Annual Report 2012 - Swiss Life

123 Consolidated Financial Statements
Income and related expenses from insurance contracts and investment contracts
with discretionary participation features
Premiums from traditional life insurance contracts are recognised when due from the policyholder.
Insurance liabilities are established in order to recognise future benefits and expenses. Benefits are
recognised as an expense when due.
Amounts collected as premiums from investment-type contracts such as universal life and unitlinked
contracts are reported as deposits. Only those parts of the premiums used to cover the insured
risks and associated costs are treated as premium income. These include fees for the cost of insurance,
administrative charges and surrender charges. Benefits recognised under expenses include claims for
benefits incurred in the period under review that exceed the related deposits under policyholder contracts
and interest that is credited to the appropriate insurance policy accounts.
For contracts with a short duration (e.g. most non-life contracts), premiums are recorded as written
upon inception of the contract and are earned primarily on a pro-rata basis over the term of the
related policy coverage. The unearned premium reserve represents the portion of the premiums written
relating to the unexpired terms of coverage.
Insurance liabilities and liabilities from investment contracts with discretionary
participation features
Future life policyholder benefit liabilities
These liabilities are determined by using the net-level-premium method. Depending on the type of
profit participation, the calculations are based on various actuarial assumptions as to mortality,
interest rates, investment returns, expenses and persistency, including a margin for adverse deviation.
The assumptions are initially set at contract issue and are locked in except for deficiency.
If the actual results show that the carrying amount of the insurance liabilities together with anticipated
future revenues (less related deferred acquisition costs (DAC) and related intangible assets) are not
adequate to meet the future obligations and to recover the unamortised DAC or intangible assets, the
entire deficiency is recognised in profit or loss, either by reducing the unamortised DAC or intangible
assets or by increasing the insurance liabilities. The liability adequacy test is performed at each
reporting date in accordance with a loss recognition test considering current estimates of future cash
flows including those resulting from embedded options and guarantees.
Policyholder deposits
For investment contracts with discretionary participation, savings premiums collected are reported
as deposits (deposit accounting). The liabilities relating to these contracts are not calculated actuarially;
they move in line with premiums paid by the policyholders plus interest credited less expenses and
mortality charges and withdrawals.
Liabilities for claims and claim settlement costs
Liabilities for unpaid claims and claim settlement costs are for future payment obligations under
insurance claims for which normally either the amount of benefits to be paid or the date when payments
must be made is not yet fixed. They include claims reported at the balance sheet date, claims
incurred but not yet reported and claim settlement expenses. Liabilities for unpaid claims and claim
settlement costs are calculated at the estimated amount considered necessary to settle future claims
in full, using actuarial methods. These methods are continually reviewed and updated. Claim reserves
are not discounted except for claims with determinable and fixed payment terms.
Swiss Life – Annual Report 2012