Embedded Value

Comments on Results

Segment Results

Embedded Value | Embedded value serves as an indicator of the value of the existing insurance portfolio. It is made up 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 (ANAV) attributable to shareholders. Future new business is not included.

For the PVFP calculations, best estimate assumptions are 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. The opportunity costs of the capital to be provided by shareholders to cover the statutory solvency margin arising from the existing insurance contracts for their current maturities is charged to the PVFP.

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.

DEVELOPMENT IN 2007 | Embedded value for the Swiss Life Group came to CHF 12837 million as at 31 December 2007. This corresponds to an increase of CHF 2172 million compared with the previous year and an embedded value per share of CHF 367. A compilation of changes in embedded value is shown in the “Analysis of change” table on the next page. Extraordinary impacts arose in 2007 from the sales of Banca del Gottardo (effect of CHF 608 million, net of taxes and expenses) and the insurance units ERISA, Swiss Life Belgium and Swiss Life in the Netherlands (effect of CHF 59 million, net of taxes and expenses). The embedded value of the insurance companies sold was determined by their selling price. All positions in the analysis of change, except the unwind and the impact of the sales, relate solely to the continuing insurance business.

Embedded Value of the Swiss Life Group as at 31 December

In CHF million		2007	2006	+/–%

Switzerland		4 847	4 053	+19.6%

Europe without Switzerland		4 996	4 502	+11.0%

ANAV Swiss Life Holding	^1,2	2 994	2 110	+41.9%

Swiss Life Group		12 837	10 665	+20.4%

thereof ANAV	¹	8 705	6 793

thereof PVFP	³	4 880	4 922

thereof cost of holding capital		– 748	–1 050

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 2007)
3 Present Value of Future Profits

Assumptions for Embedded Value Calculations

	Switzerland		Europe without Switzerland

	current	in 5 years	current	in 5 years

Risk discount rate	7.0%	7.0%	8.0%	8.0%

Total weighted return on new money	4.0%	4.3%	4.9%	5.4%

Return assumptions per asset class

Return on bonds	3.3%	3.8%	4.7%	5.2%

Real estate return	4.5%	4.7%	5.4%	5.4%

Equities return	6.5%	6.5%	7.5%	7.5%

Return on alternative investments	6.5%	6.5%	7.5%	7.5%

Analysis of change

In CHF million

Embedded value of the Swiss Life Group as at end of 2006			10 665

Dividend payments			–245

Unwind 2007			+674

2007 investment return: variance from assumptions made at the end of 2006			+119

Future investment return: variance from assumptions made at the end of 2006			+672

Impact of new hybrid capital			+63

New treatment of policyholder participation in unrealised gains			–512

Re-evaluation of reserving after IT systems migration in Swiss individual life business			+304

Fiscal effects: variance from assumptions made as of the end of 2006			+115

Change in currency exchange rate			+141

Value of new business 2007			+118

Various			+56

Effect of divestments			+667

Embedded value of the Swiss Life Group as at end of 2007			12 837

Economic sensitivities

In CHF million	Switzerland	Europe without Switzerland	ANAV Swiss Life Holding	Total

Embedded value of the Swiss Life Group as at end of 2007	4 847	4 996	2 994	12 837

Impact of 100 bp increase in investment return	+509	+420		+929

Impact of 100 bp decrease in investment return	–679	–398		–1 077

Impact of 100 bp decrease in risk discount rate	+337	+278		+615

Impact of 100 bp increase in return on new bond investments	+151	+255		+406

New business sensitivities

In CHF million

Value of new business 2007			118

Impact of 100 bp increase in investment return			+47

Impact of 100 bp decrease in risk discount rate			+28

Impact of 100 bp increase in return on new bond investments			+29

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.”

More Information

Embedded Value opinion letter