AXA, whose swoop for XL Group sent market shockwaves last month, is not about done shaking things up.
The Paris-headquartered firm will be making changes to its group life business in Switzerland, which is the largest insurer of SMEs in the Swiss market. In an announcement this morning, AXA Switzerland revealed an agreement with its main occupational benefits foundations that will pave the way for the business to “transform” by the end of the year.
As the Swiss arm’s business model is converted from a full-value insurance model into a semi-autonomous one, death and disability provisions and administration services will continue to be covered by the French insurer while the foundations will be responsible for asset allocation and investment returns to policyholders come 2019. AXA Group, meanwhile, will still offer the foundations investment management services.
As for the financial impact, AXA said it expects a temporary reduction in group underlying earnings of around €20 million from 2019, as well as a one-time negative impact in net income of approximately €339 million in the first half of 2018, with most of its in-force general account reserves being transferred to the foundations.
The good news is, potential benefits of the model transformation include enhanced cash remittance over the next three years. Explaining the move’s rationale, AXA cited ongoing low interest rates and strong regulatory requirements in Switzerland, which it said 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,” explained AXA. “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.”
The revamp will also see the company become the largest provider of semi-autonomous offerings for SMEs in Switzerland. Antimo Perretta, AXA chief executive for Europe, said the re-orientation should enable the provider to offer more attractive occupational benefits solutions creating prospects of higher pensions on retirement, at lower costs.
“This model transformation, initiated and managed by our local teams, is a further important step in our ongoing in-force management programme, systematically reassessing customer needs and taking proactive actions, to create value for our customers and shareholders at the same time,” noted AXA chief executive Thomas Buberl, who said the move is in line with the firm’s strategy to focus on growth in preferred segments and reduce sensitivities to financial markets.