Why Swiss Annuities?

Interview with Marco Gantenbein, TEPManaging Director of Swiss Insurance Partners AG, Zurich

Marco Gantenbein, TEP, is an international insurance specialist and the Managing Director of Swiss Insurance Partners AG, Zurich/Switzerland, a leading niche insurance consultancy focused on Swiss annuities and life insurance products. After completing Zurich Business School and training at a well-known Swiss insurance company, he lived and worked in Belgium. After returning to Switzerland, he worked for many years as an insurance consultant in both the private and business sectors. During this time he received his Swiss Federal Insurance Diploma and in addition to managerial experience he acquired considerable expertise in complex insurance solutions for private as well as business clients. Mr. Gantenbein is also one of the co-authors of the Switzerland Business & Investment Handbook, having contributed the chapter on Swiss Annuities and Life Insurance.

The following interview was conducted by the staff of swissnetwork.com at Mr. Gantenbein’s office in Zurich in January 2006.

Mr. Gantenbein, you are the director of an internationally recognized insurance consulting and brokerage firm that specializes in advising clients from all over the world on Swiss annuities. So allow me to start with perhaps the most basic question: Why should I buy an annuity?

MG: Life spans in the developed countries have been increasing for over a hundred years. It is now common for people who reach retirement age to live 20 years or more in retirement, most of those years in good health. It’s good to live a long and full life, but you want to be sure that your income lasts as long as you do, and its purchasing power is as strong as you are. How can you manage the risk of "outliving your assets"? The answer is: with an annuity. Annuities are a unique financial product that, along with social security, retirement plans, and other savings, can greatly enhance your retirement security. Now in addition to the general advantages of annuities, Swiss

annuities in particular offer further, unique features and advantages that are unknown or not available in the same way elsewhere.

Why is a Swiss annuity different?

MG: There are of course many reasons. I believe that the most important are the fact that a Swiss annuity is one of the safest forms of investments, the unique asset protection that Swiss law extends to Swiss annuity and life insurance contracts, and the enormous flexibility and wide range of insurance products that allows also non-standard solutions.

You say Swiss annuities are very safe. Why is that?

MG: Practically everywhere, the safety of an annuity investment depends on the strength of the insurance company. In Switzerland – quite apart from the fact no Swiss insurance company has ever had to close its doors – all client funds are strictly separated from the insurance companies’ operating assets. Every insurance company is required to maintain what is called a security fund, with very strict investment and liquidity requirements. It is about as safe as you can get. Furthermore, Swiss law strongly protects life insurance and annuity policies, which is another important factor that make Swiss annuities so safe.

What types of annuities are available in Switzerland?

MG: Quite generally, there are many types of annuities, and even the most sophisticated products are available in Switzerland. Annuities can be classified for example by the nature of the underlying investment (fixed or variable annuities), by the primary purpose of either accumulation or pay-out (deferred or immediate annuities), by the nature of pay-out commitment (fixed period, fixed amount, or lifetime annuities), or by premium payment arrangement (single premium or flexible premium annuities). An annuity can be classified in several of these categories at once. For example, you can buy a single premium deferred variable annuity. The most important categorization is probably in fixed and variable annuities.

Can you explain the difference between fixed and variable annuities?

MG: In a fixed annuity, the insurance company guarantees that you will earn a minimum rate of interest during the time that your account is growing. The insurance company also guarantees that the periodic payments will be a guaranteed amount per dollar in your account. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse.In a variable annuity, by contrast, you can choose to invest your purchase payments from among a range of different investment options, typically mutual funds. The rate of return on your purchase payments, and the amount of the periodic payments you will eventually receive, will vary depending on the performance of the investment options you have selected.

You often hear that Swiss annuities offer unique asset protection. Can you tell us the reasons?

MG: Under Swiss law – and these provisions are already in place for more than 100 years, and have been extensively tested and tried in the Swiss courts – annuity and life insurance policies are completely protected and cannot be seized by any creditors or included in any debt collection or bankruptcy procedure. Swiss law provides iron clad asset protection. Even if a foreign court should specifically order the seizure of a Swiss annuity or its inclusion in a bankruptcy estate, the insurance policy will not be seized by the Swiss courts, provided that it has been structured the right way.

What does one need to do then to get this kind of asset protection?

MG: There are essentially three important requirements: Firstly, a person who buys a Swiss annuity must designate as beneficiaries his or her spouse or descendants. If done so irrevocably, he or she may also designate a third party as beneficiary. If the policyholder has designated his spouse or his children as beneficiaries however, the policy is protected regardless of whether the designation is revocable or irrevocable. Secondly, to avoid any suspicion of making a fraudulent conveyance, the person must have purchased the policy or designated

the beneficiaries not less than one year – in some cases five years – before any collection proceedings are initiated or bankruptcy decree is issued. Finally, the insurance policy should be physically deposited in Switzerland. This can be for example in a Swiss bank safe or the policy could be deposited with an attorney.

How much should I invest in a Swiss annuity?

MG: There are of course no limits on the amount that you can invest in an annuity. Whether you are considering a deferred or immediate annuity, the amount of money you should consider putting into an annuity depends on your immediate actual and potential financial needs, your long-term financial goals, your current savings/investment portfolio and its current asset allocation, your asset protection needs, and the range of alternatives available to you. Depending on these factors, certainly a considerable part – I would say up to half –  of your overall net worth can be placed in a Swiss annuity as it represents one of the safest forms of investments, safer even than most government bonds.

Key advantages of Swiss annuities and life insurance

Swiss annuities and Swiss life insurance products offer many benefits to international investors. In particular Swiss annuities offer the following key advantages:

 Ultimate Swiss Safety

Switzerland, one of the world's most stable country both politically and economically, also has the world's strongest insurance industry with a continuing history of success without a single failure ever.

 

 Swiss Insurance Products are Tailor-Made

Swiss annuities and life insurance policies can be tailor-made to suit the most individual needs. For example, if substantial assets are to be invested in an insurance or via an insurance arrangement, it is possible for a specific insurance plan to be set up that allows the underlying investments to be organized in individual portfolios through the existing investment manager. Such plans are also referred to as portfolio bonds or insurance wrappers.

 Investment in the World's Strongest Currency

Although Swiss insurance policies are available in all major currency denominations (see below, “Currency switch possibility)”, most annuities are issued in Swiss Francs. There are good reasons why foreign investors favor Swiss-Franc investments. Thanks to the country’s high political and economic stability, the Swiss Franc has remained strong over decades in comparison with other leading currencies, including the US Dollar. The Swiss Franc is arguably the world's strongest currency.

 Currency Switch Possibility

A currency switch option is available for all of the world’s major currencies. An investor may therefore choose a Swiss-franc annuity and convert it into US Dollars (or another major currency) at almost any time.

 Flexibility to Change Policy Options

Swiss annuities offer the flexibility (also) to change other policy options during the accumulation phase, for example the payout options, the

deferment period, or the beneficiary clause.

 Excellent Asset Protection

If structured properly, Swiss insurance policies cannot be seized by creditors nor can they be included in a Swiss (or foreign) bankruptcy procedure. This is enacted in the Swiss Federal Act on Insurance Contracts. Swiss annuities are therefore the perfect asset protection tool which can be additionally tailor-made to your individual needs.

 Guaranteed Returns and Surplus Participation for Additional Returns

On fixed annuities, returns are guaranteed by the Swiss insurance company, and government regulations protect investors in every possible way. In addition to the guaranteed contractual annuity, the policy participates in the surplus reported by the Swiss insurance company.

 No Reporting Requirements

Insurance companies in Switzerland do not report to any government - Swiss or foreign - if the policyholder is not resident in Switzerland. Thus neither the initial purchase of the policy, nor individual payments, nor interest or dividends earned, nor any other information will be reported. All transactions are kept strictly confidential.

 Instant Liquidity

Swiss annuities offer instant liquidity. All capital, plus all accumulated interest and dividends, are freely accessible at any time. Depending on the type of annuity, only at an initial period of up to one year there is a minimal penalty in case of withdrawal. This is in stark contrast to, for example, US annuities which usually carry high penalties for early withdrawals. With Swiss annuities, if funds are needed quickly, they are available and not tied down for a fixed period of time. Furthermore, Swiss banks will accept Swiss annuity and life insurance policies as collateral for loans.

 Loans of up to 100% of the Policy Value

Swiss banks will normally lend up to 100% of the policy’s surrender value. This offers additional flexibility with regard to cash management. You do not need to liquidate your Swiss annuity should you wish to “mobilize” the money invested in it. You can at any time obtain a loan from a Swiss bank for the annuity as collateral.

 No-Load Investment

Swiss annuities are on a no-load basis, so there are no additional charges or costs and the investment can be cancelled at any time practically without loss of principal or accumulated interest and dividends.

 Long Accumulation Periods

Swiss annuities offer long accumulation periods of up to 50 years.

 No Swiss Taxes

Swiss annuities are free from any tax; in particular, the 35% Swiss withholding tax on interest and dividens earned in Switzerland does not apply.

 Efficient, highly professional service

Switzerland has probably the world's most efficient banking and insurance industry, and the transfer of funds is unrestricted and very easy. Due to the high level of education and professional training in Switzerland, clients enjoy dealing with competent employees who handle client matters intelligently and efficiently.

 No forced repatriation of funds

Swiss insurance policies would normally escape any forced repatriation under possible future imposed exchange controls, because they are regarded as a pending contract between the investor and the insurance company.

 Advantages for US Citizens/Residents

Swiss annuities can be legally purchased by US persons, and they can be placed in US tax-sheltered pension plans such as IRA or corporate plans, or such a plan can be rolled over into a Swiss annuity easily and free of charge.

Comparisons

Swiss annuities market overview – fixed strategy - January 1, 2007

Currently 14companies

Fixed interestrate Strategy

Maturityvalue (G)

Dividendvalue (NG)

Totalvalue (NG)

NetAPY (G)

NetAPY (NG)

VaudoisePlano Capital

108'968 15'600 124'568 0.86 % 2.22 %

Generali GE04 111'710 11'563 123'273 1.11 % 2.11 %Basler Gp 111'789 11'063 122'852 1.12 % 2.08 %Zürich G3EE 111'177 11'363 122'540 1.07 % 2.05 %AXA Dynamix U 111'468 11'044 122'512 1.09 % 2.05 %Forces Vives

Harmony 109'480 12'598 122'078 0.91 % 2.01 %

Raiffeisen IEP 111'346 10'694 122'040 1.08 % 2.01 %Nationale GEE 111'341 10'645 121'986 1.08 % 2.01 %Helvetia EP 110'451 10'608 121'059 1.00 % 1.93 %Mutuel MPU 109'357 9'901 119'258 0.90 % 1.78 %Swiss Life Harvest 109'416 8'546 117'962 0.90 % 1.67 %Winterthur GE 109'046 8'550 117'596 0.87 % 1.63 %Allianz Mixed 109'404 7'500 116'904 0.91 % 1.57 %PAX GE 109'265 5'564 114'829 0.89 % 1.39 %

Source: Schweizer Versicherung, February 2007G = Guaranteed; NG = Non guaranteed; APY = Average per year

Calculation basis: Male, 50 years old, 10 years investment period, single premium CHF 100’000Fee indication: One time fee of 5 % (0.5 % average annual fee for a 10 years period)

Swiss annuities market overview – variable strategy - January 1, 2007

Company Variable Fund

Insured value

Insured survival

Total maturity

NetAPY

linked Strategy

in death case

value (G) value (NG) (NG)

Winterthur WinLifeVari 124'087 100'000 153'600 4.39 %Allianz FGLV 129'660 0 150'756 4.19 % Vaudoise Fund Valor P 148'050 80 % HVG 150'032 4.14 %Raiffeisen Fund Life 150'971 0 149'577 4.11 %PAX Fundinvest 144'573 HVG 149'139 4.08 %AXA Capital Com 128'168 97'561 149'138 4.08 %Swisscanto Life Invest 146'203 0 148'997 4.07 %Basler Flexifonds 145'007 0 148'127 4.01 %Winterthur WinLifeFund 145'788 0 147'900 3.99 %Zurich Capital Fund 144'390 HVG 147'797 3.98 %Nationale Vary Funds 152'560 0 147'730 3.98 %Skandia Life Plan 144'125 0 147'414 3.96 %Mobi Life Invest Fund 143'025 0 147'342 3.95 % Aspecta T4OE 146'071 0 146'549 3.90 %Helvetia Saphir VF 144'680 88'821 144'680 3.76 %Generali GAE01 133'957 0 143'988 3.71 %Swiss Life SL Vitality 137'746 0 143'475 3.68 %Mutuel Global FPU 142'313 78'049 143'038 3.64 %Allianz FGLV 129'660 100'000 135'356 3.07 %

Source: Schweizer Versicherung, February 2007G = Guaranteed ; NG = Non guaranteed ; APY = Average per year ; HVG = Highest value guarantee

Calculation basis: Male, 50 years old, 10 years investment period, single premium CHF 100’000Simulation based on the forecasted (non guaranteed) 5 % fund’s net asset value growth per yearFee indication: One time 5 % + 2 % yearly management/admin. fees (2 % – 2.5 % apy for 10 years)

Market momentum - facts & figures

The swissannuities.com quarterly market momentum are the most relevant facts and figures coming out from the Swiss insurance market, representing the traditional-fixed-guaranteed as well as the modern-variable-fund-linked-non-guaranteed strategy. It’s a transparent overview of market possibilities according to investor’s need, goal and risk profile.

The traditional-fixed-guaranteed strategy (various types of fixed annuities and life insurance endowment policies) is one of the safest and lowest risk investments in the world. It’s based on the Swiss Franc interest rates, which for many years were and still are, relatively low, thus reflecting the historically low inflation rates. Consequently, this lowest risk strategy leads to respective low yields. Thanks to the solid Swiss insurance company results, their extra dividends and a generally stronger CHF the final past yields were improved:

Swiss Francs interest rates – Source: Swiss National Bank - December 2006

 1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Short term

1.87 1.50 1.40 1.84 3.37 1.83 0.61 0.26 0.71 1.00 1.95

Long term 4.37 3.70 3.07 3.01 3.88 3.36 3.22 2.63 2.73 2.11 2.34

Indicative historical fixed annuity average yields in Swiss Francs – various 10 year capital accumulation periods

Periodaverage annual yield(currency influence not included)

1991 – 2001 5.11 %1992 – 2002 4.83 %1993 – 2003 3.86 %1994 – 2004 3.44 %1995 – 2005 3.33 %1996 – 2006 3.25 %

The currency rate has constantly been influencing the final yield (positively/negatively). The following historical currency table shows the ups and downs in the past 16 years:

Monthly average inter-banking exchange rates, since January 1991

  Jan Feb March April May June July Aug Sep Oct Nov Dec Y.A.1991 1.27 1.26 1.39 1.44 1.46 1.53 1.55 1.52 1.48 1.48 1.44 1.38 1.43

1992 1.40 1.45 1.51 1.52 1.49 1.42 1.33 1.30 1.28 1.32 1.43 1.42 1.401993 1.48 1.51 1.52 1.46 1.45 1.48 1.51 1.49 1.42 1.44 1.50 1.46 1.471994 1.47 1.45 1.43 1.44 1.41 1.37 1.32 1.31 1.29 1.26 1.29 1.33 1.361995 1.28 1.27 1.17 1.13 1.17 1.16 1.15 1.19 1.18 1.14 1.14 1.16 1.181996 1.18 1.20 1.19 1.21 1.25 1.26 1.23 1.20 1.23 1.26 1.27 1.33 1.231997 1.39 1.45 1.46 1.46 1.43 1.44 1.48 1.51 1.47 1.45 1.40 1.44 1.451998 1.47 1.46 1.49 1.50 1.48 1.49 1.51 1.49 1.40 1.33 1.38 1.36 1.451999 1.38 1.42 1.46 1.50 1.51 1.53 1.54 1.51 1.52 1.49 1.55 1.58 1.502000 1.59 1.63 1.66 1.67 1.72 1.64 1.65 1.71 1.76 1.77 1.78 1.68 1.692001 1.63 1.67 1.68 1.71 1.75 1.78 1.80 1.68 1.63 1.63 1.65 1.67 1.702002 1.67 1.70 1.67 1.65 1.59 1.54 1.47 1.50 1.50 1.49 1.46 1.44 1.562003 1.37 1.36 1.36 1.38 1.31 1.32 1.36 1.38 1.37 1.32 1.33 1.26 1.342004 1.24 1.25 1.28 1.30 1.28 1.25 1.24 1.26 1.26 1.23 1.17 1.14 1.242005 1.18 1.19 1.17 1.19 1.21 1.26 1.29 1.26 1.26 1.28 1.31 1.30 1.25

2006 1.30 1.30 1.30 1.28 1.22 1.23 1.23 1.23 1.24 1.26 1.23 1.21 1.26

2007 1.24                        

Source: Federal Reserve, 2007

1971-2006: 35 years currency performance USD/CHF = Loss 70.76 % (from 4.31 to 1.26)1991-2006: 15 years currency performance USD/CHF = Loss 10.64 % (from 1.43 to 1.26)1996-2006: 10 years currency performance USD/CHF = Gain 2.44 % (from 1.23 to 1.26)2001-2006: 5 years currency performance USD/CHF = Loss 25.88 % (from 1.70 to 1.26)

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