3 Information by Market Unit

3.1 Market Units

Swiss Life’s covered business is subdivided according to market units as follows:

Life, pension and assumed external reinsurance business in Switzerland
All businesses in France, mainly life, health and pension business
Life and pension business in Germany
Life and pension business in Luxembourg, Liechtenstein, and Singapore (together referred to as Insurance Other)

This breakdown by market unit essentially coincides with the IFRS insurance segments in the annual report. There are minor differences since the MCEV classification follows the legal structure in order to ensure a correct modelling of the profit sharing. A divergence from the IFRS insurance segment reporting is the treatment of Swiss Life Asset Management in France, which is reported for MCEV purposes under France.

SWITZERLAND — Swiss Life’s main business in the Swiss market is group life business. The individual business includes traditional savings, risk and annuity products, as well as modern savings and retirement products with flexible guarantees. Swiss Life’s own sales force plays the major role in distribution, followed by AWD. The business for assumed external reinsurance is included in the covered business as of this year.

FRANCE — Insurance products include savings, annuity, and risk products as well as health insurance products. New business for life insurance focuses on multi-support products, combining traditional savings and unit-linked components. The main distribution channels are independent financial advisors and private banking.

GERMANY — Swiss Life sells traditional and modern products within individual and group life business. Disability insurance plays an important role. The main distribution channel is independent brokers, followed by financial advisors such as AWD.

INSURANCE OTHER — Swiss Life offers private placement life insurance (PPLI) through Liechtenstein, Singapore and Luxembourg. In Luxembourg, Swiss Life also provides group insurance solutions for international and local corporate clients through Corporate Solutions.

3.2 Results by Market Unit
MCEV by market unit for the year 2010
In CHF million  
  Switzerland France1 Germany Insurance Other Total
Net asset value
  557 1 056 335 –20 1 928
Free surplus
  103 43 –43 –68 35
Required capital
  454 1 013 378 48 1 892
Value of in-force business
  1 655 824 271 282 3 032
Certainty equivalent value
  3 485 1 431 536 346 5 797
Time value of financial options and guarantees
  –1 407 –315 –180 –10 –1 912
Cost of residual non-hedgeable risks
  –234 –195 –38 –40 –507
Frictional costs of required capital
  –188 –97 –47 –14 –346
MCEV
  2 212 1 879 606 262 4 959
1 The value for France includes CHF 72 million in goodwill and intangible assets orginating from the non-life and non-health insurance operations.


MCEV by market unit for the year 2009
In CHF million  
  Switzerland France1 Germany Insurance Other Total
Net asset value
  741 1 247 379 –43 2 324
Free surplus
  300 134 –28 –87 319
Required capital
  441 1 114 407 45 2 005
Value of in-force business
  772 678 125 233 1 808
Certainty equivalent value
  2 884 1 153 513 298 4 848
Time value of financial options and guarantees
  –1 602 –148 –227 –7 –1 984
Cost of residual non-hedgeable risks
  –267 –222 –99 –44 –631
Frictional costs of required capital
  –243 –105 –63 –14 –425
MCEV
  1 513 1 926 503 190 4 132
1 The value for France includes CHF 93 million in goodwill and intangible assets orginating from the non-life and non-health insurance operations.


SWITZERLAND — The net asset value is influenced by the hybrid debt. It includes the – negative – difference between the market value of assets covering the hybrid debt in the statutory balance sheet and the marked-to-model value of the hybrid debt which is calculated as described in section 4.3. The decrease in net asset value is mainly a consequence of assessments alluded to before.

The increase in value of in-force business is driven by the reduced expense base, changes in the profit sharing approach, and updated demographic assumptions. In aggregate, these changes also lead to lower time value of options and guarantees and to lower sensitivities.

FRANCE — In local currency, the net asset value remained at previous year’s level despite a considerable new business strain and regulatory changes, such as retirement age reform and specific taxation, that lead to a reduced free surplus.

The higher TVOG of Swiss Life France at 31.12.2010 compared to the one reported a year ago, is mainly a consequence of higher interest rate volatilities and a changed strategic asset allocation, which is partly offset by hedges. As the health business does not contain financial options and guarantees, it does not contribute to the time value of financial options and guarantees.

GERMANY — The negative free surplus stems from the assumed required coverage of 150% of statutory solvency. The free surplus would be positive at a 100% requirement of statutory solvency.

The value in-force increased considerably despite deteriorating capital market conditions, partly due to profitable new business, expense reductions and improved disability experience.

INSURANCE OTHER — The contributions of PPLI business to the total MCEV of Insurance Other accounts for about 80% of the value.

The negative net asset value is explained by not taking into account the goodwill for the acquired insurance company CapitalLeben as part of Liechtenstein. The business in force of PPLI contains only very small financial guarantees, so the TVOG is negligible.

 
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Value of new business by market unit – premiums and margins for the year 2010
Amounts in CHF million  
  Switzerland France Germany Insurance Other Total
Value of new business
  30 84 41 54 209
New business strain 1   –41 –66 –9 –7 –124
Value of new business before new business strain   71 150 50 61 333
Annual premiums
  189 382 129 6 706
Single premiums
  1 164 2 099 333 4 202 7 798
Present value of new business premiums (PVNBP)
  3 819 4 838 1 707 4 242 14 607
Average annual premium multiplier
  14.0 7.2 10.7 6.7 9.6
New business annual premium equivalent (APE)
  306 592 163 426 1 486
New business margin (% PVNBP)
  0.8% 1.7% 2.4% 1.3% 1.4%
New business margin (% APE)
  9.8% 14.2% 25.0% 12.7% 14.0%
1 New business strain represents the effect on the net asset value from writing new business.


Value of new business by market unit – premiums and margins for the year 2009
Amounts in CHF million  
  Switzerland France Germany Insurance Other Total
Value of new business
  11 43 21 48 123
New business strain 1   –55 –54 –9 –15 –133
Value of new business before new business strain   65 96 30 63 255
Annual premiums
  161 360 154 3 678
Single premiums
  1 352 1 867 193 4 734 8 146
Present value of new business premiums (PVNBP)
  3 396 4 652 1 587 4 755 14 390
Average annual premium multiplier
  12.7 7.7 9.1 6.2 9.2
New business annual premium equivalent (APE)
  296 547 173 477 1 493
New business margin (% PVNBP)
  0.3% 0.9% 1.3% 1.0% 0.9%
New business margin (% APE)
  3.6% 7.8% 12.2% 10.1% 8.2%
1 New business strain represents the effect on the net asset value from writing new business.


SWITZERLAND — New business consists of new contracts and new coverages on existing contracts. Within group life business, replacements and newly insured persons entering existing contracts are not accounted for as new business.

Worsening economic conditions were successfully counteracted by margin management including pricing initiatives and lower guaranteed interest rates resulting in better new business margins. In addition, assumed external reinsurance contributed positively.

FRANCE — The value of new business for Swiss Life in France is determined as the sum of the value of new business for the life business and for the health business.

The value of new business for the health business remained stable compared to 2009, whereas the value of new business for the life operations increased considerably. Higher volumes of contracts sold and the related economies of scale on acquisition expenses, a higher share of unit-linked vs. traditional saving products as well as a reassessed profit sharing contributed positively to this increase.

GERMANY — The value of new business as well as the new business margin for the German operations have increased compared with the values reported for 2009. The higher volume of risk and supplementary disability insurance contracts written, the improved disability experience and the reduced expense base contributed substantially to this enhancement as well as a change in the profit sharing approach.

INSURANCE OTHER — The business of private placement life insurance (PPLI) generated almost the entire value of new business which improved by 12.5% despite the unfavourable EUR exchange rate. The new business margin increased considerably compared to the previous year. This is related to pricing initiatives, cost savings and higher average premium amounts. Because of the weight of PPLI within Insurance Other, by far the biggest share of new business premiums consists of single premiums. The premium volume is lower than in 2009 only because of the strong Swiss franc. Using last year’s foreign exchange rates, the current premium of CHF 4.2 billion would amount to CHF 4.9 billion.

Analysis of earnings by market unit for the year 2010
In CHF million  
  Switzerland France Germany Insurance Other Total
Opening MCEV
  1 513 1 926 503 190 4 132
Opening adjustments
  –96 –31 –12 –139
Adjusted opening MCEV
  1 417 1 895 491 190 3 993
New business value
  30 84 41 54 209
Expected existing business contribution (reference rate)
  11 12 3 1 27
Expected existing business contribution (in excess of reference rate)
  599 155 63 20 837
Experience variances
  –232 –29 –6 –4 –271
Assumption changes
  795 –19 300 1 1 077
Other operating variance
  130 237 45 10 421
Operating MCEV earnings
  1 333 440 445 82 2 301
Economic variances
  –633 –87 –237 –22 –979
Other non-operating variances
  95 –20 75
Total MCEV earnings
  795 333 209 59 1 397
Closing adjustments
  –349 –93 12 –431
Closing MCEV
  2 212 1 879 606 262 4 959


All market units contributed to the value creation with a positive value of new business and favourable impacts from margin management: The expected business contribution of CHF 864 million was increased to a total of CHF 2 301 million operating MCEV earnings. The deteriorating capital market environment reduced MCEV earnings by CHF 979 million.

SWITZERLAND — The experience variances stem mainly from strengthening of policyholder reserves and funds as well as persistency variances in group life business.

The assumption changes are dominated by a favourable experience driven update of demographic assumptions, the ongoing cost reduction programme, and a revised policyholder participation approach in the light of the low interest rate environment.

Other operating variances include forward looking decisions, scope enhancement with the assumed external reinsurance, modelling refinements, and other reassessments.

Other non-operating variances consist mainly of tax variances.

FRANCE — One driver of the operating MCEV earnings is the value of new business which has been described above.

The negative experience variance is explained by the current year effect of the transition to a new policyholder participation approach for the life business and by deviations between expectation and experience for demography and expenses in 2010 for the health operations.

In other operating variance, the long-term effects of the transition mentioned above, an increase in the scope of modelled business and modelling refinements as well as other reassessments are shown.

Closing adjustments reflect the decrease of the euro exchange rate in 2010.

GERMANY — The operating return is driven by lower expenses, an experience driven update of biometric assumptions and a change to the policyholder participation approach.

Furthermore, the low interest rates experienced triggered a reassessment of the anticipated policyholder surrender behaviour in such environments.

Closing adjustments reflect the decrease of the euro exchange rate in 2010.

INSURANCE OTHER — The value of new business represents, at CHF 54 million, the main driver for the considerable increase in embedded value of Insurance Other.

Much of PPLI’s business is not written in Swiss francs but in other currencies, especially in EUR and USD. Compared to 2009, the particularly strong Swiss franc resulted in a lower value of assets under control. Since this is one of the main drivers for PPLI’s value in force, a negative economic variance resulted.

Closing adjustments have a positive impact. A capital increase is partly offset by the currency exchange rate effect from Corporate Solutions (Luxembourg).