Swiss Life Group . Review of Operations 2003 . Letter from the Chairman of the Board of Directors and the CEO
Confidence was rekindled, thanks to all these measures and greater transparency in reporting, for example in stating country-specific operating results for our core business. We want to build on this confidence again this year.
These uncertainties led some competitors to introduce new employee benefit models onto the market, incorporating different treatment for mandatory and supplementary (optional) benefits and shifting part of the financial market risks onto the employee benefits foundations and thus the people insured. In Swiss Life’s view, the minimum interest rate must be set using a model which is binding, flexible, market-related, transparent, plannable, economically viable and applicable to the investment possibilities, in order to have a secure system of employee benefits which is calculable for all concerned. The conversion rate must be brought in line with reality as well. Since the political decision on the conversion rate was delayed, Swiss Life also decided to separate mandatory from supplementary business and to adjust the conversion rate for supplementary business with effect from 2005. The company intends to avoid an abrupt change to the actuarially appropriate rate of 5.835% for existing customers, however, and is instead offering them a solution in which the conversion rate will be lowered successively in stages over the following three years. Swiss Life is thus accommodating its existing clientele.
Premium volume rose 6% to CHF 566 million, with the Belgian market accounting for 80% and the Luxembourg market for 20%. In the local currency, this represented a 2% increase.
During the review period, in line with its concentration on core business Swiss Life sold its company in Spain and stopped writing new business in the UK. As a result, premium income shrank 20% to CHF 1646 million and operating expenses fell 48% to CHF 189 million. With a financial result 43% higher at CHF 450 million, the operating result came to CHF 67 million, in contrast to the loss of CHF 157 million registered the previous year.
Non-Life Swiss Life’s operating income in the Non-Life segment came to CHF 23 million in 2003. Gross written premiums remained stable and operating expenses were down 10 %. The combined ratio improved from 121 % to 108 %.
The pooling system is a key element in the employee benefit solutions delivered by the Swiss Life Network. A multinational company’s group insurance contracts with companies in the Swiss Life Group or with partners in the Swiss Life Network are aggregated in a pool. This enables the client company to enjoy a broader, and therefore better, distribution of the risks. For instance, UBS has insured some 4000 employees in 18 countries using a pool solution, which allows this major Swiss bank to have a central voice in the structure, benefits and costs of the different pension plans in its various locations. Favourable loss experience within the pool means the costs are reduced. As an additional service, UBS always receives up-to-date information on the local social insurance situation and the customary plans in the country concerned.
Canada Life (US) in the USA, OM Kotak Mahindra (India) and UnumProvident (UK) all joined the Swiss Life Network in the year under review. In Canada, Great-West took over the previous partner Canada Life and is now serving as the new network partner. In Spain, VidaCaixa took over Swiss Life (España) and joined the network at the same time.
Swiss Life Group . Review of Operations 2003 . Embedded Value
Swiss Life Group . Review of Operations 2003 . Risk Management
Credit risk Credit risk involves the possibility that individual debtors may no longer be able to meet their obligations.
Student, Christina D. (23), joiner, François L. (26), and laboratory technician, Nadine M. (24), reach for the stars.
Other appointments: – «La Suisse», Lausanne, Vice Chairman of the Board of Directors – Pendia Associates AG, Zurich, Member of the Board of Directors – Chamber of Commerce Germany-Switzerland, Member of the Board
Swiss Life Group . Financial Statements 2003 . Consolidated Balance Sheet
Net changes in other operating assets and liabilities 695 –2 627
Deposits under financial reinsurance contracts that do not transfer risk 0 6
The Group’s consolidated financial statements include the assets, liabilities, revenues and expenses of Swiss Life Holding and its subsidiaries. A subsidiary is an entity in which Swiss Life Holding owns directly or indirectly more than 50% of the voting rights, or in which it otherwise has the power to exercise control over operations. Subsidiaries are consolidated from the date on which effective control is transferred. All intercompany balances, transactions and unrealised gains and losses on transactions have been eliminated. A listing of the Group’s principal subsidiaries is set out in note 43. The financial effect of acquisitions and disposals of subsidiaries is shown in note 4. Associates, partnerships and certain joint ventures for which the Group has between 20% and 50% of the voting rights and/or exercises significant influence are accounted for using the equity method. The Group’s share of net income for the year is recognised as investment income and the ownership interest in the investment is recorded in the balance sheet at an amount that reflects its share of the net assets and includes goodwill on the acquisition. A listing of the Group’s principal associates, partnerships and joint ventures is shown in note 43.
Deferred acquisition costs for investment-type contracts such as universal life and unit-linked contracts are amortised over the life of the contract based on the present value of the estimated gross profits expected to be realised. The estimated gross profits are made up of margins available from mortality charges and contract-administration costs, investment earnings spreads, surrender charges and other expected assessments and credits.
For investment-type products bonuses are only accrued on deposits under policyholder accounts if the policyholders would be entitled to receive those bonuses upon surrender at the balance sheet date.
If the lease agreement transfers the risks and rewards of the assets, the lease is recorded as a finance lease and the related asset is capitalised. At inception, the asset is recognised at the lower of the present value of the minimum lease payments or fair value and depreciated over its estimated useful life. The corresponding finance lease obligations are recorded as liabilities.
– Borrowings are estimated using discounted cash flow calculations based upon the Group’s current borrowing rates for similar borrowings with remaining maturities consistent with the debt being valued.
Additions of property and equipment and intangible assets 71 14 5 5 1 8 – 104
Net realised and unrealised gains/losses on investments –1 513 –83 –394 –123 –97 – –2 210
Net result used to determine diluted earnings per share 232 987 881 –1 693 503 186
Total interest credited to investment contracts, customer deposits and other funds on deposit 818 946
Swiss Life Group . Financial Statements 2003 . Notes to the Consolidated Financial Statements 9 Held-to-Maturity Securities and Available-for-Sale Securities
Swiss Life Group . Financial Statements 2003 . Notes to the Consolidated Financial Statements 109In CHF million 2003 2002
Balance as of 1 January –1 –4 –1 –1 0 –7 –6
Balance as of 1 January –1 574 15 –38 –11 –1 608 –544
Balance as of 31 December –738 – –2 –740 –835 19 Goodwill and Other Intangible Assets
Swiss Life Group . Financial Statements 2003 . Notes to the Consolidated Financial Statements 113Separate account (unit-linked) assets as of 31 December
The Group had 10 015 and 11 541 full time equivalents as of 31 December 2003 and 2002, respectively.
In CHF million In CHF million Interest Carrying amount Carrying amount
Gains/losses recognised directly in equity, gross 1 886 1 031 2 917
Investment contracts, customer deposits and other funds on deposit –28 –28
Loans originated by the enterprise 18 659 6 125 35 555 70 156 25 600
Investment contracts, customer deposits and other funds on deposit –5 470 –22 201 –307 –1 178 –80 –116 –29 352
Net balance sheet liquidity gap –1 792 770 19 537 13 614 45 803 –73 257 4 675
Other income 72 41 Branches, Subsidiaries, Associates, Partnerships and Joint Ventures
Jungfraubahn Holding, Interlaken – – until 24.09.2002 – – equity CHF 11 670
Swissville Private Holding, Zürich Life l 99.7% 100.0% full CHF 50 000
Placement Financier du Midi, Paris – – until 04.08.2002 – – equity EUR 76
Gottardo Strategy Fund Management, Luxembourg PB ° 99.5% 100.0% full CHF 200
Swiss Life Asset Management Holding, Strassen IM l 99.7% 100.0% full CHF 8 380
Gottardo Asset Management SGR, Milano PB ° from 01.01.2003 96.6% 100.0% full EUR 2 500
On 5 December 2003 the two companies, Swiss Life Asset Management, Zurich, and Swiss Life Asset Management (Nederland), Amstelveen, were transferred to Swiss Life Holding.
Swiss Life Holding . Financial Statements 2003 . Notes to the Financial Statements
Report of the Statutory Auditors to the General Meeting of Shareholders, Swiss Life Holding, Zurich