Segment income other activities / corporate business 2 89.4 30.2 – 66.2
Profi t for the period per share in CHF 12.93 15.48 19.7
WHO WE ARE: Th e Baloise Group is active in selected markets in continental Europe. With approximately 8,600 employees, Baloise provides comprehensive insurance and retirement solutions to private individuals and companies. Th e Group focuses on high value-added customers and distribution partners. Th e registered shares are included in the Swiss Market Index and are traded under the abbreviation BALN.
Growth of business volume up by 6.0% to CHF 7,937.6 million. Growth of 38.0% to CHF 1,069.2 million in the target segment of investment-type life insurances. Net combined ratio of 95.1% despite storm loss. Embedded value of life insurances rose by CH 2,627.8 million to CHF 3,230.6 million, representing a return on embedded value of 24.5%.
In this challenging environment, Baloise strives to achieve good results at a high level. Over the cycle, Baloise expects to see a return on equity of 15% and a steady increase in earnings per share. In the nonlife business, it is our objective to keep the combined ratio signifi cantly below 100%.
VORABDRUCK selected markets ielected market h approximately 8,600 employeapproximately 8,600 emp des comprehensive insurance and retirementes comprehensive insurance and retireme to private individuals and companies. Th e Group foto private individuals and companies. Th e Group fo high value-added customers and distributh value-added customers and distribu registered shares are includeregistered shares are inclu and are traded unand are traded un
BALOISE Key Figures Cover At a Glance Cover Our Markets 4 Our Strategy 6
SHAREHOLDER INFORMATION Letter to Shareholders: “We Want to Make an Active Contribution to the Development” 10 Baloise Share: Resilient Baloise Share in Volatile Financial Markets 12
REVIEW OF BUSINESS YEAR Group: Another Record Result and Accelerated Growth 16 Switzerland: Th oroughly Healthy and Profi table 20 Germany: Strengthened Sales Power 21 Belgium and Luxembourg: High Profi tability 22 Other Countries: Growth and Expansion 23
TRUSTED PARTNER Switzerland: Comprehensive Support in a Complex Environment 26 Germany: «Basler’s Doors are Always Open to Me» 28 Belgium: Excellently Supported by Mercator 30
MANAGEMENT INFORMATION Consolidated Income Statement 80 Consolidated Balance Sheet 82 Business Volume, Premiums and Combined Ratio 83 Technical Income Statement 85 Gross Premiums by Industries 86 Embedded Value 87 Banking Activities 90 Asset Performance 91
BÂLOISE-HOLDING Income Statement 94 Balance Sheet 95 Notes 96 Appropriation of the Retained Earnings as Proposed by the Board of Directors 101
ORGANISATIONAL STRUCTUREORGANISATIONAL STRUCTURE Board of Directors Board of Directors Management Management
Deutscher Ring in Hamburg specialises in retirement provisions for private customers, with retirement and health care as core products. Deutscher Ring is also present in Slovakia and in the Czech Republic. Apart from its own sales force, Deutscher Ring also works with distribution partners OVB and ZEUS and external brokers.
SWITZERLAND In the Swiss home market, Baloise trades under the names “Basler Versicherungen” and “Baloise Bank SoBa”. Th e Basler Switzerland is the largest business unit within the Group. As a fi nancial services provider, it focuses on comprehensive insurance and retirement solutions. Customers are private individuals, small and medium-sized businesses and selected industrial companies. Th e heart of the Baloise distribution is the company’s own sales force, which works closely with selected distribution partners for individual product and customer segments, plus external brokers and on the internet. In addition, Baloise Bank SoBa off ers banking products through its insurance sales force to accompany the range of retirement products. In the region of northwest Switzerland, it has also positioned itself as a full-service bank.
ADDED VALUE. WE PREFER CUSTOMERS WHO ARE PRIVATE INDIVIDUALS, SMALL AND MEDIUM-SIZED
un SoB within the Group. As a fi nancial services provider, it focuses n comprehensive insurance and retirement solutions. stomers are private individuals, small and me nesses and selected industrial c Baloise distribution h work
BELGIUM In the Belgian market, the Baloise Group is represented in Flanders by the brand “Mercator Verzekeringen ”. Mercator has established itself as preferred trusted partner to local, professional brokers. Th e company provides a comprehensive range of fi nancial protection and property insurance products to private customers and small and medium-sized businesses.
LUXEMBOURG In the Grand Duchy, “Bâloise Assurances” off ers a full range of products to meet the insurance, retirement and wealth building needs of private and business customers.
Combined ratio (gross) Bâloise Assurances in percent 89.7 91.6 5BALOISE OUR MARKETS
partner to local, professional brokers. Th e company provides a comprehensive range of fi nancial protection and proper insurance products to private customers a medium-sized businesses.
THE FOCUS OF OUR STRATEGY IS OUR CUSTOMERS, WHOSE LASTING TRUST WE WANT
TO ACHIEVE. THIS PARTNERSHIP IS CHARACTERISED BY THE QUALITY OF THE RELATIONSHIP
We want us and our products and services to excite our customers and thus become their preferred and trusted partner. Based on this long-term, trusting relationship, together with the mutual generation of added value, we are able to achieve long-term growth and above-average productivity. In turn, this allows us to make investments that benefi t our customers, employees and investors, thus securing our future.
Organic growth in customer segments with a high valueadded potential will continue to be our primary focus. For targeted acquisitions and strategic partnerships, we will focus on the expansion of market positions in existing markets.
SHAREHOLDERS We increase the business value for our shareholders. With the entrusted capital, we aim at a return that is signifi cantly higher than the average cost of capital. We maintain an income-oriented distribution policy. We provide regular und transparent updates to our shareholders on business trends and strategy implementation.
THE PUBLIC We are a responsible member of society. As an insurance and pension provider, we contribute to the functioning of national economies, communities and businesses on a daily basis.
Th anks to our sizable earning power, we contribute substantially to the fi nancing of the public sector. Our sustainable company policy makes us a reliable employer. We create and maintain value-added jobs. We make responsible use of natural resources.
There are different types of dwellings. The goal is to create an environment that enables a good life for everyone. Our lives keep changing – thus, we periodically must adjust our living arrangements.
The manifold forms of community require strong partners, who are responsive to the changing needs and conditions. Like Baloise.
It is with great pleasure that we are able to report that the Baloise Group has realised historical earnings of CHF 813.8 million and a 19.7% increase in earnings per share of CHF 15.48 in the fiscal year 2007 – a clear indication that Baloise is in excellent shape. This success confirms the opinion of the Board of Directors and the Corporate Executive Committee that we have the right strategy and that we will continue to efficiently implement it year after year. My sincere thanks go to those who are responsible for this achievement: to all employees, but also to you, dear shareholders. The business results 2007 will allow us to recommend a 18.4% higher dividend per share of CHF 4.50 to the Annual General Meeting.
The European insurance industry is currently undergoing a fundamental change; the consolidation is already a reality today or is foreseeable in the future. With its strong stra tegic positioning as well as its performance and financial strength, Baloise is well prepared. And more than that. From a position of strength, we want to – and are able to – actively contribute to this consolidation process. We want to continue to generate high earnings, while growing significantly at the same time.
Actively contributing to the consolidation process does not simply mean to join all the numerous other stakeholders in the field. Such a step must serve a superordinate, strategic interest. For Baloise, this interest is tantamount to maintaining its freedom of action and making use of the available room for manoeuvre. As the saying goes: Shape the future, or the future will shape you.
Th e year 2008 will be characterised by volatile fi nancial markets and a further increase in pricing and competitive pressure. In this challenging environment, Baloise strives to achieve good results at a high level. Over the cycle, Baloise expects to see a return on equity of 15% and a steady increase in earnings per share. In the nonlife business, it is our objective to keep the combined ratio signifi cantly below 100%.
IN 2007, THE BALOISE SHARE REMAINED RELATIVELY CONSTANT IN A VOLATILE FINANCIAL MARKET
Th e increase in value in the fi rst half of the year could not be sustained in the second half, due to the worsening of the US mortgage crisis. At the end of September, the Baloise share price was CHF 117.80; 3.3% lower than at the beginning of the year. With a gain of only 1.7%, the SMI lost signifi cantly in value compared to the fi rst half of the year.
At year-end, the SMI closed with –3.4%. At year-end, the Swiss insurance sector index was 8.3% lower than at the beginning of the year, while the European insurance sector index was down by 12.1%. Th e Baloise share was unable to escape the volatile environment and at year-end 2007 closed at CHF 111.50; a drop of 8.5%, compared with the year-end 2006 closing price of CHF 121.80.
DISTRIBUTION TO SHAREHOLDERS For the fi scal year 2007, the Board of Directors requests a cash dividend of CHF 4.50 of the Annual General Meeting. Based on the year-end closing price, this represents a cash dividend return of 4.0%.
Th e share buy-back programme, announced in March 2006 (total volume: up to 5,530,715 shares) was continued in 2007.
A further 3,283,000 shares were acquired via the second trading line. By the end of 2007, 78.8% of the buy-back programme had been realised. In addition to the cash dividend, shareholders thus received a total of CHF 390.6 million.
Th e Anual General Meeting 2007 decided upon a capital reduction by cancelling 1,307,150 of the repurchased shares.
Th e current status of the share buy-back programme is available at: www.baloise.com Investor Relations Baloise share Share buyback program
Average number of shares outstanding 1 54,794,476.0 54,001,678.0 54,280,154.0 54,086,516 51,887,469
Dividends per share 2 in CHF 0.60 1.10 2.20 3.80 4.50 1 Relevant for the earnings per share calculation (see fi nancial report page 82). 2003 before restatement due to inclusion of the Baloise Foundation for Employee Participation in the consolidation process as of 01.01.2004.
SWX EuropeX Europe 100% registered shares% registered shares RRURUCUCKCKKDRDRURUCUCKCKKDRDRURUCUCCDRDRURUUDRDRRUUCCKKUCK NG NG
Our focus on operational excellence and aligning sales activities to best serve target customers, was refl ected in the excellent 2007 results of the business units. Particularly outstanding is the increased profi t contribution from the life insurance sector.
Th e total business volume – including unit-linked life insurance – rose by 6.0% to CHF 7,937.6 million (previous year: CHF 7,491.2 million). In local currency the increase was of 3.6%. Premium income under IFRS amounted to CHF 6,868.4 million (previous year: CHF 6,716.5 million), an increase of 2.3%. Th e major growth impulses came from unit-linked life insurances. Belgium, Luxembourg and Austria, in particular showed marked growth. Th e business volume comprises a balanced mixture of business sectors, with about 60% life insurance and 40% nonlife business.
Th e Baloise Group’s scope of consolidation was primarily expanded by Osiguranje Zagreb in Croatia, the Winterthur Europe Vie in Luxembourg and the newly formed companies in Liechtenstein and Serbia.
IN THE FISCAL YEAR 2007, THE BALOISE GROUP AGAIN EXCELLED WITH A RECORD RESULT AND REINFORCED
GROWTH MOMENTUM. RESULTS INCREASED BY 15.1% TO CHF 813.8 MILLION (PREVIOUS YEAR: CHF 707.1
MILLLION). WE PROPOSE A 18.4% HIGHER DIVIDEND OF CHF 4.50 PER SHARE FOR OUR SHAREHOLDERS.
e noticed mounting pressure on prices and margins in all r continental markets in the insurance uality insurer with a focus on c ntial and a low risk custom s volume – includ – rose by 6.0% t
Th e business volume (equal to the IFRS premium income) amounted to CHF 3,190.6 million (previous year: CHF 3,065.1 million), an increase of 4.1%. Convincing growth, given the mounting competition and the resulting drop in prices in various segments. Above-average growth was achieved in Belgium with 8.4%, Luxembourg with 11.5% and in Austria with 17.4%. For years, Austria and Luxembourg have been achieving double-digit growth rates, well above the market average.
In the reporting period, the value of the life insurance portfolio (embedded value) showed an increase from CHF 2,627.8 million to CHF 3,230.6 million which corresponds to an excellent return on embedded value of 24.5%. In addition, the contribution from investment income, modelled at a higher level for the future, amounted to CHF 454 million. Th e better-than-expected trend on the capital markets in 2007 resulted in a further positive contribution of CHF 80 million, aft er taking into account surplus eff ects. Th e value of new business amounted to CHF 20.3 million, while the margin in new business improved to 9.5% (previous year: 7.3%).
INVESTMENTS While stock exchanges worldwide were still reporting strong growth in the fi rst half-year, shares, in particular fi nancial instruments, headed downwards aft er
illion. Th en. Th e pital markets in 2007 re-pital markets in 2007 retive contribution of CHF 80 million, ive contribution of CHF 80 million, g into account surplus eff ects. Th e value of new into account surplus eff ects. Th e value of new amounted to CHF 20.3 million, while the margin inmounted to CHF 20.3 million, while the margin in ess improved to 9.5% (previous year: 7.3s improved to 9.5% (previous year: 7
DRUCK Th e Th e taxes and borrowiaxes and borro (previous year: CHF 63.6 mill(previous year: CHF 63.6 f 8.6%. Baloise Bank SoBa contributed thf 8.6%. Baloise Bank SoBa contributed t share with an increase in earnings under IFRS of 2share with an increase in earnings under IFRS of 2 CHF 30.4 million (previous year: CHF 29.5 mCHF 30.4 million (previous year: CHF 29.5 m Asset Management realised earnAsset Management realised ea (previous year: CHF previous year: CHF increasedcrease ex n addition, the ncome, modelled amounted to han-expected tre sulted in a f aft bus ew
With our USD-denominated hedge funds and private equity investments, we achieved a performance of 8.8% and 23.6%.
Infl ation, due to the price of raw materials, initially triggered a marked interest rate rise in Europe and Switzerland, resul-
Total managed assets 71,183.8 ting in a price decline for bonds. However, in the second half of the year, the interest rate cuts caused by the credit crisis led the Fed to set off a counter-movement, particularly in USD bonds. European and Swiss bonds, however, still recorded negative performance. With its substantial Eurobond investments, Baloise, as a Swiss franc investor, at least participated in the rise of the euro (+2.8%), although nearly 75% of the risk considerations were hedged.
Overall, we were able to increase the current revenue by 11.5%, thus further strengthening the stability of the fi nancial result.
OUTLOOK Th e year 2008 will be characterised by volatile fi nancial markets and a further increase in pricing and competitive pressure. In this challenging environment, Baloise strives to achieve good results at a high level. Over the cycle, Baloise expects to see a return on equity of 15% and a steady increase in earnings per share. In the nonlife business, it is our objective to keep the combined ratio significantly below 100%.
E ASSETS AS OF 31.12.2007ASSETS AS OF 31.12.2007 n mentsnts ife i
Th e business volume reached CHF 3,742.7 million (previous year: CHF 3,730.4 million). While the slight increase of 0.3% is due to the above-average growth in targeted segments, pricing pressures slowed down the weak demand in individual life business, with our selective underwriting policy also curbing the growth momentum.
Th e nonlife sector achieved a business volume of CHF 1,285.9 million (previous year: CHF 1,280.5 million). With an increase of 0.4% above market average, we were growing above or with the market across all industries. Only in the motor insurance sector was our growth below average, due to our high demands on quality. Despite large claims, the sector achieved a very strong operating performance. Th e combined ratio gross was an excellent 88.6% (previous year: 87.8%), bearing in mind that 2006 was a year with hardly any losses.
BALOISE BANK SOBA Despite strong competition, Baloise Bank SoBa’s earnings under IFRS rose by 2.8% to CHF 30.4 million (previous year: CHF 29.5 million). Th is excellent result confi rms the Bank’s strategic focus on profi table target customers and the improved effi ciency of business processes.
For the business model “Focused fi nancial service provider”, which sells banking products via the insurance sales force, we managed to increase the infl ow of net new money to a new record high of CHF 540 million, with an asset balance of CHF 1.9 billion. With this business model, we now reach a customer base of approximately 21,000, compared to 4,900 in 2003. Th is corresponds to average annual growth of 43.9%.
ROSE BY 43.8% WITH A RECORD PERFORMANCE OF CHF 413.8 MILLION. MAIN GROWTH DRIVERS ARE THE
VORABDRUCK ICHERUNGENERUNGEN Another record performanceAnother record performance the business unit’s consequent focus on operatingthe business unit’s consequent focus on operating and target customers. In the target cund target customers. In the target cu achieved above-average ghieved above-avera ofi t contribcon life insure insu
BASLER VERSICHERUNGEN As a result of operational discipline, excellent investment income and the positive eff ect of tax law changes, the business unit was able to increase its profi t contribution considerably compared to the previous year. Business volume increased by 16% to CHF 1,083.9 million (previous year: CHF 1,067.4 million). Th e core business area property insurance grew by 2.8% to CHF 866.2 million (previous year: CHF 842.4 million). In the tough price war in the German market, Basler Versicherungen continued to put its trust in technically sound, selective underwritings, thus strengthening its position in marine, third party liability and technical insurance, renewable energies in particular. Th e combined ratio gross reached 97.3% (previous year: 92.6%). Th e higher fi gure is due to a claims burden of CHF 49 million gross as a result of the storm “Kyrill” in the fi rst six months of 2007. Th e life policy portfolio recorded a slump due to expiring contracts. Despite a market-driven new business, life insurance business volume fell to CHF 217.7 million (previous year: CHF 225.0 million ).
DEUTSCHER RING In the fi scal year 2007, Deutscher Ring made a substantial contribution to the Baloise Group’s earnings. In the stagnating German life insurance market, only the “Riester” and “Rürup” pension schemes, subsidised by tax concessions, recorded dynamic growth. In spring 2007, Deutscher Ring successfully launched a new unitlinked “Riester” pension. Th is product resulted in excellent new business, compared to other products in the market. Special attention is also given to Eastern Europe, primarily because of the selective expansion of the subsidiary OVB. Deutscher Ring generated a business volume of CHF 1,299.8 million (previous year: CHF 1,237.9 million), an increase of 5.0%. In line with the strategy, the bulk of its growth stems to a large extent from unit-linked life insurance products, which appreciated by 22.8% to CHF 256.5 million. Premium income under IFRS amounted to CHF 1,043.3 million (previous year: CHF 1,029.1 million), an increase of 1.4%. In the life insurance sector, investment products off set the weak demand for conventional insurance products; with the sector achieving a business volume of CHF 1,076.6 million (previous year: CHF 1,023.3 million), an increase of 5.2%. Th e property insurance business achieved a business volume of CHF 223.2 million (previous year: CHF 214.6 million), an increase of 4.0% compared to 2006. Due to the large storm damage the gross combined ratio was 97.2% (previous year: 94.4%). Stepping up its commitment in Eastern Europe proved to be very successful for Allfi nanzvertrieb OVB. Deutscher Ring has also been very successful with its distribution in Slovakia and the Czech Republic. Overall, Deutscher Ring Bausparkasse also achieved a positive result aft er taxes and borrowing costs.
AND DEUTSCHER RING ACHIEVED COMBINED EARNINGS BEFORE TAXES AND BORROWING COSTS OF CHF 190.0
MILLION (PREVIOUS YEAR: CHF 169.1 MILLION). SUPPORTED BY FAVOURABLE EXCHANGE RATES, BOTH UNITS
BEFORE TAXES AND BORROWING COSTS OF CHF 183.6 MILLION (PREVIOUS YEAR: CHF 231.1 MILLION).
MERCATOR FOCUSES ON PRODUCT INNOVATIONS, UTILISING TARGET BROKERS AND FURTHER BUSINESS
VORABDRUCK During the fi scal year 2007, Mercator achievedng the fi scal year 2007, Mercator achieved results. Its foundation is a good loss ratio – despiteresults. Its foundation is a good loss ratio – despite es of about CHF 16 million gross – ands of about CHF 16 million gross – an e from investments. Th e erom investments. Th revious yearious services rvices
REINSURANCE, FINANCE AND HOLDING COMPANIES Th is section deals with reinsurance companies, individual investment schemes, fi nancing and participations and other corporate business. Th e profi t contribution amounted to CHF 247.3 million (previous year: CHF 253.4 million). Next to the reinsurance units, the excellent result is mainly due to the good performance of the private equity and hedge fund companies.
Profi t before tax 253.4 247.3 – 2.4 1 After acquisition of Osiguranje Zagreb.
DUE TO TARGETED, QUANTITATIVE AND QUALITATIVE BOOSTING OF SALES POWER, WE WERE ABLE TO
t strengthening of its own sales organisation. Th is resulted in signifi cant growth in business volume by 14.8% to CH 146.7 million (previous year: CHF 127.9 millio under IFRS also increased by 13 previous year: CHF
VORABDRUCKmake ourselves. Others up with us. No life follows a path – and perhaps this ves and ma ecisions w catch up with us. No life follows a straight is is what en makes them w
AT LONG-ESTABLISHED HEGGLI REISEN UND TRANSPORTE AG IN KRIENS IN CENTRAL SWITZERLAND, THE
YOUNGER GENERATION HAS JUST TAKEN OVER THE HELM. FOR THE PAST NINE YEARS, BASLER VERSICHERUNGEN
In 1999, when Heinrich Heggli saw the recession coming, he decided to switch his mortgages from a bank to insurance. Being an astute business man, he then put the contract for employee benefi ts out for tender – conditional on taking on the mortgages as well. Th e contract was awarded to Basler. Since 1999, Heggli has gradually taken on more insurance products from Basler, at fi rst transport, baggage and travel insurance and since 2008 also a sickness cash benefi t plan. According to Heggli, Basler provides expert advice in the legally complex area of transport insurance. Any time. He is full of praise for his contact at the Basler General Agency in Zug/Knonaueramt, stressing that conscientious support and close personal contact are key factors of a trusting relationship.
TRAVEL AND TRANSPORT Heggli’s business is legally complex. That’s why they trust in Baloise..
THE WEIGEL FAMILY LIVES IN A VILLAGE IN SOUTHWEST GERMANY, WITH A POPULATION OF ABOUT 2000.
“For me, there is no insurance without trusted partners,” says dad Jürgen Weigel. And here, local ties are important: “I would never take out insurance over the Internet.” He switched to Basler because he was fed up with the faceless, impersonal support of his previous insurance. With Riegel and his employees, he receives competent personal support. Th ey are willing to go the extra mile. Invited by Riegel, Weigel’s children Benjamin and Marlene took part in a road safety training course at the Nürburgring, with great success: already on the way home, Marlene had to dodge a fox. Both survived the unexpected encounter unharmed.
PERSONAL CONTACT MATTERS The local offi ce of Basler Versicherungen provides direct and individual support to the Weigel family.
ROAD SAFETY After Ralf-Peter Riegel of Basler Versicherungen (centre) invited the young Weigels to the road safety training course, he decided to take part as well.
A SIGN OF EXPANSION Roughly 50% of Cornelis & Partners’ turnover comes from Mercator, with expansion planned for 2008.
LOYAL AND CAPABLE EMPLOYEES CONTRIBUTE CONSIDERABLY TO BALOISE’S ADDED-VALUE. WE OFFER
WE EXPECT COMMITMENT AND PERFORMANCE EXCELLENCE. WE PLACE REAL EMPHASIS ON WORKING
As of 31st December 2007, the Baloise Group had 8,643 employees (2006: 7,933).
Employees attended a total of 21,684 days of training and development (an average of 2.5 days per employee).
Baloise employed over 300 apprentices, trainees and interns across the Group.
By retaining and recruiting outstanding employees, we contribute to the company’s long-term success.
Th e elements of our strategy are as follows: Preferred employer Performance and results driven Highly qualifi ed, learning organisation Excellent leadership and management skills Strong adaptability and fl exibility Strong, employee-oriented corporate culture
Baloise’s objective is to be the best employer in the industry. Th is is true for every stage of the employment relationship ‒ from recruitment, through performance management to the development of employees and retaining talent.
We encourage high levels of commitment, initiative, responsible and cost-conscious conduct to provide a solid base from which to achieve high performance.
PERFORMANCE AND RESULT DRIVEN Th e success of our company is built on the skills and capabilities of our hard working employees, who are committed to delivering excellent results. To achieve this success, we expect and encourage individual responsibility. Employees receive regular feedback on their performance. In 2007, 66% of all employees were given feedback.
For the second time in a row, Mercator in Belgium organised workshops on “Effi cient Performance Appraisal Interviews ” with the aim of increasing the benefi t of performance reviews. Th e workshops were attended by around 55% of the total workforce. Th e topics included, among other things, how to prepare for interviews, interview content and communication behaviour. With a good performance appraisal interview, employees and managers can better prepare for the year ahead and contribute to the success of the company and their own personal development.
HIGHLY QUALIFIED LEARNING ORGANISATION Baloise continually invests in executive personnel and employee development.
For the second time in a row, Mercator in BelFor the second time in a row, Mercator in Bel ganised workshops on “Effi cient Performanised workshops on “Effi cient Performa terviews” with the aim of incrterviews” with the aim of in ance reviews. Th eance reviews. Th e of theof th e are committed oyer and have alr nfi rmations fro a to Work” survey. To sustain its status as best employer, Baloise Austria has to maintain the change process and ensu regular evaluation, with the outcome of the “ Work” survey, in which it partici 2007, providing v % exce al responsibility. Employees receive regu eedback on their performance. In 2007, 66% of all emplo ees we orpraisal Inhe benefi t of perf ops were attende workforce. Th e t hings, how to pre comm
To become a trusted partner, it takes more than just the desire to grow profi tably. It takes the outstanding skills of each individual and a consistent focus on the needs of our customers - topics our managers were discussing at length during the two training courses. Leadership means above all, the strategy to serve, which in turn means serving our customers. With the expansion of our abilities, we ensure that we can improve each day with the help of our most competent specialists and best managers.
In Switzerland, Baloise has introduced managementmonitoring guidelines in 2007 to strengthen the focus on leadership and development.
STRONG ADAPTABILITY AND FLEXIBILITY A business must be – and remain – adaptable. We create clear areas of responsibility and freedom for professional, dedicated and creative action. At Baloise, we thus focus on change management and creating change. It is also important to us to involve our competent and motivated employees in the change process and to retain them. Of equal importance next to development opportunities are employee satisfaction and a good work-life balance.
Th e acquisition of Winterthur Europe Vie by Baloise Luxembourg in 2007 also meant keeping on all the original employees.
VORABDRUCKnvironment.nment. titution, in a specialisttitution, in a specialist n centres for the homeless or drug centres for the homeless or drug AIDS counselling centres, impressions were in-AIDS counselling centres, impressions were informative. formative
We create clear aree create clear a edom for professional, dedicatedom for professional, de action. At Baloise, we thus focus on changection. At Baloise, we thus focus on chan agement and creating change. It is also important toagement and creating change. It is also important to involve our competent and motivated empinvolve our competent and motivated em change process and to retain thchange process and to retain next to developmentext to developmen tion and on and ces ion and departsual place of wo mpletely diff erent er in a young off alcohol deto abu ten
oise systematically identifi es and develops t ive staff . In 2007, the continuing tegic Leadership P gemen
Baloise is an attractive employer for men and women. Women make up 46% of our staff , with 24% female executives (2006: 21%).
TIVES Baloise respects the right of each employee to be, or become, a member of an employee representation organisation. We maintain an open and constructive dialogue with all employee representatives in all the countries in which we operate. All employees from all countries are represented in the Baloise Europe Forum, guaranteeing direct dialogue with the Corporate Executive Committee. Baloise holds no records of trade union membership. We estimate that approximately 6% of all employees are members of an organisation.
Having joined Baloise in August 2002, Annemie D’Hulster was appointed CEO of Baloise Liechtenstein on 1st January 2008. With a six-year old daughter, she is looking forward to the new challenge. She enjoys working at Baloise because of the following reasons: the great atmosphere and friendly colleagues the corporate culture leaves room for initiative the size of Baloise allows a holistic approach to subjects performance is rewarded work still leaves her time to spend with the family
www.baloise.com/careers Facts and fi gures Values and culture Management training Open positions 37SUSTAINABLE MANAGEMENT HUMAN RESOURCES
ote ance, potentialpotentia s of the company.of the compa employs people from many countries and culturalmploys people from many countries and cultural rounds. In Switzerland alone, we employ staff from rounds. In Switzerland alone, we employ staff from nt countries.countries.
CKng joined Baloise in August 2002, Annemie D joined Baloise in August 2002, Annemie was appointed CEO of Baloise Liechtenstein on 1was appointed CEO of Baloise Liechtenstein on 1stst 2008. With a six-year old daughter, she is l08. With a six-year old daughter, she is to the new challenge. She enjoto the new challenge. She en of the following reof the following r trusted roup will not tole tion. We support for three reason identifi cation wi b d
Baloise is an attractive employer for men Women make up 46% of our st utives (2006: 21%).
OF OUR COMPANY BY ENSURING RESOURCE SAVING PROCUREMENT METHODS AND BY THE ECOLOGICALLY
Amount of refuse 1,059 t 1,019 t 1,115 t 239 kg / employee 9.42
Types of refuse 52.00% paper / cardboard 10.00% other materials 2.00% special waste 36.00% misc. waste / trash
Business volume 13.15 million km 13.15 million km 15.81 million km 3,383 km / employee 20.23
Consumption fi gures for the Luxembourg unit are not included in the table as the company was moving into new premises.
www.baloise.com/sustainability Activity Environmental mission statement Environmental audit Interview with Rolf Schäuble 39SUSTAINABLE MANAGEMENT ECOLOGY
CKKheadcounteadc 147,5467,546 ERA m ERA m 2 133 1313 number of buildingsnumber of buildings 26,020,45526,020,455 KWhKWh 24,643,300643,300 KWhh nsumptiontion 16,121,210 16,121,210 KWhKWh 15,613,00715,613,007 KWhKW
RISK GOVERNANCE AND RISK CULTURE Baloise has a long tradition of continuous risk governance and risk culture development: we established a risk management division within the Group as early as 1998. Since then we have been continuously developing the culture throughout the organisation. Th e designation of risk owners and risk controllers for individual risk factors is as much part of it, as is the membership in regularly sitting committees that deal with risk issues. Th is development is accompanied by the constant development of risk models and risk processes.
Risk management is developing more and more into risk and value management. Our risk model is based on the latest standards, so we can deliver on the promise we made to our trusted partner at any time.
We see risk management as a single, uniform system, valid throughout the strategic and operative system in the Group, with the following sub-areas: Risk map: forms the backbone of the risk considerations, defi ning basic risk issues such as underwriting and market risks and also the operational risks of the business.
Risk governance and risk culture: fi rmly embedding risk awareness, handling and perception within the entire organisation.
RISK MEASUREMENT Our risk model provides quantitative standardisation of all business and fi nancial market risks. We have continuously been developing this model since 1998, following the principles and calculation methods of the Swiss Solvency Test and the European Union’s
Solvency II directive and thus making the model a pioneering tool of risk management. As the Group standard, it provides the basis for strategic and operational decisions.
To be a reliable partner we consciously and consistently align our model with the most up-to-date standards, both internally and externally. Already today our model meets future supervisory regulations of Switzerland and the European Union.
We constantly compare this debt capital with the existing capital entrusted to us by our shareholders. Following are the key questions we encounter each day: Which business decisions do we take, based on a comparison of debt capital with actual capital?
Of principal concern is the security of the capital position, on the one hand, the best possible use of capital in the interest of profi t optimisation, on the other.
To be a reliable partner we consciously and conTo be a reliable partner we consciously and con align our model with the most up-to-datgn our model with the most up-to-dat internally and externally. Alrinternally and externally. A future supervisoryfuture supervisor peanpean porate ocal managemen ecisions in strat
Th e combination of overall risk model and individual risk considerations provides Baloise with a reasonable overview at any time.
Risks are restricted by a system of risk limits. For a comprehensive risk restriction, the Group uses a limit system at aggregate level that is based on the economic risk capital. Th e system tracks the risk capital of the Group and individual business units in real time.
Business environment risks and operational and strategic risks are recorded individually using standardised procedures and we evaluate their eff ect on the capital.
With our monthly INTEGRA Risk Report, we check our overall risk position. Th e emphasis is on capital investments, taking into account unfavourable fi nancial market scenarios, plus reports to the regulatory authorities.
STRATEGIC RISK MANAGEMENT Our internal risk model already provides quantitative standardisation of all business and fi nancial market risks and now off ers a basis for a strategic discussion on the willingness of Baloise to take risks. Th e capital requirements derived from this model represent the minimum requirements on debt capital.
VORABDRUCKeir place onace on cators are included in theators are included in the tative side, the description is comple-ative side, the description is complemeasuring the risks in their likely fi nancial measuring the risks in their likely fi nancial n the Company balance sheet. Each risk is set downn the Company balance sheet. Each risk is set down ith risk-minimising measures. Th e dath risk-minimising measures. Th e da a year.year.
DRUCK g guidguid writers for their deciters for their d ductible risk analysis accompanductible risk analysis accom reinsurance decisions.nsurance decisions.
DD Market structure and fi nancial risks are controlled Market structure and fi nancial risks are controlled locally and centrally in the investment uncally and centrally in the investment un a number of reporting procesa number of reporting proc for share exposurfor share exposu linesline ults.
our Group-wide dual risk-specifi c tailed description map and early w database. On me mp ogether with risk-minimising measures. Th e database is upted
ks are based on u hat are used by local underwriters for their decisions.
Shares: Here a maximum share of the capital investments exists in agreement with the risk load capacity. Risk is controlled by realisation and hedging.
A key element of this control are the result targets for individual business units, taking their specifi c risk situation into consideration. Th ese requirements are included in the target agreements with local management.
DELIVERED VISIBLE RESULTS Th e following concrete examples show that professional risk management makes a signifi cant contribution to added-value in the company.
Entering new business areas in the life insurance industry by taking advantage of new market opportunities – which subsequently led to the establishment of Baloise Liechtenstein, is always accompanied by thoughts of risk. Here, actuaries, investors and risk managers work together at gaining market advantage for Baloise in this promising area.
DD Entering new business areas in the life Entering new business areas in the life industry by taking advantandustry by taking adva nities – which nities – which BB
nd maturities in ms of the obligatio licies is done by iability managem ri
The key task of a trusted partner in the insurance and financial sector is to understand a client’s needs in this area of conf lict. Like Baloise.
On 6th December 2007, Rolf Schäuble, Chairman of the Board of Directors, took on the additional responsibility of Chairman of the Corporate Executive Committee (Chief Executive Offi cer) of the Baloise Group. His dual mandate is anticipated to end at the Annual General Meeting of 30th April 2009, at the latest.
Th e Group division Corporate Center was established on 6th December 2007, uniting the business units Human Resources, Legal and Taxes, Compliance, Corporate Development and Run-off . Th e new Group division Corporate Center is headed by new member of the Corporate Executive Committee, Dr. Th omas Sieber, who previously was Head of Legal, Tax and Compliance and Secretary of the Board of Directors. Dr. Th omas Sieber will continue in his role as Secretary of the Board.
Baloise is as a public limited company incorporated under Swiss law as a holding company with its registered offi ce in Basel. It is listed on the SWX Swiss exchange. As of 31st December 2007, the Baloise Group had a market capitalisation of CHF 6,021.0 million.
Th e notes to the annual fi nancial statement in the fi nancial report on pages 94 ff contain a list of key affi liated companies and participations as of 31st December 2007.
Th e segment reporting by geographic regions and business areas is on pages 43 ff of the notes to the annual fi nancial statement in the fi nancial report.
OF RESPONSIBLE CORPORATE GOVERNANCE – A TRADITION THAT WE CARRY FORWARD TODAY.
VORABDRUCK ode of Best Practice andode of Best Practice and overnance Directive, Baloise, aboveovernance Directive, Baloise, above s to a corporate culture with high ethical stan-to a corporate culture with high ethical stanth an emphasis on the integrity of company andth an emphasis on the integrity of company and . Baloise is confi dent that outstandingBaloise is confi dent that outstandin will have a positive effwill have a positiv e of the Comthe 1. GROUP STRUCTURE AND SHAR1. GROUP STRUCTURE AND SHA
t the backdrop of the SWX C all dar mployees. Baloise is confi dent that outstanding corporate vernance will have a positive eff ect on the long-term for more transparency ous ye ise is as a public Swiss law
SHAREHOLDER STRUCTURE A total of 13,513 shareholders were recorded in the Baloise share register as of 31st December 2007. Compared to the previous year, the number of shareholders increased by 0.9%. Th e detailed shareholder composition as of 31st December 2007 can be found in section “Baloise Share” on page 12 ff of the annual report.
CROSS SHAREHOLDINGS Baloise has no cross shareholdings of capital or voting rights with any other company.
n a disclosure notifi cation on 5n a disclosure notifi cation on 5thth No- No2007 under Article 20 of the Swiss Stock Exchange2007 under Article 20 of the Swiss Stock Exchange n connection with Article 9 and Article 17 of the Ord connection with Article 9 and Article 17 of the Or f the Swiss Federal Banking Commissiothe Swiss Federal Banking Commiss and Securities Trading, Bnd Securities Tradi olds 2,723,022,7
ds to 2.4%) to CHFto 2.4%) to C reduction of 1,307,150 repurchreduction of 1,307,150 repu shares with a nominal value of CHF 0.10 perhares with a nominal value of CHF 0.10 p present, no decision has been made by Baloise regapresent, no decision has been made by Baloise rega use of the repurchased registered shares:e of the repurchased registered shares are to use the repurchased share to use the repurchased acquisitions or to acquisitions or to mber of etailed sharehold er 2007 can be are” on page 12 ff
On 27th April 2007, the Annual General Meeting passed the resolution to reduce the share capital of CHF 5,530,715 by CHF 130,715 to CHF 5,400,000 through a capital reduction of 1,307,150 repurchased registered shares with a nominal value of CHF 0.10 per share. It now amounts to CHF 5.4 million divided into 54,000,000 dividend-entitled registered shares with a nominal value of CHF 0.10.
Th e contingent capital is intended to secure potential conversion rights or options that are granted in connection with bonds or similar debt instruments. To date, no such fi nanc-
ing instruments have been issued. Shareholders’ subscription rights shall be excluded. Th e right to buy these new registered shares is open to current holders of conversion rights and option rights.
When issuing options and convertible bonds on international capital markets, the Board of Directors may restrict or exclude shareholders’ preferential subscription rights. Further details on the structure of the conditional capital can be found in section 3 of the Articles of Incorporation of Bâloise-Holding.
solidated statement of changes in shareholders’ equity. For 2005, all relevant details are provided in the consolidated statement of changes in shareholders’ equity on page 8 of the fi nancial report 2006.
Bâloise-Holding and other Group companies have issued bonds to the public. By the end of 2007, Bâloise-Holding and other Group companies had a total of six public bonds outstanding. Further information on the bonds outstanding can be found in the notes to the fi nancial statement on page 102 of the fi nancial report and on the Internet.
Basler Versicherungs-Gesellschaft has been given a fi nancial strength rating of “A-” with a positive rating outlook by Standard & Poor’s Ratings Services. Th is refl ects the Baloise Group’s strong competitive position, strong operating performance and strong capitalisation, as well as its high fi nancing fl exibility.
Only the Chairman of the Board of Directors holds an executive position. Since 6th December 2007, he has also held the position of Chairman of the Corporate Executive Committee, following the departure of Dr. Frank Schnewlin. His dual mandate is anticipated to end at the Annual General Meeting of Bâloise-Holding on 30th April 2009, at the latest. In line with the Swiss Code of Best Practice and to ensure adequate controls, the Board of Directors has appointed Vice-Chairman Dr. Georg F.Krayer as its Lead Director. Dr. Krayer is an experienced, non-executive member of the Board of Directors. Th e Lead Director ensures that the Board of Directors can operate independently of management. Th e Lead Director is authorised, if necessary, to independently call and chair a meeting of the Board of Directors. Except for the Chairman, all other members of the Board of Directors are non-executive and independent. During the three years preceding the reporting period, they were not involved with the management of any company of the Group and have no material business relations with the Baloise Group.
Dr. Eveline Saupper CH 50 1999 2008 49CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT
By the end of 2007, Bâloise-Holding andBy the end of 2007, Bâloise-Holding and roup companies had a total of six public bonds out-ompanies had a total of six public bonds outng. Further information on the bonds outstanding. Further information on the bonds outstand found in the notes to the fi nancial statound in the notes to the fi nancial sta he fi nancial report and onfi nancial report an w.baloise.comloise man of the Board of Directors hoan of the Board of Directo ve position. Since 6position. Since 6thth December 2007, he hasDecember 2007, he h the position of Chairman of the Corporate Executthe position of Chairman of the Corporate Execut mittee, following the departure of Dr. Franttee, following the departure of Dr. Fra dual mandate is anticipated tdual mandate is anticipate Meeting of BâloisMeeting of Bâlois In linIn li 8 of the
Only the Chairman of the Board of Directors holds an ex held mewlin.
3 Christoph J. C. Albrecht (1938, Swiss, Dr. iur.) has been a member of the Board of Directors since 1985. He studied Law at the University of Basel where he was awarded the degree Dr. iur. He is a partner in the law fi rm of Joerin Hopf, Basel, working as an attorney-at-law and notary. Christoph J. C. Albrecht is Chairman of the Board of Directors of Th üring AG, Basel, and sole member of the Board of Directors of Interhaba AG, Basel. He is an independent non-executive director.
In the reporting period, the following members were confi rmed in offi ce for a new three-year term: Dr. Georg F. Krayer, Dr. Hansjörg Frei, Prof. Dr. Gertrud Höhler, and Werner Kummer.
Georg F. Krayer (1943, Swiss, Dr. iur.) has served on the Board of Directors since 1995, as Vice-Chairman since 2004. He was appointed Lead Director on 6th December 2007. He studied Law and holds the degree of Dr. iur. Georg F. Krayer is Chairman of the Board of Directors at Bank Sarasin & Cie AG, Basel, and until 2003 was Chairman of the Swiss Bankers Association. He is an independent nonexecutive director.
8 Werner Kummer (1947, Swiss, Dipl.-Ing. ETH, MBA Insead ) has been a member of the Board of Directors since 2000. From 1990 to 1994 he chaired the Executive Board of Schindler Aufzüge AG, and in 1998 joined the Schindler Group Management Committee with responsibility for the Asia Pacifi c region. From 1998 until March 2004, he was CEO of Forbo Holding AG. Werner Kummer is an independent business consultant, a member of the Board of Directors of Walter Meier AG, Chairman of the Board of Directors of Gebrüder Meier AG, member of the Supervisory Board Committee of Schindler Germany Holding GmbH and member of the board of the Zurich Chamber of Commerce. He is an independent non-executive director.
10 Eveline Saupper (1958, Swiss, Dr. iur.) has been a member of the Board of Directors since 1999. She studied Law at the University of St. Gallen where she was awarded the degree Dr. iur. Today she is an attorney-at-law and certifi ed tax expert. From 1983 to 1985 she was with Peat Marwick Mitchell (now KPMG Fides), Zurich, and from 1985 to 1992 with Baker & McKenzie, Zurich and Chicago. Since 1992 she has been a partner with Homburger AG, Zurich. Eveline Saupper is a member of the Board of Directors of Intershop Holding AG, Winterthur, and Homburger AG, Zurich. She is an independent non-executive director.
In compliance with section 716a of the Swiss Code of Obligations and paragraph 1 II of the organisation regulations, the main tasks of the Board of Directors are the general management, overall and fi nancial supervision of the Company and determining of the organisational structure.
www.baloise.com Responsibility Corporate governance Rules and regulation 52 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT
d of 2007, the Board of Directors was made up of d of 2007, the Board of Directors was made up of ers. Members are elected by the Annurs. Members are elected by the Ann
At t en members. Members are elected by the Annual General eeting of Shareholders for a term of three years. Th e terms Directors are staggered so that roughly one-t ms expire in any year, unless the m to age restrictions at the la ith section 716a of the Swiss Code of Oblions and paragraph 1 II of the organisation regulations, the main tasks of the Board of Directors are the general
TASKS OF THE COMMITTEES Th e Chairman’s Committee provides advice on key business transactions, particularly key strategic and personnel decisions. Th e Chairman’s Committee also acts as Nomination Committee and Investment Committee, approving the Group’s investment policy and property investments for the Group’s own use at head offi ce.
It approves compensation policies for Corporate Executive Committee members and oversees their correct application. Th e Chairman of the Board of Directors is not a member of the committee and in his dual function will only attend meetings on selected topics.
Dr. Eveline Saupper x x x x x x = present, o = absent
In the previous year, the Chairman’s Committee met six times, including for a two-day strategy meeting. Th e Investment Committee met once. Th e Audit Committee met four times and the Compensation Committee three times.
Members of the Corporate Executive Committee are regularly invited to meetings of the full Board of Directors. Meetings of the Audit Committee generally are attended by the Chief Executive Offi cer, the Chief Financial Offi cer, the Head of Corporate Audit, the Secretary of the Board of Directors and representatives of the external auditors.
In 2007 the full Board of Directors met fi ve times. Th e following table shows the directors’ attendance at full Board meetings. With one exception, all Committee members were present at all of the additional 14 committee meetings. Board attendance by members of the Baloise Board of Directors was thus a respectable 97%.
www.baloise.com Responsibility Corporate governance Board attendance 54 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT
VORABDRUCK mitteeitte rategy meeting. Th ategy meeting. Th once. Th e Audit Committee me. Th e Audit Committ d the Compensation Committee three timesthe Compensation Committee three time
Members of the Corporate Executive CommMembers of the Corporate Executive Comm larly invited to meetings of the fularly invited to meetings of the ings of the Audit Congs of the Audit Co Chief Exehief Ex
With one exception, all Committee members were With one exception, all Committee members were all of the additional 14 committee meetl of the additional 14 committee mee by members of the Baloy members of the espectable 9ectab year, the Chairman’s Committee met six es, including for a two-day strategy meeting. Th e Investment Committee met once. Th e Audit Committee met four e reguof Directors. Mee e generally are at ffi cer, the Chief orporate Audit, t and repre less nsibility Corp Rules and regulat
Th e division of tasks and competencies between the Board of Directors and the Corporate Executive Committee is governed primarily by the organisation regulations and investment policies. Both documents are reviewed on an ongoing basis and updated as changing circumstances require. With the revision of the organisation regulations in 2007, the function of Lead Director and the Group division Corporate Center were added.
Th e organisational structure of the Baloise Group can be found on page 77.
With the Corporate Center, a new Group division was established, uniting business units Human Resources, Legal and Taxes, Compliance, Corporate Development and Run-off . Eff ective 6th December 2007, the new Group division Corporate Center is headed by new member of the Corporate Executive Committee, Dr. Th omas Sieber, who previously was Head of Legal, Tax and Compliance and Secretary of the Board of Directors. Dr. Martin Strobel, German Egloff and Martin Wenk continue as members of the Corporate Executive Committee.
Rolf Schäuble (1944, Swiss, Dr. oec. HSG) was awarded the degree Dr. oec. HSG aft er completing his studies in Economics at the University of St. Gallen. From 1975 to 1993 he held various positions with the Zurich Insurance Group in Zurich, most recently as a member of the Group Executive Board. In 1993, Rolf Schäuble became a member of the Board of Directors at Bâloise-Holding and was appointed Chairman in 1994. Between 1996 and 2002, he was also Managing Director and CEO of the Baloise Group, and between 2002 and December 2007 he served solely as Chairman of the Board of Directors. On 6th December 2007, he also took on the role of interim CEO, to be eff ective until 30th April 2009 at the latest. Rolf Schäuble is also President of the Statistische Volkswirtschaft liche Gesellschaft (Society of Economics and Statistics) Basel.
VORABDRUCKest on an ongoingn ongoing ircumstances require. Withrcumstances require. With ganisation regulations in 2007, the func-ganisation regulations in 2007, the func-
w.baloise.com w.baloise.com O Responsibility esponsibility RACC rnance ance VO Rules and reguRules and
CEO to leave Ba of 6th Decemb rman of the Bo nterim Chair of dual m
Th omas Sieber (1965, Swiss, Dr. iur., M.B.L., lawyer) graduated with a degree in Law (lic. iur.) from the University of St. Gallen. At the beginning of 1994, he qualifi ed to practice law in the Canton of Zurich. Subsequently, he spent a year on a Swiss National Science Foundation scholarship at the University of California in Berkeley while working on his thesis. He received a “summa cum laude” distinction for his thesis and the Walther Hug Prize. From 1999 until 2002, he was a lecturer in Corporate Law at the University of St. Gallen. Th omas Sieber joined the Baloise Group in 1997 as Deputy Head of Legal and Taxes. Since 2001, he has been heading the division, while also holding the position of Secretary of the Board of Directors of Bâloise-Holding. In 2005, he took on the additional responsibility for Group Compliance. Th omas Sieber has headed several strategic projects at the Baloise Group. During the revision of the Swiss Insurance Supervision Act, he ran the “Supervisory Authority” task force of the Swiss Insurance Association (SIA). Before joining Baloise, Th omas Sieber held roles in a Swiss court, in an international corporate law fi rm (Lenz & Staehelin, Zurich), and at the Institute for European Law at the University of St. Gallen, and with the corporate law division of Landis & Gyr later integrated into Elektrowatt/Siemens. On 6th December 2007, Th omas Sieber was appointed Head of the Group division Corporate Center with responsibility for Human Resources, Legal and Taxes, Compliance, Corporate Development and Run-off .
Martin Strobel (1966, German, Dr. rer. pol.) studied Computer Science, Business Management and Business Information Systems at the universities of Kaiserslautern, Windsor (Canada) and Bamberg before being awarded his doctorate (Dr. rer. pol.). From 1993 to 1999 he held various positions at Boston Consulting Group, Düsseldorf, in the fi elds of strategic IT management in the banking and insurance sector. He joined the Baloise Group at the beginning of 1999, initially as Head of IT Baloise Switzerland, with responsibility for major cross-division projects in the insurance and fi nance divisions of the Baloise Group. He has been on the Corporate Executive Committee since 2003, with responsibility for the Switzerland division. Martin Strobel is a board member of the Swiss Insurance Association (SIA) and a member of the Board of Directors of Prevo-System AG, Basel.
VORABDRUCKinformation mation Executive Board, he be-Executive Board, he bedividual non-life insurances and, asdividual non-life insurances and, as of the Board of Sancare, also for the managementf the Board of Sancare, also for the management re. From 1998 to 2002, German Egloff was Chief re. From 1998 to 2002, German Egloff was Chief Offi cer of Winterthur Switzerland andffi cer of Winterthur Switzerland and f Directors of Wincare, siDirectors of Winca 2002 to 2002 to
inancial Offi cer of Winterthur Switzerland and member of e Board of Directors of Wincare, since 2000 as their chairn. From 2002 to 2004, he was Chief Financia ich Financial Services, Switzerla nance, human resou 1st Dec rporate law fi rm (Lenz & Staehelin, Zurich), at the Institute for European Law at the University of St. Gallen, and with the corporate law division of n lity for pliance, Corpora n Strobel (1966 puter Sci
with responsibility for Asset Management with the units Investment Strategy and Investment Controlling, Baloise Asset Management, Real Estate and Baloise Fund Invest units. Martin Wenk is Chairman of the Investment Commission of the Swiss Insurance Association (SIA) and serves on the boards of Unigestion Holding, Geneva, and HW Finanz AG, Pratteln.
Further information about the members of the Corporate Executive Committee is available on the Internet.
Th ere are no management contracts that assign executive functions to third parties.
Baloise is an attractive employer and aims to retain talented employees and executive personnel on a long-term basis while also attracting well-qualifi ed and motivated new employees. Th e success of Baloise is dependent on the skills and commitment of its employees. We strive for a high performing, results-oriented workforce and reward our employees accordingly. Th e foundation of our market-based remuneration system is thus the recognition and reward of a consistent and lasting performance. As part of a competitive remuneration, Baloise also off ers attractive incentive/bonus plans together with long-term employee shareholding schemes.
e exception of Martin Sexception of Mart he membersmem systemyste loans to the memoans to the me rs and the Corporate Executive Cs and the Corporate Execut ell as their participations. Th e legal basis foras their participations. Th e legal basis f tents and range of this disclosure are sections 663tents and range of this disclosure are sections 663 663c of the Swiss Code of Obligations, the S3c of the Swiss Code of Obligations, the Information Relating to CorpInformation Relating to C Directive) and theDirective) and th GoveGov t units.
With the exception of Martin Strobel and Martin Wen none of the members of the Corporate Executi erve on boards outside the Baloi ere are deals with the compensation system of Balo isclosing remuneration and loans to the members of t
Board of Directors and the Corporate Executive Committe con nd rective on
Th e function value system of Baloise covers 9 function levels (FL); levels 1-3 apply to the whole Group, levels 4-9 only apply within Switzerland: FL 1: member of the Corporate Executive Committee (incl. Chairman)
Th e diagram shows the remuneration system at Baloise: BASIC SALARY Th e basic salary amount is determined by the salary bandwidth in the market and is set out in the contract. Th e competitiveness of the remuneration is regularly reviewed.
VORABDRUCK ber of the managementber of the management 6: executive staff executive staff (specialists and team leaders)(specialists and team leaders)
CK other employeesother employe detereter ket and is set out in t and is set out veness of the remuneration is reeness of the remuneration
BONUSBONUS All employees of function levels 1 tAll employees of function levels 1 t to a bonus. For the Chairman of tto a bonus. For the Chairman the Chair of the Corpthe Chair of the Cor lations oftions o e Corporate cutive Commi
Th e basic salary amount is determined by salary bandwidth in the market and is set out in the contract. Th e competitiveness of the remuneration is regularly ntitled of Directors an xecutive Commi on level 1 apply w
With an overall achievement rate of 100%, bonuses can reach the following levels (target bonus): FL 1: 54% of basic salary FL 2: 38% of basic salary FL 3: 30% of basic salary FL 4: 22% of basic salary FL 5: 14% of basic salary
Apart from meeting individual objectives, the bonus level is determined by the Group’s overall performance. Based on the annual earnings, the Compensation Committee determines a factor (Operational Performance Management, OPM) that is determined by total shareholder value, earnings performance, growth and market trends and multiplied by the result of the individual performance. For members of the Corporate Executive Committee and function levels 2 and 3, this OPM factor can range between 0.8 and 1.3, while the range for function levels 4 and 5 can be 0.9 to 1.2.
Basic salary: CHF 100,000 Target incentive: 22% of basic salary Achievement rate for objectives: 80% OPM factor (Operational Performance Management): 1.1
Bonuses are paid out together with the June salary. In Switzerland, employees are off ered a choice of taking part of their bonus in cash and part of it in company shares. Only senior and top management (FL 1 to 3) must take their bonus in shares: members of the Corporate Executive Committee must take 50% of their bonus in form of company shares.
Executive employment contracts are of unlimited duration, with a standard notice period of six months. Four members of the Corporate Executive Committee have a notice period of 12 months. In the event of change of control or a merger, these four members of the Corporate Executive Committee are entitled to a lump sum payment equal to 12 months salary (incl. bonus) in addition to the agreements under their employment contract (notice period of 12 months), if their contracts are terminated by the employer (or under certain circumstances by the employee) within 12 months aft er a take-over or merger. Similar rules apply to seven other members of the top management. Th e notice period for the Chairman of the Board of Directors/Chair of the Corporate Executive Committee is six months. Th ere is no a control change clause.
Th e Baloise Group has off ered employees and top management members various plans in which shares can be granted as part of the overall remuneration for some time now.
Performance quota and performance share units for the function levels 1 to 3 (cf. section 5.5)
VORABDRUCK c salaryc sa a from meeting individual objectives, the bonus levelfrom meeting individual objectives, the bonus leve ined by the Group’s overall performaned by the Group’s overall perform ual earnings, the Compel earnings, the Co factor (Opctor oose bose Scheme and Emplheme and Em cf sections Share Subscription Scf sections Share Subscripti oyee Share Ownership Plan).yee Share Ownership Plan
Th e Foundation is led by a Board of Trustees that is preponderantly independent of the Corporate Executive Committee. Th e independent trustees are Peter Schwager (Chairman) and Prof. Dr. Heinrich Koller (Legal Counsel), with Andreas Burki as third trustee (deputy trustee for legal matters and taxes).
Market value of subscribed shares as of subscription date in CHF million
Since January 2003, all employees of the Group companies who qualify for incentives can acquire their bonus shares at a preferential rate. Subscription day is always 1st June. Each year, the subscription price is determined by the Corporate Executive Committee and published in advance on the intranet. On 23rd April 2007, the Corporate Executive Committee resolved, that the subscription price for this reporting period would be based on the average market price between 7th – 11th May 2007. A discount of 10% is granted on the average market price calculated in this way. The subscribed shares are subject to a three-year lock-up period.
Since May 2001, the majority of executives in Switzerland have had a choice of receiving part of their bonus in shares instead of cash. Th ere are upper limits for senior and top management (FL 1 to 3); members of the Corporate Execu60 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT
To make the most of the share ownership plan, employees are off ered loans with interest charged at prevailing interest rates, which allows them to receive a multiple of their bonus in shares at fair value, net of the discounted dividend right over three years. Th e repayment of the loan aft er the expiry of the three-year lock-up period is hedged through the purchase of a put option fi nanced by the sale of a call option. Aft er expiry of the three-year lock-up period and aft er exercising their options and repayment of the loan with accrued interest, employees have the remaining shares at their free disposal.
1 Incl. shares fi nanced by loans. 2 Less the discounted dividend right over three years.
Competitor and market comparisons for remuneration at senior and top management levels (FL 1 to 3) have shown that up to 2006 variable salary components at Baloise were signifi cantly below market standards and that Baloise has no long-term retaining measures. Based on these fi ndings, two new incentive elements were introduced in 2007 for employees at this level: prformance quota and performance share units.
Introduced in 2007 for employees of FL 1 to 3 (incl. Chairman of the Board of Directors), the performance quota is a discretionary, fl exible tool of the Compensation Committee of the Board of Directors. It allows this group of individuals to participate in the Group’s success and leads to greater variability in remuneration. Th e tool takes into account the management performance delivered and is determined – as part of the total amount provided by the Compensation Committee – by the employee’s fi rst line or second line manager. Th e individual amounts will be established in April and paid out with the June salary. Part of the amount awarded must be taken in shares; the remainder will be paid in cash (the same provisions for mandatory shares apply as with the bonus). For the part taken in shares, the provisions of the Share Subscription Scheme apply.
In cash in CHF million – 1.1 61CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT
VORABDRUCKnd April 2007,pril 2007 ttee resolved, that the sub-tee resolved, that the sub his reporting period would be based onhis reporting period would be based on age market price between 7ge market price between 7thth – 11– th May 2007.May 2007 e the most of the share ownership plan,the most of the share ownership plan loans with interest charans with interest ich allows thallow
petitor and market comparisons for remuntitor and market comparisons for remu senior and top management levels (FL 1 to 3) havsenior and top management levels (FL 1 to 3) ha that up to 2006 variable salary component up to 2006 variable salary componen signifi cantly below market stsignifi cantly below market no long-term retano long-term ret two ntwo ees are prevailing intere eceive a multiple value, net of the ription ubscription price ate Executive C vance on the int
n a wn loise were and that Balois measures. Based o ve elements we loyees at this le share
As a rule, the PSU programme runs over a three-year period. When the scheme was fi rst introduced in 2007, the performance period was shortened, as the PSU were not issued until aft er the resolution of the Board of Directors of 9th March 2007.
– 1.6 62 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT
VORABDRUCKbenefi t fromt from m value. In this way, them value. In this way, the lishes an alignment of interests be-ishes an alignment of interests beeholders and management.holders and management.
ng employees are allocated entitlemeng employees are allocated entitlem ance share units (PSU) atce share units (PSU eriod, entitld, e
It allows a continuation of the current standard of living at a suffi ciently high level of income replacement (combination of pillar 1 and pillar 2 benefi ts) to compensate for the loss of income. Th e employer makes a higher contribution towards the occupational pension fund than employees.
Th e Chairman of the Board of Directors and members of the Corporate Executive Committee are covered by the pension fund for offi ce-based employees. Th ey are subject to the same conditions as for all other insured persons.
Offi ce-based employees will see an improvement regarding their relevant annual income, since the portion of their bonus subject to AHV (Swiss mandatory retirement pension and survivors’ insurance) is now also covered by the insurance. Th e variable salary components of fi eld-based employees were already previously covered by the insurance.
Versicherungen off ers its employees in Switzerlandersicherungen off ers its employees in Switzerland ractive solution within the second pillar of the Swiractive solution within the second pillar of the Sw ecurity system that meets the followincurity system that meets the followi ets the needthe n
CK mem tee are covered by ee are covered b ased employees. Th ey are subjased employees. Th ey are conditions as for all other insured persons.onditions as for all other insured persons
PENSION PLANSPENSION PLANS Aft er extenAfter ex ise Pension Foundise Pension Foun rate Erate ions that are stru specifi c requirem re diff erent pens banking employe social security system that meets the following objectives: sured at the oc a risk event (age, death or disa the resulting econ occup of the Board of Directors and members of Corporate Executive Committee are covered by the pensi fund for offi ce-based employees. Th ey are subject to th
Th e “new” pension fund will provide autonomous cover against the risks of old age, death and disability; the existing collective insurance contracts will be liquidated.
Th e one-off cost of the conversion amounts to CHF 136 million. Th e cost will be divided equally between the Baloise Pension Foundation and Baloise.
Th e members of the Board of Directors, with the exception of the Chairman, receive a lump sum compensation in cash that is determined by the Compensation Committee.
No non-standard or other remuneration has been paid to former members of the Board of Directors pertaining to previous governing body activities in Baloise.
VORABDRUCK nd will provide autonomous covernd will provide autonomous cover risks of old age, death and disability; the existingrisks of old age, death and disability; the existing insurance contracts will be liquidated.insurance contracts will be liquidated ff cost of the conversion amost of the conversio st will be dwill
mbers of the Board of Directors, with the excers of the Board of Directors, with the ex of the Chairman, receive a lump sum compensation iof the Chairman, receive a lump sum compensation i that is determined by the Compensation Comthat is determined by the Compensation Com
Since 2006, the memince 2006, the mem ceived 25ived 2 based em ployees ow will be merge ministration and
The one-off cost of the conversion amounts to CHF 136 miln. Th e cost will be divided equally between sion Foundation and Baloise.
n he Board of Dire eir annual fee in of three years. A for mana
Additional remuneration Total of which: in cash of which: in shares in CHF
Dr. Christoph J. C. Albrecht –/– 130,000 97,500 32,500 Member of the Board of Directors 100,000 Deputy Chair Audit Committee 30,000
Prof. Dr. Gertrud Höhler –/– 130,000 97,500 32,500 Member of the Board of Directors 100,000 Member Compensation Committee 30,000
Dr. Arend Oetker –/– 100,000 75,000 25,000 Member of the Board of Directors 100,000 –/–
No remuneration was paid to a) former members of the Board of Directors, pertaining to previous governing body activities in Baloise, or that is non-standard. b) individuals or companies with close family ties to members of the Board of Directors and that is non-standard (persons with close family ties: spouse, civil partner, unmarried partner, children). Cash compensation
BDRUCK BDRUCBDRUBDRUBDRABRARA DDRURUCCKKonal remuneration remuneratio Totalotal of which: of which: in cashin cash mitteettee mitteeittee 50,0000,000 stoph J. C. Albrechtstoph J. C. Albrecht f the Board of Directorsthe Board of Directors 100,00 ir Audit CommitteeAudit Committee s Burckhardturckha e Board of Directorsard of D
Dr Mem 100 Mem r. H ember of the Board of Directors mber Chairman’s C mber Au
50% of the bonus must be taken in shares (cf section 5.4 Share Subscription Scheme and Employee Share Ownership Plan).
Th is amount was held back and will be recompensed together with the payments to other employees entitled to a bonus in 2008. Including his basic salary, Dr. Schnewlin’s entitlement for the years 2008 and 2009 amounts to a total of CHF 3.082 million.
No non-standard or other remuneration has been paid to former members of the Corporate Executive Committee pertaining to previous governing body activities in the Baloise.
Compared to the previous year, the total amount of remuneration has gone up, adapting to the median of the comparable positions in the market. Th is is due to the following factors: In accordance with legal requirements valid as of 1st January 2007, pension provisions will be added to the total remuneration package.
With the introduction in 2006 of the IPM process (Individual Performance Management), the bonus will become more variable. As of now, any outstanding performance will be rated with a target value of 130% (currently up to a maximum of 100%).
Since 2006, it has been possible to increase or reduce the bonus with the OPM factor, in line with the Group’s performance. Given the excellent results of Baloise in the reporting period 2006, the Compensation Committee has set the OPM at a maximum of 1.3.
Th e variable parts of the total remuneration will be determined in the spring of each year as part of the Individual Performance Management process (cf. 5.1 section Remuneration system: Basic salary and incentives). Th e following table contains the basic salary and retirement benefi ts for the year 2007, and in the reporting period, the variable remuneration elements for the previous year.
held back and will be recompensed together h the payments to other employees entitled to a bonus in 2008. Including his basic salary, Dr. Schnewlin’s entitlement n has been paid rporate Executiv revious governin e.
Dr. Rolf Schäuble, Chairman of the Board of Directors and (as of 6.12.2007) CEO of Baloise Group
Other members of the Corporate Executive Committee: includes Dr. Thomas Sieber, who was appointed member of the CEC on 6.12.2007. Remuneration to former members and persons with close family ties
No non-standard remuneration has been paid to individuals or companies with close family ties to the Chairman of the Board of Directors or the members of Corporate Executive Committee. (persons with close family ties: spouse, civil partner, unmarried partner, children under 18). No non-standard or other remuneration has been paid to former members of the Board of Directors pertaining to previous governing body activities in Baloise. Basic salary
Portion of remuneration resulting from subscription for company shares at a preferential rate (2007: CHF 54.60). Computation: Market value minus subscription price = benefi t in kind. Share Subscription Scheme (SSS)
Portion of incentive received directly in shares. Computation: Fair value minus 10% reduction. Employee Share Ownership Plan (ESOP)
Entitlements that confer a right to acquire shares at a future date, subject to achieving pre-determined performance conditions (cf. section 5.5. Performance Share Units (PSU)). The accrued value of share awards will only be added to the total remuneration at the conversion into actual shares (i.e. at the end of the three-year performance period), only then can a reliable estimate be provided and only then will they actually have been earned. Non-cash benefi ts
Employer contributions to the pension fund plus premium payments for single life policies for incentives not insured under the pension fund. Contributions to single life policies will be discontinued in 2008.
Employees are granted mortgages at preferential rates: 1% below standard variable interest rate for clients, preferential rate for fi xed interest mortgages. The mortgage granted to Dr. A. Burckhardt is charged interest at market conditions since at the time of the conclusion of the contract no employee conditions were granted yet. Loans connected with the Employee Share Ownership Plan
ble, Chairman of the BoChairman of the Bo 2007) CEO7) CE
Members of the Board of Directors do not hold options on Baloise shares.
Th e following registered shares of Bâloise-Holding are owned by members of the Board of Directors and the Corporate Executive Committee or persons close to them (incl., in the reporting year, allocated/subscribed shares from the share-based bonus programmes): 69CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT
Andreas Burc ng are ctors and the Co or persons close year, allocated/s e-based bonus pr
German Egloff , CFO of Baloise –/– 26,591 26,591 0.049% 2,186
Incl. shares held by individuals or companies with close family ties to members of the Board of Directors (spouse, civil partner, unmarried partner, children under the age of 18). Discretionary shares
Options held in relation to the Employee Share Ownership Plan are not listed here, as they do not originate from their own option plan but have been written to secure the loan. In addition, each put option has a call option as counterpart. Prospective entitlements (PSU)
O of Baloise Group (until 6.12.2007) of Baloise Group (until 6.12.2007) 100100 117,6 off , CFO of Baloiseoff , CFO of Baloise /
CIO of BaloiseO of Balo ber, Head of Corporate Head of Corporate of the
Th e Annual General Meeting has a quorum regardless of the number of shareholders and proxy votes present, subject to the obligatory cases prescribed by law (section 17, Articles of Incorporation).
Waiver of statutory voting rights limitations requires the quorum of at least three-quarters of the votes present at the Annual General Meeting, which must also comprise at least onethird of all shares issued by the Company. Th e same qualifi ed majority applies to other cases specifi ed in section 17, paragraph 3 a–h, Articles of Incorporation. In other cases, resolutions are adopted by a simple majority of shares voted (section 17, Articles of Incorporation), subject to mandatory provisions of law.
Extraordinary Annual General Meetings may be convened by resolution of the Annual General Meeting, the Board of Directors or external auditors. At the request of the shareholders, the Board of Directors must also call an extraordinary General Meeting, in compliance with applicable law (section 11, Articles of Incorporation). In compliance with section 699, paragraph 3, Swiss Code of Obligations, these shareholders must represent at least 10% of the share capital.
www.baloise.com Responsibility Corporate governance Rules and regulation 7. CHANGE OF CONTROL AND DEFENCE MEASURES
DRUCK h 3, Swiss Code of O3, Swiss Code o areholders who together represreholders who together re a face value of at least CHF 100,000 may applyface value of at least CHF 100,000 may app to be placed on the agenda. Such applications musto be placed on the agenda. Such applications mus mitted to the Board of Directors in wrtted to the Board of Directors in wr matters to be brought before matters to be brought befo no later than six wno later than six MeetiMee bject to ction 17, Articles ver of statutory vo rum of a t majority applies to other cases specifi ed in section 17, paragraph 3 a–h, Articles of Incorporation. In other cases, resol tions are adopted by a simple majority of shares 7, Articles of Incorporation), su ons of law.
Under section 699, paragraph 3, Swiss Code of Obligation one or more shareholders who together represent share em ubating the nual General Me efore the regular ion 14, Articles o www.baloise.c
PricewaterhouseCoopers (PwC) and its predecessor Schweizerische Treuhandgesellschaft /STG-Coopers & Lybrand have been Baloise’s external auditors since 1962, elected annually by the Annual General Meeting. With the start of the reporting period 2007, Mr. Martin Frei has been appointed lead auditor. PWC has been external auditor for almost all Group companies since 2005.
Th e Baloise Audit Committee is made up of independent members qualifi ed in fi nance and accounting. During the reporting period, the Audit Committee met four times, each time with external auditors in attendance. At these meetings, the Audit Committee received detailed documentation on the fi ndings of the external auditors, particularly when discussing the annual and semi-annual fi nancial statements.
Th e Audit Committee evaluates the performance of the external auditors and their cooperation with Internal Audit, Risk Management and Compliance. Primarily, the Audit Committee discusses with the external auditors the ongoing audit and audit reports and any problems, results, reservations or issues arising from the audit.
Before the start of the annual audit, the Audit Committee reviews the scope of the examination and proposes areas warranting special attention. Th e Audit Committee subsequently assesses the independence of the external auditors and proposes the external auditors to the Board of Directors for election by the Annual General Meeting and makes recommendations concerning the auditors’ fees. Th e Audit Committee reviews the external auditors’ fees annually. Th e Audit Committee reviews the adequacy of the external auditors ’ services that are performed outside the scope of their auditing activities. Th ere is a written directive, stipulating that material services not related to auditing activities require prior approval by Internal Audit.
Chairman of the Board of Directors/Chairman of the Board of Directors/ oise, the notice period is six months. Th ere is nohe notice period is six months. Th ere is no f control clause.control clause
DRUCK ance nce ration with Internation with Inter and Compliance. Primarily, thend Compliance. Primarily tee discusses with the external auditors the oe discusses with the external auditors the audit and audit reports and any problems, results, reaudit and audit reports and any problems, results, re tions or issues arising from the audit.tions or issues arising from the audit.
Risk Management and Compliance. Primarily, the Audit g l audit, the Aud pe of the examin anting special at quently a
All investors enjoy equal information rights. To make our meetings with financial analysts generally accessible, we use technologies such as webcasts, podcasts and teleconferences.
Baloise provides comprehensive business information at: Press conferences: Business results and activities, objectives and strategies are presented and explained at media conferences (annual and semi-annual media conferences).
Annual General Meeting: Th e Annual General Meeting provides shareholders with a review of the business year.
Road shows: Regular road shows are organised at numerous fi nancial centres.
Individual meetings with analysts, investors and media representatives: ongoing cultivation of relationships with analysts, investors and the media.
Important data for investors can be found at www.baloise. com. including publication dates of the annual and semi-annual fi nancial statements. Date and invitation to the Annual General Meeting, the closure date of the share register and the ex-dividend date, if any, are also published.
www.baloise.com Responsibility Corporate governance Rules and regulation www.baloise.com Investor Relations Baloise share Share buyback program Bonds Presentations IR agenda www.baloise.com Media Relations Media kits Calendar
Media releases, disclosures, presentations, annual reports, fi nancial reports, semi-annual reports and other documents are publicly available on the Internet at www.baloise.com. All documents are available through Investor Relations or for download from the internet.
VORABDRUCK business information at:usiness information at: s: Business results and activities, objec-s: Business results and activities, objecand strategies are presented and explained at mediaand strategies are presented and explained at media nferences (annual and semi-annual media conferencenferences (annual and semi-annual media conferenc ancial analysts meetings: Financial anancial analysts meetings: Financial an place at the close of eacace at the close of parallel weballel
presentations, annresentations, an semi-annual reports and other dsemi-annual reports and ot ublicly available on the Internet at www.bablicly available on the Internet at www.b All documents are available through Investor RelAll documents are available through Investor Rel for download from the internet.download from the internet.DD www.baloise.comwww.baloise.comUMediM
ise provides com Press eetings and semi-annual d teleconference. subsequently available for dow Annual General M provi
Media releases, disclosures, presentations, annual repor fi nancial reports, semi-annual reports and other documen om or s Media kit
A career takes a new direction. It adapts to job opportunities, changing life circumstances, people around us, the blows that fate deals, you and the zeitgeist.
VORABDRUCKew direction. It adapts to j tunities, changing life circum people around us, the bl nd the zeit reer takes a new direction. It adapts to job opportunities, changing life circumstances, blows that fa itgeist.
Rolf Schäuble, Dr. oec., Chairman Georg F. Krayer, Dr. iur., Vice Chairman Hansjörg Frei, Dr. iur. Klaus Jenny, Dr. oec.
Werner Kummer, Chair Christoph J. C. Albrecht, Dr. iur., Deputy Chair Andreas Burckhardt, Dr. iur. Hansjörg Frei, Dr. iur.
Georg F. Krayer, Dr. iur., Chair Klaus Jenny, Dr. oec., Deputy Chair Gertrud Höhler, Prof. Dr. phil. Eveline Saupper, Dr. iur.
From left to right: Martin Strobel, Rolf Schäuble, German Egloff , Martin Wenk, Thomas Sieber * Member of the Corporate Executive Committee
Some love to work part-time. Others start blooming when they have a demanding leading position.
The balance between work and private life, between performance and recreation, is as unique as people’s life plans. Whatever their decision, Baloise will support them.
Claims and benefi ts paid (gross) – 5,561.3 – 5,418.4 – 5,772.1 – 5,325.0 – 5,597.9
Operating and administrative expenses for insurance business – 835.6 – 806.4 – 815.1 – 847.8 – 938.3
Gross premiums written, policy fees and investment-type premiums 7,635.7 7,384.3 7,393.5 7,491.2 7,937.6
Assets for the account and at the risk of life insurance policyholders 798.2 1,143.6 2,245.8 2,976.6 4,366.9
Funding ratio nonlife in percent 177.4 179.6 187.0 194.8 195.6 1 In line with the accounting principles used at Baloise Group, investment-type insurance premiums are not included in the premiums earned and policy fees. 2 Inclusive fi nancial liabilities held for trading (derivative fi nancial instruments). 3 From 2005, exclusive legally required interest on actuarial reserves for annuities.
VORABDRUCKKCCCKCKKKRURUUCUCCKCKKKKCKRUCKDRUCKDDRURUCCKK2,976.6 urance premiums are not included in the premiums earned and policy fees. s).
Financial assets of a debt nature 32,367.0 23,208.8 22,915.1 24,523.3 24,288.9 in CHF million
Austria, Croatia and Serbia Other 2 Total as a percentage of premiums earned
Change in loss reserve / actuarial reserves 1 – 42.3 – 101.6 – 585.6 – 161.1
Reinsurance share in losses paid – 97.8 – 17.0 1.6 6.6
Expense for surplus participation of policyholders 0.1 – 0.8 0.8 1.5
Total technical result of ceded business – 123.8 – 75.2 – 7.3 – 9.4
Realised gains and losses on investments 2 121.6 141.3 474.3 438.8
reinsurers e premiums ceded nefi ts re i rial reserves 1 1 rplus participation – 554.7 chnical expenses – 508.1
Economic changes, including changes in unrealised gains and losses on investments (shares and properties) 178.1 372.7
Sensitivities of new business value at risk discount rate (+/– 1.0%) in percent – 31.9 / + 33.9 – 30.3 / + 35.1
+/– 10% change in the market value of shares + 6.3 / –6.3 + 5.0 / – 5.0
+/– 0.5% change in new money rate + 3.8 / –4.1 + 3.9 / – 4.4 1 Annual Premium Equivalent = 100% new annual premiums + 10% of single premiums.
Th e embedded value of life insurance business consists of three elements: fi rstly, the adjusted shareholders’ equity of life insurance activities and secondly, the value of in-force business at the end of the reporting period, with the cost of solvency being deducted. Th e embedded value excludes any value that may be attributed to future new business.
Austria and Croatia, Serbia and Liechtenstein and for the German company Deutscher PensionsRing, only the embedded value disclosed under IFRS will be taken into account.
Return on bonds (1 st pojected annual return – long term return) 4.0 – 4.0 4.6 – 4.8
External audit: Deloitte & Touche LLP has examined the calculation method chosen by the Baloise Group and the assumptions and calculations applied to the computation of the embedded value in the life business as of 31st December 2007. Deloitte considers the calculation method and assumptions used by Baloise to be appropriate and reasonable and the disclosures on embedded value, using the chosen methodology and assumptions, to be properly prepared. For the purpose of this report, Deloitte has examined on a test basis some of the data provided by Baloise, relying, however, on the fi nancial information published in the fi nancial report.
VORVOVVORABDRUCKe subness from Luxembourg, y di ires a large num assumptions are itemised
rial ts of the shareunrealised gains ares and propert strong fl uctuatio ortfolio is equivalent to the re arnings that are determined by discounting xpected cash fl ows. Th is requires a large number of assumptions; the key assumptions are itemised in the table ng the
New business margin Switzerland in perc lue of new business in
Losses and impairments due to credit risks – 5.6 – 4.4
Tota ross es and impairments due to credit risks eciation of intangible assets and prop before tax and mino
Change in unrealised gains and losses on equity – 446.5 396.3 222.9 172.7
Change in unrealised gains and losses on equity – 538.4 – 383.8 130.8 – 791.4 1 Excluding assets for the account and at the risk of life insurance policyholders
Total capital gains and losses 121.6 353.5 475.1 141.3 433.4 574.7
Nonlife Life Total Nonlife Life Total in CHF million 1 Excluding assets for the account and at the risk of life insurance policyholders.
CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in banks as well as cash equivalents such as call-, time deposits or money market paper if these have an original maturity of fewer than 90 days.
ACCRUALS Accruals take into account both expenses paid in advance for the new fi scal year as well as revenue from the current fi scal year which is only received later. Included under the same heading are dividends decided on the balance sheet date by the Annual General Meeting of the subsidiary companies, which are carried in Baloise as dividend claims.
PROVISIONS Provisions are accrued to cover any risks according to the principles of prudent management.
BONDS Bonds are recognised at nominal v sion costs, reduced by the pre the income statemen uired as part of are posted at th r fair value.
CCR aid advance for the new fi scal year as well as revenue from the rent fi scal year which is only received later. In the same heading are dividends t date by the Annua anies, e risk
Marketable securities are ei at the purchase price or at the fair value, h the lower of the e emischarged in full ssue of the bond.
Th e percentage of interest is rounded up to the nearest percent. For additional details of participations owned directly by Bâloise Holding see pages 94 and 95 of the fi nancial report for 2007.
Due to resolutions of the Annual General Meeting of 14th February 2008 of Baloise Fund Invest Advico, Luxembourg, of 28th February 2008 of Baloise Asset Management Schweiz AG, Basel, and the Baloise Asset Management International AG, Basel, of 29th February 2008 of Haakon AG, Basel, and of 11th March 2008 of Baloise Bank SoBa, Solothurn, the accrued dividend claims (income from participating interests) for the fi scal year 2007 were taken into account as deferred expenses.
Reduction through cancellation of treasury shares as per AGM resolution –/– – 0.1
Total equity 892.5 852.1 1 The members of the Baloise Group purchased a total of 267,331 shares (without share buy-back via the second trading line) at an average price of CHF 127. During the reporting period they sold 260,831 shares at an average price of likewise CHF 127 and as of 31st December 2007 together hold 102,060 shares in Bâloise-Holding. In addition, Bâloise-Holding bought back 3,283,000 shares via a second trading line at an average price of CHF 119. These shares are posted under the item “Treasury Shares”. The average buying rate including the shares bought back via the second trading line amounts to CHF 120. At the ordinary Annual General Meeting of Bâloise-Holding on 27th April 2007 it was decided to reduce the share capital by means of a capital reduction to the tune of 1,307,150 registered shares.
As of 31st December 2007 one individual shareholder held more than 5% of the outstanding Baloise shares. As of 31st December 2007 this was the Barclays Group with 10.25% of the outstanding shares.
Th e table below provides information on the current composition of the shareholders as of 31st December 2007.
Bâloise-Holding is jointly liable for the value-added tax due with all companies, which, under the leadership of the Basler Versicherungs-Gesellschaft , are subject to group taxation.
ustodian nominees who hold shares in trust for third parties are considered ch shareholder groups are not subject to registration pursuant
Th e distribution of profi ts complies with the provisions of § 30 of the Articles of Incorporation. Th ere is a distribution per share of CHF 4.50 gross or CHF 2.92 net of the withholding tax.
Annual Premium Equivalent (APE) Th e annual premium equivalent is the industry standard for measuring new business distribution in life insurance. It is calculated as the sum of all annual premiums from new business and a tenth of single premiums during the reporting period.
Brokers Insurance agents, also called brokers, are independent insurance brokers. Th ey are companies or individuals who are not tied to any insurance company when placing contracts. Th ey receive a commission on each insurance product they sell.
Business areas Similar or related operating activities are grouped together in business areas. Th ey are: Non-life, Life, Banking (incl. Asset Management) and Other Activities / Corporate Business. Business area “Other activities/corporate business” includes, in particular, holding, property and investment companies.
Business volume Th e business volume includes premium income from non-life and life insurance business and from unitlinked life insurances during the accounting period. Due to the underlying accounting principles of the Baloise Group, the latter may not be disclosed as income in the consolidated fi nancial statements.
Claims incurred Claims incurred are insurance claims paid out during the reporting period, plus establishing of provisions related to unsettled claims, reversal of provisions for claims that no longer have to be settled or not settled in full, plus cost of processing claims and the performance of related provisions.
VORABDRUCK is the industry standardis the industry standard business distribution in life insur-business distribution in life insuris calculated as the sum of all annual premiumsculated as the sum of all annual premiums new business and a tenth of single premiums dur-new business and a tenth of single premiums durreporting period.reporting perio managed foraged nce claims paid oue claims paid riod, plus establishing of provisiod, plus establishing of pr to unsettled claims, reversal of provisioo unsettled claims, reversal of provis claims that no longer have to be settled or not settclaims that no longer have to be settled or not sett full, plus cost of processing claims and thl, plus cost of processing claims and th of related provisions.of related provisions.BDBDComCom fe m Equivalent (A annual premium for mea i
Fixed-income securities Securities (primarily bonds), yielding interest at a fi xed rate during the whole term.
Gross In the annual report of an insurance company, “Gross” generally stands for a balance sheet or income statement item before the deduction of the business ceded to the reinsurer.
Insurance benefi ts Th e benefi ts provided by the insurer in connection with the occurrence of an insured event.
Investment performance Th e performance measures the economic success of investments, including gains, losses, income, expenses and changes to not yet realised gains and losses as set out in the income statement against the average balance of investments at fair value.
Investment-type premiums Premium income from life insurance, where insurance companies invest policyholder’s savings for their own account and at their own risk. In accordance with the international accounting standards applied by the Baloise Group, the savings portion of the premium income may not be disclosed as income on the income statement.
Loss reserve Provisions for claims that have not been settled at year-end.
Minimum interest rate Minimum required interest rate for mandatory saved pension capital in occupational pension plans.
Net In the annual report of an insurance company “Net” generally stands for a balance sheet or income statement item aft er the deduction of the business ceded to the reinsurer.
New business margin Value of new business divided by the Annual Premium Equivalent (APE).
VORABDRUCKmpany, “Gross”y, “Gross” e sheet or income statementsheet or income statement duction of the business ceded to theduction of the business ceded to the rer.
RUCK e insurance, wherinsurance, wh vest policyholder’s savings for vest policyholder’s savings ount and at their own risk. In accordanceunt and at their own risk. In accordan international accounting standards appliedinternational accounting standards applied Baloise Group, the savings portion ofBaloise Group, the savings portion o come may not be disclosome may not be discl statement.statement al report of an in generally stands f item or their Employ their employees occupational pension plannin
nt-type premium Premium income from life insurance, where insuran companies invest policyholder’s savings for their ow th the mium inncome on the in
Premium earned Th e proportion of the policy premium allocated to the risk covered by an insurer, i.e. premium less change in unearned premium reserves.
Profi t aft er tax Th e profi t aft er tax is the fi nal summary of all revenue and expenses, less the borrowing costs and the current and deferred income taxes. Th e profi t aft er tax includes the shares of minority shareholders in the result.
Profi t-sharing ratio A key fi gure, expressing the profi t-sharing/premium ratio. Profi t-sharing is a rebate granted to policyholders in the non-life business due to profi table business.
Periodic premiums Periodically recurring premium income (see defi nition of “premium”).
SMI Swiss Market Index (SMI). Main index for the SWX Swiss Exchange.
Solvency Required minimum capital for insurance companies specifi ed by the regulatory authorities, to cover business risks (investments, claims, etc.). As a rule, requirements are specifi ed at the national level and may diff er from country to country.
Surplus participation Annual, not guaranteed policyholder benefi ts of a life insurance, which are granted when – compared with the assumptions that underlie the premium calculation – revenue is higher and/or risk and cost behaviour patterns are more favourable.
Technical reserves On the balance sheet, insurers disclose the value of future benefi ts they expect from the existing insurance contracts, calculated at the present time. Th e value is computed using recognised principles.
Value of new business Th e value of new business created during the reporting period, valued at the time the policy is issued.
VORABDRUCKnce companiesompanie uthorities, to cover business thorities, to cover business ts, claims, etc.). As a rule, requirements s, claims, etc.). As a rule, requirements specifi ed at the national level and may diff er frompecifi ed at the national level and may diff er from untry to country.untry to countr plus participations participation al, not guanot that allow policythat allow pol avings/capital for their own acavings/capital for their ow heir own risk.eir own risk
Bâloise Assurances Atrium Business Park 23, rue du Puits Romain Bourmicht L-8070 Bertrange info@baloise.lu www.baloise.lu
Th e Annual Report 2007 is published in German, English and French.
FINDING AND ORDERING The Annual Report 2007 and the Financial Report 2007 are available on the Internet at www.baloise.com/annualreport. Th ey can be ordered through the Internet or at Bâloise-Holding, Corporate Communications, Aeschengraben 21, CH-4002 Basel.
INFORMATION FOR SHAREHOLDERS AND FINANCIAL ANALYSTS You will fi nd detailed information and data on the Baloise stock, the IR agenda, dividends, the latest presentations and contacts with Investor Relations on the Internet at www.baloise. com/investors. Th e information is available in German and English.
Published by Baloise, Corporate Communications Concept, design Eclat AG, Erlenbach/Zurich Pictures Gérard Pétremand, Geneva Publishing System Multimedia Solutions AG, Zurich Printing Werner Druck AG, Basel
26.3.2008 Media Conference Meeting of Financial Analysts – Annual Results 29.4.2008 Bâloise-Holding Annual General Meeting 16.5.2008 Interim Financial Reporting 27.8.2008 Media Conference Meeting of Financial Analysts – First-Half Results 18.11.2008 Interim Financial Reporting 18.3.2009 Media Conference Meeting of Financial Analysts – Annual Results 30.4.2009 Bâloise-Holding Annual General Meeting
Consolidated Income Statement Consolidated Balance Sheet 2634.indd UG22634.indd UG2 22.03.2008 21:58:2922.03.2008 21:58:29
Operating and administrative expenses for insurance business 80 33 –847.8 –938.3
Liabilities from the banking business and fi nancial contracts 73 23
Recognised at market value through profi t or loss 1,532.6 2,475.6
Total liabilities and equity 64,032.5 66,995.5 in CHF million 2634.indd UG52634.indd UG5 22.03.2008 21:58:2922.03.2008 21:58:29
Notes to the Consolidated Balance Sheet 48 7. Property, Plant and Equipment 48 8. Intangible Assets 49 9. Investments in Associates 51 10. Investment Properties 51 11. Financial Assets 52 12. Mortgages and Loans 56 13. Derivative Financial Instruments 57 14. Financial Receivables 58 15. Reinsurance Assets 58 16. Receivables from Reinsurers 59 17. Employee Benefi ts 59 18. Deferred Income Taxes 65 19. Noncurrent Assets Held for Sale and Discontinued Business Segments 65 20. Share Capital 66 21. Change in Unrealised Gains and Losses in Equity 67 22. Technical Reserves (Gross) 67 23. Liabilities from Banking Business and Financial Contracts 73 24. Reconciliation Between the Gross Investment in Financial Leasing and the Present Value of Minimum Lease Payment 74 25. Financial Liabilities 74 26. Financial Provisions 75 27. Insurance Liabilities 75
Recognised at market value through profi t or loss 794.0 655.6
Balance of cash and cash equivalents as of 31st December 741.5 1,620.4
Impairment and depreciation on property, plant and equipment and intangible assets 7/8 104.5 142.2
Purchase / sale of fi nancial assets of an equity nature 160.8 –72.3
Addition / disposal of fi nancial contracts and liabilities from banking business 907.5 477.3
Cash and cash equivalents for the account and at the risk of life insurance policyholders 43.4 8.7
Balance as of 31st December 741.5 1,620.4 of which are cash and cash equivalents of limited availability –/– –/–
Balance as of 1st January 2006 5.5 105.4 –43.8 664.5 3,598.8 4,330.4 60.9 4,391.3
Change in unrealised gains and losses on fi nancial assets available for sale 21 102.5 102.5 0.0 102.5
Change in hedge reserves on derivative fi nancial instruments held for cash fl ow hedge 21 –0.4 –0.4 –0.4
Change in hedge reserves on derivative fi nancial instruments held to hedge a net investment in a foreign company 21 74.6 74.6 74.6
Change in reserves from reclassifi cation of investment property 21 –/– –/– –/–
Total effects not recognised in equity –/– –/– –/– 116.1 –/– 116.1 0.0 116.1
Increase / decrease in minority interests due to change in percentage of interest –/– 4.8 4.8
Balance as of 31st December 2006 5.5 121.0 –161.7 780.6 4,176.5 4,921.9 64.6 4,986.5 in CHF million
The notes are an integral component of the consolidated fi nancial statements.
Balance as of 1st January 2007 5.5 121.0 –161.7 780.6 4,176.5 4,921.9 64.6 4,986.5
Change in unrealised gains and losses from associates 21 –8.3 –8.3 –8.3
Change in hedge reserves on derivative fi nancial instruments held for cash fl ow hedge 21 –0.0 –0.0 –0.0
Total effects recognised and not recognised in equity –/– –/– –/– –330.2 803.3 473.1 11.2 484.3
Increase / decrease in minority interests due to change in percentage of interest –/– 24.7 24.7
Balance as of 31st December 2007 5.4 139.3 –439.2 450.4 4,626.0 4,781.9 83.7 4,865.6 in CHF million
General Notes 1. Reporting Standards The Baloise Group is a European direct insurer comprising 20 different insurance companies operating in almost every segment of the life and nonlife insurance business. The holding company is Bâloise-Holding, a Swiss incorporation based in Basel whose shares are listed on the Swiss Exchange (SWX). It has subsidiaries that work the direct insurance markets in Switzerland, Liechtenstein, Germany, Belgium, Austria, Luxemburg, Croatia, Slovakia and the Czech Republic. Its banking business is handled by subsidiaries in Switzerland and Germany. The Baloise Group also has a fund management company in Luxemburg.
The Baloise Group’s Consolidated Annual Financial Statements recognise equity and liabilities at cost, taking adjustments into consideration that result from the regularly appraised fair value of investment properties, and from fi nancial assets and liabilities that are classifi ed as available for sale or recognised at fair value through profi t or loss. The Baloise Group’s Consolidated Annual
Financial Statements were prepared in conformity with the International Financial Reporting Standards (IFRS), which comply with
Swiss law. IFRS 4 governs how to account for and disclose insurance and reinsurance contracts. The contracts are measured based on local fi nancial reporting guidelines. When IFRS 4 was introduced, the Baloise Group used US Generally Accepted Accounting
1 Amendments has no impact on the Baloise Group’s profi t for the period or balance sheet items.
“IFRS 7 Financial Instruments: Disclosures and Presentation” was issued in August 2005. This standard supersedes IAS 30 Disclosures in the Financial Statements of Banks and similar fi nancial institutions as well as those parts of “IAS 32 Financial Instruments: Disclosures and Presentations” regarding disclosure obligations.
The application of IFRIC 9 has no impact on the current reporting of the Baloise Group.
Due to the adoption of new accounting standards, the value of isolated fi gures have been adjusted in the Cash Flow Statement and in the Notes. These adjustments pertain to the disclosure and thus have no impact on equity and the period result.
The IASB has issued the following new Standards and Interpretations of relevance to the Baloise Group. However, they have not yet entered into effect and have, thus, not been applied to the consolidated annual fi nancial statements for 2007: Standard / Interpretation Content
To be applied for fi nancial years beginning on / after: IFRIC 11 IFRS 2 – Group and Treasury Share
Company mergers and Group and separate individual fi nancial statements according to IFRS
The Baloise Group cannot make any defi nitive statements regarding the impact of the application of IFRIC 14.
IAS 1 Presentation of Financial Statements was issued in a revised version. It prescribes, amongst other things, that owner changes in equity are to be presented, either in one comprehensive income statement, or in two statements (separate Income Statement and Other Comprehensive Income). Some changes were also made to the titles of the fi nancial statements, but they are optional. This is mainly a disclosure standard.
IAS 23 Borrowing Costs was issued in a revised version. It prescribes that in future the acquisition costs of an asset includes all costs incurred when preparing the asset for its intended use. This removes the option of immediate recognition of borrowing costs regarding assets that require a substantial period of time to get ready for sale as an expense. The application of IAS 23 Amendment is not expected to have a material impact on consolidated income or balance sheet items.
IFRS 8 Operating Segments requires, in particular, the use of the so-called “Management
Approach” for reporting on the business development of the segments. This means that segment reporting must be based on the same information as is used to make internal management decisions.
Baloise Group has not yet analysed the impact of these changes on its income and cash fl ows.
Special Purpose Entities (SPEs). A subsidiary is included in the Consolidated Annual Financial Statements, if the Baloise Group directly or indirectly controls it. This is generally the case if it holds over 50% of the voting rights. Potential voting rights are also considered in determining whether the Baloise Group controls the subsidiary.
Companies acquired during the year under review are included in the Consolidated Annual Financial Statements starting on the date on which control was effectively assumed; all companies sold are included until the date on which control was ceded.
All inter-company transactions and the resulting gains and losses are eliminated.
3.1.2 Special Purpose Entities (SPEs) Like subsidiaries (3.1.1), special purpose entities are included in the scope of consolidation. However, the provisions of SIC 12 govern the inclusion in the scope of consolidation.
3.1.3 Joint Ventures Joint ventures are companies that are under the common control of two or more partners by contractual arrangement. The joint ventures include the members of the Deutscher Ring Group, which are held together with Deutscher Ring Krankenversicherung, a mutual insurance company. The Baloise Group holds some shares directly and some shares indirectly through Deutscher Ring Beteiligungsholding; in total, it holds 65% of the shares directly and indirectly. The contracts are designed so that the majority shareholder does not control these companies. Instead, these companies are accounted for using the Proportionate Consolidation Method. In other words, the Baloise Group recognises its proportion of assets, liabilities, expenses and revenue.
Group companies are measured using balance sheet date exchange rates. Non-monetary items assessed using historical acquisition costs are measured using the historical exchange rates. The resulting exchange rate differences are recognised in profi t or loss. This excludes exchange rate differences entered directly into the hedging reserves as part of cash fl ow hedges, or those used to hedge a net investment in a foreign company.
Exchange rate differences that arise from non-monetary fi nancial instruments that are assessed at fair value through profi t or loss are reported in the realised gains and losses of these instruments. Exchange rate differences held on non-monetary fi nancial instruments as “Available for Sale” are entered in the Unrealised
The resulting exchange differences are accumulated and recorded directly in equity.
3.3 Property, Plant and Equipment Property, plant and equipment are measured at their acquisition costs less the accumulated depreciation. The acquisition cost of property, plant and equipment is also part of the directly allocable costs. Subsequent acquisition costs are only capitalised if a future fi nancial benefi t related to the property, plant and equipment occurs and these costs can be reliably assessed. All other repair and maintenance costs are charged to the income statement on an ongoing basis.
As a rule, property, plant and equipment are completely selffi nanced. In the event of possible external fi nancing, the accrued interest is capitalised accordingly as it occurs.
Property is not depreciated on a systematic basis. Depreciation of other property, plant and equipment is linear on the basis of the estimated useful life as follows: Buildings for own use: 25 to 50 years,
Operating leases: Other leasing contracts are classifi ed as operating leases. The leasing payments are entered linearly as expense in the income statement over the term of the leasing relationship.
3.5 Intangible Assets 3.5.1 Goodwill Goodwill is the result of the balance between the purchase price and the assets that are assumed less the liabilities, measured at fair value at the time of the takeover. Goodwill is reported in the intangible assets. Goodwill is subject to an Annual Impairment Test.
3.5.2 Present Value of Gains on Acquired Insurance Contracts (Present Value of Future Profi ts, PVFP) The present value of gains on acquired insurance contracts is the result of the purchase of a life insurance company or the purchase of a life insurance portfolio. The fi rst measurement is based on actuarial principles. Depreciation is linear. The recoverability is verifi ed through the Loss Recognition Test (also see Section 3.18.2).
3.5.3 Deferred Acquisition Costs (DAC ) The costs incurred that directly depend on the conclusion of insurance contracts and fi nancial contracts with Discretionary Participation Features (DPF) (commission, for example) are capitalised and depreciated over the term of the contracts, or over the shorter premium payment period. The recoverability of Deferred Acquisition Costs is verifi ed on each balance sheet date (see also Section 3.18.3).
IT consulting, own development (software for example), as well as assets identifi ed from the acquisition of companies (for example brands, customer relationships, etc.). They are recognised at their acquisition or production costs and depreciated linearly over their useful life, however, this is usually a maximum of ten years. Intangible assets with an unlimited useful life are not depreciated and are recognised at their acquisition costs less accrued impairment losses.
(net cash fl ow from rental income, maintenance costs, and administrative expenses) and using mathematical methods from comparable transactions. The majority of the directly held real estate portfolio of the Baloise Group is in Switzerland. Here, the interest rate for the calculation is determined on a hedonistic basis according to the DCF Method. The expected vacancy development is also included in the calculation. External appraisal reports are obtained at regular intervals. Thus, around 10% of the fair value of the real estate inventory is verifi ed each year by means of external expert reports. Changes in fair value are entered immediately in the periods in which they occur as realised book profi ts or losses respectively, recognised in profi t or loss.
If, as a consequence of a change of use, an investment property is used by the company itself, then the property, plant and equipment is reclassifi ed as Property, Plant and Equipment. The reclassifi cation is based on the fair value at the time of the reclassifi cation.
If an owner-occupied property becomes an investment property as a consequence of a change of use, the difference between the book value and the fair value at the time of the change of use is entered directly as a gain or loss in value into equity as unrealised gains and losses in the period. If an investment property that was restructured in an earlier period is sold, the amount entered in equity is reclassifi ed as retained earnings not recognised in profit and loss.
Besides fi nancial assets, mortgages and loans, derivative fi nancial instruments and cash and cash equivalents, capital investments also include investment properties.
The Baloise Group classifi es its fi nancial assets of equity and debt nature into the following categories: recognised at fair value through profi t or loss, held-to-maturity, and fi nancial assets that are held available for sale. The classifi cation is aligned with the nature of the acquired fi nancial assets.
3.7.1 Financial Assets Recognised at Fair Value through Profi t or Loss This category consists of two sub-categories: fi nancial assets that are held for trading purposes (trading portfolio), and those that are designated to this category. A fi nancial instrument is classi-
3.7.3 Available for Sale Financial Assets Available for sale fi nancial assets are those non-derivative fi nancial instruments that have been classifi ed as available for sale or have also not been classifi ed in any of the above-mentioned categories and have also not been classifi ed as mortgages, loans or receivables.
3.7.4 Entering, Evaluating, and Charge Off All commercially available purchases of fi nancial assets are entered on the trade date. Financial assets are initially measured at fair value. The transaction costs are part of the acquisition costs, with the exception of fi nancial assets recognised at fair value through profit or loss.
If fi nancial assets in the available for sale category are sold or value adjusted, the accumulated amount is recognised in equity as a realised gain and loss on fi nancial assets. Changes to the fair value of the hedged risks of fi nancial assets that are hedged by a Fair Value
The market value of listed fi nancial assets is based on stock market prices. If there is no such value, then the fair value is estimated based on generally recognised methods (Present Value Method etc.), independent assessments based on comparisons with market prices of similar instruments and the current market situation.
Derivative fi nancial instruments are evaluated based on listed market prices or on the basis of models.
For private equity investments, provided no market value is available, different methods of appraisal are applied such as the analysis of the discounted cash fl ow or reference to comparable transactions in the recent past between experts, partners that are willing to enter into a contract and independent contractual partners.
3.10 Sustained Impairment Losses 3.10.1 Financial Assets Evaluated According to the Amortised Cost Method (Mortgages, Loans, Receivables, and Held-to-Maturity Financial Assets) On each balance sheet date, the Baloise Group determines whether there is any objective evidence of a sustained impairment loss for a fi nancial asset or a group of fi nancial assets. A fi nancial asset or a group of fi nancial assets is only impaired if there is any evidence of an impairment loss as a consequence of one or more events that have an effect on the expected future cash fl ow of the fi nancial asset, which can be estimated reliably. Objective evidence of an impairment loss of a fi nancial asset include observable data for the following cases: considerable fi nancial diffi culties on the part of the debtor, a breach of contract such as the failure to pay or delayed payment of interest or repayment instalments, increased probability that a borrower will declare bankruptcy or enter into other re-underwriting processes, the disappearance of an active market for this fi nancial asset observable data indicating a measurable reduction of the expected future cash fl ow from a group of fi nancial assets since the initial evaluation.
Analysis reports from banks as well as appraisals by rating agencies are used to assess an impairment loss.
In the event of an impairment loss, the accumulated net loss is recognised directly in equity and transferred to the income statement.
Reversals of impairment losses on available for sale fi nancial assets of an equity nature recognised in profi t and loss may no longer be made. For fi nancial assets of an equity nature that were impaired in earlier periods, a further reduction of the market value must be charged directly to the income statement.
Cash Generating Units (CGUs). These CGUs form the lowest possible level in the company at which goodwill is observed for internal management purposes. To verify the recoverability, the useful life of a CGU is determined based on discounted cash fl ows. The basis of this useful life calculation is provided by the long-term fi nancial planning approved by management. A sustained impairment loss is recognised in the income statement under the item “Other Operating Expenses”.
The other non-fi nancial assets are subject to an Impairment Loss
3.11 Derivative Financial Instruments Derivative fi nancial instruments are Swaps, Futures, Forward and
Option Contracts, etc. where the value is mainly derived from the underlying interest rates, exchange rates, raw material prices, or share values. As a rule, derivative fi nancial instruments have no or only a low acquisition value. Derivative fi nancial instruments are recognised in the balance sheet at market value. When a contract is concluded, it is either classifi ed as a hedging instrument for the market value of an asset or a liability (Fair Value Hedge), as a hedge for future transactions (Cash Flow Hedge), as a hedge for the net investment in a foreign company, or as a trading instrument. Derivative fi nancial instruments that don’t comply with the IFRS hedging requirements although they have a hedge function according to the risk management rules of the Baloise Group, are treated as trade instruments.
3.11.4 Hedging a Net Investment in a Foreign Company Hedging a net investment in a foreign company is handled as a cash fl ow hedge. The gain or loss of the hedging instrument on the effective hedge is entered in the equity capital; the ineffective part is recognised in profi t or loss.
The gain or loss recognised in equity is transferred to the income statement if the foreign company is (partly) sold.
3.11.3 Derivative Financial Instruments That Do Not Meet Hedging Requirements Changes to the market value of derivative fi nancial instruments that do not meet hedging requirements are recognised in profi t or loss as “Realised Gains and Losses on Investments”.
3.12 Offsetting of Receivables and Liabilities Receivables and liabilities are offset and the net value is recognised in the balance sheet, provided that there is a right to offset and the Baloise Group intends to realise these assets and liabilities concurrently.
Discontinued Business Segments” are reported separately in the balance sheet. Those assets addressed by the standard are valuated at the lower of book value or present value, less selling costs.
Adjustments arising are recognised in profi t or loss. Any scheduled depreciation is halted as of the reclassifi cation date.
3.14 Cash and Cash Equivalents Cash and cash equivalents consist predominantly of cash, demand deposits and cash equivalents. Cash equivalents are, in particular, short-term liquid assets with maturities of up to 24 hours as well as cheques not yet cashed.
3.15.4 Unrealised Gains and Losses (net) This item includes changes in market value of fi nancial instruments classifi ed as available for sale, effects from cash fl ow hedging, effects from hedging a net investment in a foreign company, exchange differences as well as gains from the reclassifi cation of owner-occupied property to investment property.
Accounting). Minority interests, if applicable, will also be deducted from this item.
Contracts without any signifi cant insurance risk are fi nancial contracts. Such fi nancial contracts may include a Discretionary Participation Feature (DPF) that determines which recognition and valuation regulations are to be applied.
Statements. This applies particularly to contracts with the company ’s own pension plans insofar as the employees covered by these plans belong to the Baloise Group.
In addition, IFRS 4 makes exceptions for the treatment of embedded derivatives that are contained in an insurance contract or fi nancial contract with a Discretionary Participation Feature. In as far as such embedded derivatives themselves satisfy the defi nition of an insurance contract, separate valuation and disclosure are not required. For the Baloise Group, this concerns, among others, certain guarantees for annuity conversion rates as well as additional special exceptions, such as certain guaranteed buyback values on traditional policies.
All standard product types that are typical for the respective market are offered in the accident segment. In Belgium and
Switzerland in particular, there are additional specifi c, government -regulated occupational accident products which do not correspond to the usual products.
The Baloise Group writes health insurance only in Switzerland and Belgium. In addition to the typical treatment costs, the products in this segment also comprise benefi ts such as daily sickness allowance and are offered to individuals as well as small and medium-sized businesses as so-called group insurance.
The two standard products common in the market, comprehensive and liability insurance, are offered here. In certain countries there are also special products for cooperative agreements with automobile clubs or with individual automobile companies.
Beginning with conventional home insurance policies, there is a broad offering of property insurance including fi re, building and water damage insurance policies and all the other usual forms.
Marine insurance policies are primarily sold in Switzerland and in Germany. In addition to the typical merchandise insurance, the products may also contain liability components.
Small segments such as loan and legal protection insurance are normally combined here.
Technical items for business concluded by the company itself, including the active reinsurance business, are designated with the term “gross”. After deducting passive (that is ceded) reinsurance, the items are designated “net” or “for own account”.
3.17.2 Loss Reserves Loss reserves and provisions for the corresponding loss adjustment expenses are calculated for all claims arising by the end of the fi scal year, whether reported to the Baloise Group or not.
The total loss reserve consists of three components. The base component is the provisions calculated using actuarial methods.
A second component is provisions for those complex special cases and events that do not lend themselves to a purely actuarial calculation (large claims). These two components are calculated without discounting. Annuities form the third component; these are capitalised using actuarial principles such as mortality, technical interest rate etc. and mainly arise from claims from the motor, liability and accident segments.
3.17.3 Policyholder Participation in Surplus and Profi t Insurance contracts can provide for the customer’s participation in the surplus on their contracts (in particular in their claims history ). The expense for policyholder participation in surplus and profi t arises from the payments and the change in the related provisions.
3.17.4 Liability Adequacy Test (LAT) The Liability Adequacy Test (LAT) is used at every balance sheet date to review whether existing provisions are adequate taking all known developments into consideration.
In addition, there are usually contracts that automatically renew for a further year on the same terms, which must likewise be analysed for their profi tability. At the same time, this corresponds to an analysis of the recoverability of Deferred Acquisition Costs (DAC). Here, expected investment income from the relevant unearned premium reserves and existing loss reserves are taken into consideration. If a loss is expected, the deferred acquisition costs are reduced by the respective amount. If the total deferred acquisition costs are insuffi cient or the resulting liability cannot be covered, a separate provision for impending losses is set up within the unearned premium reserves.
3.18 Life Insurance Contracts and Financial Contracts with Discretionary Participation Features For insurance contracts and fi nancial contracts with Discretionary Participation Features, IFRS 4 allows users to continue to use the previous valuation principles in accordance with Section 1 for liabilities as well as assets resulting directly from the contracts
On principle, the following Baloise Group life insurance products contain suffi cient insurance risk to be classifi ed as insurance contracts under IFRS 4: Endowment Life Insurance, Conventional Life Insurance and
Deferred Pension Policies with an annuity conversion rate guaranteed at conclusion of contract
Future Profi ts), the reserves are immediately raised to the minimum level and the increase is recognised in the balance sheet.
3.18.2 Present Value of Future Profi ts on Acquired Insurance Contracts (PVFP) The Present Value of Future Profi ts on acquired insurance contracts represents an identifi able intangible asset that arises in connection with the purchase of a life insurance company or of a life insurance portfolio. The initial valuation is made in accordance to actuarial principles. Depreciation is on a straight-line basis. The Loss Recognition
Test is used regularly to check the recoverability of Deferred Acquisition Costs.
3.18.4 Unearned Revenue Reserve (URR) The Unearned Revenue Reserve (URR) are premium components charged for services in future periods. These premium components are recognised as liabilities and reversed by analogy in the deferred acquisition costs.
3.18.5 Policyholders’ Dividends In a majority of life insurance contracts, the policyholders have a right to surplus participation (Policyholders’ Dividends)
In the case of unit-linked life insurance, all investment income is generally credited to the policyholder.
IFRS 4 introduces the concept of a Discretionary Participation Feature (DPF), which is not only relevant to the classifi cation of contracts but also to the disclosure of surplus funds in accordance with the policyholders ’ share in the unrealised gains and losses recognised in IFRS
fi nancial statements – in the absence of a minimum quota – are carried as part of equity.
In Austria, the minimum quota is stipulated in the Terms and
Minimum quotas are also applied to some of Swiss BVG (occupational benefi t plan) business (business subject to the legal quota), that is 100% on change in liabilities and 90% on change in assets.
3.19 Reinsurance Reinsurance contracts are insurance contracts between insurance companies and / or reinsurance companies. There must be a transfer of risk for a transaction to be recognised as reinsurance; otherwise the contract is treated as a fi nancial contract.
liabilities accounts for the nonlife insurance line and in the “Actuarial
For nonlife insurance they are estimated as realistically as possible based on experience and the most recent information; for life insurances they are established based on the opening transaction. Passive reinsurance (i.e. insurance ceded) is the business ceded to insurance companies outside the Group and includes imposts from direct life and nonlife business and from actve reinsurance.
Receivables and liabilities from fi nancial contracts are primarily calculated on the basis of the Effective Interest Method. The effective interest is determined as an internal interest rate based on the estimated amounts and dates of the expected payments. If the amount or date of the actual payments differs from expectations or the expectations change, the effective interest must be newly determined. The deposit account balance is then re-valued as if this new effective interest rate had been in effect from the beginning and the change in the deposit account value is recognised as interest income or expense.
3.20.3 Recognised at Fair Value through Profi t or Loss In addition to fi nancial contracts for which the holder bears the investment risk himself, this item also includes liabilities from the banking business that have been classifi ed as Fair Value Hedges.
Bonds from the banking segment are also included in the liabilities from banking business. These items are valuated at market value by discounting the cash fl ow using the current interest rate payable by the Baloise Group for comparable instruments of the same maturity.
3.21 Financial Liabilities Bonds issued on the capital market, with the exception of bonds from the banking segment, are recognised in fi nancial liabilities.
Financial liabilities are initially valuated at cost (fair value). Transaction costs are also included in acquisition cost.
The difference between the acquisition cost and repayment value is recognised over the term as borrowing costs in profi t or loss pursuant to the Amortised Cost Method using the Effective Interest Method.
3.22 Employee Benefi ts The Baloise Group’s benefi ts to employees include all forms of compensation granted in exchange for services rendered or in special circumstances.
The following benefi ts are calculated: short-term benefi ts (such as wages), benefi ts over the long term (such as anniversary payments ), as well as benefi ts upon termination of employment (such as severance pay and benefi ts from social compensation plans) and post-employment benefi ts. The following benefi ts may be especially signifi cant due to their scope: 3.22.1 Post-Employment Benefi ts The main retirement benefi ts are annuities from retirement provisions and contributions made by the employer to mortgages as well as certain insurance policies for retired employees. The benefi ts are paid after termination of employment; they are fi nanced during the period in which the employee is active. The retirement benefi ts of the Baloise Group currently consist almost exclusively of defi ned benefi t plans. The liabilities are calculated using the Projected Unit
Baloise Group pension agreements are tailored to local conditions with regard to enrolment and scope of benefi ts.
3.22.2 Share-Based Payment The Baloise Group offers employees and senior members of staff various plans in which shares are granted as part of the overall compensation package. Employee profi t-sharing schemes, qualifi ed stock option schemes, Employee Share Ownership Plans, performance quota and Performance Share Units (PSU) are evaluated and disclosed in accordance with IFRS 2 “Share-based Payment”.
Deferred tax assets and liabilities are offset and reported net, provided the preconditions for offsetting are fulfi lled. These are, as a rule, fulfi lled if fi scal sovereignty, taxable entity and tax type are identical.
3.25 Recognition of Income Income is recognised at market value of the consideration received or to be claimed. Inter-company transactions and the resulting gains or losses are eliminated. Income is recognised as follows: 3.25.1 Income from Services Rendered Income from services rendered is recognised in the period in which the service is provided.
4. Critical Accounting Principles and Estimation Uncertainties The Consolidated Annual Financial Statements of the Baloise Group include estimates and assumptions, which could have an impact on the Annual Financial Statements of the next fi scal year. Estimates and the discretionary power of the management are continuously reviewed and are based on experience and other factors, including expectations of future events that appear reasonable on the balance sheet date.
Pursuant to Section 11, the market values of those fi nancial assets of a debt nature classifi ed as “held-to-maturity” may be removed.
4.3 Impairment Losses on Mortgages and Loans The mortgage portfolio is tested for recoverability at regular intervals. The methods and assumptions used to test recoverability are also reviewed regularly in order to minimise discrepancies between the actual and expected default probability.
4.5 Estimation Uncertainties Specifi c to Insurance Estimation uncertanties in the area of technical risks are explained in Section 5.4 et seq.
5. Management of Insurance Risks and Finance Risks The companies of the Baloise Group offer their customers nonlife insurances and life insurances, as well as (in Switzerland and, with certain restrictions, in Germany) bank products. Accordingly the
The main risks in the nonlife insurance sector are: natural disasters, large-scale industrial risks, liability risks and personal injury risks. The whole insurance business is regularly examined by means of comprehensive analyses. The results of these analyses fl ow into the formation of reserves, the pricing and the structuring of insurance products, as well as reinsurance contracts. In the nonlife business, studies were carried out, particularly in recent years, regarding natural disasters, partly together with reinsurance companies and brokers, in order to determine the exposure and the necessary degree of risk transfer.
The risks specifi c to life insurance – longevity, death and disability – are monitored on an ongoing basis. The Baloise Group companies monitor and analyse mortality rates, as well as behaviour regarding cancellation, invalidations and reactivations, on a decentralised basis. In this process, statistics, which are customary in the market and are defi ned by actuaries and accompanied by suffi cient safety margins are used. The information gained fl ows, on the one hand, into appropriate pricing and, on the other, it is used set up suffi cient provisions to fulfi l future insurance obligations. Due to the conservative pricing calculation demanded by government legislation and the comparatively good statistical basis, the risks here are controlable. In the pension insurance sector, there is, an additional risk inherent to the trend – the constant increase in life expectancy, leading to longer and longer pension payouts. This risk is taken into account accordingly, by using suitable foundations for calculation. In addition, more and more pension insurance policies are being signed whereby the pension conversion factor is not fi xed at the time of signing, but rather based on a calculation of the basis for a pension valid at a specifi c time. This is particularly the case regarding investment-type pension products.
In the case of Deutscher Ring Bausparkasse AG, there is also a so-called collective risk, meaning that the long-term even-handed allocation of building society savings contracts must be guaranteed by the collective group of savers. This guarantee is provided by the collective group provided that it can be proved that the reserves for fl uctuations at least remain in credit over the long term based on simulation calculations. In the case of the Deutscher Ring Bausparkasse, the collective risk is monitored and managed with the help of a simulation model. In this process, the collective total customer base of the building society is updated with future projections, on a contract-by-contract basis, incorporating new business scenarios and lessons from previously-observed patterns of behaviour.
To monitor these risks, the Baloise Group has implemented a comprehensive, Group-wide risk management in all the Group’s insurance and banking units. The Group-wide Risk Management
Owners are defi ned all along the line and according to levels of seniority. The most senior Risk Owner of the Group is the Chief Executive
Offi cer of the Baloise Group. The persons responsible for the implementation of systematic Risk Controlling and of Risk Reporting are the Risk Controllers, defi ned parallel to the Risk Owners. In selecting Risk Controllers, particular care was taken to ensure the independence of the function. Points of emphasis for Risk Controlling within the Baloise Group are the following areas: Investment Risks,
Business Risks (risks relating to the technicalities and the bank risks respectively), Financial Structural Risks and Compliance. The most senior Risk Controller of the Group is the Chief Financial Offi cer of the
The risk types “Business Risks”, “Investment Risks” and “Financial Structure Risks” are directly related to the core business activity of the Baloise Group. These risks are systematically addressed, managed and optimised by the management and various risk committees. The analysis of these risks is model-based and ultimately leads to a comprehensive, overall view.
“Business Environment Risks”, “Operational Risks” and “Leadership and Information Risks” arise directly or indirectly from the operation of the business, the business environment or the strategic activities of any company. The risks of this type are also quantitatively recorded, evaluated and managed.
Central Risk Management for the Baloise Group is under the control of the Group CFO in the Group division Finance. It coordinates
For each identifi ed risk category there is a corresponding halfyearly reporting procedure. For this purpose each business unit produces a risk report, serving as a basis for the Group-wide risk report.
5.2 Underwriting Strategy: Nonlife and Life Primarily, the Baloise Group underwrites insurance risks of private individuals, as well as small to medium-sized enterprises in selected countries of mainland Europe. Industrial insurance in the
Property, Liability, Marine and Technical sectors is mainly offered through the Basler Versicherungsgesellschaft in Basel or, its subsidiary in Bad Homburg (Germany), respectively. In this particularly high-risk segment, the central management of industrial insurance ensures a consistent level of quality and a high degree of transparency for the underwritten business.
Each business unit of the Baloise Group issues rules of procedure regarding the underwriting and checking of risks. These contain defi nitive allocations of responsibility and underwriting limits according to the business sector. The underwriting limits are approved by the most senior committee of the business unit and made known to the Corporate Excecutive Committee. In the Industrial Insurance sector the maximum underwriting limit was set at
CHF 100 million for Switzerland and EUR 60 million for Germany, respectively. Within the Group, comparable underwriting limits continue to exist only for marine insurance. Risk management in industrial insurance also uses instruments to determine the required premium, as well as a risk-oriented overall portfolio management.
Reinsurance contracts can only be concluded with organisations which have received advance approval from the Finance division of the Group. The reinsurers usually have a minimum A– rating from
In principle, the same demands are made of a reinsurer for life insurances as for the nonlife sector. In the Life Insurance business reinsurance has a lower degree of signifi cance.
5.4 Nonlife 5.4.1 Insurance-Specifi c Risk Primarily, the Baloise Group underwrites insurance risks of private individuals, as well as of small to medium-sized enterprises, in selected countries of mainland Europe. Apart from that, there is also business with industrial customers in Switzerland and Germany. Underwriting risks are limited by price monitoring and adjustment, as well as directives and limits on underwriting (adjusted to the size and the country of the portfolio in question ).
Taking the relationship of average costs incurred for loss adjustment over the last years and the payments made in that period as a basis, provisions are set up for claim processing, proportionate to the available loss reserves.
Normally, the basis for calculating pensions (mortality tables, interest rates etc.) for each country is provided or approved by the appropriate public authorities there. As certain parameters can however change relatively quickly, an annual check is performed (as part of the Liability Adequacy Test) to gauge the appropriacy of the provisions for pensions; in a case of insuffi cient coverage, additional reserves are allocated accordingly.
5.4.4 Sensitivity Analysis Apart from the natural volatility of the insurance business, there are parameters to determine technical provisions, which have a considerable impact on an insurance company’s earnings. Therefore, in the nonlife sector the following assumptions and their immediate implications for annual results were examined, within the scope of a Sensitivity Analysis: errors in estimation for loss reserves (including Incurred But Not Reported – IBNR) and the provisions in the runoff sector.
All Baloise Group reserves calculated using actuarial methods or were placed individually for special claims (amongst others, large claims loss, but excluding run-off and coverage reserves in the case of pensions) equalled CHF 4,518.3 million at the end of 2007 (previous year: CHF 4,370.4 million). Thus, the consequence of a 10% deviation from this reserve requirement would be a claim payment (before deferred taxes) that is approximately CHF 451.8 million higher or lower respectively, before reinsurance (previous year: CHF 437.0 million).
5.4.5 Claims Processing Analysis of the claims processing – gross (before reinsurance)
Loss reserves before 2001 – gross (including major losses and assumed business) 497.8
For improved comprehensibility, the following claims development analyses are specifi ed in EUR.
Loss reserves – net 460.0 in EUR million 1 The increase in the overall amount of estimated claim payments is primarily due to the inclusion of the Securitas Group.
A large part of the provisions of this segment come from the run-off area. Due to the special nature of the business, it is diffi cult to conduct meaningful analyses. Therefore, the provisions formed involve an increased uncertainty.
Technical reserves with 0% interest guarantee 907.5 584.0 307.7 84.6 56.9
At the end of the year of the loss occurrence 271.9 253.2 229.6 229.4 214.8 201.6 217.3
In the fi eld of activity, the named risks do not differ signifi cantly.
The guaranteed technical interest represents a risk for the traditional life insurance and group life business.
Interest increases are associated with the risk of increased contract terminations (cancellations), which could lead to liquidity problems due to the pay-out of benefi ts. This risk is reduced by cancellation deductions. In the past, no signifi cant connection could be observed between interest increases and extensive contract terminations.
On the other hand, decreasing interest entails the risk that the investment income may no longer be suffi cient to fi nance the technical interest. This risk is reduced by asset liability management (ALM)
Unit-linked life insurance is usually a combined life insurance or a deferred pension insurance, which gives the policyholder more fl exibility in the investment process. During the deferment period, the unit-linked pension insurance works in a similar way to the combined life insurance. In the pension payment period, the contract turns into a traditional pension insurance.
In the event of death, the benefi ciary receives the insurance sum or the fund balance, in cases where the fund balance exceeds the insurance sum. For the fi nancing of the mortality cover in cases where risk capital exists (corresponds to the positive difference between the insurance sum and the fund balance), a risk premium is debited from the fund on a monthly basis.
The fund underlying the savings scheme is selected from a different number of funds – depending on the product – according to the specifi cations of the investor profi le of the policyholder.
Usually, the policyholder bears the full investment risk and benefi ts from any positive performance.
In Switzerland, an interest guarantee exists for a closed portfolio segment. This interest guarantee was granted within the scope of the statutory pension scheme (3a policy). In the case of survival, the policyholder receives the value of the fund portion, but no less than the net savings premium plus technical interest (3.25%). The funds permitted for these tariffs merely contain a small proportion of shares and are therefore characterised by a low volatility. An actuarial provision is formed for the guarantee.
In Belgium, some closed funds also provide a maturity value guarantee. Banks not associated with the Group take care of the fund management and the securing of the guarantee.
Actuarial reserve from in CHF million to be paid on savings as well as the conversion rate with which the saved capital is to be converted into a pension upon retirement. However, these rules only apply to the minimum part of the accumulated capital that must be fi nanced according to law.
For the part exceeding this level, actuarially appropriate pension conversion rates are used. However, a change of the minimum interest rate also affects the existing statutory portfolio, not only the new business, as is usually the case in the individual life business.
In terms of actuarial reserves, the disability risk accounts for approximately 6% of the business.
(liability adequacy test). This test ensures the adequacy of the provisions. The assumptions used for this test represent “best estimate ” assumptions. The two main assumptions of this test are the prospective investment income and the mortality table. The expected investment income is determined on the basis of the current and the target investment portfolio (strategic asset allocation). The yield on new capital investments is aligned to the capital market interest. Depending on the size of the portfolio, the mortality tables are based on publicly accessible tables that are adjusted by empirical values or on the company’s own mortality tables.
Cancellation is also taken into consideration in the LAT. This assumption is based on the companies’ experience. The impact of a change of the cancellation assumption on the result of the LAT is usually negligible.
5.5.3 Sensitivities In connection with the sensitivities, the effect of changes in the assumptions on the annual result and on the equity was determined. The effects of shadow accounting, latency calculation, and deferred tax assets and liabilities, and reinsurance effects were taken into account, but are negligible due to their insignifi cance. In these calculations, the assumptions according to which the liability adequacy test (LAT) was conducted were varied.
23 million). This relieving effect already takes into consideration the increased burden due to the additional DAC depreciation.
The effects on the equity that are not recognised through profi t or loss are marginal in all units.
In the Swiss life business, a reduction of the mortality along with a corresponding adjustment of the surplus participation would result in a burden of approximately CHF 25 million (previous year: CHF 25 million) on the income statement. As in the above scenario, the equity effect is small.
This scenario assumes that the new capital infl ow (including reinvestments ) drops by 50 basis points.
For the German units, the scenario results in a modifi ed depreciation of the DAC balance. The development of the terminal policyholders ’ dividends is irregular, depending on the type of dividend. The size of the total effect is greatly alleviated by the existing statutory dividend distribution. The total effect on the result from the German units is below CHF 1 million (previous year: also under CHF 1 million). The effect on the equity that is not recognised through profi t or loss amounts to CHF 3 million
depreciation and increased technical reserves together with decreasing reserves for terminal policyholders’ dividends. In the Swiss unit, the equity not recognised through profi t or loss increases by CHF 101 million (previous year: CHF 128 million).
Baloise Group offer investment-type life insurance contracts for the account and risk of the policyholder. The fi nancial liabilities that accrue in this context are backed with assets – mostly funds – from these contracts. As the market risk of the assets underlying these contracts is borne by the policyholder, these are listed separately in the notes to the consolidated annual fi nancial statements.
The following sections address the issues of interest rate risks, foreign currency risks, credit risks, liquidity risks, and share price risks.
and thus also the income of a company (income effect) or the fair value of the interest rate sensitive products portfolio (asset effect)
is reduced due to interest rate fl uctuations on the money and capital markets. Apart from the economic risk of asset investments not being maturity-matched in relation to liabilities, the partially different balance sheet regulations entail a balance sheet risk.
Additionally, stress tests are defi ned and conducted. These stress tests serve as an early warning system, and their effects can be simulated for all areas of the company and thus for the operational result.
The effect of a stress test on the fi nancial fi gures is measured on a monthly basis. The underlying stress scenario (potential loss due to a risk) is reviewed on a regular basis and adapted if necessary.
The life insurance companies of the Baloise Group control their risks in relation to interest rate changes directly by means of suitably geared strategic asset allocation. In determining the asset allocation, in particular the factors of risk capacity and fi nanceability of the guarantees are taken into consideration. Moreover, the expectations of the asset management from the capital markets and the expectations of the customers from the life insurance play a role in the decision process. The Chief Investment Offi cer (CIO) of the
At the banks, interest rate risks are also controlled and monitored within the scope of a suitable asset liability management.
In the Swiss banking business, changes in the interest rate can have a substantial impact on the interest margin and thus on the result of the interest business. These interest rate risks emerge from a variety of factors and include the different fi xed-interest periods of loans and liabilities. The interest result also depends on the changes of the market interest rates, as the time for the adjustment of the conditions for loans may not always correspond to that of the customer deposits and securitised debts. Assets and liabilities with variable interest rates are also subject to a basic risk due to different interest rate adjustments, e.g. between the interest rates on savings and the 6-month LIBOR. To hedge such interest risks, the hedge accounting mainly makes use of interest rate swaps.
in CHF million 1 The basic business is expected to be effected in October 2007.
5.6.2 Foreign Currency Risks The term “currency risk” refers to the potential fi nancial loss resulting from changes in exchange rates. The extent of the effective currency risk depends: On the net foreign currency exposure, i.e. on the balance of foreign currency assets and liabilities; On the volatility of the respective currencies; On the correlations of the currencies with other risk parameters in the portfolio context.
bonds) for investment and diversifi cation purposes, changes in the exchange rate can result in currency effects in the income statement – even for unrealised positions. To comply with the defi ned risk budget for currency effects recognised through profi t or loss the currency management fi rst determines adequate target hedge ratios. Under consideration of this target hedge ratio and the bandwidths granted for freedom of action, the currency management implements the required hedging strategies and makes use of overreaction phases in the market price development for deliberate overweighting or underweighting of the hedge ratios in relation to the defi ned benchmark. The implementation of these hedging strategies takes place by means of currency forwards, options, or option combinations; the selection of instruments depends on factors such as the expected exchange rate development and the volatility.
The Group-wide Risk Management Standards prescribe ongoing monitoring of the currency risks and of the effectiveness of the concluded currency derivatives. Under consideration of the achieved diversifi cation effect in the portfolio, the currency risks that are taken stand in a reasonable relationship to the potential surplus to be gained.
For the international diversifi cation (risk distribution) and for the purpose of increasing the income and due to greater liquidity in certain foreign fi nancial markets the Swiss companies held a net EUR position of CHF 2,533.7 million (previous year: CHF 4,089.4 million), a net USD position of CHF 2,053.8 million (previous year: CHF 1,843.6 million), as well as a net JPY position of CHF 38.0 million (previous year: CHF 41.1 million) as of 31st December 2007.
The remaining active and passive currency exposure is low. To control the risk, the currency management has hedged about one quarter of the net foreign currency exposure in USD and three quarters of the net foreign currency exposure in EUR.
Derivative fi nancial instruments designated for hedging a net investment in a foreign company for protection against currency risks: Substantive alternative fi nancial investments such as hedge funds and private equities are managed by separate companies: Baloise
Alternative Investment Strategies Ltd., Cayman Islands, and Baloise Private Equity Ltd., Cayman Islands.
To limit the currency risk of the net investments in these two foreign companies, which report in USD, the currency management of
Due to the active management of the participation investments, capital repayments and payments are regularly performed in the course of the year. Thus, the basic effects underlying the hedge accounting and the recognition of the cash fl ow in profi t or loss apply pro rata.
5.6.3 Credit Risk Credit risks on the assets side of insurance companies include all potential risks of loss, which may result due to a decline in the creditworthiness of a debtor or issuer or a value impairment of the securities. The credit risk is managed by means of creditworthiness audits of every individual counterparty and high rating standards.
The credit risk grows with the increasing concentration of counterparties in an individual industry or geographical region. Economic developments affecting entire industries or geographical regions can affect the liquidity of an entire group of otherwise independent counterparties. For this reason, the Baloise Group permanently tracks the counterparty balances and monitors the default risk on a group-wide basis. The regional expertise of the business units also has an impact on the selection of securities and changes in the existing credit portfolio.
As the credit risk of the Baloise Group is diversifi ed across industries and geographical regions and is distributed over a large number of counterparties and customers, the Baloise Group does not have a major credit risk involving a single counterparty or a specifi c industry or region.
Baloise Group, the share of investments that a single issuer or debtor may have at the Group companies is limited suffi ciently in the
Group-wide Risk Management Standards. The rules are explicitly defi ned in the Group’s investment directive.
As a matter of principle, portfolio investments are only made in bonds, loans, or fi nancial derivatives whose issuer or debtor has at least an “A” rating of Standard & Poor’s or a comparable rating or for which a third-party guarantee or mortgage exists. For other debtors and issuers whose Standard & Poor’s rating is at least “BBB” and for those who do not have a rating, an additional total limit of 10%
The principles for the management and credit risk control in the mortgage business are defi ned in directives and work instructions.
The mortgage portfolio comprises lendings to natural persons and legal entities. The type, scope, hedging and quality requirements of the risks to be taken are recorded in the directives and in the competency regulations. To minimise the risk, the portfolio is as geographically diverse as possible.
Creditworthiness of fi nancial assets that were neither overdue nor had an impairment loss as of the balance sheet date 2006
Promissory note loans and registered bonds 5,618.0 107.4 517.1 49.3 636.1 6,927.9
Receivables from fi nancial contracts –/– –/– –/– –/– 271.2 271.2 in CHF million
Promissory note loans and registered bonds 6,067.8 252.0 371.8 16.6 510.6 7,218.8
Generally, the ratings of Standard & Poor’s and Moody’s, the world’s most prominent rating agencies, along with Fitch Ratings, are used.
As the two agencies do not cover the domestic fi nancial market exhaustively, three Swiss banks are used as additional sources.
Assets that were neither overdue nor had an impairment loss on the balance sheet date because their conditions were newly negotiated amounted to CHF 22.2 million (previous year: CHF 65.0 million ) for mortgage assets and CHF 2.4 million (previous year: CHF 0 million) for insurance receivables.
Promissory note loans and registered bonds 6.3 –6.3 0.0 5.3 –5.3 –/–
Receivables from fi nancial contracts –/– –/– –/– –/– –/– –/–
Liabilities from banking business and fi nancial contracts with discretionary participation features (DPF) 381.0 –/– –/– –/– –/– 381.0 381.0 recognised at market value through profi t or loss 104.2 6.1 52.1 1,370.2 –/– 1,532.6 1,532.6 in CHF million 5.6.4 Liquidity Risk Both for banks and insurance companies, a latent liquidity risk exists, i.e. the risk that any extraordinary reduction of equity and liabilities cannot be buffered by a reduction of assets or any alternative refi nancing cannot be implemented quickly enough. In extreme cases, a lack of liquidity may result in insolvency. In addition to legal regulations, the following rules apply: The Group-wide Risk Management Standards prescribe central liquidity planning for each business unit. This takes place in close collaboration between the Investments, Actuarial, Actuarial Practise and Finance departments of a business unit.
Liabilities from banking business and fi nancial contracts with discretionary participation features (DPF) 440.7 –/– –/– –/– –/– 440.7 440.7 recognised at market value through profi t or loss 168.7 10.1 82.7 2,214.1 –/– 2,475.6 2,475.6 in CHF million 1 The undiscounted contractual payment fl ows constitute the basis 2 All the demand deposits are included in the fi rst maturity range
Liquidity risk as of 31st December 2006 < 1 Year 2 1 – 3 years 3 – 5 years > 5 years No maturity Total Book values
The residual terms and maturities of the technical reserves concerned are stated in the tables of section 22.
According to the Group-wide Risk Management Standards, asset liabilities committees have been introduced in all strategic business units of the Baloise Group. For asset liability management purposes, these committees conduct analyses concerning the maturities and realised / required income of the assets and liabilities.
Baloise ensures that a suffi ciently high level of liquidity is available for the investment activities and the operational handling of all business processes. To determine the required liquidity amounts, the maturity structure on the investments side, the outgoing payment structure of the liabilities on the insurance side and the average historical incoming and outgoing payment patterns of the last fi ve years are examined in Cash Management. Major extraordinary incoming or outgoing payments that are known in advance are explicitly considered in investment planning. In the event of payments suddenly becoming necessary, e.g. due to large claims, the careful provision of liquid funds and the possibility of drawing on reinsurers guarantee a suffi ciently large reserve. Moreover, arrangements such as cash pooling of the Swiss companies of the
Baloise Group allow excess liquidity of one unit to be used to compensate a temporary liquidity bottleneck of another unit by means of an internal overdraft that is subject to interest.
5.6.5 Share Price Risk With its fi nancial assets of an equity nature of the categories “recognised at fair value through profi t or loss” and “available for sale”, the Baloise Group is exposed to the share price risk. This share price risk is substantially reduced by means of international diversifi cation, e.g. wide spread of risks across industries, countries, and currencies. Moreover, the share price risk is duly limited by means of active Overlay Management via derivatives when certain intervention levels are reached or market or risk indicators, continually monitored by Baloise, suggest increased hedging activity.
Most of the fi nancial assets of an equity nature are publicly listed.
Market price – 10% –17.7 –25.9 –451.7 –425.1 in CHF million
The profi t for the period changes as a result of the changes in the market value of the fi nancial instruments of an equity nature of the category “recognised at fair value through profi t or loss”, which are recognised in profi t or loss. Unrealised gains and losses change due to changes in the market value of the fi nancial instruments of an equity nature of the category “available for sale”. In the case of life insurance companies, the policyholders’ participation in the company’s profi t, depending on contract and local circumstances
(Section 3.18.5). In the above presentation, this profi t sharing is also taken into consideration.
5.7 Capital Management The framework conditions regarding the amount of capital to be used are determined by regulatory requirements as well as internal risk management guidelines. While the regulatory requirements mainly serve to protect the policyholder, the internal guidelines are geared specifi cally to the risk-oriented control of the operating activities.
The decisive equity requirement for insurance companies is Solvency I. This requirement for the Group’s solvency amounts to CHF
and therefore the Holding’s ability to distribute profi ts is closely related to the prioritised fulfi lment of these local requirements. In 2006 and 2007, all Group companies met the Solvency I requirement.
Basel I. In this respect, too, the affected Group companies met the requirements in 2006 and 2007.
Internal Model Approach. IFRS equity forms the basis for this calculation. By means of additionally considering individual asset, equity and liability items, as well as off-balance items and information, an equity valued at market prices is determined. This way, all capital items that could be used to cover losses in the event of a negative business development are considered.
Value at Risk Method. The capital for insurance-specifi c requirements represents a factor that defi nes the funds necessary to cover insurance-specifi c risks. for operational reasons. The claims risk is modelled on normal and large claim distributions taking the current reinsurance structure into consideration. At the same time, a requirement that is, with a given probability, suffi cient to balance value and yield fl uctuations of the investments is calculated for the investments. The analysis of these risks is based on quantitative models that use statistical methods to evaluate historical data and establish a relationship to the current exposures. By means of stress tests, various scenarios are simulated, and possible effects on the risk capacity are analysed. The ratio of risk-bearing capital to risk-adjusted capital is calculated for the strategic business units and for the Group. The Group’s risk does not merely represent a simple addition of the individual items; rather, diversifi cation and consolidation effects are also considered. The current ratios of riskbearing capital to risk-adjusted capital are set in relation to the
Global Risk Management Limits defi ned in the GwRMS. In 2006 and 2007, the Group remained within these limits at all times.
The responsible Risk Owners and Risk Controllers of the business units and of the Group are involved in a regular reporting process. This enables a situational reaction to changes in the risk situation and the introduction and implementation of further risk control considerations within the organisation as a whole.
6. Information on Geographical Regions and Business Areas The Baloise Group operates strategically in the following geographical regions: Switzerland, Germany, Benelux, and other countries.
The business areas are split into nonlife, life, banking (including asset management), and other activities and corporate business.
business area (business segment) is a distinctive sub-activity that offers products and services whose risks and opportunities differ from those of other business areas.
Operating and administrative expenses for insurance business –374.7 –393.4 –358.4 –380.9
Cash fl ow from investing activities (net) 40.0 –40.6 –32.6 –56.5
Depreciation on a systematic basis of property, plant and equipment and intangible assets –47.4 –46.3 –39.4 –39.9 in CHF million
Notes to the Consolidated Balance Sheet 7. Property, Plant and Equipment
Book value as of 1st January 86.7 422.9 49.6 28.6 38.5 626.3
Reversals of an impairment loss recognised in profi t or loss –/– 3.8 –/– –/– –/– 3.8
Book value as of 31st December 88.4 434.0 46.9 29.0 40.0 638.3
Additions from change in the scope of consolidation 17.9 14.2 0.0 8.2 0.9 41.2
Reversals of an impairment loss recognised in profi t or loss 1.6 –/– –/– –/– –/– 1.6
Balance as of 31st December 91.7 457.9 45.6 41.0 36.4 672.6 of which: Assets held under a fi nance lease 1 –/– 134.2 –/– 0.1 –/– 134.3 in CHF million 1 The assets in fi nance leases primarily concern a lease agreement with a purchase option for an administrative building for owner-occupied property.
The lease agreement includes a repayment schedule and is contractually fi xed until mid-2018.
Additions from change in percentage of interest –/– –/– –/– –/– 5.7 –/– 5.7
Capitalisation of acquisition costs –/– –/– 101.0 308.8 –/– –/– 409.8
Reversals of an impairment loss recognised in profi t or loss –/– –/– –/– –/– –/– –/–
Depreciation as a result of impending losses –/– –/– –/– –1.0 –/– –/– –1.0
Balance as of 31st December 1 17.7 46.6 1,024.3 152.6 110.2 6.1 1,357.5
Internally developed intangible assets 8.2 Intangible Assets 2007 Life Nonlife Total
Book value as of 1st January (restated) 17.7 46.6 1,024.3 152.6 110.2 6.1 1,357.5
The goodwill balance at the end of 2007 is essentially ascribed to the newly acquired Osiguranje Zagreb and the Zeus Vermittlungsgesellschaft mbH, Hamburg and the Deutscher Ring Financial Services GmbH, Hamburg. Impairment tests performed for both of the afore mentioned companies on 31st December have not produced any impairment requirement.
IFRS standards, value impairments to various receivables positions and revaluations at the Group level as part of the initial consolidation.
A discount rate of 10.7% on the long-term fi nancial plans approved by the management, and a growth rate of 5.2% for the fi nal value were assumed for this impairment test. The change of +/– 0.1% points of one of these rates alters the impairment requirement by around
The goodwill arising at the time of acquisition was distributed between the life (CGU life) and nonlife business (CGU nonlife) of
Operating expenses arising from investment property that generated rental income 102.1 74.0
Operating expenses arising from investment property that did not generate rental income 1.1 0.2 in CHF million 9. Investments in Associates
Additions from changes in the scope of consolidation in the previous year are attributable primarily to the buy-out of the proportionally consolidated Immo Trefl es NV, Anderlecht. Disposals from changes in the scope of consolidation in the previous year are chiefly attributable to the sale of Basler Immobilien GmbH, Vienna.
The greater part of disposals in the previous year resulted from the sale of Immobilienpark Zuiderpoort in Ghent and various other sales.
The disposals are entirely attributable to the sale of investment properties and real-estate companies in Belgium.
Recognised at market value through profi t or loss 351.7 488.3
Financial assets for own account and at own risk 32,492.4 32,068.5
Financial assets according to balance sheet 35,425.6 36,426.7 in CHF million
Additions from change in the scope of consolidation –/– 5.5 –/– 116.5
Additions from change in percentage of interest –/– –/– –/– –/–
Disposals from change in percentage of interest –/– –/– –/– –/–
Changes in fair value recognised directly in equity –/– –/– 107.7 –798.2
Changes in fair value recognised in profi t or loss –29.7 –27.0 –14.9 4.4
Not publicly listed, variable interest rate –/– –/– –/– 8.1 in CHF million
Secured fi nancial assets of a debt nature in CHF million
Reverse repurchase agreements –/– –/– –/– –/– –/– –/– –/– –/–
Mortgages and loans recognised at market value through profi t or loss in CHF million
of which: designated for fair value hedging 1,105.7 975.7 11.8 17.9 0.9 6.4 of which: designated for cash fl ow hedging 2.7 –/– –/– –/– 0.0 –/–
Receivables from fi nancial contracts 271.2 318.3 –/– –/– 271.2 318.3 272.0 319.2 in CHF million
Receivables from fi nancial contracts also include life insurance policies assigned by the owner (life settlements).
Technical reserves ceded to reinsurers as of 31st December 362.0 350.6 in CHF million
Receivables from reinsurers as of 31st December 23.2 85.3 in CHF million 17. Employee Benefits 17.1 Receivables and Liabilities from Employee Benefi ts
Post-employment benefi ts – defi ned-contribution plans –/– –/– –/– –/–
funded by a fund are Swiss employer pension plans. Baloise works with a number of different pension plan providers for employees of the insurance company and bank.
Retirement benefi ts include post-retirement benefi ts provided by Baloise to retired personnel. In particular, these involve specifi c benefi ts available in Switzerland such as preferred rates on mortgages. These qualify as defi ned benefi t pension obligations under
Unrecognised service cost to be taken into account retrospectively (plan changes) –/– –/–
Switzerland have a group life contract with Basler Lebens-Versicherungs -Gesellschaft, Basel. This contract is not treated as an insurance contract under IFRS, and thus is not included under plan assets. This contract showed a credit balance for the pension fund of CHF 668.9 million as of 31st December 2007 (previous year: CHF 655.6 million).
Additions and disposals from changes in the scope of consolidation –/– –/–
Actuarial gains / losses from defi ned-benefi t plan liabilities of the reporting period 15.0 69.9
Actuarial gains / losses on plan assets of the reporting period 55.5 –20.6
(excl. benefi ts paid to employees and employer contribution) –5.4 –0.2
Total expenses for defi ned-benefi t plans 110.9 93.1 in CHF million 17.2.7 Estimated Employer Contribution The employer contribution amount for the following year can only be estimated with a certain degree of accuracy. This is due among other things to the amount being a function of wages / salaries paid. For the reporting period we estimate total employer contributions of approximately CHF 49.8 million.
VORABDRUCK Liabilities and expenses in connection with defi ned benefi t plans are calculated based on technical and other assumptions that are determined on a company-by-company and country-by-country basis. The assumed values appearing above represent weighted averages.
in CHF million 1 The position “equities and similar fi nancial assets” also includes investment funds
17.4.1 Employee Incentive Plan (Formerly Employee Share) Established in 1989, the Basler Employee Participation Foundation provides employees of different Group companies in Switzerland the opportunity to acquire shares of Bâloise-Holding at discounted prices on an annual basis (typically) in accordance with provisions outlined by the Foundation Board of Trustees. The subscription price is set by the Board of Trustees at the start of each of subscription period and published on the intranet. The price is set at one half of the average share price for the month of August in the year of subscription. Subscribed shares are distributed to employees on 1st September and are subject to a three-year restricted period.
The independent trustees on the board are Peter Schwager (President ), Dr. Heinrich Koller (Advocate) and Andreas Burki (Deputy
Market value of subscribed shares as of subscription date * 19.5 19.9
Committee each year and published on the intranet in advance. On 23rd April 2007 the Corporate Executive Committee decided that the average price during the periods 7 – 11th May 2007 would be applied as subscription price. A 10% discount is granted on this average price.
Shares purchased under this plan are subject to a three-year restricted period.
Market value of subscribed shares as of subscription date * 3.0 3.4
The subscription date is 1st June, the same as for the share subscription plan. The subscription price is set by the Corporate Executive Committee each year and published on the intranet in advance.
Market value of subscribed shares as of subscription date in CHF million –/– 1.1
PSUs were only allocated after the Board of Directors resolution adopted 9th March 2007.
Committee to determine eligibility criteria within functional levels 1 – 3. The Compensation Committee is likewise authorised to determine the total number of PSUs to be allocated and the allocation date.
The valuation of the PSU on the issue date is based on a Monte
No tax assets were recognised on unused losses in the amount of CHF 319.6 million (previous year: CHF 574.9 million) as of 31st
19. Noncurrent Assets Held for Sale and Discontinued Business Segments No noncurrent assets or discontinued business segments were carried in fi scal years 2006 and 2007.
18. Deferred Income Taxes 18.1 Development of Deferred Income Tax Liabilities (Net)
Balance as of 31st December 780.5 641.9 of which: deferred tax asset 25.8 51.3 of which: deferred tax liability 806.3 693.2 in CHF million 18.2 Deferred Tax Assets and Liabilities Causes of deferred tax assets 2006 2007
Bâloise-Holding registered shares are fully paid-in, with a face value of CHF 0.10 (previous year CHF 0.10). Natural and juristic persons may hold a maximum 2% of voting rights per the shareholder register. The Baloise Group purchases and sells its treasury shares as part of normal investing activities and in connection with sharebased compensation plans for employees.
Pursuant to a shareholder resolution at the Bâloise-Holding Annual General Meeting on 27th April 2007, share capital was reduced by CHF 130,715 from CHF 5,530,715 to CHF 5,400,000 effective upon recording in the Commercial Register on 30th July 2007, 1,307,150 repurchased registered shares with a face value of
Gains and losses from disposals reclassifi ed to income statement –583.9 –803.2
Change in hedging reserves on derivative fi nancial instruments held for cash fl ow hedging –0.4 –0.0
Change in hedging reserves on derivative fi nancial instruments held for hedging a net investment in a foreign company 85.1 49.3
Change in shadow accounting (DAC, URR, terminal policyholders’ dividends) –17.0 76.6
Change in deferred income taxes recognised directly in equity –3.8 101.9
Provision for policyholders’ dividends and profi t sharing 54.1 0.0 54.1 55.3 0.0 55.3
No determinable residual term 802.8 –126.1 676.7 881.3 –145.3 736.0 in CHF million
“residual terms” includes in particular aging and pension benefi t provisions.
Balance as of 1st January 501.8 5.1 506.9 527.0 –6.0 521.0
Releasing or building of reserves recognised in profi t or loss 20.9 –/– 20.9 15.4 –/– 15.4
Balance as of 31st December 54.1 0.0 54.1 55.3 0.0 55.3 in CHF million 22.1.4 Loss Reserve Including Loss Adjustment Epenses 2006 2007
Additions / disposals from changes in the scope of consolidation –/– 48.8
Balance as of 31st December (gross) 5,330.2 5,539.3 in CHF million
Total provisions for future policyholders’ dividends 1,997.5 1,996.7 in CHF million 2 The Swiss pension business is disclosed separately due to its special features. It comprises group contracts which may be cancelled annually by both parties, while the coverage period of the individuals enrolled is signifi cantly longer.
All maturity data is based on residual term until contract expiration. The line item “residual term unknown” includes in particular deferred and current retirement pensions.
Disposals from the sale of policy portfolios or insurance companies –/– –/–
Additions / disposals from change in the scope of consolidation –/– –/–
Adjustment from unrealised gains and losses as of 31st December (shadow accounting) 791.2 463.4
Total liabilities from the banking business and fi nancial contracts 6,744.0 8,079.1 in CHF million 1 There are currently no internationally accepted mathematical procedures for fi nancial contracts with discretionary participation features (DPF) to determine market value.
Savings and customer deposits primarily concern savings, business and deposit accounts of Swiss banking customers. Mortgagebacked bonds shown here were all issued by the Mortgage Bond
Other fi nancial contracts – classifi ed as “Recognised at market value through profi t or loss” – primarily concern liabilities in connection with investment-type life insurance contracts, which are part of the life insurance business. The change in this liability compared to the previous year is attributable exclusively to asset infl ows and outfl ows and market value changes.
VORABDRUCK 24. Reconciliation Between the Gross Investment in Financial Leasing and the Present Value of Minimum Lease Payment
Including: fi nancial leasing of property for own use in accordance with section 7 of the fi nancial report.
The operating bond in connection with the banking business with a face value of CHF 175 million was repaid on 12th June 2007. On the same date, bonds were issued with a total face value of CHF 100 million.
As of the balance sheet date the market value of fi nancial liabilities amounted to CHF 1,195.5 million (previous year: CHF 903.5 million ).
Unused provisions reversed through profi t or loss –0.1 –37.2 –37.3
Balance as of 31st December 2007 0.7 115.9 116.6 in CHF million
Other increases and additional provisions recognised in profi t or loss primarily represent estimated liabilities for lease payment guarantees provided in connection with real estate disposals.
Also included in the balance for other fi nancial provisions are amounts for legal counsel fees and process risks.
Recognised at market value through profi t or loss 24.8 23.8
Cash and cash equivalents 14.1 32.5 in CHF million 1 Excluding income from associates
Notes to the Consolidated Income Statement 28. Premiums Earned and Policy Fees
Gross premiums written and policy fees 3,065.1 3,651.4 6,716.5 3,190.6 3,677.8 6,868.4
As of the balance sheet date, interest revenue of CHF 9.3 million was recognised on impaired investments (previous year: CHF 9.6 million ).
Realised gains and losses on investments for the account and at the risk of holders of life insurance policies 120.8 5.4
Realised gains and losses on investments as recognised in the income statement 702.8 598.1 in CHF million 30.1 Realized Gains and Losses on Investments 2006 for Own Account and at Own Risk
Recognised at market value through profi t or loss –2.2 –14.1 –/– –180.8 –197.1
Total realised gains and losses on investments 1 80.4 551.7 73.3 –2.4 –121.0 582.0 in CHF million 1 Excluding investments in associates. 2 A gain of CHF 9.4 million from market value hedging was included in the realised disposal and book losses and profi ts from market value mortgages and loans. 3 In case of investments of a debt nature held-to-maturity, currency effects are carried under realised book profi ts / realised book losses.
Total realised gains and losses on investments 1 –22.2 804.0 –54.8 6.0 –140.3 592.7 in CHF million 1 Excluding investments in associates. 2 A gain of CHF 5.3 million from fair value hedging was included in the realised disposal and book losses and profi ts from market value market mortgages and loans. 3 In case of investments of a debt nature held-to-maturity, currency effects are carried under realised book profi ts and / or realised book losses.
CHF 26.8 million (previous year: CHF 48.0 million) stemming from monetary fi nancial investments classifi ed as available for sale.
Acquisition, operational and administrative expenses for the insurance business, investment expenses and other operating expenses are shown on the income statement.
CHF 11.7 million (previous year: CHF 9.6 million). Also included are fees and commissions for assets managed for third parties in the amount of CHF 3.2 million (previous year: CHF 2.3 million).
Gains from the sale of: Property, plant and equipment 0.1 3.0
34. Number of Employees As of the balance sheet date the Baloise Group workforce numbered 7,714 full-time equivalent employees (FTEs) (previous year: 7,459). Personnel expenses totalled CHF 1,097.7 million for the fi scal year (previous year: CHF 1,084.5 million).
Change in fair value of other fi nancial contracts –/– –/–
Total income from interest rate hedging instruments –14.6 –5.6 in CHF million
Included for fi scal year 2006 are expenses of CHF 38.9 million in connection with a change of tax rate primarily concerning the Swiss
The projected average tax rate for the Baloise Group was 23.56%
for 2006 and 22.13% for 2007. These rates represent the weighted average of tax rates in the countries where the Baloise Group operates.
The Baloise Group sells put options to employees as part of the employee share ownership plan outlined under section 17.4.3.
Partner in Life S.A., Luxembourg, GAP Management AG, Ahrensburg, and the previously proportionately consolidated company
CHF 79.2 million. This includes repayment of a Group-internal loan in the amount of CHF 59.1 million.
Cash and cash equivalents used for acquisition or disposal 6.2 115.5 20.1 30.4
CHF 7.1 million on the downside or CHF 34.2 million on the upside.
The acquisition of Osiguranje Zagreb also involved four smaller subsidiaries. Additionally, the formerly proportionately consolidated companies GROCON Zweite Grundstückgesellschaft mbH, Hamburg, and Deutscher Ring Financial Services GmbH, Hamburg, were acquired outright. Priced at CHF 9.2 million, the deal generated goodwill of CHF 16.2 million.
39. Related Party Transactions As part of its ordinary operating activities, the Baloise Group conducts transactions with associates, members of the Bâloise-
Deutscher Ring Krankenversicherung does not fall within Baloise ’s scope of consolidation as a mutual insurance company,
Premiums earned and policy fees –/– –/– 1.0 1.1 –/– –/– 1.0 1.1
(previous year: 13,871 shares) valued at CHF 2.1 million (previous year: CHF 1.3 million) were repurchased from Corporate Executive
Sach by virtue of an organisational agreement, and thus constitutes a related party partner company. The amount of the transactions concerned is insignifi cant both individually and in total for
Since 2006, 25% of Board of Directors members’ annual compensation has been remitted in the form of stock restricted for a three-year period. As with the Management Share Subscription
Shares 25% of the contractually agreed remuneration will be paid in shares which are locked-up for three years. Intrinsic value: fair value minus 10% (as with SSS). Additional remuneration No additional remuneration was disbursed.
40.1. Compensation for the Chairman of the Board of Directors and Corporate Executive Committee members The Board of Directors Compensation Committee determines the type and amount of compensation received by the Board of Directors chairman and Corporate Executive Committee members. This consists of a base salary and an incentive component tied to the obtainment of performance targets. The standard incentive component equals 54% of base salary, potentially increasing to a maximum 70% for outstanding performance. The Compensation Committee may also at its discretion apply an OPM factor (Operational
Performance Management) ranging between 0.8 and 1.3 tied to corporate earnings.
Performance targets for the subsequent year are determined through a multilevel process and approved by the Compensation
Total compensation rose compared to the previous year, moving up towards the marketplace median for comparable items. The following factors were involved in this increase: Retirement contributions / benefi ts are now counted as part of total compensation in line with industry regulations effective 1st January 2007.
Introduction of the IPM process (Individual Performance Management ) in 2006 led to a relative increase in variable, incentivised compensation. As a result, for example, a target obtainment percentage of 130% is applied for performance characterised as outstanding (previous maximum 100%).
The performance quota also came into play as a new incentive element for the fi rst time in 2007.
Variable components within the overall compensation package are determined in the spring of each year as part of the Individual Performance Management process. Data provided in the table below refl ects compensation remitted, excluding amounts deferred to a subsequent period. Base salary, pension benefi ts for the year 2007 and variable compensation elements remitted based on the previous year are thus included.
Total members of the Corporate Executive Committee previous year (without pension benefi ts) 5,475,475 in CHF
Explanatory notes to table Other members of the Corporate Executive Committee: includes Dr. Thomas Sieber, who was appointed member of the CEC on 6.12.2007. Remuneration to former members and persons with close family ties No non-standard remuneration has been paid to individuals or companies with close family ties to the Chairman of the Board of Directors or the members of Corporate Executive Committee. (persons with close family ties: spouse, civil partner, unmarried partner, children under 18). No non-standard or other remuneration has been paid to former members of the Board of Directors pertaining to previous governing body activities in Baloise. Basic salary Basic salary as per contract (gross).
Prospective entitlements (PSU) Entitlements that confer a right to acquire shares at a future date, subject to achieving pre-determined performance conditions (cf. section 5.5. Performance Share Units (PSU)). The accrued value of share awards will only be added to the total remuneration at the conversion into actual shares (i.e. at the end of the three-year performance period), only then can a reliable estimate be provided and only then will they actually have been earned. Non-cash benefi ts Basis: All elements of remuneration in compliance with the new Swiss salary certifi cate. The listed amount is a long service gift to a member of the CEC. Pension benefi ts Employer contributions to the pension fund plus premium payments for single life policies for incentives not insured under the pension fund. Contributions to single life policies will be discontinued in 2008.
Directors and Corporate Executive Committee break down as follows: Credits and loans to members of the Board of Directors and the Corporate Executive Committee
Dr. Georg F. Krayer, Vice-Chairman of the Board of Directors and (as of 6.12.2007) Lead Director
Total Board of Directors and Corporate Executive Committee previous year 10,631,334 in CHF
Explanatory notes to table Credits and loans No non-standard loans and credits have been granted to a) former members of the Board of Directors and the Corporate Executive Committee.
b) individuals or companies with close family ties to members of the Board of Directors (persons with close family ties: spouse, civil partner, unmarried partner, children). Mortgages Employees are granted mortgages at preferential rates: 1% below standard variable interest rate for clients, preferential rate for fi xed interest mortgages. The mortgage granted to Dr. A. Burckhardt is charged interest at market conditions since at the time of the conclusion of the contract no employee conditions were granted yet. Loans connected with the Share Ownership Plan Loans to fund leveraged share ownership plan (cf. section 5.4. Share Ownership Plan). Interest is charged at prevailing interest rates (2007: 3%) over a term of three years. Other loans There are no policy loans.
Holding shares in the amounts shown below (including shares allocated / distributed from share-based incentive plans during the reporting period): Shares held by members of the Board of Directors 2007 Discretionary shares Restricted shares
Dr. Georg F. Krayer, Vice-Chairman and (as of 6.12.2007) Lead Director 23,500 2,186 25,686 0.048%
Explanatory notes to table Shares-holdings Incl. shares held by individuals or companies with close family ties to members of the Board of Directors (spouse, civil partner, unmarried partner, children under the age of 18). Discretionary shares Shares held in personal custody accounts.
Restricted shares Shares subscribed for through share-based remuneration schemes are subject to a three-year lock-up period. Under section 20 of the articles of incorporation, each member of the Board of Directors must deposit 1,000 shares with the Company for the term of his / her offi ce (qualifying shares). Options Members of the Board of Directors do not hold options on Baloise shares.
Shares held by the Chairman of the Board of Directors and members of the Corporate Executive Committee 2007
Chairman of the Board of Directors and (as of 6.12.2007) CEO of Baloise Group 30,566 25,802 56,368 0.104% 6,359
Dr. Frank Schnewlin, CEO of Baloise Group (until 6.12.2007) 100 117,627 117,727 0.218% 5,962
Dr. Martin Strobel, CEO of Basler Switzerland –/– 7,973 7,973 0.015% 2,623
Total Chairman of the Board of Directors and members of the Corporate Executive Committee previous year 268,131 0.485% –/–
Explanatory notes to table Share-holdings Incl. shares held by individuals or companies with close family ties to members of the Board of Directors (spouse, civil partner, unmarried partner, children under the age of 18). Discretionary shares Shares held in personal custody accounts Restricted shares Incl. shares subscribed for through the Employee Share Ownership Plan (ESOP) and fi nanced by loans. Shares subscribed for through share-based remuneration schemes are subject to a three-year lock-up period. As per section 20 of the Articles of Incorporation, each member of the Board of Directors must deposit 1,000 shares with the Company for the term of his / her offi ce (qualifying shares). Options Options held in relation to the Employee Share Ownership Plan are not listed here, as they do not originate from their own option plan but have been written to secure the loan. In addition, each put option has a call option as counterpart. Prospective entitlements (PSU) Number of PSUs allocated (allocation as of 9.3.2007).
42.1.2 Guarantees and Payment Guarantees for the Benefi t of Third Parties The Baloise Group has provided guarantees and incurred obligations with third parties, associates, partnerships and joint ventures. These include contractual obligations to contribute / pay in capital / equity, funds for covering principal and interest payments due and guarantees provided in the course of operating activities. The Baloise Group is unaware of any default circumstances requiring the exercise of such guarantees.
of which: for the benefi t of joint ventures –/– –/–
Payment guarantees –/– –/– –/– –/– 182.6 182.6 in CHF million
Commitments for future acquisition of investments also include private equity commitments that are not fi nanced commitments for direct investment in private equity or investment in private equity funds.
Leasing income 47.1 49.6 in CHF million 44. Claim Payments Received from Non-Group Insurers Baloise Group companies received claim payments totalling CHF 0.6 million in fi scal year 2007 (previous year: CHF 0.3 million) from non-
Basler, Versicherungs-Gesellschaft, Basel Nonlife NL 100.00 100.00 F CHF 75.0 6,002.3 1,293.0
Baloise Bank SoBa, Solothurn Banking B 100.00 100.00 F CHF 50.0 5,379.8 –/–
Haakon AG, Basel Other O 74.75 74.75 F CHF 0.2 34.2 –/–
Beteiligungsgesellschaft mbH, Hamburg Holding O 100.00 100.00 F EUR 20.5 305.4 –/–
Sachversicherungs-Aktiengesellschaft, Hamburg Nonlife NL 100.00 100.00 F EUR 50.0 419.3 136.4
Deutscher PensionsRing AG, Hamburg Life L 100.00 100.00 F EUR 3.0 29.8 13.8
Versicherungs Aktiengesellschaft, Bad Homburg Nonlife NL 100.00 100.00 F EUR 15.1 997.9 466.4
Beteiligungsholding GmbH, Hamburg Holding O 65.00 65.00 P EUR 12.8 246.8 –/–
Beteiligungs GmbH, Cologne Other O 39.00 60.00 P EUR 0.1 22.0 –/–
Mercator Verzekeringen NV, Antwerp Life and Nonlife L / NL 100.00 100.00 F EUR 168.0 3,138.2 386.2
Mercator Re NV, Antwerp Reinsurance NL 100.00 100.00 F EUR 1.2 4.6 0.0
Euromex NV, Antwerp Nonlife NL 100.00 100.00 F EUR 2.5 61.6 22.8
Antwerp Real Estate NV, Antwerp Other O 100.00 100.00 F EUR 1.2 2.9 –/–
Merno-Immo NV, Ghent Other O 100.00 100.00 F EUR 17.1 18.5 –/–
Bertrange (Luxembourg) Holding O 100.00 100.00 F CHF 249.9 978.8 –/–
Bertrange (Luxembourg) Nonlife NL 100.00 100.00 F EUR 7.5 118.3 32.6
Bertrange (Luxembourg) Other O 100.00 100.00 F EUR 0.1 8.8 –/–
Basler Zivotno Osiguranje d.d., Zagreb Life L 94.00 94.00 F HRK 22.5 129.7 61.1
Douglas / Isle of Man / British Isles Reinsurance NL 100.00 100.00 F CHF 31.2 152.3 –/–
Baloise Life (Liechtenstein) AG, Balzers Life L 100.00 100.00 F CHF 5.0 7.5 –/–
Wealth Assurance AG, Vaduz Life L 40.00 75.00 F EUR 3.0 9.2 0.0
Hamilton / Bermuda Reinsurance NL 100.00 100.00 F CHF 5.0 814.2 –/–