In 2019, AXA transformed its occupational benefits business from full-value insurance to partially autonomous solutions, resulting in major changes for Asset Management. We spoke to AXA’s Chief Investment Officer Daniel Gussmann about what has changed for him and his team and how they are dealing with the current financial market situation.
We completely restructured investments with a value of CHF 30 billion in the space of 12 months. It was hard work, but it was also exciting. Partially autonomous solutions have much more freedom in terms of investment strategy because they aren’t bound by the same strict regulations as full-value insurance. This opens up entirely new possibilities for us to seize long-term return opportunities for our insured persons. For instance, we’ve been able to significantly increase the allocation to equities – the asset class with the best return prospects over the long term. Besides restructuring customer portfolios, we’ve also adapted our processes and organization, for example by creating a new team focused entirely on customer care.
We used to work more or less in the background because full-value insurance meant that AXA bore all the risks. With partial autonomy, however, the risks are borne by the collective foundations, so it’s much more important that they know who they’re placing their trust in.
We had a very successful year in 2019. Thanks to the reorientation of our collective foundations, insured persons benefited from much higher interest on retirement assets than the market average last year, 3.5% to be exact. That’s a lot more than we could have achieved with full-value insurance.
Capital markets, especially equity markets, are regularly subject to fluctuations. We have a risk-conscious investment strategy with a high degree of diversification, and this has a stabilizing effect on performance and the coverage ratio. The numbers have to add up over the long term, and both our portfolios and the collective foundations themselves are extremely well prepared to absorb future fluctuations, which is why we’re looking to the future with optimism.
“Our portfolios are extremely well prepared for the future.”
We work with our external investment partners to adjust the positioning of our portfolios on a weekly basis – or even a daily basis if necessary. This allows us to make sure that our customer portfolios are always perfectly aligned with the changing markets. We stick to our risk-conscious investment philosophy with a long-term focus and adjust weightings in customer portfolios in a highly targeted and careful way.
Each of our partially autonomous collective foundations has its long-term investment strategy set by its board of trustees. As asset managers, we advise them on this and implement investments within the guidelines they set, always with a view to achieving sustainable returns for insured persons, of course. The sort of diligently formulated investment strategy we’ve agreed with our collective foundation customers is always based on an assessment of their risk capacity and the long-term risks and opportunities on the financial markets. That means that the long-term strategy will remain valid in times of high volatility.
“As an insurer, we’ve always taken care to invest our customers’ premiums and pension contributions securely.”
We manage pension assets for more than 40,000 companies in Switzerland. Thanks to AXA’s roots as an insurer, we’ve always taken care to invest our customers’ premiums and pension contributions securely and profitably. That’s why we got into interesting asset classes like Swiss real estate and mortgages, international real estate, corporate debt, and private equity at an early stage and built up expertise that allows us to make attractive, sustainable investments for the benefit of our customers. On top of this, we rigorously employ a contemporary best-in-class approach.
We systematically seek out the best investment style and the best asset managers for each asset class. This independent best-in-class approach allows us to find the best possible investment opportunities with the greatest potential to deliver returns for our customers. We take exactly the same approach with our own pension fund. We invest our customers’ assets in accordance with the same principles used for our own staff’s retirement assets.
Besides advising and supporting existing customers, we’re going to offer our expertise and services more actively to other pension funds and occupational benefits providers going forward.
Things have definitely got tougher for pension funds. Bonds are the biggest asset class for Swiss pension funds, accounting for roughly a third of their invested assets, and negative yields have made it impossible to generate returns from them over the long term. However, the statutory conversion rate stipulated in the Occupational Pensions Act and the current retirement age mean that a certain target return is needed to fulfill pension obligations. Pension funds will thus continue to have difficulty generating the returns they need.
Daniel Gussmann joined AXA in 2009 and is currently Chief Investment Officer (CIO) of AXA Switzerland and Head of Asset Management. He became a member of the Swiss Investment Management team in June 2012 and took over as Head of Allocation & Strategy in August 2014. He spent three years at AXA Germany in asset management and corporate strategy roles. Daniel has an MBA from the University of Mannheim and is a Chartered Financial Analyst (CFA). He lives with his family in Frauenfeld and travels to work every day by e-bike.