26 Fair Value Measurements
For reporting purposes, a fair value hierarchy is established that categorises the inputs to valuation techniques used to measure fair value into level 1, 2 or 3. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1 inputs) and the lowest priority to unobservable inputs (level 3 inputs).
The fair value of assets or liabilities included in level 1 is based on unadjusted quoted prices in active markets for identical assets or liabilities. The fair value of assets or liabilities which are not traded in an active market is determined using valuation techniques. If all significant inputs to these valuation techniques are observable (directly and indirectly) in the market, the assets or liabilities are included in level 2.
If one or more significant inputs to these valuation techniques are not observable in the market, the assets or liabilities are included in level 3. Such inputs may include information that is derived through extrapolation which is not substantiated by observable market data or that reflects own assumptions about what market participants would use in pricing the asset or liability.
26.1 Assets and liabilities measured at fair value on a recurring basis
26.1.1 Financial instruments
As a general rule, fair values of financial instruments are based on quoted prices sourced from well-known independent price providers such as Bloomberg. Model-based level 2 and level 3 valuations of financial instruments are applied to a minority of the assets.
Fair value hierarchy
| In CHF million | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quoted prices (level 1) | Valuation technique -observable inputs (level 2) | Valuation technique -unobservable inputs (level 3) | Total | |||||||||||||
| 31.12.2023 | 31.12.2022 | 31.12.2023 | 31.12.2022 | 31.12.2023 | 31.12.2022 | 31.12.2023 | 31.12.2022 | |||||||||
|
Financial assets
|
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| Derivatives | ||||||||||||||||
| Currency | – | – | 1 741 | 1 497 | – | – | 1 741 | 1 497 | ||||||||
| Interest rate | 0 | 7 | 302 | 1 871 | – | – | 302 | 1 877 | ||||||||
| Equity | 668 | 1 733 | 38 | 19 | – | – | 706 | 1 752 | ||||||||
| Total derivatives | 668 | 1 740 | 2 081 | 3 386 | – | – | 2 749 | 5 126 | ||||||||
| Debt instruments | ||||||||||||||||
| Governments and supranationals | 34 060 | 34 481 | 3 043 | 2 825 | – | – | 37 102 | 37 306 | ||||||||
| Corporates | 41 931 | 38 885 | 2 708 | 2 942 | 993 | 112 | 45 632 | 41 939 | ||||||||
| Other | – | 2 | – | 27 | 93 | 20 | 93 | 49 | ||||||||
| Total debt instruments | 75 991 | 73 368 | 5 751 | 5 795 | 1 086 | 132 | 82 826 | 79 293 | ||||||||
| Equity instruments | ||||||||||||||||
| Equity securities | 10 505 | 9 934 | 28 | 26 | 636 | 629 | 11 168 | 10 589 | ||||||||
| Investment funds | 29 901 | 30 408 | 2 481 | 1 389 | 3 772 | 4 189 | 36 153 | 35 987 | ||||||||
| Alternative investments | 67 | 87 | 27 | 54 | 8 058 | 6 938 | 8 152 | 7 080 | ||||||||
| Total equity instruments | 40 472 | 40 429 | 2 536 | 1 470 | 12 466 | 11 756 | 55 474 | 53 655 | ||||||||
| Total financial assets | 117 131 | 115 536 | 10 368 | 10 651 | 13 551 | 11 888 | 141 050 | 138 076 | ||||||||
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Investments in associates
|
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| Associates at fair value through profit or loss | – | – | – | – | 66 | 72 | 66 | 72 | ||||||||
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Financial liabilities
|
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| Derivatives | ||||||||||||||||
| Currency | – | – | 281 | 437 | – | – | 281 | 437 | ||||||||
| Interest rate | 7 | – | 623 | 2 218 | – | – | 630 | 2 218 | ||||||||
| Equity | 326 | 546 | 2 | 8 | – | – | 328 | 554 | ||||||||
| Other | – | – | 26 | 9 | – | – | 26 | 9 | ||||||||
| Total derivatives | 333 | 546 | 931 | 2 672 | – | – | 1 265 | 3 218 | ||||||||
| Investment contracts without discretionary participation | – | – | 18 162 | 18 525 | – | – | 18 162 | 18 525 | ||||||||
| Third-party interests in consolidated investment funds | – | – | 1 162 | 1 103 | 3 628 | 2 991 | 4 789 | 4 093 | ||||||||
| Other financial liabilities | – | – | 21 | – | – | – | 21 | – | ||||||||
| Total financial liabilities | 333 | 546 | 20 275 | 22 300 | 3 628 | 2 991 | 24 236 | 25 837 | ||||||||
The fair value hierarchy of assets for the account and risk of the Swiss Life Group’s customers is consistent with the categorisation of assets for the account and risk of the Swiss Life Group.
The following sections outline the valuation techniques and significant inputs used in the fair value measurement of financial instruments categorised within level 2 and level 3 of the fair value hierarchy.
Level 2 financial instruments carried at fair value include debt instruments, equity securities, investment funds, alternative investments and over-the-counter derivatives.
Debt instruments categorised as level 2 of the fair value hierarchy comprise government, supranational and corporate bonds for which prices are only available on an irregular basis or with a significant time lag. The price for such assets is obtained from an independent, acknowledged market data provider, which refers to quotes of recent transactions with the same or similar actively traded bonds and systematically derives a comparable price for those less liquid securities.
Equity securities categorised as level 2 of the fair value hierarchy comprise unlisted equities for which the prices are not available in the exchange market. The instruments are evaluated by counterparties or third-party independent agencies based on market-consistent valuation parameters.
Some fair value measurements of fund units, including unlisted fixed income funds, are only available on an irregular basis and are therefore categorised as level 2. Prices are provided by independent external market data providers who measure the fair value using market-consistent parameters.
Alternative investments classified as level 2 assets comprise hedge funds of funds and leveraged loans funds based on third-party quotes substantiated by observable market data, such as recent transactions or valuation techniques that reflect the market participants’ assumptions. The level 2 classification is chosen because those funds maintain an irregular basis of price and are evaluated with some time lag.
Level 2 fair values of over-the-counter derivatives on currencies, interest rates and equities are based on theoretical valuations with observable market data from well-known data providers as inputs. The fair value measurement is based on acknowledged, well-established models.
- Foreign currency options are valued on the basis of the Garman-Kohlhagen model with the spot foreign exchange rate, the interest rates of the underlying currencies and the foreign exchange rate volatility as main inputs.
- The fair value of foreign currency forwards is derived from the foreign exchange spot rate and actively traded foreign exchange ticks.
- Interest rate swaps are valued on a discounted cash flow basis. Main inputs used to derive the discount factors and forward curves are the risk-free reference rate curves.
- Swaptions are theoretically valued with a model based on normal distributed interest rates. Main inputs are the current par swap rate and the implied volatility that is derived from observable volatility curves.
- Forward bonds are valued on a cost-of-carry basis using the discounted cash flow method. Main inputs to calculate the current forward rate are the spot price of the underlying bond and the discount factors to coupon payment dates/maturity date.
Over-the-counter equity-index options are valued using the Black-Scholes model. Main inputs are the current spot value and the dividend yield of the underlying index. The implied volatility is taken from similar exchange-traded equity index options.
Other derivatives mainly comprise credit default swap indices. CDS indices are valued using the discounted cash flow method for the fee and the contingent leg. Main inputs for the valuation are the swap curve and the CDS par spreads quoted in the market.
In the exceptional case that a theoretical valuation of an OTC derivative is not available in Swiss Life’s asset management system, the fair value is provided by counterparties. The appropriateness of such quotes is validated by Swiss Life based on established models using observable market data as input.
The exposure of level 3 financial instruments primarily consists of the following categories.
Debt instruments categorised as level 3 of the fair value hierarchy mainly comprise infrastructure loans. For these loans the yield-calibration method is applied. The yield for the discounting of the cash flows is adjusted for changes in the risk-free rate, changes in credit markets and changes in credit quality. The adjusted yield is applied to the remaining cash flows to determine the fair value of the infrastructure loans.
The fair values of equity securities, which are not traded in an active market and are determined using unobservable inputs, classify as level 3 within the fair value hierarchy. These fair values are based on generally accepted valuation techniques. Valuation techniques aim at using a maximum of market inputs and include discounted cash flow analysis (e.g. profit situation, investment plans, investment property) and other valuation techniques commonly used by market participants.
Level 3 fair values of investment funds are primarily related to real estate funds. The valuation of the underlying property investments is done by independent appraisers using generally accepted valuation techniques (mainly discounted cash flow). The appraisers consider the general economic situation and the individual condition of the property investments. Main input factors applied in the discounted cash flow method are estimates on rental income and vacancies, projections of non-recoverable running costs (e.g. property taxes), maintenance costs and risk-adjusted discount rates, which are determined individually for each property.
The fair values of private equity and infrastructure equity investments are based on generally accepted valuation techniques. Valuation techniques use a maximum of market inputs and include the use of comparable recent arm’s length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants. Because of the inherent valuation uncertainty, those estimated fair values may differ significantly from the values that would be used if a ready market for the financial assets existed, and those differences could be material. The fair values are determined by the general partner in the partnership and reviewed by management. In determining the fair value of fund investments, the partnership considers the funds as transparent holding vehicles. The fair values of the underlying investments are determined using the general partner valuation. These fair value measurements are generally categorised as level 3 within the fair value hierarchy.
To measure the fair value of hedge funds for which no quoted market price is available, valuation techniques are used that take into account the market value of the underlying assets, transaction prices and other information.
The valuation methods of investments in associates categorised as level 3 of the fair value hierarchy are identical to the methods outlined for level 3 real estate funds.
26.1.2 Financial liabilities
The fair value of investment contracts, which are carried at fair value, is measured using market-consistent, risk-neutral economic option price models, i.e. Monte Carlo simulations based on scenarios of capital market variables (share price and interest rate indices, interest rates and foreign currency rates). These inputs to fair value measurements are generally categorised as level 2 within the fair value hierarchy.
26.1.3 Investment property and owner-occupied property (UI in VFA)
The following table shows the fair value hierarchy of investment property. Own-use property that represents an underlying item in direct participating contracts is also included.
| In CHF million | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quoted prices (level 1) | Valuation technique -observable inputs (level 2) | Valuation technique -unobservable inputs (level 3) | Total | |||||||||||||
| 31.12.2023 | 31.12.2022 | 31.12.2023 | 31.12.2022 | 31.12.2023 | 31.12.2022 | 31.12.2023 | 31.12.2022 | |||||||||
| Commercial | – | – | – | – | 20 627 | 19 673 | 20 627 | 19 673 | ||||||||
| Residential | – | – | – | – | 11 064 | 11 892 | 11 064 | 11 892 | ||||||||
| Mixed use | – | – | – | – | 9 748 | 11 334 | 9 748 | 11 334 | ||||||||
| Total investment property and owner-occupied property (UI in VFA) | – | – | – | – | 41 438 | 42 899 | 41 438 | 42 899 | ||||||||
Discounted cash flow models used for investment property and own-use property that represents an underlying item in direct participating contracts consider the present value of net cash flows to be generated from the property, taking into account expected rent growth rate, vacancy rate, rent-free periods, other costs not paid by tenants, maintenance costs and investment plans. The expected net cash flows are discounted using risk-adjusted discount rates. Location- and property-related criteria are reflected in the discount rate for each property. The criteria reflect the micro- and macro-location characteristics as well as the relevant parameters of the current management situation.
Trends in fair value are determined by various fundamental parameters. A distinction has to be made between property-specific factors and exogenous factors that relate to the real estate and finance market environments. Changes in the property management situation on both the income and the cost side directly trigger an adjustment in the reported market value. Key determinants are new and expiring leases, change in the vacancy situation, as well as movements in running, maintenance and repair costs. Developments in the relevant local real estate market have an impact on the calculation of potential rental values. Changes in the capital or transaction markets have an influence on discount rates. Property ageing is another key factor.
Significant unobservable inputs
| Switzerland | Other countries | |||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||
| Rent growth p.a. | 0.5 – 3.0% | 0.4 – 2.8% | - | – | ||||
| Long-term vacancy rate | 2.5 – 4.5% | 3.5 – 6.4% | - | – | ||||
| Discount rate | 1.95 – 3.8% | 1.85 – 3.8% | 2.4 – 5.5% | 2.4 – 5.5% | ||||
| Market rental value p.a. (price/m²/year) | CHF 290 – 328 | CHF 277 – 317 | EUR 85 – 740 | EUR 79 – 500 | ||||
Significant increases or decreases in estimated rental value and rent growth per annum would result in a higher or lower fair value of investment property. Significant decreases or increases in the discount rate would result in a higher or lower fair value. The following sensitivity information shows how the fair value of investment property would have been affected if changes in certain parameters that are used in the discounted cash flow model for the determination of fair value had occurred. At 31 December 2023, if rental income that can be earned in the long term had decreased by 5%, the fair value of investment property would have been CHF 2584 million lower (2022: CHF 2879 million). At 31 December 2023, if discount rates had been 10 basis points higher, the fair value of investment property would have been CHF 1327 million lower (2022: CHF 1564 million).
26.1.4 Deferred application of IFRS 9
Financial assets that on a specific date give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding meet the SPPI criterion. The fair value of such assets and those that do not meet the SPPI criterion as at 31 December 2022 as well as the change in fair value in 2022 are disclosed in the following table.
| In CHF million | ||||
|---|---|---|---|---|
| Change in the fair value | Fair value | |||
| Debt instruments that meet the SPPI criterion | ||||
| Governments and supranationals | –15 382 | 37 468 | ||
| Corporates | –6 669 | 40 300 | ||
| Other | –992 | 12 406 | ||
| Total | –23 043 | 90 173 | ||
| Debt instruments that do not meet the SPPI criterion | ||||
| Governments and supranationals | –24 | 57 | ||
| Corporates | –205 | 1 387 | ||
| Other | –5 | 27 | ||
| Total | –234 | 1 471 | ||
| Debt instruments at fair value through profit or loss | ||||
| Debt instruments managed on a fair value basis | –28 | 374 | ||
| Debt instruments for the account and risk of the Swiss Life Group's customers | –515 | 7 782 | ||
| Total | –543 | 8 156 | ||
The fair value and gross carrying amount of debt instruments that meet the SPPI criterion and have a credit rating below investment grade as at 31 December 2022 are disclosed in the following table.
| In CHF million | ||||
|---|---|---|---|---|
| Gross carrying amount | Fair value | |||
| Debt securities | ||||
| Governments and supranationals | 465 | 465 | ||
| Corporates | 538 | 538 | ||
| Other | 2 | 2 | ||
| Total | 1 004 | 1 004 | ||
| Mortgages | ||||
| Commercial | – | – | ||
| Residential | 5 | 5 | ||
| Total | 5 | 5 | ||
| Other loans and receivables | ||||
| Governments and supranationals | 4 | 4 | ||
| Corporates | 4 139 | 4 139 | ||
| Other | 70 | 37 | ||
| Total | 4 212 | 4 179 | ||
26.1.5 Reconciliation of fair value measurements categorised within level 3
The following tables show a reconciliation from the opening balances to the closing balances for fair value measurements categorised within level 3 of the fair value hierarchy.
Assets measured at fair value based on level 3 for the year 2023
| In CHF million | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Derivatives | Debt instruments | Equity securities, investment funds and alternative investments | Investment property and owner-occupied property (UI in VFA) | Total | ||||||||||
| At fair value through profit or loss | Fair value through other comprehensive income | At fair value through profit or loss 1 | Fair value through other comprehensive income | |||||||||||
| Balance as at 1 January | – | 26 | 106 | 10 565 | 1 263 | 42 899 | 54 859 | |||||||
| Adjustment on initial application of IFRS 9 | – | 46 | 621 | 1 263 | –1 263 | – | 666 | |||||||
| Balance as at 1 January after adjustment | – | 71 | 727 | 11 828 | – | 42 899 | 55 525 | |||||||
| Total gains/losses recognised in profit or loss | – | 5 | –13 | 34 | – | –880 | –854 | |||||||
| Total gains/losses recognised in other comprehensive income | – | – | –12 | – | – | – | –12 | |||||||
| Additions | – | 120 | 405 | 2 631 | – | 1 285 | 4 442 | |||||||
| Disposals | – | –1 | –218 | –1 407 | – | –1 214 | –2 839 | |||||||
| Transfers into level 3 | – | 115 | – | 7 | – | – | 122 | |||||||
| Transfers out of level 3 | – | –6 | –54 | 0 | – | – | –60 | |||||||
| Foreign currency translation differences | – | –10 | –46 | –561 | – | –651 | –1 269 | |||||||
| Balance as at end of period | – | 296 | 790 | 12 532 | – | 41 438 | 55 055 | |||||||
| Unrealised gains/losses recognised in profit or loss for assets held at the end of the period | – | 5 | –12 | 172 | – | –932 | –767 | |||||||
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1 Including associates at fair value through profit or loss
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Assets measured at fair value based on level 3 for the year 2022
| In CHF million | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Derivatives | Debt instruments | Equity securities, investment funds and alternative investments | Investment property and owner-occupied property (UI in VFA) | Total | ||||||||||
| At fair value through profit or loss | Available for sale | At fair value through profit or loss 1 | Available for sale | |||||||||||
| Balance as at 1 January | – | 18 | 122 | 9 838 | 1 232 | 41 935 | 53 146 | |||||||
| Total gains/losses recognised in profit or loss | – | 0 | –3 | 199 | –124 | 1 034 | 1 106 | |||||||
| Total gains/losses recognised in other comprehensive income | – | – | –8 | – | 189 | – | 181 | |||||||
| Additions | – | 9 | 0 | 2 348 | 511 | 2 030 | 4 897 | |||||||
| Disposals | – | –1 | –1 | –1 501 | –489 | –1 574 | –3 568 | |||||||
| Transfers out of level 3 | – | – | – | – | –3 | – | –3 | |||||||
| Foreign currency translation differences | – | –1 | –4 | –318 | –53 | –527 | –902 | |||||||
| Balance as at end of period | – | 26 | 106 | 10 565 | 1 263 | 42 899 | 54 859 | |||||||
| Unrealised gains/losses recognised in profit or loss for assets held at the end of the period | – | 0 | –4 | 207 | –7 | 904 | 1 101 | |||||||
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1 Including associates at fair value through profit or loss
|
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During 2023, debt securities of CHF 740 million (2022: CHF 646 million) were transferred from level 1 into level 2 as prices are based on a model, or due to reduced frequency of price quotations. In addition, debt securities of CHF 516 million (2022: CHF 52 million) and investment funds of CHF 2 million were transferred from level 2 into level 1 due to new liquid price sources. In 2022, assets for the account and risk of the Swiss Life Group’s customers of CHF 130 million were transferred from level 2 into level 1 due to available quoted prices.
The transfers between the levels of the fair value hierarchy were made at the end of the reporting period.
Liabilities measured at fair value based on level 3
| In CHF million | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Derivatives | Investment contracts without discretionary participation features | Third-party interests in consolidated investment funds | Total | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||
| Balance as at 1 January | – | – | – | – | 2 991 | 3 208 | 2 991 | 3 208 | ||||||||
| Total gains/losses recognised in profit or loss | – | – | – | – | –33 | 137 | –33 | 137 | ||||||||
| Additions | – | – | – | – | 892 | 231 | 892 | 231 | ||||||||
| Disposals | – | – | – | – | –129 | –494 | –129 | –494 | ||||||||
| Foreign currency translation differences | – | – | – | – | –92 | –92 | –92 | –92 | ||||||||
| Balance as at end of period | – | – | – | – | 3 628 | 2 991 | 3 628 | 2 991 | ||||||||
| Unrealised gains/losses recognised in profit or loss for liabilities held at the end of the period | – | – | – | – | –33 | 125 | –33 | 125 | ||||||||
Gains/losses on level 3 fair value measurements recognised in profit or loss are presented in the income statement as follows.
| In CHF million | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Financial assets measured at fair value through other comprehensive income | Financial instruments measured at fair value through profit or loss | Investment property and owner-occupied property (UI in VFA) | ||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||
| Assets | ||||||||||||
| Total gains/losses recognised in profit or loss | –13 | –127 | 39 | 199 | –880 | 1 034 | ||||||
| Unrealised gains/losses recognised in profit or loss for assets held at the end of the period | –12 | –11 | 177 | 207 | –932 | 904 | ||||||
| Liabilities | ||||||||||||
| Total gains/losses recognised in profit or loss | – | – | 33 | –137 | – | – | ||||||
| Unrealised gains/losses recognised in profit or loss for liabilities held at the end of the period | – | – | 33 | –125 | – | – | ||||||
26.2 Fair value of financial instruments carried at amortised cost
The following table shows the carrying amounts and fair values of those financial assets and liabilities not measured at fair value in the Group’s balance sheet.
| In CHF million | ||||||||
|---|---|---|---|---|---|---|---|---|
| Carrying amount | Fair value | |||||||
| 31.12.2023 | 31.12.2022 | 31.12.2023 | 31.12.2022 | |||||
| Assets | ||||||||
| Debt securities | 1 | 733 | 1 | 805 | ||||
| Mortgage loans | 11 586 | 12 034 | 11 071 | 10 700 | ||||
| Infrastructure loans | – | 731 | – | 667 | ||||
| Other loans | 3 850 | 3 375 | 3 827 | 3 375 | ||||
| Receivables 1 | 3 521 | 2 867 | 3 521 | 2 867 | ||||
| Liabilities | ||||||||
| Investment contracts without discretionary participation 1 | 39 | 20 | 39 | 20 | ||||
| Borrowings | 4 195 | 4 409 | 4 239 | 4 372 | ||||
| Other financial liabilities 1,2 | 14 057 | 15 043 | 14 057 | 15 043 | ||||
|
1 Carrying amount approximates fair value.
|
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2 Excluding third-party interests in consolidated investment funds
|
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Fair value hierarchy
| In CHF million | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quoted prices (level 1) | Valuation technique – observable inputs (level 2) | Valuation technique -unobservable inputs (level 3) | Total fair value | |||||||||||||
| 31.12.2023 | 31.12.2022 | 31.12.2023 | 31.12.2022 | 31.12.2023 | 31.12.2022 | 31.12.2023 | 31.12.2022 | |||||||||
| Assets | ||||||||||||||||
| Debt securities | – | 719 | 1 | 86 | – | – | 1 | 805 | ||||||||
| Mortgage loans | – | – | – | – | 11 071 | 10 700 | 11 071 | 10 700 | ||||||||
| Infrastructure loans | – | – | – | – | – | 667 | – | 667 | ||||||||
| Other loans | – | – | 2 723 | 2 444 | 1 104 | 931 | 3 827 | 3 375 | ||||||||
| Liabilities | ||||||||||||||||
| Borrowings | 4 057 | 2 290 | 181 | 2 082 | – | – | 4 239 | 4 372 | ||||||||
26.2.1 Receivables, investment contracts and other financial liabilities
The carrying amounts of receivables and other financial liabilities represent a reasonable estimate of fair value as the effect of discounting is immaterial and changes in credit risk are not significant. Such instruments include insurance receivables and payables, demand and short-term deposits and repurchase agreements. The carrying amount of investment contracts without discretionary participation approximates the fair value at reporting date. The disclosure of the fair value hierarchy is not applicable for these instruments.
26.2.2 Debt securities
In 2022, this category consisted of debt securities reclassified from financial assets available for sale due to the disappearance of an active market and where the market has become active again. Additionally, debt securities not quoted in an active market at initial recognition and where the market has become active again were included in this category.
Debt instruments categorised as level 2 of the fair value hierarchy comprise corporate bonds for which prices are only available on an irregular basis or with a significant time lag. The price for such assets is obtained from an independent, acknowledged market data provider, which refers to quotes of recent transactions with the same or similar actively traded bonds and systematically derives a comparable price for those less liquid securities.
26.2.3 Mortgage loans
The fair values of mortgage loans are estimated using the discounted cash flow method. The discount factors are derived from the SARON swap curve and a flat spread. Contract-specific spreads are based on an internal model that covers both risk and administration costs. Main inputs to that model are characteristics of the underlying property, the financial situation of the debtor and the duration of the contract. If no contract-specific spread is available, a standard spread is applied that shall cover the marketability disadvantages and the administration costs, as mortgages are less standardised and tradable than exchange-traded bonds.
26.2.4 Infrastructure loans
For infrastructure loans the yield-calibration method is applied. The yield for the discounting of the cash flows is adjusted for changes in the risk-free rate, changes in credit markets and changes in credit quality. The adjusted yield is applied to the remaining cash flows to determine the fair value of the infrastructure loans.
26.2.5 Other loans
The carrying amount of other loans represents a reasonable estimate of fair value as the effect of discounting is immaterial and changes in credit risk are not significant. They mainly include short-term amounts due from banks and customer loans. The disclosure of the fair value hierarchy is not applicable for these instruments.
26.2.6 Borrowings
This category consists of senior bonds and hybrid debt listed on the stock exchange.
Privately placed hybrid debt is categorised as level 2. The fair value of Swiss Life’s privately placed hybrid debt (subordinated step-up loans) is calculated as the present value of the prospective cash flows to the lenders. The discount rate used for the calculation consists of a relevant government bond rate plus a credit spread.