French insurer AXA is planning to restructure its Swiss unit into a semi-autonomous model from a full-value insurance model by the end of this year.
The company had entered into an agreement with its main occupational benefits foundations in this regard.
From next year onwards, under the semi-autonomous model, death and disability provisions and administration services will be covered by AXA, while the responsibility of asset allocation and investment returns to policyholders will dealt by the company’s main occupational benefits foundations (Foundations).
AXA said the transformation is in line with its Ambition 2020 strategy that focuses on growth in its preferred segments and to reduce its sensitivities to financial markets.
AXA CEO Thomas Buberl said: “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 company said the ongoing low interest rates and strong regulatory requirements in Switzerland in the recent years has resulted in full-value insurance to become increasingly lower value for money for corporate clients and their employees.
Life insurers in the country who offer full-value insurance must maintain capital coverage for their entire pension obligations, including minimum interest guarantees. With this framework, very cautious investment approach must be adopted, leading to lower investment return opportunities for its clients’ employees, as compared to semi-autonomous model.
As part of the restructuring, AXA will transfer most of its in-force General Account Reserves amounting to €26bn in its Group Life portfolio to the Foundations.
The transfer will include €3bn of excess reserves to enable sustainable risk carrying capacity of the Foundations, with a coverage ratio of 111% for last year.
The Model Transformation could also result in temporary reduction in AXA Group earnings amounting to €20m from next year next year. It is also expected to result in a one-time negative impact on net income of about of up to €339m in this year’s first half.
Reduction in guarantees in the company’s balance sheet could lead to a release of local risk capital requirement of €2.1bn next year and an enhanced cash remittance to the company over the next three years, subject to regulatory approvals.
AXA Europe CEO Antimo Perretta said: “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.”
Image: AXA’s Italian headquarters in Milan. Photo: courtesy of Kokky92/Wikipedia.org.