Swiss Life slammed for lack of control
An inquiry into a secretive fund operated by senior managers of the Swiss Life insurance company has found serious shortcomings concerning control mechanisms.
The Swiss Federal Office of Private Insurance has ordered the company to claim back profits gained by former management members through the investment fund.
In its ruling on Monday, the insurance regulator said that six members of Swiss Life’s old guard had endangered the interests of policyholders by investing their own money in Long Term Strategy (LTS), a company with close ties to the insurer.
At a news conference in Bern, Herbert Lüthy, the director of the Private Insurance Office, said he was unable to put a precise figure on the amount to be returned.
However, he said it was not expected to exceed SFr10 million ($7 million) and it was up to the courts to determine the exact figure.
The six managers made a combined profit of SFr11.5 million on an initial investment of SFr3.8 million.
Fresh start
“We want to draw a line under this episode so as not to make things harder for Swiss Life,” said Lüthy. “The idea is to help restore confidence in Swiss Life.”
Lüthy commented that senior managers implicated in the scandal had taken on considerable risks in participating in the fund.
If the fund had made losses, it would have been up to Swiss Life to cover them since LTS was not in a position to do so.
Experts who have been looking into the fund’s activities found that controls were “clearly insufficient”.
The Office of Private Insurance has demanded that the Swiss Life directors who were responsible for supervising LTS, in which Swiss Life had a large equity stake, and who oversaw Swiss Life’s investment policy, leave the company.
Possibility of appeal
In a reaction, Swiss Life said that based on what was known now, there were no legal legal grounds for the company to bring civil suit against the former members of the executive board who participated in the fund.
But in a statement it said it would reconsider this point based on Monday’s ruling by the Federal Office of Private Insurance.
It added that it would be examining the possibility of contesting the decision that the Board of Directors’ Committee had breached its duty of supervision.
Swiss Life said that a study by independent external experts commissioned by the company had found that the committee had fulfilled its duty of control.
The statement commented that the company’s reputation had been damaged to an extent “exceeding its substantive importance”. Mistakes were made and these have been rectified, it said.
Scandal
The LTS case surfaced in October last year at a time when Swiss Life had admitted accounting errors and was under pressure to raise capital through a rights issue to shore up its finances.
In November, it replaced its chief executive for the second time in less than a year, announcing that Roland Chlapowski would be replaced by Rolf Dörig, head of domestic banking at Credit Suisse.
Chlapowski, who enjoyed a return of SFr3.2 million on an investment of SFr967,000 in LTS, claimed that the fund was above board and that there were no conflicts of interest.
He also denied that the business was a licence to print money for the firm’s management.
Terminated
LTS investment activities were terminated in July 2002 after Swiss Life’s chairman, Andres Leuenberger, ordered its dissolution.
Leuenberger said he had known about LTS since 2000 but had not invested in the company.
He announced in November that he was stepping down as chairman at the 2003 annual shareholders’ meeting.
Swiss Life, which announces its financial figures for 2002 on Tuesday, said last month that it expected to report a loss of about SFr1.7 billion.
It said the year had featured a disappointing financial result, a negative result from business in Switzerland and extraordinary write-downs.
swissinfo with agencies
Swiss Life revealed last October that six of its top managers invested their own money in Long Term Strategy, a firm closely linked with Swiss Life.
They made a combined profit of SFr11.5 million ($8.2 million) from the investment.
The Swiss Federal Office of Private Insurance announced on Monday that the managers’ actions endangered the interests of policyholders and ordered Swiss Life to claim back the profits made.
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