Review of Operations 4 Letter from the Chairman of the Board of Directors and the CEO
We continued our targeted concentration on core business in 2003. Divestments included STG Schweizerische Treuhandgesellschaft, our business in Spain, Swiss Life Asset Management in the UK, and our participation in Crédit Agricole (Belgium). We have also found a solution for Swiss Life (UK). Swiss Life spun off its third-party private equity business in the first quarter of 2004.
Swiss Life is going places, moving in the right direction, at the right speed. However the turnaround is not yet complete. The Board of Directors will therefore propose to the General Meeting of Shareholders that no dividend be paid for 2003. We are going on the assumption that a dividend amounting to 25% to 30% of net profit will be declared for 2004. But there is still much for us to do. We need to focus even more on the needs of our customers.
The Board of Directors and the Corporate Executive Board expect the Swiss Life Group to make further visible improvements in profitability and to return to premium growth in 2004.
Proximity. Knowing how to relate to people is a key to success. The provision of pensions and long-term savings not only requires expertise and experience but also intuition: a feeling for what makes people tick, an ability to listen to their questions and concerns, an understanding of their personal wishes and objectives. Swiss Life believes it is essential to gain an in-depth knowledge and understanding of its customers and their personal circumstances. To find a suitable solution in each and every case.
As a result of the cost-reduction programme and falling volumes, operating expenses fell 16% from their prior-year level to stand at CHF 2.9 billion. The reductions of CHF 515 million in operating costs and 1500 FTE positions targeted for the end of 2004 had already been exceeded by the end of 2003, with CHF 532 million in cost savings and an FTE reduction of 1800. As of 31 December 2003 the Swiss Life Group employed a workforce of 10 015 on a full-time-equivalent basis.
Net earned premiums and policy fees 1 673 1 539 8.7%
Gross written premiums, policy fees and deposits under investment contracts 566 535 5.8%
Spain In Spain, Swiss Life sold its subsidiary Swiss Life (España) to VidaCaixa. Spain has not been among the Group’s core markets since September 2002, as considerable investment would have been required for the company to achieve critical mass in terms of the Spanish insurance market.
Belgium In Belgium, where Swiss Life conducts property insurance business through ZELIA, gross written premiums fell by 4% to CHF 74 million in 2003. In the local currency, this was equivalent to a decline of 8%. The lower premium volume was the result of streamlining the distribution structure and reorganising the insurance portfolio.
Revenue from commissions and services was slightly lower, declining 7% to CHF 232 million; similarly, revenues from interest operations slipped 5% to CHF 148 million. Business expenses were reduced by 13% to CHF 293 million.
For the model PVFP calculations, the best possible assumptions were made regarding a number of factors, in particular returns on investment, the development of costs and claims, insurance customers’ participation in surplus and the risk discount rate. Business is also assumed to be continuing at the same level (going concern). The current expense ratios – adjusted for inflation – are thus assumed to hold good for the future as well. The PVFP makes allowance for the future costs of the solvency capital required to underpin the insurance business. This figure is recorded separately in the “embedded value” table (“lockin ”) below.
Swiss Life Holding embedded value at year end 2003 4 333 2 788 – 210 6 911
Impact of 50 pb decrease in risk account rate 203 107 – 310
Business man and gardening enthusiast, Yves B. (55), is moving to the country.
Limitations on transferability and nominee registrations Swiss Life Holding shares are not subject to any limitations on transferability. Pursuant to the Articles of Association, the introduction, amendment or repeal of limitations on transferability is the responsibility of the General Meeting of Shareholders and requires the agreement of two-thirds of the voting shares represented as well as an absolute majority of the share par value represented. Swiss and foreign banks and securities brokers, as well as companies acting on their behalf, with shares of Swiss Life Holding held in their custody for the account of the beneficial owners, may be registered as nominees. Professional asset managers may also be registered as such if, in a fiduciary capacity, they have deposited Swiss Life Holding shares to the account of third parties with Swiss or foreign banks or securities brokers in their own name. Nominees are required to be subject to banking or financial market supervision. Nominees must apply for registration. The voting rights of nominees are restricted to 10% of the share capital, whereby nominees who are connected with regard to capital or voting rights under uniform management or contractual agreement will be counted as a single shareholder. The Board of Directors may approve exceptions to these restrictions on registration, observing the principle of free decision-making based upon a due assessment of the circumstances. No such exceptions were granted during the period under review.
Peter Quadri received his Master’s Degree in Economics and Business Administration and Operations Research in 1969 from the University of Zurich. He began his career in 1970 as a systems engineer and software/operating systems specialist at IBM and held various management positions before assuming his current appointment as Country General Manager at IBM Switzerland in 1998.
Resigning are: Andres F. Leuenberger (Member of the Board of Directors 19981)–2003, Chairman of the Board of Directors 2000–2003)
The Investment and Risk Committee meets at least four times a year.
Members of the Corporate Executive Board The Corporate Executive Board of Swiss Life Holding is composed of the following members: Reto Himmel Born 1956, Swiss national Chief Technology Officer (CTO)
In October 2001 he became head of the new Actuarial & Financial Techniques division. He was promoted to Chief Risk Officer (CRO) in January 2003.
71 Consolidated Statement of Income 72 Consolidated Balance Sheet 74 Consolidated Statement of Cash Flow 76 Consolidated Statement of Changes in Equity 79 Notes to the Consolidated Financial Statements 145 Report of the Group Auditors 146 Swiss Life Holding Financial Statements 146 Review of Operations 147 Statement of Income 148 Balance Sheet 149 Notes to the Financial Statements 152 Appropriation of Net Result 153 Report of the Statutory Auditors
Sales of SLH treasury shares –1 369 571 –246 555 187 37
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which they can be used. For unused tax losses a deferred tax asset is recognised to the extent that it is probable that these losses can be offset against future taxable profits.
The principal methods and assumptions used by the Group in estimating the fair value of the following financial instruments are: – Fair values for debt and equity securities are generally based upon quoted market prices.
On 12 November 2003, the Swiss Life Group sold its life insurance business in Spain to VidaCaixa, a subsidiary of the CaiFor Group. The life insurance business in Spain was reported within the Life Non-Core segment. The selling price amounted to EUR 43 million, net of transaction costs. Additionally, VidaCaixa transferred CHF 14 million to the Swiss Life Group to redeem a loan to Swiss Life Spain. The loss recognised on the sale amounted to CHF 2.5 million.
Operating result –566 106 –9 34 –126 – –561 6 Details of Life Core Segment (continued)
Elimination of interest expenses on convertible bonds, net of taxes – –
Impairment losses on property and equipment and other intangible assets 6 2
Total currency-related derivative instruments – assets 11 518 20 587 481 921
Other investments held to maturity and available for sale as of 31 December
Total impairment losses at the end of the reporting period –137 –63 – –
In 2003, Swiss Life Holding acquired an additional 878 978 SL/RA shares and increased the equity stake held in its subsidiary Swiss Life/Rentenanstalt from 92.23% as of 31 December 2002 to 99.72% as of 31 December 2003. The related negative goodwill on these transactions amounted to CHF 21 million and was recognised in net income.
The Group limits its exposures to loss within its insurance operations through participation in reinsurance agreements. Reinsurance arrangements do not relieve the Group of its direct obligations to the parties insured. Thus, a credit exposure exists with respect to both non-life and life reinsurance ceded to the extent that any reinsurer is unable to meet the obligations assumed under the reinsurance agreements. A provision has been recorded for estimated unrecoverable reinsurance. In addition, the Group holds substantial collateral under related reinsurance agreements in the form of deposited funds and securities. No single reinsurer is a material reinsurer to the Group, nor is the Group’s business substantially dependent upon any reinsurance contract.
Reinsurance liabilities consisted of CHF 703 million and CHF 651 million as of 31 December 2003 and 2002, respectively.
Due to changes in post-employment benefits payable under an existing plan negative past service costs totalling CHF 26 million were recognised in 2003.
Related expenses in 2003 and 2002 were CHF 15 million and CHF 34 million, respectively.
Other debentures In 2002 SwAFE B.V., a special purpose entity (SPE) in the Netherlands, issued notes totalling EUR 800 million backed by a portfolio of first-ranking mortgages originated by Zwitserse Maatschappij van Levensverzekering en Lijfrente. As of 31 December 2003, notes representing EUR 621 million were outstanding, of which Swiss Life held a stake of EUR 202 million. The remaining amount of EUR 419 million is included in other debentures (EUR 401 million) and in subordinated debt (EUR 18 million).
Adjustments recognised in the period for current taxes of prior periods –2 1
The holders of the MCS I are entitled to annual interest payments per MCS at 5.25% of the nominal value of CHF 1000 and certain payments in the event of any dividends or other cash distributions made by Swiss Life Holding to the holders of its shares. Unless previously converted, or purchased by the issuer and cancelled, each MCS will be mandatorily converted on 19 December 2005 into such number of shares as is equal to a maturity conversion 31 Equity
However, in the opinion of management these matters will not materially affect the Group’s consolidated financial position.
Swiss Life Group . Financial Statements 2003 . Notes to the Consolidated Financial Statements 43 Scope of Consolidation
Swiss Life Capital Partners, Pfäffikon IM l 99.7% 100.0% full CHF 100
SCI Paris Dammartin, Roubaix Other ° 98.9% 100.0% full EUR 15
Swiss Life Prévoyance et Santé (formerly Société suisse santé), Paris Life l 98.9% 99.2% full EUR 150 000
Mettagottardo, Ano Glyfada PB – until 15.11.2002 – – full EUR 586
Loans to Group companies CHF 39 million of the loans to Group companies are classified as subordinated loans.
Subsequently, 1 586 098 SLH shares equal to the number of SLH shares required under the conversion ratio were created from the conditional capital of Swiss Life Holding and transferred to the MCS Share Trust. These SLH shares are accounted for as own shares acquired for no consideration. With the issuance of these SLH shares, the ordinary share capital of Swiss Life Holding increased by CHF 79 304 900 and amounted to CHF 1 251 702 050 as of 31 December 2003. As of 31 December 2003, Swiss Life Holding had 25 034 041 registered shares with a nominal value of CHF 50 per share. Conditional share capital was CHF 103 260 950 as of 31 December 2003.
Ordinary share capital amounted to CHF 1 172 397 150 (23 447 943 shares) following this transaction, and conditional share capital came to CHF 182 565 850 (3 651 317 shares).