BALOISE Baloise key figures ................................................................. 4 At a glance .............................................................................. 5 Letter to shareholders ............................................................ 6 Baloise shares ........................................................................ 8 Our four core markets ........................................................... 10
The first year of the new strategy highlights the energy and speed with which Baloise is tackling the challenges of the digital transformation. We are doing this with a broad spectrum of initiatives and capital expenditure on business models that we think will work, underpinned by our traditionally strong core business. There are four more years to go before we reach the objectives of our new strategy. The first signs of success are already visible and tangible. Not least thanks to its traditionally strong corporate culture, Baloise has the strength to achieve its targets and thus successfully implement its plan. For this reason, the Annual General Meeting will be asked to raise the dividend by CHF 0.40 to CHF 5.60.
In 2017, Baloise shares * recorded their best performance since 2013, rising by 18.2 per cent. The share price was driven up by a favourable macroeconomic environment and the successful start of the new Simply Safe strategy. Closing at CHF 151.70, Baloise shares finished markedly higher than the closing price of CHF 128.30 at the end of the prior year. This meant that they once again comfortably outperformed the Swiss Market Index (SMI) and the Swiss Leader Index (SLI) in 2017.
The gains on investments achieved for insurance assets equated to a net return of 2.9 per cent, which was exactly the same as in 2016. The slight rise in interest rates in euros and Swiss francs led to a reduction in unrealised gains of CHF 323.7 million. Consequently, the rate of return on insurance assets according to IFRS – which includes unrealised net gains and losses on investments but excludes gains and losses on held- to-maturity debt instruments – was 2.5 per cent, representing a decrease on the 3.1 per cent rate of return according to IFRS in 2016. The banking and asset management segment reported net inflows of CHF 406.3 million in 2017. The volume of assets managed for third parties had thus risen to CHF 8,958.6 million at the end of 2017.
In the non-life division, premiums were up by 0.7 per cent to CHF 1,324.6 million. There was also an encouraging rise in new customers, primarily thanks to the YounGo product line, the new insurance for personal items and the acquisition and integration of the Movu platform for home-moving services.
The life insurance division achieved growth of 0.8 per cent. In the individual life insurance business, there was a rise in single premiums because, contrary to 2016, two tranche products were offered in 2017. There was a conscious decision to take a cautious approach to underwriting new group life business, resulting in a low rate of growth. By contrast, the products of the partially autonomous collective foundation Perspectiva generated strong growth. EBIT in the life business amounted to CHF 317.6 million (2016: CHF 221.7 million). Despite larger allocations to policyholders’ dividends in the group life business, profit rose sharply thanks to a slight increase in interest rates and the reduced need for additional funding.
2016 Group Switzerland Germany Belgium Luxembourg as a percentage of premiums earned 2017 Group Switzerland Germany Belgium Luxembourg as a percentage of premiums earned 1 Including the profit-sharing ratio.
Baloise sponsors the arts and has funded the Baloise Art Prize for 18 years. Every year, this prestigious accolade is awarded to two talented young artists at the Art Basel fair. The winning works are acquired by Baloise and donated to two museums that each mount an exhibition devoted to one of the artists. These are currently the Hamburger Bahnhof museum in Berlin and the Musée d’Art Moderne (MUDAM) in Luxembourg. In addition, Baloise maintains a long-standing collection of artworks that can be seen not only by employees but also by the public at two exhibitions in the Art Forum at the Company’s headquarters. These exhibitions are changed each year. In Germany, Baloise opens its art collection to the public once a year as part of the “Kunst privat” initiative.
Business Processes ▸ Process Risks ▸ Project Risks ▸ In- / Outsourcing
RISK PROCESSES Group-wide risk management standards place the risk process on a mandatory footing. These standards stipulate methods, rules and limits that must be applied throughout the Baloise Group. They determine how the various risk issues are evaluated, managed and reported. A number of risk limits act as early-warning indicators to mitigate the risks taken.
Risk management the risk capital held by the Baloise Group and individual business units in real time. Issue-specific risks are monitored individually by imposing limits, as illustrated by the following examples: ▸ Actuarial risk is determined by underwriting guidelines on which local underwriters base their decisions. Risk metrics analysis of the deductibles payable supplements the Company’s key reinsurance strategies.
Since it first began collecting in the immediate post-war period, the company’s art works have always been accessible both to employees and visitors. The collection is on display in foyers, corridors, meeting rooms and offices, as well as in reception rooms that are open to the public. Baloise is of the opinion that works of art ought to be seen, to enrich lives, inspire reflection and also to provoke discussion.
The 2017 Baloise Art Prize was awarded to Martha Atienza and Sam Pulitzer. Atienza received it for her film “Our Island”, which shows a traditional procession in her native Philippines. The artist staged the parade under water, not least in order to draw attention to the growing climatic threat her home country is facing from global ocean warming.
CORPORATE GOVERNANCE REPORT ............................ 60 1. Structure of the Baloise Group and shareholder base ................................................ 60 3. Board of Directors ...................................................... 62 4. Corporate Executive Committee ................................. 71 5. Remuneration, shareholdings and loans ..................... 76 6. Shareholder participation rights ................................. 76 7. Changes of control and poison-pill measures ............. 77
Sustainable business management has long played an important role at Baloise and is described in a dedicated section of the Annual Report from page 36 onwards.
Since the capital reduction decided on 28 April 2017, the share capital of Bâloise Holding has totalled CHF 4.88 million and is divided into 48,800,000 dividend-bearing registered shares with a par value of CHF 0.10 each.
Meetings of the Board of Directors are regularly attended by members of the Corporate Executive Committee. Meetings of the Chairman’s Committee are usually attended by the Group CEO and the Chief Financial Officer. Those present at Audit and Risk Committee meetings are the Chief Financial Officer, the Head of Group Internal Audit and, occasionally, representatives of the external auditors, the Chief Risk Officer and the Group Compliance Officer. The main attendees at Remuneration Committee meetings are the Group CEO, the Head of the Corporate Centre and the Head of Group Human Resources. Meetings of the Investment Committee are usually attended by the Group CEO, the Chief Investment Officer and the Heads of Investment Strategy and Investment Control, Baloise Asset Management and Real Estate. The Secretary to the Board of Directors attends the meetings of the full Board of Directors and those of its committees.
Availability of documents Annual and half-year reports, media releases, disclosures, recent announcements, presentations and other documents are available to the public at www.baloise.com. Please register for the latest corporate communications at www.baloise.com/ mailinglist. www.baloise.com/media
Gert De Winter 2016 CHF 2.152 million 2017 CHF 2.192 million
Baloise regularly compares the salaries paid in its insurance- specific and insurance-related functions in Switzerland with those of its relevant competitors and takes part in the Club Survey that Kienbaum has been conducting since 1995. This benchmarking survey of the salaries paid in the Swiss insurance sector is constantly being optimised to ensure that it meets participants’ high professional standards and quality requirements. The comparison mainly covers insurance-specific functions up to middle management level. It also examines insurance- related, managerial and specialist functions performed by senior executives. Functions not covered by the Kienbaum comparison are regularly reviewed using the Willis Towers Watson Financial Services Compensation Survey. The findings of these benchmarking surveys are fed into the Company’s regular review of its salary structures and presented to the Remuneration Committee.
The Remuneration Committee conducts a detailed assessment of the Company’s performance once a year on the basis of the various criteria mentioned above and adjusts the size of the performance pool accordingly. It consciously does not carry out any weighting of the four main indicators so as to avoid giving either too much or too little weight to either the qualitative or quantitative criteria.
The number of shares that can be subscribed after three years – i. e. at the end of the vesting period – depends on the performance of Baloise shares relative to a peer group. This comparative performance multiplier can be anywhere between 0.5 and 1.5. The peer group comprises the 33 leading European insurance companies contained in the STOXX Europe 600 Insurance Index.
Fringe benefits Fringe benefits are generally defined as components of the total remuneration package that are not dependent on either an individual’s function or performance or the Company’s performance. By providing voluntary benefits in the form of retirement pensions, subsidies, concessions, and staff training and professional development, Baloise demonstrates the close partnership that it maintains with its employees and the extent to which it values their contribution. Fringe benefits are granted on a country-by-country basis in line with prevailing local laws.
No amounts receivable from current or previous members of the Board of Directors have been waived. No remuneration was paid to former members of the Board of Directors.
15. AMOUNTS OF TOTAL REMUNERATION AND VARIABLE REMUNERATION Please refer to the table on page 107.
Total for the Corporate Executive Committee 4,087,667 1,065,270 7,613 1,070,236 1,498 210,955 7,732 1,081,707 9,111 3,428,167 7,515,834 84 % 90,226 1,229,361 8,835,422
Explanatory notes to the table Shareholdings Includes 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 Share Participation Plan. Shares received in connection with share-based remuneration programmes are subject to a closed period of three years. Options Options held in connection with the Share Participation 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 March 2015, 1 March 2016 and 1 March 2017).
Auditor’s responsibility Our responsibility is to express an opinion on the remuneration report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the remuneration report complies with Swiss law and articles 14–16 of ERCO.
Items not to be reclassified to the income statement change in reserves arising from reclassification of investment property 7.9 – 0.7 other items not to be reclassified to the income statement – 1.3 change in reserves arising from assets and liabilities of post-employment benefits (defined benefit plans) – 153.7 72.4 change arising from shadow accounting 40.5 9.9
Disposal of derivative financial instruments 103.5 62.4 taxes paid – 154.1 – 90.1
Other changes in equity capital increase / repayment 22 – – – – – – – –
purchase of treasury shares – – 1.3 – 100.6 – – – 101.9 – – 101.9
IFRS 15 Revenue from Contracts with Customers iFRS 15 will replace iaS 18 (Revenue), iaS 11 (construction contracts) and a number of other revenue-related interpretations for annual periods beginning on or after 1 January 2018. application of iFRS 15 is mandatory for all iFRS users and governs almost all contracts with customers. the main exemptions concern leases, financial instruments and insurance contracts. For those customer contracts that are not covered by the aforementioned exemptions, this new standard provides a single, principles-based five-step model to be applied to the relevant contracts with customers.
Baloise Group annual Report 2017 Financial Report 3.4 Leases 3.4.1 The Baloise Group as a lessee Finance leases: leases on real estate, office furniture, equipment, fixtures, fittings and other tangible assets are classified and treated as finance leases if they transfer to the Baloise Group substantially all the risks and rewards incidental to ownership. the fair value of the leased property or, if lower, the present value of the lease payments is recognised as an asset at the inception of the lease. all lease payments are apportioned between the finance charge and the reduction of the outstanding liability. the finance charge is allocated so as to produce a constant periodic rate of interest on the remaining balance of the liability; this is reported on the Baloise Group’s balance sheet as liabilities arising from banking business and financial contracts. assets held under finance leases are fully depreciated over the shorter of the lease term and their useful life.
3.5.3 Deferred acquisition costs (DACs) costs directly incurred by the conclusion of insurance contracts or financial contracts with discretionary participation features (DpFs) – such as commissions – are capitalised and amortised over the term of these contracts or, if shorter, over the premium payment period. Deferred acquisition costs are tested for impairment at each balance sheet date (see section 3.19.3 for further details).
3.7.3 Available-for-sale financial assets available-for-sale financial assets are non-derivative financial instruments that have been classified as “available for sale” or have not been designated to any of the above-mentioned categories and are not classified as mortgages, loans or receivables.
Baloise Group annual Report 2017 Financial Report 3.11.4 Hedges of a net investment in a foreign operation Hedges of a net investment in a foreign operation are treated as cash flow hedges. When the effective portion of hedges is being accounted for, gains or losses on hedging instruments are recognised directly in equity. the ineffective portion of hedges is recognised in profit or loss.
in addition, iFRS 4 makes exceptions for the treatment of embedded derivatives that form part of insurance contracts or financial contracts with discretionary participation features. if such embedded derivatives themselves qualify as insurance contracts, they do not have to be either separately measured or disclosed. in the case of the Baloise Group this affects, among other things, certain guarantees provided for annuity conversion rates and further special exceptions such as specific guaranteed cash surrender values for traditional policies.
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 an overall set of rules governs all activities directly connected with risk management and ensures that they are compatible with one another.
the Baloise Group’s central risk management team forms part of corporate Division Finance and reports to the Group chief Risk officer, who in turn reports to the Group cFo. it coordinates intra-Group policies, risk reporting and the technical development of suitable risk management processes and tools. every month, it tracks developments in the financial markets and their impact on the risk portfolio and the individual risk capacity of all the business units and the Group as a whole. the relevant risk owners and risk controllers verify the figures that have been computed and incorporate them into their management decisions.
▸ other Regulatory Requirements change in Standards competition Risks external events investors it Risks
5.5.2 Assumptions actuarial reserves are calculated in accordance with the factors that applied on the date a policy was signed. When setting rates for life insurance products, safety margins are built into these factors to anticipate any adverse trends in the future, principally with regard to technical interest rates and mortality tables. these built-in safety margins, combined with counter-selection effects, explain why annuity tables differ from mortality tables. cancellations are not factored in when recognising reserves.
5.6.1 Interest rate risk interest rate risk is the risk that a company’s interest margin, and therefore its income, may be reduced by fluctuations in money- market and capital-market interest rates (income effect), or that the fair value of a portfolio of interest-rate-sensitive products may decline (asset-price effect). as well as the financial risk generated by holding assets and liabilities with non-matching maturities, variations in accounting policy may result in accounting risk.
the currency effect of foreign currency bonds or insurance-related foreign currency liabilities and changes in the fair value of derivative financial instruments held for hedging purposes are always recognised in the income statement.
Baloise Group annual Report 2017 Financial Report 5.7 Credit risk credit risk relating to assets held by insurance companies refers to the total potential downside risk arising from a deterioration in the credit quality of a borrower or issuer, or from impairment in the value of collateral. credit risk is managed by monitoring the credit quality of each individual counterparty and relying heavily on credit ratings.
Baloise Group annual Report 2017 Financial Report the management and control of credit risk arising from mortgage business are set out in instructions and written procedures in which mandatory lending regulations are specified. these lending regulations lay down strict procedures for the immediate identification, accurate assessment, proper authorisation and continuous monitoring of credit risk. Standard credit documentation is used to record and review loan applications, which are all logged and managed centrally. the relevant credit documentation reflects or incorporates all evaluation criteria and policies.
Liquidity risk as at 31.12.2017 ’ 1 year2 1 – 3 years 4 – 5 years > 5 years Total Carrying amount cHF million liabilities arising from banking business and financial contracts
as part of tactical and strategic investment planning, care is taken when allocating the assets held by the individual life and non-life insurance units in the Baloise Group to ensure that sufficient liquidity is available to carry out investment activity and for the operational settlement of all business processes. the level of liquidity required is determined on the basis of the maturity structure of investments versus the payout schedule for insurance-related liabilities. the average historical pattern of incoming and outgoing cash management payments over the previous five years is also taken into account. investment planning explicitly includes exceptionally large incoming or outgoing payments that are known in advance. Maintenance of liquidity levels and access to further liquidity via the repo market ensure sufficiently high reserves for payments needed at short notice, such as large claim settlements, until such as time as the reinsurer assumes the costs. cash pooling among the Baloise Group’s Swiss companies also ensures that excess liquidity in one unit can be used to offset a temporary liquidity squeeze at another unit via an intra-Group interest-bearing overdraft facility.
the organisation of these individual units varies in terms of how they determine the fair value of financial instruments classified as level 3. this process essentially involves the regular discussion of measurement methods, measurement inconsistencies and classification issues by formal or informal committees at each reporting date. appropriate adjustments are made where necessary.
6.2.3 Other changes in the group of consolidated companies no companies were merged or liquidated in the year under review.
Reinsurers’ share of claims incurred 27.1 38.7 103.2 85.0 74.8 51.4 9.2 6.9 214.2 182.0 – 0.3 – 0.4 – 105.7 – 100.9 108.2 80.8 operating and administrative expenses for insurance business interest expenses on insurance liabilities – 2.3 – 0.7 – 28.3 – 21.3 – 0.2 – 0.1 0.1 0.0 – 30.7 – 22.1 – – 0.2 0.2 – 30.5 – 21.9
Baloise Group annual Report 2017 Financial Report 9.1 Assumptions used to test the impairment of significant goodwill items assumptions used to forecast future business developments and trends have been reviewed by the local management teams and take account of macroeconomic conditions. the input factors are described in note 3.10.3 (impairment losses on non-financial assets).
in other countries, the benefits are either granted by the employer directly or covered by an insurance policy that, as a rule, is funded by the employer. Directly granted benefits are particularly relevant in Germany, where benefits are agreed between the employer and the employee representatives.
Balance as at 1 January – 752.5 – 843.2 current service cost – 14.0 – 17.0 interest rate effect – 15.4 – 11.5 employees’ savings and purchases – –
Years average life expectancy of a 65-year-old woman 24.2 24.3 average life expectancy of a 65-year-old man 21.6 21.7
liabilities arising from banking business and financial contracts – 540.5 – –
Unrealised losses directly associated with non-current assets and disposal groups classified as held for sale the disposal group reported for the 2016 financial year comprised the assets and related liabilities of the portfolio of life insurance policies held by the German branch of Baloise life ltd (Basler leben DfD [Direktion für Deutschland]).
provision for claims handling costs 520.5 – – 512.5 – –
apart from the actual unearned premium reserves, this item includes health insurance reserves for old age and deferred unearned premiums.
Gains on the sale of property, plant and equipment 0.4 6.6 currency gains on assets and liabilities 5.5 9.5
Total deferred income taxes of items not to be reclassified to the income statement 27.2 – 21.4
Funds used / received for acquisitions and disposals cash and cash equivalents – 262.6 – 37.7 offsetting – 7.3 – –
the acquisition resulted in negative goodwill of cHF 10.3 million, which was recognised under other operating income. this negative goodwill arose from the remeasurement of development projects, taking account of the current situation in the real- estate market. in the acquiring Group company, there was an opposite negative effect on earnings of cHF 8.8 million as a result of applying the deferred gains / losses for policyholders’ dividends.
the Baloise Group retains control over the loaned securities throughout the term of its lending transactions. the income received from securities lending is recognised in profit or loss.
Baloise life ltd, Basel life l 100.00 100.00 F cHF 50.0 33,063.6 2,904.3 pax anlage aG, Basel Holding l 84.88 84.88 F cHF 18.0 179.2 –
Basis for opinion We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the section Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements of our report.
Baloise Group annual Report 2017 Bâloise Holding ltd notes to the financial statements of Bâloise Holding ltd 13. CEDED ASSETS Bâloise Holding ltd lends some of its treasury shares to Baloise insurance ltd every year under a securities lending agreement. these shares are used in the Share participation plan run by Baloise insurance ltd. no assets had been ceded at the balance sheet date (2016: none).
INFORMATION ON THE BALOISE GROUP .................... 293 FINANCIAL CALENDAR AND CONTACTS ...................... 294
▸ Reserves a measurement of future insurance benefit obligations arising from known and unknown claims that are reported as liabilities on the balance sheet.
▸ Swiss leader index the Swiss leader index (Sli) comprises the 30 largest and most liquid equities on the Swiss stock market.