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Annual Report 2022
Annual Report 2022
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9 Derivatives and Hedge Accounting

In CHF million
        Fair value assets   Fair value liabilities   Notional amount/exposure
    Notes   31.12.2022   31.12.2021   31.12.2022   31.12.2021   31.12.2022   31.12.2021
                             
Currency derivatives
Forward contracts       1 438   797   395   297   49 694   51 096
Futures       –   –   –   –   –   –
Options (over-the-counter)       59   94   42   117   3 125   6 424
Total currency derivatives       1 497   891   437   413   52 819   57 519
                             
Interest rate derivatives
Forward contracts       –   74   505   93   1 203   1 544
Swaps       1 747   585   1 660   555   25 485   55 362
Futures       7   3   7   2   342   349
Options (over-the-counter)       118   143   –   3   830   587
Other       5   3   3   1   1 779   520
Total interest rate derivatives       1 877   807   2 175   654   29 640   58 362
                             
Equity/index derivatives
Futures       78   46   83   79   5 874   6 622
Options (over-the-counter)       6   –   6   0   150   9
Options (exchange-traded)       1 655   973   462   597   9 818   10 222
Other       13   51   2   4   1 921   1 845
Total equity/index derivatives       1 752   1 071   554   679   17 763   18 697
                             
Other derivatives
Credit derivatives       –   –   9   –   –85   –
Total other derivatives       –   –   9   –   –85   –
                             
Derivatives for the account and risk of the Swiss Life Group's customers   5    0   0   –   –   0   0
                             
Total derivatives       5 126   2 768   3 175   1 746   100 136   134 578
of which derivatives designated and accounted for as hedging instruments                            
Derivatives designated as fair value hedges       11   29   4   3   5 031   6 909
Derivatives designated as cash flow hedges       –   76   638   111   2 569   1 974
Derivatives designated as net investment hedges       190   99   14   13   6 776   5 824
Derivatives held for risk management

Derivatives held for risk management primarily comprise derivatives that share a risk with other financial instruments and give rise to opposite changes in fair value that tend to offset each other (“economic hedges”). The timing of the offset does not match in all cases.

To manage the risks associated with derivative activity, the Group establishes and monitors exposure and risk limits. Exposure to price risk on both derivatives and their underlyings is managed in accordance with risk limits set by risk committees for buying or selling instruments or closing out positions. The risks arise from open positions in interest rates, currencies and equity instruments, all of which are exposed to general and specific market movements.

Derivatives designated and accounted for as hedging instruments

Derivatives designated and accounted for as hedging instruments comprise derivatives associated with fair value hedges, cash flow hedges and net investment hedges that qualify for hedge accounting.

Derivatives designated as fair value hedges as at 31 December 2022

In CHF million
    Fair value   Contract/ notional amount   Hedging instruments   Hedged items
    Assets   Liabilities       Gains   Losses   Gains   Losses
Interest rate risk                            
Interest rate swaps to hedge bond portfolios   –   –   –   137   –   –   –137
Foreign currency risk                            
Currency forwards to hedge non-monetary investments   11   4   5 031   596   –506   506   –596
Total derivatives designated as fair value hedges   11   4   5 031   733   –506   506   –733

Derivatives designated as fair value hedges as at 31 December 2021

In CHF million
    Fair value   Contract/ notional amount   Hedging instruments   Hedged items
    Assets   Liabilities       Gains   Losses   Gains   Losses
Interest rate risk                            
Interest rate swaps to hedge bond portfolios   0   3   261   10   –3   3   –10
Foreign currency risk                            
Currency forwards to hedge non-monetary investments   29   1   6 648   430   –452   452   –430
Total derivatives designated as fair value hedges   29   3   6 909   441   –455   455   –441

The Swiss Life Group used interest rate swaps to hedge available-for-sale fixed-rate bonds and bonds classified as loans in Swiss francs, euro, British pounds and US dollars against changes in the fair value attributable to interest rate risk. The nominal amount of these bonds as at 31 December 2022 was nil (2021: CHF 270 million).

Forward contracts are used as hedging instruments to protect non-monetary investments against adverse movements in euro, British pound, US dollar and Japanese yen exchange rates. Such investments include equity securities, investment funds (equity funds and loan funds) and hedge funds.

Foreign currency debt designated as fair value hedge

In CHF million (if not noted otherwise)
    Fair value   Nominal amount   Hedging instruments   Hedged items
        EUR   Gains   Losses   Gains   Losses
                         
As at 31 December 2022
Foreign currency borrowing to hedge currency risk of non-monetary investments   –   –   3   –   –   –3
As at 31 December 2021
Foreign currency borrowing to hedge currency risk of non-monetary investments   83   80   4   –   –   –4

Hybrid debt denominated in euro was used to protect non-monetary investments (hedge funds, equity securities and investment funds) against adverse movements in euro exchange rates.

Derivatives designated as cash flow hedges as at 31 December 2022

In CHF million (if not noted otherwise)
    Fair value   Contract/ notional amount   Fair value gains (+)/ losses (–)   Hedged cash flows
    Assets   Liabilities       Effective portion recognised in other comprehen-sive income   Ineffective portion recognised in profit or loss   Years expected to occur   Years expected to affect profit or loss
                             
Interest rate risk
Forward starting swaps/bonds                            
Swiss franc   –   48   1 119   –82   –   2023–2027   2023–2051
Euro   –   589   1 450   –639   –   2023–2027   2023–2063
Total interest rate risk   –   638   2 569   –721   –   n/a   n/a
                             
Total derivatives designated as cash flow hedges   –   638   2 569   –721   –   n/a   n/a

Derivatives designated as cash flow hedges as at 31 December 2021

In CHF million (if not noted otherwise)
    Fair value   Contract/ notional amount   Fair value gains (+)/ losses (–)   Hedged cash flows
    Assets   Liabilities       Effective portion recognised in other comprehen-sive income   Ineffective portion recognised in profit or loss   Years expected to occur   Years expected to affect profit or loss
                             
Interest rate risk                            
Forward starting swaps/bonds                            
Swiss franc   –   5   150   –52   –   2022–2026   2022–2051
Euro   76   106   1 824   –215   –   2022–2026   2022–2063
Total interest rate risk   76   111   1 974   –267   –   n/a   n/a
                             
Total derivatives designated as cash flow hedges   76   111   1 974   –267   –   n/a   n/a

The Group used forward starting swaps and forward starting bonds to hedge the exposure to variability in interest cash flows arising on the highly probable purchase of bonds in order to achieve an adequate yield level for reinvestments.

Amounts recognised in OCI are reclassified into profit or loss as investment income over the life of the hedged financial assets and as gains/losses on financial assets when a hedged financial asset is derecognised. In 2022, a gain of CHF 289 million was reclassified from other comprehensive income to profit or loss (2021: CHF 49 million), of which a gain of CHF 60 million was included in investment income (2021: gain of CHF 64 million), and a gain of CHF 229 million in net gains /losses on financial assets (2021: loss of CHF 15 million).

Derivatives designated as net investment hedges of foreign operations

In CHF million
    Fair value   Contract/ notional amount   Fair value gains (+)/losses (–)
    Assets   Liabilities       Effective portion recognised in other comprehen-sive income   Ineffective portion recognised in profit or loss
                     
As at 31 December 2022
Currency forwards   190   14   6 776   89   –
Total derivatives designated as net investment hedges   190   14   6 776   89   –
As at 31 December 2021
Currency forwards   99   13   5 824   –19   –
Total derivatives designated as net investment hedges   99   13   5 824   –19   –

In 2022, investments in fixed-income funds of USD 3869 million (2021: USD 4219 million) and EUR 1358 million (2021: EUR 971 million) and investments in real estate funds of EUR 1269 million (2021: EUR 956 million) were hedged.

Foreign currency debt designated as net investment hedges of foreign operations

In CHF million (if not noted otherwise)
    Fair value   Nominal amount   Fair value gains (+)/losses (–)
        EUR   Effective portion recognised in other comprehensive income   Ineffective portion recognised in profit or loss
                 
As at 31 December 2022                
Foreign currency borrowing to hedge net investments in foreign entities   172   169   9   –
As at 31 December 2021                
Foreign currency borrowing to hedge net investments in foreign entities   185   164   7   –

Hybrid debt denominated in euro was used to protect real estate funds against adverse movements in euro exchange rates.