Markets — The Swiss Life Group operates in Switzerland, Germany and France and has competency centres in Luxembourg, Liechtenstein and Singapore. Swiss Life Select, tecis, HORBACH, Proventus and Chase de Vere advisors use the Best Select approach in various European markets to choose suitable products for customers. Swiss Life Asset Managers offers institutional and private investors in Switzerland and France access to investment and asset management solutions.
Adjusted profit from operations rose by a remarkable 13% in 2013 to CHF 1.1 billion. Net profit came to CHF 784 million – compared to CHF 99 million in the previous year, which was impacted by oneoff impairments. In light of this positive overall result, the Board of Directors will propose that the Annual General Meeting on 23 April 2014 approve an increase in the dividend from CHF 4.50 to CHF 5.50 per share in the form of a withholding tax-free distribution from the capital contribution reserves. The very good net investment result by peer comparison of 3.9% (2012: 4.8%) enabled us to further strengthen the insurance reserves in the year under review.
All these facts demonstrate clearly that we have further enhanced our efficiency and competitiveness as a Group over the past year. This is also confirmed by the capital market. The continuing positive performance of our share price in recent months is a sign of growing confidence in our company. This recognition is thanks to the efforts and hard work of all our employees. Their above-average engagement and expertise continue to be key to Swiss Life’s success.
Our goals under our Group-wide programme “Swiss Life 2015” remain challenging. We want to gear ourselves more closely to the needs of our customers, including launching new products and services. Faced with persistent low interest rates we want to achieve solid investment results and further improve our profitability – against the backdrop of a challenging environment. We face further regulatory interventions. Demographic and socio-political changes will be ongoing and will pose major challenges
Thank you Bruno Pfister! In mid-November 2013 we announced that our CEO Bruno Pfister will be handing over operational management of the company to younger leadership on 1 July 2014. On behalf of the Board of Directors, and indeed personally, I would like to thank Bruno Pfister for his major contribution to our company’s overall performance. With his engagement, expertise and vision, Bruno Pfister has made a huge difference to Swiss Life over the past 12 years in a number of management positions – as CFO, then as CEO Swiss Life International and, since 2008, as Group CEO. As the 2013 financial year result clearly shows, Bruno Pfister is handing over a company which is well placed and has the capacity to not just maintain its market position but to purposefully expand it. I would like to wish Bruno Pfister all the best for the future, both professionally and privately. The Board of Directors has appointed Patrick Frost as the new CEO. We are particularly pleased that a younger member of our Corporate Executive Board will be taking over the operational management of Swiss Life. 45-year-old Patrick Frost has been Chief Investment Officer of our Group since 2006 and with his team has achieved excellent results, which have been indispensable in strengthening Swiss Life. I wish Patrick Frost fortitude and every success in his new role.
in Germany of CHF 1.7 billion, Swiss Life kept volumes on a par with the previous year despite strict margin management. Swiss Life International, which generates premium income primarily from global business with high net worth individuals, recorded a drop in premiums of 9% to CHF 2.6 billion. At CHF 1.1 billion, fee and commission income for the Group remained at the prior-year level.
Strong net new asset inflows at Swiss Life Asset Managers in external customer business
Swiss Life reports adjusted profit from operations of CHF 1143 million, a rise of 13%. On a nonadjusted basis, profit from operations stands at CHF 1149 million. Net profit comes to CHF 784 million compared with CHF 99 million in the previous year, which was impacted by impairments in intangible assets. Swiss Life Asset Managers maintained direct investment income from the insurance portfolio at the previous year’s high level of CHF 4.3 billion. Together with realised gains and revaluations on the real estate portfolio, this produced a net investment result of 3.9% (2012: 4.8%). The strong investment result again enabled substantial strengthening of the insurance reserves.
Swiss Life Switzerland increased its segment result by 17% to CHF 716 million (2012: CHF 613 million ) due to further cost reductions and a strong investment result. Swiss Life France posted a steep 20% rise to CHF 194 million – attributable to a higher fee result, ongoing improvements in
Swiss Life – Annual Report 2013 operational efficiency and a good financial result. Swiss Life Germany achieved a segment result of CHF 96 million (2012: CHF –190 million), driven by significant operational progress and a high investment result. On the basis of strict cost management, Swiss Life International posted a very pleasing improved result with a contribution to profit of CHF 16 million (2012: CHF –334 million). Swiss Life Asset Managers increased its segment result by 21% to CHF 166 million.
Key figures for the Swiss Life Group Amounts in CHF million
Asset allocation on a fair value basis as at 31 December (insurance portfolio at own risk) Amounts in CHF million equity securities and equity funds 2 435 1.9% 2 323 1.8%
Swiss Life reports by country: Switzerland, France and Germany. It also discloses separately the results of its cross-border segments: International and Asset Managers. In the home market of Switzerland, Swiss Life increased its segment result to CHF 716 million (+17%). A segment result of CHF 194 million (+20%) was achieved in France and CHF 96 million in Germany (previous year: CHF –190 million). The International market unit generated a segment result of CHF 16 million (previous year: CHF –334 million). Swiss Life Asset Managers increased its contribution to the results by 21% to CHF 166 million. Net profit over all segments was CHF 784 million (previous year: CHF 99 million). The previous year was particularly impacted by one-off effects resulting from the impairment of intangible assets.
In the year under review Swiss Life posted a segment result in Switzerland of CHF 716 million (2012: CHF 613 million). This strong growth of 17% was due to the excellent premium development in occupational pensions business and a further reduction in operating expense. In view of the ongoing low-interest rate environment and associated pressure on margins in life business, Swiss Life performed extremely well in its home market.
Insurance benefits, including changes in insurance reserves, rose by 2% to CHF 10.3 billion. This slight increase is mainly due to higher savings deposits. Required reserve strengthening was lower.
New products launched in 2013 were a key driver for premium growth in own distribution channels and intermediaries. In private clients business, Swiss Life launched a further real estate tranche with Swiss Life Premium Immo. In addition, Swiss Life FlexSave Invest, a modern single-premium product combining guarantees and the potential for return, was added to the Swiss Life FlexSave line. Swiss Life 3a Start, an innovative and flexible savings product, was launched by the Swiss Life Employee Benefits Foundation 3a. The product can be combined with a savings target guarantee if required. At the start of the year Swiss Life InvestPlus and Swiss Life SafePlus represented the company’s first products for the Austrian market. These modern combinations of occupational provision, guarantee and potential for return were developed in Switzerland and are distributed via Swiss Life Select Austria. Swiss Life also launched Swiss Life Business Direct for Swiss corporate clients. It is Switzerland’s first exclusively online BVG product and was awarded the Swiss Insurance Innovation Prize in the year under review. The product specifically targets start-up owners who favour the internet.
Swiss Life Switzerland aims to develop from a pure life insurer to a comprehensive life and pensions and financial solutions provider. The focus will be on closer customer interaction, increased distribution capacity and the expansion of our services offering. The new administration system for corporate clients fully replaced the previous system during the year under review. The company thus completed a further important milestone in terms of increasing its customer orientation as the new system is not only more efficient but also represents an improved customer approach. The teaming up between Swiss Life Switzerland and Swiss Life Select Switzerland was successfully completed in 2013, leading to further growth in distribution capacity. The broker services offering for private housing, Swiss Life Immopulse, launched in 2012, is a specific example of the drive to develop into a comprehensive life and pensions and financial solutions provider. Swiss Life Immopulse already achieved notable successes in its sales and advisory role in 2013.
Fee and commission income fell by 10% in 2013 to CHF 383 million, mainly because of a fall in the number of advisors. The reporting year was shaped by the persistence of demanding market conditions, which manifested themselves through, among other things, an ongoing low interest rate environment and a cautious investment approach by customers.
At the end of 2013 the proprietary financial advisory companies in Germany had 3016 trained and registered financial advisors under contract. Higher training and registration requirements in the financial services sector are making it harder to increase advisor headcount, although they are also improving the quality and sustainability of the advice on offer.
Administrative costs adjusted for one-offs fell by 2% in local currency to CHF 265 million. Swiss Life Germany thus continued its strict cost management and achieved additional cost savings.
The challenging market conditions look set to persist in 2014. In its insurance business, Swiss Life is expecting a slight reduction in its single-premium contributions due to its clear focus on profitability and strict margin management. Swiss Life aims to attain a distinct profile in the financial advisory market through the repositioning of the Swiss Life Select brand.
GroSS wrItten PremIumS, PolICy FeeS And dePoSItS reCeIved 1 724 1 692 1.9%
SeGment reSult 96 –190 n/a number of employees (full-time equivalents) 1 401 1 492 –6.1%
The International segment covers business with high net worth individuals (PPLI), multinationals (Corporate Clients), the financial advisory companies Swiss Life Select in Austria, the Czech Republic and Poland as well as Chase de Vere in the United Kingdom.
The PPLI area with carriers based in Luxembourg, Liechtenstein and Singapore specialises in life insurance for high net worth individuals. Efficiency was significantly improved by concentrating new business activities on the carriers in Luxembourg for Europe and Singapore for Asia, despite a fall in gross premium volume. Fee income from insurance business increased again as the portfolio continued to grow.
Fee income from the financial advisory companies remained stable overall. The brand switches to Swiss Life Select and Chase de Vere were completed successfully in all units during the year under review. In Austria, Swiss Life Select and the Austrian consumers association (VKI) reached an agreement to settle litigation by mutual consent and under a voluntary mediation process sponsored by the court.
In 2014 the main focus in all business areas will be on fee and commission income plus increasing the volume of new business on Swiss Life’s own balance sheets in group business with multinationals.
GroSS wrItten PremIumS, PolICy FeeS And dePoSItS reCeIved 2 643 2 892 –8.6%
The Asset Managers segment comprises Group-wide activities in institutional asset management. In 2013, Swiss Life Asset Managers achieved a segment result of CHF 166 million, corresponding to an increase of CHF 28 million or 21% compared to the previous year. Thanks to new asset inflows and positive market development, assets under management increased by a total of CHF 7 billion to over CHF 155 billion. Proprietary assets meanwhile remained fairly stable at CHF 128 billion. Assets invested in investment funds and external customer mandates meanwhile rose by approximately CHF 7 billion compared to the previous year to about CHF 28 billion. Thanks to a greater volume of assets under management, income rose by 11%. At the same time, operating costs grew by 8% due to business expansion, particularly in external customer business whereby the cost/income ratio improved.
In 2013, a new asset management application was successfully introduced in France. As a result, Swiss Life Asset Managers now has a standard Group-wide platform. Preparation for expanding business with external customers in Germany advanced according to plan during the year under review and market entry is scheduled for 2014. In the initial phase the company in Germany will focus mainly on institutional customers.
The measures and mechanisms implemented by Swiss Life to ensure good corporate governance work well in practice; however, specific adjustments are examined on an ongoing basis in order to adapt the management and control tools and disclosure to current circumstances and to implement further improvements.
The public limited company Swiss Life Holding was established in 2002 and is incorporated under Swiss law. Its registered office is located in Zurich and it has been listed on the SIX Swiss Exchange since 19 November 2002. Swiss Life Holding brings together all the Swiss Life Group companies and activities under a single holding company. The holding company structure makes it easier to effect investments, enter into partnerships or cooperation agreements and execute capital market transactions. Transparency is also improved by separating the interests of shareholders from those of policyholders.
The companies falling within the Group’s scope of consolidation are presented in the Consolidated Financial Statements (note 35). Information on the listing on the SIX Swiss Exchange and market capitalisation can be found in the section “Share Performance and Historical Comparison” on page 289. The organisational structure of the Group shows the key business markets and areas. The resulting operational responsibilities are reflected in the allocation of responsibilities among the Corporate Executive Board. With regard to insurance operations, one person with responsibility for the market and results is assigned to each specific area.
The relevant disclosures of significant shareholdings can be found on the publication platform of the SIX Swiss Exchange’s disclosure office at www.six-exchange-regulation.com/index_en.html, “Obligations” area, “Disclosure of Shareholdings” section and “Significant Shareholders” subsection (www.six-exchange-regulation.com/obligations/disclosure/major_shareholders_en.html).
BlackRock Inc., 40 East 52nd Street, New York 10022, USA, reported various instances when shareholdings exceeded or fell below the three per cent threshold during the year under review. These were published on 23 April, 24 April, 14 May and lastly on 16 May 2013. In its final disclosure for the year under review of 16 May 2013, BlackRock reported that a group consisting of BlackRock Advisors, LLC, 100 Bellevue Parkway, Wilmington, DE 19808, USA, Blackrock Advisors (UK) Limited, 12 Throgmorton Avenue, London, EC2N 2DL, UK, BlackRock Asset Management Australia Limited, Level 43, 225 George Street, Sydney, Australia, BlackRock Asset Management Canada Limited, 161 Bay Street, Suite 2500, Toronto, Ontario M5J 2S1, Canada, BlackRock Asset Management Deutschland AG, Max-Joseph-Strasse 6, 80333 Munich, Germany, BlackRock Asset Management Ireland Limited, International Financial Services Centre, Dublin 1, Ireland, BlackRock Financial Management, Inc., 55 East 52nd Street, New York, NY 10055, USA, BlackRock Fund Advisors, 400 Howard Street, San Francisco, CA 94105, USA, BlackRock Fund Managers Limited, 12 Throgmorton Avenue, London, EC2N 2DL, UK, BlackRock Institutional Trust Company, National Association, 400 Howard Street, San Francisco, CA 94105, USA, BlackRock International Limited, 12 Throgmorton Avenue, London, EC2N 2DL, UK, BlackRock Investment Management, LLC, 1 University Square Drive, Princeton, NJ 08540, USA, BlackRock Investment Management (Australia) Limited, Level 18, 120 Collins Street, Melbourne, VIC 3000, Australia, BlackRock Investment Management (UK) Limited, 12 Throgmorton Avenue, London, EC2N 2DL, UK, BlackRock Japan Co., Ltd., 24F, Sapia Tower, 1-7-12, Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan, BlackRock Life Limited, 12 Throgmorton Avenue, London, EC2N 2DL, UK, BlackRock (Luxembourg) S.A., 6D, Route de Trèves, Senningerberg, 2633 Luxembourg, BlackRock (Netherlands) B.V., Rembrandt Tower, 17th floor, Amstelplein, Amsterdam, Netherlands, iShares (DE) I Investmentaktiengesellschaft mit Teilgesellschaftsvermögen, Max-JosephStrasse 6, 80333 Munich, Germany, held a total of 965 700 shares of Swiss Life Holding, corresponding to 3.01% of the voting rights.
Since the establishment of Swiss Life Holding on 17 September 2002, a number of capital market transactions have been conducted. A detailed description of the transactions carried out up to and including the end of 2010 can be found in the Corporate Governance section of the annual reports for the relevant years. The annual reports can be accessed at www.swisslife.com,
On 5 May 2011 the General Meeting of Shareholders of Swiss Life Holding passed a resolution approving a par value reduction of CHF 4.50 per share from CHF 9.60 to CHF 5.10. The share capital thus decreased to CHF 163 613 375.40, divided into 32 081 054 registered shares. At the same time the conditional capital was reduced to CHF 12 032 868.60, divided into 2 359 386 registered shares with a par value of CHF 5.10 each.
The Board of Directors is responsible for all matters that are not reserved for the consideration of the General Meeting of Shareholders (formally the supreme decision-making body of a public limited company) under the terms of the law (Art. 698 of the Swiss Code of Obligations CO) or by the company’s Articles of Association. In line with its non-transferable duties prescribed by law, the Board of Directors is responsible, in particular, for the ultimate direction of the Group, as well as the supervision of the Corporate Executive Board.
The Board of Directors consists of no fewer than 5 and no more than 14 members in accordance with the Articles of Association. The members of the Board are elected by the General Meeting of Shareholders for a maximum term of three years and on an individual basis pursuant to the Articles of Association applying on the balance sheet date. As part of the implementation of the Ordinance against Excessive Compensation in Listed Stock Companies (VegüV), which came into effect on 1 January 2014, the term of office is set to reduce to one year.
Terms of office are staggered with the intention that, in so far as possible, an equal number of members will come up for re-election every year. If a member resigns during his term of office, a successor is elected to serve in principle only for the rest of that term. Thus, with respect to the annual re-elections, an important prerequisite has been established for ensuring continuity on the Board of Directors. With the introduction of the one-year term of office under VegüV, the staggering of terms of office will no longer be necessary.
The acceptance of appointments to the Board of Directors of other companies requires the consent of the Board of Directors at Swiss Life Holding. Information on additional board mandates held by individual members of the Board of Directors is presented in the following section.
Klaus Tschütscher Member Audit Committee 2013 1 Since the 2013 General Meeting of Shareholders, the members of the Board of Directors have been elected for a term of office of one year. 2 Member of the Board of Directors of Swiss Life Ltd since 2000
Rolf Dörig will be put forward for re-election at the General Meeting of Shareholders of Swiss Life Holding on 23 April 2014.
Gerold Bührer — Born 1948, Swiss national First Vice Chairman of the Board of Directors bild Gerold Bührer graduated in economics (lic. oec. publ.) from the 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 a Member of the Executive Board of its fund investment company, he joined Georg Fischer Ltd in 1991, where he served as a Member of its Executive Board (Finances) from 1991 until 2000. He began working as an independent economic consultant in 2001 and, from 2006 until September 2012, he held the office of Chairman of economiesuisse. Gerold Bührer was a Member of the Grand Council of the Canton of Schaffhausen from 1982 to 1991 and, from 1991 to 2007, a Member of the Swiss Parliament (National Councillor).
Gerold Bührer will be put forward for re-election at the General Meeting of Shareholders of Swiss Life Holding on 23 April 2014.
Other appointments: – Cellere AG, Member of the Board of Directors – Georg Fischer Ltd, Vice Chairman of the Board of Directors – Swiss National Bank, Member of the Bank Council – J.P. Morgan, Member of the European Advisory Council
Center and Head of the Business Division Southern Europe, Asia/Pacific, Middle East, Africa and Latin America. From 1993 he served on the Zurich Financial Services Group’s Executive Committee. From 2002 to 2007, Frank Schnewlin chaired the Baloise Group’s Corporate Executive Committee as CEO and was, at the same time, Head of the International Division.
Frank Schnewlin will be put forward for re-election at the General Meeting of Shareholders of Swiss Life Holding on 23 April 2014.
Wolf Becke will be put forward for re-election at the General Meeting of Shareholders of Swiss Life Holding on 23 April 2014.
Other appointments: – Hannover Life RE America, Orlando, Vice Chairman of the Board of Directors – Hannover Life RE Bermuda, Hamilton, Member of the Board of Directors – Hannover Life RE Ireland, Dublin, Member of the Board of Directors – Hannover Life RE Australasia, Sydney, Member of the Board of Directors – AEGON Blue Square Re N.V., The Hague, Member of the Supervisory Board
Ueli Dietiker will be put forward for re-election at the General Meeting of Shareholders of Swiss Life Holding on 23 April 2014.
Other appointments: – Sanitas Krankenversicherung and Sanitas Beteiligungen AG, Member of the Board of Trustees and the Board of Directors and Chairman of the Audit Committee – Wincare health insurance, Member of the Board of Directors and Chairman of the Audit
Committee – Zuckermühle Rupperswil AG, Member of the Board of Directors – thunerSeespiele AG, Member of the Board of Directors
Frank W. Keuper will be put forward for re-election at the General Meeting of Shareholders of Swiss Life Holding on 23 April 2014.
In addition, he has held the position of Professor of Business Law at the University of Geneva since 1997. He became a Member of the Swiss Takeover Board in 2004 and a Member of the Sanction Commission of the SIX Swiss Exchange in 2007.
Committee – Consitex SA, Member of the Board of Directors – Autogrill Switzerland LTD, Member of the Board of Directors – Banque Morval SA, Member of the Board of Directors – PKB Privatbank AG, Chairman of the Board of Directors and the Executive Committee – Sowind Group Ltd, Member of the Board of Directors – Global Petroprojects Services Ltd, Member of the Board of Directors – Bank Lombard Odier & Co Ltd, Member of the Board of Directors and Chairman of the
Peter Quadri — Born 1945, Swiss national Member of the Board of Directors bild Peter Quadri received his master’s degree in econo mics and business administration (lic. oec. publ.) in 1969 from the University of Zurich. In 1970 he joined IBM as a systems engineer and software/operating systems specialist. Following various periods in the USA, Denmark and Switzerland, he held the position of CEO of IBM Switzerland from 1998 to April 2006. He now works as a management and technology consultant.
Franziska Tschudi Sauber — Born 1959, Swiss national Member of the Board of Directors bild Franziska Tschudi graduated in law at the University of Berne and passed her bar exam there in 1984. She studied law at George town University, Wash ington DC, earning an LL.M. in 1986, and passed the bar exam for the US states of New York and Connecticut in 1987. Franziska Tschudi completed postgraduate studies at the University of St. Gallen (1991 to 1993), receiving an Executive MBA.
In this function he was notably a member of the Liechtenstein OECD delegation and Governor of the European Bank for Reconstruction and Development (EBRD) in London for four years. Klaus Tschütscher went on to start his political career as a member of government of the Principality of Liechtenstein. Initially he was Deputy Prime Minister from 2005 to 2009, responsible in particular for Justice and Economic Affairs. From 2009 to 2013 Klaus Tschütscher was Prime Minister and Finance Minister of Liechtenstein. He has received various awards and international distinctions. Since his withdrawal from politics, Klaus Tschütscher has been a member of the Board of Directors of Swiss Life Holding Ltd.
After serving for 10 years on Swiss Life Holding’s Board of Directors, Volker Bremkamp stepped down from the Board of Directors with effect from the General Meeting of Shareholders on 23 April 2013 due to his reaching the statutory age limit. Frank W. Keuper, Ueli Dietiker and Klaus Tschütscher were newly elected to the Board of Directors.
At the next General Meeting of Shareholders on 23 April 2014, Peter Quadri will be resigning from Swiss Life Holding’s Board of Directors.
Adrienne Corboud Fumagalli will be proposed for election to the Board of Directors.
The Board of Directors met eight times during the year under review. The meetings lasted around three hours on average. All members of the Board of Directors attended all the meetings, with the exception of one meeting, where one member was excused. The Group CEO and the other members of the Corporate Executive Board were present at all the meetings, with the exception of one meeting, where two Corporate Executive Board members were excused. The Board of Directors conducted parts of the meetings among themselves.
The Chairman’s Committee held ten meetings during the year under review. The average duration of a meeting was around two hours. The meetings were attended by all members, including the Group CEO and the Group CFO.
The NCC consists of at least three members, all of whom are independent members of the Board of Directors. A Board of Directors member is regarded as being independent if he has not exercised any operational management role within the Swiss Life Group for at least three years and has no or only a minor business relationship with the Group.
Twelve meetings of the Investment and Risk Committee were held in the year under review. Each session lasted for around two hours on average. All members attended all the meetings, with the exception of one member who was excused from a meeting. The Chairman of the Board of Directors attended all meetings of the Investment and Risk Committee. The Group CFO and the Group CIO were present at ten, and the Group CEO at eight meetings of the Investment and Risk Committee. The Group CRO attended all meetings.
Audit Committee The Audit Committee assists the Board of Directors in its supervision of the accounting function and financial reporting activities, as well as compliance with the legal framework. It reviews the appropriateness of the internal control structures and processes used to comply with the legal requirements. It monitors the activities of Corporate Internal Audit and the external audit services, and takes due note of their reports and recommendations. The Committee is empowered to make decisions with respect to defining the terms and conditions for mandates to external auditors and keeps the Board of Directors appropriately informed. More over, the Audit Committee issues the regulations for Corporate Internal Audit and sets its annual programme of activities.
Generally, the Group CFO and the Head of Corporate Internal Audit attend the Audit Committee meetings or parts of the meetings in an advisory capacity. The Group CEO may attend the meetings of the Audit Committee (without voting rights). Representatives from the external audit services are also regularly invited (cf. also “Supervisory and control instruments vis-à-vis the auditors”, page 66). In addition, further members of the Corporate Executive Board or inhouse specialists may also be invited to attend. The Audit Committee meets at least four times a year. The frequency of meetings depends on the financial budgeting and reporting process.
The Articles of Association of Swiss Life Holding can be found at www.swisslife.com, “About us” area, “Organisation” section, “Corporate Governance” and “Articles” subsections (www.swisslife. com/association). The Organisational Regulations are also published on Swiss Life’s internet site in the “About us” area, “Organisation” section, “Corporate Governance” and “Organisational Regulations” subsections (www.swisslife.com/en/organisation).
Management structure of the Swiss Life Group as at 31 December 2013
Bruno Pfister — Born 1959, Swiss national Group Chief Executive Officer (Group CEO)
bild 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 Zurich. In 1996 Bruno 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.
Other appointments: – Gottex Fund Management Holdings Limited, St. Peter Port, Guernsey, Member of the Board of Directors – Swiss Insurance Association (SIA), Vice Chairman, Member of the Board Committee – Avenir Suisse, Member of the Board of Trustees and Member of the Finance Committee – Swiss-American Chamber of Commerce, Member of the Board of Directors
Other appointments: – Sanitas Krankenversicherung and Sanitas Beteiligungen AG, Member of the Board of Trustees and the Board of Directors – Valiant Holding AG, Lucerne, and Valiant Bank AG, Berne, Member of the Board of Directors – Swiss Insurance Association (SIA), Chairman of the Life Insurance Committee – German-Swiss Chamber of Commerce, Member of the Board – Financial Market Authority (FMA) Liechtenstein, Vaduz, Member of the Board of Directors
bild Patrick Frost studied at the ETH in Zurich and the universities of Cologne, Basel and Zurich, obtaining degrees in natural science (dipl. Natw. ETH), economics (Dr. rer. pol.) and law (lic. iur.). He began his professional career in the mid nineties as an analyst and subsequently as a Portfolio Manager in asset management for Winterthur Group. After two years in the USA as a Corporate Bond Manager, he was appointed Head of Fixed Income at Winterthur Group in 2001.
– Stiftung Technopark Zürich, Member of the Board of Trustees – TECHNOPARK Management Ltd, Vice Chairman of the Board of Directors
In addition to the requirements under the directive of the SIX Swiss Exchange on information relating to corporate governance and Circular 2010/1 of the Swiss Financial Market Supervisory Authority FINMA on minimum standards for remuneration schemes of financial institutions, the specifications below also take into account the new transparency requirements under the Compensation Ordinance.
Additional information on compensation and benefit expenditure for the management and employees of the Swiss Life Group can be found in the Consolidated Financial Statements (notes 23 and 29) on pages 213 to 222 and 236. The information and specifications according to Art. 663bbis and Art. 663c of the Swiss Code of Obligations regarding the compensation granted to the members of the Board of Directors and the Corporate Executive Board, and their participation interests, are shown in the Notes to the Swiss Life Holding Financial Statements on pages 267 to 284.
The information on compensation granted to Corporate Executive Board members also includes the variable compensation, which was determined by the Board of Directors at the beginning of 2014 and is published on an accrual basis as compensation for the 2013 financial year. The members of the Board of Directors are granted exclusively fixed compensation, payable 70% in cash and 30% in Swiss Life Holding shares; the allocated shares are subject to a three-year blocking period.
The compensation received by each member of the Board of Directors, and that of the Chairman of the Corporate Executive Board (Group CEO), who in the period under review received the highest compensation of the members of the Corporate Executive Board, is disclosed on an individual basis.
The Board of Directors as a whole is responsible for establishing compensation policy guidelines within the Group (incl. variable compensation and equity compensation plans) and for the employee benefit institutions.
skills, engagement and personal performance. It is made up of the basic salary, a short-term variable compensation component based on achievement of the annual objectives, which is generally paid in cash and possibly in shares and, if applicable, as deferred compensation in cash, and a long-term variable compensation component in the form of an equity compensation plan, as well as contributions to occupational provisions and risk insurance.
The share in the company’s success is measured using quantitative Group targets (Key Performance Indicators, KPIs), which are defined in advance for the following three years as part of medium-term planning. The main KPIs for the 2013-2015 medium-term planning are, besides the annual profit, the planned cost savings, the risk and fee result, new business profitability, the return on equity and solvency (Swiss Solvency Test, SST). In order to avoid conduct aimed at the short-term achievement of key indicators with a higher weighting, the individual KPIs are not mechanistically weighted in advance. Their individual weighting is determined at the end of each financial year by the Board of Directors as a whole on the basis of a proposal by the Compensation Committee taking all developments into account and consideration (discretionary decision).
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 Compensation Committee is responsible for putting forward appropriate proposals (for the internal organisation of the Board of Directors see “Internal organisational structure”, pages 38 to 41). From 2015, as part of the implementation of the Compensation Ordinance, the General Meeting of Shareholders will determine the fixed overall compensation for the Board of Directors for the period until the next Annual General Meeting on the basis of a proposal by the Board of Directors.
The Board of Directors as a whole also sets the level and distribution of the variable compensation pool for all employees on the basis of its compensation policy guidelines based on a proposal by the Compensation Committee. When determining the level of the allocation to the compensation pool, it takes into consideration the annual result, as well as the medium-term planning and the degree of target achievement.
As a long-term variable compensation component linked to the performance of the Swiss Life Holding share price and to the medium-term planning and degree of target achievement, an equity compensation plan has been in place since 2004 for members of the Corporate Executive Board and other key performers within the Swiss Life Group, who are determined by the Corporate Executive Board with the approval of the Compensation Committee. Based on this plan, participants are granted future subscription rights to Swiss Life Holding shares. These subscription rights entitle the participants to receive Swiss Life Holding shares free of charge after a period of three years has elapsed and provided that the requirements under the plan are satisfied at that point.
Since 2011 participants in the equity compensation plan have been allocated Restricted Share Units (RSUs) on 1 April (2011-2013 equity compensation plans) or on 1 March (2014 equity compensation plan). The RSUs grant the holder future subscription rights, entitling them to receive Swiss Life Holding shares free of charge after a three-year period has elapsed. The attribution of shares after the expiry of the three-year deferral period is effected on a 1:1 basis (1 RSU = 1 share): the plan is therefore very simple, transparent throughout the whole term and directly linked to the performance of the Swiss Life Holding share price. The value of RSUs during the three-year term develops linear with the Swiss Life Holding share price and thus symmetrically corresponds with shareholder interests. 62 members of Swiss Life Group senior management participated in the 2011 equity compensation plan, in which a total of 68 730 RSUs were allocated; 23 630 in total to the Corporate Executive Board, of which 6350 to Bruno Pfister in his capacity as Group CEO. 55 members of Swiss Life Group senior management participated in the 2012 equity compensation plan. A total of 94 040 RSUs were allocated; 28 460 in total to the members of the Corporate Executive Board, of which 7100 to Bruno Pfister as Group CEO. Altogether 56 members participated in the 2013 equity compensation plan, in which a total of 74 630 RSUs were allocated; 18 590 in total to the Corporate Executive Board, of which 3360 to Bruno Pfister as Group CEO. A total of 57 members of Swiss Life Group senior management participated in the 2014 equity compensation plan. A total of 57 223 RSUs were allocated; 14 432 in total to the members of the Corporate Executive Board, of which 4226 to Bruno Pfister in his capacity as Group CEO.
The 2013 and 2014 equity compensation plans are based on the Group-wide programme “Swiss Life 2015”, which was announced at the Swiss Life Group’s Investors’ Day on 28 November 2012 (see www.swisslife.com/investorsday2012). On the basis of the medium-term planning 2013–2015 (2013 equity compensation plan) and 2014–2016 (2014 equity compensation plan), performance criteria relating to cost efficiency (50% weighting), the risk and fee result (25% weighting) and IFRS profit (25% weighting) have been determined by the Board of Directors. After expiry of the thee-year period of the RSU plan, the target value for each performance criterion according to the medium-term planning is compared with the actual result achieved. The share allocation corresponds to the number of allocated RSUs (1 RSU = 1 share) if all three performance criteria have been achieved or exceeded after the three-year period has elapsed; overperformance does not lead to a higher share allocation. If the targets are only partly achieved, the share allocation is correspondingly reduced in accordance with the weighting of the performance target concerned or the RSUs expire worthless.
The attribution of the long-term variable compensation component (equity compensation plan, RSU plan) is deferred for a period of three years from the date of allocation as is the case with the deferred compensation in cash. Likewise, the RSU plans provide for adjustment and reclaiming mechanisms (clawback). These apply in the case of a negative impact of the key figures applying to the allocation of deferred compensation due to a restatement of the annual accounts and in the case of damage to Swiss Life as a result of a violation of statutory, regulatory or compliance standards. If the employment relationship is terminated by a participant during the three-year term of the RSU plan, the future entitlements expire worthless.
Total compen- sation Extra- Amount (at in cash ordinary Aggregate closing price and shares Regular contri- total Amount Number on allocation) (amount) 4 contributions 5 butions (amount) 6
Rolf Dörig, Chairman of the Board of Directors 1 008 000 4 443 432 060 1 440 060 283 968 – 1 724 028 2 As in the 2013 compensation table, the compensation in blocked shares is reported on the basis of the stock exchange closing prices of CHF 80.20 and CHF 123.50 upon allocation on 18.06.2012 and 14.12.2012. Taking into account the blocking period of three years, the economic value, which is equal to the tax value, is CHF 67.3375 and CHF 103.6931.
3 All contributions are gross contributions, i.e. they include employee contributions to AHV/IV/ALV. Employer contributions to AHV/IV/ALV/FAK amounted to a total of CHF 185 520 in the year under review.
The variable compensation in cash (cash bonus and, if applicable, deferred compensation in cash) is set at a maximum of 117% of the fixed basic salary (“bonus cap”) and requires that all objectives have been considerably exceeded. In the case of 100% target achievement, variable compensation in cash of 80% of the fixed basic salary is provided for (“on-target bonus”), which can be reduced by the Board of Directors in consideration of all the circumstances.
The compensation paid to members of the Corporate Executive Board for the 2013 financial year is shown in detail in the following table. For comparison purposes, the 2013 compensation table additionally contains the overall total compensation taking into account allocations in the period under review under the 2013 RSU plan (RSUs presented analogous to compensation table 2012).
Following the 2013 compensation table the details of the compensation for 2012 are stated in a separate table for comparison.
Total Total compensation Bonus for 2013 Other compensation in cash and Salary paid in 2014 2 compensation 3 in cash Number Amount shares (amount)
Other members of Corporate Executive Board 1 168 476 0 9 119 246 4 Pursuant to the pension fund regulations, occupational provisions were financed by the employer and the employee at a ratio of 70% to 30%. 5 All contributions are gross contributions, i.e. they include employee contributions to AHV/IV/ALV. Employer contributions to AHV/IV/ALV/FAK amounted to a total of
The allocation of RSUs on 01.03.2014 was effected at a fair value of CHF 203.54, as calculated by an independent consultancy firm. 9 The allocation of RSUs was effected on 01.04.2013 at a fair value of CHF 127.34, as calculated by an independent consultancy firm.
Total Total compensation Bonus for 2012 Other compensation in cash and shares Salary paid in 2013 2 compensation 3 in cash Number Amount (amount)
Other members of Corporate Executive Board 1 208 271 0 8 500 767 4 Pursuant to the pension fund regulations, occupational provisions were financed by the employer and the employee at a ratio of 70% to 30%. 5 All contributions are gross contributions, i.e. they include employee contributions to AHV/IV/ALV. Employer contributions to AHV/IV/ALV/FAK amounted to a total of
8 The allocation of RSUs as at 01.04.2012 was effected at a fair value of CHF 93.77, as calculated by an independent consultancy firm.
Swiss Life – Annual Report 2013 1 “Closely linked parties” are natural persons and legal entities (in the sense of Art. 678 of the Swiss Code of Obligations and Art. 16 of the Compensation Ordinance) that have close personal, economic, legal or de facto ties with members of governing bodies. This typically includes spouses, minor children, companies controlled by members of governing bodies, and natural or legal persons serving members of governing bodies in a fiduciary capacity.
In the form of an overview, the following additional information is provided on the Swiss Life Group compensation systems for the 2013 financial year: In CHF (unless otherwise indicated)
Total outstanding deferred compensation 9 515 315 of which cash payment 1 137 000 of which shares 0 of which options 0 of which others (Restricted Share Units, RSUs) 8 378 315
3 In particular reduction in expenses affecting net income due to only partial consumption of reserves for variable compensation in Germany. 4 Compensation which is agreed on the conclusion of an employment agreement to be paid or be due once. Also deemed to constitute a sign-on payment shall be compensation for benefits foregone vis-à-vis a previous employer. 5 Compensation which is agreed in connection with the termination of an employment relationship.
The Articles of Association stipulate that a shareholder may be represented by a legal representative, or, if a written power of attorney exists, by another shareholder entitled to vote, by a management representative, by an independent voting representative or by a representative of deposited shares.
Risk Management Swiss Life pursues an integrated, value-oriented risk management approach, involving both quantitative and qualitative elements. The goal is to protect customers’ funds and ensure the best possible investment of risk capital, while complying with the regulatory requirements and taking into account the challenging economic conditions.
Risk management is a key component of Swiss Life’s management process. The respective committees of the Corporate Executive Board and the Board of Directors monitor and take deci sions in the area of risk management; these are then incorporated into the annual planning process. On the one hand, they comprise qualitative assessments relating to the strategy, to operational risks and to the internal control system (ICS). On the other hand, quantitative elements for each insurance unit, such as risk budgeting and investment strategy, are included in asset and liability management. Based on risk capacity and risk appetite and taking account of regulatory provisions, limits are set in the individual units for the financial risks incurred, according to which the investment targets are set. The qualitative risk management elements mentioned above are presented and discussed below. Detailed information on the risk budget ing process and asset and liability management is provided in note 5 (Risk Management Policies and Procedures) of the Consolidated Financial Statements.
Swiss Life uses analytical methods to ensure that strategic risks are dealt with adequately in today’s very demanding economic environment. In its strategic risk management process, Swiss Life incorporates all the information on risks and the risk/return characteristics in its strategic decisions. An understanding of the interplay of individual risks is essential in order to take due account of the factors influencing risks during strategy development so that these factors can be steered appropri ately.
In line with its active capital management, Swiss Life uses hybrid instruments and bonds to optimise its capital structure.
Swiss Life – Annual Report 2013 1 Copyright © Stichting CFO Forum Foundation 2008 1 Introduction 1.1 Basis of preparation
Swiss Life increased its MCEV from CHF 9 628 million to CHF 11 378 million and its value of new business from CHF 158 million to CHF 289 million in a stable environment, benefiting from continued operational improvements.
Present value of new business premium (PVNBP) 12 929 11 276
Profitability of new business improved strongly due to ongoing margin management and active new business steering across the group. This margin expansion was achieved while increasing the new business volume overall.
CEV Certainty equivalent value TVOG Time value of options and guarantees CNHR Cost of non-hedgeable risks FC Frictional costs VIF Value of in-force business RC Required capital FS Free surplus NAV Net asset value MCEV Market consistent embedded value scaling only indicative 2.2 MCEV of covered business
The net asset value went up by 17% mostly due to the operating profit of the year as well as transfers and foreign currency translation effects. Free surplus – after financing new business – increased by CHF 365 million. The biggest contribution to free surplus generation results from Switzerland. Goodwill and other intangibles are not included in the net asset value, with the exception of France (see section 4.7).
The cost of credit risk amounts to CHF –638 million for 2013 compared to CHF –653 million for 2012.
–279 2.3 Value of new business 2.3.1 Value of new business, premiums and margins amounts in CHF million
2.3.2 Value of new business — analysis of change The following graph and table detail the drivers for the change in new business value and margin of the business sold in 2013 compared to the business sold in 2012.
The opening adjustment of the Group MCEV represents the distribution in 2013 to shareholders out of the capital contribution reserve of CHF 4.50 per share corresponding to a total of CHF 144 million as described in the Consolidated Financial Statements (note 26).
The operating MCEV earnings for non-covered business correspond mainly to results from Swiss Life Holding, Swiss Life Asset Managers, and distribution and insurance units outside the scope of covered business. Also included are minor effects from changes in accounting policies and segment restatements as described in the Consolidated Financial Statements (notes 2.2 and 4).
The closing adjustments result mainly from the equity component of the convertible bonds issued in December 2013, transfer of funds between covered and non-covered business and currency exchange rate developments.
Expected existing business contribution (in excess of reference rate) 12 –1 351 363 629
Opening adjustments Opening adjustments represent dividend payments from non-covered to covered business.
Transfers from value in force and required capital to free surplus Transfers from value in force and required capital to free surplus include the transfer of the results of the preceding step from value in force to free surplus. Also, the required capital is normally reduced after this step, resulting in an equal increase of free surplus. The total effect in this
Other operating variance Other operating variance include the effects of Swiss Life’s approach to bond realisations and disciplined surplus sharing, as well as tax benefits due to the relocation in Germany.
Economic variances Economic variances represent the change in embedded value by replacing the starting economic scenarios by the closing ones. Effects from deviations between actual and expected investment returns are included here. The economic variances had a minor impact on MCEV overall (for details see section 3.2).
Sensitivities for MCEV with regard to reference rates slightly increased while operational and demographic sensitivities remained stable overall. Sensitivities with regard to swaption implied volatilities are driven by the Swiss group life business, where operating improvements have contained the cost of policyholder options and guarantees, such that business-inherent shareholder options drive the time value of options and guarantees. Sensitivities with regard to equity/property market values and their volatilities remained stable overall compared to the ones for 2012.
Change in value Change in MCEV +/– of new business +/–
10% increase in equity / property market values 624 6% 1 1
10% decrease in equity / property market values –693 –7% 1 1
25% decrease in equity / property implied volatilities 189 2% 5 2%
5% proportionate increase in mortality rates (death cover) –30 –0% –5 –2%
Value of in-force business 6 356 1 Goodwill adjustments correspond to goodwill of covered business with the exception of CHF 95 million from French operations (see section 3.2). 2 Group MCEV includes CHF 762 million of goodwill and intangible assets as part of the unadjusted IFrS net assets for non-covered business.
Swiss Life – Annual Report 2013 3.2 Results by market unit
ValuE OF IN-FOrCE BuSINESS 3 780 924 144 204 5 051
Time value of financial options and guarantees –579 –419 –161 –13 –1 172
Switzerland The MCEV increased due to operating earnings including a strong value of new business.
The reduction of the time value of options and guarantees reflects Swiss Life’s handling of bond realisations and the disciplined surplus sharing with which it has substantially reduced the guarantees over the past years. These operating measures were particularly beneficial in group life, which is characterised by variable guarantees.
The higher net asset value results from a considerable annual profit achieved despite substantial balance sheet strengthening. The free surplus increased by CHF 353 million due to operating earnings and dividend payments after financing the new business production.
France The MCEV for Swiss Life in France improved due to a strong value of new business, a good annual profit and efficiency gains, more than offsetting the negative effects from the regulatory reform in the French health business. Capital market developments contributed positively as well.
Swiss Life France is subject to a tax of 3% applied to dividends paid by Swiss Life France. As no clear market practice concerning the treatment of this tax has emerged yet and as the effect would not be material, it is not taken into account.
Germany Net assets remained flat despite a dividend payment and new business financing; at the same time the “Zinszusatzreserve” was further built up.
The value of in-force business benefits from improved new business, other operational effects and from the higher reference rates.
International The MCEV increased considerably driven by the PPLI business, where substantial operational progress has been achieved.
Value of new business before new business strain 218 113 32 32 394
New business annual premium equivalent (aPE) 419 439 88 238 1 184 1 New business strain represents the effect on the net asset value from writing new business.
In life, the share of unit-linked business was increased and the guarantees for traditional products were lowered. As higher new business volumes were achieved, both the resulting efficiency gains and the improved business mix led to a higher profitability.
The value of new business in health decreased due to the impact of the health reform in France. To mitigate its impact, the product offering was generally shifted to group business and some niches in individual business.
Expected existing business contribution (in excess of reference rate) 180 139 30 14 363
Higher interest rate levels and the equity market were the drivers for the positive economic variance.
Swiss Life – Annual Report 2013 4 Methodology 4.1 MCEV components for covered business
The amount of required capital disclosed is presented from a shareholder’s perspective and thus is net of funding sources other than shareholder resources (such as subordinated loans or unallocated bonus reserves).
Under the chosen definition of required capital, the free surplus, unlike the required capital, is supposed to be immediately releasable and hence does not affect the frictional costs of required capital.
Swiss Life – Annual Report 2013 2 Copyright © 2009 jPMorgan Chase & Co. all rights reserved.
The assets and liabilities within the Swiss Life Group are mostly denominated in Swiss francs, euros or US dollars. The economic scenarios reflect these three major economies, and since 2012, also British pounds and Canadian dollars, which are of lesser importance. The exchange rates and dividend yields are modelled as additional risk factors, as well as the inflation rates in each economy.
The rules for future asset allocations are consistent with going-concern assumptions. Asset realignment avoids deviating from the strategic asset allocation by more than a predefined margin and takes place after each projected year.
Non-covered business comprises all other entities of the Swiss Life Group that are valued at the unadjusted IFRS net asset value on a consolidated level, such as the distribution unit Swiss Life Select or investment management, financing and holding companies. Non-covered business is added to the MCEV results from the covered business to form the Group MCEV.
The costs of share-based payment programmes for employees are not included in the MCEV, other than to the extent that they are allowed for in the local statutory accounts upon which the shareholder net assets are based. Further information on the costs of share-based payment programmes is given in the Group’s Consolidated Financial Statements.
The underlying liquidity premium is determined by applying the formula Maximum (0; 50%*(corporate credit spread over swap –40 bp)), where the corporate spreads over swap are measured with appropriate market indices. For the corporate credit spread over swap rates for the three currencies euro, US dollar and British pound, we use the quotation from Markit©3 instead of using the two step approach as described in the QIS 5 guidance. For Canadian dollar we use the quotation from BofA Merrill Lynch. For the spread over swap rates for Swiss franc we use a SIX Swiss Exchange Bond Index (SBI® Corporate) composed of investment grade, foreign and domestic corporate issues in Swiss francs.
Swiss Life – Annual Report 2013 5.1.2.2 Swaption implied volatilities as at 31 december 2012
5.1.2.3 Equity option implied volatilities as at 31 december 2013 and 31 december 2012
5.1.2.4 Property volatilities used for the calculation as at 31 december 2013 and 31 december 2012
5.1.4.1 Forward inflation rates used for the calculation as at 31 december 2013
5.1.5 Real world assumptions These assump tions are used for the step “expected existing business contribution in excess of reference rates”.
For fixed interest assets, the “real world” investment return assumptions are based on the gross redemption yield on the assets less a rating-dependent allowance for expected defaults derived from historical data.
Tax assumptions for the projection of annual results have been set in line with the local tax regime. Tax losses carried forward are considered. Taxation rules are based on individual companies ’ total results. Tax impact of future new business has not been allowed for. The following table 5.2.1 shows the corporate tax rates applied.
Swiss Life – Annual Report 2013 6 Auditor’s Report on Embedded Value
Swiss Life – Annual Report 2013 7 Glossary and List of Abbreviations
Best estimate assumptions A best estimate assumption should equal the mean estimate (probability weighted average) of outcomes of that risk variable.
Cost of residual non-hedgeable risks (CNHR) The cost of residual non-hedgeable risks accounts for risk factors such as mortality, morbidity, expenses and lapse rates.
Liquidity premium As stipulated in the MCEV Principles, liquidity premiums are included in swap yield curves in cases where liabilities are not liquid.
New business margin The value of new business divided by the present value of new business premiums (PVNBP) or divided by the annual premium equivalent (APE), respectively.
Reference rate The reference rates used for the calculation of the MCEV are based on the swap rates at the valuation date.
Swiss Life – Annual Report 2013 157 5 Risk Management Policies and Procedures 157 5.1 Contracts for the account and risk of the Swiss Life Group’s customers 159 5.2 Risk budgeting and limit setting 159 5.3 Asset and liability management (ALM) 161 5.4 Financial risk management objectives and policies 176 5.5 Insurance risk management objectives and policies 183 6 Earnings per Share 184 7 Premiums, Policy Fees and Deposits Received 185 8 Details of Certain Items in the Consolidated Statement of Income 189 9 Derivatives and Hedge Accounting 192 10 Financial Assets and Liabilities at Fair Value through Profit or Loss 193 11 Financial Assets Available for Sale 193 12 Financial Assets Pledged as Collateral 194 13 Loans and Receivables 196 14 Investment Property 197 15 Investments in Associates 199 16 Property and Equipment 201 17 Intangible Assets including Intangible Insurance Assets 205 18 Other Assets and Liabilities 205 19 Investment Contracts 210 21 Other Financial Liabilities 211 22 Insurance Liabilities and Reinsurance Assets 213 23 Employee Benefits 223 24 Income Taxes 233 27 Capital Management 234 28 Acquisitions and Disposals of Subsidiaries 236 29 Related Party Transactions 237 30 Fair Value Measurements 247 31 Offsetting Financial Assets and Liabilities 248 32 Guarantees and Commitments 251 34 Future Minimum Lease Payments under Non-Cancellable Operating Leases – Lessor 252 35 Scope of Consolidation 258 Report of the Statutory Auditor
Benefits and claims under investment contracts with discretionary participation –826 –685
Consolidated statement of comprehensive income for the years ended 31 December
Share of other comprehensive income of associates 0 0 assets held for sale – 0 adjustments relating to items that may be reclassified:
Financial assets available for sale 11 81 071 81 176 67 264
Financial liabilities at fair value through profit or loss 10 24 794 22 264 19 153
Consolidated statement of cash flows for the years ended 31 December
Purchases of computer software and other intangible assets –22 –22 acquisitions of subsidiaries, net of cash and cash equivalents 28 –63 –1
Disposals of subsidiaries, net of cash and cash equivalents 28 – 0
Issuance of debt instruments 915 298 repurchase of debt instruments – –139 redemption of debt instruments –19 –1
ToTal NeT CaSH FlowS From FINaNCINg aCTIvITIeS 605 –106 total ChaNge iN Cash aND Cash equivaleNts –379 1 386
Cash and cash equivalents for the account and risk of the Swiss life group’s customers 2 499 2 767
ToTal CaSH aND CaSH equIvaleNTS aS aT eND oF PerIoD 6 088 6 480
Consolidated statement of changes in equity for the year ended 31 December 2013
accumulated other Total Non- Share Share Treasury comprehen- retained shareholders’ controlling Notes capital premium shares sive income earnings equity interests Total equity
Purchases of treasury shares – – –13 – – –13 – –13 allocation of treasury shares under equity
BalaNCe aS aT eND oF PerIoD 164 1 414 –26 –112 7 505 8 945 74 9 018
Consolidated statement of changes in equity for the year ended 31 December 2012 (restated)
Distribution out of capital contribution reserve 26 – –144 – – – –144 – –144 equity-settled share-based payments – 7 – – – 7 0 7
Capital contributions from non-controlling interests – – – – – – 0 0
On 12 March 2014, the Board of Directors approved the annual financial statements and the financial report and authorised them for issue. The financial report, therefore, only reflects events up to that date.
2.2 Changes in accounting policies ias 19 employee benefits (revised) IAS 19 Employee Benefits (revised) was adopted as at 1 January 2013. Comparative periods were restated. The main changes from the adoption of IAS 19 Employee Benefits (revised) were as follows: – Actuarial gains and losses are no longer deferred but immediately recognised in other comprehensive income.
– Net interest is determined by multiplying the net defined benefit liability or asset by the discount rate used to determine the defined benefit obligation. This replaces the finance charge and the expected return on plan assets.
Furthermore, the disclosure requirements for defined benefit plans were enhanced, providing additional information about the characteristics and risks of defined benefit plans.
The overall effect of the amendments is to reduce the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, to clarify the disclosures required, and to introduce an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where the recoverable amount (based on fair value less costs of disposal) is determined using a present value technique. The Swiss Life Group adopted the amendments early for annual periods beginning on 1 January 2013.
ifrs 7 financial instruments: Disclosures In December 2011, the International Accounting Standards Board issued amendments to IFRS 7 Financial Instruments: Disclosures. The new disclosure requirements are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on a company’s financial position. The amendments are effective for annual periods beginning on 1 January 2013. The effect due to derivative transactions that do not qualify for offsetting in the balance sheet as at 31 December 2012 amounted to CHF 822 million. Additionally, net cash collateral received for derivative transactions amounted to CHF 708 million as at 31 December 2012.
ifrs 10 Consolidated financial statements, ifrs 11 Joint arrangements, ifrs 12 Disclosure of interests in other entities, ias 27 separate financial statements, ias 28 investments in associates and Joint ventures In May 2011, the International Accounting Standards Board issued IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities as well as an amended version of IAS 28 Investments in Associates and Joint Ventures. IFRS 10 Consolidated Financial Statements builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. IFRS 11 Joint Arrangements provides for a more realistic reflection of joint arrangements by focusing on the
Swiss Life – Annual Report 2013 rights and obligations of the arrangement, rather than its legal form as is currently the case. The standard addresses inconsistencies in the reporting of joint arrangements by requiring a single method to account for interests in jointly controlled entities. IFRS 12 Disclosure of Interests in Other Entities comprises all the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. IAS 27 has been renamed “Separate Financial Statements” and carries forward the existing accounting requirements for separate financial statements. IAS 28 Investments in Associates and Joint Ventures has been amended in line with the changes to the accounting for joint arrangements. The new and amended standards are effective for annual periods beginning on 1 January 2013.
The application of the principles of control set out in IFRS 10 Consolidated Financial Statements led to the consolidation of additional investment funds. Financial assets at fair value through profit or loss and financial liabilities at fair value through profit or loss increased by CHF 1102 million as at 31 December 2012 and CHF 371 million as at 1 January 2012.
IFRS 11 Joint Arrangements and IAS 27 Separate Financial Statements are not relevant to the Swiss Life Group.
As at 31 December 2012, investments in associates of CHF 132 million that are measured at fair value through profit or loss were reclassified from financial assets at fair value through profit or loss to investments in associates due to IAS 28 Investments in Associates and Joint Ventures (revised) (1 January 2012: CHF 125 million). The share of profit or loss of associates of CHF 8 million for 2012 was reclassified into profit from operations.
Swiss Life – Annual Report 2013 restatement and reclassification effects on the consolidated statement of income for 2012
Share of profit or loss of associates – 8 – 8 exPeNSeS
Share of profit or loss of associates 8 –8 – –
Income tax expense –137 – –1 –138 earnings per share attributable to equity holders of Swiss life Holding
Financial assets available for sale 3 816 –3 816 – –
Financial assets reclassified to loans and receivables 170 –170 – –
Income tax relating to other comprehensive income –390 390 – –
Financial assets reclassified to loans and receivables – 170 – 170 assets held for sale – 0 – 0
revaluation surplus on investment property – 61 – 61 remeasurements on net defined benefit liability – – 75 75
Deferred income tax assets 85 – 0 85 liabilities aND equity
gains/losses recognised directly in equity 2 736 –2 736 – –
Financial assets at fair value through profit or loss 24 120 –125 371 24 366
Financial liabilities at fair value through profit or loss 18 782 – 371 19 153 equITy
gains/losses recognised directly in equity 1 544 –1 544 – –
Swiss Life – Annual Report 2013 foreign currency exchange rates foreign currency translation On consolidation, assets and liabilities of Group entities denominated in foreign currencies are translated into Swiss francs at year-end exchange rates. Income and expense items are translated into Swiss francs at the annual average exchange rate. Goodwill reported before 1 January 2005 is translated at historical exchange rates. Goodwill for which the acquisition date is on or after 1 January 2005 is carried in the foreign operation’s functional currency and is translated into Swiss francs at year-end exchange rates. The resulting translation differences are recorded in other comprehensive income as cumulative translation adjustments. On disposal of foreign entities, such translation differences are recognised in profit or loss as part of the gain or loss on the sale.
Derivatives embedded in other financial instruments or in insurance contracts which are not closely related to the host contract are separated and measured at fair value, unless they represent surrender options with a fixed strike price embedded in host insurance contracts and host investment contracts with discretionary participation features. 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 reflected 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 recognised as derivatives.
In a qualifying cash flow hedge, the effective portion of the gain or loss on the hedging derivative is recognised in other comprehensive income. 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.
Hedges of net investments in foreign operations (net investment hedges) are accounted for similarly to cash flow hedges, i.e. the effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income and any ineffective portion is recognised immediately in the income statement. The gains or losses recognised in equity are reclassified to the income statement on the disposal of the foreign operation.
financial assets available for sale (afs) Financial assets classified as available for sale are carried at fair value. Financial assets are classified as available for sale if they do not qualify as held to maturity, held for trading, loans and receivables or if they are not designated as at fair value through profit or loss. Gains and losses arising from fair value changes, being the difference between fair value and cost/amortised cost, are reported in equity. On disposal of an AFS investment, the cumulative gain or loss is transferred from equity to income for the period. Gains and losses on disposal are determined using the average cost method.
Available-for-sale debt securities 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, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event after the impairment loss was recognised, the impairment loss is reversed through the income statement.
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 flow 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 straightline basis over the lease term. The fair value of an investment property is measured based on its highest and best use. The highest and best use of an investment property takes into account the use of the asset that is physically possible, legally permissible and financially feasible.
Swiss Life – Annual Report 2013 premiums are specified. A contract that qualifies as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire.
recognition and measurement principles Subject to certain limitations, the Group uses its existing accounting policies for the recognition and measurement of insurance contracts and investment contracts with discretionary participation features that it issues (including related deferred acquisition costs and related intangible assets) and reinsurance contracts that it holds. The existing accounting policies for recognition and measurement have primarily been based on the requirements of the Generally Accepted Accounting Principles in the United States (US GAAP).
Discretionary participation features (Dpf) Discretionary participation features are defined in IFRS 4 Insurance Contracts as contractual rights to receive, as a supplement to guaranteed benefits, additional benefits which are likely to be a significant portion of the total contractual benefits and whose amount or timing is contractually at the discretion of the issuer. These DPF are contractually based on the performance of a specified pool of contracts or a specified type of contract or on the realised and unrealised investment returns on a specified pool of assets held by the issuer or on the profit or loss of the company. The unrealised investment returns comprise gains/losses recognised in other comprehensive income.
The accounting for the amounts identified as DPF has been done as follows: In jurisdictions where no statutory minimum distribution ratio (“legal quote”) exists, the contractual right to receive, as a supplement to guaranteed benefits, additional benefits which are likely to be a significant portion of the total contractual benefits arises when management ratifies the
Amounts collected as premiums from investment-type contracts such as universal life and unitlinked contracts are reported as deposits. Only those parts of the premiums used to cover the insured risks and associated costs are treated as premium income. These include fees for the cost of insurance, administrative charges and surrender charges. Benefits recognised under expenses include claims for benefits incurred in the period under review that exceed the related deposits under policyholder contracts and interest that is credited to the appropriate insurance policy accounts.
If the actual results show that the carrying amount of the insurance liabilities together with antici pated future revenues (less related deferred acquisition costs (DAC) and related intangible assets) are not adequate to meet the future obligations and to recover the unamortised DAC or intangible assets, the entire deficiency is recognised in profit or loss, either by reducing the unamortised DAC or intangible assets or by increasing the insurance liabilities. The liability adequacy test is performed at each reporting date in accordance with a loss recognition test considering current estimates of future cash flows including those resulting from embedded options and guarantees.
finance lease If the lease agreement transfers the risks and rewards of the assets, the lease is recorded as a finance lease and the related asset is capitalised. At inception, the asset is recognised at the lower of the present value of the minimum lease payments or fair value and is depreciated over its estimated useful life. The correspond ing finance lease obligations are recorded as liabilities.
Swiss Life – Annual Report 2013 the difference between the fair value of the contractual rights acquired and insurance obligations assumed and a liability measured in accordance with the accounting policies for insurance contracts and investment contracts with DPF. The PVP is determined by estimating the net present value of future cash flows from the contracts in force at the date of acquisition. For acquired insurance and investment contracts with DPF, future positive cash flows generally include net valuation premiums while future negative cash flows include policyholders’ benefits and certain maintenance expenses.
Deferred acquisition costs (DaC) Costs that vary with and are directly related to the acquisition of new and renewed insurance contracts and investment contracts with discretionary participation features, including commissions, underwriting costs, agency and policy issue expenses, are deferred. Deferred acquisition costs are periodically reviewed to ensure that they are recoverable from future revenues.
brands and other Other intangible assets consist of trademarks, computer software and other.
other financial liabilities For deposits with fixed and guaranteed terms the amortised cost basis is used. Initial recognition is at the proceeds received, net of transaction costs incurred. Subsequently, they are stated at amortised cost using the effective interest method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the deposits. For repurchase agreements, initial recognition is at the amount of cash received, net of transaction costs incurred. Subsequently, the difference between the amount of cash initially received and the amount of cash exchanged upon maturity is amortised over the life of the agreement using the effective interest method.
Insurance contracts issued to a defined benefit pension plan covering own employees have generally been elim inated. However, certain assets relating to these plans qualify as plan assets and are therefore not eliminated.
Treasury shares are presented in the consolidated balance sheet as a deduction from equity and are recorded at cost. The difference between the purchase price and the sales proceeds is included in share premium.
In December 2013, Annual Improvements to IFRSs 2010–2012 Cycle and Annual Improvements to IFRSs 2011–2013 Cycle were published. These amendments are effective for annual periods beginning on or after 1 July 2014. The Swiss Life Group is currently analysing the effect of the amendments on its financial statements.
In December 2011, the International Accounting Standards Board issued amendments to IAS 32 Financial Instruments: Presentation. The amendments clarify the requirements for offsetting financial instruments. They clarify specifically the meaning of “currently has a legally enforceable right of set-off” and “simultaneous realisation and settlement”. The amendments are effective for annual periods beginning on or after 1 January 2014. The Swiss Life Group does not expect a significant impact from the amendments on its consolidated balance sheet.
Swiss Life – Annual Report 2013 asset is measured at amortised cost or fair value. In November 2013, the International Accounting Standards Board issued amendments to IFRS 9 Financial Instruments and introduced a new hedge accounting model together with corresponding disclosures, that will allow entities to better reflect risk management activities in the financial statements. The amendments to IFRS 9 Financial Instruments comprise a change relating to the accounting for liabilities that entities have elected to measure at fair value, before applying any of the other requirements in IFRS 9. This change in accounting would mean that gains caused by a worsening in an entity’s own credit risk on such liabilities are no longer recognised in profit or loss. Furthermore, the International Accounting Standards Board decided to defer the mandatory effective date of IFRS 9. A new date should be decided upon when the entire IFRS 9 project is closer to completion. The Swiss Life Group is currently analysing the impact of these changes on its financial statements.
The following amended Standards and Interpretations are not relevant to the Swiss Life Group: – IFRS 14 Regulatory Deferral Accounts – Investment Entities (Amendments to IFRS 10, 12 and IAS 27)
Swiss Life – Annual Report 2013 3 Critical Accounting Estimates and Judgements in Applying Accounting Policies
Corporate costs were not allocated to the individual segments as they consist of general administrative expenses and head office expenses that relate to the Swiss Life Group as a whole.
The reportable segments have been identified based on information about the components of the entity that management uses to make decisions about operating matters. With the implementation of the new strategic Group-wide programme in 2013, the management structure and the reportable segments were adjusted accordingly. The corresponding information for the statement of income for the year ended 31 December 2012 and the balance sheet as at 31 December 2012 have been restated.
Switzerland, France, Germany and International primarily consist of life insurance operations and distribution units. The life insurance operations offer a broad range of life, pension, health, annuity and investment-type policies to both groups and individuals, including disability coverage. The Group’s strategy focuses primarily on life and pensions in Switzerland, France and Germany and on cross-border business from Liechtenstein, Luxembourg, and Singapore. These segments also include a number of companies which hold investments primarily pertaining to life insurance.
Non-life operations involve operations in France and Luxembourg and mainly include property and casualty, liability and motor insurance, accident and health insurance and payment protection insurance. These operations are included in the segments “France” and “Other”.
“Asset Managers” refers to the management of assets for institutional clients and the Group’s insurance business, as well as the provision of expert advice for such clients.
Net gains/losses on financial assets –504 45 209 –7 0 –3 –259 – –259
Net gains/losses on financial instruments at fair value through profit or loss 614 87 142 0 0 1 844 – 844
Net insurance benefits and claims –10 268 –2 017 –1 617 –22 – 5 –13 920 –1 –13 920 employee benefits expense –264 –183 –174 –65 –122 –2 –810 –1 –811
Switzer- Inter- asset elimi- elimi- land France germany national managers other nations nations Total
Premiums earned on insurance contracts 7 166 2 719 1 541 45 – 1 11 473 –87 11 385
Premiums earned on investment contracts with discretionary participation 661 – – – – – 661 – 661
Premiums ceded to reinsurers –25 –194 –35 –8 – –1 –263 87 –175
Policy fees earned on insurance contracts 16 19 – 0 – – 36 – 36
Policy fees earned on investment and unit-linked contracts 50 105 37 81 – – 273 – 273
Net gains/losses on financial instruments at fair value through profit or loss 411 200 52 –84 – 2 580 – 580
Net gains/losses on investment property 366 15 9 – – 0 390 – 390
Impairment of property and equipment and intangible assets –45 – –268 –292 – – –604 – –604 other expenses –109 –154 –103 –73 –46 –13 –499 –1 –499 of which inter-segment –243 14 –39 –15 –14 –4 –302 302 unallocated corporate costs –61 reSulT From oPeraTIoNS 361
Net result 99 additions to non-current assets 819 177 66 6 3 1 1 073 – 1 073
Swiss Life – Annual Report 2013 balance sheet as at 31 December 2013
Financial assets at fair value through profit or loss 3 673 9 626 1 008 17 180 0 – 31 486 – 31 486
Financial assets available for sale 58 671 14 821 6 430 990 35 230 81 176 – 81 176
Financial assets pledged as collateral – 964 – – – – 964 – 964
Intangible assets including intangible insurance assets 667 458 1 511 240 12 7 2 893 – 2 893
Financial liabilities at fair value through profit or loss 2 532 1 105 567 18 061 – – 22 264 – 22 264
Swiss Life – Annual Report 2013 5 Risk Management Policies and Procedures
5.1 Contracts for the account and risk of the swiss life group’s customers
ToTal lIaBIlITIeS lINKeD To aSSeTS For THe aCCouNT aND rISK oF THe SwISS lIFe grouP’S CuSTomerS 28 398 25 167
The financial result for the years ended 31 December for the account and risk of the Swiss Life Group and the Swiss Life Group’s customers was as follows: In CHF million
Net gains/losses on financial assets 8 –259 691 – 86 –259 776
at fair value through profit or loss (FvPl) 8 846 629 –2 –49 844 580
Net gains/losses on investment property 505 390 – – 505 390
Share of profit or loss of associates 7 8 – – 7 8
Swiss Life – Annual Report 2013 5.2 risk budgeting and limit setting
The main focus of these limits is on overall market risk, credit risk and, more specifically, on interest rate risk and credit spread risk as well as on currency risk and equity price risk.
Swiss Life – Annual Report 2013 5.4 financial risk management objectives and policies
Hedging strategies involve hedge accounting as well as “economic hedging”. “Economic hedges” comprise financial assets and financial liabilities which share a risk with derivatives and give rise to opposite changes in fair value that tend to offset each other.
ToTal INTereST-SeNSITIve INSuraNCe lIaBIlITIeS 61 150 24 960 94 86 203
Insurance liabilities linked to assets for the account and risk of the Swiss life group’s customers 1 603
Counterparty risk is managed through the holding of credit default swaps or credit default swap indices. A credit default swap provides insurance to the debt holder against a default of the debt issuer. It is traded over-the-counter and itself underlies the collateral management process described above. The credit default swap index is a hedge on credit risk of a basket of counterparties and is an exchange-traded derivative.
For fixed-income assets the total exposure per counterparty is aggregated and reported to the Group Risk Committee. The individual operations maintain records of the payment history for the significant contract holders with whom they conduct regular business. Ratings and single positions above a certain level with regard to fixed-income assets are reported to management on a regular basis. The exposure to individual counterparties is also managed by other mechanisms such as the right to offset where counterparties are both debtors and creditors of the Group. In addition, limits regarding single counterparty exposure are in place which depend on the rating and amount of exposure in relation to total investments. Information reported to management includes assessment of bad debts. Where there exists a certain exposure to individual policyholders due to size of the contract, or homogenous groups of policyholders, a financial analysis equivalent to that conducted for reinsurers is carried out.
Debt securities at fair value through profit or loss 857 694 5 607 5 526 6 465 6 220
Debt securities classified as loans 6 365 6 932 – – 6 365 6 932 loaNS aND reCeIvaBleS
Policy and other originated loans 1 227 1 247 – – 1 227 1 247 oTHer aSSeTS
The following table shows the extent to which collateral and other credit enhancements mitigate credit risk in respect of the maximum exposure to credit risk: Credit risk mitigation – collateral held and other credit enhancements as at 31 December 2013
Credit risk mitigation – collateral held and other credit enhancements as at 31 December 2012
Debt loans and Cash and cash Derivatives reinsurance and loan securities receivables equivalents (assets) assets commitments Total
Swiss Life – Annual Report 2013 exposure to credit risk of debt instruments – credit rating by class as at 31 December 2013
Policy and other originated loans 183 62 344 4 – 634 – 1 227
up to more than 3 months 3–6 months 6–12 months 1 year Total morTgageS
up to more than 3 months 3–6 months 6–12 months 1 year Total
Policy and other originated loans – 8 – –8 – 0
Balance as at losses/ write-offs translation Balance as at 1 January reversals and disposals differences end of period
The Swiss Life Group’s European insurance and investment operations (excluding Switzerland) generally invest in assets denominated in the same currency as their insurance and investment contract liabilities, which mitigates the currency risk for these operations. As a result, currency risk arises from recognised assets and liabilities denominated in other currencies and net investments in foreign operations. Although the Swiss Life Group actively engages in currency management to reduce the effect of exchange rate fluctuations on its assets and liabilities, particularly
entities with functional currency CHF – 6 409 14 808 2 900 99 3 123 entities with functional currency eur –881 – 2 166 289 0 59
entities with functional currency CHF – –6 323 –17 533 –3 732 –100 –2 840 entities with functional currency eur – – –1 434 –174 – –163
Swiss Life – Annual Report 2013 exposure to liquidity risk as at 31 December 2013
more than up to 1 month 1–3 months 3–12 months 1–5 years 5–10 years 10 years
Investment contracts with discretionary participation 9 321 24 42 228 2 129 1 856 5 042
Swiss Life – Annual Report 2013 exposure to liquidity risk as at 31 December 2012
Financial liabilities at fair value through profit or loss 1 784 1 694 573 – 22 436 20 570 24 794 22 264
Swiss Life – Annual Report 2013 5.5 insurance risk management objectives and policies
Insurance contracts are contracts under which one party (the insurer) agrees to compensate the other party (the policyholder) if a specified uncertain future event affects the policyholder. The Group’s insurance entities neither generally accept nor generally deny insurance coverage to applicants, but ensure that all the insurance risks are identified and thoroughly assessed, and that the insurance premiums accurately reflect the risk taken. The amount of risk taken must be in line with the Group’s strategy and risk policy, and must also meet the profitability targets.
Disability income and other annuities – deferred 7 643 7 598 annuities payable per annum by type of annuity – group life
In CHF million retirement annuities – in payment 741 704 retirement annuities – deferred 414 396
Swiss Life – Annual Report 2013 morbidity and disability Disability risk reflects the financial consequences of groups of individuals getting disabled more often and/or recovering less quickly than expected. With regard to morbidity, the most significant risk factors are epidemics, widespread changes in lifestyle, such as eating, smoking and exercise habits or economic effects.
underwriting strategy Underwriting is the process of selecting and classifying insurable risks. The underwriting strategy attempts to ensure that the risks underwritten are well diversified in terms of type of risk and level of insured benefits. Life insurance underwriting is performed to ensure that the premiums and the general conditions of the insurance policies are adequate for the risks to be insured. The first step in the underwriting process is to determine which individual risks can be accepted. The second step is to place the accepted risks into groups of similar levels of risk. Both processes must be conducted objectively and consistently. The Group sets limits for the acceptance of insurance coverage arising from new and renewal business. Medical selection is part of the Group’s underwriting procedures, whereby premiums are charged to reflect the health condition and family medical history of the applicants. The limits relate to sums at risk, maximum insured losses or present value of premiums at the contract or insured person level. Depending on the type of business and the limit exceeded, the new or renewed contract must be approved by a specific investment and risk committee or senior management. Contracts exceeding the set limits must be tested for profitability according to predefined procedures before approval. Certain contracts which include specific risks relating to derivatives or demographic risk factors for which no reliable data is available must be submitted for approval irrespective of the amount of coverage offered. Insurance coverage exceeding set limits is subject to regular internal reporting requirements. Additionally, it must be ensured that the underwriting practices are in line with local laws.
Approximately 1.5% in terms of earned insurance premiums was ceded as at 31 December 2013 (2012: 1.5%).
Swiss Life – Annual Report 2013 1 Copyright © Stichting CFo Forum Foundation 2008 other risk transfer Risk transfer primarily takes the form of reinsurance. Alternative forms of risk transfer (such as securitisation) require the formal approval of the Group Risk Committee. No significant alternative form of risk transfer is used by the Group at present.
The market consistent embedded value calculations are based on economic scenarios which are calibrated to market conditions at valuation date. Best estimate assumptions were made regarding a number of factors, in particular asset allocation, policyholder participation, development of costs and claims, policyholder behaviour, mortality and morbidity. Business is assumed to be continuing at the same level (going concern) and the current cost ratios – adjusted for inflation – are thus assumed to hold good for the future as well. Future costs for maintaining solvency capital funded by the shareholders and which underpins the insurance business are charged to the MCEV. The Swiss Life Group calculates the embedded value for all its life and health insurance companies. All other companies are taken into account at their IFRS net asset value. As a consequence, embedded value sensitivities do not affect the value of these companies.
An analysis of sensitivity indicates to what extent the embedded value is affected by variations in risk factors. The analysis is based on changes in the assumptions used in the embedded value calculation whereby a specific risk factor is changed while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. In the event of a change in a specific risk factor, the effect of different allocations to policyholder participation as a consequence is considered in the analysis. The changes in a specific risk factor are applied to the entire projection period.
At 31 December 2013, if the longevity improvement parameter had increased by 5%, the embedded value would have been CHF 15 million lower (2012: CHF 60 million lower).
At 31 December 2013, if the swaption implied volatilities (interest rates) had been 25% lower, the embedded value would have been CHF 157 million lower (2012: CHF 15 million lower).
At 31 December 2013, if the equity securities and property implied volatilities had been 25% higher, the embedded value would have been CHF 245 million lower (2012: CHF 261 million lower).
At 31 December 2013, if the equity securities and property implied volatilities had been 25% lower, the embedded value would have been CHF 189 million higher (2012: CHF 211 million higher).
DIluTeD earNINgS Per SHare For THe NeT reSulT aTTrIBuTaBle To equITy HolDerS oF SwISS lIFe HolDINg (IN CHF) 24.22 3.05
Under the accounting principles adopted, deposits received under insurance and investment contracts for which deposit accounting is used are not recognised as income: In CHF million gross written premiums and policy fees 13 451 12 351
In CHF million asset management commissions 154 122 other commissions and fees 167 159
Interest income on loans and receivables 901 996 other interest income 9 11
Financial assets designated as at fair value through profit or loss 1 236 453
Financial liabilities designated as at fair value through profit or loss 2 12 –122 associates at fair value through profit or loss 75 10
ToTal NeT gaINS/loSSeS oN FINaNCIal INSTrumeNTS aT FaIr value THrougH ProFIT or loSS 5 844 580 1 includes interest and dividend income of CHF 111 million (2012: CHF 77 million) 2 includes changes attributable to credit risk: nil (2012: nil)
Net benefits and claims under insurance contracts 13 095 13 134
Change in liability for future life policyholder benefits, gross 495 311
ToTal NeT INSuraNCe BeNeFITS aND ClaImS 13 920 13 819 interest expense
Interest expense on deposits under insurance contracts 22 79 84 other interest expense 36 44
Swiss Life – Annual Report 2013 9 Derivatives and Hedge Accounting
Derivatives designated as fair value hedges 126 38 1 – 2 521 1 901
available-for-sale bond portfolios 121 37 – – 210 23 –231 –24 1 331 1 829
amounts Ineffective- Cash flows recognised ness amounts Cash flows expected in other recognised transferred Contract/ expected to affect Fair value Fair value comprehen- in to notional to occur profit or loss assets liabilities sive income profit or loss profit or loss amount (year) (year)
recognised ness amounts Cash flows expected in other recognised transferred Contract/ expected to affect Fair value Fair value comprehen- in to notional to occur profit or loss assets liabilities sive income profit or loss profit or loss amount (year) (year)
total Derivatives DesigNateD as Cash floW heDges 589 5 408 – – 9 045 n/a n/a
In 2013, CHF 0 million was reclassified from other comprehensive income to profit or loss and included in investment income.
In 2013 and 2012, the Group entered into forward contracts to hedge the foreign currency translation risk for a portion of its investment in Swiss Life Deutschland Holding GmbH. As at 31 December 2013, the hedged portion amounted to nil (2012: EUR 248 million).
FINaNCIal aSSeTS DeSIgNaTeD aS aT FaIr value THrougH ProFIT or loSS
Investment funds – balanced 14 19 real estate funds 338 419
assets attributable to non-controlling interests of investment funds 2 358 1 694 assets for the account and risk of the Swiss life group’s customers 5 26 059 22 629
ToTal FINaNCIal aSSeTS DeSIgNaTeD aS aT FaIr value THrougH ProFIT or loSS 31 486 28 153
Share of net assets of investment funds attributable to non-controlling interests 2 358 1 694
ToTal FINaNCIal lIaBIlITIeS DeSIgNaTeD aS aT FaIr value THrougH ProFIT or loSS 24 794 22 264
The application of the principles of control set out in IFRS 10 Consolidated Financial Statements led to the consolidation of additional investment funds. Financial assets at fair value through profit or loss and financial liabilities at fair value through profit or loss increased by CHF 1102 million as at 31 December 2012.
Debt securities previously classified as available for sale 5 863 6 434 –6 –31 5 857 6 403
(excluding adjustments for income tax and policyholder participation) –327 679 gains (+)/losses (–) recognised in profit or loss (including impairment) 7 –46
summarised financial information for the year 2013 amounts in CHF million
Crédit et services financiers (CreSerFI), Paris 33.4% 47 – 1 – 1 –
DePFa Holding verwaltungsgesellschaft mbH, Düsseldorf 20.4% 195 1 n/a n/a n/a n/a summarised financial information for the year 2012 amounts in CHF million
Crédit et services financiers (CreSerFI), Paris 33.4% 46 – 1 – 1 –
Summarised financial information relating to material associates was as follows: In CHF million
Share of net assets (carrying amount) 47 46 – 15 12 10 n/a n/a
Swiss Life – Annual Report 2013 16 Property and Equipment property and equipment for the year 2013
BalaNCe aS aT eND oF PerIoD –196 –39 –46 –12 –294 total property aND equipmeNt as at eND of perioD 407 14 13 14 448 of which assets held under a finance lease – – 3 – 3 of which buildings in the course of construction 60
Swiss Life – Annual Report 2013 property and equipment for the year 2012
Classification as assets held for sale and other disposals –5 –3 –2 –1 –11
Transfers to investment property 14 –193 – – – –193 revaluation in respect of transfers to investment property 62 – – – 62
Classification as assets held for sale and other disposals 3 3 2 0 8
Classification as assets held for sale and other disposals 0 – – – – – 0 –
additions from internal software development – – – – 6 6 6 6
The acquisition of Prigest, Paris, in November 2013 led to the recognition of additional goodwill of CHF 8 million. Goodwill relating to the acquisition of aXenta AG, Baden, in May 2012 amounted to CHF 7 million. The goodwill on the acquisition of aXenta AG, Baden, was fully impaired in 2012. The recoverable amount of aXenta AG, Baden, amounted to CHF 2 million as at 31 December 2012.
Swiss Life – Annual Report 2013 the insurance and investment contracts a five-year period was used for CapitalLeben. The calculations for Lloyd Continental and CapitalLeben are based on present values that traditionally use a single set of estimated cash flows and a single discount rate.
Goodwill relating to “Swiss Life Select” (acquisitions of AWD Holding AG and Deutsche Proventus AG) has been allocated to the “Switzerland”, “Germany” and “International” segments. The recoverable amounts have been determined on a value-in-use basis and use cash flow projections based on financial budgets approved by management. The projection covers a three-year period for Switzerland, Germany and International (AT/CEE, UK). The calculations are based on present values that traditionally use a single set of estimated cash flows and a single discount rate. The key assumptions used for the impairment testing on the carrying amount of goodwill are as follows: goodwill relating to “swiss life select”
In 2012, CHF 218 million impairment losses were recognised on the goodwill relating to the “Germany” segment and CHF 168 million relating to the “International” segment. The recoverable amount of the “Germany” cash-generating unit amounted to CHF 948 million and the recoverable amount of the “International” cash-generating unit amounted to CHF 128 million as at 31 December 2012.
Customer relationships The acquisition of Prigest, Paris, in November 2013 led to the recognition of additional customer relationships of CHF 17 million.
On the customer relationships relating to “Swiss Life Select”, CHF 24 million was recognised as an impairment loss in 2012 in the “Switzerland” segment, CHF 72 million in the “International” segment and CHF 2 million in the “Germany” segment due to higher than originally projected fluctuation rates of financial advisers.
On the customer relationships relating to “International”, CHF 17 million was recognised as an impairment loss in 2012. The impairment loss arose due to the pursued two-carrier strategy with the strong focus on new business in Luxembourg and Singapore.
brands and other Consists of brands, trademarks, computer software and other intangible assets. Due to the rebranding strategy relating to the AWD brand CHF 94 million was recognised in 2012 as an impairment loss on the carrying amount of brands and other.
Deferred charges and prepaid expenses 159 179 employee benefit assets 99 87
In CHF million addition from acquisition of insurance portfolio 194 –
Swiss Life – Annual Report 2013 investment contracts with discretionary participation with actuarial valuation
Swiss Life – Annual Report 2013 investment contracts without discretionary participation at fair value through profit or loss
In November 2012, Swiss Life Insurance Finance Ltd. offered to existing lenders under the subordinated perpetual step-up loan placed in 1999 by Swiss Life Ltd to purchase their loan holdings against a consideration consisting of both a cash component and a credit component. Altogether, EUR 265 million and CHF 290 million were purchased from lenders. The cash component amounted to a total of CHF 139 million. The credit component consists of a tranche of a subordinated dated step-up loan newly issued by Swiss Life Ltd. The subordinated dated step-up loan placed in connection with the offer amounts to CHF 471 million, is guaranteed by Swiss Life Holding, has a tenor of thirty years and is first repayable on 30 November 2022 at the option of the issuer, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority. The rate of interest is 6-month Libor plus a margin of 4.20% p.a. until 30 November 2022. If the bonds are not redeemed on 30 November 2022, the margin increases by 1%.
In March 1999, Swiss Life Ltd 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%, increased by 100 basis points as from April 2009), CHF 290 million (at a rate of interest of Libor plus a margin of 1.05%, increased by 100 basis points as from April 2009) and EUR 215 million (at a rate of interest of 5.3655%, as from October 2009 the rate of interest is the aggregate of Euribor plus a margin of 2.05%). In 2009, Swiss Life Ltd renounced the right to call the loan on its first call date. Following the purchase offer by Swiss Life Insurance Finance Ltd. in 2012, EUR 192 million remain outstanding. Swiss Life Ltd can next call the outstanding loan on 6 April 2014 or at five-year intervals thereafter, at its discretion, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority.
Swiss Life – Annual Report 2013 amounts in CHF million (if not noted otherwise)
Swiss life ag CHF 471 CHF 471 +4.200% 2012 2022 468 467
In December 2013, Swiss Life Holding issued CHF 500 million senior unsecured convertible bonds due in 2020. The coupon was set at 0%. The bonds may be converted into registered shares of Swiss Life Holding at the option of the holder. The initial conversion price was set at CHF 243.97. The proceeds from the issue of the convertible bonds have been split between a liability component and an equity component. The fair value of the liability component at issue date amounted to CHF 450 million and was calculated using a market interest rate for an equivalent non-convertible bond. The residual amount of CHF 50 million represents the value of the option to convert the instrument into Swiss Life Holding shares and was included in share premium. Transaction costs of CHF 6 million were deducted from the liability and costs of CHF 1 million were recognised in share premium.
In May 2013, Swiss Life Holding successfully raised CHF 425 million debt through the issuance of a CHF public bond dual tranche transaction, split into a CHF 225 million tranche with a tenor of 6 years and a CHF 200 million tranche with a tenor of 10 years. The unsecured senior bonds bear coupons of 1.125% and 1.875%, respectively. Payment date of the bonds was 21 June 2013.
ToTal INSuraNCe lIaBIlITIeS aND reINSuraNCe aSSeTS 101 432 97 474 396 369 101 035 97 104 of which for the account and risk of the Swiss life group’s customers 5 2 200 1 603 – – 2 200 1 603 unearned premiums
gross claims under non-life insurance contracts 954 960 less: reinsurance recoverable –191 –196
Claims incurred, benefits paid and surrenders –362 –66 3 –2 –366 –64 effect of changes in actuarial assumptions and other movements 90 64 –2 –4 92 67 reclassifications and other disposals – 0 – – – 0
Claims incurred, benefits paid and surrenders –7 923 –7 931 –28 –140 –7 895 –7 791 effect of changes in actuarial assumptions and other movements 881 1 830 –7 –10 888 1 840 reclassifications and other disposals – 757 – – – 757
Employees are covered under various funded and unfunded pension plans which operate under local regulations and practice. The major part of the defined benefit liability recognised arises from the plans covering employees in Switzerland. The impact on the consolidated financial statements arising from the plans covering employees in Germany and France is far less significant.
plan descriptions Switzerland Pension plans in Switzerland are governed by the Swiss Federal Law on Occupational Retirement (BVG). Pension plans must be managed by independent, legally autonomous entities and are under regulatory supervision. The plans covering the Group’s employees in Switzerland are set up as foundations. The foundation board as the most senior governing body must be composed of equal numbers of employee and employer representatives. Main responsibilities of the foundation board are the definition of plan benefits, funding system, setting of actuarial parameters and investment policies for the plan assets. The BVG defines minimum levels with regard to benefits (including conversion rate for old-age pensions), employer/employee contributions as well as the interest rate for the accrual of the employees’ pension account. An annual actuarial report according to BVG requirements is prepared which shows the funding level of the respective plan. The measurement basis for the plan’s assets and benefit obligations for this purpose is in accordance with BVG rules.
The primary benefit of Swiss Life’s plans is an old-age pension after reaching retirement age. The level of the old-age pension is determined by the plan’s conversion rate applied to the employees’ individual pension account accumulated at retirement age. There are options for early retirement (with actuarially determined reduction of the conversion rate) and for choosing to receive a lump-sum payment instead of a pension. This old-age pension is funded by monthly contributions from the employer and the employee (deducted from salary) to an individual pension account which in addition is increased by a yearly interest accrual. The contributions are based on age and on a percentage of the contributory salary. Further funding of an individual pension account comprises mandatory transfers of funds made by new employees from plans of his/her former employers and discretionary contributions from the employee (with restrictions to maximum amounts). As a consequence of plan amendments in the past, certain age groups are granted guarantees of a minimum level of old-age pensions in case of early retirement. The cost with respect to early retirements of members from these age groups is borne by the employer.
germany Pension plans in Germany are governed by the Law on Occupational Retirement (BetrAVG). The BetrAVG is part of the general labour legislation, which means that the BetrAVG establishes no rules on funding benefit obligations. It only describes the different possible ways of funding benefit obligations without further details on the practice of funding.
The investment risk inherent in achieving an adequate return on the plan assets covering the pension accounts of active employees is borne by the foundations. Also, the investment risk and actuarial risk relating to old-age pensions lie with the foundations. However, for the two major plans, all pensions which were already in payout before 1 January 2011 are fully covered under a group insurance contract issued by Swiss Life Ltd. In addition, all insurance risk relating to death/survivors’/disability benefits is fully covered by several group contracts issued by Swiss Life Ltd.
germany According to the German BetrAVG there are no specific rules regarding the funding of the pension obligations. The defined benefit plans are funded by individual insurance contracts with Swiss Life Germany that cover the promised benefits. Because of tax limitations, the individual insurance contracts do not cover the whole level of the benefit promises. Therefore, Swiss Life Germany has established a contractual trust arrangement to cover the additional risks from the pension plan. Plan risks mainly arise from salary increases and from an increase in pension payments.
Contributions by plan participants –85 –36 actuarial gains (+)/losses (–) arising from
changes in financial assumptions 14 –13 effect of business combinations – –3
BalaNCe aS aT eND oF PerIoD –2 700 –2 615 of which amounts owing to
Swiss Life – Annual Report 2013 assumptions may well be correlated. In addition, the net effect in the consolidated balance sheet would also be driven by the change in the value of the plan assets.
If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by CHF 156 million (increase CHF 173 million).
If the future expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by CHF 18 million (decrease CHF 18 million).
If the average life expectancy increases by one year (for both men and women), the defined benefit obligation would increase by CHF 88 million.
Duration of the defined benefit obligation (weighted average number of years) 13.0 13.7
The contributions expected to be paid for the year ending 31 December 2014 are CHF 60 million. These contributions include amounts payable under insurance contracts issued to defined benefit plans covering own employees.
Certain subsidiaries sponsor various defined contribution plans. Participation in the various plans is based either on completion of a specific period of continuous service or on the date of hire. The plans stipulate contributions by both employers and employees. The expenses under these plans amounted to CHF 1 million in 2013 (2012: CHF 1 million).
For 2010, a share-based payment programme was established which gives the members of the Corporate Executive Board and other senior management members of the Swiss Life Group the right to receive a certain number of Swiss Life Holding shares (performance share units, PSUs) after three years of service if certain conditions are fulfilled. The number of the shares allocated depends on two criteria. One criterion is the performance of the share price of the Swiss Life Holding share during the vesting period of three years. The other criterion is the performance of the share price of the Swiss Life Holding share during the vesting period of three years compared to the performance of the Dow Jones STOXX 600 Insurance Index. For the PSUs issued, a maximum
For 2013, 2012 and 2011, participants in the share-based payment programme are allocated restricted share units (RSUs) instead of PSUs. As with PSUs, RSUs grant the holder future subscription rights, entitling him to receive Swiss Life Holding shares free of charge after a three-year period has elapsed and if certain conditions are fulfilled.
In 2010, the number of PSUs granted under this programme amounted to 68 510. The fair value at the mea surement date amounted to CHF 149.98. The date of grant was 1 April 2010.
In 2011, the number of RSUs granted under this programme amounted to 68 730. The fair value at the mea surement date amounted to CHF 140.05. The date of grant was 1 April 2011.
Balance as at employee Balance as at 1 January Issued departures vested end of period share-based payment programmes (performance share units)
The expected weighted-average tax rate for the Group in 2013 was 24.5% (2012: before impairment losses on the intangible assets relating to Swiss Life Select 26.1% and after impairment losses 11.0% (restated)). 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 change of the weightedaverage tax rate is due to the geographical allocation of the profits and the different tax rates in these jurisdictions. The actual income tax expense differs from the expected amount as follows: reconciliation of income tax expense
DeFerreD INCome Tax aSSeTS/lIaBIlITIeS 516 466 1 393 1 802 valuation allowance
NeT DeFerreD INCome Tax aSSeTS/lIaBIlITIeS –943 7 –400 – 0 0 –1 336 1 relating to equity component of convertible debt
Deferred tax assets are recognised for tax-loss carryforwards only to the extent that realisation of the related tax benefit is probable. Swiss tax assets are calculated in accordance with cantonal and municipal tax legislation. The uncertainty of the utilisation of tax losses is taken into account in establishing the valuation allowance. For the following tax-loss carryforwards, which will expire as follows, no deferred tax asset has been recognised: unrecognised tax losses amounts in CHF million
As at 31 December 2013 and 2012, the share capital of SLH consisted of 32 081 054 fully-paid shares with a par value of CHF 5.10 each. In exercising voting rights, no shareholder can collect more than 10% of the total share capital directly or indirectly in respect of own shares or shares they represent. Conditional share capital was CHF 30 600 000.00 as at 31 December 2013 (2012: CHF 12 032 868.60).
Sales of treasury shares –3 880 –10 000 allocation under equity compensation plans –26 034 –73 978
The following table provides information relating to amounts recognised in accumulated other comprehensive income: accumulated other comprehensive income for the year 2013
remea- gains/ sure- losses reval- ments Foreign financial gains/ uation net currency assets losses surplus defined translation available cash flow other investment benefit other Notes differences for sale hedges items Total property liability items Total
Share of other comprehensive income of associates – – – 0 0 – – – – 0 gains/losses transferred to the income statement 8, 9 – –239 0 63 1 –175 – – – – –175 effects of
Net other comprehensive income before non-controlling interests 34 –1 658 –252 20 –1 855 0 –1 – –1 –1 856 1 amount relates to debt securities reclassified to loans in 2008.
Net balance as at 1 January –833 1 523 145 –189 646 65 –181 – –116 530
Summarised financial information for subsidiaries with material non-controlling interests is as follows: amounts in CHF million
In accordance with the federal act on the supervision of insurance companies and corresponding decree, Swiss Life reports to the Swiss Financial Market Supervisory Authority FINMA. The reporting covers risk management as outlined in note 5, Group Solvency I, legal structure, management organisation and intra-group transactions. The reporting is submitted on an ad-hoc, monthly, half-yearly or yearly basis depending on the topic and is reviewed on a yearly basis by the statutory auditor according to the legal requirements. As at 31 December 2013 and 2012, Swiss Life was compliant with the legal requirements.
Intangible assets including intangible insurance assets 17 17 1 employee benefit liabilities – –1
In May 2012, the Swiss Life Group acquired a 100% share of aXenta AG, Baden, a company specialised in software development for pension funds.
Swiss Life – Annual Report 2013 assets and liabilities from disposals
Net assets disposed of –7 amounts recognised in other comprehensive income 0 gaIN (+)/loSS (–) oN DISPoSalS 1
In June 2012, the French non-life operation Garantie Assistance S.A., Paris, was sold. In December 2012, the Swiss Life Group sold AWD s.r.o., Bratislava.
asset management and other commission income – – 0 0 1
Swiss Life – Annual Report 2013 30.1 assets and liabilities measured at fair value on a recurring basis financial instruments As a general rule, fair values of financial instruments are based on quoted prices sourced from well-known independent price providers such as Bloomberg. Model based level 2 and level 3 valuations of financial instruments are applied to a minority of the assets.
Financial assets pledged as collateral 1 999 964 – – – – 1 999 964 assets attributable to non-controlling interests of investment funds 2 078 1 403 – – 280 291 2 358 1 694 assets for the account and risk of the Swiss life group’s customers 22 224 20 315 911 2 246 2 924 68 26 059 22 629
associates at fair value through profit or loss – – 195 121 10 11 205 132
Investment funds: Some fair value measurements of fund units, including unlisted fixed income funds, are only available on an irregular basis and are therefore categorised as level 2. Prices are provided by independent external market data providers who measure the fair value using market -consistent parameters.
Investments in associates: Investments in associates categorised as level 2 of the fair value hierarchy comprise an unlisted specialised fund which holds assets that qualify inherently as level 1 financial instruments.
Equity securities: The fair values of equity securities, which are not traded in an active market and are determined using unobservable inputs, classify as level 3 within the fair value hierarchy. These fair values are based on generally accepted valuation techniques. Valuation techniques try to use a maximum of market inputs and include discounted cash flow analysis (e.g. profit situation, investment plans, investment property) and other valuation techniques commonly used by market participants.
Alternative investments: The fair values of private equity investments are based on generally accepted valuation techniques. Valuation techniques use a maximum of market inputs and include the use of comparable recent arm’s length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants. Because of the inherent valuation uncertainty, those estimated fair values may differ significantly from the values that would be used if a ready market for the financial assets existed, and those differences could be material. The fair values are determined by the general partner in the partnership and reviewed by management. In determining the fair value of fund investments, the partnership considers the funds as transparent holding vehicles. The fair values of the underlying investments are determined using the general partner valuation. These fair value measurements are generally categorised as level 3 within the fair value hierarchy.
investment property The following table shows the fair value hierarchy of investment property as at 31 December 2013: In CHF million
Swiss Life – Annual Report 2013 level 3: valuation techniques and inputs Discounted cash flow models used for investment property consider the present value of net cash flows to be generated from the property, taking into account expected rent growth rate, vacancy rate, rent-free periods, other costs not paid by tenants, maintenance costs and investment plans. The expected net cash flows are discounted using risk-adjusted discount rates. Location- and property-related criteria are reflected in the discount rate for each property. The criteria reflect the micro- and macro-location characteristics as well as the relevant parameters of the current management situation.
Swiss Life – Annual Report 2013 reconciliation of fair value measurements categorised within level 3 The following tables show a reconciliation from the opening balances to the closing balances for fair value measurements categorised within level 3 of the fair value hierarchy: assets measured at fair value based on level 3 for the year 2013
BalaNCe aS aT eND oF PerIoD – 139 1 665 1 103 2 924 10 18 517 23 359 unrealised gains/losses recognised in profit or loss for
assets held at the end of the period – 5 0 5 –9 4 1 481 488 1 including assets attributable to non-controlling interests of investment funds assets measured at fair value based on level 3 for the year 2012
BalaNCe aS aT eND oF PerIoD – 154 4 308 759 68 11 – 1 304 unrealised gains/losses recognised in profit or loss for
assets held at the end of the period – 5 0 0 –9 0 1 – –4 1 including assets attributable to non-controlling interests of investment funds 2 applicable from 1 January 2013
liabilities measured at fair value based on level 3 for the year 2013
BalaNCe aS aT eND oF PerIoD – – 107 280 387 unrealised gains/losses recognised in profit or loss for liabilities held at the end of the period – – 39 7 46 gains/losses recognised in profit or loss In 2013, gains/losses on level 3 fair value measurements recognised in profit or loss are presented in the income statement as follows: In CHF million
Net gains/losses on financial Net gains/losses instruments at Net gains/losses on financial fair value through on investment assets profit or loss property aSSeTS
Total gains/losses recognised in profit or loss 40 22 505 unrealised gains/losses recognised in profit or loss for assets held at the end of the period –9 15 481 lIaBIlITIeS
Investment contracts without discretionary participation – 36 – 36 receivables and other financial liabilities The carrying amounts of receivables and other financial liabilities represent a reasonable estimate of fair value as the effect of discounting is immaterial and changes in credit risk are not significant. Such instruments include insurance receivables and payables, demand and shortterm deposits and repurchase agreements. The disclosure of the fair value hierarchy is not applicable for these instruments.
loans Level 1: This category consists of debt securities reclassified from financial assets available for sale due to the disappearance of an active market and where the market has become active again. Additionally, debt securities not quoted in an active market at initial recognition and where the market has become active again are included in this category.
Swiss Life – Annual Report 2013 31 Offsetting Financial Assets and Liabilities
of recognised set off in the presented in the related amounts
Private equity commitments 115 161 other capital commitments 727 284 operating lease commitments 43 41
Not later than 1 year 8 8 later than 1 year and not later than 5 years 26 25 financial guarantees
Contractual obligations for repairs and maintenance of investment property amounted to CHF 89 million as at 31 December 2013, which are included in this line item (2012: CHF 85 million ).
Not later than 1 year 348 276 later than 1 year and not later than 5 years 1 249 884
adroit Private equity ag, Zürich CH 100.0% 100.0% Private equity axenta ag, Baden-Dättwil CH from 01.05.2012 100.0% 100.0% Information technology geNBlaN ag, Zürich CH 100.0% 100.0% real estate livit ag, Zürich am 100.0% 100.0% asset management & real estate livit Fm Services ag, Zürich am 100.0% 100.0% Services
Swiss life Investment management Holding ag, Zürich am 100.0% 100.0% Holding
Swiss life Products (luxembourg) S.a., Strassen, Branch Zürich, Zürich IN 100.0% 100.0% Services
Swiss life Schweiz Holding ag, Zürich CH from 11.12.2012 100.0% 100.0% Holding
Swiss life Select International Holding ag, Zürich IN from 01.02.2013 100.0% 100.0% Finance
Swiss life Select Schweiz ag (formerly awD allgemeiner wirtschaftsdienst ag), Zug CH 100.0% 100.0% Services
Financière du Patrimoine, Balma Fr 80.0% 100.0% real estate ma Santé Facile, levallois-Perret Fr 100.0% 100.0% Services and broker
SCI SwISSlIFe 148 uNIverSITe, levallois-Perret Fr from 07.06.2012 100.0% 100.0% real estate
Swisslife Prévoyance et Santé, levallois-Perret Fr 99.8% 99.8% Non-life insurance viveris reIm, marseille am 68.3% 68.3% asset management germaNy
Sl Beteiligungs-gmbH & Co. grundstücksverwaltung Kg, münchen De 100.0% 100.0% real estate
Swiss life ag, münchen (Branch Swiss life ag) De 100.0% 100.0% life insurance
Swiss life grundstücksmanagement gmbH & Co. münchner Tor Kg, münchen De until 01.06.2012 – –
Swiss life Solutions ag (formerly Swiss life Insurance Solutions ag), münchen other 100.0% 100.0% Services
Swiss life vermittlungs gmbH, münchen De 100.0% 100.0% Services tecis Finanzdienstleistungen ag, Hamburg De 100.0% 100.0% Services 1 Segment (CH = Switzerland, am = asset managers, IN = International, Fr = France, De = germany)
Swiss life Funds (lux) management Company S.a., luxembourg am 100.0% 100.0% Finance
Segment 1 Consolidation period group share Direct share Principal activity uNiteD kiNgDom
(formerly awD Chase de vere Consulting limited), london IN 100.0% 100.0% Dormant
Chase de vere IFa group Plc (formerly awD group Plc), london IN 100.0% 100.0% Finance
Chase de vere IFa Services limited (formerly awD group Services limited), london IN 100.0% 100.0% Dormant
Chase de vere loans limited (formerly awD loans limited), manchester IN 100.0% 100.0% Dormant
adroit Investment (offshore) ltd., grand Cayman CH 100.0% 100.0% Private equity adroit Partnerships (offshore) l.P., grand Cayman CH 100.0% 100.0% Private equity
Swiss life Select Ceska republika s.r.o. (formerly awD Česká republika s.r.o.), Brno IN 100.0% 100.0% Services huNgary
(formerly awD Spólka z ograniczona odpowiedzialnoscia), warszawa IN 100.0% 100.0% Services siNgapore
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor ’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Swiss Life Holding generated a profit of CHF 89 million in the 2013 financial year compared with CHF 106 million the previous year.
Swiss Life Holding’s profit distribution to shareholders in the period under review came to CHF 144 million or CHF 4.50 per share and was made out of the capital contribution reserve. The par value of the Swiss Life Holding share remains unchanged at CHF 5.10. The company’s nominal share capital at the end of the year totalled CHF 163.6 million.
As at the end of the year Swiss Life Holding has debt capital of CHF 915 million and assets (liquid funds, time deposits and bonds) of CHF 1183 million. Liquid funds and time deposits rose from CHF 88 million to CHF 763 million, while bond holdings increased from CHF 228 million to CHF 420 million. All bonds are eligible for repo transactions.
These Financial Statements have been prepared to implement the transitional provisions to the new accounting law in accordance with the provisions of the Swiss Code of Obligations on accounting and financial reporting applicable until 31 December 2012.
Direct share swiss life ag, Zürich CHf 587 350 100.00% CHF 587 350 100.00%
swiss life International Holding ag, Zürich CHf 1 000 100.00% CHF 1 000 100.00%
swiss life Investment management Holding ag, Zürich CHf 50 000 100.00% CHF 50 000 100.00%
loans to Group companies CHF 330 million of the loans to Group companies is classified as subordinated.
Share capital As at 31 December 2013, the share capital of Swiss Life Holding consisted of 32 081 054 fullypaid shares with a par value of CHF 5.10 each. In exercising voting rights, no shareholder can collect more than 10% of the total share capital directly or indirectly in respect of his own shares and those he represents. As at 31 December 2012, Swiss Life Holding had 32 081 054 registered shares outstanding with a par value of CHF 5.10 per share. Conditional share capital was CHF 30 600 000.00 as at 31 December 2013 (2012: CHF 12 032 868.60).
free reserves and retained earnings Free reserves and retained earnings comprise accumulated retained earnings which have not been distributed to the shareholders, or which have not been allocated to the reserve for treasury shares.
In 2013 no convertible bonds were converted into Swiss Life Holding shares.
treasury shares In the year under review the companies in the Swiss Life Group purchased a total of 68 162 Swiss Life Holding shares at an average price of CHF 184.15. In the same period, they sold 3880 shares at an average price of CHF 163.10. As at 31 December 2013, the Swiss Life Group held 188 600 treasury shares.
Contingencies Swiss Life Holding acts as warrantor for all Swiss Life Ltd liabilities with regard to the various tranches of the subordinated perpetual step-up loans (hybrid debt), which amounted to an equivalent value of CHF 3078 million at the balance sheet date.
Personal performance based on the specified quantitative and qualitative objectives is assessed annually in the employee appraisal procedure implemented throughout the Group (Group Performance System, GPS). Two assessment elements/models are used for determining objectives and evaluating performance: the Group Objectives Model (GOM) relating to qualitative and quantitative objectives and the Group Competency Model (GCM) for measuring and assessing individual competencies and behaviour, including the compliance regulations.
Compensation to members of the Board of Directors The members of the Board of Directors are granted exclusively fixed compensation, payable 70% in cash and 30% in Swiss Life Holding shares; the shares are subject to a three-year blocking period from the date of allocation.
Compensation to members of the Corporate executive Board Compensation remitted to members of the Corporate Executive Board comprises the basic salary, variable compensation in cash and other compensation (child allowances, company cars, premium contributions to 3rd pillar pension plans). The variable compensation in cash is allocated as a bonus and, if applicable, as deferred compensation in cash. The deferred compensation in cash is paid out after a period of three years has elapsed and provided that the regulatory requirements have been satisfied. In addition, a long-term variable compensation component is in place in the form of an equity compensation plan (RSU plan), which is linked to the performance of the Swiss Life Holding share price, respectively to medium-term planning and corresponding target achievement. The equity compensation plan grants an entitlement to Swiss Life Holding shares after a period of three years has elapsed and provided that the relevant requirements are satisfied at the time of allocation.
The variable compensation components are determined by the Board of Directors in accordance with the described compensation policy principles and based on the company result and the achievement of personal goals assessed in the employee appraisal procedure implemented throughout the Group (Group Performance System, GPS).
In the same way the allocation of future subscription rights to Swiss Life Holding shares (equity compensation plan, RSU plan) is dependent on the respective target achievement. The cash bonus thereby serves as a reference value, whereby the deferred compensation components (RSU plan and, if applicable, deferred compensation in cash) are considered as a whole. The allocation of future subscription rights to Swiss Life Holding shares according to Swiss Life’s compensation policy is also limited in value to 117% of the fixed basic salary or, if deferred compensation in cash is simultaneously allocated, to 64% of the fixed basic salary. Variable compensation for members of the Corporate Executive Board is thus limited to a maximum of 181% of the fixed basic salary.
The allocated deferred compensation in cash represents an entitlement during the three-year deferral period. The underlying “deferred cash plan” also provides for adjustment and reclaiming mechanisms (clawback). Full or partial reduction of the deferred compensation is provided for in the following cases: negative impact of the key figures applying to the allocation of deferred compensation due to a restatement of the annual accounts or damage to Swiss Life as a result of
As a long-term variable compensation component linked to the performance of the Swiss Life Holding share price and to the medium-term planning and corresponding target achievement, an equity compensation plan has been in place since 2004 for members of the Corporate Executive Board and other key performers within the Swiss Life Group, who are determined by the Corporate Executive Board with the approval of the Nomination and Compensation Committee. Based on this plan, participants are granted future subscription rights to Swiss Life Holding shares free of charge after a period of three years has elapsed and provided that the requirements under the plan are satisfied at that point.
Since 2011 participants in the equity compensation plan have been allocated Restricted Share Units (RSUs) on 1 April (2011–2013 equity compensation plans) or on 1 March (2014 equity compensation plan). The RSUs grant the holder future subscription rights, entitling them to receive Swiss Life Holding shares free of charge after a three-year period has elapsed. The attribution of shares after the expiry of the three-year deferral period is effected on a 1:1 basis (1 RSU = 1 share): the plan is therefore very simple, transparent throughout the whole term and directly linked to the performance of the Swiss Life Holding share price. The value of RSUs during the three-year term develops linear with the Swiss Life Holding share price and thus symmetrically corresponds with shareholder interests. 62 members of Swiss Life Group senior management participated in the 2011 equity compensation plan, in which a total of 68 730 RSUs were allocated; 23 630 in total to the Corporate Executive Board, of which 6350 to Bruno Pfister in his capacity as Group CEO. 55 members of Swiss Life Group senior management participated in the 2012 equity compensation plan. A total of 94 040 RSUs were allocated; 28 460 in total to the members of the Corporate Executive Board, of which 7100 to Bruno Pfister as Group CEO. Altogether 56 members participated in the 2013 equity compensation plan, in which a total of 74 630 RSUs were allocated; 18 590 in total to the Corporate Executive Board, of which 3360 to Bruno Pfister as Group CEO. A total of 57 members of Swiss Life Group senior management participated in the 2014 equity compensation plan. A total of 57 223 RSUs were allocated; 14 432 in total to the members of the Corporate Executive Board, of which 4226 to Bruno Pfister in his capacity as Group CEO.
The 2013 and 2014 equity compensation plans are based on the Group-wide programme “Swiss Life 2015”, which was announced at the Swiss Life Group’s Investors’ Day on 28 November 2012 (see www.swisslife.com/investorsday2012). On the basis of the medium-term planning 2013–2015 (2013 equity compensation plan) and 2014–2016 (2014 equity compensation plan), performance criteria relating to cost efficiency (50% weighting), the risk and fee result (25% weighting) and IFRS profit (25% weighting) have been determined by the Board of Directors. After expiry of the three-year period of the RSU plan, the target value for each performance criterion according to the medium-term planning is compared with the actual result achieved. The share allocation corresponds to the number of allocated RSUs (1 RSU = 1 share) if all three performance targets have been achieved or exceeded after the three-year period has elapsed; overperformance does not lead to a higher share allocation. If the targets are only partly achieved, the share allocation is correspondingly reduced in accordance with the weighting of the performance target concerned or the RSUs expire worthless.
The attribution of the long-term variable compensation component (equity compensation plan, RSU plan) is deferred for a period of three years from the date of allocation, as is the case with the deferred compensation in cash. Likewise, the RSU plans provide for adjustment and reclaiming mechanisms (clawback) in the event of a negative impact of the key figures applying to the allocation of deferred compensation due to a restatement of the annual accounts or damage to Swiss Life as a result of a violation of statutory, regulatory or compliance standards. If the employment relationship is terminated by a participant during the three-year deferral period, the future entitlements expire worthless.
For the period from the 2014 Annual General Meeting of Shareholders to the 2015 General Meeting, the Board of Directors will determine the compensation for the members of the Board of Directors, with the exception of the Chairman, at the same level as for the 2012 and 2013 financial years. For the Chairman of the Board of Directors the fixed compensation in cash and in blocked shares will be reduced by CHF 240 000 to CHF 1 200 000. The relevant compensation is shown in footnote 6 of the 2013 compensation table below.
From 2015, as part of the implementation of the Compensation Ordinance adopted by the Federal Council on 20 November 2013, the General Meeting of Shareholders will, on the basis of a proposal by the Board of Directors, bindingly determine the fixed overall compensation for the Board of Directors for the period until the next Annual General Meeting.
Compensation to the board of Directors in 2013 amounts in CHF
Rolf Dörig, Chairman of the board of Directors 1 008 000 2 618 432 060 1 440 060 286 416 – 1 726 476 6 3 the allocation of shares was effected on 14.06.2013 and 13.12.2013 at the stock exchange closing price of CHF 155.20 and CHF 176.20 respectively. taking into account the blocking period of three years, the economic value, which is equal to the tax value, is CHF 130 309 and CHF 147 941 respectively. when allocating the blocked shares (30% of fixed compensation), the calculated units are rounded up to the next whole number.
6 For the period from the 2014 annual general meeting to the 2015 annual general meeting, compensation for members of the board of Directors will remain unchanged. For the Chairman of the board of Directors, the fixed compensation in cash and in blocked shares will be reduced by CHF 240 000 to CHF 1 200 000. accordingly compensation for the Chairman for the period agm 2014 – agm 2015 is reported as follows in the compensation table: Rolf Dörig, Chairman of the board of Directors 840 000 360 000 1 200 000 286 416 – 1 486 416
Compensation to the board of Directors in 2013 taking into account the economic value of compensation in blocked shares, which is equal to the tax value, presented analogous to the compensation table 2012 amounts in CHF
Rolf Dörig, Chairman of the board of Directors 1 008 000 2 618 362 766 1 370 766 286 416 – 1 657 182 6 3 the allocation of shares was effected on 14.06.2013 and 13.12.2013 taking into account the blocking period of three years at the economic value, which is equal to the tax value (CHF 130 309 and CHF 147 941). the stock exchange closing prices on allocation were CHF 155.20 and CHF 176.20 respectively.
4 all contributions are gross contributions, i.e. they include employee contributions to aHv/Iv/alv. employer contributions to aHv/Iv/alv/FaK amounted to a total of CHF 190 715 in the year under review.
Rolf Dörig, Chairman of the board of Directors 1 008 000 4 443 362 767 1 370 767 283 968 – 1 654 735 2 the allocation of shares was effected on 18.06.2012 and 14.12.2012 taking into account the blocking period of three years at the economic value, which is equal to the tax value (CHF 67.3375 and CHF 103.6931). the stock exchange closing prices (share prices, daily closing prices) on allocation were CHF 80.20 and CHF 123.50. 3 all contributions are gross contributions, i.e. they include employee contributions to aHv/Iv/alv. employer contributions to aHv/Iv/alv/FaK amounted to a total of
Rolf Dörig, Chairman of the board of Directors 1 008 000 4 443 432 060 1 440 060 283 968 – 1 724 028 2 as in the 2013 compensation table, the compensation in blocked shares is reported on the basis of the stock exchange closing prices of CHF 80.20 and CHF 123.50 upon allocation on 18.06.2012 and 14.12.2012. taking into account the blocking period of three years, the economic value, which is equal to the tax value, is CHF 67.3375 and CHF 103.6931.
For comparison purposes the 2013 compensation table is presented twice: firstly, taking into account the RSUs allocated on 1 March 2014 for the 2013 financial year (accrual method), and secondly, taking into account the RSUs allocated on 1 April 2013, which are presented analogous to the compensation table 2012 within this reporting period.
2 the bonus paid in 2014 relates to the 2013 financial year result. 3 Child allowances (CHF 4300), allowance for years of service (CHF 7032), company cars (CHF 68 056), premium contributions to 3rd pillar pension plans (CHF 99 092), other (CHF 10 919), each in total.
Other members of Corporate executive board 1 168 476 0 9 119 246 4 pursuant to the pension fund regulations, occupational provisions were financed by the employer and the employee at a ratio of 70% to 30%. 5 all contributions are gross contributions, i.e. they include employee contributions to aHv/Iv/alv. employer contributions to aHv/Iv/alv/FaK amounted to a total of
Compensation to the Corporate executive board in 2012 amounts in CHF
Other members of Corporate executive board 1 208 271 0 8 500 767 4 pursuant to the pension fund regulations, occupational provisions were financed by the employer and the employee at a ratio of 70% to 30%. 5 all contributions are gross contributions, i.e. they include employee contributions to aHv/Iv/alv. employer contributions to aHv/Iv/alv/FaK amounted to a total of
aggregate total compensation incl. deferred compensation in cash and RsUs amount 6 Number amount (amount)
Other members of Corporate executive board 697 000 21 360 2 002 927 11 200 694 6 the deferred compensation in cash is paid out after a deferral period of three years, provided the requirements are satisfied at that point. 7 the RsUs represent future subscription rights that entitle the individuals concerned to receive swiss life Holding shares after a period of three years, provided the requirements are satisfied at that point.
Share ownership/participation rights as at 31 December 2013 As at the balance sheet date, acting members of the Board of Directors and the Corporate Executive Board (including closely linked parties) held the following number of Swiss Life Holding registered shares and future subscription rights to Swiss Life Holding shares in the form of Restricted Share Units (RSUs).
Corporate executive board slH shares bruno pfister, group CeO 10 818 manfred behrens 900 tOtal CORpORate exeCUtIve bOaRD 34 318
balance carried forward to new account 1 090 961 2 197 310 tOtal pROFIt sHOwN IN tHe balaNCe sHeet 91 090 961 107 197 310
As statutory auditor, we have audited the financial statements of Swiss Life Holding Ltd, which comprise the statement of income, balance sheet and notes to the financial statements (pages 262 to 284), for the year ended 31 December 2013.
opinion In our opinion, the financial statements for the year ended 31 December 2013 comply with Swiss law and the company’s articles of incorporation.
Swiss Life – Annual Report 2013 report on other legal requirements
We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.
Ray Kunz Christian Schacher Audit expert Audit expert Auditor in charge
Share Performance and Historical Comparison The Swiss Life share price developed very positively in 2013, closing at the end of the year at CHF 185.20. This represents a very strong performance of 53%, or 57% taking into account the dividend distribution of CHF 4.50.
Performance Swiss Market Index (SMI) (in %) +20 +15 –8 –2 +18
Market capitalisation (in CHF million) 30.12. 5 941 3 895 2 772 4 337 4 235
Total dividend payout to shareholders (in CHF million) 30.04. 144 144 144 77 160
Dividend yield on year-end price (in %) 30.12. 2.43 3.71 5.21 1.78 3.79
Gross written premiums, policy fees and deposits received 17 969 17 046 17 143 20 191 20 219
Net insurance benefits and claims –13 920 –13 819 –12 614 –12 704 –11 884
Number of employees (full-time equivalents) 6 992 7 046 7 168 7 483 7 820