The second largest insurance provider of occupational pension plans in Switzerland has changed its business model to rid itself of risky return guarantees.

AXA Switzerland has told 40,000 small and medium sized business (SME) clients that it would no longer offer a full-service occupational pension plan with guarantees – known as a Vollversicherung.

In total decision affects 400,000 employees and retirees and CHF31bn (€26.1bn) in accrued assets.

Instead, AXA said it would change the contracts into what it called “semi-autonomous solutions”, or “teilautonome Lösungen”.

The full-service package meant the provider took on all the risks, including longevity, regulation, returns and guarantees.

In semi-autonomous solutions the insurer continues to cover longevity risk and reporting, but some of the investment risk is unloaded to the companies. This means the portfolios can take higher risks and increase potential returns, but companies may have to top-up the pension plan if there is a shortfall.

AXA said it would pay for an 11% buffer for the new semi-autonomous portfolio.

“It is a one time opportunity for SMEs to start [their] pension plan with a 111% funding level,” Roger Ehrensberger, senior manager at PwC Switzerland, told IPE.

In total, AXA has offered CHF3.5bn in buffers to be shared among the clients that opt for the semi-autonomous solution.

However, Ehrensberger pointed out that AXA had not yet disclosed the conditions linked to this offer, which might include contractual commitments.

Future of Vollversicherungen

Affected clients could switch to one of five other providers of full-service solutions still in the market. The largest, Swiss Life, confirmed in a press release this week that it would continue to offer full-service packages.

In a statement announcing its decision, AXA said it exited the market because demand for Vollversicherungen had waned – but Ehrensberger argued that the regulatory framework had also likely played a part in the decision.

“The reform package Altersvorsorge 2020 that was rejected last September would have included measures to help insurers offering these Vollversicherungen,” he said.

One problem insurers faced when offering full guarantees on returns and pension pay-out levels was that they were forced to invest a major part of their portfolio in fixed income.

In the new pension portfolios AXA can increase its equity exposure from under 4% to 30%.

“It might be the right market environment to switch to a new pension solution with a lower bond exposure but there is no one-size-fits-all solution,” Ehrensberger said.

In addition, he argued that there would still be a market for full-service solutions, especially for SMEs with a larger share of retirees or older employees.

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