AXA to transform its Swiss group life business, creating additional value for its customers and shareholders
• AXA to transform its in-force Swiss Group Life business to a semi-autonomous model (*)
• Creating prospects of higher pensions on retirement for existing customers
• Transfer of ca. 31 billion CHF (*) of reserves to occupational benefits foundations (*) by the end of 2018, including ca. 3.5 billion CHF (*) of excess reserves to enable a sustainable risk carrying capacity of the foundations
• Expected reduction in local risk capital requirement of ca. 2.5 billion CHF in 2019 and enhanced cash remittance to AXA Group over the next three years
AXA Switzerland (“AXA”), the largest insurer of SMEs in the Swiss market, announced today that it had entered into an agreement with its main occupational benefits foundations (“Foundations”) to convert their business model from a full-value insurance (*) model to a semi-autonomous model, by the end of 2018 (“Model Transformation”). Beginning 2019, under the semi-autonomous model, death and disability provisions and administration services will continue to be covered by AXA, while the responsibility of asset allocation and investment returns to policyholders will be with the Foundations. AXA Group, as a globally renowned asset manager, will continue to offer investment management services to the Foundations.
This model transformation, initiated and managed by our local teams, is a further important step in our ongoing in-force management program, systematically reassessing customer needs and taking proactive actions, to create value for our customers and shareholders at the same time.
The transformation is in line with our Ambition 2020 strategy to focus on growth in our preferred segments and reduce our sensitivities to financial markets, and with our vision to empower people to live a better life.
Ongoing low interest rates in recent years and strong regulatory requirements in Switzerland have resulted in full-value insurance becoming increasingly lower value for money for corporate clients and their employees. Swiss life insurers who offer full-value insurance must maintain capital coverage for their entire pension obligations, including the minimum interest guarantees. This framework necessitates a very cautious investment strategy, leading to lower investment return opportunities for its clients’ employees, as compared to the semi-autonomous model.
AXA has been successfully offering new semi-autonomous solutions for some time, and which now represent around 60% of its new occupational benefits insurance business. With the transformation, AXA will become the largest provider of semi-autonomous solutions for SMEs in Switzerland. AXA will be focused on restoring growth to occupational benefits insurance and remaining a strong partner of Swiss SMEs into the future.
In the prevailing environment, this re-orientation should enable us to offer our Swiss SME clients more attractive occupational benefits solutions creating prospects of higher pensions on retirement, at lower costs.
The growing semi-autonomous occupational benefits segment will become our core Group Life Insurance business in Switzerland which we will continue to develop together with our partners, to further strengthen our existing leadership position in the Swiss insurance market.
Financial impacts of the Model Transformation
• AXA will transfer most of its in-force General Account Reserves (amounting to ca. 31 billion CHF or ca. Euro 26 billion) (*) backing the pre-retirement savings benefits (*) in its Group Life portfolio to the Foundations. This transfer includes ca. 3.5 billion CHF (or ca. Euro 3 billion) (*) of excess reserves to enable a sustainable risk carrying capacity of the Foundations (Coverage Ratio of 111% as of FY17) (*).
• In line with the move to a semi-autonomous model, the savings portion of the premiums will no longer appear in IFRS Gross Revenues of AXA.
• The Model Transformation is expected to result in a temporary reduction in AXA Group underlying earnings of ca. Euro 20 million from 2019, and will lead to a one-time negative impact in Net Income of ca. 400 million CHF (or ca. Euro 339 million) (*) in the first half of 2018 linked to the transfer of the portfolio (*) to the Foundations.
• The reduction of guarantees on AXA’s balance sheet is expected to lead to a release of local risk capital requirement of ca. 2.5 billion CHF (or ca. Euro 2.1 billion) (*) in 2019 and to an enhanced cash remittance to AXA Group over the next three years, subject to regulatory approvals.
(*) - please download document for full reference
AXA and the responsible trustees informed the relevant Swiss supervisory authorities, i.e. the Swiss Financial Market Supervisory Authority (FINMA) and the BVG and Foundation Supervision of the Canton of Zurich (BVS), on the Model Transformation. FINMA examined adherence of the transaction with insurance supervision requirements. Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approvals, notably by the BVS.