Swiss annuities are a type of investment vehicle rather than an investment category or asset class, although in view of the safety of investment and the unique asset protection offered by Swiss annuities, they can also be looked at as an investment category in their own right.
The word annuity literally means “annual payments” and when an annuity is bought, the insurance company promises to pay an income for a specified period of time. Accordingly, the two key questions that must be answered when you invest in an annuity are a) what does the insurance company promise and b) will the insurance company be able to keep the promise. The answer to the first question is of course different from insurance company to insurance company, so it pays to compare different offers and quotes.
This is also where an insurance broker can add value because an experienced broker and consultant who works with many different insurance companies can efficiently find the optimal solution for the client.
The second question relates primarily to fixed annuities and is less clear as it has two sides: on the one hand, in a fixed annuity the insurance company guarantees a certain return on in-vestment, and – in Switzerland – is legally obliged to maintain a security fund in order to always be in a position to keep this promise. This then fundamentally depends on the financial strength of the insurance company and the stability and security of the jurisdiction in which the insurer operates. Switzerland is arguably the safest and most stable jurisdiction in the world. But equally important, Swiss life insurance companies are required to maintain a security fund which covers all their obligations plus an additional safety margin. This fund is segregated from the company’s operating assets. Therefore, even if a Swiss insurer were ever to go bankrupt (none ever has since the existence of the Swiss insurance industry!), investments of policyholders are still safe. The other side of the answer relates not to the guaranteed minimum return, but to the surplus participations, which are not guaranteed but which the insurance company expects to pay out. Whether or not an insurer is able to meet these projected surplus participations depends on such factors as interest rate developments, general investment market returns, and how well the insurance company manages the assets that it takes care of. Here it is important to review how a particular insurer has managed to meet expectations in the past and how they are calculating today, and here the differences between the different insurers are considerable.
Another important aspect for investors is how easy it is to get out of an investment, i.e. the liquidity of the investment. Indeed, this is one of the key considerations also in terms of investment safety, because even a very secure investment is not as attractive if you cannot access the funds for many years. Swiss annuities offer instant liquidity. All capital, plus all accumulated interest and dividends, is freely accessible. Depending on the type of annuity, a minimal penalty in case of withdrawal applies only to an initial period of up to one year. So if funds are needed quickly, they are available and not tied down for a fixed period of time. Further-more, all Swiss banks will give loans and accept Swiss life insurance policies as collateral.
Swiss annuities are generally arranged on a no-load basis, so there are usually no additional charges or costs and the investment can be cancelled at any time, almost without loss of principal or accumulated interest and dividends.