Review of Operations 4 Letter to Shareholders 8 Strategy 15 Summary of Group Results 16 Life Core 16 Switzerland 18 France 19 Germany 20 Netherlands 21 Belgium/Luxembourg 22 Life, Non-Core 23 Non-Life 24 Private Banking 25 Investment Management 26 Swiss Life Network 33 Corporate Governance 50 Responsible Corporate Conduct 57 Embedded Value 59 Risk Management 61 Asset and Liability Management
We have successfully concluded an intensive fitness cure. We have reduced operating costs by about 20% in the past two years. Strict cost management and the organisational streamlining of our units in all countries have also contributed to these savings. At the same time, the 2004 annual figures also show that our results still remain strongly dependent on developments in the financial markets. For that reason we must especially improve the technical results – the underwriting results from purely insurance business – by primarily continuing to improve operational efficiency.
Operating expenses fell by 3% from their prior-year level to CHF 2.8 billion despite the much higher premium volume. Operating costs dropped by CHF 110 million, or 5%.
United Kingdom UnumProvident 1) Health insurer for Swiss Life Network’s international clients
During the year under review, at the Annual General Meeting of Shareholders on 18 May 2004, authorised capital of CHF 417234000 was created and the Board of Directors was authorised to increase the share capital by the issue of a maximum of 8344680 fully paid registered shares at a par value of CHF 50 each, at the latest by 18 May 2006. At the same Annual General Meeting, the shareholders decided to increase the existing conditional capital by CHF 100000000, or 2000000 registered shares at a par value of CHF 50 each, to CHF 203260950 divided into 4065219 registered shares with a par value of CHF 50 each.
Swiss Life Group . Review of Operations 2004 . Corporate Governance fiduciary capacity, they have deposited shares of Swiss Life Holding for the account of third parties with Swiss or foreign banks or securities brokers in their own name. Nominees are required to be subject to banking or financial market supervision. A request must be filed to register as a nominee. The voting rights of nominees are restricted to 10% of the share capital, whereby nominees who are connected with regard to capital or voting rights under uniform management or contractual agreement will be counted as a single shareholder. The Board of Directors may approve exceptions to these restrictions on registration, observing the principle of free decision-making based upon a due assessment of the circumstances. No such exceptions were granted during the period under review
The Organisational Regulations stipulate that a member of the Board of Directors shall automatically resign from the Board at the Annual General Meeting of Shareholders in the year in which the member reaches the age of 70.
Paul Embrechts received his Master’s Degree in Mathematics from the University of Antwerp (Belgium) in 1975 and his doctorate (Dr. sc. [Math.]) from the Catholic University of Leuven (Belgium) in 1979. Between 1975 and 1983 he held a post as Research Assistant at the Catholic University of Leuven. From 1983 to 1985 he was Lecturer in Statistics at Imperial College, University of London, moving to a position as Lecturer at the University of Limburg (Belgium), which he held from 1985 to 1989. In 1989 Paul Embrechts was appointed Professor of Mathematics at the Swiss Federal Institute of Technology (ETH) in Zurich.
Other appointments: – IBM Switzerland, Zurich, Chairman of the Board of Directors – Swiss-American Chamber of Commerce, Member of the Board – economiesuisse, Zurich, Member of the Board – Zurich Chamber of Commerce, Member of the Board
Other appointments: – Finter Bank Zürich, Zurich, Vice Chairman of the Board of Directors – Fondazione Daccò, Lugano, Member of the Board of Trustees – Fondazione Nerina Bellingeri ved. Gualdi, Lugano,
43Other appointments: – «La Suisse» Vie, Lausanne, Chairman of the Board of Directors – «La Suisse» Accidents, Lausanne, Chairman of the Board of Directors – Pendia Associates AG, Zurich, Member of the Board of Directors – Chamber of Commerce Germany-Switzerland, Member of the Executive Committee – Member of the Board of the Society for the Promotion of the Institute of Insurance Economics of the University of St. Gallen
Bruno Pfister graduated from the University of Geneva with a Master’s Degree in Law before being called to the Bar of Geneva. He then turned his attention to business management studies, earning an MBA from the Graduate School of Management in Los Angeles. The initial stages of his career saw Mr Pfister work for Chase Manhatten Bank in London and Geneva. From 1988 onwards he was a management consultant for McKinsey & Co. In 1996 Mr Pfister became Chief of Staff of the Private Banking division at Liechtenstein Global Trust (LGT) where he managed a global strategic project before being appointed Chief Financial Officer of LGT Group and LGT Bank in Liechtenstein in 1998. In 1999 he took over as Head of Customer Segment and Product Management at Credit Suisse.
Other appointments: – Banca del Gottardo, Lugano, Member of the Board of Directors – Castle Alternative Invest Ltd., Freienbach, Member of the Board of Directors
3) for activities as Chairman of the Board of Directors of «La Suisse» (until April 2004)
Compensation paid to former members of governing bodies No former member of either the Board of Directors or the Corporate Executive Board received any compensation during the year under review.
Impact of 50 bp decrease in investment return –520 –264 – –784
Operational risks The operational risks include process risks, risks relating to human error or moral hazard, and technology and operating risks resulting from changes in the economic, fiscal or legal environment. In order to pre-empt such risks, a review based on uniform criteria is 60 carried out periodically throughout the Group, with estimates compiled at the local units to ascertain the probability of these risks leading to material losses. The consolidated report highlights potential need for action at an early stage, and the effectiveness of the measures introduced is subsequently checked.
The product design principles are reviewed twice a year. The economic viability of new business is recorded quarterly, so that Swiss Life can adapt the conditions of sale for the individual products in line with ongoing changes.
Investment contracts, customer deposits and other funds on deposit 21 31 269 29 352
Interest credited to investment contracts, customer deposits and other funds on deposit, net of fee income 919 974
Withdrawals under financial reinsurance contracts that do not transfer risk –5 –6
Balance carried forward from previous page 31 538 759 21 558 979 4 076 3 179
The Swiss Life Group is a multinational insurance and financial services group registered in Zurich, Switzerland. Swiss Life is a diversified organisation offering a wide range of services in areas such as insurance, investment management, risk management and banking. Swiss Life is a large life and pension insurer in Switzerland and has operations in various European countries through branch offices, subsidiaries and affiliates. The Group also provides individualised investment forms of employee benefit plans for large clients and offers solutions in long-term savings and protection. The Group offers a broad line of life, pension, annuity, accident and health and investment-type products to both individuals and groups and delivers additional banking services through its banking subsidiaries.
Financial assets Financial assets which the Group has the ability and positive intent to hold to maturity (HTM) are carried at amortised cost. Financial instruments which the Group buys with the intention to resell in the near term are classified as held for trading and carried at fair value. Realised and unrealised gains and losses are recognised in net trading income. Financial assets classified as availablefor -sale (AFS) are carried at fair value. Gains and losses arising from fair value changes of available-for-sale investments are reported in equity, net of certain policyholder bonuses and other policyholder liabilities and deferred 2 Summary of Significant Accounting Policies (continued)
Loans originated by the enterprise are carried at amortised cost using the effective interest rate method. The computation includes all fees and points paid or received. Loans with indefinite maturities are carried at unpaid principal amounts or cost.
The IASB also developed IAS 36 (revised) Impairment of Assets and IAS 38 (revised) Intangible Assets which specify the subsequent accounting for goodwill and intangible assets acquired in business combinations.
Net realised and unrealised gains/losses on investments 1 084 –109 23 –31 1 –3 – 965
Interest credited to investment contracts, customer deposits and other funds on deposit –735 –139 0 –52 – – 0 –926
Other operating and administrative expenses –129 –211 –84 –114 –39 11 –566
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 10 Held-to-Maturity and Available-for-Sale Investments
(2003: CHF 182 million). Operating expenses arising from investment property that did not generate rental income during the period stood at CHF 16 million for the period ended 31 December 2004 (2003: CHF 15 million).
Swiss Life Group . Financial Statements 2004 . Notes to the Consolidated Financial Statements 15 Loans Originated by the Enterprise (continued)
– The average rate of assumed investment yield used for estimating gross margins ranges from 0.7% to 6%.
Net earned premiums and policy fees as reported 15 262 14 822
Convertible debt On 10 June 2004, Swiss Life Holding issued CHF 317 million 0.625% convertible bonds due in 2010. The bonds may be converted into registered shares of Swiss Life Holding at any time at the option of the holder.
Banca del Gottardo - bond CHF 3.250% 1998 2005 71 72
Simplification of shareholder structure in 2003 In 2003, the Swiss Life Group simplified its shareholder structure by reducing the minority stake in its Swiss Life/Rentenanstalt subsidiary following the exchange of Swiss Life/ Rentenanstalt shares (SL/RA shares) for SLH shares which took place in 2002. SLH acquired an additional 878978 SL/RA shares and increased the equity stake held in its Swiss Life/Rentenanstalt subsidiary from 92.2% as of 31 December 2002 to 99.7% as of 31 December 2003.
Foreign currency gains/losses reclassified to the income statement 54 – – 54 66
Total on-balance-sheet assets managed by the enterprise 146 615 139 914
Private equity commitments Private equity commitments represent unfunded commitments to make investments in direct private equity or private equity funds. Such commitments do not involve credit or market risk, as the Group purchases investments at market value at the time the commitments are invoked.
Drive Shop, Thônex PB ° from 01.01.2004 – – full CHF 100 until 24.12.2004
Neue Warenhaus AG, Zürich Life l 99.8% 100.0% full CHF 5 000
Swiss Life Holding, Zürich Other l – – full CHF 1 688 791
Swissville Private, Zürich Life l 99.8% 100.0% full CHF 50 000
Garantie Assistance, Paris Non-Life ° 99.3% 100.0% full EUR 1 850
Swiss Life Informations Systems, Sint-Genesius-Rode Other l 99.8% 100.0% full EUR 62
Apenso, Luxembourg – – until 03.12.2004 – – equity EUR 625
Gottardo Trust Company, Nassau PB ° 100.0% 100.0% full USD 3 000
Significant balance sheet changes included the increase in participations held and their financing out of equity, as well as the issuance of a convertible bond.
Issuance of convertible debt in 2004 On 10 June 2004, SLH issued CHF 317 million in 0.625% Convertible Bonds 2004–2010 convertible into SLH registered shares. The conversion price was set at CHF 209.625.
Withdrawal from legal reserves in accordance with the General Meeting – –225
Swiss Life Holding . Financial Statements 2004 . Report of the Statutory Auditors