RISK BUDGETING | The risk budgeting process determines the risk capacity for each insurance unit in the Swiss Life Group, to be used as a basis for establishing the risk appetite. This in turn is closely related to the planning of future earnings on the insurance and investment business. Based on the risk appetite, the risk capital limits are determined at the individual units for the market and credit risks assumed. The market risks are broken down further into equity, interest and currency positions. The various units monitor observance of these limits on a monthly basis under a uniform Group-wide system, so that Swiss Life can assess its consolidated risk exposure at all times.

In addition to being steered and controlled in the individual business units, the risks are consolidated and centrally assessed at Group level. The external requirements of supervisory authorities and rating agencies also play a central role in the assessment of risks. These requirements can give rise to constraints on the investment policy in the individual units.

In the third and fourth quarters of 2008, Swiss Life stepped up its monitoring and steering of the risks in view of the highly volatile financial markets. The value of the investments was calculated daily or (where nothing else was practicable) estimated. The risk appetite was scaled back, leading to a corresponding reduction in the risk capital limits. As a result, the risks on the investment side, which had already been trimmed down earlier, were reduced further – especially in the case of shares, hedge funds and currencies.

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