Aon Global Broking Center · Aon Global Broking Center The future of the Second Pillar ... ket,...

Aon Newsletter 4/20121


News and information for our business partners

The Global Broking Centre (GBC) has 750 employees who place USD 5.2 billion in international premiums in the London market, Lloyd’s and the company market.

What does this mean for you as our customer? The GBC focuses on contributing specialist expertise that, in con-junction with the local client relationship and expertise, will add value and represents an additional offering to our local services. You can benefit from either creative solutions or leverage our market position in order to optimize your total risk costs and to increase the quality of your insurance port-folios.

SpeCiaLizaTion Can Be foUnD in The foLLowinG nine BUSineSS UniTS:

1. Construction: international exposure, liquidated dam-ages cover, big or special constructions (tunnels, bridges), environmental liabilities, bonding

2. Crisis Management: K & R, political risks (especially for banks), product recall, terrorism, brand restoration

3. energy: up and downstream oil and gas, construction / operational / liabilities

4. financial Services: D & O, financial liability, financial in-stitutions (BBB), transactional liabilities

Aon Global Broking Center

The futureof the Second Pillarnot long ago the federal insurance office published a report by the federal Council addressed to the federal assembly concerning the future of the Second pillar. 0

Factoring solves funding problemsMany people know about factoring in theory from books or from train-ing and continuing professional de-velopment courses. But in practice, the instrument still remains largely unknown. Page 5

The impact of theSwiss Solvency Test (SST)Regulatory and structural require-ments represent a challenge for captives and captive managers in Switzerland. This development has also had an impact on the man-agement of this instrument. Page 3


EDiTORiAl

Dear customers andbusiness associates,

We are pleased to send you the latest issue of our RiskToday newsletter. Again we put together a selec-tion of interesting topics for you.

in the current issue you will find the first market up-date with our forecasts for all lines of business in a structured and illustrated overview. We also offer you an insight into the new Broking Center in london and show you how you can benefit from this innovation in future. We would also like to make you a little bet-ter acquainted with factoring. Our specialists from Aon Credit international will explain how this works and what kind of financing can be carried out in this way. You can read more about the influence that the Swiss Solvency Test, SST, is having on the insurance industry, including a comparison with Solvency ii, in the article provided by our colleagues from Aon in-surance Managers. And last but not least, our col-leagues from Aon Hewitt will be taking a look at stra-tegic questions in connection with “The need for modern salary systems” and “The future of the Sec-ond Pillar”.

Furthermore, i would like to ask you to reserve a place in your diary for Wednesday, June 20, 2012. This is the date scheduled for this year’s Aon Day. You can find out more about the program at the end of this issue. You will be receiving your invitation by post in the coming days.

i wish you pleasant spring days and some interesting reading.

Martin Vögeli, Country Manager Switzerland

[email protected]

5. Marine: hull + P&i, almost no escape from london mar-ket, marine cargo, stock throughput

6. power: electricity and gas distribution networks, con-struction, operational, renewable energy (wind and solar parks, very strong)

7. professions: E & Os for, for example, lawyers, architects, engineers, iT consultants, etc.; cyber risks, patent infringe-ment, design & build

8. property & Casualty: divided into USA and rest of the world: excess layers, catastrophe risks, distressed risks with a.o. specialty in mining industry & pulp-paper, rail and big multinational risks as well as healthcare and cyber within casualty

9. Space: design & launch respective in orbit of satellite (almost all on direct basis without local involvement)

All these units work for our global ARS network worldwide and have thus gained extensive experience and expertise in a wide range of international and local risks and solutions. Often a solution is found by a cross-business unit approach. As our client you benefit from gaining/exchanging know-how with your peers, increasing competition (insurer), in-creasing global awareness and approach, global rather than local solution development, sophisticated risk manage-ment, etc. Access is very easy and can be arranged through your account team here in Switzerland.

Tanja Jung, Aon Risk Solutions, [email protected]


The impact of the Swiss SolvencyTest (SST) and comparison toSolvency ii Regulatory and structural requirements represent a challenge for captives and captive managers in Switzer-land. This development has also had an impact on the management of this instrument. however, Switzerland still has an advantage thanks to its security and its po-litical and financial stability from an international per-spective.

in the following interview Jorge luzzi (Jl), managing direc-tor of Pirelli Group Reinsurance Company SA, chairman of FERMA and captive owner, and the Swiss Financial Market Supervisory Authority (FiNMA) give their points of view:

The VaG has strict requirements in terms of risk-based capitalization, corporate governance and reporting to the regulator. what are the biggest challenges for a captive in complying with these requirements?

Jl: it is a big challenge in every respect. Previously, captives had to deal with only one line (PDBi, liability, etc.); now you need to add several lines of business in order to diver-sify and reduce the severe impact of a possible claim. Com-pliance and governance are now essential, because in the past the captive was only a tax instrument or it was man-aged completely outside of the parent’s decisions, whilst now a long-term approach is required, there are several people involved, the captive managers are in close contact with the captive owners and we are managing the captives more conscientiously. Personally, i’m happy with this devel-opment.FiNMA: The corporate governance as such is a challenge. For instance, having a fully fledged executive management board or control functions including internal audit repre-sents a challenge for a captive that is usually managed on a daily basis by the captive manager.

Compared to other domiciles what are the advantages of Switzerland?

Jl: Switzerland is clear in its legislation. Some might think that the process of getting the license is slow, but it’s neces-sary. Maybe set-up is easier in some countries, but later on you might run into problems with tax issues etc. Swiss leg-islation permits redomiciliations of captives in Switzerland, which is a clear advantage.FiNMA: Thanks to the implementation of the SST/RBC, companies have more certainty about what they are ex-posed to, compared to other jurisdictions.

would you recommend regulating captives differently to professional risk carriers in terms of capital require-ments, investments, substance or regulatory reporting?

Jl: Regulation is a good thing, but it is important to under-stand that the captive usually works with several insurers, and that these insurers are all linked to one counterparty, i.e. the owner of the captive. Regulation sometimes makes it difficult for reinsurance captives to do business, since it does not always account for the ultimate counterparty be-ing only one policy holder, namely the captive owner.FiNMA: Probably not entirely differently, but maybe apply-ing the principle of proportionality would make sense in order to reflect the size and complexity of the risk structure.


in comparison to the eU (Solvency ii), how do you de-scribe the Swiss approach (SST, VaG, etc.)?

Jl: it shows that the Swiss regulator is not as slow as it some-times seems to be. While Solvency ii is still being discussed at various levels, Switzerland was very systematic and went ahead with the implementation of SST. Maybe being a small country means it can move faster and lay down clear rules.FiNMA: The Swiss approach does make sense and is consis-tent. One key issue in the Swiss legislation is that the disclo-sures part has not yet been determined, which is also appar-ent in the equivalence assessment by EiOPA.

The majority of the surveyed companies stated that re-sources, risk management/mitigation and costs were the biggest challenges. how would you change the cur-rent requirements for a captive?

Jl: it is difficult for a company to evaluate specific figures, especially if you work in a sector where you calculate your pricing based on materials and man-hours. in the captive world these components do not apply since factors such as changes in regulation and ad hoc reporting, etc. cannot be budgeted for in advance. When it comes to concluding new business, problems arise for the captive managers and own-ers in terms of resources.FiNMA: The costs have increased substantially, but the cap-tives are subsidized by larger companies. Resources have the greatest impact on costs for captives and might chal-lenge the business model of smaller captives. Applying the principle of proportionality to a greater extent might offer a solution. For instance, the first Swiss Quality Assessment (SQA) was applied to all captives to the same level of detail.

Under Solvency ii more public disclosures are also under discussion. Do you consider it sensible for a captive to disclose the same amount of information as a profes-sional risk carrier when the captive is only insuring the parent’s own risks?

Jl: it’s wrong to treat the captive in the same way as a pro-fessional risk carrier, since it’s a tool for an industrial parent that’s managed by capital, people and procedures. The captive has a clear development and plan. Consequently, disclosing this information would threaten competition, since only the owner makes use of the captive.FiNMA: it’s not appropriate to disclose the same amount of information for a captive. We should distinguish between a professional risk carrier and a captive that is exposed only to own risks without any retail clients or beneficiaries. it would be appropriate to apply clear differentiation regarding pub-lic disclosures, but this is still under debate.

THE FOllOWiNG REASONS ExPlAiNTHE ATTRACTivENESS OF SWiTzER-lAND AS A CAPTivE DOMiCilE:

• Manyofthesupervisedcaptiveswelcomeclearand stringent regulation for the sake of security and certainty.• FINMAknowsthatthereisroomforimprovement in terms of the supervision of captives, e.g. the application of the proportionality principle.• Switzerland’s stability (political, economic, legal, etc.) is appreciated in the world of risk management.• FINMA’s principles-based regulation permits the application of the proportionality principle to captives.• TheequivalencyoftheSSTwiththeSolvencyIIre- gime is well underway.• Switzerlandappliedthechangeinlawandrestruc- tured its regulatory approach well in advance of the EU, and has therefore gained an advantage in terms of experience and know-how.

GLoSSaRySQa Swiss Quality AssessmentSST Swiss Solvency TestRBC Risk Bearing Capitaleiopa European insurance and Occupational Pensions Authority

This thesis is part of a Master’s degree in Controlling FH by Angelo Giglio, vice President at Aon insurance Managers (Switzerland) ltd at Kaleidos Fachhoch-schule Schweiz. The basis was formed by a number of interviews with captive owners, service providers, ac-tuaries and consultants as well as the Swiss Financial Market Supervisory Authority (FiNMA) at the begin-ning of 2012.

The survey shows that finMa’s reputation has suffered due to transparency, speed and fairness towards captive own-ers, as well as the gradual increase in regulatory require-ments. Could you please comment on this statement?

Jl: in my opinion, regulation is necessary for the market. Overregulation, unfortunately, is not productive because it’s unmanageable, time-consuming and defocusing. The aim is to focus on what is important and feasible. One of the clear advantages of Switzerland is conscientiousness in all areas, but overregulation is unfavorable.FiNMA: Obviously this appears negative for the supervisor or for Switzerland itself. However, FiNMA’s mandate is to protect the insured and to be consistent and transparent, not to promote Switzerland as a domicile as a top priority. A certain increase in regulatory requirements was appropri-ate. There’s always potential for optimization; the efficiency of the supervisor overall could probably be improved.


Factoring solvesfunding problemsMany people know about factoring in theory from books or from training and continuing professional de-velopment courses. But in practice, the instrument still remains largely unknown. This is quite a pity, because when factoring offers itself as a solution to a funding problem, ignorance or prejudice get in the way.

The pRejUDiCeSFactoring does not have the best reputation in Switzerland. it is seen as being cumbersome, expensive and a last resort for companies that are already on the verge of bankruptcy. However, in the neighboring countries factoring is as natu-ral as leasing.

The prejudices are based on a fundamental misunderstand-ing, namely that factoring represents a replacement for other sources of finance, i.e. an operating loan from a bank. That is not correct, however. Factoring is not an alternative to a bank loan, but complements such a loan. Factoring is always interesting when traditional sources of finance have been exhausted.

What hardly anyone knows, by the way, is that in Switzer-land the volume of factoring (annual turnover in 2010: CHF 5.1 billion) is certainly on the same scale as commercial leas-ing business (annual turnover in 2010: CHF 5.7 billion).

how DoeS faCToRinG woRk?• Factoring is not a loan, but the purchase of receivables.

The question for the factoring financer is not whether the money can be recovered from the supplier or service provider to whom it has been lent; what is decisive for the factoring financer is whether the debtors will pay the receivables it has bought. This is a completely different way of looking at the matter, and this is why factoring can also be used differently from a bank loan.

• At the start of such a business relationship, the factoring user (supplier or service provider) informs the debtors and they then pay their invoices to the factoring com-pany. The latter has purchased the invoices and is for-mally the owner of the claims and the new creditor. Many people who are interested in factoring are worried about their reputation if it becomes known that they use factoring. This is quite unfounded, as this information is only of interest to the debtor’s accounts payable depart-ment, and they are quite unconcerned about the change of paying agent.

• During their business relationship, the factoring compa-ny and the factoring user exchange data on a daily basis concerning new receivables and incoming payments from debtors. This works via data interfaces and requires no manual intervention. it is the factoring company that concerns itself with reminders and collection, and it is also the factoring company that assumes the risk of the debtor becoming insolvent.


fUnDinGThe costs of factoring usually lie between 2 and 3 percent of turnover. They may also be significantly lower or higher. This mainly depends on the turnover volume, the sector and the average invoice amount.

in fact, factoring is more expensive and involves more work than a bank loan. But factoring can be used to solve prob-lems in special cases. if the preconditions have been met, there only remains the question of whether factoring is ca-pable of generating the necessary liquidity. The costs are of secondary importance as long as they are properly estimat-ed. So factoring is interesting for companies that cannot generate sufficient liquidity through a bank loan, for in-stance.

in the case of banks, access to credit is limited by what is known as the debt capacity. This primarily depends on the reported profits (or to be more precise on the cash flow) of the last two to three years. For this reason it is usually not possible to fund strong turnover growth with bank loans. it is equally difficult to obtain (new) bank loans after years of losses or to fund start-ups, because in such a case there is no profit at all for previous years. it is precisely in situations like these that factoring can represent a solution.

The LiMiTaTionSThere are a number of limitations on the use of factoring:

• Factorers only buy receivables from contracts of sale or service contracts that are payable in one sum within a maximum of 90 days.

• The transaction must have been completed and all goods and services must have been supplied.

• Projects with payment by installments do not come into question for factoring, nor do claims from contracts for work (contracts where the end result is important); fac-toring is thus not suitable for plant engineering and con-struction companies.

• it is of secondary importance whether the debtor is do-miciled in Switzerland or in another country, as receiv-ables from exports can also be factored.

• Furthermore, the factoring user must serve a fixed clien-tele (the transaction must not have a “retail character”),

• and the debtors must be companies entered in the com-mercial register (B2B transactions).

TaRGeT GRoUpS anD aReaS of appLiCaTionTypical factoring users are SMEs with an annual turnover of between CHF 2 and 20 million. The most important sector worldwide is personnel leasing. in addition, factoring is par-ticularly interesting in relation to wholesaling (distribution, imports, exports). Manufacturers of consumer goods and machinery parts and components are frequent factoring cli-ents.

Factoring is also interesting for companies that are already heavily dependent on borrowed capital, for instance in con-nection with a change of owner (management buy-in, man-agement buy-out, takeover by private equity investors).

SUMMARY

BenefiTS of faCToRinG1. Additional liquidity, not limited by debt capacity2. Protection against debtors‘ losses3. Relief from the routine chore of managing receivables

pReConDiTionS1. Contracts of sale or service contracts2. Terms of payment of no longer than 90 days3. Good quality of the goods supplied or services provided

TypiCaL aReaS of appLiCaTion1. Turnover growth2. Start-ups3. Completed turnaround4. Change of owner in conjunction with a high rate of borrowed capital

TypiCaL SeCToRS wheRe faCToRinG iS USeD1. Personnel leasing2. Wholesaling, distribution3. Component manufacturing4. Consumer goods manufacturing

Finally, it must be pointed out that a particularly large vol-ume of accounts receivable on the balance sheet is an indi-cation of the potential benefits of factoring. it should be clear, however, that factoring companies are only interested in “good” receivables. A large volume of receivables can often be the consequence of poor payment practices (and unfortunately this is frequently the case), deficiencies in the service provided, defects in the products supplied or of an organizational nature. But these are problems that cannot be solved through factoring.

We would be pleased to explain the potential benefits and individual ways of achieving them in a personal counseling interview.

Frank von Seth, Managing Director of

Aon Credit International Schweiz AG, [email protected]

Article written by Christian Schepers,

Managing Director of SWIFAC Swiss Factoring AG


The relationship betweenthe maturity of the riskmanagement process andfinancial performanceThe purpose of every successful business strategy is to take advantage of opportunities and to only take risks if these are economically and socially justifiable. Man-aging risks is one of the key responsibilities of the ex-ecutive and Supervisory Boards. This is not only of the utmost importance for ensuring sustainable corporate development but is also one of the central require-ments made by stakeholders and employees of the company and executive Board. a study conducted by aon and wharton University in pennsylvania shows that risk management represents a competitive advan-tage, because the financial performance of a company depends directly on the maturity of the risk manage-ment process.

ENTERPRiSE RiSK MANAGEMENT AND COMPANY PERFORMANCE

Risks are often assessed and hedged separately from pro-cesses or strategic alignment, and in many companies the traditional risk management approach (the identification, assessment and management of risks) has become some-thing of a compulsory exercise. By contrast, successful com-panies are characterized by the following criteria:

• Connection of the company’s strategic alignment with its risk management

• improved goodwill through consistent optimization of risk costs, avoidance of downtime and failure rates (busi-ness continuity management)

• Efficient connection to the internal auditing system, es-pecially for key processes


• Clear allocation of responsibilities, in particular when implementing measures (budgeting)

• Permanent integration of the risk management process in daily business across all levels of hierarchy (risk cul-ture)

• involvement of risk management in the management of major, strategically important projects

A global study by Aon and Wharton University in Pennsylva-nia has shown that the maturity of the risk management process is directly linked to the company’s financial perfor-mance. This study is based on a unique method that was developed in order to measure and evaluate the functional-ity and maturity of the risk management process and the methods on which it is based. The results of this global Risk Maturity index (RMi) are entered in a database. The large number of participating companies gives rise to a critical mass that can subsequently be used as a benchmark. Based on the replies submitted, the participating company re-ceives prompt recommendations on how to optimize the process and hence financial performance. The RMi was con-ferred the www.businessinsurance.com innovation Award 2012 at the beginning of the year.

hoLiSTiC RiSk ManaGeMenTThe implementation of the traditional risk management pro-cess usually lacks efficient integration of risk and insurance management at an organizational level. The previously re-stricted view of either insurable or uninsurable risks needs to be consolidated. A comprehensive understanding of inter-nally and externally controllable risks that jeopardize the en-terprise every day – ranging from procurement (the entire value creation chain including outside suppliers and clients) and the internal process chain to the sale of products and services – is absolutely essential for successful holistic risk management. Aspects such as regulation, reputation, pro-curement and allocation of resources, business interruption, changing technology, liquidity, etc. need to be considered in their entirety and taken into consideration in the risk dia-logue. Focusing on optimizing risk costs is especially impor-tant when addressing insurable risks.

When discussing risk tolerance and appetite it is important to bear in mind the maximum anticipated risk exposure as well as the impact on profitability. in the past, risk exposure was usually determined approximately with the aid of projected values and consolidated by means of addition. The method employed by Aon permits detailed observations, sensitivity analyses and simulations to be performed for a wide variety of risks and interdependencies based on historical data.

ADDED vAlUE OF AON iN THE AREA OF RiSK MANAGEMENT

Services• Analysisofrisktoleranceandappetite• optimalstructuringoftherisktransferbymeans of TCoiR (Total Cost of insurable Risk), • definitionofrisk-bearingequity

know-how• Naturaldisasterrisks• pharmaceuticalliability• propertyandbusinessinterruption• excellentknow-howinallsectors,NGOsand public sector• operationalrisksofbanksandinsurancecompanies• Soundexperienceoftheactuariesinthesimulation of major risks and “cumul” damages

iT tools• RiskConsole• RiskRegister• claimsdatabaseforquantifyingrisks• ReMetrica(softwareforthesimulationof damage allocation)

MoniToRinG anD RepoRTinGA further aspect that needs to be taken into consideration in state-of-the-art enterprise risk management is the periodic reporting, including a system of key performance indicators (KPis and in particular KRis in the form of a cockpit), to the Board of Directors and the Executive Board as an integral, forward-looking management tool. ideally, the entire ERM process should be backed by an iT tool that supports pro-cess monitoring, aggregates reports thanks to multi-client capability, or permits reporting at business unit level. This guarantees data security, confidentiality and access protec-tion at all times. The tool also has audit capabilities, mean-ing that it is possible to map processes in the standard iSO 31000.

Albert Thomas Flammer, Aon Global Risk Consulting,

[email protected]


Trend indicator of insuranceGeneRaL SiTUaTion

— Cut-throat competition among insurers con-tinues at a high level. Excess capacities and cost pressure as a result of falling premiums are possible reasons.

— With USD 105 billion paid out for insured nat-ural hazards, 2011 was the most costly year ever. it is expected that premium increases can be pushed through, at least for critical zones.

— low interest income and the effects of the state debt crisis are increasing pressure on in-surers.

— There are only partial indicators for a „hard market“ (individual lines of insurance, bad risks, individual insurers).

— insurers will follow differing strategies; we ex-pect an increasing discussion of „vertical placements“.

pRopeRTy / Bi

General— Due to the number of claims in 2011, there

will be increasing pressure on coverage for natural hazards and retroactive effects (pre-miums, limits).

— The price war will continue in the case of purely local risks.

Trends— Requirements in relation to the quality of risk

information (particularly natural hazards and interdependencies) will become stricter, which will influence price/coverage.

— Expectations of programs with high capacity requirements and/or heavy exposure in the field of natural hazards/retroactive effects, stagnating or at most only slightly rising pre-miums.

ThiRD-paRTy LiaBiLiTy

General— Tough competition (broad provider market)

Marked reductions in premiums in the case of banal risks (activity) still possible.

— No change in behavior in relation to known (exclusion) issues such as EMF, asbestos, phar-maceuticals etc.

Trends— Focus on compliance issues (tax, embargo

clauses)— The quality of the service offered by insurers is

tending to deteriorate.

MaRine

General— Market still “soft”; premium reductions of up

to 30% achievable; diverse behavior ascer-tainable on the part of insurers.

Trends— Service quality of insurers is deteriorating

(quality of offers, response times etc.); fur-thermore, there is a trend towards standard solutions for small and medium-volume busi-ness.

MoToR

General— Still possible to save on premiums for well-

performing risks, but there is a decline in comparison with the previous year.

— Policies with a negative history are increas-ingly being restructured with greater rigor.

Trends— insurers are paying greater attention to the is-

sue of „risk management”.

finanCiaL LineS

General— Consolidation at a low level is taking place in

relation to premiums. — More flexibility on the part of insurers in rela-

tion to extensions of coverage (e.g. fines and penalties, better extensions of coverage etc.).

Trends— Still a need for improvement in relation to

compliance issues (local contracts)— in the „financial institutions“ sector, we do

not expect the market to harden, at least not in the first six months. Whether this will change for the worse depends not least on developments in connection with govern-mental crises and/or in relation to the tax dis-pute.

peRSonaL inSURanCe

General— Contracts with a poor history (loss ratio >

130%) are being consistently reinsured.— Fewer multi-year contracts on offer— Premium reductions now almost only in the

accident segment and/or in the case of daily sickness benefit contracts with an excellent claims history (loss ratio < 60%).

— insurers slow to provide cost transparency for case and care management services.

Trends— Focus on case and care management — The renewal (phase) 2012/13 is becoming dif-

ficult; insurers will increasingly look at earn-ings and restructure the portfolio where this is called for.

•difficultmarketenvironment

•generalre-underwriting

•higherpremiums

•restrictionsoncoverage

•sometimesdifficultmarketenvironment

•selectiverestructuring

•restrictionsoncoveragehereandthere

•softmarket

•fallingpremiums

•toughcompetition

Marcel Abegg, Aon Risk Solutions, [email protected]


The future of the Second Pillar – an assessment of the situationregarding the Federal Council‘s report to the Federal Assembly not long ago the federal insurance office published a report by the federal Council addressed to the federal assembly concerning the future of the Second pillar. Strictly speaking, it launched the consultation process for this report and requested all interested parties to submit their comments. This consultation process is then to provide the strategic basis for occupational re-tirement plans.

The authors have created a full outline of the questions re-garding the Second Pillar brought up during the last ten years. Werner Hertzog, CEO of Aon Hewitt (Switzerland) AG, answers the most important strategic questions con-cerning this subject in an interview.

1. are the technical parameters for the mandatory ele-ment of occupational retirement plans still being deter-mined politically or is the joint body to take on respon-sibility for this?Werner Hertzog: The technical parameters must not be po-litically overridden, but should be controlled by those per-sons who also bear responsibility for the financial equilibri-um of the pension fund: the joint body.

2. Should pensioners continue to benefit from a pension guarantee or will they have to participate in possible restructuring?WH: if the technical parameters such as the minimum inter-est rate, the conversion rate and the technical interest rate are depoliticized, pensioners can keep their pension guar-antee. if the technical parameters continue to be controlled by political forces, pensioners will have to help bear the brunt of restructuring in future. Otherwise, the solidarity between the generations, which already exists de facto and is unlawful in relation to the Second Pillar, becomes objec-tionable. This could lead to a highly charged conflict be-tween the generations.

3. To what extent should the Second pillar be made more flexible?WH: That‘s a political question. The left want greater soli-darity and therefore less flexibility and the Right want more individual responsibility and therefore more flexibility and individuality. Both lines of argument have their justification. However, the latest trend of porting flexibility, in the sense of a transfer of risk to the insured parties, is somewhat dou-ble-edged. Transferring the entire investment risk to the

insured parties has not proved to be a good policy in all cases. We should not hesitate to make this the subject of political debate and are looking forward to the results of this discussion.

4. what role should the insurance industry play in rela-tion to the Second pillar in future?The insurance industry plays an important role in relation to the Second Pillar. it offers small employers, and sometimes medium-sized employers as well, the chance to avoid the re-underwriting risk in relation to the Second Pillar. in other words, insurance companies offer guaranteed products. An autonomous pension fund cannot offer this service. For small employers, it makes sense to use their risk capital for their core competence and not for occupational retirement plans. This is of significance for the macro economy. How-ever, it is also legitimate for a fair rate of interest to be paid on the guarantor‘s risk capital. Ultimately, these are the shareholders of the insurance company and they include many autonomous pension funds. To force the insurance industry out of the business in relation to the Second Pillar by paying an unfair rate of interest on their risk capital would be fatal for the Swiss economy and for the Second Pillar. The real task will be to define what is a fair rate of in-terest on the risk capital.

what conclusion do you draw from this?WH: Occupational retirement plans are about to undergo a radical shake-up, which can be focused on a few, but deci-sive points. in my opinion, the remainder of the report con-centrates too heavily on operative details while neglecting strategic questions. The Federal Council will be able to make some corrections here.

The specialists at Aon Hewitt have further information on this subject and can point to some individual solutions.

Werner Hertzog, Aon Hewitt, [email protected]


The need for modernsalary systemsModern salary systems need to be adjusted to take account of economic realities, the companies in question and, in particular, the needs of the workforce. This means a real-location of salary costs between cash compensation, benefits and pension funds and also the use of new methods and instruments.

CURRenT SiTUaTionThe current debate about salary systems often revolves around the huge salaries and bonuses paid to a few top earners. However, it is overlooked that a number of current developments are having massive effects on the salary sys-tems of a broad majority of normal and good earners and are therefore much more important for these people. in ad-dition to cash compensation, modern salary systems also comprise contributions to a pension fund and many bene-fits that are taken for granted such as vacation, company cars or health insurance. The high salary costs thus incurred are increasingly becoming a concern for management due to the economic slowdown to be expected and the strong Swiss franc. At the same time, pension funds are still promis-ing and paying benefits that are not affordable in view of today‘s economic realities and those likely in the future. in order to avoid even more undercoverage and re-underwrit-ing, either benefits will have to be reduced and/or the pre-miums increased. Companies that prepare their accounts in accordance with iFRS also have to include pension liabilities in their balance sheets due to the de facto minimum inter-est guarantee, although pension funds are legally indepen-dent of the company. This leads to additional and unwel-come liabilities in expensive Swiss francs that can only be influenced to a limited extent. This produces trends to re-duce the benefits paid by pension funds and to pass on the investment risk to the insured parties in the non-mandatory part of the retirement plan.

expenSiVe STanDaRD SoLUTionSit can be expected that changes will be made to benefits which, together with retirement plan contributions for staff, constitute an additional 30-50% of the cash compen-sation. The overwhelming majority of all companies in Switzerland still offer their staff a standard solution that often proves expensive. Companies usually base their poli-cies on what has worked in the past and what is offered by the competition. Only a small group of companies con-sciously use the benefits they offer to position their em-ployer brands. This „me too strategy“ produces a solution that finds majority consensus. But this ignores the increas-ingly diverse needs of the workforce, resulting in a subop-timal use of resources and additional costs. in recent years various different schemes to support the workforce in healthcare insurance have become standard due to the generally increasing healthcare costs. As healthcare costs

will probably rise rather than fall in the future, this also poses the question of affordability.

pRoDUCinG The BeST poSSiBLe VaLUeBoth retirement provision and healthcare costs will become increasingly important for employees. A reduction in bene-fits across the board by employers would be counterpro-ductive - also from a social point of view. With healthcare costs, in particular, there is an overlapping of interests be-cause employers have an interest in a healthy and efficient workforce. But as hardly any company can afford addition-al personnel costs, this raises the question of how this is to be funded, and even the realization of saving potential. in our opinion, an important approach to a solution would be to introduce the perceived value to the workforce as a fur-ther key element. Within a specified cost framework it is possible to define and offer retirement plans and benefits that produce the best possible value. Benefits that are not cost-effective will be cut or dropped. The result would be more differentiated retirement plans and benefits that pro-duce the best possible value at defined costs. The appropri-ate processes and instruments are well known and have al-ready been adopted by Swiss companies, but so far only by their subsidiaries abroad.

Stephan Nyffeler, Aon Hewitt, [email protected]



publishing companyAon Risk Solution Schweiz AGBederstrasse 66, Postfach, CH-8027 zuricht +41 44 925 22 11

Lead Text and picturesSusanna [email protected] of publicationPublished trimonthly in three languages (english/french/german)

Translations24translate GmbH, St. GallenLayoutsofie’s Kommunikationsdesign AG, zurich printKoepfli & Partner AG, Neuenhof

AON iNSWiTzERlAND –OUR OFFiCES ATA GlANCE

aon Risk Solution Schweiz aG,zuricht +41 44 925 22 11—aon Risk Solution Suisse Sa,Genevat +41 22 827 07 00—aon Risk Solution Svizzera Sa,Luganot +41 91 912 53 11—aon hewitt, Bernet +41 31 340 20 00—aon hewitt, zurichlagerstrasse, t +41 44 298 12 11—aon hewitt, zurich Bederstrasse, t +41 44 925 22 11—aon hewitt, neuchâtelt +41 32 732 31 11—aon hewitt, nyont +41 22 363 65 11—aon hewitt, Genevat +41 22 827 07 00—aon Global Risk Consulting, Baselt +41 61 206 06 66—aon Re (Switzerland) Ltd, Baselt +41 61 206 06 06—aon insurance Managers(Switzerland) aG, Baart +41 41 727 20 40—aon insurance Managers(Liechtenstein) aG, Vaduzt +423 235 02 50—

Aon Day 2012

please reserve the date for this year‘s aon Day, which will be taking place on wednesday, june 20, 2012. we look forward to welcoming you to the Swiss Re club house at Mythenquai in zurich on one of the game-free evenings during the euro 2012.

This year we are offering you a special kind of football experience. We have en-gaged the comedian David Bröckelmann to take care of the entertainment. in his second solo program he will be pulling out all the stops and taking a look behind the scenes and between the details. The event will be attended by celebrities of all different kinds; politicians will challenge football players and top entertainers will match themselves against ambitious music stars. Even the irrepressible Punch and Judy will be putting in an appearance from time to time together with some fairytale figures. A very special evening of musical cabaret and theatre: unex-pected and varied, highly paced and even a little bizarre.

Susanna Scheidegger, Aon Risk Solutions, [email protected]

Photo: Benjamin Soland

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