BALOISE Baloise key figures ���������������������������������������������������������������������������������� 4 At a glance �������������������������������������������������������������������������������������������������� 5 Letter to shareholders ��������������������������������������������������������������������������� 6 Baloise shares �������������������������������������������������������������������������������������������� 8 Our four core markets ����������������������������������������������������������������������� 10 Strategy ����������������������������������������������������������������������������������������������������� 11 Brand ��������������������������������������������������������������������������������������������������������� 14
REVIEW OF OPERATING PERFORMANCE Group ��������������������������������������������������������������������������������������������������������� 18 Switzerland ��������������������������������������������������������������������������������������������� 22 Germany ��������������������������������������������������������������������������������������������������� 23 Belgium ����������������������������������������������������������������������������������������������������� 24 Luxembourg ������������������������������������������������������������������������������������������� 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 Responsibility ���������������������������������������������������������������������������������������� 38 Human resources ��������������������������������������������������������������������������������� 42 The environment ���������������������������������������������������������������������������������� 48 Risk management ��������������������������������������������������������������������������������� 52 Commitment to art ����������������������������������������������������������������������������� 56
FINANCIAL REPORT Consolidated balance sheet ���������������������������������������������������������� 110 Consolidated income statement ������������������������������������������������� 112 Consolidated statement of comprehensive income ����������� 113 Consolidated cash flow statement ��������������������������������������������� 114 Consolidated statement of changes in equity ���������������������� 116 Notes to the consolidated annual financial statements ��� 118 Notes to the consolidated balance sheet ��������������������������������� 188 Notes to the consolidated income statement ����������������������� 236 Other disclosures ������������������������������������������������������������������������������ 248 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ������������������������������������ 260
Sub-total of IFRS gross premiums written 1 6,833.4 6,711.6 – 1.8
4 Calculation is based on the profit for the period attributable to shareholders and the equity attributable to shareholders. 5 2016, based on the proposal submitted to the Annual General Meeting.
Baloise has one of the most profitable non-life portfolios in Europe, a strong market position in its core markets, cuttingedge IT systems and digitalised processes, plus forward-looking capital and risk management� These attributes and our shareholder -friendly dividend policy have long made Baloise one of the most attractive stocks in the sector� A fact that I am sure you already appreciate as shareholders�
2� The workforce is key to implementing the new corpo rate strategy� Baloise wants to become an employer of choice in its industry� This will be measured in terms of how strongly its employees recommend it as an employer� Currently, Baloise is in the top third of the market
Baloise is ready for the future� We are relying on innovation, agility and an entrepreneurial culture – without neglecting our core insurance business� The Simply Safe strategy sets out ambitious targets for Baloise to achieve by 2021� At the Investor Day in late October, Baloise presented the targets for the coming five years, in which it will be focusing on employees, customers and shareholders� Against a backdrop of changing conditions in the insurance sector, Baloise is thus evolving into an innovative provider of solutions that expand its core business and extend beyond traditional insurance�
Gert De Winter joined as Group CEO in early 2016� He has been tasked with looking after the existing business and, at the same time, daring to embark on new ventures in order to tackle the challenges of a changing environment� The Company ’s track record over the past decade has been excellent�
Baloise Group Annual Report 2016 Baloise Letter to shareholders for European financial services providers� The aim is to make it into the top 10 per cent�
“ The workforce is key to implementing the new corporate strategy.”
However, 2016 was not just about the new strategy� Important foundations for the future were laid in Germany� The strengthening of reserves in the German industrial and liability business, the shift in the business mix towards profitable retail and SME customers and measures to increase the company’s sales capability are putting the German business on a firm footing� This strengthening of reserves reduced profit for the period by CHF 37�9 million net� In Switzerland, however, pension plan changes for banking and insurance employees resulting from IAS 19 had a positive impact� The profit for the period of CHF 534�8 million was therefore 4�4 per cent higher than in 2015�
The Swiss business significantly increased its earnings and remains highly profitable� Earnings from the German business were influenced by the strengthening of reserves in non-life insurance� The business volume in Germany remained stable� Thanks to the steps taken, earnings are predicted to improve in future� In Belgium, the volume of business and the profitability of the non-life business grew� However, earnings were down year on year due to a decline in the life business� Luxembourg enjoyed a good year in 2016� Although earnings fell slightly (by 0�9 per cent), the business volume increased once again and the profitability of the non-life business continues to be very good�
We owe a huge debt of gratitude to our employees for achieving good results once again against a backdrop of continued uncertainty and challenging economic conditions� Day in, day out, our employees contribute to Baloise’s success on many different levels�
Baloise shares are a member of the Swiss Leader Index by virtue of their average market capitalisation and trading volumes� This index comprises the 30 largest and most liquid Swiss equities�
DIVIDENDS PAID TO SHAREHOLDERS The Board of Directors of Bâloise Holding Ltd will propose to the Annual General Meeting on 28 April 2017 that a cash dividend of CHF 5�20 per share be paid for the 2016 financial year, an increase of CHF 0�20 compared with the dividend for 2015� This would represent an attractive dividend yield of 4�1 per cent of the year-end share price�
The share buy-back programme begun in April 2015 was ended earlier than planned in late July 2016� Under this programme, Bâloise Holding Ltd repurchased a total of 1,000,000 registered shares at an average price of CHF 113�83 using a separate trading line in the SIX Swiss Exchange� This equates to 2 per cent of the share capital of Bâloise Holding Ltd as entered in the commercial register� The Board of Directors will ask the upcoming Annual General Meeting to reduce the Company’s share capital from CHF 5,000,000 to CHF 4,880,000 – a decrease of CHF 120,000 – by cancelling 1,200,000 treasury shares with a par value of CHF 0�10 each and to amend the Articles of Association accordingly� The shares to be cancelled were repurchased under the share buy-back programmes in 2006, 2015 and 2016�
In 2016, Baloise shares * fared well despite the difficult macroeconomic environment. This was due in no small part to the Company’s good operating performance and the presentation of its new strategy, which met with a very favourable response. Closing at CHF 128.30, Baloise shares finished slightly higher than at the end of the prior year. This meant that they comfortably outperformed the Swiss Market Index again in 2016.
CUSTOMERS Baloise is becoming the first choice for people who want to feel “simply safe”� An even stronger focus on customer needs, tailored omnichannel communication and innovative products and services in the areas of insurance, assistance and pensions will help Baloise to attract an additional one million customers by 2021� This would represent an increase of 30 per cent on 2016�
EMPLOYEES The workforce is key to implementing the new corporate strategy� That is why Baloise wants to become an employer of choice in its industry� Progress will be measured by a performance indicator that shows how often Baloise is recommended as an employer�
em pl oy er o f c ho ic e in th e i ndustry an additional one m illion custom cash upstream of CHF 2 billion into Bâloise Holding
A BRIGHT FUTURE NEEDS A SOLID PAST: Baloise’s new ambitions are founded on its excellent track record over the past decade: one of the most profitable nonlife portfolios in Europe, a strong market position in its core markets, cutting-edge IT systems and digitalised processes, plus forward-looking capital and risk management.
OUR AMBITION BY 2021: BECOME THE TRUSTED CHOICE FOR PEOPLE WHO WANT TO FEEL “SIMPLY SAFE”.
These attributes and the shareholder-friendly dividend policy have long made Baloise one of the most attractive stocks in the sector�
→ Contribution to EBIT from the life business of CHF 200 million per year
GERMANY → A combined ratio in Germany of below 100 per cent from 2017
CAPITAL MANAGEMENT → Strong capitalisation → New share buy-back programme for up to three million shares → Cash upstream of CHF 2 billion to the holding company in the next five years
EMPLOYEES → Entrepreneurial and agile – evolving corporate culture → An employer of choice in the industry
→ Insurance from a smartphone in just a few minutes → Ambition is to become the most popular mobile insurer in Germany by 2021 → www.friday.de
CONNECTED CARS – FOCUSING ON MOBILITY → “Pay how you drive” policies in Luxembourg from 2017 → First platform for mobility in Belgium
INSTITUTIONAL ASSET MANAGEMENT → New asset management services for Swiss pension funds from 2017 → Increase assets under management by more than
INVESTMENT PARTNERSHIP WITH ANTHEMIS GROUP → The cooperation with the investment and advisory firm
→ The Baloise brand stands for safety, simplicity and partnership. Safety is the core promise and provides the foundation for every benefit, every service and every product. Simplicity expresses our ambition to offer an outstanding customer experience with simple products, easy processes and clear communication. Partnership is one of our biggest emotional strengths. It is based on appreciation and value creation. We nurture and strengthen our relationships with all our stakeholder groups.
GROUP ���������������������������������������������������������������������������������������������������������� 18 Strong profit despite uncertain economic policy ��������������������� 18
FINANCIAL INFORMATION �������������������������������������������������������������������� 26 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
Review of operating performance 4 Baloise 16 Review of operating performance 36 Sustainable business management 58 Corporate Governance 108 Financial Report 266 Bâloise Holding Ltd 286 General information 02_JB_Geschaeftsgang_en 17 22�03�2017 15:46:32
Baloise generated a strong profit in 2016. The year as a whole was shaped by economic policy uncertainties stemming from the vote for Brexit and the US election. These uncertainties im pact on the economy, which saw even lower interest rates and volatile stock markets in 2016. From an operating perspective, the focus at Baloise was on the strengthening of reserves, steps to improve the German non-life business, low interest rates and the continuing shift of the business mix in the life business. The business volume grew in the two target segments: non-life and investment-linked premiums. In the traditional life business, however, the volume contracted. All operating segments contributed to the strong profit. In particular, the profitability of the non-life business remained very good.
OVERVIEW In 2016, Baloise generated a profit of CHF 534�8 million, which was up by 4�4 per cent year on year� Although the climate of persistently low, or even negative, interest rates and the strong Swiss franc can now be considered normal, they are still an ongoing challenge� Moreover, the strengthening of reserves in the German non-life business reduced profit by CHF 37�9 million� Conversely, profit was boosted by roughly the same amount as a result of a positive accounting effect relating to provisions for pensions and other post-employment benefits (IAS 19) in respect of bank and insurance employees in Switzerland� The strength of the Swiss franc barely changed compared with 2015, which means that currency effects were negligible�
The volume of business generated was almost exactly the same as in 2015 at CHF 8�9 billion� The non-life division generated premium income reported under IFRS of CHF 3,140�7 million, an increase of 3�0 per cent� At CHF 396�4 million, the nonlife business’s profit before borrowing costs and taxes (EBIT) was up slightly year on year, despite a higher level of large claims incurred and the strengthening of reserves in Germany� A yearon -year increase in the profit on claims reserves had a positive impact� In the life division, the traditional life insurance business declined as had been expected, falling by 5�6 per cent compared with 2015� By contrast, investment-type premiums advanced by 5�5 per cent� This trend reflects the strategy of further improving the business mix in the life business� Reserves were strengthened by a substantial amount of more than CHF 300 million in view of the low interest rates� Despite this strengthening of reserves, the life business also generated a healthy profit although, at CHF 226�1 million, its EBIT was down slightly compared with the very good prior-year figure�
The gains achieved on the investment of insurance assets amounted to CHF 1,578�9 million, which was below the 2015 level of CHF 1,685�4 million� The challenging interest rate environment was reflected in the slightly lower recurring income of CHF 1,379�3 million (2015: CHF 1,418�0 million)� The gains on investments achieved in these very challenging conditions equated to a net return on insurance assets of 2�9 per cent (2015: 3�0 per cent) and therefore remained broadly in line with the return seen in recent years� The rate of return on insurance assets according to IFRS – which includes unrealised net gains and losses on investments but excludes gains and losses on held-to-maturity debt instruments – was 3�1 per cent, representing an increase on the 1�7 per cent net return in 2015�
There was further encouraging growth in the EBIT generated by the banking business, which rose by 14�0 per cent to CHF 92�1 million� The sharp increase was mainly attributable to a change in the pension scheme at Baloise Bank SoBa, which took effect in the first half of the year�
Baloise continues to have a very robust balance sheet� Consolidated equity went up by 5�9 per cent to CHF 5,773�7 million� This figure was bolstered by the profit for the period and by the gains from the sale of treasury shares after a convertible bond, which had not been fully converted, reached maturity in November 2016�
BANKING DIVISION: STABLE EARNINGS DESPITE LOW-INTEREST-RATE ENVIRONMENT The banking business achieved a good profit once again, raising its EBIT by 14�0 per cent to CHF 92�1 million� This was due, in particular, to a non-recurring effect in connection with the change to the pension scheme of Baloise Bank SoBa� Profit would have held steady without this one-off item� As usual, the main contributors to profit were Baloise Asset Management (CHF 44�5 million) and Baloise Bank SoBa (CHF 41�7 million)�
SIGNIFICANT GAINS ON INVESTMENTS Following a significant stock market correction at the start of the year, there was a turnaround at the end of February that was largely the result of the European Central Bank increasing its quantitative easing� Despite political uncertainties, such as the Brexit referendum, the equity markets subsequently performed well� The combination of expansionary monetary policy and political uncertainties pushed interest rates to new lows around the world in mid-2016� The unexpected outcome of the US presidential election resulted in rising inflation expectations that, in turn, led to a moderate increase in interest rates and caused the equity markets to rally� Over the year as a whole, the Swiss stock market fell sharply against its global counterparts� Interest rates in Switzerland and the rest of Europe decreased over 2016 as a whole, despite rising at the end of the year�
The gains achieved on the investment of insurance assets amounted to CHF 1,578�9 million, which was below the 2015 level of CHF 1,685�4 million� The challenging interest rate environment was reflected in the lower recurring income of CHF 1,379�3 million (2015: CHF 1,418�0 million)� As reinvesting repaid bonds has limited appeal in Europe, there was a preference for currency- hedged US dollar investments and tangible assets offering regular income� The duration of the bond portfolio was further
The gains on investments achieved in these very challenging conditions equated to a net return on insurance assets of
as at 31 December 2015 Non-life Life Banking Total for the Group
Total assets under management 78,447.5 as at 31 December 2016 Non-life Life Banking Total for the Group
In the non-life division, premiums were on a par with 2015 at CHF 1,315�8 million� The selective underwriting policy for accident and health insurance ultimately meant that premium income held steady� Following a low level of claims in 2015, claims incurred were up slightly in 2016, although this was mitigated by a higher profit on claims reserves than in the previous year� The net combined ratio decreased by 6�0 percentage points year on year to 81�2 per cent� This is another excellent result and reflects the success of the strategy of targeting particular kinds of customer�
The banking business conducted by Baloise Bank SoBa continued to perform very well� EBIT rose sharply to CHF 41�7 million� However, this was mainly due to plan changes in the pension fund of Baloise Bank SoBa, which had a positive impact under IAS 19� EBIT would have increased year on year even without this effect, which is a very good achievement given the economic environment�
BASLER VERSICHERUNGEN IN GERMANY The strengthening of reserves by CHF 54�8 million gross, which was carried out in the non-life business in the first half of the year, meant that a loss was generated overall� However, this action laid the foundations for a turnaround in 2017 as it will put the German business on a stronger footing� The total volume of business grew by 1�2 per cent to CHF 1,431�2 million in the year under review� While classic life products decreased by 2�3 per cent overall, despite a very encouraging rise relating to risk products, investment-type premiums were up by 3�4 per cent� The shift towards capital-efficient life products, i�e� risk and unit-linked products, is intentional and is a strategy that has already been pursued for a number of years in Germany� It is proving very successful, and the growth in new business from the new products is more than making up for the absence of “Riester” business� The sale of the closed life insurance portfolio of Direktion für Deutschland to the Frankfurter Leben Group was approved by the relevant regulatory authorities at the start of January 2017� The sale was completed on 3 February 2017, which means that 87 employees of Basler Versicherungen in
Germany are definitely moving to the Frankfurter Leben Group� The portfolio comprises around 130,000 life insurance policies and investments amounting to some EUR 1�72 billion�
BALOISE INSURANCE BELGIUM The Belgian business continues to generate impressive growth, with premium income rising by 8�1 per cent overall to CHF 1,561�4 million� The non-life business and investment-type premiums continue to be the growth drivers in Belgium�
Owing to the interest rate-related strengthening of reserves in the life business, profit for 2016 was down on the exceptionally good prior-year figure�
In view of the low interest rates over the course of 2016, the reserves in the life business were strengthened by an amount of around CHF 50 million, which had a corresponding negative impact on profit in the life business�
In the traditional life business, the 10�8 per cent growth was predominantly the result of products for biometric risk, while classic savings products were discontinued� Investment-type premiums also generated a strong increase of 7�6 per cent, the main factor being the international life business, which is operated from Luxembourg� The growth of this business outstripped that of the market�
Baloise Group Annual Report 2016 Review of operating performance Consolidated income statement
Premiums earned and policy fees (net) 6,554.6 7,044.8 7,004.5 6,683.7 6,512.4
Claims and benefits paid (gross) – 5,449.4 – 5,439.7 – 5,666.4 – 5,352.4 – 5,664.2
Change in technical reserves (gross) – 867.7 – 1,359.4 – 1,469.5 – 1,241.9 – 669.1
Gains or losses on financial contracts – 577.8 – 368.9 – 462.6 – 0.9 – 342.9
Profit before borrowing costs and taxes 617.9 658.2 928.6 719.2 683.6
Financial instruments with characteristics of liabilities 32,513.3 32,327.1 34,461.6 33,248.4 33,766.5
Sub-total of IFRS gross premiums written 1 6,833.4 4,403.2 1,211.9 1,032.8 182.5 2016 Group Switzerland Germany Belgium Luxembourg
Sub-total of IFRS gross premiums written 1 6,711.6 4,195.1 1,222.1 1,090.6 198.3 1 Premiums written and policy fees (gross).
Baloise Group Annual Report 2016 Review of operating performance Technical income statement
Total technical result for own account 171.8 172.6 – 1,264.6 – 1,194.4
Realised gains and losses on investments 2 30.4 47.6 348.3 616.8
Profit for the period (segment result) 320.6 321.5 215.0 191.8 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 2015: CHF – 3.3 million; 31 December 2016: CHF 2.0 million).
Baloise Group Annual Report 2016 Review of operating performance Gross premiums by sector
Gross premiums written (life) 3,783.4 3,570.9 – 5.6 02_JB_Geschaeftsgang_en 32 22�03�2017 15:46:38
Net losses and impairment due to credit risk 1.1 – 1.2
Depreciation, amortisation and impairment of property, plant and equipment and of intangible assets – 10.7 – 9.4
Change in unrealised gains and losses recognised directly in equity 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties.
Baloise Group Annual Report 2016 Review of operating performance Investment performance
Policy loans and other loans 1,047.4 4,834.6 5,882.0 1,092.5 4,847.2 5,939.7 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties.
Baloise fundamentally supports these efforts and aligns itself with the position taken by the Federal Council so that it can continually improve its CSR activities� However, it believes that CSR is something that companies should take upon themselves to put into practice and that it should not be prescribed by law� With its new strategy and new focus on customers, Baloise is emphasising that aspects of sustainable business management cannot be viewed in isolation from the commercial management of a company�
Baloise was embracing the idea of corporate social responsibility long before the term became popularised� Sustainability is at the heart of everything that Baloise does� Because every day, through its insurance and pension solutions, it helps companies, economies and communities to function properly, which in turn boosts economic and social stability� The Company can look back on more than 150 years of history and since the day it was founded has been there when its customers have needed it the most� People put their trust in Baloise to look after their futures and in return expect stability, security and a sustainable approach� In life insurance, savings for old age and company pensions for SMEs, Baloise has an investment horizon that stretches several decades� It needs to offer the sort of long-term security that simply cannot be sustained by the pursuit of short-term profits alone� Baloise therefore thinks and acts on a long-term basis, examines risks that may arise in the future and mitigates these in a thorough and professional manner�
RESPONSIBILITY TO THE CUSTOMER Customer focus is central to Baloise’s new strategy� Baloise wants to be more than just an insurer� It therefore needs to take account of the wider social environment in which its customers exist� Every day employees should be asking what they can do to make the customer feel safer� To meet this requirement, services need to be available that go beyond those offered by a traditional insurer� Everything that Baloise’s employees do is geared towards enhancing safety and security� But if something does go wrong, Baloise will be on hand to help� Baloise strengthens the insurance collective through its strategy of seeking out customers who are cautious and careful and to whom safety and security are as important as they are to Baloise� But it’s not just about providing security by covering a particular risk; it’s about giving customers everyday peace of mind� Baloise wants to use the means at its disposal to help make customers’ broader environment safer�
RESPONSIBILITY TO THE SHAREHOLDER The capital that is made available to Baloise by its shareholders is invested efficiently and in their interests� Risk management, which forms an integral part of our strategic management policies, makes a significant contribution to the positioning of the Baloise Group� As a European insurer with Swiss roots, Baloise possesses a strong balance sheet and strong operational profitability, which have been optimised in terms of the risks taken and the upside potential derived from the business� Baloise’s risk management approach involves managing both risk and value at the same time� Its risk model is based on innovative standards so that it can always keep its promise of “Making you safer”� This has enabled Baloise to pursue an attractive and sustainable dividend policy for a number of years now� The strength of Baloise’s risk management approach has been independently verified by Standard & Poor’s� In 2016 the rating agency reaffirmed its assessments from the previous years of “A” with a stable outlook, explicitly strengthening the importance of risk management at Baloise in its rating�
RESPONSIBILITY TO THE ENVIRONMENT As a signatory to the declaration for the insurance industry issued by the United Nations Environment Programme, Baloise is committed to reducing its impact on the environment� The Company uses natural resources prudently and responsibly� This responsibility relates to its own energy requirements but also extends to its investments and products� CO2 emissions have been continually reduced� The Company’s focus on energy efficiency, particularly in its IT infrastructure, plays a key part in this� Employees are encouraged to use public transport wherever possible and separate their waste for recycling� Baloise also applies the latest standards in energy efficiency to its real estate� The three new buildings being erected at Baloise Park, the Company’s new headquarters in Basel, meet the standards for sustainable construction in Switzerland (SNBS) and sustainability specialists have been involved in their design from the outset� And because Baloise strives to learn from the best in everything that it does, it participates in the “environmental platform”, a business initiative of the Basel region� This platform facilitates the sharing of knowledge among businesses and supports climate protection and sustainable development through specific projects� Baloise is committed to environmental protection and is continually stepping up its efforts by launching new initiatives� Baloise reports on the progress it is making in its annual groupwide environmental audit�
→ Presenting sponsor of the Baloise Session, one of Switzerland’s biggest music festivals
→ Baloise employees work at the Company for an average of 13.4 years.
HERE ARE THE KEY POINTS OF THE EMPLOYEE FOCUS PART OF THE STRATEGY: → The Baloise Group already has a clear focus on its employees � In line with the HR strategy launched in 2014, “We add value through our people”, the Baloise Group has, in recent years, fostered a culture of constructive feed back that is characterised by respect, dialogue and continuing personal development� However, Baloise would now like to focus much more heavily on its employees so that it can be even more successful in future�
→ In 2017 a programme of beacon projects is being launched that will run until 2021 with the aim of achieving these objectives�
CHANGING THE MANAGEMENT PHILOSOPHY. UNDERSTANDING AND IMPLEMENTING THE CULTURE OF GROWTH.
DRIVERS THAT ARE LIBERATED FROM HIERACHIES: VIRAL CHANGE AND PERSONAL INITIATIVE The concept of viral change, which was deployed in 2015 in the Belgium corporate division, was used to drive change from the bottom up� This year, a select number of well-connected and highly committed individuals will be embedding within the organisation the behaviours that are necessary to implement the culture of growth� The foundation for their work was laid in 2016�
The first Baloise BarCamp took place in November 2016. The basic premise of a BarCamp is that anyone is welcome who wants to contribute, have a say in how things are done or learn something.
Baloise Hackathon → 35 Baloise employees → 4 students → 14 ideas → 30 hours → 7 functioning prototypes
The first Baloise Hackathon was held in September 2016 at a venue by Basel’s Rhine river docks. Seven functioning prototypes for new apps and products were developed at the event, which was initiated by two employees.
Baloise Group Annual Report 2016 Sustainable business management Human resources in the other’s shoes!”, “Act authentically and earn trust!” and “Develop and engage – yourself and others!” Brought together in the Baloise Leadership Compass these give employees guidance on their journey of change� They are also used in our established HR instruments, such as the three dialogue formats and the performance and talent development processes�
2� The management dialogues in which line managers get feedback from their employees are being reviewed and updated in 2017�
3� The employee engagement survey was also updated in line with the Baloise Leadership Compass in 2016� The new version of the survey was conducted on a groupwide basis for the first time in November 2016� The results will be used to derive a performance indicator that will be published regularly going forward�
→ Talent development programme for high-potential employees: every year, Baloise identifies talented young employees and key individuals, finds potential successors and agrees staff development activities� In 2016 this process was also brought into line with the management competencies of the Baloise Leadership Compass� And local measures were added that will make it easier to harness the individual potential of the talented employees who have been identified�
Bal4Kids crèche The Bal4Kids crèche at the Basel offices in Switzerland celebrated its 15th anniversary in September 2016.
Baloise is trying out new approaches in an effort to fill apprenticeship places. During two WhatsApp taster days, current commercial apprentices told schoolchildren about their day-to-day work and answered lots of questions.
Baloise Group Annual Report 2016 Sustainable business management Human resources the working hours of management staff in the inhouse sales team was introduced� In 2017 the emphasis in Switzerland will continue to be on the changing management philosophy, with a focus on approaches such as “having the courage to let go” and “trusting in employees”�
Talent development remained the focus in Belgium� Central to this was the development of managers, particularly with regard to the subject of empowerment� We also created more opportunities for talented individuals to develop and progress within the organisation� Numerous positions have already been filled by internal candidates, which shows that these efforts are beginning to bear fruit� The groupwide measures aimed at driving the change in culture were supported by local innovation training courses and initiatives� In 2017 greater emphasis is being placed on the change in culture, for which measures to encourage employees to show personal initiative are planned� Also in 2017, a management trainee programme is being introduced that is modelled on the existing programme in Switzerland�
Because of the merger with HDI-Gerling Assurances at the beginning of October 2015 Luxembourg continued to focus heavily on integration and fostering a shared corporate culture in 2016� In addition, considerable attention is being focused on the development of talented individuals through the creation of a dedicated training department and a mentoring programme� This focus will be maintained in 2017 with efforts to increase the national and international mobility of talented individuals�
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
In 1995, Baloise became one of the first insurers to sign the insurance industry declaration on sustainable development formulated by the United Nations Environment Programme (UNEP). It drew up its own environmental guidelines in 1999 in order to give concrete form to this gener al commitment. From the outset, it was deemed important to embed sustainability throughout the Company and in all day-to-day business activities. What are Baloise’s sustainability principles? Which issues take greatest priority? And what are the key principles? The sustainability guidelines adopted in 1999 provide a framework for action and form the basis of all environmental and social activities at Baloise.
STAFF AND PUBLIC Baloise trains its employees with regard to environmental matters and raises their awareness of the relevant issues� Its employees are aware of the ecological targets and the most important initiatives for achieving them� They are kept regularly informed about the implementation of the environmental mission statement and encouraged to suggest measures of their own� Baloise works hand in hand with other companies, organisations and public authorities in finding solutions to environmental problems � It particularly encourages the sharing of information with other insurance companies, maintains an open dialogue with the public and regularly reports on environmental projects and what has been achieved�
ENERGY EFFICIENCY AT BALOISE The total energy and resource consumption revealed by the environmental audit shows the amounts used by the Baloise Group’s large office buildings and its computer centres� The figures reported relate to the energy and resources used by 72�5 per cent of the 7,300 people working for the Baloise Group� Consumption of energy for heating and consumption of electricity per employee were each reduced by a further 8�2 per cent�
2014 absolute 2015 absolute 1 2016 absolute Relative Unit + / – %
Electricity consumption 19,983,267 kWh 19,866,588 kWh 18,236,089 kWh 3,447 kWh / employee – 8.2
Heating consumption 9,327,534 kWh 8,821,860 kWh 10,380,219 kWh 76 kWh / m2 17.7
Copy paper consumption 73.5 million A4 sheets 68.7 million A4 sheets 76.0 million A4 sheets 14,341 A4 sheets / employee
Types of refuse 43.0 % paper / cardboard 10.0 % other materials 2.0 % special waste 45.0 % misc. waste / refuse
Business travel 19.0 million km 19.1 million km 18.4 million km 3,486 km / employee – 3.6
Mode of transport 28.5 % km by air 41.6 % km by road 29.9 % km by public transport 1 The 2015 figures for “Employees” and “Energy reference area” were adjusted in 2015 due to a mistake in consolidation.
BALOISE IS BUILDING SUSTAINABLE OFFICES THAT WILL APPEAL TO EMPLOYEES AS WELL AS A STATE-OF-THE-ART HOTEL. In a project scheduled for completion in 2020 Baloise is erecting three new buildings at its headquarters in Basel� The buildings are to be the defining landmark of the train station district and reflect Baloise’s commitment to the city� The tower block being built on Aeschengraben, which will be around 90 metres in height, will mainly be occupied by a new hotel� The top seven floors will be rented out as office space� Baloise is basing its designs for the buildings on the standards for sustainable construction in Switzerland (SNBS), which means it will comfortably exceed the legal requirements in terms of energy efficiency � An efficient energy centre will provide power for all three buildings, which will be heated by 100 per cent renewable district heating�
ONCE AROUND THE WORLD WITH SOLAR POWER Since 2015, Baloise customers and employees have been able to charge their electric vehicles at Baloise’s company headquarters using solar power� The facility, which does not cost anything to use, has proved very popular� In 2016 enough solar-generated electricity was drawn from the “pumps” to power a total of around 45,000 kilometres – equivalent to one emission-free trip around the globe� Since 2016 customers and employees have also been able to charge their electric vehicles for free at the Zurich site� Among their number are the Company’s loss assessors, who use eco-friendly electric bikes to get to local incidents�
RISK GOVERNANCE AND RISK CULTURE The development and expansion of risk governance and risk culture has a long tradition at Baloise� It is constantly working to enhance this culture across the entire organisation� Designated risk owners and risk controllers dealing with specific risk issues are as much a part of this culture as committees that meet regularly to discuss risks� At the same time, Baloise’s risk models and processes are continually refined� The internal control system (ICS) and the compliance function are further major planks of this strategy�
The Company’s enterprise risk management was once again awarded Standard & Poor’s excellent “strong” rating in 2016� This puts it among the top 15 per cent of all European insurance companies�
Risk management at Baloise is a standardised strategic and operational system that is applied throughout the Group and covers the following areas: → Risk map: this forms the backbone of Baloise’s risk strategy and defines the fundamental risk issues, such as actuarial and market risk as well as the operational risk arising from business activities�
→ Risk processes: the organisation of risk and its pertinent standards are key aspects of risk management and operate in tandem with reporting, management and evaluation processes�
Baloise’s risk management is one of the main pillars of its business model 03_JB_Nachhaltige_Geschaeftsfuehrung_en 52 22�03�2017 14:57:07
The Group Risk Committee and the local risk committees in each business unit – which comprise members of the Corporate Executive Committee and of the local senior management teams respectively – decide how the risk strategy is developed and designed and how the pertinent policies are implemented in day-to-day business� Bodies specially set up to examine specific risk areas such as asset / liability management, compliance, IT risk and the use of reserves also compile submissions for the committees to facilitate their decision-making on these issues� The Group Risk Management team works closely with the local risk experts� This inclusive risk organisation approach provides Baloise with a platform for sharing and constantly refining best practice� Group Risk Management is responsible for: → developing consistent, mandatory risk models for the entire Baloise Group; → monitoring groupwide standards; → reporting risks; → complying with risk processes and procedures; → communicating with external partners such as auditors, corporate supervisory bodies and credit rating agencies� The business units are responsible for local implementation of the standards and requirements specified by the Baloise Group� Overall responsibility lies with the Baloise Group’s Chief Financial Officer, followed by its Chief Risk Officer�
In addition to this holistic risk model, Baloise uses the risk map to identify, describe and evaluate specific risks in terms of their likely impact on its operating profit or loss� Baloise’s corporate database of specific risks – which contains a detailed description of the risks concerned, their classification on the risk map, and early-warning indicators – is generated from this standardised process� Baloise uses quantitative methods to supplement this description by measuring these risks’ probable financial impact on the Company’s balance sheet� Each risk is documented together with the measures needed to mitigate it� The database is updated every six months�
This combination of a holistic risk model with analysis of specific risks ensures that Baloise maintains an adequate overview of the prevailing risk situation at all times�
→ Appropriate reporting procedures are used to monitor market risk and financial-structure risk across all business units� In addition to upper limits on equity exposures, for example, there are clear and binding guidelines on bond ratings� The applicable “Basel” approach and advanced statistical methods are used to assess credit risk� In addition, risk analysis is used to regularly monitor the overall solvency position�
STRATEGIC RISK MANAGEMENT The internal risk model, which uses standard methods to quantify all business risks and financial market risks, forms the basis for strategic discussions about Baloise’s risk appetite� The capital requirements derived from this model constitute minimum requirements for Baloise’s “actual” capital�
OUR PROFESSIONAL RISK MANAGEMENT DEMONSTRATED ITS PROVEN STRENGTHS IN 2016 Baloise’s risk strategy principles are designed for the long term, as shown by the Company’s excellent risk positioning in 2016� Proof positive of this situation was again the Baloise Group’s positive Standard & Poor’s rating of “A” with a stable outlook and the upgrading of the significance of the enterprise risk management to “high”�
→ Baloise’s underwriting business has proved to be highly consistent, with the Baloise Group’s net combined ratio of 92�2 per cent demonstrating its excellent capabilities in underwriting and managing non-life risk�
Baloise Group Annual Report 2016 Sustainable business management Commitment to art
Baloise displays its collection in foyers and corridors, meeting rooms and offices, with a large number of works on show in publicly accessible reception rooms at its group headquarters � The new building in Baloise Park, which will be completed in 2020, will also offer this opportunity to display art�
New acquisitions for the collection are made by the Baloise art commission, which comprises six art-loving employees and one external advisor� The items are purchased proactively on an ongoing basis�
After the announcement at a press conference both the winners and the galleries receive great attention at this event of global significance�
Every year, the company spends around a quarter of a million Swiss francs on prize money, acquisitions of works and funding for art statements (on the condition that the galleries may only exhibit one position), and on arranging for works by winners of its art prize to be exhibited at museums� No other art prize offers this combination, making the Baloise Art Prize a coveted and prestigious award�
Operating in line with the requirements of the Swiss Code of Best Practice and the SIX Corporate Governance Guidelines, Baloise strives to foster a corporate culture of high ethical standards that emphasises the integrity of the Company and its employees � Baloise is convinced that high-quality corporate governance has a positive impact on its long-term performance� The Company therefore rapidly and transparently implemented the requirements under the Swiss Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO)�
→ The Baloise Group’s operational management structure is presented on page 74�
Cross-shareholdings There are no cross-shareholdings based on either capital ownership or voting rights�
Authorised and conditional capital; other financing instruments Authorised capital A resolution adopted by the Annual General Meeting on 30 April 2015 has authorised the Board of Directors until 30 April 2017 to in- crease the Company’s share capital by up to CHF 500,000 by issuing up to 5,000,000 fully paid-up registered shares with a par value of CHF 0�10 each (see article 3 [4] of the Articles of Association)�
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�
Credit rating On 11 August 2016, credit rating agency Standard & Poor’s confirmed Baloise Insurance Ltd’s rating of “A” with a stable outlook� S & P awarded this rating in recognition of Baloise’s very strong capitalisation, its excellent operational profitability and its solid competitive position in its core markets� The agency also rated the firm’s risk management as strong� The rating was awarded to Bâloise Holding Ltd’s Swiss subsidiary, Baloise Insurance Ltd, which is a core company of the Baloise Group�
All existing members of the Board of Directors are to stand for election at the 2017 Annual General Meeting, with the exception of Dr Michael Becker, who is not putting himself forward for re-election� Dr Becker has been a member of the Board of Directors and of the Audit Committee (now known as the Audit and Risk Committee) since 2010 and was a member of the Investment Committee from 2012 until 2016� He has provided outstanding service to the Baloise Group�
Baloise Group Annual Report 2016 Corporate Governance Corporate Governance Report of Directors of all three companies since March 2015� Before that, he had worked for Goldman Sachs in Zurich, Frankfurt and London for around ten years and had been the interim Head of Investment Banking and Head of Corporate Finance for the Vontobel Group in Zurich between 2002 and 2006� He will be an independent non-executive director�
Dr Andreas Burckhardt, Chairman (since 2011), Basel C C CH 1951 1999
Werner Kummer, Vice-Chairman (since 2014), Küsnacht VC C CH 1947 2000
Prof. Dr Marie-Noëlle Venturi - Zen-Ruffinen n.a. n.a. x x x x = present, 0 = absent, n.a. = not applicable. All members were attending the respective committee meetings.
Article 716a of the Swiss Code of Obligations (OR) and clause A3 of the Organisational Regulations state that the Board of Directors’ main functions and responsibilities are to act as the Company’s ultimate managerial and supervisory body, to oversee the Company’s finances and to determine its organisational structures�
The committees appointed by the Board of Directors generally consist of four members, who are newly elected every year by the Board of Directors� Since 2015, article 7 ERCO has required the members of the Remuneration Committee to be elected by the Annual General Meeting� 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� Additional specific regulations applicable to individual committees also govern administrative and other aspects�
Functions and responsibilities of the committees The Chairman’s Committee provides advice on key transactions, especially those involving important strategic or personnelrelated decisions� The Chairman’s Committee also performs the function of a Nominations Committee and prepares personnelrelated matters that fall within the remit of the Board of Directors for subsequent approval by the latter�
The Audit and Risk Committee supports the Board of Directors in its non-delegable overarching supervisory and financial oversight functions (article 716a OR) by ascertaining whether the internal and external control systems, including risk management, are well organised and function properly, by assessing the situation with respect to compliance in the Company and by forming its own view of the Company’s separate and consolidated annual financial statements� It receives regular reports on the work and findings of Group Internal Audit and on cooperation with the external auditors�
The full Board of Directors of Bâloise Holding met on five occasions in 2016� The table on page 63 shows Board of Directors members’ attendance at these meetings� All members of the relevant committee in each case attended every one of the additional 18 committee meetings� This means that the Board of Directors achieved an overall meeting attendance rate of 100 per cent� The Board of Directors held a seminar for the purpose of training its members� Meetings of the Board of Directors and its committees usually last half a working day each�
The Chairman’s Committee convened nine times in 2016, which included one two-day strategy meeting� The Investment Committee met on three occasions� The Audit and Risk Committee held four meetings, and the Remuneration Committee convened twice�
Meetings of the Board of Directors are regularly attended by members of the Corporate Executive Committee� Meetings of the Chairman’s Committee are usually attended by the Group CEO and the Chief Financial Officer� Those present at Audit and Risk Committee meetings are primarily the Chief Financial Officer, the Head of the Corporate Centre, the Head of Group Internal Audit and, occasionally, representatives of the external auditors, the Chief Risk Officer and the Group Compliance Officer� The main attendees at Remuneration Committee meetings are the Group CEO, the Head of the Corporate Centre and the Head of Group Human Resources� Meetings of the Investment Committee are usually attended by the Group CEO, the Chief Investment Officer and the Heads of Investment Strategy and Investment Control, Baloise Asset Management and Real Estate� The Secretary to the Board of Directors attends the meetings of the full Board of Directors and those of its committees�
Effective risk management is essential for any insurance group� This is why Baloise has devoted two entire chapters to the subject of financial risk management from page 52 onwards and in the Financial Report section starting on page 139�
Hugo Lasat (1964, Belgium, Master in Economic Sciences, Master in Finance) has sat on the Board of Directors since 2016� He has been CEO of Brusselsbased Degroof Petercam Asset Management (formerly Petercam Institutional Asset Management) since 2011� His managerial roles prior to that include CEO of Amonis Pension Fund and CEO of Candriam In vestors Group (previously known as Dexia Asset Management)� He is a guest professor at Hogeschool Universiteit Brussel (HUBrussel) and VIVES University College, Chairman of the Belgian Asset Management Association (BEAMA) and a member of the Board of Directors of the Belgian Financial Sector Federation (Febelfin)� He is also a member of the Financial Committee of the Belgian Red Cross and the Financial Committee of the King Baudouin Foundation� Mr Lasat is an independent, non-executive director�
Secretary to the Board of Directors: Dr Philipp Jermann, Buus (BL)
Gert De Winter (1966, Belgium, MSc) studied applied economics at the University of Antwerp� From 1988 to 2004 he performed various roles at Accenture in Brussels for issues relating to IT and business transformation management in the financial sector� He was made a partner at the firm in the year 2000� In 2005 he joined the Baloise Group as Chief Information Officer (CIO) and Head of HR of the Mercator insurance company in Belgium� From 2009 to 2015 Gert De Winter was Chief Executive Officer of Baloise Insurance, which was formed in 2011 from the merger of the three insurance companies Mercator, Nateus and Avéro� He has been Group Chief Executive Officer since 1 January 2016� Since June 2016 he has been a member of the Management Board of the Basel Chamber of Commerce�
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 Group Accounting & Finance, Corporate Communications & Investor Relations, Group Risk Management, and Corporate IT� The actuary responsible for Baloise’s business in Switzerland and the Head of Regulatory Affairs also report to German Egloff� He has been a member of the Board of Directors of Absolutum AG, Bern, since 2016� On 13 October 2016 German Egloff announced that he will be stepping down from the Corporate Executive Committee with effect from 30 April 2017� The Board of Directors of Bâloise Holding Ltd appointed Dr Carsten Stolz as his successor� Dr Stolz has worked for Baloise since 2002� He has been Head of Finance and Risk and thus a member of the Executive Committee of Basler Versicherungen Switzerland since 2011�
Michael Müller (1971, Switzerland, lic� oec� publ�) graduated in economics from the University of Zurich, specialising in insurance and accounting / finance� He began his career with Basler Versiche rungen in 1997, starting as a management trainee, then working in Group Finance and eventually becoming Deputy Head and, in 2004, Head of Financial Accounting for the Baloise Group� In 2009, as Head of Finance and Risk, he became a member of the senior management team in Corporate Division Switzerland, focusing on financial reporting and accounting, actuarial management of the insurance companies, risk management and coordination of logistics processes and the pool of project leaders� He has been a member of the Corporate Executive Committee and CEO of Corporate Division Switzerland since March 2011� Michael Müller is a member of the Board of Foundation of Stiftung Finanzplatz Basel and a member of the Management Board of the Swiss Insurance Association (SVV)�
Thomas Sieber (1965, Switzerland, Dr iur�, M�B�L�, lawyer, SDM mediator) studied law at the University of St� Gallen� At the beginning of 1994 he qualified to practise as a lawyer in the Swiss canton of Zurich� From 1999 to 2002 he lec tured in corporate law at the University of St� Gallen� After brief spells working at Landis & Gyr and Siemens he joined the Baloise Group in 1997 as Deputy Head of Legal & Tax� He became head of this division in 2001 and, in addition, was secretary to Bâloise Holding’s Board of Directors until April 2012� Since 6 December 2007 Dr Sieber has been a member of the Corporate Executive Committee and, as Head of the Corporate Centre, is responsible for Group Human Re - sources, Group Strategy and Digital Transformation, Legal and Tax, Group Compliance, Group Procurement and Runoff Business� He also sits on the Board of Directors at Euro Airport Basel-Mulhouse-Freiburg�
Basic salary → Aim for a position around the market median → Reflection of the responsibilities of the role and the individual’s long-term performance
Short-term variable remuneration → Influencing factors: the individual’s performance and the Company’s economic value added → Designed to incentivise staff to achieve outstanding results
Long-term variable remuneration → Supports the Company’s long-term development → Gives the top level of management a greater stake in the performance of the Company
2 The performance pool (PP) is the component of short-term variable remuneration that depends on the Company’s performance: The Remuneration Committee of the Board of Directors assesses the Company’s performance and success during the past financial year. The performance pool factor is the ratio of the pool to its target value.
Overview of ended and current plans (as at 31 December 2016) 2010 to 2016 plans
Short-term variable remuneration (comprising share-based and cash payments from the performance pool)
Baloise Group Annual Report 2016 Corporate Governance Remuneration Report 5. REMUNERATION REPORT: REMUNERATION, SHARE OWNERSHIP AND LOANS GRANTED TO MEMBERS OF THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE This remuneration report relates to the 2016 financial year� It describes the remuneration policies adopted and the remuneration systems in place, and it discloses the remuneration paid to the Board of Directors and the Corporate Executive Committee in 2016� The content and scope of these disclosures are determined by articles 13 to 17 of the Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO), article 663c (3) of the Swiss Code of Obligations (OR), the corporate governance information guidelines published by the SIX Swiss Exchange, the Swiss Code of Best Practice for Corporate Governance, and circular 10 / 1 of the Swiss Financial Market Supervisory Authority (FINMA) concerning remuneration systems�
The Remuneration Committee’s main functions and responsibilities are to: → submit proposals to the Board of Directors on the structure of remuneration to be paid in the Baloise Group, especially the remuneration to be paid to the Chairman and members of the Board of Directors and to the members of the Corporate Executive Committee; → submit proposals to the Board of Directors – for approval by the Annual General Meeting – on the amount of remuneration to be paid to the Chairman and members of the Board of Directors and to the members of the Corporate Executive Committee; → approve the basic salaries and the variable remuneration paid to individual members of the Corporate Executive Committee (in compliance with the pay caps stipulated by the Annual General Meeting); → 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 which in individual cases exceed CHF 100,000 (subject to the proviso that no severance packages may be granted to members of the Board of Directors or the Corporate Executive Committee)�
The Remuneration Committee consists of at least three independent members of the Board of Directors, who are elected every year by the Annual General Meeting� Thomas Pleines (Chairman), Karin Keller-Sutter (Deputy Chairwoman), Dr Georges-Antoine de Boccard and Prof� Dr Marie-Noëlle Venturi - Zen-Ruffinen were elected to the Remuneration Committee by the Annual General Meeting on 29 April 2016� The Remuneration Committee maintains an intensive dialogue with senior management throughout the year and generally meets at least twice annually� In addition to the committee secretary being present, these meetings are usually also attended by the Group CEO, the Head of the Corporate Centre and the Head of Group Human Resources, who participate in an advisory capacity� The individual members of the Group Executive Committee leave the meeting if the Remuneration Committee is discussing or deciding on their personal remuneration � The Chairwoman of the Remuneration Committee reports to the Board of Directors at its next meeting on the committee’s activities�
Performance management system Baloise introduced a new performance management system for short-term variable remuneration in 2011� In order to encourage employees to focus relentlessly on performance and results while also taking account of the Company’s success, this system comprises two clearly distinct tools: performance-related remuneration and the performance pool� Performance-related remuneration is used to reward individual employees’ achievements, while the performance pool as a whole takes account of the Company’s performance and value added�
The members of the Corporate Executive Committee are not entitled to performance-related remuneration� Their individual performance is factored into the allocation of payments from the performance pool�
Market comparisons Baloise regularly compares the salaries paid to its senior executives with those paid in the wider market� The Corporate Key Position Benchmark survey conducted by Kienbaum uses function -specific peer groups� Each function being compared is assigned to one of three distinct peer groups� Assignment is based on which companies Baloise is competing against for the skill-sets and qualifications needed for each function (i�e� recruitment market) and which alternative employers – in theory, at least – meet a certain function profile (i�e� competitors)�
Baloise Group Annual Report 2016 Corporate Governance Remuneration Report 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 directly by the profitability of the unit being monitored or by the profitability of individual products or 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 and the importance of his or her function� Those entitled to 04_JB_Corporate_Governance_en 81 22�03�2017 14:58:00
Baloise Group Annual Report 2016 Corporate Governance Remuneration Report receive performance-related remuneration are the most senior management level in the Baloise Group (except for the members of the Corporate Executive Committee), the majority of senior managers in Switzerland and the corresponding functions abroad�
→ Risks taken The indicators used to gauge the success of the Company’s business from a risk perspective are the Solvency I ratio, the Swiss Solvency Test (SST) ratio, economic profit, the credit rating awarded by Standard & Poor’s, and assessments provided by the Chief Risk Officer and the Head of Group Compliance�
The assessments by the Chief Risk Officer and the Head of Group Compliance of the risks taken and the evaluations by the Head of Group Human Resources and others of strategy implementation are also based on qualitative criteria and non-financial indicators such as senior managers’ risk behaviour, compliance with procedures and regulations and the practising of a genuine compliance culture, the effectiveness of the internal control system, and the efforts made in respect of talent management and staff engagement�
For the 2016 financial year the Remuneration Committee decided on a factor of 107 per cent of the normally expected value of performance pool payments� This decision was motivated by the following considerations: → A substantial profit for the period overall – higher than the budgeted figure despite the strengthening of reserves in Germany and the current environment of low interest rates; → Confirmation of the good risk position; → Above-average share price performance; → Successful start to implementation of the Simply Safe strategy�
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� Programme participants receive more shares in exchange for their PSUs if Baloise shares outperform their peer group� The multiplier reaches the maximum of 1�5 if the per-
Participants receive the pertinent number of shares once the vesting period has elapsed, which means that for the PSUs allocated in 2016 they receive their shares on 1 March 2019� If an individual’s employment contract is terminated during the vesting period, the PSUs expire without the person concerned receiving any consideration or compensation� This does not apply if the employment contract ends due to retirement, disability or death� It also does not apply if the contract is terminated but the programme participant does not join a rival company or is not personally at fault for the termination of the contract� In the latter two cases, some of the allocated PSUs will still expire� The number of PSUs expiring is proportional to the amount of time remaining until the end of the vesting period� In addition, the Remuneration Committee has the powers to claw back some or all of the PSUs allocated to an individual or to a group of programme participants if there are specific reasons for doing so� Such specific reasons include, for example, serious breaches of internal or external regulations, the taking of inappropriate risks that are within an individual’s control, and the type of conduct or behaviour that would increase the risks to Baloise�
Measurement of the PSUs at their issue date is based on a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period� This measurement incorporates the following parameters: → interest rate of 1 per cent; → the volatilities of all shares in the peer group and their correlations with each other (measured over a three-year track record); → 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
5.5 Employment contracts, change-of-control clauses, inducement payments and severance packages The employment contracts of senior managers in Switzerland and – in most cases – in other countries as well have been concluded for an indefinite period� They stipulate a notice period of six months� All members of the Corporate Executive Committee have a notice period of twelve months� The employment contract with the Chairman of the Board of Directors does not stipulate any notice period; its duration is determined by the term of appointment and by law� There are no change-of-control clauses�
5.6 Share Subscription Plan and Share Participation Plan Two plans are available to individuals who wish to subscribe for shares as part of their short-term variable remuneration: the Share Subscription Plan and the Share Participation Plan�
The parameters used to determine the subscription price are decided each year by the Remuneration Committee� The subscription price is based on the closing price before the first day of the subscription period, on which a discount of 10 per cent is granted (please refer to the accompanying table for details)� Once it has been calculated using this method, the subscription price is published in advance on the intranet� The shares needed for the Share Subscription Plan are purchased in the market as and when required�
(applies to the variable remuneration granted for 2015 and to the shares subscribed by the Chairman and members of the Board of Directors in 2016)
In order to increase the impact of this Share Participation Plan, employees are granted loans on which interest is charged at market rates, which enables them to subscribe for shares whose value constitutes a multiple of the capital invested; these shares are purchased at their fair value net of discounted dividend rights over a period of three years� Repayment of these loans after the three-year closed period has elapsed is hedged by put options, which are financed by the sale of offsetting call options� If the price of the shares is below the put options’ strike price when the closed period expires, programme participants can sell all their shares at this strike price, which ensures that they can repay their loans plus interest� In this event, however, they lose all the capital that they have invested� If, on the other hand, the price of the shares is above the call options’ strike price, programme participants must pay the commercial value of these options� Their upside profit potential is thus limited by the call options� If, when the three-year closed period elapses, the price of the shares is between the put options’ strike price and the call options’ strike price, once the loans plus accrued interest have been repaid the employees concerned receive the remaining shares to do with as they wish�
Baloise Group Annual Report 2016 Corporate Governance 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 of Bâloise Holding Ltd – usually once a year – at a preferential price in compliance with the regulations adopted by the Board of Foundation� This encourages employees to maintain their commitment to the Company over the long term by becoming shareholders� The subscription price is fixed by the Board of Foundation at the beginning of the subscription period and is then published on the intranet� It equals half of the volumeweighted average share price calculated for the month of August in each subscription year� In 2016 the subscription price amounted to CHF 56�40 (2015: CHF 60�40) and a total of 183,678 shares were subscribed (2015: 172,796)� Title to the subscribed shares passes to the relevant employees with effect from 1 September each year, and the shares are subject to a three-year closed period�
The members of the Corporate Executive Committee are insured under the pension scheme run by Baloise Insurance Ltd� They are subject to the same terms and conditions as all other insured office-based members of staff� Until May 2016, the pension contributions were also paid on behalf of the Chairman of the Board of Directors, who is also insured� Since June 2016, he has not been entitled to have contributions paid to the pension fund, nor have such contributions been paid to him�
Baloise Group Annual Report 2016 Corporate Governance Remuneration Report 5.9 Rules stipulated in the Articles of Association Certain rules governing remuneration are stipulated in the Articles of Association: → Article 30 Additional amount for the remuneration paid to Corporate Executive Committee members appointed since the last Annual General Meeting
The Chairman of the Board of Directors performs his various functions on a full-time basis, in return for which he is paid a fixed amount of remuneration� He is not entitled to any variable remuneration and, consequently, he receives no performancerelated remuneration, no performance pool payments and no allocation of PSUs� He is paid roughly a quarter of his remuneration in the form of shares, although he is free to choose each year how many shares he receives under the Share Subscription Plan and the Share Participation Plan respectively� The shares that he receives under the Share Subscription Plan are subject to a closed period of five years (instead of the usual three years)�
Since 2006 the members of the Board of Directors have received 25 per cent of their annual remuneration in the form of shares that are restricted for three years� Members of the Board of Directors receive a 10 per cent discount on the shares’ market price in line with the Share Subscription Plan available to senior executives� The members of the Board of Directors do not participate in any share ownership programmes that are predicated on the achievement of specific performance targets�
The short-term variable remuneration paid to the members of the Corporate Executive Committee is allocated from the performance pool� The individual performance of each member in achieving the Company’s objectives is factored into the measurement of the performance pool� The expected performance pool value amounts to 60 per cent of basic salary� Even in cases of outstanding individual performance and excellent performance by the Company as a whole, this payment cannot exceed 90 per cent of basic salary (cap of 150 per cent of the expected value)�
The members of the Corporate Executive Committee receive performance share units (PSUs) as a form of long-term variable remuneration, which is expected to account for 40 per cent of basic salary� This system complies with Swiss legislation and meets the European standard, which stipulates that the ratio of fixed to variable remuneration should normally be one-to-one (Capital Requirements Directive IV)�
In addition, the Annual General Meeting held on 29 April 2016 passed binding votes in which it set a cap on the variable remuneration payable for 2016 and the amount of fixed remuneration to be paid for 2017�
The Corporate Executive Committee members’ remuneration is disclosed on pages 94 to 97 in accordance with the accrual principle� The table includes all forms of remuneration awarded for performance in 2016 even if individual components are not paid until a later date�
The total remuneration paid to the Corporate Executive Committee for 2016 was lower than in the previous year (sum total of basic salary plus variable remuneration down by 4�4 per cent)� This can be attributed to several factors: → Upon Jan De Meulder’s retirement in 2015, the Corporate Executive Committee decreased from six to five members�
5.12 Loans and credit facilities Please refer to the table on page 98�
5.14 Amounts of total remuneration and variable remuneration Please refer to the table on page 101�
Explanatory notes to the table Remuneration paid to former members and related parties No remuneration on a non-arm’s-length-basis was paid to individuals or companies who are related to members of the Board of Directors. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Shares 25 per cent of contractually agreed overall remuneration is paid in shares which remain restricted for three years. They are recognised at market value less 10 per cent (CHF 114.75, in line with the Share Subscription Plan). Shares received by the Chairman of the Board of Directors amounted to 1,359 shares in connection with the Share Subscription Plan (CHF 155,945, with a closed period of five years instead of the usual three years) and 1,384 shares in connection with the Share Participation Plan (CHF 155,995).
Explanatory notes to the table Remuneration is disclosed in accordance with the accrual principle. The table includes all forms of remuneration awarded for performance in 2014 even if individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions, etc. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length basis was paid to companies or individuals who are related to members of the Corporate Executive Committee. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Share Subscription Plan Proportion of variable remuneration received directly as shares, which are measured at market value less 10 per cent markdown. Subscription price = CHF 109.26. Share Participation 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 106.59. Performance share units (PSUs) These have been disclosed at their value of CHF 121.20 at the grant date and measured using a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period.
Total for the Corporate Executive Committee 4,039,262 1,019,881 11,073 1,209,836 1,670 178,005 13,416 1,626,019 12,743 4,033,741 8,073,003 100 % 81,509 1,094,828 9,249,340
Non-cash benefits Based on all remuneration elements required to be declared on the Swiss salary certificate, including long-service awards, taxable benefits relating to shares received in connection with the Employee Incentive Plan (maximum of 100 shares per annum), accommodation costs and non-cash benefits (use of a company vehicle) granted to a Corporate Executive Committee member residing abroad. Pension benefits These comprise the estimated employer contributions to the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund or, alternatively, a compensatory payment in lieu of employer and employee contributions to the Swiss social security scheme and the pension fund (neither of these is payable if the person concerned is working outside Switzerland) and maintenance of disability insurance cover in the home country of a Corporate Executive Committee member residing abroad.
Total for the Corporate Executive Committee 3,966,833 934,246 10,172 1,183,716 2,159 247,148 11,050 1,433,738 12,331 3,798,848 7,765,681 96 % 16,732 1,063,821 8,846,234
Total for the Board of Directors 0 0 2,674,203 2,623,656 0 0 2,674,203 2,623,656
Head of Corporate Division Switzerland 9,708 16,209 9,931 8,248 19,639 24,457 0.039 % 0.049 % 7,371 6,259
In cash In shares Prospective entitlements Total In cash In shares Prospective entitlements Total
Debits / credits for remuneration for previous reporting periods recognised in profit or loss
Explanatory notes to the table The table includes all forms of remuneration awarded for each year even if individual components are not paid until a later date. Total remuneration All taxable benefits that the financial institution provides to persons directly or indirectly for the work they have performed for it in connection with their employment or directorship. They include cash payments, non-cash benefits, expenditure that creates or increases entitlements to pension benefits, pensions, allotment of shareholdings, conversion rights and warrants, and debt waivers. Variable remuneration Part of total remuneration, the amount or payment of which is at the discretion of the financial institution or which depends on the occurrence of agreed conditions. It includes performance-related and profit-based remuneration such as fees and commissions. Inducement and severance payments also fall under the definition of variable remuneration. Total pool All the variable remuneration that a financial institution allocates for a year regardless of its form, any contractual undertaking in respect of grant dates or payout dates and any terms and conditions attached. Inducement and severance payments made in the relevant year should be included in the total pool. Inducement payment One-off payment agreed when an employment contract is signed. Payments to compensate for lost entitlement to remuneration from a former employer also count as inducement pay. Severance payment Remuneration agreed in connection with the termination of an employment contract. Severance packages are paid only in individual justified cases and are granted only to management team members and to employees, but not to members of either the Board of Directors or the Corporate Executive Committee.
We have audited the remuneration report of Bâloise Holding AG (pages 78 - 101) for the year
Board of Directors’ responsibility The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration report in accordance with Swiss law and the Ordinance. The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.
Other Matter The remuneration report of Bâloise Holding AG for the year ended 31 December 2015 was examined by another statutory auditor who expressed an unmodified opinion on the remuneration report on 18 March 2016.
Powers of attorney and voting instructions may also be given to an independent proxy electronically without requiring a qualifying electronic signature (article 16 [2] of the Articles of Association)�
Convening the Annual General Meeting The Annual General Meeting generally takes place in April, but must be held within six months of the end of the previous financial year� Bâloise Holding’s financial year ends on 31 December� The Annual General Meeting is convened at least 20 days before the date of the meeting� Each registered shareholder receives a personal invitation, which includes the agenda� The invitation and the agenda are published in the Swiss Official Gazette of Commerce, in various newspapers and on the internet�
Baloise Group Annual Report 2016 Corporate Governance Corporate Governance Report 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 Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FinfraG)�
8. EXTERNAL AUDITORS The external auditors are elected annually by the Annual General Meeting� Ernst & Young AG (EY), Basel, have been the external auditing firm for Bâloise Holding since 2016� Stefan M� Schmid has held the post of auditor-in-charge since 2016� In accordance with article 730a (2) OR, the role of auditor-in-charge is rotated every seven years� EY is the external auditing firm for almost all Group companies�
Audit fees paid to EY (2015: PwC) include fees for engagements with a direct or indirect connection to a particular audit engagement and fees for audit-related activities (namely, the MCEV Review, ISAE 3401 reports and statutory and regulatory special audits)�
The performance of the external auditors and their interaction with Group Internal Audit, Risk Management and Compliance are assessed by the Audit and Risk Committee� The Audit and Risk Committee’s discussions with the external auditors focus on the audit work the latter have undertaken, their reports and the material findings and most important issues raised during the audit�
9. AMENDMENTS TO THE ARTICLES OF ASSOCIATION SUBMITTED TO THE 2017 ANNUAL GENERAL MEETING The Board of Directors will ask the Annual General Meeting on 28 April 2017 to cancel 1,200,000 shares at CHF 0�10 par value each and to thereby reduce the share capital by CHF 120,000 to CHF 4,880,000 (amendment to article 3 [1] of the Articles of Association), and to extend the term of the authorised capital of CHF 500,000�00 to 30 April 2019 (amendment to article 3 [4] of the Articles of Association)�
→ Shareholders are informed about business during the year at the Annual General Meeting�
→ At its regular Investor Days, the Company presents its corporate strategy and targets as well as any other matters relevant to its business� The documents used for this and the recording of the event are made publicly available on various media�
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.
NOTES TO THE CONSOLIDATED BALANCE SHEET ������������������� 188 8� Property, plant and equipment ���������������������������������������������� 188 9� Intangible assets ���������������������������������������������������������������������������� 190 10� Investments in associates ���������������������������������������������������������� 193 11� Investment property ������������������������������������������������������������������� 195 12� Financial assets ������������������������������������������������������������������������������ 196 13� Mortgages and loans ������������������������������������������������������������������� 202 14� Derivative financial instruments ������������������������������������������ 203 15� Receivables ��������������������������������������������������������������������������������������� 204 16� Reinsurance assets ����������������������������������������������������������������������� 205 17� Receivables from reinsurers ���������������������������������������������������� 205 18� Employee benefits ������������������������������������������������������������������������� 206 19� Deferred income taxes ��������������������������������������������������������������� 218 20� Other assets ������������������������������������������������������������������������������������� 220 21� Non-current assets held for sale and discontinued operations ��������������������������������������������������� 221 22� Share capital ������������������������������������������������������������������������������������ 222 23� Technical reserves (gross) �������������������������������������������������������� 223 24� Liabilities arising from banking business and financial contracts ���������������������������������������������������������������� 232 25� Financial liabilities ���������������������������������������������������������������������� 233 26� Provisions ����������������������������������������������������������������������������������������� 234 27� Insurance liabilities ��������������������������������������������������������������������� 234
NOTES TO THE CONSOLIDATED INCOME STATEMENT ���������� 236 28� Premiums earned and policy fees ����������������������������������������� 236 29� Income from investments for own account and at own risk ��������������������������������������������������� 236 30� Realised gains and losses on investments ������������������������� 237 31� Income from services rendered ��������������������������������������������� 241 32� Other operating income ������������������������������������������������������������ 241 33� Classification of expenses ��������������������������������������������������������� 242 34� Personnel expenses ���������������������������������������������������������������������� 242 35� Gains or losses on financial contracts �������������������������������� 243 36� Income taxes ����������������������������������������������������������������������������������� 244 37� Earnings per share ����������������������������������������������������������������������� 245 38� Other comprehensive income ������������������������������������������������� 246
OTHER DISCLOSURES ������������������������������������������������������������������������� 248 39� Acquisition and disposal of companies ����������������������������� 248 40� Related party transactions ������������������������������������������������������� 249 41� Remuneration paid to the Board of Directors and the Corporate Executive Committee ������������������������� 250 42� Contingent and future liabilities ������������������������������������������� 251 43� Operating leases ���������������������������������������������������������������������������� 254 44� Claim payments received from non-Group insurers ��� 255 45� Significant subsidiaries, joint ventures and associates ��������������������������������������������������������������������������������� 256 46� Changes to shareholdings ��������������������������������������������������������� 258 47� Consolidated structured entities ������������������������������������������� 258 48� Joint arrangements ���������������������������������������������������������������������� 258 49� Events after the balance sheet date ��������������������������������������� 258
Baloise Group Financial Report 2016 Consolidated balance sheet 05_FB_Kapitel_01_bis_02_en 110 22�03�2017 14:59:46
Gains or losses on financial contracts 35 – 0.9 – 342.9
Baloise Group Financial Report 2016 Consolidated income statement 05_FB_Kapitel_01_bis_02_en 112 22�03�2017 14:59:47
Total items not to be reclassified to the income statement – 13.6 – 78.1
Change in unrealised gains and losses on available-for-sale financial assets – 882.9 126.6
Change in unrealised gains and losses on associates – 27.6 – 0.4
Baloise Group Financial Report 2016 Consolidated statement of comprehensive income 05_FB_Kapitel_01_bis_02_en 113 22�03�2017 14:59:47
Reclassification to non-current assets and disposal groups classified as held for sale – 17.9 –
Balance of cash and cash equivalents as at 1 January 2,969.6 2,839.8
Balance of cash and cash equivalents as at 31 December 2,839.8 3,173.3
Purchase / sale of financial assets of an equity nature – 1,275.1 – 252.0
Purchase / sale of financial assets of a debt nature – 1,142.7 – 168.5
Purchase of property, plant and equipment 8 – 31.4 – 16.4
Acquisition of companies, net of cash and cash equivalents 39 – 6.1 – 22.3
Baloise Group Financial Report 2016 Consolidated cash flow statement 05_FB_Kapitel_01_bis_02_en 115 22�03�2017 14:59:47
Increase / decrease in non-controlling interests due to change in the scope of consolidation 39 – – – – – – – –
Notes to the consolidated annual financial statements Basis of presentation 1. BASIS OF PREPARATION The Baloise Group is a European direct insurer comprising nine different insurance companies that operate in virtually every segment of the life and non-life insurance business� Its holding company is Bâloise Holding Ltd, a Swiss corporation based in Basel whose shares are listed in the Regulatory Standard for Equity Securities (Sub-Standard: International Reporting) of the Swiss Exchange (SIX)� Its subsidiaries are active in the direct insurance markets in Switzerland, Liechtenstein, Germany, Belgium, Luxembourg, Slovakia and the Czech Republic� Its banking business is conducted by subsidiaries in Switzerland and Germany� In addition, the Baloise Group has a fund management company in Luxembourg�
At its meeting on 17 March 2017 the Bâloise Holding Ltd Board of Directors approved the annual financial statements and the Financial Report and authorised them for issue� The financial statements have yet to be approved by the Annual General Meeting of Bâloise Holding Ltd�
2. APPLICATION OF NEW FINANCIAL REPORTING STANDARDS AND RESTATEMENTS 2.1 Newly applied IFRSs and interpretations Currently, there are no requirements to apply any newly applied standards or interpretations that have a material impact on the profit for the period or on balance sheet line items�
→ give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying IFRS 9 until 2021� The entities that defer the application of IFRS 9 will continue to apply the existing financial instruments Standard IAS 39�
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 05_FB_Kapitel_01_bis_02_en 119 22�03�2017 14:59:48
The prior-year figures stated on the balance sheet, in the statement of changes in equity and in the notes to these financial statements have been restated accordingly�
RECONCILIATION OF THE RESTATED IFRS FIGURES: CORRECTION PROVISION FOR PREMIUM REFUNDS
Consolidated balance sheet as at 1 January 2015 Consolidated balance sheet as at 31 December 2015 prior to restatement correction according to
The consolidation of subsidiaries ends on the date on which control is ceded. If only some of the shares in a subsidiary are sold, the retained interest is measured at fair value on the date that control is lost. Gains or losses on the disposal of (some of) the subsidiary’s shares are recognised in the income statement as either other operating income or other operating expenses.
3.1.3 Joint arrangements Joint arrangements are contractual agreements over which two or more parties have joint control. A joint arrangement is clas­ sified as either a joint operation or a joint venture. In a joint operation, the involved parties have direct rights and obligations in respect of the assets and liabilities and the income and expenses. By contrast, the parties involved in a joint venture do not have a direct entitlement to the assets and liabilities and, instead, have rights in respect of the net assets of the joint venture owing to their position as investors.
Joint ventures are accounted for using the equity method, i.e. the Baloise Group initially recognises the joint ventures at cost (fair value at the date of acquisition) and thereafter recog­ nises them under the equity method (the Baloise Group’s share of the entity’s net assets and profit or loss for the period). In the case of joint operations, the Baloise Group includes directly in its consolidated financial statements the share of the assets, liabilities, income and expenses of the joint operation that is attributable to the Baloise Group.
3.3 Property, plant and equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. The acquisition cost of property plant and equipment includes all directly attributable costs. Subsequent acquisition costs are only capitalised if future economic benefits associated with the property, plant and equipment will flow to the entity concerned and these costs can be measured reliably. All other repairs and maintenance costs are expensed as incurred.
Land is not depreciated. Other items of property, plant and equipment are depreciated on a straight­line basis over the following estimated useful lives: → Owner­occupied buildings: 25 to 50 years → Office furniture, equipment, fixtures and fittings: 5 to 10 years → Machinery, furniture and vehicles: 4 to 10 years → Computer hardware: 3 to 5 years 06_FB_Kapitel_03_bis_04_en 122 22.03.2017 15:00:01
3.5 Intangible assets 3.5.1 Goodwill Goodwill represents the excess of an acquiree’s acquisition cost over the fair value of its assets and liabilities plus the acquisition­ date amount of any non­controlling interests in the acquiree and the acquisition­date fair value of the acquirer’s previously held equity interest in the acquiree. Goodwill is reported as an intan­ gible asset. Goodwill is tested for impairment in the second half of each year. An impairment test may also be conducted in the first half of the year if there are objective indications that goodwill may be permanently impaired. When a new investment is acquired, the date for conducting future impairment tests is fixed and these tests are subsequently carried out at the same time each year. When entities are sold, their share of goodwill is recognised in their profit or loss. Goodwill is allocated to cash­generating units (CGUs) for the purposes of impairment testing.
3.5.3 Deferred acquisition costs (DACs) Costs directly incurred by the conclusion of insurance contracts or financial contracts with discretionary participation features (DPFs) – such as commissions – are capitalised and amortised over the term of these contracts or, if shorter, over the premium pay­ ment period. Deferred acquisition costs are tested for impairment at each balance sheet date (see section 3.18.3 for further details).
Financial assets are derecognised if the rights pertaining to the cash flows from the financial instrument have expired or if the financial instrument has been sold and substantially all the associated risks and rewards have been transferred. Cash outflows from reverse repurchase (repo) transactions are offset by corresponding receivables. The financial assets received as collateral security from the transaction are not recognised. The relevant transaction is recognised on the balance sheet on the settlement date. The financial assets transferred as collateral security under repurchase agreements continue to be recognised as financial assets. The pertinent cash flows are offset by corre­ sponding liabilities. In its stocklending operations the Baloise Group only engages in securities lending. The borrowed finan­ cial instruments continue to be recognised as financial assets. The securities provided as cover for repos, reverse repos and securities lending transactions are measured daily at their current fair value.
The fair value of listed financial assets is based on prices in active markets as at the balance sheet date. If no such prices are available, fair value is estimated using generally accepted methods (such as the present­value method), independent assess­ ments based on comparisons with the market prices of similar instruments or the prevailing market situation.
3.8 Mortgages and loans Mortgages and loans (including policy loans) are financial instru­ ments involving fixed or determinable payments that are not traded in an active market. Mortgages and loans classified as “carried at cost” are measured at amortised cost using the effective interest method. They are regularly tested for impairment.
Mortgages and loans held as part of fair value hedges (nat­ ural hedges) are designated as “at fair value through profit or loss”. Present­value models are used to measure these portfolios.
3.10 Permanent impairment 3.10.1 Financial assets measured under the amortised-cost method (mortgages, loans, receivables and held-to-maturity financial assets) The Baloise Group determines at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets may be permanently impaired. A financial asset or a group of financial assets is only impaired if, as a result of one or more events, there is objective evidence of impairment that has an impact on the expected future cash flows from the financial asset that can be reliably estimated. Objective evidence of a financial asset’s impairment includes observable data on the following cases: → Serious financial difficulties on the part of the borrower → Breaches of contract, such as a borrower in default or arrears with the payment of principal and / or interest → Greater probability that the borrower will file for bank­
An impairment loss is recognised on available­for­sale financial instruments with characteristics of liabilities if their fair value is significantly impaired by default risk.
If the fair value of an available­for­sale financial instrument with characteristics of liabilities rises in a subsequent reporting period and this increase can be objectively attributed to an event that has occurred since an impairment loss was recognised in profit or loss, the impairment loss is reversed and taken to income.
3.10.3 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 impair­ ment 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 internally specified capital adequacy limits. The long­term financial planning approved by management forms the basis for this calculation of the value in use for a period of at least three years and no more than five years. These values are extrapolated for the subsequent period using an annual growth rate. The growth rate is based on the expected inflation rates of the individual countries. The discount rates include the risk mark­ups for the individual operating segments. Permanent impairment losses are recognised in the income statement as other operating expenses. All other non­ financial assets are tested for impairment whenever there is objective evidence of such impairment.
3.11.2 Fair value hedges When the effective portion of hedges is being accounted for, changes in the fair value of derivative financial instruments classified as fair value hedges – plus the hedged portion of the fair value of the asset or liability concerned – are reported in the income statement. The ineffective portion of hedges is rec­ ognised separately in profit or loss.
3.15.1 Share capital The share capital shown on the balance sheet represents the subscribed share capital of Bâloise Holding Ltd, Basel. This share capital consists solely of registered shares. No shares carry pref­ erential voting rights.
3.15.5 Retained earnings Retained earnings include the Baloise Group’s undistributed earnings and its profit for the period. Dividends paid to the shareholders of Bâloise Holding Ltd are only recognised once they have been approved by the Annual General Meeting.
3.15.6 Non-controlling interests Non­controlling interests constitute the proportion of Group companies’ equity attributable to third parties outside the Baloise Group on the basis of their respective shareholdings.
Contracts that pose no significant insurance risk are finan­ cial contracts. Such financial contracts may include a discretionary participation feature (DPF), which determines the accounting policies to be applied.
The Baloise Group considers an insurance risk to be sig­ nificant if, during the term of the contract and under a plausible scenario, the payment triggered by the occurrence of the insured event is 5 per cent higher than the contractual benefits payable if the insured event does not occur.
→ the timing or amount of the benefits payable is contrac­ tually 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.
In addition, IFRS 4 makes exceptions for the treatment of embedded derivatives that form part of insurance contracts or financial contracts with discretionary participation features. If such embedded derivatives themselves qualify as insurance contracts, they do not have to be either separately measured or disclosed. In the case of the Baloise Group this affects, among other things, certain guarantees provided for annuity conversion rates and further special exceptions such as specific guaranteed cash surrender values for traditional policies.
3.17 Non-life insurance contracts All standardised non­life products contain sufficient insurance risk to be classified as insurance contracts under IFRS 4. The non­life business conducted by the Baloise Group is broken down into seven main segments: → Accident All standard product lines typical of each relevant market are available in the accident insurance business. The Belgian market and Switzerland in particular also offer specific government­regulated occupational accident products that differ from the other products usually available.
→ General liability In addition to conventional personal liability insurance the Baloise Group also sells third­party indemnity policies for certain professions. In Switzerland and Germany it offers policies – especially combined products – for small and medium­sized enterprises and for industrial partners that include features such as product liability.
→ Motor The two standardised products common in the market – comprehensive and third­party liability insurance – are sold in this segment. In some countries there are also products that have been specially designed for collabora­ tions with motoring organisations and individual auto­ motive companies.
→ Marine Marine insurance is mainly sold in Switzerland and Germany. These products may include a third­party liabil ­ ity component in addition to the usual cargo insurance.
→ Miscellaneous This category generally comprises small segments such as credit protection insurance and legal expenses insur­ ance. Provided that financial guarantees qualify as insurance contracts, they are treated as credit protection insurance policies.
3.17.1 Premiums The gross premiums written are the premiums that have fallen due during the reporting period. They include the amount needed to cover the insurance risk plus all surcharges. Premium contrib­ utions that are attributable to future reporting periods are deferred by contract and – together with health insurance reserves for old age and any deferred unearned premiums – constitute the unearned premium reserves shown on the balance sheet. Owing to the specific nature of marine insurance, premiums are deferred not by contract but on the basis of estimates. Premiums that are actually attributable to the reporting period are recognised as premiums earned. Their calculation is based on the premiums written and the change in unearned premium reserves.
In addition to the reserves that it recognises in respect of the payments to be made for claims that have occurred, it also sets aside reserves to cover the costs incurred during the claims settlement process. In order to calculate these reserves as real­ istically as possible, the Baloise Group uses the claims history of recent years, generally accepted mathematical­statistical methods and all the information available to it at the time – especially knowledge about the expertise of those entrusted with the handling of claims.
The forecasting methods used cannot eliminate all the uncer­ tainties inherent in making predictions about future develop­ ments and trends. Nonetheless, systematic monitoring of the reserves recognised in a given financial year enables the Baloise Group to spot discrepancies as soon as possible and, conse­ quently, to adjust the level of reserves and modify the forecasting method where necessary. This analysis is based on the so­called “run­off triangles” presented in aggregated form in section 5.4.5. The relevant calculations for typical property policies such as storm and tempest insurance or home contents insurance are usually based on the payments made over the past ten years. Larger amounts of data and, consequently, claims triangles that go further back in time and are based on both payments and expenses (payments plus reserves) are, of course, used for insur­ ance segments with longer run­off periods, such as third­party liability. To supplement the Baloise Group’s various internal control mechanisms, its reserves – and the methods used to calculate them – are regularly reviewed by external specialists. Mention should be made here of the liability adequacy test described in detail in section 3.17.4. The Baloise Group takes great care to ensure that it complies with the pertinent financial reporting standard by performing the regularly required prof­ itability analysis and examining whether, at the balance sheet date, it can actually meet all the liabilities that it has taken on as an insurer. It immediately offsets any shortfall in its reserves that it identifies.
To this end, all existing reserves – both claims reserves (including reserves for claims handling costs) and annuity reserves in the non­life segment – are first analysed and, if a shortfall is identified, the relevant reserves are then strengthened accord­ ingly. This analysis explicitly includes IBNR claims, thereby ensuring that adequate reserves are available for all claims that have already occurred.
3.18.4 Unearned revenue reserve (URR) The unearned revenue reserve comprises premiums that are charged for services rendered in future periods. These premiums are deferred and amortised in the same way as deferred acqui­ sition costs.
IFRS 4 introduces the concept of a discretionary participation feature (DPF), which is of relevance not only for the classifi cation of contracts but also for the disclosure of surplus reserves accord­ ing 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 con­ solidated financial statements compared with the financial statements prepared in accordance with local accounting stand­ ards. IFRS 4 states here that the portion of an insurance contract’s liability that is attributable to a discretionary participation feature (“DPF component”) must be reported separately. This standard does not provide any clear guidance as to how this DPF component should be measured and disclosed.
When accounting for contracts that contain discretionary participation features, the Baloise Group treats measurement differences that are attributable to such contracts and are credited to policyholders according to a legal or contractual minimum quota as a DPF component. Distributable retained earnings and eligible unrealised gains and losses of fully consolidated sub­ sidiaries are allocated pro rata to the DPF components of the life insurance company concerned. The DPF component calcu­ lated in this way is reported as part of the reserves for future policyholders’ dividends (section 23). These reserves include policyholders’ dividends that are unallocated and have been set aside as a reserve under local accounting standards.
If no legal or contractual minimum quota has been stip­ ulated, the Baloise Group defines a discretionary participation feature as the currently available reserve for premium refunds after allowing for final policyholders’ dividends. Unless a min­ imum quota has been stipulated, all other measurement differ­ ences between the local and IFRS financial statements are rec­ ognised directly in equity.
3.24 Taxes Provisions for deferred income taxes are recognised under the liability method, which means that they are based either on the current tax rate or on the rate expected in future. Deferred income taxes reflect the tax­related impact of temporary differ­ ences between the assets and liabilities reported in the IFRS financial statements and those reported for tax purposes. When deferred income taxes are calculated, tax loss carryforwards are only recognised to the extent that sufficient taxable profit is likely to be earned in future.
Deferred tax assets and liabilities are offset against each other and shown as a net figure in cases where the criteria for such offsetting have been met. This is usually the case if the tax juris­ diction, the taxable entity and the type of taxation are identical.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 4. KEY ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS 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 con­ stant 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.
edgeable, 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.
The following financial liabilities are measured at fair value: → Liabilities arising from banking business and financial contracts (recognised at fair value through profit or loss) Liabilities arising from investment­linked life insurance contracts involving little or no transfer of risk are meas­ ured at fair value based on the capitalised investments underlying these liabilities.
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. Chapter 12 contains information on the fair values of the financial instruments with characteristics of liabilities that are classified as “held to maturity”.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 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 equity (available for sale) An impairment loss must be recognised on available­for­ sale financial instruments with characteristics of equity whose fair value at the balance sheet date is more than 50 per cent below their acquisition cost or whose fair value is consistently below their acquisition cost throughout the twelve­month period preceding the balance sheet date. The Baloise Group examines whether it needs to recognise impairment losses on securities whose fair value at the balance sheet date is between 20 per cent and 50 per cent below their acquisition cost. Such assessments of the need to recognise impairment losses consider various factors such as the volatility of the securities concerned, credit ratings, analysts’ reports, economic conditions and sectoral prospects.
4.5 Estimate uncertainties specific to insurance Estimate uncertainties pertaining to actuarial risk are discussed from chapter 5.4 onwards.
4.7 Employee benefits In calculating its defined benefit obligations towards its employees, the Baloise Group makes assumptions about the expected return on plan assets, the economic benefits embodied in assets, future increases in salaries and pension benefits, the discount rate applicable and other parameters. The most important assump­ tions are derived from past experience of making estimates. The assumptions factored into these calculations are discussed in chapter 18.2.7.
4.8 Goodwill impairment Goodwill is tested for impairment in the second half of each year or whenever there is objective evidence of impairment. Such impairment tests involve calculating a value in use that is largely based on estimates such as the financial planning approved by management and the discount rates and growth rates mentioned in chapter 9.
Baloise Group Financial Report 2016 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.
The predominant risks in the life insurance sector are the following biometric risks: → longevity risk (annuities and pure endowment policies), → mortality risk (whole-life and endowment life insurance), → disability risk (in the sense of the risk of premiums proving insufficient due to an adverse disability claims history).
Because the Group issues interest rate guarantees, it is also exposed to interest rate risk. There are also implicit financial guarantees and options which also affect liquidity, investment planning and the income generated by Group companies; they include guaranteed surrender prices when policyholders cancel and guaranteed annuity factors on commencement of the payout phase of annuities.
Managing participating insurance contracts is an additional method of mitigating risk. For example, bringing policyholders’ dividends into line with altered circumstances as far as permitted by local regulations is one option that could be taken if the risk situation were to change. However, the allocation of surpluses between policyholders and the Company is not only subject to local law, it is also governed by market expectations.
An overall set of rules governs all activities directly connected with risk management and ensures that they are compatible with one another.
An annual reporting is undertaken for each identified risk category. To this end, each business unit compiles an ORSA (Own Risk and Solvency Assessment) report. Key figures for the financial and actuarial risks incurred by the Group and each strategic business unit are reported on a monthly basis using a risk control application.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 5.2 Life and non-life underwriting strategies The Baloise Group primarily underwrites insurance risk for private individuals and small and medium-sized enterprises in selected countries in mainland Europe. Industrial insurance in the property and third-party liability, marine and technical insurance sectors is largely provided by Baloise Insurance in Basel or its branch in Bad Homburg (Germany) and our Belgian business unit Baloise Insurance Belgium. In this particularly high-risk segment, central management of industrial insurance ensures consistent quality and a high degree of transparency for the business underwritten.
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 is CHF 20 million. The retentions for individual claims are CHF 16 million for property claims, CHF 15 million for marine claims and CHF 13.7 million on a non-indexed basis for third- party liability claims. The local Baloise Group business units also use additional facultative reinsurance cover on a case-bycase basis. This type of reinsurance is extremely dependent on the individual risk in each case and it is therefore placed by the business units themselves.
Because of the long settlement period, there is a high degree of uncertainty associated with the calculation of these claims reserves. Both the timing at which cases of this type are identified and their potential loss level are much less certain than any other established claims patterns. Some reserves were calculated using external actuaries’ reports in which best-case and worstcase scenarios were analysed. The Baloise Group’s minimum reserves policy is based on the average of these two scenarios. It is particularly difficult to assess the level of reserves required for IBNR claims, so further fluctuations cannot be ruled out. According to expert estimates, fluctuations of around 10 per cent can be expected, which is equivalent to around CHF 6.5 million after taxes and before reinsurance (2015: CHF 6.6 million) for this reserve.
Seven years later 628.5 594.3 617.2 – – – – – – – –
Nine years later 614.0 – – – – – – – – – –
Eight years later 304.2 301.3 – – – – – – – – –
Nine years later 303.4 – – – – – – – – – –
Nine years later 213.4 – – – – – – – – – –
Net claims reserves 985.6 1 The increase in the total estimated claims incurred is primarily due to the addition of Avéro Schadevezekering Benelux NV. 2 The increase in the total estimated claims incurred is primarily due to the addition of Nateus NV and Audi NV.
Nine years later 59.0 – – – – – – – – – –
Net claims reserves 67.7 1 The increase in the total estimated claims incurred is primarily due to the addition of Bâloise Assurances Luxembourg S.A. 2 The increase in the total estimated claims incurred is primarily due to the addition of P & V Assurances. 3 The increase in the total estimated claims incurred is primarily due to the addition of HDI Gerling Assurances S.A.
Baloise Group Financial Report 2016 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.
31.12.2015 (restated) Switzerland individual life Switzerland group life Germany Belgium Luxembourg
Technical reserves with guaranteed positive returns 7,373.6 15,093.9 6,385.6 2,777.8 426.2
Technical reserves with guaranteed positive returns 7,095.9 15,461.3 6,365.7 2,766.7 452.6
Unit-linked life insurance generally involves endowment life insurance or a deferred annuity in which the policyholder has more f lexibility regarding the investment process. During the deferment period, unit-linked annuities behave in a similar way to endowment life insurance, but during the payout period the policy converts into a traditional annuity.
In Switzerland, there is a closed sub-portfolio with a guaranteed interest rate. The guarantee was issued as part of the statutory pension scheme (Pillar 3a). On the endowment date, the policyholder receives the value of the fund units or the net investment premium plus accrued interest at the technical interest rate (3.25 per cent), whichever is the greater. The funds approved for these policies have a low equity ratio and are therefore not exposed to high volatility. A corresponding actuarial reserve has been recognised for the guarantee.
Our group life business in Switzerland and Belgium focuses on the provision of occupational pensions which, like individual life insurance, covers the risks of death, disability and survival. The distinctive feature of group life business is the influence of political decisions. In Switzerland, the government sets the minimum rate of interest to be paid on savings, and the conversion rate at which accumulated capital is converted into an annuity to provide a pension. However, these regulations only apply to the minimum portion of accumulated capital that is required to provide initial finance for an annuity. For the remaining portion, actuarially appropriate annuity conversion rates are used but any change to the minimum interest rate would also affect the existing statutory portfolio, not just new business, which would normally be the case for individual life business. The technical interest rate for Belgian group life business – unlike individual life business – is also set by the government. However, it is the companies – and not their insurers – that are obliged to guarantee this technical interest rate. Baloise Insurance in Belgium offers group life insurance policies with interest rates that are lower than the rate stipulated by the government.
As part of their life insurance business, the companies in the Baloise Group also provide investment-linked life insurance contracts for the account of and at the risk of policyholders. The financial liabilities generated in this connection are backed by assets – generally investment fund units – arising from these policies. Because the market risk attaching to the assets underlying these contracts is borne by the policyholder, they are shown separately in the notes to the consolidated annual financial statements.
The following sections specifically address the interest rate risk, currency risk, credit risk, liquidity risk and equity price risk that are relevant to assets held by the Group.
5.6.1 Interest rate risk Interest rate risk is the risk that a company’s interest margin, and therefore its income, may be reduced by fluctuations in money-market and capital-market interest rates (income effect), or that the fair value of a portfolio of interest-rate-sensitive products may decline (asset-price effect). As well as the financial risk generated by holding assets and liabilities with non-matching maturities, variations in accounting policy may result in accounting risk.
The effect of stress-testing key financial figures is measured on a monthly basis. The underlying stress scenario (potential loss arising from a risk) is reviewed regularly and modified as necessary. The scale of a stress test is generally based on the simple annual volatility of the financial risk under review, the once-in-a-hundred-years occurrence of a business risk or standard international practice.
If all interest rates had fallen by 50 basis points on the balance sheet date but all other variables had remained constant, the profit for the period (after deferred gains / losses and deferred taxes) would have been lower by CHF 51 million (31 December 2015: CHF 69 million). Including the impact on profit for the period, equity (after shadow accounting, deferred gains / losses and deferred taxes) would have risen by CHF 181 million (31 December 2015: CHF 146 million). If all interest rates had risen by 50 basis points on the balance sheet date but all other variables had remained constant, the profit for the period (after deferred gains / losses and deferred taxes) would have been higher by CHF 19 million (31 December 2015: CHF 5 million). Including the impact on profit for the period, equity (after shadow accounting, deferred gains / losses and deferred taxes) would have fallen by CHF 220 million (31 December 2015: CHF 241 million).
Because the Baloise Group invests in foreign currency bonds (particularly those denominated in euros) for investment or diversification purposes, there may be currency effects in the income statement for both realised and unrealised positions. To ensure compliance with the risk budget set for currency effects recognised in the income statement, the foreign exchange management team first calculates adequate target hedge ratios, then implements the necessary hedging strategies taking into account these target hedge ratios and the discretionary ranges allowed. It also takes advantage of phases when exchange rates are overreacting by deliberately underweighting or overweighting the hedge ratios in relation to the defined benchmark. These hedging strategies are implemented using forward FX contracts and FX options or combinations of options in which the selection of the instruments to be used in each case depends on factors such as volatility and expected exchange rate movements.
The currency effect of foreign currency bonds or insurance-related foreign currency liabilities and changes in the fair value of derivative financial instruments held for hedging purposes are always recognised in the income statement.
Derivative financial instruments used as currency hedges of a net investment in a foreign operation The Group’s own companies, Baloise Alternative Investment Strategies Ltd., Jersey, and Baloise Private Equity Ltd., Jersey, manage substantial investments in alternative financial assets such as hedge funds and private equity.
During the year, the aggregated hedge ratio for the net foreign exchange exposure in US dollars ranged from 80 per cent to 100 per cent and in euros ranged from 90 per cent to 100 per cent.
Credit risk increases when counterparties become concentrated in a single sector or geographic region. Economic trends that affect whole sectors or regions can jeopardise an entire group of otherwise unrelated counterparties. For this reason, the Baloise Group tracks counterparty exposure at all times and monitors credit risk on a Groupwide basis. The regional expertise of our business units is also incorporated into decisions about securities selection or changes to the existing credit portfolio.
Because the credit risk incurred by the Baloise Group is spread across sectors and geographic regions and among a large number of counterparties and customers, the Baloise Group is not exposed to material credit risk arising from a single counterparty or a specific sector or geographic region.
Investments in interest-bearing securities or loans must have an investment-grade issue rating or be backed by a corresponding third-party guarantee or mortgage. A total limit of 15 per cent of all interest-bearing securities and loans is set for investments with a rating of less than “A –” and investments with no rating. Sub-investment-grade investments are not permitted. If any financial instrument in the portfolio becomes sub-investment grade due to a ratings downgrade, it must be sold within twelve months. Approval is required for any exceptions. Financial derivatives are only permitted to be transacted with issuers holding a rating of at least “A –” or with whom there is a special collateral agreement.
Please refer to the table of secured financial instruments with characteristics of liabilities in chapter 12.
Receivables from financial contracts – – – – 9.9 9.9 08_FB_Kapitel_05.8_bis_06_en 160 22.03.2017 15:01:15
as at 31.12.2016 < 3 months 3 – 6 months 7 – 12 months > 12 months Total
Receivables from investments – 0.0 – – 0.0 5.8 Liquidity risk Banks as well as insurance companies incur latent liquidity risk. This refers to the risk of rapid outflows of large volumes of liquidity that cannot be offset by asset sales or for which alternative funding cannot be implemented quickly enough. In extreme cases, a lack of liquidity can result in insolvency. Legal provisions apply and the Groupwide Risk Management Standards require each business unit to plan its liquidity centrally. This is carried out with the close collaboration of the investment, actuarial, underwriting and finance departments of each business unit.
Liquidity management must take account of the maturity structure of liabilities as follows: MATURITIES OF FINANCIAL LIABILITIES 1
Liquidity risk as at 31.12.2016 ‹ 1 year 2 1 – 3 years 4 – 5 years > 5 years Total Carrying amount
Please refer to the tables in chapter 23 for the residual terms and maturities of technical reserves.
Because these impairment criteria produce different effects due to assumed changes in market prices if there is a rise compared with an analogous fall, these effects are divergent. The compensatory effects of hedging using derivatives behave in a similar manner.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 5.10 Fair value measurement Where available, quoted market prices are used to determine the fair value of assets and liabilities. They are defined as available if quoted prices can be obtained easily and frequently on an exchange, from a dealer, broker, trade association, pricing service or regulatory authority, provided these prices are current, in sufficient volume and represent regularly occurring arm’s-length transactions in the market.
Detailed information about measurement principles and the measurement methods used can be found in sections 3.7, 3.8, 3.9, 3.11, 3.20 and 4.1.
At fair value through profit or loss Net asset value n.a. –
Available for sale Present-value model Yield curve, swap rates, default risk
Investment property DCF method Discount rate 1 3.0 % – 5.6 % 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.
Financial instruments with characteristics of equity classed as “available for sale” or “recognised at fair value through profit or loss” and classified as level 3 are primarily private-equity investments and alternative investments held by the Baloise Group as well as non-controlling interests in real estate companies. The fair value of such investments is usually determined by fund managers (external providers) based on their net asset value (NAV). These external providers generally use non-public information to calculate the individual investments’ NAV.
Changes in fair value recognised in profit or loss 1 – 6.1 112.7 106.6
Changes in fair value not recognised in profit or loss 2 14.8 0.8 15.6
Reclassification to non-current assets and disposal groups classified as held for sale – – –
Changes in fair value recognised in profit or loss 1 – 4.1 – – – 4.1
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 or in 2015.
5.11.2 Requirements under local legislation Individual Group companies are also subject to regulation under local legislation which in some cases imposes different solvency rules and permits different methods for defining equity. The ability of the business units, and therefore also of the parent company, to pay dividends is closely linked to the priority placed on meeting these local requirements. Compliance with local solvency requirements is monitored on an ongoing basis. Appropriate action is taken if solvency falls short of these regulations.
5.11.3 Swiss Solvency Test The Swiss Solvency Test (SST) came into force as a new statutory requirement on 1 January 2011. In this context, the Baloise Group defines its risk-bearing capital and capital required for the SST using an inhouse model which takes into account the Baloise Group’s business model. All activities and processes for developing and structuring the inhouse model are gathered together in the Baloise Internal Solvency System (BISS) and coordinated and managed by Group Risk Management.
The inhouse model, which is based on the Swiss Solvency Test (SST), is used to calculate risk-bearing capital. IFRS equity forms the basis for this calculation. The remeasurement of items and the additional incorporation of individual assets and liabilities as well as off-balance-sheet information enable equity to be determined at fair value. As a result, all capital items that can be deployed to cover losses in the event of adverse business developments are taken into consideration.
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.
6.2 2016 financial year 6.2.1 Acquisitions In the second half of 2016, four affiliated real-estate companies were acquired in Belgium (Postsite Aalst). According to the criteria defined in IFRS 3 Business Combinations, this purchase constitutes the acquisition of assets, so goodwill has not been recognised separately in this case.
The “Other activities” operating segment includes equity investment companies, real estate firms and financing companies.
Interest expenses on insurance liabilities – 2.4 – 2.3 – 31.5 – 28.3 – 0.2 – 0.2 – 0.1 0.1 – 34.3 – 30.7 – – 0.2 0.2 – 34.1 – 30.5
Premiums earned and policy fees (gross) 4,408.6 4,188.1 1,205.9 1,219.3 1,041.6 1,078.8 181.5 198.4 6,837.6 6,684.5 189.9 99.6 – 195.1 – 103.6 6,832.4 6,680.6
Realised gains and losses on investments 104.3 121.0 320.8 215.2 78.8 105.0 – 104.2 223.0 399.7 664.2 – 13.5 3.1 – – 386.2 667.2
Gains or losses on financial contracts – 36.6 – 19.8 – 22.9 – 23.8 – 52.2 – 59.2 113.8 – 235.6 2.1 – 338.5 – 7.1 – 10.2 4.2 5.8 – 0.9 – 342.9
Profit / loss for the period (segment result) 329.0 447.4 40.6 – 48.5 136.7 125.5 21.5 24.3 527.8 548.7 – 16.7 – 14.8 – – 511.1 533.9
Premiums earned and policy fees (net) 2,919.4 2,959.9 3,764.4 3,552.4 – – – – – – 6,683.7 6,512.4
Because the management approach within the Belgium strategic business unit has been re-assessed, a small number of long-term equity investments in the “Other activities” segment have been assigned to the “Non-Life” and “Life” segments in 2015. These reclassifications have had no impact on the profit for the period.
Interest expenses on insurance liabilities – 0.2 – 0.2 – 33.8 – 30.3 – – – – – – – 34.1 – 30.5
Profit / loss before borrowing costs and taxes 395.5 396.4 277.3 226.1 80.8 92.1 – 34.4 – 31.0 – – 719.2 683.6
Capitalisation of acquisition costs – – 53.3 237.8 – – 291.1
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 190 22.03.2017 15:01:31
Capitalisation of acquisition costs – – 77.1 253.3 – – 330.3
Changes due to impending losses – – – 3.0 – 0.8 – – – 3.8
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9.1 Assumptions used to test the impairment of significant goodwill items Assumptions used to forecast future business developments and trends have been reviewed by the local management teams and take account of macroeconomic conditions. The input factors are described in note 3.10.3 (Impairment losses on non-financial assets).
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 192 22.03.2017 15:01:32
The financial information reflects the amounts reported in the financial statements of the associate rather than the share of those amounts that is attributable to the Baloise Group. The associate’s financial statements are prepared in accordance with IFRS. OVB Holding Ltd is included in the Baloise Group’s consolidated annual financial statements under the equity method. Because the publicly traded OVB Holding Ltd’s relevant financial year-end closing information, which is used for measurement purposes, had not been published by the time the Financial Report was being prepared, measurement has been based in each case on the financial closing data for the period ended 30 September of the reporting year.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 193 22.03.2017 15:01:32
As at 31 December 2016, the Baloise Group held more than 20 per cent of the capital of three companies but does not have any influence over these companies’ management. As a result, they are not reported as associates.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 194 22.03.2017 15:01:32
Operating expenses arising from investment property that generates rental income 68.8 83.2
Financial assets for the account and at the risk of life insurance policyholders and third parties
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Not publicly listed, variable interest rate – – – – – – – – – –
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Financial assets of an equity nature – – 4,443.3 4,357.1 – – 1,173.8 1,002.3 5,617.1 5,359.4
Increases and additional provisions recognised in profit or loss – 5.7 – 10.5
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 202 22.03.2017 15:01:33
The contract value or notional amount is used for derivative financial instruments whose principal may be swapped at maturity (options, futures and currency swaps) and for instruments whose principal is only nominally lent or borrowed (interest rate swaps). The contract value or notional amount is disclosed in order to express the aggregate amount of derivative transactions in which the Baloise Group is involved.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 09_FB_Kapitel_07_bis_17_en 203 22.03.2017 15:01:34
Additions / disposals arising from change in scope of consolidation 5.2 –
Increases and additional provisions recognised in profit or loss 0.0 – 0.1
Termination benefits – – 12.7 10.2 18.2 Post-employment benefits – defined benefit plans The Baloise Group provides a range of pension benefits, which vary from country to country in line with local circumstances. The funded – or partially funded – liabilities relate to the occupational pension provision offered in Switzerland and that of the former Avéro Schadeverzekering Benelux NV.
Cash flow between Baloise Group and plan assets (excl. benefits paid to employees and employer contribution)
Actuarial gains / losses on defined benefit obligations arising from changes in financial assumptions – 33.7 – 52.6 changes in demographic assumptions – – 19.1 experience adjustments – 46.0 – 5.3
Balance as at 31 December – 2,821.2 – 2,848.5 10_FB_Kapitel_18_bis_23_en 207 22.03.2017 15:01:50
Additions / disposals arising from change in scope of consolidation – 0.7 –
Reclassification to non-current assets and disposal groups classified as held for sale 3.8 3.2
Balance as at 31 December – 752.5 – 843.2 18.2.4 Net actuarial liabilities under defined benefit plans
Fixed-interest assets publicly listed 98.3 114.0 not publicly listed – –
Of which: Bâloise Holding Ltd shares (fair value) and convertible bonds (fair value) 29.4 28.8
Of which: real estate leased to the Baloise Group – –
Expected wage and salary increases plus 0.5 % age points 36.0 36.3
Expected pension benefits increases plus 0.5 % age points 200.2 205.4
Mortality probabilities for 65-year-olds plus 10.0 % age points – 88.4 – 93.5
Weighted share of annuity option plus 10.0 % age points 22.7 14.5
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 18.2.9 Funding of plan benefits The plan assets of the Swiss plans are funded jointly by the employer and employee. The amount of individual contributions depends largely on an employee’s remuneration and age. Statutory regulations require employers to contribute a minimum of 50 per cent of the total contributions for part of the insured benefits.
18.2.10 Estimated employer contribution The employer’s contribution for the following year can only be predicted with a limited degree of certainty. The Baloise Group expects to pay employer contributions of approximately CHF 62.5 million for the 2017 financial year.
18.2.11 Maturity profile The maturity profile of liabilities under pension plans differs depending on whether benefits are prospective or current entitlements. For prospective benefit entitlements, the average expected remaining service period is 10.3 years; the average present value factor for current benefit entitlements under pension commitments is 16.6 years.
18.4 Share-based payment plans For some time now, the Baloise Group has offered employees and management team members the chance to participate in various plans under which shares are granted as part of their overall remuneration packages: the Employee Incentive Plan, the Share Subscription Plan and the Share Participation Plan as well as Performance share units (PSU). All these plans are equity-settled remuneration programmes. In 2016, a sum of CHF 21.8 million (2015: CHF 20.8 million) was recognised as an expense in profit or loss in connection with the following share-based payment plans.
Subscribed shares per participant (average) 90.0 90.5 10_FB_Kapitel_18_bis_23_en 212 22.03.2017 15:01:51
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 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 for the duration of a three-year closed period.
1 The closed period during which shares are allocated to the Chairman of the Board of Directors is five years instead of three. This means that the shares are restricted until 29 February 2020 and 28 February 2021 respectively.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 18.4.3 Share Participation Plan Since May 2001 it has been possible for most management team members working in Switzerland to receive part of their short-term variable remuneration in the form of shares from the Share Participation Plan instead of receiving cash. Within certain limits they are free to choose what proportion of their short-term variable remuneration they receive in the form of such shares. Most senior management team members are subject to upper limits; members of the Corporate Executive Committee – who are obliged to receive at least half of their short-term variable remuneration in the form of shares – are not allowed to receive more than 40 per cent of their entitlement in the form of shares from the Share Participation Plan. The subscription date is 1 March of each year (the same as for the Share Subscription Plan); although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold for the duration of a three-year closed period.
Fair value of subscribed shares on subscription date (CHF million) 9.9 13.1
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 36 leading European insurance companies contained in the STOXX Europe 600 Insurance Index.
Source: One PSU generally confers the right to receive one share. This is the case if Baloise shares perform in line with the median of their peer group. In this case the performance multiplier would be 1.0. Programme participants receive more shares in exchange for their PSUs if Baloise shares outperform their peer group. The multiplier reaches the maximum of 1.5 if the performance of Baloise shares is 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.
Participants receive the pertinent number of shares once the vesting period has elapsed, which means that for the PSUs allocated in 2016 they receive their shares on 1 March 2019. If an individual’s employment contract is terminated during the vesting period, the PSUs expire without the person concerned receiving any consideration or compensation. This does not apply if the employment contract ends due to retirement, disability or death. It also does not apply if the contract is terminated but the programme participant does not join a rival company or is not personally at fault for the termination of the contract. In the latter two cases, some of the allocated PSUs will still expire. The number of PSUs expiring is proportional to the amount of time remaining until the end of the vesting period. In addition, the Remuneration Committee has the powers to claw back some or all of the PSUs allocated to an individual or to a group of programme participants if there are specific reasons for doing so. Such specific reasons include, for example, serious breaches of internal or external regulations, the taking of inappropriate risks that are within an individual’s control, and the type of conduct or behaviour that would increase the risks to Baloise.
The shares needed to convert the PSUs are purchased in the market as and when required. 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
Date Price (CHF) 1 Date Multiplier Price (CHF) 1 Value (CHF) 2 3 1 Price = price of Baloise shares at the PSU grant date or conversion date. 2 Value = value of one PSU at the conversion date (share price at the conversion date times the multiplier). 3 Change in value = difference between the value at the conversion date (multiplier times the share price at the conversion date) and the share price at the grant date, expressed as a percentage of the share price at the grant date; example of the PSU plan in 2007: ([{1.182 × 86.05} – 125.80] / 125.80) × 100 = – 19 %. 4 Interim measurement as at 31 December 2016.
Employees entitled to participate at launch of programme 65 62 69
Of which: expired (departures in 2016) – 1,121 – 2,429 – 604
Number of active PSUs as at 31 December 2016 44,586 39,733 40,144
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 19. DEFERRED INCOME TAXES 19.1 Deferred tax assets and liabilities
Tax losses carried forward 43.5 – 10.5 – – – – 2.4 30.6
Tax credits and losses carried forward 1 30.6 43.9 – – – – 0.1 74.3
No deferred tax assets had been recognised on tax loss carryforwards amounting to CHF 213.5 million as at 31 December 2016 (2015: CHF 238.2 million) because the relevant offsetting criteria had not been met. Of this total, CHF 4.1 million will expire after one year, a further CHF 22.1 million will expire after two to four years and CHF 187.3 million will expire after five years or more.
The share capital of Bâloise Holding Ltd totals CHF 5.0 million and is divided into 50,000,000 registered, fully paid-up registered shares with a par value of CHF 0.10 each (2015: CHF 0.10). As far as individuals, legal entities and partnerships are concerned, entry in the share register with voting rights is limited to 2 per cent of the registered share capital entered in the commercial register. The Baloise Group buys and sells its own shares as part of its ordinary investing activities and for employee share ownership programmes.
As part of the share buy-back programme that has been running since 16 April 2015, a total of 1,000,000 shares in Bâloise Holding Ltd had been repurchased for a total of CHF 113.8 million by the reporting date (31 December 2016). The share buy-back programme was concluded ahead of schedule on 29 July 2016.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 23. TECHNICAL RESERVES (GROSS)
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 23.1.1 Maturity structure of technical reserves
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 23.1.3 Other technical reserves
Policyholders’ dividends credited and provisions for future policyholders’ dividends 3,497.6 3,409.4
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 23.2.1 Maturity structure of technical reserves
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 23.2.2 Actuarial reserves from non-unit-linked life insurance contracts
Reclassification to non-current assets and disposal groups classified as held for sale – 1,462.8 –
Balance as at 31 December 2,622.7 2,727.3 10_FB_Kapitel_18_bis_23_en 229 22.03.2017 15:01:54
Adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) 8.0 7.0
Balance as at 31 December 348.5 347.6 10_FB_Kapitel_18_bis_23_en 230 22.03.2017 15:01:54
Adjustment arising from unrealised gains and losses as at 1 January – 1,067.6 – 722.2
Change in measurement differences between IFRS and national accounting standards recognised in profit or loss
Adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) 722.2 771.4
Reclassification to non-current assets and disposal groups classified as held for sale – 127.6 –
Liability for future financial lease payments (present value) 0.0 0.0 0.0 0.0
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-on-year 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.
No new bonds were issued in the year under review. On 17 November 2016, a convertible bond was partially converted and the remainder redeemed for a total of CHF 242.5 million (1,500 %, 2009 – 2016, ISIN CH0107130822).
The fair value of financial liabilities at the balance sheet date totalled CHF 1,592.6 million (2015: CHF 1,864.2 million).
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 26. PROVISIONS
Premiums earned and policy fees (gross) 3,048.9 3,783.4 6,832.4 3,109.7 3,570.9 6,680.6
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 236 22.03.2017 15:02:03
Realised gains and losses on investments for own account and at own risk
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 237 22.03.2017 15:02:03
Carried at cost – – – – 5.7 – – 5.7
30.2 Realised gains and losses on investments for own account and at own risk
Carried at cost – – – – 4.6 – – 4.6
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 239 22.03.2017 15:02:04
Impairment losses on financial assets of a debt nature recognised in profit or loss
Impairment losses on mortgages and loans recognised in profit or loss
A gross currency loss of CHF 2.2 million was recognised directly in equity for the reporting year (2015: loss of CHF 127.0 million). Allowing for hedges of a net investment in a foreign operation (hedge accounting), a net loss of CHF 17.5 million was recognised for 2016 (2015: net loss of CHF 160.7 million).
Gains on the sale of property, plant and equipment 0.4 0.4 intangible assets – –
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 241 22.03.2017 15:02:04
Depreciation and impairment of property, plant and equipment – 39.8 – 31.9
Fees and commission expenses for assets managed for third parties – 2.8 – 6.3
Expenses arising from non-current assets and disposal groups classified as held for sale – –
34. PERSONNEL EXPENSES Total personnel expenses for 2016 came to CHF 868.1 million (2015: CHF 875.2 million).
Financial contracts with discretionary participation features (DPFs) – 50.3 – 52.7
Total gains or losses on financial contracts – 0.9 – 342.9
Interest rate swaps: cash flow hedges, balance carried forward from cash flow hedge reserves – –
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 243 22.03.2017 15:02:04
Total current and deferred income taxes – 168.2 – 111.7 36.2 Expected and current income taxes The expected average tax rate for the Baloise Group was 27.0 per cent in 2015 and 25.6 per cent in 2016. These rates correspond to the weighted average tax rates in those countries where the Baloise Group operates.
Increase / reduction owing to tax-exempt profits and losses 12.3 9.4 non-deductible expenses – 7.6 – 6.7 withholding taxes on dividends – 0.5 – 0.4 change in tax rates 7.8 – 18.0 change in unrecognised tax losses 7.4 18.1 recognition of tax credits – 31.0 tax items related to other reporting periods 15.9 9.0 non-taxable measurement differences – 6.8 – 5.0 intercompany effects – 9.4 6.7 other impacts – 4.0 9.5
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 244 22.03.2017 15:02:04
Adjustment of interest expenses on convertible bonds, including tax effects (CHF million) 8.0 6.0
Adjustment due to theoretical conversion of convertible bond 1 2,012,374 1,756,722
Adjustment due to theoretical exercise of share-based payment plans 115,822 75,748
The dilution of earnings in 2015 as well as in 2016 was attributable to the Performance Share Units (PSU) share-based payment plan and the convertible bond issued by Bâloise Holding Ltd.
Gains and losses arising during the reporting period – 27.6 – 0.4
Total hedging reserves for derivative financial instruments held as hedges of a net investment in a foreign operation
Reserves arising from reclassification of held-to-maturity financial assets: Gains and losses arising during the reporting period – 0.3 0.0
Total reserves arising from reclassification of held-to-maturity financial assets: – 1.7 – 1.1
Other comprehensive income before deferred income taxes – 755.3 – 115.4
Change in reserves arising from reclassification of investment property – 0.2 –
Total deferred income taxes of items to be reclassified to the income statement 167.9 – 14.8
Other comprehensive income after deferred income taxes – 595.8 – 103.0
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 247 22.03.2017 15:02:05
Net assets acquired / disposed of – 4.3 – – –
Goodwill / negative goodwill or proceeds from disposals 2.3 – – –
Cash and cash equivalents acquired / disposed of 0.5 – – –
Outflow / inflow of cash and cash equivalents – 6.1 – – –
40. RELATED PARTY TRANSACTIONS As part of its ordinary operating activities the Baloise Group conducts transactions with associates and with members of Bâloise Holding Ltd’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.
41. REMUNERATION PAID TO THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE The information to be disclosed in accordance with sections 663b (bis) and 663c of the Swiss Code of Obligations (OR) is contained in the Remuneration Report, which can be found on pages 76 to 107 of the chapter on corporate governance. The key information disclosed here includes: → Remuneration paid to the members of the Board of Directors → Remuneration paid to the members of the Corporate Executive Committee → Loans and credit facilities granted to members of the Board of Directors and the Corporate Executive Committee → Shares held by members of the Board of Directors and the Corporate Executive Committee
The Corporate Executive Committee is not aware of any new circumstances having arisen since the last balance sheet date that could have a material impact on the consolidated annual financial statements for 2016.
There is a contingent liability arising from a release agreement for employees of Baloise Life Ltd in connection with the sale to the Frankfurter Leben Group of the policy portfolio and associated business of the German branch of Baloise Life Ltd, which was announced on 3 February 2017.
Total guarantees and collateral for the benefit of third parties 524.3 672.8
Of which: own share of joint ventures’ capital commitments – –
43.2 The Baloise Group as a lessor The Baloise Group has entered into operating leasing arrangements in order to lease its investment property to third parties. The average non-cancellable residual term of its leases is between four and six years. There were no further leasing arrangements at the balance sheet date.
44. CLAIM PAYMENTS RECEIVED FROM NON-GROUP INSURERS The companies in the Baloise Group received claim payments totalling CHF 0.1 million in 2016 (2015: CHF 0.2 million) from non-Group insurers in connection with insurance contracts under which the Baloise Group companies are themselves policyholders. Most of these claim payments were made for damage to buildings in Switzerland where, depending on the building’s location, mandatory insurance cover is provided by government agencies.
Bâloise Holding Ltd, Basel Holding O Holding Holding F CHF 5.0 2,102.5 –
Baloise Bank SoBa AG, Solothurn Banking B 100.00 100.00 F CHF 50.0 7,664.5 –
Haakon AG, Basel Other O 74.75 74.75 F CHF 0.2 53.2 –
Basler Beteiligungsholding GmbH, Hamburg Holding O 100.00 100.00 F EUR 12.8 230.7 –
ZEUS Vermittlungsgesellschaft mbH, Hamburg Other O 100.00 100.00 F EUR 0.5 13.8 –
Euromex NV, Antwerp Non-Life NL 100.00 100.00 F EUR 2.7 180.1 61.6
Baloise Alternative Investment Strategies Limited, St. Helier (Jersey / Channel Islands)
1 L: Life, NL: Non-Life, B: Banking, O: Other activities / Group business. 2 Shares stated as a percentage are rounded down. 3 F: Full consolidation, E: Equity-accounted investment.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 257 22.03.2017 15:02:06
46. CHANGES TO SHAREHOLDINGS The share of capital and share of voting rights in the real-estate company SA Keiberg 401 in Belgium was increased from 46.8 per cent to 100 per cent in the second half of 2016. As a result, the company switched from being an associate to a fully consolidated subsidiary. In 2015, there had been no transactions resulting in a change of control over a subsidiary.
47. CONSOLIDATED STRUCTURED ENTITIES The Baloise Group held one consolidated structured entity – Baloise Fund Invest (Lux) – at the end of the reporting year. Baloise Fund Invest (Lux) is a Luxembourg-based firm in the legal form of an investment company with variable capital (SICAV managed by a third party). Baloise Fund Invest (Lux) is an umbrella fund consisting of various pools of assets and liabilities (or “sub-funds”), with each sub-fund pursuing its own investment policy. Baloise Fund Invest (Lux) and its sub-funds collectively constitute a legal entity. However, each sub-fund is deemed to be a separate entity as far as the legal relationship between unitholders is concerned. A sub-fund’s assets are liable to third parties only for the liabilities and obligations relating to this sub-fund.
On 19 January 2017, Basler Versicherungen in Germany announced the sale of its equity investment in Assekuranz Herrmann to the Artus Group. This sale was completed in January 2017.
Baloise Group Financial Report 2016 Notes to the consolidated annual financial statements 11_FB_Kapitel_24_bis_Bericht_en 258 22.03.2017 15:02:07
Basis for opinion We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the auditor’s responsibilities for the audit of the financial report section of our report.
Baloise Group Financial Report 2016 Report of the statutory auditor 11_FB_Kapitel_24_bis_Bericht_en 260 22.03.2017 15:02:07
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial report.
Baloise Group Financial Report 2016 Report of the statutory auditor 11_FB_Kapitel_24_bis_Bericht_en 261 22.03.2017 15:02:08
Area of focus Life insurance technical reserves consist of the actuarial reserves, policyholders’ dividends credited and provisions for future policyholders’ dividends. The actuarial reserves are valued using actuarial methodologies and assumptions (such as biometric, economic and cost assumptions).
Inappropriate valuation of the life insurance technical reserves (which includes compliance with regulatory requirements), could result in a misstatement to the financial statements of the Group and its overall financial position. The valuation of technical reserves for life insurance contracts involves a significant amount of management’s judgment.
Differences within the underlying assumptions may significantly affect the annual result and Group’s equity position.
As part of the audit, we involved our life insurance actuarial specialists to independently test management’s methodology and the underlying assumptions used. For significant portfolios, our assessment of the actuarial reserves included an independent valuation and a comparison to the Group’s financial statements.
Baloise Group Financial Report 2016 Report of the statutory auditor 11_FB_Kapitel_24_bis_Bericht_en 262 22.03.2017 15:02:08
We focused on this area because of the complexity of the models and because model parameters are inherently subject to judgement applied by management. Model deficiencies or inaccurate model parameters could lead to material differences within the Group’s consolidated financial statements.
We assessed and tested the design and operating effectiveness of the key controls related to investment valuation including the process over the control over accuracy of prices, and the control over the review of the models and model parameters.
The financial report of Bâloise Holding AG for the year ended 31 December 2015 was examined by another statutory auditor who expressed an unmodified opinion on the financial report on 18 March 2016.
The Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the financial report, the stand-alone financial statements and our auditor’s reports thereon.
Our opinion on the financial report does not cover the other information in the annual report and we do not express any form of assurance conclusion thereon.
Responsibility of the Board of Directors for the financial report The Board of Directors is responsible for the preparation of the financial report that give a true and fair view in accordance with IFRS and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial report that are free from material misstatement, whether due to fraud or error.
We recommend that the financial report submitted to you be approved.
Baloise Group Financial Report 2016 Income statement of Bâloise Holding Ltd
Total equity and liabilities 2,404.0 2,240.5 1 Adjustments balance items; see notes to the financial statements.
Baloise Group Financial Report 2016 Notes to the financial statements of Bâloise Holding Ltd 1. ACCOUNTING POLICIES
General These annual financial statements of Bâloise Holding Ltd domiciled in Basel have been prepared in accordance with the provisions of Swiss accounting law (Title 32 of the Swiss Code of Obligations)� To improve comprehensibility, the following adjustments were made to balance sheet line items that did not cause any changes in equity: → The call money and fixed-term deposits previously recognised as other financial assets are now included in cash and cash equivalents, which is a more accurate disclosure in view of their maturities�
Receivables from Group companies This line item includes expenses relating to the new financial year that have been paid in advance and income from the reporting year that will not be received until a later date� It also comprises dividends approved by subsidiaries’ annual general meetings at the balance sheet date, which Bâloise Holding reports as dividends receivable� They are recognised at their nominal amount�
Interest-bearing liabilities Interest-bearing liabilities include bonds and are recognised at their nominal amount� Issuance costs – less any premiums – are charged in full to the income statement at the time the bonds are issued� The liabilities are categorised as current (less than twelve months) or non-current interest-bearing liabilities depending on their residual term�
Provisions Provisions to cover any risks that may arise are recognised in accordance with the principles of risk-based management and are charged to the income statement�
Baloise Group Financial Report 2016 Notes to the financial statements of Bâloise Holding Ltd
In connection with the implementation of the new financial reporting standards, the principle of itemised measurement applies since 1 January 2015 to long-term equity investments� The application of this new ruling resulted in the recognition of an impairment loss of CHF 45�5 million on the long-term equity investment in Baloise Life (Liechtenstein) AG in the 2015 annual financial statements�
Total cash and cash equivalents 253.4 76.5 8. RECEIVABLES FROM GROUP COMPANIES
Baloise Group Financial Report 2016 Notes to the financial statements of Bâloise Holding Ltd 10. LONG-TERM EQUITY INVESTMENTS
Baloise Asset Management Schweiz AG, Basel 100.00 100.00 CHF 1.5 1.5
Bâloise Delta Holding S.à.r.l., Bertrange (Luxembourg) 100.00 100.00 EUR 224.3 224.3
Baloise Group Financial Report 2016 Notes to the financial statements of Bâloise Holding Ltd 11. CURRENT INTEREST-BEARING LIABILITIES
Profit for the period – – – – 289.2 – 289.2 1 Adapted to new Financial Reporting Law.
17. CEDED ASSETS Bâloise Holding Ltd lends some of its treasury shares to Baloise Insurance Ltd every year under a securities lending agreement� These shares are used in the Share Participation Plan run by Baloise Insurance Ltd� No assets had been ceded at the balance sheet date (2015: none)�
→ remuneration paid to the members of the Board of Directors, → remuneration paid to the members of the Corporate Executive Committee, → loans and credit facilities granted to members of the Board of Directors and the Corporate Executive Committee, → shares and options held by members of the Board of Directors and the Corporate Executive Committee�
Baloise Group Financial Report 2016 Proposal by the Board of Directors
Proposals by the Board of Directors: Allocated to free reserves – 185,000,000.00 – 29,000,000.00
The appropriation of profit is consistent with section 30 of the Articles of Incorporation� Each share confers the right to receive a dividend of CHF 5�20 gross or CHF 3�38 net of withholding tax�
Appropriation of distributable profit as proposed by the Board of Directors 12_FB_Holding_en 281 22�03�2017 14:59:30
Holding AG, which comprise the balance sheet, income statement and notes, for the year ended 31 December 2016.
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the auditor’s responsibilities section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements.
Area of focus Bâloise Holding Ltd accounts for long-term equity investments at cost less necessary impairments and valued on an individual basis. Management assesses whether there are any impairment losses in the carrying value of the long-term equity investments, by comparing the carrying amount to the net asset value of the subsidiary or to a valuation of the subsidiary by using a discounted cash flow analysis. The determination whether a long-term equity investments needs to be impaired involves management’s judgement, this includes assumptions about the profitability of the underlying business and growth.
In relation to the key audit matter set out above, we assessed the appropriateness of the Company’s impairment testing methodology. We reperformed management’s impairment test on the carrying value of each investment, including the assessment of management’s assumptions and challenged the impairment decisions taken. We have audited the required disclosures in the notes to the financial statements as at 31 December 2016.
The financial statements of Bâloise Holding Ltd for the year ended 31 December 2015 were audited by another statutory auditor who expressed an unmodified opinion on those financial statements on 18 March 2016.
→ Baloise “Baloise” stands for “the Baloise Group”, and “Bâloise Holding” means “Bâloise Holding Ltd”� Baloise shares are the shares of Bâloise Holding Ltd�
→ Claims incurred Claims incurred comprise the amounts paid out for claims during the financial year, the reserves set aside to cover unsettled claims, the reversal of reserves for claims that no longer have to be settled or do not have to be paid in full, the costs incurred by the processing of claims, and changes in related reserves�
→ 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 profitability of non­life insurance business�
→ Deferred taxes Probable future tax expenses and tax benefits arising from temporary differences between the carrying amounts of assets and liabilities recognised in the consolidated financial state­ ments and the corresponding amounts reported for tax purposes� The pertinent calculations are based on country­ specific tax rates�
→ Impairment An asset write­down that is recognised in profit or loss� An impairment test is carried out to ascertain whether an asset’s carrying amount is higher than its recoverable amount� If this is the case, the asset is written down to its recoverable amount and a corresponding impairment loss is recognised in the income statement�
→ Legal quota A legally or contractually binding percentage requiring life insurance companies to pass on a certain share of their profits to their policyholders�
→ Minimum interest rate The minimum guaranteed interest rate paid to savers under occupational pension plans�
→ Net The net figures shown on the balance sheet or income statement in an insurance company’s annual report are stated after deduction of reinsurance�
→ Performance of investments Performance in this context is defined as the rates of return that Baloise generates from its investments� It constitutes the gains, losses, income and expenses recognised in the income statement plus changes in unrealised gains and losses as a percentage of the average portfolio of investments held�
→ Periodic premium Periodically recurring premium income (see definition of “premium”)�
→ Reinsurance If an insurance company itself does not wish to bear the full risk arising from an insurance policy or an entire portfolio of policies, it passes on part of the risk to a reinsurance company or another direct insurer� However, the primary insurer still has to indemnify the policyholder for the full risk in all cases�
→ Risk scoring Risk scoring uses analytical statistical methods to derive risk assessments from collected data based on empirical values� Insurance companies use this kind of scoring to ensure that the premiums they charge reflect the risks involved�
→ Segment Financial reporting in the Baloise Group is carried out in accordance with International Financial Reporting Standards (IFRSs), which require similar transactions and business activities to be grouped and presented together� These aggre­ gated operating activities are presented in “segments”, broken down by geographic region and business line�
→ Technical reserve Insurers disclose on their balance sheets the value of the benefits that they expect to have to provide in future under their existing insurance contracts� This value is calcu lated from a current perspective in accordance with generally accepted principles�
→ Value of new business The value added by new business transacted during the reporting period; this figure is measured at the time the policy is issued�
SWITZERLAND Basler Versicherungen Aeschengraben 21 CH-4002 Basel Tel. + 41 58 285 85 85 Fax + 41 58 285 70 70 kundenservice@baloise.ch
LUXEMBOURG Bâloise Assurances 23, rue du Puits Romain Bourmicht L-8070 Bertrange info@baloise.lu
Baloise Group Annual Report 2016 General information Information on the Baloise Group
The 2016 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 2016 annual financial statements together with detailed information�
© 2017 Bâloise Holding Ltd, 4002 Basel, Switzerland Publisher Bâloise Holding Ltd, Corporate Communications & Investor Relations Concept, design Eclat, Zurich Photography Dominik Plüss, Basel / Marc Wetli, Zurich Publishing Multimedia Solutions AG, Zurich English translation LingServe Ltd (UK) Printing Gremper AG, Pratteln 05_JB_Anhang_en 293 22�03�2017 14:55:47
Baloise Group Annual Report 2016 General information Financial calender and contacts 23.03.2017 Annual financial results: media conference conference call for analysts 28.04.2017 Annual General Meeting of Bâloise Holding Ltd 30.08.2017 Half-year financial results: conference call for analysts and the media 27.03.2018 Annual financial results: media conference conference call for analysts 27.04.2018 Annual General Meeting of Bâloise Holding Ltd
Corporate Governance Baloise Group Philipp Jermann Aeschengraben 21 4002 Basel, Switzerland philipp.jermann@baloise.com
Media Relations Baloise Group Dominik Marbet Aeschengraben 21 4002 Basel, Switzerland media.relations@baloise.com 05_JB_Anhang_en 294 22�03�2017 14:55:47