Group In CHF million (unless indicated otherwise) 2002 2001 +/– %
Gross written premiums and policy fees Net earned premiums and policy fees
Gross result Net result before tax and minority interests Net result
Table of Contents 5 Letter from the Chairman of the Board of Directors 7 Letter from the Chief Executive Officer 9 Annual Results 2002 13 New Strategic Direction 16 Conversion to a Holding Company Structure 17 Capital Increase 19 Operational Risk, Risk Management and Investment Policy 23 Business by Segment 23 Life, Core 23 Switzerland 24 France 25 Germany 26 The Netherlands 27 Belgium / Luxembourg 29 Swiss Life Network 33 Life, Non-Core 33 «La Suisse» Vie 34 United Kingdom 34 Spain 34 Italy 35 Non-Life 37 Private Banking 37 Banca del Gottardo 38 Schweizerische Treuhandgesellschaft 39 Investment Management 41 Corporate Governance 55 Swiss Life Share Performance
It is especially important to me in difficult times like these to thank our members of staff for their commitment. Despite the gruelling circumstances and the criticism levelled at our enterprise, their commitment and dedication have played a role in the Swiss Life Group’s realignment. I would like to address particular words of thanks to all those shareholders who are convinced that our company is a successful one and who underlined this by participating in the capital increase. I would also especially like to
The Swiss Life Group reported a loss of CHF 1.7 billion for 2002. The year under review witnessed a disappointing financial result (because the reduction of our equity exposure, which was undertaken to safeguard the capital base, necessarily involved the realisation of losses), together with a negative result for our business in Switzerland (where falling interest rates caused a further deterioration in underlying conditions) and extraordinary write-downs. In spite of this loss, the enterprise has an adequate capital base. Compared to the previous year, gross written premiums fell by 3% to CHF 19.5 billion. Operating expenses fell by 4% to CHF 3.5 billion. In view of the overall negative result, the Board of Directors will ask the General Meeting of Shareholders to forgo a dividend. We have drawn lessons and have reset our course for the future by defining a new strategy and making changes to the top management. The new holding structure gives the Swiss Life Group an opportunity to accommodate all its participations efficiently under one roof. Thanks to the capital increase we now have sufficient equity available to implement our new strategic realignment even in today’s challenging environment.
In the wide-ranging debate surrounding occupational provisions in Switzerland, which began last year and is by no means over yet, we campaigned resolutely for thank our customers, whose loyalty represents our capital for the future. And I would personally like to express my gratitude to my colleagues of many years on the Board of Directors who will be stepping down along with me or who have already done so in the course of the past year. In recent years we worked together for the company in a difficult environment.
Naturally, I would have preferred to have been able to present a better picture in my final year as Chairman of the Board of Directors. Nevertheless I am confident that we have now set the right course for the future and laid the groundwork for creating new opportunities. I wish all of you who bear responsibility for our enterprise, both today and in future, the necessary strength and wisdom to live up to the confidence and trust that has been placed in you.
As far as efficiency is concerned, we have made it our goal to lower operating costs by CHF 515 million by 2004, compared to their 2001 level. In 2002 we already managed to make savings amounting to CHF 212 million, which is more than 40% of our goal.
2003 will be another difficult year for the insurance industry in general as well as the Swiss Life Group. I am convinced, however, that with our abilities, dedication, staying power and above all, team spirit, we will put ourselves firmly back on the road to success, step by step.Together with my colleagues on the Corporate Executive Board, and with our employees’ support, I will do everything in my power to allow us to make clear and unmistakable progress in 2003.
Steep rise in disability benefits Insurance benefits increased by 13% to CHF 12.9 billion. Apart from those benefits not subject to individual influence (expiration of policies, together with job changes and dismissals affecting group contracts) there was a pronounced increase in disability benefits and in surrenders, due to economic trends. The outlay on bonuses and participation in surplus was around 50% lower at CHF 340 million. In comparison with the previous years, the amount reserved for payment of future bonuses shrank by 14% to CHF
The Swiss Life Group reported a loss of CHF 1.7 billion for 2002 (after a loss of CHF 115 million in 2001). The poor result primarily stems from declines in the value of shares held and losses realised during the reduction of the equity exposure in the investment portfolio (net CHF 800 million), as well as extraordinary write-downs of goodwill (CHF 832 million). Gross premium volume declined 3% from the previous year to CHF 19.5 billion. Operating expenses were brought down by CHF 145 million. With equity totalling CHF 4.2 billion, the Swiss Life Group has sufficient resources at its disposal to pursue its new strategic direction.
10 Core capital is sound With the measures taken to strengthen the core capital in the fourth quarter of 2002 the Swiss Life Group raised additional equity totalling CHF 1.1 billion, gross. As of 31December 2002 total equity amounted to CHF 4.2 billion.The Group therefore has sufficient resources available in order to fully pursue its new strategic direction. The Group’s core capital fell only slightly in the course of the year under review from CHF 7.7 billion to CHF 7.5 billion. 4
Negative financial result The financial result declined to CHF 4.7 billion, a drop of 18% from the previous year’s level. Interest and dividend income contracted slightly to CHF 5.5 billion, a decline of 2%. Realised and unrealised net losses came to CHF 2.3 billion (previous year’s loss CHF 141 million). Adjusted for hedging transactions, the profit from which has been included in trading income, realised and unrealised net losses amounted to CHF 800 million. It should be pointed out that the figure for net losses also includes capital gains of CHF 330 million from the sale of participations in the hedge fund sector.
Costs reduced considerably Operating expenses were reduced by CHF 145 million to CHF 3.5 billion as a direct result of the cost-cutting programme which has been introduced. In the insurance business, operating expenses fell by 7% to CHF 2.7 billion. CHF 212 million of the total of CHF 515 million in economies targeted for 2004 have already been achieved in 2002, i.e. over 40%. Amortisation of goodwill stood at CHF 1.1 billion, of which CHF 832 million consisted of extraordinary write-downs (Banca del Gottardo: CHF 745 million; Schweizerische Treuhandgesellschaft: CHF 87 million).
Restructured presentation of accounts Results are reported in line with the new strategic orientation and reflect the following segmentation: life, core; life, non-core; non-life, private banking and investment management. Figures for the preceding year have been adjusted accordingly. The Financial Statements contain the following accounts: Consolidated Financial Statements Swiss Life Group in accordance with IAS (International Accounting Standards )/IFRS (International Financial Reporting Standards) Financial Statements Swiss Life Holding for the period 17 September 2002 to 31 December 2002 Financial Statements Swiss Life/ Rentenanstalt with its branches in France, Germany, the Netherlands and Belgium, based on local legal and regulatory accounting standards (basis for reporting to the Federal Office of Private Insurance).
The conditions prevalent in the European life insurance sector have changed dramatically within a very short period of time. In the 1990s returns on investments allowed insurers to turn in an attractive performance for both policyholders and shareholders. In the 2001–2002 period a slide in share prices led to a marked reduction in equity levels throughout the industry and, along with historically low interest rates, to a noticeable decline in profit potential. Leaving aside the current developments on the financial markets, the pensions business remains interesting due to demographic changes and the necessity for individuals to supplement their state pensions and benefits through private provisions.
This was the background against which the Swiss Life Group reviewed its strategic direction. The intention was to define a strategy that would contain sustainable promise for policyholders, shareholders and employees alike. This strategy will serve as a basis enabling the Group to continue to offer its customers competitive solutions with the requisite security, to generate a 10% return on equity for shareholders in the medium term and to be seen as an attractive employer of which its employees are proud.
The new strategy has five cornerstones: concentration on core business streamlined structure operational excellence financial strength performance culture
The Swiss Life Group is focusing on its traditional strengths in the life insurance and pensions business. It aims to be one of the leading players in Europe in this sector and will therefore concentrate on those regional markets which promise attractive growth and where it has a strong market position. Other important elements of its strategic realignment include a streamlined structure, operational excellence, financial strength and the promotion of a performance-oriented corporate culture. The Swiss Life Group expects its restructuring to be completed by the end of 2004.
14 the ten largest providers of life insurance and protection products.
These markets also offer the greatest potential for strengthening cooperation and realising synergies within the Group. The market volume in these countries amounted to approx. CHF 300 billion in 2002. The Swiss Life Group’s share of the market stood at around 5%. The enterprise thus occupied fifth position in its chosen markets in terms of premium volume.
The markets in the United Kingdom, Italy and Spain, the non-life business in Belgium and France and the private banking segment, which includes Banca del Gottardo and Schweizerische Treuhandgesellschaft, were not defined as belonging to the core business. The future role in the domestic market of the «La Suisse»
are good, thanks to the fact that Swiss Life is able to offer its customers above-average bonuses. The reason for this is that transactions in the past have generated profits which are passed on to policyholders in the form of bonuses, in accordance with contractual obligations. Health insurance has been integrated into life insurance and the organisational links between the two lines of business strengthened, thus allowing additional synergies to be exploited. In Germany Swiss Life has attractive growth prospects thanks to its good reputation with its expanding broker channel. In the group insurance business, which is continuing to grow steadily in the German market, Swiss Life is already one of the top ten providers. In addition, the most important competitors have backtracked on bonus promises, thus further improving the market environment.
cation of effort – especially with regard to management and staff functions – and at the same time to maintain a close rapport with customers. The new management structure is, for the most part, already in place in the core markets.
The measures to increase efficiency launched in 2002 should reduce operating costs by CHF 515 million by 2004, compared to 2001. CHF212 million in savings have already been made during 2002 (adjusted for one-off impacts). These savings are a result of the streamlining of processes and structures, coherent organisation reflecting the value chain and discontinued activities.
The new holding structure enables the Swiss Life Group to accommodate its participations efficiently under one roof. The Group’s flexibility with regard to capital allocation and the funding of individual areas of business, as well as in partnership and cooperation agreements, is increased. Transparency is improved for shareholders and there are advantages when it comes to fiscal planning. Swiss Life/Rentenanstalt shareholders created the formal conditions for the conversion to a holding structure by approving the relevant motions at the Extraordinary General Meeting on 23 October 2002. To implement this change in structure, Swiss Life/Rentenanstalt set up Swiss Life Holding, with its registered office in Zurich.
Swiss Life/Rentenanstalt registered shares had been tendered to Swiss Life Holding for exchange (92.2% of the11747 000 outstanding shares). Swiss Life Holding thus controls 92.2% of the Swiss Life/Rentenanstalt share capital and votes.
With the successful completion of the exchange offer, Swiss Life Holding became the parent company of Swiss Life/ Rentenanstalt. The shares of Swiss Life Holding have been listed on the SWX Swiss Exchange since 19 November 2002 (ticker symbol: SLHN).
Pu bl ic e xc ha ng e of fe r
New shares Each registered Swiss Life Holding shareholder was granted negotiable subscription rights which they could either exercise or sell. New shares could be subscribed for on a one-to-one basis, at a price of CHF 79 per share. Swiss Life Holding issued a total of 10 839 704 new registered shares with a par value of CHF 50 per share.This share issue raised a total of CHF 856 million in additional equity for the company.
With the successful conclusion of its capital increase, the Swiss Life Group has sufficient equity at its disposal to pursue its realignment to completion. The subscription rights for shares and the mandatory convertible securities, an innovation in the Swiss market, met with high demand. The capital increase raised a total of CHF 1.1 billion in additional equity.
It is a life insurer’s job both to assume risks such as old age, death and disability on behalf of its clients and also to generate a return on invested funds. The risks taken on by the company have to be measured and controlled using risk management techniques to ensure that the company’s exposure structure matches both its capacity and tolerance for risk. As a rule, the following types of risk can be distinguished: investment risks, underwriting risks, asset and liability management risks and operational risks.
AAA and government / treasury bonds AA A BBB and lower no rating1 354 in %
The analyses applied to monitor death risk are also used to control disability risk, complemented by individual evaluations which allow a better assessment of the risk structure. This enables the setting of premium rates to be refined, resulting in fairer prices being offered to the customer. Thanks to the introduction of industrybased and experience-based ratings in group insurance in Switzerland, each group insurance contract can be examined individually and assessed in terms of its profitability.
Special circumstances apply to the Swiss Life Group’s portfolio of pensioners with regard to occupational provisions in Switzerland (BVG), where a minimum conversion rate of 7.2% is stipulated. According to the Swiss Life Group’s calculations this rate is about 20% too high, because the life expectancy used as a basis is set too low and the interest rate component too high. A very close eye is being kept on the reserves created for this position, since to a large extent it is contingent on changes in regulatory constraints and is also influenced by whether insureds opt to have their entitlements paid out as a lump sum or a pension.
Death Endowment insurance provides for the payment of an agreed sum of money at the end of the term of insurance or on the death of the insured, if this occurs earlier. The risk of having to pay out the insured sum in the event of death before the policy expires (death risk) changes over the course of time and is also subject to yearly analysis. As a result of the increased life expectancy among the general population this risk can normally be kept well under control. A cluster of deaths in a particular year, such as that caused by outbreaks of influenza in the late 1960s, would represent an exception.
Liquidity risks To make sure it always has sufficient liquidity to guarantee its ability to meet payments coming up in the short term, such as endowment sums or annuities, the Swiss Life Group continuously forecasts its expected cash flows on both sides of the balance sheet. As an additional precaution, the greater part of its investments are placed in securities which are readily realisable.
Underwriting risks In the life business a distinction is made between the following types of technical risk: longevity death disability
Longevity In 1881 the life expectancy for a 60-yearold man was 12.4 years. On average men of that age now live 19.3 years longer, i.e. an increase of more than 50% after the age of 60. The greater historical longevity leads to life annuities becoming more expensive. Looked at from this angle, it becomes clear that insurance companies
21Asset and liability management risks Asset and liability management (ALM) is concerned with the interaction between assets and liabilities and the associated risks. The reduction of the capital base in the year under review is the outcome of the originally high equity exposure in the insurance portfolio, that for its part offers the prospect of benefits, the bulk of which can be likened to bond yields. The reduction of the share exposure to less than 2%, and the ensuing build-up of the position in fixed-income investments, have reduced the volatility of the equity base. However, the dependency on bond yields has increased as a result. The decline in bond coupons and yields over the last few years has reduced the insurance portfolio’s direct returns. In order to quantify the corresponding ALM risk these returns on the asset side of the balance sheet have to be compared with the required flows on the liability side (the technical interest rate). In the Swiss Life Group’s case the average interest income required on the life insurance portfolio in 2003 amounts to approximately 3.1% in Swiss francs and approximately 3.7% in euro. During a prolonged period of low interest rates the Group faces the risk that the portfolio’s direct income will drop below the technical interest rate, thereby entailing losses. To counter this the Swiss
Operational risks Alongside the financial risks outlined above, operational deficiencies or limitations represent an additional form of risk, which also affects a variety of other enterprises, and which includes human error or moral hazard risks (programming errors, fraud, etc.), process risks, technology risks and risks resulting from changes in the economic, fiscal or legal environment. Last year the two greatest losses arising from operational risks at the Swiss Life Group were put down to bookkeeping errors and the reputation problem. In order to avoid such problems in future, far-reaching operational and HR measures have been introduced.
Switzerland Swiss Life/Rentenanstalt held a 24% share of its domestic market. Its most important sales channels are the 55 general agencies with their approximately 800 employees. The growth in premium volume in the life insurance market was initially estimated at around 7% for the year as a whole, despite the difficult market conditions.
Key figures for Switzerland 3 in CHF million 2002 2001 +/– %
Gross premiums, incl. deposits under policyof which variable acquisition costs 133 113 + 17.7 of which administrative costs 801 982 – 18.4 1 incl. loss adjustment expenses 2 excl. loss adjustment expenses 3 IAS figures, before consolidation
Key figures for life, core in CHF million 2002 2001 + /– %
Gross premiums, incl. deposits under policyof which health insurance 906 865 + 4.7
24 multichannel distribution. Life insurance remained the favourite savings instrument for French households in 2002, although premium volume only expanded by around 1%. Premium growth was 5% in the health insurance sector, mainly due to higher premiums being charged. Swiss Life’s premium volume in France went up to EUR 3.3 billion in 2002, a growth rate of 10%.This was clearly above the expansion of the market as a whole and resulted in a further increase in the company ’s market share. The growth in premiums was generated above all by the subsidiary Société suisse vie, whose premium volume expanded by 33% to EUR 1 billion. The strong advance has been mainly driven by above-average policyholder bonuses, at a level of 7%. These bonuses are drawn from profits on an earlier transaction financed by policyholders ’ funds. Under French law, such profits must be distributed to the policyholders within a period of eight years.
Staff cuts proceeded according to plan, with full-time equivalents reduced by around 5%.
Key figures for France1 in EUR million 2002 2001 +/– %
Gross premiums, incl. deposits under policyof which individual insurance 1 870 1 498 +24.8 of which group insurance 452 572 – 21.0 of which health insurance 939 907 + 3.5 1 IAS figures, before consolidation 2 incl. loss adjustment expenses 3 excl. loss adjustment expenses
25increase. In 2002 market growth in life insurance business as a whole was around 5%. The market, which is still very fragmented, was for a long time characterised by promises of high bonuses, which were financed to some extent by capital gains from the good stock market years. Following the sharp drop in these gains, the level of the promised bonuses has also fallen considerably: the thirty largest companies have reduced their promised bonuses, which stood at 6.1% last year, to an average of 4.8% for 2003.
2002 was a year of strategic reorientation in Germany as well. The first half of the year saw a number of strategic options being examined, followed in September 2002 by a clear commitment on the part of the Swiss Life Group to the German market.
Gross premiums (including deposits under policyholder investment contracts) dropped to EUR 1.1 billion (down 2%). This fall is a result of the large reduction in bonuses; the premiums earned which were not affected by this rose by 2%. Individual insurance, with a premium volume of EUR 860 million, experienced a 7% drop in premiums, which was mostly due to the decrease in demand for single premium contracts resulting once again from the reduction in bonuses. Premium income from group insurance rose by 17% to EUR 244 million. The “Credit Life” product (creditor’s insurance) also contributed to this increase. Benefits paid including the change in reserves fell within the expected range of 9%, mainly due to the reduction in bonus distributions. The company made significant progress in managing costs. More efficient procedures led to the elimination of seventy positions.The new Internet portal for brokers which was introduced in 2002 made it easier for brokers to provide customers with advice, supported broker training and simplified the processing of insurance policies. This all served to underline Swiss Life’s reputation amongst brokers as a service leader.
Gross premiums, incl. deposits under policyof which individual insurance 860 921 – 6.6 of which group insurance 244 208 + 17.3 of which variable acquisition costs 81 119 – 31.9 of which administrative costs 118 198 – 40.4
Expenses came to EUR 124 million, a reduction of 5%. Leaving aside an additional amortisation of deferred acquisition costs of EUR 5 million, costs declined by 9%. Swiss Life has taken many measures to improve and streamline its processes and systems in connection with the functional organisation introduced during the year under review. The introduction of a software package for customer relationship management and the launch of an extranet for brokers are aimed at strengthening connections with customers and brokers. In the Netherlands, the organisaton will continue to
Key figures for the Netherlands11 in EUR million 2002 2001 +/– %
Number of employees 790 862 – 8.4 1 IAS figures, before consolidation 2 incl. loss adjustment expenses 3 excl. loss adjustment expenses
Swiss Life intends to systematically exploit the synergies between Belgium and Luxembourg on both the cost and the revenue side in 2003. Above all, this applies to cross-border business, which has so far been below average in terms of market share. The restructuring which got underway in Belgium in the period under review will be concluded during the course of 2003.
focus on developing and expanding its brand in 2003. New pension insurance products for private customers will be introduced to respond to changes in the market and customers’ needs. The company acquired a small pension fund in January 2003. The impact of this acquisition corresponds to a single premium of around EUR 570 million. The future is likely to offer more such opportunities for profitable growth.
Belgium/Luxembourg Swiss Life enjoys a strong position in the group insurance market in Belgium and Luxembourg, ranking sixth in Belgium and first in Luxembourg in 2001. For the life insurance market as a whole, Swiss Life was in ninth place in Belgium and eleventh in Luxembourg that same year. Some 46% of its premium income in Belgium was generated via the broker channel; the corresponding share of direct sales came to 23% in Belgium and 57% in Luxembourg.
With a good third of the market, Swiss Life Network remained the leading provider of group insurance for multinationals in the year under review. The Swiss Life Group has been the clear market leader since introducing the pooling concept 42 years ago. Although the price war in this market led to increased competition, and stagnating salaries and staff numbers amongst its customers cut into premium volumes, business volume continued to expand to almost CHF 2 billion.
Brazil Icatu Hartford Seguros Canada Canada Life Chile Cruz del Sur Columbia Seguros Bolívar Guatemala Seguros de Occidente Mexico Seguros Inbursa Panama Aseguradora Mundial de Panama USA Hartford Life
Austria Wiener Städtische Belgium Swiss Life (Belgium) Czech Republic Kooperativa Denmark Danica Pension
Yasuda Life Korea Korea Life Malaysia Hong Leong Assurance New Zealand Hannover Life Re of Australasia Philippines First Guarantee Life Singapore NTUC Income Taiwan Kuo Hua Life Thailand Bangkok Life Assurance
One-off impacts were responsible for the 166% rise in operating costs to a total of CHF 194 million. These included, in particular, pension fund reserves and an additional amortisation of deferred acquisition costs. Adjusted for one-off impacts, costs remained at the same level as the previous year. «La Suisse» Vie’s assets under management rose by 2% to CHF 5.8 billion. Equity exposure stood at 0% at the end of the year.
In autumn 2002 the Swiss Life Group announced that «La Suisse» no longer formed part of the Group’s core business. This decision will be reviewed by the summer of 2003 in the context of a general analysis of the Group’s positioning in the Swiss market.
Swiss Life once again captured a good share of the exteriorización business (the legally required transfer of on-balancesheet employee benefit liabilities and pension obligations to insurance policies or employee benefits institutions) and significantly increased the number of clients and contracts.
Italy Swiss Life in Italy also focused on the occupational provisions market.
Premium growth was influenced by a decrease in individual business (no sales network to develop new business). On the other hand the retention rate for group life business was very positive. The claims ratio on the whole portfolio, as in the past, is still low. Since 2001 great efforts have been undertaken to streamline administration procedures by implementing IT projects.
Non-life business provides sales support for the life business, and serves to maintain and strengthen certain distribution channels. It is not, however, a core business for the Swiss Life Group. Considering various structural changes made in 2002, the figures for 2001 have been adjusted to facilitate comparisons.
In 2003 the focus will be on defining a strategic solution for property insurance business in France and Belgium.
Key figures for non-life in CHF million 2002 2001 +/– %
The private banking segment’s income statement showed a loss of CHF 109 million (after inter-segment dividends). This represented a decline in profit of approximately CHF 209 million compared to the previous year. It was primarily the result of extraordinary write-downs, valuation adjustments and the strengthening of provisions at Banca del Gottardo.
The private banking segment, composed mainly of the companies Banca del Gottardo and Schweizerische Treuhandgesellschaft (STG), reported a loss of CHF 109 million. This figure is largely attributable to extraordinary write-downs, valuation adjustments and higher provisions at Banco del Gottardo. Assets under management totalled CHF41.5 billion on 31 December 2002.
Key figures for private banking in CHF milllion 2002 2001 +/– %
Banca del Gottardo In a business year marked by the persistence of difficult economic conditions, Banca del Gottardo generated gross income of CHF 447 million, a decline of 8% compared to the previous year (all figures in this section on statutory basis). This was largely the result of a drop in revenue from commissions and services. Operating expenses fell by around 3% to CHF 335 million. The cost-reduction programme introduced in 2001 has begun to show results and will achieve its full effect in the 2003 financial year with a planned reduction of CHF 50 million. Gross profit came to CHF 112 million, a decline of 20%.
In view of the markets’ performance and changed expectations, all positions on the asset side of the balance sheet were reviewed during the course of 2002. The reassessment of various items led to extraordinary write-downs, adjustments and provisions totalling CHF 200 million. Banca del Gottardo made substantial adjustments to goodwill in the investment portfolio, in its own real estate and on Westdeutsche Landesbank (Schweiz) AG, which it acquired in 2000. This resulted in a loss of CHF 160 million. Customer assets under management declined by 14% compared to the previous year to stand at CHF 36.8 billion. Around CHF 1 billion of this derived from the sale of the asset management company Gesfid SA; a further CHF 2 billion was withdrawn in connection with the Italian tax amnesty. The greatest part of the decline was caused by the continuing poor performance of the markets and a weakening of the euro and US dollar against the Swiss franc. Consolidated equity stood at CHF 830 million on 31 December 2002.
Schweizerische Treuhandgesellschaft SchweizerischeTreuhandgesellschaft (STG) also suffered as a result of the weak economy and negative developments on the stock markets in 2002.
Income from services declined during the year under review by 3% to CHF 104 million (all figures in this section on statutory basis). Income from fiduciary and management fees was 11% lower than for the preceding year. Only the income from commissions increased, rising by CHF 2 million to CHF 52 million.
Operating expenses was CHF 3 million higher at CHF 94 million. During the course of the year, the number of staff was reduced by 65 to 329.
Assets managed by STG at the end of 2002 amounted to CHF 5 billion. This is CHF 1.8 billion lower than in the previous year.
Asset managers had to contend with an unfavourable environment in which share markets performed poorly throughout the year under review. The investment management segment nevertheless generated a profit of CHF 105 million in 2002. Income from fiduciary and management fees declined by 10% year-on-year. The most important reasons for this were the sale of Swiss Life Hedge Fund Partners Ltd, the low level of purchases and sales in real estate while Swiss Life was developing its new strategy, and reductions in the equity exposure in its investment portfolio. In spring 2002 the Corporate Executive Board introduced a Group-wide cost-cutting programme. Within this framework staff costs were continually reduced up to the end of the year. Project activities and expenses for consultants were also sharply curtailed. The full effects of these cuts will be visible in the income statement for 2003.
Key figures for Investment Management in CHF million 2002 2001 +/– %
The most important companies to fall within the scope of consolidation are presented on pages 73 to 77.
Shareholders On the balance sheet date, the group represented by Premafin Finanziaria S.P.A.
Holding di Partecipazioni (consisting of Fondiaria-SAI S.P.A., Florence; Fondiaria Nederland BV, Amsterdam; and Milano Assicurazioni S.P.A., Milan) held a 10.05% stake in Swiss Life Holding. Credit Suisse Group holds, directly and indirectly, 5.74% of Swiss Life Holding shares.
Swiss Life Holding held 8.1% of its own registered shares, directly or indirectly via its subsidiaries Swiss Life/Rentenanstalt, Banca del Gottardo and Swiss Life Funds AG. Following the issue of mandatory convertible securities (MCS), 7.5% of this total was earmarked for the allocation reserve required to carry out the eventual compulsory conversion of the MCS into shares of Swiss Life Holding (c.f. details in the Capital structure section). No cross-participations exceeding the 5% threshold exist between Swiss Life Holding or its subsidiaries and other limited companies.
Capital and changes in capital Swiss Life Holding was established in September 2002 with a share capital of CHF 250 000 divided into 5 000 registered shares, each with a par value of CHF 50. By 6 November 2002, in the course of the public exchange offer made to holders of Swiss Life/Rentenanstalt shares, a total of 10 834 704 Swiss Life/ Rentenanstalt registered shares with a par value of CHF 50 each had been tendered to Swiss Life Holding and exchanged for an equal number of Swiss Life Holding registered shares, also with a par value of CHF 50 each. With the successful capital increase that followed, in which existing shareholders were granted negotiable subscription rights, the ordinary share capital of Swiss Life Holding rose to CHF 1083 970 400, divided into 21679 408 fully paid-up registered shares with a par value of CHF 50 each.
The Swiss Life Holding General Meeting of Shareholders also approved the creation of conditional capital of no more than CHF 270 992 600 through the issuance of a maximum number of 5 419 852 registered shares to be paid in full, each with a par value of CHF 50. In December 2002, following the capital increase, a minimum
The ambitious programmes to strengthen corporate governance and enhance transparency were further intensified in 2002. The information that follows is provided in accordance with the Directive on Information Relating to Corporate Governance issued by the SWX Swiss Exchange, which came into force on 1 July 2002.
42 nees. Professional asset managers may also be registered if, in a fiduciary capacity, they have deposited shares of Swiss Life Holding for the account of third parties with Swiss or foreign banks or securities brokers in their own name. It is essential that nominees are subject to banking or financial market supervision.To register as a nominee, the appropriate application must be filed. The voting rights of nominees are restricted to 10% of the share capital, whereby nominees who are connected under uniform management or contractual agreement will be counted as a single shareholder with regard to capital or voting rights. The Board of Directors may approve exceptions to these restrictions on registration, observing the principle of free decision-making based upon a due assessment of the circumstances. No such exceptions were granted during the period under review.
Convertible bonds and options Mandatory convertible securities issued by Swiss Life Cayman Finance Ltd. for conversion into registered shares of Swiss Life Holding, and amounting to CHF 250 000 000, remained outstanding on the balance sheet date. The specific conditions attached to the MCS, and further applicable details, can be found on page 55 of the Financial Statements, as well as in the offer prospectus of 9 December 2002, published separately.
number of 1768 535 registered shares with a par value of CHF 50 each were issued in connection with mandatory convertible securities (with pre-emptive subscription rights for existing shareholders). As a result, the ordinary share capital expanded by CHF 88 426 750, from CHF
Further information concerning the Group’s capital structure and the capital increase can be found in the Financial Statements, starting on page 5, and in the offer prospectus for the capital increase of 18 November 2002, published separately.
Shares The share capital of Swiss Life Holding comes to CHF 1172 397150, divided into 23 447 943 fully paid-up registered shares, each with a par value of CHF 50. Each share is entitled to one vote at the General Meeting of Shareholders. Information on restrictions on voting rights under the Articles of Association can be found in the section on Shareholders’ participation rights on page 51.
Function The Board of Directors has a key role in public limited companies. It is responsible for all matters that are not reserved for the consideration of the General Meeting of Shareholders (formally the supreme decision-making body of a public limited company) under the terms of Art. 698 of the Swiss Code of Obligations (OR) or of the company’s Articles of Association. In addition to its non-transferable duties (stipulated in Art.716a of the Swiss Code of Obligations) the Board of Directors is answerable, in particular, for the strategic management of the company. This area is the responsibility of the Board of Directors alone.
Elections and terms of office In accordance with the Articles of Association, the Board of Directors shall consist of no fewer than five and no more than fourteen members. Individual members of the Board are elected by the General Meeting of Shareholders for a term of office not exceeding three years. This is initially done on a staggered basis, so that, as far as possible, equal numbers are reelected each year. If a member departs during his or her term of office, a successor will serve for the rest of that term. The Organisational Regulations stipulate that a member of the Board of Directors shall automatically resign from the Board at the Annual General Meeting of Shareholders in the year in which he or she reaches age 70.
Composition The Board of Directors of Swiss Life Holding currently consists entirely of non-executive directors with no duties related to operational management within Swiss Life Holding, and who have not exercised such duties during the past three financial years. No member of the Board moreover has any significant business relationship with Swiss Life Holding, Swiss
Vice Chairman BoD – Givaudan AG, Vice Chairman BoD – MCH Swiss Exhibition Ltd,
Mr Rossi took a seat on the Swiss Life/ Rentenanstalt Supervisory Board in 1988. After being appointed to the Supervisory Committee in 1994, he was named First Vice Chairman of that body as well as of the Supervisory Board. In 1997 he was chosen to be First Vice Chairman of the Board of Directors and the Board of Directors’ Committee. He joined the Finance Committee in that same year. In November 2002 he was elected as First Vice Chairman of the Board of Directors of the newly established Swiss Life Holding.
44 Other appointments: – Belimed AG, Chairman of the Board – EBN Immobilien AG,
Chairman of the Board – Landis Bau AG, Member of the Board – Rapid Holding AG,
Other appointments: – Takeover Board, Board Vice Chairman – Foundation Novartis for Mangement
Other appointments: – Vereinigung Schweizer Unternehmen in Deutschland (VSUD/Association of Swiss Companies in Germany), domiciled in Basel, Vice Chairman of the Board
Council of the Canton of Schaffhausen – Member of the National Council since 1991 – 2001/2002 President of the Liberal
Mr Coutau will be resigning his position on the Board of Directors of Swiss Life Holding with effect from the Annual General Meeting of Shareholders on
Gazette de Lausanne, Chairman BoD and Chairman of the Board of Trustees of the employee benefits foundation
– Bank Leu AG, Member BoD – DMI Administrative Services SA,
Member BoD – «LaSuisse» Vie, Member BoD – «La Suisse» Accident, Member BoD – Le Temps, Member BoD and Board of Trustees of the employee benefits foundation
Maria Luisa Garzoni Born 1936 Swiss Member of the Board Maria Luisa Garzoni completed her studies in architecture and hotel management in 1957. From 1957 to 1962 she was manager of the hotels Livadia and Livadia am See. She has been Managing Director, and a Member of the Board of the familyowned company Garzoni SA since 1963. She joined the Supervisory Board of Swiss Life/Rentenanstalt in 1988. She was appointed to the Board of Directors of Swiss Life/Rentenanstalt in 1997. In 1990 she became a Member of Boards of Trustees for the company’s own employee benefits foundations. In November 2002 Ms Garzoni was subsequently elected to the Board of Directors of the newly established Swiss Life Holding.
– Gerber Cheese Co. Ltd, Member BoD – Swiss Farmers’ Union, Board Member – Board Member and Chairman of various agricultural organisations – Bank Linth, Member of the Board of
Directors and of the Board of Trustees of both the Employee Benefits Foundation and the Welfare Foundation
46 – «La Suisse» Vie, Chairman of the Board – «La Suisse» Accidents, Chairman of the Board – Serono SA, Chairman of the Board – SGS Société Générale de Surveillance
Member BoD – Banca del Gottardo, Member BoD – Schindler Elevator Ltd., Member BoD – yousports.com SA, Member BoD – Actafinance SA, sole Director – Lavotel SA, sole Director – Télémédicine SA, sole Director – Vaudoise Chamber of Commerce and
Industry, public office – Swiss Red Cross, public office – ISREC, Swiss Institute for
– “Fondation pour la création d’un musée des beaux-arts” in Lausanne, Chairman of the Board
During the review period the following Members of the Board of Directors stood down with effect from the Annual General Meeting of 24 May 2002: Christine Beerli (Member of the Supervisory Board/Board of Directors 1993 –2002) Pierre de Chastonay (Member of the Supervisory Board/Board of Directors 1985 –2002) Albert Eggli (Member of the Supervisory Board/Board of Directors 1992–2002)
Other appointments: – Givaudan Ltd, Chairman of the Board – HBM Bioventures AG,
Chairman of the Board of Trustees – EUFRA Holding AG, Member BoD – Grand Hotel Victoria Jungfrau AG,
In 1964 he joined the Swiss Federal Tax Administration, and has been a partner with the law office of Bourgeois, Muller, Pidoux & Associés since 1975. From 1984 to 2000 he was an Extraordinary Professor at the University of Lausanne. Mr Muller was elected to the Supervisory Board of Swiss Life/Rentenanstalt in 1995 and in 1997 he became a Member of the Board of Directors. In November 2002 he was subsequently elected to the Board of Directors of the newly established Swiss Life Holding.
48 Michael Koller Born 1964 Swiss national Chief Risk Officer (CRO) since 1 October 2001 Michael Koller studied Mathematics at the Swiss Federal Institute of Technology (ETH) Zurich, receiving his Diploma in 1988 and his Doctorate in 1989. He also qualified as an accredited pension actuary, gaining his Swiss Federal Diploma in 1998. He was an Assistant in the Mathematics Department of the ETH Zurich before joining Swiss Life/Rentenanstalt in 1993, since when he has held a number of leading actuarial positions within the company. In October 2001 he became head of the new Actuarial & Financial Techniques division. In addition, since October 2002 Mr Koller has also been responsible for the Swiss Life Group’s Products division and was promoted to the position of Chief Risk Officer (CRO) with effect from January 2003. Since July 2002 he has been Professor of Life Insurance Mathematics at the Swiss Federal Institute of Technology Zurich. He has served on various professional bodies and is the author of a large number of publications. Michael Koller is married with two children.
Bruno Pfister Born 1959 Swiss national Chief Financial Officer (CFO) since 1 August 2002 Bruno Pfister graduated from the University of Geneva with a Master’s Degree in Law before being called to the Bar of Geneva. He then turned his attention to business management studies, earning an MBA from the Graduate School of Management in Los Angeles. The initial stages of his career saw Mr Pfister work for Chase Manhatten Bank in London and Geneva. From1988 onwards he was a Management Consultant for McKinsey & Co. In 1996 Mr Pfister became Chief of Staff of the Private Banking division at Liechtenstein Global Trust (LGT) where he managed a global strategic project before being appointed Chief Financial Officer of LGT Bank, Liechtenstein in 1998. In 1999 he took over as Head of Customer Segment and Product Management at Credit Suisse. Bruno Pfister has been CFO of the Swiss Life Group since mid-August 2002. He is married. Other appointments: – Member of the Board of Directors of Telekurs-Holding Ltd (May 2000–May 2003)
Martin Senn Born 1957 Swiss national Chief Investment Officer (CIO) since 1 January 2003 Martin Senn studied Commerce before graduating from Management courses at INSEAD, Fontainebleau and the Harvard Business School, Boston. He worked at the former Swiss Bank Corporation from 1976 to1994, where his positions included Treasurer in Hong Kong and Regional Treasurer for Asia/Pacific in Singapore, before ultimately managing the company ’s Tokyo office. In 1994 he moved to Credit Suisse where his many executive roles included that of Regional Treasurer for Europe and Turnaround Manager with a mandate to restructure and reposition all legal entities of Credit Suisse Group in Japan. A member of the Credit Suisse Executive Board, he was appointed Head of its Trading and Investment Services Division in 2001. Mr Senn has been Chief Investment Officer of the Swiss Life Group since 1 January 2003. He is married with two children.
– Member of the Board of Directors of Nomura Bank (Switzerland) Ltd., Zurich (since 2002)
49René van der Smeede Born 1948 Dutch national Head of International Markets since 1 January 2003 René van der Smeede obtained a university degree as Qualified Actuary in 1976. Until 1984 he worked for the Dutch insurers ENNIA, subsequently heading their subsidiary in Spain as Director. He then went on to hold various management positions at the Dutch insurance company AEGON, serving on their Executive Board in the Netherlands for ten years. In 1998 he became CEO of Swiss Life Netherlands (ZwitserLeven). René van der Smeede was named acting Head of the new International Markets division of the Swiss Life Group in November 2002. He became a Member of the Corporate Executive Board on1January 2003. He has served as Vice President of the Netherlands Actuarial Association, President of the Netherlands Association of Life Insurers and was a Board Member of the Dutch Association of Insurers from 1993 to1998. René van der Smeede is married.
Reto Himmel Born 1956 Swiss national Chief Information and Technology Officer (CTO) since 15 January 2003 The physicist Reto Himmel (Master’s Degree in Physics, Swiss Federal Institute of Technology (ETH) Zurich, 1982) graduated from the Harvard Business School in1987 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, playing an active role in the bank’s turnaround.
The following members of the Corporate Executive Board resigned their seats in the course of 2002: Manfred Zobl (as of 28 February 2002)
Head of International Division Dominique Morax (as of 30 September 2002)
Share allotment in the year under review Swiss Life Holding shares were allocated to members of the Board of Directors and the Corporate Executive Board as follows during the 2002 financial year: Board of Directors 665 shares Corporate Executive Board 800 shares
No shares were allocated to parties closely linked1 to such persons within the meaning of the law.
1 “Closely linked parties” are natural persons and legal entities pursuant to Art. 678 of the Swiss Code of Obligations that have close personal, economic, legal or de facto ties with members of governing bodies. This typically includes spouses, minor children, companies controlled by the member of the governing body and natural or legal persons serving the member of the governing body in a fiduciary capacity.
Share ownership Members of the Board of Directors and the Corporate Executive Board (including closely linked parties) held a total number of shares on the balance sheet date as follows: Board of Directors 17 868 shares Corporate Executive Board 330 shares
Compensation paid to acting members of governing bodies Compensation paid to incumbent members of the Board of Directors and the Corporate Executive Board during the period under review was as follows: Board of Directors CHF 1 214 000 Corporate Executive Board CHF 7 138 976
No additional severance payments beyond those contractually agreed were made to those members of the Board of Directors who left during the period under review.
Compensation for former members of governing bodies Compensation of CHF 262 840 was paid to members leaving the Corporate Executive Board prior to the period under review in accordance with contractual agreements for payment of salary. No compensation was paid to former mem-
In connection with the exchange of Swiss Life/Rentenanstalt shares for shares of Swiss Life Holding, the parameters of the corresponding options have been adjusted in accordance with Eurex guidelines.
Option life: 5 years Vesting period: 3 years Subscription ratio: 1.39 Exercise price: CHF 257.13
Option life: 5 years Vesting period: 3 years Subscription ratio: 1.39 Exercise price: CHF 784.88
Restriction on voting rights In exercising voting rights, no shareholder can collect more than 10% of the total share capital directly or indirectly in respect of his/her own shares and those he/she represents. Legal entities and partnerships which are connected through capital, voting rights, uniform management or in any other way, as well as individuals or legal entities and partnerships which act in concert by virtue of agreement, syndicate or in any other way, are deemed to be one person.
Any amendment to or revocation of restrictions on voting rights must be approved by at least two thirds of the voting shares represented at the General Meeting of Shareholders and an absolute majority of the share par value represented. During the year under review, Swiss Life/Rentenanstalt’s 10% restriction on voting rights was lifted on the occasion of the Extraordinary General Meeting of Shareholders on 23 October 2002 to enable Swiss Life Holding to exercise in full the voting rights acquired upon completion of the public exchange and assume its function as a Group holding company in actual practice.
Right of representation The Articles of Association stipulate that a shareholder may be represented only by another shareholder, a legal representative, a management representative, independent voting representative or a representative of deposited shares. Married persons may also be represented by their spouses, who are not required to be shareholders.
Loans On the balance sheet date the following loans to members of the Board of Directors and Corporate Executive Board were outstanding in the form of mortgages: Board of Directors CHF 1 400 000 Corporate Executive Board CHF 700 000
Entry in the share register Entries can be made in the share register up to, but not including, the day before the General Meeting of Shareholders (AGM). In all cases, however, the company reserves the right to adhere to the legal maximum period of 20 days for refusal to recognise entries in the share register in accordance with Art. 685g of the Swiss Code of Obligations. For administrative reasons (mail delivery times) the deadline for registering to participate in the General Meeting of Shareholders is usually seven calendar days before the meeting takes place.
In the report of the Group Auditors, PwC confirms that it meets the legal requirements concerning professional qualification and independence.
Duration of the mandate and term of office of the lead auditor At the time Swiss Life Holding was established in 2002, PwC was named as Group Auditor and was charged with reviewing the figures for the first financial year. The Articles of Association stipulate that the External Auditor is to be elected by the General Meeting of Shareholders for one financial year at a time. PwC has served as Group Auditor for Swiss Life/ Rentenanstalt since 1994.
The lead auditor, Peter Brand of PwC, was first charged with reviewing the consolidated financial statements of Swiss Life/ Rentenanstalt (and now Swiss Life Holding ) in 1997.
Voting system To ensure that decisions of the shareholders at the AGM are recorded correctly, Swiss Life Holding uses a certified electronic voting system which it helped develop. This records the exact number of proxy votes and permits balloting supported by remote-controlled handsets.
Duty to make an offer Swiss Life Holding’s Articles of Association provide for neither an “opting up” nor an “opting out” clause within the meaning of Art. 22 and 32 of the Stock Exchange Act.
Clause on changes of control No agreements exist in favour of the Board of Directors or the Corporate Executive Board for cases concerning changes in control of the company.
53At least once a year, a joint meeting will be held with the External Auditors, the internal auditors and the responsible members of the Board of Directors. The Audit Committee met four times during the 2002 financial year. The lead auditor from PwC took part in these sessions.
Information policy In addition to its comprehensive Annual Report and Financial Statements, Swiss Life Holding also reports its half-year results. All Annual Reports and HalfYear Reports of Swiss Life Holding and Swiss Life/Rentenanstalt from 1997 onwards can be accessed via the homepage www.swisslife.com. Twice a year, a Letter to Shareholders with important facts and figures is sent to all those recorded in the share register.
On the stock markets 2002 was a year of great insecurity and a conspicuous lack of investor confidence. Along with unexpectedly sluggish economies, recurring fears of a new Gulf war became the primary reason for the great reluctance to invest. Negative reports from a variety of major enterprises worldwide also fuelled the fundamentally poor mood of the markets. Many of the indices continued their nosedive against this background. For example, the Swiss Market Index (SMI) recorded a slide of around 28% in 2002; the Dow Jones Euro Stoxx 50 shared a similar fate, falling by 36%, and the Dow Jones Industrial Index was down17%. The insurance industry was hit harder than other financial service providers by this disappointing environment. The negative trend on the stock markets had an adverse effect on insurance company balance sheets and caused their profit outlook to deteriorate. In addition, the continued fall in interest rates impacted negatively on the profit situation of insurers. The Swiss Performance Insurance Index fell by 52% for the year. Similar losses were suffered by the Dow Jones Euro Stoxx Insurance Index, which slipped by 51%, the MSCI Europe Insurance Index, down 43% (in US dollars), and the S&P 500 Insurance Index, which fell by 22%.
Swiss Life shares declined in value by 85% in the course of the year. This disappointing development was due in part to the state of the industry as a whole and in part to factors specific to the company itself. The causes include the debate on the reduction of the minimum interest rate for occupational benefits in Switzerland, controversy surrounding the top management and the disclosure of two accounting errors.These events resulted in a widespread loss of confidence among investors in 2002.
Dividends – – 1 based on the Swiss Life Holding share (SLHN), adjusted 2 based on the Swiss Life/ Rentenanstalt share (RAN)
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