector, smaller insurance undertakings are being consolidated into larger ones. However, there are still successful insurtech start-ups on the Swedish market that cope with the challenges of a well-regulated and supervised market. Some such entities appear to profile themselves with, and rely heavily on, the use of artificial intelligence, to lower the costs of production and improve the customer experience. Indeed, 2021 saw one such insurtech entity obtain SFSA authorisation to conduct insurance business. This particular entity employs artificial intelligence to handle and settle claims, seemingly in a quick and efficient way.

In addition, Swedish insurtech companies have shown a will to expand both nationally and internationally, and have been successful in this regard.

As a response to insurtech issues, the Swedish government tasked the SFSA with mapping innovations and market needs, especially concerning the SFSA’s role as a regulator. Consequently, the SFSA has established an innovation centre, which serves to provide more dialogue with insurtech companies and to give seminars and organise information gatherings. The SFSA also participates in external events on innovation. According to the SFSA, these measures will allow it to better follow market developments and lead insurtech companies to better compliance.

While cyber-risk is not a new occurrence, it is constantly evolving along with advances in technology and poses problems for all businesses, including insurance undertakings. The risk of cyber-attacks appears to have only increased since Russia’s invasion of Ukraine in February 2022.

On 31 March 2022, the Swedish government tasked the SFSA with proposing measures to increase resilience to cyber-attacks in the financial sector. Subsequently, on 6 May 2022, the SFSA proposed, among other things, that:

• the SFSA sharply increase its cyber-related supervision;
• the Swedish National Defence Radio Establishment be allowed to assist corporations with cyberprotection;
• a separate cybersecurity council be established within the Prime Minister’s Office;
• the establishment of the National Cyber Security Centre be accelerated; and
• Bank ID and other private e-identifications be subject to adequate supervision, or replaced with a state e-identification.

There is also an emerging risk relating to the increase of large and complex legislative acts in the insurance sector. For insurance undertakings, this results in higher operational costs as more resources will be required in order to understand and implement all measures necessary for compliance. Small and medium-sized enterprises appear to be the most vulnerable to this risk.

Furthermore, the apparently more frequent occurrence of extreme weather is accompanied by new risks, which may be expected to affect primarily property insurance undertakings in the long and short run. One example is the extreme flooding in Sweden in the late summer of 2021, which resulted in several thousand insurance claims, the majority of which related to property insurance.

Finally, on 22 September 2022, the General Board of the European Systemic Risk Board (ESRB) issued a warning on vulnerabilities in the financial system of the EU. Rising geopolitical tensions have led to an increase in energy prices, causing financial distress to businesses that are still recovering from the adverse economic consequences of the COVID-19 pandemic. In addition, higher-than-expected inflation is tightening financial conditions. Therefore, the ESRB concluded that there has been an increase in risks to financial stability and the probability of tail-risk scenarios materialising.

To keep pace with emerging risks, insurance undertakings have been establishing new insurance products that will allow businesses to continue their day-to-day operations despite the various emerging risks.

Implementation of Recent EU Directives

The Swedish insurance market has seen several important legal developments during recent years, most of which originate from EU law. For example, the implementation of the EU directive on the activities and supervision of institutions for occupational retirement provision (IORP II) came into force in December 2019 when the Occupational Pension Companies Act (2019:742) (the OPCA) was passed. Swedish life insurance companies offering occupational pension insurance may choose to either comply with the IBA in its entirety, or restructure the company to become an occupational pension company governed by the OPCA. The companies have until the end of 2022 to make their decision.

With the introduction of IORP II, there has also been debate in the Swedish parliament on the possibility for members of a pension scheme to move their funds to other insurers. As a consequence of the impact of COVID-19, the Swedish Finance Ministry issued a government bill that proposed granting a special solvency leeway to pension funds in their IORP II applications. The new legislation entered into force on 15 December 2020.

Review of the Solvency II Directive

The European Commission adopted a comprehensive review of the Solvency II Directive on 22 September 2021, following the EIOPA’s technical advice to the European Commission on 17 December 2020, and this will likely impact the Swedish insurance market. The review resulted in a legislative proposal to amend the Solvency II Directive, a Communication on the review of the Solvency II Directive, and a legislative proposal for a new Insurance Recovery and Resolution Directive.

The overall aim is to ensure that insurers and reinsurers in the EU keep investing and support the political priorities of the EU, in particular:

• financing the post-COVID-19 recovery;
• completing the capital markets union; and
• channelling funds to implement the European green deal.

The European Commission’s proposal included a new article to the Solvency II Directive, according to which insurance undertakings and reinsurers, when conducting own risk and solvency assessments as part of their risk management, will have to identify any material exposure to climate change risks and, where relevant, assess the impact of long-term climate change scenarios on their business.

Furthermore, 2022 saw amendments to the Solvency II Regulation, pursuant to which sustainability risks have been integrated into the governance of insurance and reinsurance undertakings. For example, insurance and reinsurance undertakings will have to take sustainability risks into account when they identify, measure and assess risks arising from investments, for example. These amendments came into force on 2 August 2022.

Banking and Outsourcing

Alongside the legislative developments, there are other developments worth mentioning in the current context, including advice from the EIOPA on outsourcing, published in February 2020 (see 13.1 Additional Market Developments).

COVID-19

The COVID-19 pandemic deeply affected the global economy, including the Swedish economy and market, and society has now begun to experience the so-called “post-pandemic effects”. Consequently, changes in consumer demand can already be seen on the insurance market, and additional changes are to be expected. A peculiar example is travel insurance. Although air traffic has decreased, demand for travel insurance has only increased in Sweden and this is expected to continue. Furthermore, with more people working remotely (ie, not from a specific workplace), a demand for new types of occupational insurance may be expected.

As for COVID-19-related disputes, a couple of cases have been adjudicated in the Swedish lower courts. In one case, the insured claimed insurance compensation under an epidemic business interruption insurance policy. The question in this case has been whether such a policy covers loss incurred as a consequence of public authorities’ decisions in response to COVID-19. The insured had seen its business limited by the generally applicable decisions of the Swedish government and the Public Health Authority to limit the total amount of people allowed on the insureds’ premises. However, the applicable terms and conditions stipulated that a loss had to be the result of an “authority’s intervention” in order to be covered, and the lower courts found that this term referred to interventions against individual companies, not generally applicable decisions. Thus, the insured was not awarded insurance compensation in the lower instances. The insured has been granted leave to appeal to the Supreme Court, and it remains to be seen how the case will unfold.

A market development impacting the insurance sector in recent years is ethical considerations in investments. While such considerations may have been part of various companies’ investment processes earlier, there has been a significant push in this area, especially relating to sustainability.

Moreover, one area that is currently undergoing legislative development is insurance undertakings’ use of cloud service providers and to what extent this is permissible in light of the comprehensive and detailed requirements on their outsourcing arrangements. Cloud service arrangements are often necessarily based on standard terms and conditions, which may not always give the insurance undertakings scope to live up to the stringent requirements applicable to their outsourcing arrangements.

To this end, on 6 February 2020, the EIOPA published a report and new guidelines for market participants on how the outsourcing provisions in the Solvency II Directive, the Solvency II Regulation and the EIOPA's guidelines on the system of governance are to be applied regarding outsourcing to cloud service providers. The SFSA subsequently notified the EIOPA that it intended to apply the guidelines. As of 1 January 2021, the guidelines apply to all cloud outsourcing arrangements entered into or amended on or after this date by insurance and reinsurance undertakings, although undertakings have until 31 December 2022 to fully comply with the guidelines.