Asset and Liability Management | Asset and liability management (ALM), with its long-term approach, uses the risk evaluations made as a basis for the investment strategy. The aim is to be in a position to pay benefits whenever they fall due and always have sufficient equity to cover value fluctuations in assets and liabilities. Clearly defined criteria with regard to security, return and liquidity are taken into account when policyholder assets, free reserves and equity are invested.
Asset allocation | Swiss Life manages investments in such a way that economic risk capital deployment is consistent with its risk appetite. Insurance liabilities can be split into a guaranteed segment and a non-guaranteed segment (bonus component). The guaranteed segment corresponds to the guaranteed minimum interest rate. The bonus is subject to fluctuations over the course of time, because the amounts to be distributed are directly influenced by developments on the financial markets or by legal requirements.
With regard to interest rate risk, the management of the duration gap between assets and liabilities is decisive. Swiss Life’s risk capacity enables it to take on interest rate risks in a targeted fashion within the limits defined by the Board of Directors. Moreover, the integrated ALM approach allows greater differentiation by product line in the allocation of assets.
Further factors in addition to economic considerations have to be taken into account for asset allocation, such as regulatory requirements and international accounting standards. The level of equity (solvency), the need for liquidity and the requirements of rating agencies also entail restrictions on the asset allocation.
Distribution policy | With its 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 discretionary participation. Meanwhile, shareholders place greater emphasis on returns commensurate with the level of risk: They are looking for adequate compensation in the form of dividends and capital gains for the equity capital they provide.
Product design | Swiss Life offers its customers the products they need. These products include guaranteed commitments while allowing customers to participate in positive market trends. In designing products, Swiss Life coordinates asset and liability management and the distribution policy to ensure that future developments on the capital market have as little impact as possible on profitability. Product development guidelines have been introduced throughout the Group to make sure that the product design principles are observed. They serve as standards for the local guidelines. When business is written, therefore, the responsibility does not rest exclusively with the local business unit; in certain cases, it lies with the Corporate Executive Board as stipulated by directive.
There must always be sufficient insurance reserves to meet the contractual and regulatory requirements arising from the existing business portfolio. Consequently, not only must the regulatory constraints be observed, but internal estimates concerning specific types of risk must also be taken into consideration.
Swiss Life reviews the product design principles every half year, while the economic viability of new business is examined quarterly. This permits the company to adapt the conditions of sale for the individual products to a constantly changing environment.
Process management | Swiss Life manages the ALM process centrally. Responsibility for the Group-wide ALM process rests with the Group Chief Financial & Risk Officer. The areas of risk management, asset management, actuarial services, product management and financial management determine the ALM process, for which the Group Chief Financial & Risk Officer has the overall responsibility and which is monitored by the Board of Directors’ Investment and Risk Committee. Decisions which apply to the entire Group are implemented at local level by the units concerned in close collaboration with the local Asset and Liability Committee at their business unit.
