SUSTAINABLE BUSINESS MANAGEMENT Human resources ������������������������������������������������������������������������������������ 36 The environment ������������������������������������������������������������������������������������� 40 Risk management ������������������������������������������������������������������������������������ 42
CORPORATE GOVERNANCE Corporate Governance Report including Remuneration Report ������������������������������������������������������ 48 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ������������������������ 84
BÂLOISE HOLDING LTD Income statement of Bâloise Holding ����������������������������������������� 246 Balance sheet of Bâloise Holding �������������������������������������������������� 247 Notes to the financial statements of Bâloise Holding ��������� 248 Appropriation of distributable profit as proposed by the Board of Directors �������������������������������������������� 255 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ��������������������� 256
Dividend per share5 (CHF) 4.75 5.00 5.3 1 Premiums written and policy fees (gross).
CHF 5.00 per share (will be proposed to the Annual General Meeting on 30 April 2015)
(RoE) of 13.5 per cent 1 Calculated in local currency on a like-for-like basis and excluding discontinued operations (Austria, Croatia and Serbia).
Baloise Letter to shareholders advanced by 57�0 per cent year on year to CHF 710�7 million� All business divisions and national Baloise companies contributed to this result� In addition to the Company’s improved operating performance, the disposal of its shareholdings in Nationale Suisse and Helvetia and the sale of Basler Austria boosted this outstanding result by around CHF 160 million�
Focused growth and outstanding results Baloise is building on solid foundations
The outstanding financial results achieved by Baloise in 2014 once again underscore its excellent operational profitability and solid foundations� We are growing in attractive segments – which we plan to expand further – over and above the market rate� Our core insurance business is not the only segment that is highly successful and profitable; Baloise has also generated an excellent return on its investments�
The Company’s capitalisation remains strong� Standard & Poor’s acknowledged this quality by upgrading our credit rating to ‘A with a stable outlook’ in the middle of last year� The highly focused Baloise Group is excellently placed to continue shaping its future in a way that is geared towards bringing success�
The profit that Baloise earned in 2014 was the second- best in its history – the best profit was reported in 2007 – and 01_JB_Die Baloise_en�indd 6 24�03�2015 13:16:42
Focusing on highly profitable niche markets also means being very selective when underwriting new premiums in less profitable areas� This essentially means deciding to forego potential premium income in some cases� In Germany we are therefore exiting the motor vehicle fleet insurance market and significantly scaling back our business with large industrial enterprises in sectors where the risks are too high� Baloise has reduced its net combined ratio by 1�3 percentage points to 93�6 per cent as a result of the benign claims environment and these improvements in portfolio quality� It has also enhanced its efficiency, as reflected in its lower expense ratio�
“The highly focused Baloise Group is excellently placed to continue shaping its future in a way that is geared towards bringing success and adding long-term value for its shareholders”
Knowledge and skills are crucial in a challenging market environment like the one we are currently experiencing� That is why our thanks go to all Baloise employees, whose expertise and hard work day in, day out make us one of the most profitable insurance companies in Europe�
We achieved lasting improvements in our profitability in 2014 and want our shareholders to benefit directly from this success� In view of our excellent financial results, we will propose to the Annual General Meeting on 30 April 2015 that our dividend be raised to CHF 5�00 per share� By repurchasing up to one million treasury shares over the next two years, we are further consolidating our considerable earnings power for our owners�
The Swiss insurance industry is contending with negative interest rates and a strong Swiss franc� But Baloise is pursuing an excellent strategy in operational terms and, despite these difficult conditions, is in a good position� By focusing on our core markets, rigorously implementing our target-customer management policies and offering innovative supplementary services around safety and security, we are confident of achieving our financial targets even in a challenging market�
The macroeconomic environment in 2014 was largely shaped by central banks’ expansionary monetary policies, with financial markets mesmerised by the dramatic erosion of interest rates� Equity markets fared well overall despite growing volatility � Insurance stocks also posted decent price gains on the back of an impressive operating performance� Insurers’ profitability is robust and their dividend yields remain attractive�
DIVIDENDS PAID TO SHAREHOLDERS The Board of Directors of Bâloise Holding Ltd will propose to the Annual General Meeting on 30 April 2015 that a cash dividend of CHF 5�00 per share be paid for the 2014 financial year� This would represent a dividend yield of 3�9 per cent of the year-end share price� In addition, the Company will start to repurchase up to one million of its shares over the next two years�
SHAREHOLDER STRUCTURE The shares in Bâloise Holding Ltd are widely held and their free float remains unchanged at 100 per cent� A few changes in Baloise’s shareholder base took place during the 2014 financial year� Several portfolios managed by Credit Suisse Funds AG
Baloise shares continue on their upward trajectory * Baloise shares = shares of Bâloise Holding Ltd.
Number of shares in circulation (units) 47,199,761 46,752,727 46,946,254 46,971,057 46,951,209
Bâloise Holding registered shares (BLAN) SWX SP Insurance Price Index (SMINNX) Swiss Market Index (SMI)
Who we are: Headquartered in Basel, Switzerland, the Baloise Group is a European provider of insurance and pension solutions. In Switzerland, the Group operates as a specialised financial services provider, offering a combination of insurance and banking services. The Group also has a market presence in Germany, Belgium and Luxembourg. Its sales network includes its own sales organisation, as well as brokers and other partners. Baloise operates its innovative pension plan business for private customers throughout Europe with its competence centre in Luxembourg. Bâloise Holding Ltd shares are quoted in the main segment of the SIX Swiss Exchange. The Baloise Group employs some 7,600 people.
Strength: Baloise is a strong partner – strong in terms of its growth, profitability and execution. You can rely on Baloise when you really need it, because its strength gives you the reassuring feeling of having a dependable partner at your side.
BELGIUM ������������������������������������������������������������������������������������������������������ 22 Encouraging growth and higher profit contribution ������������� 22
FINANCIAL INFORMATION �������������������������������������������������������������������� 24 Consolidated income statement ������������������������������������������������������� 24 Consolidated balance sheet ���������������������������������������������������������������� 26 Business volume, premiums and combined ratio �������������������� 27 Technical income statement �������������������������������������������������������������� 29 Gross premiums by sector ������������������������������������������������������������������� 30 Banking activities ����������������������������������������������������������������������������������� 31 Investment performance ��������������������������������������������������������������������� 32
Review of operating performance 4 Baloise 16 Review of operating performance 36 Sustainable business management 48 Corporate Governance 92 Financial Report 246 Bâloise Holding Ltd 260 Notes 02_JB_Geschaeftsgang_en�indd 15 24�03�2015 13:16:45
In 2014, Baloise continued to generate above-average growth in attractive target segments and achieved a further significant improvement in its operating performance, which made it one of the most profitable insurance companies in Europe.
The volume of premiums1 reported under IFRS in the non-life division grew by 0�4 per cent, while the value of premiums written in the life insurance division increased by a total of 2�0 per cent� The volume of business transacted in unit-linked life insurance jumped by 21�5 per cent� The profit contributed by non-life business rose by an impressive 14�4 per cent to CHF 419�1 million, while the net combined ratio improved by 1�3 percentage points to 93�6 per cent� Baloise significantly improved the operating performance of its life insurance business and raised its profit contribution by 82�6 per cent to CHF 476�8 million� The Group also achieved an excellent return on its investments� Recurring income declined slightly year on year as a result of persistently low interest rates� However, net income came to CHF 2,411�4 million, which was well above the CHF 1,907�0 million reported for 2013� The higher income earned from equities and alternative investments compensated partially for the lower income received from fixed-income assets� Book gains on interest-rate derivatives boosted the substantial gains on our investments�
Earnings before interest and tax (EBIT) from the banking business fell slightly year on year owing to the continuing low-interest -rate environment and the resultant lower level of net interest income�
NON-LIFE DIVISION: STRONG PROFITABILITY Baloise continued to improve the quality of its portfolio in the non-life division� By pursuing a selective underwriting policy, it reduced the volume of premiums in fairly unprofitable areas and increased them in highly profitable target segments� In Germany the Company continued to exit the motor vehicle fleet insurance market and significantly scaled back its business with large industrial enterprises in individual sectors with high risks� In Switzerland, for example, it wrote fewer premiums in accident insurance and daily sickness allowance insurance� Despite having adjusted its portfolio and optimised its income, Baloise expanded the volume of business in its non-life division (indemnity and personal insurance) by 0�4 per cent to CHF 3,260�5 million� The claims environment prevailing in 2014 was generally benign, which – especially in Switzerland – resulted in a very low combined ratio� In Germany, too, the combined ratio was lower than in the previous year because – despite a few large claims in industrial business – the cost of basic claims decreased� Hail storm Ela hit the Company’s Belgian non-life business, but its effective external reinsurance and the lower cost of basic claims mitigated this effect� Baloise reduced its overall net combined ratio by 1�3 percentage points to 93�6 per cent as a result of the benign claims environment and the improvements in portfolio quality� It also enhanced its efficiency, as demonstrated by the 0�2-percentage-point fall in the expense ratio�
Baloise raised its EBIT by 14�4 per cent to CHF 419�1 million despite the low level of gains realised on its investments� This was proof positive of the substantial and further improved profitability of its property insurance business�
LIFE DIVISION: STRONG OPERATING ACTIVITIES In the life insurance division Baloise generated excellent growth of 21�5 per cent in its unit-linked life insurance business� The volume of business in the life division as a whole expanded by 8�2 per cent to CHF 5,916�2 million� The main factor driving the growth of conventional life insurance was business in Switzerland � Demand for attractive and reliable group life insurance solutions continued on an encouraging scale� The ongoing optimisation of the business mix towards the latest life products also paid off� Baloise improved the operating performance of its life insurance business and raised its profit contribution by 82�6 per cent to CHF 476�8 million� The sources of this success were the Company’s strong risk result and its extraordinarily high net savings� The latter were boosted by the proceeds received from the realisation of gains on investments, especially from the sale of Baloise’s shareholdings in Nationale Suisse and Helvetia � In addition, the Company has established hedging instruments in recent years to mitigate the effects of low and falling interest rates�
SUBSTANTIAL GAINS ON INVESTMENTS All asset classes delivered an exceptionally strong performance in 2014� Equity markets were boosted by the economic upturn in the USA and by expansionary monetary policies, even though share prices dipped briefly in October owing to concerns about business activity in the European Union (EU)� A combination of expansionary monetary policy and lower inflation expectations caused yields on fixed-income investments and credit spreads on corporate bonds to fall� Baloise’s investments delivered an exceptional performance in this environment�
Net income came to CHF 2,411�4 million, which was well above the CHF 1,907�0 million reported for 2013� The net return on insurance assets came to 4�1 per cent (2013: 3�3 per cent)� The strategy – which included investing more in high-quality, high-dividend shares and introducing new fixed-income asset classes (senior secured loans) – meant that the recurring income declined only marginally from CHF 1,765�1 million in 2013 to CHF 1,701�9 million in 2014� The increase in net income was largely attributable to gains realised on equities and to book gains on real estate and interest-rate derivatives� In addition, the recent fall in risk-free interest rates caused the prices of the bonds in our portfolio to rise sharply, with the corresponding effect being recognised in equity� Consequently, the rate of return on insurance assets according to International Financial Reporting Standards (IFRS) – which includes unrealised net gains and losses on investments but excludes gains and losses on held-to-maturity debt instruments – was 6�9 per cent, which was well above the prior-year figure of 2�3 per cent�
as at 31 December 2013 Non-life Life Banking Total for the
Total assets under management 75,579.6 as at 31 December 2014 Non-life Life Banking Total for the
The benign claims environment and the low number of natural disasters had a positive impact on the levels of claims incurred� The excellent gross combined ratio of 83�9 per cent was largely attributable to the lower volume of claims incurred and the improved quality of the portfolio� The value of non-life insurance premiums written contracted by a modest 0�6 per cent to CHF 1,335�1 million owing to cautious underwriting of daily sickness allowance insurance and accident insurance� By contrast, the Basler Versicherungen companies in Switzerland achieved above-average growth in target segments� This was partly due to the availability of safety and security features – attractive add-on services offered by Baloise in the field of prevention�
BALOISE BANK SOBA Baloise Bank SoBa delivered a consistently impressive performance � Although its interest margin narrowed, the firm raised its profit for 2014 by 1�4 per cent to CHF 22�5 million (all figures reported according to local accounting standards)� This earnings improvement was largely attributable to the higher profitability of the brokerage and services business and to the excellent credit risk situation� The introduction of new private banking services continued to strengthen the firm’s investment business� Customer loans and client assets grew by CHF 927 million, or 4�4 per cent, in 2014�
BASLER VERSICHERUNGEN IN GERMANY Basler Versicherungen in Germany focused on the target segments and optimised its cost structure� It is on track with its measures in this area� It continued to exit the motor vehicle fleet insurance market and significantly scaled back its business with large industrial enterprises in individual sectors where the risks are too high� The volume of business generated by the unit as a whole contracted by 4�2 per cent to CHF 1,632�7 million� While the decrease in premiums in the non-life division was attributable to improvements in both portfolio quality and the business mix, the volume of life insurance business transacted in this challenging environment was consistent with the shrinking German life insurance market� Basler Versicherungen achieved the right amount of growth in its target segments and is already Germany’s third-largest insurer in the field of renewable energy�
The volume of large claims grew year on year� However, roughly 70 per cent of claims were attributable to policies that had previously been terminated for reasons of profitability� The improved quality of the portfolio should become clearly evident in one or two years’ time� Despite the higher level of large claims incurred, Basler Versicherungen managed to lower the claims ratio in its German business� The unit improved its combined ratio by 2�6 percentage points to 101�5 per cent owing to the lower cost of basic claims� Nonetheless, EBIT fell by 7�9 per cent to CHF 62�6 million� Even though the targeted objectives have not yet been met, the profit trajectory adjusted for the volume of large claims incurred clearly demonstrates that Basler Versicherungen is pursuing the right optimisation strategy in Germany and that it will achieve the desired level of profitability within the planned time frame�
Mainly hail storm Ela, which hit in June 2014, raised the claims ratio by an aggregate 9�9 percentage points� Despite this storm, Baloise Insurance improved its profitability in Belgium on the back of its effective external reinsurance and the lower cost of basic claims� The Belgian business raised its EBIT by an impressive 17�2 per cent to CHF 141�6 million and made the second-largest contribution to the Baloise Group’s profit for the period after the Swiss unit�
The additional premium income arising from the acquisition made a substantial contribution to the strong growth of 48�1 per cent in non-life insurance� The combined ratio was an excellent 89�3 per cent� The integration of P&V Assurances caused the premiums written in conventional life insurance to jump by 46�6 per cent� The value of conventional life insurance premiums received by the Luxembourg entity would have increased even without the acquisition�
The safety and security features on offer proved highly popular with customers in Luxembourg as well� This business unit raised its EBIT by 22�5 per cent to CHF 20�7 million�
Share of profit (loss) of associates – 0.5 10.2 16.5 40.5 8.1
Change in technical reserves (gross) – 1,393.2 – 639.9 – 867.7 – 1,359.4 – 1,469.5
Interest expenses on insurance liabilities – 61.2 – 51.6 – 50.5 – 47.3 – 42.6
Gains or losses on financial contracts – 219.8 324.0 – 577.8 – 368.9 – 462.6
Gross premiums written and policy fees 6,859.8 6,803.3 6,741.7 7,228.9 7,175.6
Financial instruments with characteristics of equity 9,844.2 9,703.9 9,475.7 11,344.4 13,451.2
Financial instruments with characteristics of liabilities 25,840.5 28,917.5 32,513.3 32,327.1 34,461.6
Liabilities arising from banking business and financial contracts 02_JB_Geschaeftsgang_en�indd 26 24�03�2015 13:16:49
2013 Group Switzerland Germany Belgium Luxembourg Other units1 as a percentage of premiums earned 2014 Group Switzerland Germany Belgium Luxembourg Other units1 as a percentage of premiums earned 1 Other units: Austria (until 28 August 2014), Croatia and Serbia (until 11 March 2014). 2 Including the profit-sharing ratio.
Change in other technical reserves – 59.1 – 14.9 – 414.9 – 387.1
Total technical result of ceded business – 69.5 – 3.3 – 11.5 – 5.6
Change in other technical reserves – 58.8 – 14.8 – 414.1 – 384.9
Gross premiums written (life) 3,787.2 3,816.8 0.8 02_JB_Geschaeftsgang_en�indd 30 24�03�2015 13:16:49
Total capital gains and losses 118.1 88.8 206.9 63.2 706.5 769.7
Policy loans and other loans 1,247.8 6,357.3 7,605.2 1,281.2 6,051.6 7,332.8 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties.
THE ENVIRONMENT ��������������������������������������������������������������������������������� 40 Protecting the environment over the long term ����������������������� 40
RISK MANAGEMENT �������������������������������������������������������������������������������� 42 Baloise’s risk management constitutes one of the main pillars of its business model ��������������������������������������������������� 42
Sometimes it is important to see things from a different perspective if you want to get a more accurate picture of reality.
→ 43.6 per cent of all staff members are women (2013: 45.8 per cent).
→ Baloise is regarded as a very balanced employer� It gives its employees the same feeling that it conveys to its customers: “Making you safer”� It is not too young, not too old, not too big and not too small� And it offers a wide range of opportunities for its staff to advance their careers�
→ ‘Swissness’ is one of Baloise’s defining characteristics� It is a Swiss company that operates in Europe� This is something that is highly valued by its workforce not only in Switzerland but also in Germany, Belgium and Luxembourg � The attributes associated with Switzerland are also reflected in Baloise as an employer: high quality, solidity and reliability�
→ Baloise is a friendly, pleasant and fair employer� The vast majority of employees agree with this statement� People like working for Baloise and are therefore motivated to go the extra mile for customers and partners� This welcoming atmosphere is reflected in Baloise’s general approach as an employer, which centres on personal contact and dialogue and stresses the importance of building close relationships�
Friendly, pleasant and fair: Baloise as an employer 03_JB_Nachhaltige_Geschaeftsfuehrung_en�indd 36 24�03�2015 13:16:55
→ to nurture an employee-focused corporate culture → to be the employer of choice in our sector → to be performance- and results-driven → to be a highly skilled, learning organisation → to have excellent skills in leadership and management
Part of this remuneration is paid in the form of restricted shares� Baloise strengthens staff loyalty by insisting that, compared with other companies, senior managers receive a high proportion of their variable remuneration in the form of shares� In doing so, it aligns their remuneration with the Company’s long-term success�
BALOISE CONTINUES TO EVOLVE THROUGH THE CONSISTENT PURSUIT OF SHARED GOALS Baloise uses its integrated performance and talent management system to strengthen its culture of performance and trust and encourage continuous learning within the Company� This process involves managers and staff in an ongoing dialogue about performance and development goals that provides guidance and clarity about shared goals and continuous learning�
TARGETED INVESTMENT IN CONTINUING PROFESSIONAL DEVELOPMENT: BALOISE SEES LEADERSHIP AS MORE THAN JUST A JOB DESCRIPTION The Baloise Group’s decision to pool its executive development resources in the Baloise Campus in 2013 was a strategy that was successfully continued in 2014� This enables the Company to communicate a uniform managerial philosophy and develop a shared identity across all management levels and throughout all corporate divisions� These too are firmly rooted in Baloise’s behavioural values and Safety World�
The Company’s executive development activities include more than just the Group-wide management programmes that it offers at its Baloise Campus (Early Leadership Programme [ELP], Advanced Leadership Programme [ALP] and Senior Leadership Programme [SLP])�
However, Baloise pursues a dialogue-driven approach that encompasses more than just the internet� The Employer Branding team’s revamped presence at trade fairs provides an opportunity for prospective employees to talk to someone about what it is really like working for an insurance company�
NURTURING YOUNG TALENT AT BALOISE: ATTRACTING SCHOOL-LEAVERS, STUDENTS AND THOSE STARTING THEIR CAREERS The Baloise Group offers a wide range of training opportunities in Switzerland� It currently has more than 200 apprentices, interns and temporary student employees across all its corporate divisions�
ENERGY EFFICIENCY AT BALOISE The total energy and resource consumption revealed by the environmental audit shows the amounts used by the Baloise Group’s large office buildings and its computer centres� The figures reported relate to the energy and resources consumed by 71 per cent of the 7,617 people working for Baloise� By reconfiguring and merging operating sites, we reduced the amount of heating used per square metre of energy reference area by an impressive 20 per cent� Electricity use declined by 2�1 per cent overall� We are therefore exceeding our target of cutting our electricity consumption by between 1 per cent and 2 per cent each year over the period 2014 to 2018� As a responsible corporate citizen, Baloise is both obliged and motivated to use resources efficiently in the face of climate change and rising energy costs�
→ www.baloise.com/sustainability → Ecology / environmental mission statement → Ecology / environmental audit → Risk management
Copy paper consumption 81.9 million A4 sheets 71.9 million A4 sheets 73.5 million A4 sheets 14,212 A4 sheets / employee
Amount of refuse 909 t 1,241 t 1,319 t 255 kg / employee 6.2
Mode of transport 26.0 % km by air 40.0 % km by road 34.0 % km by public transport 03_JB_Nachhaltige_Geschaeftsfuehrung_en�indd 41 24�03�2015 13:16:56
Baloise’s risk management approach involves managing both risk and value at the same time� Because our risk model is based on innovative standards, we can always keep our promise of “Making you safer”�
The most senior decision-making body in Baloise’s risk organisation is the Board of Directors of Bâloise Holding Ltd, while ultimate responsibility for risk control lies with the Board of Directors’ Audit and Risk Committee� The Chief Risk Officer for the Baloise Group reports regularly to both of these bodies and is partly personally responsible for risk-related issues�
→ monitoring Group-wide standards, → reporting risks, → complying with risk processes and procedures, and → communicating with external partners such as auditors, corporate supervisory bodies and credit rating agencies� The business units are responsible for local implementation of the standards and requirements specified by the Baloise Group� Overall responsibility lies with the Baloise Group’s Chief Financial Officer, followed by its Chief Risk Officer�
The economic risk capital derived from Baloise’s models is currently the most advanced market standard� To this end, risk measurement metrics alone are used to calculate a target capital figure – irrespective of any financial accounting treatment or regulatory capital requirements under Solvency I – to ensure that the Company remains solvent even in adverse circumstances and can meet its obligations to policyholders at all times� We constantly compare this target capital figure with the capital currently available (the “actual” capital)�
Comprehensive semi-annual risk reports are discussed with the relevant decision makers so that the necessary measures can be devised� Reports submitted to regulatory authorities complete the picture� 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 individuals are the achievements, leadership and conduct of the manager concerned� 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�
→ We continued to actively manage our credit risk and currency risk�
→ With a net equity exposure of 7�5 per cent at 31 December 2014, our equity investments in the reporting year lay comfortably within our risk-bearing capacity�
→ The high quality of recurrent investment income generated by our stable real estate portfolio proved to be a valuable source of revenue�
→ Much of our focus is directed at managing our interest rate risk� Wherever possible, we reconcile our payment obligations to customers for future years with the income earned from our investments� The high quality of recurrent investment income generated by our stable real estate portfolio has proved very helpful in this respect� We also invest in safe long-term bonds denominated in either Swiss francs or euros and supplement this strategy by using derivative financial instruments such as swaptions�
→ Our underwriting business has proved to be highly consistent, with the Baloise Group’s net combined ratio of 93�6 per cent demonstrating our excellent capabilities in underwriting and managing non-life risk�
4 Baloise 16 Review of operating performance 36 Sustainable Business Management 48 Corporate Governance 92 Financial Report 246 Bâloise Holding Ltd 260 Notes
CORPORATE GOVERNANCE REPORT INCLUDING REMUNERATION REPORT ��������������������������������������������� 48 Structure of the Baloise Group and shareholder base ������������ 48 Capital structure ������������������������������������������������������������������������������������� 49 Board of Directors ���������������������������������������������������������������������������������� 50 Corporate Executive Committee ����������������������������������������������������� 57 Remuneration Report ��������������������������������������������������������������������������� 61 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ������������������������������������������� 84 Shareholder participation rights ������������������������������������������������������ 86 Changes of control and poison-pill measures ��������������������������� 87 External auditors ������������������������������������������������������������������������������������� 87 Significant amendments to the Articles of Association submitted to the 2015 Annual General Meeting ���������������������� 88 Information policy ��������������������������������������������������������������������������������� 88
Operating in line with the Swiss Code of Best Practice and the SIX Corporate Governance Guidelines, Baloise strives to foster a corporate culture of high ethical standards that emphasises the integrity of the Company and its employees� Baloise is convinced that high-quality corporate governance has a positive impact on its long-term performance� The Company therefore rapidly and transparently implemented the new requirements under the Swiss Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO) and, in 2014, gave shareholders the opportunity to hold a binding vote on the total remuneration of the Board of Directors and the Corporate Executive Committee�
→ Significant subsidiaries, joint ventures and associates as at 31 December 2014 can be found from page 238 onwards in the notes to the consolidated annual financial statements, which form part of the Financial Report�
The reports that were submitted to the issuer and to SIX Swiss Exchange AG’s disclosure office during the reporting year in compliance with section 20 of the Swiss Federal Act on Stock Exchanges and Securities Trading (BEHG) and were published on the latter’s electronic reporting and publication platform in compliance with section 21 BEHG can be viewed using the search function at tions/disclosure/major_shareholders_de�html
As a company that adds value, Baloise has always attached great importance to practising sound, responsible corporate governance and continues this tradition today.
Treasury shares Bâloise held 2,228,441 treasury shares (4�5 per cent of the issued share capital) as at 31 December 2014�
Authorised and conditional capital; other financing instruments Authorised capital A resolution adopted by the Annual General Meeting on 2 May 2013 has authorised the Board of Directors until 2 May 2015 to increase the Company’s share capital by up to CHF 500,000 by issuing up to 5,000,000 fully paid-up registered shares with a par value of CHF 0�10 each (see section 3 (4) of the Articles of Association)�
→ www.baloise.com/s&prating 3. BOARD OF DIRECTORS Election and term of appointment The Board of Directors consisted of nine members at the end of 2014� Since the 2014 Annual General Meeting each member of the Board of Directors has been elected for a term of one year at a time�
During the reporting year, Dr Michael Becker, Dr Andreas Beerli, Dr Georges-Antoine de Boccard, Dr Andreas Burckhardt, Karin Keller-Sutter, Werner Kummer, Thomas Pleines and Dr Eveline Saupper 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� Dr Georg F� Krayer announced that he was stepping down from the Board of Directors at the 2014 Annual General Meeting� Christoph B� Gloor was newly elected to the Board of Directors�
Corporate Governance Corporate Governance Report including Remuneration Report or management bodies of legal entities that are required to be entered in the Swiss commercial register or in an equivalent foreign register and that are not controlled by the Company and do not control the Company� The Board of Directors will propose to the 2015 Annual General Meeting that a legal provision to this effect be incorporated into the Articles of Association�
C: Chairman, VC: Vice-Chairman, C: Chair, DC: Deputy Chair, M: Member.
BOARD ATTENDANCE IN 2014: MEETINGS OF THE FULL BOARD OF DIRECTORS
Dr Andreas Burckhardt, Chairman x x x x x x x x x
Werner Kummer, Vice-Chairman x x x x x x x x x
Dr Michael Becker x x x x x x x x x
Dr Andreas Beerli x x x x x x x x x
Christoph B. Gloor n/a n/a 0 x x x x x x
Thomas Pleines x x x x x x x x x
Dr Eveline Saupper x x x x x x x x x x = present, 0 = absent, n / a = not applicable. All members were attending the respective committee meetings.
Eveline Saupper (1958, Switzerland, Dr iur�, lawyer) has been a member of the Board of Directors since 1999� She studied jurisprudence at the University of St� Gallen� She is a lawyer and a certified tax expert� She worked for Peat Marwick Mitchell (now KPMG Fides), Zurich, from 1983 to 1985 and was employed by Baker & McKenzie, Zurich and Chicago, from 1985 to 1992� Until mid-2014 she was a partner at Homburger AG, Zurich, where she is now ‘of counsel’� She sits on the Boards of Directors at hkp group AG, Zurich, Syngenta AG, Basel, and Stäubli Holding AG, Pfäffikon SZ, and chairs the Board of Directors at Mentex Holding AG, Schwyz� Since 18 March 2015 she is a member of the Board of Directors of Georg Fischer AG, Schaffhausen� Dr Saupper is an independent non-executive director�
Dr Andreas Burckhardt, Chairman of the Board of Directors (right), Dr Eveline Saupper (left).
Werner Kummer, Vice-Chairman of the Board of Directors (left), Dr Andreas Beerli (right).
Werner Kummer (1947, Switzerland, Dipl�-Ing� ETH Zurich, MBA Insead) has been a member of the Board of Directors since 2000 and Vice-Chairman since 2014� From 1990 to 1994 he was CEO of Schindler Aufzüge AG and subsequently, until 1998, sat on Schindler’s Group Management Committee, where he was responsible for the Asia Pacific region� Until 2013 he was a member of the Supervisory Board of Schindler Deutschland Holding GmbH� He was CEO of Forbo Holding AG from 1998 until 2004� He is a freelance management consultant, Chairman of the Board of Directors at Gebrüder Meier AG, a member of other Supervisory Boards of non-listed companies in Switzerland and abroad and an executive director of the Zurich Chamber of Commerce� Mr Kummer is an independent non-executive director�
Dr Georges-Antoine de Boccard, Karin Keller-Sutter, Thomas Pleines (from left to right).
Thomas Pleines (1955, Germany, lawyer) has been a member of the Board of Directors since 2012� From 2003 to 2005 he was CEO and delegate of the Board of Directors at Allianz Suisse, Zurich, and from 2006 to 2010 was CEO of Allianz VersicherungsAG, Munich, and an executive director at Allianz Deutschland AG, Munich� From 1998 to 2013 Mr Pleines sat on the Supervisory Board of Bilfinger SE, Mannheim� Since 2011, he has been Chairman of the Presidential Board at DEKRA e�V�, Stuttgart, Chairman of the Supervisory Board of DEKRA SE, Stuttgart, Chairman of the Supervisory Board at SÜDVERS Holding GmbH & Co� KG, Au near Freiburg, and a member of the Board of Directors at KABA Holding AG, Rümlang near Zurich� Mr Pleines is an independent non-executive director�
Secretary to the Board of Directors: Andreas Eugster, Oberwil (BL) (until 30 April 2015) Dr Philipp Jermann, Buus (BL) (from 1 May 2015) Head of Group Internal Audit: Rolf-Christian Andersen, Meilen 04_JB_Corporate_Governance_en�indd 54 24�03�2015 13:13:50
The Audit and Risk Committee supports the Board of Directors in its non-delegable overarching supervisory and financial oversight functions (section 716a OR) by ascertaining whether the internal and external control systems, including risk management, are well organised and function properly, by assessing the situation with respect to compliance in the Company and by forming its own view of the Company’s separate and consolidated annual financial statements� It receives regular reports on the work and findings of Group Internal Audit and on cooperation with the external auditors�
The Chairman’s Committee convened six times in 2014, which included one two-day strategy meeting� The Investment Committee met on three occasions� The Audit and Risk Committee held four meetings, and the Remuneration Committee convened twice�
The members of the Board of Directors receive copies of the minutes of Corporate Executive Committee meetings for their information� The Chairman of the Board of Directors may attend meetings of the Corporate Executive Committee at any time�
Corporate Governance Corporate Governance Report including Remuneration Report 4. CORPORATE EXECUTIVE COMMITTEE Martin Strobel (1966, Germany / Switzerland, Dr rer� pol�) studied computer science, business management and business information systems at the universities of Kaiserslautern, Windsor (Canada) and Bamberg� From 1993 to 1999 he performed various roles at Boston Consulting Group, Düsseldorf, dealing with strategic IT management issues in the banking and insurance sectors� He joined the Baloise Group at the beginning of 1999� He was initially Head of IT at Basler Switzerland and, within the Baloise Group, was in charge of major cross-functional projects in the areas of insurance and finance� From 2003 to 2008 he was a member of the Corporate Executive Committee with responsibility for Corporate Division Switzerland� He became Chief Executive Officer on 1 January 2009� In addition, he headed up Corporate Division International from 2013 to the end of 2014�
Thomas Sieber (1965, Switzerland, Dr iur�, M�B�L�, lawyer, SDM mediator) studied law at the University of St� Gallen� At the beginning of 1994 he qualified to practise as a lawyer in the Swiss canton of Zurich� From 1999 to 2002 he lectured in corporate law at the University of St� Gallen� After brief spells working at Landis & Gyr and Siemens he joined the Baloise Group in 1997 as Deputy Head of Legal & Tax� He became Head of this division in 2001 and, in addition, was secretary to Bâloise Holding ’s Board of Directors until April 2012� Since 6 December 2007 he has been a member of the Corporate Executive Committee and, as Head of the Corporate Centre, is responsible for Group Human Resources, Legal and Tax, Group Compliance, Corporate Development, Run-Off Business and – since 2009 – Group Procurement� He also sits on the Board of Directors at EuroAirport Basel-Mulhouse-Freiburg�
Jan De Meulder (1955, Belgium) studied mathematics and actuarial mathematics at the universities of Antwerp and Leuven, Belgium� From 1978 to 1992 he worked for De Vaderlandsche Insurance, which was part of the ING Group in Antwerp� His responsibilities here included life insurance product development and production� After working for two years as General Manager at Life Association of Scotland, he moved to the Fortis Group in Brussels in 1994, where he performed various senior managerial roles, eventually becoming CEO of Fortis Corporate Insurance � In 2004 he joined the Baloise Group as CEO of the Belgian subsidiary Mercator Verzekeringen (now Baloise Belgium NV) in Antwerp� He has been a member of the Corporate Executive Committee since 1 January 2009 and, in this function, headed up Corporate Division International from 2009 to 2012� He has been CEO of the insurance companies in Germany since 1 January 2013� Jan De Meulder has decided to retire on 30 April 2015�
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 adviser 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 at the Swiss Federal Social Security Funds, Geneva�
German Egloff (1958, Switzerland, lic� oec� HSG) graduated in business management from the University of St� Gallen� From 1985 onwards he held various managerial positions at Winterthur Insurance, Switzerland� In 1997, as an executive director, he was put in charge of personal non-life insurance products, which included responsibility for both Wincare and – as Chairman of the Board of Directors – Sanacare� From 1998 to 2002 he was Chief Financial Officer of Winterthur Switzerland and sat on the Board of Directors of Wincare, becoming its Chairman in 2000� From 2002 to 2004 he was Chief Financial Officer at Zurich Financial Services, Switzerland� His responsibilities here comprised finance, human resources, IT, logistics and procurement� Since 1 December 2004 he has been a member of the Corporate Executive Committee (heading up Corporate Division Finance), where he oversees corporate communications & investor relations, Group risk management, Group accounting & finance, and corporate IT� The appointed actuary for Baloise’s business in Switzerland also reports to German Egloff�
Martin Wenk, Head of Corporate Division Asset Management (left), German Egloff, Head of Corporate Division Finance (right).
5.1 Remuneration Committee of the Board of Directors The Remuneration Committee set up by the Board of Directors in 2001 is consistent with the Swiss Code of Best Practice and is tasked with helping the Board of Directors to frame the Company ’s remuneration policies� The Remuneration Committee has been vested with special decision-making powers and ensures, among other things, that
The Remuneration Committee consists of at least three independent members of the Board of Directors, who are elected every year by the Annual General Meeting� Dr Eveline Saupper (Chairwoman), Thomas Pleines (Deputy Chairman), Dr Georges-Antoine de Boccard and Karin Keller-Sutter were elected to the Remuneration Committee by the Annual General Meeting on 24 April 2014� The Remuneration Committee maintains an intensive dialogue with senior management throughout the year and generally meets at least twice annually � In addition to the committee secretary being present, these meetings are usually also attended by the Group CEO, the Head of the Corporate Centre and the Head of Group Human Resources, who participate in an advisory capacity� The individual members of the Group Executive Committee leave the meeting if the Remuneration Committee is discussing or deciding on their personal remuneration� The Chairwoman of the Remuneration Committee reports to the Board of Directors at its next meeting on the committee’s activities� In addition, the minutes of Remuneration Committee meetings are available to the entire Board of Directors�
The Board of Directors used this Remuneration Guideline as the basis for the Remuneration Policy that it formally adopted at the same time� These regulations apply to all employees in Switzerland and, by analogy, to all members of staff throughout the Baloise Group� By adopting this Remuneration Guideline and Remuneration Policy, the Board of Directors has ensured that all aspects of remuneration policy are centrally coordinated � This regulatory framework underpins a remuneration system that meets all the requirements of the Swiss Financial Market Supervisory Authority and, in particular, ensures that variable remuneration even more accurately reflects the value added by the Company�
5.3 Remuneration system Objectives The objectives of the remuneration system are to further increase the emphasis on performance at Baloise and to strengthen employees ’ and executives’ loyalty and commitment to the organisation � The aim of Baloise’s remuneration policies is to pay basic salaries in line with the going market rate� In addition, the variable components of remuneration are structured in such a way that it is possible to grant payments above the market median for years in which individual performance and the Company’s profitability have been good; equally, it is possible to offer payments below the market median for years in which performance and profitability have been poor� As a performancedriven organisation, Baloise clearly and transparently aligns individual employees’ targets with the Company’s targets, which are derived from its strategic priorities� Target agreements, performance assessments and remuneration are closely correlated� The total remuneration package – which comprises basic salary and variable remuneration – offers a sophisticated way of linking individuals’ performance to Baloise’s success and recognising both accordingly, and it is designed to reward employees for outstanding achievement without creating an incentive for them to take inappropriate risks� Personal performance provides our talented individuals with the necessary platform for their development, advancement, career planning and promotion � Baloise attaches considerable importance to retaining high performers and managing its business sustainably� In addition to paying its staff in line with market rates and according to individual achievement, the Company encourages its executives to focus on the long term and on its shareholders’ interests� Consequently, it pays a substantial proportion of variable remuneration in the form of shares that are restricted for three years� Furthermore, the three most senior management levels receive performance share units, which means that a further 04_JB_Corporate_Governance_en�indd 62 24�03�2015 13:14:15
5.4 Components of remuneration Baloise views its compensation packages in the round and therefore factors in not only the basic salary plus short- and long-term variable remuneration but also other material and non-material benefits such as pension contributions, additional benefits, and staff development�
In order to ensure fairness and compliance with its code of conduct when determining the level of basic salaries, Baloise applies the internal fair-pay principle that people who do the same job and have the same qualifications should be paid the same amount� The Company’s clearly defined and market-based salary structures help ensure fair pay both inside and outside the organisation�
Short-term variable remuneration The key factors determining the amount of short-term variable remuneration paid are an employee’s individual performance and the Company’s profitability and economic value added� The consequent link between individual performance and the Company ’s profits is designed to incentivise staff to achieve outstanding results� Measurement of the variable remuneration paid to employees who perform control functions (risk management, compliance, Group Internal Audit) is structured in such a way that it is not determined by the profitability of the unit being monitored or by the profitability of individual products or transactions �
Short-term variable remuneration is paid together with the salary for March of the following year� Baloise attaches considerable importance to managing its business sustainably and ensuring a high correlation between the interests of its shareholders and executives� It therefore pays a substantial proportion of variable remuneration in the form of shares� Senior managers can choose what percentage of their remuneration is paid out in cash and what proportion they receive in the form of shares� This choice is limited for the most senior managers, who are obliged to subscribe for shares on a sliding-scale basis: members of the Corporate Executive Committee must receive at least 50 per cent of their short-term variable remuneration in the form of shares, which account for at least 70 per cent of total variable remuneration if the long-term effect of performance share units is included (see page 66)� The shares subscribed in this way are restricted for three years and during this period are exposed to market risk� This mandatory purchase of shares in particular ensures that as senior executives’ managerial responsibilities and total remuneration packages increase, a significant proportion of their compensation is paid in the form of deferred remuneration� This system also raises employees’ risk awareness and encourages them to maintain sustainable business practices�
Two plans are available to individuals who wish to subscribe for shares: the Share Subscription Plan and the Employee Share Ownership Plan (see ‘5�6� Share Subscription Plan and Employee Share Ownership Plan’)�
Performance pool payments are awarded to individuals at the discretion of the line manager concerned; no regulatory target figures 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�
→ Impressive growth in its target segments → Key projects and initiatives are on track for completion → Strong balance sheet despite the adverse impact of low interest rates� The Remuneration Committee conducts a detailed assessment of the Company’s performance once a year and adjusts the size of the performance pool accordingly, as the table below shows in the form of a comparison with the consolidated profit for the period: 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 entitled to participate in 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�
The arrangement applicable until 2013 was that if an individual ’s employment contract was terminated during the vesting period (except in the case of retirement, disability or death), the PSUs expired without the person concerned receiving any replacement or compensation� Since 2014 the arrangement has been that if an employment contract is terminated in such situations, only some of the PSUs expire provided that the programme participant concerned does not join a rival company and is not personally at fault for the termination of the contract� The number of PSUs expiring is proportional to the amount of time remaining until the end of the vesting period� In addition, the Remuneration Committee has the powers to claw back some or all of the PSUs allocated to an individual or to a group of programme participants if there are specific reasons for doing so� Such specific reasons include, for example, serious breaches of internal or external regulations, the taking of inappropriate risks that are within an individual’s control, and the type of conduct or behaviour that would increase the risks to Baloise�
Measurement of the PSUs at their issue date is based on a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period� This measurement incorporates the following parameters: → Interest rate of 1 per cent → The volatilities of all shares in the peer group and their correlations with each other (measured over a three-year track record)
5.5 Employment contracts, change-of-control clauses, inducement payments and severance packages The employment contracts of senior managers in Switzerland and – in most cases – in other countries as well have been concluded for an indefinite period� They stipulate a notice period of six months� The Chairman of the Board of Directors and all six members of the Corporate Executive Committee have a notice period of twelve months� The employment contract with the Chairman of the Board of Directors will, with effect from 1 May 2015, no longer stipulate any notice period; the duration of this contract will instead be determined by law and by the term of appointment� Change-of-control clauses were discontinued with effect from 1 January 2014�
5.6 Share Subscription Plan and Employee Share Ownership Plan Two plans are available to individuals who wish to subscribe for shares as part of their short-term variable remuneration: the Share Subscription Plan and the Employee Share Ownership Plan�
The parameters used to determine the subscription price are decided each year by the Remuneration Committee� The subscription price is based on the closing price on the first day of the subscription period, on which a discount of 10 per cent is granted (please refer to the accompanying table for details)� Once it has been calculated using this method, the subscription price is published in advance on the intranet� The shares needed for the Share Subscription Plan are purchased in the market as and when required�
(applies to the variable remuneration granted for 2013 and to the shares subscribed by the chairman and members of the Board of Directors in 2014)
(applies to the variable remuneration granted for 2013 and to the shares subscribed by the chairman of the Board of Directors in 2014)
Corporate Governance Corporate Governance Report including Remuneration Report 5.7 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 volumeweighted average share price calculated for the month of August in each subscription year� In 2014 the subscription price amounted to CHF 57�30 (2013: CHF 50�30) and a total of 174,810 shares were subscribed (2013: 167,147)� 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�
→ Its pension solutions are future-proof, robust, predictable and properly costed�
The Chairman of the Board of Directors and the members of the Corporate Executive Committee are insured under the pension scheme run by Baloise Insurance Ltd� They are subject to the same terms and conditions as all other insured office-based members of staff�
5.10 Remuneration paid to the members of the Board of Directors Please refer to the tables on pages 74 and 75�
The Chairman of the Board of Directors performs his various functions on a full-time basis, in return for which he is paid a fixed amount of remuneration� He is not entitled to any variable remuneration and, consequently, he receives no performancerelated remuneration, no performance pool payments and no allocation of PSUs� He is paid roughly a quarter of his remuneration in the form of shares, although he is free to choose each year how many shares he receives under the Share Subscription Plan and the Employee Share Ownership Plan respectively � The shares that he receives under the Share Subscription Plan are subject to a closed period of five years (instead of the usual three years)�
The other members of the Board of Directors are paid a lump sum as remuneration for their work on the Board of Directors (CHF 125,000) and for additional functions that they perform on the Board of Directors’ committees (CHF 70,000 for the Chairman and CHF 50,000 for members)� These amounts provide appropriate compensation for the responsibility and workload involved in their various functions and have remained unchanged since 2008�
Corporate Governance Corporate Governance Report including Remuneration Report 5.11. Remuneration paid to the members of the Corporate Executive Committee Please refer to the tables on pages 76 to 79�
In order to ensure compliance with the Swiss Ordinance Against Excessive Remuneration at Publicly Listed Companies (VegüV), which came into effect on 1 January 2014, some adjustments have been made to the structure of the remuneration paid to the Corporate Executive Committee�
The structure of remuneration paid to the Corporate Executive Committee is laid down in the remuneration regulations� The actual level of remuneration paid is determined as follows (see table below)�
→ One member of the Corporate Executive Committee was absent for a lengthy period in 2014 owing to illness� The payment received from the performance pool was therefore merely awarded pro rata temporis and amounted to only around one-third of the usual expected value
→ The factor used to calculate the performance pool payments awarded to the other members of the Corporate Executive Committee was lower than that used for the other management team members (an average of 130 per cent or a weighted 129 per cent instead of 137 per cent)�
The Annual General Meeting held on 24 April 2014 approved a maximum amount of CHF 6�085 million for the variable remuneration payable for 2014� A total of CHF 5�037 million was paid out, which meant that – despite the Company’s excellent financial results – only 83 per cent of the maximum amount available was utilised�
Dr Hansjörg Frei (until 2 May 2013) 62,500 112,500 0 112,500 56,177 764
Karin Keller-Sutter (since 2 May 2013) 83,333 116,666 5,743 122,409 0 0
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 73.53, in line with the Share Subscription Plan). Shares received by the Chairman of the Board of Directors amounted to 2,121 shares arising from the Share Subscription Plan (CHF 155,957, with a closed period of five years instead of the usual three years) and 2,272 shares arising from the Employee Share Ownership Plan (CHF 155,998). Baloise also paid the regulatory employer contributions to the pension fund (CHF 216,725). Pension contributions The information disclosed for 2014 includes for the first time the contributions payable by the employer into the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund (only for the chairman of the Board of Directors). In order to ensure that comparisons can be made with the prior year (2013), the table showing the prior-year figures has been adjusted accordingly and therefore differs from the table published in last year’s remuneration report.
Explanatory notes to the table Christoph B. Gloor was voted in as a new member of the Board of Directors at the 2014 Annual General Meeting. Consequently, he only received a pro-rata share of the usual remuneration. Dr Georg F. Krayer left the Board of Directors at the same time, so he only received half of the usual remuneration. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length-basis was paid to individuals or companies who are related to members of the Board of Directors. Related parties are spouses, life partners, children under 18 years; companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Shares 25 per cent of contractually agreed overall remuneration is paid in shares which remain restricted for three years. They are recognised at market value less 10 per cent (CHF 102.78, in line with the Share Subscription Plan). Shares received by the Chairman of the Board of Directors amounted to 1,517 shares arising from the Share Subscription Plan (CHF 155,917, with a closed period of five years instead of the usual three years) and 1,547 shares arising from the Employee Share Ownership Plan (CHF 155,990). Pension contributions The information disclosed for 2014 includes for the first time the contributions payable by the employer into the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund (only for the chairman of the Board of Directors).
Granted in 2013 2013 CHF CHF Number of shares CHF Number of shares CHF Number of PSUs CHF Number of shares CHF CHF CHF CHF CHF
Employee Share Ownership Plan Proportion of variable remuneration received as shares (excluding loan-financed shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 100.87. Performance share units (PSUs) The remuneration report for 2013 showed that the PSUs granted to the members of the Corporate Executive Committee had for the first time been measured at their value on the grant date rather than at their value on the vesting date. The table containing the prior-year figures had been restated accordingly to ensure that a meaningful year-on-year comparison could be made. The prior-year table therefore shows the PSUs at their value on the grant date, which means that this table differs from the list published in the remuneration report for the previous year.
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), accommodation costs and non-cash benefits (use of a company vehicle) granted to a Corporate Executive Committee member residing abroad. 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 or, alternatively, a compensatory payment in lieu of employer and employee contributions to the Swiss social security scheme and the pension fund (neither of these is payable if the person concerned is working outside Switzerland) and maintenance of disability insurance cover in the home country of a Corporate Executive Committee member residing abroad. In order to ensure that comparisons can be made with the prior year (2013), the table showing the prior-year figures has been expanded to include the employer contributions to the state-run social security schemes and therefore differs from the table published in last year’s remuneration report.
Total for the Corporate Executive Committee 4,601,882 1,593,692 12,973 1,488,652 926 104,323 16,237 1,850,206 13,899 5,036,873 9,638,755 109 % 124,186 1,241,917 11,004,858
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 2014 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 114.75. Employee Share Ownership Plan Proportion of variable remuneration received as shares (excluding loans to purchase shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 112.70.
Head of Corporate Division Finance 15,858 7,583 20,811 19,280 36,669 26,863 0.073 % 0.054 % 10,453 9,854
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 Employee Share Ownership 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 Employee Share Ownership 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 2012, 1 March 2013 and 1 March 2014).
Explanatory notes to the table: The table includes all forms of remuneration awarded for each year even if individual components are not paid until a later date. Total remuneration All taxable benefits that the financial institution provides to persons directly or indirectly for the work they have performed for it in connection with their employment or directorship. They include cash payments, non-cash benefits, expenditure that creates or increases entitlements to pension benefits, pensions, allotment of shareholdings, conversion rights and warrants, and debt waivers. Variable remuneration Part of total remuneration, the amount or payment of which is at the discretion of the financial institution or which depends on the occurrence of agreed conditions. It includes performance-related and profit-based remuneration such as fees and commissions. Inducement and severance payments also fall under the definition of variable remuneration. Total pool All the variable remuneration that a financial institution allocates for a year regardless of its form, any contractual undertaking in respect of grant dates or payout dates and any terms and conditions attached. Inducement and severance payments made in the relevant year should be included in the total pool. Inducement payment One-off payment agreed when an employment contract is signed. Payments to compensate for lost entitlement to remuneration from a former employer also count as inducement pay.
Severance payment Severance packages are paid only in individual, justified cases and are granted only to management team members and to employees, but not to members of either the Board of Directors or the Corporate Executive Committee.
STATUTORY AUDITOR’S REPORT ON THE REMUNERATION REPORT FOR 2014 We have audited the remuneration report (pages 74 to 80) of 20 March 2015 published by Bâloise Holding Ltd for the year ended 31 December 2014�
Opinion In our opinion, the remuneration report of Bâloise Holding Ltd for the year ended 31 December 2014 is consistent with Swiss law and sections 14 to 16 ERCO�
Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel
Corporate Governance Corporate Governance Report including Remuneration Report 04_JB_Corporate_Governance_en�indd 84 24�03�2015 13:14:21
The Board of Directors will propose to the 2015 Annual General Meeting that a legal provision be incorporated into the Articles of Association to the effect that electronic powers of attorney and instructions may be given to an independent proxy without requiring a qualifying electronic signature�
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 (section 17 of the Articles of Association)�
9. SIGNIFICANT AMENDMENTS TO THE ARTICLES OF ASSOCIATION SUBMITTED TO THE 2015 ANNUAL GENERAL MEETING In connection with the Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO), which came into force on 1 January 2014, various amendments to the Articles of Association will be submitted to the 2015 Annual General Meeting for approval� They largely relate to the following points: → Independent proxies; → Agreements on remuneration; → Additional remuneration paid to newly appointed members of the Corporate Executive Committee; → Consequences of the Annual General Meeting’s nonapproval of remuneration; → Principles governing the granting of shares and options; → Maximum number of external directorships and → Maximum amount of loans and credit facilities that can be granted to members of the Board of Directors and the Corporate Executive Committee�
Information events Baloise provides detailed information about its business activities as follows: → Details about its financial performance, targets, strategies and operations are provided at press conferences covering its annual and half-year financial statements�
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 shares Information about Baloise shares begins on page 8�
Information about Baloise bonds Information about Baloise bonds in circulation can be found on pages 215 and 251�
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS ������������������������������������������������������������������� 100 Basis of preparation ���������������������������������������������������������������������������� 100 Application of new financial reporting standards and restatements ����������������������������������������������������������������������������������� 100 Consolidation principles and accounting policies ��������������� 102 Critical accounting principles and estimate uncertainties ��� 118 Management of insurance risk and financial risk ���������������� 120 Basis of consolidation ������������������������������������������������������������������������ 163 Information on operating segments (segment reporting) ��� 165
NOTES TO THE CONSOLIDATED BALANCE SHEET ������������������� 170 Property, plant and equipment ������������������������������������������������������ 170 Intangible assets ����������������������������������������������������������������������������������� 172 Investments in associates ����������������������������������������������������������������� 175 Investment property ��������������������������������������������������������������������������� 177 Financial assets ������������������������������������������������������������������������������������� 178 Mortgages and loans ��������������������������������������������������������������������������� 184 Derivative financial instruments �������������������������������������������������� 185 Receivables ���������������������������������������������������������������������������������������������� 186 Reinsurance assets ������������������������������������������������������������������������������� 187 Receivables from reinsurers ������������������������������������������������������������ 187 Employee benefits �������������������������������������������������������������������������������� 188 Deferred income taxes ����������������������������������������������������������������������� 200 Other assets �������������������������������������������������������������������������������������������� 202 Non-current assets held for sale and discontinued operations ���������������������������������������������������������� 202 Share capital ������������������������������������������������������������������������������������������� 203 Technical reserves (gross) ���������������������������������������������������������������� 204 Liabilities arising from banking business and financial contracts ������������������������������������������������������������������������ 213
NOTES TO THE CONSOLIDATED INCOME STATEMENT ������������������������������������������ 217 Premiums earned and policy fees ������������������������������������������������� 217 Income from investments for own account and at own risk ����������������������������������������������������������� 217 Realised gains and losses on investments ��������������������������������� 218 Income from services rendered ����������������������������������������������������� 222 Other operating income �������������������������������������������������������������������� 222 Classification of expenses ����������������������������������������������������������������� 223 Personnel expenses ������������������������������������������������������������������������������ 223 Gains or losses on financial contracts ���������������������������������������� 224 Income taxes ������������������������������������������������������������������������������������������� 225 Earnings per share ������������������������������������������������������������������������������� 226 Other comprehensive income �������������������������������������������������������� 227
OTHER DISCLOSURES ������������������������������������������������������������������������� 229 Acquisition and disposal of companies ������������������������������������� 229 Related party transactions ��������������������������������������������������������������� 230 Remuneration paid to the Board of Directors and the Corporate Executive Committee ��������������������������������� 231 Contingent and future liabilities �������������������������������������������������� 232 Operating leases ����������������������������������������������������������������������������������� 235 Claim payments received from non-Group insurers ���������� 236 Events after the balance sheet date ���������������������������������������������� 236 Significant subsidiaries, joint ventures and associates as at 31 December 2014 ��������������������������������������� 238 Changes to shareholdings ���������������������������������������������������������������� 240 Consolidated structured entities �������������������������������������������������� 241 Joint arrangements ������������������������������������������������������������������������������� 241 REPORT OF THE STATUTORY AUDITOR TO THE ANNUAL GENERAL MEETING OF BÂLOISE HOLDING LTD, BASEL ������� 242
Non-current assets and disposal groups classified as held for sale 21 401.0 –
Total items to be reclassified to the income statement – 111.3 753.3
The notes form an integral part of the consolidated annual financial statements.
Financial Report Consolidated statement of comprehensive income 05_FB_Kapitel_01_bis_02_en�indd 95 24�03�2015 13:12:19
Changes in technical reserves (gross), including unearned premium reserves 1,065.5 1,353.5
Additions and disposals of assets and liabilities resulting in a cash flow
Purchase / sale of financial assets with characteristics of liabilities – 534.3 – 520.9
Disposal of companies, net of cash and cash equivalents 40 2.4 267.9
Reclassification to non-current assets and disposal groups classified as held for sale – 1.8 0.0
Breakdown of cash and cash equivalents at the balance sheet date
Cash and cash equivalents for the account and at the risk of life insurance policyholders
Profit for the period – – – – 452.6 452.6 2.8 455.4
Purchase / sale of treasury shares – 13.9 – 2.8 – – 11.1 – 11.1
Financial Report Consolidated statement of changes in equity 05_FB_Kapitel_01_bis_02_en�indd 98 24�03�2015 13:12:19
Profit for the period – – – – 710.7 710.7 1.3 711.9
Purchase / sale of treasury shares – 13.4 – 9.2 – – 4.2 – 4.2
Increase / decrease in non-controlling interests due to change in the percentage of shareholding 6 – – – – – – – –
The Baloise Group’s consolidated annual financial statements are based on the historical cost principle and recognise adjustments resulting from the regular fair value measurement of investment property and of financial assets and financial liabilities that are classified as available for sale or recognised at fair value through profit or loss� These consolidated annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), which comply with Swiss law� IFRS 4 deals with the recognition and disclosure of insurance and reinsurance contracts� The measurement of these contracts is based on local financial reporting standards� All amounts shown in these consolidated annual financial statements are stated in millions of Swiss francs (CHF million) and have been rounded to one decimal place� Consequently, the sum total of amounts that have been rounded may in isolated cases differ from the rounded total shown in this report�
At its meeting on 20 March 2015 the Bâloise Holding Board of Directors approved the annual financial statements and the Financial Report and authorised them for issue� The financial statements have yet to be approved by the Annual General Meeting of Bâloise Holding�
2. APPLICATION OF NEW FINANCIAL REPORTING STANDARDS AND RESTATEMENTS 2.1 Newly applied IFRSs and interpretations IAS 32 (adaption) Offsetting financial assets and financial liabilities This amendment relates to a situation in which two entities each owe money to the other� In this case, both entities are required to present their rights and obligations in respect of each other as a net amount on their respective balance sheets, provided that a range of strict conditions primarily focusing on the absolute enforceability of contractual rights are all satisfied� If a net amount is presented, disclosure requirements relating to rights associated with the transaction and any other associated arrangements must be satisfied� In addition, enhanced disclosures that also show the theoretical potential for offsetting are required (e� g� in cases of default)� This amendment does not impact materially on the Baloise Group’s balance sheet or income statement�
2.2 Other standards and interpretations Entities that qualify as investment entities under IFRS 10 enjoy an exemption and are not required to consolidate the entities that they control in their consolidated financial statements� Instead, equity investments held solely for the purpose of generating returns from capital appreciation, investment income or both must be measured at fair value through profit or loss� The Baloise Group is not affected by this exemption�
IFRIC 21 Levies This interpretation provides guidance on how entities should account for levies imposed by government agencies in their IFRS financial statements, in particular at what point the liability arising from the levy is first recognised� IFRIC 21 identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation� This interpretation does not impact materially on the Baloise Group’s balance sheet or income statement�
There are no requirements to apply any other standards or interpretations that would have an impact – or a material impact – on profit for the period or on balance sheet line items�
2.3 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 2014 consolidated annual financial statements: Standard / Inter- pretation Content
IAS 19 Employee Benefits (amendment) As a result of the amendment, contributions from employees or third parties are recognised as a reduction in service cost in the period in which they are paid, provided they are entirely related to the employee’s service in that period� This may be the case, in particular, with contributions that constitute a fixed percentage of salary that is not dependent on the number of years worked at the company by the employee� This change will have no material impact on the Baloise Group’s balance sheet or income statement�
IFRS 9 Financial Instruments IFRS 9 introduces new requirements for the classification and measurement of financial instruments� Classification of financial asstets is based on the entity’s business model and on the contractual cash flow characteristics of the financial assets concerned � If the criteria in respect of the business model and cash flow characteristics for the carried-at-cost category are not met, financial assets are measured at fair value through profit or loss, although certain equity instruments may be measured at fair value through other comprehensive income� As regards structured products with embedded derivatives, the standard now only provides for separate recognition of non-financial host contracts� Structured products with financial host contracts must be classified and measured as combined instruments�
The existing requirements for financial liabilities have largely been carried over into IFRS 9� The only material new feature concerns financial liabilities for which the fair value option is elected� The amount of change in a financial liability’s fair value attributable to changes in its credit risk is presented in other comprehensive income�
As far as hedge accounting is concerned, IFRS 9 has lifted many of the restrictions imposed by IAS 39 and has significantly widened the range of transactions that may be designated as hedges� However, hedging relationships may no longer be voluntarily discontinued� Such discontinuation is now only permitted under IFRS 9 if the risk management objective of the hedging relationship changes�
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 2017� Application of IFRS 15 is mandatory for all IFRS users and governs almost all contracts with customers� The main exemptions concern leases, financial instruments and insurance contracts� For those customer contracts that are not covered by the aforementioned exemptions, this new standard provides a single, principles -based five-step model to be applied to the relevant contracts with customers� It is not yet possible to fully assess what impact this new standard will have on the Baloise Group’s balance sheet and income statement�
Financial Report Notes to the consolidated annual financial statements 05_FB_Kapitel_01_bis_02_en�indd 101 24�03�2015 13:12:20
Companies acquired during the reporting period are included in the consolidated annual financial statements from the date on which control is effectively assumed, while all companies 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 concerned are measured at fair value as at the date of first-time consolidation. Non-controlling interests arising from business combinations are measured either at their fair value or according to their share of the acquiree’s identifiable net assets. The Baloise Group decides which measurement method to apply to each individual business combination.
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 transaction date or at the average exchange rate. Monetary and non-monetary balance sheet items measured at fair value and arising from foreign-currency transactions conducted by Group companies are translated at the closing rate. Non-monetary 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 non-monetary financial instruments recognised at fair value through profit or loss are reported as realised gains or losses on these instruments. Exchange differences on available-for-sale non-monetary financial instruments are recognised in other comprehensive income. Exchange differences arising on available-for-sale monetary financial instruments are recognised in profit or loss.
3.4 Leases 3.4.1 The Baloise Group as a lessee Finance leases: leases on real estate, office furniture, equipment, fixtures, fittings and other tangible assets are classified and treated as finance leases if they transfer to the Baloise Group substantially all the risks and rewards incidental to ownership. The fair value of the leased property or, if lower, the present value of the lease payments is recognised as an asset at the inception of the lease. All lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated so as to produce a constant periodic rate of interest on the remaining balance of the liability; this is reported on the Baloise Group’s balance sheet as liabilities arising from banking business and financial contracts. Assets held under finance leases are fully depreciated over the shorter of the lease term and their useful life.
3.5.5 Other intangible assets and internally developed assets Other intangible assets essentially comprise software, external IT consulting (in connection with software that has been developed ), internally developed assets (such as software) and assets identified during the acquisition of entities (such as brands and customer relationships). These assets are recognised at cost and are amortised on a straight-line basis over their useful lives. Intangible assets with indefinite useful lives are not amortised and are carried at cost less accumulated impairment losses.
If such estimates do not enable financial assets to be reliably measured, the assets are recognised at cost and disclosed accordingly.
3.10 Permanent impairment 3.10.1 Financial assets measured under the amortised-cost method (mortgages, loans, receivables and held-to-maturity financial assets) The Baloise Group determines at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets may be permanently impaired. A financial asset or a group of financial assets is only impaired if, as a result of one or more events, there is objective evidence of impairment that has an impact on the expected future cash flows from the financial asset that can be reliably estimated. 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
If an impairment loss is recognised, the cumulative net loss recognised directly in equity is taken to the income statement.
If the fair value of an available-for-sale financial instrument with characteristics of liabilities rises in a subsequent reporting period and this increase can be objectively attributed to an event that has occurred since an impairment loss was recognised in profit or loss, the impairment loss is reversed and taken to income.
3.11 Derivative financial instruments Derivative financial instruments include swaps, futures, forward contracts and options whose value is primarily derived from the underlying interest rates, exchange rates, commodity prices or share prices. The acquisition cost of derivatives is usually either very low or non-existent. These instruments are carried at fair value on the balance sheet. At the time they are purchased they are classified as either fair value hedges, cash flow hedges, hedges of a net investment in a foreign operation or trading instruments. Derivative financial instruments that do not qualify as hedges under IFRS criteria despite performing a hedging function as part of the Baloise Group’s risk management procedures are treated as trading instruments.
3.12 Netting of receivables and liabilities Receivables and liabilities are offset against each other and shown as a net figure on the balance sheet provided that an offsetting option is available and the Baloise Group intends to realise these assets and liabilities simultaneously.
3.15.5 Retained earnings Retained earnings include the Baloise Group’s undistributed earnings and its profit for the period. Dividends paid to the shareholders of Bâloise Holding are only recognised once they have been approved by the Annual General Meeting.
The significance of insurance risk is assessed according to the amount of additional benefits to be paid by the insurer if the insured event occurs.
The effective interest method is generally used to calculate receivables and liabilities arising from financial contracts. The effective interest rate is determined as the internal rate of return based on the estimated amounts and timing of the expected payments. If the amounts or timing of the actual payments differ from those expected or if expectations change, the effective interest rate must be re-determined. 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 benefits over and above the benefits guaranteed and if
→ Health The Baloise Group writes health insurance business in Switzerland and Belgium only. The benefits paid by the products in this segment cover the usual cost of treatment and also include a daily sickness allowance; they are available to individuals as well as small and medium-sized businesses in the form of so-called group insurance.
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 case-by-case basis. Neither of these components is subject to discounting. The third component consists of reserves for annuities that are discounted using basic actuarial principles such as mortality and the technical interest rate and are largely derived from claims in the motor, liability and accident insurance businesses.
3.17.4 Liability adequacy test A liability adequacy test (LAT) is carried out at each balance sheet date to ascertain whether – taking all known developments and trends into consideration – the Baloise Group’s existing reserves are adequate.
→ Swiss group life business (BVG) → Term insurance → Immediate annuities → Deferred annuities with annuity conversion rates that are guaranteed at the time the policy is purchased → All policy riders such as premium waiver, accidental death and disability
A liability adequacy test is performed on all life insurance business at each balance sheet date. This involves calculating a reserve at the measurement date that factors in all future cash flows (such as insurance benefits, surpluses and contract- related administrative expenses) based on the best estimates available for the assumptions used at the time. If the minimum reserve calculated in this way for individual business lines exceeds the reserve available at the time, any existing deferred acquisition cost or present value of future profits is reduced and, if this is not enough, the reserve is immediately increased to the minimum level and this increase is recognised in profit or loss.
3.18.5 Policyholders’ dividends A large proportion of life insurance contracts confer on policyholders the right to receive dividends.
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 policy- holders’ dividends credited and reserves for future policyholders’ dividends (section 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.
IFRS 4 introduces the concept of a discretionary participation feature (DPF), which is of relevance not only for the classification of contracts but also for the disclosure of surplus reserves according to policyholders’ share of the unrealised gains and losses recognised directly in equity under IFRS and their share of the increases and decreases recognised in profit or loss in the consolidated financial statements compared with the financial statements prepared in accordance with local accounting standards. IFRS 4 states here that the portion of an insurance contract’s liability that is attributable to a discretionary participation feature (“DPF component”) must be reported separately. This standard does not provide any clear guidance as to how this DPF component should be measured and disclosed.
Policyholders in Germany must receive a share of the profits generated. Any losses incurred are borne by shareholders. Policyholders are entitled to 90 per cent of investment income (minus the technical interest rate), 75 per cent of the net profit on risk exposures and 50 per cent of other surpluses. The articles of association of Basler Lebensversicherungs-AG, Germany, additionally stipulate a minimum quota of 95 per cent for part of its insurance portfolio.
3.22 Employee benefits The benefits that the Baloise Group grants to its employees comprise all forms of remuneration that is paid in return for work performed or in special circumstances.
3.22.1 Post-employment benefits The main post-employment 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.
Assets corresponding to these liabilities are only recognised if they are ceded to an entity other than the employer (such as a foundation). Such assets are measured at fair value. Changes to assumptions, discrepancies between the planned and actual returns on plan assets, and differences between the benefit entitlements effectively received and those calculated using actuarial assumptions give rise to actuarial gains and losses that must be recognised directly in other comprehensive income.
3.24 Taxes Provisions for deferred income taxes are recognised under the liability method, which means that they are based either on the current tax rate or on the rate expected in future. Deferred income taxes reflect the tax-related impact of temporary differences between the assets and liabilities reported in the IFRS financial statements and those reported for tax purposes. When deferred income taxes are calculated, tax loss carryforwards are only recognised to the extent that sufficient taxable profit is likely to be earned in future.
3.25.3 Dividend income Dividend income from financial assets is recognised as soon as a legal entitlement to receive payment arises.
The following asset classes are measured at fair value: → Investment property
4.6 Provisions The measurement of provisions requires assumptions to be made about the probability, timing and amount of any outflows of resources embodying economic benefits. A provision is recognised if such an outflow of resources is probable and can be reliably estimated.
4.7 Employee benefits In calculating its defined benefit obligations towards its employees, the Baloise Group makes assumptions about the expected return on plan assets, the economic benefits embodied in assets, future increases in salaries and pension benefits, the discount rate applicable and other parameters. The most important assumptions are derived from past experience of making estimates. The assumptions factored into these calculations are discussed in section 18.2.7.
4.8 Goodwill impairment Goodwill is tested for impairment in the second half of each year or whenever there is objective evidence of impairment. Such impairment tests involve calculating a value in use that is largely based on estimates such as the financial planning approved by management and the discount rates and growth rates mentioned in section 9.
The main risks in the non-life insurance sector are natural disasters, major industrial risks, third-party liability and personal injury. The insurance business as a whole is examined regularly by means of extensive analytical studies. The results of this analysis are taken into account when setting aside reserves, fixing insurance rates and structuring insurance products and reinsurance contracts. In the non-life sector, studies focusing on the risks arising from natural disasters have been carried out in recent years. On some of them we worked with reinsurance companies and brokers to determine the level of exposure to these risks and the extent of risk transfer required.
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.
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.
5.3 Life and non-life reinsurance strategies The Baloise Group’s non-life treaty reinsurance for all business units in the Group is structured and placed in the market by Group Reinsurance, part of Corporate Division Finance. When structuring the programme, Group Reinsurance focuses on the risk-bearing capacity of the Group as a whole. To date, the Group has only placed non-proportional reinsurance programmes. The Group’s maximum retention for cumulative claims was CHF 20 million (2013: CHF 20 million). The retentions for individual claims were CHF 16 million (2013: CHF 16 million) for property claims, CHF 15 million (2013: CHF 15 million) for marine claims and CHF 13.7 million on a non-indexed basis (2013: CHF 12.5 million) for third-party liability claims. The local Baloise Group business units also use additional facul tative reinsurance cover on a case-by-case basis. This type of reinsurance is extremely dependent on the individual risk in each case and it is therefore placed by the business units themselves.
Because of the long settlement period, there is a high degree of uncertainty associated with the calculation of these claims reserves. Both the timing at which cases of this type are identified and their potential loss level are much less certain than any other established claims patterns. Some reserves were calculated using external actuaries’ reports in which best-case and worst-case scenarios were analysed. The Baloise Group’s minimum reserves policy is based on the average of these two scenarios. It is particularly difficult to assess the level of reserves required for IBNR claims, so further fluctuations cannot be ruled out. According to expert estimates, fluctuations of around 10 per cent can be expected, which is equivalent to around CHF 7.0 million after taxes and before reinsurance (2013: CHF 6.8 million ) for this reserve.
Financial Report 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 269.8 280.0 – – – – – – – – –
Nine years later 270.1 – – – – – – – – – –
Nine years later 2 27.9 – – – – – – – – – –
Switzerland individual life Switzerland group life Germany Belgium Luxembourg Other units
When interest rates fall, there is the risk that investment income may no longer be sufficient to fund the technical interest rate. This risk can be mitigated by means of asset and liability management (ALM) and, in some cases, by adjusting policyholders’ dividends.
Unit-linked life insurance generally involves endowment life insurance or a deferred annuity in which the policyholder has more flexibility regarding the investment process. During the deferment period, unit-linked annuities behave in a similar way to endowment life insurance, but during the payout period the policy converts into a traditional annuity.
→ 50 basis-point increase in receipts of new money This scenario was based on the assumption that receipts of new money (including amounts reinvested) rose by 50 basis points. This situation therefore differed from the scenario presented in last year’s report (100 basis points). When applied to the German units, this scenario resulted in a reversal of DAC write-downs, changes in the financing of final policyholders’ dividends, and lower amounts being allocated to the provision recognised for impending losses. This adverse impact was exacerbated by impairment losses on interest-rate derivatives. The overall impact was substantially mitigated by the prevailing legal requirements governing the distribution of surpluses. On balance there was a marginal negative effect on the German units’ profitability in the reporting year (2013: negative effect of CHF 2 million). The negative impact on their equity amounted to approximately CHF 5 million (2013: CHF 8 million). In Belgium this scenario resulted in lower amounts being allocated to the provision recognised for impending losses, which constituted a positive effect of roughly CHF 10 million on profitability (2013: marginal effect). The negative effect on unrealised gains amounted to CHF 95 million (2013: CHF 150 million). In Luxembourg this scenario produced a marginal impact on the income statement and an adverse effect of roughly CHF 14 million (2013: CHF 13 million) on the unrealised gains and losses recognised in equity. The resultant impact on the profitability and equity of Baloise Life (Liechtenstein) AG was negligible. In Switzerland this scenario resulted in a reversal of DAC write-downs, a reduction in technical reserves, and the offsetting effect of interest-rate hedges. This improved profitability overall by roughly CHF 10 million (2013: CHF 16 million). The adverse impact on equity amounted to approximately CHF 154 million (2013: CHF 253 million).
→ 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. This situation therefore differed from the scenario presented in last year’s report (100 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 partially compensated for by the increase in the fair value of interest-rate derivatives in 2014. The overall impact was mitigated by the prevailing legal requirements governing the distribution of surpluses. On balance there was a negative effect of roughly CHF 2 million on the German units’ profitability in the reporting year (2013: negative effect of CHF 1 million). The positive impact on their equity amounted to approximately CHF 6 million (2013: CHF 7 million). In Belgium this scenario resulted in an additional DAC write-down and a provision for impending losses. The impact on the income statement was greater than in other countries owing to the business model used. Overall there was a negative effect of CHF 23 million on the income statement (2013: CHF 26 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 99 million (2013: CHF 155 million). In Luxembourg this scenario produced a marginal impact on the income statement and a positive effect of roughly CHF 14 million (2013: CHF 14 million) on the unrealised gains and losses recognised in equity. The resultant impact on the profitability and equity of Baloise Life (Liechtenstein) AG was negligible. In Switzerland this scenario resulted in a higher DAC write-down, an increased technical reserve, and the offsetting effect of interest-rate hedges. On balance these interacting factors had an adverse effect of CHF 56 million on the income statement (2013: positive effect of roughly CHF 1 million). The positive impact on equity amounted to approximately CHF 153 million (2013: CHF 278 million).
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.
The following sections specifically address the interest-rate risk, currency risk, credit risk, liquidity risk and equity price risk that are relevant to assets held by the Group.
The Baloise Group’s chief investment officer (CIO) reviews the strategic asset allocation undertaken by all business units twice a year.
If all interest rates had been 50 basis points higher on the balance sheet date but all other variables had remained constant, the profit for the period (after deferred gains / losses and deferred taxes) would have been CHF 21 million higher (31 December 2013 with interest rates 100 basis points higher: CHF 15 million higher). Including the impact on profit for the period, equity (after shadow accounting, deferred gains / losses and deferred taxes) would have fallen by CHF 199 million (31 December 2013 with interest rates 100 basis points higher: fall of CHF 485 million).
→ the volatility of the currencies involved and → the correlation of currencies with other risk parameters in a portfolio.
Assuming that all other variables remain constant, fluctuations between transactional currencies and the functional currency in financial balance sheet items (after shadow accounting, deferred gains / losses and deferred taxes) in the amount of + / – CHF 0.01 (1 centime) would have resulted in a change of + / – CHF 5.1 million (2013: + / – CHF 4.1 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.
Because equity investments are actively managed, additions to and deductions from equity are carried out ona regular basis during the year. Consequently, the year-on-year effects underlying hedge accounting and the recognition of cash flows in profit or loss are recognised on a pro-rata basis.
In order to restrict the credit / accumulation risk in the Baloise Group, the proportion that may be invested by Group companies in a single issuer or borrower is strictly limited in the Group-wide Risk Management Standards. The relevant rules are explicitly defined in the Group investment policy.
Please refer to the table of secured financial instruments with characteristics of liabilities in section 12.
The management and control of credit risk arising from mortgage business are set out in instructions and written procedures in which mandatory lending regulations are specified. These lending regulations lay down strict procedures for the immediate identification, accurate assessment, proper authorisation and continuous monitoring of credit risk. Standard credit documentation is used to record and review loan applications, which are all logged and managed centrally. The relevant credit documentation reflects or incorporates all evaluation criteria and policies.
Policies, directives and authorisation levels set out the terms and conditions for granting mortgages, which consist of the amount, the credit quality of the counterparty, collateral and the term of the transaction as well as the specialist qualifications of the mortgage expert.
Receivables from financial contracts – – – – 389.4 389.4 08_FB_Kapitel_05.8_bis_06_en.indd 141 24.03.2015 13:12:39
CREDIT RATINGS OF FINANCIAL ASSETS THAT WERE NEITHER OVERDUE NOR IMPAIRED AT THE BALANCE SHEET DATE IN 2014
Assets as at 31 December 2013 < 3 months 3 – 6 months 7 – 12 months > 12 months Total
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. Careful maintenance of liquidity levels and recourse to reinsurance provide sufficiently large reserves for payments needed at short notice, such as large claim settlements. 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.
Financial Report Notes to the consolidated annual financial statements 5.10 Fair value measurement Where available, quoted market prices are used to determine the fair value of assets and liabilities. They are defined as available if quoted prices can be obtained easily and frequently on an exchange, from a dealer, broker, trade association, pricing service or regulatory authority, provided these prices are current and represent regularly occurring arm’s-length transactions in the market.
Price of underlying instrument, liquidity discount, balance sheet and income statement figures
At fair value through profit or loss Present-value model Interest rate, credit spread, market price
Available for sale Net asset value n / a n / a
At fair value through profit or loss Net asset value n / a n / a
Financial instruments with characteristics of equity classed as “available for sale” or “recognised at fair value through profit or loss” and classified as level 3 are primarily private-equity investments and alternative investments held by the Baloise Group as well as non-controlling interests in real-estate companies. The fair value of such investments is usually determined by fund managers (external providers) based on their net asset value (NAV). These external providers generally use non-public information to calculate the individual investments’ NAV.
Recognised at fair value through profit or loss 6,946.1 6,946.1 6,861.2 – 84.9
Total assets measured on a recurring basis 8,894.9 8,894.9 8,630.1 180.0 84.9
Total liabilities measured on a recurring basis 7,580.3 7,580.3 7,577.7 2.6 –
Total carrying amount Total fair value Level 1 Level 2 Level 3
Total liabilities measured on a recurring basis 8,388.1 8,388.1 8,388.1 – –
Additions arising from change in the scope of consolidation – 36.7 36.7
Additions arising from change in the percentage of shareholding – – –
Disposals arising from change in the percentage of shareholding – – –
Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss 1 No financial instruments were reclassified either to or from level 3 during the reporting period. 2 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.
Additions arising from change in the percentage of shareholding – –
Disposals arising from change in the scope of consolidation – –
Disposals arising from change in the percentage of shareholding – –
Changes in fair value recognised in profit or loss 2 0.0 0.0
The relevant requirements for the banking operations of Baloise Bank SoBa are defined by Basel III regulations. The regulatory capital adequacy requirements applicable to Deutscher Ring Bausparkasse AG is the Capital
Risk-bearing capital is compared with risk-adjusted capital and the capital requirement formulated inhouse. The capital requirement covers actuarial risk, market risk, credit risk and other risks. The capital requirement is determined by means of a correlation-based expected-shortfall method. The actuarial capital requirement is a measurement of the operational funding required to cover actuarial risk. The claims risk is modelled using distributions of normal and large claims, including the prevailing reinsurance structure. At the same time, the investment required to smooth fluctuations in investment value and returns for a given probability is also calculated. Analysis of these risks is based on quantitative models that use statistical methods to evaluate historical data and place it in the context of current exposure. Various scenarios are simulated by means of stress tests, and their potential impact on risk-bearing capacity is analysed. The ratio of risk-bearing capital to risk-adjusted capital is calculated for the strategic business units and the Group. The Group’s risk position is not determined by simply adding together individual risk positions; it also takes into account diversification and consolidation effects. The current ratios of risk-bearing capital to risk-adjusted capital are set with reference to the global risk-management limits laid down in the Groupwide Risk Management Standards. These limits are monitored on an ongoing basis.
The risk owner and risk controller responsible for each business unit and for the Group as a whole participate in a regular reporting process. Key figures relating to Solvency I and the inhouse risk model are reported on a monthly basis, which enables the solvency situation to be monitored in a timely manner, providing the basis for risk-based management decisions within the whole organisation. It also enables the Baloise Group to meet external reporting requirements at all times.
6.2.2 Disposals All of Baloise’s Croatian and Serbian subsidiaries were sold to the Austria-based UNIQA Group on 11 March 2014.
In Luxembourg the remaining 65 per cent shareholding in the company Barosa S.à.r.l. was sold during the first half of the reporting year.
6.2.3 Other changes in the group of consolidated companies Further real-estate companies in Germany were merged with existing companies as planned, continuing the process that had begun in 2013. Basler Financial Services GmbH and GROCON Grundstücks- und Beteiligungsgesellschaft GmbH were merged in the second half of the year under review. These mergers had no net impact on the Baloise Group’s profit for the period.
→ Switzerland → Germany → Belgium → Luxembourg → Other units 1.
The “Other Activities” operating segment includes equity investment companies, real-estate firms and financing companies.
Realised gains and losses on investments 137.1 470.1 270.9 437.6 30.3 116.0 196.0 317.8 15.0 7.9 649.1 1,349.4 21.2 13.1 – – 670.3 1,362.5
Change in technical reserves (gross) – 849.3 – 861.5 – 416.2 – 391.2 – 87.1 – 166.2 – 4.3 – 57.4 – 16.7 – 9.8 – 1,373.7 – 1,486.1 – 33.4 18.8 47.7 – 2.2 – 1,359.4 – 1,469.5
Gains or losses on financial contracts – 59.5 – 60.2 – 18.2 – 25.5 – 54.1 – 55.9 – 222.7 – 304.4 – 0.3 – 0.2 – 354.7 – 446.2 – 16.6 – 18.5 2.4 2.0 – 368.9 – 462.6
Switzerland Germany Belgium Luxembourg Other units Sub-total Group business Eliminated Total
Interest expenses on insurance liabilities – 4.8 – 2.7 – 41.3 – 38.3 – 0.7 – 0.9 – 0.2 – 0.4 – 0.5 – 0.7 – 47.6 – 42.9 – – 0.3 0.3 – 47.3 – 42.6
Realised gains and losses on investments 118.1 63.2 532.1 1,276.0 – 1.2 3.5 21.3 19.9 – – 670.3 1,362.5
Share of profit (loss) of associates 0.0 0.0 32.7 2.9 – – 7.7 5.1 – – 40.5 8.1
Reinsurers’ share of claims incurred 70.8 133.7 4.7 12.9 – – – – – – 75.5 146.6
Profit / loss before borrowing costs and taxes 366.3 419.1 261.1 476.8 75.4 73.7 – 44.5 – 41.1 – – 658.2 928.6
Claims and benefits paid (gross) – 2,073.7 – 2,050.6 – 3,366.0 – 3,615.8 – – – – – – – 5,439.7 – 5,666.4
Change in technical reserves (gross) – 110.8 – 76.4 – 1,248.6 – 1,393.1 – – – – – – – 1,359.4 – 1,469.5
Interest expenses on insurance liabilities – 0.7 – 1.0 – 46.6 – 41.6 – – – – – – – 47.3 – 42.6
Profit / loss for the period (segment result) 291.0 330.4 195.3 388.2 61.6 61.2 – 92.4 – 68.0 – – 455.4 711.9 09_FB_Kapitel_07_bis_17_en.indd 169 24.03.2015 13:13:01
Carrying amount as at 31 December 93.6 240.5 43.4 25.9 19.1 422.5
Financial Report Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en.indd 172 24.03.2015 13:13:01
Capitalisation of acquisition costs – – 61.9 237.3 – – 299.2
1 With the possible exception of goodwill, the Baloise Group has no intangible assets with indefinite useful lives.
Financial Report Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en.indd 173 24.03.2015 13:13:02
Impairment losses totalling CHF 16.7 million were recognised on other intangible assets in respect of large-scale IT projects in 2013.
In 2014 an impairment loss of CHF 9.4 million was recognised on other intangible assets in respect of a largescale IT project.
Financial Report Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en.indd 174 24.03.2015 13:13:02
Insurance benefits and expenses arising from insurance and asset management business – 114.3 – 114.1
Financial Report Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en.indd 175 24.03.2015 13:13:02
2013 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
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 2014 or 31 December 2013.
As at 31 December 2013, the Baloise Group held more than 20 per cent of the capital of three companies but does not have any influence over these companies’ management. As a result, they are not reported as associates.
Reclassification to non-current assets and disposal groups classified as held for sale – 9.3 – 24.9
Operating expenses arising from investment property that generates rental income 70.1 68.5
Operating expenses arising from investment property that does not generate rental income 0.5 0.6
Increases and additional provisions recognised in profit or loss – 0.3 –
Reclassification to non-current assets and disposal groups classified as held for sale 0.3 –
Publicly listed, fixed interest rate 8,040.2 8,358.3 22,191.4 24,067.6 – – 0.1 0.1 30,231.7 32,426.0
Not publicly listed, variable interest rate – – 0.2 – – – – – 0.2 –
Financial Report Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en.indd 182 24.03.2015 13:13:03
Reclassification to non-current assets and disposal groups classified as held for sale 1.3 0.0
Derivative financial instruments for own account and at own risk 232.2 341.0 68.2 176.4
Financial Report Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en.indd 185 24.03.2015 13:13:04
Receivables from investments 1 The decrease in receivables from financial contracts was primarily attributable to the cancellation of a major financial reinsurance contract in Baloise’s Belgian life business.
Increases and additional provisions recognised in profit or loss – 2.2 – 1.4
Reclassification to non-current assets and disposal groups classified as held for sale 0.2 –
Reinsurers’ share of technical reserves as at 31 December 396.4 421.5 17. RECEIVABLES FROM REINSURERS
Termination benefits – – 11.3 11.7 18.2 Post-employment benefits – defined benefit plans The Baloise Group provides a range of pension benefits, which vary from country to country in line with local circumstances. The funded – or partially funded – liabilities relate to the occupational pension provision offered in Switzerland and that of the former Avéro Schadeverzekering Benelux NV.
Balance as at 31 December 2,183.0 2,337.4 18.2.2 Partially funded liabilities under defined benefit plans
Balance as at 31 December – 2,261.1 – 2,721.3 10_FB_Kapitel_18_bis_23_en.indd 189 24.03.2015 13:13:00
Actuarial gains / losses on defined benefit obligations arising from changes in financial assumptions 44.3 – 188.2 changes in demographic assumptions – – 2.4 experience adjustments – 5.6 – 3.4
Additions / disposals arising from change in scope of consolidation 0.6 – 3.3
Balance as at 31 December – 735.6 – 896.9 18.2.4 Net actuarial liabilities under defined benefit plans
Equities and investment funds publicly listed 1,137.6 1,289.8 not publicly listed 79.1 128.2
Fixed-interest assets publicly listed 134.7 99.1 not publicly listed – –
Total expenses for defined benefit plans recognised in the income statement – 86.0 – 94.5 10_FB_Kapitel_18_bis_23_en.indd 191 24.03.2015 13:13:00
Financial Report Notes to the consolidated annual financial statements 18.2.7 Actuarial assumptions
Expected wage and salary increases plus 0.5 % age points 31.1 40.1
Expected wage and salary increases minus 0.5 % age points – 31.4 – 37.5
Expected pension benefits increases plus 0.5 % age points 150.1 203.9
Mortality probabilities for 65-year-olds plus 10.0 % age points – 70.7 – 90.4
18.4 Share-based payment plans For some time now, the Baloise Group has offered employees and management team members the chance to participate in various plans under which shares are granted as part of their overall remuneration packages. The Employee Incentive Plan, the Share Subscription Plan and the Employee Share Ownership Plan are all cash-settled remuneration programmes. Performance share units (PSUs) are an equity-settled remuneration programme. In 2014, a sum of CHF 22.3 million (2013: CHF 20.0 million) was recognised as an expense in profit or loss in connection with the following share-based payment plans.
Fair value of subscribed shares on subscription date (CHF million) 4.7 5.3
1 The closed period during which shares allocated to the Chairman of the Board of Directors is five years instead of three. This means that the shares are restricted until 28 February 2017 and 28 February 2018 respectively.
Fair value of subscribed shares on subscription date (CHF million) 15.6 10.7
Source: One PSU generally confers the right to receive one share. This is the case if Baloise shares perform in line with the median of their peer group. In this case the performance multiplier would be 1.0. Participants in the programme receive more shares in exchange for their PSUs if Baloise shares outperform their peer group. The multiplier reaches the maximum of 1.5 if the performance of Baloise shares is in the top quartile of companies in the peer group. The multiplier amounts to 0.5 if the performance of Baloise shares is in the bottom quartile of companies in the peer group. If the performance of Baloise shares is in either of the two middle quartiles, a linear scale is used to calculate the performance multiplier. The performance multiplier for the entire vesting period ended is based on the closing stock market prices on the final trading day of the respective vesting period.
(measured over a three-year track record) → The expected dividend yields → Empirical data on how long eligible programme participants remain with the Company.
Employees entitled to participate at launch of programme 72 69 65
Number of active PSUs as at 31 December 2012 83,984 – –
Number of active PSUs as at 31 December 2014 76,401 65,715 46,836
Value of allocated PSUs on issue date (CHF million) 6.4 5.6 5.6
PSU expense incurred by the Baloise Group for 2012 (CHF million) 1.5 – –
PSU expense incurred by the Baloise Group for 2013 (CHF million) 2.0 1.2 –
PSU expense incurred by the Baloise Group for 2014 (CHF million) 1.7 1.6 1.3 10_FB_Kapitel_18_bis_23_en.indd 199 24.03.2015 13:13:01
Of which: recognised as deferred tax liabilities – 882.3 – 1,065.5 19.2 Deferred tax assets and liabilities
Tax losses carried forward 36.5 7.0 – 43.5 1 “Other” essentially comprises deferred taxes on liabilities arising from banking business and financial contracts as well as liabilities arising from employee benefits.
Unrealised gains recognised directly in equity 331.7 – – 110.0 221.7
The Baloise Group had recognised deferred tax assets on tax loss carryforwards totalling CHF 172.1 million as at 31 December 2014 (2013: CHF 155.3 million). Of this total, CHF 0.1 million will expire after one year and CHF 171.7 million will expire after five years or more.
No deferred tax assets had been recognised on tax loss carryforwards amounting to CHF 291.2 million as at 31 December 2014 (2013: CHF 481.8 million) because the relevant offsetting criteria had not been met. Of this total, CHF 2.9 million will expire after one year, a further CHF 8.8 million will expire after two to four years and CHF 279.5 million will expire after five years or more.
21. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS The disposal group reported for 2013 includes the assets and associated liabilities of all Croatian and Serbian subsidiaries. A total impairment loss of CHF 31.7 million was recognised on the assets in this disposal group as at 31 December 2013. The disposal of the Croatian and Serbian units was completed on 11 March 2014.
The disposal group shown in the 2014 half-year report (but not presented here) includes the assets and associated liabilities of all Austrian subsidiaries. The disposal of these entities was completed on 28 August 2014. Information on the disposal of these entities can be found in table 40 “Acquisition and disposal of companies”.
Liabilities arising from banking business and financial contracts 0.7 – – –
Unrealised losses directly associated with non-current assets and disposal groups classified as held for sale 39.3 – – –
The Annual General Meeting held on 24 April 2014 voted to pay a gross dividend of CHF 4.75 per share for the 2013 financial year. This amounted to a total dividend distribution of CHF 237.5 million. Excluding the treasury shares held by Bâloise Holding at the time that the dividend was paid, the total distribution effectively amounted to CHF 223.6 million.
Policyholders’ dividends credited and provisions for future policyholders’ dividends (gross) 3,471.4 4,126.9
Provision for claims handling costs 563.1 – – 562.6 – –
Financial Report Notes to the consolidated annual financial statements 23.1.1 Maturity structure of technical reserves
All figures relating to maturities are based on best estimates. The line item “No determinable residual term” mainly comprises old-age health insurance reserves and annuity reserve funds.
Apart from the actual unearned premium reserves, this item includes health insurance reserves for old age and deferred unearned premiums.
Reclassification to non-current assets and disposal groups classified as held for sale – 40.2 – 92.6
The relevant net reserves included in the total amounted to CHF 90.4 million at the end of 2014 (2013: CHF 88.1 million). Because the bulk of these provisions is held in foreign currency (US dollars), the slight increase can be attributed to currency effects.
Financial Report Notes to the consolidated annual financial statements 23.2.1 Maturity structure of technical reserves
Additions arising from acquisition of policy portfolios and insurance companies – 151.4
Reclassification to non-current assets and disposal groups classified as held for sale – 276.4 – 195.0
The actuarial reserves include unearned premium reserves and claims reserves. The actuarial reserves for DPF business as at 31 December 2014 amounted to CHF 34,788.4 million (31 December 2013: CHF 34,322.0 million), while for non-DPF business they totalled CHF 299.2 million (31 December 2013: CHF 270.4 million). The actuarial reserves for assumed business (inward reinsurance) as at 31 December 2014 came to CHF 7.4 million (31 December 2013: CHF 6.8 million).
Reclassification to non-current assets and disposal groups classified as held for sale 0.0 – 113.2
Balance as at 31 December 2,521.0 2,678.3 10_FB_Kapitel_18_bis_23_en.indd 210 24.03.2015 13:13:03
Reclassification to non-current assets and disposal groups classified as held for sale – 0.4 – 0.1
Change due to unrealised gains and losses on investments (shadow accounting) 0.0 – 0.6
Balance as at 31 December 338.3 359.1 10_FB_Kapitel_18_bis_23_en.indd 211 24.03.2015 13:13:03
Reclassification to non-current assets and disposal groups classified as held for sale – 0.6 – 18.1
Adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) 452.9 1,067.6
Additions arising from acquisition of policy portfolios and insurance companies – 0.1
Liability for future financial lease payments (present value) 97.3 86.4 97.3 86.4
Total liability for future financial lease payments (present value) 97.3 86.4 11_FB_Kapitel_24_bis_Bericht_en.indd 214 24.03.2015 13:13:27
ISIN CH0107130822 CH0117683794 CH0131804616 CH0148295014 CH0188295536 CH0194695083 CH0200044821 CH0261399064 11_FB_Kapitel_24_bis_Bericht_en.indd 215 24.03.2015 13:13:27
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.
Total insurance liabilities 2,118.0 1,780.3 1 The decrease in liabilities to insurance companies was primarily attributable to the cancellation of a major financial reinsurance contract in Baloise’s Belgian life business.
Change in unearned premium reserves – 16.2 – – 16.2 – 7.5 – – 7.5
Realised gains and losses on investments as recognised in the income statement 670.3 1,362.5
Financial Report Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en.indd 219 24.03.2015 13:13:28
Carried at cost – – – – 3.1 – – 3.1
Available for sale – – 35.8 – – – – 35.8
Carried at cost – – – – 5.4 – – 5.4
Financial Report Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en.indd 220 24.03.2015 13:13:28
31.3 Impairment losses on financial assets recognised in profit or loss
Losses arising from exchange differences in respect of assets and liabilities – 14.1 – 11.2
Fees and commission for financial assets and liabilities not recognised at fair value – 25.6 – 17.0
Fees and commission expenses for assets managed for third parties – 3.3 – 3.7
Expenses arising from non-current assets and disposal groups classified as held for sale – 31.7 –
Change in fair value of other financial contracts – 249.7 – 338.8
Total gains or losses on financial contracts – 368.9 – 462.6
Total current and deferred income taxes – 152.7 – 173.2 37.2 Expected and current income taxes The expected average tax rate for the Baloise Group was 26.78 per cent in 2013 and 24.73 per cent in 2014. These rates correspond to the weighted average tax rates in those countries where the Baloise Group operates.
Financial Report Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en.indd 225 24.03.2015 13:13:29
Adjustment of interest expenses on convertible bonds, including tax effects (CHF million) 7.7 7.9
Total items not to be reclassified to the income statement 111.5 – 310.1
Available-for-sale financial assets: Gains and losses arising during the reporting period – 301.6 2,141.4
Gains and losses reclassified to the income statement – 230.1 – 452.6
Hedging reserves for derivative financial instruments held as hedges of a net investment in a foreign operation: Gains and losses arising during the reporting period 35.7 – 124.1
Gains and losses reclassified to the income statement – 2.8 – 2.5
Total reserves arising from reclassification of held-to-maturity financial assets: – 2.7 – 2.6
Financial Report Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en.indd 227 24.03.2015 13:13:29
Net assets acquired / disposed of – 2.3 – 24.1 – 3.2 – 137.7
Goodwill / negative goodwill or proceeds from disposals 0.6 8.5 0.3 65.5
Outflow / inflow of cash and cash equivalents – 2.9 – 16.4 2.4 267.9 1 This includes primarily historical cumulative exchange differences.
During the first half of the reporting year the Baloise Group acquired the Brussels-based real-estate company Singel Office Antwerpen NV in Belgium and the net assets of the firm P & V Assurances in Luxembourg.
Payments under share-based payment plans 4.6 4.2 28,720 shares worth CHF 3.1 million were repurchased from members of the Corporate Executive Committee in 2014 (2013: CHF 4.4 million) under the Employee Share Ownership Plan (section 18.4.3).
43. CONTINGENT AND FUTURE LIABILITIES 43.1 Contingent liabilities 43.1.1 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.
The Corporate Executive Committee is not aware of any new circumstances having arisen since the last balance sheet date that could have a material impact on the consolidated annual financial statements for 2014.
45. CLAIM PAYMENTS RECEIVED FROM NON-GROUP INSURERS The companies in the Baloise Group received claim payments totalling CHF 0.1 million in 2014 (2013: CHF 0.1 million ) from non-Group insurers in connection with insurance contracts under which the Baloise Group companies are themselves policyholders. Most of these claim payments were made for damage to buildings in Switzerland where, depending on the building’s location, mandatory insurance cover is provided by government agencies.
46. EVENTS AFTER THE BALANCE SHEET DATE On 15 January 2015 the Swiss National Bank announced that it was abandoning its minimum exchange-rate target of 1.20 Swiss francs to the euro with immediate effect. The amounts published in these consolidated annual financial statements do not reflect exchange-rate changes that have occurred since 31 December 2014. Because the Swiss franc is the functional currency used in the Baloise Group’s consolidated financial statements, any weakening of foreign currencies against the Swiss franc gives rise to negative exchange differences. Section 5.6 of the Financial Report describes how the Baloise Group manages market risks (including sensitivity analysis).
By the time that these consolidated annual financial statements had been completed on 20 March 2015, we had not become aware of any further events that would have a material impact on the consolidated annual financial statements as a whole.
Financial Report Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en.indd 236 24.03.2015 13:13:30
Baloise Life Ltd, Basel Life L 100.00 100.00 F CHF 50.0 30,499.3 2,985.1 X
Baloise Bank SoBa AG, Solothurn Banking B 100.00 100.00 F CHF 50.0 7,135.1 –
Haakon AG, Basel Other O 74.75 74.75 F CHF 0.2 27.1 –
Financial Report Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en.indd 238 24.03.2015 13:13:30
Merno-Immo NV, Antwerp Other O 100.00 100.00 F EUR 17.1 25.6 –
Financial Report Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en.indd 239 24.03.2015 13:13:31
The Baloise Group sold 35 per cent of its shareholding in the Luxembourg-based company Barosa S.à.r.l. in 2013. The remaining 65 per cent shareholding was sold during the reporting year. Information on this disposal can be found in notes 6.2 and 40.
Financial Report Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en.indd 240 24.03.2015 13:13:31
Bâloise Holding Ltd 4 Baloise 16 Review of operating performance 36 Sustainable business management 48 Corporate Governance 92 Financial Report 246 Bâloise Holding Ltd 260 Notes
Prepaid expenses and accrued income This line item includes expenses relating to the new financial year that have been paid in advance and income from the reporting year that will not be received until a later date� It also comprises dividends approved by subsidiaries’ annual general meetings at the balance sheet date, which Bâloise Holding reports as dividends receivable�
Deferred income and accrued expenses This line item comprises income relating to the new financial year that has already been received as well as expenses relating to the reporting year that will not be paid until a later date�
Notes to the financial statements of Bâloise Holding 12_FB_Holding_en�indd 248 24�03�2015 13:13:41
Total income from interest and securities 15.5 15.1 3. ADMINISTRATIVE EXPENSES
Total interest expenses – 44.6 – 38.0 12_FB_Holding_en�indd 249 24�03�2015 13:13:41
Financial Report Notes to the financial statements of Bâloise Holding 8. LONG-TERM EQUITY INVESTMENTS
Withdrawn (transferred to reserve for treasury shares) – 2.4 – 6.5
Total equity 490.1 658.4 1 Baloise Group companies purchased a total of 246,055 shares (not including the share buy-back via the secondary trading line) at an average price of CHF 112 during the reporting year. During this period they sold 201,442 shares at an average price of CHF 114 and together held a total of 1,954,876 Bâloise Holding shares as at 31 December 2014. As in the previous year, the number of Bâloise Holding shares acquired via the secondary trading line amounted to 223,565 shares. These shares are reported as “treasury shares” on the balance sheet.
Credit Suisse Funds AG <3.0 <2.0 <3.0 <2.0 1 Custodian nominees who hold shares in trust for third parties are counted as part of the free float under the SIX Exchange regulations. Such shareholder groups are not subject to disclosure requirements under Swiss stock market legislation.
Bâloise Holding has issued the following letter of comfort: As the owner of Baloise Life (Liechtenstein) AG, Bâloise Holding, Basel, undertakes to ensure that its subsidiary Baloise Life (Liechtenstein) AG is at all times in a financial position to meet in full its liabilities to its customers arising from the contracts relating to its RentaSafe, BelRenta Safe, RentaProtect and RentaSafe Time products, especially its guarantee commitments� Since October 2012 this letter of comfort has also applied to customers with contracts relating to its RentaProtect Time, RentaSafe Time (D-CHF), RentaSafe Time Italy and RentaProtect Performance products� The maximum liability corresponds to the actuarial reserves recognised for these products on the balance sheet of Baloise Life (Liechtenstein) AG as at 31 December 2014�
14. REMUNERATION PAID TO THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE The information to be disclosed in accordance with sections 663b and 663c of the Swiss Code of Obligations (OR) is contained in the Remuneration Report, which can be found on pages 61 to 83 of the chapter on corporate governance� The key information disclosed here includes
15. INFORMATION ON THE PERFORMANCE OF RISK ASSESSMENT Information on the performance of risk assessments can be found in section 5, “Management of insurance risk and financial risk”, of the Baloise Group’s consolidated annual financial statements�
By the time that these annual financial statements had been completed on 19 March 2014, we had not become aware of any further events that would have a material impact on the annual financial statements as a whole�
REPORT OF THE STATUTORY AUDITOR ON THE FINANCIAL STATEMENTS As statutory auditor, we have audited the financial statements of Bâloise Holding Ltd, which comprise the income statement, balance sheet and notes (pages 246 to 254), for the year ended 31 December 2014�
Opinion In our opinion, the financial statements for the year ended 31 December 2014 comply with Swiss law and the Company’s articles of incorporation�
GLOSSARY ������������������������������������������������������������������������������������������������ 260 ADDRESSES ��������������������������������������������������������������������������������������������� 264 INFORMATION ON THE BALOISE GROUP ������������������������������������ 265 FINANCIAL CALENDAR AND CONTACTS ��������������������������������������� 266
Notes 4 Baloise 16 Review of operating performance 36 Sustainable business management 48 Corporate Governance 92 Financial Report 246 Bâloise Holding Ltd 05_JB_Anhang_en�indd 259 24�03�2015 13:03:46
→ Baloise “Baloise” stands for “the Baloise Group”, and “Bâloise Hold­ ing” means “Bâloise Holding Ltd”� Baloise shares are the shares of Bâloise Holding Ltd�
→ Claims ratio The total cost of claims settled as a percentage of total pre­ miums�
→ Investments Investments comprise investment property, equities and alter native financial assets (financial instruments with char­ acteristics of equity), fixed­income securities (financial in­ struments with characteristics of liabilities), mortgage assets, policy loans and other loans, derivatives, and cash and cash equivalents� Precious metals in connection with investment­ linked insurance are reported as “other assets�”
→ Profit after taxes Profit after taxes is the consolidated net result of all income and expenses, minus all borrowing costs as well as current and deferred income taxes� Profit after taxes includes non­ controlling interests�
→ Reinsurance If an insurance company itself does not wish to bear the full risk arising from an insurance policy or an entire portfolio of policies, it passes on part of the risk to a reinsurance com­ pany or another direct insurer� However, the primary insurer still has to indemnify the policyholder for the full risk in all cases�
→ Run-off business An insurance policy portfolio that has ceased to accept new policies and whose existing policies are gradually expiring�
→ Share buy-back programme Procedure approved by the Board of Directors under which Baloise can repurchase its own outstanding shares� Compa­ nies in Switzerland open a separate trading line in order to carry out such buy­backs�
GERMANY Basler Versicherungen Basler Strasse 4 Postfach 1145 D-61345 Bad Homburg info@basler.de www.basler.de
AVAILABILITY AND ORDERING The 2014 Annual Report and the Summary of the 2014 Annual Report will be available on the internet at www�baloise�com/ annualreport from 26 March 2014�
Corporate publications can be ordered either on the inter­ net or by post from the Baloise Group, Corporate Communi­ cations, Aeschengraben 21, 4002 Basel, Switzerland�