Winterthur boosted by pension rate cut

SWITZERLAND – Winterthur’s Swiss life unit swung to profit in 2003 – aided in part by a controversial reduction in the minimum interest rate on second-pillar pension schemes to 3.25% from four percent.

Winterthur Life Switzerland, part of the insurance division of Credit Suisse Group, today reported an annual net profit of 83 million Swiss francs (52.5 million euros) for 2003. This compares with 2002’s 1.19 billion franc loss.

“The positive result was achieved despite substantial disability and is largely attributable to improved investment earnings, the reduction of the minimum interest rate in group life business and lower administrative costs.” Return on investment doubled from 2.2% to 4.5%.

Pension schemes in Switzerland are split into mandatory and non-mandatory areas and, before the market slowdown, the minimum return rate was four percent for both, Credit Swiss explained.

Members of pension schemes earning up to 75,000 francs a year are included in the mandatory area. The minimum rate here was set by the parliament, Bundesrat, in 2003 at 3.25% and has been further reduced to 2.25% for 2004, Winterthur said.

Last summer, in the wake of interest rate cuts and weaker stock markets, Winterthur sparked controversy by addressing the issue of setting the minimum interest rate for the non-mandatory schemes.

While the Bundesrat, which is entitled to set the minimum rate for the mandatory schemes, brought the rate from four percent to 3.25%, Winterthur announced it would halve the rate to two percent “plus a bonus if we outperform”.

The so-called “Winterthur model” has since been followed by other insurance companies. It was introduced in January 2004.

The Swiss federal council rejected last September demands by the Federal Office for Social Security to re-examine Winterthur’s new second pillar model.

Members of the Swiss industrial and building union, SIB, protested against the plans - with one official likening the matter to robbery.

Ruedi Hefti, chief executive of the unit, said that the “parameters” in group life business in Switzerland was “still less than satisfactory”.

He added: “By introducing the Winterthur model, with effect from January 1, 2004, we took steps to deal with the issue proactively and presented a concept that provides a stable and lasting basis for the employee benefits business.”

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