You have suffered a setback in the international insurance business for high net worth individuals, your private placement life insurance business. Was this due exclusively to the financial market crisis? The collapse of the markets, particularly in October 2008, greatly unsettled wealthy clients. This is understandable; this client segment lost a great deal of money. But another reason is the legal uncertainties in Germany – an important market for us. We have since realigned our products to the new conditions, however.
Swiss Life offers customised employee benefits solutions for international companies. The Swiss Life Network, the reinsurance business in Zurich and the international corporate client business of Swiss Life in Luxembourg form the basis of its global relationships. In order to more efficiently provide international companies with products and services in the area of employee benefits, the Swiss Life Group consolidated these areas in 2008 to form the Corporate Solutions business unit. The employees of this business unit serve their clients from Zurich, London, Luxembourg, Paris, Hamburg, Copenhagen and Singapore. The Swiss Life Network is made up of over 50 partners and serves in excess of 400 multinational companies in more than 70 countries around the globe.
Gross written premiums, policy fees and deposits received 18 515 21 213 –12.7%
The extent to which the embedded value is dependent on the assumptions made can be seen in the “Economic sensitivities” table on the next page.
Impact of 100 bps decrease in investment return –618 –303 –921
Segment Reporting | Swiss Life reports its insurance business results by country. Further segments are Investment Management and AWD. The areas sold in insurance and banking in 2008 are disclosed separately. The negative developments on the financial markets led to an overall segment loss for continuing operations of CHF 726 million.
Following the disposals of the Dutch and Belgian insurance business and of Banca del Gottardo, which were announced in November 2007, Swiss Life adapted its reporting last year to ref lect the new situation. Continuing insurance operations have been broken down by country into Insurance Switzerland, Insurance France, Insurance Germany and Insurance Other. Insurance Other comprises the results of the companies in Liechtenstein and Luxembourg. Two further segments are Investment Management and Other, the latter containing the financing and holding companies. Following acquisition of a majority stake in the AWD Group, AWD operations have been fully consolidated and reported as a new segment since the end of March 2008. The Segment Reporting section of the Financial Statements discloses the results for the areas sold separately. The units were fully consolidated until the respective transactions were finalised: on 29 April 2008 for operations in the Netherlands and Belgium, and on 7 March 2008 for Banca del Gottardo.
Net earned premiums and policy fees 1 819 2 009 –9.5%
Financial result (without share of results of associates) 552 1 064 –48.1%
The Board of Management of AWD was extended to include additional members as of 1 September 2008. The underlying reasons for this move are to lay solid foundations for further growth, to combine market proximity with best practice transfer and to fully exploit the potential for efficiency improvements. Carsten Maschmeyer was joined by Manfred Behrens, formerly Swiss Life’s CEO Germany, as Co-CEO of AWD. The national CEOs Rolf Wiswesser (Germany) and Marco Baur (Switzerland) have also been promoted to the Board. The Deputy Chairman of the Board, Nils Frowein, has assumed the newly created role of Chief Operating Officer. Martin Jünke, formerly Director of Group Finance, has been appointed the new CFO. Wilhelm Zsifkovits will remain in charge of distribution as Chief Sales Officer.
Risk management is a key component of the Swiss Life Group’s financial management process. Overall responsibility is borne by the Group Chief Financial & Risk Officer. The Board of Directors’ Investment and Risk Committee monitors the process, takes decisions with regard to risk budgeting and keeps the Board of Directors in its entirety informed on the company’s risk situation. Further risk management functions are performed by the Corporate Executive Board’s Group Risk Committee and the Asset and Liability Management Committees at country level.
The interest rate risk arises from interest rate f luctuations, especially in Swiss francs and euros, that simultaneously affect the value of investments and liabilities (future insurance benefits). The interest rate risk is assessed and steered in the context of asset and liability management. By investing in the appropriate interest-rate-sensitive instruments, and in particular bonds, companies can reduce their interest rate risk. The process also involves the harmonisation of the maturity structures and cash f low patterns of investments and liabilities. In the year under review, Swiss Life kept the sensitivity of economic net worth to interest rate movements low. The duration gap, which measures the different trends in the value of investments and liabilities due to interest rate changes, came to 1.1% on 31 December 2008 (see chart on page 36). This means that with an interest rate increase of 100 basis points the economic net worth would rise by 1.1% of the present value of the liabilities.
ASSET ALLOCATION | The investment strategy’s goal is the efficient employment of risk capital in line with the risk appetite, i.e. to optimise the return on investment with due consideration of the available risk capital. The present value and the timing of liabilities under the life insurance contracts provide the foundation. The future disbursements are largely known, as they are determined by the guaranteed contractual benefits, and are therefore covered on the investment side by fixed-rate loans, primarily bonds. The lender’s credit rating is a decisive factor, together with management of the difference between time to maturity of the investments, on the one hand, and the liabilities, on the other (duration gap).
DISTRIBUTION POLICY | With its bonus distribution determined annually within the framework of the defined distribution policy, Swiss Life seeks to harmonise the interests of policyholders and shareholders. For policyholders, the accent is firmly on the need for security: They favour a guaranteed minimum interest rate coupled with regular and appropriate bonuses. Shareholders, in contrast, place greater emphasis on the risk/return trade off and look for adequate compensation in the form of dividends and capital gains for the funds they provide.
For instance, management and employees took part in a Group-wide project with the aim of aligning the competency model to the new strategic priorities. The competency model describes the strategy and value-driven behaviour of management and employees. Now, more emphasis is being placed on the competencies of innovativeness, client focus and coping with change. The updated competency model forms part of the employee appraisal system, which is a central element of the performance culture. It will be applied for the first time in the objectives-setting process for 2009.
In Germany, too, Swiss Life has stepped up its investment in the promotion of talent. In 2008, around one third of the vacant managerial positions in Internal Services, the sales force and executive management were filled by existing staff.
In spring 2004 Swiss Life introduced a simplified brand structure and a uniform corporate identity across the Group. The operation of all Swiss Life companies under the same umbrella brand strengthens the employees’ identification with the Group and the potential for international positioning. Under the Swiss Life brand, the companies in the individual countries set their own priorities in advertising campaigns, employing strategies based on their specific market position, sales policy and competitive situation. In Switzerland, Swiss Life uses the brand promise “Prepared for the future” in its campaigns. As market leader, the company has positioned itself in its domestic market with a slogan that bears witness to its confidence: “Provide for the future with the number one.”
CLARITY | We communicate clearly and offer products and services that are comprehensible. This clarity gives our clients and partners a sense of security.
The Swiss Life logo combines the company’s tradition with its objectives. The red colour and the Swiss cross stand for the roots and origin of the 150-yearold company. The three lines of the logo symbolise the most prominent lines on the palm of the hand.
Corporate Governance | The Swiss Life Group is committed to applying national and international standards of responsible corporate conduct. The implementation and ongoing optimisation of the recognised corporate governance principles ensures risk-based and transparent corporate conduct.
After serving on the Swiss Life Holding Board of Directors for six years, Pierfranco Riva will not be standing for re-election at the General Meeting of Shareholders on 7 May 2009, as he has reached the statutory age limit.
On 2 June 2008 Swiss Life communicated that Paul Müller would hand over his position as CEO Switzerland to Ivo Furrer as of 1 September 2008 and that he would be put forward for election to the Board of Directors at the General Meeting of Swiss Life Holding on 7 May 2009. In a media release by the Federal Finance Administration of 5 December 2008, the Federal Council informed that Paul Müller had been elected to the Board of Directors of the Swiss Financial Market Supervisory Authority FINMA, which, for autonomy reasons, rules out his election to the Board of Directors of Swiss Life Holding.
All the shares allotted to the members of the Corporate Executive Board in 2008 represent variable compensation for the results achieved in the 2007 financial year.
4 “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.
Taking into account the mathematical value of the PSUs allocated, which came to CHF 1 062 173, Bruno Pfister’s total compensation for 2008 amounted to CHF 4 088 278.
AUDITING FEES | In 2008 the auditing fees credited to PwC came to CHF 7.3 million (2007: CHF 12.0 million). This includes the fees for reviewing the 2008 half-year accounts.
Disposals of subsidiaries – – – –7 139 – 132 –4 128
Equity-settled share-based payments – 9 – – – – 9 – 9
2.2 Changes in accounting policies STANDARDS AND INTERPRETATIONS EFFECTIVE IN THE CURRENT PERIOD | In November 2006, IFRIC 11 IFRS 2 – Group and Treasury Share Transactions was issued. The Interpretation requires a share-based payment arrangement in which an entity receives goods or services as consideration for its own equity instruments to be accounted for as an equity-settled share-based payment transaction, regardless of how the equity instruments needed are obtained. The Interpretation also provides guidance on whether share-based payment arrangements, in which suppliers of goods or services of an entity are provided with equity instruments of the entity’s parent, should be accounted for as cash-settled or equity-settled in the entity’s financial statements. The Interpretation is effective for annual periods beginning on or after 1 March 2007. The Interpretation does not have an impact on the Swiss Life Group.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash f lows from groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
INSURANCE LIABILITIES AND LIABILITIES FROM INVESTMENT CONTRACTS WITH DISCRETIONARY PARTICIPATION FEATURES
CUSTOMER RELATIONSHIPS | Customer relationships consist of established relationships with customers through contracts that have been acquired in a business combination or non-contractual customer relationships that meet the requirement for separate recognition. They have a definite useful life of generally 5 to 20 years. Amortisation is calculated using the straight-line method over their useful lives.
2.19 Discontinued operations A discontinued operation is a component of the Group that either has been disposed of or is classified as held for sale and represents a major line of business or geographical area of operations or is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations. A discontinued operation is classified as such upon disposal or when it meets the criteria for the classification as held for sale. The consolidated statement of income is represented for prior periods as if the operation had been discontinued from the start of the earliest period presented.
The amount recognised in the balance sheet represents the present value of the defined benefit obligations, reduced by the fair value of plan assets and adjusted for unrecognised actuarial gains and losses and unrecognised past service costs. The recognition of a resulting asset is limited to the total of any cumulative unrecognised net actuarial losses and past service costs and the present value of any future refunds from the plans or reductions in future contributions to the plans.
In July 2008, the International Accounting Standards Board published Eligible Hedged Items (an amendment to IAS 39 Financial Instruments: Recognition and Measurement). The amendment provides clarification on how hedge accounting should be performed with regard to identifying inflation as a hedged risk and hedging with options. The amendment will be effective for annual periods beginning on or after 1 July 2009. The Swiss Life Group is currently analysing the impact of these changes on its financial statements.
Net gains/losses on financial assets –5 262 –323 –417 –9 –1
Benefits and claims recovered from reinsurers 6 113 71 1 –
5.2 Risk budgeting and limit setting The risk capacity and the risk appetite of the Swiss Life Group’s insurance operations are primarily defined based on economic principles. Consequently, the market values or best estimates of both the assets and the liabilities are obtained by discounting the cash f lows generated by these assets and liabilities with an appropriate discount rate. The risk capital available is defined as the positive difference of the economic value of the assets compared to liabilities. The available risk capital is used to cover the different risks to which the Swiss Life Group’s insurance operations are exposed by the nature of their activities. The final decision on the risk appetite for each insurance operation rests with the Corporate Executive Board.
5.4 Financial risk management objectives and policies The Group is exposed to financial risk through its financial assets, financial liabilities (primarily investment contracts and borrowings), reinsurance assets and insurance liabilities. In particular, the key financial risk is that the proceeds from the financial assets are not sufficient to fund the obligations arising from the insurance and investment contracts, as well as from borrowings and other liabilities. The most important components of the financial risk are interest rate risk, equity price risk, credit risk, currency risk and liquidity risk.
Policyholder participation liabilities –713 –709 – 0 – – –1 422
Investment contracts with discretionary participation 8 901 133 56 319 2 946 5 446
Liabilities associated with assets held for sale – 37 502 – – – 37 502
At 31 December 2008, if morbidity had been 10% higher, the embedded value would have been CHF 32 million lower in Switzerland (2007: CHF 29 million lower) and CHF 16 million lower in the other countries (2007: CHF 30 million lower).
Total net gains/losses on financial instruments at fair value through profit or loss 1 853 –179
Total insurance and other receivables 33 3 968 4 170 –18 –18 3 950 4 152
The effect of the reclassification of financial assets available for sale to loans as at 1 July 2008 is shown in note 37.
CUSTOMER RELATIONSHIPS | On the acquisition of Deutsche Proventus AG, Bremen, a customer relationship asset amounting to CHF 8 million was recognised. On the acquisition of Fonds de Commerce Arpège, a customer relationship asset of CHF 9 million was recognised. The acquisition of AWD Holding AG, Hanover, led to the recognition of a customer relationship asset of CHF 312 million. The acquisition of Placement Direct, France, led to a customer relationship asset amounting to CHF 5 million.
Share capital As approved by the shareholders at the General Meeting of Swiss Life Holding (SLH) on 8 May 2008, a reduction in the par value of CHF 17 per registered SLH share was effected in 2008 (2007: CHF 7 per registered share). The payout took place at the end of July 2008 and led to a reduction in the share capital of SLH of CHF 596 million (2007: CHF 245 million).
Deferred acquisition costs and present value of future profits 18 –151
Financial assets at fair value through profit or loss 3 3 5 084 5 084
The figures above primarily relate to the acquisition of AWD Holding AG, Hanover.
Swiss Life (Liechtenstein) Services, Vaduz Ins. Other 100.0% 100.0% full CHF 100
Swiss Life Beteiligungs GmbH, Hannover Other from 04.12.2007 100.0% 100.0% full EUR 25
Active Net Solutions Limited, Manchester AWD from 19.03.2008 96.7% 100.0% full GBP 0
AWD Group Plc, London AWD from 19.03.2008 96.7% 100.0% full GBP 65 800
AWD Česká republika s.r.o., Brno AWD from 19.03.2008 96.7% 100.0% full CZK 1 000
AWD Sp.z o.o., Warszawa AWD from 19.03.2008 96.7% 100.0% full PLN 200
AWD Consultanta Financiara SRL, Târgu Mureş AWD from 19.03.2008 96.7% 100.0% full RON 1
AWD s.r.o., Bratislava AWD from 19.03.2008 96.7% 100.0% full SKK 1 000
Swiss Life Private Placement (Middle East) Limited, Dubai Ins. Other from 16.09.2008 100.0% 100.0% full USD 10 1 Segment (Ins. CH = Insurance Switzerland, Bank. Dis. = Banking (Discontinued), IM = Investment Management, Ins. Other = Insurance Other, Ins. FR = Insurance France, Ins. DE = Insurance Germany, Ins. Dis. = Insurance (Discontinued))
Opinion In our opinion, the consolidated financial statements for the year ended 31 December 2008 give a true and fair view of the financial position, the results of operations and the cash f lows in accordance with the International Financial Reporting Standards (IFRS) and comply with Swiss law.
Review of Operations | The 2008 financial statements of Swiss Life Holding are shaped by the strategic acquisition and disposal of business units. The company’s annual profit came to CHF 1921 million. This significant increase vis-à-vis the previous year can be attributed in particular to the distribution of an extraordinary dividend by the subsidiary Swiss Life Insurance and Pension Company.
Swiss Life Holding and its subsidiaries effected various transactions in the 2008 financial year which had a considerable impact on the parent company’s financial statements. Swiss Life Holding sold Banca del Gottardo to BSI for a profit of CHF 486 million. Swiss Life Insurance and Pension Company sold its Dutch and Belgian arms to SNS Reaal and, based on the realised gain, distributed an extraordinary dividend of CHF 1551 million. On the other hand, Swiss Life invested in its distribution capabilities. Through its subsidiary Swiss Life Beteiligungs GmbH, Hanover, Swiss Life Holding built up its participation in AWD Holding AG to 96.7% and took over a 24.3% stake in MLP.
In 2008, convertible bonds of CHF 25 961 000 were converted into 124 115 Swiss Life Holding shares with a corresponding increase of share capital and share premium.
The description of the compensation received by the members of the Board of Directors and the Corporate Executive Board and the tables showing the relevant amounts are based on those in the Annual Report 2007. For comparison purposes, details of the compensation for 2007, as published in the Annual Report 2007, are shown in a separate table below the compensation table for 2008.
4 The 2008 compensation to Rolf Dörig, as Group CEO and BoD Delegate, is disclosed in its entirety under the compensation for the Corporate Executive Board members (see tables below).
Other members of Corporate Executive Board 587 089 7 993 351 4 Regular annual employer contribution and subsequent contributions. Pursuant to the regulations, occupational provisions are f inanced by the employer and employee at a ratio of 2/3 to 1/3.
As statutory auditor, we have audited the financial statements of Swiss Life Holding Ltd, which comprise the statement of income, balance sheet and notes to the financial statements (pages 214 to 228), for the year ended 31 December 2008.
Net result from continuing operations –1 143 726 576 n.a. n.a.
As a reader-friendly, condensed version of this Annual Report, Swiss Life has published a 92-page Business Review in colour, which is available in German, English and French. It contains a presentation of business operations, an extract from the Financial Statements and a summary of the Corporate Governance section.