Asset and Liability Management | Asset and liability management (ALM), with its long-term approach, uses the findings from the risk assessments and the risk appetite determined in risk budgeting as a basis for the investment strategy. The aim is to be in a position to pay benefits whenever they fall due and always to have sufficient equity to absorb fluctuations in the value of assets and liabilities. Clearly defined criteria on security, yield and liquidity are taken into account when policyholder assets, the company’s free reserves and shareholders’ equity are invested.

An additional scenario-based ALM process was conducted in the fourth quarter of 2008 so that the latest data could be used to set the risk capacity and risk appetite. This provided the basis for adjusting the investment strategy (strategic asset allocation) and the bonus allocation to policyholders to reflect the prevailing situation.

The results, including the expected return on investment, are incorporated into the long-term planning, which is then reviewed and approved by the Corporate Executive Board and the Board of Directors.

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).

Other liabilities, such as the unguaranteed portion (bonus) of a life insurance policy, fluctuate over time because the amounts to be distributed are governed by law or depend directly on the performance of the financial markets. The corresponding investments take account of the nature of these fluctuations, the long-term focus and any required liquidity. This item relates to cases where the policyholder makes use of the option to withdraw from the contract.

In addition to economic considerations, further factors 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 place restrictions on investment activities.

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.

Process management | Swiss Life manages the ALM process centrally. The Group Chief Financial & Risk Officer holds the overall responsibility for the ALM process and sets its direction. The divisions responsible for risk and investment management determine the ALM process, together with Actuarial Services. The Investment and Risk Committee of the Board of Directors monitors the ALM process.

The input for the ALM Committee’s decisions is prepared locally in every business unit by the team which also implements the decisions taken. The local teams also monitor and steer the tactical deviations in asset allocation within the limits set in the ALM process.

PRODUCT DESIGn | Product design at Swiss Life is driven by the clients’ requirements. Innovative pension solutions are developed in cooperation with distribution partners, based on market research.

The business model used by Swiss Life for new products incorporates reduced capital market risks and lower capital requirements. By 2012, Swiss Life plans to write 70–80% of its new business in products which offer transparent benefits and do not include a traditional bonus system. These will feature an individual fund investment and offer guarantee commitments to clients. Swiss Life is also targeting an increase in the profit contributions from pure risk products within the same time frame, thereby reducing the degree to which profitability depends on the performance of the capital markets.

New business is evaluated from an economic view and reviewed on a regular basis. This enables the company to adapt the prices, commissions and other market terms for individual products to a constantly changing environment.

There must always be sufficient 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 assessments concerning specific types of risk must also be taken into consideration.