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Current Shareware 1994 January
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SHAR194.ISO
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finance
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whyswiss.zip
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INSURIND
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1993-02-13
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THE SWISS INSURANCE INDUSTRY
Insurance companies belong to one of the most
important sectors of the economy in Switzerland. It is
also extremely conservative and safe. In 130 years
none have failed, a record that even Swiss banks cannot
match. Unique tax advantages combined with
conservative money management cause Swiss insurance
products to perform much better than one might expect.
Conservative does not have to mean low returns. (If
the insurance company doesn't have to deduct losses on
a lot of bad investments, it is much easier to maintain
a conservative, safe, high return.)
Swiss government insurance company regulation
keeps investment portfolios at a nearly no risk level.
Liquidity and valuation of investments are ultra-
conservative. Only a maximum of 30% of investible
funds may be put in real estate. Swiss real estate has
always held the highest values, but this is ultra-
conservatism at work. If it should go down, it might
not be liquid enough to cover claims -- so let's be
ultra-conservative and severely limit the exposure. A
philosophy that a lot of American banks and insurance
companies are probably now wishing they had followed --
or at least their policyholders are wishing they had.
Then just in case this isn't enough, Swiss
insurance companies often carry their real estate
holdings at less than half their present market value,
allowing a very wide margin of price changes before
safety can possibly be affected.
Swiss accounting in general seems to be on the
conservative side. Companies tend to have hidden
reserves of millions, rather than the North American
style of overvaluing assets to achieve a high stock
market price for takeover bids. This conservatism
applies all the more to the insurance industry.
The Swiss insurance companies offer a greater
range of services than the American investor is used
to. In fact, the range is broader than that offered by
most Swiss banks. There are only about 20 insurance
companies in Switzerland. This concentration makes the
industry stronger, and easier to supervise, than the
thousands of American insurance companies. There are
no weak insurance companies in Switzerland, unlike the
United States were insurance laws in many states permit
an insurance company to be formed with capital as low
as $100,000, and licensed, empty insurance company
shells are frequently sold in classified ads in The
Wall Street Journal and other newspapers.
The industry is regulated by the Swiss Federal
Bureau of Private Insurance -- a very strict regulator.
There is no rate competition -- the emphasis is on
maintaining the strength of the insurer, and
prohibiting risky investments (although it is unlikely
that a Swiss insurance manager would even think of
making a risky investment).
Regulation of private insurance companies has been
established by a clause in the Swiss federal
constitution since 1885. Contrast this to the United
States where insurance companies are often regulated
only by rules promulgated by a politically appointed
insurance commissioner, who expects to be employed by
an insurance company when the governor who appointed
him is retired in a few years.