Market risk | The market risk stems from fluctuations on the financial markets which impact the value of capital investments and liabilities. Risk types significant for Swiss Life include primarily the risk of changes in interest rates, volatile stock markets and fluctuating rates of exchange against the Swiss franc.
The interest rate risk refers to interest rate fluctuations, 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 flow patterns of investments and financial obligations. Swiss Life distinctly reduced its interest rate risk in the year under review, which is also reflected in the duration gap. This led to a reduction in the overall risk level.
The equity risk results from the fluctuations on the global stock markets. The individual business units control this risk by setting investment limits. Swiss Life invests in equity markets without actively engaging in stock picking. The Group’s equity exposure after hedging (net equity exposure) came to 7.5% (IFRS-based) at the end of 2007.
The currency risk concerns fluctuations in foreign currencies vis-à-vis the Swiss franc and is restricted by exchange rate hedging transactions.
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.
