2 Summary of MCEV Results

2.1 Key results

During 2011, the capital markets were characterised by a strong decline of the relevant interest rates, a widening of corporate and sovereign credit spreads and higher interest rate volatilities.

All results and components are shown in CHF million. Rounding differences may occur.

The following tables show key results as at 31 December 2011 compared to the results as at 31 December 2010:

In CHF million  
  2011 2010
Value of new business
  150 209
Present value of new business premium (PVNBP)
  12 914 14 607
New business margin (%PVNBP)
  1.2% 1.4%

Both the adverse economic environment and the reduction in volume, particularly in the PPLI business, led to a decrease by 28% of the value of new business and to a decrease of the new business margin from 1.4% to 1.2%. Continued expense reductions and an overall improvement of the business mix partially counteracted the adverse capital market developments.

In CHF million  
Net asset value
Value of
in-force business


  2011 2010
Covered business   2 525 2 836 5 361 4 959
Non-covered business   2 367 n/a1 2 367 2 636
Group MCEV
  4 892 2 836 7 728 7 595
Total MCEV earnings
  347 1 424
Operating MCEV earnings
  772 2 353
1 n/a: not applicable

The value of covered business increased by 8%. Operating MCEV earnings contributed to this increase by profitable new business and a strong operating return on the in-force business. A capital transfer also increased the value of covered business. The adverse capital market environment had a negative effect on the MCEV of covered business. This was partially alleviated by the move to QIS 5-styled valuation curves which include liquidity premiums. Due to the mentioned capital transfer and the dividend paid to shareholders, the value of the non-covered business is slightly below the previous year’s level. Overall the Group MCEV increased by 2%.

2.2 MCEV of Covered Business

The following graph and table show the MCEV by components, together with the previous year’s figures:


In CHF million  
  2011 2010
Net asset value
  2 525 1 928
Free surplus
  666 35
Required capital
  1 859 1 892
Value of in-force business
  2 836 3 032
Certainty equivalent value
  6 376 5 797
Time value of financial options and guarantees
  –2 601 –1 912
Cost of residual non-hedgeable risks
  –584 –507
Frictional costs of required capital
  –354 –346
  5 361 4 959

Overall the net asset value increased very significantly by 31% due to the strong operating profit of the year and non-recurring effects. The required capital slightly decreased despite an increase of the balance sheet size. As a result free surplus – after financing new business – increased by CHF 631 million, whereof about one third is driven by non-recurring items including a net capital transfer into covered business. The biggest contribution to this increase results from Switzerland. Goodwill and other intangibles are not included in the net asset value, with the exception of France (see section 4.7).

The value of in-force business decreased by 6%. An increase in certainty equivalent value of CHF 579 million – driven by the new business contribution – was more than offset by the increase of time value of financial options and guarantees. The latter results from a massive increase in interest rate volatilities. The TVOG also includes the cost of credit risk related to investments in corporate bonds. The cost of credit risk on group level amounts to CHF –517 million for 2011 compared to CHF –469 million for 2010.

2.3 Value of New Business
2.3.1 VALUE OF NEW BUSINESS, premiums and margins

Amounts in CHF million  
  2011 2010
Value of new business
  150 209
New business strain 1   –127 –124
Value of new business before new business strain   277 333
Annual premiums
  659 706
Single premiums
  6 101 7 798
Present value of new business premiums (PVNBP)
  12 914 14 607
Average annual premium multiplier
  10.3 9.6
New business annual premium equivalent (APE)
  1 269 1 486
New business margin (% PVNBP)
  1.2% 1.4%
New business margin (% APE)
  11.9% 14.0%
1 New business strain represents the effect on the net asset value from writing new business.


The following graph and table detail the drivers for the change in new business value and margin of the business sold in 2011 compared to the business sold in 2010.


Amounts in CHF million  

Change in NBM
Value of new business 2010
  14 607 209 1.4%
Economic variances
  91 –44 –0.3%
Volume, business mix and pricing variances
  –1 702 –15 0.0%
Expense variances
  1 1 0.0%
Other variances
  79 2 0.0%
FX variances
  –163 –3 0.0%
Value of new business 2011
  12 914 150 1.2%

The new business volume measured in PVNBP decreased by 12%. Most of this reduction is driven by lower premiums of the PPLI business, which are single premiums only. Despite this reduction in volume, the new business margin remained stable apart from effects from the adverse capital market environment and due to an overall improvement of the new business mix and other operational indicators.

Additional explanations about new business calculations are given in section 4.2 of this report.

2.4 Group MCEV — Analysis of Earnings

The table below shows the development of Group MCEV split by components from 31 December 2010 to 31 December 2011.

In CHF million  
  Covered business
business IFRS

Total Group MCEV

Total Group MCEV
  2011 2010
Opening Group MCEV
  4 959 2 636 7 595 6 877
Opening adjustments
  –98 –44 –142 –75
Adjusted opening Group MCEV
  4 861 2 592 7 453 6 803
Operating MCEV earnings
  710 62 772 2 353
Non-operating MCEV earnings
  –405 –20 –424 –929
Total MCEV earnings
  305 42 347 1 424
Other movements in IFRS net equity
  n/a1 –6 –6 1
Closing adjustments
  195 –262 –67 –633
Closing Group MCEV
  5 361 2 367 7 728 7 595
1 n/a: not applicable

The opening adjustment of the Group MCEV represents the dividend payment to shareholders of CHF 4.50 per share or a total of CHF 144 million as shown in the Consolidated Financial Statements (Note 27) and currency exchange rate effects of CHF –2 million.

The following commentaries refer mainly to the non-covered business as the analysis of earnings for the covered business is commented in sections 2.5 and 3.2 in detail.

The operating MCEV earnings for non-covered business increased by 19% compared to 2010 and correspond mainly to results from Swiss Life Holding, AWD, Investment Management and insurance business not within the scope of covered business. The change in operating MCEV earnings compared to 2010 originates almost entirely from the covered business.

The non-operating MCEV earnings relate to borrowing costs and tax effects for the non-covered business. The change in non-operating MCEV earnings compared to 2010 originates almost entirely from the covered business.

The other movements in IFRS net equity (non-covered business only) include the purchase of treasury shares, effects from equity-settled share-based payments and currency exchange rate effects on goodwill.

The closing adjustments result mainly from capital transfers between covered and non-covered business and currency exchange rate developments.

2.5 Covered Business — Analysis of Earnings

The graph and table below show the analysis of earnings for the covered business in 2011:


In CHF million  
  Free surplus Required capital VIF MCEV MCEV
  2011 2010
Opening MCEV
  35 1 892 3 032 4 959 4 132
Opening adjustments
  –98 –98 –139
Adjusted opening MCEV
  –63 1 892 3 032 4 861 3 993
Value of new business
  –343 216 277 150 209
Expected existing business contribution (reference rate)
  6 8 14 27
Expected existing business contribution (in excess of reference rate)
  –9 811 802 837
Transfers from VIF and required capital to free surplus
  680 –158 –523
Experience variances
  –131 13 65 –53 –271
Assumption changes
  5 –1 75 79 1 077
Other operating variance
  129 1 –411 –282 421
Operating MCEV earnings
  337 71 302 710 2 301
Economic variances
  157 –85 –578 –507 –979
Other non-operating variances
  5 –1 98 102 75
Total MCEV earnings
  498 –15 –178 305 1 397
Closing adjustments
  230 –18 –17 195 –431
Closing MCEV
  666 1 859 2 836 5 361 4 959

OPENING ADJUSTMENTS represent dividend payments from covered to non-covered business.

VALUE OF NEW BUSINESS contributions from free surplus and required capital sum up to the new business strain of CHF –127 million (2010: CHF –124 million). This represents the shareholders’ share in acquisition expenses for new business. The VIF-component of CHF 277 million (2010: CHF 333 million) is the value of future profits from new business.

EXPECTED EXISTING BUSINESS CONTRIBUTION (REFERENCE RATE) shows the unwinding of discount on all value of in-force components with reference rates as at start of year. Additionally the notional interest on the net asset value is included.

EXPECTED EXISTING BUSINESS CONTRIBUTION (IN EXCESS OF REFERENCE RATE) represents the additional contribution to MCEV by taking into account investment returns for the reporting period expected at the beginning of the period over and above the initial reference rates for the period. Also, releases from the period’s contribution to the time value of financial options and guarantees and cost of residual non-hedgeable risks are included. The expected business contribution is explained to a large extent by spreads expected to be earned on the corporate bond and real estate portfolio.

TRANSFERS FROM VALUE IN FORCE AND REQUIRED CAPITAL TO FREE SURPLUS include the transfer of the results of the preceding step from VIF to free surplus. Also, the required capital is normally reduced after this step, resulting in an equal increase of free surplus. The total effect in this line is zero. In the context of a life insurer’s business model, this should be seen in combination of effects from new business which partly reverses this effect by an increase of required capital and a reduction of net asset value.

EXPERIENCE VARIANCES aggregate the impact of actual development versus expectations regarding non-economic assumptions such as mortality, expenses, lapses, as well as the deviations in handling of additional reserves. The large part of the experience variances comes from the Swiss business where a variety of effects including reserve strengthening contributed. Noteworthy is also the negative experience variance for International where the investments of the PPLI business contribute negatively.

ASSUMPTION CHANGES refer to the impact of the change on assumptions such as future expense, surrender, mortality, morbidity, longevity rates. The overall positive contribution results from very positive persistency experience, predominantly for Swiss group business, positive expense variances due to a further reduced cost base and slightly adverse demographic assumptions.

OTHER OPERATING VARIANCE includes effects from strategic management decisions such as risk premium reductions in Swiss group life business and modelling improvements as well as other reassessments especially with regard to hybrid debt.

ECONOMIC VARIANCES represent the change in embedded value by replacing the starting economic scenarios by the closing ones. Effects from deviations between actual and expected investment returns are included here. Higher swaption implied volatilities and lower reference rates led to a decrease of the MCEV. This was alleviated by the move to a QIS 5-styled parameterisation of the extrapolation of swap curves and a respective setting of positive liquidity premiums.

OTHER NON-OPERATING VARIANCES consist mainly of tax variances.

CLOSING ADJUSTMENTS represent the transfer of funds into the covered business and currency exchange rate translation effects resulting from the consolidation in Swiss francs.

2.6 Sensitivities

Operational and demographic sensitivities as well as economic sensitivities with regard to equity/property implied volatilities or market values remained overall stable with respect to the ones for 2010. Sensitivities for MCEV with regard to reference rate levels are further reduced. Sensitivities with regard to swaption implied volatilities increased significantly. This is caused by the elevated swaption implied volatilities as at 31 December 2011 and the fact that relative changes to volatilities are determined.

The economic sensitivities are assumed to occur after the new business contracts have been sold, indicating how the value of in-force business and the value of new business written would be affected by the economic shocks.

The table below shows sensitivities of the MCEV and the value of new business to important financial market parameters and to operational and demographic assumptions.

Sensitivities as at 31 December 2011
Amounts in CHF million  
Change in MCEV

Change in value
of new business

Base value
  5 361 150
100 bp increase of interest rates (reference rates)
  283 5% 29 19%
100 bp decrease of interest rates (reference rates)
  –729 –14% –75 –50%
10% increase in equity / property market values
  746 14% 1 1
10% decrease in equity / property market values
  –814 –15% 1 1
25% increase in equity / property implied volatilities
  –243 –5% –9 –6%
25% decrease in equity / property implied volatilities
  200 4% 8 5%
25% increase in swaption implied volatilities
  –709 –13% –29 –19%
25% decrease in swaption implied volatilities
  544 10% 17 11%
10% increase in maintenance expenses
  –247 –5% –24 –16%
10% decrease in maintenance expenses
  245 5% 26 17%
10% proportionate increase in lapse rates
  –134 –2% –24 –16%
10% proportionate decrease in lapse rates
  148 3% 26 17%
5% proportionate increase in mortality rates (death cover)
  –17 –0% –3 –2%
5% proportionate decrease in mortality rates (annuities)
  –141 –3% 0 0%
5% increase of longevity driver (annuities)
  –37 –1% 0 –0%
5% proportionate increase in morbidity rates
  –87 –2% –8 –5%
5% proportionate decrease in morbidity rates
  85 2% 7 5%
Required capital 100% statutory solvency capital
  143 3% 12 8%
1 not available

2.7 Reconciliation of IFRS Net Asset Value to Group MCEV

Swiss Life’s MCEV for covered business reflects the value of the shareholders’ interest in the life, health and pension business as well as assumed external reinsurance of the Swiss Life Group. This value includes the determination of best estimate liabilities for policyholder bonuses and tax payments, which are derived from results based on local statutory accounting rather than on IFRS. Therefore local balance sheets and profit and loss accounts are the starting point for the projections. The net asset value (of assets not backing liabilities) is based on the local balance sheet, but adjusted at market value.

For the other parts of the Swiss Life Group, i.e. the non-covered business, the shareholder value is derived from its contribution to the Group’s IFRS net asset value.


Reconciliation of IFRS net assets to Group MCEV as at 31 December 2011
In CHF million  
IFRS net assets
  9 127
  –4 236
Reserve and investment valuation differences   –1 891
DAC / DOC and other intangible assets   –1 887
Goodwill 1   –458
Net asset value
  4 892
Value of in-force business
  2 836
Group MCEV 2
  7 728
1 Goodwill adjustments correspond to goodwill of covered business with the exception of CHF 81 million from French operations (see section 3.2).
2 Group MCEV includes CHF 1 377 million of goodwill and intangible assets as part of the unadjusted IFRS net assets for non-covered business.

Starting with the total IFRS net assets, there are valuation differences between IFRS and MCEV regarding the net asset value for the covered business. In the reconciliation these valuation differences are shown under “adjustments”. The main elements that have been adjusted are deferred acquisition costs (DAC), goodwill and other intangible assets, differences between statutory and IFRS balance sheet items reflecting different reserving bases, and different treatment of the investments and unrealised gains (that form part of the IFRS net assets but are projected on MCEV as part of the value of in-force business in the MCEV calculations).

The adjusted IFRS net asset value corresponds to the MCEV net asset value of the Swiss Life Group. Adding the value of in-force business leads to the Group MCEV.


The future starts here.