In 2014, the premium volume for insurance solutions provided by private Swiss life insurers covering occupational pension schemes continued to rise. Lower than in the previous year, the growth rate of 1.5% amounted to CHF 24.7 billion. Life insurers posted total earnings of CHF 8.7 billion, 92.1% of which benefited insured persons, with 16% only used to strengthen the actuarial reserve for pensions. Life insurers' operating results for occupational pensions were positive. However, owing to the fall in interest rates, they are faced with major challenges.
In 2014, the eight Swiss life insurers providing occupational pension schemes saw an increase in premium volume (up 1.5%) and the number of insured persons (3.2%), a recurring trend seen in previous years. Supervised by the Swiss Financial Market Supervisory Authority FINMA, together they manage approximately one fifth of all pension assets (CHF 192 billion from a total of CHF 911 billion). While they play a key role in the provision of old age, survivors' and disability pensions, they insure almost half of the 3.9 million active insured persons and serve almost a quarter of all pensioners, which equates to 241,000 people. They assume part or all of the risk coverage and capital management from occupational pension institutions.
Insured persons benefit from 92.1% of the earnings
For the savings, risk and cost processes in 2014, private life insurers offering occupational pensions posted total earnings amounting to CHF 8.7 billion of which 92.1% went to the benefit of insured persons through insurance obligations, strengthened technical provisions and surpluses paid out. The statutory minimum rate is 90% (see fact sheet on “Private life insurers in the second pillar”).
Life insurers also reported positive operating results for occupational schemes in 2014, amounting to CHF 686 million. They posted earnings of CHF 1.1 billion across all lines of business (occupational pension schemes, individual life insurance and business placed by foreign branches). More than half of this amount was used to strengthen solvency capital, which was necessary owing to the continued fall in interest rates. In 2014, life insurers paid out dividends totalling CHF 528 million.
Saving and risk processes: provisions strengthened
Investment results from the savings process posted by life insurers for 2014 were in line with previous years. The average net return on investments between 2005 and 2014 was 2.86% a year.
Although interest rates rose temporarily in 2013, impacting investment performance negatively, a positive net performance of 8.6% was reported owing to their dropping to almost zero in 2014. Any changes in the value of discounted insurance obligations on the liabilities side of the balance sheet must be set against any profit and loss on investments resulting from changes in interest rates on the assets side of the balance sheet.
The 21% increase in claims expenditure in 2013 was followed by a drop of 13% in 2014. The loss ratio in the risk process was lower than in the previous year, amounting to 57% of the premium income. Due to the overall positive results, technical provisions for old age and survivors' pension benefits were increased by a total of CHF 1,370 million.
Cost process: further drop in pro capita costs
Reported per capita operating costs were 3% lower on average year-on-year. Costs have thus fallen for seven consecutive years. While per capita costs were still as high as CHF 462 in 2007, they were down to CHF 355 in 2014, a trend which FINMA expects to continue. Because the cost of administering active insured persons, group pensions and vested benefits policies can vary considerably, operating costs have been broken down as follows: the per capita values are CHF 451 for active insured persons (down 2.8% on the previous year), CHF 406 for pensioners (down 7.1%) and CHF 77 for vested benefits policies (up 6.9%).
FINMA ensures transparency
This is the tenth year in which FINMA has published a full financial report on occupational pensions provided by private Swiss life insurers. While the disclosure of this data helps to create transparency with regard to important key figures on costs, dividend policies and investments, it also reveals market players' strengths and weaknesses. Companies and their staff looking for pension cover from private life insurers can thus benefit by drawing comparisons between providers.
FINMA is mandated to ensure that the assets entrusted to group life insurers for 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. In addition, all life insurers must dispose over sufficient technical provisions in order to meet their insurance obligations at all times. This requirement offers the most sustainable protection to insured persons and also strengthens confidence in the second pillar pension system.
What are 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 (lump sums and pensions), as well as from entitlements linked to current retirement and survivors' pensions. The risk process is financed by risk premiums.
Cost process: Expenditure arising from the cost process is determined by the costs incurred from managing occupational benefits insurance. This process is financed by cost premiums.
Net return on investments: Ratio of book income (minus asset management costs for investments) and the average book value for investments.
Net performance: Ratio of book income (plus changes in revaluation reserves and minus asset management costs for investments) and the average investment market value.
Tobias Lux, Media Spokesperson, Tel. +41 (0)31 327 91 71, email@example.com