Review of Operations 7 Letter to Shareholders 10 Strategy 19 Summary of Group Results 21 Insurance 21 Switzerland 23 France 24 Germany 25 Netherlands 26 Belgium/Luxembourg 27 Other (Liechtenstein, Italy)
Swiss Life Holding, registered in Zurich, dates back to the Swiss Life Insurance and Pension Company founded in 1857. Shares of Swiss Life Holding are listed on the SWX Swiss Exchange (SLHN). The Swiss Life Group employs a staff of about 9000.
In the period under review, Swiss Life was able to reinforce its financial strength, thereby increasing the financial flexibility of the company. Equity amounted to CHF 7.7 billion (+22%) as per 31 December 2005.
Swiss Life Group . Review of Operations 2005 . Insurance 22 Operating expenses increased by CHF 67 million. These costs contain three special factors: Restructuring costs in connection with the integration of «La Suisse», a one-off amortisation of the present value of future profits on the group insurance business acquired from Vaudoise, and the extraordinary write-downs on deferred acquisition costs due to altered actuarial assumptions. On a comparable basis, operating expenses declined by 19%. This produced an operating result of CHF 620 million (–10%).
The long-anticipated reform process in Germany is being delayed against a background of political change in connection with the election. This development, together with the new tax environment (Retirement Income Act), heightened customer uncertainty and led to a re-orientation on the part of life insurance companies and agents. Into this changing environment Swiss Life introduced Rürup pension products, which offer a tax benefit to self-employed individuals above all, and came out with additional products for the government-promoted “Riester pensions”. The various honours awarded during the year were a testament to the great competence Swiss Life has achieved in the private and occupational retirement pension sectors. At the International Trade Fair for the Finance and Insurance Industry in Dortmund (DKM), Germany’s largest fair for the financial and insurance business, Swiss Life was honoured with the “bAV Award 2005” as the overall winner in the occupational retirement sector. In addition, the
Netherlands Premium growth of 1% is anticipated for 2005 in the Dutch life insurance market. Premium volume amounts to about EUR 25 billion of which two-thirds can be attributed to individual life business and one-third to the group insurance business. On the basis of premium volume, Swiss Life occupies seventh place in the Dutch market with a share of about 4%.
Swiss Life considerably expanded its sales channels in Belgium. In June 2005 Swiss Life held the first countrywide “National Pension Day”. Political, business and academic figures discussed the various challenges faced by retirement savings plans in Belgium and Europe as a whole during the event. By holding such an event Swiss Life was able to demonstrate its competence in the field of retirement savings solutions and sensitise the Belgian to this topic. Swiss Life celebrated the 20th year of its presence in Luxembourg and accepted an award as “best provider of retirement solutions”.
The Banque du Gothard (Monaco) and Dreieck Industrie Leasing SA were both sold at the beginning of 2006 in line with the realigned strategy.
Political activities: – 1982 to 1991 Member of the Grand Council of the
Board of Directors – Schindler Elevator Limited, Ebikon, Member of the
Franziska Tschudi CHF 72 000 143 1) c.f. also the section on share allotment 2) for his role as Vice Chairman of the Board of Directors of the Board of Banca del Gottardo
1) “Closely linked parties” are natural persons and legal entities pursuant to Art. 678 of the Swiss Code of Obligations that have close personal, economic, legal or de facto ties with members of governing bodies. This typically includes spouses, minor children, companies controlled by the member of the governing body, and natural or legal persons serving the member of the governing body in a f iduciary capacity.
Society Swiss Life supports professional associations, education, sport and culture. Swiss Life employees serve on various committees of the Swiss Insurance Association. The Group also supports projects and courses at several universities and collaborates with professional and specialist associations. Swiss Life is a member of, among others, The Sustainability Forum in Zurich and the Standard Setting Board of the Federal Office of Private Insurance. Its subsidiary Swiss Life Asset Management, which manages the assets of institutional investors, has concluded a cooperation agreement with Sustainable Asset Management (SAM).
Monika Behr heads the product design team for group life insurance in Zurich.
Net insurance benefits, claims and claim settlement costs 9 –14 040 –15 375
Total change in cash and cash equivalents 5 378 2 101
Equity transaction costs (capital increase), net of taxes – –34 – – – – –34 – –34
The effects of the changes in accounting policies are shown in note 40.
All derivative financial instruments are carried in the balance sheet at fair value as assets when favourable to the Group and as liabilities when unfavourable. Gains and losses arising on remeasurement to fair value are recognised immediately in the income statement, except for derivatives that are used for cash flow hedging.
Assets associated with separate account/unit-linked contracts are included in financial assets designated as at fair value through profit or loss, investment property, derivatives and cash and cash equivalents. The related income and gains and losses are included in the income statement under the respective line items. Separate account liabilities are included in insurance liabilities. A derivative embedded in separate account contracts has been separated for the right of the policyholder to participate in the performance of the underlying assets and is included in derivatives. The deposit components of unit-linked liabilities are included in financial liabilities designated as at fair value through profit or loss (“unbundling of deposit components”). The components of the unit-linked liabilities that cover insurance risk, if any, are carried under insurance liabilities. Administrative and surrender charges are included in policy fee income.
PVP is subject to recoverability tests. The effect of changes in estimated gross profits or margins on unamortised PVP is reflected in “expenses for amortisation and impairment write-downs of PVP” in the period in which such estimates of expected future profits or margins are revised.
When DAC is amortised in proportion to gross profits or gross margins on the acquired contracts, realised gains/losses are taken into account as well as gains/losses recognised directly in equity (unrealised gains/losses). If these gains/losses were to be realised, the gross profits or gross margins used to amortise DAC would be affected. Therefore, an adjustment relating to these unrealised gains/losses is recognised in equity and is also reflected in the amount of DAC in the balance sheet (“shadow accounting”).
Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on a straight-line basis of the expected useful life up to three years.
Other intangible assets Other intangible assets primarily consist of contractual trademarks and brand names. They have a definite useful life of generally 5 to 20 years. Amortisation is calculated using the straight-line method over their useful lives to allocate the cost of trademarks and brand names.
– Financial liabilities backing assets in order to reduce or eliminate a measurement or recognition inconsistency.
In August 2005, the International Accounting Standards Board issued an amendment to IAS 39 Financial Instruments: Recognition and Measurement dealing with requirements associated with financial guarantee contracts. The 2 Summary of Significant Accounting Policies (continued)
Impairment of goodwill Goodwill is tested for impairment annually (in autumn), or more frequently, if events or changes in circumstances indicate that goodwill might be impaired. The recoverable amounts of the business relating to the goodwill have been determined based on value-in-use calculations. These calculations require the use of estimates which are set out in note 19.
Financial assets pledged as collateral – 1 232 – – – 1 232
Depreciation and amortisation expense –250 –290 –138 –39 –12 0 – –729
Impairment of property and equipment and intangible assets –48 – –4 – –1 – – –53
Policyholder participation –450 –543 –472 –63 –9 –18 0 –1 555
Ratings are monitored on a daily basis and a weekly rating migration report is submitted to the local risk department. All investments in bonds are at or above investment grade. The majority of the bond portfolio is invested in government bonds (including supranationals and sovereign) and in bonds issued by the financial sector (generally covered by collateral or government guarantees).
Insurance payables and other payables –1 018 –792 –1 992 –653 – – –4 455
Swiss Life Group . Financial Statements 2005 . Notes to the Consolidated Financial Statements 6 Risk Management Policies and Procedures (continued)
Liquidity risk Liquidity risk is the potential risk that the bank is unable to meet its obligations as they come due because of an inability to liquidate assets (maturity gap risk) or obtain adequate funding (funding risk). The latter is correlated to the market conditions and to the creditworthiness reputation of the bank.
Financial assets and liabilities at fair value through profit or loss as at 31 December
Based on detailed assessments with regard to indications of impairment, impairment losses totalling CHF 64 million were recognised in the period under review (2004: CHF 103 million). The impairment losses in 2005 primarily related to debt securities, hedge funds and equity securities. In 2004, the impairment losses primarily related to equity securities and hedge funds.
Total property and equipment as at 31 December 952 170 51 45 19 1 237 of which assets held under a finance lease 43 – – 4 – 47 18 Property and Equipment (continued)
Intangible assets including intangible insurance assets for the year ended 31 December 2005
Foreign currency translation effects 0 1 –13 –4 1 –2 –17
Future life policyholder benefits For participating contracts where the contribution principle applies to the allocation of the policyholder bonus and for nonparticipating contracts, future life policy benefit liabilities are determined by using the net-level-premium method on the basis of appropriate mortality and interest rate assumptions.
Due to a change in the French tax legislation in 2005 with regard to taxation of shareholdings, tax expenses were reduced by CHF 116 million. Furthermore, based on a new ruling with the Dutch tax administration, Swiss Life was enabled to reduce its tax liability by CHF 82 million. In connection with the restructuring of the real estate management business, the Swiss Life Group realised a tax benefit of CHF 18 million. Additionally, due to the reduction of the tax base in the real estate business, a tax benefit totalling CHF 23 million was realised.
Share capital As approved by the shareholders at the General Meeting of Swiss Life Holding (SLH) on 10 May 2005, a reduction in par value of CHF 4 per registered share was effected in 2005. The payout took place beginning of August 2005 and led to a reduction in the share capital of SLH of CHF 135 million.
Additionally, 397 078 new SLH shares with a par value of CHF 50 each were created by reducing conditional share capital. These shares adjusted the (minimum) number of shares convertible under the mandatory convertible securities (MCS) issues (MCS I, 2002–2005, and MCS II, 2003–2004).
Cash and cash equivalents acquired (+)/disposed of (–) 2 52 0 –145
Swiss Life Group . Financial Statements 2005 . Notes to the Consolidated Financial Statements 32 Assets Held for Sale and Associated Liabilities
Financial assets at fair value through profit or loss 0 – 0
Later than 1 year and not later than 5 years 54 35
In relation to mis-selling, it has been agreed that in case of specified events with a material financial impact on the OB Fund of the former Swiss Life UK life business, the financial consequences will be shared between the Swiss Life Group and the buyer according to a clear set of rules which limit the impact on the Swiss Life Group with regard to time (five years) and amount (GBP 31.5 million).
Insurance liabilities decreased by CHF 2220 million due to the elimination of own insurance contracts covering own employees.
Adamed, Basel – until 01.12.2004 – – full CHF 23 018
Swiss Life Information Systems, Sint-Gillis Insurance 100.0% 100.0% full EUR 62
Swiss Life (Luxembourg), Strassen Insurance 100.0% 100.0% full EUR 15 000
Swiss Life (UK), Sevenoaks – until 31.12.2004 – – full GBP 200 000
Adamed Investments, George Town – until 23.11.2004 – – full USD 0
Swiss Life Holding’s liquid assets (liquid funds + time deposits and similar instruments) rose from CHF 84 million to CHF 481 million, significantly improving the company’s financial flexibility.
Swiss Life (Liechtenstein), Vaduz CHF 5 000 100.0% CHF 5 000 100.0%
Swiss Life Holding . Financial Statements 2005 . Appropriation of Profit