Demand for full value insurance solutions from private Swiss life insurers rose significantly in 2012, reflecting the need that enterprises have for security when it comes to occupational pension schemes. In 2012, life insurers posted earnings of CHF 8.7 billion, of which 92.4% were used for the benefit of insured persons, with 23% alone being applied to bolster annuity capital. While life insurers achieved a positive operating result for occupational pensions for the fourth consecutive year, the business environment in which they operate remains challenging.
For the eighth time, FINMA is issuing a full financial report on occupational pensions provided by Swiss life insurers. With this publication, FINMA helps create transparency, which has a positive effect on the actions of insurers. Important key figures (e.g. on costs, dividend policies and investments) indicate the strengths and weaknesses of the market players and allow competitive comparisons to be made. This benefits both enterprises and their employees as they seek to identify effective pension solutions from private life insurers.
The savings, risk, and cost processes of the eight private life insurers in the occupational pensions sector generated CHF 8.7 billion in earnings in 2012. Of this, 92.4% flowed back to the 2.2 million insured persons in the form of insurance benefits, additional underwriting liabilities and surpluses paid out, thus exceeding the statutory minimum of 90%. Following 2008, a year of crisis for the sector, the eight life insurers have posted positive operating results for four consecutive years. In 2012, the result was CHF 661 million. Insurers used a large part of this amount to strengthen their solvency capital, which had declined because of continuing low interest rates.
Savings and risk processes: Positive results, a greater need for additional provisions
In 2012, life insurers produced good investment results from the savings process. Return on investments was similar to the levels generated in 2009, 2010 and 2011. From 2005 until 2012, the average net return on investments was 2.84% per year. The renewed rise in claims expenditure due to disability and death, combined with lower premium income, limited the positive result from the risk process. Thanks to the overall positive result, CHF 1,995 million in additional allocations were used to shore up underwriting liabilities arising from old age and survivors' pensions. This strengthening of provisions is necessary to ensure that insurance obligations can be met, thereby helping to protect insured persons and stabilising Pillar 2.
Cost process: Lower per capita costs, potential for further efficiency gains
Per capita operational expenses came in 2.6% lower on average compared to the previous year, a trend that has continued now for the past six years. Per capita costs were CHF 462 in 2007 but had fallen to CHF 381 in 2012. Because the cost of administering active insured persons, group pensions and vested benefits policies can vary considerably, FINMA has decided to break down the operating expenses by cost unit as of 2012. This results in the following per capita values (2012):
- Active insured persons 467 CHF
- Pension recipients 449 CHF
- Vested benefits policies 94 CHF
What are full value insurance solutions?
Full value insurance solutions offer comprehensive guarantees for the risks covered by occupational benefits insurance. They include a guarantee of the interest rate on retirement assets, a guarantee of the pension conversion rate and of running pensions, a guarantee of death and disability benefits, and the management of occupational pension schemes.
What are the savings, risk and cost processes?
Savings process: Expenditure arising from the savings process includes the payment of interest on retirement assets, the conversion of retirement assets into retirement pensions, and the settlement of old age and survivors' pensions. Earnings from the savings process reflect the net return on investments.
Risk process: Expenditure arising from the risk process includes amounts paid out for death and disability benefits (in the form of lump sums and pensions) as well as from entitlements in connection with current retirement and survivors' pensions. The risk process is financed by the risk premiums.
Cost process: The cost process is financed by the cost premiums. Expenditure arising from the cost process is determined by the costs incurred from managing the occupational benefits insurance.