Capital and reserves per share as at 12.31. in CHF 97.36 55.84 - 42.7
Number of staff of which Switzerland 3,944 3,976 0.8 of which other countries 4,679 4,727 1.0 1 adjusted for degree of employment in CHF m * 1998 based on ARR accounting principles/1999–2002 IAS accounting principles
As a focused financial services provider, the Baloise is the trusted partner of choice for customers and pointsof -sale in its target markets.
It offers solutions and advice in matters of insurance, pensions and asset formation from a single source.
The Baloise is focused on attractive customer segments, business lines and distribution channels with high value-creating potential in selected European markets.
Swiss Market Index 117 2 adjusted after 1:10 split of July 24, 2001
A number of one-time events in an exceptional year 2002 led to a loss of CHF 634 million: investment impairment amounting to CHF 959 million, negative exchange rate influences to the sum of CHF 156 million, and flood losses of CHF 70 million.
How We Do Business 6 Focused Financial Services Provider 8 Founded on Corporate Values 11 External Growth Bucks the Trend 12 Concentration of Forces in Asset Management 14 Non-Life Business Strives for Excellence 16 Customer Loyalty Drives Sales 18
Group 20 Switzerland 23 Germany 25 Benelux 26 Other Countries 27 Capital Investments 28 Risk Management 29 Sustainability 30 Human Resources 31
Consolidated Income Statement 51 Consolidated Balance Sheet 52 Consolidated Cash Flow Statement 54 Consolidated Capital and Reserves 56 Segment Reporting by Geographical Segment 58 Segment Reporting by Business Segment 62 Management Information (incl. embedded value) 64 Notes to the Consolidated Financial Statements 71 Report of the Group Auditors 129
In 2002, the industry took quite a hammering from the crisis on the financial markets. What has the experience taught you?
Rolf Schäuble: Obviously, we are far from satisfied with the result. But in light of the disastrous falls on all financial markets, with stock markets plunging to historic low levels, we could hardly have expected anything positive in fiscal 2002. It seems likely that the whole industry –
You refer to the Baloise as “solid”. What does that mean in concrete terms?
Rolf Schäuble: First of all, it means that we have not so far had to resort to capital increases. The massive falls in the value of our investments have significantly reduced our capital and reserves, but with the latter totalling around CHF 3.1 billion at the end of 2002, our asset value is sound. Our solvency is very good; at 203 percent, the margin was well above minimum requirements at the end of 2002. The Baloise has always set great store by its solidity and we have no intention of engaging in any risky ventures in the future either – in the interests of our customers, shareholders and employees.
Frank Schnewlin: Obviously, you always know better with hindsight. But who would have thought that this crisis would go on for so long or be so far-reaching? We still think we have the right strategy: to create value on a sustained basis, the portfolio needs a certain proportion of equities. We have never lost sight of this long-term perspective, but to guarantee our solvency we did make targeted adjustments as events unfolded. The decisive criterion was always to ensure the Group’s ability to absorb risks and therefore maintain its financial solidity. This meant that – with the necessary risk capacity – we were always able to retain opportunities in the event of an upturn. Over the past few years, this policy has – I repeat
Frank Schnewlin: 2002 really can be described as an exceptional year. The dire conditions on the stock markets alone led to value adjustments of around CHF 959 million on investments and currency losses of some CHF
Frank Schnewlin: This is an area where we can be quite satisfied. The Baloise posted premium income of around
Could you be a little more specific about the individual markets?
Frank Schnewlin: We earn roughly 64 percent of premiums in the Swiss domestic market where we are still in a very good position: in the non-life sector, the combined ratio stands at a very gratifying 97.7 percent thanks to consistent cost-effectiveness. But owing to the distinctly negative interest rate margin in the life business and the substantial losses on the capital markets, Baloise
You touched on the problems in the life business. How do you intend to tackle this issue?
Rolf Schäuble: The life business is generally suffering from the negative interest rate margin: our guarantees vis-à-vis customers far exceed investment yields. As things stand, we are constantly eating into our capital.
In the medium term, we do not have the strength to cope with this. The situation in the Swiss occupational pensions business is particularly serious. With a one percent negative interest rate margin, we are losing something like CHF 60 million a year in the compulsory occupational pensions segment alone. However, we also have a social responsibility. If we wish to put the occupational pensions business back on a safer footing, the minimum rate for occupational pensions will need to be cut drastically or even abolished altogether. The political powers that be must come up with a solution here!
How have Baloise shares performed and how has the structure of share ownership developed?
Rolf Schäuble: In recent years, since the beginning of 1997 to be precise, Baloise shares have consistently outperformed the relevant indices and the sector average. By contrast, in the short term, looking back over the past year, Baloise registered shares lost an aboveaverage amount of ground. However, when assessing shares, you should never lose sight of the long-term horizon.
In terms of our shareholders, there has been a shift among those with major stakes: the sale of BK Visionen to Zürcher Kantonalbank and further disposals have reduced BZ Group’s shareholding to 8.2 percent. Strategic
What dividend proposal will the Board of Directors be submitting to the General Meeting?
German market by around 24 percent from EUR 1.18 billion to EUR 1.46 billion.
Rolf Schäuble: The result has no impact on the strategy of the Baloise Group as a focused financial services provider. This means that we shall be continuing to offer one-stop solutions and advice on insurance, pensions and asset formation.
achieve critical mass and cannot do so by organic means, we shall be aiming for external growth. Two markets I
What is your assessment of the situation in the banking business?
Belgium, banking provides an important sales channel for life products; in Switzerland, the banking business is an extension of our insurance product range.
A further principle is that all banks need to achieve an operating cost/ income ratio that is at least in line with the sector average.
We also attach great importance to transparency, which we have been practising for some time in the form of open communications.
You present the Baloise as a partner to be relied on. Which particular partners are you thinking of?
Using the stick as a symbol of power alienates. Listening to others, blending different rhythms, and guiding with a light touch makes for harmonies that resonate for a long time.
A mature product has a long history, beginning long before the first buds appear. The more circumspect the groundwork and care, the greater its resistance to the vagaries of time.
Developments in financial markets have validated the Group’s traditional strategy. In the 1990s, by using actuarial parameters to measure performance, the Baloise decided to divest itself of various investments and withdraw from markets that it did not find particularly profitable, such as the USA, France and Italy.
Of course, even the Baloise Group cannot isolate itself from current market developments. Despite market-induced weakness in earnings growth, the Group continues to focus its endeavors on organic and external growth and on improving its market position. In the current situation, this requires a selective, carefully considered approach to the use of resources.
Despite the leading role local practices play in insurance markets – even in the European Union, crossborder insurance is still the exception –, regional diversification creates substantial synergies and scale effects for the Baloise. Free of a large centralized bureaucracy, the Group manages to realize potential efficiencies in sales, asset management, human resources, IT, and other important Group functions.
The Baloise regards itself as the trusted partner of selected customers and distribution channels for insurance, pensions and asset formation from a single source. The Group concerts its efforts to earn this trust day after day, not least by observing in its own actions three corporate values and guidelines: create value foster relations bring about change
Create value: Companies have an obligation to use the resources placed at their disposal to create value. In seeking to comply with this principle, the Baloise focuses on markets, products, customer segments and distribution channels that hold out the prospect of such added value. To this end, the Group takes as yardsticks of its activities cost efficiency, sales volume and sales productivity.
Foster relations: In the insurance and financial sector the question of trust is paramount, and relations with customers and sales partners are eminently important. By fostering relations, and by supplementing the product range with standardized bank products, the Baloise seeks to raise customers’ renewal rates and product density on the one hand, and raise the loyalty of its sales partners on the other. Its relations with its employees are just as important. The relationship between the Baloise Group and its employees is seen as a partnership in which each, within the limits of his or her responsibilities, works towards a common goal. As the basis for constructive collaboration, mutual respect generates a motivational working situation.
Bring about change: The Baloise Group encourages its employees and partners to adopt a proactive stance instead of adapting reactively to a rapidly changing environment. Proactive behavior means making and implementing decisions and producing results. The object of this change is value-enhancing transformation and innovation.
The Baloise has a corporate image, an identity and an unmistakable profile; all of these are embodied in its corporate values. The Group fosters values that are consistently focused on its corporate goals.
The acquisition of Securitas, a German insurance company, marks a milestone in the Baloise’s effort to strengthen its position in the German insurance market, as it gives Baloise a considerable boost in the profitable non-life business for individual and commercial customers. The Group’s financial health allows it to take advantage of the current buyer’s market. Similarly, in the opposite circumstances – a euphoric acquisition boom and the corresponding seller’s market –, from 1997 onwards Baloise sold its companies in the USA, France, Spain, and Italy as well as its business in the reinsurance assumed sector.
Every prospective transaction is subjected to intensive due diligence, in which the business case of the potential acquisition is assessed in terms of market positioning, sales, personnel, and IT, and its financial, actuarial, legal, and tax positions are thoroughly scrutinized. Another prerequisite for acquisitions is the availability of adequate management capacity to implement the subsequent integration.
Baloise Asset Management (BAM), formed early in 2001, offers a good example of how an individual unit bundles resources within the Baloise Group. This strategic decision has already paid off in the current prolonged stock market slide, producing considerable quantitative gains for the Group through economies of scale. For instance, by centralizing securities holdings in just a few depositories, the Group has reduced its overall depository fees and securities transaction costs.
Of substantially greater significance, however, are the qualitative benefits. Asset-management know-how is centralized at the Basle offices, instead of being dispersed among smaller units in the individual country offices. This has made it possible for asset management to actively and immediately master the challenges of a dynamically evolving market environment. Whereas previously there was always some delay in determining the Group’s total exposure, now, thanks to a centralized asset management information system, it is virtually just a click away.
The Baloise Group still holds a portion of its capital investments in equities. This asset allocation is based on the conviction that a long-term investment strategy that 14Bâloise-Holding Annual Report 2002
Baloise Asset Management priorities are an optimal return on investments and efficient risk management. By concentrating its forces, the Baloise Group has taken a major step towards achieving these two corporate objectives.
did not allocate any assets to equities would put an insurance company such as the Baloise at a disadvantage, because it would decrease the risk diversification of its capital investments.
In the 2002 financial year, compliance with the risk management considerations and supervisory regulations compelled the Baloise Group, like other institutional investors, to deviate from its customary anticyclical investment strategy and – procyclically – sell equities into a falling market. In this difficult stock market environment the Baloise Group has considerably reduced its equity portfolio, and has used derivatives to hedge a part of its remaining position.
Underwriting: Virtue pays off in the underwriting business. Thus, in the important Swiss market our combined ratio, the key indicator in the non-life business, is below 100. A series of marketwide innovations – currently to be observed in different product segments – offers scope for differentiated market processing in what is otherwise a tightrope-walk between competitiveness and profitability. As part of the trend away from standard rates, premiums based on homogeneous customer groups are now gaining ground in personal insurance, too. This practice takes account of the specific risk profiles involved. Thanks to deregulation, differentiated tariffs are already well established in the property insurance segment, where the Baloise intends to adjust its premium rates to reflect the corresponding risk situations even more accurately. Existing cross-subsidies are being reduced in favor of facing the true cost situation. The company is not underwriting new risk policies that offer low or no prospects of returns, and existing policies are being restructured or terminated.
Claims processing: Experience shows that about 70 percent of premium income in the non-life segment is spent on claims and claims processing. Here, too, the Baloise seeks to achieve a cost advantage for the benefit of its customers by distinguishing between claims categories 16Bâloise-Holding Annual Report 2002
Sales-oriented compensation models: The Baloise compensation model is a finely tuned instrument for promoting and motivating performance-related customer advisors and independent sales agents. In field opera18Bâloise -Holding Annual Report 2002
Notwithstanding growth and efficiency targets, sales are primarily focused on the customer relationship. Technology is consistently used to back up sales.
tions, remuneration seeks to encourage sustained customer relationships rather than the volume of business done. Brokers are rated on the basis of growth, claims experience, and the cost of advice, and remuneration is differentiated accordingly.
Uniform price strategies: For customers, premiums and customer relations are two decisive arguments. Just as important are clear promises to perform in the event of damage or loss and a uniform and transparent price structure. By offering uniform premiums, the Baloise rejects the price-cutting strategy of a few, mostly newer, channels. Customers should be able to choose their preferred distribution channel without incurring higher costs or loss of benefits. By contrast, the Baloise does differentiate between the prices paid by customer groups with good risk experience and those with bad risk experience.
The situation in the real economy once again demanded considerable patience in 2002. We are still waiting for the beginning of the general recovery which was forecasted for the year under review. Shattered investor confidence means that the stock markets remain in an exceptionally long downward phase. Corrective price adjustments by the major central banks took interest rates to an all-time low, with corresponding effects on the yield markets (returns on 10-year benchmark bonds: Switzerland: - 1.2 percentage points; Germany: - 0.7 points). But even key interest rates at all-time low levels have not yet been enough to bring about any improvement. Over the course
of the year, all the major stock market reference indices fell. With a decline of 27.8 percent, the Swiss Market Index (SMI) ended the year around the middle of the major stock market barometers. The MSCI EMU Index lost 33.4 percent in 2002, and the MSCI ROW lost 19.2 percent. Investors looking for alternatives turned increasingly to fixed-interest securities issued by parties with high credit ratings. This caused the prices of these products to rise, and yields to fall. Another alternative was to be found in the real estate sector, which gained a great deal of favor with investors.
The sluggish economy and geopolitical uncertainty caused investors to take refuge in the Swiss franc, and exports were not the only area to suffer as a result. Companies preparing their financial statements in Swiss francs had to take on board considerable currency losses, which were also reflected in their profit and loss accounts. On the cut-off date, the reference currency, the US dollar, was 29 Swiss cents or 17 percent lower than at the start of the year. The euro fell by 3 Swiss cents or 2 percent.
The insurance markets were shaped by the corrections to financial investments. This had an adverse effect on companies’ equity cover. Various companies were forced to raise capital. At the same time, there was a move to focus on core activities. The most important key indicator for non-life business, the combined ratio, became the subject of even more attention.
Austrian markets, these being the main reasons for the loss of CHF 634 million for the year. In operational business, we recorded a pleasing rise in premium income to CHF 7.3 billion, representing organic growth of 11.3 percent in local currencies.
Commercial trading in the banking sector was strongly influenced over the past year by the slump in the financial markets. Falling income from trading was offset by higher income from interest.
The Baloise Group’s scope of consolidation has not changed much in the year under review. When making comparisons with the previous year it should be noted that the sale of the Bâloise España portfolio at the end of September 2001 means that company’s results were still affecting the Group’s accounts during the first nine months of 2001. The new subsidiary Securitas has been consolidated since 1 January 2003, and is therefore not yet taken into account in these annual financial statements.
As in the previous year, the increase in the premium figure is due largely to the expansion of individual life business. The life side recorded premium income of CHF 4.6 billion (2001: CHF 4.0 billion). This represents organic growth of 14.4 percent in CHF and 14.6 percent in local currencies.
Premium volume by country Premium volume Change* in CHF m in percent
The banking business produced a net loss of CHF 100 million. Baloise Bank SoBa’s profits of CHF 10 million were offset by restructuring provisions at Mercator Bank (CHF 12 million) and Deutscher Ring Bausparkasse (CHF 10 million) as well as extraordinary losses in Belgium (CHF 72 million) from Mercator Bank. The latter resulted from structured investment in bonds.
Developments in the financial markets were reflected in the investment result. A profit of CHF 1,218 million (2001: CHF 2,231 million) was achieved on average investment holdings amounting to CHF 50 billion. Income of CHF 2,091 million and net realized capital gains of CHF 152 million (including currency losses of CHF 156 million) were set against impairments of CHF 959 million. The ef22Bâloise -Holding Annual Report 2002
fects of developments in the currency markets were felt notably in holdings of foreign-currency bonds.
Current taxes on income were 64 percent lower than in the previous year at CHF 34 million. Deferred taxes result in a yield of CHF 116 million (2001 deferred tax burden: CHF 24 million). In consolidated terms, this results in a tax yield of CHF 83 million. At 11.6 percent, the applicable tax rate is almost half the previous year’s rate (22.4 percent). This is predominantly due to the fact that the losses brought forward were not taken to assets, and to investment losses in Belgium not being subject to taxation.
As part of the “focused financial services provider” strategy, standardized banking products were added to the range so as better to exploit existing customer relationships in the insurance sector. As a result of the situation in the financial markets, the business model was redimensioned in the year under review. The private banking branches were adapted in line with the current market situation and reduced in size. An efficiency drive was instigated within Baloise Bank SoBa, so that despite the expansion of market activities, it was possible to reduce the number of staff as compared with the previous year. Further synergies between the insurance and banking areas were achieved by linking the IT system to the parent company.
Baloise Bank SoBa became an issuer in the Swiss franc capital market for the first time in May. The bond, with a nominal volume of CHF 175 million, was well received by the market.
Gross premium income in CHF m 3,972.0 4,652.8 17.1 of which life in CHF m 2,837.0 3,477.9 22.6 of which non-life in CHF m 1,135.0 1,174.9 3.5
Premium income also advanced in group business, i.e. occupational pensions. This growth is due partly to rising salaries and a higher number of insured persons within the companies, and partly – as a result of the market situation – to the selective writing of profitable new business. Group business was made more difficult by the unsatisfactory legal framework, with a stipulated minimum rate of return of 4 percent (3.25 percent from January 1, 2003) and a conversion rate of 7.2 percent, which does not reflect demographic trends in Switzerland.
With the transfer of the motor and commercial portfolio from Deutscher Ring on 1 April 2002, the Baloise branch in Germany strengthened its focus on non-life business. As a result of the transfer, and additional new business in the commercial and industrial sector, premium income rose by 53.6 percent in local currency to CHF 544 million. Claims incurred continued to rise primarily due to natural catastrophes and other major losses. The combined ratio (gross) amounted to 127 percent.
Efforts to improve the underwriting basis further are continuing undiminished. Appropriate premium increases were introduced, along with stricter risk selection, and the reorganization of parts of the existing portfolio.
For the German companies in the Baloise Group, the year under review was shaped by major losses on the non-life side, and by pensions reforms on the life side.
Gross premium income in CHF m 1,737.7 1,755.1 1.0 of which life in CHF m 1,019.3 970.4 - 4.8 of which non-life in CHF m 718.4 784.7 9.2
The most significant event of the year under review for the Baloise Group in Germany was the acquisition of the Securitas insurance company. The company was taken over from the British Royal & Sun Alliance on January 7, 2003. Securitas, an all-line insurer employing a workforce of 600, achieved premium volumes of EUR 281 million in 2001. Of that total, 75 percent came from non-life and 25 percent from life business. The company, based in Bremen, has a range of products aimed at private individuals, the self-employed, and small and medium sized businesses. The insurance company is represented by more than 250 agencies throughout the whole of Germany. During the course of 2003, Securitas will be merged with the Baloise branch in Germany to form Basler Securitas, with its head office in Bad Homburg.
The activities of the Baloise Group in Germany will thus continue to be divided between Deutscher Ring, based in Hamburg, and the future Basler Securitas in Bad Homburg.
The restructuring of Mercator in Belgium continued undiminished in the year under review. Whilst progress was made in this regard, exceptional factors, and the poor state of the financial markets, impacted on the results of the companies in Belgium and Luxembourg.
Mercator Bank registered a shift in demand from profit and risk-oriented products to conservative forms of investment. There was a sharp decline in sales of investment funds. Fixed-interest investments, on the other hand, were much sought after.
Since the middle of the year, insurance brokers have been helping to distribute banking products to private customers and small businesses. Mercator Bank for its part has successfully boosted the sale of Mercator Insurance products.
On the life side, in the last quarter in particular, tax advantages helped provide marked premium growth of 32.2 percent (in local currency). New third-tier pensions products recorded significant growth. An increase in occupational pensions products was recorded as the company was able to position itself as a specialist provider
groups as well. Non-life business commenced in 2000 and life business in 2001, and the company has since been developing according to plan.
in this field offering expert advice. After more than nine years, the collaboration with the Raiffeisen banks ceased, and a new partnership was entered into with Crédit Européen-ING.
In the year under review, the Baloise in Austria continued to implement measures to reduce costs and improve its underwriting result. The reduction in office-based staff, and the resulting increases in efficiency, were accompanied by a significant expansion of the distribution network through a strengthening of the company’s own field staff. The flood disaster in the summer of 2002 placed exceptional strain on the underwriting result for non-life.
Premium income non-life rose by 11.2 percent (in local currency), whilst total claims incurred amounted to CHF 52 million. The combined ratio (gross) came to 130.9 percent. The result was a loss of CHF 23 million in non-life. Life business incurred a loss of CHF 13 million.
Gross premium income in CHF m 454.3 443.2 - 2.4 of which life in CHF m 38.8 31.8 - 18.0 of which non-life in CHF m 415.5 411.4 - 1.0
Basler Osiguranje works in conjunction with the local medical and dental association to offer non-life and life products to meet the specific needs of medical practitioners and, since 2002, the needs of associated professional
The continued downward trend in the stock markets and the unfavourable exchange rate movements shaped the results of the Baloise Group. Falls in the value of capital investments took their toll on the Group results to the tune of CHF 959 million, whilst foreign currency losses –
Market trends were reflected in the performance of the Baloise Group’s capital investments. The investment portfolio with an average value of CHF 50 billion suffered an operating loss of CHF 461 million, equivalent to a performance of -0.9 percent.
The fall in the value of capital investments (impairments ) amounted to CHF 959 million. The lion share of losses came from value adjustments to share holdings. The company’s exchange rate losses amounted to CHF 156 million, stemming from holdings of foreign-currency bonds.
Over the course of the year, share holdings as a proportion of total capital investments were reduced markedly for solvency and risk-related reasons. After a neutral share strategy in the first quarter, it was necessary to adopt a defensive strategy in the subsequent months, and to dispose of shares for risk control reasons. Whereas at the end of 2001, 20 percent of investment capital was still held as shares, this figure fell to 12 percent by the end of 2002, or 6 percent after hedging against further losses. The decline in the proportion of shares is attributable not only to disposals but also to price adjustments. As regards fixed-interest securities, the Baloise benefited from falling interest rates and rising quoted prices for bonds. Their share of total investments advanced, due to price gains and switches, from 41 percent to 44 percent. In the same vein, there was a large accumulation of unrealized gains amounting to CHF 998 million.
Investment property performed well at 4.9 percent (2001: 5.6 percent). The proportion of investment property in the portfolio rose slightly to 11 percent. Mortgages and loans posted a return of 4.1 percent and accounted for around 23 percent of total investments (2001: 23 percent).
Other short-term capital investments, cash and cash equivalents 1,583.4 3,505.4 121.4 in CHF m
Assets under management at the Baloise Group advanced by 2 percent to CHF 56.5 billion (2001: CHF 55.6 billion). The increase stems from the assumption of external asset management mandates.
The significance of corporate risk management is greater than ever. The Baloise’s Group-wide risk management system is a key management instrument. Thanks to the measures implemented under this system, the company managed to maintain a healthy balance between risk capacity and risk exposure in the year under review.
The greatest risk exposure for the Baloise Group lies in its insurance business and the respective capital investments. Risk management analyzes these risks and determines the total risk exposure of the individual companies and the Group. The following risks are relevant in the field of underwriting: natural catastrophes (earthquakes, storms, flooding, hail) major industrial risks (fire, explosions, interruption of operations) liability risks (product liability, environmental liability, occupational liability) risk of personal damage (disability, death)
This changed during and after the strong downward movements in July with stock price collapses of up to 22 percent. In reaction, the Baloise Life share exposure was reduced from roughly 25 percent to 15 percent and 10 percent of the remaining exposure hedged. These and similar methods are applied to ensure a healthy risk balance in the positions held by the Group and its individual companies and that the defined limits are respected.
At present, all eyes are focused on the situation of the overall economy and the economic health of individual sectors and companies. Despite the economic situation, the Baloise Group has not diminished its efforts to promote sustainable economic policies. The success of these efforts forms a significant basis for further steps.
Thanks to its inclusion in sustainability funds and regular contact with sustainability and financial analysts, the Baloise can present a more positive score-card in this field than most of its peers. The inclusion and the contacts also help the Baloise to define its position and to pinpoint what the company still needs to do. In view of the breadth of ecological and social topics that have a bearing on sustainability, measures to ensure a Groupwide sustainability approach have an impact on various organizational units. For this reason, the Baloise has created a Sustainability workgroup to harmonize initiatives and develop new concepts for corporate sustainability. The conscious decision to establish a Sustainability workgroup rather than a separate sustainability and environmental management unit emphasizes the integration of sustainability concepts directly into the line functions.
Carefully targeted basic and advanced training programs are given high priority at the Baloise. Baloise Switzerland ran in-house diploma courses in financial planning, corporate consulting and overall financial consulting for the first time in 2002. As part of an extensive strategic development scheme, around 1,500 employees are undergoing advanced training courses. All Group companies offer in-house training and support for employees enrolling in external programs. E-Learning is gaining in importance, allowing employees to tailor a program to their individual needs and to follow it at their own workplace. This not only saves costs, but also enhances learning efficiency thanks to time saved and a straight-forward learning control mechanism. In 2002, the Group invested a total of CHF 6.86 million in staff training and development at all levels.
Promising and up-coming executives throughout the Group are identified and integrated in the long-term Management Development Process. In the autumn of 2002, the Strategic Leadership Program for top executives from all Group companies was conducted for the first time at the Kellogg School of Management at North Western University of Chicago (USA). Its principal aims were to 32Bâloise-Holding Annual Report 2002
promote the individual ability to implement vision and strategy, to enhance the personal network and to encourage an exchange of experience. In addition, the Advanced Management Program, a proven tool to sharpen management and leadership skills for middle and senior managers, was revised and relaunched.
It is thanks to the systematic and in-depth development programs for its own management staff that the Baloise was again able, in the year under review, to replace executives at various levels up to Executive Committee level with people from its own ranks.
In addition to the existing committees (i.e. the Chairman ’s Committee, the Investment Committee and the Compensation Committee), the Board of Directors has also appointed an Audit Committee from among its members.
As a value-oriented company, the Baloise is committed to good corporate governance. It feels convinced that the SWX guideline and the Swiss Code of Best Practice adopted during the year under review represent important steps toward increasing corporate transparency and boosting confidence in the business world.
The Baloise is organized as a holding company under Swiss law. Segment reporting by business segments and regions can be found from page 58 of the Annual Report.
This information is continuously updated on the Internet. The “Baloise Shares” section on page 44 of the Annual Report provides further information on the breakdown of our shareholders as at March 31, 2003. There are no cross-shareholdings either in terms of capital or voting rights.
A 1:10 split in 2001 significantly increased the trading liquidity of Baloise shares. All distributions and capital transactions in favor of shareholders are detailed on the Baloise website.
Year of report Year of report Year of report Year of report 1999/2000 2000/2001 2001/2002 2002/2003
In fiscal 2002, capital and reserves were reduced from CHF 5,385 million to CHF 3,088 million at the beginning of the year. Details of the changes in capital in 2002 are shown in the statement of changes in consolidated capital and reserves on page 56 of the Annual Report.
Only the Chairman of the Board of Directors has an executive function. None of the other members, who perform non-executive functions, held executive responsibility at one of the Group companies. Moreover, there are no key business relationships or cross-shareholdings.
Role and mode of operation of the Board of Directors and its committees
Subject to the decision-making powers of the shareholders at the General Meeting, the Board of Directors is the highest decision-making body of the company. In principle, unless the organizational regulations delegate powers to the committees or the Corporate Executive Committee, decisions are taken by the Board of Directors.
Under Art. 716a of the Swiss Code of Obligations and Section 1 II of the organizational regulations the main tasks of the Board of Directors are to oversee the operations of the company and determine how it is organized.
The Chairman’s Committee is responsible for deliberating on particularly important business, especially in connection with major decisions on strategy or personnel. The Chairman’s Committee meets at least once a year as the Investment Committee to approve the Group’s 36Bâloise-Holding Annual Report 2002 www.baloise.com Profile/
The apportionment of powers and duties between the Board of Directors and the Corporate Executive Committee is primarily laid down in the organizational and investment regulations. Both documents are continuously reviewed to ensure that they are appropriate and if need be are adjusted to changes in circumstances. As a consequence, the organizational regulations were revised in 2002. The investment regulations are at present being modified and will be submitted to the Investment Committee in March and to the Board of Directors for approval in May 2003.
The 10 internal Group auditors report directly to the Chairman of the Board. Their specialist knowledge covers the fields of underwriting, mathematics, finance and IT. The significance of a well-functioning risk management at an insurance Group cannot be over-emphasized, which is why a special chapter in this Report has been dedicated to the risk management at the Baloise.
The management structure at the Baloise Group is outlined on page 42. Details of the members of the Corporate Executive Committee and information on their other activities and outside interests can be found on the Internet. There are no management contracts delegating management tasks to a third party.
This section is subdivided into three parts: members of the Board of Directors other than the Chairman, the Chairman of the Board of Directors, who until the end of February 2002 also held the position of President of the Corporate Executive Committee, and the Corporate Executive Committee.
With the exception of the Chairman, the members of the Board of Directors receive flat-rate compensation in cash which is determined by the Compensation Committee of the Board of Directors.
The nature and amount of the compensation paid to the Chairman of the Board of Directors and the members of the Corporate Executive Committee is also determined by the Compensation Committee of the Board of Directors. It consists of a basic salary and an incentive dependent on achieving corporate targets on the one hand and individual targets on the other. 50 percent of the incentive is received in the form of options on Baloise registered shares. These options are purchased from third parties by the Baloise Group at market value and are quoted on the stock market. The conditions applicable to the option rights at market values are specified at the beginning of the fiscal year. The allotted share options may not be sold for two years. For the remaining 50 percent of the incentives, a choice is available between cash compensation, more options, or Baloise registered shares. The allocation of shares is linked to a loan on which interest is payable at market conditions. This strengthens the impact of the shares allocated (leverage effect). The loan repayment after a three-year blocking period is hedged with a put option financed by the sale of a contrary call option. After expiry of the blocking period, employees receive the shares remaining after repayment of the loan for their free disposal.
The Corporate Executive Committee consists of five members. The new Group CEO, Frank Schnewlin, took up his post on March 1, 2002 and has therefore not yet received an incentive (max. 662/3 percent of basic salary), as incentives for the financial year that has ended are not paid until the following year. No severance payments were made in the year under review.
Term to maturity 3 years 4 years 5 years 5 years
Exercise price in CHF 197.1 167.8 167.8 125.8 38Bâloise-Holding Annual Report 2002
Mortgage loans CHF 3,964,296 * see “Change of control and countermeasures” below
The share capital of the Baloise consists exclusively of registered shares. There are no shares with preferential voting rights. As a matter of broad-based shareholder democracy and in order to protect minority shareholders, no shareholder, regardless of the size of holding involved, is registered with more than two percent of voting rights. The Board of Directors may approve exceptions to this rule by a majority of two thirds of all members (Articles of Incorporation, Art. 5 ). No exceptions exist at present. In exercising voting rights, no shareholder may hold more than one fifth of the shares entitled to vote at the General Meeting either directly or indirectly based on a combination of his own votes and proxy votes (Articles of Incorporation, Art. 16).
Subject to any provisions to the contrary in the Articles of Incorporation, the shareholders entitled to vote at the General Meeting will be those who on the reference date specified in the invitation from the Board of Directors (a date a few days ahead of the General Meeting) are entered in the share register as shareholders with voting rights (see also Articles of Incorporation, Art. 16).
The admissibility of nominee registrations is dealt with in Article 5 of the Articles of Incorporation (reference being made to any percentage clauses or conditions of registration). The procedures and preconditions for canceling or restricting transferability are laid down in Articles 5 and 17 of the Articles of Incorporation.
Shareholders’ requests pursuant to Article 699(3) of the Swiss Code of Obligations for the inclusion of items on the agenda for discussion may be submitted by one or more shareholders representing at least 10 percent of the share capital or shares with a nominal value of at least CHF 100,000. See also the introductory remarks in this chapter and Article 14 of the Articles of Incorporation.
PricewaterhouseCoopers (PwC), and its predecessor Schweizerische Treuhandgesellschaft STG Coopers & Lybrand have been the statutory auditors of the Baloise since 1962. The statutory auditors are chosen by the General Meeting each year. The lead auditor, Mr. Peter Lüssi, took up his office in 1999.
Annual and semi-annual reports Balance sheet and semi-annual media conferences Meetings for financial analysts At the Annual General Meeting
Our communications are rounded off by media releases on important projects and initiatives. At special events and road shows we engage in dialogue with investors and media representatives.
Shareholders can access media releases, disclosure reports and presentations on the Internet.
Thomas Sieber Secretary of the Board of Directors Aeschengraben 21, CH-4002 Basel
Rolf Schäuble, Chairman, Staufen Walter G. Frehner, Vice-Chairman, Riehen Christoph J. C. Albrecht, Basel Andreas Burckhardt, Basel Dietrich J. J. Forcart, Riehen Gertrud Höhler, Berlin Georg F. Krayer, Basel Werner Kummer, Küsnacht Arend Oetker, Berlin Jean-Marc Rapp, Lausanne Eveline Saupper, Pfäffikon SZ Gaudenz I. Staehelin, Küsnacht
Gaudenz I. Staehelin, Chairman Georg F. Krayer, Vice Chairman Walter G. Frehner
In addition to the stock markets, unfavorable currency trends also had an adverse impact on the Baloise. On the operations side, major burdens arising from natural disasters also took their toll, in particular from the flood disasters in Austria and Germany. Despite this combination of negative factors, the Baloise reported an adequate operating performance for the financial year as a whole. The Baloise’s operating strength still makes it a sound company and therefore an attractive long-term investment.
Net earnings per Bâloise-Holding share1 in CHF 4.3 6.1 9.1 11.2 7.3 - 11.6
Total shares issued in shares 61,285,680 58,620,000 58,620,000 56,704,000 55,307,150 55,307,150
Number of shares entitled to dividend in shares 61,285,680 58,620,000 58,620,000 56,704,000 55,307,150 55,307,150
Price at year-end in CHF 90 143 125 178 153 55
Consolidated capital and reserves CHF m 4,788 5,307 7,478 7,373 5,385 3,088
All figures as per calendar year or December 31, respectively 1 See Notes to the Consolidated Financial Statements, section 25 2 Number of shares ranking for dividend at December 31 3 Average of beginning and year-end values 4 To be proposed to the Annual General Meeting 5 Adjusted due to share split 6 Additional free put options 7 Based on ARR accounting principles 8 Consolidated net profit plus changes in capital and reserves (net of capital changes due to financing and distribution) in percent of capital and reserves at the beginning of the year 9 Not available
There are no restrictions on the acquisition of BâloiseHolding shares. Shareholders who have purchased shares under their own name and for their own account are entered in the share register with voting rights up to a maximum of 2 percent of all shares issued. This also applies to shares held by nominee companies, provided the beneficial owner has been made known to us (Articles of Incorporation, Art. 5).
Segment Reporting by Geographical Segment 58 Segment Reporting by Business Segment 62
Notes to the Consolidated Financial Statements 71 Report of the Group Auditors 129
Change in unearned premium reserve for own account 8.1 - 24.9
Realized gains and losses on investments (net) 7.3 149.4 - 806.5
Claims incurred including processing costs (non-life) 15 - 1,785.0 - 1,920.8
Gross premiums, policy fees and investment-type premiums 6,881.1 7,527.5 in CHF m
Total liabilities and capital and reserves 57,494.8 56,913.8 in CHF m
Net profit/ loss for the year before tax 523.0 - 714.3
Amortization of intangible assets and depreciation of tangible non-current assets 153.3 184.8
Cash flow from operating activities (net) 1,558.4 2,452.0 of which from joint ventures - 18.8 24.8
Acquisition of intangible assets and tangible non-current assets - 189.1 - 94.1
Decreases in liabilities from banking business and loans - 1,255.4 - 1,210.3
Purchase/sale of treasury stock – 28.1 27.6 – – 55.7 in CHF m
Less movement on: Deferred acquisition costs charged to capital and reserves – – – 97.7 – 97.7
Purchase/sale of treasury stock – - 0.4 - 17.7 – – - 18.1
Claims incurred including processing costs (non-life) - 732.6 - 802.9 - 346.7 - 373.3
Claims and benefits paid (life) - 1,961.8 - 2,014.2 - 826.2 - 825.4
Amortization of intangible assets and depreciation of tangible non-current assets - 40.7 - 42.1 - 40.8 - 39.5
Profit/ loss before tax and minority interests 472.3 - 244.9 43.0 - 25.6
Profit/ loss after tax before minority interests 364.7 - 232.3 39.7 - 12.7
Cash flow from financing activities (net) 483.1 - 434.7 - 119.9 - 26.7
Acquisition of real estate, equipment and furnishings and intangible assets for own use 26.5 4.1 6.4 - 0.6
Reinstatement of original value recognized in the income statement 112.1 130.4 27.4 55.0 in CHF m
Premiums earned and policy fees for own account 2,419.3 2,452.0 4,013.2 4,593.4
Change in actuarial reserve (life) – – - 1,448.5 - 2,234.5
Surplus and profit allocations to policyholders - 13.3 - 10.5 - 164.3 39.7
The same consolidation rules are applied for the Management Information as for the segment reports. This means that, in line with IFRS requirements, Group-internal transactions between the segments are not eliminated.
Combined ratio: non-life 2001 2002 2001 2002 as a percentage of premiums earned
Combined ratio (gross) Switzerland Germany Benelux Other countries by geographical segment: non-life 2001 2002 2001 2002 2001 2002 2001 2002 as a percentage of premiums earned
Total underwriting result of business ceded - 30.4 - 130.7 - 0.6 - 2.0
Total underwriting result for own account - 179.7 - 266.5 - 864.0 - 1,044.8
Realized gains and losses on investments (net) 222.0 - 195.7 - 71.4 - 498.9
Other non-technical income and expenses - 30.8 9.5 - 146.7 - 133.9
Profit/ loss before tax and minority interests 293.2 - 203.3 272.8 - 358.7
The value of insurance in force is understood to be the earnings generated from this insurance in future, established by discounting all the anticipated cash flow. A large number of assumptions need to be made to calculate this value, the most important of which are listed in the table below. B&W Deloitte has reviewed the calculation methods and the assumptions made and considers the results to be appropriate.
Embedded value at December 31 3,792.5 1,630.8 of which value of insurance in force 1,341.4 855.4 of which adjusted capital and reserves 2,992.4 1,192.4 of which solvency expenses - 541.3 - 417.0 in CHF m; all figures “after tax”
Change in unrealized gains and losses taken to capital and reserves 61.9 - 2,729.7 – – - 177.3 - 2,845.1
Impairment in value recognized in the income statement (net) - 26.9 - 813.7 – 16.2 - 134.4 - 958.8 in CHF m
Losses and provisions relating to credit risks - 13.9 - 22.9
Amortization of intangible assets and depreciation of tangible non-current assets - 11.5 - 9.9
As of January 1, 2001 the following IAS standards were applied for the first time: IAS 39 – Financial Instruments: Statement and Valuation. This standard contains rules on the accounting treatment of financial instruments, which also include conventional financial assets and liabilities and derivate financial instruments.
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control. Deutscher Ring Beteiligungsholding is a joint venture in which the Baloise Group has a direct 65 percent interest. The remaining 35 percent are held by Deutscher Ring Krankenversicherungsverein, a mutual insurance company. The contractual arrangements are such that the majority shareholder does not have overall control. These companies are consolidated on a proportionate basis, therefore the Baloise Group reports only its share of assets, liabilities, income and expenses.
3.3 Investments 3.3.1 Financial assets The business activities of the Baloise Group include the issuing of insurance policies, as a result of which the Group incurs financial liabilities and assumes guarantees. To ensure that it is in a position to meet its financial liabilities, the Baloise
Group acquires financial instruments which correspond as closely as possible in type and maturity period to the expected level of claims and benefits paid. The composition of the investment portfolio is therefore determined mainly by the expected investment return for each type of investment, by the availability of risk capital – which is used to even out fluctuations in the price of investments – and by the type of liabilities arising from insurance business.
Changes in the value of financial assets under Held for trading are recognized as realized book profits/losses in the income statement in the period in which they arise. Financial assets under Available for sale are revalued at their market value, and unrealized gains and losses are taken to capital and reserves. In the case of monetary assets classified as Available for sale or as Held to maturity, any foreign currency revaluation is credited to income. Monetary assets include primarily fixedinterest securities. Shares do not count as monetary assets. For life insurance com-
panies, deductions are made from the unrealized gains and losses in view of those amounts which will be used in future to amortize acquisition costs and to pay bonuses and dividends to policyholders.
3.3.2 Investment property Investment property is shown at fair market value. This is determined each year by a valuation based on prevailing market conditions and carried out by in-house specialists. The fair value of holdings is derived principally from future cash flows, using mathematical calculations based on similar transactions. From time to time, external valuation reports are obtained. Scheduled depreciation is not charged on investment property. Changes in value are immediately recognized in the income statement, in the period of occurrence, as realized book gains/losses.
The main tool for the management of investment risk and return on the asset side of the balance sheet is the strategic allocation of investments to the various investment categories (asset allocation). Derivative instruments are used to underpin this asset allocation. They are particularly useful for hedging investments, when preparing to purchase or sell investments, or to slightly increase investment income. However, no trading or speculative business is undertaken in derivatives. Derivative transactions are undertaken only with counterparties who have at least an A credit rating from Standard and Poor’s.
All derivatives are recorded in the balance sheet at their market value. When the contract is concluded, the derivative is classified either as a hedging instrument against the market value of an asset or a liability (fair value hedge), as a hedge against future transactions (cash flow hedge) or as a trading instrument. Derivatives which do not fulfill IFRS requirements for hedging transactions are treated as trading instruments, even if they have a hedging function according to the Baloise Group’s own risk management regulations.
Capitalized goodwill is amortized on a straight line basis over its expected useful life, which may not exceed 20 years. The period over which the goodwill is to be amortized is determined mainly by the future economic benefits expected to flow from the company acquired. These depend, among other things, on the type of business acquired, the lifespan of the insurance contracts, relationships with clients and sales channels.
The actuarial reserve is calculated on the basis of actuarial principles from the cash value of future claims and benefits paid less the cash value of premiums not yet paid. The calculation is made in accordance with the following Financial Accounting Standards: FAS 60, FAS 97 and FAS 120. The accounting principles (e.g. in respect of interest or mortality) vary depending on the country, product and year of acquisition and take country-specific empirical values into consideration. Unearned premiums and provisions for final policyholder bonuses are included in the actuarial reserve.
Amounts reserved for future surplus shares to policyholders are shown in a separate provision.
Policyholder bonuses credited: Bonuses already allocated which have been accrued on an interest-bearing basis are included in “Policyholder bonuses credited and provision for future policyholder bonuses”.
The combined loss reserves have three components. The provisions calculated according to actuarial methods form the basis of the combined provision; a second component is provisions for those complex special cases and events which do not lend themselves to purely mathematical calculations. These two components are determined without discounting. The third component is annuities, which are capitalized on the basis of technical principles such as mortality rates, technical interest rates, etc.
are systematically reviewed, which means that variances can be controlled. On the basis of such reviews, the projection process can be adjusted if necessary.
Liabilities from banking business and loans are stated at amortized cost. The effective interest rate method is used to amortize or write back the difference between cost and redemption value. The cost figure also includes transaction costs.
The convertible loan issued by Baloise Finance Jersey, which confers the right to subscribe for shares in a non-Group company, consists of a liability and an embedded option. When the loan is issued, the market value of the embedded option is determined and shown separately as a derivative financial instrument. The cost of the liability component is the present value of future cash flows, which was calculated when the issue was made. The discount factor applied is the market interest rate for similar loans without conversion or option rights.
The provision for deferred tax in the consolidated financial statements is calculated under the liability method, i.e. based on current or future expected tax rates. Deferred tax takes into account the income tax effects of temporary differences between the assets and liabilities carried in the consolidated balance sheet and their fiscal base. When deferred tax is calculated, unused tax losses are only carried forward to the extent that it is probable that future taxable profit will be available against which the tax losses can be utilized and to the extent that establishing the provision does not contravene local tax law and regulations. A provision for deferred tax is established for tax payable in future by Bâloise-Holding or its subsidiaries on the profits of subsidiaries not yet transferred, provided a distribution is intended and it is therefore probable that a corresponding tax will be charged.
Amounts due from the Baloise Group to employees include all types of employee benefits given in exchange for services rendered by employees or in special circumstances. The following amounts need to be established: short-term benefits (such as wages), benefits due in the long term (such as anniversary payments) and benefits upon termination of employment (such as severance pay and benefits from redundancy schemes).
Shares: The Baloise Employee Trust set up in 1989 gives the employees of various Group companies the opportunity, subject to the rules issued by the Trust’s Board, to acquire shares in Bâloise-Holding, usually on an annual basis, at a preferential subscription price. The Trust acquired the shares set aside for this purpose from previous increases in the share capital of Bâloise-Holding. Due to the low acquisition cost of the shares held by the Trust and the number of shares held, BâloiseHolding will be able to continue with this profit-sharing initiative in the years to come. The trust is managed by a Trust Board which is independent of the management of the Group, reports to the cantonal fund authority of the city of Basel and is not consolidated.
Shares: The market value is the quoted market price. If this is not available, the purchase value is applied.
Mortgage loans, policy loans and other loans: The fair values are determined by discounting the cash flows, using the current interest rate applied by the Baloise Group to similar loans.
In order to prepare annual financial statements in accordance with IFRS, it is necessary for the Corporate Executive Committee to make assumptions and estimates which have an effect on the amounts disclosed in the balance sheet and income statement for the current fiscal year. Therefore, it is possible that the actual figures may differ from the estimates.
The insurance portfolio of the Spanish Group company Bâloise (España) Seguros y Reaseguros was taken over by the Fortis Group per September 30, 2001. The gross premiums for the first nine months of 2001 came to CHF 72.7 million. The insurance portfolio was sold at intrinsic value.
In the course of the year, the remaining outstanding minority shareholdings in Mercator of 3.9 percent were purchased for CHF 38.4 million. Mercator is now 100 percent owned by the Baloise Group.
5.2 Acquisitions and disposals of subsidiaries and other business units in 2002
The business segments are non-life insurance, life insurance, banking (including asset management and investment funds) and other activities. Non-life insurance includes accident insurance, health insurance and products for liability, automobile, property and transport lines of business. The products are geared to the requirements of our clients – mainly private clients – and the core competencies of the companies in the Baloise Group. On the life insurance side, a broad range of pure risk coverage, asset-forming insurance and unit-linked products is provided for private individuals and companies. The banking segment comprises Baloise Bank SoBa, an all-purpose bank operating in Switzerland, Mercator Bank in Belgium, which is involved in all types of savings business, principally financing real estate and small and medium-sized enterprises, and Deutscher Ring Bausparkasse in Germany, predominantly active in traditional real estate financing.
Information analyzed by geographical and business segments is given in the segment reports, in the Management Information section and in the following tables.
Non-life Life Elimination Total in CHF m 6.1.2 Gross premiums by geographical and business segments 2002
Non-life Life Elimination Total in CHF m 6.2 Change in gross premiums by geographical and business segments
Cash and cash equivalents 254.8 398.3 235.2 888.3 in CHF m 6.5 Investments by business segments 2002
Cash and cash equivalents 182.0 135.9 357.9 675.8 in CHF m
Total (net) 2,081.2 2,024.1 of which from associates 21.3 70.0 in CHF m
Realized gains on disposal and book gains: Held to maturity – – – 0.3 0.3
Cumulative impairment of value accounted for in the in CHF m 1 Upon disposal of financial instruments, any impairment in value recognized in the income statements of former periods is registered as reinstatement of original value in the income statement. The difference between the original purchase value and the income from sale is recorded as profit or loss.
Included in fixed-interest securities classified as Available for sale at December 31, 2002, is an amount of CHF 38,836 (2001: CHF 87.6 million) which relates to securities that have not been stated at market value, as this cannot be reliably measured.
During the year 2002, no fixed-interest securities without market value were sold. The change in book value is due to the re-classification of securities for which, in the meantime, reliable market values have become available.
Movement on unrealized gains and losses on associates - 46.2 - 90.5
Movement on hedging reserve relating to derivatives held for cash flow hedges - 19.0 15.2
At December 31 (gross) 2,460.5 781.5 in CHF m 8. Investment Property
Further information about associates is given in Note 34, “Significant subsidiaries and participating interests at December 31, 2002”.
Unlike the previous year, various equity and exchange rate positions were hedged, based on the valuation of the risk positions by the Groupwide risk management.
For technical reasons, it is possible that there may be slight differences between the investments for unit-linked life insurance and the corresponding liabilities.
Additions arising from changes in composition of consolidated Group 6.0 – – – 6.0
Additions arising from changes in share of investments held 17.2 – – – 17.2
Disposals arising from changes in composition of consolidated Group – – – – –
Additions arising from changes in composition of consolidated Group 7.5 – – – 7.5
Impairment of value accounted for in income statement – – – - 0.7 - 0.7
Accumulated amortization and write-downs - 521.4 72.5 – - 151.8 - 600.7 in CHF m
On the basis of impairment testing, a further CHF 62.3 million have been written down in addition to the planned amortization of goodwill from the participation in Mercator Verzekeringen N.V. in the business year 2002.
Accumulated depreciation and write-downs – - 249.5 - 42.3 - 291.8 of which assets under finance leases – 139.0 – 139.0 in CHF m 13.2 Property, plant and equipment for own use: 2002
Deferred during the year under review 204.9 251.7 130.7 134.3 335.6 386.0
Written off in the year under review - 199.4 - 229.6 - 60.4 - 152.9 - 259.8 - 382.5
Change as a result of unrealized gains and losses on investments – – 247.4 95.9 247.4 95.9
Particular attention is paid to environmental claims relating to disposal sites, waste, asbestos material and, in general, substances which are harmful to humans and to the environment. Ascertaining when such cases might arise and determining the potential extent of such claims involves much greater uncertainty than in all traditionally used claims models. Therefore, the provisions set up for these claims are surrounded by a higher level of uncertainty. At the end of 2001, these provisions, which are included in the total provision, amounted to CHF 429.2 million, and they stood at CHF 353.9 million at the end of 2002. The decline by 75.3 million is due to claims processing amounting to CHF 20.0 million and currency effects amounting to CHF 55.3 million, as a large part of the provisions are held in foreign currencies.
Contracts without surplus sharing 140.7 139.6 in CHF m 17. Policyholder Bonuses Credited and Provision for Future Policyholder Bonuses
Impairment of value accounted for in income statement – – – – – –
Total investments and deposits arising from reinsurance business – – 584.1 425.0 – –
No single reinsurer or reinsurance contract is so material to the Group that its loss would have a significant effect on consolidated net profit.
Increase/decrease due to tax-exempt interest and dividend credits - 13.4 - 7.2 tax-exempt gains from shares and participating interests - 11.3 –
The expected average tax rate of the Baloise Group came to 23.6 percent in 2001 and to 23.3 percent in 2002. These rates correspond to the weighted average of the tax rates of those countries in which the Baloise Group operates.
No tax assets were capitalized at December 31, 2002 on losses carried forward of CHF 411.2 million.
The plan assets include shares in Bâloise-Holding which had a market value of CHF 55.1 million at December 2002 and CHF 183.8 million at December 2001. The plan assets do not include property leased to the Baloise Group.
Benefits payable to current employees twelve months or more after the end of the fiscal year are disclosed separately in accordance with specific requirements. The requirements are similar to those applying to pension obligations. Most of the benefits are employee service anniversary benefits. At December 31, 2002, the present value of the obligation was CHF 20.5 million (2001: CHF 23.0 million). No plan assets were deducted for long-term benefits. Other long-term employee benefits amounting to CHF 2.2 million (2001: CHF 2.7 million) are included in the income statement.
The Baloise Employee Trust set up in 1989 gives the employees of various Group companies the opportunity, subject to the rules issued by the Trust’s Board, to acquire shares in Bâloise-Holding, usually on an annual basis, at a preferential subscription price. The employees pay the subscription price to the Trust during the current fiscal year and determine themselves the blocking period for the sale of the shares, which must be at least three years. During the year under review, 80,491 shares (2001: 156,951 shares) were purchased at a price of CHF 42.50 (2001: CHF 76).
Value of shares subscribed to (in CHF m) 20.4 13.2 23.6 Equity benefits: share option scheme
Capitalization regulations: Under supervisory law, minimum capital regulations (solvency regulations) apply to subsidiaries which carry out insurance business. At December 31, 2001 and December 31, 2002, the subsidiaries complied with all relevant supervisory regulations in respect of capitalization.
Change in share of unrealized gains and losses in capital and reserves - 27.4 3.7
The Baloise Group conducts insurance business in various European countries and holds investments worldwide and is therefore exposed to financial risks, such as currency risk, credit risk, interest rate risk, liquidity risk and market risk.
Decentralized risk management units track economic market developments on a monthly basis and the effects of these on the risk portfolio and individual risk capacity. In addition, they ensure that limits are being adhered to and market-derived benchmarks monitored, thus ensuring that financial risk is restricted to market risk that cannot be dealt with by diversification. Stochastic and other methods (value at risk for operational short-term management, extreme value methods for long-term management) and extensive scenario analyses are used to manage the remaining market risk. By applying this risk management concept, the Baloise Group is in a position to react quickly to changes in the market environment and to optimize its strategic long-term-position profitably.
Equity instruments and foreign exchange instruments are hedged. According to IFRS, however, such hedges do not count as cash flow hedges.
The insurance activities of the Baloise Group are conducted almost entirely in Swiss francs and the euro, and therefore the technical provisions are also in these two currencies. Investments held by foreign subsidiaries are to a large extent currencymatched. In order to increase income, the Swiss companies hold a net euro position of CHF 3,255.6 m (2001: CHF 3,153.6 million), a net US dollar position of CHF 2,142.5 million (2001: 2,164.6 million) and a net Japanese yen position of CHF 81.4 (2001: CHF 249.9 million). Other net currency positions, whether assets or liabilities, are of little amount. Foreign currency positions are hedged only to a minor extent, with the exception of one USD 150 million position.
Time deposits make up CHF 1,252 million of the total amount placed with UBS AG, Zurich/Basel.
The Baloise Group and its subsidiaries are constantly faced with legal disputes, claims and complaints which in most cases stem from normal insurance operations. No new facts in this respect have been reported to the Corporate Executive Committee since the last balance sheet date that could have a significant impact on the consolidated annual accounts 2002.
Total commitments entered into 532.6 616.8 of which relating to joint ventures – –
The Baloise Group has issued warranties and incurred obligations to third parties, associates, partnerships and joint ventures. These include obligations under contracts to pay capital contributions or contributions to capital and reserves or to allocate funds to cover redemptions or interest payments due. The Baloise Group is not aware of any cases of default which could have an effect on warranties.
Total 3.0 in CHF m 33. Events after the Balance Sheet Date
Up to the completion of the present consolidated financial statements on March 27, 2003, we were not aware of any events that would have a significant effect on the financial statements as a whole. Details on the purchase of the German insurance company Securitas can be found in section 5.2 of this Annual Report.
Baloise Life Insurance Company, Basel Life 100.00 F CHF 2,397.5 3,477.9
Deutscher Ring Bausparkasse AG, Hamburg Banking 100.00 F/P EUR 586.0 –
Belgium Principal activity in percent inclusion1 Currency in millions in millions
Corluy en C° Beurvennootschap N.V., Antwerp Banking 37.50 E EUR – –
As auditors of the Group, we have audited the consolidated financial statements (income statement, balance sheet, cash flow statement, statement of changes in capital and reserves, and notes to the financial statements, pages 51 to 63 and 71 to 128)1 of the Baloise Group for the year ended December 31, 2002.
The Baloise shareholdership witnessed some significant changes, causing a substantial increase in the free float. Since October 1, 2002 the Baloise has been factored into SWX index calculations with a free float of 100 percent.
At March 31,2002, warranty obligations amounted to CHF 279.4 million (prior year: CHF 788.5 million). Of these, CHF 204.0 million relate to the warranty in respect of the convertible bond issued by Baloise Finance (Jersey) Ltd. The securities needed for hedging are recognized as other investments.
The companies in the Baloise Group bought a total of 114,900 shares at an average price of CHF 129 per share during the year under review, and sold 462,660 shares at an average price of CHF 75. At March 31, 2002, they together held a total of 153,640 Bâloise-Holding shares.
At March 31,2003, an amount of CHF 35.0 million was transferred from the reserve for own shares to the free reserve of Bâloise-Holding.
Administrative costs include CHF 1.1 million relating to personnel expenses in the year under review (prior year: CHF 0.7 million).
As statutory auditors, we have audited the accounting records and the financial statements (income statement, balance sheet and notes, pages 130 to 133)1 of Bâloise-Holding for the period of April 1, 2002 to March 31, 2003.
In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with Swiss law and the Company’s Articles of Incorporation.
Available for distribution by the shareholders at General Meeting 281,149,764 22,482,464
Basler Versicherungen Aeschengraben 21 CH-4002 Basel Phone +41 61 285 85 85 Fax +41 61 285 70 70 E-mail insurance@baloise.ch www.baloise.ch