Who we are: Headquartered in Basel, Switzerland, the Baloise Group is a European provider of insurance and pension solutions. In Switzerland, the Group operates as a specialised financial services provider, offering a combination of insurance and banking services. The Group also has a market presence in Germany, Belgium, Luxembourg, Liechtenstein and Austria. Its sales network includes its own sales organisation, as well as brokers and other partners. Baloise operates its innovative pension plan business for private customers throughout Europe with its competence centre in Luxembourg. Bâloise Holding Ltd shares are quoted in the main segment of the SIX Swiss Exchange. The Baloise Group employs some 8,000 people.
What we stand for: We want people to feel safe. To play our part in this respect, we created the “Safety World”. Everything we do is aimed at safety. As such, we consciously go further than other insurance companies: we combine insurance with smart prevention. In this way, we help to ensure that losses do not occur in the first place. Should something happen nevertheless, then we’re right there. Fast and capable as always.
BALOISE Baloise key figures ������������������������������������������������������������������������������������� 4 At a glance ����������������������������������������������������������������������������������������������������� 5 Letter to shareholders ������������������������������������������������������������������������������ 6 Baloise shares ����������������������������������������������������������������������������������������������� 8 Our markets ���������������������������������������������������������������������������������������������� 10 Strategy �������������������������������������������������������������������������������������������������������� 12 Brand ������������������������������������������������������������������������������������������������������������ 14
REVIEW OF OPERATING PERFORMANCE Group ������������������������������������������������������������������������������������������������������������ 18 Switzerland ������������������������������������������������������������������������������������������������ 22 Germany ������������������������������������������������������������������������������������������������������ 23 Belgium and Luxembourg ������������������������������������������������������������������ 24 Other units �������������������������������������������������������������������������������������������������� 25 Consolidated income statement ������������������������������������������������������� 26 Consolidated balance sheet ���������������������������������������������������������������� 28 Business volume, premiums and combined ratio �������������������� 29 Technical income statement �������������������������������������������������������������� 31 Gross premiums by sector ������������������������������������������������������������������� 32 Banking activities ����������������������������������������������������������������������������������� 33 Investment performance ��������������������������������������������������������������������� 34
SUSTAINABLE BUSINESS MANAGEMENT Human resources ������������������������������������������������������������������������������������ 38 Ecology ��������������������������������������������������������������������������������������������������������� 42 Risk management ������������������������������������������������������������������������������������ 44
NOTES Glossary ���������������������������������������������������������������������������������������������������� 258 Addresses ������������������������������������������������������������������������������������������������� 262 Information on the Baloise Group ����������������������������������������������� 263 Financial calendar and contacts ��������������������������������������������������� 264
4 Calculation is based on the profit for the period attributable to shareholders and the equity attributable to shareholders. 5 2013 based on the proposal submitted to the Annual General Meeting.
7 The percentage change relates to the figures reported for 2012.
CHF 4.75 per share (will be proposed to Annual General Meeting on 24 April 2014)
Baloise generated outstanding growth in 2013 and combined this with impressively strong profitability� It achieved a profit of CHF 452�6 million, thereby underscoring the solidity of its insurance operations� Having systematically targeted specific customers and partners, we now have one of the most profitable insurance portfolios in Europe� This was illustrated by our impressive net combined ratio of 94�9 per cent, which was achieved despite the substantial cost of claims for natural disasters � Large swathes of Germany were flooded back in May of last year� The summer and autumn then brought further severe storms in Baloise’s core markets� The claims resulting from these events showed the extent to which the density of valuable assets
Dr Andreas Burckhardt, Chairman of the Board of Directors, (left) and Dr Martin Strobel, Group CEO, (right)
Baloise Letter to shareholders in these countries has increased, as the cost of large claims caused by storms was the highest seen in the past ten years� And although the amount of such large claims more than doubled compared with the previous year, Baloise’s combined ratio remained robust�
Another way in which we create safety and security for our customers and our organisation is by selecting the right investments� These once again yielded impressive gains, achieving a net return of 3�3 per cent on insurance assets� The considerable reliability of our business model was illustrated by our totally sound balance sheet and capitalisation: our equity of just under CHF 5 billion was strong, while our solvency ratio of 267 per cent was excellent�
Our promise of “Making you safer�” applies equally to our employees as well� This approach is reflected in our values-based corporate culture, which we investigate by conducting our staff commitment survey� The already impressive prior-year results improved slightly in 2013� The high participation rate of 78 per cent reaffirmed our belief that it is worth working together to take the Company forwards� The principle that an organisation can only be effective externally if it functions well internally also applies to our own development� We see Baloise as a company that adds value to society: not just because we are an insurer that identifies risks at the earliest-possible stage and mitigates their consequences – which no one would be able to do on their own – but also because we encourage our employees’ social engagement and commitment�
The net result of the consistent implementation of our strategy is our robust business model which, despite the recent financial crises, yields high and reliable returns� Our strong balance sheet and capitalisation underpin our dividend policy�
The first half of 2013 saw Baloise shares build on their impressive prior-year achievements and add 17�0 per cent, which was far higher than the gains posted by the Swiss Leader Index (SLI) and the Swiss insurance sector index, which rose by 11�6 per cent and 7�1 per cent respectively�
Baloise Baloise shares subsequently amounted to 3�97 per cent of Baloise's outstanding registered shares� Several collective investments managed by Credit Suisse Funds AG together fell below the threshold of 3 per cent on 20 August 2013 and subsequently amounted to 2�99 per cent of Baloise’s outstanding registered shares� Further information on Baloise’s significant shareholders as at 31 December 2013 can be found in the table on page 251�
Bâloise Holding registered share (BLAN) SWX SP Insurance Price Index (SMINNX) Swiss Market Index (SMI)
Average number of shares outstanding2 47,905,512 47,394,282 46,900,473 46,831,998 46,896,926 1 Calculation is based on profit for the period and equity before non-controlling interests respectively. 2 Relevant for calculation of earnings per share (see page 223 of the Financial Report). 3 2013 based on the proposal submitted to the Annual General Meeting.
BELGIUM In the Belgian market the Baloise Group has been operating under the “Baloise Insurance” brand name since 2013� Baloise Insurance is one of the leading insurers in Belgium and sees itself as a partner to professional brokers� It offers a full range of property and personal insurance for individuals and for small and medium-sized firms� It is also the leading provider of mar- ine insurance in the Belgian market�
LUXEMBOURG Bâloise Assurances provides a wide range of insurance, pension and wealth-building products to private and business customers in the Grand Duchy� Bâloise Luxembourg also works closely with highly successful banking partners and selected distribution partners outside its domestic market to sell wealthbuilding and pension solutions in a number of European Union countries� The Baloise Life unit in Liechtenstein has been managed by Bâloise Luxembourg since 2013�
CROATIA AND SERBIA In Croatia the Baloise Group operates under the “Basler osiguranje Zagreb” brand name� It offers a full range of insurance solutions for private and business customers through its own sales force and via agencies and banks� Baloise plans to sell its Croatian and Serbian subsidiaries in 2014�
FOUR FOCUS AREAS Accelerate growth, focus on core strengths and drive down costs
Our focus on partnership is one of our greatest emotional strengths and is predicated on value creation and mutual respect� We nurture and deepen our relationships with all our stakeholders to ensure that we achieve the desired impact each and every time�
“Being innovative means not just thinking ‘out of the box’ but also having the courage and self-confidence in using your own creativity to drive innovation in the relevant areas. That’s what makes us better every day.”
Baloise stands for professionalism� This enables us to be successful and deliver top-quality performance� We excel at understanding our core business, our customers and our sales channels because we know that professional expertise provides peace of mind�
“Assessing risks accurately, selecting the right methods to solve a problem and, consequently, ensuring that applications are reliable – that is also part of our professionalism.”
Baloise is a strong partner – strong in terms of its growth, profitability and execution� You can rely on Baloise when you really need it, because its strength gives you the reassuring feeling of having a dependable partner at your side�
“Strength means not only being able to achieve your goals but also knowing your weaknesses. Strength creates opportunities and is a character attribute that Baloise possesses in abundance – even after 150 years.”
Review of operating performance 4 Baloise 18 Review of operating performance 38 Sustainable business management 50 Corporate Governance 90 Financial Report 244 Bâloise Holding Ltd 258 Notes
OVERVIEW The Baloise Group generated a profit of CHF 452�6 million for the 2013 financial year (2012: CHF 436�6 million)� This profit increase stemmed from the Company’s significant growth and robust operating earnings power� All three operating segments in the Baloise Group contributed to this profit expansion� The life insurance business raised its profit contribution by a substantial 47�9 per cent, while the non-life insurance division increased its profit contribution by 3�6 per cent despite considerable storm-related claims� This sound profitability was also reflected in an encouraging net combined ratio of 94�9 per cent� The banking business managed to improve on its impressive prior-year results in a continuing low-interest-rate environment�
NON-LIFE DIVISION: ROBUST PROFITABILITY The non-life insurance division (indemnity and personal insurance ) delivered an impressive performance on the back of its strong profitability� Although the cost of large claims was the highest for ten years, Baloise achieved a profit of CHF 366�3 million before borrowing costs and taxes in this division (2012: CHF 353�5 million)� Its business in Switzerland once again underpinned these results� Nonetheless, the non-life units in Germany, Belgium, Luxembourg and Austria all improved their profitability owing to cost-cutting measures and increased their profit contribution in the Baloise Group’s non-life division� Although the cost of large claims more than doubled compared with the previous year, this profit contribution is reflected in the Company’s impressive net combined ratio of 94�9 per cent� Baloise expanded the total volume of premiums under IFRS to CHF 3,441�7 million (2012: CHF 3,317�7 million), which constituted an increase of 3�7 per cent in Swiss francs and 2�4 per cent in local-currency terms� All business units in the geographical regions contributed to this growth when measured in local-currency terms�
The embedded value of the life insurance business rose from CHF 2,752�8 million to CHF 3,808�6 million in 2013� The return on embedded value came to 35�1 per cent� Operating income contributed CHF 205�4 million of the embedded value� A further CHF 776�4 million stemmed from changes in the economic environment� The value of new business amounted to CHF 44�9 million, and the new business margin was 13�5 per cent (2012: 8�9 per cent)�
BANKING DIVISION: CONSISTENT AND SOLID The banking division managed to defy the continuing low-interest -rate environment by generating a solid profit of CHF 75�4 million before borrowing costs and taxes (2012: CHF 72�8 million ) thanks to the robust operating performances delivered by Baloise Asset Management and Baloise Bank SoBa� This profit increase was primarily attributable to higher income from brokerage and services business and to rigorous cost containment�
EQUITY REFLECTS VERY STRONG CAPITAL BASE On 31 December 2013 the Baloise Group’s consolidated equity totalled CHF 4,906�4 million, which was virtually unchanged on its high prior-year figure� The solvency ratio amounted to an impressive 267 per cent� It was 10 percentage points lower year on year owing to the strong growth in business volumes� The economic capital ratio determined under the Swiss Solvency Test (SST) remained comfortably within the green zone�
These investments generated net income of CHF 1,907�0 million, which was just below the corresponding prior-year figure of CHF 1,947�6 million� This amounted to a net return of 3�1 per cent (2012: 3�3 per cent)� Recurring income remained virtually unchanged year on year at CHF 1,765�1 million despite persistently low interest rates (2012: CHF 1,782�2 million)�
With our bond investments we exploited specific market opportunities – provided that they met our consistently high quality criteria� The rise in risk-free interest rates caused the prices of the bonds in our portfolio to fall – with the corresponding effect recognised in equity – and book losses to be incurred on interest-rate derivatives� Consequently, the rate of return on insurance assets according to International Financial Reporting Standards (IFRS) – which includes unrealised net gains and losses on investments but excludes gains and losses on held-tomaturity debt instruments – was 2�3 per cent, which was well below the prior-year figure of 6�6 per cent�
Baloise increased its equity exposure during the reporting year, selecting stocks that meet its stringent quality criteria and offer consistently high dividend payments� After their valuations
as at 31 December 2012 (restated) Non-life Life Banking Total for the
Total assets under management 73,825.7 as at 31 December 2013 Non-life Life Banking Total for the
The total volume of business in the life insurance division grew by an outstanding 17�5 per cent to CHF 3,019�9 million (2012: CHF 2,569�2 million)� The division’s profit before borrowing costs and taxes also rose� The product mix in individual life insurance continued to be fully adapted to the low-interest -rate environment� Overall, Basler Switzerland achieved growth of 15�5 per cent in its conventional life insurance business� The volume of investment-linked life insurance increased mainly as a result of the transfer of the variable annuity products business, which had previously been reported in Liechtenstein�
BALOISE BANK SOBA: HIGHER PROFIT AND ROBUST GROWTH Baloise Bank SoBa performed well in 2013, gaining further in strength and raising its gross profit� It increased its net profit by 1�6 per cent to CHF 22�2 million (all figures reported according to local accounting standards)� Growth and additional cost containment compensated for the lower levels of income generated by the interest-earning business, which continued to contract because interest rates were so low� Brokerage and services business performed very encouragingly� In addition, customer loans and deposits grew further� Baloise Bank SoBa’s joint business model in collaboration with Basler Insurance continued to achieve success, with the volumes generated by the insurance sales force growing by 7�4 per cent to CHF 2,476 million�
The German business expanded its total volume of business from CHF 1,712�1 million in 2012 to CHF 1,727�3 million, which was an increase of 0�9 per cent in Swiss francs� The property insurance division raised its total volume of premiums by 4�2 per cent to CHF 894�3 million (2012: CHF 857�9 million)� This positive trend stemmed largely from the target segments, which grew more strongly than the market as a whole� Although this unit achieved growth in life insurance as well in its target segments, the volumes generated by this division contracted overall�
Baloise’s Belgian business unit has been operating in the market under the “Baloise Insurance” brand name since January 2013 and, following its acquisitions, it is well positioned in the highly attractive Belgian market� The Belgian business unit increased its profit before borrowing costs and taxes by 63�7 per cent from CHF 73�8 million to CHF 120�8 million� This means that the Belgian units made the second-largest contribution to the Baloise Group’s profit for the period (behind only the Swiss units)� Baloise Insurance strengthened the profitability of its recently acquired business and significantly lowered the gross combined ratio for its non-life insurance operations by 6�3 percentage points from 99�8 per cent in 2012 to an impressive 93�5 per cent� This encouraging trend was primarily driven by a 4�7 percentage -point decrease in the claims ratio, a 1�7 percentage-point reduction in the expense ratio, and the larger volume of premiums � The total volume of business grew by 2�6 per cent from CHF 1,358�6 million to CHF 1,393�5 million� The property insurance business in Belgium increased by 5�2 per cent in Swiss francs and 3�0 per cent in local-currency terms� The volume of business in the life insurance division, which contracted by 4�7 per cent, declined by much less than the market as a whole, which decreased by 26�5 per cent�
The business unit in Luxembourg was again highly successful and reported impressive financial results, generating a profit of CHF 16�9 million before borrowing costs and taxes (2012: CHF 0�1 million)� It reduced its gross combined ratio from the exceptionally high prior-year level of 102�1 per cent to an excellent 83�9 per cent� There was highly impressive growth in the total volume of business, which rose by 9�8 per cent to CHF 1,284�0 million (2012: CHF 1,168�9 million)� In its local business the Luxembourg unit grew by 5�3 per cent in property insurance and by 2�8 per cent in conventional life insurance�
The business units in Belgium and Luxembourg continued to generate strong growth and further improved their profitability.
CROATIA AND SERBIA: IMPROVEMENT Baloise increased the total volume of business transacted in Croatia and Serbia together by 2�4 per cent to CHF 70�0 million (2012: CHF 68�4 million)� Both units improved their claims ratios and expense ratios and together achieved a combined ratio of 102�3 per cent (2012: 105�8 per cent)� As part of its strategic focus, the Baloise Group has agreed to sell its subsidiaries in Croatia and Serbia to the Austria-based UNIQA Group� Baloise expects to incur a total loss of roughly CHF 30 million on this transaction� Almost all of this amount has been re- cognised in the annual financial statements for 2013�
Basler Austria posted excellent results, while Baloise improved its operating performance in Croatia and Serbia.
Premiums earned and policy fees (net) 6,651.2 6,686.1 6,630.6 6,554.6 7,044.8
Gains or losses on financial contracts – 407.9 – 219.8 324.0 – 577.8 – 368.9
Profit before borrowing costs and taxes 562.1 607.2 143.9 617.9 658.2
Investments for the account and at the risk of life insurance policyholders
Financial instruments with characteristics of equity 9,486.1 9,844.2 9,703.9 9,475.7 11,344.4
Financial instruments with characteristics of liabilities 26,502.7 25,840.5 28,917.5 32,513.3 32,327.1
Sub-total of IFRS gross premiums written1 2013 Group Switzerland Germany Belgium Luxembourg
Sub-total of IFRS gross premiums written1 1 Premiums written and policy fees (gross). 2 Other units: Austria, Croatia and Serbia.
Change in unearned premium reserves – 10.6 – 16.2 – –
Claims and benefits paid (gross) – 2,009.1 – 2,073.7 – 3,440.2 – 3,366.0
Change in claims reserve / actuarial reserves1 – 20.8 – 52.1 – 513.5 – 833.7
Change in other technical reserves – 21.9 – 59.1 – 311.9 – 414.9
Total technical result of ceded business – 41.5 – 69.5 – 8.6 – 11.5
Change in other technical reserves – 21.5 – 58.8 – 311.6 – 414.1
Total technical result for own account 126.9 74.2 – 1,397.6 – 1,211.8
Profit for the period (segment result) 388.0 291.0 148.9 195.3 1 Including change in reserve for claims handling costs. 2 Including financial liabilities held for trading purposes (derivative financial instruments). 3 Of which deferred gains / losses from other operating segments (31 December 2012: CHF –6.2 million; 31 December 2013: CHF –1.7 million).
Net losses and impairment due to credit risk 6.6 – 4.1
Depreciation, amortisation and impairment of property, plant and equipment and of intangible assets – 11.4 – 19.1
Cash and cash equivalents 267.9 210.4 1 The amount shown as at 31 December 2012 has not been restated.
Policy loans and other loans 1,149.8 6,490.5 7,640.3 1,247.8 6,357.3 7,605.2 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties.
HUMAN RESOURCES ������������������������������������������������������������������������������ 38 Our highly skilled workforce has been providing our clients with peace of mind for the last 150 years ���������������������� 38
Sustainable business management 4 Baloise 18 Review of operating performance 38 Sustainable business management 50 Corporate Governance 90 Financial Report 244 Bâloise Holding Ltd 258 Notes
→ 45.9 per cent of all staff members are women (2012: 45.3 per cent).
→ The Baloise Group employs 200 (2012: 241) apprentices, trainees and interns.
→ 58.2 per cent of staff members working in our main market of Switzerland participated in our Employee Share Ownership Plan in 2013 (2012: 58.8 per cent).
→ Baloise invested CHF 10.7 million in staff training and development in 2013 (2012: CHF 11.2 million).
→ Baloise employees work at the Company for an average of 13.3 years.
→ Staff turnover as at 31 December 2013 amounted to 6.9 per cent (end of 2012: 5.2 per cent).
The key components of Baloise’s HR strategy are → to nurture an employee-focused corporate culture; → to be the employer of choice in our sector; → to be performance- and results-driven; → to be a highly skilled, learning organisation; → to possess outstanding leadership and management capabilities�
NURTURING YOUNG TALENT AT BALOISE: PLENTY OF OPPORTUNITIES TO DEVELOP AND GROW The Baloise Group’s national subsidiaries offer a number of attractive training and apprenticeship opportunities for schoolleavers and students� These include internships, temporary jobs for students and vocational training and courses for those who have obtained their school-leaving certificate (Matura)� This system provides Baloise with a constant internal supply of highly skilled young professionals who, once they have successfully completed their training, can offer fresh ideas and creative input that will help to take the Company forward�
Another continuing success story is Baloise’s management trainee programme, which is highly popular with university graduates� The Company has no difficulty in persuading plenty of excellent candidates to apply for this scheme� Once they have completed this programme these management trainees are highly valued employees at the Company, with many of them embarking on careers that take them to the most senior managerial positions�
Variable remuneration is based on both individual performance and the success of the Company as a whole� Part of this remuneration is paid in the form of restricted shares, with the senior management team receiving some mandatory shares� This strengthens staff loyalty and aligns remuneration with the Company’s long-term performance�
The remuneration paid by the Baloise Group is determined by the following criteria: → Competitiveness in the marketplace → Individual performance and the Company’s success → Fairness and transparency → Sustainability�
Sustainable business management Human resources programmes in its first year� All Baloise Campus programmes teach a mixture of business expertise, leadership skills and corporate culture� The programme draws on top executives from within the Company as speakers and offers support from external coaches, which provides participants with an attractive forum for networking and personal development�
A further programme will be added to the Baloise Campus syllabus in 2014� The Top Leaders Convention will provide an opportunity for senior managers to work on relevant development issues within the Company� Furthermore, the Baloise Campus will be expanded to include new Group-wide and local modules to meet requirements at a variety of levels�
The HR Community set up specifically for this purpose comprises the HR heads from the national subsidiaries and the competence centre heads from Group HR and uses this platform as a forum for discussing strategic matters� This approach nurtures a culture of best practice that enables all Group companies to transfer successful strategies and tools to their own markets�
As part of the restructuring being carried out in Germany, a project addressing the issue of process optimisation in HR was launched and a few processes have already been redesigned more efficiently� The findings gained from this project and the results achieved will also enable other companies to optimise their own processes� Some of the other topics being addressed in the form of projects conducted in individual countries are internal mobility in Luxembourg, burn-out prevention in Austria and managerial feedback in Switzerland� These projects – together with Group-wide issues such as talent management, diversity, IT harmonisation and Baloise’s brand as an employer – form an integral part of the HR Roadmap, which outlines the focal themes of the Baloise Group’s HR activities over the coming years�
The annual European Forum held in 2013 once again provided an opportunity for employee representative delegates from the various Baloise companies to meet and talk to representatives of the Corporate Executive Committee in a spirit of encouraging and deepening transnational dialogue� This event ensures that the Baloise Group’s business runs smoothly and harmoniously, while giving due consideration to all the stakeholders involved�
ENERGY EFFICIENCY AT COMPUTER CENTRES The Baloise Group has achieved lasting reductions in energy consumption at its computer centres in Switzerland� Side and ceiling panels have been added to the open racks housing the servers� This separates the cold and warm air zones, thereby sharply reducing the amount of air that needs to be cooled� In addition, the refrigeration and ventilation systems have been upgraded� This cut the energy consumption of the cooling, ventilation and humidification systems used at our computer centres by more than 979,000 kWh per year – or 53 per cent – in 2013� This represents roughly 9 per cent of the power used by our Group headquarters, which has over 2,000 workstations and includes central facilities such as the staff restaurant, auditorium and computer centres�
CUTTING CO2 EMISSIONS BY TAKING THE TRAIN Baloise employees use the train for business travel whenever possible � Train tickets for domestic and international travel are ordered in Switzerland from the SBB Businesstravel portal run by the Swiss Federal Railways (SBB) and are printed out at the workplace� This obviates the need for staff to queue for tickets at the train station and submit claims for expenses� As part of its service, SBB evaluates the train journeys made by Baloise employees and assesses them in terms of their carbon footprint� Basler Switzerland staff travelled 2,371,057 passenger kilometres by train on business in 2013� This represented a saving of 167,248 litres of fuel and 469 tonnes of CO2, which is roughly equal to the carbon emitted by 187 energy-efficient (“Minergie”) houses in one year�
ADDING VALUE WITH BALOISE’S NEW WORKPLACE CONCEPTS The new workplace concepts being examined by the Baloise Group offer sufficient project spaces and workplaces in pleasant surroundings where people can work in peace and quiet while having enough room for communication and teamwork� Basler Switzerland will be testing its new open-space workplace concept in the spring of 2014� Under this concept, workplaces are no longer permanently assigned to specific employees, which facilitates much more efficient use of office space and therefore lowers both energy consumption and occupancy costs�
ENERGY EFFICIENCY AT BALOISE The total amount of energy and resources used corresponds to the aggregate consumption by the Baloise Group’s large office buildings and its computer centres in Switzerland� The figures
Sustainable business management Ecology reported relate to the energy and resources used by 61�7 per cent of the 8,613 people working for the Baloise Group� By making adjustments at our operating sites, we drastically cut the amount of heating that we used for a similar energy reference area� The merger of sites at the Belgian subsidiary and the huge energy efficiencies achieved at the computer centres in Switzerland caused power consumption to fall sharply: electricity use declined by 11�2 per cent overall� We therefore exceeded our target of cutting our electricity consumption by between 2 per cent and 3 per cent each year from 2004 to 2013� Over the next five years we plan to introduce specific measures to cut our annual power consumption per employee by a further 1 per cent to 2 per cent� As a responsible corporate citizen we are both obliged and motivated to use resources efficiently in the face of climate change and rising energy costs�
Electricity consumption 22,859,388 KWh 23,312,615 KWh 20,712,643 KWh 3,897 kWh / employee – 11.2
Mode of transport 30.3 % km by air 36.6 % km by road 33.1 % km by public transport
A detailed description of these risks can be found in the Financial Report section on page 126�
The Company’s enterprise risk management was once again awarded Standard & Poor’s excellent “strong” rating in 2013� This puts us among the top 15 per cent of all European insurance companies�
→ Strategic risk management: its purpose is to optimise the risks taken by the Baloise Group while maximising its earnings potential�
Baloise’s risk management constitutes one of the main pillars of its business model
RISK MEASUREMENT Our risk model standardises the process of quantifying our business risks and financial market risks across all strategic business units� It is consistent with the principles and calculation methods applied by the Swiss Solvency Test and with the European Union’s Solvency II directives� As a ground-breaking risk management tool, it provides a firm foundation on which management can make strategic and operational decisions�
The Baloise Group uses a system of limits based on economic risk capital in order to mitigate its risks holistically at an aggregate level� This system tracks the risk capital held by the Baloise Group and individual business units in real time� We also monitor issue-specific risks individually by imposing limits, as illustrated by the following examples: → Actuarial risk is determined by underwriting guidelines on which local underwriters base their decisions� Risk metrics analysis of the deductibles payable supplements the Company’s key reinsurance strategies�
→ We capture business-environment risk, operational risk and strategic risk on both a standardised and individual basis, and we assess them in terms of their impact on our capital�
Comprehensive semi-annual risk reports are discussed with the relevant decision-makers so that the necessary measures can be devised� Reports submitted to regulatory authorities complete the picture� In addition, risk managers’ assessment of the risk situation is factored into the remuneration paid to executives� The three criteria used to determine the performance pool payments awarded to individuals are the achievements, leadership and conduct of the manager concerned� The individual performance pool payment proposed by the respective line manager is discussed by the relevant management team, compared with other departments and divisions, and adjusted where necessary� This process ensures that risk-relevant behavioural attributes are factored into the performance pool payments awarded to individuals�
OUR PROFESSIONAL RISK MANAGEMENT DEMONSTRATED ITS PROVEN STRENGTHS IN 2013 Baloise’s risk strategy principles are designed for the long term, as shown by the Company’s excellent risk positioning in 2013� Proof positive of this situation was the Baloise Group’s solvency ratio, which remained very high at 267 per cent and bears testimony to its financial strength�
2013 was a year when tried-and-tested underwriting approaches continued to be refined: → The Baloise Group’s investment strategy continues to focus on diversification and on the basic principle of only investing in assets that we ourselves can fully and accurately evaluate�
→ Our underwriting business has proved to be highly consistent, with the Baloise Group’s net combined ratio of 94�9 per cent demonstrating our excellent capabilities in underwriting and managing non-life risk�
4 Baloise 18 Review of operating performance 38 Sustainable Business Management 50 Corporate Governance 90 Financial Report 244 Bâloise Holding Ltd 258 Notes
CORPORATE GOVERNANCE REPORT INCLUDING REMUNERATION REPORT ��������������������������������������������� 50 Structure of the Baloise Group and shareholder base ������������ 50 Capital structure ������������������������������������������������������������������������������������� 51 Board of Directors ���������������������������������������������������������������������������������� 52 Corporate Executive Committee ����������������������������������������������������� 59 Remuneration Report ��������������������������������������������������������������������������� 63 Shareholder participation rights ������������������������������������������������������ 84 Changes of control and poison-pill measures ��������������������������� 85 External auditors ������������������������������������������������������������������������������������� 85 Significant amendments to the Articles of Association submitted to the 2014 Annual General Meeting ���������������������� 86 Information policy ��������������������������������������������������������������������������������� 86
This chapter reflects the structure of the SIX Corporate Governance Guidelines as amended on 29 October 2008 in order to enhance transparency and, consequently, improve comparability with previous years and other companies� It includes economiesuisse’s Swiss Code of Best Practice for Corporate Governance and, in particular, Appendix 1 to the latter, which was published in 2007 and contains recommendations on remuneration � Baloise publishes its own remuneration report as item 5 of its Corporate Governance Report, which meets the criteria specified in circular 2010/1 of the Swiss Financial Market Supervisory Authority (FINMA)�
1. STRUCTURE OF THE BALOISE GROUP AND SHAREHOLDER BASE Structure of the Baloise Group Headquartered in Basel, Switzerland, Bâloise Holding is a public limited holding company that is incorporated under Swiss law and listed on the Swiss Exchange (SIX)� The Baloise Group had a market capitalisation of CHF 5,680 million as at 31 December 2013�
→ Segment reporting by region and operating segment can be found from page 165 onwards in the notes to the consolidated annual financial statements within the Financial Report section�
Shareholder structure A total of 20,760 shareholders were registered in Bâloise Holding’s share register as at 31 December 2013� The number of registered shareholders had risen by 2�3 per cent compared with the previous year� The “Significant shareholders” section on page 251 provides information on the structure of the Company ’s shareholder base as at 31 December 2013�
The reports that were submitted to the issuer and to SIX Swiss Exchange AG’s disclosure office and were published on the latter’s electronic publication platform during the reporting year in compliance with section 20 of the Swiss Federal Act on Stock Exchanges and Securities Trading (BEHG) can be viewed using the search function at com/obligations/disclosure/major_shareholders_de�html�
Treasury shares Bâloise Holding held 2,201,528 treasury shares (4�4 per cent) as at 31 December 2013�
Cross-shareholdings There are no cross-shareholdings based on either capital owner- ship or voting rights�
The share capital of Bâloise Holding has totalled CHF 5�0 million since 29 April 2008 and is divided into 50,000,000 dividendbearing registered shares with a par value of CHF 0�10 each�
Conditional capital is used to cover any option rights or conversion rights granted in conjunction with bonds and similar securities� Shareholders’ pre-emption rights are disapplied� Holders of the pertinent option rights and conversion rights are entitled to subscribe for the new registered shares� The Board of Directors may restrict or disapply shareholders’ pre-emption rights when issuing warrant-linked bonds or convertible bonds in international capital markets� Further information on the structure and composition of conditional capital can be found in section 3 of Bâloise Holding’s Articles of Association� www.baloise.com → Responsibility → Corporate Governance → Rules and regulations
During the reporting period Dr Georg F� Krayer, Dr Michael Becker and Werner Kummer were re-elected for a threeyear term� Dr Hansjörg Frei stepped down from the Board of Directors at the 2013 Annual General Meeting (AGM)� Karin Keller-Sutter was newly elected for a two-year term (replacement for Dr Frei before his term of office had ended)�
The terms of appointment of the directors Dr Andreas Beerli, Dr Georges-Antoine de Boccard and Dr Eveline Saupper will expire at the forthcoming 2014 AGM� Because of the switch to a one-year term in accordance with the VegüV, all members of the Board of Directors will have to stand for re-election at the 2014 AGM, irrespective of their previous term of appointment, unless they are stepping down from the Board of Directors� All members of the Board of Directors will stand for re-election except Dr Georg F� Krayer, who will step down as a director at the 2014 AGM� Dr Krayer has been on the Board of Directors since 1995, has been Vice-Chairman since 2004 and was Chairman of the Remuneration Committee between 2003 and 2012� He has made an outstanding contribution to both Bâloise Holding and the Baloise Group� The 2014 AGM will be asked to elect Christoph B� Gloor as a new member of the Board of Directors�
Corporate Governance Corporate Governance Report including Remuneration Report since September 2013 he has sat on the Board of Directors of the Swiss Bankers Association� Further information on the members of the Board of Directors can be found on the internet�
BOARD ATTENDANCE IN 2013: MEETINGS OF THE FULL BOARD OF DIRECTORS
Andreas Beerli (1951, Switzerland, Dr iur�) has been a member of the Board of Directors since 2011� He studied law at the University of Basel� In 1979 he started working as an underwriter for the German market at Swiss Re� From 1985 to 1993 he performed various managerial roles at Baloise, with the main focus on supervising and supporting several foreign units� He then returned to Swiss Re, where he became a member of the Group Executive Committee in 2000, first in the United States as Head of Swiss Re Americas and, most recently, in Zurich as Chief Operating Officer for the entire Swiss Re Group� Since 2009 he has acted as an independent adviser on the Boards of Directors and Advisory Boards of companies and professional associations � He is a member of the Board of Directors at Ironshore Europe Inc�, Dublin; a member of the Advisory Board of Accenture Schweiz, and Chairman of the Swiss Advisory Council of the American Swiss Foundation� Dr Beerli is an independent non-executive director�
Georges-Antoine de Boccard (1951, Switzerland, Dr med�) has been a member of the Board of Directors since 2011� He studied medicine at the University of Geneva� He has been running his own urological surgery practice in Geneva since 1987� He is Vice-Chairman of the Board of Directors at Citadel Finance SA and was Chairman of the Swiss Association of Urology from 2005 to 2006� He is a member of the Swiss Association of Urology, the European Association of Urology and other professional bodies and associations and sits on the Boards of Directors of various foundations� Dr de Boccard is an independent non-executive director�
Werner Kummer (1947, Switzerland, Dipl�-Ing� ETH Zurich, MBA Insead) has been a member of the Board of Directors since 2000� From 1990 to 1994 he was CEO of Schindler Aufzüge AG and subsequently, until 1998, sat on Schindler’s Group Management Committee, where he was responsible for the Asia Pacific region� Until 2013 he was a member of the Supervisory Board of Schindler Deutschland Holding GmbH� He was CEO of Forbo Holding AG from 1998 until 2004� He is a freelance management consultant, Chairman of the Board of Directors at Gebrüder Meier AG, a member of other Supervisory Boards of non-listed companies in Switzerland and abroad and an executive director of the Zurich Chamber of Commerce� Mr Kummer is an independent non-executive director�
Corporate Governance Corporate Governance Report including Remuneration Report www.baloise.com → Responsibility → Corporate Governance → Rules and regulations
The Audit and Risk Committee supports the Board of Directors in its non-delegable overarching supervisory and financial oversight functions (section 716a OR) by ascertaining whether the internal and external control systems, including risk management, are well organised and function properly, by assessing the situation with respect to compliance in the Company and by forming its own view of the Company’s separate
The committees appointed by the Board of Directors generally consist of four members, who are newly elected every year by the Board of Directors� In accordance with section 7 VegüV, the members of the Remuneration Committee are to be elected by the Annual General Meeting from 2014� The Chairman and Vice-Chairman of the Board of Directors are ex officio members of the Chairman’s Committee� The Chairman of the Board of Directors is not allowed to sit on the Audit and Risk Committee � The committees’ basic functions and responsibilities are specified in the Organisational Regulations and in the written regulations applicable to individual committees, which also govern administrative aspects�
Corporate Governance Corporate Governance Report including Remuneration Report and consolidated annual financial statements� It receives regular reports on the work and findings of Group Internal Audit and on cooperation with the external auditors�
Meetings of the Board of Directors and its committees The Organisational Regulations stipulate that the full Board of Directors must meet as often as business requires, but no fewer than four times a year� www.baloise.com → Responsibility → Corporate Governance → Rules and regulations
Division of authorities, functions and responsibilities between the Board of Directors and the Corporate Executive Committee The division of authorities, functions and responsibilities between the Board of Directors and the Corporate Executive Committee is governed by law, the Articles of Association and the Organisational Regulations� The latter are reviewed on an on- going basis and updated as changing circumstances require� www.baloise.com → Responsibility → Corporate Governance → Rules and regulations
German Egloff (1958, Switzerland, lic� oec� HSG) graduated in business management from the University of St� Gallen� From 1985 onwards he held various managerial positions at Winterthur Insurance, Switzerland� In 1997, as an executive director, he was put in charge of personal non-life insurance products, which included responsibility for both Wincare and – as Chairman of the Board of Directors – Sanacare� From 1998 to 2002 he was Chief Financial Officer of Winterthur Switzerland and sat on the Board of Directors of Wincare, becoming its Chairman in 2000� From 2002 to 2004 he was Chief Financial Officer at Zurich Financial Services, Switzerland� His responsibilities here comprised finance, human resources, IT, logistics and procurement� Since 1 December 2004 he has been a member of the Corporate Executive Committee (heading up Corporate Division Finance), where he oversees investor relations, financial management, financial accounting & corporate finance, and corporate IT� The actuary responsible for Baloise’s business in Switzerland also reports to German Egloff�
There are no management agreements that assign executive functions to third parties� www.baloise.com → About us → Organisation → Corporate Executive Committee
Stephan Ragg, Dr iur� (until 31 May 2013) Mathias Zingg (since 1 June 2013)
Financial Accounting German Egloff (a�i� until 31 December 2013) Pierre Girard (since 1 January 2014)
Hans-Peter Bissegger (until 31 March 2013) Renato Piffaretti (since 1 April 2013)
Thomas Wodrich (until 30 June 2013) Sybille Fischer (since 1 July 2013)
Kurt Grois (until 13 March 2013) Stephan Ragg, Dr iur� (since 1 June 2013)
Silvia Kalbermatten, Dr iur� (until 31 August 2013) Peter Kalberer (since 1 September 2013)
Consequently, all existing change-of-control clauses were repealed with effect from 1 January 2014, and the Remuneration Committee’s remit was brought into line with the new legislation � A number of amendments to the Articles of Association will be submitted to the 2014 Annual General Meeting for approval, and the members of the Remuneration Committee will be proposed for election individually�
→ specify the structure and amount of remuneration paid to the Chairman and members of the Board of Directors and to the members of the Corporate Executive Committee; → approve the target agreements and performance assessments that are applied to the members of the Corporate Executive Committee; → approve the variable remuneration granted to individual members of the Corporate Executive Committee; → specify the total amount available in the performance pool and the total amount set aside for the allocation of performance share units (PSUs); → approve inducement payments and severance packages that are granted to the most senior managers; and
The Remuneration Committee consists of the following four independent members of the Board of Directors, who are newly elected every year by the Board of Directors: Dr Eveline Saupper (Chairwoman), Thomas Pleines (Deputy Chairman), Dr Georges-Antoine de Boccard and Karin Keller-Sutter� The Remuneration Committee generally meets at least twice a year� In addition to the committee secretary being present, these meetings are usually also attended by the Chief Executive Officer, the Head of the Corporate Centre and the Head of Group Human Resources, who participate in an advisory capacity� The
Corporate Governance Corporate Governance Report including Remuneration Report individual members of the Group Executive Committee leave the meeting if the Remuneration Committee is discussing or deciding on their personal remuneration� The Chairwoman of the Remuneration Committee reports to the Board of Directors at its next meeting on the committee’s activities� In addition, the minutes of Remuneration Committee meetings are available to the entire Board of Directors�
5.2 Remuneration policies Principles The Company’s success is largely dependent on the skills, capabilities and performance of its workforce� It is therefore essential to recruit, develop and retain suitably qualified, highly capable and highly motivated professionals and executives� Baloise’s remuneration policies and systems are based on these overarching principles�
Market comparisons Baloise regularly compares the salaries paid to its senior executives with those paid in the wider market� It uses functionspecific peer groups in order to replicate the relevant market as accurately as possible� To this end, each function being compared is assigned to one of three distinct peer groups� In assigning the various functions to these peer groups, Baloise has to consider the question of which companies it is competing against for the skill sets and qualifications needed in each case (i�e� recruitment market) and which alternative employers – in theory, at least – meet a certain function profile (i�e� competitors)�
Baloise also conducts market comparisons of its local functions in the respective countries outside Switzerland as and when required�
5.4 Components of remuneration Baloise views its compensation packages in the round and therefore factors in not only the basic salary plus short- and long-term variable remuneration but also other material and non-material benefits such as pension contributions, additional benefits and staff development�
Short-term variable remuneration The key factors determining the amount of short-term variable remuneration paid are an employee’s individual performance and the Company’s profitability and economic value added� The consequent link between individual performance and the Company ’s profits is designed to incentivise staff to achieve outstanding results� Measurement of the variable remuneration paid to employees who perform control functions (risk management, compliance, Group Internal Audit) is structured in such a way that it is not determined by the profitability of the unit being monitored or by the profitability of individual products and transactions�
The target figure agreed for performance-related remuneration depends on the employee’s basic salary and varies according to his or her seniority in the management hierarchy� The target figure for the members of the Corporate Executive Committee is 30 per cent of their basic salary� The target agreements and performance assessments for the members of the Corporate Executive Committee are carried out by the Remuneration Committee�
→ Capital-markets perspective compared with competitors → Risks taken → Strategy implementation�
The Remuneration Committee decides on the performance pool payments awarded to the individual members of the Corporate Executive Committee� The average expected payment amounts to roughly 50 per cent of basic salary�
Performance share units At the beginning of each vesting period the participating employees are granted rights in the form of PSUs, which entitle them to receive a certain number of shares free of charge after the vesting period has elapsed� The Remuneration Committee specifies the grant date and applies its own discretion in deciding which of the most senior managers are entitled to participate in the programme� It determines the total number of PSUs available and decides how many are to be awarded to each member of the Corporate Executive Committee� PSUs are granted to the other programme participants on the basis of the relevant line manager’s proposal, which must be approved by the line manager ’s manager�
Participants in the programme receive the pertinent number of shares once the vesting period has elapsed, which means that for the PSUs allocated in 2013 they receive their shares on 1 March 2016� Half of the shares granted in this way are then subject to an additional three-year restriction period�
The performance multiplier was therefore 0�77, and the 68,244 outstanding PSUs were converted into 52,551 shares (share price of CHF 113�60 on 31 December 2013, market capitalisation of CHF 5�97 million)�
→ The expected dividend yields → Empirical data on how long eligible programme participants remain with the company� The value of PSUs is exposed to market risk until the end of the vesting period and may, of course, fluctuate significantly, as shown in the table below: PERFORMANCE SHARE UNIT (PSU) PLAN
The parameters used to determine the subscription price are decided each year by the Remuneration Committee� The subscription price is based on the closing price on the first day of the subscription period (until 2013: volume-weighted average share price during a contemporaneous measurement period), on which a discount of 10 per cent is granted (please refer to the accompanying table for details)� Once it has been calculated using this method, the subscription price is published in
Companies in the STOXX 600 Europe Insurance Index (as at 31 December 2013)
Admiral Group plc Catlin Group Mapfre SA St. James's Place Capital
Share Subscription Plan for 2014 (applies to variable renumeration awarded for the 2013 reporting period)
Share Subscription Plan for 2013 (applies to shares subscribed by the Chairman and members of the Board of Directors during the reporting year)
Closing quotation and measurement period for average share price Applicable share price
Employee Share Ownership Plan for 2014 (applies to variable renumeration awarded for the 2013 reporting period )
Corporate Governance Corporate Governance Report including Remuneration Report 5.7 Employee Incentive Plan The Baloise Foundation for Employee Participation set up in 1989 offers members of staff working for various Baloise Group companies in Switzerland the opportunity to purchase shares in Bâloise Holding Ltd – usually once a year – at a preferential price in compliance with the regulations adopted by the Board of Foundation� This encourages employees to maintain their commitment to the Company over the long term by becoming shareholders� The subscription price is fixed by the Board of Foundation at the beginning of the subscription period and is then published on the intranet� It equals half of the volumeweighted average share price calculated for the month of August in the subscription year and amounts to CHF 50�30 for the reporting year (2012: CHF 34�20)� Title to the subscribed shares passes to the relevant employees with effect from 1 September each year, and the shares are subject to a three-year restriction period�
The Foundation acquired the underlying stock of shares used in this plan from previous capital increases carried out by Bâloise Holding Ltd� It supplements these shareholdings by purchasing shares in the market� The existing shareholdings will enable the Foundation to continue the Employee Incentive Plan over the coming years� The Foundation is run by a Board of Foundation that is predominantly independent of the Corporate Executive Committee� The independent Board of Foundation members are Peter Schwager (Chairman) and Professor Heinrich Koller (lawyer); the third member of the Board of Foundation is Andreas Burki (Deputy Head of Legal & Tax at Baloise)�
The Company provides its employees in Switzerland with an attractive occupational pension solution (Pillar 2) that meets the following objectives: → It fulfils its insured employees’ requirements in the event of old age, death or disability and mitigates the resultant financial consequences by offering an occupational pension scheme based on the principle of social partnership�
→ It enables its retirees to maintain the standard of living to which they are accustomed by providing them with a sufficiently high level of income replacement (combination of Pillar 1 and Pillar 2 benefits) to compensate for their loss of earnings�
The general increase in life expectancy means that people’s pension pots have to last them longer to ensure that they receive the required level of pension� This situation is being exacerbated by the fact that pension fund assets are yielding lower returns owing to the performance of capital markets� In order to ensure that its pension fund is properly financed, Baloise reduced its annuity conversion rate from 6�2 per cent to 5�6 per cent and raised employer and employee contributions by an average of 1�5 percentage points each with effect from 1 January 2013�
No amounts receivable from current or previous members of the Board of Directors have been waived�
The remuneration paid to the members of the Corporate Executive Committee is governed by the remuneration procedures and remuneration regulations formally adopted by the Board of Directors� It consists of the basic salary, the individual ’s performance-related remuneration (target figure of 30 per cent of basic salary) and the performance pool (average expected payment of roughly 50 per cent of basic salary), which – at the Remuneration Committee’s discretion – reflects the Company’s performance� In addition, the members of the Corporate Executive Committee receive performance share units (PSUs) as a form of long-term variable remuneration� The Remuneration Committee specifies the type and amount of this remuneration�
The members of the Corporate Executive Committee must receive at least 50 per cent of their short-term variable remuneration in the form of shares in order to ensure that their own interests are more strongly aligned with those of shareholders� This mandatory purchase of shares coupled with the shares allocated under the PSU programme ensures that, compared with the market as a whole, a significant proportion of their compensation is paid in the form of deferred remuneration�
The personal targets and objectives used to determine the amount of performance-related remuneration received essentially concern the successful management and leadership of the relevant Corporate Executive Committee members’ own corporate division as well as major projects and initiatives for which this individual is responsible� The targets and objectives set for all members of the Corporate Executive Committee in 2013 included ensuring that Baloise’s values-based culture continues to be firmly embedded throughout the organisation� Individuals ’ targets and objectives are decided in collaboration with their line manager and are approved by the Remuneration Committee � For reasons of business confidentiality Baloise is unable to disclose any further details or quantified facts relating to individuals ’ targets and objectives or the extent to which they have been achieved�
The Corporate Executive Committee members’ remuneration is disclosed on pages 78 and 79 in accordance with the accrual principle� The table includes all forms of remuneration that were awarded for performance in 2013 even though individual components are not paid until a later date�
5.13 Amounts of total remuneration and variable remuneration Please refer to the table on page 83�
REMUNERATION PAID TO THE MEMBERS OF THE BOARD OF DIRECTORS IN 2012
Granted in 2012 2012 CHF CHF Number of shares CHF Number of shares CHF Number of PSUs CHF Number of shares CHF CHF CHF CHF CHF
Explanatory notes to the table Remuneration is disclosed in accordance with the accrual principle. The table includes all remuneration elements that were awarded for performance in 2012 even though individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions etc.
Non-cash benefits Based on all remuneration elements required to be declared on the Swiss salary certificate, including long-service awards, taxable benefits relating to shares received in connection with the Employee Incentive Plan (max. 100 shares per annum; in previous years the amount was reported in a separate column), travel and accommodation costs and non-cash benefits (use of a company vehicle) granted to a member of the Corporate Executive Committee with a second home abroad. Pension benefits Employer contributions to the pension fund and maintenance of disability insurance cover in the home country of a member of the Corporate Executive Committee with a second home abroad.
Explanatory notes to the table Remuneration is disclosed in accordance with the accrual principle. The table includes all remuneration elements that were awarded for performance in 2013 even though individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions etc. Remuneration paid to former members and related parties No remuneration was paid on a non-arm’s-length basis to companies or individuals related to the members of the Corporate Executive Committee. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Share Subscription Plan Proportion of variable remuneration received directly as shares, which are measured at market value less 10 per cent markdown. Subscription price = CHF 102.78. Employee Share Ownership Plan Proportion of variable remuneration received as shares (excluding loans to purchase shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 100.87.
Total for the Board of Directors 0 0 1,479,108 2,403,689 0 0 1,479,108 2,403,689
SHARES HELD BY MEMBERS OF THE BOARD OF DIRECTORS (AS AT 31 DECEMBER)
Discretionary shares Restricted shares Total share ownership Percentage of issued share capital
SHARES HELD BY MEMBERS OF THE CORPORATE EXECUTIVE COMMITTEE (AS AT 31 DECEMBER)
Head of Corporate Division Switzerland 2,621 2,837 5,907 8,908 8,528 11,745 0.017 % 0.023 % 5,462 7,461
Explanatory notes to the table: The table includes all remuneration elements awarded for each year, even if individual components are not paid until a later date. Total remuneration All taxable benefits that the financial institution provides to persons directly or indirectly for the work they have performed for it in connection with their employment or directorship. They include cash payments, non-cash benefits, expenditure that creates or increases entitlements to pension benefits, pensions, allotment of shareholdings, conversion rights and options rights, and debt waivers. Variable remuneration Part of total remuneration, the amount or payment of which is at the discretion of the financial institution or which depends on the occurrence of agreed conditions. It includes performance-related or results-based remuneration such as fees and commissions. Inducement and severance payments also fall under the definition of variable remuneration. Total pool All the variable remuneration that a financial institution allocates for a year regardless of its form, any contractual undertaking regarding allocation and payout dates, and any terms and conditions attached. Inducement and severance payments made in the relevant year should be included in the total pool. Inducement payment One-off payment agreed when an employment contract is signed. Payments to compensate for lost entitlement to remuneration from a former employer also count as inducement pay. Severance payment Remuneration agreed in connection with the termination of a contract of employment.
Corporate Governance Corporate Governance Report including Remuneration Report 6. SHAREHOLDER PARTICIPATION RIGHTS Voting rights The share capital of Bâloise Holding consists solely of registered shares� Each share confers the right to one vote� No shares carry preferential voting rights� To ensure a broad-based shareholder structure and to protect minority shareholders, no shareholder is registered as holding more than 2 per cent of voting rights, regardless of the size of their shareholding� The Board of Directors can approve exceptions to this provision if a majority of two-thirds of all its members is in favour (section 5 of the Articles of Association)� There are currently no exceptions� Each shareholder can authorise another shareholder to exercise his or her voting rights by appointing a proxy in writing� When exercising voting rights, no shareholder can accumulate more than one fifth of the voting shares at the Annual General Meeting directly or indirectly for his or her own votes or proxy votes (section 16 of the Articles of Association)�
The Annual General Meeting, the Board of Directors or the external auditors decide whether to convene extraordinary general meetings� Furthermore, legal provisions also require the Board of Directors to convene an extraordinary general meeting if requested by the shareholders (section 11 of the Articles of Association)� Article 699 (3) of the Swiss Code of Obligations (OR) states such requests must be made by shareholders who represent at least 10 per cent of the share capital�
Section 5 of the Articles of Association determines whether nominee entries are permissible, taking into account any percentage limits and entry requirements� The procedures and requirements for suspending and restricting transferability are set out in the provisions in section 5 and section 17� www.baloise.com → Responsibility → Corporate Governance → Rules and regulations www.baloise.com → Investor relations → IR Agenda 7. CHANGES OF CONTROL AND POISON-PILL MEASURES Shareholders or groups of shareholders acting together by agreement are required to issue a takeover bid to all other shareholders when they have acquired 33 per cent of all Baloise shares� Bâloise Holding has not made any use of the option to deviate from or waive this regulation� There is no statutory opting-out clause or opting-up clause as defined by the Swiss Federal Act on Stock Exchanges and Securities Trading (Börsengesetz)�
Like the Chairman of the Board of Directors, all six members of the Corporate Executive Committee have a notice period of twelve months� The following arrangement and the corresponding contracts were rescinded at the end of 2013 in accordance with the statutory regulations applicable from 2014� The Chairman of the Board of Directors, the members of the
→ competence and technical and industry expertise → service quality → appropriate level of fees�
A written instruction requires material services unconnected with audit work to be approved in advance by Group Internal Audit� As part of the approval process for the engagement of auditors, the guarantee of independence is first reviewed by the auditor-in-charge and then verified by the head of Group Internal Audit� The operational unit approves the engagement and takes commercial responsibility for it�
→ Approval of the remuneration of the Board of Directors and the Corporate Executive Committee
Further amendments to the Articles of Association that are required because of the VegüV will be submitted to the 2015 Annual General Meeting�
Availability of documents Annual and half-year reports, media releases, disclosures, recent announcements, presentations and other documents are available to the public at www�baloise�com� Please register for the latest corporate communications at www�baloise�com/mailinglist � www.baloise.com → Media relations → Media kits www.baloise.com/mailinglist www.baloise.com
Contact Corporate Governance Baloise Group Andreas Eugster Aeschengraben 21 4002 Basel, Switzerland andreas�eugster@baloise�com
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS ���������������������������������������������������������������������� 98 Basis of preparation ������������������������������������������������������������������������������� 98 Application of new financial reporting standards and restatements �������������������������������������������������������������������������������������� 98 Consolidation principles and accounting policies ��������������� 106 Critical accounting principles and estimate uncertainties ��� 121 Management of insurance risk and financial risk ���������������� 124 Basis of consolidation ������������������������������������������������������������������������ 163 Information on operating segments (segment reporting) ��� 165
NOTES TO THE CONSOLIDATED BALANCE SHEET ������������������� 170 Property, plant and equipment ������������������������������������������������������ 170 Intangible assets ����������������������������������������������������������������������������������� 172 Investments in associates ����������������������������������������������������������������� 175 Investment property ��������������������������������������������������������������������������� 177 Financial assets ������������������������������������������������������������������������������������� 178 Mortgages and loans ��������������������������������������������������������������������������� 184 Derivative financial instruments �������������������������������������������������� 185 Receivables ���������������������������������������������������������������������������������������������� 186 Reinsurance assets ������������������������������������������������������������������������������� 187 Receivables from reinsurers ������������������������������������������������������������ 187 Employee benefits �������������������������������������������������������������������������������� 188 Deferred income taxes ����������������������������������������������������������������������� 198 Other assets �������������������������������������������������������������������������������������������� 200 Non-current assets held for sale and discontinued operations ���������������������������������������������������������� 200 Share capital ������������������������������������������������������������������������������������������� 201 Technical reserves (gross) ���������������������������������������������������������������� 202 Liabilities arising from banking business and financial contracts ������������������������������������������������������������������������ 211
Reconciliation between the gross investment in financial leases and the present value of minimum lease payments ��� 212 Financial liabilities ������������������������������������������������������������������������������ 213 Provisions ������������������������������������������������������������������������������������������������ 214 Insurance liabilities ����������������������������������������������������������������������������� 214
NOTES TO THE CONSOLIDATED INCOME STATEMENT ������������������������������������������ 215 Premiums earned and policy fees ������������������������������������������������� 215 Income from investments for own account and at own risk ����������������������������������������������������������� 215 Realised gains and losses on investments ��������������������������������� 216 Income from services rendered ����������������������������������������������������� 220 Other operating income �������������������������������������������������������������������� 220 Classification of expenses ����������������������������������������������������������������� 220 Personnel expenses ������������������������������������������������������������������������������ 221 Gains or losses on financial contracts ���������������������������������������� 221 Income taxes ������������������������������������������������������������������������������������������� 222 Earnings per share ������������������������������������������������������������������������������� 223 Other comprehensive income �������������������������������������������������������� 224
REPORT SUBMITTED BY THE STATUTORY AUDITORS TO THE ANNUAL GENERAL MEETING OF BÂLOISE HOLDING LTD, BASEL ������������������������������������������������������ 240
Financial Report 4 Baloise 18 Review of operating performance 38 Sustainable business management 50 Corporate governance 90 Financial Report 244 Bâloise Holding Ltd
Recognised at fair value through profit or loss 6,256.6 6,138.7 7,248.0
Recognised at fair value through profit or loss 375.2 819.7 956.1
Recognised at fair value through profit or loss 61.5 56.1 –
Unrealised gains and losses (net) – 615.3 – 67.8 – 68.1
Operating and administrative expenses for insurance business 34 – 900.0 – 897.1
Gains or losses on financial contracts 36 – 577.8 – 368.9
Change in reserves arising from reclassification of investment property – 0.6
Change in hedging reserves for derivative financial instruments held as hedges of a net investment in a foreign operation
Effect of changes in exchange rates on cash and cash equivalents – 2.2 13.2
Reclassification to non-current assets and disposal groups classified as held for sale – – 1.8
Depreciation, amortisation and impairment of property, plant and equipment and of intangible assets
Realised gains and losses on property, plant and equipment and on intangible assets
Purchase / sale of financial assets of a debt nature – 1,363.0 – 534.3
Addition / disposal of financial contracts and liabilities from banking business 932.1 231.6
Acquisition of companies, net of cash and cash equivalents 40 – 1.7 – 2.9
Cash and cash equivalents for the account and at the risk of life insurance policyholders 889.4 968.6
Consolidated statement of changes in equity 2012 (restated) Note Share capital Capital reserves Treasury shares
First-time adoption of IAS 19 (amendment) – – – – – 93.4 – 93.4 – 0.9 – 94.3
Profit for the period – – – – 479.5 479.5 5.7 485.2
Capital increase / repayment 22 – – – – – – – –
Purchase / sale of treasury shares – 2.3 18.8 – – 21.1 – 21.1
Increase / decrease in non-controlling interests due to change in the scope of consolidation
Increase / decrease in non-controlling interests due to change in the percentage of shareholding
At its meeting on 19 March 2014 the Bâloise Holding Board of Directors approved the annual financial statements and the Financial Report and authorised them for issue� The financial statements have yet to be approved by the Annual General Meeting of Bâloise Holding�
Restatement owing to first-time adoption of IFRS 10 Consolidated Financial Statements The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when a parent company controls one or more entities� This standard supersedes the existing IAS 27 and SIC-12� An investor must establish whether it meets the definition of a parent company by assessing whether it controls one or more investees� The investor must take into account all relevant facts and circumstances when considering whether it controls an investee or not� An investor is deemed to control an investee if the investor has power over the investee, has exposure or rights to variable returns from involvement with the investee, and has the ability to use power over the investee to affect the amount of the investor’s returns� Entities that qualify as investment entities under IFRS 10 enjoy an exemption and are not required to consolidate the entities that they control in their consolidated financial statements � Instead, equity investments held solely for the purpose of generating returns from capital appreciation, investment income or both must be measured at fair value through profit or loss� The Baloise Group is not affected by this exemption�
The new standard impacts on the basis of consolidation for the Baloise Group and increases its total assets� IFRS 10 has been applied retrospectively with effect from 1 January 2012 and, consequently, prior-year comparative figures for the Baloise Group have been restated accordingly� Details of this restatement are summarised in the tables on pages 100 to 104� Further effects of the application of this standard are explained in section 6�2�3�
IAS 28 (2011) Investments in Associates and Joint Ventures IAS 28 is concerned with investments in associates and now, additionally, joint ventures� The objective of IAS 28 is to prescribe the accounting for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures�
IAS 32 / IFRS 7 Offsetting Financial Assets and Financial Liabilities This amendment relates to a situation in which two entities each owe money to the other� In this case, both entities are required to present their rights and obligations in respect of each other as a net amount on the face of their respective balance sheets, provided that a range of strict conditions primarily focusing on the absolute enforceability of contractual rights are all satisfied� If a net amount is presented, disclosure requirements relating to rights associated with the transaction and any other associated arrangements must be satisfied� In addition, enhanced disclosures that also show the theoretical potential for offsetting are required (e�g� in cases of default)� This amendment does not impact materially on the Baloise Group’s balance sheet or income statement�
Reconciliation of the restated IFRS figures from the application of IAS 19 (amendment) and IFRS 10
Recognised at fair value through profit or loss 819.7 – – 819.7
Recognised at fair value through profit or loss 87.1 – – 87.1
Interest expenses on insurance liabilities – 50.5 – – – 50.5
Gains or losses on financial contracts – 563.9 – – 13.9 – 577.8
IMPACT OF RESTATEMENTS ON LINE ITEMS IN THE STATEMENT OF COMPREHENSIVE INCOME
Change in hedging reserves for derivative financial instruments held as cash flow hedges
Cash flow from investing activities (net) – 97.2 – – – 97.2
Changes in exchange rates on cash and cash equivalents – 2.2 – – – 2.2
Cash and cash equivalents as at 31 December 2,923.7 – – 2,923.7
The prior-year comparative figures for the financial year ended 31 December 2012 – which are shown on the balance sheet, the income statement, the cash f low statement and the statement of changes in equity as well as in the notes to this Financial Report – have been restated accordingly�
New IFRSs and interpretations not yet applied The following new standards and interpretations relevant to the Baloise Group have been published by the IASB but have not yet come into effect and, therefore, have not been applied in the 2013 consolidated annual financial statements: Standard / Inter- pretation Content
IAS 19 Employee Benefits (amendment) As a result of the amendment, contributions from employees or third parties are recognised as a reduction in service cost in the period in which they are paid, provided they are entirely related to the employee’s service in that period� This may be the case, in particular, with contributions that constitute a fixed percentage of salary that is not dependent on the number of years worked at the company by the employee� It is not yet possible to fully assess the impact of this amendment on the Baloise Group’s balance sheet or income statement�
The acquisition cost corresponds to the fair value of the consideration paid to the previous owners on the date of the acquisition. If investments in the form of financial instruments or associates were already held before control was acquired, these investments are remeasured and any difference is recog­ nised in profit or loss. Any contingent consideration recognised as part of the consideration paid for the acquiree is measured at fair value on the transaction date. Any subsequent changes in the fair value of a contingent consideration are recognised in the income statement. If the acquisition cost exceeds the fair value of assets and liabilities plus non­controlling interests, the difference is recognised as goodwill. Conversely, if the identified net assets exceed the acquisition cost then the difference is recognised directly through profit or loss as other operating income.
3.2.2 Translation of transaction currency into functional currency at Group companies Income and expenses denominated in foreign currency are translated either at the exchange rate prevailing on the trans­ action date or at the average exchange rate. Monetary and non­monetary balance sheet items measured at fair value and arising from foreign­currency transactions conducted by Group companies are translated at the closing rate. Non­monetary items measured at historical cost are translated at the historical rate. Any resultant exchange differences are recognised in profit or loss. This does not include exchange differences that form part of cash flow hedges and are recognised directly in hedging reserves or are used as hedges of a net investment in a foreign operation.
Exchange differences arising on non­monetary financial instruments recognised at fair value through profit or loss are reported as realised gains or losses on these instruments. Exchange differences on available­for­sale non­monetary financial instru­ ments are recognised directly in equity as unrealised gains or losses.
3.4 Leases 3.4.1 The Baloise Group as a lessee Finance leases: leases on real estate, office furniture, equipment, fixtures, fittings and other tangible assets are classified and treated as finance leases if they transfer to the Baloise Group substantially all the risks and rewards incidental to ownership. The fair value of the leased property or, if lower, the present value of the lease payments is recognised as an asset at the inception of the lease. All lease payments are apportioned between the finance charge and the reduction of the outstanding liabil­ ity. The finance charge is allocated so as to produce a constant periodic rate of interest on the remaining balance of the liabil­ ity; this is reported on the Baloise Group’s balance sheet as liabilities arising from banking business and financial contracts. Assets held under finance leases are fully depreciated over the shorter of the lease term and their useful life.
3.4.2 The Baloise Group as a lessor Investment real estate let on operating leases is reported as investment property on the face of the consolidated balance sheet. The Baloise Group was not involved as lessor in any other leases during the reporting period.
3.5.2 Present value of future profits (PVFP) on insurance contracts acquired The present value of future profits on insurance contracts acquired arises from the purchase of life insurance companies or life insurance portfolios. It is initially measured in accordance with actuarial principles and is amortised on a straight­line basis. It is regularly tested for impairment as part of a liability adequacy test (see section 3.18.2 for further details).
Financial Report Notes to the consolidated annual financial statements 3.5.5 Other intangible assets and internally developed assets Other intangible assets essentially comprise software, external IT consulting (in connection with software that has been developed), internally developed assets (such as software) and assets identified during the acquisition of entities (such as brands and customer relationships). These assets are recognised at cost and are amortised on a straight­line basis over their useful lives. Intangible assets with indefinite useful lives are not amortised and are carried at cost less accumulated impairment losses.
All financing for intangible assets is generally obtained from the Baloise Group’s own financial resources. If funding from external sources is required, interest accrued during the assets’ development is capitalised as incurred.
The term financial instruments with characteristics of liabilities covers securities such as bonds and other fixed­income securities. They are usually interest bearing and are issued for a fixed or determinable amount.
Mortgages and loans are generally carried at cost. In pur­ suing its strategy of using natural hedges, however, the Baloise Group applies the fair value option to designate parts of its portfolio as “recognised at fair value through profit or loss”. Appropriately designated derivative financial instruments are used to hedge these parts of the portfolio.
Financial Report Notes to the consolidated annual financial statements 3.7.1 Financial assets recognised at fair value through profit or loss This category consists of two sub­categories: held­for­trading financial assets (trading portfolio) and financial assets that are designated to this category. Financial instruments are classified in this category if they have principally been acquired with the intention of selling them in the short term, or if they form part of a portfolio for which there have recently been indications that a gain could be realised in the short term, or if they have been designated to this category. Derivative financial instruments are classified as “held for trading” (trading portfolio) with the exception of derivatives that have been designated for hedge accounting purposes. Also designated to this category are struc­ tured products, i.e. equity instruments and debt instruments which, in addition to the host contract, contain embedded derivatives that are not bifurcated and measured separately. Financial assets held under investment­linked life insurance contracts are also designated as “recognised at fair value through profit or loss”.
If such estimates do not enable financial assets to be reli­ ably measured, the assets are recognised at cost and disclosed accordingly.
Mortgages and loans held as part of fair value hedges (hedge accounting) are designated as “at fair value through profit or loss”. Present­value models are used to measure these portfolios.
3.9 Receivables Receivables from financial contracts dating from 2012 include life settlement agreements (secondary market policies) measured at fair value. The income­approach method is used for measure­ ment purposes. The measurement of receivables under this method includes the guaranteed maturity value, future and already disbursed policyholders’ dividends, final policyholders’ dividends and risk­adjusted discount rates. Changes recognised in profit or loss are reported as gains or losses on financial con­ tracts.
All other receivables are recognised at amortised cost less any impairment losses recognised for non­performing receiv­ ables. Amortised cost is usually the same as the nominal amount of the receivables.
ruptcy or undergo some other form of restructuring → Observable data that indicates a measurable reduction in the expected future cash flows from a group of financial assets since their initial recognition.
Impairment losses on available­for­sale financial instru­ ments with characteristics of equity that have been recognised in profit or loss cannot be reversed and taken to income. Any further reduction in the fair value of financial instruments with characteristics of equity on which impairment losses were rec­ ognised in previous periods must be charged directly to the income statement.
3.10.3 Impairment losses on non-financial assets Goodwill and any assets with indefinite useful lives are tested for impairment at the same time each year or whenever there is objective evidence of impairment. Goodwill is allocated to cash­generating units (CGUs) for the purposes of impairment testing. Insurance companies that sell both life and non­life products (so­called composite insurers) test goodwill for impairment at this level. When impairment tests are performed, a CGU’s value in use is determined on the basis of the maximum discounted future cash flows (usually dividends) that could potentially be returned to the parent company. This process takes appropriate account of legal requirements and inter nally specified capital adequacy limits. The long­term financial plan­ ning approved by management forms the basis for this calcu­ lation of the value in use. Permanent impairment losses are recognised in the income statement as other operating expenses. All other non­financial assets are tested for impairment when­ ever there is objective evidence of such impairment.
3.11 Derivative financial instruments Derivative financial instruments include swaps, futures, forward contracts and options whose value is primarily derived from the underlying interest rates, exchange rates, commodity prices or share prices. The acquisition cost of derivatives is usually either very low or non­existent. These instruments are carried at fair value on the balance sheet. At the time they are purchased they are classified as either fair value hedges, cash flow hedges, hedges of a net investment in a foreign operation, or trading instruments. Derivative financial instruments that do not qualify as hedges under IFRS criteria despite performing a hedging function as part of the Baloise Group’s risk management pro­ cedures are treated as trading instruments.
3.11.1 Structured products Structured products are equity instruments or debt instruments that contain embedded derivatives in addition to the host con­ tract. Provided that the economic characteristics and risks of the embedded derivative differ from those of the host contract and that this derivative qualifies as a derivative financial instrument, the embedded derivative is bifurcated from the host contract and is separately recognised, measured and dis­ closed. If the derivative and the host contract are not bifurcated, the structured product is designated as a host contract that is recognised at fair value through profit or loss.
3.11.5 Derivative financial instruments that do not qualify as hedges Changes in the fair value of derivative financial instruments that do not qualify as hedges are recognised in the income state­ ment as “realised gains and losses on investments”.
3.15.1 Share capital The share capital shown on the balance sheet represents the subscribed share capital of Bâloise Holding, Basel. This share capital consists solely of registered shares. No shares carry pref­ erential voting rights.
Deductions from these unrealised gains and losses include the pertinent deferred taxes and, in the case of life insurance companies, also the funds that will be used in future to amor­ tise acquisition costs and to finance policyholders’ dividends (shadow accounting).
Contracts that pose no significant insurance risk are financial contracts. Such financial contracts may include a dis­ cretionary participation feature (DPF), which determines the accounting policies to be applied.
→ the timing or amount of the benefits payable is contractu­ ally at the discretion of the insurer, and the benefits received are contractually contingent on the performance of either a specified portfolio of contracts or a specified type of contract, on the realised and / or unrealised capital gains on a specified portfolio of investments held by the insurer, or on the profit or loss reported by the insurer.
Captive insurance policies are derecognised from the annual financial statements. This also applies to contracts involving proprietary pension plans, provided that the employees covered by these plans work for the Baloise Group.
→ Health The Baloise Group writes health insurance business in Switzerland and Belgium only. The benefits paid by the products in this segment cover the usual cost of treatment and also include a daily sickness allowance; they are available to individuals as well as small and medium­sized businesses in the form of so­called group insurance.
→ Miscellaneous This category generally comprises small segments such as credit protection insurance and legal expenses insurance. Provided that financial guarantees qualify as insurance contracts, they are treated as credit protection insurance policies.
Actuarial methods are used to calculate by far the largest proportion of claims reserves. To this end, the Baloise Group selects actuarial forecasting methods that are appropriate for each sector, insurance product and existing claims history. Additional market data and assumptions obtained from insur­ ance rates are used if the claims history available on a customer is inadequate. The Baloise Group mainly applies the chain­ ladder method, which is the most widely used, tried­and­tested pro­ cedure. This method involves estimating the number and amounts of claims incurred over time and the proportion of claims that are reported to the insurer either with a time lag or after the balance sheet date. The proportion of these so­called incurred­ but­not­reported (IBNR) claims is exceptionally important, especially in operating segments involving third­party liability insurance. These estimates naturally factor in emerging claims trends as well as recoveries. The mean ratio of costs incurred to claims actually paid is essentially used to calculate reserves for claims handling costs.
3.18 Life insurance contracts and financial contracts with discretionary participation features IFRS 4 gives users the option of accounting for insurance con­ tracts and financial contracts with discretionary participation features by continuing to apply the existing accounting policies described in section 1 below to both liabilities and to the assets resulting directly from the pertinent contracts (deferred acqui­ sition costs and present value of future profits from acquired business).
3.18.1 General accounting policies The accounting policies applied to traditional life insurance vary according to the type of profit participation agreed. Pre­ miums are recognised as income and benefits are recognised as expense at the time they fall due. The amount of reserves set aside in each case is determined by actuarial principles or by the net premium principle, which ensures that the level of reserves generated from premiums remains consistent over time. The actuarial assumptions used to calculate reserves at the time that contracts are signed either constitute best estimates with explicit safety margins for specific business lines or they are determined in accordance with local loss reserving practice and thus also factor in safety margins. The assumptions used are locked in throughout the term of the contract unless a liability adequacy test reveals that the resultant reserves need to be strengthened after the deferred acquisition costs (DACs) and the present value of future profits (PVFP) on acquired insurance contracts have been deducted. Unearned premium reserves, reserves for final dividend payments and certain unearned revenue reserves (URRs) are also recognised as components of the actuarial reserve.
Surpluses are reimbursed in the form of increased bene­ fits, reduced premiums or final policyholders’ dividends or are accrued at interest to a surplus account. Surpluses already dis­ tributed and accrued at interest are reported as policyholders’ dividends credited and reserves for future policyholders’ divi­ dends (section 23). The relevant interest expense is reported as interest expenses on insurance liabilities. Surpluses that have been used to finance an increase in insurance benefits are rec­ ognised in actuarial reserves. All investment income derived from unit­linked life insurance contracts is credited to the policy holder.
IFRS 4 introduces the concept of a discretionary par­ ticipation feature (DPF), which is of relevance not only for the classification of contracts but also for the disclosure of surplus reserves according to policyholders’ share of the unrealised gains and losses recognised directly in equity under IFRS and their share of the increases and decreases recognised in profit or loss in the consolidated financial statements compared with the financial statements prepared in accordance with local account­ ing standards. IFRS 4 states here that the portion of an insurance contract’s liability that is attributable to a discretionary partic­ ipation feature (“DPF component”) must be reported separately. This standard does not provide any clear guidance as to how this DPF component should be measured and disclosed.
The difference between acquisition cost and redemption value is recognised in profit or loss over the term of the liability as “gains or losses on financial contracts” under the amortised­cost method and the effective interest method.
Financial Report Notes to the consolidated annual financial statements 3.21 Financial liabilities The financial liabilities reported under this line item comprise the bonds issued in the capital markets (except for the bonds issued by the Banking operating segment). Financial liabilities are initially measured at their acquisition cost (fair value). Acquisition cost includes transaction costs.
The difference between acquisition cost and redemption value is recognised in profit or loss over the term of the liab ility as borrowing costs under the amortised­cost method and the effective interest method.
The Baloise Group’s pension plan agreements are tailored to local conditions in terms of enrolment and the range of ben­ efits offered.
3.25 Revenue recognition Revenue and income are recognised at the fair value of the con­ sideration received or receivable. Intercompany transactions and the resultant gains and losses are eliminated. Recognition of revenue and income is described below.
3.25.2 Interest income Interest income from financial instruments that are not recog­ nised at fair value through profit or loss is recognised under the effective interest method. If a receivable is impaired, it is writ­ ten down to its recoverable amount, which corresponds to the present value of estimated future cash flows discounted at the contract’s original interest rate.
4. CRITICAL ACCOUNTING PRINCIPLES AND ESTIMATE UNCERTAINTIES The Baloise Group’s consolidated annual financial statements contain assumptions and estimates that can impact on the annual financial statements for the following financial year. Estimates and the exercise of discretion by management are kept under constant review and are based on empirical values and other factors – including expectations about future events – that are deemed to be appropriate on the date that the balance sheet is prepared.
The discounted cash flow (DCF) method is used to determine the fair value of investment property. The assumptions and estimates used for this purpose are described in section 3.6.
→ Financial instruments with characteristics of equity and financial instruments with characteristics of liabilities (available for sale or recognised at fair value through profit or loss) Fair value is based on prices in active markets. If no quoted market prices are available, fair value is estimated using generally accepted methods (such as the present­value method), independent assessments based on comparisons with the market prices of similar instruments, or the pre­ vailing market situation. Derivative financial instruments are measured using models or on the basis of quoted market prices. If no publicly quoted prices are available for private equity investments, they are measured on the basis of their net asset value using non­public information from independent external providers. These providers use various methods for their estimates (e.g. analysis of discounted
Financial Report Notes to the consolidated annual financial statements cash flows and reference to similar, fairly recent arm’s­ length transactions between knowledgeable, willing parties). If such estimates do not enable financial assets to be reliably measured, the assets are recognised at cost and disclosed accordingly. Publicly quoted prices are used to determine the fair value of hedge funds. If no such prices are available, prices quoted by independent third parties are used to determine fair value.
4.2 Financial instruments with characteristics of liabilities (held to maturity) The Baloise Group applies the provisions of IAS 39 when clas­ sifying non­derivative financial instruments with fixed or determinable payments as ‘held to maturity’. To this end, it assesses its intention and ability to hold these financial instru­ ments to maturity.
If – contrary to its original intention – these financial instruments are not held to maturity (with the exception of specific circumstances such as the disposal of minor investments), the Baloise Group must reclassify all held­to­maturity financial instruments as ‘available for sale’ and measure them at fair value. Section 12 contains information on the fair values of the finan­ cial instruments with characteristics of liabilities that are clas­ sified as ‘held to maturity’.
4.3 Impairment The Baloise Group determines at each balance sheet date whether there is any objective evidence that financial assets may be per­ manently impaired.
→ Financial instruments with characteristics of liabilities (available for sale or held to maturity) Objective evidence of a financial asset’s impairment includes observable data on the following cases: – Serious financial difficulties on the part of the borrower – Breaches of contract, such as a borrower in default or arrears with the payment of principal and / or interest – Greater probability that the borrower will file for bankruptcy or undergo some other form of restructuring – Observable data that indicates a measurable reduction in the expected future cash flows from a group of financial assets since their initial recognition.
→ Mortgages and loans (carried at cost) The mortgage portfolio is regularly tested for impairment. The methods and assumptions used in these tests are also regularly reviewed in order to minimise any discrepancies between the actual and expected probabilities of default.
4.7 Employee benefits In calculating its defined benefit obligations towards its em­ ployees, the Baloise Group makes assumptions about the expected return on plan assets, the economic benefits embodied in assets, future increases in salaries and pension benefits, the discount rate applicable and other parameters. The most important assumptions are derived from past experience of making esti­ mates. The assumptions factored into these calculations are discussed in section 18.2.7.
Financial Report Notes to the consolidated annual financial statements 5. MANAGEMENT OF INSURANCE RISK AND FINANCIAL RISK The companies in the Baloise Group offer their customers nonlife insurance, life insurance and banking products (the latter in Switzerland and, on a restricted basis, in Germany). Consequently, the Baloise Group is exposed to a range of risks.
At the level exposed to financial and business risk, various limits and regulations restrict the individual risks that have been identified to a level that is acceptable for the Group, or eliminate them completely.
The Baloise Group’s risk map is a categorisation of the risks it has identified. The risks are divided into three levels: → Category of risk → Sub-category of risk → Type of risk
Every business unit in the Baloise Group issues regulations regarding underwriting and risk review. They include clear authorisation levels and underwriting limits for each sector. Underwriting limits are approved by a business unit’s highest decision-making body, and the Corporate Executive Committee is notified of them. In the industrial insurance unit, the maximum net underwriting limit for property insurance has been set at CHF 100 million (2012: CHF 100 million) for Switzerland and at EUR 60 million (2012: EUR 60 million) for Germany and Belgium. The only other comparable underwriting limits in the Group are for marine and liability insurance. Tools for setting the basic premium and for risk-based management of the total portfolio are also used to manage industrial insurance risk.
5.3 Life and non-life reinsurance strategies The Baloise Group’s non-life treaty reinsurance for all business units in the Group is structured and placed in the market by Group Reinsurance, part of Corporate Division Finance. When structuring the programme, Group Reinsurance focuses on the risk-bearing capacity of the Group as a whole. To date, the Group has only placed non-proportional reinsurance programmes. The Group’s maximum retention for cumulative claims was CHF 20 million (2012: CHF 20 million). The retentions for individual claims were CHF 16 million (2012: CHF 16 million) for property claims, CHF 15 million (2012: CHF 15 million) for marine claims and CHF 12.5 million on a non-indexed basis (2012: CHF 12.5 million) for third-party liability claims. The local Baloise Group business units also use additional facultative reinsurance cover on a case-by-case basis. This type of reinsurance is extremely dependent on the individual risk in each case and it is therefore placed by the business units themselves.
Financial Report Notes to the consolidated annual financial statements 5.4.2 Assumptions → Claims reserves and claims settlement
The reserves in its run-off business mainly arose from liabilities that the Baloise Group had incurred in the London market since the early 1990s, largely third-party liability claims relating to asbestos and environmental damage.
Seven years later 674.1 845.1 585.7 – – – – – – – –
For greater clarity, the following analysis of claims trends is shown in euros.
Nine years later 287.7 – – – – – – – – – –
Nine years later 185.9 – – – – – – – – – –
Financial Report Notes to the consolidated annual financial statements 5.5 Life 5.5.1 Actuarial risk Traditional life insurance is called fixed-sum insurance because payments are not made for losses. Instead, a fixed sum is paid on occurrence of an insured event, which can be survival or death. In the case of term insurance, capital and/or pension benefits are insured against premature death (whole-life insurance) or disability (disability insurance ), while capital redemption insurance focuses on savings for old age. Endowment life insurance combines risk protection with savings.
The Baloise Group offers variable annuities products including unit-linked and, in some cases, guaranteed whole-life annuities via its units in Switzerland and Luxembourg/Liechtenstein. Financial hedges are provided using external reinsurance.
5.5.3 Sensitivities To identify sensitivities, we investigated the effect of changes in assumptions on profit for the period and on equity, after shadow accounting, deferred gains/losses and deferred taxes (excluding reinsurance effects which were immaterial ) had been taken into account. The assumptions on which liability adequacy testing is based were changed for each calculation. The following scenarios were run: → 10 per cent increase in mortality → 10 per cent fall in mortality (i.e. increase in longevity) → 100 basis-point increase in receipts of new money. → 100 basis-point fall in receipts of new money
In Belgium this scenario did not have a material effect on profit or loss. The negative effect on unrealised gains amounted to CHF 150 million (2012: CHF 147 million).
The banks also use an appropriate asset and liability management system to monitor and manage interest-rate risk. Interest-rate risk is incurred only in proportion to business volume and business activities. Interest-rate risk is measured using software based on value-at-risk, gap, duration and interest-rate sensitivity methods. The asset and liability mismatch is actively managed by the use of appropriate interest-rate derivatives, generally fair value hedges.
If all interest rates had risen by 100 basis points on the balance sheet date but all other variables had remained constant, the profit for the period (after deferred gains/losses and deferred taxes) would have been CHF 15 million (2012: CHF 15 million) higher. Including the impact on profit for the period, equity (after shadow accounting, deferred gains/losses and deferred taxes) would have fallen by CHF 485 million (2012: CHF 408 million).
For international diversification (risk-spreading), to enhance returns and because there is greater liquidity in certain foreign financial markets, as at 31 December 2013 the Group’s Swiss companies did hold a net position in euros equivalent to CHF 886.0 million (2012: no material net position) and a net position in US dollars equivalent to CHF 23.9 million (2012: CHF 288.0 million). The remaining foreign exchange positions, both assets and liabilities, were negligible.
The foreign entities in the Baloise Group had no significant foreign-currency exposure.
Financial Report Notes to the consolidated annual financial statements 5.7 Credit risk Credit risk relating to assets held by insurance companies refers to the total potential downside risk arising from a deterioration in the credit quality of a borrower or issuer, or from impairment in the value of collateral. Credit risk is managed by monitoring the credit quality of each individual counterparty and relying heavily on credit ratings.
In order to restrict the credit/accumulation risk in the Baloise Group, the proportion that may be invested by Group companies in a single issuer or borrower is strictly limited in the Group-wide Risk Management Standards. The relevant rules are explicitly defined in the Group investment policy.
Investments in the investment portfolio may only be made in bonds, loans or financial derivatives whose issuer or borrower has a minimum A– rating from Standard & Poor‘s, a comparable rating or is backed by a thirdparty guarantee or mortgage. For other borrowers and issuers with at least a BBB rating from Standard & Poor‘s (or similar), and those with no rating, an additional overall limit of 15 per cent of all fixed-income securities – based on their fair values – is applied. Exceptions require explicit approval.
If no contractually irrevocable future loan commitments have been agreed, the maximum default risk of financial assets corresponds to the carrying amount of the assets for own account and at own risk. In addition, guarantees and collateral for the benefit of third parties totalled – 516.1 million (2012: – 505.2 million).
Because a running total of mortgage transactions is kept, it is possible to monitor compliance with credit policy, and corrective action can be taken if necessary. All mortgages are also managed by periodically auditing exposure, including records of overdue interest. Procedures and audit intervals are set out in a separate directive. Senior management regularly receive detailed risk reports on the composition of the mortgage portfolio and risk trends.
CREDIT RATINGS OF FINANCIAL ASSETS THAT WERE NEITHER OVERDUE NOR IMPAIRED AT THE BALANCE SHEET DATE IN 2012
In 2013, financial assets amounting to – 2.1 million (2012: – 2.9 million) and cash and cash equivalents of – 0.2 million (2012: – 0.4 million) from collateral received were used.
Assets as at 31 December 2012 (restated) < 3 months 3 – 6 months 7 – 12 months > 12 months Total
If these precautions fail to meet the need for liquidity, the Baloise Group holds financial assets that can be sold at short notice without significant price losses. They include all equities (excluding long-term equity investments ). Because the Group holds a substantial portfolio of government and quasi-government bonds, it is possible to sell relatively large holdings of available-for-sale bonds even in crisis situations. Mortgages and loans are generally held to maturity; early redemption is not considered at present. In terms of alternative financial assets, 75 per cent of hedge funds can be sold within three months. Private-equity investments have to be considered illiquid in this context, and it is not possible to sell investment property to generate immediate liquidity.
Most financial instruments with characteristics of equity are publicly listed. If the market price of all financial instruments with characteristics of equity were to move by +/– 10 per cent on the balance sheet date, the following impact would be observed – after shadow accounting, deferred gains / losses, deferred taxes, derivative hedges and the effect of the impairment rules mentioned in section 3.10.2:
→ Fair value determined without the use of observable market data (level 3) Fair value is estimated using generally recognised methods (discounted cash flow,etc.), although it is measured without reference to any observable market data (or only to a very minor degree), either because it is not available or because it does not permit any reliable conclusions to be drawn with regard to fair value.
Details of the methods used to measure level 2 and level 3 assets and liabilities The table below gives an overview of the measurement methods that the Baloise Group uses to determine the fair value of balance sheet line items classified as level 2 or level 3. The table shows the individual measurement methods, the key input factors used for measurement purposes and – where practicable – the range within which these input factors vary.
Investment property DCF method Discount rate 1 4.5 % –5.5 % 3 1 The lower these key input factors are, the higher the fair value of the investment property is. 2 The higher these key input factors are, the lower the fair value of the investment property is. 3 The input factor ranges shown essentially relate to the real-estate portfolios held by the Baloise Group’s Swiss entities.
Determining the fair value of assets and liabilities classified as level 3 The Baloise Group organises its operating activities into strategic business units, which are generally combined under a single management team for each region. The financial and management information needed for all relevant executive decisions is held by these strategic business units. This organisational structure is also used to delegate authority and responsibility for proper implementation of, and compliance with, financial reporting standards within the Baloise Group to the individual strategic business units.
The organisation of these individual units varies in terms of how they determine the fair value of financial instruments classified as level 3. This process essentially involves the regular discussion of measurement methods, measurement inconsistencies and classification issues by formal or informal committees at each reporting date. Appropriate adjustments are made where necessary.
FINANCIAL ASSETS AND LIABILITIES FOR OWN ACCOUNT AND AT OWN RISK
Recognised at fair value through profit or loss 76.5 – – 76.5
Recognised at fair value through profit or loss – 819.7 – 819.7
Recognised at fair value through profit or loss – 180.3 – 180.3
FAIR VALUE OF ASSETS AND LIABILITIES FOR OWN ACCOUNT AND AT OWN RISK
Recognised at fair value through profit or loss 302.0 302.0 145.2 156.8 –
Recognised at fair value through profit or loss 72.4 72.4 36.9 35.5 –
Recognised at fair value through profit or loss – – – – –
Recognised at fair value through profit or loss 210.7 210.7 – 210.7 –
FINANCIAL ASSETS AND LIABILITIES FOR THE ACCOUNT AND AT THE RISK OF LIFE INSURANCE POLICYHOLDERS
Recognised at fair value through profit or loss 7,032.2 2.6 – 7,034.8
Recognised at fair value through profit or loss 1,723.1 1,723.1 1,692.8 30.3 –
Recognised at fair value through profit or loss 47.3 47.3 47.3 – –
Recognised at fair value through profit or loss 7,580.3 7,580.3 7,577.7 2.6 –
Assets and liabilities measured at fair value and classified as level 3
Exchange differences – 8.4 – – – – – – – 8.4
Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss
Disposals arising from change in the scope of consolidation – – 1.7 – 1.7
Changes in fair value recognised in profit or loss 2 – 14.4 127.0 112.6
Changes in fair value not recognised in profit or loss 3 11.8 0.6 12.4
Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss 1 Any reclassification of financial instruments either to or from level 3 during the reporting period was mainly attributable to market inactivity coupled with unobservable inputs or to the cancellation of the lock-up period applicable to certain hedge fund. Investment property reclassified either to or from Level 3 essentially related to real estate that had been repurposed.
2 Changes in fair value recognised in profit or loss arise from realised gains and losses on investments, impairment losses or the reversal of impairment losses. 3 Changes in fair value not recognised in profit or loss arise from unrealised gains and losses on investments.
Additions arising from change in the scope of consolidation – – – –
Changes in fair value recognised in profit or loss – 0.7 – – – 0.7
No significant amounts of assets or liabilities measured at fair value were reclassified from level 1 to level 2 or vice versa during the reporting period.
Discrepancy between a non-financial asset’s highest and best use and its current use The fair value of certain items of investment property in the Swiss portfolio was adjusted owing to the first-time adoption of IFRS 13. Fair value in each case was determined according to the property’s highest and best use. A higher fair value was ultimately determined for this property as a result of this analysis, which was based on criteria such as the potential to increase a property’s market value by converting it into apartments, the repurposing of some or all of an existing property, the availability of a significant amount of land for further building and development, and the unlocking of added value by demolishing an existing property and building a new one.
5.11 Capital management The general parameters regarding the amount of capital employed are set by regulatory requirements and internal risk-management policies. While the aim of regulatory requirements is primarily the protection of policyholders, internal policies are largely derived from the risk-based management of operating activities.
The Swiss Solvency Test (SST) came into force on 1 January 2011 as a new statutory requirement alongside Solvency I. In this context, the Baloise Group defines its risk-bearing capital and capital required for the SST using an inhouse model that takes into account the Baloise Group’s business model. All activities and processes for developing and structuring the inhouse model are gathered together in the Baloise Internal Solvency System (BISS) and coordinated and managed by Group Risk Management.
Risk-bearing capital is compared with risk-adjusted capital and the capital requirement formulated inhouse. The capital requirement covers actuarial risk, market risk, credit risk and other risks. The capital requirement is determined by means of a correlation-based expected-shortfall method. The actuarial capital requirement is a measurement of the operational funding required to cover actuarial risk. The claims risk is modelled using distributions of normal and large claims, including the prevailing reinsurance structure. At the same time, the investment required to smooth fluctuations in investment value and returns for a given probability is also calculated. Analysis of these risks is based on quantitative models that use statistical methods to evaluate historical data and place it in the context of current exposure. Various scenarios are simulated by means of stress tests, and their potential impact on risk-bearing capacity is analysed. The ratio of risk-bearing capital to risk-adjusted capital is calculated for the strategic business units and the Group. The Group’s risk position is not determined by simply adding together individual risk positions; it also takes into account diversification and consolidation effects. The current ratios of risk-bearing capital to risk-adjusted capital are set with reference to the global risk-management limits laid down in the Group-wide Risk Management Standards. These limits are monitored on an ongoing basis.
Financial Report Notes to the consolidated annual financial statements 6. BASIS OF CONSOLIDATION 6.1 2012 financial year 6.1.1 Acquisitions Two property companies in Austria were acquired in 2012.
6.1.2 Disposals The Poliklinika Osiguranje Zagreb in Croatia was sold with an effective sale date of 2 April 2012.
In addition, Barosa S.à.r.l., a company that will operate in the property sector, was established in Luxembourg on 10 December 2012.
The application of the new standard IFRS 10 (Consolidated Financial Statements) for annual periods beginning on or after 1 January 2013 means that in future the Baloise Group will also have to recognise in its consolidated financial statements those units of its investment fund vehicle Baloise Fund Invest (BFI fund) that have been sold to entities outside the Group. In the past it has only had to recognise those fund units that had been sold to clients as part of its investment-linked life insurance business as well as units that Baloise Group companies themselves had acquired as an investment or as seed capital. The application of this standard has no overall impact on the Baloise Group’s profitability.
→ Switzerland → Germany → Belgium → Luxembourg → Other units.
The “Germany” segment also includes the regional branches of Basler Sachversicherungs-AG and Basler Lebensversicherungs -AG in the Czech Republic and Slovakia. The ‘Luxembourg’ segment also includes the Baloise Life Liechtenstein unit.
The accounting policies applied to the presentation of the operating segments (segment reporting) are those used throughout the rest of the Financial Report. No intersegment relationships recognised either on the balance sheet or in the income statement – with the exception of income from long-term equity investments – are offset against each other.
Premiums earned and policy fees (gross) 3,834.0 4,249.4 1,490.4 1,504.5 1,063.3 1,104.2 136.0 139.5 208.2 217.7 6,731.9 7,215.4 258.5 265.6 – 259.2 – 268.3 6,731.1 7,212.7
Share of profit (loss) of associates 0.0 0.0 16.3 41.2 0.2 – 0.7 – – – – 16.5 40.5 – – – – 16.5 40.5
Claims and benefits paid (gross) – 3,353.8 – 3,279.8 – 1,191.3 – 1,279.1 – 668.0 – 671.1 – 64.3 – 63.6 – 151.0 – 139.6 – 5,428.4 – 5,433.3 – 182.6 – 150.3 161.7 143.9 – 5,449.4 – 5,439.7
Change in technical reserves (gross) – 376.5 – 849.3 – 310.1 – 416.2 – 139.2 – 87.1 – 55.9 – 4.3 – 5.9 – 16.7 – 887.7 – 1,373.7 31.6 – 33.4 – 11.7 47.7 – 867.7 – 1,359.4
Reinsurers’ share of claims incurred 51.9 96.9 62.0 106.4 83.2 20.4 16.0 2.2 48.1 44.5 261.1 270.4 2.1 – 3.2 – 150.0 – 191.7 113.2 75.5
Interest expenses on insurance liabilities – 5.1 – 4.8 – 43.2 – 41.3 – 1.3 – 0.7 – 0.2 – 0.2 – 1.1 – 0.5 – 50.9 – 47.6 – – 0.3 0.3 – 50.5 – 47.3
Profit / loss for the period (segment result) 359.2 347.6 29.1 52.2 75.6 80.5 5.3 14.4 4.1 – 21.7 473.3 472.9 11.9 – 17.5 – – 485.2 455.4
Realised gains and losses on investments – 1.9 118.1 845.8 532.1 – 2.7 – 1.2 11.8 21.3 – – 852.9 670.3
Change in technical reserves (gross) – 42.3 – 110.8 – 825.4 – 1,248.6 – – – – – – – 867.7 – 1,359.4
Share of profit (loss) of associates 0.0 0.0 0.9 32.7 – – 15.6 7.7 – – 16.5 40.5
Claims and benefits paid (gross) – 2,009.1 – 2,073.7 – 3,440.2 – 3,366.0 – – – – – – – 5,449.4 – 5,439.7
Reinsurers’ share of claims incurred 106.2 70.8 7.0 4.7 – – – – – – 113.2 75.5
Profit / loss before borrowing costs and taxes 409.7 366.3 176.7 261.1 78.6 75.4 – 47.1 – 44.5 – – 617.9 658.2
Financial Report Notes to the consolidated annual financial statements 8. PROPERTY, PLANT AND EQUIPMENT 8.1 Property, plant and equipment in 2012 2012 (restated) Land Buildings Operating equipment
1 The administrative building reclassified as investment property is held on a finance lease.
Changes due to impending losses – – – 55.6 – 5.2 – – – 60.8
Carrying amount as at 31 December 73.4 62.0 595.2 154.0 193.7 0.3 1,078.5
Intangible assets by segment 1 With the possible exception of goodwill, the Baloise Group has no intangible assets with indefinite useful lives. 2 The way in which the deferral and amortisation of acquisition costs are reported has been harmonised as a result of organisational and systems mergers in the German non-life business. This adjustment has had no impact on profit or loss. The comparative prior-year figures have been restated accordingly.
Financial Report Notes to the consolidated annual financial statements 9.2 Intangible assets in 2013 2013 Goodwill
Reclassification to non-current assets and disposal groups classified as held for sale 2
Changes due to impending losses – – – 0.4 3.3 – – 2.9
Carrying amount as at 31 December 64.6 41.4 656.6 155.6 162.0 0.2 1,080.3
The entire amount of goodwill recognised in respect of PiL Verwaltungsgesellschaft mbH (CHF 1.5 million) was written off in 2012.
Fair value as at 30 September 119.5 114.5 10.2 Non-significant investments in associates The Baloise Group holds investments in a number of non-significant associates. As at 31 December 2013, it held more than 20 per cent of the capital of three companies but does not have any influence over these companies’ management. As a result, they are not reported as associates.
Reclassification to non-current assets and disposal groups classified as held for sale – – 9.3
Operating expenses arising from investment property that does not generate rental income 0.1 0.5 1 The items reclassified in the restated 2012 financial year primarily related to a leasing arrangement that offered an option to purchase an investment property. The leasing arrangement includes a repayment schedule and is contractually fixed until mid-2018.
The adjustment of the interest-rate trend in the valuation model for the Swiss property portfolio, which in particular caused the underlying discount rates to change, resulted in a corresponding revaluation of the portfolio. In 2012, this revaluation represented the main component of the amount reported under “Change in fair value”.
The increase in the portfolio during the reporting year was largely attributable to real estate acquired by the Belgian and Luxembourg units. The investment property held by the Croatian and Serbian units that have been sold was reclassified as non-current assets and disposal groups classified as held for sale.
Financial Report Notes to the consolidated annual financial statements 12. FINANCIAL ASSETS
Financial assets for the account and at the risk of life insurance policyholders
Not publicly listed, fixed interest rate – 60.5 45.5 85.6 – – 16.0 35.5 61.5 181.6
Increases and additional provisions recognised in profit or loss – – 0.3
Reclassification to non-current assets and disposal groups classified as held for sale – 0.3
The changes in the fair value of mortgages recognised at fair value through profit or loss are attributable to changes in volumes and to changes in the yield curve on which measurement is based.
Reclassification to non-current assets and disposal groups classified as held for sale – 1.3
Derivative financial instruments for own account and at own risk 334.9 232.2 64.4 68.2
Of which: designated as fair value hedges – – – – – –
Of which: designated as cash flow hedges – – – – – –
Of which: designated as hedges of a net investment in a foreign operation
Increases and additional provisions recognised in profit or loss – 3.9 – 2.2
Reclassification to non-current assets and disposal groups classified as held for sale – 0.2
Financial Report Notes to the consolidated annual financial statements 16. REINSURANCE ASSETS
Reclassification to non-current assets and disposal groups classified as held for sale – – 3.0
Impairment of receivables from reinsurers as at 1 January – 0.4 – 0.3
Increases and additional provisions recognised in profit or loss 0.0 0.0
Balance as at 31 December 2,068.6 2,183.0 18.2.2 Partially funded liabilities under defined benefit plans
Actuarial gains / losses on defined benefit obligations arising from changes in financial assumptions – 167.3 44.3 changes in demographic assumptions – 5.9 –
Fixed-interest assets publicly listed 137.1 134.7 not publicly listed – –
Total expenses for defined benefit plans recognised in the income statement – 25.6 – 86.0
When calculating liabilities and expenses for defined benefit plans, the Baloise Group is required to make actuarial and other assumptions that are determined on a company-by-company and country-by-country basis. The assumptions shown above are weighted averages.
Expected wage and salary increases plus 0.5 % age points 31.6 31.1
Mortality probabilities for 65-year-olds minus 10.0 % age points 81.8 76.9
Subscribed shares per participant (average) 91.7 90.3 18.4.2 Share Subscription Plan Since January 2003 those who qualify as eligible persons at Baloise Group companies in Switzerland – and, since 2008, the members of the Executive Committees at companies outside Switzerland as well – have been able to subscribe for shares at a preferential price as part of their short-term variable remuneration. The subscription date is 1 March of each year; although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold during a three-year restriction period.
1 The period during which shares allocated to the Chairman of the Board of Directors are restricted is five years instead of three. This means that the shares are restricted until 28 February 2017 and 28 February 2018 respectively.
Financial Report Notes to the consolidated annual financial statements 18.4.3 Employee Share Ownership Plan Since May 2001 it has been possible for most management team members working in Switzerland to receive part of their short-term variable remuneration in the form of shares from the Employee Share Ownership Plan instead of receiving cash. Within certain limits they are free to choose what proportion of their short-term variable remuneration they receive in the form of such shares. The most senior management team members are subject to upper limits; members of the Corporate Executive Committee – who are obliged to receive at least half of their short-term variable remuneration in the form of shares – are not allowed to receive more than 50 per cent of their entitlement in the form of shares from the Employee Share Ownership Plan. The subscription date is 1 March of each year (i.e. the same as that for the Share Subscription Plan); although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold during a three-year restriction period.
Financial Report Notes to the consolidated annual financial statements available and decides how many are to be awarded to each member of the Corporate Executive Committee. PSUs are granted to the other programme participants on the basis of the relevant line manager’s proposal, which must be approved by the line manager’s manager.
The number of shares that can be subscribed after three years – i.e. at the end of the vesting period – depends on the performance of Baloise shares relative to a peer group. This comparative performance multiplier can be anywhere between 0.5 and 1.5. The peer group comprises the leading European insurance companies contained in the STOXX Europe 600 Insurance Index.
One PSU generally confers the right to receive one share. This is the case if Baloise shares perform in line with the median of their peer group. In this case the performance multiplier would be 1.0. Participants in the programme receive more shares in exchange for their PSUs if Baloise shares outperform their peer group. The multiplier reaches the maximum of 1.5 if the performance of Baloise shares is in the top quartile of companies in the peer group. The multiplier amounts to 0.5 if the performance of Baloise shares is in the bottom quartile of companies in the peer group. If the performance of Baloise shares is in either of the two middle quartiles, a linear scale is used to calculate the performance multiplier. The performance multiplier for the entire vesting period ended is based on the closing stock market prices on the final trading day of the respective vesting period.
If an individual’s employment contract is terminated during the vesting period (except in the case of retirement, disability or death), the PSUs expire without the person concerned receiving any replacement or compensation. In addition, the Remuneration Committee has the powers to claw back some or all of the PSUs allocated to an individual or to a group of programme participants if there are specific reasons for doing so. Such specific reasons include, for example, serious breaches of internal or external regulations, the taking of inappropriate risks that are within an individual’s control, and the type of conduct or behaviour that would increase the risks to Baloise.
The shares needed to convert the PSUs are purchased in the market as and when required.
Employees entitled to participate at launch of programme 73 72 69
Tax losses carried forward 53.6 – 17.1 – 36.5 1 “Other” essentially comprises deferred taxes on liabilities arising from banking business and financial contracts as well as liabilities arising from employee benefits.
Unrealised gains / losses recognised directly in equity 64.4 – 267.3 331.7
Unrealised gains / losses recognised directly in equity 331.7 – – 110.0 221.7
Other intangible assets 20.1 – 5.3 – 14.9 1 “Other” essentially comprises deferred taxes on investments and provisions.
The Baloise Group had recognised deferred tax assets on tax loss carryforwards totalling CHF 155.3 million as at 31 December 2013 (2012: CHF 211.2 million). Of this total, CHF 0.2 million will expire after one year and CHF 155.1 million will expire after five years or more.
No deferred tax assets had been recognised on tax loss carryforwards amounting to CHF 481.8 million as at 31 December 2013 (2012: CHF 563.6 million) because the relevant offsetting criteria had not been met. Of this total, CHF 1.8 million will expire after one year, a further CHF 11.3 million will expire after two to four years and CHF 468.6 million will expire after five years or more.
Financial Report Notes to the consolidated annual financial statements 20. OTHER ASSETS “Other assets” include the fair value of precious metals amounting to CHF 47.3 million in connection with private placement life insurance (2012: CHF 87.1 million). The insurance policyholder bears the price risk attaching to these precious metal holdings.
Liabilities arising from banking business and financial contracts – 0.7 – –
Financial Report Notes to the consolidated annual financial statements 22. SHARE CAPITAL
Number of shares in circulation Number of shares issued Share capital (CHF million)
Balance as at 1 January 2012 (restated) 3,247,273 46,752,727 50,000,000 5.0
Balance as at 31 December 2012 (restated) 3,053,746 46,946,254 50,000,000 5.0
Provision for claims handling costs 548.1 – – 563.1 – –
Reclassification to non-current assets and disposal groups classified as held for sale – – 40.2
The relevant net reserves included in the total amounted to CHF 88.1 million at the end of 2013 (2012: CHF 96.8 million). This decrease was attributable to the level of claims paid (including commutation of reserves) and – since a large proportion of these reserves are recognised for liabilities denominated in foreign currencies – currency effects.
All figures relating to maturities are based on the residual terms of contracts. The line item “No determinable residual term” mainly comprises deferred and current annuities.
Reclassification to non-current assets and disposal groups classified as held for sale – – 276.4
Adjustment arising from unrealised gains and losses as at 1 January (shadow accounting) – 6.4 – 11.9
Reclassification to non-current assets and disposal groups classified as held for sale – – 0.4
Adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) 11.9 9.5
Adjustment arising from unrealised gains and losses as at 1 January – 234.8 – 683.0
Adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) 683.0 452.9
The other financial contracts designated as at fair value through profit or loss largely relate to the life insurance liability arising from investment-linked life insurance contracts involving little or no transfer of risk. The year-onyear change in this liability consists entirely of the funds flowing into and out of the pertinent investment portfolio, the latter’s market-related price fluctuations and exchange-rate movements.
ISIN CH0030870445 25. RECONCILIATION BETWEEN THE GROSS INVESTMENT IN FINANCIAL LEASES AND THE PRESENT VALUE OF MINIMUM LEASE PAYMENTS
Bâloise Holding Ltd issued a new bond totalling CHF 225 million (1.75 per cent, 2013 to 2023, ISIN CH0200044821) at an issue price of 100.812 per cent on 26 April 2013. A bond amounting to CHF 550 million (4.250 per cent) was repaid on 29 April 2013. No other new bonds were placed nor were any further bonds repaid during the reporting period.
The fair value of financial liabilities at the balance sheet date totalled CHF 1,804.4 million (2012: CHF 2,139.2 million).
The balance shown for other provisions includes the usual amounts for legal advice and litigation risks. The recognition of restructuring provisions in profit or loss largely relates to the merger of German entities.
Financial Report Notes to the consolidated annual financial statements 29. PREMIUMS EARNED AND POLICY FEES
Gross premiums written and policy fees 3,317.7 3,424.0 6,741.7 3,441.7 3,787.2 7,228.9
Premiums earned and policy fees (gross) 3,307.1 3,424.0 6,731.1 3,425.5 3,787.2 7,212.7
Interest income of CHF 4.2 million had been recognised on impaired investments at the balance sheet date (2012: CHF 5.2 million).
Financial Report Notes to the consolidated annual financial statements 31. REALISED GAINS AND LOSSES ON INVESTMENTS
REALISED GAINS AND LOSSES ON INVESTMENTS AS RECOGNISED IN THE INCOME STATEMENT
Realised gains and losses on investments as recognised in the income statement 852.9 670.3
Carried at cost – – – – 3.3 – – 3.3
Available for sale – – 65.9 – 2.4 – – – 68.3
Total realised gains and losses on investments 1 Currency effects relating to held-to-maturity financial assets of a debt nature are reported as realised book profits and / or realised book losses.
Available for sale – – 61.8 – 27.4 – – – 89.1
Carried at cost – – – – 5.3 – – 5.3
Financial Report Notes to the consolidated annual financial statements 31.3 Impairment losses on financial assets recognised in profit or loss
Total impairment losses on financial assets recognised in profit or loss – 83.7 – 45.7 31.4 Currency gains and losses Excluding exchange-rate losses on transactions involving financial instruments that are recognised at fair value through profit or loss, a currency profit of CHF 26.5 million was reported for 2013 (2012: loss of CHF 78.6 million).
A gross currency gain of CHF 67.4 million was recognised directly in equity for the reporting year (2012: gain of CHF 19.7 million). Allowing for hedges of a net investment in a foreign operation (hedge accounting), a net gain of CHF 69.8 million was recognised for 2013 (2012: net gain of CHF 21.6 million).
Fees and commission expenses for assets managed for third parties – 3.2 – 3.3
Expenses arising from non-current assets and disposal groups classified as held for sale – – 31.7
Financial Report Notes to the consolidated annual financial statements 35. PERSONNEL EXPENSES Total personnel expenses for 2013 came to CHF 955.9 million (2012: CHF 903.5 million).
Financial contracts with discretionary participation features (DPFs) – 47.5 – 42.7
Total gains or losses on financial contracts – 577.8 – 368.9
Total current and deferred income taxes – 71.6 – 152.7 37.2 Expected and current income taxes The expected average tax rate for the Baloise Group was 25.3 per cent in 2012 (restated) and 26.8 per cent in 2013. These rates correspond to the weighted average tax rates in those countries where the Baloise Group operates.
Financial Report Notes to the consolidated annual financial statements 38. EARNINGS PER SHARE
Adjustment due to theoretical exercise of share-based payment plans 74,899 183,086
The dilution of earnings in 2012 was attributable to the Performance Share Units (PSU) share-based payment plan, the short-put options issued as part of the Employee Share Ownership Plan (both of which are described in section 18.4), and the convertible bond issued by Bâloise Holding.
Total reserves arising from assets and liabilities of defined benefit plans – 327.2 162.4
Total hedging reserves for derivative financial instruments held as cash flow hedges – –
Hedging reserves for derivative financial instruments held as hedges of a net investment in a foreign operation: Gains and losses arising during the reporting period 29.9 35.7
Gains and losses reclassified to the income statement – 27.8 – 33.4
Total items to be reclassified to the income statement 731.7 – 111.3
Hedging reserves for derivative financial instruments held as cash flow hedges
Net assets acquired / disposed of – 1.7 – 2.3 – 0.9 – 3.1
Goodwill / negative goodwill or proceeds from disposals 0.0 0.6 – 0.5 0.4
Outflow / inflow of cash and cash equivalents – 1.7 – 2.9 0.1 2.4
The company FIPOP S.A. was acquired in Luxembourg during the second half of 2013. Belgian company AXIS Life was sold in the first half of 2013. Also in Belgium, the companies Esplan NV and
Hermes Verzekeringsgroep NV were disposed of in the second half of the year. In Germany, the firm Partner in Life S.A. was sold in the first half of 2013.
Financial Report Notes to the consolidated annual financial statements 41. RELATED PARTY TRANSACTIONS As part of its ordinary operating activities the Baloise Group conducts transactions with associates and with members of Bâloise Holding’s Board of Directors and Corporate Executive Committee. The terms and conditions governing such transactions can be found in the chapter on corporate governance, which forms an integral part of the Financial Report.
Financial Report Notes to the consolidated annual financial statements 43. CONTINGENT AND FUTURE LIABILITIES 43.1 Contingent liabilities 43.1.1 Legal disputes The companies in the Baloise Group are regularly involved in litigation, legal claims and lawsuits, which in most cases constitute a normal part of its operating activities as an insurer.
Of which: for the benefit of partners in joint ventures – –
Financial Report Notes to the consolidated annual financial statements 43.1.3 Pledged or ceded assets, securities-lending assets, and collateral held
Financial Report Notes to the consolidated annual financial statements 43.2 Future liabilities 43.2.1 Capital commitments
Financial Report Notes to the consolidated annual financial statements 44. OPERATING LEASES 44.1 The Baloise Group as a lessee The Baloise Group has entered into non-cancellable leasing arrangements to lease buildings, vehicles and operating equipment. The average residual term of its leases is between three and five years.
Contingent lease payments are made in cases where the lease is indexed.
46. EVENTS AFTER THE BALANCE SHEET DATE The disposal of the Croatian and Serbian units was completed on 11 March 2014.
By the time that these consolidated annual financial statements had been completed on 19 March 2014, we had not become aware of any further events that would have a material impact on the consolidated annual financial statements as a whole.
Baloise Insurance Ltd, Basel Non-life NL 100.00 100.00 F CHF 75.0 5,126.2 1,349.9 X
Haakon AG, Basel Other O 74.75 74.75 F CHF 0.2 23.3 –
Merno-Immo NV, Antwerp Other O 100.00 100.00 F EUR 17.1 28.0 –
Financial Report Notes to the consolidated annual financial statements 48. CHANGES TO SHAREHOLDINGS In 2013, the Baloise Group disposed of 35 per cent of its shareholdings in Luxembourg-based Barosa S.à.r.l., which had been founded in 2012. The remaining shareholding of 65 per cent means that it retains a controlling interest in this long-term equity investment.
REPORT OF THE STATUTORY AUDITOR ON THE FINANCIAL STATEMENTS As statutory auditor, we have audited the consolidated financial statements of Bâloise Holding Ltd, which comprise the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated cash flow statement, consolidated statement of changes in equity and notes to the consolidated financial statements (pages 74 to 82 and 90 to 239), for the year ended 31 December 2013.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion
REPORT ON OTHER LEGAL REQUIREMENTS We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
Peter Lüssi Christian Schacher Audit expert Audit expert Auditor in charge
Income statement of Bâloise Holding ����������������������������������������� 244 Balance sheet of Bâloise Holding �������������������������������������������������� 245 Notes Bâloise Holding ����������������������������������������������������������������������� 246 Appropriation of distributable profit as proposed by the Board of Directors ��������������������������������������� 253 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ����� 254
Receivables Receivables are recognised at their nominal amount less any impairment losses�
Further information on the long-term equity investments held directly by Bâloise Holding can be found on pages 236 and 237 in the Financial Report section�
Total equity 659.6 490.1 1 Baloise Group companies purchased a total of 393,353 shares (not including the share buy-back via the secondary trading line) at an average price of CHF 93 during the reporting year. During this period they sold 377,392 shares at an average price of CHF 87 and together held a total of 1,910,263 Bâloise Holding shares as at 31 December 2013. As in the previous year, the number of Bâloise Holding shares acquired via the secondary trading line amounted to 223,565 shares. These shares are reported as ’treasury shares’ on the balance sheet.
Bank of New York Mellon N.V. 1 <2.0 0.0 2.0 0.0 1 Custodian nominees who hold shares in trust for third parties are counted as part of the free float under the SIX Exchange regulations. Such shareholder groups are not subject to disclosure requirements under Swiss stock market legislation.
Bâloise Holding is jointly and severally liable for the value added tax (VAT) owed by all companies that form part of the tax group headed by Baloise Insurance Ltd�
18. EVENTS AFTER THE BALANCE SHEET DATE By the time that these annual financial statements had been completed on 19 March 2014, we had not become aware of any further events that would have a material impact on the annual financial statements as a whole�
DISTRIBUTABLE PROFIT AND APPROPRIATION OF PROFIT The profit for the period amounted to 55,480,024�92 CHF�
The appropriation of profit is consistent with § 30 of the Articles of Incorporation� Each share confers the right to receive a dividend of CHF 4�75 gross or CHF 3�09 net of withholding tax�
Appropriation of distributable profit as proposed by the Board of Directors
REPORT OF THE STATUTORY AUDITOR ON THE FINANCIAL STATEMENTS As statutory auditor, we have audited the financial statements of Bâloise Holding Ltd, which comprise the income statement, balance sheet and notes (pages 74 to 82 and 244 to 252), for the year ended 31 December 2013�
Opinion In our opinion, the financial statements for the year ended 31 December 2013 comply with Swiss law and the company’s articles of incorporation�
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors�
→ Combined ratio A non­life insurance ratio that is defined as the sum of the cost of claims settled (claims ratio), total expenses (expense ratio) and profit sharing (profit­sharing ratio) as a percentage of total premiums� This ratio is used to gauge the profitabil­ ity of non­life insurance business�
→ Investment-linked premium Premium income from life insurance policies under which the insurance company invests the policyholder’s savings for the latter’s own account and at his or her own risk� The International Financial Reporting Standards applied by the Baloise Group do not allow the savings component of this premium income to be recognised as revenue on the face of the income statement�
→ Legal quota A legally or contractually binding percentage requiring life insurance companies to pass on a certain share of their prof­ its to their policyholders�
→ Net The net figures shown on the face of the balance sheet or income statement in an insurance company’s annual report are stated after deduction of reinsurance�
→ Profit-sharing ratio Total profit sharing as a percentage of total premiums; profit sharing is defined as the reimbursement of amounts to non­ life policyholders to reflect the profitability of insurance policies�
The 2013 Annual Report is published in German and English� The German version is authoritative in the event of any discrep­ ancy� The Financial Report section contains the audited 2013 annual financial statements together with detailed information�
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS This publication is intended to provide an overview of Baloise’s operating performance� It contains forward­looking statements that include forecasts of future events, plans, goals, business developments and results and are based on Baloise’s current expectations and assumptions� These forward­looking state­ ments should be noted with due caution because they inher­ ently contain both known and unknown risks, are subject to uncertainty and may be adversely affected by other factors� Consequently, business performance, results, plans and goals could differ substantially from those presented explicitly or implicitly in these forward­looking statements� Among the influencing factors are (i) changes in the overall state of the economy, especially in key markets; (ii) financial market per­ formance; (iii) competitive factors; (iv) changes in interest rates; (v) exchange rate movements; (vi) changes in the statutory and regulatory framework, including accounting standards; (vii) frequency and magnitude of claims as well as trends in claims history; (viii) mortality and morbidity rates; (ix) renewal and expiry of insurance policies; (x) legal disputes and administra­ tive proceedings; (xi) departure of key employees; and (xii) negative publicity and media reports�
Publisher Baloise, Corporate Communications Concept, design Eclat, Erlenbach (ZH) Photography Maurice Haas, Zurich / Marc Wetli, Zurich Publishing System Multimedia Solutions AG, Zurich Printing Gremper AG, Pratteln www.baloise.com/annualreport www.baloise.com/investors
25.3.2014 Annual financial results: media conference conference call for analysts 24.4.2014 Annual General Meeting of Bâloise Holding Ltd 28.8.2014 Half-year financial results: conference call for analysts and the media 26.3.2015 Annual financial results: media conference conference call for analysts 30.4.2015 Annual General Meeting of Bâloise Holding Ltd