Consolidated income statement .......................................... 26 Consolidated balance sheet ................................................. 28 Business volume, premiums and combined ratio ............... 29 Technical income statement ................................................ 31 Gross premiums by sector .................................................... 32 Banking activities ................................................................. 33 Investment performance ...................................................... 34
Human resources ................................................................. 42 The environment .................................................................. 48 Risk management ................................................................. 52 Commitment to art ............................................................... 56
FINANCIAL REPORT Consolidated balance sheet ............................................... 112 Consolidated income statement ........................................ 114 Consolidated statement of comprehensive income .......... 115 Consolidated cash flow statement ..................................... 116 Consolidated statement of changes in equity ................... 118 Notes to the consolidated annual financial statements .... 120 Notes to the consolidated balance sheet .......................... 196 Notes to the consolidated income statement .................... 239 Other disclosures ............................................................... 250 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ..... 262
Information on the Baloise Group ...................................... 293 Financial calendar and contacts ........................................ 294
Net investment yield of insurance assets * The difference between the profit for the period and the profit attributable to shareholders is primarily due to the fact that only part of the book losses incurred on the sale of non-strategic entities in Germany was borne by the shareholders.
In the autumn of 2016, Baloise formulated the three targets for its new strategy. By 2021, our aim is to generate CHF 2 billion of cash for the holding company, attract an additional one million customers and become one of the most attractive employers in our industry. At the end of the first year, it is clear that we have made a very good start. The profit for the period attributable to shareholders was up by 2.5 per cent to CHF 548.0 million (2016: CHF 534.8 million) and the net combined ratio held steady at 92.3 per cent (2016: 92.2 per cent), demonstrating that Baloise has successfully embarked on this strategic journey. The volume of business grew by 3.9 per cent to CHF 9,260.8 million. Moreover, Baloise launched numerous initiatives in 2017 without neglecting its core business, which is and remains the basis for long-term business success.
Baloise can report initial progress on achieving the strategic targets after just the first year. The holding company has already received CHF 415 million of the total of CHF 2 billion, we have signed up 118,000 new customers and we are among the top 25 per cent of the most attractive employers in our sector in Europe (our ambition: top 10 per cent). Last year, our strategic activities focused on the launch of digitalisation initiatives and the expansion of customer care. Building on its strong and stable core business, Baloise is concentrating on becoming even more customer-centric. In doing so, it is striving to evolve into a service provider for insurance, pension and other services that extend beyond the core insurance business. This transformation of the business model requires, above all, entrepreneurial energy, and this was evident throughout the Company in 2017.
When implementing new initiatives, Baloise focuses on five dimensions: we identify start-ups, develop or help them to mature, enter into alliances, test out new ideas ourselves or buy fledging businesses. This broad-based approach gives the individual initiatives a better chance of success. Working with an investment and consultancy firm in London, Baloise is investing up to CHF 50 million in European and US-based startups that offer the potential to drive forward the process of digitalisation at Baloise. We also benefit from the firm’s experience with digital financial services and are incorporating it into our new strategy. In Switzerland, we are involved with companies that support and develop international fintech startups. This gives Baloise exclusive access to highly promising fintech start-ups, new technologies and business models that have the potential to bring about significant changes in the insurance sector.
Baloise also invests in its own start-ups. FRI:DAY, a mobile insurer, made its debut in early 2017 in Germany. The company launched the first mileage-based motor vehicle policy and has already attracted more than 15,000 customers. Another start-up is Mobly, a platform for services in the Belgian used car market that complement traditional motor vehicle insurance. The company began with two products: Mobly Go is a driver assistance system for all vehicle brands in the used car segment, while Mobly Car Expert enables customers to obtain professional support when buying a second-hand car.
Overall, 2017 was a very successful year for the equity markets. Since the US elections, the expansionary character of US President Trump’s fiscal policy agenda has significantly raised investors’ profit expectations. Positive economic figures along with a buoyant global economy, which continued to gather pace over the course of the year, have provided a broad base for the upturn. The stock markets experienced very low volatility in 2017 and the level of volatility also ended the year below the historical average.
As announced at the end of 2016, Baloise is planning to buy back up to 3,000,000 treasury shares over the period from April 2017 to April 2020. The shares will be bought back for the purpose of capital reduction, using a second trading line on the Swiss stock exchange, SIX Swiss Exchange AG. By the end of 2017, the programme had resulted in the purchase of 423,450 treasury shares, returning CHF 63.3 million to shareholders.
All figures stated as at 31 December. 1 Proposal to the Annual General Meeting on 27 April 2018.
Minus the number of treasury shares (units) 3,028,943 3,048,791 3,464,540 2,499,945 1,327,993
Number of shares in circulation (units) 46,971,057 46,951,209 46,535,460 47,500,055 47,472,007
SHAREHOLDER STRUCTURE The shares in Bâloise Holding Ltd are widely held and their free float remains unchanged at 100 per cent. During the 2017 financial year, the following change (notifiable under Art. 120 (1) of the Swiss Financial Market Infrastructure Act) to the Baloise shareholder base took place: On 29 March 2017, several collective investments managed by UBS Fund Management (Switzerland ) AG together rose above the threshold of 3 per cent. Further information on Baloise’s significant shareholders as at 31 December 2017 can be found in the table 11 on page 279.
EMPLOYEES The workforce is key to implementing the new corporate strategy. That is why Baloise wants to become an employer of choice in its industry. Progress will be measured by a performance indicator that shows how often Baloise is recommended as an employer.
SUSTAINABLE BUSINESS MANAGEMENT The key success factors in the new strategy will be the strong core business and the unique corporate culture that exists among the around 7,300 Baloise employees in Switzerland, Belgium, Germany and Luxembourg. Baloise aims to establish an agile and entrepreneurial corporate culture in which its employees, on a daily basis, see the world through the eyes of the customer. The idea is to develop services and solutions that go beyond the traditional insurance business.
A BRIGHT FUTURE NEEDS A SOLID PAST: Baloise’s new strategic ambitions are based on our excellent track record over the past decade: as well as a forward-looking system of capital management and risk management, we have one of the most profitable non-life portfolios in Europe, a strong position in core markets and cutting-edge IT systems and digital processes. Based on these strengths, Baloise continues to invest in the future. Its current “Simply Safe” initiatives are aimed at achieving the following goals by 2021: ▸ Become one of the best employers in the industry
▸ Attract 1 million additional customers ▸ Generate cash of CHF 2 billion for the benefit of shareholders and for capital investment
▸ The Baloise brand stands for safety, simplicity and partnership. Safety is the core promise and provides the foundation for every benefit, every service and every product. Simplicity expresses our ambition to offer an outstanding customer experience with simple products, easy processes and clear communication. Partnership is one of our biggest emotional strengths. It is based on appreciation and value creation. We nurture and strengthen our relationships with all our stakeholder groups.
▸ Our brand personality defines how Baloise acts and communicates: reliable, easy to interact with and caring for you. We are competent and steadfast and act with quiet confidence and honesty. This makes us a reliable partner who is there for our customers when they need us. We communicate clearly and respond quickly to our stakeholder groups. We take a direct approach and always try to make things easier. As a committed partner we want to understand the needs of our customers and work to find suitable solutions.
“We make it simple to feel safe – as a reliable partner, who’s easy to interact with and truly cares.”
Baloise’s profit for 2017 attributable to shareholders was the second highest of the last ten years. This achievement is proof positive that Baloise is on the right track with its investment in the future and, at the same time, has strengthened its core business. It has already seen its first operational success in respect of the strategic targets to be reached by 2021, even though 2017 was just the beginning and saw numerous initiatives being launched. Core business also fared very well. The non-life business continues to grow in all markets and profitability remains high. The shift in the life portfolio towards life insurance products that tie up less capital is having a sustained positive effect. The contribution to EBIT from the life business rose significantly in 2017.
A still restrictive underwriting policy and the sale of the life portfolio in Germany meant that the volume of traditional life business contracted by 1.6 per cent to CHF 3,512.0 million. However, EBIT rose by 35.3 per cent to CHF 306.0 million. This was due to a slight easing of the interest rate situation, which significantly reduced the need to strengthen reserves. Another factor was the ongoing shift in the life portfolio. The volume of investment-type premium income continued to grow, rising by an impressive 14.6 per cent to CHF 2,519.5 million.
The gains on the investment of insurance assets amounted to CHF 1,621.6 million, which was above the 2016 level of CHF 1,578.9 million. Recurring current income stood at CHF 1,300.5 million (2016: CHF 1,379.3 million). The gains on investments achieved for insurance assets equated to a net return of 2.9 per cent. The rate of return on insurance assets according to IFRS – which includes unrealised net gains and losses on investments but excludes gains and losses on held- to-maturity debt instruments – was 2.5 per cent, representing a decrease on the 3.1 per cent rate of return according to IFRS in 2016.
In operational terms, the EBIT generated by the banking business was encouraging at CHF 81.8 million. Although this was a fall of 11.2 per cent compared with 2016, the prior-year figure had been boosted by a positive non-recurring effect of CHF 11.3 million arising from a change in the pension scheme at Baloise Bank SoBa.
NON-LIFE DIVISION: GOOD GROWTH AND CONTINUED HIGH PROFITABILITY The non-life division saw a further rise in the volume of premiums (in Swiss francs) of 2.8 per cent. With increases of 0.7 per cent in Switzerland, 5.5 per cent in Belgium, 3.6 per cent in Germany and 5.0 per cent in Luxembourg, the total volume came to CHF 3,229.3 million. In local currency terms too, growth was consistently above 1.5 per cent in the non-Swiss markets. Whereas the Swiss business had benefited from a positive effect of CHF 35.5 million in 2016 owing to pension scheme changes, the strengthening of the employer contribution reserve in 2017 had a negative impact on earnings. The initial financing for the mobile insurer FRI:DAY and the losses arising on a portfolio undergoing restructuring in the German liability insurance segment also adversely affected EBIT. Consequently, EBIT in the non-life business fell by 5.5 per cent to CHF 374.7 million. The level of large claims incurred declined overall. The net combined ratio was almost the same as in 2016 at an excellent 92.3 per cent.
LIFE DIVISION: FURTHER STRONG GROWTH IN INVESTMENT-TYPE PREMIUMS The life business is evolving as intended. The ongoing shift in the portfolio was reflected in the 1.6 per cent decline in traditional life insurance. Investment-type premiums grew at a very encouraging rate of 14.6 per cent. Total premium income, including investment-type premiums, amounted to CHF 6,031.5 million (2016: CHF 5,770.1 million). In traditional life insurance, the business volume increased by 0.9 per cent in Switzerland (despite a restrictive underwriting policy) and by 3.7 per cent in Belgium, but contracted by 18.7 per cent in Germany and by 2.7 per cent in Luxembourg. The sharp fall in Germany was due to the sale of a closed life insurance portfolio to Frankfurter Leben.
Investment-type premiums increased to CHF 2,519.5 million (2016: CHF 2,199.2 million). By far the biggest growth driver in 2017 was business in Luxembourg, which was up by 25.2 per cent. In the other markets, business held steady or contracted. Business in Luxembourg (including Liechtenstein) accounts for around 70 per cent of all business with investment-type premiums. EBIT in the life business again rose year on year, reaching CHF 306.0 million (2016: CHF 226.1 million). This was mainly because there was less of a need to strengthen reserves than in the prior year thanks to the slight bounce-back of interest rates.
Baloise Group Annual Report 2017 Review of operating performance to operational measures and further improvements to the business mix, and stood at 33.4 per cent (2016: 21.3 per cent). The value of new business also rose, reaching CHF 125.8 million.
EQUITY REMAINS ROBUST The balance sheet of Baloise improved once again, with consolidated equity rising by 11.0 per cent year on year to reach CHF 6,409.2 million at the end of 2017. The profit for the period and other comprehensive income played a big part in this increase, which was partly offset by dividends paid of CHF 248.7 million. The Annual General Meeting held on 28 April 2017 voted to cancel 1.2 million shares. This was carried out on 12 July 2017, reducing the share capital by CHF 120,000 million. Under the announced programme to buy back more than three million shares, a total of 423,450 shares had been repurchased by the end of 2017. This meant CHF 63.3 million was returned to the shareholders.
The increase in equity, the credit rating of “A with a positive outlook” awarded by Standard & Poor’s and an SST ratio of significantly above 200 per cent are signs of the strong foundations provided by Baloise’s sustained and robust level of capitalisation.
Cash and cash equivalents 1,935.5 2,133.2 10.2 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties.
Baloise Group Annual Report 2017 Review of operating performance doing so for the most part and instead opted for currency-hedged euro-denominated bonds and senior secured loans. It continued to build up its portfolio of investment property and mortgages with stable income, thereby slightly mitigating the effect of declining income.
as at 31 December 2016 Non-life Life Banking Total for the
Third party assets 7,984.7 as at 31 December 2017 Non-life Life Banking Total for the
Third party assets 8,958.6 1 Including CHF 70.5 million (2016: CHF 54.5 million) in other assets (precious metal holdings from investment-linked life insurance policies).
However, EBIT in the non-life business fell by 4.1 per cent to CHF 289.3 million. This was mainly due to two countervailing non-recurring effects. There had been a positive effect of CHF 35.5 million resulting from pension scheme changes (IAS 19) in 2016, whereas earnings in 2017 were squeezed by the strengthening of the employer contribution reserve in the pension fund for employees. The net combined ratio stood at an outstanding 83.5 per cent, which was 2.3 percentage points higher than the exceptionally good prior-year figure.
BASLER VERSICHERUNGEN IN GERMANY EBIT in the German business amounted to a loss of CHF 76.0 million, which was below expectations. The non-life business was weighed down by large claims and a liability insurance portfolio undergoing restructuring. The overall volume of business contracted by 4.3 per cent to CHF 1,369.3 million. This decrease and some of the loss were attributable to strategic restructuring, such as the sale of Deutscher Ring Bausparkasse. In operational terms, Germany is achieving profitable growth – particularly in the non-life business.
The volume of business in the life division decreased by 18.7 per cent to CHF 379.2 million. However, this was mainly because of the sale of the closed life insurance portfolio of Direktion für Deutschland to the Frankfurter Leben Group, which was completed on 3 February 2017. The portfolio comprised around 130,000 life insurance policies. Excluding this effect, the volume of business would have remained stable owing to reduced non-recurring income. By contrast, biometric products and business involving investment-type premiums performed well. These now account for around 90 per cent of new business.
Once again, the life business was the main driver of growth in Luxembourg. Investment-type premiums, which are predominantly sold from Luxembourg and Liechtenstein, increased by 25.2 per cent to CHF 1,761.6 million. Products are largely sold through banks and brokers, while the main market for products from Liechtenstein is Italy and they are mainly sold by inhouse salespeople through contacts in banks and asset management companies. Traditional life business contracted by 2.7 per cent. This was in line with the planning, as classic guarantee products with guarantees above zero are no longer offered in Luxembourg.
Premiums earned and policy fees (gross) 1 7,212.7 7,168.1 6,832.4 6,680.6 6,726.4
For the account and at risk of life insurance policyholders and third parties
Share of profit (loss) of associates 40.5 8.1 36.8 7.1 5.5
Claims and benefits paid (gross) – 5,439.7 – 5,666.4 – 5,352.4 – 5,664.2 – 5,726.5
Change in technical reserves (gross) – 1,359.4 – 1,469.5 – 1,241.9 – 669.1 – 535.0
Gains or losses on financial contracts – 368.9 – 462.6 – 0.9 – 342.9 – 613.4
Profit before borrowing costs and taxes 658.2 928.6 719.2 683.6 684.1 1 In line with the accounting principles applied by the Baloise Group, investment-type insurance premiums are not included in premiums earned and policy fees. 2 Including financial liabilities held for trading purposes (derivative financial instruments).
Profit before borrowing costs and taxes 658.2 928.6 719.2 683.6 684.1
Gross premiums written and policy fees 7,228.9 7,175.6 6,833.4 6,711.6 6,741.3
Financial instruments with characteristics of equity 11,344.4 13,451.2 13,770.8 14,305.6 15,874.9
Financial instruments with characteristics of liabilities 32,327.1 34,461.6 33,248.4 33,766.5 35,360.1
Liabilities arising from banking business and financial contracts 16,542.1 17,740.8 19,012.0 20,317.7 22,696.5
Change in other technical reserves – 31.4 – 2.4 – 52.2 – 405.3
Other financial expenses and income – 18.7 – 125.9 – 272.2 – 547.8
Profit for the period (segment result) 321.5 274.5 191.8 289.0 1 Including change in reserve for claims handling costs. 2 Including financial liabilities held for trading purposes (derivative financial instruments). 3 Of which deferred gains / losses from other operating segments (31 December 2016: CHF – 2.0 million; 31 December 2017: CHF 14.5 million).
Depreciation, amortisation and impairment of property, plant and equipment and of intangible assets – 9.4 – 7.8
Change in unrealised gains and losses recognised directly in equity 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties. 2 The sale of the closed life insurance portfolio of Direktion für Deutschland resulted in a negative change in unrealised gains and losses recognised directly in equity of CHF 105.4 million.
Policy loans and other loans 1.9 28.5 30.4 1.0 35.0 35.9
THE ENVIRONMENT ..................................................... 48 Environmental mission statement ..................................... 48 Protecting the environment over the long term .................. 49
COMMITMENT TO ART ................................................. 56 The Baloise Group’s commitment to art ............................. 56
TAKING RESPONSIBILITY Responsible and socially engaged corporate behaviour is not only a core part of the Baloise strategy but, ultimately, also a critical factor in the economic success of the locations in which companies operate – not least because it helps to build the necessary consensus between business and wider society. The concept of companies acting as good citizens is commonly known as corporate social responsibility (CSR). In a number of countries, including Switzerland, the concept is broadly accepted at a political level. The Swiss Federal Council, for example, makes the case for responsible companies being a vital factor in the success of the Swiss economy and sets out the government’s intention to help shape the framework for CSR: www.seco.admin.ch. In June 2017, it published a position paper and action plan on companies’ responsibility in respect of society and the environment.
▸ Sponsoring ▸ Know-how-transfer ▸ Awareness raising ▸ Lobbying for legislative adjustments
Prevetion work in Switzerland ▸ Youth and addiction ▸ Presentations at schools
It is also about Baloise getting involved in society through its corporate citizenship and sponsorship activities. Examples include the Baloise Session music festival and the Art Basel art fair, two cultural events that raise the profile of Basel around the world and enrich sociocultural life. The collaboration with the Emilie Leus Foundation in Belgium illustrates how employees are thinking beyond the traditional parameters of insurance. The foundation was established to combat drink driving across Belgium as part of a broad-ranging campaign. And for a number of years now, Baloise has been carrying out work in Switzerland to help prevent addiction among young people. Baloise employees visit schools several times a year to talk about this subject. www.fondsemilieleus.be www.cktgmbh.ch/themen/sucht/modul.php
RESPONSIBILITY TO THE ENVIRONMENT As a signatory to the declaration for the insurance industry issued by the United Nations Environment Programme, Baloise is committed to reducing its impact on the environment. The Company uses natural resources prudently and responsibly. This responsibility relates to its own energy requirements but also extends to its investments and products. CO2 emissions have been continually reduced over a number of years. The Company’s focus on energy efficiency, particularly in its IT infrastructure and buildings, plays a key part in this. Employees are encouraged to use public transport wherever possible and separate their waste for recycling. The three new buildings being erected at Baloise Park, the Company’s new headquarters in Basel, meet the standards for sustainable construction in Switzerland (SNBS) and sustainability specialists have been involved in their design from the outset. And because Baloise strives to learn from the best in everything that it does, it participates in the “environmental platform”, a business initiative of the Basel region. This platform facilitates the sharing of knowledge among businesses and supports climate protection and sustainable development through specific projects. Baloise is committed to environmental protection and is continually stepping up its efforts by launching new initiatives. Baloise reports on the progress it is making in its annual groupwide environmental audit.
Anchoring the culture of growth From raising awareness to establishing a sustainable process
The defining feature of 2016 for Baloise was the introduction of the new Simply Safe strategy, which is based on the conviction that hard-working employees will cultivate strong customer relationships that in turn will help the Company to achieve its financial targets. In 2017, all efforts were focused on implementing the “employee focus” part of the strategy. Through both top-down (management) and bottom-up initiatives (e. g. viral change), improvements were made to existing instruments in order to support the change and drive it forward. All HR measures are united by a single ambition: for Baloise to become a leading employer in its industry by 2021.
▸ 7,286 (2016: 7,270) employees (FTEs in 2017: 6,655). ▸ 43.5 per cent of all employees are women (2016: 43.9 per cent). ▸ The Baloise Group employs 245 (2016: 230) apprentices, trainees and interns.
Last year, to help the managers facilitate this change, a series of groupwide workshops were held for senior management focusing on topics such as leading by example, experimentation and digitalisation. A programme for experts in their field was also added to the established Baloise Campus management development programme. The focus here was on the challenge of leading without having formal authority to do so.
1. In the individual development dialogue, an employee and their manager will meet face to face to talk specifically about the employee’s skillset. The focus is on continuous learning and on helping employees to make the most of the freedom they are given in their work. In addition, the particular skills that are needed to achieve the envisioned growth are encouraged. The meetings are structured around a talent assessment questionnaire that covers the skills relevant to growth. A simplified version of this questionnaire was made available in digital form in 2017 in order to streamline the process and eliminate any remaining hurdles.
2. The aim of the managerial feedback session is to continually improve and expand the capabilities of our managers. All employees are given the opportunity to fill out a question on the twelve growth-relevant management competencies of the Baloise Leadership Compass. The results are then discussed with their line managers. In 2017, this process was carried out simultaneously across all countries and at all management levels for the first time.
The Baloise Code was developed on the basis of the Company’s core strategies and in line with Baloise’s behavioural values “Put yourself in the other’s shoes!”, “Act authentically and earn trust!” and “Develop and engage – yourself and others!” The eight behaviours are designed to accelerate the change in culture, which is essential if the strategic objectives are to be achieved.
The areas with potential for improvement identified by the employee survey mainly related to the familiar topics of achieving career goals, addressing behaviour that is out of step with our values, and having sufficient resources to be able to work effectively. The results of the survey were analysed at divisional level and the managers worked with their teams to come up with specific measures for improvement.
ENCOURAGING INTERACTION. ACHIEVING MORE. OPTIMISATION OF THE PERFORMANCE AND TALENT DEVELOPMENT PROCESS Development is a continuous process, not an annual event. Things are changing all the time – including the environment in which Baloise’s employees work. Which is why, going forward, Baloise will be putting even more emphasis on developing its staff. In 2017, the performance and talent development process was revised and simplified in order to achieve this. The following two components are at the heart of the process: ▸ Regular one-to-one meetings between managers and employees ensure continuous learning and provide clarity about common objectives. They are the central element in an ongoing dialogue focused on performance and development targets.
Baloise is now also offering employees the chance to look beyond their own horizon for a set period of time. The “temporary job change” and “shadow for a day” initiatives, both of which were suggested by a “spark”, give employees insights into different departments and divisions – with their secondments lasting for several months or one day.
BALOISE IN THE LABOUR MARKET. AUTHENTIC. RELEVANT. PERSONAL. The Baloise Group wants to become an employer of choice in its industry. The way it presents itself on the labour market has a direct impact on whether it will achieve this goal – all the more so because competition for the best brains will only get tougher because of demographic change. It is becoming particularly difficult to recruit IT workers, insurance specialists and apprentices for commercial vocations, for example.
In 2017, new application processes were tested that featured components designed to engage the emotions and create an even more personal experience. These promising tests will be expanded to cover a broader section of the population this year.
SHARED GOALS. LOCAL CONFIGURATIONS. The activities of the country-specific HR units are aligned with the wider objectives of the group but are also dictated by regional circumstances and the local legal system.
▸ 10 graduate fairs ▸ 15 workshops ▸ 5 WhatsApp taster days ▸ 95 blog articles ▸ 10 podcasts ▸ 17 application tip videos ▸ 171 Facebook posts ▸ 185 LinkedIn posts ▸ 155 Xing posts
Candidate experience – personal and authentic As well as engaging their minds, the test targeted candidates’ hearts. A number of components were tested that would make the application process a more personal experience. These included targeting people directly, using videos to convey an authentic image of the team, responding quickly and meeting in neutral surroundings.
In Germany too, the focus was very much on driving forward the change in culture. Employees and managers were actively integrated into the change process through a series of initiatives. In “future workshops”, employees are identifying key topics for the areas in which they work. New internal communication formats such as blog posts are providing transparency about the change in culture. The “change of perspective” formats, meanwhile, are giving employees the opportunity to see for themselves the type of work that people do in different and related parts of the company and the challenges that they face. Furthermore, it was possible to make improvements in areas that were assessed critically in the employee survey by working on them at different levels. A new occupational pension scheme was also successfully introduced in 2017.
Remuneration is determined by the following criteria: ▸ Competitiveness in the marketplace ▸ Individual performance and the Company’s success ▸ Fairness and transparency ▸ Sustainability
To help secure long-term success, part of employees’ remuneration is paid in the form of restricted shares, with the senior management team receiving a comparatively high proportion of their pay in the form of shares. This form of remuneration strengthens loyalty to Baloise and gives employees the opportunity to share in the Company’s success.
The packages also feature attractive fringe benefits that are awarded regardless of function and seniority.
In 1995, Baloise became one of the first insurers to sign the insurance industry declaration on sustainable development formulated by the United Nations Environment Programme (UNEP). It drew up its own environmental guidelines in 1999 in order to give concrete form to this general commitment. From the outset, it was deemed important to embed sustainability throughout the Company and in all day-to-day business activities.
CONTINUOUS REDUCTION OF CO2 EMISSIONS SINCE 2000 Ever since the Kyoto conference in Japan put the issue of climate change firmly in the public spotlight in 1997, Baloise has been publishing key figures on energy and resource consumption, documenting sustainability measures in its annual report, and calculating its absolute and relative CO2 emissions in accordance with the directives issued by the Association for Environmental Management and Sustainability in Financial Institutions (VfU). The successor to the Kyoto Protocol, the Paris Agreement in 2015, has spurred us on in our ambition, and future measures will be based on the Paris objectives. Both absolute and relative CO2 emissions have been reduced massively at Baloise since the year 2000. Over a 16-year period, Baloise has cut absolute CO2 emissions from 53,580 tonnes to 14,257 tonnes. This is equivalent to a 73.4 per cent reduction in CO2 emissions, while emissions per employee fell by 32.5 per cent over the same period, from four tonnes to 2.7 tonnes. Our objective is to reduce this further still. In 2017, the figure increased by 9 per cent due to new measuring methods, as any personal mileage driven in the 165 leasing vehicles of our German employees is now included in the calculations. In light of our overall efforts, this slight increase in 2017 does not change Baloise’s general target. For example, the changes made in the staff canteen alone led to a 5 per cent reduction in C0₂ emissions per main meal in 2017. This was achieved by reducing the amount of meat consumed, in particular. The staff canteen at our HQ in Basel also avoids goods transported by air, where possible, and mainly uses seasonal vegetables.
Paper types 5.0 % recycled 73.0 % chlorine-free-bleached 22.0 % chlorine-bleached
Copy paper consumption 68.7 million A4 sheets 76.0 million A4 sheets 72.4 million A4 sheets 14,062 A4 sheets / employee – 4.6
Amount of refuse 961 t 811 t 1009 t 196 kg / employee 24.4
Business travel 19.1 million km 18.4 million km 22.5 million km 4,361 km / employee 21.8
Mode of transport 23.0 % km by air 52.7 % km by road 24.3 % km by public transport 1 The increase in the amount of refuse is mainly due to the destruction of an archive and the disposal of old IT hardware in Germany.
These reductions were primarily achieved through the systematic use of new technologies, through improvements in the energy efficiency of Company premises and through state-of-the-art office concepts. The Baloise Park project (www.baloisepark.ch) at our HQ in Basel is being constructed in strict accordance with SNBS guidelines (Standard for Sustainable Construction in Switzerland). We also continually assess the energy efficiency of our buildings, and when implementing measures, we aim to be pragmatic and achieve the broadest possible benefits. In 2017, the partial renovation of a roof area was used to build a 300 square meter roof terrace. In the future, even more energy will be saved and added value was created for the employees.
ONCE AROUND THE WORLD WITH SOLAR POWER Since 2015, Baloise customers and employees have been able to charge their electric vehicles at Baloise’s company headquarters using solar power. The facility, which does not cost anything to use, has proved very popular. In 2016, enough solar-generated electricity was drawn from the “pumps” to power a total of around 45,000 kilometres – equivalent to one emission-free trip around the globe. Since 2016, customers and employees have also been able to charge their electric vehicles for free at the Zurich site. Among their number are the Company’s loss assessors, who use eco-friendly electric bikes to get to local incidents. We have maintained this service at a consistent level since introducing it.
Risk management at Baloise is a standardised strategic and operational system that is applied throughout the Group and covers the following areas: ▸ Risk map: this forms the backbone of Baloise’s risk strategy and defines the fundamental risk issues, such as actuarial and market risk as well as the operational risk arising from business activities.
▸ Risk governance and risk culture: this involves encouraging risk awareness – how people perceive and respond to risk – and establishing this mindset throughout the organisation.
▸ Risk processes: the organisation of risk and its pertinent standards are key aspects of risk management and operate in tandem with reporting, management and evaluation processes.
▸ Strategic risk management: its purpose is to optimise the risks taken by the Baloise Group while maximising earnings potential.
Actuarial Risks Non-Life ▸ Premiums ▸ Claims ▸ Catastrophe Risks ▸ Reserving
Reinsurance ▸ Premiums / Pricing ▸ Reinsurance Default ▸ Active Reinsurance
IT Risks ▸ IT Governance ▸ IT Architecture ▸ IT Operations ▸ Cyber Security
The risk map is firmly embedded in the organisational structure and responsibilities of the entire Baloise Group. Each risk is assigned to a risk owner (with overall responsibility) and to a separate risk controller (responsible for risk management and control).
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.
The Group Risk Committee and the local risk committees in each business unit – which comprise members of the Corporate Executive Committee and of the local senior management teams respectively – decide how the risk strategy is developed and designed and how the pertinent policies are implemented in day-to-day business. Bodies specially set up to examine specific risk areas such as asset / liability management, compliance, IT risk and the use of reserves also compile submissions for the committees to facilitate their decision-making on these issues. The Group Risk Management team works closely with the local risk experts. This inclusive risk organisation approach provides Baloise with a platform for sharing and constantly refining best practice.
Overall responsibility lies with the Baloise Group’s Chief Financial Officer, followed by its Chief Risk Officer.
RISK MEASUREMENT The Baloise risk model standardises the process of quantifying business risks and financial market risks across all strategic business units. It is consistent with the principles and calculation methods applied by the Swiss Solvency Test and with the European Union’s Solvency II directives. As a groundbreaking risk management tool, it provides a firm foundation on which management can make strategic and operational decisions.
The economic risk capital derived from Baloise’s models is currently the most advanced market standard. To this end, risk measurement metrics alone are used to calculate a target capital figure (required capital) – irrespective of any financial accounting treatment – to ensure that the Company remains solvent even in adverse circumstances and can meet its obligations to policyholders at all times. This target capital figure is constantly compared with the capital currently available (the risk-bearing capital).
In addition to this holistic risk model, Baloise uses the risk map to identify, describe and evaluate specific risks in terms of their likely impact on its operating profit or loss. Baloise’s corporate database of specific risks – which contains a detailed description of the risks concerned, their classification on the risk map, and early-warning indicators – is generated from this standardised process. Baloise uses quantitative methods to supplement this description by measuring these risks’ probable financial impact on the Company’s balance sheet. Each risk is documented together with the measures needed to mitigate it. The database is updated every twelve months.
The Baloise Group uses a system of limits in order to mitigate its risks holistically at an aggregate level. This system tracks
▸ Appropriate reporting procedures are used to monitor market risk and financial-structure risk across all business units. In addition to upper limits on equity exposures, for example, there are clear and binding guidelines on bond ratings. The applicable “Basel” approach and advanced statistical methods are used to assess credit risk. In addition, risk analysis is used to regularly monitor the overall solvency position.
The Own Risk and Solvency Assessment (ORSA), an annual risk report, is discussed with the decision-makers so that suitable measures can be developed. The results of the ORSA are also reported to the regulatory authority. In addition, risk managers’ assessment of the risk situation is factored into the remuneration paid to executives. The three criteria used to determine the performance pool payments awarded to individual managers are personal performance, leadership and conduct.
Underwriting approaches that have been tried and tested for many years were maintained in 2017: ▸ The Baloise Group’s investment strategy continues to focus on diversification and on the basic principle of only investing in assets that the Company can itself fully and accurately evaluate through risk management.
▸ The high quality of recurrent investment income generated by Baloise’s stable real-estate portfolio proved to be a valuable source of revenue.
▸ Much of Baloise’s focus is directed at managing its interest- rate risk. Wherever possible, payment obligations to customers for future years are reconciled with the income earned from investments. Baloise’s real-estate portfolio has proved very helpful in this respect. Baloise also invests in safe long-term bonds denominated in either Swiss francs or euros and supplements this strategy by using derivative financial instruments such as swaptions.
Risk management at Baloise will continue to evolve over the coming years, reaffirming its standing as a company with an outstanding risk strategy and risk positioning.
Further information on risk management can be found in the 2017 Financial Report (section 5. Management of insurance risk and financial risk, pages 146 to 189).
TAKING RESPONSIBILITY – AN IMPORTANT ASPECT OF CORPORATE CULTURE Baloise Group has a long-standing tradition of promoting talent. For many years, its management trainee programme has given graduates from a wide range of degree courses access to careers with substance. The same idea of sponsorship is also paramount in the company’s commitment to art.
This has been established over a long period of collecting art. Corporate collecting is an important aspect of our culture at Baloise. Its primary objective is not to achieve monetary gain, but to integrate spiritual and creative values into our corporate culture. The foundations for this engagement were laid at a time when it was by no means typical for companies to collect art. Baloise believes that the privilege of owning art comes with an obligation to make it accessible to the wider public. Its commitment to sponsoring modern art – through acquisitions for its own collection and in the form of the Baloise Art Prize – also represents part of this approach. It is Baloise’s way of supporting the development of young and emerging artistic talent.
BALOISE ART PRIZE For almost 20 years, the Baloise Group has been awarding the annual Baloise Art Prize at Art Basel, an international art fair. The challenging task of selecting 20 pieces for the Statements sector from a flood of applications, which are then presented to a global audience at the fair, falls to the Art Basel committee. On behalf of Baloise, a panel of judges consisting of international experts then selects two winners from this shortlist of 20, who each receive CHF 30,000 in prize money. After the announcement at the Art Basel media conference, both the winners and the galleries receive considerable attention at this globally significant event.
Sam Pulitzer’s prize was awarded for his precise, masterful, multi-layered presentation of a group of his drawings. His work addresses the question of the function and significance of the numerous images, logos and labels which are appearing on a daily basis, and which organise or distort our communication and interpersonal relationships.
ART AT THE BALOISE PARK COMPLEX Many of the past winners of the Baloise Art Prize are now among the stars of the international art scene; including Karsten Födinger, who received it in 2012. His work visualises forces in the most basic sense: statics and movement, the diagonal and the horizontal, mass and emptiness. Getting an artist whose work resides somewhere between architecture and sculpture to design a “cornerstone” for Baloise Park seemed an obvious choice. For his contribution, Karsten Födinger got directly involved early on in the construction process of the high-rise building. His “cornerstone” was not going to be a hidden object, but would rather constitute an integral element of the architecture. Like a classic Atlas sculpture, the structure of the building will rest directly atop the copper column. Copper, normally used for water pipes and electric cabling, introduces a utility supply element, and allows the column to be interpreted as a kind of trunk rooting the building in the ground.
The column is also a time capsule, but rather than filling it with objects, the guests at the building’s cornerstone ceremony in June 2017 worked together to “decorate” it by each signing it with a personal dedication. The cornerstone column will remain exposed and on display as a contemporary artefact in the basement of the building. The artist has also reinterpreted the
This acquisition policy also allows the art commission to include the winners of the Baloise Art Prize in the collection, and thus to help shape the way in which it promotes art.
The website www.baloise.com/art presents the themed exhibitions at the Baloise Art Forum, giving some initial insights into the collection. In this digital age, Baloise is not going to limit itself to putting on exhibitions, but rather aims to make its collection available to an even broader audience. An online platform that is currently being developed will soon give access to the entire collection. www.baloise.com/art www.baloiseartprize.com
4 Baloise 16 Review of operating performance 36 Sustainable Business Management 58 Corporate Governance 110 Financial Report 268 Bâloise Holding Ltd 286 General information
Operating in line with the requirements of 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 requirements under the Swiss Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO).
This chapter reflects the structure of the SIX Corporate Governance Guidelines as amended on 13 December 2016 in order to enhance transparency and, consequently, improve comparability with previous years and other companies. It includes the requirements of economiesuisse’s Swiss Code of Best Practice for Corporate Governance and, in particular, Appendix 1 to the latter, which contains recommendations on the remuneration paid to the Board of Directors and the Executive Committee. In item 5 of its Corporate Governance Report, Baloise publishes the principles of its remuneration system. The Remuneration Report is replicated in the appendix to the Corporate Governance Report from page 80 onwards.
1. STRUCTURE OF THE BALOISE GROUP AND SHAREHOLDER BASE Structure of the Baloise Group Headquartered in Basel, Switzerland, Bâloise Holding is a public limited company that is incorporated under Swiss law and listed on the Swiss Exchange (SIX). The Baloise Group had a market capitalisation of CHF 7,403 million as at 31 December 2017.
▸ Information on Baloise shares can be found from page 8 onwards.
▸ The Baloise Group’s operational management structure is presented on page 74 onwards.
Shareholder base As a public company with a broad shareholder base, Bâloise Holding is a member of the SMI Mid (SMIM) Index and the Swiss Leader Index (SLI).
The reports that were submitted to the issuer and to SIX Swiss Exchange AG’s disclosure office during the reporting year in compliance with article 120 of the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FinfraG) and were published on the latter’s electronic reporting and publication platform in compliance with article 124 FinfraG can be viewed using the search function at www.six-exchange-regulation.com/en/home/publications/ significant-shareholders.html.
Treasury shares Bâloise held 728,645 treasury shares (1.49 per cent of the issued share capital) as at 31 December 2017.
Cross-shareholdings There are no cross-shareholdings based on either capital ownership or voting rights.
Bâloise Holding’s equity The table below shows the changes in equity during the last three reporting years.
Equity attributable to Bâloise Holding 1 Restated in accordance with the new financial reporting legislation.
The average age on the Board of Directors is currently 59.
The Board of Directors of Bâloise Holding has decided to propose Prof. Dr Hans-Jörg Schmidt-Trenz for election at the Annual General Meeting on 27 April 2018. Prof. Dr Hans-Jörg Schmidt-Trenz (58, from Germany) is a professor of economics at the University of Hamburg and Saarland University in Germany. He is President of the HSBA Hamburg School of Business Administration and was Chief Executive Officer of the Hamburg Chamber of Commerce from 1996 to 2017. He will be an independent non-executive director.
Statutory rules concerning the number of permitted activities The 2015 Annual General Meeting approved the addition of a new provision to the Articles of Association (article 33) concerning the maximum number of directorships held outside the Company. Subsection 1 stipulates the principle that the number of external directorships held by members of the Board of Directors or Corporate Executive Committee must be compatible with the commitment, availability, capabilities and independence required of them in order to perform their duties as members of the Board of Directors or Corporate Executive Committee. Subsections 2 and 3 then specify numerical restrictions.
BOARD ATTENDANCE IN 2017: MEETINGS OF THE FULL BOARD OF DIRECTORS
Dr Andreas Burckhardt, Chairman x x x x x x x
Dr Thomas von Planta n. a. n. a. n. a. x x x x
Prof. Dr Marie-Noëlle Venturi - Zen-Ruffinen x x x x x x x x = present, 0 = absent, n. a. = not applicable.
Functions and responsibilities of the committees The Chairman’s Committee provides advice on key transactions, especially those involving important strategic or personnel- related decisions. The Chairman’s Committee also performs the function of a Nominations Committee and prepares personnel- related matters that fall within the remit of the Board of Directors. The Chairman’s Committee regularly discusses succession planning for the Board of Directors. It focuses on the skills, experience and specialisations of the members of the Board of Directors and the requirements of the insurance group. Potential candidates are internally identified or advisers are brought in to find them. They are then proposed to the Board of Directors for nomination.
The Audit and Risk Committee supports the Board of Directors in its non-delegable overarching supervisory and financial oversight functions (article 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 2017, which included one two-day strategy meeting. The Investment Committee met on three occasions. The Audit and Risk Committee held four meetings, and the Remuneration Committee convened three times.
Self-evaluation Every two years, a comprehensive self-evaluation is carried out in the full Board of Directors, in the Investment Committee and in the Audit and Risk Committee. The results are then discussed in each body.
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.
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 to 2004 and from 2005 to 2017 he served as Chairman of the Board of Directors at Gebrüder Meier AG, Regensdorf. Werner Kummer is a freelance management consultant with clients in Switzerland and abroad and sits on the supervisory bodies of unlisted companies. He is an independent non-executive director.
Thomas von Planta (1961, Switzerland, Dr iur., lawyer) has been a member of the Board of Directors since 2017. He is the founder and managing director of CorFinAd AG, a company specialising in consultancy for M&A transactions and capital market finance. He has sat on the Board of Directors of Bellevue Group AG since 2007 as well as Bank am Bellevue AG and Bellevue Asset Management AG since 2012, and has been Chairman of the Board of Directors of all three companies since March 2015. Before that, he had worked for Goldman Sachs in Zurich, Frankfurt and London for around ten years and had been the interim Head of Investment Banking and Head of Corporate Finance for the Vontobel Group in Zurich between 2002 and 2006. Dr Thomas von Planta is an independent non-executive director.
Thomas Pleines (1955, Germany, lawyer) has been a member of the Board of Directors since 2012. From 2003 to 2005 he was CEO and delegate of the Board of Directors at Allianz Suisse, Zurich, and from 2006 to 2010 he was CEO of Allianz Versicherungs-AG, Munich, and an executive director at Allianz Deutschland AG, Munich. Since 2011 he has chaired the presidential boards of DEKRA e. V., Stuttgart, and DEKRA e. V. Dresden as well as the supervisory boards of DEKRA SE, Stuttgart, and SÜDVERS Holding GmbH & Co. KG, Au near Freiburg. Thomas Pleines is an independent non-executive director.
Marie-Noëlle Venturi - Zen-Ruffinen (1975, Switzerland, Prof. Dr iur., lawyer) has been a member of the Board of Directors since 2016. She holds a PhD and master’s degree in law and a master’s degree in philosophy from the University of Fribourg. She is a lawyer and honorary professor at the School of Economics and Management at the University of Geneva, where she mainly lectures on corporate law. Professor Marie-Noëlle Venturi - Zen-Ruffinen was a partner in the Geneva law firm Tavernier Tschanz until 2012, and since that time has been of counsel for the firm. She is president of the Swiss Board Institute foundation and sits on the Board of Management of the Swiss Institute of Directors. Professor Marie-Noëlle Venturi - Zen-Ruffinen is an independent non-executive director.
Matthias Henny (1971, Switzerland, Dr phil.) completed his undergraduate and postgraduate studies in physics at the University of Basel. From 1998 to 2003, he was employed at McKinsey & Co., before switching to what was then the Winterthur Group, where he was Head of Financial Engineering in Asset Management until 2007. Subsequently, he was a member of the management team at AXA Winterthur, first as CIO (until 2010), then as CFO. In 2012 Dr Matthias Henny joined the Baloise Group. As CEO of Baloise Asset Management AG he was responsible for the administration of approximately CHF 50 billion in assets. Dr Matthias Henny became a member of the Corporate Executive Committee on 1 May 2017. He manages the Corporate Division Asset Management with its units Investment Strategy and Investment Controlling, Sales and Marketing, Portfolio Management, Operations, Real Estate, Corporate Development and Compliance.
Michael Müller (1971, Switzerland, lic. oec. publ.) graduated in economics from the University of Zurich, specialising in insurance and accounting / finance. He began his career with Basler Versiche rungen in 1997, starting as a management trainee, then working in Group Finance and eventually becoming Deputy Head and, in 2004, Head of Financial Accounting for the Baloise Group. In 2009, as Head of Finance and Risk, he became a member of the senior management team in Corporate Division Switzerland, focusing on financial reporting and accounting, actuarial management of the insurance companies, risk management and coordination of logistics processes and the pool of project leaders. He has been a member of the Corporate Executive Committee and CEO of Corporate Division Switzerland since March 2011. Michael Müller is a member of the Board of Foundation of Stiftung Finanzplatz Basel, Vice President of the Swiss Insurance Association (SVV) and a member of the Executive Board of the Association of Basel Insurance Companies.
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 lec tured 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 Dr Thomas Sieber has been a member of the Corporate Executive Committee and, as Head of the Corporate Centre, is responsible for Group Human Re sources, Group Strategy and Digital Transformation, Legal and Tax, Group Compliance, Group Procurement and Run-off Business. He also sits on the Board of Directors at Euro Airport Basel-Mulhouse-Freiburg.
Carsten Stolz (1968, Germany / Switzerland, Ph.D.) studied business economics at Fribourg University where he also gained a doctorate specialising in financial management. After that he spent four years as an advisor for the Financial Services practice unit at PricewaterhouseCoopers in Zurich and Geneva, before joining the Baloise Group as Head of Financial Relations. From 2009 to 2011, Dr Carsten Stolz was the Baloise Group’s Head of Financial Accounting & Corporate Finance. Between 2011 and 2017 he was Head of Finance and Risk, and thus a member of the Executive Committee, at Baloise Insurance, Switzerland. Dr Carsten Stolz became a member of the Corporate Executive Committee on 1 May 2017. He manages the Corporate Division Finance with its departments Group Accounting & Controlling, Financial Planning & Analysis, Corporate Communications & Investor Relations, Group Risk Management and Corporate IT as well as the actuary responsible for Swiss business at Baloise and the Head of Regulatory Affairs.
Corporate Governance Report 5. REMUNERATION, SHAREHOLDINGS AND LOANS The remuneration report in Appendix 1 to the Corporate Governance Report (page 80 onwards) describes the remuneration policies adopted and the remuneration systems in place and it contains in particular the remuneration paid and the loans granted to members of the Board of Directors and the Corporate Executive Committee 2017 as well as the investments they hold. The content and scope of these disclosures are determined by articles 13 to 17 of the Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO), article 663c (3) of the Swiss Code of Obligations (OR), the corporate governance information guidelines published by the SIX Swiss Exchange and the Swiss Code of Best Practice for Corporate Governance.
6. SHAREHOLDER PARTICIPATION RIGHTS Voting rights The share capital of Bâloise Holding consists solely of registered shares. Each share confers the right to one vote. No shares carry preferential voting rights. To ensure a broad-based shareholder structure and to protect minority shareholders, no shareholder is registered as holding more than 2 per cent of voting rights, regardless of the size of their shareholding. The Board of Directors can approve exceptions to this provision if a majority of two-thirds of all its members is in favour (article 5 of the Articles of Association). There are currently no exceptions. Each shareholder can appoint a proxy in writing in order to authorise another shareholder or an independent proxy to exercise his or her voting rights. When exercising voting rights, no shareholder can accumulate more than one fifth of the voting shares at the Annual General Meeting directly or indirectly for his or her own votes or proxy votes (article 16 of the Articles of Association).
Statutory quorums The Annual General Meeting is quorate regardless of the number of shareholders present or proxy votes represented, subject to the mandatory cases stated by law (article 17 of the Articles of Association).
Requesting agenda items Article 699 (3) OR states that one or more shareholders who together represent shares of at least CHF 100,000 can request items to be put on the agenda for debate. Such requests must be submitted in writing to the Board of Directors at least six weeks before the ordinary Annual General Meeting is held, giving details of the motions to be put to the AGM (article 14 of the Articles of Association).
Audit fees paid to EY include fees for engagements with a direct or indirect connection to a particular audit engagement and fees for audit-related activities (namely, the MCEV Review, ISAE 3401 reports and statutory and regulatory special audits).
In 2017, CHF 213,527 of the additional fees for consultancy services were attributable to tax consultancy and legal advice and CHF 306,403 to operational advice. The services were rendered in accordance with the relevant provisions on independence set forth in the Swiss Code of Obligations, the Swiss Audit Supervision Act and FINMA-Circular 2013 / 3 on “auditing” (as at 18 November 2016) published by the Swiss Financial Market Supervisory Authority (FINMA).
The performance of the external auditors and their interaction with Group Internal Audit, Risk Management and Compliance are assessed by the Audit and Risk Committee. The Audit and Risk Committee’s discussions with the external auditors focus on the audit work the latter have undertaken, their reports and the material findings and most important issues raised during the audit.
The Audit and Risk Committee submits proposals to the Board of Directors regarding the external auditors to be elected by the Annual General Meeting and makes recommendations regarding their fees. Before the start of the annual audit, it reviews the scope of the audit and suggests areas that require special attention. The Audit and Risk Committee reviews the external auditors’ fees on an annual basis.
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.
▸ Shareholders are informed about business during the year at the Annual General Meeting.
▸ Ongoing relationships are maintained with analysts, investors and the media. Full details of individual Baloise events can be accessed at www.baloise.com.
Financial calendar Important dates for investors are available at www.baloise.com. This is where the publication dates for the annual and half-year reports and the Q3 interim statement are listed and where the date of the Annual General Meeting, the AGM invitation, the closing date for the share register and any ex-dividend dates are published. www.baloise.com/calendar
Investor Relations Baloise Group Marc Kaiser Aeschengraben 21 4002 Basel, Switzerland marc.kaiser@baloise.com
Long-term variable remuneration ▸ Supports the Company’s long-term development ▸ Gives the top level of management a greater stake in the performance of the Company
1 Due to the changes to the Corporate Executive Committee, the sum paid exceeded the total amount originally requested, which is covered by the additional amount pursuant to article 30 of the Articles of Association of Bâloise Holding Ltd.
2 The performance pool (PP) is the component of short-term variable remuneration that depends on the Company’s performance: the Remuneration Committee of the Board of Directors assesses the Company’s performance and success during the past financial year. The performance pool factor is the ratio of the pool to its target value.
LONG-TERM VARIABLE REMUNERATION Performance share units (PSUs) Long-term variable remuneration for members of the Corporate Executive Committee
Overview of ended and current plans (as at 31 December 2017)
Dividend payments Change in share value (measured as at 31 Dec 2017)
Martin Wenk 3 2016 CHF 1.682 million 2017 CHF 0.997 million
Remuneration Report 2. 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 offered by Baloise is in line with the going market rate and performance-related in order to attract and retain individuals with the necessary skills and character attributes; ▸ the remuneration paid is demonstrably dependent on the Company’s sustained success and individuals’ personal contributions and does not create any perverse incentives; ▸ the structure and amount of overall remuneration paid are consistent with Baloise’s risk policies and encourage risk awareness.
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. Thomas Pleines (Chairman), Karin Keller-Sutter (Deputy Chairwoman), Dr med Georges-Antoine de Boccard and Prof. Dr Marie-Noëlle Venturi - Zen-Ruffinen were elected to the Remuneration Committee by the Annual General Meeting on 28 April 2017. The Remuneration Committee maintains a regular 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 Chairman of the Remuneration Committee reports to the Board of Directors at its next meeting on the committee’s activities.
Remuneration Guideline and Remuneration Policy Responding to a request from the Remuneration Committee, in 2010 the Board of Directors formally adopted a Remuneration Guideline that formulates the remuneration principles and parameters applied across the Baloise Group. This Remuneration Guideline applies to all employees throughout the Baloise Group. It reflects the Company’s values and principles and can be summarised as follows:
▸ Competitiveness in the marketplace: Baloise aims to pay basic salaries that are in line with the market – i. e. around the market median – and to offer variable remuneration packages in excess of the going market rate to reward outstanding performance by the Company and individuals; ▸ Remuneration that reflects the performance of the company as a whole and individual performance; ▸ Fairness and transparency: external market-based comparisons, fair pay and no discrimination; ▸ Sustainability: high correlation between the interests of managers and shareholders, long-term commitment and a high proportion of restricted shares.
4. 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 performance -driven organisation, Baloise clearly and transparently aligns individual employees’ targets with the Company’s targets, which are derived from its strategic priorities. The individual contributions to the achievement of targets correlate with the amount of the individually specified variable remuneration. The total remuneration package – which comprises basic salary and variable remuneration – offers a sophisticated way of linking individuals’ performance to Baloise’s success and recognising both accordingly, and it is designed to reward employees for outstanding achievement without creating an incentive for them to take inappropriate risks. Personal performance provides our talented individuals with the necessary platform for their development, advancement, career planning and promotion. Baloise attaches considerable importance to retaining high performers and managing its business sustainably. In addition to paying its staff in line with market rates and according to individual achievement, the Company encourages its executives to focus on the longer term and on its shareholders’ interests. Consequently, it pays a substantial proportion of variable remuneration in the form of shares that are restricted for three years. Furthermore, the three most senior management levels receive performance share units, which means that a further component of their salaries is paid out as prospective entitlements; these PSUs must be held for three years before being converted into shares as a form of deferred remuneration. As managers’ strategic responsibility and influence grow, the amount of their variable remuneration is largely determined by the Company’s profitability and economic value added (allowing for the level of risk taken). Short-term variable remuneration as a percentage of total compensation as well as the proportion of remuneration paid in the form of restricted shares (i. e. as deferred compensation) increase accordingly.
Deferred variable remuneration Cash portion of short-term variable remuneration Basic salary
The members of the Corporate Executive Committee are not entitled to performance-related remuneration. Their individual performance is factored into the allocation of payments from the performance pool.
The first peer group replicates Baloise’s core market and comprises direct insurers in the respective country. This peer group is used for conventional insurance and sales functions and for the local CEOs, executive directors and senior management functions. The second peer group supplements the core market group by including further companies from the banking and financial services sector in the respective country. This group is designed to compare functions that demand considerable financial expertise but do not necessarily require an insurance background. The third peer group consists of companies of a similar size and structure from various sectors and is used for interdisciplinary functions.
Basic salary The basic salary constitutes the level of remuneration that is commensurate with the functions and responsibilities of the position concerned as well as the employee skills and expertise required in order to achieve the relevant business targets and objectives. When determining the level of its basic salaries, Baloise aims to position itself around the market median, although the way in which this is done will vary depending on local operating and market requirements. This remuneration is paid by bank transfer. In order to ensure fairness and compliance with its code of conduct when determining the level of basic salaries, Baloise applies the internal fair-pay principle that people who do the same job and have the same qualifications should be paid the same amount. The Company’s clearly defined and market-based salary structures (e. g. grade-based salary bands) help ensure fair pay both inside and outside the organisation.
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 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 83). 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 Share Participation Plan (see “7. Share Subscription Plan and Share Participation Plan”).
The section below describes performance-related remuneration and the performance pool, which are available as short-term variable remuneration components.
▸ Risks taken The indicators used to gauge the success of the Company’s business from a risk perspective are the Solvency I ratio, the Swiss Solvency Test (SST) ratio, economic profit, the credit rating awarded by Standard & Poor’s, and assessments provided by the Chief Risk Officer and the Head of Group Compliance.
▸ Capital-markets perspective compared with competitors The main metric used to evaluate this criterion is the performance of Baloise’s share price including dividends paid compared with the 33 European insurance companies represented in the STOXX Europe 600 Insurance Index (the composition of this index is shown in the table on page 89).
Appraisal The implementation of the new “Simply Safe” strategy has begun successfully. The acquisition of MovU in Switzerland and the launch of FRI:DAY in Germany are examples of the Baloise Group’s ambitious and innovative plans. The launch of younGo products in Switzerland and the measures taken in Luxembourg and Belgium resulted in a slight overall increase in customers, within the range of expectations for 2017. In Switzerland, the negative trend in customer growth was halted. The excellent earnings in Switzerland and the growing contributions from Belgium and Luxembourg meant the Company also met its targets for cash upstream. Baloise measures its attractiveness as an employer with regular staff surveys, in particular asking staff whether they would recommend Baloise as a good employer (Employee Engagement Survey carried out every two years and supplemented with quarterly Pulse Checks). In the latest survey, 85 per cent of employees said they would recommend Baloise as an employer – an excellent figure that is around 15 percentage points higher than the standard among European financial services providers.
Appraisal Despite challenging conditions in the markets (low interest rates) and in connection with regulatory requirements, risks were managed carefully according to internal experts. The sound SST ratio and the positive S&P rating confirm Baloise’s healthy risk position. Thanks partly to a prudent compliance function, there were no serious breaches of laws or internal regulations. From a risk management perspective, risks were lower than in recent years.
At the beginning of each vesting period the participating employees are granted rights in the form of PSUs, which entitle them to receive a certain number of shares free of charge after the vesting period has elapsed. The Remuneration Committee specifies the grant date and applies its own discretion in deciding which of the most senior management team members are eligible to participate. 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 participating employees on the basis of the relevant line manager’s proposal, which must be approved by the line manager’s manager.
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 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 above the upper quartile of companies in the peer group. The
Measurement of the PSUs at their issue date is based on a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period. This measurement incorporates the following parameters: ▸ interest rate of 1 per cent; ▸ the volatilities of all shares in the peer group and their correlations with each other (measured over a three-year track record); ▸ the expected dividend yields.
Date Price (CHF)1 Date Multiplier Price (CHF)1 Value (CHF)2 3 1 Price = price of Baloise shares at the PSU grant date or conversion date. 2 Value = value of one PSU at the conversion date (share price at the conversion date times the multiplier). 3 Change in value = difference between the value at the conversion date (multiplier times the share price at the conversion date) and the share price at the grant date, expressed as a percentage of the share price at the grant date; example of the PSU plan in 2007: ([{1.182  86.05} – 125.80] / 125.80) 100 = – 19 %. 4 Interim measurement as at 31 December 2017.
Adjustments to the calculation of the performance multiplier from 1 March 2018 The Baloise Board of Directors has decided to amend the performance multiplier used to determine the number of shares per prospective entitlement with effect from 2018. The total shareholder return (TSR) will now be used instead of the share price to compare the performance of Baloise against that of the peer group (STOXX Europe 600 Insurance). The current lower limit of 0.5 will also be removed, so that if the Baloise TSR is below the bottom quartile of the peer group, the performance multiplier will be 0 and consequently no prospective entitlements will be converted into shares. This change is partly offset by the increase in the maximum possible performance multiplier to 2.0 in the event that the Baloise TSR grows more strongly over the vesting period than the TSRs of all the peer companies. The performance multiplier now increases on a linear basis from the bottom quartile from 0.5 to 2.0. This change anchors the performance-related pay principle even more firmly within the long-term variable remuneration structure.
7. SHARE SUBSCRIPTION PLAN AND SHARE PARTICIPATION 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 Share Participation Plan.
Share Subscription Plan Since January 2003, those who qualify as eligible persons at Baloise Group companies in Switzerland – and, since 2008, the members of the Executive Committees at companies outside Switzerland as well – have been able to subscribe for shares at a preferential price as part of their short-term variable remuneration. The subscription date is 1 March of each year; although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold for the duration of a three-year closed period.
The parameters used to determine the subscription price are decided each year by the Remuneration Committee. The subscription price is based on the closing price before 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 2016 and to the shares subscribed by the Chairman and members of the Board of Directors in 2017)
Share Participation Plan Since May 2001, it has been possible for most management team members working in Switzerland to receive part of their short-term variable remuneration in the form of shares from the Share Participation Plan instead of receiving cash. Within certain limits they are free to choose what proportion of their short-term variable remuneration they receive in the form of such shares. The most senior management team members are subject to upper limits; members of the Corporate Executive Committee – who are obliged to receive at least half of their short-term variable remuneration in the form of shares – are not allowed to receive more than 40 per cent of their entitlement in the form of shares from the Share Participation Plan. The subscription date is 1 March of each year (the same as for the Share Subscription Plan); although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold during a three-year closed period.
The parameters used to determine the subscription price are decided each year by the Remuneration Committee. The subscription price is based on the closing price before the first day of the subscription period, from which discounted dividend rights are deducted over a period of three years (please refer to the accompanying table for details). Once it has been calculated using this method, the subscription price is published in advance on the intranet. The shares needed for the Share Participation Plan are purchased in the market as and when required.
9. PENSION SCHEMES Baloise provides a range of pension solutions, which vary from country to country in line with local circumstances. In Switzerland it offers different pension schemes for its insurance and banking employees.
▸ It enables its retirees to maintain the standard of living to which they are accustomed by providing them with a sufficiently high level of income replacement (combination of Pillar 1 and Pillar 2 benefits) to compensate for their loss of earnings.
▸ Its pension solutions are future-proof, robust, predictable and properly costed.
10. RULES STIPULATED IN THE ARTICLES OF ASSOCIATION Certain rules governing remuneration are stipulated in the Articles of Association: ▸ Article 30 Additional amount for the remuneration paid to Corporate Executive Committee members appointed since the last Annual General Meeting
▸ Article 31 Annual General Meeting votes on remuneration ▸ Article 32 Principles of profit-related remuneration and the granting of equity instruments ▸ Article 34 Loans and advances granted to members of the
The Chairman of the Board of Directors chairs the meetings of both the Board of Directors and the Chairman’s Committee. He also chairs the Investment Committee. He represents the Company externally and, acting in this capacity, maintains contact with government agencies, trade associations and other Baloise stakeholders. The Chairman of the Board of Directors liaises with the Group CEO in formulating proposals on Baloise’s long-term objectives and its strategic direction and development, and these proposals are then discussed and approved by the Board of Directors as a whole. He works closely with the Corporate Executive Committee to ensure that the Board of Directors is provided with timely information on all matters of material importance to the decision-making and monitoring process at Baloise. The Chairman of the Board of Directors is entitled to attend meetings of the Corporate Executive Committee at any time. He takes part in these meetings when necessary in order to maintain a regular dialogue between himself and the Corporate Executive Committee and whenever matters of strategic or long-term importance are being discussed.
The short-term variable remuneration paid to the members of the Corporate Executive Committee is allocated from the performance pool. The individual performance and individual contribution of each member in achieving the Company’s objectives is factored into the measurement of the performance pool. The expected performance pool value amounts to 60 per cent of basic salary. Even in cases of outstanding individual performance and excellent performance by the Company as a whole, this payment cannot exceed 90 per cent of basic salary (cap of 150 per cent of the expected value).
The members of the Corporate Executive Committee must receive at least 50 per cent of their short-term variable remuneration in the form of shares in order to ensure that their own interests are more strongly aligned with those of shareholders. This mandatory purchase of shares coupled with the shares allocated under the PSU programme ensures that, compared with the market as a whole, a significant proportion of their compensation is paid in the form of deferred remuneration.
The Corporate Executive Committee members’ remuneration is disclosed on pages 100 to 103 in accordance with the accrual principle. The table includes all forms of remuneration awarded for performance in 2016 even if individual components are not paid until a later date.
▸ The slight increase in the total basic salaries was offset through lower variable remuneration. Although the higher performance pool factor meant the total of the expected value for short-term variable remuneration was higher (performance pool factor of 120 per cent in comparison to 107 per cent in the prior year), significantly fewer performance share units were allocated. No further PSUs were allocated to the resigning members of the Corporate Executive Committee, and the allocation received by the new members on 1 March was based on the terms and conditions of their employment prior to joining the Corporate Executive Committee.
The Annual General Meeting held on 29 April 2016 approved a maximum amount of CHF 4,522 million for the fixed remuneration (including pension contributions) payable to the Corporate Executive Committee for 2017. CHF 5,046 million was paid out. The difference of CHF 0,524 million (including pension contributions ) is due to the overlap resulting from the changes to the Corporate Executive Committee. The resigning members of the Corporate Executive Committee were paid in accordance with the terms of their contracts up to the end of October 2017 and the new members of the Corporate Executive Committee were paid the fixed remuneration from the start of May 2017. The fixed salaries of the two new members of the Corporate Executive Committee are lower than those of the two resigning members. The amount exceeding the total amount originally requested, is covered by article 30 of the Articles of Association of Bâloise Holding (additional amount for the remuneration of newly appointed members of the Corporate Executive Committee: “If the Board of Directors appoints a new Group CEO or one or more new members of the Corporate Executive Committee between two Annual General Meetings, the total amount of Corporate Executive Committee remuneration approved by the Annual General Meeting will be increased. The increase applies for each newly appointed member in the amount of the average of the sum approved for the current members of the Corporate Executive Committee.”).
The Annual General Meeting held on 28 April 2017 also approved a maximum amount of CHF 4,671 million for the variable remuneration (including pension contributions) payable for 2017. A total of CHF 3,645 million was paid out, which meant that only around four-fifths of the maximum amount available was utilised.
13. LOANS AND CREDIT FACILITIES Please refer to the table on page 104.
As requested by circular 10 / 1 issued by the Swiss Financial Market Supervisory Authority on the subject of remuneration, Baloise has published in the table on page 107 the amounts of total remuneration and variable remuneration and has disclosed the total amounts of outstanding deferred remuneration and the inducement payments and severance packages granted. These figures include all forms of remuneration awarded for 2017 even if individual components are not paid until a later date.
Dr Eveline Saupper (until 29. April 2016) 62,500 122,500 5,683 128,183 61,186 560
Explanatory notes to the table Remuneration paid to former members and related parties No remuneration on a non-arm’s-length-basis was paid to individuals or companies who are related to members of the Board of Directors. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Shares 25 per cent of contractually agreed overall remuneration is paid in shares which remain restricted for three years. They are recognised at market value less 10 per cent (CHF 109.26, in line with the Share Subscription Plan). Shares received by the Chairman of the Board of Directors amounted to 1,427 shares in connection with the Share Subscription Plan (CHF 155,914, with a closed period of five years instead of the usual three years) and 1,463 shares in connection with the Share Participation Plan (CHF 155,992). Pension contributions The information disclosed for 2016 includes 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). Neither the Chairman (since June 2016) nor the members of the Board of Directors are entitled to have contributions paid to the pension fund, nor have such contributions been paid to the Chairman or the members of the Board of Directors.
Dr Thomas von Planta (since 28 April 2017) 83,333 116,667 5,619 122,286 0 0
Total for the Board of Directors 2,465,833 798,333 3,264,167 35,449 3,299,616 789,977 6,811
Explanatory notes to the table Prior to 2012, newly elected members of the Board of Directors only received six months’ pay in the first calendar year; the first two months following election to the Board of Directors (May and June) were not remunerated. When members resigned from the Board of Directors, they received six months’ pay instead of four months’, thereby making up for the missing two months. Since 2012, newly elected members of the Board of Directors receive a fee for the full eight months of their first calendar year and in the year of their resignation they are paid for just four months. Mr Becker was elected before this change and therefore on the payment date in March 2017 received an additional two months’ remuneration on top of the four months’ remuneration he was due for 2017 (half each in shares and cash).
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 116.37, in line with the Share Subscription Plan). The Chairman of the Board of Directors received 1,340 shares in connection with the Share Subscription Plan (CHF 155,936, with a closed period of five years instead of the usual three years) and 1,363 shares under the Share Participation Plan (CHF 155,993). Pension contributions The information disclosed for 2017 includes the contributions that the employer is required by law to pay into the state-run social security schemes (up to the pensionable or insurable threshold in each case). Neither the Chairman (since June 2016) nor the members of the Board of Directors are entitled to have contributions paid to the pension fund, nor have such contributions been paid to the Chairman or the members of the Board of Directors.
Cash payment (fixed) Cash payment Share Subscription Plan Share Participation Plan Performance share units (PSU) Total variable remuneration
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 2016 even if individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions, etc. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length basis was paid to companies or individuals who are related to members of the Corporate Executive Committee. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Share Subscription Plan Proportion of variable remuneration received directly as shares, which are measured at market value less 10 per cent markdown. Subscription price = CHF 116.37. Share Participation Plan Proportion of variable remuneration received as shares (excluding loan-financed shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 114.49. Performance share units (PSUs) These have been disclosed at their value of CHF 129.75 at the grant date and measured using a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period.
Dr Carsten Stolz (since 1 May 2017) 333,334 120,085 853 119,915 0 0 477 66,686 853 306,686 640,019 92 % 5,121 133,700 778,841
Dr Matthias Henny (since 1 May 2017) 333,334 136 938 131,864 625 88,000 667 93,360 1,563 313,360 646,694 94 % 5,121 134,446 786,261
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). In 2017, Martin Wenk received a loyalty bonus in cash for his service anniversary. Michael Müller, Thomas Sieber and Carsten Stolz opted for additional annual leave for their service anniversaries instead of a loyalty bonus in cash. Pension benefits These comprise the estimated employer contributions to the state-run social security schemes and the pension fund (up to the pensionable or insurable threshold in each case).
Explanatory notes to the table Loans and credit facilities No loans or credit facilities were granted at non-market terms and conditions a) to former members of the Board of Directors or Corporate Executive Committee; b) to individuals or companies related to members of the Board of Directors or Corporate Executive Committee. Related parties are: spouses, life partners, children under 18 years, companies owned or controlled by directors, or legal entities or individuals who act as trustees for them. Mortgages Mortgages of up to CHF 1 million are granted to staff at the following terms and conditions: 1 per cent below the customer interest rate for variable-rate mortgages and at a preferential interest rate for fixed-rate mortgages. Loans associated with the Share Participation Plan Loans to increase the effect of the Share Participation Plan (see “7. Share Subscription Plan and Share Participation Plan”). Interest is charged on loans at a market rate (2017: 1 per cent), and they have a term of three years. Other loans There are no policy loans.
Explanatory notes to the table Shareholdings Includes shares held by related parties (spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them). Restricted shares Shares received in connection with share-based remuneration programmes are subject to a restriction period of three years. The closed period for shares received by the Chairman of the Board of Directors in connection with the Share Subscription Plan is five years. Section 20 of the Articles of Association also requires all members of the Board of Directors to lodge 1,000 shares with the Company for the duration of their term of appointment (qualifying shares). Options Members of the Board of Directors do not hold any options on Baloise shares.
Head of Corporate Division Switzerland 16,209 16,816 8,248 7,585 24,457 24,401 0.049 % 0.050 % 6,259 5,847
Head of Corporate Division Finance – 1,500 – 1,870 – 3,370 – 0.007 % – 2,351
Percentage of issued share capital 0.117 % 0.112 % 0.139 % 0.176 % 0.256 % 0.287 %
We have audited the remuneration report of Bâloise Holding Ltd (pages 80 - 106) for the year
An audit involves performing procedures to obtain audit evidence on the disclosures made in the remuneration report with regard to compensation, loans and credits in accordance with articles 14–16 of ERCO. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatements in the remuneration report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of remuneration, as well as assessing the overall presentation of the remuneration report.
NOTES TO THE CONSOLIDATED INCOME STATEMENT ................................................. 239 28. premiums earned and policy fees ............................. 239 29. income from investments for own account and at own risk ..................................... 239 30. Realised gains and losses on investments ............... 240 31. income from services rendered ................................ 243 32. other operating income ........................................... 243 33. classification of expenses ....................................... 244 35. Gains or losses on financial contracts ....................... 245 37. earnings per share ................................................... 247 38. other comprehensive income ................................... 248
OTHER DISCLOSURES ................................................ 250 39. acquisition and disposal of companies .................... 250 40. Related party transactions ........................................ 252 41. Remuneration paid to the Board of Directors and the corporate executive committee .................... 252 42. contingent and future liabilities ............................... 253 44. claim payments received from non-Group insurers ................................................... 257 45. Significant subsidiaries, joint ventures and associates ......................................................... 258 46. changes to shareholdings ........................................ 260 47. consolidated structured entities .............................. 260 49. events after the balance sheet date .......................... 260
Financial instruments with characteristics of equity 12 available for sale 4,357.1 4,402.9
Receivables from employee benefits 18 0.8 3.3 current income tax assets 54.1 43.6 other assets 20 carried at cost 187.6 349.1
Gains or losses on financial contracts 35 – 342.9 – 613.4
Comprehensive income 430.9 848.5 attributable to: non-controlling interests – 2.0 – 14.9 consolidated statement of comprehensive income
Realised gains and losses on property, plant and equipment and on intangible assets – 0.3 – 6.4 income from investments in associates – 7.1 – 5.5
Realised gains and losses on financial assets, investment property and associates – 652.0 – 1,087.2 amortised cost valuation of financial instruments 9.6 7.9
Deferred acquisition costs 9 – 20.0 – 81.7 technical reserves 589.4 405.2
Change in operating assets and liabilities purchase of investment property 11 – 453.7 – 567.2
Sale of financial assets of an equity nature 2,398.0 3,739.0 purchase of financial assets of a debt nature – 4,669.3 – 6,538.7
Sale of financial assets of a debt nature 4,500.7 5,969.7 addition of mortgages and loans – 3,074.5 – 2,972.1
Cash flow from operating activities 713.7 568.6 consolidated cash flow statement
Reclassification to non-current assets and disposal groups classified as held for sale – – 48.7 effect of changes in exchange rates on cash and cash equivalents – 16.6 124.5
Balance as at 31 December 3,173.3 3,551.6 of which: restricted cash and cash equivalents 105.3 77.1
Supplemental disclosures on cash flow from operating activities interest received 857.3 749.7
Non- controlling interests Total equity cHF million profit for the period – – – – 534.8 534.8 – 0.9 533.9
increase / decrease in non-controlling interests due to change in the percentage of shareholding 6 – – – – – – – –
Sale of treasury shares – 30.3 61.7 – – 91.9 – 91.9 cancellation of (treasury) shares – 0.1 – 134.8 – – 134.7 – – –
increase / decrease in non-controlling interests due to change in the scope of consolidation increase / decrease in non-controlling interests due to change in the percentage of shareholding 6 – – – – – – – –
Notes to the consolidated annual financial statements Basis of presentation 1. BASIS OF PREPARATION the Baloise Group is a european direct insurer comprising nine different insurance companies that operate in virtually every segment of the life and non-life insurance business. its holding company is Bâloise Holding ltd, a Swiss corporation based in Basel whose shares are listed in the Regulatory Standard for equity Securities (Sub-Standard: international Reporting) of the Swiss exchange (SiX). its subsidiaries are active in the direct insurance markets in Switzerland, liechtenstein, Germany, Belgium, luxembourg, Slovakia and the czech Republic. its banking business is conducted by subsidiaries in Switzerland and Germany. in addition, the Baloise Group has several fund management companies in luxembourg.
at its meeting on 21 March 2018 the Bâloise Holding ltd 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 ltd.
IFRS 9 Financial Instruments iFRS 9 introduces new requirements for the classification and measurement of financial instruments. classification of financial assets is based on the entity’s business model and on the contractual cash flow characteristics of the financial assets concerned.
iFRS 9 introduces a new impairment model and shifts the focus to providing for expected credit losses by recognising loss allowances. iFRS 9 specifies three steps that determine the amount of expected losses and interest revenue to be recognised in future. credit losses already expected at the time of initial recognition are measured at the present value of the twelve-month expected credit losses (step 1). the loss allowance is increased to an amount equal to full lifetime expected credit losses if the credit risk of a financial liability has grown significantly since initial recognition (step 2). Where there is objective evidence of impairment, the recognition of interest revenue is based on its net carrying amount (step 3).
on 12 September 2016, the iaSB issued applying iFRS 9 “Financial instruments” with iFRS 4 “insurance contracts” (amendments to iFRS 4). the amendments address concerns arising from implementing the new financial instruments Standard iFRS 9 before implementing the Standard iFRS 17 insurance contracts.
the amendments introduce two approaches: an overlay approach and a deferral approach. the amended Standard will: ▸ give all companies that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when iFRS 9 is applied before the new insurance contracts Standard is issued; and ▸ give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying iFRS 9 until 2021. the entities that defer the application of iFRS 9 will continue to apply the existing financial instruments Standard iaS 39.
the Baloise Group intends to apply the deferral approach for iFRS 9 with effect from 1 January 2018, which will enable it to adopt iFRS 9 and iFRS 17 simultaneously with effect from 1 January 2021. analysis has already been carried out to clarify whether the Baloise Group fulfils the conditions for applying this approach. the outcome was positive, and there are no indications that would prevent this exemption from being applied.
IFRS 16 Leases iFRS 16 applies to all leases (including sub-leases), although certain exceptions are possible. iFRS 16 governs the recognition, measurement, reporting and disclosure requirements in respect of leases in the financial statements of iFRS users. the standard provides a single accounting treatment model for lessees. this model requires lessees to recognise all lease assets and lease liabilities on the balance sheet, unless the term of the lease is twelve months or less or an asset is of low value. long-term leases on real estate are covered by the definitions in iFRS 16 and, in future, will have to be recognised with a right of use. the Baloise Group plans to apply this standard from 1 January 2019.
the acquisition cost corresponds to the fair value of the consideration paid to the previous owners on the date of the acquisition. if investments in the form of financial instruments or associates were already held before control was acquired, these investments are remeasured and any difference is recognised in profit or loss. any contingent consideration recognised as part of the consideration paid for the acquiree is measured at fair value on the transaction date. any subsequent changes in the fair value of a contingent consideration are recognised in the income statement. if the acquisition cost exceeds the fair value of assets and liabilities plus non-controlling interests, the difference is recognised as goodwill. conversely, if the identified net assets exceed the acquisition cost then the difference is recognised directly through profit or loss as other operating income. all intercompany transactions and the resultant gains and losses are eliminated.
the consolidation of subsidiaries ends on the date on which control is ceded. if only some of the shares in a subsidiary are sold, the retained interest is measured at fair value on the date that control is lost. Gains or losses on the disposal of (some of) the subsidiary’s shares are recognised in the income statement as either other operating income or other operating expenses.
the acquisition of additional investments in subsidiaries after assuming control and the disposal of investments in subsidiaries without ceding control are both recognised directly in equity as transactions with owners.
3.1.2 Structured entities Structured entities are consolidated provided the conditions of iFRS 10 are met.
Joint ventures are accounted for using the equity method, i. e. the Baloise Group initially recognises the joint ventures at cost (fair value at the date of acquisition) and thereafter recognises them under the equity method (the Baloise Group’s share of the entity’s net assets and profit or loss for the period). in the case of joint operations, the Baloise Group includes directly in its consolidated financial statements the share of the assets, liabilities, income and expenses of the joint operation that is attributable to the Baloise Group.
3.1.4 Associates associates are initially carried at cost (fair value at the date of acquisition) and thereafter are measured under the equity method (the Baloise Group’s share of the entity’s profit or loss for the period and other comprehensive income) in cases where the Baloise Group can exert a significant influence over the management of the entity concerned. changes in the fair value of associates are generally recognised in profit or loss and take account of any dividend flows. if the Baloise Group’s share of the losses exceeds the value of the associate, no further losses are recognised. Goodwill paid for associates is included in the carrying amount of the investment.
Baloise Group annual Report 2017 Financial Report 3.2.3 Translation of functional currency into reporting currency the annual financial statements of all entities that have not been prepared in Swiss francs are translated as follows when the consolidated financial statements are being prepared: ▸ assets and liabilities at the closing rate ▸ income and expenses at the average rate for the year.
3.3 Property, plant and equipment items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. the acquisition cost of property, plant and equipment includes all directly attributable costs. Subsequent acquisition costs are only capitalised if future economic benefits associated with the property, plant and equipment will flow to the entity concerned and these costs can be measured reliably. all other repairs and maintenance costs are expensed as incurred.
operating leases: all other leases are classified as operating leases. lease payments under operating leases are expensed in the income statement on a straight-line basis over the term of the lease.
3.5.2 Present value of future profits (PVFP) on insurance contracts acquired the present value of future profits on insurance contracts acquired arises from the purchase of life insurance companies or life insurance portfolios. it is initially measured in accordance with actuarial principles and is amortised on a straight-line basis. it is regularly tested for impairment as part of a liability adequacy test (see section 3.19.2 for further details).
3.7 Financial assets the term “investments” (Kapitalanlagen in German) is used in some places and headings in the Financial Report for clarity’s sake. the iFRSs themselves do not define the term “investments” (or Kapitalanlagen). the term “investments” as used in the Financial Report covers financial assets, mortgages and loans, derivative financial instruments, cash, cash equivalents and investment property.
the asset classes covered by the term financial instruments with characteristics of equity are equities, share certificates, units held in equity, bond and real estate funds; and alternative financial assets such as private equity investments and hedge funds. Financial instruments with characteristics of equity are generally more frequently exposed to price volatility than financial instruments with characteristics of liabilities.
the term financial instruments with characteristics of liabilities covers securities such as bonds and other fixed-income securities. they are usually interest-bearing and are issued for a fixed or determinable amount.
alternative financial assets – such as private equity investments and hedge funds – are mainly classified as “available for sale”.
3.7.4 Recognition, measurement and derecognition all customary purchases of financial assets are recognised on the trade date. Financial assets are initially measured at fair value. transaction costs form part of the acquisition cost (with the exception of financial assets recognised at fair value through profit or loss).
Financial assets are derecognised if the rights pertaining to the cash flows from the financial instrument have expired or if the financial instrument has been sold and substantially all the associated risks and rewards have been transferred. cash outflows from reverse repurchase (repo) transactions are offset by corresponding receivables. the financial assets received as collateral security from the transaction are not recognised. the relevant transaction is recognised on the balance sheet on the settlement date. the financial assets transferred as collateral security under repurchase agreements continue to be recognised as financial assets. the pertinent cash flows are offset by corresponding liabilities. in its stock lending operations the Baloise Group only engages in securities lending. the borrowed financial instruments continue to be recognised as financial assets. the securities provided as cover for repos, reverse repos and securities lending transactions are measured daily at their current fair value.
Derivative financial instruments are measured using models or on the basis of publicly quoted prices. if no publicly quoted prices are available for private equity investments, they are measured on the basis of their net asset value using non-public information from independent external providers. these providers use various methods for their estimates (e. g. analysis of discounted cash flows and reference to similar, fairly recent arm’s-length transactions between knowledgeable, willing parties).
if the fair value of hedge funds cannot be determined on the basis of publicly quoted prices, then prices quoted by independent external parties are used for measurement purposes.
3.8 Mortgages and loans Mortgages and loans (including policy loans) are financial instruments involving fixed or determinable payments that are not traded in an active market. Mortgages and loans classified as “carried at cost” are measured at amortised cost using the effective interest method. they are regularly tested for impairment.
Mortgages and loans held as part of fair value hedges (natural hedges) are designated as “at fair value through profit or loss”. present-value models are used to measure these portfolios.
3.9 Receivables other receivables are recognised at amortised cost less any impairment losses recognised for non-performing receivables. amortised cost is usually the same as the nominal amount of the receivables.
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 notes to the consolidated annual financial statements
Baloise Group annual Report 2017 Financial Report analysts’ reports from banks and evaluations by credit rating agencies are also used to assess the need for impairment losses. if there is objective evidence that loans and receivables or held-to-maturity financial assets may be permanently impaired, the impairment loss represents the difference between the asset’s carrying amount and the present value of future cash flows, which are discounted using the financial asset’s relevant effective interest rate. if the amount of the impairment loss decreases in a subsequent reporting period and if this decrease can be attributed to an event that has objectively occurred since the impairment was recognised, the previously recognised impairment loss is reversed.
3.10.2 Financial assets measured at fair value the Baloise Group determines at each balance sheet date whether there is any objective evidence that available-for-sale financial assets may be permanently impaired. this category includes financial instruments with characteristics of equity. an impairment loss must be recognised on financial instruments with characteristics of equity whose fair value at the balance sheet date is more than 50 per cent below their acquisition cost or whose fair value is consistently below their acquisition cost throughout the twelve-month period preceding the balance sheet date. the need for an impairment loss is examined and, where necessary, such a loss is recognised on securities whose fair value at the balance sheet date is between 20 per cent and 50 per cent below their acquisition cost.
if an impairment loss is recognised, the cumulative net loss recognised directly in equity is taken to the income statement. impairment losses on available-for-sale financial instruments with characteristics of equity that have been recognised in profit or loss cannot be reversed and taken to income. any further reduction in the fair value of financial instruments with characteristics of equity on which impairment losses were recognised in previous periods must be charged directly to the income statement.
an impairment loss is recognised on available-for-sale financial instruments with characteristics of liabilities if their fair value is significantly impaired by default risk.
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.
3.11.2 Fair value hedges When the effective portion of hedges is being accounted for, changes in the fair value of derivative financial instruments classified as fair value hedges – plus the hedged portion of the fair value of the asset or liability concerned – are reported in the income statement. the ineffective portion of hedges is recognised separately in profit or loss.
3.11.3 Cash flow hedges When the effective portion of hedges is being accounted for, changes in the fair value of derivative financial instruments classified as cash flow hedges are recognised directly in equity. the amounts reported in equity as “unrealised gains and losses (net)” are taken to the income statement at a later date in line with the hedged cash flows. the ineffective portion of hedges is recognised in profit or loss.
if a hedging instrument is sold, terminated or exercised or it no longer qualifies as a hedge, the cumulative gains and losses continue to be recognised directly in equity until the forecasted transaction materialises. if the forecasted transaction is no longer expected to materialise, the cumulative gains and losses recognised in equity are taken to income.
3.11.5 Derivative financial instruments that do not qualify as hedges changes in the fair value of derivative financial instruments that do not qualify as hedges are recognised in the income statement as “realised gains and losses on investments”.
3.13 Non-current assets and disposal groups classified as held for sale non-current assets (or disposal groups) held for sale that meet the criteria stipulated in iFRS 5 “non-current assets Held for Sale and Discontinued operations” are shown separately on the balance sheet. those assets described in the standard are measured at the lower of their carrying amount and fair value less costs to sell. any resultant impairment losses are taken to income. any depreciation or amortisation is discontinued from the reclassification date.
3.14 Other assets 3.14.1 Other assets carried at cost Development projects earmarked for subsequent sale (such as apartments in blocks of apartments owned by different people) are recognised at the lower of investment cost and recoverable value pursuant to iaS 2 inventories. the revenue is recognised under other income at the time of the transfer of title (transfer of benefits and risk).
3.14.2 Other assets recognised at fair value through profit or loss precious metals are recognised at fair value through profit or loss if they are traded in a price-efficient and liquid market.
3.16.2 Capital reserves capital reserves include the paid-up share capital in excess of par value (share premium), Bâloise Holding ltd share options, gains and losses on the purchase and sale of treasury shares and embedded options in Bâloise Holding ltd convertible bonds.
3.16.3 Treasury shares treasury shares held either by Bâloise Holding ltd or by subsidiaries are shown in the consolidated financial statements at their acquisition cost (including transaction costs) as a deduction from equity. their carrying amount is not constantly restated to reflect their fair value. if the shares are resold, the difference between their acquisition cost and their sale price is recognised as a change in the capital reserves. only Bâloise Holding ltd shares are classified as treasury shares.
3.16.4 Unrealised gains and losses (net) this item includes changes in the fair value of available-for-sale financial instruments, the net effect of cash flow hedges, the net effect of hedges of a net investment in a foreign operation, exchange differences and gains on the reclassification of the Baloise Group’s owner-occupied property as investment property.
3.16.6 Non-controlling interests non-controlling interests constitute the proportion of Group companies’ equity attributable to third parties outside the Baloise Group on the basis of their respective shareholdings.
Baloise Group annual Report 2017 Financial Report 3.17 Insurance contracts an insurance contract is defined as a contract under which one party (the insurer) accepts a significant insurance risk from another party (the policyholder) to pay compensation, should a specified contingent future event (the insured event) adversely affect the policyholder. an insurance risk is any directly insured or reinsured risk that is not a financial risk.
the 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 (DpF included). the effective interest rate is determined as the internal rate of return based on the estimated amounts and timing of the expected payments. if the amounts or timing of the actual payments differ from those expected or if expectations change, the effective interest rate must be 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.
▸ Motor the two standardised products common in the market – comprehensive and third-party liability insurance – are sold in this segment. in some countries there are also products that have been specially designed for collaborations with motoring organisations and individual automotive companies.
▸ Fire and other property insurance in addition to conventional home contents insurance this segment offers an extensive range of property policies that include fire insurance, buildings insurance and water damage insurance in all the varieties commonly available.
▸ Miscellaneous this category generally comprises small segments such as credit protection insurance and legal expenses insurance. provided that financial guarantees qualify as insurance contracts, they are treated as credit protection insurance policies.
3.18.1 Premiums the gross premiums written are the premiums that have fallen due during the reporting period. they include the amount needed to cover the insurance risk plus all surcharges. premium contributions that are attributable to future reporting periods are deferred by contract and – together with health insurance reserves for old age and any deferred unearned premiums – constitute the unearned premium reserves shown on the balance sheet. owing to the specific nature of marine insurance, premiums are deferred not by contract but on the basis of estimates. premiums that are actually attributable to the reporting period are recognised as premiums earned. their calculation is based on the premiums written and the change in unearned premium reserves.
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements 3.18.2 Claims reserves at the end of each financial year the Baloise Group attaches great importance to setting aside sufficient reserves for all claims that have occurred by this date.
in addition to the reserves that it recognises in respect of the payments to be made for claims that have occurred, it also sets aside reserves to cover the costs incurred during the claims settlement process. in order to calculate these reserves as realistically as possible, the Baloise Group uses the claims history of recent years, generally accepted mathematical-statistical methods and all the information available to it at the time – especially knowledge about the expertise of those entrusted with the handling of claims.
3.19.1 General accounting policies the accounting policies applied to traditional life insurance vary according to the type of profit participation agreed. premiums are recognised as income and benefits are recognised as expense at the time they fall due. the amount of reserves set aside in each case is determined by actuarial principles or by the net premium principle, which ensures that the level of reserves generated from premiums remains consistent over time. the actuarial assumptions used to calculate reserves at the time that contracts are signed either constitute best estimates with explicit safety margins for specific business lines or they are determined in accordance with local loss reserving practice and thus also factor in safety margins. the assumptions used are locked in throughout the term of the contract unless a liability adequacy test reveals that the resultant reserves need to be strengthened after the deferred acquisition costs (Dacs) and the present value of future profits (pVFp) on acquired insurance contracts have been deducted. Unearned premium reserves, reserves for final dividend payments and certain unearned revenue reserves (URRs) are also recognised as components of the actuarial reserve.
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.
3.19.2 Present value of future profits (PVFP) on insurance contracts acquired the present value of future profits on insurance contracts acquired constitutes an identifiable intangible asset that arises from the purchase of a life insurance company or life insurance portfolio. it is initially measured in accordance with actuarial principles and is amortised on a straight-line basis. it is regularly tested for impairment as part of a liability adequacy test.
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements 3.19.5 Policyholders’ dividends a large proportion of life insurance contracts confer on policyholders the right to receive dividends.
the applicable minimum quotas prescribed by law, contract or Baloise’s articles of association vary from country to country. life insurance companies operating in Germany and in some areas of Swiss group life business are required by law to distribute a minimum proportion of their profits to policyholders in the form of dividends. policyholders in Germany must receive a share of the profits generated. any losses incurred are borne by shareholders.
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.
Baloise Group annual Report 2017 Financial Report 3.20 Reinsurance Reinsurance contracts are insurance contracts between insurance companies and / or reinsurance companies. there must be a transfer of risk for a transaction to be recognised as reinsurance; otherwise the transaction is treated as a financial contract.
3.21 Liabilities arising from banking business and financial contracts 3.21.1 With discretionary participation features Financial contracts with discretionary participation features are capital accumulated by customers that entitles them to receive policyholders’ dividends. the accounting principles applied to these financial contracts are the same as those for life insurance contracts; the accounting policies for life insurance are described in section 3.19.
3.21.2 Measured at amortised cost liabilities measured at amortised cost include savings deposits, medium-term bonds, mortgage-backed bonds, other liabilities and financial guarantees that do not qualify as insurance contracts. they are initially measured at their acquisition cost (fair value).
3.22 Financial liabilities the financial liabilities reported under this line item comprise the bonds issued in the capital markets. Financial liabilities are initially measured at their acquisition cost (fair value). acquisition cost includes transaction costs.
the difference between acquisition cost and redemption value is recognised in profit or loss over the term of the liability as borrowing costs under the amortised-cost method and the effective interest method.
Baloise Group annual Report 2017 Financial Report 3.23 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.
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.
the Baloise Group’s pension plan agreements are tailored to local conditions in terms of enrolment and the range of benefits offered.
3.24 Provisions provisions for restructuring or legal claims are recognised for present legal or constructive obligations when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and a reliable estimate can be made of the amounts of the obligations. the amount recognised as a provision is the best estimate of the expenditure expected to be required to settle the obligation. if the amount of the obligation cannot be estimated with sufficient reliability, it is reported as a contingent liability.
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements 3.25 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.
Deferred tax assets and liabilities are offset against each other and shown as a net figure in cases where the criteria for such offsetting have been met. this is usually the case if the tax jurisdiction, the taxable entity and the type of taxation are identical.
▸ Mortgages and loans (recognised at fair value through profit or loss) Mortgages and loans are designated as “at fair value through profit or loss” as part of the Baloise Group’s strategy of using natural hedges. Yield curves are used to measure these portfolios.
the following financial liabilities are measured at fair value: ▸ liabilities arising from banking business and financial contracts (recognised at fair value through profit or loss)
liabilities arising from investment-linked life insurance contracts involving little or no transfer of risk are measured at fair value based on the capitalised investments underlying these liabilities.
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements 4.2 Financial instruments with characteristics of liabilities (held to maturity) the Baloise Group applies the provisions of iaS 39 when classifying non-derivative financial instruments with fixed or determinable payments as “held to maturity”. to this end, it assesses its intention and ability to hold these financial instruments to maturity.
▸ Financial instruments with characteristics of equity (available for sale) an impairment loss must be recognised on available-for-sale financial instruments with characteristics of equity whose fair value at the balance sheet date is more than 50 per cent below their acquisition cost or whose fair value is consistently below their acquisition cost throughout the twelve-month period preceding the balance sheet date. the Baloise Group examines whether it needs to recognise impairment losses on securities whose fair value at the balance sheet date is between 20 per cent and 50 per cent below their acquisition cost. Such assessments of the need to recognise impairment losses consider various factors such as the volatility of the securities concerned, credit ratings, analysts’ reports, economic conditions and sectoral prospects.
the main risk categories to which the Banking division of the Baloise Group is exposed are credit risk, interest rate risk and liquidity risk. these risks are identified and managed locally by the banks. the loan portfolio is reviewed and analysed on an ongoing basis. a range of tools is used for this purpose, including standardised credit regulations and procedures, scoring and rating procedures, focusing on low-risk markets and the use of an automated arrears system. the information obtained is incorporated into credit decisions. Balance sheet risks (interest rate and liquidity risks) are managed by the bank’s asset and liability management (alM) committee. the data and key figures required are determined and calculated using a specialist it application.
at the highest level, internal and external risk bands restrict and manage the overall risks incurred by the Group and the individual business units.
every business unit in the Baloise Group issues regulations regarding underwriting and risk review. they include clear authorisation levels and underwriting limits for each sector. Underwriting limits are approved by a business unit’s highest decision- making body, and the corporate executive committee is notified of them. in the industrial insurance unit, the maximum net underwriting limit for property insurance amounts to cHF 150 million for Switzerland and eUR 100 million for Germany and Belgium. the only other comparable underwriting limits in the Group are for marine and liability insurance. tools for setting the basic premium and for risk-based management of the total portfolio are also used to manage industrial insurance risk.
For its exposure to natural hazards the Baloise Group has purchased reinsurance cover for the whole Group amounting to cHF 250 million and cover for earthquakes amounting to cHF 350 million.
Business Risks Investment Risks Financial Structure Risks Business Environment Risks Operational Risks Leadership and Information Risks actuarial Risks life
Reinsurer credit risk is reviewed on a regular basis. a watch list is kept of reinsurers that are bankrupt or in financial difficulties. the list contains details of all relationships the Group has with these reinsurers, receivables due to the Group that are outstanding or have been written off and provisions the Group has recognised. the watch list is updated periodically.
▸ annuities the factors on which annuity calculations are based (mortality tables, interest rates, etc.) are normally specified or approved by the authorities in each country. However, because certain parameters can change relatively quickly, the adequacy of these annuity reserves is reviewed every year (by conducting a liability adequacy test or lat) and, if there is a shortfall, the reserves are strengthened accordingly.
5.4.3 Changes to assumptions the assumptions on which claims reserves are based generally remain constant, but the factors on which annuity calculations are based are adjusted from time to time over the years, particularly with regard to the latest longevity data.
at the end of 2017, the Baloise Group’s total reserves calculated using actuarial methods or recognised separately for special claims (including large claims but not run-off or actuarial reserves for annuities) amounted to cHF 4,600.2 million (2016: cHF 4,324.4 million). a variation of 10 per cent in either direction in the requirement for these reserves would result in a rise or fall of around cHF 349.3 million (2016: cHF 316.2 million) in claims payments (after taxes) before reinsurance.
Baloise Group annual Report 2017 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.
Year in which the claims occurred cHF million at the end of the year in which the claims occurred
nine years later 576.8 – – – – – – – – – –
eight years later 301.3 296.7 – – – – – – – – –
Net claims reserves 710.2 notes to the consolidated annual financial statements
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements
Gross claims reserves prior to 2008 (including large claims and assumed business)
Switzerland individual life Switzerland group life Germany Belgium Luxembourg technical reserves without guaranteed returns 763.2 2,330.2 3,854.8 129.0 276.3 technical reserves with 0 % guaranteed returns 579.8 632.5 106.7 103.8 25.4 technical reserves with guaranteed positive returns 6,817.6 15,709.3 6,741.9 3,092.7 526.3 average technical interest rate of guaranteed positive returns 2.5 % 1.3 % 3.1 % 3.3 % 2.5 %
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.
in Switzerland, there is a closed sub-portfolio with a guaranteed interest rate. the guarantee was issued as part of the statutory pension scheme (pillar 3a). on the endowment date, the policyholder receives the value of the fund units or the net investment premium plus accrued interest at the technical interest rate (3.25 per cent), whichever is the greater. the funds approved for these policies have a low equity ratio and are therefore not exposed to high volatility. a corresponding actuarial reserve has been recognised for the guarantee.
the Baloise Group has a number of variable annuities products including unit-linked and, in some cases, guaranteed whole-life annuities in its units in Switzerland and in luxembourg / liechtenstein. Financial hedges are provided using external reinsurance.
the risks listed above do not vary greatly within this area of activity.
Most disability insurance consists of policy riders (supplementary insurance), i. e. premium waivers should holders of life insurance policies that require periodic payments of premiums become disabled. Separate disability insurance is of minor importance. Measured against total actuarial reserves, disability risk represents around 5 per cent of our business.
the principles applied are reviewed on an ongoing basis by conducting liability adequacy tests (lats) which ensure that sufficient reserves have been set aside. the underlying assumptions for conducting these tests are best estimates. the two main assumptions for these tests are expected future investment income and mortality rates. expected future investment income is calculated using the current investment portfolio and the target investment portfolio (strategic asset allocation). the returns on new money invested are based on capital-market interest rates. Depending on the size of the portfolio, mortality rates are based on publicly available tables adjusted to reflect our own experience or on mortality tables produced inhouse.
cancellations are factored into lats using assumptions based on the experience of our companies. changes in assumptions regarding cancellations usually have a negligible impact on lats.
Baloise Group annual Report 2017 Financial Report 5.5.3 Sensitivities Sensitivity analysis shows the consequences of realistic changes in risk parameters to which the Baloise Group is exposed at the balance sheet date. these consequences impact on its consolidated equity and its profit for the period. When sensitivities were investigated, only the assumption being tested was varied. the other parameters were kept constant. one exception to this rule was policyholders’ dividends, which were adjusted accordingly. in general, sensitivities do not behave in a linear fashion, so it is not possible to extrapolate from them because they relate to a specific balance sheet date. to identify sensitivities, we investigated the effect of changes in assumptions on profit for the period and on equity, after shadow accounting, deferred gains / losses and deferred taxes (excluding reinsurance effects which were immaterial) had been taken into account. the assumptions on which liability adequacy testing is based were changed for each calculation.
the following scenarios were run: ▸ 10 per cent increase in mortality ▸ 10 per cent fall in mortality (i. e. increase in longevity) ▸ 50 basis-point increase in receipts of new money ▸ 50 basis-point fall in receipts of new money
▸ 50 basis-point fall in receipts of new money this scenario was based on the assumption that receipts of new money (including amounts reinvested) fell by 50 basis points. When applied to the German units, this scenario resulted in changes in Dac write-downs, changes in the financing of final policyholders’ dividends, and the recognition of a provision for impending losses. these adverse effects were partially compensated for by the increase in the fair value of interest rate derivatives. the overall impact was mitigated by the prevailing legal requirements governing the distribution of surpluses. on balance there was a negative effect from the German units’ profitability in the reporting year of approximately cHF 3 million (2016: approximately cHF 5 million). the positive impact on their equity amounted to approximately cHF 5 million (2016: cHF 5 million). in Belgium, this scenario resulted in an additional Dac write-down and a larger provision for impending losses. the impact on the income statement was greater than in other countries owing to the business model used. overall there was a negative effect of cHF 24 million on the income statement (2016: cHF 21 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 135 million (2016: cHF 109 million). in luxembourg, this scenario produced a marginal negative impact on the income statement (2016: marginal negative impact) and a positive effect of roughly cHF 14 million (2016: cHF 15 million) on the unrealised gains and losses recognised in equity. the resultant impact on the profitability and equity of Baloise life (liechtenstein) aG was negligible. in Switzerland, this scenario resulted in a higher Dac write-down, an increase in technical reserves, and the offsetting effect of interest rate hedges. on balance these interacting factors had an adverse effect of cHF 10 million on the income statement (2016: cHF 19 million ). the positive impact on equity amounted to approximately cHF 185 million (2016: cHF 195 million).
5.5.4 Changes to assumptions expected future investment income is constantly adjusted in line with market circumstances. it has fallen across all units. other assumptions, such as cancellation rates and mortality rates, are updated on an ongoing basis.
Stress tests are also designed and run for this purpose. they act as an early-warning system and their impact can be simulated for all areas of the Group and their performance.
the effect of stress-testing key financial figures is measured on a monthly basis. the underlying stress scenario (potential loss arising from a risk) is reviewed regularly and modified as necessary. the scale of a stress test is generally based on the simple annual volatility of the financial risk under review, the once-in-a-hundred-years occurrence of a business risk or standard international practice.
the life insurance companies in the Baloise Group manage their risk associated with changes in interest rates directly, by means of appropriate strategic asset allocation. Specific factors such as risk-bearing capacity and the ability to fund guarantees are taken into account when allocating assets. the decision-making process also incorporates the asset managers’ expectations regarding the capital markets and customers’ expectations regarding life insurance.
the Baloise Group’s chief investment officer (cio) reviews the strategic asset allocation undertaken by all business units twice a year.
the banks also use an appropriate asset and liability management system to monitor and manage interest rate risk. interest rate risk is incurred only in proportion to business volume and business activities. interest rate risk is measured using software based on gap, duration and interest rate sensitivity methods. the asset and liability mismatch at Baloise Bank SoBa is also actively managed by the use of appropriate interest rate derivatives, generally fair value hedges.
Baloise Group annual Report 2017 Financial Report if all interest rates had fallen by 50 basis points 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 lower by cHF 36 million (31 December 2016: cHF 51 million). including the impact on profit for the period, equity (after shadow accounting, deferred gains / losses and deferred taxes) would have risen by cHF 211 million (31 December 2016: cHF 181 million). if all interest rates had risen by 50 basis points 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 higher by cHF 21 million (31 December 2016 cHF 19 million). including the impact on profit for the period, equity (after shadow accounting, deferred gains / losses and deferred taxes) would have fallen by cHF 238 million (31 December 2016: cHF 220 million).
5.6.2 Currency risk currency risk describes the potential financial loss generated by changes in the exchange rates between currencies. the extent of the effective currency risk depends on: ▸ net foreign exchange exposure, i. e. the net position between assets and liabilities denominated in foreign currencies, ▸ the volatility of the currencies involved and ▸ the correlation of currencies with other risk parameters in a portfolio.
the Group-wide Risk Management Standards require currency risk and the effectiveness of the currency derivatives transacted to be monitored on a continuous basis. the currency risk incurred must be proportionate to the potential superior return generated by the diversification effect achieved in the portfolio.
Derivative financial instruments used as currency hedges of a net investment in a foreign operation the Group’s own companies, Baloise alternative investment Strategies ltd., Jersey, and Baloise private equity ltd., Jersey, manage substantial investments in alternative financial assets such as hedge funds and private equity.
the Baloise Group’s FX managers enter into currency hedging transactions in the form of forward contracts to limit the currency risk exposure of its net investment in these two foreign entities whose reporting currency is the US dollar. Restricting the implementation of hedging strategies to forward contracts makes it easier to demonstrate the efficiency of the hedges and to show that hedge accounting is being used. Because hedge accounting is applied, the change in the fair value of these derivatives is aggregated into a separate item under equity and only derecognised via the income statement, together with the accrued currency effects on the net investment in these foreign entities, when the relevant underlying asset is sold.
Because equity investments are actively managed, additions to and deductions from equity are carried out on a 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.
For international diversification (risk-spreading), to enhance returns and because there is greater liquidity in certain foreign financial markets, as at 31 December 2017 the Group’s Swiss companies did hold a net position in euros equivalent to cHF 837.1 million (2016: 765.2 million) and a net position in US dollars equivalent to cHF 243.1 million (2016: cHF 8.3 million). the remaining foreign exchange positions, both assets and liabilities, were negligible.
the foreign entities in the Baloise Group had not a significant foreign currency exposure.
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.
investments in interest-bearing securities or loans must have an investment-grade issue rating or be backed by a corresponding third-party guarantee or mortgage. a total limit of 15 per cent of all interest-bearing securities and loans is set for investments with a rating of less than “a –” and investments with no rating. Sub-investment-grade investments are not permitted. if any financial instrument in the portfolio becomes sub-investment grade due to a ratings downgrade, it must be sold within twelve months. approval is required for any exceptions. Financial derivatives are only permitted to be transacted with issuers holding a rating of at least “a –” or with whom there is a special collateral agreement.
Kingdom of the netherlands 936.3 european investment Bank, luxembourg 774.9 notes to the consolidated annual financial statements
Financial assets of a debt nature public corporations 18,351.8 18,822.3 industrial enterprises 6,425.5 7,844.4
Mortgages and loans policy loans 131.8 139.6 promissory notes and registered bonds 4,349.5 4,638.1 time deposits 838.1 939.7 employee loans 25.7 26.8
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.
Mortgages and loans policy loans – – – – 131.8 131.8 promissory notes and registered bonds 1,697.2 2,320.4 54.6 35.4 241.8 4,349.5 employee loans – – – – 25.7 25.7
Mortgages and loans policy loans – – – – 139.6 139.6 promissory notes and registered bonds 2,048.3 2,290.1 47.5 78.9 173.3 4,638.1 employee loans – – – – 26.8 26.8
in 2016, financial assets amounting to cHF 1.9 million (2016: cHF 1.8 million) and cash and cash equivalents of 0.1 million (2016: 0.1 million) from collateral received were used.
Financial assets of a debt nature public corporations – – – – – –
Mortgages and loans policy loans – – – – – –
promissory notes and registered bonds 2.1 – 2.1 – – – –
Financial assets of a debt nature public corporations – – – – –
as at 31.12.2017 < 3 months 3 – 6 months 7 – 12 months > 12 months Total cHF million
Liquidity risk as at 31.12.2016 ’ 1 year2 1 – 3 years 4 – 5 years > 5 years Total Carrying amount cHF million liabilities arising from banking business and financial contracts
1 Based on undiscounted contractual cash flows. 2 all demand deposits are included in the first maturity band.
please refer to the tables in chapter 23 for the residual terms and maturities of technical reserves.
Baloise Group annual Report 2017 Financial Report in accordance with the Group-wide Risk Management Standards, asset and liability management committees have been introduced in all strategic business units in the Baloise Group. these asset and liability management committees analyse maturity schedules and the income generated by assets or required for liabilities.
Most financial instruments with characteristics of equity are publicly listed. if the market price of all financial instruments with characteristics of equity were to move by + / – 10 per cent on the balance sheet date, the following impact would be observed – after shadow accounting, deferred gains / losses, deferred taxes, derivative hedges and the effect of the impairment rules mentioned in section 3.10.2: Impact on profit for the period Impact on equity
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, in sufficient volume and represent regularly occurring arm’s-length transactions in the market.
if no quoted market prices are available (e. g. because a market is inactive), the fair value is determined using a market-based measurement process. Market-based means that the measurement method is based on a significant quantity of observable market data (as available).
Fair value is based on prices in active markets on the balance sheet date and it is not adjusted or compiled in any other way. ▸ Fair value determined by using observable market data (level 2)
Fair value is estimated using generally recognised methods (discounted cash flow, etc.). in this case, measurement incorporates a significant quantity of observable market data (interest rates, index performance, etc.).
▸ Fair value determined without the use of observable market data (level 3) Fair value is estimated using generally recognised methods (discounted cash flow, etc.), although it is measured without reference to any observable market data (or only to a very minor degree), either because this data is not available or because it does not permit any reliable conclusions to be drawn with regard to fair value.
Detailed information about measurement principles and the measurement methods used can be found in sections 3.7, 3.8, 3.9, 3.11, 3.21 and 4.1.
Details of the methods used to measure level 2 and level 3 assets and liabilities the table below gives an overview of the measurement methods that the Baloise Group uses to determine the fair value of balance sheet line items classified as level 2 or level 3. the table shows the individual measurement methods, the key input factors used for measurement purposes and – where practicable – the range within which these input factors vary.
Mortgages and loans carried at cost present-value model interest rate, credit spread at fair value through profit or loss present-value model liBoR, swap rates –
liabilities arising from banking business and financial contracts at fair value through profit or loss Stochastic present-value model investment fund prices, interest rates, cancellation rate
Financial instruments with characteristics of equity net asset value n. a. n. a.
investment property DcF method Discount rate1 2.8 % – 5.6 %3
Maintenance costs1 26 – 29 cHF million3 capital expenditure2 50 – 70 cHF million3 1 the lower these key input factors are, the higher the fair value of the investment property is. 2 the higher these key input factors are, the lower the fair value of the investment property is. 3 the input factor ranges shown essentially relate to the real estate portfolios held by the Baloise Group’s Swiss entities.
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.
Financial instruments with characteristics of liabilities that are assigned to level 3 are predominantly corporate bonds originating from private placements and for which third-party prices are not available. a present-value model is used to measure their fair value.
Total carrying amount Total fair value Level 1 Level 2 Level 3 cHF million
Recognised at fair value through profit or loss 1,002.3 1,002.3 310.7 691.5 –
Recognised at fair value through profit or loss 30.8 30.8 25.4 5.5 –
Mortgages and loans carried at cost 15,457.7 16,494.6 – – 16,494.6
the Baloise Group has applied accounting standard iFRS 5 (non-current assets and disposal groups held for sale and discontinued operations) owing to the disposal of the portfolio of life insurance policies held by the German branch of Baloise life ltd (Basler leben DfD [Direktion für Deutschland]). the Baloise Group has assets and liabilities measured at fair value on a non-recurring basis as part of the disposal group recognised for this purpose.
Recognised at fair value through profit or loss 343.3 343.3 343.3 – –
Recognised at fair value through profit or loss 8,946.2 8,946.2 8,825.0 76.5 44.7
Recognised at fair value through profit or loss 1,704.4 1,704.4 1,662.1 0.1 42.2
Recognised at fair value through profit or loss 9,510.4 9,510.4 9,510.4 – –
Recognised at fair value through profit or loss 11,128.7 11,128.7 10,908.6 – 220.1
Recognised at fair value through profit or loss 1,971.9 1,971.9 1,804.2 95.2 72.6
Balance as at 1 January 943.1 6,251.9 7,195.1 additions arising from change in the scope of consolidation – 73.9 73.9 additions arising from change in the percentage of shareholding – – –
Reclassification to non-current assets classified as held for sale – – –
Balance as at 1 January 142.1 – – 142.1 additions – – – –
additions arising from change in the percentage of shareholding – – – –
Disposals arising from change in the percentage of shareholding – – – –
Reclassified from level 3 – 101.2 – – – 101.2 changes in fair value recognised in profit or loss1 – 0.4 – – – 0.4
Assets and liabilities measured on a recurring basis additions arising from change in the scope of consolidation – – – –
Reclassification of assets and liabilities from level 1 to level 2 and vice versa assets and liabilities measured at fair value are generally reclassified from level 1 to level 2 if there is no longer deemed to be an active market in these instruments owing to their low daily trading volumes or lack of liquidity or if the instruments concerned have been de-listed. Financial instruments are reclassified from level 2 to level 1 for the exact opposite reasons.
5.11.1 Solvency I ratio at Group level the solvency ratio (calculated on the basis of the legal requirements in force on 30 June 2015) for pure insurance business of cHF 2,117 million (2016: cHF 2,142 million) was met in 2016 and 2017. the cover ratio for the capital adequacy requirement in available funds was 406 per cent at 31 December 2017 (31 December 2016: 351 per cent). the capital currently available consists of iFRS equity, the eligible hybrid capital, unallocated policyholders’ dividends and the final policyholders’ dividend reserve. liabilities are also recognised as capital in accordance with the corresponding options for solvency coverage at individual company level. Deductions from equity include planned dividend payments and intangible assets.
the relevant requirements for the banking operations of Baloise Bank SoBa are defined by Basel iii regulations. the regulatory capital adequacy requirement applicable to Deutscher Ring Bausparkasse aG is the capital Requirements Regulation (cRR).
Baloise Group annual Report 2017 Financial Report 5.11.3 Swiss Solvency Test the Swiss Solvency test (SSt) came into force as a new statutory requirement on 1 January 2011. in this context, the Baloise Group defines its risk-bearing capital and capital required (target capital) for the SSt using an inhouse model which takes into account the Baloise Group’s business model. all activities and processes for developing and structuring the inhouse model are gathered together in the Baloise internal Solvency System (BiSS) and coordinated and managed by Group Risk Management.
Risk-bearing capital is compared with target 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 extreme scenarios are also evaluated, and their potential impact on risk-bearing capacity is analysed. the SSt ratio (ratio of risk-bearing capital to target capital, after deduction of the market value margin in both cases) is calculated for the strategic business units and the Group. the Group’s target capital is not determined by simply adding together individual risk positions; it also takes into account diversification 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 Group-wide Risk Management Standards. these limits are monitored on an ongoing basis.
6.1.3 Other changes in the group of consolidated companies Baloise insurance company (Bermuda) ltd. merged with Baloise insurance ltd (Switzerland) on 1 January 2016. intercompany reinsurance was thus transferred to Switzerland. this merger took place within the existing group of consolidated companies.
on 22 november 2017, the real-estate company Vac De Meander was acquired in Belgium. it contains just one property, the newly built Herman teirlinck office block in Brussels, which is occupied by the Flemish civil service on a long-term lease. according to the criteria defined in iFRS 3 Business combinations, this purchase constitutes the acquisition of assets.
the two luxembourg companies Baloise alternative investments partner S.à r.l. and Baloise private equity partner S.à r.l. were founded at the start of December 2017. this was done to aid the planned transfer of parts of the investment business to luxembourg that are currently still conducted by firms in Jersey.
7. INFORMATION ON OPERATING SEGMENTS (SEGMENT REPORTING) the Baloise Group organises its operating activities into strategic business units, which are generally combined under a single management team for each region. the financial and management information needed for all relevant executive decisions is held by these strategic business units. this is also the organisational level at which the chief operating decision-makers are situated. Regardless of where they are headquartered, all Baloise Group entities are therefore assigned to one of the reportable segments
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements 7.1 Segment reporting by strategic business unit
Share of profit (loss) of associates 0.0 0.0 7.1 5.5 0.0 – – – 7.1 5.5 – – – – 7.1 5.5
Gains or losses on financial contracts – 19.8 – 18.3 – 23.8 – 26.6 – 59.2 – 66.2 – 235.6 – 468.8 – 338.5 – 579.8 – 10.2 – 37.6 5.8 4.0 – 342.9 – 613.4
Income premiums earned and policy fees (gross) 4,188.1 4,231.7 1,219.3 1,164.2 1,078.8 1,133.5 198.4 202.4 6,684.5 6,731.9 99.6 103.9 – 103.6 – 109.4 6,680.6 6,726.4 premiums earned and policy fees (net) 4,106.6 4,148.0 1,134.1 1,072.0 990.8 1,035.6 181.2 183.6 6,412.8 6,439.1 99.6 103.9 0.0 0.0 6,512.4 6,542.9
Expense claims and benefits paid (gross) – 3,651.7 – 3,829.7 – 1,209.2 – 1,041.0 – 688.6 – 722.8 – 111.1 – 114.2 – 5,660.6 – 5,707.6 112.5 – 80.3 – 116.1 61.5 – 5,664.2 – 5,726.5 change in technical reserves (gross) – 351.8 – 148.4 – 181.6 – 281.5 – 126.3 – 68.9 – 23.1 – 61.6 – 682.8 – 560.5 – 208.2 – 14.0 221.8 39.4 – 669.1 – 535.0
Profit / loss for the period (segment result) 447.4 520.8 – 48.5 – 65.5 125.5 128.5 24.3 25.1 548.7 608.8 – 14.8 – 76.9 – – 533.9 531.9 notes to the consolidated annual financial statements
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements 7.2 Segment reporting by operating segment
Profit / loss for the period (segment result) 321.5 274.5 191.8 289.0 72.7 66.0 – 52.1 – 97.6 – – 533.9 531.9
Income premiums earned and policy fees (gross) 3,109.7 3,214.4 3,570.9 3,512.0 – – – – – – 6,680.6 6,726.4 premiums earned and policy fees (net) 2,959.9 3,051.8 3,552.4 3,491.1 – – – – – – 6,512.4 6,542.9
Expense claims and benefits paid (gross) – 1,859.7 – 1,881.0 – 3,804.5 – 3,845.5 – – – – – – – 5,664.2 – 5,726.5 change in technical reserves (gross) – 66.7 – 38.1 – 602.4 – 496.9 – – – – – – – 669.1 – 535.0
Gains or losses on financial contracts – 0.5 – 0.8 – 303.9 – 560.9 – 46.5 – 31.0 – 16.4 – 45.4 24.6 24.6 – 342.9 – 613.4
Profit / loss before borrowing costs and taxes 396.4 374.7 226.1 306.0 92.1 81.8 – 31.0 – 78.5 – – 683.6 684.1
of which: assets held under finance leases – – – – – –
Depreciation and impairment impairment losses recognised in profit or loss – – – – – –
capitalisation of acquisition costs – – 77.1 253.3 – – 330.3
Write-ups – – 1.8 – – – 1.8 impairment losses recognised in profit or loss
changes due to impending losses – – – – 4.4 – – – 4.4 change due to unrealised gains and losses on financial instruments (shadow accounting)
the impairment test in 2017 resulted in a write-off being recognised at Zeus Vermittlungsgesellschaft due to a lack of future cash flows owing to the disappearance of fee and commission income. this impairment loss affects the “other activities” operating segment.
Goodwill in respect of Movu aG was recognised for the first time when it was acquired. Using an income approach, taking account of a discount rate and growth rate, would not be a useful way of measuring this start-up. it was therefore tested for impairment using a multiples-based method.
the management is of the opinion that a possible change in the assumptions based on the exercise of appropriate discretion would not have led, either in 2017 or in 2016, to the carrying amount of an entity being significantly higher than its recoverable value.
Baloise Group annual Report 2017 Financial Report 10. INVESTMENTS IN ASSOCIATES 10.1 Significant investments in associates oVB Holding ltd is a european sales company for risk cover, retirement pension and health care products as well as wealth- building products. it also brokers Basler Versicherungen products. the company is strategically important because it constitutes a significant distribution channel.
OVB Holding Ltd cHF million non-current assets 24.7 26.9 current assets 151.8 175.5
Profit for the period 10.7 8.7 comprehensive income (balance sheet) 0.0 0.0 comprehensive income (income statement) – 0.2 – 0.5
Fair value as at 30 September 79.9 101.7 notes to the consolidated annual financial statements
Balance as at 1 January 6,251.9 6,817.5 additions arising from change in scope of consolidation 73.9 384.5
Financial assets as reported on the balance sheet 48,072.2 51,235.0 1 of which financial assets totalling cHF 184.3 million (2016: cHF 99.5 million) involved insurance policies that had not been fully reviewed by the balance sheet date.
no impairment losses had to be recognised on held-to-maturity financial instruments with characteristics of liabilities, during either the reporting year or the prior year.
not publicly listed, variable interest rate – – – – – – – – – –
Held to maturity Available for sale Recognised at fair value through profit or loss Total
Financial assets of an equity nature – – 4,357.1 4,402.9 – – 1,002.3 343.3 5,359.4 4,746.2
Carrying amount Fair value cHF million notes to the consolidated annual financial statements
Reclassification to non-current assets classified as held for sale – 2.2 currency translation 0.2 – 1.2
Derivative financial instruments as reported on the balance sheet 757.3 800.4 299.0 145.3 notes to the consolidated annual financial statements
of which: designated as fair value hedges – – – – – –
Unused provisions reversed through profit or loss 1.4 1.1 increases and additional provisions recognised in profit or loss – 0.8 – 1.1
Reclassification to non-current assets classified as held for sale – 1.2 currency translation 0.0 – 0.1
Reinsurers’ share of technical reserves as at 1 January 410.8 415.2 change in unearned premium reserves 0.2 1.7
Benefits paid – 94.5 – 60.8 interest on and change in liability 103.6 76.9 additions / disposals arising from change in scope of consolidation – –
Reinsurers’ share of technical reserves as at 31 December 415.2 468.3 notes to the consolidated annual financial statements
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements 17. RECEIVABLES FROM REINSURERS
Reclassification to non-current assets and disposal groups classified as held for sale – –
Impairment of receivables from reinsurers as at 1 January – 0.1 – 0.1
Unused provisions reversed through profit or loss 0.1 0.0 increases and additional provisions recognised in profit or loss – 0.1 0.0
Baloise Group annual Report 2017 Financial Report 18. EMPLOYEE BENEFITS 18.1 Receivables and liabilities arising from employee benefits
Switzerland has the largest plans. the employer and employee each contribute to these plans; the contributions are used to cover benefits paid in the event of death or invalidity as well as being saved up to fund a pension. the employee has the option of receiving all or part of the accumulated capital as a one-off payment. Some of the benefits granted in this way are governed by binding statutory regulations that are applicable to all Swiss employers and, in particular, stipulate certain minimum benefits. the pensions are the responsibility of separate legal entities (foundations) that are run by a committee consisting of employer and employee representatives.
the pension benefits on offer also comprise special benefits that the Baloise Group grants to retirees (especially those in Switzerland). these benefits include subsidised mortgages. these benefits and concessions are classified as defined benefit pension obligations under iaS 19.
Baloise Group annual Report 2017 Financial Report 18.2.1 Fair value of plan assets cHF million
Return on plan assets 10.7 110.3 employees’ savings and purchases 29.2 37.9 exchange differences – 0.2 1.1 employer contribution 57.9 79.9 employee contribution 30.7 30.9
Balance as at 1 January – 2,821.2 – 2,848.5 current service cost – 92.7 – 87.6 interest rate effect – 17.9 – 17.9 employees’ savings and purchases – 29.2 – 37.9 actuarial gains / losses on defined benefit obligations arising from changes in financial assumptions – 52.6 – 53.6 changes in demographic assumptions – 19.1 19.7 experience adjustments – 5.3 12.6 exchange differences 0.2 – 1.7
Benefits paid 30.7 33.8 additions / disposals arising from change in scope of consolidation – 0.6
Reclassification to non-current assets classified as held for sale 3.2 45.4
Baloise Group annual Report 2017 Financial Report 18.2.5 Asset Allocation cHF million cash and cash equivalents 52.8 62.3
Fixed-interest assets publicly listed 114.0 100.2 not publicly listed – –
Fair value of plan assets 2,374.8 2,538.4 of which: Bâloise Holding ltd shares (fair value) and convertible bonds (fair value) 28.8 35.6 of which: real estate leased to the Baloise Group – –
Total expenses for defined benefit plans recognised in the income statement – 59.9 – 113.0 notes to the consolidated annual financial statements
Mortality probabilities for 65-year-olds minus 10.0 % age points 102.8 97.3
Weighted share of annuity option plus 10.0 % age points 14.5 13.3 the Baloise Group determines the sensitivities of liabilities under defined benefit plans by recalculating them using the same models as used for the calculation of the effective value. in this calculation, only one parameter of the base scenario is changed. possible interaction between individual parameters is not taken into consideration. the effect resulting from various parameters occurring simultaneously may vary from the sum total of individually determined differences.
the sensitivity is only calculated for the liability. a possible simultaneous impact on plan assets is not investigated.
18.2.11 Maturity profile the maturity profile of liabilities under pension plans differs depending on whether benefits are prospective or current entitlements. For prospective benefit entitlements, the average expected remaining service period is 10.0 years; the average present value factor for current benefit entitlements under pension commitments is 17.6 years.
Baloise Group annual Report 2017 Financial Report 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 Share participation plan as well as performance share units (pSU). all these plans are equity-settled remuneration programmes. in 2017, a sum of cHF 24.4 million (2016: cHF 21.8 million) was recognised as an expense in profit or loss in connection with the following share-based payment plans.
the textual explanations of the individual compensation programs are contained in chapters 5, 7 and 8 of the compensation Report. the most important quantitative information is listed in tabular form below.
Subscribed shares per participant (average) 90.5 87.8 18.4.2 Share Subscription Plan
Fair value of subscribed shares on subscription date (cHF million) 4.5 4.5 employees entitled to participate 929 917 participating employees 110 116
1 including shares financed by loans. 2 net of the discounted dividend right over three years.
Measurement of the pSU at their issue date is based on a Monte carlo simulation, which calculates a present value for the payout expected at the end of the vesting period. this measurement incorporates the following parameters: ▸ interest rate of 1 per cent; ▸ the volatilities of all shares in the peer group and their correlations with each other (measured over a three-year track record); ▸ the expected dividend yields; ▸ empirical data on how long eligible programme participants remain with the company.
of which: expired (departures in 2016) – 2,429 – 604 –
number of active pSUs as at 31 December 2016 39,733 40,144 –
Balance as at 31 December cHF million tax credits and losses carried forward1 30.6 43.9 – – – – 0.1 74.3 liabilities arising from banking business and financial contracts liabilities arising from employee benefits 69.0 0.1 – – – 0.9 – 0.8 67.5
as a result of the transfer of the intragroup reinsurance business (Baloise insurance company Bermuda ltd) to Switzerland, the Baloise Group had offsettable tax assets of cHF 134.7 million as at 31 December 2017 (2017: cHF 134.7 million), which it can use until the end of 2025.
no deferred tax assets had been recognised on tax loss carryforwards amounting to cHF 261.7 million as at 31 December 2017 (2016: cHF 213.5 million) because the relevant offsetting criteria had not been met. of this total, cHF 19.8 million will expire after one year, a further cHF 2.4 million will expire after two to four years and cHF 239.5 million will expire after five years or more.
cHF million liabilities to brokers and agents 54.2 84.2 tax credits indirect taxes (withholding tax etc.) 49.8 37.2 prepaid insurance benefits 57.7 56.3
Sub-total 54.5 70.5 numerous development projects in Switzerland were taken on as part of the acquisition of Baloise Wohnbauten aG. Most of them are new properties in blocks of apartments owned by different people and will be sold upon completion.
Baloise Group annual Report 2017 Financial Report 21. NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE
Disposal groups Non-current assets cHF million property, plant and equipment – 0.3 – –
in 2018, it is planned to launch a real-estate fund in Switzerland for institutional investors. to this end, investment properties held by Baloise life ltd and Basler Versicherung aG will be transferred to this new real-estate portfolio. this affects the life and non-life segments in Switzerland.
purchase / sale of treasury shares 28,048 – 28,048 – –
Share buy-back and cancellation – 1,200,000 – – 1,200,000 – 0.1 the share capital of Bâloise Holding ltd totals cHF 4.88 million and is divided into 48,800,000 registered, fully paid-up registered shares with a par value of cHF 0.10 each (2016: cHF 0.10). as far as individuals, legal entities and partnerships are concerned, entry in the share register with voting rights is limited to 2 per cent of the registered share capital entered in the commercial register. the Baloise Group buys and sells its own shares as part of its ordinary investing activities and for employee share ownership programmes.
the reduction of share capital from cHF 5.0 million to cHF 4.88 million by cancelling 1,200,000 registered treasury shares, each with a nominal value of cHF 0.10, which was approved by the shareholders of Bâloise Holding ltd at the annual General Meeting on 28 april 2017, was carried out following expiry of the statutory time limit set for creditors to register their claims (article 734 oR). the related changes to the commercial register of the Basel city canton were published in the Swiss official Gazette of commerce (SoGc no. 133 of 12 July 2017).
as at the balance sheet date (31 December 2017), a cumulative total of 423,450 shares in Bâloise Holding ltd had been repurchased for a total amount of cHF 63.3 million under the share buy-back programme that had been announced on 4 april 2017. the buy-back programme is planned for a maximum of three years.
as part of the share buy-back programme that has been running since 16 april 2015, a total of 1,000,000 shares in Bâloise Holding ltd had been repurchased for a total of cHF 113.8 million. the share buy-back programme was concluded ahead of schedule on 29 July 2016.
Unearned premium reserves (gross) 589.0 649.1 claims reserve (gross) 5,307.8 5,595.0 other technical reserves 89.6 74.7
Total technical reserves (non-life) 5,986.4 – 391.4 5,595.1 6,318.8 – 438.2 5,880.7 notes to the consolidated annual financial statements
Baloise Group annual Report 2017 Financial Report 23.1.1 Maturity structure of technical reserves
Claims reserve 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.
Baloise Group annual Report 2017 Financial Report 23.1.3 Other technical reserves
Gross Reinsurance assets Net Gross Reinsurance assets Net cHF million less: expenditures during the reporting period – 19.2 0.1 – 19.1 – 19.1 0.2 – 18.9 additional provisions recognised and unused provisions reversed through profit or loss additions arising from acquisition of policy portfolios and insurance companies
Other changes additions / disposals arising from changes in scope of consolidation – –
Balance as at 31 December (gross) 5,307.8 5,595.0 the Baloise Group pays particular attention to cases of environmental pollution involving landfill sites, refuse, asbestos or any other materials harmful to human beings or the environment.
Baloise Group annual Report 2017 Financial Report 23.2 Technical reserves (life)
cHF million actuarial reserves from non-unit-linked life insurance contracts1 33,553.2 34,328.1 actuarial reserves from unit-linked life insurance contracts 2,727.3 3,108.1
Structure of actuarial reserves (life) 36,813.2 38,008.1 policyholders’ dividends credited and provisions for future policyholders’ dividends 3,409.4 3,681.5
Total technical reserves (life) 40,222.5 41,689.7 1 the actuarial reserves include unearned premium reserves and claims reserves.
Actuarial reserves from unit-linked life insurance contracts no determinable residual term 1,593.9 1,899.7
Provisions for future policyholders’ dividends no determinable residual term 2,283.0 2,559.7
Total provisions for future policyholders’ dividends 2,376.3 2,648.6 1 the Swiss pensions business is disclosed separately owing to its specific features. it comprises group contracts which may be cancelled annually by either party, whereas the coverage period for the individuals enrolled is significantly longer.
all figures relating to maturities are based on the residual terms of contracts. the line item “no determinable residual term” mainly comprises deferred and current annuities.
Baloise Group annual Report 2017 Financial Report 23.2.2 Actuarial reserves from non-unit-linked life insurance contracts cHF million
Balance as at 31 December 33,553.2 34,328.1 the actuarial reserves include unearned premium reserves and claims reserves. the actuarial reserves for DpF business as at 31 December 2017 amounted to cHF 34,046.7 million (31 December 2016: cHF 33,271.7 million), while for non-DpF business they totalled cHF 281.4 million (31 December 2016: cHF 281.5 million). the actuarial reserves for assumed business (inward reinsurance) as at 31 December 2017 came to cHF 10.5 million (31 December 2016: cHF 8.5 million).
adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) 7.0 6.8
Final policyholders’ dividends, which are only paid upon contract expiry, are funded and accrued over the duration of the policy in proportion to the profits attributable to the contract.
Reserved during the reporting period 20.8 19.2 change in balance – 16.7 – 8.0 change due to unrealised gains and losses on investments (shadow accounting) – 0.8 0.1 additions arising from acquisition of policy portfolios and insurance companies – –
Baloise Group annual Report 2017 Financial Report 23.2.6 Policyholders’ dividends credited and reserves for future policyholders’ dividends cHF million
Dividends credited to policyholders during the reporting period 45.0 45.4 policyholders’ dividends paid – 114.2 – 108.6 additions arising from acquisition of policy portfolios and insurance companies – –
Provisions for future policyholders’ dividends as at 1 January 2,386.6 2,376.3 adjustment arising from unrealised gains and losses as at 1 January – 722.2 – 771.4 change in measurement differences between iFRS and national accounting standards recognised in profit or loss – 14.3 290.0 adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) 771.4 663.0 additions arising from acquisition of policy portfolios and insurance companies – –
Savings deposits and customer deposits essentially consist of savings accounts, business accounts and deposit accounts held by Swiss banking clients. the mortgage-backed bonds reported have all been issued by pfandbriefbank schweizerischer Hypothekarinstitute aG.
Balance as at 1 January 1,707.8 1,470.4 issue price of newly issued bonds – 496.5 embedded derivative – –
Borrowing costs paid – 33.4 – 30.9 accrued borrowing costs 0.4 – 2.2
Balance as at 31 December 1,470.4 1,742.9 on 19 September 2017, Baloise life ltd issued two cancellable subordinated bonds with a total nominal value of cHF 500 million. these bonds are guaranteed by Bâloise Holding ltd. the bond of cHF 200 million, which matures on 19 June 2048, cannot be redeemed before 19 June 2028 (iSin cH0379611004). Until this date, the coupon is 2.2 per cent per year. thereafter, the coupon will be determined for five-year successive periods on the basis of the five-year cHF mid-swap rate plus the initial margin of 194.6 basis points per year. the bond of cHF 300 million is perpetual and cannot be redeemed before 19 June 2023 (iSin cH0379610998). Until this date, the coupon is 1.75 per cent per year. thereafter, the coupon will be determined for five-year successive periods on the basis of the five-year cHF mid-swap rate plus the initial margin of 194.4 basis points per year. the issuer can subsequently repay the bonds annually on the interest payment date, provided it has given prior notice and obtained the approval of FinMa.
TERMS & CONDITIONS GOVERNING SENIOR DEBT OUTSTANDING (SENIOR BONDS BÂLOISE HOLDING LTD AND BALOISE LIFE LTD)
iSin cH0117683794 cH0131804616 cH0148295014 cH0194695083 cH0200044821 cH0261399064 cH0379610998 cH0379611004 notes to the consolidated annual financial statements
Disposal arising from change in scope of consolidation – – – – – –
Reclassification to non-current assets classified as held for sale increases and additional provisions recognised in profit or loss
the balance shown for other provisions includes the usual amounts for legal advice and litigation risks. other provisions utilised but not recognised in profit or loss are primarily attributable to Baloise’s Belgian and Swiss entities. the recognition of restructuring provisions in profit or loss largely relates to the German entities. other provisions recognised in profit or loss were primarily attributable to Baloise’s German entities and those utilised but not recognised in profit or loss were primarily attributable to its Swiss entities.
Total insurance liabilities 1,565.2 1,706.3 notes to the consolidated annual financial statements
Baloise Group annual Report 2017 Financial Report 28. PREMIUMS EARNED AND POLICY FEES
Gross premiums written and policy fees 3,140.7 3,570.9 6,711.6 3,229.3 3,512.0 6,741.3 change in unearned premium reserves – 31.0 – – 31.0 – 14.9 – – 14.9
interest income of cHF 2.8 million had been recognised on impaired investments at the balance sheet date (2016: cHF 3.1 million).
Baloise Group annual Report 2017 Financial Report 30. REALISED GAINS AND LOSSES ON INVESTMENTS 30.1 Realised gains and losses on investments for own account and at own risk
Realised gains on sales and book profits investment property 166.1 – – – – 166.1
Realised losses on sales and book losses investment property – 106.4 – – – – – 106.4
Realised gains on sales and book profits investment property 244.9 – – – – 244.9
Recognised at fair value through profit or loss – 25.0 2.6 0.0 457.9 485.5 carried at cost – – – 38.6 – 38.6
Realised losses on sales and book losses investment property – 133.8 – – – – – 133.8
Held to maturity 1 – – – 0.5 – – – 0.5 available for sale – – 47.6 – 234.6 – – – 282.2
Total realised gains and losses on investments 111.1 211.4 375.3 25.8 – 295.8 427.8 1 currency effects relating to held-to-maturity financial assets of a debt nature are reported as realised book profits and / or realised book losses.
Impairment losses on financial assets of a debt nature recognised in profit or loss public corporations – –
Reversal of impairment losses recognised on receivables 6.3 5.5 external income from owner-occupied property 6.8 6.9 income from development properties – 101.2 other income 104.2 74.4
the negative goodwill in the reporting year was due to the purchase of pax anlage aG and pax Wohnbauten aG and arose from the remeasurement of development projects taking account of the current situation in the real-estate market.
in 2017, the development projects gave rise to income for the first time; the corresponding expenses are recognised in other operating expenses (note 33).
Fees and commission for financial assets and liabilities not recognised at fair value – 13.9 – 13.1
Fees and commission expenses for assets managed for third parties – 6.3 – 6.5 expenses arising from non-current assets classified as held for sale – –
expenses from development properties – – 106.5 1 this includes changes in deferred acquisition costs recognised in profit or loss, as shown in table 9.
34. PERSONNEL EXPENSES total personnel expenses for 2017 came to cHF 916.3 million (2016: cHF 868.1 million).
Baloise Group annual Report 2017 Financial Report 36. INCOME TAXES 36.1 Current and deferred income taxes cHF million current income taxes – 107.2 – 134.1
Increase / reduction owing to tax-exempt profits and losses 9.4 16.7 non-deductible expenses – 6.7 – 9.8 withholding taxes on dividends – 0.4 – 0.6 change in tax rates – 18.0 31.0 change in unrecognised tax losses 18.1 – 10.3 recognition of tax credits 31.0 –
tax items related to other reporting periods 9.0 – 1.1 non-taxable measurement differences – 5.0 – 7.9 intercompany effects 6.7 – 17.9 other impacts 9.5 4.2
Baloise Group annual Report 2017 Financial Report 37. EARNINGS PER SHARE
Profit for the period attributable to shareholders (CHF million) 534.8 548.0 adjustment of interest expenses on convertible bonds, including tax effects (cHF million) 6.0 –
Adjusted profit for the period attributable to shareholders (CHF million) 540.8 548.0 average number of shares outstanding 46,381,359 47,641,577 adjustment due to theoretical conversion of convertible bond1 1,756,722 –
adjustment due to theoretical exercise of share-based payment plans 75,748 97,459 adjustment due to theoretical exercise of put options – –
Diluted earnings per share (CHF) 11.22 11.48 1 pro-rata recognition in 2016 of the convertible bond, which matured on 17 november 2016 (in accordance with iaS 33).
Baloise Group annual Report 2017 Financial Report 38. OTHER COMPREHENSIVE INCOME 38.1 Other comprehensive income cHF million
Total items not to be reclassified to the income statement – 78.1 61.6
Available-for-sale financial assets: Gains and losses arising during the reporting period 437.9 369.4
Gains and losses reclassified to the income statement – 311.2 – 551.9
Gains and losses arising during the reporting period – 0.4 7.5
Gains and losses reclassified to the income statement – 0.6 5.4
Reserves arising from reclassification of held-to-maturity financial assets: Gains and losses arising during the reporting period 0.0 0.2
Total reserves arising from reclassification of held-to-maturity financial assets: – 1.1 – 2.5 change arising from shadow accounting – 117.3 197.0 change arising from exchange differences – 2.5 119.3
Deferred income taxes of Items not to be reclassified to the income statement change in reserves arising from reclassification of investment property – 0.1 change in reserves arising from assets and liabilities of post-employment benefits (defined benefit plans) 41.1 – 26.1 change arising from shadow accounting – 13.4 1.0 change arising from exchange differences – 0.6 3.6 additions and disposals arising from change in the scope of consolidation – –
Deferred income taxes on items to be reclassified to the income statement available-for-sale financial assets – 18.4 120.8 investments in associates 0.0 – 1.5
Receivables and assets – 1.1 – 37.2 cash and cash equivalents – 99.3 – 0.1 actuarial liabilities – – – – 1,888.5 other accounts payable – – 192.7 – – 40.5 non-controlling interests – – 47.8 – –
Acquisition / disposal price – 269.9 – 29.9 net assets acquired / disposed of – – 257.2 – – 44.5 other comprehensive income1 – – – – 7.1
in 2017, 84.9 per cent of the shares in the listed company pax anlage aG, Basel, were purchased. pax anlage aG’s wholly owned subsidiary pax Wohnbauten aG (since 3 July 2017 Baloise Wohnbauten aG) has a real-estate portfolio comprising investment properties and development projects. the intention is for the development projects to be sold at a later date. they have therefore been recognised on the balance sheet under other assets. Most of the properties are located in German- speaking Switzerland.
this transaction represents a further expansion of Baloise’s real-estate portfolio and takes Baloise’s total investment of insurance assets in a secure and attractive asset class to up to cHF 288 million.
the disposals included the German companies assekuranz Herrmann GmbH and Wilhelm Herrmann assekuranz Makler GmbH as well as the portfolio of life insurance policies of Baloise life ltd. the loss on the disposal of the two Herrmann insurance companies totalled cHF 5.9 million. the sale of the portfolio of life insurance policies of Baloise life ltd. resulted in a loss of cHF 15.8 million. these losses were recognised under other operating expenses.
there is a contingent liability arising from a release agreement for employees of Baloise life ltd in connection with the sale to the Frankfurter leben Group of the policy portfolio and associated business of the German branch of Baloise life ltd, which was announced on 3 February 2017.
in the normal course of its insurance business, the Baloise Group provided contractually binding collateral, mainly joint collateral relating to insurance-backed construction guarantees, and professional and commercial surety bonds.
Total guarantees and collateral for the benefit of third parties 672.8 560.5 of which: for the benefit of partners in joint ventures – –
Financial assets in the context of securities lending 3,358.2 3,983.0 pledged intangible assets – –
Financial assets in the context of securities lending 4,770.4 4,883.4 other – –
Commitments undertaken for future acquisition of investment property 326.5 451.8 financial assets 873.8 735.7 property, plant and equipment – –
of which: own share of joint ventures’ capital commitments – –
or no rating Total cHF million as at 31 December 2016, there was an investment obligation of cHF 218 million for the purchase of the Belgian real-estate company Vac De Meander. obligations undertaken by the Baloise Group to make future purchases of investments include commitments in respect of private equity, which constitute unfunded commitments to invest directly in private equity or to invest in private equity funds.
Minimum lease payments – 3.4 – 3.3 contingent lease payments – –
contingent lease payments are made in cases where the lease is indexed.
43.2 The Baloise Group as a lessor the Baloise Group has entered into operating leasing arrangements in order to lease its investment property to third parties. there were no further leasing arrangements at the balance sheet date.
Baloise insurance ltd, Basel non-life nl 100.00 100.00 F cHF 75.0 5,442.9 1,333.4
Basler Beteiligungsholding GmbH, Hamburg Holding o 100.00 100.00 F eUR 12.8 234.0 –