SUSTAINABLE BUSINESS MANAGEMENT Responsibility ���������������������������������������������������������������������������������������� 40 Human resources ��������������������������������������������������������������������������������� 42 The environment ���������������������������������������������������������������������������������� 46 Risk management ��������������������������������������������������������������������������������� 50 Commitment to art ����������������������������������������������������������������������������� 54
CORPORATE GOVERNANCE Corporate Governance Report including Remuneration Report ��������������������������������������������������� 58 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ��������������������� 96
FINANCIAL REPORT Consolidated balance sheet ���������������������������������������������������������� 104 Consolidated income statement ������������������������������������������������� 106 Consolidated statement of comprehensive income ����������� 107 Consolidated cash flow statement ��������������������������������������������� 108 Consolidated statement of changes in equity ���������������������� 110 Notes to the consolidated annual financial statements ��� 112 Notes to the consolidated balance sheet ��������������������������������� 182 Notes to the consolidated income statement ����������������������� 230 Other disclosures ������������������������������������������������������������������������������ 242 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ������������������������������������ 254
NOTES Glossary ������������������������������������������������������������������������������������������������� 276 Addresses ���������������������������������������������������������������������������������������������� 280 Information on the Baloise Group �������������������������������������������� 281 Financial calendar and contacts ������������������������������������������������ 282
2 Of which deferred gains / losses from other operating segments (31 December 2014: CHF 0.6 million; 31 December 2015: CHF –3.3 million). 3 Excluding investments for the account and at the risk of life insurance policyholders.
4 Calculation is based on the profit for the period attributable to shareholders and the equity attributable to shareholders. 5 2015 based on the proposal submitted to the Annual General Meeting.
CHF 5.00 per share (will be proposed to the Annual General Meeting on 29 April 2016)
Net combined ratio of 93.3 per cent 3.3 per cent higher business volume1
We also believe there are further attractive opportunities in life insurance, although we will continue to prioritise innovative pension solutions in the future, such as the semi-autonomous Perspectiva pension scheme in Switzerland� This will enable us to ensure that our customers’ pensions remain safe
Baloise Letter to shareholders in today’s environment of low interest rates� In Switzerland, demand for occupational pensions continues to grow in the segment comprising small and medium-sized companies� Particularly in the current environment, our customers value the fact that their pensions are guaranteed to be safe at all times�
Our Swiss insurance companies delivered very solid earnings in their life business and reaffirmed their excellent profitability in non-life business� Overall, the environment remained competitive, not least because of the SNB’s decision and the persistent upward pressure on costs� Earnings in our German business were depressed by the exceptionally high level of large claims in the non-life segment, the adverse impact of low interest rates, and currency effects� The measures taken to optimise the business are starting to take effect, but so far have not had the anticipated impact on comprehensive income� There was encouraging growth in the business volume in Belgium in localcurrency terms, particularly in investment-linked life insurance, where the rate of growth showed that the alliances entered into with banks and distribution partners are continuing to pay off� In Luxembourg, as announced in early August, we further strengthened our position in non-life business by acquiring non-life insurer HDI-Gerling Assurances SA, which means we are set to become one of the top three insurers in Luxembourg�
The profitability of Baloise’s portfolio was also reflected in an excellent net combined ratio of 93�3 per cent� The challenging environment in the capital markets naturally impacted on investment returns, but a net return of 2�9 per cent enabled us to generate healthy earnings, which clearly reflects the quality of our asset management�
The insurance industry is facing game-changing challenges � The change in consumer behaviour resulting from digitisation, for example, will influence how we meet the future demands of our customers� It will become increasingly important to innovate and break into new areas of business� The lowinterest -rate phase in Europe, and particularly the negative interest rates in Switzerland and the strength of the Swiss franc, pose additional challenges for us� Thanks to our focus on our core markets, our operational excellence and our unrivalled positioning in terms of safety, security and prevention, we are able to meet these challenges from a position of strength�
By appointing Gert De Winter, isn’t the Board of Directors sticking to the tried-and-tested rather than bringing in a new broom for Baloise? Andreas Burckhardt (ABu): Not at all� That is certainly not how the Board of Directors and I see this appointment� Gert De Winter is obviously very familiar with the Baloise Group, having been here for eleven years� He knows how we operate and embodies our values� But that is not why he was appointed as the new CEO� Gert De Winter beat the external candidates in a lengthy and thorough selection process in which he convinced the Board of Directors that he was the best person for the job� His time as CEO in Belgium, his background and his experience of management in both IT and human resources means he will indeed bring new ideas with him that will enable us to begin a new chapter in Baloise’s success� In any case, it’s not as if we were looking for, or needed, someone to usher in change� Baloise is doing well� Gert De Winter should and will build on our tried-and-tested approach, but will also bring the skills and ideas needed to prepare the business for future challenges�
What are the challenges that you and the industry face? ABu: Everyone is currently talking about digitisation� It will undoubtedly have a long-term impact on the industry, but even the most qualified experts are unable to tell us when or how� The fact is that the core competence of insurance companies, namely analysing data and using it for their core business of bearing/taking on risk in return for premiums, will no longer be the preserve of insurers� Companies in other industries now collect far more data than the insurance sector and, at some point, they will want to capitalise on this� That is why we as an insurance company need to lay the foundations today so that
The Baloise Group has had a new Group CEO, Gert De Winter, since 1 January 2016. De Winter (49), who is Belgian, has been with Baloise for eleven years. In his previous post, he was CEO of Baloise Insurance Belgium. During this interview, he and the Chairman of the Board of Directors, Andreas Burckhardt, explain what this new era means for the future and how Baloise is facing up to the challenges in the insurance industry.
we can retain our lead when it comes to using data for our customers� This raises the question of whether in future we want to be an insurer that only bears risk or whether we want to broaden our business model� Baloise, with its safety positioning, has built up its expertise in the area of prevention over many years� We are thus facing up to these future challenges from a position of strength� Moreover, we still have to cope with the difficult interest rate situation and the strength of the Swiss franc, despite the signals sent by the US Federal Reserve at the
What is the new CEO doing differently to his predecessor? Gert De Winter (GDW): It’s not my place to make comparisons� Everyone has their own personality, which in itself means that we all approach things differently� Baloise has worked very well over the past few years, as evidenced by the success and the results it has achieved� So it’s not a matter of doing things fundamentally differently� On the other hand, the industry is facing huge challenges� My task will be to prepare Baloise for these challenges and, at the same time, to explore new opportunities � I will give my all every day to demonstrate these opportunities to employees, customers, partners and shareholders� I’ll champion these opportunities and make our stakeholders enthusiastic about them too�
Nonetheless, the core insurance business is under pressure and the German market remains an issue. How are you going to tackle this? ABu: The life insurance business is not easy as a result of the interest rate situation� It’s now almost impossible to give guarantees, or they are not appealing enough for customers� New business from traditional life insurance can’t help but suffer in these circumstances� But customers’ need for safety remains the same� For a while now, we have therefore been offering innovative insurance solutions with lower or even no guarantees but which offer a basic level of security and enable us to respond better and more quickly to market conditions and to invest accordingly� This can result in very attractive surpluses for policyholders, especially in the group life business� Small and medium-sized enterprises particularly appreciate this� As far as Germany is concerned, we firmly believe in its opportunities and possibilities� Progress is slow – slower than we thought it would be – but we can do well in this market� This can be seen from the successes that we have notched up so far� Baloise is well positioned with its core markets of Switzerland, Germany, Belgium and Luxembourg, and this shouldn’t change�
In the second half of the year, Baloise shares climbed by 11�9 per cent, outperforming both the Swiss Leader Index (up 1�0 per cent) and the Swiss insurance sector index (up 4�6 per cent)� Thanks, above all, to a strong recovery in the fourth quarter, Baloise shares thus almost offset the decrease registered in the first six months of the year� Closing at CHF 127�60, the shares finished 2015 virtually where they had been at the start of the year�
European insurance stocks fared better� The STOXX Europe 600 Insurance (SXIP) index for the European insurance industry achieved an increase of 14�0 per cent compared with its level at the beginning of 2015� Insurers’ profitability continues to be robust and their dividend yields remain attractive owing to the environment of low interest rates in Europe�
DIVIDENDS PAID TO SHAREHOLDERS The Board of Directors of Bâloise Holding Ltd will propose to the Annual General Meeting on 29 April 2016 that another good cash dividend of CHF 5�00 per share be paid for the 2015 financial year� This would represent an attractive dividend yield of 3�9 per cent of the year-end share price�
Under the share buy-back programme, which began in April 2015, a total of 507,500 shares at an average price of CHF 116�36 had been acquired by the end of December 2015� As at 31 December 2015, the share buy-back programme was therefore 50�75 per cent complete�
Baloise shares* were marked by volatility in 2015, although they remained at a high level. The closing price of CHF 127.60 was on a par with the price at the start of the year. Baloise shares thus outperformed the Swiss Market Index. A dividend yield of 3.9 per cent represents another attractive payout for shareholders.
SHAREHOLDER STRUCTURE The shares in Bâloise Holding Ltd are widely held and their free float remains unchanged at 100 per cent� There were no disclosures about changes to the Baloise shareholder base during the financial year� Further information on Baloise’s significant shareholders as at 31 December 2015 can be found in the table on page 268�
Who we are: Headquartered in Basel, Switzerland, the Baloise Group is a European provider of insurance and pension solutions. In Switzerland, the Group operates as a specialised financial services provider, offering a combination of insurance and banking services. The Group also has a market presence in Germany, Belgium and Luxembourg. Its sales network includes its own sales organisation, as well as brokers and other partners. Baloise operates its innovative pension plan business for private customers throughout Europe with its competence centre in Luxembourg. Bâloise Holding Ltd shares are quoted in the main segment of the SIX Swiss Exchange. The Baloise Group employs some 7,400 people.
What we stand for: We want people to feel safe. To play our part in this respect, we created the “Safety World”. Everything we do is aimed at safety. As such, we consciously go further than other insurance companies - we combine insurance with smart prevention. In this way, we help to ensure that losses do not occur in the first place. Should something happen nevertheless, then we’re right there. Fast and capable as always.
Swiss: Baloise is proud of its Swiss origins, which date back to 1863. We link this to reliability, a humanistic approach, solid security, strong tradition, financial expertise and impartiality.
Safety: Safety and security constitute our core competences and lie at the heart of all the products, services and benefits that we offer. They act as an exhilarating and energising force that unlocks huge potential.
“Making you safer” is our brand promise. Everything we do is geared towards enhancing safety and security. We combine insurance with intelligent risk prevention to help ensure losses do not occur in the first place.
SAFETY WORLD “Making you safer” is the promise we make to our key customers. The smart combination of insurance and innovative safety solutions gives us a unique product range that wins over our risk-aware target customers.
TARGET CUSTOMER MANAGEMENT Our target customer management approach sets new benchmarks for our industry. The systematic focus on risk-aware key customers is deeply embedded in our culture, in terms of guiding behaviour, processes and remuneration schemes, and provides us with one of the most profitable insurance portfolios in Europe.
GROWTH → Enhance target customer and target broker management → New pricing skills → New growth areas
→ Innovative products for affluent customers → Adapt new business to ongoing low-interest environment → Enhance value of the in-force business
SWITZERLAND ������������������������������������������������������������������������������������������� 24 Solid results in a competitive environment �������������������������������� 24
FINANCIAL INFORMATION �������������������������������������������������������������������� 28 Consolidated income statement ������������������������������������������������������� 28 Consolidated balance sheet ���������������������������������������������������������������� 30 Business volume, premiums and combined ratio �������������������� 31 Technical income statement �������������������������������������������������������������� 33 Gross premiums by sector ������������������������������������������������������������������� 34 Banking activities ����������������������������������������������������������������������������������� 35 Investment performance ��������������������������������������������������������������������� 36
Review of operating performance 4 Baloise 18 Review of operating performance 38 Sustainable business management 56 Corporate Governance 102 Financial Report 256 Bâloise Holding Ltd 274 Notes
OVERVIEW In 2015 Baloise achieved a healthy profit of CHF 512�1 million in an uncertain market environment� This figure was 27�9 per cent down on 2014� However, the previous year had been boosted by a number of non-recurring effects such as the disposal of Baloise’s shareholdings in Nationale Suisse and Helvetia and the sale of Basler Austria, which accounted for additional revenue of around CHF 160 million� In addition to the prolonged phase of low and negative interest rates, the results for 2015 were also subject to currency effects and to higher hedging costs, which were mainly the result of the Swiss National Bank (SNB) releasing the Swiss franc from its peg against the euro� At the average exchange rate in 2014, Baloise’s profit would have been around CHF 30 million higher�
There was encouraging growth in the EBIT generated by the banking business, which rose by 9�6 per cent to CHF 80�8 million �
Targets achieved in difficult conditions 1 The key figures on premiums and business volumes mentioned in the review of operating performance in this annual report have been calculated in local currency on a like-for-like basis and exclude discontinued operations (Austria, Croatia and Serbia).
Baloise reported a 6�4 per cent fall in EBIT generated by its non-life business, which amounted to CHF 395�5 million� This was partly due to a year-on-year fall in net gains on investments �
The positive operating income resulted in an increase in the embedded value of the life insurance business from CHF 3,610�2 million to CHF 3,876�2 million in 2015, which is equivalent to a return on embedded value of 8�3 per cent� The new business margin fell to 9�8 per cent (2014: 15�0 per cent) due to lower interest rates in Switzerland� The value of new business amounted to CHF 36�1 million�
BANKING DIVISION: ENCOURAGING EARNINGS GROWTH The banking business generated strong earnings and succeeded in maintaining its net interest income at around the same level as in 2014� Overall, its EBIT of CHF 80�8 million represented an increase of 9�6 per cent on the previous year� The main contributors were the two Baloise Asset Management units (CHF 46�9 million) and Baloise Bank SoBa (CHF 25�0 million)�
SIGNIFICANT GAINS ON INVESTMENTS The defining events in 2015 were the abandonment of the euro exchange-rate floor by the Swiss National Bank (SNB) and the introduction of negative interest rates� Quantitative easing carried out by the European Central Bank (ECB) in the eurozone also pushed interest rates to ultra-low levels� The US Federal Reserve’s deferral of a change in interest-rate policy in September and concerns about the Chinese economy unsettled investors and resulted in a stock-market correction� In early December, the fact that the expansion in the ECB’s programme of quantitative easing fell short of investors’ expectations heightened volatility prior to the markets rallying sharply following the interest-rate hike in the US� The further fall in interest rates in the Swiss market remains one of the medium-term challenges facing those investing and reinvesting insurance assets�
The net income generated by Baloise came to CHF 1,841�3 million, which was below the CHF 2,411�4 million reported for 2014 when it had been boosted by non-recurring effects� Firstly, this was because recurring income amounted to CHF 1,521�8 million, which was significantly lower than the prior-year figure
Cash and cash equivalents 1,954.5 1,765.8 – 9.7 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties.
The duration of our fixed-income investments, particularly those held by the life companies, was increased significantly � No impairment losses were recognised on debt instruments � Baloise also further increased its equity exposure as measured under IFRS� In terms of alternative financial assets, we increased our position in senior secured loans� The impairment losses recognised on financial instruments with characteristics of equity totalled CHF 72�0 million (gross)� Investment property continued to yield stable returns and slightly higher valuations� The values and income streams generated by mortgages remained consistent�
of CHF 1,701�9 million� In addition to the persistently tough investment situation in the low interest-rate environment, the depreciation of the euro following the SNB’s abandonment of the minimum exchange rate also took its toll on net income because the income on foreign-currency investments generated by both Baloise’s foreign entities and its Swiss entities were translated at lower exchange rates than in 2014� Secondly, the gains realised in 2015 were lower than in the previous year when exceptionally large gains were realised� The net income generated in this very challenging environment equated to a healthy net return on insurance assets of 3�1 per cent (2014: 4�2 per cent) and is therefore broadly in line with the long-term trend� The volume of unrealised gains was lower because of currency translation and a slight rise in eurozone interest rates and realised gains� Consequently, the rate of return on insurance assets according to IFRS – which includes unrealised net gains and
Total assets under management 80,733.0 as at 31 December 2015 Non-life Life Banking Total for the
Individual life insurance business contracted by 4�8 per cent� Because of its low margins, this business was not prioritised in 2015� The annual premiums declined because new business in the current low-interest environment is unable to compensate for the level of outflows from the portfolio resulting from maturing policies� There was a particularly sharp fall of 14�5 per cent in business involving traditional single premiums (investment-type premiums) as a result of the underwriting restrictions following the SNB’s decision� Premiums for tranche products also declined because, in contrast to 2014, no second tranche was launched�
The banking business conducted by Baloise Bank SoBa performed very well� The bank reported operating profit of CHF 38�0 million in its local financial statements, which constitutes an increase of 6�2 per cent� Its profit from interest-earning business, meanwhile, rose by 2�1 per cent to reach CHF 77�1 million�
Non-life premium income was down by 1�0 per cent to CHF 734�5 million, despite the fact that significant growth of more than 4�0 per cent was achieved in some target segments� However, further profit-driven restructuring measures were also carried out in 2015� The gross combined ratio rose by 5�4 percentage points to 106�9 per cent� This unsatisfactory outcome was due to the fall in the volume of premium income as well as the repeatedly high level of large claims paid� Of the total claims, CHF 15�2 million alone related to two storm events and CHF 21�8 million to two fires at SMEs�
In life business, a year-on-year fall of 2�2 per cent was reported in the volume of premium income, which declined to CHF 679�6 million� In contrast to the contraction in traditional life business, investment-type premiums followed an upward trend, with growth of 4 per cent in local-currency terms� The trend in new business in unit-linked products, however, could not compensate for the decline in traditional life business�
BALOISE INSURANCE BELGIUM There was a further improvement in the quality of the portfolio in Belgium� In local-currency terms, the volume of premium income grew by 6�3 per cent to CHF 1,445�0 million� Profit before borrowing costs and taxes jumped by more than 35 per cent to CHF 191�7 million, which meant that Baloise’s Belgian business significantly outperformed the market average in both its life and non-life divisions� Isolated price increases and bundled family and SME products were responsible for the growth in its non-life business� The Belgian business continued to focus on corporate business and regional expansion to Brussels and Wallonia� In its marine business, Belgium benefited from an alliance with Dutch Marine International, a specialist provider of transport and marine insurance� Following the isolated nonrecurring effects such as hail storm ‘Ela’ that had an adverse effect on the previous year, EBIT for non-life business rose to CHF 112�3 million in 2015� As a result, the Belgian business contributed around 28 per cent of the Baloise Group’s non-life profit for the period� The high level of profitability in non-life
Brussels business was reflected in a 7 percentage point fall in the gross combined ratio, which improved to 95�4 per cent�
In its traditional life business, Baloise Insurance Belgium generated strong growth of 4�5 per cent in a declining market, thus also increasing its total share of the Belgian life insurance market by a small margin� Innovative life-insurance products were the main driver of this above-average growth rate, with the volume of investment-type premiums rising by 9�8 per cent in local-currency terms to a total of CHF 412�2 million�
The international life business, which is operated from Luxembourg and mainly generates investment-type premiums, held up well� The growth here was partly attributable to Baloise Life Liechtenstein which is integrated into the Luxembourg business� The total volume of premium income amounted to CHF 1,382�3 million, which represented an increase of 12�4 per cent� The strong growth rate of 13�4 per cent in investment-type premiums in local-currency terms more than compensated for the decline of 3�7 per cent in traditional business�
Premiums earned and policy fees (gross)1 6,806.9 6,731.1 7,212.7 7,168.1 6,832.4
Share of profit (loss) of associates 10.2 16.5 40.5 8.1 36.8
Change in technical reserves (gross) – 639.9 – 867.7 – 1,359.4 – 1,469.5 – 1,241.9
Gains or losses on financial contracts 324.0 – 577.8 – 368.9 – 462.6 – 0.9
Profit before borrowing costs and taxes 143.9 617.9 658.2 928.6 719.2
Financial instruments with characteristics of equity 9,703.9 9,475.7 11,344.4 13,451.2 13,770.8
Financial instruments with characteristics of liabilities 28,917.5 32,513.3 32,327.1 34,461.6 33,248.4
Sub-total of IFRS gross premiums written1 1 Premiums written and policy fees (gross). 2 Other units: Austria (until 28 August 2014), Croatia and Serbia (until 11 March 2014).
2014 Group Switzerland Germany Belgium Luxembourg Other units1 as a percentage of premiums earned 2015 Group Switzerland Germany Belgium Luxembourg Other units1 as a percentage of premiums earned 1 Other units: Austria (until 28 August 2014), Croatia and Serbia (until 11 March 2014). 2 Including the profit-sharing ratio.
Funding ratio (per cent) 179.8 182.9 1 Including the profit-sharing ratio. 2 Not including capitalised settlement premiums.
Change in unearned premium reserves – 7.5 – 1.1 – –
Claims and benefits paid (gross) – 2,050.6 – 1,854.0 – 3,615.8 – 3,498.4
Claims and benefits paid – 1,930.1 – 1,783.3 – 3,607.8 – 3,493.3
Change in claims reserve / actuarial reserves1 – 48.4 – 28.7 – 1,003.3 – 738.7
Total technical result for own account 158.9 171.8 – 1,658.2 – 1,264.6
THE ENVIRONMENT ��������������������������������������������������������������������������������� 46 Environmental mission statement �������������������������������������������������� 46 Protecting the environment over the long term ����������������������� 48
RISK MANAGEMENT �������������������������������������������������������������������������������� 50 Baloise’s risk management is one of the main pillars of its business model ������������������������������������������������������������������������������ 50
Sustainable business management 4 Baloise 18 Review of operating performance 38 Sustainable business management 56 Corporate Governance 102 Financial Report 256 Bâloise Holding Ltd 274 Notes
Baloise supports these efforts in principle and aligns itself with the position taken by the Federal Council so that it can continually improve its CSR activities� However, it believes that CSR is something that companies should take upon themselves to put into practice and that it should not be prescribed by law� The primary task of the state is – and has to be – to create a legal and regulatory framework that will allow companies to remain competitive and thereby fulfil their role as corporate citizens through their own activities�
A RESPONSIBLE EMPLOYER The concept of social partnership has a long tradition at Baloise Insurance in Switzerland� In 2015 the Company’s employee commission (MAKO) celebrated its 40th anniversary� The Baloise MAKO was established long before 1993, when the Swiss federal government passed a co-determination act that made it law for employees to have a say in the workplace and to be given information on particular matters� To this day, the rights of the MAKO go well beyond the provisions of this act� Baloise has always fostered an employee-oriented corporate culture across its organisation� It gives its staff scope to contribute to the success of the Company and to develop both personally and professionally, placing particular emphasis on training and development� In doing so, Baloise secures not only its own longterm viability but also the future employability of its staff in an increasingly competitive economic environment� By giving young people their first experience in the world of work – as trainees, interns and temporary student employees – we are also making an investment in the future of the Company and the employment markets of the countries in which we operate� Every year, across the Baloise Group, we train over 200 people who are at the start of their careers� The value that this adds both for these young employees and the Company provides a solid basis for the future and enables us to create new jobs and preserve existing ones�
RESPONSIBILITY TO THE CUSTOMER Every day our customers benefit from the value that we add through our intelligent prevention services� These help them to avoid claims arising in the first place, making them feel safer and more secure� Everything that Baloise’s employees do is geared towards enhancing safety and security� But if something does go wrong, Baloise will be on hand to help� Baloise strengthens the insurance collective through its strategy of seeking out customers who are cautious and careful and to whom safety and security are as important as they are to Baloise� The more
Sustainable business management Responsibility carefully and considerately customers act, the stronger the effect is for everyone insured� In its group life insurance business, Baloise offers small and medium-sized enterprises security in their occupational pension schemes� Security that they need in order to focus on running their businesses successfully and offering their employees a secure future in their jobs and in retirement�
RESPONSIBILITY TO THE ENVIRONMENT As a signatory to the declaration for the insurance industry issued by the United Nations Environment Programme, Baloise is committed to reducing its impact on the environment� The Company uses natural resources prudently and responsibly� This responsibility relates to its own energy requirements but also extends to its investments and products� CO2 emissions have been continually reduced� The Company’s focus on energy efficiency, particularly in its IT infrastructure, plays a key part in this� Employees are encouraged to use public transport wherever possible and separate their waste for recycling� Baloise also applies the latest standards in energy efficiency to its real estate� The three new buildings being erected at Baloise Park, the Company’s new headquarters in Basel, meet the standards for sustainable construction in Switzerland (SNBS) and sustainability specialists have been involved in their design from the outset� And because Baloise strives to learn from the best in everything that it does, it participates in the ‘environmental platform’, a business initiative of the Basel region� This platform facilitates the sharing of knowledge among businesses and supports climate protection and sustainable development through specific projects�
RESPONSIBILITY IN SOCIETY Baloise believes it has a responsibility to society in its role as a corporate citizen and has long been a committed advocate of Switzerland’s milizsystem, in which it falls to volunteers to run public offices� In April 2015 Baloise became a signatory to the declaration by economiesuisse (the umbrella organisation representing Swiss business) and the Swiss Employers’ Association that commits companies to offering flexible working conditions and working time models that enable employees to participate in the scheme� Baloise not only encourages its employees to engage in voluntary activities but it also meets its own responsibility to society as a commercial organisation� It creates and preserves jobs that add value and it pays taxes from its profits that help to fund the public sector� This enables Baloise to be an active partner in many areas of society�
→ The Baloise Group employs 212 (2014: 206) apprentices, trainees and interns.
FRIENDLY, ACCOMMODATING AND FAIR: THE BALOISE GROUP AS AN EMPLOYER Baloise uses its values to create a unique working environment that enables its employees to make a contribution and actively shape the future� In line with the HR strategy launched in 2014, ‘We add value through our people’, the Baloise Group fosters a culture of constructive feedback that is characterised by respect, dialogue and continuing personal development� This collaborative working environment is based on integrity and trust� It gives staff the opportunity to take responsibility and the scope to make an individual contribution to the success of the Company� At the heart of this is a spirit of collaboration� Only by working together towards a common objective can challenges be overcome and success achieved�
With its headquarters in Basel and its national companies in western Europe, Baloise combines the best of two worlds� Swiss characteristics such as quality, solidarity and integrity are united with European openness, diversity and tolerance� The focus is always on safety and security, but without losing sight of the bigger picture�
Successful together: engaging in dialogue, shaping the future, making a difference
For example, the Corporate Division Switzerland made a commitment to using the Swiss insurance industry’s Cicero register and in doing so has underlined the importance of lifelong learning for sales staff� To become a member the advisor must have a recognised qualification (VBV insurance broker or equivalent) and regularly attend training courses� Continuing professional development ensures that the advice given by the brokers is up to the highest standard� At the end of 2015 Baloise completed the roll-out of the programme by registering all its advisors on Cicero� In 2015 preparations were also made for re-introducing the requirement to record the working hours of
Last year Belgium focused on changing its culture and behavioural values� A concept of viral change was used in which it fell to a select group of highly engaged and well-connected individuals to embed the behavioural values in the organisation� There was also a focus on talent development, whereby the development plans of senior management were supplemented by the management feedback process� Furthermore, a great deal of attention was paid to succession planning�
Last year Luxembourg focused its energies heavily on integrating the 90 or so employees who had come on board as a result of Baloise’s acquisition of P&V� Because of the merger with HDI-Gerling Assurances at the beginning of October 2015 the subject of integration and fostering a shared corporate culture will remain on the agenda in 2016 as well� Embedding the values played an important role here, and these were communicated to all employees of the national companies using an ‘onboarding game’ that also focused on subjects such as the Safety World and the Baloise philosophy� Great emphasis was also placed on leadership training and on actively involving rising talents in the various projects�
IN BALANCE: EMPLOYEES ARE OUR MOST VALUABLE RESOURCE The Baloise Group’s most valuable resource – and therefore the one that is most crucial to its success – is its workforce and the expertise and skills that they possess� This is why it is so crucial to have a diverse workforce that is challenged and supported in accordance with individual needs and abilities� Accordingly, Baloise believes it is important that employees have a good worklife balance� It helps them to achieve this by offering flexible and part-time working, providing the option of working from home, running facilities such as the Bal4Kids crèche in Basel and providing a working environment that is conducive to good health as well as a wide-ranging corporate health management service�
In recent years Baloise’s case management service in Switzerland has extended its sickness -prevention activities� The benefits are clear from the figures, with the absence rate in 2015 having fallen, contrary to the prevailing market trend� The Friendly Work Space quality seal awarded by the Swiss Health Promotion Foundation also illustrates how Baloise goes above and beyond the legal requirements to create a healthy working environment� Baloise has held this accreditation since 2010 and will be recertified for the third time in 2016�
Sustainable business management Human resources with potential new employees who are given an authentic picture of what it’s like to work at Baloise�
To help secure long-term success, part of their remuneration is paid in the form of restricted shares, with the senior management team receiving a comparatively high proportion of their pay in the form of shares� This form of remuneration strengthens loyalty to Baloise and gives employees the opportunity to share in the Company’s success�
STAFF AND PUBLIC Baloise trains its employees with regard to environmental matters and raises their awareness of the relevant issues� Its employees are aware of the ecological targets and the most important initiatives for achieving them� They are kept regularly informed about the implementation of the environmental mission statement and encouraged to suggest measures of their own� Baloise works hand in hand with other companies, organisations and public authorities in finding solutions to environmental problems� It particularly encourages the sharing of information with other insurance companies, maintains an open dialogue with the public and regularly reports on environmental projects and what has been achieved�
ORGANISATION The Corporate Executive Committee bears ultimate responsibility in environmental matters� Each Group company has a coordination unit which implements the environmental mission statement� This working group is made up of representatives drawn from all key corporate functions�
BALOISE IS BUILDING SUSTAINABLE OFFICES THAT WILL APPEAL TO EMPLOYEES AS WELL AS A STATE-OF-THE-ART HOTEL In a project scheduled for completion in 2020 Baloise is erecting three new buildings in the area between Aeschengraben, Parkweg and Nauenstrasse in Basel� The buildings are to be the defining landmark of the train station district and reflect Baloise’s commitment to the city� The area, which will be called Baloise Park, will function as an open campus for Baloise employees, third-party tenants and the local population� A public square is being created where the Hilton hotel currently stands� The tower being built on Aeschengraben, which will be around 90 metres in height, will mainly be occupied by the new hotel� The top seven floors will be rented out as office space� Baloise is basing its designs for the buildings on the standards for sustainable construction in Switzerland (SNBS), which means it will comfortably exceed the legal requirements in terms of energy efficiency�
A zero-emission electric minibus connects Baloise headquarters with the temporary offices at which over 500 employees are working while Baloise Park is being built�
SOLAR ENERGY FOR ELECTROMOBILITY AND HEATING The spring of 2015 saw solar panels with a total output of 21 kWp being installed on one of the flat roofs of the Company’s head office building in Basel� As well as heating the new access ramp to the building the panels generate enough additional electricity to power around 55,000 km of electric vehicle journeys�
Since last year, 400 of the more than 1,100 employees working at Baloise in Belgium have been working from home one day a week� In addition to the positive effects resulting from the more efficient use of office space and reduction in energy consumption, employees are given a weekly break from their commute, which in some cases can be very stressful�
ENERGY EFFICIENCY AT BALOISE The total energy and resource consumption revealed by the environmental audit shows the amounts used by the Baloise Group’s large office buildings and its computer centres� The figures reported relate to the energy and resources used by 77 per cent of the 7,387 people working for the Baloise Group� Consumption of energy for heating and consumption of electricity per employee were each reduced by a further 10 per cent� Optimisation of internal business processes at all national Baloise companies resulted in a further 15 per cent decrease in paper consumption� As a responsible corporate citizen, Baloise is both obliged and motivated to use resources efficiently in the face of environmental changes�
2013 absolute 2014 absolute1 2015 absolute Relative Unit + / – %
Types of refuse 47.0 % paper / cardboard 4.0 % other materials 1.0 % special waste 47.0 % misc. waste / refuse
Business travel 21.3 million km 19.0 million km 19.1 million km 3,347 km / employee 0.8
→ Risk measurement: this is used to identify, quantify and model the risks inherent in all financial and business processes�
→ Strategic risk management: its purpose is to optimise the risks taken by the Baloise Group while maximising earnings potential�
The economic risk capital derived from Baloise’s models is currently the most advanced market standard� To this end, risk measurement metrics alone are used to calculate a target capital figure – irrespective of any financial accounting treatment or regulatory capital requirements under Solvency I – to ensure that the Company remains solvent even in adverse circumstances and can meet its obligations to policyholders at all times� This target capital figure is constantly compared with the capital currently available (the ‘actual’ capital)�
The Baloise Group uses a system of limits based on economic risk capital in order to mitigate its risks holistically at an aggregate level� This system tracks 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�
→ Baloise captures business-environment risk, operational risk and strategic risk on both a standardised and individual basis, and assesses them in terms of their impact on its capital�
→ The high quality of recurrent investment income generated by Baloise’s stable real-estate portfolio proved to be a valuable source of revenue�
Baloise displays its collection in foyers and corridors, meeting rooms and offices, with a large number of works on show in publicly accessible reception rooms at its group headquarters �
ART FORUM The Baloise Art Forum mounts themed public exhibitions featuring works taken from the Baloise collection and sometimes also relevant loan works� It also hosts talks with artists and runs guided tours for employees and external groups� Every year two exhibitions are mounted�
Every year, the Company spends around a quarter of a million Swiss francs in prize money, acquisitions of works and funding for statements, and on arranging for works by winners of its art prize to be exhibited at museums�
Many of the previous prize winners are now leading lights in the international art scene and act as cultural ambassadors for their country at the Venice Biennale�
Further information on Baloise’s art activities and on all previous prize winners can be found online�
4 Baloise 18 Review of operating performance 38 Sustainable Business Management 56 Corporate Governance 102 Financial Report 256 Bâloise Holding Ltd 274 Notes
This chapter reflects the structure of the SIX Corporate Governance Guidelines as amended on 1 September 2014 in order to enhance transparency and, consequently, improve comparability with previous years and other companies� It includes economiesuisse’s Swiss Code of Best Practice for Corporate Governance and, in particular, Appendix 1 to the latter, which contains recommendations on the remuneration paid to the Board of Directors and the Executive Committee� Baloise publishes its own remuneration report as item 5 of its Corporate Governance Report, which meets the criteria specified in circular 2010/1 of the Swiss Financial Market Supervisory Authority (FINMA)�
1. STRUCTURE OF THE BALOISE GROUP AND SHAREHOLDER BASE Structure of the Baloise Group Headquartered in Basel, Switzerland, Bâloise Holding is a public limited holding company that is incorporated under Swiss law and listed on the Swiss Exchange (SIX)� The Baloise Group had a market capitalisation of CHF 6,380 million as at 31 December 2015�
→ Information on Baloise shares can be found from page 12 onwards�
→ Segment reporting by region and operating segment can be found from page 177 onwards in the notes to the consolidated annual financial statements within the Financial Report section�
→ The Baloise Group’s operational management structure is presented on page 72�
Shareholder structure A total of 20,723 shareholders were registered in Bâloise Holding’s share register as at 31 December 2015� The number of registered shareholders had increased by 5�58 per cent compared with the previous year� The “Significant shareholders” section on page 268 provides information on the structure of the Company’s shareholder base as at 31 December 2015�
Treasury shares Bâloise held 2,740,262 treasury shares (5�5 per cent of the issued share capital) as at 31 December 2015�
Conditional capital is used to cover any option rights or conversion rights granted in conjunction with bonds and similar
The Baloise Group’s consolidated equity The Baloise Group’s consolidated equity amounted to CHF 5,462�3 million on 31 December 2015� Details of changes in consolidated equity in 2014 and 2015 can be found in the consolidated statement of changes in equity on pages 110 and 111 in the Financial Report section� All pertinent details relating to 2013 can be found in the consolidated statement of changes in equity on page 98 in the Financial Report section of the 2014 Annual Report�
Bonds outstanding Bâloise Holding has issued bonds publicly� Bâloise Holding had a total of eight public bonds outstanding at the end of 2015 (of which one is a convertible bond)� Details of outstanding bonds of Bâloise Holding can be found on pages 228 and 266 and on the internet�
Credit rating On 18 August 2015, credit rating agency Standard & Poor’s confirmed Baloise Insurance Ltd’s rating of ‘A’ with a stable out- look’� S&P awarded this rating in recognition of the firm’s very strong capitalisation, its excellent operational profitability and its solid competitive position in Baloise’s core markets� The agency also rated the firm’s risk management as strong� The rating was awarded to Bâloise Holding Ltd’s Swiss subsidiary, Baloise Insurance Ltd, which is a core company of the Baloise Group�
Because their term of appointment is limited to one year, all members of the Board of Directors will have to be re-elected at the 2016 Annual General Meeting unless they are stepping down from the Board� All members of the Board of Directors, with the exception of Dr Eveline Saupper, are standing for reelection � Dr Eveline Saupper will step down from the Board of Directors at the 2016 Annual General Meeting� She has been a member of the Board of Directors since 1999 and has chaired the Remuneration Committee since 2012� She has made an outstanding contribution to the Baloise Group�
The Board of Directors will propose Hugo Lasat (1964, Belgium, Master in Economic Sciences, Master in Finance) for election at the Annual General Meeting on 29 April 2016� He has been CEO of Brussels-based Degroof Petercam Asset Management (formerly Petercam Institutional Asset Management) since 2011� His managerial roles prior to that include CEO of Amonis Pension Fund and CEO of Dexia Asset Management�
He is a guest professor at Hogeschool-Universiteit Brussel (HUBrussel ), Chairman of the Belgian Asset Management Association (BEAMA) and a member of the Board of Directors of the Belgian Financial Sector Federation (Febelfin)� He is also a member of the Financial Committee of the Red Cross and the Financial Committee of the King Baudouin Foundation� Mr Lasat will be an independent, non-executive director�
Furthermore, Marie-Noëlle Venturi - Zen-Ruffinen (1975, CH, Prof� Dr� iur�, lawyer) is to be elected as a new member of the Board of Directors� She holds a PhD and master’s degree in law and a master’s degree in philosophy from the University of Fribourg� She is a lawyer and honorary professor at the School of Economics and Management at the University of Geneva, where she mainly lectures on corporate law� Professor
Venturi - Zen-Ruffinen was a partner in the Geneva law firm Tavernier Tschanz until 2012, and since that time has been of counsel for the firm� She is president of the Swiss Board Institute foundation and sits on the Board of Management of the Swiss Institute of Directors� She will be an independent non-executive director�
Further information on the members of the Board of Directors can be found on the internet�
Section 716a of the Swiss Code of Obligations (OR) and clause A3 of the Organisational Regulations state that the Board of Directors’ main functions and responsibilities are to act as the Company’s ultimate managerial and supervisory body, to oversee the Company’s finances and to determine its organisational structures�
→ www.baloise.com/rules-regulations Committees of the Board of Directors The Board of Directors has four committees, which support it in its activities� These committees report to the Board of Directors and submit the necessary proposals for their particular areas of responsibility�
The Investment Committee’s main responsibilities are to oversee the Baloise Group’s investment activities, define the basic principles of its investment policy, specify the asset allocation strategy for all strategic business units and devise the relevant investment plan�
The Chairman’s Committee convened nine times in 2015, which included one two-day strategy meeting� The Investment Committee met on three occasions� The Audit and Risk Committee held four meetings, and the Remuneration Committee convened three times�
Division of authorities, functions and responsibilities between the Board of Directors and the Corporate Executive Committee The division of authorities, functions and responsibilities between the Board of Directors and the Corporate Executive Committee is governed by law, the Articles of Association and the Organisational Regulations� The latter are reviewed on an on- going basis and updated as changing circumstances require�
Tools used to monitor and obtain information on the Corporate Executive Committee Group Internal Audit reports directly to the Chairman of the Board of Directors�
Michael Becker (1948, Germany, Dr iur�) has been a member of the Board of Directors since 2010� He studied law in Hamburg and Tübingen and became Head of Accounting and Finance at Merck KGaA, Darmstadt, in 1998� He was an executive director and general partner at the publicly listed company Merck KGaA from 2000 until the end of 2011, and he was an executive director and general partner at E� Merck KG, Darmstadt, which holds 70 per cent of the share capital in Merck KGaA, from 2002 until 2011� He sits on the Supervisory Board at Symrise AG, Germany� Dr Becker is an independent non-executive director�
Martin Strobel (1966, Germany/Switzerland, Dr rer� pol�) studied computer science, business management and business information systems at the universities of Kaiserslautern, Windsor (Canada) and Bamberg� From 1993 to 1999 he performed various roles at Boston Consulting Group, Düsseldorf, dealing with strategic IT management issues in the banking and insurance sectors� He joined the Baloise Group at the beginning of 1999� He was initially Head of IT at Basler Switzerland and, within the Baloise Group, was in charge of major cross-functional projects in the areas of insurance and finance� From 2003 to 2008 he was a member of the Corporate Executive Committee with responsibility for Corporate Division Switzerland� Dr Martin Strobel became Group CEO on 1 January 2009� He also headed up Corporate Division International from 2013 until the end of 2014� He sits on the boards of directors of the Basel Chamber of Commerce and the Geneva Association� On 27 May 2015, Martin Strobel announced that he would be stepping down on 30 April 2016� On 29 October 2015, the Board of Directors of Bâloise Holding Ltd appointed Gert De Winter to succeed Martin Strobel� Gert De Winter (49) will take up his role as CEO of the Baloise Group (Group CEO) on 1 January 2016� He was previously CEO of Baloise in Belgium and has worked for Baloise since 2005�
Michael Müller (1971, Switzerland, lic� oec� publ�) graduated in economics from the University of Zurich, specialising in insurance and accounting/finance� He began his career with Basler Versiche rungen in 1997, starting as a management trainee, then working in Group Finance and eventually becoming Deputy Head and, in 2004, Head of Financial Accounting for the Baloise Group� In 2009, as Head of Finance and Risk, he became a member of the senior management team in Corporate Division Switzerland, focusing on financial reporting and accounting, actuarial management of the insurance companies, risk management and coordination of logistics processes and the pool of project leaders� He has been a member of the Corporate Executive Committee and CEO of Corporate Division Switzerland since March 2011� Michael Müller is a member of the Board of Foundation of Stiftung Finanzplatz Basel�
Thomas Sieber (1965, Switzerland, Dr iur�, M�B�L�, lawyer, SDM mediator) studied law at the University of St� Gallen� At the beginning of 1994 he qualified to practise as a lawyer in the Swiss canton of Zurich� From 1999 to 2002 he lectured in corporate law at the University of St� Gallen� After brief spells working at Landis & Gyr and Siemens he joined the Baloise Group in 1997 as Deputy Head of Legal & Tax� He became head of this division in 2001 and, in addition, was secretary to Bâloise Holding’s Board of Directors until April 2012� Since 6 December 2007 he has been a member of the Corporate Executive Committee and, as Head of the Corporate Centre, is responsible for Group Human Resources, Legal and Tax, Group Compliance, Corporate Development, Run-off Business and – since 2009 – Group Procurement� He also sits on the Board of Directors at EuroAirport BaselMulhouse -Freiburg�
Further information on the members of the Corporate Executive Committee can be found on the internet�
With the exception of Dr Thomas Sieber and Martin Wenk, no Corporate Executive Committee members serve on the boards of directors at companies outside the Baloise Group�
Martin Wenk (1957, Switzerland, lic� iur�) held several posts at a major bank from 1982 to 1992 after graduating in law from the University of Basel� He started out as an investment advisor to institutional clients before becoming a Group Manager in private banking in New York and eventually working as Section Head of Securities Sales, where he primarily covered key institutional clients� From 1992 to 2000 he headed up portfolio management in Switzerland for the Baloise Group, where he was responsible for managing the assets of several Swiss companies, including their pension funds� In 2001 he was appointed to the Corporate Executive Committee (as Head of Corporate Division Asset Management ) and, in this capacity, is responsible for the Baloise Group’s asset management activities, which include investment strategy and investment control, Baloise Asset Management, real estate, and Baloise Investment Services (investment fund business)� He sits on the Board of Directors at Unigestion Holding, Geneva, and compenswiss (the Swiss Federal Social Security Funds), Geneva� Martin Wenk
German Egloff* Martin Wenk* Thomas Sieber* Michael Müller* Jürg Schiltknecht Gert De Winter Romain Braas
The Remuneration Committee consists of at least three independent members of the Board of Directors, who are elected every year by the Annual General Meeting� Dr Eveline Saupper (Chairwoman), Thomas Pleines (Deputy Chairman), Dr Georges-Antoine de Boccard and Karin Keller-Sutter were elected to the Remuneration Committee by the Annual General Meeting on 30 April 2015� The Remuneration Committee maintains an intensive dialogue with senior management throughout the year and generally meets at least twice annually � In addition to the committee secretary being present, these meetings are usually also attended by the Group CEO, the Head of the Corporate Centre and the Head of Group Human Resources, who participate in an advisory capacity� The individual members of the Group Executive Committee leave the meeting if the Remuneration Committee is discussing or deciding on their personal remuneration� The Chairwoman of the Remuneration Committee reports to the Board of Directors at its next meeting on the committee’s activities�
The Board of Directors used this Remuneration Guideline as the basis for the Remuneration Policy, which applies to all employees in Switzerland and, by analogy, to all members of staff throughout the Baloise Group� By adopting this Remuneration Guideline and Remuneration Policy, the Board of Directors has ensured that all aspects of remuneration policy are centrally coordinated� This regulatory framework underpins a remuneration system that meets all the requirements of the Swiss Financial Market Supervisory Authority and, in particular, ensures that variable remuneration even more accurately reflects the value added by the Company�
The individual performance of the members of the Corporate Executive Committee is factored into the measurement of the performance pool�
Baloise also regularly conducts market comparisons of its local functions in the countries outside Switzerland�
Corporate Governance Corporate Governance Report including Remuneration Report 5.4 Components of remuneration Baloise views its compensation packages in the round and therefore factors in not only the basic salary plus short- and long-term variable remuneration but also other material and non-material benefits such as pension contributions, additional benefits, and staff development�
Basic salary The basic salary constitutes the level of remuneration that is commensurate with the functions and responsibilities of the position concerned as well as the employee skills and expertise required in order to achieve the relevant business targets and objectives� When determining the level of its basic salaries, Baloise aims to position itself around the market median, although the way in which this is done will vary depending on local operating and market requirements� This remuneration is paid in cash by bank transfer� In order to ensure fairness and compliance with its code of conduct when determining the level of basic salaries, Baloise applies the internal fair-pay principle that people who do the same job and have the same qualifications should be paid the same amount� The Company’s clearly defined and market-based salary structures help ensure fair pay both inside and outside the organisation�
Two plans are available to individuals who wish to subscribe for shares: the Share Subscription Plan and the Employee Share Ownership Plan (see ‘5�6 Share Subscription Plan and Employee Share Ownership Plan’)�
The section below describes performance-related remuneration and the performance pool, which are available as shortterm variable remuneration tools�
Corporate Governance Corporate Governance Report including Remuneration Report and the importance of his or her function� Those entitled to receive performance-related remuneration are the most senior management level in the Baloise Group (except for the members of the Corporate Executive Committee), the majority of senior managers in Switzerland and the corresponding functions abroad� The members of the Corporate Executive Committee do not receive any performance-related remuneration� Instead, their individual performance is recognised in such a way that the contribution made by each and every member of the Corporate Executive Committee to the achievement of the Company’s targets and objectives is factored into decisions affecting the measurement of the performance pool�
→ Capital-markets perspective compared with competitors The main metric used to evaluate this criterion is the performance of Baloise’s share price compared with the almost 40 European insurance companies represented in the STOXX Europe 600 Insurance Index (the composition of this index is shown in the table on page 78)�
→ Strategy implementation The indicators used here are the changes in the combined ratio and market-consistent embedded value (MCEV) over time as well as the progress made on key strategic initiatives and projects�
The assessments by the Chief Risk Officer and the Head of Group Compliance of the risks taken and the evaluations by the Head of Group Human Resources and others of strategy implementation are also based on qualitative criteria and nonfinancial indicators such as senior managers’ risk behaviour, compliance with procedures and regulations and the practising of a genuine compliance culture, the effectiveness of the internal control system, and the efforts made in respect of talent management and staff engagement�
For the 2015 financial year the Remuneration Committee decided on a factor of 100 per cent of the normally expected value of performance pool payments� This decision was motivated by the following considerations: → Good and solid profit for the year that was in line with expectations, despite a challenging environment; → Good operational profitability, resulting in a strong combined ratio; → Encouraging growth in the target segments; → Key projects and initiatives on track for completion; → Stable balance sheet, despite negative interest-rate environment and a strong Swiss franc�
One PSU generally confers the right to receive one share� This is the case if Baloise shares perform in line with the median of their peer group� In this case the performance multiplier would be 1�0� Programme participants receive more shares in exchange for their PSUs if Baloise shares outperform their peer group� The multiplier reaches the maximum of 1�5 if the performance of Baloise shares is in the top quartile of companies in the peer group� The multiplier amounts to 0�5 if the performance of Baloise shares is in the bottom quartile of companies in the peer group� If the performance of Baloise shares is in either of the two middle quartiles, a linear scale is used to calculate the performance multiplier � The performance multiplier for the entire vesting period ended is based on the closing stock market prices on the final trading day of the respective vesting period�
Companies in the STOXX 600 Europe Insurance Index (as at 31 December 2015)
The shares needed to convert the PSUs are purchased in the market as and when required�
The Remuneration Policy adopted by the Board of Directors contains clear guidance on inducement payments and severance packages� Such remuneration may only be paid in justified cases� No severance packages may be awarded to members of either the Board of Directors or the Corporate Executive Committee, and any inducement payments granted to such persons – irrespective of their amount – must be approved by the Remuneration Committee� Inducement payments and severance packages for the most senior managers must be approved by the Remuneration Committee if they exceed CHF 100,000� Each individual case is assessed on a discretionary basis�
Employee Share Ownership Plan Since May 2001 it has been possible for most management team members working in Switzerland to receive part of their shortterm variable remuneration in the form of shares from the Employee Share Ownership Plan instead of receiving cash� Within certain limits they are free to choose what proportion of their short-term variable remuneration they receive in the form of such shares� The most senior management team members are subject to upper limits; members of the Corporate Executive Committee – who are obliged to receive at least half of their short-term variable remuneration in the form of shares – are not allowed to receive more than 40 per cent of their entitlement in the form of shares from the Employee Share Ownership Plan� The subscription date is 1 March of each year (the same as for the Share Subscription Plan); although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold during a three-year closed period�
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, 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�
(applies to the variable remuneration granted for 2014 and to the shares subscribed by the Chairman of the Board of Directors in 2015)
In order to increase the impact of this Employee Share Ownership Plan, employees are granted loans on which interest is charged at market rates, which enables them to subscribe for shares whose value constitutes a multiple of the capital invested; these shares are purchased at their fair value net of discounted dividend rights over a period of three years� Repayment of these loans after the three-year closed period has elapsed is hedged by put options, which are financed by the sale of offsetting call options� If the price of the shares is below the put options ’ strike price when the closed period expires, programme participants can sell all their shares at this strike price, which ensures that they can repay their loans plus interest� In this event, however, they lose all the capital that they have invested� If, on the other hand, the price of the shares is above the call options’ strike price, programme participants must pay the commercial value of these options� Their upside profit potential is thus limited by the call options� If, when the three-year closed period elapses, the price of the shares is between the put options’ strike price and the call options’ strike price, once the loans plus accrued interest have been repaid the employees concerned receive the remaining shares to do with as they wish�
→ The employer makes a disproportionately high contribution to the funding of its occupational pension scheme�
The total remuneration paid to the Corporate Executive Committee for 2015 was lower than in the previous year (sum total of basic salary plus variable remuneration down by 16�0 per cent)� This can be attributed to several factors: → At 100 per cent, the performance pool is substantially smaller overall than it was in 2014 (137 per cent), which is reflected in the lower variable remuneration for the members of the Corporate Executive Committee�
Excluding the member of the Corporate Executive Committee who retired, the total remuneration of the other members of the Corporate Executive Committee for 2015 was 7�7 per cent lower than for 2014 because of the reduced variable remuneration �
Explanatory notes to the table Christoph B. Gloor was voted in as a new member of the Board of Directors at the 2014 Annual General Meeting. Consequently, he only received a pro-rata share of the usual remuneration. Dr Georg F. Krayer left the Board of Directors at the same time, so he only received half of the usual remuneration. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length-basis was paid to individuals or companies who are related to members of the Board of Directors. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Shares 25 per cent of contractually agreed overall remuneration is paid in shares which remain restricted for three years. They are recognised at market value less 10 per cent (CHF 102.78, in line with the Share Subscription Plan). Shares received by the Chairman of the Board of Directors amounted to 1,517 shares in connection with the Share Subscription Plan (CHF 155,917, with a closed period of five years instead of the usual three years) and 1,547 shares in connection with the Employee Share Ownership Plan (CHF 155,990). Pension contributions The information disclosed for 2014 includes for the first time the contributions payable by the employer into the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund (only for the Chairman of the Board of Directors).
Explanatory notes to the table Remuneration paid to former members and related parties No remuneration on a non-arm’s-length-basis was paid to individuals or companies who are related to members of the Board of Directors. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Shares 25 per cent of contractually agreed overall remuneration is paid in shares which remain restricted for three years. They are recognised at market value less 10 per cent (CHF 114.75, in line with the Share Subscription Plan). Shares received by the Chairman of the Board of Directors amounted to 1,359 shares in connection with the Share Subscription Plan (CHF 155,945, with a closed period of five years instead of the usual three years) and 1,384 shares in connection with the Employee Share Ownership Plan (CHF 155,995). Pension contributions The information disclosed for 2015 includes the contributions payable by the employer into the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund (only for the Chairman of the Board of Directors).
Explanatory notes to the table Remuneration is disclosed in accordance with the accrual principle. The table includes all forms of remuneration awarded for performance in 2015 even if individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions, etc. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length basis was paid to companies or individuals who are related to members of the Corporate Executive Committee. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Share Subscription Plan Proportion of variable remuneration received directly as shares, which are measured at market value less 10 per cent markdown. Subscription price = CHF 109.26. Employee Share Ownership Plan Proportion of variable remuneration received as shares (excluding loans to purchase shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 106.59. Performance share units (PSUs) These have been disclosed at their value of CHF 121.20 at the grant date and measured using a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period.
Granted in 2015 2015 CHF CHF Number of shares CHF Number of shares CHF Number of PSUs CHF Number of shares CHF CHF CHF CHF CHF
Explanatory notes to the table Loans and credit facilities No loans or credit facilities were granted at non-market terms and conditions a) to former members of the Board of Directors or Corporate Executive Committee; b) to individuals or companies related to members of the Board of Directors or Corporate Executive Committee. Related parties are: spouses, life partners, children under 18 years, companies owned or controlled by directors, or legal entities or individuals who act as trustees for them. Mortgages Mortgages of up to CHF 1 million are granted to staff at the following terms and conditions: 1 per cent below the customer interest rate for variable-rate mortgages and at a preferential interest rate for fixed-rate mortgages. Loans associated with the Employee Share Ownership Plan Loans to increase the effect of the Employee Share Ownership Plan (see ‘5.6 Share Subscription Plan and Employee Share Ownership Plan’). Interest is charged on loans at a market rate (2015: 1 per cent), and they have a term of three years. Other loans There are no policy loans.
Head of SBU Germany (until 30 April 2015) 4,593 7,724 11,525 8,607 16,118 16,331 0.032 % 0.033 % 12,033 8,043
STATUTORY AUDITOR’S REPORT ON THE REMUNERATION REPORT FOR 2015 We have audited the remuneration report (pages 73 to 95) of 18 March 2016 published by Bâloise Holding Ltd for the year ended 31 December 2015�
Board of Directors’ responsibility The Board of Directors is responsible for the preparation and fair presentation of the remuneration report in accordance with Swiss law and the Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO)� This responsibility includes drafting the Company’s remuneration principles and setting remuneration levels in individual cases�
Auditor’s responsibility Our responsibility is to express an opinion on the accompanying remuneration report based on our audit� We conducted our audit in accordance with Swiss Auditing Standards� Those standards require that we comply with professional codes of conduct and that we plan and perform the audit to obtain reasonable assurance about whether the remuneration report is consistent with Swiss law and sections 14 to 16 ERCO�
Opinion In our opinion, the remuneration report of Bâloise Holding Ltd for the year ended 31 December 2015 is consistent with Swiss law and sections 14 to 16 ERCO�
The 2015 Annual General Meeting voted for a provision in section 16 (2) of the Articles of Association to the effect that powers of attorney and voting instructions may also be given to an independent proxy electronically without requiring a qualifying electronic signature�
The consent of at least three-quarters of the votes represented at the Annual General Meeting is required to suspend statutory restrictions on voting rights� The votes must also represent at least one third of the total shares issued by the Company � This qualified majority also applies to the cases specified in section 17 (3) lit� a–h of the Articles of Association� Otherwise, resolutions are adopted by a simple majority of the votes cast, subject to compulsory legal provisions (section 17 of the Articles of Association)�
A new invitation to tender was issued and the contract awarded in anticipation of the new requirement to change external auditors on a regular basis� At the next Annual General Meeting, the Board of Directors will propose that its shareholders elect Ernst & Young (EY), Basel, as the Company’s new external auditors�
The audit fees include fees for engagements with a direct or indirect connection to a current or future audit engagement and fees for audit-related activities (including support with accounting issues, regulatory issues and statutory special audits).
Information about Baloise bonds Information about Baloise bonds in circulation can be found on pages 228 and 266�
Consolidated balance sheet ������������������������������������������������������������� 104 Consolidated income statement ���������������������������������������������������� 106 Consolidated statement of comprehensive income �������������� 107 Consolidated cash flow statement ������������������������������������������������ 108 Consolidated statement of changes in equity ������������������������� 110
NOTES TO THE CONSOLIDATED INCOME STATEMENT ������������������������������������������ 230 Premiums earned and policy fees ������������������������������������������������� 230 Income from investments for own account and at own risk ����������������������������������������������������������� 230 Realised gains and losses on investments ��������������������������������� 231 Income from services rendered ����������������������������������������������������� 235 Other operating income �������������������������������������������������������������������� 235 Classification of expenses ����������������������������������������������������������������� 236 Personnel expenses ������������������������������������������������������������������������������ 236 Gains or losses on financial contracts ���������������������������������������� 237 Income taxes ������������������������������������������������������������������������������������������� 238 Earnings per share ������������������������������������������������������������������������������� 239 Other comprehensive income �������������������������������������������������������� 240
Financial Report 4 Baloise 18 Review of operating performance 38 Sustainable business management 56 Corporate governance 102 Financial Report 256 Bâloise Holding Ltd
Change in unrealised gains and losses on available-for-sale financial assets 1,688.8 – 882.9
Reclassification to non-current assets and disposal groups classified as held for sale 0.0 – 17.9
Purchase / sale of financial assets of an equity nature – 1,508.5 – 1,275.1
Purchase / sale of financial assets of a debt nature – 520.9 – 1,142.7
Addition / disposal of financial contracts and liabilities from banking business 598.5 1,769.5
Other changes in assets and liabilities from operating activities 384.9 99.8
Disposal of companies, net of cash and cash equivalents 40 267.9 –
Increase / decrease in non-controlling interests due to change in the scope of consolidation 40 – – – – – – – –
2. APPLICATION OF NEW FINANCIAL REPORTING STANDARDS AND RESTATEMENTS 2.1 Newly applied IFRSs and interpretations IAS 19 Employee Benefits (amendment) As a result of the amendment, contributions from employees or third parties are recognised as a reduction in service cost in the period in which they are paid, provided they are entirely related to the employee’s service in that period� This may be the case, in particular, with contributions that constitute a fixed percentage of salary that is not dependent on the number of years worked at the company by the employee� This change has no material impact on the Baloise Group’s balance sheet or income statement�
2.2 Other standards and interpretations Currently, there are no requirements to apply any other standards or interpretations that have a material impact on the profit for the period or on balance sheet line items�
IFRS 9 Financial Instruments IFRS 9 introduces new requirements for the classification and measurement of financial instruments� Classification of financial assets is based on the entity’s business model and on the contractual cash flow characteristics of the financial assets concerned� The following change, for example, is relevant to the carried-at-cost category: If the criteria in respect of the business model and cash flow characteristics for the carried-at-cost category are not met, financial assets are measured at fair value through profit or loss, although certain equity instruments may be measured at fair value through other comprehensive income� As regards structured products with embedded derivatives, the standard now only provides for separate recognition of non- financial host contracts� Structured products with financial host contracts must be classified and measured as combined instruments�
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� It is not yet possible to fully assess what impact this new standard will have on the Baloise Group’s balance sheet and income statement�
IFRS 16 Leases IFRS 16 applies to all leases (including sub-leases), although certain exceptions are possible� IFRS 16 governs the recognition, measurement, reporting and disclosure requirements in respect of leases in the financial statements of IFRS users� The standard provides a single accounting treatment model for lessees� This model requires lessees to recognise all lease assets and lease liabilities on the balance sheet, unless the term of the lease is twelve months or less or an asset is of low value� By contrast, lessors will continue to distinguish between finance leases and operating leases for accounting purposes� In this regard, the accounting treatment model in IFRS 16 differs only insignificantly from the existing rules in IAS 17 (Leases)� It is not yet possible to fully assess what impact this new standard will have on the Baloise Group’s balance sheet and income statement�
Financial Report Notes to the consolidated annual financial statements 3. CONSOLIDATION PRINCIPLES AND ACCOUNTING POLICIES 3.1 Method of consolidation 3.1.1 Subsidiaries The consolidated annual financial statements comprise the financial statements of Bâloise Holding and its subsidiaries, including any structured entities. A subsidiary is consolidated if the Baloise Group controls it either directly or indirectly. As a rule, this is the case if the Baloise Group has exposure or rights to variable profit components as a result of its involvement with the investee and, because of legal positions, has the ability to influence the investee’s business activities that are critical to its financial success and, therefore, to affect the amount of the variable profit components.
Joint ventures are accounted for using the equity method, i.e. the Baloise Group initially recognises the joint ventures at cost (fair value at the date of acquisition) and thereafter recognises them under the equity method (the Baloise Group’s share of the entity’s net assets and profit or loss for the period). In the case of joint operations, the Baloise Group includes directly in its consolidated financial statements the share of the assets, liabilities, income and expenses of the joint operation that is attributable to the Baloise Group.
Land is not depreciated. Other items of property, plant and equipment are depreciated on a straight-line basis over the following estimated useful lives: → Owner-occupied buildings: 25 to 50 years → Office furniture, equipment, fixtures and fittings: 5 to 10 years → Computer hardware: 3 to 5 years.
Operating leases: all other leases are classified as operating leases. Lease payments under operating leases are expensed in the income statement on a straight-line basis over the term of the lease.
3.4.2 The Baloise Group as a lessor Investment real estate let on operating leases is reported as investment property on the consolidated balance sheet.
3.5 Intangible assets 3.5.1 Goodwill Goodwill represents the excess of an acquiree’s acquisition cost over the fair value of its assets and liabilities plus the acquisition -date amount of any non-controlling interests in the acquiree and the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree. Goodwill is reported as an intangible asset. Goodwill is tested for impairment in the second half of each year. An impairment test may also be conducted in the first half of the year if there are objective indications that goodwill may be permanently impaired. When a new investment is acquired, the date for conducting future impairment tests is fixed and these tests are subsequently carried out at the same time each year. When entities are sold, their share of goodwill is recognised in their profit or loss. Goodwill is allocated to cash- generating units (CGUs) for the purposes of impairment testing.
3.5.2 Present value of future profits (PVFP) on insurance contracts acquired The present value of future profits on insurance contracts acquired arises from the purchase of life insurance companies or life insurance portfolios. It is initially measured in accordance with actuarial principles and is amortised on a straight-line basis. It is regularly tested for impairment as part of a liability adequacy test (see section 3.18.2 for further details).
3.5.5 Other intangible assets and internally developed assets Other intangible assets essentially comprise software, external IT consulting (in connection with software that has been developed), 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 straight-line basis over their useful lives. Intangible assets with indefinite useful lives are not amortised and are carried at cost less accumulated impairment losses.
3.6 Investment property Investment property comprises land and / or buildings held to earn rental income or for capital appreciation (or both). If mixed-use properties cannot be broken down into owner- occupied property and property used by third parties, the entire property is classified according to the purpose for which most of its f loor space is used. If, owing to a change of use, an investment property held by the Baloise Group becomes the latter’s owner-occupied property, it is reclassified as property, plant and equipment. Any such reclassification is based on the property’s fair value at the reclassification date. By contrast, if one of the Baloise Group’s owner-occupied properties becomes an investment property owing to reclassification, then, on the date this change of use takes effect, the difference between the property’s carrying amount and its fair value is recognised in profit or loss in the event of an impairment; or, if the property’s fair value exceeds its carrying amount, then the difference is recognised directly in equity as an unrealised gain. If an investment property that was reclassified in a previous period is sold, the amount recognised directly in equity is reclassified to retained earnings. Invest ment property is measured at fair value under the discounted cash f low (DCF) method. The current fair value of a property determined under the DCF method equals the sum total of all net income expected in future and discounted to its present value (before interest payments, taxes, depreciation and amortisation) and includes capital expenditure and renovation costs. The net income is determined individually for each property, depending on the opportunities and risks associated with it, and is discounted in line with market rates and on a risk- adjusted basis. The measurement is carried out internally each year by experts using market-based assumptions that have been verified by respected consultancies. In addition, the properties are assessed by external valuation specialists at regular intervals; roughly 10 per cent of the fair value of the real-estate portfolio is subject to such assessments each year. Changes in fair value are taken to income as realised accounting gains or losses in the period in which they occur.
3.7 Financial assets The term “investments” (Kapitalanlagen in German) is used in some places and headings in the Financial Report for clarity’s sake. The IFRSs themselves do not define the term “investments” (or Kapitalanlagen). The term “investments” as used in the Financial Report covers financial assets, mortgages and loans, derivative financial instruments, cash and cash equivalents, and investment property.
The Baloise Group classifies its financial instruments with characteristics of equity and its financial instruments with characteristics of liabilities as either “recognised at fair value through profit or loss”, “held to maturity” or “available for sale.” The classification of the financial instruments concerned is determined by the purpose for which they have been acquired.
Mortgages and loans are generally carried at cost. In pursuing its strategy of using natural hedges, however, the Baloise Group applies the fair value option to designate parts of its portfolio as “recognised at fair value through profit or loss”. Appropriately designated derivative financial instruments are used to hedge these parts of the portfolio.
Derivative financial instruments are measured using models or on the basis of publicly quoted prices.
If such estimates do not enable financial assets to be reliably measured, the assets are recognised at cost (less allowance) and disclosed accordingly.
Financial Report Notes to the consolidated annual financial statements 3.10.2 Financial assets measured at fair value The Baloise Group determines at each balance sheet date whether there is any objective evidence that available-for-sale financial assets may be permanently impaired. This category includes financial instruments with characteristics of equity. An impairment loss must be recognised on financial instruments with characteristics of equity whose fair value at the balance sheet date is more than 50 per cent below their acquisition cost or whose fair value is consistently below their acquisition cost throughout the twelve-month period preceding the balance sheet date. The need for an impairment loss is examined and, where necessary, such a loss is recognised on securities whose fair value at the balance sheet date is between 20 per cent and 50 per cent below their acquisition cost.
Impairment losses on available-for-sale financial instruments with characteristics of equity that have been recognised in profit or loss cannot be reversed and taken to income. Any further reduction in the fair value of financial instruments with characteristics of equity on which impairment losses were recognised in previous periods must be charged directly to the income statement.
3.10.3 Impairment losses on non-financial assets Goodwill and any assets with indefinite useful lives are tested for impairment at the same time each year or whenever there is objective evidence of impairment. Goodwill is allocated to cash-generating units (CGUs) for the purposes of impairment testing. Insurance companies that sell both life and non-life products (so-called composite insurers) test goodwill for impairment at this level. When impairment tests are performed, a CGU’s value in use is determined on the basis of the maximum discounted future cash flows (usually dividends) that could potentially be returned to the parent company. This process takes appropriate account of legal requirements and internally specified capital adequacy limits. The long-term financial planning approved by management forms the basis for this calculation of the value in use. Permanent impairment losses are recognised in the income statement as other operating expenses. All other non-financial assets are tested for impairment whenever there is objective evidence of such impairment.
Financial Report Notes to the consolidated annual financial statements 3.11 Derivative financial instruments Derivative financial instruments include swaps, futures, forward contracts and options whose value is primarily derived from the underlying interest rates, exchange rates, commodity prices or share prices. The acquisition cost of derivatives is usually either very low or non-existent. These instruments are carried at fair value on the balance sheet. At the time they are purchased they are classified as either fair value hedges, cash flow hedges, hedges of a net investment in a foreign operation or trading instruments. Derivative financial instruments that do not qualify as hedges under IFRS criteria despite performing a hedging function as part of the Baloise Group’s risk management procedures are treated as trading instruments.
3.15.2 Capital reserves Capital reserves include the paid-up share capital in excess of par value (share premium), Bâloise Holding share options, gains and losses on the purchase and sale of treasury shares, and embedded options in Bâloise Holding convertible bonds.
3.15.4 Unrealised gains and losses (net) This item includes changes in the fair value of available-for-sale financial instruments, the net effect of cash flow hedges, the net effect of hedges of a net investment in a foreign operation, exchange differences and gains on the reclassification of the Baloise Group’s owner-occupied property as investment property.
Financial Report Notes to the consolidated annual financial statements 3.16 Insurance contracts An insurance contract is defined as a contract under which one party (the insurer) accepts a significant insurance risk from another party (the policyholder) to pay compensation, should a specified contingent future event (the insured event) adversely affect the policyholder. An insurance risk is any directly insured or reinsured risk that is not a financial risk.
Contracts that pose no significant insurance risk are financial contracts. Such financial contracts may include a discretionary participation feature (DPF), which determines the accounting policies to be applied.
The Baloise Group considers an insurance risk to be significant if, during the term of the contract and under a plausible scenario, the payment triggered by the occurrence of the insured event is 5 per cent higher than the contractual benefits payable if the insured event does not occur.
3.17.3 Policyholders’ dividends and participation in profits Insurance contracts can provide customers with a share of the surpluses and profits generated by their policies (especially those arising from their claims history). The expenses incurred by policyholders’ dividends and participation in profits are derived from the dividends paid plus the changes in the pertinent reserves.
Life insurance companies operating in Germany 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.
3.20.2 Measured at amortised cost Liabilities measured at amortised cost include savings deposits, medium-term bonds, mortgage-backed bonds, other liabilities and financial guarantees that do not qualify as insurance contracts. They are initially measured at their acquisition cost (fair value).
3.20.3 Recognised at fair value through profit or loss This item includes financial contracts for which the holder bears the entire investment risk as well as banking liabilities that are designated as “at fair value through profit or loss” as part of the Baloise Group’s strategy of using natural hedges.
3.21 Financial liabilities The financial liabilities reported under this line item comprise the bonds issued in the capital markets (except for the bonds issued by the Banking operating segment). Financial liabilities are initially measured at their acquisition cost (fair value). Acquisition cost includes transaction costs.
The benefits available include short-term benefits (such as wages and salaries), long-term benefits (such as long-service bonuses), termination benefits (such as severance pay and social compensation plan benefits) and post-employment benefits. The benefits described below may be especially significant owing to their scale and scope.
The Baloise Group’s pension plan agreements are tailored to local conditions in terms of enrolment and the range of benefits offered.
3.25 Revenue recognition Revenue and income are recognised at the fair value of the consideration received or receivable. Intercompany transactions and the resultant gains and losses are eliminated. Recognition of revenue and income is described below.
Financial Report Notes to the consolidated annual financial statements 4. CRITICAL ACCOUNTING PRINCIPLES AND ESTIMATE UNCERTAINTIES The Baloise Group’s consolidated annual financial statements contain assumptions and estimates that can impact on the annual financial statements for the following financial year. Estimates and the exercise of discretion by management are kept under constant review and are based on empirical values and other factors – including expectations about future events – that are deemed to be appropriate on the date that the balance sheet is prepared.
4.1 Fair value of various balance sheet line items Where available, prices in active markets are used to determine fair value. If no publicly quoted prices are available or if the market is judged to be inactive, fair value is either estimated based on the present value or is determined using measurement methods. These methods are influenced to a large extent by the assumptions used, which include discount rates and estimates of future cash flows. The Baloise Group primarily uses fair values; if no such values are available, it applies its own models. Detailed information about fair value measurement can be found in chapter 5.10.
→ Mortgages and loans (recognised at fair value through profit or loss) Mortgages and loans are designated as “at fair value through profit or loss” as part of the Baloise Group’s strategy of using natural hedges. Yield curves are used to measure these portfolios.
4.2 Financial instruments with characteristics of liabilities (held to maturity) The Baloise Group applies the provisions of IAS 39 when classifying non-derivative financial instruments with fixed or determinable payments as “held to maturity”. To this end, it assesses its intention and ability to hold these financial instruments to maturity.
If – contrary to its original intention – these financial instruments are not held to maturity (with the exception of specific circumstances such as the disposal of minor investments), the Baloise Group must reclassify all held-to-maturity financial instruments as “available for sale” and measure them at fair value. Chapter 12 contains information on the fair values of the financial instruments with characteristics of liabilities that are classified as “held to maturity”.
→ Financial instruments with characteristics of equity (available for sale) An impairment loss must be recognised on available- for-sale financial instruments with characteristics of equity whose fair value at the balance sheet date is more than 50 per cent below their acquisition cost or whose fair value is consistently below their acquisition cost throughout the twelve-month period preceding the balance sheet date. The Baloise Group examines whether it needs to recognise impairment losses on securities whose fair value at the balance sheet date is between 20 per cent and 50 per cent below their acquisition cost. Such assessments of the need to recognise impairment losses consider various factors such as the volatility of the securities concerned, credit ratings, analysts’ reports, economic conditions and sectoral prospects.
4.7 Employee benefits In calculating its defined benefit obligations towards its employees, the Baloise Group makes assumptions about the expected return on plan assets, the economic benefits embodied in assets, future increases in salaries and pension benefits, the discount rate applicable and other parameters. The most important assumptions are derived from past experience of making estimates. The assumptions factored into these calculations are discussed in chapter 18.2.7.
The predominant risks in the life insurance sector are the following biometric risks: → longevity risk (annuities and pure endowment policies), → mortality risk (whole-life and endowment life insurance), → disability risk (in the sense of the risk of premiums proving insufficient due to an adverse disability claims history). Because the Group issues interest-rate guarantees, it is also exposed to interest-rate risk. There are also implicit financial guarantees and options which also affect liquidity, investment planning and the income generated by Group companies; they include guaranteed surrender prices when policyholders cancel and guaranteed annuity factors on commencement of the payout phase of annuities.
Managing participating insurance contracts is an additional method of mitigating risk. For example, bringing policy holders’ dividends into line with altered circumstances as far as permitted by local regulations is one option that could be taken if the risk situation were to change. However, the allocation of surpluses between policyholders and the Company is not only subject to local law, it is also governed by market expectations.
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
5.2 Life and non-life underwriting strategies The Baloise Group primarily underwrites insurance risk for private individuals and small and medium-sized enterprises in selected countries in mainland Europe. Industrial insurance in the property and third-party liability, marine and technical insurance sectors is largely provided by Baloise Insurance in Basel or its branch in Bad Homburg (Germany) and our Belgian business unit Baloise Insurance Belgium. In this particularly high-risk segment, central management of industrial insurance ensures consistent quality and a high degree of transparency for the business underwritten.
5.3 Life and non-life reinsurance strategies The Baloise Group’s non-life treaty reinsurance for all business units in the Group is structured and placed in the market by Group Reinsurance, part of Corporate Division Finance. When structuring the programme, Group Reinsurance focuses on the risk-bearing capacity of the Group as a whole. To date, the Group has only placed non-proportional reinsurance programmes. The Group’s maximum retention for cumulative claims was CHF 20 million (2014: CHF 20 million). The retentions for individual claims were CHF 16 million (2014: CHF 16 million) for property claims, CHF 15 million (2014: CHF 15 million) for marine claims and CHF 13.7 million on a non-indexed basis (2014: CHF 13.7 million) for third-party liability claims. The local Baloise Group business units also use additional facul tative reinsurance cover on a case-by-case basis. This type of reinsurance is extremely dependent on the individual risk in each case and it is therefore placed by the business units themselves.
Because of the long settlement period, there is a high degree of uncertainty associated with the calculation of these claims reserves. Both the timing at which cases of this type are identified and their potential loss level are much less certain than any other established claims patterns. Some reserves were calculated using external actuaries’ reports in which best-case and worst-case scenarios were analysed. The Baloise Group’s minimum reserves policy is based on the average of these two scenarios. It is particularly difficult to assess the level of reserves required for IBNR claims, so further fluctuations cannot be ruled out. According to expert estimates, fluctuations of around 10 per cent can be expected, which is equivalent to around CHF 6.6 million after taxes and before reinsurance (2014: CHF 7.0 million) for this reserve.
Seven years later 585.7 628.5 594.3 – – – – – – – –
Eight years later 576.3 625.6 – – – – – – – – –
Gross claims reserves prior to 2006 (including large claims and assumed business)
Nine years later 279.7 – – – – – – – – – –
Net claims reserves 988.1 1 The increase in the total estimated claims incurred is primarily due to the addition of Avéro Schadevezekering Benelux NV. 2 The increase in the total estimated claims incurred is primarily due to the addition of Nateus NV and Audi NV.
Analysis of claims settlement for the “Other units” segment A large proportion of the reserves relating to this segment is attributable to run-off business. Due to the special nature of this business, it is difficult to conduct meaningful analysis on the basis of our own claims data alone, so the reserves recognised for it are subject to significant uncertainty.
Financial Report Notes to the consolidated annual financial statements 5.5 Life 5.5.1 Actuarial risk Traditional life insurance is called fixed-sum insurance because payments are not made for losses. Instead, a fixed sum is paid on occurrence of an insured event, which can be survival or death. In the case of term insurance, capital and / or pension benefits are insured against premature death (whole-life insurance) or disability (disability insurance), while capital redemption insurance focuses on savings for old age. Endowment life insurance combines risk protection with savings.
The Baloise Group has a number of variable annuities products including unit-linked and, in some cases, guaranteed whole-life annuities in its units in Switzerland and in Luxembourg / Liechtenstein. Financial hedges are provided using external reinsurance.
The risks listed above do not vary greatly within this area of activity.
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 value-at-risk, 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 the Baloise Group invests in foreign-currency bonds (particularly those denominated in euros) for investment or diversification purposes, there may be currency effects in the income statement for both realised and unrealised positions. To ensure compliance with the risk budget set for currency effects recognised in the income statement, the foreign-exchange management team first calculates adequate target hedge ratios, then implements the necessary hedging strategies taking into account these target hedge ratios and the discretionary ranges allowed. It also takes advantage of phases when exchange rates are overreacting by deliberately underweighting or overweighting the hedge ratios in relation to the defined benchmark. These hedging strategies are implemented using forward FX contracts and FX options or combinations of options in which the selection of the instruments to be used in each case depends on factors such as volatility and expected exchange-rates movements.
For international diversification (risk-spreading), to enhance returns and because there is greater liquidity in certain foreign financial markets, as at 31 December 2015 the Group’s Swiss companies did hold a net position in euros equivalent to CHF 643.8 million (2014: 1,365.4) and a net position in US dollars equivalent to CHF – 11.2 million (2014: CHF 305.4 million). The remaining foreign exchange positions, both assets and liabilities, were negli gible.
During the year, the aggregated hedge ratio for the net foreign exchange exposure in US dollars and euros ranged from 80 per cent to 100 per cent.
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. These investments carry a reimbursement guarantee from financial institutions. Mortgage loans are secured by property; there are limits on loan-to-value ratios.
Promissory notes and registered bonds 1,820.5 3,623.4 106.5 148.8 246.6 5,945.7
The credit quality of mortgage assets arising from Swiss insurance business is reviewed using risk-management processes. Credit ratings are assigned on this basis. Mortgage assets that show no signs of impaired credit quality receive an A rating. Those that show signs of impaired credit quality are rated lower than BBB or are not rated at all.
In 2015, financial assets amounting to CHF 1.8 million (2014: CHF 2.0 million) and cash and cash equivalents of 0.1 million (2014: 0.2 million) from collateral received were used.
Promissory notes and registered bonds – – – – – –
Assets as at 31 December 2014 < 3 months 3 – 6 months 7 – 12 months > 12 months Total
Liquidity risk as at 31 December 2015 ‹ 1 year 2 1 – 3 years 4 – 5 years > 5 years Total Carrying amount
Financial Report Notes to the consolidated annual financial statements 5.9 Equity price risk The Baloise Group is exposed to equity price risk because it holds financial instruments with characteristics of equity classed as “recognised at fair value through profit or loss” and “available for sale”. Equity price risk is significantly reduced by means of international diversification, i.e. by spreading risk across sectors, countries and currencies. Active overlay management using derivatives also mitigates equity price risk if certain intervention levels are reached or the market and / or risk indicators that are continuously tracked by Baloise suggest heightened hedging activity.
Most financial instruments with characteristics of equity are publicly listed. If the market price of all financial instruments with characteristics of equity were to move by + / – 10 per cent on the balance sheet date, the following impact would be observed – after shadow accounting, deferred gains / losses, deferred taxes, derivative hedges and the effect of the impairment rules mentioned in section 3.10.2: Impact on profit for the period Impact on equity
→ Fair value determined without the use of observable market data (level 3) Fair value is estimated using generally recognised methods (discounted cash flow, etc.), although it is measured without reference to any observable market data (or only to a very minor degree), either because this data is not available or because it does not permit any reliable conclusions to be drawn with regard to fair value.
Recognised at fair value through profit or loss 671.6 671.6 242.7 428.9 –
Recognised at fair value through profit or loss 59.9 59.9 37.4 22.5 –
Recognised at fair value through profit or loss 839.9 839.9 – 839.9 –
Total liabilities measured on a recurring basis 9,465.1 9,785.2 1,997.5 7,660.3 127.5
Recognised at fair value through profit or loss 46.6 46.6 28.3 18.3 –
Recognised at fair value through profit or loss 322.2 322.2 – 322.2 –
Recognised at fair value through profit or loss 1,760.5 1,760.5 1,729.0 31.5 –
Recognised at fair value through profit or loss 53.3 53.3 53.3 – –
Recognised at fair value through profit or loss 1,627.7 1,627.7 1,607.8 19.9 –
Recognised at fair value through profit or loss 8,460.6 8,460.6 8,460.6 – –
Total liabilities measured on a recurring basis 8,460.6 8,460.6 8,460.6 – –
Reclassification to non-current assets and disposal groups classified as held for sale – – 24.9 – 24.9
Changes in fair value not recognised in profit or loss 2 49.3 – 49.3
Changes in fair value recognised in profit or loss 1 0.0 0.0
Reclassification of assets and liabilities from level 1 to level 2 and vice versa Assets and liabilities measured at fair value are generally reclassified from level 1 to level 2 if there is no longer deemed to be an active market in these instruments owing to their low daily trading volumes or lack of liquidity or if the instruments concerned have been de-listed. Financial instruments are reclassified from level 2 to level 1 for the exact opposite reasons.
Financial Report 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 5.11.1 Solvency I ratio at Group level The solvency ratio (calculated on the basis of the legal requirements in force on 30 June 2015) for pure insurance business of CHF 2,126 million (2014: CHF 2,167 million) was met in 2014 and 2015. The cover ratio for the capital adequacy requirement in available funds was 341 per cent at 31 December 2015 (31 December 2014: 354 per cent). The capital currently available consists of IFRS equity, unallocated policyholders’ dividends and the final policyholders ’ dividend reserve. Liabilities are also recognised as capital in accordance with the corresponding options for solvency coverage at individual company level. Deductions from equity include planned dividend payments and intangible assets.
5.11.4 Monitoring the solvency situation The risk owner and risk controller responsible for each business unit and for the Group as a whole participate in a regular reporting process. Key figures relating to Solvency I, Solvency II and the inhouse risk model (SST) are reported on a monthly basis, which enables the solvency situation to be monitored in a timely manner, providing the basis for risk-based management decisions within the whole organisation. It also enables the Baloise Group to meet external reporting requirements at all times.
Financial Report Notes to the consolidated annual financial statements 6. BASIS OF CONSOLIDATION 6.1 2014 financial year 6.1.1 Acquisitions The Baloise Group acquired the Brussels-based real-estate company Singel Office Antwerpen NV in Belgium during the first half of 2014. This transaction did not give rise to any goodwill.
6.1.2 Disposals All of Baloise’s Croatian and Serbian subsidiaries were sold to the Austria-based UNIQA Group on 11 March 2014.
In Luxembourg the remaining 65 per cent shareholding in the company Barosa S.à.r.l. was sold during the first half of 2014.
The “Other units 1” segment contains the strategic business units that do not meet the size criteria for disclosure under IFRS 8. For 2014, these are the Baloise Group entities that have been assigned to
The revenue generated by the Baloise Group is broken down into the Non-Life, Life, Banking (including asset management) and Other activities operating segments. The Non-Life segment offers accident and health insurance as well as products relating to liability, motor, property and marine insurance. These products are tailored to the specific needs of our customers – primarily retail clients – and the core competences of the relevant companies in the Baloise Group. The Life segment provides individuals and companies with a wide range of endowment policies, term insurance, investment-linked products and private placement life insurance. The Banking segment essentially comprises Baloise Bank SoBa, which acts as a universal bank in Switzerland, and Deutscher Ring Bausparkasse, which operates in Germany mainly as a conventional building society.
Premiums earned and policy fees (gross) 4,328.7 4,408.6 1,416.9 1,205.9 1,112.1 1,041.6 202.2 181.5 113.0 – 7,172.8 6,837.6 242.7 189.9 – 247.4 – 195.1 7,168.1 6,832.4
Interest expenses on insurance liabilities – 2.7 – 2.4 – 38.3 – 31.5 – 0.9 – 0.2 – 0.4 – 0.1 – 0.7 – – 42.9 – 34.3 – – 0.3 0.2 – 42.6 – 34.1
Profit / loss before borrowing costs and taxes 587.9 415.3 62.6 64.9 141.6 191.7 20.7 23.5 5.7 – 818.5 695.4 110.0 23.8 – – 928.6 719.2
Financial Report Notes to the consolidated annual financial statements 7.2 Segment reporting by operating segment
Share of profit (loss) of associates 0.0 7.4 2.9 25.1 – – 5.1 4.3 – – 8.1 36.8
Because the management approach within the Belgium strategic business unit has been re-assessed, a small number of long-term equity investments in the “Other activities” segment have been assigned to the “Non-life” and “Life” segments. These reclassifications have had no impact on the profit for the period. The figures for comparative periods have been restated for the purpose of comparability.
Change in technical reserves (gross) – 76.4 – 55.3 – 1,393.1 – 1,186.6 – – – – – – – 1,469.5 – 1,241.9
Operating and administrative expenses for insurance business – 562.0 – 509.2 – 304.5 – 271.3 – – – – 0.0 – – 866.5 – 780.5
Interest expenses on insurance liabilities – 1.0 – 0.2 – 41.6 – 33.8 – – – – – – – 42.6 – 34.1
8. PROPERTY, PLANT AND EQUIPMENT 8.1 Property, plant and equipment in 2014 2014 Land Buildings Operating equipment
8.2 Property, plant and equipment in 2015 2015 Land Buildings Operating equipment
Carrying amount as at 1 January 93.1 201.1 38.7 25.4 20.9 379.2
Carrying amount as at 1 January 64.6 41.4 656.6 155.6 162.0 0.2 1,080.3
Changes due to impending losses – – – 3.4 – 0.5 – – – 3.9
Carrying amount as at 31 December 71.8 14.1 542.7 135.5 145.0 0.2 909.2
Carrying amount as at 1 January 71.8 14.1 542.7 135.5 145.0 0.2 909.2
Capitalisation of acquisition costs – – 53.3 214.2 – – 267.5
In 2014 an impairment loss of CHF 9.4 million was recognised on other intangible assets in respect of a large-scale IT project.
There were no contingent liabilities arising from investments in associates and no substantial unrecognised shares of the losses of associates as at either 31 December 2015 or 31 December 2014.
Operating expenses arising from investment property that generates rental income 68.5 68.8
The increase in the portfolio in 2014 was largely attributable to real estate acquired by Baloise’s Swiss entities. Information on the disposal of the investment property relating to the Austrian entities sold during the second half of 2014 can be found in the line item “Reclassification to non-current assets and disposal groups classified as held for sale”.
The increase in the portfolio during the reporting year was largely attributable to real estate acquired by Baloise’s Swiss entities. The reclassification from the investment property portfolio was largely attributable to the change of use of one property within the German real-estate portfolio.
Recognised at fair value through profit or loss 1 9,842.0 9,781.5
Financial assets as reported on the balance sheet 47,912.8 47,019.2 1 Of which financial assets totalling CHF 98.8 million (2014: CHF 114.7 million) involved insurance policies that had not been fully reviewed by the balance sheet date.
Publicly listed, variable interest rate – – 133.5 8.9 – – 37.3 28.2 170.8 37.1
No impairment losses had to be recognised on held-to-maturity financial instruments with characteristics of liabilities, during either the reporting year or the prior year.
Financial assets with characteristics of equity – – 4,698.1 4,443.3 0.7 – 670.9 1,173.8 5,369.7 5,617.1
Increases and additional provisions recognised in profit or loss – 5.4 – 5.7
Reclassification to non-current assets and disposal groups classified as held for sale 0.0 0.0
Derivative financial instruments as reported on the balance sheet 613.2 653.9 176.4 250.8
Reclassification to non-current assets and disposal groups classified as held for sale – 0.0
Reinsurers’ share of technical reserves as at 1 January 396.4 421.5
Additions / disposals arising from change in scope of consolidation 17.6 5.2
Reclassification to non-current assets and disposal groups classified as held for sale – 4.7 – 1.7
Impairment of receivables from reinsurers as at 1 January – 0.3 – 0.5
Impairment of receivables from reinsurers as at 31 December – 0.5 – 0.1
Termination benefits – – 11.7 12.7 18.2 Post-employment benefits – defined benefit plans The Baloise Group provides a range of pension benefits, which vary from country to country in line with local circumstances. The funded – or partially funded – liabilities relate to the occupational pension provision offered in Switzerland and that of the former Avéro Schadeverzekering Benelux NV.
Financial Report Notes to the consolidated annual financial statements 18.2.1 Fair value of plan assets
Balance as at 31 December 2,337.4 2,373.2 18.2.2 Partially funded liabilities under defined benefit plans
Actuarial gains / losses on defined benefit obligations arising from changes in financial assumptions – 438.1 – 33.7 changes in demographic assumptions 12.0 –
Additions / disposals arising from change in scope of consolidation – 3.3 – 0.7
Reclassification to non-current assets and disposal groups classified as held for sale 32.5 3.8
Balance as at 31 December – 896.9 – 752.5 18.2.4 Net actuarial liabilities under defined benefit plans
Net actuarial liabilities under defined benefit plans – 1,280.8 – 1,200.5
Of which: Bâloise Holding Ltd shares (fair value) and convertible bonds (fair value) 29.7 29.4
Total expenses for defined benefit plans recognised in the income statement – 94.5 – 92.2
Expected wage and salary increases plus 0.5 % age points 40.1 36.0
Mortality probabilities for 65-year-olds plus 10.0 % age points – 90.4 – 88.4
Weighted share of annuity option plus 10.0 % age points 19.7 22.7
The Baloise Group determines the sensitivities of liabilities under defined benefit plans by recalculating them using the same models as used for the calculation of the effective value. In this calculation, only one parameter of the base scenario is changed. Possible interaction between individual parameters is not taken into consideration. The effect resulting from various parameters occurring simultaneously may vary from the sum total of individually determined differences.
18.2.11 Maturity profile The maturity profile of liabilities under pension plans differs depending on whether benefits are prospective or current entitlements. For prospective benefit entitlements, the average expected remaining service period is 10.29 years; the average present value factor for current benefit entitlements under pension commitments is 15.83 years.
Long-service bonuses constitute the principal benefit paid. The present value of liabilities as at 31 December 2015 totalled CHF 30.8 million (2014: CHF 33.5 million). There were no disposals of plan assets for long-term employee benefits. Benefits paid out amounted to CHF 4.0 million (2014: CHF 4.5 million).
18.4 Share-based payment plans For some time now, the Baloise Group has offered employees and management team members the chance to partici pate in various plans under which shares are granted as part of their overall remuneration packages. The Employee Incentive Plan, the Share Subscription Plan and the Employee Share Ownership Plan are all cash-settled remuneration programmes. Performance share units (PSUs) are an equity-settled remuneration programme. In 2015, a sum of CHF 20.8 million (2014: CHF 22.3 million) was recognised as an expense in profit or loss in connection with the following share-based payment plans.
Financial Report Notes to the consolidated annual financial statements 18.4.1 Employee Incentive Plan The Baloise Foundation for Employee Participation set up in 1989 offers members of staff working for various Baloise Group companies in Switzerland the opportunity to purchase shares in Bâloise Holding Ltd (usually once a year) at a preferential price in compliance with the regulations adopted by the Board of Foundation. This encourages employees to maintain their commitment to the Company over the long term by becoming shareholders. The subscription price is fixed by the Board of Foundation at the beginning of the subscription period and is then published on the intranet. It equals half of the volume-weighted average share price calculated for the month of August in each subscription year. In 2015 the subscription price amounted to CHF 60.40 (2014: CHF 57.30) and a total of 172,796 shares were subscribed (2014: 174,810). Title to the subscribed shares passes to the relevant employees with effect from 1 September each year, and the shares are subject to a three-year closed period.
Fair value of subscribed shares on subscription date (CHF million) 5.3 4.8
Financial Report Notes to the consolidated annual financial statements 18.4.3 Employee Share Ownership Plan Since May 2001 it has been possible for most management team members working in Switzerland to receive part of their short-term variable remuneration in the form of shares from the Employee Share Ownership Plan instead of receiving cash. Within certain limits they are free to choose what proportion of their short-term variable remuneration they receive in the form of such shares. The most senior management team members are subject to upper limits; members of the Corporate Executive Committee – who are obliged to receive at least half of their short-term variable remuneration in the form of shares – are not allowed to receive more than 40 per cent of their entitlement in the form of shares from the Employee Share Ownership Plan. The subscription date is 1 March of each year (the same as for the Share Subscription Plan); although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold for the duration of a three-year closed period.
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, 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 Employee Share Ownership Plan are purchased in the market as and when required.
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 roughly 40 leading European insurance companies contained in the STOXX Europe 600 Insurance Index.
Participants receive the pertinent number of shares once the vesting period has elapsed, which means that for the PSUs allocated in 2015 they receive their shares on 1 March 2018. If an individual’s employment contract is terminated during the vesting period, the PSUs expire without the person concerned receiving any consideration or compensation. This does not apply if the employment contract ends due to retirement, disability or death. It also does not apply if the contract is terminated but the programme participant does not join a rival company or is not personally at fault for the termination of the contract. In the latter two cases, some of the allocated PSUs will still expire. The number of PSUs expiring is proportional to the amount of time remaining until the end of the vesting period. In addition, the Remuneration Committee has the powers to claw back some or all of the PSUs allocated to an individual or to a group of programme participants if there are specific reasons for doing so. Such specific reasons include, for example, serious breaches of internal or external regulations, the taking of inappropriate risks that are within an individual’s control, and the type of conduct or behaviour that would increase the risks to Baloise.
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 (multiplier times the share price at the conversion date) and the share price at the grant date, expressed as a percentage of the share price at the grant date; example of the PSU plan in 2007: ([{1.182 * 86.05} – 125.80] / 125.80) * 100 = – 19 %. 4 Interim measurement as at 31 December 2015.
Measurement of the PSUs at their issue date is based on a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period. This measurement incorporates the following parameters: → interest rate of 1 per cent; → the volatilities of all shares in the peer group and their correlations with each other
(measured over a three-year track record); → the expected dividend yields; → empirical data on how long eligible programme participants remain with the Company.
Of which: expired (departures in 2014) – 5,026 – 2,308 –
Of which: expired (departures in 2015) – 2,339 – 1,129 0
Number of active PSUs as at 31 December 2015 63,376 45,707 42,162
Value of allocated PSUs on issue date (CHF million) 5.6 5.6 5.1
PSU expense incurred by the Baloise Group for 2013 (CHF million) 1.2 – –
PSU expense incurred by the Baloise Group for 2015 (CHF million) 1.7 1.9 1.4
Financial Report Notes to the consolidated annual financial statements 19. DEFERRED INCOME TAXES 19.1 Deferred tax assets and liabilities
Liabilities arising from banking business and financial contracts 117.8 38.7 – 156.4
Liabilities arising from banking business and financial contracts 156.4 – 30.9 125.5
No deferred tax assets had been recognised on tax loss carryforwards amounting to CHF 238.2 million as at 31 December 2015 (2014: CHF 291.2 million) because the relevant offsetting criteria had not been met.
Of this total, CHF 3.3 million will expire after one year, a further CHF 27.0 million will expire after two to four years and CHF 208.0 million will expire after five years or more.
Of which: recognised as deferred tax liabilities – 1,065.5 – 913.3 20. OTHER ASSETS “Other assets” include the fair value of precious metals amounting to CHF 40.2 million in connection with private placement life insurance (2014: CHF 53.3 million). The insurance policyholder bears the price risk attaching to these precious metal holdings.
The Annual General Meeting held on 30 April 2015 voted to pay a gross dividend of CHF 5.00 per share for the 2014 financial year. This amounted to a total dividend distribution of CHF 250.0 million. Excluding the treasury shares held by Bâloise Holding at the time that the dividend was paid, the total distribution effectively amounted to CHF 234.7 million.
As part of the share buy-back programme that has been running since 16 April 2015, a total of 507,500 shares in Bâloise Holding had been repurchased for a total of CHF 59.1 million by the reporting date (31 December 2015).
Financial Report Notes to the consolidated annual financial statements 23. TECHNICAL RESERVES (GROSS)
Policyholders’ dividends credited and provisions for future policyholders’ dividends (gross) 4,126.9 3,486.9
Provision for claims handling costs 562.6 – – 529.1 – –
Total technical reserves (non-life) 6,212.8 – 396.6 5,816.3 5,947.0 – 387.6 5,559.4
Additions / disposals arising from changes in scope of consolidation 50.5 5.9
Reclassification to non-current assets and disposal groups classified as held for sale – 92.6 –
Financial Report Notes to the consolidated annual financial statements 23.2 Technical reserves (life)
Policyholders’ dividends credited and provisions for future policyholders’ dividends 4,126.9 3,486.9
Total provisions for future policyholders’ dividends 2,613.7 2,375.9 1 The Swiss pensions business is disclosed separately owing to its specific features. It comprises group contracts which may be cancelled annually by either party, whereas the coverage period for the individuals enrolled is significantly longer.
Financial Report Notes to the consolidated annual financial statements 23.2.2 Actuarial reserves from non-unit-linked life insurance contracts
Additions arising from acquisition of policy portfolios and insurance companies 151.4 –
Reclassification to non-current assets and disposal groups classified as held for sale – 195.0 – 1,462.8
The actuarial reserves include unearned premium reserves and claims reserves. The actuarial reserves for DPF business as at 31 December 2015 amounted to CHF 32,876.1 million (31 December 2014: CHF 34,788.4 million), while for non-DPF business they totalled CHF 283.1 million (31 December 2014: CHF 299.2 million). The actuarial reserves for assumed business (inward reinsurance) as at 31 December 2015 came to CHF 7.6 million (31 December 2014: CHF 7.4 million).
Adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) 11.5 8.0
Reclassification to non-current assets and disposal groups classified as held for sale – 12.6 – 2.2
Policyholders’ dividends credited and provisions for future policyholders’ dividends as at 31 December
Financial contracts with discretionary participation features (DPFs) 1 1,766.5 1,930.1 – –
Liability for future financial lease payments (present value) 86.4 0.0 86.4 0.0
Financial Report Notes to the consolidated annual financial statements 25. RECONCILIATION BETWEEN THE GROSS INVESTMENT IN FINANCIAL LEASES AND THE PRESENT VALUE OF MINIMUM LEASE PAYMENTS
Senior bond Senior bond Senior bond Senior bond Senior bond Senior bond Senior bond
Total investment income for own account and at own risk 1,701.9 1,521.8
Interest income of CHF 3.1 million had been recognised on impaired investments at the balance sheet date (2014: CHF 3.4 million).
Held to maturity 1 – – – 177.5 – – – 177.5
Available for sale – – 106.8 – 339.5 – – – 446.3
Impairment losses on financial assets with characteristics of equity recognised in profit or loss
Impairment losses on financial assets with characteristics of liabilities recognised in profit or loss
Total impairment losses on financial assets recognised in profit or loss – 41.1 – 77.8 31.4 Currency gains and losses Excluding exchange-rate losses on transactions involving financial instruments that are recognised at fair value through profit or loss, a currency loss of CHF 377.3 million was reported for 2015 (2014: loss of CHF 77.0 million).
A gross currency loss of CHF 127.0 million was recognised directly in equity for the reporting year (2014: gain of CHF 175.5 million). Allowing for hedges of a net investment in a foreign operation (hedge accounting), a net loss of CHF 160.7 million was recognised for 2015 (2014: net gain of CHF 38.9 million).
Other operating income 185.2 136.6 1 The gain on the disposal of the Austrian entities is included in the 2014 financial year.
Depreciation and impairment of property, plant and equipment – 65.0 – 39.8
Fees and commission expenses for assets managed for third parties – 3.7 – 2.8
35. PERSONNEL EXPENSES Total personnel expenses for 2015 came to CHF 875.2 million (2014: CHF 959.4 million).
Profit for the period attributable to shareholders (CHF million) 710.7 512.1
Adjusted profit for the period attributable to shareholders (CHF million) 718.6 520.1
Total items not to be reclassified to the income statement – 310.1 – 13.6
Gains and losses reclassified to the income statement – 452.6 – 471.8
Gains and losses arising during the reporting period 8.7 – 27.6
Gains and losses arising during the reporting period – 124.1 – 0.2
Reserves arising from reclassification of held-to-maturity financial assets: Gains and losses arising during the reporting period – 0.1 – 0.3
Gains and losses reclassified to the income statement – 2.5 – 1.4
Total items to be reclassified to the income statement 753.3 – 582.2
Available-for-sale financial assets 1,688.8 – 459.1 1,229.7 – 882.9 240.2 – 642.7
Hedging reserves for derivative financial instruments held as hedges of a net investment in a foreign operation
Change arising from shadow accounting – 737.1 188.3 – 548.8 326.4 – 86.5 239.9
Outflow / inflow of cash and cash equivalents – 16.4 – 6.1 267.9 –
All of Baloise’s Croatian and Serbian subsidiaries were sold to the Austria-based UNIQA Group on 11 March 2014. All of its Austrian subsidiaries were then sold to the Helvetia Group on 28 August 2014. In Luxembourg the remaining 65 per cent shareholding in the company Barosa S.à.r.l. was sold.
Payments under share-based payment plans – 4.2 – 3.8 48,008 shares worth CHF 6.0 million were repurchased from members of the Corporate Executive Committee in 2015 (2014: CHF 3.1 million) under the Employee Share Ownership Plan (section 18.4.3).
42. REMUNERATION PAID TO THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE The information to be disclosed in accordance with sections 663b and 663c of the Swiss Code of Obligations (OR) is contained in the Remuneration Report, which can be found on pages 73 to 95 of the chapter on corporate governance. The key information disclosed here includes: → Remuneration paid to the members of the Board of Directors → Remuneration paid to the members of the Corporate Executive Committee → Loans and credit facilities granted to members of the Board of Directors and the Corporate Executive Committee → Shares held by members of the Board of Directors and the Corporate Executive Committee
43.1.2 Guarantees and collateral for the benefit of third parties The Baloise Group has issued guarantees and provided collateral to third parties. These include obligations – in contractually specified cases – to make capital contributions or payments to increase the amount of equity, provide funds to cover principal and interest payments when they fall due, and issue guarantees as part of its operating activities. The Baloise Group is not aware of any cases of default that could trigger such guarantee payments.
Total guarantees and collateral for the benefit of third parties 508.5 524.3
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.
44. OPERATING LEASES 44.1 The Baloise Group as a lessee The Baloise Group has entered into non-cancellable leasing arrangements to lease buildings, vehicles and operating equipment. The average residual term of its leases is between three and five years.
45. CLAIM PAYMENTS RECEIVED FROM NON-GROUP INSURERS The companies in the Baloise Group received claim payments totalling CHF 0.2 million in 2015 (2014: CHF 0.1 million) from non-Group insurers in connection with insurance contracts under which the Baloise Group companies are themselves policyholders. Most of these claim payments were made for damage to buildings in Switzerland where, depending on the building’s location, mandatory insurance cover is provided by government agencies.
Baloise Insurance Ltd, Basel Non-life NL 100.00 100.00 F CHF 75.0 5,169.9 1,323.2 X
Baloise Bank SoBa AG, Solothurn Banking B 100.00 100.00 F CHF 50.0 7,465.7 –
Merno-Immo NV, Antwerp Other NL 100.00 100.00 F EUR 17.1 25.2 –
Baloise Life (Liechtenstein) AG, Balzers Life L 100.00 100.00 F CHF 7.5 2,805.5 1.2
The prime objective of Baloise Fund Invest (Lux) is to enable unitholders to benefit from professional management strategies based on the principle of risk diversification in line with each sub-fund’s specified investment policy.
REPORT OF THE STATUTORY AUDITOR ON THE FINANCIAL STATEMENTS As statutory auditor, we have audited the consolidated financial statements of Bâloise Holding Ltd, which comprise the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated cash flow statement, consolidated statement of changes in equity and notes to the consolidated financial statements (pages 104 to 253), for the year ended 31 December 2015.
Opinion In our opinion, the consolidated financial statements for the year ended 31 December 2015 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the International Financial Reporting Standards (IFRS) and comply with Swiss law.
Income statement of Bâloise Holding ����������������������������������������� 258 Balance sheet of Bâloise Holding �������������������������������������������������� 259 Notes to the financial statements of Bâloise Holding ��������� 260 Appropriation of distributable profit as proposed by the Board of Directors ��������������������������������������� 271 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ���� 272
Financial Report Notes to the financial statements of Bâloise Holding 1. ACCOUNTING POLICIES
General These annual financial statements of Bâloise Holding Ltd domiciled in Basel have been prepared in accordance with the provisions of Swiss accounting law (Title 32 of the Swiss Code of Obligations)� The main policies applied which are not prescribed by law are described below� The comparative prior-year figures have been restated in accordance with the new classification criteria�
Loans to Group companies These loans are measured at their nominal amount less any impairment losses� Specific write-downs are recognised for all identifiable risks in accordance with the prudence principle�
Deferred income and accrued expenses This line item comprises income relating to the new financial year that has already been received, as well as expenses relating to the reporting year that will not be paid until a later date�
In connection with the implementation of the new financial reporting standards, the principle of itemised measurement applies to long-term equity investments for the first time� The application of this new ruling resulted in the reversal of an impairment loss under commercial law of CHF 203�5 million on the long-term equity investment in Baloise (Luxembourg) Holding in the 2015 annual financial statements�
Total administrative expenses – 52.4 – 35.1 1 Bâloise Holding AG has no direct employees. All staff members are employed by Baloise Insurance Ltd, Basel.
Total loans to Group companies 102.0 102.0 9. OTHER FINANCIAL INSTRUMENTS
Baloise Finance (Jersey) Ltd, St. Helier, Jersey 100.00 100.00 CHF 1.3 1.3 1 Investments stated as a percentage are rounded down.
Further information on the long-term equity investments held directly by Bâloise Holding can be found on pages 250 and 251 in the Financial Report section�
Financial Report Notes to the financial statements of Bâloise Holding 11. BONDS
Total treasury shares – 194.8 1 In accordance with new financial reporting legislation, treasury shares were transferred from assets to equity and liabilities in 2015. For the same reason, the reserve for treasury shares associated with these treasury shares was reversed. The comparative prior-year figures still reflect the old classification.
Financial Report Notes to the financial statements of Bâloise Holding 14. SIGNIFICANT SHAREHOLDERS
The information available to the Company reveals that the following significant shareholders and shareholder groups linked by voting rights held long-term equity investments in the Company within the meaning of section 663c of the Swiss Code of Obligations (OR) as at 31 December 2015: Total shareholding as at 31.12.2014
Bâloise Holding has furthermore issued the following letter of comfort: As the owner of Baloise Life (Liechtenstein) AG, Bâloise Holding, Basel, undertakes to ensure that its sub sidiary
Baloise Life (Liechtenstein) AG is at all times in a financial position to meet in full its liabilities to its customers arising from the contracts relating to its RentaSafe, BelRenta Safe, RentaProtect and RentaSafe Time products, especially its guarantee commitments� Since October 2012 this letter of comfort has also applied to customers with contracts relating to its RentaProtect Time, RentaSafe Time (D-CHF) and RentaProtect Performance products� The maximum liability corresponds to the actuarial reserves recognised for these products on the balance sheet of Baloise Life (Liechtenstein) AG as at 31 December 2015�
16. CEDED ASSETS Bâloise Holding lends some of its treasury shares to Baloise Insurance Ltd every year under a securities lending agreement� These shares are used in the Employee Share Ownership Plan run by Baloise Insurance Ltd� No assets had been ceded at the balance sheet date (2014: none)�
17. REMUNERATION PAID TO THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE The information to be disclosed in accordance with sections 663b and 663c of the Swiss Code of Obligations (OR) is contained in the Remuneration Report, which can be found on pages 73 to 95 of the chapter on corporate governance� The key information disclosed here includes
Financial Report Notes to the financial statements of Bâloise Holding 18. NET REVERSAL OF HIDDEN RESERVES In 2015, hidden net reserves totalling CHF 203�5 million were reversed (see note 3)�
The appropriation of profit is consistent with section 30 of the Articles of Incorporation� Each share confers the right to receive a dividend of CHF 5�00 gross or CHF 3�25 net of withholding tax�
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements� The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error� In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system� An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements� We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion�
GLOSSARY ������������������������������������������������������������������������������������������������ 276 ADDRESSES ��������������������������������������������������������������������������������������������� 280 INFORMATION ON THE BALOISE GROUP ������������������������������������ 281 FINANCIAL CALENDAR AND CONTACTS ��������������������������������������� 282
Notes 4 Baloise 18 Review of operating performance 38 Sustainable business management 56 Corporate Governance 102 Financial Report 256 Bâloise Holding Ltd 274 Notes
→ Claims incurred Claims incurred comprise the amounts paid out for claims during the financial year, the reserves set aside to cover un­ settled claims, the reversal of reserves for claims that no longer have to be settled or do not have to be paid in full, the costs incurred by the processing of claims, and changes in related reserves�
→ Insurance benefit The benefits provided by the insurer in connection with the occurrence of an insured event�
→ Technical result Baloise calculates its technical result by netting all income and expenses arising from its insurance business� Its tech­ nical result does not include income and expenses unrelated to its insurance business or the net gains or losses on its investments�
SWITZERLAND Basler Versicherungen Aeschengraben 21 CH-4002 Basel Tel + 41 58 285 85 85 Fax + 41 58 285 70 70 kundenservice@baloise.ch www.baloise.ch
AVAILABILITY AND ORDERING The 2015 Annual Report and the Summary of the 2015 Annual Report will be available on the internet at www�baloise�com/ annualreport from 22 March 2016�
INFORMATION FOR MEMBERS OF THE MEDIA You will find the latest media releases, presentations, reports, images and podcasts of various Baloise events as well as media contact details at www�baloise�com/media�
© 2016 Bâloise Holding Ltd, 4002 Basel, Switzerland Publisher Baloise, Corporate Communications & Investor Relations Concept, design Eclat, Zurich Photography Dominik Plüss, Basel / Marc Wetli, Zurich Publishing Multimedia Solutions AG, Zurich English translation LingServe Ltd (UK) Printing Gremper AG, Pratteln
Media Relations Baloise Group Dominik Marbet Aeschengraben 21 4002 Basel, Switzerland media.relations@baloise.com