Prospectus Fiduciary issue by J.P. Morgan Bank Luxembourg S.A. to fund a loan to be made by it to
A13.4.1
Swiss Life Insurance and Pension Company (incorporated in Switzerland with limited liability)
¤350,000,000 Fixed/Floating Rate Subordinated Perpetual Notes
The issue price of the ¤350,000,000 Fixed/Floating Rate Subordinated Perpetual Notes (the “Notes”) is 99.423 per cent. of their A13.4.2 principal amount. The Notes will be issued by J.P. Morgan Bank Luxembourg S.A. (the “Fiduciary”) (for further details see “The Fiduciary Contract”) on a fiduciary basis pursuant to the Law of 27 July 2003 of the Grand Duchy of Luxembourg on trusts and A13.4.3 fiduciary contracts, in order to fund a step-up subordinated perpetual loan in an aggregate principal amount of ¤350,000,000 (the “Loan”) to be made by the Fiduciary to Swiss Life Insurance and Pension Company (“Swiss Life/Rentenanstalt”) (for further details A9.4.1.1 see “Description of Swiss Life/Rentenanstalt”). The Loan will be made on 16 November 2005 under a loan agreement dated 14 November 2005 (the “Loan Agreement”) entered into between Swiss Life/Rentenanstalt and the Fiduciary, subject to the Fiduciary having received the proceeds from the issue of the Notes. The Loan will be made by the Fiduciary in its own name to Swiss Life/Rentenanstalt, but at the sole risk and for the sole benefit of the holders of the Notes (the “Noteholders”). Payments under the Loan and under the Notes will be made free and clear of, and without withholding or deduction for, any taxes imposed by the Grand A13.4.15 Duchy of Luxembourg (“Luxembourg”) or Switzerland, to the extent described under “Terms and Conditions of the Notes - Taxation”. Swiss Life/Rentenanstalt may, under certain circumstances repay the Loan in full on 16 November 2015 or on any interest payment date thereafter. In addition, in the event of certain changes affecting Luxembourg or Swiss taxation, Swiss Life/Rentenanstalt may, under certain circumstances, repay the Loan in full. In the event of either such repayment, the Fiduciary will redeem the Notes A13.4.9 in whole at their principal amount, together with accrued interest to the date of redemption and any additional amounts. See “Terms and Conditions of the Notes – Redemption, Purchase and Cancellation”. The Notes have no fixed maturity date and are not otherwise redeemable at the option of the Noteholders or at the option of the Fiduciary. The Notes evidence a fiduciary contract between the Fiduciary and the Noteholders (the “Fiduciary Contract”) under the terms of which the Fiduciary undertakes to account to the Noteholders for all payments of principal and interest received by it in respect of the Loan and which are attributable to the Notes and to act generally in such manner as to give effect to the terms and conditions of the A9.3.1 Notes (the “Conditions”), but has no other payment obligations to the Noteholders. See “Terms and Conditions of the Notes”. The A13.2 Fiduciary’s payment obligations under the Notes are conditional upon the due performance by Swiss Life/Rentenanstalt of its obligations in respect of the Loan under the Loan Agreement. The Notes do not constitute direct debt obligations of the Fiduciary. The Noteholders have no direct right of action against Swiss Life/Rentenanstalt to enforce their rights under the Notes or the obligations of Swiss Life/Rentenanstalt under the Loan Agreement. See “Terms and Conditions of the Notes – Enforcement”. By purchasing Notes, the Noteholders will be deemed to have acknowledged and agreed to the terms of the Fiduciary Contract. PARTICULAR ATTENTION IS DRAWN TO THE SECTION ENTITLED “RISK FACTORS” ON PAGES 5 TO 20 BELOW, WHICH DISCUSSES CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES. This Prospectus has been approved by the Commission de Surveillance du Secteur Financier (the “CSSF”), which is the competent Luxembourg authority for the purposes of Directive 2003/71/EC (the “Prospectus Directive”) and of the relevant Luxembourg implementing measures, as being a prospectus issued in compliance with the Prospectus Directive and the relevant Luxembourg A9.3.1 implementing measures for the purpose of giving information with regard to the issue of the Notes. The Prospectus will be published on the website of the Luxembourg Stock Exchange.
An application has been made to admit the Notes to listing on the Luxembourg Stock Exchange and to trading on the regulated A13.5.1 market of the Luxembourg Stock Exchange. The Notes have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “Securities Act”), or under any state securities laws, and they are subject to United States tax law requirements. The Notes are being offered outside the United States by the Lead Manager (as defined in “Subscription and Sale”) in accordance with Regulation S under the Securities Act (“Regulation S”), and may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
The Notes will be in bearer form, in the denomination of ¤50,000 each. They will initially be in the form of a temporary global note A13.4.4 (the “Temporary Global Note”), in bearer form and without interest coupons or a talon attached, which will be deposited on or around 16 November 2005 (the “Closing Date”) with a common depositary for Euroclear Bank, S.A./N.V. as operator of the Euroclear A13.4.5 System (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”). The Temporary Global Note will be exchangeable, in whole or in part, for interests in a permanent global note (the “Permanent Global Note”), also in bearer form and without interest coupons or a talon attached, not earlier than 40 days after the Closing Date upon certification as to non-U.S. beneficial ownership. Interest payments in respect of the Notes cannot be collected without such certification of non-U.S. beneficial ownership. The Permanent Global Note will be exchangeable in certain limited circumstances in whole, but not in part, for Notes in definitive form in the denomination of ¤50,000 each and with interest coupons and one talon attached. See “Summary of Provisions relating to the Notes while in Global Form”.
JPMorgan
14 November 2005 Swiss Life/Rentenanstalt confirms that (i) this Prospectus contains all information with respect to Swiss Life/Rentenanstalt, to Swiss Life/Rentenanstalt and its subsidiaries (together, “Swiss Life”) and to the group of consolidated undertakings of which the parent company is Swiss Life Holding and in which Swiss Life/Rentenanstalt is a principal subsidiary (the “Swiss Life Group”), together with all information in respect of the Loan and the Notes, which is material in the context of the issue and offering of the Notes (including all information required by applicable laws and all information which, according to the particular nature of Swiss Life/Rentenanstalt, the Loan and the Notes, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses, and prospects of Swiss Life/Rentenanstalt and of the rights attaching to the Loan and the Notes); (ii) the statements contained in this Prospectus are in every material respect true and accurate and not misleading; (iii) the opinions and intentions expressed in this Prospectus with regard to Swiss Life/Rentenanstalt, Swiss Life and the Swiss Life Group are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions; (iv) there are no other facts in relation to Swiss Life/Rentenanstalt, Swiss Life or the Swiss Life Group, or the Loan or the Notes, the omission of which would, in the context of the issue and offering of the Notes, make any statement in this Prospectus misleading; and (v) all reasonable enquiries have been made by Swiss Life/Rentenanstalt to ascertain or verify the foregoing.
Swiss Life/Rentenanstalt accepts responsibility for the information contained in this document. To the best of the knowledge of Swiss Life/Rentenanstalt, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.
Where information has been sourced from a third party, this information has been accurately reproduced, the source has been stated and, so far as Swiss Life/Rentenanstalt is aware and is able to ascertain from information published by the third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. Information regarding the Fiduciary in the first paragraph of “The Fiduciary Contract” has been sourced from the Fiduciary.
Neither the Fiduciary nor the Lead Manager makes any representation or warranty, express or implied, as to the accuracy or completeness of the information in this Prospectus. Each person receiving this Prospectus acknowledges that such person has not relied on the Fiduciary or the Lead Manager or any person affiliated with the Fiduciary or the Lead Manager in connection with its investigation of the accuracy of such information or its investment decision. Each person contemplating making an investment in the Notes must make its own investigation and analysis of the creditworthiness of Swiss Life/Rentenanstalt and its own determination of the suitability of any such investment, with particular reference to its own investment objectives and experience and any other factors which may be relevant to it in connection with such investment.
Prospective investors should satisfy themselves that they understand all the risks associated with making investments in the Notes. If a prospective investor is in any doubt whatsoever as to the risks involved in investing in the Notes, it should consult professional advisers.
No person is authorised to give any information or to make any representation other than as contained in this Prospectus and, if given or made, any such other information or representation should not be relied upon as having been authorised by Swiss Life/Rentenanstalt, the Fiduciary or the Lead Manager or any of their respective agencies, affiliates or advisers.
Neither the delivery of this Prospectus nor any offering, sale or delivery of any Note made hereunder at any time shall imply that the information contained in it is correct at any time subsequent to its date, or that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of Swiss Life/Rentenanstalt or Swiss Life since the date of this Prospectus. Unless otherwise indicated, all information in this Prospectus is given as of its date.
This Prospectus does not constitute an offer of, or an invitation to subscribe for or purchase, any Notes.
2 The distribution of this Prospectus and the offering, sale and delivery of Notes in certain jurisdictions may be restricted by law. None of the Fiduciary, Swiss Life/Rentenanstalt or the Lead Manager represents that this document may be lawfully distributed, or that the Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assumes any responsibility for facilitating any such distribution or offering. In particular, none of the Fiduciary, Swiss Life/Rentenanstalt or the Lead Manager has taken any action which would permit a public offering of the Notes or distribution of this document in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Prospectus comes are required by the Fiduciary, Swiss Life/Rentenanstalt and the Lead Manager to inform themselves about and to observe any such restrictions. For a description of certain restrictions on offers, sales and deliveries of Notes and on distribution of this Prospectus and other offering material relating to the Notes, see “Subscription and Sale”. In particular, the Notes have not been, and will not be, registered under the Securities Act and are subject to United States tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or delivered in the United States or to U.S. persons.
Unless otherwise specified, references to “¤”, “EUR” and “euro” are to the single currency introduced at the start of the Third Stage of European Economic and Monetary Union pursuant to the Treaty establishing the European Community, as amended; references to “Swiss francs” and “CHF” are to the lawful currency of Switzerland; and references to “$” and “USD” are to the lawful currency of the United States.
In connection with the issue of the Notes, J.P. Morgan Securities Ltd. (the “Stabilising Manager”) (or persons acting on behalf of the Stabilising Manager) may over-allot Notes (provided that the aggregate principal amount of Notes allotted does not exceed 105 per cent. of the aggregate principal amount of the Notes), or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or persons acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of this Prospectus is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes.
3 Contents
Risk Factors...... 5
The Fiduciary Contract ...... 21
Terms and Conditions of the Notes ...... 23
Summary of Provisions relating to the Notes while in Global Form ...... 41
Use of Proceeds ...... 43
Description of Swiss Life/Rentenanstalt ...... 44
Taxation ...... 61
Subscription and Sale ...... 65
General Information ...... 67
Financial Statements ...... F-1
Summary of Significant Differences between Swiss Statutory Accounting Rules and International Financial Reporting Standards (IFRS) ...... A-1
4 Risk Factors
A9.3.1 Prospective investors should be aware that an investment in the Notes should be made only by those A13.2 with the necessary expertise to appraise the investment. In addition to the other information in this Prospectus, the following risk factors should be considered carefully before making an investment decision.
Certain financial and other information is included below in relation to the Swiss Life Group, the larger group of which the parent company is Swiss Life Holding, and in which Swiss Life/Rentenanstalt is a principal subsidiary. See “Description of Swiss Life/Rentenanstalt — Business Overview”. References in this section entitled “Risk Factors” to financial condition and results of operation include references to Swiss Life/Rentenanstalt and Swiss Life as well as to the financial condition and results of the Swiss Life Group as reflected in the consolidated financial statements of Swiss Life Holding.
Swiss Life/Rentenanstalt believes that the following factors may affect its ability to fulfil its obligations under the Loan Agreement. All of the factors are contingencies which may or may not occur and Swiss Life/Rentenanstalt is not in a position to express a view on the likelihood of any such contingency occurring.
Factors which Swiss Life/Rentenanstalt believes may be material for the purpose of assessing the market risks associated with the Notes issued are also described below.
Swiss Life/Rentenanstalt believes that the factors described below represent the principal risks inherent in investing in the Notes, but Swiss Life/Rentenanstalt may be unable to pay interest in connection with the Loan Agreement for other reasons and Swiss Life/Rentenanstalt does not represent that the statements below regarding the risks of holding the Notes are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this Prospectus and reach their own views prior to making any investment decision. A9.3.1 Risks related to Swiss Life/Rentenanstalt and Swiss Life
Swiss Life/Rentenanstalt faces particular risks in attaining profitable growth in its life insurance business in Switzerland
In 2003 Swiss Life/Rentenanstalt experienced a downturn in its life insurance business in Switzerland, with gross premiums down markedly. This downturn, however, was in line with market trends: the low interest rate environment at the time caused a general reduction in demand for life insurance products throughout the market, particularly for individual life products. Swiss Life’s increased focus in 2003 on profitability, and the consequent introduction of adjusted policy conditions, including stricter pricing and lower bonuses, also played a part in the decrease in its gross premiums. These adjusted policy conditions, however, were a key factor in increasing the embedded value of new business written in Switzerland during 2003.
Swiss Life/Rentenanstalt’s results improved in 2004, particularly in respect of group insurance products, and, as a consequence, not only was the 2003 reduction in premiums reversed, but premium volumes in fact increased in excess of general market increases. In order, however, for Swiss Life to maintain this performance and achieve its long-term target of profitable growth at rates above the market average, its core Swiss business will need to increase growth in gross premium volumes over the longer term.
Swiss Life/Rentenanstalt has recently renewed its marketing activities around a new streamlined brand architecture and has launched a revised product offering for its Swiss BVG (Bundesgesetz über die berufliche Alters-, Hinterlassenen- und Invalidenvorsorge, or Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans) life insurance business (“BVG” business) which it believes will offer attractive features to customers and will differentiate its product from those of its competitors. These initiatives are, however, at an early stage, and their success is subject in part to factors outside of Swiss Life/Rentenanstalt’s control, such as market interest rates and the activities of
5 its competitors. The success of the new BVG product offering is also subject to the risk of regulatory changes.
If Swiss Life/Rentenanstalt proves unable to increase volumes in its core Swiss market, this could have an adverse effect on its financial condition and results of operations and may, in particular, have an adverse impact on the value of new business written in Switzerland.
Changes to, or an increase in, regulation of Swiss Life’s operations may adversely affect its business
Swiss Life is subject to detailed and comprehensive regulation and supervision in all the jurisdictions in which it transacts business. Its insurance operations are subject to insurance laws and regulations, which are generally intended to protect policyholders (including through solvency measures) rather than shareholders or creditors. Such laws and regulations give regulatory agencies control over many aspects of Swiss Life’s business, including tariffs and premiums, marketing and selling practices, solvency and capital adequacy requirements and permitted investments. Changes in existing regulations may materially affect the way in which Swiss Life conducts its business and the products it may offer, and may have a material adverse effect on the results of operations and financial condition of Swiss Life.
For example, in Switzerland guaranteed minimum interest rates have been imposed on Swiss Life/Rentenanstalt’s BVG business by the Swiss Federal Council in a manner which may diverge from the rates of return that Swiss Life/Rentenanstalt is able to achieve on its assets. These minimum interest rates are subject to annual changes and do not yet follow a predictable formula consistent with the economic notion of a guarantee.
While Swiss Life takes such changes into account in determining the pricing and structure of its life insurance products in Switzerland, the extent to which a revised product offering can successfully be implemented remains subject to a number of other uncertainties, including the extent of existing customers’ acceptance of the revised offering. There is a risk that changes in guaranteed minimum interest and annuity conversion rates or to the “legal quote” (see below) will result in a loss of market share or will prevent Swiss Life/Rentenanstalt from increasing its market share, and may harm Swiss Life’s ability to maintain or increase its profitability.
The introduction of the “legal quote” in Switzerland adversely affects the flexibility of Swiss Life/Rentenanstalt to allocate surplus between shareholders and policyholders and is likely to affect Swiss Life/Rentenanstalt’s financial condition and results of operations
In Switzerland, Swiss Life/Rentenanstalt’s group life insurance business is affected by the “legal quote” which was implemented for BVG business in 2004. The “legal quote” limits Swiss Life/Rentenanstalt’s flexibility to allocate surplus between policyholders and shareholders. With effect from 1 January 2004, the maximum available for the benefit of shareholders is 10 per cent. of gross cost and risk premiums together with 10 per cent. of investment return on Swiss Life/Rentenanstalt’s BVG business. Under certain circumstances, the “legal quote” may affect the profitability of other Swiss Life companies which provide services to the group life business. Under certain interest rate conditions, which it is however believed are unlikely to apply, the amount of surplus available to shareholders could be further reduced.
Swiss Life/Rentenanstalt has in the past allocated surplus between policyholders and shareholders on a basis which it believes was no less favourable to policyholders than that established by the “legal quote”. However, the imposition of the “legal quote” limits Swiss Life/Rentenanstalt’s flexibility in a way which, in certain market conditions, could have a negative impact on Swiss Life/Rentenanstalt’s future profitability and the value of new business.
There can be no assurance that the introduction of the “legal quote”, the final details of how it will apply (which have mostly been determined, but which in practice are still open to change) and any
6 future changes, including as a result of an increase in interest rates, will not have an adverse effect on Swiss Life/Rentenanstalt’s financial condition or results of operations.
The profitability of Swiss Life/Rentenanstalt’s BVG business depends on the mandatory guaranteed interest rates and the annuity conversion rates being set at acceptable levels and the setting of such rates is subject to uncertainty
Swiss Life/Rentenanstalt’s BVG business is subject to guaranteed minimum interest and annuity conversion rates. The process for setting these rates is not predictable and the rates may from time to time diverge from the rates of return that Swiss Life/Rentenanstalt is able to achieve on the assets backing such business.
While Swiss Life/Rentenanstalt believes that the introduction of the legal quote will reduce the sensitivity of its results (after policyholder participation) to changes in the BVG guaranteed minimum interest rate and the mandatory conversion rate, nevertheless if there is a change in either of these rates or a change in economic, market or other conditions without a corresponding change to these rates, then the profitability of Swiss Life/Rentenanstalt’s BVG business and Swiss Life/Rentenanstalt’s ability to maintain and increase its premium volume and market share could both be adversely affected.
In addition, while Swiss Life/Rentenanstalt has some flexibility to reprice or restructure its products in response to such conditions or changes, the ability to implement a revised product offering is subject to a number of uncertainties and may not have immediate effect. For example, the current Swiss regulatory regime requires that approval must be sought from the regulator prior to the introduction of new tariffs. Also, the ability to implement a revised product offering is subject to customers’ acceptance of the new terms.
Following the Swiss Federal Council decision on 10 September 2003, a reduction in the guaranteed interest rate for the mandatory BVG business, from 3.25 per cent. to 2.25 per cent., took effect on 1 January 2004. The rate was subsequently raised to 2.50 per cent. with effect from 1 January 2005 and has been confirmed to remain at this level for the year 2006. While this rate is below the direct yields of the Swiss Life/Rentenanstalt investment portfolio, it is above current yields available on long-term fixed income investments. Although Swiss Life/Rentenanstalt has taken the change into account in the pricing and structuring of its life insurance products in Switzerland, the extent to which a revised product offering can be implemented remains subject to a number of other uncertainties, including existing customers’ acceptance of the revised offering. Also, it is not certain that future guaranteed rates will be set at levels compatible with returns achievable in future periods. As long as Swiss legislation does not provide for a predictable and transparent process to set the guaranteed interest rate for mandatory BVG business, a considerable part of Swiss Life/Rentenanstalt’s business will be exposed to this uncertainty.
The guaranteed annuity conversion rate for Swiss Life/Rentenanstalt’s mandatory BVG business is presently set at 7.2 per cent. Under an amendment to the BVG legislation, which took effect on 1 January 2005, this rate will be reduced in stages to 6.8 per cent. by the beginning of 2014. Although Swiss Life/Rentenanstalt has taken the reduction into account in its plans to amend the pricing and structure of its life insurance products in Switzerland (including by a reduction of the conversion rate on its non-mandatory BVG business to 5.835 per cent. over four years), the extent to which Swiss Life/Rentenanstalt will be able to benefit from the reduction is subject to a number of uncertainties, including existing customers’ acceptance of the revised offering. Also, because the new legislation does not allow insurance companies to continually re-evaluate their pricing in the light of changing economic and other conditions, such as increased life expectancy figures and the calculation of technical interest rates, there can be no assurance that the current rate or any future rate will be such that insurance companies in Switzerland will be able to conduct a profitable mandatory BVG business.
The failure by Swiss Life/Rentenanstalt to achieve a rate of return on its investments in excess of the statutory guaranteed interest rate could adversely affect Swiss Life/Rentenanstalt’s financial condition
7 and results of operations, as could increases in life expectancy, changes in technical interest rates not provided for in the statutory guaranteed annuity conversion rate, and any adverse change in the statutory guaranteed interest or annuity conversion rates. In the extreme, in the event of market deterioration or of the setting of the statutory guaranteed interest rate or the statutory guaranteed annuity conversion rate at certain levels, Swiss Life/Rentenanstalt may be unable to write profitable group life insurance business in Switzerland.
Swiss Life’s results are subject to fluctuations in fixed income, equity and other markets and other factors which affect the value of its assets and liabilities
Investment returns are an important part of Swiss Life’s overall profitability, and fluctuations in the financial markets, including the equity markets and fixed income markets, could have a material adverse effect on Swiss Life’s financial condition, results of operations and cash flows. In addition, a default by a major market participant or a significant act of terrorism could disrupt the securities markets or clearance and settlement systems in major markets which could in turn cause market declines or increased volatility. The failure of a major market participant also could lead to a chain of defaults that could adversely affect Swiss Life.
The return on Swiss Life’s fixed income investments has been and is subject to fluctuations in interest rates. Such fluctuations affect, inter alia, Swiss Life’s interest income and the market values of, and corresponding levels of capital gains or losses on, the fixed income securities in Swiss Life’s investment portfolios. Generally, interest income will be reduced during sustained periods of lower interest rates, while prices of fixed income securities tend to rise. During periods of rising interest rates, prices of fixed income securities tend to fall and realised gains upon their sale are reduced.
While fixed income securities are normally considered to be less volatile than equity securities, in the past there have been sudden changes in interest rates generally, which have led to significant changes in the prices of fixed income securities. Swiss Life is exposed to the risk that its assets and liabilities are not matched, and action taken to mitigate these risks – such as the lengthening of the maturity of its fixed income portfolio – may result in Swiss Life having to recognise losses.
Although Swiss Life has reduced its sensitivity to changes in equity markets through reductions in its equity portfolio, a decline in the world equity markets as seen in 2001 and 2002 may lead to a reduction of Swiss Life’s realised and unrealised capital gains, which may also negatively affect Swiss Life’s results of operations and financial condition.
Hedges in place with respect to Swiss Life’s equity holdings are designed to reduce Swiss Life’s economic exposures to further declines in equity values but would not prevent an impairment charge in Swiss Life’s accounts in the event the impairment criteria were met. In addition, Swiss Life’s participations are subject, to the extent they are sold, to the risk that they will be sold for less than their book value, and that Swiss Life will recognise a loss. To the extent that such participations are not sold, and their value decreases, Swiss Life may be required to write off a portion of the participation.
A portion of Swiss Life’s investment portfolio is comprised of investments in funds which hold securities issued by non-public companies. These investments may be illiquid or may only be disposed of over time or at a loss, and they may not produce adequate returns or capital gains. If Swiss Life were required to liquidate some or all of the investments in its private equity portfolio, the proceeds of such liquidation may be significantly less than the amount paid for, or the book value of, such investments.
Swiss Life’s investment portfolios also include investments in hedge funds. The liquidity of such investments can vary according to market conditions and the investment styles of such hedge funds could amplify any factors affecting the performance of any particular class of funds or investments.
Real estate investments also can be relatively illiquid and property prices are subject to fluctuations in interest rates, general economic conditions and other factors. Swiss Life’s real estate portfolio is
8 particularly concentrated in the Swiss market, where it is one of the largest investors in real estate. There is no assurance that Swiss Life will be able to dispose of a property in the desired time period or that the sale price of such property will exceed its book value. According to existing Swiss law with respect to real estate rentals, rents for residential buildings are directly tied to mortgage interest rates. This specific correlation results in a considerable exposure of real estate investments to shifts in mortgage interest rates.
Swiss Life’s investment returns are also susceptible to changes in general economic conditions, including changes that impact the general credit-worthiness of the issuers of debt securities or the value of equity investments. In particular, the value of fixed income securities may be affected by changes in Swiss Life/Rentenanstalt’s credit rating.
Fluctuations in interest rates and returns from equity markets may also impact on customer demand for a number of the products offered by Swiss Life, particularly demand for single-premium products and also for unit-linked as well as variable life insurance products. Fluctuations in the securities markets could result in investors withdrawing capital from the markets, decreasing their rate of investment or surrendering life insurance policies, any of which could adversely affect sales of life insurance and other investment products.
The low interest rate environment since 2002 has impacted on demand for Swiss Life’s life insurance products, especially for single premium savings products in the individual insurance segment. This has contributed to lower revenues and has had an adverse effect on the profitability of new business.
Swiss Life is exposed to the risk that its assets and liabilities are not matched, and action taken to mitigate these risks – such as the lengthening of the maturity of its fixed income portfolio – may result in Swiss Life having to recognise losses
In order to reduce the volatility of Swiss Life’s net asset value from an economic perspective, Swiss Life seeks to match long-term fixed liabilities arising from the conduct of its life insurance business with long-term assets with similar durations and, to a certain extent, similar cash flow characteristics. While Swiss Life’s asset and liability management processes are designed to mitigate the risk of a mismatch between the duration of Swiss Life’s liabilities and that of its assets, there currently exists, and there will remain in the future, the risk that Swiss Life will not be able to fully match its long-term liabilities and long-term assets, which could have an adverse impact on Swiss Life’s results of operations and net asset value and eventually impact on its ability to meet its liabilities as they fall due.
As part of its asset and liability management processes, Swiss Life has significantly lengthened the maturity of its fixed income portfolio over the past few years. An increase in interest rate levels could, however, lead to a significant decrease in the value of this fixed income portfolio under International Financial Reporting Standards (“IFRS”), which would impact on Swiss Life’s profit and loss figures and/or its equity.
The financial statements of Swiss Life/Rentenanstalt are prepared in accordance with Swiss statutory accounting law, which differs in significant respects from IFRS requirements, and consequently the financial statements may not fairly represent the financial position of Swiss Life/Rentenanstalt
The financial statements of Swiss Life/Rentenanstalt are prepared in accordance with Swiss statutory accounting law as prescribed by the Swiss Code of Obligations (the “Swiss Statutory Accounting Rules”). These accounting rules differ in significant respects from International Financial Reporting Standards (IFRS), which are the standards that are applied in the consolidated financial statements prepared by Swiss Life Holding, the parent company of the Swiss Life Group of which Swiss Life/Rentenanstalt is a principal subsidiary. Swiss Life/Rentenanstalt itself is not required to and does not produce its own consolidated financial statements. It should therefore be recognised that there are significant differences between the financial information contained in the financial statements of Swiss Life/Rentenanstalt and the consolidated financial statements of the Swiss Life Group, which
9 differences may be attributable to differences between the applicable Swiss Statutory Accounting Rules and IFRS, the effects of consolidation on the financial statements of the Swiss Life Group or other factors.
For a discussion of significant differences between the Swiss Statutory Accounting Rules and IFRS, see “Summary of Significant Differences between Swiss Statutory Accounting Rules and International Financial Reporting Standards (IFRS)’’. Investors should, however, be particularly aware that the Swiss Statutory Accounting Rules do not contain an equivalent requirement to the IFRS obligation for financial statements to provide a true and fair view of the relevant company’s financial position. Consequently, the financial statements should not be read in isolation without awareness of the particular requirements of the Swiss Statutory Accounting Rules.
Decreases in Swiss Life/Rentenanstalt’s capital base or a downgrade in Swiss Life/Rentenanstalt’s financial strength rating could adversely affect Swiss Life’s business, its results of operations and its funding costs and financial flexibility
Swiss Life/Rentenanstalt and other entities in the Swiss Life Group are subject to regulatory capital regulations (solvency rules) in their respective countries. Swiss Life Holding, Swiss Life/Rentenanstalt and certain other group entities are also rated by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. If, as a result of declines in the value of investment portfolios, shortfalls in future earnings or for any other reason, the Swiss Life Group or Swiss Life were not able to maintain adequate levels of shareholders’ equity, regulatory capital, other capital components or operating earnings, this could lead to a number of potentially negative consequences. The regulated entities of the Swiss Life Group could face restrictions imposed by the regulators if solvency rules are not met. A downgrading of the Swiss Life Group’s insurance entities’ financial strength ratings could reduce the attractiveness of the Swiss Life Group’s products to customers and distributors. In addition a downgrading could reduce Swiss Life’s flexibility in borrowing as well as increase the cost of borrowing, which in turn would reduce revenues and profitability.
Swiss Life/Rentenanstalt may require additional capital in the future, which may not be available or may only be available on unfavourable terms
Swiss Life/Rentenanstalt’s future capital requirements depend on many factors, including its ability to write new business successfully and its ability to establish premium rates and reserves at levels sufficient to match future policy liabilities, as well as pending regulatory changes to capital requirements and other regulatory developments. Capital requirements could come from the Swiss operation and also from branch insurance operations abroad, although whilst capital transfers from foreign branches can be sought, the obtaining of these can be subject to uncertainty.
Implementation of certain of the Swiss Life Group’s strategic initiatives is subject to uncertainties and may give rise to ongoing expenses or liabilities
The key elements of the new strategy begun by the Swiss Life Group in 2002 were effectively implemented by June 2005. This strategy involved a number of fundamental changes to the way the Swiss Life Group conducts its business, including divestments (such as those of STG Schweizerische Treuhandgesellschaft, Swiss Life (UK) Group plc, the operations of La Suisse, Société d’Assurances contre les accidents (“La Suisse Accidents”)), and the announced integration of La Suisse, Société d’Assurances sur la vie (“La Suisse Vie”) into Swiss Life/Rentenanstalt. In September 2005, Swiss Life Group management announced a Swiss Life Group strategy update under the heading “Pensions Leadership”, and in October 2005 a review of key elements in the strategy of Banca del Gottardo was announced.
As part of the strategy announced in September 2005, the Swiss Life Group has defined a set of ambitious targets, including growth objectives and basic insurance result targets for its insurance operations. The achievement of these targets, however, remains subject to uncertainty. Whilst the objectives for growth are subject to market demand fluctuations and competition, the ability to
10 achieve a satisfactory performance in respect of the basic insurance result depends on pricing, the ability to control costs, claims figures, changes in reserves and the ability to generate insurance related fee income. In addition to the basic insurance result, the investment result is an important factor in the profitability of Swiss Life’s insurance operations. This result is driven by the returns achieved on the investment portfolio, which will partially depend on capital markets conditions, and on the guaranteed and non-guaranteed payments made to policyholders. Besides the profit contribution of the insurance operations, the Swiss Life Group also depends on achieving a sufficient level of profits in its Banca del Gottardo unit as well as in its asset management businesses.
Further mergers, acquisitions and disposals may result in the Swiss Life Group incurring costs and using considerable management resources. Furthermore, it is possible that, as a result of any past or future disposals, the Swiss Life Group may be subject to warranty, indemnity or other claims or to adverse tax or accounting charges which may have a material adverse effect on its results of operations and financial position. In addition, the sale price for disposals may be less than book value, thereby resulting in a loss on the sale. Certain planned disposals will be effected when market conditions are suitable and appropriate terms can be agreed. While the Swiss Life Group has met the targets set by its cost reduction programme, further cost savings are targeted and there is a risk that the achieved and targeted cost reductions will prove insufficient to lower the Swiss Life Group’s cost basis to a level comparable with that of its established and new competitors.
The success of the Swiss Life Group’s strategy of focusing on the strict economic pricing of its life insurance products is dependent, to a considerable extent, on factors beyond the Swiss Life Group’s control, including regulatory approval, general market conditions and competition. The implementation of strict economic pricing has already caused and may, particularly if future repricing is required, further cause policyholders to surrender their policies or cease contributing additional premiums, and may also lead to a decline in the volume of new business and a loss of market share in group life business in Switzerland. This trend, if continued, could reduce the embedded value of Swiss Life/Rentenanstalt and decrease its future profitability.
In addition, Swiss Life is targeting premium growth, whilst continuing to adhere to its strict profitability targets. There is a risk that the marketing, product structuring and other steps Swiss Life proposes to take in order to achieve its growth targets will be insufficient to offset the impact on premium volumes of the higher pricing of its products.
Swiss Life’s reliance on a dedicated sales force and a network of tied agents for the marketing of its core life insurance products subjects it to certain risks
In 2004 more than 50 per cent. of Swiss Life’s gross premiums were written through a combination of tied agents and Swiss Life’s own sales force. Swiss Life is dependent on the retention and incentivisation of its sales team and network of agents to maintain and increase its market share. Sales commission for life insurance products is to a significant extent attributable to the initial sale of each product.
Swiss Life introduced new remuneration arrangements for its sales force and tied agents in certain countries during 2004. There can be no assurance that these measures will create the level of incentivisation intended by Swiss Life to provide a basis for the profitable recovery and growth in premium volumes.
Any failure to retain and motivate sales personnel and tied agents could have a material adverse impact on Swiss Life’s ability to maintain and increase its premium volume and market share, and may therefore adversely affect its financial performance.
11 Swiss Life faces strong competition and may fail to attain the growth rate required in order to maintain and develop its position as a significant competitor in the European insurance market
In its markets, Swiss Life competes with global and national insurance companies, as well as with non-insurance financial services companies, such as banks, asset management companies and mutual funds. Many of these non-insurance competitors are regulated in a different manner from Swiss Life. Some of these competitors may have greater financial, technical or operating resources, a more competitive cost structure, a different level of employee skills or may offer alternative products or more competitive pricing. The recent consolidation in the global financial services industry has also enhanced the competitive position of some of Swiss Life’s competitors by broadening the range of their products and services, and increasing their distribution channels and their access to capital. In addition, the development of alternative distribution channels for certain types of insurance and securities products, and the increasing transparency in certain markets for insurance products (including through the internet) may result in increased competition as well as increased pressure on margins in respect of certain types of products. These pressures could result in increased pricing pressures on a number of Swiss Life’s products and services, particularly where competitors seek to win market share, and may harm Swiss Life’s ability and strategy to maintain or increase its profitability and market share. These competitive pressures may be particularly harmful if Swiss Life is forced to reprice its products.
Swiss Life depends on the efficient and uninterrupted operation of its information technology systems
In order to improve its internal control, IT governance and risk management procedures, Swiss Life is currently expending considerable efforts to update its information technology systems. The significant projects under way include, in particular, a comprehensive project for the group life business and one for the individual life business in Switzerland. These projects, together with the recent update of information technology systems, may prove to be more difficult and expensive to implement and to integrate than expected, and may require the dedication of unexpected time and resources of part of the workforce and of management. The projects’ completion may also require significantly more capital expenditure going forward. In the event that Swiss Life is not able to complete these projects as intended, it may not realise the anticipated improvement in its information technology systems and may therefore fail to achieve the required competitive cost structure and/or the targeted level of business support. The process of updating information technology systems, replacing outdated or legacy business systems within the coming years and migrating the life business to new software applications, may, particularly during the testing and implementation phase, cause failures and errors in and unavailability of Swiss Life’s information technology systems which may adversely affect Swiss Life’s business and operations and absorb its controlling resources. While specific steps have been taken to handle such risks, additional measures are still required.
Swiss Life’s ability to maintain its financial controls and its risk management processes, both to enable it to comply with legal requirements and to carry out its business, partly depends on the efficient, adequate and uninterrupted operation of its information technology systems (including its management information system) and the continued performance of certain third party service and software providers. Swiss Life’s information technology systems are subject to damage or interruption from floods, fires, power loss, telecommunications, hardware and software failures and similar events, and its business contingency and continuity measures, data safety and information technology security and document retention procedures may prove to be insufficient. For example, Swiss Life does not currently maintain a second, geographically separated, data centre for back-up and disaster recovery purposes.
Swiss Life faces the risk of litigation or other proceedings in relation to its business
Swiss Life faces the risk of litigation and other proceedings in relation to its business. While Swiss Life believes it has appropriately provided for the financial effects of the outcome of litigation and other
12 proceedings, the outcome may differ from management expectation thereby exposing Swiss Life to unexpected costs and losses and reputational and other non-financial consequences, as well as taking up management time and resources. For example, the outcome of litigation and other proceedings may not correspond to the manner in which it is perceived by the market, and Swiss Life’s reputation may thus be impacted in a way which adversely affects its results of operations and financial condition. In addition, the consequences of such proceedings for Swiss Life’s regulated business may be to expose Swiss Life to increased regulatory scrutiny and to accept constraints which involve additional cost or otherwise put the business at a competitive disadvantage.
Substantial legal liability arising in relation to such litigation or other proceedings could have a material adverse effect on Swiss Life’s business, reputation, results of operations and/or financial condition.
In addition, whether or not these or other proceedings are commenced or are successful, Swiss Life is exposed to the risks of negative publicity and press speculation, which, whether with or without any foundation, could cause damage to its reputation and other damage to its business, including the risk that it will be subjected to greater regulatory scrutiny.
Actual experience may differ from that assumed in the calculation of embedded value financial information
The assumptions used when calculating Swiss Life’s assessment of its embedded value may differ from actual developments in the future. Swiss Life obtains its embedded value calculations using actuarial practices and assumptions, including assessments of the long-term developments of interest rates, investment returns, the allocation of investments between equity, fixed income and other assets, policyholder bonus rates (some of which are guaranteed), mortality and morbidity rates, policyholder lapses and future expense levels. Adjustments in such assumptions may have to be made in reaction to revised regulatory requirements, changing financial markets or expected future actuarial experience, which may lead to changes in the embedded value of Swiss Life’s life insurance operations.
Swiss Life’s loss reserves may not adequately cover future losses and benefits
Swiss Life maintains loss reserves for its non-life insurance businesses to cover its estimated ultimate liability for losses and loss adjustment expenses for losses, reported and unreported, incurred during each accounting period. Loss reserves do not represent an exact calculation of liabilities, but rather are estimates of the expected cost of the ultimate settlement of losses. These estimates are based on actuarial and statistical projections, at a given time, of facts and circumstances known at that time and estimates of trends in loss severity and other variable factors, including new concepts of liability or other changes in legal precedents and general economic conditions. Changes in these trends or other variable factors could result in claims in excess of loss reserves or in a need to increase the loss reserves. Any insufficiencies in loss reserves for future claims, and any resulting change in loss reserves, could adversely affect the extent to which new business may be written and may adversely affect the results of operations or capital of Swiss Life.
Swiss Life’s life insurance reserves depend on mandatory interest rates, mortality assumptions, regulatory requirements regarding disability and other liabilities, as well as other factors
Swiss Life maintains reserves for its life insurance business to cover its estimated ultimate liabilities. Changes in mandatory interest rates impact on the discounted, booked value of reserves, and hence on shareholders’ equity. While Swiss Life believes its economic risk is reduced by the matching of durations of assets and liabilities, mandatory interest rates may not change in line with market yields and may result in sudden changes in the reported amounts even if there was no corresponding change in investment yields and the value of assets. Moreover, changes in mortality assumptions may have a significant impact on annuity and other reserves. Loss reserves also do not represent an exact calculation of ultimate liabilities, but rather are estimates of the expected liabilities. Furthermore,
13 disability and other reserves depend on regulatory requirements as well as subjective factors, which may cause actual liabilities to differ from estimates. Likewise, annuity reserves may change significantly due to regulatory changes and other factors. Any insufficiencies in loss reserves for future claims and any change in reserves required as a result of changes in interest rates, mortality assumptions or other factors could adversely affect the extent to which new business may be written and may adversely affect the results of operations or financial condition of Swiss Life.
Fluctuations in currency exchange rates may affect Swiss Life’s earnings and Swiss Life’s hedging structure may not protect it from market risks
Most of Swiss Life’s assets, including its investment assets and its liabilities, are denominated in CHF, EUR and USD, the value of which is subject to exchange rate fluctuations. In particular, as part of its new investment strategy, Swiss Life has increased its EUR denominated bond portfolio thereby increasing the risk of its EUR currency exposure.
Although Swiss Life actively engages in currency management to reduce the effect of exchange rate fluctuations on its assets and liabilities, particularly by hedging against the risk of such movements in relation to some of its investments denominated in EUR and in USD, significant movements in exchange rates could nevertheless adversely affect Swiss Life’s earnings and financial condition, including the value of its investment portfolio. Swiss Life’s hedging arrangements are directed at covering its exposures from an economic perspective, but they do not necessarily mean that the financial statements and reporting of Swiss Life are insulated from the impact of market movements. Such movements may still result in changes in earnings or in capital or both, and the volatility of Swiss Life’s earnings may also be increased by the use of hedging arrangements. The instruments which Swiss Life uses to hedge exposures may not be perfectly correlated to the related asset, so Swiss Life will still be exposed to losses if the value of the hedge and the value of the underlying asset or liability do not correspond appropriately. Swiss Life is required to bear further expenses and costs in establishing such hedging arrangements, and counterparties to the hedging arrangements may also fail to honour their obligations.
In addition, the financial statements of Swiss Life/Rentenanstalt are presented in CHF while Swiss Life/Rentenanstalt operates with various functional currencies (predominantly CHF and EUR). Swiss Life’s financial condition and earnings could therefore be significantly affected by a weakening of such currencies against the CHF.
Elimination of tax benefits for Swiss Life’s products may adversely affect sales of Swiss Life’s insurance and investment advisory products, and changes in banking regulations and taxation could adversely affect the private banking operations of the Swiss Life Group
Changes to tax laws may affect the attractiveness of certain of Swiss Life’s products, which currently benefit from favourable tax treatment. From time to time, governments in the jurisdictions in which Swiss Life does business have considered proposals for tax law changes that could adversely affect Swiss Life’s products and result in a loss of competitive advantage for insurance products generally. The enactment of any such tax legislation in relation to insurance products could result in a significant reduction in sales of Swiss Life’s currently tax-favoured products, as consumers shift their savings into products such as those offered by banking rather than insurance organisations.
The Swiss Life Group’s private banking business may not ensure envisaged profitable growth and efficiency and is exposed to the development of the financial markets
The Swiss Life Group’s private banking activities are conducted primarily through Banca del Gottardo, which recently announced a change of its top management and a new strategy focused on the Swiss offshore private banking business and on the strengthening of its position in the Swiss and Italian onshore private banking markets. Such a refocus may not, or not immediately, result in the envisaged profitable growth and efficiency and may entail higher costs than those currently envisaged by the executive board and the board of directors of Banca del Gottardo.
14 An additional source of risk for Banca del Gottardo is the evolution of financial markets. Adverse financial market fluctuations would, amongst other things, have a negative impact on commission revenues, proprietary trading results and currency positions. The negative impact on commission revenues would be driven by a decreased willingness of clients to re-allocate their assets (resulting in lower brokerage commissions) and by a reduction in clients’ assets due to lower indices (resulting in lower commissions proportional to assets).
Other areas of risk include those of reputational, regulatory, operational and credit risk. Reputational risk, which could potentially reduce the assets under management of Banca del Gottardo, is mitigated by the required strict compliance procedure for entering into new business relationships. Regulatory risks result, inter alia, from new domestic or foreign regulatory requirements, such as compliance with the new operational risk management measures required by Basle II or fiscal measures taken by foreign governments to encourage repatriation of offshore assets. During the past few years, Italy, Germany and other countries have implemented such measures and some clients of Banca del Gottardo have, as a result, repatriated their assets.
One of the main operational risks for Banca del Gottardo relates to the outsourcing of its IT and certain back-office operations to B-Source, an IT and back-office service company controlled by BSI Ltd., in which Banca del Gottardo holds a minority shareholding of 37 per cent. BSI Ltd. is headquartered in Lugano and is an important banking competitor of Banca del Gottardo. The operational risk associated with this, as well as the risk relating to the development itself, is mitigated by the transfer of all relevant full-time employees of Banca del Gottardo to B-Source, and also by Banca del Gottardo being represented in B-Source’s board of directors.
Banca del Gottardo is, like other banks, exposed to the risk that third parties that owe it money, securities or other assets will not meet, or will be unable to meet, their obligations. An accurate assessment of credit risk on loans and other instruments is an essential part of Banca del Gottardo’s risk management policies. In spite of the credit risk determination procedures that Banca del Gottardo has in place, it may be unable to evaluate correctly the current economic condition of each borrower and to determine their long-term economic viability.
The internal risk model used by Swiss Life may lead to inaccuracies in the asset and liability management process
Swiss Life uses an internal risk model for its asset and liability management (“ALM”) process, in order to determine its strategic asset allocation. The internal model is believed to accurately reflect the actual risk situation. However, it remains possible that utilisation of the risk model could lead to an inappropriate asset allocation, incorrect cash flow patterns for the assets and/or the liabilities, an incorrect estimate of the risk relating to the assets and/or liabilities, or an incorrect estimate of the dependencies between assets and liabilities.
The model is subject to an ongoing development process, with new releases being launched twice a year. The possibility of errors in this development process cannot be excluded, and any such errors may cause the accuracy of the model used to decrease over time. Although the model goes through an internal approval process with a sign-off by the Investment and Risk Committee, it is not subject to a regular review process and is not audited either internally or externally. Some elements in the model are based on assumptions, such as forward-looking parameters in the Swiss Life Group insurance business. These include BVG minimum rates, which cannot always be predicted in a reliable way due to their politically determined nature. The resulting future bonus rates paid to the policyholders are modeled on the current interest rates, which however fluctuate over time, and this could significantly influence the interest rate sensitivity of liabilities. This would particularly be the case if interest rates were to approach the guaranteed levels, causing the forward-looking part of the bonuses with a negative duration to progressively disappear, whilst leaving only the guaranteed part of the liabilities with a positive duration.
15 All the above factors could have a negative effect on the intended aim of aligning asset allocation with life insurance liabilities. A13.2 Risks related to the Notes
Substitution of borrower under the Loan Agreement
The Loan Agreement provides that the Fiduciary will agree to the substitution, in place of Swiss Life/Rentenanstalt (or any previous substitute) as borrower under the Loan Agreement, of a successor in business to Swiss Life/Rentenanstalt or such substitute (such substituted entity being the “Substitute”), without the consent of the Noteholders but subject to certain conditions, including that the Substitute is a duly licensed and regulated entity and carries on the business of an insurance company within the Swiss Life Group and that it is incorporated under the laws of, and is resident in, Switzerland. A13.4.6 The Loan is a subordinated obligation
The Fiduciary’s payment obligations under the Notes are conditional upon the due performance by Swiss Life/Rentenanstalt of its payment obligations under the Loan Agreement. The Loan is a subordinated obligation of Swiss Life/Rentenanstalt. The claims of the Fiduciary against Swiss Life/Rentenanstalt in respect of payments of principal of and interest on the Loan will, in the event of the liquidation, dissolution or winding up of Swiss Life/Rentenanstalt, be subordinated in right of payment to the claims of all Senior Creditors. However, such claims will be paid in priority to distributions to all classes of equity of Swiss Life/Rentenanstalt and to any debt or other obligation of Swiss Life/Rentenanstalt that is expressly or by applicable law subordinated to the Loan. In such event, Swiss Life/Rentenanstalt will be required to pay all Senior Creditors in full before it can make payments on the Loan. If this occurs, Swiss Life/Rentenanstalt may not have enough assets remaining after these payments to pay amounts due under the Loan. Any shortfall will be borne by the Noteholders. “Senior Creditors” means creditors of Swiss Life/Rentenanstalt (i) who are policyholders or other unsubordinated creditors of Swiss Life/Rentenanstalt, or (ii) whose claims are, or are expressed to be, subordinated (whether only in the event of the liquidation, dissolution or winding-up of Swiss Life/Rentenanstalt or otherwise) to the claims of policyholders and other unsubordinated creditors of Swiss Life/Rentenanstalt (including all existing and future unsecured, subordinated dated obligations and all existing (but, for the avoidance of doubt, not future) unsecured, subordinated perpetual obligations of Swiss Life/Rentenanstalt (whether actual or contingent)), except those whose claims rank, or are expressed to rank, equally with or junior to the claims of the Fiduciary.
Deferral of interest payments
Swiss Life/Rentenanstalt may, under certain circumstances and having given prior notice to the Fiduciary, elect to defer a payment of interest on the Loan. The payment of interest by the Fiduciary under the Notes will be deferred to the extent that, and for so long as, the payment of interest under the Loan is deferred. Any deferred interest under the Loan Agreement will, so long as it remains outstanding, constitute arrears of interest and will only become due in full on certain dates as specified in the Loan Agreement. Arrears of interest will not bear interest. Noteholders should therefore be aware that there may be undetermined periods of time during which they do not receive payments of interest under the Notes. See “Terms and Conditions of the Notes – Interest – Deferral of Interest”.
The fiduciary structure
Noteholders must rely on the Fiduciary to exercise its rights under the Loan to recover amounts due. The Fiduciary’s payment obligations in respect of each Note are conditional upon the due performance by Swiss Life/Rentenanstalt of its obligations to the Fiduciary under the Loan Agreement. The Notes do not constitute direct debt obligations of the Fiduciary, and the Fiduciary will be under no obligation to the Noteholders other than that of faithful performance and exercise of its undertakings, duties, rights, powers and discretions under the Fiduciary Contract specifically provided therein or necessarily
16 incidental thereto. If Swiss Life/Rentenanstalt fails to satisfy its payment obligations under the Loan Agreement, no other assets of the Fiduciary will be available for payments of any amounts owing but not received under the Notes and any shortfall will be borne by the Noteholders. The holder of the Notes will have no further recourse to the Fiduciary, and non-payment by the Fiduciary in respect of any such amount not received shall in no circumstances constitute an Enforcement Event under the Conditions of the Notes. Noteholders have no direct right of action against Swiss Life/Rentenanstalt to enforce their rights under the Notes or to compel Swiss Life/Rentenanstalt to comply with its obligations under the Loan Agreement, even in the case of the Fiduciary’s failure to act in respect thereof or in the event of the insolvency of the Fiduciary. However, if, under the Loan Agreement, the Fiduciary is entitled and, in addition, has, in accordance with the Fiduciary Contract, become obliged to take legal action against Swiss Life/Rentenanstalt and has failed to take such action within a reasonable time, then (if and to the extent such failure is continuing) the Noteholders may be entitled to institute indirect legal action (“action oblique”) under and subject to the conditions of the Luxembourg Civil Code against Swiss Life/Rentenanstalt in the Fiduciary’s stead and on its behalf. See “The Fiduciary Contract”.
Priority of payment for costs and expenses of the Fiduciary
There may be occasions on which the Fiduciary enforces its rights against Swiss Life/Rentenanstalt or takes any other action at the request or in the interest of the Noteholders (other than those actions provided for in the Conditions). In such cases, where payments have been made by the Fiduciary out of its own assets under the Loan Agreement or the Fiduciary Contract, the Fiduciary will be entitled to be paid, out of the proceeds of such enforcement or out of other fiduciary assets, its costs and expenses of such enforcement or actions on the amount paid out of its own assets in priority to any claims of the Noteholders. Such a right of indemnification of the Fiduciary, as well as its priority of payment, results from the statutory provision regarding agency relationships which the Luxembourg Law of 27 July 2003 relating to trusts and fiduciary contracts renders applicable to the fiduciary relationship. Noteholders should therefore be aware that, after such payments to the Fiduciary, there may not be sufficient fiduciary assets remaining to pay the full amounts due under the Notes. See “Terms and Conditions of the Notes – Enforcement”. A13.4.9 Perpetual nature of the Notes
The Notes have no fixed final redemption date and the Noteholders have no right to call for the redemption of the Notes. The Notes will only be redeemed, in whole but not in part, in the event that the Loan is repaid. Although Swiss Life/Rentenanstalt may be entitled to repay the Loan in certain circumstances, this right is discretionary and may be unable to be exercised owing to regulatory capital requirements. Noteholders should therefore be aware that they may be required to bear the financial risks of an investment in the Notes for an indefinite period of time.
Optional redemption of the Loan and change in interest basis from fixed to floating
Swiss Life/Rentenanstalt may, under certain circumstances, repay the whole (but not part only) of the Loan on the interest payment date falling on 16 November 2015 or any interest payment date thereafter. In that case, all (but not some only) of the Notes will be redeemed by the Fiduciary at their principal amount subject to the Conditions. See “Terms and Conditions of the Notes – Redemption, Purchase and Cancellation – Optional Redemption”. An optional repayment feature under the Loan is likely to limit the market value of Notes. During any period when Swiss Life/Rentenanstalt may elect to repay the Loan, the market value of the Notes generally will not rise substantially above the price at which they would be redeemed. This may also be true prior to the redemption period.
Swiss Life/Rentenanstalt may be expected to repay the Loan when its cost of borrowing is lower than the interest rate on the Loan. This may be the case as from the interest payment date falling on 16 November 2015, when Swiss Life/Rentenanstalt’s rate of interest under the Loan Agreement changes from a fixed to a floating rate. Potential investors should consider reinvestment risk in light of other investments available at that time.
17 The Notes may be redeemed if Swiss Life/Rentenanstalt becomes obliged to pay additional amounts in respect of the Loan or the Notes A13.4.15 If Swiss Life/Rentenanstalt is obliged to pay additional amounts in respect of principal or interest on the Notes in the event that any tax becomes applicable to such payments, then Swiss Life/Rentenanstalt may, under certain circumstances, repay the Loan at the principal amount thereof, in whole (but not in part), together with accrued interest. In that case all, but not some only, of the Notes shall be redeemed by the Fiduciary at their principal amount and in accordance with the Conditions.
In addition, if Swiss Life/Rentenanstalt becomes obliged to gross up the interest payments due under the Loan, this may, under certain circumstances, entitle Swiss Life/Rentenanstalt to repay the Loan and consequently cause the redemption of the Notes. See “Terms and Conditions of the Notes – Redemption, Purchase and Cancellation – Redemption for Tax Reasons”. A13.7.5 Credit rating
A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organisation. Swiss Life/Rentenanstalt has received a financial strength credit rating of A- with a stable outlook from Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. Any change in the credit rating of Swiss Life/Rentenanstalt could adversely affect the trading price of the Notes. The rating may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Notes.
Modification
The conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders, including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.
The Notes may not be a suitable investment for all investors
Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
(i) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained in this Prospectus;
(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact the Notes will have on its overall investment portfolio;
(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including where the currency for payments under the Notes is different from the potential investor’s currency;
(iv) understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant indices and financial markets; and
(v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
18 Legal investment considerations may restrict certain investments
The investment activities of certain investors are subject to investment laws and regulations, or to review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (i) the Notes are legal investments for it, (ii) the Notes can be used as collateral for various types of borrowing, and (iii) other restrictions that may apply to its purchase or pledge of any Notes. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of the Notes under any applicable risk- based capital or similar rules.
Interest rate risks
Investment in the Notes involves the risk that subsequent changes in market interest rates may adversely affect the value of the Notes.
Lack of public market for the Notes
Prior to their issue, there was no existing market for the Notes. Application has been made for the Notes to be admitted to listing on the Luxembourg Stock Exchange and to trading on the regulated market of the Luxembourg Stock Exchange. However, an active trading market in the Notes may not develop or be maintained after listing. If an active trading market does not develop or cannot be maintained, this could have a material adverse effect on the liquidity and the trading price of the Notes. In addition, stock markets in recent years have experienced significant price fluctuations. These fluctuations were often unrelated to the operating performance of the entities whose securities were traded on such stock markets. Market fluctuations as well as adverse economic conditions have negatively affected the market price of many securities and may affect the market price of the Notes.
Change of law
The Conditions of the Notes shall be governed by the laws of Luxembourg in effect at the date of this Prospectus, and the Fiduciary Contract in particular shall be governed by the Luxembourg Law of 27 July 2003 on trusts and fiduciary contracts. See “The Fiduciary Contract”. The Loan Agreement will also be governed by the laws of Luxembourg with the exception of the subordination provisions set out in clause 5 (Status and Subordination) thereof, which shall be governed by and interpreted in accordance with the laws of Switzerland. No assurance can be given as to the impact of any possible judicial decision or change to the laws of Luxembourg, or that of any change to the laws, regulations or administrative practice of Switzerland or of any other relevant jurisdiction, after the date of this Prospectus.
Exchange rate risks
The Fiduciary will pay interest on the Notes in euro. This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit other than euro. These include the risks that exchange rates may change significantly (including changes due to devaluation of the euro or revaluation of the investor’s currency) and that authorities with jurisdiction over the investor’s currency may impose or modify exchange controls. An appreciation in the value of the investor’s currency relative to euro would decrease (i) the investor’s currency-equivalent yield on the Notes, and (ii) the investor’s currency-equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest then expected, or no interest.
19 Interest of the Lead Manager
The Lead Manager and its affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services for, Swiss Life/Rentenanstalt and its affiliates in the ordinary course of business.
EU Savings Tax Directive
If a payment were to be made or collected through an EU Member State, Switzerland, Andorra, Liechtenstein, Monaco, San Marino or the relevant dependent and associated territories of the EU Member States which have opted for a withholding system, and an amount of or in respect of tax were to be withheld from that payment, neither Swiss Life/Rentenanstalt nor any paying agent designated under the Notes nor any other person would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such withholding tax. If, pursuant to the European Council Directive 2003/48/EC of 3 June 2003 on the taxation of savings income (the “EU Savings Tax Directive”), a withholding tax is imposed on payment made by a paying agent, then Swiss Life/Rentenanstalt will be required to maintain a paying agent in an EU Member State that will not be obliged to withhold or deduct tax pursuant to the EU Savings Tax Directive.
20 The Fiduciary Contract
The following is a description of the Fiduciary Contract (as defined below) which (subject to amendment) will be incorporated into the Temporary Global Note and the Permanent Global Note in respect of the Notes and will appear on any definitive Note. A10.26.1 J.P. Morgan Bank Luxembourg S.A. (the “Fiduciary”) is a bank licensed in Luxembourg serving A10.26.2 national and international customers and specialises in asset management, advisory services and A10.26.3 private banking. It was duly incorporated on 16 May 1973 under the laws of Luxembourg as a société anonyme with limited liability in the Grand Duchy of Luxembourg and is registered with the Register of Commerce and Companies in Luxembourg under number B 10958. Its registered office is at 6 route de Trèves, L-2633 Senningerberg, Luxembourg. A13.4.13 Each Note forming part of the ¤350,000,000 Fixed/Floating Rate Subordinated Perpetual Notes issued on 16 November 2005 evidences the existence of a fiduciary contract (the “Fiduciary Contract”) on the terms described below between the Fiduciary and the holders of the Notes (the “Noteholders”), and each Note represents the Noteholder’s beneficial interest in a rateable portion of a loan (the “Loan”) made by the Fiduciary pursuant to the Loan Agreement described below.
The Fiduciary Contract is a “contrat fiduciaire” governed by the Luxembourg Law of 27 July 2003 on trusts and fiduciary contracts (the “Luxembourg Law”). The Noteholders, by acquiring the Notes, will be deemed to have acknowledged and agreed to all the provisions of the Fiduciary Contract.
The Fiduciary will have received from the initial holder of each Note the net subscription monies payable in respect of the Note, which net subscription monies will be lent by the Fiduciary in its own name, on a fiduciary basis, but at the sole risk and for the exclusive benefit of the holder of each Note, in the following manner and upon the following terms. The Fiduciary will combine the net subscription monies in respect of each Note and will lend the aggregate of such sums to Swiss Life/Rentenanstalt on a fiduciary basis pursuant to a loan agreement dated 14 November 2005 (the “Loan Agreement”) between Swiss Life/Rentenanstalt and the Fiduciary. In the Loan Agreement, Swiss Life/Rentenanstalt has agreed that, on receipt of the full amount of the net subscription monies in respect of the ¤350,000,000 Fixed/Floating Rate Subordinated Perpetual Notes, it will be indebted to the Fiduciary in the aggregate amount of ¤350,000,000.
Pursuant to the Fiduciary Contract, the Notes do not constitute direct debt obligations of the Fiduciary and the Fiduciary’s payment obligations under each Note are conditional upon the due performance by Swiss Life/Rentenanstalt of its obligations under the Loan Agreement. Thus, in the event that Swiss Life/Rentenanstalt does not make each payment in full as required under the Loan Agreement, the Fiduciary shall not be obligated to make up for any such shortfall from its funds or otherwise and in no event shall the Fiduciary be liable to make any payment in respect of the Notes other than as expressly provided in the terms and conditions of the Notes (the “Conditions”). The terms of Swiss Life/Rentenanstalt’s obligations to the Fiduciary under the Loan Agreement correspond in substance to the Conditions as hereinafter described. Copies of the Loan Agreement are available for inspection during normal business hours at the specified office of the Fiduciary. A13.4.7 The Conditions form part of the Fiduciary Contract. They set out the rights of the Noteholders under the Fiduciary Contract and certain duties, powers and discretions of the Fiduciary which correspond in substance to those contained in the Loan Agreement. The Fiduciary shall, and hereby undertakes to, perform such duties and exercise such powers and discretions in the best interests of the Noteholders. Further, the Fiduciary undertakes to exercise its rights under the Loan Agreement and its corresponding duties, powers and discretions in the best interests of the Noteholders and to do so, and to account to the Noteholders for all payments of principal and interest received by it thereunder, in such manner as to give effect to the Conditions.
As a fiduciary under a Luxembourg law-governed “contrat fiduciaire”, the Fiduciary does not and cannot represent the Noteholders. The Fiduciary shall be under no obligation to the Noteholders other than that of faithful performance and exercise of its undertakings, duties, rights, powers and
21 discretions under the Fiduciary Contract specifically provided for therein or necessarily incidental thereto and, in the event of a default under the Loan Agreement, shall be under no obligation to apply the proceeds of any rights of set-off, banker’s lien or counterclaim arising out of other transactions between the Fiduciary and Swiss Life/Rentenanstalt in payment of the Notes. The obligations of the Fiduciary under the Fiduciary Contract shall be irrevocable until such time as provision has been made for all payments due in respect of each Note.
Consistent with the Luxembourg Law, Noteholders have no direct right of action against Swiss Life/Rentenanstalt to enforce their rights under the Notes or to compel Swiss Life/Rentenanstalt to comply with its obligations under the Loan Agreement, even in the case of the Fiduciary’s failure to act or the insolvency of the Fiduciary. However, if, under the Loan Agreement, the Fiduciary is entitled and, in addition, has, in accordance with the Fiduciary Contract, become obliged to take legal action against Swiss Life/Rentenanstalt and has failed to take such action within a reasonable time, then (if and to the extent such failure is continuing) the Noteholders may be entitled to institute indirect legal action (“action oblique”) under and subject to the conditions of the Luxembourg Civil Code against Swiss Life/Rentenanstalt in the Fiduciary’s stead and on its behalf, but only in respect of the specific rights set forth in the Loan Agreement. Any action brought in such manner remains that of the Fiduciary and, as such, any judgment obtained shall be in favour of the Fiduciary.
The rights of the Fiduciary under the Loan Agreement are fiduciary assets of the Fiduciary and are held for the exclusive benefit of the Noteholders. Pursuant to the Luxembourg Law, the fiduciary assets are segregated from all other assets of the Fiduciary (including from all other fiduciary assets it may hold under fiduciary contracts with third parties) and are not available to meet the claims of creditors of the Fiduciary other than creditors (including Noteholders in their capacity as such) whose rights derive from the fiduciary assets. In a liquidation of the Fiduciary, pursuant to the Luxembourg Law, the fiduciary assets may only be attached by persons whose rights exist as a right of the creation and existence of the fiduciary assets.
Neither the Fiduciary nor any of its affiliates will be precluded from making any contracts or entering into any business transaction in the ordinary course of its business with Swiss Life/Rentenanstalt or any person directly or indirectly associated with Swiss Life/Rentenanstalt or from owning in any capacity any Notes and neither the Fiduciary nor any of its affiliates will be accountable to the Noteholders for any profits resulting therefrom. The Fiduciary may consult on any legal matter with any legal advisers selected by it and shall incur no liability for actions taken, or suffered to be taken, with respect to any such matter in good faith in reliance upon the opinion of such legal adviser, unless the Fiduciary has been negligent or is guilty of misconduct.
No commission or other remuneration will be due from the Noteholders to the Fiduciary for the performance of its services in respect of the Notes.
The Fiduciary makes no representation or warranty and assumes no liability for the legality, validity or enforceability of the Loan and the performance and observance by Swiss Life/Rentenanstalt of its obligations in respect of the Loan or the recoverability of any sums due or to become due from Swiss Life/Rentenanstalt under the Loan.
22 Terms and Conditions of the Notes
The following is the text of the terms and conditions of the Notes which (subject to completion and amendment) will be endorsed on each definitive Note and will be attached and (subject to the provisions thereof) will apply to the Temporary Global Note and the Permanent Global Note in respect of the Notes. These Conditions define the rights and attributes of the beneficial interest represented by each Note in the Loan, as such beneficial interests inure to the holders of the Notes (the “Noteholders”) under the Fiduciary Contract.
Copies of the Loan Agreement and the Fiscal Agency Agreement are available for inspection during normal business hours at the specified office of each of the Agents (as defined below), the initial specified offices of which are set out below. A copy of the Fiduciary Contract is available for inspection during normal business hours at the specified office of the Fiduciary and the Paying Agent (as defined below) in the Grand Duchy of Luxembourg (“Luxembourg”). The holders of the Notes (the “Noteholders”) and the holders of the Coupons (as defined below) and, where applicable, Talons (as defined below) for further Coupons (the “Couponholders”) are entitled to the benefit of, bound by, and are deemed to have notice of, the Fiduciary Contract applicable to them, the Conditions of the Notes described below and the provisions of the Loan Agreement and the Fiscal Agency Agreement (both as defined below).
References to “Conditions” are, unless the context otherwise requires, to the numbered paragraphs of these Conditions.
1. General
By subscribing for or otherwise acquiring the Notes, the Noteholders are deemed to have knowledge of all the provisions of the Loan, the Fiduciary Contract and these Conditions and to have agreed to the provisions of the Fiduciary Contract and these Conditions.
Each Note forming part of the ¤350,000,000 Fixed/Floating Rate Subordinated Perpetual Notes (the “Notes”, which expression shall in these Conditions, unless the context otherwise requires, include any further Notes issued pursuant to Condition 14 and forming a single series with the Notes) together with the other Notes evidences the existence of a Fiduciary Contract between J.P. Morgan Bank Luxembourg S.A. (the “Fiduciary”) and Noteholders under which the Fiduciary has conditional payment obligations to each Noteholder equal to the payments of principal and interest on the relevant Note. The statements in these Conditions include summaries of, and are subject to, the detailed provisions of and definitions in the loan agreement dated 14 November 2005 (the “Loan Agreement”) between Swiss Life Insurance and Pension Company (“Swiss Life/Rentenanstalt”) and the Fiduciary relating to a ¤350,000,000 step-up subordinated perpetual loan (the “Loan”).
These Conditions also include summaries of, and are subject to, the detailed provisions of a fiscal agency agreement dated 16 November 2005 (the “Fiscal Agency Agreement”) entered into in relation to the Notes between JPMorgan Chase Bank, N.A. as fiscal agent (the “Fiscal Agent”) and as principal paying agent (the “Principal Paying Agent”) and J.P. Morgan Bank Luxembourg S.A. as Fiduciary and as paying agent (the “Paying Agent” and, together with the Fiscal Agent and the Principal Paying Agent, the “Paying Agents”).
In these Conditions, “Swiss Life/Rentenanstalt” shall include any substitute for Swiss Life/Rentenanstalt pursuant to Condition 16, and “Fiduciary” shall include any substitute for the Fiduciary pursuant to Condition 17. “Fiscal Agent”, “Principal Paying Agent” and “Paying Agent” shall include any additional or successor agents appointed from time to time in accordance with the provisions of the Fiscal Agency Agreement and any reference to an “Agent” or “Agents” shall mean any or all (as applicable) of such persons.
23 2. Form, Denomination and Title
(a) Form and Denomination
The Notes are in bearer form, serially numbered, in the denomination of ¤50,000, with interest coupons and one talon attached which talon will entitle the holder thereof, subject to Condition 11, to further interest coupons and a further talon. Each Note represents fiduciary assets in the principal amount of ¤50,000 and a beneficial interest in a rateable portion of the Loan which is in the aggregate principal amount of ¤350,000,000.
A temporary global note (the “Temporary Global Note”), in bearer form and without interest coupons or a talon attached, will initially be delivered in respect of the Notes. The Temporary Global Note will be deposited on or about 16 November 2005 (the “Closing Date”) with a common depositary for Euroclear Bank S.A./N.V. (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”). Interests in the Temporary Global Note will be exchangeable for interests in a permanent global note (the “Permanent Global Note”), in bearer form and without interest coupons or a talon attached, on or after a date which is expected to be 28 December 2005 (the “Exchange Date”), upon certification as to non-U.S. beneficial ownership. Interests in the Permanent Global Note will be exchangeable for definitive Notes in bearer form only in certain exceptional circumstances as set out in the Permanent Global Note.
(b) Title
Title to the Notes and the interest coupons appertaining to the Notes (the “Coupons”) and the talons appertaining to the Notes (the “Talons”) will pass by and upon delivery. The holder of any Note, Coupon or Talon will (except as otherwise requested by such holder in writing, or as otherwise ordered by a court of competent jurisdiction or required by law) be treated as its absolute owner thereof for all purposes, whether or not it is overdue and regardless of any notice of ownership, trust or any interest therein, any writing thereon by any person, or any notice of any previous theft or loss thereof, and no person will be liable for so treating the holder.
3. Status
(a) Loan Agreement
The Loan will constitute a direct, unsecured, subordinated perpetual obligation of Swiss Life/Rentenanstalt and will rank equally without any preference with any other future unsecured, subordinated perpetual obligations of Swiss Life/Rentenanstalt except that the Loan will rank senior to any debt or other obligation of Swiss Life/Rentenanstalt that is expressly or by applicable law subordinated to the Loan.
The claims of the Fiduciary against Swiss Life/Rentenanstalt in respect of payments of principal of and interest on the Loan will, in the event of the liquidation, dissolution or winding-up of Swiss Life/Rentenanstalt, be subordinated in right of payment to the claims of all Senior Creditors, but will be paid in priority to distributions to all classes of equity of Swiss Life/Rentenanstalt.
For the purposes of this Condition 3, “Senior Creditors” means creditors of Swiss Life/Rentenanstalt (i) who are policyholders or other unsubordinated creditors of Swiss Life/Rentenanstalt or (ii) whose claims are, or are expressed to be, subordinated (whether only in the event of the liquidation, dissolution or winding-up of Swiss Life/Rentenanstalt or otherwise) to the claims of policyholders and other unsubordinated creditors of Swiss Life/Rentenanstalt (including all existing and future unsecured, subordinated dated obligations and all existing (but, for the avoidance of doubt, not future) unsecured, subordinated perpetual obligations of Swiss Life/Rentenanstalt (whether actual or contingent)), except those whose claims rank, or are expressed to rank, equally with or junior to the claims of the Fiduciary.
24 (b) Notes
The payment obligations of the Fiduciary under the Notes do not constitute direct debt obligations of A13.4.6 the Fiduciary and rank without any preference among themselves. Such payment obligations are conditional upon the due performance by Swiss Life/Rentenanstalt of its obligations in respect of payments of principal of and interest on the Loan under the Loan Agreement.
4. Covenants
(a) Loan Agreement
The Loan Agreement provides, inter alia, that:
(i) Swiss Life/Rentenanstalt will deliver to the Fiduciary annual audited financial statements of Swiss Life/Rentenanstalt, as soon as they become available and, in any event, within 180 days after the end of Swiss Life/Rentenanstalt’s financial year.
(ii) Swiss Life/Rentenanstalt will procure that all the financial statements referred to in paragraph (i) above will be accompanied by a certificate signed by two authorised signatories of Swiss Life/Rentenanstalt (one of whom must be a member of the Executive Board of Swiss Life/Rentenanstalt) confirming that the financial statements:
(1) have been prepared in accordance with the applicable provisions of the Swiss Code of Obligations (the “CO”) (or any successor statute thereto), and are correct and complete;
(2) were prepared in accordance with accounting principles required for the purposes of the Prospectus Directive and consistently applied except as disclosed therein, being, in the case of Swiss Life/Rentenanstalt, in accordance with the applicable provisions of the CO (or any successor statute thereto); and
(3) represent the financial condition of Swiss Life/Rentenanstalt as at the date, and the results of operations of Swiss Life/Rentenanstalt for the period, in respect of which they have been prepared.
(iii) Swiss Life/Rentenanstalt will promptly deliver to the Fiduciary (or as the Fiduciary may direct) any information about itself or the Swiss Life Group (as defined below) or their respective assets or business requested from time to time by the Fiduciary.
(iv) Swiss Life/Rentenanstalt will carry on its business as an insurance company.
(v) Swiss Life/Rentenanstalt will maintain and ensure that each of its Material Subsidiaries (as defined below) maintains insurance relating to its assets and activities against those risks and at those levels which are commercially prudent.
(b) Definitions
The following terms used above (or referred to in the relevant definition in the Loan Agreement) are defined in the Loan Agreement as follows (save that in the definitions therein certain references to Swiss Life/Rentenanstalt appear as references to the “Borrower”, and certain references to the Fiduciary appear as references to the “Bank”):
“Control”, in relation to a body corporate, means either:
(i) the power of a person to secure:
(a) by means of the holding of shares or the possession of voting power in or in relation to that or any other body corporate; or
(b) by virtue of any powers conferred by the articles of association or other document regulating that or any other body corporate,
25 that the affairs of the first-mentioned body corporate are conducted in accordance with the wishes of that person; or
(ii) the right to determine the composition of a majority of its board of directors or equivalent body.
“Material Subsidiary” means, at any time, any Subsidiary of Swiss Life/Rentenanstalt:
(i) (a) whose gross assets (excluding goodwill), or (b) whose turnover represent or represents, as the case may be, 5 per cent. or more of the consolidated gross assets (excluding goodwill) of the Swiss Life Group, or, as the case may be, turnover of the Swiss Life Group, in each case as calculated by reference to the latest audited financial statements of such Subsidiary and the latest audited financial statements of the Swiss Life Group adjusted in such manner as the auditors of Swiss Life/Rentenanstalt may determine (which determination shall be conclusive in the absence of manifest error) to reflect the gross assets (excluding goodwill) or turnover of any entity which has become or ceased to be a member of the Swiss Life Group, since the end of the financial period to which the latest financial statements of the Swiss Life Group relate; or
(ii) to which is transferred all or substantially all of the business, undertaking or assets of a Subsidiary which immediately prior to such transfer is a Material Subsidiary whereupon the transferor Subsidiary shall cease to be a Material Subsidiary and the transferee Subsidiary shall become a Material Subsidiary under this paragraph (ii) upon the completion of such transfer.
“Subsidiary” of a company or corporation (a “holding company”) shall be construed as a reference to any company or corporation:
(i) which is Controlled, directly or indirectly, by the holding company; or
(ii) more than half the issued share capital of which is beneficially owned, directly or indirectly, by the holding company; or
(iii) which is a Subsidiary of another Subsidiary of the holding company.
“Swiss Life Group” means Swiss Life Holding, Swiss Life/Rentenanstalt, and their respective Subsidiaries.
5. Interest
For the purposes of this Condition 5:
“Business Day” means a day on which TARGET is open.
“business day” means a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets are open for business in Zurich and Luxembourg.
“EURIBOR” means a rate per annum determined by the Fiscal Agent and notified to Swiss Life/Rentenanstalt. This rate will be applied to an outstanding amount promptly for a particular period. It will be determined as follows:
(i) “EURIBOR” will be the EURIBOR Screen Rate for deposits in euro for a three-month period. This rate will be determined at or about 11.00 a.m. (Brussels time) on the Rate Fixing Date relating to the first day of the period; and
(ii) if there is no EURIBOR Screen Rate for any of the three-month periods referred to above, EURIBOR for that period will be calculated according to Condition 5(b)(ii)(2).
“EURIBOR Reference Banks” means the principal Euro-zone office of five major banks in the Euro-zone interbank market selected by the Fiscal Agent.
“Interest Payment Date” means (i) 16 November in each year for the purposes of Condition 5(a), and (ii) 16 February, 16 May, 16 August and 16 November in each year for the purposes of Condition
26 5(b) (provided that, for the purposes of Condition 5(b), if any Interest Payment Date would otherwise fall on a date which is not a Business Day, it will be postponed to the next Business Day unless it would thereby fall into the next calendar month, in which case it will be brought forward to the preceding Business Day).
“Interest Period” means the period from and including one Interest Payment Date (or, as the case may be, the Issue Date) to but excluding the next succeeding (or first) Interest Payment Date.
“TARGET” means the Trans-European Automated Real-Time Gross Settlement Express Transfer system.
(a) Fixed Rate of Interest
The Notes bear interest from and including 16 November 2005 (the “Issue Date”) to but excluding A13.4.13 the Interest Payment Date falling on 16 November 2015, at a rate of 5 per cent. per annum, payable, subject as provided in these Conditions, annually in arrear on each Interest Payment Date. The first such interest payment shall be made on 16 November 2006 in respect of the Interest Period from (and including) the Issue Date to (but excluding) 16 November 2006 and shall be the amount of ¤2,500 per ¤50,000 nominal amount of the Notes.
If interest is required to be calculated for any period of less than 12 months, it will be calculated on the basis of the actual number of days in the calculation period divided by 365 (or, if any portion of that calculation period falls in a leap year, the sum of (i) the actual number of days in that portion of the calculation period falling in a leap year divided by 366, and (ii) the actual number of days in that portion of the calculation period falling in a non-leap year divided by 365).
(b) Floating Rate of Interest
(i) Interest A13.4.8
If the Notes are not redeemed in accordance with Condition 6(a) on the Interest Payment Date falling on 16 November 2015, interest for each Interest Period from and including 16 November 2015 will be calculated in accordance with this Condition 5(b) and such interest will be payable quarterly in arrear, subject to and in accordance with these Conditions, on each Interest Payment Date.
(ii) Rate of Interest
The rate of interest from time to time on the Notes (the “Rate of Interest”) will be determined by the Fiscal Agent on the following basis:
(1) on the second Business Day prior to which quotes for deposits in euro are customarily taken in the inter-bank market for delivery on an Interest Payment Date (or, if for any such period, quotations would ordinarily be given on more than one date, the last of those dates) (the “Rate Fixing Date”), the Fiscal Agent will determine EURIBOR for three-month deposits in euro for the Interest Period concerned as at or about 11.00 a.m. (Brussels time) on the Rate Fixing Date in question. Such offered rate (the “EURIBOR Screen Rate”) will be that which appears on Moneyline Telerate Page 248 (or such other page or service as may replace it for the purpose of displaying interbank offered rates of major banks for three-month euro deposits). The Rate of Interest for such Interest Period shall be the aggregate of 2.43 per cent. per annum and EURIBOR;
(2) if the EURIBOR Screen Rate is unavailable on any Rate Fixing Date, the Fiscal Agent will request each of (A) the EURIBOR Reference Banks, or (B) any substitute reference bank appointed by the Fiscal Agent (being a major bank in the Euro-zone interbank market), being in total at least five reference banks in number and acting in each case through its principal Euro-zone office, whose offered rates would have been used for the purposes of the relevant page if the event leading to the application of this sub-paragraph had not
27 happened (the “Reference Banks”), to provide the Fiscal Agent with its offered quotation to prime banks for euro three-month deposits in the Euro-zone interbank market for the Interest Period concerned at or about 11.00 a.m. (Brussels time) on the relevant Rate Fixing Date. The Rate of Interest for the relevant Interest Period shall be the aggregate of 2.43 per cent. per annum and the rate determined by the Fiscal Agent to be the arithmetic average (rounded upwards, if necessary, to the nearest 1/32 of one per cent.) of such offered quotations of the quoting Reference Banks (excluding, if the offered quotations of all such Reference Banks are not the same, the highest and lowest quotations and, if the highest quotation applies in respect of more than one Reference Bank, excluding that quotation in respect of one such Reference Bank and similarly if the lowest such quotation applies in respect of more than one Reference Bank), as determined by the Fiscal Agent; and
(3) if on any Rate Fixing Date, where applicable, fewer than five of the Reference Banks provide the Fiscal Agent with such offered quotations, the Rate of Interest for the relevant Interest Period shall be determined in accordance with sub-paragraph (2) above on the basis of the quotations of those Reference Banks providing such offered quotations (but without excluding, as provided in sub paragraph (2) above, the highest and lowest offered quotations of such Reference Banks) provided that, if the Rate of Interest cannot be determined in accordance with the foregoing provisions of this sub-paragraph (3), the Rate of Interest for the relevant Interest Period shall be as established on the last preceding Rate Fixing Date.
(iii) Determination of Rate of Interest and calculation of Coupon Amount
The Fiscal Agent will, as soon as practicable after 11.00 a.m. (Brussels time) on each Rate Fixing Date, determine the Rate of Interest and calculate the amount of interest payable on the presentation and surrender of each coupon (the “Coupon Amount”) for the relevant Interest Period. The Coupon Amount shall be calculated by applying the Rate of Interest to the principal amount of one Note, multiplying such product by the actual number of days in the Interest Period concerned divided by 360 and rounding the resulting figure to the nearest euro (half a euro being rounded upwards). The determination of the Rate of Interest and the Coupon Amount by the Fiscal Agent shall (in the absence of manifest error) be final and binding upon all parties.
(iv) Notification of Rate of Interest and Coupon Amount
The Fiscal Agent will cause the Rate of Interest and the Coupon Amount for each Interest Period and the relevant Interest Payment Date to be notified to the Noteholders in accordance with Condition 15 and to the Luxembourg Stock Exchange as soon as possible after their determination but in no event later than the second business day thereafter. The Coupon Amount and the Interest Payment Date so notified may subsequently be amended (or appropriate alternative arrangements made by way of adjustment) without notice in the event of an extension or shortening of the Interest Period. If the Loan becomes due and payable under Condition 9 during the Floating Interest Period, the accrued interest and the Rate of Interest payable in respect of the Loan shall nevertheless continue to be calculated as previously by the Fiscal Agent in accordance with this Condition 5(b)(iv) but no publication of the Rate of Interest or the Floating Rate Coupon Amount so calculated need be made.
A13.4.8 (c) Interest Ceasing to be Due
Each Note shall cease to bear interest from the due date for redemption unless, upon due presentation, payment of principal is improperly withheld or refused or the consent of the Regulator, if required at the time, has not been given or, having been given, has been withdrawn and not given again. In such event, it shall continue to bear interest in accordance with this Condition, before as well as after any judgment, until whichever is the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder, and (ii) the seventh day following the date on which notice in accordance with Condition 15 has been given to the
28 Noteholders by the Fiscal Agent to the effect that funds for payment of the principal in respect thereof, together with accrued interest thereon up to that day, have been received by the Fiscal Agent (except, in the case of payment to the Fiscal Agent, to the extent that there is any subsequent default by the Fiscal Agent in respect of such payment in accordance with these Conditions) and are available for collection.
(d) Coupons
Interest shall be paid against presentation and surrender of the appropriate Coupons in accordance with Condition 7.
(e) Deferral of Interest
(i) Loan Agreement
The Loan Agreement provides, inter alia, as follows:
(1) Optional Interest Payment Dates
On any Optional Interest Payment Date (as defined below), Swiss Life/Rentenanstalt may pay (if it so elects) all (but not some only) of the interest accrued in respect of the Interest Period ending on that date and all (but not some only) of the Arrears of Interest, but Swiss Life/Rentenanstalt shall not have an obligation to make such payment and any such failure to pay shall not constitute a default by Swiss Life/Rentenanstalt for any purpose.
Any interest accrued in respect of an Interest Period ending on an Optional Interest Payment Date not paid on that date shall, so long as the same remains outstanding, constitute “Arrears of Interest” and be payable as outlined below. Swiss Life/Rentenanstalt will be required to pay interest in respect of the Interest Period then ended on each Compulsory Interest Payment Date (as defined below).
(2) Arrears of Interest
Arrears of Interest may at the option of Swiss Life/Rentenanstalt be paid in whole or, on a day other than an Optional Payment Date, in part, at any time provided that all Arrears of Interest shall become due in full on each:
(A) Compulsory Interest Payment Date (except that, where the Compulsory Interest Payment Date is triggered by a partial distribution, only a pro rata amount of the Arrears of Interest shall become due in full);
(B) date set for any repayment of the Loan pursuant to clause 7 (Repayment) or clause 15 (Enforcement Events) or prepayment of the Loan pursuant to clause 8 (Prepayment for Taxation Reasons) of the Loan Agreement;
(C) date of a decree or order being made by a court or agency or supervisory authority in Switzerland having jurisdiction in respect of the same, or a resolution being passed, for the dissolution (other than pursuant to a merger, consolidation or amalgamation with another entity where the resulting or surviving entity assumes all the obligations of Swiss Life/Rentenanstalt in respect of the Loan), liquidation or winding-up of Swiss Life/Rentenanstalt;
(D) date that Swiss Life/Rentenanstalt is dissolved pursuant to a merger, consolidation or amalgamation with another entity and the resulting or surviving entity fails to assume all the obligations of Swiss Life/Rentenanstalt in respect of the Loan; or
(E) date on which a substitution pursuant to clause 22(A) (Assignment, Transfer and Substitution) of the Loan Agreement becomes effective.
29 If notice is given by Swiss Life/Rentenanstalt of its intention to pay the whole or any part of Arrears of Interest in respect of the Loan, Swiss Life/Rentenanstalt shall be obliged to do so upon the expiration of such notice.
Arrears of Interest will not bear interest.
(3) Notice of Interest Deferral and Payment of Arrears of Interest
Swiss Life/Rentenanstalt shall give not less than ten business days’ prior notice to the Fiduciary:
(A) of any Optional Interest Payment Date on which interest will not be paid; and
(B) of any date upon which amounts in respect of Arrears of Interest shall become due and payable.
(ii) Definitions
The following terms used above (or referred to in the relevant definition in the Loan Agreement) are defined in the Loan Agreement as follows (save that in the definitions therein certain references to Swiss Life/Rentenanstalt appear as references to the “Borrower”, and certain references to the Fiduciary appear as references to the “Bank”):
“Compulsory Interest Payment Date” means an Interest Payment Date where, during the period of 12 months prior to such Interest Payment Date, Swiss Life/Rentenanstalt has (i) declared, made or paid a dividend or other distribution or interest (or arrears thereof) on or in respect of any of its Junior Securities or Parity Securities (other than any payment on or in respect of any of its Parity Securities which was itself mandatory under the terms and conditions of such Parity Security), or (ii) redeemed, repurchased or otherwise acquired any of its Junior Securities.
“Junior Securities” means, with respect to Swiss Life/Rentenanstalt, (i) ordinary shares, (ii) preference shares ranking junior to its Parity Securities, and (iii) any other of its securities or obligations ranking or expressed to rank junior to its Parity Securities issued directly by it.
“Optional Interest Payment Date” means an Interest Payment Date which is not a Compulsory Interest Payment Date.
“Parity Securities” means, with respect to Swiss Life/Rentenanstalt, (i) the most senior ranking perpetual cumulative preferred or preference shares (“Parity Shares”) of Swiss Life/Rentenanstalt, if any, (ii) guarantees by Swiss Life/Rentenanstalt (whether through an agreement or instrument labelled as a guarantee, as a support agreement, or with some other name but with an effect similar to a guarantee or support agreement) of preferred securities or preferred or preference shares issued by any of Swiss Life/Rentenanstalt’s Subsidiaries, effectively ranking or expressed to rank pari passu with Swiss Life/Rentenanstalt’s Parity Shares, if any, (iii) the obligations of Swiss Life/Rentenanstalt under the loan agreement dated 31 March 1999 between Swiss Life/Rentenanstalt, Morgan Guaranty Trust Company of New York and J.P. Morgan Securities Ltd., and (iv) any future unsecured, subordinated perpetual obligations of Swiss Life/Rentenanstalt ranking equally with the obligations of Swiss Life/Rentenanstalt under the Loan Agreement.
(iii) Notification by Fiduciary
If the Fiduciary receives from Swiss Life/Rentenanstalt a notice of interest deferral or a notice of payment of Arrears of Interest under the Loan Agreement (as set out in Condition 5(e)(i)(3)), the Fiduciary shall promptly give notice thereof to the Noteholders in accordance with Condition 15.
30 6. Redemption, Purchase and Cancellation
The Notes have no fixed final maturity date and may not be redeemed at the option of the Noteholders or at the option of the Fiduciary except in accordance with the provisions of this Condition 6.
For the purposes of this Condition 6, “Regulator” means the Bundesamt für Privatversicherungen (the Federal Office of Private Insurance) or such other agency of Switzerland as, from time to time, assumes or performs the function that is performed by the Regulator as at the date of the Loan Agreement.
(a) Optional Redemption
Under the Loan Agreement, Swiss Life/Rentenanstalt may:
(i) with the prior written consent, if required at the time, of the Regulator; and
(ii) having given not less than 30 nor more than 45 days’ notice to the Fiduciary stating the date of repayment (whereupon the Fiduciary shall promptly give notice thereof to the Noteholders in accordance with Condition 15 and the Luxembourg Stock Exchange), repay the whole (but not part only) of the Loan on the Interest Payment Date falling on 16 November 2015 (or, if such date is not a Business Day (as defined in Condition 5), the next Business Day) or any Interest Payment Date thereafter. In that case, all, but not some only, of the Notes shall be redeemed by the Fiduciary at their principal amount subject as provided in Condition 7.
(b) Redemption for Tax Reasons
Under the Loan Agreement, Swiss Life/Rentenanstalt may, having given not less than 30 nor more than 60 days’ notice (which notice shall be irrevocable) to the Fiduciary (whereupon the Fiduciary shall promptly give notice thereof to the Noteholders in accordance with Condition 15 and to the Luxembourg Stock Exchange, repay, in whole but not in part, the Loan at the principal amount thereof together with interest accrued to the date fixed for repayment and, in that case, all, but not some only, of the Notes shall be redeemed by the Fiduciary at their principal amount, subject as provided in Condition 7, if:
(i) Swiss Life/Rentenanstalt has or will become obliged to pay additional amounts in respect of principal or interest on the Loan or the Notes as described in Condition 8 as a result of any change in, or amendment to, the laws or regulations of Luxembourg or Switzerland or, in either case, any political sub-division or any authority therein or thereof having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date of the Loan Agreement; and
(ii) such obligation cannot be avoided by Swiss Life/Rentenanstalt taking reasonable measures available to it, provided that no such notice of repayment shall be given earlier than 90 days prior to the earliest date on which Swiss Life/Rentenanstalt would be obliged to pay such additional amounts were a payment in respect of the Loan or the Notes then due.
Prior to the issue of any notice of repayment pursuant to this Condition, Swiss Life/Rentenanstalt shall deliver to the Fiduciary a certificate signed by two authorised signatories of Swiss Life/Rentenanstalt (one of whom must be a member of the Executive Board of Swiss Life/Rentenanstalt) stating that Swiss Life/Rentenanstalt is entitled to effect such repayment and setting forth a statement of facts showing that the conditions precedent to Swiss Life/Rentenanstalt being entitled so to repay have occurred, and an opinion of independent legal advisers of recognised standing to the effect that Swiss Life/Rentenanstalt has or will become obliged to pay such additional amounts as a result of such change or amendment.
31 7. Payments
For the purposes of this Condition 7:
“Business Day” means (i) a day which is a TARGET Business Day, and (ii) a day (other than a Saturday or Sunday) on which banks are open for inter-bank payments in the place of the specified office of the Paying Agent at which the Note and/or Coupon is presented for payment.
“Presentation Date” means a day which:
(i) is, or falls after, the relevant Interest Payment Date; and
(ii) is a Business Day.
“TARGET Business Day” means a day on which TARGET is open (as defined in Condition 5).
(a) Payments in respect of the Loan
Payments of principal and interest in respect of the Loan shall be made by Swiss Life/Rentenanstalt to or to the order of the Fiduciary in accordance with the provisions of the Loan Agreement. Such payments will be applied by or on behalf of the Fiduciary solely for the benefit of the Noteholders.
(b) Payments of Principal and Interest in respect of the Notes
Payment of principal and interest due on redemption will be made against presentation and surrender (or, in the case of part payment only, endorsement) of the Note, and payment of interest (other than interest due on redemption) in respect of each Note will be made against presentation and surrender (or, in the case of part payment only, endorsement) of the relevant Coupons, in each case, at the specified office of any Paying Agent. Payment will be made, at the option of the Noteholder exercised by notice in writing to the Principal Paying Agent not less than five TARGET Business Days prior to the due date for any payment of principal or interest, by euro cheque drawn on, or by transfer to, a euro account maintained by the payee with a bank in Luxembourg.
(c) Payments Subject to Fiscal Laws
All payments of principal and interest in respect of the Notes are subject in all cases to any applicable fiscal or other laws and regulations, but without prejudice to the provisions of Condition 8.
(d) Payment Conditional
All payments of principal and interest are conditional upon the due performance by Swiss Life/Rentenanstalt of its obligations in respect of amounts of principal and interest on the Loan pursuant to the Loan Agreement.
(e) Presentation
Each Note should be presented for payment together with all unmatured Coupons and the unexchanged Talon appertaining thereto. Upon the date on which any Note becomes due and payable, unmatured Coupons and the unexchanged Talon appertaining thereto (whether or not attached) shall become void and no payment or exchange, as the case may be, shall be made in respect thereof.
(f) No Set-off, Commissions or Remuneration
Without prejudice to the right of the Fiduciary to be indemnified out of the fiduciary assets, neither the Fiduciary nor any Agent shall exercise any lien, right of set-off or similar claim against any Noteholder or Couponholder to whom it makes any payment of principal or interest in respect of the Notes or Coupons, no commission or expense shall be charged by any of them to any Noteholder or
32 Couponholder in connection therewith and none of them shall be entitled to receive any remuneration from any Noteholder or Couponholder in respect of the performance of their obligations in relation to the Notes or the Coupons or the Loan Agreement.
(g) Payments on Presentation Dates
A Noteholder shall be entitled to present a Note or Coupon for payment only on a Presentation Date and shall not be entitled to any further interest or other payment if a Presentation Date is after the due date.
(h) Entitlement to Principal and Interest and Delay in Payments
Noteholders will not be entitled to any payment in respect of principal of or interest on the Loan payable by Swiss Life/Rentenanstalt other than payments of the principal provided for in Condition 6, the interest provided for in Condition 5 and any additional amounts in relation thereto provided for in Condition 8.
(i) Partial Payments
Any partial payment of principal or interest received by the Fiduciary under the Loan shall be used by the Fiduciary to satisfy, pari passu and rateably, the claims of the persons entitled to principal and/or interest then due in respect of the Notes under these Conditions.
(j) Talons
On and after the Interest Payment Date on which the final Coupon comprised in any Coupon sheet in respect of a Note matures, the Talon comprised in such Coupon sheet may be surrendered at the specified office of any of the Paying Agents in exchange for a further Coupon sheet (including a further Talon) subject to the provisions of Condition 11, provided that the Fiduciary may, by notice to the Noteholders in accordance with Condition 15 at any time or from time to time, require such exchange to be effected at the specified office(s) of one or more Paying Agents specified in such notice.
(k) Agents
The initial Agents and their initial specified offices are listed below. Any of the Agents may resign in accordance with the provisions of the Fiscal Agency Agreement. The Fiduciary reserves the right at any time to vary or terminate the appointment of any Agent and appoint additional or other Agents, provided that, while the Notes are outstanding, (i) it will maintain a fiscal agent, (ii) so long as the Notes are listed on any stock exchange in Luxembourg, there will at all times be a Paying Agent with a specified office in Luxembourg if that is required by the rules and regulations of the relevant stock exchange or the relevant authority in Luxembourg, and (iii) it will maintain a Paying Agent in an EU Member State that will not be obliged to withhold or deduct tax pursuant to the European Council Directive 2003/48/EC of 3 June 2003 on the taxation of savings income (the “EU Savings Tax Directive”) or any other European Union Directive implementing the conclusions of the ECOFIN Council Meeting of 26-27 November 2000, or any law implementing or complying with, or introduced in order to conform to, such Directive. Notice of any change in the Agents or their specified offices will promptly be given by the Fiscal Agent to the Noteholders in accordance with Condition 15.
8. Taxation
(a) Loan Agreement
All payments in respect of principal of, or interest on, the Loan under the Loan Agreement will be A13.4.15 made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of
33 Switzerland or any political sub-division of or authority in, or of, Switzerland having power to tax, unless such withholding or deduction is required by law. In that event, Swiss Life/Rentenanstalt shall pay such additional amounts as will result in the receipt by the Fiduciary of such amounts as would have been received by it had no such withholding or deduction been required. In any event, Swiss Life/Rentenanstalt shall make all payments without deduction or withholding (except to the extent required by law) of any other amount, whether by way of set-off or otherwise.
(b) Notes
All payments of principal and interest in respect of the Notes will be made by the Fiduciary without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of Luxembourg or any political sub-division or authority thereof or therein having power to tax (together,“Taxes”), unless such withholding or deduction is required by law. In that event, Swiss Life/Rentenanstalt shall pay, to or to the order of the Fiduciary under the Loan Agreement, such additional amounts as will result in the receipt by the Noteholders of such amounts as would have been received by them had no such withholding or deduction been required and which are necessary in order to indemnify the Fiduciary in respect of such additional amounts as the Fiduciary may have been obliged to pay to the Noteholders in order that such Noteholders would receive such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable in respect of any Note:
(i) to, or to a third party on behalf of, a Noteholder who is liable to such Taxes in respect of such Note by reason of having some connection with Luxembourg other than the mere holding of such Note; or
(ii) to, or to a third party on behalf of, a Noteholder who would not be liable or subject to the withholding or deduction by making a declaration of non-residence or other similar claim for exemption to the relevant tax authority; or
(iii) surrendered (where so required) for payment more than 30 days after the Relevant Date, except to the extent that the Noteholder would have been entitled to such additional amounts on surrender of such Note for payment on the last day of such period of 30 days (assuming that day to have been a day on which commercial banks and foreign exchange markets settle payments in the place of such surrender); or
(iv) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to the EU Savings Tax Directive or any other European Union Directive implementing the conclusions of the ECOFIN Council Meeting of 26-27 November 2000, or any law implementing or complying with, or introduced in order to conform to, such Directive; or
(v) where such withholding or deduction is required to be made pursuant to the agreement between the European Community and the Confederation of Switzerland dated as of 26 October 2004 providing for measures equivalent to those set out in the EU Savings Tax Directive, or any law implementing or complying with, or introduced in order to conform to, such agreement; or
(vi) by or on behalf of a Noteholder who would have been able to avoid such withholding or deduction by presenting the relevant Note or the relevant Coupon to another Paying Agent in a Member State of the European Union.
For this purpose, the “Relevant Date” in relation to any Note means the date on which the payment in respect of such Note first becomes due but, if the full amount payable has not been received by the Fiduciary on or before such due date, it means the date on which, the full amount having been so received, notice to that effect shall have been given to the Noteholders by the Fiduciary in accordance with Condition 15.
34 References in these Conditions to any amounts payable in respect of the Notes (including, without limitation, references to principal) shall be deemed also to refer to any amounts payable in respect of the Coupons and to any additional amounts which may be payable under this Condition.
9. Enforcement Events
(a) Enforcement Events
Each of the following events, if it has occurred and is continuing, is an “Enforcement Event”:
(i) Non-payment
Swiss Life/Rentenanstalt fails to pay any principal of the Loan within 7 days of the due date, or fails to pay any interest on the Loan within 14 days of a Mandatory Interest Payment Date.
For the purpose of this Condition 9(a), “Mandatory Interest Payment Date” means either a Compulsory Interest Payment Date, or an Optional Interest Payment Date (both having the meaning set out in Condition 5(e)(ii)) in relation to which a notice has not been given by Swiss Life/Rentenanstalt to the Fiduciary pursuant to Condition 5(e)(i)(3); or
(ii) Insolvency and Liquidation
Any procedure is commenced with a view to the liquidation (other than a dissolution of Swiss Life/Rentenanstalt following its merger, consolidation or amalgamation with another entity whereby the resulting entity assumes all obligations of Swiss Life/Rentenanstalt in respect of the Loan), winding- up or re-organisation (namely, debt moratorium involving liquidation) of Swiss Life/Rentenanstalt or with a view to the appointment of an administrator, receiver or trustee in bankruptcy in relation to Swiss Life/Rentenanstalt or any of its assets. This procedure may be a court procedure or any other step which under applicable law is a possible means of achieving any of those results.
(b) Consequences of an Enforcement Event
(i) In the case of an Enforcement Event under Condition 9(a)(i), the Fiduciary may formally request the payment due from Swiss Life/Rentenanstalt and pursue such claims against Swiss Life/Rentenanstalt as permitted by the Swiss Debt Enforcement and Bankruptcy Act of 11 April 1889, as amended.
(ii) In the case of an Enforcement Event under Condition 9(a)(ii), the Fiduciary shall give notice to Swiss Life/Rentenanstalt pursuant to the Loan Agreement that the Loan is, and the Loan shall accordingly become, immediately due and payable at its then outstanding principal amount together with accrued interest whereupon the Notes shall forthwith become immediately due and repayable at their principal amount together with accrued interest.
10. Enforcement
In accordance with the Luxembourg Law of 27 July 2003 on trusts and fiduciary contracts (the A13.4.7 “Luxembourg Law”), Noteholders have no direct right of action against Swiss Life/Rentenanstalt to enforce their rights under the Notes or to compel Swiss Life/Rentenanstalt to comply with its obligations under the Loan Agreement, even in the case of the Fiduciary’s failure to act or the insolvency of the Fiduciary. However, if, under the Loan Agreement, the Fiduciary is entitled and, in addition, has, in accordance with the Fiduciary Contract, become obliged to take legal action against Swiss Life/Rentenanstalt and has failed to take such action within a reasonable time, then (if and to the extent such failure is continuing) the Noteholders shall be entitled to institute indirect legal action (“action oblique”) under and subject to the conditions of the Luxembourg Civil Code against Swiss Life/Rentenanstalt in the Fiduciary’s stead and on its behalf. Any action brought in such manner remains that of the Fiduciary and, as such, any judgment obtained shall be in favour of the Fiduciary.
35 The Fiduciary will, upon the request and at the expense and risk of a Noteholder, take action to preserve the rights of such Noteholder so long as such action is requested or directed by no less than 20 per cent. of Noteholders required in relation to such action and such action is otherwise consistent with these Conditions and the Loan Agreement.
Upon the breach by Swiss Life/Rentenanstalt of any of its obligations under the Loan Agreement, the Fiduciary may in its discretion and without further notice institute such proceedings as it sees fit against Swiss Life/Rentenanstalt to assert the Fiduciary’s rights under the Loan Agreement. The Fiduciary will not be obliged to take such proceedings or action unless (i) it shall have been directed to do so by an Extraordinary Resolution of Noteholders or so requested in writing by the holders of not less than 20 per cent. in aggregate principal amount of the Notes then outstanding, and (ii) arrangements for the indemnification of the Fiduciary (including payment of its expenses) have been made to its satisfaction.
In the event of any enforcement by the Fiduciary of its rights against Swiss Life/Rentenanstalt or in case of any other action taken at the request or in the interest of the Noteholders (other than those actions provided for herein) and in case of any payments made by the Fiduciary out of its own assets under the Loan Agreement or the Fiduciary Contract, the Fiduciary will be entitled to be paid, out of the proceeds of such enforcement or other fiduciary assets, its costs and expenses of such enforcement or actions on the amount paid out of its own assets in priority to any claims of the Noteholders.
These Conditions form part of the Fiduciary Contract. They set out the rights of the Noteholders under the Fiduciary Contract and certain duties, powers and discretions of the Fiduciary which correspond in substance to those contained in the Loan Agreement. As a fiduciary, the Fiduciary does not and cannot represent the Noteholders. However, the Fiduciary shall, and hereby undertakes to, perform such duties and to exercise such powers and discretions in the best interests of the Noteholders. Furthermore, the Fiduciary undertakes to exercise its rights under the Loan Agreement and its corresponding duties, powers and discretions in the best interests of the Noteholders and to do so in such a manner as to give effect to these Conditions.
Noteholders waive any right to request the anticipated termination of the Fiduciary Contract pursuant to Article 7(6) of the Luxembourg Law.
A13.4.8 11. Prescription
Claims against the Fiduciary for payment with respect to the Notes or Coupons shall become void unless made within a period of ten years (in the case of principal) or five years (in the case of the interest), from the appropriate Relevant Date (as defined in Condition 8). Talons shall become void five years after the first date upon which they may be exchanged for Coupons.
There shall not be included in any Coupon sheet issued upon exchange of a Talon any Coupon which would be void upon issue pursuant to this Condition 11 or the claim for payment in respect of which would be void pursuant to this Condition.
A13.4.7 12. Replacement of Notes and Coupons
If any Note or Coupon or Talon is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of any Paying Agent, upon payment by the claimant of the expenses incurred in connection therewith and on such terms as to evidence and indemnity as the Fiduciary may reasonably require. Mutilated or defaced Notes or Coupons or Talons must be surrendered before replacements will be issued.
36 A13.4.7 13. Meetings of Noteholders, Modification and Waiver
(a) Meetings of Noteholders
The Fiscal Agency Agreement contains provisions for convening meetings of Noteholders to consider any matter affecting their interests, including the modification by Extraordinary Resolution of these Conditions. The quorum at any such meeting for passing an Extraordinary Resolution shall (subject as provided in the Fiscal Agency Agreement in the event that all Notes for the time being outstanding are held by one person) be two or more persons holding or representing a majority of the principal amount of the Notes for the time being outstanding, or at any adjourned meeting two or more persons being or representing Noteholders whatever the principal amount of the Notes for the time being outstanding so held or represented, except that at any meeting the business of which includes consideration of proposals, inter alia, (i) to modify the maturity of the Notes, (ii) to reduce or cancel the principal amount of, or interest on, the Notes, (iii) to change the currency of payment of the Notes, (iv) to modify the provisions concerning the quorum required at any meeting of Noteholders or the majority required to pass an Extraordinary Resolution, or (v) to modify the percentage required to pass any resolution, the necessary quorum for passing an Extraordinary Resolution shall (subject as provided in the Fiscal Agency Agreement in the event that all Notes for the time being outstanding are held by one person) be two or more persons holding or representing not less than three-quarters, or at any adjourned such meeting not less than one-quarter, of the principal amount of the Notes for the time being outstanding. The passing of an Extraordinary Resolution requires a 75 per cent. majority of votes cast and when duly passed at any meeting of Noteholders, will be binding on all Noteholders, whether or not they are present at the meeting.
(b) Modification and Waiver
The Fiduciary may agree, without the consent of the Noteholders, to (i) any modification (subject to the exceptions referred to above and in the Fiscal Agency Agreement) of any of the provisions of the Loan Agreement or the Fiscal Agency Agreement and any corresponding provision of these Conditions, or the waiver or authorisation of any breach or proposed breach of any of the provisions of the Loan Agreement by Swiss Life/Rentenanstalt or any of the provisions of the Fiscal Agency Agreement by any Agent (other than the Fiduciary) and any corresponding breach or proposed breach of these Conditions, provided that any such modification, waiver or authorisation is not, in the opinion of the Fiduciary, materially prejudicial to the interests of the Noteholders, or (ii) any modification thereto which is of a formal, minor or technical nature or to correct a manifest or proven error.
Any modification, waiver or authorisation shall be binding on the Noteholders and any modification shall be notified, if so required by the Fiduciary, to the Noteholders by the Fiduciary as soon as practicable thereafter in accordance with Condition 15.
(c) Powers and Discretions
In connection with the exercise by it of any of its powers or discretions (including, without limitation, any modification, waiver or authorisation), the Fiduciary shall have regard to the best interests of the Noteholders as a class and in particular but without limitation, shall not have regard to the consequences of the exercise of its powers or discretions for individual Noteholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory. No Noteholder shall be entitled to claim, from the Fiduciary or any other person, any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders except to the extent already provided for in Condition 8(b).
14. Further Issues
The Fiduciary shall be at liberty from time to time, without the consent of the Noteholders but with the written consent of Swiss Life/Rentenanstalt, to create and issue further notes ranking pari passu
37 in all respects (or in all respects save for the date for and amount of the first payment of interest thereon) with the Notes so that the same shall be consolidated and form a single series with the Notes. Such further notes shall be issued with the benefit of the Loan Agreement which shall be amended to reflect the increased principal amount of the Loan which shall be or shall be deemed to be increased by an amount equal to the aggregate nominal amount of such further notes.
15. Notices
(a) Notices to Noteholders
All notices to the Noteholders will be valid if published in a leading English language daily newspaper with circulation in London (which is expected to be the Financial Times) and, for so long as the Notes are listed on the Luxembourg Stock Exchange and the rules of such exchange so require, in a leading newspaper having general circulation in Luxembourg (which is expected to be the d’Wort) or on the website of the Luxembourg Stock Exchange (www.bourse.lu), and each such notice shall be deemed to have been given on the date of such publication or, if published more than once on different dates, on the first date on which publication is made.
(b) Notices to the Fiduciary
All notices to the Fiduciary will be valid if sent to it at 6 route de Trèves, L-2633 Senningerberg, Luxembourg or such other address as may be notified by the Fiduciary to the Noteholders in accordance with Condition 15(a).
(c) Copies of Notices
A copy of all notices pursuant to this Condition 15 shall also be given by or on behalf of the Fiduciary to Euroclear and Clearstream, Luxembourg.
16. Substitution of Swiss Life/Rentenanstalt
Swiss Life/Rentenanstalt (or any previous substitute) may, subject to the fulfilment of certain conditions, substitute for itself as principal debtor under the Loan a successor in business to Swiss Life/Rentenanstalt or such substitute, being a duly licensed and regulated entity that carries on the business of an insurance company within the Swiss Life Group and is incorporated under the laws of, and resident in, Switzerland, provided that, immediately prior to such substitution, at least one rating agency shall, at Swiss Life/Rentenanstalt’s (or any previous substitute’s) request, have assigned a credit rating to the Notes, and that Swiss Life/Rentenanstalt (or any previous substitute) shall have received confirmation in writing from such rating agency that the substitution by itself, and the circumstances of the substitution by themselves, will not result in a downgrading of the then current credit rating assigned to the Notes by such rating agency.
In Conditions 16 and 17, “rating agency” means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. or Moody’s Investors Service Limited and the successors of either of them and/or any other internationally recognised rating agency.
17. Substitution of the Fiduciary
(a) Resignation by Fiduciary
The Fiduciary may resign as Fiduciary by giving at least 90 days’ notice to the Noteholders in accordance with Condition 15. Such resignation shall take effect on the date specified in such notice, provided that no such resignation shall take effect until the appointment by the Fiduciary of a successor Fiduciary (which shall be a Qualified Financial Institution), the acceptance of such appointment by such successor and the assumption by such successor of the rights and obligations of the Fiduciary under the Loan Agreement, the Fiscal Agency Agreement and in respect of the Fiduciary Contract constituted by the Notes. The Fiduciary shall procure the appointment of a successor
38 Fiduciary as soon as possible following notice of such resignation. As soon as practicable, but in no event later than 10 days after such appointment being made, the Fiduciary will give due notice thereof to the Noteholders in accordance with Condition 15 (the “Appointment Notice”).
(b) Removal by Noteholders
The Fiduciary may at any time be removed as Fiduciary by an Extraordinary Resolution of the A13.4.7 Noteholders, provided that no such removal shall take effect until the appointment by the Noteholders by Extraordinary Resolution of a successor Fiduciary (which shall be a Qualified Financial Institution), the acceptance of such appointment by such successor and the assumption by such successor of the rights and obligations of the Fiduciary under the Loan Agreement, the Fiscal Agency Agreement and in respect of the Fiduciary Contract constituted by the Notes.
(c) Qualified Financial Institution
For the purposes of this Condition 17, “Qualified Financial Institution” means a bank incorporated under the laws of Luxembourg which:
(i) is qualified and authorised to act as a fiduciary under Luxembourg law; and
(ii) has, or the ultimate holding company (as defined in Condition 4(c)) of which has, a long-term debt rating by a rating agency of at least “A”.
The Appointment Notice shall contain particulars confirming that the appointed successor Fiduciary is a Qualified Financial Institution.
18. Currency Indemnity
The Loan Agreement provides that the euro (the “Contractual Currency”) is the sole currency of account and payment for all sums payable by Swiss Life/Rentenanstalt under or in connection with the Loan Agreement including damages, and that, if under any applicable law and whether pursuant to a judgment being made or registered against Swiss Life/Rentenanstalt or in the liquidation, insolvency or analogous process of Swiss Life/Rentenanstalt or for any other reason, any payment under or in connection with the Loan Agreement is made or is to be satisfied in a currency (the “other currency”) other than the Contractual Currency, then, to the extent that the payment (when converted into the Contractual Currency at the rate of exchange on the date of payment or, if it is not practicable for the Fiduciary or its designated agent to purchase the Contractual Currency with the other currency on the date of payment, at the rate of exchange as soon thereafter as it is practicable for it to do so or, in the case of a liquidation, insolvency or analogous process of Swiss Life/Rentenanstalt, at the rate of exchange on the latest date permitted by applicable law for the determination of liabilities in such liquidation, insolvency or analogous process) actually received by the Fiduciary falls short of the amount due under the terms of the Loan Agreement, Swiss Life/Rentenanstalt shall, as a separate and independent obligation, indemnify and hold harmless the Fiduciary against the amount of such shortfall.
For the purposes of this Condition 18, “rate of exchange” means the rate at which the Fiduciary or its designated agent is able, on the relevant date in Luxembourg, to purchase the Contractual Currency with the other currency and shall take into account any premium and other costs of exchange.
19. Governing Law and Jurisdiction
(a) Governing Law A13.4.3
The Loan Agreement (with the exception of the subordination provisions set out in clause 5 thereof (Status and Subordination), which shall be governed by and interpreted in accordance with the laws of Switzerland), the Fiduciary Contract constituted by the Notes (including these Conditions) and the
39 Fiscal Agency Agreement shall all be governed by and interpreted in accordance with the laws of Luxembourg, and such Fiduciary Contract shall be governed in particular by the Luxembourg Law. Actions or proceedings against the Fiduciary may be brought only in a court of the city of Luxembourg, Grand Duchy of Luxembourg.
(b) Jurisdiction
In the Loan Agreement, Swiss Life/Rentenanstalt has submitted to the jurisdiction of:
(i) the courts of the City of Luxembourg, Grand Duchy of Luxembourg; and
(ii) the courts of Switzerland, for the purpose of any actions, proceedings or disputes which may arise out of or in connection with the Loan Agreement (“Proceedings”). These submissions have been made for the benefit of the Fiduciary and do not limit the right of the Fiduciary to take Proceedings in any other court of competent jurisdiction; nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not, to the extent permitted by applicable law.
(c) Domicile and Process Agent
In the Loan Agreement, for the purposes of any Proceedings brought in Luxembourg, Swiss Life/Rentenanstalt has irrevocably elected domicile at the principal office of Swiss Life (Luxembourg) S.A. for the time being at 25 Route d’Arlon, L-8009 Strassen, Luxembourg for all acts, formalities or procedures and has agreed that notice of any Proceedings may be effectively served on them by serving Swiss Life (Luxembourg) S.A., Compagnie Luxembourgeoise d’Assurances, Attn. Managing Director, 25 Route d’Arlon, L-8009 Strassen, Luxembourg.
Nothing contained in the Loan Agreement affects the right to serve process in any other manner permitted by law.
(d) Waiver of Immunity
In the Loan Agreement, Swiss Life/Rentenanstalt has agreed that Proceedings may be taken against it in respect of the Loan Agreement. In these Proceedings any type of relief or remedy may be given. The relief or remedy may concern or affect any assets of Swiss Life/Rentenanstalt (regardless of their use or intended use). If Swiss Life/Rentenanstalt or its assets are entitled to any immunity whether now existing or arising in the future, Swiss Life/Rentenanstalt has irrevocably, specifically and expressly waived any immunity of jurisdiction and immunity of execution in any jurisdiction including but not limited to Luxembourg, Switzerland, the United States and any other OECD member state. Swiss Life/Rentenanstalt has also irrevocably agreed not to claim any immunity for itself or its assets.
This waiver and agreement are intended to have irrevocable effect including for the purposes of the United States Foreign Sovereign Immunities Act of 1976.
(e) Waiver of forum non conveniens
In the Loan Agreement, Swiss Life/Rentenanstalt has irrevocably waived (and irrevocably agreed not to raise) any objection which it may have to the laying of the venue of any Proceedings in any such court as is referred to in this Condition 19 and any claim that any such Proceedings have been brought in an inconvenient forum, and further has irrevocably agreed that a judgment in any Proceedings brought in any such court as is referred to in this Condition 19 shall be conclusive and binding upon Swiss Life/Rentenanstalt and may be enforced in the courts of any other jurisdiction.
40 Summary of Provisions relating to the Notes while in Global Form A13.4.7
The Temporary Global Note and the Permanent Global Note (each being a “Global Note”) contain provisions which apply to the Notes while they are in global form, some of which modify the effect of the terms and conditions of the Notes set out in this document. The following is a summary of certain of those provisions.
1. Exchange
(a) Temporary Global Note
The Temporary Global Note will be exchangeable, free of charge to the holder, on or after a date which is expected to be 28 December 2005 in whole or in part for interests in the Permanent Global Note upon certification as to non-U.S. beneficial ownership.
(b) Permanent Global Note
The Permanent Global Note will be exchangeable on or after its Exchange Date (as defined below) in whole but not, except as provided in the next paragraph, in part (free of charge to the holder) for the definitive Notes described below (the “Definitive Notes”):
(i) if the Permanent Global Note is held on behalf of Euroclear, Clearstream, Luxembourg or any other clearing system and any such clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or in fact does so; or
(ii) if any Enforcement Event occurs.
Thereupon, the Noteholder may give notice to the Principal Paying Agent of its intention to exchange the Permanent Global Note for the Definitive Notes on or after the Exchange Date specified in the notice.
If principal in respect of any Note is not paid when due and payable, the holder of the Permanent Global Note may, by notice to the Principal Paying Agent (which may but need not be the Enforcement Event notice described in Condition 9) require, at the cost and expense of the Fiduciary, subject to prior indemnification by Swiss Life/Rentenanstalt, the exchange of a specified principal amount of the Permanent Global Note (which may be equal to or (provided that, if the Permanent Global Note is held by or on behalf of a clearing system, that clearing system agrees) less than the outstanding principal amount of Notes represented thereby) for the Definitive Notes on or after the Exchange Date specified in such notice.
(c) Delivery of Notes
On or after the Exchange Date (as defined below), the holder of the Permanent Global Note may surrender the Permanent Global Note or, in the case of a partial exchange, present it for endorsement to or to the order of the Principal Paying Agent. In exchange for the Permanent Global Note, or an endorsement of the part thereof to be exchanged, the Fiduciary, subject to prior indemnification by Swiss Life/Rentenanstalt, will deliver, or procure the delivery of, an equal aggregate principal amount of the duly executed and authenticated Definitive Notes in bearer form (having attached to them all Coupons in respect of interest that has not already been paid on the Permanent Global Note, and a Talon), security printed in accordance with any applicable legal and stock exchange requirements in or substantially in the form set out in Schedule 3 to the Permanent Global Note. On exchange in full of the Permanent Global Note, the Fiduciary, subject to prior indemnification by Swiss Life/Rentenanstalt, will procure that it is cancelled and returned to the Fiduciary or destroyed by the Principal Paying Agent.
41 (d) Exchange Date
“Exchange Date” means a day falling not less than 60 days or, in the case of an exchange pursuant to (b)(ii) above, 30 days, after that on which the notice requiring exchange is given and on which banks are open for business in the city in which the specified office of the Principal Paying Agent is located and, except in the case of exchange pursuant to (b)(ii) above, in the city in which the relevant clearing system is located.
2. Payments
No payment will be made on the Temporary Global Note unless exchange for an interest in the Permanent Global Note is improperly withheld or refused. Payments of the principal and interest in respect of the Notes represented by the Permanent Global Note will be made against presentation for endorsement and, if no further payment falls to be made in respect of the Notes, surrender of the Permanent Global Note to or to the order of the Principal Paying Agent or such other Agent as shall have been notified to the Noteholders for such purpose. A record of each payment so made will be endorsed in the appropriate schedule to the Permanent Global Note, which endorsement will be prima facie evidence such payment has been made in respect of the Notes.
3. Account holders
Except as otherwise provided by Article 8 of the Luxembourg Law of 1 August 2001 on the circulation of securities and other fungible instruments, as long as any of the Notes is represented by a Global Note, each person for the time being shown in the records of Euroclear or Clearstream, Luxembourg, or of any alternative clearing system, as the holder of a particular principal amount of the Notes (other than each of Euroclear or Clearstream, Luxembourg or the alternative clearing system as account holder of the other) shall be treated by the Fiduciary as the holder of that principal amount for all purposes (including but not limited to for the purposes of giving notice to the Fiduciary pursuant to Condition 15) other than for payments in respect of the Notes, the rights to which shall be vested, as against the Fiduciary, solely in the holder of the Global Note in accordance with and subject to its terms.
4. Notices
So long as any of the Notes is represented by a Global Note and such Global Note is held on behalf of a clearing system, notices to the Noteholders may be given by delivery of the relevant notice to that clearing system for communication by it to entitled account holders in substitution for publication as required by Condition 15.
5. Prescription
Claims against the Fiduciary in respect of any Note which is represented by the Permanent Global Note A13.4.8 will become void unless the Note is presented for payment within a period of 10 years in the case of the principal and five years in the case of the interest from the due date therefor.
6. Purchase and Cancellation
Cancellation of any Note surrendered for cancellation following its purchase will be effected by reduction of the principal amount of the Permanent Global Note.
7. Enforcement Events
The Permanent Global Note provides that the Noteholder may cause the Permanent Global Note to become due and payable in the circumstances described in Condition 9(a)(ii).
42 Use of Proceeds
The net proceeds of the issue of the Notes, which are expected to amount to approximately ¤346,000,000, will be used by the Fiduciary to make the Loan to Swiss Life/Rentenanstalt pursuant to the Loan Agreement.
The proceeds of the Loan will be used by Swiss Life/Rentenanstalt for general corporate purposes, A13.6 including in particular the refinancing of existing debt. The total expenses relating to the admission to trading are estimated to be ¤5,950.
43 Description of Swiss Life/Rentenanstalt
A9.5 Business overview
Swiss Life Insurance and Pension Company (“Swiss Life/Rentenanstalt”) is an insurance company which was founded on 28 September 1857 and is registered in Switzerland with its A9.4.1.1 registered office at General Guisan Quai 40, 8022, Zurich (telephone number: +41 43 284 33 11). A9.4.1.2 Swiss Life/Rentenanstalt is a Swiss corporation (“Aktiengesellschaft”) registered in Switzerland with A9.4.1.3 the Commercial Register of the Canton of Zurich under the number CH 020.5.901.324-6. Swiss A9.4.1.4 Life/Rentenanstalt with its subsidiaries is referred to in this document as “Swiss Life”. It is a principal subsidiary of Swiss Life Holding, which is the parent company of the group of consolidated undertakings referred to herein as the “Swiss Life Group”. The Swiss Life Group also includes interests in, inter alia, certain banking, investment management and other insurance operations which are not part of Swiss Life. A9.6.2 The data below pertaining to the Swiss Life Group has been prepared on a consolidated basis and in A9.6.1 a manner which is materially consistent with IFRS. The data pertaining to Swiss Life/Rentenanstalt has been prepared on a stand alone/unconsolidated basis (without subsidiaries) and in a manner which complies with Swiss Statutory Accounting Rules. There are certain significant differences between the preparation of financial statements under Swiss Statutory Accounting Rules and IFRS. As such the data is not comparable and does not accurately present the size or performance of Swiss Life relative to the Swiss Life Group. For further discussion of the differences between IFRS and Swiss Statutory A9.11.1 Accounting Rules, see “Summary of Significant Differences Between Swiss Statutory Accounting Rules and International Financial Reporting Standards (IFRS)”.
The Swiss Life Group A9.5.1.2 The Swiss Life Group is one of Europe’s leading providers of pensions and life insurance products. In A9.13.2 2004, it ranked as the ninth largest life insurance and pensions provider in Europe in terms of gross written premiums, and in its core markets, it ranked sixth (source: ISIS Database, Company annual reports). The principal subsidiary Swiss Life/Rentenanstalt meanwhile was ranked as the largest group life insurer in its domestic market of Switzerland in terms of gross written premiums (source: SVV: Swiss Insurance Association). International activities of the Swiss Life Group are focused on France, Germany, the Netherlands, Belgium, Luxembourg and Liechtenstein, which it considers its core markets. It is also active in Italy, which it considers a non-core market.
Except for Swiss Life (Liechtenstein) AG, all the life insurance activities of the Swiss Life Group are carried out by Swiss Life/Rentenanstalt, either directly or through its subsidiaries and participations, with Swiss Life/Rentenanstalt representing the substantial majority of the total business conducted by the Swiss Life Group. The life insurance segments (core and non-core) of the Swiss Life Group represented more than 80 per cent. of the Swiss Life Group’s total revenue on a consolidated basis for the year ended 31 December 2004 (on an IFRS basis). A9.5.1.1 The life insurance operations of the Swiss Life Group include a comprehensive range of risk protection and long-term savings products aimed at both individual and corporate customers. Non-life operations principally include property and casualty, motor vehicle and health and accident insurance, although the Swiss Life Group does not offer industrial property or casualty products. The investment management operations of the Swiss Life Group (which are partially centralised under Swiss Life Investment Management Holding AG) manage funds from both Swiss Life’s insurance operations and from third party investors. They also manage Swiss Life’s real estate portfolio, and its hedge fund investments.
The Swiss Life Group had total gross written premiums, policy fees and policyholder deposits of CHF 20,308 million and total revenues of CHF 22,342 million for the year ended 31 December 2004, and total gross written premiums, policy fees and policyholder deposits of CHF 18,760 million and total revenues of CHF 21,088 million for the year ended 31 December 2003. Of these, the totals
44 attributable to the life core and non-core insurance business were CHF 19,260 million in gross written premiums, policy fees and policyholder deposits and CHF 20,622 million in revenues for the year ended 31 December 2004, and CHF 17,688 million in gross written premiums, policy fees and policyholder deposits and CHF 19,310 million in revenues for the year ended 31 December 2003. Assets under management stood at CHF 189,142 million as at 31 December 2004.
The Swiss Life Group’s strongest market position is in its home market of Switzerland, where in 2004 it ranked number one in terms of gross written premiums and held 28 per cent. of the overall life insurance market, ranked number one and held 20 per cent. of the individual life insurance market, and ranked number one and held 31.3 per cent. of the group life insurance market. Swiss Life is also A9.5.1.2 among the top five insurers offering unit-linked products in Switzerland (source: SVV: Swiss Insurance A9.13.2 Association).
In Switzerland, Swiss Life has approximately 700,000 current policies in relation to its individual life insurance business and in excess of 40,000 (including La Suisse and the acquired Vaudoise portfolio) corporate contracts in relation to its group life insurance business.
In 2004, the Swiss Life Group also held 2.6 per cent. of the life insurance market in France, 1.7 per cent. of the life insurance market in Germany (with a particularly strong position in group life insurance products), 5.0 per cent. of the life insurance market in the Netherlands and 1.6 per cent. of the life insurance market in Belgium (again with a particularly strong position in group life insurance products).
Excluding the international business of Banca del Gottardo, the numbers of full-time employees employed by the Swiss Life Group’s international business in 2004 were 1,532 in France, 762 in Germany, 706 in the Dutch operations and 254 in Belgium.
Banking
The Swiss Life Group’s private banking activities are conducted through Banca del Gottardo and its subsidiaries. In 2004 Banca del Gottardo was transferred from its insurance unit Swiss Life/Rentenanstalt to Swiss Life Holding in order to streamline the Swiss Life Group’s structure for the benefit of shareholders and policyholders. Banca del Gottardo, a 100 per cent. subsidiary of Swiss Life Holding, was founded in 1957 and has its headquarters in Lugano, Switzerland. Currently, Banca del Gottardo operates a universal bank in the Canton of Ticino (Switzerland), provides onshore private banking services (mainly in Switzerland, Italy and France) and offers private banking offshore services (mainly from Switzerland, Monaco, Luxembourg and Nassau). Additional activities of the bank include leasing and funds, management and administration, and custody services.
In order to ensure profitable growth and efficiency, the strategy of Banca del Gottardo was recently reviewed. As communicated on 6 October 2005, the bank will focus on the Swiss offshore business and at the same time will strengthen its position in the Swiss and Italian onshore private banking markets.
There are two major upcoming changes in the executive board of Banca del Gottardo. As of 1 February 2006, its Chief Executive Officer, Marco J. Netzer, will leave and will be replaced by Rolf W. Aeberli (currently Chief Financial Officer at Julius Bär Holding). As of 1 January 2006, the Chief Financial Officer of Banca del Gottardo, Thomas Müller, will become Chief Financial Officer of the Swiss Life Group and will be replaced by Philipp D. Hoch-Ponte (currently Chief Financial Officer at Swiss Reinsurance Company UK).
In addition to the activities of Banca del Gottardo, Swiss Life/Rentenanstalt’s indirect subsidiary Swiss Life Banque France offers banking services in France (see “France” below).
45 Investment management
The investment management functions of the Swiss Life Group are partially centralised under Swiss Life Investment Management Holding AG (“SLIM”) which is wholly-owned by Swiss Life Holding. SLIM was founded on 6 April 2005 as part of the Swiss Life Group’s strategic realignment to improve the separation of the insurance and asset management businesses, by way of the contribution in kind of the shares of Swiss Life Asset Management, Zurich, Swiss Life Asset Management (Nederland) B.V., Amstelveen, Swiss Life Funds AG, Lugano and Swiss Life Funds Business AG, Zurich.
On 25 August 2005, SLIM merged with Swiss Life Real Estate Management Holding AG, Zurich (“SLREMH”). As a result of that merger, SLREMH’s subsidiaries Swiss Life Property Management AG and Livit AG, which are both active in real estate management, became wholly-owned subsidiaries of SLIM. As of this date, all the above mentioned subsidiaries of SLIM manage or service assets both from the Swiss Life Group’s insurance operations and to a lesser extent from third party investors.
The Swiss Life Asset Management units in Spain and the UK were sold in 2003, and the units in Germany, Belgium and Luxembourg are in liquidation. A9.6.1 Structure of the Swiss Life Group
This structure chart sets out the direct and certain indirect subsidiaries of Swiss Life Holding.
Swiss Life Holding
Swiss Banca Swiss Swiss Life/Rentenanstalt Life del SLIM Life Switzerland (Liech- Gottardo Cayman tenstein) Finance AG Ltd. FR DE BE NL branch branch branch branch
La Swiss Life/ Suisse Rentenanstalt Vie Holding AG
Swiss Life Luxembourg
Note to structure chart: Abbreviations used, in alphabetical order, are as follows: BE – Belgium; DE – Germany; FR – France; NL - Netherlands; SLIM – Swiss Life Investment Management Holding AG.
46 Insurance operations A9.5.1.1 The table below shows gross written premiums for Swiss Life/Rentenanstalt’s insurance business for the years ended 31 December 2003 and 2004:
Year ended 31 December 111111111111(unaudited) Gross written premiums 1111122003 11111 2004 (CHF million) Individual life insurance ...... 4,887 4,866 Group life insurance...... 111112 7,909 11111 8,048 Total ...... 12,796 12,914 111112 11111
The table below shows gross written premiums for Swiss Life/Rentenanstalt’s life insurance business, broken down by branch operations, for the years ended 31 December 2003 and 2004:
Year ended 31 December 111111111111(unaudited) Gross written premiums 1111122003 11111 2004 (CHF million) Switzerland ...... 6,643 7,156 France ...... 1,527 1,450 Germany ...... 1,731 1,851 Netherlands ...... 2,499 1,986 Belgium ...... 396 471
A9.11.3.3 Please note that the data in both of the above tables relates to Swiss Life/Rentenanstalt and does not include the business of its subsidiaries. The figures are extracted from internal management reports of Swiss Life/Rentenanstalt and are prepared according to Swiss Statutory Accounting Rules rather than IFRS.
Life insurance
Swiss Life offers a comprehensive range of risk protection and long-term savings products to both individual and corporate customers. Its products range from traditional life insurance products to a variety of financial solutions with risk protection elements. For individuals, products include life insurance policies with cover for death and disability, endowment and annuity policies and unit-linked products with premiums taking the form of regular payments or lump sum payments. For corporate customers, products include those aimed at small and medium-sized companies as well as large companies and associations, with both standard and customised employee benefit plans covering insurance for employees in respect of retirement, death and disability.
Non-life insurance
In selected markets, Swiss Life offers a range of non-life insurance products, including accident and health, motor vehicle and fire and property insurance; however it does not offer industrial property and casualty products. Non-life net written premiums are principally generated from the French and Belgian markets, with France accounting for the largest volume (55 per cent.) of the Swiss Life Group’s non-life business for the year ended 31 December 2004. All Swiss Life’s non-life insurance business is carried out by Swiss Life Group entities that are direct or indirect participations of Swiss Life/Rentenanstalt.
47 Switzerland A9.5.1.2 Swiss Life/Rentenanstalt was ranked the largest group life insurer in Switzerland in terms of gross A9.13.2 written premiums in 2004 (source: SVV: Swiss Insurance Association). Total reserves of Swiss Life/Rentenanstalt’s life insurance business in Switzerland (excluding separate accounts) amounted to CHF 57 billion as at 31 December 2004.
The gross written life insurance premiums of Swiss Life/Rentenanstalt in Switzerland amounted to CHF 7,156 million in the year ended 31 December 2004 (CHF 6,643 million in 2003).
Strategy
Going forward, Swiss Life intends to take advantage of opportunities in the Swiss market, which Swiss Life management believes is characterised by high volumes with considerable scope for earnings improvements. While many of Swiss Life’s competitors have redefined their business model to focus on specific areas of the insurance market, Swiss Life intends to continue to provide full cover on a comprehensive range of insurance products to all major customer groups.
Products
Swiss Life offers a wide range of life insurance and long-term savings products with risk elements in the Swiss market, both directly and through La Suisse. Until July 2005 it also offered non-life insurance in Switzerland through La Suisse; however, the non-life portfolio has now been transferred (see “Recent Developments - La Suisse” below). The life insurance business is divided into two segments: individual life insurance and group life insurance.
1. Individual life insurance
Individual life insurance products consist of those covering mortality and disability risks and are often combined with savings elements. Premiums can take the form of regular payments or single premiums, while benefits can be paid as regular annuities, a lump sum or a combination of both an annuity and a lump sum. Swiss Life offers a full range of products which use various combinations of these elements.
The technical interest rate currently offered on individual life insurance in Switzerland is 3.0 per cent. In the case of unit-linked products, there is no such guarantee and the policyholders’ return is determined solely by reference to the performance of the underlying portfolio. The products offered by Swiss Life can be structured to fall within the limits necessary to qualify for tax advantages as part of the “third pillar” of the Swiss pensions system or can be written without such limitations and tax advantages.
2. Group life insurance
In Switzerland, the BVG requires all employers to maintain an occupational pension plan for employees. The law requires the employer to arrange for a pension institution to provide for that occupational pension plan, and Swiss Life offers insurance coverage for such pension institutions. Swiss Life also has a significant group life insurance business which is not regulated by the BVG.
Swiss Life’s BVG business is mostly based on one-year contracts; however, there are a small number of older contracts which are fixed for a longer period.
BVG products may be offered to cover either the mandatory part or the non-mandatory part of the BVG or, as an integrated solution, to cover both parts. Mandatory BVG products are subject to governmental regulations which require the application of a guaranteed minimum interest rate of 2.50 per cent. (effective as of 1 January 2005) and an annuity conversion rate of 7.20 per cent. for women and 7.15 per cent. for men. In October 2003, new legislation was passed that provides for a gradual reduction of the statutory annuity conversion rate over the next ten years to 6.8 per cent.
48 Swiss Life had in the past, as a matter of contract and practice, offered the same minimum interest and annuity conversion rates in relation to non-mandatory BVG products as it did to mandatory BVG products. However, in response to the regulatory changes described above, it decided to distinguish the annuity conversion rates for its mandatory business from those for its non-mandatory business, by gradually adjusting the annuity conversion rate for non-mandatory business with effect from 2005. The plan calls for a gradual step-down of the non-mandatory conversion rate to 5.835 per cent. in 2008, and the offering of new terms which commenced on 1 April 2004.
Group insurance arrangements may be unit-linked. In particular, pension institutions relying on conventional and BVG pension insurance products may enter into separate account agreements linking a substantial part of the reserves of the pension fund to separately administered investments. Investments under separate account administration are managed in accordance with the investment strategy of the pension institution and the risk of under-performance is borne by the pension institution.
Other products offered by Swiss Life include products provided to semi-autonomous and autonomous pension institutions where only certain risks, not already insured by the pension institutions elsewhere, are covered. Swiss Life also provides tailor-made investment products, with a comparatively larger risk element as compared to the savings element, to large entities with autonomous pension institutions seeking a flexible investment strategy over which they have control. The investment risk of these products lies with the pension institutions.
The category of group insurance products also encompasses a small number of individual insurance products which utilise the technical bases of group insurance products but are aimed at individuals with vested benefits who are leaving an existing pension institution but not joining another, who become self-employed or who have invested their pension funds in their home.
Distribution
Life and non-life insurance products are distributed through a variety of well-established channels. Individual life products are primarily distributed through exclusive self-employed tied agents while companies are principally served through insurance consultants. Swiss Life’s sales force of tied agents and insurance consultants has a strong reputation in Switzerland. For the year ended 31 December 2004, products distributed by tied distribution channels accounted for 87 per cent. of gross premium income (74 per cent. by tied agents and 13 per cent. by insurance consultants). Products are also distributed through banks and insurance brokers. In 2004, Swiss Life introduced new remuneration arrangements for its tied agents which are weighted to encourage an entrepreneurial approach (to increase sales) and a high level of services (to increase customer loyalty).
Customers
Swiss Life’s individual life and non-life Swiss insurance business targets private individuals of varying levels of sophistication and wealth. However, the life insurance business in Switzerland nevertheless remains targeted principally at the pensions institutions of small and medium-sized corporations and to a lesser extent at larger corporations. Smaller companies typically do not establish their own pension institution but are affiliated with a group-based collective pension institution, in which each employer holds its own administrative unit insured by Swiss Life. For medium-sized corporations, which have established half-autonomous pensions institutions where the institution covers certain risks itself, Swiss Life insures the remainder of the risk. For larger corporate customers who have already established an autonomous employee benefits institution, Swiss Life offers customised risk-based, rather than saving, products.
For such customers, Swiss Life also provides tailor-made investment products with a risk protection element, which include a flexible investment strategy over which the customer has control. The investment risk of these products lies with the pension institutions.
49 France
Swiss Life/Rentenanstalt’s business in France has been operating since 1898, with gross written premiums amounting to CHF 1,450 million in the year ended 31 December 2004 (CHF 1,527 million in 2003). Swiss Life France is a provider of life and health insurance products, and in addition to these strategic business lines it also provides property and casual insurance and financial services to its clients.
Alongside the life insurance products of Swiss Life France, Swiss Life Banque France offers credit and savings products to private and professional customers. The bank also acts as an intermediate in the financial markets on behalf of Swiss Life Asset Management (France) and manages its securities portfolio, and had balance sheet assets of CHF 234 million under its management at the end of June 2005.
Germany
Swiss Life/Rentenanstalt’s business in Germany has been operating since 1866 and had gross written premiums amounting to CHF 1,851 million for the year ended 31 December 2004 (CHF 1,731 million in 2003). Swiss Life Germany is a supplier of private and occupational pension solutions and is also well positioned in employee benefits business, supplementary disability insurance and in credit life business. It offers a broad product range to individuals and companies in accordance with new tax legislation, mainly via broker channels.
The Netherlands
Swiss Life/Rentenanstalt’s business in the Netherlands has been operating since 1901 and had gross written premiums amounting to CHF 1,986 million in the year ended 31 December 2004 (CHF 2,499 million in 2003). A large part of this decrease was due to a one-off transaction with a pension fund in 2003. Swiss Life/Rentenanstalt’s business in the Netherlands was able to avail itself of a legislative change which caused the pension fund to transfer its business to Swiss Life. Swiss Life/Rentenanstalt writes individual and group life insurance business in the Netherlands through its branch office, ZwitserLeven, and products are marketed under the brand “ZwitserLeven”. The focus of Swiss Life Netherlands is on marketing pension products.
Belgium
Swiss Life/Rentenanstalt’s business in Belgium was established in 1955. This market accounts for gross written premiums of CHF 471 million for the year ended 31 December 2004 (CHF 396 million in 2003).
Swiss Life Luxembourg
Swiss Life (Luxembourg) Compagnie Luxembourgeoise d’Assurances (“Swiss Life Luxembourg”) is an indirect subsidiary of Swiss Life/Rentenanstalt. Swiss Life Luxembourg offers group insurance business, unit-linked contracts and insurance wrappers to individual insurance. Swiss Life Luxembourg’s gross written premiums, policy fees and policyholder deposits received amounted to CHF 236 million in 2004.
Other jurisdictions
In September 2002, Swiss Life’s UK, Spanish and Italian operations were identified as non-core. On 12 November 2003, the Spanish operations were sold to VidaCaixa. In the UK, Swiss Life stopped underwriting new individual business as of summer 2003 and put existing business into run-off. The run-off business was then sold to Resolution Life at the end of December 2004.
50 The Swiss Life Network
In addition to conducting business in individual markets in Europe, Swiss Life/Rentenanstalt also operates the Swiss Life Network, an association of 50 partners in 64 countries. The Swiss Life Network aims to be the preferred adviser for multinational clients in the fields of international pooling, pension schemes and long-term saving solutions.
The Swiss Life Network includes Swiss Life companies as well as leading local life insurers where Swiss Life does not have direct operations, and provides multinational companies with cost-effective, flexible employee benefit solutions and services worldwide.
Swiss Life is fully committed to maintaining and further developing its international network, which complements its strategy of focusing on life and pension products. It is also a source for generating new group life insurance business through Swiss Life’s relationships with multinational clients, its worldwide partner network and its ability to pool local contracts.
Strategy
Swiss Life believes it has an attractive position in its core markets in Europe as a focused provider of life and pensions products with a strong brand. It is well positioned to take advantage of the pensions market opportunities resulting from increased pressure on the state pension systems. These opportunities provide a platform for Swiss Life to grow organically and to gain market share while maintaining strict profitability criteria.
After the completion of the 2002 turnaround strategy, in which the sale in 2005 of the Swiss non-life business of La Suisse was the last significant step, Swiss Life again updated its strategy in the first half of 2005. While the focus on profitability and operational progress continues, the updated strategy is more ambitious and strives to achieve “Pensions Leadership” by 2010. To achieve this, Swiss Life wants to be recognised as a leading provider of pension solutions in its core markets for both individual and corporate customers. The mission is commitment to helping people create a financially secure future for life, the corporate shared values having remained unchanged:
– expertise – in providing solutions for pensions and long-term savings;
– proximity – to clients, customers and partners in order to best understand their needs;
– openness – in dialogue both within Swiss Life and externally;
– clarity – in communicating products and services to customers; and
– commitment – to customers, staff and shareholders.
The new strategy has been underpinned with ambitious targets for the Swiss Life Group, which are internally cascaded down to the different entities within the Swiss Life Group and, where feasible, to individuals. The three strategic directions of the updated strategy are set out under the following three sub-sections.
Growth
By concentrating on its core business and building on its traditional strengths, Swiss Life targets growth while maintaining a strict focus on profitability.
Facing challenges in its core Swiss life insurance market, Swiss Life in the medium term seeks to achieve sustainable growth that outpaces the market while adhering to its strict profitability criteria. Growth is expected to be primarily organic. Opportunities include increased pressure on the state pension system in a number of its core markets in Europe and changing tax legislation. In particular, the group pensions market is still in its infant stages in certain major European markets such as France and Germany.
51 To address individual and corporate clients’ growing pensions needs, the client value proposition should be centred around “Pensions”. This can also entail products and services outside of the traditional life insurance markets, for example investment-type products or administrative services for pension funds. In distribution, both own and third party channels should be developed, in order to reduce single-channel dependency.
Efficiency
While the cost reduction programme defined in the 2002 strategy was achieved by end of 2004, the drive for efficiency continues, being an important factor in driving value. For this reason, Swiss Life has set itself ambitious targets regarding the “basic insurance result”. This result encompasses both the risk and the cost result, including the contributions from fee business and including all reserve strengthening. It is independent of investment returns and policyholder bonuses. Achieving this efficiency target will significantly lower dependence on the financial result, an important mechanism to achieve this being the reduction of complexity in all stages of the value chain, in order to improve process efficiency and to lower costs. Corresponding initiatives are under way in all countries, three examples of which are:
– in Switzerland, the five current IT platforms in individual insurance are to be migrated to one and the portfolio of La Suisse Vie is also being integrated;
– in France, a business process re-engineering is under way to enable the absorption of greatly increasing volumes; and
– continued focus on strict economic pricing of products, for example Swiss Life Belgium has recently significantly lowered guarantee levels.
Leadership
The goal of Swiss Life’s management approach is to enhance entrepreneurial responsibility at all levels of Swiss Life. This allows for more flexible and close-to-market decision making. For this reason, the updated strategy has also led to a realignment of Swiss Life’s corporate structure, with a clearer separation of responsibilities for the Swiss Life Group Head Office, the Swiss market and international business. Furthermore, Swiss Life is implementing an integrated approach to managing its human capital portfolio in order to anchor its leadership culture in the hearts and minds of its employees. Also in this area, Swiss Life has set itself ambitious targets regarding employee commitment
Risk management and investment policy
Swiss Life is exposed to different categories of risks which can broadly be categorised as quantitative risks and qualitative risks. Quantitative risks include the following categories: (i) financial risks such as market, liquidity and counter-party risks; and (ii) insurance-related risks such as mortality, longevity and morbidity. Qualitative risks consist of operational and business risks.
Risk management organisation of Swiss Life
As a consequence of Swiss Life’s business activities in various European jurisdictions, it is subject to different legal systems and regulations which impose upon the respective operations, among other things, minimum capital adequacy and risk management standards. Swiss Life’s risk management organisation is designed to ensure compliance with such regulatory frameworks and to enforce Swiss Life’s guidelines on risk management, including enforcement of its underwriting, pricing and reserving policies. Swiss Life’s risk management organisation is managed by three committees at the Swiss Life Group level, the Group Risk Committee (the “GRC”), the Asset and Liability Committee (the “ALCO”) and the Group Investment Committee (the “GIC”). Hans Juergen Wolter, the CRO, heads the GRC, Bruno Pfister, the CFO, heads the ALCO and Martin Senn, the CIO, heads the GIC. All three are members of the other above mentioned committees. To separate risk taking and risk controlling responsibilities, Hans Juergen Wolter is a non-voting member of all committees.
52 The main duty of the GRC is to implement and adhere to the risk policy, including risk limits and independent risk reports. The GRC proposes the risk limits, which - together with the proposed asset allocation - are subject to approval by the Board of Directors’ Investment and Risk Committee. The ALCO takes the business and financial needs of each business unit into consideration when preparing the guidelines for asset allocation and consults with each business unit in relation to its respective asset allocations. It also sets high level product principles. The GIC meanwhile ensures that investments are made and maintained within the approved limits. An integrated asset and liability management (“ALM”) process, which is described below, seeks to ensure an integrated approach to risk management at the Swiss Life Group level and is headed by the CFO.
In addition to the above, the Swiss Life Group’s CFO is responsible for monitoring the capital adequacy of the Swiss Life Group and assessing the Swiss Life Group’s risk exposure capacity in accordance with the regulatory capital requirements and Standard & Poor’s rating capital requirements.
Each individual business unit has its own risk management organisation which is ultimately monitored by the local CEO and which reports to the Swiss Life Group risk management organisation. In particular, each business unit mimics the roles of the committees at the Swiss Life Group level. The Swiss Life Group makes continuous efforts to strengthen the consolidated supervision of risk management at the Swiss Life Group level, and further procedures have been introduced to alert the Swiss Life Group to issues as they arise.
Processes and methodologies of the Swiss Life Group
The main risk management processes are set out below.
Financial risk management
Swiss Life’s main risk measurement methodology is based on an economic view which assesses potential decreases in assets and increases in liabilities in terms of market or fair values. Swiss Life’s assets and liabilities are exposed to a number of financial and insurance-related risks, which could give rise to potential reductions in the market value of, or income derived from, assets or potential increases in the market value of liabilities. To quantify the risks inherent in Swiss Life’s assets and liabilities, various established risk calculation methods including “value at risk” assessments are applied. In addition to these methods, stress and sensitivity tests are conducted on a regular basis to measure the impact of possible financial setbacks on the value of assets, on shareholders’ equity, reported profit and loss, embedded value calculations and statutory solvency positions.
Actuarial processes
Swiss Life applies different actuarial processes to quantify and control its liability risks, and to monitor regulatory compliance and the implementation of applicable actuarial guidelines with respect to underwriting, pricing and reserving. The methodologies used for such purposes consist of economic profit analyses, a technical audit, solvency monitoring and embedded value calculations.
With the economic profit analyses, the costs of each product are compared with the expected revenues. This is a forward-looking method which recognises trends at an early stage so that their impact on the business may be quantified and appropriate measures may be taken.
The technical audit is a risk control instrument which aims to examine the accuracy and technical correctness of the different categories of legally required reserves. The reserves set aside on the basis of such calculations are also audited by Swiss Life’s external auditors as to correctness and by its technical experts as to sufficiency, in order to ensure that such reserves are properly recorded in Swiss Life’s financial statements.
Another actuarial process calculates the solvency margin, which is calculated separately for each business entity within Swiss Life and then monitored by local regulatory authorities.
53 The embedded value together with corresponding sensitivities are calculated on a regular basis by the actuarial department of each business unit and consolidated at Swiss Life level by the Chief Financial Officer. The calculations serve to monitor the degree of risks to which Swiss Life is exposed with respect to long-term investment returns, mortality rates, surrender rates and exposure levels. Both the embedded value calculations of the business units as well as the consolidated figures are reviewed by an external expert.
Asset and liability risk management
Swiss Life’s ALM process is conducted at the Swiss Life Group level, as part of an integrated ALM procedure carried out across all functions within the Swiss Life Group: investment, finance, actuarial and marketing. The ALM process focuses on value creation throughout these functions by:
– managing assets and liabilities from an economic point of view. This means that assets as well as liabilities are marked-to-market. Such view may lead to different results in the valuation of, in particular, the liabilities (for example, under IFRS accounting rules, liabilities are currently not marked-to-market);
– optimising risk/return profile; and
– ensuring that external constraints are accounted for (regulatory requirements, solvency, local and IFRS accounting, liquidity needs, rating agency requirements).
The implementation of the ALM process has the following three targets:
– Asset Allocation: The aim is to align asset allocation with life insurance liabilities, so as to ensure that economic risk capital consumption is consistent with the Swiss Life Group’s risk appetite. In order to achieve this goal, the risk limits approved by the Investment and Risk Committee are further broken down to optimise the overall risk/return profile. The three main objectives pursued in the determination of Asset Allocation are the reduction of sensitivity to interest rate variations in the liabilities’ respective currencies, the coverage of all liabilities including with bonus payments, and the strengthening of shareholders’ equity.
– Crediting Policy: The crediting policy ensures that bonuses paid to policyholders are consistent with the Swiss Life Group’s balance sheet needs and investment returns in order to ensure long-term profitability, and balances competitive pressure and shareholders’ expectations.
– Product Design Principles: The product design principles ensure that the profitability of all products is sustainable and that new product developments are based on economic principles.
For existing business, given the contractual and regulatory constraints, the reserves should be adequate at all times not only in line with the regulatory requirements, but also with internal estimations for specific risk types, taking into consideration the exposure to embedded options.
For new business, this means that in addition to the points described for in-force business, the product parameters should be adjusted in order to achieve a positive cost, risk and net interest result. An adequate capital charge is required for each product.
Since the ALM process was rolled out in Swiss Life, significant positive results have been achieved, including a reduction in the duration gap, a reduction of the volatility of marked-to-market equity and the release of a significant amount of economic risk capital. The ALM process has been successfully implemented in Switzerland, Germany, Belgium, France and the Netherlands.
Investment policy, strategic asset allocation and hedging guidelines
The investments of the Swiss Life Group include cash, bonds, loans, real estate, mortgages, hedge funds, equities and private equity investments. In line with ALM, the Swiss Life Group invests its assets
54 to match its liabilities. Hence, the asset portfolio is primarily composed of fixed income instruments and is strategically currency-matched.
The Swiss Life Group uses derivatives within the strict limits set by the applicable insurance legislation and by internal guidelines. Therefore, derivatives are mainly used to protect the Swiss Life Group’s balance sheet, in particular its exposure to equities, interest rates and foreign exchange markets. The main instruments used by the Swiss Life Group include index futures and option structures in stock markets, bond futures and swaps in order to manage duration, and currency forwards in order to manage foreign exchange risk. In a limited way, derivatives are used to enhance returns on the existing portfolio.
The Swiss Life Group’s equity exposure has been significantly reduced over the last three years.
Solvency A9.4.1.5 The writing of insurance business is a regulated activity in each of the jurisdictions in which Swiss Life operates. In Switzerland, Swiss Life is subject to regulatory review by the Swiss regulator, the Federal Office of Private Insurance (“FOPI”). In addition, Swiss Life’s subsidiaries and its branches, which write insurance business in France, Germany, the Netherlands, Belgium, Luxembourg and Italy are regulated by the corresponding regulator in the relevant country.
In each jurisdiction where Swiss Life operates, the regulator seeks to ensure that insurers such as Swiss Life meet their obligations by, amongst other duties, reviewing the financial condition of their insurance-writing entities. In the European Union, the common framework for assessing the financial condition of insurance companies, including solvency, is outlined in the European Union Directive concerning life assurance (2002/83/EC). In Switzerland, the framework for assessing the financial condition of insurance companies is similar to this European Union Directive.
The rules for calculating solvency in the European Union and Switzerland provide that an insurance company must maintain an eligible equity which is higher than the required solvency margin (“RSM”). For life insurance companies in the European Union, the RSM is a minimum solvency margin which is generally calculated as the sum of 4 per cent. of insurance reserves plus 1 per cent. of separate account reserves plus 0.3 per cent. of the sum at risk under insurance policies. The RSM for non-life insurers in the European Union is the greater of 16 per cent. of gross written premiums for the year or 23 per cent. of a three-year average for claims. Similar minimum capital requirements are applicable for life and non-life insurance companies operating in Switzerland.
In each jurisdiction where Swiss Life operates, the eligible equity consists mainly of the sum of the paid-up share capital, the free and statutory reserves, the profit and loss brought forward and other additional elements. Among the additional elements, Swiss Life uses subordinated loans, zillmerisation and hidden reserves arising out of the valuation of some particular assets. All items are consistent with Article 27 of the European Union Directive 2002/83/EC. All these components of the eligible equity are calculated on a national statutory basis. There are some differences between European countries regarding the type of assets from which the hidden reserves are allowed to count as part of an insurance company’s eligible equity. The regulator also specifies the valuation basis for the liabilities, typically resulting in a conservative assessment of potential liabilities. The ratio of the eligible equity to the RSM is commonly referred to as the statutory solvency ratio (“SSR”).
In the European Union, insurers are expected to maintain an SSR of at least 100 per cent., with most reporting ratios significantly above 100 per cent. If an insurer’s SSR falls below 100 per cent. the regulator is expected to work with the company to take action, which may include closing the insurer to new business or other remedial action to ensure the protection of existing policy holders. Swiss Life Holding will provide subordinated loans or other forms of capital to support the solvency of its subsidiaries and branches to the extent necessary to meet national regulatory requirements. For example, Swiss Life Holding has subordinated loans outstanding in the amount of EUR 40 million relating to the operations in Belgium, for the purpose of maintaining the solvency of that business. In the future, Swiss Life Holding may be required to provide an injection of capital for the same purpose.
55 In Switzerland, the FOPI takes an approach similar to that of the regulators in the European Union. In addition to the statutory equity, the Swiss regulator allows other elements permitted by the European Union Directive 2002/83/EC be used to build up eligible equity. Such elements include hybrid capital and subordinated loans, additional zillmerisation, unrealised capital gains resulting from the difference between the market value of the equity and bond portfolios and their statutory book value, and part of the provisions for future policyholder profit participation. The regulator deducts from this amount the intangible assets accounted for in the statutory equity.
As reported in its 2004 FOPI solvency report, Swiss Life/Rentenanstalt accounted for total eligible equity of CHF 9,158 million compared to RSM of CHF 4,194 million as of the year ended 31 December 2004. As at 31 December 2004, Swiss Life reported, on the basis presented above, an excess of CHF 4,964 million of the eligible equity over the RSM, resulting in a solvency ratio of 218.3 per cent.
As of 31 December 2004, all subsidiaries in the jurisdictions where the Swiss Life Group operated reported statutory solvency margins in excess of minimum solvency requirements.
Based on a decree issued by the FOPI as of 1 January 2003, the Swiss Life Group, as a financial services group active in insurance, banking and asset management, is subject to consolidated supervision in Switzerland. The consolidated supervision is exercised by the FOPI as lead regulator in Switzerland and the FBC as sub-coordinator for the Swiss Life Group’s banking and securities dealers’ subsidiaries. Pursuant to the European Union Directives 1998/78/EC and 2002/87/EC the Swiss Life Group is considered a European financial conglomerate. The adjusted eligible equity for the Swiss Life Group is calculated in accordance with the above two Directives on the basis of its consolidated accounts. The adjusted SSR, which includes the banking activities, was 195 per cent. as at 31 December 2004.
Swiss life insurers must maintain a security fund (Sicherungsfonds), and Swiss non-life insurers must maintain tied assets (gebundenes Vermögen), in order to secure the actual and contingent liabilities arising out of insurance policies.
The amount required for the tied assets must correspond to the premiums carried forward, provisions for actual and contingent liabilities and certain other components. The security fund essentially mirrors the mathematical reserves (Deckungskapital) for the life insurance contracts. The calculation of the security fund and the tied assets must be submitted to the FOPI within five months and three months, respectively, following the end of each business year. Insolvency procedures for insurance companies differ from those normally applied to companies in Switzerland. In particular, bankruptcy may only be adjudicated with the approval of the Swiss Federal Department of Finance (Eidgenössisches Finanzdepartement) which must, above all, ensure that the security fund or the tied assets are used exclusively for the benefit of policyholders.
SST
In 2003, the FOPI launched a project named Swiss Solvency Test (“SST”) whose aim is to establish a framework for prudent supervision of insurance companies, much in line with the Solvency II initiative. The SST is based on the principles of market consistent valuation of the assets and liabilities of and the quantification of the risks being taken by a company. Swiss Life participated in the first field test conducted in 2004, and is also taking part in the second test run, including its branches in Germany, France, the Netherlands and Belgium.
Information technology
Swiss Life has functional IT management structures and processes in place in order to enable the establishment of pan-European technology and risk management standards. Subsidiaries and branches in core markets and core countries have independent IT departments, most of which currently cover the whole range of IT activities from development to operations. As of 1 January 2006, development of applications for the Swiss insurance operation will be transferred to the IT division in Switzerland. All other application development activities at Head Office will continue to be run by the Technology and Operations division. Functional governance for application development will remain
56 with the Technology and Operations division. The latter also provides data centre support, electronic workplace support and network services for all Swiss Life Group Head Office departments and for the tied agents in Switzerland. In order to improve efficiency and quality and at the same time reduce the complexity of its IT infrastructures, Swiss Life has initiated several strategic initiatives, among them the development of a new group life platform and the consolidation of the various individual life platforms.
Processes for the comprehensive management of operational risks in respect of IT are being enhanced. An internal framework for the regular reporting of operational risks to the Swiss Life Group risk office is under development. All IT processes are periodically audited by corporate internal audit on the basis of the COBIT and ITIL frameworks.
In the mid to long-term, the Swiss Life Group will strive for a higher degree of centralisation and standardisation of its insurance IT infrastructure. In order to reach this strategic goal, a dedicated European IT coordination function has been put in place. This function focuses on maintaining the European IT-governance model, on identifying and carrying out value programs, on establishing a comprehensive framework of key performance indicators and on setting up a uniform operational risk management framework.
Interruption of business activities
Swiss Life has not suffered any material interruptions of its business activities since 1 January 1999.
The Swiss Life Group has adopted precautionary measures in the event of the interruption of vital business functions due to natural disasters, catastrophic events and other events over which it has no control such as fire, earthquake, terrorist attacks, war, floods and epidemics. If a catastrophic event occurs, a crisis committee (Krisenstab) consisting of pre-determined members will convene with the purpose of ensuring that the Swiss Life Group reacts to any catastrophic event in a way that minimises any interruption to the business.
The crisis committee investigates the origin, and assesses the effects of, potentially catastrophic events and is responsible for identifying and implementing adequate countermeasures. The crisis committee is supported by several sub-committees, which are responsible, for matters including taking emergency measures, gathering information and the resumption of business. A9.11.5 Litigation
Swiss Life is involved in various legal actions and claims for which adequate provision has been made. In the opinion of the management, none of the pending legal actions or claims will have a significant effect on Swiss Life’s financial position or profitability. There has been no significant effect, as a result of litigation, on the financial profit or profitability of Swiss Life or the Swiss Life Group during the past 12 months. A9.11.3 Auditors A9.11.3.1 The combined financial statements as of 31 December 2003 and 2004 and for the years then ended, A9.11.4.1 which are included in this Prospectus, have been audited by PricewaterhouseCoopers AG, Stampfenbachstrasse 73, 8035 Zurich, Switzerland, statutory auditors, as stated in their report A9.11.3.2 appearing herein. A9.11.3.3
57 Real Estate owned and used by Swiss Life
Swiss Life has its headquarters in Zurich at General Guisan-Quai 40.
As at 31 December 2004, the principal operating properties owned or leased by Swiss Life were as follows(1):
Type of Leased/ Approximate 2 Location 1111112facility/use 1111112 owned 1111112 area (m ) Zurich, General Guisan-Quai 40 ...... Offices Owned 24,500 Zurich, Seestrasse 353 ...... Offices Owned 5,500 Zurich, Lavaterstrasse 76 ...... Offices Owned 1,250 Zurich, Grubenstrasse ...... Offices Owned 44,000 Zurich, Räffelstrasse 10 ...... Offices/Depot Owned 6,500 Zurich, Räffelstrasse 12 ...... Offices/Depot Owned 15,050 Zurich, Räffelstrasse 20 ...... Offices Owned 2,800 Paris, France, 86 Boulevard Haussmann ...... Offices Owned 9,950 Munich, Germany, Berliner Strasse 85 ...... Offices Owned 8,000 Amstelveen, the Netherlands, Burgemeester Rijnderslaan 7...... Offices Owned 14,400 Brussels, Belgium, 38 Avenue Fonsny ...... Offices Owned 4,000
Note: (1) This table does not include certain properties owned by the Swiss Life Group company Banca del Gottardo, which has been transferred to Swiss Life Holding. See “Description of Swiss Life/Rentenanstalt - Banca del Gottardo”.
Major Shareholders A9.10.1 Swiss Life Holding is the sole shareholder of Swiss Life/Rentenanstalt, and can (subject to any regulatory constraints or considerations) control Swiss Life/Rentenanstalt by exercising its votes in general meeting.
Board of Directors and Corporate Executive Board A9.9.1 According to Swiss Life/Rentenanstalt’s Articles of Association, the Board of Directors shall consist of at least 7, but no more than 14, members elected by the General Meeting of Shareholders, usually for a period of 3 years. Members whose term of office has expired shall be immediately eligible for re-election.
Board of Directors of Swiss Life/Rentenanstalt A9.9.1 111111111Names Position1111112 Principal1111111111111111111111113 Outside Activities Bruno Gehrig Chairman Vice Chairman and Independent Lead Director, Roche Holding Ltd. Gerold Bührer Vice Chairman Economic Consultant, National Councillor Volker Bremkamp Member Managing Director, BMB Bremkamp Management- und Beteiligungs-GmbH Paul Embrechts Member Professor, Swiss Federal Institute of Technology Rudolf Kellenberger Member Strategy Consultant Georges Muller Member Partner, Bourgeois, Muller, Pidoux & Associés Peter Quadri Member Chairman of the Board of Directors, IBM Switzerland Pierfranco Riva Member Partner, Felder Riva Soldati Franziska Tschudi Member Chief Executive Officer and Managing Director, WICOR Holding AG
58 Corporate Executive Board of Swiss Life Holding
1111111Name: 11111111111111111111111111111111111Position Rolf Dörig Chief Executive Officer Reto Himmel Chief Technology Officer Paul Müller Chief Swiss Market Officer (CEO Switzerland) Bruno Pfister Chief Financial Officer Martin Senn Chief Investment Officer A9.9.1 The business address for all of the persons listed above is: Swiss Life, General-Guisan-Quai 40, P.O. Box, CH-8022, Zurich, Switzerland. A9.9.2 No potential conflict of interests exist between the private interests or other duties of any of the persons listed above, and their duties to the Swiss Life Group or to Swiss Life/Rentenanstalt.
Forthcoming changes to Management structure
From 1 January 2006, there will be a realignment of management structure, with the aim of clearly delineating responsibilities for the Swiss Life Group Head Office, the Swiss business and the international business. Interfaces will be reduced, and better account will be taken of the different priorities in Switzerland (boosting profitability) and abroad (profitable growth).
Bruno Pfister will assume responsibility for the Swiss Life Group’s international insurance operations, and will be succeeded as Chief Financial Officer by Thomas Müller, who is currently Chief Financial Officer for Banca del Gottardo (see “Description of Swiss Life/Rentenanstalt - Banca del Gottardo” above). Paul Müller meanwhile will take additional responsibility for the finance functions of the Swiss insurance business as part of his CEO role of consolidating the leading market position in Switzerland, and Reto Himmel’s role will be expanded to that of Chief Technology and Operations Officer.
Recent developments
Standard & Poor’s confirmed rating “A-” and improved outlook to “stable” A13.7.5 On 27 July 2005 Standard & Poor’s revised its outlook for Swiss Life/Rentenanstalt from “negative” to “stable”, and confirmed its investment grate rating as being A-.
Banca del Gottardo
See “Description of Swiss Life/Rentenanstalt - Banca del Gottardo” for details of its new strategy and changes to its executive board.
New pricing model
With effect from 1 January 2005, the Swiss Federal Counsel raised the guaranteed minimum interest rate applicable to mandatory BVG products from 2.25 per cent. to 2.50 per cent. and the Federal Parliament passed new legislation which provides for the reduction of the annuity conversion rate from 7.2 per cent. to 6.8 per cent. over the next ten years. Swiss Life was among the first in the market to respond to these changes and launched an offer available from 1 April 2004 for customers of its Swiss BVG life insurance business which included a gradual step-down of the non-mandatory annuity conversion rate to 5.835 per cent. in 2008, with the first reduction to take place in 2005.
La Suisse
On 1 February 2005, Swiss Life announced that it would integrate the hitherto autonomous life insurance business of its La Suisse subsidiary into its own books, take over the Vaudoise group life portfolio and withdraw from the other La Suisse non-life business lines. Swiss Life has now completed
59 the sale of its La Suisse subsidiary’s non-life business to Helsana and Vaudoise, together with the purchase of the Vaudoise group life portfolio. The motor insurance business and property and liability lines were sold to Vaudoise, while the short-term disability and accident insurance business went to Helsana. The portfolio transfers were completed as soon as all the required regulatory authorisations were obtained.
Financing
As of 1 July 2005 Swiss Life/Rentenanstalt entered into a forward agreement providing for the refinancing as of 2009 of a portion of an outstanding hybrid debt facility in the amount of CHF 150,000,000 on a 20-year/10-year non call subordinated step-up loan basis.
First half results for 2005
On 5 September 2005, the Swiss Life Group announced a CHF 463 million net profit for the first half of 2005, compared with CHF 358 million in the corresponding period of previous year. Gross written premiums, policy fees and policyholder deposits rose to CHF 11.6 billion. Diluted earnings per share were CHF 12.93 compared with CHF 11.90 in the corresponding period of the previous year, and shareholder’s equity rose by 19 per cent. since 31 December 2004 (source: unaudited consolidated interim financial information of the Swiss Life Group as at 30 June 2005, all on an IFRS basis).
The first half results were influenced by two one-off impacts, these being the restructuring costs associated with the integration of La Suisse and a special tax situation in France caused by a change in the law and restructuring of the real estate business in Switzerland.
The Swiss Life Group’s first half results confirm the progress Swiss Life has been making over the last three years, having succeeded in seizing growth opportunities abroad as well as increasing profitability in Switzerland. The Swiss Life Group’s strategy going forwards is to concentrate on its core business areas, with the new management and organisational structure (see above) coming into force on 1 January 2006 expected to consolidate this focus.
60 Taxation
Swiss Tax Considerations
The statements herein are based on the laws and regulations in force and the practice of the relevant tax authorities in effect as of the date of this Prospectus and are subject to any changes in law occurring after such date, which changes could be made on a retrospective basis. The following summaries do not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase, own or dispose of the Notes and do not purport to deal with the tax consequences applicable to all categories of investor, some of which (such as dealers in securities or commodities) may be subject to special rules. Prospective purchasers of the Notes are advised to consult their own tax advisers concerning the tax consequences of their ownership of the Notes.
Withholding Tax
Withholding tax according to Tax Act of 13 October 1965 (Verrechnungssteuergesetz)
According to the position of the Swiss Federal Tax Administration and under the Swiss Withholding Tax Act, dated 13 October 1965, payments of interest under the Notes and the Loan will not be subject to Swiss withholding tax (Verrechnungssteuer).
Withholding tax according to Tax Act of 17 December 2004 (Zinsbesteuerungsgesetz)
On 3 June 2003, the European Council approved Directive 2003/48/EC on the taxation of savings income (the “EU Savings Tax Directive”). On 26 October 2004, the European Union and Switzerland entered into a bilateral agreement on the taxation of savings income (the “Bilateral Agreement”) by way of a withholding tax system and voluntary declaration in the case of transactions between parties in the EU Member States and Switzerland, which came into force on 1 July 2005.
On the basis of the Bilateral Agreement, Switzerland introduced a new withholding tax on interest payments or other similar income paid by a paying agent within Switzerland to EU resident individuals, as of 1 July 2005. The withholding tax is to be withheld at a rate of 15 per cent. for the first three years of the transitional period, 20 per cent. for the subsequent three years and 35 per cent. thereafter. The beneficial owner of the interest payments may be entitled to a tax credit or a refund of the withholding if certain conditions are met.
Prospective purchasers of these Notes should consult their professional advisers concerning the impact of the Bilateral Agreement. Notwithstanding the above, for the avoidance of doubt, should Swiss Life/Rentenanstalt, any Swiss paying agent or any institution where the Notes are deposited be required to withhold any amount as a direct or indirect consequence of such Bilateral Agreement or the EU Savings Tax Directive, then there is no requirement for Swiss Life/Rentenanstalt to pay any additional amounts pursuant to the Conditions in relation to such withholding (see “Terms and Conditions of the Notes – Taxation”).
Income Tax
Under present Swiss tax legislation, a Noteholder who is a non-resident of Switzerland and who during the taxable year has not engaged in trade or business through a permanent establishment or a fixed place of business within Switzerland and who is not subject to Swiss taxation for any other reason will not be subject to any Swiss Federal, Cantonal or Communal income taxes in respect of periodic interest payments as well as capital gains realised during the year on the sale or redemption of a Note.
61 Interest Payments
Swiss-resident individuals holding Notes for private investment purposes will be subject to Swiss direct federal income tax (Direkte Bundessteuer) on periodic interest payments and, upon redemption of the Notes, on the difference between the redemption amount and the issue price thereof.
Foreign residents who hold Notes through a permanent establishment or a fixed place of business in Switzerland and Swiss residents who hold Notes as business assets will be subject to Swiss federal income tax in respect of periodic interest payments received as well as any other income from the Notes reflected in their income statement.
The above rules regarding Swiss federal income tax normally also apply to Swiss Cantonal and Communal income taxes.
Capital Gains Realised upon Sale of the Notes
Swiss-resident individuals holding Notes for private investment purposes will be generally exempt from Swiss direct federal income tax in respect of capital gains realised upon sale of the Notes, except if they are considered to be professional securities dealers for tax purposes (gewerbsmässiger Wertschriftenhändler).
Noteholders (individuals and legal entities) holding the Notes as business assets will be subject to Swiss federal direct income tax on capital gains.
The above rules regarding Swiss federal income tax normally also apply to Swiss Cantonal and Communal incomes taxes.
Swiss Federal Stamp Taxes
According to the position of the Swiss Federal Tax Administration, there are no stamp, issue, registration, transfer or similar taxes and duties imposed by Switzerland in connection with the issue or redemption of the Notes. The transfer or sale of the Notes may be subject to the Swiss Transfer Stamp Tax (Umsatzabgabe) at a current rate of 0.30 per cent. if such transfer or sale is made by or through the intermediary of a Swiss securities dealer (Schweizer Effektenhändler), as defined in the Swiss Stamp Tax Act.
Luxembourg Tax Considerations
The statements herein regarding Luxembourg taxation are based on the laws, regulations and administrative and judicial interpretations in force in the Grand Duchy of Luxembourg as of the date of this Prospectus. The following summary does not purport to be a comprehensive description of all tax considerations that may be relevant to investors intending to hold, purchase or sell Notes. Each prospective holder or owner of Notes should consult its tax advisers as to the Luxembourg tax consequences of the purchase, ownership and disposal of the Notes.
Withholding Tax
Non-Residents
Under the existing laws of Luxembourg and except as provided for under the EU Savings Tax Directive, there is no withholding tax on the payment of interest on, or reimbursement of principal of, the Notes made to non-residents of Luxembourg.
Under the EU Savings Tax Directive and the related Accords with certain dependent or associated territories (currently being Anguilla, Aruba, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey, Montserrat, Netherland Antilles and Turks and Caicos) and certain non-EU Member States (currently being Andorra, Liechtenstein, Monaco, San Marino and Switzerland), EU Member States will be required to provide to the fiscal authorities of another EU Member State, certain
62 dependent or associated territories and certain non-EU Member States, details of payments of interest or similar income made by a person within its jurisdiction to an individual resident in that other EU Member State, relevant dependent or associated territory or relevant non-EU Member State, except that Austria, Belgium and Luxembourg will instead operate a withholding system for a transitional period in relation to such payments unless during such period they elect otherwise.
Under the Luxembourg Law passed on 31 June 2005 to implement the EU Savings Tax Directive (the “Law of 31 June 2005”) and as a result of ratification by Luxembourg of the aforementioned Accords, payments of interest or similar income made or ascribed (the French text of the Law of 31 June 2005 refers to “attribuer”) by a paying agent established in Luxembourg to or for the immediate benefit of an individual or certain residual entities as defined by law, who as a result of an identification procedure implemented by the paying agent are identified as residents or are deemed to be residents of an EU Member State other than Luxembourg, certain dependent or associated territories or certain other non-EU Member States, will be subject to a withholding tax unless the relevant beneficiary has adequately instructed the relevant paying agent to provide details of the relevant payments of interest or similar income to the fiscal authorities of his/her country of residence or deemed residence or has provided a tax certificate from his/her fiscal authority in the format required by law to the relevant paying agent.
Where withholding tax is applied, payments of interest and similar income will be subject to a withholding to be made by the relevant paying agent at the initial rate of 15 per cent. during the first three-year period starting on 1 July 2005, at a rate of 20 per cent. for the subsequent three-year period and at a rate of 35 per cent. thereafter.
When used in the preceding three paragraphs “interest” and “paying agent” have the meaning given thereto in the Law of 31 June 2005 (or the relevant Accords). “Interest” will include accrued or capitalised interest at the sale, repayment or redemption of the Notes. “Paying agent” is defined broadly for this purpose and in the context of the Notes means any economic operator established in Luxembourg who pays interest on the Notes to or ascribes the payment of such interest to or for the immediate benefit of the beneficial owner, whether the operator is, or acts on behalf of, Swiss Life/Rentenanstalt or is instructed by the beneficial owner to collect such payment of interest.
Payments of interest or similar income under the Notes to the Euroclear Bank S.A./N.V. and Clearstream Banking, société anonyme and payments by or on behalf of Clearstream Banking, société anonyme, Luxembourg, to financial intermediaries will not give rise to a withholding tax under Luxembourg law.
Residents
Under the existing laws of Luxembourg, there is no withholding tax on the payment of interest on, or reimbursement of principal of, the Notes made to residents of Luxembourg. The Luxembourg government has however announced its intention to introduce a final withholding tax of 10 per cent. on interest payments made to individuals resident in Luxembourg.
Other taxes
Any payments received by the Fiduciary on behalf of the Noteholders under or in connection with the Loan will not be subject to any taxes, duties, assessments or charges of whatever nature imposed or levied by or on behalf of Luxembourg or any political sub-division or authority thereof or therein.
Holders of Notes who are neither resident in, nor engaged in a trade or business through a permanent establishment in, Luxembourg will not be subject to taxes or duties in Luxembourg with respect to payments under the Notes or gains realised upon disposal or redemption of the Notes. Notes held by persons not permanently resident in Luxembourg at the time of death will not be subject to inheritance or other similar taxes in Luxembourg and holders of Notes will not be deemed to be resident, domiciled or carrying on business in Luxembourg by reason only of holding such Notes.
63 No stamp, value, issue, registration, transfer or similar taxes or duties will be payable in Luxembourg by Noteholders in connection with the issue of Notes.
Holders of Notes who are domiciled in Luxembourg or maintain a permanent establishment therein with which the Notes are effectively connected will be subject to Luxembourg taxation as provided for by applicable tax provisions.
Prospective purchasers of Notes should consult their tax advisers as to the tax laws and specific tax consequences of acquiring, holding and disposing of Notes.
EU Savings Tax Directive
Under the EU Savings Tax Directive, each EU Member State is required, from 1 July 2005, to provide to the tax authorities of another EU Member State details of payments of interest or other similar income paid by a person within its jurisdiction to, or collected by such a person for, an individual resident in that other EU Member State; however, for a transitional period, Austria, Belgium and Luxembourg may instead apply a withholding system in relation to such payments, deducting tax at rates rising over time to 35 per cent. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-EU countries to the exchange of information relating to such payments. Also with effect from 1 July 2005, a number of non-EU countries, and certain dependent or associated territories of certain EU Member States, have agreed to adopt similar measures (in certain circumstances on a reciprocal basis). Investors who may be affected by any of these arrangements are advised to consult their own professional advisers. The EU Savings Tax Directive does not preclude EU Member States from levying other types of withholding tax.
64 Subscription and Sale
J.P. Morgan Securities Ltd. (the “Lead Manager”) has, in a subscription agreement dated 14 November 2005 (the “Subscription Agreement”) made between the Fiduciary and the Lead Manager upon the terms and subject to the conditions contained therein, agreed to subscribe for the Notes at their issue price of 99.423 per cent. of their principal amount less a combined management, underwriting and selling commission of 0.55 per cent. of their principal amount. The Lead Manager is entitled in certain circumstances to be released and discharged from its obligations under the Subscription Agreement prior to the closing of the issue of the Notes. Swiss Life/Rentenanstalt has agreed, in the Loan Agreement, to indemnify the Fiduciary and, in a deed poll dated 14 November A13/4/10 2005, to indemnify the Lead Manager against certain liabilities in connection with the issue of the Notes. For the investors in the Notes, the yield will initially be 5 per cent. per annum.
United States of America
The Notes have not been and will not be registered under the Securities Act and may not be offered A13.4.14 or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S.
The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a U.S. person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the United States Internal Revenue Code and regulations thereunder.
The Lead Manager has agreed that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Notes, (a) as part of their distribution at any time or (b) otherwise, until 40 days after the later of the commencement of the offering and the issue date of the Notes, within the United States or to, or for the account or benefit of, U.S. persons, and that it will have sent to each dealer to which it sells Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons.
In addition, until 40 days after commencement of the offering, an offer or sale of Notes within the United States by a dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.
United Kingdom
The Lead Manager has represented and agreed that:
(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of the Notes in circumstances in which Section 21(1) of the FSMA does not apply to Swiss Life/Rentenanstalt or the Fiduciary; and
(b) it has complied and will comply with all applicable provisions of the FSMA with respect to A13.4.14 anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.
General
No action has been or will be taken in any jurisdiction by Swiss Life/Rentenanstalt, the Fiduciary or the Lead Manager that would, or is intended to, permit a public offering of the Notes, or possession or distribution of this Prospectus or any other offering material, in any country or jurisdiction where action for that purpose is required. Persons into whose hands this Prospectus comes are required by Swiss Life/Rentenanstalt, the Fiduciary and the Lead Manager to comply with all applicable laws and
65 regulations in each country or jurisdiction in which they purchase, offer, sell or deliver Notes or have in their possession, distribute or publish this Prospectus or any other offering material relating to the Notes, in all cases at their own expense.
66 General Information
1. Swiss Life/Rentenanstalt has obtained all necessary consents, approvals and authorisations in A13.4.12 connection with the Loan Agreement and the financing of the Loan by the Fiduciary through the issue of the Notes, all of which was duly authorised by a resolution of the board of directors of Swiss Life/Rentenanstalt dated 27 October 2005.
2. The Fiduciary has obtained all necessary consents, approvals and authorisations in connection A13.4.12 with the issue of, and the performance of its obligations under, the Notes.
3. Since 31 December 2004 there has been no material adverse change or any development A9.7.1 reasonably likely to involve a material adverse change in the prospects of Swiss Life/Rentenanstalt or A9.11.6 of Swiss Life, nor has there been any significant change or any development reasonably likely to involve a significant change in the financial or trading position of Swiss Life/Rentenanstalt or of Swiss Life.
4. There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which Swiss Life/Rentenanstalt is aware), which may have or have A9.11.5 had during the 12 months prior to the date of this Prospectus a significant effect on the financial position or profitability of Swiss Life/Rentenanstalt or of Swiss Life.
5. Copies of the following documents may be inspected during normal business hours at the A9.14 specified office of each paying agent for the duration of the life of the Notes:
(a) the constitutional documents of Swiss Life/Rentenanstalt;
(b) the Loan Agreement;
(c) the Fiscal Agency Agreement; and
(d) the audited financial statements of Swiss Life/Rentenanstalt for the financial years ended 31 December 2003 and 2004.
6. The Notes and any Coupons and Talons appertaining thereto will bear a legend to the following effect: “Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code.” The sections referred to in such legend provide that a United States person who holds a Note, Coupon or Talon will generally not be allowed to deduct any loss realised on the sale, exchange or redemption of such Note, Coupon or Talon and any gain (which might otherwise be characterised as capital gain) recognised on such sale, exchange or redemption will be treated as ordinary income.
7. The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The holders for the time being of the Notes will be shown in the book-entry records of Euroclear or Clearstream, Luxembourg, or those of an alternative clearing system. The address of Euroclear is 1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium. The address of Clearstream, Luxembourg is 42 A13.4.4 Avenue JF Kennedy, L-1855 Luxembourg, Luxembourg. The ISIN is XS0235535035, the common code A13.4.2 is 023553503 and the WKN code is A0GJN3.
8. The admission of the Notes to listing on the Luxembourg Stock Exchange will be expressed as a percentage of their principal amount (exclusive of accrued interest). It is expected that the admission of the Notes to listing on the Luxembourg Stock Exchange and to trading on the regulated market of the Luxembourg Stock Exchange will be granted on or before 16 November 2005 subject to the issue A13.5.1 of the Notes. Prior to the official listing and admission to trading, however, dealings will be permitted by the Luxembourg Stock Exchange in accordance with its rules. Transactions will normally be effected for settlement in euro and for delivery on the third business day after the day of the transaction.
67 9. The financial statements of Swiss Life/Rentenanstalt for the financial years ended 31 December A9.11.3.1 2003 and 2004 have been audited by PricewaterhouseCoopers AG. PricewaterhouseCoopers AG is a A9.2.1 member of the Swiss Institute of Certified Accountants and Tax Consultants. Swiss Life/Rentenanstalt A9.2.2 is not required to and does not prepare and publish consolidated financial statements or interim financial statements.
68 Financial Statements
Contents
Financial statements of Swiss Life/Rentenanstalt as at and for the year ended A9.11.1 31 December 2004 extracted from Annual Report 2004 ...... F-2 A9.11.4.1
Financial statements of Swiss Life/Rentenanstalt as at and for the year ended 31 December 2003 extracted from Annual Report 2003 ...... F-13
Summary of Significant Differences between Swiss Statutory Accounting Rules and International Financial Reporting Standards (IFRS) ...... A-1
Important Notice
The financial statements of Swiss Life/Rentenanstalt included in this Prospectus, which have been extracted from the 2004 and 2003 Annual Reports of Swiss Life/Rentenanstalt, are prepared in accordance with Swiss statutory accounting law as prescribed by the Swiss Code of Obligations (the “Swiss Statutory Accounting Rules”). These differ in significant respects from International Financial Reporting Standards (“IFRS”) requirements, and consequently the financial statements may not give a fair representation of the financial position of Swiss Life/Rentenanstalt.
The financial statements of Swiss Life/Rentenanstalt are prepared in accordance with the Swiss Statutory Accounting Rules. These differ in significant respects from IFRS, which are the standards that are applied in the consolidated financial statements prepared by Swiss Life Holding, the parent company of Swiss Life Group, within which Swiss Life/Rentenanstalt is a principal subsidiary. Swiss Life/Rentenanstalt itself is not required to and does not produce its own consolidated financial statements. It should therefore be recognised that there are significant differences between the financial information contained in the financial statements of Swiss Life/Rentenanstalt and the consolidated financial statements of Swiss Life Group, which differences may be attributable to differences between the applicable Swiss Statutory Accounting Rules and IFRS, the effects of consolidation on the financial statements of the Swiss Life Group or other factors.
For a discussion of significant differences between the Swiss Statutory Accounting Rules and IFRS, see “Summary of Significant Differences between Swiss Statutory Accounting Rules and International Financial Reporting Standards (IFRS)”. Investors should however be particularly aware that the Swiss Statutory Accounting Rules do not contain an equivalent requirement to the IFRS obligation for financial statements to provide a true and fair view of the relevant company’s financial position. Consequently, the financial statements should not be read in isolation without awareness of the particular requirements of the Swiss Statutory Accounting Rules.
F-1 Annual Report 2004 Swiss Life/Rentenanstalt
Review of Operations Swiss Life/Rentenanstalt (including Branches).
Swiss Life/Rentenanstalt (including branches) posted a net profit of CHF 334 million in 2004 (2003: CHF 631 million). Equity rose by more than 11 per cent. to CHF 2.2 billion. At the same time, the company saw a return to growth in premiums written. Banca del Gottardo was sold to Swiss Life Holding.
For Swiss Life/Rentenanstalt, the year under review closed with an annual profit of CHF 334 million. The decline from the previous year was mainly due to a one-off dividend payment amounting to CHF 300 million received in 2003.
Gross premiums (including deposits made under investment contracts) rose by 1 per cent. to CHF 12.9 billion. The premium growth in Switzerland (+8 per cent.), Germany (+8 per cent.) and Belgium (+20 per cent.) was particularly gratifying.
Insurance benefits paid went down from 3 per cent. from the previous year to stand at CHF 12.6 billion. For group insurance the figure rose, however, mainly due to contract terminations by some major customers. Benefits paid in the individual insurance sector were reduced by 15 per cent.
Insurance reserves for future benefits went up by CHF 1.6 billion. There was a slight decline in the insurance portfolio in Switzerland, in contrast to substantial growth at the branch offices.
Expenses for insurance operations rose 6 per cent. in the year under review compared to the previous year. The increase was due in particular to higher acquisition costs and their apportionment (+13 per cent.) as a result of the strong premium growth in Switzerland and Germany. The rise in other administrative expenses came to 2 per cent.
Net investment income was below the 2003 figure (-16 per cent.) and came to CHF 4.8 billion. The decline in the results on investments for own account came to just 9 per cent. and was related to a one-off dividend payment in the previous year amounting to CHF 300 million as well as negative interest and currency effects during the year under review. Against this, investment charges were significantly reduced thanks to operational improvements.
The expenses for policyholder bonuses came to a total of CHF 0.8 billion (2003: CHF 1.2 billion). The related provisions stood at CHF 1.7 billion as of 31 December 2004. A statutory distribution ratio (known as the “legal quote”) was introduced for the area of occupational pensions in Switzerland as of 1 January 2004. With the separation of the security reserves, and the bonus allocations this entailed, Swiss Life/Rentenanstalt has complied with this requirement correctly and on time. The bonus allocations are included in this position.
The Board of Directors proposes that the General Meeting of Shareholders declare a dividend of CHF 4 per share.
F-2 Profit and loss account Swiss Life/Rentenanstalt for the year ended 31 December 2004.
112112004 11211 2003 11121 +/- in % In CHF million Gross premiums ...... 12,913.9 12,795.9 +0.9 Reinsurers’ share ...... -208.6 -220.2 -5.3 Change in provisions for unearned gross premiums ...... -17.2 13.5 n.a. Reinsurers’ share ...... 112110.0 11211-3.0 11121 -100.0 Earned premiums ...... 1121112,688.1 1121112,586.2 11121 +0.8 Other technical income ...... 270.0 308.8 -12.6 Benefits paid ...... -12,610.3 -13,032.0 -3.2 Reinsurers’ share ...... 147.2 145.9 +0.9 Change in provisions for claims outstanding ...... -102.0 96.0 n.a. Reinsurers’ share ...... 112110.9 112111.9 11121 -52.6 Claims incurred ...... 11211-12,564.2 11211-12,788.2 11121 -1.8 Change in mathematical reserves...... -1,683.8 -1,755.7 -4.1 Reinsurers’ share ...... 5.5 27.9 -80.3 Change in other technical provisions ...... -204.5 -443.8 -53.9 Reinsurers’ share ...... – – Change in equalisation reserves ...... 11211-15.6 11211-13.7 11121 +13.9 Change in technical provisions...... 11211-1,898.4 11211-2,185.3 11121 -13.1 Acquisition expenses ...... -593.7 -542.3 +9.5 Change in deferred acquisition expenses ...... 6.6 21.6 -69.4 Personnel expenses ...... -445.4 -459.0 -3.0 Depreciation ...... -30.9 -43.2 -28.5 Other administrative expenses ...... -367.8 -335.7 +9.6 Commissions and profit participation received ...... 1121142.7 1121149.2 11121 -13.2 Operating expenses...... 11211-1,388.5 11211-1,309.4 11121 +6.0 Other technical expenses ...... -392.0 -389.1 +0.7
Expenses for policyholder bonuses ...... 11211-820.3 11211-1,195.8 11121 -31.4 Balance carried forward to page F-4 ...... -4,105.3 -4,972.8 -17.4 11211 11211 11121
F-3 Profit and loss account Swiss Life/Rentenanstalt for the year ended 31 December 2004.
112112004 11211 2003 11121 +/- in % In CHF million
Balance carried forward from page F-3...... 11211-4,105.3 11211-4,972.8 11121 -17.4 Investment income...... 4,083.5 4,558.8 -10.4 Realised gains ...... 2,468.4 2,162.5 +14.1 Realised losses ...... -900.9 -1,036.0 -13.0 Appreciation ...... 504.7 827.5 -39.0 Depreciation ...... 11211-1,478.1 11211-1,378.5 11121 +7.2 Return on investments ...... 112114,677.6 112115,134.3 11121 -8.9 Investment income...... 171.1 155.5 +10.0 Realised gains ...... 100.2 542.9 -81.5 Realised losses ...... -66.6 -18.1 +268.0 Appreciation ...... 272.4 377.1 -27.8 Depreciation ...... 11211-29.1 11211-83.2 11121 -65.0 Return on investment for unit-linked contracts ...... 11211448.0 11211974.2 11121 -54.0 Interest paid...... -113.7 -98.7 +15.2 Charges for real estate...... -138.6 -201.0 -31.0 Charges for other investments ...... 11211-111.6 11211-130.4 11121 -14.4 Investment charges ...... 11211-363.9 11211-430.1 11121 -15.4 Net investment income...... 112114,761.7 112115,678.4 11121 -16.1 Change in fund for future appropriation ...... -279.2 -96.2 +190.2
Other income...... 84.6 79.4 +6.5
Other charges ...... -20.2 -6.1 +231.1
Other taxes, fees and fiscal charges ...... 11211-20.0 11211-23.5 11121 -14.9 Result prior to taxes on corporate income and capital ...... 11211421.6 11211659.2 11121 -36.0 Taxes on corporate income and capital ...... 11211-87.3 11211-28.7 11121 +204.2 Net result for the year ...... 334.3 630.5 -47.0 11211 11211 11121
F-4 Balance Sheet Swiss Life/Rentenanstalt as of 31 December 2004.
Assets
112112004 11211 2003 11121 +/- in % In CHF million Intangible assets...... 73.7 80.8 -8.8 Land and buildings...... 7,451.3 7,267.8 +2.5 Participations ...... 2,788.4 4,403.4 -36.7 Shares ...... 2,633.5 3,498.4 -24.7 Own shares ...... – – Bonds and loans ...... 61,906.0 57,405.7 +7.8 Mortgages ...... 6,340.2 8,742.5 -27.5 Investment fund units ...... 7,631.6 6,743.5 +13.2 Time deposits and similar investments ...... 2,912.9 2,139.3 +36.2 Other investments ...... 5,053.0 5,620.2 -10.1 Deposits...... 11211111.9 11211169.9 11121 -34.1
Investments ...... 1121196,828.8 1121195,990.7 11121 +0.9 Land and buildings...... – – Shares ...... 347.0 796.4 -56.4 Bonds and loans ...... 2,076.9 2,537.2 -18.1 Mortgages ...... – – Investment fund units ...... 4,641.1 3,784.9 +22.6 Time deposits and similar investments ...... 77.7 204.1 -61.9 Other investments ...... 11211723.2 11211316.4 11121 +128.6 Investments for unit-linked contracts ...... 112117,865.9 112117,639.0 11121 +3.0 Accounts receivable from policyholders ...... 623.7 1,022.4 -39.0 Accounts receivable from agents and brokers ...... 30.3 39.1 -22.5 Accounts receivable from insurance companies ...... 108.5 267.4 -59.4 Other accounts receivable ...... 11211706.1 11211631.4 11121 +11.8 Accounts receivable...... 112111,468.6 112111,960.3 11121 -25.1 Fixed and sundry assets ...... 60.7 55.9 +8.6
Cash and cash equivalents ...... 2,141.2 1,021.6 +109.6
Prepayments and accrued income ...... 112112,514.8 112112,799.2 11121 -10.2 Total assets...... 110,953.7 109,547.5 +1.3 11211 11211 11121
F-5 Balance Sheet Swiss Life/Rentenanstalt as of 31 December 2004.
Equity and liabilities
112112004 11211 2003 11121 +/- in % In CHF million Share capital ...... 587.4 587.4 0.0 General reserves...... 145.0 145.0 0.0 Share premium ...... 148.7 148.7 0.0 Reserve for own shares ...... – – Legal reserves...... 293.7 293.7 0.0 Free reserves ...... 1,026.1 501.0 +104.8 Balance carried forward from previous year ...... 1.5 – Net result for the year ...... 334.3 630.5 -47.0 Result shown in the balance sheet ...... 11211335.8 11211630.5 11121 -46.7 Equity capital...... 112112,243.0 112112,012.6 11121 +11.4 Hybrid debt and subordinated liabilities ...... 1,700.9 1,974.9 -13.9 Fund for future appropriation ...... 647.8 372.2 +74.0 Provisions for unearned premiums ...... 831.3 818.1 +1.6 Mathematical reserves ...... 86,455.1 85,176.4 +1.5 Provisions for claims outstanding ...... 1,300.7 1,195.2 +8.8 Other technical provisions ...... 2,665.0 2,464.1 +8.2 Equalisation reserves ...... 280.9 266.4 +5.4 Bonuses credited to policyholders ...... 827.0 830.2 -0.4 Reinsurers’ share ...... 11211-579.5 11211-579.1 11121 +0.1 Technical provisions ...... 1121191,780.5 1121190,171.3 11121 +1.8 Technical provisions for unit-linked contracts ...... 8,118.6 8,094.9 +0.3 Provisions for policyholder bonuses ...... 1,700.5 1,895.0 -10.3 Deposits...... 559.3 562.8 -0.6 Provisions for employee benefits ...... 57.0 55.6 +2.5 Provisions for taxes ...... 207.6 203.5 +2.0 Other provisions...... 11211219.9 11211254.0 11121 -13.4 Non-technical provisions...... 11211484.5 11211513.1 11121 -5.6 Other long-term liabilities...... 190.8 467.0 -59.1 Other short-term liabilities ...... 3,307.8 3,296.6 +0.3
Accruals and deferred income ...... 11211220.0 11211187.1 11121 +17.6 Total equity and liabilities ...... 110,953.7 109,547.5 +1.3 11211 11211 11121
F-6 Notes to the Financial Statements Swiss Life/Rentenanstalt for the year ended 31 December 2004.
Accounting Principles
The balance sheet and profit and loss account include the operations in Switzerland and the branch operations in Germany, France, the Netherlands and Belgium. Foreign currencies are translated at the exchange mid-rates applicable on 31 December of the year under review or the preceding year.
Assets
Strict statutory provisions govern the valuation of assets in all areas of activity, although they vary from one country to another. Within this legal framework, the following valuation principles are applied to the individual investment categories. Real estate is stated at acquisition cost, augmented by investments that increase the value where applicable and reduced by the depreciation permitted by the fiscal authorities. Debt register claims, bonds and mortgage bonds are reported in Germany at no higher than their nominal value; in other countries, these items are stated at amortised cost. Shares are generally valued at the lower of cost or market; France and Belgium stipulate that the purchase price must be used. A legal provision was applied in Germany in prior years that permits shares and equity funds to be carried in the balance sheet at more than their fair value. In 2003 these unrealised write-downs were substantially reduced and in 2004 eliminated completely. The valuation of shares in Switzerland is based on netting mark-to-market valuation gains/losses within blocks of similar securities before applying the lower-of-cost-or-market principle to the portfolio as a whole. All other fixed-interest investments, including mortgages, are carried at nominal value at most. Alternative investments and derivatives stated under other investments are capitalised at no higher than their fair market value.
If the net asset value or capitalised earnings value of individual investments is impaired, appropriate provisions are set aside.
The portfolio of unit-linked insurance contracts is not uniformly valued; however this does not affect the result, since the higher or lower returns are passed through fully to the policyholders in question.
Liabilities
The technical provisions were calculated using the actuarial basis approved by the Swiss and foreign regulatory authorities. A fund for future appropriation was published for the first time. These provisions have not yet been allocated at the present time; the allocation will only take place in the future in line with the stipulations of local laws.
Exchange rates of foreign currencies
31 December 31 December 1111112004 111111 2003 1 EUR...... 1.5430 1.5580 1 GBP ...... 2.1820 2.2010 1 USD ...... 1.1310 1.2360
F-7 Notes to the Financial Statements (continued).
Notes on the Balance Sheet and Profit and Loss Account
11111111111111122004 1111111111111112 2003 Share Share capital in Direct capital in Direct Participations 11112Currency 11112 thousand 11112 share 11112 Currency 11112 thousand 11112 share Switzerland Adamed, Basel...... –––CHF23,018 64.3% Adroit Investment, Zurich...... CHF 5,000 100.0% CHF 5,000 100.0% Adroit Private Equity, Zurich...... CHF 5,000 100.0% CHF 5,000 100.0% Banca del Gottardo, Lugano ...... – ––CHF 170,000 98.8% La Suisse Vie, Lausanne ...... CHF 24,000 100.0% CHF 24,000 100.0% Livit, Zurich ...... CHF 3,000 100.0% CHF 3,000 100.0% Long Term Strategy in liquidation, Zug ...... CHF 2,000 100.0% CHF 2,000 100.0% Pendia Associates, Zurich...... CHF 500 60.0% CHF 500 60.0% Rentenanstalt Holding, Zurich .... CHF 25,000 100.0% CHF 25,000 100.0% Swiss Life Capital Holding, Zurich CHF 5,514 100.0% CHF 5,514 100.0% Swiss Life Institutional Funds – SLIF 14...... – – 100.0% ––– Swiss Life Pension Services, Zurich CHF 250 100.0% CHF 250 100.0% Swiss Life Selection, Zurich ...... CHF 250 100.0% CHF 250 100.0% Swissville Centers Holding, Zurich CHF 7,100 100.0% CHF 7,100 100.0% Swissville Commerce Holding, Zurich CHF 147,100 100.0% CHF 147,100 100.0% Swissville Europe Holding, Zurich CHF 11,500 100.0% CHF 11,500 100.0% Swissville Private Holding, Zurich CHF 50,000 100.0% CHF 50,000 100.0% Technopark Immobilien, Zurich .. CHF 40,000 33.3% CHF 40,000 33.3% Germany Financial Solutions, München...... EUR 200 100.0% ––– Münchner Tor, München...... EUR 59,435 100.0% EUR 61,735 100.0% Renum, München ...... EUR 250 94.9% ––– Seko, München ...... EUR 30 90.0% EUR 30 90.0% Sepis, München ...... EUR 30 100.0% EUR 30 100.0% Schweizer Leben Pensions Management, München ...... EUR 150 100.0% EUR 150 100.0% Swiss Life Beteiligungs GmbH, München...... EUR 25 100.0% EUR 25 100.0% Swiss Life Grundstücksmanagement, München...... EUR 26 100.0% EUR 26 100.0% Swiss Life Partner Service und Finanzvermittlung, München ...... EUR 1,800 100.0% EUR 1,800 100.0% Swiss Life Pensionsfonds, München EUR 3,000 100.0% EUR 3,000 100.0% Swiss Life Pensionskasse, München EUR 3,000 100.0% EUR 3,000 100.0% France AGAMI, Lille ...... EUR 500 95.0% EUR 500 95.0% Société Suisse de participations d’assurance, Paris ...... EUR 792,296 95.0% EUR 792,296 95.0% Swiss Life Asset Management (France), Paris ...... EUR 3,000 80.0% ––– Swiss Life Banque, Paris ...... EUR 20,000 65.0% EUR 20,000 65.0% Netherlands Zwitserleven Vermogensbeheer, Amstelveen ...... EUR 2,269 100.0% EUR 2,269 100.0% Belgium ZELIA, Bruxelles ...... EUR 32,227 100.0% EUR 32,227 100.0% Luxembourg SLGB Management, Luxembourg EUR 125 76.0% EUR 125 76.0% British Virgin Islands Swiss Life Finance, Tortola ...... USD 50 100.0% USD 50 100.0% Cayman Islands Adroit Partnership Offshore, Grand Cayman ...... CHF 30,000 100.0% CHF 30,000 100.0% Swiss Life Insurance Finance, Grand Cayman ...... EUR 5 100.0% --- Netherlands Antilles N.V. Pensioen ESC, Willemstad .. ANG 1,000 100.0% ANG 1,000 100.0%
F-8 Notes to the Financial Statements (continued).
31 December 31 December Accounts receivable from and payable to related parties 11112332004 1111233 2003 In CHF million Bonds ...... 2.0 75.8 Mortgages ...... 58.0 58.7 Loans ...... 989.2 1,134.6 Reinsurance receivables ...... 24.1 78.0 Other accounts receivable...... 348.4 405.3 Accounts payable ...... 237.5 638.0
Equity Equity capital Exchange capital Equity capital statement 31 December Appropriation rate Result for 31 December 111122003 11112 of profit 11112 difference 11112 the year 111122004 In CHF million Share capital ...... 587.4 –––587.4 General reserves ...... 145.0 – – – 145.0 Share premium ...... 148.7 – – – 148.7 Legal reserves ...... 293.7 –––293.7 Free reserves ...... 501.0 535.0 -9.9 – 1,026.1 Balance carried forward from previous year...... – 1.5 – – 1.5 Net result for the year ...... 630.5 -630.5 – 334.3 334.3 Result shown in the balance sheet ...... 630.5 -629.0 – 334.3 335.8 Equity capital ...... 2,012.6 -94.0 -9.9 334.3 2,243.0
31 December 31 December Hybrid debt and subordinated liabilities 11112332004 1111233 2003 In CHF million Hybrid debt ...... 1,451.1 1,460.9 Subordinated loans of Swiss Life Finance (British Virgin Islands) and Swiss Life Holding to branches in France and Belgium ...... 249.8 514.0 Hybrid debt and subordinated liabilities ...... 1,700.9 1,974.9
Fund for future appropriation
The fund for future appropriation relates to non-technical provisions and the “interest equalisation reserve” in the Netherlands, which have not been definitively apportioned between shareholders and policyholders and will be written back in accordance with the legal stipulations. In the previous year these positions were stated under “other technical provisions” and “bonds and loans”. The 2003 figures have been adjusted as follows:
2003 Reclassification 2003 111111as disclosed 1111111 111111 reclassified In CHF million Change in other technical provisions ...... -468.2 24.4 -443.8 Investment income ...... 4,487.0 71.8 4,558.8 Change in fund for future appropriation ...... – -96.2 -96.2 Bonds and loans ...... 57,069.6 336.1 57,405.7 Other technical provisions ...... -2,500.2 36.1 -2,464.1 Fund for future appropriation ...... – -372.2 -372.2
F-9 Notes to the Financial Statements (continued).
Other Information on the Annual Financial Statements
31 December 31 December Financial obligations 111112004 11111 2003 In CHF million Guarantees, indemnity liabilities and pledges in favour of third parties ...... 1,263.6 217.1 Pledged or assigned assets required to secure the Company’s own liabilities ...... 12.9 – Liabilities from leasing obligations not included in the balance sheet ...... 12.3 15.4 Liabilities to employee benefits institutions ...... 53.3 114.4
In addition to the above-mentioned obligations, Swiss Life/Rentenanstalt also acts as warrantor for all liabilities on the part of its Swiss Life Finance subsidiary and therefore guarantees the outstanding amounts of the international convertible bond issued by the latter in the equivalent value of approximately CHF 0.8 billion (2003: CHF 0.8 billion).
31 December 31 December Fire insurance values 111112004 11111 2003 In CHF million Land and buildings ...... 8,935.3 8,763.1 Other tangible assets ...... 209.0 226.3
Shareholders
Swiss Life/Rentenanstalt’s majority shareholder is Swiss Life Holding with 11,728,898 registered shares. This corresponds to 99.8 per cent. of the voting rights.
Events after the balance sheet date
On 1 February 2005, Swiss Life announced the sale of the non-life operations of “La Suisse”. The motor, property and liability business will be transferred to Vaudoise while the accident and health business will be sold to Helsana. In addition, Swiss Life will take on the Vaudoise’s group life business in return.
F-10 Net Result and Allocation of Result Swiss Life/Rentenanstalt.
Net Result shown in the Balance Sheet 1111112004 In CHF Profit carried forward from previous year ...... 1,519,587 Net result for the year ...... 334,339,649 Net result shown in the balance sheet ...... 335,859,236
Disposable profit for the year amounts to CHF 335,859,236. The Board of Directors shall apply to the General Meeting to allocate the amount according to the table below:
Allocation of result 1111112004 In CHF Dividend ...... 46,988,000 Allocation to legal reserves...... – Allocation to free reserves ...... 285,000,000 Balance carried forward to new account ...... 3,871,236 Result shown in the balance sheet ...... 335,859,236
If the Board of Directors’ proposal is adopted, an ordinary gross dividend of CHF 4 (2003: CHF 8) per share entitled to dividends will become payable. This corresponds to a dividend of 8 per cent. on the nominal value.
Zurich, 4 April 2005
For Swiss Life/Rentenanstalt’s
Board of Directors
Bruno Gehrig Gerold Bührer
F-11 Report of the Statutory Auditors
Report of the Statutory Auditors to the General Meeting of Swiss Life Insurance and Pension Company Zurich
As statutory auditors, we have audited the accounting records and the Financial Statements (profit and loss account, balance sheet and notes to the Financial Statements, pages F-3 to F-10) of Swiss Life Insurance and Pension Company for the year ended 31 December 2004.
These Financial Statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these Financial Statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence.
Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession, which require that an audit be planned and performed to obtain reasonable assurance about whether the Financial Statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the Financial Statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accounting records and Financial Statements and the proposed appropriation of the net result comply with Swiss law and the company’s articles of incorporation.
We recommend that the Financial Statements submitted to you be approved.
PricewaterhouseCoopers AG
Peter Lüssi Enrico Strozzi
Zurich, 4 April 2005
F-12 Annual Report 2003 Swiss Life/Rentenanstalt
After a loss of CHF 1.7 billion in the previous year Swiss Life/Rentenanstalt (incl. branches) realised a net profit of CHF 631 million in 2003. Operational improvements in all business areas and positive trends on the financial markets contributed to this result.
At the same time, the capital base was successfully strengthened and further risk reductions were made. Equity rose by over 50 per cent. to CHF 2.0 billion in the year under review.
Not belonging to the core business any more, Schweizerische Treuhandgesellschaft was sold to the LGT Group.
In spite of historically low interest rates and a sluggish economy, Swiss Life/Rentenanstalt managed to return to the profit zone in 2003. The year under review closed with a profit of CHF 631 million. The contribution to income from each branch was positive.
Gross written premiums declined by 3 per cent. on account of the economic environment and the focus on profitability as a business priority. In the Netherlands, a marked increase of 73 per cent. could not completely compensate for the volume decrease in the other markets.
Compared with the previous year’s figure, insurance benefits paid were around 19 per cent. higher. In group insurance business, withdrawal benefits stabilised at a high level. Individual insurance witnessed a sharp rise in pension benefits (+12 per cent.).
Claims experience saw a positive trend last year, despite the continuously strong growth in the number of disability claims.
The change in technical provisions went down from CHF 3.6 billion to CHF 2.2 billion. This decrease is mainly due to corporate clients’ contract terminations in Switzerland.
In comparison with the previous year’s figure, insurance operating expenses were lowered by 7 per cent. (without capitalisation of acquisition costs).
The company’s own investment income increased by 5 per cent. in relation to the previous year. The net investment income amounted to CHF 5.6 billion (previous year: CHF 1.2 billion).
The expenses for policyholder bonuses rose from CHF 204 million in the previous year to CHF 1.2 billion. This increase is particularly due to the unit-linked contracts in group insurance business. The provision for policyholder bonuses stood at CHF 1.9 billion as of 31 December 2003.
The Board of Directors shall apply to the General Meeting of Shareholders for the payment of a gross dividend of CHF 8 per share.
Delisting of the share has no effect on shareholders' rights
Swiss Life/Rentenanstalt shares (RAN) were delisted. The last day of trading on the exchange was 17 September 2003. The rights of shareholders are not affected by the delisting. Following the introduction of a holding structure, Swiss Life/Rentenanstalt reports as a subsidiary of Swiss Life Holding, but on the same basis as before, comprising Swiss Life/Rentenanstalt’s financial statements in Switzerland and the results of the branches in Germany, France, the Netherlands and Belgium.
F-13 Profit and loss account Swiss Life/Rentenanstalt for the year ended 31 December 2003.
112112003 11211 2002 11121 +/- in % In CHF million Gross premiums ...... 12,795.9 13,246.0 -3.4 Reinsurers’ share ...... -220.2 -207.8 +6.0 Change in provisions for unearned gross premiums ...... 13.5 13.3 +1.5 Reinsurers’ share ...... 11211-3.0 112110.7 11121 n.a. Earned premiums ...... 1121112,586.2 1121113,052.2 11121 -3.6 Other technical income ...... 308.8 386.6 -20.1 Benefits paid ...... -13,032.0 -10,950.8 +19.0 Reinsurers’ share ...... 145.9 123.1 +18.5 Change in provisions for claims outstanding ...... 96.0 -163.4 n.a. Reinsurers’ share ...... 112111.9 112115.0 11121 -62.0 Claims incurred ...... 11211-12,788.2 11211-10,986.1 11121 +16.4 Change in life insurance provisions ...... -1,755.7 -3,622.9 -51.5 Reinsurers’ share ...... 27.9 14.8 +88.5 Change in other technical provisions ...... -468.2 50.8 n.a. Reinsurers’ share ...... – – Change in equalisation reserves ...... 11211-13.7 11211-0.4 11121 n.a. Change in technical provisions ...... 11211-2,209.7 11211-3,557.7 11121 -37.9 Acquisition expenses ...... -542.3 -549.5 -1.3 Change in deferred acquisition expenses ...... 21.6 186.3 -88.4 Personnel expenses ...... -459.0 -459.8 -0.2 Depreciation ...... -43.2 -48.3 -10.6 Other administrative expenses ...... -335.7 -425.0 -21.0 Commissions and profit participation received ...... 1121149.2 1121159.8 11121 -17.7 Operating expenses ...... 11211-1,309.4 11211-1,236.5 11121 +5.9 Other technical expenses ...... -389.1 -383.4 +1.5
Expenses for policyholder bonuses ...... 11211-1,195.8 11211-203.6 11121 +487.3 Balance carried forward to page F-15 ...... -4,997.2 -2,928.5 +70.6 11211 11211 11121
F-14 Profit and loss account Swiss Life/Rentenanstalt for the year ended 31 December 2003.
112112003 11211 2002 11121 +/- in % In CHF million
Balance carried forward from page F-14...... 11211-4,997.2 11211-2,928.5 11121 +70.6 Investment income ...... 4,487.0 4,264.3 +5.2 Realised gains ...... 2,162.5 3,233.7 -33.1 Realised losses ...... -1,036.0 -2,483.2 -58.3 Appreciation ...... 827.5 898.1 -7.9 Depreciation ...... 11211-1,378.5 11211-3,969.3 11121-65.3 Return on investments ...... 112115,062.5 112111,943.6 11121+160.5 Investment income ...... 155.5 151.7 +2.5 Realised gains ...... 542.9 270.6 +100.6 Realised losses ...... -18.1 -53.9 -66.4 Appreciation ...... 377.1 132.0 +185.7 Depreciation ...... 11211-83.2 11211-899.5 11121-90.8 Return on investment for unit-linked contracts ...... 11211974.2 11211-399.1 11121n.a. Interest paid ...... -98.7 -106.6 -7.4 Charges for real estate ...... -201.0 -140.2 +43.4 Charges for other investments ...... 11211-130.4 11211-109.7 11121+18.9 Investment charges ...... 11211-430.1 11211-356.5 11121+20.6 Net investment income ...... 112115,606.6 112111,188.0 11121+371.9 Other income ...... 79.4 104.5 -24.0 Other charges ...... -6.1 -4.4 +38.6
Other taxes, fees and fiscal charges ...... 11211-23.5 11211-23.5 111210.0 Result prior to taxes on corporate income and capital ...... 11211659.2 11211-1,663.9 11121n.a. Taxes on corporate income and capital ...... 11211-28.7 11211-35.3 11121-18.7 Net result for the year ...... 630.5 -1,699.2 n.a. 11211 11211 11121
F-15 Balance sheet Swiss Life/Rentenanstalt as of 31 December 2003.
Assets
112112003 11211 2002 11121 +/- in % In CHF million Intangible assets ...... 80.8 81.6 -1.0 Land and buildings ...... 7,267.8 7,057.5 +3.0 Participations ...... 4,403.4 4,693.8 -6.2 Shares ...... 3,498.4 3,051.3 +14.7 Own shares ...... – – Bonds and loans ...... 57,069.6 51,615.6 +10.6 Mortgages ...... 8,742.5 8,075.3 +8.3 Investment fund units ...... 6,743.5 7,327.5 -8.0 Time deposits and similar investments ...... 2,139.3 4,352.1 -50.8 Other investments ...... 5,620.2 6,639.0 -15.3 Deposits ...... 11211167.8 11211172.7 11121-2.8 Investments ...... 1121195,652.5 1121192,984.8 11121+2.9 Land and buildings ...... – 62.5 n.a. Shares ...... 796.4 732.1 +8.8 Bonds and loans ...... 2,537.2 1,812.0 +40.0 Mortgages ...... – 36.8 -100.0 Investment fund units ...... 3,784.9 3,287.1 +15.1 Time deposits and similar investments ...... 204.1 172.4 +18.4 Other investments ...... 11211316.4 11211152.9 11121+106.9 Investments for unit-linked contracts ...... 112117,639.0 112116,255.8 11121+22.1 Accounts receivable from policyholders ...... 1,022.4 952.6 +7.3 Accounts receivable from agents and brokers ...... 39.1 36.6 +6.8 Accounts receivable from insurance companies ...... 267.4 10.8 n.a. Other accounts receivable ...... 11211631.4 11211776.1 11121-18.6 Accounts receivable ...... 112111,960.3 112111,776.1 11121+10.4 Fixed and sundry assets ...... 55.9 77.9 -28.2 Cash and cash equivalents ...... 1,021.6 860.0 +18.8
Prepayments and accrued income ...... 112112,799.2 112111,777.0 11121+57.5 Total assets ...... 109,209.3 103,813.2 +5.2 11211 11211 11121
F-16 Balance Sheet Swiss Life/Rentenanstalt as of 31 December 2003.
Equity and liabilities
112112003 11211 2002 11121 +/- in % In CHF million Share capital ...... 587.4 587.4 0.0 General reserves ...... 145.0 145.0 0.0 Share premium ...... 148.7 1,570.1 -90.5 Reserve for own shares ...... – – Legal reserves ...... 293.7 1,715.1 -82.9 Free reserves ...... 501.0 721.5 -30.6 Balance carried forward from previous year ...... 0.0 2.1 -100.0 Net result for the year ...... 630.5 -1,699.0 n.a. Result shown in the balance sheet ...... 11211630.5 11211-1,696.9 11121n.a. Equity capital ...... 112112,012.6 112111,327.1 11121+51.7 Hybrid debt and subordinated liabilities ...... 1,974.9 1,827.9 +8.0 Provisions for unearned premiums ...... 818.1 805.3 +1.6 Life insurance provisions ...... 85,176.4 82,559.0 +3.2 Provisions for claims outstanding ...... 1,195.2 1,120.7 +6.6 Other technical provisions ...... 2,500.2 2,139.9 +16.8 Equalisation reserves ...... 266.4 248.8 +7.1 Bonuses credited to policyholders ...... 830.2 839.1 -1.1 Reinsurers’ share ...... 11211-579.1 11211-514.8 11121+12.5 Technical provisions ...... 1121190,207.4 1121187,198.0 11121+3.5 Technical provisions for unit-linked contracts ...... 8,094.9 6,766.9 +19.6 Provisions for policyholder bonuses ...... 1,895.0 1,978.9 -4.2 Deposits ...... 562.8 492.9 +14.2 Provisions for employee benefits ...... 55.6 57.1 -2.6 Provisions for taxes ...... 203.5 236.8 -14.1 Other provisions ...... 11211254.0 11211217.9 11121+16.6 Non-technical provisions ...... 11211513.1 11211511.8 11121+0.3 Other long-term liabilities ...... 467.0 359.5 +29.9 Other short-term liabilities ...... 3,294.5 3,110.3 +5.9
Accruals and deferred income ...... 11211187.1 11211239.9 11121-22.0 Total equity and liabilities ...... 109,209.3 103,813.2 +5.2 11211 11211 11121
F-17 Notes to the Financial Statements Swiss Life/Rentenanstalt for the year ended 31 December 2003.
Accounting principles
The balance sheet and profit and loss account include the figures for the Swiss business and for the operations of the branches in Germany, France, the Netherlands and Belgium. Foreign currencies are uniformly translated at the exchange mid-rate applicable on 31 December of the year under review or the preceding year.
Assets
Strict statutory provisions govern the valuation of assets in all areas of operation, although they vary from one country to another. Within this legal framework, the following valuation principles are applied to the investment categories concerned: Real estate is stated at acquisition cost, augmented by investments that increase the value where applicable and reduced by the depreciation permitted by the fiscal authorities. Debt register claims, bonds and mortgage bonds are reported in Germany at no more than their nominal value; in other countries, these items are reported at their amortised cost. Shares are valued at the lower of cost or market; France and Belgium stipulate that the purchase price must be used. In the previous year a legal provision was applied in Germany permitting shares and equity funds to be carried in the balance sheet at more than their fair value; in 2003 the impact of this was substantially eliminated. The valuation of shares in Switzerland has been based on netting of mark-to-market valuation gains/losses within blocks of similar securities before applying the lower of cost or market principle to the portfolio as a whole. All other fixed-interest investments, including mortgages, are carried at nominal value at most. The alternative investments listed under other investments are capitalised at no more than their fair value.
If the current value or capitalised earnings value of individual investments is impaired, appropriate provisions are set aside.
For the Swiss business, the declared dividends of Swiss Life Capital Holding Ltd to the amount of CHF 300 million were already included in the figures for the year under review.
The portfolio of unit-linked insurance contracts is not uniformly valued; however this does not affect the result, since the higher or lower returns are passed through fully to the policyholders in question.
Liabilities
The mathematical reserves are calculated on the actuarial basis approved by the Swiss and foreign regulatory authorities.
Exchange rates of foreign currencies
31 December 31 December 1111122003 111112 2002 1 EUR ...... 1.5580 1.4570 1 GBP ...... 2.2010 2.2320 1 USD ...... 1.2360 1.3925
F-18 Notes to the Financial Statements (continued).
Notes on the Balance Sheet and Profit and Loss Account
1111111111111111122003 111111111111111112 2002 Share Share capital in Direct capital in Direct Participations 11111Currency 11111 thousand 11111 share 11111 Currency 11111 thousand 11111 share Switzerland Adamed, Basel...... CHF 23,018 64.3% CHF 23,018 64.3% Adroit Investment, Zurich...... CHF 5,000 100.0% CHF 5,000 100.0% Adroit Private Equity, Zurich...... CHF 5,000 100.0% CHF 5,000 100.0% Banca del Gottardo, Lugano ...... CHF 170,000 98.8% CHF 170,000 98.8% La Suisse Vie, Lausanne ...... CHF 24,000 100.0% CHF 24,000 100.0% Livit, Zurich ...... CHF 3,000 100.0% CHF 3,000 100.0% Long Term Strategy in liquidation, Zug ...... CHF 2,000 100.0% CHF 2,000 100.0% Pendia Associates, Zurich...... CHF 500 100.0% CHF 500 60.0% Rentenanstalt Holding, Zurich .... CHF 25,000 100.0% CHF 25,000 100.0% Schweizerische Treuhandgesellschaft, Zug ...... – ––CHF 12,000 100.0% Swiss Life Capital Holding, Zurich CHF 5,514 100.0% CHF 5,514 100.0% Swiss Life Pension Services, Zurich CHF 250 100.0% ––– Swiss Life Selection, Zurich ...... CHF 250 100.0% CHF 250 100.0% Swissville Centers Holding, Zurich CHF 7,100 100.0% CHF 7,100 100.0% Swissville Commerce Holding, Zurich CHF 147,100 100.0% CHF 147,100 100.0% Swissville Europe Holding, Zurich CHF 11,500 100.0% CHF 11,500 100.0% Swissville Private Holding, Zurich CHF 50,000 100.0% CHF 50,000 100.0% Technopark Immobilien, Zurich .. CHF 40,000 33.3% CHF 40,000 33.3% Tuxedo Invest, Zug...... – ––CHF 162,995 22.9% Germany Münchner Tor, München...... EUR 61,735 100.0% EUR 61,735 100.0% Seko, München ...... EUR 30 90.0% EUR 30 90.0% Sepis, München ...... EUR 30 100.0% EUR 30 100.0% Schweizer Leben Pensions Management, München ...... EUR 150 100.0% EUR 150 100.0% Swiss Life Beteiligungs GmbH, München...... EUR 25 100.0% EUR 25 100.0% Swiss Life Grundstücksmanagement, München...... EUR 26 100.0% EUR 26 100.0% Swiss Life Partner Service und Finanzvermittlung, München ...... EUR 1,800 100.0% EUR 1,800 100.0% Swiss Life Pensionsfonds, München EUR 3,000 100.0% EUR 3,000 100.0% Swiss Life Pensionskasse, München EUR 3,000 100.0% EUR 3,000 100.0% France AGAMI, Lille ...... EUR 500 95.0% EUR 500 95.0% Société Suisse Banque, Paris ...... EUR 20,000 65.0% EUR 20,000 65.0% Société Suisse de participations d’assurance, Paris ...... EUR 792,296 95.0% EUR 792,296 95.0% Swiss Life Asset Management (France), Paris ...... – ––EUR 4,950 100.% Netherlands Zwitserleven Vermogensbeheer, Amstelveen ...... EUR 2,269 100.0% EUR 2,269 100.0% Belgium Crédit Agricole, Bruxelles...... – ––EUR 191,259 33.3% ZELIA, Bruxelles ...... EUR 32,227 100.0% EUR 32,227 100.0% Luxembourg SLGB Management, Luxembourg EUR 125 100.0% EUR 125 100.0% British Virgin Islands Swiss Life Finance, Tortola ...... USD 50 100.0% USD 50 100.0% Cayman Islands Adroit Partnership Offshore, Grand Cayman ...... CHF 30,000 100.0% ––– Netherlands Antilles N.V. Pensioen ESC, Willemstad .. ANG 1,000 100.0% ANG 1,000 100.0%
F-19 Notes to the Financial Statements (continued).
31 December 31 December Accounts receivable from and payable to related parties 111112003 11111 2002 In CHF million Bonds ...... 75.8 90.3 Mortgages ...... 58.7 62.1 Loans ...... 1,134.6 1,132.4 Reinsurance receivables ...... 78.0 89.4 Other accounts receivable...... 405.3 525.4 Accounts payable ...... 638.0 515.2
Equity Equity capital Exchange capital Equity capital statement 31 December Appropriation rate Result for 31 December 111112002 11111 of profit 11111 difference 11111 the year 11111 2003 In CHF million Share capital ...... 587.4 –––587.4 General reserves ...... 145.0 – – – 145.0 Share premium ...... 1,570.1 -1,421.4 – – 148.7 Legal reserves ...... 1,715.1 -1421.4 ––293.7 Free reserves ...... 721.5 -275.5 55.0 – 501.0 Balance carried forward from previous year...... 2.1 -2.1 – – – Net result for the year ...... -1,699.0 1,699.0 – 630.5 630.5 Result shown in the balance sheet ...... -1,696.9 1,696.9 – 630.5 630.5 Equity capital ...... 1,327.1 – 55.0 630.5 2,012.6
31 December 31 December Hybrid debt and subordinated liabilities 111112003 11111 2002 In CHF million Hybrid debt ...... 1,460.9 1,383.7 Subordinated loan of Swiss Life Finance (British Virgin Islands) to branch in France...... 514.0 444.2 Hybrid debt and subordinated liabilities ...... 1,974.9 1,827.9
F-20 Notes to the Financial Statements (continued).
Other Information on the Annual Financial Statements
31 December 31 December Financial obligations 111112003 11111 2002 In CHF million Guarantees, indemnity liabilities and pledges in favour of third parties ...... 217.1 364.3 Pledged or assigned assets required to secure the Company’s own liabilities ...... – – Liabilities from leasing obligations not included in the balance sheet ...... 15.4 16.7 Liabilities to employee benefits institutions ...... 114.4 121.9
31 December 31 December Fire insurance values 111112003 11111 2002 In CHF million Land and buildings ...... 8,763.1 8,517.4 Other tangible assets ...... 226.3 221.8
Shareholders
Swiss Life/Rentenanstalt’s majority shareholder is Swiss Life Holding with 11,713,682 registered shares. This corresponds to 99.716 per cent. of the voting rights.
Events after the balance sheet date
On 20 February 2004, Swiss Life announced the spin-off of the third party private equity business. Existing mandates are taken over by ALPHA Associates, a new company established by the former management of Swiss Life Private Equity Partners.
F-21 Net Result and Allocation of Result Swiss Life/Rentenanstalt
Net Result shown in the Balance Sheet 1111112003 In CHF Profit carried forward from previous year...... – Net result for the year ...... 630,495,587 Net result shown in the balance sheet ...... 630,495,587
Disposable profit for the year amounts to CHF 630,495,587. The Board of Directors shall apply to the General Meeting to allocate the amount according to the table below:
Allocation of result 1111112003 In CHF Dividend ...... 93,976.000 Allocation to legal reserves ...... – Allocation to free reserves ...... 535,000,000 Balance carried forward to new account ...... 1,519,587 Result shown in the balance sheet ...... 630,495,587
If the Board of Directors’ proposal is adopted, an ordinary gross dividend of CHF 8. - per share entitled to dividends will become payable. This corresponds to a dividend of 16 per cent. on the nominal value.
Zurich, 29 March 2004
For Swiss Life/Rentenanstalt’s
Board of Directors
Bruno Gehrig Gerold Bührer
F-22 Report of the Statutory Auditors
Report of the Statutory Auditors to the General Meeting of Swiss Life Insurance and Pension Company Zurich
As statutory auditors, we have audited the accounting records and the Financial Statements (profit and loss account, balance sheet and notes to the Financial Statements pages F-14 to F-21) of Swiss Life Insurance and Pension Company for the year ended 31 December 2003.
These Financial Statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these Financial Statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence.
Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession, which require that an audit be planned and performed to obtain reasonable assurance about whether the Financial Statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accounting records and Financial Statements and the proposed appropriation of the net result comply with Swiss law and the company’s articles of incorporation.
We recommend that the Financial Statements submitted to you be approved.
PricewaterhouseCoopers AG
Peter Brand Enrico Strozzi
Zurich, 29 March 2004
F-23 Summary of Significant Differences between Swiss Statutory A9.11.1 Accounting Rules and International Financial Reporting Standards (IFRS)
The financial statements of Swiss Life/Rentenanstalt have been prepared and presented in accordance with Swiss statutory accounting law as prescribed by the Swiss Code of Obligations (the “Swiss Statutory Accounting Rules”), which differ in certain significant respects from the accounting principles under the International Financial Reporting Standards (“IFRS”). Certain significant differences between the Swiss Statutory Accounting Rules and IFRS relevant to the financial statements of Swiss Life/Rentenanstalt are therefore summarised below. This summary should not however be construed as exhaustive, and investors must rely on their own examination of Swiss Life/Rentenanstalt and its financial information. Prospective investors should also consult their own professional advisers for an understanding of the differences between the Swiss Statutory Accounting Rules and IFRS and how these differences might affect the financial information included in this Prospectus. No attempt has been made to identify all classification, disclosure and presentation differences between the Swiss Statutory Accounting Rules and IFRS that would affect the manner in which transactions and events are presented in the financial statements or notes thereto. In addition, no attempt has been made to identify possible future differences between the Swiss Statutory Accounting Rules and IFRS as the result of prescribed changes in standards and regulations. It should also be noted that regulatory bodies that circulate the Swiss Statutory Accounting Rules and IFRS have significant ongoing projects that could affect future comparisons between the Swiss Statutory Accounting Rules and IFRS. Finally, no attempt has been made to identify all future differences between the Swiss Statutory Accounting Rules and IFRS that may affect the financial statements of Swiss Life/Rentenanstalt as a result of transactions or events that may occur in the future.
The differences between the Statutory Accounting Rules and IFRS, as set out below, relate to the IFRS and International Accounting Standards (“IAS”) principles which were effective for 2004 and 2003. With effect from 2005, a number of new and revised IFRS principles were adopted by the Swiss Life Group. The changes in the accounting policies associated with these revised IFRS principles are not dealt with in the discussion below.
Primary Financial Statements and Notes
Swiss Statutory Accounting Rules define and require balance sheet, income statement and notes as the components of financial statements. The notes are defined as an exclusive list of limited disclosure requirements and, as such, are not comparable to IFRS. The required items are:
– The total sum of guarantees, other indemnities and assets pledged in favour of third parties;
– The total sum of pledged or assigned assets to secure own liabilities or assets under reservation of title;
– The total amount of all leasing obligations not recorded in the balance sheet;
– The total amount of all fire insurance values of tangible assets;
– Amounts due to pension funds;
– Disclosures of amount, interest rate and maturity date over outstanding Notes issued by the company;
– Disclosure of company name, domicile, scope of business, share capital and percentage of shareholding over significant investments;
A-1 – The total amount resulting from the release of replacement and hidden reserves, to the extent it exceeds any newly established replacement and hidden provisions, if resulting in a more favourable result;
– Details of the items and the amounts of revaluations;
– Disclosures over acquisition, disposal and number of company’s own shares held by the company, including its shares held by another company in which it holds a majority, as well as the terms under which the company acquired or disposed its own shares;
– Amount of an authorised or conditional capital increase;
– Disclosure of any deviation of the following accounting principles under Swiss Statutory Accounting Rules: going concern; consistency in presentation and consistency in valuation presentation; and inadmissibility of offsetting assets and liabilities and expenses and income;
– Disclosure of significant shareholders for companies whose shares are listed at a Swiss Stock Exchange; and
– Disclosure of consolidation and valuation rules for consolidated financial statements. Swiss Statutory Accounting Rules do not require any further disclosures in the notes. However, additional disclosures – such as events after the balance sheet date – are made in accordance with general accounting practices, if and only if events and circumstances exist that make such a disclosure necessary.
Under IFRS a complete set of financial statements - in addition to balance sheet, income statement and notes – includes a statement showing either all changes in equity, or, changes other than those arising from capital transactions with owners and distributions to owners and a cash flow statement. Moreover, IFRS requires the disclosure of accounting policies and explanatory notes, whereas these notes are more extensive than under Swiss Statutory Accounting Rules and provide detailed information on certain significant line items of components of the financial statements. IFRS further requires different classifications within the financial statements from Swiss Life/Rentenanstalt’s current presentation. In addition to the items described in more detail further below, the following material matters have not been disclosed by Swiss Life/Rentenanstalt but would be required to be disclosed under IFRS:
– Additional information on acquisitions; – Additional information relating to investments; – Additional information on Intangible Assets; – Segment Reporting; – Additional disclosures related to accounting and reporting by insurance entities, such as assumptions used in determining the reserves;
– Additional disclosures on Debt; – Additional disclosures on Income Taxes; – Additional information on Provisions, Contingent Liabilities and Contingent Assets; – Additional disclosures on Employee Benefits and disclosures on equity compensation benefits; – Related Party Disclosures; – Additional information on Leases; – Disclosures on Risk Management Policies, Interest Rate Risk and Credit Risk; and – Earnings Per Share.
A-2 Principles of Consolidation, Purchase Accounting and Goodwill
The financial statements of Swiss Life/Rentenanstalt are prepared on an unconsolidated basis on a legal entity level as prescribed by Swiss Statutory Accounting Rules. Under such accounting rules any investments in subsidiaries, associates and joint ventures are disclosed in a separate line item termed “participations” in the balance sheet. Such investments are measures at their acquisition costs minus any necessary depreciation. Such depreciation may become necessary when the accumulated fair value of participations falls below their accumulated acquisition cost.
IFRS requires a purchase basis of accounting with the identification of goodwill for acquisitions in which the acquirer obtains control. For investments, where significant influence exists, IFRS allows such investments to be either carried at cost, accounted for using the equity method or accounted for as a financial instrument. Joint ventures are accounted for using proportionate consolidation or the equity method.
Recognition of Dividends Paid
If certain requirements are met and an appropriate disclosure is made in the notes, it is permissible under Swiss Statutory Accounting Rules to recognise dividends declared after balance sheet date by a subsidiary as revenue in the parent company.
There are no corresponding principles or standards under IFRS.
Hidden Reserves
Swiss Statutory Accounting Rules explicitly allow the recognition of hidden reserves. Such hidden reserves are defined as the difference between the accounting value in accordance with Swiss Statutory Accounting Rules and the actual carrying amount in the balance sheet. Hence, under Swiss Statutory Accounting Rules it is permissible to record assets at a lower, and, respectively, liabilities at a higher, amount than defined under Swiss Statutory Accounting Rules, as long as such hidden reserves aim at ascertaining the continual prosperity of Swiss Life/Rentenanstalt or at an equable yearly dividend distribution, and provided that adequate consideration has been given to shareholders’ interests. As per the definition in the insurance codification, all insurance technical provisions do not under any circumstances constitute hidden reserves.
There are no corresponding provisions under IFRS.
Aggregation of Financial Statements of Branch Offices
In addition to the Swiss market, Swiss Life/Rentenanstalt through branch offices operates in the markets of France, Germany, the Netherlands and Belgium. The statutory financial statements of Swiss Life/Rentenanstalt are an aggregation of the individual financial statements of the branch offices and the Head Office in Switzerland. There is no requirement under Swiss Statutory Accounting Rules to bring the individual statutory financial statements of the branch offices to a common basis of accounting. Hence, the statutory financial statements of the respective branch offices are aggregated retaining their respective local statutory accounting rules including accounting for insurance operations. However, the financial statements of the branch offices are re-classified to conform to classifications as used by the Head Office under Swiss Statutory Accounting Rules.
IFRS require a common basis of accounting using uniform accounting policies for like transactions and other events in similar circumstances either for a group of consolidated entities or within an entity.
Foreign Currency Transactions and Translation
Foreign currencies are uniformly translated at the exchange mid-rate applicable on 31 December of the year under review, or the preceding year, for statutory accounting purposes.
A-3 Under IFRS foreign currency transactions are accounted for using the approximate exchange rate at the date of the transaction. Outstanding balances in foreign currencies at year-end arising from foreign currency transactions are translated at year-end exchange rates for monetary items while historical rates are used for non-monetary items. Those non-monetary items in foreign currencies recorded at fair values are translated at the exchange rate on the revaluation date.
Technical Provisions
Insurance accounting is not covered by Swiss Statutory Accounting Rules. However, Swiss Life/Rentenanstalt is subject to Swiss insurance supervision by the Federal Office of Private Insurance (the “FOPI”), and as a registered insurance company is also subsidiary to all Swiss insurance laws and regulations. The entirety of insurance laws, regulations and rulings by the FOPI provide the statutory accounting basis for insurance companies in Switzerland. For the Swiss operations, the provisions for future policyholder benefits are calculated on the basis of the insurance product tariffs as approved by the FOPI at the inception of such insurance products. In addition to these tariff provisions, further provisions (e.g. as necessitated by prolonged longevity) are recognised in accordance with business plans as approved by the FOPI. For branch offices in other countries, the total insurance technical provisions as approved by the respective local insurance regulators are aggregated into the financial statements of the Head Office in Switzerland.
Current IFRS do not have a standard for insurance contracts. In the absence of such a standard, Swiss Life/Rentenanstalt adopted U.S. GAAP to account for its insurance contracts. Provision for participating life insurance contracts and for other traditional life insurance contracts are calculated using a net-level-premium method based on relevant actuarial assumptions. Such provisions are largely commensurate with provisions on statutory levels.
Guaranteed annuity factors for Swiss group business are provided for using step-by-step build-up of provision levels over the course of several years. Under IFRS/U.S. GAAP the necessary provision levels for such guaranteed annuity factors are recognised, immediately.
Under IFRS/U.S. GAAP accounting for insurance contracts, Swiss Life/Rentenanstalt reduces earned premium levels by deferring certain fee elements for services not yet rendered to the policyholder. There is no equivalent treatment under statutory accounting in any country.
Swiss Life/Rentenanstalt includes an equalisation reserve for future catastrophe and other unusual losses, which results in income recognition extending beyond the expiration of insurance contracts. Provisions for future events and fluctuations are not allowed under IFRS/U.S. GAAP, and catastrophes are reserved once the event has occurred.
Fund for Future Appropriation
The fund for future appropriation, which was set up in 2004 in Swiss Life/Rentenanstalt’s accounts, comprises amounts not yet allocated. They do not comprise the fund for future appropriation as common in the United Kingdom. Under IFRS, the fund for future appropriation as determined for statutory purposes was released.
Deferred Policy Acquisition Costs
In the statutory financial statements, deferred acquisition costs (“DAC”) are recognised in accordance with the respective local insurance regulations. In some countries, the full recognition of DAC is permitted, but others allow only limited recognition of DAC, and others still forbid the recognition of DAC entirely. Statutory DAC are usually calculated, capitalised and amortised using factors inherent to the respective insurance product tariffs. Where capitalisation of acquisition costs is not permitted, such costs are expensed.
DAC under IFRS/U.S. GAAP are primarily related to and vary with the acquisition of new business and the renewal of existing business and are deferred and amortised over the income statement. For non-
A-4 life and non-participation traditional life policies, amortisation occurs over the related premium paying period of the respective policies, whereas amortisation for participating traditional life insurance policies, interest-sensitive life insurance policies and investment-type products is accounted for in relation to expected gross profit over the life of such policies.
Unit-Linked Contracts
In the statutory accounts premiums revenue is recognised for all types of contracts, including investment-type contracts such as universal life and unit-linked contracts. In the IFRS income statement, premiums from traditional life insurance contracts are recognised as premium revenue. However, amounts collected as premiums from investment-type contracts such as universal life and unit-linked contracts are reported as deposits.
Unit-linked assets and technical provisions generally represent funds maintained in accounts to meet specific investment objectives of the policyholders who bear the investment risk. Swiss Life/Rentenanstalt accounts for unit-linked contract assets and the related technical provisions at market values. The unrealised gains and losses on the unit-linked assets and technical provisions are recorded in the income statement.
Under IFRS/US GAAP unit-linked contracts are reported at market value with a corresponding liability. Deposits, withdrawals, net investment income and realised and unrealised capital gains and losses on unit-linked account assets are not reflected in the income statement, but as an adjustment to the assets and liabilities. Mortality, policy administration and surrender charges assessed against the policyholders’ account balances are included in fee revenue.
Financial Investments
Diverse statutory laws and regulations govern the valuation of assets in all areas of operation. Debt register claims, bonds and mortgage bonds are measured in Germany at the lower of their face value or market value; in other countries, these items are measured at amortised cost. Shares are measured at the lower of cost or market value; France and Belgium prescribe measurement at purchase price. In the previous year a legal provision was applied in Germany permitting shares and equity funds to be carried in the balance sheet at more than their fair value; in 2003 the impact of this was substantially eliminated. The valuation of shares in Switzerland has been based on netting of mark-to- market valuation gains/losses within blocks of similar securities before applying the lower of cost or market principle to the portfolio as a whole. All other fixed-interest investments, including mortgages, are carried at the lower of their face value or market value. Certain other investments, sometimes referred to as alternative investments, may be carried at fair value. Changes in value below the maximum measurement amount, as well as changes in value up to the maximum measurement amount, are recognised directly in the income statement. Any changes in value above the maximum measurement amount are not recognised.
Under IFRS there are four categories for financial assets with the corresponding income recognition: financial assets and liabilities held for trading, measured at fair value, with fair value changes recognised directly in the income statement; held-to-maturity investments and loans and receivables originated by the enterprise, measured at amortised cost using the effective interest rate method, with changes in amortised cost recognised in the income statement (however, fair value changes are not recognised); and available-for-sale financial assets, measured at fair value, with, if applicable, changes in amortised cost recognised in the income statement, and changes in fair value recognised either in the income statement or in equity as a one-off accounting policy decision.
Investment Property
Investment property, for Swiss statutory accounting purposes, is measured at cost, minus depreciation permitted by the fiscal authorities. Investments in and changes to investment property that increase their value are capitalised.
A-5 For investment property, IFRS permits a one-off choice between a fair value model and a cost model. Under the fair value model, any changes in fair value are recognised directly in the income statement. Subsequent expenditure should be added to the carrying amount of the investment property when it is probable that future economic benefits, in excess of the originally assessed standard performance, will flow to the entity.
Derivatives
Measurement of derivatives for statutory accounting is at the lower of cost or market value or mark-to-market depending on the country of operation. There are no specific rules for hedge accounting. Accordingly, there are a wide range of possible hedge accounting treatments.
IFRS prescribe fair value measurement for derivatives with a classification under financial assets or liabilities held for trading, with changes in fair value recognised directly in the income statement unless such derivatives are designated and effective hedging instruments.
Property, Plant and Equipment
Swiss Life/Rentenanstalt has not historically capitalised all property, plant and equipment, only major additions or refurbishings. IFRS requires that all property, plant and equipment be recognised as an asset and depreciated over their useful lives.
Income Taxes
For statutory accounting purposes, Swiss Life/Rentenanstalt recognises a liability for current tax for current and prior periods to the extent such current tax is unpaid. Such current tax is based on current enacted local tax rates. Under IFRS, deferred income taxes are provided for all temporary differences for the expected future tax consequences of events that have already been recognised in the financial statements or tax returns, using current enacted local tax rates.
Employee Benefits
Swiss Life/Rentenanstalt follows local accounting principles with respect to providing for post- employment benefits and other long-term employee benefits, primarily providing for these items as contributions become necessary. IFRS require such benefit obligations to be measured using the Projected Unit Credit Method.
Other Provisions
Other Provisions include financial liabilities from derivative contracts, restructuring provisions, liabilities for collateral received and certain liabilities arising from future obligations and/or future events, recognised under the statutory prudence principle. Under IFRS, financial liabilities are accounted for separately from other provisions. IFRS allow the recognition of present legal or constructive obligations arising from past events only.
A-6 REGISTERED AND HEAD OFFICE OF SWISS LIFE/RENTENANSTALT A9.4.1.2 A9.4.1.4 Swiss Life/Rentenanstalt General Guisan-Quai 40 CH-8022 Zurich Switzerland A10.26.1 FIDUCIARY, LISTING AGENT AND PAYING AGENT A13.5.2
J.P. Morgan Bank Luxembourg S.A. 6 route de Trèves L-2633 Senningerberg Luxembourg A13.5.2 FISCAL AGENT AND PRINCIPAL PAYING AGENT
JPMorgan Chase Bank, N.A. Trinity Tower 9 Thomas More Street London E1W 1YT United Kingdom A13.7.1 LEGAL ADVISERS TO THE LEAD MANAGER
As to English law As to Luxembourg law Slaughter and May Elvinger Hoss & Prussen One Bunhill Row 2, Place Winston Churchill London EC1Y 8YY B.P. 425 United Kingdom L-2014 Luxembourg
LEGAL ADVISERS TO SWISS LEGAL ADVISERS TO LIFE/RENTENANSTALT THE FIDUCIARY
As to Swiss law As to Luxembourg law Homburger Rechtsanwälte Elvinger Hoss & Prussen Weinbergstr. 56/58 2, Place Winston Churchill 8006 Zurich B.P. 425 Switzerland L-2014 Luxembourg A9.2.1 AUDITORS TO TAX ADVISERS TO SWISS LIFE/RENTENANSTALT THE LEAD MANAGER
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