Starting in 2019, Axa Switzerland will no longer offer full-service insurance as part of its occupational pension plans (LPP), and will instead focus on "semi-autonomous" solutions. The decision marks a new direction for the company, which announced the change Tuesday.
Full-service insurance, which offers full protection of pension benefits, particularly for small and medium enterprises (SMEs), has suffered from a cost-benefit ratio that has become increasingly disadvantageous in recent years, explained the Swiss subsidiary of the French insurance company.
Low interest rates, rising payouts to the detriment of assets, and a "regulatory vice" that restricts investment options, were reported to have led to the decision. A notable factor is the reallocation of the voluntary share to the mandatory share starting at a certain salary amount.
"We have been watching the situation in the occupational pension plan sector for some years, and we believe that the time is right for this strategic change", explained Axa Switzerland CEO Fabrizio Petrillo. "If we were to wait longer, it would not be possible to make the transition in as favourable conditions as the present."
Full-service insurance plans represent premiums totalling 7 to 8 billion francs, with nearly 40,000 clients and 260,000 insureds. Axa is offering its clients new semi-autonomous solutions which are "more flexible, more fair, and more attractive", affirmed Mr. Petrillo.
To keep clients from going elsewhere, Axa is offering them a "solid" offer, providing some security to small and medium enterprises, added the CEO. With this new offer, death and disability insurance premiums will be, on average, 30% lower than for full-service insurance plans.
This is the "ideal" moment to make a change as significant reserves, estimated to be around 3.5 billion francs, are still locked in capital linked to full-service insurance plans. These will be transferred to the new semi-autonomous pillars as additional reserves. In all, investments worth approximately 31 billion francs will be transferred, an amount which currently corresponds, with a 2% technical interest rate, to a "solid coverage" of 111%.
"I am convinced that our decision will strengthen the second pillar in Switzerland", emphasized Mr. Petrillo.
The change does not come without financial consequences. The total volume of premiums in occupational pension plans will drop by about 5.5 billion francs, and Axa's annual profit will take a 30 million franc hit. The change will also lead to a depreciation charge of 400 million francs on future profits. At the same time, about 2.5 billion francs in risk capital will be freed up.
The impact of Axa's decision on the market is as of yet unknown. Several insurance companies, despite having smaller volumes of business in the full-service insurance sector, were nonetheless favourable to continuing to offer it.
The change was carried out with the approval of the Zurich cantonal authorities.