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Contents 4 Facts & Figures 6 Shareholders’ Letter 8 Summary of Group Results 12 Segment Reporting 26 Corporate Governance 31 Board of Directors 43 Corporate Executive Board 48 Report on Compensation 64 Risk Management 66 Market Consistent Embedded Value (MCEV) 68 Introduction 70 Summary of MCEV Results 79 Information by Market Unit 86 Methodology 93 Assumptions 98 Auditor’s Report on Embedded Value 100 Glossary and List of Abbreviations 104 Consolidated Financial Statements 106 Consolidated Statement of Income 107 Consolidated Statement of Comprehensive Income 108 Consolidated Balance Sheet 110 Consolidated Statement of Cash Flows 112 Consolidated Statement of Changes in Equity 113 Notes to the Consolidated Financial Statements 224 Report of the Statutory Auditor 226 Swiss Life Holding Financial Statements 227 Review of Operations 228 Statement of Income 229 Balance Sheet 230 Notes to the Financial Statements 247 Appropriation of Profit 248 Report of the Statutory Auditor 250 Share Performance and Historical Comparison
The Swiss Life Group’s 2012 financial year at a glance: Course of business — Swiss Life increased its adjusted profit from operations by 26% over the previous year to CHF 993 million in 2012. This was driven by operational improvements and an excellent investment result. Net profit came to CHF 93 million (2011: CHF 606 million) as a result of one-off effects, in particular the impairment in the value of AWD’s intangible assets of CHF 578 million. Swiss Life maintained its focus on profitability and grew in strategically important business areas. The Group generated overall premium volume of CHF 17.0 billion compared to CHF 17.1 billion in the previous year.
Markets — The Swiss Life Group operates in Switzerland, Germany and France and has competency centres in Luxembourg, Liechtenstein and Singapore. Swiss Life Select (formerly AWD), tecis, HORBACH, Proventus and Chase de Vere advisors use the Best Select approach in various European markets to choose suitable products for customers. Swiss Life Asset Managers offers institutional and private investors in Switzerland and France access to investment and asset management solutions.
Workforce — Around 7000 employees and approximately 4500 certified financial advisors were working for the Swiss Life Group worldwide at the end of 2012.
Swiss Life proved its mettle in 2012 in two respects. Firstly, Swiss Life again improved its operational effectiveness. Secondly, through our new Group-wide programme “Swiss Life 2015” we have set the course for further profitable growth.
In the 2012 financial year premium income remained at the prior-year level in spite of the adverse market conditions and low interest rate environment. With an investment performance of 8.5% (2011: 7.5%), Investment Management achieved an investment result of CHF 5.7 billion as well as an excellent, by peer comparison, net investment return of 4.8% (2011: 3.8%), which enabled further substantial strengthening of our technical reserves. In the year under review, shareholders’ equity rose by 12% to CHF 10.3 billion, while Group solvency climbed from 213% in 2011 to 242% by the end of 2012.
Swiss Life also proved itself in 2012 in terms of its corporate future. The Board of Directors and the Corporate Executive Board have set the course for Swiss Life for the next few years. We need to adapt our business model to the economic reality in light of the persistently record-low interest rates, far-reaching regulatory changes and financial market uncertainty – and this goes hand in hand with our ambition to create added value for customers, partners, employees and shareholders.
From now on Swiss Life will manage all its production and distribution organisations for each market under one roof to optimise market development, further improve advisory expertise and become more efficient. In this connection the companies which previously operated in the market as AWD will now operate under the brand name “Swiss Life Select”.
From a financial perspective, Swiss Life is committed to continuity and discipline in executing its objectives. On the one hand, we will focus on diversifying profit sources and enhancing earnings quality. On the other hand, we aim to further protect the balance sheet, steadily optimise in-force business and increase the profitability of new business. We aim to achieve a return on equity of 8% to 10% by 2015 and a new business margin of over 1.5%. Furthermore, we are targeting additional cost savings of CHF 130 to 160 million. In the context of diversifying profit sources, we are aiming for a 60% to 70% profit share from risk business, such as death and disability, and fee business.
Swiss Life posts 26% increase in profit from operations to CHF 993 million with net profit after one-off effects of CHF 93 million.
GROWTH IN THE STRATEGICALLY IMPORTANT BUSINESS AREAS Swiss Life once again grew in the strategically important business areas. Despite difficult market conditions, the company maintained overall premium volume of CHF 17.0 billion at its prior-year level. Performance in the home market of Switzerland was encouraging with growth of 2% to CHF 8.3 billion, driven by both corporate client business and private client business. Swiss Life in France generated stable premium income on a currency-adjusted basis of CHF 4.3 billion, which is encouraging in light of the 4% contraction in the market as a whole. In Germany too, Swiss Life held its position with premium income at CHF 1.7 billion; while single premiums edged down, periodic premiums were up 2%. The Insurance International segment, where premium income originates largely from global business with high net worth individuals, recorded a currency-adjusted decline of 4% to CHF 2.9 billion. AWD recorded a drop in sales of 13% to EUR 489 million. Assets under man-
HIGHER MARGIN AND STRONGER CAPITAL BASE Swiss Life made further advances in margin management: In 2012 the Group increased its new business margin from 1.2% to 1.4%. The value of new business improved from CHF 150 million in the previous year to CHF 158 million. Swiss Life has a solid capital base: In 2012, shareholders’ equity increased from CHF 9.1 billion to CHF 10.3 billion; the Group’s solvency ratio rose from 213% to 242%. On the basis of its internal model, which is still being reviewed by FINMA, Swiss Life’s SST ratio is in the green.
Financial result (without share of results of associates) 6 043 4 459 35.5%
ASSET ALLOCATION ON A FAIR VALUE BASIS AS AT 31 DECEMBER (INSURANCE PORTFOLIO AT OWN RISK) Amounts in CHF million equity securities and equity funds 2 158 1.7% 2 602 2.2%
In 2012 Swiss Life generated an overall segment profit from operations of CHF 346 million (2011: CHF 699 million). The result was impacted by one-off effects, especially the impairment of AWD’s intangible assets. Adjusted profit from operations rose 26% to CHF 993 million.
Swiss Life not only reports its insurance business by country (Switzerland, France and Germany), it also discloses separately the results of its cross-border segments Insurance International, Investment Management and AWD. The company posted a profit of CHF 634 million in its home market Switzerland, CHF 157 million in France and CHF 69 million in Germany. The Investment Management segment achieved a result of CHF 138 million. AWD and Insurance International both underperformed. AWD’s operating result fell to EUR 40.3 million in a very challenging market environment and was also affected by provisions for litigation. The outcome was an EBIT of EUR 1.6 million. Taking into account the impairment of intangible assets, this gives a segment loss for AWD of CHF 591 million. Insurance International posted a CHF 34 million loss, mainly due to impairment of the customer relationship asset and restructuring costs.
Long-term initiatives, such as the reduction of risks on the investment side, further optimisations in the multichannel distribution strategy and the renewed sustained cost reduction made a major contribution to the encouraging result. The financial result increased to CHF 4.2 billion and direct investment income rose 3% to CHF 3.0 billion.
Swiss Life – Annual Report 2012 insurance france Swiss Life in France increased its segment result to CHF 157 million (2011: CHF 124 million). This significant growth is attributable to the rate increases made in 2012, an improved financial margin despite the uncertain financial market environment, cost discipline and the resultant operational efficiency gains.
The general French market for personal insurance contracted by 6%, principally driven by the 8% decline in savings and retirement provisions. Health, death and disability insurance, as well as property and casualty, on the other hand, grew by 4%. Swiss Life outperformed the market, generating currencyadjusted premium volume of CHF 4.3 billion, close to the previous year’s performance. The company benefited from its diversified operations and its good positioning in life insurance business with high net worth individuals. In savings and retirement provisions the company again generated good quality net inflows in a relatively sharply declining market. The share of premiums generated by unit-linked contracts stood at well above the market average (28% compared to 13% for the market), primarily due to the good positioning, the dynamics of the different distribution networks and a differentiated bonus policy. Rate adjustments and better persistency led to growth in a hard fought market of 2% in health, death and disability insurance and 4% in property and casualty in local currency terms. Swiss Life Banque Privée also posted a positive result confirming its successful strategic focus.
net earned premiums and policy fees 2 650 2 374 11.6%
Swiss Life – Annual Report 2012 insurance germany Swiss Life in Germany posted a segment result in 2012 of CHF 69 million (2011: CHF 58 million). This increase is primarily attributable to the improved financial result as well as cost savings. Swiss Life also grew periodic premium business, thereby securing sustainable income.
In 2012 Swiss Life generated premium volume of CHF 1.7 billion, almost equivalent to the prior-year level (–0.4% in local currency). Occupational pensions business was very successful. The long-term care product launched at the beginning of 2012 was well accepted by the market. Insurance benefits and policyholder participation rose by 1.5% overall in the year under review, chiefly due to the increase in policyholder participation to CHF 334 million on the back of the higher financial result. Operating expenses were up 13% (16% in local currency) particularly as a result of additional amortisation of acquisition costs. At the same time new business premiums fell by 7% (in local currency) to CHF 440 million.
GroSS wrItten PremIumS, PolICy FeeS And dePoSItS reCeIved 1 692 1 739 –2.7%
Swiss Life – Annual Report 2012 insurance international The Insurance International segment serves international high net worth individuals (PPLI) and multinationals (Corporate Clients).
In the year under review the segment made a loss of CHF 34 million compared to a loss of CHF 10 million in the previous year. This decline is attributable to restructuring costs (CHF 7 million) and impairment of the customer relationship asset (CHF 17 million). Underlying this development is the concentration on two instead of three locations for business with high net worth individuals. The third location, the representative office in Dubai, was closed during the year under review. Adjusted for these one-offs, the segment result is close to the prior-year level. Gross written premiums, policy fees and deposits received came to CHF 2.9 billion in 2012 (2011: CHF 3.0 billion).
The PPLI area specialises in life insurance for high net worth individuals and has built up a presence in Liechtenstein, Luxembourg, Singapore and Switzerland. At CHF 2.7 billion, gross premium volume in 2012 was only slightly lower than the previous year’s figure of CHF 2.8 billion despite the sustained low interest rate environment. The uncertainties in private banking continued to affect business, especially in the Swiss market and in Liechtenstein.
As part of the Group-wide programme “Swiss Life 2015”, the AWD companies in the UK, Austria, the Czech Republic and Poland joined the Insurance International segment on 1 January 2013 and now come under the umbrella of the International market unit with PPLI and Corporate Clients.
GroSS wrItten PremIumS, PolICy FeeS And dePoSItS reCeIved 2 892 3 033 –4.6%
other income 0 –1 n/a net insurance benefits and claims –18 –19 –5.3%
Swiss Life – Annual Report 2012 investment management The Investment Management segment comprises Group-wide institutional asset management activities. At CHF 138 million, the 2012 result was CHF 8 million up on the previous year. This equates to an increase of 6%. Thanks to new asset inflows and positive market developments, assets under management increased by a total of CHF 14 billion to over CHF 148 billion. Insurance assets climbed CHF 10 billion to almost CHF 128 billion. Assets invested in funds and third-party mandates grew by around CHF 4 billion. Thanks to a greater volume of assets under management, income rose by 12%. Operating expenses increased by 11% due to business expansion.
The expansion of third-party business led to a net inflow in assets under management of over CHF 2 billion. One notable event in the year under review was a new investment opportunity offered in real estate in cooperation with the insurance units. In addition, the real estate management subsidiary Livit won a number of new mandates.
Swiss Life – Annual Report 2012 awd The AWD Group posted an adjusted operating result in 2012 of EUR 40.3 million compared to EUR 54.2 million the previous year. The company’s operating result (EBIT) was affected by one-off effects, primarily caused by reserves for litigation. Factoring in these one-off effects, EBIT came to EUR 1.6 million. The segment result was adversely affected by impairments for goodwill, brand and the customer relationship asset of CHF 578 million. As a result the company posted a segment loss of CHF 591 million (2011: CHF –13 million).
In the core market of Germany, sales revenues fell to EUR 305.6 million (–18.6%). This development is largely attributable to cautious investment behaviour among customers caused by the difficult economic situation. This reticence among potential customers is also evident in the regions of Austria and Eastern Europe where sales revenues decreased by 11.6% compared to the previous year to EUR 56.9 million. Business in the UK showed a positive trend: sales revenues again improved, rising by 12.5% to EUR 54.8 million. AWD Switzerland generated revenues of EUR 71.2 million (–1.4%) in 2012.
At the end of 2012, the AWD Group had 4545 trained and registered financial advisors, as well as 2012 advisors in training under contract. The decline in the number of advisors from the previous year is chiefly due to stricter training and registration requirements within the financial services industry. Although this may quell growth in advisor numbers in the short term, it serves to improve the quality and sustainability of the advice provided in the medium term.
SeGment reSult –591 –13 n/a number of employees (full-time equivalents) 1 430 1 452 –1.5%
After revising its Code of Conduct in 2011 in the light of best practice, Swiss Life introduced a training programme in the year under review to further improve awareness of the values and principles of the Swiss Life Group (awareness concept). As part of the programme, Swiss Life employees regularly complete customised training courses. The Code of Conduct is available on the internet at www.swisslife.com, “About us” area, “Organisation” section, “Corporate Governance” subsection (www.swisslife.com/en/ codeofconduct). Information on the values of the Swiss Life Group can be found at www.swisslife.com, “About us” area, “Brand” section (www.swisslife.com/brand).
GROUP STRUCTURE The public limited company Swiss Life Holding was established in 2002 and is incorporated under Swiss law. Its registered office is located in Zurich and it has been listed on the SIX Swiss Exchange since 19 November 2002. Swiss Life Holding brings together all the Swiss Life Group companies and activities under a single holding company. The holding company structure makes it easier to effect investments, enter into partnerships or cooperation agreements and execute capital market transac­ tions. Transparency is also improved by separating the interests of shareholders from those of policy­ holders.
In the context of the new Group­wide programme “Swiss Life 2015”, which was announced at the Swiss Life Group’s Investors’ Day on 28 November 2012 (see www.swisslife.com/investorsday2012), the management structure was adapted in such a way that, also with reference to Switzerland and Germany, all production and distribution organisations in each market will be managed under one roof from 2013 following the joining together of Swiss Life and AWD. As a result, as of 1 January 2013, AWD is no longer a separate division. The adapted management structure is also shown on page 42.
Credit Suisse Funds AG, Kalandergasse 4, 8045 Zurich, Switzerland, reported in a publication of 5 December 2012 that it held 971 877 shares of Swiss Life Holding, equivalent to 3.029% of the voting rights and subsequently in a publication of 8 December 2012 that its shareholding had again fallen below the disclosure threshold of 3%.
SHAREHOLDER STRUCTURE On the balance sheet date a total of 178 688 shareholders and nominees were listed in the Swiss Life Holding share register, of which about 4200 were institutional shareholders. Taken together, the shareholders entered in the share register held around 54% of the shares issued. Over half of these shares were owned by shareholders domiciled in Switzerland. Around one third of the registered shares were in private hands.
On 6 May 2010 the General Meeting of Shareholders of Swiss Life Holding decided to reduce the par value by CHF 2.40 per registered share. Consequently, the share capital fell to CHF 307 978 118.40, divided into 32 081 054 fully paid registered shares with a par value of CHF 9.60 each, and the condi­ tional capital decreased to CHF 22 650 105.60, divided into 2 359 386 registered shares with a par value of CHF 9.60 each. No conversions were made in 2010 on the 0.625% convertible bond (2004–2010).
CONVERTIBLE BONDS AND OPTIONS No convertible bond issues of Swiss Life Holding were outstanding on the balance sheet date.
FUNCTION The Board of Directors is responsible for all matters that are not reserved for the consideration of the General Meeting of Shareholders (formally the supreme decision­making body of a public limited company) under the terms of the law (Art. 698 of the Swiss Code of Obligations OR) or by the company’s Articles of Association. In line with its non­transferable duties prescribed by law, the Board of Directors is responsible, in particular, for the ultimate direction of the Group, as well as the supervision of the Corporate Executive Board.
Gerold Bührer 1st Vice Chairman Nomination and Compensation Committee 2002/2003/2005/2008/2011 1 2014
GEROLD BÜHRER — Born 1948, Swiss national First Vice Chairman of the Board of Directors bild Gerold Bührer graduated in economics (lic. oec. publ.) from the Univer­ sity of Zurich in 1972. Following 17 years with the Union Bank of Switzer­ land as a member of senior management in its financial sector and a Member of the Executive Board of its fund investment company, he joined Georg Fischer Ltd in 1991, where he served as a Member of its Executive Board (Finances) from 1991 until 2000. He began working as an independent economic consultant in 2001 and, from 2006 until September 2012, he held the office of Chairman of economiesuisse. Gerold Bührer was a Member of the Grand Council of the Canton of Schaffhausen from 1982 to 1991 and, from 1991 to 2007, a Member of the Swiss Parliament (National Councillor).
FRANK SCHNEWLIN — Born 1951, Swiss national Second Vice Chairman of the Board of Directors bild Frank Schnewlin studied at the University of St. Gallen (lic. oec. HSG), the London School of Economics (Master of Science) and the Harvard Business School (MBA) before earning his doctorate in economics in 1983 at the University of Lausanne (Dr. ès sc. écon). From 1983 to 2001 he held various positions at the Zurich Financial Services Group in Switzerland and the USA, including Head of Corporate Center and
WOLF BECKE — Born 1947, German national Member of the Board of Directors bild Wolf Becke studied mathematics, physics and economics at the Universi­ ties of Bonn and Freiburg and obtained a degree in mathematics. Between 1973 and 1977, he worked as a research assistant at the Mathematical Institute of the University of Freiburg and earned a doctorate in science. In 1978 Wolf Becke joined Hamburger Internationale Rückversiche­ rung AG (HIR), where he was employed in various positions until 1990, ultimately responsible for the Life and Health Reinsurance, Finance and Accounting and Investments divisions. He then moved to Hannover Re and E+S Rück. From 1992 to 1999, as a member of the Executive Board, he was responsible for both global life and health insurance business, and for non­life business in Asia, Africa and Australasia. From 1999 until his retirement for age reasons at the end of 2011, Wolf Becke concentrated on his responsibilities as CEO of the life and reinsurance business area (Hannover Life Re).
VOLKER BREMKAMP — Born 1944, German national Member of the Board of Directors bild Volker Bremkamp joined Albingia Versicherungs AG in Hamburg (a subsidiary of Guardian Royal Ex change plc, London) in 1963, receiving his qualifications as an insurance expert in 1965. Between 1969 and 1971 he was employed by various insurance companies and brokers in London and Paris. He returned to Albingia Versicherungs AG, Ham­ burg, in 1971, serving as an Executive Director from 1978 to 1989 and, from 1989 to 2000, as Chief Executive Officer of Albingia Lebensversicherungs AG and of Albingia Versicherungs AG. Between 1995 and 1999 Volker Bremkamp was an Executive Director and, at the same time, Group Executive Director, Continental Europe, of Guardian Royal Exchange plc, London, which was taken over by the AXA Group in 1999. From 1999 to 2000 he held the position of Executive Director of AXA Colonia Konzern AG, Cologne (holding company of AXA Germany). He has been Managing Director of BMB Bremkamp Management­ und Beteiligungs­GmbH since 2000.
DAMIR FILIPOVIC — Born 1970, Swiss national Member of the Board of Directors bild Damir Filipovic studied mathematics at the Swiss Federal Institute of Technology in Zurich (ETHZ), where he qualified in 1995 and gained a doctorate in financial mathematics in 2000. He then held research posts at various universities abroad, including the US universities of Stanford, Columbia and Princeton. He was appointed assistant professor at the University of Princeton in 2002, and then from 2003 to 2004 he worked on the development of the Swiss Solvency Test at the Federal Office of Private Insurance in Switzerland. Damir Filipovic went on to hold the chair of financial and actuarial mathematics at the Ludwig Maximilian University of Munich from 2004 to 2007. From 2007 to 2009 he was head of the Vienna Institute of Finance, a research institute affiliated to the University of Vienna and the Vienna University of Economics and Business. In 2010 he was appointed Swissquote Chair in Quantitative Finance and Swiss Finance Institute Professor at the Swiss Federal Institute of Technology in Laus­ anne (EPFL).
HENRY PETER — Born 1957, Swiss and French national Member of the Board of Directors bild Henry Peter completed his studies in law at the University of Geneva in 1979, and in 1981 he was called to the Geneva bar. Following a pupillage in Geneva, a period of study as a visiting scholar at the University of California in Berkeley and legal work in Lugano, he obtained his PhD at the University of Geneva in 1988. Since 1988 he has been a partner in a law firm in Lugano, currently PSM. In addition, he has held the position of Professor of Business Law at the University of Geneva since 1997. He became a Member of the Swiss Takeover Board in 2004 and a Member of the Sanction Commission of the SIX Swiss Exchange in 2007.
Other appointments: – Sigurd Rück Ltd, Chairman of the Board of Directors – Cassa Pensioni della Città di Lugano, Member of the Board of Directors and the Audit Committee – Casino de Montreux SA, Chairman of the Board of Directors and Member of the Audit Committee – Otis, Member of the Board of Directors (until June 2012) – Consitex SA, Member of the Board of Directors – Autogrill Switzerland LTD, Member of the Board of Directors – Banque Morval SA, Member of the Board of Directors – PKB Privatbank AG, Member of the Board of Directors and the Executive Committee – Sowind Group Ltd, Member of the Board of Directors – Global Petroprojects Services Ltd, Member of the Board of Directors – Swiss Olympic Association, Vice Chairman of the disciplinary chamber in charge of doping cases
Peter Quadri will be put forward for re­election at the General Meeting of Shareholders of Swiss Life Holding on 23 April 2013.
FRANZISKA TSCHUDI SAUBER — Born 1959, Swiss national Member of the Board of Directors bild Franziska Tschudi graduated in law at the University of Berne and passed her bar exam there in 1984. She studied law at George town University, Wash ington DC, earning an LL.M. in 1986, and passed the bar exam for the US states of New York and Connecticut in 1987. Franziska Tschudi completed postgraduate studies at the University of St. Gallen (1991 to 1993), receiving an Executive MBA. After initially working as an Assis­
CHANGES IN THE BOARD OF DIRECTORS WITH EFFECT FROM THE 2013 GENERAL MEETING OF SHAREHOLDERS At the next General Meeting of Shareholders of Swiss Life Holding on 23 April 2013, Volker Bremkamp will be resigning from the Board of Directors due to his reaching the statutory age limit. Peter Quadri will stand for re­election for a one­year term. Frank W. Keuper, formerly a member of the Executive Committee of the AXA Group and CEO of AXA Konzern AG Germany, Ueli Dietiker, former CFO of the Swisscom Group, and Klaus Tschütscher, former Head of Government of the Principality of Liechten­ stein, will be proposed to the shareholders for election to the Board of Directors.
The Board of Directors meets as often as business requires, usually at least six times a year. Meetings are generally called by the Chairman of the Board of Directors. However, any member of the Board of Directors may request that a meeting be called, as may the Corporate Executive Board. In addition to the members of the Board of Directors, the Group CEO also generally attends the meetings or parts of meetings in an advisory capacity, as do other members of the Corporate Executive Board when required.
The Board of Directors met nine times during the year under review. The meetings lasted around three and a half hours on average. The attendance rate was 96%. The Group CEO and the other mem­ bers of the Corporate Executive Board attended all the meetings, with the exception of one meeting, where two Corporate Executive Board members were excused. The Board of Directors conducted parts of the meetings among themselves.
The Board of Directors regularly performs a self­assessment. Furthermore, discussions take place between the Chairman of the Board and its members on an individual basis.
The Chairman’s and Corporate Governance Committee (Chairman’s Committee) assists both the Chairman of the Board of Directors in performing his leadership and coordination duties and the Board of Directors with issues relating to corporate governance. The Committee also supports the Board of Directors in key strategic decisions.
The Chairman of the Board of Directors presides over meetings. As a rule, the Group CEO attends the Chairman’s Committee meetings or parts of the meetings in an advisory capacity. Further members of the Corporate Executive Board and in­house or external specialists may also be invited to attend. The Chairman’s Committee meets at least six times a year.
The Chairman’s Committee held 13 meetings during the year under review. The average duration of a meeting was around two hours. The meetings were attended by all members, including the Group CEO and the Group CFO.
The NCC may invite the Group CEO to part or all of its meetings in an advisory capacity. Other members of the Corporate Executive Board and in­house or external specialists may also be invited. The NCC meets at least three times a year.
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 appropri­ ateness 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. More over, the Audit Committee issues the regulations for Cor­ porate Internal Audit and sets its annual programme of activities.
Generally, the Group CFO and the Head of Corporate Internal Audit attend the Audit Committee meetings or parts of the meetings in an advisory capacity. The Group CEO may attend the meetings of the Audit Committee (without voting rights). Representatives from the external audit services are
Swiss Life – Annual Report 2012 also regularly invited (cf. also “Supervisory and control instruments vis­à­vis the auditors”, page 62). In addition, further members of the Corporate Executive Board or in­house specialists may also be invited to attend. The Audit Committee meets at least four times a year. The frequency of meetings depends on the financial budgeting and reporting process.
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.
INFORMATION AND CONTROL INSTRUMENTS OF THE BOARD OF DIRECTORS VIS-À-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 and the Board of Directors and its committees on the course of business, new business activities and signifi­ cant projects. The Group CEO informs the Chairman 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 and Corporate Governance 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.
Management structure of the Swiss Life Group as at 31 December 2012
The Corporate Executive Board is responsible for implementation of the corporate strategy, for the establishment of conditions governing business operations and for financial guidance. It is responsi­ ble for the preparation of the resolutions for the Board of Directors and its committees, and for monitoring the implementation of these decisions in the Group. The Corporate Executive Board is vested with the authority to rule on business referred to it by the Board of Directors, the Board of Directors committees and the Chairman of the Board of Directors, insofar as decision or approval is not reserved exclusively to one of these.
bild Ivo Furrer graduated in law from the universities of Zurich and Fribourg and earned his PhD with a thesis on employee benefits in Switzerland. After joining Winterthur Life in 1982, he worked for several years in international industrial insurance in Switzerland, the UK and the USA. In 1998 he was appointed Chief Underwriting Officer at Winterthur International. He subsequently moved to Credit Suisse Group, where he was Head of e­Investment Services Europe and member of the management of Personal Financial Services. Ivo Furrer began working for Zurich Financial Services in 2002, initially in Germany as head of the international key account business, and in 2005 as a Member of the Global Corporate Executive Committee. In 2007 he was appointed CEO Life Switzerland and Member of the Global Life Executive Committee of Zurich Financial Services.
KLAUS G. LEYH — Born 1966, German national Chief Executive Officer of Swiss Life, Germany Branch (CEO Germany) Chief Operating Officer Germany (COO Germany) and deputy CEO Germany from 1 January 2013 bild 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 in­ surance sector, building up Generali’s Market Research department in Munich. He subsequently held management positions in marketing, product management and e­business at Generali Lloyd Versiche rung 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 e­commerce and e­business activities and was assigned respon­ sibility 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 Ger­ many with responsibility for the entire sales force, distribution management, service and control. Klaus G. Leyh was appointed Chief Executive Officer of Swiss Life, Germany Branch (CEO Germany) on 1 October 2008. As part of the joining together of Swiss Life and AWD, Klaus G. Leyh was appointed Chief Operating Officer and deputy Chief Executive Officer of Swiss Life in Germany (COO and Dep. CEO) from 1 January 2013.
bild After completing his business administration and economics studies at the University of St. Gallen and a two­year research activity at the Insti­ tute of International Economics, Thomas Buess launched his career in insurance in 1985. From 1985 to 1993 he assumed various positions in the area of finance at the ELVIA Group. In 1994 he joined Zurich Finan­ cial Services Group as Chief Financial Officer and Member of the
Executive Committee of the Swiss P&C business unit. From 1997 to 1999 he was Chief Financial Officer of all Swiss operations. In 1999 Thomas Buess moved to the USA as Chief Financial Officer of Zurich Financial Services Group’s North American business area. In 2002 he was appointed Group Chief Financial Officer and Member of the Group Management Board. Thomas Buess went on to head the reorganisation of the life insurance business before assuming the role of Chief Operating Officer of Zurich Financial Services Global Life in 2004. In January 2009 he moved to Allianz Group as Head of Operational Transformation.
Other appointments: – Swiss Insurance Association (SIA), Member of the Finance and Regulation Committee
From 1988 to 1994 he worked for ELVIA Life as Director of Sales in the key accounts business. In 1994 he moved to «La Suisse» and, in 1998, was appointed CEO of the non­life business and Chief Actuary. In 2000 he became the CEO of «La Suisse», a position he held until 2005 when the company was in­ tegrated 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.
Other appointments: – Member of the French Insurance Association (FFSA), Paris
bild Patrick Frost studied at the ETH in Zurich and the universities of Cologne, Basel and Zurich, obtaining degrees in natural science (dipl. Natw. ETH), economics (Dr. rer. pol.) and law (lic. iur.). He began his professional career in the mid nineties as an analyst and subse­ quently as a Portfolio Manager in asset management for Winterthur Group. After two years in the USA as a Corporate Bond Manager, he was appointed Head of Fixed Income at Winterthur Group in 2001.
The specifications below follow the directives on information relating to corporate governance issued by the SIX Swiss Exchange and take into consideration the transparency regulations set out in the Swiss Code of Obligations Art. 663bbis and Art. 663c as well as Circular 2010/1 of the Swiss Financial Market Supervisory Authority FINMA on minimum standards for remuneration schemes of financial institutions. Further information on compensation and benefit expenditure for the management and employees of the Swiss Life Group can be found in the Consolidated Financial Statements (Notes 24 and 32) on pages 196 to 200 and 211. Additional details regarding the compensation and remuneration 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 on pages 233 to 246.
In accordance with the 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.
The salary is determined according to the employee’s function and skill set, and is annually re­assessed and adjusted if appropriate. Salary comparison studies and recognised job evaluation systems are used to check appropriateness and to ensure internal and external comparability.
The variable compensation components are linked to the strategic objectives of the Group and the individual divisions, and the associated financial and HR­related targets. They are based on the achievement of annual objectives defined in advance for a period of three years as part of medium­
The share in the company’s success is measured using quantitative Group targets (Key Performance Indicators, KPIs), which are defined in advance for the following three years as part of medium­term planning. The main KPIs, besides the key figures relating to annual profit, costs, business volume, investment return, return on equity and solvency, are the profitability of in­force and new business, margin performance and the share of non­traditional products in new business. In order to avoid conduct aimed at the short­term achievement of key indicators with a higher weighting, the individual KPIs are not mechanistically weighted in advance. Their individual weighting is determined at the end of each financial year by the Board of Directors on the basis of a proposal by the Nomination and Compensation Committee (NCC) taking all developments into account and consideration (discre­ tionary decision).
Personal performance based on the specified quantitative and qualitative objectives is assessed annu­ ally in the employee appraisal procedure implemented throughout the Group (Group Performance System, GPS). Two assessment elements/models are used for determining objectives and evaluating performance: The Group Objectives Model (GOM) relating to qualitative and quantitative objectives and the Group Competency Model (GCM) for measuring and assessing individual competencies and behaviour, incl. the compliance regulations.
Permanent employment contracts in Switzerland contain notice periods of between three and twelve months, depending on position and seniority. All current employment contracts with members of the Corporate Executive Board specify a notice period of twelve months.
Within the framework of the compensation arrangements for members of the Corporate Executive Board, “deferred compensation in cash” was introduced as a new compensation component on 1 Jan­ uary 2012. On the basis of the corresponding regulations, a portion of the variable cash compensation determined by the Board of Directors is not paid immediately but after a period of three years has elapsed and provided that the regulatory requirements are satisfied at that point. The allocated deferred compensation in cash represents an entitlement during the three­year deferral period. The underlying “deferred cash plan” also provides for adjustment and reclaiming mechanisms (clawback). If the employment relationship is terminated by a participant during the three­year deferral period, the entitlements expire worthless.
As a mid­ to long­term compensation component linked to the performance of the Swiss Life Holding share price, an equity compensation plan has been in place since 2004 for members of the Corporate Executive Board and other key performers within the Swiss Life Group, who are determined by the Corporate Executive Board with the approval of the Nomination and Compensation Committee. Based on this plan, participants are granted future subscription rights to Swiss Life Holding shares. These subscription rights entitle the participants to receive Swiss Life Holding shares free of charge after a period of three years has elapsed and provided that the requirements under the plan are satis­ fied at that point.
Since 2011 participants in the equity compensation plan have been allocated Restricted Share Units (RSUs) instead of PSUs. As with PSUs, RSUs grant the holder future subscription rights, entitling them to receive Swiss Life Holding shares free of charge after a three­year period has elapsed, but without any additional leverage effect. The attribution of shares after the expiry of the three­year deferral period is effected on a 1:1 basis (1 RSU = 1 share). The plan is therefore very simple, transparent
COMPENSATION PAID TO ACTING MEMBERS OF GOVERNING BODIES The following compensation in cash was received by acting members of the Board of Directors and the Corporate Executive Board during the period under review: In CHF
1 Incl. cash bonus of CHF 3 616 400 for the 2012 financial year, determined and paid out at the beginning of 2013. 2 Incl. cash bonus of CHF 4 340 500 for the 2011 financial year, determined and paid out at the beginning of 2012.
Two members of the Board of Directors resigned in the 2011 financial year. After serving for eight years on the Board of Directors of Swiss Life Holding, Paul Embrechts did not stand for re­election at the General Meeting of Shareholders in 2011 and no longer serves on the Board of Directors. Carsten Maschmeyer, who was elected to the Board of Directors of Swiss Life Holding at the 2009 General Meeting of Shareholders, resigned as a member of the Board of Directors on 7 December 2011.
There were no personnel changes on the Corporate Executive Board during 2011 and 2012.
The members of the Board of Directors are granted exclusively fixed compensation. This is paid 70% in cash and 30% in Swiss Life Holding shares; the shares are subject to a three­year blocking period.
Compensation remitted to members of the Corporate Executive Board comprises the basic salary, variable compensation in cash and other compensation (child allowances, company cars, premium contributions to 3rd pillar pension plans). The variable compensation in cash is allocated as a bonus and as deferred compensation in cash. The deferred compensation in cash is paid out after a period of three years has elapsed and provided that the regulatory requirements have been satisfied. In addi­ tion, a mid­ to long­term compensation component is in place in the form of an equity compensation plan linked to the performance of the Swiss Life Holding share price, respectively to medium­term planning and corresponding target achievement. As mentioned above, participants are entitled to Swiss Life Holding shares after a period of three years has elapsed and provided that the relevant requirements are satisfied at the time of allocation.
The variable compensation in cash (cash bonus and, if applicable, deferred compensation in cash) is set at a maximum of 117% of the fixed basic salary (“bonus cap”) and requires that all objectives have been considerably exceeded. In the case of 100% target achievement, variable compensation in cash of 80% of the fixed basic salary is provided for (“on­target bonus”), which can be reduced by the Board of Directors in consideration of all the circumstances.
At Corporate Executive Board level, variable compensation depends 60% directly on the company’s success. The Key Performance Indicators (KPIs) used to assess company success include, as mentioned above, key figures relating to annual profit, costs, business volume, investment return, return on equity and solvency, as well as the profitability of in­force and new business, margin performance and the share of non­traditional products in new business.
40% of the variable compensation is based on Corporate Executive Board members’ achievement of specified personal goals. On the one hand, these personal goals are linked back to the company’s suc­ cess, in that each Corporate Executive Board member has to meet personal quantitative objectives contributing to the company’s success in relation to his division. On the other hand, the personal goals cover qualitative factors, namely project targets, risk management and compliance goals, as well as requirements relating to leadership and to supporting and further developing corporate culture.
SHARE ALLOCATION IN THE YEAR UNDER REVIEW The shares allocated to the members of the Board of Directors in the period under review form part of the compensation, which was granted 70% in cash and 30% in blocked Swiss Life Holding shares.
No variable compensation in shares was granted to the members of the Corporate Executive Board for the 2012 financial year. As described, they are participating in the current equity compensation plan.
Swiss Life – Annual Report 2012 2 “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 the governing body. This typically includes spouses, minor children, companies controlled by members of the governing body, and natural or legal persons serving the members of the governing body in a fiduciary capacity.
For the 2012 financial year, the members of the Board of Directors were allocated the following shares, subject to a three­year blocking period: Board of Directors 9082 shares,
1 Economic value equal to the tax value, taking the blocking period into account. The share prices (closing prices) on the days of allocation of 18.06.2012 and 14.12.2012 were CHF 80.20 and CHF 123.50.
SHARE OWNERSHIP On the balance sheet date of 31 December 2012, acting members of the Board of Directors and the Corporate Executive Board (including closely linked parties) held the following number of Swiss Life Holding registered shares: SLH shares
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.
LOANS On the balance sheet date, there were no loans outstanding to members of the Board of Directors or the Corporate Executive Board: Board of Directors none
EXPENDITURE FOR OCCUPATIONAL PROVISIONS Details on the company’s benefit expenditure can be found in the Consolidated Financial Statements (Notes 24 and 32) and the Notes to the Swiss Life Holding Financial Statements. For reasons of trans­ parency, information on the following benefits is provided here: As Chairman of the Board of Directors, Rolf Dörig is affiliated to the employee benefits institutions of Swiss Life for the purpose of occupational provisions. The regular annual employer contribution for Rolf Dörig, which compared to the previous year has increased due to his reaching the regulatory next age and contribution level, amounted to CHF 283 968 in the period under review.
HIGHEST TOTAL COMPENSATION, BOARD OF DIRECTORS Rolf Dörig, as Chairman of the Board of Directors, received the highest total compensation for a member of the Board of Directors of Swiss Life Holding in 2012.
The members of the Board of Directors are granted exclusively fixed compensation, which is payable 70% in cash and 30% in Swiss Life Holding shares; the allocated shares are subject to a three­year blocking period.
including regular contribution to occupational provisions of CHF 225 504 1 596 343 1 Allocation and valuation was effected on 18.06.2012 and 14.12.2012 at an economic value of CHF 67.3375 and CHF 103.6931, which is equal to the tax value, taking into account the blocking period of three years. The share prices on the days of allocation were CHF 80.20 and CHF 123.50 respectively.
HIGHEST TOTAL COMPENSATION, CORPORATE EXECUTIVE BOARD Bruno Pfister, as Group CEO, received the highest total compensation for a member of the Corporate Executive Board in the period under review.
including regular contribution to occupational provisions of CHF 225 504 2 911 010
2 Deferred compensation in cash of CHF 210 000; this compensation component will be paid out on 1 April 2016, provided the regulatory requirements are satisfied at that point. 3 7100 future subscription rights in the form of RSUs entitling the holder to receive Swiss Life Holding shares on 1 April 2015, provided the requirements are satisfied at that point.
On the allocation date of 1 April 2012 the fair value of an RSU was CHF 93.77. 4 Deferred compensation in cash of CHF 360 000; this compensation component was introduced on 1 January 2012 and will be paid out on 1 April 2015, provided the regulatory requirements are satisfied at that point. 5 6350 future subscription rights in the form of RSUs entitling the holder to receive Swiss Life Holding shares on 1 April 2014, provided the requirements are satisfied at that point.
FURTHER INFORMATION In the form of an overview, the following additional information is provided on the Swiss Life Group compensation systems for the 2012 financial year: In CHF (unless otherwise indicated)
5 Compensation which is agreed in connection with the termination of an employment relationship.
RESTRICTIONS 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 own shares and those he 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, as a syndi­ cate or in any other way, are deemed to be a single person. Any amendment to or revocation of restric­ tions 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. The Board of Directors can permit exceptions to this limit on the basis of its discretionary powers; during the year under review, no such exceptions were granted.
PwC confirms that it meets the legal requirements concerning professional qualification and inde­ pendence.
DURATION OF THE MANDATE AND TERM OF OFFICE OF THE LEAD AUDITOR The Articles of Association stipulate that the external auditor is to be elected by the General Meeting of Shareholders for one financial year at a time. When Swiss Life Holding was established in 2002, PwC was named as statutory auditor and Group auditor. Since then PwC has been re­elected without fail. PwC has also acted as statutory auditor and Group auditor for Swiss Life Ltd since 1994. Swiss Life Holding last invited tenders for its statutory auditor and Group auditor mandate for the 2008 financial year. On completion of the evaluation process, the Board of Directors, in accordance with the proposal of the Audit Committee, again nominated PwC as its statutory auditor and Group auditor at the General Meeting of Shareholders.
The partner at PwC in charge of auditing the Swiss Life Holding annual financial statements and consolidated financial statements (lead auditor) has exercised this function since 2011. The role of lead auditor rotates in compliance with the term of office regulations stipulated by the Swiss Code of Obligations, the independency guidelines set forth by the Swiss Institute of Certified Accountants and Tax Consultants, and internal guidelines at PwC.
The external auditors submit regular written reports on the status of the auditing work. They also submit detailed reports on the half­year and annual financial statements to the Audit Committee. At the end of the year, the external auditors draw up a comprehensive report for the attention of the General Meeting of Shareholders and a detailed report on the financial year just completed for the attention of the Audit Committee, the Board of Directors and the Swiss Financial Market Supervi­ sory Authority FINMA.
In the year under review, representatives of the external auditors attended all Audit Committee meet­ ings, either in their entirety or for specific items on the agenda.
Key facts and figures about the Swiss Life Group and info kits on previous years’ reports are available on the internet at www.swisslife.com, “Investors” area, “Results & Reports” section (www.swisslife.com/ results). Details on events relevant to shareholders, analysts and the media (General Meetings of Share­ holders, media conferences, etc.) can be found at www.swisslife.com, “Investors” area, “Financial Calen­ dar” section (www.swisslife.com/financialcalendar).
At www.swisslife.com/subscription, all interested parties can subscribe to the company’s mailing list so as to receive timely ad hoc reports and media releases free of charge via the e­mail distribution system. These releases are also published on the Swiss Life website at the same time as they are sent to subscribers, and are available online for at least two years at www.swisslife.com, “Media” area, “Media releases” section (www.swisslife.com/mediareleases).
Risk management is a key component of the Swiss Life Group’s management process. The respective committees of the Corporate Executive Board and the Board of Directors monitor and make decisions in the area of risk management; these are then incorporated into the annual planning process. On the one hand, they comprise qualitative assessments relating to the strategy, to operational risks and to the internal control system (ICS). On the other hand, quantitative elements for each insurance unit, such as risk budgeting and investment strategy, are included in asset and liability management. Based on risk capacity and risk appetite and taking account of regulatory provisions, limits are set in the individual units for the financial risks incurred, according to which the investment targets are set. The qualitative risk management elements mentioned above are presented and discussed below. Detailed information on the risk budget ing process and asset and liability management is provided in Note 5 (Risk Management Policies and Procedures) of the Consolidated Financial Statements.
Swiss Life – Annual Report 2012 ments ultimately became binding from 1 January 2011. The SST is a principles-based framework where the main objective is the alignment of the required capital with the underlying risks. The SST capital requirement underpins a high level of confidence that insurers will meet their obligations towards policyholders even in adverse circumstances. The available and the required capital for the SST are determined based on an internal model which is subject to approval by FINMA. Based on this internal model, which is still being reviewed by FINMA, Swiss Life meets the capital requirements.
ecONOMic caPital The value of a life insurance company for its shareholders comprises the economic net worth and the present value of future profits. The optimal amount of economic capital an insurance company needs to hold to maximise the company value is a trade-off between benefits and costs. For risk and capital management decisions, the Swiss Life Group uses an integrated approach. The economic risk capital is determined bottom-up for each large business unit and takes into account market risk, credit risk and insurance risk. These risks are calculated on the basis of loss distributions using a specified risk measure. The overall capital requirement is obtained by taking into account appropriate diversification benefits among the above-mentioned risk categories.
StaNdard & POOr’S ratiNg caPital Swiss Life has defined a target capitalisation in line with its rating ambition. In the Standard & Poor’s risk-based insurance capital model the total adjusted capital (TAC) is the measure used for capital available to meet a company’s capital requirements. TAC is set against the capital required given the company’s target rating category (target capital). The factor-based model takes into account, among other factors, insurance risks, asset value volatility and credit risks. Within the capitalisation analysis, in addition to assessing capital adequacy, Standard & Poor’s also assesses the quality of capital in its various dimensions such as debt, hybrid and reinsurance leverage. In April 2012 Standard & Poor’s acknowledged the operational progress made by Swiss Life and increased the rating of Swiss Life Ltd to A– with stable outlook.
1.3 definitions Swiss Life’s Group MCEV consists of the MCEV for covered business and the IFRS net asset value for non-covered business.
The net asset value went up by 12% mostly due to the operating profit of the year and economic effects. Free surplus – after financing new business – increased by CHF 208 million. The biggest contribution to free surplus generation results from Switzerland. Goodwill and other intangibles are not included in the net asset value, with the exception of France (see section 4.7).
–12 158 –5150 2.3 value of new Business 2.3.1 value of new Business, PreMiuMs and Margins amounts in CHF million
2.3.2 value of new Business — analysis of CHange The following graph and table detail the drivers for the change in new business value and margin of the business sold in 2012 compared to the business sold in 2011.
PVNBP decreased by 13%. Despite this reduction in volume, the new business margin improved due to continued margin management.
The operating MCEV earnings for non-covered business correspond mainly to results from Swiss Life Holding, AWD, Investment Management and insurance business not within the scope of covered business. The main driver for this year’s negative operating MCEV earnings is the impairment loss on the AWD intangibles of CHF 578 million as described in the Consolidated Financial Statements (Note 18).
The non-operating MCEV earnings relate to borrowing costs and tax effects for the non-covered business. The change in non-operating MCEV earnings compared to 2011 originates almost entirely from the covered business.
The other movements in IFRS net equity (non-covered business only) include the sale and purchase of treasury shares, effects from changes in unrealised gains and losses and currency exchange rate effects on goodwill.
Transfers from VIF and required capital to free surplus 686 –214 –473 – –
value of new Business Value of new business contributions from free surplus and required capital sum up to the new business strain of CHF –99 million (2011: CHF –127 million). This represents the shareholders’ share in acquisition expenses for new business. The VIF-component of CHF 257 million (2011: CHF 277 million) is the value of future profits from new business.
eXPeCted eXisting Business ContriBution (in eXCess of referenCe rate) Expected existing business contribution (in excess of reference rate) represents the additional contribution to MCEV by taking into account investment returns for the reporting period expected at the beginning of the period over and above the initial reference rates for the period. Also, releases from the period’s contribution to the time value of financial options and guarantees and cost of residual non-hedgeable risks are included. The expected business contribution is explained to a large extent by spreads expected to be earned on the corporate bond and real estate portfolio.
eConoMiC varianCes Economic variances represent the change in embedded value by replacing the starting economic scenarios by the closing ones. Effects from deviations between actual and expected investment returns are included here. Lower swaption implied volatilities and lower credit spreads had a positive impact on MCEV overall as had the inclusion of British pound and Canadian dollar in economic scenarios (see 4.4) in Switzerland. On the other hand, lower reference rates including lower liquidity premiums had a negative effect.
100 bp increase of interest rates (reference rates) 166 2% 16 10%
1 not available 2.7 reConCiliation of ifrs net asset value to grouP MCev Swiss Life’s MCEV for covered business reflects the value of the shareholders’ interest in the life, health and pension business as well as assumed external reinsurance of the Swiss Life Group. This value includes the determination of best estimate liabilities for policyholder bonuses and tax payments, which are derived from results based on local statutory accounting rather than on IFRS. Therefore local balance sheets and profit and loss accounts are the starting point for the projections. The net asset value (of assets not backing liabilities) is based on the local balance sheet, but adjusted at market value.
Value of in-force business 5 051 1 Goodwill adjustments correspond to goodwill of covered business with the exception of CHF 79 million from French operations (see section 3.2). 2 Group MCEV includes CHF 767 million of goodwill and intangible assets as part of the unadjusted IFrS net assets for non-covered business.
This breakdown by market unit essentially coincides with the IFRS insurance segments in the annual report. There are minor differences since the MCEV classification generally follows the legal structure in order to ensure a correct modelling of the profit sharing. A divergence from the IFRS insurance segment reporting is the treatment of Swiss Life Asset Management in France, which is reported for MCEV purposes under France.
Swiss Life – Annual Report 2012 3.2 results By MarKet unit MCev By MarKet unit for tHe year 2012
Frictional costs of required capital –182 –83 –36 –14 –315 1 The value for France includes CHF 79 million in goodwill and intangible assets originating from the non-life and non-health insurance operations.
Frictional costs of required capital –207 –91 –37 –18 –354 1 The value for France includes CHF 81 million in goodwill and intangible assets originating from the non-life and non-health insurance operations.
Value of New Business by Market Unit value of new Business By MarKet unit – PreMiuMs and Margins for tHe year 2012 amounts in CHF million
franCe Negative effects from economic variances, mainly due to the decrease of the reference rate, and from lower new business volumes were partly counteracted by operating measures.
For life business, the impacts from lower reference rates and lower persistency were partly offset by reduced acquisition expenses.
international Both PPLI and Corporate Clients contributed substantially to the value of new business of International which accounts for CHF 28 million. PPLI’s revised outlook on future new business led to a substantial reduction of its value of new business and, overall, to a margin reduction for International. Corporate Clients’ value of new business improved substantially. It shows a strong margin due to higher volumes and a favourable business mix. Because of the weight of PPLI within International, by far the biggest share of new business premiums consists of single premiums.
Swiss Life – Annual Report 2012 analysis of earnings By MarKet unit for tHe year 2012
Expected existing business contribution (reference rate) 14 9 4 3 30
The other operating variances relate to model refinements covering inflation and other elements, as well as increased cost of credit risk.
In 2010, insurance companies were subject to an “exit tax” of 10% on the specific French GAAP “réserve de capitalisation”. An additional contribution of 7% has become applicable for 2012, which is reflected in other non-operating variances.
The operating MCEV earnings of CHF 169 million result mainly from the contribution of existing business and from an update of anticipated policyholder behaviour based on experience in the continued low interest rate environment.
The substantially decreased reference rates – liquidity premium in euro dropped by 59 bp – led to a negative economic variance due to the long-term nature of the German in-force business, which was partly offset by the benefits of lower capital market volatilities.
international The operating MCEV earnings of CHF –65 million are driven by a reassessment of PPLI’s outlook, given the new focus for new business on the two carriers in Luxembourg and Singapore and the continuing uncertainties in private banking. On the other hand, the business with corporate clients had a considerably positive effect on the operating earnings.
Efficiency gains on expenses were achieved in the corporate clients business and led to positive assumptions changes. The aforementioned revised outlook for PPLI’s future new business drives the negative other operating variance.
Closing adjustments include capital transfers for PPLI and currency exchange rate effects.
reQuired CaPital (rC) The required capital is the market value of assets, attributed to the covered business – over and above that required to back liabilities for covered business – whose distribution to shareholders is restricted. Swiss Life bases the amount of required capital on 150% of the statutory solvency level according to Solvency I, except for assumed external reinsurance where an economic approach is used instead.
free surPlus (fs) The free surplus is the market value of assets allocated to, but not required to support, the in-force covered business at the valuation date. The free surplus is calculated as the difference between the net asset value and the required capital.
value of in-forCe Business (vif) The value of in-force business consists of the following components: 1. Certainty equivalent value (CEV) 2. Time value of financial options and guarantees (TVOG), including the cost of credit risk (see below) 3. Cost of residual non-hedgeable risks (CNHR) 4. Frictional costs of required capital (FC)
Swiss Life – Annual Report 2012 2 Copyright © 2009 jPMorgan Chase & Co. all rights reserved.
The initial economic capital for credit risk is defined as the impact on the value of in-force business corresponding to the 99% expected shortfall of the credit loss from the actual bond portfolio over one year, due to the migration and default risk. The underlying credit risk calculations are performed using an internal model based on the Credit Metrics©2 methodology.
In order to be consistent with the CFO Forum Principles, no diversification between hedgeable and non-hedgeable risks has been taken into account. Furthermore, no diversification effects between market units have been accounted for.
Swiss Life – Annual Report 2012 insuranCe liaBilities Liabilities are valued in line with local statutory requirements generally using individual policy data. For projection purposes, policies of the same product with similar risk profiles are grouped together to form model points.
HyBrid deBt In accordance with the MCEV Principles (G3.4), hybrid debt allocated to covered business is valued by discounting the corresponding coupon and nominal payments (liability cash flows) with reference interest rates and spreads that would be used by capital markets for debt with similar characteristics. For the spread used see section 5.1.1. The approach is consistent with the fair value disclosed in the Notes to the Consolidated Financial Statements.
4.4 eConoMiC sCenario generator The MCEV is calculated using a risk-neutral valuation, based on market consistent and arbitrage-free stochastic economic scenarios. Under this approach, the key economic assumptions are: – the reference rates – interest rate and equity-type volatilities – correlations between the economic risk factors – inflation rates
Lapse rates from policyholders have been dynamically modelled. For traditional business, lapse rates depend on the difference between the credited rate to the policyholders and the anticipated policyholders ’ expectations. Lapse parameters depend on the country and product line considered.
4.6 looK-tHrougH PrinCiPle MCEV guidance requires that profits or losses incurred in service companies from managing covered business are measured on a “look-through” basis. This principle ensures that all profits and losses incurred in relation to the covered business are passed to the corresponding entity, and consequently incorporated into the value of in-force business.
Swiss Life – Annual Report 2012 4.7 Consolidation The Group MCEV for Swiss Life comprises MCEV results for covered business and IFRS net asset values for non-covered business.
The sum of all market consistent embedded values for the market units of the covered business forms the total MCEV for covered business.
Non-covered business comprises all other entities of the Swiss Life Group that are valued at the unadjusted IFRS net asset value on a consolidated level, such as the distribution unit AWD or investment management, financing and holding companies. Non-covered business is added to the MCEV results from the covered business to form the Group MCEV.
Swiss Life – Annual Report 2012 3 Copyright © 2011 Markit Group limited 5 Assumptions 5.1 eConoMiC assuMPtions The market consistent calibration of the economic scenarios is based on traded market instruments at the valuation date wherever possible. This includes nominal and real yield curves, interest rate volatility and equity volatilities. Where market data is not available or the market is not liquid enough, the model calibration is based on best estimate assumptions. This notably includes correlations, exchange rate volatilities and real estate volatilities.
Economy 1 year 2 year 5 year 10 year 15 year 30 year 5.1.1.2 SwaP raTES aS aT 31 dECEMBEr 2011
The equity implied volatilities are derived from the 10-year at-the-money equity put option prices.
5.1.2.3 EQuITY OPTION IMPlIEd VOlaTIlITIES aS aT 31 dECEMBEr 2012 aNd 31 dECEMBEr 2011
Swiss Life – Annual Report 2012 5.1.4 inflation assuMPtions The inflation assump tions have been derived from inflation-linked bond prices, where inflation-linked bonds are traded. For the Swiss economy, the real interest rate model is calibrated on the inflation forecast by Consensus Economics, an international economic survey organisation.
5.1.4.1 FOrward INFlaTION raTES uSEd FOr THE CalCulaTION aS aT 31 dECEMBEr 2012
Economy 1 year 2 year 5 year 10 year 15 year 30 year 5.1.4.2 FOrward INFlaTION raTES uSEd FOr THE CalCulaTION aS aT 31 dECEMBEr 2011
5.3 oPerating assuMPtions Non-economic assumptions such as mortality, morbidity and lapse rates have been determined by the respective business units based on their best estimate as at the valuation date. Best estimate assumptions are set by considering past and current experience.
Swiss Life – Annual Report 2012 6 Auditor’s Report on Embedded Value
Board of direCtors’ resPonsiBility The Board of Directors is responsible for the preparation of the MCEV Report in accordance with the MCEV Principles, including the applied methodology and the assumptions used and for such internal controls as determined necessary to enable the preparation of the MCEV Report that is free from material misstatement, whether due to fraud or error.
auditor’s resPonsiBility Our responsibility is to express an opinion on whether the MCEV Report has been properly prepared in accordance with the MCEV Principles. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the MCEV Report is free from material misstatement.
Swiss Life – Annual Report 2012 7 Glossary and List of Abbreviations annual PreMiuM eQuivalent (aPe) Volume measure for new business. Sum of regular premiums from new business +10% of single premiums on business written during the period.
Cost of Credit risK The cost of credit risk accounts for the credit risk of investments in bonds that would otherwise have been unaccounted for in other MCEV components.
Covered Business Covered business includes all of Swiss Life’s major life, health and pension business as well as assumed external reinsurance. In the case of France, all business operations are included in the covered business.
free surPlus (fs) The free surplus is the market value of any assets allocated to, but not required to support, the in-force covered business at the valuation date.
grouP MCev The Group MCEV for Swiss Life comprises MCEV results for covered business and IFRS net asset values for non-covered business of the Swiss Life Group (as explained above under point 4.7).
looK-tHrougH PrinCiPle Method by which profits or losses from service companies within the Swiss Life Group, which are directly related to managing the covered business, are included in the MCEV and in the value of new business.
MarKet Consistent eMBedded value (MCev) Market consistent embedded value is a measure of the consolidated value of shareholders’ interests in the in-force covered business of the Swiss Life Group.
Present value of new Business PreMiuMs (PvnBP) Volume measure for new business. It represents the present value of premiums from new business. It is the sum of single premiums and the present value of periodic premiums from new business.
total MCev earnings Change in MCEV and in Group MCEV in the reporting period after initial and closing adjustments and other movements in IFRS net equity.
Benefits and claims under investment contracts with discretionary participation –685 –709
Cash flow hedges 408 173 revaluation surplus on investment property 61 14 share of other comprehensive income of associates 0 –
Financial assets reclassified to loans and receivables 170 110 shadow accounting –19 –141
Financial assets at fair value through profit or loss 10 27 183 24 120
Non-controlling interests 33 35 total liabilities and equity 163 400 151 875
Premiums, policy fees and deposits received, net of reinsurance 13 169 13 264
Benefits and claims paid, net of reinsurance –12 192 –12 695
Purchases of investments in associates 16 – –10 sales of investments in associates 16 0 0
Purchases of property and equipment –33 –29 sales of property and equipment 3 2
Issuance of debt instruments 298 490 repurchase of debt instruments –139 –
Purchases of treasury shares –1 –9 sales of treasury shares 1 1
ToTal NeT CasH Flows From FINaNCING aCTIvITIes –106 31 total Change in Cash and Cash equivalents 1 386 –2 020
CasH aND CasH equIvaleNTs as aT eND oF PerIoD 6 480 5 084
Cash and cash equivalents for the account and risk of the swiss life Group’s customers 2 767 2 446
Changes in ownership interest in subsidiaries – – – – – – – –2 –2
Capital contributions from non-controlling interests – – – – – – – 0 0
Consolidated statement of Changes in equity for the year ended 31 deCember 2011
reduction in par value 27 –144 1 – – – – –143 – –143 equity-settled share-based payments – 5 – – – – 5 0 5
Non-controlling 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 non-controlling interest comprises the proportion of the net fair value of the identifiable assets, liabilities and contingent liabilities not attribut able, directly or indirectly, to the parent at the date of the original acquisition, goodwill attributable to non-controlling interest, if any, and the proportion of changes in equity not attributable, directly or indirectly, to the parent 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 con-
foreign CurrenCy exChange rates foreign CurrenCy translation On consolidation, assets and liabilities of Group entities denominated in foreign currencies are translated into Swiss francs at year-end exchange rates. Income and expense items are translated into Swiss francs at the annual average exchange rate. Goodwill reported before 1 January 2005 is translated at historical exchange rates. Goodwill for which the agreement date is on or after 1 January 2005 is carried in the foreign operation’s functional currency and is translated into Swiss francs at year-end exchange rates. The resulting translation differences are recorded in other comprehensive income as cumulative translation adjustments. On disposal of foreign entities, such translation differences are recognised in profit or loss as part of the gain or loss on the sale.
2.5 Cash and Cash equivalents Cash amounts represent cash on hand and demand deposits. Cash equivalents are primarily shortterm highly liquid investments with an original maturity of 90 days or less.
Derivatives and other financial instruments are also used to hedge or modify exposures to interest rate, foreign currency and other risks if certain criteria are met. Such financial instruments are designated to offset changes in the fair value of an asset or liability and unrecognised firm commitments (fair value hedge), or changes in future cash flows of an asset, liability or a highly probable forecast transaction (cash flow hedge) or hedges of net investments in foreign operations. In a qualifying fair value hedge, the change in fair value of a hedging derivative is recognised in income. The change in fair value of the hedged item attributable to the hedged risk adjusts the carrying value of the hedged item and is also recognised in income.
When a hedge relationship is no longer effective, expires or is terminated, hedge accounting is discontinued from that point on.
finanCial assets at fair value through profit or loss (fvpl) Financial assets at fair value through profit or loss comprise financial assets held for trading and financial assets designated as at fair value through profit or loss. Financial assets which the Group buys with the intention to resell in the near term are classified as held for trading. Financial assets designated as at fair value through profit or loss are irrevocably designated as such when initially recognised. Financial assets are primarily designated as at fair value through profit or loss in the following instances: – Financial assets backing insurance liabilities and liabilities arising from investment contracts for the account and risk of the Swiss Life Group’s customers (contracts with unit-linked features, separate accounts, private placement life insurance) in order to avoid measurement inconsistencies with the corresponding liabilities.
– Certain equity instruments with a quoted price in an active market which are managed on a fair value basis.
– Certain financial assets with embedded derivatives which otherwise would have to be separated. – Certain financial assets which share a risk with other financial instruments and give rise to opposite changes in fair value that tend to offset each other (“economic hedges”).
finanCial assets pledged as Collateral Transfers of securities under repurchase agreements or under lending agreements continue to be recognised if substantially all the risks and rewards of ownership are retained. They are accounted for as collateralised borrowings, i.e. the cash received is recognised with a corresponding obligation to return it, which is included in other financial liabilities.
finanCial assets at amortised Cost The Group assesses at each balance sheet date if there is objective evidence that a financial asset or a group of financial assets is impaired. It is assessed whether there is objective evidence of impairment individually for financial assets that are individually significant and collectively for financial assets that are not individually significant.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows from groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
finanCial assets Carried at fair value (available for sale) At each balance sheet 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 is property (land or a building or both) held by the Group to earn rentals or for capital appreciation or both, rather than for administrative purposes.
Investment property under construction is also measured at fair value with changes in fair value being recognised in the income statement. However, where the fair value is not reliably determinable,
Swiss Life – Annual Report 2012 the property is measured at cost until either its fair value becomes reliably measurable or construction is completed.
The Group has assessed the significance of insurance risk on a contract-by-contract basis. Contracts that do not transfer insurance risk at inception but that transfer insurance risk at a later date are classified as insurance from inception unless the Group remains free to price the insurance premium at a later date. In this case, the contract is classified as insurance when the insurance premiums are specified. A contract that qualifies as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire.
disCretionary partiCipation features (dpf) Discretionary participation features are defined in IFRS 4 Insurance Contracts as contractual rights to receive, as a supplement to guaranteed benefits, additional benefits which are likely to be a significant portion of the total contractual benefits and whose amount or timing is contractually at the discretion of the issuer. These DPF are contractually based on the performance of a specified pool of contracts or a specified type of contract or on the realised and unrealised investment returns on a specified pool of assets held by the issuer or on the profit or loss of the company. The unrealised investment returns comprise gains/losses recognised directly in equity.
Swiss Life – Annual Report 2012 assets and liabilities relating to the respective insurance portfolio measured using the statutory minimum distribution ratio (“legal quote”). The policy of the Swiss Life Group is to classify as a liability the entire DPF as defined.
The statutory minimum distribution ratios (“legal quote”) relating to the Swiss Life Group’s operations are as follows: swITZerlaND
non-disCretionary partiCipation features Certain policyholder participation systems do not satisfy the criteria for discretionary participation features. These policy holder bonuses might be guaranteed elements. Some policyholder bonuses are based on benchmark interest rates which are credited to the policyholders. For certain products, policyholder bonuses are based on the development of biometric parameters such as mortality and morbidity. These policyholder bonuses are allocated based on the risk result of the contracts involved. The amount and timing of these bonuses are not subject to management discretion and are accrued to the policyholders’ liabilities based on the relevant contractual terms and conditions.
For contracts with a short duration (e.g. most non-life contracts), premiums are recorded as written upon inception of the contract and are earned primarily on a pro-rata basis over the term of the related policy coverage. The unearned premium reserve represents the portion of the premiums written relating to the unexpired terms of coverage.
These liabilities are determined by using the net-level-premium method. Depending on the type of profit participation, the calculations are based on various actuarial assumptions as to mortality, interest rates, investment returns, expenses and persistency, including a margin for adverse deviation. The assumptions are initially set at contract issue and are locked in except for deficiency.
Liabilities for unpaid claims and claim settlement costs are for future payment obligations under insurance claims for which normally either the amount of benefits to be paid or the date when payments must be made is not yet fixed. They include claims reported at the balance sheet date, claims incurred but not yet reported and claim settlement expenses. Liabilities for unpaid claims and claim settlement costs are calculated at the estimated amount considered necessary to settle future claims in full, using actuarial methods. These methods are continually reviewed and updated. Claim reserves are not discounted except for claims with determinable and fixed payment terms.
Swiss Life – Annual Report 2012 emBeDDeD oPTIoNs aND GuaraNTees IN INsuraNCe CoNTraCTs
Liabilities relating to private placement life insurance are included in financial liabilities designated as at fair value through profit or loss.
Assets associated with separate account/unit-linked contracts and private placement life insurance are included in financial assets designated as at fair value through profit or loss, investment property, derivatives and cash and cash equivalents. The related income and gains and losses are included in the income statement under the respective line items. The Group has allocated on a rational basis the proportion of acquisition costs related to the insurance and deposit components, respectively. The accounting policy for deferred acquisition costs applies to the portion of acquisition costs associated
2.15 intangible assets present value of future profits (pvp) arising from aCquired insuranCe ContraCts and invest ment ContraCts with disCretionary partiCipation features On acquisition of a portfolio of insurance contracts or a portfolio of investment contracts with discretionary participation features (DPF), either directly from another insurer or through the acquisition of a subsidiary undertaking, the Group recognises an intangible asset representing the present value of future profits (PVP) embedded in the contracts acquired. The PVP represents the difference between the fair value of the contractual rights acquired and insurance obligations assumed and a liability measured in accordance with the accounting policies for insurance contracts and investment contracts with DPF. The PVP is determined by estimating the net present value of future cash flows from the contracts in force at the date of acquisition. For acquired insurance and investment contracts with DPF, future positive cash flows generally include net valuation premiums while future negative cash flows include policyholders’ benefits and certain maintenance expenses.
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
Swiss Life – Annual Report 2012 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 reflected in the amount of DAC in the balance sheet (“shadow accounting”).
Customer relationships Customer relationships consist of established relationships with customers through contracts that have been acquired in a business combination or non-contractual customer relationships that meet the requirement for separate recognition. They have a definite useful life of generally 5 to 20 years. Amortisation is calculated using the straight-line method over their useful lives.
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on a straight-line basis for the expected useful life up to three years. Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred. Development costs that are directly associated with identifiable software products controlled by the Group and that will probably generate future economic benefits are capitalised. Direct costs include the software development team’s employee costs. Computer software development costs recognised as assets are amortised using the straightline method over their useful lives, not exceeding a period of three years.
2.18 assets held for sale and assoCiated liabilities A disposal group consists of a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with these assets. Non-current assets classified as held for sale and disposal groups are measured at the lower of the carrying amount and the fair value less costs to sell. The carrying amount will be recovered through a highly probable sale transaction rather than through continuing use. Assets held for sale and the associated liabilities are presented separately in the balance sheet.
2.19 finanCial liabilities Financial liabilities are recognised in the balance sheet when the Swiss Life Group becomes a party to the contractual provisions of the instrument. A financial liability is derecognised when the obligation specified in the contract is discharged or cancelled or expires.
finanCial liabilities at fair value through pro fit or loss Financial liabilities at fair value are irrevocably designated as at fair value at initial recognition. Financial liabilities are designated as at fair value through profit or loss in the following instances: – Financial liabilities for the account and risk of the Swiss Life Group’s customers where the insurance benefits are linked to unit values of investment funds or relate to private placement life insurance.
borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective interest method. Any difference
Swiss Life – Annual Report 2012 between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings.
other finanCial liabilities For deposits with fixed and guaranteed terms the amortised cost basis is used. Initial recognition is at the proceeds received, net of transaction costs incurred. Subsequently, they are stated at amortised cost using the effective interest method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the deposits. For repurchase agreements, initial recognition is at the amount of cash received, net of transaction costs incurred. Subsequently, the difference between the amount of cash initially received and the amount of cash exchanged upon maturity is amortised over the life of the agreement using the effective interest method.
2.20 employee benefits post-employment benefits The Swiss Life Group provides post-employment benefits under two types of arrangement: defined benefit plans and defined contribution plans.
The amount recognised in the balance sheet represents the present value of the defined benefit obligations, reduced by the fair value of plan assets and adjusted for unrecognised actuarial gains and losses and unrecognised past ser vice costs. The recognition of a resulting asset is limited to the total of any cumulative unrecognised net actuarial losses and past service costs and the present value of any future refunds from the plans or reductions in future contributions to the plans.
2.22 treasury shares Treasury shares are presented in the consolidated balance sheet as a deduction from equity and are recorded at cost. The difference between the purchase price and the sales proceeds is included in share premium.
In May 2011, the International Accounting Standards Board issued IFRS 13 Fair Value Measurement which contains new guidance on fair value measurement and disclosure requirements for International Financial Reporting Standards. The requirements do not extend the use of fair value accounting, but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. The new guidance will be effective for annual periods beginning on or after 1 January 2013. The Swiss Life Group does not expect a significant impact of these new requirements on its consolidated financial statements.
In May 2011, the International Accounting Standards Board issued IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities as well as amended versions of IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures. IFRS 10 Consolidated Financial Statements builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. IFRS 11 Joint Arrangements provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form as is currently the case. The standard
In October 2010, the International Accounting Standards Board issued requirements on the accounting for financial liabilities. These requirements are part of IFRS 9 Financial Instruments. The new requirements address the problem of volatility in profit or loss arising from an issuer choosing to measure its own debt at fair value. An entity choosing to measure a liability at fair value will present the portion of the change in its fair value due to changes in the entity’s own credit risk in other comprehensive income. IFRS 9 Financial Instruments applies to annual periods beginning on or after 1 January 2015. The Swiss Life Group is currently analysing the impact of these new requirements.
Swiss Life – Annual Report 2012 fair value of finanCial instruments The fair value of financial instruments is determined based on quoted market prices, where available, or on estimates using present values or other valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. Where market prices are not readily available, fair value is based either on estimates obtained from independent experts or quoted market prices of comparable instruments. In that regard, the derived fair value estimates cannot be substantiated by comparison with independent markets and, in many cases, could not be realised immediately.
The categorisation within the fair value hierarchy (i.e. level 1, 2 or 3) of the inputs to the fair value measurements of financial instruments carried at fair value is set out in note 33.
Swiss Life – Annual Report 2012 approved by management. The cash flows include inflation. External valuations for individual real estate assets are performed on a rotating basis, but at a minimum each property is evaluated every three years.
Insurance liabilities are established by using appropriate estimates and assumptions on mortality, morbidity, exercise of policyholder options and investment returns. With regard to mortality for example, these estimates are typically based on standard industry tables. Management makes allowance for expected improvements due to continued advances in medical science and social conditions.
“Insurance International” comprises the cross-border insurance operations in Liechtenstein, Luxembourg, Singapore and Dubai.
“AWD” comprises the Hanover-based AWD Group, which specialises in comprehensive financial advisory services for medium and high-income client segments.
Policy fees earned on insurance contracts 16 19 – 0 – – – 36 – 36
Policy fees earned on investment and unit-linked contracts 50 105 37 81 – – – 273 – 273
Net gains/losses on financial instruments at fair value through profit or loss 411 200 50 –84 – 1 2 580 – 580
Benefits and claims under insurance contracts –9 378 –2 139 –1 722 –19 – – 1 –13 257 44 –13 214
Benefits and claims recovered from reinsurers 15 104 13 1 – – –9 123 –44 79
Depreciation and amortisation expense –250 –269 –125 –5 –2 –31 –3 –685 – –685
Benefits and claims under insurance contracts –8 287 –2 055 –1 782 –20 – – –1 –12 145 137 –12 008
Financial assets at fair value through profit or loss 2 715 7 966 994 15 438 – 13 58 27 183 – 27 183
Financial assets available for sale 58 671 14 821 6 365 990 35 – 294 81 176 – 81 176
Financial assets held to maturity – – – – – – – – – –
Financial assets pledged as collateral – 964 – – – – – 964 – 964
Financial liabilities at fair value through profit or loss 1 943 592 567 18 061 – – – 21 162 – 21 162
Financial assets available for sale 49 556 11 276 5 150 837 32 – 413 67 264 – 67 264
Financial assets pledged as collateral – 969 – – – – – 969 – 969
Swiss Life – Annual Report 2012 premiums and poliCy fees from external Customers
Non-current assets for this purpose consist of investment property, property and equipment and intangible assets (except for intangible assets arising from insurance contracts).
Swiss Life – Annual Report 2012 5 Risk Management Policies and Procedures
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). They are segregated and managed to meet specific investment objectives of the policyholders. The assets back the insurance liabilities and the financial liabilities arising from these contracts. The fair values of the liabilities reflect the fair values of the assets. Certain contracts with unit-linking features contain financial and insurance guarantees. The liabilities relating to this part are included in the financial and insurance liabilities.
ToTal asseTs For THe aCCouNT aND rIsK oF THe swIss lIFe GrouP’s CusTomers 25 396 22 346 liabilities linked to assets for the aCCount and risk of the swiss life group’s Customers
5.3 asset and liability management (alm) The main objective of the ALM process is to ensure that the Swiss Life Group’s insurance operations can meet their commitments to policyholders at all times while also adequately compensating shareholders for making risk capital available. Based on the economic principles of risk management and on the risk appetite definition applied in the risk budgeting process, ALM comprises the following main activities: the determination of the strategic asset allocation and of the risk capital and exposure sublimits.
The ALM process is centrally coordinated at Group level by means of local asset and liability management committees with representatives from local senior management and representatives from the Group. The local units are in charge of implementing the decisions. The process requires the involvement of investment management, finance, actuarial and risk functions.
Swiss Life – Annual Report 2012 distribution poliCy The distribution policy seeks to align the interests of the different groups of stakeholders. Holders of traditional life insurance policies 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. The focus of the Swiss Life Group lies on the sustainability of the business model and should balance the policyholders’ and shareholders’ expectations.
produCt design The targets of risk management are supported by product design principles. Product design defines which guarantees and benefits are built into a specific product to respond to the demand from and expectations of customers. The actuarial bases used for this purpose should ensure that each individual product generates a sufficient contribution margin. To ensure that the Group’s principles are observed, guidelines on product management and underwriting have been introduced to harmonise the local guidelines and to ensure that they are in line with the guidelines of the Group. As the Group’s insurance entities operate in a number of different countries, the local regulatory constraints may have an impact on the business units’ product range. These constraints must always be obeyed.
5.4 finanCial risk management objeCtives and poliCies The Group is exposed to financial risk through its financial assets, financial liabilities (primarily investment contracts and borrowings), reinsurance assets and insurance liabilities. In particular, the key financial risk is that the proceeds from the financial assets are not sufficient to fund the obligations arising from the insurance and investment contracts, as well as from borrowings and other liabilities. The most important components of the financial risk are interest rate risk, equity price risk, credit risk, currency risk and liquidity risk.
interest rate risk relating to finanCial in stru ments and insuranCe ContraCts The Group’s primary interest rate exposure is to contracts with guaranteed benefits and the risk that the interest rates of the financial assets purchased with the consideration received from the contract holders is insufficient to fund the guaranteed benefits and expected discretionary participation payable to them.
ToTal INTeresT-seNsITIve INsuraNCe lIaBIlITIes 61 150 24 960 94 86 203
Insurance liabilities linked to assets for the account and risk of the swiss life Group’s customers 1 603
Most life insurance products with a savings component and investment contracts are subject to minimum guaranteed interest rates. The guaranteed rate differs according to the type of contract. In Switzerland for instance the minimum guaranteed interest rate for the occupational pensions segment (mandatory BVG savings account) stood at 1.5% in 2012 and will remain at 1.5% for 2013 (2011: 2%).
The Group manages interest rate and interest rate volatility risk by managing the interest rate and volatility sensitivity of its investment portfolio against the corresponding sensitivity of liabilities issued.
The interest rate and volatility exposure of the liabilities is determined by projecting the expected cash flows from the contracts using best estimates of mortality, disability, expenses, surrender and exercise of policyholder options in combination with interest rate and volatility scenarios. The ALM process defines the strategic asset allocation optimising the net interest rate sensitivity of the investment and liability portfolios. To the extent that this is not practicable, swap contracts and other instruments are used to hedge interest rate risk. In certain markets payer swaptions are used to hedge the risk of fair value changes of interest-sensitive financial assets. Strategically, a minimum interest rate risk will remain, since a perfect interest rate hedge can either not be achieved or would not be targeted.
The non-rated loans primarily comprise mortgages and policy loans. For the bulk of the mortgages a risk class system is in place which allows the company to identify, measure, monitor and manage the risks at the level of portfolios, borrowers and loans at all times. The risk class system also enables a risk-adequate pricing of the loans. Implementation, parametrisation and control of the system are set out in an internal directive which has been approved by the Group Chief Investment Officer.
Debt securities at fair value through profit or loss 694 1 906 5 526 6 083 6 220 7 989
Debt securities available for sale 78 670 64 883 – – 78 670 64 883
Debt securities pledged as collateral 964 969 – – 964 969
The following table shows the extent to which collateral and other credit enhancements mitigate credit risk in respect of the maximum exposure to credit risk: CreDIT rIsK mITIGaTIoN – CollaTeral HelD aND oTHer CreDIT eNHaNCemeNTs as aT 31 DeCemBer 2012
Policy and other originated loans 159 34 360 123 – 570 0 1 247
FINaNCIal asseTs PasT Due (NoT ImPaIreD) – aGe aNalysIs as aT 31 DeCemBer 2011
Policy and other originated loans 8 7 –8 –7 0 0
FINaNCIal asseTs INDIvIDually DeTermINeD as ImPaIreD – ImPaIrmeNT loss allowaNCe For THe year 2011
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 fluctuations. 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 balance sheet currency exposure is to a large extent hedged using foreign currency derivatives. The following table shows the Group’s foreign currency exposure against the major functional currencies Swiss franc and euro: CurreNCy exPosure as aT 31 DeCemBer 2012
Swiss Life – Annual Report 2012 liquidity risk Liquidity risk is the risk that not enough cash resources may be available to pay obligations when due (primarily obligations arising from the insurance business and debt) at a reasonable cost. The Swiss Life Group is exposed to liquidity risk which primarily arises on calls on its cash resources from claims, amounts payable at maturity and surrenders arising from insurance and investment contracts. The Swiss Life Group faces the risk of not being able to refinance its debt obligations due to unexpected long-term market disruptions.
Financial assets pledged as collateral – – 964 969 – – 964 969
nature of insuranCe risk When designing a new product or reviewing an existing one, care has to be taken that the product neither includes systemic risk nor provides incentives for adverse selection. The product should meet the market’s needs. The Swiss Life Group generally favours transparent and simple product design
The nature of insurance risk can be summarised as follows: morTalITy aND loNGevITy
Mortality and longevity risks respectively reflect the financial consequences of insured people dying sooner or living longer than expected. For example, a life insurer with an annuity portfolio making payments to the policyholders until their death is financially exposed to those individuals who live longer than expected. Conversely, an insurer writing life insurance business that pays out amounts contingent on death of the policyholders is exposed to increases in mortality levels.
In Switzerland, the Swiss occupational pensions (BVG) segment of the group life insurance business is a significant part of the Group’s overall life insurance business. The BVG business provides an example of a minimum return guarantee. The guarantee takes the form of the right to convert an assured sum into a life annuity at a guaranteed conversion rate: The prevalent annuity conversion rate for the mandatory part of the BVG business is set at 6.85% for men (retirement age 65) and 6.8% for women (retirement age 64) for retirements in 2013 (6.9% for men and 6.85% for women for retirements in 2012). Under an amendment to the BVG legislation, which took effect on 1 January 2005, the rate will be reduced in stages to 6.8% by 2014.
With regard to mortality, morbidity and longevity risk the most important annuities payable (annuities in payment phase) or insured (annuities in deferral phase) as well as sums insured are as follows: aNNuITIes PayaBle Per aNNum By TyPe oF aNNuITy – INDIvIDual lIFe
In CHF million life annuities – in payment 604 570 annuities certain – in payment 17 16 annuities certain – deferred 45 47
In CHF million retirement annuities – in payment 704 605 retirement annuities – deferred 768 432 survivors’ annuities – in payment 116 115
Disability risk reflects the financial consequences of groups of individuals getting disabled more often and/or recovering less quickly than expected. With regard to morbidity, the most significant risk factors are epidemics, widespread changes in lifestyle, such as eating, smoking and exercise habits or economic effects.
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).
Swiss Life – Annual Report 2012 underwriting strategy Underwriting is the process of selecting and classifying insurable risks. The underwriting strategy attempts to ensure that the risks underwritten are well diversified in terms of type of risk and level of insured benefits. Life insurance underwriting is performed to ensure that the premiums and the general conditions of the insurance policies are consistent with the risks to be insured. The first step in the underwriting process is to determine which individual risks can be accepted. The second step is to place the accepted risks into groups of roughly equivalent levels of risk. Both processes must be conducted objectively and consistently. The Group sets limits for the acceptance of insurance coverage arising from new and renewal business. Medical selection is part of the Group’s underwriting procedures, whereby premiums are charged to reflect the health condition and family medical history of the applicants. The limits relate to sums at risk, maximum insured losses or present value of premiums at the contract or insured person level. Depending on the type of business and the limit exceeded, the new or renewed contract must be approved by a specific investment and risk committee or senior management. Contracts exceeding the set limits must be tested for profitability according to predefined procedures before approval. Certain contracts which include specific risks relating to derivatives or demographic risk factors for which no reliable data is available must be submitted for approval irrespective of the amount of coverage offered. Insurance coverage exceeding set limits is subject to regular internal reporting requirements. Additionally, it must be ensured that the underwriting practices are in line with local laws.
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.
estimate of ultimate claim costs by year of loss occurrence at end of year of loss occurrence 400 416 384 447 416 345 392 323 311 303 n/a
reinsuranCe Reinsurance is used to limit the Group’s exposure to insurance risk. This does not, however, discharge the Group’s liability as a primary insurer, and, if a reinsurer fails to pay a claim, the Group remains liable for the payments to the policyholder. A loss allowance would be recognised for any estimated unrecoverable reinsurance.
other risk transfer Risk transfer primarily takes the form of reinsurance. Alternative forms of risk transfer (such as securitisation ) require the formal approval of the Group Risk Committee. No significant alternative form of risk transfer is used by the Group at present.
The market consistent embedded value of the Swiss Life Group amounted to CHF 9.6 billion as at 31 December 2012 (2011: CHF 7.7 billion). Due to different valuation principles, changes in the embedded value are typically not reflected to the same extent in the consolidated balance sheet and consolidated statement of income of the Swiss Life Group and vice versa.
The market consistent embedded value calculations are based on economic scenarios which are calibrated to market conditions at valuation date. Best estimate assumptions were made regarding a number of factors, in particular asset allocation, policyholder participation, development of costs and claims, policyholder behaviour, mortality and morbidity. Business is assumed to be continuing
At 31 December 2012, if the interest rates had been 100 basis points lower, the embedded value would have been CHF 567 million lower (2011: CHF 729 million lower).
At 31 December 2012, if the swaption implied volatilities (interest rates) had been 25% higher, the embedded value would have been CHF 444 million lower (2011: CHF 709 million lower).
Diluted earnings per share include the dilutive effect of convertible bonds and share options issued. In the diluted EPS calculation, the profit attributable to shareholders is adjusted for the applicable interest expense minus the related taxes. Share options are dilutive when they would result in the issuance of shares for less than the average market price during the period. Dilutive share options are assumed to have been exercised. The assumed proceeds are regarded as having been received from the issuance of shares at the average market price during the period. The difference between the number of shares issued and the number of shares that would have been issued at the average market price during the period is considered as an issuance of shares for no consideration.
Net result attributable to equity holders of swiss life Holding 92 605 resulT useD To DeTermINe DIluTeD earNINGs Per sHare 92 605 weighted average number of shares outstanding 31 902 670 31 893 573 adjustments (number of shares)
Swiss Life – Annual Report 2012 7 Premiums, Policy Fees and Deposits Received written premiums
Deposits received under insurance and investment contracts 4 695 5 063
Gross wrITTeN PremIums, PolICy Fees aND DePosITs reCeIveD 17 046 17 143 8 Details of Certain Items in the Consolidated Statement of Income
Interest income on financial assets held to maturity and available for sale 2 644 2 430
Interest income on loans and receivables 996 1 110 other interest income 11 15
Financial assets designated as at fair value through profit or loss 463 –155
Financial instruments for the account and risk of the swiss life Group’s customers –49 –17
Swiss Life – Annual Report 2012 net insuranCe benefits and Claims
Net benefits and claims under insurance contracts 13 134 11 905
ToTal NeT INsuraNCe BeNeFITs aND ClaIms 13 819 12 614 interest expense
Insurance agent and broker commissions 790 911 asset management and banking commissions 61 52 other commissions and fees 21 20
Net gains/losses on financial instruments at fair value through profit or loss include interest and dividend income of CHF 77 million for the period ended 31 December 2012 (2011: CHF 79 million). Net gains/losses on liabilities designated as at fair value through profit or loss in clude changes attributable to credit risk: nil for the period ended 31 December 2012 (2011: nil).
Derivatives designated as fair value hedges 38 0 – 2 1 901 117
Derivatives designated as net investment hedges 0 6 – – 299 365 derivatives held for risk management Derivatives held for risk management primarily comprise derivatives that share a risk with other financial instruments and give rise to opposite changes in fair value that tend to offset each other (“economic hedges”). The timing of the offset does not match in all cases.
derivatives designated and aCCounted for as hedging instruments Derivatives designated and accounted for as hedging instruments comprise derivatives associated with fair value hedges, cash flow hedges and net investment hedges that qualify for hedge accounting.
available-for-sale bond portfolios 37 – – – 23 –154 –24 154 1 829 –
Forward contracts are used as hedging instruments to protect investments in hedge funds against adverse movements in euro and US dollar exchange rates.
Fair value Fair value comprehen- in to notional to occur profit or loss
ToTal DerIvaTIves DesIGNaTeD as CasH Flow HeDGes 589 5 408 – – 9 045 n/a n/a
In 2011 and 2012, the Group used forward starting swaps and forward starting bonds to hedge the exposure to variability in interest cash flows arising on the highly probable purchase of bonds in order to achieve an adequate yield level for reinvestments.
In 2011, the Group entered into futures to hedge the cash flows in euro arising from policy fees earned on investment and unit-linked contracts against foreign currency movements. In 2011, CHF 2 million was transferred to the income statement and was included in policy fees earned on investment and unit-linked contracts.
In 2012 and 2011, the Group entered into forward contracts to hedge the foreign currency translation risk for a portion of its investment in AWD Holding. As at 31 December 2012, the hedged portion amounted to EUR 248 million (31.12.2011: EUR 300 million).
FINaNCIal asseTs DesIGNaTeD as aT FaIr value THrouGH ProFIT or loss
FINaNCIal lIaBIlITIes DesIGNaTeD as aT FaIr value THrouGH ProFIT or loss
Swiss Life – Annual Report 2012 11 Financial Assets Available for Sale
ToTal FINaNCIal asseTs avaIlaBle For sale 73 038 63 038 8 138 4 226 81 176 67 264
Debt securities previously classified as available for sale 6 434 7 976 –31 –31 6 403 7 945
Debt securities designated as loans 529 663 – – 529 663 reCeIvaBles
BalaNCe as aT eND oF PerIoD 5 7 14 17 20 24 total allowanCe for impairment losses 59 60 23 26 82 86
Interest income accrued on impaired loans was CHF 1 million as at 31 December 2012 (2011: CHF 1 million). The Group’s loan port folio is monitored closely through the review of information such as debt service, annual reports and assessments. This information is evaluated in light of current economic conditions and other factors such as diversification of the property portfolio. This evalua-
ToTal FINaNCIal asseTs HelD To maTurITy 33 – 5 046 – – – 5 046
Rental income from investment property was CHF 761 million for the period ended 31 December 2012 (2011: CHF 751 million). Operating expenses arising from investment property that generated rental income stood at CHF 176 million for the period ended 31 December 2012 (2011: CHF 165 million). Operating expenses arising from investment property that did not generate rental income during the period stood at nil for the period ended 31 December 2012 (2011: nil).
Balance as at 1 January 74 63 addition due to a subsidiary becoming an associate 8 –
17 Property and Equipment property and equipment for the year 2012
Transfers to investment property 15 –193 – – – –193 revaluation in respect of transfers to investment property 62 – – – 62
total property and equipment as at end of period 386 17 15 15 433 of which assets held under a finance lease – – 2 – 2 of which buildings in the course of construction 25
Swiss Life – Annual Report 2012 property and equipment for the year 2011
Classification as assets held for sale and other disposals –2 –9 –7 –2 –20 reclassifications and transfers to investment property 15 –44 – – 6 –38 revaluation in respect of transfers to investment property 16 – – – 16
BalaNCe as aT eND oF PerIoD –201 –35 –34 –9 –279 total property and equipment as at end of period 499 17 16 7 539 of which assets held under a finance lease – – 3 – 3 of which buildings in the course of construction 14
No borrowing costs were capitalised in property and equipment in 2012 and 2011.
BalaNCe as aT eND oF PerIoD 15 15 1 554 1 743 36 59 1 605 1 817 present value of future profits (pvp) The present value of future profits relates to portfolios of insurance contracts and investment contracts with discretionary participation acquired in a business combination or transfer of portfolios. It relates to contracts acquired in Germany and France and is amortised in proportion to gross profits or margins over the effective life of the acquired insurance and investment contracts.
deferred aCquisition Costs (daC) Certain ac qui sition costs relating to new and renewed insurance contracts and investment contracts with discretionary participation are deferred.
additions from internal software development – – – – 6 – 6 –
Classification as assets held for sale and other disposals 0 – – – –3 –8 –3 –8
Foreign currency translation differences –8 –27 –2 –7 –2 –6 –12 –40
Balance as at 1 January –157 –157 –112 –83 –100 –102 –369 –342
Classification as assets held for sale and other disposals – – – – 3 8 3 8
Goodwill relating to the acquisition of aXenta AG, Baden, in May 2012 amounted to CHF 7 million.
For the impairment test in 2012, the financial budgets are based on the new management structure that came into effect on 1 January 2013. Under the new management structure, the legal entities of AWD have been assigned to the individual markets in which they operate. The projection covers a three-year period for Switzerland, Germany and International (AWD AT/CEE, UK). The calculations are based on present values that traditionally use a single set of estimated cash flows and a single discount rate. The key assumptions used for the impairment testing on the carrying amount of goodwill relating to AWD were as follows:
No impairment loss would arise on the AWD goodwill relating to “Insurance Switzerland” if the eternal growth rate were reduced to nil or the discount rate were increased by 1%.
Investment contracts with discretionary participation with deposit accounting 9 694 9 605
Investment contracts without discretionary participation at fair value through profit or loss 138 237 of which for the account and risk of the swiss life Group’s customers
Swiss Life – Annual Report 2012 investment ContraCts with disCretionary partiCipation with deposit aCCounting
In CHF million additions from acquisition of insurance portfolio 31 – 15 accretion of interest 23 25 liabilities released for payments on death, surrender and other terminations during the year –374 –437 effect of changes in actuarial assumptions and other movements 2 0 reclassifications and other disposals –95 –
For investment-type contracts, savings premiums collected are reported as deposits (deposit accounting ). These amounts relate to contracts issued in France and Luxembourg.
Swiss Life – Annual Report 2012 investment ContraCts without disCretionary partiCipation at amortised Cost
On 22 October 2012, Swiss Life AG issued subordinated perpetual callable bonds in the amount of CHF 300 million. The bonds are guaranteed by Swiss Life Holding, have no fixed maturity date and are first callable on 22 August 2018 or at each interest payment date thereafter at the option of the issuer, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority. The interest has been fixed at 5.50% p.a. until 22 August 2018. If the bonds are not redeemed on 22 August 2018, the interest resets at a rate fixed for the subsequent five years, consisting of the aggregate of the then prevailing five-year CHF swap rate and the initial margin of 5.091%.
On 4 April 2011, Swiss Life AG raised CHF 325 million with a placement of subordinated perpetual callable bonds guaranteed by Swiss Life Holding. CHF 75 million was additionally issued in June 2011 and CHF 100 million in October 2011. The bonds have no fixed maturity date but are first callable on 4 October 2016 or at each interest payment date thereafter at the option of the issuer, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority. The interest has been fixed for the first five and a half years at 5.25% p.a. If the bonds are not redeemed on 4 October 2016, the interest resets at a rate fixed for the subsequent five years, consisting of the aggregate of the then prevailing five-year CHF swap rate and the initial margin of 3.551%.
On 12 April 2007, ELM B.V., a Dutch repackaging vehicle, issued EUR 700 million in fixed/floating rate subordinated perpetual notes at a price of par to finance loan notes granted to Swiss Life AG, which are guaranteed by Swiss Life Holding. Swiss Life AG may repay the loan notes in full on 12 April 2017 or on any interest payment date thereafter, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority. The notes bear interest from 12 April 2007 to 12 April 2017 at a rate of 5.849% p.a. If the notes are not redeemed on 12 April 2017, the interest will be the aggregate of Euribor 3-month deposits and a margin of 2.5%.
Swiss Life – Annual Report 2012 date thereafter, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority. The notes bear interest from 16 November 2005 to 16 November 2015 at a rate of 5% p.a. If the notes are not redeemed on 16 November 2015, the interest rate will be the aggregate of Euribor for 3-month deposits and a margin of 2.43%.
In March 1999, Swiss Life AG 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 is the aggregate of Euribor plus a margin of 2.05%). In 2009, Swiss Life AG renounced the right to call the loan on its first call date. Following the purchase offer by Swiss Life Insurance Finance Ltd. in 2012, EUR 192 million remain outstanding. Swiss Life AG can next call the outstanding loan on 6 April 2014 or at five-year intervals thereafter, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority.
Interest rate year of issue redemption amount amount swiss life aG CHF 471 CHF 471 +4.200% 2012 2022 467 –
swiss life aG CHF 500 CHF 500 5.250% 2011 2016 492 490 swiss life aG 1 eur 700 eur 590 5.849% 2007 2017 710 715 swiss life aG 2 eur 350 eur 343 5.000% 2005 2015 410 412 swiss life aG eur 443 eur 192 +2.050% 1999 2014 232 538 1 Hybrid loan notes granted by elm B.v.
2 Hybrid bank loan originally granted by J.P. morgan Bank luxembourg s.a.
Claims under non-life insurance contracts 954 960 191 196 763 764
Claims under life insurance contracts 6 414 6 332 87 92 6 328 6 240
Net additions from acquisition of insurance portfolio 31 – 146 – 12 – 134
Claims incurred, benefits paid and surrenders –66 –72 –2 17 –64 –89 effect of changes in actuarial assumptions and other movements 64 –69 –4 –2 67 –67 reclassifications and other disposals 0 – – – 0 –
BalaNCe as aT eND oF PerIoD 6 414 6 332 87 92 6 328 6 240
Claims incurred, benefits paid and surrenders –7 931 –8 182 –140 –50 –7 791 –8 132 effect of changes in actuarial assumptions and other movements 1 830 998 –10 11 1 840 987 reclassifications and other disposals 757 – – – 757 –
BalaNCe as aT eND oF PerIoD 84 177 80 172 91 92 84 085 80 080
Deposits released for payments on death, surrender and other terminations during the year –565 –582 reclassifications and other disposals 293 –
Insurance liabilities linked to assets for the account and risk of the swiss life Group’s customers 1 603 1 108 24 Employee Benefits employee benefit liabilities
other long-term employee benefit liabilities 0 0 defined benefit plans Employees are covered under various funded and unfunded pension plans. When a third party will reimburse some or all of the expenditure for employee benefits and the rights to reimbursement do not qualify as plan assets, they are treated as a separate asset rather than as a deduction from the obligation. In all other respects the treatment is the same as for plan assets. Participation in the various plans is based either on completion of a specific period of continuous service or on the date of hire. Benefits are based on the employee’s credited years of service and average compensation in the years preceding retirement. Annual funding requirements are determined based on actuarial methods or local requirements.
amount of insurance contracts not included in plan assets 1 389 1 393 amounts reCognised in the Consolidated statement of inCome
Current service cost 82 71 expected return on plan assets –39 –35
Net actuarial gains (–)/losses (+) 32 9 employee contributions –23 –24
Contributions by plan participants –36 –45 actuarial gains (+)/losses (–) –11 –268
expected return on plan assets 39 35 actuarial gains (+)/losses (–) 67 –4
Present value of defined benefit obligation –2 666 –2 646 –2 370 –2 385 –2 292
Fair value of plan assets 1 213 1 059 289 296 268 experience adjustments on plan liabilities 6 –30 33 –23 5 experience adjustments on plan assets 67 –1 –8 26 –108
defined Contribution plans Certain subsidiaries sponsor various defined contribution plans. Participation in the various plans is based either on completion of a specific period of continuous service or on the date of hire. The plans stipulate contributions by both employers and employees. The expenses under these plans amounted to CHF 1 million in 2012 (2011: CHF 1 million).
For 2012 and 2011, participants in the share-based payment programme are allocated restricted share units (RSUs) instead of PSUs. As with PSUs, RSUs grant the holder future subscription rights, entitling him to receive Swiss Life Holding shares free of charge after a three-year period has elapsed and if certain conditions are fulfilled, but without additional performance leverage. The attribution of shares after the expiry of the three-year deferral period will be effected on a 1:1 basis (1 RSU = 1 share). The value of the RSUs during the three-year term develops linearly with the Swiss Life Holding share price and systematically corresponds with shareholder interests. The plan also provides for adjustment and reclaiming mechanisms (clawback).
In 2009, the number of PSUs granted under this programme amounted to 53 216. The fair value at the mea surement date amounted to CHF 51.22. The date of grant was 1 April 2009.
The fair value of the PSUs and RSUs granted for each programme is determined at the grant date. The fair value was determined by an independent consulting company using the Black-Scholes formula and Monte Carlo simulations. The associated expense during the vesting period is recognised under employee benefits expense with a corresponding increase in share premium.
The expense recognised for share-based payment amounted to CHF 10 million in 2012 (2011: CHF 7 million).
Swiss Life – Annual Report 2012 25 Income Taxes inCome tax expense
Swiss Life – Annual Report 2012 deferred inCome tax assets and liabilities
NeT DeFerreD INCome Tax asseTs/lIaBIlITIes –671 39 –343 –15 –1 –991
Deferred tax assets are recognised for tax-loss carryforwards only to the extent that realisation of the related tax benefit is probable. Swiss tax assets are calculated in accordance with cantonal and municipal tax legislation. The uncertainty of the utilisation of tax losses is taken into account in establishing the valuation allowance. For the following tax-loss carryforwards, which will expire as follows, no deferred tax asset has been recognised: unreCognised tax losses amounts in CHF million
Total additions from business combinations 29 – – 0 – 0 –
share premium Share premium comprises additional paid-in capital in excess of the par value (net of transaction costs), gains/losses on own equity instruments and equity compensation benefits.
In 2012, a distribution to shareholders out of the capital contribution reserve of CHF 144 million (CHF 4.50 per registered share) was made.
Due to the reduction in the par value of CHF 4.50 per registered SLH share in 2011, an amount of CHF 1 million was credited to share premium in respect of treasury shares.
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 sHares IssueD
sHares IssueD as aT eND oF PerIoD 32 081 054 32 081 054
sales of treasury shares –10 000 –11 126 allocation under equity compensation plans –73 978 –
Swiss Life – Annual Report 2012 foreign CurrenCy translation differenCes Foreign currency translation differences comprise the resulting differences arising on the translation of assets, liabilities, income and expenses of Group entities denominated in foreign currencies into Swiss francs.
Net balance as at 1 January –833 1 523 145 –124 1 544 711
Gains/losses arising during the period –25 4 567 – – 4 567 4 542
Gains/losses on assets held for sale – – – 1 1 1
Gains/losses transferred to the income statement 8, 9 – –753 – 170 –583 –583 effects of
Net other comprehensive income before non-controlling interests –21 972 153 67 1 192 1 171
The gains/losses transferred to the income statement of CHF 170 million in 2012 (2011: CHF 109 million ) shown in “Other” relate to financial assets reclassified to loans in 2008.
Swiss Life – Annual Report 2012 regulatory requirements In accordance with the federal act on the supervision of insurance companies and corresponding decree, the Swiss Life Group reports as an insurance group to the Swiss Financial Market Supervisory Authority (FINMA). The reporting covers risk management as outlined in note 5, Group Solvency I, legal structure, management organisation and intragroup transactions. The reporting is submitted on an ad-hoc, monthly, half-yearly or yearly basis depending on the topic and is reviewed on a yearly basis by the statutory auditor according to the legal requirements. As at 31 December 2012 and 2011, the Group was compliant with the legal requirements.
29 Acquisitions and Disposals of Subsidiaries assets and liabilities from aCquisitions
Intangible assets including intangible insurance assets 18 1 2 employee benefit liabilities –1 –1
Gross contractual amounts receivable 0 2 estimated uncollectible cash flows 0 0
In March 2011, the Swiss Life Group acquired a majority share of Viveris REIM, Marseilles, a real estate management company.
The assets and associated liabilities of the French non-life operation Garantie Assistance S.A., Paris, were reclassified as held for sale in 2011. The sale was completed in June 2012. Garantie Assistance S.A., Paris, was presented in the “Insurance France” segment.
Financial assets at fair value through profit or loss – 1 – – – 1
Intangible assets including intangible insurance assets – 0 – – – 0
Swiss Life – Annual Report 2012 31 Acquisition of Insurance Portfolio
In April 2011, the Swiss Life Group acquired the group life insurance portfolio of Nationale Suisse. The assets acquired and liabilities assumed were as follows: In CHF million asseTs aCquIreD aND lIaBIlITIes assumeD
Financial assets available for sale 1 298 loans and receivables 91
associates personnel other Total Total other financial liabilities –3 – – –3 –
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 years ended 31 December 2012 and 2011, 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.
Swiss Life – Annual Report 2012 33 Fair Value of Financial Instruments finanCial instruments measured at fair value
quoted prices observable inputs unobservable inputs fair value hierarChy as at 31 deCember 2012
Debt securities available for sale 73 498 5 168 4 78 670 equity securities at fair value through profit or loss 3 657 176 27 3 860 equity securities available for sale 1 263 484 759 2 506
Debt securities at fair value through profit or loss 1 450 269 187 1 906
Financial assets for the account and risk of the swiss life Group’s customers 18 735 919 246 19 900
finanCial assets measured at fair value based on level 3 for the year 2012
Gains/losses recognised in profit or loss for assets held at end of period are presented in
net gains/losses on financial assets – – 0 – –9 –
net gains/losses on financial instruments at fair value through profit or loss – 5 – 1 – 0
Swiss Life – Annual Report 2012 finanCial assets measured at fair value based on level 3 for the year 2011
Financial assets for the account and risk of the swiss life
Total gains/losses recognised in profit or loss – –2 –1 0 49 0
Total gains/losses recognised in other comprehensive income – – 0 – –1 –
net gains/losses on financial assets – – –1 – 49 –
net gains/losses on financial instruments at fair value through profit or loss – –2 – 0 – 0
Contractual obligations to purchase or construct investment property 173 329 other contingent liabilities and commitments 353 320 future minimum lease payments under non-CanCellable operating leases – lessee
finanCial guarantees The Group has issued financial guarantees and transaction-related guarantees and similar instruments. Financial guarantees provide for specified payments to be made to reimburse the holder for a loss incurred in the event that a client fails to make payment when due.
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 2012, committed principal amounts stood at EUR 15 million and CHF 105 million (2011: EUR 13 million and CHF 68 million). The range of committed interest rates is 2.5% to 5.9% for commitments in euro and 1.0% to 2.4% for commitments in Swiss francs.
Swiss Life – Annual Report 2012 operating lease Commitments The Group has entered into various operating leases as a lessee. Rental expenses recognised in income for these items totalled CHF 40 million for the year ended 31 December 2012 (2011: CHF 42 million). Minimum lease payments totalled CHF 40 million in 2012 (2011: CHF 42 million).
other Contingent liabilities and Commitments Contractual obligations for repairs and maintenance of investment property amounted to CHF 85 million as at 31 December 2012, which are included in this line item (2011: CHF 69 million).
legal proCeedings The Group is involved in various legal proceedings, claims and litigation generally relating to its insurance operations. The outcome of such current legal proceedings, claims and litigation could have a material effect on operating results or cash flows when resolved in a future period. However, in the opinion of the management these matters are adequately provided for as at the balance sheet date.
Collateral held The Group holds marketable securities as collateral in respect of reverse repurchase agreements which it is permitted to sell or repledge in the absence of default by the counterparty.
GeNBlaN aG, Zürich Ins. CH from 31.05.2011 100.0% 100.0% CHF 17 628 livit aG, Zürich Im 100.0% 100.0% CHF 3 000 livit Fm services aG, Zürich Im 100.0% 100.0% CHF 100
swiss life Investment management Holding aG, Zürich Im 100.0% 100.0% CHF 50 000 swiss life Pension services aG, Zürich Ins. CH 100.0% 100.0% CHF 250 swiss life Private equity Partners aG, Zürich Im 100.0% 100.0% CHF 250 swiss life Products (luxembourg) s.a., strassen, Branch Zürich, Zürich Ins. Int. 100.0% 100.0% – –
share capital segment 1 Consolidation period Group share Direct share Currency in 1000 lieChtenstein
Financière du Capitole, Balma Ins. Fr 80.0% 80.0% eur 1 700
share capital segment 1 Consolidation period Group share Direct share Currency in 1000 germany (Continued)
Financial solutions aG service & vermittlung, münchen other 100.0% 100.0% eur 200
swiss life asset management GmbH, münchen Im 100.0% 100.0% eur 1 000 swiss life assurance solutions s.a., Branch Germany, münchen other 100.0% 100.0% – –
share capital segment 1 Consolidation period Group share Direct share Currency in 1000 luxembourg
Heralux s.a., luxembourg Ins. Fr 99.8% 100.0% eur 3 500 swIss lIFe (luxemBourG), strassen Ins. Int. 100.0% 100.0% eur 23 000 swiss life assurance solutions s.a., strassen other 100.0% 100.0% eur 6 000 swiss life Funds (lux) management Company s.a., luxembourg Im 100.0% 100.0% CHF 400 swiss life Immo-arlon, société anonyme, strassen other 100.0% 100.0% eur 1 000 swiss life Insurance solutions s.a., strassen other 100.0% 100.0% eur 24 450 swiss life International Pension Fund asBl, strassen Ins. Int. – – – –
awD Chase de vere Direct limited, manchester awD until 10.05.2011 – –
Chase de vere Financial solutions limited, manchester awD 100.0% 100.0% GBP 0 austria
awD Cee Holding GmbH, wien awD 100.0% 100.0% eur 35 awD Gesellschaft für wirtschaftsberatung GmbH, wien awD 100.0% 100.0% eur 727 swiss life International services aG, Branch austria, wien Ins. CH from 19.12.2012 100.0% 100.0% – –
eCG oktatási Korlátolt Felelősségű Társaság, Budapest awD until 23.07.2012 – –
swiss life Network (asia) Pte.ltd., singapore Ins. Int. 100.0% 100.0% sGD 0 swiss life (singapore) Pte. ltd., singapore Ins. Int. 100.0% 100.0% sGD 11 000 slovakia
board of direCtors’ responsibility The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated 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 consolidated financial statements for the year ended 31 December 2012 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the International Financial Reporting Standards (IFRS) and comply with Swiss law.
Swiss Life Holding generated a profit of CHF 106 million in the 2012 financial year compared with CHF 238 million the previous year.
loanS to Group companIeS CHF 331 million of the loans to Group companies is classified as subordinated.
leGal reSerVeS Legal reserves comprise the general reserves (plus the additional paid-in capital in excess of the par value, net of transaction costs), the reserve for treasury shares (equivalent in value to own Swiss Life Holding shares held by the Swiss Life Group) and the capital contribution reserve of CHF 1389 million. Following the distribution of CHF 4.50 per share, the capital contribution reserve was reduced by CHF 144 million during the year under review from CHF 1533 million to CHF 1389 million as at 31 December 2012. Of this amount CHF 1219 million is recognised by the Federal Tax Administration, while the legal qualification of CHF 170 million is still open and is to be reassessed according to future legal developments.
treaSury ShareS In the year under review the companies in the Swiss Life Group purchased a total of 10 000 Swiss Life Holding shares at an average price of CHF 122.62. In the same period, they sold 10 000 shares at an average price of CHF 123.95. As at 31 December 2012, the Swiss Life Group held 150 352 treasury shares.
perSonnel expenSeS No direct personnel expenses are included under operating expenses.
Swiss Life Holding further gives several capital guarantees for a maximum net asset value of CHF 1100 million to Swiss Life Ltd, CHF 150 million to Swiss Life Funds, CHF 150 million to Swiss Life Funds (Lux) Management Company and CHF 97 million to Swiss Life Products.
Statement of chanGeS In equIty for the yearS ended 31 december
rISK aSSeSSment For information on risk assessment, please refer to Note 5 of the Swiss Life Group’s Consolidated Financial Statements.
compenSatIon polIcy prIncIpleS The Board of Directors as a whole is responsible for establishing guidelines on the Group’s compensation policy (incl. variable compensation and equity compensation plans) and on employee benefit institutions. 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 in line with the market environment and must be competitive. The individual overall compensation takes into account the employee’s professional skills, engagement and personal performance. It is made up of the basic salary, a variable bonus based on achievement of the annual objectives, which is generally paid in cash and possibly in shares, if applicable deferred compensation in cash and a mid- to long-term equity compensation plan, as well as contributions for occupational provisions and risk insurance.
The share in the company’s success is measured using quantitative Group targets (Key Performance Indicators, KPIs), which are defined in advance for a period of three years as part of medium-term planning. The main KPIs, besides the key figures relating to annual profit, costs, business volume, investment return, return on equity and solvency, are the profitability of in-force and new business, margin performance and the share of non-traditional products in new business. In order to avoid conduct aimed at the short-term achievement of key indicators with a higher weighting, the individual KPIs are not mechanistically weighted in advance. Their individual weighting is determined at the end of each financial year by the Board of Directors as a whole on the basis of a proposal by the Nomination and Compensation Committee (NCC) taking all developments into account and consideration (discretionary decision).
The Board of Directors may consult independent professionals where deemed appropriate. In the year under review, Swiss Life was advised by PricewaterhouseCoopers (PwC) on the structuring of the equity compensation plan and the wording of the corresponding plan regulations.
Swiss Life – Annual Report 2012 and, if applicable, as deferred compensation in cash. The deferred compensation in cash is paid out after a period of three years has elapsed and provided that the regulatory requirements have been satisfied. In addition, a mid- to long-term compensation component is in place in the form of an equity compensation plan (RSU plan), which is linked to the performance of the Swiss Life Holding share price, respectively to medium-term planning and corresponding target achievement. The equity compensation plan grants an entitlement to Swiss Life Holding shares after a period of three years has elapsed and provided that the relevant requirements are satisfied at the time of allocation.
At Corporate Executive Board level, the amount of the variable compensation depends 60% directly on the company’s success. The Key Performance Indicators (KPIs) used to assess company success include, as mentioned above, key figures relating to annual profit, costs, business volume, investment return, return on equity and solvency, as well as the profitability of in-force and new business, margin performance and the share of non-traditional products in new business.
Swiss Life – Annual Report 2012 intangible assets. Furthermore, Swiss Life generated an investment result of CHF 5.7 billion and a resulting net investment return of 4.8%, as well as an investment performance of 8.5%, which is an excellent result also in a direct peer comparison. The cost targets were surpassed, business volume met expectations, and the share of non-traditional products in new business was increased beyond the target level. Profitability targets were only partly achieved due to the difficult market conditions, whereas return on equity and the solvency ratio came within the target range. As far as the weighting of these KPIs is concerned, the Board of Directors took the very good operating result and aboveaverage investment result of 2012 into particular consideration in view of the very challenging market situation.
The allocated deferred compensation in cash represents an entitlement during the three-year deferral period. The underlying “deferred cash plan” also provides for adjustment and reclaiming mechanisms (clawback). Full or partial reduction of the deferred compensation is provided for in the following cases: negative impact of the key figures applying to the allocation of deferred compensation due to a restatement of the annual accounts or damage to Swiss Life as a result of a violation of statutory, regulatory or compliance standards by participants of the plan. If the employment relationship is terminated by a participant during the three-year deferral period, the entitlements expire worthless (retention component).
Swiss Life – Annual Report 2012 of PSUs entitling the participant to receive shares after the three-year term is determined in accordance with the following: One half of the PSUs allocated is multiplied by the factor resulting from the TSR Swiss Life Holding target being met, and the other half by the factor resulting from the TSR Outperformance target being met. The factor is 1 or 100% if a performance of 35% is achieved for the first performance criterion, the TSR Swiss Life Holding. Interim values are determined by linear interpolation. In the case of the second performance criterion, TSR Outperformance, the factor is 1 or 100% if the TSR Swiss Life Holding is equal to the median of the benchmark index (Dow Jones STOXX 600 Insurance Index). Here, too, interim values are determined by linear interpolation.
The results (TSR Swiss Life Holding factor multiplied by one half of the PSUs and the TSR Outperformance factor multiplied by the other half) are added together. The sum is the number of PSUs, which translates into an entitlement to an equal number of Swiss Life Holding shares.
The new equity compensation plan, relating to the effective date of 1 April 2013, is based on the Group-wide programme “Swiss Life 2015”, which was announced at the Swiss Life Group’s Investors ’ Day on 28 November 2012 (see www.swisslife.com/investorsday2012). On the basis of the medium-term planning 2013-2015, performance criteria relating to cost efficiency (50% weighting), the risk and fee result (25% weighting) and IFRS profit (25% weighting) have been determined by the Board of Directors. After expiry of the three-year period of the RSU plan, the target value for each performance criterion according to the medium-term planning 2013-2015 is compared with the actual result achieved. The share allocation corresponds to the number of allocated RSUs (1 RSU = 1 SLHN) if all three performance targets have been achieved or exceeded after the three-year period has elapsed; overperformance does not lead to a higher share allocation. If the targets are only partly achieved, the share allocation is correspondingly reduced based on the weighting of the performance target concerned or the RSUs expire worthless.
Swiss Life – Annual Report 2012 restatement of the annual accounts or damage to Swiss Life as a result of a violation of statutory, regulatory or compliance standards. If the employment relationship is terminated by a participant during the three-year deferral period, the entitlements expire worthless.
perSonnel chanGeS to the board of dIrectorS and the corporate executIVe board In 2012 There were no resignations from the Board of Directors in the period under review. On 19 April 2012 Wolf Becke was elected to the Board of Directors of Swiss Life Holding.
There were no personnel changes on the Corporate Executive Board during 2012.
Compensation in cash blocked shares2 occupational provisions total compensation extrain cash ordinary aggregate and shares Regular contri- total amount Number amount (amount) 3 contributions 4 butions (amount)
Swiss Life – Annual Report 2012 compenSatIon to the board of dIrectorS In 2011 amounts in CHF
3 Resigned 07.12.2011. swiss life ltd, awD Holding ag and their subsidiaries paid a total of eUR 341 800 in fees for consultancy services to a company in which
Carsten maschmeyer has an important shareholding. 4 allocation and valuation was effected on 23.06.2011 and 15.12.2011 at an economic value of CHF 111.0817 und CHF 73.3828, which is equal to the tax value, taking into account the blocking period of three years. the share prices on the days of allocation where CHF 132.30 and CHF 87.40. 5 all contributions are gross contributions, i.e. they include employee contributions to aHv/Iv/alv. employer contributions to aHv/Iv/alv/FaK amounted to a total of
Swiss Life – Annual Report 2012 compenSatIon to the corporate executIVe board In 2012 The compensation table below shows the variable compensation in cash for the 2012 financial year which was determined by the Board of Directors at the beginning of 2013. It is disclosed on an accrual basis as compensation for 2012.
The members of the Corporate Executive Board did not receive any compensation in shares for the 2012 financial year. They are participating in the current equity compensation plan, which provides for the allocation of Restricted Share Units (RSUs).
1 six individuals were taken into account in the period under review. 2 the bonus paid in 2013 relates to the 2012 financial year. 3 Child allowances (CHF 2400), allowance for years of service (CHF 15 625), company cars (CHF 83 391), premium contributions to 3rd pillar pension plans (CHF 99 056), other (CHF 4828), each in total.
Compensation in shares total total compensation bonus for 2011 Other compensation in cash and salary paid in 2012 2 compensation 3 in cash Number amount shares (amount)
1 six individuals were taken into account in the period under review. 2 the bonus paid in 2012 relates to the 2011 financial year. 3 Child allowances (CHF 4150), company cars (CHF 101 439), premium contributions to 3rd pillar pension plans (CHF 93 762), other (CHF 4388), each in total.
expenditure for occupational provisions aggregate total compensation in cash and in shares and occupational Regular extraordinary provisions expense contributions 4 contributions (amount) 5 bruno pfister, group CeO
Restricted share Units (RsUs)7,8 aggregate total compensation incl. deferred compensation in cash and RsUs amount 6 Number amount (amount)
slH shares bruno pfister, group CeO 10 818 manfred behrens 900 tOtal CORpORate exeCUtIve bOaRD 34 318 performance
1 total number of psUs allocated in the year 2010 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.
2 total number of RsUs allocated in the years 2011 and 2012 in connection with the relevant equity compensation plan. the RsUs represent future subscription rights that entitle the individuals concerned to receive slH shares after a period of three years, provided that the relevant conditions are then met.
The net profit for the year amounts to CHF 105 546 993. The Board of Directors proposes to the General Meeting of Shareholders that the profit be appropriated in accordance with the table below. If this proposal is adopted, a distribution of CHF 4.50 per share will be made from the capital contribution reserve.
opInIon In our opinion, the financial statements for the year ended 31 December 2012 comply with Swiss law and the company’s articles of incorporation.
The Eurozone debt crisis in 2012 generated a high level of uncertainty among market players. Despite interest rates in Switzerland and Germany reaching record lows, the Swiss Life share price delivered extremely strong performance of 41% in 2012.
Dow Jones STOXX 600 Insurance Index (in EUR) 31.12. 177.11 133.25 154.45 152.08 134.68
Performance Dow Jones STOXX 600 Insurance Index (in %) +33 –14 +2 +13 –47
Market capitalisation (in CHF million) 28.12. 3 895 2 772 4 337 4 235 2 540
Dividend yield on year-end price (in %) 28.12. 3.71 5.21 1.78 3.79 23.48
Financial result (without share of results of associates) 6 043 4 459 4 368 4 588 600
Net insurance benefits and claims –13 819 –12 614 –12 704 –11 884 –12 915
Equity holders of Swiss Life Holding 92 605 557 278 350 figureS from conSoLidated BaLance Sheet
ContaCts Swiss Life General-Guisan-Quai 40 P.O. Box 2831 CH-8022 Zurich www.swisslife.com