In 2017, the return on investments of private Swiss life insurers offering occupational pension schemes declined by 20% to just under CHF 4 billion, due to low interest rates. Premium volume fell by 4% to CHF 22 billion compared to the previous year. This reflects the reduced ability and willingness by life insurers to enter into new full-coverage insurance contracts.
The eight life insurers managing occupational pensions under the Federal Act on Occupational Retirement, Survivors' and Disability Pension Plans and reporting to the Financial Market Supervisory Authority FINMA hold around one fifth of all the pension assets in Switzerland (CHF 1,030 billion in 2016, as at the end of 2016). They insure almost half of the 4.1 million active insured persons and pay pensions to just under a quarter of the 1.1 million retirees (as at the end of 2016).
Reduced premium volume, fewer employees with full coverage
The premium volume of life insurers declined by 4% to CHF 22 billion and the number of employees with full coverage fell by 3% to 1.18 million in 2017. Approximately CHF 3 billion of the entire premium volume are risk and cost premiums, which were 2% lower than in the previous year. As a result, life insurers generated total earnings of CHF 7 billion from the savings, risk and cost process, almost 13% lower than in 2016. The lower premium volume reflects life insurers’ increasing reluctance to enter into full coverage insurance contracts. None of them has expanded their capacity, and no new providers have entered this market in over ten years. The main cause is likely to be the low return on the capital that they need in order to meet their obligations.
92.1% of income credited to insured persons
In 2017, private life insurers active in the occupational pensions sector generated a total income of CHF 7 billion, 12.6% less than in 2016. Of this amount, 92.1% went to insured persons in the form of insurance benefits, additional technical provisions and surpluses. The statutory minimum ratio is 90% (see also the “
Minimum quota: distribution of surpluses from Pillar 2”). In 2017, CHF 0.6 billion went towards strengthening technical provisions, which is 61.6% less than in 2016.
Lower operating result
In 2017, life insurers again produced a positive operating result in occupational pensions, which at CHF 554 million in total was 8% lower than in 2016. Since total assets grew over this period, the total return on the entrepreneurial risk fell, causing them to further reduce their capacity.
Declining investment income
Private life insurers generated investment income of 2.0% in 2017, making this the third consecutive year in which book yields have fallen (2016: 2.6%, 2015: 3.0%, 2014: 3.2%). Between 2008 and 2017, the average annualised net return on investments was 3.79% per year. The fact that interest rates have fallen to historically low levels has therefore led to a further decline in investment income. As a consequence, life insurers have reduced the technical interest rate for calculating actuarial reserves for annuities to an average of 1.34%. Taking account of changes in value of the investments, performance was 2.5% in 2017, after 3.3% in the preceding year, a low 1.9% in 2015 and a high 8.6% in 2014. These fluctuations clearly illustrate how exposed these insurers are to capital market risks.
Slight increase in claims ratio and operating costs
In 2017, claims expenses remained at the same level as in 2016. As premium income was slightly lower, the claims ratio rose from 56% to 58% over the previous year. After having fallen for nine consecutive years, reported per capita operating costs rose by 2% over the previous year and came to CHF 320 in 2017, compared to CHF 462 in 2007.
The aim of supervision is to protect insured persons sustainably
FINMA’s primary objective is to ensure that assets entrusted to life insurers in the occupational pensions sector are managed securely and lawfully. Guaranteed insurance obligations are comprehensively covered by separate tied assets, which are subject to strict investment regulations on quality, risk diversification, permitted asset classes, risk management and administration. In addition, all life insurers must have adequate and prudently calculated technical provisions, which are sufficient for meeting their insurance obligations at all times and providing sustainable protection to insured persons. And last but not least, they must have enough equity capital to securely meet their obligations to insured persons in accordance with the Swiss Solvency Test (SST), which is also used in all the other insurance sectors.
