volumes in its home market, the Swiss life insurance industry is
confident that last year’s modest increase in premium income
signals the start of a sustainable recovery. Despite this, the
strategies of many insurers remain firmly focused on international
Swiss life insurance business, individual and group, is in “the
midst of a growth turnaround”, proclaims the Swiss Insurance
Association (SIA) in a review of market developments in 2007.
Switzerland’s only insurance industry body, the SIA represents 80
domestic and international life and general insurers and
Based on the SIA’s estimates, total premium income generated in the
Swiss domestic life insurance market grew by 1.5 percent last year,
taking it to about CHF28.5 billion ($27.6 billion). If the SIA’s
estimate proves correct, the modest increase in premium income
would have not kept pace with inflation that, according to the
Swiss Federal Statistics Office (SFSO), stood at 2 percent
year-on-year in December 2007.
But for Swiss life insurers even a modest increase in premium
income would be welcome after four years of declines that,
according to SIA, saw total premium income fall from CHF34.66
billion in 2002 to CHF28.07 billion in 2006, a decline of 19
percent. However, even at the estimated CHF28.5 billion in 2007,
Swiss life insurers’ domestic premium income remains considerably
below levels of a decade ago.
The SIA estimates that group life insurance business in 2007
achieved growth of just below the industry average following a
reduction of 1.2 percent in 2006. Group business premium income in
2007 was an estimated CHF19.71 billion, 69 percent of the industry
total. In-force group business stood at CHF500.43 billion at the
end of 2006, representing 67.5 percent of total in-force business
of CHF740.86 billion.
Premium income generated by single premium endowment products is,
however, expected by the SIA to have decreased by 5.2 percent,
continuing a steeply declining trend. For example, based on the
SIA’s estimate, single premium endowment income in 2007 stood at
CHF670 million compared with CHF2.35 billion in 2001.
In addition to single premium endowment business, the SIA
anticipates that recurring premium endowment business (CHF4.5
billion premium income in 2006) also fell in 2007. However, the
reduction in total endowment business will be significantly less
than the 6 percent seen in 2006 and is anticipated to be about 1.6
percent for 2007, resulting in total premium income of CHF5.12
billion, or 18 percent of total industry premium income. At the end
of 2006, in-force individual endowment business of CHF238.41
billion represented 32.2 percent of the industry’s total in-force
Effects of stamp duty
The SIA lays the blame for the decline in single premium endowment
business on what it terms the “devastating effects” of a 2.5
percent federal stamp duty during a period of low interest
Speaking at a media conference to mark the launch of the SIA’s 2007
market review, the body’s chairman, Erich Walser, stressed: “There
is no need to again point to the absurd introduction of stamp duty
in 1998. During periods of low interest rates this type of
individual pension provision with stamp duty of 2.5 percent is of
little relevance. Consumers who do not want to have their pension
provision reduced by the government are switching to other
products, such as unit-linked life insurance.”
He added that the trend away from traditional capital insurance
towards unit-linked life insurance “continues unabated”, a trend
that is also supported by an extremely wide range of
Not surprisingly, the highest growth rate in 2007 was produced by
unit-linked products, with single premium business in the sector up
by an estimated 12.9 percent to CHF1.092 billion and regular
premium business up 9.1 percent to CHF1.436 billion.
In addition to declines in endowment business, the SIA anticipates
that individual annuity insurance business with regular premiums
decreased by 2.0 percent in 2007 to about CHF177 million. However,
single premium business is expected to have reversed its declining
trend and to have increased by about 4.5 percent to CHF1.02
billion, bringing total premiums for the individual annuities
sector to just under CHF1.2 billion, up 3.3 percent compared with
2006 but still considerably lower than premium income in excess of
CHF2 billion as recently as 2002.
A decade that has seen an overall decline in domestic life
insurance business has resulted in Switzerland slipping down the
rankings of most heavily insured countries. In 1998, for example,
according to data from reinsurer Swiss Re, Switzerland could lay
claim to having the highest life insurance premium income per
capita in Europe: $3,374.90 compared with the $2,114.40 of its
nearest rival, the UK. Worldwide, Switzerland’s life insurance
premium income per capita in 1998 was also the highest.
By 2006, Swiss Re data shows, life insurance premiums per capita in
Switzerland had fallen to $3,111.80, placing it in third position
in Europe and well behind the UK, now the European and world leader
at $5,139.60 per capita, and Ireland in second European and world
position at $4,203.80 per capita.
In terms of market penetration, Switzerland has also slipped. In
1998 life insurance penetration stood at 9.14 percent of GDP, the
world’s fourth highest. By 2006 life insurance penetration had
fallen to 6.2 percent of GDP, placing Switzerland in eighth
Looking beyond the border
Generally tough conditions in their home market have led many Swiss
insurers to turn their attention to expanding outside of
Switzerland, primarily in other European countries. However, as an
industry, success in this expansion drive has been modest.
Indicatively, between 2000 and 2006 total life insurance premium
income earned by Switzerland-based life insurers increased from
CHF27.4 billion to CHF27.9 billion. Converted to US dollars at the
prevailing year- end exchanges rates – CHF1.6 and CHF1.12 per $1 in
2000 and 2006, respectively – foreign premium income increased from
$17.13 billion to $24.9 billion, a total increase of 45.4 percent
and a CAGR of 6.4 percent.
While this represented positive progress, the growth achieved was
not exceptional. Based on Swiss Re’s data, the total premium income
generated in the ten largest life insurance markets in Europe
excluding Switzerland in 2000 stood at $449.5 billion and by 2006
had risen to $834.9 billion. This represented a total increase of
85.7 percent and a CAGR of 10.87 percent. For Europe as a whole,
total life insurance premium income increased from $499.9 billion
in 2000 to $940.6 billion between 2000 and 2006, a total increase
of 88.2 percent and a CAGR of 13.1 percent.
The greatest degree of internationalisation of business has been
achieved by Switzerland’s largest composite insurer, Zurich
Financial Services (Zurich), which in 2007 generated only $104
million (3.5 percent) of its new life insurance business totalling
$2.95 billion in Switzerland. This was down from 18.4 percent in
2000. By far the biggest contribution in 2007, $926 million (31.4
percent), came from the UK, followed by Germany (19.3 percent) and
other European countries (33.2 percent).
Swiss Life, Switzerland’s largest life insurer, (market share 26
percent in 2006), has also followed the international route.
Non-Swiss premium income exceeded domestic premium income for the
first time in 2000 when it stood at 52 percent of total premium
income of CHF19.3 billion. During the first half of 2007, foreign
premium income contributions had risen to 57 percent (CHF8 billion)
of total premium income of CHF14 billion. Swiss Life anticipates
total premium income of CHF24 billion in 2007.
Swiss Life aims to increase its non-Swiss premium income
significantly and a key factor in this strategy is German
independent financial advisory company AWD Holdings (AWD), in which
Swiss Life now has a 74.7 percent stake. The insurer secured its
controlling stake in February this year following a tender offer to
AWD shareholders that resulted in its holding in AWD rising from
15.5 percent to its current level. The offer valued AWDH at €1.16
billion ($1.74 billion).
Providing insight into the deal, Swiss Life group CEO Rolf Dörig
said AWD would enable Swiss Life to access the Austrian market and
the growth markets in Central and Eastern Europe, and to expand its
market penetration in Germany.
Opportunities in pensions
Despite their move into foreign markets, Swiss life insurers still
have one potentially major growth opportunity in their largest home
market: pensions. Although the provision by employers of a second
pillar occupational pension scheme has been mandatory in
Switzerland since 1985, the pay-as-you-earn state first pillar
pension scheme is set to come under significant pressure as a
result of Switzerland’s ageing population.
According to the SFSO, 51 percent of the population is already over
40 years of age and life expectancies at birth are 79.1 years for
men and 84 years for women, levels equalled only by Japan and
Sweden. In addition, Switzerland has one of the world’s lowest
birth rates, 1.44 per woman.
Indicative of the increasing pressure an ageing population will
place on the state first pillar pension scheme, a study published
by the Swiss American Chamber of Commerce noted that the ratio of
employed people to pensioners would fall from four to one in 2000
to two to one in 2040. To rebalance the first pillar would require
200 additional labour hours per worker per year, a retirement age
ten years higher, one child more per woman in her 30s and those
same women to continue working.
The alternative to what seem very unlikely solutions would be to
increase the importance of second pillar and third pillar (private
pension products) systems. An almost universally held opinion among
insurers and other private sector role players is that it is now up
to the country’s politicians to implement policies that will
increase private savings.
Indicative of the potential for life insurers, based on
Switzerland’s GDP of $379 billion in 2006 (CHF340 billion at the
exchange rate), every one percentage point increase in the
penetration of life insurance products would add CHF3.4 billion (12
percent) to annual premium income.