Swisscanto Collective Foundation of the Cantonal Banks. Annual Report 2016

Transcription

1 Swisscanto Collective Foundation of the Cantonal Banks Annual Report 2016

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3 Table of contents 2016: sound growth, stable situation, persistent challenges 4 Review 2016: Key Figures 6 Investment Portfolio and Policy of Investments 8 Development of Funding ratio 9 Economic Situation and Investment Year 2016 in Review: Report of Swisscanto Fund Management Company Ltd. 10 Report of the Investment Committee 12 Annual Financial Statement Balance Sheet 14 Operative Account 16 Explanatory Notes to the Financial Statement 19 Auditor s Report 47 Swisscanto Collective foundation is a joint venture of the Cantonal Banks and Helvetia Insurances for the realisation of occupational benefit schemes. 3

4 2016: sound growth, stable situation, persistent challenges Dear Customer and Insured Persons, For the Swisscanto Collective Foundation, the financial year 2016 was very positive: the key figures exhibited very good trends, and the economic and political environment developed in a way that give reason to hope that the occupational benefit sector, which has been tense for a number of years, will gradually relax. However, there is no reason for euphoria, as these trends have not yet stabilised. Sound portfolio growth The portfolio figures, which show the net growth or losses, are key indicators for the attractiveness of a collective foundation, its products and services. In our case, the number of associated companies has remained virtually unchanged, and the number of insured persons has undergone encouraging growth. Together with a very low separation rate, this resulted in sound net growth. Most importantly, 2016 was a highly successful year in terms of acquisitions: last year, more companies than usual decided to entrust the Swisscanto Collective Foundation with their occupational benefit schemes. However, this success is not yet visible in the annual report for 2016; the new contracts will only appear in the portfolio figures for The acquisition success is a clear indication of the trust that the Swisscanto Collective Foundation enjoys on the market. Robust situation; challenges remain The development of the interest rates remains difficult for occupational benefit schemes. The existing regulations continue to pose a challenge for providers of occupational benefit schemes who want to retain their financial stability. Swisscanto Collective Foundation still boasts a high level of stability. To retain this stability, the Board of Foundation regularly reviews the relevant parameters in collaboration with the respective expert committees. In the financial year 2016, this review revealed that the technical interest rate the expected interest required to finance future pensions needs to be reduced to 2.5% as of 1 January 2017 and the conversion rate too needs to be adjusted in the extra-mandatory area. We informed the associated companies of this in July As the necessity of these measures had been known for quite some time, the Board of Foundation had already recognised the required provisions. Thanks to this farsighted policy, the funding ratio did not suffer from these adjustments. The basic principle of anticipatory action applies especially also in the investment policy: the establishment of a separate investment class mortgages has already reached an advanced stage, and very soon, the share of fixed-interest investments in the portfolio is to be further reduced in response to the situation on the investment markets. Continuity in the benefits policy Due to the ongoing changes in the financial landscape, Swisscanto Collective Foundation also reviews and adjusts its investment strategy more frequently than it used to do a few years ago. However, the Board of Foundation continues to stick to its benefits policy. The fact that the Swisscanto Collective Foundation has been able to pay interest rates that are significantly higher than the minimal interest rate determined by the Federal Council on the old-age savings shows that the right decisions have been made in this area. In 2016, the interest rate for the mandatory and extra-mandatory area was already twice as high as the minimal interest rate, and this will also be the case in On the occupational benefits market, the average value of 2.5% for the last five years compares favourably. Pension 2020 reform enters its next phase In recent years, the agenda of the pension provider sector was dominated by the Pension 2020 reform of the Federal Council. Following intensive deliberations in parliament, some controversial disputes in parties and commissions as well as active contributions by stakeholder groups, this complex major project will now be submitted to the voters. This will determine what the tried-and-tested Swiss social insurance system will look like in the future. In view of its solid financial basis, the Swisscanto Collective Foundation is well prepared for any new challenges, regardless of the outcome of the vote. LOB by no means a mystery: The entire subject area of the 2 nd pillar has a persistent reputation of being absolutely cryptic for non-experts. Doubtlessly, the details specified in the laws as well as their actual implementation are complex. However, the Swisscanto Collective Foundation has made it its mission to make this information comprehensible for its customers and insured persons. We want you to understand what you pay contributions for and what you can expect in return. The Swisscanto Foundations have set up their new website on the basis of this goal of 4

5 aligning themselves more closely with customer needs and ensuring that the various stakeholders understand them. All information that you need in order to find your way through the information jungle of occupational benefit schemes is provided in the form of entertaining stories, easy-to-understand texts on individual subject areas or brief, descriptive animations. The Board of Foundation: continuity with new members Following the 2015 re-elections, the Board of Foundation welcomed two new members in its midst. After the first year of work, it is evident that the commitment and enthusiasm with which the new members took on their duties guarantee the smooth continuation of the work to be done. The Board of Foundation and the employees of the Swisscanto Collective Foundation will continue to make efforts to retain the trust that you have always placed in us. For this, we would like to express our appreciation. Rolf Knechtli Chair of the Board of Foundation Davide Pezzetta Managing Director 5

6 Review 2016: Key Figures Funding ratio Funding ratio as at (in %) Portfolios Change absolute Change in % Statutory Capital ( Mio.) Investments ( mio.) Number of contracts Insured persons Portfolios The portfolio of actively insured persons went up 2.7%. Fluctuation remained high; about 23% of the portfolio at the end of the year were new entrants and about 19% of the same portfolio departed in the year under review. Premium Income Change absolute Change in % Periodic employer and employee contributions ( Mio.) One-time payments ( Mio.) Total Premium income As expected, the regular employer and employee contributions went up due to the positive portfolio development. The increase in single premiums also resulted from the fact compared to the previous year, the number of new associations increased considerably. 6

7 Pensioners 2016 Number Development Number 2015 Number Retirement pensions Pensioner s children pensions Disability pensions Disabled s children s pensions Spouse s pensions Orphan s pensions Total

8 Investment Portfolio and Policy of Investments Asset Allocation as at Hedge Funds 5.7% Infrastructure 1.1% Commodities 3.0% Liquid funds 3.1% Insurance Linked Securities 3.9% Bonds, Swiss 25.9% Real estate 11.7% Shares, emerging markets 5.9% Bonds, abroad, foreign currencies 5.0% Bonds, high-yield Shares, abroad 16.5% Shares, Swiss 8.0% Bonds, emerging markets 5.1% 5.0% Total investment portfolio (100%): Mio. CHF (Total number of individual investment groups 99.9% due to rounding differences) 8

9 Development of Funding ratio The positive investment year 2016 closed with a performance of 4.8% (see also reports of the Swisscanto Fund Management Co. Ltd., page 10 and of the Investment Commission, page 12). Compared to the minimal interest rate determined by the Federal Council (2016: 1.25%), the Swisscanto Collective Foundation paid an interest rate of 2.5% on old-age savings and recognised the required technical provisions in the year under review. At the bottom line, this resulted in a healthy increase of the funding ratio to 106.2% Development of funding ratio in %

10 Economic Situation and Investment Year 2016 in Review: Report of Swisscanto Fund Management Company Ltd in review The investment year 2016 was marked by political events, especially in the second half of the year. At the beginning of the year, the fear of a further decline of the oil price and concerns about a global recession made the markets very nervous. However, after the oil price stabilised, the stock markets managed to overcome their rock-bottom lows and largely recovered. The markets got off to a confident start in the second quarter, until June 2016, when the majority of UK voters voted in favour of leaving the European Union ( Brexit ). Initially, international stock markets reacted with severe price slumps. However, the depreciation of the pound sterling soon served as a catalyst that strengthened the international stock markets. Many political uncertainties In late summer, the economic signals continued to turn gloomy as so often in recent years, in which the global growth remained below its potential (global annual GDP growth of only about 3% since 2012, compared to the longterm average of 3.5%). The mood was impaired by the upcoming US elections, major oil price fluctuations and the problems in Italy with respect to the lost referendum and the bank bailout. Despite the uncertainties, the economy continued to grow: in the third quarter, the GDP in the USA increased 3.5%, the development of US housing prices stabilised, the EU recorded the lowest unemployment rate since 2009 and China reported steady industrial growth. Additionally, positive impulses emerged after the US elections and from the OPEC. doubling of the oil price to more than USD 50/barrel caused the shares of the energy sector to surge, making it the best-performing sector. The massive capacity reductions of recent years also had a positive effect in this area. Interest rate rebound in sight? Though the prime rate increase by the Fed had been anticipated due to the increasing dynamics of the US economy, the fourth quarter provided a foretaste of the consequences of a possible interest rate rebound, as bonds with longer terms suffered significant losses (10-year US treasuries: 4.8%). The Swiss Bond Index AAA-BBB temporarily lost 4%. The losses suffered by corporate bonds were slightly lower, allowing them to finish the year with a remarkable performance of +4%. The reasons for the substantial, fast rise in interest rates included growing inflation expectations. The US prime rate increase further strengthened the US dollar, while the gold price went down. The year was difficult for hedge funds as well; at the beginning of the year, they sustained massive losses (HFRX Global Hedge Fund USD Index: 6.12% in the first quarter). However, this loss was compensated in the second half of the year. Strong year for US shares Against this backdrop, the share prices went up, causing the annual performance to reach a respectable level despite the weak start into the year. From the annual perspective and that of Swiss franc investors, the S&P 500 delivered the by far best performance of 13.7%, while the loser in 2016 was the SPI with 1.4%. Towards the end of the year, the hitherto weak European shares achieved significant gains, while the emerging markets lagged behind. Especially the US financial sector and the US small cap market benefited from the US elections. The steeper interest-rate curve increases the profitability of banks, which, together with hopes for an end of the regulation wave, is driving up profit expectations in the US and in Europe alike (+9% for 2017 after 3% in 2016). The 10

11 Outlook for 2017 Since summer, the price performance has turned around in favour of cyclical sectors. This is regarded as a clear indication of an economic upturn. Furthermore, the business indicators are demonstrating an ongoing upward trend, though regional differences exist. Despite the packed election agendas, we do not expect any major election surprises in France and Germany, as Euro-critical parties appear to be unable to come to power. Based on the positive price trend, we will thus stick to our overweighting in shares, and we expect the coming year as well to be generally positive for shares. Bonds unattractive As a result of the economic upturn, further central banks will follow the example of the Fed and gradually normalise their monetary policy. As the interest rate hike in December was most likely only a temporary base effect associated with the inflation expectations as a result of the recovery of the oil prices, we do not anticipate any further yield increase for the time being. Nevertheless, this turn towards normalisation of the monetary policy will at least limit the performance opportunities of bonds in Swiss shares have potential to pick up The stock markets, too, are likely to feel the effects of the normalisation of the monetary policy. At the crossroads of the higher economic dynamics and the normalisation of the monetary policy, highly valued stock markets such in the USA could be susceptible to temporary turbulence. Partly due to the recovery of the banking sector, the situation is better in other regions, e.g. in Europe. In the Swiss stock market the clear loser in 2016 we see catch-up potential in the pharmaceutical and banking sectors; at the same time, the global economic brightening could benefit cyclical Swiss securities. Alternative investments offer chances Commodities also offer income opportunities. Due to the short-term increase of the oil price, the forward curve is moving towards backwardation, which would eliminate the significant losses sustained upon reinvestment after the contracts reach maturity. Moreover, the outlook for the oil price has improved considerably thanks to the OPEC deal. Despite the rise in the valuation of cat bonds, we still consider them to be attractive in the current setting. The anticipated yield is much higher than for bonds, and due to the variable interest rates, this bond type would not suffer in the case of global rise in interest rates. Real estate As previously, we will retain an overweighting in Swiss real estate, though we have slightly reduced it. In view of the clear relationship between the higher valuation of properties and the low interest rates, the annual performance was again excellent. However, this quality comes at a price an average premium of 27% is usually due on investments in real estate funds. Moreover, the rents went down throughout Switzerland for the first time in more than 10 years. Demand remains high for inexpensive apartments and low for expensive properties. In the office space segment, the market cycle has already passed its zenith and is unlikely to recover any time soon. Swisscanto Fund Management Company Ltd. 11

12 Report of the Investment Committee Review Risky investment classes suffered severe losses at the beginning of 2016, especially due to the newly emerging concerns regarding growth in China. In the USA, the macroeconomic data and the corporate reporting also initially lagged behind consensus expectations, triggering global recession fears. To counteract these risks, the leading central banks decided to undertake further comprehensive easing measures. During the second quarter, the emerging-market economies stabilised, and the growth figures in the industrial countries also picked up. Owing to the returning optimism, the stock markets rallies in spring, also backed by the significant recovery of the oil prices. The Brexit referendum is considered to be the main political event that affected the market in the first half of the year. Due to the narrow opinion poll forecasts, the international financial and commodity markets were already very volatile and nervous prior to the referendum. After the vote, abrupt turbulence occurred, and the risk affinity was temporarily curbed to a major extent. Despite grave economic concerns, the Brexit effect quickly lost momentum in the weeks that followed. Instead, the focus increasingly shifted to positive fundamental factors related to the US economy and the reporting season, brightening up the investor mood. In the remaining summer months, it became more and more evident that the Fed could abandon its ultra relaxed measures. Rising inflation data and the hawkish statements of several Fed representatives pointed to an imminent change in US interest rates, making the stock markets move sideways. In the last quarter, the US presidential elections dominated the scene. The victory of Republican Donald Trump over his opponent was considered a surprise and briefly irritated the markets. However, Trump s moderate tone in his victory speech and his announcements to stimulate the economy with tax cuts and higher public spending caused investors risk appetite to grow and made the stock markets and the USD rise. Portfolio results 2016 saw excellent performance of +4.8%. Especially the categories that had posted negative figures in the previous year accounted for the positive result. In particular, this applies to high-yield bonds (+11.3%), emerging-market bonds (+8.2%), emerging-market shares (+15.5%) and commodities (+11.7%). The other categories also achieved sound results. For example, real estate (+5.7%) benefited from the declining interest rates. CHF bonds also remained positive (+1.6%), though this item put the overall performance under pressure. In future, it is unlikely that this category will deliver any major performance, especially as the current performance is slightly negative on average, and losses must be expected in the case of higher interest rates. Strategy and shifting At the end of 2015, due to the gloomier performance perspectives, the quota of CHF funds was reduced by 9% in favour of shares and particularly alternative investments (infrastructure/hedge funds). So far, this move has proved successful, especially as the performance of the new investments has been much better than that of the CHF bonds. As the interest situation has grown even more acute in the meantime and the mere holding of bonds is likely to result in negative performance, the Board of Foundation reacted again and further reduced the bond quota by 5% in favour of mortgages at the beginning of the year. As of the new year, the CHF bond quota has thus dropped to 19%. Last year, various portfolios were established and developed in the field of alternative investments. Risk management overlay Due to risk considerations, the Swisscanto Collective Foundation has implemented a risk overlay. Under this arrangement, the share quota is reduced in the event of an overly negative market development. This risk protection was partly activated in spring, with a slightly negative impact on performance. Outlook Though we are happy with last year s result, it will become more difficult for the entire sector to reach the required yield targets. The gloomier performance perspectives of investments in nominal values stand against higher share valuations. At least in this year, however, the shares are again supported by the positive profit perspectives and increasing growth. We are convinced that with our strategy adjustments and risk management, we have established the preconditions for successfully mastering future challenges. We are looking forward to an exciting investment year

13 Annual Financial Statement 2016 Balance Sheet as per December 31, 2016 and Operative Account 16 Explanatory Notes to the Financial Statement 19 13

14 Balance Sheet as per December 31, 2016 and 2015 Assets Investments Liquid funds Accounts receivable Receivables from affiliated employers Investment portfolio Liquid funds strategic Collective investments bonds Collective investments shares Collective investments real estate Collective investments, alternative investments Total investment portfolio Total investments of the foundation Total investments for pension plans Prepayments and accrued income Total Assets

15 Liabilities Liabilities Termination benefits and pensions Other liabilities Total liabilities Accrued liabilities and deferred income Employer-paid contribution reserves Pension liabilities, actuarial reserves and non-committed funds of pension plans Pension liabilities for active insured persons Pension liabilities of pensioners Actuarial reserves Non-committed funds of pension plans Pension liabilities, actuarial reserves and non-committed funds of pension plans Asset value fluctuation reserves Dotation capital, non-committed funds Balance at the beginning of the period Income surplus/expense surplus Total dotation capital, non-committed funds of the foundation Total Liabilities

16 Operative Account (I) Regular and other contributions and transfers Employee contributions Employer contributions Withdrawal from employer contribution reserve for contributory funding Contributions from third parties One-time payments and purchase amounts Transfers to employer-paid contribution reserves Payments from guarantee fund Entry lump-sum transfers and new contracts Termination benefit transfers Transfers for inclusion of portfolios of insured persons in - Pension liabilities of pensioners Actuarial reserves Value fluctuation reserves Non-committed funds Employer contribution reserves Reimbursements of withdrawals for home ownership/divorce Inflow from contributions and entry lump-sum transfers Regulatory benefits Retirement pensions Survivors pensions Disability pensions Other regulatory benefits Lump-sum payments on retirement Lump-sum payments on death or disability Termination benefits and termination of contracts Termination benefits and termination of contracts Carryover of additional means due to collective terminations Withdrawals for encouragement of home ownership/divorce Outflow for benefits and withdrawals

17 Operative Account (II) Decrease/Increase in pension liabilities, actuarial reserves and contribution reserves (pool) / Decrease/Increase in pension liabilities of active insured persons / Decrease/Increase in pension liabilities of pensioners / Decrease/Increase in non-committed funds of pension plans / Decrease/Increase in actuarial reserves Interest on pension liabilities (regular) Interest on pension liabilities (additional) / Decrease/Increase in contribution reserves Income from insurance benefits Insurance benefits Share of insurance surpluses Insurance cost Insurance premiums - Risk premiums Cost premiums Contributions to guarantee fund Net result of insurance activities Net result on investments Income from liquid funds strategic/overlay Income from bonds Income from shares Income from real estate Income from alternative investments Total income on investments Income from bank receivables Interest income on accounts receivable Interest expenses for liabilities Interest expense for employer-paid contribution reserves Asset management expenses Total Other Income and Expenditure

18 Operative Account (III) Partial operative account for individual investments Income from individual investments Asset management expenses/individual investments Net result on individual investments Administrative expenses/individual investments Interest on pension liabilities/individual investments Interest expenses for employer-paid contribution reserves/individual investments Decrease/Increase in non-committed funds of pension plans/individual investments Other income Income from services rendered Other income Administrative expense General administration Expense for marketing and publicity Negotiations and brokerage Auditors and pension fund actuary Supervisory authorities Income/Expenses surplus before decrease/increase of asset value fluctuation reserves Decrease/Increase in reserves for asset value fluctuation reserves Income/Expenses surplus after decrease/increase of asset value fluctuation reserves

19 Explanatory Notes to the Financial Statement Principles and Organisation 20 Implementation of Objectives 25 Significant Accounting Policies and Valuation Methods, Consistency 26 Actuarial Risks, Risk benefit coverage, Funding ratio 27 Explanatory Notes on Investments and Net Result of Investments 34 Comments on Other Balance Sheet and Operative Account Positions 43 Supervisory Authority Requirements 45 Further Information Regarding the Financial Situation 45 Events after balance sheet date 46 Auditor s Report 47 19

20 Principles and Organisation Legal form and objectives The Swisscanto Collective Foundation of the Cantonal Banks is a collective foundation by the Association of Swiss Cantonal Banks, Basel and Patria Swiss Mutual Life Insurance Company, Basel (since September 2006 Helvetia Swiss Life Insurance Company Ltd.) pursuant to Article 80 et seq. of the Swiss Civil Code (Schweizerisches Zivilgesetzbuch, ZGB). The foundation s aim is to provide mandatory and voluntary occupational benefit schemes for employees and employers in accordance with the Swiss Federal Law on Occupational Retirement, Survivors and Disability Pension Plans (BVG/LPP). The foundation s purpose is pursued particularly in the manner in which the foundation serves as a saving bank for the individual pension funds under the foundation s coverage, subject to their available means and separate regulations. The foundation may conclude insurance contracts for all or individual risks, preferably with Helvetia Swiss Life Insurance Company Ltd, Basel (hereinafter referred to as Helvetia). The foundation must always be the policyholder and beneficiary. LOB registration and guarantee fund Register for occupational benefit plans BS-0432 LOB Guarantee Fund Number C1 11 Plan statutes and regulations Foundation instrument , last updated General regulatory provisions Pension fund regulations as framework regulations for all pension funds, last adjusted as at January 1, 2016 Special regulatory provisions Individual benefit plans for the associated pension funds Partial liquidation regulations Circular resolution of the Board of Foundation of 8 May 2014, effective from 1 January 2014 Regulations on provisions 1 December 2009, last amended on 21 November 2013, effective from 1 January Last formal adjustment of 31 December 2015 pending (new method for calculating the provision for conversion losses). Election rules Meeting of the Board of Foundation of 23 March 2015, effective from 1 April 2015 Organisation rules Investment rules The Foundation is managed by Helvetia. The management agreement of December 28, 2004 between the Foundation and Helvetia governs duties, competences and responsibilities of the persons in charge of the administration. 20

21 Top governing body, management and authorised signatories The members of the Board of Foundation and the other authorised signatories have joint dual signature authority. Board of Foundation Employer representatives Rolf Knechtli Oliver Gloor Anthony Goldstein Stefan Kehrli Josef Nietlispach Urs Saxer Employee representatives Claudia Breitenstein Urs Christen Beat Kempter Alfred Schläpfer Jürg Stalder Anita Wegmann Assessors without voting right Hanspeter Hess Donald Desax Beat Müller René Raths Chair Member Member Member Member Member Vice-chair Member Member Member Member Member Investment Committee Hendrik van der Bie Chair Martin Flück Member Herbert Joss Member Stefan Kunzmann Member Authorised signatories Davide Pezzetta Managing director Claude Schreiber Assistant managing director René Eggimann Head Legal Services Christoph Schneider Head Legal Services Swisscanto Daniela Ziegler Head Finances Michael Maxelon Head Client Service Caroline Kresta Teamleader Cantonal Banks & Broker, Client Service Caroline Loewert Teamleader Broker, Client Service Salman Osoy Teamleader Cantonal Banks center, Client Service Ulrike Bühler Head Underwriting & Competence Center Gregor Konieczny Head Sales and Consulting Svenja Schmidt Managing Director Swisscanto Supra Collective Foundation and Vested Benefits Foundation 21

22 Actuaries, auditors, advisors, supervisory authority Pension actuaries Auditors Investment Controlling Supervisory authority Beratungsgesellschaft für die zweite Säule AG, Basel, Ernst Sutter PricewaterhouseCoopers AG, Basel Complementa Investment-Controlling AG, St.Gallen BVG- und Stiftungsaufsicht beider Basel (BSABB) Affiliated employers 2016 Number Development Number 2015 Number As per prior year Entries Leavings As per year under review Active participants and pensioners Active participants 2016 Number Development Number 2015 Number As at prior year Entries Leavings Retirements As at year under review The portfolio of actively insured persons went up 2.7%. Fluctuation remained high; about 23% of the portfolio at the end of the year were new entrants and about 19% of the same portfolio departed in the year under review. 22

23 Pensioners 2016 Number Development Number 2015 Number Retirement pensions Number at beginning Entries Leavings End number of retirement pensioners Pensioner s children pensions Number at beginning Adjustment of the initial portfolio Entries Leavings End number of pensioner s children pensioners Disablitiy pensions Number at beginning Entries Leavings End number of disability pensioners Disabled children s pensions Number at beginning Adjustment of the initial portfolio Entries Leavings End number of disabled children s pensioners Spouse s pensions Number at beginning Entries Leavings End number of spouse s pensioners Orphan s pensions Number at beginning Adjustment of the initial portfolio Entries Leavings End number of orphan s pensioners Total Number at beginning Adjustment of the initial portfolio Entries Leavings End number of pensioners

24 Note concerning the Pension recipients table The initial portfolio for pensioners children s pension, disabled s children s pension and orphan s pension recipients was adjusted due to the greater accuracy in connection with the recognition of twins. In the year under review, the portfolio growth was much higher than in the previous year. In the previous year, the portfolio had undergone a net increase of 295 pension recipients or 4.1%; in the year under review, the net increase amounted to 641 pension recipients or 8.5%. The strong growth took place especially in the field of retirement pensions. 24

25 Implementation of Objectives Affiliation with the foundation is carried out by means of the conclusion of an affiliation contract between the employer and the foundation. The associated companies form separate pension plans within the foundation. Characteristics of the pension plan Every pension plan has its own benefit plan as part of the mandatory occupational benefit scheme. The retirement bene fits are based on the defined contribution plan, the risk benefits on either the defined benefit plan or the defined contribution plan, depending on the pension plan and benefits. Financing, financing method Financing is governed separately for each pension plan. As a rule, the financing of the benefit costs is carried out by the employees and employers, whereby the employer must meet at least 50% of such costs. Further information concerning pension fund activities Some pension plans have individual asset investments (socalled individual investments). Modalities comply with the separate contractual and regulatory provisions of the Swisscanto Collective Foundation. Pension plans with individual investments may use their employer contribution reserves as value fluctuation reserves for individual asset investments. Funding ratio of pension plans with individual investments Number Number Funding ratio above 110% 9 9 Funding ratio between 100% and 109.9% 6 6 Funding ratio between 95% and 99.9% 0 0 Total For some pension funds the funding ratio is listed individually at pension fund level for specific products (FRPFL). The principles for this are based on the separate contractual and regulatory provisions of the Swisscanto collective foundation. Funding ratio of pension funds with FRPFL Number Number Funding ratio above 110% 2 2 Funding ratio between 100% and 109.9% 3 3 Funding ratio between 95% and 99.9% 0 1 Total 5 6 At the end of the year under review, none of the pension funds with a funding ratio at pension-fund level had any cover shortage. 25

26 Significant Accounting Policies and Valuation Methods, Consistency Statement of compliance with Swiss GAAP FER 26 The accounts are prepared in accordance with the special accounting recommendations of Swiss GAAP FER 26, version dated Significant accounting policies and valuation methods Significant accounting policies The financial statements give a true and fair view of the assets, financial position and earnings within the meaning of Swiss law and Swiss GAAP FER 26. Valuation Methods Liquid funds Derivative financial instruments Collective investments Foreign currency conversion Accounts receivable Prepayments and accrued income Investments for pension funds Par value Market value Price Prices as at the reporting date Par value less amortisation Par value Price/market value Change of principles with regard to valuation, accounting, and financial reporting The method for calculating conversion losses (technical provisions) was changed as of 31 December The main feature of the new method (liquidation method): Active insured persons aged 58 and older are also included in the calculations (old method: all active insured persons who will reach the retirement age of 65/64 within the next five years). Conversion losses are calculated on the basis of the accrued old-age savings on the reporting date, as if all active insured persons were to retire on the reporting date (old method: projection of the old-age savings to age 65/64 and calculation of conversion losses at age 65/64 using several assumptions about trends in the relevant influencing factors). What is decisive is that the new method leaves out uncertain assumptions about the future and makes do with the retirement amounts and parameters that are valid today. None of the principles were changed in the year under review. 26

27 Actuarial Risks, Risk Benefit Coverage, Funding ratio Type of risk benefit coverage, reinsurance The foundation bears the longevity risk (old-age pensions, spouse s pensions as well as pensioner s children s pensions and orphan s pensions) itself in its entirety. To cover the insurance risks such as death before retirement age, disability as well as LOB inflation, the foundation has concluded a collective life insurance contract with Helvetia, whereby the foundation is itself the policyholder and beneficiary. Explanations on assets and liabilities from insurance contracts The actuarial reserves for the pensions not recognised in the balance sheet amounts to CHF 513,850,000 (previous year CHF 503,400,000). Development and interest rates of retirement savings in the contribution plan Retirement savings as at the end of the previous year Saving contributions Termination benefit transfers, purchase amounts and new contracts Saving contributions from disability insurance Termination benefits for leavers and on termination of contracts Withdrawals for encouragement of home ownership/divorce Dissolution due to retirement, death and disability Interest payments on pension capital (regular) Retirement savings as at the end of the year under review Interest on LOB mandatory savings capital (regular) 2.50% 3.50% Interest on LOB non-mandatory savings capital (regular) 2.50% 3.50% The revised Article 7.3 of the pension fund regulations forms the basis for setting the interest rate for interest on old-age savings. In this regard, the Board of Foundation takes into account the Foundation s financial possibilities and the Foundation s technical interest rate applicable on average in the long term. As at 31 December 2016, the average technical interest rate of the past 10 years amounted to approximately 3%, while the average interest paid on old-age savings in the past 10 years amounted to approximately 2.3%. If the technical interest rate is reduced to 2.5% as of 1 January 2017 and remains at 2.5% over the next years, the average technical interest rate will drop below 3% and will continually decline. In the coming years, an attractive yield on old-age savings will continue to be possible until the condition average technical interest rate equals average interest paid on old-age savings is reached. 27

28 Sum of retirement savings according to LOB Retirement savings capital in accordance with the LOB (shadow account) LOB minimal interest rate* 1.25% 1.75% * In the shadow accounting, the old-age savings pursuant to OPA are calculated with an interest rate of 2.5% in accordance with the regulations (previous year: 3.5%). Development of the mathematical reserve for pensioners As at Increase/ Decrease As at Due to portfolio growth in the 2016 year under review, the required mathematical reserves for old-age and survivors pensions, which have been managed autonomously since 1 January 2014, as well as for pensioner s children s pensions and old-age orphan s pensions, increased, net, by CHF 168,149,055 from CHF 1,019,658,346 to CHF 1,187, Composition, development and explanation of the technical provisions Provisions for conversion losses Provisions for increase in life expectancy Provisions for reduction of the technical interest rate Total technical provisions Explanation of technical provisions Technical provisions are based on the applicable regulations for creating provisions, including the adjustment of the method for calculating the provision for conversion losses that was made as at 31 December The new method is more appropriate, is based solely on the currently valid actuarial bases, and is not dependent on assumptions about future trends in these bases. 28

29 Findings of the last brief actuarial expert opinion as at 31 December 2016 The brief actuarial expert opinion as at 31 December 2016 also makes reference to key findings from the detailed actuarial expert opinion as at 31 December 2015, which had only been prepared in summer While the portfolio of associated pension funds again declined slightly by 84 or 1.5%, the portfolio of actively insured persons increased for the first time in several years. The increase amounted to 1,306 insured persons or 2.7%. In the year under review, the portfolio of pensioners grew 8.5%, considerably more than in the previous year. High growth of about 11% was recorded especially in the autonomously managed partial portfolio of retirement and old-age and survivors pensions. The downward trend also continued for disability and disabled s children s pensions, though to a slightly lesser extent. The net decrease was 23 or 1.6% for disability pensions and 19 or 4% for disabled s children s pensions. It is likewise evident from the pensioner statistics as at 31 December 2016 that the largest portion of newly added spouse s pensions is attributable to discontinued retirement pensions. Based on this general finding, it may be concluded that the risk experience in the partial portfolio of actively insured persons was once again positive. The expert will conduct a detailed analysis of the risk result for 2016 within the framework of the comprehensive expert opinion in the second semester of The pensioner ratio in relation to retirement and spouse s pensions fell over the course of the year from approximately 9 to 1 (31 December 2015) to approximately 8 to 1 (31 December 2016). During the same period, the ratio for the pension fund capital (old-age savings of the actively insured to pension fund capital for retirement and spouse s pensions) fell from approximately 4.7 to 1 (31 December 2015) to approximately 4.4 to 1 (31 December 2016). As expected, the portfolio structure thus further deteriorated during the year under review. The net cash flow situation remained positive. Continuous sustainable growth of the Foundation is a requirement for this to continue. The Foundation s structural risk capacity continues to be good. The funding situation further improved in the year under review despite an above-average inflow in new pension fund capital. The net cash-flow situation also again improved significantly. In other words, this means that the Foundation s risk capacity in terms of investment has also improved once again. In the course of the year, the value fluctuation reserve deficit was reduced from approximately 69% to approximately 59%. The portfolio projections and other analyses and model calculations conducted in the year under review provided the basis for important decisions of the Board of Foundation: reduction of the technical interest rate from 3% to 2.5% as of 1 January 2017, gradual reduction of the extra-mandatory conversion rate from the current 6.4% to 6.0% in Moreover, in the year under review, a resolution was adopted to introduce the new actuarial calculation basis LOB 2015 as of 1 January

30 The introduction of the new basis for calculation LOB 2015 results in the following changes in the Foundation s key actuarial figures: Balance sheet items for old basis ( ) Balance sheet items for new basis ( ) Increase/decrease Pension fund capital pension recipients Provision for conversion losses (actively insured persons) Provision for longevity (pensioners) Provision for interest-rate reduction (pensioners) Total required pension fund capital (PC) Total available pension fund assets (PA) Excess Funding ratio 106.2% 106.0% 0.2% The change in the basis thus cost the funding ratio 0.2 percentage points (net). The additional costs for the pension mathematical reserve are largely covered by the partial reversal of the longevity provision. The other additional costs are caused by the necessary increase of the provision for conversion losses. The reduction of the technical interest rate from 3% to 2.5% results in the following changes in key balance sheet items: Balance sheet items for 3% technical interest ( ) Balance sheet items for 2.5% technical interest ( ) Increase/decrease Pension fund capital pension recipients Provision for conversion losses (actively insured persons) Provision for longevity (pensioners) Provision for interest-rate reduction (pensioners) Total required pension fund capital (PC) Total available pension fund assets (PA) Excess Funding ratio 106.0% 105.5% 0.5% The reduction of the interest rate from 3% to 2.5% thus caused the funding ratio to drop 0.5 percentage points. The additional costs for the pension mathematical reserve were almost fully covered by the reversal of the provision for the reduction of the interest rate. Noticeable additional costs were also incurred for the provision for conversion losses. Note: The calculated provision of CHF 150,072,017 is based on an extra-mandatory conversion rate of 6.0%, which however will only be effective from If the calculation were to be made with the currently effective extra-mandatory conversion rate of 6.4%, the resulting provision would amount to 30

31 more than CHF 200 million. However, in view of the reduction of the extra-mandatory conversion rate that has already been decided upon and the upcoming reform of the Swiss pension system, which will doubtlessly not be the last, this would make little sense. The final decision concerning the determination of this provision for 2017 may be made in the course of Other measures No immediate measures are necessary. The Board of Foundation will duly discuss a systematic analysis of the expected portfolio developments (actively insured persons and pensioners) in order to derive any indications for the further design of the underwriting and reserve policy. The expert for occupational benefit schemes can thus confirm that as at 31 December 2016 the Foundation is sure that it can meet its obligations (Art. 52e (1) letter a OPA); there are no systematic financing gaps; the actuarial obligations are valued pursuant to the principles and guidelines that the expert for occupational benefit schemes is required to comply with. 31

32 Actuarial principles and other significant actuarial assumptions Actuarial principles LOB 2010 and a technical interest rate of 3% are used as an actuarial accounting basis. Non-committed funds of pension plans At the level of individual pension funds the following positions exist, which are carried in the balance sheet at foundation level as free assets of pension plans: Non-committed funds of the affiliated pension plans Non-committed funds from former special mesures Deposits of surpluses of the affiliated pension plans Individual surpluses and income of the affiliated pension plans Total non-committed funds of pension plans In the previous year, the deferred income position for the approved surplus income distribution (in addition to interest on pension fund capital), which was created at the expense of the results for previous years, had been largely credited to the individual surpluses and income of the associated pension funds. In the year under review, they were largely credited to the respective old-age savings. Non-committed funds of the affiliated pension plans Deposits of surpluses of the affiliated pension plans Non-committed funds from former special mesures Reserve for fluctuations in asset value of the affiliated pension plans Income/expense surplus of the affiliated pension plans Non-committed funds of pension plans with individual investments Total non-committed funds of pension plans Changes in actuarial principles and assumptions There are no changes compared with the prior year. Employer-paid contribution reserves with renounced use The provisions of the Swisscanto Collective Foundation s regulations allow employers in the case of underfunding to contribute to the employer-paid contribution reserves with renounced use. As per December 31, 2016 there are no employer-paid contribution reserves with renounced use (previous year total: CHF 0) 32

33 Funding ratio according to art. 44 OBB Balance assets Investments for pension plans Assets FRPFL Liabilities; accruals and deferrals Employer-paid contribution reserves Accounts receivable/liabilities individual investments Distributable pension assets Pension capital of active insured persons Pensioners pension assets Actuarial reserves of the foundation Non-committed funds of pension plans Pension capital, actuarial reserves of the foundation and non-committed funds of pension plans Pension capital, non-committed funds and employer-paid contribution reserves in contracts with individual investments Pension capital of active insured persons/individual investments Pension capital of active insured persons FRPFL Non-committed funds of pension plans Employer-paid contribution reserves Pension capital, actuarial reserves of the foundation, non-committed funds of pension plans and employer-paid contribution reserves Funding ratio 106.2% 104.7% Funding ratio The funding ratio taking into account assets and liabilities from insurance contracts not shown in the balance sheet amounts to 105.8% (previous year: 104.3%) for the year under review. The listed funding ratio only applies to the part of the pension funds invested in collective investments. It should be added that there are 15 pension funds with individual investments as well as 5 pension funds with a funding ratio at pension fund level. None of the pension funds with a funding ratio at pension-fund level had any cover shortage as at 31 December The pension funds are informed individually by the foundation about their coverage situation and about any measures that might need to be checked. 33

34 Explanatory Notes on Investments and Net Result of Investments Organisation of investment activities, investment adviser and investment manager, investment regulations The organisation of the Swisscanto Collective Foundation s investment activities is governed by the investment regulations. Investment organisation is entrusted to the Board of Foundation, the investment committee, the board of directors, portfolio managers, and overlay managers as well as the investment controller. The Board of Foundation nominates the members of the investment committee and defines the investment organisation. At the request of the investment committee and in accordance with legal requirements the Board authorises the investment strategy, investment guidelines, overlay management as well as the investment controlling. The investment committee is responsible for the supervision, implementation and initiation of adjustments to the investment strategy and the overlay management. The depositories are Zurich Cantonal Bank, Credit Suisse and M.M. Warburg. The custodian is Zurich Cantonal Bank, which regularly submits reports on this subject. The overlay management is realised with Zurich Cantonal Bank. Through the overlay portfolio the weight of the base assets is managed indirectly by buying and selling derivative financial instruments and currency hedging. The hedging of specific investment categories is also carried out. The tasks and responsibilities are defined in the asset management mandate with Zurich Cantonal Bank dated Additionally, the Advisory Mandate with Finreon AG of December 2, 2013 exists in order to hedge investment categories. Complementa Investment-Controlling AG is responsible for the investment controlling. It consolidates the assets, verifies statutory compliance, adherence to the investment guidelines as well as the implementation of the overlay management and reports the consolidated investment and supervision results to the investment committee. The tasks are defined in the mandate agreement dated August 27, The board of directors ensures operational solvency and the necessary reporting to the investment committee as well as the overlay manager. Furthermore the board executes rebalancing transactions for asset classes which cannot be controlled by overlay management. The main asset managers are Zurich Cantonal Bank (supervision: FINMA) and Credit Suisse (supervision: FINMA). The portfolio managers (Zurich Cantonal Bank, Credit Suisse) report periodically to the investment commission on the development of assets and market expectations. Along with liquid funds, including time deposits as well as derivative financial instruments for the overlay management, the foundation only holds collective investments. Information on the regulations in force concerning retrocession payments The institutions entrusted with investing assets confirm that they have received no compensation within the meaning of the Swiss Federal Court s case law. Implementation of the Ordinance against Excessive Remuneration in Listed Companies Limited by Shares Only collective investments exist, which do not permit any exercising of voting rights. 34

35 Use of expansions (Art. 50 (4) OPP 2) with coherent presentation of the security and risk distribution (Art. 50 (1) (3) OPP 2) Pursuant to Art. 50 (4) OPP 2, the investment possibilities may be expanded on the basis of investment regulations, provided that compliance with paragraphs (1) to (3) of the same Article can be duly substantiated in the notes to the annual financial statements. Art. 9 (5) of the investment regulations of the Swisscanto Collective Foundation dated 1 June 2016 permit the investment possibilities to be expanded. The investment strategy determined in the investment regulations provides for a ceiling of 18% for alternative investments; thus, the investment regulations are considered to be expanded in this area. As at 31 December 2016, alternative investments amounted to 13.3% of the total investments. The limit of 15% pursuant to Art. 55 OPP 2 has been complied with. The alternative investments used for the implementation of the investment strategy are carefully selected and monitored. The selection and monitoring is partially supported by external advisors. The achievement of the object of the pension fund is backed by the positive contribution of the utilised alternative investments to reach the performance goals and ensure due risk distribution. In this way, we fulfil the criteria with respect to the use of the extension article. Target value for and calculation of the value fluctuation reserves Target value of the value fluctuation reserves Technically necessary capital of which 15% as target value of the value fluctuation reserves Value fluctuation reserves Value fluctuation reserves as of Allocated and charged to/released and credited to operative account Value fluctuation reserves as of Target value of the value fluctuation reserves Deficit for the value fluctuation reserves

36 Breakdown of investments into investment categories Coll. inv. = Collective investments Stra tegy % Spread Min. % Max. % Market value according to balance sheet Economic exposure of derivates Economic exposure of investments, Liquid funds strategic/ time deposits Share % Collective investments Bonds, CHF Coll. inv. Bonds, foreign currencies Coll. inv. Bonds high-yield Coll. inv. Bonds, emerging markets Collective investments bonds Collective investments Shares, Swiss Collective investments Shares, world Coll. inv. Shares, emerging markets Collective investments shares Collective investments real estate Coll. inv. Insurance Linked Securities Collective investments Hedge Funds Collective investments infrastructure Collective investments Commodities Collective investments alternative investments Total investments of the foundation Collective investments Bonds, Swiss Collective investments Bonds, foreign currencies Collective investments Shares, Swiss Collective investments Shares, abroad Collective investments real estate Collective investments Commodities Liquid funds/accounts receivable Vermögensanlagen für Vorsorgewerke Liquid funds operational Accounts receivable Receivables from employers Prepayments and accrued income Other assets Balance sheet total The lower bandwidth of the share quota 24.0% is reduced to 9.0% in the case of maximum hedging (risk overlay). 36

37 Investments for pension funds Some pension funds have individual investments. The modalities for these are governed by the special contractual provisions and provisions of the regulations of the Swisscanto Collective Foundation. Therefore, they are not taken into consideration in the Foundation s investment strategy, and their strategy and bandwidth cannot be presented separately. With one exception, all pension funds with individual investment are invested in investment groups of the Swisscanto Investment Foundation Avant, which comply with the investment regulations of OPP 2. These are the following three investment groups: Swisscanto IF Avant BVG Portfolio 10 P (securities number: ) Swisscanto IF Avant BVG Portfolio 25 P (securities number: ) Swisscanto IF Avant BVG Portfolio 45 P (securities number: ) Liquid funds operational The item Liquid funds operational mainly consists of oldage credits that will reach maturity at the end of the year as well as payments for associations with the collective foundation in the following year. Portfolio analysis in categories according to art. 55 OBB2 Article Category Value Commitment changing effect of derivates Relevant value according to art. 55 OBB2 in % of total assets Limits OBB2 Accounts receivable on definite amount of money, liquid funds incl a Mortgage titles and mortgage bonds b Shares c Real estate Inland Abroad d Alternative investments Total assets in balance sheet e Positions in foreign currencies without collateralization The use of investment vehicles classified as diversified collective investments pursuant to Art. 53 (2) OPP 2 ensures that the individual debtor limits pursuant to Art. 54a OPP 2 are complied with. 37

38 Current (open) derivative financial instruments Derivative financial instruments are used within the framework of overlay management. This is implemented by Zurich Cantonal Bank. Through the overlay portfolio the weight of the base assets is managed indirectly by buying and selling derivative financial instruments and currency hedging. The hedging of specific investment categories is also carried out. All exposure-reducing derivative positions must be covered by base investments at all times. A leverage effect (exposure is larger than available liquidity) and short sales are prohibited. The provisions of Art. 56a OOB2 and the specialist recommendation of the Swiss Federal Social Insurance Office in relation to the use of derivative financial instruments must be adhered to by the asset manager. The use of derivative financial instruments is dealt with in the asset management agreement concluded with Zurich Cantonal Bank in December 11, Open derivatives: Forward contracts The forward currency exchange contracts are at all times fully covered by the core investments. As per December 31, 2016 forward contracts (expiry date January 2017) with a marketable value of CHF 8,398,400 (previous year CHF 10,320,648) were open. Exposure effects of currency futures Allocation of investment categories Market value in CHF Bonds, foreign currencies Hedge Funds Insurance Linked Securities Total The market value of forward currency exchange contracts is recorded under Liquid funds strategic in the balance sheet. Open derivatives: Futures The future contracts are at all times fully covered by the core investments. As per December 31, 2016 the following future contracts (expiry date 1 st quarter 2017) were open: Exposure effects of the futures Investment category The success of futures contracts is reported under Income from Overlay. Market value Market value Exposureincreasing Exposurereducing CHF Foreign currencies Exposureincreasing (+) / reducing ( ) Liquidity requirement Bonds, foreign currencies Shares Swiss Shares abroad Shares Emerging Markets Commodities Total

39 Open derivatives: Interest-rate swaps In the year under review, the fair value of the open interest-rate swaps was CHF 134,157 (previous year: CHF 0). Exposure effects of the swaps Investment category Market value Exposureincreasing Exposurereducing Bonds, CHF Liquid funds The market value of the swaps is recorded under Liquid funds strategic in the balance sheet. Pending capital commitments As at 31 December 2016, contractual investment obligations existed towards: Credit Suisse Investment Foundation, Zurich, CHF 107 million Credit Suisse Investment Foundation 2 nd Pillar, Zurich, CHF 27.5 million Mercer Private Investment Partners IV, Luxembourg, EUR million AFIAA Foundation for International Real Estate Investments, Zurich, CHF 15 million Investment Foundation of UBS for Employee Benefit Schemes, Zurich, CHF 175 million Swisscanto Investment Foundations, Zurich, CHF 100 million Fair value and counterparties in securities lending The Foundation exclusively holds interests in collective investments and does not conduct its own securities lending. Nothing can be stated about any securities lending within the collective investments. Securities lending for the purpose of improving the performance is only permitted within the scope of collective investment schemes and in accordance with the provisions of the Federal Act on Collective Investment Schemes (CISA) and its implementing decrees. Apart from this, securities lending is not permitted. 39

40 Comments on net result of investments Investment yields are continuously monitored by the investment controller and compared to the benchmark performance. Performance is measured by the customary TWR (time-weighted return) method and according to the systematics of the described investment strategy. The following performance values can thus be established: Net result Performance % Liquid funds strategic n/a n/a Bonds Swiss CHF Bonds abroad, foreign currencies Bonds high-yield Bonds emerging markets Shares Swiss Shares abroad Shares emerging markets Real estate Insurance Linked Securities Hedge Funds Infrastructure n/a Commodities Income from Overlay n/a n/a Total investments Income from bank balances Interest income on accounts receivable Interest expense for liabilities Interest expense for employer-paid contribution reserves Expense for asset management Total other expense and income Net result of investments

41 Comments on asset management expense The reporting and determination of the asset management expense is executed pursuant to the OAK BV instructions (W-02/2013). The sum of all expense figures for the collective investments amounts to CHF 25,603,186 for the year under review (previous year CHF 22,688,344). The total asset management expenses indicated in the operative account as a percentage of cost-transparent investments amounts to 0.39% in the year under review (previous year 0.38%). The cost transparency ratio is 96.85% for the year under review (previous year 96.59%). Non-transparent collective investments: ISIN CH , CSA 2 Multi-Manager Real Estate Global M, Provider Credit Suisse Investment Foundation, Holding: 22,500, Fair value: CHF 22,500,000 ISIN XD , Field Street Offshore Fund LTD-A- SUB1-1608, Provider Field Street, Holding: 15,069.36, Fair value: CHF 15,411,158 ISIN KYG , Iris Dynamic SPC Segregated PF- USD-I-50, Provider IRIS Dynamic, Holding: 52,118.26, Fair value: CHF 54,689,817 ISIN XD , Laurion Capital LTD-A-USD-S1608, Provider Laurion Cap, Holding: 15,069.71, Fair value: CHF 15,311,352 ISIN XD , Libremax Offshore Fund LTD-A- G-S13, Provider LibreMax Offshore, Holding: 14,064.62, Fair value: CHF 14, ISIN XD , LMR Alpha Rates Trading Fund LTD- 1-USD-S8, Provider LMR Alpha Rt, Holding: 150,000, Fair value: CHF 15,245,250 ISIN XD , PGIM Fixed Income US Liq relative Value Fund I-A-USD-T3, Provider Pgi Fix Inc, Holding: , Fair value: CHF 10,245,174 ISIN , Prepay 100% AFIAA Real Estate abroad CHF, Provider AFIAA Foundation for International Real Estate Investments, Holding: 35,000,000, Fair value: CHF 35,000,000 ISIN XD , Tenor Opportunity Fund LTD-BB- USD RES, Provider Tenor Opp, Holding: 15,070, Fair value: CHF 15,438,619 ISIN XD , Tilden Park Offshore Liquid Mortgage Fund LTD-USD, Provider Tilden Park Off, Holding: 16,074.63, Fair value: CHF 16,621,759 ISIN LU , Mercer Private Investment Partners IV SICAV-SIF Sub-Fund INFRA EUR Class D, Provider Mercer Private Investment Partners IV, Holding: 15,750,000, Fair value: CHF 16,884,000 41

42 Comments on investments in the employer and employer-paid contribution reserves Investments in the employer The assets for affiliated employers amounting to CHF 20,115,081 (previous year: CHF 21,545,136) are premium receivables. In 2016 the foundation levied default interest of 5.0% (previous year: 5.0%). The risk and cost premiums are each owed as per January 31 respectively within 30 days after joining the pension fund. The savings premiums are payable by December 31. The foundation monitors the punctual receipt of premiums and institutes the necessary claims proceedings if default occurs. Any premium losses incurred by the foundation are borne by the foundation after deduction of the loss cover by the LOB Guarantee Fund. Employer-paid contribution reserves Balance at the beginning of the period Transfers into the employer-paid contribution reserves Transfers from new contracts Benefits from termination of contracts Used for premium payments Used for one-time payments* Interest Balance at the end of the period * Utilisation for single premiums can only be granted upon submission of an explicit declaration of non-objection issued by the appropriate tax authority or in the event of a liquidation of the portfolio. The employer-paid contribution reserves earned interest at 0.125% (previous year 0.5%). 42

43 Comments on other balance sheet and operative account positions Comments on accounts receivable Withholding tax Other accounts receivable The other receivables mainly consist of current account receivables from premiums from the reinsurance towards Helvetia. Comments on prepayments and accrued income Prepaid benefits Surplus share Other accruals Comments on accrued liabilities and deferred income Outstanding entry benefits Prepaid premiums Asset management expense Additional yield distribution Other accruals Comments on income from insurance Insurance benefits Surpluses from insurance result Surpluses from cost result

44 Comments on insurance cost Risk premium Risk premium inflation Contributions to guarantee fund Cost premium Comments on administrative expenses Distribution compensations Broker s commissions Auditors, pension actuaries Supervisory authority Expenses for marketing and publicity Other administrative expenses Information on the regulations in force concerning surpluses The Foundation is entitled to the surplus shares Helvetia confers from the collective life insurance. The annual financial statement 2016 includes the sum of CHF 34,565,520 (previous year: CHF 51,931,159) in surpluses. In accordance with the regulations this sum was used to support the coverage ratio in the current year. 44

45 Supervisory Authority Requirements The supervisory authority acknowledged the reporting for 2014 by means of its letter dated 5 September 2016 and for 2015 by means of its letter dated 13 February Further Information Regarding the Financial Situation Partial liquidations No partial liquidation procedure was performed in 2016 at the Foundation level. Partial liquidations to be carried out by pension funds in 2016 were identified in accordance with the provisions of the partial liquidation regulations. The resulting distributions of these pension funds free assets were handled according to the relevant rules. Six such partial liquidations were identified in the year under review. Pending Litigations On the basis of the current status for each pending litigation we do not assume that the Foundation will incur other than legal costs. 45

46 Events after balance sheet date In the year under review, a resolution was adopted to introduce the new actuarial calculation basis OPA 2015 as of 1 January The consequences are explained under Findings of the last brief actuarial expert opinion as at 31 December We are not aware of any other events after the reporting date that are likely to have a material impact on the financial statements. 46

47 47