In 2008 the Swiss Life Group made further progress in the implementation of its strategy.
Focus on growth opportunities | The acquisition of the AWD Group is central to the future success of Swiss Life. The product factory for variable annuities and the expansion of reach in the business with high net worth individuals have laid the foundations for future growth.
Swiss Life at a Glance | The Swiss Life Group is one of Europe’s leading providers of life insurance and pension solutions. In Switzerland, France and Germany, the Group offers individuals and corporations comprehensive advice and a broad range of products through its own sales force as well as brokers and banks. Swiss Life provides international corporations with employee benefits solutions from a single source, and is one of the global leaders in structured life and pension products for international high net worth individuals.
The AWD Group has been part of the Swiss Life Group since 2008. AWD is one of the leading European financial services providers in the medium and high-income client segments and offers its clients independent f inancial advisory services. It employs over 6000 financial consultants and active intermediaries in ten European countries.
Swiss Life Holding Ltd, registered in Zurich, was founded in 1857 as Schweizerische Rentenanstalt. The shares of Swiss Life Holding Ltd are listed on the SIX Swiss Exchange (SLHN). The Swiss Life Group employs a staff of around 9000.
Net prof it for 2008 amounted to CHF 345 million. The result was impacted by negative developments on the f inancial markets.
Employee satisfaction, comprehensive risk management, responsible corporate conduct and an attractive brand are key success factors.
Swiss Life ensures the implementation of responsible, transparent and risk-aligned corporate governance.
We took the right measures at the right time to protect our core capital, which remains solid.
We were able to inform you well in advance of the planned change in the position of Chairman of the Board of Directors. Bruno Gehrig will not be standing for re-election at the next General Meeting of Shareholders in May 2009. Rolf Dörig, who was elected to the Board of
Success in our business is built on long-term performance and trust. We would like to thank all our dedicated employees who work towards this success every day, and all those who have placed their trust in us.
Bruno Gehrig Rolf Dörig Chairman of the Board of Directors Delegate of the Board of Directors
After serving on the Board of Directors for six years, Bruno Gehrig will not be standing for re-election at the next General Meeting of Shareholders in May 2009. As with all his decisions, Bruno Gehrig planned this step carefully, held discussions with the parties involved and finally decided to do what he believes is in the best interests of the company. Bruno Gehrig was an ideal choice for the Swiss Life Group in every respect. His experience in the financial industry, his outstanding leadership qualities, his knowledge of the financial markets, his tight-knit network among the business community, political circles, national banks and universities and, last but not least, his pleasant nature, made him a key player in the successful turnaround of 2003 and 2004. He soon gained the confidence of employees, clients and shareholders. With great consistency and persistency he established corporate governance practices that meet today’s requirements and ensured the optimum conditions for the smooth functioning of the Board of Directors and its committees. These executive bodies have been put to the test in the extremely challenging market environment of the past year. In addition to the business successes, the 150-year anniversary of Swiss Life in 2007 was a highlight of his tenure at Swiss Life, and clearly showed the strength of his ties with the company and its employees. His close involvement in the anniversary year was not a foregone conclusion, however. Bruno Gehrig suffered a stroke in November 2005. Happily, his recovery was a speedy one and he could return to work in March 2006. He was determined to settle the matter of his successor as early as possible. He originally intended to step down at the General Meeting of Shareholders in 2010. However, after being elected to the Board of Directors of UBS in October 2008, Bruno Gehrig changed his plans. His reason for accepting this function is also typical of Bruno Gehrig: He felt obliged to UBS, his former employer, and to the Swiss economy as a whole, the well-being of which hangs to a great extent on the performance of the financial centre. We would like to thank Bruno Gehrig warmly for his sterling contribution to Swiss Life and wish him every success and the best of health for the future.
Gerold Bührer Rolf Dörig Vice Chairman of the Board of Directors Delegate of the Board of Directors
Several banks and insurance companies were not able to survive this crisis without help. What did Swiss Life do differently? Those insurance companies that concentrated on their core business also had risks under control in 2008. We kept within our available risk capacity at all times. As the situation intensified in the second half of the year, our disciplined approach to risk management enabled us to take measures and protect our capital rapidly, thus ensuring the company’s survival.
Results are disappointing due to the huge decline on the financial side. In what areas has the Swiss Life Group nevertheless made progress in 2008? Most certainly in product management. In Germany we launched our first f lexible product with variable guarantees – also known as variable annuities – and have built up a product platform in Luxembourg. In the individual markets we have made progress with new products, and have also improved the product development process. We now focus much more closely on real client requirements, instead of being swayed by technical considerations as we were so often in the past.
What about distribution? The cooperation with AWD is beginning to bear fruit. By realigning two products to the needs of AWD target clients in the German market we have achieved pleasing results. Admittedly this is a small segment, but the experiences gained will help us with the further development of cooperation. We have also developed a new product in Switzerland and successfully introduced it at AWD. These first steps show how the cooperation with AWD can improve our products, making them easier to sell, not just by AWD, but also by other distribution channels.
Premium volume of the Swiss Life Group fell a total of 13% to CHF 18.5 billion. Why was that? When making comparisons with the previous year you must bear in mind that the first half of 2007 also includes premium volume of about CHF 1.9 billion from the French ERISA companies that we sold. Without the ERISA component, the fall in premiums is only 4%. The welcome premium growth in France could not quite offset negative premium trends in the other markets, although we were able to defend our leading position in Switzerland. In Germany the single premium business declined significantly in 2008 due to the market environment, but we were very successful with policies carrying periodic premiums and concluded over 50 000 policies for the first time in our history.
Swiss Life’s distribution strategy and the acquisition of AWD is still criticised in public. How do you respond? I can understand the criticism insofar as we must now produce numbers and facts over the next few years to prove that the acquisition was the right move. By acquiring AWD we plan to diversify our income stream and to expand our distribution capacity in Germany in particular in order to exploit the potential of Swiss Life more effectively. In Switzerland, AWD enables us to take a large step towards our vision of multichannel distribution. AWD also gives us access to markets in which we are currently not represented, such as those of Central and Eastern Europe. And thanks to AWD we now have access to additional market intelligence with regard to client requirements and product trends. AWD also benefits, as Swiss Life helps AWD to make its own business more efficient and to increase revenue. The experiences of the past few months have shown that the perspectives for adding value with this partnership are still intact.
Your principal markets are quite saturated. Does this impose limitations? The various analyses we have performed show that Europe is the world region where the life insurance business is still growing most in absolute terms. Growth may be lower here in percentage terms than in other regions, but because the base is so much larger the European life insurance market is still attractive, even in terms of growth. And as I already mentioned, demand for pensions and privately-financed pension solutions will grow significantly.
And finally the most difficult question: Have you ever tried to explain your job to your son? No, not yet. I think it would be difficult to explain the concept of life insurance to a fiveyear -old. It would be too much for both him and me. He knows where I work, however, and visits me every now and then.
And if he were to ask you? Then I would tell him that we make people’s lives and the future more secure. And with the protection that we guarantee for him, his friends and their parents and relatives, we give a lot of people a bit of security and hope.
Strategy and Markets | As a specialist in life and pensions, Swiss Life is well positioned to benefit from the increasing demand for life insurance and pension solutions. However, due to the negative developments on the financial markets, the financial targets for 2008 could not be reached. Swiss Life is confident that the measures introduced will enable it to make further progress in implementing its strategy and to return to profitability in 2009.
In France, Swiss Life holds a leading position in the health insurance sector and in the pension business it is a preferred alternative to large national providers, especially for high net worth individuals and independent entrepreneurs. Swiss Life has steadily improved its market position in recent years, thanks to an innovative range of products and a well-diversified distribution network.
STRATEGY FURTHER DEVELOPED AND CONSISTENTLY IMPLEMENTED | At the end of 2007 Swiss Life presented its new pensions leadership strategy. Swiss Life wants clients, distribution partners, investors and employees to regard it as the first choice for life insurance and pension solutions. Whoever thinks of financial security and retirement provision should first think of Swiss Life. The company concerns itself with the pension needs of people, not just before, but also after retirement. Swiss Life seizes growth opportunities in its existing markets, in international business and in attractive growth markets. To further improve efficiency, enhance international cooperation and optimise capital management, a functional management structure was established. Swiss Life pressed ahead with the implementation of its corporate strategy in 2008 by expanding its distribution capacity, strengthening its position in all markets thanks to product innovations, and enhancing competitiveness by introducing measures to improve efficiency. Furthermore, Swiss Life introduced the right measures at the right time to ensure solid core capital despite the turbulence on the financial markets. The risk management processes introduced and continuously developed over the last few years have borne fruit in the extremely challenging market environment of the past business year.
Focus on retirement needs Focus on growth opportunities Focus on functional excellence
MULTICHANNEL DISTRIBUTION STRENGTHENED | Direct contact with clients is a key success factor in the life insurance and pensions business. With the acquisition of AWD, targeted smaller-scale takeovers in France and measures to boost sales performance through tied distribution channels, Swiss Life further strengthened its multichannel distribution structure in 2008. Including AWD advisors, Swiss Life increased the proportion of employees working in distribution from less than 25% to over 50%.
INNOVATIVE PRODUCTS SUCCESSFULLY LAUNCHED | Client needs are clearly moving towards an optimum combination of liquidity, security and return. Unit- or index-linked solutions with selectable, f lexible guarantees, such as variable annuities, are in demand. Not only are such products better aligned to client needs, they also provide greater clarity as to where the added value comes from and how it is allocated. This, and the fact that these products tie up less risk capital, is advantageous for shareholders, too. Swiss Life has therefore expanded its range of non-traditional products in all markets and increased the share of this product category in new business to 40% in 2008.
An important step in the further expansion of the product mix in favour of non-traditional products was the start-up of the product factory for variable annuities according to schedule. Swiss Life successfully launched the first product in this growth segment in Germany in the third quarter. Additional product launches are set for 2009. The product factory’s location in Luxembourg allows Swiss Life to market these solutions throughout the European Union.
In order to strengthen product development throughout the Group, Swiss Life established the Group Product Management business area in 2008. In this way, Swiss Life wants to promote the exchange of knowledge in product development and bring innovative products that meet client needs and profitability requirements to market more rapidly.
SOLID CAPITAL BASE PROTECTED THANKS TO TIMELY MEASURES | Swiss Life can ground the further implementation of its strategy on a solid capital base: As part of its active capital management policy, Swiss Life introduced a number of measures, particularly from September 2008 onwards, to shield its equity from the negative repercussions of the turbulence on the financial markets. Balance sheet risks were drastically reduced, the current share buyback programme was discontinued, and the proposed distribution of profit was significantly reduced. Furthermore, Swiss Life made a timely decision to utilise the possibility created by the International Accounting Standards Board to post certain bonds at market value to the IFRS balance sheet as per 1 July 2008 under the position of loans; these bonds had previously been carried as financial assets available for sale but for which a liquid market no longer exists. This eliminates the short-term impact of the f luctuations in the market value of these securities due to the illiquid market situation. This better ref lects the liabilities associated with these investments and the long-term focus of the business. In the fourth quarter of 2008, Swiss Life structured its investments to generate earnings exceeding the benefits guaranteed to clients, even though market conditions were difficult and interest rates remained low.
PERFORMANCE CULTURE FURTHER STRENGTHENED | A key prerequisite for making further progress in implementing strategy is employee commitment. Swiss Life wants to further strengthen its performance culture, with special emphasis on client orientation and innovativeness. A survey is conducted every year to measure employee commitment. Employee commitment comprises job satisfaction and identification with work. Despite the intensification of the financial market crisis in the second half of the year and the very challenging market environment, Swiss Life achieved a commitment value of 76 on a scale of 10 to 100 in the September 2008 Employee Survey. This is a very good score in comparison to other companies. The commitment value has improved steadily over the past few years and the target value of 80 was exceeded in many areas.
PRIORITIES FOR 2009: FOCUS ON INNOVATION AND EFFICIENCY | Swiss Life was unable to escape the damage inflicted by the financial market crisis in 2008. The annual result is disappointing and the financial targets have not been met due to the negative developments on the financial markets. However, Swiss Life made further progress in the implementation of its strategy. It significantly expanded distribution, strengthened its position in all markets thanks to product innovations, and created the prerequisites for further efficiency improvements.
In March 2009 Swiss Life announced a strategic partnership with Talanx, the third largest insurance group in Germany in terms of premium income. The two companies will cooperate in certain defined areas. With this partnership, Swiss Life aims to drive international growth and to strengthen its market position in Germany further. To reinforce this partnership, Talanx will purchase a stake of around 10% in Swiss Life. Talanx will also acquire a 8.4% participation in MLP from Swiss Life. Swiss Life intends to reduce its remaining participation in MLP from 15.9% to below 10%. Independently of each other, Swiss Life and Talanx will each seek to cooperate with MLP within the new structure.
Due to the volatile market environment, Swiss Life has decided not to redefine its long-term targets at present. In 2009, Swiss Life will concentrate on protecting its solid capital base, consistently implementing its strategy with a focus on efficiency and innovation and thus on exploiting the available potential even more effectively.
The market for life insurance and pensions will continue to grow over the long term. As a leading international life and pensions specialist, Swiss Life is well positioned to benefit significantly from this market development and to create attractive added value and open up interesting perspectives for its shareholders, clients and employees.
Summary of Group Results | The Swiss Life Group made further progress in 2008 in the implementation of its strategy. However, the financial market crisis cut into the financial result. The net profit, which includes extraordinary gains on disposals, came to CHF 345 million. Continuing operations recorded a loss of CHF 1.1 billion. The capital base remains solid with equity at a level of CHF 6.6 billion.
Fee income from asset management and other commission income increased due to the first-time consolidation of AWD from CHF 196 million to CHF 950 million.
Gross written premiums, policy fees and deposits received by country Total 100%
Net earned premiums and policy fees 13 514 13 705 –1.4%
Asset allocation on fair value basis as at 31 December (insurance portfolio)
For the model PVFP calculations, the best possible assumptions are made regarding a number of factors, in particular returns on investment, the development of costs and claims, policyholder participation and the risk discount rate. Business is also assumed to be continuing at the same level (going concern) and the current cost ratios – adjusted for inflation – are thus assumed to hold good for the future as well. The opportunity costs of the capital to be provided by shareholders to cover the solvency margin arising from the existing insurance contracts for their current maturities is charged to the PVFP.
DEVELOPMENT IN 2008 | Embedded value for the Swiss Life Group came to CHF 8457 million as at 31 December 2008. This corresponds to a decline of CHF 4380 million compared with the previous year and an embedded value per share of CHF 241. The changes in embedded value are shown in the “Analysis of change” table on the following page. Extraordinary impacts arose in 2008 from the unfavourable development of the capital market (impact of CHF 3568 million after taxes for 2008) and from the expectation of lower future returns (impact of CHF 1017 million after taxes). Operational improvements and demographic trends had a positive effect of CHF 408 million on the embedded value. Due to the higher volatility of investments in the second half of 2008, the solvency margin used as the basis for the valuation was increased from 100% to 150% of the statutory minimum. This led to additional solvency costs of CHF 484 million.
Future investment return: variance from assumptions made at the end of 2007 –1 017
Fiscal effects: variance from assumptions made as at the end of 2007 +240
Impact of 100 bps increase in investment return +421 +313 +734
Impact of 100 bps decrease in risk discount rate +272 +199 +471
Impact of 100 bps increase in return on new bond investments +29
According to estimates by the Swiss Insurance Association (SIA), premiums in the Swiss Life insurance market increased 2.7% to CHF 28.5 billion in 2008. The increase in premiums amounted to 3.2% for group insurance and 1.4% for individual insurance. Following strong growth of 11% the previous year and the company’s reserved approach with regard to the promotions offered by many competitors, Swiss Life posted a slight drop in premiums of 3% to CHF 8172 million for the 2008 financial year. Around 80% of premium volume was derived from occupational benefits insurance. Premium volume, at CHF 6476 million, was down 3% in this area. Swiss Life’s share of the market stood at 32% (2007: 34%). Premium income for individual insurance declined by 1% to CHF 1696 million, and the market share also receded slightly to 19%. With an overall market share of 28%, Swiss Life maintained its leading position in its home market in 2008.
Financial result (without share of results of associates) –25 2 556 n.a.
On the expenses side, Swiss Life was able to continue the positive trend of the last few years. Adjusted operating expenses were reduced by a further 3%, thanks to efficiency gains from the finalised integration of «La Suisse», the optimisation of processes, and the successful completion of projects. Total operating expenses declined by 7% to CHF 715 million.
In 2008 Swiss Life introduced a number of product innovations that are geared exclusively to client requirements. Back in the first quarter of 2008 the company launched “Swiss Life VitalityPlus”, a unit-linked product financed by periodic premiums which offers policyholders the option to waive death coverage in order to receive higher savings premiums. In the second quarter, the innovative group insurance product “Swiss Life ReturnPlus” was brought to market, enabling clients with supplementary BVG insurance to waive minimum guaranteed interest in favour of a higher expected return. The “Swiss Life Calmo Fund”, a unit-linked annuity product financed with single premiums, was introduced in the fourth quarter. The first product to be distributed via AWD is called “Swiss Life Champion Duo”. This is a unit-linked savings and risk insurance contract financed by periodic premiums. AWD made a significant contribution to the development of the product, and thus the launch via this distribution channel was also very successful. In addition to enhanced product development and increases in efficiency, the expansion of multichannel distribution, the focus on attractive client segments, and better realisation of the potential of the existing client base were further areas of emphasis for Swiss Life in the 2008 financial year.
On 1 September 2008, Ivo Furrer, formerly CEO Life Switzerland and Member of the Global Life Executive Committee of the Zurich Financial Services Group, joined Swiss Life as the new CEO Switzerland. He replaced Paul Müller, who withdrew from business operations after six successful years with Swiss Life and was appointed to the Board of Directors of the Swiss Financial Market Supervisory Authority in December 2008.
Insurance benefits were up 20% at CHF 2804 million on the back of the higher premium volume. Policyholder participation generated income as a result of large differences between the local, statutory valuation guidelines and IFRS valuation guidelines. Although personnel expenses were down, operating costs rose 12% on a comparable basis. This increase is due in particular to higher expenses for commissions as a result of the growth and costs associated with the expansion of distribution. In addition to acquiring the internet broker Placement Direct, the company intensified relationships with independent financial consultants in particular, and bought a stake in Financière du Capitole, an independent asset management company.
On 1 July 2008, Charles Relecom, formerly CEO of Swiss Life in Belgium, took over as CEO France from Jacques Richier, who has assumed a new challenge outside the Swiss Life Group.
Gross written premiums, policy fees and deposits received 5 763 7 411 –22.2%
Net earned premiums and policy fees 3 618 3 401 6.4%
Financial result (without share of results of associates) 57 1 326 –95.7%
At CHF 1961 million, insurance benefits and policyholder participation were down 25% on the 2007 figure due to the lower premium income and the significantly reduced financial result. The increase in operating expenses by 1% (5% in local currency) to CHF 406 million is mainly due to one-off expenses in connection with the revised law on insurance contracts, the launch of new products and salary increases due to contractual tariff considerations. Successful product innovations in 2008 include “Swiss Life Cash Growth”, a capitalisation product for the reinvestment of final benefits with an attractive return, and “Swiss Life Champion”, a f lexible, unit-linked product with guaranteed pension benefits. Swiss Life also received a number of top ratings in 2008, including a “very good” quality rating from the Assekurata rating agency. Assekurata assesses the quality requirements of German primary insurers from the policyholder’s perspective.
Gross written premiums, policy fees and deposits received 1 977 2 158 –8.4%
Swiss Life Products (Luxembourg) S.A. launched its variable annuities platform in 2008. The first product, “Swiss Life Champion”, was brought to market in Germany mid year.
Gross written premiums, policy fees and deposits received 2 639 3 294 –19.9%
Financial result (without share of results of associates) 22 34 –35.3%
INVESTMENT MANAGEMENT | The Investment Management segment comprises Groupwide institutional asset management activities. Despite the very challenging market environment, the result for this segment was 1% up on the previous year at CHF 94 million. A CHF 9 million drop in income was more than offset by strict cost management and a reduction in expenses of CHF 10 million. Assets under management fell CHF 8 billion to CHF 112 billion due to outflows from the insurance business and losses in value as a result of the financial crisis. Assets under management comprised CHF 102 billion in insurance assets, around CHF 7 billion in investment funds and CHF 3 billion in third-party mandates.
Financial result (without share of results of associates) 4 3 33.3%
AWD | The AWD Group achieved sales revenues for continuing operations of EUR 633 million for the 2008 financial year, which corresponds to a decline of 12% vis-à-vis the record result of the previous year. The corresponding result before interest and tax amounted to EUR 20 million. The year-on-year decline of EUR 63 million is primarily attributable to developments in Austria and the United Kingdom. Expenses accrued by the recruitment drive and further advisor retention measures also impacted the operating result.
RISK BUDGETING | The risk budgeting process determines the risk capacity for each insurance unit in the Swiss Life Group, to be used as a basis for establishing the risk appetite. This in turn is closely related to the planning of future earnings on the insurance and investment business. Based on the risk appetite, the risk capital limits are determined at the individual units for the market and credit risks assumed. The market risks are broken down further into equity, interest and currency positions. The various units monitor observance of these limits on a monthly basis under a uniform Group-wide system, so that Swiss Life can assess its consolidated risk exposure at all times.
In addition to being steered and controlled in the individual business units, the risks are consolidated and centrally assessed at Group level. The external requirements of supervisory authorities and rating agencies also play a central role in the assessment of risks. These requirements can give rise to constraints on the investment policy in the individual units.
The risk on equities arises from fluctuations in international equity markets and price trends for investments similar to equity such as “private equity” holdings and hedge funds. The individual business units steer this risk by setting investment limits governed by the risk capital limits from the risk budgeting process. The Swiss Life Group’s net equity exposure after hedging was sharply reduced in the course of the year under review and stood at 0.8% at the end of 2008 (fair value basis). The risk on the hedge fund portfolio was also significantly lowered by redemptions and hedging operations.
CREDIT RISKS | Creditors face the risk that counterparties might not meet their obligations. For instance, this could involve a failure to make outstanding interest payments on bonds, loans or mortgages. Credit risks arise in connection with investments and, to a lesser degree, in reinsurance. By issuing Group-wide guidelines on borrowers creditworthiness and requesting guarantees, Swiss Life endeavours to prevent defaults and to adequately offset risks taken.
Swiss Life places around 60% of its investments into bonds (fair value basis), of which almost 60% represent AAA-rated paper (see chart on page 34). The remaining portion of the bond portfolio is broadly diversified, with strict limits for lower-rated bonds (BBB or below).
UNDERWRITING RISKS | Dealing with underwriting risks entails factoring in the biometric risks (mortality, longevity and disability) while allowing for the unpredictability of client behaviour (surrender rates and commutation rights).
OPERATIONAL RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM | Operational risk management (ORM) at Swiss Life includes the methods and processes used for the identification, assessment and steering or avoidance of operational risks. ORM defines operational risk as the danger that losses may result from inadequate or failed internal processes, people and systems, or from external events.
The results, including the expected return on investment, are incorporated into the longterm planning, which is then reviewed and approved by the Corporate Executive Board and the Board of Directors.
In addition to economic considerations, further factors have to be taken into account for asset allocation, such as regulatory requirements and international accounting standards. The level of equity (solvency), the need for liquidity and the requirements of rating agencies also place restrictions on investment activities.
The input for the ALM Committee’s decisions is prepared locally in every business unit by the team which also implements the decisions taken. The local teams also monitor and steer the tactical deviations in asset allocation within the limits set in the ALM process.
PRODUCT DESIGN | Product design at Swiss Life is driven by the clients’ requirements. Innovative pension solutions are developed in cooperation with distribution partners, based on market research.
The business model used by Swiss Life for new products incorporates reduced capital market risks and lower capital requirements. By 2012, Swiss Life plans to write 70–80% of its new business in products which offer transparent benefits and do not include a traditional bonus system. These will feature an individual fund investment and offer guarantee commitments to clients. Swiss Life is also targeting an increase in the profit contributions from pure risk products within the same time frame, thereby reducing the degree to which profitability depends on the performance of the capital markets.
New business is evaluated from an economic view and reviewed on a regular basis. This enables the company to adapt the prices, commissions and other market terms for individual products to a constantly changing environment.
There must always be sufficient reserves to meet the contractual and regulatory requirements arising from the existing business portfolio. Consequently, not only must the regulatory constraints be observed, but internal assessments concerning specific types of risk must also be taken into consideration.
Swiss Life took appropriate measures during the financial year to strengthen risk-based solvency in accordance with the SST. These included the reduction in equity exposure and hedge fund investments, but also the introduction of various additional hedges. Moreover, the suspension of the share buyback programme had a stabilising effect on Solvency I at Group level. Similarly, a lower dividend than originally projected also helps to strengthen Group solvency.
SOCIAL PARTNERSHIP | Following new legal requirements issued by the European Union, Swiss Life’s Corporate Executive Board set up the “Europa Forum” committee organisation (European works council) in 1996. Its aim is to foster and improve dialogue between the Corporate Executive Board and employee representatives. The council is comprised of representatives from all Swiss Life units and all the countries in which Swiss Life operates. The agreement on the Europa Forum was renewed two years ago. It is one of the most extensive, voluntary agreements in the European umbrella organisation and serves as a model for other European companies. In 2008 the Europa Forum’s main focus was the consequences of the sale of the Dutch and Belgian businesses and the acquisition of the majority participation in AWD.
ENVIRONMENT | As far back as 1998, Swiss Life became a member of Energy Model Zurich, which involved a pledge to increase energy efficiency at its Zurich location by at least 1.5% per year. Swiss Life has taken energy aspects into consideration in the refurbishment of its office buildings and uses environmentally friendly power in Zurich from wholly renewable energy sources. Thanks to the company’s well-established waste disposal system, two thirds of all reusable waste is recycled. Gas, heating oil, power, paper and water consumption figures were analysed Group-wide for the first time in 2007. Swiss Life was able to use this data as the basis for developing additional ways of making even more efficient use of resources, which will be adopted over the course of the coming years.
In July 2008, Swiss Life and ten other Swiss companies set up the Swiss Climate Foundation with the mandate of promoting the importance of environmental protection in society as well as within their own organisations. This non-profit foundation supports energy efficiency enhancement and climate protection measures and focuses mainly on small and medium-sized companies in Switzerland.
SUSTAINABILITY | Acting sustainably is of prime importance to Swiss Life. The company underscores this in a number of areas. In October 2008, for example, Swiss Life received an award for sustainable real estate investment. Its Seewürfel Zürich project featuring residential and commercial buildings that are built in accordance with the MINERGIE certification standard for low-energy buildings was presented with the Prime Property Award. The award is conferred on European real estate projects that are built according to particularly ecologically friendly criteria and visibly enhance the quality of their surroundings.
Sustainability is also gaining in importance in the investment area, something that Swiss Life recognised at an early stage. Swiss Life Asset Management, a Swiss Life subsidiary, working in collaboration with an independent asset management company for sustainable investments, SAM, was the first provider of sustainability balanced mandates back in 2005.
Award for sustainable investment: “Seewürfel Zürich” (Lakeside Cubes) real estate property complex.
Outside Switzerland, the brand’s chief strengths are the associated qualities of Swissness, trust and security. In its marketing campaigns in Germany, Swiss Life lays emphasis on the company’s long-standing tradition and reliability. The idea of trustworthiness that is associated with the brand is the strongest image component.
In the years following the listing of Swiss Life Holding’s shares on the SIX Swiss Exchange at the end of 2002, the corporate governance principles were further adjusted to meet the latest requirements by revising the Organisational Regulations and introducing a Code of Compliance applicable throughout the Group. During the last two years, the focus was on examining and improving the effectiveness of the existing corporate governance in practice.
The measures and mechanisms introduced by Swiss Life to ensure good corporate governance work well in practice; however, specific adjustments are regularly examined in order to optimise the organisational structure. It was discussed whether the Chairman’s Committee, which assumes the functions of a corporate governance, a nomination and a compensation committee, should be split into several committees. In view of the clear allocation of functions, it was decided not to form further committees.
This report describes the essential features of corporate governance within the Swiss Life Group. The structure below largely follows the Directive on Information Relating to Corporate Governance issued by the SIX Swiss Exchange, which came into force on 1 July 2002 and 1 January 2007, and also takes into consideration the new regulations on transparency stipulated in the Swiss Code of Obligations with regard to the compensation of members of the Board of Directors and the Corporate Executive Board. Further information on the Code of Compliance and the values of the Swiss Life Group can be found in the passage “Responsible Corporate Conduct” (pages 40 and 41).
Group structure and shareholders GROUP STRUCTURE | The public limited company Swiss Life Holding was established in 2002 and is incorporated under Swiss law. Its registered office is located in Zurich and it has been listed on the SIX Swiss Exchange since 19 November 2002. Swiss Life Holding brings together all the Swiss Life Group companies and activities under a single holding company. The holding company structure makes it easier to effect investments, enter into partnerships or cooperation agreements and execute capital market transactions. Transparency is also improved by separating the interests of shareholders from those of policyholders.
The most important companies falling within the Group’s scope of consolidation are presented in the Financial Statements (note 39). Information on the listing on the SIX Swiss Exchange and market capitalisation can be found on page 232. The organisational structure of the Group mirrors the company’s main areas of business. The resulting operational responsibilities are ref lected in the division of responsibilities among the Corporate Executive Board. With regard to the insurance business, each country has one person with market responsibility who is also responsible for the results.
SHAREHOLDERS | Banque Cantonale Vaudoise, Place St-François 14, 1003 Lausanne, Switzerland, informed on 4 January 2008 that it held in its trading book 324 113 sales positions on Swiss Life Holding shares (619 387 short calls and 704 726 long puts), which corresponded to 3.92% of the voting rights of Swiss Life Holding. On this date Banque Cantonale Vaudoise also held a total of 787 443 purchase positions (281 280 registered shares of Swiss Life Holding and 127 318 long calls and 378 845 short puts on Swiss Life Holding shares), which was the equivalent of 2.33% of the voting rights of Swiss Life Holding.
In the publication of 9 October 2008, Banque Cantonale Vaudoise informed that its sales positions had fallen below the reportable threshold of 3%.
FMR LLC, with its main address at 82 Devonshire Street, Boston, MA 02109, USA, and its direct and indirect subsidiaries, reported on 4 March 2008 that it held, directly and indirectly through managed accounts, 2.99% of the voting rights of Swiss Life Holding (1 048 424 registered shares). FMR LLC is the parent company of Fidelity Management & Research Company and Fidelity Management Trust Company.
Swiss Life Holding Ltd, General-Guisan-Quai 40, 8002 Zurich, Switzerland, reported in a publication of 12 September 2008 that it held a total of 3 527 640 registered shares of Swiss Life Holding (own shares), of which 1 761 000 originated from an ongoing share buyback programme. This corresponded to 10.09% of the voting rights of Swiss Life Holding. The shares were held by: Swiss Life Holding, General-Guisan-Quai 40, 8002 Zurich; Swiss Life Insurance and Pension Company, General-Guisan-Quai 40, 8002 Zurich; Welfare Foundation for the Swiss Life Insurance and Pension Company’s Internal Services, c/o Swiss Life Insurance and Pension Company, General-Guisan-Quai 40, 8002 Zurich; Welfare Foundation for the Swiss Life Insurance and Pension Company’s External Sales staff in Switzerland, c/o Swiss Life Insurance and Pension Company, General-Guisan-Quai 40, 8002 Zurich; and Welfare Foundation for Internal Services and External Sales staff in Switzerland, c/o Swiss Life Insurance and Pension Company, General-Guisan-Quai 40, 8002 Zurich. In connection with a long-term equity compensation programme for staff, Swiss Life Holding also held a total of 144 820 sales positions on Swiss Life Holding shares, corresponding to 0.44% of the voting rights.
Carsten Maschmeyer, Hanebuthwinkel 17, 30655 Hanover, Germany, reported in the publication of 23 October 2008, that he and his two sons, Marcel Jo Maschmeyer and Maurice Jean Maschmeyer, held a total of 1 216 211.60 purchase positions of Swiss Life Holding, which was equivalent to 3.48% of the voting rights: 1 051 045 registered shares of Swiss Life Holding (3.01% of the voting rights) as well as 36 000 short puts (corresponding to 0.10% of the voting rights), and 129 166.60 discount certificates (corresponding to 0.37%) on the shares of Swiss Life Holding. The same group disclosed in a publication of 24 November 2008 that it had since accumulated a total of 1 833 547 purchase positions, corresponding to a 5.24% share in the voting rights: 1 603 547 registered shares of Swiss Life Holding (4.59% of the voting rights) in addition to 80 000 short puts (corresponding to 0.23% of the voting rights) and 150 000 discount certificates (corresponding to 0.43%) on the shares of Swiss Life Holding. In the publication of 17 December 2008 the group disclosed that it held 2 114 616 purchase positions, corresponding to 6.05 % of the voting rights: 1 884 616 registered shares of Swiss Life Holding (5.39% of the voting rights), in addition to 80 000 short puts (corresponding to 0.23% of the voting rights) and 150 000 discount certificates (corresponding to 0.43%) on the shares of Swiss Life Holding. In a publication released on
Deutsche Bank AG, Theodor-Heuss-Allee 70, 60486 Frankfurt, Germany, informed in a publication dated 25 November 2008 that a group consisting of Deutsche Investment Management Americas Inc., 345 Park Avenue, New York; Deutsche Bank Trust Company Americas, 60 Wall Street, New York; Deutsche Asset Management (Japan) Limited, 2-11-1 Sanno Park Tower, Nagata-cho, Chiyoda-ku, Tokyo; Deutsche Asset Management Investmentgesellschaft mbH, Mainzer Landstr. 178-190, 60327 Frankfurt; Deutsche Bank AG Frankfurt, Theodor-Heuss-Allee 70, 60486 Frankfurt, and DWS Investment S. A. Luxemburg, 2 Boulevard Konrad Adenauer, 1115 Luxembourg, held a total of 1 908 573 purchase positions, equivalent to 5.44% of the voting rights (42 475 registered shares of Swiss Life Holding, corresponding to 0.12% of the voting rights, 1 392 024 purchase rights, corresponding to 4.25% of the voting rights and 375 523 granted (written) sales rights, corresponding to 1.07% of the voting rights). This group also held 1 478 252 sales positions; corresponding to 4.21% of the voting rights of Swiss Life Holding. In its publication of 11 December 2008 Deutsche Bank disclosed a change in the group’s composition. The group now consists of Deutsche Asset Management (Japan) Limited, 2-11-1 Sanno Park Tower, Nagata-cho, Chiyoda -ku, Tokyo; Deutsche Bank AG Frankfurt, Theodor-Heuss-Allee 70, 60486 Frankfurt; Deutsche Asset Management Investmentgesellschaft mbH, Mainzer Landstr. 178-190, 60327 Frankfurt; Deutsche Investment Management Americas Inc., 345 Park Avenue, New York, and Deutsche Bank Trust Company Americas, 60 Wall Street, New York. Together the group held a total of 1 864 129 purchase positions, corresponding to 5.33% of the voting rights (86 265 registered shares of Swiss Life Holding, corresponding to 0.25% of the voting rights, 1 392 024 share acquisition rights, equivalent to 4.26% of the voting rights and 287 289 of the granted (written) sales rights, corresponding to 0.82% of the voting rights). This group also held 1 596 577 sales positions on shares of Swiss Life Holding, equivalent to 4.62% of the voting rights. With the publication of 30 December 2008, the group disclosed that the holding had fallen below the reportable threshold of 3%.
The detailed notifications of significant shareholders pursuant to Art. 20 of the Stock Exchange Act can be found on the website of the SIX Swiss Exchange’s disclosure office at www.six-swiss-exchange.com, “Admission / Issuers” area, “Being Public” section, “Disclosure of Shareholdings” subsection (www.six-swiss-exchange.com/admission/being_public/disclosure /major_shareholders_en.html). Since the end of 2008 the notifications are made using the SIX Swiss Exchange’s web-based electronic publication platform. It is thus no longer necessary to publish disclosure notifications in the Swiss Official Gazette of Commerce (SOGC) and in the electronic media. In addition, the notifications are already available on the SIX Swiss Exchange’s electronic publication platform on the same day as they are entered, and not, as was previously the case, only following publication in SOGC.
Capital structure CAPITAL AND CHANGES IN CAPITAL | The capital structure of Swiss Life Holding was as follows on the balance sheet date: – Ordinary share capital: CHF 596 437 418, divided into 35 084 554 fully paid registered shares with a par value of CHF 17 each
– Conditional share capital: CHF 40 109 562, divided into 2 359 386 registered shares with a par value of CHF 17 each
At the Annual General Meeting of 8 May 2008 it was decided to reduce the par value by CHF 17, i.e. from CHF 34 to CHF 17 per registered share, thereby decreasing the share capital to CHF 594 327 463, divided into 34 960 439 registered shares. As a result of the par value reduction, the conditional capital fell to CHF 42 219 517, divided into 2 483 501 registered shares with a par value of CHF 17 each. The 0.625% convertible bond issue (2004–2010) was again partially converted in the period under review, creating 124 115 new registered shares. As at 31 December 2008 the ordinary share capital thus increased to CHF 596 437 418 , divided into 35 084 554 registered shares with a par value of CHF 17 each, and the conditional capital decreased to CHF 40 109 562, divided into 2 359 386 registered shares with a par value of CHF 17 each.
SHARES | 35 084 554 fully paid Swiss Life Holding registered shares with a par value of CHF 17 each were outstanding on the balance sheet date. Subject to the 10% limit on voting rights set out in the Articles of Association (cf. the section on “Shareholders’ participation rights” on page 80, each share grants the right to one vote at the General Meeting of Shareholders.
Board of Directors FUNCTION | The Board of Directors is responsible for all matters that are not reserved for the consideration of the General Meeting of Shareholders (formally the supreme decisionmaking body of a public limited company) under the terms of the law (Art. 698 of the Swiss Code of Obligations (OR)) or by the company’s Articles of Association. In line with its 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.
ELECTIONS AND TERMS OF OFFICE | Pursuant to the Articles of Association, the Board of Directors shall consist of no fewer than five and no more than fourteen members. 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. The Organisational Regulations stipulate that a member of the Board of Directors shall automatically resign from the Board at the General Meeting of Shareholders in the year in which the member reaches the age of 70.
STAGGERED TERMS OF OFFICE | Due to the staggered terms of office, it is ensured 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 or her term of office, the successor will serve 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.
There are no mutual cross-directorships with boards of directors of listed companies. Acceptance of appointments to the boards of directors of other companies by members of the Swiss Life Holding Board of Directors requires the permission of the Board of Directors. Information on additional board mandates held by individual members of the Board of Directors is presented in the following pages.
MEMBERS OF THE BOARD OF DIRECTORS | As of the balance sheet date, the Board of Directors was composed of the following members: Year appointed/ Name Functions re-elected Elected until
Audit Committee 1 Member of the Board of Directors of Swiss Life/Rentenanstalt since 2000
Other appointments: – UBS AG, Member of the Board of Directors – Roche Holding AG, Basel, Vice Chairman of the Board of Directors – Swiss Air Transport Foundation, Chairman of the Board of Trustees
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 AG in 1991, where he served as a Member of its Executive Board (Finances) from 1991 until 2000. 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). He now holds the position of Chairman of economiesuisse and also works as an independent economic consultant.
Volker Bremkamp joined Albingia Versicherungs AG in Hamburg (a subsidiary of Guardian Royal Exchange plc, London) in 1963, receiving his qualifications as an insurance expert in 1965. Between 1969 and 1971 he was employed by various insurance companies and brokers in London and Paris. He returned to Albingia Versicherungs AG, Hamburg, in 1971, serving as an Executive Director from 1978 to 1989 and as Chief Executive Officer of Albingia Lebensversicherungs AG and of Albingia Versicherungs AG from 1989 to 2000. Volker Bremkamp was an Executive Director and, at the same time, Group Executive Director, Continental Europe, of Guardian Royal Exchange plc, London, from 1995 to 1999, which was taken over by the AXA Group in 1999. From 1999 to 2000 he held the position of Executive Director of AXA Colonia Konzern AG, Cologne, which is the holding company of AXA Germany. He has been Managing Director of BMB Bremkamp Management- und Beteiligungs-GmbH since 2000 and Managing Director at Xenios Invest GmbH since 2007.
Rudolf Kellenberger received his degree in civil engineering from the Swiss Federal Institute of Technology (ETH), Zurich, in 1970. Between 1970 and 1978 he was employed as a project planning engineer in the bridge construction industry, including three years in the United Kingdom. He joined Swiss Re in 1978, where he served as Head of the Engineering Department from 1990 to 1992. In 1993 he was appointed Member of the Executive Board with responsibility for Europe. From 2000 to the end of December 2004 Mr Kellenberger served as Deputy Chief Executive Officer of Swiss Re. He has been appointed to various boards of directors in the area of insurance since retiring in March 2005.
Henry Peter will be put forward for re-election at the Annual General Meeting of Swiss Life Holding on 7 May 2009.
Other appointments: – Sigurd Rück AG, Zurich, Chairman of the Board of Directors – Cassa Pensioni della Città di Lugano, Member of the Board of Directors – Casino de Montreux SA, Montreux, Vice Chairman of the Board of Directors – Otis, Fribourg, Member of the Board of Directors – Autogrill Switzerland LTD, Olten, Member of the Board of Directors – Swiss Olympic Association, Berne, Vice Chairman of the disciplinary chamber in charge of doping cases
Peter Quadri received his master’s degree in economics 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 spent 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.
After serving on the Swiss Life Board of Directors for six years, Pierfranco Riva will not be standing for re-election at the General Meeting in May 2009, as he has reached the statutory age limit.
Other appointments: – Finter Bank Zürich, Zurich, Vice Chairman of the Board of Directors – Bank Hugo Kahn & Co. AG, Zurich, Vice Chairman of the Board of Directors – Fondazione Daccò, Lugano, Member of the Board of Trustees – Fondazione Nerina Bellingeri ved. Gualdi, Lugano, Member of the Board of Trustees – Fondazione Rudolf Chaudoire, Lugano, Vice Chairman of the Board of Trustees
Other appointments: – BIOMED AG, Dübendorf, Member of the Board of Directors – Swiss-American Chamber of Commerce, Member of the Board – Chamber of Commerce Germany-Switzerland, Member of the Executive Committee – St. Gallen – Appenzell Chamber of Commerce and Industry, Vice Chairperson
OUTLOOK | Swiss Life announced changes to the Board of Directors of Swiss Life Holding on 8 May and 12 December 2008.
At the General Meeting on 7 May 2009 the Board of Directors of Swiss Life Holding will propose to shareholders that Frank Schnewlin and Carsten Maschmeyer be put forward for election to the Board. Frank Schnewlin was formerly CEO of the Bâloise Group and a Member of the Group Executive Committee of the Zurich Financial Services Group. Carsten Maschmeyer is the founder of the AWD Group and long-standing Chairman of its Management Board.
The Board of Directors met eleven times during the year under review in ordinary and extraordinary meetings. The meetings lasted over three hours on average, with 95% of members attending. The Group CEO and the other members of the Corporate Executive Board attended all the meetings, with the exception of two meetings, where one member was excused on each occasion. The Board of Directors did, however, conduct parts of the meetings among themselves.
CHAIRMAN’S COMMITTEE | The Chairman’s Committee assists both the Chairman of the Board of Directors in fulfilling his leadership and coordination role, and the Board of Directors with matters concerning strategy and corporate governance. It also advises the Board of Directors in decisions concerning the appointment of personnel at the highest levels of management (nomination function) and in setting guidelines for the compensation of members of the Board of Directors and the Corporate Executive Board, and determines, in application of these guidelines, the compensation and terms of employment of the Group CEO and other members of the Corporate Executive Board (compensation function).
The Chairman of the Board of Directors presides over meetings. As a rule, the Group CEO attends the Chairman’s Committee meetings or parts of the meetings in an advisory capacity. Further members of the Corporate Executive Board or in-house specialists may also be invited to attend. The Chairman’s Committee meets at least six times a year.
Six meetings of the Investment and Risk Committee were held in the year under review; each session lasted for around three hours on average. There was full attendance, except in the case of two meetings, where one member was excused on each occasion.
Corporate Executive Board The Group CEO directs the business operations of the Group. The Group CEO, together with the Corporate Executive Board, works out the long-term objectives and strategic orientation of the Group for submission to the Board of Directors and, based on the resolutions of the Board of Directors, ensures the goal-oriented leadership and development of the Group. The Corporate Executive Board can form committees to address specific areas and can delegate competencies to such a Corporate Executive Board committee.
The organisational structure of the Group is geared to the main functions of its business. The resultant organisation is ref lected in the division of tasks within the Corporate Executive Board. The members of the Corporate Executive Board have a direct management role with functional management responsibility for cross-divisional competencies. The members of the Corporate Executive Board are responsible for setting objectives, financial planning, HR management and achievement of objectives within their division. They issue directives for their division within the context of legal and regulatory requirements, the relevant regulations and the Group directives valid for the Group as a whole.
The Corporate Executive Board is responsible for implementation of the corporate strategy, for the establishment of conditions governing business operations and for financial guidance. It is responsible for the preparation of the resolutions for the Board of Directors and its committees, and for monitoring the implementation of these decisions in the Group.
MEMBERS OF THE CORPORATE EXECUTIVE BOARD | On 31 December 2008 the Corporate Executive Board of Swiss Life Holding was composed of the following members: Member of the Corporate
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 Mr Pfister became Chief of Staff of the Private Banking division at Liechtenstein Global Trust (LGT) where he managed a global strategic project before being appointed Chief Financial Officer of LGT Group and LGT Bank in Liechtenstein in 1998. In 1999, as a Member of the Credit Suisse Group Executive Board, he took over as Head of Customer Segment Management and Product Management at Credit Suisse.
Ivo Furrer began working for Zurich Financial Services in 2002, initially in Germany as head of the international key account business, and in 2005 as a Member of the Global Corporate Executive Committee with responsibility for the development of key account and distribution management at a global level. In 2007 he was appointed CEO Life Switzerland and Member of the Global Life Executive Committee of Zurich Financial Services.
Charles Relecom graduated from the University of Namur (Belgium) with a degree in mathematics and went on to gain a master’s degree in Actuarial Science at the University of Louvain (Belgium). He began his career in 1978 as Chief Actuary and Chief Technology Officer at Swiss Life in Belgium. In 1984 he moved to the head office in Zurich, where he played a significant role in setting up the International Division. From 1988 to 1994 he worked for Elvia Life as Director of Sales in the key accounts business. In 1995 he moved to «La Suisse» and, in 1998, was appointed CEO of the non-life business and Chief Actuary.
Reto Himmel has been a Member of the Corporate Executive Board of the Swiss Life Group since January 2003.
Other appointments: – SIX Group, Member of the Board of Directors – Technopark Zurich, Member of the Board of Trustees
After graduating in law, Manfred Behrens initially worked as an attorney in a Hamburgbased law firm. In 1984 he moved to Hamburg Mannheimer AG, where he assumed various leading positions in the areas of law and sales and went on to become state manager. He joined Volksfürsorge Deutsche Lebensversicherungs-AG in May 1996 and, in 1998, was appointed Member of the Board of Directors with responsibility for sales and marketing. Manfred Behrens moved to Swiss Life in January 2004, where he held the position of Chief Executive Officer of Swiss Life in Germany (CEO Germany) until August 2008.
RESIGNATIONS | Swiss Life informed on 8 May 2008 that, within the context of the succession planning at Board of Director and Corporate Executive Board level announced on 26 November 2007, Rolf Dörig had been elected to the Board of Directors of Swiss Life Holding at the General Meeting of Shareholders on 8 May 2008 and that Bruno Pfister had succeeded him as Chairman of the Corporate Executive Board on this date.
Transfer of management tasks No management tasks have been contractually delegated to third parties by Swiss Life Holding.
As, during the year under review, the position of Group CEO was transferred, as of 9 May 2008, to Corporate Executive Board member Bruno Pfister, who was previously CEO International, the compensation to Bruno Pfister, as the new Group CEO, is also reported individually for the 2008 financial year.
COMPENSATION POLICY PRINCIPLES | Pursuant to the Organisational Regulations, the Board of Directors as a whole is responsible for establishing the guidelines on the Group’s compensation policy (incl. bonuses and equity compensation programmes) and with regard to employee benefit institutions. The compensation policy underpins the performance culture required by the corporate strategy and forms part of the HR policy. The aim is to retain qualified employees and recruit new, highly skilled staff. The chosen compensation system is in line with the market environment and must be competitive. The overall compensation takes into account the employees’ professional skills, commitment and personal performance. Individual compensation is made up of a basic salary and variable short-, medium- and long-term salary components, as well as contributions to occupational provisions and risk insurance. The basic salary is determined according to the employee’s function and skill-set, and is annually re-assessed and adjusted if appropriate. The variable salary components are linked to the strategic objectives of the company and the individual divisions, and the associated financial and HR-related targets. Personal performance and target achievement are assessed annually in the employee appraisal procedure implemented throughout the Group (Group Performance System) and taken into consideration when applying the defined compensation policy.
COMPENSATION PAID TO ACTING MEMBERS OF GOVERNING BODIES | The compensation paid in cash to acting members of the Board of Directors and the Corporate Executive Board during the period under review was as follows: In CHF 2008 2007
There were no resignations from the Board of Directors in the period under review. Within the context of succession planning at Board of Director and Corporate Executive Board level, Rolf Dörig was elected to the Board of Directors of Swiss Life Holding as an additional member on 8 May 2008.
Various personnel changes occurred in the Corporate Executive Board vis-à-vis the previous year. Bruno Pfister was appointed Group CEO with effect from 9 May 2008. On the same date, Manfred Behrens, CEO Germany, became a member of the Corporate Executive Board; he assumed the position of Co-CEO of AWD on 1 September 2008. CEO France, Charles Relecom, and the new CEO Germany, Klaus Leyh, joined the Corporate Executive Board on 1 July 2008 and 1 October 2008, respectively. Paul Müller handed over his position as CEO Switzerland to Ivo Furrer as of 1 September 2008. The Corporate Executive Board, including Rolf Dörig as Group CEO, thus consisted of up to ten members during the period under review (2007: six members).
Compensation remitted to members of the Board of Directors comprised the basic compensation, compensation in cash and a variable compensation component in shares. The basic compensation takes into account membership of the Board of Directors of Swiss Life Holding and its subsidiary Swiss Life/Rentenanstalt as well as membership of the individual Board Committees. The additional compensation in cash is commensurate to the function and workload and is determined annually by the Board of Directors. It is partly paid in the form of blocked shares. If Swiss Life Group’s business operations have proved successful, a further, variable compensation component is remitted in the form of Swiss Life Holding shares, decided upon by the Board of Directors taking into consideration the business result.
Rolf Dörig 2 1 The variable compensation component in shares relates to the 2007 financial year and was allocated in 2008. No variable compensation component in shares will be allocated for the 2008 financial year.
2 The compensation received in the period under review by Rolf Dörig, Group CEO until 8 May 2008 and Delegate of the Board of Directors following his election by the Annual General Meeting, is disclosed in its entirety under the compensation for the Corporate Executive Board.
For the 2008 financial year, no variable compensation in shares will be paid to the members of the Board of Directors or the Corporate Executive Board.
Board of Directors 1 2529 shares, allocated at values of CHF 231.74, 227.75 and 60.452. They are subject to a three-year blocking period.
1 The shares allocated in the period under review to Rolf Dörig, Group CEO until 8 May 2008 and Delegate of the Board of Directors following his election by the Annual General Meeting, are disclosed in their entirety under the compensation for the Corporate Executive Board.
3 Economic value equal to the tax value, taking the blocking period into account. The share price on allocation amounted to CHF 276.
SHARE OWNERSHIP | On 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: Board of Directors 14 397 Shares
Rolf Dörig (Group CEO until 08.05.2008, then BoD Delegate) 1 28 607 Shares
LOANS | On the balance sheet date, there were no loans outstanding to members of the Board of Directors or the Corporate Executive Board: Board of Directors none
EXPENDITURE FOR OCCUPATIONAL PROVISIONS | Details on the company’s benefit expenditure can be found in the Financial Statements (notes 24 and 31) and the notes to the Swiss Life Holding Financial Statements. For reasons of transparency, information on the following benefits is provided here: Bruno Gehrig, Chairman of the Board of Directors, and Rolf Dörig, who was Group CEO until 8 May 2008 and became Delegate of the Board of Directors following his election to the Board of Swiss Life Holding, are affiliated to the employee benefits institutions of Swiss Life for the purposes of occupational provisions. No such affiliation exists for other members of the Board of Directors; no contributions have been made on their behalf.
Expenditure for occupational provisions on behalf of the remaining members of the Corporate Executive Board totalled CHF 813 420.
HIGHEST TOTAL COMPENSATION, BOARD OF DIRECTORS | The highest total compensation for a non-executive member of the Board of Directors in 2008 was paid to Bruno Gehrig as Chairman of the Board. The compensation paid to Rolf Dörig in the period under review is disclosed in its entirety under the compensation to the Corporate Executive Board.
Shares 2 CHF 89 218 385 SLH shares at CHF 231.735
HIGHEST TOTAL COMPENSATION, CORPORATE EXECUTIVE BOARD | The compensation received in the period under review by Rolf Dörig as Group CEO and subsequently as Delegate of the Board of Directors following his election by the Annual General Meeting, is disclosed in its entirety under the compensation to the Corporate Executive Board.
The compensation to Bruno Pfister, who was formerly CEO International and assumed the position of Group CEO as of 9 May 2008, is also shown individually.
The total compensation paid to Rolf Dörig in the form of cash, shares and contributions to occupational provisions in the year under review is as follows: Compensation in cash 1 CHF 2 871 806
Shares 2 CHF 441 455 1905 SLH shares at CHF 231.735
Total compensation 2007: in cash and shares CHF 3 957 144 including contribution to occupational CHF 4 196 000 provisions of CHF 238 856 1 Including bonus in cash of CHF 1 250 000 for the 2007 financial year, which was paid in 2008, and other compensation in cash (child allowances, allowance for years of service, company car, premium contribution). As was previously stated, the members of the Corporate Executive Board will not be paid a cash bonus for the 2008 financial year. The members of the Board of Directors and the Corporate Executive Board will also not receive variable compensation components in shares for the 2008 financial year.
For the 2008 financial year, Rolf Dörig will not receive a cash bonus or a variable compensation component in shares.
The total compensation paid in cash, shares and occupational provision contributions to Corporate Executive Board member Bruno Pfister in 2008, as CEO International up to 8 May 2008 and Group CEO from 9 May 2008, was as follows
Shares 2 CHF 367 764 1587 SLH shares at CHF 231.735
Share options none in cash and shares 1, 2 CHF 2 270 957 including annual contributions to occupational CHF 2 427 605 provisions of CHF 156 648 including additional contribution to occupational 4 CHF 3 026 105 provisions of CHF 598 500 1 Includes a cash bonus of CHF 850 000 for the 2007 financial year, which was paid in 2008, as well as other compensation in cash (child allowances, company car, premium contribution).
As was previously stated, the members of the Corporate Executive Board will not receive a cash bonus for the 2008 financial year. The members of the Corporate Executive Board will also not receive variable compensation components in shares for the 2008 financial year.
Disregarding the cash bonus paid for the 2007 financial year and the variable compensation in the form of blocked shares, the total compensation paid to Bruno Pfister for 2008 amounted to CHF 2 870 514.
For the 2008 financial year, Bruno Pfister will not receive a cash bonus or variable compensation in shares.
Shareholders’ participation rights RESTRICTIONS ON VOTING RIGHTS | In exercising voting rights, no shareholder can collect more than 10% of the total share capital directly or indirectly in respect of his own shares and those he represents. Legal entities and partnerships which are connected through capital, voting rights, uniform management or in any other way, as well as individuals or legal entities and partnerships which act in concert by virtue of agreement, as a syndicate or in any other way, are deemed to be a single person. Any amendment to or revocation of restrictions on voting rights must be approved by at least two-thirds of the voting shares represented at the General Meeting of Shareholders and an absolute majority of the share par value represented. The Board of Directors can permit exceptions to this limit on the basis of its discretionary powers; during the year under review, no such exceptions were granted.
RIGHT OF REPRESENTATION | The Articles of Association stipulate that a shareholder may be represented by his 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.
REQUIRED MAJORITIES | In addition to the resolutions provided for by law, a qualified majority (corresponding to at least two thirds of the voting shares represented and an absolute majority of the share par value represented) is required to: – change provisions concerning restrictions on voting rights – dissolve the company (liquidation) – dismiss more than one third of the members of the Board of Directors; – change these provisions of the Articles of Association
Auditors PricewaterhouseCoopers (PwC) serves as external statutory auditor for 58% of the Swiss Life Group companies that are directly or indirectly held by Swiss Life Holding under its scope of consolidation. The remaining auditing mandates for subsidiaries are carried out by BDO Deutsche Warentreuhand AG (41%) and other auditing firms (1%).
Information Policy Swiss Life communicates actively and openly both within and outside the company. The Investor Relations and Public Relations areas provide up-to-date reports to private and institutional investors, financial analysts, journalists and the public.
Key facts and figures about the Swiss Life Group, info kits on previous annual reports and all the details on events relevant to the shareholders, analysts and the media (AGM, media conferences, etc.), can be accessed at www.swisslife.com in the areas “Shareholders & Analysts” (www.swisslife.com/analysts) and “News & Media” (www.swisslife.com/media).
Furthermore, all interested parties can subscribe to the company’s mailing list so as to receive up-to-date ad-hoc reports and media releases free of charge via the e-mail distribution system (www.swisslife.com/subscription). These releases are also published on the Swiss Life website at the same time as they are sent to subscribers, and are available online for at least two years (www.swisslife.com/media).
In addition to its comprehensive Annual Report and Financial Statements, Swiss Life Holding also publishes its half-year results. All Swiss Life’s annual and half-year reports since 1997 can be accessed on the website, “Shareholders & Analysts” area, “Archive Reports” section (www.swisslife.com/en/annualreports). Twice a year, a report detailing the key facts and figures on business operations is sent to all the shareholders listed in the share register. For the last six years, the company has been holding an Investor’s Day annually; the most recent was held on 2 December 2008.
Report of the Statutory Auditor . . . . . . . . . . . . . . . . . . . . .210
Net gains/losses on financial instruments at fair value through profit or loss 5, 8 1 853 –179
Net profit attributable to equity holders of Swiss Life Holding 350 1 345 minority interest –5 23
Earnings per share from continuing operations attributable to equity holders of Swiss Life Holding
Financial assets at fair value through profit or loss 11 16 916 19 399
Financial assets held to maturity 14, 33 7 159 3 624
Intangible assets including intangible insurance assets 18 4 651 3 151
Liabilities associated with assets held for sale 30 – 37 502
Benefits and claims paid, net of reinsurance –19 107 –17 368
Financial instruments at fair value through profit or loss –988 2 178
Net cash flows from operating activities before income tax 4 536 556
Cash and cash equivalents as at 1 January 4 555 7 621
Cash and cash equivalents for the account and risk of the Swiss Life Group’s customers 1 287 1 818
Total cash and cash equivalents as at 31 December 9 408 4 555
Changes in foreign currency translation differences – – – –311 – – –311 –8 –319
Reduction in par value 27 –596 49 – – – – –547 – –547
Obligation to purchase own shares – –12 – – – – –12 – –12
Acquisitions of subsidiaries – – – – – – – 14 14
Reduction in par value 27 –245 11 – – – – –234 – –234
CONVERSION OF CONVERTIBLE DEBT | In the period under review, convertible bonds were converted into 124 115 Swiss Life Holding shares in total with a corresponding increase in share capital and share premium (2007: conversion into 1 184 170 Swiss Life Holding shares).
Notes to the Consolidated Financial Statements 2 Summary of Significant Accounting Policies
In July 2007, IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction was issued. The Interpretation provides general guidance on how to assess the limit in IAS 19 Employee Benefits on the amount of the surplus that can be recognised as an asset. It also explains how the pensions asset or liability may be affected when there is a statutory or contractual minimum funding requirement. The Interpretation has been adopted by the Swiss Life Group for annual periods as of 1 January 2008. It has no impact on the Swiss Life Group as no defined benefit asset has been recognised where the availability of refunds or reductions in future contributions are restricted by the Interpretation. No defined benefit asset or liability is affected by a statutory or contractual minimum funding requirement.
A listing of the Group’s principal associates is shown in note 39.
FOREIGN CURRENCY TRANSACTIONS | For individual Group entities, foreign currency transactions are accounted for using the exchange rate at the date of the transaction. Outstanding balances in foreign currencies at year-end arising from foreign currency transactions are translated at year-end exchange rates for monetary items while historical rates are used for non-monetary items. Those non-monetary items in foreign currencies recorded at fair values are translated at the exchange rate on the revaluation date.
2.5 Cash and cash equivalents Cash amounts represent cash on hand and demand deposits. Cash equivalents are primarily short-term highly liquid investments with a maturity of 90 days or less from the date of acquisition.
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 ref lected in the measurement of the insurance liabilities. Options, guarantees and other derivatives embedded in an insurance contract that do not carry any insurance risk are recognised as derivatives.
2.7 Financial assets “Regular way” purchases and sales of financial assets are recorded on the trade date. The amortisation of premiums and discounts on investments is computed using the effective interest method and is recognised in income as an adjustment of yield. Dividends are recorded as revenue on the ex-dividend date. Interest income is recognised on an accrual basis.
LOANS AND RECEIVABLES | Loans and receivables are non-derivative financial assets with fixed or determinable payments. Loans include loans originated by the Group and investments in debt instruments which are not quoted in an active market and for which no intention of sale in the near term exists. Loans are initially recognised at fair value, net of transaction costs or direct origination costs. Subsequent measurement is at amortised cost using the effective interest method.
A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash f lows of the financial asset or group of financial assets that can be reliably estimated. Held-to-maturity securities and loans and receivables are assessed for impairment when a significant decrease in market value related to credit risk arises, namely after a downgrade of a debtor’s rating below single B– after initial recognition (i.e. CCC or lower according to Standard and Poor’s or equivalent) or when payments of principal and/or interest are overdue by more than 90 days. If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash f lows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by the amount that represents the difference between the carrying amount and the new amortised cost value by adjusting the allowance account. The amount of the reversal is recognised in income.
2.10 Insurance operations DEFINITION OF INSURANCE CONTRACTS | Insurance contracts are contracts under which one party accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. Significant insurance risk exists if an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance (i.e. have no discernible effect on the economics of the transaction). The classification of contracts identifies both the insurance contracts that the Group issues and reinsurance contracts that the Group holds. As a Group policy, Swiss Life considers those contracts to be insurance contracts that require the payment of additional benefits in excess of 10% of the benefits that would be payable if the insured event had not occurred, excluding scenarios that lack commercial substance.
INVESTMENT CONTRACTS WITH AND WITHOUT DISCRETIONARY PARTICIPATION FEATURES | For investment contracts that contain discretionary participation features (see below) the same recognition and measurement principles as for insurance contracts apply. For investment contracts without discretionary participation features the recognition and measurement rules for financial instruments apply.
FRANCE | 85% of the investment result and 90% of any other results are allocated to the policyholders as a minimum.
GERMANY | The Insurance Supervisory Act was changed with effect from 1 January 2008. The new requirements for the statutory minimum distribution are as follows: A minimum of 90% of the total investment result less 100% of the minimum guaranteed interest on the policyholder account, a minimum of 75% of the risk result and a minimum of 50% of the positive expense result is allocated to the policyholder.
NON-DISCRETIONARY PARTICIPATION FEATURES | Certain policyholder participation systems do not satisfy the criteria for discretionary participation features. These policyholder bonuses might be guaranteed elements. Some policyholder bonuses are based on benchmark interest rates which are credited to the policyholders. For certain products, policyholder bonuses are based on the development of biometric parameters such as mortality and morbidity. These policyholder bonuses are allocated based on the risk result of the contracts involved. The amount and timing of these bonuses are not subject to management discretion and are accrued to the policyholders’ liabilities based on the relevant contractual terms and conditions.
FUTURE LIFE POLICYHOLDER BENEFIT LIABILITIES | These liabilities are determined by using the net-level-premium method. Depending on the type of profit participation, the calculations are based on various actuarial assumptions as to mortality, interest rates, investment returns, expenses and persistency including a margin for adverse deviation. The assumptions are initially set at contract issue and are locked in except for deficiency.
If the actual results show that the carrying amount of the insurance liabilities together with anticipated 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, initially by reducing the unamortised DAC or intangible assets and subsequently 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 f lows including those resulting from embedded options and guarantees.
EMBEDDED OPTIONS AND GUARANTEES IN INSURANCE CONTRACTS | Insurance contracts often contain embedded derivatives. Embedded derivatives which are not closely related to their host insurance contracts are separated and measured separately at fair value. Exposure to embedded options and guarantees in insurance contracts which are closely related or which are insurance contracts themselves, such as guaranteed annuity options or guaranteed interest rates, are ref lected in the measurement of the insurance liabilities.
REINSURANCE | The Group assumes and/or cedes insurance in the normal course of business. Reinsurance assets principally include receivables due from both insurance and reinsurance companies for ceded insurance liabilities. Amounts recoverable or due under reinsurance contracts are recognised in a manner consistent with the reinsured risks and in accordance with the terms of the reinsurance contract. Reinsurance is presented in the consolidated balance sheet and income statement on a gross basis unless a right and the intention to offset exist.
Reinsurance contracts that do not transfer insurance risk are accounted for as financial reinsurance and are included in financial assets or liabilities. A deposit asset or liability is recognised based on the consideration paid or received, less any explicitly identified premiums or fees retained by the reinsured. These contracts are primarily measured at amortised cost using the effective interest method with future cash f lows being estimated to calculate the effective interest rate.
2.11 Property and equipment Property and equipment are carried at cost less accumulated depreciation. Land is carried at cost and not depreciated. Depreciation is principally calculated using the straight-line method to allocate their cost to their residual values over the assets’ estimated useful life as follows: buildings 25 to 50 years; furniture and fixtures five to ten years; computer hardware three to five years.
2.14 Asset management and other commission income Revenue consists principally of brokerage fees, recurring fees for existing business and other fees. Such revenue is recognised when earned, i.e. when the services are rendered. Cancellations are recorded as a deduction of fee income.
2.15 Intangible assets PRESENT VALUE OF FUTURE PROFITS (PVP) ARISING FROM ACQUIRED INSURANCE CONTRACTS AND INVESTMENT CONTRACTS WITH DISCRETIONARY PARTICIPATION FEATURES | On acquisition of a portfolio of insurance contracts or a portfolio of investment contracts with discretionary participation features (DPF), either directly from another insurer or through the acquisition of a subsidiary undertaking, the Group recognises an intangible asset representing the present value of future profits (PVP) embedded in the contracts acquired. The PVP represents the difference between the fair value of the contractual rights acquired and insurance obligations assumed and a liability measured in accordance with the accounting policies for insurance contracts and investment contracts with DPF. The PVP is determined by estimating the net present value of future cash f lows from the contracts in force at the date of acquisition. For acquired insurance and investment contracts with DPF, future positive cash f lows generally include net valuation premiums while future negative cash f lows include policyholders ’ benefits and certain maintenance expenses.
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.
DEFERRED ORIGINATION COSTS (DOC) | Incremental costs directly attributable to securing investment management contracts are recognised as an asset if they can be identified separately and measured reliably and if it is probable that they will be recovered.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities, if applicable, at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on associates is included in the carrying amount of the investment.
2.18 Assets held for sale and associated liabilities A disposal group consists of a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with these assets. Non-current assets classified as held for sale and disposal groups are measured at the lower of the carrying amount and the fair value less costs to sell. The carrying amount will be recovered through a highly probable sale transaction rather than through continuing use. Assets held for sale and the associated liabilities are presented separately in the balance sheet.
2.20 Financial liabilities Financial liabilities are recognised in the balance sheet when the Swiss Life Group becomes a party to the contractual provisions of the instrument. A financial liability is derecognised when the obligation specified in the contract is discharged or cancelled or expires.
FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | Financial liabilities at fair value are irrevocably designated as at fair value at initial recognition. Financial liabilities are designated as at fair value through profit or loss in the following instances: – Financial liabilities for the account and risk of the Swiss Life Group’s customers where the insurance benefits are linked to unit values of investment funds or relate to private placement life insurance.
DEPOSITS | 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 deposits under 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.
As part of the annual improvement project, the International Accounting Standards Board issued an amendment to IAS 40 Investment Property and a consequential amendment to IAS 16 Property, Plant and Equipment in May 2008. Property under construction or development for future use as investment property is within the scope of IAS 40. As the Swiss Life Group applies the fair value model for investment property, such property is therefore measured at fair value. Where fair value of investment property under construction is not reliably measurable, the property is measured at cost until the earlier of the date construction is completed or the date at which fair value becomes reliably measurable. The amendments will apply for annual periods beginning on or after 1 January 2009. The Swiss Life Group is currently analysing the impact of these changes on its financial statements.
the foreign operation. The hedging instruments may be held by any entity or entities within the group. The Interpretation is effective for annual periods beginning on or after 1 October 2008. It is not expected to have an impact on the Swiss Life Group as no such hedging arrangements are currently in place.
In November 2008, IFRIC 17 Distributions of Non-cash Assets to Owners was released by the International Financial Reporting Interpretations Committee. The Interpretation clarifies that a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity. An entity should measure the dividend payable at the fair value of the net assets to be distributed. The difference between the dividend paid and the carrying amount of the net assets distributed should be recognised in profit or loss. The Interpretation will be effective for annual periods beginning on or after 1 July 2009. The Swiss Life Group is currently analysing the impact of these changes on its financial statements.
The following amended Standards and Interpretations are not relevant to the Swiss Life Group: IFRS 1 First-time Adoption of International Financial Reporting Standards – Amendment relating to the cost of an investment on first-time adoption
Annual improvements to IFRS as published in May 2008, except for the amendment to IAS 40 Investment Property and IAS 16 Property, Plant and Equipment as described above 2 Summary of Significant Accounting Policies (continued)
Fair value of financial instruments The fair value of financial instruments is determined based on quoted market prices, where available, or on estimates using present values or other valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash f lows. Where market prices are not readily available, fair value is based either on estimates obtained from independent experts or quoted market prices of comparable instruments. In that regard, the derived fair value estimates cannot be substantiated by comparison with independent markets and, in many cases, could not be realised immediately.
Fair value of non-financial instruments The fair value of investment property is based on current prices in an active market for properties of a similar nature, condition or location – suitably adjusted. Recent prices for similar properties on less active markets, with suitable adjustments for differences, are also used for the estimation of the fair values. Furthermore, investment property is valued using discounted cash f low projections if reliable estimates and reasonable assumptions (such as rental income and operating expenses) can be made, based on external evidence. Future expenditure that will improve the property is not included in the fair value. The risk-adjusted discount rates used in the cash f low projections ref lect the specific nature and location of the individual properties. The cash f lows used in the projections are based on actual rental income on a sustainable basis. Cost is ref lected in the cash f lows based on experience and budgets approved by management. The cash f lows include inflation. External valuations for individual real estate assets are performed on a rotating basis, but at a minimum each property is evaluated every three years.
Impairment of held-to-maturity and available-for-sale debt instruments and loans and receivables As a Group policy, held-to-maturity and available-for-sale debt securities and loans and receivables are assessed for impairment when a significant decrease in market value related to credit risk arises, namely after a downgrade of a debtor’s rating below single B– after initial recognition (i.e. CCC or lower according to Standard and Poor’s or equivalent ) or when payments of principal and/or interest are overdue by more than 90 days.
Impairment of available-for-sale equity instruments At each balance sheet date, an assessment is made whether there is objective evidence that an available-for-sale equity instrument is impaired. A significant or prolonged decline in the fair value of the security below its cost is considered objective evidence of impairment. In this respect, a decline of 30% or more is regarded as significant, and a period of 12 months or longer is considered to be prolonged.
MORTALITY AND LONGEVITY | The main source of uncertainty is that epidemics such as AIDS, SARS and avian flu, and wide-ranging lifestyle changes such as in eating, smoking and exercise habits, could result in an adverse mortality experience for the age groups in which significant exposure to mortality risk exists. However, continuing improvements in medical care and social conditions could result in an increasing life expectancy in excess of the estimates used to determine the liability for contracts where exposure to longevity risk exists.
SURRENDER | In certain contracts the policyholder has the option to surrender the contract for a specified cash surrender value or a value which varies in response to the change in a financial variable such as an equity price or index. In certain countries and markets, surrender is not explicitly taken into account for the pricing of insurance contracts and investment contracts with discretionary participation.
In other businesses assumptions based on own company records are used. The assumptions vary by product type and policy duration.
EXPENSES AND INFLATION | In Switzerland, expenses are taken into account in the pricing of the contracts using internal statistics. Such calculated amounts are allocated to the different lines of business. Inflation is ref lected in these calculations.
Income taxes Deferred tax assets are recognised for unused tax-loss carryforwards and unused tax credits to the extent that realisation of the related tax benefit is probable. The assessment of the probability with regard to the realisation of the tax benefit involves assumptions based on the history of the entity and budgeted data for the future.
Provisions The recognition of provisions involves assumptions about the probability, amount and timing of an outflow of resources embodying economic benefits. A provision is recognised to the extent that an outflow of resources embodying economic benefits is probable and a reliable estimate can be made.
The insurance businesses primarily consist of life insurance operations. These operations offer a broad range of life, pension, annuity and investment-type policies to both groups and individuals, including accident, health and disability coverage. The Group’s strategy focuses primarily on the life and pension business in a number of key European markets, such as Switzerland, France, Germany, Luxembourg and Liechtenstein. The insurance businesses also include a number of companies which hold investments primarily pertaining to life insurance.
“AWD” comprises the Hanover-based AWD Group which was acquired by the Swiss Life Group on 19 March 2008 and the Proventus Group which was acquired in November 2008. The AWD Group specialises in financial advisory services for medium and high-income customer segments.
Banca del Gottardo, Lugano, was disposed of on 7 March 2008. For the purposes of segment reporting Banca del Gottardo, Lugano, is presented as a separate segment “Banking (Discontinued)”.
The statement of income and balance sheet for the segments are given on the following pages: Financial Statements 2008
Premiums earned on insurance contracts 7 795 3 674 1 862 81 –
Asset management and other commission income 49 66 27 1 265
Benefits and claims recovered from reinsurers 5 32 59 19 –
Net insurance benefits and claims –8 059 –2 804 –2 030 –20 –
Impairment of property and equipment and intangible assets –4 – – – –
Other expenses –163 –266 –54 –39 –45 of which inter-segment –136 –16 –45 –28 –28 of which inter-segment –42 –15 –40 –35 144
Additions to non-current assets 436 104 447 4 0 4 Segment Information (continued)
Premiums earned on insurance contracts 8 096 3 281 2 046 53 –
Premiums earned on investment contracts with discretionary participation 93 14 – – –
Net gains/losses on financial instruments at fair value through profit or loss –402 222 –11 1 –
Benefits and claims under insurance contracts –8 658 –2 467 –2 190 –21 –
Benefits and claims under investment contracts with discretionary participation –106 –18 – – –
Net insurance benefits and claims –8 758 –2 372 –2 119 –20 –
Impairment of property and equipment and intangible assets –5 – –1 – –
Risk management functions are fulfilled at several levels by different bodies within the Swiss Life Group, such as the Investment and Risk Committee at the level of the Board of Directors of the Swiss Life Group and the Group Risk Committee at the level of the Corporate Executive Board of the Swiss Life Group. The risk management functions at the level of the individual operations of the Swiss Life Group are organised accordingly.
Total liabilities for the account and risk of the Swiss Life Group’s customers 12 404 15 540
Net gains/losses on investment property 194 229 – – 194 229
Share of results of associates –149 12 – – –149 12
The financial result for the account and risk of the Swiss Life Group’s customers consists of net gains/losses on financial assets at FVPL –3 060 722 net gains/losses on financial liabilities at FVPL 3 123 –672 5 Risk Management Policies and Procedures (continued)
Risk and exposure limits are defined to control and limit the exposure to these risks. The limit systems and processes are set in a way that the sublimits are not utilised simultaneously in full.
5.3 Asset and liability management (ALM) The main objective of the ALM process is to ensure that the Swiss Life Group’s insurance operations can meet their commitments to policyholders at all times while also adequately compensating shareholders for making risk capital available. Based on the economic principles of risk management and on the risk appetite definition applied in the risk budgeting process, ALM comprises the following main activities: strategic asset allocation and distribution policy with regard to surplus generated on investments.
The ALM process is centrally coordinated at Group level by means of local asset and liability management committees with representatives from local senior management and representatives from Group level. The local units are in charge of implementing the decisions. The process requires the involvement of investment management, finance, actuarial and risk functions.
Depending on the regulatory framework in which the Swiss Life Group’s insurance operations evolve, the asset portfolios might need to be split to ref lect the different categories of insurance products. The asset portfolios of the insurance operations in Switzerland have been separated to distinguish between individual life and group life. As a consequence, such separation is also ref lected in the ALM process.
PRODUCT DESIGN | Product design defines which guarantees and benefits are built into a specific product to respond to the demand from and expectations of customers. The actuarial bases used for this purpose should ensure that each individual product generates a sufficient contribution margin. To ensure that the Group’s principles are observed, guidelines on product management and underwriting have been introduced to harmonise the local guidelines and to ensure that they are in line with the guidelines of the Group. As the Group’s insurance entities operate in a number of different countries, the local regulatory constraints may have an impact on the business unit organisation and product range. These constraints must always be obeyed.
The risk budgeting and limit setting described above ensure that interest rate risk, equity price risk, currency risk and credit risk remain under control. The corresponding market risk capital, interest rate risk capital, currency risk capital and credit risk capital limits as well as exposure limits for currencies and net equity for each relevant insurance operation are defined based on the risk appetite. These limits are assessed and reported on a regular basis.
HEDGING | The Swiss Life Group uses derivatives within the strict limits set by the applicable insurance legislation and by internal guidelines. Derivatives are primarily used to manage the exposure to equity securities, interest rates, counterparties and foreign exchange rates. The main instruments include index futures and option structures in stock markets, bond futures and swaps in order to manage duration, currency forwards in order to manage currency risk and credit default swaps in order to manage counterparty risk. Within certain limits, derivatives are used to enhance returns on the existing portfolio. The types of derivatives generally permitted for usage within the Swiss Life Group as well as the list of allowed over-the-counter trading partners have been approved by the Group Chief Risk Officer and Group Chief Investment Officer.
INTEREST RATE RISK RELATING TO FINANCIAL INSTRUMENTS AND INSURANCE CONTRACTS | The Group’s primary interest rate exposure is to contracts with guaranteed benefits and the risk that the interest rates of the financial assets purchased with the consideration received from the contract holders is insufficient to fund the guaranteed benefits and expected discretionary participation payable to them.
The insurance liabilities with minimum guaranteed interest rates between 0% and 4% are primarily denominated in Swiss francs and euros, and the insurance liabilities with minimum guaranteed interest rates between 4% and 8% are primarily denominated in euros.
The Group manages interest rate risk by managing the interest rate sensitivity of key rate exposures of its investment portfolio against the interest sensitivity of key rate exposures of liabilities issued. The key rate exposure of the liabilities is determined by projecting the expected cash f lows from the contracts using best estimates of mortality, disability, expenses, surrender and exercise of policyholder options. The ALM process defines the strategic asset allocation optimising the net interest rate sensitivity of the investment and liability portfolios. To the extent that this is not practicable, swap contracts and other instruments are used to hedge interest rate risk. In certain markets receiver swaptions are used to hedge the risk of interest rates decreasing below guaranteed interest rates. Payer swaptions are used to hedge the risk of fair value changes of interest-sensitive financial assets. Strategically, a minimum interest rate risk will remain, since a perfect interest rate hedge can either not be achieved or would not be targeted.
Assets for the account and risk of the Swiss Life Group’s customers – – – – 12 425 12 425
In Switzerland, the Swiss occupational pensions (BVG) segment of the group life insurance business is subject to guaranteed minimum interest and annuity conversion rates. The guaranteed interest rate for the mandatory BVG business stood at 2.75% in 2008 and was lowered to 2% with effect from 2009. For 2009, the guaranteed annuity 5 Risk Management Policies and Procedures (continued)
The non-rated loans primarily comprise mortgages and policy loans. In certain countries, specific additional guidelines and rules have been defined locally to monitor credit risk. Such guidelines cover investments in fixed-income securities whereby the average rating of the fixed-income portfolio (calculated by weighting in accordance with the Standard & Poor’s method) must be AA– or higher (Standard & Poor’s or equivalent). Minimum and maximum thresholds apply with regard to permitted investments in non-government bonds. For these investments additional exposure limits are in place. For certain businesses, credit risk is monitored and controlled with a risk limit framework whereby maximum limits are reviewed and at least approved annually. The majority of the bond portfolio is invested in government bonds (including supranational and sovereigns) and in bonds issued by the financial sector (generally covered by collateral or government guarantees).
Debt instruments at fair value through profit or loss 3 227 1 814 3 120 2 825 6 347 4 639
Total exposure to credit risk 96 163 89 444 4 413 4 703 100 576 94 147
At fair value through Available Loans and Held to Pledged as
Gross Gross Impairment Impairment Carrying Carrying amount amount losses losses amount amount
Below BBB In CHF million AAA AA A BBB or not rated Total
Loan commitments – – – – 118 118 of which collateralised 75
Debt instruments available for sale 15 423 21 311 1 450 89 – – 38 273
Financial assets held to maturity – 7 159 – – – – 7 159
Insurance and other payables –1 802 –1 621 –1 –29 –12 – –3 465
Debt instruments at fair value through profit or loss – – – – – –9 727 –9 727
Due to the limitations of the Swiss capital market with regard to liquidity, investments in Switzerland are also made in currencies other than the Swiss franc. The balance sheet currency gap is to a large extent hedged on an economic basis using foreign currency derivatives. In the other countries, the assets are normally denominated in euros, which is the same currency as the insurance liabilities.
LIQUIDITY RISK | Liquidity risk is the risk that not enough cash resources may be available to pay obligations when due (primarily obligations arising from the insurance business and debt) at a reasonable cost. The Swiss Life Group is exposed to liquidity risk which primarily arises on calls on its cash resources from claims, amounts payable at maturity and surrenders arising from insurance and investment contracts. The Swiss Life Group faces the risk of not being able to refinance its debt obligations due to unexpected long-term market disruptions.
Total insurance and policyholder participation liabilities 91 494 635 290 3 580 8 536 78 453
Financial assets at fair value through profit or loss 11 397 14 261 5 519 5 138 16 916 19 399
Financial assets available for sale 4 375 4 154 38 788 64 434 43 163 68 588
Financial assets held to maturity 674 559 6 485 3 065 7 159 3 624
Intangible assets including intangible insurance assets – – 4 651 3 151 4 651 3 151
Financial liabilities at fair value through profit or loss 7 790 7 703 3 015 3 724 10 805 11 427
Deferred income tax liabilities – – 648 485 648 485 5 Risk Management Policies and Procedures (continued)
NATURE OF INSURANCE RISK | When designing a new product or reviewing an existing one, care has to be taken that the product neither includes systemic risk nor provides incentives for adverse selection. The product should meet the market’s needs. The Swiss Life Group generally favours transparent and simple product design with minimised model risk and a reliable pricing basis with sufficient statistical data available. Insurance risk arises when biometric and demographic trends or administrative costs deviate adversely from expectations and the premium rates agreed with the policyholder. The uncertainty in the estimation of future benefit payments and premium receipts for long-term insurance contracts is due to the unpredictability of long-term changes in overall levels of mortality and disability, for instance. However, there are random fluctuations, such as variability in policyholder behaviour, which cause deviations from the expected outcome of a portfolio. The impact of random fluctuations depends on the extent of diversification within a portfolio of contracts, that is, on the size of the portfolio.
The quantification of life insurance risk is based on a sensitivity analysis. Insurance risk is thus measured as the deviation of (the realisations of) the insurance risk factors from the corresponding best estimate values. Life insurance risk factors include mortality rates, disability rates and longevity, among others.
Disability income and other annuities – deferred 7 679 8 109
Disability income and other annuities – deferred 14 040 14 511
MORBIDITY AND DISABILITY | An increase in morbidity results in higher benefits for contracts where disability is the insured risk. The most significant factors which could increase the frequency of such claims are epidemics, such as avian f lu, and widespread changes in lifestyle, such as eating, smoking and exercise habits, resulting in more claims than expected. Additionally, the termination rate with regard to disability (death or reactivation) has a significant impact on the benefits paid.
UNDERWRITING STRATEGY | Underwriting is the process of selecting and classifying insurable risks. The underwriting strategy attempts to ensure that the risks underwritten are well diversified in terms of type of risk and level of insured benefits. Life insurance underwriting is performed to ensure that the premiums and the general conditions of the insurance policies are consistent with the risks to be insured. The first step in the underwriting process is to determine which individual risks can be accepted. The second step is to place the accepted risks into groups of roughly equivalent levels of risk. Both processes must be conducted objectively and consistently. The Group sets limits for the acceptance of insurance coverage arising from new and renewal business. Medical selection is part of the Group’s underwriting procedures, whereby premiums are charged to ref lect 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.
Notes to the Consolidated Financial Statements 5 Risk Management Policies and Procedures (continued)
Effect of discounting – – – – – – – – –
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 embedded value of the Swiss Life Group amounted to CHF 8.5 billion as at 31 December 2008 (2007: CHF 12.8 billion). Due to different valuation principles, changes in the embedded value are typically not ref lected to the same extent in the consolidated balance sheet and consolidated statement of income of the Swiss Life Group and vice versa.
At 31 December 2008, if the fair value of equity securities and property had been 10% higher, the embedded value would have been CHF 304 million higher in Switzerland (2007: CHF 307 million higher) and CHF 45 million higher in the other countries (2007: CHF 84 million higher).
At 31 December 2008, if the fair value of equity securities and property had been 10% lower, the embedded value would have been CHF 447 million lower in Switzerland (2007: CHF 377 million lower) and CHF 46 million lower in the other countries (2007: CHF 83 million lower).
At 31 December 2008, if the foreign currencies had strengthened by 10% against the Swiss franc, the embedded value would have been CHF 11 million lower in Switzerland (2007: CHF 4 million lower). If the foreign currencies had strengthened by 10% against the euro, the embedded value would not have changed in the other countries (2007: CHF 2 million higher).
At 31 December 2008, if the foreign currencies had weakened by 10% against the Swiss franc, the embedded value would have been CHF 11 million higher in Switzerland (2007: CHF 4 million higher). If the foreign currencies had weakened by 10% against the euro, the embedded value would not have changed in the other countries (2007: CHF 2 million lower).
Due to the loss from continuing operations in 2008, diluted earnings per share equal basic earnings per share.
Net result attributable to equity holders of Swiss Life Holding –1 138 704 1 488 641 350 1 345
Weighted average number of shares outstanding 32 169 248 33 003 291 32 169 248 33 003 291 32 169 248 33 003 291
Basic earnings per share for the net result attributable to equity holders of Swiss Life Holding (in CHF) -35.37 21.33 46.25 19.43 10.88 40.76
Elimination of interest expense on convertible bonds – 8 – – – 8
Diluted earnings per share for the net result attributable to equity holders of Swiss Life Holding (in CHF) -35.37 20.83 46.25 18.77 10.88 39.60
Deposits received under insurance and investment contracts 4 693 7 269
Net earned premiums, policy fees and deposits received 18 207 20 974
Gross written premiums, policy fees and deposits received 18 515 21 213
Impairment losses on debt instruments available for sale 27 –108 –630 equity instruments available for sale 27 –3 000 –114 loans 13 –32 –1 receivables –7 –7
Total net gains/losses on derivatives and financial instruments held for trading 2 750 –527
Realised gains/losses on sales of subsidiaries and other assets –6 133
Notes to the Consolidated Financial Statements 8 Details of Certain Items in the Consolidated Statement of Income (continued)
Allowance for Allowance for Gross Gross impairment impairment Carrying Carrying amount amount losses losses amount amount
Receivables from agents, brokers and insurers 459 399 –13 –7 446 392
Derivatives for the account and risk of the Swiss Life Group’s customers 6 60 – 0 42 192 of which derivatives designated and accounted for as hedging instruments
Derivatives designated as fair value hedges 54 49 16 12 1 550 6 493
Derivatives designated and accounted for as hedging instruments Derivatives designated and accounted for as hedging instruments primarily comprise derivatives associated with fair value hedges and cash f low hedges that qualify for hedge accounting.
Total financial assets at fair value through profit or loss 16 916 19 399
Liabilities for the account and risk of the Swiss Life Group’s customers 5 9 727 11 042
Share of net assets of investment funds attributable to minority unitholders 1 078 385
The carrying amounts and the contractual redemption amounts at maturity of financial liabilities designated as at fair value through profit or loss are as follows: Redemption Redemption Carrying amount Carrying amount amount amount
Total financial liabilities designated as at fair value through profit or loss 1 078 385 1 078 385
Cost/ Cost/ Net Net Fair value Fair value amortised amortised unrealised unrealised (Carrying (Carrying cost cost gains/losses gains/losses amount) amount)
Cost/ Cost/ Allowance Allowance amortised amortised for for cost cost Gross Gross impairment impairment (Carrying (Carrying amount amount losses losses amount) amount) Fair value Fair value
An allowance is recognised for the difference between the carrying value and the estimated recoverable amount, if lower.
Money market instruments – – – – – – – –
Total financial assets held to maturity 33 7 159 3 624 – – 7 159 3 624 6 926 3 575 15 Investment Property
Rental income from investment property from continuing operations was CHF 701 million for the period ended 31 December 2008 (2007: CHF 670 million). Operating expenses arising from investment property from continuing operations that generated rental income stood at CHF 162 million for the period ended 31 December 2008 (2007: CHF 168 million). Operating expenses arising from investment property from continuing operations that did not generate rental income during the period stood at CHF 0.1 million for the period ended 31 December 2008 (2007: CHF 0.1 million).
Classification as assets held for sale and other disposals – –9
LGT Swiss Life Non Traditional Advisers, Vaduz 18 3 15 7 16 15 7 43.7%
Transfers to investment property 15 21 – – – – 21
Classification as assets held for sale and other disposals –271 – –56 –86 –21 –434
Revaluation in respect of transfers to investment property 2 – – – – 2
Present Present value of value of future future profits from profits from acquired acquired Deferred Deferred Deferred Deferred insurance insurance acquisition acquisition origination origination portfolios portfolios costs costs costs costs
Impairment due to liability adequacy test – – – –1 – – – –1
Changes from discontinued operations – – – 27 – –11 – 16
PRESENT VALUE OF FUTURE PROFITS (PVP) | The present value of future profits relates to portfolios of insurance contracts and investment contracts with discretionary participation acquired in a business combination or transfer of portfolios. These amounts, representing the present value of future profits amortised in proportion to gross profits over the effective life of the acquired insurance and investment contracts, relate to contracts acquired in Germany and France.
On the acquisition of Meeschaert Assurances, Paris, in November 2007, the present value of future profits amounting to CHF 8 million was recognised.
Classification as assets held for sale and other disposals – –996 – –19 –7 –52 –7 –1 067
Foreign currency translation differences –91 – –26 1 –23 5 –140 6
Balance as at 1 January –163 –738 –2 –11 –121 –156 –286 –905
Changes from discontinued operations – – – –3 – –2 – –5
Balance as at 31 December –163 –163 –29 –2 –114 –121 –306 –286
Goodwill totalling CHF 79 million was recognised in 2008 on the acquisition of Deutsche Proventus AG, Bremen.
Goodwill totalling CHF 1303 million on the acquisition of AWD Holding AG, Hanover, was recognised in the period under review. The cost that led to the recognition of goodwill relates to the anticipated future business of AWD.
Goodwill totalling CHF 149 million on the acquisition of CapitalLeben Versicherung AG, Schaan, was recognised in 2007. The cost that led to the recognition of goodwill related to the anticipated future business of the Liechtenstein operation. Goodwill on the acquisition of CapitalLeben Versicherung AG, Schaan, has been allocated to the segment “Insurance Other”.
Goodwill relating to Lloyd Continental has been allocated to the segment “Insurance France”.
Goodwill relating to the acquisition of AWD Holding AG, Hanover, has been allocated to the segments as detailed below. Goodwill relating to the acquisition of Deutsche Proventus AG, Bremen, is included in the segment “AWD” only.
The calculations relating to the recoverable amounts which have been determined on a value-in-use basis use cash flow projections based on financial budgets approved by management. The projection covers a five-year period. The calculations are based on present values that traditionally use a single set of estimated cash f lows and a single discount rate. The key assumptions used for the impairment testing on the carrying amount of goodwill relating to AWD were as follows: Insurance Insurance Insurance Insurance Switzerland Switzerland Germany Germany AWD AWD
These key assumptions have been derived from analyses in the specific markets. Investment returns ref lect projected returns based on the specific investment portfolios and the investment strategy. The discount rates used are pre-tax rates and reflect specific risks relating to the business concerned. The growth rate was used for cash f low projections beyond the budgeted period.
BRANDS AND OTHER | Consist of brands, trademarks, computer software and other intangible assets. On the acquisition of Deutsche Proventus AG, Bremen, the brand name of “Proventus” amounting to CHF 6 million was recognised. The acquisition of AWD Holding AG, Hanover, led to the recognition of the brand name of “AWD” of CHF 120 million, which has an indefinite useful life, and computer software of CHF 13 million. The brand names of “Proventus” and “AWD” are expected to generate cash inflows without legal or similar limits on an indefinite basis. The key assumptions used for the calculations relating to the recoverable amounts are indicated above.
Total other liabilities 557 75 18 Intangible Assets including Intangible Insurance Assets (continued)
Investment contracts with discretionary participation with deposit accounting 9 686 11 414
Investment contracts without discretionary participation at amortised cost 33 355 440
Effect of changes in actuarial assumptions and other movements –7 1
Hybrid debt On 12 April 2007, ELM B.V., a Dutch repackaging vehicle, issued EUR 700 million in fixed/floating rate subordinated perpetual notes at a price of par to finance loan notes granted to Swiss Life/Rentenanstalt, which are guaranteed by Swiss Life Holding. Swiss Life/Rentenanstalt may repay the loan notes in full on 12 April 2017 or on any interest payment date thereafter, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority. The notes bear interest from 12 April 2007 to 12 April 2017 at a rate of 5.849% p.a. If the notes are not redeemed on 17 April 2017, the interest will be the aggregate of 2.5% and Euribor 3-month deposits.
On 16 November 2005, J.P. Morgan Bank Luxembourg S.A. issued on a fiduciary basis EUR 350 million fixed/floating rate subordinated perpetual notes at a price of 99.423% to fund a loan made by it to Swiss Life/Rentenanstalt. Swiss Life/Rentenanstalt may repay the loan in full on 16 November 2015 or on any interest payment date thereafter, upon notice and subject to the consent of the Swiss Financial Market Supervisory Authority. The notes bear interest from 16 November 2005 to 16 November 2015 at a rate of 5% p.a. If the notes are not redeemed on 16 November 2015, the interest rate will be the aggregate of 2.43% and Euribor for 3-month deposits.
On 1 July 2005, Swiss Life/Rentenanstalt entered into a forward agreement providing for the refinancing as of 2009 of a portion of the hybrid debt facility issued in 1999 in the amount of CHF 150 million on a 20-year/10-year non call subordinated step-up loan basis. The forward agreement will expire should the subordinated perpetual step-up loan issued in 1999 not be redeemed in 2009.
Nominal Optional Carrying Carrying Issuer value Interest rate Year of issue redemption amount amount
In 2008, convertible bonds were converted into 124 115 SLH shares (2007: 1 184 170 SLH shares) with a corresponding increase in share capital totalling CHF 3 million (2007: CHF 49 million) and an increase in share premium totalling CHF 20 million (2007: CHF 173 million).
Other debentures On 30 June 2008, EUR 300 million in 4.375% bonds matured and were repaid.
Carrying Carrying Issuer/instrument Currency Interest rate Year of issue Maturity amount amount
Swiss Life Insurance Finance Ltd. – guaranteed bonds EUR 4.375% 2004 2008 – 494
Bank loans On 25 July 2008, Swiss Life Insurance Finance Ltd entered into a EUR 500 million loan agreement with a syndicate of banks. The syndicated loan has a three-year maturity and is split into a EUR 200 million fully drawn loan bearing an interest rate of Euribor plus a margin of 0.70% and a EUR 300 million undrawn credit facility against a commitment fee of 0.225%.
Present value of Present value of Minimum lease Minimum lease minimum lease minimum lease payments payments payments payments
Claims under life insurance contracts 6 632 7 155 74 119 6 558 7 036
Claims incurred, benefits paid and surrenders –113 –49 –7 –3 –106 –46
Effect of changes in actuarial assumptions and other movements –291 –156 –31 –3 –260 –153
Unearned premiums Unearned premiums represent the portion of the premiums written relating to the unexpired terms of coverage.
Changes from discontinued operations – 1 387 – –24 – 1 411
Notes to the Consolidated Financial Statements 23 Insurance Liabilities and Reinsurance Assets (continued)
Deposits released for payments on death, surrender and other terminations during the year –782 –787
Insurance liabilities for the account and risk of the Swiss Life Group’s customers 952 931
Defined benefit plans Employees are covered under various funded and unfunded pension plans. When a third party will reimburse some or all of the expenditure for employee benefits and the rights to reimbursement do not qualify as plan assets, they are treated as a separate asset rather than as a deduction from the obligation. In all other respects the treatment is the same as for plan assets. Participation in the various plans is based either on completion of a specific period of continuous service or on the date of hire. Benefits are based on the employee’s credited years of service and average compensation in the years preceding retirement. Annual funding requirements are determined based on actuarial methods or local requirements.
The contributions relating to the continuing operations expected to be paid for the year ending 31 December 2009 are CHF 63 million. These contributions include amounts paid to insurance contracts issued to defined benefit plans covering own employees.
The net defined benefit asset/liability consists of gross defined benefit liabilities –2 003 –1 969 gross defined benefit assets 19 165 158
Employee benefit liabilities consist of gross defined benefit liabilities –2 003 –1 969 other employee benefit liabilities –7 –11
Amount of insurance contracts not included in plan assets 2 019 2 019
Actual return on plan assets (gains (-)/losses (+)) 94 22 24 Employee Benefits (continued)
Defined contribution plans Certain subsidiaries sponsor various defined contribution plans. Participation in the various plans is based either on completion of a specific period of continuous service or on the date of hire. The plans stipulate contributions by both employers and employees. The expenses under these plans from continuing operations amounted to CHF 1 million in 2008 (2007: CHF 1 million).
Other long-term employee benefits The liability for long-term employee benefits amounted to CHF 6 million as at 31 December 2008 (2007: CHF 11 million ). It relates to part-time employment contracts prior to retirement and to profit-sharing arrangements for certain employees.
Equity compensation plans In 2005, a share-based payment programme was established which gives the members of the Corporate Executive Board and senior employees 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 in 2005 and 2006, the number of PSUs can increase no more than by a factor of 1.5 or drop by 0.5, within three years, depending on how the criteria develop. For the PSUs issued in 2007 and 2008, the maximum possible factor of 1.5 was maintained whereas the factor of 0.5 was rescinded so that the number of PSUs could drop to zero after three years.
In 2005, the number of PSUs granted under this programme amounted to 67 412 (balance after reduction in par value). Due to the reduction in par value of the Swiss Life Holding share in 2005, the number of PSUs granted was adjusted using the Eurex R factor of 0.978284. The fair value at the measurement date amounted to CHF 159.66. The date of grant was 1 April 2005.
Balance after Balance as at Reduction reduction in Employee Balance as at
Increase/reduction in taxes resulting from tax-exempt interest 0 0 tax-exempt dividends –37 –16 other non-taxable income –75 –65 non-deductible expenses 150 6 other income taxes (incl. withholding taxes) –8 6 unrecognised tax losses/credits 274 1 use of previously unrecognised tax losses/credits –1 –
adjustments for current tax of prior periods –118 0 changes in tax rates 0 –51 intercompany effects 101 12 other 2 –33
Deferred tax Deferred tax Deferred tax Deferred tax assets assets liabilities liabilities
The movements in net deferred income tax assets/liabilities during the period were as follows: Net deferred income tax assets and liabilities
Net deferred income tax assets/liabilities –367 22 –79 – –127 –551
Deferred tax liabilities have not been recognised on the aggregate amount of temporary differences with consolidated investments in subsidiaries to the extent the Group considers such undistributed earnings as being indefinitely reinvested and does not expect to repatriate these earnings in the foreseeable future. The amount of such temporary differences was approximately CHF 1.7 billion as at 31 December 2008 (2007: CHF 3.1 billion). If such earnings are ever repatriated, no material tax liabilities would be incurred due to participation exemption rules, unrecognised tax loss carryforwards and applicable double tax treaties.
In 2008, convertible bonds were converted into 124 115 SLH shares (2007: 1 184 170 SLH shares) with a corresponding increase in share capital totalling CHF 3 million (2007: CHF 49 million).
In 2008, convertible bonds were converted into 124 115 SLH shares (2007: 1 184 170 SLH shares) with a corresponding increase in share premium totalling CHF 20 million (2007: CHF 173 million).
Balance as at 1 January –2 095 – –5 –2 100
Reclassification of financial assets available for sale 1 159 – –1 159 –
Total gains/losses recognised directly in equity as at 31 December –445
Revaluation surplus on owner-occupied property transferred to investment property – – 4 4
Reclassification in respect of assets held for sale 318 –2 –316 –
Gains/losses transferred to the income statement 8 292 – – 292
Balance as at 31 December 12 –2 095 – –5 –2 100
The group’s objectives when managing capital are: to comply with the regulatory capital requirements, to define and manage economic capital and to fulfill the company’s target on rating capital. The company also actively manages the composition and quality of the capital to continuously optimise its capital structure and interest cover ratio.
Regulatory requirements In accordance with the federal act on the supervision of insurance companies and corresponding decree, the Swiss Life Group reports as an insurance group to the Swiss Financial Market Supervisory Authority (FINMA). The reporting covers risk management as outlined in note 5, Group solvency, legal structure, management organisation and intragroup transactions. The reporting is submitted on an ad-hoc, quarterly, half-yearly or yearly basis depending on the topic and is reviewed on a yearly basis by the statutory auditor. At 31 December 2008, the Group was compliant with the legal requirements.
In addition to the economic risk capital, Solvency I and other statutory constraints at local level are considered to address the specific situation of each country and business.
Economic and statutory capital constraints are the main elements determining the risk budgets. Based on these risk budgets, the Corporate Executive Board (Group Risk Committee) defines the risk limits for each country and business. The limits are monitored monthly.
On 27 March 2007, the Swiss Life Group acquired CapitalLeben Versicherung AG, Schaan, a company headquartered in Liechtenstein, which specialises in structured life insurance solutions. Regulatory approval was obtained on the same date.
Financial liabilities at fair value through profit or loss –245 –438 – –683 –
Direct costs relating to the disposals –58 –49 –2 –109 –
Transfer to financial assets at fair value through profit or loss 16 – – 16 –
Net assets disposed of –1 265 –1 115 –21 –2 401 –481
On 29 April 2008, the Swiss Life Group sold the Dutch and Belgian businesses. The disposal consideration amounted to CHF 2388 million. The gain realised on the sale was CHF 1034 million. For the purposes of segment reporting the Dutch and Belgian businesses have been presented as a separate segment “Insurance (Discontinued)”.
On 7 March 2008, Banca del Gottardo was disposed of for a total consideration of CHF 1724 million. The gain realised on the sale amounted to CHF 591 million. Banca del Gottardo has been presented as a separate segment “Banking (Discontinued)”.
In July 2007, the Swiss Life Group sold its majority stakes in ERISA, Paris, and ERISA IARD, Paris. The sales price amounted to CHF 372 million and the gain realised on the sale was CHF 143 million.
Gain/loss on disposal of operations 1 034 – 591 – 1 625 –
Net profit from discontinued operations 894 470 594 172 1 488 642
Notes to the Consolidated Financial Statements 29 Acquisitions and Disposals of Subsidiaries (continued)
Financial assets at fair value through profit or loss – 4 030 – 2 551 – – – 6 581
Financial assets held to maturity – 119 – 41 – – – 160
Investments in associates – 0 – 9 – – – 9
Investment contracts and other financial liabilities – 6 370 – 10 770 – – – 17 140
Total liabilities associated with assets held for sale – 25 698 – 11 804 – – – 37 502
Net cash flows from investing activities 0 –16 – –32 0 –48
Net cash flows from discontinued operations –54 –39 367 1 026 313 987 30 Assets Held for Sale and Discontinued Operations (continued)
Financial assets associated with other related parties primarily comprise strategic investments in a German bank conglomerate.
Financial assets at fair value through profit or loss 16 916 19 399
Assets under unit-linked/private placement life insurance business –8 683 –9 991
Investment contracts without discretionary participation 20 355 440 355 440 34 Guarantees and Commitments
Later than 1 year and not later than 5 years 13 13
Guarantees The Group has issued financial guarantees and transaction-related guarantees and similar instruments. Financial guarantees provide for specified payments to be made to reimburse the holder for a loss incurred in the event that a client fails to make payment when due.
for 60% of the loss (after recovery of collateral), EUR 8.5 billion in total, against the overall guarantee amounting to EUR 14.2 billion. The German insurance companies’ proportion thereof is EUR 1.4 billion. The Swiss Life Group’s share amounts to EUR 19.6 million.
With the sale of the life business in the UK in 2004, representations and warranties have been agreed with the buyer which limit the exposure for the Swiss Life Group in respect of time and amount with regard to arising claims and taxes. In relation to mis-selling, it has been agreed that in case of specified events with a material financial impact on the OB Fund of the former Swiss Life UK life business, the financial consequences will be shared between the Swiss Life Group and the buyer according to a clear set of rules which limit the impact on the Swiss Life Group with regard to time (five years) and amount (GBP 31.5 million).
Capital commitments The Group had commitments to purchase investments of CHF 268 million (excluding private equity) as at 31 December 2008 (2007: CHF 413 million). Contractual obligations to purchase or construct investment property amounted to CHF 107 million as at 31 December 2008 (2007: CHF 155 million).
Operating lease commitments The Group has entered into various operating leases as a lessee. Rental expenses relating to continuing operations recognised in income for these items totalled CHF 44 million for the year ended 31 December 2008 (2007: CHF 25 million). Minimum lease payments totalled CHF 44 million in 2008 (2007: CHF 25 million).
Later than 1 year and not later than 5 years 550 526
Adroit Investment AG, Zürich Ins. CH until 01.01.2007 – – full
Adroit Private Equity AG, Zürich Ins. CH 100.0% 100.0% full CHF 5 000
Neue Warenhaus AG, Zürich Ins. CH 100.0% 100.0% full CHF 5 000
Swiss Life Capital Holding, Zürich Other 100.0% 100.0% full CHF 5 514
Swiss Life Funds AG, Lugano IM 100.0% 100.0% full CHF 20 000
Swiss Life Holding, Zürich Other – – full CHF 596 437
Swiss Life Intellectual Property Management AG, Zürich Other 100.0% 100.0% full CHF 250
Swiss Life (Liechtenstein) Services, Vaduz, Branch Zürich, Zürich Ins. Other 100.0% 100.0% full – –
Swiss Life Products (Luxembourg) S.A., Strassen, Branch Zürich, Zürich Ins. Other from 19.12.2008 100.0% 100.0% full – –
Swissville Centers Holding, Zürich Ins. CH 100.0% 100.0% full CHF 7 100
LGT Swiss Life Non Traditional Advisers, Vaduz – – 43.7% equity CHF 1 000
Cabinet Wilhelm SA, Lons – from 01.02.2007 – 49.8% equity EUR 300
Crédit et services financiers (CRESERFI), Paris – – 33.4% equity EUR 56 407
Oudart Gestion S.A., Paris Bank. Dis. until 07.03.2008 – – full
Oudart Patrimoine SARL, Paris Bank. Dis. until 07.03.2008 – – full
Placement Direct SAS, Pau Ins. FR from 08.01.2008 100.0% 100.0% full EUR 40
SCI ERISA IMMO I, Paris Ins. FR until 02.07.2007 – – full
Seeds Finance SA, Paris – from 21.12.2007 – 34.0% equity EUR 85
Société suisse vie, Paris (branch Swiss Life/Rentenanstalt) Ins. FR until 31.10.2008 – – full
Swiss Life Banque Privée, Paris Ins. FR 59.9% 60.0% full EUR 36 471
Swiss Life France (formerly Société suisse de participations d'assurance), Paris Ins. FR 100.0% 100.0% full EUR 267 767
Swiss Life Gestion Privée SA, Paris Ins. FR from 31.08.2007 59.9% 100.0% full EUR 205
AWD Gastronomie GmbH, Hannover AWD from 19.03.2008 96.7% 100.0% full EUR 25
AWD Holding AG, Hannover AWD from 19.03.2008 96.7% 96.7% full EUR 38 639
AWD – Versicherungsmakler und -beratungs GmbH, Hannover AWD from 19.03.2008 96.7% 100.0% full EUR 31
AWD Zweite Vermögensverwaltungsgesellschaft mbH, Hannover AWD from 19.03.2008 96.7% 100.0% full EUR 25
DEPFA Holding Verwaltungsgesellschaft mbH, Düsseldorf – – 20.4% – EUR 539
DEUTSCHE PROVENTUS AG, Bremen AWD from 06.05.2008 96.7% 100.0% full DEM 1 000
Horbach Wirtschaftsberatung GmbH, Köln AWD from 19.03.2008 96.7% 100.0% full EUR 260
PROFIDUS Vermittlung- und Verwaltungs-GmbH, Bremen AWD from 06.05.2008 96.7% 100.0% full EUR 51
PROFIDUS Vertriebsgesellschaft mbh, Bremen AWD from 06.05.2008 96.7% 100.0% full EUR 25
Schweizerische Rentenanstalt, München (branch Swiss Life/Rentenanstalt) Ins. DE 100.0% 100.0% full – –
SL Beteiligungs-GmbH & Co. Immobilien III KG, München Ins. DE from 04.12.2008 100.0% 100.0% full EUR 10
SL Beteiligungs-GmbH & Co. Immobilien Ost KG, München Ins. DE from 22.10.2007 100.0% 100.0% full EUR 50
SL-Immobilien-Beteiligungs-Gesellschaft mbH (formerly Swiss Life Beteiligungs GmbH), München Ins. DE 100.0% 100.0% full EUR 25
SLP Swiss Life Partner Vertriebs GmbH & Co. KG, Hamburg – – 50.0% equity EUR 77
SLPM Schweizer Leben PensionsManagement, München Ins. DE 100.0% 100.0% full EUR 150
Swiss Life Asset Management GmbH, München IM 100.0% 100.0% full EUR 1 000
Swiss Life Cooperations GmbH in liquidation, Hamburg Ins. DE 100.0% 100.0% full EUR 100
Swiss Life Insurance Solutions AG, München Ins. DE 100.0% 100.0% full EUR 7 500
Swiss Life Partner AG, München Ins. DE 100.0% 100.0% full EUR 7 000
Swiss Life Products (Luxembourg) S.A. Branch Germany, München Ins. Other from 15.05.2008 100.0% 100.0% full – –
Swiss Life Asset Management (Nederland), Amstelveen Ins. Dis. until 29.04.2008 – – full
Demoisy & Cie, Montigny le Tilleul – until 29.04.2008 – – equity
Swiss Life Asset Management (Belgium), Bruxelles IM until 30.06.2008 – – full
Swiss Life Belgium SA, Bruxelles Ins. Dis. until 29.04.2008 – – full
Swiss Life Immo-Cross Roads, Bruxelles Ins. Dis. until 29.04.2008 – – full
Swiss Life Immo-Residential, Sint-Gillis Ins. Dis. until 29.04.2008 – – full
Swiss Life Immo-Techno Center I, Bruxelles Ins. Dis. until 29.04.2008 – – full
Swiss Life Invest (Belgium), Bruxelles Ins. Dis. until 29.04.2008 – – full
Banque du Gothard (Luxembourg), Luxembourg Bank. Dis. until 07.03.2008 – – full
Gotam Umbrella Fund (Lux) Advisory Company, Luxembourg Bank. Dis. until 07.03.2008 – – full
Swiss Life Asset Management Holding, Strassen IM until 18.12.2008 – – full
Swiss Life Insurance Solutions S.A., Luxembourg Ins. DE from 27.11.2008 100.0% 100.0% full EUR 5 000
Swiss Life International Pension Fund ASBL, Strassen Ins. Other from 18.04.2008 – – full – –
Swiss Life Invest Luxembourg, Strassen Ins. Other 100.0% 100.0% full EUR 35 000
Swiss Life Products (Luxembourg) S.A. (formerly Pulse S.A.), Strassen Ins. Other from 07.08.2007 100.0% 100.0% full EUR 35 031
AWD Chase de Vere Corporate Services Limited, Manchester AWD from 19.03.2008 96.7% 100.0% full EUR 0
AWD Chase de Vere Financial Services Ltd, Manchester AWD from 19.03.2008 96.7% 100.0% full GBP 0
AWD Chase de Vere Limited, London AWD from 19.03.2008 96.7% 100.0% full GBP 10
AWD Chase de Vere Wealth Management Limited, London AWD from 19.03.2008 96.7% 100.0% full GBP 23 088
AWD Limited, Manchester AWD from 19.03.2008 96.7% 100.0% full GBP 0
AWD Private Client Trustees Limited, London AWD from 19.03.2008 96.7% 100.0% full GBP 0
AWD Trustees Limited, Leicestershire AWD from 19.03.2008 96.7% 100.0% full GBP 0
Jaffrey Financial Services Limited, Dundee AWD from 19.03.2008 96.7% 100.0% full GBP 22
Read Independent Financial Advisers Ltd, Manchester AWD from 19.03.2008 96.7% 100.0% full GBP 10
Gottardo Inversiones Financieras, Madrid Bank. Dis. until 07.03.2008 – – full
Banca del Gottardo Italia, Bergamo Bank. Dis. until 07.03.2008 – – full
Gottardo Asset Management SGR, Milano Bank. Dis. until 07.03.2008 – – full
AWD Gesellschaft für Wirtschaftsberatung GmbH, Wien AWD from 19.03.2008 96.7% 100.0% full EUR 727
AWD zastupanje u osiguranju d.o.o., Zagreb AWD from 19.03.2008 96.7% 100.0% full HRD 100
AWD Magyarország Pénzügyi Szolgáltató Korlátolt Felelősségű Társaság, Budapest AWD from 19.03.2008 96.7% 100.0% full HUF 5 000
ECG Oktatási Korlátolt Felelősségű Társaság, Budapest AWD from 19.03.2008 96.7% 100.0% full HUF 5 000
N.V. Pensioen ESC, Willemstad Ins. Dis. until 29.04.2008 – – full
Segment 1 Consolidation period Group share Direct share consolidation Currency in 1000 39 Significant Subsidiaries and Associates (continued)
As statutory auditor, we have audited the consolidated financial statements of Swiss Life Group, which comprise the consolidated statement of income, consolidated balance sheet, consolidated statement of cash f low, consolidated statement of changes in equity and notes to the consolidated financial statements (pages 85 to 209), for the year ended 31 December 2008.
Board of Directors’ Responsibility The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
As a result of the disclosed transactions, Swiss Life Holding’s liquid assets (liquid funds plus time deposits and comparable instruments) rose significantly from CHF 159 million to CHF 801 million.
The value of participations increased from CHF 2665 million to CHF 3147 million following the acquisition of the stakes in AWD and MLP and the takeover of Swiss Life Selection AG from the sale of Banca del Gottardo. To finance ongoing business operations, Swiss Life carried out a capital increase at Swiss Life Products (Luxembourg) S.A. The sale of Banca del Gottardo and the distributed dividend of CHF 185 million in net worth realised from the sale of the Dutch business lowered the value of participations by CHF 1425 million. In addition an impairment of CHF 149 million was taken, based on the valuation of MLP.
Within the context of the share buyback programme, Swiss Life Holding repurchased 3 003 500 shares with a value of CHF 686 million. An impairment totalling CHF 691 million had to be made on own shares repurchased and already held. The unrealised loss on investments thus amounted to CHF 840 million.
Swiss Life Holding’s profit distribution to shareholders in the reporting period came to CHF 596 million or CHF 17 per share. It took the form of a repayment of par value. The par value of the Swiss Life Holding share was thereby reduced from CHF 34 to CHF 17 and the share capital decreased from CHF 1189 million to CHF 596 million. This includes a CHF 3 million increase in share capital due to the conversion of outstanding convertible bonds into shares. The nominal value of the convertible bonds issued in 2004 at CHF 317 million and set to expire in June 2010, was thereby reduced to CHF 42 million. The conversion price at the time of writing is CHF 200.20. Apart from the convertible bond issue, Swiss Life Holding is financed entirely by equity.
Authorised Authorised share share capital capital Currency in 1000 Direct share Currency in 1000 Direct share
Banca del Gottardo, Lugano – – – CHF 70 000 100.0%
LEGAL RESERVES | Legal reserves comprise the general reserves (plus the additional paid-in capital in excess of the par value, net of transaction costs) and the reserve for treasury shares (equivalent in value to own Swiss Life Holding shares held by the Swiss Life Group).
TREASURY SHARES | In the year under review the companies in the Swiss Life Group purchased a total of 3 083 540 Swiss Life Holding shares at an average price of CHF 230.61. In the same period, they sold 617 876 shares at an average price of CHF 215.53. As at 31 December 2008, the Swiss Life Group held 4 619 466 of its treasury shares.
PERSONNEL EXPENSES | No direct staff costs are included under operating expenses.
RISK ASSESSMENT | For information on risk assessment, please refer to Note 5 of the Swiss Life Group’s consolidated financial statements.
COMPENSATION IN 2008 | The specifications below take into consideration the new transparency regulations on compensation set out in the Swiss Code of Obligations (CO), Art. 663bbis and Art. 663c, and the Directive on Information Relating to Corporate Governance issued by the SIX Swiss Exchange. Further information on compensation and benefit expenditure can be found in the Swiss Life Group’s Annual Report 2008 (Corporate Governance and Notes 24 and 31 of the Financial Statements).
The compensation received by each member of the Board of the Directors and the Chairman of the Corporate Executive Board (Group CEO) is disclosed individually. In view of the fact that Rolf Dörig held the positions of Group CEO until the Annual General Meeting of Swiss Life Holding on 8 May 2008 and Delegate of the Board following his election to the Board of Directors, his compensation in the period under review is shown in its entirety under the compensation to the Corporate Executive Board. As, during the year under review, the position of Group CEO was transferred, as of 9 May 2008, to Corporate Executive Board member Bruno Pfister, who was previously CEO International, the compensation to Bruno Pfister, as the new Group CEO, is also reported individually for the 2008 financial year.
PRACTICE AND PROCEDURE | Pursuant to the Organisational Regulations, the Board of Directors as a whole is responsible for determining the level and make-up of compensation for its members, whereas the Chairman’s Committee, in its capacity as a Compensation Committee, is responsible for putting forward corresponding proposals. The Board of Directors also establishes the guidelines for the company’s compensation policy. In doing so, it takes into consideration the compensation policies of other organisations of comparable size and in comparable industries, drawing its findings from publicly available information and, as necessary, studies by external experts. Based on these guidelines, the Chairman’s Committee determines the compensation for the individual members of the Corporate Executive Board and informs the entire Board of Directors accordingly.
As Chairman of the Board, Bruno Gehrig is affiliated to the employee benefits institutions of Swiss Life for the purpose of occupational provisions. This also applies to Rolf Dörig in his role as Delegate of the Board of Directors, a position he has held since 9 May 2008 following his election to the Board. No such affiliation exists for other members of the Board of Directors; no contributions have been made on their behalf.
COMPENSATION TO MEMBERS OF THE CORPORATE EXECUTIVE BOARD | The compensation remitted to members of the Corporate Executive Board comprises the salary, a variable bonus in cash, other compensation (child allowances, allowance for years of service, company cars, premium contributions to 3rd-pillar pension plans) and variable compensation in the form of shares. The salary is determined annually by the Chairman’s Committee in its capacity as Compensation Committee, taking into account the individual member’s function-related responsibility and workload. If the Group’s business operations have proved successful, a variable cash bonus and variable compensation in the form of shares is added, decided upon by the Chairman’s Committee under consideration of the personal target achievement of the members of the Corporate Executive Board.
Various personnel changes occurred in the Corporate Executive Board vis-à-vis the previous year. Bruno Pfister was appointed Group CEO with effect from 9 May 2008. On the same date, Manfred Behrens, CEO Germany, became a member of the Corporate Executive Board. He assumed the position of Co-CEO of AWD on 1 September 2008. CEO France, Charles Relecom, and the new CEO Germany, Klaus Leyh, joined the Corporate Executive Board on 1 July 2008 and 1 October 2008, respectively. Paul Müller handed over his position as CEO Switzerland to Ivo Furrer as of 1 September 2008. The Corporate Executive Board, including Rolf Dörig as Group CEO, thus consisted of up to ten members during the period under review (2007: six members).
For the 2008 financial year, no variable compensation in shares will be paid to the members of the Board of Directors.
For the 2008 financial year, no cash bonus and no variable compensation in shares will be paid to the members of the Corporate Executive Board.
COMPENSATION TO THE BOARD OF DIRECTORS IN 2008 | For comparison purposes, the corresponding details of the compensation for 2007, as published in the Annual Report 2007, are shown in a separate table below the compensation table for 2008.
Compensation Compensation Expenditure for in cash in shares 1 occupational provisions
Bruno Gehrig, Chairman of the Board of Directors 555 000 100 000 655 000 312 79 898 734 898 197 992 652 961 1 585 851 1 The allocation of shares was effected on 30.03.2007, 25.06.2007 and 17.12.2007 at economic value, which is equal to the tax value (CHF 256.0841, CHF 270.5675 and CHF 243.2798 respectively), taking into account a blocking period of three years. The share prices (closing prices) on the days of allocation were CHF 305.00, CHF 322.25 and CHF 289.75 respectively.
COMPENSATION TO THE CORPORATE EXECUTIVE BOARD IN 2008 | For comparison purposes, the corresponding details of the compensation for 2007, as published in the Annual Report 2007, are shown in a separate table below the compensation table for 2008.
Other members of Corporate Executive Board 5 3 908 057 2 600 000 260 893 6 768 950 4 232 980 703 7 749 653 1 Group CEO until 08.05.2008, BoD Delegate from 09.05.2008. Salary / compensation in cash was f ixed at CHF 1 200 000 per year for the position of BoD Delegate. 2 The bonus paid in 2008 relates to the 2007 f inancial year. No bonus will be paid for the 2008 f inancial year. 3 Child allowances (CHF 12 830), allowances for years of service (CHF 31 570), company cars (CHF 110 221), premium contributions to 3rd-pillar pension plans (CHF 174 401), other (CHF 81 870), each in total.
4 The allocation of the shares for the 2007 f inancial year was effected on 31.03.2008 at economic value, which is equal to the tax value (CHF 231.7351), taking into account a blocking period of three years. The share price on the day of allocation was CHF 276.00. No variable compensation in shares will be paid out for the 2008 f inancial year. 5 Eight individuals were taken into account in the period under review. Compensation for 2008 membership in the Corporate Executive Board is given on a pro-rata basis for
7 Regular contribution of CHF 156 648 and a subsequent contribution of CHF 598 500 in accordance with the pension fund regulations due to the increase in the insured income. 8 All contributions are gross contributions, i.e. they include employee contributions to AHV/IV/ALV. Employer contributions to AHV/IV/ALV amounted to a total of CHF 1 223 286 in the year under review.
Other members of Corporate Executive Board 17 771 3 186 341 11 749 414 9 In 2008 no PSUs were allocated to Rolf Dörig as a result of his transfer from the Corporate Executive Board to the Board of Directors. Disregarding the cash bonus paid for the 2007 f inancial year and the variable compensation in shares, the total compensation paid to Rolf Dörig for 2008 amounted to CHF 1 817 462.
10Disregarding the cash bonus paid for the 2007 f inancial year and the variable compensation in shares, the total compensation paid to Bruno Pfister for 2008 amounted to 11The PSUs represent future subscription rights that entitle the individuals concerned to receive Swiss Life Holding shares after a period of three years, provided the relevant conditions are then met. Depending on the fulf ilment during the three-year term of the two performance criteria def ined, the number of PSUs can increase by a factor of 1.5 or drop to zero.
Total sation Bonus for Other compen- in cash 2006 paid compen- sation and shares
Other members of Corporate Executive Board 3 2 588 400 3 350 000 123 842 6 062 242 4 671 1 344 020 7 406 262 1 Child allowances (CHF 12 840), allowances for years of service (CHF 10 938), company cars (CHF 50 056), premium contributions to 3rd-pillar pension plans (CHF 130 009), each in total.
2 The allocation of the shares was effected as at 30.03.2007 at economic value, which is equal to the tax value (CHF 287.7370), taking into account a blocking period of one year. The share price (closing price) on the day of allocation was CHF 305.00.
7 The allocation of PSUs as at 01.04.2007 was effected at a fair value of CHF 189.22, as calculated by an independent consultancy f irm.
Total Board of Directors 14 397 1 Share ownership and the number of PSUs are shown in their entirety under the relevant details for the Corporate Executive Board (see tables below).
Bruno Pfister 8 841 CEO International until 08.05.2008, Group CEO from 09.05.2008
Rolf Dörig 13 870 Group CEO until 08.05.2008, BoD Delegate from 09.05.2008
Bruno Pfister 17 483 CEO International until 08.05.2008, Group CEO from 09.05.2008
SHARE OWNERSHIP / PARTICIPATION RIGHTS AS AT 31.12.2007 | As at the balance sheet date, current members of the Board of Directors and Corporate Executive Board (including closely linked parties) held the following number of registered Swiss Life Holding shares and future subscription rights to Swiss Life Holding shares in the form of Performance Share Units (PSUs).
Performance Share Units (PSUs) as future subscription rights to SLH shares1
The net profit for the year amounts to CHF 1 920 911 041. The Board of Directors proposes to the General Meeting of Shareholders to appropriate the profit in accordance with the table below. If the Board of Directors’ proposal is adopted, a distribution in the form of a reduction of CHF 5 in the par value per share will be paid.
Peter Lüssi Daniel Häfeli Audit expert Audit expert Auditor in charge
Dow Jones STOXX 600 Insurance Index (in EUR) 30.12.2008 134 28.12.2007 252
Performance of Dow Jones STOXX 600 Insurance Index (in %) –47 –12
Dividend yield on year-end price (in %) 30.12.2008 23.48 28.12.2007 2.47
Fiduciary EUR Perpetual As at 31.12.2008 Convertible bond Certificates1 nc10 Notes2
Swiss Life Holding, J.P. Morgan Bank, repackaging Issuer Zürich Luxemburg vehicle)
Nominal value CHF 42 703 000 EUR 350 000 000 EUR 700 000 000
Luxembourg Irish Stock Listing SIX Stock Exchange Exchange 1 The notes are issued by the fiduciary to fund a step-up subordinated perpetual loan to Swiss Life/Rentenanstalt. 2 The notes are issued by ELM to fund step-up subordinated perpetual loan notes to Swiss Life/Rentenanstalt which are guaranteed by Swiss Life
Net insurance benefits and claims –12 915 –13 268 –12 012 –14 040 –15 375
Net profit from discontinued operations 1 488 642 1 378 n.a. n.a.
Basic earnings per share (in CHF) 10.88 40.76 27.87 25.67 18.57
Due to the sale of its Dutch and Belgian operations and of Banca del Gottardo, Swiss Life adjusted the presentation of its Financial Statements from 2007 in accordance with the relevant regulations, gearing them to continuing operations. The units sold were fully consolidated up to the completion of the transactions concerned, but only their net contribution to the net profit is included in the Consolidated Statement of Income. The figures for 2006 have been adjusted accordingly to facilitate comparability.
Publisher | Swiss Life Holding Ltd, Zurich Design and concept | schneiter meier külling AG, Zurich Photography | Franz Rindlisbacher and Gerry Amstutz, Zurich (Page 40: Ana Jukic, Page 41: Ferit Kuyas, Page 42: swiss-image/Günter Schiffmann) Production | Management Digital Data AG, Schlieren ZH Printers | NZZ Fretz AG, Schlieren ZH