Summary of Group Results Swiss Life increased net profit to CHF 784 million and premium income by 4% in local currency to CHF 18 billion in 2013.
Swiss Life is positioning itself in Germany as a financial advisory and insurance company under one roof. The management of all production and distribution organisations from a single source optimises market development and leverages synergies. The segment information comprises local insurance activities and the financial advisory companies operating in Germany under Swiss Life Select, tecis, HORBACH and Deutsche Proventus.
Corporate Governance Good corporate governance is central for the Swiss Life Group. Swiss Life develops internal principles and guidelines of responsible corporate conduct in line with nationally and internationally recognised standards.
Frank W. Keuper — Born 1953, German national Member of the Board of Directors bild Frank W. Keuper studied social and economic sciences at Vienna University of Economics and Business and obtained a doctorate in the same subject. He started his career in the insurance sector in 1985 at the Albingia insurance group as assistant to the Management Board and later became Head of Sales and Marketing. After switching to the Zurich insurance group he returned to Albingia in 1992 and served as a member of the Management Board from 1994 until 2000. He later assumed responsibility as a member of the Management Board at AXA Versicherung AG for the Private and Corporate Clients division as well as Damages. From 2004 until 2007 he managed DBV Winterthur Holding AG as Chairman of the Management Board and was simultaneously a member of the Management Board of Winterthur Group. From 2007 until 2012 Frank W. Keuper was CEO of AXA Konzern AG and a member of the Executive Committee of AXA Group in Paris.
Other appointments: – Vontobel Holding Ltd, Member of the Board of Directors – Bühler AG, Member of the Board of Directors – Unitectra Ltd, Chairman of the Board of Directors
The Articles of Association stipulate that the external auditor is to be elected by the General Meeting of Shareholders for one financial year at a time. When Swiss Life Holding was established in 2002, PwC was named as statutory auditor and Group auditor. Since then PwC has been re-elected without fail. PwC has also acted as statutory auditor and Group auditor for Swiss Life Ltd since 1994. Swiss Life Holding last invited tenders for its statutory auditor and Group auditor mandate for the 2008 financial year. On completion of the evaluation process, the Board of Directors, in accordance with the proposal of the Audit Committee, again nominated PwC as its statutory auditor and Group auditor at the General Meeting of Shareholders.
Economic and statutory capital constraints and the profit target are the main elements determining the risk budgets. Based on these risk budgets, the Group Risk Committee of the Corporate Executive Board defines the risk limits for the particular business units. Adherence to these limits is checked each month.
The table below shows the development of Group MCEV split by components from 31 December 2012 to 31 December 2013.
100 bp increase of interest rates (reference rates) 413 4% 37 13%
For the other parts of the Swiss Life Group, i.e. the non-covered business, the shareholder value is derived from its contribution to the Group’s IFRS net asset value.
Operating variances are driven by the adjustment of the strategic asset allocation and the sharing of asset returns.
Euro Zone 29bp 48bp united States 47bp 68bp 1 liquidity Premium for British pound: 56bp (2012: 85bp), for Canadian dollar: 24bp (2012: 37bp)
Changes in ownership interest in subsidiaries – – – – – – –2 –2
Swiss Life – Annual Report 2013 2 Summary of Significant Accounting Policies
The amended IAS 1 Presentation of Financial Statements requires entities to group together items within other comprehensive income that may be reclassified to profit or loss. The amendments also reaffirm existing requirements that items in other comprehensive income and profit or loss should be presented as either a single statement or two consecutive statements. The presentation of items within other comprehensive income was adjusted according to the new requirements. As at 31 December 2012, foreign currency translation differences of CHF 855 million (losses) and gains/ losses recognised directly in equity of CHF 2736 million (gains) were reclassified into accumulated other comprehensive income due to IAS 1 Presentation of Financial Statements (revised) (1 January 2012: foreign currency translation differences of CHF 833 million (losses) and gains/losses recognised directly in equity of CHF 1544 million (gains)).
The Group has assessed the significance of insurance risk on a contract-by-contract basis. Contracts that do not transfer insurance risk at inception but that transfer insurance risk at a later date are classified as insurance from inception unless the Group remains free to price the insurance premium at a later date. In this case, the contract is classified as insurance when the insurance
ToTal aSSeTS For THe aCCouNT aND rISK oF THe SwISS lIFe grouP’S CuSTomerS 28 559 25 396 liabilities linked to assets for the account and risk of the swiss life group’s customers
equity price risk A decline in the equity market may lead to a reduction of the Swiss Life Group’s realised and unrealised gains/losses, which also negatively affects the Swiss Life Group’s results of operations and financial condition.
Swiss Life – Annual Report 2013 exposure to credit risk of other assets
Swiss Life – Annual Report 2013 by hedging against the risk of such movements in relation to part of its investments denominated in euros and in US dollars, significant movements in exchange rates could adversely affect the Swiss Life Group’s earnings and financial position, including the value of its investment portfolio. Foreign exchange exposure is hedged to a large extent in line with the strategic asset allocation. The Group’s hedging arrangements are directed at covering its exposure mainly from an economic perspective. The instruments which the Swiss Life Group uses to hedge exposure may not be perfectly correlated to the related assets, so the Group will still be exposed to losses if the value of the hedge and the value of the underlying asset or liability do not correspond appropriately.
entities with functional currency CHF – 7 197 18 410 4 165 110 3 041 entities with functional currency eur –21 – 1 961 179 0 185
Investment contracts without discretionary participation 47 12 2 11 4 3 15
Disability income and other annuities – deferred 14 750 14 528 life benefits insured by type of insurance – individual life
The development of claims under non-life insurance contracts comprises the non-life business in France. A minor part of the non-life business is very short-tailed. The claims incurred for this minor part are almost completely settled within one year. The amount of unpaid claims as at the balance sheet date is therefore not material and does not underlie any significant variation in its temporal development. The claims data regarding this type of business is not included in the figures above.
sensitivity analysis The Swiss Life Group uses the market consistent embedded value (MCEV) following the guidelines of the European Insurance CFO Forum Market Consistent Embedded Value Principles©1, as one of the main management tools, for its sensitivity analysis with regard to insurance risk and market risk. From the shareholders’ point of view, the embedded value serves as an indicator of the value of the existing insurance portfolios. It is composed of two components: the net asset value (NAV) attributable to shareholders and the value of in-force business (VIF). Future new business is not included.
The market consistent embedded value of the Swiss Life Group amounted to CHF 11.4 billion as at 31 December 2013 (2012: CHF 9.6 billion). Due to different valuation principles, changes in the embedded value are typically not reflected 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 2013, if the swaption implied volatilities (interest rates) had been 25% higher, the embedded value would have been CHF 202 million higher (2012: CHF 444 million lower).
At 31 December 2013, if the market value of equity securities and property had been 10% lower, the embedded value would have been CHF 693 million lower (2012: CHF 732 million lower).
Interest income on financial assets available for sale 2 681 2 558
Interest rate derivatives 72 –52 equity derivatives –62 –63 other derivatives –1 –2
Interest income accrued on impaired loans was CHF 0.5 million as at 31 December 2013 (2012: CHF 1 million). The Group’s loan port folio is monitored closely through the review of information such as debt service, annual reports and assessments. This information is evaluated in light of current economic conditions and other factors such as diversification of the property portfolio. This evaluation is part of the regular review to determine whether the allowance for potential loan losses is warranted. Management believes that the allowance for loan losses is sufficient. However, management cannot predict with assurance the impact of future economic circumstances or how the mortgage and real estate portfolios would be affected by various economic circumstances.
Rental income from investment property was CHF 811 million for the period ended 31 December 2013 (2012: CHF 761 million). Operating expenses arising from investment property that generated rental income stood at CHF 174 million for the period ended 31 December 2013 (2012: CHF 176 million). Operating expenses arising from investment property that did not generate rental income during the period stood at nil for the period ended 31 December 2013 (2012: nil).
Deferred acquisition costs (DaC) Certain acquisition costs relating to new and renewed insurance contracts and investment contracts with discretionary participation are deferred.
The headroom on the goodwill relating to CapitalLeben amounted to CHF 181 million as at 31 December 2013. It would not be removed if the discount rate were to be increased by 0.5 percentage points and the growth rate were to be decreased by 1 percentage point.
Swiss Life – Annual Report 2013 18 Other Assets and Liabilities other assets
In CHF million accretion of interest 27 23 liabilities released for payments on death, surrender and other terminations during the year –331 –374 effect of changes in actuarial assumptions and other movements 2 2 reclassifications and other disposals – –95
BalaNCe aS aT eND oF PerIoD 6 270 6 414 90 87 6 180 6 328
Deposits released for payments on death, surrender and other terminations during the year –539 –565 reclassifications and other disposals 548 293
Other benefits comprise survivors’/orphans’ pensions and/or lump-sum payments in case of death as well as disability pensions (if disabled before retirement age). In these plans, which cover nearly all of the Group’s employees in Switzerland, the cost of the benefits is funded by payment
Swiss Life – Annual Report 2013 of insurance premiums to group insurance contracts issued by Swiss Life Ltd (self-insurance) and is borne by the employer. In addition, the administration expenses of the plans are also borne by the employer since the personnel managing the plans are Swiss Life employees.
Swiss Life – Annual Report 2013 share-based payment programmes (restricted share units)
Total amounts used –23 –14 –23 –18 –46 –32 unused amounts reversed –6 –2 –23 –9 –29 –11 unwind of discount and change in discount rate 0 0 3 0 3 0
NeT BalaNCe aS aT eND oF PerIoD –853 2 494 299 –127 1 813 71 –139 – –68 1 745
Share of other comprehensive income of associates – – – 0 0 – – – – 0 gains/losses on assets held for sale – – – 1 1 – – – – 1 gains/losses transferred to the income statement 8, 9 – –753 – 170 1 –583 – – – – –583 effects of
NeT CHaNge IN CaSH aND CaSH equIvaleNTS 91 –251 4 –
level 2: valuation techniques and inputs Level 2 financial instruments carried at fair value include debt instruments, equity securities, investment funds, alternative investments, over-the-counter derivatives on currencies, interest rates, and equity as well as investments in associates.
– Forward starting bonds are valued on a cost-of-carry basis using the discounted cash flow method. Main inputs to calculate the current forward rate are the spot price of underlying bond and the discount factors to coupon payment dates/maturity date.
at fair at fair value value through through profit available profit available or loss for sale or loss 1 for sale
unrealised gains/losses recognised in profit or loss for liabilities held at the end of the period – –46 –
Swiss Life – Annual Report 2013 30.2 fair value of financial instruments carried at amortised cost
For mortgages, the discount factors are derived from the libor/swap curve and a flat spread. Contract-specific spreads are based on an internal model that covers both risk and administration costs. Main inputs to that model are characteristics of the underlying property, the financial situation of the debtor, and the duration of the contract. If no contract-specific spread is available a standard spread is applied that shall cover the marketability disadvantages and the administration costs as mortgages are less standardised and tradable than exchanged-traded bonds.
Swiss Life – Annual Report 2013 33 Collateral assets pledged as collateral
The following table provides details of financial assets which have been sold or otherwise transferred, but which do not qualify for derecognition because substantially all risks and rewards of ownership are retained. Repurchase agreements and securities lending transactions are discussed in notes 2.8 and 12. Securities pledged under other transactions include debt securities pledged as collateral under reinsurance contracts issued and debt securities pledged as collateral under prime broker contracts to cover margins due in respect of derivative transactions. Other financial assets pledged include cash collateral provided for OTC derivative liabilities.
Swiss life reIm (luxembourg) S.a., Strassen am from 22.08.2012 100.0% 100.0% Investment funds
In addition, Swiss Life Holding grants a credit line of CHF 6 million to Swiss Life Products.
balance as at 1 January 164 164 tOtal sHaRe CapItal 164 164 legal ReseRves
Compensation in 2013 The specifications below take into consideration the transparency regulations relating to compensation set out in the Swiss Code of Obligations Art. 663bbis and Art. 663c and the directive on information relating to corporate governance issued by the SIX Swiss Exchange as well as Circular 2010/1 of the Swiss Financial Market Supervisory Authority FINMA on minimum standards for remuneration schemes of financial institutions. The compensation report in accordance with Art. 13 et seq. of the Federal Ordinance against Excessive Compensation in Listed Stock Companies (Verordnung gegen übermässige Vergütungen bei börsenkotierten Aktiengesellschaften, VegüV), hereinafter “Compensation Ordinance”, can be found in the Corporate Governance section on pages 48 to 62. Further information on benefit expenditure is given in the Consolidated Financial Statements (notes 23 and 29) on pages 213 to 222 and 236.
The compensation policy underpins the performance culture required by the corporate strategy and forms part of the HR policy. The aim is to retain well-qualified employees and gain new, highly skilled staff. The compensation system is in line with the market environment and must be competitive. The individual overall compensation takes into account the employee’s professional skills, engagement and personal performance. It is made up of the basic salary, a short-term variable compensation component based on achievement of the annual objectives, which is generally paid in cash and possibly in shares and, if applicable, as deferred compensation in cash, and a long-term variable compensation component in the form of an equity compensation plan, as well as contributions to occupational provisions and risk insurance.
The share in the company’s success is measured using quantitative Group targets (Key Performance Indicators, KPIs), which are defined in advance for a period of three years as part of medium-term planning. The main KPIs for the 2013–2015 medium-term planning are, besides the annual profit, the planned cost savings, the risk and fee result, new business profitability, return on equity and solvency (Swiss Solvency Test, SST). In order to avoid conduct aimed at the short-term achievement of key indicators with a higher weighting, the individual KPIs are not mechanistically weighted in advance. Their individual weighting is determined at the end of each financial year by the Board of Directors as a whole on the basis of a proposal by the Nomination and Compensation Committee (to be renamed the “Compensation Committee” as of the 2014 General Meeting of Shareholders) taking all developments into account and consideration (discretionary decision).
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 Nomination and Compensation Committee (NCC) is responsible for putting forward appropriate proposals (for the internal organisation of the Board of Directors see Corporate Governance / Internal organisational structure, pages 38 to 41). The Board of Directors as a whole also establishes the guidelines for the Group’s compensation policy. In doing so, it takes into consideration the compensation policies of other companies in the financial services industry, drawing its findings from publicly available information and studies by independent external experts. Comparable companies in the insurance sector in Switzerland used for the purposes of providing relevant information for the current compensation policy included Allianz, AXA, Baloise Insurance, Swiss Re and Zurich Insurance Group.
The variable compensation in cash (cash bonus and, if applicable, deferred compensation in cash) is set at a maximum of 117% of the fixed basic salary (“bonus cap”) and requires that all objectives have been considerably exceeded. In the case of 100% target achievement, variable compensation in cash of 80% of the fixed basic salary is provided for at Corporate Executive Board level (“on-target bonus”), which can be reduced by the Board of Directors in consideration of all the circumstances.
total compen- sation extra- amount (at in cash ordinary aggregate closing price and shares Regular contri- total amount Number on allocation) (amount) 4 contributions 5 butions (amount) 6
6 For the period from the 2014 annual general meeting to the 2015 annual general meeting, compensation for members of the board of Directors will remain unchanged. For the Chairman of the board of Directors, the fixed compensation in cash and in blocked shares will be reduced by CHF 240 000 to CHF 1 200 000. accordingly compensation for the Chairman for the period agm 2014 – agm 2015 is reported as follows in the compensation table: Rolf Dörig, Chairman of the board of Directors 840 000 302 263 1 142 263 286 416 – 1 428 679