Contents 4 Facts & Figures 6 Shareholders’ Letter 8 Strategy 10 Summary of Group Results 14 Segment Reporting 26 Corporate Governance 31 Board of Directors 45 Corporate Executive Board 51 Swiss Life Compensation Report for the Financial Year 2016 68 Report of the Statutory Auditor 74 Risk Management 77 Corporate Responsibility 78 CEO Foreword 79 Introduction 87 The Longer Self-Determined Life 91 Responsibility in our Business Operations 103 Responsibility in Society 108 Responsibility for Employees 120 Environmental Responsibility 124 GRI Content Index 127 Key Sustainability Indicators (Analyst Download) 131 Brand 134 Market Consistent Embedded Value (MCEV) 136 Introduction 138 Summary of MCEV Results 147 Information by Market Unit 154 Methodology 161 Assumptions 166 Independent Auditor’s Report on Embedded Value 169 Glossary and List of Abbreviations 172 Consolidated Financial Statements 174 Consolidated Statement of Income 175 Consolidated Statement of Comprehensive Income 176 Consolidated Balance Sheet 178 Consolidated Statement of Cash Flows 180 Consolidated Statement of Changes in Equity 181 Notes to the Consolidated Financial Statements 322 Report of the Statutory Auditor 331 Swiss Life Holding Financial Statements 332 Management Report 333 Statement of Income 334 Balance Sheet 335 Notes to the Financial Statements 341 Appropriation of Profit 342 Report of the Statutory Auditor 348 Share Performance and Historical Comparison
Markets — The Swiss Life Group operates in Switzerland, France and Germany and has competency centres in Luxembourg, Liechtenstein and Singapore. Swiss Life provides multinational corporations with employee benefits solutions and high net worth individuals with structured life and pensions products. The Swiss Life Select, Tecis, Horbach, Proventus and Chase de Vere advisors use the Best Select approach in various European markets to choose suitable products for customers. Swiss Life Asset Managers offers institutional and private investors in Switzerland, France, Germany and the United Kingdom access to investment and asset management solutions. The Group also comprises Livit, Corpus Sireo and Mayfair Capital.
Staff — Approximately 7800 employees and 4800 certified financial advisors were working for the Swiss Life Group worldwide at the end of 2016.
Ladies and gentlemen, 2016 was yet another excellent year for Swiss Life. Lasting success is never assured, the fine results of recent years were achieved in a challenging political, social and economic environment. We are implementing our plans, which allows us to achieve significant progress in operations and make up for the rock-bottom interest rates.
A few key figures will make this clear: Swiss Life again increased its net profit, by 5% this time, to CHF 926 million. The increase in earnings power came in spite of an 8% decline in premium income, to CHF 17.4 billion – justifying our decision to focus on profitable growth. At the same time, we are seeing the fruits of our perseverance in expanding our fee business: the result in 2016 was a contribution to operating profit of CHF 396 million – an increase year on year of 14 percent. Another strategic reorientation in recent years has likewise fortified our company: our skill in the investment business. As of 31 December 2016, we had a total of CHF 204 billion assets under management, while in thirdparty customer business we achieved net new assets of CHF 8.5 billion. The company thus had CHF 49.6 billion in assets under management from third parties at the end of 2016, which represents a rise of 28 percent.
The second topic, relevant to virtually all areas of society, is the fact that we are living ever longer. As more people live to see 80, 90 or even 100, our entire social and economic system is being fundamentally altered. The social consequences of this demographic trend are still being massively underestimated in many areas of life. A longer life calls for greater responsibility, not least as regards coming generations. We in Switzerland must be able to reform our pension system so as to avoid placing undue strain on our children and grandchildren. Fairness demands it.
Thank you for the confidence you have placed in Swiss Life.
Strategy Thanks to a clear strategy and consistent implementation of Group-wide programmes, Swiss Life can make its customers a long-term, solid, attractive value proposition – so that they can lead their longer lives in an assured and self-determined way.
The Swiss Life Group is one of Europe’s leading comprehensive life and pensions and financial solutions providers. Swiss Life’s success is due to a clear strategy, sound corporate values and a charismatic brand.
In addition to regulatory and political trends, socio-economic changes such as increasing life expectancy affect Swiss Life’s environment. The social and economic consequences of demographic developments have a wide-ranging impact on human life, and are not to be underestimated. Selfdetermination and providing for a longer life are at the core of the company’s activities: Swiss Life helps its customers lead a longer self-determined life with confidence.
Changing customer behaviour has an equal effect on Swiss Life. Innovation, process security and competence are the ingredients of a good customer relationship. Customers are better informed than ever; they are able to compare benefits immediately and demand new products and services. And new modes of access as well as the ability to receive all relevant information any time, any place are also de rigueur.
The financial objectives of the “Swiss Life 2018” Group-wide programme are as follows: – We aim to increase the fee and commission result by the end of 2018 to CHF 400–450 million. – Our target for the risk result is CHF 350–400 million. – Cumulatively over the three years 2016–2018, we are aiming at new business worth over
The Swiss Life Group increased its net profit from CHF 878 million to CHF 926 million (+5%). Profit from operations amounted to CHF 1393 million (+5%). The savings result of CHF 804 million was almost as high as in 2015 (CHF 805 million) and the risk result was CHF 388 million (2015: CHF 398 million). The fee result was again very pleasing: it increased by 14% to CHF 396 million (2015: CHF 346 million).
Swiss Life posted a 9% fall in premiums in local currency to CHF 17.4 billion in 2016 (–8% in Swiss francs). The decline is mainly due to the consistent focus on profitability and capital efficiency. The Group grew its fee income in local currency by 3% to CHF 1.4 billion (+5% in Swiss francs).
In France, Swiss Life saw a 3% fall in premiums to EUR 4.1 billion. Premium quality in life insurance business was again high with a significant proportion (42%) of unit-linked solutions (2015: 45%) – which was twice the market level. The focus on profitable business and planned reduction in single-premium business in Germany resulted in a 10% drop in premiums to EUR 1.2 billion. The growth in risk and modern products partially offset this decline. Swiss Life International experienced a 31% fall in premium income to EUR 1.6 billion, as market conditions remained difficult.
As of 31 December 2016, Swiss Life Asset Managers had a total of CHF 204 billion under management (+10%). In its third-party customer business, Swiss Life Asset Managers posted net new assets of CHF 8.5 billion. The company thus had CHF 49.6 billion in assets under management from third parties at the end of 2016, which includes CHF 1.3 billion from the purchase of Mayfair Capital in the last quarter of 2016.
In addition to its fee and risk results, Swiss Life is also making good progress towards all its goals under “Swiss Life 2018”. The efficiency ratio for insurance business improved Group-wide by three basis points to 0.58%. Operating costs in insurance fell by 1% and the insurance reserves increased by 3%. In spite of interest rates falling further, the new business margin improved to 2.1%, relative to 1.7% in the prior year, due to disciplined margin management and an improved, more capital-efficient composition of new business. The value of new business rose from CHF 268 million in 2015 to CHF 296 million (+10%). Swiss Life generated an adjusted return on equity of 9.6% in 2016 (2015: 9.7%), and thus once again attained the upper end of its target range of 8 to 10%. The cash remittance to Swiss Life Holding increased to CHF 598 million (2015: CHF 411 million). Shareholders’ equity amounted to CHF 13.7 billion (+12%). Swiss Life estimates its SST ratio at about 160% as of 1 January 2017 (based on the internal model approved with conditions).
For events of particular significance occurring after the end of the financial year, see Note 34, “Events after the Reporting Period”, in the consolidated financial statements.
Asset allocation on a fair value basis as at 31 December (insurance portfolio at own risk) Amounts in CHF million
Cash and cash equivalents and other 3 343 2.2% 1 779 1.2%
Segment Reporting Swiss Life made further operational progress in 2016 and once again increased its earnings power. The Group posted adjusted profit from operations of CHF 1402 million (+5%) across all segments. Net profit increased by 5% to CHF 926 million during the reporting period.
Swiss Life reports by country: Switzerland, France and Germany. It also discloses separately the results of its cross-border segments, International and Asset Managers. In the Swiss domestic market, Swiss Life grew its segment result by 7%, to CHF 812 million. France increased its segment result to CHF 244 million (2015: CHF 234 million), while Germany contributed CHF 125 million (2015: CHF 130 million). The International market unit generated a segment result of CHF 45 million (2015: CHF 42 million). Swiss Life Asset Managers made a contribution of CHF 243 million to the Group result (2015: CHF 242 million). Net profit over all segments rose by 5% in the reporting period to CHF 926 million (2015: CHF 878 million).
Swiss Life posted a 9% fall in premiums year-on-year in local currency to CHF 17.4 billion in 2016 (minus 8% in Swiss francs). The decline is due to the consistent focus on profitability and capital efficiency. Fee and commission income was increased Group-wide in local currency by 3% to CHF 1.4 billion (plus 5% in Swiss francs).
In the reporting year, Swiss Life managed a 7% improvement in its segment result in its home market of Switzerland, to CHF 812 million (2015: CHF 761 million). Main drivers of the increase were the improved savings result and the higher cost and fee result. Direct investment income was at the previous year’s level (CHF 3.0 billion).
Operating expenses fell by 5% to CHF 886 million, a reduction due to lower acquisition costs resulting from a decline in new business and lower writedowns on deferred acquisition costs. Operational administrative costs in 2016 were sustainably decreased (−1%).
Investment business for private clients received a further push as part of the expansion of the product range. Thus, in addition to major progress with existing investment products, autumn 2016 saw the launch of two completely new investment products, Swiss Life Premium Delegate and Choice. Both solutions showcase Swiss Life Asset Managers’ investment expertise. The new offering enjoys pride of place in marketing in 2017.
The existing product and services range for corporate clients, which covers all group life needs, has been even more closely aligned with employer and policyholder requirements and enhanced with additional services beyond occupational provisions. During the year under review the focus was on expanding semi-autonomous solutions, which are enjoying increasing acceptance in the market and now make up 26% of new business. With its portal solutions for companies, Swiss Life is enhancing existing customer relationships and acquiring key competitive advantages designed to maintain and further expand its market leadership.
Premiums for France, by type of insurance 1 Group life 2 Individual life 3 Health insurance 4 Property
During the year under review, Swiss Life Germany virtually maintained its segment result, at CHF 125 million as against CHF 130 million in 2015. The decline can be attributed to a reduced savings result under difficult circumstances, particularly the continuing low interest rates.
Fee and commission income was increased by 4% to CHF 379 million. The main driver of this development was the expansion of the distribution base and greater productivity by commercial agents.
At the end of 2016 the proprietary financial advisory companies in Germany had 3286 trained and registered financial advisors under contract (+5 %).
In CHF million 1 restated 2 adjusted for the Group’s internal trademark fees, both levied and received (Swiss Life brand) 3 without interest income and guarantee fees between the segments
The Global Private Wealth Solutions business area, with carriers based in Luxembourg, Liechtenstein and Singapore, specialises in life insurance solutions for high net worth individuals. Its internationally comprehensive product range allowed it to virtually maintain fee income despite a declining portfolio.
The Asset Managers segment comprises Swiss Life’s Group-wide asset management activities.
The expansion of third-party business led to a net inflow in assets under management of CHF 8.5 billion. This was due principally to the growth of institutional mandates and money market funds, in fixed income and real estate products.
Swiss Life complies with accepted standards of corporate governance and, in the interests of its shareholders, policyholders and staff, attaches great importance to the requirements entailed in terms of the management and organisation of the Swiss Life Group. The corporate governance of Swiss Life Holding Ltd (Swiss Life Holding) is based on the relevant directives issued by the SIX Swiss Exchange and the Swiss Financial Market Supervisory Authority FINMA and is modelled on leading national and international corporate governance standards, in particular the Swiss Code of Best Practice for Corporate Governance issued by the Swiss Business Federation “economiesuisse”, as well as the Organization for Economic Cooperation and Development’s (OECD) principles on corporate gover nance.
The companies falling within the Group’s scope of consolidation are presented in the Consolidated Financial Statements (note 35). Information on the listing on the SIX Swiss Exchange and market capitalisation can be found in the section “Share Performance and Historical Comparison” on pages 348 and 349. The organisational structure of the Group shows the key business markets and areas. The resulting operational responsibilities are reflected in the allocation of responsibilities among the Corporate Executive Board. With regard to insurance operations, one person with responsibility for the market and results is assigned to each specific area.
The operational management structure as at 31 December 2016 is shown on page 45.
The purchase or sale of shares or of acquisition/disposal considerations regarding shares in companies that are domiciled in Switzerland and have their shares listed in Switzerland, must be reported to the company in question and the SIX Swiss Exchange if the shareholdings exceed, fall below or reach certain thresholds. The relevant thresholds are 3, 5, 10, 15, 20, 25, 33⅓, 50 and 66⅔% of the voting rights. The details are set out in the Financial Market Infrastructure Act (FMIA) and in the implementation provisions of the Financial Market Infrastructure Ordinance -FINMA (FMIO-FINMA) and Financial Market Infrastructure Ordinance (FMIO).
On the balance sheet date some 161 000 shareholders and nominees were listed in the Swiss Life Holding share register, of which about 4200 were institutional shareholders. Taken together, the shareholders entered in the share register held around 50% of the shares issued. Over half of these shares were owned by shareholders domiciled in Switzerland. Approximately a third of the registered shares were in private hands.
– Conditional share capital: CHF 30 599 250.30, divided into 5 999 853 registered shares with a par value of CHF 5.10 each
Since the establishment of Swiss Life Holding on 17 September 2002, a number of capital market transactions have been conducted. A detailed description of the transactions carried out up to and including the end of 2013 can be found in the Corporate Governance section of the annual reports for the relevant years. The annual reports can be accessed at www.swisslife.com, “Investors & Shareholders” area, “Results & and Reports” section, “Reports” and “Annual Reports” subsection (www.swisslife.com/annual reports).
The Board of Directors may refuse to recognise an acquirer as a shareholder with voting rights if, upon request, the acquirer does not expressly declare that he has acquired the registered shares in his own name and for his own account.
One convertible bond issue of Swiss Life Holding was outstanding on the balance sheet date: the 0% convertible bond (2013–2020) issued by Swiss Life Holding Ltd in the amount of CHF 500 000 000. The specific conditions attached to this convertible bond and further details on it can be found in the Consolidated Financial Statements, note 20, on page 273 and in the issue prospectus of 13 November 2013.
The Board of Directors is responsible for all matters that are not reserved for the consideration of the General Meeting of Shareholders (formally the supreme decision-making body of a public limited company) under the terms of the law (Art. 698 of the Swiss Code of Obligations CO) or by the company’s Articles of Association. In line with its non-transferable duties prescribed by law, the Board of Directors is responsible, in particular, for the ultimate direction of the group, as well as the supervision of the Corporate Executive Board.
On the balance sheet date of 31 December 2016, the Board of Directors was composed of the following members.
Gerold Bührer 1st Vice Chairman Investment and Risk Committee, Chairman 2002 2
Rolf Dörig will be put forward for re-election as member and Chairman of the Board of Directors at the General Meeting of Shareholders of Swiss Life Holding on 25 April 2017.
He began working as an independent economic consultant in 2001 and, from 2006 until 2012, he held the office of Chairman of economiesuisse. Gerold Bührer was a Member of the Grand Council of the Canton of Schaffhausen from 1982 to 1991 and, from 1991 to 2007, a Member of the Swiss Parliament (National Councillor).
Frank Schnewlin will be put forward for re-election as Member of the Board of Directors and as member of the Compensation Committee at the General Meeting of Shareholders of Swiss Life Holding on 25 April 2017.
Wolf Becke — Born 1947, German national Member of the Board of Directors bild Wolf Becke studied mathematics, physics and economics at the Universities of Bonn and Freiburg and obtained a degree in mathematics.
Between 1973 and 1977, he worked as a research assistant at the Mathematical Institute of the University of Freiburg and earned a doctorate in science. In 1978 Wolf Becke joined Hamburger Internationale Rückversicherung AG (HIR), where he was employed in various positions until 1990, ultimately responsible for the Life and Health Reinsurance, Finance and Accounting and Investments divisions. He then moved to Hannover Re and E+S Rück. From 1992 to 1999, as a member of the Executive Board, he was responsible for both global life and health insurance business, and for non-life business in Asia, Africa and Australasia. From 1999 until his retirement for age reasons at the end of 2011, Wolf Becke concentrated on his responsibilities as CEO of the life and reinsurance business area (Hannover Life Re).
Wolf Becke will stand down from the Board of Directors on completion of his five-year term at the General Meeting of Shareholders of Swiss Life Holding due to his reaching the statutory age limit.
Adrienne Corboud Fumagalli — Born 1958, Swiss and Italian national Member of the Board of Directors bild Adrienne Corboud Fumagalli is a Doctor of Economics and Social Sciences and a graduate of the University of Fribourg. In 1996 she joined the PTT in the management team of Radiocom (radio, TV, mobile) in charge of New Business Development and the international market. The PTT then became Swisscom and Adrienne Corboud Fumagalli held various positions from 1997 to 2000, ultimately becoming Director of Product Marketing in Radio Broadcasting Services. In November 2000, Adrienne Corboud Fumagalli joined the Kudelski Group as Corporate Secretary and Member of the Corporate Executive Board. In January 2004, she was appointed Executive Vice President in charge of Business Development. From 2008 to 2016, Adrienne Corboud Fumagalli served as Vice President for Innovation and Technology Transfer at EPF Lausanne. As of 2017, she is also Managing Director of the EPF Lausanne Social Media Lab.
Adrienne Corboud Fumagalli will be put forward for re-election as Member of the Board of Directors at the General Meeting of Shareholders of Swiss Life Holding on 25 April 2017.
Other appointments: – Federal Communications Commission (ComCom), Member – CSEM Swiss Center for Electronics and Microtechnology Inc, Member of the Board of Directors – Fondation pour l’innovation technologique (FIT) in Lausanne, President – Fondation EPFL Innovation Park, President
Ueli Dietiker — Born 1953, Swiss national Member of the Board of Directors bild Certified accountant Ueli Dietiker started his career at Ernst & Young. He later assumed management responsibility in the finance division at Motor-Columbus Ltd. From 1995 to 2001 he worked at Cablecom Holdings Ltd, ultimately as CEO. In 2001 he switched to the Swiss telecommunications company Swisscom AG where he held several positions of responsibility. From 2002 until 2006 he was CFO and deputy CEO of the Swisscom Group. In 2006 and the first half of 2007 he was CEO of Swisscom Fixnet AG and afterwards became CFO and deputy CEO of the Swisscom Group again until the end of 2012. Today he still has a 60% position at Swisscom, manages selected projects and serves on the Board of Directors of various Swisscom subsidiaries and investment companies.
– BLS Ltd. and BLS Netz AG, Member of the Board of Directors and Member of the Audit Committee
Damir Filipovic will be put forward for re-election as Member of the Board of Directors at the General Meeting of Shareholders of Swiss Life Holding on 25 April 2017.
Henry Peter — Born 1957, Swiss and French national Member of the Board of Directors bild Henry Peter completed his studies in law at the University of Geneva in 1979, and in 1981 he was called to the Geneva bar. Following an assistantship in Geneva, a period of study as a visiting scholar at the University of California in Berkeley and legal work in Lugano, he obtained his PhD at the University of Geneva in 1988. Since 1988 he has been a partner in a Lugano law firm, currently PSM Law SA. He has also served since 1997 as professor of business law at the University of Geneva. Between 2004 and 2015 he was a member of the Swiss Takeover Board. Since 2007 he has been a Member of the Sanctions Commission of the SIX Swiss Exchange.
Other appointments: – BIOMED AG, Member of the Board of Directors – economiesuisse, Member of the Executive Board – Swissmem, Member of the Executive Board
Administration. In this function he was notably a member of the Liechtenstein OECD delegation and Governor of the European Bank for Reconstruction and Development (EBRD) in London for four years. Klaus Tschütscher went on to start his political career as a member of government of the Principality of Liechtenstein. Initially he was Deputy Prime Minister from 2005 to 2009, responsible in particular for Justice and Economic Affairs. From 2009 to 2013 Klaus Tschütscher was Prime Minister and Finance Minister of Liechtenstein. He has received various awards and international distinctions. Klaus Tschütscher is a delegate and Executive Board member of UNICEF Switzerland and an honorary member of the charitable foundation “Football is more” (FIM). Since his withdrawal from politics, Klaus Tschütscher has been a member of the Board of Directors of Swiss Life Holding Ltd.
Other appointments: – Büchel Holding AG, Member of the Board of Directors – Grand Resort Bad Ragaz Ltd., Member of the Board of Directors – Montfort Werbung AG, Member of the Board of Directors – Tschütscher Networks & Expertise AG, Owner and Chairman of the Board of Directors – DMG Mori Schweiz AG and DMG Mori Europe Holding AG, Member of the Board of Directors
Changes in the Board of Directors with effect from the 2017 General Meeting of Shareholders
The Board of Directors met nine times during the year under review. The meetings lasted around three hours on average. All members of the Board of Directors attended all the meetings. The Group CEO and other members of the Corporate Executive Board attended all the meetings apart from one, when a member of the Corporate Executive Board was unable to attend. The Board of Directors conducted parts of the meetings among themselves.
Four standing committees support the work of the Board of Directors as a whole: the Chairman ’s and Corporate Governance Committee, the Compensation Committee, the Investment and Risk Committee, and the Audit Committee. The Board of Directors may establish other committees to be entrusted with special tasks.
Generally, the Group CFO and the Head of Corporate Internal Audit attend the Audit Committee meetings or parts of the meetings in an advisory capacity. The Group CEO may attend the meetings of the Audit Committee (without voting rights). Representatives from the external audit services are also regularly invited (cf. also “Supervisory and control instruments vis-à-vis the auditors”, page 72). In addition, further members of the Corporate Executive Board or in-house specialists may also be invited to attend. The Audit Committee meets at least four times a year. The frequency of meetings depends on the financial budgeting and reporting process.
The Corporate Executive Board is responsible for the implementation of the corporate strategy, for the establishment of conditions governing business operations and for financial guidance. It is responsible for the preparation of the resolutions for the Board of Directors and its committees, and for monitoring the implementation of these decisions in the Group. The Corporate Executive Board is vested with the authority to rule on business referred to it by the Board of Directors, the Board of Directors’ committees and the Chairman of the Board of Directors, insofar as decision or approval is not reserved exclusively to the delegating body.
On 31 December 2016 the Corporate Executive Board of Swiss Life Holding was composed of the following members: Member of the Corporate Executive Name Function Board since
bild Patrick Frost studied at the ETH in Zurich and the uni versities of Cologne, Basel and Zurich, obtaining degrees in natural science (dipl. Natural Science (dipl. Natw. ETH), economics (Dr. rer. pol.) and law (lic. iur.). He began his career in the mid-nineties as an analyst and subsequently as a Portfolio Manager in asset management for Winterthur Group. After two years in the US as a Corporate Bond
Other appointments: – Sanitas Krankenversicherung and Sanitas Beteiligungen AG, Member of the Board of Trustees and Vice Chairman of the Board of Directors – Valiant Holding AG and Valiant Bank AG, Vice Chairman of the Board of Directors – Swiss Insurance Association (SIA), Member of the Board of Directors and Board Committee – Zurich Chamber of Commerce, Member of the Board – Financial Market Authority (FMA) Liechtenstein, Member of the Board of Directors – Greater Zurich Area (GZA), Member of the Board of Trustees
Member of the Executive Committee of the Swiss P&C business unit. From 1997 to 1999 he was Chief Financial Officer of all Swiss operations. In 1999 Thomas Buess moved to the USA as Chief Financial Officer of Zurich Financial Services Group’s North American business area. In 2002 he was appointed Group Chief Financial Officer and Member of the Group Management Board. Thomas Buess went on to head the reorganisation of the life insurance business before assuming the role of Chief Operating Officer of Zurich Financial Services Global Life in 2004. In January 2009 he moved to Allianz Group as Head of Operational Transformation.
Management. At the same time, he was the driving force behind the foundation of the listed real estate company Swiss Prime Site AG, where he served as Chairman of the Board of Directors until 2005. From 2005 until 2009 he worked for Deutsche Bank, initially assuming responsibility for managing family offices in Switzerland and in the final two years serving as CEO of Privatbank Rüd, Blass & Cie AG. From 2009 until 2014, Stefan Mächler was in charge of asset management at the Swiss Mobiliar Group as Chief Investment Officer and member of the Group Executive Board.
Nils Frowein —Born 1964, German national Chief Executive Officer International (CEO International)
bild Nils Frowein is an economics graduate with German and American accountancy certification. He is a skilled banker and has extensive expertise in the financial services sector and many years of capital market experience. From 1997 until 2004 he worked at the auditing firm BDO Deutsche Warentreu hand AG, where he was responsible for the Financial Advisory Services division, most recently as partner. From 2004 to 2007 Nils Frowein was CFO of financial services provider MLP. There he was significantly involved in laying the strategic foundations for the company. Nils Frowein joined AWD as deputy Chief Executive Officer in January 2008. He was initially Chief Financial Officer and was appointed Chief Operating Officer on 1 September 2008. Between 2009 and 2010 he additionally took charge of the Swiss business of AWD as acting CEO. Since 2010 he has also been Chairman of the Swiss Life subsidiary Chase de Vere in the UK and since 2011 Chairman of the Supervisory Board of Swiss Life Select Austria.
Other appointments: – German-Swiss Chamber of Commerce, Member of the Board
Pursuant to the Articles of Association, the General Meeting of Shareholders is responsible for approving the maximum total amount of fixed compensation for the Board of Directors until the next ordinary General Meeting. The General Meeting of Shareholders also votes on a prospective basis on the maximum amount of the fixed compensation and the long-term variable compensation component (equity compensation plan) for the Corporate Executive Board for the next financial year. By contrast, the short-term variable compensation component for the Corporate Executive Board is submitted for approval to the General Meeting of Shareholders on a retrospective basis for the previous financial year, in full cognisance of the respective business figures.
The information on compensation granted to Corporate Executive Board mem bers also includes the variable compensation, which was determined by the Board of Directors at the beginning of 2017 and is published on an accrual basis as compensation for the 2016 financial year. The members of the Board of Directors are granted exclusively fixed compensation, payable 70% in cash and 30% in Swiss Life Holding shares; the allocated shares are subject to a three-year blocking period.
The variable compensation components are linked to the strategic objectives of the Group and the individual divisions, and the associated financial and HR-related targets. They are based on the achievement of annual objectives defined in advance for a period of three years as part of medium-term planning and determined on the basis of the actual performance of individuals or teams in relation to the objectives set (performance-linked payment) and on the degree of
Swiss Life – Annual Report 2016 achievement of the Swiss Life Group targets as reflected in its annual result (share in the company ’s success). Quantitative and qualitative performance is also always assessed on the basis of the competencies required for the function held, such as professional expertise, entrepreneurship, task fulfilment, cooperation and leadership. The percentage weighting between the individual and/or team performance and the share in the company’s success depends on the position and responsibilities of the function holder.
The share in the company’s success is measured using quantitative Group targets (Key Performance Indicators, KPIs), which are defined in advance for the following three years as part of medium-term planning. The main KPIs for the medium-term planning are, besides the annual profit, payout capacity, the planned cost savings, the risk and fee result, new business profitability, the return on equity and solvency (Swiss Solvency Test, SST). In order to avoid conduct aimed at the short-term achievement of key indicators with a higher weighting, the individual KPIs are not mechanistically weighted in advance. Their individual weighting is determined at the end of each financial year by the Board of Directors as a whole on the basis of a proposal by the Compensation Committee taking all developments into account and consideration (discretionary decision).
The Board of Directors as a whole also sets the level and distribution of the variable compensation pool for all employees on the basis of its compensation policy guidelines based on a proposal by the Compensation Committee. When determining the level of the allocation to the compensation pool, it takes into consideration the annual result, as well as medium-term planning and the degree of target achievement.
After expiry of the thee-year period of the RSU plan, the target value for each performance criterion according to the medium-term planning is compared with the actual result achieved. The share allocation corresponds to the number of allocated RSUs (1 RSU = 1 share) if all three performance criteria have been achieved or exceeded after the three-year period has elapsed; overperformance does not lead to a higher share allocation. If the targets are only partly achieved, the share allocation is correspondingly reduced in accordance with the weighting of the performance target concerned or the RSUs expire worthless. For reasons of trade secrecy, the precise target values cannot be disclosed in advance; after expiry of the equity compensation plan, the number of RSUs available for exercise according to the effective performance and, respectively, the corresponding degree of target achievement and the corresponding share allocation (vesting) will be disclosed. The corresponding information on the vesting of the various equity compensation plans and the shares allocated, is set out in Note 23 of the Consolidated Financial Statements on pages 286 and 287.
The members of the Board of Directors are granted exclusively fixed compensation. This is paid 70% in cash and 30% in Swiss Life Holding shares; the shares are subject to a three-year blocking period from the date of allocation.
For the period from the 2015 ordinary General Meeting to the 2016 ordinary General Meeting, the General Meeting of 27 April 2015 approved a maximum total amount of fixed compensation for the members of the Board of Directors in the amount of CHF 3 300 000 in total. On this basis, the Board of Directors determined the compensation for the members of the Board of Directors unchanged at the same level as in the previous year; effectively the fixed compensation for the Board of Directors during the period in question amounted to (2015 General Meeting to 2016 General Meeting) CHF 3 252 519 in total.
For the period from the 2016 ordinary General Meeting to the 2017 ordinary General Meeting, the General Meeting of Shareholders of 26 April 2016 approved a maximum amount of fixed compensation for the Board of Directors totalling CHF 3 440 000, which was slightly higher than the previous year, for the purpose of increasing by CHF 10 000 the basic compensation for the members of the Board of Directors, which had remained unchanged at CHF 110 000 since 2011; the compensation for time expenditure related to chairing a Board of Directors’ Committee was also increased slightly. Compensation for the Vice Chairmen and for the Chairman of the Board of Directors remained unchanged.
3 Pursuant to the pension fund regulations, occupational provisions were financed by the employer and the employee at a ratio of 70% to 30%.
Following the 2016 compensation table, the details of the compensation for 2015 are stated in a separate table for comparison.
2 The salary amounts also include tax-equalisation payments and international travel expenses totalling CHF 1 066 800.
4 Child allowances (CHF 13 800) and premium contributions to 3rd pillar pension plans (CHF 125 911) in total amounts.
Other members of Corporate Executive Board 342 000 9 160 2 581 288 13 430 653 7 The variable deferred compensation in cash is paid out after a deferral period of three years, provided the requirements are satisfied at that point.
9 For the 2017 RSU plan beginning 01.03.2017 the 2016 financial year forms the basis for the amount of the allocation and the corresponding number of allocated RSUs. The allocation of RSUs on 01.03.2017 was effected at a fair value of CHF 281.80, as calculated by an independent consultancy firm.
2 6 individuals were taken into account in the period under review who were on the Corporate Executive Board during the full reporting year (previous year: 4 persons). The compensation for Markus Leibundgut in 2014 (appointed on 1 April 2014) and Stefan Mächler (appointed on 1 September 2014) is reported pro rata for the period of their membership of the Corporate Executive Board in 2014. The compensation for Bruno Pfister is also reported pro rata for the period of his membership of the Corporate Executive Board in 2014. Nils Frowein has been a member of the Corporate Executive Board since 1 January 2015.
4 The short-term variable compensation component for the 2015 financial year (bonus and deferred compensation in cash) was determined by the Board of Directors at the beginning of 2016 for the 2015 financial year.
5 Child allowances (CHF 8200), allowance for years of service (CHF 6512) and premium contributions to 3rd pillar pension plans (CHF 131 175).
Other members of Corporate Executive Board 1 1 394 504 0 10 445 549 6 Pursuant to the pension fund regulations, occupational provisions were financed by the employer and the employee at a ratio of 70% to 30%.
Other members of Corporate Executive Board 1 304 000 11 108 2 395 553 13 145 102 8 The variable deferred compensation in cash is paid out after a deferral period of three years, provided the requirements are satisfied at that point.
Swiss Life – Annual Report 2016 1 audited 2 “Closely linked parties” are natural persons and legal entities (in the sense of Art. 678 of the Swiss Code of Obligations and Art. 16 of the Compensation Ordinance) that have close personal, economic, legal or de facto ties with members of governing bodies. This typically includes spouses, minor children, companies controlled by members of governing bodies, and natural or legal persons serving as members of governing bodies in a fiduciary capacity.
No additional fees and compensation were paid to members of governing bodies in the year under review.
SLH shares 1 Total number of RSUs allocated in the years 2014, 2015 and 2016 in connection with the relevant equity compensation plan. The RSUs represent future subscription rights that entitle the individuals concerned to receive SLH shares after a period of three years, provided that the relevant conditions are met at that point.
Shareholdings as well as future subscription rights to Swiss Life Holding shares as at 31 December 2015 are shown in the Notes to the Swiss Life Holding Financial Statements on page 340.
of which total variable compensation (total pool) 2 139 466 402
Total outstanding deferred compensation 11 833 595 of which cash payment 970 177 of which shares 0 of which options 0 of which others (Restricted Share Units, RSU) 10 863 418
Charges and credits in the financial year from compensation for previous financial years 3 –388 383
Board of Directors, Executive Board and persons whose activities have a significant influence on the risk profile:
Board of Directors’ responsibility The Board of Directors is responsible for the preparation and overall fair presentation of the compensation report in accordance with Swiss law and the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance). The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.
Opinion In our opinion, the compensation report of Swiss Life Holding Ltd for the year ended 31 December 2016 complies with Swiss law and articles 14–16 of the Ordinance.
The rules set out in the Articles of Association for convening a General Meeting of Shareholders and drawing up the agenda comply with the stipulations of the law. Shareholders who represent at least 0.25% of the share capital can submit a written request within a time limit published in advance by Swiss Life Holding for the inclusion on the agenda of an item for discussion, together with the relevant motions. The written application must be accompanied by a blocking certificate issued by a bank to confirm that the shares are deposited with it until after the General Meeting of Shareholders.
Swiss Life Holding’s Articles of Association provide for neither an “opting up” nor an “opting out” clause within the meaning of Art. 135 para. 1 and Art. 125 paras 3 and 4 of the Financial Market Infrastructure Act (FMIA).
The Articles of Association stipulate that the external auditor is to be elected by the General Meeting of Shareholders for one financial year at a time. When Swiss Life Holding was established in 2002, PwC was named statutory auditor and Group auditor. Since then PwC has been elected without fail. PwC has also acted as statutory auditor for Swiss Life Ltd since 1994. Swiss Life Holding last invited tenders for its statutory auditor and Group auditor mandate for the 2008 financial year. On completion of the evaluation process, the Board of Directors, in accordance with the proposal of the Audit Committee, again nominated PwC as its statutory auditor and Group auditor at the General Meeting of Shareholders.
In 2016 the auditing fees credited to Pricewaterhouse Coopers came to CHF 8.4 million (prior year: CHF 8.1 million). This includes the fees for reviewing the 2016 half-year accounts.
Additional fees in the region of CHF 1.4 million were also paid to PwC in 2016 (prior year CHF 1.1 million), approximately CHF 0.5 million of which was for the audit of the Market Consistent Embedded Value (MCEV) report. The remainder consists of fees for fiscal and other advisory services. All services were performed in compliance with the relevant independency regulations set out in the Swiss Code of Obligations, the Audit Supervision Act and FINMA circular 2013/3, “Auditing”.
The Audit Committee maintains regular contact with the external auditors. It evaluates the independence of the external auditors and identifies possible conflicts of interest. It also examines the terms and conditions of the external audit mandates and assesses the audit plan and strategy for the year in question.
Key facts and figures about the Swiss Life Group and info kits on previous years’ reports are available on the internet at www.swisslife.com, “Investors & Shareholders” area, “Results & Reports” section (www.swisslife.com/results). Details on events relevant to shareholders, analysts and the media (General Meetings of Shareholders, media conferences etc.) can be found at www.swisslife.com, “Investors & Shareholders” area, “Financial Calendar & Roadshows” section (www.swisslife.com/finanzkalender).
Swiss Life uses structured processes to ensure that strategic risks are dealt with adequately in what continues to be a very challenging economic environment. In its strategic risk management process, Swiss Life incorporates all the information on risks and corresponding risk/return characteristics in its strategic decisions. An understanding of the interplay of individual risks is essential in order to take due account of the factors influencing risks during strategy development so that these factors can be steered appropriately.
We help our customers lead a longer self-determined life with confi dence.
Diligence, integrity and forward-looking actions form the basis for successful and responsible business operations.
We consistently orient our business to customer needs and invest in consulting, digitalisation and organic growth.This benefi ts our customers, investors, shareholders and employees.
In the Swiss domestic market, corporate responsibility – under the umbrella of the Group-wide guiding theme “a longer self-determined life” – plays an active part in the areas of social engagement, corporate responsibility reporting and “actively shaping your career”.
Swiss Life wants to contribute to the advancement of transparency and comparability in sustainability reporting through its Corporate Responsibility Report, thereby showing its stakeholders where the company’s priorities lie in this regard.
Swiss Life develops new working models and development opportunities through its “Actively shaping your career” programme, aiming to ensure ongoing development and motivation for employees throughout all stages of life with flexible solutions for changing their working hours and harmonising their work-life balance. The three key success factors for Swiss Life are “generational diversity”, “capacity to work” and “employability”.
– Head of Group Human Resources – Head of Human Resources Switzerland – Head of Group Communications & Strategic Marketing
Responsibilities The CR network ensures the passage of information to the line and is responsible for the implementation of CR measures in the relevant business areas.
A Steering Committee (STC) was set up in 2016, to enable Swiss Life to plan its corporate responsibility activities and keep track of progress. The STC includes representatives of Human Resources and Communications in addition to all the Group Executive Board members in Switzerland. The STC meets twice a year as a rule. The Group CEO chairs the committee.
Corporate responsibility representatives from Group Communications, Public Affairs and Human Resources, and one person from the Swiss Life Perspectives Foundation, form a core operational team to ensure the exchange of information in the line, propose measures to the Steering Committee and implement their mandates correspondingly in the organisation.
The annual reporting on corporate responsibility helps strengthen communication with the stakeholder groups. Swiss Life’s stakeholders include, in addition to its employees and customers, investors, legislators and representatives of the media, politics and associations, all of whom are affected either directly or indirectly by Swiss Life’s activities. Swiss Life is in regular dialogue with all of its stakeholders, which ensures that it is aware of the requirements and expectations of its stakeholder groups and is able to react to challenges or changes (G4–24, G4–25, G4–26, G4–27).
Economic responsibility Swiss Life contributes to the stability of the financial centre as a long-term investor. As a leading institutional property investor in Europe and owner of the biggest private property portfolio in Switzerland, the company is also a key principal on the Swiss construction scene. Swiss Life is also mindful of its social responsibility as an employer and creates training opportunities for young professionals.
Sustainable profitability Sustainable economic performance is a fundamental requirement of Swiss Life’s corporate management. In its strategic orientation, Swiss Life is closely guided by the long-term guarantee of profitability and the guidance of capital efficiency.
Investment strategy and active ownership Swiss Life’s investment strategy is designed on a sustainable and long-term basis and harmonised with insurance liabilities. The company’s investment policy is oriented towards long-term and stable returns. Swiss Life represents its clients’ interests as an asset manager. The company is aware of its responsibility as demonstrated by its actions in investment allocation and the exercise of its voting rights according to clearly defined criteria.
In 1900 life expectancy in Switzerland was 46 years. Now a 65-year-old man can expect to live for another 19 years, and a woman of the same age for another 22. It’s the same throughout Europe. According to forecasts by the Organisation for Economic Co-operation and Development (OECD), life expectancy in Europe is increasing by three months every year. That comes to 2.5 years per decade. By 2040, average life expectancy in Europe will be 90 years. Researchers are talking about a longevity revolution.
A longer life is an opportunity to keep growing, to learn and to enjoy self-determination. However, the public perception of longevity tends to be more negative. Swiss Life strongly advocates a positive perspective on ageing and aims to establish itself as a thought leader in this area.
Since November 2015, a “longer self-determined life” has been the guiding theme of Swiss Life and part of its corporate strategy. The social and economic consequences of the fact that we are living longer are insufficiently accounted for in almost all areas of life. In response, Swiss Life is contributing to the public debate by showing what needs to be done and outlining the opportunities and challenges of living longer. The aim is to raise awareness of the issue across the generations. After all, we owe it to posterity to respond to the challenges of growing life expectancy and initiate change.
People want to retain their independence and self-determination in old age. Swiss Life thus wants to help its customers to envisage, prepare for and enjoy a longer self-determined life by developing targeted products and solutions and providing the right advice to enhance customer value. However, more needs to be done. Everyone needs to contribute: both society as a whole and every individual. If people are to enjoy a self-determined old age, they need to take more individual responsibility for their pension provision. A fulfilled and independent life in retirement depends on thorough planning and the early implementation of those plans. Swiss Life wants to help shape this debate.
Hopes of respondents currently aged between 35 and 36 for when they reach retirement age 5 When I reach the traditional retirement age I would like to do the same job but fewer hours 4 When I reach the traditional retirement age I would like to start a new career 4% 3 I wish to keep working in my current job as long as possible before retiring 16%
2 I want to retire at the traditional retirement age and expect to pursue leisure/voluntary opportunities 1 I want to retire as young in life as possible and pursue non-employment leisure/voluntary opportunities 34%
In March 2016, Swiss Life published the results of an independent study on a “longer self-determined life”. The survey results, based on a questionnaire issued to over 1200 people in Germany, France, Austria and Switzerland, show that most people have a negative perception of longevity. However, on a personal level the respondents did acknowledge the positive aspects of living for longer. 91% see independence as a central aspect of ageing.
Further information on the survey results about a “longer self-determined life” is available under this link: www.swisslife.com/en/hub/selfdetermined
In October 2016, Swiss Life published the results of a representative survey on intergenerational solidarity, which covered over 3000 people in Switzerland, Germany and France. One of the main findings: almost 90% of respondents want more intergenerational solidarity. However, the younger generations are not very optimistic about solidarity improving, with almost two thirds assuming that redistribution from young to old will lead to conflict. The younger the respondent, the more likely he or she is to detect potential for conflict.
The Swiss Life Group maintains a content platform with its digital content hub swisslife.com, which hosts a differentiated and varied analysis of longevity, demographic change and self-determination. Every week there is new content, articles and interviews as well as blogs and charts. Statements by international experts, studies and surveys ensure that the topics are approached from different angles. The hub can be accessed at: “What matters in life”
Swiss Life has produced an emotional and original film to mark the launch of the guiding theme. The three-minute film shows people, from a three-year-old toddler to a 103-year-old senior citizen, providing touching accounts of what they think matters in life. What does self-determination mean to them? What do they wish for now and in the future? Swiss Life shows through this film how everyone has their own ideas of what a longer self-determined life means. The film received many international awards in 2016. It can be seen at www.swisslife.com/en/film
– Provide convenient multiple access for customers with short response time (multi-channel and digitalisation)
– Foster customer-oriented corporate culture, behaviours and skills through corresponding key figures and individual goal agreements
– Create a customer-centric vision, design a consistent brand positioning and ensure consequent marketing and communication
– Gain real insights into needs, purchasing criteria and behaviour of target segments (customer interface, market research, advice)
Customer orientation is a strategic thrust at Swiss Life and part of the Group-wide programme “Swiss Life 2018”, which we launched in November 2015. This programme also covers investments in advisory services and digitalisation. Swiss Life has set itself specific goals and launched a number of initiatives in recent years, which are coordinated centrally and consistently analysed and measured.
Swiss Life collaborates closely with an independent market research institute to carry out continuous assessments of customer feedback at the key contact points. This involves asking customers about their experience, satisfaction and willingness to recommend Swiss Life directly following contact with the company. Anyone who gives a negative response is contacted by Swiss Life within 48 hours. The reason for making contact is to understand precisely the reasons for the negative assessment and to offer a solution.
Several national companies also offer their customers the chance to participate in regular forums and play an active part in structuring Swiss Life’s offerings. This ensures that customers’ requirements are included in product development.
Analysis of the 2016 ECCI results shows that employees don’t feel they receive sufficient information on progress made in the latest improvements to customer orientation. They didn’t all know, for example, that Swiss Life gathers and evaluates customer feedback. Swiss Life defined a number of measures in response: – Employees in Switzerland can address questions directly to their customers. There is a proprietary Swiss Life customer channel, whereby private customers are asked twice a year about product developments, services and communication methods at Swiss Life.
During the reporting year, Swiss Life received many awards for its internal initiative “100 employees visit 100 customers”, which was concluded successfully in 2015. Under this programme, which was spread over two years, employees got to spend a day with a customer and their experiences were documented and shared on the intranet.
Swiss Life also improved its consulting processes during the reporting year. This optimised offering supports advisors in planning their time better to identify solutions that match each customer ’s needs. Professional advice will become more important as growing life expectancy will oblige people to organise their retirement earlier and with more professional support.
In 2016, Swiss Life launched a total of 137 products in the market.
Swiss Life has longstanding experience in developing innovative and customer-oriented products in its life insurance and pensions business. Its customers and their needs are always the focus of all Swiss Life’s activities. Swiss Life aims for its customers to lead their longer lives in an assured and self-determined way, and the company has 160 years of experience with biometric and demographic development to fall back on in this pursuit, among other things.
The Swiss Life product strategy thus combines optimal customer value with profitability for the company. Regulators’ demands, regarding such things as solvency, as well as external factors like the economic and interest rate environment or demographic trends, must also be considered. Optimising and constantly developing the existing range of offerings so as to take into account all target groups, such as customers, investors, shareholders and supervisory authorities, is crucial in this endeavour.
The company offers private and corporate clients comprehensive and individual advice plus a broad range of proprietary and partner products through its own agents, financial advisors and distribution partners. Swiss Life Select, the subsidiary specialising in financial planning for private households and brokering financial products, as well as the advisers of Tecis, Horbach, Proventus and Chase de Vere, use the Best Select approach to let their customers choose the product from the market that suits them best. This provides customers with access to the product range of the best providers in the market.
Group-wide compulsory regulations are implemented locally in the relevant directives. Swiss Life regularly reviews its product solutions.
Avoidance of conflicts of interest, mandates and secondary commercial activities as well as benefits in kind and invitations, insider information
The central themes in the Code of Conduct are: – dealing with confidential data and complying with data protection – preventing money laundering and terrorism financing – preventing insider trading and market manipulation
The Code of Conduct contains behavioural guidelines on the following themes:
Swiss Life has a comprehensive directives system as well as a Code of Conduct. The directives contain Group-wide minimum standards implemented in all business units and included in the regulations for the local offices. Regular training ensures that the employees are kept informed about the relevant compliance themes and directives. The duties, responsibilities and competencies in terms of compliance are also included in the directives system. Swiss Life has established processes to ensure adequate identification, management and control of compliance and data protection risks.
Compliance monitors and assesses the legal and regulatory environment, taking account of local legislation. Compliance thus supports the Swiss Life management and employees in their work. The aim is not to infringe any legal and/or regulatory requirements. Swiss Life also considers it very important to comply with sanctions and embargos. Regular risk assessments as well as permanent and comprehensive compliance reporting to the top echelons provide support for the implementation of all requisite measures at Group level and within the business units. The compliance framework is subject to periodic review and is reworked and adapted to new prerequisites as necessary.
Economic performance and sustainable profitability are the basic conditions for Swiss Life’s corporate conduct. Swiss Life has continually increased its operational effectiveness over the past ten years.
Swiss Life’s investment strategy is designed on a sustainable and long-term basis and harmonised with insurance liabilities. The goal of the investment policy is to create long-term and stable returns for both customers and the company. Assets are diversified as a rule, which means they are spread among several different asset classes. Due to the long-term nature of its liabilities, Swiss Life invests predominantly in fixed-income securities, such as government and corporate bonds, in real estate and in equity and infrastructure investments. Swiss Life bases its investment decisions on an established and multi-level investment process combined with holistic and value-oriented risk management. Asset management is performed multi-locally in the various national units.
In third-party business, Swiss Life responds to individual customer wishes, including with sustainable investing. Swiss Life in France, for example, is committed to ecological, social and governance criteria (ESG) with reference to special securities products. For certain customer groups (such as charity funds or charitable institutions) in the United Kingdom, real estate funds are structured in conformity with the investment guidelines for sustainability. These investment guidelines are comparable with the United Nations Principles for Responsible Investment (UNPRI).
Swiss Life promotes the use of alternative energies and efficiency measures, such as the Minergie standard, in its real estate investments. The company also consistently reviews the optimisation of the CO2 balance. The business unit in France publishes its efforts in the name of sustainable investing in the form of a semi-annual report in cooperation with the independent rating agency EthiFinance. Moreover, sustainable strategies and activities are either being implemented or are at the planning stage in Switzerland and France. Projects such as Project Green, a handbook issued by the German subsidiary Corpus Sireo featuring recommendations for saving resources in daily business, and memberships of national committees for sustainable real estate in France and Germany are also part of Swiss Life’s sustainable investing.
When selecting suppliers, Swiss Life bases its decisions on ethical and ecological principles and works with local suppliers whenever possible.
The Swiss Life Group’s need for external products and services in the insurance field comprises mainly the following areas: – Advisory services (inc. management and IT consulting) – Recruiting (head-hunting, brokering of temporary labour) – IT infrastructure (e.g. software and hardware as well as IT services) – Facility-management services (e.g. security personnel, building maintenance, cleaning) – Office and advertising supplies – Long-term lease of cars (especially in France) – Refreshments – Travel – Gas and electricity
Swiss Life mainly uses the following external services for its real estate operations: – Architecture and expert planning (e.g. general contractors, architects, construction physicists and engineers)
– General construction services (e.g. building contractors, manual workers, painters, plasterers, horticulturists)
All tenders are checked to see whether the prospective suppliers are ecologically suitable. All companies in all locations that wish to work with Swiss Life must also have a system ensuring compliance with all applicable laws.
The Swiss financial sector, where one franc in every nine is generated, represents a substantial portion of the Swiss economy. The insurance sector contributes CHF 28 billion to that figure, which is not much less than the banks. About 50 000 people in Switzerland work in insurance and every year 2000 young people have the opportunity to embark on a rewarding career in insurance.
Swiss Life is committed to the militia principle in Switzerland and it encourages its employees to exercise public and political mandates. As a company operating in the social insurance sector, Swiss Life has an interest in promoting a fully functional and integrated society. Swiss Life holds regular events for employees in Switzerland with public or political mandates. During the reporting year, Swiss Life organised an event known as “Transfer” for the first time in conjunction with Avenir Suisse, Swiss Re and Zurich Insurance Group. Over 60 mandate holders from different companies discussed current political issues at this event. Since 2015, Swiss Life has been campaigning for the Swiss militia system with over 200 companies and associations with a statement issued by economiesuisse and the Swiss Employers’ Association.
Swiss Life supports over 100 charitable projects through its “Perspectives” Foundation.
Swiss Life Germany has been contributing to the welfare of disadvantaged children since 1991 through the charitable Foundation Confidence for Children. Swiss Life Select has always been one of the biggest donors to the foundation with locations in Germany, Switzerland, Austria, England and the Czech Republic.
In 2013, Swiss Life International initiated “Rock against Cancer”, its annual charity concert sponsored by prominent companies, in support of the foundations Fondation Cancer and Kriibskrank Kanner (children with cancer).
Swiss Life has been an active supporter of film-making in Switzerland for many years. The films usually centre around people and their stories – just as Swiss Life does. For example, Swiss Life is committed to the Solothurn Film Festival, the Festival del Film in Locarno and the Zurich Film Festival. Moreover, Swiss Life in Switzerland supports classical music through its financial commitment to Tonhalle-Orchester Zurich, Zurich Opera House and the Lucerne Festival.
In France, the Fondation Swiss Life supports a cultural initiative through its award “Prix Swiss Life à 4 mains” for up-and-coming talent in photography and music. Swiss Life France is also a partner, through its foundation, of “Rencontres capitales: redonner du sens au progrès” (podium discussions on the meaning of progress), at which people from politics, research, technology and art exchange views on progress. The CEO of Swiss Life France, Charles Relecom, participated in this event during the year under review with Luc Ferry, the philosopher and former education minister, Claude Le Pen, the economist, and the children’s doctor and geneticist Arnold Munnich, to discuss demographic development.
Swiss Life Germany lends its name to an event venue in Hanover, the Swiss Life Hall, where since 2005 there have been up to 100 concerts, sporting and corporate events held every year. The Swiss Life Hall has become a popular venue over the years and its reputation extends beyond Hanover.
Swiss Life Switzerland has sponsored the Swiss football association for over ten years and supports the men’s national team (A team and U-21s to U-15s) as well as the national women’s team (A-team and U-20s to U-16s). As of the 2015/16 season, Swiss Life is also the main sponsor of ZSC Lions ice hockey club. The Lions are one of the biggest ice hockey clubs in Europe with a well-respected youth development programme. Swiss Life is also a partner of Swiss Orienteering. In the 2015/16 season, Swiss Life was the main sponsor for all the national orienteering events and the Swiss championships. In addition, Swiss Life is the main sponsor of world champion and top athlete Martin Hubmann.
Swiss Life has been promoting young football talent in Switzerland for more than a decade.
Swiss Life Germany has supported mass sports for regional amateur clubs for a number of years. The company is also a regular supporter of sporting occasions, such as the football benefit event “Münchner Legendenspiel”, the proceeds of which go to charitable organisations. Swiss Life Germany is also a long-term supporter of handball through its commitment to the first division outfit “Die Recken” (TSV Hannover Burgdorf).
Essential pillars of Swiss Life’s successful performance culture are respectful interaction and trustworthy cooperation within the company, which in turn enable open dialogue among management, employees and team members. This foundation of trust makes it possible to question current practice and to develop and implement new ideas. So as to anticipate and respond to the constant flux, there is an emphasis on life-long learning plus the professional and personal development of all employees. The recognition and appreciation of performance ensures above average employee engagement, which benefits customers, shareholders and investors.
Swiss Life collaborates on the survey with an independent research institute.¹ Staff make ready use of the opportunity to provide anonymous feedback: the last survey, in 2015, saw 86% participation (5 percentage points more than the 2013 survey).
– Events on specialised topics with internal and external speakers – Customised development planning for management, specialists and employees, job-rotation programmes and coaching for management
Number as at 31.12.2016 1 Source: Global Employee Engagement Survey, IPSOS (Suisse) SA 2015
Young employees with potential have the opportunity to undertake all sorts of vocational courses, apprenticeships, placements, graduate programmes and combined university degrees. 307 employees (apprentices and trainees) took part in one of these training opportunities in 2016. The Swiss Life Group employs these measures to help ensure its future management and professional requirements.
The Key Persons Programme (KPP) is intended for Swiss Life Group management, specialists and project managers who are already in a central function or show potential for such a function. The aim of the Key Persons Programme is to prepare people who show the desire and ability to help shape the company’s future in their own areas for a key position so they can live up to their role as decision maker. The programme also plays a role in employee and succession planning. Within a 12-month period, the participants acquire a detailed insight into the Swiss Life Group, give and receive new impulses and apply what they have learnt to their daily work. The programme is based on the following four modules: – Leadership (communication) – Finance – Innovation, including dealing with competition and trends – Corporate strategy
Alumni of the Key Persons Programme meet the participants every year at the “Shaping the Future Day” where there is in-depth analysis of the Swiss Life Group’s strategic orientation, an update and ensuing discussion on the progress of the Group-wide programme with the Corporate Executive Board.
Total 7020 as at 31.12.2016 4274 Men 2746 Women 304 Men 981 Women
Total 8704 as at 31.12.2016 4475 Men 3599 Women 103 Men 128 Women
The principles by which we work together at the Swiss Life Group are set out in the Code of Conduct, valid Group-wide. Swiss Life undertakes to offer its employees a work environment characterised by respect and mutual recognition, and to uphold such an environment. Among these is our zero-tolerance policy regarding mobbing and discrimination on the basis of race, sex, religion, confession, national origin, disability, age, sexual orientation, physical or mental handicap, marital status, political views or other attributes.
The Swiss Life competency model valid for all employees is applied to the Group-wide management processes. It explicitly defines responsible behaviour, particularly as regards compliance standards, laws and risks. Employees are regularly informed about the legal framework in which they operate, backed up by training courses to ensure they behave with integrity and in conformity with the law.
Swiss Life has established management processes and informal channels (e.g. an Ombudsman managed by a third party) for reporting and dealing with cases of discrimination or complaints.
The Swiss Life Group aims to ensure and maintain a safe and healthy working environment for all employees. Health and security risks are low in the Swiss Life Group as it is a provider of financial services. The framework conditions for health and security at the workplace are provided by the local regulatory measures governing each Swiss Life company. Furthermore, all companies implement measures and initiatives aimed at preserving employee health.
In addition, the divisions – in collaboration with their social partners – provide supplementary services in movement and sport, massages and therapy, relaxation rooms and all types of consulting (nutrition, social counselling, prevention etc.).
Swiss Life is committed inter alia to promoting the “healthy presence” of its employees at its Swiss location. Studies have shown that presenteeism – attendance at work despite legitimate grounds for absence, for instance illness – can lead to more frequent and longer absences and may cost companies more than they would have paid for the original absences. Swiss Life is one of the few companies in Switzerland to conduct in-house presenteeism surveys. In 2016, a survey on presenteeism and health at the workplace was performed using the new app now@work. The participation rate was extremely high at 73%. In spite of a high level of satisfaction with their duties and line managers (over 70%), 36% of employees admitted to having been present at work two to five times or more during the past six months in spite of suffering from some ailment. One of the main explanations for that was a feeling of responsibility towards colleagues and customers. The topic “Health at the workplace” is part of Swiss Life’s management training, so that line managers can be better equipped to deal with psychosocial risks, such as stress.
Swiss Life sends a delegate to the board of the International Committee for Insurance Medicine (ICLAM). The aim of the committee is to advocate and strategically direct the concerns of medical underwriting at the international level.
The employee representatives and Corporate Executive Board maintain close contact with each other. Since 1996, Swiss Life has had a European Works Council (Art. 13 of Council Directive 94/45/EC of the European Parliament and Council). The nine-person “Europa Forum”, a committee comprising delegates from four countries, meets regularly with representatives of the Corporate Executive Board at ordinary and extraordinary meetings. It deals with transnational information and consultation on topics which affect all Swiss Life employees. There was an indepth discussion in 2016 on the “Swiss Life 2018” Group-wide programme.
France Seven agreements in 2016: – Union law – Equality of women and men at the workplace – Prevention of psychosocial risks – Four agreements concerning employee benefits
for broker sales force – Regulation concerning “Rollout and use of personnel administration software”
Corpus Sireo, Germany Works agreements 2016: – Asset Management Residential GmbH: Availability and recording project time – Reconciliation of interests/redundancy agreement Garching – Access control Berlin – Subsidisation of glasses and other visual aids – Online-learning management system
Council chair and speaker of the PR committee), nine members with no dispensation
Works Council Sales Force (responsible for intermediary distribution at branch office): – Seven persons: Six members without dispensation and one with 50% dispensation (Works
Central works council (responsible for Internal Services and Sales Force): – Five people (two representatives of Works Council Internal Services, two representatives of
Luxembourg The number of employee representatives and the time required for their work are directly proportional to the number of employees. In the Global Solutions area in Luxembourg, the current employee representation consists of four ordinary representatives and four deputies. The employee representatives have at their disposal a total of 16 hours a week to perform their mandate.
Environmental data on operational ecology are gathered annually in accordance with the globally recognised standard of the Association for Environmental Management and Sustainability at Financial Institutions (VfU) and published in May of the following year at swisslife.com/ operationalecology. The VfU key figures conform to the international Greenhouse Gas Protocol (Scope 1, 2 and 3) standards and the Carbon Disclosure Project (CDP). The data are gathered, evaluated and analysed across the Group. All the major Swiss Life locations have environmental officers and the individual divisions work closely together. Our aim is to consistently reduce our environmental impact and continually improve energy efficiency.
TOTAL ENERGY CONSUMPTION (IN MWH) 52 280 56 300 61 980
BUSINESS TRAVEL (IN 1000 KM/FTE) 6 840 7 000 5 260
Greenhouse gas emissions Scope 1 and 2 (CO2 equivalents in kg/FTE)
In France, regular awareness campaigns have been held since 2008 to sensitise employees to the urgent need to reduce their impact on the environment. The energy generation facilities in that country were replaced by more effective installations requiring less energy, and the heating installations were optimised to make them more energy efficient. Swiss Life France will also look more closely at its employees’ travel arrangements, which account for a large proportion of the company’s greenhouse gas emissions. That’s why additional rooms are being organised to host video conferences at different locations. Moreover, charging stations for electronic vehicles have been installed in some car parks and employees can attend courses in environmentally-friendly driving.
Swiss Life also wants to make an active contribution to climate protection through operational ecology, and set up the Swiss Climate Foundation in 2008 in cooperation with other Swiss companies. The foundation supports SMEs in becoming more energy efficient and reducing their CO2 emissions.
The student residence Swiss Life completed in 2016 is Minergie-P-Eco certified and uses ground-source heat pumps. © ETH Zürich/Alessandro Della Bella
When constructing new buildings, Swiss Life aims as a rule for the Minergie® standard or other sustainable construction standards. Swiss Life takes care to reduce energy consumption through its renovations, which includes using renewable energy sources and pollution-free construction materials. The aim is a steady diminution of environmental impact through targeted reduction of energy use and CO2 emissions. Intelligent building technology concepts and universal controls ensure the sparing and optimal use of resources. Documentation and straightforward systems facilitate sustainability in operations and maintenance. Tenants’ requirements also materially influence the planning and implementation of construction projects. The demands of tenants vis-à-vis property owners have increased considerably in recent years. Optimal location and flexibility in the use of properties are fundamental requirements. People also want space for recreation. Swiss Life advocates increased building density, the application of new construction methods and optimal use of the available space, which also benefits the environment.
G4-16 Memberships p. 46–49, p. 101, p. 104 IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES
G4-21 Material aspects and report boundaries outisde the organisation p. 83
G4-29 Date of last report CR Report 2015, published in March 2016
G4-31 Contact point for questions regarding the report Media Relations, p. 351
G4-EN7 Reduction of energy requirements for products and services Emissions p. 120–121
G4-EN16-FS Financial portfolio related indirect Greenhouse Gas Emissions CDP entry Reason for omission, see CDP report CC14.1
G4-LA6 Injuries, occupational diseases, lost days and work-related fatalities p. 117 Other key figures being established
G4-SO6 Donations to politicians and political parties p. 104 Compliance p. 85, p. 97–98
G4-SO8 Monetary value of significant fines p. 98 PRODUCT RESPONSIBILITY Customer Health and Safety p. 91–93
G4-PR9 Fines due to non-compliance with respect to the provision of products p. 98 and services FINANCIAL SECTOR SPECIFIC INDICATORS Active Ownership p. 85, p. 99–101
Total GHG emissions (in 1000 t) 1 25.55 27.56 25.22 AR, p. 120
Share of paper with FSC label 1 54% 39% 75% AR, p. 120
Climate change listed as a business risk factor yes yes yes yes CDP
Workforce absences per country yes yes n/a n/a AR, p. 117
Total number of part-time employees 1285 n/a n/a n/a AR, p. 113
Freedom of association policy yes yes yes yes Code of Conduct
Costs spent for training per employee (in CHF) 2034 1749 n/a n/a AR, p. 111
Job-specific development training programs yes yes yes yes AR, p. 112
Company has a corporate foundation yes yes yes yes AR, p. 105
Employee protection/Whistle blowing policy yes yes yes yes Code of Conduct
Obesity and emerging health issues listed as a business risk factor yes yes yes yes
Aging population and demographic change listed as a business risk factor yes yes yes yes
Company has customer privacy policy yes yes yes yes Code of Conduct
Provide means for verifying and correcting individuals’ data yes yes yes yes
Prevent third parties from having access to the individuals’ information yes yes yes yes
Risk management framework covers ESG risks yes yes yes yes AR, p. 99
Brands which have less affinity with the core business but potential for a positive image transfer are allocated to level 3. Here the umbrella brand or the sub-brand serves as an additional textual identifier.
Brand The success of the Swiss Life brand results from a consistent brand strategy and management. On the basis of the corporate strategy and positioning as a provider of comprehensive life and pensions and financial solutions, the Swiss Life umbrella brand, flanked by its sub-brands, provides orientation and creates confidence.
Create confidence – the way we feel We work with passion to contribute to our customers’ peace of mind. The positive attitude towards life characterises the lifelong relationship we strive for.
Prove reliability – the way we act We serve our customers with our know-how built on long-standing experience and financial solidity. We do everything we can to be their trusted partner for transparent solutions – today and tomorrow.
th e w ay w e th ink the way w e feel
Swiss Life sets great store by the global and local protection of its brands. It takes vigorous action in cases of brand or copyright infringement. Our customers can be sure that the Swiss Life logo and corporate name stand for Swiss Life quality and service wherever they appear.
The mission of the Swiss Life brand personality reflects our guiding theme: a longer self-determined life.
The success of the Swiss Life brand is constantly measured on the local front by independent institutes, which take into account such factors as brand awareness, advertising and sponsorship presence and brand image. The findings thus garnered are continuously used for the development and adjustment of marketing measures.
Last year, under the aegis of the new Group-wide internet presence, the corporate design guidelines were given a complete digital make-over. A seamless brand experience in a contemporary design ensures a uniform and unique user experience. Developed in parallel, the Swiss Life pictograms are yet another brand element offering an additional link to our offline world.
Contents 136 1.1 Basis of preparation 136 1.2 Covered business and non-covered business 138 2 Summary of MCEV Results 138 2.1 Key results 139 2.2 MCEV of covered business 140 2.3 Value of new business 141 2.4 Group MCEV — analysis of earnings 142 2.5 Covered business — analysis of earnings 145 2.7 Reconciliation of IFRS net asset value to Group MCEV 147 3 Information by Market Unit 147 3.1 Market units 148 3.2 Results by market unit 154 4.1 MCEV components for covered business 157 4.2 New business 157 4.3 Asset and liability data 158 4.4 Economic scenario generator 159 4.5 Dynamic management actions and policyholder behaviour 159 4.6 Look-through principle 160 4.8 Employee pension schemes and share-based payment programmes 161 5.1 Economic assumptions 165 5.2 Taxation and legislation 165 5.3 Operating assumptions 166 6 Independent Auditor’s Report on Embedded Value 169 7 Glossary and List of Abbreviations
Swiss Life – Annual Report 2016 1 Copyright © Stichting CFO Forum Foundation 2008 1 Introduction 1.1 Basis of preparation
Market consistent embedded value (MCEV) is a measure of the consolidated value of shareholders’ interests in the in-force covered business of the Swiss Life Group. Covered business includes life, health and pension business of the company. The Group MCEV is a measure of the consolidated value of shareholders’ interest in the covered and non-covered business in force of the company. Business in force includes business written as at 31 December 2016; future new business is not included. The notion of market consistent embedded value (MCEV) will alternatively refer within the course of this report to the MCEV of Swiss Life’s covered business, of one of its market units, or to Swiss Life’s Group MCEV.
According to MCEV Principle 3, the MCEV represents the present value of shareholders’ interests in the earnings distributable from assets allocated to the covered business after allowance for the aggregate risks in the covered business. It is calculated on a post-tax basis taking into account current legislation and known future changes.
The MCEV for covered business consists of the net asset value (NAV), i.e. the value of assets not backing liabilities, and the value of in-force business (VIF), i.e. the value of future profits emerging from operations and assets backing liabilities.
The following tables show key results as at 31 December 2016 compared to the results as at 31 December 2015.
The Group MCEV increased driven by substantial operating MCEV earnings of 10%. This was enhanced by positive non-operating MCEV earnings, leading to total MCEV earnings of 12%.
The value of in-force increased by 11%, driven by new business, operating earnings on in-force business, economic variances and the changed tax law in France.
In view of the sustained low interest rate environment, an interest rate model allowing for negative interest rates has been introduced. In combination with lower capital market interest rates, a negative impact on the TVOG has been observed.
PRESENT VALUE OF NEW BUSINESS PREMIUMS (PVNBP) 13 842 15 643
2.3.2 Value of new business — analysis of change The following graph and table detail the drivers for the change in new business value and margin of the business sold in 2016 compared to the business sold in 2015.
The opening adjustments of the Group MCEV represent the distribution in 2016 to shareholders out of the capital contribution reserve of CHF 8.50 per share, corresponding to a total of CHF 271 million as described in the Consolidated Financial Statements (note 26), and foreign currency translation effects of CHF 1 million.
Am besten von „Operating MCEV earnings“ ausgehen. Sieht man einen Balken praktisch nicht mehr, kann ein bisschen gemogelt werden.
Expected existing business contribution (reference rate) –12 –11 –44 –67 –1
Expected existing business contribution (in excess of reference rate) 27 0 373 400 267
Transfers from VIF and required capital to free surplus 644 –182 –463 – –
Opening adjustments Opening adjustments represent the increased dividend payments from covered to non-covered business.
Expected existing business contribution (in excess of reference rate) Expected existing business contribution (in excess of reference rate) represents the additional contribution to MCEV by taking into account investment returns for the reporting period expected at the beginning of the period over and above the initial reference rates for the period. Furthermore, releases from the period’s contribution to the time value of financial options and guarantees and cost of residual non-hedgeable risks are included. The expected existing business contribution is explained to a large extent by spreads expected to be earned on the corporate bond and real estate portfolio.
Transfers from value in force and required capital to free surplus Transfers from value in force and required capital to free surplus include the transfer of the results of the preceding step from value in force to free surplus. In addition, the required capital is normally reduced after this step, resulting in an equal increase of free surplus. The total effect in this line is zero. In the context of a life insurer’s business model, this should be seen in combination with effects from new business which partly reverses this effect by an increase of required capital and a reduction of net asset value.
Experience variances Experience variances aggregate the impact of actual development versus expectations regarding non-economic assumptions such as mortality, expenses, lapses and deviations in handling of additional reserves. Positive effects from reserve strengthening, persistency and demography more than offset the negative expense variance. The reserve strengthening mainly originated from the Swiss business and had a negative impact on the free surplus and a positive effect on the value of in-force business.
Economic variances Economic variances represent the change in embedded value by replacing the starting economic scenarios by the closing ones. Effects from deviations between actual and expected investment returns are included here. Overall, the economic variances had a positive impact on MCEV, driven by a strong real estate performance and tightened credit spreads, partly offset by lower interest rates.
Other non-operating variances Other non-operating variances encompass effects relating to government-set parameters, tax impacts and changes in the regulatory environment. The main effect stems from the French tax reform of 2016.
Closing adjustments Closing adjustments mainly represent foreign currency translation effects resulting from the consolidation in Swiss francs.
10% increase in equity / property market values 763 7% 1 1
25% decrease in equity / property implied volatilities 221 2% 5 2%
5% proportionate increase in mortality rates (death cover) –31 –0% –7 –3%
5% proportionate decrease in mortality rates (annuities) –147 –1% –14 –5%
For the other parts of the Swiss Life Group, i.e. the non-covered business, the shareholder value is derived from their contribution to the Group’s IFRS net asset value.
Swiss Life’s covered business is subdivided according to market units as follows: – Life, pension and assumed external reinsurance business in Switzerland – All businesses in France, mainly life, health and pension business – Life and pension business in Germany – Life and pension business in Luxembourg, Liechtenstein and Singapore (together referred to as
This breakdown by market unit essentially coincides with the IFRS insurance segments in the annual report. There are some differences since the MCEV classification generally follows the legal structure. A divergence from the IFRS segment reporting is the treatment of distribution units such as Swiss Life Select, which are reported for MCEV purposes under non-covered business, and Swiss Life Asset Management in France, which is reported for MCEV purposes under France.
Germany Swiss Life focuses its offering on comprehensive disability insurance and modern products with flexible and lower guarantees in individual and group life business. The main distribution channels are independent brokers, followed by financial advisors such as Swiss Life Select.
VALUE OF IN-FORCE BUSINESS 5 391 1 777 443 240 7 851
Frictional costs of required capital –259 –48 –10 –12 –329 1 The value for France includes CHF 73 million in goodwill and intangible assets originating from the non-life and non-health insurance operations.
VALUE OF IN-FORCE BUSINESS 5 059 1 415 299 278 7 050
Time value of financial options and guarantees 251 –441 –154 –18 –363
The slight reduction of the net asset value is explained by increased dividend payments, financing of new business and reserve strengthening. The value of the in-force business increased due to the aforementioned new business and reserve strengthening, true-up effects related to operating experience, as well as overall positive economic variances. The change in time value of options and guarantees is the result of various effects such as the lower capital market interest rates, the reassessment of the interest rate model and other elements, as well as higher cost of credit risk, while the business-inherent shareholder options contribute positively.
France The MCEV increased by CHF 420 million driven by the strong new business value, operating earnings on the in-force business and the French tax reform in 2016, which implies lower tax rates for 2020 and beyond.
Value of new business by market unit – premiums and margins for the year 2016
PRESENT VALUE OF NEW BUSINESS PREMIUMS (PVNBP) 6 815 4 463 1 077 1 487 13 842
France The increased volume, driven by pension products as well as health and protection business, and the ongoing margin management led to higher new business value and margin.
Both the new business margin and value in life improved substantially, benefitting from reduced guarantees, the French tax reform and the move to the Solvency II valuation curve. These effects more than offset the impact of decreasing capital market interest rates.
In health and protection, the new business value increased significantly due to higher volumes with a larger share of protection business. On the other hand, the new business margin was reduced due to efficiency losses in relation to the ANI reform and lower interest rates.
Germany New business margin and value increased strongly as a result of the active shift towards products with flexible and lower guarantees and increased volumes with an ongoing high share of risk business. Together with the move to the Solvency II curve and favourable persistency experience, this more than offset the effects of lower interest rates.
Expected existing business contribution (reference rate) –43 –17 –4 –2 –67
Expected existing business contribution (in excess of reference rate) 241 145 1 12 400
Switzerland Opening adjustments reflect the dividend payment to Swiss Life Holding net of dividends received.
Operating earnings of CHF 418 million correspond to a return of 6% on MCEV. The positive experience variances relate to improved persistency and continued reserve strengthening. Assumption changes mostly concern group life and are driven by a favourable experience of lapse and capital option rates, as well as lower expenses. The negative other operating variances mainly relate to the reassessment of the interest rate model and of other elements, the issuance of hybrid debt and an updated strategic asset allocation.
France Opening adjustments reflect a dividend payment of CHF 75 million.
Operating earnings of CHF 324 million correspond to a return of 12% on MCEV. In addition to the expected business contribution and the new business value, this is supported by other operating variances which include the effects of the move to the Solvency II valuation curve, as well as refinements of the interest rate model and the reserve projections. Similar to experience variances, assumption changes show the aggregated effect of demographic, persistency and expense developments.
Germany Operating earnings of CHF 168 million correspond to a return of 26% on MCEV. Besides new business this is due to the positive operating variances driven by the move to the Solvency II valuation curve, the refinement of the interest rate model and other elements. Assumption changes are driven by positive persistency experience and efficiency gains.
Economic variances reflect decreasing interest rates which are almost offset by tighter credit spreads and positive real estate performance.
International Opening adjustments reflect a dividend payment of CHF 8 million.
Operating earnings of CHF 4 million include the value of new business and the expected business contribution, whereby other operating variances were negative, driven by the refinement of the fund projection in Global Private Wealth business.
Swiss Life – Annual Report 2016 4 Methodology 4.1 MCEV components for covered business
Value of in-force business (VIF) The value of in-force business consists of the following components: 1. Certainty equivalent value (CEV) 2. Time value of financial options and guarantees (TVOG), including the cost of credit risk
In this particular scenario, future market returns are determined as the forward rates implied in the reference rates at the valuation date. Discounting is performed at the same reference rates. The certainty equivalent value includes that part of the value of financial options and guarantees which materialises in the underlying scenario.
In order to be consistent with the MCEV Principles, no diversification between hedgeable and non-hedgeable risks has been taken into account. Furthermore, no diversification effects between market units have been accounted for.
Insurance liabilities Liabilities are valued in line with local statutory requirements generally using individual policy data. For projection purposes, policies of the same product with similar risk profiles are grouped together to form model points.
The assets and liabilities within the Swiss Life Group are mostly denominated in Swiss francs, euros or US dollars. The economic scenarios reflect these three major economies, and also British pounds and Canadian dollars, which are of lesser importance. The exchange rates and dividend yields are modelled as additional risk factors, as well as the inflation rates in each economy.
Swiss Life – Annual Report 2016 4.5 Dynamic management actions and policyholder behaviour
Covered business comprises all of Swiss Life’s major life, health and pension business as well as assumed external reinsurance. In the case of France, the remaining operations are sub-consolidated with their IFRS net asset value and also included in the French covered business.
As described in section 3.1, covered business relates to the operations in: – Switzerland – France – Germany – Luxembourg – Liechtenstein – Singapore
Non-covered business comprises all other entities of the Swiss Life Group that are valued at the unadjusted IFRS net asset value on a consolidated level, such as the distribution units of Swiss Life Select or investment management, financing and holding companies. Non-covered business is added to the MCEV results from the covered business to form the Group MCEV.
Allowance is made for gains or losses arising from the defined benefit pension plans for Swiss Life’s own employees. In Switzerland there is a semi-autonomous pension fund with biometric risks covered by an insurance contract. In other units the major part is covered by insurance contracts. The remaining part is modelled as commensurate expenses in the projections.
Swiss Life – Annual Report 2016 5 Assumptions 5.1 Economic assumptions
The last liquid point for Swiss franc is set to 15 years based on an assessment of the depth, liquidity and transparency of the corresponding financial markets. The volatility adjustment for Swiss franc applies EIOPA’s methodology with the refinement that the Swiss Life Switzerland asset portfolio is used instead of the reference portfolio provided by EIOPA. All other parameters, including those for the extrapolation of the yield curve, e.g. the ultimate forward rate, are used as specified by EIOPA for Solvency II.
The spread (over swap rates) applied for the valuation of the hybrid debt was updated based on a subordinated bond index and amounts to 318bp as at 31 December 2016. For the opening MCEV the spread amounted to 319bp.
For year-end 2016, the interest rate volatilities are based on absolute swaption implied volatilities. For year-end 2015, the interest rate volatilities are based on relative implied volatilities of at-themoney receiver swaptions. The tables below show rates for euro and US dollar with 20-year tenors and rates for Swiss franc with 10-year tenors.
Swiss Life – Annual Report 2016 5.1.2.1 Absolute swaption implied volatilities as at 31 December 2016
Economy 1 year option 2 year option 5 year option 10 year option 15 year option 30 year option 1 not available
Swiss Life – Annual Report 2016 5.1.4 Inflation assumptions The inflation assump tions have been derived from inflation-linked bond prices, where inflationlinked bonds are traded. For the Swiss economy, the real interest rate model is calibrated on the inflation forecast of the Swiss National Bank.
5.2.1 Tax assumptions 1 Following French legislation the tax rate assumption applied for 2017-2019 is 34.4%.
Swiss Life – Annual Report 2016 6 Independent Auditor’s Report on Embedded Value
Emphasis of matter – Basis of accounting We draw attention to sections 4 and 5 of the MCEV Report, which describe the basis of MCEV methodol ogy and assumptions. The MCEV Report is prepared in compliance with the MCEV Principles and as a result, the MCEV Report may not be suitable for another purpose. This report does not extend to any financial statements of Swiss Life Holding Ltd. Our opinion is not modified in respect of this matter.
Other information in the annual report The Board of Directors is responsible for the other information in the annual report. The other infor mation comprises all information included in the annual report, but does not include the MCEV Report of Swiss Life Holding Ltd and our auditor’s reports thereon.
Our opinion on the MCEV Report does not cover the other information in the annual report and we do not express any form of assurance conclusion thereon.
Responsibilities of the Board of Directors for the MCEV Report The Board of Directors is responsible for the preparation of the MCEV Report in accordance with the MCEV Principles, including the applied methodology and the assumptions used and for such internal controls as determined necessary to enable the preparation of the MCEV Report that is free from mate rial misstatement, whether due to fraud or error.
In preparing the MCEV Report, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern assumptions unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the MCEV Report Our objectives are to obtain reasonable assurance about whether the MCEV Report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Mis statements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the MCEV Report.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain profes sional scepticism throughout the audit. We also: – Identify and assess the risks of material misstatement of the MCEV Report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
– Obtain sufficient appropriate audit evidence regarding the information of the entities or business activities within the Group to express an opinion on the MCEV Report. We are responsible for the di rection, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit Committee of the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Certainty equivalent scenario Economic scenario under which asset returns are equal to the reference rates.
Covered business Covered business includes all of Swiss Life’s major life, health and pension business as well as assumed external reinsurance. In the case of France, all business operations are included in the covered business.
Credit risk adjustment (CRA) The credit risk adjustment is a modification of swap rates in order to derive the risk-free interest rates according to EIOPA’s Solvency II guidance.
Liquidity premium According to QIS5 guidance, liquidity premiums are added to swap yield curves in cases where liabilities are not liquid.
Reference rate The reference rates are a proxy for a risk free interest rate. For the calculation of the MCEV they are based on the swap rates at the valuation date.
Value of in-force business (VIF) The value of in-force business represents the net present value of future profits emerging from operations and assets backing liabilities, after accounting for TVOG, CNHR and FC.
Volatility adjustment (VA) According to EIOPA’s Solvency II guidance, the volatility adjustment is an addition to the risk free yield curve for spreads on bonds and loans assumed to be earned after risk correction.
Benefits and claims under investment contracts with discretionary participation –1 009 –1 053
Impairment of property and equipment and intangible assets 16, 17 –7 –16
Financial assets at fair value through profit or loss 10 34 931 33 590 32 389
Financial assets available for sale 11 100 256 96 026 97 162
Financial assets pledged as collateral 12, 33 2 942 2 109 2 763
Intangible assets including intangible insurance assets 17 2 717 2 840 2 972
Investment and unit-linked contracts 19 36 920 36 730 38 395
financial instruments at fair value through profit or loss –869 –1 169
Cash and cash equivalents as at 1 January 5 296 6 062
CASH AND CASH EQUIVALENTS AS AT END OF PERIOD 7 333 5 296
TOTAL CASH AND CASH EQUIVALENTS AS AT END OF PERIOD 7 333 5 296
Purchases of treasury shares – – –3 – – –3 – –3
BALANCE AS AT END OF PERIOD 164 745 –37 2 673 10 113 13 657 82 13 739
Distribution out of capital contribution reserve 26 – –207 – – – –207 – –207
Purchases of treasury shares – – –35 – – –35 – –35
On 13 March 2017, the Board of Directors approved the annual financial statements and the financial report and authorised them for issue. The financial report, therefore, only reflects events up to that date.
Swiss Life – Annual Report 2016 2 Summary of Significant Accounting Policies
The Group’s consolidated financial statements include the assets, liabilities, income and expenses of Swiss Life Holding and its subsidiaries. A subsidiary is an entity over which Swiss Life Holding has control. Control is achieved if Swiss Life Holding has the power over the subsidiary, is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to use its power to affect its returns. Subsidiaries are consolidated from the date on which effective control is obtained. All intercompany balances, transactions and unrealised gains on such transactions have been eliminated. Unrealised losses have been eliminated unless the transaction provides evidence of an impairment of the asset transferred. A listing of the Group’s subsidiaries is set out in note 35. The financial effect of acquisitions and disposals of subsidiaries is shown in note 28. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions.
Foreign currency transactions For individual Group entities, foreign currency transactions are accoun ted for using the exchange rate at the date of the trans action. Outstanding balances in foreign currencies at year-end arising from foreign currency transactions are translated at year-end exchange rates for monetary items, while historical rates are used for non-monetary items. Those non-monetary items in foreign currencies recorded at fair values are translated at the exchange rate on the revaluation date.
Financial assets at fair value through profit or loss (FVPL) Financial assets at fair value through profit or loss comprise financial assets designated as at fair value through profit or loss. Financial assets are irrevocably designated as such on initial recognition in the following instances: – Financial assets backing insurance liabilities and liabilities arising from investment contracts for the account and risk of the Swiss Life Group’s customers (contracts with unit-linked features, separate accounts, private placement life insurance) in order to avoid measurement inconsis tencies with the corresponding liabilities.
Swiss Life – Annual Report 2016 comprehensive income. On disposal of an AFS investment, the cumulative gain or loss is transferred from other comprehensive income to profit or loss for the period. Gains and losses on disposal are determined using the average cost method.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by the amount that represents the difference between the carrying amount and the new amortised cost value by adjusting the allowance account. The amount of the reversal is recognised in profit or loss.
Available-for-sale debt instruments are assessed for impairment when a significant decrease in market value related to credit risk arises, namely after a downgrade of a debtor’s rating below single B– after initial recognition (i.e. CCC or lower according to Standard and Poor’s or equivalent) or when payments of principal and/or interest are overdue by more than 90 days. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event after the impairment loss was recognised, the impairment loss is reversed through profit or loss.
Investment property is property (land or a building or both) held by the Group to earn rentals or for capital appreciation or both, rather than for administrative purposes.
Discretionary participation features (DPF) Discretionary participation features are defined in IFRS 4 Insurance Contracts as contractual rights to receive, as a supplement to guaranteed benefits, additional benefits which are likely to be a significant portion of the total contractual benefits and whose amount or timing is contractually at the discretion of the issuer. These DPF are contractually based on the performance of a specified pool of contracts or a specified type of contract or on the realised and unrealised investment returns on a specified pool of assets held by the issuer or on the profit or loss of the company. The unrealised investment returns comprise gains/losses recognised in other comprehensive income.
For investment-type products bonuses are only accrued on deposits under policyholder accounts if the policyholders were entitled to receive those bonuses upon surrender at the balance sheet date.
Assets associated with separate account/unit-linked contracts and private placement life insurance are included in financial assets designated as at fair value through profit or loss, derivatives and cash and cash equivalents. The related income and gains or losses are included in the income statement under the respective line items. The Group has allocated on a rational basis the proportion of acquisition costs related to the insurance and deposit components. The accounting policy for deferred acquisition costs applies to the portion of acquisition costs associated with the insurance component, and the policy for deferred origination costs applies to the other portion (see 2.17 Intangible assets).
Inventory property is measured at the lower of cost and net realisable value. Acquisition costs comprise the purchase price and other costs directly attributable to the acquisition of the property (notary fees, etc.). Construction costs include costs directly related to the process of construction of a property. Construction and other related costs are included in inventory property until disposal.
Financial liabilities at fair value through profit or loss are irrevocably designated as at fair value at initial recognition. Financial liabilities are designated as at fair value through profit or loss in the following instances: – Financial liabilities where the insurance benefits are linked to unit values of investment funds or relate to private placement life insurance.
Healthcare benefits Some Group companies provide healthcare benefits to their retirees. The entitlement to these benefits is usually based on the employee remaining in service up to the retirement age and the completion of a minimum service period. The expected costs of these benefits are accounted for in the same manner as for defined benefit plans.
Swiss Life – Annual Report 2016 2.27 Forthcoming changes in accounting policies
In December 2016, Annual Improvements to IFRS Standards 2014-2016 Cycle were published. The amendments to IFRS 12 Disclosure of Interests in Other Entities clarify that an entity is not required to disclose summarised financial information for interests classified as held for sale. However, the other disclosure requirements in IFRS 12 apply to interests in entities within the scope of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. The Swiss Life Group does currently not have any interests in entities classified as held for sale. An entity shall apply those amendments retrospectively for annual periods beginning on or after 1 January 2017. Additionally, amendments to IAS 28 Investments in Associates and Joint Ventures were issued which clarify that a venture capital organisation, or a mutual fund, unit trust and similar entities may elect, at initial recognition, to measure investments in an associate or joint venture at fair value through profit or loss separately for each associate or joint venture. An entity shall apply those amendments retrospectively for annual periods beginning on or after 1 January 2018.
In December 2016, the International Accounting Standards Board issued amendments to IAS 40 Investment Property. The amendments clarify that an entity shall transfer a property to or from investment property when, and only when, there is a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. In isolation, a change in management’s intentions of the use of a property does not provide evidence of a change in use. An entity shall apply those amendments for annual periods beginning on or after 1 January 2018. The Swiss Life Group will apply the new requirements.
Swiss Life – Annual Report 2016 activities were predominantly connected with insurance on 31 December 2015 (i.e. at the date required by the amendments) and will defer the application of IFRS 9 and continue to apply IAS 39 Financial Instruments: Recognition and Measurement.
In April 2016, amendments to the IFRS 15 Revenue from Contracts with Customers were issued by the International Accounting Standards Board. The amendments clarify how to identify a performance obligation in a contract, how to determine whether a company is a principal or an agent and how to determine whether revenue from granting a licence should be recognised at a point in time or over time. The amendments are effective for annual periods beginning on or after 1 January 2018. The Swiss Life Group does not expect a material impact from the adoption of the new standard on its financial statements.
In January 2016, the International Accounting Standards Board issued amendments to IAS 12 Income Taxes. The amendments, Recognition of Deferred Tax Assets for Unrealised Losses, clarify how to account for deferred tax assets related to debt instruments measured at fair value. The amendments apply for annual periods beginning on or after 1 January 2017. The Swiss Life Group does not expect a material impact of the amendments on its financial statements.
In July 2014, the International Accounting Standards Board completed IFRS 9 Financial Instruments. The new standard replaces IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 covers classification and measurement of financial instruments, impairment of financial assets and hedge accounting. Classification determines how financial assets and financial liabilities are accounted for in financial statements and how they are measured on an ongoing basis. Financial assets are classified on the basis of the business model within which they are held and their contractual cash flow characteristics. An expected-loss impairment model is introduced. Under the new model, it is no longer necessary for a credit event to have occurred before an impairment loss is recognised. The new model for hedge accounting aligns accounting treatment more closely with risk management activities. IFRS 9 is effective for annual periods beginning on or after 1 January 2018. However, as set out above, the Swiss Life Group will defer the application of IFRS 9 and continue to apply IAS 39 Financial Instruments: Recognition and Measurement as its activities were predominantly connected with insurance on 31 December 2015.
The following amended Standards and Interpretations are not relevant to the Swiss Life Group: – Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards (Annual Improvements to IFRS Standards 2014-2016 Cycle): Deletion of short-term exemptions for first-time adopters.
Morbidity and disability For the individual and group life business in Switzerland internal tables are in place. In the individual life business, the internal disability rates are based on the Swiss Insurance Association statistics and reflect the average situation of the past in the Swiss market. In the individual life business, only reactivation is considered, whereas increased mortality is also taken into account in group life business. In the individual life business, disability tables are usually reviewed every five years when new statistics from the Swiss Insurance Association become available.
In Germany, disability insurance products for the group life business are based on tables of the German Actuarial Association, which are reviewed periodically. New disability insurance products for the individual life business are developed in close collaboration with reinsurance companies which evaluate pricing and valuation assumptions for disability and morbidity on statistics provided by the database of reinsurance pool results. Furthermore, own company records and occupation classes are considered. Similar to the disability insurance products for the individual life business, assumptions for pricing and valuation of nursing care insurance products are acquired in cooperation with reinsurance companies. In particular, best estimate assumptions are considered with respect to claims experience.
The Swiss Life Group uses certain assumptions relating to the calculation of the defined benefit liabilities. These assumptions comprise future salary increases and future pension increases, which have been derived from estimates based on past experience. Assumptions are also made for mortality, employee turnover and discount rates. In determining the discount rate, the Swiss Life Group takes into account published rates of well-known external providers. The discount rates reflect the expected timing of benefit payments under the plans and are based on a yield curve approach.
Premiums earned on investment contracts with discretionary participation 985 – – – – – 985 – 985
Policy fees earned on investment and unit-linked contracts 36 140 5 79 – – 261 0 261
Net gains/losses on financial assets 180 23 222 0 0 0 425 – 425
Policy fees earned on investment and unit-linked contracts 33 130 13 82 – – 259 – 259
Net gains/losses on investment property 565 67 23 – – 0 655 – 655
Employee benefits expense –249 –178 –129 –61 –204 –4 –825 1 –824
Financial assets pledged as collateral 508 1 595 – 5 – – 2 109 – 2 109
The main objective of the ALM process is to ensure that the Swiss Life Group’s insurance operations can meet their commitments to policyholders at all times while also adequately compensating shareholders for making risk capital available. Based on the economic principles of risk management and on the risk appetite definition applied in the risk budgeting process, ALM comprises the following main activity: the determination of the strategic asset allocation and of the risk capital and exposure sublimits.
Product design The targets of risk management are supported by product management principles. Product design defines among other things which guarantees and benefits are built into a specific product to respond to the demand from and expectations of customers. The actuarial bases used for this purpose support each individual product generating a sufficient contribution margin. To ensure that the Group’s principles are observed, guidelines and directives on product management and underwriting are in place. As the Group’s insurance entities operate in a number of different countries, the local regulatory constraints may have an impact on the business units’ product range. These constraints must always be observed.
Swiss Life – Annual Report 2016 5.3 Contracts for the account and risk of the Swiss Life Group’s customers
TOTAL ASSETS FOR THE ACCOUNT AND RISK OF THE SWISS LIFE GROUP’S CUSTOMERS 29 968 29 918
The financial result for the years ended 31 December for the account and risk of the Swiss Life Group and the Swiss Life Group’s customers was as follows.
for the account and risk of the for the account and risk of the
Net gains/losses on investment property 763 655 – – 763 655
Share of profit or loss of associates 9 7 – – 9 7 5.4 Financial risk management objectives and policies
TOTAL INTEREST-SENSITIVE INSURANCE LIABILITIES 71 049 23 258 82 94 390
Insurance liabilities linked to assets for the account and risk of the Swiss Life Group’s customers 3 167
In addition to these fixed and guaranteed payments, which are exposed to interest rate risk, contractual rights exist for certain contracts to receive additional benefits whose amount and/or timing is contractually at the discretion of the issuer.
Credit risk The Group is exposed to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Group is exposed to credit risk are: – Counterparty risk with respect to bonds purchased – Counterparty risk with respect to loans and mortgages granted – Counterparty risk with respect to money market and cash positions – Counterparty risk with respect to derivative transactions – Reinsurance share of insurance liabilities – Amounts due from reinsurers in respect of claims already paid – Amounts due from insurance contract holders – Amounts due from insurance intermediaries
Debt securities classified as loans 3 443 4 392 – – 3 443 4 392
To mitigate specific credit risk, the Group purchases credit risk protection in the form of credit default swaps and credit default swap indices. As at 31 December 2016, these derivative contracts provided a notional principal protection of CHF 4554 million (2015: CHF 3811 million).
Exposure to credit risk of debt instruments – credit rating by class as at 31 December 2016
Financial assets past due (not impaired) – age analysis as at 31 December 2016
Financial assets past due (not impaired) – age analysis as at 31 December 2015
Financial assets individually determined as impaired – impairment loss allowance for the year 2016
Financial assets individually determined as impaired – impairment loss allowance for the year 2015
At 31 December 2016 and 2015, no reinsurance assets were past due or impaired.
Due to the limitations of the Swiss capital market with regard to liquidity and duration, investments in Switzerland are also made in currencies other than the Swiss franc.
The liquidity analysis of financial liabilities and commitments is based on undiscounted cash flows by remaining contractual maturities, whereas insurance and policyholder participation liabilities are analysed by estimated timing of net cash outflows. Cash outflows of derivative liabilities designated as cash flow hedging instruments are analysed on the basis of expected settlement dates for forward starting swaps, and on the basis of contractual maturity for forward starting bonds. The analysis is made for amounts for the account and risk of the Swiss Life Group.
Derivatives designated as cash flow hedges – – 163 71 – 391 625 3
Financial assets available for sale 8 801 6 177 91 454 89 848 – – 100 256 96 026
Financial assets pledged as collateral 16 22 2 926 2 086 – – 2 942 2 109
Intangible assets including intangible insurance assets – – 2 717 2 840 – – 2 717 2 840
Hedging The Swiss Life Group uses derivatives within the strict limits set by the applicable insurance legislation and by internal guidelines. Derivatives are primarily used to manage the exposure to foreign exchange rates, interest rates, equity securities and counterparties. The main instruments include index futures and option structures in stock markets, bond futures and swaps in order to manage duration, currency forwards and options in order to manage currency risk and credit default swaps or credit default swap indices and options on credit default swap indices in order to manage counterparty risk. Within certain limits, derivatives are used to enhance returns on the existing portfolio. The types of derivatives generally permitted for usage within the Swiss Life Group as well as the list of allowed over-the-counter trading partners have been approved by the Group Risk Committee.
Disability income and other annuities – deferred 15 460 14 979
Cumulative payments to date –209 –205 –226 –231 –229 –218 –222 –216 –190 –113 –2 058
At 31 December 2016, if mortality rates (annuities) had decreased by 5%, the embedded value would have been CHF 147 million lower (2015: CHF 163 million lower).
At 31 December 2016, if morbidity had been 5% higher, the embedded value would have been CHF 46 million lower (2015: CHF 41 million lower).
At 31 December 2016, if morbidity had been 5% lower, the embedded value would have been CHF 45 million higher (2015: CHF 40 million higher).
At 31 December 2016, if the swaption implied volatilities (interest rates) had been 10% higher, the embedded value would have been CHF 52 million higher (2015: CHF 37 million higher).
At 31 December 2016, if the swaption implied volatilities (interest rates) had been 10% lower, the embedded value would have been CHF 24 million lower (2015: CHF 121 million lower).
At 31 December 2016, if the market value of equity securities and property had been 10% higher, the embedded value would have been CHF 763 million higher (2015: CHF 811 million higher).
At 31 December 2016, if the equity securities and property implied volatilities had been 25% higher, the embedded value would have been CHF 286 million lower (2015: CHF 338 million lower).
BASIC EARNINGS PER SHARE FOR THE NET RESULT ATTRIBUTABLE TO EQUITY HOLDERS OF SWISS LIFE HOLDING (IN CHF) 28.92 27.41
Net result attributable to equity holders of Swiss Life Holding 922 872
Assumed conversion of convertible bonds 2 100 018 2 071 173
Swiss Life – Annual Report 2016 7 Premiums, Policy Fees and Deposits Received
Deposits received under insurance and investment contracts 3 701 4 658
Financial assets designated as at fair value through profit or loss 1 182 18
TOTAL NET GAINS/LOSSES ON FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS 5 –420 81 1 Includes interest and dividend income of CHF 119 million (2015: CHF 274 million).
Net benefits and claims under insurance contracts 13 055 14 463
Swiss Life – Annual Report 2016 9 Derivatives and Hedge Accounting
Derivatives designated as cash flow hedges 444 393 94 3 3 922 2 110
Currency forwards to hedge non-monetary investments 14 27 4 210 370 232 232 370
The Swiss Life Group used interest rate swaps to hedge available-for-sale fixed-rate bonds and bonds classified as loans in Swiss francs, euro, British pounds and US dollars against changes in the fair value attributable to interest rate risk. The nominal amount of these bonds as at 31 December 2016 was CHF 7.0 billion (2015: CHF 4.5 billion).
Derivatives designated as cash flow hedges as at 31 December 2016
TOTAL DERIVATIVES DESIGNATED AS CASH FLOW HEDGES 393 3 2 110 146 – n/a n/a
In 2016 and 2015, the Group used forward starting swaps and forward starting bonds to hedge the exposure to variability in interest cash flows arising on the highly probable purchase of bonds in order to achieve an adequate yield level for reinvestments.
Investments in senior secured loan funds of USD 2104 million were hedged in 2016. No such hedges were in place as at 31 December 2015.
Swiss Life – Annual Report 2016 10 Financial Assets at Fair Value through Profit or Loss
Swiss Life – Annual Report 2016 11 Financial Assets Available for Sale
Debt securities previously classified as available for sale 3 008 3 959 – – 3 008 3 959
Other debt securities classified as loans 435 433 – – 435 433
1 Comparative amount adjusted due to reclassification of ceded investment contracts of CHF 102 million to reinsurance assets.
BALANCE AS AT END OF PERIOD 5 4 14 12 18 16
Interest income accrued on impaired loans was CHF 0.02 million as at 31 December 2016 (2015: CHF 0.3 million). The Group’s loan port folio is monitored closely through the review of information such as debt service, annual reports and assessments. This information is evaluated in light of current economic conditions and other factors such as diversification of the property portfolio. This evaluation is part of the regular review to determine whether the allowance for potential loan losses is warranted. Management believes that the allowance for loan losses is sufficient. However, management cannot predict with assurance the impact of future economic circumstances or how the mortgage and real estate portfolios would be affected by various economic circumstances.
Gains (+)/losses (–) recognised in profit or loss (including impairment) 13 72
Rental income from investment property was CHF 920 million for the period ended 31 December 2016 (2015: CHF 868 million). Operating expenses arising from investment property that generated rental income amounted to CHF 251 million for the period ended 31 December 2016 (2015: CHF 193 million).
Later than 1 year and not later than 5 years 1 284 1 159
Crédit et services financiers (CRESERFI), Paris 33.4% 44 1 2 – 2
Other comprehensive income – – – – – – – –4
Share of net assets (carrying amount) 44 44 14 12 n/a n/a n/a n/a
SCI Tour LM, Marseille, a real estate company, was acquired in 2016.
BALANCE AS AT END OF PERIOD –196 –35 –48 –14 –293
Land and Furniture Other Notes buildings and fixtures Hardware equipment Total
No borrowing costs were capitalised in property and equipment in 2016 and 2015.
Swiss Life – Annual Report 2016 17 Intangible Assets including Intangible Insurance Assets
Goodwill relating to Lloyd Continental has been allocated to the “France” segment. Goodwill relating to CapitalLeben has been allocated to the “International” segment. Goodwill relating to Corpus Sireo has been allocated to the “Asset Managers” segment. Of the goodwill relating to other acquisitions, CHF 18 million (31.12.2015: CHF 19 million) have been allocated to the “France” segment and CHF 25 million (31.12.2015: CHF 8 million) to the “Asset Managers” segment as at 31 December 2016.
The calculations relating to the recoverable amounts, which have been determined on a value-inuse basis, use cash flow projections based on financial budgets approved by management. The projection covers a three-year period for Lloyd Continental and Corpus Sireo. Due to the duration of the insurance and investment contracts a five-year period was used for CapitalLeben. The calculations for Lloyd Continental, Corpus Sireo and CapitalLeben are based on present values that traditionally use a single set of estimated cash flows and a single discount rate.
Goodwill relating to “Swiss Life Select” (acquisitions of AWD Holding AG and Deutsche Proventus AG) has been allocated to the “Switzerland”, “Germany” and “International” segments. The recoverable amounts have been determined on a value-in-use basis and use cash flow projections based on financial budgets approved by management. The projection covers a three-year period for Switzerland, Germany and International (AT/CEE, UK). The calculations are based on present values that traditionally use a single set of estimated cash flows and a single discount rate. The key assumptions used for the impairment testing on the carrying amount of goodwill are as follows.
Customer relationships The acquisition of MAYFAIR CAPITAL INVESTMENT MANAGEMENT LIMITED, London, in November 2016 led to the recognition of customer relationships of CHF 13 million.
Swiss Life – Annual Report 2016 18 Other Assets and Liabilities
Investment contracts without DPF at amortised cost 30 0 9 – – 0 9
TOTAL INVESTMENT AND UNIT-LINKED CONTRACTS 36 920 36 730 105 100 36 815 36 630 of which for the account and risk of the Swiss Life Group’s customers
In the case of contracts that do not have significant insurance risk but contain discretionary participation features, the Swiss Life Group primarily bases its accounting policies on the requirements of the Generally Accepted Accounting Principles in the United States (status of US GAAP as of the first application of IFRS 4 Phase I).
On 16 June 2015, Demeter Investments B.V., a Dutch repackaging vehicle, issued EUR 750 million in fixed to floating rate subordinated perpetual notes (at an issue price of 99.105%) secured by loan notes granted to Swiss Life Ltd, which are guaranteed by Swiss Life Holding. Swiss Life Ltd may repay the loan notes in full on 16 June 2025 or on any interest payment date thereafter, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority. The interest has been fixed at 4.375% p.a until 16 June 2025. If the notes are not redeemed on 16 June 2025, the interest will be the aggregate of three-month Euribor and a margin of 4.30% p.a.
In November 2012, Swiss Life Insurance Finance Ltd. offered to existing lenders under the subordinated perpetual step-up loan placed in 1999 by Swiss Life Ltd to purchase their loan holdings against a consideration consisting of both a cash component and a credit component. Altogether, EUR 265 million and CHF 290 million were purchased from lenders. The cash component amounted to a total of CHF 139 million. The credit component consists of a tranche of a subordinated dated step-up loan newly issued by Swiss Life Ltd. The subordinated dated step-up loan placed in connection with the offer amounts to CHF 471 million, is guaranteed by Swiss Life Holding, has a tenor of thirty years and is first repayable on 30 November 2022 at the option of the issuer, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority. The interest rate is six-month Libor plus a margin of 4.20% p.a. until 30 November 2022. If the loan is not redeemed on 30 November 2022, the margin increases by 1%.
Swiss Life AG EUR 600 EUR 600 4.500% 2016 2027 637 –
Swiss Life AG CHF 150 CHF 150 4.375% 2016 2026 149 –
Swiss Life AG EUR 750 EUR 750 4.375% 2015 2025 793 802
Swiss Life AG CHF 300 CHF 300 5.500% 2012 2018 299 298
Swiss Life AG EUR 443 EUR 192 +2.050% 1999 2019 207 209
In 2016, convertible bonds with a nominal value of CHF 35 000.00 were converted into 147 Swiss Life Holding shares with a corresponding increase in share capital of CHF 749.70 and an increase in share premium of CHF 31 552.91.
Swiss Life Holding AG CHF 200 1.875% 2013 2023 199 199
Plan descriptions Switzerland Pension plans in Switzerland are governed by the Swiss Federal Law on Occupational Retirement (BVG). Pension plans must be managed by independent, legally autonomous entities and are under regulatory supervision. The plans covering the Group’s employees in Switzerland are set up as foundations. The foundation board as the most senior governing body must be composed of equal numbers of employee and employer representatives. Main responsibilities of the foundation board are the definition of plan benefits, funding system, setting of actuarial parameters and investment policies for the plan assets. The BVG defines minimum levels with regard to benefits (including conversion rate for old-age pensions), employer/employee contributions as well as the interest rate for the accrual of the employees’ pension account. An annual actuarial report according to BVG requirements is prepared which shows the funding level of the respective plan. The measurement basis for the plan’s assets and benefit obligations for this purpose is in accordance with BVG rules.
The primary benefit of Swiss Life’s plans is an old-age pension after reaching retirement age. The level of the old-age pension is determined by the plan’s conversion rate applied to the employees’ individual pension account accumulated at retirement age. There are options for early retirement (with actuarially determined reduction of the conversion rate) and for choosing to receive a lumpsum payment instead of a pension. This old-age pension is funded by monthly contributions from the employer and the employee (deducted from salary) to an individual pension account which in addition is increased by a yearly interest accrual. The contributions are based on age and on a percentage of the contributory salary. Further funding of an individual pension account comprises mandatory transfers of funds made by new employees from plans of his/her former employers and discretionary contributions from the employee (with restrictions to maximum amounts). As a consequence of plan amendments in the past, certain age groups are granted guarantees of a minimum level of old-age pensions in case of early retirement. The cost with respect to early retirement of members from these age groups is borne by the employer.
France Pension plans in France are covered by various national agreements. Defined benefit plans in France cover retirement benefits for employees, including executive officers, based on the last salary, length of service, cause of termination and the respective national agreement. Furthermore, service anniversary bonuses are paid based on employee category and length of service.
Germany Pension plans in Germany are governed by the Law on Occupational Retirement (BetrAVG). The BetrAVG is part of the general labour legislation, which means that the BetrAVG establishes no rules on funding benefit obligations. It only describes the different possible ways of funding benefit obligations without further details on the practice of funding.
Risks covered With respect to its defined benefit plans the Group faces the risks of adverse development of the prominent actuarial/financial assumptions such as discount rates, mortality assumptions and future salary growth inherent in the measurement of plan liabilities. If the high-quality corporate bond yields (which are the basis for assessing the discount rate) decrease, the present value of the defined benefit obligation would increase, which would lead to a higher defined benefit liability in the consolidated balance sheet. However, this effect would be partly offset by the increase in the value of bonds in the plan assets. A higher defined benefit obligation would also result if the average life expectancy (longevity) or the rate of future salary growth were higher than the corresponding values reflected in the financial/actuarial parameters.
For the plans that provide lump-sum benefits based on separate asset portfolios, the most significant but low risk is from capital markets fluctuations. The asset portfolios are broadly diversified with corporate bonds, German government bonds, covered bonds and exchanged-traded funds.
Insurance contracts not eligible as plan assets under IFRS 1 477 1 459
To assess the funding situation of the defined benefit plans in total, plan assets as well as insurance contracts not eligible as plan assets under IFRS must be set off against the present value of the defined benefit obligation. The total deficit taking into consideration insurance contracts not eligible as plan assets under IFRS amounted to CHF 376 million as at 31 December 2016 (2015: deficit of CHF 267 million).
Actuarial gains and losses on the defined benefit obligation –193 –216
Transfer to intragroup insurance contracts, reclassifications and other disposals –5 –44
Average life expectation at ordinary retirement age (women) 25.3 24.8–24.9 23.2–29.8 23.2–28.8
Average life expectation at ordinary retirement age (men) 22.3–23.2 21.5–22.4 19.8–27.7 19.8–25.6
A sensitivity analysis was performed for each significant actuarial assumption which shows the impact on the defined benefit obligation of changes in the respective actuarial assumptions that were reasonably possible at the balance sheet date. The calculation is done by leaving all other assumptions unchanged (i.e. at their value used in the calculation of the defined benefit obligation implicit in the net defined benefit asset/liability in the consolidated balance sheet as at end of period). In reality, it is unlikely that a change in assumption would happen in isolation. Some assumptions may well be correlated. In addition, the net effect in the consolidated balance sheet would also be driven by the change in the value of the plan assets.
Certain subsidiaries sponsor various defined contribution plans. Participation in the various plans is based either on completion of a specific period of continuous service or on the date of hire. The plans stipulate contributions by both employers and employees. The expenses under these plans amounted to CHF 1 million in 2016 (2015: CHF 1 million).
The 2013–2015 equity compensation plans are based on the Group-wide programme “Swiss Life 2015”, which was announced at the Swiss Life Group’s Investors’ Day on 28 November 2012. On the basis of the medium-term planning 2013–2015 (2013 equity compensation plan) and 2014–2016 (2014 equity compensation plan), performance criteria relating to cost efficiency (50% weighting), the risk and fee result (25% weighting) and IFRS profit (25% weighting) have been determined by the Board of Directors. With regard to the 2015 equity compensation plan, the Board of Directors has set the following performance criteria on the basis of the medium-term planning 2015–2017: IFRS profit (50% weighting), the risk and fee result (25% weighting) and cash to Swiss Life Holding for further strengthening of the financial substance and payout capacity (25% weighting). After expiry of the three-year period of the RSU plan, the target value for each performance criterion according to the medium-term planning is compared with the actual result achieved. The share allocation corresponds to the number of allocated RSUs (1 RSU = 1 share) if all three performance criteria have been achieved or exceeded after the three-year period has elapsed; overperformance does not lead to a higher share allocation. If the targets are only partly achieved, the share allocation is correspondingly reduced in accordance with the weighting of the performance target concerned, or the RSUs expire worthless.
The expected weighted-average tax rate for the Group in 2016 was 23.5% (2015: 24.2%). This rate was derived by obtaining a weighted average of the expected income tax rates in the various jurisdictions in which the Group operates. The change of the weighted-average tax rate is due to the geographical allocation of the profits and the different tax rates in these jurisdictions. The actual income tax expense differs from the expected amount as follows.
Income tax calculated using the expected weighted-average tax rate 285 283
TOTAL DEFERRED INCOME TAX ASSETS/LIABILITIES 39 47 1 998 1 720
Provisions for restructuring were set up in Switzerland, Germany, Liechtenstein and Luxembourg in 2016 and 2015. The outflow of the amounts is expected within the following one to two years.
As at 31 December 2016, the share capital of Swiss Life Holding consisted of 32 081 201 fullypaid shares with a par value of CHF 5.10 each (2015: 32 081 054 fully-paid shares with a par value of CHF 5.10 each). In exercising voting rights, no shareholder can collect more than 10% of the total share capital directly or indirectly in respect of own shares or shares they represent. Conditional share capital was CHF 30 599 250.30 as at 31 December 2016 (2015: CHF 30 600 000.00).
In 2016, convertible bonds were converted into 147 Swiss Life Holding shares with a corresponding increase in share capital of CHF 749.70 and an increase in share premium of CHF 31 552.91.
SHARES ISSUED AS AT END OF PERIOD 32 081 201 32 081 054
Items that may be reclassified to profit or loss comprise: – Foreign currency translation differences arising on the translation of assets, liabilities, income and expenses of Group entities denominated in foreign currencies into Swiss francs.
Net balance as at 1 January –1 157 2 853 436 –53 2 079 66 –296 – –230 1 849
Reclassification to profit or loss – gross 8, 9 – –433 –26 45 1 –414 – – – – –414
Reclassification to profit or loss – gross 8, 9 0 –527 –8 64 1 –471 – – – – –471
Profit or loss allocated to non-controlling interests 1 3 2 2
NET CHANGE IN CASH AND CASH EQUIVALENTS 906 101 1 –1
Continuous monitoring of solvency under the SST is conducted on a monthly basis and calibration is updated based on the full SST calculations as at the beginning of each calendar year and as at mid-year.
Swiss Life reports to the Swiss Financial Market Supervisory Authority FINMA. The reporting covers risk management and solvency, liquidity, legal structure, management organisation and intra-group transactions. The reporting is submitted on an ad-hoc, monthly, half-yearly or yearly basis depending on the topic and is reviewed on a yearly basis by the statutory auditor according to the legal requirements. As at 31 December 2016 and 2015, Swiss Life was compliant with the legal requirements.
In Standard & Poor’s risk-based capital model, the total adjusted capital (TAC) is the measure used for available capital. TAC is set against the capital required given the company’s target rating category (target capital). The calculation of target capital takes into account, in particular, insurance risks, asset value volatility and credit risks. Swiss Life has established a target capital level in line with its rating ambition. Within the capital analysis, in addition to assessing capital adequacy, Standard & Poor’s also evaluates the quality of capital with respect to its structure. Capital adequacy is monitored on an ongoing basis according to Standard & Poor’s capital model.
Swiss Life Holding is the ultimate parent of all of the Group’s legal entities. Capital and cash held at Swiss Life Holding have the highest fungibility. Therefore, the Group aims to hold an appropriate capital buffer at the holding level. Under consideration of legal and regulatory restrictions, internal limits and local capital buffers, the legal entities of the Group transfer cash and capital to Swiss Life Holding, in the form of dividends, interest on loans and fees (cash remittance). Capital at Swiss Life Holding is used as a buffer to pay dividends to shareholders or to finance growth.
For the years ended 31 December 2016 and 2015, no impairment allowance has been made for doubtful debts in respect of the amounts owed by related parties. This assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates.
30.1 Assets and liabilities measured at fair value on a recurring basis
Associates at fair value through profit or loss – – 0 1 22 5 23 6
Investment contracts without discretionary participation – – 330 343 – – 330 343
Investment funds: Some fair value measurements of fund units, including unlisted fixed income funds, are only available on an irregular basis and are therefore categorised as level 2. Prices are provided by independent external market data providers who measure the fair value using marketconsistent parameters.
– Forward starting bonds are valued on a cost-of-carry basis using the discounted cash flow method. Main inputs to calculate the current forward rate are the spot price of the underlying bond and the discount factors to coupon payment dates/maturity date.
Debt instruments: Debt instruments categorised as level 3 of the fair value hierarchy mainly comprise instruments with embedded derivatives to guarantee the participation on a defined underlying (hedge fund of funds or equity basket). The valuation, which is provided by banks, is derived from valuation techniques that take into account the market value of the underlying assets, transaction prices and other information, such as market participants’ assumptions.
Investment property The following table shows the fair value hierarchy of investment property as at 31 December.
Market rental value p.a. (price/m2/year) CHF 230–286 CHF 224–281 EUR 130–928 EUR 130–4500
Foreign currency translation differences – 0 – –13 –9 –21 –52 –96
Total gains/losses recognised in profit or loss – 0 5 6 47 –380 655 334
Total gains/losses recognised in other comprehensive income – – – – –36 – – –36
Foreign currency translation differences – – 0 0 –5 –11 –5 –11
for liabilities held at the end of the period – – 0 0 12 1 12 1
Total gains/losses recognised in profit or loss – – –12 –1 – –
Swiss Life – Annual Report 2016 30.2 Fair value of financial instruments carried at amortised cost
Loans Level 1: This category consists of debt securities reclassified from financial assets available for sale due to the disappearance of an active market and where the market has become active again. Additionally, debt securities not quoted in an active market at initial recognition and where the market has become active again are included in this category.
Swiss Life – Annual Report 2016 31 Offsetting Financial Assets and Liabilities
The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements.
Gross amounts of recognised financial liabilities before offsetting 1 648 989 2 970 2 146 4 618 3 135
NET AMOUNTS PRESENTED IN THE BALANCE SHEET 1 648 989 2 970 2 146 4 618 3 135
The total amount of credit commitments includes commitments to lend at fixed rates, which expose the Group to interest rate risk. These commitments are entered into for restricted periods of time. As at 31 December 2016, committed principal amounts totalled EUR 32 million and CHF 137 million (2015: EUR 66 million and CHF 200 million). The range of committed interest rates is 1.2% to 5.1% for commitments in euro and 0.9% to 2.1% for commitments in Swiss francs.
They represent agreements to provide liquidity to protection funds in the insurance industry.
Later than 1 year and not later than 5 years 91 91
On 12 April 2017, EUR 590 million hybrid debt will be repaid in full. Approval of the Swiss Financial Market Supervisory Authority has been obtained.
Actuaires et Associés SA, Petit-Lancy CH from 12.01.2015 100.0% 100.0% Services
Swiss Life Asset Management AG, Zürich AM 100.0% 100.0% Asset management
Swiss Life Select International Holding AG, Zürich IN 100.0% 100.0% Holding
CORPUS SIREO Broadway Acquisition GmbH, Köln AM until 27.04.2015 – –
CORPUS SIREO Makler GmbH, Köln AM 100.0% 100.0% Asset management & Real estate
CORPUS SIREO Projektentwicklung Lessingstrasse GmbH, Köln AM until 11.05.2016 – –
RheinCOR Projektentwicklung GmbH, Köln AM from 19.01.2015 55.0% 55.0% Asset management & Real estate
SL Beteiligungs-GmbH & Co. Immobilien VII KG, Garching b. München DE from 16.11.2016 100.0% 100.0% Real estate
CORPUS SIREO Investment Residential No. 24 S.à r.l., Luxembourg AM 100.0% 100.0% Asset management & Real estate
Swiss Life Assurance Solutions S.A., Strassen Other 100.0% 100.0% Non-life insurance
Adroit Partnerships (Offshore) L.P., Grand Cayman CH 100.0% 100.0% Private equity
Swiss Life (Singapore) Pte. Ltd., Singapore IN 100.0% 100.0% Life insurance
We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the “Auditor’s responsibilities for the audit of the consolidated financial statements” section of our report.
We concluded full scope audit work at 10 reporting units in 5 countries. Our audit scope addressed over 93% of the Group’s total assets and 99% of the Group’s total net earned premiums. In addition, specified procedures were performed on a further 2 reporting units in Switzerland.
Audit scope We designed our audit by determining materiality and assessing the risks of material misstatement in the consolidated financial statements. In particular, we considered where subjective judgements were made; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
CHF 126 million 5% of profit before tax and policyholder participation
Materiality The scope of our audit was influenced by our application of materiality. Our audit opinion aims to provide reasonable assurance that the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the consolidated financial statements as a whole.
As set out in note 22 – Insurance Liabilities and Reinsurance Assets – Net future life policyholder benefits amount to CHF 96 800 million.
Management assesses the appropriateness of the main assumptions used for the calculation of these liabilities at each reporting date.
The future life policyholder benefits are calculated using a discount rate. We have reviewed significant assumption changes made during the year with a focus on the interest rate used in the traditional life insurance policies. In assessing the interest rate used, we confirmed that the interest rates are supported by the anticipated economic performance of the assets backing the liability when considering any planned changes in asset strategy and reinvestment. In particular, we assessed the different components of the discount rate on a portfolio level (“individual life” and “group life”). We were supported by actuarial specialists in our audit work of all full scope units. Our audit procedures for the discount rate included, but were not limited to: – Assessment of the estimated future expected returns for all major investment classes, such as bonds, real estate, loans, mortgages, equity, and alternative investments,
– Comparison of the allocation of the major asset classes to the strategic asset allocation, thus ascertaining its appropriateness,
– Verification of the consistency of the assumptions made by management with assumptions made elsewhere (for example in the determination of the market consistent embedded value (MCEV)), and
– Review of the methodology for determining the selected discount rate, based on the above input parameters.
We focused on goodwill, since the cash flow projections extend into the future and are based on significant management judgement, as to the development of the acquired businesses.
In addition, a significant driver of the value-in-use is the discount rate, which is based on the weighted average cost of capital. Our focus was on the determination of the discount rate used.
In addition, we assessed the main parameters used in the calculation of the weighted average cost of capital, from which the discount rate is derived. In particular, we identified the market data inputs used by the Group and tested these against independent data.
We focused on the investment property due to the size of such property with respect to the total amount of invested assets and the fact that there is management judgement involved in determining the fair value. Further, we focused our audit procedures performed on Swiss Life Switzerland, as the value of investment property provides for 83% of the investment property on the Group’s balance sheet.
The fair value is ordinarily derived using the generally accepted discounted cash flow method. Consideration is given to the assumed expected rental revenue, over the period in use of the investment property, and discounted using a rate which reflects the risk assessment of the investment property. The fair value of investment property is sensitive to a) the development of the real estate market for residential, commercial, and mix-use properties in general, to b) the expected rental revenue, and c) the discount rate.
Based on the overall risk assessment, we selected individual investment properties for an individual valuation review. Our sample selection was conducted using specified criteria, such as location, market value, market value deviation compared to the previous year, type of use, and acquisitions of investment property during the reporting period.
During the audit we have been supported by our real estate valuation experts. In particular, our valuation review included the following: – assessed the completeness and appropriateness of the valuation report of the independent valuation expert and assessed the competence, objectivity and independence of this expert,
– examined the valuation assumptions with regards to the market conformity,
We compared the booked values with the valuation results of the valuation experts. We examined if the carrying values as well as the valuation adjustments (if applicable) were correctly booked.
Responsibilities of the Board of Directors for the consolidated financial statements
The annual profit of Swiss Life Holding consisted mainly of dividends, guarantee fees and interest income within the Group, as well as investment income. Dividend payments received by the holding company from subsidiaries increased from CHF 337 million to CHF 519 million. Guarantee fees including processing fees for new loans rose from CHF 45 million to CHF 49 million. Corpus Sireo units were granted new loans totalling EUR 15 million to finance new real estate projects. The volume of loans to Group companies rose from CHF 642 million to CHF 708 million. Interest earned on loans to Group companies increased from CHF 30 million to CHF 32 million. Most of the additional interest income arises from loans granted to subsidiaries in the previous year.
Swiss Life Holding’s profit distribution to shareholders in the period under review came to CHF 271 million or CHF 8.50 per share and was made out of the capital contribution reserve. The par value of the Swiss Life Holding share stands unchanged at CHF 5.10. The company’s nominal share capital at the end of the year remained at CHF 164 million.
As at the end of the year Swiss Life Holding held long-term debt capital amounting to CHF 919 million. This consists of two senior bonds in the total amount of CHF 425 million, comprising a tranche of CHF 225 million with a six-year maturity (coupon 1.125%; maturing 2019) and a tranche of CHF 200 million with a ten-year maturity (coupon 1.875%; maturing 2023), as well as a seven-year convertible bond in the amount of CHF 500 million (coupon 0%; maturing 2020). These debt financing instruments were issued in 2013. Interest on the bonds came to CHF 7 million. Staff costs and operating expenses including taxes could be lowered to CHF 15 million (2015: CHF 19 million) due to tax savings and reduced outlay to third parties. The convertible bond with a principal of CHF 35 000 was converted in 2016, which led in turn to the issue of 147 shares in Swiss Life Holding from conditional capital.
The 2016 Financial Statements were prepared in accordance with the provisions of Swiss accounting law (Title 32 of the Swiss Code of Obligations). Swiss Life Holding’s Financial Statements are presented in millions of Swiss francs (CHF), which is the presentation currency. Figures may not add up exactly due to rounding.
Share capital As at 31 December 2016, the share capital of Swiss Life Holding consisted of 32 081 201 fully-paid shares with a par value of CHF 5.10 each. In exercising voting rights, no shareholder can collect more than 10% of the total share capital directly or indirectly in respect of his own shares and those he represents. As at 31 December 2015, Swiss Life Holding had 32 081 054 registered shares outstanding with a par value of CHF 5.10 per share. Conditional share capital was CHF 30 599 250.30 as at 31 December 2016 (2015: CHF 30 600 000.00).
Statutory capital reserve The statutory capital reserve consists of the reserve from capital contribution reserves of CHF 591 million. Following the distribution of CHF 8.50 per share, the capital contribution reserve was reduced by CHF 271 million during the year under review from CHF 862 million to CHF 591 million as at 31 December 2016. Of this amount CHF 420 million is recognised by the Federal Tax Administration, while the legal qualification of CHF 171 million is still open and is to be reassessed according to future legal developments.
In 2016 convertible bonds in the amount of CHF 35 000 were converted into 147 shares of Swiss Life Holding, which brought about a corresponding increase in share capital and statutory retained earnings.
Treasury shares In the year under review the companies in the Swiss Life Group purchased a total of 11 472 Swiss Life Holding shares at an average price of CHF 253.60. In the same period, they sold seven shares at an average price of CHF 233.10. As at 31 December 2016, the Swiss Life Group held 189 870 treasury shares.
In addition, Swiss Life Holding grants a line of credit in the amount of CHF 26 million to Swiss Life Products, a line of credit in the amount of CHF 6 million to Swiss Life Schweiz Holding and a line of credit in the amount of CHF 304 million to Corpus Sireo units.
Financial assets pledged as collateral In the year under review, Swiss Life Holding pledged no liquid assets as margin cover for currency forward transactions.
Share ownership/participation rights as at 31 December 2016 As at 31 December 2016, acting members of the Board of Directors and the Corporate Executive Board (including closely linked parties) held the following number of registered Swiss Life Holding shares and future subscription rights to Swiss Life Holding shares in the form of Restricted Share Units (RSUs).
TOTAL CORPORATE EXECUTIVE BOARD 41 687 1 Total number of RSUs allocated in the years 2013, 2014 and 2015 in connection with the relevant equity compensation plan. The RSUs represent future subscription rights that entitle the individuals concerned to receive SLH shares after a period of three years, provided that the relevant conditions are met at that point.
Annual profit amounts to CHF 358 718 980. The Board of Directors proposes to the General Meeting of Shareholders that the profit be appropriated in accordance with the table below. If this proposal is adopted, a distribution of CHF 11.00 per share will be made from the capital contribution reserve.
In our opinion, the financial statements (pages 333 to 340) as at 31 December 2016 comply with Swiss law and the company’s articles of incorporation.
We chose total assets as the benchmark because the company mainly holds participations in areas of insurance and financial services providers, as well as providing loans to group companies.
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Our work in the area of participations mainly focused on the audit of management’s analysis of the valuation of participations as well as an assessment of assumptions used by management to determine the value in use.
We reviewed the financial budgets approved by management and the board of directors. The financial budgets include details on certain planned activities supporting the expected business development. In particular, we challenged management as to the feasibility of reaching the planned cash flow projections. As part of our procedures we have been supported by our valuation experts.
For certain participations, management decided to forgo preparing a valuation analysis, as a precaution, such participations were written down to the IFRS equity value or the book value was adjusted on the basis of prudency. In this connection, we examined if the write-downs were correctly booked.
The international stock markets were influenced by an uncertain global environment, especially in the first months of 2016. For example, the EU referendum in the UK led to a renewed strengthening of the Swiss franc against major currencies. The US election in November stopped this tendency and resulted in a marked appreciation of the US dollar versus all other major currencies, as well as a rally of all regional equity markets including the Swiss Market Index. This rally did not compensate, however, for the losses observed in the first months of 2016. On the monetary policy front, although the Federal Reserve raised its benchmark interest rate in December, markets were well prepared for this measure. In such an environment, Swiss Life’s share price performed strongly: with an increase of 6% through 2016, the shares outperformed both the Swiss Market Index (–7%) and the Dow Jones STOXX 600 European insurance index (–6%). At the Annual General Meeting in April 2016, shareholders approved a withholding tax-free distribution from the capital contribution reserve of CHF 8.50 per share.
Performance Swiss Market Index (SMI) (in %) –7 –2 +10 +20 +15
Market capitalisation (in CHF million) 30.12. 9 246 8 704 7 584 5 941 3 895
Dividend yield on year-end price (in %) 30.12. 2.95 2.40 2.33 2.43 3.71
Gross written premiums, policy fees and deposits received 17 366 18 853 19 102 17 969 17 046
Annual Report 2016 The Annual Report is published in German and English and contains additional information on risk management, market consistent embedded value (in English only), corporate governance and the annual accounts. The English text is definitive for the Consolidated Financial Statements; the original German text is binding in all other respects.
Publishing details Publisher — Swiss Life Holding Ltd, Zurich Editorial responsibility — Swiss Life, Group Communications and Strategic Marketing, Zurich Concept, design and technical realisation — EQS Group, Munich Production — Management Digital Data AG, Lenzburg © Swiss Life Holding Ltd, 2017
There may be minor discrepancies in total figures and percentages in this report due to rounding effects.