In its anniversary year Swiss Life generated a record result, paving the way for a successful future.
Return on equity | Return on equity came to 18.1%, above the 10% level as in previous years.
Growth | Swiss Life’s growth momentum continued with premium income climbing 10% to CHF 24.2 billion.
Efficiency | Swiss Life sustainably improved its cost situation by reducing the operating expense ratio of its insurance business by around 10% to under 7% within 5 years.
Swiss Life at a glance | The Swiss Life Group is one of Europe’s leading providers of life insurance and pension solutions. The company offers individuals and companies a broad range of products combined with comprehensive advice through its own sales force as well as brokers and banks in Switzerland, France and Germany. It provides internationally operating corporations with employee benefits solutions from a single source, and is among the global leaders in structured life and pension products for high net worth individuals.
Swiss Life Holding, registered in Zurich, was founded in 1857 as Schweizerische Rentenanstalt. The shares of Swiss Life Holding are listed on the SWX Swiss Exchange (SLHN). The Swiss Life Group employs a staff of around 9000.
Swiss Life made great progress in implementing its pensions leadership strategy and achieved many of its targets earlier than expected. The company will continue on its successful course and has defined new, ambitious goals.
The cross-border business in Liechtenstein and Luxembourg is expanding rapidly. Swiss Life’s portfolio of products and services sold from these countries address the requirements of both high net worth individuals and international corporations.
Swiss Life is committed to helping people create a financially secure future. For life. The company aims to give each individual customer an appropriate financial perspective.
DEAR SHAREHOLDERS | 150 years of Swiss Life! In its anniversary year, your company achieved a very good result despite all the turbulences on the financial markets. The net profit of CHF 1368 million is equivalent to CHF 39.60 per share. Based on this strong result, the Board of Directors will propose an increase in the profit distribution from CHF 7 to CHF 17 per share to the General Meeting of Shareholders on 8 May 2008. A prominent feature of the year 2007 was Swiss Life’s 150th anniversary. The various activities organised under the recurring theme “Perspectives for people” gave me the opportunity to forge numerous valuable contacts with customers, employees and business partners. In many encounters I sensed the strong personal ties these people have with Swiss Life. This has reinforced my conviction that Swiss Life is a company with a very promising future.
The anniversary year saw great progress in the implementation of our strategy and the achievement of a significant part of our targets originally set for 2008. In the past year, the Board of Directors therefore focused predominantly on developing the strategy and setting the future course. Reassessing the strategy, we were confirmed in our view that pensions and long-term savings will remain a long-term growth market and thus an attractive business field. We have therefore decided to systematically pursue the chosen strategic course. We want to position Swiss Life as the leading specialist for life insurance and pension solutions and to accelerate our growth. The core focus of our activities will remain the same, as expressed in our mission statement: “We are committed to helping people create a financially secure future. For life.” Swiss Life takes care of people’s pension needs not just before, but also after retirement. We will seize growth opportunities in our existing markets, in international business and in attractive growth markets, building on a more function-oriented management structure to further enhance efficiency and Group-wide cooperation.
This partnership is therefore very significant for us in view of our multi-channel distribution concept. In January 2008, Swiss Life made a bid to all AWD shareholders, offering to buy their shares for EUR 30 each. After expiry of the acceptance period in mid-March 2008, Swiss life holds approximately 86% of AWD’s shares. As majority shareholder, Swiss Life will plan the next steps in this forward-looking cooperation together with AWD. As a result of these corporate transactions, Swiss Life is now extremely well placed to meet its strategic targets. Naturally, we are monitoring the market closely and assessing further carefully targeted acquisition options, giving priority to our principal markets.
Our financial targets up to 2012 underscore our commitment to profitable growth and the efficient use of capital. We aim to boost the earnings per share by at least 12% a year. The return on equity should come to above 12% each year. Active capital management is a further key element of the strategy. We will be conducting a share buy-back programme up to CHF 2.5 billion and are counting on a profit distribution of at least CHF 600 million for 2008. From the financial year 2009 onwards, we will annually propose a distribution to shareholders of between 40% and 60% of the reported profit.
In parallel to the realignment of the strategy, the Board of Directors also took measures to assure continuity at top executive level and on the Board of Directors. I decided last year to relinquish my function at Swiss Life in 2010 to enable a rejuvenation process at the top of the company. It is the Board of Directors’ and my personal wish that Rolf Dörig, who has been leading Swiss Life with great success as Group CEO since November 2002, be appointed Chairman of the Board as my successor. Thus the election of Rolf Dörig to the Board of Directors will be proposed to you already at the General Meeting on 8 May 2008. It is planned that Rolf Dörig will assume the position of Delegate of the Board of Directors until my departure. His key responsibilities will involve strategy development and overseeing strategy implementation. It is further planned that, following Rolf Dörig’s election to the Board of Directors, Bruno Pfister will be appointed Group CEO. Bruno Pfister has been with Swiss Life since August 2002, initially as Group Chief Financial Officer and, since 1 January 2006, as CEO International. I am convinced that he will ensure the continuation of Swiss Life’s success story. The Board of Directors also decided to boost the international component in the Corporate Executive Board by including the national CEOs of France and Germany, Jacques Richier and Manfred Behrens. With their specific knowledge and their personality, they will no doubt prove an ideal addition to the Corporate Executive Board.
DEAR SHAREHOLDERS | The Swiss Life Group generated the best result of its 150-year history in 2007, with a net profit of CHF 1368 million. Adjusted for the profit contribution of around CHF 300 million from the dissolution of reserves following a change in Dutch law, the figure came to CHF 1064 million. Thus we already achieved our 2008 profit target of CHF 1 billion in 2007. The return on equity stood at 18.1%, thereby continuing to exceed the 10% level as in previous years. The successful implementation of our strategic priorities of growth, efficiency and leadership led to this very good result, despite the decline in the financial result vis-à-vis the previous year.
The positive trend in premium growth was maintained. The overall premium volume of CHF 24.2 billion for the Swiss Life Group represented 10% growth over the previous year. The Swiss business made an important contribution to these figures. In our home market we continued to expand our leadership position with premiums growing 11%, which was above the market average, to stand at CHF 8413 million. The company in Liechtenstein, specialising in structured pension solutions for high net worth individuals, recorded a veritable growth surge. The previous year’s premium growth of CHF 646 million to CHF 2786 million included the acquisition of the Liechtenstein company CapitalLeben, which was fully consolidated from the end of March 2007, and the consistently strong organic growth. France showed a decline of 10% with premium income at CHF 7411 million, but adjusted for the sale of the ERISA companies, the growth rate of 6% outperformed the market. In Germany, the premium volume advanced by 2% to CHF 2158 million. In the Netherlands, Swiss Life acquired further autonomous pension funds as customers, raising the premium income by 21% to CHF 2302 million. In Belgium and Luxembourg, premium income declined due to special situations.
A very good overall result was achieved, although the financial result on assets held for own risk was, at CHF 4885 million, 8% or CHF 422 million lower than in the previous year. This was a consequence of the negative development on the international financial markets since the middle of 2007. Direct investment income increased 25% to CHF 4627 million, but – in contrast to the previous year’s net capital gain of CHF 783 million – there was a net capital loss of CHF 218 million. Direct and indirect investments in subprime US mortgages total CHF 83 million overall, which represents less than 0.1% of overall investments. Swiss Life is, therefore, not directly affected by the crisis on the US mortgage market. However, for the 2007 accounts, we decided to completely write off positions vulnerable to a further aggravation of the liquidity situation brought on by all the market turbulence. This reduced the net profit by CHF 72 million. We made further efficiency gains in 2007. Despite the premium growth of 10% we were able to reduce our operating costs by a further 2%. Stringent cost management will continue to be a top priority for us. Swiss Life has a solid financial base for the next development stage. Shareholders’ equity amounted to CHF 7277 million on 4Letter from the Group Chief Executive Officer
The successful implementation of our strategic priorities of growth, efficiency and leadership led to this very good result.
Employee commitment increased further. The value determined in the annual survey for job satisfaction and employees’ identification with the company rose by another four points, from 73 to 77 index points, thus moving closer to the target of 80. Commitment has risen by 16 points since the first time it was measured in 2004. To enable this positive trend to continue, we have systematically expanded the training and development measures available to employees, and above all to managers.
With the progress we have achieved and our strategic focus, Swiss Life is well positioned for the next growth surge. The strategic directions defined in 2007 will lead to further gains in Swiss Life’s attractiveness to customers, shareholders and employees. The focus will be placed even more sharply on our strengths in the area of pensions and long-term savings. To respond still better to customers’ requirements we are stepping up product management. With AWD, we can expand our multichannel distribution capability in existing markets and tap into attractive growth markets. The new financial objectives underscore our commitment to profitable growth and the efficient use of capital.
We are committed to helping people create a financially secure future. For life.
Strategy and Markets | Swiss Life made great progress in implementing its pensions leadership strategy and achieved its targets sooner than expected in many areas. The company will continue along this path. Swiss Life wants to position itself as a leading provider of life insurance and pension solutions, and to accelerate its pace of growth.
Life expectancy is on the rise, whereas the birth rate is falling. Populations are getting older. This demographic trend poses a major challenge to state pension systems, with the number of pensioners rising and the number of people in gainful employment sinking. This trend will be accelerated in the near future when the generation of baby boomers retires.
LEADERSHIP | Employee commitment climbed steadily from 61 out of 100 index points in 2004 to 77 index points in 2007.
Thanks to these developments, Swiss Life surpassed its 2008 profit target of CHF 1 billion already in 2007. The company has also exceeded its 10% return on equity target annually since 2004.
In November 2007 Swiss Life announced the sale of Banca del Gottardo and its Dutch and Belgian insurance business. Given the company’s clear focus on pensions and long-term savings, management at Swiss Life and Banca del Gottardo decided that Swiss Life was no longer the ideal owner of the bank in its next stage of development. At the same time, market conditions meant that the bank could be sold at an attractive price. The sale of the bank to the Ticino-based company BSI was completed in March 2008.
Business portfolio with excellent perspectives Following the operational progress and the strategic adjustments made in 2007, Swiss Life is very well positioned to accelerate growth and further enhance its profitability.
The Swiss Life Network specialises in employee benefit solutions for international corporations. The network is made up of 50 partners and serves approximately 423 multinational companies in over 70 countries and regions.
Pensions leadership strategy Based on these strong, sustainable and extendable market positions, Swiss Life can drive forward its pensions leadership strategy in coming years. Its promise to customers remains unchanged: “Swiss Life is committed to helping people create a financially secure future. For life.” The company wants customers, investors and employees to regard it as the first choice provider for life insurance and pension products. Whoever thinks of financial security for old age should first think of Swiss Life.
In Europe, the number of pensioners is rising, while the working population is declining
FOCUS ON PENSIONS AND LONG-TERM SAVINGS | The focus on pensions and longterm savings involves strongly accentuating attractive customer segments, strengthening product management and optimising the diversity of the distribution channels.
Swiss Life is concentrating on the pension needs of the population before and after retirement, and intends to more actively address the requirements of customers who are due to retire shortly or have already retired. In addition, the customer segment of aff luent private individuals or high net worth individuals is becoming increasingly important. Swiss Life is already enjoying success in this segment in France thanks to its private insurer concept. Similar initiatives are also planned for Switzerland and Germany.
The employee benefits solutions offered by international companies also fall under crossborder business. Due to changes in the regulatory framework within the European Union (EU), it is now possible to offer cross-border pension products without having to conclude a separate policy in each individual country. In order to fully tap into these new business opportunities, the Swiss Life Network and its existing corporate business in Luxembourg was merged into the Corporate Solutions business unit.
FOCUS ON FUNCTIONAL OPTIMISATION | Swiss Life will further boost efficiency and effectiveness within the organisation through increased functional management. Following the noticeable rise in efficiency achieved in individual markets in recent years, the company is now creating Group-wide synergies. Priority is given to the creation of economies of scale and to knowledge transfer, which is why the company is being increasingly managed across organisational lines and borders. The German and French CEOs are joining the Corporate Executive Board and will assume additional responsibilities involving key Group functions. This ensures that market-based decisions can be made while taking into account all the interests within the company, thereby laying the foundations for cooperation between the various countries. Swiss Life expects to generate additional efficiency gains of CHF 50 to 100 million by 2012.
FOSTER COMMITMENT | Employee commitment is the key to attaining the company’s ambitious goals. Swiss Life wants to greatly strengthen the performance culture within the organisation, especially with regard to customer orientation and innovation. This will be based on an incentive system which focuses on value drivers relevant to the strategy. The competencies of employees will be systematically recorded and enhanced by means of training and development measures. In this way, Swiss Life intends to improve its standing in the labour market and to enhance its ability to attract, develop and retain talented staff. Staff commitment – a combination of job satisfaction and identification with work – will continue to be measured in annual surveys. Swiss Life’s target is 80 out of 100 index points.
Active capital management A key component of strategy is active capital management. The capital structure is designed by taking into account economic criteria, the regulatory framework and specifications relating to technical ratings. The aim is to achieve a balanced maturity structure of outstanding liabilities on the capital market. Developments with regard to innovative risk transfer solutions are incorporated into the capital management decision-making process. The aim of these measures is to increase the profit distribution to shareholders. Once the announced sales have been closed, Swiss Life plans to launch a share buyback programme of up to CHF 2.5 billion.
Swiss Life aims to increase its earnings per share by an annual rate of at least 12% up to 2012 and archieve a return on equity of 12% or more.
Summary of Group Results | The Swiss Life Group achieved a very good result in 2007 and set the course for a successful future. The net profit of CHF 1368 million is the highest in the history of the company, corresponding to a return on equity of 18.1%. Embedded value rose by 20% to CHF 12.8 billion.
PROFIT FROM OPERATIONS UP 11% | The profit from operations from continuing operations was raised by 11% to CHF 1013 million, to which the Swiss insurance segment contributed the largest share amounting to CHF 650 million. Despite a distinctly lower financial result, the Swiss segment managed to maintain the profit level of the previous year. Insurance operations in France generated a segment result of CHF 324 million, an increase of 54% against the year before. Comparability with the previous year was, however, influenced by the sale of the ERISA companies. Without this one-off effect, the French segment reported a 32% profit increase to CHF 187 million. For insurance operations in Germany, Swiss Life posted a segment result of CHF 65 million. As two special effects burdened the 2007 figures to the amount of roughly CHF 40 million, the segment result receded by CHF 19 million despite the operational advances achieved. The Insurance Other segment, which comprises the Liechtenstein and Luxembourg locations, generated a segment result of CHF 8 million, in contrast to the loss of CHF 3 million posted in 2006 due to the losses incurred on the sale of the Italian business. In the Investment Management segment, Swiss Life boosted its result from CHF 50 million to CHF 93 million thanks to higher returns and the transfer from the insurance sector of the investment company in Germany responsible for asset management. The result of the segment Other, comprising primarily financing and holding companies, and the eliminations offset one another. Overall, continuing operations achieved a net profit of CHF 726 million, up 26% against the previous year.
MAINTAINING GROWTH MOMENTUM | In continuing operations, the gross premiums, policy fees and deposits received under insurance and investment contracts amounted to CHF 21.2 billion, which represents an increase of 9% year on year. Swiss operations contributed a significant portion, registering a premium volume of CHF 8.4 billion. This translates into an above-average growth of 11%, enabling Swiss Life to further consolidate its leading market position. The largest contribution to the rise in premium volume, however, stemmed from Liechtenstein. The advance in its premium volume by over CHF 2 billion originated from the acquisition of CapitalLeben and from ongoing strong organic growth. In France, the reported premium income receded by 10% to CHF 7.4 billion owing to the sale of the ERISA companies. In the first half of 2007, these companies still contributed premium income totalling CHF 1.9 billion. Disregarding the ERISA companies, the growth in France amounted to 6%. In Germany, premium income rose by 2% to CHF 2.2 billion, whereas in Luxembourg, it declined temporarily from CHF 841 million to CHF 508 million owing to the location’s strategic realignment.
At CHF 389 million, policy fees from insurance and investment contracts remained in line with the previous year’s result. The rise in Liechtenstein and Germany was neutralised by the drop in France resulting from the sale of the ERISA companies. Fee income from asset management and other commission income came to CHF 196 million, remaining on a par with the previous year.
Net earned premiums and policy fees 13 705 12 673 8.1%
Financial result (without share of results of associates) 4 923 5 364 –8.2%
SATISFACTORY FINANCIAL RESULT | The financial result from investments held at own risk in continuing insurance business receded by 3% to CHF 4.2 billion. In terms of direct income, Swiss Life benefited from rising interest rates and higher hedge fund and dividend distribution. The direct investment return was 4.1% (2006: 3.3%). Taking into account asset changes relevant to the income statement and asset management costs, the net investment return came to 3.7% (2006: 3.9%). Whereas in 2006 Swiss Life had realised net capital gains of CHF 783 million, it posted a net capital loss of CHF 218 million for 2007. This was attributable to the negative trend on the international financial markets since the middle of 2007. Swiss Life is not directly affected by the crisis on the US mortgage market. However, for the 2007 accounts, it decided to completely write off positions vulnerable to a further aggravation of the liquidity situation brought on by all the market turbulence. The total investment return of 1.0% also includes the asset changes directly ref lected in equity. The rise in interest rates had a negative impact on the investment return.
EFFICIENCY AGAIN ENHANCED | Insurance benefits and changes in the mathematical reserve rose by 10% to CHF 13.3 billion, mirroring the business growth. Owing to the lower financial result, policyholder bonuses declined by 19% to CHF 1.7 billion. Interest expense (excl. borrowing costs) decreased by 37% to CHF 455 million, mainly as a consequence of the sale of the ERISA companies.
Operating costs were reduced by a further 2% in spite of the vigorous growth. In Switzerland, they were pushed back by a full 7%. This welcome development, which also strengthens the company’s competitiveness in its home market, is primarily due to the efficiency gains achieved from the successful integration of «La Suisse» and the simplification of the systems landscape in individual insurance. At Group level, the operating expenses climbed to CHF 2.5 billion, a 2% increase against the previous year. This increase is due primarily to overall growth and the effect of the rising euro. Tax expenses totalled CHF 122 million, down CHF 104 million on 2006 because of tax rate cuts in Germany and Switzerland and changes with regard to tax-privileged financial gains.
SOLID CAPITAL BASE | On a comparable basis, liabilities from insurance operations advanced in line with growth and the course of business by 11% to CHF 121.8 billion. In 2007, shareholders’ equity decreased by 4% to CHF 7.3 billion. The hike in interest rates led to a reduction in the revaluation reserves for bonds. For the same reason, the core capital declined by 21% to CHF 11.6 billion. Owing to the sale of the ERISA companies, the overall balance sheet total fell from CHF 187.0 billion to CHF 179.8 billion. The solvency ratio, calculated according to the new regulations issued by the Federal Office of Private Insurance, came to 162% (2006: 194%). Total assets controlled by the Swiss Life Group from continuing business amounted to CHF 138.9 billion.
EMBEDDED VALUE | Embedded value serves as an indicator of the value of the existing insurance portfolio. It is made up of three components: the present value of future profits (PVFP) minus the present value of the cost of holding capital (CoHC) and the adjusted net asset value (ANAV) attributable to shareholders. Future new business is not included.
Embedded Value of the Swiss Life Group as at 31 December
thereof cost of holding capital – 748 –1 050 1 Adjusted Net Asset Value 2 Equity of Swiss Life Holding less book value of Swiss Life/Rentenanstalt and embedded value of Swiss Life Luxembourg (for 2007) 3 Present Value of Future Profits
Unwind 2007 +674 2007 investment return: variance from assumptions made at the end of 2006 +119
Re-evaluation of reserving after IT systems migration in Swiss individual life business +304
Impact of 100 bp increase in investment return +509 +420 +929
Impact of 100 bp decrease in investment return –679 –398 –1 077
Impact of 100 bp decrease in risk discount rate +337 +278 +615
Impact of 100 bp increase in return on new bond investments +151 +255 +406
Impact of 100 bp increase in return on new bond investments +29
Segment Reporting | Swiss Life adjusted its segment structure following the sale of its insurance business in the Netherlands and Belgium and of Banca del Gottardo. Continuing insurance operations have been broken down by country and the areas sold are shown separately. The result for continuing segments rose 12% from CHF 969 million to CHF 1086 million.
INSURANCE SWITZERLAND | In Switzerland Swiss Life achieved a segment result of CHF 650 million. With premium growth clearly above the market average and additional advancements in efficiency, Swiss Life again reinforced its leading position in its home market. The segment result could not improve on the previous year’s very impressive figure because the financial result fell by CHF 211 million.
Gross written premiums, policy fees and deposits received 8 413 7 611 10.5%
Operating costs decreased by 7%. This development is primarily due to the efficiency gains achieved from the successful integration of «La Suisse» and the measures implemented to simplify the systems landscape in individual insurance. Last year, Swiss Life migrated all the individual life insurance policies to one single contract administration system. Overall operating expenses were reduced by 4% to CHF 771 million.
In 2007 Swiss Life continued its pricing policy aimed at sustainably improving profitability, thereby increasing the value of new business. At the beginning of the second half of the year, Swiss Life brought its organisational structure more closely in line with the business processes and distribution channels in order to further improve customer orientation and efficiency. Besides reducing duplication and the number of interfaces, these measures are aimed at promoting and accelerating the development of market-aligned products and improving the quality of services. Thus both External Sales and Internal Services are well equipped to cope with the intensifying competition.
Given the fact that the number of pensioners or people who are approaching retirement will continue to rise, this customer group is increasingly important. Swiss Life is stepping up its marketing measures for this segment by offering a portfolio of suitable products and advisory services. In 2008, Swiss Life will pave the way for and begin its partnership with AWD, through which it expects to enhance its market penetration, especially in the younger customer segment, and continue to drive growth in the unit-linked products business.
Following a strong growth in premium volume in 2006, the French life insurance market experienced a 3% decline in 2007. Swiss Life generated premium income of CHF 7411 million. Disregarding the ERISA companies, the premium volume amounted to CHF 5518 million, which, on a comparable basis, corresponds to a 6% rise (1% in local currency). Thus Swiss Life outperformed the market in the area of life insurance, mainly due to ongoing premium growth in unit-linked products, which came to 39% (33% in local currency). One major factor of the company’s success in this field is its strong distribution partnerships with various private banks. Premium income in health insurance went up 12% (7% in local currency) to CHF 1887 million, exceeding the market growth of 4%. The changes in income and expenses vis-à-vis the previous year are primarily due to the deconsolidation of the ERISA companies. Income grew by 9% on a comparable basis to CHF 4283 million (4% in local currency). On the same basis, expenses increased by 4% to CHF 3929 million, which, however, represents a decline of 1% in local currency.
Gross written premiums, policy fees and deposits received 7 411 8 204 –9.7%
INSURANCE GERMANY | Swiss Life achieved a segment result of CHF 65 million. Based on the good financial result and further enhancements in efficiency, a considerable year-onyear improvement was realised on a comparable basis. The segment result posted represents a decline of CHF 19 million on the previous year, as the spin-off of investment management into a separate investment company and the passing on of the tax rate reduction in the form of policyholder bonuses added one-off costs of CHF 40 million to the accounts in the period under review.
Premium volume in the German life insurance market stagnated in 2007 at EUR 79 billion (+0.6%). The population is noticeably reluctant to commit to long-term retirement pension policies because of the uncertainty surrounding the implications of the current political reforms. Swiss Life grew its premium volume by 2% (–2% in local currency) to CHF 2158 million. In individual insurance Swiss Life increased its premium income to CHF 1648 million (unchanged in local currency). Premium income in group insurance went down 5% (–9% in local currency) to CHF 509 million as a result of the drop in single premiums. However, the company recorded a further increase in periodic premiums. Income climbed 8% to CHF 3109 million, mainly due to the sound financial result. The 9% rise in expenses is attributable in particular to the one-off effects mentioned above and to the higher bonus allocation based on the improved financial result. The efficiency improvements attained led to a further reduction in operating costs, which fell by 5%.
Gross written premiums, policy fees and deposits received 2 158 2 116 2.0%
Financial result (without share of results of associates) 1 064 872 22.0%
At the end of 2007 Swiss Life consolidated its Liechtenstein and Luxembourg business for high net worth individuals in the area of private placement life insurance under one leadership. The opening of the Singapore branch in March 2008 represents another sales platform in this area and enables the company to tap into the opportunities on the Asian market more effectively.
In addition, Swiss Life merged the operations of its group business in Luxembourg with that of the Swiss Life Network, which specialises in employee benefits solutions for international corporations, to form Corporate Solutions. Through this new organisation, the company aims to intensify its distribution of comprehensive solutions for international corporate clients and multinational corporations. Furthermore, Swiss Life has developed a platform for variable annuity products in Luxembourg, which will be produced centrally and distributed in various countries. Swiss Life Products (Luxembourg) SA. will launch the first product in Germany in the middle of 2008.
Financial result (without share of results of associates) 34 38 –10.5%
Asset management and other commission income, Investment Management In CHF million
INVESTMENT MANAGEMENT | In the Investment Management segment, which comprises Group-wide institutional asset management activities, Swiss Life achieved a result of CHF 93 million. The CHF 43 million increase on the previous year is primarily due to higher income from asset management and other commission income. There are a number of reasons for this: In Germany, Swiss Life spun off its investment management, previously integrated in the insurance business, into a separate investment company, whose result is now included in this segment. In Switzerland, a new service level agreement was concluded with the Swiss insurance business, and transactions in the real estate sector attained a higher volume. Thanks to stringent cost management, expenses rose by only 2% to CHF 189 million despite the first-time inclusion of the German business.
Assets under management came to CHF 120 billion, consisting of CHF 110 billion in insurance assets, around CHF 7 billion in investment funds and CHF 3 billion from third-party mandates.
Swiss Life continued to develop its guidelines with regard to directives and risk limits in the Investment Management segment, based on its existing Code of Compliance. Great significance is attached to monitoring adherence to the relevant directives and limits.
Financial result (without share of results of associates) 3 2 50.0%
In the period under review, Swiss Life generated a segment result of CHF 471 million in the Netherlands and Belgium. This significant increase on the previous year is primarily due to a change in the Dutch accounting standards, which led to a release of deferred bonus liabilities, improving the result by CHF 300 million.
In the Netherlands, Swiss Life grew its gross premium income by 21% to CHF 2302 million or 16% in local currency, which considerably exceeds the overall market growth. The rise in premiums written is attributable to the impressive growth recorded in corporate business. As in previous years, Swiss Life was especially successful in the acquisition of corporate clients such as autonomous pension funds who were looking for the security provided by a leading life insurance company.
In Belgium, gross premium income came to CHF 656 million, down 12% on the previous year (–16% in local currency). This decline stems from the cancellation of a distribution agreement in the area of individual insurance. On the other hand, premium volume in group insurance rose 18% (13% in local currency) to CHF 340 million and 5% in the non-life business (0% in local currency) to CHF 75 million.
In 2007 the segment result came to CHF 168 million, up 46% against the previous year. Based on local accounting practice, Banca del Gottardo reported a net profit of CHF 129 million. Principal factors in the 32% year-on-year increase were higher operating income and reduced credit risk, which enabled provisions amounting to CHF 34 million after tax to be dissolved. Disregarding one-off special factors of CHF 17 million after tax, the net profit comes to CHF 111 million (+16%).
Income was down 6% to CHF 475 million compared to the previous year. Income from trading operations in particular, benefiting strongly from the favourable market conditions, improved by 19%. Interest income rose by 5%, and commission and service fee activities were up 4%.
Business expenses rose during the period under review by 2% to CHF 332 million. The slight increase was due mainly to a higher headcount and higher performance-based compensation paid. The cost/income ratio declined from 73% to 70%.
The net outflow in Private Banking customer funds owing to earlier staff departures was curbed in the second half of the year, rising by only CHF 0.1 billion to CHF 1.0 billion between 30 June and 31 December 2007. Customer assets under management (excluding custody business) totalled CHF 36.0 billion as at 31 December 2007 compared to CHF 35.8 billion at the end of 2006. Total assets under control amounted to CHF 101.1 billion as at 31 December 2007 (31 December 2006: CHF 89.3 billion).
Risk management is a key component of Swiss Life’s financial management process. The overall responsibility is borne by the Group Chief Financial & Risk Officer. The Board of Directors’ Investment and Risk Committee monitors the process, takes decisions with regard to risk budgeting and keeps the Board of Directors in its entirety informed on the company’s risk situation. Further risk management functions are performed by the Corporate Executive Board’s Group Risk Committee and the Asset and Liability Management Committees at country level.
Based on the economic evaluation of assets and liabilities, financial risk specialists assess the amount of risk capital available and the Group’s risk capacity derived from this amount. The risk capital limits are set with regard to the market and credit risks entered into. There are also thresholds for foreign exchange as well as equities and equity-type securities.
CREDIT RISK | Creditors face the risk of counterparties not living up to their obligations.
This can for instance involve failure to pay outstanding interest in the case of bonds, loans or mortgages. Credit risk arises in connection with investments and, to a lesser degree, in reinsurance business. Swiss Life strives to prevent such loss of income by setting Groupwide guidelines on the creditworthiness of borrowers and by requiring guarantees. It also strives to achieve an adequate return for the risks entered into. Outstanding positions in connection with derivative transactions with financial institutions are regularly evaluated. The counterparties provide deficiency payments, which limit the net credit risk per counterparty.
Bonds make up over half of Swiss Life’s investments. Of these, almost 60% are bonds with an AAA rating. The remaining part of the bond portfolio is broadly diversified, with strict limits for lower-rated bonds (BBB or lower).
Duration gap reduced to long-term target level by middle of year
ASSET ALLOCATION | Swiss Life manages investments in such a way that economic risk capital deployment is consistent with its risk appetite. Insurance liabilities can be split into a guaranteed segment and a non-guaranteed segment (bonus component). The guaranteed segment corresponds to the guaranteed minimum interest rate. The bonus is subject to f luctuations over the course of time, because the amounts to be distributed are directly influenced by developments on the financial markets or by legal requirements.
With regard to interest rate risk, the management of the duration gap between assets and liabilities is decisive. Swiss Life’s risk capacity enables it to take on interest rate risks in a targeted fashion within the limits defined by the Board of Directors. Moreover, the integrated ALM approach allows greater differentiation by product line in the allocation of assets.
Weighted duration gap (interest instruments in relation to liabilities), statutory basis
Further factors in addition to economic considerations have to be taken into account for asset allocation, such as regulatory requirements and international accounting standards. The level of equity (solvency), the need for liquidity and the requirements of rating agencies also entail restrictions on the asset allocation.
Swiss Life reviews the product design principles every half year, while the economic viability of new business is examined quarterly. This permits the company to adapt the conditions of sale for the individual products to a constantly changing environment.
PROCESS MANAGEMENT | Swiss Life manages the ALM process centrally. Responsibility for the Group-wide ALM process rests with the Group Chief Financial & Risk Officer. The areas of risk management, asset management, actuarial services, product management and financial management determine the ALM process, for which the Group Chief Financial & Risk Officer has the overall responsibility and which is monitored by the Board of Directors’ Investment and Risk Committee. Decisions which apply to the entire Group are implemented at local level by the units concerned in close collaboration with the local Asset and Liability Committee at their business unit.
A solvent insurance company is in a position to meet its payment obligations on time. This requires a minimum level of freely available equity which serves to cover general business risks that are not or not sufficiently covered by the technical reserves. Under the previous Swiss solvency requirements, the minimum level is determined in relation to the business volume. In the case of life insurance companies, this amounts to roughly 4% of the mathematical reserves.
Human Capital | Employees are a strategic success factor for Swiss Life. The aim of human capital management is to find and retain the right employees and enable them to systematically develop their skills. In 2007, the figures reflecting the commitment of Swiss Life’s staff increased by a further 4 points to 77 index points, due mainly to investments made in management development as well as basic and advanced training for employees.
Swiss Life reaches its ambitious targets thanks to its appropriately qualified and extremely committed workforce. The corporate strategy and corporate values provide the guidelines for the definition of the requisite competencies, from which the skill-sets required of individual employees are derived.
The development of the Group’s human capital is measured on the basis of specific key factors. Thus the productivity and added value achieved by the employees is described in terms of Human Capital Return on Investment (HCROI), by which the return achieved is placed in relation to the personnel expenses. The HCROI developed positively over the past few years. In 2007 it came to CHF 2.50, which represents an increase of 25% since 2004. A further key factor for Swiss Life is commitment. The level of commitment ref lects employees’ satisfaction and the extent to which they identify with their work. People who are happy at work, who identify with the company’s goals and have an affinity with their team and their supervisors are dedicated and prepared to put in above-average performance. Each year, Swiss Life measures this commitment in its Employee Survey. In 2007, the commitment level of the Swiss Life Group’s workforce averaged 77 index points on a scale of 1 to 100 (previous year: 73 index points). Six out of ten employees registered over 80 points. The aim is to achieve and maintain an average of 80 index points for the entire Swiss Life Group.
PERFORMANCE CULTURE | Swiss Life professes and pursues a performance culture. An important element of this performance culture is a consistently applied employee appraisal system. Once a year, line managers appraise the performance and skills of their staff and make an assessment of their potential. Based on this evaluation, employees’ strengths are then fostered by appropriate development measures and gaps in competence are closed. The annual Employee Survey also allows employees to appraise their supervisors, who then receive a detailed feedback report. This feedback provides Swiss Life with an overview of its managers’ skills, enabling it to devise individualised management development programmes.
Employees (full-time equivalents) by country as at 31.12.2007 Total: 8556 employees
Measures in the individual countries, tailored to the specific local circumstances, constitute an important factor in this context. In Germany, for instance, Swiss Life joined forces with representatives of the insurance industry and 11 other companies to develop the Executive Master of Insurance course. Since the 2007/2008 semester, the course has been part of the curriculum of the Faculty of Business Administration at the Ludwig-Maximilians University in Munich. This part-time post-graduate course provides students with specific insurance and actuarial knowledge. It contributes to the availability of highly qualified young specialists and ensures that current or potential Swiss Life employees who graduate from the course are ideally prepared for their tasks on the job.
In France, Swiss Life initiated the “Contrat social” development programme in May 2007. This programme helps harmonise the requirements of the company with regard to staff f lexibility and mobility on the one hand and the employees’ desire for professional change on the other. It enables Swiss Life to retain competent and motivated employees and offer its staff additional in-house development and career options.
TALENT FOSTERING | Since introducing its new concept for management development measures in 2005, Swiss Life has been fostering talented young staff through a specifically designed on-the-job training programme. Carefully selected employees with high potential are prepared for future leadership roles over two to three years. Participants work on strategically relevant topics in groups with an interdisciplinary and intercultural structure. Individual measures include coaching and mentoring. To qualify for this programme, staff must be nominated by the Corporate Executive Board. Out of the roughly one hundred participants in this talent development programme to date, 80% have since taken on a new, more demanding position within the Group.
Responsible corporate conduct is part and parcel of the Swiss Life culture. It is based on the corporate values of expertise, proximity, openness, clarity and commitment, which provide the guidelines for interaction with customers, partners and employees. In addition, the Code of Compliance sets out specific rules of conduct. Adherence to these rules is a prerequisite for legally and ethically correct business conduct and for economic profitability. The principles in the Code of Compliance apply to the entire Swiss Life Group. Outside Switzerland and Liechtenstein, they are supplemented or modified in accordance with the local legal requirements.
Already back in 1957, when marking its 100th anniversary, Swiss Life had set up the Swiss Life Anniversary Foundation for Public Health and Medical Research. The foundation has remained active to this day, providing annual contributions to various research projects.
In Switzerland, the company’s market presence is built on the brand promise “Prepared for the future”, which has been relaunched several times since 2004. In the current year, the company has positioned itself with a slogan reflecting its confidence: “Provide for the future with the number one”. At the end of 2007, Swiss Life was one of the insurance companies with the highest brand recognition values – 21% unprompted and 73% prompted – whereby it held its own among the major all-lines insurance groups. The appeal of the Swiss Life brand has been consistently on the rise over the past few years, thanks especially to the perceived characteristics of trustworthiness, competence and being prepared for the future. Swiss Life reinforces its market appeal with sponsorship activities predominantly in the areas of football and running on the one hand and classical music and film on the oth-
Already in the Rentenanstalt’s infancy the Swiss cross formed part of its corporate identity. From 1893 the colour red was used in combination with the lettering and the Swiss cross.
Public insurance was promoted in a very patriotic fashion. In addition to the white cross on a red background, the design bore the famous last words uttered by the national hero Winkelried before giving up his life for his country: “Take care of my wife and children!”
In July 2004, Swiss Life became the sponsor of the Swiss Football Association and the Swiss national teams.
Outside Switzerland, the brand’s chief strengths are the associated qualities of Swissness, trust and security. In its marketing campaigns in Germany, Swiss Life emphasises the company ’s longstanding tradition and reliability. Thanks to the systematic expansion of advertising activities, the brand recognition values rose markedly in 2007 to 8% unprompted and 25% prompted. Brand awareness levels in France also improved, reaching 53% unprompted and 3% prompted in the year under review. The strongest image component associated with the brand there is trustworthiness. Further strengthening the brand in all markets remains a high-priority goal in view of Swiss Life’s ambitious growth targets.
At the beginning of the fifties, the brand name “Rentenanstalt” was added to the series of coats of arms. In the sixties and seventies the frames of coats of arms were used in combination with the brand name and an abbreviated form of the name.
The logo used until 2004 was created. The additional name “Swiss Life” was introduced in the mid eighties for international purposes. In 1992 the double logo was officially launched.
The Swiss Life logo combines the company’s tradition with its objectives. The red colour and the Swiss cross stand for the roots and origin of the 150-year-old company. The three lines of the logo symbolise the most prominent lines on the palm of the hand.
EXPERTISE | We offer f irst-class solutions for pensions and long-term savings. This expertise is based on our proven professional competence and many years of experience.
PROXIMITY | We foster close relationships with our customers and partners and endeavour to understand their needs. This proximity enables us to provide optimum solutions tailored to their requirements.
CLARITY | We communicate clearly and offer products and services that are comprehensible. This clarity gives our customers and partners a sense of security.
Corporate Governance | Swiss Life is committed to implementing the recognised principles of corporate governance.
Swiss Life’s corporate governance is based on the Directive on Information Relating to Corporate Governance issued by the SWX Swiss Exchange and the Federal Office of Private Insurance ’s (FOPI) directives on corporate governance, risk management and internal control systems. It is also modelled on leading national and international corporate governance standards, in particular the Swiss Code of Best Practices for Corporate Governance issued by the Swiss Business Federation, economiesuisse, as well as the Organization for Economic Cooperation and Development’s (OECD) principles on corporate governance.
Whereas in previous years, the corporate governance principles were further adjusted to meet the best practice requirements by revising the organisational regulations and introducing a Code of Compliance applicable throughout the Group, in the year under review, the company concentrated on examining the effectiveness of the existing corporate governance practices. As part of the annual self-evaluation carried out by the Board of Directors, the working techniques of the Board of Directors and its committees and the delimitation of competencies were particularly assessed. Special attention was given to the relationship between the Board of Directors and the Corporate Executive Board. The results revealed that the measures and mechanisms introduced by Swiss Life to ensure good corporate governance work well in practice; however, specific adjustments will be examined on an ongoing basis in order to optimise the organisational structure. It was discussed whether the Chairman ’s Committee, which assumes the functions of a corporate governance committee, a compensation committee and a nomination committee, should be split into several committees. In view of the clear allocation of functions, it was decided not to form further committees.
Also in connection with the new reporting regulations in force since 1 December 2007, Banque Cantonale Vaudoise, Place St-François 14, 1003 Lausanne, informed Swiss Life Holding on 7 December 2007 that it held a total of 1 378 046 purchase positions (247 333 registered shares of Swiss Life Holding, 536 185 long calls and 594 528 short puts on Swiss Life Holding shares) as at 3 December 2007 corresponding to 4.08% of the voting rights of Swiss Life Holding. On this date Banque Cantonale Vaudoise also held 2 022 212 sales positions (999 858 short calls and 1 030 354 long puts) on Swiss Life Holding shares, which was the equivalent of 5.99% of the voting rights of Swiss Life Holding recorded in the commercial register at this time. In a second notification received on 28 December 2007, Banque Cantonale Vaudoise informed the company that its sales positions (trading book) on Swiss Life Holding shares had again fallen below the 5% threshold on 21 December 2007 due to the maturity of derivatives traded on the Eurex. At this point in time Banque Cantonale Vaudoise held 1 324 113 sales positions (619 387 short calls and 704 726 long puts on Swiss Life Holding shares), which corresponded to 3.92% of the voting rights of Swiss Life Holding. Furthermore Banque Cantonale Vaudoise was still in possession of 787 443 purchase positions (281 280 registered shares of Swiss Life Holding, 127 318 long calls and 378 845 short puts on Swiss Life Holding shares), which was the equivalent of 2.33% of the voting rights.
On 10 May 2005 the Swiss Life Holding Annual General Meeting resolved to pay a dividend of CHF 4 per registered share in the form of a repayment of par value. As a result of the corresponding reduction in capital, the share capital decreased from CHF 1 688 790 900, divided into 33 775 818 registered shares with a par value of CHF 50 each, to CHF 1 553 687 628, divided into 33 775 818 registered shares with a par value of CHF 46 each. Conditional capital was reduced accordingly to CHF 168 733 612, divided into 3 668 122 registered shares with a par value of CHF 46 each.
At Swiss Life Holding’s Annual General Meeting on 9 May 2006, the shareholders approved a motion to reduce the par value by CHF 5 per registered share. Consequently, the ordinary share capital fell to CHF 1 384 819 198, divided into 33 776 078 registered shares with a par value of CHF 41 each, and the conditional capital decreased to CHF 150 382 342, divided into 3 667 862 registered shares with a par value of CHF 41 each.
In 2006 the 0.625% convertible bond issue (2004–2010) was again partially converted, creating 191 new registered shares. This meant that the ordinary share capital increased to CHF 1 384 827 029, divided into 33 776 269 registered shares with a par value of CHF 41 each, and the conditional capital decreased to CHF 150 374 511, divided into 3 667 671 registered shares with a par value of CHF 41 each.
The 0.625% convertible bond issue (2004–2010) was again partially converted in the period under review, creating 1 184 170 new registered shares. Therefore, the ordinary share capital increased to CHF 1 188 654 926 as at 31 December 2007, divided into 34 960 439 registered shares with a par value of CHF 34 each, and the conditional capital decreased to CHF 84 439 034, divided into 2 483 501 registered shares with a par value of CHF 34 each.
Transactions in Swiss Life Holding shares carried out by Swiss Life Group employees are regulated. Pursuant to the Code of Compliance and the Directive on Insider Information, all purchases and sales of Swiss Life Holding securities made by members of senior management or employees who are privy to confidential information are subject to approval. In addition, a blackout period is imposed from 1 January each year until 24 hours after the yearend results have been presented and from 1 July each year until 24 hours after the half-year results have been presented.
CONVERTIBLE BONDS AND OPTIONS | One convertible bond issue was outstanding on the balance sheet date, the Swiss Life Holding 0.625% issue (2004–2010) amounting to CHF 317 000 000. The specific conditions attached to these convertible securities and further information on them can be found in the Financial Statements (note 22) as well as in the issue prospectus of 8 June 2004.
MEMBERS OF THE BOARD OF DIRECTORS | As of the balance sheet date, the Board of Directors was composed of the following members: Year appointed/ Name Functions reelected Elected until
BRUNO GEHRIG | Born 1946, Swiss national Chairman of the Board of Directors
Bruno Gehrig received his doctorate in economics (Dr. rer. pol.) in 1975 from the University of Berne where, following studies at the University of Rochester, New York, he also qualified as a lecturer in 1978 with a study on monetary policy. From 1971 to 1980 Mr Gehrig was an assistant and lecturer at the University of Berne, becoming Assistant Professor in 1978. In 2006 he received an honorary doctorate from the University of Rochester and became a Doctor of Laws.
From 1981 to 1984 Bruno Gehrig was the Head of the Economics Section at the Union Bank of Switzerland. In 1985 he spent a year studying international banking. In 1988 he was promoted to Head of the Stock Markets and Securities Sales Division of the UBS Group. Between 1989 and 1991 Mr Gehrig was Chairman of the Executive Board of Bank Cantrade. From 1992 to 1996 he held the chair as Professor of Business Administration at the University of St. Gallen and was Head of its Swiss Institute of Banking and Finance. In 1996 Mr Gehrig was appointed Member of the Governing Board of the Swiss National Bank as Head of Department III, and served as the Board’s Vice Chairman from 2001 to 2003. His political activities include serving as Chairman of the economic policy study group of the Swiss Christian Democratic Party (CVP) from 1984 to 1991. He was a member of the Swiss Federal Banking Commission between 1992 and 1996.
Gerold Bührer graduated in economics (lic. oec. publ.) from the University of Zurich in 1972. Following 17 years with the Union Bank of Switzerland as a member of senior management in its financial sector and Member of the Executive Board of its fund investment company, he joined Georg Fischer AG in 1991, where he was a Member of its Executive Board (Finances) until 2000. He now acts as an independent economic consultant.
Other appointments: – economiesuisse, Zurich, Chairman – Bank Sal. Oppenheim jr. & Cie. (Schweiz) Ltd, Zurich, Member of the Board of Directors – Cellere AG, St. Gallen, Member of the Board of Directors – Georg Fischer Ltd, Schaffhausen, Member of the Board of Directors – Züblin Real Estate Holding Ltd., Zurich, Member of the Board of Directors
VOLKER BREMKAMP | Born 1944, German national Member of the Board of Directors
Other appointment: – Julius Baer Holding Ltd, Zurich, Member of the Board of Directors (until 15 April 2008)
RUDOLF KELLENBERGER | Born 1945, Swiss national Member of the Board of Directors
Rudolf Kellenberger received his degree in civil engineering from the Swiss Federal Institute of Technology (ETH), Zurich, in 1970. Between 1970 and 1978 he was employed as a project planning engineer in the bridge construction industry, including three years in the United Kingdom. He joined Swiss Re in 1978, where he served as Head of the Engineering Department from 1990 to 1992. In 1993 he was appointed Member of the Executive Board with responsibility for Europe. From 2000 to the end of December 2004 Mr Kellenberger served as Deputy Chief Executive Officer at Swiss Re. He has been appointed to various boards of directors in the area of insurance since retiring in March 2005.
HENRY PETER | Born 1957, Swiss and French national Member of the Board of Directors
PETER QUADRI | Born 1945, Swiss national Member of the Board of Directors
PIERFRANCO RIVA | Born 1940, Swiss national Member of the Board of Directors
Other appointments: – Finter Bank Zürich, Zurich, Vice Chairman of the Board of Directors – Fondazione Daccò, Lugano, Member of the Board of Trustees – Fondazione Nerina Bellingeri ved. Gualdi, Lugano, Member of the Board of Trustees – Fondazione Rudolf Chaudoire, Lugano, Member of the Board of Trustees
FRANZISKA TSCHUDI | Born 1959, Swiss national Member of the Board of Directors
Franziska Tschudi graduated in law at the University of Berne and passed her bar exam there in 1984. She studied US law at Georgetown University, Washington DC, earning an LL.M., and passed the bar exam for the US states of New York and Connecticut in 1987. Franziska Tschudi also completed her postgraduate studies at the University of St. Gallen (1991 to 1993), receiving an Executive MBA. After initially working as an Assistant for Media Law at the Institute for Constitutional and Administrative Law at the University of Berne and practising business and media law in Zurich, Washington DC and Geneva, she served as Secretary General at SIG Holding AG from 1992 to 1995. Ms Tschudi then became a Member of the Executive Board of WICOR Holding AG (“Weidmann Group”), Rapperswil in 1995, where she was Head of Corporate Development and, from 1998, Head of the Business Area Electrical Technology Asia/Pacific. She has held the positions of Chief Executive Officer and Managing Director of WICOR Holding AG since 2001.
Franziska Tschudi will be put forward for re-election at the Swiss Life Holding Annual General Meeting of Shareholders on 8 May 2008.
Other appointments: – Lakers Sport AG, Rapperswil, Vice Chairperson of the Board of Directors – BIOMED AG, Dübendorf, Member of the Board of Directors – Swiss-American Chamber of Commerce, Member of the Executive Committee – Chamber of Commerce Germany-Switzerland, Member of the Executive Committee – St. Gallen – Appenzell Chamber of Commerce and Industry, Vice Chairperson
The Chairman of the Board of Directors coordinates the work of the Board and the committees, and ensures reporting from the Corporate Executive Board to the Board of Directors.
In urgent situations, the Chairman may also determine the necessary measures and take steps falling within the scope of the competencies of the Board until the Board of Directors takes a decision. If a timely decision cannot be reached by the Board of Directors, the Chairman is empowered to take a decision.
The Board of Directors met eleven times during the year under review in ordinary and extraordinary meetings. The ordinary meetings of the Board of Directors lasted around four hours on average, and all members attended, with the exception of two meetings, where one member was excused on each occasion. The Group CEO and the other members of the Corporate Executive Board were present at all the meetings, the Board of Directors did, however, conduct parts of the meetings among themselves.
Generally, the Group CIO and Group CFO attend the Investment and Risk Committee meetings or parts of meetings in an advisory capacity. The Group CEO may attend the meetings of the Investment and Risk Committee (without voting rights). Further members of the Corporate Executive Board or in-house specialists may also be invited to attend. The Investment and Risk Committee meets at least four times a year.
AUDIT COMMITTEE | The Audit Committee assists the Board of Directors in its supervision of the accounting function and financial reporting activities, as well as compliance with the legal requirements. It reviews the appropriateness of the internal control structures and processes used to comply with the legal requirements. It monitors the activities of Corporate Internal Audit and the external audit services, and takes due note of their reports and recommendations. The Committee is empowered to make decisions with respect to defining the terms and conditions for mandates to external auditors and keeps the Board of Directors appropriately informed. Moreover, the Audit Committee issues the regulations of Corporate Internal Audit and sets the annual programme of activities for the internal audit units.
Generally, the Group CFO and the Head of the Corporate Internal Audit attend the Audit Committee meetings or parts of the meetings in an advisory capacity. The Group CEO may attend the meetings of the Audit Committee (without voting rights). Representatives from the external audit services are also regularly invited (cf. also “Supervisory and control instruments vis-à-vis the auditors”, page 71). In addition, further members of the Corporate Executive Board or in-house specialists may also be invited to attend.
The Audit Committee meets at least four times a year. The frequency of meetings depends on the financial budgeting and reporting process. The Audit Committee met six times during the year under review, with the meetings lasting over three and a half hours on average. There was full attendance at all meetings, and representatives from the external audit services were present at four of the meetings.
If required, the Board of Directors and its individual committees regularly invite all or some members of the Corporate Executive Board or internal specialists to its meetings. Outside the meetings, each member of the Board of Directors may request information about the course of business from the Corporate Executive Board subject to the prior notification of the Chairman of the Board of Directors. Requests for information on individual transactions require the prior approval of the Chairman of the Board of Directors.
Corporate Internal Audit, which reports directly to the Chairman of the Board, represents a suitable means of independent monitoring and information gathering for the Board of Directors. Regular meetings take place between the Chairman of the Board of Directors and the Head of Corporate Internal Audit, as well as between the Chairman of the Audit Committee and the Head of Corporate Internal Audit. The implementation of the measures recommended by Corporate Internal Audit is monitored by Group Compliance & Operational Risk Management. The Audit Committee regularly receives a report on all compliance activities and on operational risk management within the Swiss Life Group. Swiss Life’s Internal Control System (ICS) also serves the Board of Directors for information and controlling purposes. Further details on this system are available in the section Risk Management on page 32.
MEMBERS OF THE CORPORATE EXECUTIVE BOARD | On 31 December 2007, the Corporate Executive Board of Swiss Life Holding was composed of the following members: Member of the Corporate
BRUNO PFISTER | Born 1959, Swiss national Chief Executive Officer International (CEO International)
Bruno Pfister graduated from the University of Geneva with a master’s degree in law before being called to the bar in Geneva. Following completion of his business management studies (MBA from the UCLA Graduate School of Management in Los Angeles), the initial stages of his career saw him working for Chase Manhattan Bank in London and Geneva. From 1988 onwards he was a management consultant for McKinsey & Co. In 1996 Mr Pfister became Chief of Staff of the Private Banking division at Liechtenstein Global Trust (LGT) where he managed a global strategic project before being appointed Chief Financial Officer of LGT Group and LGT Bank in Liechtenstein in 1998. In 1999, as a member of the Credit Suisse Group Executive Board, he took over as Head of Customer Segment Management and Product Management at Credit Suisse.
Paul Müller studied economics at the University of St. Gallen. After graduating with a master’s degree (lic. oec. HSG), he launched his career in 1975 by joining Winterthur Versicherungen. In 1982 he moved to Baloise Insurance where he held a number of leading positions. As a member of the Executive Board he was ultimately assigned responsibility for the German, Austrian, French, Belgian and Luxembourg markets. From 1995 Mr Müller served as CEO of Helvetia Patria Assurances’ Swiss Division in Basel.
Other appointments: – Swiss Insurance Association, Chairman of the Life Insurance Committee – Chamber of Commerce Germany-Switzerland, Member of the Executive Committee – Society for the Promotion of the Institute of Insurance Economics of the University of
The physicist Reto Himmel (Master’s Degree in Physics, Swiss Federal Institute of Technology (ETH), Zurich, 1982) graduated from the Harvard Business School in 1987 with an MBA. He began his career in 1982 as a software engineer with Brown Boveri & Co. in Baden, before joining Credit Suisse in 1985. From 1990 to 1994 he went on to head the General Secretariat at Bank Leu, where he was also in charge of corporate planning. He later served as Chief of Staff of the Investment and Trading division at Credit Suisse. In 1997 Mr Himmel became a member of the Executive Board of ABN AMRO (Switzerland), assuming responsibility for the bank’s logistics operations. He took on the position of Head of Operations at UBS Warburg Switzerland in August 2001.
Reto Himmel has served as Group Chief Technology & Operations Officer (Group CTO) for the Swiss Life Group since January 2003.
OUTLOOK | Rolf Dörig, who has held the position of Group CEO since November 2002, will be put forward for election to the Board of Directors at the Annual General Meeting on 8 May 2008. As a result it is planned that Bruno Pfister will be subsequently appointed Group CEO. Bruno Pfister has been with Swiss Life since August 2002, initially as Group Chief Financial Officer and, as of 1 January 2006, as CEO International. A new CEO International will not be appointed. The international components in the Corporate Executive Board will, however, be reinforced by the inclusion of the national CEOs of France and Germany, Jacques Richier and Manfred Behrens.
JACQUES RICHIER | Born 1955, French national Chief Executive Officer France (CEO France)
COMPENSATION POLICY PRINCIPLES | Pursuant to the Organisational Regulations, the Board of Directors as a whole is responsible for establishing the guidelines on the Group’s compensation policy (incl. bonuses, equity compensation programmes and share option programmes) and with regard to 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 chosen compensation system is in line with the market environment and must be competitive. The overall compensation takes into account the employees’ professional skills, commitment and personal performance. Individual compensation is made up of a basic salary and variable short-, medium- and long-term salary components, as well as contributions to occupational provisions and risk insurance. The basic salary is determined according to the employee’s function and skill-set, and is annually re-assessed and adjusted if appropriate. The variable salary components are linked to the strategic objectives of the company and the individual divisions, and the associated financial and HR-related targets. Personal performance and target achievement are assessed annually in the employee appraisal procedure implemented throughout the Group (Group Performance System) and taken into consideration when applying the defined compensation policy.
PRACTICE AND PROCEDURE | Pursuant to the Organisational Regulations, the Board of Directors as a whole is responsible for determining the level and make-up of compensation for its members, whereas the Chairman’s Committee, in its capacity as a Compensation Committee, is responsible for putting forward corresponding proposals. The Board of Directors also establishes the guidelines for the company’s compensation policy. In doing so, it takes into consideration the compensation policies of other organisations of comparable size and in comparable industries, drawing its findings from publicly available information and, as necessary, studies by external experts. Based on these guidelines, the Chairman ’s Committee determines the compensation for the individual members of the Corporate Executive Board and informs the entire Board of Directors accordingly.
For the 2007 equity compensation programme, the Chairman’s Committee of the Board of Directors decided that the retention component (factor of 0.5) which was appropriate during the turnaround phase would be rescinded in the future so that the number of PSUs could drop to zero after three years. The maximum possible factor of 1.5 has been maintained. Furthermore, the programme continues to be based on two performance criteria, each with a 50% weighting. One criterion is the Total Shareholder Return on Swiss Life Holding shares (TSR Swiss Life Holding), whereby a performance in excess of 20% is required for the subscription right to share allocation to arise. The TSR of the company’s own shares is also compared with the TSR of the shares of the companies included in the Dow Jones STOXX 600 Insurance Index (TSR outperformance); on the basis of this criterion, a subscription right arises if the performance is above the first quartile in comparison with the companies in question on expiry of the three-year period.
In the period under review, 55 members of the Swiss Life Group senior management participated in the corresponding equity compensation programme. A total of 56 222 PSUs were allocated; 24 444 to the Corporate Executive Board, of which 6717 to the Group CEO.
Compensation remitted to members of the Board of Directors in the year under review comprised the basic compensation, compensation in cash and a variable compensation component in shares. The basic compensation takes into account membership of the Board of Directors of Swiss Life Holding and its subsidiary Swiss Life/Rentenanstalt as well as membership of the individual Board Committees. The additional compensation in cash is commensurate to the function and workload and is determined annually by the Board of Directors. If Swiss Life Group’s business operations have proved successful, a further, variable compensation component is remitted in the form of Swiss Life Holding shares, decided upon by the Board of Directors taking into consideration the business result.
Corporate Executive Board 6225 shares, allocated at a value of CHF 287.732. They are subject to a one-year vesting period.
1 Economic value equivalent to the taxable value, taking the vesting period into account. The share prices on allocation amounted to CHF 322.25, 2 Economic value equivalent to the taxable value, taking the vesting period into account. The share price on allocation amounted to CHF 305.00.
No shares were allocated to closely linked parties3 within the meaning of the law.
SHARE OWNERSHIP | On the balance sheet date, acting members of the Board of Directors and the Corporate Executive Board (including closely linked parties) held a total number of Swiss Life Holding registered shares as follows: Board of Directors 11 868 Shares
LOANS | On the balance sheet date, there were no loans outstanding to members of the Board of Directors or members of the Corporate Executive Board
EXPENDITURE FOR OCCUPATIONAL PROVISIONS | Details on the company’s benefit expenditure can be found in the Financial Statements (notes 24 and 31) and the notes to the Swiss Life Holding Financial Statements. For reasons of transparency, the following benefits are provided here: As Chairman of the Board of Directors, Bruno Gehrig is affiliated to the employee benefits institutions of Swiss Life for the purpose of occupational provisions. No such affiliation exists for other members of the Board of Directors; no contributions have been made on their behalf.
Shares 2 CHF 79 898 312 SLHN shares at CHF 256.084
Total compensation 2007: in cash and shares CHF 734 898 including annual contributions to occupational CHF 834 390 provisions of CHF 99 492 including additional contribution to occupational CHF 1 585 851 provisions of CHF 751 461 3
HIGHEST TOTAL COMPENSATION, CORPORATE EXECUTIVE BOARD | The highest total compensation for a member of the Corporate Executive Board was paid to Rolf Dörig as Group CEO. The total compensation paid in the form of cash, shares and contributions to occupational provisions in 2007 is as follows: Compensation in cash 1 CHF 3 510 001 at CHF 287.737
In the report of the Group auditor, PwC confirms that it meets the legal requirements concerning professional qualification and independence.
DURATION OF THE MANDATES 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 re-elected without fail, most recently for the year 2007. PwC has also acted as statutory auditor and Group auditor for Swiss Life/Rentenanstalt since 1994.
ADDITIONAL FEES | In 2007 PwC received additional fees totalling around CHF 1.8 million for advisory services (2006: CHF 2.1 million), approximately CHF 1.3 million of which was for strategic and actuarial advice. The remainder resulted from legal, fiscal and financial advice, as well as other advisory services.
Information policy Swiss Life communicates actively and openly both within and outside the company. Investor Relations and Public Relations provide up-to-date reports to private and institutional investors, financial analysts, journalists and the public.
Key facts and figures about the Swiss Life Group, info kits on previous annual reports and all the details on events relevant to the shareholders, analysts and the media (General Meetings of Shareholders, media conferences, etc.), can be accessed at www.swisslife.com in the areas “Shareholders & Analysts” (www.swisslife.com/analysts) and “News & Media” (www.swisslife.com/media).
Furthermore, all interested parties can subscribe to the company’s mailing list so as to receive up-to-date ad-hoc reports and media releases free of charge via the e-mail distribution system (www.swisslife.com/subscription). 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 (www.swisslife.com/media).
Contact details are available at the end of the Annual Report.
Report of the Group Auditors . . . . . . . . . . . . . . . . . . . . . . .199
Report of the Statutory Auditors . . . . . . . . . . . . . . . . . . . .213
Net gains/losses on financial instruments at fair value through profit or loss 5, 8 –179 256
Benefits and claims under investment contracts with discretionary participation –124 –91
Net profit attributable to equity holders of Swiss Life Holding 1 345 933 minority interest 23 21
Financial assets at fair value through profit or loss 11 19 399 29 437
Financial assets held to maturity 14, 33 3 624 4 090
Intangible assets including intangible insurance assets 18 3 151 3 507
Consolidated statement of cash flow for the years ended 31 December
Net purchases/sales of financial instruments at fair value through profit or loss 1 644 897
Net purchases/sales of financial assets available for sale –12 868 –14 277
Total net cash flow from operating activities –1 280 –5 934
Acquisitions of subsidiaries, net of cash and cash equivalents 29 –219 –2
Disposals of subsidiaries, net of cash and cash equivalents 29 305 119
Cash and cash equivalents for the account and risk of the Swiss Life Group’s customers 176 408
Total cash and cash equivalents as at 1 January 7 621 14 170
Cash and cash equivalents for the account and risk of the Swiss Life Group’s customers 1 818 176
Purchases of treasury shares – – –1 313 – – – –1 313 – –1 313
Changes in gains/losses recognised directly in equity – – – – –880 – –880 –5 –885
Reduction in par value 27 –169 2 – – – – –167 – –167
Options on own shares – –5 – – – – –5 – –5
The following events had an influence on the period under review: REDUCTION IN PAR VALUE | As approved by the shareholders at the General Meeting of Swiss Life Holding on 8 May 2007, a reduction in par value of CHF 7 per registered share was effected in 2007. The payout took place on 3 August 2007 and led to a reduction in the share capital of Swiss Life Holding of CHF 245 million.
2.2 Changes in accounting policies STANDARDS AND INTERPRETATIONS EFFECTIVE IN THE CURRENT PERIOD | In August 2005, the International Accounting Standards Board issued IFRS 7 Financial Instruments: Disclosures and a complementary amendment to IAS 1 Presentation of Financial Statements. The IFRS introduces new requirements to improve the information on financial instruments. The amendment to IAS 1 introduces requirements for disclosures about capital. IFRS 7 Financial Instruments: Disclosures and the amendment to IAS 1 Presentation of Financial Statements were adopted by the Swiss Life Group for annual periods as of 1 January 2007. The adoption of the IFRS and the amendment resulted in expanded disclosures associated with financial instruments such as a sensitivity analysis to market risk and the new capital disclosures required by IAS 1 Presentation of Financial Statements. The additional disclosures required are included in note 5 and note 28.
In January 2006, the International Accounting Standards Board issued IFRIC Interpretation 8 Scope of IFRS 2. The Interpretation clarifies that IFRS 2 Share-based Payment applies to arrangements where an entity makes share-based payments for apparently nil or inadequate consideration. The Swiss Life Group has adopted the Interpretation for annual periods as of 1 January 2007. No financial impact arose from the adoption of this amendment as the Group currently does not have transactions that fall under the scope of the Interpretation.
IFRIC 9 Reassessment of Embedded Derivatives comments on the issue of whether IAS 39 requires an assessment to separate any embedded derivatives from the host contract only when the entity first becomes a party to the contract or if an assessment has to be reconsidered throughout the life of the contract. The Interpretation states that the assessment should be made when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash f lows that otherwise would be required under the contract, in which case reassessment is required. This Interpretation was adopted by the Swiss Life Group for annual periods as of 1 January 2007. No material financial impact arose from the adoption of this Interpretation as the Group currently does not have any significant embedded derivatives that would result in significant modifications of the cash f lows under the contract.
The following new International Financial Reporting Interpretation is not relevant to the Swiss Life Group: IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies. The Swiss Life Group does not have operations in hyperinflationary economies.
2.3 Reclassifications in the consolidated statement of income and consolidated balance sheet Reclassifications made in the consolidated statement of income and consolidated balance sheet are shown in note 37.
2.5 Foreign currency translation and transactions FUNCTIONAL AND PRESENTATION CURRENCY | Items included in the financial statements of the Group are measured using the currency of the primary economic environment in which the Group’s entities operate (the “functional currency”). The consolidated financial statements are presented in millions of Swiss francs (CHF), which is the Group’s presentation currency.
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 directly in equity as cumulative translation adjustments. On disposal of foreign entities, such translation differences are recognised in income as part of the gain or loss on the sale.
Changes in the fair value are included in income. Derivatives embedded in insurance contracts which are closely related or which are insurance contracts themselves, such as guaranteed annuity options or guaranteed interest rates, are ref lected in the measurement of the insurance liabilities. Options, guarantees and other derivatives embedded in an insurance contract that do not carry any insurance risk are separately recognised as derivatives.
Notes to the Consolidated Financial Statements 2 Summary of Significant Accounting Policies (continued)
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 f low hedge). 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.
In a qualifying cash f low hedge, the effective portion of the gain or loss on the hedging derivative is recognised directly in equity. Any ineffective portion of the gain or loss is recognised immediately in the income statement. For a hedged forecast transaction that results in the recognition of a financial asset or liability, the associated gain or loss recognised in equity is reclassified into profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss. When a hedging instrument expires or is sold, or a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in income. However, when a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to income.
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.
2.9 Impairment of financial assets The Group reviews the carrying value of financial assets regularly for indications of impairment.
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.
A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash f lows of the financial asset or group of financial assets that can be reliably estimated. Held-to-maturity securities and loans and receivables are assessed for impairment when a significant decrease in market value related to credit risk arises, namely after a downgrade of a debtor’s rating below single B– after initial recognition (i.e. CCC or lower according to Standard and Poor’s or equivalent) or when payments of principal and/or interest are overdue by more than 90 days. If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash f lows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
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 f lows from groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the asset being evaluated.
Investment property is carried at fair value and changes in fair values are recognised in income. Fair values are determined either on the basis of periodic independent valuations or by using discounted cash f low projections. The valuation of each investment property is reviewed by an independent recognised valuer at least every three years. Rental income is recognised on a straight-line basis over the lease term.
Because there is a direct effect on the measurement of DPF-liabilities when asset gains or losses are realised, changes in these liabilities are recognised directly in equity when, and only when, the valuation differences on the assets arise from gains or losses recognised directly in equity (“shadow accounting”).
The statutory minimum distribution ratios (“legal quote”) relating to the Swiss Life Group’s operations are as follows: SWITZERLAND | Group business subject to “legal quote”: At least 90% of the calculated income on the savings, risk and cost components minus the expenses thereof must be allocated to the policyholders.
GERMANY | 90% of the after-income-tax pre-refund statutory surplus is allocated to the policyholders.
For traditional life insurance contracts, benefits are recognised as an expense when due whereas for investment-type contracts only benefits exceeding the related policyholder deposits are recognised as an expense.
2.13 Leases OPERATING LEASE | The Group primarily enters into operating leases for the rental of equipment. The total payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.
Commissions and certain operating expenses related to the sale of certain investment funds have been deferred.
These costs are charged to income in relation to revenues earned on these investment funds. Certain front-end fees charged to unit holders have been deferred and amortised in proportion to the related expenses which have also been deferred. The Group periodically reviews and updates its assumptions made in determining projected revenues, with amortisation periods being adjusted as necessary.
Deferred origination costs are generally amortised on a straight-line basis over the life of the contracts.
PRESENT VALUE OF FUTURE PROFITS (PVP) ARISING FROM ACQUIRED INSURANCE CONTRACTS AND INVESTMENT 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 f lows from the contracts in force at the date of acquisition. For acquired insurance and investment contracts with DPF, future positive cash f lows generally include net valuation premiums while future negative cash f lows include policyholders’ benefits and certain maintenance expenses.
PVP is amortised in proportion to gross profits or gross margins over the effective life of the acquired contracts, which generally ranges from 20 to 30 years. Realised gains/losses are thereby taken into account as well as gains/losses recognised directly in equity (unrealised gains/losses). If these unrealised gains/losses were to be realised, the gross profits or gross margins used to amortise PVP would be affected. Therefore, an adjustment relating to these unrealised gains/losses is recognised in equity and is also ref lected in the amount of PVP in the balance sheet (“shadow accounting”).
COMPUTER SOFTWARE | 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.
They have a definite useful life of generally 5 to 20 years. Amortisation is calculated using the straight-line method over their useful lives to allocate the cost of trademarks and brand names.
2.19 Discontinued operations A discontinued operation is a component of the Group that either has been disposed of or is classified as held for sale and represents a major line of business or geographical area of operations or is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations. A discontinued operation is classified as such upon disposal or when it meets the criteria for the classification as held for sale. The consolidated statement of income is re-presented for prior periods as if the operation had been discontinued from the start of the earliest period presented.
– Financial liabilities backing assets in order to reduce or eliminate a measurement or recognition inconsistency. – Financial liabilities with embedded derivatives (structured products).
2.21 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.
Insurance contracts issued to a defined benefit pension plan covering own employees have generally been eliminated. These plans are typically partially funded as certain assets relating to these plans qualify as plan assets and are not required to be eliminated.
2.24 Earnings per share Basic earnings per share are calculated by dividing net income available to shareholders by the weighted average number of shares in issue during the reporting period, excluding the average number of shares purchased by the Group and held as treasury shares. The effect of mandatorily convertible securities is included in the calculation of basic earnings per share.
2.25 Offsetting Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
In July 2007, IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction was issued. The Interpretation provides general guidance on how to assess the limit in IAS 19 Employee Benefits on the amount of the surplus that can be recognised as an asset. It also explains how the pensions asset or liability may be affected when there is a statutory or contractual minimum funding requirement. The Interpretation will be effective for annual periods beginning on or after 1 January 2008. The Swiss Life Group is currently analysing the impact of this Interpretation on its financial statements.
In February 2008, amendments were introduced to improve the accounting for particular types of financial instruments that have characteristics similar to ordinary shares but are at present classified as financial liabilities. These amendments are set out in Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Instruments – Puttable Financial Instruments and Obligations Arising on Liquidation. The amendments require entities to classify certain puttable financial instruments and instruments that impose on the entity an obligation to deliver to another party a pro-rata share of the net assets of the entity only on liquidation as equity. The amendments will apply for annual periods beginning on or after 1 January 2009. The Swiss Life Group is currently analysing the impact of these changes on its financial statements.
– Private equity investments are classified as available for sale. Investments are normally valued at market if the market value represents the fair value. If no market value is available, fair value is estimated considering various factors such as purchase price, estimated liquidation value, restrictions on transferability, prices received in recent significant private placements of the same issuer, prices of investments relating to comparable companies engaged in similar business, and changes in the financial condition and prospects of the issuer.
– The fair values of loans, which are carried at amortised cost, are estimated using discounted cash f lows based upon the Group’s current lending rates for similar loans. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values equal the carrying values.
– The fair value of hedge funds is based on their quoted market prices, if available. If no quoted market price is available, valuation techniques are used that take into account the market value of the underlying assets, transaction prices and other information.
– The fair value of financial reinsurance assets and liabilities, which are carried at amortised cost, is estimated using discounted cash f low calculations.
– The fair value of borrowings, which are carried at amortised cost, is estimated using discounted cash f low calculations based upon the Group’s current borrowing rates for similar borrowings with remaining maturities consistent with the debt being valued.
3 Critical Accounting Estimates and Judgements in Applying Accounting Policies (continued)
For insurance contracts and investment contracts with discretionary participation features with fixed and guaranteed terms, the definition of estimates occurs in two stages. At inception of the contract, estimates of future deaths, surrender, exercise of policyholder options, investment returns and administrative expenses are made and form the assumptions used for calculating the liabilities during the life of the contract. A margin for risk and uncertainty (adverse deviation) is added to these assumptions. These assumptions are “locked-in” for the duration of the contract. Subsequently, new estimates are made each year in order to determine whether the liabilities so established are adequate in the light of these latest estimates. If the liabilities are considered adequate the assumptions are not altered. If the liabilities are not adequate, the assumptions for the calculation of the liabilities are altered (“unlocked”) to ref lect the latest estimates; no margin is added to the assumptions in this event. Improvements in estimates have no impact on the value of the liabilities and related assets, while significant enough deteriorations in estimates have an impact.
For insurance contracts and investment contracts with discretionary participation features without fixed and guaranteed terms, future premiums can be increased in line with experience. The assumptions used to determine the liabilities do not contain margins and are not locked-in but are updated at each reporting date to ref lect the latest estimates.
Tables based on statistics by national insurance associations, national and standard industry tables or internal generation tables ref lecting own company records are used for the life business with regard to mortality and longevity.
For the mandatory part of the group life insurance business in Switzerland (BVG, Swiss occupational plans), the legally stipulated annuity conversion rate is applied whereas in the non-mandatory part of the BVG business a reduced conversion rate calculated using actuarial assumptions is applied.
In the group life business, tariffs can be adjusted due to loss experience with regard to disability each year. In the group life business, the tables are based on own company records ref lecting loss experience. Especially in the group life business changes in the labour market may have a significant influence on disability. The tables are updated for significant changes.
In other markets, standard industry disability tables, national statistics and own company records are applied. Standard pricing principles are typically validated against the client-specific disability experience.
The Swiss Life Group has adopted IFRS 8 Operating Segments in advance of its effective date, with effect from 1 January 2007. Comparative information has been re-presented to conform with the requirements of IFRS 8 Operating Segments.
Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the management in deciding how to allocate resources and in assessing performance. The predecessor Standard IAS 14 Segment Reporting required identification of two sets of segments – one based on related products and services, and the other on geographical areas. IAS 14 regarded one set as primary segments and the other as secondary segments. The adoption of IFRS 8 Operating Segments has resulted in a changed identification of reportable segments.
The insurance operations in the Netherlands and Belgium, which are expected to be disposed of by the end of the first half of 2008, have been presented as a separate segment “Insurance (Discontinued)”.
The statement of income and balance sheet for the segments are given on the pages below: Financial Statements 2007
Premiums earned on insurance contracts 8 096 3 281 2 046 53
Premiums earned on investment contracts with discretionary participation 93 14 – –
Policy fees earned on investment and unit-linked contracts 13 212 38 56
Other expenses –175 –242 –59 –20 of which inter-segment –122 –9 –25 –8 of which inter-segment –22 –9 –26 –13
Net insurance benefits and claims –7 719 –2 268 –1 988 –39
Impairment of property and equipment and intangible assets –1 – –29 –
Other expenses –310 –176 –47 –13 of which inter-segment –119 –7 –2 5 of which inter-segment –17 –7 –4 –7
Financial assets at fair value through profit or loss 3 557 7 372
Financial assets at fair value through profit or loss 6 177 13 692
Total assets for the account and risk of the Swiss Life Group’s customers 15 574 15 145
Net gains/losses on investment property 229 94 – – 229 94
Share of results of associates 12 11 – – 12 11
The financial result for the account and risk of the Swiss Life Group’s customers consists of net gains/losses on financial assets at FVPL 722 806 net gains/losses on financial liabilities at FVPL –672 –738 5.2 Risk budgeting and limit setting The risk capacity and the risk appetite of the Swiss Life Group’s insurance operations are primarily defined based on economic principles. Consequently, the market values or best estimates of both the assets and the liabilities are obtained by discounting the cash f lows generated by these assets and liabilities with an appropriate discount rate. The risk capital available is defined as the positive difference of the economic value of the assets compared to liabilities. The available risk capital is used to cover the different risks to which the Swiss Life Group’s insurance operations are exposed by the nature of their activities. The final decision on the risk appetite for each insurance operation is with the Board of Directors.
The main focus of these limits is on overall market risk, credit risk and more specifically on interest rate risk as well as on currency risk and equity price risk.
COMPLIANCE WITH EXTERNAL CONSTRAINTS | Aspects other than the purely economic view must also be considered in the ALM process, such as regulatory requirements including statutory minimum distribution ratios (“legal quote”), funding ratios, solvency, local accounting rules and International Financial Reporting Standards, liquidity requirements and rating targets. Some of these views may lead to results that are not aligned with the economic approach, but nevertheless need to be taken into account.
STRATEGIC ASSET ALLOCATION | Strategic asset allocation is the first major task of the ALM process and aims at achieving an efficient risk capital allocation, i.e. optimising the returns on the asset portfolio for the available risk capital defined within the risk budgeting process, taking into account all known constraints.
The liabilities are largely predefined in terms of amount and timing of the payments and the associated assumptions are regularly reviewed. The corresponding asset portfolios mainly comprise fixed-income instruments. This way, the impact of interest rate f luctuations and the risk capital consumption are strategically optimised under a risk/return point of view, thus ensuring that the policyholders receive the benefits they were promised. Policyholders benefit from the ensuing investment returns in the form of discretionary participation, while shareholders benefit from an increase in the value of their investment in the Swiss Life Group.
Total insurance liabilities with embedded derivatives not separated and fair valued 85 583 99 482
HEDGING | The Swiss Life Group uses derivatives within the strict limits set by the applicable insurance legislation and by internal guidelines. Derivatives are primarily used to manage the exposure to equity securities, interest rates and foreign exchange rates. The main instruments include index futures and option structures in stock markets, bond futures and swaps in order to manage duration, and currency forwards in order to manage currency risk. Within certain limits, derivatives are used to enhance returns on the existing portfolio. The types of derivatives generally permitted for usage within the Swiss Life Group have been approved by the Group Chief Risk Officer and Group Chief Investment Officer.
In addition to these fixed and guaranteed payments which are exposed to interest rate risk, contractual rights exist for certain contracts to receive additional benefits whose amount and/or timing is contractually at the discretion of the issuer. The determination of the discretionary participation is highly dependent on future investment returns.
Assets for the account and risk of the Swiss Life Group’s customers – – – – 15 574 15 574
Liabilities for the account and risk of the Swiss Life Group’s customers – – – – –14 609 –14 609
Balance sheet interest rate sensitivity gap 12 113 29 567 16 514 28 134 965 87 293
Balance sheet interest rate sensitivity gap 26 677 15 051 22 985 44 382 1 539 110 634
Regarding interest rate risk exposure existing on contracts with guaranteed benefits where the risk is that the interest rates earned on the assets are insufficient to fund the guaranteed payments, puttable bonds are used to counter the impact of falling interest rates. To increase the convexity of interest-rate-sensitive assets, which is generally lower than the convexity of the insurance liabilities, receiver bonds are part of the asset portfolios in certain countries.
EQUITY PRICE RISK | A decline in the equity market may lead to a reduction of the Swiss Life Group’s realised and unrealised gains/losses, which may also negatively affect the Swiss Life Group’s results of operations and financial condition.
The Group monitors the investment portfolio risks by establishing mandatory risk limits. The investment portfolio is adequately diversified and there was no investment exceeding 10% of shareholders’ equity as at 31 December 2007 (2006: HSBC totalling CHF 0.8 billion).
The non-rated loans primarily comprise mortgages and policy loans. In certain countries, specific additional guidelines and rules have been defined locally to monitor credit risk. Such guidelines cover investments in fixed-income securities whereby the average rating of the fixed-income portfolio (calculated by weighting in accordance with the Standard & Poor’s method) must be AA– or higher (Standard & Poor’s or equivalent). Minimum and maximum thresholds apply with regard to permitted investments in non-government bonds. For these investments additional exposure limits are in place. For certain businesses, credit risk is monitored and controlled with a risk limit framework whereby maximum limits are reviewed and at least approved annually. Ratings are monitored on a daily basis and a weekly rating migration report is submitted to the local risk department. The majority of the bond portfolio is invested in government bonds (including supranational and sovereigns) and in bonds issued by the financial sector (generally covered by collateral or government guarantees).
For the account and risk of the Swiss Life Group’s customers 2 825 – – – – 2 825
Up to More than In CHF million 3 months 3–6 months 6–12 months 1 year Total
Below BBB Group’s In CHF million AAA AA A BBB or not rated customers Total
Credit rating as at 31 December 2007 of which collateralised –
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 value of which is subject to exchange rate f luctuations. The Group operates with various functional currencies (predominantly Swiss francs and euros). Its financial position and earnings could be significantly affected by a weakening of said foreign currencies against the Swiss franc.
Insurance receivables and other receivables 1 215 2 845 83 5 4 – 4 152
Debt instruments at fair value through profit or loss 268 1 458 88 – – 2 825 4 639
Debt instruments available for sale 16 139 32 913 4 705 165 849 – 54 771
Debt instruments pledged as collateral – – – – – – –
Insurance payables and other payables –2 405 –939 –1 –5 0 – –3 350
Debt instruments at fair value through profit or loss – – – – – –11 042 –11 042
Insurance payables and other payables 3 350 276 209 2 462 381 23
Total insurance and policyholder participation liabilities 114 651 661 385 5 951 14 744 92 910
Insurance receivables and other receivables 3 896 4 495 256 404 4 152 4 899
Financial assets available for sale 4 154 18 481 64 434 74 435 68 588 92 916
Financial assets held to maturity 559 398 3 065 3 692 3 624 4 090
Financial assets pledged as collateral – 96 – 28 – 124
Intangible assets including intangible insurance assets – – 3 151 3 507 3 151 3 507
Liabilities associated with assets held for sale 37 502 – – – 37 502 –
Financial liabilities at fair value through profit or loss 7 703 2 326 3 724 7 212 11 427 9 538
The Group’s insurance entities neither generally accept nor generally deny insurance coverage to applicants, but ensure that all the insurance risks are identified and thoroughly assessed, and that the insurance premiums accurately ref lect the costs for the risk taken among other things. The amount of risk taken must be in line with the Group’s strategy and risk policy, and must also meet the profitability targets.
PRODUCT DEVELOPMENT | 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 need. Swiss Life generally favours transparent and simple product design with minimised model risk and a reliable pricing basis with sufficient statistical data available.
For contracts with fixed and guaranteed benefits and premiums there are no mitigating terms and conditions that reduce the insurance risk accepted. For insurance and investment contracts with discretionary participation, the participating nature of these contracts may result in a significant portion of the insurance risk being shared with the policyholders.
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 amount of insurance risk 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).
NATURE OF INSURANCE RISK | Insurance risk arises when biometric and demographic trends as well as administrative costs deviate adversely from expectations and the premium rates agreed with the policyholder. Insurance risk quantification starts with the pricing of products. The insurance premiums are commonly determined by applying the equivalence principle, thereby using estimated values to calculate the future benefits. The Group’s insurance entities generally use the most up-to-date pricing basis when pricing new products or repricing existing ones.
The Group’s insurance entities quantify the insurance risk. A quantification of the insurance risk includes a sensitivity analysis. Insurance risk is mainly assessed by means of stochastic models. By analogy with the value-at-risk concept, insurance risk capital is defined as the value of accumulated future insurance benefits that shall not be exceeded with a certain predetermined (high) probability.
Disability income and other annuities – deferred 8 109 8 215 5 Risk Management Policies and Procedures (continued)
The most significant factors that could increase the overall liabilities in health insurance are the increase of the claim frequency due to an increase in the average age of the insured persons and negative economic and social factors.
Cumulative payments to date –469 –396 –355 –348 –324 –297 –198 –2 387
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.
SENSITIVITY ANALYSIS | The Swiss Life Group uses the traditional embedded value, as one of the main management tools, for its sensitivity analysis with regard to insurance risk and market risk. From the shareholders’ point of view, the embedded value serves as an indicator of the value of the existing insurance portfolios. It is composed of three components: the adjusted net asset value (ANAV) attributable to shareholders, the present value of future profits (PVFP) minus the present value of the cost of holding capital (CoHC). Future new business is not included.
The embedded value of the Swiss Life Group amounted to CHF 12.8 billion as at 31 December 2007 (2006: CHF 10.7 billion). Due to different valuation principles, changes in the embedded value are typically not ref lected to the same extent in the consolidated balance sheet and consolidated statement of income of the Swiss Life Group and vice versa.
At 31 December 2007, if the longevity improvement parameter had increased by 10%, the embedded value would have been CHF 31 million lower in Switzerland (2006: CHF 39 million lower) and CHF 27 million lower in the other countries (2006: CHF 15 million lower).
At 31 December 2007, if the longevity improvement parameter had decreased by 10%, the embedded value would have been CHF 33 million higher in Switzerland (2006: CHF 36 million higher) and CHF 26 million higher in the other countries (2006: CHF 13 million higher).
The sensitivity analysis with regard to market risk is as follows: The Swiss Life Group assumes in the embedded value calculation that all bonds are held to maturity. Upon maturity, the redemption amounts are reinvested in new bonds at rates applicable at that point in time (“new money rate”). At 31 December 2007, if the new money rate with regard to bonds had been higher by 100 basis points, the embedded value would have been CHF 151 million higher in Switzerland (2006: CHF 170 million higher) and CHF 255 million higher in the other countries (2006: CHF 301 million higher).
At 31 December 2007, if the investment returns for equity securities and property had been lower by 100 basis points, the embedded value would have been CHF 206 million lower in Switzerland (2006: CHF 377 million lower) and CHF 118 million lower in the other countries (2006: CHF 81 million lower).
At 31 December 2007, if the foreign currencies had strengthened by 10% against the Swiss franc, the embedded value would have been CHF 4 million lower in Switzerland (2006: CHF 18 million higher). If the foreign currencies had strengthened by 10% against the euro, the embedded value would have been CHF 2 million higher in the other countries (2006: CHF 3 million higher).
At 31 December 2007, if the foreign currencies had weakened by 10% against the Swiss franc, the embedded value would have been CHF 4 million higher in Switzerland (2006: CHF 18 million lower). If the foreign currencies had weakened by 10% against the euro, the embedded value would have been CHF 2 million lower in the other countries (2006: CHF 3 million lower).
Profit used to determine diluted earnings per share 712 567 641 378 1 353 945
Weighted average number of shares outstanding 33 003 291 33 483 512 33 003 291 33 483 512 33 003 291 33 483 512
Diluted earnings per share for the net profit attributable to equity holders of Swiss Life Holding (in CHF) 20.83 16.16 18.77 10.76 39.60 26.92
Under the accounting principles adopted, deposits received under insurance and investment contracts are not recognised as income: In CHF million 2007 2006
Deposits received under insurance and investment contracts 7 269 6 533
Net earned premiums, policy fees and deposits received 20 974 19 206
Realised gains/losses on sales of subsidiaries and other assets 133 –4
Net gains/losses on financial instruments at fair value through profit or loss from continuing operations include interest and dividend income of CHF 132 million for the period ended 31 December 2007 (2006: CHF 273 million). Net gains/losses on liabilities designated as at fair value through profit or loss from continuing operations include changes attributable to credit risk: nil for the period ended 31 December 2007 (2006: nil).
Total insurance receivables and other receivables 33 4 152 4 899
Derivatives embedded in investment contracts – – – – – –
Derivatives for the account and risk of the Swiss Life Group’s customers 60 1 0 0 192 18
Derivatives designated as cash flow hedges – 4 – 8 – 762
Derivatives held for trading Derivatives held for trading 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”).
In 2007 and 2006 the Group entered into interest rate swaps to hedge the available-for-sale fixed-rate bond portfolios in USD and EUR against changes in the fair value attributable to interest rate risk. The fair value of the bond portfolios as at 31 December 2007 was CHF 1.6 billion in total (2006: available-for-sale fixed-rate bond portfolios in USD and EUR and loans in EUR totalling CHF 2.9 billion).
Forward contracts are used as hedging instruments to protect investments in hedge funds against adverse movements in the EUR and USD exchange rates (2006: USD exchange rate).
Amounts ness to the Contract/ Cash flows expected Fair value Fair value recognised recognised in income notional expected to affect
Interest rate swaps – – – – – – – –
Assets for the account and risk of the Swiss Life Group’s
Total financial assets at fair value through profit or loss – 2 877 19 399 26 560 19 399 29 437
Securities pledged as collateral (reclassified) – 86 – – – 86
Liabilities for the account and risk of the Swiss Life Group’s
Total financial liabilities at fair value through profit or loss – 768 11 427 8 770 11 427 9 538
Total financial liabilities designated as at fair value through profit or loss 385 1 595 385 1 598
Cost/ Cost/ Net Net Fair value Fair value amortised amortised unrealised unrealised (carrying (carrying cost cost gains/losses gains/losses amount) amount)
Total financial assets available for sale 27 70 683 90 673 –2 095 2 243 68 588 92 916
Securities pledged as collateral (reclassified) – 38 – 0 – 38
Gross Gross impairment impairment Carrying Carrying amount amount losses losses amount amount Fair value Fair value
Cost/ Cost/ amortised amortised cost cost Net Net (carrying (carrying unrecognised unrecognised amount) amount) gains/losses gains/losses Fair value Fair value
Classification as assets held for sale and other disposals –462 –153
Rental income from investment property from continuing operations was CHF 670 million for the period ended 31 December 2007 (2006: CHF 640 million). Operating expenses arising from investment property from continuing operations that generated rental income stood at CHF 168 million for the period ended 31 December 2007 (2006: CHF 140 million). Operating expenses arising from investment property from continuing operations that did not generate rental income during the period stood at CHF 0.1 million for the period ended 31 December 2007 (2006: CHF 14 million).
Classification as assets held for sale and other disposals –9 –1
AIA Pool, Sint-Jans-Molenbeek 5 4 1 0 0 0 –1 13.0%
Balance as at 1 January –220 –2 –92 –111 –16 –441
Classification as assets held for sale and other disposals –1 – –20 –20 –5 –46
Transfers from/to investment property 15 –26 –157 – – – –183
Revaluation in respect of transfers to investment property 4 – – – – 4
Balance as at 1 January –202 –2 –120 –111 –19 –454
Transfers to investment property 15 2 – – – – 2
No borrowing costs were capitalised in property and equipment in 2007 and 2006.
On the acquisition of Meeschaert Assurances, Paris, in November 2007, present value of future profits amounting to CHF 8 million was recognised.
Annual amortisation charges on the present value of future profits relating to acquired insurance portfolios totalling CHF 24 million as at 31 December 2007 are estimated as ranging from CHF 1 million to CHF 3 million for the years 2008 to 2010.
Balance as at 1 January –738 –739 –11 –5 –156 –128 –905 –872
Amortisation recognised in income 8 – – –4 – –7 –11 –11 –11
Reversal of impairment losses – – – – – – – –
Changes from discontinued operations – – –3 –6 –2 –2 –5 –8
Foreign currency translation differences – – 0 – –4 –2 –4 –2
Total other intangible assets as at 31 December 436 692 58 7 13 19 507 718
GOODWILL | Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities, if applicable, at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on associates is included in the carrying amount of the investment.
Schaan, are based on present values that traditionally use a single set of estimated cash f lows and a single discount rate.
The key assumptions used for the impairment testing on the carrying amount of goodwill totalling CHF 436 million were as follows: Banca del Banca del Lloyd Lloyd Gottardo Gottardo Continental Continental CapitalLeben CapitalLeben
These key assumptions have been derived from analysis in the specific markets. Investment returns ref lect projected returns based on the specific investment portfolios and the investment strategy. The discount rates used are pre-tax rates and reflect specific risks relating to the business concerned. The growth rate was used for cash f low projections beyond the budgeted periods.
CUSTOMER RELATIONSHIPS | On the acquisition of CapitalLeben Versicherung AG, Schaan, a customer relationship asset of CHF 33 million was recognised in the period under review. In August 2007, the Swiss Life Group acquired the banking activities of Fideuram Wargny, France, which led to the recognition of a customer relationship asset of CHF 12 million. In November 2007, Meeschaert Assurances, Paris, was acquired and a customer relationship asset amounting to CHF 15 million was recognised.
Customer relationships totalling CHF 3 million have been reclassified to assets held for sale.
COMPUTER SOFTWARE AND OTHER | Consist of computer software, trademarks and brand names.
Investment contracts with discretionary participation with deposit accounting 11 414 28 626
Investment contracts without discretionary participation at amortised cost 33 440 586
Investment contracts without discretionary participation at fair value through profit or loss 310 155 of which for the account and risk of the Swiss Life Group’s customers 3 567 6 424
Liabilities released for payments on death, surrender and other terminations during the year –94 –61
Effect of changes in actuarial assumptions and other movements 1 –8
These amounts primarily relate to contracts issued in Switzerland and France.
Balance as at 31 December 440 586 20 Investment Contracts (continued)
Hybrid debt 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/Rentenanstalt, which are guaranteed by Swiss Life Holding. Swiss Life/Rentenanstalt 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 Federal Office of Private Insurance. 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 17 April 2017, the interest will be the aggregate of 2.5% and Euribor 3-month deposits.
In 2001, Swiss Life/Rentenanstalt issued a subordinated step-up loan of EUR 100 million with a time to maturity of 20 years that can be repaid after 10 years. The interest rate equals Euribor plus a margin of 1.75% for the first ten years and 2.75% thereafter.
In March 1999, Swiss Life/Rentenanstalt privately placed a subordinated perpetual step-up loan comprising three simultaneous advances of EUR 443 million (at a rate of interest of Euribor plus a margin of 1.05%, increasing by 100 basis points as from April 2009), CHF 290 million (at a rate of interest of Libor plus a margin of 1.05%, increasing by 100 basis points as from April 2009) and EUR 215 million (at a rate of interest of 5.3655%, as from October 2009 the rate of interest will be an aggregate of Euribor plus a margin of 2.05%). Swiss Life/Rentenanstalt can call the EUR 443 million f loating rate loan at the earliest on 6 April 2009, the CHF 290 million f loating rate loan at the earliest on 7 April 2009 and the EUR 215 million fixed-rate loan at the earliest on 6 October 2009 or at five-year intervals thereafter, upon notice and subject to the consent of the Federal Office of Private Insurance.
Convertible debt On 10 June 2004, Swiss Life Holding issued CHF 317 million in 0.625% convertible bonds due in 2010. The bonds may be converted into registered shares of Swiss Life Holding at any time at the option of the holder. Bondholders exercising their conversion right are entitled to receive the number of shares equal to the principal amount of CHF 1000 divided by the conversion price of CHF 209.15 (subject to adjustments).
In 2007, convertible bonds were converted into 1 184 170 SLH shares (2006: 191 SLH shares) with a corresponding increase in share capital totalling CHF 49 million (2006: CHF 8726) and an increase in share premium totalling CHF 173 million (2006: CHF 24 605).
Swiss Life Insurance Finance Ltd. – guaranteed bonds EUR 4.375% 2004 2008 494 480
Claims under non-life insurance contracts 1 284 1 440 230 243 1 054 1 197
Total insurance liabilities and reinsurance assets 94 492 109 456 975 969 93 517 108 487 of which for the account and risk of the Swiss Life Group’s customers
Total gross claims under non-life insurance contracts 1 284 1 440
Claims under non-life insurance contracts represent the liability needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before the financial reporting date. The estimated liability includes the amount that will be required for future payments on both claims that have been reported to the insurer and claims relating to insured events that have occurred but have not been reported to the insurer as at the date the liability is estimated. Loss development tables are generally used to make these estimates.
Effect of changes in actuarial assumptions and other movements –156 –294 –3 –3 –153 –291
Effect of changes in actuarial assumptions and other movements –123 –418 –4 34 –119 –452
Deposits released for payments on death, surrender and other terminations during the year –787 –718
The contributions relating to the continuing operations expected to be paid for the year ending 31 December 2008 are CHF 82 million. These contributions include amounts paid to insurance contracts issued to defined benefit plans covering own employees.
The net defined benefit asset/liability consists of gross defined benefit liabilities –1 969 –2 535 gross defined benefit assets 19 158 153
Employee benefit liabilities consist of gross defined benefit liabilities –1 969 –2 535 other employee benefit liabilities –11 –26
Expected rate of return on reimbursement rights n. a. n. a.
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 from continuing operations amounted to CHF 1 million in 2007 (2006: CHF 1 million).
In 2005, the number of PSUs granted under this programme amounted to 67 412 (balance after reduction in par value). Due to the reduction in par value of the Swiss Life Holding shares in 2005, the number of PSUs granted was adjusted using the Eurex R factor of 0.978284. The fair value at the measurement date amounted to CHF 159.66. The date of grant was 1 April 2005.
The expense recognised for share-based payment amounted to CHF 12 million in 2007 (2006: CHF 5 million).
Share options The Group offered share options to directors and managers in Switzerland and abroad. No new share options have been allocated since 2003 and no share options were outstanding as at 31 December 2007.
Number Number Exercise Exercise Expiry Expiry exercise exercise of shares of shares1 date date date date price price2
1 Number of shares adjusted due to reduction in par value of Swiss Life Holding shares in accordance with Eurex rules 2 Exercise price adjusted due to reduction in par value of Swiss Life Holding shares in accordance with Eurex rules
The effect of changes in tax rates amounted to CHF 51 million in 2007 (2006: CHF 5 million) and primarily related to Switzerland and Germany.
The expected weighted-average tax rate for the continuing operations of the Group was 30.9% in 2007 (2006: 29.1%). This rate was derived by obtaining a weighted average of the expected income tax rates in the various jurisdictions in which the Group operates. The increase of the weighted-average tax rate is due to the geographical allocation of the profits and the different tax rates in these jurisdictions. The actual income tax expenses differ from the expected amounts as follows: Actual and expected income tax
Increase/reduction in taxes resulting from tax-exempt interest 0 0 tax-exempt dividends –16 0 other non-taxable income –65 –74 non-deductible expenses 6 51 other income taxes (incl. withholding taxes) 6 0 unrecognised tax losses/credits 1 4 use of previously unrecognised tax losses/credits – 0 changes in tax rates –51 –5 other –21 16
Total deferred income tax assets/liabilities 118 94 485 865 25 Income Taxes (continued)
Tax losses and tax credits 69 –16 – –44 0 9
Net deferred income tax assets/liabilities –771 82 322 11 –11 –367
Tax losses and tax credits 77 –13 – 5 0 69
Net deferred income tax assets/liabilities –1 057 –58 257 92 –5 –771
Deferred tax liabilities have not been recognised on the aggregate amount of temporary differences with consolidated investments in subsidiaries to the extent the Group considers such undistributed earnings as being indefinitely reinvested and does not expect to repatriate these earnings in the foreseeable future. The amount of such temporary differences was approximately CHF 3.1 billion as at 31 December 2007. If such earnings are ever repatriated, no material tax liabilities would be incurred due to participation exemption rules and applicable double tax treaties.
Additional provisions made during the reporting period 15 22 37 21
Share capital As approved by the shareholders at the General Meeting of Swiss Life Holding (SLH) on 8 May 2007, a reduction in par value of CHF 7 per registered SLH share was effected in 2007 (2006: CHF 5 per registered share). The payout took place at the beginning of August 2007 and led to a reduction in the share capital of SLH of CHF 245 million (2006: CHF 169 million).
Due to the reduction in par value of CHF 7 per registered SLH share in 2007 (2006: CHF 5 per registered SLH share), an amount of CHF 11 million was credited to share premium in respect of treasury shares (2006: CHF 2 million).
In 2007, convertible bonds were converted into 1 184 170 SLH shares (2006: 191 SLH shares) with a corresponding increase in share premium totalling CHF 173 million (2006: CHF 24 605).
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 2007 2006
Gains/losses transferred to the income statement 8 –452 – – –452
Impairment losses transferred to the income statement 8 12 – – 12
Total gains/losses recognised directly in equity as at 31 December 305
The group’s objectives when managing capital are: to comply with the regulatory insurance capital requirements, to define and manage economic capital and to fulfill the company’s target on rating capital. The company also actively manages the composition and quality of the capital to optimise continuously its capital structure and interest cover ratio.
Regulatory requirements In accordance with the federal law on the supervision of insurance companies the Group reports as a financial conglomerate to the Federal Office of Private Insurance (FOPI). The reporting covers risk management as outlined in note 5, Group solvency, legal structure, management organisation and intra-group transactions. The reporting is submitted on an ad-hoc, quarterly, half-yearly or yearly basis depending on the topic and is reviewed on a yearly basis by the Group auditor. At 31 December 2007, the Group was compliant with the legal requirements.
Present value of profits from acquired insurance portfolios 8 – – –
Financial liabilities at fair value through profit or loss –4 332 –4 332 – –
In November 2007, the Swiss Life Group acquired Meeschaert Assurances, Paris. The acquisition cost amounted to CHF 40 million.
On 27 March 2007, the Swiss Life Group acquired CapitalLeben Versicherung AG, Schaan, a company headquartered in Liechtenstein, which specialises in structured life insurance solutions. Regulatory approval was obtained on the same date. CapitalLeben Versicherung AG, Schaan, contributed total income of CHF 38 million and a net profit of
CHF 5 million to the Group for the period from 27 March 2007 to 31 December 2007. If the acquisition had occurred on 1 January 2007, the contribution to total income would have been CHF 49 million and the net profit CHF 8 million for the period under review.
Financial assets at fair value through profit or loss 11 034 0
In July 2007, the Swiss Life Group sold its majority stakes in ERISA, Paris and ERISA IARD, Paris. The sales price amounted to CHF 372 million and the gain realised on the sale was CHF 143 million.
In January 2006, Dreieck Industrie Leasing was sold. The sales price amounted to CHF 97 million and the gain realised on the sale was CHF 27 million.
Additionally, a real estate company in Belgium and a service company in Switzerland were sold in January 2006. The sales prices of these transactions amounted to CHF 19 million in total. The gain realised on the sales amounted to CHF 5 million.
In November 2007, the Swiss Life Group entered into a sale agreement to dispose of Banca del Gottardo, Lugano, for a total consideration of CHF 1875 million (subject to adjustment). The transaction was completed on 7 March 2008. Banca del Gottardo, Lugano, is presented as a separate segment “Banking (Discontinued)” in the segment reporting.
Gain/loss on remeasurement to fair value less costs to sell – – – – – –
Gain/loss on disposal of operations – – – – – –
Income tax expense on the gain/loss loss on remeasurement to fair value less costs to sell/disposal of operations – – – – – –
Based on a ruling by the Dutch tax administration, the Swiss Life Group was able to reduce its tax liability by CHF 94 million in 2007 (2006: CHF 159 million).
Financial assets at fair value through profit or loss 4 030 – 2 551 – – – 6 581 –
Financial assets available for sale 19 844 – 672 – – – 20 516 –
Net cash flows from operating activities –92 199 895 –902 803 –703
Net cash flows from investing activities –16 13 –32 108 –48 121
Sales to and purchases from related parties are made at normal market prices. Outstanding balances at year-end are unsecured and settlement is made in cash. There have been no guarantees provided or received for any related party receivables. For the year ended 31 December 2007, no provisions have 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.
Key management comprises the members of the Board of Directors of Swiss Life Holding and the members of the Corporate Executive Board of Swiss Life Holding. These individuals have the authority and responsibility for planning, directing and controlling the activities of the Swiss Life Group, directly or indirectly.
Assets under control are taken to comprise: – assets stated as investments in the balance sheet and cash and cash equivalents – assets included in the balance sheet for the account and risk of the Swiss Life Group’s customers (separate account/unit-linked investments, private placement life insurance) – assets managed for third parties by the Group
The following table summarises the carrying amounts and fair values of those financial assets and liabilities not presented in the Group’s balance sheet at fair value: In CHF million Notes 31.12.2007 31.12.2006 31.12.2007 31.12.2006
Insurance receivables and other receivables 9 4 152 4 899 4 152 4 899
Financial assets held to maturity 14 3 624 4 090 3 575 4 193
Insurance payables and other payables 9 3 350 4 268 3 350 4 268
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 2007, committed principal amounts stood at EUR 24 million and CHF 89 million (2006: EUR 33 million and CHF 114 million ). The range of committed interest rates is 3.3% to 5.8% for commitments in EUR and 2.3% to 4.6% for commitments in CHF.
Capital commitments The Group had commitments to purchase investments of CHF 413 million (excluding private equity) as at 31 December 2007 (2006: CHF 340 million). Contractual obligations to purchase or construct investment property amounted to CHF 155 million as at 31 December 2007 (2006: CHF 318 million). Commitments for the acquisition of property and equipment amounted to nil as at 31 December 2007 (2006: CHF 0.1 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 f lows 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.
Securities under repurchase and securities lending transactions 1 – 4 167
Fair value of collateral held which can be sold or repledged
36 Future Minimum Lease Payments under Non-Cancellable Operating Leases – Lessor
Later than 1 year and not later than 5 years 526 416
Borrowing costs of CHF 53 million relating to repurchase agreements and bank loans were reclassified to interest expense.
These reclassifications were also ref lected in the consolidated statement of cash f low for the year ended
The transaction to dispose of Banca del Gottardo, Lugano, for a total consideration of CHF 1875 million (subject to adjustment) was completed on 7 March 2008.
In December 2007, the Swiss Life Group announced that it will make a voluntary public takeover bid at EUR 30 per share to the shareholders of AWD Holding AG, Hanover, in January 2008. On 19 March 2008, the Swiss Life Group held 96.7% of the AWD Holding shares (including 10.5% shares under option).
Swiss Life (Liechtenstein) Services, Vaduz, Branch Zürich Ins. Other – – full – –
Swiss Life/Rentenanstalt, Zürich Ins. CH 100.0% 100.0% full CHF 587 350
Swiss Life Selection, Zürich Ins. CH 100.0% 100.0% full CHF 250
Swissville Private Holding, Zürich Ins. CH until 30.06.2006 – – full
LGT Swiss Life Non Traditional Advisers, Vaduz – 43.7% 43.7% equity CHF 1 000
SCI ERISA IMMO 1, Paris Ins. FR until 02.07.2007 – – full
Seeds Finance SA, Paris – from 21.12.2007 34.7% 36.0% equity EUR 85
Société suisse de participations d’assurance, Paris Ins. FR 100.0% 100.0% full EUR 678 353
Swiss Life Gestion Privée, Paris Ins. FR from 31.08.2007 60.0% 100.0% full EUR 205
Swiss Life Prévoyance et Santé, Paris Ins. FR 99.2% 99.2% full EUR 150 000 39 Significant Subsidiaries and Associates (continued)
Segment 1 Consolidation period Group share Direct share consolidation Currency in 1000 1 Segment (Ins. CH = Insurance Switzerland, Bank. Dis. = Banking (Discontinued), IM = Investment Management, Ins. Other = Insurance Other, Ins. FR = Insurance France, Ins. DE = Insurance Germany, Ins. Dis. = Insurance (Discontinued))
Schweizer Leben Pensions Management, München Ins. DE 100.0% 100.0% full EUR 150
Swiss Life Asset Management, Unterföhring IM 100.0% 100.0% full EUR 5 250
Swiss Life Beteiligungs GmbH, München Ins. DE 100.0% 100.0% full EUR 25
Swiss Life Beteiligungs GmbH, München Other from 04.12.2007 100.0% 100.0% full EUR 25
Swiss Life Beteiligungs-GmbH & Co. Grundstücksverwaltung KG, München Ins. DE 100.0% 100.0% full EUR 50
Swiss Life Cooperations, München Ins. DE 100.0% 100.0% full EUR 100
Swiss Life Grundstücksmanagement, München Ins. DE 100.0% 100.0% full EUR 26
Swiss Life Partner Vertriebs GmbH, Hamburg – 50.0% 50.0% equity EUR 77
Swiss Life Pensionsfonds, München Ins. DE 100.0% 100.0% full EUR 3 000
Swiss Life Pensionskasse, München Ins. DE 100.0% 100.0% full EUR 3 000
Swiss Life Vermittlungs GmbH, München Ins. DE from 29.10.2007 100.0% 100.0% full EUR 50
Zwitserleven Vermogensbeheer, Amstelveen Ins. Dis. 100.0% 100.0% full EUR 2 269
Notes to the Consolidated Financial Statements 39 Significant Subsidiaries and Associates (continued)
Bureau Maron, Verviers Ins. Dis. from 21.12.2006 100.0% 100.0% full EUR 20
Demoisy & Cie, Montigny le Tilleul – 25.0% 25.0% equity EUR 31
Freeberg, Bruxelles Ins. Dis. from 05.07.2007 100.0% 100.0% full EUR 685
Swiss Life Immo-Midi (Belgium), Bruxelles Ins. Dis. 100.0% 100.0% full EUR 2 200
Swiss Life Immo-Residential (formerly Swiss Life Information Systems), Sint-Gillis Ins. Dis. 100.0% 100.0% full EUR 62
Swiss Life Invest (Belgium), Bruxelles Ins. Dis. 100.0% 100.0% full EUR 646
Gotam Umbrella Fund (Lux) Advisory Company, Luxembourg Bank. Dis. 100.0% 100.0% full CHF 200
Gottardo Equity Fund (Lux) Management, Luxembourg Bank. Dis. 100.0% 100.0% full CHF 250
Pulse SA, Luxembourg Ins. Other from 07.08.2007 100.0% 100.0% full EUR 31
SB-Gotthard I Fund Management, Luxembourg Bank. Dis. until 29.11.2006 – – full
Swiss Life (Luxembourg), Strassen Ins. Other 100.0% 100.0% full EUR 15 000
Swiss Life Immo-Arlon, Strassen Ins. Other 100.0% 100.0% full EUR 1 000
Gottardo Inversiones Financieras, Madrid Bank. Dis. 100.0% 100.0% full EUR 1 969
Alpine Services Ltd., Nassau Bank. Dis. from 01.01.2006 100.0% 100.0% full USD 10
Gottardo Trust Company, Nassau Bank. Dis. 100.0% 100.0% full USD 3 000
Swiss Life Cayman Finance, Grand Cayman Other until 06.09.2006 – – full
N.V. Pensioen ESC, Willemstad Ins. Dis. 100.0% 100.0% full ANG 1 000 1 Segment (Ins. CH = Insurance Switzerland, Bank. Dis. = Banking (Discontinued), IM = Investment Management, Ins. Other = Insurance Other, Ins. FR = Insurance France, Ins. DE = Insurance Germany, Ins. Dis. = Insurance (Discontinued))
Review of Operations | Swiss Life Holding generated a profit of CHF 335 million in the 2007 financial year, up on the previous year’s figure of CHF 249 million.
In addition, the company founded two new subsidiaries in the period under review: Swiss Life Beteiligungs GmbH, Munich, and Pulse SA, Luxembourg, the latter of which was renamed Swiss Life Products (Luxembourg) SA in February 2008. Swiss Life Beteiligungs GmbH is the acquiring company for the stake in AWD Holding AG. Pulse SA is creating a central platform for the development and management of innovative products which will be available for sale internationally from mid 2008
Swiss Life Holding’s profit distribution to shareholders in the reporting period came to CHF 245 million, or CHF 7 per share. It took the form of a repayment of par value. The par value of the Swiss Life Holding share was thereby reduced from CHF 41 to CHF 34 and the share capital decreased from CHF 1385 million to CHF 1189 million. Conversion of outstanding convertible bonds into shares led to an increase in the share capital of CHF 49 million. The nominal value of the CHF 317 million’s worth of convertible bonds issued in 2004 was thereby reduced to CHF 68 million. The convertible bond expires in June 2010. The conversion price at the time of writing is CHF 209.15. Apart from the convertible bond issue, Swiss Life Holding is financed entirely by equity.
Banca del Gottardo, Lugano CHF 70 000 100.0% CHF 70 000 100.0%
LOANS TO GROUP COMPANIES | CHF 182 million of the loans to Group companies is classified as subordinated.
MAJOR SHAREHOLDERS | At the time of writing there are no individual shareholders or groups of shareholders who own more than 5% of Swiss Life Holding’s share capital and who are known to us.
SHARE CAPITAL | As at 31 December 2007, the share capital of Swiss Life Holding (SLH) consisted of 34 960 439 fully-paid shares with a par value of CHF 34 each. In exercising voting rights, no shareholder can collect more than 10% of the total share capital directly or indirectly in respect of their own shares and those they represent. As at 31 December 2006, SLH had 33 776 269 registered shares with a par value of CHF 41 per share. Conditional share capital was CHF 84 439 034 as at 31 December 2007 (2006: CHF 150 374 511).
LEGAL RESERVES | Legal reserves comprise the general reserves (additional paid-in capital in excess of the par value, net of transaction costs) and reserve for own shares (equivalent in value to SLH shares held by the Swiss Life Group).
FREE RESERVES AND RETAINED EARNINGS | Free reserves and retained earnings contain accumulated retained earnings which have not been distributed to the shareholders, or which have been allocated to the reserve for own shares.
In 2006, SLH further gave a capital guarantee for a maximum net asset value of CHF 300 million to Swiss Life Funds.
COMPENSATION POLICY PRINCIPLES | Pursuant to the Organisational Regulations, the Board of Directors as a whole is responsible for establishing the guidelines on the Group’s compensation policy (incl. bonuses, equity compensation plans and share option plans) and with regard to employee 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 to be competitive and in line with the market environment. The overall compensation takes into account the employees’ professional skills, commitment and personal performance. Individual compensation is made up of a basic salary and variable short-, medium- and long-term salary components as well as contributions to occupational provisions and risk insurance. The basic salary is determined according to the employee’s function and skill-set, and is annually reassessed and adjusted if appropriate. The variable salary components are linked to the strategic objectives of the Group and the individual divisions and the associated financial and HR-related targets. Personal performance and target achievement are assessed annually in the employee appraisal procedure implemented throughout the Group (Group Performance System) and taken into consideration when applying the defined compensation policy.
As part of the compensation policy, a long-term equity compensation plan was introduced in 2004 for members of the Corporate Executive Board and other senior management members of the Swiss Life Group. Under this programme, participants have been granted future subscription rights to Swiss Life Holding shares in the form of Performance Share Units (PSUs) since 2005. These subscription rights entitle them to receive Swiss Life Holding shares free of charge after a period of three years insofar as the relevant conditions have been satisfied.
Pursuant to the regulations of the 2007 equity compensation plan, two objective performance criteria have been defined, each weighted at 50%. Depending on the fulfilment of the two performance criteria within the three-year period, the number of PSUs can increase by no more than a factor of 1.5 or drop to zero. The first criterion is the Total Shareholder Return on the Swiss Life Holding share (TSR Swiss Life Holding), requiring a performance of over 20% for a subscription right to share allocation to arise after three years. The second criterion involves a comparison of the Swiss Life Holding share’s TSR with the TSRs of the shares of the companies listed in the Dow Jones STOXX 600 Insurance Index (TSR Outperformance). A subscription right arises if the performance on expiry of the three-year term is above the first quartile in comparison with the companies in question.
The number of PSUs entitling the participant to receive shares after the three-year term is determined in accordance with the table above as follows: One half of the PSUs allocated is multiplied by the factor resulting from the TSR Swiss Life Holding target achievement, and the other half by the factor resulting from the TSR Outperformance target achievement. The factor equals 1, i.e. 100%, if a performance of 30% is attained for the first performance criterion, the TSR Swiss Life Holding. Interim values are determined by linear interpolation. In the case of TSR Outperformance, the second performance criterion, the factor is 1, i.e. 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 (factor TSR Swiss Life Holding multiplied by one half of the PSUs and the factor TSR Outperformance multiplied by the other half) are added up. The sum is the number of PSUs, which translates into an entitlement to an equal number of Swiss Life Holding shares.
Expenditure for Compensation in cash Compensation in shares 1 occupational provisions
2 Regular annual employer contribution of CHF 99 492 and subsequent contribution of CHF 98 500. Pursuant to the regulations, occupational provisions are f inanced by the employer and employee at a ratio of 2/3 to 1/3.
Other members of Corporate Executive Board 2 588 400 3 350 000 123 842 6 062 242 4 671 1 344 020 7 406 262 1 Child allowances (CHF 12 840), allowances for years of service (CHF 10 938), company cars (CHF 50 056), premium contributions to 3rd-pillar pension plans (CHF 130 009), each in total.
Other members of Corporate Executive Board 587 089 7 993 351 3 Regular annual employer contribution and subsequent contribution. Pursuant to the regulations, occupational provisions are f inanced by the employer and employee at a ratio of 2/3 to 1/3.
Other members of Corporate Executive Board 17 727 3 354 303 11 347 654 5 The PSUs represent future subscription rights that entitle the individuals concerned to receive Swiss Life Holding shares after a period of three years provided the relevant conditions are then met. Depending on the fulf ilment during the three-year term of the two performance criteria def ined, the number of PSUs can increase by a factor of 1.5 or drop to zero.
SHARE OWNERSHIP/PARTICIPATION RIGHTS AS AT 31 DECEMBER 2007 | As at the balance sheet date, current members of the Board of Directors and Corporate Executive Board (including closely-linked parties) held the following number of registered Swiss Life Holding shares and future subscription rights to Swiss Life Holding shares in the form of Performance Share Units (PSUs).
Performance Share Units (PSUs) as future subscription rights to Swiss Life Holding shares1
Total Corporate Executive Board 74 331 1 Number of PSUs allocated in the years 2005, 2006 and 2007 in connection with the relevant equity compensation plan. The PSUs represent future subscription rights that entitle the individuals concerned to receive Swiss Life Holding shares after a period of three years provided the relevant conditions are met.
The net profit for the year amounts to CHF 334 644 400. The Board of Directors proposes to the General Meeting of Shareholders to appropriate the profit in accordance with the table below. If the Board of Directors’ proposal is adopted, a distribution in the form of a reduction of CHF 17 in the par value per share will be paid.
Total profit shown in the balance sheet 338 047 818 253 403 418
Report of the Statutory Auditors to the General Meeting of Swiss Life Holding Zurich
Information on Share Performance | Shareholders at Swiss Life Holding’s Annual General Meeting on 8 May 2007 approved a distribution in the form of a reduction in par value by CHF 7 per registered share. Swiss Life’s shareholders should also participate in the good business results and the extraordinary income for the 2007 financial year with a distribution of profit per share amounting to CHF 17.
In 2007, the price of the Swiss Life share ref lected the negative stock market developments. The share was incorporated in the MSCI World Index for the first time, and in the newly established Swiss Leaders Index (SLI).
Dow Jones STOXX 600 Insurance Index (in EUR) 28.12.2007 252 29.12.2006 286
Fiduciary EUR Perpetual As at 31.12.2007 Convertible bond EUR bond Certificates 1 nc10 Notes 2
Luxembourg Luxembourg Irish Stock Listing SWX Stock Exchange Stock Exchange Exchange 1 The notes are issued by the fiduciary to fund a step-up subordinated perpetual loan to Swiss Life/Rentenanstalt. 2 The notes are issued by ELM to fund step-up subordinated perpetual loan notes to Swiss Life/Rentenanstalt which are guaranteed by Swiss Life Holding.
Net profit from discontinued operations 642 2 378 n.a. n.a. n.a.
Equity holders of Swiss Life Holding 1 345 933 860 579 n.a.
Due to the sale of its Dutch and Belgian operations and of Banca del Gottardo announced in November 2007, Swiss Life adjusted the presentation of its Financial Statements in accordance with the relevant regulations, gearing them to the continuing operations. The units sold are fully consolidated up to the completion of the transaction concerned, but only their net contribution to the net profit is included in the Consolidated Statement of Income. The previous year’s figures have been adjusted accordingly to enhance comparability. In the Balance Sheet, the assets and liabilities of the units sold are stated separately. The segment reports, on the other hand, contain the full 2007 results of the units sold as well.
This Annual Report contains forward-looking statements about Swiss-Life which involve certain risks and uncertainties. The reader should be aware that such statements represent projections which could differ materially from actual outcomes and results. All forwardlooking statements are based on the data available to Swiss Life at the time the present Annual Report was compiled.
This Annual Report is also available in German. The English text is definitive for the Financial Statements.
As a reader-friendly, condensed version of this Annual Report, Swiss Life has published a 72page Business Review in colour, wich is available in German, English and French. It contains a presentation of business operations, an extract from the Financial Statements and a summary of the Corporate Governance section.
Spectators are enthralled by the music and dance performances of the young Swiss artists.
Event speakers: Federal Councillor Hans-Rudolf Merz, Chair of the Zurich Cantonal Government Rita Fuhrer, and host Bruno Gehrig.
The 116-page magazine features stories, historical events, anecdotes and pictures spanning one and a half centuries.
The f irst of ten regional client events takes place in Altnau, the birthplace of the company’s founder, Conrad Widmer.
Author Alex Capus, who paid a tribute to the company’s founder Conrad Widmer at events in Altnau and Baden, with Bruno Gehrig.
The board game “C’est la vie!” heightens awareness of pension issues in a playful fashion. Fun for the whole family!
Oncologist Madeleine Gay talks in Lausanne about her mission to give the grape varieties in Valais a new lease of life.
Climatologist Heinz Wanner who was awarded the international prize for geography “Vautrin Lud”, gives a talk in Berne on 10 May.
At the invitation of the Zurich region, 200 guests visit FIFA’s recently opened new headquarters on 7 June.
Regional head Stefan Furrer invites customers from Central Switzerland to a series of events staged in Lucerne on 14 June.
Guest of honour in Lucerne: Professor Hans Küng, theologian, philosopher and holder of various awards and honorary doctorates.
Ticino-based speaker, Piernando Binaghi, head of the local TV weather reporting department, spoke about weather trends.
Among the former employees is Verena Tanner, who worked for Swiss Life for 50 years.
On 18 September a forum for distribution partners is held on the Rütli. The day begins with a boat trip.
Guest of honour Emil Steinberger and Bruno Gehrig discuss changing perspectives “from apprenticeship to retirement”.
The schedule of events for the afternoon features all types of leisure time pursuits. There is something for everyon.
The Swiss Life Network celebrates with its network partners: 120 people from 26 countries take part.
The Swiss Life Network event, presided over by CEO International, Bruno Pfister, is held in Lucerne on 26 September.
The f inal event is staged in Basel, where 300 customers accept the invitation of the regional head Beat Müller.
You can f ind the Annual Report of the Swiss Life Group on the internet: www.swisslife.com/report