FINANCIAL REPORT Consolidated balance sheet ���������������������������������������������������������������� 90 Consolidated income statement ������������������������������������������������������� 92 Consolidated statement of comprehensive income ����������������� 93 Consolidated cash flow statement ��������������������������������������������������� 94 Consolidated statement of changes in equity ���������������������������� 96 Notes to the consolidated annual financial statements ��������� 98 Notes to the consolidated balance sheet ������������������������������������ 170 Notes to the consolidated income statement �������������������������� 215 Other disclosures ��������������������������������������������������������������������������������� 227 Report submitted by the statutory auditors to the Annual General Meeting of Bâloise Holding Ltd, Basel ��������������������� 240
BÂLOISE HOLDING LTD Income statement Bâloise Holding ���������������������������������������������� 244 Balance sheet Bâloise Holding ������������������������������������������������������� 245 Notes to the financial statements of Bâloise Holding ��������� 246 Appropriation of distributable profit as proposed by the Board of Directors �������������������������������������������� 253 Report of the statutory auditor to the General Meeting of Bâloise Holding Ltd, Basel ��������������������� 254
Dividend per share5 (CHF) 4.50 4.50 4.75 5.6 1 Premiums written and policy fees (gross).
2 Of which deferred gains / losses from other operating segments (31 December 2012 (reported): CHF –6.6 million; 31 December 2013: CHF –1.7 million). 3 Excluding investments for the account and at the risk of life insurance policyholders.
6 In the review of its operating performance (pages 18 to 29) Baloise compares the performance of its business in the reporting year with the figures published for the 2012 financial year. Changes in financial reporting standards required figures reported for 2012 to be restated. For further information, please refer to the Financial Report section.
Net combined ratio of 94.9 per cent 7.8 per cent higher total volume of business
This annual report and the Annual General Meeting to be held on 24 April will bring Baloise’s anniversary year to a close� For over 150 years we have been identifying our customers’ risks and mitigating them successfully� The trust that our clients and shareholders have placed in us forms the solid foundations that have underpinned our success right from the outset�
By keeping our promise of “Making you safer�”, we can offer a skilful combination of insurance and innovative safety and security solutions, and we possess a unique product range that ticks all the boxes for our risk-conscious customers� Our innovative safety and security components enable us to support our customers by offering them exactly the services that they want� We maintain a close dialogue with our Customer Advisory Board� This is key to our ability to innovate� Because we listen to our customers, we now offer facilities such as psychological support after burglaries, self-defence courses for elderly people and driver safety training following accidents� This enables our customers to regain their self-confidence and enhance their safety and security�
Safe, secure, reliable and profitable – these are values that we aim to retain in future� To this end we are refining our management of target customers and partners and are opening up new sources of growth� We are putting a Group-wide benchmarking system in place because we are striving to constantly improve our operations and to systematically optimise our business processes� We remain true to our virtues of providing our customers with innovative products and new offerings that have been adapted to the continuing low-interest-rate environment� In order to provide effective support for these focal areas we have set up transnational platforms that address the issues of growth, life insurance, efficiency, non-life insurance and operational excellence�
By continuing to develop its solid insurance operations in this way, Baloise is once again firmly on track to meet its targets of a combined ratio of between 93 per cent and 96 per cent, a new business margin in excess of 10 per cent and a return on equity of between 8 per cent and 12 per cent� It will continue to pay attractive and consistent dividends�
Although Europe’s sovereign debt crisis has yet to be resolved, the economic situation has improved considerably� This trend has manifested itself in the excellent returns available in the equity markets and has boosted insurance stocks, which have significantly gained in value on the back of a strong operating performance and slightly higher interest rates�
This positive trend was further accentuated in the second half of 2013� Baloise’s share price jumped by 23�7 per cent in the second half of the year, easily outperforming both the Swiss Leader Index (up 8�6 per cent) and the Swiss insurance sector index (up 12�1 per cent)�
DIVIDENDS PAID TO SHAREHOLDERS The Board of Directors of Bâloise Holding Ltd will propose to the Annual General Meeting on 24 April 2014 that a cash dividend of CHF 4�75 per share be paid for the 2013 financial year� This would represent a dividend yield of 4�2 per cent of the year-end share price�
Information on Baloise’s share buy-back programme 2008– 2011 can be found at www.baloise.com → Investor Relations → Baloise share → Share buy-back programme
SHAREHOLDER STRUCTURE The shares in Bâloise Holding Ltd are widely held and their free float remains unchanged at 100 per cent� Several changes in Baloise’s shareholder base took place during the 2013 financial year� The shareholding owned by the Signal Iduna Group fell below the notifiable threshold of 3 per cent on 18 January 2013� Several portfolios managed by LSV Asset Management collectively rose above the threshold of 3 per cent on 2 July 2013 and
Stellar share price performance puts Baloise among top six Swiss blue-chip stocks * Baloise shares = shares of Bâloise Holding Ltd.
INDEXED SHARE PRICE PERFORMANCE 1 BÂLOISE HOLDING REGISTERED SHARES 2008 – 2013
Minus the number of treasury shares (units) 2,282,790 2,800,239 3,247,273 3,053,746 3,028,943
Number of shares in circulation (units) 47,717,210 47,199,761 46,752,727 46,946,254 46,971,057
SWITZERLAND In its domestic market of Switzerland the Baloise Group operates under its “Basler Insurance” and “Baloise Bank SoBa” brand names� Basler Switzerland is the largest business unit in the Baloise Group� As an insurer and focused financial services provider it specialises in delivering comprehensive insurance and pension solutions� Its customers are individuals, small and medium-sized firms and selected industrial enterprises� Its insurance sales force is at the heart of its marketing strategy� This is supplemented by a network of distribution partners for certain product-related and customer segments and by brokers and the internet� Baloise Bank SoBa strengthens the range of pension solutions available by offering banking products that are sold by the insurance sales force and by the bank itself� It has positioned itself as a universal bank in northwestern Switzerland�
GERMANY In Germany the Baloise Group operates under the “Basler Versicherungen ” brand name� Its portfolio comprises insurance and pension solutions in the areas of indemnity, accident and life insurance for individuals, small and medium-sized firms and selected industrial companies� Basler's marketing activities are focused on its insurance sales force, on brokers and on its distribution partners maklermanagement�ag, OVB and ZEUS�
Baloise focuses on markets, customers, products and distribution channels that add considerable value. Our preferred clients are individuals, small and medium-sized firms with good risk/ return profiles and selected industrial companies.
AUSTRIA In Austria the Baloise Group offers insurance and pension products to individuals and to small and medium-sized firms under the “Basler Versicherungen” brand� Its marketing activities are focused on its insurance sales force�
SAFETY WORLD “Making you safer.” is the promise we make 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.
NON-LIFE → Further strengthen operational excellence → Improve fraud detection and prevention → Further improvement of claims management processes
BUILDING ON A STRONG FOUNDATION For more than 150 years, Baloise has made its customers safer. With its focus on risk-aware target customers and its unique selling proposition, the “Safety World”, Baloise operates from a solid platform with high cash flow generation and strong capitalisation.
FOUR FOCUS AREAS The focus areas form the next step in our strategic business development. Starting from the strong foundation we established over the past decade, we aim to expand our core strengths and drive growth and profitability to a new level.
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�
“Baloise provides its employees in Luxembourg with a considerable amount of latitude, thereby living up to its reputation as an independent Swiss organisation. ”
“Any solid partnership or relationship is based on mutual appreciation and respect. Only when we inspire customers in our contact with them, can we arrive at successful conclusions. ”
Our strong innovative capabilities give us the necessary competitive edge� This is illustrated by our unrelenting and holistic focus on safety and security and by the way we manage our customer relationships� We create a climate of continuous innovation across all product lines�
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�
“The art of customer service is to provide clients with the safety and security they need by giving them the right information, advice and support.”
Baloise generated outstanding growth in 2013 and increased its profit for the period. Its insurance business was highly lucrative and reported a solid combined ratio. In its life insurance business the Company achieved highly impressive growth and further improved its earnings.
The Company’s investments performed well against a backdrop of benign equity markets and rising risk-free longterm interest rates� Investments in the insurance business yielded a return of 2�3 per cent (2012: 6�6 per cent) despite lower bond prices� Equity even grew by a modest 0�7 per cent to more than CHF 4�9 billion, while the solvency ratio of 267 per cent remained at an excellent level�
The total volume of business, which includes investment-linked life insurance, increased by an outstanding 7�8 per cent to CHF 9,009�5 million (2012: CHF 8,358�3 million)� Strong growth came from both investment-linked products (10�1 per cent) and conventional life business (10�6 per cent)� Premiums earned from non-life insurance rose by 3�7 per cent year on year�
LIFE DIVISION: SUBSTANTIAL PROFIT CONTRIBUTION The life insurance division raised its profit before borrowing costs and taxes by 47�9 per cent to CHF 261�1 million in the reporting year (2012: CHF 176�5 million)� This increase was largely attributable to the more benign capital market conditions as well as improvements in the Company’s technical result� Although 2013 saw modest interest rate rises, life insurers continued to be faced with the major challenge of generating attractive returns at a time of historically low interest rates� The total volume of business, which includes investment-linked life insurance, grew to CHF 5,567�8 million (2012: CHF 5,040�6 million )� One especially encouraging aspect was that the increase of 10�5 per cent in Swiss francs and 9�5 per cent in local-currency terms was equally attributable to exceptional growth of more than 10 per cent in both conventional life insurance and investment-linked products� Baloise’s conventional life insurance business increased by 10�6 per cent in Swiss francs and 10�1 per cent in local-currency terms to CHF 3,787�2 million (2012: CHF 3,424�0 million)� The Baloise Group's growth in this segment was driven by Switzerland, where conventional life insurance business advanced by 15�5 per cent on the back of the group life operations� Investment-linked life insurance achieved strong growth – especially in Luxembourg and Switzerland – with its aggregate volume expanding by 10�1 per cent in Swiss francs and 8�2 per cent in local-currency terms to CHF 1,780�6 million (2012: CHF 1,616�6 million)�
SIGNIFICANT GAINS ON INVESTMENTS 2013 was characterised by benign equity markets and – reversing the trend towards lower interest rates in recent years – rising risk-free long-term interest rates� The key driver behind these developments was the US Federal Reserve, which took the first steps towards normalising (“tapering”) its extremely expansionary monetary policy, while the European Central Bank did what it could to calm the situation in the European markets� These measures increased investors’ risk appetite� Baloise’s investments continued to perform well in this environment�
had remained more or less flat in the first half of 2013, hedge funds delivered impressive returns in the second half of the year� The performance of private equity investments was also encouraging, albeit somewhat subdued compared with publicly traded shares� The impairment losses recognised on financial instruments with characteristics of equity totalled CHF 32�7 million (gross), which was once again a significant yearon -year decrease� Investment property continued to yield stable returns and higher valuations� The values and income streams generated by our mortgages remained consistent�
Total assets under management 75,579.6 1 Including CHF 47.3 million (2012: CHF 87.1 million) in other assets (precious metal holdings from investment-linked life insurance policies).
BASLER INSURANCE: STRONG GROWTH Basler Switzerland reaffirmed its strong market position by delivering an impressive operating performance as well as excellent growth in life insurance and encouraging growth in indemnity and personal insurance� The life and non-life divisions strengthened their product ranges by adding new safety and security components, thereby underscoring Basler Switzerland’s considerable innovative capabilities� Profit before borrowing costs and taxes jumped by 14�9 per cent to CHF 434�5 million (2012: CHF 378�2 million)� Life insurance business made a valuable contribution to this encouraging performance� The total volume of business (including investment-linked life insurance) rose sharply by 12�3 per cent to CHF 4,363�1 million (2012: CHF 3,885�4 million ) primarily owing to the strong growth in life insurance business� The volumes generated by the unique business model combining banking and insurance continued to grow�
The non-life division remained operationally strong� The gross combined ratio amounted to an excellent 86�4 per cent (2012: 83�8 per cent)� Basler Switzerland has been achieving excellent combined ratios for many years� The total volume of premiums rose by 2�0 per cent to CHF 1,343�1 million (2012: CHF 1,316�2 million)�
Baloise was a leading player in the Swiss market in 2013 and continued to improve its already high profitability. It strengthened its product range and exploited growth opportunities in its life insurance business.
The operational optimisation measures taken in Germany proved effective� The Basler Versicherungen units in Germany raised their profit before borrowing costs and taxes by 295�3 per cent from CHF 17�2 million in 2012 to CHF 68�0 million in 2013� This improvement was all the more remarkable because Germany was battered by severe storms, which caused a huge amount of damage� Flood damage that occurred in May and June resulted in substantial costs for large claims� Because of hailstorms and other storms that occurred in July, August and October, almost 65 per cent of the natural disasters that arose in the Baloise Group affected its German units� The German business reported large claims totalling in excess of CHF 70 million� The gross combined ratio deteriorated year on year to 104�1 per cent owing to the increase in claims incurred (2012: 99�1 per cent)� The Basler Versicherungen units in Germany lowered their expense ratio by 1�6 percentage points� By focusing relentlessly on costs and efficiency measures across all processes, these insurance units are gradually reducing their cost base�
The concentration and optimisation of this business are progressing according to plan� The framework agreement signed at the beginning of March 2014 confirms Bad Homburg and Hamburg as target sites� In Bremen and Nuremberg, individual units will be closed by the end of the first quarter of 2016 and no further staff will be taken on� The Basler Versicherungen units in Germany plan to reduce their costs by roughly EUR 40 million by 2015 and to cut 400 jobs by the end of 2017�
The Company’s sharp focus on attractive segments, the adjustments made to its sales operations, and its significant cost containment initiatives enabled its German business to return to a successful trajectory. The impressive net result achieved here represented a milestone on this path.
AUSTRIA: OUTSTANDING RESULTS Basler Austria continued to generate growth and expand its sales activities� Its non-life insurance business grew by 7�3 per cent, while its total volume of business increased by 5�3 per cent to CHF 166�5 million (2012: CHF 158�2 million)� The volume of life insurance business contracted slightly owing to market conditions� The combined ratio fell by 5�7 percentage points to an excellent 92�0 per cent owing to cost reductions and the lower level of claims incurred compared with the prior-year figure, which had been impaired by claims for damage caused by storms, snow pressure and frost�
Realised gains and losses on investments2 435.6 501.6 – 943.4 852.9 670.3
Share of profit (loss) of associates 1.4 – 0.5 10.2 16.5 40.5
Claims and benefits paid (gross) – 5,383.4 – 5,212.9 – 5,311.5 – 5,449.4 – 5,439.7
Interest expenses on insurance liabilities – 69.4 – 61.2 – 51.6 – 50.5 – 47.3
Gross premiums written and policy fees 6,859.8 6,859.8 6,803.3 6,741.7 7,228.9
2012 (restated) Group Switzerland Germany Belgium Luxembourg Other units1 as a percentage of premiums earned 2013 Group Switzerland Germany Belgium Luxembourg Other units1 as a percentage of premiums earned 1 Other units: Austria, Croatia and Serbia.
Funding ratio (per cent) 184.3 179.8 1 Not including capitalised settlement premiums.
Reinsurers' share of claims incurred 39.3 3.2 – 0.2 – 0.8
Claims and benefits paid – 1,942.3 – 2,006.1 – 3,433.2 – 3,361.3
Change in claims reserve / actuarial reserves1 18.5 – 48.9 – 513.8 – 834.5
Realised gains and losses on investments2 – 1.9 118.1 845.8 532.1
Other financial expenses and income 18.8 – 79.9 – 540.5 – 320.3
Policy loans and other loans – 0.3 – 3.4 – 3.7 29.9 6.6 36.5
Total capital gains and losses – 1.9 231.1 229.2 118.1 88.8 206.9
ECOLOGY ������������������������������������������������������������������������������������������������������ 42 Protecting the environment over the long term ����������������������� 42
RISK MANAGEMENT �������������������������������������������������������������������������������� 44 Baloise’s risk management constitutes one of the main pillars of its business model ������������������������������������������������������������������������������ 44
The Baloise Group’s HR activities are characterised – even in turbulent times – by a sense of continuity. The Company’s consistent refinement of the tools and methods available ensures that its employees can bring their full potential to bear.
→ 8,613 people (7,805 FTEs) were working for the Baloise Group on 31 December 2013 (end of 2012: 8,795).
NEW HEAD OF HUMAN RESOURCES; STAFF CRITICAL TO OUR SUCCESS Since 1 June 2013 the Baloise Group’s human resources (HR) activities have been headed up by Stephan Ragg, who is continuing the successful work done by Kurt Grois� As a former member of the Executive Committee of Corporate Division Switzerland, Stephan Ragg possesses in-depth knowledge of the Company and is already well acquainted with HR issues from the experience gained in his previous role; consequently, this change of personnel constituted a seamless transition�
The Baloise Group’s HR activities continue to be based on the successful implementation of its behavioural values “Develop and engage – yourself and others!”, “Act authentically and earn trust!” and “Put yourself in the other’s shoes!”� These values enable our employees to make the best possible use of their skills and expertise in their day-to-day work so that they can achieve our targets�
Given the prevailing labour market situation, competition for the best workers will remain intense� It is therefore equally as crucial to recruit new, highly qualified employees as it is to develop and retain the Company’s existing staff�
The Company’s HR strategy will enable it to maintain its strength in the competition for the right talent over the coming years�
EMPLOYER BRANDING AT BALOISE: MAINTAINING A CONSTANT DIALOGUE Acting in its capacity as an employer, Baloise continues to use social media as an effective tool for recruiting workers in employee -friendly labour markets and for retaining its own staff� This strategy enables the Company to enter into a dialogue with suitably talented individuals and to strengthen its brand as an employer� Baloise has remained true to its pioneering role in this field: its Employer Branding team has incorporated two new platforms – Pinterest and Google+ – into its portfolio in order to attract applicants to the Company�
Its existing presence on Twitter, LinkedIn, Xing and Facebook has also been further enhanced and usefully ex-
Our highly skilled workforce has been providing our clients with peace of mind for the last 150 years.
This dialogue-based strategy is also consistently pursued in the Company’s traditional HR marketing activities, and its offering at recruitment events has been optimised so that it can connect as effectively as possible with talented young people�
INTELLIGENT PERFORMANCE MANAGEMENT: RESULTS AND PERFORMANCE ARE WHAT COUNTS AT BALOISE Baloise uses remuneration systems that enable it to provide performance-related and target-based pay packages� It offers basic salaries in line with market rates, variable remuneration schemes and attractive employee incentive and retention plans�
The performance management system introduced in 2011 has proved to be a highly valuable tool and has been used successfully ever since� The performance management system used in 2014 has been modified slightly and simplified for the members of the Corporate Executive Committee so that it meets the requirements of the Swiss Ordinance Against Excessive Remuneration at Publicly Listed Companies (VegüV)�
TALENT MANAGEMENT: DEVELOPING STAFF FOR FUTURE SUCCESS The main aim of our integrated performance and talent management system is to strengthen our culture of performance and trust and to encourage continuous learning� This approach centres on regular dialogue between employees and their line managers in order to provide guidance and clarity about shared targets and objectives and about the employees’ strengths, areas of activity, and professional development� This dialogue forms part of the culture of continuous feedback at Baloise and encourages target-focused behaviour and the enhancement of skills within the organisation� 2013 saw the piloting of a refined approach that places employees even more firmly at the centre of this process� Because the pilot phase has proved to be such a success, this approach will be progressively rolled out across the entire organisation from 2014�
Succession planning for the whole of the Baloise Group forms part of this integrated performance and talent management system and ensures that key positions are swiftly filled and that long-term succession options are available�
BALOISE CAMPUS: CUSTOMISED EXECUTIVE DEVELOPMENT The Company’s anniversary year was also the year that witnessed the birth of the Baloise Campus, which is where the Baloise Group’s executive development activities take place� 129 employees of various seniority levels took part in its development
In addition to the Baloise Campus programmes, “extended knowledge conferences” were held at the Company’s sites in Basel, Hamburg, Antwerp and Brussels� These events were lecture and discussion forums at which Baloise employees had the opportunity to talk to experts about the strategic challenges of the future�
DIVERSITY UNDERPINS OUR SUCCESS Baloise recognises that a diversified workforce is crucial to its success and therefore continues to strongly encourage this trend� Women account for 45�9 per cent of its total employees and 22�3 per cent of its management team� The Company develops and promotes its staff on the basis of their performance, their potential and Baloise’s corporate values�
Sustainable business management Human resources available for a number of years now in addition to our corporate health management scheme� Through these measures, we are honouring our “Making you safer�” brand promise to our own employees as well�
EMPLOYEE REPRESENTATION IN THE BALOISE GROUP Baloise respects the right of all workers to join and participate in employees’ representative bodies� All members of the workforce are represented by staff committees, works councils or other employee bodies and organisations�
BALOISE GROUP HUMAN RESOURCES ON THE INTERNET Careers website page and job vacancies: www.baloise.com/careers
Baloise Group Human Resources on social media: Facebook, Google+, Twitter, LinkedIn, Xing, YouTube and Pinterest www.baloisejobs.com/socialmedia
As a signatory to the UNEP declaration* for the insurance industry, Baloise is committed – among other things – to constantly reducing its carbon footprint. In 2013, further major measures were put in place to achieve this goal.
SUSTAINABLE PLANNING OF REAL ESTATE Baloise plans to replace three buildings (one hotel and two office blocks) at its headquarters in Basel with new builds� The three dimensions of sustainability (environmental, economic and social factors) are the key values that inform the project development, construction and subsequent use of this real estate� Since its inception, this project has been supported by sustainability specialists and meets the relevant criteria of the standards for sustainable construction in Switzerland (SNBS)�
LEARNING FROM THE BEST HELPS TO SAVE ENERGY AND CUT COSTS Basler Switzerland provides financial support for the recently established “environmental platform”, a public-private partnership with firms in the Basel region� This “environmental platform” presents both planned and implemented energy-saving projects, encourages dialogue between interested companies and, consequently, helps combat climate change and promote sustainable development�
Protecting the environment over the long term * UNEP = United Nations Environment Programme.
www.baloise.com/sustainability → Ecology / environmental mission statement → Ecology / environmental audit → Risk management
Heating consumption 12,110,484 KWh 13,856,250 KWh 11,513,544 KWh 82 kWh / m2 – 16.9
Copy paper consumption 91.2 million A4 sheets 81.9 million A4 sheets 71.9 million A4 sheets 14,437 A4 sheets / employee
Amount of refuse 928 t 909 t 1,241 t 234 kg / employee 36.5
Types of refuse 55.0 % paper / cardboard 5.0 % other materials 1.0 % special waste 39.0 % misc. waste / refuse
Business travel 18.32 million km 21.82 million km 21.26 million km 4,000 km / employee – 2.6
RISK MAP The risk map distinguishes between the following categories of risk to which Baloise is exposed: → Actuarial risk → Market risk → Financial-structure risk → Business-environment risk → Operational risk → Strategic & information risk�
RISK GOVERNANCE AND RISK CULTURE The development and expansion of risk governance and risk culture has a long tradition at Baloise� We are constantly working to enhance this culture across the entire organisation� Designated risk owners and risk controllers dealing with specific risk issues are as much a part of this culture as committees that meet regularly to discuss risks� At the same time, our risk models and processes are continually refined� The internal control system (ICS) and the compliance function are further major planks of this strategy�
The Board of Directors is empowered to determine the risk strategy, which is derived from Baloise’s business strategy and objectives and addresses issues around the Company’s risk appetite and risk tolerance�
The Group Risk Committee and the local risk committees in each business unit – which comprise members of the Corporate Executive Committee and of the local senior management teams respectively – decide how the risk strategy is developed and designed and how the pertinent policies are implemented in day-to-day business� Bodies specially set up to examine specific risk areas such as asset/liability management, compliance, IT risk and the use of reserves also compile submissions for the committees to facilitate their decision-making on these issues� The Group Risk Management team works closely with the local risk experts to complete the picture� This inclusive risk organisation approach provides us with a platform for sharing and constantly refining best practice�
Group Risk Management is responsible for → developing consistent, mandatory risk models for the entire Baloise Group, → monitoring Group-wide standards, → reporting risks, → complying with risk processes and procedures, and → communicating with external partners such as auditors, corporate supervisory bodies and credit rating agencies� The business units are responsible for local implementation of the standards and requirements specified by the Baloise Group� Overall responsibility lies with the Baloise Group’s Chief Financial Officer, followed by its Chief Risk Officer�
RISK PROCESSES Group-wide risk management standards place the risk process on a mandatory footing� These rules stipulate methods, rules and limits that must be applied throughout the Baloise Group� These standards determine how the various risk issues are evaluated, managed and reported� A number of risk limits act as early-warning indicators to mitigate the risks taken�
STRATEGIC RISK MANAGEMENT Our internal risk model, which uses standard methods to quantify all our business risks and financial market risks, forms the basis for strategic discussions about Baloise’s risk appetite� The capital requirements derived from this model constitute minimum requirements for our “actual” capital�
→ With a net equity exposure that had risen to 6�3 per cent by 31 December 2013, our equity investments in the reporting year lay comfortably within our risk-bearing capacity�
→ The high quality of recurrent investment income generated by our stable real-estate portfolio proved to be a valuable source of revenue�
→ Much of our focus is directed at managing our interestrate risk� Wherever possible, we reconcile our payment obligations to customers for future years with the income earned from our investments� The high quality of recurrent investment income generated by our stable real-estate portfolio has proved very helpful in this respect� We also invest in safe long-term bonds denominated in either Swiss francs or euros and supplement this strategy by using derivative financial instruments such as swaptions�
Further information on risk management can be found in the 2013 Financial Report (section 5� “Management of insurance risk and financial risk” on pages 124 to 162)�
→ Information on Baloise shares can be found from page 8 onwards�
→ Significant subsidiaries, joint ventures and associates as at 31 December 2013 can be found from page 236 onwards in the notes to the consolidated annual financial statements, which form part of the Financial Report�
→ The Baloise Group’s operational management structure is presented on page 62�
Authorised and conditional capital; other financing instruments Authorised capital The Annual General Meeting voted on 2 May 2013 to extend until 2 May 2015 the resolution adopted on 29 April 2011 authorising the Board of Directors to increase the Company’s share capital by up to CHF 500,000 by issuing up to 5,000,000 fully paid-up registered shares with a par value of CHF 0�10 each� Section 3 (4) of the Articles of Association was amended accordingly in 2013� www.baloise.com → Responsibility → Corporate Governance → Rules and regulations
Conditional capital The 2004 Annual General Meeting (section 3 of the Articles of Association) created conditional capital� This capital enables the Company’s share capital to be increased by up to 5,530,715 registered shares with a par value of CHF 0�10 each� This constitutes a nominal share capital increase of up to CHF 553,071�50�
The Baloise Group’s consolidated equity The Baloise Group’s consolidated equity amounted to CHF 4,906�4 million on 31 December 2013� Details of changes in consolidated equity in 2012 and 2013 can be found in the consolidated statement of changes in equity on pages 96 and 97 in the Financial Report section� All pertinent details relating to 2011 can be found in the consolidated statement of changes in equity on page 92 in the Financial Report section of the 2012 Annual Report�
Credit rating Credit rating agency Standard & Poor’s continues to rate the financial strength of Baloise Insurance Ltd as “A–” with a positive outlook� This assessment reflects the Baloise Group’s strong capitalisation, good operating earnings power, robust competitive position and considerable financial flexibility� Groupwide risk management is rated as “strong”� www.baloise.com → Investor relations → Rating 3. BOARD OF DIRECTORS Election and term of appointment The Board of Directors consisted of nine members at the end of 2013� Until now, each member has been elected for a term of three years at a time� Roughly one-third of members stepped down each year unless they were re-elected (“staggered replacement ”)� Because of the Ordinance Against Excessive Remuneration at Publicly Listed Companies (VegüV), which came into effect on 1 January 2014, each member of the Board of Directors is to be elected for a term of one year at a time from the 2014 Annual General Meeting� The necessary changes to the Articles of Association will be included on the agenda for the 2014 Annual General Meeting�
The average age on the Board of Directors is currently 61� Each member of the Board of Directors is elected individually�
Christoph B� Gloor (1966, Switzerland) holds a university degree in finance and investment and since 1 January 2006 has been a general partner in Basel-based private bank La Roche 1787, where he is responsible for finance and IT and is actively involved in advising and supporting clients� Prior to joining La Roche 1787 on 1 December 1998, he worked for Swiss Bank Corporation (SBC) before moving to Vitra (International)� Since 2014 he has chaired the Association of Swiss Private Banks and
Dr Georg F. Krayer, Vice-Chairman x x x x x x
Dr Eveline Saupper x x x x x x x = present, 0 = absent, n / a = not applicable.
Georg F. Krayer (1943, Switzerland, Dr iur�) has been a member of the Board of Directors since 1995 and its Vice-Chairman since 2004� He also acted as Lead Director from 6 December 2007 to 31 December 2008� He studied jurisprudence� He is Honorary Chairman of the Board of Directors at Bank Sarasin & Cie AG, Basel, and was Chairman of the Swiss Bankers Association until 2003� He sits on the Boards of Directors of Rhenus Alpina AG, Welinvest AG and Haco Holding AG and chairs the Board of Directors at Beyeler Museum AG� Dr Krayer is an independent non-executive director�
Karin Keller-Sutter (1963, Switzerland) holds a university degree in translation and conference interpreting and has a postgraduate qualification in education� In 1996 she was elected to St� Gallen’s cantonal parliament and became Chairwoman of the FDP (the Swiss Liberal Party) for the canton of St�Gallen before being elected to St� Gallen’s cantonal governing council in 2000� She was in charge of the security and justice department until May 2012 and chaired the Governing Council in 2006/2007 and again in 2011/2012� She was elected to the Council of States – the upper chamber of the Swiss parliament – in the autumn of 2011� Ms� Keller-Sutter sits on the Boards of Directors at the NZZ media group and Pensimo Fondsleitung AG� She is also a member of the Board of Directors at the ASGA
Thomas Pleines (1955, Germany, lawyer) has been a member of the Board of Directors since 2012� From 2003 to 2005 he was CEO and delegate of the Board of Directors at Allianz Suisse, Zurich, and from 2006 to 2010 was CEO of Allianz VersicherungsAG, Munich, and an executive director at Allianz Deutschland AG, Munich� From 1998 to 2013 Mr Pleines has sat on the Supervisory Board of Bilfinger SE, Mannheim� He has been Chairman of the Presidential Board at DEKRA e�V�, Stuttgart, Chairman of the Supervisory Board of DEKRA SE, Stuttgart, Chairman of the Supervisory Board at SÜDVERS Holding GmbH & Co� KG, Au near Freiburg, and a member of the Board of Directors at KABA Holding AG, Rümlang near Zurich, since 2011� Mr Pleines is an independent non-executive director�
Secretary to the Board of Directors: Andreas Eugster, Oberwil (BL) Head of Group Internal Audit: Rolf-Christian Andersen, Meilen
Functions and responsibilities of the committees The Chairman’s Committee provides advice on key transactions, especially those involving important strategic or personnelrelated decisions� Consequently, it also does the necessary preparatory work on HR issues�
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 → Responsibility → Corporate Governance → Rules and 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 and the Remuneration Committee have their own decision-making powers�
The full Board of Directors of Bâloise Holding met on six occasions in 2013� The table on page 53 shows Board of Directors members’ attendance at these meetings� With just one exception, all members of the relevant committee in each case attended every one of the additional 16 committee meetings� This means that the Board of Directors achieved an overall meeting attendance rate of 97 per cent� One meeting of the full Board of Directors focused on providing members with training on regulation in Switzerland and in Europe/Belgium as well as on requirements and developments in the Swiss and EU solvency systems� Meetings of the Board of Directors and its committees usually last half a working day each� www.baloise.com → Responsibility → Corporate Governance → Board attendance
The Chairman’s Committee convened six times in 2013, 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�
The members of the Corporate Executive Committee are regularly invited to attend meetings of the Board of Directors� Meetings of the Chairman’s Committee are usually attended by the Group CEO, the Chief Financial Officer and the Secretary to the Board of Directors� Those present at Audit and Risk Committee meetings are primarily the Chief Financial Officer, the Head of Group Internal Audit, the Secretary to the Board of Directors, representatives of the external auditors and, occasio- nally, the Chief Investment Officer, the Chief Risk Officer and the Group Compliance Officer� The main attendees at Remuneration Committee meetings are the Chief Executive Officer, the Head of the Corporate Centre and the Head of Group Human Resources� Meetings of the Investment Committee are usually attended by the Group CEO, the Chief Investment Officer, the Secretary to the Board of Directors and, occasionally, the Chief Financial Officer�
Effective risk management is essential for any insurance group� This is why Baloise has devoted two entire chapters to the subject of financial risk management from page 44 onwards and in the Financial Report section starting on page 124�
Corporate Governance Corporate Governance Report including Remuneration Report 4. CORPORATE EXECUTIVE COMMITTEE 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� He became Chief Executive Officer on 1 January 2009� In addition, he has headed up Corporate Division International since 1 January 2013�
Michael Müller (1971, Switzerland, lic� oec� publ�) graduated in economics from the University of Zurich, supplementing his studies in the fields of insurance and accounting/finance� He began his career with Basler Versicherungen 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�
Thomas Sieber (1965, Switzerland, Dr iur�, M�B�L�, lawyer) 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� He has been Head of the Corporate Centre since 6 December 2007 and, in this capacity, is responsible for Group Human Resources, Legal & Tax, Group Compliance, Corporate Development, Run-Off Business and – since 2009 – Group Procurement� He also sits on the Board of Directors at EuroAirport Basel-Mulhouse-Freiburg�
Andreas Eugster (until 31 December 2013) Andreas Burki (since 1 January 2014)
Corporate Governance Corporate Governance Report including Remuneration Report 5. REMUNERATION REPORT: REMUNERATION, SHARE OWNERSHIP AND LOANS GRANTED TO MEMBERS OF THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE By the end of 2014 Baloise will have implemented most of the Ordinance Against Excessive Remuneration at Publicly Listed Companies (VegüV), which was enacted by the Swiss Federal Council with effect from 1 January 2014�
The 2014 Annual General Meeting will hold three separate ballots in which the shareholders will for the first time have the opportunity to vote on the remuneration paid to the Board of Directors, the fixed remuneration received by the Corporate Executive Committee (both of these paid for the following financial year) and the maximum variable remuneration payable to the Corporate Executive Committee for the current financial year� The Ordinance requires only a few adjustments to be made to the structure of the Corporate Executive Committee’s remuneration � The variable remuneration determined by the Company ’s success and individuals’ performance will in future be paid from the performance pool only� The performance-related remuneration currently awarded for the achievement of personal targets and objectives is being integrated into the performance pool� The expected performance pool amount and the fixed remuneration component are being increased for this purpose� The total remuneration paid to the Corporate Executive Committee will remain unchanged� This new system complies with the new legislation and meets the European standard, which stipulates a one-to-one ratio between fixed and variable remuneration (Capital Requirements Directive IV)�
This remuneration report relates to the 2013 financial year� It therefore describes the remuneration policies adopted and the remuneration systems in place during the reporting year, and it discloses the remuneration paid to the Board of Directors and the Corporate Executive Committee in 2013� The content and scope of these disclosures are determined by sections 663bbis and 663c (3) of the Swiss Code of Obligations (OR), the corporate governance information guidelines published by the SIX Swiss Exchange, the Swiss Code of Best Practice for Corporate Governance, and circular 10/1 of the Swiss Financial Market Supervisory Authority (FINMA) concerning remuneration systems�
5.1 Remuneration Committee of the Board of Directors The Remuneration Committee set up by the Board of Directors in 2001 is consistent with the Swiss Code of Best Practice and is designed to oversee remuneration policies, especially those applied at the most senior levels within the Company� The Remuneration Committee ensures, among other things, that
→ remuneration policies and systems are long term in nature and are consistent with the Company’s strategy; → the remuneration offered by Baloise is in line with the going market rate and is sufficiently competitive in order to attract and retain individuals with the necessary skills and character attributes; → the remuneration paid is demonstrably dependent on the Company’s sustained success and individuals’ personal contributions and does not create any perverse incentives; → the structure and amount of overall remuneration paid are consistent with Baloise’s risk policies and encourage risk awareness�
→ sanction the remuneration policies applicable to the Corporate Executive Committee members and ensure that they are being correctly implemented�
Remuneration procedures and regulations Responding to a request from the Remuneration Committee, in 2010 the Board of Directors formally adopted remuneration procedures that formulate the remuneration principles and parameters applied across the Baloise Group� These remuneration procedures apply to all employees throughout the Baloise Group� They reflect the Company’s values and principles and can be summarised as follows: → Competitiveness in the marketplace: Baloise aims to pay basic salaries in line with the market and to offer variable remuneration packages in excess of the going market rate to reward outstanding performance by individuals and the Company; → Remuneration that reflects individual and company-wide performance: merit and achievement form the basis for advancement and promotion; → Fairness and transparency: external market-based comparisons, fair pay and no discrimination; → Sustainability: high correlation between the interests of managers and shareholders, long-term commitment and a high proportion of restricted shares�
The Board of Directors used these remuneration procedures as the basis for the remuneration regulations that it formally adopted at the same time� These regulations apply to all employees in Switzerland and, by analogy, to all members of staff throughout the Baloise Group� By adopting these remuneration procedures and regulations, 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� Group Internal Audit conducted a review of the remuneration system in 2012 and found that the way in which the Baloise Group’s remuneration system had been structured and implemented was consistent with both the Board of Directors’ remuneration policies and the circular issued by the Swiss Financial Market Supervisory Authority�
5.3 Remuneration system Objectives The objectives of the remuneration system are to further increase the emphasis on performance at Baloise and to strengthen employees ’ and executives’ loyalty and commitment to the organisation � The aim of Baloise’s remuneration policies is to pay basic salaries in line with the going market rate� In addition, the variable components of remuneration are structured in such a way that it is possible to grant payments above the market median for years in which individual performance and the Company’s profitability have been good; equally, it is possible to offer payments below the market median for years in which performance and profitability have been poor� As a performancedriven organisation, Baloise clearly and transparently aligns individual employees’ targets with the Company’s targets, which are derived from its strategic priorities� Target agreements, performance assessments and remuneration are closely correlated� The total remuneration package – which comprises basic salary and variable remuneration – offers a sophisticated way of linking individuals’ performance to Baloise’s success and recognising both accordingly, and it is designed to reward employees for outstanding achievement without creating an incentive for them to take inappropriate risks� Personal performance provides our talented individuals with the necessary platform for their development, advancement, career planning and promotion � Baloise attaches considerable importance to retaining high performers and managing its business sustainably� In addition to paying its staff in line with market rates and according to individual achievement, the Company encourages its executives to focus on the long term and on its shareholders’ interests� Consequently, it pays a substantial proportion of variable remuneration in the form of shares that are restricted for three years� Furthermore, the three most senior management levels receive performance share units, which means that a further
Corporate Governance Corporate Governance Report including Remuneration Report component of their salaries is paid out as shares that are restricted for either three or six years as a form of deferred remuneration � As managers’ strategic responsibility and influence grow, the amount of their variable remuneration is significantly determined by the Company’s profitability and economic value added (allowing for the level of risk taken)� Short-term variable remuneration as a percentage of total compensation as well as the proportion of remuneration paid in the form of restricted shares (i�e� as deferred compensation) increase accordingly � Shares account for over 80 per cent of the variable remuneration paid to the members of the Corporate Executive Committee, and the value of the shares that they hold in total amounts to more than five times their basic salaries� This situation complies with key aspects of the standards required by the regulatory authorities�
Performance-related pay accounts for approximately twothirds of the total short-term variable remuneration paid to middle management� This proportion declines steadily as managers ’ strategic responsibility and influence increase and is around one-third for members of the Corporate Executive Committee�
The performance management system applies to the most senior level of management throughout the Baloise Group� It also applies to most other management levels both inside and outside Switzerland� Its roll-out in Germany was completed in 2013 owing to the merger of the two companies Basler Germany and Deutscher Ring� Avéro and Nateus – both fairly recent acquisitions in Belgium – were also integrated into the performance management system in 2013�
A benchmarking survey conducted by Kienbaum in 2012 shows that most of the total remuneration packages granted by Baloise are close to the market median and its compensation is therefore in line with the going market rate and sufficiently competitive� The decline in the variable component of total remuneration reflects a general trend among financial services providers and is indicative of the fact that variable remuneration is closely correlated with companies’ operating performance� Deferred compensation as a proportion of total remuneration is higher at Baloise than at similar competitors� This is consis- tent with the Company’s intention of increasing its proportion of long-term compensation and making it contingent on Baloise’s sustained success�
Basic salaries are regularly reviewed and may be adjusted to reflect employees’ individual performance, the situation in the relevant salary band or the Company’s performance� 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�
The remuneration paid to the insurance sales force is, by its very nature, strongly performance-related in line with the system of commissions commonly used in the insurance industry as a whole� However, these commissions constitute selling expenses rather than being regarded as variable remuneration in the strict sense of the term� Consequently, they are not discussed in this remuneration report�
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”)�
Those entitled to receive performance-related remuneration are the most senior management level in the Baloise Group, the majority of senior managers in Switzerland and the corresponding functions abroad�
Performance pool The performance pool takes account of the entire Baloise Group’s performance; its amount is determined at the Remuneration Committee’s discretion after the end of the financial year concerned � To this end, the Remuneration Committee assesses the performance achieved by the Baloise Group as a whole in the previous financial year, factoring in the following criteria among others: → Profit for the period compared with competitors and previous years
Long-term variable remuneration In addition, Baloise grants performance share units (PSUs) to the most senior managers as a form of long-term variable remuneration � The PSU programme enables the top management level to benefit even more from the Company’s performance and helps Baloise to retain high performers in the long run�
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 leading European insurance companies contained in the STOXX Europe 600 Insurance Index�
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� Participants in the programme receive more shares in exchange for their PSUs if Baloise shares outperform their peer group� The multiplier reaches the maximum of 1�5 if
Corporate Governance Corporate Governance Report including Remuneration Report 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�
If an individual’s employment contract is terminated during the vesting period (except in the case of retirement, disability or death), the PSUs expire without the person concerned receiving any replacement or compensation� 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�
The PSUs allocated in 2011 were converted into shares as at 1 January 2014� The performance of Baloise shares at the end of the vesting period on 31 December 2013 ranked 21st out of 33 companies in the relevant peer group (STOXX Europe 600 Insurance Index), which meant that it was in the third quartile�
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 3 per cent → The volatilities of all shares in the peer group and their correlations with each other (measured over a three-year track record)
Date Price (CHF)1 Date Multiplier Price (CHF)1 Value (CHF)2 3 1 Price = price of Baloise shares at the PSU grant date or conversion date 2 Value = value of one PSU at the conversion date (share price at the conversion date times the multiplier) 3 Change in value = difference between the value at the conversion date and the share price at the grant date 4 Interim measurement as at 31 December 2013
Fringe benefits Fringe benefits are generally defined as components of the total remuneration package that are not dependent on either an individual ’s function or performance or the Company’s performance � By providing benefits in the form of retirement pensions, subsidies, concessions, staff training and professional development, Baloise demonstrates the close partnership that it maintains with its employees and the extent to which it values their contribution� Fringe benefits are granted on a country-by-country basis in line with prevailing local laws�
The remuneration regulations adopted by the Board of Directors in March 2010 contain clear guidance on inducement payments and severance packages� Such remuneration may only be paid in justified cases� Inducement payments and severance packages for the most senior managers – irrespective of their amount – must be approved by the Remuneration Committee, which applies its own discretion in assessing each individual case�
Share Subscription Plan Since January 2003 those who qualify as eligible persons at Baloise Group companies in Switzerland – and, since 2008, the members of the senior management teams at companies outside Switzerland as well – have been able to subscribe for shares at a preferential price as part of their short-term variable remuneration � The subscription date is 1 March of each year; 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 restriction period�
Source: http: / / www.stoxx.com / download / indices / factsheets / stx_supersectors_fs.pdf www.stoxx.com/download/indices/factsheets/stx_supersectors_fs.pdf
Corporate Governance Corporate Governance Report including Remuneration Report advance on the intranet� The shares needed for the Share Subscription Plan are purchased in the market as and when required�
Employee Share Ownership Plan Since May 2001 it has been possible for most managers 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 managers 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 50 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 (i�e� the same as that 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 restriction 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 (until 2013: volume-weighted average share price during a contemporaneous measurement period), from which discounted dividend rights are deducted over a period of three years (please refer to the accompanying table for details)� Once it has been calculated using this method, the subscription price is published in advance on the intranet� The shares needed for the Employee Share Ownership Plan are purchased in the market as and when required�
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 restriction period has elapsed is hedged by put options, which are financed by the sale of offsetting call options� After the three-year restriction period has elapsed, the relevant options have been exercised and the loans plus accrued interest have been repaid, the employees concerned receive the remaining shares to do with as they wish�
Employee Share Ownership Plan for 2013 (applies to shares subscribed by the Chairman of the Board of Directors during the reporting year)
Fair value of subscribed shares on subscription date (CHF million) 12.2 16.5
The Chairman of the Board of Directors and the members of the Corporate Executive Committee are insured under the pension scheme run by Baloise Insurance Ltd� They are subject to the same terms and conditions as all other insured officebased members of staff�
5.9 Remuneration paid to the members of the Board of Directors Please refer to the tables on pages 74 and 75�
The members of the Board of Directors are paid a lump sum as remuneration for their work on the Board of Directors (CHF 125,000) and for additional functions that they perform on the Board of Directors’ committees (CHF 70,000 for the Chairman and CHF 50,000 for members)� These amounts provide appropriate compensation for the responsibility and workload involved in their various functions and have remained unchanged since 2008�
The Chairman of the Board of Directors is also paid a fixed amount of remuneration and is not entitled to any variable remuneration� Consequently, he receives no performancerelated remuneration, no performance pool payments and no allocation of PSUs� He is paid roughly a quarter of his remuneration in the form of shares, although he is free to choose each year whether he wishes to receive his shares under the Share Subscription Plan or the Employee Share Ownership Plan� The shares that he receives from the Share Subscription Plan are subject to a restriction period of five years�
The total remuneration paid to the Corporate Executive Committee rose by 3�5 per cent� This increase was primarily attributable to the fact that the performance pool payments awarded for 2013 were raised to 120 per cent of their normally expected levels to reflect the Company’s strong operating performance � The extent to which targets and objectives were achieved – which affects the performance-related pay awarded for individual merit – also increased year on year�
Corporate Governance Corporate Governance Report including Remuneration Report 5.11 Loans to key personnel Please refer to the table on page 80�
5.12 Shares and options held Please refer to the tables on pages 81 and 82�
As requested by circular 10/1 issued by the Swiss Financial Market Supervisory Authority on the subject of remuneration, Baloise has published in the table on page 83 the amounts of total remuneration and variable remuneration and has disclosed the total amounts of outstanding deferred remunera- tion and the inducement payments and severance packages granted� These figures include all forms of remuneration award- ed for 2013 even if individual components are not paid until a later date�
Remuneration for additional functions Additional remuneration Total Of which: in cash Of which: in shares
Remuneration Committee (Chair until April 2012, Deputy Chair since May 2012)
Total for the Board of Directors 2,340,833 773,332 0 3,114,166 2,382,448 731,718 11,386
Dr Hansjörg Frei (until 2 May 2013) 62,500 0 112,500 56,323 56,177 764
Karin Keller-Sutter (since 2 May 2013) 83,333 0 116,666 116,666 0 0
Total for the Board of Directors 2,340,833 806,666 0 3,147,499 2,388,628 758,871 10,471
Explanatory notes to the table Karin Keller-Sutter was voted in as a new member of the Board of Directors at the 2013 Annual General Meeting. Consequently, she only received a pro-rata share of the usual remuneration. Hansjörg Frei 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 was paid to individuals or companies who are related to members of the Board of Directors and to whom the arm’s-length principle does not apply. 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 73.53, in line with the Share Subscription Plan). Shares received by the Chairman of the Board of Directors amounted to 2,121 shares arising from the Share Subscription Plan (CHF 155,957, with a restriction period of five years instead of the usual three years) and 2,272 shares arising from the Employee Share Ownership Plan (CHF 155,998). Baloise also paid the regulatory employer contributions to the pension fund (CHF 216,725).
Performance share units (PSUs) PSUs allocated in 2010 were converted into shares as at 1 January 2013. At the end of the vesting period on 31 December 2012, the performance of Baloise shares ranked 25th out of the 34 companies in the peer group (STOXX Europe 600 Insurance Index), so it was in the third quartile. The performance multiplier was therefore 0.58, and the 22,504 outstanding PSUs held by the members of the Corporate Executive Committee were converted into 13,053 shares (measured at a share price of CHF 78.50 on 31 December 2012). Half of these shares remain restricted for a further three years. The former Chairman of the Board of Directors received 5,392 shares from the conversion of 9,297 PSUs (market value: CHF 423,272). The remuneration report for 2013 shows that the PSUs granted to the members of the Corporate Executive Committee have for the first time been measured at their value on the grant date rather than at their value on the vesting date. The table containing the prior-year figures has been restated accordingly to ensure that a meaningful year-on-year comparison can be made. The prior-year table therefore shows the PSUs at their value on the grant date, which means that this table differs from the list published in the remuneration report for 2012.
Cash payment (fixed) Cash payment Share Subscription Plan Employee Share Ownership Plan Performance share units (PSU) Total variable remuneration
Total for the Corporate Executive Committee 3,990,917 1,490,479 19,479 1,432,292 4,472 307,104 29,986 2,160,493 23,951 5,390,368 9,381,285 135 % 223,156 971,825 10,576,266
Remuneration paid to former members and related parties CHF 170,000 plus employer contributions to the pension fund was paid to a former member of the Corporate Executive Committee during the reporting year owing to a contractual obligation (basic salary payable until the end of the notice period). No remuneration on a non-arm’s-length basis was paid to companies or individuals who are related to the 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 73.53. 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 68.67.
Performance share units (PSUs) The remuneration report for 2013 shows that the PSUs granted to the members of the Corporate Executive Committee have for the first time been measured at their value on the grant date rather than at their value on the vesting date. The table containing the prior-year figures has been restated accordingly to ensure that a meaningful year-on-year comparison can be made. The prior-year table therefore shows the PSUs at their value on the grant date, which means that this table differs from the list published in the remuneration report for 2012.
Total for the Corporate Executive Committee 4,056,891 1,794,847 17,497 1,798,341 1,557 157,052 24,113 1,849,227 19,054 5,599,467 9,656,358 138 % 147,411 1,145,735 10,949,504
Non-cash benefits Based on all remuneration elements required to be declared on the Swiss salary certificate, including long-service awards, taxable benefits relating to shares received in connection with the Employee Incentive Plan (max. 100 shares per annum), accommodation costs and non-cash benefits (use of a company vehicle) granted to a Corporate Executive Committee member residing abroad. Pension benefits Employer contributions to the pension fund or, alternatively, a compensatory payment in lieu of employer and employee contributions to the Swiss social security scheme and the pension fund (neither of these is payable if the person concerned is working outside Switzerland) and maintenance of disability insurance cover in the home country of a Corporate Executive Committee member residing abroad.
LOANS AND ADVANCES GRANTED TO MEMBERS OF THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE (AS AT 31 DECEMBER)
Explanatory notes to the table: Loans and advances No loans or advances 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, and 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 (2013: 3 per cent), and they have a term of three years. Other loans There are no policy loans.
Explanatory notes to the table: Shareholdings Include shares held by related parties (spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them). Restricted shares Shares received in connection with share-based remuneration programmes are subject to a restriction period of three years. The restriction period for shares received by the Chairman of the Board of Directors in connection with the Share Subscription Plan is five years. Section 20 of the Articles of Association also requires all members of the Board of Directors to lodge 1,000 shares with the Company for the duration of their term of appointment (qualifying shares). Options Members of the Board of Directors do not hold any options on Baloise shares.
Head of Corporate Division Finance 11,513 15,858 29,984 20,811 41,497 36,669 0.083 % 0.073 % 10,081 10,453
Requesting agenda items Article 699 (3) OR states that one or more shareholders who together represent shares of at least CHF 100,000 can request items to be put on the agenda for debate� Such requests must be submitted in writing to the Board of Directors at least six weeks before the ordinary Annual General Meeting is held, giving details of the motions to be put to the AGM (section 14 of the Articles of Association)�
Entry in the share register Shareholders are entitled to vote at the Annual General Meeting provided they are registered in the share register as shareholders with voting rights on the cut-off date stated by the Board of Directors in the invitation� The cut-off date should be several days before the Annual General Meeting (section 16 of the Articles of Association)�
Corporate Executive Committee and three other members of senior management were also entitled to severance pay equivalent to one year’s salary (including variable remuneration) after a change of control or merger, should the employer (or, in certain circumstances, the employee) terminate their employment contract within twelve months of the takeover or merger�
The Audit and Risk Committee submits proposals to the Board of Directors regarding the external auditors to be elected by the Annual General Meeting and makes recommendations regarding their fees� Before the start of the annual audit, it reviews the scope of the audit and suggests areas that require special attention� The Audit and Risk Committee reviews the external auditors’ fees on an annual basis� The criteria for assessing the external auditors are: → the competence of the audit team → technical and industry expertise → understanding of corporate strategy → complete independence when conducting the audit → the corporate culture of the audit firm (shared values) → timely reporting → appropriate level of fees → compliance with relevant statutory, professional and ethical standards → consistent auditing methodology�
The Audit and Risk Committee requests checks on the appropriateness of the services performed by the external auditors that are not connected with their audit work on the basis of the following criteria: → the compatibility of services with the external audit remit (independence)
Corporate Governance Corporate Governance Report including Remuneration Report 9. SIGNIFICANT AMENDMENTS TO THE ARTICLES OF ASSOCIATION SUBMITTED TO THE 2014 ANNUAL GENERAL MEETING Due to the Ordinance Against Excessive Remuneration at Publicly Listed Companies (VegüV), which came into force on 1 January 2014, various amendments to the Articles of Association will be submitted to the 2014 Annual General Meeting for approval� They largely relate to the following points: → Annual election of the – members of the Board of Directors – Chairman of the Board of Directors – members of the Remuneration Committee – independent proxy
→ Term of the employment contracts of the members of the Corporate Executive Committee�
10. INFORMATION POLICY Information principles The Baloise Group provides shareholders, potential investors, employees, customers and the public with information on a regular, open and comprehensive basis� All registered shareholders each receive a summary of the annual report once a year and a letter to shareholders every six months, which provide a review of business� The full annual report is sent to shareholders on request� All publications are simultaneously available to the public� All market participants receive the same information� Baloise uses technologies such as webcasting, podcasting and teleconferences to make financial analysts’ meetings generally accessible�
Information about Baloise shares Information about Baloise shares begins on page 8� www.baloise.com → Investor relations → Baloise share
Information about Baloise bonds Information about Baloise bonds in circulation can be found on pages 213 and 249� www.baloise.com → Investor relations → Bonds
Financial calendar Important dates for investors are available at www�baloise�com� This is where the publication dates for the annual and half-year reports are listed and where the date of the Annual General Meeting, the AGM invitation, the closing date for the share register and any ex-dividend dates are published� www.baloise.com → Investor relations → IR Agenda
Investor Relations Baloise Group Marc Kaiser Aeschengraben 21 4002 Basel, Switzerland marc�kaiser@baloise�com
Consolidated balance sheet ���������������������������������������������������������������� 90 Consolidated income statement ������������������������������������������������������� 92 Consolidated statement of comprehensive income ����������������� 93 Consolidated cash flow statement ��������������������������������������������������� 94 Consolidated statement of changes in equity ���������������������������� 96
OTHER DISCLOSURES ������������������������������������������������������������������������� 227 Acquisition and disposal of companies ������������������������������������� 227 Related party transactions ��������������������������������������������������������������� 228 Remuneration paid to the Board of Directors and the Corporate Executive Committee ��������������������������������� 229 Contingent and future liabilities �������������������������������������������������� 230 Operating leases ����������������������������������������������������������������������������������� 233 Claim payments received from non-Group insurers ���������� 234 Events after the balance sheet date ���������������������������������������������� 234 Significant subsidiaries, joint ventures and associates as of 31 December 2013 �������������������������������������� 236 Changes to shareholdings ���������������������������������������������������������������� 238 Consolidated structured entities �������������������������������������������������� 239
Recognised at fair value through profit or loss 1,034.4 1,891.3 1,795.5
Recognised at fair value through profit or loss 83.0 87.1 47.3
Non-current assets and disposal groups classified as held for sale 21 – – 401.0
Recognised at fair value through profit or loss 5,969.4 7,215.1 7,791.1
Liabilities included in disposal groups classified as held for sale 21 – – 353.9
Change in unrealised gains and losses on available-for-sale financial assets 1,564.6 – 531.7
Change in reserves arising from reclassification of held-to-maturity financial assets – 4.9 – 2.7
Balance of cash and cash equivalents as at 1 January 2,287.8 2,923.7
Balance of cash and cash equivalents as at 31 December 2,923.7 2,960.8
Realised gains and losses on financial assets, investment property and associates – 858.4 – 669.4
Changes in technical reserves (gross), including unearned premium reserves 836.8 1,065.5
Addition / disposal of derivative financial instruments – 167.4 – 56.3
Other changes in assets and liabilities from operating activities 682.6 545.8
Purchase of property, plant and equipment 8 – 50.4 – 21.8
Disposal of companies, net of cash and cash equivalents 40 0.1 2.4
First-time adoption of IFRS 10 – – – – – – – –
Increase / decrease due to change in the scope of consolidation 40 – – – – – – – –
Financial Report Consolidated statement of changes in equity 2013 Note Share capital Capital reserves Treasury shares
First-time adoption of IAS 19 (amendment) – – – – 176.8 – 50.4 – 227.2 – 4.3 – 231.5
Notes to the consolidated annual financial statements Basis of presentation 1. BASIS OF PREPARATION The Baloise Group is a European direct insurer comprising 13 different insurance companies that operate in virtually every segment of the life and non-life insurance business� Its holding company is Bâloise Holding, a Swiss corporation based in Basel whose shares are listed in the main segment of the Swiss Exchange (SIX)� Its subsidiaries are active in the direct insurance markets in Switzerland, Liechtenstein, Germany, Belgium, Austria, Luxembourg, Croatia, Serbia, Slovakia and the Czech Republic� Its banking business is conducted by subsidiaries in Switzerland and Germany� In addition, the Baloise Group has a fund management company in Luxembourg�
2. APPLICATION OF NEW FINANCIAL REPORTING STANDARDS AND RESTATEMENTS Newly applied IFRSs and interpretations IAS 1 Other comprehensive income (OCI) Following an amendment to IAS 1, OCI income and expense items that are to be reclassified to profit or loss at a later date must be presented separately from items of OCI that are to remain in equity and will not subsequently be reclassified to profit or loss� This amendment impacts on the other comprehensive income reported by the Baloise Group�
IFRS 11 Joint Arrangements IFRS 11 has introduced new accounting requirements for joint arrangements, superseding IAS 31 “Interests in Joint Ventures”� The new standard has eliminated the option of using proportionate consolidation as a method to account for interests in jointly controlled entities� It also removes “jointly controlled assets” as a type of joint arrangement� Only joint operations and joint ventures remain as types of joint arrangement� The new standard does not impact on the balance sheet or income statement of the Baloise Group�
IFRS 13 Fair Value Measurement IFRS 13 replaces with a single standard the existing guidance for measuring fair value in the individual IFRSs currently in force� IFRS 13 does not introduce any additional fair value measurements, nor does it replace any of the existing provisions laid down in other standards� This standard, for which prospective application is required, impacts on the information disclosed by the Baloise Group (more details can be found in section 5�10)�
IAS 27 (2011) Separate Financial Statements The provisions governing separate financial statements remain part of the amended version of IAS 27� The other elements of IAS 27 (consolidated financial statements) have been super seded by IFRS 10�
Restatement owing to application of IAS 19 Employee Benefits (Amendment) The most significant change in IAS 19 is that unexpected fluctuations in pension obligations and expected fluctuations in plan assets (actuarial gains and losses) must be recognised directly in other comprehensive income� The previously available options allowing entities to choose between immediate recognition in the income statement or OCI and delayed recognition using the corridor method have been withdrawn� IAS 19 has been applied retrospectively with effect from 1 January 2012 and, consequently, prior-year comparative figures for the Baloise Group have been restated accordingly� Details of this restatement are summarised in the tables on pages 100 to 104�
Recognised at fair value through profit or loss 5,897.0 – 241.7 6,138.7
Recognised at fair value through profit or loss 1,891.3 – – 1,891.3
Recognised at fair value through profit or loss 56.1 – – 56.1
Unrealised gains and losses (net) 109.1 – 176.8 – – 67.8
Recognised at fair value through profit or loss 6,973.4 – 241.7 7,215.1
Change in technical reserves (gross) – 868.0 0.3 – – 867.7
Operating and administrative expenses for insurance business – 899.2 – 0.7 – – 900.0
Change in reserves arising from reclassification of investment property – – – –
Total items to be reclassified to retained earnings – – 183.4 – – 183.4
Change in unrealised gains and losses on available-for-sale financial assets 1,564.6 – – 1,564.6
Change in reserves arising from reclassification of held-to-maturity financial assets – 4.9 – – – 4.9
Total items to be reclassified to the income statement 728.3 3.5 – 731.7
IMPACT OF RESTATEMENTS ON LINE ITEMS IN THE CASH FLOW STATEMENT
Cash and cash equivalents as at 1 January 2,287.8 – – 2,287.8
Other standards and interpretations Currently, there are no requirements to apply any other standards or interpretations that have impact – or material impact – on 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 debt instruments at amortised cost is based on the entity’s business model and on the contractual cash flow characteristics of the financial assets concerned� If the criteria in respect of the business model and cash flow characteristics are not met, debt instruments are measured at fair value through profit or loss� 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 � It has not yet been possible to conduct a detailed analysis of the impact on the Baloise Group’s balance sheet and income statement because of the various revisions and new versions of the standard published by the IASB�
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 finan­ cial statements of Bâloise Holding and its subsidiaries, includ­ ing 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.
Companies acquired during the reporting period are included in the consolidated annual financial statements from the date on which control is effectively assumed, while all com­ panies sold remain consolidated until the date on which control is ceded. Acquisitions of entities are accounted for under the acquisition method (previously known as the “purchase method”). Transaction costs are charged to the income statement as an expense. The identifiable assets and liabilities of the entity con­ cerned are measured at fair value as at the date of first­time consolidation. Non­controlling interests arising from business combinations are measured either at their fair value or accord­ ing to their share of the acquiree’s identifiable net assets. The Baloise Group decides which measurement method to apply to each individual business combination.
The Baloise Group is not involved in any joint arrangements at present.
3.2.3 Translation of functional currency into reporting currency The annual financial statements of all entities that have not been prepared in Swiss francs are translated as follows when the con­ solidated financial statements are being prepared: → Assets and liabilities at the closing rate → Income and expenses at the average rate for the year.
The resultant exchange differences are aggregated and recognised directly in equity. When foreign subsidiaries are sold, the ex­ change differences arising on the disposal are recognised in the income statement as a transaction gain or loss.
All financing for property, plant and equipment is gener­ ally obtained from the Baloise Group’s own financial resources. If funding from external sources is required, interest accrued during the assets’ development is capitalised as incurred.
Land is not depreciated. Other items of property, plant and equipment are depreciated on a straight­line basis over the following estimated useful lives: → Owner­occupied 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 operat­ ing leases. Lease payments under operating leases are expensed in the income statement on a straight­line basis over the term of the lease.
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 acquisi­ tion­date amount of any non­controlling interests in the acquiree and the acquisition­date 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 cash­generating units (CGUs) for the purposes of impairment testing.
3.5.3 Deferred acquisition costs (DACs) Costs directly incurred by the conclusion of insurance contracts or financial contracts with discretionary participation features (DPFs) – such as commissions – are capitalised and amortised over the term of these contracts or, if shorter, over the premium payment period. Deferred acquisition costs are tested for impair­ ment at each balance sheet date (see section 3.18.3 for further details).
3.5.4 Capitalised investment fees Acquisition costs directly attributable to the generation of asset management investment returns are recognised as intangible assets provided that they can be individually identified and re­ liably determined and they are likely to be recoverable. They are amortised through profit or loss over the term of the under­ lying financial contract in proportion to the returns generated and are tested annually for impairment.
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 owner­occupied property and property used by third parties, the entire property is classified according to the purpose for which most of its floor space is used. If, owing to a change of use, an investment prop­ erty 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 owner­occupied 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 recog­ nised directly in equity is reclassified to retained earnings. Invest ment property is measured at fair value under the dis­ counted cash flow (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 prop­ erty, depending on the opportunities and risks associated with it, and is discounted in line with market rates and on a risk­ad­ justed basis. The measurement is carried out internally each year by experts using market­based 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 real­estate 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 Finan­ cial Report covers financial assets, mortgages and loans, deriv­ ative financial instruments, cash and cash equivalents, and investment property.
The asset classes covered by the term financial instruments with characteristics of equity are equities; share certificates; units held in equity, bond and real­estate funds; and alternative financial assets such as private equity investments and hedge funds. Financial instruments with characteristics of equity are generally more frequently exposed to price volatility than finan­ cial instruments with characteristics of liabilities are.
3.7.2 Held-to-maturity financial assets Held­to­maturity financial assets are non­derivative financial instruments involving fixed or determinable payments. However, they do not include mortgages, loans (section 3.8) or receivables (section 3.9) that the Baloise Group can – and intends to – hold until maturity.
Alternative financial assets – such as private equity in­ vestments and hedge funds – are mainly classified as “available for sale”.
Financial assets are derecognised if the rights pertaining to the cash flows from the financial instrument have expired or if the financial instrument has been sold and substantially all the associated risks and rewards have been transferred. Cash out­ flows from reverse repurchase (repo) transactions are offset by corresponding receivables. The financial assets received as col­ lateral security from the transaction are not recognised. The relevant transaction is recognised on the balance sheet on the settlement date. The financial assets transferred as collateral security under repurchase agreements continue to be recognised as financial assets. The pertinent cash flows are offset by corre­ sponding liabilities. In its stocklending operations the Baloise Group only engages in securities lending. The borrowed finan­ cial instruments continue to be recognised as financial assets. The securities provided as cover for repos, reverse repos and securities lending transactions are measured daily at their cur­ rent fair value.
Available­for­sale financial assets and financial assets recognised at fair value through profit or loss are measured at fair value. Held­to­maturity financial assets are measured at amortised cost using the effective interest method. Realised and unrealised gains and losses on financial assets recognised at fair value through profit or loss are taken to income. Unrealised gains and losses on available­for­sale financial assets are rec­ ognised directly in equity. If available­for­sale financial assets are sold or impaired, the cumulative amount recognised directly in equity is recognised in the income statement as a realised gain or loss on financial assets. Changes in the fair value of financial assets’ risks that are covered by fair value hedges are recognised in the income statement for the duration of these hedges irrespective of the financial assets’ classification.
The fair value of listed financial assets is based on prices in active markets as at the balance sheet date. If no such prices are available, fair value is estimated using generally accepted methods (such as the present­value method), independent assessments based on comparisons with the market prices of similar instruments, or the prevailing market situation.
3.8 Mortgages and loans Mortgages and loans (including policy loans) are non­derivative financial instruments involving fixed or determinable payments that are not traded in an active market. Mortgages and loans classified as “carried at cost” are measured at amortised cost using the effective interest method. They are regularly tested for impairment.
If an impairment loss is recognised, the cumulative net loss recognised directly in equity is taken to the income state­ ment.
If the foreign operation – or part thereof – is sold, the gain or loss recognised directly in equity is taken to the income state­ ment.
3.13 Non-current assets held for sale and discontinued operations Non­current assets (or disposal groups) held for sale that meet the criteria stipulated in IFRS 5 “Non­current Assets Held for Sale and Discontinued Operations” are shown separately on the balance sheet. Those assets described in the standard are meas­ ured at the lower of their carrying amount and fair value less costs to sell. Any resultant impairment losses are taken to income. Any depreciation or amortisation is discontinued from the reclassification date.
Financial Report Notes to the consolidated annual financial statements 3.14 Cash and cash equivalents Cash and cash equivalents essentially consist of cash, demand deposits, and cash equivalents. Cash equivalents are predomi­ nantly short­term liquid investments and cheques that have yet to be cashed.
3.15.2 Capital reserves Capital reserves include the paid­up 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.
3.15.3 Treasury shares Treasury shares held either by Bâloise Holding or by subsidi­ aries are shown in the consolidated financial statements at their acquisition cost (including transaction costs) as a deduction from equity. Their carrying amount is not constantly restated to reflect their fair value. If the shares are resold, the difference between their acquisition cost and their sale price is recognised as a change in the capital reserves. Only Bâloise Holding shares are classified as treasury shares.
3.15.4 Unrealised gains and losses (net) This item includes changes in the fair value of available­for­sale 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 owner­occupied property as investment property.
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.
The effective interest method is generally used to calculate receivables and liabilities arising from financial contracts. The effective interest rate is determined as the internal rate of return based on the estimated amounts and timing of the expected payments. If the amounts or timing of the actual payments differ from those expected or if expectations change, the effective interest rate must be re­determined. The deposit account balance is then remeasured as if this new effective interest rate had applied from the outset, and the change in the value of the deposit account is recognised as interest income or interest expense. Otherwise, the insurance cover financed from the deposit account is amortised over the expected term of the deposit account.
→ Motor The two standardised products common in the market – comprehensive and third­party liability insurance – are sold in this segment. In some countries there are also products that have been specially designed for collabo­ rations with motoring organisations and individual auto­ motive companies.
→ Marine Marine insurance is mainly sold in Switzerland and Germany. These products may include a third­party liability component in addition to the usual cargo insurance.
3.17.1 Premiums The gross premiums written are the premiums that have fallen due during the reporting period. They include the amount needed to cover the insurance risk plus all surcharges. Premium con­ tributions that are attributable to future reporting periods are deferred by contract and – together with health insurance reserves for old age and any deferred unearned premiums – constitute the unearned premium reserves shown on the balance sheet. Owing to the specific nature of marine insurance, premiums are deferred not by contract but on the basis of estimates. Pre­ miums that are actually attributable to the reporting period are recognised as premiums earned. Their calculation is based on the premiums written and the change in unearned premium reserves.
The total claims reserve consists of three components. Reserves calculated using actuarial methods form the basis of the total claims reserve. The second component comprises reserves for those complex special cases and events that do not lend themselves to purely statistical evaluation. These are generally rare claims that are fairly atypical of the sector concerned – usually sizeable claims whose costs have to be estimated by experts on a case­by­case basis. Neither of these components is subject to discounting. The third component consists of reserves for annuities that are discounted using basic actuarial principles such as mortality and the technical interest rate and are largely derived from claims in the motor, liability and accident insurance businesses.
Financial Report Notes to the consolidated annual financial statements on as an insurer. It immediately offsets any shortfall in its reserves that it identifies.
To this end, all existing reserves – both claims reserves (including reserves for claims handling costs) and annuity re­ serves in the non­life segment – are first analysed and, if a short­ fall is identified, the relevant reserves are then strengthened accordingly. This analysis explicitly includes IBNR claims, thereby ensuring that adequate reserves are available for all claims that have already occurred.
The following life insurance products offered by the Baloise Group contain sufficient insurance risk to be classified as insurance contracts under IFRS 4: → Endowment policies (both conventional and unit­linked life insurance)
→ Swiss group life business (BVG), → Term insurance → Immediate annuities → Deferred annuities with annuity conversion rates that are guaranteed at the time the policy is purchased → All policy riders such as premium waiver, accidental death, and disability
A liability adequacy test is performed on all life insurance business at each balance sheet date. This involves calculating a reserve at the measurement date that factors in all future cash flows (such as insurance benefits, surpluses and contract­ related administrative expenses) based on the best estimates available for the assumptions used at the time. If the minimum reserve calculated in this way for individual business lines exceeds the reserve available at the time, any existing deferred acquisition cost or present value of future profits is reduced and, if this is not enough, the reserve is immediately increased to the mini­ mum level and this increase is recognised in profit or loss.
3.18.2 Present value of future profits (PVFP) on insurance contracts acquired The present value of future profits on insurance contracts acquired constitutes an identifiable intangible asset that arises from the purchase of a life insurance company or life insurance port folio. It is initially measured in accordance with actuarial principles and is amortised on a straight­line basis. It is regularly tested for impairment as part of a liability adequacy test.
3.18.5 Policyholders’ dividends A large proportion of life insurance contracts confer on policy­ holders the right to receive dividends.
When accounting for contracts that contain discretionary participation features, the Baloise Group treats measurement differences that are attributable to such contracts and are cred­ ited to policyholders according to a legal or contractual minimum quota as a DPF component. Distributable retained earnings and eligible unrealised gains and losses of fully consolidated sub­ sidiaries are allocated pro rata to the DPF components of the life insurance company concerned. The DPF component calcu­ lated in this way is reported as part of the reserves for future policyholders’ dividends (section 23). These reserves include policyholders’ dividends that are unallocated and have been set aside as a reserve under local accounting standards.
If no legal or contractual minimum quota has been stipulated, the Baloise Group defines a discretionary participation feature as the currently available reserve for premium refunds after allowing for final policyholders’ dividends. Unless a minimum quota has been stipulated, all other measurement differences between the local and IFRS financial statements are recognised directly in equity.
The applicable minimum quotas prescribed by law, con­ tract, or Baloise’s articles of association vary from country to country.
Policyholders in Germany must receive a share of the profits generated. Any losses incurred are borne by share holders. Policyholders are entitled to 90 per cent of investment income (minus the technical interest rate), 75 per cent of the net profit on risk exposures, and 50 per cent of other surpluses. The articles of association of Basler Lebensversicherungs­AG, Germany, additionally stipulate a minimum quota of 95 per cent for part of its insurance portfolio.
3.19 Reinsurance Reinsurance contracts are insurance contracts between insur­ ance companies and / or reinsurance companies. There must be a transfer of risk for a transaction to be recognised as reinsur­ ance; otherwise the transaction is treated as a financial contract.
Inward reinsurance is recognised in the same period as the initial risk. The relevant technical reserves are reported as gross unearned premium reserves or gross claims reserves for non­life insurance and as gross actuarial reserves for life insur­ ance. In non­life insurance they are estimated as realistically as possible based on empirical values and the latest information available, while in life insurance they are recognised as a reserve to cover the original transaction. Outward reinsurance is the business ceded to insurance companies outside the Baloise Group and includes transactions ceded from direct life and non­life business and from inward insurance.
3.20 Liabilities arising from banking business and financial contracts 3.20.1 With discretionary participation features Financial contracts with discretionary participation features are capital accumulated by customers that entitles them to receive policyholders’ dividends. The accounting principles applied to these financial contracts are the same as those for life insurance contracts; the accounting policies for life insurance are described in section 3.18.
3.20.2 Measured at amortised cost Liabilities measured at amortised cost include savings deposits, medium­term bonds, mortgage­backed bonds, other liabilities and financial guarantees that do not qualify as insurance con­ tracts. They are initially measured at their acquisition cost (fair value).
3.22 Employee benefits The benefits that the Baloise Group grants to its employees com­ prise all forms of remuneration that is paid in return for work performed or in special circumstances.
3.22.1 Post-employment benefits The main post­employment benefits provided are retirement pensions, employer contributions to mortgage payments, and certain insurance benefits. Although these benefits are paid after employees have ceased to work for the Baloise Group, they are funded while the staff members concerned are still actively employed. All the pension benefits currently provided by the Baloise Group are defined benefit plans. The projected unit credit method is used to calculate the pertinent pension liab­ ilities.
3.22.2 Share-based payments The Baloise Group offers its employees and senior executives the chance to participate in various plans under which shares are granted as part of their overall remuneration packages. The Employee Incentive Plan, Share Subscription Plan, Employee Share Ownership Plan, performance quota and performance share units (PSUs) are measured and disclosed in compliance with IFRS 2 Share­based Payment. Plans that are paid in Bâloise Holding shares are measured at fair value on the grant date, charged as personnel expenses during the vesting period and recognised directly in equity. Plans that are paid in cash and whose amount is determined by the market value of Bâloise Holding shares are recognised at fair value on the balance sheet date and reported as a liability.
Financial Report Notes to the consolidated annual financial statements 3.24 Taxes Provisions for deferred income taxes are recognised under the liability method, which means that they are based either on the current tax rate or on the rate expected in future. Deferred income taxes reflect the tax­related impact of temporary differ­ ences between the assets and liabilities reported in the IFRS financial statements and those reported for tax purposes. When deferred income taxes are calculated, tax loss carryforwards are only recognised to the extent that sufficient taxable profit is likely to be earned in future.
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 section 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.
→ Analysts’ reports from banks and evaluations by credit rating agencies are also used to assess the need for impairment losses.
4.6 Provisions The measurement of provisions requires assumptions to be made about the probability, timing and amount of any outflows of resources embodying economic benefits. A provision is recog­ nised if such an outflow of resources is probable and can be reliably estimated.
Longevity, mortality and disability rates are risks specific to life insurance and are monitored on an ongoing basis. The companies in the Baloise Group review and analyse mortality rates among their local customer bases, along with the frequency with which policies are cancelled, invalidated and reactivated. For this analysis, they generally use standard market statistics that are compiled by actuaries and include adequate safety margins. The information they gather is used for ensuring rates are adequate and also for setting aside sufficient reserves to meet future insurance liabilities. Because rates are required by law to be calculated conservatively, and the statistical base is relatively good, the risks in this area are manageable. In the field of annuities, there is an additional trend risk in the form of a steady rise in life expectancy which is resulting in ever longer annuity payout periods. This risk is addressed by the addition of suitable factors to the basis for calculation.
The main risk categories to which the Banking division of the Baloise Group is exposed are credit risk, interest-rate risk and liquidity risk. These risks are identified and managed locally by the banks. The loan portfolio is reviewed and analysed on an ongoing basis. A range of tools is used for this purpose, including standardised credit regulations and procedures, scoring and rating procedures, focusing on low-risk markets and the use of an automated arrears system. The information obtained is incorporated into credit decisions. Balance sheet risks (interest -rate and liquidity risks) are managed by the banks’ asset and liability management (ALM) committees. The data and key figures required are determined and calculated using a specialist IT application.
Triggered by the threat of a pandemic, the existing disaster recovery plans for extraordinary events – such as natural disasters, wildfires, terrorist attacks, etc. – have been reviewed at all Group companies since 2007, and a pandemic scenario has been added. Additional disaster recovery plans have been created to ensure that business operations can be continued with severely reduced staff numbers. Several pandemic contingency exercises were carried out at our Swiss site in 2008. In summer 2009, during the WHO phase 6 pandemic alert, all employees in Switzerland were issued with a personal protection kit, and Pandemic Web – the inhouse management and information system – went online. Since 2008, management decisions before, during and after a crisis have been prepared by Group Crisis Management, the head of which reports directly to the Group CEO. The composition of the crisis management team varies according to the type of risk involved (insurance, banking, financial, solvency, reputation). The crisis management team was not convened in 2011 because the E. coli outbreak was largely restricted to Germany and was officially declared at an end in late July 2011. There were no occurrences of note in 2013. Plans are on hold at present and the situation is being monitored, although experts from companies such as Swiss Re believe the outbreak of a pandemic remains a major risk.
Within the Group and within each business unit, a risk owner is responsible for each individual risk that has been identified. Risk owners are allocated according to a hierarchy of responsibility. The Group’s overall risk owner is the chief executive officer of the Baloise Group. Alongside the risk owners, defined risk controllers are responsible for systematic risk control and risk reporting. When selecting risk controllers, particular care is taken to ensure that their role is independent of the risk they control. Risk control within the Baloise Group focuses on investment risk, business risk (actuarial and banking risks), risks to the Group’s financial structure, and compliance. The Group’s overall risk controller is the chief executive officer of the Baloise Group.
Business-environment risk, operational risk and management & information risk arise as direct or indirect results of the business operations, business environment or strategic activities of each company. Risks of this type are also quantified, assessed and managed.
Semi-annual reporting is undertaken for each identified risk category. Every business unit prepares a risk report on which the Group risk report is based. Key figures for the financial and actu- arial risks incurred by the Group and each strategic business unit are reported on a monthly basis using a risk control application.
Financial Report Notes to the consolidated annual financial statements 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.
For its exposure to natural hazards the Baloise Group has purchased reinsurance cover for the whole Group amounting to CHF 250 million (2012: CHF 250 million).
The portfolios on the Group’s books must be structured in such a way that the data available is sufficiently homogeneous to enable the use of certain analytical actuarial processes to determine the claims reserves required. One of the assumptions made is that extrapolation of the typical claims settlement pattern of recent years is meaningful. Only cases such as extreme anomalies in settlement behaviour require additional assumptions to be made on a case-by-case basis.
5.4.3 Changes to assumptions The assumptions on which claims reserves are based generally remain constant, but the factors on which annuity calculations are based are adjusted from time to time over the years, particularly with regard to the latest longevity data.
5.4.4 Sensitivity analysis As well as the natural volatility inherent in insurance business, there are parameters for determining technical reserves that can significantly impact on the annual earnings and equity of an insurance company. In the non-life sector, sensitivity analysis has been used to investigate the effect on consolidated annual earnings and consolidated equity exerted by errors in estimating claims reserves – including claims incurred but not reported (IBNR) – and reserves for run-off business.
At the end of 2013, the Baloise Group’s total reserves calculated using actuarial methods or recognised separately for special claims (including large claims but not run-off or actuarial reserves for annuities) amounted to CHF 4,644.2 million (2012: CHF 4,614.5 million). A variation of 10 per cent in either direction in the requirement for these reserves would result in a rise or fall of around CHF 338.4 million (2012: CHF 337.2 million) in claims payments (after taxes) before reinsurance.
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 worstcase 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 6.8 million after taxes and before reinsurance (2012: CHF 7.5 million ) for this reserve.
Eight years later 670.2 842.0 – – – – – – – – –
Seven years later 289.8 269.4 277.3 – – – – – – – –
Eight years later 288.6 269.8 – – – – – – – – –
Eight years later 2 183.2 186.2 – – – – – – – – –
Gross claims reserves prior to 2004 (including large claims and assumed business)
Net claims reserves 977.4 1 The increase in the total estimated claims incurred is primarily due to the addition of Avéro Schadevezekering Benelux NV. 1 The increase in the total estimated claims incurred is primarily due to the addition of Nateus NV and Audi NV.
Eight years later 14.6 13.5 – – – – – – – – –
Net claims reserves 20.1 1 The increase in the total estimated claims incurred is primarily due to the addition of Bâloise Assurances Luxembourg S.A.
The survival ratio – the ratio of reserves to the average claims paid in the past three years – is a commonly used measure for comparing the adequacy of reserves for asbestos and environmental claims. The ratio shows the number of years for which the reserves will cover claims payments. At the end of the year under review the survival ratio was 34.3 years (2012: 37 years).
31 December 2012 (restated) Switzerland individual life Switzerland group life Germany Belgium Luxembourg Other units
Some closed-end funds in Belgium and Switzerland also offer a guaranteed maturity value. The funds are managed and the guarantees are provided by banks outside the Baloise Group. In Switzerland there is also a closedend Baloise fund with a guaranteed maturity value which is hedged via investments in bonds issued by banks outside the Group.
The risks listed above do not vary greatly within this area of activity. Our group life business in Switzerland and Belgium focuses on the provision of occupational pensions which, like individual life insurance, covers the risks of death, disability and survival. The distinctive feature of group life business is the influence of political decisions. In Switzerland, the government sets the minimum rate of interest to be paid on savings, and the conversion rate at which accumulated capital is converted into an annuity to provide a pension. However, these regulations only apply to the minimum portion of accumulated capital that is required to provide initial finance for an annuity. For the remaining portion, actuarially appropriate annuity conversion rates are used but any change to the minimum interest rate would also affect the existing statutory portfolio, not
Financial Report Notes to the consolidated annual financial statements just new business, which would normally be the case for individual life business. The technical interest rate for Belgian group life business – unlike individual life business – is also set by the government. However, it is the companies – and not their insurers – that are obliged to guarantee this technical interest rate. Baloise Belgium has started to offer group life insurance policies with interest rates that are lower than the rate stipulated by the government.
While investigating sensitivities, only the assumption being tested was varied. The other parameters were kept constant, with the exception of policyholders’ dividends, which were adjusted accordingly.
In general, sensitivities do not behave in a linear fashion, so it is not possible to extrapolate from them.
→ 10 per cent fall in mortality Similar to the aforementioned scenario of an increase in mortality, the effects of a reduction in mortality were marginal for the life insurance companies in Germany, Belgium and Luxembourg and for Baloise Life (Liechtenstein) AG. This was true of the impact on both the income statement and on equity. A reduction in mortality in the Swiss life insurance business – with policyholders’ dividends adjusted accordingly – had a negative impact of approximately CHF 26 million (2012: CHF 36 million) on the income statement. In line with the aforementioned scenario of an increase in mortality, the effect on equity in Switzerland was minor.
→ 100 basis-point increase in receipts of new money This scenario was based on the assumption that receipts of new money (including amounts reinvested) rose by 100 basis points. When applied to the German units, this scenario resulted in a reversal of DAC writedowns and in changes to the financing of final policyholders’ dividends. This adverse impact was exacerbated by impairment losses on interest-rate derivatives. The overall impact was substantially mitigated by the prevailing legal requirements governing the distribution of surpluses. On balance there was a negative effect of roughly CHF 2 million on the German units’ profitability in the reporting year (2012: CHF 4 million). The negative impact on equity amounted to approximately CHF 8 million (2012: CHF 5 million).
In Luxembourg this scenario produced a marginal impact on the income statement and an adverse effect of roughly CHF 13 million (2012: CHF 13 million) on the unrealised gains and losses recognised in equity.
The resultant impact on the profitability and equity of Baloise Life (Liechtenstein) AG was negligible. In Switzerland this scenario resulted in a reversal of DAC write-downs, a reduction in technical reserves, and the offsetting effect of interest-rate hedges. This improved profitability overall by roughly CHF 16 million (2012: CHF 17 million). The adverse impact on equity amounted to approximately CHF 253 million (2012: CHF 284 million).
In Belgium this scenario resulted in an additional DAC write-down, a PVFP impairment loss and a provision for impending losses. The impact on the income statement was greater than in other countries owing to the business model used. Overall there was a negative effect of CHF 26 million on the income statement (2012: CHF 85 million). This adverse impact was more than compensated for by the positive changes in unrealised gains and losses recognised in equity. The positive effect on unrealised gains amounted to CHF 155 million (2012: CHF 147 million).
In Luxembourg this scenario produced a marginal impact on the income statement and a positive effect of roughly CHF 14 million (2012: CHF 14 million) on the unrealised gains and losses recognised in equity.
The resultant impact on the profitability and equity of Baloise Life (Liechtenstein) AG was negligible. In Switzerland this scenario resulted in a higher DAC write-down, an increased technical reserve, and the offsetting effect of interest-rate hedges. The balance of positive and negative effects changed, thereby improving profitability overall by roughly CHF 1 million (2012: decrease of CHF 6 million). The positive impact on equity amounted to approximately CHF 278 million (2012: CHF 298 million).
Stress tests are also designed and run for this purpose. They act as an early-warning system and their impact can be simulated for all areas of the Group and their performance.
5.6.2 Currency risk Currency risk describes the potential financial loss generated by changes in the exchange rates between currencies. The extent of the effective currency risk depends on: → Net foreign exchange exposure, i.e. the net position between assets and liabilities denominated in foreign currencies,
The currency effect of foreign-currency bonds or insurance-related foreign-currency liabilities and changes in the fair value of derivative financial instruments held for hedging purposes are always recognised in the income statement.
The Swiss franc and the euro are used almost exclusively for the Baloise Group’s insurance activities, with the result that technical reserves are also mainly in these currencies. There are also small technical liabilities in US dollars and pounds sterling. These reserves are generally covered by investments in the same currencies (natural hedges).
Assuming that all other variables remain constant, fluctuations between transactional currencies and the functional currency in financial balance sheet items (after shadow accounting, deferred gains/losses and deferred taxes) in the amount of +/– CHF 0.01 (1 centime) would have resulted in a change of +/– CHF 4.1 million (2012: +/– CHF 3.0 million) in the profit for the period and also in equity; a positive (+) change of CHF 0.01 would have generated a currency gain and a negative (–) change of CHF 0.01 would have generated a currency loss.
During the year, the hedge ratio for the net foreign exchange exposure in US dollars and euros ranged from 80 per cent to 100 per cent.
Credit risk increases when counterparties become concentrated in a single sector or geographic region. Economic trends that affect whole sectors or regions can jeopardise an entire group of otherwise unrelated counterparties. For this reason, the Baloise Group tracks counterparty exposure at all times and monitors credit risk on a Group-wide basis. The regional expertise of our business units is also incorporated into decisions about securities selection or changes to the existing credit portfolio.
There are special instructions for valuing collateral and calculating loan-to-value ratios. The purpose of these provisions is to ensure that a standard procedure is used to determine the applicable value of collateral when assessing mortgages. The calculation of fair value and the loan-to-value ratio of real estate is of key importance, particularly with regard to mortgage business. One of the objectives of the active management of mortgages is the early identification of potential downside risk.
5.8 Liquidity risk Banks as well as insurance companies incur latent liquidity risk. This refers to the risk of rapid outflows of large volumes of liquidity that cannot be offset by asset sales or for which alternative funding cannot be implemented quickly enough. In extreme cases, a lack of liquidity can result in insolvency. Legal provisions apply and the Groupwide Risk Management Standards require each business unit to plan its liquidity centrally. This is carried out with the close collaboration of the investment, actuarial, underwriting and finance departments of each business unit.
Liquidity risk as at 31 December 2012 (restated) ‹ 1 year 2 1 – 3 years 4 – 5 years > 5 years Total Carrying amount
Please refer to the tables in section 23 for the residual terms and maturities of technical reserves. In accordance with the Group-wide Risk Management Standards, asset and liability management committees have been introduced in all strategic business units in the Baloise Group. These asset and liability management committees analyse maturity schedules and the income generated by assets or required for liabilities.
5.10 Fair value measurement Where available, quoted market prices are used to determine the fair value of assets and liabilities. They are defined as available if quoted prices can be obtained easily and frequently on an exchange, from a dealer, broker, trade association, pricing service or regulatory authority, provided these prices are current and represent regularly occurring arm’s-length transactions in the market.
If no quoted market prices are available (e.g. because a market is inactive), the fair value is determined using a market-based measurement process. Market-based means that the measurement method is based on a significant quantity of observable market data (as available).
Recognised at fair value through profit or loss 55.7 16.0 – 71.7
Recognised at fair value through profit or loss 5,964.0 45.0 53.2 6,062.2
Recognised at fair value through profit or loss 6,946.1 6,946.1 6,847.0 47.3 51.8
Total assets measured on a recurring basis 8,894.9 8,894.9 8,615.9 227.2 51.8
Balance as at 1 January 705.6 – – – – – – 705.6
These items largely comprise private-equity investments and non-controlling interests in real-estate companies.
FINANCIAL ASSETS FOR THE ACCOUNT AND AT THE RISK OF LIFE INSURANCE POLICYHOLDERS
Changes in fair value recognised in profit or loss 2 – 2.6 – 2.6
Changes in fair value not recognised in profit or loss 3 – –
The solvency margin of the Baloise Group (including the Croatian and Serbian units) for pure insurance business of – 2,160 million (2012 (restated): – 2,096 million) was met in 2012 and 2013. The cover ratio for the capital adequacy requirement in available funds was 267 per cent as at 31 December 2013 (2012 (restated): 266 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. Individual Group companies are also subject to regulation under local legislation which in some cases permits different methods for defining equity. The ability of the business units, and therefore also of the parent company, to pay dividends is closely linked to the priority placed on meeting these local requirements. Compliance with local solvency requirements is monitored on an ongoing basis. Appropriate action is taken if solvency falls short of these regulations.
The relevant requirements for the banking operations of Baloise Bank SoBa are defined by Basel III regulations. The regulatory capital adequacy requirement for Deutscher Ring Bausparkasse AG is governed by the German
Solvency Regulation (SolvV). In both 2012 and 2013, all relevant requirements were met by each Group company.
In addition, PiL Verwaltungsgesellschaft mbH in Trier, Germany, was sold at the beginning of July 2012. Neither deal has had any material impact on the profit for the period.
6.1.3 Other changes in the group of consolidated companies The bulk of Belgian non-life unit Amazon Insurance NV was partially merged with Mercator Verzekeringen (nonlife ) on 1 January 2012. The remainder of Amazon continues to operate as a sales company. This transaction had no net impact on the Baloise Group’s profit for the period.
6.2 2013 financial year 6.2.1 Acquisitions The company FIPOP S.A. was acquired in Luxembourg during the reporting year. Goodwill of – 0.6 million was recognised in respect of this acquisition.
The section on segment reporting broken down by strategic business unit now shows the company Baloise Life Liechtenstein as part of the “Luxembourg” segment rather than – as previously – in the “Other units” segment. The section on segment reporting by operating segment now shows the Belgian company NoordSter NV as part of the “Life” segment rather than – as previously – in the “Other activities” segment. The firm Deutscher Pensionsring AG is now reported as part of the “Other activities” (Germany) segment. The prior-year comparative figures have been restated accordingly to ensure the comparability of segment reporting.
The “Other units” segment contains the strategic business units that do not meet the size criteria for disclosure under IFRS 8. These are the Baloise Group entities that have been assigned to
Premiums earned and policy fees (net) 3,657.2 4,075.6 1,393.1 1,407.2 992.5 1,034.3 118.9 122.2 136.0 140.4 6,297.7 6,779.5 256.9 265.2 0.0 0.0 6,554.6 7,044.8
Realised gains and losses on investments 136.7 137.1 246.1 270.9 33.6 30.3 408.1 196.0 14.0 15.0 838.5 649.1 14.4 21.2 – – 852.9 670.3
Operating and administrative expenses for insurance business – 413.8 – 431.1 – 258.3 – 239.2 – 154.4 – 148.9 – 36.2 – 40.0 – 18.1 – 9.7 – 880.8 – 869.0 1.1 0.2 – 20.3 – 28.4 – 900.0 – 897.1
Profit / loss before borrowing costs and taxes 441.0 434.5 16.0 68.0 73.5 120.8 0.1 16.9 5.3 – 13.5 535.9 626.7 81.9 31.5 – – 617.9 658.2
Premiums earned and policy fees (gross) 3,307.1 3,425.5 3,424.0 3,787.2 – – – – – – 6,731.1 7,212.7
Premiums earned and policy fees (net) 3,149.3 3,277.1 3,405.3 3,767.7 – – – – – – 6,554.6 7,044.8
Interest expenses on insurance liabilities – 1.3 – 0.7 – 49.3 – 46.6 – – – – – – – 50.5 – 47.3
Gains or losses on financial contracts – 1.0 – 0.8 – 501.0 – 302.5 – 76.7 – 67.0 – 29.9 – 30.8 30.9 32.1 – 577.8 – 368.9
Operating and administrative expenses for insurance business – 588.7 – 582.8 – 311.2 – 314.3 – – – – – 0.0 – 900.0 – 897.1
Profit / loss for the period (segment result) 388.0 291.0 148.9 195.3 64.0 61.6 – 115.8 – 92.4 – – 485.2 455.4
Carrying amount as at 1 January 88.1 361.9 52.4 35.1 22.3 559.9
Carrying amount as at 31 December 95.2 266.8 43.8 30.1 22.7 458.5
Financial Report Notes to the consolidated annual financial statements 8.2 Property, plant and equipment in 2013 2013 Land Buildings Operating equipment
Carrying amount as at 1 January 75.4 70.4 775.3 161.3 217.6 0.3 1,300.2
Capitalisation of acquisition costs – – 82.4 235.0 2 – – 317.4
Carrying amount as at 1 January 73.4 62.0 595.2 154.0 193.7 0.3 1,078.5
Intangible assets by segment 1 With the possible exception of goodwill, the Baloise Group has no intangible assets with indefinite useful lives. 2 The goodwill recognised on the Croatian unit has been reclassified to the disposal group owing to the application of IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations). Pertinent details can be found in section 21.
The impairment recognised for impending losses and the changes in unrealised gains and losses on financial instruments (shadow accounting) reported as deferred acquisition costs in life insurance were caused by the adverse interest-rate trends prevailing during 2012.
Impairment losses totalling CHF 16.7 million were recognised on other intangible assets in respect of largescale IT projects in 2013.
Financial Report Notes to the consolidated annual financial statements 10. INVESTMENTS IN ASSOCIATES 10.1 Significant investments in associates OVB Holding AG is a European sales company for risk cover, retirement pension and healthcare products as well as wealth-building products. It also brokers Basler Versicherungen products. The company is strategically important because it constitutes a significant distribution channel.
Insurance benefits and expenses arising from insurance and asset management business – 113.8 – 114.3
There were no contingent liabilities arising from investments in associates and no unrecognised shares of the losses of associates as at either 31 December 2013 or 31 December 2012.
Financial Report Notes to the consolidated annual financial statements 11. INVESTMENT PROPERTY
Disposals arising from change in scope of consolidation – – 1.7
Operating expenses arising from investment property that generates rental income 75.8 70.1
Recognised at fair value through profit or loss 1 7,881.9 8,669.1
Financial assets as reported on the balance sheet 41,989.0 43,671.5 1 Of which financial assets totalling CHF 72.9 million (2012: CHF 42.1 million) involved insurance policies that had not been fully reviewed by the balance sheet date.
Not publicly listed, variable interest rate – – – 0.2 – – – – – 0.2
Publicly listed, fixed interest rate 8,188.5 8,040.2 22,201.6 22,191.4 – – 12.1 0.1 30,402.2 30,231.7
Publicly listed, variable interest rate – – 186.4 153.8 – – 43.6 36.8 229.9 190.6
Trading portfolio Designated 2012 (restated) 2013 2012 (restated) 2013 2012 (restated) 2013 2012 (restated) 2013 2012 (restated) 2013
FAIR VALUE OF FINANCIAL ASSETS CLASSIFIED AS HELD TO MATURIT Y
Financial assets of an equity nature – – 3,337.0 4,096.4 0.4 0.5 76.1 301.5 3,413.5 4,398.4
Financial Report Notes to the consolidated annual financial statements 13. MORTGAGES AND LOANS
Increases and additional provisions recognised in profit or loss – 15.4 – 12.2
Financial Report Notes to the consolidated annual financial statements 14. DERIVATIVE FINANCIAL INSTRUMENTS
Reinsurers’ share of technical reserves as at 1 January 377.5 398.6
Reinsurers’ share of technical reserves as at 31 December 398.6 396.4 17. RECEIVABLES FROM REINSURERS
Impairment of receivables from reinsurers as at 31 December – 0.3 – 0.3
Switzerland has the largest plans. The employer and employee each contribute to these plans; the contributions are used to cover benefits paid in the event of death or invalidity as well as being saved up to fund a pension. The employee has the option of receiving all or part of the accumulated capital as a one-off payment. Some of the benefits granted in this way are governed by binding statutory regulations that are applicable to all Swiss employers and, in particular, stipulate certain minimum benefits. The pensions are the responsibility of separate legal entities (foundations ) that are run by a committee consisting of employer and employee representatives.
Actuarial gains / losses on defined benefit obligations arising from changes in financial assumptions – 119.4 88.0 changes in demographic assumptions – 143.2 – 5.1 experience adjustments 12.6 – 47.0
Additions / disposals arising from change in scope of consolidation – 0.6
Balance as at 31 December – 756.4 – 735.6 18.2.4 Net actuarial liabilities under defined benefit plans
Net actuarial liabilities under defined benefit plans – 965.5 – 813.6
Equities and investment funds publicly listed 1,179.5 1,216.7 not publicly listed – –
Of which: Bâloise Holding Ltd shares (fair value) and convertible bonds (fair value) 22.7 25.1
Discount rate plus 1.0 % age points – 396.6 – 330.4
Expected pension benefits increases plus 0.5 % age points 157.4 150.1
Mortality probabilities for 65-year-olds plus 10.0 % age points – 75.3 – 70.7
Weighted share of annuity option plus 10.0 % age points 10.2 6.4
18.2.10 Estimated employer contribution The employer’s contribution for the following year can only be predicted with a limited degree of certainty. The Baloise Group expects to pay employer contributions of approximately CHF 60.6 million for the 2014 financial year.
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 10.62 years; the average present value factor for current benefit entitlements under pension commitments is 13.96 years.
Long-service bonuses constitute the principal benefit paid. The present value of liabilities as at 31 December 2013 totalled CHF 32.6 million (2012: CHF 33.1 million). There were no disposals of plan assets for long-term employee benefits. Benefits paid out amounted to CHF 4.4 million (2012: CHF 4.1 million).
18.4 Share-based payment plans For some time now, the Baloise Group has offered employees and management team members the chance to participate 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 2013, a sum of CHF 20.0 million (2012: CHF 16.6 million) was recognised as an expense in profit or loss in connection with the following share-based payment plans.
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 the subscription year and amounts to CHF 50.30 for the reporting year (2012: CHF 34.20). 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 restriction period.
The Foundation acquired the underlying stock of shares used in this plan from previous capital increases carried out by Bâloise Holding Ltd. It supplements these shareholdings by purchasing shares in the market. The existing shareholdings will enable the Foundation to continue the Employee Incentive Plan over the coming years. The Foundation is run by a Board of Foundation that is predominantly independent of the Corporate Executive Committee. The independent Board of Foundation members are Peter Schwager (Chairman) and Professor Heinrich Koller (lawyer); the third member of the Board of Foundation is Andreas Burki (Head of Legal & Tax at Baloise).
The parameters used to determine the subscription price are decided each year by the Remuneration Committee. The subscription price is based on the closing price on the first day of the subscription period (until 2013: volume-weighted average share price during a contemporaneous measurement period), on which a discount of 10 per cent is granted (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 Share Subscription Plan are purchased in the market as and when required.
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 restriction period has elapsed is hedged by put options, which are financed by the sale of offsetting call options. After the three-year restriction period has elapsed, the relevant options have been exercised and the loans plus accrued interest have been repaid, the employees concerned receive the remaining shares to do with as they wish.
Fair value of subscribed shares on subscription date (CHF million) 15.8 15.6
18.4.4 Performance share units At the beginning of each vesting period the participating employees are granted rights in the form of PSUs, which entitle them to receive a certain number of shares free of charge after the vesting period has elapsed. The Remuneration Committee specifies the grant date and applies its own discretion in deciding which of the most senior management team members are entitled to participate in the programme. It determines the total number of PSUs
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Participants in the programme receive the pertinent number of shares once the vesting period has elapsed, which means that for the PSUs allocated in 2013 they receive their shares on 1 March 2016. Half of the shares granted in this way are then subject to an additional three-year restriction period.
The PSUs allocated in 2011 were converted into shares as at 1 January 2014. The performance of Baloise shares at the end of the vesting period on 31 December 2013 ranked 21st out of 33 companies in the relevant peer group (STOXX Europe 600 Insurance Index), which meant that it was in the 3rd quartile. The performance multiplier was therefore 0.77, and the 68,244 outstanding PSUs were converted into 55,551 shares (share price of CHF 113.60 on 31 December 2013, market capitalisation of CHF 5.97 million).
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 3 per cent → The volatilities of all shares in the peer group and their correlations with each other (measured over a threeyear track record) → The expected dividend yields → Empirical data on how long eligible programme participants remain with the Company.
Of which: expired without compensation (departures in 2011) – 6,937 – –
Number of active PSUs as at 31 December 2011 74,802 – –
Of which: expired without compensation (departures in 2013) – 891 – 2,247 – 1,859
Number of active PSUs as at 31 December 2013 68,244 81,737 70,741
PSU expense incurred by the Baloise Group for 2011 (CHF million) 2.4 – –
PSU expense incurred by the Baloise Group for 2012 (restated, CHF million) 1.6 1.5 –
Financial Report Notes to the consolidated annual financial statements 19. DEFERRED INCOME TAXES 19.1 Deferred income taxes
Of which: recognised as deferred tax liabilities – 838.5 – 882.3 19.2 Deferred tax assets and liabilities
Unrealised losses recognised directly in equity 86.7 – – 59.8 26.9
21. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS In the second half of the reporting year, all of the assets and associated liabilities of the Croatian and Serbian companies (Basler osiguranje Zagreb d.d. and Basler osiguranje a.d.o.) were reclassified as held for sale. The disposal of the Croatian and Serbian units was completed on 11 March 2014.
A total impairment loss of CHF 31.7 million was recognised on the assets in the disposal group as at 31 December 2013. This amount includes the write-off of goodwill on the Croatian units.
Purchase / sale of treasury shares – 193,527 193,527 – –
Purchase / sale of treasury shares – 24,803 24,803 – –
The share capital of Bâloise Holding totals CHF 5.0 million and is divided into 50,000,000 registered, fully paid-up registered shares with a par value of CHF 0.10 each (2012: CHF 0.10). As far as individuals, legal entities, and partnerships are concerned, entry in the share register with voting rights is limited to 2 per cent of the registered share capital entered in the commercial register. The Baloise Group buys and sells its own shares as part of its ordinary investing activities and for employee share ownership programmes.
The Annual General Meeting held on 2 May 2013 voted to pay a gross dividend of CHF 4.50 per share for the 2012 financial year. This amounted to a total dividend distribution of CHF 225.0 million. Excluding the treasury shares held by Bâloise Holding at the time that the dividend was paid, the total distribution effectively amounted to CHF 211.8 million.
Total technical reserves (non-life) 6,149.2 – 374.9 5,774.3 6,242.4 – 373.3 5,869.0
Additions / disposals arising from changes in scope of consolidation – –
Policyholders’ dividends credited and provisions for future policyholders’ dividends 3,579.1 3,471.4
Total provisions for future policyholders’ dividends 1,838.7 1,812.5 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.
Disposals arising from sale of policy portfolios and insurance companies – –
The actuarial reserves include unearned premium reserves and claims reserves. The actuarial reserves for DPF business as at 31 December 2013 amounted to CHF 34,322.0 million (31 December 2012: CHF 33,733.7 million), while for non-DPF business they totalled CHF 270.4 million (31 December 2012: CHF 257.8 million). The actuarial reserves for assumed business (inward reinsurance) as at 31 December 2013 came to CHF 6.8 million (31 December 2012: CHF 5.9 million).
Additions arising from acquisition of policy portfolios and insurance companies – –
Change due to unrealised gains and losses on investments (shadow accounting) – 0.3 0.0
Financial Report Notes to the consolidated annual financial statements 23.2.6 Policyholders’ dividends credited and reserves for future policyholders’ dividends
Reclassification to non-current assets and disposal groups classified as held for sale – – 0.6
Provisions for future policyholders’ dividends as at 1 January 1,266.0 1,838.7
Financial contracts with discretionary participation features (DPFs) 1 1,334.0 1,492.7 – –
Liability for future financial lease payments (present value) 105.7 97.3 105.7 97.3
Total liability for future financial lease payments (present value) 105.7 97.3
Financial Report Notes to the consolidated annual financial statements 26. FINANCIAL LIABILITIES
Senior bond Senior bond Senior bond Senior bond Senior bond Senior bond
Usage not recognised in profit or loss – 1.6 – 15.0 – 16.5 – 3.3 – 20.0 – 23.3
Change in unearned premium reserves – 10.6 – – 10.6 – 16.2 – – 16.2
30. INCOME FROM INVESTMENTS FOR OWN ACCOUNT AND AT OWN RISK
Realised gains and losses on investments for own account and at own risk 224.4 210.7
Realised gains and losses on investments for the account and at the risk of life insurance policyholders 628.5 459.6
Financial Report Notes to the consolidated annual financial statements 31.1 Realised gains and losses on investments in 2012 for own account and at own risk 2012 (restated) Investment property
Held to maturity 1 – – – 39.7 – – – 39.7
Available for sale – – 119.1 – 78.9 – – – 198.0
Carried at cost – – – – 15.4 – – 15.4
Financial Report Notes to the consolidated annual financial statements 31.2 Realised gains and losses on investments in 2013 for own account and at own risk
Held to maturity 1 – – – 1.4 – – – 1.4
Held to maturity – – – 0.3 – – – 0.3
Available for sale – – 32.7 – 0.5 – – – 33.2
Financial Report Notes to the consolidated annual financial statements 32. INCOME FROM SERVICES RENDERED
Depreciation, amortisation and impairment of property, plant and equipment – 53.7 – 39.3 intangible assets – 55.9 – 60.5
Fees and commission for financial assets and liabilities not recognised at fair value – 25.3 – 25.6
Change in fair value of other financial contracts – 432.2 – 249.7
Financial Report Notes to the consolidated annual financial statements 37. INCOME TAXES 37.1 Current and deferred income taxes
Increase / reduction owing to tax-exempt profits and losses 16.1 2.5 non-deductible expenses – 9.9 – 13.1 withholding taxes on dividends – 1.7 – 2.4 change in tax rates 10.1 – 0.4 tax items related to other reporting periods 20.0 7.0 non-taxable measurement differences 19.9 9.5
Current income taxes – 71.6 – 152.7 1 Other impacts’ essentially comprise the offsetting of profits against loss carryforwards for which no deferred tax assets were recognised, the non-capitalisation of losses from the reporting period and the recognition of losses carried forward from previous years. This item also includes the differences between the Baloise Group’s tax rate and the tax rates applied to each individual company (and, in the reporting year, the effect arising from the application of IFRS 5 [Non-current Assets Held for Sale and Discontinued Operations]).
Profit for the period attributable to shareholders (CHF million) 479.5 452.6
Adjustment of interest expenses on convertible bonds, including tax effects (CHF million) 7.6 7.7
Adjusted profit for the period attributable to shareholders (CHF million) 487.1 460.3
Financial Report Notes to the consolidated annual financial statements 39. OTHER COMPREHENSIVE INCOME 39.1 Other comprehensive income
Reserves arising from reclassification of investment property: Gains and losses arising during the reporting period – 0.6
Reclassification adjustments for gains (losses) included in retained earnings – –
Reserves arising from assets and liabilities of defined benefit plans: Change in reserves arising from assets and liabilities of post-employment benefits (defined benefit plans)
Total items to be reclassified to retained earnings – 183.4 111.5
Available-for-sale financial assets: Gains and losses arising during the reporting period 1,699.4 – 301.6
Gains and losses reclassified to the income statement – 134.8 – 230.1
Unrealised gains and losses of associates: Gains and losses arising during the reporting period 6.1 3.2
Hedging reserves for derivative financial instruments held as cash flow hedges: Gains and losses arising during the reporting period – –
Reserves arising from reclassification of held-to-maturity financial assets: Gains and losses arising during the reporting period – 0.1 0.1
Gains and losses reclassified to the income statement – 4.9 – 2.8
Total reserves arising from reclassification of held-to-maturity financial assets: – 4.9 – 2.7
Shadow accounting: Gains and losses arising during the reporting period – 600.3 267.2
Exchange differences: Gains and losses arising during the reporting period 19.6 68.1
Financial Report Notes to the consolidated annual financial statements 39.2 Income taxes on other comprehensive income
Available-for-sale financial assets 1,564.6 – 414.8 1,149.8 – 531.7 148.3 – 383.4
Cash and cash equivalents acquired / disposed of – 0.0 – 0.3 – 1.0
The Baloise Group acquired two property companies in Austria during 2012. The cumulative disposals for 2012 included the sale of Poliklinika Osiguranje Zagreb in Croatia and the disposal of PiL Verwaltungsgesellschaft mbH.
Payments under share-based payment plans 4.6 4.6 46,964 shares worth CHF 4.4 million were repurchased from members of the Corporate Executive Committee in 2013 (2012: CHF 1.5 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 bis and 663c of the Swiss Code of Obligations (OR) is contained in the Remuneration Report. Pages 74 to 82 of the chapter on corporate governance form an integral part of the Financial Report. 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 advances 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.
The Corporate Executive Committee is not aware of any new circumstances having arisen since the last balance sheet date that could have a material impact on the consolidated annual financial statements for 2013.
The Baloise Group engages in securities-lending transactions that may give rise to credit risk. Collateral is required in order to hedge these credit risks by more than covering the underlying value of the securities that are being lent. The value of the counterparty’s lending securities is regularly measured in order to minimise the credit risk involved. Additional collateral is immediately required if this value falls below the value of cover provided.
Commitments undertaken for future acquisition of investment property 30.8 14.8 financial assets 408.2 449.4 property, plant and equipment – –
Financial Report Notes to the consolidated annual financial statements 45. CLAIM PAYMENTS RECEIVED FROM NON-GROUP INSURERS The companies in the Baloise Group received claim payments totalling CHF 0.1 million in 2013 (2012: 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.
Bâloise Holding Ltd, Basel Holding O Holding Holding F CHF 5.0 2,489.9 – X
Baloise Life Ltd, Basel Life L 100.00 100.00 F CHF 50.0 28,801.3 2,900.9 X
Baloise Bank SoBa AG, Solothurn Banking B 100.00 100.00 F CHF 50.0 6,879.5 – X
ZEUS Vermittlungsgesellschaft mbH, Hamburg 1 L: Life, NL: Non-life, B: Banking, O: Other activities / Group business. 2 Shares stated as a percentage are rounded down. 3 F: Full consolidation, E: Equity-accounted investment. 4 Material interest required to be disclosed under IFRS 12.
Euromex NV, Antwerp Non-life NL 100.00 100.00 F EUR 2.7 135.1 52.0
Baloise Life (Liechtenstein) AG, Balzers Life L 100.00 100.00 F CHF 7.5 2,821.4 1.7
Carrying amount of interests acquired or sold (transactions with non-controlling interests) – 10.5
Amount of the consideration received from or paid to non-controlling interests – 10.5
In 2013 and in 2012, there were no transactions involving non-controlling interests that led to the loss of control over a subsidiary.
The holding of units in Baloise Fund Invest (Lux) does not give rise to any contractual obligations. There are no arrangements that oblige the Baloise Group to provide financial support to the consolidated entity Baloise Fund Invest (Lux), and no voluntary financial or other support was provided during the reporting year.
Opinion In our opinion, the consolidated financial statements for the year ended 31 December 2013 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..
Bâloise Holding Ltd 4 Baloise 18 Review of operating performance 38 Sustainable business management 50 Corporate Governance 90 Financial Report 244 Bâloise Holding Ltd 258 Notes
Financial Report Notes Bâloise Holding 1. ACCOUNTING POLICIES The annual financial statements of Bâloise Holding have been prepared in compliance with Swiss stock company law� They were prepared in accordance with the transitional provisions of the new financial reporting legislation based on the provisions of the Swiss Code of Obligations concerning bookkeeping and accounting, which had applied until 31 December 2012�
Total income from interest and securities 13.0 15.5 3. OTHER INCOME
Baloise Insurance Company (Bermuda) Ltd., Hamilton, Bermuda 100.00 100.00 CHF 5.0
Životno osiguranje “Basler” a.d.o., Belgrade 100.00 100.00 RSD 300.1 1 Investments stated as a percentage are rounded down.
Financial Report Notes Bâloise Holding 13. 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 2013: Total shareholding as at 31.12.2012
Bâloise Holding has issued the following letter of comfort: As the owner of Baloise Life (Liechtenstein) AG, Bâloise Holding, Basel, undertakes to ensure that its subsidiary
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), RentaSafe Time Italy 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 2013�
Financial Report Notes Bâloise Holding 15. 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 (2012: none)�
16. REMUNERATION PAID TO THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE The information to be disclosed in accordance with sections 663b bis and 663c of the Swiss Code of Obligations (OR) is contained in the Remuneration Report� Pages 74 to 82 of the chapter on corporate governance form an integral part of the Financial Report� 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 advances granted to members of the Board of Directors and the Corporate Executive Committee, → shares and options held by members of the Board of Directors and the Corporate Executive Committee�
17. INFORMATION ON THE PERFORMANCE OF RISK ASSESSMENTS Information on the performance of risk assessments can be found in section 5� “Management of insurance risk and financial risk” of the Baloise Group’s consolidated annual financial statements�
Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit� We conducted our audit in accordance with Swiss law and Swiss Auditing Standards� Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement�
REPORT ON OTHER LEGAL REQUIREMENTS We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence�
GLOSSARY ������������������������������������������������������������������������������������������������ 258 ADDRESSES ��������������������������������������������������������������������������������������������� 262 INFORMATION ON THE BALOISE GROUP ������������������������������������ 263 FINANCIAL CALENDAR AND CONTACTS ��������������������������������������� 264
Notes 4 Baloise 18 Review of operating performance 38 Sustainable business management 50 Corporate Governance 90 Financial Report 244 Bâloise Holding Ltd 258 Notes
→ Business volume The total volume of business comprises the premium income earned from non­life and life insurance and from investment­ linked life insurance policies during the reporting period� The accounting principles used by the Baloise Group do not allow premium income earned from investment­linked life insurance to be reported as revenue in the consolidated financial statements�
→ Gross The gross figures shown on the face of the balance sheet or income statement in an insurance company’s annual report are stated before deduction of reinsurance�
→ Impairment An asset write­down that is recognised in profit or loss� An impairment test is carried out to ascertain whether an asset’s carrying amount is higher than its recoverable amount� If this is the case, the asset is written down to its recoverable amount and a corresponding impairment loss is recognised in the in­ come statement�
→ Operating segments Similar or related business activities are grouped together in operating segments� The Baloise Group’s operating segments are Non­Life, Life, Banking (which includes asset manage­ ment), and Other Activities� The “Other Activities” operating segment includes equity investment companies, real­estate firms and financing companies�
→ Reserves A measurement of future insurance benefit obligations aris­ ing from known and unknown claims that are reported as liabilities on the face of the balance sheet�
→ Segment Financial reporting in the Baloise Group is carried out in accordance with International Financial Reporting Standards (IFRSs), which require similar transactions and business activities to be grouped and presented together� These aggre­ gated operating activities are presented in “segments,” broken down by geographic region and business line�
→ Shares issued The total number of shares that a company has issued; multi­ plying the total number of shares in issue by their face value gives the company’s nominal share capital�
→ Technical reserve Insurers disclose on the face of their balance sheets the value of the benefits that they expect to have to provide in future under their existing insurance contracts� This value is calcu­ lated from a current perspective in accordance with gener­ ally accepted principles�
AUSTRIA Basler Versicherungen Brigittenauer Lände 50 – 54 A-1203 Vienna office@basler.at www.basler.at
AVAILABILITY AND ORDERING The 2013 Annual Report and the Summary of the 2013 Annual Report will be available on the internet at www�baloise�com/ annualreport from 25 March 2014�
Media Relations Baloise Group Dominik Müller Aeschengraben 21 4002 Basel, Switzerland media.relations@baloise.com