BÂLOISE HOLDING LTD Income statement of Bâloise Holding Ltd ����������������������������� 268 Balance sheet of Bâloise Holding Ltd �������������������������������������� 269 Notes to the financial statements of Bâloise Holding Ltd 270 Appropriation of distributable profit as proposed by the Board of Directors ����������������������������������������� 281 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ������������������ 282
→ Reduced need for capital owing to an improved business mix
BELGIUM ������������������������������������������������������������������������������������������������������ 24 Good growth and a good profit �������������������������������������������������������� 24
NON-LIFE DIVISION: INCREASED PROFITABILITY AND STRENGTHENING OF RESERVES IN GERMANY The volume of business rose by 3�0 per cent in the non-life division � While the volume held steady in Switzerland due to the selective underwriting policy for accident and health insurance, Luxembourg (rise of 7�1 per cent), Belgium (rise of 6�6 per cent) and Germany (rise of 2�9 per cent) contributed to the increased volume, which reached a total of CHF 3,140�7 million� The amount paid out for large claims was up on the prior year due to losses across Europe in connection with flooding and hail, various large claims in the industrial business (losses in connection with fires in Germany and Switzerland) and large claims in the Swiss accident business� The claims ratio was also adversely affected by the strengthening of reserves in Germany� Nonetheless, the claims ratio went down overall and the combined ratio improved by a further 1�1 percentage points compared with 2015� One of the contributing factors was the year-on-year improvement in the profit on claims reserves� The net combined ratio stood at 92�2 per cent, underlining the excellent profitability of the non-life business� At CHF 396�4 million, EBIT in the non-life business was down slightly compared with 2015�
Cash and cash equivalents 1,765.8 1,935.5 9.6 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties.
Interest expenses on insurance liabilities – 50.5 – 47.3 – 42.6 – 34.1 – 30.5
Financial instruments with characteristics of equity 9,475.7 11,344.4 13,451.2 13,770.8 14,305.6
Policy loans and other loans 30.4 176.9 207.3 25.1 156.5 181.6
COMMITMENT TO ART ���������������������������������������������������������������������������� 56 The Baloise Group’s commitment to art ��������������������������������������� 56
→ Staff in Belgium regularly engage in CSR activities, with each employee given one Friday a year for this
Baloise BarCamp → 180 managers → 5 nations → 2 days → Approx� 70 Workshops
The Baloise Group also offers a wide range of attractive training opportunities� Baloise currently employs around 230 apprentices, interns and temporary student workers� Its established graduate trainee programme, meanwhile, gives participants a deep insight into various parts of the business and thus provides the ideal preparation for a management or specialist role� The alumni of the programme, which has been running for 24 years, are highly regarded within the Company�
MEASURES UNDERTAKEN BY BALOISE IN BELGIUM TO REDUCE TRAFFIC PROBLEMS In Belgium, Baloise carried out a transport review in conjunction with the local authorities� Each employee’s journey from home to work was analysed to determine how the route could be optimised and what the best mode of transport for it would be� To make the switch to emission-free modes of transport more attractive, 100 new bicycle “parking spaces” were created, 20 of which can be used to charge electric bikes for free while the employee is at work�
4 Baloise 16 Review of operating performance 36 Sustainable Business Management 58 Corporate Governance 108 Financial Report 266 Bâloise Holding Ltd 286 General information
CORPORATE GOVERNANCE REPORT INCLUDING REMUNERATION REPORT ��������������������������������������������� 60 1� Structure of the Baloise Group and shareholder base ���� 60 2� Capital structure ������������������������������������������������������������������������������ 61 3� Board of Directors ��������������������������������������������������������������������������� 62 4� Corporate Executive Committee ��������������������������������������������� 71 5� Remuneration Report �������������������������������������������������������������������� 78 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ������������������������������� 102 6� Shareholder participation rights ������������������������������������������� 104 7� Changes of control and poison-pill measures ����������������� 105 8� External auditors �������������������������������������������������������������������������� 105 9� Amendments to the Articles of Association submitted to the 2017 Annual General Meeting ����������� 105 10� Information policy ����������������������������������������������������������������������� 106
Shareholder structure A total of 21,189 shareholders were registered in Bâloise Holding’s share register as at 31 December 2016� The number of registered shareholders had increased by 2�2 per cent compared with the previous year� The “Significant shareholders” section on page 278 provides information on the structure of the Company’s shareholder base as at 31 December 2016�
Baloise Group Annual Report 2016 Corporate Governance Corporate Governance Report each (see article 3 [2] of the Articles of Association)� This constitutes a nominal share capital increase of up to CHF 553,071�50�
Members of the Board of Directors All members of the Board of Directors – including the Chairman – are non-executives� They were not involved in the dayto -day management of any Baloise Group companies in any of the three financial years immediately preceding the reporting period, and they maintain no material business relationships with the Baloise Group�
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 insur ance-related, managerial and specialist functions performed by senior executives� Functions not covered by the Kienbaum comparison are regularly reviewed using Willis Towers Watson’s 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�
Short-term variable remuneration is paid together with the salary for March of the following year� Baloise attaches considerable importance to managing its business sustainably and ensuring a high correlation between the interests of its shareholders and executives� It therefore pays a substantial proportion of variable remuneration in the form of shares� Senior managers can choose what percentage of their remuneration is paid out and what proportion they receive in the form of shares� This choice is limited for the most senior managers, who are obliged to subscribe for shares on a sliding-scale basis: members of the Corporate Executive Committee must receive at least 50 per cent of their short-term variable remuneration in the form of shares, which account for at least 70 per cent of total variable remuneration if the long-term effect of performance share units is included (see page 83)� The shares subscribed in this way are restricted for three years and during this period are exposed to market risk� This mandatory purchase of shares in particular ensures that as senior executives’ managerial responsibilities and total remuneration packages increase, a significant proportion of their compensation is paid in the form of deferred remuneration � This system also raises employees’ risk awareness and encourages them to maintain sustainable business practices�
Those considered for performance pool payments are the most senior management level in the Baloise Group, the majority of senior managers in Switzerland and the corresponding functions abroad� However, there is no entitlement to receive payments from the performance pool�
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 36 leading European insurance companies contained in the STOXX Europe 600 Insurance Index�
Granted in 2015 2015 CHF CHF Number of shares CHF Number of shares CHF Number of PSU CHF Number of shares CHF CHF CHF CHF CHF
Liabilities included in non-current assets and disposal groups classified as held for sale
Purchase / sale of treasury shares – 64.1 57.3 – – 121.4 – 121.4
The resultant exchange differences are aggregated and recognised directly in equity. When foreign subsidiaries are sold, the exchange differences arising on the disposal are recognised in the income statement as a transaction gain or loss.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 3.5.4 Other intangible assets and internally developed assets Other intangible assets essentially comprise software, external IT consulting (in connection with software that has been devel­ oped), internally developed assets (such as software) and assets identified during the acquisition of entities (such as brands and customer relationships). These assets are recognised at cost and are amortised on a straight­line basis over their useful lives. Intangible assets with indefinite useful lives are not amortised and are carried at cost less accumulated impairment losses.
Available­for­sale financial assets and financial assets recognised at fair value through profit or loss are measured at fair value. Held­to­maturity financial assets are measured at amortised cost using the effective interest method. Realised and unrealised gains and losses on financial assets recognised at fair value through profit or loss are taken to income. Unrealised gains and losses on available­for­sale financial assets are rec­ ognised directly in equity. If available­for­sale financial assets are sold or impaired, the cumulative amount recognised directly in equity is recognised in the income statement as a realised gain or loss on financial assets. Changes in the fair value of finan cial assets’ risks that are covered by fair value hedges are recognised in the income statement for the duration of these hedges irrespective of the financial assets’ classification.
If there is objective evidence that loans and receivables or held­to­maturity financial assets may be permanently impaired, the impairment loss represents the difference between the asset’s carrying amount and the present value of future cash flows, which are discounted using the financial asset’s relevant effec­ tive interest rate. If the amount of the impairment loss decreases in a subsequent reporting period and if this decrease can be attributed to an event that has objectively occurred since the impairment was recognised, the previously recognised impair­ ment loss is reversed.
3.15.3 Treasury shares Treasury shares held either by Bâloise Holding Ltd or by subsid­ iaries are shown in the consolidated financial statements at their acquisition cost (including transaction costs) as a deduction from equity. Their carrying amount is not constantly restated to reflect their fair value. If the shares are resold, the difference between their acquisition cost and their sale price is recognised as a change in the capital reserves. Only Bâloise Holding Ltd shares are classified as treasury shares.
Assets corresponding to these liabilities are only recognised if they are ceded to an entity other than the employer (such as a foundation). Such assets are measured at fair value. Changes to assumptions, discrepancies between the planned and actual returns on plan assets, and differences between the benefit entitle­ ments effectively received and those calculated using actuarial assumptions give rise to actuarial gains and losses that must be recognised directly in other comprehensive income.
The DCF method is used to determine the fair value of investment property. The assumptions and estimates used for this purpose are described in section 3.6.
Seven years later 303.0 301.2 296.2 – – – – – – – –
Eight years later 219.0 219.8 – – – – – – – – –
→ 10 per cent fall in mortality Similar to the aforementioned scenario of an increase in mortality, the effects of a reduction in mortality were marginal for the life insurance companies in Germany, Belgium and Luxembourg and for Baloise Life (Liechtenstein ) AG. This was true of the impact on both the income statement and on equity. A reduction in mortality in the Swiss life insurance business – with policyholders’ dividends adjusted accordingly – had a negative impact of approximately CHF 75 million (2015: CHF 69 million) on the income statement. In line with the aforementioned scenario of an increase in mortality, the effect on equity in Switzerland was minor.
→ 50 basis-point increase in receipts of new money This scenario was based on the assumption that receipts of new money (including amounts reinvested) rose by 50 basis points. When applied to the German units, this scenario resulted in a reversal of DAC write-downs, changes in the financing of final policyholders’ dividends, and lower amounts being allocated to the provision recognised for impending losses. This adverse impact was exacerbated by impairment losses on interest rate derivatives. The overall impact was substantially mitigated by the prevailing legal requirements governing the distribution of surpluses. On balance there was a positive effect from the German units’ profitability in the reporting year of CHF 2 million (2015: marginal negative effect). The negative impact on equity amounted to approximately CHF 5 million (2015: CHF 5 million). In Belgium this scenario resulted in a slight increase in DACs and to lower amounts being allocated to the provision recognised for impending losses, which constituted a positive effect of roughly CHF 7 million on profitability (2015: CHF 2 million). The negative effect on unrealised gains amounted to CHF 94 million (2015: CHF 86 million). In Luxembourg this scenario produced a marginal positive impact on the income statement and an adverse effect of roughly CHF 14 million (2015: CHF 11 million) on the unrealised gains and losses recognised in equity. The resultant impact on the profitability and equity of Baloise Life (Liechtenstein) AG was negligible. In Switzerland this scenario resulted in a reversal of DAC writedowns, a reduction in technical reserves, and the offsetting effect of interest rate hedges. This improved profitability overall by roughly CHF 4 million (2015: CHF 5 million). The adverse impact on equity amounted to approximately CHF 196 million (2015: CHF 188 million).
The banks also use an appropriate asset and liability management system to monitor and manage interest rate risk. Interest rate risk is incurred only in proportion to business volume and business activities. Interest rate risk is measured using software based on gap, duration and interest rate sensitivity methods. The asset and liability mismatch at Baloise Bank SoBa is also actively managed by the use of appropriate interest rate derivatives, generally fair value hedges.
Because equity investments are actively managed, additions to and deductions from equity are carried out on a regular basis during the year. Consequently, the year-on-year effects underlying hedge accounting and the recognition of cash flows in profit or loss are recognised on a pro-rata basis.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 5.11 Capital management The general parameters regarding the amount of capital employed are set by regulatory requirements and internal risk management policies. While the aim of regulatory requirements is primarily the protection of policyholders, internal policies are largely derived from the risk-based management of operating activities.
The impairment test in 2016 did not reveal any need to recognise impairment losses. The management is of the opinion that a possible change in the assumptions based on the exercise of appropriate discretion would not have led, either in 2016 or in 2015, to the carrying amount of an entity being significantly higher than its recoverable value.
10. INVESTMENTS IN ASSOCIATES 10.1 Significant investments in associates OVB Holding Ltd is a European sales company for risk cover, retirement pension and health care products as well as wealth-building products. It also brokers Basler Versicherungen products. The company is strategically important because it constitutes a significant distribution channel.
Publicly listed, fixed-interest rate 8,549.5 8,224.6 22,992.4 23,765.6 – – 0.1 0.1 31,541.9 31,990.3
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 before the first day of the subscription period, from which discounted dividend rights are deducted over a period of three years. Once it has been calculated using this method, the subscription price is published in advance on the intranet. The shares needed for the Share Participation Plan are purchased in the market as and when required.
Liabilities arising from employee benefits 76.6 – 0.4 – 0.1 – 0.6 – 6.7 69.0
Long-term equity investments 54.6 – 10.0 – – – – 1.6 43.1
Long-term equity investments 43.1 – 3.4 – – – – 0.1 39.6
Purchase / sale of treasury shares – 964,595 964,595 – –
The actuarial reserves include unearned premium reserves and claims reserves. The actuarial reserves for DPF business as at 31 December 2016 amounted to CHF 33,271.7 million (31 December 2015: CHF 32,876.1 million), while for non-DPF business they totalled CHF 281.5 million (31 December 2015: CHF 283.1 million). The actuarial reserves for assumed business (inward reinsurance) as at 31 December 2016 came to CHF 8.5 million (31 December 2015: CHF 7.6 million).
Reclassification to non-current assets and disposal groups classified as held for sale – 31.2 –
Change due to unrealised gains and losses on investments (shadow accounting) – 0.2 – 0.8
Provisions for future policyholders’ dividends as at 1 January 2,624.5 2,386.6
29. INCOME FROM INVESTMENTS FOR OWN ACCOUNT AND AT OWN RISK
Available for sale – – 72.0 – – – – 72.0
Available for sale – – 108.2 – 0.3 – – – 108.5
Losses arising from exchange differences in respect of assets and liabilities – 16.8 – 2.8
In the year under review, no companies that constituted a business were purchased or sold. HDI-Gerling Assurances, based in Leudelange, Luxembourg, had been acquired in 2015 and was merged with
Baloise Insurance Ltd, Basel Non-Life NL 100.00 100.00 F CHF 75.0 5,455.8 1,324.3
Roland Rechtsschutz Beteiligungs GmbH, Cologne Other O 60.00 60.00 F EUR 0.1 35.6 –
Baloise Life (Liechtenstein) AG, Balzers Life L 100.00 100.00 F CHF 7.5 2,981.4 1.1
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 259 22.03.2017 15:02:07
Total income from interest and securities 16.6 102.0 3. OTHER INCOME
Baloise Group Financial Report 2016 Notes to the financial statements of Bâloise Holding Ltd 14. CHANGES IN EQUITY
Profit for the period – – – – 434.9 – 434.9
Baloise Group Financial Report 2016 Notes to the financial statements of Bâloise Holding Ltd 16. CONTINGENT LIABILITIES
Bâloise Holding Ltd is jointly and severally liable for the value added tax (VAT) owed by all companies that form part of the tax group headed by Baloise Insurance Ltd�
21. EVENTS AFTER THE BALANCE SHEET DATE By the time that these annual financial statements had been completed on 17 March 2017, we had not become aware of any events that would have a material impact on the annual financial statements as a whole�
→ Embedded value The market­consistent embedded value (MCEV) measures the value of a life insurance portfolio for shareholders at the balance sheet date� Please also refer to the separate MCEV report�
→ Investments Investments comprise investment property, equities and alter native financial assets (financial instruments with char­ acteristics of equity), fixed­income securities (financial instru­ ments with characteristics of liabilities), mortgage assets, policy loans and other loans, derivatives, and cash and cash equivalents� Precious metals in connection with investment­ linked insurance are reported as “other assets�”
→ Premium earned The proportion of the policy premium available to cover the risk insured during the financial year, i� e� the premium minus changes in unearned premium reserves�