Progressing on a slow recovery path

After years of decline,
Switzerland’s domestic life insurance market enjoyed a modest
recovery in 2007 and 2008. Though Switzerland’s economy is
experiencing the negative impact of the global recession, Swiss
Insurance Association chairman Erich Walser believes the Swiss life
market will remain resilient.

A year ago Erich Walser, chairman of the Swiss Insurance
Association (SIA), hailed a 2.1 percent increase in the Swiss life
industry’s domestic premium income in 2007 as a clear sign that it
was in “the midst of a growth turnaround”. The industry’s
performance in 2008 suggests his optimism was justified.

Despite last year’s economic turmoil, the
Swiss domestic life insurance market continued to make progress,
with the SIA estimating domestic premium income increased by 2.4
percent compared with 2007 to CHF29.4 billion ($25.5 billion). This
increase “confirmed and consolidated” the recovery, Walser told
delegates to a media conference held in Zurich to mark the release
of 2008 data.

However, though there was nominal growth,
in inflation adjusted terms the Swiss life market marked time in
2008 and 2007.

Based on SIA’s estimate, domestic premium
income in 2008 increased at the same pace as the country’s average
consumer price inflation rate of 2.4 percent, as published by the
Swiss Federal Statistics Office. In 2007, premium income growth was
marginally above the consumer price inflation rate of 2
percent.

Total life insurance premium income earned
by Swiss insurers in 2008 has yet to be published. However, foreign
premium income is generally similar to domestic premium income. In
2007, for example, domestic premium income totalled CHF28.7 billion
while foreign-generated premium income is estimated by the SIA to
have been CHF28.6 billion.

Welcome recovery

Although modest, the recovery in Swiss domestic premium income
growth in 2007 and 2008 represented a welcome revival after a
protracted period of decline that saw premium income fall by 19
percent between 2002 and 2006, from CHF34.7 billion to CHF28.1
billion. Indeed, even the level of premium income attained in 2002
merely equalled the level seen in 1998.

Between 2002 and 2006, the Swiss life
insurance market saw premium income declines in three of its four
broad product lines with the most significant of these,
occupational pensions, falling by16.7 percent, from CHF23.3 billion
to CHF19.42 billion.

Premium income from endowment insurance
fell by an even more damaging 33.8 percent between 2002 and 2006,
from CHF7.86 billion to CHF5.2 billion, while premium income from
annuity products slumped by 42.8 percent, from CHF2.03 billion to
CHF1.16 billion. Only unit-linked products went against the trend
with premium income increasing by 74 percent, from CHF1.47 billion
in 2002 to CHF2.56 billion 2006.

The recovery in premium income in 2007 and
2008 was underpinned by occupational pensions which reflected a 5.4
percent increase during the two years to reach CHF20.48 billion in
2008, according to an SIA estimate.

Individual unit-linked business continued
to perform well with premium income increasing by 12.2 percent in
2007 and 7.9 percent in 2008 to reach CHF2.78 billion in the latter
year. However, the two other areas of individual business –
endowment insurance and annuities – continued to disappoint.

In 2007, endowment insurance premium
income registered a 2.6 percent fall to CHF5.07 billion while
annuity business remained flat at CHF1.16 billion. In 2008
endowment insurance and annuities reflected a marginal combined
increase of 0.8 percent to CHF6.16 billion. Separate data of
premium income of the two sectors is not yet available.

The improved domestic market is reflected
in the 2008 results so far reported by Swiss insurers. The largest
Swiss primary insurer Zurich Financial Services (Zurich), which
reports in US dollars, increased gross life insurance premium
income in its home country by 11.2 percent compared with 2007 to
$1.753 billion. Zurich’s Swiss general insurance unit’s gross
premium income increased by 12.5 percent to $2.34 billion.

If converted into Swiss francs at
prevailing exchange rates, in early March 2008 and early March 2009
the increase in Zurich’s Swiss life insurance premium income was an
even more impressive 24 percent, from CHF1.63 billion to CHF2.02
billion. This represents an increase in market share from 5.7
percent in 2007 to 6.9 percent in 2008.

In terms of premium income, Switzerland
represents an important component of Zurich’s total operations, in
2008 producing 16.3 percent of gross written life insurance premium
income of $10.78 billion (up 12.1 percent) and 6.3 percent of gross
written general insurance premium income and fees of $37.15 billion
(up 4.2 percent).

Based on business operating profits before
tax, Zurich’s Swiss life business produced $190 million in 2008,
12.8 percent of the group total of $1.48 billion, and its Swiss
general insurance business $382 million, 12.6 percent of the group
total of $3.04 billion.

Swiss Life, Switzerland’s biggest life
insurer, has yet to publish its 2008 results.

However, in the first half of 2008, Swiss
Life reported net premium income of CHF5.9 billion from its Swiss
life business, a decrease of 1.7 percent compared with the CHF6
billion reported in the first half of 2007. In 2007 Swiss Life held
a 29 percent share of Switzerland’s life insurance market, up from
26 percent in 2006.

Swiss Life has also looked for growth in
Europe and has units in France and Germany. In the first half of
2008, France contributed life premium income of CHF1.93 billion and
Germany CHF818 million representing 22.5 percent and 9.6 percent
respectively, of total life premium income of CHF8.56 billion.

Swiss Life exited the Belgian and Dutch
life markets following the sale of its units in those countries to
Dutch bancassurer SNS REAAL for a maximum of €1.45 billion ($1.9
billion) in 2007.

Hard on Swiss Life’s heels in
Switzerland’s life market is Axa Winterthur, a composite insurer
bought by French insurer Axa in 2006. Outpacing the market average
Axa Winterthur has just announced that in 2008 it increased life
premium income by 5 percent to CHF7.13 billion giving it a 24.3
percent share, up from 23.6 percent in 2007.

Axa Winterthur’s new life business on an
annual premium income equivalent basis increased by 22 percent in
2008 to CHF364 million while general insurance premium income fell
0.4 percent to CHF3.1 billion. It reported a 53 percent increase in
total operating profit to CHF729 million in 2008.

No lack of
competition

Largest of these, and still to release
2008 results, is composite insurer Bâloise. In 2007 Bâloise
reported life premium income of CHF2.46 billion in Switzerland,
giving it a market share of 8.6 percent.

Bâloise generated a further CHF1.22
billion in life premium income in 2007, primarily in Germany and
the Benelux countries, and general insurance premium income of
CHF3.07 billion of which CHF1.29 billion originated in
Switzerland.

Indicating a market share gain in 2008,
Bâloise reported life premium income generated in Switzerland in
the first half of the year of CHF1.83 billion, up 4.2 percent
compared with the same period in 2007.

Results for 2008 are also awaited from
another major Swiss composite insurer, Helvetia which in 2007
reported life premiums of CHF2.21 billion in its home country which
gave it a market share of 7.7 percent. Helvetia generated a further
CHF677 million in life premium income, primarily from operations in
Spain, Germany and Italy.

Indicating a strong market share gain in
its home country, in the first half of 2008 Helvetia reported life
premium income of CHF1.69 billion in Switzerland, up 9.8 percent
compared with the first half of 2007. Life premium income in other
markets fell 3.2 percent in the first half of 2008 to CHF295
million.

Notably, Helvetia has as its largest
minority shareholder German insurer and reinsurer Munich Re which
according to Helvetia has a stake of 8.2 percent.

After Axa Winterthur, the most significant
non-Swiss player in Switzerland’s life market is German insurer
Allianz’s wholly-owned unit Allianz Suisse which in 2007 generated
life premium income of CHF1.62 billion. This gave it a market share
of 5.6 percent, a level that has stayed virtually constant since
2003. Details of 2008 results have yet to come.

Generali is another strong foreign
contender in the Swiss market having firmly established its
presence with the acquisition of Swiss insurer Fortuna Holding in
1994. Based on life insurance premium income of CHF1.34 billion in
2007 its composite insurance unit Generali (Switzerland) held a 4.7
percent.

The structure of the Generali
(Switzerland) unit’s premium income is of particular note in that
unlike the general profile of the Swiss market unit-linked products
dominate.

In 2007 unit-linked products were
responsible for CHF995.2 million or 74.2 percent of Generali
(Switzerland)’s premium income compared with unit-linked products’
10 percent share of the total Swiss life market. This gave Generali
a significant 35 percent share of the unit-linked market.

In the individual life sector in 2007
Generali (Switzerland) generated premium income of CHF329.1 million
or 24.6 percent of its premium income compared with individual
life’s 21 percent share of the total market. Group business
represented a mere 1.2 percent of Generali (Switzerland)’s premium
income in 2007 compared with some 70 percent for the industry as a
whole.

Mixed outlook
 

Swiss life insurers will no doubt be hoping that the market’s 2007
and 2008 recovery will be sustainable. However, there are
indications that momentum was already being lost in the second half
of 2008. Specifically, premium income growth for the full year of
2.4 percent was well down on the 3.2 percent reported by the SIA in
the first six months of 2008.

Switzerland is also feeling the impact of
global recessionary conditions, with unemployment rising to 2.9
percent in January 2008, up from an average of 2.5 percent in the
first half of 2008. Switzerland’s economic growth is also under
pressure with the State Secretariat for Economic Affairs reporting
that GDP fell by 0.6 per cent in the fourth quarter of 2008
compared with the same period in 2007.

Optimistically, Walser told media
conference delegates that tough times also represent an opportunity
for life insurers.

“In times of uncertainty people’s need for
security rises, said Walser. “Experience tells us that in times of
crisis people’s risk tolerance and risk capacity fall across the
board – reasons that clearly speak in favour of life
insurance.”

Walser added that increased demand for
life insurance and full occupational pension provision is becoming
evident.

“The over-riding priority for clients is
now security rather than returns,” he stressed.

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