- With its capital investments, Suva generates returns in line with the market and ensures pensions for the long term.
- The investment strategy is based on longevity and broad diversification.
- In addition to the financial aspects, Suva also takes into account ecological, ethical and social minimum standards in its capital investments.
In the 2018 financial year, an overall performance of -2.7 percent was posted on fixed assets of around CHF 50 billion. While some of the listed shares finished the year with considerable losses and the bond investments also made a small loss, investments in private equity, direct real estate, loans and almost all hedge fund strategies achieved positive results. The investment situation in money market investments continued to prove difficult due to the negative interest rates in Switzerland. Because of the high interest rate gap versus foreign currencies, significant costs were incurred on currency hedging.
The financial coverage ratio decreased from 143 percent in the previous year to around 123 percent. This drop is primarily due to the reduction in the technical interest rate for long-term benefits. In addition, the coverage ratio also takes into account the exceptional premium reduction that could be granted as a result of the pleasing trend in investment income over the past few years.
The purpose of financial investments
Provisions for short-term insurance benefits, such as treatment costs and daily allowances, as well as reserves make up the remaining assets.
Long-term investment horizon
The investment strategy is based on longevity and broad diversification. It has a balanced investment portfolio. Around half of the assets are invested in interest rate and credit investments, 32 percent are invested in shares and private equity, around 13 percent are invested in real estate and real estate funds, and the remainder is invested in other alternative investments. With this strategy, Suva achieves adequate return on the long-term average. Low-risk, fixed-interest capital investments alone would not meet the return requirements.
To compensate for significant fluctuations in value on capital investments, in good years Suva increases fluctuation reserves. In bad years it releases them again.
the distribution is based on risk premiums. The share ratio also includes private equity and equity-hedged portfolios, for example.
Asset classes have been grouped according to risk premiums as part of the new investment strategy in force since 1 January 2016. This approach allows alternative investments to be compared with traditional investments more easily and used in an even more targeted way.
The «Interest» risk premium includes bonds and loans with high credit ratings.
«Loans» covers all portfolios that entail a credit risk premium, i.e. compensation for assuming default risks. This includes syndicated loans, high-yield bonds and emerging market bonds. The «Private debt» and «Credit-hedged» portfolios previously managed under «Alternative investments» are now also included in this category.
The «Shares» risk premium also includes the «Private equity» and «Equity-hedged» portfolios in addition to the traditional share portfolios.
Three things make this investment strategy possible:
- The legal mandate and the resulting stable number of insurance carriers enables a long-term mindset.
- Premium income covers current payments for pensions and short-term benefits. Thus, there is little risk of having to dispose of long-term capital investments at low prices.
- The underlying liabilities – pension payments – are long-term in nature.
Yield and performance
Suva’s investment strategy can best be compared to that of a pension fund. Thanks to its balanced investment portfolio, Suva is able to survive even the most difficult times. A comparable investment strategy would have achieved an average annual yield of 5.6 percent since 1918. The realised performance since 2000 exceeds similar pension fund indices, e.g. the BVG-25-Index and the CS Pension Fund Index.
The positive performance of CHF 100 invested in accordance with Suva’s investment strategy (blue curve) would have defied all of the financial crises (bars in the negative zone) since 1918.
Suva strongly believes that the effects of a responsible investment strategy can be enhanced when different market actors pursue the same goals together.
In 2015, together with the larger Swiss pension funds, compensation funds and insurance companies, Suva founded the Swiss association for responsible investments (SVVK-ASIR) . The association supports its members in the application of ESG (environmental, social, governance) criteria. In this way, Suva observes its fiduciary duties as efficiently as possible.