ASA SVV Schweizerischer Versicherungsverband Association Suisse d Assurances Associazione Svizzera d Assicurazioni Swiss Insurance Association

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1 Schweizerischer Versicherungsverband Association Suisse d Assurances Associazione Svizzera d Assicurazioni Swiss Insurance Association The Swiss insurance industry successfully holds it ground By Event Erich Walser, Chairman of the Swiss Insurance Association SIA 2010 Annual Media Conference Date 20 January 2010 Place Hotel Savoy Baur en Ville, Zurich Ladies and gentlemen On behalf of the Swiss Insurance Association I would like to warmly welcome you to our 2010 Annual Media Conference. When I stood here before you last year I was cautiously optimistic about the prospects for the insurance industry, despite the global financial market crisis. The crisis is not yet over; its consequences will continue to take their toll on all of us for a long time yet. This gives me even more reason to be glad that my optimism turned out to have been well founded. While the financial market crisis had implications for our domestic insurance business, which I will go into later, private insurers were able to successfully hold their ground last year, demonstrating yet again their ability to withstand a crisis. With their high value added and high productivity, Swiss insurers make an above-average contribution to Switzerland's prosperity. Their workforce of just under 50,000 in Switzerland approximately 1% of our country's working population generates around 4.2% of Switzerland's gross domestic product. This means that insurers produce higher added value per workplace than any other industry. But let's take a look back at what shaped our industry in 2009: slight growth in non-life insurance a slight reduction in premiums in life insurance solid results from our operational business the call for more state intervention I will begin by summarising the highlights of the 2009 business year before going on to look at the prospects for the coming months. I will then hand you over to our CEO Lucius Dürr, who will introduce the main strategic points of focus of the private insurance industry up to Swiss Insurance Association SIA C. F. Meyer-Strasse 14 P.O. Box 4288 CH-8022 Zurich Switchboard +41 (44) Fax +41 (44)

2 In the third item on this morning's agenda, Bruno Pfister, CEO of Swiss Life, and Christa Markwalder Member of the National Council will shift their attention to the conversion rate and in two speeches explain why it must be lowered. All of the transcripts and slides can be found in full in your information packs. We will be happy to answer any questions you have at the end of our presentations. Non-life insurance business as a whole In the 2009 business year Swiss non-life insurance business registered slight growth, as it did in For the year as a whole across all companies and lines of business - although excluding health insurers' accident and health insurance business - we estimate premium volume to have grown by approximately 0.7%. Market saturation and the attendant intensification of competition characterised the non-life insurance market in Switzerland. Yet premium development across the various non-life lines of business was varied. Motor insurance Competition in the already hard-fought motor insurance line of business intensified further. According to our estimates, premium volume in both motor liability insurance and motor physical damage declined slightly by around 0.4%. This development comes as no surprise, since the growth curve in motor insurance has flattened appreciably over the past few years. This is accompanied by the apparent halt in the ongoing trend towards ever-bigger cars and the fall in the number of new vehicle registrations. Fire, natural perils and other property insurance The fire, natural perils and other property insurance line of business grew by 1%. We chiefly put this development down to the increase in insured values. Accident insurance For accident insurance, we estimate growth to have been 1.8% for This is in part a result of a marked 4.6% rise in premiums in compulsory non-occupational accident insurance, which was most likely attributable to the fact that the service sector was still at the growth stage in Premiums were also driven up by the higher claims burden from leisure time accidents. The Swiss insurance industry successfully holds it ground Erich Walser 20 January /11

3 Life insurance as a whole The premium development of Swiss group and individual life insurance business suffered from the effects of the financial market and economic crisis last year. Our estimates place premiums at CHF 28.9 billion, corresponding to a slight 2.6% decline. The decline was largely the result of falling premiums in group life business, which decreased by 3.5%, while premium volumes in Swiss individual life insurance increased slightly by 0.3%. Group life insurance business The 3.5% decline in group life business may appear severe at first glance, but a second glance confirms there is no cause for concern. In 2009 group business treaded water with regard to competition between the (partially) autonomous pension funds and life insurers' fully financed collective foundations. As a reminder: as of the end of March six out of ten pension funds were underfunded. Companies that found themselves affiliated with such a pension fund would have had to find external funding to make up the shortfall in their pension fund obligations before switching to a life insurer's collective foundation or resort to using the nonobligatory portion of their insureds' retirement savings something which was impossible for many given the adverse economic conditions prevailing at the time. I am sure that a lot of employers would happily have switched to a full insurance option furnished with extensive guarantees, had they been able to. This is borne out by the small number of companies that switched to (partially) autonomous pension funds. The 0.9% fall in recurring premiums in 2009 had a lot more to do with competition between insurers and the concessions they had made with regard to premiums. Single premiums in group business declined by 5.9%. This is not least attributable to the fact that the number of new employees and voluntary buy-ins to pension funds declined as a result of the economic crisis. Individual life business Premium volumes in Swiss individual life insurance increased over the previous year by 0.3%. This is a good figure given the low interest rates that were prevailing on the capital market. The premiums financed by single premiums from unit-linked individual life insurance fell sharply: -23%. One of the factors we attribute this decline to is the non-renewal of a portion of expired contracts with first-generation fund policies. The trend towards unit-linked individual life insurance with periodic premiums, in contrast, continued: +4.6%. This line of business now provides clients with a wide range of products designed to meet their individual risk tolerance and risk capacity. Individual life insurance with single premiums declined by 0.1%, while business with periodic premiums rose by 0.4%. Whereas premium volumes for individual recurring-premium endowment insurance fell by 1.5%, those for individual single-premium endowment insurance were The Swiss insurance industry successfully holds it ground Erich Walser 20 January /11

4 up by 25%. A lot of clients were seeking a safe haven for their savings - and the reduction in the technical interest rate to 1.75% as of 1 January 2010 served to spur demand for this type of insurance. Individual annuity insurance failed to gain ground last year, with premium development providing a mixed picture: while the individual annuity insurance line of business financed by periodic premiums registered a sharp increase (+13%), the annuity insurance line of business financed by single premiums registered a decline (-4.9%). Individual annuity insurance continues to be penalised by the tax authorities: the taxation of benefits as income, which generally results in excessive taxation, is a direct contradiction of the promotion of voluntary pension provision desired from the economic point of view. Solid operational business Switzerland was largely spared any major loss events in the past year, with the largest loss caused by the hailstorm of 23 July. Private insurers paid claims of CHF 438 million to cover their insureds' damages. The solid operational core business of the Swiss private insurance industry is thus also likely to lead to good technical results in Thanks to the positive development on the capital markets, insurers are set to report substantially higher capital gains than in This will have a positive effect on their profit and loss accounts. Swiss private insurers are thus looking forward to 2010 with confidence. What awaits us this year? I would like to concentrate on a number of key issues: national and international supervision the revision of the Insurance Contracts Act (VVG) consumer protection at EU level the status of earthquake insurance the revision of the Accident Insurance Act (UVG) health insurance accident prevention National supervision and regulation A well functioning financial centre needs integrated financial supervision. This is important for international recognition and is in line with international developments. It was for this reason that the SIA supported the introduction of FINMA, which has been in operation since 1 January FINMA's first year has generally been positive. However, the FINMA circular in November on remuneration guidelines revealed a number of problem areas with integrated financial supervision. Banks' business models differ from those of insurers. The special characteristics of The Swiss insurance industry successfully holds it ground Erich Walser 20 January /11

5 an insurance company are its marketing structure, reserving practice, actuarial mathematics - to name but a few. The circular on remuneration guidelines failed to take account of these characteristics. The communication between FINMA's specialists and private insurance industry experts is in many cases not proving to be seamless either and needs to be improved. We are, however, confident of the evolvement of a culture of fruitful and objective dialogue. Permit me at this juncture to make a general statement with regard to the current regulatory efforts at national level. While just a few years ago the prevailing sentiment favoured limiting legislation to the essentials with a view to encouraging personal accountability and selfregulation, a new trend towards overregulation is now perceptible which is in part a consequence of the financial market crisis. This applies to legislation in general but is particularly evident in ordinances and directives. This is neither in the interests of insureds nor of insurers. We all benefit from our liberal economic order; laws should be limited to the necessary minimum and should be principles-based. Nevertheless, the call for more state intervention is becoming ever louder - be it the desire for the introduction of a single health insurer or the expansion of the partial monopoly that Suva already enjoys. I will come back to both issues later on. Similarly unfair to the expansion of monopolies are situations in which the original business of the monopoly institutions is protected from the chilly winds of competition, leaving the monopolies at liberty to go "poaching" in the free insurance market. A case in point is the current total revision of the Building Insurance Act (GVG) in the Canton of Bern, which aims at amending the nigh on forty-year old act and making it more client-focussed and risk-appropriate. Some of the proposed revisions go far beyond this aim and grant the Building Insurance of the Canton of Bern (GVB) far-reaching powers to expand its insurance operations. The SIA rigorously rejects the expansion of the mandate of the GVB. Just to ensure that there is no misunderstanding here: the SIA is neither against the revision of the Building Insurance Act nor against the entrance of a new competitor into the insurance market. However, as soon as the public sector starts to compete with the private sector, both should play according to the same rules. What I mean here is that both the supplementary insurance and the intended ancillary activities should be provided by an independent company under private law: in other words, it should be subject to the more rigorous regulations of the Insurance Supervision Act and the supervision of FINMA. This is the only way to ensure that private insurers, as direct competitors, are treated on an equal footing. Failure to fulfil these demands will constitute a breach of economic freedom. The Swiss insurance industry successfully holds it ground Erich Walser 20 January /11

6 SST and Solvency II The new Insurance Supervision Act has ushered in a new supervisory philosophy. Instead of passing rules on virtually every single detail, the principles-based concept now applies. A good example of principles-based supervision is the Swiss Solvency Test, or SST. This provides a picture of a company's current risk situation and risk-bearing capacity. The SST entered into effect in 2006 and its transitional provisions apply until the end of This puts our country one step ahead of Europe's parallel development with Solvency II. Although this may be advantageous for Switzerland s reputation as a financial centre, it forces it to follow the structure of the European Solvency II Directive carefully and critically. We thus expect not to be placed at a disadvantage over the international competition Solvency II only enters into effect at the end of It is as yet unclear how long the transitional provisions will apply and how high capital adequacy requirements will be under Solvency II. These details are subject to political debate and will not be decided upon until autumn It is important for Swiss companies to be able to compete on a level playing field. For this reason the SIA strives for the recognition of the equality of supervision between the EU and Switzerland, so-called "equivalence". Swiss insurance groups would then be subject to only one supervisory authority FINMA in the EU and in Switzerland. Switzerland is seeking equivalence in the areas of group solvency, reinsurance and group supervision. In October 2010 the EU Commission will put forward the first countries that are to be admitted for equivalence testing, which will in all likelihood include Switzerland. The decision as to whether the SST is recognised as being equal to Solvency II will only be made in summer Revision of the Insurance Contracts Act The Insurance Contracts Act, which turned one hundred years old on 1 January 2010, is currently being subjected to a total revision. A week ago the Federal Council published the report on the result of the consultation procedure and laid down what further action was to be taken. The future terms of the VVG are of key importance for the insurance industry as the act regulates the contractual relationship between the insurer and client and influences the structure of an insurer's products. The SIA is generally positive with regard to the modernisation of the VVG. However, from the private insurance point of view, there are some individual issues and concepts in the draft revision that need to be reviewed. The Swiss insurance industry successfully holds it ground Erich Walser 20 January /11

7 The current draft places strict limits on contractual freedom. Some 85% of the 126 articles on contract law are binding norms and only 15% are so-called dispositive law, that is, regulations which the parties may deviate from in their contracts. To provide you with a comparison: just under half of the current VVG is dispositive law. The expansion of binding law has good reason: it aims at providing the insured with better protection. The SIA recognises that given the complexity of the "insurance" product, the protection of the policyholder should be ascribed particular importance. However, not every policyholder needs protection I have corporate insurance in mind, for example. Binding protection norms should only apply to those clients who really need this protection. What is more, amendments that have already been made under the partial revision of the VVG should not be called into question yet again. For example, major consumer concerns such as increased transparency of insurance business for insurance clients have already been addressed. These amendments were the result of a six-year revision process and cost insurers a lot to implement. They should continue to apply. In the interests of efficient regulation, the new VVG should, moreover, concentrate on regulating insurance-specific issues and matters relating to contract law. This is why the SIA advocates regulating only those points of the "insurance" product that warrant a deviation from the contractual law laid down in the Code of Obligations. All other issues should be governed by the Code of Obligations and other forms of private law. A total revision of the VVG should also pay special attention to insurance fraud. The private insurance system is one based on solidarity. The risk of individual self-enrichment at the expense of the insurance community is real. Every incident of fraud must be liable to effective sanctions, otherwise we will create a huge incentive for insurance fraud and make insurance protection more expensive, which at the end of the day will be at the expense of the community of insureds. Last, but not least: the economic implications must be examined before embarking on a onein-a-hundred-years project like this one. No provisions should be included in the new VVG that result in increased expenses for insurers without providing any notable added value for the insureds. This would only inflate costs, ultimately driving up premiums. We therefore welcome the fact that the Federal Department of Finance has commissioned an in-depth analysis of the economic implications of a revision of the VVG. We expect the conclusion to be published this year. The Swiss insurance industry successfully holds it ground Erich Walser 20 January /11

8 Consumer protection at EU level A slew of legislative initiatives relating to consumer protection are to be launched in the EU in These initiatives will be subject to debate and are important for Swiss insurers. For example, the European Commission wishes to standardise and improve investor protection in the area of packaged retail investment products, or PRIPs. The initiative targets sales practices and precontractual information obligations vis-à-vis clients. Swiss insurers operating in the EU are directly affected in the field of "life insurance products featuring an investment element". The European Commission is likely to carry out a consultation procedure on possible legislative measures within the first half of the year. The distribution of insurance products is the object of one additional area of revision: that of the European Insurance Mediation Directive. The Commission will probably put forward its draft revision by the end of The expansion of EU anti-discrimination provisions is also under way, with a new guideline planned to supplement and complete the existing Race Equality and Gender Directives introduced in 2000 and For this purpose the European Commission commissioned a comprehensive study last year on the application of age, disability, sex, religion or belief, race or ethnic origin and sexual orientation in financial services. In 2010 the European Commission will publish a white paper on insurance guarantee schemes, or IGS, in the case of insurer insolvency. Not all EU Member States have schemes that safeguard policyholders against insurers becoming insolvent. The SIA will critically follow this legislative initiative in cooperation with its European umbrella association, the CEA. This is all the more important as we assume that some of these EU initiatives will have an influence on our revision of the VVG. Revision of the Accident Insurance Act It is now nearly two years since the Federal Council approved the report on the revision of the Accident Insurance Act (UVG). The National Council will deal with the draft in its 2010 summer session at the earliest. Compulsory accident insurance is a key line of business for private insurers. More than 20 private accident insurers and 10 recognised health insurers insure over 1.5 million full-time employed persons in more than 70% of companies. Private insurers have long proven that they can provide accident insurance to the satisfaction of all involved. It was thus with con- The Swiss insurance industry successfully holds it ground Erich Walser 20 January /11

9 sternation that the SIA reacted to the two decisions made by the Committee for Social Security and Health of the National Council (SGK-N). The Committee voted in favour of extending Suva's semi-monopoly to permit the entities that report to it to offer supplementary insurance in the non-compulsory field. Back in November 2008, the Committee had already opted to place agriculture and all healthcare entities under the remit of Suva. The SIA considers these decisions questionable from the regulatory point of view and inadmissible from the constitutional point of view. Suva's expansionary aspirations the extension of its mandate, additional ancillary activities and supplementary insurance violate the neutrality of competition and the economic freedom laid down in our constitution. A number of legal experts share the opinion of the private insurance industry. A cost/benefit analysis of compulsory accident insurance, developed by Professor Franz Jaeger, shows that Suva's expansion aspirations are also questionable from an economic perspective. Together with many of the businesses affected, the SIA is campaigning to restore the original intention of the legislature. As a result of some unfortunately worded legal provisions and contradictory legal precedent, Suva has been able to expand its mandate over the last few years against the will of the legislator and that of the very companies affected, such as opticians and landscaping businesses. The SIA for its part advocates more competition and more extensive liberalisation of compulsory accident insurance. This provides insurers with the opportunity to make efficiency gains, introduce innovative products, increase cost awareness, improve client focus and lower premiums. Earthquake insurance Of all natural perils, an earthquake has the potential to inflict the greatest damage in Switzerland. There are, however, glaring gaps in coverage since most buildings in Switzerland are not insured against earthquake damage. The SIA thus welcomes the decision by the Federal Council in April 2009 to introduce a package of measures aimed at intensifying earthquake protection. Private insurers and the cantonal building insurers have together developed a solution for a joint nationwide earthquake insurance fund that can be integrated into existing natural perils insurance coverage. Such risk protection would be far cheaper than individual optional cover, which has been the norm until now. The insurers' solution for earthquake insurance is an important contribution in the interests of Switzerland's entire population and economy. The insurance now has to be introduced in the political context. As far as private insurers are concerned, the Federal Council must decide on making an adjustment to the Supervisory Ordinance (AVO) to enable the addition of earthquake risk to natural perils insurance. The Swiss insurance industry successfully holds it ground Erich Walser 20 January /11

10 Health insurance Last year one line of insurance business was a particular focus of media attention due to planned premium increases health insurance. The rises in premiums were disproportionately high after having been kept artificially low over the past few years. Health insurers had no other option than to increase premiums in 2009 in face of their high technical losses and dwindling reserves. It is clear that there is no way around this if premiums are to cover costs, but nevertheless the move met with an immense outcry. Instead of a focus on seeking ways of bringing soaring health insurance costs under control, a debate has ensued about the organisational forms of health insurers, such as the question of the so-called cheap health insurers. The concept of having a single health insurer is once again being rehashed despite the fact that the voters and the council of states already rejected the idea by a large majority. Having one single health insurer will not reduce costs. For example: the savings in acquisition costs, often raised in the discussion about a single health insurer, are generally overestimated. The administrative costs of a health insurer today amount to just under 6% of total costs of which, in turn, only a sixth goes towards acquisition and marketing expenses. Having a single health insurer will thus result in maximum savings of 1% in premium volume. A single health insurer irrespective of whether at federal or cantonal level will not provide the premium payer with any relief; on the contrary, it will bring substantial disadvantages. It will weaken competition without resolving the cost issue and will take away the insureds' freedom of choice. Furthermore, the question of financing remains unresolved. The existing competition has already brought down administrative costs and given health insurers more freedom to focus their attention on a range of different areas under the framework of the Health Insurance Act. This encourages them to develop innovative insurance models such as managed care and provides consumers with a range of products to choose from. The only way to bring down costs in our view is for health insurers to revise their benefit packages, coordinate their plans with regard to hospital treatment and cutting-edge medicine and to eliminate the doctor-health insurer contractual obligation. The SIA firmly believes the following: overregulation and the contradictory roles of government and cantons are the main problems in our health and accident insurance system. Clarification is needed of the roles of the state and the insurance industry. The state should be responsible for social policy and supervision, while insurers should provide insurance in competition with one another. The Swiss insurance industry successfully holds it ground Erich Walser 20 January /11

11 Accident prevention Informing people about risks and raising their awareness of the importance of acting responsibly are important issues for the private insurance industry. To close this speech I would like to draw your attention to our accident prevention campaign, which we launched in October 2009 in collaboration with the Swiss Council for Accident Prevention: «Slow Down. Take it Easy». The campaign aims at encouraging motorists and motorcyclists to adapt their speed to the road, traffic and visibility conditions, not to mention their own driving skills. The campaign is in this respect breaking new ground as it adopts a positive emotional approach to the issue. The campaign is meeting with an even better reception from young motorists and motorcyclists than we had hoped for. It already has more than 80,000 fans on Facebook and we are hard pressed to cope with the postal demand for stickers 150,000 have already been ordered. Demand for the campaign's song has been so great that we have brought it out as a single and it has reached number 5 in the charts. Being cool and easy-going are generally not attributes associated with insurance. And they don't have to be: safety and reliability are more important for us. But as you see: we can be different! That concludes my review of the months just past and my outlook for the months that lie ahead for the Swiss insurance industry. Thank you for your attention. The Swiss insurance industry successfully holds it ground Erich Walser 20 January /11