In Germany Swiss Life is the leading specialist in occupational disability coverage and a successful provider of innovative pension products for individuals.
Each human being is unique. No two sets of wishes and visions or life histories are the same. Naturally, then, perspectives are never absolute; they are always shaped by a certain point of view. They can open up new dimensions, depending on the angle taken. And because life never stops moving, perspectives change.
Of the profit from operations amounting to CHF 1706 million, CHF 650 million was generated in Switzerland, CHF 324 million in France, CHF 65 million in Germany and CHF 93 million by Investment Management. The contribution to profit from operations by the units sold in the Netherlands and Belgium came to CHF 471 million, around CHF 300 million of which stemmed from the dissolution of reserves mentioned above. Banca del Gottardo turned in a good performance, which was ref lected in its segment result of CHF 168 million.
The area of pensions and longterm savings is a growth market.
Targets met earlier than planned Swiss Life has become a focused European life insurer in recent years and is excellently positioned to substantially benefit from this growth. It is the only leading international player in Switzerland, France and Germany that concentrates on life insurance and pension solutions. Swiss Life has progressed greatly in terms of its strategic directions of growth, efficiency and leadership and, in many areas, attained the goals it set for 2008 one year earlier than planned.
Ambition | We aim to become a leading international specialist in life insurance and pension solutions.
The profit contribution by discontinued operations amounted to CHF 642 million. The increase compared to 2006 was due to the significantly higher result from the discontinued insurance segment. This result rose from CHF 144 million to CHF 471 million owing to the above-mentioned release of a reserve position of around CHF 300 million. The segment profit of the sold banking business came to CHF 168 million.
Attestation regarding embedded value information as at 31. December 2007 “PricewaterhouseCoopers has reported to the Board of Directors that, based on the procedures performed, in their opinion: – The methodology set out in the EV-Guidelines, in all material respects and with due regard to the nature of the business, is appropriate and consistent for the purpose of the (traditional) embedded value; – The local implementation of the methodology is, in all material respects and with due regard to the nature of the business, consistent with the prescriptions of Swiss Life Group and in line with general market practice; – The assumptions determined by the Swiss Life Group are reasonable to derive the embedded value information; – The embedded value information has been properly compiled on the basis of the chosen assumptions and methodology. The assurance report issued by PricewaterhouseCoopers to the Board of Directors, where the assumptions made, the work performed and the results are outlined, can be seen on www.swisslife.com.”
Financial result (without share of results of associates) 2 556 2 767 –7.6%
DISCONTINUED INSURANCE | The Discontinued Insurance segment comprises Swiss Life’s insurance business in the Netherlands and Belgium. In November 2007, the company announced it was selling this to SNS REAAL. The transaction is expected to be completed by the second quarter of 2008. In January 2008, SNS REAAL, in turn, announced that it was selling on the Belgian business it acquired from Swiss Life to Delta Lloyd.
Financial result (without share of results of associates) 598 318 88.1%
The interest rate risk refers to interest rate f luctuations, especially in CHF and EUR, that simultaneously impact the value of investments and the company’s financial obligations (future insurance benefits). The interest rate risk is evaluated and controlled within the context of asset and liability management. By investing in the appropriate interest-rate-sensitive instruments, in particular bonds, companies can reduce their exposure to interest rate changes. The process also involves the harmonisation of the maturity and cash f low patterns of investments and financial obligations. Swiss Life distinctly reduced its interest rate risk in the year under review, which is also ref lected in the duration gap (cf. chart on page 33). This led to a reduction in the overall risk level.
In addition to being monitored and controlled in the individual business units, market risks are consolidated and centrally managed at Group level. External requirements by supervisory authorities and rating agencies also play a key role in the assessment of risks. These requirements can lead to specific limits with regard to the investment policy in the individual countries.
UNDERWRITING RISK | Underwriting risks comprise biometric risks (mortality, longevity and disability) on the one hand and the unpredictability of customer behaviour (surrenders and capital options) on the other.
At a multi-national level, the European Union is aiming to set up a risk-based solvency supervision mechanism with its Solvency II project. On 10 July 2007, an initial draft of the corresponding directive was published by the European Commission. The intention is to have Solvency II integrated into national legislation by 2012. Although Swiss Life is domiciled in a non-member state, the EU’s regulations with regard to third-party states are extremely important. The EU’s framework directive moreover provides for modernised group supervision, based on the principle of equivalence. The Swiss insurance industry is trying to have this principle applied to all insurance companies regardless of where their head office is domiciled so as to create equal competitive conditions for all.
SHARES | 34 960 439 fully paid Swiss Life Holding registered shares with a par value of CHF 34 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 69), each share grants the right to one vote at the General Meeting of Shareholders.
Annual General Meeting of Shareholders in the year in which the member reaches the age of 70.
Other appointments: – Roche Holding AG, Basel, Vice Chairman of the Board of Directors and (until 4 March 2008) Independent Lead Director – Swiss Air Transport Foundation, Chairman of the Board of Trustees
OUTLOOK | On 26 November 2007, Swiss Life announced HR measures it planned to implement in order to safeguard the continuity of the Board of Directors and to strengthen the Corporate Executive Board. Bruno Gehrig, who has held the position of Chairman of the Board of Directors since May 2003, has decided to resign from the Board of Directors of Swiss Life with effect from the Annual General Meeting of Shareholders in 2010. In this connection, Rolf Dörig, who has been the Group CEO since November 2002, will be put forward for election to the Board of Directors at the Annual General Meeting on 8 May 2008. It is envisaged that, from this date on, Rolf Dörig will assume the role of Delegate of the Board of Directors for a two-year period and be responsible for overseeing both strategy implementation and further strategy development. He is to succeed Bruno Gehrig as the Chairman of the Board of Directors following the 2010 Annual General Meeting of Shareholders.
Other appointments: – Aareal Bank, Wiesbaden, Member of the Supervisory Board – Commerzbank, Member of the Federal State Advisory Committee – German Insurance Association, Member of the Main Committee Life Insurance – German Insurance Association, Member of the Chairman’s Committee
In 2006, 36 members of the Swiss Life Group senior management participated in the continued equity compensation programme. A total of 46 651 PSUs were allocated; 22 255 to the Corporate Executive Board, of which 7153 to the Group CEO.
Franziska Tschudi CHF 82 000 108 1 cf. also the section on share allotment
Patrick Frost 557 Shares 3 “Closely linked parties” are natural persons and legal entities pursuant to Art. 678 of the Swiss Code of Obligations that have close personal, economic, legal or de facto ties with members of the governing body. This typically includes spouses, minor children, companies controlled by members of the governing body, and natural or legal persons serving the members of the governing body in a fiduciary capacity.
Insurance payables and other payables 9, 33 3 350 4 268
Sales of treasury shares – –5 761 – – – 756 – 756
2.11 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.
The accounting for the amounts identified as DPF has been done as follows: In jurisdictions where no statutory minimum distribution ratio (“legal quote”) exists, the contractual right to receive, as a supplement to guaranteed benefits, additional benefits which are likely to be a significant portion of the total contractual benefits, arises when management ratifies the allocation of policyholder bonuses. When ratified by management, a corresponding liability is set up. To the extent discretion with regard to amount and/or timing is involved, these amounts are included within policyholder participation liabilities. In that respect the policyholder bonus reserve set up in the statutory accounts for these contracts is regarded as discretionary. For these contracts the entire DPF is classified as a liability.
Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.
Impairment of held-to-maturity and available-for-sale debt instruments As a Group policy, held-to-maturity and available-for-sale debt securities 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.
The reportable segments have been identified based on the information about the components of the entity that management uses to make decisions about operating matters. The information that is provided to management is focused on the category of product lines and services. The organisational and management structure within the insurance business is based on geography. The reportable segments have therefore been identified as follows: – Insurance Switzerland – Insurance France – Insurance Germany – Insurance Other – Investment Management – Other – Insurance (Discontinued) – Banking (Discontinued)
“Insurance Other” comprised the insurance operations in Liechtenstein and Luxembourg in 2007 and Liechtenstein, Luxembourg and Italy in 2006. The insurance operations in Italy were sold in December 2006.
Insurance Insurance Insurance Insurance In CHF million Switzerland France Germany Other
Insurance Insurance Investment Insurance Banking Germany Other Management Other (Discontinued) (Discontinued) Eliminations Total
DISTRIBUTION POLICY | The distribution policy seeks to harmonise the interests of the different groups of stakeholders. Policyholders favour a minimum interest rate coupled with regular and appropriate discretionary participation whereas shareholders place greater emphasis on returns commensurate with the level of risk they are exposed to. Internal guidelines have been developed which define the policies for the allocation of policyholder participation with regard to annual bonus and terminal bonus. The focus of the Swiss Life Group lies on the sustainability of the business model and should balance the policyholders’ and shareholders’ expectations.
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, credit risk capital, interest rate risk capital and currency risk capital limits as well as exposure limits for currencies and net equity for each relevant Group entity have been defined and these limits are assessed and reported on a regular basis.
For the account and risk of the Swiss Life Group’s customers 2 800 – – – – 2 800
Total insurance and policyholder participation liabilities 96 949 340 350 4 349 9 462 82 448
Deferred income tax liabilities – – 485 865 485 865 5 Risk Management Policies and Procedures (continued)
BONUS AND PROFIT ALLOCATION | The uncertainty in the estimation of future benefit payments and premium receipts for long-term insurance contracts is due to systemic risk arising from the unpredictability of long-term changes in overall levels of mortality and disability. On the other hand, there are random fluctuations, such as variability in policyholder behaviour, which cause deviations from the expected outcome of a portfolio. Benefit payments can be strongly affected by such deviations. The impact of random fluctuations depends on the extent of diversification within a portfolio of contracts.
For certain businesses, quota share and surplus contracts primarily covering high amounts insured and catastrophe risks are in place. In other businesses, the reinsured risks are mortality and disability. These reinsurance arrangements are all on an excess-of-loss basis.
The sensitivity analysis relating to continuing operations with regard to insurance risk is as follows: Higher overall mortality would have a significant positive effect on the embedded value of life annuities (survival risk) whereas the negative effect on the embedded value of contracts with mortality risk is comparatively limited due to respective reductions in policyholder bonuses. Therefore, this sensitivity is considered not significant as a risk for the embedded value.
Derivatives embedded in insurance contracts – – 1 1 10 18
Securities pledged as collateral (reclassified) – – – – – –
Transfers to investment property 15 16 – – – – 16
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 four-year period for Lloyd Continental. Due to the duration of the insurance and investment contracts a 13-year period was used for CapitalLeben Versicherung AG, Schaan. The calculations for Lloyd Continental and CapitalLeben Versicherung AG,
For investment-type contracts, savings premiums collected are reported as deposits (deposit accounting). These amounts primarily relate to contracts issued in France and Luxembourg. For traditional contracts in the life insurance business, future life policy benefit liabilities are determined by using the net-level-premium method on the basis of actuarial assumptions as to mortality, persistency, expenses and investment return, including a margin for adverse deviation. For participating contracts where the contribution principle applies to the allocation of the policyholder bonus, future life policy benefit liabilities are determined by using the net-level-premium method on the basis of appropriate mortality and interest rate assumptions.
Represents the liability for all claim payments in individual and group life business which were due in the current or previous reporting periods that are still left unpaid at the reporting date. Measurement at the reporting date is the sum of all payments for claims still left unsettled but which were due in the current or any previous reporting period.
Number of employees The Group had 8556 full-time equivalents as at 31 December 2007 (2006: 8693).
Unused amounts reversed during the reporting period – –20 –20 –4
Gains/losses recognised directly in equity Gains/losses recognised directly in equity comprise fair value changes of available-for-sale investments, revaluation surpluses on the transfer of owner-occupied property to investment property and the effective portion of the gain or loss on hedging derivatives in qualifying cash f low hedges. These amounts are net of certain policyholder bonuses and other policyholder liabilities and deferred acquisition costs, deferred income taxes and minority interests.
The Swiss Life Group acquired an insurance broker in Belgium in December 2006. The acquisition cost amounted to CHF 3 million.
Loan commitments The Group has also entered into irrevocable commitments to extend credit in the form of loans and other instruments. They represent undrawn credit lines which are available to clients to secure their liquidity needs. With respect to credit risk, these commitments are contingent upon clients maintaining certain credit standards, and the Group monitors its exposure on a regular basis.
Swiss Life Assurance et Patrimoine, Paris Ins. FR 99.7% 100.0% full EUR 113 250
Swiss Life Partner Service und Finanzvermittlung, München Ins. DE 100.0% 100.0% full EUR 300
Total income at Swiss Life Holding rose from CHF 261 million to CHF 350 million. This growth reflected the increase from CHF 231 million to CHF 331 million in dividends received on participating interests. More than one third of the dividend income was generated abroad. In addition, dividend income was broadly diversified between the segments.
Swiss Life Beteiligungs GmbH, München EUR 25 100.0% – – –
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.
In 2007, convertible bonds of CHF 248 235 000 were converted into 1 184 170 SLH shares with a corresponding increase of share capital and share premium.
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 vesting period of one year. The share price (closing price) on the day of allocation was CHF 305.00.
Breakdown of registered shares with voting rights Balance as at 31.12.2007
Swiss Life Holding, Finance Ltd., J.P. Morgan Bank, repackaging Issuer Zürich Cayman Islands Luxemburg vehicle)
Publisher | Swiss Life Holding, Zurich Design | schneiter meier külling AG, Zurich Photography | Franz Rindlisbacher und Gerry Amstutz, Zurich Concept | IR Firm, Zurich Production | Management Digital Data AG, Schlieren ZH Printers | NZZ Fretz AG, Schlieren ZH
Rolf Dörig, Group CEO, at the launch of the series of events. The leitmotif is the anniversary theme “Perspectives for People”.
Annual kick-off event in Zurich: On 8 January, 1500 employees get into the swing of the anniversary year.