Financial Statements 69 Index to the Financial Statements 71 Consolidated Financial Statements 71 Consolidated Statement of Income 72 Consolidated Balance Sheet 74 Consolidated Statement of Cash Flow 76 Consolidated Statement of Changes in Equity 79 Notes to the Consolidated Financial Statements 147 Report of the Group Auditors 148 Swiss Life Holding Financial Statements 155 Report of the Statutory Auditors 156 Dates and Contacts
Gross written premiums by segment 2,3) Gross written premiums Life Core by country 2,3)
Swiss Life Group . Annual Report 2004 . Swiss Life at a Glance
Swiss Life in brief The Swiss Life Group is one of Europe’s leading providers of pension and life insurance products. The Swiss Life Group offers individuals and companies comprehensive advice across a broad range of products via agents, brokers and banks in its domestic market, Switzerland, where it is market leader, and selected European markets. Multinational companies are serviced with tailor-made solutions by a network of partners in over 40 countries.
Ice cream lover, bookworm, quality fanatic, family man, insurance broker in Amsterdam. Has come to know Swiss Life’s competence and openness in his daily work.
Expertise. Insurance brokers are very important to Swiss Life. They are proven specialists and know their clients’ needs. That’s why Swiss Life maintains regular contact with insurance brokers, offering them the best possible support. This collaboration between experts is perhaps the decisive reason why Sunny Léons places particular trust in Swiss Life.
It is our intention to achieve a position of pensions leadership for Swiss Life. Indeed, in the 2004 financial year, we made further significant progress in realising our ambition. Our focus on the life insurance and pensions business was successfully moved forward. Premium growth was above the market average in Switzerland, France, Germany, Belgium and Luxembourg. Gross premium income for the Group as a whole increased by more than 8% over last year, exceeding the CHF 20 billion mark for the first time in the company’s history. We achieved this significant improvement in results thanks to an excellent financial result, strict cost management and more riskbased pricing. This produced a profit of CHF 624 million (2003: CHF 233 million). Return on equity came to 10.7% and earnings per share to CHF 20.50. All sectors and countries have contributed to this happy result. On the basis of these results, the Board of Directors will propose a dividend of CHF 4 at the General Meeting on 10 May 2005 after three financial years without any distribution of profit. The distribution will take the form of a repayment of par value.
We have established our new focus. Concentration on our core pensions and life insurance business advanced rapidly in 2004. The insurance business in the United Kingdom, where no new business has been written since 2003, was sold to the Resolution Life Group in December 2004. Swiss Life spun off its third-party private equity business in February 2004. The Banca del Gottardo was separated from the insurance company in June 2004. It is a now a direct subsidiary of Swiss Life Holding. The legal separation of bank and insurance brings greater clarity and transparency for you, our shareholders, for our customers and, not least, for ourselves. The capital increase necessary for this transaction was successfully concluded in June 2004 thanks to the gratifyingly high participation of our existing shareholders. In February 2005 we took the last important steps in the process of sharpening our focus with the announced concentration on the Swiss Life brand within the home market of Switzerland, the integration into Swiss Life of the life insurance business of our subsidiary «La Suisse», the amalgamation of the sales organisations of both companies, and the sale of the remaining business lines of «La Suisse» to Vaudoise and Helsana.
We have gained market share both at home and abroad. In the financial year 2004 the Swiss Life Group generated, for the first time in its history, gross premium income exceeding CHF 20 billion. The actual premium volume of CHF 20.3 billion corresponded to a growth rate of over 8%. In France (+17%), Germany (+7%), Belgium/ Luxembourg (+29%), but also in the Swiss domestic market (+8%), Swiss Life’s growth lay well above the market average. The ratio of premium volume achieved in Switzerland compared with that earned abroad was 40:60 in 2004. Although we assume that Switzerland represents a long-term growth market, we nevertheless anticipate that, due to the significantly greater growth potential outside Switzerland, this ratio will continue to change in favour of the international markets.
Swiss Life Group . Review of Operations 2004 . Letter to Shareholders
We have our risks under control. Our Group-wide approach to asset and liability management (ALM) has proven its worth and will be developed on an ongoing basis. In the 2004 financial year, we narrowed the gap between the average duration of our investments on the asset side of the balance sheet and our obligations on the liabilities side by lengthening the maturities of our investments. The economic interest-rate sensitivity of the balance sheet has thus been reduced. In October 2004 we parted with the lion’s share of our private equity portfolio as this investment category is lacking in liquidity and ties up a great deal of risk capital.
Our new brand has given us a clear profile. In 2004 the brand architecture of the company was simplified and its image refreshed. The previously complex brand structure with its many different names and logos was replaced by a simple, clear look with “Swiss Life” as the umbrella brand. The new corporate identity was introduced in all markets in the course of 2004.
We occupy an attractive position in the market. Among the leading insurance providers, we are one of the very few internationally operating companies to focus systematically on the area of private and occupational benefits. In order to maximise our advantage, we will be gearing ourselves even more closely to the needs of our clients and selected customer segments such as self-employed persons and high earners. We will be increasing the possible ways for our customers to get in contact with us. In Switzerland, for example, where we have a very strong external sales organisation of our own, we would like to expand sales through brokers and banks. We would like to augment the established channels in France – our in-house external sales department and our sales agents – by means of cooperative agreements with banks. In Germany, where Swiss Life has nearly wholly relied on the broker market, we would also like to open up increased opportunities for cooperation.
We have exceptional expertise. With its nearly 150 years of tradition and experience, Swiss Life possesses exceptional expertise in both products and risk, and intends to develop its potential even further. In the past year we had highly promising initial successes in individual markets with product innovations driven by market requirements. In addition, we want to continue to improve cooperation and knowledge exchanges within the enterprise beyond organisational and geographical borders. Moreover, we will also be contributing our expertise in future to the political discussions about the course to be taken in the provision of benefits. We, too, have a social and political interest in ensuring that pension systems are sustainably designed, and that people have a suitable income after they are pensioned or if they become disabled.
We are prepared for the coming challenges. We are optimistic that we are on our way to making further progress in 2005. We intend to grow at least 1% over the market average in each country where we operate. The basis for our success is an even greater focus on our customers’ needs and satisfaction. We intend to improve profitability primarily by means of increased efficiency. This will create the conditions to achieve a sustainable return on equity of better than 10%.
Dear shareholders, we thank you for the confidence you continue to place in the Swiss Life Group, our strategies and our employees. You may rest assured that we will do all we can to remain worthy of this confidence in the future.
Swiss Life wants to set the standards in this growing market for pensions. Swiss Life intends to be a leading provider of private and occupational pensions – leading in the quality of the advice, products, and service. The company offers private individuals comprehensive solutions for the financial safeguarding of their families and a secure retirement, as well as individual savings programmes with or without risk coverage. Corporate customers of every size are advised concerning their pensions situation and directed by Swiss Life to the right product for the specific needs of their company and its employees. Swiss Life focuses on the geographic markets in which it enjoys a strong existing or potential position. Swiss Life is number two in premium volume in its home market of Switzerland, and the clear market leader for individual life insurance. Thanks to its competence, effective sales channels and strong brand, Swiss Life is a preferred alternative to domestic providers in the French, German, Dutch, Belgian and Luxembourg markets.
Strategy Swiss Life intends to achieve a position of pensions leadership. Swiss Life should be the first choice that comes to mind when customers, investors and employees think of this industry. To achieve this objective, Swiss Life is concentrating strategically on growth, efficiency and leadership.
Proximity: We foster close relationships with our customers and partners and endeavour to understand their needs. This proximity enables us to provide optimum solutions tailored to their requirements.
Openness: We nurture open and direct dialogue both within and outside of our organisation. This approach builds trust in the work we do.
Clarity: We communicate clearly and offer products and services that are comprehensible. This clarity gives our customers and partners a sense of security.
Commitment: We work with commitment and enthusiasm to help our customers, staff and shareholders achieve their goals. This commitment forms the basis of long-term partnerships, and enables us to meet our social responsibilities.
Efficiency Swiss Life wants to continue improving the profitability of its insurance business and to reduce its dependence on the financial result. This will be achieved through the simplification and optimisation of operational processes, reduction of complexities across the entire value chain and strict cost management.
Thanks to these measures, Swiss Life will be positioned to create the conditions for achieving a sustainable return on equity of over 10%, and to reward its shareholders with an appropriate dividend.
Curious, well-read, nature-loving, meticulous, friendly, helpful. A self-employed nurse in Marseilles, Hinda Ansas is impressed by Swiss Life pension schemes.
The financial result, at CHF 6.7 billion, was 14% higher than the previous year. This outstanding performance can be particularly attributed to capital gains realised on fixed-interest investments. On the one hand, asset maturities were extended once again in the context of asset and liability management in order to continue narrowing the differential between average assets and liabilities durations and to reduce the economic risk of interest rate fluctuation in the balance sheet. On the other hand, targeted opportunities were seized in the financial markets due to the historically low interest rates of the second half of the year. The return on insurance portfolio investments came to 6.7% (2003: 4.7%). The net equity exposure was raised in connection with the increased risk capacity and was 5.0% as of 31 December 2004 (2003: 2.1%). Insurance benefits including changes in insurance reserves were unchanged from the previous year at CHF 15.7 billion. The increase by CHF 878 million in insurance benefits paid (to CHF 15.2 billion ) was compensated by the decline in changes in insurance reserves The amount for policyholder bonuses and participation in surplus was around 56% higher at CHF 1.4 billion.
15Summary of Group Results The Swiss Life Group generated a profit of CHF 624 million and a return on equity of 10.7% in 2004. Based on these good results, the Board of Directors is proposing that the General Meeting approve a dividend of CHF 4 per share in the form of a repayment of par value.
Core segment (2003: CHF 341 million). All countries contributed to this most satisfactory outcome. Gross written premiums rose by 8% to CHF 17.4 billion.
In Switzerland, its domestic market, Swiss Life demonstrated clearly that it has regained the confidence of its customers. In a slowing market, the company succeeded in increasing its premiums written by 8% to CHF 7156 million. The growth came exclusively from group insurance: Swiss Life took in CHF 5485 million in premiums in this segment (+12%), largely through new contracts and vested benefit policies. Periodic premiums recorded a growth of 3% and single premiums were up 21%. The strong advance in single premiums includes the mathematical reserves brought in by new customers and the increased quotas for contracts managed by several companies.
Insurance benefits including changes in insurance reserves rose by 6% to CHF 7907 million. This growth, attributed to additional reserves for future risks and premium growth, was only partially equalised by the graduated reduction of the pension conversion rate from 7.2% to 5.835% in the supplementary portion of occupational provisions, the reduction of the minimum interest rate from 3.25% to 2.25%, and an improved claims experience.
Operating costs were reduced further in the year under review. In the second half of the year higher commissions as a result of premium growth, and (due to conservative model assumptions) a greater sum for the amortisation of deferred acquisition costs, led to a rise of 2% in operating expenses for a total of CHF 767 million for the year.
In February 2005 the Swiss Life Group announced that their focus in Switzerland is on the Swiss Life brand. The integration of the hitherto autonomously managed «La Suisse» life business is underway. The external sales units of both companies (which occasionally compete) will be amalgamated and the total number of offices reduced from 111 to 58. The stronger sales network will facilitate more efficient exploitation of the market potential in all our sales territories. To reinforce its core business further, Swiss Life is taking on the Vaudoise group life portfolio. In addition, Swiss Life is entering into agreements with Helsana, Switzerland’s largest health insurer, and Vaudoise, to collaborate in distribution. Helsana offers its customers occupational pension solutions from Swiss Life. In return, Swiss Life can offer its corporate clients the sick pay and accident insurance coverage from Helsana, thus continuing to provide comprehensive solutions for personal insurance. Following the sale of its own group life portfolio, Vaudoise will offer its clients the BVG solutions from Swiss Life exclusively.
France With a premium volume of EUR 104 billion, France represents the second-biggest life insurance market in Europe. The market growth of 13% in 2004 reflected the heightened awareness in the country of the importance of saving for retirement. In addition, the recovery of the financial markets in the second half of the year stimulated demand for unit-linked insurance. As an insurer of individuals, Swiss Life is also active in health insurance in France. The premium volume in this market came to EUR 12 billion (+11%) in 2004.
Swiss Life saw its gross written premiums grow by 23% (21% in local currency), thus increasing its market share from 2.4% to 2.6%. This gratifying growth was mainly thanks to the sales agents and banking channels working exclusively for Swiss Life. In Erisa, a joint venture between Swiss Life and the HSBC Group, and in its cooperation with Banque Rothschild, Swiss Life also enjoys direct access to the very important distribution network represented by banks. Since the beginning of 2005, Swiss Life has expanded its access by means of a sales agreement with CaixaBank.
Health insurance premium volume increased by 7% (6% in local currency). Taken together, the premium growth in France came to 18% (17% in local currency). The premium growth and the higher financial result led to an 11% rise in earnings to CHF 3607 million.
Total insurance benefits and losses went up to CHF 2806 million (+11%). The increase compared with the previous year can be attributed to higher outlays for surplus and bonuses to policyholders (+98) ensuing from the higher financial result, and the refinement of the method used to calculate deferred bonus liabilities. Operating expenses rose 16% mainly due to growth-related higher commissions. This produced an operating result of CHF 98 million (2003: CHF 123 million).
Net earned premiums and policy fees 2 305 2 107 9.4%
In 2004 Swiss Life generated gross written premiums of CHF 1910 million, representing an increase of 8% over the previous year. Growth in local currency came to 7% and was thus clearly higher than the 3% expansion of the overall market. The growth in premiums is due especially to the change in the Retirement Income Act effective 1 January 2005, which made taking out life insurance particularly attractive in 2004. Thanks to intensive marketing, Swiss Life managed to profit above the average from this situation. Premium growth and the higher financial result led to a rise in earnings by 6% to CHF 2749 million.
The 8% growth in insurance expenses to CHF 2452 million resulted from the increase in future policyholder bonuses and participation in surplus by 40% to CHF 607 million as a result of actuarial revaluations and the marked growth of unrealised gains on investments. Administrative costs were further reduced (–1%) despite considerable premium growth. Operating expenses dropped by 27% from the previous year to CHF 194 million, primarily due to a change in the method of amortising deferred acquisition costs during the reporting period. This produced an operating result of CHF 103 million (2003: CHF 40 million).
Total insurance benefits and losses from the insurance business dropped by CHF 214 million (–10%) to CHF 2017 million. The drop of CHF 343 million in insurance benefits was partially offset by higher outlays for policyholder bonuses. Operating expenses rose by 18% to CHF 234 million. Commissions in particular, as well as other insurancerelated expenses went up (+69%), mainly due to higher write-offs on deferred acquisition costs On the other hand, administrative costs were reduced (–11%).
This produced an operating result of CHF 272 million, which is CHF 171 million more than in the previous year. It must also be noted that the extraordinary profit from the sale of the mortgage portfolio contributed CHF 135 million to this result.
Key figures for the Netherlands in CHF million 2004 2003 +/–%
Gross written premiums, policy fees and deposits under investment contracts 1 959 2 356 –16.9%
In 2004, Swiss Life recorded a substantial 31% overall increase (29% in local currency) in gross written premiums to CHF 741 million. Premium volume in Belgium grew by 13% (11% in local currency) to CHF 505 million. In Luxembourg, premium volume nearly doubled (CHF 236 million). The reason for such marked growth is the success in cross-border insurance sales involving fund products.
Earnings rose 13% to CHF 460 million, largely thanks to the considerably higher financial result (+39%), which can be attributed to the growth in investment income and capital gains on investments. While expenses due to the insurance business remained practically constant (+2%), operating expenses rose by 10% to CHF 82 million, mainly due to higher, growth-driven commissions. Despite considerable growth in premiums, administrative outlays in local currency remained constant. This produced an operating result of CHF 41 million (2003: CHF 1 million).
Swiss Life expanded its range of products, offering occupational benefits for small and mid-sized companies to cover growing demand from this business segment. Swiss Life also expanded the product range for selfemployed individuals. Swiss Life received important awards in Belgium and Luxembourg. In Belgium, Swiss Life was awarded the “Trophée de l’assurance vie” for innovation. For the second time in a row, the company was honoured in Luxembourg with the “Best Pensions Solutions” title.
Swiss Life Group . Review of Operations 2004 . Life Non-Core Segment
In 2004, the Life, Non-Core segment included operations in the UK and Italy besides the life business of «La Suisse» in Switzerland. Swiss Life announced the sale of Swiss Life (UK) to the Resolution Life Group in December 2004. The transaction was approved by the Financial Services Authority and completed on 31 March 2005. Swiss Life (UK) was deconsolidated on 31 December 2004 and no longer features in Swiss Life’s figures for assets under management, mathematical reserves and employees. As announced in February 2005, the life business of «La Suisse» is to be integrated into Swiss Life (see page 17 on this subject).
In the 2004 financial year, earnings in this segment amounted to CHF 1677 million. The decline of 6% against the previous year is due to the significantly lower financial result (–20%) caused by the CHF 125 million charge for the sale of Swiss Life (UK). Expenses in the insurance business fell to CHF 1465 million, or 5% down from the previous year, and operating expenses were reduced by 28% to CHF 137 million. This produced an operating result of CHF 75 million (against CHF 67 million the previous year).
Life, Non-Core In the Life, Non-Core segment, Swiss Life’s operating profit in 2004 came to CHF 67 million. Swiss Life (UK) was sold in December 2004. The «La Suisse»
Key figures for Life Non-Core in CHF million 2004 2003 +/–%
Total benefits, losses and interest expenses –1 465 –1 534 –4.5%
The Non-Life segment consists of the non-life operations of «La Suisse» in Switzerland, certain operations in France, and Zelia in Belgium. Swiss Life announced in February 2005 that it would be selling the non-life operations of «La Suisse» to Vaudoise and Helsana. It was also decided in October 2004 that Zelia should be separated from the Belgian Swiss Life organisation and should concentrate exclusively on the non-life business in future.
Premium income in the non-life segment fell slightly in 2004 to CHF 1067 million (–1%). However, lower earnings were more than compensated for by lower costs in the insurance business and the 4% fall in operating expenses. This produced an operating result of CHF 46 million (CHF 23 million in 2003).
«La Suisse» Increased premium rates and a strict underwriting policy for new business led to a slight fall in premium volume of 1% at «La Suisse», to CHF 395 million.
As insurance benefits and operating expenses declined more strongly than income, the operating result rose significantly. The measures to increase profitability also led to a considerable improvement of the combined ratio, from
Swiss Life Group . Review of Operations 2004 . Private Banking Segment
Net income totalled CHF 450 million. The decline of 4% from the previous year is primarily due to the unfavourable market environment, which led to significantly lower trading results (CHF 52 million, or –34%) compared with the exceptionally good result the previous year.
The 6% increase in business expenses, to CHF 309 million, is due to investments in the expansion of on-shore operations. In Italy, Banca del Gottardo opened three new branches in Rome, Turin and Treviso. In France, the bank acquired Oudart, the Paris-based asset management company. In other areas, the bank continued in its efforts to cut costs and improve efficiency. The decreased need for amortisation, reserves and valuation adjustments, amounting to CHF 63 million (–36%), had a positive impact on the annual result.
Consolidated equity before profit distribution amounted to CHF 1.0 billion (+10%) on 31 December 2004. At the end of the year assets under management at Banca del Gottardo totalled CHF 41.1 billion. The increase of CHF 2.5 billion, or 7%, compared to the previous year is partially due to the acquisition of Oudart.
The transfer of Banca del Gottardo to Swiss Life Holding in July 2004 served to remove doubt concerning the bank’s future, allowing complete concentration on business operations and the continued development of the bank.
Banca del Gottardo was further integrated in Swiss Life’s group processes over the last three quarters of the reporting year, particularly in the areas of controlling, risk management, compliance, internal audit and taxes.
Private Banking In 2004 the Swiss Life Group generated a profit of CHF 96 million in its Private Banking segment, thus continuing the successful expansion of Banca del
Total interest expenses and expenses from interest operations –86 –103 –16.5%
Swiss Life Group . Review of Operations 2004 . Investment Management Segment
In 2004, in the course of implementing its strategy, Swiss Life simplified the structure of the Investment Management segment through liquidations and divestments. Swiss Life Asset Management Germany and Belgium are to be dissolved and the assets transferred to the relevant units.
Operating costs decreased by 15% to CHF 121 million. This decline is largely due to restructuring measures and the efficiency drive. The Investment Management segment thus posted a profit of CHF 67 million.
For 2005, with the further development of the asset and liability management process, all activities in the Investment Management segment will again be targeted towards generating an optimal risk-adjusted return on the insurance funds Furthermore, marketing efforts to acquire mandates in institutional asset management and real estate management will again be intensified. And to this aim the product range for institutional funds will be extended further.
Business volume amounted to CHF 1.8 billion in 2004. The Swiss Life Network is thus the world’s leading employee benefit plan network in terms of premium volume. This market position was confirmed in 2004, despite continuing competitive pressure, and the Network’s excellent international contacts and country-specific sales efforts played a decisive role in an environment marked by increasing globalisation.
The Swiss Life Network International Employee Benefits Conference will be held at the end of April 2005. Representatives of approximately 150 multinational clients and the partner companies will be guests at this three-day conference, which will feature presentations by renowned speakers and workshops on current topics relating to occupational pensions.
26 Swiss Life Network The Swiss Life Network specialises in comprehensive employee benefit plans for multinational corporations. At the end of 2004, the Network comprised 49 partners, who managed approximately 5 000 contracts for over 400 companies in 51 countries.
His first time as manager of 180 staff from 16 countries
Entrepreneur, artist, animal expert, journeyman, entertainer. And on tour in Switzerland in 2003 for the first time with the support of Swiss Life.
Group structure and shareholders Group structure Swiss Life Holding is a public limited company incorporated under Swiss law with its registered office in Zurich. It was established in 2002 and has been listed on the SWX Swiss Exchange since 19 November 2002. Swiss Life Holding brings together all Swiss Life Group companies and activities under a single holding company umbrella. The holding company structure makes it easier to effect investments, enter into partnerships or cooperation agreements and execute capital market transactions. In addition, by separating the interests of shareholders from those of policyholders, transparency is also improved.
The companies falling within the Group’s scope of consolidation are presented in note 44 to the Financial Statements. Details concerning the SWX Swiss Exchange listing and market capitalisation can be found on page 35.
On the balance sheet date, Swiss Life Holding held 7.52% of its own shares, either directly or indirectly via its subsidiaries Swiss Life/Rentenanstalt, Swiss Life Cayman Finance Ltd. and Banca del Gottardo. Following the MCS I (2002–2005) issue of mandatory convertible securities in 2002, 5.85% of this total was earmarked for the allocation reserve required to carry out the compulsory conversion of the securities issued under MCS I (2002–2005) into shares of Swiss Life Holding. Additional information on MCS I (2002–2005) can be found in the “Capital structure” section below and in note 31 to the Financial Statements.
Capital structure Capital and changes in capital The capital structure of Swiss Life Holding was as follows on the balance sheet date: – Ordinary share capital: CHF 1668790900, divided into 33775818 fully paid registered shares with a par value of CHF 50 per share.
Since the establishment of Swiss Life Holding on 17 September 2002 with a share capital of CHF 250000, divided into 5000 registered shares with a par value of CHF 50 each, several capital market transactions have been successfully carried out. This included in a first step the offer presented to the then Swiss Life/Rentenanstalt shareholders to exchange their registered shares for Swiss Life Holding registered shares on a 1:1 basis. Around 92% of Swiss Life/Rentenanstalt’s shareholders accepted the public exchange offer, and on 18 November 2002 the Swiss Life Holding share capital was increased, through taking delivery of 10834704 Swiss Life/Rentenanstalt registered shares with a par value of CHF 50 each, by 10834704 registered shares with a par value of CHF 50 each to CHF 541985200 (divided into 10839704 registered shares).
At the end of 2003, Swiss Life Holding simiplified its shareholder structure by reducing the minority shareholdings in its Swiss Life/Rentenanstalt subsidiary, following the 2002 conversion of Swiss Life/Rentenanstalt shares into Swiss Life Holding shares, to just under 0.2%. The company issued the MSC II (2003–2004) mandatory convertible securities so as to be able to conduct the
On 2 June 2004, the Board of Directors decided to increase the ordinary share capital out of the authorised capital by CHF 417234000 to CHF 1668936050, divided into 33378721 registered shares at a par value of CHF 50 each, thus reducing the authorised capital to nil.
Due to the partial conversion of the convertible securities (2004–2010), between the issuance in the year under review of the convertible securities (2004–2010) and the balance sheet date, another 19 registered shares in all were created from conditional capital.
Limitations on transferability and nominee registrations Swiss Life Holding shares are not subject to any limitations on transferability. According to the Articles of Association, resolutions for the introduction, amendment or repeal of restrictions on transferability must be put before the General Meeting of Shareholders and must be approved by at least both two-thirds of the voting shares represented and an absolute majority of the share par value represented. Swiss and foreign banks, securities brokers and companies acting on their behalf, with shares of Swiss Life Holding held in their custody for the account of the beneficial owners, may be registered as nominees.
Convertible bonds and options Two mandatory convertible securities remained outstanding on the balance sheet date: the MCS I (2002–2005) issue of December 2002 by Swiss Life Cayman Finance Ltd. for CHF 250000000 and the (2004–2010) issue of June 2004 by Swiss Life Holding for CHF 317000000. The specific conditions attached to these convertible securities as well as further details can be found in note 31 to the Financial Statements and in the issue prospectuses of 9 December 2002 and 8 June 2004, respectively. The MCS II (2003–2004) mandatory convertible securities issued by Swiss Life Cayman Finance Ltd. expired on 30 December 2004.
Information on options granted by Swiss Life Holding or by Group companies on rights to participate in Swiss Life Holding under equity compensation plans for employees can be found in note 26 to the Financial Statements.
Composition The Board of Directors of Swiss Life Holding currently consists entirely of non-executive directors with no duties related to operational management within Swiss Life Holding, and who have not exercised such duties during the past three financial years. No member of the Board moreover has any significant business relationship with Swiss Life Holding or any other Group companies.
The members of the Board of Directors of Swiss Life Holding also make up the Board of Directors of the operating insurance company Swiss Life/Rentenanstalt.
There are no mutual cross-directorships with listed companies. Information on further directorships held by individual members of the Swiss Life Holding Board of Directors with other companies can be found in the section below.
Other appointment: – Roche Holding AG, Basel, Vice Chairman of the Board of Directors and Independent Lead Director
– Cellere AG, St. Gallen, Member of the Board of Directors – Georg Fischer AG, Schaffhausen, Member of the Board of Directors 37Members of the Board of Directors As of the balance sheet date the Board of Directors was composed of the following members: Year appointed/ Name Functions reelected Elected until
Gerold Bührer Vice Chairman 2002/2003 1) 2005 Chairman’s Committee Investment and Risk Committee, Chairman
Franziska Tschudi Member 2003 2005 Investment and Risk Committee 1) Member of the Board of Directors of Swiss Life/Rentenanstalt since 2000 2) Member of the Supervisory Board of Swiss Life/Rentenanstalt since 1995 and member of the Board of Directors since 1997
Bruno Gehrig received his Doctorate in Economics (Dr. rer. pol) in 1975 from the University of Berne where, following studies at the University of Rochester (NY), USA, he also qualified as a lecturer in 1978 with a paper on monetary policy. From 1971 to 1980 he was an assistant and lecturer at the University of Berne, becoming Assistant Professor in 1978.
From 1981 to 1984 Bruno Gehrig was head of the Economics Section at the Union Bank of Switzerland. In 1985 he spent a year studying international banking. In 1988 he was promoted to Head of Stock Markets and Securities Sales Division for the UBS Group. Between 1989 and 1991 Mr Gehrig was Chairman of the Executive Board of Bank Cantrade. From 1992 to 1996 he held the chair
Volker Bremkamp joined Albingia Versicherungs AG in Hamburg in 1963 (a subsidiary of Guardian Royal Exchange plc, London), receiving his qualifications as an insurance expert in 1965. Between 1969 and 1971 he was employed by various insurance companies and brokers in London and Paris. He returned to Albingia Versicherungs AG, Hamburg, in 1971, serving as an Executive Director from 1978 to 1989 and from 1989 to 2000 as CEO of Albingia Lebensversicherungs AG. Volker Bremkamp was an Executive Director and at the same time Group Executive Director, Continental Europe, at Guardian Royal Exchange plc, London, from 1995 to 1999, which was taken over by the AXA Group in 1999. From 1999 to 2000 he was an Executive Director of AXA Colonia Konzern AG, Cologne, which is the holding company of AXA Germany. Since 2000 he has been Managing Director of BMB Bremkamp Management- und Beteiligungs-GmbH.
Vereinsbank AG, Munich), Hamburg, Supervisory Board – AON International Insurance Broker, Hamburg, Member of the Supervisory Board – Dresdner Bank AG, Hamburg, Member of the Advisory
Committee for Northern Germany – Everpublic AG, Hamburg, Chairman of the Supervisory
Advisory Committee – Stifterverband für die Deutsche Wissenschaft, Member of the Board of Trustees
– Bank Julius Bär & Co. AG, Zurich, Member of the Board of Directors
Other appointments: – Employee benefits foundations for Swiss Life/Rentenanstalt ’s internal services and external sales staff in Switzerland, Deputy Member of the Board of Trustees
Georges Muller graduated from the University of Lausanne in Law and Business Administration in 1963 and earned an LL.M. at Harvard University in 1969. In 1973, he received his Doctorate in Law from the University of Lausanne.
Franziska Tschudi studied Law at the University of Berne between 1978 and 1984 , and passed her Bar exam there in 1984. From 1985 to 1986 she studied US Law at Georgetown University, Washington DC, USA, earning an LL.M.
Swiss Life Group . Review of Operations 2004 . Corporate Governance at the University of Berne. Between 1984 and 1992, she practised business and media law in Zurich, Geneva and Washington DC. From 1992 to 1995 she served as Secretary General at SIG Swiss Industrial Company. Ms Tschudi then became a member of the Executive Board of WICOR Holding AG (“Weidmann Group”), Rapperswil in 1995, where she was Head of Corporate Development and from 1998 Head of Business Area Electrical Technology Asia/Pacific. She has been Chief Executive Officer and Managing Director of WICOR Holding AG since 2001.
– OSEC, Member of the Advisory Committee – Judge at Commercial Court for the Canton of St. Gallen – “Die Chance” Foundation, Member of the Board of
Resignations There were no resignations from the Corporate Executive Board during the review period.
Executive Board. As opposed to before, the tasks and responsibilities of the Chairman of the Board of Directors are now included in the Organisational Regulations. The Chairman coordinates the work of the Board and the committees, and is responsible for ensuring reporting from the Corporate Executive Board to the Board of Directors. In urgent situations, the Chairman may also determine the necessary measures and steps falling within the scope of competencies of the Board until it takes a decision. If a timely decision cannot be reached by the Board of Directors, the Chairman is empowered to take a decision.
Three standing committees support the work of the Board of Directors as a whole: the Chairman’s Committee, the Audit Committee, and the Investment and Risk Committee. The Board of Directors may establish other committees to be entrusted with special tasks.
Chairman’s Committee The Chairman’s Committee assists the Chairman of the Board of Directors in fulfilling his leadership and coordination role, and assists the Board of Directors with matters concerning corporate governance. It also assists the Board of Directors in decisions concerning the appointment of personnel at the highest levels of management (nomination function) and in setting guidelines for compensation of members of the Board of Directors and the Corporate Executive Board, and determining how these guidelines will be applied to the compensation and terms of employment of the CEO and the other members of the Corporate Executive Board (compensation function).
The Chairman’s Committee meets at least six times a year. The Chairman’s Committee met thirteen times during the year under review.
Investment and Risk Committee The Investment and Risk Committee assists the Board of Directors in matters concerning investment management, financial management and risk management within the company. The tasks and competencies of the Investment and Risk Committee include, among others, submitting proposals to the Board of Directors on the principles of asset and liability management for the Group, the assessment of capital adequacy, the definition of the Group’s investment policy, verification of compliance with Group guidelines on investments, and establishment of the risk tolerance in insurance and investment operations.
The Investment and Risk Committee meets at least four times a year. The Investment and Risk Committee met eight times during the year under review.
The Audit Committee meets at least four times a year. The frequency of meetings depends on the financial budgeting and reporting process. The Audit Committee met six times during the year under review.
Delineation of competencies between the Board of Directors and the Corporate Executive Board The Organisational Regulations of Swiss Life Holding provide for the comprehensive delegation of the executive management of the company to the Corporate Executive Board, with the exception of those duties reserved for other bodies in accordance with the law, the Articles of Association or the Organisational Regulations themselves. The Corporate Executive Board bears responsibility in particular for the implementation of corporate strategy, for the conditions governing business operations and for financial guidance. It is further 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. It 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.
Corporate Executive Board The CEO directs the business operations of the Group. The CEO, together with the Corporate Executive Board, works out the long-term objectives and strategic orientation of the Group for consideration by the Board of Directors and, based on the resolutions of the Board of Directors, ensures the goal-oriented leadership and development of the Group. The Corporate Executive Board may form committees for individual areas of responsibility and delegate competencies to such a Corporate Executive Board Committee.
Members of the Corporate Executive Board The Corporate Executive Board of Swiss Life Holding is composed of the following members: Name Position Since
Rolf Dörig laid the groundwork for his professional career by obtaining a Doctorate in Law from the University of Zurich before being called to the Bar of Zurich. Joining Credit Suisse in 1986, he assumed a number of executive responsibilities in various areas of banking and in different geographical markets. He subsequently became Chief of Staff and Chief Communications Officer for the Credit Suisse Group. As a member of the Executive Board of Credit Suisse Financial Services, he was assigned responsibility for Swiss Corporate and Retail Banking from 2000 onwards. In spring 2002 he became Chairman Switzerland for the Credit Suisse Group.
Rolf Dörig has been Chief Executive Officer (CEO) of the Swiss Life Group since 6 November 2002.
Other appointments: – Swiss Insurance Association, Member of the Board – economiesuisse, Zurich, Member of the Board Committee – Kaba Holding AG, Rümlang, Member of the Board of Directors – DANZER AG, Baar, Member of the Board of Directors – Zurich Chamber of Commerce, Member of the Board of Directors – Grasshopper-Club Zürich, Chairman of the Board of Directors
Reto Himmel has been Chief Technology Officer (CTO) at the Swiss Life Group since January 2003.
Other appointment: – SWX Swiss Exchange, Member of the Board and Audit
Paul Müller studied Economics at the University of St. Gallen. After graduating with a Master’s degree (lic.oec. HSG) in 1975 he launched his career by joining Wintherthur Versicherungen. In 1982 he moved to Baloise Insurance where he held a number of leading positions. As a member of the Corporate Executive Board he was ultimately responsible for the German, Austrian, French, Belgian and Luxembourg markets. From 1995 Paul Müller served as CEO of Helvetia Patria Assurances’ Swiss Division in Basel.
He took up his new position as Chief Market Officer (CMO) at the Swiss Life Group in January 2003.
Martin Senn studied commerce before graduation from Management courses at INSEAD in Fontainebleau and the Harvard Business School. He worked at the former Swiss Bank Corporation from 1976 to 1994, where his positions included Treasurer in Hong Kong and Regional Treasurer for Asia and the Pacific region in Singapore before ultimately managing the company’s Tokyo office. In 1994 he moved to Credit Suisse where his many executive roles included that of Regional Treasurer for Europe and Turnaround Manager with a mandate to restructure and reposition all legal entities of the Credit Suisse Group in Japan. A member of the Credit Suisse Executive Board, he was appointed Head of its Trading and Investment Services Division in 2001.
Board of Directors – Castle Alternative Invest Ltd., Freienbach, Member of the Board of Directors
Bruno Pfister has been CFO of the Swiss Life Group since August 2002.
Further details on compensation and benefit expenditure for the Swiss Life Group management and employees can be found in note 26 to the Financial Statements.
allocated at a value of CHF 164.15. They are subject to a three-year vesting period.
1) 6944 of the shares allocated in the 2004 f inancial year fell under the 2004 regulations on the long-term remuneration component
Allotment year 2004 No share options issued 2003 No share options issued
Additional honorariums and remuneration During the period under review there were no additional honorarium or remuneration payments to members of the Board of Directors or the Corporate Executive Board that would have been subject to disclosure requirements.
Loans On the balance sheet date, there were no loans outstanding to members of the Board of Directors or members of the Corporate Executive Board that would have been subject to disclosure requirements: Board of Directors none
Highest total compensation, Board of Directors The highest total compensation for a member of the Board of Directors in 2004 was paid to Bruno Gehrig as Chairman of the Board. The total compensation paid in 2004 was as follows: Compensation CHF 555 000
Shares 1) CHF 49 245 300 SLHN shares at CHF 164.15
2) 1519 shares were allocated under the 2004 regulations governing the long-term remuneration component and 1736 shares as bonus. All shares are blocked for three years until the end of March 2007 (vesting period).
46 Right of representation The Articles of Association stipulate that a shareholder may be represented by another shareholder, a legal representative, a management representative, an independent voting representative or a representative of deposited shares. Married persons may also be represented by their spouses, who are not required to be shareholders.
Convocation of the General Meeting of Shareholders and agenda The rules set out in the Articles of Association for convening a General Meeting of Shareholders and drawing up the agenda encompass the stipulations of the law. Shareholders representing shares with a par value of at least one million Swiss francs 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 he accompanied by a certificate issued by a bank to confirm that the shares are deposited with it until after the General Meeting of Shareholders is held.
Entry in the share register Entries can be made in the share register up to, but not including, the day before the General Meeting of Shareholders. In all cases, however, the company reserves the right to adhere to the legal maximum period of 20 days for refusal to recognise entries in the share register in accordance with Art. 685g of the Swiss Code of Obligations. For administrative reasons (postal delivery times) the deadline for registering to participate in the General Meeting of Shareholders is usually seven calendar days before the meeting takes place.
Voting system and procedures Voting at Swiss Life Holding is by show of hands; a written vote may be requested by the presiding officer at the General Meeting of Shareholders, or by shareholders who together represent at least 10% of the entire share capital. The presiding officer may use electronic voting for a written vote. Swiss Life Holding uses a certified electronic voting system, which it helped develop, to permit balloting with remote-controlled handsets and to record the exact number of proxy votes.
Clauses on changes of control No agreements exist in favour of the Board of Directors or the Corporate Executive Board for cases concerning changes in control of the company.
Duration of the mandate and term of office of the lead auditor At the time Swiss Life Holding was established in 2002, PwC was named as Group Auditor and was re-elected at the Annual General Meeting of Shareholders in May 2004 for the year 2004. 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. PwC has served as Group Auditor for Swiss Life since 1994. For the 2004 financial year, a new PwC partner was elected lead auditor charged with reviewing the consolidated Financial Statements of Swiss Life Holding.
Auditing fees In 2004 the auditing fees received by PwC from the Swiss Life Group came to CHF 14.063 million (compared to CHF 11.602 million the previous year). These include the costs of reviewing Swiss Life’s 2004 half-year accounts and checking the restatements occasioned by the conversion to IFRS 4 as well as the expenses connected with the capital increase and convertible bond issue (2004–2010) in the course of the year.
Additional auditing fees In 2004 PwC received additional payments totalling CHF 1.587 million for advisory services (previous year: CHF 2.785 million).
Information policy In addition to its comprehensive review of operations and Financial Statements, Swiss Life Holding also reports its half-year results. All Swiss Life annual reports and halfyear reports from 1997 onwards can be accessed via the website www.swisslife.com. Twice a year, a report with important facts and figures is sent to all those recorded in the share register. In addition, the second Investor’s Day was held on 2 December 2004. Swiss Life provided financial analysts and institutional investors with a deeper insight into the Group’s international markets. The next Investors’ Day event is scheduled to be held on 1 December 2005. Important dates and contacts can be found on page 156.
Swiss Life Group . Annual Report 2004 . Board of Directors
Swiss Life Group . Annual Report 2004 . Corporate Executive Board
Swiss Life Group . Review of Operations 2004 . Responsible Corporate Conduct
Society This annual report is despatched in Switzerland by patients of the Swiss Epilepsy Centre in Zurich. This is just one example of the many social campaigns that Swiss Life has pursued for years. The company’s social commitment ranges from charitable activities to support for cultural institutions and sports sponsorship. For example, Swiss Life contributes substantial sums to its own Jubilee Foundation for Public Health and Medical Research, as well as contributing to support funds and the shortterm disability insurance for Swiss artists. Swiss Life is a member of various bodies in Switzerland, including The Sustainability Forum and the Standard-Setting Board of the Swiss Federal Office of Private Insurance. Besides its membership, Swiss Life’s commitment to the Swiss Insurance Association extends to the active role played in the organisation by various Swiss Life staff.
Swiss Life employees also lecture at and cooperate with various universities and professional associations with a view to actively promoting further training in the insurance sector. Swiss Life Group subsidiary Swiss Life Asset Management (SLAM), which cooperates with SAM Sustainable Asset Management, provides asset management services for institutional investors. SAM and SLAM are the first companies to offer sustainability-balanced direct mandates in partnership, exploiting the advantages of sustainable asset management and the concept of mixed mandates.
Staff Swiss Life attaches great importance to developing its staff, and to this end continuously adjusts its range of human resources training programmes. A Group-wide staff survey was conducted in 2004. From now on, staff satisfaction will be measured on the basis of the survey, and measures for improvement derived from it. This includes a programme for employees’ further development. With the aim of promoting health, various discounts on sports facility fees are available to staff throughout the Group, and some sites, such as Zurich and Munich, have their own sports club. In Switzerland, the range of social insurance available in terms of pension plans and maternity leave exceeds the legal minimum requirements. Further social assistance includes partnerships with nursery schools, discounts on public transport season tickets, in-house advice from human resources and legal staff, free influenza vaccinations and contributions towards the costs of smoking cessation programmes.
Clarity. Only those who communicate clearly are also understood. That’s why Swiss Life goes for a simple, clear corporate image that positions us as a leading international pensions provider. This clarity is expressed both in our day-to-day business and in the consistent communication of our brand.
The extent to which the embedded value is dependent on the assumptions made can be seen in the “Economic Sensitivities” table on the next page.
This represents an increase of CHF 1025 million against the previous year. The main reason for this improvement was the capital increase of CHF 860 million in the year under review. Investment income came in clearly above the assumptions in the review period, leading to an increase of CHF 797 million. On the other hand, the decline in anticipated future investment income implied a reduction of around CHF 500 million. Increases in reserves, partially due to the first BVG revision in Switzerland, together with the sale of Swiss Life’s UK operations, had a negative impact of CHF 475 million on the company’s embedded value. A compilation of other changes in embedded value can be seen in the “Analysis of change” table on the next page.
Embedded Value Swiss Life Group as of 31 December in CHF million 2004 2003 +/–%
ANAV of Swiss Life Holding 1,2) 1 516 622 of which cost of capital –1 480 –1 129 1) Adjusted Net Asset Value 2) Equity of Swiss Life Holding less book value of Swiss Life/Rentenanstalt 3) Present Value of Future Profits
Swiss Life Group . Review of Operations 2004 . Embedded Value 58 Economic assumptions
Swiss Life Group embedded value at end of 2003 6 911
Group’s assumptions are together reasonable and that the embedded value results have been properly compiled on the basis of the methodology and assumptions chosen.
Swiss Life Group embedded value at end of 2004 3 601 2 819 1 516 7 936
Impact of 50 bp increase in investment return +313 +304 – +617
Impact of 50 bp decrease in risk discount rate +190 +91 – +281
The Investment and Risk Committee of the Board of Directors receives regular reports on the overall risk situation of the individual companies and also of the Swiss Life Group as a whole. It assesses the situation and decrees appropriate measures, such as setting new limits if there has been a significant change in the risk capacity originally determined. The committee also ensures that the risk management processes are up to requirements.
Life insurers are also exposed to market risks on the liabilities side of their balance sheets, especially interest-rate risks stemming from the sale of long-term insurance policies with interest guarantees. Because the clients often take on long-term commitments, in addition to the guarantees they expect to profit from uptrends on the financial markets in the form of bonuses. Options embedded in the insurance policies afford clients the necessary flexibility for long-term agreements. These three elements – guarantee, bonuses and options – essentially determine the financial risk of classical life insurance policies.
Information on asset and liability management, including the matching of receivables and obligations, can be found in the next chapter on page 61.
Swiss Life Group . Review of Operations 2004 . Risk Management
Credit risks Credit risk concerns the possibility that debtors may no longer be able to meet their obligations.
Responsibility for monitoring credit risks lies with the individual companies, which follow stringent, Group-wide guidelines with regard to minimum borrower ratings and the diversification of credit risks across all areas in which Swiss Life is exposed to such risks, in particular the investment and reinsurance segments. To avoid excessive concentrations of risk across the Group as a whole, the credit risks are also regularly assessed in summary at the Group level and where necessary reduced at the individual units in accordance with instructions issued by the Group. All in all, this strict credit risk management process ensures a broadly diversified credit portfolio with low credit risk exposure.
Underwriting risks In the life insurance business a distinction is drawn between three types of underwriting risk: longevity, death and disability. Swiss Life conducts an annual review and analysis of its customer portfolios with regard to mortality, cancellation and reactivation. To manage disability risk and improve risk performance, individual evaluations are used along with portfolio analyses for disability risk to allow a better assessment of the exposure structure. The information gained is used in setting appropriate prices and rates as well as ensuring that reserves are sufficient for future insurance obligations to be met at all times. It also forms the basis for determining the risk capital that will be required to offset unexpected deviations in the actuarial reserves.
Swiss Life Group . Review of Operations 2004 . Asset and Liability Management
The underlying principle behind this approach is to ensure that the assets (and the income they help generate) cover the contractual or statutory commitments towards policyholders at all times. Cash flows on either side of the balance sheet should match one another as closely as possible. Since the majority of the liabilities are longterm in nature, the ALM portfolio is mainly composed of interest-rate-sensitive instruments. In this way the economic impact of interest-rate fluctuations on the company is kept to a minimum, thus ensuring that policyholders receive the benefits they were promised.
Given that developments on the liabilities side can be dynamic, a static asset allocation approach is unsuitable. If the liabilities are split into a guaranteed segment and a non-guaranteed segment (bonus component), the guaranteed segment can be presented as the guaranteed minimum interest rate. Meanwhile the bonus is subject to change over the course of time, given that the amounts to be distributed are directly influenced by market developments (e.g. interest environment, stock markets). If the market interest rate increases, so too do policyholders ’ expectations with regard to the bonus payments they anticipate from Swiss Life.
61Asset and Liability Management Matching assets and liabilities is one of the most important aspects of risk management in life insurance. It ensures that benefits payable are covered and that core capital will always be available to absorb fluctuations in the value of assets and liabilities.
As regards the actual distributions, the dividend policies of the other market participants (insurers) also have to be taken into account, and a certain bandwidth of market expectation can be anticipated in this regard. Distributing 62 Asset Allocation as of 31 December (insurance portfolio)
Product design Product design involves setting guarantees and benefits. The actuarial bases used for this purpose guarantee that each individual product will generate a sufficient contribution margin.
For new business, the product parameters are set in such a way that the costs, including capital costs, are covered and both the risk result and the net interest result will be positive. In addition, premium levels must either reflect the value of embedded options, such as policy surrender or waiver of premium, or eliminate these altogether. Alternatively, products can be designed in such a way that the costs associated with the exercise of such options are negligible.
There must always be sufficient reserves to meet the contractual and regulatory requirements arising from existing business. Consequently, not only must the regulatory constraints be observed, but in-house estimates concerning specific types of risk must also be taken into consideration.
63Process management The ALM process is managed centrally. The Asset and Liability Management Committee (ALCO), composed of members of the Corporate Executive Board and presided over by the Chief Executive Officer (CEO), sets the parameters. The CEO is responsible for the Group-wide ALM process. At local level, the competent bodies implement the decisions reached at Group level in collaboration with the ALCO at their business unit. All the relevant functions are represented in the ALM process: risk management, investments, actuarial services, product management, distribution and finance.
Early riser, organiser, problem-solver, judge of character, motivator, bon vivant and head chef at Swiss Life. Founded the Swiss Life Sportclub in Munich, which now has over 200 members.
Swiss Life Group . Financial Statements 2004 . Index to the Financial Statements 71 Consolidated Financial Statements 71 Consolidated Statement of Income 72 Consolidated Balance Sheet 74 Consolidated Statement of Cash Flow 76 Consolidated Statement of Changes in Equity 79 Notes to the Consolidated Financial Statements 147 Report of the Group Auditors 148 Swiss Life Holding Financial Statements 148 Review of Operations 149 Statement of Income 150 Balance Sheet 151 Notes to the Financial Statements 154 Appropriation of Net Result 155 Report of the Statutory Auditors
Interest credited to investment contracts, customer deposits and other funds on deposit 9 –926 –818
Swiss Life Group . Financial Statements 2004 . Consolidated Balance Sheet 73Consolidated balance sheet as of 31 December
Swiss Life Group . Financial Statements 2004 . Consolidated Statement of Cash Flow
Net changes in other operating assets and liabilities 2 565 695
Acquisitions of subsidiaries, net of cash and cash equivalents 5 –28 –13
Disposals of subsidiaries, net of cash and cash equivalents 5 –142 –104
Deposits under financial reinsurance contracts that do not transfer risk 1 0
Net change in demand deposits, savings deposits and time deposits –291 –929
Total change in cash and cash equivalents 2 054 2 033
Cash and cash equivalents as of 31 December 8 304 6 250
Balance carried forward to next page 31 538 759 21 558 979 4 076 3 179
Note Note 81 Summary of Significant Accounting Policies . . . . . . . . . 2 89 Effect of Changes in Accounting Policies. . . . . . . . . . . . 3 90 Other Forthcoming Changes in Accounting Policies . . . 4 91 Significant Acquisitions and Disposals of Subsidiaries . 5 99 Details of Life Core Segment . . . . . . . . . . . . . . . . . . . . . 7 101 Details for Certain Items in the Statement of Income . . 9 104 Held-to-Maturity and Available-for-Sale Investments . 10 105 Financial Assets and Liabilities Held for Trading . . . . . 11 107 Future Minimum Lease Payments under
Non-Cancellable Operating Leases – Lessor . . . . . . . . 14 108 Loans Originated by the Enterprise . . . . . . . . . . . . . . . 15 111 Goodwill and Other Intangible Assets . . . . . . . . . . . . . 19 112 Separate Account (Unit-Linked) Assets . . . . . . . . . . . . 20 112 Investment Contracts, Customer Deposits and Other Funds on Deposit . . . . . . . . . . . . . . . . . . . . 21 116 Insurance Liabilities and Reinsurance Assets. . . . . . . . 25 124 Insurance and Other Receivables and Payables. . . . . . 29 137 Fair Value of Financial Instruments Not Presented in the Balance Sheet at Fair Value . . . . . . . . . . . . . . . . 39 138 Reclassifications in the Statement of Income and in the Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . 40 139 Impact on Equity of Reduction in BVG Conversion
(“legal quote”) and Change in Accounting Policy . . . . 41 139 Branches, Subsidiaries, Associates, Partnerships 140 Events after the Balance Sheet Date . . . . . . . . . . . . . . 43
Additionally, 397078 new SLH shares with a nominal value of CHF 50 each were created by reducing the conditional share capital. These shares adjust the (minimum) number of shares convertible under the mandatory convertible securities (MCS) issues (MCS I, 2002–2005, and MCS II, 2003–2004).
In 2004, convertible bonds were converted into 19 SLH shares with a corresponding increase of share capital and share premium.
Statutory distribution ratio (“legal quote”) The Swiss Federal Council introduced a new model in the Swiss group business (second pillar) for the participation of policyholders (statutory distribution ratio) on 1 April 2004 with retroactive effect from 1 January 2004. The calculation of the participation is based on the statutory accounts and the impact of this new regulation on equity is shown in note 41.
On 4 April 2005, 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 this date.
Foreign currency translation On consolidation, assets and liabilities of Group companies denominated in foreign currencies are translated into Swiss francs at year-end exchange rates. Income and expense items are translated into Swiss francs at the annual average exchange rate.
Goodwill is translated at historical exchange rates. The resulting translation differences are recorded directly in equity as cumulative translation adjustments. On disposal of foreign entities, such translation differences are recognised in income as part of the profit or loss on the sale.
Foreign currency transactions For individual Group entities, foreign currency transactions are accounted for using the approximate exchange rate at the date of the transaction. 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.
Deferred acquisition costs Costs that vary with and are directly related to the acquisition of new and renewed insurance contracts including commissions, underwriting costs, agency and policy issue expenses are deferred. Deferred acquisition costs (DAC) are periodically reviewed to ensure that they are recoverable from future revenues.
Deferred acquisition costs for investment-type contracts such as universal life and unit-linked contracts are amortised over the life of the contract based on the present value of the estimated gross profits expected to be realised. The estimated gross profits consist of margins available from mortality charges and contract-administration costs, investment earnings spreads, surrender charges and other expected assessments and credits.
The effect on the DAC assets that would result from the realisation of unrealised gains or losses on investments is recognised through an offset to unrealised gains or losses in equity at the balance sheet date.
Future life policy benefit liabilities, policyholder contract deposits and loss reserves For participating life insurance contracts, where the contribution principle applies to the allocation of the policyholder bonus, future life policy benefit liabilities are determined by using the net-levelpremium method on the basis of appropriate mortality and interest assumptions. In most instances a liability for terminal bonuses is accrued in the liability for future policy benefits, in proportion to the estimated gross margins.
If the actual results indicate that the accumulated liabilities together with anticipated future revenues are not adequate to meet future obligations and to recover the unamortised DAC, the loss is recognised immediately, either by a reduction of the unamortised DAC or through an increase in reserves for future life policy benefits.
Liabilities for policyholder investment contracts and universal life contracts are not calculated actuarially; they move in line with premiums paid by the policyholders 2 Summary of Significant Accounting Policies (continued)
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements plus interest credited less expenses and mortality charges and withdrawals.
Reserves for unpaid losses and loss adjustment expenses are for future payment obligations under insurance claims, where normally either the amount of benefits to be paid or the date when payments must be made is not yet fixed. They include claims reported at the balance sheet date, claims incurred but not yet reported and claim settlement expenses. Reserves for unpaid losses and loss adjustment expenses are calculated at the estimated amount considered necessary to settle future claims in full, using actuarial methods. These methods are continually reviewed and updated.
Claim reserves are not discounted except for claims with determinable and fixed payment terms.
Policyholder bonuses Policyholder bonus liabilities are recognised in accordance with legal or contractual requirements. Policyholder bonuses are mostly based on the agreed insured amounts and on the statutory net income. For IFRS adjustments, which impact either the result or the gains/losses recognised directly in equity, net, an additional deferred bonus liability is accrued. In countries without legal or contractual requirements there are typically consistent patterns of profit sharing driven by market practice and policyholder expectations. However, these amounts are not accrued until ratified by management.
Investment management Revenue consists principally of investment management fees, commission revenue from distribution and sale of investment fund units and custody account fees. Such revenue is recognised when earned.
Reinsurance The Group assumes and/or cedes insurance in the normal course of business. Reinsurance assets principally include receivables due from both insurance and reinsurance companies for ceded insurance liabilities. Amounts recoverable or due under reinsurance contracts are recognised in a manner consistent with the reinsured risks and in accordance with the terms of the reinsurance contract. Reinsurance is presented on the consolidated balance sheet on a gross basis unless a right and the intention to offset exist.
Reinsurance contracts that do not transfer insurance risk are accounted for as financial reinsurance and are included in reinsurance assets or liabilities. A deposit asset or liability is recognised based on the consideration paid or received, less any explicitly identified premiums or fees to be retained by the reinsured. These contracts are primarily accounted for using the effective interest method with future cash flows being estimated to calculate the effective interest rate.
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements acquisition costs, deferred income taxes and minority interests. On disposal of an AFS investment, the cumulative gain or loss is transferred from equity to profit or loss for the period. Gains and losses on disposal are determined using the average cost method.
All derivative financial instruments are carried in the balance sheet at fair value as assets when favourable to the Group and liabilities when unfavourable. Realised and unrealised gains and losses on derivatives held for trading are recognised in income immediately.
In a qualifying cash flow hedge, the effective portion of the gain or loss on the hedging derivative is recognised directly 2 Summary of Significant Accounting Policies (continued)
Cash and cash equivalents Cash amounts represent cash on hand and demand deposits. Cash equivalents are primarily short-term highly liquid investments with a maturity of 90 days or less from the date of acquisition.
Property and equipment Property and equipment are carried at cost less accumulated depreciation. Land is carried at cost. Depreciation is principally calculated using the straight-line method over the asset’s estimated useful life as follows: buildings 25 to 50 years; furniture and fixtures 5 to 10 years; computer hardware and software 3 to 5 years. Maintenance and repair costs are charged to income as incurred. Expenditures that enhance or extend the economic benefit of property and equipment are capitalised and depreciated. Realised gains and losses on disposals are determined by reference to the carrying amount. Borrowing costs directly attributable to the construction or acquisition of a qualifying asset are capitalised as part of the cost of that asset.
The Group primarily enters into operating leases for the rental of equipment. Payments made under such leases are generally charged to income on a straight-line basis over the period of the lease.
A financial asset is impaired if its carrying amount is greater than the recoverable amount. Depending on the type of financial asset the recoverable amount is estimated as follows: present value of expected future cash flows discounted at the instrument’s original effective interest rate or current market rate; the fair value using an observable market price; or an amount based on the fair value of any collateral. Debt instruments carried at amortised cost are considered impaired if it is probable that the Group will not be able to collect all amounts due according to the contractual terms. Equity instruments are considered impaired if the fair value remains substantially below cost for a prolonged period, or objective evidence indicates that costs may not be recovered. As a Group policy, available-for-sale equity securities are reviewed for impairment when the market value has remained 20% or more below cost for the previous 12 months.
Impairment losses and reversals of impairment losses on investments are recognised in income as part of realised and unrealised gains and losses on investments. Impairment losses and reversals of impairment losses on goodwill are recognised as part of the amortisation of goodwill. Impairment losses and reversals on other assets are recognised in operating expenses.
The accounting policies for the impairment of goodwill relating to business combinations for which the agreement date is before 31 March 2004 are as follows: Goodwill is tested for impairment when there are indications of impairment. For the purposes of impairment testing, the recoverable amount of the cash-generating unit the goodwill belongs to is compared to the carrying amount of the respective cash-generating unit. An impairment loss on goodwill is reversed in a subsequent period if it was caused by a specific external event of an exceptional nature that is not expected to recur and subsequent events have ocurred that reverse the effect of that event.
Income taxes Current and deferred income taxes are recognised in income except when they relate to items recognised directly in equity. Income taxes are calculated using the tax rates enacted or substantively enacted as of the balance sheet date.
Deferred income taxes are recognised for all temporary differences between the carrying amounts of assets and liabilities in the consolidated balance sheet and the tax bases of these assets and liabilities, using the liability method. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which they can be used. For unused tax losses a deferred tax asset is recognised to the extent that it is probable that these losses can be offset against future taxable profits.
A deferred tax liability is recognised for taxable temporary differences relating to investments in subsidiaries, branches and associates and interests in joint ventures, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Unrecognised actuarial gains and losses which exceed 10% of the greater of the present value of the defined benefit obligations and the fair value of plan assets at the end of the previous reporting period are recognised in income over the expected average remaining working lives of the employees participating in the plans.
The Group recognises share-based payments based on the difference between the fair value of the shares at the grant date and the exercise price or the intrinsic value of the share option at the grant date for share option plans. All other employee benefit expenses are accrued or recognised when the related service has been rendered.
Provisions and contingent liabilities Provisions are liabilities with uncertainties as to the amount or timing of payments. Provisions are recognised if there is a present obligation that probably requires an outflow of resources and a reliable estimate can be made at the balance sheet date. Contingent liabilities are disclosed in the Notes if there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources.
Fair value of financial instruments The fair value of financial instruments is determined based on quoted market prices, where available, or on estimates using present values or other valuation techniques. These techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. Where market prices are not readily available, fair value is either based on estimates obtained from independent experts or quoted market prices of comparable instruments. In that regard, the derived fair value estimates cannot be substantiated by comparison with independent markets and, in many cases, could not be realised immediately.
– Fair values for derivative financial instruments are obtained from quoted market prices and/or discounted cash flow models as appropriate.
– The fair value of other investments is generally based on quoted market prices.
– All business combinations within the scope of the standard must be accounted for using the purchase method. IAS 22 permitted business combinations to be accounted for using the pooling of interests method for combinations classified as unitings of interests and the purchase method for combinations classified as acquisitions.
– As part of allocating the cost of a business combination, the IFRS requires separate recognition of liabilities for terminating or reducing the activities of the acquiree and separate recognition of contingent liabilities of the acquiree.
– The standard clarifies the criteria for separately recognising intangible assets of the acquiree as part of allocating the cost of a combination.
The accounting policies for goodwill and intangible assets are described in note 2.
– Rights arising from discretionary participation features in insurance contracts and financial instruments will be presented separately as liabilities and/or equity.
For items not specifically addressed by this IFRS, the Swiss Life Group will continue to apply its current accounting policies for the recognition and measurement of insurance contracts.
IAS 39 (revised) Financial Instruments: Recognition and Measurement IAS 39 (revised) Financial Instruments: Recognition and Measurement was issued by the IASB to provide additional guidance on the accounting for financial instruments. This standard will be applied by the Swiss Life Group as of 1 January 2005. The most significant changes are as follows: – The standard permits an entity to designate any financial asset or financial liability on initial recognition as one to be measured at fair value, with changes in fair value recognised in profit or loss (fair value option).
– The standard provides additional guidance about how to determine fair values using fair value techniques.
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 5 Non-current Assets Held for Sale and Discontinued Operations applies to the classification, measurement and presentation of non-current assets held for sale and disposal groups – i.e. a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. The standard specifies that assets or disposal groups that are classified as held for sale are carried at the lower of carrying amount and fair value less costs to sell. IFRS 5 is being adopted by the Swiss Life Group as of 1 January 2005.
In December 2004, the Swiss Life Group sold its UK life business. The life insurance business in the UK was reported within the Life, Non-Core segment. The sales price amounted to CHF 401 million. The cash-related part thereof amounted to CHF 279 million and was received in March 2005. The realised loss on the sale amounted to CHF 125 million and was fully recognised in 2004. The guarantees related to this transaction are described in note 36. The UK life business contributed CHF 58 million in net income to the Group result for the period from 1 January 2004 to 31 December 2004 (2003: CHF 25 million).
In May 2004, the Swiss Life Group acquired through its banking subsidiary Banca del Gottardo the asset management group Oudart by exercising the bank’s option for the acquisition of the remaining 60.7% of Oudart’s shares. The purchase price amounted to CHF 28 million. The contribution of Oudart to the net income of the Swiss Life Group was a loss of CHF 4 million for the period 25 May 2004 to 5 Significant Acquisitions and Disposals of Subsidiaries
Swiss Life Asset Management (UK) was sold on 5 November 2003 to King & Shaxson Bond Brokers. In September 2003, the equity stake in Swiss Life Partner AG, Germany, an insurance intermediary, was reduced from 77.5% to 49.9%. The remaining equity stake totalling CHF 1 million qualifies as an investment in an associate and is accounted for under the equity method. The proceeds from sale for both transactions amounted to CHF 3 million. Swiss Life Asset Management (UK) contributed a loss of CHF 1 million to the Group result for the period from 1 January 2003 to 22 December 2003.
The Swiss Life Group acquired three real estate companies in Belgium in 2003. The total acquisition cost was CHF 12 million. These real estate companies contributed CHF 1 million in net income to the Group result for the period 1 January 2003 to 31 December 2003. Additionally, Banca del Gottardo acquired a subsidiary in Italy which contributed CHF 0.03 million to the Group result for the period from 11 March 2003 to 31 December 2003. The acquisition price was CHF 1 million.
Cash used for acquisitions (–)/received from disposals (+) –80 –13 3 266
Net cash outflow (–)/inflow (+) from acquisitions/disposals –28 –13 –142 –104 5 Significant Acquisitions and Disposals of Subsidiaries (continued)
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements
– “Non-Life” products principally include property and casualty, liability and motor insurance. As a consequence 6 Segment Information of the new strategy, non-life operations are generally regarded as non-core business.
– “Private Banking” involves the management of assets for high net worth individuals, as well as the provision of corresponding special asset management services. “Private Banking” also covers the Group’s banking operations.
Reinsurance activities are classified as belonging to the Life or Non-Life segments depending on the type of contract. Secondary segmentation is based on geographical area, covering the following segments: Switzerland, France, Germany, the Netherlands, Belgium, the United Kingdom, and other countries.
The accounting policies for the segments are the same as those described in the summary of significant accounting policies. Inter-segmental services and transfers of assets and liabilities are treated as if the transactions were with third parties, i.e. at market prices applicable at the time of the transaction. The statement of income, balance sheet and footnote disclosure for the primary segments are given on the following pages:
Investment management, banking and other fee income 82 0 1 286 173 40 –134 448
Policyholder bonuses and participation in surplus –1 320 –24 –19 – – – 0 –1 363
Interest on borrowings –159 –11 –1 –33 0 –25 36 –193
Other interest expenses –63 –2 –1 –1 – –1 4 –64
Total benefits, losses and interest expenses –16 023 –1 465 –729 –86 0 –26 42 –18 287 of which inter-segment –41 8 –1 0 – –8 42
Insurance-underwriting and policy-acquisition costs –1 238 –86 –197 – – – 24 –1 497
Total operating expenses –1 965 –137 –304 –383 –121 –65 172 –2 803 of which inter-segment –109 –8 –5 –5 –29 –16 172 of which inter-segment –72 –19 4 6 51 30 –
Additions of property and equipment and intangible assets 122 10 6 26 0 5 – 169
Share of results of associates 5 – – 1 – 0 – 6
Net benefits paid and changes in insurance reserves –13 557 –1 445 –726 – – – 2 –15 726
Policyholder bonuses and participation in surplus –805 –49 –18 – – – 1 –871
Interest on borrowings –160 –12 –2 –34 0 –4 35 –177
Other interest expenses –56 –2 1 –1 –1 –4 4 –59
Investment management and banking expenses –151 –4 –2 –417 –137 1 75 –635
Other operating and administrative expenses –563 –15 –85 –3 –5 –64 36 –699
Balance sheet as of 31 December 2003 in CHF million InvestLife ment
In CHF million Additions of Segment revenues property and from external Segment equipment and customers assets intangible assets
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 7 Details of Life Core Segment
Statement of income Life Core segment for the year ended 31 December 2004
Net earned premiums and policy fees 7 023 2 305 1 815 1 593 259 3 12 998
Policyholder bonuses and participation in surplus –239 –429 –607 –36 –9 0 –1 320
Insurance-underwriting and policy-acquisition costs –513 –477 –96 –118 –37 3 –1 238
Total operating expenses –767 –703 –194 –234 –82 15 –1 965
Net earned premiums and policy fees 6 460 2 107 1 673 2 020 270 2 12 532
Net realised and unrealised gains/losses on investments 206 137 92 –83 24 – 376
Share of results of associates 1 0 – – 4 – 5
Net benefits paid and changes in insurance reserves –7 448 –1 730 –1 821 –2 296 –261 –1 –13 557
Policyholder bonuses and participation in surplus –230 –217 –435 98 –21 0 –805
Total operating expenses –754 –605 –267 –199 –74 23 –1 876
Net result used to determine diluted earnings per share 631 235
Weighted average number of shares outstanding 27 441 743 24 064 329
Weighted average number of shares for diluted earnings per share 30 787 372 26 574 768
Diluted earnings per share (in CHF) 1) 20.50 8.83 1) Year-end 2003 f igures adjusted to ref lect the rights issue of June 2004
Total net benefits paid and changes in insurance reserves 15 741 15 726 9 Details for Certain Items in the Statement of Income (continued)
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 9 Details for Certain Items in the Statement of Income (continued)
Impairment losses on property and equipment and other intangible assets – 6
Cost/ Cost/ amortised amortised cost cost Net Net (carrying (carrying unrecognised unrecognised Fair Fair amount) amount) gains/losses gains/losses value value
Derivatives held for trading include contracts entered into for trading purposes and also derivative contracts which provide economic hedges for risk exposures but do not qualify for hedge accounting treatment. Derivatives held for trading were as follows as of 31 December: 12 Derivatives Held for Trading
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 12 Derivatives Held for Trading (continued)
Rental income from investment property was CHF 690 million for the period ended 31 December 2004 (2003: CHF 685 million). Operating expenses arising from investment property that generated rental income stood at CHF 140 million for the period ended 31 December 2004
14 Future Minimum Lease Payments under Non-Cancellable Operating Leases – Lessor
Allowance Allowance Receiv- Receiv- for loan for loan Carrying Carrying Fair Fair ables ables losses losses value value value value
The Group accepted securities at a fair value of CHF 534 million (2003: CHF 515 million) as collateral under repurchase agreements and CHF 705 million (2003: CHF 1510 million) under securities borrowing arrangements which it is permitted to sell or repledge. CHF 966 million (2003: CHF 687 million) of this was either repledged or sold to third parties. An allowance for loan losses is set aside for management’s estimate of loan losses as soon as objective evidence exists that the loan amount may not be fully recoverable. An allowance is recognised for the difference between the carrying value and the estimated recoverable amount, if lower.
In 2004, Zwitserse Maatschappij van Levensverzekering en Lijfrente in the Netherlands sold a portfolio of mortgages totalling CHF 2.2 billion and realised a gain on the sale of CHF 114 million. With the transfer of SwAFE B.V., a special purpose entity in the Netherlands, another mortgage portfolio totalling CHF 782 million was sold.
Accrued interest of CHF 27 million (2003: CHF 22 million) on impaired loans was recognised but not yet received in cash as of 31 December 2004. Property acquired through foreclosure with the intent to sell in the near future is included in sundry assets and was CHF 8 million (2003: CHF 10 million) for the year ended 31 December 2004. The Group’s loan portfolio 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 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.
Later than 1 year and not later than 5 years 427 363 401 337
Adamant Biomedical Investments AG, Basel, LGT Swiss Life Non Traditional Advisers, Liechtenstein, and a service company in Germany, were reclassified to investments in associates due to partial sales of the equity stakes held.
Due to the acquisition of the remaining 60.7% of Oudart, an asset management group, investments in associates were reduced by CHF 12 million.
On 31 July 2003, the Swiss Life Group sold its 22.9% stake in Tuxedo Invest AG, Zug. The gain recognised on the sale amounted to CHF 12 million. On 7 July 2003, the Swiss Life Group announced the sale of its 33.3% stake in Crédit Agricole S.A. (Belgium) for a price of EUR 48 million. The realised gain on the sale amounted to CHF 0.5 million.
A listing of major investments in associates accounted for under the equity method is set out in note 44.
Reclassification of computer software to intangible assets – – – –205 – –205 –
Transfers from/to investment property 13 –139 –95 – – – –234 –120
Revaluation surplus on transfers to investment property 31 103 – – – – 103 31
Transfers to assets held for sale – – – – – – –26
Foreign currency translation differences –3 –1 0 –1 0 –5 52
Balance as of 1 January 0 –4 0 –4 –1 –9 –7
Recognition of impairment losses –11 – – – – –11 –5
Balance as of 31 December –12 –4 – – – –16 –9
In 2004, Swiss Life Holding acquired an additional 15216 Swiss Life/Rentenanstalt shares and increased the equity stake held in its Swiss Life/Rentenanstalt subsidiary from 99.7% as of 31 December 2003 to 99.8% as of 31 December 2004. The related negative goodwill on these transactions amounted to CHF 1 million and was recognised in net income.
The net carrying amount of goodwill of CHF 801 million includes goodwill on the following acquisitions: – Banca del Gottardo CHF 518 million – Lloyd Continental CHF 283 million
Effect of gains/losses recognised directly in equity – – –1 – –1 –
Reclassification of computer software from property and equipment – – – –134 –134 –
Total goodwill and other intangible assets as of 31 December 805 –4 15 83 899 1 071
Investment contracts, customer deposits and other funds on deposit as of 31 December
In 2003, Swiss Life Holding acquired an additional 878978 SL/RA shares and increased the equity stake held in its Swiss Life/Rentenanstalt subsidiary from 92.2% as of 31 December 2002 to 99.7% as of 31 December 2003. The related negative goodwill on these transactions amounted to CHF 21 million and was recognised in net income.
Annual amortisation charges on the present value of future profits relating to acquired insurance portfolios totalling CHF 15 million are estimated as ranging from CHF 4 million to CHF 6 million for the years 2005 to 2007.
Significant delays occur in the notification of claims and a substantial measure of experience and judgement is involved in assessing outstanding liabilities, the ultimate cost of which cannot be known with certainty at the balance sheet date.
Gross reserves for losses and loss adjustment expenses 2 040 1 929
Net reserves for losses and loss adjustment expenses 1 675 1 580
Total liabilities for future life policyholder benefits 87 285 88 743
No single reinsurer is a material reinsurer to the Group, nor is the Group’s business substantially dependent upon any reinsurance contract.
The life operations limit exposure to loss on any single life. Retention limits vary by country. Amounts recoverable from reinsurers are estimated in a manner consistent with the assumptions used for the underlying policy benefits and are presented in the balance sheet as a component of reinsurance assets.
– Experience adjustments relating to future life policyholder benefits vary according to the type of contract and the country. Investment, mortality and morbidity results may be passed through by experience credits or as an adjustment to the premium mechanism, subject to local regulatory provisions.
Net earned premiums and policy fees 2 386 2 741 12 876 12 081 15 262 14 822
Net earned premiums, policy fees and deposits under investment contracts 19 491 18 204
Gross written premiums, policy fees and deposits under investment contracts 20 308 18 760 24 Premiums
Swiss Life (UK) entered into a reinsurance arrangement with Unum, which cedes 100% of the retained risk in respect of the claims portfolio of the group income protection business. The ceded reinsurance premiums with respect to this arrangement totalled CHF 427 million for the period under review.
Under the accounting priniciples adopted, deposits under investment contracts are not recognised as income:
Reinsurance liabilities consisted of CHF 680 million as of 31 December 2004 (2003: CHF 703 million).
Reserves for losses and loss adjustment expenses 2 088 356 1 732 2 040 365 1 675
Reserves for policyholder bonuses and other reserves 6 730 3 6 727 4 845 5 4 840
Amounts recognised in the consolidated balance sheet as of 31 December
Number Number Exercise Exercise Expiry Expiry excercise excercise of shares of shares 1) date date date date price price 2)
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 26 Employee Benefits (continued)
Defined benefit pension plans Employees are covered under various funded and unfunded pension plans. When a third party will reimburse some or all of the expenditure for employee benefits and the rights to reimbursement do not qualify as plan assets, they are treated as a separate asset rather than as a deduction from the obligation. In all other respects the treatment is the same as for plan assets. Participation in the various plans is based either on completion of a specific period of continuous service or on the date of hire. Benefits are based on the employee’s credited years of service and average compensation in the years preceding retirement. Annual funding requirements are determined based on actuarial methods or local requirements.
The net asset/liability position does not incorporate any reimbursement rights. Plan assets included own financial instruments issued by the Group with a fair value of CHF 70 million as of 31 December 2004 (2003: CHF 72 million ). Plan assets do not include any property occupied by the Group.
Defined contribution pension plans 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 Group’s expenses under these plans amounted to CHF 5 million in 2004 (2003: CHF 1 million).
Termination benefits Termination benefits totalling CHF 3 million for the year ending 31 December 2004 (2003: CHF 15 million) arose as a result of early retirements and voluntary redundancies.
Equity compensation plan In the income statement the Group recognises compensation at the measurement date as the difference between fair value and the price at which the shares are allocated. The average fair value of the shares allocated amounted to CHF 195 in 2004 (2003: CHF 83). Expenses for equity compensation plans amounted to CHF 6 million in 2004 (2003: CHF 4 million).
Share options The Group offers share options to directors and managers in Switzerland and abroad. No new share options were allocated in 2004 and 2003. Due to the capital increase, the number and the exercise price of shares under option granted in prior years were adjusted using the Eurex R factor of 0.894092. The outstanding share options did not have an intrinsic value as of 31 December 2004.
Repurchase agreements Securities sold under agreements to repurchase the same or substantially the same securities at a specific future date at a fixed price are generally treated as collateralised borrowing. Securities pledged as collateral under repurchase agreements are not derecognised from the balance sheet, unless control of these securities is transferred. As of 31 December 2004 securities of CHF 1317 million were provided as collateral in respect of repurchase agreements (2003: CHF 1177 million) and CHF 531 million in respect of securities lending arrangements (2003: CHF 1054 million).
Other debentures On 30 June 2004, Swiss Life Insurance Finance Ltd., Cayman Islands, issued EUR 300 million 4.375% bonds at a price of 99.856%. The bonds mature in 2008 and are subject to redemption in whole, at their principal amount, at the option of the issuer at any time in the event of certain changes affecting taxes of the Cayman Islands or Switzerland. The payments of all amounts under the bonds are unconditionally and irrevocably guaranteed by Swiss Life/Rentenanstalt.
Due to the sale in 2004 of SwAFE B.V., a special purpose entity in the Netherlands, the remaining mortgage-backed notes totalling CHF 493 million were transferred.
As of 31 December, other debentures with the following terms were outstanding: 27 Borrowings (continued)
SwAFE B.V. - Junior Class C mortgage-backed notes EUR +1.200% 2002 2079 – 5 and the fixed rate loan at the earliest on 30 September 2009 or at five-year intervals thereafter, upon notice and subject to the consent of the Federal Office of Private Insurance. No interest may be paid on the loans if at the time, or as a result of the payment of interest, the solvency margin of Swiss Life would be, or would fall below, the threshold of 150% of the applicable minimum solvency margin which Swiss Life is required to maintain under the Swiss regulatory regime.
In 2001, the Group issued a subordinated step-up loan of EUR 100 million with a time to maturity of 20 years that can be repaid by the Group after 10 years. The interest rate equals that of Euribor plus a margin which is 1.75% for the first ten years and 2.75% thereafter.
Bondholders exercising their conversion right are entitled to receive the number of shares equal to the principal amount of CHF 1000 divided by the conversion price of CHF 209.625 (subject to adjustments).
The proceeds received from the issue of the convertible bonds have been split between a liability component and an equity component. The fair value of the liability component at issue date amounted to CHF 260 million and was calculated using a market interest rate for an equivalent non-convertible bond. The residual amount of CHF 57 million represents the value of the option to convert the instrument into Swiss Life Holding shares and is included in share premium. Transaction costs of CHF 6 million were deducted from the liability and costs of CHF 1 million were recognised in share premium.
Subordinated debt As of 31 December, the Group has subordinated debts with the following terms were outstanding:
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 27 Borrowings (continued)
Interest Year of Carrying Carrying Issuer/Instrument Currency rate issue Maturity amount amount
SwAFE B.V. - Senior Class A1 mortgage-backed notes EUR +0.240% 2002 2032 – 614
Later than 1 year and not later than 5 years 19 28 17 25
The expected weighted-average tax rates for the Group were 23.0% in 2004 (2003: 19.4%). These rates were derived by obtaining a weighted average of the expected income tax rates in the various jurisdictions in which the Group operates. The increase 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 expenses differ from the expected amounts as follows: Actual tax expenses
Deferred tax liabilities have not been established for withholding tax and other taxes that would be payable on the unremitted income of certain subsidiaries, as such amounts are always retained.
Deferred tax assets are recognised for tax-loss carryforwards and unused tax credits only to the extent that realisation of the related tax benefit is probable. The uncertainty of the recoverability of tax losses and tax credits is taken into account in establishing the valuation allowance. For the following tax-loss carryforwards and tax credits no deferred tax asset has been recognised as of 31 December which will expire as follows:
Total insurance and other payables 4 248 4 779 30 Other Assets and Liabilities
Derivatives designated and accounted for as hedging instruments 38 43 49
Share capital As of 31 December 2004, the share capital of Swiss Life Holding (SLH) consisted of 33775818 fully-paid shares with a nominal value of CHF 50 each. In exercising voting rights, no shareholder can collect more than 10% of the total share capital directly or indirectly in respect of his/her own shares and those he/she represents. As of 31 December 2003, SLH had 25034041 registered shares with a nominal value of CHF 50 per share. Conditional share capital was CHF 183406100 as of 31 December 2004 (2003: CHF 103260950).
Treasury shares Treasury shares consist of SLH shares held by the Swiss Life Group.
Additionally, 397078 new SLH shares with a nominal value of CHF 50 each were created by reducing conditional share capital. These shares adjust the (minimum) number of shares convertible under the mandatory convertible securities (MCS) issues (MCS I, 2002–2005, and MCS II, 2003–2004).
In 2004, convertible bonds were converted into 19 SLH shares with a corresponding increase of share capital totalling CHF 950 and an increase of share premium totalling CHF 2433.
Maturity of mandatory convertible securities (MCS II) in 2004 On 30 December 2004, the 1.00% mandatory convertible securities (MCS II) issue totalling CHF 341 million matured. 1586098 SLH shares equal to the number of SLH shares required under the conversion ratio were created upon issuance of the MCS II. As an adjustment to the minimum number of shares convertible under the MCS II another 187608 shares were created in June 2004 in connection with the capital increase as described above.
The changes in gains and losses not recognised in the income statement were as follows: 31 Equity (continued)
Gains/losses recognised directly in equity, gross 2 917 2 221 5 138
Deferred acquisition costs and present value of future profits –248 –80 –328
Policyholder bonuses and other policyholder liabilities –1 697 –1 820 –3 517
Deferred acquisition costs and present value of future profits –80 3
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 33 Related-Party Transactions
In the normal course of business, the Group enters into various transactions with affiliated companies, including reinsurance and cost sharing arrangements. Related-party transactions include transactions with associates, partnerships, joint ventures, major shareholders, key management and companies significantly controlled by major shareholders or key management. Transactions with related parties are summarised below: Consolidated statement of income for the years ended 31 December
Investment contracts, customer deposits and other funds on deposit –3 –28
Total assets under management 189 142 184 244 34 Assets under Management
Assets under management are taken to comprise: – assets stated as investments in the balance sheet and cash and cash equivalents
Other provisions Other provisions were primarily set up in 2004 to cover credit risks arising from guarantees and to cover costs arising from the sale of the life business in the United Kingdom.
Guarantees, letters of credit and surety bonds The Group has issued financial guarantees and transaction -related guarantees and similar instruments.
Financial guarantees provide for specified payments to be made to reimburse the holder for a loss incurred in the event that a client fails to make payment when due. Transaction-related guarantees such as performance bonds and bid bonds protect the holder against loss in the event of non-performance of a contract. Irrevocable letters of credit and surety bonds have been issued to secure certain reinsurance contracts.
Later than 1 year and not later than 5 years 35 42
Operating lease commitments The Group has entered into various operating leases as a lessee. Rental expenses recognised in income for these items totalled CHF 68 million for the year ending 31 December 2004 (2003: CHF 73 million). Of these amounts, minimum lease payments totalled CHF 68 million in 2004 (2003: CHF 71 million), while contingent rents totalled CHF 0.05 million in 2004 (2003: CHF 2 million).
The outcome of such current legal proceedings, claims and litigation could have a material effect on operating results or cash flows when resolved in a future period. However, in the opinion of management these matters will not materially affect the Group’s consolidated financial position.
The Group has received notices from various tax authorities asserting deficiencies in taxes for various years. The Group believes that it has meritorious legal defences to those purported deficiencies and believes that the ultimate outcome of the cases will not result in a material impact on the Group’s consolidated results, operations or financial position.
Assets are pledged as security for credit lines, for liabilities under repurchase agreements and mortgages on the Group’s property. The following table shows assets pledged as security for liabilities and assets subject to restriction of title as of 31 December: Capital commitments The Group had commitments to purchase investments of CHF 220 million (excluding private equity) as of 31 December 2004 (2003: CHF 55 million ). Contractual obligations to purchase or construct investment property amounted to CHF 123 million as of 31 December 2004 (2003: CHF 26 million).
Total assets pledged include collateral provided under repurchase agreements and securities lending arrangements of CHF 1849 million as of 31 December 2004 (2003: CHF 2231 million).
In CHF million Gains/ Gains/ Expected Fair Fair losses losses occurrence Periods Contract/
Total derivatives designated as cash flow hedges 11 43 –4 9 n. a. n. a. 2 007
Interest rate risk The Group is exposed to various risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its assets, liabilities and cash flows. Matching of assets and liabilities is utilised as the main method of hedging the interest rate risk associated with interest-sensitive insurance liabilities. To the extent this is not practicable, swap contracts and other instruments are used to hedge interest rate risk. The table below summarises the Group’s exposure to interest rate risks: In addition, the Group is exposed to the risk of prepayment on loans; however, management believes the information provided is a reasonably reliable prediction of contractual maturities and repricing based on management’s expectations related to prepayment risk.
The carrying amount of financial assets with variable interest rates was CHF 9785 million as of 31 December 2004 (2003: CHF 9760 million). Financial liabilities with variable interest rates were carried at CHF 2056 million as of 31 December 2004 (2003: CHF 2094 million).
Not later Later than Non-interest than 1 year 1–5 years 5 years bearing Total
Separate account (unit-linked) assets – – – 8 177 8 177
Fixed-rate financial instruments –7 012 –23 077 –2 154 – –32 243
Financial assets held for trading 869 1 695 141 238 7 95 3 045
Loans originated by the enterprise 16 828 3 264 155 380 32 112 20 771
Financial liabilities held for trading –563 –453 –4 –136 –4 –5 –1 165
Investment contracts, customer deposits and other funds on deposit –4 951 –24 976 –99 –1 053 –98 –92 –31 269
Net balance sheet currency gap –14 876 12 431 834 8 106 175 238 6 908
The main method of hedging the foreign currency risks associated with insurance and other liabilities is to use forward exchange and option contracts.
The amount of foreign currency differences recognised in income represented a loss of CHF 438 million for the year ended 31 December 2004 and a gain of CHF 63 million for the year ended 31 December 2003.
Liquidity risk The Group has formal asset/liability matching practices and monitors liquidity on a regular basis. There are no option/individual contracts or policyholders with the potential to prompt an outflow of liquidity through cancellation or early termination which would be material for the Group as a whole.
Non-interest-bearing financial instruments 809 13 4 537 94 21 15 656 21 130
Fixed-rate financial instruments – – –6 990 –23 099 –2 154 – –32 243
Variable-rate financial instruments –845 – –911 –37 –263 – –2 056
Separate account (unit-linked) liabilities – – – – – –8 192 –8 192
Net balance sheet liquidity gap –2 170 –59 14 305 9 964 55 283 –72 144 5 179
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 38 Risk Management Activities (continued)
Market risk The Group is exposed to various risks associated with the effects of changes in the market prices of assets and liabilities recognised in the balance sheet. The Group manages its exposure to market risk through asset allocation limits, duration limits (as appropriate) and stress tests. To manage risks associated with changes in the market price of assets and liabilities, the Group also enters into fair value hedges using mainly options and futures to offset the market behaviour of existing assets or liabilities.
As an active participant in the international capital markets, the Group has a significant concentration of credit risk with financial institutions. The risk that counterparties to both derivative and cash instruments might default on their obligations is monitored on an ongoing basis. To manage the level of credit risk, the Group deals with a diverse group of counterparties with good credit standing, enters into master netting agreements whenever possible, and when appropriate, obtains collateral.
Participation in results of associates, which was previously carried under net investment income, is now presented separately in the income statement.
Balance as of 31 December 1 807 42 Branches, Subsidiaries, Associates, Partnerships and Joint Ventures
The conversion rate for the pensions under the nonmandatory part of the BVG occupational pensions business (Swiss occupational plans) is being reduced by the Swiss Life Group over the next four years from 7.2% to 5.835%. This reduction resulted in a release of reserves (after taxes) of CHF 253 million in the period under review.
The introduction of the statutory distribution ratio (“legal quote”) in the Swiss group business resulted in a one-off charge on unrealised gains/losses recognised directly in equity of CHF 197 million (after taxes) and a one-off charge on net income of CHF 89 million (after taxes).
The net impact (net of policyholder bonuses and taxes) on the opening balance of retained earnings as of 1 January 2004 was a decrease of CHF 5 million.
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 43 Events after the Balance Sheet Date
On 1 February 2005, the Swiss Life Group announced the sale of the non-life operations of «La Suisse». The property and liability business will be transferred to Vaudoise while the accident and health business will be sold to Helsana. In addition, the Swiss Life Group will take on the Vaudoise group life business in return. The consideration for the portfolio transfer to Helsana will be received in cash.
The closing of the sales contract of the UK life business took place in March 2005. The cash-related part of the sales price totalling CHF 279 million was received in March 2005.
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 44 Significant Subsidiaries and Associates 1) Segment (IM = Investment Management, PB = Private Banking)
Adroit Private Equity, Zürich Life l 99.8% 100.0% full CHF 5 000
Alvetern, Pfäffikon IM l until 30.04.2004 – – full CHF 100
Dreieck Industrie Leasing (formerly Dreieck Leasing), Lausanne PB ° 100.0% 100.0% full CHF 15 000
Eaux-Vives 2000, Zürich Life l 99.8% 100.0% full CHF 1 000
Geschäftshaus Spitalgasse, Bern – – until 25.06.2003 – – equity CHF 1 500
«La Suisse» Accidents, Lausanne Non-Life ° 99.8% 100.0% full CHF 50 000
Rentenanstalt Holding, Zürich Other l 99.8% 100.0% full CHF 25 000
STG Asset Management, Basel PB ° until 25.06.2003 – – full CHF 32 000
Swiss Life Fund Master, Zürich IM l until 19.06.2003 – – full CHF 250
Swiss Life Funds, Lugano IM l 100.0% 100.0% full CHF 10 000
Swiss Life General Partners, Zürich IM l 99.8% 100.0% full CHF 100
Swiss Life Pension Services, Zürich Life l from 17.12.2003 99.8% 100.0% full CHF 250
Swiss Life Private Equity Partners, Zürich IM l 99.8% 100.0% full CHF 250
Swiss Life/Rentenanstalt, Zürich Life l 99.8% 99.8% full CHF 587 350
Swiss Life Selection, Zürich Other l 99.8% 100.0% full CHF 250
Swissville Centers, Zürich Life l 99.8% 100.0% full CHF 2 500
Swiss Life (Liechtenstein), Vaduz Life l from 23.11.2004 100.0% 100.0% full CHF 5 000
Carte Blanche TP, Paris – – from 25.11.2003 43.6% 44.0% equity EUR 40
Oudart Assurances, Paris PB ° from 25.05.2004 100.0% 100.0% full EUR 38
Oudart Gestion, Paris PB ° from 25.05.2004 100.0% 100.0% full EUR 1 000
SCI Uniphénix, Paris Other l until 17.12.2004 – – full EUR 7 398
Société suisse de participations d’assurance, Paris Other l 99.8% 100.0% full EUR 792 296
Swiss Life Assurance et Patrimoine, Paris Life l 99.1% 99.7% full EUR 75 000 1) Segment (IM = Investment Management, PB = Private Banking)
Segment 1) Core = ° period share share dation rency 1000
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 44 Significant Subsidiaries and Associates (continued)
Swiss Life Assurances de Biens, Paris Non-Life ° 99.7% 100.0% full EUR 110 850
Swiss Life Banque (formerly Société suisse Banque), Paris PB ° 99.6% 100.0% full EUR 20 000
DEPFA Holding Verwaltungsgesellschaft mbH, Düsseldorf – – from 29.11.2004 20.4% 20.4% equity EUR 539
Schweizerische Rentenanstalt, München (branch) Life l – – full – –
Schweizer Leben Pensions Management, München Other l 99.8% 100.0% full EUR 150
Swiss Life Asset Management, Unterföhring IM l 99.8% 100.0% full EUR 5 250
Swiss Life Grundstücksmanagement, München Life l 99.8% 100.0% full EUR 26
Swiss Life Partner Service und Finanzvermittlung, München Other l 99.8% 100.0% full EUR 1 800
Swiss Life Pensionskasse, München Life l 99.8% 100.0% full EUR 3 000
Swiss Life Asset Management (Nederland), Amstelveen IM l 100.0% 100.0% full EUR 250
Zwitserleven Vermogensbeheer, Amstelveen Life l 99.8% 100.0% full EUR 2 269
Crédit Agricole, Bruxelles – – until 25.08.2003 – – equity EUR 191 259
Demoisy & Cie, Montigny le Tilleul – – from 01.01.2003 25.0% 25.0% equity EUR 31
European District Properties Three, Sint Stevens Woluwe – – 49.9% 50.0% equity EUR 62
Swissville Europe (Belgium), Bruxelles Life l 99.8% 100.0% full EUR 8 087
ZELIA, Bruxelles Life l 99.8% 100.0% full EUR 32 227 Non-Life °
Banque du Gothard (Luxembourg), Luxembourg PB ° 100.0% 100.0% full CHF 14 000
Gottardo Equity Fund (Lux) Management, Luxembourg PB ° 100.0% 100.0% full CHF 200
Gottardo Money Market Fund (Lux) Management, Luxembourg PB ° 100.0% 100.0% full CHF 200
Gottardo Tower Fund Management, Luxembourg PB ° 100.0% 100.0% full EUR 125
SB-Gotthard I Fund Management, Luxembourg PB ° 100.0% 100.0% full CHF 650
Swiss Life (Luxembourg), Strassen Life l 99.8% 100.0% full EUR 15 000
Swiss Life Investment Advisers, Luxembourg IM l until 27.01.2003 – – full EUR 75
Swiss Life Multi Funds (Luxembourg) Management, Luxembourg PB ° 100.0% 100.0% full CHF 200
Alpine Holdings, St. Peter Port-Guernsey PB ° 100.0% 100.0% full USD 600
Dom-James, Sevenoaks Other ° until 31.12.2004 – – full GBP 5 016
Swiss Life (UK), Sevenoaks Life ° until 31.12.2004 – – full GBP 200 000
Swiss Life (UK) Services, Sevenoaks Life ° until 31.12.2004 – – full GBP 100
Swiss Life (España), Madrid Life ° until 12.11.2003 – – full EUR 39 066
Swiss Life (Italia), Milano Life ° 99.8% 100.0% full EUR 5 170
Gottardo Asset Management, Wien PB ° until 01.05.2003 – – full EUR 363
Adamed Investments, George Town IM l until 23.11.2004 – – full USD 0
Adroit Private Equity Offshore, Grand Cayman Life l 99.8% 100.0% full CHF 0 USD 0
Swiss Life Cayman Finance, Grand Cayman Other l 100.0% 100.0% full CHF 0 USD 50
Swiss Life Insurance Finance, Grand Cayman Other l from 01.06.2004 99.8% 100.0% full EUR 5
Swiss Life Private Equity Partners (Cayman), Grand Cayman IM l 99.8% 100.0% full CHF 60
Gottardo A.E.P.E.Y, Athens PB ° 96.9% 96.9% full EUR 2 500
Gothard Gestion Monaco, Monaco PB ° 100.0% 100.0% full EUR 160
Podium Sam, Monaco – – from 01.01.2004 30.0% 30.0% equity EUR 150
N.V. Pensioen ESC, Willemstad Life l 99.8% 100.0% full ANG 1 000
CAASU, Montevideo PB ° until 25.06.2003 – – full UYP 1 000
147Report of the Group Auditors to the General Meeting of Swiss Life Holding, Zurich
Income for the 2004 financial year totalled CHF 166 million and largely came from dividends from participations (CHF 125 million) and interest on loans to Group companies (CHF 35 million). Expenses incurred in connection with management of the holding company, interest expenses and capital taxes amounted to CHF 13 million.
The other two new participations were Swiss Life Funds Business, Zurich, an intra-Group transfer, and Swiss Life (Liechtenstein), Vaduz, a newly established company.
With the purchase of 15216 Swiss Life/Rentenanstalt shares, Swiss Life Holding increased its interest in Swiss Life/ Rentenanstalt from 99.7% to 99.8% as per 31 December 2004.
On 2 June 2004 a rights issue of 8344680 new shares significantly strengthened shareholders’ equity. With an equity ratio of 90%, Swiss Life Holding is on a very solid financial footing.
Major shareholders In accordance with documents at Swiss Life’s disposal, the following shareholders or groups of shareholders connected to one another held more than 5% of Swiss Life Holding’s registered share capital of 33775818 shares at 31 December 2004: Legal reserves Legal reserves comprise general reserves (additional paid-in capital in excess of the nominal value, net of transaction costs) and reserve for own shares (equivalent value to SLH shares held by the Swiss Life Group).
Capital increase in 2004 On 2 June 2004, SLH issued 8344680 SLH registered shares with a nominal value of CHF 50 each. The subscription price was CHF 100 per share. The gross proceeds of the rights offering amounted to CHF 834 million.
In CHF thousand 2004 2003 Currency Share capital Direct share Currency Share capital Direct share
Swiss Life (Liechtenstein), Vaduz CHF 5 000 100.0% – – 0.0%
Banca del Gottardo, Lugano CHF 170 000 100.0% – – 0.0%
Share capital As of 31 December 2004, the share capital of Swiss Life Holding (SLH) consisted of 33775818 fully-paid shares with a nominal value of CHF 50 each. In exercising voting rights, no shareholder can collect more than 10% of the total share capital directly or indirectly in respect of his/her own shares and those he/she represents.
As of 31 December 2003, SLH had 25034041 registered shares with a nominal value of CHF 50 per share. Conditional share capital was CHF 183406100 as of 31 December 2004 (2003: CHF 103260950).
ratio were created from the SLH conditional capital and transferred to the MCS Share Trust.
Own shares In the year under review the companies in the Swiss Life Group purchased a total of 1506662 Swiss Life shares at an average price of CHF 173.40. In the same period, they sold 1368037 shares at an average price of CHF 171.42.
Additionally, 397078 new SLH shares with a nominal value of CHF 50 each were created by reducing conditional share capital. These shares adjust the (minimum) number of shares convertible under the mandatory convertible securities (MCS) issues (MCS I, 2002–2005, and MCS II, 2003–2004) made by SL Cayman Finance, Grand Cayman, a subsidiary of Swiss Life Holding.
Simplification of shareholder structure in 2003 In 2003, the Swiss Life Group simplified its shareholder structure by reducing the minority stake in its Swiss Life/Rentenanstalt subsidiary following the exchange of Swiss Life/Rentenanstalt shares (SL/RA shares) for SLH shares which took place in 2002. SLH acquired an additional 878978 SL/RA shares and increased the equity stake held in its Swiss Life/Rentenanstalt subsidiary from 92.2% as of 31 December
Bruno Gehrig Gerold Bührer accordance with the table below. If the Board of Directors’ proposal is adopted, a distribution in form of a reduction in the nominal value of CHF 4 per share will be paid.
The net result for the year amounts to CHF 152632808. The Board of Directors proposes to the General Meeting of Shareholders to appropriate the available earnings in
Report of the Statutory Auditors to the General Meeting of Swiss Life Holding, Zurich
As statutory auditors, we have audited the accounting records and the financial statements (statement of income, balance sheet and notes, pages 149 to 153) of Swiss Life Holding for the year ended 31 December 2004.
Swiss Life Group . Review of Operations 2004 . Dates and contacts 156 Caution regarding forward-looking statements