Swiss Re Ag · SIX:SREN
Swiss Re — FY2004 Earnings Presentation
20 slides from Swiss Re's earnings presentation, Apr 27, 2005
Slide 1: Analysts' conference call: Life & Health embedded value 2004
ab Analysts’ conference call 27 April 2005 Life & Health embedded value 2004 Ann Godbehere Chief Financial Officer of Swiss Re Group John Fitzpatrick Head of Life and Health Business Group Cautionary note on ab forward-looking statements Certain statements contained herein are forward-looking. These
Slide 2: Agenda
ab Agenda Summary of embedded value and main impacts Embedded value earnings for 2004 Embedded value sensitivities Key economic assumptions European Embedded Value Principles Appendix Embedded value Conference call 27 April 2005 Slide 3 Embedded value CHF 17.1bn ab Earnings of CHF 2.0bn
Slide 3: Positive experience variances offset negative operating assumption changes
Positive experience variances offset ab negative operating assumption changes Positive experience variances of CHF 187 million include favourable mortality experience, commutations and lower taxes Negative operating assumption changes of CHF 192 million primarily due to run-off portfolio of US d
Slide 4: Underlying growth from earnings partially offset by currency and capital movements
Underlying growth from earnings partially offset by currency and ab capital movements Embedded value earnings represent a 13% return on opening 2004 embedded value adjusted for foreign exchange impact 10 000 12 000 14 000 16 000 Embedded value 2003 16 003 Foreign exchange impact (1) -784 2003 embe
Slide 5: Components of earnings
Components of embedded value ab earnings (I) Significant increase in value added by new business driven by 41% increase in capital invested in new business and improved margins Expected return on existing business decreased in 2004 due to lower average risk discount rate and foreign exchange imp
Slide 6: Value added by new business in 2004 more than double 2003
Value added by new business in ab 2004 more than double 2003 Significant increase in capital invested in Admin ReSM in 2004 Reduction in new traditional business volumes mainly due to repricing actions Excellent new business IRR of 12.5% after tax significantly higher than 2003 CHF millions 20
Slide 7: Sensitivity to assumption changes
Sensitivity of embedded value ab to assumption changes CHF millions Base value 17 059 2 100 1 500 1 300 750 300 -1 250(1) -800 -1 100 -720(2) -430(3) -300(4) -2 700 - 1% risk + 1% risk 5% mortality 5% morbidity Remove all Increase -100bp +100bp Embedded value discount rate discount rate improvement
Slide 8: Improved analysis of implicit improvements in legacy US mortality tables
Improved analysis highlights the ab implicit improvements included in legacy US mortality tables (II) Aggregate impact of changes to mortality tables reduced embedded value earnings by CHF 240 million Change in average mortality improvement assumption of approx. 0.08% p.a. increased embedded val
Slide 9: Higher allowance for mortality improvements increases EV earnings
Higher allowance for mortality ab improvements increases EV earnings by CHF 0.36bn CHF billions Explicit allowance for mortality improvements in 2003 EV 1.25 Implicit allowance for mortality improvements in 2003 EV 0.72 Total allowance in 2003 EV 1.97 Aggregate change in 2004 improvement assumptions
Slide 10: Embedded value summary and key economic assumptions
ab Embedded value summary Embedded value earnings represent a 13% return on opening 2004 embedded value adjusted for foreign exchange impacts CHF millions 2003 2003 at 2004 2004 fx Value of in-force business 9 792 9 284 10 758 Shareholders’ net worth 7 734 7 374 7 728 Cost of holding solvency capi
Slide 11: Audit and European Embedded Value Principles
ab Audit of embedded value PricewaterhouseCoopers (PwC) has carried out an audit of the 2004 embedded value and embedded value earnings calculations and issued an unqualified audit opinion on these. The full opinion has been posted on our website. Embedded value Conference call 27 April 2005 Slide 2
Slide 12: Method used to set risk adjusted discount rates under EEV
Method used by Swiss Re to set risk ab adjusted discount rates under EEV Risk discount rates have been set equal to risk free rates plus a risk margin Risk free rates have been based on 10 year government bonds for each major currency Risk margin based on the systematic risk (Beta) of statutor
Slide 13: Indicative impact on 2004 EV of implementing EEV
Indicative impact on 2004 EV of ab implementing EEV CHF millions 2004 embedded value 17 059 Change in risk discount rate +476 Financial options and guarantees -308 2004 indicative EEV 17 227 The value of financial options and guarantees has been calculated using market consistent stochastic invest
Slide 14: Construction of US mortality tables
ab Construction of US mortality tables: Illustration of legacy approach illustrative Population Underwriting class Mortality rates Underwriting Relative slope class with mortality improvement Improvement Level Entry age Time Embedded value Conference call Consider each assumption in isolation (lev
Slide 15: Life insurance securitisation
ab Life insurance securitisation USD 245 million securitisation of future profits from a portfolio of US life business successfully closed on 20 January 2005 Not included in 2004 embedded value Increases embedded value by approximately USD 20m using unadjusted 2004 assumptions Impact on embe
Slide 16: Impact of duration on value
Impact of duration on value ab added by new business Impact of duration: Value added by new business for constant illustrative example capital invested Level term annual 30 premium insurance 24.0 Male, age 40 25 Investment return of 20 5% p.a., lapse rate 10% p.a., risk discount 15 14.3 rate 8% p.a.
Slide 17: Changes in value not recognised in Swiss GAAP balance sheet
Changes in value not recognised in ab Swiss GAAP balance sheet CHF millions 2 000 666 1 602 -170 -15 -91 1 500 1 280 -68 1 000 500 0 Embedded value 2003 value fx Value added Operating Economic Other 2004 value Conference call not movements by new assumption assumption differences not 27 April 2005 r
Slide 18: Definition
ab Definition of embedded value Embedded value is an estimate of the value of an insurer’s life insurance operations, excluding future new business Embedded value is the estimated present value of future regulatory profits from the in-force business plus the value of the shareholders’ net worth,
Slide 19: Components (2) and (3)
ab Components of embedded value (2) Shareholders’ net worth – Net assets of the life companies, adjusted to reflect the market value of assets – Composite companies include the amount of allocated solvency capital (i.e. target surplus) Embedded value Conference call 27 April 2005 Slide 37 ab Compo
Slide 20: Components (4) and (5)
ab Components of embedded value (4) Solvency capital required to support long-term business Solvency capital typically held in investments yielding annual post-tax returns at levels less than embedded value risk discount rate Illustrative example: Risk discount rate = 7.5% Earned rate = 4.5% pre