Embedded Value

Summary of Group Results

Segment Reporting

Embedded Value | The 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) plus the adjusted net asset value (ANAV). Future new business is not included.

For the model PVFP calculations, the best possible assumptions are made regarding a number of factors, in particular returns on investment, the development of costs and claims, policyholder participation 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 solvency margin arising from the existing insurance contracts for their current maturities is charged to the PVFP.

DEVELOPMENT IN 2008 | Embedded value for the Swiss Life Group came to CHF 8457 million as at 31 December 2008. This corresponds to a decline of CHF 4380 million compared with the previous year and an embedded value per share of CHF 241. The changes in embedded value are shown in the “Analysis of change” table on the following page. Extraordinary impacts arose in 2008 from the unfavourable development of the capital market (impact of CHF 3568 million after taxes for 2008) and from the expectation of lower future returns (impact of CHF 1017 million after taxes). Operational improvements and demographic trends had a positive effect of CHF 408 million on the embedded value. Due to the higher volatility of investments in the second half of 2008, the solvency margin used as the basis for the valuation was increased from 100% to 150% of the statutory minimum. This led to additional solvency costs of CHF 484 million.

Embedded Value of the Swiss Life Group as at 31 December

In CHF million	2008	2007	+/–

Switzerland	2 311	4 847	–52.3%

Europe without Switzerland	2 577	4 996	–48.4%

ANAV Swiss Life Holding^1,2	3 569	2 994	+19.2%

Swiss Life Group	8 457	12 837	–34.1%

thereof ANAV¹	6 088	8 705

thereof PVFP³	3 502	4 880

thereof cost of holding capital	–1 133	–748

1 Adjusted Net Asset Value
2 Equity of Swiss Life Holding including revenue from disposals, less book value of Swiss Life/Rentenanstalt
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	2.7%	3.5%	3.9%	4.8%

Return assumptions per asset class

Return on bonds	2.4%	3.3%	3.5%	4.7%

Real estate return	4.8%	4.7%	5.1%	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 2007			12 837

Dividend payments			–596

Unwind 2008			+782

2008 investment return: variance from assumptions made at the end of 2007			–3 568

Future investment return: variance from assumptions made at the end of 2007			–1 017

Effects of the increase of the solvency margin to 150%			–484

Effects of changes in demographic and operational assumptions			+408

Fiscal effects: variance from assumptions made as at the end of 2007			+240

Change in currency exchange rate			–238

Value of new business 2008			+78

Various			+15

Embedded value of the Swiss Life Group as at the end of 2008			8 457

Economic sensitivities

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

Embedded value of the Swiss Life Group as at the end of 2008	2 311	2 577	3 569	8 457

Impact of 100 bps increase in investment return	+421	+313		+734

Impact of 100 bps decrease in investment return	–618	–303		–921

Impact of 100 bps decrease in risk discount rate	+272	+199		+471

Impact of 100 bps increase in return on new bond investments	+41	+207		+248

New business sensitivities

In CHF million

Value of new business 2008			78

Impact of 100 bps increase in investment return			+49

Impact of 100 bps decrease in risk discount rate			+34

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

Attestation regarding embedded value information as at 31 December 2008

“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 SwissLife and in line with general market practice;

The assumptions determined by the SwissLife 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