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Swiss insurers fall prey to market jitters

Insurance companies' shares have taken a dramatic tumble on the Swiss stock exchange swissinfo.ch

Swiss insurers used to be renowned for being solid and dependable - but falling stocks have made investors question their reputation.

This content was published on July 20, 2002 - 12:17

Investor jitters started when companies issued poor financial results for last year.

Losses were particularly heavy at Zurich Financial Services, amounting to SFr560 million ($387 million), and prompting the departure of chairman and chief executive, Rolf Hüppi.

Insurance companies' shares have also taken a dramatic tumble on the Swiss stock exchange.

Zurich Financial Services' stocks have dived by 40 per cent this year, with 19 per cent being wiped off the company's share value in a single trading day last Thursday.

Meanwhile, Swiss Life has seen its shares lose up to 60 per cent of their value since January.

Insurers hit harder than others

"This isn't an unusual phenomenon," Eric Güller, an analyst with Zurich Cantonal Bank, told swissinfo. "When the market as a whole is suffering, insurance companies tend to be harder hit than other businesses."

"But then, insurers also make the biggest gains when the market is strong," he added.

Compounding the difficulty for Swiss insurers has been their habit of investing heavily in stocks themselves, a strategy which weighing heavily on their reserves now the markets are falling.

"Swiss insurers have made fairly substantial investments in shares and they are very sensitive to market fluctuations," said Güller. "Consequently, their own reserves of capital have decreased, something which was anticipated by stock exchange."

Falling reserves recently forced Credit Suisse to pump over SFr1.5 billion into its Winterthur insurance subsidiary.

Only days after the move, the Federal Office of Private Insurance, responsible for regulating the sector, issued a statement to calm nervous investors. "Insurance companies remain safe," the statement said.

The Office also carried out a survey of insurers in order to ascertain their solvency margins.

Pension guarantees

Another headache for insurers are company pensions, where they are obliged by law to guarantee a certain return.

The government recently announced plans to ease the pressure by reducing the guaranteed return from four to three per cent.

The reduction, which has still to be confirmed, would provide much needed relief to Switzerland's beleaguered insurers, according to Güller.

He says "only a 3.2 per cent figure can be reached while market performance is so poor", which means insurers would have to make up the shortfall from their own funds.

The reduction, put forward by the cabinet at the beginning of July, , prompted an outcry among trade unions and many politicians, who accuse the government of caving in to pressure from the insurance companies.

Winterthur and Swiss Life/Rentenanstalt jointly control a quarter of the Swiss market. Those opposed to a cut in guaranteed returns say they profited mightily during the boom years of the stock market, and should have built up enough capital to cover their commitments now the market has gone the other way.

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