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Swiss Life Calls for Cut in Pension rate Ahead of Debate

By: Goran Mijuk
 Dow Jones Newswire, August 16, 2002

ZURICH -- The chief executive of Swiss Life (Z.RNT) Thursday implored the Swiss government to cut the guaranteed rate of return on corporate pensions.

The remark comes ahead of a parliamentary debate scheduled to kick off next week in which lawmakers will decide on how much to reduce the guaranteed rate - a decision sure to be watched by young and old alike. Last month the government announced its intention to cut the rate to 3% from 4% now, but recent media reports say it may only cut the rate to 3.5%.

Swiss Life CEO Roland Chlapowski said the rate should be even reduced to 2.9%, given falling stock prices and low return on government bonds.

"Under the current conditions the pension business is a loss-making business and we want the guaranteed minimum rate to be lowered," Chlapowski said at a press conference here.

Swiss Life, the country's largest player in the CH140 billion corporate pension market, has repeatedly said it supports the government plan. Swiss insurers Baloise Holding AG (Z.BAL) and Zurich Financial Services (Z.ZFS), which also invest pension money, support the plan too.

Chlapowski said a 2.9% return reflects the current yield on Swiss government bonds.

"A rate higher than (3%) would expose insurers to hold high share stakes, and that is too risky," he said.

According to analysts, insurers that are active in the pension business would now be forced to hold at least 20% in shares in their portfolios to pay today's required guaranteed rate. Given the current stock market weakness, the risk attached to such a strategy is too high, they say. Most insurers have reduced their share stake to below 10% within their overall portfolio, forcing them to pay out the remainder from their reserves.

Last week Swiss media said a government commission determined that under the current economic conditions a 3.5% guaranteed rate is fair.

Chlapowski declined to specifically comment on the reports.

The commission is expected to show its findings to the government Monday, and a heated parliamentary debate is expected to follow.

Hardi Gysin, spokesman for the Swiss Ministry of Social Insurance that oversees the commission, declined to comment on the reports that the commission will propose a 3.5% return.

"I can't comment on the rumors. But I can say that the commission was set up to find a model as to how the rate should be fixed in the future," Gysin said.

According to the Swiss pension law, the government is allowed to fix the level of the minimum rate. Last month's announcement of the plan met with strong parliamentary resistance. The original plan was to implement the cut in October, but the reduction is now expected to be delayed by at least several months or even shelved.

Criticism came mainly from left-wing politicians who accused insurers of neglecting to pay out surplus gains on soaring shares during the stock market rally two years ago. Several politician argued that insurers had pocketed at least CHF20 billion during this time.

However, Swiss Life said it paid out most of the realized gains on stocks and bonds during this time. The company said that during 1985 and 2001 it paid its customers - on average - a 6.4% rate on their pensions, clearly above the level of the minimum target.

Swiss Life vowed to increase transparency in its corporate pension business but remained mum on how it will do so, saying it would inform markets on Sept. 18 when it presents its interim report.

Swiss Life is expected to show weak half-year results. It is also seen announcing the disposal of several company units that should generate cash to prop up the company's weak balance sheet. Analysts believe the insurer could sell its private bank Banca del Gottardo, saying it doesn't complement the company's core business. Some also say that the sale of its insurance business outside of Switzerland is possible.

Company Web Site:http://www.swisslife.com

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