Baloise shares* continued to post impressive gains in 2013. They closed the year at a price of CHF 113.6, which constituted an annual return of 44.7 per cent. They therefore comfortably outperformed their benchmark indices, ranking among the top six of the 30 largest and most liquid equities on the Swiss stock market.
Baloise possesses a unique product range thanks to its skilful combination of insurance and innovative safety and security solutions offered as part of its “Safety World”� By systematically targeting specific customers and partners, the Company operates with one of the most profitable insurance portfolios in Europe� These strong foundations form the basis on which growth can be further expanded through carefully targeted initiatives� 2013 saw business in Switzerland grow promisingly in life insurance and achieve an impressive increase in premium volumes in non-life insurance as well� The Company ’s operational optimisation initiatives and its sharp focus on attractive segments enabled its business in Germany to return to a successful trajectory� In Belgium, Baloise Insurance improved the profitability of the business that it had acquired in previous years� Baloise strengthened its position in the lucrative Luxembourg market by way of an acquisition, increasing its market share to more than 10 per cent in 2014�
Premiums earned and policy fees (gross)1 6,841.5 6,854.3 6,806.9 6,731.1 7,212.7
Change in technical reserves (gross) – 968.3 – 1,393.2 – 639.9 – 867.7 – 1,359.4
Funding ratio (non-life) (per cent) 187.7 180.5 195.9 184.3 179.8 1 In line with the accounting principles applied by the Baloise Group, investment-type insurance premiums are not included in premiums earned and policy fees. 2 Including financial liabilities held for trading purposes (derivative financial instruments).
Policy loans and other loans 47.3 244.6 291.9 48.3 240.8 289.1
Sustainable business management Human resources ploited� A particularly successful tool has proved to be Facebook, where the Company is followed by more than 10,000 people who are interested in insurance as a potential career�
BALOISE INTERNATIONAL: GROUP-WIDE LEARNING – EXPLOITING SYNERGIES In addition to the individual Group companies’ regional HR activities, which are determined by country-specific business requirements and the applicable legal framework, the Baloise Group is also increasingly working on HR issues that span the entire organisation�
The Company achieved further success in the field of corporate health management when the Basler Insurance companies in Switzerland were once again officially designated “friendly work spaces” in 2013� By receiving excellent ratings across all criteria, the Company comfortably exceeded the legal requirements and underscored its commitment to creating a working environment in which its staff are happy, stay healthy and, consequently, can deliver an excellent performance�
→ We continued to actively manage our credit risk and currency risk, making further progress especially in measuring and monitoring the risks attaching to countries and counterparties�
Corporate Governance Corporate Governance Report including Remuneration Report 2. CAPITAL STRUCTURE Dividend policy Bâloise Holding pursues a policy of paying consistent, earningsrelated dividends� It uses other dividend instruments such as share buy-backs and options to supplement conventional cash dividends� Shareholders have received a total of CHF 1,260�8 million from cash dividends and share buy-backs over the last five years� Baloise has therefore had a combined annual payout rate of between 30 per cent and 50 per cent in recent years�
Bonds outstanding Bâloise Holding and one other Baloise Group company have issued bonds publicly� A total of nine public bonds issued by Bâloise Holding and one other Baloise Group company were outstanding at the end of 2013� Details of outstanding bonds of Bâloise Holding can be found on pages 213 and 249 and on the internet� www.baloise.com → Investor relations → Bonds
Andreas Burckhardt (1951, Switzerland, Dr iur�) has been a member of the Board of Directors since 1999 and its Chairman since 29 April 2011� He studied jurisprudence at the universities of Basel and Geneva� He worked for Fides Treuhandgesellschaft from 1982 to 1987 and served as Secretary General of the Baloise Group from 1988 to 1994� He was director of the Basel Chamber of Commerce from 1994 to April 2011� In this role he sat on various governing bodies of national and regional business organisations� From 1981 to 2011 he performed political functions in Basel City, and from 1997 to 2011 he served on the Great Council of the Canton of Basel City (as Chairman in 2006 and 2007)� He sits on the Board of Directors of Carl Spaeter AG� Dr Burckhardt is a non-executive director�
Eveline Saupper (1958, Switzerland, Dr iur�) has been a member of the Board of Directors since 1999� She studied jurisprudence at the University of St� Gallen� She is a lawyer and a certified tax expert� She worked for Peat Marwick Mitchell (now KPMG Fides), Zurich, from 1983 to 1985 and was employed by Baker & McKenzie, Zurich and Chicago, from 1985 to 1992� She joined Homburger AG, Zurich, in 1992, where she is a partner� She sits on the Board of Directors at Homburger AG, Zurich, and at Hostettler, Kramarsch & Partner Holding AG, Zurich� Since April 2013 she has been a member of the Board of Directors at Syngenta AG, Basel, and since May 2013 at Stäubli Holding AG, Pfäffikon (SZ)� Dr Saupper is an independent non-executive director�
Performance-related remuneration Performance-related remuneration reflects individual employees ’ performance and rewards the achievement of their personal targets� To this end, line managers consult their members of staff once a year in order to define the latter’s key individual targets and objectives and then – by no later than February of the following year – assess the extent to which these targets and objectives have been achieved� The target achievement scale ranges from 0 per cent (not achieved) to a maximum of 150 per cent (significantly overachieved)� When setting these individual targets, line managers and their staff ensure that they do
5.5 Employment contracts, change-of-control clauses, inducement payments and severance packages The employment contracts of senior managers in Switzerland and – in most cases – in other countries as well have been concluded for an indefinite period� They stipulate a notice period of six months� The Chairman of the Board of Directors and all six members of the Corporate Executive Committee have a notice period of twelve months� Until 31 December 2013 they and three other members of senior management were also entitled to severance pay equivalent to one year’s salary (including variable remuneration) after a change of control or merger, should the employer (or, in certain circumstances, the employee) terminate their employment contract within twelve months of the takeover or merger�
5.10 Remuneration paid to the members of the Corporate Executive Committee Please refer to the tables on pages 76 to 79�
Cash payment (fixed) Cash payment Share Subscription Plan Employee Share Ownership Plan Performance share units (PSUs) Total variable remuneration
Explanatory notes to the table: Shareholdings Include shares held by related parties (spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them). Restricted shares Includes loan-financed shares connected with the Employee Share Ownership Plan. Shares received in connection with share-based remuneration programmes are subject to a restriction period of three years. Options Options held in connection with the Employee Share Ownership Plan are not reported here because they were written to hedge loans and do not originate from a separate option plan. Each put option is also offset by a countervailing call option. Prospective entitlements (PSUs) Number of allocated performance share units (granted as at 1 January 2011, 1 March 2012 and 1 March 2013).
Change in unrealised gains and losses on associates 6.1 – – 6.1
Change arising from shadow accounting – 606.8 6.5 – – 600.3
3.1.3 Joint arrangements Joint arrangements are contractual agreements over which two or more parties have joint control. A joint arrangement is classified as either a joint operation or a joint venture. In a joint operation, the involved parties have direct rights and obligations in respect of the assets and liabilities and the income and expenses. By contrast, the parties involved in a joint venture do not have a direct entitlement to the assets and liabilities and, instead, have rights in respect of the net assets of the joint venture owing to their position as investors.
Impairment losses recognised in previous reporting periods on assets with finite useful lives are reversed if the estimates used to determine the recoverable amount have changed since the most recent impairment loss was recognised. This increase constitutes a reversal of impairment losses. Impairment losses recognised in previous reporting periods on goodwill are not reversed. Impairment losses recognised in previous reporting periods on assets with indefinite useful lives are reversed and taken to income; however, the amount to which they are reversed must be no more than the amount recognised prior to the impair­ ment losses less depreciation or amortisation.
The forecasting methods used cannot eliminate all the uncertainties inherent in making predictions about future developments and trends. Nonetheless, systematic monitoring of the reserves recognised in a given financial year enables the Baloise Group to spot discrepancies as soon as possible and, consequently, to adjust the level of reserves and modify the forecasting method where necessary. This analysis is based on the so­called “run­off triangles” presented in aggregated form in section 5.4.5. The relevant calculations for typical property policies such as storm & tempest insurance or home contents insurance are usually based on the payments made over the past ten years. Larger amounts of data and, consequently, claims triangles that go further back in time and are based on both payments and expenses (payments plus reserves) are, of course, used for insurance segments with longer run­off periods, such as third­party liability. To supplement the Baloise Group’s var­ ious internal control mechanisms, its reserves – and the methods used to calculate them – are regularly reviewed by external specialists. Mention should be made here of the liability ade­ quacy test described in detail in section 3.17.4. The Baloise Group takes great care to ensure that it complies with the pertinent financial reporting standard by performing the regularly required profitability analysis and examining whether, at the balance sheet date, it can actually meet all the liabilities that it has taken
The liability adequacy test required by IFRS must also examine whether the Baloise Group has incurred any further liabilities for subsequent periods (future business) besides all its existing contracts maintained during the reporting period. Such business arises, for example, when contracts are auto­ matically extended at the end of the year on the same terms and conditions. Taking account of all the latest data and trends, Baloise conducts a profitability analysis of its insurance business during the reporting year in order to check whether an adequate level of premiums has been charged and, implicitly, whether these liabilities are therefore covered. This amounts to an anal­ ysis of unearned premium reserves and an impairment test of deferred acquisition costs at the same time. If a loss is expected to be incurred (also applies to other loss­making insurance contracts in existence at the balance sheet date), the deferred acquisition costs are initially reduced by the respective amount. If the total amount of deferred acquisition costs is insufficient or if the resultant liability cannot be covered in full, a separate provision for impending losses equivalent to the residual amount is recognised under other technical reserves.
Life insurance companies operating in Germany and Austria and in some areas of Swiss group life business are required by law to distribute a minimum proportion of their profits to policy­ holders in the form of dividends.
→ Financial contracts (recognised at fair value through profit or loss) Life settlement agreements (secondary market policies) dating from 2012 are measured at fair value. The income­ approach method is used for measurement purposes. The measurement of such agreements under this method includes the guaranteed maturity value, future and already disbursed policyholders’ dividends, final policyholders’ dividends, and risk­adjusted discount rates.
The Baloise Group has implemented a comprehensive, Group-wide risk management system in all of its insurance and banking entities. Its Group-wide Risk Management Standards focus on the following areas: → Organisation and responsibilities → Methods, regulations and limits → Risk control
Because all risks are quantified, it is possible to analyse the relevance of each risk to the overall risk situation of the Baloise Group and/or the individual companies.
Reinsurance contracts may only be entered into with counterparties that have been authorised in advance by Corporate Division Finance. Reinsurers must generally have a minimum rating of A– from Standard & Poor’s, but in exceptional cases – and in specific circumstances – a BBB+ rating or a comparable rating from another recognised rating agency is permitted. However, these reinsurance contracts are only used for property insurance business that can be settled quickly. This rule does not apply to captives and pools that are active reinsurance companies because they do not generally have ratings.
Nine years later 679.5 – – – – – – – – – –
Investments in pfandbriefs are backed by mortgages. The vast majority of investments in promissory notes and registered bonds are secured by guarantees or covered by the deposit protection fund, which protects investors against banks‘ insolvency or inability to pay. These investments carry a reimbursement guarantee from financial institutions. Mortgage loans are secured by property; there are limits on loan-to-value ratios.
At fair value through profit or loss Present-value model LIBOR, swap rates –
Recognised at fair value through profit or loss 956.1 956.1 – 956.1 –
Recognised at fair value through profit or loss 1,785.1 34.6 – 1,819.7
6.2.2 Disposals Belgian company AXIS Life was sold in the first half of 2013. Also in Belgium, the companies Esplan NV and Hermes Verzekeringsgroep NV were disposed of in the second half of the year. In Germany, the firm Partner in Life S.A. was sold in the first half of 2013. The transactions in Belgium and Germany have had a minor impact on the Baloise Group’s profit for the reporting period.
6.2.3 Other changes in the group of consolidated companies Belgian companies Nateus Life NV and Nateus NV were merged with Mercator Verzekeringen NV with effect from 1 January 2013; these businesses have all been operating in the market under the name of “Baloise Insurance” since the beginning of 2013. Audi NV – another Belgium-based firm – was merged with Euromex NV with effect from the above date. The German companies Avetas Versicherungs-AG and Deutscher Ring Sachversicherungs-AG were merged with the company Basler Securitas Versicherungs-AG retrospectively from 1 January 2013. These companies have been renamed Basler Sachversicherungs-AG. In addition, the company Apoll Vermittlungs-GmbH was merged with IMAS Gesellschaft für Vermögensbildung und -sicherung mbH. And in Germany, a number of property companies have been merged to form a single company.
Financial Report Notes to the consolidated annual financial statements 9. INTANGIBLE ASSETS 9.1 Intangible assets in 2012 2012 (restated) Goodwill
Financial assets for own account and at own risk 34,107.1 35,002.4
Derivative financial instruments as reported on the balance sheet 497.6 410.7 64.4 68.2
Fair value of subscribed shares on subscription date (CHF million) 3.4 4.7
The parameters used to determine the subscription price are decided each year by the Remuneration Committee. The subscription price is based on the closing price on the first day of the subscription period (until 2013: volume-weighted average share price during a contemporaneous measurement period), from which discounted dividend rights are deducted over a period of three years (please refer to the accompanying table for details). Once it has been calculated using this method, the subscription price is published in advance on the intranet. The shares needed for the Employee Share Ownership Plan are purchased in the market as and when required.
Date Price (CHF) 1 Date Multiplier Price (CHF) 1 Value (CHF) 2 3 1 Price = price of Baloise shares at the PSU grant date or conversion date 2 Value = value of one PSU at the conversion date (share price at the conversion date times the multiplier) 3 Change in value = difference between the value at the conversion date and the share price at the grant date 4 Interim measurement as at 31 December 2013
Number of active PSUs as at 31 December 2012 69,135 83,984 –
Value of allocated PSUs on issue date (CHF million) 6.9 6.4 5.6
Financial Report Notes to the consolidated annual financial statements 27. PROVISIONS
Total investment income for own account and at own risk 1,782.2 1,765.1
Carried at cost – – – – 12.2 – – 12.2
Financial Report Notes to the consolidated annual financial statements 47. SIGNIFICANT SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES AS AT 31 DECEMBER 2013
Investor Relations Baloise Group Marc Kaiser Aeschengraben 21 4002 Basel, Switzerland investor.relations@baloise.com