Banca del Gottardo generates solid result 2006 was a year of realignment under largely new leadership for the Swiss Life Group’s Banca del Gottardo, an important part of the Swiss Life Group. The bank defended its market position despite the transition process and the additional strain this put on its employees. The cooperation between Swiss Life’s banking and insurance operations was reinforced further. Banca del Gottardo’s consolidated net profit under local accounting rules rose by 17% to CHF 97 million. In view of the progress already made, we are confident that Banca del Gottardo will reach its targets.
Holistic ALM approach pays off The Swiss Life Group’s equity declined by 6% in the first half of 2006 but rose during the second half to the level recorded as the year began. These developments were largely driven by interest trends. Revaluation reserves for the bond portfolio declined in the first six months of the year as interest rates moved sharply higher. The subsequent drop in the interest level in the latter half of the year and the profit achieved made up for the decline in the first half. Balance sheet risks are actively managed as part of a holistic asset and liability management (ALM) process. The improved capital structure increases our flexibility for tactical investment measures. Moreover, under the holistic ALM approach, the asset allocation differentiates by product line to a greater extent, thereby facilitating optimisation of the equity exposure. As announced in December 2006, the Swiss Life Group’s equity exposure can therefore exceed the previous range of 0% to 7%. The principles of holistic ALM are also already compliant with those applied in the Swiss Solvency Test. The solvency margin of the Swiss Life Group came to a comfortable 194% as at 31 December 2006 (previous year: 211%).
Ambitious goals The Swiss Life Group is aiming to achieve a net profit of CHF 1 billion and a sustainable return on equity of more than 10% by 2008. Shareholders should be compensated for the provision of risk capital by the distribution of an appropriate dividend. Swiss Life also wants to be seen as an attractive employer – a company its employees are proud to work for.
In the longer run, the importance of the second and third pillars will rise. This means the market for private providers of pension solutions will also grow.
François Jouvin is an independent insurance consultant who sells Swiss Life products in Paris.
Proximity is usually a matter of course when I speak to someone. I’ve learned to listen and to respond to what I hear – rationally but also emotionally. This connection enables me to empathise with others and recognise their needs. This results in a professional consultation with the customer as the focus.
Operating expenses diminished by 24% to CHF 799 million. However, the 2005 figure included three special factors: Restructuring costs in connection with the integration of the life business of «La Suisse», a one-off amortisation of the present value of future profits on the group life insurance business acquired from Vaudoise, and the extraordinary write-downs on deferred acquisition costs due to altered actuarial assumptions. Operating costs declined by 2%. This is above all due to various measures implemented to boost efficiency, in particular last year’s merger of Swiss Life and «La Suisse», and strict cost management.
In 2006, Swiss Life focused on improving its distribution capabilities and expanding its range of products in order to facilitate further growth. The company stepped up training and development measures for its insurance consultants with the aim of improving the sales performance and ensuring high-quality advisory services. In the individual insurance business, Swiss Life extended its range of performance-oriented pension products, and, in the fourth quarter, launched a GarantiePlus product financed by periodic premiums and Swiss Life Vitality. Swiss Life GarantiePlus is a unit-linked savings insurance with a contractually agreed amount in the case of survival, combining a performance-oriented pension product with the greatest possible level of security. Swiss Life Vitality is a unit-linked life insurance financed by a single premium or periodic premiums. As regards group insurance, Swiss Life continues to emphasize full coverage because this is the best occupational benefits solution for small and mediumsized companies in view of their typically restricted risk capacity. Swiss Life has introduced additional components to its new product line, Swiss Life Modula, which is a modularly structured, cost-effective and transparent full insurance solution. Swiss Life generally meets the expectations of its clients in terms of the quality of its products and services, as is shown in the continual increase in customer satisfaction, which is gauged from regular surveys.
Swiss Life in France posted a segment result of CHF 217 million, which corresponds to an increase of CHF 112 million vis-à-vis the previous year.
Swiss Life increased its gross premium income by 3% (2% in local currency) to CHF 2116 million. Although the company outperformed the market in previous years, premium growth trailed slightly behind the market in 2006.
In 2007, Swiss Life will continue to optimise its distribution and service concepts and will extend its range of products and services to include a unit-linked Riester product. MetallRente, Germany’s largest employee benefits institution, remains an attractive business area with high growth potential. On the cost side, Swiss Life has defined further measures to significantly reduce administrative costs by 2008.
Banking In 2006, the Swiss Life Group posted a segment result of CHF 165 million in
Member of the Board of Directors – Züblin Immobilien Holding AG, Zurich,
Rudolf Kellenberger received his degree in civil engineering from the Swiss Federal Institute of Technology (ETH), Zurich in 1970. Between 1970 and 1978 he was employed as a project planning engineer in the bridge construction industry, including three years in the United Kingdom. He joined Swiss Re in 1978, where he served as Head of the Engineering Department from 1990 to 1992. In 1993 he was appointed Member of the Executive Board with responsibility for Europe. From 2000 to the end of December 2004 Mr Kellenberger served as Deputy Chief Executive Officer at Swiss Re. He has exercised various advisory functions in the area of insurance since retiring in March 2005.
Rudolf Kellenberger will be put forward for re-election at the Swiss Life Holding Annual General Meeting of Shareholders on 8 May 2007.
Franziska Tschudi graduated in law at the University of Berne and passed her bar exam there in 1984. She studied US law at Georgetown University, Washington DC, earning an LL.M., and passed the bar exam for the US states of New York and Connecticut in 1987. Franziska Tschudi also did postgraduate studies at the University of St. Gallen (1991 to1993), receiving an Executive MBA. After initially working as an Assistant for Media Law at the Institute for Constitutional and Administrative Law at the University of Berne and practising business and media law in Zurich, Washington DC and Geneva, she served as Secretary General at SIG Holding AG from 1992 to 1995. Ms Tschudi then became a member of the Executive Board of WICOR Holding AG (“Weidmann Group”), Rapperswil in 1995, where she was Head of Corporate Development and from 1998 Head of the Business Area Electrical Technology Asia/Pacific. She has been Chief Executive Officer and Managing Director of WICOR Holding AG since 2001.
The Chairman’s Committee meets at least six times a year. It held nine meetings during the year under review. The average duration of each meeting was around two hours.
Within the framework of the compensation arrangements for the members of the Corporate Executive Board and other key performers within the Swiss Life Group, set by the Corporate Executive Board with the concurrence of the Chairman’s Committee, a long-term remuneration component was introduced in 2004 on the basis of corresponding regulations. This equity compensation programme was adjusted slightly in 2005 by defining specific performance criteria. These take account of both the performance of the Swiss Life Holding share and its performance vis-à-vis other companies in the market. Participants are granted future subscription rights, in the form of Performance Share Units (PSU) on Swiss Life Holding shares, entitling them to receive Swiss Life Holding shares free of charge after a period of three years has elapsed insofar as the relevant prerequisites have been satisfied. 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 performance criteria develop. In 2005, 37 members of the Swiss Life Group senior management participated in this programme. A total of 67 412 PSUs were allocated in 2005; a total of 33 297 for the Corporate Executive Board, of which 9604 to the Group CEO.
From top left to bottom right: Bruno Gehrig, Volker Bremkamp, Paul Embrechts, Gerold Bührer, Peter Quadri, Franziska Tschudi, Rudolf Kellenberger, Pierfranco Riva, Henry Peter
Swiss Life Group . Review of Operations 2006 . Responsible Corporate Conduct 57Communication Swiss Life communicates actively and openly with its internal and external partners. Investor Relations and Public Relations provide up-to-date reports to private and institutional investors, financial analysts, journalists and the general public. Dates and information are available on the internet at www.swisslife.com.
Swiss Life Group . Review of Operations 2006 . Asset and Liability Management
Asset allocation Swiss Life manages the asset side of the portfolio in such a way that economic risk capital deployment is consistent with its risk appetite. The limits referred to above are set by the following bodies: at the Board of Directors level, the Investment and Risk Committee, and at local level, the Asset and Liability Committees. Within these limits, the individual market units define their asset allocation themselves.
Total net cash flow from operating activities –7 338 7 196
Acquisitions of subsidiaries, net of cash and cash equivalents 30 –2 2
Swiss Life Group . Financial Statements 2006 . Notes to the Consolidated Financial Statements 89The principal accounting policies are set out below. These policies have been applied consistently to all the periods presented unless otherwise stated.
Swiss Life Group . Financial Statements 2006 . Notes to the Consolidated Financial Statements 932.8 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.
Swiss Life Group . Financial Statements 2006 . Notes to the Consolidated Financial Statements 97As the liabilities to policyholders arising from the insurance business are fully recognised, no further liabilities relating to the rights arising from DPF have been set up.
Swiss Life Group . Financial Statements 2006 . Notes to the Consolidated Financial Statements 2 Summary of Significant Accounting Policies (continued)
2.23 Treasury shares Treasury shares are presented in the consolidated balance sheet as a deduction from equity and are recorded at cost. The difference between the purchase price and the sales proceeds is included in share premium.
Net gains/losses on financial assets 1 061 –20 0 4 – 1 045
Benefits and claims recovered from reinsurers 160 – – – – 160
Other expenses –700 –168 –53 –4 137 –788 of which inter-segment –127 –52 –45 –2 226 of which inter-segment –49 –24 79 47 –53
Benefits and claims under insurance contracts –7 651 –2 325 –2 062 –1 515 –319 –29 –16 8 –13 909
Financial liabilities not at fair value through profit or loss as at 31 December 2006
The banking book of Banca del Gottardo is particularly exposed to interest rate risk. Approved interest rate derivatives are used as hedging instruments. For the hedging of other risk factors, other hedging derivatives can also be used.
Credit risk Management of credit exposure to clients is based on the credit risk policy issued by management and is governed through limits individually assigned and continuously monitored. Credit risk exposure is limited by a rigorous review of the borrowers’ credit quality and appropriate collateral security. The borrowers’ credit quality is evaluated on the basis of uniform solvency criteria. Contacts with clients are frequent and relations close, thus enabling the bank to monitor default risk on a regular basis. The value of items pledged is periodically revalued according to the type of collateral provided.
financial assets available for sale 28 –14 –64 loans 14 –42 –20
Total financial liabilities designated as at fair value through profit or loss 1 595 1 251 1 598 1 246
Transfers to assets held for sale – – 0 5 12 17
Total intangible assets as at 31 December 692 17 2 526 246 7 19 3 507
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 Federal Office of Private Insurance. 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 in euro.
Banca del Gottardo – medium–term notes1) CHF 2.000% n. a. n. a. 10 6
The net asset/liability consists of gross defined benefit liabilities –2 535 –2 558 gross defined benefit assets 20 153 123
Other long-term employee benefits The liability for longterm employee benefits amounted to CHF 12 million as at 31 December 2006 (2005: CHF 12 million). It relates to part-time employment contracts prior to retirement and to profit-sharing arrangements for certain employees.
In 2005, a provision totalling CHF 72 million relating to the restructuring programme of «La Suisse» in Switzerland was set up. As at 31 December 2006 the remaining provision amounted to CHF 23 million and CHF 12 million was used during the period (2005: CHF 37 million). The provision primarily relates to redundancy programmes and onerous contracts. The outflow of the remaining amounts is expected within the next one to two years.
Impairment losses transferred to the income statement 9 14 – – 14
Foreign currency translation differences Foreign currency translation differences comprise the resulting differences arising on the translation of assets, liabilities, income and expenses of Group entities denominated in foreign currencies into Swiss francs.
Swiss Life Group . Financial Statements 2006 . Notes to the Consolidated Financial Statements 40 Events after the Balance Sheet Date
Gotam Fund Management Company, Luxembourg Banking 100.0% 100.0% full EUR 125
Swiss Life Holding’s liquid assets (liquid funds plus time deposits and comparable instruments) climbed from CHF 481 million to CHF 649 million, further enhancing the Group’s financial flexibility. The company also invested CHF 75 million in top-quality bonds, which can be used in repo transactions to generate liquidity.
Swiss Life Holding . Financial Statements 2006 . Report of the Statutory Auditors