CORPORATE GOVERNANCE Corporate Governance Report including Remuneration Report ��������������������������������������������������� 58 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ������������������ 102
GENERAL INFORMATION Glossary ������������������������������������������������������������������������������������������������� 288 Addresses ���������������������������������������������������������������������������������������������� 292 Information on the Baloise Group �������������������������������������������� 293 Financial calendar and contacts ������������������������������������������������ 294
Dividend per share 5 (CHF) 5.00 5.20 4.0 1 Premiums written and policy fees (gross).
2 Of which deferred gains / losses from other operating segments (31 December 2015: CHF – 3.3 million; 31 December 2016: CHF 2.0 million). 3 Excluding investments for the account and at the risk of life insurance policyholders.
(will be proposed to the Annual General Meeting on 28 April 2017)
Building on its successful past, Baloise is further strengthening its core business and also stepping up its activities outside the traditional insurance business in areas such as safety services, active assistance and prevention� The Company is thus equipping itself for the changing requirements of today’s customers � On this journey, Baloise will measure its performance using three clear and simple goals� 1� Baloise aims to become the first choice for people who want to feel “simply safe”� By ensuring an even stronger focus on customer needs, tailored omnichannel communication and innovative products and services in the areas of insurance, assistance and pensions, Baloise is striving to attract an additional one million customers by 2021� This equates to an increase of 30 per cent�
Dr Andreas Burckhardt, Chairman of the Board of Directors (right), and Gert De Winter, Group CEO (left).
3� Finally, you, our shareholders, are to benefit directly from Baloise continuing to pursue an attractive dividend policy and repurchasing up to three million more treasury shares� At the same time, targeted capital investment in new strategic projects will indirectly generate additional profits in existing and new areas of business� We anticipate a cash inf low to Bâloise Holding of CHF 2 billion between now and 2021 that will pave the way for this consistently attractive shareholder policy and profitbringing new capital expenditure�
In the life business, our efforts to change the business mix are already having an impact� Premiums from traditional life business declined in all countries, whereas investment-type premiums rose by 5�5 per cent across the Group� In the non-life business, the rise was 3�0 per cent� The net combined ratio improved by 1�1 percentage points year on year to 92�2 per cent� The net return on insurance assets came to 2�9 per cent, which was in line with the long-term trend (2015: 3�0 per cent)� This is further proof of the stability of our asset management�
The profit that we generated in 2016 exceeded expectations� For this reason, the Board of Directors will ask the Annual General Meeting to raise the dividend to CHF 5�20� Moreover, the share buy-back programme launched in 2015 has finished earlier than planned� We have already announced a new programme, in which up to three million shares are to be repurchased over the next three years�
Under its new strategy, Baloise has set itself three clear targets in respect of employees, customers and shareholders� These will enable us to measure our performance over the next five years� We believe the targets are ambitious, especially because low interest rates and the strong Swiss franc continue to present us with difficulties� In view of the challenges facing our industry, we have to be innovative and dare to embark on new ventures� However, we have the necessary strength with which to pursue this strategy successfully� We believe Baloise is very well positioned to get through even difficult periods and achieve the targets that it has set�
Dr Andreas Burckhardt Gert De Winter Chairman of the Board of Directors Group CEO
The equity markets were confronted with a series of unexpected events last year� The United Kingdom’s vote to leave the European Union and the surprising outcome of the US presidential election shaped the macroeconomic environment in 2016� Although they were affected at the start of the year by concerns about the general health of the global economy and the slump in prices for energy commodities, the financial markets rallied strongly towards the end of the year� The main reason for this trend was the anticipation of a more pro-business policy in the United States under the newly elected Republican president, Donald Trump� The markets are expecting the Trump administration to deliver lower corporate taxes, deregulation in the banking sector and generous infrastructure programmes, factors that could lead to higher corporate profits and economic growth� These more positive expectations also influenced the bond markets, which eventually benefited from a rise in yields in the fourth quarter� In view of the buoyant US economy, the Federal Reserve raised the key interest rate by 25 basis points in mid-December� This was the second rate hike by the Fed since the start of the most recent financial crisis�
Nonetheless, the financial markets’ encouraging performance after the US presidential election was able to only partly offset the significant price falls experienced by many stocks in the earlier quarters of the year� The particularly challenging market situation in the first six months of 2016 caused Baloise shares to drop by around 15 per cent compared with their price at the start of the year� However, the share price responded very well to the good results for the first half of the year and the successful Investor Day in late October� As a result, the price of Baloise shares closed 2016 at CHF 128�30, which was slightly higher than at the end of 2015� Baloise shares thus generated a return of 0�5 per cent for 2016 as a whole (excluding the dividend)� By contrast, the STOXX Europe 600 Insurance Index (SXIP) fell by 6�7 per cent overall during the same period� Switzerland’s two main share indices also declined: the Swiss Market Index and the Swiss Leader Index went down by 6�8 per cent and 2�6 per cent respectively over the year as a whole�
Baloise shares hold their own despite challenging market conditions * Baloise shares = shares of Bâloise Holding Ltd.
SHAREHOLDER STRUCTURE The shares in Bâloise Holding Ltd are widely held and their free float remains unchanged at 100 per cent� The following notifiable changes to Baloise’s shareholder base took place during the financial year: on 19 May 2016, several collective investments managed by UBS Fund Management (Switzerland) AG together fell below the notifiable threshold of 3 per cent pursuant to section 120 of the Swiss Financial Market Infrastructure Act (FMIA)� Further information on Baloise’s significant shareholders as at 31 December 2016 can be found in table 15 on page 278�
Minus the number of treasury shares (units) 3,053,746 3,028,943 3,048,791 3,464,540 2,499,945
Number of shares in circulation (units) 46,946,254 46,971,057 46,951,209 46,535,460 47,500,055
Average number of shares outstanding 2 46,831,998 46,896,926 46,921,282 46,721,219 46,381,359 1 Calculation is based on profit for the period and equity before non-controlling interests respectively. 2 Relevant for calculation of earnings per share (see page 245 of the Financial Report). 3 2016, based on the proposal submitted to the Annual General Meeting.
INDEXED SHARE PRICE PERFORMANCE 1 BÂLOISE HOLDING REGISTERED SHARES 2011 – 2016
SHAREHOLDERS Thanks to sustained improvements in profitability in its business in Germany, its life business and its banking business, as well as innovative products and services such as the Mobile Insurer, cash of CHF 2 billion will flow into Bâloise Holding between now and 2021� This benefits shareholders directly because Baloise will continue to pursue its attractive dividend policy and will repurchase three million treasury shares� Indirectly, shareholders will benefit from targeted capital investment in new strategic projects that will generate additional profits in existing and new areas of business�
SUSTAINABLE BUSINESS MANAGEMENT The key success factors in the new strategy will be the strong core business and the unique corporate culture that exists among the around 7,300 Baloise employees in Switzerland, Belgium, Germany and Luxembourg� Baloise aims to establish an agile and entrepreneurial corporate culture in which its employees, on a daily basis, see the world through the eyes of the customer� The idea is to develop services and solutions that go beyond the traditional insurance business�
The new strategy is in line with principles of corporate responsibility and sustainable business management, an approach that Baloise has pursued for a number of years now� The new focus on the customer goes beyond that of a traditional service provider� For this reason, greater importance needs to be attached to the society in which the customers – but also Baloise as a Company – exist� Baloise believes that this new strategy will bolster its efforts to make further improvements in the area of sustainable business management�
“Baloise has a strong base on which to transform its business model, evolving from a historically oriented claims processor, a provider of pension and investment products and a risk-taker into a customer-focused provider of assistance, pension and prevention services.” Gert De Winter, Group CEO
→ Our brand personality defines how Baloise acts and communicates: reliable, easy to interact with and caring for you. We are competent and steadfast and act with quiet confidence and honesty. This makes us a reliable partner who is there for our customers when they need us. We communicate clearly and respond quickly to our stakeholder groups. We take a direct approach and always try to make things easier. As a committed partner we want to understand the needs of our customers and work to find suitable solutions.
LIFE DIVISION: INTEREST RATE-RELATED STRENGTHENING OF RESERVES AND CHANGING BUSINESS MIX In the life insurance division, the business volume contracted by 1�7 per cent� This decrease reflected the continuing shift in the business mix away from classic life business, which is no longer a focus because of the ongoing phase of low and, in some cases negative, interest rates� Premium income from traditional life business declined by 5�6 per cent, while investment-type premiums were up by 5�5 per cent� Total premium income, including investment-type premiums, amounted to CHF 5,770�1 million� In traditional life insurance, the business volume decreased in Switzerland (by 6�7 per cent), Germany (by 2�3 per cent) and Belgium (by 0�7 per cent) but increased in Luxembourg (by 10�8 per cent)� The strong growth rate in Luxembourg was primarily attributable to risk products that pay out in the event of death� In contrast to the traditional life business, investmenttype premiums rose to CHF 2,199�2 million, with the volume increasing by 3�4 per cent in Germany, by 14�2 per cent in Belgium and by 7�6 per cent in Luxembourg� In Switzerland, Baloise decided not to launch a second tranche product in view of the extremely low interest rates� As a result, investment-type premiums also declined� There were further encouraging increases in the volume of partially autonomous solutions for occupational pensions in Switzerland� Because interest rates were low, a substantial CHF 316�7 million was added to reserves in the life business in total� Although EBIT in the life business was lower than in 2015, it still amounted to a very healthy CHF 226�1 million� The positive operating income resulted in an increase in the embedded value of the life insurance business from CHF 3,876�2 million to CHF 4,409�4 million in 2016, which is equivalent to a return on embedded value of 14�7 per cent� The new business margin improved to 21�3 per cent (2015: 9�8 per cent) owing to a higher margin in Switzerland� The value of new business also rose, reaching CHF 68�5 million�
EQUITY REMAINS ROBUST Baloise is, and will continue to be, underpinned by a strong capital base� Consolidated equity rose by 5�9 per cent year on year, reaching CHF 5,773�7 million� This figure was bolstered by the good profit for the period and by the gains from the sale of treasury shares after a convertible bond, which had not been fully converted, reached maturity in November 2016� The shares held in reserve for conversion had been recognised at a low purchase price� The total gains from the sale came to CHF 121�4 million� This resulted in an increase in capital reserves, although this was partly offset by dividends paid of CHF 232�0 million and other factors�
Baloise Group Annual Report 2016 Review of operating performance Group 2�9 per cent (2015: 3�0 per cent) and were therefore broadly in line with the return seen in recent years� The volume of unrealised gains improved� Consequently, the rate of return on insurance assets according to IFRS – which includes unrealised net gains and losses on investments but excludes gains and losses on held-to-maturity debt instruments – was 3�1 per cent, which was above the net return and the prior-year IFRS figure of 1�7 per cent�
increased� Investment property is a stable source of income� The same applies to mortgages�
The gains recognised in the income statement were lower than in 2015 because it was not possible to increase the valuations of investment property to the same extent as the previous year� Moreover, impairment losses of CHF 108�2 million gross had to be recognised on financial instruments with characteristics of equity (2015: CHF 72�0 million)� The flagging Swiss stock market was one of the contributing factors� In the life companies, gains realised on bonds were used to strengthen reserves and were at a lower level than in 2015� Currency effects were much more positive than in the previous year; the currency- related losses of CHF 99�8 million were virtually equal to the currency hedging costs�
BASLER VERSICHERUNGEN SWITZERLAND Profit from the non-life business in Switzerland was exceptionally good, rising by 61�1 per cent compared with the excellent prior-year figure� This improvement was due to a higher profit on claims reserves than in 2015� In the life business, profit rose only slightly because of the significant strengthening of reserves required due to low interest rates� The EBIT of the Swiss entities rose by a total of 31�6 per cent to CHF 546�6 million� This was the second-best figure since the introduction of IFRS in 2000� It included a positive non-recurring accounting effect under IAS 19 resulting from changes to the pension funds for Baloise’s own banking and insurance employees� The volume of business fell by 5�7 per cent to CHF 4,307�2 million, primarily due to the selective underwriting policy�
Individual life insurance business continued to contract, declining by 5�8 per cent� The decrease was particularly strong in the case of single premiums, which was the result of the restrictive underwriting policy� Annual premiums from new business were on a par with 2015 thanks to the new Baloise Safe Plan family� Business with investment-type premiums contracted by a substantial 31�0 per cent� This was primarily because it was decided not to launch a tranche product in view of the persistently low interest rates� However, the proportion of insurance assets reinvested was in excess of 30 per cent – an excellent figure� Moreover, the combination of banking and insurance products enables us to offer customers a broader range of savings products�
The total premium income in the non-life business advanced by 2�9 per cent to CHF 755�9 million� In this area, Basler Germany is focusing more on products for retail customers and SMEs rather than on industrial business� The net combined ratio increased by 6�0 percentage points to 109�7 per cent� This was also a consequence of the strengthening of reserves, which had a net negative effect of 7�5 percentage points on the combined ratio� The level of large claims was lower than in 2015 but, at more than CHF 70 million, was still very high� On the basis of the measures already initiated, the aim is to achieve a combined ratio of below 100 per cent in the next few years�
EBIT declined by CHF 20�0 million to CHF 171�7 million� The non-life business grew by 6�6 per cent, which was above the average for the Belgian market� Once again, there were significant increases for transport and marine insurance� Growth in business with SMEs and retail customers was also encouraging� The net combined ratio fell slightly, by 0�2 percentage points, to 93�4 per cent� This was primarily thanks to the improved claims ratio, which was achieved despite Belgium being affected by storm and flood damage in the spring� These results show that the steady growth of the non-life business is not detrimental to profitability as this business continues to be very profitable�
BÂLOISE ASSURANCES LUXEMBOURG The business unit in Luxembourg continues to grow, increasing the business volume by 7�7 per cent to CHF 1,605�5 million� The non-life business was up by 7�1 per cent� This growth was mainly attributable to the strong motor vehicle business� Baloise has made a name for itself in this market, particularly among young drivers, with its Game of Roads and Game of Roads Experience apps, which analyse driving behaviour in a fun way� The net combined ratio improved slightly, falling to 93�9 per cent� EBIT was virtually unchanged�
Premiums earned and policy fees (gross) 1 6,731.1 7,212.7 7,168.1 6,832.4 6,680.6
Realised gains and losses on investments 2 852.9 670.3 1,362.5 386.2 667.2
Share of profit (loss) of associates 16.5 40.5 8.1 36.8 7.1
Gross premiums written and policy fees 6,741.7 7,228.9 7,175.6 6,833.4 6,711.6
Funding ratio (non-life) (per cent) 184.3 179.8 182.9 192.4 188.5 1 In line with the accounting principles applied by the Baloise Group, investment-type insurance premiums are not included in premiums earned and policy fees. 2 Including financial liabilities held for trading purposes (derivative financial instruments).
Baloise Group Annual Report 2016 Review of operating performance Consolidated balance sheet
Liabilities arising from banking business and financial contracts 02_JB_Geschaeftsgang_en 28 22�03�2017 15:46:37
Baloise Group Annual Report 2016 Review of operating performance Business volume, premiums and combined ratio
2015 Group Switzerland Germany Belgium Luxembourg as a percentage of premiums earned 2016 Group Switzerland Germany Belgium Luxembourg as a percentage of premiums earned 1 Including the profit-sharing ratio.
Funding ratio (per cent) 192.4 188.5 1 Not including capitalised settlement premiums.
Change in unearned premium reserves – 1.1 – 31.0 – –
Claims and benefits paid (gross) – 1,854.0 – 1,859.7 – 3,498.4 – 3,804.5
Change in claims reserve / actuarial reserves 1 – 47.6 – 35.3 – 741.1 – 547.2
Change in other technical reserves – 7.7 – 31.5 – 445.6 – 55.2
Total technical result of ceded business – 31.5 – 44.6 – 9.3 – 5.2
Claims and benefits paid – 1,783.3 – 1,771.6 – 3,493.3 – 3,797.0
Change in claims reserve / actuarial reserves 1 – 28.7 – 26.9 – 738.7 – 546.1
Change in other technical reserves – 7.7 – 31.4 – 444.7 – 52.2
Other financial expenses and income – 6.0 – 18.7 84.7 – 272.2
Baloise Group Annual Report 2016 Review of operating performance Banking activities
Policy loans and other loans 17.7 56.1 73.8 1.9 28.5 30.4
Total capital gains and losses 30.4 345.8 376.2 47.6 259.2 306.8
ASSET ALLOCATION IN INSURANCE 1 as at 31.12. Non-life Life Total Non-life Life Total
THE ENVIRONMENT ��������������������������������������������������������������������������������� 48 Environmental mission statement �������������������������������������������������� 48 Protecting the environment over the long term ����������������������� 49
RISK MANAGEMENT �������������������������������������������������������������������������������� 52 Baloise’s risk management is one of the main pillars of its business model ������������������������������������������������������������������������������ 52
Sustainable business management 4 Baloise 16 Review of operating performance 36 Sustainable business management 58 Corporate Governance 108 Financial Report 266 Bâloise Holding Ltd 286 General information 03_JB_Nachhaltige_Geschaeftsfuehrung_en 37 22�03�2017 14:57:01
The collaboration with the Emilie Leus foundation in Belgium illustrates how employees are thinking beyond the traditional parameters of insurance� The foundation was established to combat drink driving across Belgium as part of a broadranging campaign� Baloise is contributing to this project at various levels, from providing sponsorship and expertise and raising awareness to lobbying for laws to be changed� And for a number of years now Baloise has been carrying out preventive work in Switzerland to help combat addiction among young people� Several times a year, Baloise employees visit schools to talk about this subject�
RESPONSIBILITY IN SOCIETY Baloise believes it has a responsibility to society in its role as a corporate citizen and has long been a committed advocate of Switzerland’s “milizsystem”, in which it falls to volunteers to run public offices� In April 2015 Baloise became a signatory to the declaration by economiesuisse (the umbrella organisation representing Swiss business) and the Swiss Employers’ Association that commits companies to offering flexible working conditions and working time models that enable employees to participate in the scheme� Baloise not only encourages its employees to engage in voluntary activities by holding annual inhouse events but it also meets its own responsibility to society as a commercial organisation� It creates and preserves jobs that add value and it pays taxes from its profits that help to fund the public sector� This enables Baloise to be an active partner in many areas of society�
For example, the Company has promoted art through the Baloise Art Prize for more than 15 years� Every year this prestigious accolade is awarded to two talented young artists at the Art Basel fair� The winning works are acquired by Baloise and donated to two museums that each mount an exhibition devoted to one of the artists� These are currently the Museum of Modern Art in Frankfurt and the Musée d’Art Moderne in Luxembourg� In addition, Baloise maintains a long-standing collection of artworks that can be seen not only by employees but also by the public at two exhibitions in the Art Forum at the Company’s headquarters� These exhibitions are changed each year� In Germany, Baloise opens its art collection to the public once a year as part of the Kunst privat initiative�
The Baloise companies outside Switzerland also play their part in social, sporting and cultural life in their regions by supporting numerous institutions and events� Here are some of the many activities that they engage in: → Since 2012, employees in Switzerland have regularly arried out CSR activities for the Just for Smiles foundation, the Tierschutz beider Basel animal protection society and the Entlebuch UNESCO Biosphere Reserve
→ Sponsor of Topsport Vlaanderen-Baloise, a team of young racing cyclists
→ Environmental initiatives with Luxembourg’s natur & umwelt organisation as part of a collaboration running until 2020
→ Long-standing collaboration with Fondation Cancer in Luxembourg� Baloise gets actively involved in the organisation of Relais pour la vie, an annual 24-hour relay run: www.relaispourlavie.lu
→ Proceeds from the Christmas concerts in Hamburg, Germany, are donated to charities
→ Sponsor of the Eschborn-Frankfurt – Rund um den Finanzplatz cycle race in Germany
The new Simply Safe strategy, with its emphasis on the workforce, underlines how Baloise will only be able to achieve its ambitious goals for future growth with the support of dedi - cated employees. In 2016 the Company therefore focused on the transition to a growth culture in which established practices are improved upon and new approaches are tried out.
→ 7,270 (2015: 7,387) employees (FTEs in 2016: 6,664). → 43.9 per cent of all employees are women
(2015: 43.9 per cent). → The Baloise Group employs 230 (2015: 212) apprentices, trainees and interns. → 65.5 per cent of staff members working in our main market of Switzerland participated in our Share Participation Plan in 2016 (2015: 60.4 per cent).
→ Staff turnover as at 31 December 2016 amounted to 5.4 per cent (end of 2015: 5.5 per cent).
BECOMING AN EMPLOYER OF CHOICE BY 2021 The workforce is key to implementing Baloise’s new Simply Safe strategy, which is why the Company wants to become a leading employer in its industry by 2021� This objective was announced at the 2016 Investor Day� It is based on the conviction that hardworking, entrepreneurially minded employees will cultivate strong and loyal customer relationships that in turn will help Baloise to achieve its financial targets�
→ The Baloise Group aims to become an employer of choice in its industry� To achieve this, it is looking to make major improvements in the following two areas, one internally focused and one externally focused: • engagement of existing employees • reputation as an employer
→ Progress will be measured by a new performance indicator that will be published regularly from 2017�
→ Established processes such as the managerial feedback and culture of dialogue are being continued�
→ “Employee focus” is not an initiative that is being dictated from above: it is built on the ideas of the employees and their willingness to help shape the future and, in return, promises to give them the freedom they need�
CHANGING THE ORGANISATION. AT ALL LEVELS. Baloise operates in a challenging market with highly volatile parameters� In 2015 this situation prompted the Company’s decision to start concentrating more heavily on growth� So in 2016, the focus in HR was on establishing a culture of growth across the Group� Top-down measures were introduced as a means of driving this cultural shift within the Company, as were initiatives that are being driven from within the organisation itself and accompanying HR programmes�
Across the Group, managers explained Baloise’s new corporate strategy to their employees with the aid of cascade workshops� The workshops were held to help staff understand the strategy and to encourage them to play an active role in the process of change� A lot of emphasis is placed on behaviours that are conducive to growth, such as engagement and personal initiative, trying out new ways of doing things and striving for improvement � The specific aim is for management to lead by example here� This will present challenges for the managers in particular as they will need to learn how to relinquish control, deal with uncertainty and delegate more� To help them, a new format was launched as part of the established Baloise Campus management development programme� And in November 2016 the first Baloise BarCamp took place� This two-day event, during which the participants had to organise themselves, encouraged creating thinking and the development of radical new approaches to problems�
A prime example of personal initiative and an active contribution by the workforce was the inaugural Baloise Hackathon in 2016, which two employees took it upon themselves to plan and organise�
BUILDING ON WHAT’S ALREADY THERE. TRYING NEW THINGS OUT. In 2016, to accompany these initiatives and further anchor the new culture, various HR tools and processes were updated� The basis for this is the new management philosophy, which was developed in 2015� The resulting Baloise Leadership Compass answered the key question of what skills are required in order to successfully strive for growth� The answer comes in the form of twelve new management competencies that are based on Baloise’s three established behavioural values: “Put yourself
The objective of the Baloise BarCamp is to facilitate informal networking and, through workshops organised by the participants, to develop approaches for implementing change at Baloise.
DIALOGUE AS A FOUNDATION OF THE BALOISE CULTURE. INTEGRATING THE SKILLS NEEDED FOR GROWTH.
Our current culture is founded on the three hierarchy-transcending dialogue formats that are based on our Baloise behavioural values� These instruments were updated in line with the Baloise Leadership Compass� 1� The twelve management competencies were integrated into the talent assessment questionnaire� This questionnaire serves as a basis for the development dialogues in which the specific skills of individual employees are discussed� These one-to-one meetings between employees and managers focus on continuous learning and helping employees to make the most of the freedom they are given in their work� They also serve to highlight the skills that need to be developed in order for Baloise to achieve its ambitious targets for future growth�
In 2016 we observed a correspondingly significant increase in quality with regard to the intensity of the talent development meetings and the specific action plans for the talented employees�
A WORKING ENVIRONMENT PROVIDING BALANCE FOR ALL. EMPLOYEES ARE OUR MOST VALUABLE RESOURCE. Our employees play a vital role in the success of our Company� This statement lies at the heart of the new corporate strategy, which puts the emphasis on our employees as one of three main focal points� Baloise gives employees the chance to develop, to give and receive honest feedback and to shape the future of the Company� But we also want to offer a working environment that allows our employees to balance their work lives and personal commitments� We provide the following options to help people do this: → Flexible and part-time working arrangements → Remote working → Company crèche → Wide-ranging corporate health management service 03_JB_Nachhaltige_Geschaeftsfuehrung_en 44 22�03�2017 14:57:03
RECRUITING TALENTED INDIVIDUALS. WITH RELEVANCE, AUTHENTICITY AND A PERSONAL TOUCH. The Baloise Group wants to become an employer of choice in its industry� The way it presents itself on the labour market will play a key role in achieving this goal – all the more so because competition for the best brains has toughened considerably in recent years and, because of demographic change, will only get tougher� Baloise is finding it particularly hard to recruit IT workers, insurance specialists and apprentices for commercial vocations�
It is therefore hugely important that people are made aware of Baloise as a potential employer� One of the ways that the Company is engaging with the public is via social media� It gets in touch with potential new employees through a variety of channels, giving tips on how to apply and using employee profiles and articles to provide an authentic picture of what it’s like to work at Baloise� The Company is always looking for new ways to reach potential recruits� In 2016, for example, Baloise launched a bi-weekly podcast to accompany its careers blog and in autumn successfully carried out its first two WhatsApp taster days for apprenticeships in commercial vocations�
A lot of emphasis continues to be placed on one-to-one dialogue with potential recruits� In Switzerland, Baloise exhibits at numerous job fairs and regularly holds workshops for students� These traditional face-to-face activities are used by HR to present a realistic picture of what Baloise is like as an employer�
GLOBAL VISION. LOCAL FLEXIBILITY. As well as the aforementioned groupwide activities, the HR units for the individual countries also have regional responsibilities � These are dictated not only by the requirements of the local business but also by the local legal system�
Baloise in Switzerland prides itself on being a Friendly Work Space, so re-certification under the scheme for the second time was an important achievement� The Swiss Health Promotion Foundation first awarded the Company its seal of quality in 2010� It recognises how Baloise goes above and beyond the legal requirements to create a healthy working environment� Baloise also goes to great lengths to ensure the quality of the advice that it provides customers� At the end of 2015, for example, all of Baloise’s customer advisors who have acquired a basic qualification (VBV insurance broker or equivalent) and thereby met the criteria for certification were added to the searchable Cicero industry register� To maintain the quality of the advice they provide, the registered advisors have to regularly attend courses� In 2016, to allow our employees to earn the relevant Cicero credits, a number of new inhouse training programmes were accredited� And from 1 January 2016, in line with Ordinance 1 of the Swiss Labour Law (ArGV 1), the requirement to record
In Germany, negotiations with the Group Works Council on the efficiency-related restructuring measures were completed in 2016� With regard to the transition to a culture of growth, emphasis was put on encouraging employees to take the initiative � In various groups and task forces, employees have made, and are making, an active contribution in areas such as innovation, employee focus and future visions� The feedback has been very positive� An employee poll on the intranet based on last year’s engagement survey identified the three most important areas of action, working groups were established and initial results were achieved� In addition, an agreement on remote working was reached for the Bad Homburg site, giving employees greater flexibility in where they carry out their work� In 2017 attention will focus on the ongoing implementation of the future vision� For example, we are encouraging the inhouse and field sales teams to talk to each other more so that they gain a deeper understanding of their counterparts’ processes and requirements � More work is also being done on the feedback culture�
→ 19 graduate fairs → 9 workshops → 89 blog articles → 19 podcasts → 216 Facebook posts → 190 LinkedIn posts → 161 Xing posts
FAIR PAY. IN LINE WITH PERFORMANCE AND THE MARKET. Through the aforementioned activities, Baloise aims to offer employees a working environment in which they can perform to the best of their ability� This performance should be rewarded, including through monetary compensation� Baloise therefore offers performance- and target-oriented remuneration packages that are based on fair principles and an established framework of performance management� The packages consist of competitive base salaries and a range of variable remuneration components as well as attractive employee incentives and loyalty bonuses�
Variable remuneration is based on both individual performance and the success of the Company as a whole� Employees regularly hold meetings with their managers to make sure they are on track to achieve the individual targets that have been agreed upon�
PRINCIPLE As a signatory to the UNEP declaration, Baloise strives for sustainable development from an ecological, economic and social point of view� As a primary insurer, Baloise is prepared to assume responsibility for the preservation of the natural environment�
PRODUCTS AND SERVICES Baloise strives to take environmental aspects into account when developing its products and services and fixing premiums and levels of coverage� Its underwriting policy takes account of its customers’ environmental management practices (e�g� ISO 14001) on the basis of identifiable operational and product-related factors� It also advises industrial clients on risk reduction and risk prevention�
CONTINUOUS REDUCTION OF CO2 EMISSIONS SINCE 2000 Since the issue of climate change has taken on increasing significance as a result of the Kyoto conference in Japan in 1997, Baloise has been publishing key figures on energy and resource consumption, documenting sustainability measures in its annual report, and calculating its absolute and relative CO2 emissions in accordance with the directives issued by the Association for Environmental Management and Sustainability in Financial Institutions (VfU)� Both absolute and relative CO2 emissions have been reduced massively at Baloise since the year 2000� Over this period, Baloise cut absolute CO2 emissions from 53,580 tonnes to 14,257 tonnes� This is equivalent to a 73�4 per cent reduction in CO2 emissions� CO2 emissions per employee fell by 32�5 per cent over the same period, from four tonnes to 2�7 tonnes�
These reductions were mainly achieved through the systematic use of new technologies, through improvements in the energy efficiency of Company premises and through state-of-the-art office concepts�
Amount of refuse 979 t 961 t 811 t 153 kg / employee – 15.6
Risk management makes a significant contribution to the positioning of the Baloise Group and forms an integral part of its strategic management policies. As a European insurer with Swiss roots, Baloise possesses a strong balance sheet and strong operational profitability, which have been optimised in terms of the risks taken and the upside potential derived from the business.
A detailed description of the risk map can be found in the Financial Report on page 141�
Baloise’s risk management approach involves managing both risk and value at the same time� Its risk model is based on innovative standards so that it can always keep its promise to its customers�
RISK MEASUREMENT The Baloise risk model standardises the process of quantifying business risks and financial market risks across all strategic business units� It is consistent with the principles and calculation methods applied by the Swiss Solvency Test and with the European Union’s Solvency II directives� As a groundbreaking risk management tool, it provides a firm foundation on which management can make strategic and operational decisions�
The economic risk capital derived from Baloise’s models is currently the most advanced market standard� To this end, risk measurement metrics alone are used to calculate a target capital figure – irrespective of any financial accounting treatment – to ensure that the Company remains solvent even in adverse circumstances and can meet its obligations to policyholders at all times� This target capital figure is constantly compared with the capital currently available (the “actual” capital)�
RISK PROCESSES Group-wide risk management standards place the risk process on a mandatory footing� These standards stipulate methods, rules and limits that must be applied throughout the Baloise Group� They determine how the various risk issues are evaluated, managed and reported� A number of risk limits act as early-warning indicators to mitigate the risks taken�
The Baloise Group uses a system of limits based on economic risk capital in order to mitigate its risks holistically at an aggregate level� This system tracks the risk capital held by the Baloise Group and individual business units in real time� Issuespecific risks are monitored individually by imposing limits, as illustrated by the following examples: → Actuarial risk is determined by underwriting guidelines on which local underwriters base their decisions� Risk metrics analysis of the deductibles payable supplements the Company’s key reinsurance strategies�
The Own Risk and Solvency Assessment (ORSA), an annual risk report, is discussed with the decision-makers so that suitable measures can be developed� The results of the ORSA are also reported to the regulatory authority� In addition, risk managers ’ assessment of the risk situation is factored into the remuneration paid to executives� The three criteria used to determine the performance pool payments awarded to individual managers are personal performance, leadership and conduct� The individual performance pool payment proposed by the respective line manager is discussed by the relevant management team, compared with other departments and divisions, and adjusted where necessary� This process ensures that risk-relevant behavioural attributes are factored into the individual performance pool payments�
This process provides a 360-degree view of key strategic risks and how they are managed� Strategic risk management provides a clear picture of the risks involved in opening up new business lines and of how to optimise the risk / return profile of existing business�
Profit targets for individual business units that factor in their specific risk situation are a major aspect of this risk management system� These targets form part of the overall objectives agreed with local management teams�
Underwriting approaches that have been tried and tested for many years were maintained in 2016: → The Baloise Group’s investment strategy continues to focus on diversification and on the basic principle of only investing in assets that the Company can itself fully and accurately evaluate through risk management�
→ With a net equity exposure of 7�7 per cent at 31 December 2016, Baloise’s equity investments in the reporting year lay comfortably within its risk-bearing capacity�
→ Much of Baloise’s focus is directed at managing its interestrate risk� Wherever possible, payment obligations to customers for future years are reconciled with the income earned from investments� The high quality of recurrent investment income generated by Baloise’s stable real-estate portfolio has proved very helpful in this respect� Baloise also invests in safe long-term bonds denominated in either Swiss francs or euros and supplements this strategy by using derivative financial instruments such as swaptions�
Risk management at Baloise will continue to evolve over the coming years, reaffirming its standing as a company with an outstanding risk strategy and risk positioning� Further information on risk management can be found in the 2016 Financial Report (section 5� “Management of insurance risk and financial risk” pages 139 to 181)�
ART COLLECTION Collecting art has a long tradition at Baloise� It is part of the Company’s very identity� The first acquisitions were made in the late 1940s� These pieces, which were mainly by regional artists, exhibited the same characteristics that define the collection today: outstanding artistic merit, inner depth and an unusual and often revolutionary form of expression for their time� Two further components underpin the success of the Baloise collection: a clearly defined focus – art created in Basel during the first half of the 20th century – and wherever possible the acquisition of groups of works� Since it first began collecting art in the immediate post-war period, Baloise has remained true to its belief that the Company’s works of art should be accessible both to employees and visitors�
Today the works of the new collection are categorised in three groups that reflect key movements in contemporary art: the first group is minimal and concept art, which since the 1960s has been dominated by American artists� The second major focus of the collection is the euphorically received art of the 1980s� In Europe this period was dominated by a form of expressive figurative art that led to the establishment of terms such as Neue Wilde and Transavanguardia� The third part of the collection is devoted to influential artists working in the medium of drawings � In addition to its works on paper, Baloise maintains a collection of works by artists who realise their artistic goals through the medium of photography�
BALOISE ART PRIZE Every year since 1999 the Baloise Group has awarded two young artists its Baloise Art Prize at the Statements sector of the Art Basel fair� It is Baloise’s way of supporting the development of young, rising talents� The level of interest from young galleries in taking part in this sector at the Art Basel fair is increasing with every year� For the 2016 Art Basel fair no fewer than 380 gal leries applied for the opportunity to showcase their artists� The Art Basel committee has the challenging task of selecting 20 positions from a flood of applications, which are then presented to a global audience at the fair� From these 20 positions a panel of judges made up of international experts selects two winners, each receiving an award and prize money of CHF 30,000�
In addition to this publicity, the artists are also given the chance to have their works displayed in a distinguished art museum: Baloise acquires groups of works by the prize winners and donates these to two leading European art museums (in the locations of strategic business units), currently Frankfurt’s Museum of Modern Art and the MUDAM in Luxembourg� Baloise invites its top customers to these endowment and exhibition events and uses them to strengthen links with the local cultural media�
Further information on Baloise’s art activities and on all previous prize winners can be found here: → www.baloise.com/art → www.baloiseartprize.com
This chapter reflects the structure of the SIX Corporate Governance Guidelines as amended on 1 January 2016 in order to enhance transparency and, consequently, improve comparability with previous years and other companies� It includes the requirements of economiesuisse’s Swiss Code of Best Practice for Corporate Governance and, in particular, Appendix 1 to the latter, which contains recommendations on the remuneration paid to the Board of Directors and the Executive Committee � Baloise publishes a remuneration report as item 5 of its Corporate Governance Report, which meets the criteria specified in circular 2010 / 1 of the Swiss Financial Market Supervisory Authority (FINMA)�
1. STRUCTURE OF THE BALOISE GROUP AND SHAREHOLDER BASE Structure of the Baloise Group Headquartered in Basel, Switzerland, Bâloise Holding is a public limited company that is incorporated under Swiss law and listed on the Swiss Exchange (SIX)� The Baloise Group had a market capitalisation of CHF 6,415 million as at 31 December 2016�
→ Significant subsidiaries, joint ventures and associates as at 31 December 2016 can be found from page 256 onwards in the notes to the consolidated annual financial statements, which form part of the Financial Report�
→ Segment reporting by region and operating segment can be found from page 183 onwards in the notes to the consolidated annual financial statements within the Financial Report section�
Treasury shares Bâloise held 1,829,345 treasury shares (3�659 per cent of the issued share capital) as at 31 December 2016�
2. CAPITAL STRUCTURE Dividend policy Bâloise Holding pursues a policy of paying consistent, earningsrelated dividends� It uses other dividend instruments such as share buy-backs and options to supplement conventional cash dividends� Shareholders have received a total of CHF 1,263�7 million from cash dividends and share buy-backs over the last five years� Baloise has therefore had a combined annual payout rate of between 30 per cent and 50 per cent in recent years�
All figures stated as at 31 December. 1 Proposal to the Annual General Meeting on 28 April 2017.
Conditional capital The 2004 Annual General Meeting created conditional capital� This capital enables the Company’s share capital to be increased by up to 5,530,715 registered shares with a par value of CHF 0�10 04_JB_Corporate_Governance_en 61 22�03�2017 14:57:17
The Baloise Group’s consolidated equity The Baloise Group’s consolidated equity amounted to CHF 5,773�7 million on 31 December 2016� Details of changes in consolidated equity in 2015 and 2016 can be found in the consolidated statement of changes in equity on pages 116 and 117 in the Finan cial Report section� All pertinent details relating to 2014 can be found in the consolidated statement of changes in equity on page 110 in the Financial Report section of the 2015 Annual Report�
→ www.baloise.com/s&prating 3. BOARD OF DIRECTORS Election and term of appointment The Board of Directors consisted of ten members at the end of 2016� Each member of the Board of Directors has been elected for a term of one year at a time�
The average age on the Board of Directors is currently 59� Each member of the Board of Directors is elected individually�
During the reporting year, Dr Michael Becker, Dr Andreas Beerli, Dr Georges-Antoine de Boccard, Dr Andreas Burckhardt, Christoph B� Gloor, Karin Keller-Sutter, Werner Kummer and Thomas Pleines were re-elected as members of the Board of Directors for a one-year term until the end of the next ordinary Annual General Meeting� Prior to the 2016 Annual General Meeting, Dr Eveline Saupper announced that she would be stepping down from the Board of Directors� Professor Marie-Noëlle Venturi - Zen-Ruffinen and Hugo Lasat were elected as new members of the Board of Directors�
BOARD ATTENDANCE IN 2016: MEETINGS OF THE FULL BOARD OF DIRECTORS
Statutory rules concerning the number of permitted activities The 2015 Annual General Meeting approved the addition of a new provision to the Articles of Association (article 33) concerning the maximum number of directorships held outside the Company� Subsection 1 stipulates the principle that the number of external directorships held by members of the Board of Directors or Corporate Executive Committee must be compatible with the commitment, availability, capabilities and independence required of them in order to perform their duties as members of the Board of Directors or Corporate Executive Committee� Subsections 2 and 3 then specify numerical restrictions�
Internal organisation Functions and responsibilities of the Board of Directors Subject to the decision-making powers exercised by shareholders at the Annual General Meeting, the Board of Directors is the Company’s ultimate decision-making body� Decisions are taken by the Board of Directors unless authority has been delegated on the basis of the Organisational Regulations to the Chairman of the Board of Directors, its committees, the Chief Executive Officer or the Corporate Executive Committee�
Furthermore, it specifies the total amount available in the performance pool�
Self-evaluation Every two years, a comprehensive self-evaluation is carried out in the full Board of Directors and in the Audit and Risk Committee � The results are then discussed in each body�
Andreas Burckhardt (1951, Switzerland, Dr iur�, lawyer) has been a member of the Board of Directors since 1999 and its Chairman since 29 April 2011� He studied jurisprudence at the universities of Basel and Geneva� He worked in the legal department of Fides Treuhandgesellschaft from 1982 to 1987 and served as Secretary General of the Baloise Group from 1988 to 1994� He was director and head of the Basel Chamber of Commerce from 1994 to April 2011� In this role he sat on various governing bodies of national and regional business organisations� From 1981 to 2011 he performed political functions in Basel City, and from 1997 to 2011 he served on the Great Council of the Canton of Basel City (as Chairman in 2006 and 2007)� He sits on the Board of Directors of Carl Spaeter AG and is Chairman of the Board of Governors of the Swiss Tropical and Public Health Institute, Basel� He is a member of the Executive Committee of economiesuisse and sits on the Executive Board of the Employers’ Federation for Basel and Regio Basiliensis� Dr Burckhardt performs a non-executive function as Chairman of Baloise’s Board of Directors�
Georges-Antoine de Boccard (1951, Switzerland, Dr med�) has been a member of the Board of Directors since 2011� He studied medicine at the University of Geneva� He has been running his own urological surgery practice in Geneva since 1987� Dr Georges-Antoine de Boccard chairs the Board at Stellaria Holding SA and at the asset management companies of Citadel Finance SA and GPP-Gestion Patrimoniale Personnalisée SA� He sits on the Board of Directors at the Swiss International Prostate Center SA and was Chairman of the Swiss Association of Urology from 2005 to 2006� As well as remaining a member of the Swiss Association of Urology, he is a member of the European Association of Urology and other professional bodies and associations and sits on the boards of directors of various foundations� Dr de Boccard is an independent nonexecutive director�
Christoph B. Gloor (1966, Switzerland) has been a member of the Board of Directors since 2014� He holds a university degree in business economics and has been a member of the Executive Committee of Notenstein La Roche Privatbank AG, St� Gallen, since November 2015� He was previously Chief Executive Officer of Basel-based private bank La Roche & Co AG� Prior to joining La Roche & Co AG in 1998, he worked for Swiss Bank Corporation (SBC) before moving to Vitra (International )� Christoph B� Gloor served as president of the Association of Swiss Private Banks from November 2013 to February 2015 and was a member of the Board of Directors of the Swiss Bankers Association from September 2013 to February 2015� He has been a member of the Board of Managing Directors of the Basel Banking Association since 2016� Mr Gloor is an independent non-executive director�
Karin Keller-Sutter (1963, Switzerland), who holds a university degree in translation and conference interpreting and has a postgraduate qualification in education, has been a member of the Board of Directors since 2013� In 1996 she was elected to St� Gallen’s cantonal parliament and became Chairwoman of the FDP (the Swiss Liberal Party) for the canton of St� Gallen before being elected to St� Gallen’s cantonal governing council in 2000� She was in charge of the security and justice department until May 2012 and chaired the Governing Council in 2006 / 2007 and again in 2011 / 2012� She has been a member of the Council of States – the upper chamber of the Swiss parliament – since the autumn of 2011� Ms Keller-Sutter sat on the Boards of Directors of the NZZ Media Group until April 2016� She also sits on the Board of Directors of the ASGA pension fund� In addition, she chairs the Board of Directors of Pensimo Fondsleitung AG and the Pensimo investment foundation� She is Chairwoman of the Swiss Retail Federation and a member of the executive committee of the Swiss Employers’ Federation� Ms Keller-Sutter is an independent non-executive director�
Thomas Pleines (1955, Germany, lawyer) has been a member of the Board of Directors since 2012� From 2003 to 2005 he was CEO and delegate of the Board of Directors at Allianz Suisse, Zurich, and from 2006 to 2010 he was CEO of Allianz Versicherungs-AG, Munich, and an executive director at Allianz Deutschland AG, Munich� From 1998 to 2013 Mr Pleines sat on the Supervisory Board of Bilfinger SE, Mannheim� Since 2011, he has chaired the presidential boards of DEKRA e�V�, Stuttgart, and DEKRA e�V� Dresden, as well as the supervisory boards of DEKRA SE, Stuttgart, and SÜDVERS Holding GmbH & Co� KG, Au near Freiburg� Mr Pleines is an independent non-executive director�
Marie-Noëlle Venturi - Zen-Ruffinen (1975, Switzerland, Prof� Dr iur�, lawyer) has been a member of the Board of Directors since 2016� She holds a PhD and master’s degree in law and a master’s degree in philosophy from the University of Fribourg� She is a lawyer and honorary professor at the School of Economics and Management at the University of Geneva, where she mainly lectures on corporate law� Professor Venturi - Zen-Ruffinen was a partner in the Geneva law firm Tavernier Tschanz until 2012, and since that time has been of counsel for the firm� She is president of the Swiss Board Institute foundation and sits on the Board of Management of the Swiss Institute of Directors� Professor Venturi - Zen-Ruffinen is an independent non-executive director�
Baloise Group Annual Report 2016 Corporate Governance Corporate Governance Report 4. CORPORATE EXECUTIVE COMMITTEE
With the exception of the mandates listed above, no Corporate Executive Committee members serve on the boards of directors at companies outside the Baloise Group�
Martin Wenk (1957, Switzerland, lic� iur�) held several posts at a major bank from 1982 to 1992 after graduating in law from the University of Basel� He started out as an investment advisor to institutional clients before becoming a Group Manager in private banking in New York and eventually working as Section Head of Securities Sales, where he primarily covered key institutional clients� From 1992 to 2000 he headed up portfolio management in Switzerland for the Baloise Group, where he was responsible for managing the assets of several Swiss companies, including their pension funds� In 2001 he was appointed to the Corporate Executive Committee (as Head of Corporate Division Asset Management ) and, in this capacity, is responsible for the Baloise Group’s asset management activities, which include investment strategy and investment control, Baloise Asset Management, real estate, and Baloise Investment Services (investment fund business)� He sits on the Board of Directors at Unigestion Holding, Geneva, and compenswiss (the Swiss Federal Social Security Funds), Geneva� On 13 October 2016 Martin Wenk announced that he will be stepping down from the Corporate Executive Committee with effect from 30 April 2017� The Board of Directors of Bâloise Holding Ltd appointed Dr Matthias Henny as his successor� Dr Henny joined Baloise in 2012 as CEO of Baloise Asset Management�
Fringe benefits → Not dependent on either an individual’s function or performance or the Company’s performance → Demonstration of Baloise’s close partnership with employees and its respect for them
1 Incl. CHF 0.452 million for the departing Group CEO, covered by the additional amount pursuant to article 30 of the Articles of Association of Bâloise Holding Ltd.
Performance share units (PSUs) Long-term variable remuneration for members of the Corporate Executive Committee
Allocation → The total amount for the allocation of PSUs is determined by the Remuneration Committee → The Remuneration Committee decides on the allocation of PSUs to each individual Corporate Executive Committee member
Conversion → Performance criterion: profit for shareholders relative to the peer group (EURO STOXX 600 Insurance) after three years
→ PSUs are a performance instrument, enabling clear differentiation using a performance multiplier of between 0�5 and 1�5 2016 plan (ended) Plan term: 1 March 2013 – 29 February 2016
Dr Martin Strobel 2015 CHF 2.409 million 2016 CHF 0.452 million
Dr Thomas Sieber 2015 CHF 1.441 million 2016 CHF 1.478 million
Dividend payments Change in share value (measured as at 31 Dec 2016)
Baloise Group Annual Report 2016 Corporate Governance Remuneration Report 5.2 Remuneration policies Principles The Company’s success is largely dependent on the skills, capabilities and performance of its workforce� It is therefore essential to recruit, develop and retain suitably qualified, highly capable and highly motivated professionals and executives� The level of remuneration offered by Baloise is in line with the going market rate and performance-related� The clearly defined caps approved by the Annual General Meeting for the pay awarded to members of the Board of Directors and Corporate Executive Committee ensure that remuneration is not excessive�
Remuneration Guideline and Remuneration Policy Responding to a request from the Remuneration Committee, in 2010 the Board of Directors formally adopted a Remuneration Guideline that formulates the remuneration principles and parameters applied across the Baloise Group� This Remuneration Guideline applies to all employees throughout the Baloise Group� It reflects the Company’s values and principles and can be summarised as follows: → Competitiveness in the marketplace: Baloise aims to pay basic salaries that are in line with the market – i�e� around the market median – and to offer variable remuneration packages in excess of the going market rate to reward outstanding performance by individuals and the Company; → Remuneration that reflects individual and company-wide performance: merit and achievement form the basis for advancement and promotion; → Fairness and transparency: external market-based comparisons, fair pay and no discrimination; → Sustainability: high correlation between the interests of managers and shareholders, long-term commitment, and a high proportion of restricted shares�
The Board of Directors used this Remuneration Guideline as the basis for the Remuneration Policy, which applies to all employees in Switzerland and, by analogy, to all members of staff throughout the Baloise Group� By adopting this Remuneration Guideline and Remuneration Policy, the Board of Directors has ensured that all aspects of remuneration policy are standardised for the entire group� This regulatory framework underpins a remuneration system that meets all the requirements of the Swiss Financial Market Supervisory Authority and, in particular, ensures that variable remuneration even more accurately reflects the value added by the Company�
5.3 Remuneration system Objectives The objectives of the remuneration system are to further increase the emphasis on performance at Baloise and to strengthen employees ’ and executives’ loyalty and commitment to the organisation � The aim of Baloise’s remuneration policies is to pay basic salaries in line with the going market rate� In addition, the variable components of remuneration are structured in such a way that it is possible to grant payments above the market median for years in which individual performance and the Company’s profitability have been good; equally, it is possible to offer payments below the market median for years in which performance and profitability have been poor� As a performancedriven organisation, Baloise clearly and transparently aligns individual employees’ targets with the Company’s targets, which are derived from its strategic priorities� Target agreements, performance assessments and remuneration are closely correlated� The total remuneration package – which comprises basic salary and variable remuneration – offers a sophisticated way of linking individuals’ performance to Baloise’s success and recognising both accordingly, and it is designed to reward employees for outstanding achievement without creating an incentive for them to take inappropriate risks� Personal performance provides our talented individuals with the necessary platform for their development, advancement, career planning and promotion� Baloise attaches considerable importance to retaining high performers and managing its business sustainably� In addition to paying its staff in line with market rates and according to individual achievement, the Company encourages its executives to focus on the longer term and on its shareholders’ interests� Consequently, it pays a substantial proportion of variable remuneration in the form of shares that are restricted for three years� Furthermore, the three most senior management levels receive performance share units, which means that a further component of their salaries is paid out as shares; these PSUs must be held for three years before being converted into shares as a form of deferred remuneration� As managers’ strategic responsibility and influence grow, the amount of their variable remuneration is largely determined by the Company’s profitability and economic value added (allowing for the level of risk taken)� Short-term variable remuneration as a percentage of total compensation as well as the proportion of remuneration paid in the form of restricted shares (i�e� as deferred compensation ) increase accordingly�
Basic salary The basic salary constitutes the level of remuneration that is commensurate with the functions and responsibilities of the position concerned as well as the employee skills and expertise required in order to achieve the relevant business targets and objectives� When determining the level of its basic salaries, Baloise aims to position itself around the market median, although the way in which this is done will vary depending on local operating and market requirements� This remuneration is paid by bank transfer� In order to ensure fairness and compliance with its code of conduct when determining the level of basic salaries, Baloise applies the internal fair-pay principle that people who do the same job and have the same qualifications should be paid the same amount� The Company’s clearly defined and marketbased salary structures help ensure fair pay both inside and outside the organisation�
Two plans are available to individuals who wish to subscribe for shares: the Share Subscription Plan and the Share Participation Plan (see 5�6 Share Subscription Plan and Share Participation Plan)�
Performance-related remuneration Performance-related remuneration reflects individual employees’ performance and rewards the achievement of their personal targets� To this end, line managers consult their members of staff once a year in order to define the latter’s key individual targets and objectives and then – by no later than February of the following year – assess the extent to which these targets and objectives have been achieved� The target achievement scale ranges from 0 per cent (not achieved) to a maximum of 150 per cent (significantly over-achieved)� When setting these individual targets, line managers and their staff ensure that they do not agree any targets or objectives that conflict with the Company’s business strategy�
The members of the Corporate Executive Committee do not receive any performance-related remuneration� Instead, their individual performance is recognised in such a way that the contribution made by each and every member of the Corporate Executive Committee to the achievement of the Company ’s targets and objectives is factored into decisions affecting the measurement of the performance pool�
Performance pool payments are awarded to individuals at the discretion of the line manager concerned; no regulatory target figures – except for members of the Corporate Executive Committee – have been specified� The amount of these payments is mainly determined by a holistic assessment consisting of individuals’ achievement of targets (gauged by the extent to which they have achieved their personal targets and objectives) as well as their leadership and conduct� The individual performance pool payment proposed by the respective line manager is discussed by the relevant management team, compared with other departments and divisions, and adjusted where necessary� This process ensures that risk-relevant behavioural attributes are factored into the performance pool payments awarded to individuals�
This chosen system is centred on senior managers’ overall assessment and the validation of individuals’ performance pool payments at roundtable discussions� The aim here is to give due consideration to all aspects of an individual’s performance rather than using just a few parameters to make an assessment that may neglect other key factors�
The Remuneration Committee decides on the performance pool payments awarded to the individual members of the Corporate Executive Committee� The average expected value amounts to 60 per cent of basic salary; the maximum amount that can be allocated per member of the Corporate Executive Committee is 90 per cent of the basic salary, or 150 per cent of the expected value�
The Remuneration Committee conducts a detailed assessment of the Company’s performance once a year on the basis of the various criteria mentioned above and adjusts the size of the performance pool accordingly� As the table below illustrates in the form of a comparison with the consolidated profit for the period, when the performance pool factor is set in this way, it goes up or down in line with the Company’s success, although it is not directly derived from this key figure alone: Performance pool (as a percentage of the normal expected value)
Long-term variable remuneration: Performance share units In addition, Baloise grants performance share units (PSUs) to the most senior managers as a form of long-term variable remuneration� The PSU programme enables the top management level to benefit even more from the Company’s performance and helps Baloise to retain high performers in the long run�
At the beginning of each vesting period the participating employees are granted rights in the form of PSUs, which entitle them to receive a certain number of shares free of charge after the vesting period has elapsed� The Remuneration Committee specifies the grant date and applies its own discretion in deciding which of the most senior management team members are eligible for the programme� It determines the total number of PSUs available and decides how many are to be awarded to each member of the Corporate Executive Committee� PSUs are granted to the other programme participants on the basis of the relevant line manager’s proposal, which must be approved by the line manager ’s manager�
Baloise Group Annual Report 2016 Corporate Governance Remuneration Report formance of Baloise shares is in the top quartile of companies in the peer group� The multiplier amounts to 0�5 if the performance of Baloise shares is in the bottom quartile of companies in the peer group� If the performance of Baloise shares is in either of the two middle quartiles, a linear scale is used to calculate the performance multiplier� The performance multiplier for the entire vesting period ended is based on the closing stock market prices on the final trading day of the respective vesting period�
Date Price (CHF) 1 Date Multiplier Price (CHF) 1 Value (CHF) 2 3 1 Price = price of Baloise shares at the PSU grant date or conversion date. 2 Value = value of one PSU at the conversion date (share price at the conversion date times the multiplier). 3 Change in value = difference between the value at the conversion date (multiplier times the share price at the conversion date) and the share price at the grant date, expressed as a percentage of the share price at the grant date; example of the PSU plan in 2007: ([{1.182 × 86.05} – 125.80] / 125.80) 100 = – 19 %. 4 Interim measurement as at 31 December 2016.
Fringe benefits Fringe benefits are generally defined as components of the total remuneration package that are not dependent on either an individual ’s function or performance or the Company’s performance� By providing voluntary benefits in the form of retirement pensions, subsidies, concessions, and staff training and professional development, Baloise demonstrates the close partnership that it maintains with its employees and the extent to which it values their contribution� Fringe benefits are granted on a country-bycountry basis in line with prevailing local laws�
Share Participation Plan Since May 2001 it has been possible for most management team members working in Switzerland to receive part of their shortterm variable remuneration in the form of shares from the Share Participation Plan instead of receiving cash� Within certain limits they are free to choose what proportion of their shortterm variable remuneration they receive in the form of such shares� The most senior management team members are subject to upper limits; members of the Corporate Executive Committee – who are obliged to receive at least half of their short-term variable remuneration in the form of shares – are not allowed to receive more than 40 per cent of their entitlement in the form of shares from the Share Participation Plan� The subscription date is 1 March of each year (the same as for the Share Subscription Plan); although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold during a three-year closed period�
The parameters used to determine the subscription price are decided each year by the Remuneration Committee� The subscription price is based on the closing price before the first day of the subscription period, from which discounted dividend rights are deducted over a period of three years (please refer to the accompanying table for details)� Once it has been calculated using this method, the subscription price is published in advance on the intranet� The shares needed for the Share Participation Plan are purchased in the market as and when required�
(applies to the variable remuneration granted for 2015 and to the shares subscribed by the Chairman of the Board of Directors in 2016)
The other members of the Board of Directors have never been entitled to have contributions paid to the pension fund, nor have such contributions been paid to them�
Subscribed shares per participant (average) 90.0 90.5 04_JB_Corporate_Governance_en 87 22�03�2017 14:58:02
Board of Directors and the Corporate Executive Committee → www.baloise.com/rules-regulations 5.10 Remuneration paid to the members of the Board of Directors Please refer to the tables on pages 92 and 93�
The Chairman of the Board of Directors chairs the meetings of both the Board of Directors and the Chairman’s Committee � He also chairs the Investment Committee� He represents the Company externally and, acting in this capacity, maintains contact with government agencies, trade associations and other Baloise stakeholders� The Chairman of the Board of Directors liaises with the Group CEO in formulating proposals on Baloise’s long-term objectives and its strategic direction and development, and these proposals are then discussed and approved by the Board of Directors as a whole� He works closely with the Corporate Executive Committee to ensure that the Board of Directors is provided with timely information on all matters of material importance to the decision-making and monitoring process at Baloise� The Chairman of the Board of Directors is entitled to attend meetings of the Corporate Executive Committee at any time� He takes part in these meetings when necessary in order to maintain a regular dialogue between himself and the Corporate Executive Committee and whenever matters of strategic or longterm importance are being discussed�
Baloise Group Annual Report 2016 Corporate Governance Remuneration Report 5.11 Remuneration paid to the members of the Corporate Executive Committee Please refer to the tables on pages 94 to 97�
The structure of remuneration paid to the Corporate Executive Committee is laid down in the Remuneration Policy� The actual level of remuneration paid is determined as follows (see table below)�
→ The basic salary of the Group CEO, Gert De Winter, is CHF 200,000 less than that of his predecessor�
Variable remuneration cap Annual General Meeting For the current financial year individual payment Remuneration Committee (in compliance with the cap set by the Annual General Meeting)
The Annual General Meeting held on 30 April 2015 approved a maximum amount of CHF 4�627 million for the fixed remuneration (including pension contributions) payable to the Corporate Executive Committee for 2016� The sum paid was CHF 4�427 million (excluding the fixed remuneration of the departing Group CEO)� During his handover period, which ended on 30 April 2016, the departing Group CEO was paid fixed remuneration (including pension contributions) totalling CHF 0�452 million� The amount, which exceeded the total amount originally requested, is covered by article 30 of the Articles of Association of Bâloise Holding Ltd (additional amount for the remuneration of newly appointed members of the Corporate Executive Committee: If the Board of Directors appoints a new Group CEO or one or more new members of the Corporate Executive Committee between two Annual General Meetings, the total amount of Corporate Executive Committee remuneration approved by the Annual General Meeting will be increased� In the case of the Group CEO, the increase may not exceed the remuneration of the incumbent�)�
The Annual General Meeting held on 29 April 2016 also approved a maximum amount of CHF 4�840 million for the variable remuneration (including pension contributions) payable for 2016� A total of CHF 3�951 million was paid out, which meant that only around four-fifths of the maximum amount available was utilised�
5.13 Shares and options held Please refer to the tables on pages 99 and 100�
As requested by circular 10 / 1 issued by the Swiss Financial Market Supervisory Authority on the subject of remuneration, Baloise has published in the table on page 101 the amounts of total remuneration and variable remuneration and has disclosed the total amounts of outstanding deferred remuneration and the inducement payments and severance packages granted� These figures include all forms of remuneration awarded for 2016 even if individual components are not paid until a later date�
Pension contributions The information disclosed for 2015 includes for the first time the contributions payable by the employer into the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund (only for the Chairman of the Board of Directors).
Dr Eveline Saupper (until 29 April 2016) 62,500 122,500 5,683 128,183 61,186 560
Explanatory notes to the table Remuneration paid to former members and related parties No remuneration on a non-arm’s-length-basis was paid to individuals or companies who are related to members of the Board of Directors. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Shares 25 per cent of contractually agreed overall remuneration is paid in shares which remain restricted for three years. They are recognised at market value less 10 per cent (CHF 109.26, in line with the Share Subscription Plan). Shares received by the Chairman of the Board of Directors amounted to 1,427 shares in connection with the Share Subscription Plan (CHF 155,914, with a closed period of five years instead of the usual three years) and 1,463 shares in connection with the Share Participation Plan (CHF 155,992). Pension contributions The information disclosed for 2016 includes the contributions that the employer is required by law to pay into the state-run social security schemes (up to the pensionable or insurable threshold in each case) and into the pension fund (only for the chairman of the Board of Directors until May 2016). Neither the Chairman (since June 2016) nor the members of the Board of Directors are entitled to have contributions paid to the pension fund, nor have such contributions been paid to the Chairman or the members of the Board of Directors.
Dr Martin Strobel (until 30 April 2016) 383,333 0 0 0 0 0 0 0 0 0 383,333 0 % 0 68,934 452,268
Explanatory notes to the table Remuneration is disclosed in accordance with the accrual principle. The table includes all forms of remuneration awarded for performance in 2015 even if individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions, etc. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length basis was paid to companies or individuals who are related to members of the Corporate Executive Committee. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Share Subscription Plan Proportion of variable remuneration received directly as shares, which are measured at market value less 10 per cent markdown. Subscription price = CHF 116.37. Share Participation Plan Proportion of variable remuneration received as shares (excluding loans to purchase shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 114.49. Performance share units (PSUs) These have been disclosed at their value of CHF 129.75 at the grant date and measured using a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period.
Non-cash benefits Based on all remuneration elements required to be declared on the Swiss salary certificate, including long-service awards, taxable benefits relating to shares received in connection with the Employee Incentive Plan (maximum of 100 shares per annum). Pension benefits These comprise the estimated employer contributions to the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund.
Explanatory notes to the table Loans and credit facilities No loans or credit facilities were granted at non-market terms and conditions a) to former members of the Board of Directors or Corporate Executive Committee; b) to individuals or companies related to members of the Board of Directors or Corporate Executive Committee. Related parties are: spouses, life partners, children under 18 years, companies owned or controlled by directors, or legal entities or individuals who act as trustees for them. Mortgages Mortgages of up to CHF 1 million are granted to staff at the following terms and conditions: 1 per cent below the customer interest rate for variable-rate mortgages and at a preferential interest rate for fixed-rate mortgages. Loans associated with the Share Participation Plan Loans to increase the effect of the Share Participation Plan (see “5.6 Share Subscription Plan and Share Participation Plan”). Interest is charged on loans at a market rate (2016: 1 per cent), and they have a term of three years. Other loans There are no policy loans.
Explanatory notes to the table Shareholdings Includes shares held by related parties (spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them). Restricted shares Shares received in connection with share-based remuneration programmes are subject to a closed period of three years. The closed period for shares received by the Chairman of the Board of Directors in connection with the Share Subscription Plan is five years. Section 20 of the Articles of Association also requires all members of the Board of Directors to lodge 1,000 shares with the Company for the duration of their term of appointment (qualifying shares). Options Members of the Board of Directors do not hold any options on Baloise shares.
Head of Corporate Division Finance 17,457 12,054 9,557 13,293 27,014 25,347 0.054 % 0.051 % 8,269 6,829
Explanatory notes to the table Shareholdings Includes shares held by related parties (spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them). Restricted shares Includes loan-financed shares connected with the Share Participation Plan. Shares received in connection with share-based remuneration programmes are subject to a closed period of three years. Options Options held in connection with the Share Participation Plan are not reported here because they were written to hedge loans and do not originate from a separate option plan. Each put option is also offset by a countervailing call option. Prospective entitlements (PSUs) Number of allocated performance share units (granted as at 1 March 2014, 1 March 2015 and 1 March 2016).
Opinion In our opinion, the remuneration report for the year ended 31 December 2016 of Bâloise Holding AG complies with Swiss law and articles 14 – 16 of the Ordinance.
Baloise Group Annual Report 2016 Corporate Governance Corporate Governance Report 6. SHAREHOLDER PARTICIPATION RIGHTS Voting rights The share capital of Bâloise Holding consists solely of registered shares� Each share confers the right to one vote� No shares carry preferential voting rights� To ensure a broad-based shareholder structure and to protect minority shareholders, no shareholder is registered as holding more than 2 per cent of voting rights, regardless of the size of their shareholding� The Board of Directors can approve exceptions to this provision if a majority of two-thirds of all its members is in favour (article 5 of the Articles of Association)� There are currently no exceptions� Each shareholder can appoint a proxy in writing in order to authorise another shareholder or an independent proxy to exercise his or her voting rights� When exercising voting rights, no shareholder can accumulate more than one fifth of the voting shares at the Annual General Meeting directly or indirectly for his or her own votes or proxy votes (article 16 of the Articles of Association)�
Statutory quorums The Annual General Meeting is quorate regardless of the number of shareholders present or proxy votes represented, subject to the mandatory cases stated by law (article 17 of the Articles of Association)�
The consent of at least three-quarters of the votes represented at the Annual General Meeting is required to suspend statutory restrictions on voting rights� The votes must also represent at least one third of the total shares issued by the Company� This qualified majority also applies to the cases specified in article 17 (3)(a) to (h) of the Articles of Association� Otherwise, resolutions are adopted by a simple majority of the votes cast, subject to compulsory legal provisions (article 17 of the Articles of Association)�
Requesting agenda items Article 699 (3) OR states that one or more shareholders who together represent shares of at least CHF 100,000 can request items to be put on the agenda for debate� Such requests must be submitted in writing to the Board of Directors at least six weeks before the ordinary Annual General Meeting is held, giving details of the motions to be put to the AGM (article 14 of the Articles of Association)�
Entry in the share register Shareholders are entitled to vote at the Annual General Meeting provided they are registered in the share register as shareholders with voting rights on the cut-off date stated by the Board of Directors in the invitation� The cut-off date should be several days before the Annual General Meeting (article 16 of the Articles of Association)�
In 2016, CHF 101,062 of the additional fees for consultancy services were attributable to tax consultancy and legal advice and CHF 46,274 to operational advice� The remainder related to business and IT consultancy and to insurance-specific advice� The services were rendered in accordance with the relevant provisions on independence set forth in the Swiss Code of Obligations, the Swiss Audit Supervision Act and FINMACircular 2013 / 3 on “auditing”�
The Audit and Risk Committee submits proposals to the Board of Directors regarding the external auditors to be elected by the Annual General Meeting and makes recommendations regarding their fees� Before the start of the annual audit, it reviews the scope of the audit and suggests areas that require special attention� The Audit and Risk Committee reviews the external auditors’ fees on an annual basis�
Baloise Group Annual Report 2016 Corporate Governance Corporate Governance Report 10. INFORMATION POLICY Information principles The Baloise Group provides shareholders, potential investors, employees, customers and the public with information on a regular, open and comprehensive basis� All registered shareholders each receive a summary of the annual report once a year and a letter to shareholders every six months, which provide a review of business� The full annual report is sent to shareholders on request� In addition, a presentation is created for every set of financial statements that summarises the financial year or period for financial analysts and investors� All publications are simultaneously available to the public� All market participants receive the same information� Baloise offers teleconferences, podcasts, videos and live streaming in order to make information generally and easily accessible�
Ongoing relationships are maintained with analysts, investors and the media� Full details of individual Baloise events can be accessed at www.baloise.com�
Information about Baloise bonds Information about Baloise bonds in circulation can be found on pages 233 and 276�
Consolidated balance sheet ������������������������������������������������������������� 110 Consolidated income statement ���������������������������������������������������� 112 Consolidated statement of comprehensive income �������������� 113 Consolidated cash flow statement ������������������������������������������������ 114 Consolidated statement of changes in equity ������������������������� 116
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS ������������������������������������������������������������������� 118 1� Basis of preparation ��������������������������������������������������������������������� 118 2� Application of new financial reporting standards and restatements ��������������������������������������������������������������������������� 118 3� Consolidation principles and accounting policies �������� 121 4� Key accounting judgements, estimates and assumptions �������������������������������������������������������� 137 5� Management of insurance risk and financial risk ��������� 139 6� Basis of consolidation ����������������������������������������������������������������� 182 7� Information on operating segments
Financial Report 4 Baloise 16 Review of operating performance 36 Sustainable business management 58 Corporate governance 108 Financial Report 266 Bâloise Holding Ltd 286 General information
Non-current assets and disposal groups classified as held for sale 21 2,018.7 1,962.0
Baloise Group Financial Report 2016 Consolidated balance sheet 05_FB_Kapitel_01_bis_02_en 111 22�03�2017 14:59:46
Operating and administrative expenses for insurance business 33 – 761.3 – 763.9
Change in reserves arising from assets and liabilities of post-employment benefits (defined benefit plans)
Change in reserves arising from reclassification of held-to-maturity financial assets – 1.7 – 1.1
Total items to be reclassified to the income statement – 582.2 – 24.9
Effect of changes in exchange rates on cash and cash equivalents – 118.2 – 16.6
Realised gains and losses on financial assets, investment property and associates – 375.4 – 667.0
Changes in technical reserves (gross), including unearned premium reserves 1,178.3 708.9
Other changes in assets and liabilities from operating activities 99.8 – 225.4
Baloise Group Financial Report 2016 Consolidated cash flow statement 05_FB_Kapitel_01_bis_02_en 114 22�03�2017 14:59:47
Disposal of companies, net of cash and cash equivalents 39 – –
Baloise Group Financial Report 2016 Consolidated statement of changes in equity 05_FB_Kapitel_01_bis_02_en 116 22�03�2017 14:59:47
Profit for the period – – – – 534.8 534.8 – 0.9 533.9
Cancellation of (treasury) shares – – – – – – –
Baloise Group Financial Report 2016 Consolidated statement of changes in equity 05_FB_Kapitel_01_bis_02_en 117 22�03�2017 14:59:48
2.2 New IFRSs and interpretations not yet applied The following new standards and interpretations relevant to the Baloise Group have been published by the IASB but have not yet come into effect and, therefore, have not been applied in the 2016 consolidated annual financial statements: Standard / Inter- pretation Content
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 05_FB_Kapitel_01_bis_02_en 118 22�03�2017 14:59:48
IFRS 9 Financial Instruments IFRS 9 introduces new requirements for the classification and measurement of financial instruments� Classification of financial assets is based on the entity’s business model and on the contractual cash flow characteristics of the financial assets concerned�
IFRS 9 introduces a new impairment model and shifts the focus to providing for expected credit losses by recognising loss allowances� IFRS 9 specifies three steps that determine the amount of expected losses and interest revenue to be recognised in future� Credit losses already expected at the time of initial recognition are measured at the present value of the twelve-month expected credit losses (step 1)� The loss allowance is increased to an amount equal to full lifetime expected credit losses if the credit risk of a financial liability has grown significantly since initial recognition (step 2)� Where there is objective evidence of impairment, the recognition of interest revenue is based on its net carrying amount (step 3)�
On 12 September 2016, the IASB issued Applying IFRS 9 “Financial Instruments” with IFRS 4 “Insurance Contracts” (Amendments to IFRS 4)� The amendments address concerns arising from implementing the new financial instruments Standard IFRS 9 before implementing the replacement Standard that the Board is developing for IFRS 4�
The amendments introduce two approaches: an overlay approach and a deferral approach� The amended Standard will: → give all companies that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts Standard is issued; and
The Baloise Group intends to apply the deferral approach for IFRS 9 with effect from 1 January 2018, which will enable it to adopt IFRS 9 and IFRS 17 simultaneously with effect from 1 January 2021� Analysis has already been carried out to clarify whether the Baloise Group fulfils the conditions for applying this approach� The outcome was positive, and there are no indications that would prevent this exemption being applied�
It is not yet possible to fully assess what impact the amendments to IFRS 9 will have on the Baloise Group’s balance sheet and income statement from 2021�
IFRS 15 Revenue from Contracts with Customers IFRS 15 will replace IAS 18 (Revenue), IAS 11 (Construction Contracts) and a number of other revenue-related interpretations for annual periods beginning on or after 1 January 2018� Application of IFRS 15 is mandatory for all IFRS users and governs almost all contracts with customers� The main exemptions concern leases, financial instruments and insurance contracts� For those customer contracts that are not covered by the aforementioned exemptions, this new standard provides a single, principles-based five-step model to be applied to the relevant contracts with customers� The Baloise Group will apply this standard from 1 January 2018 and currently does not anticipate any material effect on its consolidated financial statements owing to the exemptions for insurance contracts and financial instruments�
IFRS 16 Leases IFRS 16 applies to all leases (including sub-leases), although certain exceptions are possible� IFRS 16 governs the recognition, measurement, reporting and disclosure requirements in respect of leases in the financial statements of IFRS users� The standard provides a single accounting treatment model for lessees� This model requires lessees to recognise all lease assets and lease liabilities on the balance sheet, unless the term of the lease is twelve months or less or an asset is of low value� Long-term leases on real estate are covered by the definitions in IFRS 16 and, in future, will have to be recognised with a right of use� The Baloise Group plans to apply this standard from 1 January 2019� It is not yet possible to fully assess what impact these amendments will have on the Baloise Group’s balance sheet and income statement� The Baloise Group will assess the effect on the balance sheet and income statement in 2017�
2.3 Restatement The concept for the calculation of the deferred policyholders’ dividends in Germany (reserve for premium refunds) was subject to a comprehensive review as at 30 June 2016 and was re-evaluated and adapted� This resulted in a retrospective restatement amounting to CHF 8�7 million, which was recognised in other comprehensive income in the prior period in accordance with IAS 8�
In the German non-life business, the method for calculating deferred acquisition costs was further harmonised in the individual portfolios, which resulted in assets being transferred between intangible assets and other assets on the balance sheet� In the income statement, these effects were recognised for the first time under acquisition costs� This reclassification has no impact on the Group’s equity or profit for the period� For the purposes of comparison, the prior-year figures have also been reclassified�
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 05_FB_Kapitel_01_bis_02_en 120 22�03�2017 14:59:49
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 3. CONSOLIDATION PRINCIPLES AND ACCOUNTING POLICIES 3.1 Method of consolidation 3.1.1 Subsidiaries The consolidated annual financial statements comprise the finan­ cial statements of Bâloise Holding Ltd and its subsidiaries, includ ing any structured entities. A subsidiary is consolidated if the Baloise Group controls it either directly or indirectly. As a rule, this is the case if the Baloise Group has exposure or rights to variable profit components as a result of its involvement with the investee and, because of legal positions, has the ability to inf luence the investee’s business activities that are critical to its financial success and, therefore, to affect the amount of the variable profit components.
Companies acquired during the reporting period are in­ cluded in the consolidated annual financial statements from the date on which control is effectively assumed, while all com­ panies sold remain consolidated until the date on which control is ceded. Acquisitions of entities are accounted for under the acquisition method (previously known as the “purchase method”). Transaction costs are charged to the income statement as an expense. The identifiable assets and liabilities of the entity con­ cerned are measured at fair value as at the date of first­time consolidation. Non­controlling interests arising from business combinations are measured either at their fair value or accord­ ing to their share of the acquiree’s identifiable net assets. The Baloise Group decides which measurement method to apply to each individual business combination.
The acquisition cost corresponds to the fair value of the consideration paid to the previous owners on the date of the acquisition. If investments in the form of financial instruments or associates were already held before control was acquired, these investments are remeasured and any difference is recog­ nised in profit or loss. Any contingent consideration recognised as part of the consideration paid for the acquiree is measured at fair value on the transaction date. Any subsequent changes in the fair value of a contingent consideration are recognised in the income statement. If the acquisition cost exceeds the fair value of assets and liabilities plus non­controlling interests, the difference is recognised as goodwill. Conversely, if the identified net assets exceed the acquisition cost then the difference is rec­ ognised directly through profit or loss as other operating income. All intercompany transactions and the resultant gains and losses are eliminated.
3.1.2 Structured entities Structured entities are consolidated provided the conditions of IFRS 10 are met.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 3.1.4 Associates Associates are initially carried at cost (fair value at the date of acquisition) and thereafter are measured under the equity method (the Baloise Group’s share of the entity’s profit or loss for the period and other comprehensive income) in cases where the Baloise Group can exert a significant influence over the manage­ ment of the entity concerned. Changes in the fair value of asso­ ciates are generally recognised in profit or loss and take account of any dividend flows. If the Baloise Group’s share of the losses exceeds the value of the associate, no further losses are recog­ nised. Goodwill paid for associates is included in the carrying amount of the investment.
3.2 Currency translation 3.2.1 Functional currency and reporting currency Each subsidiary prepares its annual financial statements in its functional currency, which is the currency of its primary eco­ nomic environment. The consolidated Financial Report is pre­ sented in millions of Swiss francs (CHF), which is the Baloise Group’s reporting currency.
3.2.2 Translation of transaction currency into functional currency at Group companies Income and expenses denominated in foreign currency are translated either at the exchange rate prevailing on the trans­ action date or at the average exchange rate. Monetary and non­monetary balance sheet items measured at fair value and arising from foreign currency transactions conducted by Group companies are translated at the closing rate. Non­monetary items measured at historical cost are translated at the historical rate. Any resultant exchange differences are recognised in profit or loss. This does not include exchange differences that form part of cash flow hedges and are recognised directly in hedging reserves or are used as hedges of a net investment in a foreign operation.
Exchange differences arising on non­monetary financial instruments recognised at fair value through profit or loss are reported as realised gains or losses on these instruments. Exchange differences on available­for­sale non­monetary financial instru­ ments are recognised in other comprehensive income. Exchange differences arising on available­for­sale monetary financial instruments are recognised in profit or loss.
3.5.2 Present value of future profits (PVFP) on insurance contracts acquired The present value of future profits on insurance contracts acquired arises from the purchase of life insurance companies or life insurance portfolios. It is initially measured in accordance with actuarial principles and is amortised on a straight­line basis. It is regularly tested for impairment as part of a liability adequa­ cy test (see section 3.18.2 for further details).
3.6 Investment property Investment property comprises land and / or buildings held to earn rental income or for capital appreciation (or both). If mixed­ use properties cannot be broken down into owner­occupied property and property used by third parties, the entire property is classified according to the purpose for which most of its floor space is used. If, owing to a change of use, an investment property held by the Baloise Group becomes the latter’s owner­occupied property, it is reclassified as property, plant and equipment. Any such reclassification is based on the property’s fair value at the reclassification date. By contrast, if one of the Baloise Group’s owner­occupied properties becomes an investment property owing to reclassification, then, on the date this change of use takes effect, the difference between the property’s carrying amount and its fair value is recognised in profit or loss in the event of an impairment; or, if the property’s fair value exceeds its carrying amount, then the difference is recognised directly in equity as an unrealised gain. If an investment property that was reclassified in a previous period is sold, the amount recognised directly in equity is reclassified to retained earnings. Investment property is measured at fair value under the discounted cash flow (DCF) method. The current fair value of a property determined under the DCF method equals the sum total of all net income expected in future and discounted to its present value (before interest payments, taxes, depreciation and amortisation) and includes capital expenditure and renovation costs. The net income is determined individually for each property, depending on the opportunities and risks associated with it, and is discounted in line with market rates and on a risk­adjusted basis. The measure­ ment is carried out internally each year by experts using market­ based assumptions that have been verified by respected con­
sultancies. In addition, the properties are assessed by external valuation specialists at regular intervals; roughly 10 per cent of the fair value of the real estate portfolio is subject to such assessments each year. Changes in fair value are taken to income as realised accounting gains or losses in the period in which they occur.
3.7 Financial assets The term “investments” (Kapitalanlagen in German) is used in some places and headings in the Financial Report for clarity’s sake. The IFRSs themselves do not define the term “investments” (or Kapitalanlagen). The term “investments” as used in the Finan­ cial Report covers financial assets, mortgages and loans, deriv­ ative financial instruments, cash, cash equivalents and invest­ ment property.
The asset classes covered by the term financial instruments with characteristics of equity are equities, share certificates, units held in equity, bond and real estate funds; and alternative financial assets such as private equity investments and hedge funds. Financial instruments with characteristics of equity are generally more frequently exposed to price volatility than finan­ cial instruments with characteristics of liabilities.
The Baloise Group classifies its financial instruments with characteristics of equity and its financial instruments with char­ acteristics of liabilities as either “recognised at fair value through profit or loss”, “held to maturity” or “available for sale”. The classification of the financial instruments concerned is deter­ mined by the purpose for which they have been acquired.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 3.7.1 Financial assets recognised at fair value through profit or loss This category consists of two sub­categories: held­for­trading financial assets (trading portfolio) and financial assets that are designated to this category. Financial instruments are classified in this category if they have principally been acquired with the intention of selling them in the short term, or if they form part of a portfolio for which there have recently been indications that a gain could be realised in the short term, or if they have been designated to this category. Derivative financial instruments are classified as “held for trading” (trading portfolio) with the exception of derivatives that have been designated for hedge accounting purposes. Also designated to this category are struc­ tured products, i.e. equity instruments and debt instruments which, in addition to the host contract, contain embedded deriv­ atives that are not bifurcated and measured separately. Financial assets held under investment­linked life insurance contracts are also designated as “recognised at fair value through profit or loss”.
3.7.3 Available-for-sale financial assets Available­for­sale financial assets are non­derivative financial instruments that have been classified as “available for sale” or have not been designated to any of the above­mentioned cate­ gories and are not classified as mortgages, loans or receivables.
Alternative financial assets – such as private equity invest ments and hedge funds – are mainly classified as “available for sale”.
3.7.4 Recognition, measurement and derecognition All customary purchases of financial assets are recognised on the trade date. Financial assets are initially measured at fair value. Transaction costs form part of the acquisition cost (with the exception of financial assets recognised at fair value through profit or loss).
If no publicly quoted prices are available for private equity investments, they are measured on the basis of their net asset value using non­public information from independent external providers. These providers use various methods for their esti­ mates (e.g. analysis of discounted cash flows and reference to similar, fairly recent arm’s­length transactions between knowl­ edgeable, willing parties).
If the fair value of hedge funds cannot be determined on the basis of publicly quoted prices, then prices quoted by inde­ pendent external parties are used for measurement purposes.
If such estimates do not enable financial assets to be reli­ ably measured, the assets are recognised at cost (less allowance) and disclosed accordingly.
3.9 Receivables Other receivables are recognised at amortised cost less any impair ment losses recognised for non­performing receivables. Amortised cost is usually the same as the nominal amount of the receivables.
ruptcy or undergo some other form of restructuring → Observable data that indicates a measurable reduction in the expected future cash flows from a group of financial assets since their initial recognition
3.10.2 Financial assets measured at fair value The Baloise Group determines at each balance sheet date whether there is any objective evidence that available­for­sale financial assets may be permanently impaired. This category includes financial instruments with characteristics of equity. An impair­ ment loss must be recognised on financial instruments with characteristics of equity whose fair value at the balance sheet date is more than 50 per cent below their acquisition cost or whose fair value is consistently below their acquisition cost throughout the twelve­month period preceding the balance sheet date. The need for an impairment loss is examined and, where necessary, such a loss is recognised on securities whose fair value at the balance sheet date is between 20 per cent and 50 per cent below their acquisition cost.
Impairment losses on available­for­sale financial instru­ ments with characteristics of equity that have been recognised in profit or loss cannot be reversed and taken to income. Any further reduction in the fair value of financial instruments with characteristics of equity on which impairment losses were recognised in previous periods must be charged directly to the income statement.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 3.11 Derivative financial instruments Derivative financial instruments include swaps, futures, forward contracts and options whose value is primarily derived from the underlying interest rates, exchange rates, commodity prices or share prices. The acquisition cost of derivatives is usually either very low or non­existent. These instruments are carried at fair value on the balance sheet. At the time they are purchased they are classified as either fair value hedges, cash flow hedges, hedges of a net investment in a foreign operation or trading instruments. Derivative financial instruments that do not qualify as hedges under IFRS criteria despite performing a hedging function as part of the Baloise Group’s risk management pro­ cedures are treated as trading instruments.
The Baloise Group’s hedge accounting system documents the effectiveness of hedges as well as the objectives and strategies pursued with each hedge. Hedge effectiveness is constantly monitored from the time the pertinent derivative financial instruments are purchased. Derivatives that no longer qualify as hedges are reclassified as trading instruments.
3.11.1 Structured products Structured products are equity instruments or debt instruments that contain embedded derivatives in addition to the host con­ tract. Provided that the economic characteristics and risks of the embedded derivative differ from those of the host contract and that this derivative qualifies as a derivative financial instru­ ment, the embedded derivative is bifurcated from the host contract and is separately recognised, measured and disclosed. If the derivative and the host contract are not bifurcated, the structured product is designated as a host contract that is recognised at fair value through profit or loss.
If a hedging instrument is sold, terminated or exercised or it no longer qualifies as a hedge, the cumulative gains and losses continue to be recognised directly in equity until the forecasted transaction materialises. If the forecasted transaction is no longer expected to materialise, the cumulative gains and losses recognised in equity are taken to income.
3.11.4 Hedges of a net investment in a foreign operation Hedges of a net investment in a foreign operation are treated as cash flow hedges. When the effective portion of hedges is being accounted for, gains or losses on hedging instruments are rec­ ognised directly in equity. The ineffective portion of hedges is recognised in profit or loss.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 3.13 Non-current assets held for sale and discontinued operations Non­current assets (or disposal groups) held for sale that meet the criteria stipulated in IFRS 5 “Non­current Assets Held for Sale and Discontinued Operations” are shown separately on the balance sheet. Those assets described in the standard are measured at the lower of their carrying amount and fair value less costs to sell. Any resultant impairment losses are taken to income. Any depreciation or amortisation is discontinued from the reclassification date.
3.14 Cash and cash equivalents Cash and cash equivalents essentially consist of cash, demand deposits and cash equivalents. Cash equivalents are predomi­ nantly short­term liquid investments with residual terms of no more than three months.
3.15.4 Unrealised gains and losses (net) This item includes changes in the fair value of available­for­sale financial instruments, the net effect of cash flow hedges, the net effect of hedges of a net investment in a foreign operation, exchange differences and gains on the reclassification of the Baloise Group’s owner­occupied property as investment property.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 3.16 Insurance contracts An insurance contract is defined as a contract under which one party (the insurer) accepts a significant insurance risk from another party (the policyholder) to pay compensation, should a specified contingent future event (the insured event) adversely affect the policyholder. An insurance risk is any directly insured or reinsured risk that is not a financial risk.
The effective interest method is generally used to calculate receivables and liabilities arising from financial contracts (DPF included). The effective interest rate is determined as the internal rate of return based on the estimated amounts and timing of the expected payments. If the amounts or timing of the actual payments differ from those expected or if expectations change, the effective interest rate must be re­determined. The deposit account balance is then remeasured as if this new effective interest rate had applied from the outset, and the change in the value of the deposit account is recognised as interest income or interest expense. Otherwise, the insurance cover financed from the deposit account is amortised over the expected term of the deposit account.
A discretionary participation feature (DPF) exists if the policyholder is contractually or legally entitled to receive ben­ efits over and above the benefits guaranteed and if
The total claims reserve consists of three components. Reserves calculated using actuarial methods form the basis of the total claims reserve. The second component comprises reserves for those complex special cases and events that do not lend themselves to purely statistical evaluation. These are generally rare claims that are fairly atypical of the sector concerned – usually sizeable claims whose costs have to be estimated by experts on a case­by­case basis. Neither of these components is subject to discounting. The third component consists of reserves for annuities that are discounted using basic actuarial principles such as mortality and the technical interest rate and are largely derived from claims in the motor, liability and accident insur­ ance businesses.
The liability adequacy test required by IFRS must also examine whether the Baloise Group has incurred any further liabilities for subsequent periods (future business) besides all its existing contracts maintained during the reporting period. Such business arises, for example, when contracts are automat­ ically extended at the end of the year on the same terms and conditions. Taking account of all the latest data and trends, Baloise conducts a profitability analysis of its insurance business during the reporting year in order to check whether an adequate level of premiums has been charged and, implicitly, whether these liabilities are therefore covered. This amounts to an analysis of unearned premium reserves and an impairment test of deferred acquisition costs at the same time. If a loss is expected to be incurred (also applies to other loss­making insurance contracts in existence at the balance sheet date), the deferred acquisition costs are initially reduced by the respective amount. If the total amount of deferred acquisition costs is insufficient or if the resultant liability cannot be covered in full, a separate provision for impending losses equivalent to the residual amount is rec­ ognised under other technical reserves.
→ Swiss group life business (BVG) → Term insurance → Immediate annuities → Deferred annuities with annuity conversion rates that are guaranteed at the time the policy is purchased → All policy riders such as premium waiver, accidental death and disability.
3.18.3 Deferral of acquisition costs Acquisition costs are deferred. They are amortised either over the premium payment period or over the term of the insurance policy, depending on the type of contract involved. They are tested for impairment as part of a liability adequacy test.
Surpluses are reimbursed in the form of increased benefits, reduced premiums or final policyholders’ dividends or are accrued at interest to a surplus account. Surpluses already distributed and accrued at interest are reported as policyholders’ dividends credited and reserves for future policyholders’ dividends (chap­ ter 23). The relevant interest expense is reported as interest expenses on insurance liabilities. Surpluses that have been used to finance an increase in insurance benefits are recognised in actuarial reserves. All investment income derived from unit­ linked life insurance contracts is credited to the policyholder.
The applicable minimum quotas prescribed by law, contract or Baloise’s articles of association vary from country to country.
Life insurance companies operating in Germany and in some areas of Swiss group life business are required by law to distribute a minimum proportion of their profits to policyholders in the form of dividends.
Policyholders in Germany must receive a share of the profits generated. Any losses incurred are borne by shareholders. Policy­ holders are entitled to 90 per cent of investment income (minus the technical interest rate), 75 per cent of the net profit on risk exposures and 50 per cent of other surpluses. The articles of association of Basler Lebensversicherungs­AG, Germany, addi­ tionally stipulate a minimum quota of 95 per cent for part of its insurance portfolio.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 3.20 Liabilities arising from banking business and financial contracts 3.20.1 With discretionary participation features Financial contracts with discretionary participation features are capital accumulated by customers that entitles them to receive policyholders’ dividends. The accounting principles applied to these financial contracts are the same as those for life insurance contracts; the accounting policies for life insurance are described in section 3.18.
3.20.2 Measured at amortised cost Liabilities measured at amortised cost include savings deposits, medium­term bonds, mortgage­backed bonds, other liabilities and financial guarantees that do not qualify as insurance contracts. They are initially measured at their acquisition cost (fair value).
3.21 Financial liabilities The financial liabilities reported under this line item comprise the bonds issued in the capital markets (except for the bonds issued by the Banking operating segment). Financial liabilities are initially measured at their acquisition cost (fair value). Acqui­ sition cost includes transaction costs.
The difference between acquisition cost and redemption value is recognised in profit or loss over the term of the liability as borrowing costs under the amortised­cost method and the effective interest method.
The benefits available include short­term benefits (such as wages and salaries), long­term benefits (such as long­service bonuses), termination benefits (such as severance pay and social compensation plan benefits) and post­employment benefits. The benefits described below may be especially significant owing to their scale and scope.
3.22.1 Post-employment benefits The main post­employment benefits provided are retirement pensions, employer contributions to mortgage payments and certain insurance benefits. Although these benefits are paid after employees have ceased to work for the Baloise Group, they are funded while the staff members concerned are still actively employed. All the pension benefits currently provided by the Baloise Group are defined benefit plans. The projected unit credit method is used to calculate the pertinent pension liabilities.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 3.22.2 Share-based payments The Baloise Group offers its employees and senior executives the chance to participate in various plans under which shares are granted as part of their overall remuneration packages. The Employee Incentive Plan, Share Subscription Plan, Share Partici­ pation Plan and Performance Share Units (PSUs) are measured and disclosed in compliance with IFRS 2 Share­based Payment. Plans that are paid in Bâloise Holding Ltd shares are measured at fair value on the grant date, charged as personnel expenses during the vesting period and recognised directly in equity.
3.23 Provisions Provisions for restructuring or legal claims are recognised for present legal or constructive obligations when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and a reliable estimate can be made of the amounts of the obligations. The amount recognised as a provision is the best estimate of the expenditure expected to be required to settle the obligation. If the amount of the obligation cannot be estimated with sufficient reliability, it is reported as a contingent liability.
3.25.2 Interest income Interest income from financial instruments that are not recog­ nised at fair value through profit or loss is recognised under the effective interest method. If a receivable is impaired, it is written down to its recoverable amount, which corresponds to the present value of estimated future cash flows discounted at the contract’s original interest rate.
→ Financial instruments with characteristics of liabilities (available for sale or held to maturity) Objective evidence of a financial asset’s impairment includes observable data on the following cases: – Serious financial difficulties on the part of the borrower – Breaches of contract, such as a borrower in default or arrears with the payment of principal and / or interest – Greater probability that the borrower will file for bankruptcy or undergo some other form of restructuring – Observable data that indicates a measurable reduction in the expected future cash flows from a group of financial assets since their initial recognition – Analysts’ reports from banks and evaluations by credit rating agencies are also used to assess the need for impairment losses
The main risk categories to which the Banking division of the Baloise Group is exposed are credit risk, interest rate risk and liquidity risk. These risks are identified and managed locally by the banks. The loan portfolio is reviewed and analysed on an ongoing basis. A range of tools is used for this purpose, including standardised credit regulations and procedures, scoring and rating procedures, focusing on low-risk markets and the use of an automated arrears system. The information obtained is incorporated into credit decisions. Balance sheet risks (interest rate and liquidity risks) are managed by the bank’s asset and liability management (ALM) committee. The data and key figures required are determined and calculated using a specialist IT application.
Deutscher Ring Bausparkasse AG is also exposed to what is known as collective risk, which means that the building society customers are collectively responsible for the fair allocation of home savings contracts over the long term. Mathematical simulations are used to show that this collective responsibility can be met, provided the fluctuation reserve remains at least greater than zero over the long term. Deutscher Ring Bausparkasse uses a simulation model to monitor and manage its collective risk. The model makes a future projection of the building society’s total collective holdings on an individual contract basis, incorporating new business scenarios and patterns of behaviour observed in the past.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 5.1 Organisation of risk management in the Baloise Group The Baloise Group’s insurance and banking activities in various European countries, as well as its global investments, expose it to market risks such as currency risk, credit risk, interest rate risk and liquidity risk.
Within the Group and within each business unit, a risk owner is responsible for each individual risk that has been identified. Risk owners are allocated according to a hierarchy of responsibility. The Group’s overall risk owner is the Chief Executive Officer of the Baloise Group. Alongside the risk owners, defined risk controllers are responsible for systematic risk control and risk reporting. When selecting risk controllers, particular care is taken to ensure that their role is independent of the risk they control. Risk control within the Baloise Group focuses on investment risk, business risk (actuarial and banking risks), risks to the Group’s financial structure and operational risks including compliance. The Group’s overall risk controller is the Chief Executive Officer of the Baloise Group.
Because all risks are quantified, it is possible to analyse the relevance of each risk to the overall risk situation of the Baloise Group and / or the individual companies.
The Baloise Group’s central risk management team forms part of Corporate Division Finance and reports to the Group Chief Risk Officer, who in turn reports to the Group CFO. It coordinates intra-Group policies, risk reporting and the technical development of suitable risk management processes and tools. Every month, it tracks developments in the financial markets and their impact on the risk portfolio and the individual risk capacity of all the business units and the Group as a whole. The relevant risk owners and risk controllers verify the figures that have been computed and incorporate them into their management decisions.
Every business unit in the Baloise Group issues regulations regarding underwriting and risk review. They include clear authorisation levels and underwriting limits for each sector. Underwriting limits are approved by a business unit’s highest decision-making body, and the Corporate Executive Committee is notified of them. In the industrial insurance unit, the maximum net underwriting limit for property insurance amounts to CHF 150 million for Switzerland and EUR 100 million for Germany and Belgium. The only other comparable underwriting limits in the Group are for marine and liability insurance. Tools for setting the basic premium and for risk-based management of the total portfolio are also used to manage industrial insurance risk.
For its exposure to natural hazards the Baloise Group has purchased reinsurance cover for the whole Group amounting to CHF 250 million and cover for earthquakes amounting to CHF 350 million.
Reinsurance contracts may only be entered into with counterparties that have been authorised in advance by Corporate Division Finance. Reinsurers must generally have a minimum rating of A – from Standard & Poor’s, but in exceptional cases – and in specific circumstances – a BBB + rating or a comparable rating from another recognised rating agency is permitted. However, these reinsurance contracts are only used for property insurance business that can be settled quickly. This rule does not apply to captives and pools that are active reinsurance companies because they do not generally have ratings.
Reinsurer credit risk is reviewed on a regular basis. A watch list is kept of reinsurers that are bankrupt or in financial difficulties. The list contains details of all relationships the Group has with these reinsurers, receivables due to the Group that are outstanding or have been written off and provisions the Group has recognised. The watch list is updated periodically.
The same requirements for reinsurers apply to life insurance as to non-life insurance, although reinsurance is a less important instrument for ceding risk in life insurance business.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 5.4 Non-Life 5.4.1 Actuarial risk The Baloise Group primarily underwrites insurance risk for private individuals and small and medium-sized enterprises in selected countries in mainland Europe. Business with industrial clients is also conducted in Switzerland and Germany. Underwriting risk is limited by monitoring and adjusting rates and maintaining underwriting policies and limits appropriate to the size of each portfolio and the country in which it is located.
At the end of 2016, the Baloise Group’s total reserves calculated using actuarial methods or recognised separately for special claims (including large claims but not run-off or actuarial reserves for annuities) amounted to CHF 4,324.4 million (2015: CHF 4,372.5 million). A variation of 10 per cent in either direction in the requirement for these reserves would result in a rise or fall of around CHF 316.2 million (2015: CHF 318.6 million ) in claims payments (after taxes) before reinsurance.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 5.4.5 Claims settlement Analysis of gross claims settlement (before reinsurance) broken down by strategic business unit The proportion reinsured was low and would not affect the information given in the claims settlement tables below.
Eight years later 625.6 580.7 – – – – – – – – –
Seven years later 217.8 223.8 248.5 – – – – – – – –
Eight years later 3 40.1 61.8 – – – – – – – – –
Gross claims reserves prior to 2007 (including large claims and assumed business)
The survival ratio – the ratio of reserves to the average claims paid in the past three years – is a commonly used measure for comparing the adequacy of reserves for asbestos and environmental claims. The ratio shows the number of years for which the reserves will cover claims payments. At the end of the year under review the survival ratio was 55.7 years (2015: 42.7 years).
Technical reserves with 0 % guaranteed returns 645.7 730.5 74.9 82.7 22.4
Technical reserves with 0 % guaranteed returns 621.8 686.3 82.1 91.3 23.3
The major risks accruing from term insurance include epidemics and terrorist attacks but also changes in lifestyle such as lack of exercise. Endowment policies incur significant risks arising from the increase in life expectancy, which is likely to continue due to medical advances and rising living standards.
Actuarial reserves were allocated to the categories above by product, i.e. each product was assigned a risk category and actuarial reserves were not split into different risks within one product. Allocation to a category was generally determined by the mortality table used in each case.
5.5.2 Assumptions Actuarial reserves are calculated in accordance with the factors that applied on the date a policy was signed. When setting rates for life insurance products, safety margins are built into these factors to anticipate any adverse trends in the future, principally with regard to technical interest rates and mortality tables. These built-in safety margins, combined with counter-selection effects, explain why annuity tables differ from mortality tables. Cancellations are not factored in when recognising reserves.
The principles applied are reviewed on an ongoing basis by conducting liability adequacy tests (LATs) which ensure that sufficient reserves have been set aside. The underlying assumptions for conducting these tests are best estimates. The two main assumptions for these tests are expected future investment income and mortality rates. Expected future investment income is calculated using the current investment portfolio and the target investment portfolio (strategic asset allocation). The returns on new money invested are based on capital-market interest rates. Depending on the size of the portfolio, mortality rates are based on publicly available tables adjusted to reflect our own experience or on mortality tables produced inhouse.
→ 10 per cent increase in mortality A mortality increase of 10 per cent during liability adequacy testing had only a marginal effect in Germany, Belgium and Luxembourg and at Baloise Life (Liechtenstein) AG. This was true of the impact on both the income statement and on equity. In the Swiss life insurance business, an increase in mortality caused a lower amount to be allocated to strengthen annuity reserves. This effect improved profitability by around CHF 42 million (2015: CHF 17 million). This year-on-year increase was because the discount rate for loss reserves changed more in 2016 than it had in 2015, thus improving profitability to a greater extent.
→ 50 basis-point fall in receipts of new money This scenario was based on the assumption that receipts of new money (including amounts reinvested) fell by 50 basis points. When applied to the German units, this scenario resulted in changes in DAC write-downs, changes in the financing of final policyholders’ dividends, and the recognition of a provision for impending losses. These adverse effects were more than compensated for by the increase in the fair value of interest rate derivatives in 2016. The overall impact was mitigated by the prevailing legal requirements governing the distribution of surpluses. On balance there was a negative effect from the German units’ profitability in the reporting year of approximately CHF 5 million (2015: marginal positive effect). The positive impact on their equity amounted to approximately CHF 5 million (2015: CHF 4 million). In Belgium this scenario resulted in an additional DAC write-down and a larger provision for impending losses. The impact on the income statement was greater than in other countries owing to the business model used. Overall there was a negative effect of CHF 21 million on the income statement (2015: CHF 18 million). This adverse impact was more than compensated for by the positive changes in unrealised gains and losses recognised in equity. The positive effect on unrealised gains amounted to CHF 109 million (2015: CHF 96 million). In Luxembourg this scenario produced a marginal impact on the income statement (2015: marginal negative effect) and a positive effect of roughly CHF 15 million (2015: CHF 13 million) on the unrealised gains and losses recognised in equity. The resultant impact on the profitability and equity of Baloise Life (Liechtenstein) AG was negligible. In Switzerland this scenario resulted in a higher DAC write-down, an increase in technical reserves, and the offsetting effect of interest rate hedges. On balance these interacting factors had an adverse effect of CHF 19 million on the income statement (2015: CHF 46 million). The positive impact on equity amounted to approximately CHF 195 million (2015: CHF 188 million).
5.5.4 Changes to assumptions Expected future investment income is constantly adjusted in line with market circumstances. It has fallen across all units. Other assumptions, such as cancellation rates and mortality rates, are updated on an ongoing basis.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 5.6 Management of market risk Market risk is reflected by losses that arise from changes or fluctuations in market prices that may result in impairment of the value of assets held. The degree of risk depends on the extent to which market prices fluctuate and on the level of exposure.
Consequently, the impact of a movement in interest rates or in the interest rate curve may be a significant deterioration in terms and conditions if funding has to be rolled over. Benchmark-based maturity management is practised in the non-life units, while maturity management in the life units is driven by liabilities.
As part of the Baloise Group-wide Risk Management Standards, investment planning and appropriate asset and liability management ensure that any divergence in maturities and the interest rate risk incurred are managed within the risk-bearing ability available.
5.6.2 Currency risk Currency risk describes the potential financial loss generated by changes in the exchange rates between currencies. The extent of the effective currency risk depends on: → net foreign exchange exposure, i.e. the net position between assets and liabilities denominated in foreign currencies,
Assuming that all other variables remain constant, fluctuations between transactional currencies and the functional currency in financial balance sheet items (after deferred gains / losses and deferred taxes) in the amount of + / – CHF 0.01 (1 centime) would have resulted in a change of + / – CHF 1.4 million (31 December 2015: + / – CHF 2.4 million ) in the profit for the period and also in equity; a positive (+) change of CHF 0.01 would have generated a currency gain and a negative (–) change of CHF 0.01 would have generated a currency loss.
For international diversification (risk-spreading), to enhance returns and because there is greater liquidity in certain foreign financial markets, as at 31 December 2016 the Group’s Swiss companies did hold a net position in euros equivalent to CHF 765.2 million (2015: 643.8) and a net position in US dollars equivalent to CHF 8.3 million (2015: CHF – 11.2 million). The remaining foreign exchange positions, both assets and liabilities, were negligible.
Except for the German business unit no other foreign entity in the Baloise Group had a significant foreign currency exposure.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 5.7 Credit risk Credit risk relating to assets held by insurance companies refers to the total potential downside risk arising from a deterioration in the credit quality of a borrower or issuer, or from impairment in the value of collateral. Credit risk is managed by monitoring the credit quality of each individual counterparty and relying heavily on credit ratings.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements
If no contractually irrevocable future loan commitments have been agreed, the maximum default risk of financial assets corresponds to the carrying amount of the assets for own account and at own risk. In addition, guarantees and collateral for the benefit of third parties totalled CHF 672.8 million (2015: CHF 524.3 million).
The mortgage portfolio comprises loans to individuals and to legal entities. The type and degree of risk that may be incurred, together with collateralisation and quality requirements, are set out in directives and authorisation levels. To mitigate risk, the portfolio is as geographically diverse as possible.
CREDIT RATINGS OF FINANCIAL ASSETS THAT WERE NEITHER OVERDUE NOR IMPAIRED
Because the two agencies do not cover the entire Swiss financial market, the SBI composite rating is applied as and when necessary. This consists of ratings issued by the two rating agencies and the following four Swiss banks: Credit Suisse, UBS, Bank Vontobel and Zürcher Kantonalbank.
The credit quality of mortgage assets arising from Swiss insurance business is reviewed using risk management processes. Credit ratings are assigned on this basis. Mortgage assets that show no signs of impaired credit quality receive an A rating. Those that show signs of impaired credit quality are rated lower than BBB or are not rated at all.
In 2016, financial assets amounting to CHF 1.8 million (2015: CHF 1.8 million) and cash and cash equivalents of 0.1 million (2015: 0.1 million) from collateral received were used.
as at 31.12.2015 < 3 months 3 – 6 months 7 – 12 months > 12 months Total
Liquidity risk as at 31.12.2015 ‹ 1 year 2 1 – 3 years 4 – 5 years > 5 years Total Carrying amount
As part of tactical and strategic investment planning, care is taken when allocating the assets held by the individual life and non-life insurance units in the Baloise Group to ensure that sufficient liquidity is available to carry out investment activity and for the operational settlement of all business processes. The level of liquidity required is determined on the basis of the maturity structure of investments versus the payout schedule for insurance -related liabilities. The average historical pattern of incoming and outgoing cash management payments over the previous five years is also taken into account. Investment planning explicitly includes exceptionally large incoming or outgoing payments that are known in advance. Maintenance of liquidity levels and access to further liquidity via the repo market ensure sufficiently high reserves for payments needed at short notice, such as large claim settlements, until such as time as the reinsurer assumes the costs. Cash pooling among the Baloise Group’s Swiss companies also ensures that excess liquidity in one unit can be used to offset a temporary liquidity squeeze at another unit via an intra-Group interest-bearing overdraft facility.
If these precautions fail to meet the need for liquidity, the Baloise Group holds financial assets that can be sold at short notice without significant price losses. They include all equities (excluding long-term equity investments ). Because the Group holds a substantial portfolio of government and quasi-government bonds, it is possible to sell relatively large holdings of available-for-sale bonds even in crisis situations. Mortgages and loans are generally held to maturity; early redemption is not considered at present. In terms of alternative financial assets, 68 per cent of hedge funds can be sold within three months. Private-equity investments have to be considered illiquid in this context, and it is not possible to sell investment property to generate immediate liquidity.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 5.9 Equity price risk The Baloise Group is exposed to equity price risk because it holds financial instruments with characteristics of equity classed as “recognised at fair value through profit or loss” and “available for sale”. Equity price risk is significantly reduced by means of international diversification, i.e. by spreading risk across sectors, countries and currencies. Active overlay management using derivatives also mitigates equity price risk if certain intervention levels are reached or the market and / or risk indicators that are continuously tracked by Baloise suggest heightened hedging activity.
Fair value measurement is divided into the following three hierarchy levels: → Fair value determined by publicly quoted prices (level 1)
→ Fair value determined by using observable market data (level 2) Fair value is estimated using generally recognised methods (discounted cash flow, etc.). In this case, measurement incorporates a significant quantity of observable market data (interest rates, index performance, etc.).
Financial instruments with characteristics of liabilities that are assigned to level 3 are predominantly corporate bonds originating from private placements and for which third-party prices are not available. A present-value model is used to measure their fair value.
The measurement of investment property classified as level 3 is carried out internally each year by experts using market-based assumptions that have been verified by respected external consultancies. This property is also assessed by external valuation specialists at regular intervals.
Changes in fair value recognised in profit or loss 1 – 6.8 59.7 52.9
Changes in fair value not recognised in profit or loss 2 18.7 8.0 26.7
Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss 1 Changes in fair value recognised in profit or loss arise from realised gains and losses on investments, impairment losses or the reversal of impairment losses. 2 Changes in fair value not recognised in profit or loss arise from unrealised gains and losses on investments.
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS FOR THE ACCOUNT AND AT THE RISK OF LIFE INSURANCE POLICYHOLDERS AND THIRD PARTIES AND CLASSIFIED AS LEVEL 3
Changes in fair value recognised in profit or loss 1 – 0.4 – – – 0.4
Reclassification of assets and liabilities to and from level 3 In the reporting period, a small volume of financial assets were reclassified owing to changed market activity and new knowledge concerning the composition of investments.
Discrepancy between a non-financial asset’s highest and best use and its current use The fair value of investment property is determined on the basis of its highest and best use.
This periodic analysis – which was based on criteria such as the potential to increase a property’s market value by converting it into apartments, the repurposing of some or all of an existing property, the availability of a significant amount of land for further building and development, and the unlocking of added value by demolishing an existing property and building a new one revealed for the reporting period that the highest and best use of only individual investment properties in the Swiss portfolio differed from their current use.
5.11.1 Solvency I ratio at Group level The solvency ratio (calculated on the basis of the legal requirements in force on 30 June 2015) for pure insurance business of CHF 2,142 million (2015: CHF 2,126 million) was met in 2015 and 2016. The cover ratio for the capital adequacy requirement in available funds was 351 per cent at 31 December 2016 (31 December 2015: 341 per cent). The capital currently available consists of IFRS equity, unallocated policyholders’ dividends and the final policyholders ’ dividend reserve. Liabilities are also recognised as capital in accordance with the corresponding options for solvency coverage at individual company level. Deductions from equity include planned dividend payments and intangible assets.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 6. BASIS OF CONSOLIDATION 6.1 2015 financial year 6.1.1 Acquisitions HDI-Gerling Assurances, based in Leudelange, Luxembourg, was acquired during the year under review and was merged with Bâloise Assurances Luxembourg S.A. in the same year. This transaction, in which all of its shares were acquired, gave rise to a small amount of goodwill.
6.1.2 Disposals No companies were sold during the year under review.
6.1.3 Other changes in the group of consolidated companies The two Gloucester-based companies Lennox Underwriting Agencies and Lennox Underwriting Management were liquidated in the second half of 2015. There were no other changes to the basis of consolidation.
6.2.2 Disposals No companies were sold during the year under review.
6.2.3 Other changes in the group of consolidated companies Baloise Insurance Company (Bermuda) Ltd. merged with Baloise Insurance Ltd (Switzerland) on 1 January 2016. Intercompany reinsurance was thus transferred to Switzerland. This merger took place within the existing group of consolidated companies.
Baloise Immobilien Management AG was founded in the second half of 2016 and is headquartered in Basel. Also in the second half of 2016, the share of capital and share of voting rights in the real-estate company SA Keiberg 401 in Belgium was increased from 46.8 per cent to 100 per cent.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 7. INFORMATION ON OPERATING SEGMENTS (SEGMENT REPORTING) The Baloise Group organises its operating activities into strategic business units, which are generally combined under a single management team for each region. The financial and management information needed for all relevant executive decisions is held by these strategic business units. This is also the organisational level at which the chief operating decision-makers are situated. Regardless of where they are headquartered, all Baloise Group entities are therefore assigned to one of the reportable segments
The “Group business” segment comprises the units engaged in intercompany reinsurance and financing, as well as corporate IT and the holding companies.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 7.1 Segment reporting by strategic business unit
Claims and benefits paid (gross) – 3,458.2 – 3,651.7 – 1,142.0 – 1,209.2 – 651.6 – 688.6 – 99.0 – 111.1 – 5,350.7 – 5,660.6 – 108.7 112.5 107.1 – 116.1 – 5,352.4 – 5,664.2
Segment assets as at 31 December 1 44,490.9 45,081.9 15,100.9 15,104.9 9,043.6 9,521.0 9,349.2 10,413.8 77,984.5 80,121.6 1,841.7 1,466.1 – 1,044.0 – 973.4 78,782.3 80,614.3 1 restated in segment assets 2015 Germany.
Premiums earned and policy fees (net) 4,241.2 4,106.6 1,122.4 1,134.1 968.4 990.8 161.9 181.2 6,493.9 6,412.8 189.8 99.6 0.0 0.0 6,683.7 6,512.4
Share of profit (loss) of associates 0.0 0.0 36.8 7.1 0.1 0.0 – – 36.8 7.1 – – – – 36.8 7.1
Change in technical reserves (gross) – 764.7 – 351.8 – 320.1 – 181.6 – 124.6 – 126.3 – 39.3 – 23.1 – 1,248.7 – 682.8 – 51.6 – 208.2 58.4 221.8 – 1,241.9 – 669.1
Reinsurers’ share of claims incurred 48.9 27.1 121.9 103.2 82.8 74.8 10.1 9.2 263.6 214.2 – 0.4 – 0.3 – 165.4 – 105.7 97.9 108.2
Profit / loss before borrowing costs and taxes 415.3 546.6 64.9 – 60.9 191.7 171.7 23.5 23.3 695.4 680.7 23.8 2.9 – – 719.2 683.6
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 7.2 Segment reporting by operating segment
Premiums earned and policy fees (gross) 3,048.9 3,109.7 3,783.4 3,570.9 – – – – – – 6,832.4 6,680.6
Realised gains and losses on investments 30.4 47.6 348.3 616.8 3.3 – 3.4 4.3 6.2 – – 386.2 667.2
Share of profit (loss) of associates 7.4 0.0 25.1 3.0 – – 4.3 4.2 – – 36.8 7.1
Claims and benefits paid (gross) – 1,854.0 – 1,859.7 – 3,498.4 – 3,804.5 – – – – – – – 5,352.4 – 5,664.2
Change in technical reserves (gross) – 55.3 – 66.7 – 1,186.6 – 602.4 – – – – – – – 1,241.9 – 669.1
Operating and administrative expenses for insurance business – 490.0 – 488.5 – 271.3 – 275.4 – – – – – – – 761.3 – 763.9
Gains or losses on financial contracts – 0.8 – 0.5 48.6 – 303.9 – 59.5 – 46.5 – 15.3 – 16.4 26.1 24.6 – 0.9 – 342.9
Profit / loss for the period (segment result) 320.6 321.5 215.0 191.8 60.9 72.7 – 85.5 – 52.1 – – 511.1 533.9
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 188 22.03.2017 15:01:31
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 189 22.03.2017 15:01:31
Changes due to impending losses – – – 26.8 0.8 – – – 26.0
Segment as at 31 December 2015 1 With the possible exception of goodwill, the Baloise Group has no intangible assets with indefinite useful lives.
2015 Carrying amount Baloise’s share of profit or loss for the period from continuing operations profit or loss for the period from discontinued operations other comprehensive income comprehensive income
There were no contingent liabilities arising from investments in associates and no substantial unrecognised shares of the losses of associates as at either 31 December 2016 or 31 December 2015.
Operating expenses arising from investment property that does not generate rental income 0.7 0.6
The increase in the portfolio during the reporting year was largely attributable to real estate acquired by Baloise’s Swiss entities. The additions arising from changes in the scope of consolidation primarily related to the acquisition of the Belgian real-estate company Postsite Aalst.
Financial assets for own account and at own risk 37,237.7 37,421.6
Recognised at fair value through profit or loss 1 9,781.5 10,650.6
Financial assets as reported on the balance sheet 47,019.2 48,072.2 1 Of which financial assets totalling CHF 99.5 million (2015: CHF 98.8 million) involved insurance policies that had not been fully reviewed by the balance sheet date.
Publicly listed, variable interest rate – – 8.9 11.8 – – 28.2 25.3 37.1 37.1
Not publicly listed, fixed-interest rate – – 23.3 29.3 – – 18.3 5.5 41.6 34.8
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 198 22.03.2017 15:01:32
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 199 22.03.2017 15:01:33
Industrial enterprises – – – 6.5 – – – – – 6.5
Financial assets of a debt nature 8,549.5 8,224.6 23,024.6 23,806.7 – – 46.6 30.8 31,620.6 32,062.1
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 201 22.03.2017 15:01:33
Reclassification to non-current assets and disposal groups classified as held for sale 0.0 –
Derivative financial instruments for own account and at own risk 363.2 363.0 250.8 299.0
Derivative financial instruments for the account and at the risk of life insurance policyholders and third parties
Derivative financial instruments as reported on the balance sheet 653.9 757.3 250.8 299.0
Increases and additional provisions recognised in profit or loss – 1.1 – 0.8
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 204 22.03.2017 15:01:34
Reinsurers’ share of technical reserves as at 1 January 421.5 410.8
Reclassification to non-current assets and disposal groups classified as held for sale – 1.7 –
Reinsurers’ share of technical reserves as at 31 December 410.8 415.2 17. RECEIVABLES FROM REINSURERS
Impairment of receivables from reinsurers as at 1 January – 0.5 – 0.1
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 205 22.03.2017 15:01:34
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 18. EMPLOYEE BENEFITS 18.1 Receivables and liabilities arising from employee benefits
Switzerland has the largest plans. The employer and employee each contribute to these plans; the contributions are used to cover benefits paid in the event of death or invalidity as well as being saved up to fund a pension. The employee has the option of receiving all or part of the accumulated capital as a one-off payment. Some of the benefits granted in this way are governed by binding statutory regulations that are applicable to all Swiss employers and, in particular, stipulate certain minimum benefits. The pensions are the responsibility of separate legal entities (foundations) that are run by a committee consisting of employer and employee representatives.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 18.2.1 Fair value of plan assets
Balance as at 31 December 2,373.2 2,374.8 18.2.2 Partially funded liabilities under defined benefit plans
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 18.2.3 Unfunded liabilities under defined benefit plans
Actuarial gains / losses on defined benefit obligations arising from changes in financial assumptions 63.7 – 88.2 changes in demographic assumptions – 0.4 – 1.9 experience adjustments – 1.4 – 1.3
Net actuarial liabilities under defined benefit plans – 1,200.5 – 1,316.9 10_FB_Kapitel_18_bis_23_en 208 22.03.2017 15:01:50
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 18.2.5 Asset allocation
Equities and investment funds publicly listed 1,368.2 1,313.6 not publicly listed 140.5 142.4
18.2.6 Expenses for defined benefit plans recognised in the income statement
Total expenses for defined benefit plans recognised in the income statement – 92.2 – 59.9 10_FB_Kapitel_18_bis_23_en 209 22.03.2017 15:01:50
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 18.2.7 Actuarial assumptions
Discount rate plus 0.5 % age points – 224.3 – 268.2
Expected wage and salary increases minus 0.5 % age points – 34.1 – 34.4
Expected pension benefits increases minus 0.5 % age points – 31.3 – 36.3
Mortality probabilities for 65-year-olds minus 10.0 % age points 96.6 102.8
The sensitivity is only calculated for the liability. A possible simultaneous impact on plan assets is not investigated.
18.3 Other long-term employee benefits Benefits granted to current employees that are payable twelve months or more after the end of the financial year are accounted for separately and according to specific rules. The accounting policies applied are similar to those used for pension liabilities, except that actuarial gains and losses are recognised in profit or loss.
Long-service bonuses constitute the principal benefit paid. The present value of liabilities as at 31 December 2016 totalled CHF 29.1 million (2015: CHF 30.8 million). There were no disposals of plan assets for long-term employee benefits. Benefits paid out amounted to CHF 4.7 million (2015: CHF 4.0 million).
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 18.4.1 Employee Incentive Plan The Baloise Foundation for Employee Participation set up in 1989 offers members of staff working for various Baloise Group companies in Switzerland the opportunity to purchase shares in Bâloise Holding Ltd (usually once a year) at a preferential price in compliance with the regulations adopted by the Board of Foundation. This encourages employees to maintain their commitment to the Company over the long term by becoming shareholders. The subscription price is fixed by the Board of Foundation at the beginning of the subscription period and is then published on the intranet. It equals half of the volume-weighted average share price calculated for the month of August in each subscription year. In 2016 the subscription price amounted to CHF 56.40 (2015: CHF 60.40) and a total of 183,678 shares were subscribed (2015: 172,796). Title to the subscribed shares passes to the relevant employees with effect from 1 September each year, and the shares are subject to a three-year closed period.
Fair value of subscribed shares on subscription date (CHF million) 20.5 21.5
The parameters used to determine the subscription price are decided each year by the Remuneration Committee. The subscription price is based before the closing price on the first day of the subscription period, on which a discount of 10 per cent is granted. Once it has been calculated using this method, the subscription price is published in advance on the intranet. The shares needed for the Share Subscription Plan are purchased in the market as and when required.
1 Including shares financed by loans. 2 Net of the discounted dividend right over three years.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 18.4.4 Performance share units At the beginning of each vesting period the participating employees are granted rights in the form of PSUs, which entitle them to receive a certain number of shares free of charge after the vesting period has elapsed. The Remuneration Committee specifies the grant date and applies its own discretion in deciding which of the most senior management team members are eligible for the programme. It determines the total number of PSUs available and decides how many are to be awarded to each member of the Corporate Executive Committee. PSUs are granted to the other programme participants on the basis of the relevant line manager’s proposal, which must be approved by the line manager’s manager.
Companies in the STOXX 600 Europe Insurance Index (as at 31 December 2016)
AEGON DIRECT LINE INSURANCE GROUP PHOENIX GROUP HDG. SWISS REINSURANCE COMPANY
Measurement of the PSU at their issue date is based on a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period. This measurement incorporates the following parameters: → interest rate of 1 per cent; → the volatilities of all shares in the peer group and their correlations with each other
Number of active PSUs as at 31 December 2014 46,836 – –
Number of active PSUs as at 31 December 2015 45,707 42,162 –
Value of allocated PSUs on issue date (CHF million) 5.6 5.1 5.3
PSU expense incurred by the Baloise Group for 2014 (CHF million) 1.3 – –
PSU expense incurred by the Baloise Group for 2015 (CHF million) 1.9 1.4 –
PSU expense incurred by the Baloise Group for 2016 (CHF million) 1.6 1.5 1.3 10_FB_Kapitel_18_bis_23_en 217 22.03.2017 15:01:52
Liabilities arising from employee benefits 69.0 0.1 – – – 0.9 – 0.8 67.5 1 As a result of the transfer of the intercompany reinsurance activities of Baloise Insurance Bermuda to Switzerland, tax assets of CHF 26.9 million were recognised in 2016.
The Baloise Group reports its deferred taxes on a net basis. Deferred tax assets and liabilities are offset against each other in cases where the criteria for such offsetting have been met. This is usually the case if the tax jurisdiction, the taxable entity and the type of taxation are identical.
The Baloise Group had recognised deferred tax assets on tax loss carryforwards totalling CHF 195.1 million as at 31 December 2016 (2015: CHF 130.4 million). Of this total, CHF 0.6 million will expire after one year, 0.2 million after two to four years and CHF 194.3 million will expire after five years or more.
As a result of the transfer of the intragroup reinsurance business (Baloise Insurance Company Bermuda Ltd) to Switzerland, the Baloise Group had offsettable tax assets of CHF 134.7 million as at 31 December 2016, which it can use until the end of 2025.
Of which: recognised as deferred tax liabilities – 909.7 – 944.9 20. OTHER ASSETS “Other assets” include the fair value of precious metals amounting to CHF 54.5 million in connection with private placement life insurance (2015: CHF 40.2 million). The insurance policyholder bears the price risk attaching to these precious metal holdings.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 21. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS The sale to the Frankfurter Leben Group of the portfolio of life insurance policies, which had been in run-off since the end of 2011, held by the German branch of Baloise Life Ltd (Basler Leben DfD [Direktion für Deutschland]) was formally completed on 16 September 2015. The portfolio that had been held for sale, and the associated assets and liabilities, have been treated as a disposal group in accordance with IFRS 5.
Liabilities arising from banking business and financial contracts – – – –
The final subsequent measurement of the disposal group was conducted as at 31 December 2016. The transaction was completed in early 2017 and is explained in more detail in note 49 (Events after the balance sheet date).
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 22. SHARE CAPITAL
Purchase / sale of treasury shares 415,749 – 415,749 – –
The Annual General Meeting held on 29 April 2016 voted to pay a gross dividend of CHF 5.00 per share for the 2015 financial year. This amounted to a total dividend distribution of CHF 250.0 million. Excluding the treasury shares held by Bâloise Holding Ltd at the time that the dividend was paid, the total distribution effectively amounted to CHF 232.0 million.
Policyholders’ dividends credited and provisions for future policyholders’ dividends (gross) 3,497.6 3,409.4
Provision for claims handling costs 529.1 – – 520.5 – –
Total technical reserves (non-life) 5,947.0 – 387.6 5,559.4 5,986.4 – 391.4 5,595.1 10_FB_Kapitel_18_bis_23_en 223 22.03.2017 15:01:53
Additional provisions recognised and unused provisions reversed through profit or loss
Additions / disposals arising from changes in scope of consolidation 5.9 –
The relevant net reserves included in the total amounted to CHF 81.3 million at the end of 2016 (2015: CHF 84.7 million). The slight decrease was attributable to commutations of reserves and currency effects.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 23.2 Technical reserves (life)
Reclassification to non-current assets and disposal groups classified as held for sale – 13.2 –
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 23.2.4 Reserve for final policyholders’ dividends
Adjustment arising from unrealised gains and losses as at 1 January (shadow accounting) – 11.5 – 8.0
Reclassification to non-current assets and disposal groups classified as held for sale – 2.2 –
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 23.2.6 Policyholders’ dividends credited and reserves for future policyholders’ dividends
Reclassification to non-current assets and disposal groups classified as held for sale – 199.3 –
Policyholders’ dividends credited and provisions for future policyholders’ dividends as at 31 December 10_FB_Kapitel_18_bis_23_en 231 22.03.2017 15:01:54
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 24. LIABILITIES ARISING FROM BANKING BUSINESS AND FINANCIAL CONTRACTS
Financial contracts with discretionary participation features (DPFs) 1 1,930.1 2,317.4 – –
Total liabilities arising from banking business and financial contracts 19,012.0 20,317.7 – –
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 25. FINANCIAL LIABILITIES
TERMS AND CONDITIONS GOVERNING SENIOR DEBT OUTSTANDING (SENIOR BONDS BÂLOISE HOLDING LTD)
ISIN CH0117683794 CH0131804616 CH0148295014 CH0188295536 CH0194695083 CH0200044821 CH0261399064 11_FB_Kapitel_24_bis_Bericht_en 233 22.03.2017 15:02:03
The balance shown for other provisions includes the usual amounts for legal advice and litigation risks. Other provisions utilised but not recognised in profit or loss are primarily attributable to Baloise’s Belgian and Swiss entities. The recognition of restructuring provisions in profit or loss largely relates to the German entities. Other provisions recognised in profit or loss were primarily attributable to Baloise’s German entities and those utilised but not recognised in profit or loss were primarily attributable to its Swiss entities.
Gross premiums written and policy fees 3,050.0 3,783.4 6,833.4 3,140.7 3,570.9 6,711.6
Change in unearned premium reserves – 1.1 – – 1.1 – 31.0 – – 31.0
Total investment income for own account and at own risk 1,521.8 1,476.6
Income from investment property consists mainly of rental income. Income from financial instruments with characteristics of equity primarily comprises dividend income, while income from financial instruments with characteristics of liabilities essentially contains interest income and net income from the recognition and reversal of impairment losses owing to application of the effective interest method. Income from mortgages and loans and from cash and cash equivalents is mainly derived from the interest paid on these assets.
Interest income of CHF 3.1 million had been recognised on impaired investments at the balance sheet date (2015: CHF 3.1 million).
Realised gains and losses on investments as recognised in the income statement 386.2 667.2
30.1 Realised gains and losses on investments for own account and at own risk
Carried at cost – – – – 1.3 – – 1.3
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 238 22.03.2017 15:02:03
Held to maturity 1 – – – 19.5 – – – 19.5
Available for sale – – 41.7 – 61.8 – – – 103.5
Carried at cost – – – – 10.5 – – 10.5
30.3 Impairment losses on financial assets recognised in profit or loss
Impairment losses on financial assets of an equity nature recognised in profit or loss
Total impairment losses on financial assets recognised in profit or loss – 77.8 – 119.0 30.4 Currency gains and losses Excluding exchange-rate losses on transactions involving financial instruments that are recognised at fair value through profit or loss, a currency gain of CHF 45.5 million was reported for 2016 (2015: loss of CHF 377.3 million).
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 240 22.03.2017 15:02:04
1 This includes changes in deferred acquisition costs recognised in profit or loss, as shown in table 9.
Change in fair value of other financial contracts 109.8 – 242.5
Profit for the period attributable to shareholders (CHF million) 512.1 534.8
Adjusted profit for the period attributable to shareholders (CHF million) 520.1 540.8
Diluted earnings per share (CHF) 10.65 11.22 1 Pro-rata recognition in 2016 of the convertible bond, which matured on 17 November 2016 (in accordance with IAS 33).
Change in reserves arising from reclassification of investment property 0.8 7.9
Available-for-sale financial assets: Gains and losses arising during the reporting period – 411.1 437.9
Gains and losses reclassified to the income statement – 471.8 – 311.2
Gains and losses arising during the reporting period – 0.2 – 14.8
Gains and losses reclassified to the income statement – 33.5 – 0.6
Gains and losses reclassified to the income statement – 1.4 – 1.1
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 246 22.03.2017 15:02:04
Deferred income taxes of items not to be reclassified to the income statement
Total deferred income taxes of items not to be reclassified to the income statement – 8.5 27.2
Additions and disposals arising from change in the scope of consolidation – –
Cash and cash equivalents used / received for acquisitions and disposals
Bâloise Assurances Luxembourg S.A. in the same year. No companies had been sold in 2015. This table does not include purchases of real-estate companies that, according to the provisions of IFRS 3
Business Combinations, do not constitute a business, which means that these purchases are classified as the acquisition of assets. That is why the outflows and inflows of cash and cash equivalents vary from the presentation in the cash flow statement. Further explanations are provided in note 6 (Changes to the group of consolidated companies).
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 248 22.03.2017 15:02:05
The executive management team consists of the members of Bâloise Holding Ltd’s Board of Directors and Corporate Executive Committee.
Premiums earned and policy fees Investment income Expenses Mortgages and loans Liabilities
Payments under share-based payment plans – 3.8 – 3.6 33,118 shares worth CHF 4.2 million were repurchased from members of the Corporate Executive Committee in 2016 (2015: CHF 6.0 million) under the Share Participation Plan (section 18.4.3).
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 249 22.03.2017 15:02:05
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 250 22.03.2017 15:02:05
42. CONTINGENT AND FUTURE LIABILITIES 42.1 Contingent liabilities 42.1.1 Legal disputes The companies in the Baloise Group are regularly involved in litigation, legal claims and lawsuits, which in most cases constitute a normal part of its operating activities as an insurer.
42.1.2 Guarantees and collateral for the benefit of third parties The Baloise Group has issued guarantees and provided collateral to third parties. These include obligations – in contractually specified cases – to make capital contributions or payments to increase the amount of equity, provide funds to cover principal and interest payments when they fall due, and issue guarantees as part of its operating activities. The Baloise Group is not aware of any cases of default that could trigger such guarantee payments.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 251 22.03.2017 15:02:05
The Baloise Group engages in securities-lending transactions that may give rise to credit risk. Collateral is required in order to hedge these credit risks by more than covering the underlying value of the securities that are being lent (mainly bonds). The value of the counterparty’s lending securities is regularly measured in order to minimise the credit risk involved. Additional collateral is immediately required if this value falls below the value of cover provided.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 252 22.03.2017 15:02:05
Commitments undertaken for future acquisition of investment property 84.6 326.5 financial assets 573.0 873.8 property, plant and equipment – –
As at 31 December 2016, there was an investment obligation of CHF 218 million for the purchase of the Belgian real-estate company VAC De Meander. Obligations undertaken by the Baloise Group to make future purchases of investments include commitments in respect of private equity, which constitute unfunded commitments to invest directly in private equity or to invest in private equity funds.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 253 22.03.2017 15:02:06
43. OPERATING LEASES 43.1 The Baloise Group as a lessee The Baloise Group has entered into non-cancellable leasing arrangements to lease buildings, vehicles and operating equipment. The average residual term of its leases is between three and five years.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 254 22.03.2017 15:02:06
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 255 22.03.2017 15:02:06
45. SIGNIFICANT SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Entities are defined as significant if they either individually or together contribute a significant proportion of the gross premiums, net income or total assets of the Baloise Group. Other long-term equity investments may be included for qualitative reasons, e.g. they are listed on a stock exchange.
Baloise Life Ltd, Basel Life L 100.00 100.00 F CHF 50.0 32,213.9 2,879.3
Basler Financial Services GmbH, Hamburg Other O 100.00 100.00 F EUR 1.5 12.2 –
OVB Holding AG, Cologne Other – 32.57 32.57 E EUR – – –
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 256 22.03.2017 15:02:06
The prime objective of Baloise Fund Invest (Lux) is to enable unitholders to benefit from professional management strategies based on the principle of risk diversification in line with each sub-fund’s specified investment policy. The holding of units in Baloise Fund Invest (Lux) does not give rise to any contractual obligations. There are no arrangements that oblige the Baloise Group to provide financial support to the consolidated entity Baloise Fund Invest (Lux), and no voluntary financial or other support was provided during the reporting year.
49. EVENTS AFTER THE BALANCE SHEET DATE On 4 January 2017, Baloise Life Ltd in Germany received approval from the Federal Financial Supervisory Authority (BaFin) to sell the life insurance portfolio of Baloise Life Ltd Direktion für Deutschland to Frankfurter Lebensversicherung AG. The Baloise Group announced on 3 February 2017 that the legal transfer had been carried out. The implementation of this transaction is expected to reduce profit by up to CHF 15 million in the first half of 2017. This effect on profit will be recognised in the life segments and in Group business.
On 6 January 2017, the Baloise Group announced that it was acquiring a majority stake in the real-estate company PAX Anlage AG in Basel. This purchase will be completed in 2017.
It has also been decided to acquire the real-estate company VAC De Meander in Belgium. This company is currently constructing an administrative building in Brussels that is to be leased to the Flemish government on a long-term basis. The sale and purchase agreement is expected to be completed in mid-2017.
By the time that these consolidated annual financial statements had been completed on 17 March 2017, we had not become aware of any further events that would have a material impact on the consolidated annual financial statements as a whole.
We have audited the financial report (pages 110 – 258) of Bâloise Holding AG and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2016 and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies.
In our opinion the financial report give a true and fair view of the consolidated financial position of the Group as at 31 December 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
Area of focus Non-life insurance technical reserves include management’s estimate of known claims expenses less claims payments, reserves for incurred but not reported losses and provisions for claims handling costs.
Inappropriate valuation of the non-life technical reserves (which includes compliance with regulatory requirements), could results in a misstatement to the financial statements of the Group and its overall financial position. The valuation of technical reserves involves a significant amount of management’s judgement. Fluctuations within the underlying assumptions and parameter may significantly affect the annual result and Group’s equity position.
The Group describes its valuation principles for technical reserves of nonlife insurance contracts in note 5.4 “Non-life” and note 5.4.2 “Assumptions”. The impact of various scenarios is described in note 5.4.4 “Sensitivity analysis”.
As part of the audit, we involved our non-life insurance actuarial specialists to independently test management’s methodology and the underlying assumptions used. For significant portfolios, our assessment of the actuarial reserves included an independent valuation and a comparison to the Group’s financial statements.
We further assessed the reserves by auditing management’s Liability Adequacy Tests (LAT). Furthermore, we agreed the Group’s valuation procedures to local regulatory requirements and audited the required disclosures in the notes to the financial statements.
The Group describes its valuation principles for technical reserves for life insurance contracts in note 5 “Management of insurance and financial risk” and note 5.5.2 “Assumptions”. The impact of various scenarios is described in note 5.4.4 “Sensitivity analysis”.
Area of focus Certain financial instructions (such as derivatives and investment properties) are valued using models, as they are not quoted on a publically available market. Due to the complexity of the models and significant judgement applied by management to the model parameters, any deficiencies or inaccurate model parameters could lead to material differences within the Group’s consolidated financial statements.
The Group describes the risks inherent with the valuation of investments without publically available market values in note 4 “Critical accounting principles and estimate” and the valuation principles in note 5.10 “Fair value measurement”.
On a sample basis we identified the market data input used by the Group and tested them against independent data. For complex products, we involved our internal valuation specialists, used the Group’s input data with the independent model, and calculated an independent valuation. Furthermore, we audited the required disclosures in the notes to the financial statements.
Baloise Group Financial Report 2016 Report of the statutory auditor 11_FB_Kapitel_24_bis_Bericht_en 263 22.03.2017 15:02:08
In connection with our audit of the financial report, our responsibility is to read the other information in the annual report and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
In preparing the financial report, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial report.
A further description of our responsibilities for the audit of the financial report is located at the website of EXPERTsuisse: This description forms part of our auditor’s report.
Baloise Group Financial Report 2016 Report of the statutory auditor 11_FB_Kapitel_24_bis_Bericht_en 264 22.03.2017 15:02:08
Baloise Group Financial Report 2016 Report of the statutory auditor 11_FB_Kapitel_24_bis_Bericht_en 265 22.03.2017 15:02:09
Income statement of Bâloise Holding Ltd �������������������������������� 268 Balance sheet of Bâloise Holding Ltd ����������������������������������������� 269 Notes to the financial statements of Bâloise Holding Ltd �� 270 Appropriation of distributable profit as proposed by the Board of Directors ��������������������������������������� 281 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ���� 282
Bâloise Holding Ltd 4 Baloise 16 Review of operating performance 36 Sustainable business management 58 Corporate Governance 108 Financial Report 266 Bâloise Holding Ltd 286 General information
Baloise Group Financial Report 2016 Balance sheet of Bâloise Holding Ltd
→ The dividends receivable previously recognised as accrued income are now included in receivables from Group companies because approval has been granted by the annual general meetings of the subsidiaries�
→ The bonds are categorised as current or non-current liabilities depending on their residual term� → Voluntary retained earnings are disclosed in greater detail, enabling reconciliation to the proposed appropriation of distributable profit�
The main policies applied which are not prescribed by law are described below�
Cash and cash equivalents Cash and cash equivalents include bank deposits and cash equivalents such as call money, fixed-term deposits and money market instruments� They are recognised at their nominal amount�
Receivables from third parties Receivables are recognised at their nominal amount less any impairment losses�
Notes to the financial statements of Bâloise Holding Ltd 12_FB_Holding_en 270 22�03�2017 14:59:29
Long-term equity investments Long-term equity investments are recognised individually at cost less any impairment losses�
Treasury shares Treasury shares are recognised at cost on the date of acquisition as deductions from equity� If the shares are subsequently sold, any gains or losses are recognised in profit or loss as financial income or expense�
In connection with the implementation of the new financial reporting standards, the principle of itemised measurement applies since 1 January 2015 to long-term equity investments� The application of this new ruling resulted in the reversal of an impairment loss under commercial law of CHF 203�5 million on the long-term equity investment in Baloise (Luxembourg) Holding S�A� in the 2015 annual financial statements�
Total administrative expenses – 35.1 – 40.7 1 Bâloise Holding Ltd has no direct employees. All staff members are employed by Baloise Insurance Ltd, Basel.
Total interest expenses – 34.8 – 33.0 12_FB_Holding_en 273 22�03�2017 14:59:29
The annual general meeting of Haakon AG, Basel, held on 23 February 2017, the AGMs of Baloise Asset Management Schweiz AG and of Baloise Asset Management International AG, Basel, held on 14 March 2017, the AGM of Basler Versicherung AG and Basler Leben AG, Basel, held on 17 March 2017 and the AGM of Baloise Bank SoBa AG, Solothurn, held on 10 April 2017 voted to recognise the dividends receivable for the 2016 financial year as accrued income�
Total loans to Group companies 102.0 102.0 12_FB_Holding_en 274 22�03�2017 14:59:29
Baloise Asset Management International AG, Basel 100.00 100.00 CHF 1.5 1.5
Baloise Fund Invest Advico, Bertrange (Luxembourg) 100.00 100.00 EUR 0.1 0.1
Share capital Statutory retained earnings Voluntary retained earnings Treasury shares Total equity
Change in treasury shares – – – – – 38.2 38.2
Baloise Group Financial Report 2016 Notes to the financial statements of Bâloise Holding Ltd 15. SIGNIFICANT SHAREHOLDERS The information available to the Company reveals that the following significant shareholders and shareholder groups linked by voting rights held long-term equity investments in the Company within the meaning of section 663c of the Swiss Code of Obligations (OR) as at 31 December 2015: Total shareholding as at 31.12.2015
Bank of New York Mellon N.V. 1 2.8 0.0 5.9 0.0
Bâloise Holding Ltd has furthermore issued the following letter of comfort: As the owner of Baloise Life (Liechtenstein) AG, Bâloise Holding Ltd, Basel, undertakes to ensure that its subsidiary Baloise Life (Liechtenstein) AG is at all times in a financial position to meet in full its liabilities to its customers arising from the contracts relating to its RentaSafe, BelRenta Safe, RentaProtect and RentaSafe Time products, especially its guarantee commitments� Since October 2012 this letter of comfort has also applied to customers with contracts relating to its RentaProtect Time, RentaSafe Time (D-CHF) and RentaProtect Performance products� The maximum liability corresponds to the present value of the outstanding guaranteed insurance benefits as at 31 December 2016� As at the balance sheet date, the expected insurance benefits were fully backed by customer deposit accounts governed by individual agreements, the reinsurance contract and the collateral lodged with Baloise Life (Liechtenstein) AG by the reinsurer�
Baloise Group Financial Report 2016 Notes to the financial statements of Bâloise Holding Ltd 19. NET REVERSAL OF HIDDEN RESERVES In 2016, no hidden reserves were reversed�
20. EXEMPTIONS DUE TO PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS Because Bâloise Holding Ltd has prepared consolidated financial statements in accordance with recognised financial reporting standards (IFRS), in accordance with statutory provisions (article 961d [1] of the Swiss Code of Obligations [OR]), it has dispensed with the notes on long-term interest-bearing liabilities and audit fees as well as the presentation of a cash flow statement or a management report in these annual financial statements�
DISTRIBUTABLE PROFIT AND APPROPRIATION OF PROFIT The profit for the period amounted to CHF 289,202,029�24�
As statutory auditor, we have audited the financial statements (pages 268 – 280) of Bâloise
Opinion In our opinion, the financial statements for the year ended 31 December 2016 comply with Swiss law and the company’s articles of incorporation.
We consider this a key audit matter not only due to this judgment involved but also based on the magnitude of the carry value of the long-term equity investments within the financial statements of Bâloise Holding Ltd.
Bâloise Holding Ltd describes the valuation principles for long-term equity investments as part of the accounting policy note in the financial statements.
In accordance with article 728a para. 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.
GLOSSARY ������������������������������������������������������������������������������������������������ 288 ADDRESSES ��������������������������������������������������������������������������������������������� 292 INFORMATION ON THE BALOISE GROUP ������������������������������������ 293 FINANCIAL CALENDAR AND CONTACTS ��������������������������������������� 294
General information 4 Baloise 16 Review of operating performance 36 Sustainable business management 58 Corporate Governance 108 Financial Report 266 Bâloise Holding Ltd 286 General information 05_JB_Anhang_en 287 22�03�2017 14:55:46
→ Actuarial reserves Actuarial reserves are the reserves set aside to cover current life insurance policies�
→ Annual premium equivalent The annual premium equivalent (APE) is the insurance indus­ try standard for measuring the volume of new life insurance business� It is calculated as the sum of the annual premiums earned from new business plus 10 per cent of the single premiums received during the reporting period�
→ Assets managed for third parties These are assets held in trust for clients and partners�
→ Claims ratio The total cost of claims settled as a percentage of total premiums�
→ Gross The gross figures shown on the balance sheet or income state­ ment in an insurance company’s annual report are stated before deduction of reinsurance�
→ International Financial Reporting Standards Since 2000 the Baloise Group has been preparing its consoli­ dated financial statements in compliance with Inter national Financial Reporting Standards (IFRS), which were previously called International Accounting Standards (IAS)�
→ Reserves A measurement of future insurance benefit obligations arising from known and unknown claims that are reported as liabilities on the balance sheet�
→ Solvency Minimum capital requirements that the regulatory authori­ ties impose on insurance companies in order to cover their business risks (investments and claims)� These requirements are usually specified at a national level and may vary from country to country�
→ Unrealised gains and losses (recognised directly in equity) Unrealised gains and losses are increases or decreases in value that are not recognised in profit or loss and arise from the measurement of assets� They are recognised directly in equity after deduction of deferred policyholders’ dividends (life insurance) and deferred taxes� These gains or losses are only taken to income if the underlying asset is sold or if impairment losses are recognised�
GERMANY Basler Versicherungen Basler Strasse 4 Postfach 1145 D-61345 Bad Homburg info@basler.de
The annual report contains all of the elements that, in accordance with section 961c of the Swiss Code of Obligations, make up the management report�
AVAILABILITY AND ORDERING The 2016 Annual Report and the Summary of the 2016 Annual Report will be available from 23 March 2017 on the internet at: → www.baloise.com/annualreport
Corporate publications can be ordered either on the internet or by post from the Baloise Group, Corporate Communications, Aeschengraben 21, 4002 Basel, Switzerland�
INFORMATION FOR SHAREHOLDERS AND FINANCIAL ANALYSTS Detailed information and data on Baloise shares, the IR agenda, the latest presentations and how to contact the Investor Relations team can be found on the internet at www.baloise.com/investors� This information is available in German and English�
INFORMATION FOR MEMBERS OF THE MEDIA You will find the latest media releases, presentations, reports, images and podcasts of various Baloise events as well as media contact details at www.baloise.com/media�
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS This publication is intended to provide an overview of Baloise’s operating performance� It contains forward­looking statements that include forecasts of future events, plans, goals, business developments and results and are based on Baloise’s current expectations and assumptions� These forward­looking statements should be noted with due caution because they inherently contain both known and unknown risks, are subject to uncertainty and may be adversely affected by other factors� Consequently, business performance, results, plans and goals could differ substantially from those presented explicitly or implicitly in these forward­ looking statements� Among the influencing factors are (i) hanges in the overall state of the economy, especially in key markets; (ii) financial market performance; (iii) competitive factors; (iv) changes in interest rates; (v) exchange rate movements; (vi) changes in the statutory and regulatory framework, including accounting standards; (vii) frequency and magnitude of claims as well as trends in claims history; (viii) mortality and morbidity rates; (ix) renewal and expiry of insurance policies; (x) legal disputes and administrative proceedings; (xi) departure of key employees; and (xii) negative publicity and media reports�
BÂLOISE HOLDING LTD Aeschengraben 21 4002 Basel, Switzerland www.baloise.com 05_JB_Anhang_en 296 22�03�2017 14:55:47