Contact details Helvetia Group Investor Relations P.O. Box CH-9001 St.Gallen www.helvetia.com info@helvetia.com
Publishing details The Annual Report 2006 of the Helvetia Group is available in English, German and French.
Key share data Helvetia Holding 2006 2005 Change Group profit for the period per share in CHF 49.3 36.2 36.4% Consolidated equity per share in CHF 319.1 290.0 10.0% Year-end price of Helvetia registered share in CHF 401.5 278.0 44.4% Market capitalisation at year-end price in CHF million 3 474.1 2 405.5 44.4% Price/earnings ratio 8.1 7.7 Dividend per share1 in CHF 13.50 9.00 50.0%
Profit before tax 562.2 420.2 33.8% – of which life 184.6 139.9 32.0% – of which non-life 321.6 262.5 22.5% – of which other 56.0 17.8 214.6% Group profit for the period after tax 423.8 301.9 40.4%
Reserves for insurance and investment contracts (net) 25 094.6 23 969.9 4.7%
In October 2006, the rating agency Standard & Poor’s gave Helvetia Schweizerische Versicherungsgesellschaft AG and Helvetia Schweizerische Lebensversicherungsgesellschaft AG an ‘A–’ rating with stable outlook. This quality mark acknowledges our extremely solid performance over the last years and reflects our strong equity base and excellent earning power. The new rating improved our market prospects significantly.
Significant dividend increase During the period under review, equity rose by CHF 257.6 million or 10.4% to CHF 2,738.4 million and the equity ratio increased 2.8 percentage points to an impressive 16.2%. In view of these pleasing results, the Shareholders’ Meeting will be asked to approve a dividend increase of CHF 4.50 (50%), taking the dividend to CHF 13.50 per share. At 35%, the payout ratio will be well within the target range.
Outlook Helvetia Group has made a good start to 2007. We are extremely well equipped to take advantage of any market opportunities that may arise. Our strategic priorities will allow us to develop our business with considerably more speed in future. We want to add momentum to our already healthy growth rate, cut our costs and efficiently utilise the capital at our disposal. To this end, we will focus on products with an attractive return and continue to consolidate our presence in the existing markets.
The success of Helvetia Group is the result of our strategy and developments on the market. But without the hard work, commitment and enthusiasm of our employees we could not have come this far. The Helvetia Group is in such excellent shape because of their tireless dedication. I would therefore like to thank them for their desire to achieve, their customer focus and for standing by Helvetia’s values on a daily basis. I should also like to thank our loyal customers and business partners, along with our faithful shareholders, for the trust they have placed in us.
Erich Walser Chairman of the Board of Directors and Chief Executive Officer
Definite financial objectives The new Group strategy has definite financial objectives: Attractive return on capital Financial strength Profitable growth.
Attractive return on capital The Helvetia Group aims at a sustainable return on capital employed of 15% after taxes. This target was exceeded in the outstanding financial year 2006. The ROE of the Group amounted to 16.2% compared to 13.4% in the previous year.
Sound financial strength Overall, the Helvetia Group has a sound financial base, which is also demonstrated by a comfortable solvency margin of 219%. The strength of our capital base is confirmed by the ‘A–’ rating with stable outlook awarded by Standard & Poor’s to Helvetia Schweizerische Versicherungsgesellschaft AG and Helvetia Schweizerische Lebensversicherungsgesellschaft AG in October 2006 after an interactive assessment examining the sustainability of our measures. This positive assessment increases our flexibility in the financial area by allowing us better access to the capital markets and to interesting financing instruments. It also makes it easier for us to secure adequate capital backing for operational risks and opens up strategic options.
The creation of added value for our customers is and will remain one of the guiding principles of our business activity. We want to further consolidate our excellent market position through innovative products and services geared towards the needs of our customers. Our new unified brand
will help us achieve this and strengthen Helvetia’s image as a particularly trustworthy but also very progressive and dynamic insurance group.
Target-oriented management of the business portfolio The Helvetia Group uses a modern, integrated concept to manage the business portfolio. Our management tools allow capital to be efficiently allocated to the individual business units with a focus on quality, return and risks. They also facilitate the establishment of definite and realistic targets concerning return for each country market and business segment. Furthermore, we use portfolio management to effectively direct the Group’s activities towards promising areas of operation with a view to the future.
As far as the strategic focus is concerned, we want to further consolidate our strong position in private customer and SME business in our home market of Switzerland and to systematically use the regional strengths in the foreign markets to achieve more aggressive growth over the coming years. The promotion of progressive unit-linked life products in all country markets is well under way. The targeted expansion of highly profitable niche segments, such as the transport business and assumed reinsurance, will make a further contribution to our success.
Improvement of operating performance Over the last few years, Helvetia has achieved significant improvement in operating performance.
In this area, we want to continue our efforts in all markets by, for example, establishing new distribution channels and cooperation programmes. While we will continue to bet heavily on the advantages of historically close insurancefocused and partially exclusive distribution outlets supported by mutual trust in all markets, our multi-channel approach will ascribe added significance to independent agents and brokers and alternative distribution outlets in all markets.
On the product front, we plan to make our standard products less complex and to launch new products designed to consolidate our competitive advantages.
Effective asset & liability management Achieving profitability targets depends, to a considerable extent, on the effective management of assets: the investment result is one of the most significant value drivers of profit in life business. Asset management also helps us to achieve our growth targets. A good investment performance gives us the opportunity to launch attractive life products (competitive profit participation and attractive investment products in general).
The total investment portfolio of currently around CHF 28.9 billion is managed in close collaboration between the local units and our specialists in Switzerland in accordance with uniform Group-wide criteria. This ensures that the Group’s asset management is effective, efficient and competitive.
Targeted risk management and effective financial management Risk management is one of the Group’s core competencies. It is another area in which we are committed to achieving top results for investors and policyholders. Our demands are correspondingly high. The need for up-to-date information relevant to management in the area of performance assessment and risk controlling is a top priority.
Effective management model Helvetia operates on the basis of a very lean and effective management model. In line with our principle of customer proximity, our strong local units see to business matters on site and are given the required autonomy, flexibility and responsibility. This decentralised structure is governed by the strategic and financial guidelines of the Group and clear core competencies subject to central control. In this way, the key interests of the group are safeguarded, without losing the necessary flexibility.
Core competencies include strategic management and financial controlling, risk management, asset and liability management as well as human resources management. They all safeguard synergies within the Group through central management and cross-national programmes. The new strategy attaches particular importance to the implementation of such measures and projects. Consequently, strategy controlling was further expanded to monitor strategy implementation.
Development of employees and management The continuing development of our employees and management is a key element of our new strategy. In future, our success will continue to depend on the skills and capabilities of our employees. As a medium-sized company, we place particular emphasis on being able to attract new employees and promoting our employees in a practical context. Our human resources strategy has been in place successfully for years. In future, we want to continue investing in promoting our employees’ skills and providing them with the tools that will attract new employees and develop the potential of existing employees. Particular attention is paid on an international level to sales employees, managers and the key functions in specialist areas. We will continue our current management development approach and expand our practice with a targeted exchange programme for managers and specialists within the Group, focusing on executive trainees.
Very well equipped for the future Helvetia is very well equipped and is going forward with definite strategic targets and programmes. Our activities will continue to be guided by the demands of our key stakeholders. We are aware of our commitment to them. The strategy we have adopted will ensure that our success is continued in future.
Mr Walser, what are your views on the business result achieved in 2006? In 2006, we achieved our best ever result. Helvetia has had an outstanding year and is in excellent shape. It is true that we have benefited from the good performance of the financial markets and a very positive claims experience, but this success is primarily due to our own achievements.
To what extent will shareholders benefit from this excellent result? Firstly, shareholders benefit from the extremely pleasing performance of our share. Secondly, the Board of Directors is proposing to the Shareholders ’ Meeting that the dividend be increased by 50% to CHF 13.50. This once again underlines the fact that we follow an income-focused and consistent distribution policy. The distribution quota this year is again within the target range.
What are your views on the course of business in the first quarter of 2007? As far as premiums are concerned, the positive results of the new growth strategy are becoming increasingly noticeable. The claims experience in the first few months of the current year has also been very favourable, not least thanks to the unusually mild winter. This was also not affected by the January storm Cyril. Costs are under control, and the cost ratio should improve considerably in tandem with premium growth. All in all, actuarial gains and a combined ratio well below 100% are also currently expected for 2007. Of course, the financial result for 2007 will ultimately also depend on the development of the capital markets.
At the end of August 2007, you will step down from your position as CEO of Helvetia Group. How would you sum up your time here? Personally, I already look back on my approximately 16 years as CEO of Helvetia Group with a great deal of satisfaction and pleasure. It has been an extremely exciting and successful time. Helvetia is currently in excellent shape and is well equipped for the future. I will still play an active role in the company as Chairman of the Board of Directors and will remain committed to the lasting success and good image of Helvetia Group. In addition, I will attend to my other tasks in the industry and, if elected, will take over the chairmanship of the Swiss Insurance Association.
• SGC = Strategy and Governance Committee • NCC = Nomination and Compensation Committee • IRC = Investment and Risk Committee • AC = Audit Committee
Office Joined1 Current term Committee memberships expires SGC NCC IRC AC
Erich Walser Chairman and CEO 2001 2007 •• + • + (CEO until end of August 2007)
From left to right: Pierin Vincenz, Silvio Borner, Christoph Lechner, Erich Walser, John Martin Manser, Urs Widmer, Ueli Forster, Olivier Vodoz, Hans-Jürg Bernet
St.Gallen, Chairman of the Welfare Fund and Pension Fund of the Forster Rohner Group; d in particular member of the Bank Council, Swiss National Bank, Berne; member of the board of the Swiss Textile Federation, Zurich, and Chairman of the board of directors of two non-listed companies.
Secretary of the Board of Directors: Thomas Oesch, Dr. iur., lawyer a Place of residence, nationality b Education, title c Professional background, executive responsibilities d Significant business relationships, mandates, official functions, political functions
Genossenschaft, Basel; Vice-Chairman of the International Committee of the Red Cross, Geneva; member of the board of directors of Union Bancaire Privée UBP, Geneva; member of the board of directors of Heritage Bank, Geneva; three further board mandates in non-listed companies and 13 board of trustee mandates.
Changes in Executive Management After more than 32 years of service, Hans Peter Haller, member of the Executive Management Switzerland, went into well-earned retirement at the end of November 2006. Over the last 13 years, he carried out many and diverse tasks as a member of the Executive Management. In France, the Head of Finance, Mr Bernard Fournier, retired at the end of September 2006. In Italy, Paolo Beccaria, Head of Information Technology, left the Helvetia Group at the end of January 2007.
Roland Geissmann, CFO and Deputy CEO of the Group, has decided to retire from his duties in mid-2007. He joined the former Patria in 1983. Since 1986, he has carried out the function of CFO, at first in the Executive Management of Patria and then in the present Helvetia Group, with specialist expertise, great personal dedication and much success. As Deputy Chairman of the Execu-
Executive Management of Helvetia Group tive Management, Roland Geissmann made an eminent contribution to the development of our business since the merger between Helvetia and Patria, in the success of which he played a vital role. We would like to thank him very much indeed.
The Board of Directors appointed Paul Norton as new Chief Financial Officer (CFO) of Helvetia Group. He will join Helvetia on 1.6.2007 and take up his function as CFO and member of the Executive Management on 1.7.2007.
He will drive forward the implementation of the 2010 Group strategy vigorously, while at the same time safeguarding the strength and continuity of the business.
Roland Geissmann (1948) a Binningen, Swiss b Postgraduate Professional Diploma in Business Economics, Swiss Certified Accountant c Deputy CEO of Helvetia Group, Head of Finance (CFO), responsible for the national market of France and for Reinsurance, Corporate Communications and Investor Relations; d various management positions at KPMG (formerly Fides) as an accountant and consultant; 1983 joined Patria: various management positions, including: Head of Staff Division of General Management, Member of the Management Committee, Head of Finance and Investments, Member of the Executive Management and later Deputy Chief Executive Officer of Patria; 1994 Member of Management and Deputy Chief Executive Officer of the Helvetia Patria Group: Head of Finance and Investments; from 1999 also responsible for Reinsurance; 2002 Spin-off and set-up of an independent investment division, restructuring of the CFO function as per section c with various mandates for subsidiaries of the Helvetia Group in Switzerland and abroad; e in particular member of the boards of trustees of the pension funds of Helvetia Versicherungen; member of the board of trustees of the Swisscanto Vested Benefits Foundation and the Swisscanto Supra Joint Foundation of the Cantonal Banks; member of the board of directors of Swisscanto Verwaltungs AG, Basel; member of the Economy and Finance Committee of the Swiss Insurance Association, Zurich.
c Head of Investments (CIO); d 1987 joined Patria: various management positions, including: Head of Portfolio Strategy and Portfolio Management, 1997 Member of Executive Management Switzerland: initially Head of Investment Clients, then Head of Individual Life; 2002 Member of Group Executive Management in current position with various mandates at subsidiaries of the Helvetia Group outside Switzerland; e in particular Chairman of the board of trustees of Patria Investment Foundation; Honorary Consul General of Austria in Basel; member of the board of directors of Tertianum AG, Berlingen.
Wolfram Wrabetz (1950) a D-Bad Soden, German b Prof. Dr. iur., Certified Business Administrator c Chief Executive Officer of Helvetia Germany; d various positions with the Gerling Group; 1981 joined Helvetia Germany: various management positions; 1995 General Manager for Germany and Chairman of Helvetia Leben and Helvetia International, D-Frankfurt/Main; 1998 joined the Helvetia Patria Group in current position; e in particular member of the Chairman’s and Professional Committee for Property Insurance and Chairman of the Legal Committee of the German Insurance Association, D-Berlin; member of the Insurance Advisory Council of the Federal Financial Supervisory Authority, D-Bonn; representative of the Hesse State Government for the insurance industry; Honorary Consul in Germany of the Republic of Ecuador in D-Frankfurt/Main.
a Place of residence, nationality b Education, title c Function d Professional background: date of employment and former functions at Helvetia Versicherungen e Other significant activities and interests, including mandates, official functions, political functions
For the Board of Directors, Executive Management and all employees of Helvetia, corporate governance is an ongoing process that is periodically reviewed and adapted in line with new developments, findings and requirements. Good corporate governance can only be truly effective if it is constantly oriented to the Group’s strategy and positioning. For further information, please refer to
Helvetia Holding AG, is organised in accordance with Swiss law. The management structure is shown on page 25. The organisational structure is intended to create the best possible legal, financial, fiscal and regulatory framework and to ensure smooth, efficient and flexible business operations.
The legal structure of the Helvetia Group (including investments in associates) is shown on page 14.
Helvetia Holding AG is the only listed company within the Group. The Group’s subsidiaries included in the scope of consolidation are listed on pages 172 and 173. Detailed reports on the main subsidiaries (Helvetia Schweizerische Versicherungsgesellschaft AG, St.Gallen [Helvetia Versicherungen ], and Helvetia Schweizerische Lebensversicherungsgesellschaft AG, Basel [Helvetia Leben]) can be found on pages 58 to 60, and in the Notes on page 177.
The pool agreement strengthens and promotes Helvetia’s strategic focus on co-operation in areas outside its core business (insurance), and supports the activities of the Group in crucial areas such as sales. It unites the co-operation partners of the Helvetia Group in their capacity as long-term investors with a strategic focus who share a common interest in ensuring that Helvetia remains independent and self-sufficient in its relationships with third parties as well as pool members, and is able to continue to develop going into the future in accordance with its adopted strategy and without undesirable negative influences. Pool members may only sell their holdings of Helvetia shares with the consent of the other members, who also enjoy the right of first refusal at market conditions. Beyond the scope of normal co-operation activities relating to consulting and the sale of financial, insurance and asset management products and services – in each case at market conditions – there are no significant business relationships between pool members and the Helvetia Group.
b) In view of the sound and close business relationship we have maintained for many years (and wish to continue to maintain) with Münchener Rückversicherungs -Gesellschaft (Munich Re), Munich, a holding of 8.2% has been agreed with this company. If Munich Re should decide to sell any of these shares, Helvetia may, under certain conditions, acquire them itself at market conditions or nominate a third-party buyer.
2. Capital structure 2.1 Share capital The share capital of Helvetia Holding AG amounts to CHF 86,528,750.
In December 2004, an approved capital increase of CHF 23,598,750 was effected by issuing 2,359,875 registered shares with a nominal value of CHF 10 each, as a result of which the share capital rose from CHF 62,930,000 to CHF 86,528,750.
2.4/2.5 Shares, participation certificates and dividend-right certificates The share capital comprises 8,652,875 fully paidup registered shares with voting and dividend rights with a nominal value of CHF 10 each. There are no preferential rights, participation certificates or dividend-right certificates. For further details concerning the Helvetia share, please refer to pages 74 and 75.
2.6 Restriction on transferability, nominee registration The Board of Directors may refuse to approve registration with voting rights if an individual should own more than 5% of the voting rights of the entire share capital recorded with the Com-
2.7 Convertible bonds and options a) Convertible bond: The Helvetia Group issued a convertible bond via Helvetia Finance Ltd., Jersey, which was redeemed as of 6.6.2005 (conditions, see Annual Report 2004). No convertible bonds have been outstanding since this date.
c) Employee options: The employee option programme was concluded as of the end of 2002, and expired at the end of October 2005.
See also the diagram and information provided on pages 20 to 23.
3.2 Other activities and interests The following business relationships exist with companies represented by members of the Board of Directors: In the shareholder pool, Silvio Borner, Marguerite Florio (until the 2006 Shareholders’
is regularly the case. In 2006, the Strategy and Governance Committee held four meetings, all of which were attended by all its members. Most of these meetings lasted approximately half a day.
b) The Nomination and Compensation Committee prepares the resolutions to be dealt with by the Shareholders’ Meeting regarding the appointment and dismissal of members of the Board of Directors. It puts forward proposals regarding personnel decisions to be taken by the Board of Directors, e.g. human resources planning, appointment, dismissal and method of remuneration of members of the Board of Directors, as well as salaries and remuneration of members of the Executive Management, and the nomination and dismissal of the heads and other members of the management boards of all national markets. It also specifies the level of fixed and variable salaries and remuneration of management personnel, periodically reviews the plans and measures aimed at supporting top management personnel, and approves the concept and strategy of employee benefit schemes in Switzerland (which are required to submit their annual accounts to the Committee) on the employer side. The Chairman and CEO cannot be a member, but may attend meetings in an advisory capacity at his own request. The Nomination and Compensation Committee convenes as often as business requires. In 2006, it held five meetings, all of which were attended by all its members, and most of these meetings lasted approximately half a day. In order to deal with specific issues, it may call on internal or external specialists to attend its meetings, which is regularly the case.
c) The Investment and Risk Committee formulates the investment concept, basic guidelines and investment strategy, proposes the strategic bandwidths of asset allocation, approves the investment strategy and supervises the investment activities of the Helvetia Group. It also makes investment decisions insofar as the Board of Directors has entrusted it with the corresponding powers, and supervises operational aspects of risk management, including reporting. It convenes as often as business requires. The heads of the Finance and Investment divisions attend its meetings in an advisory capacity and were present at all meetings. In order to deal with specific issues, it may call on internal or external specialists to attend its meetings, which is regularly the case. In 2006, the Investment and Risk Committee held three meetings, all of which were attended by all members (except for one reported absence). Most of these meetings lasted approximately half a day.
Chairman of the Board and CEO On 12.12.2003, the CEO of the Helvetia Group at that time, Erich Walser, was elected Chairman of the Board of Directors. He will continue exercising the joint function of Chairman of the Board and CEO of Helvetia Group until the function of CEO is taken over by Stefan Loacker on 1.9.2007. Since the executive management of both the Helvetia Group and Helvetia Switzerland had been restructured in 2003 and partially re-staffed, this temporary measure was regarded as the best solution in view of the special constellation of available senior management personnel. In keeping with the principles of good corporate governance and the provisions of the Swiss Code of Best Practice for Corporate Governance, the Board of Directors introduced a variety of adequate control mechanisms, including the function of Lead Director (see below).
3.6 Delineation of powers The Board of Directors possesses the following powers based on the inalienable and non-transferable duties stipulated in the provisions of Swiss company law, the articles of incorporation and the internal by-laws of the Helvetia Group: Overall management of the Group, Definition of the organisational principles, Definition of the structure and principles of accounting, financial control and financial planning,
Appointment and dismissal of members of the Group Executive Management, Overall supervision of the management of the Group’s business activities, Preparation of the Annual Report, Preparation of the Shareholders’ Meeting and the implementation of its resolutions, Approval of major legal transactions.
3.7 Information and control tools The Board of Directors is kept up to date in a variety of ways concerning the activities of Helvetia, its course of business and trends on the market. At its meetings, it requests information concerning: Content and outcome of matters dealt with by the various Board Committees, including all resolutions and proposals – all committees are required to submit copies of their minutes without delay, Course of business and market trends, to be provided by individual national managers and division heads, as well as main projects, to be provided by the persons responsible, as necessary, Status of compliance with budget and other annual objectives as well as strategic plan values for several years, Results and findings of external and internal auditors, which are discussed in the Audit Committee and recorded in its minutes, The most important risks, any changes to them and risk management measures that have been taken or are planned (also see pages 150 et seq.), Compliance with legal and regulatory provisions and internal regulations, Significant developments and events that could influence the interests of stakeholders, spontaneously on the occurrence of special events, otherwise in a detailed annual report and a condensed interim report.
4.1 Members of the Executive Management The composition of the Executive Management is presented on pages 26 and 27. The Executive Management of the Helvetia Group has been presided over by Erich Walser (CEO and simultaneously Chairman of the Board of Directors) since the establishment of Helvetia Holding. On 1.9.2007, he will hand over the function of CEO to Stefan Loacker. Together with division heads at Group level and the management boards of the
5. Remuneration, employee share purchase plans, loans 5.1 Calculation procedures and content of remuneration and employee share purchase plans The remuneration of members of the Board of Directors is determined annually by the overall Board on the basis of proposals submitted by the Nomination and Compensation Committee. The latter directly specifies the remuneration of members of the Executive Management. In 2005, an employee share purchase plan was introduced in Switzerland to allow employees to participate in the performance of Helvetia and thus to strengthen their personal ties to the company. Employees can now purchase registered shares of Helvetia at reduced prices. The number of available shares is specified by the Board of Directors, taking account of the financial results and the functions of the employees concerned. The purchase price is calculated on the basis of the average stock market price during the five trading days following the publication of the financial results. Participation in this scheme is voluntary. Purchased shares are blocked for a period of three years. The Board of Directors does not participate in this scheme.
In addition, the company contributed a total amount of CHF 507,571 as contributions toward pension plans.
5.5 Shareholdings As of the reporting date members of the Group Executive Management (including the Chairman and CEO) and persons close to them held a total of 4,464 shares while non-executive members of the Board of Directors and persons close to them held a total of 3,155 shares.
5.8 Loans to executive personnel As of the reporting date, mortgages granted to five members of the Executive Management and secured by real estate liens amounted to CHF 4,339,023. In the year under review, interest rates for loans granted in the form of fixed or variable mortgages at normal conditions ranged from 2.05% to 4.65%.
No loans were granted to non-executive members of the Board of Directors or to associates of members of the Board of Directors or Executive Management.
The Board of Directors specifies the necessary regulations governing participation at the Shareholders ’ Meeting and the determination of voting rights. For representatives of executive bodies, independent voting rights and custody proxies (who do not necessarily have to be shareholders themselves), it may stipulate regulations that deviate from the restriction of proxy voting to 10% of the share capital.
At the 2006 Shareholders’ Meeting, no shareholder with voting rights represented more than 10% of the voting rights, other than Patria Genossenschaft. No specific exceptions with respect to voting right restrictions or proxy voting were granted in the year under review.
Shareholders who possess voting rights but who do not attend the Shareholders’ Meeting may assign their voting rights to a third party (who do not necessarily have to be a shareholder) by means of a written power of attorney. However, he or she may only represent the voting rights of third parties if, together with his or her own shares, they do not exceed 10% of the total share capital. Here, too, shareholders who are connected to each other by way of capital or votes or by united management or in any other form count as one shareholder.
6.2 Statutory quorum A quorum is constituted at the Shareholders’ Meeting regardless of the number of shareholders in attendance and votes represented by proxy. Unless stipulated to the contrary by legal provisions or the articles of incorporation, the Shareholders’ Meeting passes resolutions by an absolute majority of submitted votes. In addition to the resolutions cited in Art. 704 par. 1 of the Swiss Code of Obligations, a two-thirds majority of represented votes is also required for amendments to the articles of incorporation, the premature termination of office of more than one member of the Board of Directors, and the liquidation of the company.
6.3 Convening the Shareholders’ Meeting The Shareholders’ Meeting is convened by the Board of Directors, or if necessary by the auditors. This right also applies to liquidators and representatives of creditors.
As a rule, the Ordinary Shareholders’ Meeting is held in May, but at the latest within six months after the end of the financial year. Extraordinary Shareholders’ Meetings are convened as necessary.
Shareholders with voting rights who together represent at least 10% of the share capital may request a Shareholders’ Meeting in writing, stating the items on the agenda and the motions to be put forward. Every shareholder receives a personal invitation not later than 20 days before the meeting, including a detailed agenda, a brief explanation of the motions to be put forward, plus other explanations concerning significant occurrences in the year under review. The items on the agenda also have to be published in various Swiss newspapers and in the electronic media.
8.2 Audit fees In the year under review, the fees charged by the auditors amounted to
These fees primarily concern services associated with the implementation of new software and tax consulting services.
8.4 Supervision and control of audit External audit The Audit Committee prepares the election of company and Group auditors, which, as a rule, is scheduled to rotate approximately every seven years. It supervises and assesses their activities, predominantly through the external auditors’ reports on audit results, the reporting process, decisions (e.g. on IFRS issues) and statements in the local audits. Important findings are summarised in a management letter.
For the first time, Helvetia has published the embedded value for its life insurance business in this Annual Report, thereby bringing even more transparency to its financial reporting.
Embedded value measures the shareholder value of the life insurance portfolio and is made up of the adjusted equity plus the value of the insurance portfolio less the solvency costs.
The embedded value was determined in full for all Helvetia Group companies that handle life business. In addition to the life business in Switzerland, the life business in the EU countries Germany, Austria, Spain and Italy was also considered.
Embedded value after tax on 31.12. in CHF million of which value of insurance portfolio 801.0 753.5 of which adjusted equity 1089.0 986.5 of which solvency costs –370.6 –366.9 of which value of insurance portfolio 225.5 186.7 of which adjusted equity 224.8 198.6 of which solvency costs –88.0 –84.8 of which value of insurance portfolio 1026.5 940.2 of which adjusted equity 1313.8 1185.1 of which solvency costs –458.6 –451.7
Embedded value as at 1 January 1 673.6 Operating profit from insurance portfolio and adjusted equity 138.2 Value of new business 2006 21.7 Economic changes, including changes to unrealised gains and losses on investments (equities and real estate) 64.9 Dividends and movement of capital –27.3 Foreign currency translation differences 10.6 Embedded value on 31 December 1 881.7
–10% change to fair value of equities –3.1% –10% change to fair value of real estate –8.3% +1% change to new money rate +7.3% –1% change to new money rate –9.6%
New business 2006 2005 Switzerland Value of new business in CHF million 17.1 13.8 Annual premium equivalent (APE) in CHF million 117.0 129.9 Value of new business (APE) in % 14.6% 10.6% Present value of new business premiums (PVNBP) in CHF million 1183.0 1286.2 Value of new business (PVNBP) in % 1.4% 1.1%
In 2006, Helvetia was assessed for the first time on financial strength and counterparty credit risk in an interactive rating process by the leading international rating agency Standard & Poor’s. As a result,
Management development firmly reinstated The Advanced Leadership Programme successfully implemented in recent years for Executive Management members and senior executives and for key staff for Group functions or from the business units will be further developed. These efforts will pursue the objectives already in place, namely to promote unified strategic management and a mutual exchange of knowledge and experience, and to strengthen personal performance capabilities and the Group network. Unified Group-wide HR and succession planning will maintain the practice of filling open positions with in-house staff at least at its current high level: presently, two thirds of all vacancies in the first two levels of management.
Helvetia Annual Report 2006 management instruments such as management by objectives, situational management, team-building and personal work organisation. In Switzerland, a new Helvetia Leadership Programme is being put together with an eye to supporting managers in implementing the new corporate strategy and goals.
Mission statement featuring three new core values At the launch of the new single brand strategy for the entire Group and the redesigned Helvetia logo, the mission statement was revised and a set of values selected. The three pivotal core values are trust, dynamism and enthusiasm and apply to all Group employees. On the first day of the new logo, all employees in Switzerland discussed and found out how these values were to apply at the workplace. Helvetia Austria used the logo changeover as an opportunity for a comprehensive makeover of its corporate culture. In the course of the project, all employees gathered in Vienna shortly before the name change for a joint event entitled ‘Welcome Helvetia’. There they found out more about the company’s repositioning and explored in small group discussions the possible contributions they might make to the process. As the result of a satisfaction survey, a joint ‘Helvetia Day’ attended by all employees was staged in France as the final event to activities and meetings. Helvetia Italy launched a campaign called ‘Conosciamoci tutti’ to strengthen communications and cooperation and staged its first ever New Staff Day, where the focus was on the Helvetia brand and the values associated with it.
The German operations recently began using a similar electronic tool for recruiting.
A special health project is currently running for employees 40 and older in Switzerland. One hundred and seventy employees are involved on a volunteer basis in this joint project with the University of Karlsruhe.
Consistently high level of employee satisfaction Helvetia emerged once again in 2006 as the best insurance company in the CASH Employer Award.
Among the 70 leading employers in Switzerland that participated, Helvetia ranked number 21. HR also had this same research institute conduct an employee survey on all staff working in Switzerland. The main focus was on employee identification with and level of dedication to the company.
In 2006, we increased our profit by 40.4% yearon -year, achieving our best ever result of CHF 423.8 million. Equity rose in the reporting period by 10.4% to CHF 2,738.4 million. The equity ratio increased by 2.8 percentage points to an outstanding 16.2%. On the premium front, we stood out from our competitors in many areas and were able to gain further market shares in 2006. Direct non-life business deserves particular mention. This segment saw a significant premium increase of 3.5% in the past year compared with 2005, while the gross combined ratio improved 2 full percentage points to 93.2%.
In total direct business, the 2.3% increase in 2006 was also substantially lower than in the previous year (6.5%), although this can be attributed to the very distinct slowdown in growth in the life segment. On the other hand, non-life business registered a considerable increase of 3.5% on the previous year. This is very pleasing, considering that motor vehicle insurance continued to suffer price erosion during the past year in most European countries. The greatest growth in direct non-life business in 2006 was seen in Italy (4.4% in local currency) and Switzerland (4.2%), followed by Spain at 3.2% in local currency. We were able to significantly increase our shares of the market in both Italy and Switzerland. In the other markets, development was more or less in line with the trend in each country and we maintained our positions.
Once again, the largest contribution to profits came from the non-life business, which posted a pre-tax profit of CHF 321.6 million in 2006, a year-on-year improvement of 22.5%. Total life business shot up by 32.0% in the reporting year to CHF 184.6 million. In the segment ‘Other’, pre-tax profit more than tripled compared to 2005.
All business units once again generated profits in 2006. Switzerland contributed CHF 289.0 million (or 51%) to the total pre-tax profit of CHF 562.2 million. Excellent development in non-life business gave a year-on-year improvement of CHF 68.6 million or 31.1%. In Spain, the pre-tax profit shot up to CHF 110.1 million, up on 2005 by 76.1%. This dramatic increase is not only due to operational progress, but also to various special effects.
While non-life business continued to impress, our expectations of the life business were not completely met. In the segment ‘Other’, both assumed reinsurance and France and Austria delivered double-digit CHF million results. This represents a dramatic year-on-year increase for assumed reinsurance. Austria and France dropped slightly below the previous year due to the negative claims experience.
Improved equity ratio Equity increased in the reporting period by CHF 257.6 million or 10.4% to CHF 2,738.4 million, mostly due to the record results. The equity ratio rose by 2.8 percentage points to an outstanding 16.2%. Total investments grew in 2006 by 4.1% to CHF 28.9 billion. At 3.1%, investment performance fell short of the excellent performance of the previous year (5.5%): while the non-life financial result improved, the life result fell compared to the extraordinarily good result of the previous year.
The net technical reserves increased by 4.7% to CHF 25.1 billion and the funding ratio improved by 5.5 percentage points to 154.6%.
Profit contribution from non-life remains high In non-life, profit before tax in the reporting year improved against 2005 by a further 22.5% to CHF 321.6 million. Once again, all countries delivered positive results in the double-digit CHF million range. In Switzerland, a significant profit increase was posted thanks to the very favourable claims experience. Assumed reinsurance shone, as did Spain, where the already excellent result of the previous year was again surpassed in 2006, also under the influence of the special effects mentioned above. In the other areas, the pre-tax profit slipped compared to 2005, particularly due to the negative claims experience. In Germany, two major hail storms and several fires had a negative effect. In Italy and France, claims ratios were also slightly higher than the extraordinarily good ratios for the previous year. Austria suffered considerably from the consequences of heavy winter snowfalls.
Distinctive increase in life profit Total life earnings increased in the year under review by 32.0% to CHF 184.6 million, in particular due to a clear improvement in the risk experience for death and disability. Falling gains/losses on investments were absorbed by correspondingly reduced expenses for future profit participation. The substantial reinforcement of provisions for future profit participation made in the previous year in the wake of the excellent investment performance allows the seamless continuation of the budgeted distributions.
Insurance benefits paid –1412.2 –1380.6 –2219.9 –2224.1 Change in loss reserves/actuarial reserves –53.6 –156.0 –749.1 –876.1 Insurance benefits/cost of investment contracts –1465.8 –1536.6 –2969.0 –3100.2 Cost of policyholders’ dividend –2.7 –3.0 –164.0 –288.9 Interest insurance business 0.1 0.1 –33.8 –33.8 Technical costs –764.0 –734.3 –284.7 –274.5 Total actuarial profit/loss (gross) 163.2 114.7 –620.2 –903.9
Insurance benefits/cost of investment contracts –1330.8 –1312.8 –2943.2 –3079.5 Cost of policyholders’ dividend –2.7 –3.0 –164.0 –288.9 Interest insurance business 0.1 0.1 –33.8 –33.8 Technical costs –708.4 –676.5 –278.0 –266.7 Total net actuarial profit 127.6 126.4 –629.2 –911.8
The first steps in this direction were taken during the past financial year. In particular, equities, investment funds and alternative investments were increased slightly from 13.3% to 14.2%, while bonds were kept at the same level as in the previous year (51%), also due to falling interest rates.
Interest on interest-bearing securities 453.3 430.3 Dividends on shares, unit certificates and alternative investments 56.0 52.9
Hedging costs totalled CHF 63 million. Currency hedges became considerably more expensive due to interest differences in short maturities, accounting for CHF 48 million or 76% of total costs. The remaining costs can be attributed to the equity investments. These costs are offset by extraordinary gains of CHF 291 million.
Outlook Although the growth curve will probably flatten somewhat in comparison to the dynamic development in the past year, we are expecting the economic climate to remain favourable. Despite current high levels, equity markets do not seem to be overvalued. Interest rates will probably rise moderately. In line with our investment policy, we want to use this situation to align the maturity of our bond portfolio with the maturity of liabilities and to moderately expand the equity portfolio.
The Swiss economy benefited last year from the still robust economic upswing that also improved consumer sentiment. The gross domestic product is estimated to have grown by 2.7% in 2006. The good economic climate significantly reduced the number of unemployed.
Insurance market After the record-setting bad weather of the year before, the entire industry profited in 2006 from a year with less claims. The financial markets were shaped by continuing low interest rates and booming share prices. For the non-life market, the Swiss Insurance Association expects premium growth of 1.8% in 2006 (based on projections) and a decline of 2% in the same period for the volume of premiums in individual and group life business. The debate continues on the desired features of occupational benefits to employees on retirement. The Swiss Federal Council was heavily criticised by some when it released its statement on reducing the pension conversion rate to 6.4% effective 1.1.2011. The revision of legislation on storm and tempest claims following the worst weather in a century in 2005 led to corresponding adaptations in obligatory premiums and deductibles that were implemented by the majority of insurance companies in 2006.
Over the past year, we also changed our brand name from Helvetia Patria to Helvetia in order to differentiate ourselves more strongly in insurance market communication. This includes the company ’s activities as a skiing sponsor.
Gross premiums in 2006 from direct non-life business in Switzerland in CHF million
In keeping with above-average growth and a lack of large claims, our combined ratio declined to the outstanding level of 82.9%, gross (88.9%, net).
To be the leader in terms of sales strength and access to customers: We have a unique distribution network. In addition to the full market coverage of our sales force and our market access through brokers, we rely in particular on our cooperation with the Raiffeisen Group in the private customer business. In the basic occupational benefits business, our decades of sales cooperation with the Cantonal Banks open up particularly attractive customer segments. Above and beyond that, we continuously establish new distribution partnerships and channels for defined products and implement programmes for specific customer groups, for example customers aged 50+.
Improved actuarial performance Finally, we seek to improve our actuarial results. To this end, we are taking concrete actions to move toward greater efficiency, shorter processing times and better service quality. In further developing our business model, we emphasise product simplification and the optimisation of business processes, the continued development of e-business solutions and continuous improvements in the quality and service mentality.
Helvetia Germany very profitable again The 2006 profit before tax improved 59.1% yearon -year to an excellent EUR 32.6 million. This achievement was made possible by the significantly improved results for the life business, where our market share increased substantially. Compared to the good performance in the previous year, non-life profits fell slightly under the influence of a negative claims experience. Nonetheless, the non-life segment still accounted for around twothirds of the total pre-tax profit in 2006.
In 2006, the German economy developed more dynamically than experts originally predicted. This is due on the one hand to exports, and on the other by the fact that domestic demand fortunately regained momentum after years of stagnation. The growth in the gross domestic product of around 2.5% was driven by investments as well as recovering private consumption.
Differentiated growth in the insurance industry Premiums in the German insurance market increased by approximately 2.2% in the last financial year, with the growth more or less restricted to the personal insurance segment. With an extrapolated premium income increase of 3.0%, German insurance companies can look back on a rather successful 2006. This is partly due to the fact that the willingness to assume individual responsibility for pension provision increased in the wake of the government’s pension reforms, but the economic boom mentioned before also had a positive impact.
Gross premiums in 2006 from direct non-life business in Germany in EUR million
Excellent non-life result In tune with developments on the market, non-life gross premiums fell slightly by 1.5% in 2006. Our consistent pursuit of our strategic income targets also led to some premium erosion. For example, we consciously refrained from taking part in the price war in the motor vehicle segment. In the transport and industrial business, we selectively underwrote only risks in specific fields, thereby foregoing significant volumes of business. At 95.2%, the 2006 gross combined ratio was very good, even though the year-on-year increase was around 5 percentage points. This is due to the negative effects of two hail storms and several big fires. The cost ratio was also affected slightly by premium erosion.
Life business set on a growth path In 2006, we again outperformed the sector trend with double-digit growth (+12.7%) and increased our market share even further. This outstanding growth is owed primarily to the CleVesto product family, which received a number of awards from independent sources, and the new, exclusive asset management product Helvetia PrimeInvest. We were also able to expand our business with independent brokers and to reinforce our own sales team. The road is clear for us to successfully position ourselves in the German life insurance market.
Investing in the future A new IT application system was introduced with a view to optimising our business processes in the private insurance segment. The Porta sales force system was developed further for use by our own sales force and adapted to the new EU agent guidelines. The profil.as system was implemented in a bid to provide better customer care and support to our free agents.
In compliance with Group guidelines, our strategy to ensure sustainable and profitable growth is supported by additional investments in the development of products and sales and tighter cost management.
Clear growth slowdown in the insurance market Despite the overall economic recovery outlined above, decreasing growth rates were recorded on the Italian insurance market last year. This applies to the life segment in particular, where new contract conclusions decreased by approximately 9% in the first nine months compared to the same period in the previous year, and premiums were reduced by approximately 4%. The banking channel remained the leader as far as life products are concerned, but lost some clout to the agent channel. It is interesting to note that approximately 94% of the premium total still goes to life policies with single premiums across the entire market.
Last year, a growth slowdown to below 2% was posted in the non-life business. In particular, this can be attributed to the ongoing aggressive price war in the motor vehicle liability business, by far the most important segment.
Gross premiums in 2006 from direct non-life business in Italy in EUR million
In 2006, Helvetia Italy also expanded its agency network to strengthen sales. At present, approximately 300 non-exclusive agencies work for us in the non-life business. In addition, we have relationships with about 125 brokers. Approximately 350 representatives are currently working for Helvetia Vita. Moreover, there are approximately 10 sales agreements with banks. Geographically, the focus of our business activities remains on the economically interesting northern provinces of the country.
To a certain extent in 2006, Helvetia Vita experienced a consolidation phase in the life business, following the enormous increases of the past two years (2004: +42.5%, 2005: +67.5%), whereby premiums decreased by approximately 24%. This was also due in part to income considerations, as we were very cautious in concluding policies with high single premiums. In addition, as outlined above, the entire life business was clearly in the doldrums. However, in 2006, Helvetia Vita continued to show very satisfying trends in the area of traditional risk and savings/investment products.
Helvetia Italy is convinced that, as a focused player and specialised provider in the private client and SME segments, it will continue to operate successfully in the future and continue to grow profitably. This confidence is clearly justified in the light of the performance that we have achieved in the recent past.
Continuing momentum in the insurance market According to initial estimates, market growth in life insurance in 2006 was around 9%. In the near future, possibly a somewhat more modest development is to be expected, following the abolition of tax privileges for life insurance as part of the tax reforms.
In non-life business, sector growth last year is expected to be around 6%. The multi-risk and health insurance business showed particularly satisfactory developments. In contrast, the motor vehicle segment continued to suffer price pressures. Growth in this segment was below 5%, whereby average premiums – in spite of the generally high extent of insurance coverage – decreased by approximately 2% on average.
Gross premiums in 2006 from direct non-life business in Spain in EUR million
Gross premiums in 2006 from direct life business in Spain in EUR million
Excellent earnings trends In 2006, pre-tax earnings rose by approximately 73% to an outstanding EUR 69.9 million. This massive increase is not only due to operational developments but also to various exceptional influences. One of the positives was the revaluation of our property holdings. In addition, it should be borne in mind that profit in the previous year suffered because of the considerable reinforcement of technical reserves in the life segment.
Strategic focus In the next few years, growth is to be explicitly emphasised and the market share of Helvetia Spain consolidated with lasting effect – without endangering the currently excellent level of earnings. Furthermore, additional obvious progress must be achieved with regard to the cost ratio – also via appropriate volume increases.
The strategic focus of Helvetia Spain supports these ambitions as follows: Targeted strengthening of cross-selling activities Special loyalty programmes for brokers and agents Improved sales efficiency and effectiveness measures within the company Greater focus on life with regard to products and sales Launching target-group-specific product innovations Continuation of the proven quality and service orientation
In 2006, the Austrian economy also saw a revival. With export momentum on the rise, stimulated by the economic upswing in the neighbouring countries of Eastern Europe, gross domestic product increased in real terms by 3.2%.
Moderate market growth In 2006, the insurance industry saw below-average volume growth of 1.9%, with the growth mostly driven by the non-life segment (+2.8%). With growth of just 0.8%, the life segment fell far short of expectations, in particular because single premiums lagged 12.2% behind the previous year’s volumes. Regular-premium products, however, reported an increase of 6.4%.
Among the employees, the brand change and related market offensive triggered positive momentum. It became clear soon after the launch of the advertising campaign on 2.10.2006 that the new image was well received by the public. The company lost hardly any customers as a result of the name change from ANKER to Helvetia, and has already won many new customers.
Transport insurance as a strong niche business The Helvetia head office for Austria specialises in transport insurance and once again achieved very good results for the reporting year. Existing sales cooperation programmes were successfully strengthened and the traditional good actuarial quality of the business portfolio remained at a high level.
Taking into account the fact that prospects for the Austrian economy continue to be good, we are convinced that these measures will allow Helvetia Austria to continue on this successful path to healthy growth in 2007.
In France, last year’s growth in gross domestic product is expected to have been about 2%. In 2006, consumer prices are expected to have increased by approximately 2%, as in the previous year. At the same time, unemployment decreased slightly to around 9%. In 2006, the transport segment, which is important for our business, stagnated at the previous year’s level.
Our head office in France is located at Courbevoie, which is close to the industrial and financial centre of Paris – la Défense. The transport department there creates approximately half the total turnover within its assigned region, which includes Paris, the north, the west and the southwest of France. The other geographic zones are covered by representative offices in Lyon, Marseille and Colmar.
Forecast for the 2007– 2010 strategy period In the medium term, we see improvement potential in the area of cost ratios. We want to make further progress through process optimisation in administration and sales. The thrust initiated by the new strategy comprises the optimisation and upgrading of the sales organisation in order to achieve additional market penetration. It also includes the development of new products that are even more specifically adapted to customer and sales requirements, as well as the enhancement of our expertise as a transport insurance specialist and further targeted marketing.
Helvetia France is convinced that it will continue to operate successfully in the highly competitive transport insurance market and generate the profitable growth required in the future.
The 2006 renewal season was heavily influenced by the natural disasters of 2005. The reinsurance market thus remained tough and market conditions remained attractive for us. Technically speaking, prices and conditions were at a very respectable level.
Premium development At around CHF 193 million, total premium income for 2006 was down on the previous year by approximately 16%. However, it should be noted that our assumed reinsurance business focuses on income rather than volumes.
In the past year, our reinsurance book remained well proportioned. The property segment had the highest weighting, accounting for almost half of total premiums.
Outlook remains attractive We were also extremely satisfied with the 2007 renewal season, as the good terms and conditions could be maintained in many areas. Although we have opted out of the North American disaster business, we are expecting premium volume to reach approximately CHF 210 million this year, not least thanks to our new, interactive ‘A–’ rating which is bearing fruit. In terms of profit, we are expecting another very good result in 2007, provided that the claims experience is normal. The January storm Cyril is not likely to change this situation.
Helvetia Annual Report 2006 2006 was the fourth consecutive good year for equity markets. The environment was almost ideal and the mood was better than it has been for a long time. Inflation stayed within limits and interest rates remained low. Brief concerns about burgeoning inflation and the doldrums on the US real estate market caused a temporary slump in May and June, but the wars and crises in Iraq, North Korea and Lebanon did not manage to upset the capital markets. Good corporate profits and brisk acquisition and merger activities also considerably boosted investor confidence.
Seen overall, the European and US equity markets recorded significant growth in the past year. Only Japan, which was still at the top of the table in 2005, lagged behind. The SPI was up 20.7% in 2006, ensuring that the Swiss stock exchange did very well compared to the other European exchanges.
Outstanding performance of our share Helvetia’s share improved by 44.4% last year, making it one of the best performers on the Swiss stock exchange. It outperformed both the insurance stock index (17.7%) and the Swiss Performance Index (20.7%). This impressive performance was principally due to the consistent implementation of our strategy and the resulting excellent business result. Very good recommendations from numerous financial analysts and notable banking institutions also had a positive impact.
Stable shareholder structure and strong shareholder loyalty Our shareholder structure changed only slightly in the past year, which means that our ownership base remained very stable. As of 31.12.2006, a total of 4,366 registered shareholders were entered in the share register. The investor groups comprise: Investor information
Helvetia Group Consolidated equity (in CHF million) 2738.4 2480.8 Consolidated equity per share (in CHF) 319.1 290.0 Group profit for the period per share (in CHF) 49.3 36.2 Return on equity (ROE) 16.2% 13.4%
Year-end (in CHF) 401.5 278.0 High for the year (in CHF) 404.5 278.0 Low for the year (in CHF) 271.0 169.0
Payout ratio: n based on Swiss GAAP FER 27% 30% – – n based on IFRS – 37% 34% 35%
Environmental activities in Switzerland Helvetia has supported the WWF Eastern Switzerland environmental award (‘Der Grüne Zweig’ [The Green Branch]) for four years. This prize honours families, school classes, groups or private individuals who have displayed great commitment to preserving the environment in which we live. In 2006, this award was granted to the Gartenhag team, which earned this honour for the great work it has done on behalf of the environment. The Gartenhag team intends to invest the cash prize in future ecological projects.
Environmental activities in Germany Energy-conserving housing Helvetia Germany began its largest construction project in Hamburg in 2006. A total of 156 rental flats are being thoroughly refurbished or newly built. The ‘Altenhagener Weg’ residential district is located in a spacious park-like area complete with landscaping and trees. The sunny flats from the post-WW II era have always attracted enthusiastic tenants, but no longer meet contemporary requirements. Their floor plans have therefore been altered to create more open space. The result is large, comfortable and modern flats that meet all requirements and offer larger family-friendly living spaces.
Environmental protection combined with health A major German health insurance institution and the German cyclists club ADFC launched a campaign to promote commuting to work by bicycle (‘Mit dem Rad zur Arbeit’), which was supported by the German Federal Ministry of Transport, Building and Urban Affairs. Helvetia took part in this national programme, and Helvetia employees at five different business locations cycled to work on at least 20 workdays during this period.
Sponsoring activities The partnership entered into in 2005 with Swiss Ski continued successfully in the year under review. Helvetia believes in Switzerland as a ski nation and views this commitment as an investment in the next generation of Swiss skiers. We expect this commitment to help us gain more visibility and a better position in the market.
We again supported the Robinson Children Circus financially in the year under review. Over 1,200 Helvetia customers enjoyed the programmes created and staged by children.
As a Swiss company, Helvetia acted as a main sponsor for the open-air production of Carl Orff’s ‘Carmina Burana’ set against the historical backdrop of the St.Gallen Klosterhof. This newly created cultural arena served as the venue for two exclusive customer events.
Group-wide corporate responsibility Helvetia Italy continued its support of a research centre for psychoanalysis for new symptoms (Jonas Onlus) in the year under review. This organisation researches the interconnections between the demands of modern life, the associated symptoms and the social situation. Another project that was supported involves a foundation that promotes classical music by staging concerts of the United Europe Chamber Orchestra and the Associazione Gruppo Betania Onlus. Its purpose is to assist and help young people from difficult family backgrounds and social settings.
Interest and dividend income 7.1.1 704.4 675.7 Gains and losses on investments (net) 7.1.3 290.9 506.9 Income on investment property 7.1.4 186.4 189.1 Other income 89.4 98.8
Claims incurred including claims handling costs (non-life) –1 465.8 –1 536.6 Claims and benefits paid (life) –2 226.3 –2 234.6 Change in actuarial reserve –738.0 –849.8 Policyholder dividends and bonuses –166.7 –291.9 Reinsurers’ share of benefits and claims 160.8 244.5 Net insurance benefits and claims –4 436.0 –4 668.4 Acquisition costs –647.4 –625.2 Operating and administrative expenses –509.3 –476.4 Interest payable –41.6 –51.0 Other expenses –29.5 –88.6 Total operating expenses –5 663.8 –5 909.6
Finance costs 8.1.1 –6.0 –9.3 Share of profit or loss of associates 1.8 –7.1 Profit or loss before tax 562.2 420.2 Income taxes 10 –138.4 –118.3
Consolidated financial statements of Helvetia Group 2006 81 1 Details on this item can be found under 'Consolidated statement of equity'
Property and equipment 5 526.2 426.1 Goodwill and other intangible assets 6 68.6 62.4 Investments in associates 7.2 46.2 45.2
Loans (LAR) incl. money market instruments 7.4 6 743.2 6 379.0 Held-to-maturity investments (HTM) 7.5 3 469.7 2 781.0 Available-for-sale investments (AFS) 7.6 11 863.7 11 832.2 Financial assets at fair value through profit or loss 7.7 2 914.9 2 862.0 Receivables from insurance business 9.5 638.1 600.7 Deferred acquisition costs (life) 9.4.1 219.8 221.6
Deferred tax assets 10.4 49.6 39.0 Current income tax assets 1.5 2.9 Other assets 151.7 127.7 Accrued investment income 323.3 306.8 Cash and cash equivalents 121.2 172.4
Capital reserves 636.1 628.1 Treasury shares –17.1 –24.4 Unrealised gains and losses (net) 11.2.4 127.9 182.3 Foreign currency translation differences 15.6 0.1
Capital Treasury and losses in CHF million Share capital reserves shares (net)
Fair value revaluation of investments – – – 112.3 Change in liabilities for contracts with participation features – – – –47.2 Foreign currency translation differences – – – – Deferred taxes – – – –20.6 Gains/losses recognised directly in equity (net) – – – 44.5 Profit for the year – – – – Total recognised income – – – 44.5
Valuation Foreign reserves for Total currency contracts with before translation Retained participation minority Minority differences earnings features interests interests Total equity 11.2.5
Reclassifications to investing and financing activities (affecting cash): Realised gains and losses on property, equipment and intangible assets 0.2 –1.2 Realised gains and losses on sale of associates 0.0 –0.2 Dividends from associates –0.6 –0.6
Change in operating assets and liabilities: Deferred acquisition costs (life) 2.4 12.7 Reinsurance assets 128.0 –347.1 Actuarial reserve 738.8 867.1 Provisions for future policyholder participation 98.7 194.6 Loss reserves 44.8 173.2 Unearned premium reserve 27.5 –0.5 Financial liabilities from insurance business –256.7 213.6 Changes in other operating assets and liabilities –54.0 307.7 Purchase of investment property –81.9 –70.1 Sale of investment property 30.8 60.5 Origination of loans (LAR) and money market instruments –55 758.8 –58 061.0 Repayment of loans (LAR) and money market instruments 55 464.2 58 096.8 Purchase of held-to-maturity investments (HTM) –978.9 –680.1 Repayment of held-to-maturity investments (HTM) 309.9 345.7 Purchase of available-for-sale investments (AFS) –4 781.8 –5 155.9 Sale of available-for-sale investments (AFS) 4 775.8 4 549.5 Purchase of financial assets at fair value through profit or loss –698.6 –656.6 Sale of financial assets at fair value through profit or loss 876.5 518.1 Cash flow from operating activities (gross) 194.7 307.5 Income taxes paid –81.2 –52.8
Effect of exchange rate differences on cash and cash equivalents 2.8 0.5
Due from banks 119.4 169.7 Other cash equivalents with a maturity of less than three months 0.2 0.0 Balance as of 31 December 121.2 172.4
1. General information 90 2. Summary of significant accounting policies 91 3. Segment information 105 4. Foreign currency translation 112 5. Property and equipment 113 6. Goodwill and other intangible assets 114 8. Financial liabilities 126 9. Insurance business 129 10. Income taxes 134 12. Provisions, contingent liabilities and other commitments 141 13. Employee benefits 142 14. Share-based payments 147 15. Related party transactions 148 16. Risk management 150 17. Events after the reporting date 171 18. Scope of consolidation 172
1. General information 90 ment and financing activities are managed through subsidiaries and fund companies in Luxembourg and Jersey (UK).
Helvetia Group is an all-lines insurance group which operates in many life and non-life business segments as well as in reinsurance. The holding company, Helvetia Holding AG with headquarters in St. Gallen, is a Swiss public company listed on the Swiss Stock Exchange (SWX). The Group operates through its branch offices and subsidiaries in the insurance markets of Switzerland, Germany, Austria, Spain, Italy and France, and worldwide in assumed reinsurance business. Parts of its invest1. General information
The consolidated financial statements of Helvetia Group were prepared in accordance with International Financial Reporting Standards (IFRS) and under the historical cost convention with the exception of adjustments resulting from the IFRS requirement to record investments at fair value. The fair value valuation methods are explained in Note 2.4 (page 93).
Effective date: to be applied for annual periods beginning after n IFRS 7 – Financial instruments: disclosures 1.1.2007 n IFRS 8 – Operating segments 1.1.2009 n Amendment to IAS 1 – Capital disclosures 1.1.2007 n IFRIC 8 – Scope of IFRS 2 1.5.2006 n IFRIC 9 – Reassessment of embedded derivatives 1.6.2006 n IFRIC10 – Interim financial reporting and impairment 1.11.2006 n IFRIC11 – Group and treasury share transactions 1.3.2007 n IFRIC12 – Service concession arrangements 1.1.2008
2. Summary of significant accounting policies 93 objective and substantial evidence for impairment at the balance sheet date.
Associates of the Helvetia Group are listed together with the fully consolidated subsidiaries in Note 18 (beginning on page 172).
Joint ventures are also recorded using the equity method if the entity is jointly controlled. Joint control is the contractually agreed sharing of control over an economic activity. The Helvetia Group is not currently involved in any joint ventures.
Foreign currency translation Items included in the financial statements of those entities that do not have the Swiss franc as their reporting currency were translated using the applicable closing rate. Items in the income statement are translated at the average exchange rates for the reporting period. The resulting translation differences are recorded in 'Foreign currency translation differences' in equity, not affecting profit or loss. Upon disposal of a subsidiary, these differences, attributable to the subsidiary in question and accumulated in equity, are released through income. The rates applied in these financial statements are listed in Note 4.1 (page 112).
The individual entities translate balance sheet items denominated in foreign currencies as follows: monetary and non-monetary balance sheet items, which are recorded at fair value, at closing rates, and non-monetary items, which are recorded at cost, at historical rates. 'Monetary items' include cash and cash equivalents, assets and liabilities for which the Helvetia Group either receives or pays a fixed or determinable amount of money.
'In an active market' means that the prices are made available regularly, either by a stock exchange, a broker or a pricing service, and that those prices represent current and regular market transactions.
For financial assets, the fair value is the quoted bid price, and for financial liabilities it is the quoted ask price.
n Derivative financial instruments: The fair value of equity and currency options is determined using option price models (Black-Scholes option pricing), while the fair value of forward exchange rate agreements is determined on the basis of the forward exchange rate on the reporting date. The fair value of interest rate swaps is calculated using the present value of future payments.
If the range of possible fair values is very large and reliable estimates cannot be made, the financial instrument is valued at cost, less any impairment losses.
Impairment of goodwill Capitalised goodwill is tested annually for impairment. The procedure is described in Note 2.9 (page 96). The recoverable amount is calculated on the basis of several assumptions, which are documented in Note 6 (page 114).
Assets and liabilities are classified as current if they are expected to be realised or settled within twelve months after the reporting date. All other assets are considered to be non-current.
The following items are fundamentally classified as non-current: 'Property and equipment', 'Goodwill and other intangible assets', 'Investments in associates ', 'Investment property' and 'Deferred tax assets and liabilities'.
All other positions are of a mixed nature. The differentiation between current and non-current balances of relevant positions is set out in the notes. The maturity schedule of financial assets, financial liabilities from insurance business and reserves for insurance and investment contracts is described in Note 16.4 (beginning on page 160) as part of the risk assessment process.
The following rates of depreciation apply to owner-occupied property: n Supporting structure 1.5%–3.5% n Interior completion 2.0%–8.0%
If the lease agreements transfer all risks and rewards incidental to the ownership to Helvetia Group, the leases are classified and treated as finance leases. The finance lease agreements of the Helvetia Group are limited to lessee agreements. At inception of the lease agreement, recognition occurs at the lower of the present value of the minimum lease payments and the fair value of the lease object. A finance lease obligation of the same amount is recorded as a liability. Lease payments are apportioned between the finance charge and reduction of the outstanding liability so as to achieve a constant rate of interest on the remaining balance of the liability. The depreciation of the asset follows the rules for depreciating tangible assets.
2. Summary of significant accounting policies 96 2.8 Goodwill and other intangible assets
Acquired intangible assets are recognised at cost and amortised over their useful life, normally three to ten years. Other intangible assets also include intangible assets developed by the company, principally internally developed software that is recorded at cost and amortised from the date on which it enters service. Amortisation is recognised in the income statement in the position 'Operating and administrative expenses'. Intangible assets with an indefinite useful life are not amortised, but are reviewed annually for impairment (see Note 2.9).
An intangible asset is impaired if its carrying value exceeds its recoverable amount. The recoverable amount is measured as the higher of fair value less cost to sell and value in use. Fair value less cost to sell is the amount obtainable from the sale of an asset at current market conditions after deducting any direct disposal costs. Value in use is the present value of estimated future cash flows expected to be generated from the continuing use of an asset and from its disposal at the end of its useful life. For the purpose of impairment testing, the value in use is measured under realistic conditions, with consideration given to planned activities and their resulting cash in- and outflows. If the carrying value exceeds the recoverable amount, the difference is recognised in the income statement as an impairment loss and reported under 'Other expenses'.
For the purpose of impairment testing, goodwill is allocated at the time of acquisition to those cash generating units (CGU) that are expected to benefit from the business combination. These are in general identical to the legal entities of the Helvetia Group. If there is no intention to sell, the value in use of the CGU is determined and compared to the carrying value for the purpose of calculating any impairment loss. The value in use is calculated applying the discounted cash flow method (DCF), with future operating cash flows less necessary operating investments (free cash flows) being included. If there is an intention to sell, the fair value less cost to sell is used for impairment testing. If an impairment loss arises, the goodwill is adjusted accordingly. An impairment loss for goodwill cannot be reversed.
2. Summary of significant accounting policies 97 2.10 Investments 2.10.1 Investment property The aim of the investment property portfolio is to earn rentals or achieve long-term capital appreciation. Property held for investment purposes includes both land and buildings and is carried at fair value. Changes in fair value are recognised in the income statement. Companies in Switzerland calculate fair value using a model-supported valuation method, whereas all other countries use independent experts to determine market estimates at least every three years. These estimates are updated between valuation dates.
The model-supported valuation method considers various factors: building type, extent of renovations, loss in value due to age, expected rental income as well as location, desirability, rents for comparable objects, maintenance needs, operating costs and future expectations with regard to the environment. The portfolio is regularly reviewed and appraisal reports prepared by independent experts.
The Helvetia Group does not capitalise properties where it acts as tenant in an operating lease relationship. Rental income is recognised on a straightline basis over the lease term.
Financial assets are initially recognised at fair value. Directly attributable transaction costs are recognised as assets, except for financial assets at fair value through profit or loss which are recorded in the income statement. The Helvetia Group records all acquisitions and disposals of financial instruments at trade date. Derecognising a financial investment occurs on expiration of the contract or at disposal if all risks and control have been transferred and if no rights to cash flows from the investment are retained. Through its securities lending activities, the Group lends out certain securities to other companies for a certain period of time and against payment. The securities lent to third parties remain under the control and in the portfolio of the Helvetia Group. Revenues from securities lending are recorded in the income statement under 'Interest and dividend income'.
Loans (LAR) and financial assets that the Group has the intention and ability to hold to maturity (HTM) are carried at amortised cost (AC). LAR claims are not traded on an active market. The Helvetia Group usually generates them by directly providing funds to a debtor.
Interest income is recognised on an accruals basis and subject to the asset’s effective rate of interest
2.10.3 Impairment of financial assets The carrying values of financial assets that are not classified as 'At fair value through profit or loss' (LAR, HTM, AFS) are regularly reviewed for impairment. If objective and substantial evidence indicates permanent impairment at the reporting date, the difference between cost and the recoverable amount is recognised as an impairment through profit or loss. An equity instrument is considered impaired if its fair value falls below cost considerably or constantly. Debt instruments are considered impaired if it is probable that not all amounts due under the contractual terms will be collectible.
For LAR and HTM financial investments, the recoverable amount at the reporting date is equivalent to the present value of estimated future cash flows discounted at the original interest rate. The impairment is reversed through profit or loss if a subsequent event causes a decrease in the impairment loss.
For AFS financial assets, the recoverable amount at the reporting date equals the fair value. For non-monetary AFS financial assets, such as shares and shares in investment funds, any additional impairment loss after the initial impairment is immediately recognised in the income statement. The impairment is not reversed, even if the circumstances causing the impairment cease to apply.
Valuation gains are recognised in equity until disposal. For monetary AFS financial assets, such as bonds, the impairment is reversed through profit or loss if the circumstances causing the impairment cease to apply.
2. Summary of significant accounting policies 99 of premiums from policyholders are recognised in the income statement and recorded in the position 'Other income'. The policyholder’s deposit is directly credited or debited with the investment portion of the premium.
Insurance contracts as defined by IFRS comprise all products containing a significant insurance risk. The significance is assessed at product level.
Contracts that are considered insurance products in the formal sense of the law and mainly carry financial risk rather than any significant insurance risk are treated as financial instruments unless they carry a discretionary participation feature (DPF), in which case they are classified as insurance contracts. Under IFRS, discretionary participation features are contractual benefits where, in addition to the guaranteed benefit, the policyholder has a claim to the realised or unrealised investment returns on certain assets or to a share of the insurance company’s profit or loss. This additional benefit must form a significant proportion of the overall contractual benefit, and its amount or timing must be at the insurance company’s discretion.
2.13.1 Non-life business The actuarial items in non-life business are established Group-wide on the same principles. All nonlife insurance products of Helvetia Group contain significant insurance risk and are reported in the balance sheet as insurance contracts.
Reserve estimates and the assumptions on which they are based are reviewed continuously. Valuation changes are taken to profit or loss at the time of the change.
A Liability Adequacy Test (LAT) is carried out on every reporting date to determine whether, taking into consideration expected future cash flows, the existing liabilities of each business line (property, motor vehicle, liability, transport and accident/ health insurance) at all Group companies are sufficiently covered up to the reporting date in order to ensure a loss-free valuation. Expected future premium income is compared to expected claims expenses, expected administration and acquisition costs and expected policyholder dividends. If the expected costs exceed the expected premium income, the loss reserves are increased.
2. Summary of significant accounting policies 100 accounted for as unearned premium reserves. The cost of claims is assigned to the relevant period.
2.13.2 Life business The Helvetia Group classifies all life insurance products containing significant insurance risk as insurance contracts.
The valuation and accounting principles applied locally by the life companies determine the actuarial items in life business. The assumptions made in setting the reserves are based on best estimate principles that, firstly, take account of the businessspecific situation, such as existing capital investments and the market situation as well as, for example, possible yields from reinvestments, and secondly, local actuarial bases of calculation (e.g. interest rates, mortality). The assumptions vary according to country, product and year of acceptance, and take account of country-specific experiences.
Financial derivatives embedded in insurance contracts that are not closely related to the host contract are recognised at fair value. Option pricing techniques are used to assess embedded derivatives. Such embedded derivatives are accounted for under 'Other financial liabilities', separate from the actuarial reserve under 'Other financial liabilities '.
2.13.3 Reinsurance Reinsurance contracts are contracts between insurance companies. As in primary insurance business, there must be sufficient risk transfer for a transaction to be booked as a reinsurance contract, otherwise the contract is considered a financial instrument.
Indirect business ceded to insurance companies outside the Group is called retrocession. The principles of ceded business apply in this instance.
Deferred tax assets and liabilities are calculated using the tax rate changes enacted or substantively enacted as of the balance sheet date. Deferred taxes are recognised for all temporary differences between the carrying values of assets and liabilities and the tax bases of these assets and liabilities, using the liability method. Deferred tax assets from losses carried forward are recorded only to the extent that it is probable that future taxable profit can be offset against the relevant losses. Deferred tax assets and liabilities are offset when an enforceable legal right was granted by the tax authorities in question to set off actual tax assets and liabilities.
Interest income on interest-bearing financial investments and loans that are to be allocated to the reporting year is accrued or deferred under financial assets.
Non-actuarial provisions contain current obligations that will probably require an outflow of assets, but the extent of such obligations and the time they will be called on are difficult to determine. Provisions are created if, on the balance sheet date and on the basis of a past event, a current obligation exists, the probability of an outflow of assets is high and the extent of the outflow can be reliably estimated.
Other long-term employee benefits are benefits that fall due 12 months or more after the balance sheet date. At the Helvetia Group, these consist mainly of long-service awards and are calculated using actuarial principles. The amount recognised in the balance sheet is equal to the present value of the defined benefit obligation less any plan assets.
The management structure of Helvetia Group is primarily based on country markets. Each country has its own management which is in charge of the operational management of all local business units. This has created the following reporting segments: Primary segmentation at Helvetia Group is structured by geographical areas and follows the management responsibility: Switzerland, Germany, Italy, Spain and others. The segment 'Others' covers the country markets of Austria and France, the financing companies in the UK and Luxembourg, as well as the Group’s assumed and ceded reinsurance business. Special purpose entities are assigned to the individual countries in proportion to their ownership structure. With the exception of the reinsurance business, the geographical segmentation is based on the location of the legal entity where all service-rendering activities occur. This segmentation also reflects the locations where customers of Helvetia Group reside.
Secondary segmentation is based on business segments of Helvetia Group: life and non-life business and other activities. In the life segment, Helvetia Group offers various product lines, such as life insurance, pension plans and annuities. The nonlife segment offers property, motor vehicle, liability and transport insurance policies as well as health and accident insurance coverage. Other activities refer to the reporting of the non-underwriting activities of the Group’s service, distribution and real estate companies. Special purpose entities are proportionally assigned to the life and non-life segments. Reinsurance contracts are reported in the life or non-life segment depending on the type of contract.
Other disclosures: Assets by geographical segment as of 31.12. 23 383.4 22 870.5 2 787.7 2 619.4 of which investments in associates 43.6 43.0 – –
Liabilities by geographical segment as of 31.12. 21271.1 20 986.4 2 422.6 2 275.5 of which technical provisions (gross) 18 764.6 18 224.8 2 025.6 1 833.4
3. Segment information 108 3.2 Segment information by business segment in CHF million
Claims incurred including claims handling costs (non-life) – – –1 465.8 –1 536.6 Claims and benefits paid (life) –2 226.3 –2 234.6 – – Change in actuarial reserve –738.0 –849.8 – – Policyholder dividends and bonuses –164.0 –288.9 –2.7 –3.0 Reinsurers’ share of benefits and claims 25.8 20.7 135.0 223.8 Net insurance benefits and claims –3 102.5 –3 352.6 –1333.5 –1 315.8 Acquisition costs –156.7 –158.3 –490.7 –466.9 Operating and administrative expenses –214.9 –195.6 –292.0 –280.1 Interest payable –39.8 –50.2 –1.5 –0.5 Other expenses –15.7 –30.9 –19.3 –58.2
Finance costs – – – – Share of profit or loss of associates 0.9 –8.0 0.9 0.9 Profit or loss before tax 184.6 139.9 321.6 262.5 Income taxes
Acquisition of owner-occupied property, equipment and intangible assets 61.7 50.7 28.3 24.9 Depreciation and amortisation on tangible and intangible assets –10.0 –14.5 –18.5 –24.9 Impairment of tangible and intangible assets affecting income – –1.3 – –2.7 Reversal of impairment losses on tangible and intangible assets affecting income – – – –
3. Segment information 110 3.3 Gross premiums by geographical and business segment in CHF million
Gross premiums Elimination Total consolidated Change Change in % in %
Other non-life: Other life: Notes to the consolidated financial statements of Helvetia Group 2006
3. Segment information 111 3.4 Gross premiums by business line in CHF million
The foreign exchange results in the consolidated income statement show a profit of CHF 97.7 million in 2006 (previous year: CHF 5.2 million). The foreign exchange gains and losses from financial investments are included in 'Gains and losses on investments' in the consolidated income statement and amount to CHF 80.0 million (previous year: CHF 19.9 million) excluding foreign currency translation differences from investments at fair value through profit or loss. Other foreign exchange results are reported under 'Other income' and 'Other expenses'.
Accumulated depreciation/ impairment: Change in the scope of consolidation – – – – – – – – – –
Book value as of 31 December 5.4 5.4 373.0 376.7 20.4 21.1 127.4 22.9 526.2 426.1 of which assets under finance lease – – – – – –
Accumulated amortisation/impairment: Change in the scope of consolidation – – – – – –
Reversal of impairment losses – – – – – – Disposals amortisation/impairment – – –0.1 –6.7 –0.1 –6.7
Book value as of 31 December 24.2 23.3 44.4 39.1 68.6 62.4 Book value as of 1 January 23.3 22.3 39.1 43.4 62.4 65.7
'Other intangible assets' of Helvetia Group largely consist of purchased and internally developed software. Helvetia Group has currently not deferred any intangible assets with an indefinite useful life.
'Goodwill' comprises the goodwill resulting from the acquisition of Helvetia Compañía Suiza S.A. (formerly: Previsión Española S.A.), Seville, in 2000. The book value of the resulting goodwill stood at CHF 24.2 million on the balance sheet date (previous year: CHF 23.3 million). The change compared to the previous year results exclusively from monetary influences. For the purpose of impairment testing, goodwill is fully assigned to the cash generating unit (CGU) Helvetia Compañía Suiza, which is part of the geographical segment Spain. Goodwill is tested annually for impairment in accordance with Note 2.9 (page 96).
Interest and dividend income 704.4 675.7 7.1.2 Direct yield of interest-rate-sensitive financial assets in %
Investment funds 16.2 16.9 Alternative investments – – Derivative financial instruments –102.9 –22.0 Realised and book gains and losses on financial assets held for trading –83.1 –3.0
Notes to the consolidated financial statements of Helvetia Group 2006 7.1.4 Income on investment property in CHF million
Dividend income from associates totalled CHF 0.6 million (previous year: CHF 0.6 million). Income and expenses in respect of associates are reported in the income statement under 'Share of profit or loss of associates'.
All associates of Helvetia Group have the same reporting period as the entity holding the investment.
Long-term liabilities 103.7 96.6 Short-term liabilities 25.4 18.3 Total liabilities 129.1 114.9
Capitalised subsequent expenditure 37.8 48.0 Disposals –30.8 –60.5 Realised and book gains and losses –40.2 –31.1 Transfer from/to property and equipment –19.1 33.4 Foreign currency translation differences 14.4 2.2
Notes to the consolidated financial statements of Helvetia Group 2006 7.4 Loans (LAR) incl. money market instruments in CHF million
Impairments of CHF 4.6 million (previous year: CHF 5.0 million) were recognised for loans and mortgages up to the balance sheet date, whereas no impairment of bonds was recorded.
There was no impairment of bonds up to the reporting date.
Notes to the consolidated financial statements of Helvetia Group 2006 7.6 Available-for-sale investments (AFS) in CHF million
Acquisition cost after impairment/ Unrealised gains/ amortised cost losses net Fair value
Total financial assets at fair value through profit or loss 2 593.6 2 672.6 2 914.9 2 862.0
The majority of the private equity investments held under the position 'Alternative investments' was sold during the year. As the transfer agreement does not meet the criteria for derecognition of these investments before the balance sheet date, they were included in the financial statements at fair value. The fair value as of 31.12. reflects the agreed transfer price, adjusted by distributions received and contributions made by the Group between the date of valuation and the accounting date. The buyer will assume future rights and obligations in respect of the investments on completion of the sale.
Notes to the consolidated financial statements of Helvetia Group 2006 7.7.1 Derivative financial assets in CHF million
Options (exchange-traded) 6.9 – – 6.9 – 0.0 – Futures (exchange-traded) – – – – – – – Total equity and equity-index instruments 835.4 82.5 – 917.9 922.7 2.7 0.4
Notes to the consolidated financial statements of Helvetia Group 2006 7.8 Investments by business segment in CHF million
Total financial liabilities from financing activities 199.1 198.8 201.4 206.0 8.1.1. Bonds Helvetia Holding AG, St. Gallen, issued the 3% bond 2004–2010 in the 2004 financial year. It has a nominal value of CHF 200 million and pays interest at 3% over the bond’s maturity of six years. The effective interest rate used for the valuation is 3.14%. Repayment at nominal value is scheduled for 5.5.2010. The bond is measured at amortised cost. At the reporting date, the bond’s book value stood at CHF 199.1 million. Interest expenses of CHF 6.0 million for the bond were recognised in the income statement under 'Finance costs'. The bonds do not include financial covenants that will significantly change the conditions of the contract (e.g. maturity, interest rate, securities and currency).
Deposit liabilities from reinsurance contracts 405.7 483.9 405.7 483.9 405.7 483.9 Total financial liabilities at amortised cost 1 289.4 1 428.2 1 289.4 1 428.2 1 289.4 1 428.2
Deposit liabilities from reinsurance contracts consist of reserves for unearned premiums, future loss payments and actuarial reserves for direct (ceded) and indirect (retroceded) business as well as deposits of future cash flows from non-traditional reinsurance business.
Total other financial liabilities 11.3 12.4 37.2 32.1 8.3.1 Derivative financial liabilities in CHF million
Maturity profile of contract values Contract value Fair value as of 31.12. <1 year 1–5 years >5 years 2006 2005 2006 2005
Options (over-the-counter) – – – – – – – Options (exchange-traded) – – – – – – – Futures (exchange-traded) – – – – – – – Total interest rate instruments – – 110.0 110.0 – 0.0 –
Equity and equity-index instruments: Forwards – – – – – – –
Options (exchange-traded) – – – – – – – Futures (exchange-traded) – – – – – – – Total equity and equity-index instruments 42.0 82.5 – 124.5 80.3 0.7 1.5
Currency instruments: Swaps – – – – – – – Options (over-the-counter) – – – – – – – Options (exchange-traded) – – – – – – – Futures (exchange-traded) – – – – – – –
This item also contains receivables from nontraditional reinsurance for which a corresponding liability exists on the liabilities side of the balance sheet.
Provision for policyholder participation – non-life contracts 26.0 25.6 – – 26.0 25.6 Provision for policyholder participation – life contracts 710.0 646.0 – – 710.0 646.0 Provision for policyholder participation – investment contracts 6.2 16.7 – – 6.2 16.7 Total provision for future policyholder participation 742.2 688.3 – – 742.2 688.3
Loss reserves for insurance contracts non-life 9.3.1 2 886.1 2 792.0 264.9 326.2 2 621.2 2 465.8
Unearned premium reserve for insurance contracts non-life 726.2 682.5 19.1 16.0 707.1 666.5 Unearned premium reserve for insurance contracts life 164.3 162.2 10.2 9.9 154.1 152.3 Unearned premium reserve for investment contracts – – – – – –
9. Insurance business 130 9.2 Change in the reserves for insurance contracts and investment contracts with discretionary participation
Balance as of 1 January 149.3 148.5 Change in the scope of consolidation – –
Run-off year 5 1 650.5 Estimated claims after year of loss occurence 1 650.5 1 518.8 1 631.1 1 815.7 1 708.6 Accumulated claims paid as of 31 December –1 444.5 –1 265.0 –1 203.9 –1 321.2 – 726.0 Estimated loss reserves as of 31 December 558.8 206.0 253.8 427.2 494.4 982.6 2 922.8
Loss reserves as of 31 December 2 886.1 9.3 Non-life business
Insurance conditions and risks in non-life business are described in Note 16.2 (beginning on page 152). The following table details the development of loss reserves for the previous five years.
9. Insurance business 133 9.4.1 Deferred acquisition costs (life) in CHF million
Balance as of 31 December 219.8 221.6 9.5 Receivables and liabilities from insurance business in CHF million
Due from/due to policyholders 289.8 231.5 626.9 666.2 Due from/due to agents and brokers 77.4 80.2 46.1 39.8 Due from/due to insurance companies 270.9 289.0 30.5 48.4
Notes to the consolidated financial statements of Helvetia Group 2006 9.4 Life business
The actuarial reserve is normally calculated in a three-step process. In a first step, the actuarial reserve is computed based on local standards. These include applicable local parameters such as interest rates, mortality, surrender rates, expenses and additional biometric parameters which are usually set at the time of contract conclusion and vary by country, year of issuance and product. In the reporting year, no substantial adjustments to the parameters used for the calculation were made that would have had a material impact on the calculation of the actuarial reserve.
Liability Adequacy Test. The share of 'Deferred acquisition costs' classified as short-term is CHF 34.6 million (previous year: CHF 35.5 million).
10. Income taxes 134 10. Income taxes 10.1 Current and deferred income taxes in CHF million
Balance as of 1 January 418.7 355.9 Change in the scope of consolidation – – Deferred taxes recognised in equity –43.9 40.8 Deferred taxes recognised in the income statement 39.3 21.6 Foreign currency translation differences 2.6 0.4 Reclassifications –0.6 –
Balance as of 31 December 416.1 418.7 10.3 Expected and actual income taxes in CHF million
The expected tax rate applicable to Helvetia Group was 25% for 2006 (previous year: 27%). The change compared to the previous year largely originates from Switzerland and is based on a known reduction in income taxes in the Canton of
Notes to the consolidated financial statements of Helvetia Group 2006 10.4 Deferred tax assets and liabilities in CHF million
Composition of deferred taxes in the balance sheet: Unearned premium reserve 19.6 18.1 – 0.0
As of 31.12.2006, no tax assets were recognised for losses carried forward of CHF 22.3 million (previous year: CHF 22.8 million). Of this amount,
CHF 0.3 million will expire after two to three years, CHF 10.2 million after four or more years, and CHF 11.8 million will not expire.
The fully paid up registered shares of Helvetia Holding AG have a nominal value of CHF 10 each (previous year: CHF 10). The purchase of registered shares of Helvetia Holding AG is not subject to any restrictions. Shareholders who purchase the shares in their own name and on their own behalf are entered in the share register with voting rights for a maximum of 5% of the issued registered shares. Individuals who do not explicitly certify in the registration application that they acquired the shares on their own behalf are entered in the share register for a maximum of 3%.
In the reporting year, 30,000 shares from the company’s own stock were sold. The number of treasury shares thus fell to 70,312 shares. The CHF 2.9 million gain arising from the sale was credited to capital reserves without affecting profit or loss.
Share capital: Treasury shares: Purchase/sale of treasury shares –300 000 –3.0
Shares outstanding: Notes to the consolidated financial statements of Helvetia Group 2006 11.2.1 Capital reserves Capital reserves consist of assets paid in by third parties. Capital reserves primarily comprise the share premium of shares issued by Helvetia Holding AG and the result from treasury share transactions.
The position is adjusted at the balance sheet date by the portion relating to contracts with discretionary participation features. The portion reserved for the owners of contracts with participation features is transferred to 'Liabilities', while the remaining portion regarding contracts with participation features is allocated to the 'Valuation reserves for contracts with participation features in equity' (see Note 11.2.5).
Notes to the consolidated financial statements of Helvetia Group 2006 11.2.5 Valuation reserves for contracts with participation features The valuation reserves for contracts with participation features are set up for bonuses from insurance and investment contracts that arise from IFRSrelated adjustments, impact either on the result or unrealised gains, and are not considered a liability for policyholders under country-defined 'legal quotas '. The reserves comprise portions from unrealised gains and losses on investments relating to contracts with profit participation recognised directly in equity, and portions from retained earnings arising from valuation differences relating to the same contracts. The use of the reserves is at the insurer’s discretion (see Note 2.13.2, page 100).
Unrealised gains and losses on contracts with participation features: Balance as of 1 January 278.0 189.4 Change in unrealised gains and losses –85.0 88.5 Foreign currency translation differences 0.5 0.1 Balance as of 31 December 193.5 278.0 less: Deferred taxes –48.4 –68.4 Unrealised gains and losses as of 31 December 145.1 209.6
Valuation reserves for contracts with participation features as of 31 December 608.8 588.6
Deferred taxes recognised directly in equity arise from valuation differences that primarily result from the fair value valuation of AFS financial assets and value changes related to the transfer of property. On the reporting date, they amounted to a total of CHF 95.3 million (previous year: CHF 137.4 million).
Basic earnings per share (EPS) are calculated on the weighted average number of shares outstanding of Helvetia Holding AG and the portion of the Group’s net profit for the year attributable to shareholders. Diluted earnings for both reporting periods correspond to the basic earnings, as no no convertible instruments or options that could have a dilutive effect are outstanding.
Profit for the year less minority interests 423024441 301 364 150 Weighted average number of shares outstanding 8572021 8 330 341
Helvetia Group is required to report to the Federal Office of Private Insurance (BPV) in Switzerland and the Rome-based 'Istituto per la Vigilanza delle Assicurazioni Private' (ISVAP) in its function as the European Supervisory Office. At the end of 2006, the ISVAP delegated this function to the BPV, which is now also responsible for Helvetia Group in its supervisory function as Lead Supervisor.
12.2 Contingent liabilities and other commitments 12.2.1 Capital commitments At the balance sheet date, financial commitments amounted to CHF 34.4 million (previous year: CHF 63.4 million) for the future acquisition of investments.
12.2.2 Assets pledged or assigned Helvetia Group has pledged assets of CHF 30.5 million (previous year: CHF 30.2 million) as security for liabilities. They all relate to financial assets pledged to cover liabilities arising from the underwriting business.
12.2.4 Legal proceedings The Group is involved in various legal proceedings, claims and litigation that are mostly related to its insurance operations. However, Group management is not aware of any case that could significantly impact the Group’s financial position.
12.2.5 Other contingent liabilities Helvetia Group has issued letters of credit for CHF 80.1 million (previous year: CHF 59.3 million) to third-party insurance companies as security for reinsurance business. Under the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans, Helvetia Schweizerische Lebensversicherungsgesellschaft AG, Basel, has given a guarantee agreement towards collective foundations for CHF 0.5 million. Contingent liabilities amounted to CHF 15.7 million as of the balance sheet date.
13. Employee benefits 142 13. Employee benefits 13.1 Personnel costs in CHF million
'Other long-term employee benefits' principally contain liabilities for service awards. There were no employee contingent obligations or employee contingent receivables.
Helvetia Group had 4,595 employees as of 31.12.2006 (previous year: 4,619).
In Switzerland, employees are covered by the 'Pensionskasse der Helvetia Versicherungen' foundation (Pension Fund of Helvetia Versicherungen) with registered office in St. Gallen. It was founded with the purpose of providing occupational benefits to employees on retirement and disability as well as after their death to their surviving dependants in accordance with the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG). The benefits provided by the pension fund meet at least the statutory minimum required by the BVG. Contributions to the pension fund are set as a percentage of the employee’s pensionable annual salary, deducted from the salary by the employer and transferred every month to the pension fund, together with the employer’s contributions.
–133.4 –18.9 Present value of unfunded obligations (+) 126.7 123.8 Unrecognised actuarial gains (+) or losses (–) –28.2 –35.9 Unrecognised past service cost (–) – – Amounts not recognised as assets 238.0 117.3
Present value of the defined benefit obligation as of 31 December 1395.7 1379.0 13.3.3 Movement in the fair value of plan assets in CHF million
Fair value of plan assets as of 31 December 1402.4 1274.0 13. Employee benefits 144
The position 'Other amounts' contains vested benefits brought into the pension fund of CHF 21.1 million (previous year: CHF 19.8 million). In Switzerland, expected pension liabilities of CHF 55.5 million and plan assets of
CHF 26.4 million were additionally recognised in this position in the 2005 reporting year on the basis of the integration of benefit plans now classified as 'defined'.
Total net pension costs 47.9 40.2 Actual return on plan assets 133.5 58.5 13.3.5 Principal actuarial assumptions (weighted averages) in %
Net pension costs for defined benefit plans are recognised in the income statement under 'Operating and administrative expenses'. Expected employer contributions toward defined benefit plans for the next year amount to CHF 33.1 million.
Plan assets include shares issued by Helvetia Holding AG with a fair value of CHF 83.9 million as of 31.12.2006 (previous year: CHF 61.4 million). Plan assets do not include any of the Group’s owner-occupied properties.
Equity instruments 17 – 39 Debt instruments 41 – 62 13. Employee benefits 146
Surplus (+) / deficit (–) 6.7 –105.0 Experience adjustments on plan liabilities 0.9 –46.2
Expected long-term rates of return on plan assets are based on the long-term expected interest rates and risk premiums and on the target plan asset allocation. These estimates are based on historic rates of return for individual asset classes and are made by specialists in the field and pension actuaries.
Share purchase plan The Helvetia employee share purchase plan enables the privileged acquisition of registered Helvetia Holding AG shares. The plan allows employees to directly participate in the Group’s success at favourable terms. All employees of Helvetia Group in Switzerland are eligible if they are in regular employment (not on notice) and entitled to variable compensation. The Board of
Patria Genossenschaft is the largest shareholder and owns 30.1% of Helvetia Holding AG. Its purpose is to strengthen the Helvetia Group’s development and economic independence and to safeguard the interests of its members who take out life insurance policies from Helvetia Schweizerische Lebensversicherungsgesellschaft AG, Basel. On the balance sheet date, Patria Genossenschaft owned 2,603,894 shares of Helvetia Holding AG. The dividend payment of CHF 26.0 million (previous year: CHF 15.9 million) to Patria Genossenschaft and the contribution of CHF 5.0 million (no contribution was made in the previous year) by Patria Genossenschaft to the surplus fund of Helvetia Schweizerische Lebensversicherungsgesellschaft AG were the only significant transactions in the reporting period. Patria Genossenschaft is represented in the shareholder pool of Helvetia Holding AG, St. Gallen, with 29.8%. The other members of the pool, Vontobel Beteiligungen AG, Zurich, and Raiffeisen Schweiz, St. Gallen, are both entered in the share register with a holding of 4%. The shareholder pool thus owns a total of 37.8% of Helvetia Holding AG.
There are, however, business relations with companies represented by them, such as the Vontobel and Raiffeisen Groups as well as Patria Genossenschaft. Apart from ordinary cooperation in respect of advice and the sale of financial and insurance products and services and asset management services, no substantial business relations exist between them and the Helvetia Group. All transactions that take place as part of this cooperation are carried out on an arm’s length basis. With the exception of two common Board members with Vontobel Holding AG, there are no other crossdirectorships with listed companies. Other functions and mandates with third-party companies held by members of the Board and Executive Management are listed in the Corporate Governance section on pages 30, 31 and 37 of the Annual Report.
At the reporting date, members of the Group’s Executive Management (including the Chairman and CEO) and their close family members held a total of 4,464 shares (previous year: 3,114). In the reporting year, these persons acquired 1,625 shares, of which 925 were acquired under the employee share purchase plan (see Note 14, page 147). Non-executive members of the Board of Directors and their close family members owned 15. Related party transactions 15. Related party transactions 148
Total compensation for the reporting period paid to members of the Group Executive Management (including the Chairman and CEO) is summarised in the table below: Notes to the consolidated financial statements of Helvetia Group 2006 in CHF 2006 2005
The eight serving non-executive members of the Board of Directors (without the Chairman and CEO including M. Florio until the 2006 Shareholders’ Meeting) received fixed salaries for the reporting year of CHF 1,238,001 plus a variable component dependent on the operating results of the 2006 business year and the share performance in the form of 842 shares at a market price of CHF 528 with a minimum holding period of three years.
Risk management helps to ensure that the fundamental company objectives are obtained and contributes to the effective protection of the equity base of Helvetia Group and its subsidiaries.
The risk transparency created through risk management also enables the risk-appropriate allocation of capital, thus supporting financial management.
16.1.1 Risk management organisation The Board of Directors of Helvetia Holding AG and the Executive Management are the supreme risk owners of Helvetia Group. The Board of Directors of Helvetia Holding AG is responsible for establishing and maintaining appropriate internal controls and the risk management organisation of Helvetia Group. It is the Board’s responsibility in particular to: n Set risk policy principles that support the development of risk awareness and a risk and control culture in the company; n Ensure appropriate control of the effectiveness of internal control systems through the Executive Management; n Ensure the implementation of comprehensive risk management procedures that allow for the efficient allocation of risk capital and the systematic control of risks through the Executive Management; n Set a risk strategy/partial risk strategy that encompasses the risk management objectives of all fundamental business activities; n Set risk tolerance limits and monitor the risk profile of the Group and every individual company.
Within the stipulated framework, the Board of Directors delegates operational aspects of risk management (e.g. monitoring the risk profile of the Group) to the Investment and Risk Committee (IRC) and governance aspects of risk management (e.g. structure of the risk management organisation) to the Audit Committee.
The Executive Management is responsible for implementation and compliance with the strategies, business principles and risk limits determined by the Board of Directors. The Risk Committee supports the Executive Management in an advisory capacity. It coordinates, monitors and assesses risk decisions and financing and hedging measures.
The Risk Committee meets at least twice a year and is headed by the Chief Financial Officer (CFO). Other permanent members are the Heads of Investments (CIO), Corporate Finance & Risk Management, Group Reinsurance as well as the Group’s life and non-life actuaries. Other specialists can be invited to attend the meeting when required and depending on the topic. The Corporate Finance & Risk Management department, which reports to the CFO and exercises the Group’s risk monitoring function, ensures the necessary risk transparency: n The Risk Map informs the Executive Management and Board of Directors of the most important risks, any changes to them and the strategies used to manage these risks.
The internal audit unit, an independent in-house team reporting directly to the Board of Directors (specifically to the Chairman and CEO), monitors the course of operations and business, the internal control system and the efficiency of the Group’s risk management system. While the risk controlling functions are responsible for the ongoing monitoring of the Group’s risk management system, the internal audit unit monitors the effectiveness, 16. Risk management
16. Risk management 151 appropriateness and efficiency of the risk management measures at irregular intervals and identifies weaknesses.
Financial market, counterparty and insurance risks tie up risk capital in the operational context and can be influenced through hedging instruments, product design and other risk management measures. Helvetia Group categorises these risks according to the above graph. Such risks affect risk-bearing capital and thus the entire balance sheet. Risk is defined as an adverse financial deviation from what is expected. Risks that arise from insufficient liquidity of assets are partially taken into consideration, where appropriate, in market price models. In addition to the analysis of the liquidity risk, improbabilistic methods are also applied.
The Asset & Liability Management (ALM) process manages the influences of financial market risks in an integrated way and defines both investment strategy and hedging policy. The ALM process has two purposes: n Firstly, it ensures compliance with statutory solvency requirements and loss limits at all times. To this end, investment strategy is basically determined at business unit level and then aggregated by applying 'bottom-up' planning (tactical ALM).
n Secondly, it aims to comply with the risk budget, which is economically determined and allocated 'top-down' to the investment function, and to optimally utilise it. This approach controls and manages the level of asset and liability mismatch (strategic ALM; see Note 16.4). The related procedures are constantly being checked against the requirements of the Swiss Solvency Test (Solvency II).
Counterparty risks are treated separately from financial market risks (see Note 16.5).
An information platform known as ITC (IT coordination ) is used to increase IT efficiency and quality, which is largely managed on a decentralised basis in each business unit. Its purpose is to coordinate IT activities between business units. The Group’s ability to conduct its business depends on the efficient operation of its data management and information systems. These could be affected by fire, flood, power failure, hardware or software breakdown or similar events. The Helvetia Group has therefore introduced measures to protect its process management systems and infrastructure, such as maintaining geographically separated dual systems and developing disaster plans.
The random occurrence of an insured event and uncertainty about the amount of the resulting liability create insurance risks in non-life business. The most important non-life segments of the Helvetia Group are property, transport and casualty insurance (liability, accident, collision). The latter consists largely of motor insurance and, to a lesser extent, liability, health and accident insurance. In 2006, 72.8% (previous year: 73.0%) of the Helvetia Group’s direct non-life business was generated outside of Switzerland. The business segments accounted for the following percentages of gross premiums written: Switzerland 25.1% (previous year: 24.4%), Germany 24.2% (previous year: 24.5%), Italy 15.1% (previous year: 14.4%), Spain 15.9% (previous year: 15.4%), Austria 8.1% (previous year: 8.0%), France 3.8% (previous year: 3.8%) and assumed reinsurance 7.8% (previous year: 9.5%) (see also Note 9 'Insurance business').
These tables were prepared in accordance with the principles of segment reporting described in Note 3.
The Group Reinsurance central unit protects each business unit from such risks through a customised reinsurance programme and purchases the necessary Group-wide protection on the reinsurance market while ensuring diversification. This kind of hedging policy provides a high level of protection at moderate cost. From a Group-wide perspective, the insurance risks in the non-life business are dominated by natural hazards. Reinsurance cover reduces the residual claims from a natural disaster or individual risk at Group level to less than CHF 30 million in most cases. Further information
16. Risk management 154 on the quality of the reinsurance cover and the claims development over the last five years can be found in Notes 16.5 (Counterparty risks) and 9 (Insurance business). Together with the optional reinsurance business, 9.5% (previous year: 11.1%) of the premiums written in non-life business were ceded to reinsurers in 2006.
(c) Uncertainties in estimating future loss payments In the liability business in particular, quite some time can pass between the occurrence and the reporting of a claim. In order to cover existing liabilities not yet asserted by policyholders, Helvetia Group sets up incurred but not reported reserves, which are determined with actuarial methods on the basis of many years of claims experience and with consideration to current developments and given uncertainties.
16.2.2 Property insurance Property insurance contracts cover damage to or the loss of the property of the insured through insured events or damage to or loss of third-party property as a result of negligent actions or neglect by policyholders. From a risk perspective, Helvetia Group differentiates between the frequency and amounts of claims.
By definition, the property insurance portfolio is exposed to natural disasters, such as flooding, wind storms and earthquakes. Major claims and man-made disasters, such as explosions, fire and oil spills, may result in large claims. The number and extent of disasters that may occur in a certain period are by definition unforeseeable. Helvetia Group effectively guards against catastrophe losses through a multi-level reinsurance programme and its selective underwriting policy.
(c) Uncertainties in estimating future loss payments Property insurance claims are usually settled in the year of the claim.
16.2.3 Transport insurance Helvetia Group operates transport insurance business as a niche market in France and to a lesser extent in Switzerland, Germany and Austria. Helvetia Group mainly focuses on cargo/hull insurance, which carries a comparatively low level of risk. Risk exposure is managed by the application of local underwriting guidelines and through the close relationship – made possible by the small volume – with the insurance broker and the customer.
(a) Terms of the contract, guarantees and underwriting practices The small size of the assumed reinsurance portfolio allows for detailed tracking of customer relations and the strict control of risks and commitments from new business written. An actuarial department specialising in reinsurance handles price and reserve calculations.
(b) Risks arising from clusters, accumulations and trend changes The business is geographically dominated by companies located in the OECD area. A management information system has been set up to manage major claims. Besides managing risk exposure, cumulative risks arising from natural disasters are monitored and quantified using actuarial methods.
(a) Terms of the contract, guarantees and profit participation Most of the products include a premium guarantee which means that the assumptions on mortality, disability, interest rate and expenses used to calculate the premiums are guaranteed. These fundamentals are therefore set prudently at the time the contract is underwritten. If the contract develops as expected, profits accrue which are paid out in part to the policyholder in the form of policyholder dividends. There are two important exceptions to note with regard to the guaranteed assumptions. Firstly, there are no interest-rate guarantees for unit-linked insurance, however, some products may guarantee a minimum benefit payout on maturity. Secondly, premiums in Switzerland for disability benefit policies concluded after mid-1997 are not guaranteed and may be adjusted.
(b) Underwriting and reinsurance An insurance policy covering the risks of death and disability may only be taken out at regular terms and conditions if the insured is in good health. Compliance with this condition is checked during verification of the application. The check is based on the answers to the health questionnaire, and from a specific insured risk amount, a medical examination is required.
Large risks for insured individuals are ceded to various reinsurers through excess-of-loss reinsurance with the deductible varying by country. Additionally, Helvetia Group is reinsured against catastrophes which may concurrently cause several casualties and claim several lives.
In Switzerland, companies are required under the Federal Law on Occupational Retirement, Survivors ’ and Disability Pension Plans (BVG) to insure their employees against the risks of death and disability and for retirement benefits. Helvetia Group offers products that cover these risks. The majority of these products include a discretionary participation feature with the minimum amount being stipulated by law or by contract.
Annual interest is credited to the investment portion of the premiums. The interest rate on the mandatory savings portion is set by the Swiss Federal Council, while the interest rate on the extra-mandatory portion is determined by Helvetia Group. The mandatory interest rate has been unchanged at 2.5% since 1.1.2005, while Helvetia Group has maintained a rate of 2.25% on extra-mandatory portion.
Statutory regulations stipulate for the majority of products that a minimum of 90% of revenue must be used for the benefit of the policyholder. For example, the return on capital exceeding the guaranteed minimum interest rates must be returned to customers partly in the form of policyholder dividends. Similar rules are stipulated in the insurance contract for most of the products which are not subject to this statutory regulation.
(b) Underwriting and reinsurance As far as the mandatory insurance is concerned, enrolment with an employer’s pension fund cannot be refused on the grounds of ill health. However, certain benefits may be excluded or a higher premium charged for the extra-mandatory cover. There is no obligation to insure a specific company. During the underwriting process it is determined whether and under which terms the company will be insured on the basis of past losses caused by that company and based on estimates of future loss potential.
Helvetia Group establishes reserves for its life insurance business to cover its estimated guaranteed and discretionary payments. The amount of life insurance reserves depends on the interest rates applied as well as on actuarial and other parameters. Additionally, the Liability Adequacy Test (LAT) examines whether the reserves in combination with expected premiums are sufficient to finance future benefits. Should this not be the case, local reserves are strengthened accordingly. The reserves included in the balance sheet are sufficient from the current point of view.
(b) Longevity risk If the death rate in individual insurance remains below expectations and policyholders live longer than expected, shareholders may suffer losses. Given the fact that life expectancy is continuously rising, the current mortality rate as well as expected trends regarding increases in life expectancy are taken into account. These reserves are very sensitive to assumed life expectancies and interest rates.
In addition to these considerations, which also apply to group life insurance, the high statutory BVG-conversion rate results in losses in the group life sector that are built into reserves at the expense of policyholders’ profit participation. Besides reacting to interest rates and life expectancy, these reserves are also particularly sensitive to the assumed number of policyholders choosing a pension over a lump-sum payment on retirement.
(d) Interest rate risk Shareholders may have to bear losses if the guaranteed interest included in premiums and reserves cannot be generated. At the end of 2006, the individual life segment in Spain had the highest interest -rate guarantees as older policies still include guaranteed minimum interest rates of up to 6%.
These guarantees are partly covered by corresponding assets and the residual risk is covered by supplementary reserves. In other countries, the maximum guaranteed interest rate stands at 4% in euros and at 3.5% in Swiss francs, and it is expected that the structure of the underlying investments for these sub-portfolios will produce such returns. Additional reserves have been set up for some products in Austria, which exhibit a high risk of failing to generate the minimum yield with the underlying investments. Rising interest rates may lead to higher lapse rates of endowment contracts. This risk, however, is considered to be low for two reasons. Firstly, most countries enforce high tax consequences for premature contract terminations, and secondly, a deduction is usually made on highly interest-sensitive products at the time the contract is cancelled to reflect the lower fair values of the underlying investments.
(e) Risk in embedded derivatives The return for policyholders of index-linked insurance contracts depends on an external index. Unitlinked insurance products may include a guaranteed survival benefit. These product components must be separated as embedded derivatives and recognised at fair value. The majority of these guarantees and index-dependent payouts are serviced by and at the risk of external partners. There are two products in Switzerland where this does
Notes to the consolidated financial statements of Helvetia Group 2006 not apply and the risk is assumed by Helvetia Group, but these are covered by appropriate reserves. Their amount is determined especially by the volatility of the underlying assets as well as by the level of the risk-free interest rate. A change in the reserve is charged to profit and loss and cannot be compensated with a profit participation component.
The most important financial market risks to which the Group is exposed are interest rate risk, foreign exchange risk and equity price risk. The Group is also exposed to the real estate market through a significant portfolio of real estate in its investment portfolio. Financial market risks influence the profit and loss account as well as the balance sheet. The Group manages its real estate, mortgages and securities in-house. More complex investments such as hedge funds, private equity or convertible bonds are managed by external asset managers.
Savings accumulated in unit-linked policies are invested in a wide range of funds and managed by third parties.
16.4.1 Asset & Liability Management and liquidity risk Asset & liability management (ALM; see also Note 16.1.2) at Helvetia Group is geared towards accounting, especially protecting the income statement and balance sheet, as well as towards fair value considerations on risk limitation. Besides matching the investment strategy to liabilities, derivatives are selectively used to hedge foreign exchange risks and control the risk of losses on equity investments. The instruments mostly employed are options and forwards on both equity investments and foreign exchange underlyings. As of 31.12.2006, the risk of loss on equities was controlled by hedging with put options, and foreign exchange exposure was largely hedged. More information is available in tables 7.7.1 'Derivative financial assets' and 8.3.1 'Derivative financial liabilities'.
Helvetia Group has sufficient liquid assets at its disposal to meet unforeseen outflows of funds at all times. The proportion of liquid assets (cash, premiums to be invested, liquid equity and bonds) exceeds the scale of annual net flows of funds many times over. Additionally, the Group manages assets and liabilities in terms of their liquidity. The liabilities side of the balance sheet does not contain any significant individual positions. Part of the Group’s investment portfolio consists of investments in assets which are not easily realisable, such as real estate or mortgages. These investments can only be realised over a longer period of time.
Maturity schedule of recognised insurance liabilities in CHF million as of 31.12.2006 more than without up to 1 year 1–5 years 5–10 years 10 years maturity Total
Unearned premium reserve (gross) 844.7 – – – – 844.7 Total reserves for insurance and investment
Total reserves for insurance and investment contracts (net) 3980.5 7270.9 4806.1 7316.5 595.9 23969.9
Notes to the consolidated financial statements of Helvetia Group 2006 as of 31.12.2005 more than without up to 1 year 1–5 years 5–10 years 10 years maturity Total
Financial liabilities at amortised cost: Deposit liabilities for credited policyholder profit participation 944.3 – – – – 944.3 Deposit liabilities from reinsurance contracts 66.9 316.8 18.1 13.1 69.0 483.9 Total financial liabilities at amortised cost 1011.2 316.8 18.1 13.1 69.0 1428.2
Total financial liabilities from insurance business 1302.8 316.8 18.1 13.1 69.0 1719.8
Total financial liabilities from insurance business 1101.1 287.6 18.4 13.4 69.0 1489.5
Actuarial reserve for insurance and investment contracts excluding interest guarantee 761.4 – 126.5 – Actuarial reserve for insurance and investment contracts with 0% interest guarantee 312.8 – 87.2 13.2 Actuarial reserve for insurance and investment contracts with positive interest guarantee 15 827.9 70.8 3 804.7 14.5 Average interest guarantee in per cent 2.73 3.01 3.10 3.00
A statement on the ALM situation of a portfolio can be made by comparing the guaranteed interest rates with yields. Aggregated information on interest guarantees is given in the following diagram.
Notes to the consolidated financial statements of Helvetia Group 2006 16.4.3 Equity price risk Investments in shares are used to generate longterm surpluses. Funds are mostly invested in large caps traded on the major stock exchanges. Helvetia Group holds a well-diversified portfolio (mainly in the CHF, EUR and USD markets). The share of each individual position is less than 4% of the portfolio, with the exception of 'Allreal', a highly diversified holding company which accounts for 10.4% of equity exposure, and 'Credit Suisse Group' (9.1%). In the case of the 'Credit Suisse Group', it should be noted that only 2.2% directly result from Credit Suisse Group share investments and that the remaining 6.9% arise from investments in five ETFs (exchange traded funds) listed on the SMI and SMIM and held in a safekeeping account with Credit Suisse Group. The equity portfolio is subject to market fluctuations. Market risk is constantly monitored and, if necessary, reduced through sales or the use of hedging instruments in order to meet the strict internal requirements on risk capacity.
Market risks are decreased through hedging strategies. Out-of-the-money put options are largely used to comply with internal loss limits. Equities constitute about 8.2% (before hedging) of the Group’s investments. A substantial proportion is hedged against the risk of significant losses. Using out-of-the-money put options results in a relatively small delta-adjusted hedge ratio. The hedging protection, however, increases with large market fluctuations.
Property and equipment 318.3 207.9 – – 526.2 Goodwill and other intangible assets 29.0 39.6 – – 68.6 Investments in associates 43.6 2.6 – – 46.2
Deferred tax assets 0.1 49.5 – – 49.6 Current income tax assets 0.4 1.1 – – 1.5
Non-actuarial provisions 40.2 23.9 – – 64.1 Employee benefit obligations 29.0 243.1 – – 272.1
Loans (LAR) incl. money market instruments 4 484.0 1 891.8 3.2 – 6 379.0 Held-to-maturity investments (HTM) 2 178.3 602.7 – – 2 781.0 Available-for-sale investments (AFS) 6 832.9 4 828.1 92.6 78.6 11 832.2 Financial assets at fair value through profit or loss 770.6 1 459.3 503.3 128.8 2 862.0
Non-actuarial provisions 39.3 21.9 – – 61.2 Employee benefit obligations 26.7 219.0 – – 245.7 Deferred tax liabilities 336.7 121.0 – – 457.7 Current income tax liabilities 34.3 62.7 – – 97.0
Notes to the consolidated financial statements of Helvetia Group 2006 16.5 Counterparty risk
BB and lower 0.1 0.0 Not rated 18.1 3.0 Total as of 31.12.2006 611.7 100.0
Switzerland AAA 2 264.3 Germany AAA 808.2 Spain AAA 512.2 Commerzbank AG A 510.7 Austria AAA 473.1 Raiffeisen Switzerland AA 385.8 Mortgage Bond Bank of the Swiss Mortgage Institutions AAA 367.6 Central Mortgage Bond Institution of the Swiss Cantonal Banks AAA 360.0 Italy A 333.0 General Electric Co AAA 287.8 France AAA 276.2
No important events occurred before or on 27.3.2007, the date on which these consolidated financial statements were completed, that are likely to have a significant impact on the financial statements as a whole.
The Fund DeAM HL1 was liquidated in the reporting period. The fund units were repaid in full to the holding company, Helvetia Schweizerische Lebensversicherungs-AG, Frankfurt. The company was assigned to the region 'Germany' and to the business segment 'Life'.
Socieded de Agencia de Seguros de la Vasca Navarra S.A., Pamplona. The remaining assets and liabilities of the Austrian companies were transferred in full to Helvetia Versicherungen AG, Vienna, and those of the Spanish company to Helvetia Compañía Suiza, Seville. The companies were assigned to the regions 'Other' and 'Spain' respectively and to the business segment 'Other'.
The introduction of the unified 'Helvetia' brand led to numerous changes to the names of existing Group companies. The following is a complete list of all Group companies: 18. Scope of consolidation
Switzerland Helvetia Holding AG, St.Gallen other – – CHF 86.5 Helvetia Schweizerische Versicherungsgesellschaft AG, St.Gallen non-life 100.00 full CHF 77.5 Helvetia Schweizerische Lebensversicherungsgesellschaft AG, Basel life 100.00 full CHF 50.0 Helvetia Beteiligungen AG, St.Gallen other 100.00 full CHF 225.7 Patria Schweizerische Lebensversicherungs-Gesellschaft AG, St.Gallen life 100.00 full CHF 0.1 Helvetia Consulting AG, St.Gallen other 100.00 full CHF 0.1 Rhydorf AG, Widnau other 75.00 full CHF 0.4 Ecenter Solutions AG, Zurich other 100.00 full CHF 0.1 Helvetia I Fonds North America life and non-life 100.00 full USD – Helvetia I Fonds Great Britain life and non-life 100.00 full GBP – Helvetia I Fonds Europe life and non-life 100.00 full EUR – Tertianum AG, Berlingen 23.20 equity CHF Prevo-System AG, Basel 26.00 equity CHF
Report of the Group Auditors to the General Meeting of Helvetia Holding AG, St. Gallen
Financial statements 176 Notes to the annual financial statements 177 Report to the Statutory Auditors 178
Investments Helvetia Holding AG Reported Percentage Percentage company capital holding as of holding as of Company in CHF million 31.12.2006 31.12.2005
1. Change of name On 12.5.2006, Helvetia Patria Holding in St.Gallen changed its name to Helvetia Holding AG with amendments to the articles of incorporation.
The investment in Helvetia Schweizerische Versicherungsgesellschaft AG was increased from 75.30% to 100.00% in June 2006 through the acquisition of shares from Helvetia Schweizerische Lebensversicherungsgesellschaft AG and subscription to the share capital increase. This terminated the cross-holding of Helvetia Schweizerische Lebensversicherungsgesellschaft AG of 24.70% in Helvetia Schweizerische Versicherungsgesellschaft AG.
3. Dividend income The reported income of Helvetia Holding AG represents the dividend paid simultaneously to Helvetia Holding AG by the subsidiaries Helvetia Schweizerische Versicherungsgesellschaft AG
and Helvetia Schweizerische Lebensversicherungsgesellschaft AG from their respective net profits for 2006.
Compared to the previous year, no new bonds were issued or any bonds redeemed.
5. Treasury shares On the balance sheet date, subsidiaries of Helvetia Holding AG held 70,312 registered shares of Helvetia Holding AG (previous year: 100,312 registered shares of Helvetia Patria Holding). The amount of treasury holdings decreased due to the sale of treasury shares. The corresponding equity reserve for treasury shares has been adjusted accordingly.
6. Shareholders with interests of more than 5% On the balance sheet date, two shareholders owning more than 5% of the share capital were recorded in the share register: Patria Genossenschaft (30.09%) and Munich Re (8.16%).
On the balance sheet date, the shareholder pool comprised the following shareholders: – Patria Genossenschaft with 30.09%, – Vontobel Beteiligungen AG with 4.0%, – Raiffeisen Schweiz with 4.0%.