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Fitch Rating : sector rating outlook for Swiss Life & Non-Life Insurance Remains Stable

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According to a Fitch Ratings report, the Swiss life and non-life insurance sector will remain stable despite the shaky financial markets and low interest rates.

“Although most Swiss insurers’ capitalisation exceeds pre-crisis levels, the Swiss insurance market continues to present challenges,” says Ralf Ehrhardt, Analyst in Fitch’s Insurance team in London. “Swiss insurers’ prudent management of their investment portfolios has helped to protect their balance sheets against financial market volatility and provides a secure base for facing a competitive environment. This prudence is in part a consequence of the Swiss Solvency Test, the risk-based solvency regime introduced by the Swiss insurance regulator in 2006.”

Swiss life insurers’ profitability has come under increasing pressure because of the need to meet investment guarantees for policyholders (BVG policies) at a time when low interest rates have depressed investment returns. These guaranteed policies represent the vast majority of life assurance contracts, which distinguishes the Swiss life insurance industry from other European life markets. While Fitch expects earnings to remain subdued, as a consequence of moderate investment returns, the agency also expects profitability to remain broadly at current levels.

However, in the longer term, BVG policies are less onerous for life insurers since the guarantee rate is adjustable on an annual basis. These policies contrast with non-BVG contracts, such as traditional endowment business, where the guarantee rate applied at the inception of the policy is fixed for the duration of the contract.

The Swiss non-life insurance market remains highly competitive. The agency notes that because of the current uncertainty in global capital markets, underwriting discipline and cost efficiency have become more important for profitability. Underwriting capacity continues to be supported by strong capitalisation, reflecting a recovery of capital markets since 2008, disciplined underwriting and a benign domestic claims environment in 2010 and 2011 to date. For motor insurance, Fitch expects a rise in premium rates because reduced investment income is putting pressure on profitability. However, strong competition could restrict the rise in rates.

Total premiums for the Swiss insurance market amounted to CHF54.4bn in 2010, including CHF29.9bn for the life insurance sector and CHF23.3 for the non-life insurance sector.

Source : Fitch Ratings