Further growth in market shares Last year we again stood out from our competitors and gained additional market shares. However, at ‘only’ 1.5%, premium growth was considerably more modest than in 2005 (+6.5%). This was partly due to significant premium erosion in assumed reinsurance, although we are only pursuing income targets, not volume, in this area. In addition, total direct life business suffered a dramatic slowdown in growth, in particular in Italy and Switzerland. On the other hand, at +3.5%, direct non-life business increased substantially compared to 2005. This is very pleasing, considering that motor vehicle insurance continued to suffer price erosion in many countries in 2006.
Until the Shareholders’ Meeting 2006 Marguerite Florio (1944) For details see the Annual Report 2005.
Olivier Vodoz (1943) a Geneva, Swiss b lic. iur., lawyer c Member of the Government Council of the Canton of Geneva
1.2 Major shareholders A controlled opening of the Helvetia Holding AG shareholder base was initiated in 2000. In 2002, the holdings of the shareholder pool were reduced in a regrouping process from 50.9% to 45%, in 2004 reduced to 40% under a share capital increase and, by the end of 2006, reduced to 37.8%. The aim behind these and other measures was (and remains) to underscore our policy of increasing the volume of tradeable shares so that other investors with a long-term investment horizon can hold a stake in Helvetia Holding AG. As of the reporting date, the following major or otherwise notable holdings were entered in the share register of Helvetia Holding AG: a) Shareholder pool (37.8%), comprising Patria Genossenschaft, Basel (29.8%, with an additional 0.3% outside the pool), Vontobel Beteiligungen AG, Zurich (4.0%), and Raiffeisen Schweiz, St.Gallen (4.0%).
1.3 Cross-holdings There are no cross-holdings that exceed 5% of the capital or voting rights.
Private individuals who do not declare in the application for registration that they have acquired the shares on their own behalf (= nominees) will only be entered in the share register for a maximum of 3% of the total share capital. The registration regulations are described in detail in art. 7 of the articles of incorporation: www.helvetia.com/gr-statuten.pdf.
Helvetia, the Vontobel Group and the Raiffeisen Group are co-operation partners in the areas of consulting and the sale of financial services. Both groups are therefore members of the shareholder pool together with Patria Genossenschaft.
Appendix I of the by-laws (available in German only) contains a detailed description of the division of powers between the Board of Directors, the Board Committees and the Executive Management (www.helvetia.com/gruppe/governance.htm).
In the event of departure from the Board of Directors, remuneration is paid on a pro rata basis up to the end of the month in which the person concerned leaves the Board of Directors. Departing members of the Executive Management are not entitled to severance payments. Members of the Executive Management receive a fixed salary as determined by the Nomination and Compensation Committee, plus a variable component. The amount of the variable component, which (depending on the financial results) is usually limited to 50% of the fixed component, is based on the financial results (30%) and the degree of achievement of the personal objectives agreed with the employee’s immediate superior (20%). They can contain quantitative and/or qualitative components. The fixed and variable remuneration are specified by the Nomination and Compensation Committee: the first as a general figure, and the second for every individual employee. The Nomination and Compensation Committee can also award a special bonus if very good financial results are achieved. Departing members of the Executive Management are not entitled to severance payments. The Nomination and Compensation Committee, on which Erich Walser (Chairman and CEO) is not permitted to serve, also determines his salary and remuneration. Members of the Executive Management may voluntarily take part in the share purchase plan referred to
above to a specified maximum extent. If members of the Executive Management drive company cars, a corresponding deduction is made from the basic salary. Other employer’s cash value benefits in kind are not paid.
8. Auditors 8.1 Duration of mandate, term of office of auditor in charge Since 2005, the accounts of Helvetia Holding AG and its consolidated subsidiaries have been examined by the independent auditors KPMG Ltd, Zurich, whose mandate has to be renewed every year by the Shareholders’ Meeting.
Continuing training tailored to national needs The business units are responsible for the continuing development of management and staff. An array of different continuing training activities reflects the pertinent market situation. In Germanspeaking markets, Helvetia makes a big contribution to the occupational future of young people by providing over 200 trainee positions. Along with numerous specialised training events staged internally and externally, special priority is given to management development to meet specific national needs. Helvetia Austria launched a management development programme designed and implemented in cooperation with the Group’s Management Development. About 90 managers and skilled staff attended a further module covering key
The revaluation of the real estate portfolio had a particularly positive impact. In addition, profit in the previous year suffered because of the considerable reinforcement of technical reserves for the life business. In Germany, the result improved by 62.0% to CHF 51.4 million in the past year, whereas in Italy, the 2006 result slipped just 1.5% below the very good level of the previous year.
Interest and dividend income, which is of particular significance to the insurance business, increased by almost CHF 30 million (4.2%) on 2005, while direct returns registered 3.1%, slightly less than the previous year (3.2%).
Earnings before tax improved in 2006 against the year before by about 31%, rising to a superb CHF 289.0 million. The life result was just slightly below the excellent performance posted the year before. Net non-life profit surged upward by nearly 80%. This increase can be attributed mostly to the company’s solid position in lucrative segments and to above-average growth of 4.8% in property insurance.
Encouraging trend for life insurance The year under review saw a turnaround to growth in the individual life business following a decline in premiums in 2005. Premium income increased in 2006, contrary to the negative trend in the market. In this regard, we profited particularly from the effectiveness of our own sales force and from innovative products. For example, we launched a single-premium SMI-linked life insurance product, which was heavily oversubscribed. The company’s full range of fund products was also well-accepted in the market. In regular-premium life insurance, one out of every four new policies is now unitlinked. The sales trend for straight fund investments was quite encouraging, as was the resounding approval given to our new product providing disability and death cover.
As part of our quality management system (EFQM), we intensified our efforts to improve our customer service, product design and claims management procedures.
In spite of the fact that competition in the insurance industry can be expected to remain fierce, we are confident that we will be successful in holding our own in the German market and substantially expanding our market position. With the ‘A–’ rating received from Standard & Poor’s and our new, uniform market presence, our opportunities have improved significantly in certain profitable customer and product segments.
Successful Helvetia In 2006, Helvetia Italy once again achieved nonlife premium growth of 4.4%, which was clearly above the market average. With an increase of 7.3%, the property insurance segment was the driver for this growth. We still consider the business mix between motor vehicle insurance on the one hand and the other non-life segments on the other as sensible and promising.
In the life business the Spanish insurance market continues to hold enormous growth potential – the premiums per capita and insurance penetration (percentage of premiums in gross domestic product ) continue to be significantly beneath the panEuropean mean.
Approximately 49% of overall total premiums are allocated to cargo insurance and approximately 40% to shipper’s liability insurance. The remaining transport segments receive a share of approximately 11% of the grand total.
Sustained dividend policy Helvetia has been pursuing an income-oriented, continuous distribution policy for many years. The Group’s excellent operating performance and good earning power allow the Board of Directors to request the Shareholders’ Meeting of 4.5.2007 to approve the distribution of a dividend of CHF 13.50 per share for the 2006 financial year. Compared to the dividend for the 2005 financial year of CHF 9.00, this represents an increase of 50%.
As part of its efforts to support the youth in Eastern Switzerland, Helvetia awards the annual Helvetia Prize for outstanding individual and group achievements in academics, the arts or community and civic work. ‘Jugendliches Theater 2000’ is also allotted CHF 30,000 a year. The aim of this initiative of the Helvetia Patria-Paul Bürgi fund is to interest young people aged 16 to 20 in taking advantage of the cultural offerings of the city theatre in St.Gallen.
Transfer from/to retained earnings – – – 0.0 Change in minority interests – – – 0.1 Treasury share transactions – 14.3 55.1 – Employee share purchase plan – 0.1 – – Dividends – – – –
Other disclosures on cash flow from operating activities: Interest received 694.0 667.1 Dividends received 54.8 51.9 Interest paid 10.4 11.5
2.1 Changes in accounting policies 2.1.1 Standards applied for the first time in the reporting year In the 2006 reporting year, the following sectorrelevant interpretations (IFRIC) and amendments to standards came into force: n Amendment to IAS 19 – Actuarial gains and losses, group plans and disclosures n Amendment to IAS 21 – Net investment in a foreign operation n Amendment to IAS 39 – The fair value option n Amendment to IAS 39 – Intragroup cash flow hedge accounting n Amendment to IAS 39/IFRS 4 – Financial guarantees contracts n IFRIC 4 – Determining whether an arrangement contains a lease
Amendment to IAS 21 – Net investment in a foreign operation In accordance with IAS 21, the exchange differences that arise on translating a monetary item that constitutes part of a net investment in a foreign operation must be classified as a separate component of equity not affecting profit or loss. This provision applies regardless of the functional currency of the monetary item and the Group company involved. At Helvetia Group, there are currently no items with the character of a net investment to which this amendment should be applied.
Associates and joint ventures Associates of the Helvetia Group are accounted for using the equity method if significant control is exercised by the Helvetia Group. Significant control is assumed when the Group exercises 20% to 50% of the voting rights. The goodwill resulting from equity valuation is recorded within 'Investments in associates'. The carrying value of all investments is tested for impairment if there is 2. Summary of significant accounting policies 92
Financial assets held for an undetermined period and classified as available-for-sale (AFS) are carried at fair value. Unrealised gains and losses are recognised directly in equity with no impact on profit or loss.
Derivative financial instruments are classified as 'Financial assets held for trading' and are shown in the position 'Financial assets at fair value through profit or loss'. The Helvetia Group currently does not use hedge accounting as defined by IAS 39. The hedging strategies used by Helvetia Group for risk management purposes are described in Note 16 (beginning on page 150).
If insurance contracts contain both an insurance and a deposit component, unbundling is carried out if the rights and obligations resulting from the deposit component cannot be fully assessed. In this case, the deposit component is subject to separate valuation.
Receivables from insurance business and other receivables are carried at amortised cost which is, in general, the nominal value of the receivables. Permanent impairment is recognised in the income statement.
Treasury shares are recorded at cost, including transaction costs, and reported as a deduction item in equity. The difference between cost and sale price is recorded as a change in capital reserves, with no impact on profit or loss. Treasury shares are exclusively shares of Helvetia Holding AG, St. Gallen.
Acquisition costs: Change in the scope of consolidation – – – – – – – – – –
The fair value valuation of investment properties in the portfolio of the Group companies in Switzerland is calculated using a model-supported valuation method. In the year under review, this was based on capitalisation rates ranging from 4.83% to 7.62% (previous year: 4.78% to 7.54%). For all other portfolios, the valuation is determined using reports by independent experts.
A maturity analysis of financial liabilities from insurance business is given in Note 16.4.1.
Notes to the consolidated financial statements of Helvetia Group 2006 8.3 Other financial liabilities in CHF million
Total reserves for insurance and investment contracts 25 537.8 24 471.3 443.2 501.4 25 094.6 23 969.9 Reinsurance deposit receivables 339.2 401.2
Release –53.6 –35.6 –25.4 – Used amounts –2 177.8 –2 210.6 –64.1 –92.8 Foreign currency translation differences 115.8 17.0 4.7 0.7
Release –3.3 –0.7 Used amounts –31.4 –24.2 Impairment – – Foreign currency translation differences 5.0 0.7
11.2.3 Reserve for 'Foreign currency translation differences' The reserve for 'Foreign currency translation differences ' results from the translation of financial statements prepared in foreign currency into the Group’s reporting currency (Swiss franc).
Unrealised gains and losses (net) as of 31 December 127.9 182.3
12. Provisions, contingent liabilities and other commitments 141 12. Provisions, contingent liabilities and other commitments 12.1 Non-actuarial provisions in CHF million
Release –16.4 –5.0 Used amounts –9.9 –22.9 Foreign currency translation differences 0.8 0.1 Other changes 0.0 0.4
Present value of funded obligations (+) 1 269.0 1 255.1 Fair value of plan assets (–) –1 402.4 –1 274.0
13.3.2 Movement in the present value of the defined benefit obligation in CHF million
Fair value of plan assets as of 1 January 1274.0 1154.2 Expected return on plan assets 42.4 41.0 Actuarial gains (+) or losses (–) 91.0 17.5 Employer contributions 27.6 26.6 Employee contributions 13.4 12.2 Benefits paid –67.6 –61.9 Change in the scope of consolidation – – Other amounts 21.1 84.2 Settlements – – Foreign currency translation differences 0.5 0.2
Present value of defined benefit obligation (–) –1395.7 –1379.0 Fair value of plan assets (+) 1402.4 1274.0
As far as investment policy and strategy are concerned, occupational benefit plans in Switzerland focus on total returns. The strategic goal is to optimise rates of return on plan assets, benefit costs and the cover ratio of benefit plans with a diversified mix of shares, bonds, real estate and other investments.
15. Related party transactions 149 a total of 3,155 shares (previous year: 2,297), of which the incumbent directors received 540 shares as variable compensation for the 2005 financial year.
2006 Switzerland Germany Italy Spain Other Total 2005 Switzerland Germany Italy Spain Other Total
(b) Risks arising from clusters, accumulations and trend changes In Europe, the portfolio is well-diversified with a higher weighting in Switzerland and Germany. Large risks are usually hedged through non-proportional treaty reinsurance.
(b) Risks arising from clusters, accumulations and trend changes Apart from assumed reinsurance, property insurance is limited to Europe. The insurance risks are geographically well-diversified and there is a good balance between commercial and private property in the total portfolio. The geographical distribution of risks has not changed significantly compared to the previous year.
16.5.1 Risk exposure The Helvetia Group is exposed to counterparty risk in the following areas in particular: n Counterparty risks from bonds and money market instruments.
As derivates currently held by Helvetia are predominantly short-term, this exposure is also short-term, with a correspondingly reduced risk.
Switzerland AAA 2 292.9 Germany AAA 650.9 Austria AAA 469.3 Mortgage Bond Bank of the Swiss Mortgage Institutions AAA* 381.9 Spain AAA 363.1 Italy AA 340.3 Central Mortgage Bond Institution of the Swiss Cantonal Banks AAA* 310.7 Eurohypo AG A 299.9 Raiffeisen Switzerland without rating 291.4 HSH Nordbank AG A 266.8 France AAA 265.0 * The rating refers to issued securities.
Profit for the period 196.3 74.2 Profit carried forward 3.1 6.8 Profit available for distribution 199.4 81.0 Dividend (2006: CHF 13.50; 2005: CHF 9.00) per registered share 116.8 77.9 Allocation to free reserves 80.0 0.0 Profit carried forward to new account 2.6 3.1