2.1 Key results
Benefiting from strong operating earnings, Swiss Life contained the adverse effects from the challenging capital market environment and negative currency translation effects. The MCEV in 2015 amounted to CHF 12 509 million, compared to CHF 12 901 million in the prior year. In an environment of very low interest rates, Swiss Life generated a value of new business of CHF 268 million (CHF 255 million in 2014).
Results are shown in CHF million. Rounding differences may occur.
The following tables show key results as at 31 December 2015 compared to the results as at 31 December 2014.
|In CHF million|
|Value of new business||268||255|
|Present value of new business premium (PVNBP)||15 643||14 414|
|New business margin (%PVNBP)||1.7%||1.8%|
The value of new business profited from considerably increased volumes while the interest rate development had a substantial negative impact. The resulting pressure on new business profitability was mitigated by active new business steering across the Group. In local currency the value of new business increased by 10%.
|In CHF million||Value of|
|Covered business||3 514||7 050||11 071|
|Non-covered business||1 945||n/a 1||1 945||1 831|
|GROUP MCEV||5 458||7 050||12 509||12 901|
|Total MCEV earnings||329||1 737|
|Operating MCEV earnings||1 211||1 322|
|1 n/a: not applicable|
Due to the capital market and currency developments mentioned, the value of covered business decreased by 5% despite substantial operating MCEV earnings resulting from profitable new business and operating returns on the in-force business supported by margin management and favourable demographic experience. The Group MCEV decreased by 3% in total.
2.2 MCEV of covered business
The following graph and table show the MCEV by components, together with the previous year’s results.
|In CHF million|
|NET ASSET VALUE||3 514||3 755|
|Free surplus||1 367||1 622|
|Required capital||2 147||2 133|
|VALUE OF IN-FORCE BUSINESS||7 050||7 315|
|Certainty equivalent value||8 487||8 735|
|Time value offinancial options and guarantees||-363||-373|
|Cost of residual non-hedgeable risks||-746||-748|
|Frictional costs of required capital||-327||-298|
|MCEV||10 564||11 071|
Excluding currency translation effects of CHF –405 million, the MCEV of the covered business would have remained at a comparable level.
The net asset value and similarly the free surplus decreased because of negative currency translation effects and reserve strengthenings, while the dividends and new business were financed from operating earnings. 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 4% driven by the adverse capital markets and, for the non-CHF denominated units, currency developments. Frictional costs increased, among others, due to new business written.
The cost of credit risk amounts to CHF –693 million for 2015 compared to CHF –665 million for the previous year.
2.3 Value of new business
2.3.1 Value of new business, premiums and margins
|Amounts in CHF million|
|VALUE OF NEW BUSINESS||268||255|
|New business strain 1||-165||-133|
|Value of new business |
before new business strain
|Single premiums||7 026||6 919|
|PRESENT VALUE OF |
NEW BUSINESS PREMIUMS (PVNBP)
|15 643||14 414|
|Average annual premium multiplier||12.2||12.3|
|New business annual premium equivalent (APE)||1 408||1 304|
|NEW BUSINESS MARGIN (% PVNBP)||1.7%||1.8%|
|New business margin (% APE)||19.0%||19.5%|
|1 New business strain represents the effect on the net asset value from writing new business.|
2.3.2 Value of new business — analysis of change
The following graph and table detail the drivers for the change in new business value and margin of the business sold in 2015 compared to the business sold in 2014.
|Amounts in CHF million|
|Change in NBM |
|VALUE OF NEW BUSINESS 2014||14 414||255||1.8%|
|Volume, business mix and pricing variances||1 774||72||0.3%|
|FX translation effects||-775||-13||0.0%|
|VALUE OF NEW BUSINESS 2015||15 643||268||1.7%|
In local currency all market units contributed to the new business growth of 14% measured in PVNBP. Including the adverse currency development the volumes increased by 9%. This, in combination with active new business steering, pricing discipline and cost efficiency gains, mitigated the adverse impacts of the challenging capital market environment on both the new business value and margin.
Additional explanations about the new business methodology 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 2014 to 31 December 2015.
|In CHF million||Covered business |
|OPENING GROUP MCEV||11 071||1831||12 901||11 378|
|ADJUSTED OPENING GROUP MCEV||10 844||1 846||12 690||11 203|
|Operating MCEV earnings||960||251||1 211||1 322|
|Non-operating MCEV earnings||-870||-11||-881||415|
|TOTAL MCEV EARNINGS||90||240||329||1 737|
|Other movements in IFRS net equity||n/a 1||-40||-40||17|
|CLOSING GROUP MCEV||10 564||1 945||12 509||12 901|
|1 n/a: not applicable|
The opening adjustment of the Group MCEV represents the distribution in 2015 to shareholders out of the capital contribution reserve of CHF 6.50 per share, corresponding to a total of CHF 207 million as described in the Consolidated Financial Statements, and foreign currency translation effects of CHF –4 million.
The operating MCEV earnings for non-covered business correspond mainly to the results from Swiss Life Asset Managers, Swiss Life Holding and distribution and insurance units outside the scope of covered business.
The non-operating MCEV earnings relate to borrowing costs and tax effects of the non-covered business. For Group MCEV, the change in non-operating MCEV earnings compared to 2014 arises almost entirely from the covered business.
The other movements in IFRS net equity (non-covered business only) include effects from the sale and purchase of treasury shares, changes in unrealised gains and losses and effects from equity-settled share-based payments.
The closing adjustments result mainly from foreign currency translation effects and the transfer of funds between covered and non-covered business.
2.5 Covered business — analysis of earnings
The graph and table below show the analysis of earnings for the covered business in 2015.
|In CHF million||Free surplus||Required capital||VIF||MCEV||MCEV|
|OPENING MCEV||1 622||2 133||7 315||11 071||9 669|
|ADJUSTED OPENING MCEV||1 395||2 133||7 315||10 844||9 548|
|Value of new business||-350||185||433||268||255|
|Expected existing business contribution (reference rate)||1||-5||3||-1||21|
|Expected existing business contribution |
(in excess of reference rate)
|Transfers from VIF and required capital |
to free surplus
|Other operating variance||-40||23||276||259||351|
|OPERATING MCEV EARNINGS||30||130||799||960||1 116|
|Other non-operating variances||14||-||-18||-4||-52|
|TOTAL MCEV EARNINGS||26||134||-70||90||1 549|
|CLOSING MCEV||1 367||2 147||7 050||10 564||11 071|
Opening adjustments represent the increased dividend payments from covered to non-covered business.
Value of new business
Value of new business contributions from free surplus and required capital sum up to the new business strain of CHF –165 million (2014: CHF –133 million). This represents the shareholders’ share in acquisition expenses for new business. The VIF-component of CHF 433 million (2014: CHF 388 million) is the value of future profits from new business.
Expected existing business contribution (reference rate)
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)
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 existing 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
Transfers from value in force and required capital to free surplus include the transfer of the results of the preceding step from value in force 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 with 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 and deviations in handling of additional reserves. A variety of effects relating to persistency and other demographic experience as well as reserve strengthening resulted in a MCEV increase. The last had a negative impact on free surplus and a positive effect on value of in-force business; the largest contribution stems from the Swiss business.
Assumption changes refer to the impact of the change on assumptions such as future expense, surrender, mortality, morbidity and longevity rates. The impacts of positive longevity experience and efficiency gains in France were reduced by effects from updated policyholder behaviour parameters in Germany.
Other operating variance
Other operating variance includes effects from the revised profit-sharing in view of the low interest rate environment.
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. Overall, the economic variances had a negative impact on MCEV, driven by lower interest rates in Switzerland and widened credit spreads, mitigated by a strong real estate performance.
Other non-operating variances
Other non-operating variances encompass effects relating to government-set parameters, tax impacts and changes in the regulatory environment.
Closing adjustments represent foreign currency translation effects resulting from the consolidation in Swiss francs and the transfer of funds into the covered business.
Operational and demographic sensitivities for MCEV remained stable overall, while the sensitivities with regard to reference rates increased. Sensitivities relating to swaption implied volatilities are influenced by the Swiss group life business, where continued operating improvements have contained the cost of policyholder options and guarantees, such that business-inherent shareholder options drive the time value of options and guarantees. As in the previous year, we disclose corresponding sensitivities of ±10%. The relative sensitivities with regard to equity/property market values and their volatilities slightly increased compared to 2014.
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 sudden economic shocks.
The table below shows sensitivities of the MCEV and the value of new business to important financial market parameters as well as to operational and demographic assumptions.
Sensitivities as at 31 December 2015
|Amounts in CHF milion|
|Change in MCEV||+/-||Change in value|
of new business
|BASE VALUE||10 564||268|
|100 bp increase of interest rates (reference rates)||987||9%||88||33%|
|100 bp decrease of interest rates (reference rates)||-1 428||-14%||-154||-57%|
|10% increase in equity / property market values||811||8%||1||1|
|10% decrease in equity / property market values||-958||-9%||1||1|
|25% increase in equity / property implied volatilities||-338||-3%||-17||-6%|
|25% decrease in equity / property implied volatilities||273||3%||14||5%|
|10% increase in swaption implied volatilities||37||0%||-0||-0%|
|10% decrease in swaption implied volatilities||-121||-1%||-4||-1%|
|10% increase in maintenance expenses||-202||-2%||-18||-7%|
|10% decrease in maintenance expenses||197||2%||16||6%|
|10% proportionate increase in lapse rates||-168||-2%||-20||-7%|
|10% proportionate decrease in lapse rates||188||2%||21||8%|
|5% proportionate increase in mortality rates (death cover)||-27||-0%||-6||-2%|
|5% proportionate decrease in mortality rates (annuities)||-163||-2%||-19||-7%|
|5% increase of longevity driver (annuities)||-31||-0%||-5||-2%|
|5% proportionate increase in morbidity rates||-41||-0%||-4||-2%|
|5% proportionate decrease in morbidity rates||40||0%||4||2%|
|Required capital 100% statutory solvency capital||147||1%||10||4%|
|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 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, and adjusted to market value.
For the other parts of the Swiss Life Group, i.e. the non-covered business, the shareholder value is derived from their contribution to the Group’s IFRS net asset value.
Reconciliation of IFRS net assets to Group MCEV as at 31 December 2015
|In CHF million|
|IFRS NET ASSETS||12 177|
|Reserve and investment valuation differences||-4 722|
|DAC/ DOC and other intangible assets||-1 534|
|Net asset value||5 458|
|Value of in-force business||7 050|
|GROUP MCEV 2||12 509|
|1 Goodwill adjustments correspond to goodwill of covered business with the exception of CHF 78 million from French operations (see section 3.2).|
2 Group MCEV includes CHF 844 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.