5 Risk Management Policies and Procedures

The Group’s core business is life insurance and pensions. A life insurance and pensions contract represents a long-term promise to the policyholder. To fulfil its future payment obligations to the policyholders, the insurance entities of the Group must be financially sound over an extended period of time. The ability to remain financially sound and strong depends on a number of risk factors. The Group’s risk map can be broadly divided into financial, insurance, strategic and operational risks. All of these risk categories can impact the financial stability of the Group.

Risks must be identified, assessed, managed and monitored locally and aggregated. Monthly reports covering interest rate risk, equity price risk, currency risk, credit risk and insurance risk are prepared on a consolidated basis. Additionally, market risks and financial risk limits are reported for the largest operations in the insurance business. Strategic and operational risks are assessed and reported on an annual basis.

The risk appetite for the largest operations in the insurance business is defined with the help of local risk budgets which are used as a basis for the determination of the individual risk limits. These limits are used as a framework for the asset and liability management process, the objective of which is to define a strategic asset allocation. From this strategic asset allocation a scenario-based expected return is calculated which forms the basis for the mid-term planning of the Group.

Risk management functions are performed at several levels by different bodies within the Swiss Life Group, such as the Investment and Risk Committee at the level of the Board of Directors of the Swiss Life Group and the Group Risk Committee at the level of the Corporate Executive Board of the Swiss Life Group. The risk management functions at the level of the individual operations of the Swiss Life Group are organised accordingly.

Group risk management is responsible for the definition of the group-wide methodology for the measurement of the risks and produces a consolidated risk report which consolidates the main quantitative elements of the risk management of the Swiss Life Group’s operations. Furthermore, Group risk management also produces consolidated views on the operational and strategic risks of the Swiss Life Group.

The information below focuses first on the risk budgeting and asset and liability management process before covering in an extensive way the principal risk categories faced by the Swiss Life Group.

5.1 Contracts for the account and risk of the Swiss Life Group’s customers
The assets relating to certain life insurance and investment contracts are managed for the account and risk of the Swiss Life Group’s customers (separate account/unit-linked contracts, private placement life insurance). They are segregated and managed to meet specific investment objectives of the policyholders. The assets back the insurance liabilities and the financial liabilities arising from these contracts. The fair values of the liabilities reflect the fair values of the assets. Certain contracts with unit-linking features contain financial and insurance guarantees. The liabilities relating to this part are included in the financial and insurance liabilities.

The assets and liabilities from separate account/unit-linked contracts and private placement life insurance are generally excluded from the Swiss Life Group’s financial risk management considerations to the extent that the risks are borne by the customers.

Assets for the account and risk of the Swiss Life Group’s customers
In CHF million  
Notes  31.12.2011 31.12.2010
Cash and cash equivalents
  2 446 2 333
Financial assets at fair value through profit or loss
 
Debt securities
10  6 083 5 848
Equity securities
10  3 311 3 054
Investment fund units
10  9 150 8 656
Other
10  1 356 1 384
Total assets for the account and risk of the Swiss Life Group's customers
  22 346 21 275


Liabilities Linked to Assets for the account and risk of the Swiss Life Group’s customers
In CHF million  
Notes  31.12.2011 31.12.2010
Unit-linked contracts
10  18 216 17 259
Investment contracts
20  2 828 2 788
Insurance liabilities
23  1 108 961
Total liabilities linked to assets for the account and risk of the Swiss Life Group's customers
  22 152 21 008


The financial result for the years ended 31 December for the account and risk of the Swiss Life Group and the Swiss Life Group’s customers was as follows:

In CHF million  
  For the account and risk of the Swiss Life Group For the account and risk of the Swiss Life Group's customers Total
Notes  2011 2010 2011 2010 2011 2010
Investment income
8  4 216 4 242 0 0 4 216 4 242
Net gains/losses on financial assets
8  515 –4 465 35 35 550 –4 430
Net gains/losses on financial instruments at fair value through profit or loss (FVPL)
8  –803 4 249 –17 1 –820 4 250
Net gains/losses on investment property
  513 306 513 306
Share of results of associates
  6 6 6 6
Financial result
  4 447 4 338 18 36 4 465 4 374


5.2 Risk budgeting and limit setting
The risk capacity and the risk appetite of the Swiss Life Group’s insurance operations are primarily defined based on economic principles. Consequently, the market values or best estimates of both the assets and the liabilities are obtained by discounting the cash flows generated by these assets and liabilities with an appropriate discount rate or by direct observation of market values. The available risk capital is defined as the difference of the economic value of the assets compared to liabilities. The available risk capital is used to cover the different risks to which the Swiss Life Group’s insurance operations are exposed by the nature of their activities. The final decision on the risk appetite for each insurance operation rests with the Corporate Executive Board.

Risk capital and exposure limits are defined to control and limit the exposure to these risks. The limit systems and processes are set in a way that the sublimits are not utilised simultaneously in full.

The main focus of these limits is on overall market risk, credit risk and, more specifically, on interest rate risk as well as on currency risk and equity price risk.

5.3 Asset and liability management (ALM)
The main objective of the ALM process is to ensure that the Swiss Life Group’s insurance operations can meet their commitments to policyholders at all times while also adequately compensating shareholders for making risk capital available. Based on the economic principles of risk management and on the risk appetite definition applied in the risk budgeting process, ALM comprises the following main activities: the determination of the strategic asset allocation and of the risk capital and exposure sublimits.

The ALM process is centrally coordinated at Group level by means of local asset and liability management committees with representatives from local senior management and representatives from the Group. The local units are in charge of implementing the decisions. The process requires the involvement of investment management, finance, actuarial and risk functions.

Compliance with external constraints — Aspects other than the purely economic view must also be considered in the ALM process, such as regulatory requirements including statutory minimum distribution ratios (“legal quote”), funding ratios, solvency, local accounting rules and International Financial Reporting Standards, liquidity requirements and rating targets. Some of these views may lead to results that are not aligned with the economic approach, but nevertheless need to be taken into account.

Depending on the regulatory framework in which the Swiss Life Group’s insurance operations evolve, the asset portfolios might need to be split to reflect the different categories of insurance products. The asset portfolios of the insurance operations in Switzerland have been separated to distinguish between individual life and group life. As a consequence, such separation is also reflected in the ALM process.

Strategic asset allocation — Defining the strategic asset allocation is the first major task of the ALM process and aims at achieving an efficient risk capital allocation, i.e. optimising the returns on the asset portfolio for the available risk capital defined within the risk budgeting process, taking into account all known constraints.

The liabilities are largely predefined in terms of amount and timing of the payments and the associated assumptions are regularly reviewed. The corresponding asset portfolios mainly comprise fixed-income instruments. This way, the impact of interest rate fluctuations and the risk capital consumption are strategically optimised under a risk/return point of view, thus ensuring that the policyholders receive the benefits consistent with their products. Policyholders benefit from the ensuing investment returns in the form of discretionary participation, while shareholders benefit from an increase in the value of their investment in the Swiss Life Group.

The strategic asset allocation is therefore determined on the basis of the individual existing commitments and the risk capacity of the Swiss Life Group’s insurance operations. The strategic asset allocation is reviewed at least once a year and adjusted if necessary.

The ALM process has been applied in all relevant insurance operations of the Swiss Life Group.

Distribution policy — The distribution policy seeks to align the interests of the different groups of stakeholders. Holders of traditional life insurance policies favour a guaranteed minimum interest rate coupled with regular and appropriate discretionary participation whereas shareholders place greater emphasis on returns commensurate with the level of risk they are exposed to. The focus of the Swiss Life Group lies on the sustainability of the business model and should balance the policyholders’ and shareholders’ expectations.

External constraints must be considered in the definition of the distribution policy. Important elements which influence such policy are minimum guaranteed interest rates and the statutory minimum distribution ratio (“legal quote”), which strongly depend on the regulatory environments of the Swiss Life Group’s insurance operations.

Product design — The targets of risk management are supported by product design principles. Product design defines which guarantees and benefits are built into a specific product to respond to the demand from and expectations of customers. The actuarial bases used for this purpose should ensure that each individual product generates a sufficient contribution margin. To ensure that the Group’s principles are observed, guidelines on product management and underwriting have been introduced to harmonise the local guidelines and to ensure that they are in line with the guidelines of the Group. As the Group’s insurance entities operate in a number of different countries, the local regulatory constraints may have an impact on the business units’ product range. These constraints must always be obeyed.

5.4 Financial risk management objectives and policies
The Group is exposed to financial risk through its financial assets, financial liabilities (primarily investment contracts and borrowings), reinsurance assets and insurance liabilities. In particular, the key financial risk is that the proceeds from the financial assets are not sufficient to fund the obligations arising from the insurance and investment contracts, as well as from borrowings and other liabilities. The most important components of the financial risk are interest rate risk, equity price risk, credit risk, currency risk and liquidity risk.

The risk budgeting and limit setting described above ensure that interest rate risk, equity price risk, currency risk and credit risk remain under control. The corresponding market risk capital, interest rate risk capital, currency risk capital and credit risk capital limits as well as exposure limits for currencies and net equity for each relevant insurance operation are defined based on the risk appetite. These limits are assessed and reported on a monthly basis.

Hedging — The Swiss Life Group uses derivatives within the strict limits set by the applicable insurance legislation and by internal guidelines. Derivatives are primarily used to manage the exposure to equity securities, interest rates, counterparties and foreign exchange rates. The main instruments include index futures and option structures in stock markets, bond futures and swaps in order to manage duration, currency forwards in order to manage currency risk and credit default swaps in order to manage counterparty risk. Within certain limits, derivatives are used to enhance returns on the existing portfolio. The types of derivatives generally permitted for usage within the Swiss Life Group as well as the list of allowed over-the-counter trading partners have been approved by the Group Risk Committee.

Hedging strategies involve hedge accounting as well as “economic hedging”. “Economic hedges” comprise financial assets and financial liabilities which share a risk with derivatives and give rise to opposite changes in fair value that tend to offset each other.

Interest rate risk relating to financial instruments and insurance contracts — The Group’s primary interest rate exposure is to contracts with guaranteed benefits and the risk that the interest rates of the financial assets purchased with the consideration received from the contract holders is insufficient to fund the guaranteed benefits and expected discretionary participation payable to them.

Interest-SENSITIVE insurance liabilities
In CHF million  
  CHF EUR Other Total
 
Carrying amounts as at 31 December 2011
 
Minimum guaranteed interest rate 0 – < 2%
  13 158 4 614 1 17 773
Minimum guaranteed interest rate 2 – < 3%
  29 103 4 560 4 33 667
Minimum guaranteed interest rate 3 – < 4%
  17 828 7 754 57 25 639
Minimum guaranteed interest rate 4 – < 5%
  0 7 354 32 7 386
Minimum guaranteed interest rate 5 – < 6%
  3 4 7
Total interest-sensitive insurance liabilities
  60 089 24 285 98 84 472
Non-interest-sensitive insurance liabilities
  7 785
Insurance liabilities linked to assets for the account and risk of the Swiss Life Group's customers
  1 108
Total insurance liabilities
  93 365


Carrying amounts as at 31 December 2010
 
Minimum guaranteed interest rate 0 – < 2%
  11 937 2 834 1 14 772
Minimum guaranteed interest rate 2 – < 3%
  27 243 5 398 4 32 645
Minimum guaranteed interest rate 3 – < 4%
  18 616 8 854 66 27 536
Minimum guaranteed interest rate 4 – < 5%
  339 8 071 29 8 439
Minimum guaranteed interest rate 5 – < 6%
  6 5 11
Minimum guaranteed interest rate 6 – 8%
  3 3
Total interest-sensitive insurance liabilities
  58 135 25 163 108 83 406
Non-interest-sensitive insurance liabilities
  5 938
Insurance liabilities linked to assets for the account and risk of the Swiss Life Group's customers
  961
Total insurance liabilities
  90 305


Most life insurance products with a savings component and investment contracts are subject to minimum guaranteed interest rates. The guaranteed rate differs according to the type of contract. In Switzerland for instance the minimum guaranteed interest rate for the occupational pensions segment (mandatory BVG savings account) stood at 2% in 2011 and will be reduced to 1.5% for 2012.

In addition to these fixed and guaranteed payments which are exposed to interest rate risk, contractual rights exist for certain contracts to receive additional benefits whose amount and/or timing is contractually at the discretion of the issuer. The determination of the discretionary participation is highly dependent on future investment returns.

The Group manages interest rate and interest rate volatility risk by managing the interest rate and volatility sensitivity of its investment portfolio against the corresponding sensitivity of liabilities issued. The interest rate and volatility exposure of the liabilities is determined by projecting the expected cash flows from the contracts using best estimates of mortality, disability, expenses, surrender and exercise of policyholder options in combination with interest rate and volatility scenarios. The ALM process defines the strategic asset allocation optimising the net interest rate sensitivity of the investment and liability portfolios. To the extent that this is not practicable, swap contracts and other instruments are used to hedge interest rate risk. In certain markets payer swaptions are used to hedge the risk of fair value changes of interest-sensitive financial assets. Strategically, a minimum interest rate risk will remain, since a perfect interest rate hedge can either not be achieved or would not be targeted.

In addition to the strategic optimisation of the net interest rate risk exposure at an economic level, the Group has designated a portion of assets to be held to maturity and matching the maturity profile of the associated liabilities to minimise the interest risk arising from these positions. The assets to be held to maturity fund the insurance and investment contracts that will not be surrendered or will not require the payment of a death benefit.

Regarding interest rate risk exposure existing on contracts with guaranteed benefits where the risk is that the interest rates earned on the assets are insufficient to fund the guaranteed payments, puttable bonds are used to counter the impact of increasing interest rates.

In certain businesses, a large part of the impact of interest rate changes is for the account and risk of the policyholders based on the specific profit-sharing systems.

Equity price risk — A decline in the equity market may lead to a reduction of the Swiss Life Group’s realised and unrealised gains/losses, which also negatively affects the Swiss Life Group’s results of operations and financial condition.

Hedges in place with respect to the Swiss Life Group’s equity investments are designed to reduce the exposure to declines in equity values but would not prevent an impairment loss in the event that the impairment criteria were met.

A portion of Swiss Life’s investment portfolio comprises investments in funds which hold securities issued by non-public companies (private equity). These investments may be illiquid or may only be disposed of over time or at a loss, and they may not produce adequate returns or capital gains. If Swiss Life were required to liquidate some or all of the investments in its private equity portfolio, the proceeds of such liquidation may be significantly less than the amount paid for, or the carrying amount of, such investments.

Swiss Life’s investment portfolios also include investments in hedge funds. The liquidity of such investments can vary according to market conditions, and the investment styles of such hedge funds could amplify any factors affecting the performance of any particular class of funds or investments.

Credit risk — The Group is exposed to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Group is exposed to credit risk are:

Counterparty risk with respect to bonds purchased
Counterparty risk with respect to loans and mortgages granted
Counterparty risk with respect to money market and cash positions
Counterparty risk with respect to derivative transactions
Reinsurance share of insurance liabilities
Amounts due from reinsurers in respect of claims already paid
Amounts due from insurance contract holders
Amounts due from insurance intermediaries

To reduce the credit exposure relating to derivatives a collateral management process has been established. Contractually all outstanding positions must be fully collateralised if they reach a very low agreed minimum transfer amount. The collateral is called at least weekly, but in times of turbulent markets the frequency is increased. As leverage is not permitted, certain coverage rules apply with regard to cash or long positions. Counterparties for derivative transactions, over-the-counter and exchange-traded, have to be approved by both the Group Chief Risk Officer and the Group Chief Investment Officer. The minimum rating for a counterparty is A– (Standard & Poor’s or equivalent) for the Swiss Life Group’s insurance operations. During the ongoing period of market turmoil reliance on ratings is of limited value; therefore an additional qualitative and quantitative counterparty monitoring process has been established to allow for immediate proactive measures.

Counterparty risk is managed through the holding of credit default swaps or credit default swap indices. A credit default swap provides insurance to the debt holder against a default of the debt issuer. It is traded over-the-counter and itself underlies the collateral management process described above. The credit default swap index is a hedge on credit risk of a basket of counterparties and is an exchange-traded derivative.

The Group is also exposed to credit risk associated with reinsurance recoverables. As a consequence, the financial strength of reinsurers is monitored. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength and also prior to any contract being signed. The general policy of the Swiss Life Group is to reinsure its insurance risks only with counterparties rated A– or above (Standard & Poor’s or equivalent). In exceptional cases, reinsurers with a lower rating may be considered. Additionally, the Group holds substantial collateral under related reinsurance agreements in the form of deposited funds and securities.

No single reinsurer is a material reinsurer to the Group, nor is the Group’s business substantially dependent upon one single reinsurer.

For fixed-income assets the total exposure per counterparty is aggregated and reported to the Group Risk Committee. The individual operations maintain records of the payment history for the significant contract holders with whom they conduct regular business. Ratings and single positions above a certain level with regard to fixed-income assets are reported to management on a regular basis. The exposure to individual counterparties is also managed by other mechanisms such as the right to offset where counterparties are both debtors and creditors of the Group. In addition, limits regarding single counterparty exposure are in place which depend on the rating and amount of exposure in relation to total investments. Information reported to management includes assessment of bad debts. Where there exists a certain exposure to individual policyholders, or homogenous groups of policyholders, a financial analysis equivalent to that conducted for reinsurers is carried out.

The non-rated loans primarily comprise mortgages and policy loans. For the bulk of the mortgages a risk class system is in place which allows the company to identify, measure, monitor and manage the risks at the level of portfolios, borrowers and loans at all times. The risk class system also enables a risk-adequate pricing of the loans. Implementation, parametrisation and control of the system are set out in an internal directive which has been approved by the Group Chief Investment Officer.

In certain countries, specific additional guidelines and rules have been defined locally to monitor credit risk. Such guidelines cover investments in fixed-income securities which are mostly based on the average rating of the issuers (calculated by weighting default probabilities). Minimum and maximum thresholds apply with regard to permitted investments in non-government bonds. For investments in government bonds with a rating lower than AA- (according to Standard & Poor’s or equivalent) and non-government bonds additional exposure limits are in place. For certain businesses, credit risk is monitored and controlled with a risk limit framework whereby maximum limits are reviewed and approved at least annually. The majority of the bond portfolio is invested in government bonds (including supranational and sovereigns) and bonds issued by the financial sector covered by collateral or government guarantees.

Maximum exposure to credit risk
In CHF million  
  For the account and risk of the Swiss Life Group For the account and risk of the Swiss Life Group's customers Total
  31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010
 
Debt securities
 
Debt securities at fair value through profit or loss
  1 906 964 6 083 5 848 7 989 6 812
Debt securities available for sale
  64 883 53 908 64 883 53 908
Debt securities held to maturity
  5 046 5 229 5 046 5 229
Debt securities pledged as collateral
  969 1 060 969 1 060
Debt securities classified as loans
  8 608 9 498 8 608 9 498
Total debt securities
  81 412 70 659 6 083 5 848 87 495 76 507
 
Loans and receivables
 
Mortgages
  5 123 5 167 5 123 5 167
Policy and other originated loans
  1 708 953 1 708 953
Note loans
  8 176 8 990 8 176 8 990
Receivables
  3 587 5 105 3 587 5 105
Total loans and receivables
  18 594 20 215 18 594 20 215
 
Other assets
 
Cash and cash equivalents
  2 638 4 607 2 446 2 333 5 084 6 940
Derivatives
  1 318 2 965 1 318 2 965
Reinsurance assets
  380 365 380 365
Total other assets
  4 336 7 937 2 446 2 333 6 782 10 270
 
Unrecognised items
 
Financial guarantees
  130 354 130 354
Loan commitments
  119 107 119 107
Total unrecognised items
  249 461 249 461
 
Total exposure to credit risk
  104 591 99 272 8 529 8 181 113 120 107 453


The following table shows the extent to which collateral and other credit enhancements mitigate credit risk in respect of the maximum exposure to credit risk.

credit risk MITIGATION – COLLATERAL HELD AS SECURITY AND OTHER CREDIT ENHANCEMENTS
In CHF million  
 

Debt
securities


Loans and
receivables


Cash and cash
equivalents


Derivatives
(assets)


Reinsurance
assets
Financial
guarantees
and loan
commitments



Total
 
31 December 2011
 
Secured by
 
cash collateral
  1 269 70 1 339
securities collateral
  994 8 207 161 1 370
mortgage collateral
  7 707 8 255 85 16 047
other collateral
  341 3 344
guarantees/letters of credit
  2 845 1 319 149 4 313
netting agreements
  90 90
Without credit enhancements
 
Governments and supranationals
  37 599 3 783 594 41 976
Other
  33 261 3 812 1 895 41 103 39 112
Total
  81 412 18 594 2 638 1 318 380 249 104 591


31 December 2010
 
Secured by
 
cash collateral
  2 831 60 2 891
securities collateral
  369 1 400 76 205 133 2 183
mortgage collateral
  5 819 8 352 58 14 229
other collateral
  363 363
guarantees/letters of credit
  24 1 583 474 2 081
netting agreements
  77 252 329
Without credit enhancements
 
Governments and supranationals
  35 892 4 697 526 41 115
Other
  28 924 4 774 1 955 58 100 270 36 081
Total
  70 659 20 215 4 607 2 965 365 461 99 272


Exposure to credit risk of debt instruments – CREDIT RATING BY CLASS AS AT 31 December 2011
In CHF million  
 
AAA

AA

A

BBB

Below BBB

Not rated
Past due or
impaired

Total
 
Debt securities
 
Supranational
  2 071 159 16 2 246
Governments
  27 086 3 772 1 177 608 104 85 11 32 843
Sovereign
  225 763 465 866 191 2 510
Covered/guaranteed
  6 613 1 286 1 455 957 216 25 10 552
Corporates
  1 068 5 397 13 451 10 437 2 597 137 3 33 090
Other
  97 19 11 8 9 27 0 171
Total debt securities
  37 160 11 237 16 718 12 892 3 117 274 14 81 412
 
Mortgages
 
Commercial
  2 558 6 2 564
Residential
  2 530 29 2 559
Total mortgages
  5 088 35 5 123
 
Other loans and receivables
 
Policy and other originated loans
  149 69 858 14 618 0 1 708
Note loans
  4 829 1 893 933 510 11 8 176
Receivables
  110 49 92 49 7 3 222 58 3 587
Total other loans and receivables
  5 088 2 011 1 883 573 18 3 840 58 13 471


Exposure to credit risk of debt instruments – CREDIT RATING BY CLASS AS AT 31 December 2010
In CHF million  
 
AAA

AA

A

BBB

Below BBB

Not rated
Past due or
impaired

Total
 
Debt securities
 
Supranational
  1 492 12 277 77 1 858
Governments
  25 738 2 799 2 564 421 137 14 31 673
Sovereign
  341 682 536 590 213 2 362
Covered/guaranteed
  4 454 529 612 170 44 34 5 843
Corporates
  1 327 5 187 12 596 7 308 2 271 85 7 28 781
Other
  135 2 2 2 0 1 142
Total debt securities
  33 487 9 211 16 587 8 568 2 665 133 8 70 659
 
Mortgages
 
Commercial
  2 666 24 2 690
Residential
  2 445 32 2 477
Total mortgages
  5 111 56 5 167
 
Other loans and receivables
 
Policy and other originated loans
  153 126 377 20 276 1 953
Note loans
  5 945 1 692 1 256 97 8 990
Receivables
  145 233 268 33 3 4 390 33 5 105
Total other loans and receivables
  6 243 2 051 1 901 150 3 4 666 34 15 048


Financial assets past due (not impaired) – AGE ANALYSIS AS AT 31 December 2011
In CHF million  
  Up to
3 months

3–6 months

6–12 months
More than
1 year

Total
 
Mortgages
 
Commercial
 
Residential
  13 9 2 2 26
Total
  13 9 2 2 26
 
Other loans and receivables
 
Policy and other originated loans
 
Receivables
  13 2 3 8 26
Total
  13 2 3 8 26


Financial assets past due (not impaired) – AGE ANALYSIS AS AT 31 December 2010
In CHF million  
  Up to
3 months

3–6 months

6–12 months
More than
1 year

Total
 
Mortgages
 
Commercial
  2 2
Residential
  11 13 1 4 29
Total
  11 15 1 4 31


Financial assets individually determined as impaired
In CHF million  
  Gross amount Impairment losses Carrying amount
  31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010
 
Debt securities
 
Governments
  52 –41 11
Corporates
  78 83 –75 –76 3 7
Other
  493 508 –493 –507 0 1
Total
  623 591 –609 –583 14 8
 
Mortgages
 
Commercial
  20 38 –14 –16 6 22
Residential
  4 4 –1 –1 3 3
Total
  24 42 –15 –17 9 25
 
Other loans and receivables
 
Policy and other originated loans
  7 8 –7 –7 0 1
Receivables
  39 41 –7 –8 32 33
Total
  46 49 –14 –15 32 34


Financial assets individually determined as impaired – IMPAIRMENT LOSS ALLOWANCE FOR THE YEAR 2011
In CHF million  
 

Balance as at
1 January

Impairment
losses
recognised


Write-offs
and disposals
Foreign
currency
translation
differences


Balance as at
end of period
 
Debt securities
 
Governments
  56 –15 0 41
Corporates
  76 1 –2 0 75
Other
  507 1 –15 493
Total
  583 58 –32 0 609
 
Mortgages
 
Commercial
  16 –1 –1 14
Residential
  1 0 0 0 1
Total
  17 –1 0 –1 15
 
Other loans and receivables
 
Policy and other originated loans
  7 7
Receivables
  8 2 –3 0 7
Total
  15 2 –3 0 14


Financial assets individually determined as impaired – IMPAIRMENT LOSS ALLOWANCE FOR THE YEAR 2010
In CHF million  
 

Balance as at
1 January

Impairment
losses
recognised


Write-offs
and disposals
Foreign
currency
translation
differences


Balance as at
end of period
 
Debt securities
 
Governments
  11 –5 –6 0
Covered/guaranteed
  16 –1 –15 0
Corporates
  107 –1 –30 0 76
Other
  546 0 –38 –1 507
Total
  680 –7 –89 –1 583
 
Mortgages
 
Commercial
  21 –2 –3 16
Residential
  8 –1 –6 0 1
Total
  29 –3 –9 0 17
 
Other loans and receivables
 
Policy and other originated loans
  0 7 7
Receivables
  5 5 –2 0 8
Total
  5 12 –2 0 15


The criteria used for the assessment of financial assets for impairment are described in note 2.8.

Exposure to credit risk OF OTHER ASSETS
In CHF million  
  AAA AA A BBB Below BBB Not rated Total
 
Credit rating as at 31 December 2011
 
Cash and cash equivalents
  883 334 1 207 96 0 118 2 638
Derivatives
  185 30 900 1 202 1 318
Reinsurance assets
  114 186 12 68 380
Total
  1 068 478 2 293 109 0 388 4 336


Credit rating as at 31 December 2010
 
Cash and cash equivalents
  977 1 872 1 162 1 595 4 607
Derivatives
  50 2 415 310 190 2 965
Reinsurance assets
  300 5 60 365
Total
  1 027 4 587 1 477 1 845 7 937


Exposure to credit risk OF UnRECOGNISED ITEMS
In CHF million  
  AAA AA A BBB Below BBB Not rated Total
 
Credit rating as at 31 December 2011
 
Financial guarantees
  130 130
Loan commitments
  119 119
Total
  249 249


Credit rating as at 31 December 2010
 
Financial guarantees
  0 220 134 354
Loan commitments
  107 107
Total
  0 220 241 461


Currency risk — The Swiss Life Group operates internationally and its exposures to currency risk primarily arise with respect to the euro, US dollar and British pound. Most of the investments and liabilities are denominated in Swiss francs, euros and US dollars, the values of which are subject to exchange rate fluctuations. The Group operates with various functional currencies (predominantly Swiss francs and euros). Its financial position and earnings could be significantly affected by a weakening of said foreign currencies against the Swiss franc.

The Swiss Life Group’s European insurance and investment operations (excluding Switzerland) generally invest in assets denominated in the same currency as their insurance and investment contract liabilities, which mitigates the currency risk for these operations. As a result, currency risk arises from recognised assets and liabilities denominated in other currencies and net investments in foreign operations. Although the Swiss Life Group actively engages in currency management to reduce the effect of exchange rate fluctuations on its assets and liabilities, particularly by hedging against the risk of such movements in relation to part of its investments denominated in euros and in US dollars, significant movements in exchange rates could adversely affect the Swiss Life Group’s earnings and financial position, including the value of its investment portfolio. Foreign exchange exposure is hedged to a large extent in line with the strategic asset allocation. The Group’s hedging arrangements are directed at covering its exposure mainly from an economic perspective. The instruments which the Swiss Life Group uses to hedge exposure may not be perfectly correlated to the related assets, so the Group will still be exposed to losses if the value of the hedge and the value of the underlying asset or liability do not correspond appropriately.

Due to the limitations of the Swiss capital market with regard to liquidity, investments in Switzerland are also made in currencies other than the Swiss franc.

The balance sheet currency exposure is to a large extent hedged using foreign currency derivatives. The following table shows the Group’s foreign currency exposure against the major functional currencies Swiss franc and euro:

Currency Exposure as At 31 December 2011
In CHF million  
  CHF EUR USD GBP JPY Other
 
Balance sheet currency exposure
 
Entities with functional currency CHF
  13 820 13 919 3 872 100 2 838
Entities with functional currency EUR
  6 1 335 301 7 373
 
Hedging effect
 
Entities with functional currency CHF
  –12 595 –13 490 –3 169 –100 –2 211
Entities with functional currency EUR
  –906 –111 –207


Currency Exposure as At 31 December 2010
In CHF million  
  CHF EUR USD GBP JPY Other
 
Balance sheet currency exposure
 
Entities with functional currency CHF
  14 342 11 699 2 685 111 2 769
Entities with functional currency EUR
  8 446 55 0 154
 
Hedging effect
 
Entities with functional currency CHF
  –14 629 –10 894 –2 602 –131 –1 644
Entities with functional currency EUR
  –564 –180


Liquidity risk — Liquidity risk is the risk that not enough cash resources may be available to pay obligations when due (primarily obligations arising from the insurance business and debt) at a reasonable cost. The Swiss Life Group is exposed to liquidity risk which primarily arises on calls on its cash resources from claims, amounts payable at maturity and surrenders arising from insurance and investment contracts. The Swiss Life Group faces the risk of not being able to refinance its debt obligations due to unexpected long-term market disruptions.

At operational level, rolling forecasts are in place to address situational liquidity risk, which primarily arises on unexpected calls on cash resources from claims, amounts payable at maturity and surrenders arising from insurance and investment contracts. To overcome unexpected liquidity shortfalls at times asset disposals are not desired, repurchase agreements are used to ensure short-term refinancing at minimal cost.

At strategic level, the Swiss Life Group holds substantial liquidity and uses active debt maturity planning to ensure full financial flexibility and efficient liquidity management.

The liquidity analysis of financial liabilities and commitments is based on undiscounted cash flows by remaining contractual maturities, whereas insurance and policyholder participation liabilities are analysed by estimated timing of net cash outflows. The analysis is made for amounts for the account and risk of the Swiss Life Group.

Exposure to liquidity risk as at 31 December 2011
In CHF million  
  Cash flows
  Carrying
amount

Up to 1 month

1–3 months

3–12 months

1–5 years

5–10 years
More than
10 years
 
Financial liabilities
 
Investment contracts with discretionary participation
  8 445 24 43 235 1 937 1 904 4 302
Investment contracts without discretionary participation
  85 4 5 13 14 8 41
Borrowings
  2 624 1 132 2 476 760
Other financial liabilities
  7 225 570 1 224 4 324 354 222 532
Total
  18 379 598 1 273 4 704 4 781 2 894 4 875
 
Insurance and policyholder participation liabilities
 
Insurance liabilities
  92 257 238 222 3 044 7 077 12 542 69 134
Policyholder participation liabilities
  5 150 25 16 1 520 3 016 27 546
Total
  97 407 263 238 4 564 10 093 12 569 69 680
 
Guarantees and Commitments
 
Financial guarantees
  130
Loan commitments
  67 24 24 4
Capital commitments
  401 182 262 32
Total
  468 206 154 266 32


Exposure to liquidity risk as at 31 December 2010
In CHF million  
  Cash flows
  Carrying
amount

Up to 1 month

1–3 months

3–12 months

1–5 years

5–10 years
More than
10 years
 
Financial liabilities
 
Investment contracts with discretionary participation
  8 314 25 45 241 1 925 1 952 4 127
Investment contracts without discretionary participation
  177 0 26 102 22 11 17
Borrowings
  2 142 220 1 628 823
Other financial liabilities
  10 920 788 1 302 7 627 394 235 575
Total
  21 553 813 1 373 8 190 3 969 3 021 4 719
 
Insurance and policyholder participation liabilities
 
Insurance liabilities
  89 344 235 270 3 082 7 333 13 275 65 149
Policyholder participation liabilities
  3 436 23 9 860 1 715 127 702
Total
  92 780 258 279 3 942 9 048 13 402 65 851
 
Guarantees and Commitments
 
Financial guarantees
  116 63 175
Capital commitments
  534 272 0
Loan commitments
  66 13 22 6 0
Total
  600 13 138 278 63 175


Current and Non-Current Assets and Liabilities — The table below shows the expected recovery or settlement of assets and liabilities. Assets are classified as current if they are expected to be realised within twelve months after the balance sheet date. Liabilities are classified as current if they are due to be settled within twelve months after the balance sheet date. All other assets and liabilities are classified as non-current.

In CHF million  
  Current Non-current For the account and risk of the Swiss Life Group's customers Total
  31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010
 
Assets
 
Cash and cash equivalents
  2 638 4 607 2 446 2 333 5 084 6 940
Derivatives
  614 2 434 704 531 1 318 2 965
Assets held for sale
  22 94 22 94
Financial assets at fair value through profit or loss
  2 235 2 381 1 985 2 072 19 900 18 942 24 120 23 395
Financial assets available for sale
  2 483 2 945 64 781 55 005 67 264 57 950
Loans and receivables
  6 441 7 149 20 761 22 564 27 202 29 713
Financial assets held to maturity
  174 178 4 872 5 051 5 046 5 229
Financial assets pledged as collateral
  33 969 1 027 969 1 060
Investment property
  15 445 14 142 15 445 14 142
Investments in associates
  74 63 74 63
Reinsurance assets
  323 304 57 61 380 365
Property and equipment
  539 569 539 569
Intangible assets including intangible insurance assets
  3 722 3 982 3 722 3 982
Current income tax assets
  2 10 2 10
Deferred income tax assets
  153 150 153 150
Other assets
  401 407 134 169 535 576
Total assets
  15 333 20 542 114 196 105 386 22 346 21 275 151 875 147 203
 
Liabilities
 
Derivatives
  563 282 623 216 1 186 498
Liabilities associated with assets held for sale
  15 15
Financial liabilities at fair value through profit or loss
  566 312 18 216 17 259 18 782 17 571
Investment contracts
  325 439 8 205 8 052 2 828 2 788 11 358 11 279
Borrowings
  1 125 2 623 2 017 2 624 2 142
Other financial liabilities
  6 116 9 716 1 109 1 204 7 225 10 920
Insurance liabilities
  3 504 3 586 88 753 85 758 1 108 961 93 365 90 305
Policyholder participation liabilities
  1 562 893 3 588 2 543 5 150 3 436
Employee benefit liabilities
  88 84 1 173 1 965 1 261 2 049
Current income tax liabilities
  120 295 120 295
Deferred income tax liabilities
  1 144 821 1 144 821
Provisions
  70 67 80 64 150 131
Other liabilities
  305 297 28 22 333 319
Total liabilities
  13 235 16 096 107 326 102 662 22 152 21 008 142 713 139 766


5.5 Insurance risk management objectives and policies
Insurance contracts are contracts under which one party (the insurer) agrees to compensate the other party (the policyholder) if a specified uncertain future event affects the policyholder. The Group’s insurance entities neither generally accept nor generally deny insurance coverage to applicants, but ensure that all the insurance risks are identified and thoroughly assessed, and that the insurance premiums accurately reflect the risk taken. The amount of risk taken must be in line with the Group’s strategy and risk policy, and must also meet the profitability targets.

Nature of insurance risk — When designing a new product or reviewing an existing one, care has to be taken that the product neither includes systemic risk nor provides incentives for adverse selection. The product should meet the market’s needs. The Swiss Life Group generally favours transparent and simple product design with a reliable pricing basis with sufficient statistical data available. Insurance risk arises when biometric parameters deviate adversely from expectations. The uncertainty in the estimation of future benefit payments and premium receipts for long-term insurance contracts is due to the unpredictability of long-term changes in overall levels of mortality and disability, for instance. Furthermore, deviations from the expected outcome of a portfolio can also arise because of random fluctuations. The impact of random fluctuations depends on the extent of diversification within a portfolio of contracts, that is, on the size of the portfolio.

The quantification of life insurance risk is based on a sensitivity analysis. Insurance risk is thus measured as the deviation of (the realisations of) the insurance risk factors from the corresponding best estimate values. Life insurance risk factors include mortality rates, disability rates and longevity, among others.

The nature of insurance risk can be summarised as follows:

Mortality and longevity — Mortality and longevity risks respectively reflect the financial consequences of insured people dying sooner or living longer than expected. For example, a life insurer with an annuity portfolio making payments to the policyholders until their death is financially exposed to those individuals who live longer than expected. Conversely, an insurer writing life insurance business that pays out amounts contingent on death of the policyholders is exposed to increases in mortality levels.

In Switzerland, the Swiss occupational pensions (BVG) segment of the group life insurance business is a significant part of the Group’s overall life insurance business. The BVG business provides an example of a minimum return guarantee. The guarantee takes the form of the right to convert an assured sum into a life annuity at a guaranteed conversion rate: The prevalent annuity conversion rate for the mandatory part of the BVG business is set at 6.9% for men (retirement age 65) and 6.85% for women (retirement age 64) for retirements in 2012 (6.95% for men and 6.9% for women for retirements in 2011). Under an amendment to the BVG legislation, which took effect on 1 January 2005, the rate will be reduced in stages to 6.8% by 2014.

With regard to mortality, morbidity and longevity risk the most important annuities payable and sums insured are as follows:

Annuities payable per annum by type of annuity – individual life
In CHF million  
  31.12.2011 31.12.2010
Life annuities – in payment
  570 568
Life annuities – deferred
  1 192 1 084
Annuities certain – in payment
  16 17
Annuities certain – deferred
  47 49
Disability income and other annuities – in payment
  232 233
Disability income and other annuities – deferred
  7 661 7 556
Total individual life
  9 718 9 507


Annuities payable per annum by type of annuity – group life
In CHF million  
  31.12.2011 31.12.2010
Retirement annuities – in payment
  605 562
Retirement annuities – deferred
  432 422
Survivors' annuities – in payment
  115 107
Survivors' annuities – deferred
  2 144 2 110
Disability income and other annuities – in payment
  403 404
Disability income and other annuities – deferred
  14 311 14 176
Total group life
  18 010 17 781


Life benefits insured by type of insurance – individual life
In CHF million  
  31.12.2011 31.12.2010
Whole life and term life
  11 531 12 157
Disability lump-sum payment
  20 22
Other
  5 828 5 709
Total individual life
  17 379 17 888


Life benefits insured by type of insurance – group life
In CHF million  
  31.12.2011 31.12.2010
Term life
  73 247 71 413
Disability lump-sum payment
  596 501
Other
  988 1 085
Total group life
  74 831 72 999


Morbidity and disability — Disability risk reflects the financial consequences of groups of individuals getting disabled more often and/or recovering less quickly than expected. With regard to morbidity, the most significant risk factors are epidemics, widespread changes in lifestyle, such as eating, smoking and exercise habits or economic effects.

Embedded Options — The ability of a policyholder to pay reduced or no future premiums under a contract, to terminate the contract completely or to exercise a guaranteed annuity option means that the insurer’s liability is also subject to policyholder behaviour to a certain extent. On the assumption that a certain part of policyholders will make decisions rationally, overall insurance risk can be assumed to be aggravated by such behaviour. For example, it is likely that policyholders whose health has deteriorated significantly will be less inclined to terminate contracts insuring disability or death benefits than those policyholders remaining in good health, thus resulting in an increasing trend in the expected mortality of policyholders, as the portfolio of insurance contracts is reduced due to surrender (adverse selection).

Underwriting strategy — Underwriting is the process of selecting and classifying insurable risks. The underwriting strategy attempts to ensure that the risks underwritten are well diversified in terms of type of risk and level of insured benefits. Life insurance underwriting is performed to ensure that the premiums and the general conditions of the insurance policies are consistent with the risks to be insured. The first step in the underwriting process is to determine which individual risks can be accepted. The second step is to place the accepted risks into groups of roughly equivalent levels of risk. Both processes must be conducted objectively and consistently. The Group sets limits for the acceptance of insurance coverage arising from new and renewal business. Medical selection is part of the Group’s underwriting procedures, whereby premiums are charged to reflect the health condition and family medical history of the applicants. The limits relate to sums at risk, maximum insured losses or present value of premiums at the contract or insured person level. Depending on the type of business and the limit exceeded, the new or renewed contract must be approved by a specific investment and risk committee or senior management. Contracts exceeding the set limits must be tested for profitability according to predefined procedures before approval. Certain contracts which include specific risks relating to derivatives or demographic risk factors for which no reliable data is available must be submitted for approval irrespective of the amount of coverage offered. Insurance coverage exceeding set limits is subject to regular internal reporting requirements. Additionally, it must be ensured that the underwriting practices are in line with local laws.

For certain group life business, local law is relevant with regard to medical examinations required before any business is written. For certain individual life business, agreements exist with regard to medical examinations of applicants before business is written. If the risk is assessed as high, exclusion of specific risks, premium adjustments and reinsurance are considered.

In the accident and health business, the underwriting strategy comprises biometric and financial data of the persons to be insured, type of contract and experience.

Non-life — The Swiss Life Group has non-life operations in France covering risks associated with accident and health (disability) as well as property and casualty.

Claims arising from the accident and health business primarily cover refunds for medical treatment, daily allowances in the case of sick leave, annuities and long-term medical care. The most significant factors that could increase the overall liabilities in health insurance are the increase in the claim frequency due to an increase in the average age of the insured persons and negative economic and social factors. The insurance liabilities arising from accident and health insurance contracts must consider outstanding claims and claims incurred but not reported (IBNR). A large part of the insurance liabilities arising from these contracts relates to IBNR, and experience shows that health insurance contracts are sensitive to late reporting of claims (both number of claims and amounts).

The Group manages the risks arising from these contracts by means of its underwriting strategy and reinsurance arrangements.

Development of claims under non-life insurance contracts
In CHF million  
  Estimate of ultimate claim costs by year of loss occurrence
  2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total
At end of year of loss occurrence
  437 445 435 396 496 448 362 408 337 329 n/a
1 year later
  487 449 414 450 423 402 403 387 382 n/a
2 years later
  454 423 437 409 393 371 323 333 n/a
3 years later
  442 452 419 378 379 313 288 n/a
4 years later
  470 555 371 359 315 288 n/a
5 years later
  470 465 366 301 290 n/a
6 years later
  450 435 308 283 n/a
7 years later
  445 382 284 n/a
8 years later
  378 353 n/a
9 years later
  357 n/a
Current estimate of cumulative claims
  357 353 284 283 290 288 288 333 382 329 3 187
Cumulative payments to date
  –324 –314 –247 –236 –245 –226 –218 –234 –225 –123 –2 392
Liabilities before discounting
  33 39 37 47 45 62 70 99 157 206 795
Effect of discounting
 
Liabilities for the current and 9 previous years
  33 39 37 47 45 62 70 99 157 206 795
Liabilities for prior years
  165
Total gross claims under non-life insurance contracts
  960


The development of claims under non-life insurance contracts comprises the non-life business in France. Garantie Assistance S.A., Paris, is no longer included in the figures above due to the reclassification to assets held for sale and associated liabilities in 2011.

Acceptance rules for risks are consistent with both the Code des Assurances and the French regulations. Underwriting guidelines and tariffs are reviewed on an annual basis.

The monitoring of the risks taken is made on a monthly basis with regard to related premiums and claims. An automated claims supervision system is used for the adjustment of tariffs for risks with loss ratios above a certain level.

Reinsurance — Reinsurance is used to limit the Group’s exposure to insurance risk. This does not, however, discharge the Group’s liability as a primary insurer, and, if a reinsurer fails to pay a claim, the Group remains liable for the payments to the policyholder. A loss allowance would be recognised for any estimated unrecoverable reinsurance.

In addition, the Group holds substantial collateral under related reinsurance agreements in the form of deposited funds and securities. Amounts recoverable from reinsurers are estimated in a manner consistent with the assumptions used for the underlying policy benefits and are presented in the balance sheet as a component of the reinsurance assets.

Management reviews reinsurance programmes covering treaty, type, risks covered and retention on a regular basis. A process, competencies and limits are set up for the approval of reinsurance programmes and their modification. To ensure that the Group’s principles are observed, guidelines on reinsurance have been introduced.

In accordance with its retention policy, for mortality and disability benefits, the Group limits its exposure to CHF 5 million per life. Retention limits can be lower for other products (e.g. critical illness or long-term care) or for exposure in international markets. In addition, catastrophe reinsurance is in place to protect against accumulation of losses from a single event or a series of connected events.

The reinsurance team at Group level is responsible for implementing the retention policy by way of intra-group reinsurance. Intra-group reinsurance is transacted at arm’s length.

As far as property and casualty insurance is concerned, the reinsurance arrangements mostly include non-proportional coverage on any single risk and/or event, and are adapted to the specific exposure. This includes excess of loss, stop-loss and catastrophe coverage, as well as facultative reinsurance for protection against specific risks.

No single reinsurer is a material reinsurer to the Group, nor is the Group’s business substantially dependent upon one single reinsurer.

Approximately 1.6% in terms of earned insurance premiums was ceded as at 31 December 2011 (2010: 1.9%).

Other risk transfer — Risk transfer primarily takes the form of reinsurance. Alternative forms of risk transfer (such as securitisation) require the formal approval of the Group Risk Committee. No significant alternative form of risk transfer is used by the Group at present.

Insurance risks are regularly reported to the Group Risk Committee.

Sensitivity analysis — The Swiss Life Group uses the market consistent embedded value (MCEV) following the guidelines of the European Insurance CFO Forum Market Consistent Embedded Value Principles©1, as one of the main management tools, for its sensitivity analysis with regard to insurance risk and market risk. From the shareholders’ point of view, the embedded value serves as an indicator of the value of the existing insurance portfolios. It is composed of two components: the net asset value (NAV) attributable to shareholders and the value of in-force business (VIF). Future new business is not included.

The market consistent embedded value of the Swiss Life Group amounted to CHF 7.7 billion as at 31 December 2011 (2010: CHF 7.6 billion). Due to different valuation principles, changes in the embedded value are typically not reflected to the same extent in the consolidated balance sheet and consolidated statement of income of the Swiss Life Group and vice versa.

The market consistent embedded value calculations are based on economic scenarios which are calibrated to market conditions at valuation date. Best estimate assumptions were made regarding a number of factors, in particular asset allocation, policyholder participation, development of costs and claims, policyholder behaviour, mortality and morbidity. Business is 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. Future costs for maintaining classic solvency capital funded by the shareholders and which underpins the insurance business are charged to the MCEV. The Swiss Life Group calculates the embedded value for all its life and health insurance companies. All other companies are taken into account at their IFRS net asset value. As a consequence, embedded value sensitivities do not affect the value of these companies.

An analysis of sensitivity indicates to what extent the embedded value is affected by variations in risk factors. The analysis is based on changes in the assumptions used in the embedded value calculation whereby a specific risk factor is changed while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. In the event of a change in a specific risk factor, the effect of different allocations to policyholder participation as a consequence is considered in the analysis. The changes in a specific risk factor are applied to the entire projection period.

The sensitivity analysis with regard to insurance risk is as follows:

Higher overall mortality would have a significant positive effect on the embedded value of life annuities (survival risk) whereas the negative effect on the embedded value of contracts with mortality risk is comparatively limited due to corresponding reductions in policyholder bonuses. Therefore, this sensitivity is considered not significant as an adverse risk for the embedded value.

At 31 December 2011, if the longevity improvement parameter had increased by 5%, the embedded value would have been CHF 37 million lower (2010: CHF 28 million lower).

At 31 December 2011, if morbidity had been 5% higher, the embedded value would have been CHF 87 million lower (2010: CHF 78 million lower).

At 31 December 2011, if morbidity had been 5% lower, the embedded value would have been CHF 85 million higher (2010: CHF 81 million higher).

The sensitivity analysis with regard to market risk is as follows:

The MCEV calculations of the Swiss Life Group are based on economic scenarios which are calibrated to market conditions at valuation date.

At 31 December 2011, if the interest rates had been 100 basis points higher, the embedded value would have been CHF 283 million higher (2010: CHF 473 million higher).

At 31 December 2011, if the interest rates had been 100 basis points lower, the embedded value would have been CHF 729 million lower (2010: CHF 824 million lower).

At 31 December 2011, if the swaption implied volatilities (interest rates) had been 25% higher, the embedded value would have been CHF 709 million lower (2010: CHF 247 million lower).

At 31 December 2011, if the swaption implied volatilities (interest rates) had been 25% lower, the embedded value would have been CHF 544 million higher (2010: CHF 397 million higher).

At 31 December 2011, if the market value of equity securities and property had been 10% higher, the embedded value would have been CHF 746 million higher (2010: CHF 723 million higher).

At 31 December 2011, if the market value of equity securities and property had been 10% lower, the embedded value would have been CHF 814 million lower (2010: CHF 808 million lower).

At 31 December 2011, if the equity securities and property implied volatilities had been 25% higher, the embedded value would have been CHF 243 million lower (2010: CHF 276 million lower).

At 31 December 2011, if the equity securities and property implied volatilities had been 25% lower, the embedded value would have been CHF 200 million higher (2010: CHF 227 million higher).

At 31 December 2011, if the euro had strengthened by 10% against the Swiss franc, the embedded value of the foreign life and health insurance companies would have been CHF 251 million higher (2010: CHF 254 million higher).

At 31 December 2011, if the euro had weakened by 10% against the Swiss franc, the embedded value of the foreign life and health insurance companies would have been CHF 251 million lower (2010: CHF 254 million lower).

The sensitivity of insurance liabilities is also analysed on an economic basis for internal risk management purposes and to satisfy regulatory requirements (Swiss Solvency Test).

 

The future starts here.