Focus on retirement needs | Swiss Life significantly strengthened distribution in 2008 and improved its competitive position in all markets thanks to innovative products.
Focus on functional excellence | Swiss Life wants to bring innovative and profitable products to market more rapidly. The new Group Product Management business area and strict cost management are key success factors. Active capital and risk management has proven its worth.
Foster commitment | Employee commitment remained high in 2008. Swiss Life promotes a performance culture and is intensifying client-orientation and innovativeness.
Swiss Life is well positioned to benefit from increasing demand over the long term for life insurance and pension solutions.
In its home market, Swiss Life remained the leading provider of life insurance and pension solutions in 2008.
Its expertise and quality of service make Swiss Life in Germany a preferred partner among insurance brokers.
Swiss Life serves high net worth individuals and international companies from its subsidiaries in Liechtenstein and Luxembourg.
Swiss Life’s Investment Management achieved a result at the previous year’s level, despite a diff icult market environment.
Swiss Life employs a workforce of around 9000 worldwide. Despite the diversity of cultures, locations and activities, they all have the same goal: To provide clients with secure, forward-looking and attractive life and pension solutions.
Swiss Life is committed to helping people create a financially secure future. This guiding principle has been communicated externally as our mission and core competence of our company, and is also lived within the enterprise. A company with vision does not have to redefine itself over and over again. It is reassuring to know that all those involved with Swiss Life are provided with long-term perspectives.
The world economy experienced a wave of dramatic changes in 2008. Your company, the Swiss Life Group, was also unable to escape the damage inflicted by this crisis. Our financial result and the performance of our share price in no way ref lect our expectations. However we introduced the right measures at the right time to protect our solid core capital. We have made further progress in the implementation of our strategy. Swiss Life can therefore face the current challenges with confidence.
However, due to the negative developments on the financial markets, we were unable to achieve our targets in 2008. The crisis on the US real estate market, by which Swiss Life was in no way directly affected, negatively impacted almost all asset classes. The necessary impairments on investments and the realisation of losses to reduce risks resulted in a reduction in the financial result from CHF 4.9 billion to only CHF 0.5 billion. Thanks to gains realised on the sales of the Dutch and Belgian business as well as of Banca del Gottardo amounting to CHF 1.5 billion, the Swiss Life Group was still able to post a profit for 2008. Net profit for the year amounted to CHF 345 million. On the basis of this result and taking the current market environment into consideration, the Board of Directors proposes that the General Meeting of Shareholders approve a distribution of profit of CHF 5 per share, following payment of CHF 17 per share last year. As in previous years, the distribution of profit to shareholders will take the form of a reduction in par value.
An important step in the implementation of our strategy was the acquisition in 2008 of the AWD Group, the largest European provider of independent financial advisory services. This substantial strengthening of distribution is key to the future success of Swiss Life. Providers of independent financial advisory services will continue to gain in significance. Thanks to the partnership with AWD, Swiss Life is also able to diversify its income, receive additional market information, and gain efficient access to growth markets in Central and Eastern Europe, where Swiss Life is not currently active. The cooperation between Swiss Life and AWD has got off to a good start in both Germany and Switzerland. AWD itself achieved a good result for 2008 in Germany and Switzerland in the given circumstances. Growth in Central and Eastern Europe is still strong. Work on the refocussing of business activities in the United Kingdom is on track and the issues in Austria are being addressed with high priority. The downturn vis-à-vis the previous year in sales revenues and in the profits of the AWD Group can be attributed to clients’ liquidity-oriented approach to investments in times of crisis, but also in particular to the changes in the United Kingdom and Austria. The AWD Group intends to grow sales revenues from about EUR 630 million to EUR 1 billion and achieve operating income before interest and tax of EUR 130 million by 2012.
In connection with the increasing significance of independent financial advisory services in the area of retirement provision, we also acquired a stake in the German financial services provider MLP last year. Although the benefits of a closer cooperation between Swiss Life, AWD and MLP are obvious given the current crisis and the consolidation among financial services providers in Germany, we were not able to achieve our targets in this regard. The strategic partnership with Talanx, announced in March 2009, is a good solution for this situation. Talanx and Swiss Life will cooperate in distribution through AWD, in the international business with life insurance solutions, in life reinsurance, in operations involving
selected products in certain defined areas, and in the reciprocal use of public investment funds. To reinforce this partnership, Talanx will purchase a stake of up to 9.9% in Swiss Life. Talanx will also acquire a 8.4% participation in MLP from Swiss Life. Swiss Life intends to reduce its remaining participation in MLP from 15.9% to below 10%. Independently of each other, Swiss Life and Talanx will each seek to cooperate with MLP within the new structure. Both companies will fully respect MLP’s current business model as an independent financial services and asset management provider.
Our concept of asset and liability management worked well, even in the difficult conditions of the past financial year. The risks we assumed were within the bounds of our business model and our risk capacity at all times. Given the distortions on the financial markets in the second half of the year, we greatly reduced the risks carried on the balance sheet to protect core capital from any further negative impacts arising from the financial market crisis. In response to continued market volatility, we adjusted the asset allocation and discontinued the share buyback programme. These measures proved effective in recent months. Our capital base is solid and our investments are structured to generate earnings exceeding the benefits guaranteed to our clients, even under persistently difficult market conditions and at today’s low interest levels.
In addition to the strategic management of the company and taking steps to overcome the financial market crisis, one of the most important tasks of the Board of Directors in 2008 was to ensure the best possible composition of the Board of Directors and the Corporate Executive Board. Ivo Furrer, CEO Switzerland, Charles Relecom, CEO France, and Klaus Leyh, CEO Germany, joined the Corporate Executive Board in the course of the year. Manfred Behrens, CEO Germany since 2004 and Member of the Corporate Executive Board since May 2008, assumed the function of Co-CEO of AWD on 1 September 2008. In this capacity he also remains a Member of the Corporate Executive Board. Paul Müller, CEO Switzerland, stepped down after an impressive career spanning over thirty years, the last six of which he spent at Swiss Life. Jacques Richier, CEO France, who joined Swiss Life in 2000, decided to take up a new position outside the Swiss Life Group. The Board of Directors extends its sincere thanks to Paul Müller and Jacques Richier for their major contribution to the company’s successful development.
The cooperation between Swiss Life and AWD has got off to a good start and is progressing to plan.
Directors by the General Meeting of Shareholders in May 2008, will succeed him as Chairman. After serving on the Board of Directors for six years, Pierfranco Riva will not be standing for re-election as he has reached the statutory age limit. We wish to thank Pierfranco Riva warmly for his valuable contribution to the work of the Board of Directors over the past years. We are delighted that both Frank Schnewlin, former CEO of the Bâloise Group, and before that, a Member of the Group Executive Committee of the Zurich Financial Services Group, and Carsten Maschmeyer, founder of AWD, have accepted nominations to the Board of Directors. Frank Schnewlin, a proven authority on the international insurance market, will be an asset to the Board of Directors. Likewise, Carsten Maschmeyer, with his profound knowledge of the market and outstanding expertise in distribution, will be a welcome addition.
Dear Shareholders, we are facing great challenges. The global economy is in recession and the financial markets are extremely volatile. There is no sign of a speedy recovery. We are confident that we at Swiss Life have created the necessary environment to successfully weather this difficult period. Firstly, we are in a business with long-term growth prospects. The demand for privately-financed life insurance and pensions solutions will continue to grow due to demographics and the intensifying pressure on state budgets. Secondly, the crisis has greatly increased clients’ appreciation of professional advisory services and products that offer security and protection. This improves the competitive position of specialised life insurance and pension providers such as Swiss Life. Thirdly, thanks to strengthening its distribution and innovative capacity, measures to increase efficiency, active capital and risk management, a solid capital basis, and its clear positioning as a leading life and pensions specialist, Swiss Life has created the necessary conditions to grow and to increase profitability, even in today’s difficult market environment.
Mr Pfister, three years ago you were travelling parts of the Silk Road. Which do you think was more difficult: Steering Swiss Life through the financial crisis or making it along the Silk Road from Europe to China 500 years ago? It’s hard to say. Communication channels at the end of the Middle Ages were far inferior to those available today. It was impossible to reliably assess the risks involved in journeying from Europe to China. Nobody knew what could happen on the Silk Road.
But the journey through the 2008 financial year was also anything but smooth. That’s true. The capital markets took a major beating in 2008, and Swiss Life did not escape unscathed. In contrast to the crisis six years ago, practically all asset classes have been affected. It wasn’t possible to predict the full extent and the consequences of this development.
“We are convinced, that the life and pensions business will grow over the long term.”
The subject of risk leads us to targeted returns. Were return expectations too high in recent years? On the basis of our business model and taking market expectations into account, we set ourselves a target of 12% return on equity. This is not at all excessive. The crisis is now forcing everyone to rethink their return expectations, however.
By acquiring the AWD Group Swiss Life significantly increased its distribution capacity overnight.
This has radically changed our organisation. A few years ago only one in five employees worked in distribution. Today, including the independent advisors that work for AWD, every other employee is part of distribution. The majority of our employees now have direct client contact.
“In the current environment, solutions that offer security and limit risks are valued more highly.”
How do you assess the potential for this area of business? Wealth management for international private clients will undergo significant changes in the coming years. I therefore see great opportunities for our range of products and services. I believe that this business will return to growth. We have therefore increased our global reach with a branch office in Singapore and a sales location in Dubai. The first few weeks of 2009 make me optimistic.
What impact will the disappointing financial results have on strategy? Should we expect adjustments? Swiss Life’s strategy is based on our conviction that the life and pensions business will grow over the long term, and to a greater extent than the rest of the economy. There are two main reasons for this: demographic developments and the increasing pressure on public-sector finances in many countries. As a result, the state-financed part of retirement provision will become relatively less significant, while the privately-financed part will need to be strengthened if the standard of living is to be more or less maintained after retirement. The current market environment does not fundamentally change this state of affairs.
And what does this mean for the strategy of Swiss Life? We expect pension gaps to widen in the coming years, thereby increasing demand for pension provision. With this in mind, our strategy is the right one and there is no reason to change anything. The financial crisis restricts our financial f lexibility, however. As a result, our growth targets have faded into the background and capital protection has become the highest priority in this phase.
“By acquiring AWD we plan to diversify our income stream and to expand our distribution capacity.”
You mentioned the rapid expansion of distribution, but the biggest and best distribution network can only function if it has competitive products to sell. Where do you stand in this regard? Innovativeness improved significantly in 2008 in particular. Product management is now much more closely aligned to client needs. The expertise provided by AWD helped here, as the success stories in Germany and also in Switzerland demonstrate. The potential of the cooperation between Swiss Life and AWD will not be realised overnight, however. It will take time, because we must take care not to undermine AWD’s successful business model of independent financial advice, but rather to strengthen it. This requires a cautious and carefully thought out approach.
So you could say that bad news is good news for insurance companies? I’m quite sure that financial crises in particular heighten clients’ understanding of risks. In the current environment, solutions that offer security and limit risks are valued more highly.
“We give a lot of people a bit of security and hope.”
In its home market Switzerland, Swiss Life, with a share of around 30%, remains the market leader for pensions, despite increasingly tough competition. Swiss Life improved its market position in 2008 thanks to a number of product innovations, particularly in the area of nontraditional products. Furthermore, the cost base has been continuously reduced over the last few years, thereby enhancing competitiveness.
In times of uncertainty, clients want professional advice and a partner they can trust.
In Germany, Swiss Life is one of the preferred partners among insurance brokers, due to its professional competence and high service quality standards. Through its close cooperation with AWD, Swiss Life can now exploit its potential even more effectively.
AWD plays a key role in the strategic development of Swiss Life. Life insurance and pensions is a business that will continue to involve considerable advisory services. The role played by professional financial sales companies that offer independent advice and allow clients to choose the product that suits them best will continue to grow. In addition to strengthening the distribution capabilities of the Swiss Life Group and facilitating access to new markets, AWD also improves Swiss Life’s understanding of client needs when designing products and contributes to the diversification of earnings. In 2012, the AWD Group aims to achieve earnings of EUR 1 billion and EBIT of EUR 130 million.
Swiss Life is a leading player in cross-border private placement life insurance. Swiss Life targeted this business area for further expansion in 2008 with the opening of a branch office in Singapore and a sales office in Dubai. However, the growth momentum slowed temporarily in this area, especially in the second half of the year, due to the financial market crisis and the legal uncertainties that have arisen in some markets. Nevertheless, Swiss Life still sees promising market potential for this business which combines individual asset management with attractive pension planning solutions.
Mission | We are committed to helping people create a financially secure future. For life.
The cooperation between Swiss Life and AWD is progressing well. Swiss Life products in Germany have already been included in AWD’s “best select” range in various product categories. The sales volumes of these products have risen accordingly. The improved positioning also led to an increase in sales of the corresponding products via the existing broker channel. In Switzerland, AWD introduced its first Swiss Life product in November 2008. This innovative product was developed in close cooperation between specialists from Swiss Life and AWD to meet the needs of AWD target clients. Initial experiences have been positive here too. The cooperation consistently follows AWD’s “best select” model. The independent financial advisor business model is not affected.
EFFICIENCY INCREASED BY STREAMLINING CORPORATE CENTER | Following the various efficiency programmes at the business units, Swiss Life is now streamlining its Corporate Center in Zurich. The division of responsibilities between the Corporate Center and the business units is being adjusted and clearly allocated, and the number of centrally implemented IT projects reduced. The new Corporate Center will concentrate on Group functions and on delivering shared services for collective use by the business units. All other tasks will be assumed directly by the business units or will be discontinued. The aim is to increase cost transparency, delegate greater responsibility to the business units and tighten up the cost base. With these measures, Swiss Life will reduce costs by around CHF 90 million by 2012.
In addition, strict cost management continues to have high priority in all areas. Swiss Life consistently works on further enhancing efficiency. The Operations area, for example, implements the lean management method, which focuses on the continuous improvement of a company’s processes, organisation and products. In addition to the short-term optimisation of all processes, this method strives to embed continuous improvement in the workflows themselves. Initial projects have already begun.
Equity securities and equity funds Alternative investments Real estate Mortgages Loans Bonds Cash and cash equivalents and other
CONSOLIDATED RESULT | The Swiss Life Group posted a net profit of CHF 345 million for 2008. After allowing for minority interests, the profit attributable to shareholders came to CHF 350 million. This translates into (diluted) earnings per share of CHF 10.88 and a return on equity of 5.0%. The stated profit includes extraordinary gains after taxes on the sales of the Dutch and Belgian business as well as of Banca del Gottardo amounting to CHF 1488 million. Continuing operations resulted in a loss of CHF 1143 million, compared with a profit of CHF 726 million in the previous year. This disappointing outcome is attributable to the negative trend in the financial markets and its impact on the financial result. This declined steeply from the previous year’s CHF 4.9 billion and stood at CHF 0.5 billion, due to the impairments which became necessary on investments and the losses realised in the course of minimising risks. The profit also includes an impairment of CHF 159 million (EUR 100 million) on the stake in MLP.
RESULT FROM OPERATIONS HIT BY DEVELOPMENTS ON THE FINANCIAL MARKETS | Continuing operations produced a segment loss of CHF 842 million. The insurance business in Switzerland was hit the hardest by the distortions on the financial markets. Swiss Life recorded a loss of CHF 748 million for this segment. The previous year still saw a profit of CHF 650 million for this figure. The operating results from the insurance business in France and Germany also recorded a significant decline against the previous year due to the impact of the financial market crisis on the financial result. A segment profit of CHF 40 million was generated in France and of CHF 29 million in Germany. The loss of CHF 36 million in the Insurance Other business segment, which comprises the companies in Luxembourg and Liechtenstein, is mainly attributable to the investments in building up the new product platform in Luxembourg and the geographical expansion of business with high net worth individuals. At CHF 94 million, the Investment Management segment achieved a result in line with the previous year’s figure, despite the adverse market environment.
The AWD Group has been consolidated in the figures reported by the Swiss Life Group since the end of March 2008 and is published as a segment. This segment turned in a loss of CHF 41 million. AWD’s operating results were down significantly due to developments in the United Kingdom and Austria caused by the financial market crisis. The segment result also includes restructuring costs amounting to CHF 40 million for the refocusing of business in the United Kingdom and amortisation expenditure of CHF 21 million for client relationship assets taken on in the acquisition. The result for the Other segment, which mainly comprises financing and holding companies, dropped from CHF 62 million to CHF 9 million due to currency effects. Unallocated corporate costs increased from CHF 73 million in the previous year to CHF 116 million. The rise was primarily caused by one-off expenses for projects relating to the implementation of the strategy.
GROWTH MOMENTUM SLOWED | The Swiss Life Group posted gross premiums, policy fees and deposits received under insurance and investment contracts totalling CHF 18.5 billion in 2008. When making comparisons with the previous year, it must be noted that the figures for the first half of 2007 contain the French ERISA companies’ premium volume, which came to some CHF 1.9 billion. These companies have since been sold. Without ERISA’s contribution the decline in premiums came to 4%. Above all, the downturn is due to the lower income from deposits under insurance and investment contracts. At CHF 13.3 billion, net earned premiums were held at the previous year’s level. In Switzerland, Swiss Life registered gross premiums of CHF 8.2 billion, which represents 44% of total premium volume. In France, Swiss Life grew premium income on a comparable basis by 4% to CHF 5.8 billion, with French operations contributing 31% to total volume for 2008. In Germany, premium income receded by 8% to CHF 2.0 billion owing primarily to the marketdriven collapse of the single premiums business. German insurance operations made up 11% of total premium volume. The companies in Liechtenstein and Luxembourg, which mainly conduct cross-border business, posted gross premiums amounting to CHF 2.6 billion in 2008. This represents a 20% decline on the prior-year figure and primarily ref lects the focus of high net worth individuals on liquidity as a result of the financial market crisis. This segment contributed 14% to total premium volume.
FINANCIAL RESULT IMPACTED BY HIGH IMPAIRMENTS | The crisis on the US real estate market, by which Swiss Life was in no way directly affected, negatively impacted almost all asset classes in 2008. The necessary impairments on investments and the realisation of losses to reduce balance sheet risks resulted in a huge reduction in the financial result from investments held at own risk in insurance business for this extraordinary year from CHF 4.2 billion to CHF 0.3 billion. Direct investment income matched the previous year’s level, however, and a direct return on investment of 4.1% was achieved. Taking into account asset changes relevant to the income statement, losses realised in connection with the reduction of balance sheet risks, and asset management costs, the net investment return came to 0.3% (2007: 3.8%). The total investment return of 0.5% (2007: 1.0%) also includes the asset changes directly ref lected in equity. When the fair value of investments not reported at market value on the balance sheet is factored in, the overall performance was –0.7%. Swiss Life significantly reduced the risks carried on the balance sheet in the wake of the dramatic developments on the financial markets in the second half of 2008. The adjusted asset allocation is geared to generate earnings exceeding the benefits guaranteed to clients, even under persistently difficult market conditions and at today’s low interest levels. These measures proved effective in recent months.
FURTHER EFFICIENCY GAINS TARGETED | Insurance benefits and the change in the mathematical reserve showed a net reduction of 3% to CHF 12.9 billion. The significantly lower financial result and the special situation in several countries due to valuation differences between local valuation guidelines and IFRS guidelines resulted in policyholder participation income of CHF 429 million for Swiss Life. Operating costs climbed 8% on a comparable basis as a result of investments in new business areas and growth initiatives. In Switzerland, on the other hand, operating costs were reduced by a further 3% on a comparable basis.
Strict cost management continues to be a high priority for Swiss Life. In this connection Swiss Life announced plans in November 2008 to streamline its Corporate Center in Zurich, leading to further cost savings of CHF 90 million. Primarily as a result of the first-time consolidation of the AWD Group, operating expenses increased from CHF 2.5 billion to CHF 3.3 billion overall. Because of the dissolution of tax provisions no longer required and current losses which could only be partially deferred, the company posted a tax income of CHF 29 million. Tax expenses totalled CHF 122 million in 2007.
SOLID CAPITAL BASE | Liabilities from insurance operations declined by 7% to CHF 113.3 billion. More than half of this reduction is due to currency effects. Contract terminations in Switzerland and the negative developments of assets in the business with high net worth individuals also contributed to the decline. Despite the severity of the financial market crisis in the second half of 2008, the capital base is still solid. Swiss Life significantly reduced its balance sheet risks at the right time in the second half of 2008 to shield its equity from further negative repercussions of the financial market crisis. Shareholders’ equity for the Swiss Life Group stood at CHF 6.6 billion on 31 December 2008, representing a decline of less than 10% on the prior-year figure. The Group solvency ratio on an IFRS basis came to 159% at the end of the year. The core capital declined from CHF 11.6 billion to CHF 10.0 billion. Assets controlled by the Swiss Life Group totalled CHF 120.4 billion (–1%).
Cash and cash equivalents and other 6 709 6.3% 3 263 2.9%
EMBEDDED VALUE | The embedded value serves as an indicator of the value of the existing insurance portfolio. It is made up of three components: the present value of future profits (PVFP) minus the present value of the cost of holding capital (CoHC) plus the adjusted net asset value (ANAV). Future new business is not included.
thereof cost of holding capital –1 133 –748 1 Adjusted Net Asset Value 2 Equity of Swiss Life Holding including revenue from disposals, less book value of Swiss Life/Rentenanstalt 3 Present Value of Future Profits
Europe without Switzerland Switzerland current in 5 years current in 5 years
Embedded value of the Swiss Life Group as at end of 2007 12 837
Unwind 2008 +782 2008 investment return: variance from assumptions made at the end of 2007 –3 568
Embedded value of the Swiss Life Group as at the end of 2008 8 457
Embedded value of the Swiss Life Group as at the end of 2008 2 311 2 577 3 569 8 457
Impact of 100 bps increase in return on new bond investments +41 +207 +248
Attestation regarding embedded value information as at 31 December 2008 “PricewaterhouseCoopers has reported to the Board of Directors that, based on the procedures performed, in their opinion: – The methodology set out in the EV-Guidelines, in all material respects and with due regard to the nature of the business, is appropriate and consistent for the purpose of the (traditional) embedded value; – The local implementation of the methodology is, in all material respects and with due regard to the nature of the business, consistent with the prescriptions of Swiss Life and in line with general market practice; – The assumptions determined by the Swiss Life Group are reasonable to derive the embedded value information; – The embedded value information has been properly compiled on the basis of the chosen assumptions and methodology. The assurance report issued by PricewaterhouseCoopers to the Board of Directors, where the assumptions made, the work performed and the results are outlined, can be seen on www.swisslife.com.”
As a result of the high impairments on investments resulting from the financial market crisis, continuing operations posted a segment loss of CHF 726 million for 2008. The Investment Management segment, with a result of CHF 94 million, matched the previous year’s performance, but all other segments declined. Insurance Switzerland was affected the most by the distortions on the financial markets, recording a segment loss of CHF 748 million, despite the progress made in implementing the strategy. The AWD segment also posted a loss. In addition to the decline in profit from operations in connection with the crisis as well as investments in the future positioning of the company, this was primarily due to restructuring costs of CHF 40 million for the refocussing of activities in the United Kingdom.
Gross written premiums for continuing operations amounted to CHF 18.5 billion. Without including premium income from the ERISA companies which were sold in 2007, premium volume in France declined 4% in 2008 vis-à-vis the previous year.
Discontinued operations generated a result of CHF 1099 million for the Insurance segment and CHF 595 million for the Banking segment as a result of gains made on disposals.
Insurance benefits, including changes in insurance reserves, fell by 8% to CHF 8059 million. This reduction is primarily due to a reduced need for provisions for future risks and lower savings premiums. The favourable claims experience also had a positive impact. The collapse of the financial result translated into reduced policyholder participation. This position declined from CHF 458 million in 2007 to CHF 112 million.
Net earned premiums and policy fees 7 963 8 200 –2.9%
To further intensify client orientation and thus to expand its position as the number one life and pensions specialist, Swiss Life realigned its organisation in Switzerland at the beginning of 2009 and added further functions to the Corporate Executive Board. This creates the necessary conditions for focussing the expansion of multichannel distribution on attractive client segments, promoting innovation and further increasing both quality and efficiency.
INSURANCE FRANCE | Swiss Life posted a segment result of CHF 40 million in France. The sale of ERISA and ERISA IARD in July 2007 renders a year-on-year comparison difficult. On a comparable basis, the segment result for 2007 amounted to CHF 187 million. The decline was largely caused by the lower financial result – down 93% at CHF 57 million in 2008.
Premium income in the French life insurance market slid 11%. In health insurance, premium volume rose by 5%. Overall, Swiss Life generated premium income of CHF 5763 million. On a comparable basis, Swiss Life grew premium income by 4% (8% in local currency), whereby life insurance was up 7% (11% in local currency) and health insurance gained 2% (5% in local currency). Premium volume at Swiss Life outperformed the market due to the strength of its multichannel distribution and the attractive range of products.
INSURANCE GERMANY | Swiss Life posted a segment result of CHF 29 million in Germany. The year-on-year decline of CHF 36 million is a result of the negative performance of the financial result – down to CHF 552 million from CHF 1064 million.
As in the previous year, the German life insurance market advanced only a marginal 0.8% in 2008. Swiss Life saw its premium volume decline by 8% (–5% in local currency) to CHF 1977 million. Although Swiss Life was able to keep periodic premiums stable, income from single premiums was down 25%. In the second half Swiss Life launched new products and realigned existing ones resulting in positive premium income growth. Along with the intensification of the cooperation with AWD, the traditional broker distribution channel also contributed to an upswing in new business.
INSURANCE OTHER | The segment Insurance Other comprises the companies in Liechtenstein and Luxembourg. Swiss Life operates private placement life insurance in both countries, a business area that specialises in structured pension solutions for high net worth individuals. In Luxembourg, Swiss Life also provides group insurance solutions for international and local corporate clients. Furthermore, Swiss Life operates a platform for variable annuities products in Luxembourg. Expenses generated by the build-up of this platform and the further expansion of the Private Placement Life Insurance business area, together with the lower financial results, resulted in a segment loss of CHF 36 million.
Gross premium income went down 20% to CHF 2639 million due to the negative impact of the financial market crisis on business with high net worth individuals. Premium growth for the Liechtenstein company was also impacted by the legal uncertainties in Germany. In Luxembourg, premiums increased significantly and a positive result was achieved.
Swiss Life still sees a great deal of market potential for private placement life insurance. Swiss Life is one of the leading players in this area and has improved access to markets in Asia and the Gulf region with new locations in Singapore and Dubai, thus creating a solid foundation for further growth. Business with international corporate clients, which is domiciled in Luxembourg, forms part of the Corporate Solutions business unit which also has locations in Zurich, London, Paris, Hamburg, Copenhagen and Singapore. With the Swiss Life Network and its reinsurance business based in Zurich, Swiss Life can offer multinational companies and their employees comprehensive employee benefits solutions.
The optimisation of the organisation introduced at the beginning of 2008 was a high priority for Swiss Life in the period under review. The improvements in cross-border cooperation resulted in increased efficiency. Organisational structures were redefined and streamlined. Swiss Life reintegrated mortgage administration into its own organisation following the sale of Banca del Gottardo. This measure laid the groundwork for a sustainable mortgage administration solution. Governance and risk management continue to gain significance in the current environment. Swiss Life made additional refinements to existing processes and methods, giving due consideration to the revised investment guidelines based on supervisory legislation.
In 2009, the focus will be on the further improvement of Group-wide cooperation and the realignment of third-party asset management. The project launched in 2008 to establish an appropriate, modern infrastructure tailored to contemporary asset management requirements will also be continued.
In its home market of Germany, AWD was able to maintain sales revenues at EUR 386 million, the same as the previous year, despite the adverse market environment. AWD also outperformed the market in Switzerland, with sales revenues dipping by only 2% to EUR 69 million. Sales revenues in Austria and Central and Eastern Europe fell by around 31% to EUR 115 million in the period under review. The decline in sales is mainly due to the situation in Austria, where developments in previous years was based on equity and real estate products. The necessary corrective measures have been taken. The markets in Central and Eastern Europe still have strong growth momentum, even if this slowed somewhat in the second half of 2008 in the wake of the economic downswing. In the United Kingdom, AWD recorded a 33% decline in sales revenue to EUR 63 million in 2008. In future, AWD will concentrate in the United Kingdom on the core business with wealth management for private clients and corporate pensions consulting. The cost base was reduced significantly and sales management improved at the same time. The remortgaging business (AWD Home Finance) and other smaller business areas have been sold or discontinued. With this sharply focused business and the attractive existing client base in the high net worth individuals segment, AWD aims to turn in a positive profit contribution in the United Kingdom once again in 2009. Expenses totalling EUR 26 million were booked to the AWD Group for the 2008 financial year to cover the entire restructuring project in the United Kingdom. The AWD Group has been consolidated in the accounts of the Swiss Life Group since the end of March 2008. The AWD segment posted a loss of CHF 41 million for 2008. In addition to the above-mentioned expenses for the reorganisation of operations in the United Kingdom, this loss also contains expenditure for the amortisation of the customer relationship assets taken on in the acquisition.
Financial result (without share of results of associates) 2 – n.a.
In the reporting year about 430 000 clients turned to AWD advisors for support in optimising their finances. Around 248 000 of them were core clients and 182 000 new clients. The number of advisors decreased by 5% in 2008 to 6009. This decline was primarily due to higher rates of f luctuation in Austria, Germany and the United Kingdom. AWD Group was also exposed to the intensified competition for qualified advisors. In Germany in particular, increased qualification requirements meant that less-highly-qualified advisors left the market. The number of advisors developed well in the fourth quarter, especially in Germany.
The cooperation between Swiss Life and AWD is developing well. Swiss Life products in Germany have already advanced to AWD’s “best select” range in various product categories. Sales volumes for these products have risen accordingly. In Switzerland, AWD successfully introduced its first Swiss Life product in November 2008. The partnership will not affect AWD’s “best select” approach and the independent advice business model.
Despite widespread uncertainty regarding the financial markets and clients’ liquidityoriented approach to investments, the AWD Group expects a significantly improved performance for 2009 vis-à-vis the previous year. The restructuring measures introduced in the United Kingdom, the consolidation of the Proventus Group and the planned expansion of distribution capabilities will all play a role here. AWD intends to grow sales revenues to around EUR 1 billion and achieve operating income before taxes (EBIT) of EUR 130 million by 2012.
Risk Management | Swiss Life pursues an integrated, valueoriented risk management approach geared to the protection and best-possible investment of risk capital. This approach proved its worth despite the extraordinary challenges posed in the 2008 financial year.
STRATEGIC RISK MANAGEMENT | Comprehensive management of all risks is vital, given the very demanding economic environment at present. Swiss Life uses various analytical methods and a “Balanced Scorecard” approach to ensure that risks are dealt with adequately, especially the strategic risks. In its strategic risk management process, Swiss Life incorporates all the information on risks and the risk/return characteristics in its strategic decisions. An understanding of the interplay of individual risks is essential in order to take due account of the factors influencing the risk while the strategy is still in the development stage, so that these factors can be steered appropriately. The key risk management processes and risks are presented and discussed below.
In the third and fourth quarters of 2008, Swiss Life stepped up its monitoring and steering of the risks in view of the highly volatile financial markets. The value of the investments was calculated daily or (where nothing else was practicable) estimated. The risk appetite was scaled back, leading to a corresponding reduction in the risk capital limits. As a result, the risks on the investment side, which had already been trimmed down earlier, were reduced further – especially in the case of shares, hedge funds and currencies.
MARKET RISKS | The market risk arises from fluctuations on the financial markets which influence the value of investments and liabilities. The types of risk significant for Swiss Life primarily include the risk of changes in interest rates, volatile stock markets and f luctuations in foreign exchange rates against the Swiss franc.
Due to the highly volatile financial markets, especially in the fourth quarter of 2008, Swiss Life reduced the consolidated market risk substantially (see chart) in order to minimise potential losses in the current market environment.
Another component of interest rate risk is the change in the spread between corporate borrowing rates against the rates on government bonds. This credit spread widened massively in the third and fourth quarters of 2008, producing a loss in value for corporate bonds. The Investment Management division is tracking these issues closely and closing out positions or hedging them against default where necessary.
The currency risk comprises f luctuations in foreign currencies against the Swiss franc and is restricted by exchange rate hedges. Foreign currency outstandings on investment positions were strongly reduced in the course of 2008, falling to 0.8% by 31 December 2008 (fair value basis).
Outstanding positions on derivative transactions with financial institutions are regularly evaluated by Swiss Life. The counterparties provide deficiency payments, which limit the net credit risk per counterparty. For individual bonds, the default risk is reduced by purchasing a hedge. The risks on short-term investments are spread between government bonds, central bank bills and multiple banks. The latter category is mainly protected by the deposit of securities by banks.
Swiss Life’s internal control system (ICS) consists of the totality of procedures, methods and measures prescribed by the Board of Directors and the Corporate Executive Board to ensure the orderly conduct of business. The focus is on the reliability of financial reporting, the effectiveness of business processes and compliance with laws and regulations issued to protect the company’s assets.
In 2008, Swiss Life further developed its ICS and ORM in line with the legal and regulatory requirements, and implemented the resultant integrated methodology at its core companies. Special consideration was also given to the areas of compliance and business continuity management (BCM).
Rating structure of bond portfolio on fair value basis as at 31.12.2008 Total 100%
ASSET AND LIABILITY MANAGEMENT | Asset and liability management (ALM), with its long-term approach, uses the findings from the risk assessments and the risk appetite determined in risk budgeting as a basis for the investment strategy. The aim is to be in a position to pay benefits whenever they fall due and always to have sufficient equity to absorb f luctuations in the value of assets and liabilities. Clearly defined criteria on security, yield and liquidity are taken into account when policyholder assets, the company’s free reserves and shareholders’ equity are invested.
An additional scenario-based ALM process was conducted in the fourth quarter of 2008 so that the latest data could be used to set the risk capacity and risk appetite. This provided the basis for adjusting the investment strategy (strategic asset allocation) and the bonus allocation to policyholders to ref lect the prevailing situation.
Other liabilities, such as the unguaranteed portion (bonus) of a life insurance policy, f luctuate over time because the amounts to be distributed are governed by law or depend directly on the performance of the financial markets. The corresponding investments take account of the nature of these f luctuations, the long-term focus and any required liquidity. This item relates to cases where the policyholder makes use of the option to withdraw from the contract.
PROCESS MANAGEMENT | Swiss Life manages the ALM process centrally. The Group Chief Financial & Risk Officer holds the overall responsibility for the ALM process and sets its direction. The divisions responsible for risk and investment management determine the ALM process, together with Actuarial Services. The Investment and Risk Committee of the Board of Directors monitors the ALM process.
REGULATORY REQUIREMENTS | After years of preparation, the new Swiss Financial Market Supervisory Authority (FINMA) commenced operations on 1 January 2009. FINMA brings together the Federal Office of Private Insurance (FOPI), the Swiss Federal Banking Commission (SFBC) and the Anti-Money Laundering Control Authority (AMLCA).
FINMA is responsible for integrated insurance supervision to protect insured persons from the consequences of insolvency or abusive practices. The core element of this approach is the Swiss Solvency Test, serving to determine economic risk exposure and risk capacity. Following a five-year transitional period, solvency in accordance with the SST will become binding for all Swiss insurance companies on 1 January 2011. The quantitative approach is complemented by the Swiss Quality Assessment (SQA) tool, which focuses on qualitative aspects. This process involves assessing companies with regard to corporate governance, risk management and internal controls. Traditional supervisory instruments such as the Solvency I requirements and requirements for tied assets continue to be applied.
The European Union is also aiming to set up a risk-based solvency supervision mechanism with its Solvency II project. The European Commission published an initial draft directive on 10 July 2007. An amended version followed on 26 February 2008. As things currently stand, however, Solvency II is unlikely to be in operation before 2013, at the earliest. As Swiss Life is domiciled in a non-member state, the EU’s rules and regulations with regard to third-party states are extremely important. The EU’s framework directive is also aimed at streamlining the group supervision, based on the principle of equivalence. The Swiss insurance industry is working to ensure that this principle is applied to all insurance companies, regardless of where their head office is domiciled, to create equal competitive conditions for all.
Human Capital | A qualified and committed workforce is one of Swiss Life’s strategic success factors. To enhance the commitment and expertise of its employees and management, the company consistently invests in training and development. In 2008 Swiss Life continued to pursue a performance culture and to demonstrate its commitment as a responsible employer.
PERFORMANCE CULTURE | Swiss Life recognises the value of a performance-oriented corporate culture. The company introduced various measures in 2008 to strengthen this culture.
COMMITMENT | One of Swiss Life’s key indicators is the commitment value. This reveals to what extent employees identify with the company and their job. In 2008, the average commitment value for staff in the Swiss Life Group was 76 out of a possible 100 index points, thereby remaining stable vis-à-vis the previous year. Some business areas exceeded the target value of 80 index points in the year under review.
Commitment is greatly impacted by the way in which managers behave towards their staff. Taking the competency model as a basis, the Private Placement Life Insurance unit – with locations in Liechtenstein, Switzerland, Luxembourg, Singapore and Dubai – held various events to promote a mutual understanding of leadership, for example.
Employees (full-time equivalents) by country as at 31.12.2008 Total 8184 employees
TALENT DEVELOPMENT | One of Swiss Life’s priorities is to offer opportunities for further development to employees and management on an ongoing basis, and to motivate them to remain with the company. Swiss Life therefore offers employees who demonstrate a high level of performance and the relevant potential the opportunity to complete a development programme while continuing to work.
Swiss Life’s companies and units in the various countries also set great store on offering staff development perspectives. In the process of implementing a new organisational structure, the Corporate Solutions business unit was also able to offer development opportunities to managers. Thus, in 2008, five managerial vacancies were filled by internal candidates.
DEVELOPMENT PERSPECTIVES | However, Swiss Life does not just focus on providing staff with opportunities for development, training is also important to the company. Expenses for staff training and development in 2008 amounted to approximately CHF 22.5 million – around CHF 3100 per employee. Expressed as a ratio of the entire personnel expenses, the costs for training and development came to 3.1%, as in the previous year.
In Germany, for instance, Swiss Life has implemented a training module in which participants can study business administration and, at the same time, train to become an insurance and financial advisor. In April 2008 the first three Swiss Life employees graduated from the course. One of them came top of the year, getting the best marks of all 200 students. All graduates have assumed new challenges within Swiss Life involving specialist tasks.
Responsible Corporate Conduct | “Swiss Life is committed to helping people create a financially secure future. For life.” Swiss Life’s mission makes it clear that the life and pensions business requires a long-term view and puts the focus on the individual. It is therefore of paramount importance to the company to fulfill those obligations which go beyond its business activities as such. One of the ways in which Swiss Life accomplishes this task is via its social and political commitment.
SOCIETY | On the occasion of its 150th anniversary in 2007, Swiss Life founded the Perspectives foundation with the remit of promoting non-profit initiatives in the fields of health, science, education, culture and sports. Support contributions of around CHF 1 million per annum are expected to f low into the foundation over the next few years. One of the institutions that received support in 2008 was pro juventute. Thanks to this aid, it can now counsel children and young people in crisis situations not only over the phone, but also via text message. To mark its 100th anniversary back in 1957, Swiss Life set up the Swiss Life Anniversary Foundation for Public Health and Medical Research, which provides annual contributions to a number of research projects.
Swiss Life is also committed to fulfilling its social responsibility obligation outside Switzerland. At the end of 2008, Swiss Life in France founded the Fondation d’entreprise Swiss Life, which embraces various projects and commitments in connection with healthcare, promotes young talented musicians as well as charitable projects supported by Swiss Life staff. In addition, Swiss Life in France has for many years aided the Institut Curie, a hospital and research facility devoted to the fight against cancer. Since 2007, Swiss Life in Germany has supported the Nicolaidis Foundation, a non-profit organisation that helps families that have lost one parent cope with bereavement.
POLITICS | For retirement provisions to function effectively, account must be taken of current demographic and economic challenges. To this end, Swiss Life is involved at various levels of the political debate, where it aims to highlight the necessity and conditions required for the adoption of sustainable concepts. In Germany, for example, in its Salon Palais Leopold series of events in Munich, Swiss Life engages in regular dialogue on key social and political issues with decision makers from the worlds of business, politics and media.
This investment concept uses mixed mandates of both equities and bonds that are selected according to the criteria of economic, ecological and social added value.
In fact, sustainability already starts where people need support with their business processes. For this reason, Swiss Life has been stepping up its efforts to promote the prevention of sickness and accidents at the workplace since 2005. By means of its “Take care” initiative, Swiss Life aims to work in conjunction with corporate clients to reduce disability cases over the long term, prevent claims and improve reintegration following illness and accidents.
BRAND POSITIONING | The brand builds mainly on the characteristics of trustworthiness, competence and a focus on the future. Appreciation and recognition values of the Swiss Life brand have been steadily on the rise over the past few years, with the brand’s appeal boosted by a consistent image, by advertising and by sponsorship. Swiss Life’s sponsorship activities in the domestic market focus predominately on football and running, on the one hand, and on classical music and film, on the other. In 2008 Swiss Life accompanied the Swiss national football team to Euro 08 and for, the first time, acted as the main sponsor of the Solothurn Film Festival.
BRAND STRATEGY | In December 2007 Swiss Life reformulated its strategic priorities and financial goals, thereby giving rise to the current alignment of the brand strategy with the new business strategy. The aim is to improve brand management, coordinating the brand’s use more rigorously across the Group and raising its appeal.
Employees play a major role in this regard: Under the catchphrase of behavioural branding, the brand will be given a sharper image in their daily work and dealings with clients. The measures for achieving this goal will be drawn up during the course of 2009 and are intended to be of a long-term nature. Their aim is to reinforce the corporate identity and thus contribute towards the company’s targeted growth.
VALUES | The “brand personality” embraces five corporate values which together are an important element of corporate culture and serve as guidance for employees’ actions.
EXPERTISE | We offer f irst-class life insurance and pension solutions. This expertise is based on our proven professional competence and many years of experience.
PROXIMITY | We foster close relationships with our clients 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.
COMMITMENT | We work with commitment and enthusiasm to help our clients, staff and shareholders achieve their goals. This commitment forms the basis of long-term partnerships, and enables us to meet our social responsibilities.
The management structure as at 31 December 2008 is illustrated in the Strategy & Markets section on page 15.
Barclays Plc, 1 Churchill Place, London, E14 5HP, England, informed in its publication of 12 February 2008, that it held, either directly or indirectly, 1 474 185 purchase positions (all registered shares of Swiss Life Holding), which corresponded to 4.22% of the voting rights of Swiss Life Holding. These shares were held by the following subsidiaries of Barclays Plc: Barclays Global Fund Advisors, 45 Fremont Street, San Francisco, California 94105-2204; Barclays Global Investors Ltd, 1 Churchill Place, London E14 5HP; Barclays Bank Plc, 1 Churchill Place, London E14 5HP; Barclays Global Investors NA, 45 Fremont Street, San Francisco, California 94105-2204; Barclays Global Investors Japan Ltd, Ebisu Prime Square Tower, 1-1-39 Hiroo, Shibuya-KU, Tokyo 150 8402; Barclays Global Investors (Deutschland) AG, Apianstrasse 6, 85774 Unterföhring; Barclays Global Investors Canada Ltd, BCE Place, 161 Bay Street, Suite 2500, Box 614, Toronto, Ontario M5J 2S1; Barclays Bank (Schweiz) AG, Rue d’Italie 8-10, 1211 Geneva; Barclays Life Assurance Co Ltd, 1 Churchill Place, London E14 5HP.
FIL Limited (formerly Fidelity International Limited), with its main address at Pembroke Hall, 42 Crow Lane, Hamilton, Bermuda, and its direct and indirect subsidiaries, reported on 15 February 2008 that it held, directly or indirectly through various managed accounts, 2.96% (1 035 899 registered shares) of the voting rights of Swiss Life Holding.
Dodge & Cox, 555 California Street, 40th Floor, San Francisco, CA 94104, USA, informed in its publication of 6 March 2008, that it held, through the Dodge & Cox International Stock Fund, 1 645 000 registered shares or 4.71% of the voting rights of Swiss Life Holding.
23 December 2008, Carsten Maschmeyer disclosed that the group had been extended to include the asset management firms CM Vermögensverwaltung GmbH & Co. KG and CM Vermögensverwaltungs-Geschäftsführungs GmbH. At that time the extended group held 2 174 616 purchase positions, corresponding to a 6.22% share of the voting rights: 1 944 616 registered shares of Swiss Life Holding (5.56% of the voting rights), in addition to 80 000 short puts (corresponding to 0.23% of the voting rights) and 150 000 discount certificates (corresponding to 0.43%) on the shares of Swiss Life Holding.
Swiss Life Holding is not aware of any other shareholders whose stake on the balance sheet date (31 December 2008) either directly or indirectly exceeded the reportable threshold of 3% of the registered shares issued.
SHAREHOLDER STRUCTURE | On the balance sheet date a total of 194 538 shareholders and nominees were listed in the Swiss Life share register, of which about 5000 were institutional shareholders. Taken together, the shareholders entered in the share register held around 55% of the shares issued. More than half of these shares were owned by shareholders domiciled in Switzerland; around one third of the registered shares were in private hands.
A table showing the shareholder structure is provided in the section “Information on Share Performance” on page 233.
On 9 May 2006 the Swiss Life Holding Annual General Meeting resolved to pay a dividend of CHF 5 per registered share in the form of a repayment of par value. As a result of the corresponding reduction in capital, the share capital decreased from CHF 1 553 699 588, divided into 33 776 078 registered shares with a par value of CHF 46 each, to CHF 1 384 819 198, divided into 33 776 078 registered shares with a par value of CHF 41 each. Conditional capital was reduced accordingly to CHF 150 382 342, divided into 3 667 862 registered shares with a par value of CHF 41 each. As a result of the partial conversion of the 0.625% convertible bond issue (2004–2010) (cf. section on “Convertible bonds and options” on page 51), a total of 191 registered shares were created from conditional capital in 2006. On 31 December 2006 the ordinary share capital thereby rose to CHF 1 384 827 029, divided into 33 776 269 fully paid registered shares with a par value of CHF 41 each, and the conditional capital fell by CHF 11 960 to stand at CHF 150 374 511, divided into 3 667 671 registered shares with a par value of CHF 41 each.
At Swiss Life Holding’s Annual General Meeting on 8 May 2007, the shareholders approved a motion to reduce the par value by CHF 7 per registered share. Consequently, the ordinary share capital fell to CHF 1 148 393 146, divided into 33 776 269 registered shares with a par value of CHF 34 each, and the conditional capital decreased to CHF 124 700 814, divided into 3 667 671 registered shares with a par value of CHF 34 each. In 2007 the 0.625% convertible bond issue (2004–2010) was again partially converted, creating 1 184 170 new registered shares. This meant that the ordinary share capital increased to CHF 1 188 654 926, divided into 34 960 439 registered shares with a par value of CHF 34 each, and the conditional capital decreased to CHF 84 439 034, divided into 2 483 501 registered shares with a par value of CHF 34 each.
Regulations are in place to govern transactions in Swiss Life Holding shares carried out by Swiss Life Group employees. Pursuant to the Code of Compliance and the Swiss Life Group’s Directive on Insider Information, all purchases and sales of Swiss Life Holding securities made by members of senior management or employees who are privy to confidential information are subject to approval. In addition, blackout periods are imposed annually from 1 January until 24 hours after the year-end results have been presented and from 1 July until 24 hours after the half-year results have been presented.
Additional information on the Swiss Life share is available in the section “Information on Share Performance” on page 232.
COMPOSITION | In the year under review the Board of Directors of Swiss Life Holding, with the exception of one member, consisted of non-executive directors, who have no duties relating to operational management within the Swiss Life Group, and who had not exercised any such duties during the past three financial years. In this respect, Rolf Dörig is the only member of the Board of Directors to be defined as an executive director, since he held the position of Chairman of the Corporate Executive Board of the Swiss Life Group until his election to the Board of Directors in May 2008.
From 1981 to 1984 Bruno Gehrig was the 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 the Stock Markets and Securities Sales Division of 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 as Professor of Business Administration at the University of St. Gallen and was Head of its Swiss Institute of Banking and Finance. In 1996 Mr Gehrig was appointed Member of the Governing Board of the Swiss National Bank as Head of Department III, and served as the Board’s Vice Chairman from 2001 to 2003. His political activities include serving as Chairman of the economic policy study group of the Swiss Christian Democratic Party (CVP) from 1984 to 1991. He was a Member of the Swiss Federal Banking Commission between 1992 and 1996.
Due to his election to the Board of Directors of UBS AG in October 2008, Bruno Gehrig will resign from his position as Chairman of the Board of Directors of Swiss Life Holding one year earlier than planned at the General Meeting of 7 May 2009.
Rolf Dörig laid the groundwork for his professional career by obtaining a doctorate in law (Dr. iur.) from the University of Zurich before being called to the bar in Zurich. Joining Credit Suisse in 1986, he assumed a number of executive responsibilities in various areas of banking and in different geographical markets. As a Member of the Executive Board, he was assigned responsibility for Swiss Corporate and Retail Banking from 2000 onwards. In 2002 he assumed the role of Chairman Switzerland. From November 2002 to May 2008 Rolf Dörig held the position of Chairman of the Corporate Executive Board of the Swiss Life Group before he was elected to the role of Delegate of the Board of Directors in May 2008 with responsibility for strategy development and overseeing strategy implementation.
It is envisaged that Rolf Dörig will succeed Bruno Gehrig as Chairman of the Board of Directors of Swiss Life, following the General Meeting of Shareholders in May 2009.
Other appointments: – Adecco S.A.,Chairman of the Board of Directors (from 1.1.2009) – Kaba Holding Ltd, Rümlang, Vice Chairman of the Board of Directors – economiesuisse, Zurich, Member of the Board Committee – Danzer AG, Baar, Chairman of the Board of Directors
Other appointments: – economiesuisse, Zurich, Chairman – Bank Sal. Oppenheim jr. & Cie. (Schweiz) Ltd, Zurich, Member of the Board of Directors – Cellere AG, St. Gallen, Member of the Board of Directors – Georg Fischer Ltd, Schaffhausen, Member of the Board of Directors – Swiss National Bank, Berne, Member of the Bank Council – Züblin Real Estate Holding Ltd., Zurich, Member of the Board of Directors
Other appointments: – Swiss Pool for Aviation Insurance, Chairman – Captive Mutual (Schweiz) AG, Baar, Chairman of the Board of Directors – OCAD AG, Baar, Chairman of the Board of Directors – Infrassure Ltd., Zurich, Member of the Board of Directors
Pierfranco Riva studied at the universities of Fribourg, Munich and Berlin between 1960 and 1966, and received his Doctorate in Law in 1968. He became a member of the bar in 1970. He has been an attorney and notary with the law firm Felder Riva Soldati in Lugano since 1970. He served as Chairman of the Council of the Bar Association for the Canton of Ticino between 1987 and 1989 and, from 1995 to 1999, was a member of the supervisory authority, Council of Magistrates for the Canton of Ticino.
Franziska Tschudi graduated in law at the University of Berne and passed her bar exam there in 1984. She studied US law at Georgetown University, Washington DC, earning an LL.M., and passed the bar exam for the US states of New York and Connecticut in 1987. Franziska Tschudi also completed her postgraduate studies at the University of St. Gallen (1991 to 1993), receiving an Executive MBA. After initially working as an Assistant for Media Law at the Institute for Constitutional and Administrative Law at the University of Berne, and practising business and media law in Zurich, Washington DC and Geneva, she served as Secretary General at SIG Holding AG from 1992 to 1995. 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 the Business Area Electrical Technology Asia/Pacific. She has held the positions of Chief Executive Officer and Managing Director of WICOR Holding AG since 2001.
As a result of his election to the Board of Directors of UBS AG in October 2008, Bruno Gehrig, who has held the position of Chairman of the Board of Directors of Swiss Life Holding since May 2003, decided to resign from the Board of Directors one year earlier than planned, after the 2009 General Meeting of Shareholders. It is envisaged that, Rolf Dörig, who was Group CEO from November 2002 to May 2008 and who subsequently assumed the role of Delegate of the Board of Directors, will succeed Bruno Gehrig as Chairman of the Board of Directors in May 2009.
The Delegate of the Board of Directors is responsible for strategy development and overseeing strategy implementation.
The Board of Directors regularly performs a self-assessment. Furthermore, discussions take place between the Chairman of the Board and its members on an individual basis.
Three standing committees support the work of the Board of Directors as a whole: the Chairman’s Committee – which also assumes the functions of a corporate governance, nomination and compensation committee – the Investment and Risk Committee, and the Audit Committee. The Board of Directors may establish other committees to be entrusted with special tasks.
AUDIT COMMITTEE | The Audit Committee assists the Board of Directors in its supervision of the accounting function and financial reporting activities, as well as compliance with the legal framework. It reviews the appropriateness of the internal control structures and processes used to comply with the legal requirements. It monitors the activities of Corporate Internal Audit and the external audit services, and takes due note of their reports and recommendations. The Committee is empowered to make decisions with respect to defining the terms and conditions for mandates to external auditors and keeps the Board of Directors appropriately informed. Moreover, the Audit Committee issues the regulations of the Corporate Internal Audit and sets the annual programme of activities for the internal audit units.
Generally, the Group CFO and the Head of the Corporate Internal Audit attend the Audit Committee meetings or parts of the meetings in an advisory capacity. The Group CEO may attend the meetings of the Audit Committee (without voting rights). Representatives from the external audit services are also regularly invited (cf. also “Supervisory and control instruments vis-à-vis the auditors”, page 82. In addition, further members of the Corporate Executive Board or in-house specialists may also be invited to attend.
The Audit Committee met six times during the year under review, with the meetings lasting over three hours on average. There was full attendance, except in the case of one meeting, where one member was unable to attend. Representatives from the external audit services were present at four of the meetings.
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 responsibilities of the company to the Group CEO and 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 Articles of Association of Swiss Life Holding can be found at www.swisslife.com, “Shareholders & Analysts” area, “Swiss Life Share” section, “Articles of Association” ( home/analysts/share/association.html). The Organisational Regulations are also published on Swiss Life’s internet site at “About Swiss Life” area, “Organisation” section
INFORMATION AND CONTROL INSTRUMENTS OF THE BOARD OF DIRECTORS VISÀ -VIS THE CORPORATE EXECUTIVE BOARD | The Board of Directors is continually and comprehensively briefed on the activities of the Corporate Executive Board. The Group CEO regularly informs the Chairman of the Board of Directors, the Delegate of the Board of Directors, and the Board of Directors and its committees, on the course of business, new business activities and significant projects. The Group CEO informs the Chairman and the Delegate of the Board of Directors immediately of any extraordinary matters. Considerable expenditure which is unbudgeted for and amounts to more than 10% of the relevant budget must be submitted to the Chairman’s Committee for approval. Similarly, significant investments and divestments require the approval of the Investment and Risk Committee or, when they reach a certain level, the approval of the Board of Directors as a whole.
If required, the Board of Directors and its individual committees regularly invite all or some members of the Corporate Executive Board and internal specialists to its meetings. Outside the meetings, each member of the Board of Directors may request information about the course of business from the Corporate Executive Board subject to the prior notification of the Chairman of the Board of Directors. Requests for information on individual transactions require the prior approval of the Chairman of the Board of Directors.
There is a regular exchange of information between the Delegate of the Board of Directors and the Group CEO. The Delegate of the Board is responsible for strategy development and strategy implementation and attends the meetings of the Corporate Executive Board. He also has access to all the reports, applications and minutes of the Corporate Executive Board and its committees.
Corporate Internal Audit, which reports directly to the Chairman of the Board, represents a suitable means of independent monitoring and information gathering for the Board of Directors. Regular meetings take place between the Chairman of the Board of Directors and the Head of Corporate Internal Audit, as well as between the Chairman of the Audit Committee and the Head of Corporate Internal Audit. Implementation of the measures recommended by Corporate Internal Audit is monitored by Group Compliance & Operational Risk Management. The Audit Committee regularly receives a report on all compliance activities and on operational risk management within the Swiss Life Group. Swiss Life’s Internal Control System (ICS) also serves the Board of Directors for information and controlling purposes. Further details on this system are available in the Risk Management section on page 31.
Other appointments: – Gottex Fund Management Holdings Limited, St. Peter Port, Guernsey, Member of the
Board of Directors – Swiss Insurance Association, Member of the Board and the Board Committee – Admission Board and Executive Committee of the Admission Board of the SIX Swiss
Ivo Furrer graduated in law from the universities of Zurich and Fribourg and earned his PhD with a thesis on employee benefits. He joined Winterthur Life in 1982, initially working in group insurance marketing and later assuming various project management roles relating to strategy development and expansion of Winterthur’s international insurance business in Europe, Canada and the USA. In 1992 he relocated to the USA, where he worked in underwriting. From 1994 to 1997 he held a number of management positions at Winterthur International in London before being appointed Chief Underwriting Officer of this business area. In 1999 he moved to Credit Suisse Group, where he developed and implemented an internet bank in Luxembourg and was subsequently appointed Head of e-Investment Services Europe.
On 1 September 2008 the Board of Directors appointed Ivo Furrer a Member of the Corporate Executive Board and Chief Executive Officer (CEO Switzerland) of the Swiss Life Group.
After graduating with a degree in economics from the University of Augsburg, Klaus G. Leyh worked for two years as a market researcher and advisor in the consumer goods industry. In 1995 he changed to the insurance sector, building up Generali’s Market Research department in Munich. He subsequently held management positions in marketing, product management and e-business at Generali Lloyd Versicherung AG, AXA Colonia Konzern and ARAG Lebens- und Krankenversicherung, and received a Master of Business Research (MBR) from the Ludwig Maximilian University of Munich.
In 2001 Klaus G. Leyh joined Swiss Life in Germany as the head of its e-commerce and e-business activities and was assigned responsibility for distribution service, control and promotion in 2002. From January 2006 to September 2008 he held the position of Chief Market Officer and Member of the Executive Board of Swiss Life in Germany with responsibility for the entire sales force, distribution management, service and control.
On 1 October 2008 Klaus G. Leyh was appointed Chief Executive Officer of Swiss Life in Germany (CEO Germany) and a Member of the Swiss Life Group’s Corporate Executive Board.
Other appointments: – German Insurance Association (GDV): Member of the Socio-Political Committee – DEPFA Holding Verwaltungsgesellschaft mbH, Düsseldorf, Member of the Supervisory
In 2000 he became the CEO of «La Suisse», a position he held until 2005 when the company was integrated into the Swiss Life Group. Following the integration, Charles Relecom returned to Swiss Life in Belgium, initially as the CEO of Zelia S.A. and, from February 2006, as CEO for the entire Belgian business.
The physicist Reto Himmel (master’s degree in physics, Swiss Federal Institute of Technology (ETH), Zurich, 1982) graduated from the Harvard Business School in 1987 with an MBA. He began his career in 1982 as a software engineer with Brown Boveri & Co. in Baden, before joining Credit Suisse in 1985. From 1990 to 1994 he went on to head the General Secretariat at Bank Leu where he was also in charge of Corporate Planning. He then served as Chief of Staff of the Investment and Trading division at Credit Suisse. In 1997 Mr Himmel became a Member of the Executive Board at ABN AMRO Bank (Switzerland ), assuming responsibility for the bank’s logistics operations. He became Head of Operations at UBS Warburg Switzerland in August 2001.
Patrick Frost studied at the ETH in Zurich and the universities of Cologne, Basel and Zurich, obtaining degrees in natural science (dipl. Natw. ETH, 1993), economics (Dr. rer. pol., 1998) and law (lic. iur., 2001). He began his professional career in 1996 as a portfolio manager and analyst in financial engineering at Winterthur Group. Between 1999 and 2001 he was employed as a Senior Bond Portfolio Manager at Winterthur Investment Management Corp. in New York. He became the Head of Global Fixed Income at Winterthur Group in 2001, where he played a key role in the further strategic development of its asset management.
Patrick Frost was appointed Group Chief Investment Officer (Group CIO) of the Swiss Life Group in July 2006.
Other appointment: – Castle Alternative Invest AG, Freienbach, Member of the Board of Directors
He became Group Chief Financial Officer (Group CFO) of the Swiss Life Group in January 2006. On 1 April 2008 he assumed the additional position of Group Chief Risk Officer.
Other appointments: – Swiss Insurance Association, Member of the Economics and Finances Committee – The Sustainability Forum, Zurich, Member of the Board of Directors
Manfred Behrens was appointed Co-Chief Executive Officer of AWD (Co-CEO AWD) in September 2008 and has been a Member of Swiss Life’s Corporate Executive Board since May of the same year.
Report on compensation The specifications below follow the directives on information relating to corporate governance issued by the SIX Swiss Exchange and take into consideration the new transparency regulations set out in the Swiss Code of Obligations Art. 663bbis and Art. 663c. Further details on compensation and benefit expenditure for the management and employees of the Swiss Life Group can be found in the Financial Statements (notes 24 and 31). In addition, the compensation of the members of the Board of Directors and the Corporate Executive Board, and their participation interests, are shown in the notes to the Swiss Life Holding Financial Statements.
The information in this Annual Report is presented in the same way as previous years. In accordance with the new transparency requirements, the compensation received by each member of the Board of Directors and the Chairman of the Corporate Executive Board (Group CEO) is disclosed individually.
Within the framework of the compensation arrangements for the members of the Corporate Executive Board and other key performers within the Swiss Life Group, which are selected by the Corporate Executive Board with the approval of the Chairman’s Committee, a long-term remuneration component was introduced in 2004 on the basis of corresponding regulations. This equity compensation programme was adjusted slightly from 2005 by defining specific performance criteria. These take account of both the performance of the Swiss Life Holding share and its performance vis-à-vis other companies. Based on the programme, participants are granted future subscription rights in the form of Performance Share Units (PSUs) on Swiss Life Holding shares, entitling them to receive Swiss Life Holding shares free of charge after a period of three years has elapsed, insofar as the relevant prerequisites have been satisfied. According to the parameters at the time, the number of PSUs can increase by up to a factor of 1.5 or drop by a factor of 0.5 within three years, depending on how the performance criteria develop. For the equity compensation programme in 2007 and subsequent years, the Chairman’s Committee decided that the retention component (factor of 0.5), which was appropriate during the turnaround phase, would be rescinded in future so that the number of PSUs entitling the holder to shares could drop to zero after three years. The maximum possible factor of 1.5 was maintained.
The equity compensation programmes for 2007 and 2008 continue to be based on two performance criteria, each with a 50% weighting. One criterion is the Total Shareholder Return on Swiss Life Holding shares (TSR Swiss Life Holding), whereby a performance in excess of 20% is required for the subscription right to share allocation to arise. The TSR of the company ’s own shares is also compared with the TSR of the shares of the companies included in the Dow Jones STOXX 600 Insurance Index (TSR Outperformance); on the basis of this criterion, a subscription right arises if the performance on expiry of the three-year term is above the first quartile in comparison with the companies in question.
55 members of the Swiss Life Group senior management participated in the 2007 equity compensation programme. A total of 56 222 PSUs were allocated; 24 444 to the Corporate Executive Board, of which 6717 to the Group CEO.
In the period under review, 47 members of the Swiss Life Group senior management took part in the 2008 equity compensation programme with effect from 1 April 2008. A total of 52 618 PSUs were allocated; 23 695 to the Corporate Executive Board, of which 5924 to the new Group CEO, Bruno Pfister. As a result of his election to the Board of Directors on 8 May 2008 and resultant resignation from the Corporate Executive Board, Rolf Dörig was not allocated any PSUs in 2008 in accordance with the compensation regulations pertaining to the Board of Directors.
The compensation in cash received by the members of the Corporate Executive Board includes a cash bonus of CHF 4 700 000 for the 2007 financial year, which was paid out in 2008. For the 2008 financial year, no bonus will be paid to the Corporate Executive Board.
The following compensation was received by acting members of the Board of Directors of Swiss Life Holding in 2008 during the period under review.
Compensation to the members of the Corporate Executive Board comprises a salary, a variable bonus in cash, other compensation (child allowances, allowances for years of service, company cars, premium contributions to 3rd-pillar pension plans) and a variable compensation component in shares. The salary is determined annually by the Chairman’s Committee, in its capacity as Compensation Committee, taking into account the function-related responsibility and workload. If the Swiss Life Group’s business operations have proven successful, a variable cash bonus and variable compensation in the form of shares are also granted. This is decided on by the Chairman’s Committee, taking into account the personal achievement of objectives by the members of the Corporate Executive Board
SHARE ALLOTMENT IN THE YEAR UNDER REVIEW | During the 2008 financial year, the members of the Board of Directors and the Corporate Executive Board were allotted Swiss Life Holding shares subject to a three-year blocking period as follows: Some of the shares allotted to the members of the Board of Directors in the period under review formed part of their basic compensation. The remaining shares are variable compensation components, which were allocated on the basis of the results achieved during the previous financial year.
2 Economic value equal to the tax value, taking the blocking period into account. The share prices on allocation amounted to CHF 276, CHF 271.25 and CHF 72.
No shares were allocated to closely linked parties4 within the meaning of the law.
Manfred Behrens 698 Shares 1 The shares allocated in the period under review to Rolf Dörig, Group CEO until 8 May 2008 and Delegate of the Board of Directors following his election by the Annual General Meeting, are disclosed in their entirety under the compensation for the Corporate Executive Board.
The number of future subscription rights to Swiss Life Holding shares allocated in the context of the equity compensation programme to members of the Corporate Executive Board in the form of so-called performance share units (PSUs), and whose exercise depends on the fulfilment of specific performance criteria, is shown in the notes to the Swiss Life Holding Financial Statements.
OPTIONS | No share options have been granted in the Swiss Life Group since 2003; there are no longer any outstanding options.
ADDITIONAL HONORARIUMS AND REMUNERATIONS | In the period under review no additional honorarium or remuneration payments were made to the members of the Board of Directors or the Corporate Executive Board.
In the period under review, Swiss Life assumed regular annual employer contributions of CHF 104 827 and CHF 195 656 on behalf of Bruno Gehrig and Rolf Dörig, respectively.
In the case of Bruno Pfister, who was CEO International until 8 May 2008 and then became Group CEO, the employer contributions assumed on his behalf totalled CHF 755 148. This comprised the regular annual contribution of CHF 156 648 and a subsequent contribution of CHF 598 500 due to the increase in the insured income.
The total compensation paid to Bruno Gehrig in the form of cash, shares and contributions to occupational provisions in the year under review is as follows: Compensation in cash 1 CHF 655 000
Total compensation 2008: in cash and shares CHF 744 218 including annual contributions to occupational CHF 849 045 provisions of CHF 104 827
Total compensation 2007: in cash and shares CHF 734 898 including annual contributions to occupational CHF 834 390 provisions of CHF 99 492 1 Basic compensation and additional compensation in cash determined annually by the Board of Directors. 2 The 385 shares allocated in 2008 relate to the 2007 financial year. They are subject to a blocking period of three years. The share price at the time of allocation was CHF 276; the allocation was effected at an economic value of CHF 231.735, which is equal to the tax value, taking into account the blocking period.
Total compensation 2008: 1, 2 in cash and shares 1, 2 CHF 3 313 261 including contribution to occupational CHF 3 508 917 provisions of CHF 195 656
2 The shares allocated in 2008 as variable compensation relate to the 2007 financial year. They are subject to a blocking period of three years. The share price at the time of allocation was CHF 276; the allocation was effected at an economic value of CHF 231.735, which is equal to the tax value, taking into account the blocking period.
Disregarding the cash bonus paid for the 2007 financial year and the variable compensation in the form of blocked shares, the total compensation paid to Rolf Dörig for 2008 amounted
3 Without mathematical value of PSUs allocated. 4 Additional employer contribution to occupational provisions as subsequent contribution in accordance with pension fund regulations due to increase in insured income.
In addition to compensation in the form of cash, shares and contributions to occupational provisions, Bruno Pfister was allocated 5 924 future subscription rights in the form of Performance Share Units (PSU) as part of the three-year equity compensation programme. These entitle him to Swiss Life Holding shares as at 1 April 2011, provided that the relevant requirements have then been met. Depending on how the two defined performance criteria develop, the number of PSUs can increase by up to a factor of 1.5 or drop to 0. On the allocation date of 1 April 2008, the fair value of one PSU was CHF 179.30.
CLAUSES ON CHANGES OF CONTROL | No contractual provisions exist in favour of the Board of Directors or the Corporate Executive Board with regard to control of the company.
With respect to the 2008 financial year, Swiss Life Holding invited tenders for its statutory auditor and Group auditor mandate. On completion of the evaluation process, the Board of Directors, in accordance with the proposal of the Audit Committee, again nominated PwC as its statutory auditor and Group auditor at the General Meeting of Shareholders on
ADDITIONAL FEES | In 2008 PwC received additional fees totalling around CHF 2.1 million for advisory services (2007: CHF 1.8 million), approximately CHF 1.4 million of which was for strategic and actuarial advice (2007: CHF 1.3 million). The remainder resulted from legal, fiscal and financial advice, as well as other advisory services.
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . .88 Consolidated Statement of Changes in Equity . . . . . . . . . .90 Notes to the Consolidated Financial Statements . . . . . . . .92 2 Summary of Significant Accounting Policies . . . . . . . .93 2.4 Foreign currency translation and transactions . . . . . . . .94 2.14 Asset management and other commission income . . .105 2.16 Impairment of non-financial assets . . . . . . . . . . . . . . .107 2.18 Assets held for sale and associated liabilities . . . . . . . .108 2.26 Forthcoming changes in accounting policies . . . . . . . .110 3 Critical Accounting Estimates and Judgements in Applying Accounting Policies . . . . . . . . . . . . . . . . .113 5 Risk Management Policies and Procedures . . . . . . . .129 5.1 Contracts for the account and risk of the Swiss Life Group’s customers . . . . . . . .129 5.2 Risk budgeting and limit setting . . . . . . . . . . . . . . . . . .131 5.3 Asset and liability management (ALM) . . . . . . . . . . . . .131 5.4 Financial risk management objectives and policies . . .132 5.5 Insurance risk management objectives and policies . . .145 7 Premiums, Policy Fees and Deposits Received . . . . .153 8 Details of Certain Items in the Consolidated Statement of Income . . . . . . . . . . . . .154 9 Insurance and Other Receivables and Payables . . . .157 11 Financial Assets and Liabilities at Fair Value through Profit or Loss . . . . . . . . . . . . . . . . . . . . . . . .160 12 Financial Assets Available for Sale . . . . . . . . . . . . . . .161 14 Financial Assets Held to Maturity . . . . . . . . . . . . . . .163 18 Intangible Assets including Intangible Insurance Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .167 23 Insurance Liabilities and Reinsurance Assets . . . . . . .176 29 Acquisitions and Disposals of Subsidiaries . . . . . . . .192 30 Assets Held for Sale and Discontinued Operations .195 33 Fair Value of Financial Instruments Not at Fair Value in the Balance Sheet . . . . . . . . . . . . . . .199 36 Future Minimum Lease Payments under Non-Cancellable Operating Leases – Lessor . . . . . . .201 37 Reclassification of Financial Assets Available for Sale to Loans . . . . . . . . . . . . . . . . . . . .202 38 Events after the Balance Sheet Date . . . . . . . . . . . . .202
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . .216
Report of the Statutory Auditor . . . . . . . . . . . . . . . . . . . . .230
Benefits and claims under investment contracts with discretionary participation –184 –124
Impairment of property and equipment and intangible assets 17, 18 –4 –6
Financial liabilities at fair value through profit or loss 11 10 805 11 427
Premiums, policy fees and deposits received, net of reinsurance 18 145 20 809
Net foreign currency gains/losses on cash and cash equivalents 69 136
Acquisitions of subsidiaries, net of cash and cash equivalents –1 211 –219
Disposals of subsidiaries, net of cash and cash equivalents 4 118 305
Cash and cash equivalents as at 31 December 9 408 4 555
Share Share Treasury differ- directly Retained holders’ Minority Total In CHF million Notes capital premium shares ences in equity earnings equity interest equity
Equity-settled share-based payments – 9 – – – – 9 0 9
Disposals of subsidiaries – – 12 – – – 12 –17 –5
Disposals of subsidiaries – – – –2 1 – –1 –251 –252
Obligation to purchase own shares – –28 – – – – –28 – –28
The following events had an influence on the period under review: REDUCTION IN PAR VALUE | As approved by the shareholders at the General Meeting of Swiss Life Holding Ltd (hereinafter referred to as “Swiss Life Holding”) on 8 May 2008, a reduction in par value of CHF 17 per registered share was effected in 2008. The payout took place on 29 July 2008 and amounted to CHF 547 million.
SHARE BUYBACK PROGRAMME | In the period under review, 3 003 500 Swiss Life Holding shares were repurchased for CHF 686 million under the share buyback programme.
APPROVAL OF FINANCIAL STATEMENTS | On 23 March 2009, the Board of Directors approved the annual financial statements and the financial report and authorised them for issue. The financial report, therefore, only ref lects events up to that date.
In October 2008, amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures were issued in response to the deterioration of the financial markets in the third quarter of 2008. A financial asset within the scope of these amendments can be reclassified out of the fair-valuethrough -profit-or-loss category and the available-for-sale category if specified criteria are met. A debt instrument that would have met the definition of “loans and receivables” may be reclassified to loans and receivables if the entity has the intention and ability to hold the asset for the foreseeable future or until maturity. Any other debt or equity instrument may be reclassified out of the fair-value-through-profit-or-loss category if certain conditions are met – however, only in rare circumstances. The reclassification amendments apply from 1 July 2008. An entity shall not reclassify a financial asset before 1 July 2008. Any reclassification of a financial asset made on or after 1 November 2008 shall take effect only from the date when the reclassification is made. The Swiss Life Group made use of the possibility to reclassify certain debt instruments from the available-for-sale category to loans as at 1 July 2008. The financial effect of the reclassifications and the disclosure in accordance with IFRS 7 Financial Instruments: Disclosures is shown in note 37.
The following new Interpretation is not relevant to the Swiss Life Group: IFRIC 12 Service Concession Arrangements 2.3 Consolidation principles The Group’s consolidated financial statements include the assets, liabilities, income and expenses of Swiss Life Holding and its subsidiaries. A subsidiary is an entity in which Swiss Life Holding owns directly or indirectly more than 50% of the voting rights, or in which it otherwise has the power to exercise control over operations. Subsidiaries are consolidated from the date on which effective control is obtained. All intercompany balances, transactions and unrealised gains and losses on such transactions have been eliminated. A listing of the Group’s principal subsidiaries is set out in note 39. The financial effect of acquisitions and disposals of subsidiaries is shown in note 29. Associates for which the Group has between 20% and 50% of the voting rights and/or exercises significant influence are accounted for using the equity method. The Group’s share of net income for the year is recognised as a share of results of associates and the ownership interest in the investment is recorded in the balance sheet at an amount that ref lects its share of the net assets. The Group’s share of net income is included from the date that significant influence begins until the date that significant influence ceases. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. The carrying amount includes goodwill on the acquisition.
Minority interest is the part of profit or loss and net assets of a subsidiary attributable to equity interest that is not owned, directly or indirectly, through subsidiaries by the parent. The amount of minority interest comprises the minority’s proportion of the net fair value of the identifiable assets, liabilities and contingent liabilities at the date of the original acquisition and the minority’s proportion of changes in equity since the date of acquisition.
2.4 Foreign currency translation and transactions FUNCTIONAL AND PRESENTATION CURRENCY | Items included in the financial statements of the Group are measured using the currency of the primary economic environment in which the Group’s entities operate (the “functional currency”). The consolidated financial statements are presented in millions of Swiss francs (CHF), which is the Group’s presentation currency.
Average Average 1 Croatian kuna (HRK) 0.2036 n. a. 0.2201 n. a.
1 Romanian new leu (RON) 0.3732 n. a. 0.4336 n. a.
2.6 Derivatives The Group enters into forward contracts, futures, forward rate agreements, currency and interest rate swaps, options and other derivative financial instruments for hedging risk exposures or for trading purposes. The notional amounts or contract volumes of derivatives, which are used to express the volume of instruments outstanding and to provide a basis for comparison with other financial instruments, do not, except for certain foreign exchange contracts, represent the amounts that are effectively exchanged by the parties and, therefore, do not measure the Group’s exposure to credit risk. The amounts exchanged are calculated on the basis of the notional amounts or contract volumes and other terms of the derivatives that relate to interest or exchange rates, securities prices and the volatility of these rates and prices.
FINANCIAL ASSETS HELD TO MATURITY (HTM) | Financial assets which the Group has the ability and positive intent to hold to maturity are carried at amortised cost using the effective interest method.
FINANCIAL ASSETS PLEDGED AS COLLATERAL | Sales or purchases of financial assets under agreements to repurchase or resell and under lending agreements are accounted for as collateralised borrowings or loans. Interest paid or received is recognised in income over the life of each agreement.
2.8 Impairment of financial assets The Group reviews the carrying value of financial assets regularly for indications of impairment.
If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
FINANCIAL ASSETS CARRIED AT FAIR VALUE (AVAILABLE FOR SALE) | At each balance sheet date and interim reporting date, an assessment is made whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of an equity instrument classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered objective evidence of impairment. In this respect, a decline of 30% or more is regarded as significant, and a period of 12 months or longer is considered to be prolonged. In such a situation, the impairment loss – measured as the difference between the acquisition cost and the current fair value – is removed from equity and recognised in the income statement. After recognition of an impairment loss, any further declines in fair value are recognised in the income statement, and subsequent increases in fair value are recognised directly in equity.
2.9 Investment property Investment property consists of investments in residential, commercial and mixed-use properties primarily located within Switzerland. Property held for investment purposes includes both land and buildings.
If an investment property becomes owner-occupied, it is reclassified as property and equipment, and its fair value at the date of reclassification becomes its cost for subsequent accounting purposes.
RECOGNITION AND MEASUREMENT PRINCIPLES | Subject to certain limitations, the Group uses its existing accounting policies for the recognition and measurement of insurance contracts and investment contracts with discretionary participation features that it issues (including related deferred acquisition costs and related intangible assets) and reinsurance contracts that it holds. The existing accounting policies for recognition and measurement have primarily been based on the requirements of the Generally Accepted Accounting Principles in the United States (US GAAP).
INCOME AND RELATED EXPENSES FROM INSURANCE CONTRACTS AND INVESTMENT CONTRACTS WITH DISCRETIONARY PARTICIPATION FEATURES | Premiums from traditional life insurance contracts are recognised when due from the policyholder. Insurance liabilities are established in order to recognise future benefits and expenses. Benefits are recognised as an expense when due.
POLICYHOLDER DEPOSITS | For investment contracts with discretionary participation, savings premiums collected are reported as deposits (deposit accounting). The liabilities relating to these contracts are not calculated actuarially; they move in line with premiums paid by the policyholders plus interest credited less expenses and mortality charges and withdrawals.
SEPARATE ACCOUNT/UNIT-LINKED CONTRACTS/PRIVATE PLACEMENT LIFE INSURANCE | Separate account contracts represent life insurance contracts with a separated part that is invested in assets managed for the account and risk of the Swiss Life Group’s customers according to their specific investment objectives. Separate account liabilities are included in insurance liabilities. Separate account liabilities include the right of the policyholder to participate in the performance of the underlying assets.
2.12 Leases OPERATING LEASE | The Group primarily enters into operating leases for the rental of equipment. The total payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.
FINANCE LEASE | If the lease agreement transfers the risks and rewards of the assets, the lease is recorded as a finance lease and the related asset is capitalised. At inception, the asset is recognised at the lower of the present value of the minimum lease payments or fair value and is depreciated over its estimated useful life. The corresponding finance lease obligations are recorded as liabilities.
2.13 Investment management Revenue consists principally of investment management fees, commission revenue from distribution, sales of investment fund units and custody account fees. Such revenue is recognised when earned, i.e. when the services are rendered.
Commissions and certain operating expenses related to the sale of certain investment funds have been deferred. These costs are charged to income in relation to revenues earned on these investment funds. Certain front-end fees charged to unit holders have been deferred and amortised in proportion to the related expenses which have also been deferred. The Group periodically reviews and updates its assumptions made in determining projected revenues, with amortisation periods being adjusted as necessary.
For participating life insurance contracts, where the contribution principle applies to the allocation of the policyholder bonus, the deferred acquisition costs are amortised over the life of the contract based on the present value of the estimated gross margin amounts which are expected to be realised. Expected gross margins include expected premiums and investment results less expected benefit claims and administrative expenses, anticipated changes to future life policyholder benefit liabilities and expected annual policyholder bonuses.
When DAC is amortised in proportion to gross profits or gross margins on the acquired contracts, realised gains/ losses are taken into account as well as gains/losses recognised directly in equity (unrealised gains/losses). If these gains/losses were to be realised, the gross profits or gross margins used to amortise DAC would be affected. Therefore, an adjustment relating to these unrealised gains/losses is recognised in equity and is also ref lected in the amount of DAC in the balance sheet (“shadow accounting”).
For short-duration contracts acquisition costs are amortised over the period in which the related premiums written are earned, in proportion to premium revenue.
GOODWILL | The Group’s acquisitions of other companies are accounted for under the purchase method. Goodwill acquired prior to 1995 was charged directly to equity.
BRANDS AND OTHER | Other intangible assets consist of trademarks, computer software and other.
2.16 Impairment of non-financial assets For non-financial assets the recoverable amount is measured as the higher of the fair value less costs to sell and its value in use. Fair value less costs to sell is the amount obtainable from the sale of an asset or cash-generating unit in an arm’s-length transaction between knowledgeable, willing parties, less the costs of disposal. “Value in use” is the present value of the future cash f lows expected to be derived from an asset or cash-generating unit from its continuing use.
HEALTHCARE BENEFITS | Some Group companies provide healthcare benefits to their retirees. The entitlement to these benefits is usually based on the employee remaining in service up to the retirement age and the completion of a minimum service period. The expected costs of these benefits are accounted for in the same manner as for defined benefit plans.
SHARE-BASED PAYMENTS | The Group operates equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the shares is recognised in income with a corresponding increase in equity. As the fair value of the services received cannot reliably be measured, the value is measured by reference to the fair value of the equity instruments granted and the price the employees are required to pay.
2.24 Earnings per share Basic earnings per share are calculated by dividing net income available to shareholders by the weighted average number of shares in issue during the reporting period, excluding the average number of shares purchased by the Group and held as treasury shares.
2.26 Forthcoming changes in accounting policies In March 2007, the International Accounting Standards Board issued a revised IAS 23 Borrowing Costs which removes the option of immediately recognising as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. The revised Standard applies to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009. The revised Standard is not expected to have any impact on the Swiss Life Group as the Group’s current accounting policy is to capitalise borrowing costs directly attributable to the construction or acquisition of a qualifying asset as part of the cost of that asset.
In June 2007, IFRIC 13 Customer Loyalty Programmes was issued. The Interpretation addresses accounting by entities that grant loyalty award credits to customers who buy other goods or services. The Interpretation requires entities to allocate some of the proceeds of the initial sale to the award credits and recognise these proceeds as revenue only when the entities have fulfilled their obligations. The Interpretation applies to annual periods beginning on or after 1 July 2008. The Interpretation is not expected to have an impact on the Swiss Life Group as no such programmes are currently in place.
In September 2007, the International Accounting Standards Board issued a revised version of IAS 1 Presentation of Financial Statements. The revised Standard gives preparers of financial statements the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The revised Standard will enable readers to analyse changes in equity resulting from trans2 Summary of Significant Accounting Policies (continued)
actions with owners in their capacity as owners (such as dividends) separately from “non-owner” changes (such as transactions with third parties). The revisions include changes in the titles of some of the financial statements to reflect their function more clearly (for example, the balance sheet is renamed a statement of financial position). The revised Standard will come into effect for the annual periods beginning on or after 1 January 2009. The Swiss Life Group is currently analysing the impact of these changes on its financial statements.
In January 2008, the International Accounting Standards Board issued a revised version of IFRS 3 Business Combinations and related revisions to IAS 27 Consolidated and Separate Financial Statements. One of the main changes is an option which is added to IFRS 3 Business Combinations to permit the acquirer in business combinations in which control is achieved without buying all of the equity of the acquiree to recognise 100% of the goodwill, not just the acquirer’s portion of the goodwill (“full goodwill method”). The revised Standard requires that acquisitionrelated costs are expensed. Another change relates to partial disposals of an investment in a subsidiary while control is retained and to the acquisition of additional shares in a subsidiary after control was obtained. Such transactions are accounted for within equity. The amendments will be effective for annual periods beginning on or after 1 July 2009. The Swiss Life Group is currently analysing the impact of these changes on its financial statements.
In January 2008, the International Accounting Standards Board issued an amendment to IFRS 2 Share-based Payment. The amendment clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The amendment will be effective for annual periods beginning on or after 1 January 2009. The Swiss Life Group is currently analysing the impact of these changes on its financial statements.
In July 2008, IFRIC 16 Hedges of a Net Investment in a Foreign Operation was issued. IFRIC 16 applies to hedges of the foreign currency risk arising from the net investment in foreign operations. The Interpretation addresses the issue of which risks are eligible for hedge accounting. It clarifies that the presentation currency does not create an exposure to which an entity may apply hedge accounting. Consequently, a parent entity may designate as a hedged risk only the foreign exchange differences arising from a difference between its own functional currency and that of
In March 2009, the International Accounting Standards Board issued Improving Disclosures about Financial Instruments, Amendments to IFRS 7 Financial Instruments: Disclosures. The amendments improve the disclosure requirements about fair value measurements and reinforce existing principles for disclosures about the liquidity risk associated with financial instruments. The amendments will apply for annual periods beginning on or after 1 January 2009. The Swiss Life Group is currently analysing the impact of these changes on its financial statements.
– Private equity investments are classified as available for sale and are valued at fair value. If no market value is available, fair value is estimated considering various factors such as purchase price, estimated liquidation value, restrictions on transferability, prices received in recent significant private placements of the same issuer, prices of investments relating to comparable companies engaged in similar business, and changes in the financial condition and prospects of the issuer.
– The fair value of investment contracts and deposits, which are carried at amortised cost, is estimated using discounted cash f low calculations based upon interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. The fair values of demand or savings deposits are equal to the amount payable on demand or the carrying amount. The carrying amounts of variablerate deposits approximate their fair values at the reporting date.
Insurance liabilities Past experience, adjusted for the effect of current developments and probable trends, is assumed to be an appropriate basis for predicting future events. Actuarial estimates for incurred but not reported losses are continually reviewed and updated and adjustments resulting from this review are ref lected in income.
For insurance contracts and investment contracts with discretionary participation features with fixed and guaranteed terms, the definition of estimates occurs in two stages. At inception of the contract, estimates of future deaths, surrender, exercise of policyholder options, investment returns and administrative expenses are made and form the assumptions used for calculating the liabilities during the life of the contract. A margin for risk and uncertainty (adverse deviation) is added to these assumptions. These assumptions are “locked-in” for the duration of the contract. Subsequently, new estimates are made each year in order to determine whether the values of the liabilities so established are adequate in the light of these latest estimates. If the valuation of the liabilities is deemed adequate the assumptions are not altered. However, if the valuation of the liabilities is deemed inadequate, the assumptions underlying the valuation of the liabilities are altered (“unlocked”) to ref lect the latest estimates; no margin is added to the assumptions in this event.
MORBIDITY AND DISABILITY | For the individual and group life business in Switzerland internal tables are in place. In the individual life business, the internal disability rates are based on the Swiss Insurance Association statistics and reflect the average situation of the past in the Swiss market. In the individual life business, only reactivation is considered, whereas increased mortality is also taken into account in group life business. In the individual life business, disability tables are usually reviewed every five years when new statistics from the Swiss Insurance Association become available.
POLICYHOLDER OPTIONS | In certain contracts, the policyholder has the option to convert the accumulated funds of an endowment contract into a life annuity at maturity. If the annuity rates under the guarantee exceed the market annuity rates, a rational policyholder will exercise the option. In this case, the insurer must bear the difference. The value of the option mainly depends on the mortality rates and the interest rates. The influence on the insurance liabilities may therefore depend on the behaviour of the policyholders.
Impairment of goodwill Goodwill is tested for impairment annually (in autumn), or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The recoverable amounts of the business relating to the goodwill have been determined based on value-in-use calculations. These calculations require the use of estimates which are set out in note 18.
Defined benefit liabilities The Swiss Life Group uses certain assumptions relating to the calculation of the defined benefit liabilities. These assumptions comprise the expected return on plan assets as well as future salary increases and future pension increases which have been derived from estimates based on past experience. The expected return on the plan assets takes into consideration the investment policy relating to the assets and their projected returns.
Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the management in deciding how to allocate resources and in assessing performance.
The reportable segments have been identified based on the information about the components of the entity that management uses to make decisions about operating matters. The information that is provided to management is focused on the category of product lines and services. The organisational and management structure within the insurance business is based on geography. The reportable segments have therefore been identified as follows: – Insurance Switzerland – Insurance France – Insurance Germany – Insurance Other – Investment Management – AWD – Other – Insurance (Discontinued) – Banking (Discontinued)
Non-life operations consist of operations in France and Belgium and principally include property and casualty, liability and motor insurance.
Premiums earned on investment contracts with discretionary participation 158 8 – – –
Policy fees earned on insurance contracts 10 44 – – –
Net gains/losses on financial instruments at fair value through profit or loss 2 185 –407 92 –3 0
Benefits and claims under insurance contracts –7 892 –2 824 –2 089 –39 –
Benefits and claims under investment contracts with discretionary participation –172 –12 – – –
Insurance Insurance Insurance Insurance Investment In CHF million Switzerland France Germany Other Management
Policy fees earned on insurance contracts 12 59 – – –
Asset management and other commission income 38 46 32 0 271
Other expenses –175 –242 –59 –20 –50 of which inter-segment –122 –9 –25 –8 –49 of which inter-segment –22 –9 –26 –13 123
Additions to non-current assets 432 70 83 187 1 4 Segment Information (continued)
Financial assets at fair value through profit or loss 1 857 7 331 580
Financial assets available for sale 27 763 10 731 3 918
Intangible assets including intangible insurance assets 1 110 527 1 527
Financial liabilities at fair value through profit or loss 1 047 1 078 288
Insurance Investment Insurance Banking Other Management AWD Other (Discontinued) (Discontinued) Eliminations Total
Financial assets at fair value through profit or loss 3 557 7 372 913
Financial assets available for sale 49 754 11 450 6 387
Intangible assets including intangible insurance assets 1 079 553 1 329
Net earned Net earned Net earned Net earned premiums premiums policy fees policy fees
The Swiss Life Group operates in selected European countries. The Group’s income and non-current assets by geographical location are detailed below: Geographical information
Information about major customers No revenue from transactions with a single external customer amounted to 10% or more of the Group’s revenue.
Notes to the Consolidated Financial Statements 5 Risk Management Policies and Procedures
Risks must be identified, assessed, managed and monitored locally. Half-yearly reports covering interest rate risk, equity price risk, currency risk, credit risk and insurance risk are prepared on a consolidated basis. Additionally, market risks and financial risk limits are reported on a monthly basis for the largest operations in the insurance business. Strategic and operational risks are assessed and reported on an annual basis.
Group risk management produces a consolidated risk report which consolidates the main elements of the risk management of the Swiss Life Group’s operations.
5.1 Contracts for the account and risk of the Swiss Life Group’s customers The assets relating to certain life insurance and investment contracts are managed for the account and risk of the Swiss Life Group’s customers (separate account/unit-linked contracts, private placement life insurance). These assets are segregated and managed to meet specific investment objectives of the policyholders. These assets back the insurance liabilities and the financial liabilities arising from these contracts. The fair values of the liabilities ref lect the fair values of the assets. Certain contracts with unit-linking features contain guaranteed minimum insurance benefits. The liabilities relating to this part are included in the insurance liabilities.
LIABILITIES FOR THE ACCOUNT AND RISK OF THE SWISS LIFE GROUP’S CUSTOMERS
Financial liabilities at fair value through profit or loss 11 9 727 11 042
Net gains/losses on financial assets –6 010 –5 – – –6 010 –5
DISTRIBUTION POLICY | The distribution policy seeks to harmonise the interests of the different groups of stakeholders. Policyholders favour a guaranteed minimum interest rate coupled with regular and appropriate discretionary participation whereas shareholders place greater emphasis on returns commensurate with the level of risk they are exposed to. Internal guidelines have been developed which define the policies for the allocation of policyholder participation with regard to annual bonus and terminal bonus. The focus of the Swiss Life Group lies on the sustainability of the business model and should balance the policyholders’ and shareholders’ expectations.
Total insurance liabilities with embedded derivatives not separated and fair valued 84 744 85 583
Insurance liabilities for the account and risk of the Swiss Life Group’s customers 952 931 5 Risk Management Policies and Procedures (continued)
More than Group’s In CHF million Up to 1 year 1–5 years 5–10 years 10 years customers Total
Liabilities for the account and risk of the Swiss Life Group’s customers – – – – –11 452 –11 452
Balance sheet interest rate sensitivity gap 19 942 10 827 17 281 33 845 973 82 868
conversion rate for the mandatory BVG business is set at 7.05% for men and 7.00% for women. Based on a recent amendment of the legislation and subject to a referendum, the guaranteed annuity conversion rate will be reduced to 6.40% for men and women within five years.
EQUITY PRICE RISK | A decline in the equity market led in 2008, and may lead in the future, to a further reduction of the Swiss Life Group’s realised and unrealised gains/losses, which also negatively affects the Swiss Life Group’s results of operations and financial condition.
The Group monitors the investment portfolio risks by establishing mandatory risk limits. The investment portfolio is adequately diversified and there was no investment exceeding 10% of shareholders’ equity as at 31 December 2008 (2007: none).
Counterpary risk is managed through the holding of credit default swaps or credit default swap indices. A credit default swap provides insurance to the debt holder against a default of the debt issuer. It is traded over-the-counter and underlies itself the collateral management process described above. The credit default swap index is a hedge on credit risk of a basket of counterparties and is an exchange-traded derivative.
For the For the For the For the account and account and account and account and risk of the risk of the risk of the risk of the Swiss Life Swiss Life Swiss Life Swiss Life Group’s Group’s
Debt instruments available for sale 38 273 54 771 – – 38 273 54 771
Financial assets held to maturity 7 159 3 624 – – 7 159 3 624
In CHF million profit or loss for sale receivables maturity collateral Total
Fair value of collateral and credit enhancements 109 217 5 Risk Management Policies and Procedures (continued)
Credit rating as at 31 December 2008 of which collateralised 4
Loan commitments – – – – 164 164 of which collateralised 114
CURRENCY RISK | The Swiss Life Group operates internationally and its exposures to currency risk primarily arise with respect to the euro, US dollar and British pound. Most of the investments and liabilities are denominated in Swiss francs, euros and US dollars, the values of which are subject to exchange rate f luctuations. The Group operates with various functional currencies (predominantly Swiss francs and euros). Its financial position and earnings could be significantly affected by a weakening of said foreign currencies against the Swiss franc.
The Swiss Life Group’s European insurance and investment operations (excluding Switzerland) generally invest in assets denominated in the same currency as their insurance and investment liabilities, which mitigates the currency risk for these operations. As a result, currency risk arises from recognised assets and liabilities denominated in other currencies and net investments in foreign operations. Although the Swiss Life Group actively engages in currency management to reduce the effect of exchange rate f luctuations on its assets and liabilities, particularly by hedging against the risk of such movements in relation to part of its investments denominated in euros and in US dollars, significant movements in exchange rates could adversely affect the Swiss Life Group’s earnings and financial position, including the value of its investment portfolio. Foreign exchange exposure is hedged to a large extent in line with the strategic asset allocation. The Group’s hedging arrangements are directed at covering its exposure from an economic perspective. The instruments which the Swiss Life Group uses to hedge exposure may not be perfectly correlated to the related assets, so the Group will still be exposed to losses if the value of the hedge and the value of the underlying asset or liability do not correspond appropriately.
Debt instruments at fair value through profit or loss 164 3 063 – – – 3 120 6 347
At operational level, rolling forecasts are in place to address situational liquidity risk, which primarily arises on unexpected calls on cash resources from claims, amounts payable at maturity and surrenders arising from insurance and investment contracts. The investment portfolio of the Swiss Life Group consists to a large extent of liquid assets, which can be sold at any time. To overcome unexpected liquidity shortfalls at times asset disposals are not desired, repurchase agreements are used to ensure short-term refinancing at minimal cost.
Liquidity risk is considered in the strategic asset allocation. At a strategic level, the Swiss Life Group holds sufficient liquidity and uses proactive debt maturity planning to ensure full financial f lexibility and efficient liquidity management.
Investment contracts without discretionary participation 439 0 0 92 297 51
CURRENT AND NON-CURRENT ASSETS AND LIABILITIES | The table below shows the expected recovery or settlement of assets and liabilities. Assets are classified as current if they are expected to be realised within twelve months after the balance sheet date. Liabilities are classified as current if they are due to be settled within twelve months after the balance sheet date. All other assets and liabilities are classified as non-current.
5.5 Insurance risk management objectives and policies Insurance contracts are contracts under which one party (the insurer) agrees to compensate the other party (the policyholder) if a specified uncertain future event affects the policyholder. The Group’s insurance entities neither generally accept nor generally deny insurance coverage to applicants, but ensure that all the insurance risks are identified and thoroughly assessed, and that the insurance premiums accurately ref lect the risk taken. The amount of risk taken must be in line with the Group’s strategy and risk policy, and must also meet the profitability targets.
The BVG business (Swiss occupational plans) is a significant part of the Group’s life insurance business in Switzerland. It is mandatory for salaried persons with an annual income of at least CHF 20 520. It provides benefits in the event of old age, death and disability. Old age insurance is based on the individual’s savings. The savings process comes to an end when the insured person reaches retirement age. For 2009, the guaranteed annuity conversion rate for the mandatory BVG business was set at the rate of 7.05% for men and 7.00% for women. Based on a recent amendment of the legislation and subject to a referendum, the guaranteed annuity conversion rate will be reduced to 6.40% for men and women within five years.
Disability lump-sum payment 739 740 5 Risk Management Policies and Procedures (continued)
EMBEDDED OPTIONS | The ability of a policyholder to pay reduced or no future premiums under a contract, to terminate the contract completely or to exercise a guaranteed annuity option means that the insurer’s liability is also subject to policyholder behaviour to a certain extent. On the assumption that a certain part of policyholders will make decisions rationally, overall insurance risk can be assumed to be aggravated by such behaviour. For example, it is likely that policyholders whose health has deteriorated significantly will be less inclined to terminate contracts insuring disability or death benefits than those policyholders remaining in good health, thus resulting in an increasing trend in the expected mortality of policyholders, as the portfolio of insurance contracts is reduced due to surrender (adverse selection).
NON-LIFE | The Swiss Life Group has non-life operations in France covering risks associated with accident and health (disability) as well as property and casualty.
At end of accident year 535 447 454 467 427 546 501 416 n. a.
7 years later 492 – – – – – – – n. a.
Current estimate of cumulative claims 492 450 465 380 409 424 438 416 3 474
Cumulative payments to date –428 –371 –354 –286 –293 –296 –268 –174 –2 470
The development of claims under non-life insurance contracts comprises the non-life business in France.
As far as non-life insurance is concerned, the reinsurance arrangements mostly include non-proportional coverage on any single risk and/or event, adapted to the specifications of each contract. This includes excess of loss, stop-loss and catastrophe coverage. Facultative reinsurance is also written for protection against specific risks.
SENSITIVITY ANALYSIS | The Swiss Life Group uses the traditional embedded value, as one of the main management tools, for its sensitivity analysis with regard to insurance risk and market risk. From the shareholders’ point of view, the embedded value serves as an indicator of the value of the existing insurance portfolios. It is composed of three components: the adjusted net asset value (ANAV) attributable to shareholders and the present value of future profits (PVFP), minus the present value of the cost of holding capital (CoHC). Future new business is not included.
For the model PVFP calculations, the best possible assumptions were made regarding a number of factors, in particular returns on investment, development of costs and claims, policyholder participation and risk discount rate. Business is also assumed to be continuing at the same level (going concern) and the current cost ratios – adjusted for inflation – are thus assumed to hold good for the future as well. Future costs for maintaining classic solvency capital funded by the shareholders and which underpins the insurance business are charged to the PVFP. The Swiss Life Group calculates the embedded value for all its life insurance companies. All other companies are taken into account at their statutory carrying amount. As a consequence, risk factors applied to these types of business have no effect on the value.
At 31 December 2008, if the longevity improvement parameter had increased by 10%, the embedded value would have been CHF 48 million lower in Switzerland (2007: CHF 31 million lower) and CHF 8 million lower in the other countries (2007: CHF 27 million lower).
At 31 December 2008, if the longevity improvement parameter had decreased by 10%, the embedded value would have been CHF 44 million higher in Switzerland (2007: CHF 33 million higher) and CHF 7 million higher in the other countries (2007: CHF 26 million higher).
At 31 December 2008, if morbidity had been 10% lower, the embedded value would have been CHF 32 million higher in Switzerland (2007: CHF 29 million higher) and CHF 16 million higher in the other countries (2007: CHF 30 million higher).
The sensitivity analysis with regard to market risk is as follows: The Swiss Life Group assumes in the embedded value calculation that all bonds are held to maturity. Upon maturity, the redemption amounts are reinvested in new bonds at rates applicable at that point in time (“new money rate”). At 31 December 2008, if the new money rate with regard to bonds had been 100 basis points higher, the embedded value would have been CHF 41 million higher in Switzerland (2007: CHF 151 million higher) and CHF 207 million higher in the other countries (2007: CHF 255 million higher).
At 31 December 2008, if the new money rate with regard to bonds had been 100 basis points lower, the embedded value would have been CHF 216 million lower in Switzerland (2007: CHF 162 million lower) and CHF 197 million lower in the other countries (2007: CHF 247 million lower).
At 31 December 2008, if the investment returns for equity securities and property had been 100 basis points lower, the embedded value would have been CHF 267 million lower in Switzerland (2007: CHF 206 million lower) and CHF 67 million lower in the other countries (2007: CHF 118 million lower).
In CHF million (if not noted otherwise) 2008 2007 2008 2007 2008 2007
Result used to determine diluted earnings per share –1 138 712 1 488 641 350 1 353
Assumed conversion of convertible bonds – 986 830 – 986 830 – 986 830
Under the accounting principles adopted, deposits received under insurance and investment contracts are not recognised as income: In CHF million 2008 2007
Interest income on financial assets held to maturity and available for sale 1 926 2 615
Net gains/losses on financial instruments designated as at fair value through profit or loss
Amortisation of present value of future profits (PVP) 18 1 1
Net gains/losses on financial instruments at fair value through profit or loss from continuing operations include interest and dividend income of CHF 54 million for the period ended 31 December 2008 (2007: CHF 132 million). Net gains/losses on liabilities designated as at fair value through profit or loss from continuing operations include changes attributable to credit risk: nil for the period ended 31 December 2008 (2007: nil).
8 Details of Certain Items in the Consolidated Statement of Income (continued)
Contract/ Contract/ Fair value Fair value Fair value Fair value notional notional assets assets liabilities liabilities amount amount
Derivatives embedded in insurance contracts – – 0 1 10 10
Fair value Fair value Fair value Fair value on hedging on hedging on hedged on hedged notional notional assets assets liabilities liabilities instruments instruments items items amount amount
In 2008 and 2007 the Group entered into interest rate swaps to hedge the available-for-sale fixed-rate bond portfolios in USD and EUR against changes in the fair value attributable to interest rate risk. The fair value of the bond portfolios as at 31 December 2008 was CHF 0.4 billion in total (2007: available-for-sale fixed-rate bond portfolios in USD and EUR totalling CHF 1.6 billion).
Forward contracts are used as hedging instruments to protect investments in hedge funds against adverse movements in EUR and USD exchange rates.
Designated as Designated as at fair value at fair value through through profit or loss profit or loss
Assets for the account and risk of the Swiss Life Group’s customers 5 11 132 13 696
Total financial liabilities at fair value through profit or loss 10 805 11 427
Total financial assets available for sale 27 43 975 70 683 –812 –2 095 43 163 68 588
Based on detailed assessments with regard to indications of impairment, impairment losses from continuing operations totalling CHF 3108 million were recognised in the period under review (2007: CHF 744 million). The impairment losses in 2008 related to equity instruments were CHF 3000 million and debt instruments CHF 108 million (2007: debt instruments CHF 630 million and equity instruments CHF 114 million).
Individual Individual Collective Collective evaluation of evaluation of evaluation of evaluation of impairment impairment impairment impairment Total Total
Effect of classification as assets held for sale – –96 – –23 – –119
Interest income accrued on impaired loans from continuing operations was CHF 2 million as at 31 December 2008 (2007: CHF 5 million). 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 that the allowance for loan losses is sufficient. However, management cannot predict with assurance the impact of future economic circumstances or how the mortgage and real estate portfolios would be affected by various economic circumstances.
Classification as assets held for sale and other disposals –155 –462
Crédit et services financiers (CRESERFI), Paris 243 105 138 46 70 12 4 33.4%
Transfers to investment property 15 –95 –182 – – – –277
Revaluation in respect of transfers to investment property 8 – – – – 8
Classification as assets held for sale and other disposals 4 – 0 7 3 14
Balance as at 31 December –175 –4 –68 –61 –9 –317
Total property and equipment as at 31 December 625 92 45 34 6 802 of which assets held under a finance lease 0 – – 1 – 1
Transfers to investment property 15 –50 –61 – – – –111
Classification as assets held for sale and other disposals 45 – 45 82 7 179
Total property and equipment as at 31 December 702 105 30 22 5 864 of which assets held under a finance lease 40 – – 2 – 42
No borrowing costs were capitalised in property and equipment in 2008 and 2007.
Additions from business combinations 29 – 8 – – – – – 8
Effect of gains/losses recognised directly in equity 27 0 0 –151 326 – – –151 326
Classification as assets held for sale and other disposals – – – –372 – –231 – –603
Foreign currency translation differences –2 0 –153 42 –1 1 –156 43
Annual amortisation charges on the present value of future profits relating to acquired insurance portfolios totalling CHF 21 million as at 31 December 2008 are estimated at CHF 1 million for the years 2009 to 2011.
DEFERRED ACQUISITION COSTS (DAC) | Certain acquisition costs relating to new and renewed insurance contracts and investment contracts with discretionary participation features are deferred.
Intangible insurance assets of CHF 600 million relating to the insurance operations in the Netherlands and Belgium were reclassified to assets held for sale in 2007.
Changes from discontinued operations – – – 0 – 3 – 3
Total other intangible assets as at 31 December 1 727 436 339 58 139 13 2 205 507
In 2007, goodwill amounting to CHF 16 million was recognised on the purchase of additional shares of Banca del Gottardo Italia, Bergamo. The proportion of ownership interest increased by 19% to 90%.
The calculations relating to the recoverable amounts, which have been determined on a value-in-use basis, use cash flow projections based on financial budgets approved by management. The projection covers a four-year period for Lloyd Continental. Due to the duration of the insurance and investment contracts a 13-year period was used for CapitalLeben. The calculations for Lloyd Continental and CapitalLeben are based on present values that traditionally use a single set of estimated cash f lows and a single discount rate. The key assumptions used for the impairment testing on the carrying amount of goodwill relating to Lloyd Continental and CapitalLeben were as follows: Lloyd Lloyd Continental Continental CapitalLeben CapitalLeben
Key assumptions used for impairment tests 1 1% in 2012 and 2011 respectively, reduced by 0.25% in each subsequent year
Net carrying amount of goodwill 81 – 316 – 894 –
Notes to the Consolidated Financial Statements 18 Intangible Assets including Intangible Insurance Assets (continued)
Goodwill amounting to CHF 421 million relating to Banca del Gottardo (including CHF 16 million relating to the purchase of additional shares of Banca del Gottardo Italia, Bergamo) has been reclassified to assets held for sale in 2007.
On the acquisition of CapitalLeben Versicherung AG, Schaan, a customer relationship asset of CHF 33 million was recognised in 2007. In August 2007, the Swiss Life Group acquired the banking activities of Fideuram Wargny, France, which led to the recognition of a customer relationship asset of CHF 12 million. In November 2007, Meeschaert Assurances, Paris, was acquired and a customer relationship asset amounting to CHF 15 million was recognised.
Investment contracts without discretionary participation at fair value through profit or loss 292 310 of which for the account and risk of the Swiss Life Group’s customers 1 725 3 567
Liabilities released for payments on death, surrender and other terminations during the year –104 –94
For traditional contracts in the life insurance business, future life policy benefit liabilities are determined by using the net-level-premium method on the basis of actuarial assumptions as to mortality, persistency, expenses and investment return, including a margin for adverse deviation. For participating contracts where the contribution principle applies to the allocation of the policyholder bonus, future life policy benefit liabilities are determined by using the net-level-premium method on the basis of appropriate mortality and interest rate assumptions. These amounts relate to contracts issued in Switzerland and France.
Certain contracts that do not contain significant insurance risk and do not have discretionary participation features are carried at amortised cost.
In March 1999, Swiss Life/Rentenanstalt privately placed a subordinated perpetual step-up loan comprising three simultaneous advances of EUR 443 million (at a rate of interest of Euribor plus a margin of 1.05%, increasing by 100 basis points as from April 2009), CHF 290 million (at a rate of interest of Libor plus a margin of 1.05%, increasing by 100 basis points as from April 2009) and EUR 215 million (at a rate of interest of 5.3655%, as from October 2009 the rate of interest will be an aggregate of Euribor plus a margin of 2.05%). Swiss Life/Rentenanstalt can call the EUR 443 million f loating rate loan and the CHF 290 million f loating rate loan at the earliest on 6 April 2009 and the EUR 215 million fixed-rate loan at the earliest on 6 October 2009 or at five-year intervals thereafter, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority.
Libor 1 Hybrid loan notes granted by ELM B.V. 2 Hybrid bank loan originally granted by J.P. Morgan Bank Luxembourg S.A.
Convertible debt On 10 June 2004, Swiss Life Holding issued CHF 317 million in 0.625% convertible bonds due in 2010. The bonds may be converted into registered shares of Swiss Life Holding at any time at the option of the holder. Bondholders exercising their conversion right are entitled to receive the number of shares equal to the principal amount of CHF 1000 divided by the original conversion price of CHF 209.625 (subject to adjustments, with effect from 29 July 2008 conversion price of CHF 200.20).
Later than 1 year and not later than 5 years – 2 – 2
Claims under non-life insurance contracts 1 181 1 284 220 230 961 1 054
Total insurance liabilities and reinsurance assets 91 024 94 492 447 975 90 577 93 517 of which for the account and risk of the Swiss Life Group’s customers 952 931 – – 952 931
Total gross claims under non-life insurance contracts 1 181 1 284
Effect of changes in actuarial assumptions and other movements 33 –123 –495 –4 528 –119
Reclassifications and other disposals – –16 588 – –5 – –16 583
Non-discretionary policyholder bonuses and other liabilities Policyholder liabilities are recognised in accordance with legal or contractual requirements and ratified by management.
Due to the requirements of IFRS 4 Insurance Contracts in combination with IAS 19 Employee Benefits, insurance contracts issued to defined benefit plans covering own employees are eliminated. Consequently, amounts totalling CHF 2019 million as at 31 December 2008 (2007: CHF 2019 million) relating to these insurance contracts are not included in the plan assets. Insurance contracts issued to defined benefit plans covering own employees have been issued in Switzerland and France. These defined benefit plans are typically partially funded as certain plan assets relating to these plans are not required to be eliminated. To the extent these plans are not funded by amounts included in the plan assets, the defined benefit liabilities are backed by the investments relating to the eliminated insurance contracts. These investments are part of the investments presented in the consolidated balance sheet of the Swiss Life Group.
Present value of wholly and partly funded obligations –2 218 –2 242
Present value of defined benefit obligation –2 292 –2 320 –3 065 –2 937
Number of employees The Group had 8184 full-time equivalents as at 31 December 2008 (2007: 8556).
Termination benefits The termination benefit liability totalling CHF 0.8 million for the year ended 31 December 2008 (2007: CHF 0.04 million) arose as a result of early retirements.
In 2007, the number of PSUs granted under this programme amounted to 56 222. The fair value at the measurement date amounted to CHF 189.22. The date of grant was 1 April 2007.
In 2008, the number of PSUs granted under this programme amounted to 52 618. The fair value at the measurement date amounted to CHF 179.30. The date of grant was 1 April 2008.
In 2007 and 2008, no adjustment to the number of PSUs was made due to the reduction in par value of the Swiss Life Holding share because of changed Eurex rules.
The expense recognised for share-based payment amounted to CHF 11 million in 2008 (2007: CHF 12 million).
Number of performance share units 1 January Issued in par value par value departures Vested 31 December
Share options Since 2003, no new share options have been allocated to directors and managers in Switzerland and abroad and no share options were outstanding as at 31 December 2008.
Number Number Exercise Exercise Expiry Expiry exercise exercise of shares of shares date date date date price price
Other benefits Related expenses in 2008 were CHF 11 million (2007: CHF 14 million).
The expected weighted-average tax rate for the continuing operations of the Group was 27.0% in 2008 (2007: 30.9%). This rate was derived by obtaining a weighted average of the expected income tax rates in the various jurisdictions in which the Group operates. The decrease of the weighted-average tax rate is due to the geographical allocation of the profits and the different tax rates in these jurisdictions. The actual income tax expense differs from the expected amount as follows: 24 Employee Benefits (continued)
The Swiss Life Group realised net tax benefits of CHF 118 million due to tax audits and final assessments in 2008. Intercompany effects of CHF 101 million are mainly based on intragroup dividends.
In CHF million 1 January in income in equity operations differences 31 December
Tax losses and tax credits 9 6 – – –1 14
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. Swiss tax assets are calculated in accordance with cantonal and communal tax legislation. 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, which will expire as follows, no deferred tax asset has been recognised: 25 Income Taxes (continued)
Additional provisions made during the reporting period 21 7 28 37
Unused amounts reversed during the reporting period 0 –7 –7 –20
In 2008, provisions for restructuring programmes were primarily set up in Switzerland (2007: Germany). Amounts used during the period relate to Switzerland and Germany.
As at 31 December 2008, the share capital of SLH consisted of 35 084 554 fully-paid shares with a par value of CHF 17 each. In exercising voting rights, no shareholder can collect more than 10% of the total share capital directly or indirectly in respect of own shares or shares they represent. As at 31 December 2007, SLH had 34 960 439 registered shares with a par value of CHF 34 per share. Conditional share capital was CHF 40 109 562 as at 31 December 2008
Due to the reduction in the par value of CHF 17 per registered SLH share in 2008 (2007: CHF 7 per registered SLH share), an amount of CHF 49 million was credited to share premium in respect of treasury shares (2007: CHF 11 million ).
Number of shares The following table shows the development of SLH shares issued and treasury shares held by the Swiss Life Group during the period: Number of shares 2008 2007
Gains/losses arising during the period –3 727 – – –3 727
Gains/losses transferred to the income statement 8 3 800 – 80 3 880
Gains/losses arising during the period –3 894 – – –3 894
Total gains/losses recognised directly in equity as at 31 December –809
Retained earnings Retained earnings comprise accumulated retained earnings of the Group entities which have not been distributed to the shareholders. The distribution of profit is subject to restrictions in the various jurisdictions where the Group entities are located.
The Group’s insurance subsidiaries are subject to regulatory restrictions on the amount of dividends, cash loans and advances which can be remitted to the Group. Certain foreign jurisdictions have restrictions that allow the payment of dividends but may cause a delay in their remittance. Dividends payable are not accrued until they have been ratified at the General Meeting.
The Group’s risk and value management decisions are primarily based on the embedded value and economic risk capital. This capital is determined on a bottom-up basis per country and business and takes into account market risk, credit risk, insurance risk, operational risk and strategic risk. Market and insurance risk are calculated using a value-at-risk approach with a 99.5 percentile and a holding period of one year. Credit risk is calculated as expected shortfall of 99 percentile, whereas operational and strategic risks are charged on a size basis similar to Basel II. Following the Swiss Solvency Test (SST) approach, market and insurance risks are assumed to be uncorrelated while all other risk capital is cumulated. Elements of the bottom-up risk capital per country and business are used to estimate the SST margin of the parent company on a monthly basis. The calibration is done based on the full valuation of the SST margin as at the beginning of the year.
Standard & Poor’s rating capital Swiss Life has defined a target capitalisation rating. In the Standard & Poor’s risk-based capital model the total adjusted capital (TAC) is the measure used for capital available to meet a company’s capital requirements. TAC is thereby a narrower capital measure ref lecting a nearer term view on the realisation of assets. In addition to assessing capital adequacy, Standard & Poor’s also measures the quality of capital on its various dimensions such as debt, hybrid and reinsurance leverage. In line with its active capital management, the Swiss Life Group uses hybrid instruments to optimise its capital structure.
Carrying amount Carrying amount in accordance in accordance with IFRS before with IFRS before Fair value combination Fair value combination
Present value of future profits from acquired insurance portfolios 18 – – 8 –
Financial liabilities at fair value through profit or loss – – –4 332 –4 332
Net cash outflow from acquisitions –1 4751 –219 1 of which paid in 2007: CHF 264 million
On 19 March 2008, 96.7% of the AWD Holding shares (including 10.46% shares under option) were acquired by the Swiss Life Group. The AWD Group specialises in independent financial advisory services and is one of Europe’s top financial services providers for the medium and high-income customer segments. The acquisition cost amounted to CHF 1713 million. If the acquisition had taken place at the beginning of the period the contribution to the income of the Group would have been CHF 1047 million and the contribution to the net profit of the Group would have been a loss of CHF 42 million.
In November 2007, the Swiss Life Group acquired Meeschaert Assurance, Paris. The acquisition cost amounted to CHF 40 million.
In July 2007, two real estate companies were acquired in Belgium for a total purchase consideration of CHF 13 million.
Financial assets at fair value through profit or loss 3 957 2 551 – 6 508 11 034
Financial assets available for sale 19 721 683 – 20 404 13 338
Intangible assets including intangible insurance assets 577 424 1 1 002 3
Insurance and other payables –1 261 –119 –5 –1 385 –
Investment contracts and other financial liabilities –2 613 –11 217 – –13 830 –21 898
Also in November 2007, the Swiss Life Group announced the sale of its Dutch and Belgian businesses. The transaction was completed on 29 April 2008. For the purposes of segment reporting the Dutch and Belgian businesses are presented as a separate segment “Insurance (Discontinued)”.
The calculation for the impairment testing in 2007 of the goodwill relating to Banca del Gottardo, Lugano, was based on the fair value less costs to sell. The fair value less costs to sell was determined based on the sale agreement to dispose of Banca del Gottardo, Lugano. No impairment loss was recognised in 2007.
Income tax expense on profit from ordinary activities from discontinued operations –62 –11 –3 –35 –65 –46
Income tax expense on the gain/loss on remeasurement to fair value less costs to sell/disposal of operations –148 – –2 – –150 –
Based on a ruling by the Dutch tax administration, the Swiss Life Group was able to reduce its tax liability by CHF 94 million in 2007.
Financial assets available for sale – 19 844 – 672 – – – 20 516
Property and equipment – 104 – 138 – – – 242
Total assets held for sale – 27 136 – 13 328 4 4 4 40 468
Gain (+)/loss (–) recognised directly in equity relating to assets held for sale – –31 – –9 – – – –40
Net cash flows from operating activities –487 –92 405 895 –82 803
Net cash flows from financing activities 433 69 –38 163 395 232
Net gains/losses on financial instruments at fair value through profit or loss – – –139 –139 –17
Sales to and purchases from related parties are made at normal market prices. Outstanding balances at year-end are unsecured and settlement is made in cash. There have been no guarantees provided or received for any related party receivables. For the year ended 31 December 2008, no impairment allowance has been made for doubtful debts in respect of the amounts owed by related parties. This assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates.
The details regarding key management compensation in accordance with the Swiss Code of Obligations, article 663bbis and article 663c, are set out in the Swiss Life Holding financial statements.
Financial assets held to maturity 14 7 159 3 624 6 926 3 575
The German government, the German central bank, the German banking associations as well as some finance companies have attained an agreement to jointly provide liquidity in order to rescue the Hypo Real Estate Group. The German insurance companies agreed upon a re-guarantee to the German government. The guarantors are liable
The total amount of credit commitments includes commitments to lend at fixed rates, which expose the Group to interest rate risk. These commitments are entered into for restricted periods of time. As at 31 December 2008, committed principal amounts stood at EUR 22 million and CHF 62 million (2007: EUR 24 million and CHF 89 million). The range of committed interest rates is 3.3% to 6.1% for commitments in EUR and 2.1% to 4.1% for commitments in CHF.
Other contingencies and commitments Contractual obligations for repairs and maintenance of investment property amounted to CHF 38 million as at 31 December 2008, which are included in this line item (2007: CHF 16 million).
Securities under repurchase agreements, securities borrowing and lending arrangements – 0
As at 1 July 2008, certain financial assets were reclassified from financial assets available for sale to loans due to the disappearance of an active market. The financial assets reclassified primarily consist of corporate debt instruments and debt instruments relating to emerging markets. The fair value as at 1 July 2008 of the financial assets reclassified amounted to CHF 14 966 million. At the date of reclassification the effective interest rate ranged from 0.8% to 9.7%, and the amount of cash f lows expected to be recovered was estimated at CHF 32 658 million. During the period, unrealised losses of CHF 740 million were recognised in equity in respect of these assets (2007: losses of CHF 425 million).
Further details with regard to the financial assets reclassified are as follows: In CHF million Notes 2008 2007
Gains/losses that would have been recognised in equity if the assets had not been reclassified (excluding adjustments for income tax and policyholder participation) –2 259 –
In January 2009, the Swiss Life Group set the cash compensation for AWD shareholders at EUR 30 per share under the terms of the squeeze out and also entered into a profit transfer agreement. Minority shareholders will receive a cash compensation offer of EUR 30 or an annual gross cash settlement of EUR 2.34 per share.
In February 2009, the Swiss Life Group decided against redeeming the 1999 private placement of subordinated perpetual step-up loan totalling about CHF 970 million on the first possible call date in April 2009. The interest margin on this loan thus increases from 105 basis points to 205 basis points over Libor/Euribor.
AWD Allgemeiner Wirtschaftsdienst AG, Zug AWD from 19.03.2008 96.7% 100.0% full CHF 5 600
Banca del Gottardo, Lugano Bank. Dis. until 07.03.2008 – – full
Livit FM Services AG, Zürich IM from 07.02.2008 100.0% 100.0% full CHF 100
Livolsi e Associati Private SA, Lugano – until 07.03.2008 – – equity
Long Term Strategy in liquidation, Zug Other 100.0% 100.0% full CHF 2 000
Oscar Weber AG, Zürich Ins. CH 100.0% 100.0% full CHF 5 000
Swiss Life Funds Business, Zürich IM until 01.01.2008 – – full
Swiss Life International Holding AG, Zürich Other 100.0% 100.0% full CHF 1 000
Swiss Life Investment Management Holding, Zürich IM 100.0% 100.0% full CHF 50 000
Swiss Life Pension Services, Zürich Ins. CH 100.0% 100.0% full CHF 250
Swiss Life Private Equity Partners, Zürich IM 100.0% 100.0% full CHF 250
Swissville Commerce Holding, Zürich Ins. CH 100.0% 100.0% full CHF 147 100
Notes to the Consolidated Financial Statements 1 Segment (Ins. CH = Insurance Switzerland, Bank. Dis. = Banking (Discontinued), IM = Investment Management, Ins. Other = Insurance Other, Ins. FR = Insurance France, Ins. DE = Insurance Germany, Ins. Dis. = Insurance (Discontinued))
Segment 1 Consolidation period Group share Direct share consolidation Currency in 1000
Swiss Life (Liechtenstein), Vaduz Ins. Other 100.0% 100.0% full CHF 5 000
Financière du Capitole SAS, Balma Ins. FR from 12.11.2008 80.0% 80.0% full EUR 1 700
SCI DYNAPIERRE, Paris Ins. FR 99.8% 100.0% full EUR 7 317
Swiss Life Asset Management (France), Paris IM 100.0% 100.0% full EUR 3 000
Swiss Life Assurance et Patrimoine, Paris Ins. FR 99.8% 100.0% full EUR 141 494
Swiss Life Prévoyance et Santé, Paris Ins. FR 99.2% 99.2% full EUR 150 000 1 Segment (Ins. CH = Insurance Switzerland, Bank. Dis. = Banking (Discontinued), IM = Investment Management, Ins. Other = Insurance Other, Ins. FR = Insurance France, Ins. DE = Insurance Germany, Ins. Dis. = Insurance (Discontinued))
AWD Beteiligungstreuhand GmbH, Hannover AWD from 01.10.2008 96.7% 100.0% full DEM 50
AWD Vermögensverwaltungsgesellschaft mbH, Hannover AWD from 19.03.2008 96.7% 100.0% full EUR 100
Bizztools GmbH, Bremen AWD from 06.05.2008 96.7% 100.0% full EUR 50
Financial Solutions AG Service & Vermittlung, München Ins. DE 100.0% 100.0% full EUR 200
MLP AG, Wiesloch – from 20.11.2008 – 24.3% equity EUR 107 791
PROFIDUS Assekuranzmakler GmbH, Bremen AWD from 06.05.2008 96.7% 100.0% full EUR 25
SL Beteiligungs-GmbH & Co. Grundstücksverwaltung KG, München Ins. DE 100.0% 100.0% full EUR 50
SL Beteiligungs-GmbH & Co. Immobilien II KG, München Ins. DE from 27.11.2008 100.0% 100.0% full EUR 10
SL Private Equity GmbH, Frankfurt am Main Ins. DE from 14.05.2008 98.9% 98.9% full EUR 91
Swiss Life Asset Management, Unterföhring IM until 03.12.2008 – – full
Swiss Life Grundstücksmanagement GmbH & Co. Münchner Tor KG, München Ins. DE 100.0% 100.0% full EUR 59 435
Swiss Life Partner Service- und Finanzvermittlungs GmbH, München Ins. DE 100.0% 100.0% full EUR 300
Thomas Beteiligungsgesellschaft mbH, Bremen AWD from 06.05.2008 96.7% 100.0% full EUR 51
Zwitserleven, Amstelveen (branch Swiss Life/Rentenanstalt) Ins. Dis. until 29.04.2008 – – full
European District Properties Three, Sint Stevens Woluwe – until 29.04.2008 – – equity
Swiss Life Immo-Midi (Belgium), Bruxelles Ins. Dis. until 29.04.2008 – – full
Gotam Fund Management Company, Luxembourg Bank. Dis. until 07.03.2008 – – full
Gottardo Equity Fund (Lux) Management, Luxembourg Bank. Dis. until 07.03.2008 – – full
Gottardo Strategy Fund Management, Luxembourg Bank. Dis. until 07.03.2008 – – full
Swiss Life (Luxembourg), Strassen Ins. Other 100.0% 100.0% full EUR 23 000
Swiss Life Assurance Solutions S.A., Luxembourg Ins. DE from 27.11.2008 100.0% 100.0% full EUR 5 000
Swiss Life Funds (Lux) Management Company S.A., Luxembourg IM 100.0% 100.0% full CHF 400
Swiss Life Participations Luxembourg, Strassen Ins. Other 100.0% 100.0% full EUR 70 000
Swiss Life Solutions S.A., Strassen Ins. DE from 17.09.2008 100.0% 100.0% full EUR 11 000
AWD Chase de Vere Consulting Limited, London AWD from 19.03.2008 96.7% 100.0% full GBP 1 935
AWD Consultancy Limited, Manchester AWD from 19.03.2008 96.7% 100.0% full GBP 0
AWD Direct Limited, Manchester AWD from 19.03.2008 96.7% 100.0% full GBP 9
AWD Group Services Limited, London AWD from 19.03.2008 96.7% 100.0% full GBP 0
AWD Loans Limited, Manchester AWD from 19.03.2008 96.7% 100.0% full GBP 1 000
AWD Wealth Management Limited, Manchester AWD from 19.03.2008 96.7% 100.0% full GBP 0
Chase de Vere Financial Solutions Limited, Manchester AWD from 19.03.2008 96.7% 100.0% full GBP 10
UHY Financial Planning Limited, London – from 19.03.2008 – 25.0% equity GBP 0
Gottardo Gestión, SGIIC, Madrid Bank. Dis. until 07.03.2008 – – full
AWD CEE Holding GmbH, Wien AWD from 19.03.2008 96.7% 100.0% full EUR 35
Gottardo Trust Company, Nassau Bank. Dis. until 07.03.2008 – – full
Adroit Private Equity (Offshore), Grand Cayman Ins. CH until 15.06.2007 – – full
AWD Savjetovanje d.o.o. za poslovno savjetovanje, Zagreb AWD from 19.03.2008 96.7% 100.0% full HRD 20
European Consulting Group Sp.z o.o., Warszawa AWD from 19.03.2008 96.7% 100.0% full PLN 498
Swiss Life Network (Asia) Pte.Ltd., Singapore Ins. Other from 11.07.2007 100.0% 100.0% full SGD 0
Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards as well as the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our indepen dence.
Swiss Life’s Holding’s net investment income grew from CHF 337 million to CHF 1919 million, mainly as a result of the above-mentioned disposals. Other financial expenses and income increased to a net CHF 40 million due to the rise in interest received on loans to Group companies. In particular Swiss Life Holding granted a loan of EUR 300 million to Swiss Life Beteiligungs GmbH, Hanover, to partly finance the takeover of AWD Holding AG and the stake in MLP. The reported currency loss of CHF 78 million can be attributed to the fact that a considerable proportion of the loan was issued in euros. Operating expenses were up slightly on the previous year from CHF 8 million to CHF 9 million. All in all, Swiss Life Holding generated an annual profit of CHF 1921 million.
Swiss Life Beteiligungs GmbH, Hannover EUR 25 100.0% EUR 25 100.0%
Swiss Life Intellectual Property Management AG, Zürich CHF 250 100.0% CHF 250 100.0%
LOANS TO GROUP COMPANIES | CHF 191 million of the loans to Group companies is classified as subordinated.
MAJOR SHAREHOLDERS | The following shareholders hold over 5% of Swiss Life Holding’s share capital: As % of total share capital 31.12.2008 31.12.2007
SHARE CAPITAL | As at 31 December 2008, the share capital of Swiss Life Holding consisted of 35 084 554 fullypaid shares with a par value of CHF 17 each. In exercising voting rights, no shareholder can collect more than 10% of the total share capital directly or indirectly in respect of their own shares and those they represent. As at 31 December 2007, Swiss Life Holding had 34 960 439 registered shares with a par value of CHF 34 per share. Conditional share capital was CHF 40 109 562 as at 31 December 2008 (2007: CHF 84 439 034).
FREE RESERVES AND RETAINED EARNINGS | Free reserves and retained earnings contain accumulated retained earnings which have not been distributed to the shareholders, or which have not been allocated to the reserve for treasury shares.
CONTINGENCIES | Swiss Life Holding acts as warrantor for all Swiss Life/Rentenanstalt liabilities with regard to the various tranches of the subordinated perpetual step-up loan (hybrid debt), which amounted to an equivalent value of CHF 2316 million at the balance sheet date.
Swiss Life Holding further gives a capital guarantee for a maximum net asset value of CHF 300 million to Swiss Life Funds.
Reserve for treasury shares (incl. reduction in par value) –508 –542
Disclosure of compensation to the Board of Directors and the Corporate Executive Board in accordance with the Swiss Code of Obligations (CO) Art. 663bbis and Art. 663c
COMPENSATION POLICY PRINCIPLES | Pursuant to the Organisational Regulations, the Board of Directors as a whole is responsible for establishing the guidelines on the Group’s compensation policy (incl. bonuses, equity compensation plans and share option plans) and with regard to employee benefits. The compensation policy underpins the performance culture required by the corporate strategy and forms part of the HR policy. The aim is to retain well-qualified employees and gain new, highly skilled staff. The compensation system is to be competitive and in line with the market environment. The overall compensation takes into account the employees’ professional skills, commitment and personal performance. Individual compensation is made up of a basic salary and variable short-, medium- and long-term salary components as well as contributions to retirement and risk insurance. The basic salary is determined according to the employee’s function and skill-set, and is annually reassessed and adjusted if appropriate. The variable salary components are linked to the strategic objectives of the Group and the individual divisions and the associated financial and HR-related targets. Personal performance and target achievement are assessed annually in the employee appraisal procedure implemented throughout the Group (Group Performance System) and taken into consideration when applying the defined compensation policy.
COMPENSATION TO MEMBERS OF THE BOARD OF DIRECTORS | Compensation remitted to members of the Board of Directors in the year under review comprised the basic compensation, additional compensation in cash and a variable compensation component in shares. The basic compensation covers membership of the Board of Directors of Swiss Life Holding and its subsidiary Swiss Life/Rentenanstalt as well as membership of the individual Board Committees. The additional compensation in cash is commensurate to the function and workload and is determined annually by the Board of Directors. If Swiss Life Group’s business operations have proved successful, a further, variable compensation component is remitted in the form of Swiss Life Holding shares, decided upon by the Board of Directors taking into consideration the business result. The shares are allocated at economic value, which is equal to the tax value, taking a blocking period of three years into account.
Pursuant to the regulations of the 2007 and 2008 equity compensation plans, two objective performance criteria have been defined, each weighted at 50%. Depending on the fulfilment of the two performance criteria within the three-year period, the number of PSUs can increase by up to a factor of 1.5 or drop to zero. The first criterion is the Total Shareholder Return on the Swiss Life Holding share (TSR Swiss Life Holding), requiring a performance of over 20% for a subscription right to share allocation to arise after three years. The second criterion involves a comparison of the Swiss Life Holding share’s TSR with the TSRs of the shares of the companies included in the Dow Jones STOXX 600 Insurance Index (TSR Outperformance). A subscription right arises if the performance on expiry of the three-year term is above the first quartile in comparison with the companies in question.
ADJUSTMENT OF COMPENSATION WITH REGARD TO THE 2008 FINANCIAL YEAR | Shares were allocated to the members of the Board of Directors in 2008 as part of the basic compensation and also as a variable compensation component relating to the 2007 financial year performance.
The compensation in cash received by the members of the Corporate Executive Board in the period under review includes a cash bonus of CHF 4 700 000 for the 2007 financial year, which was paid out in 2008. Furthermore in 2008 the members of the Corporate Executive Board were allotted a total of 7 724 shares, with a three-year blocking period, as a variable compensation component for the 2007 financial year performance.
Bruno Gehrig, Chairman of the Board of Directors 555 000 100 000 655 000 385 89 218 744 218 104 827 849 045
Group CEO until 08.05.2008, BoD Delegate from 09.05.2008 1 The compensation in shares was, on the one hand, part of the basic compensation (in total 1 518 shares) and, on the other, a variable compensation component in shares for the 2007 f inancial year, allocated in 2008 (in total 1 011 shares). The allocation of shares was effected on 31.03.2008, 24.06.2008 and 16.12.2008 at economic value, which is equal to the tax value (CHF 231.7351, CHF 227.7469 and CHF 60.4526 respectively), taking into account a blocking period of three years. The share prices (closing prices) on the days of allocation were CHF 276.00, CHF 271.25 and CHF 72.00 respectively. No variable compensation component in shares will be allocated for the 2008 f inancial year.
2 Pursuant to the pension fund regulations, occupational provisions are f inanced by the employer and the employee at a ratio of 2/3 to 1/3. 3 All contributions are gross contributions, i.e. they include employee contributions to AHV/IV/ALV. Employer contributions to AHV/IV/ALV amounted to a total of CHF 96 047 in the year under review.
Total sation ExtraBasic Additional compen- in cash ordinary Aggregate compen- compen- sation and shares Regular contri- total Amounts in CHF sation sation in cash Number Amount (amount) contributions2 butions (amount)3
Total sation Bonus for Other compen- in cash 2007 paid compen- sation and shares
Amounts in CHF Salary in 20082 sation3 in cash Number Amount (amount)
Other members of Corporate Executive Board 813 420 8 563 073 6 Regular annual employer contribution and subsequent contributions. Pursuant to the regulations, occupational provisions are f inanced by the employer and employee at a ratio of 2/3 to 1/3.
12The allocation of PSUs as at 01.04.2008 was effected at a fair value of CHF 179.30, as calculated by an independent consultancy f irm. 13Including a cash bonus for 2007, paid in 2008, and a variable compensation component in shares for 2007, paid in 2008. For the 2008 f inancial year, no cash bonus and no variable compensation in shares will be paid to the members of the Corporate Executive Board.
Amounts in CHF Salary in 2007 sation1 in cash Number Amount (amount)
Other members of Corporate Executive Board 17 727 3 354 303 11 347 654 6 The PSUs represent future subscription rights that entitle the individuals concerned to receive Swiss Life Holding shares after a period of three years, provided the relevant conditions are then met. Depending on the fulf ilment during the three-year term of the two performance criteria def ined, the number of PSUs can increase by a factor of 1.5 or drop to zero.
SHARE OWNERSHIP / PARTICIPATION RIGHTS AS AT 31.12.2008 | As at the balance sheet date, current members of the Board of Directors and Corporate Executive Board (including closely linked parties) held the following number of registered Swiss Life Holding shares and future subscription rights to Swiss Life Holding shares in the form of Performance Share Units (PSUs).
Total Corporate Executive Board 64 877 1 Total number of PSUs allocated in the years 2006, 2007 and 2008 in connection with the relevant equity compensation plan. The PSUs represent future subscription rights that entitle the individuals concerned to receive SLH shares after a period of three years, provided that the relevant conditions are then met. In 2008 no PSUs were allocated to Rolf Dörig as a result of his transfer from the Corporate Executive Board to the Board of Directors.
Total Corporate Executive Board 74 331 1 Total number of PSUs allocated in the years 2005, 2006 and 2007 in connection with the relevant equity compensation plan. The PSUs represent future subscription rights that entitle the individuals concerned to receive SLH shares after a period of three years, provided that the relevant conditions are then met.
Balance carried forward to new account 3 958 859 3 047 818
Total profit shown in the balance sheet 1 923 958 859 338 047 818
Board of Directors’ Responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Opinion In our opinion, the financial statements for the year ended 31 December 2008 comply with Swiss law and the company ’s articles of incorporation.
Information on share performance | In a reflection of the global financial market crisis, the development of the Swiss Life share price was disappointing in 2008. Following the distribution of profit in 2008 amounting to CHF 17 per share for the 2007 financial year, the Board of Directors will propose a distribution of CHF 5 per share for 2008 to the General Meeting of Shareholders in May.
The persistent distortion of the financial markets in 2008 weighed down on the price of the Swiss Life share. With the situation becoming increasingly acute, the price trend was particularly disappointing in the second half of the year. In August Swiss Life said that the share buyback programme of up to CHF 2.5 billion announced in connection with the extraordinary receipts from disposals would be restricted to a maximum of CHF 1 billion. The Board of Directors decided in November to suspend the buyback programme entirely, due to the further deterioration of the market environment. Swiss Life had bought back around 3 million shares by the end of October 2008 for CHF 686 million under the share buyback programme approved at the General Meeting of Shareholders in May 2008. At the General Meeting of Shareholders on 7 May 2009, the Board of Directors will propose a distribution of profit in the form of a repayment of par value amounting to CHF 5 per share.
Number of shares (incl. conversions in 2008) 31.12.2008 35 084 554 31.12.2007 34 960 439
In CHF million (if not stated otherwise) 2008 2007 2006 2005 2004
Equity holders of Swiss Life Holding 350 1 345 933 860 579
Diluted earnings per share (in CHF) 10.88 39.60 26.92 24.82 18.27
Dividend paid per share (in CHF) 17.00 7.00 5.00 4.00 –
Number of employees (full-time equivalents) 8 184 8 556 8 693 8 979 9 419 1 Including reserve release of CHF 304 million due to change in Dutch law.
This document may contain projections or other forward-looking statements related to Swiss Life that are subject to known and unknown risks, uncertainties and other important factors. The reader should be aware that these statements are only projections which could differ materially from the actual results, financial situation, development, performance or expectations and that therefore no undue reliance should be placed on such forward-looking statements. Neither Swiss Life nor any of its directors, officers, employees or advisors nor any other person connected or otherwise associated with Swiss Life makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this document. Neither Swiss Life nor any of its directors, officers, employees or advisors nor any other person connected or otherwise associated with Swiss Life shall have any liability whatsoever for loss howsoever arising, directly or indirectly, from any use of this document. All forward-looking statements are based on the data available to Swiss Life at the time the present document was compiled. Unless otherwise required by applicable law, Swiss Life assumes no responsibility to publicly update or alter its forwardlooking statements or to adapt them, whether as a result of new information, future events or developments or any other reason.
You can f ind the Annual Report of the Swiss Life Group on the internet: Swiss Life General-Guisan-Quai 40 P.O. Box 2831 CH-8022 Zurich www.swisslife.com 30