Annual Report 2012 - Swiss Life

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86 Market Consistent Embedded Value (MCEV) 4 Methodology 4.1 MCEV Components for Covered Business NET ASSET VALUE (NAV) The net asset value is the market value of assets allocated to the covered business, which are not backing liabilities from the covered business. The net asset value is calculated as the statutory equity capital, adjusted by the unrealised gains or losses on assets covering the equity capital that are attributable to shareholders after taxes. Depending on local regulatory restrictions, equalisation reserves are also included in the net asset value. Intangible assets are not accounted for in the net asset value. The net asset value is further split between the required capital (RC) and the free surplus (FS). REQUIRED CAPITAL (RC) The required capital is the market value of assets, attributed to the covered business – over and above that required to back liabilities for covered business – whose distribution to shareholders is restricted. Swiss Life bases the amount of required capital on 150% of the statutory solvency level according to Solvency I, except for assumed external reinsurance where an economic approach is used instead. The amount of required capital disclosed is presented from a shareholder’s perspective and thus is net of funding sources other than shareholder resources (such as subordinated loans or unallocated bonus reserves). FREE SURPLUS (FS) The free surplus is the market value of assets allocated to, but not required to support, the in-force covered business at the valuation date. The free surplus is calculated as the difference between the net asset value and the required capital. Under the chosen definition of required capital, the free surplus, unlike the required capital, is supposed to be immediately releasable and hence does not affect the frictional costs of required capital. VALUE OF IN-FORCE BUSINESS (VIF) The value of in-force business consists of the following components: 1. Certainty equivalent value (CEV) 2. Time value of financial options and guarantees (TVOG), including the cost of credit risk (see below) 3. Cost of residual non-hedgeable risks (CNHR) 4. Frictional costs of required capital (FC) In the MCEV Principles, the term present value of future profits (PVFP) is used instead of certainty equivalent value. Certainty equivalent value and time value of financial options and guarantees are items that involve projections encompassing local statutory liabilities and assets in line with: – local legal and regulatory obligations – company practice due to commercial and competitive constraints – local market practice in the calculation of embedded value Swiss Life – Annual Report 2012
87 Market Consistent Embedded Value (MCEV) CERTAINTY EQUIVALENT VALUE (CEV) The certainty equivalent value is defined as the present value of the future shareholders’ statutory profits (net of tax) under the certainty equivalent scenario. In this particular scenario, future market returns are determined as the forward rates implied in the reference rates at the valuation date. Discounting is performed at the same reference rates. The certainty equivalent value includes that part of the value of financial options and guarantees which materialises in the underlying scenario. The rules for anticipated management and policyholders’ actions applied in the certainty equivalent scenario are the same as those for the stochastic projection used to determine the time value of financial options and guarantees. TIME VALUE OF FINANCIAL OPTIONS AND GUARANTEES (TVOG) The certainty equivalent value does not allow for the risk that the financial outcome for shareholders could differ from the one implied by the certainty equivalent scenario. This is of particular relevance when products or funds include guarantees or options for the policyholder such as: – guaranteed interest rates – discretionary profit sharing and regulatory constraints, e.g. “legal quotes” – maturity guarantees – guaranteed minimum death benefits – guaranteed annuity options – surrender options For such products or funds, a stochastic projection has been run allowing for the range of possible scenarios for financial markets. The TVOG is calculated as the difference between the average present value of shareholder cash flows (profits or losses) and the certainty equivalent value, plus the cost for credit risk (see remarks on credit risk below). The TVOG therefore represents the additional market consistent value of those financial options and guarantees in excess of the intrinsic value which are already allowed for in the certainty equivalent value. At the end of the projection, shareholders are assumed to meet any shortfall of assets against liabilities or to receive a share of any residual assets. The same applies to the certainty equivalent value. The cost of credit risk accounts for the shareholder’s share of credit risk of investments in bonds that would have otherwise been unaccounted for in other MCEV components. It is defined as the present value of charges on the projected economic capital for credit risk. The initial economic capital for credit risk is defined as the impact on the value of in-force business corresponding to the 99% expected shortfall of the credit loss from the actual bond portfolio over one year, due to the migration and default risk. The underlying credit risk calculations are performed using an internal model based on the Credit Metrics ©2 methodology. 2 Copyright © 2009 JPMorgan Chase & Co. All rights reserved. Swiss Life – Annual Report 2012
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Swiss Life Group annual report 2012
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4 Facts & Figures The Swiss Life
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6 Shareholder’s Letter Dear Share
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8 Summary of Group results Summary
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Amounts in CHF million 2012 2011 +/
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12 Segment Reporting Segment Report
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28 Corporate Governance Talanx AG,
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34 Corporate Governance FRANK SCHNE
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In CHF million CHF EUR USD GBP JPY
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In CHF million 31.12.2012 31.12.201
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In CHF million Notes 2012 2011 In C
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In CHF million 2012 2011 180 Consol
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In CHF million 2012 2011 194 Consol
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Number of shares 2012 2011 204 Cons
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In CHF million 2012 208 Consolidate
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In CHF million 01.04.2011 210 Conso
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226 Swiss Life Holding Financial St
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In CHF million 2012 2011 228 Swiss
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As % of total share capital 31.12.2
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In CHF million 2012 2011 232 Swiss
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250 Share Performance and Historica
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252 Contacts and Publishing Details
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130 286 The future starts here. Swi
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Annual Report 2012 - Swiss Life

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