Swiss Life Group
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Embedded Value The embedded value of the Swiss Life Group rose by 20% to CHF 10.7 billion as at 31 December 2006.

From the shareholder’s point of view, embedded value serves as an indicator of the value of the existing insurance portfolio. It is composed of three components: the present value of future profits (PVFP) minus the present value of the cost of holding capital (CoHC) and the adjusted net asset value attributable to shareholders (ANAV). Future new business is not included.

For the model PVFP calculations, the best possible assumptions were made regarding a number of factors, in particular returns on investment, the development of costs and claims, insurance customers’ participation in surplus and the risk discount rate. Business is also assumed to be continuing at the same level (going concern) and the current cost ratios – adjusted for inflation – are thus assumed to hold good for the future as well. Future costs for maintaining classic solvency capital funded by the shareholders, which underpins the insurance business, are charged to the PVFP. This value is listed separately in the table below.

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.

Change in 2006 Embedded value for the Swiss Life Group came to CHF 10 665 million as at 31 December 2006. This corresponds to an increase of CHF 1778 million compared with the figure for the previous year and an embedded value per share of CHF 316. The increase can be attributed to growth in the markets abroad and future investment income that exceeded expectations. Other impacts positively affecting performance included fiscal effects, the change in the euro’s exchange rate against the Swiss franc and a more precise determination of the equity tied up in connection with the solvency rules. A compilation of other changes in embedded value is given in the “Analysis of change” table on the next page.

Embedded value of the Swiss Life Group as at 31 December 
In CHF million20062005+/–%
Switzerland4 0533 614+12.1%
Europe without Switzerland4 5023 460+30.1%
ANAV of Swiss Life Holding1,2)2 1101 813
Swiss Life Group10 6658 887+20.0%
of which ANAV1)6 7935 942
of which PVFP3)4 9224 809
of which cost of holding capital–1 050–1 864
1) Adjusted Net Asset Value
2) Equity of Swiss Life Holding less book value of Swiss Life/Rentenanstalt and embedded value of Swiss Life Luxembourg (for 2006)

3) Present Value of Future Profits

Economic assumptions  
SwitzerlandEurope without Switzerland
CurrentIn 5 yearsCurrentIn 5 years
Risk discount rate7.0%7.0%8.0%8.0%
Total weighted return on new money3.6%3.7%4.4%4.5%
Return assumptions per asset class
Return on bonds and loans2.8%2.9%4.2%4.4%
Real estate return4.4%4.7%5.1%5.1%
Equities return6.5%6.5%7.5%7.5%
Return on alternative investments6.5%6.5%7.0%7.0%

Analysis of change 
In CHF million
Swiss Life Group embedded value at end of 20058 887
Par value reduction–169
Unwind 2006+705
2006 investment return: divergence from assumptions made at the end of 2005–61
Future investment return: divergence from assumptions made at the end of 2005+167
Allowance for deductible funds in cost of holding capital+500
Model improvements+170
Fiscal effects: divergence from assumptions made at the end of 2005+134
Exchange rate fluctuations+143
Value of new business 2006+121
Other+68
Swiss Life Group embedded value at end of 200610 665

Economic sensitivities 
In CHF millionSwitzerlandEurope without SwitzerlandANAV of Swiss Life HoldingTotal
Swiss Life Group embedded value at end of 20064 0534 5022 11010 665
Impact of 100 bp increase in investment return+524+506+1 030
Impact of 100 bp decrease in investment return–1 070–603–1 673
Impact of 100 bp decrease in risk discount rate+267+320+587
Impact of 100 bp increase in return on new bond investments+170+299+469

New business sensitivities 
In CHF million
Value of new business 2006 121
Impact of 100 bp increase in investment return+66
Impact of 100 bp decrease in risk discount rate+40
Impact of 100 bp increase in return on new bond investments+46

Attestation regarding embedded value information as at 31.12.2006

“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 the management of the Company and in line with general market practice;

  • The assumptions determined by Swiss Life 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.”


More Information

Embedded Value Report




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