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 million20082007+/–
Switzerland2 3114 847–52.3%
Europe without Switzerland2 5774 996–48.4%
ANAV Swiss Life Holding 1,23 5692 994+19.2%
Swiss Life Group8 45712 837–34.1%
thereof ANAV 16 0888 705
thereof PVFP 33 5024 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  
currentin 5 yearscurrentin 5 years
Risk discount rate7.0%7.0%8.0%8.0%
Total weighted return on new money2.7%3.5%3.9%4.8%
Return assumptions per asset class
Return on bonds2.4%3.3%3.5%4.7%
Real estate return4.8%4.7%5.1%5.4%
Equities return6.5%6.5%7.5%7.5%
Return on alternative investments6.5%6.5%7.5%7.5%


Analysis of change 
In CHF million
Embedded value of the Swiss Life Group as at end of 200712 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 20088 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 20082 3112 5773 5698 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 200878
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.”