The premium volume for insurance solutions from private Swiss life insurers covering occupational pensions increased by a further 7.9% in 2013 to CHF 24.3 billion. The life insurers posted total earnings of CHF 8.3 billion, 91.8% of which benefited insured persons, with some 19% used to bolster annuity capital. The life insurers' operating result for occupational pensions was positive for the fifth year in a row. However, low interest rates continue to present them with major challenges.
The eight private Swiss life insurance companies operating in this area play a key role in the provision of old age, survivors' and disability pensions. They take over part or all of the risk coverage and capital management from the pension schemes. These life insurers, which are supervised by the Swiss Financial Market Supervisory Authority FINMA, together manage approximately one fifth of all pension assets (CHF 172 billion out of a total of CHF 843 billion). They insure almost half of the 3.9 million active insured persons and serve almost a quarter of all pension recipients, which equates to 236,000 people. In 2013, the premium volume rose by 7.9% and the number of insured persons by 2.1%. This continues the trend seen in recent years.
91.8% of earnings flowing back to insured persons
The eight private life insurers operating in occupational pensions recorded total earnings of CHF 8.3 billion in 2013 from the savings, risk and cost processes. Some 91.8% of this figure flowed back to insured persons in the form of insurance benefits, additional technical provisions and surpluses paid out. The statutory minimum is 90%.
After the industry endured a difficult crisis year in 2008, the eight life insurers have enjoyed positive operating results in occupational pensions for five years in succession. The result for 2013 was CHF 678 million. The eight companies together posted earnings of CHF 1.4 billion across all lines of business. More than two thirds of this was used to strengthen solvency capital, which was necessary due to the persistently low level of interest rates. The life insurers paid out dividends totalling CHF 468 million.
Savings and risk processes: positive results, but considerable strengthening still needed
In the savings process, the eight private life insurers posted investment results for 2013 that were in line with the previous few years. The average net return on investments between 2005 and 2013 was 2.85% a year. Interest rates, temporarily going up by half a percentage point towards the end of 2013, had a negative impact on investment performance, but this was negated in 2014 when they fell again. Nevertheless, this fluctuation shows how heavily exposed insurers are to capital market risks.
A 21% increase in claims expenditure due to disability and death, combined with lower premium income, pushed the loss ratio higher in the risk process. The average loss ratio now stands at 66% of premium income. Thanks to the positive overall results, technical provisions for old age and survivors' pensions were increased by a total of CHF 1,588 million.
Cost process: further fall in per capita costs
Reported per capita operating expenses were 3.9% lower on average year-on-year. Costs have thus fallen for six years running. While per capita costs were still as high as CHF 462 in 2007, they were down to CHF 366 in 2013. FINMA expects this trend to continue. Because the cost of administering active insured persons, group pensions and vested benefits policies can vary considerably, FINMA has provided a breakdown of operating expenses since 2012. The per capita values are CHF 464 for active insured persons, CHF 437 for pension recipients and CHF 72 for vested benefits policies.
FINMA ensuring transparency
This is the ninth year FINMA has published a full financial report on occupational pensions provided by private Swiss life insurers. This helps create transparency with regard to important key figures on costs, dividend policies and investments, thus revealing market players' strengths and weaknesses and allowing companies that are looking for pension cover from private life insurers to draw comparisons between providers. This benefits both the companies themselves and their staff.
FINMA's supervisory activities are governed by its statutory mandate to ensure that the assets entrusted to life insurers in the area of occupational pensions are safeguarded. Guaranteed insurance obligations are comprehensively covered by separate, tied assets that are subject to strict investment requirements in terms of quality, risk diversification, permitted asset classes, risk management and administration.
Each life insurer must have sufficient technical provisions to meet its insurance obligations at all times. This requirement provides the most durable protection for insured persons' entitlements while at the same time strengthening confidence in occupational pensions. One of FINMA's core tasks is to monitor insurers' continual compliance with this requirement.
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.
Tobias Lux, Media Spokesperson, tel. +41 31 327 91 71, email@example.com