Review of Business yeaR Group ������������������������������������������������������������������������������������������������������������ 14 Switzerland ������������������������������������������������������������������������������������������������ 18 Germany ������������������������������������������������������������������������������������������������������ 19 Belgium and Luxembourg ������������������������������������������������������������������ 20 Other units and Group business ������������������������������������������������������ 21 Consolidated income statement ������������������������������������������������������� 22 Consolidated balance sheet ���������������������������������������������������������������� 24 Business volume, premiums and combined ratio �������������������� 25 Technical income statement �������������������������������������������������������������� 27 Gross premiums by sectors ����������������������������������������������������������������� 28 Banking activities ����������������������������������������������������������������������������������� 29 Investment performance ��������������������������������������������������������������������� 30 susTainaBle Business ManaGeMenT Human Resources ����������������������������������������������������������������������������������� 34 Ecology ��������������������������������������������������������������������������������������������������������� 38 Risk Management ����������������������������������������������������������������������������������� 40
Subtotal of IFRS gross premiums written 1 6,859.8 6,803.3 – 0.8
Consolidated profit per share basic 3 in CHF 9.14 1.30 – 85.8
whaT we wanT To aChieve: We will focus on our efficient and profitable core business� As a result, we strive for a combined ratio of well below 100 % in nonlife business� In life insurance, we want to attain a new business margin of at least 10 %� However, in the years to come we anticipate volatile financial markets and an uncertain economic and interest rate development� We are therefore cautious in our forecasts� Yet our focus on the quality of our operational business creates the basis for being able to pay an attractive dividend in the future as well�
dr andreas Burckhardt, Chairman of the Board of directors (left) and dr Martin strobel, Group Ceo (right)
7Baloise Letter to shareholders ensure that losses do not occur in the first place� More and more customers appreciate this tangible plus in value that they don’t get anywhere else�
Second: Baloise has a healthy, profitable insurance business� This is documented by our nonlife division, the backbone of our company� For many years now, Baloise has been among the best regarding the decisive parameter of the combined ratio even in the turbulent year of 2011� We control all business and financial market risks with our proven risk management, one of our core domains� With the programme “Baloise 2012” we optimise business processes meticulously and look for new growth opportunities to make Baloise more profitable� All these skills of our trade will continue to serve us well�
Thanks to the good operational earning power, the high operating cash flow and strong capitalisation, we intend to continue our long-standing, attractive payout policy despite the demanding prevailing circumstances� We will propose an unchanged high dividend of CHF 4�50 at the Annual General Meeting on 27 April 2012�
The year 2011 was marked by the European debt crisis� The record lows for interest rates and uncertainty on the money markets put pressure on financial stocks in particular� The Baloise share as well felt the negative effects of the macro-economic environment and lost significantly in value compared to the beginning of the year�
In the second half-year, the Baloise share reacted very sensitively to the negative development of the economic environment and sustained a loss in value of around 25 %� In comparison, the European Insurance Industry Index lost 18�0 % and the Swiss equivalent 4�7 %�
With regard to the whole year and despite the relatively good performance during the first half-year with a year-end price of CHF 64�40, a negative value development of the Baloise share of 29�2 % results� In contrast, the losses of the European Insurance Industry Index, with a depreciation of 13�7 %, were much lower� Both the Swiss Insurance Industry Index and the Swiss Market Index were affected to a much lesser extent, with minuses of 12�9 % and 7�8 % respectively�
1 Comprises exclusively the share buy-back programme in place since September 2008. An additional 1,173,715 treasury shares were repurchased at an average price of CHF 95.99 in 2008, as part of the previous share buy-back programme (2006 – 2008).
The share buy-back programme can be viewed at: www.baloise.com → Investor Relations → Baloise share → Share buy-back programme
Attractive dividend for shareholders *Baloise share = share of Bâloise holding ltd
9Baloise Baloise share shaReholdeR sTRuCTuRe Bâloise Holding Ltd has a broad shareholder base� The free float of the Baloise share is unchanged at 100 %� During the course of the year, collective investments that are managed by the Credit Suisse Group have repeatedly exceeded or fallen below the reportable 3 % threshold� On 16 September 2011, the proportion of outstanding registered shares held by the Credit Suisse Group amounted to 3�05 %� This was the only significant change to the shareholder base in the 2011 fiscal year� Information on the significant shareholders as of 31 December 2011 is detailed in the table on page 231�
Consolidated profit per share diluted in CHF 15.15 7.32 8.57 8.89 1.29
Number of shares issued in units 54,000,000 50,000,000 50,000,000 50,000,000 50,000,000
Average number of shares outstanding 2 51,887,469 48,852,533 47,905,512 47,394,282 46,900,473
10 Baloise Our markets swiTZeRland In its home market Switzerland Baloise operates under the brand names “Basler Versicherungen” and “Baloise Bank SoBa�” Baloise Switzerland is the largest business unit within the Group� As a financial services provider it focuses on comprehensive insurance and pension solutions� Its clients are private individuals, small and medium-sized enterprises as well as selected industrial companies� The company’s own sales force constitutes the core of its sales strategy� This is augmented by a network of selected sales partners for specific product and client segments, and by brokers and the Internet� Baloise Bank SoBa specifically complements the range of pension solutions with banking products that are sold by the insurance sales force and by the bank itself� In north-west Switzerland its market positioning is also that of a full-service bank�
BelGiuM Baloise is present on the Belgian market with the brand “Mercator ”� The purchase of Avéro and Nateus has made Mercator one of the leading insurers in Belgium� Mercator sees itself as a partner for professional brokers� The company provides a broad range of life and nonlife insurance products for private individuals as well as small and medium-sized enterprises�
Combined ratio (gross) in percent 81.4 81.1 ausTRia In Austria “Basler Versicherungen” provides insurance and pension solutions to private customers as well as to small and medium-sized enterprises� The company’s own sales force is mainly responsible for marketing of these products�
Combined ratio (gross) in percent 110.2 107.4 lieChTensTein Baloise Life, founded in Balzers in 2007, develops innovative pension solutions and tailor-made life insurance products for private customers across Europe� It markets these via national Baloise companies as well as via third party partners�
Our promise is “Making you safer.” Everything we do is geared towards safety. We combine insurance with smart prevention solutions and thus help to ensure that losses do not occur in the first place.
strength Baloise is a strong partner� Strong in terms of growth, returns and results� We can be relied on when it really counts, because our strength means we are a partner people can depend on�
Professionalism Baloise stands for professionalism� This allows us to produce top-quality performance� We are professional in our approach to our core business, our customers and our marketing� Because we know that professionalism brings inner peace�
innovative Our innovative drive gives us the necessary competitive edge� This is evident from our systematic, comprehensive focus on safety as well as our customer management�
Partnership Commitment to partnership is one of our biggest emotional strengths� It is based on recognising and creating added value� We work to nurture and deepen our relationships with all our stakeholders� So that we are always able to generate enthusiasm�
Belgium and luxemBourg �������������������������������������������������������������� 20 Strengthened market position and good growth ��������������������� 20 other unitS and group BuSineSS ��������������������������������������������� 21 financial information ��������������������������������������������������������������������� 22 Consolidated income statement ������������������������������������������������������� 22 Consolidated balance sheet ���������������������������������������������������������������� 24 Business volume, premiums and combined ratio �������������������� 25 Technical income statement �������������������������������������������������������������� 27 Gross premiums by sectors ����������������������������������������������������������������� 28 Banking activities ����������������������������������������������������������������������������������� 29 Investment performance ��������������������������������������������������������������������� 30
Diverse impacts from the difficult economic and financial market environment impaired the profit of Baloise distinctly to CHF 61.3 million, however, the Group’s operative efficiency and capital strength remain high. They form the basis to look optimistically to the future.
We have embedded the brand positioning expressed through the promise “Making you safer” further in all Baloise markets� We continued to extend our prevention solutions that complement the classic insurances to include motor, household and marine insurances� These additional offerings have been very well received by the customers: They bring about a higher product density at the target customers, an above-average intake of new customers, increased customer loyalty and recommendations � Thus these safety offerings contribute considerably to value creation�
The growth must be viewed from different aspects� Business volume, which includes investment-type life insurance products, dropped by 14�6 % to CHF 8,144�5 million (previous year: CHF 9,541�4 million)� In local currencies this equates to a decrease of 9�9 %, after eliminating the euro exchange rate that is 10�9 % poorer� As was to be expected, the main impact stems from the investment-type life insurances in Luxembourg and Liechtenstein – their volume was halved also because extraordinary effects were absent in 2011, namely those from the Italian tax amnesty and the “EU interest directive” that was – against expectations – not introduced� In contrast, the premium deve- lopment of traditional insurances was distinctly more positive: IFRS premium volume amounted to CHF 6,803�3 million (previous year: CHF 6,859�8 million), a minus of 0�8 %� An attractive growth of 4�1 % resulted in local currencies, which confirms the sound sales performance� The growth impulses stem mainly from the nonlife business, but the acquisitions in Belgium also
15Review of business year Group contributed� The business volume of Baloise remains well spread over the whole Group�
Income from services rendered nonlife diViSion: good operatiVe performance and growth The nonlife division (indemnity and personal insurance) achieved a very good operative performance� Clear evidence of this is the good net combined ratio of 95�5 %, which is hardly above the previous year’s value of 95�2 % despite the large burdens of CHF 123 million caused by storms and major claims� Environmental damage alone burdened the net value of the combined ratio by 3�3 percentage points� Similarly positive was the development of the expense ratio, which decreased further to 31�4 % net (previous year: 31�9 %) thanks to the targeted measures of the programme “Baloise 2012” to increase efficiency� However, profit before taxes and borrowing costs was CHF 127�0 million and thus markedly below the previous year’s value of CHF 380�3 million� High impairments on investments, especially on shares and Greek government bonds, were the main causes for the decrease� In addition, there were the substantial burdens due to storm damage and major claims� The previous year’s profit also benefited from disposals of investments� IFRS premium volume amounted to CHF 3,143�5 million (previous year: CHF 3,044�9 million), which equates to an increase of 3�2 % in Swiss francs and 10�6 % in local currencies� The main motors of this encouraging growth are, above all, the additional purchases in Belgium, but also successful sales in all local markets�
life inSurance diViSion: BurdenS cauSed By capital marKet The result of the life insurance division was especially characterised by the drop in interest rates – above all in the Swiss life business – and the negative developments on the capital markets� Significant impairments on Greek government bonds were necessary in the life insurance division� Profit before borrowing costs and taxes dropped distinctly to CHF 15�9 million (previous year: CHF 182�7 million)� Business volume, which includes investment-type life insurance products, amounted to CHF 5,001�0 million (previous year: CHF 6,496�5 million)� This equates to a minus of 23�0 % in Swiss francs and 19�5 % in local currencies � It must be considered here that the volume of investmenttype life insurances compared to the previous year is practically halved because after the strong growth drives of previous years of Bâloise in Luxembourg and Baloise Life (Liechtenstein) the sales rates have now returned to a normal level� This decrease could not be compensated despite strong increases in Switzerland and Belgium� Premium income of classic life insurances amounted to CHF 3,659�9 million (previous year: CHF 3,814�9 comBined ratio net performance in percent
The embedded value of the life business amounted to CHF 2,153�0 million (previous year: CHF 2,573�5 million)� This equates to a return on embedded value of – 17�8 %� A reduction of CHF 810�1 million stems from the change in the economic environment � The operating income contributed CHF 372�8 million to the embedded value� The value of new business amounts to CHF 34�9 million� The new business margin is 10�2 % (previous year: 11�8 %)�
BanKing diViSion: high profitaBility The banking division achieved an excellent result with a profit before borrowing costs and taxes of CHF 73�3 million (previous year: CHF 67�9 million), despite the economic and financial crisis� This equates to a growth of 8�0 %� The fiscal year was especially pleasing for the Baloise Bank SoBa and Baloise Asset Management that belong to the banking division� The bank’s interest-related business remained stable while the profit from financial services and the commission business increased�
inVeStmentS: StaBle current income deSpite extraordinary BurdenS After the positive start to the year, the European debt crisis dominated the financial markets� The associated price fluctuations were reflected in the clearly lower investment result� Whilst recurring income remained stable at CHF 1,766�5 million, depreciation had to be performed on equity and also on debt instruments�
currency-hedged to 85 %, whereby this quota fluctuated between 80 % and nearly 100 % over the course of the year�
A unique feature of the properties held directly was their strong value and income stability� No net impairment was necessary on mortgage bonds�
Review of business year Group generated a higher return than the nonlife division� IFRS performance * was 2�7 % and below the previous year’s value of 3�5 %�
BaloiSe aSSetS aS of 31.12.2011 nonlife life Banking total group in CHF million
* Including changes in net value of investments not recognised in profit or loss but excluding changes in held to maturity financial instruments.
Business volume amounted to CHF 2,796�8 million (previous year: CHF 2,822�9 million) in the life insurances division, which equates to a decrease of 0�9 %� The development is multi-faceted: whilst the classic life insurances were no longer offered or hardly in demand due to the low interest rates, innovative products like Baloise Safe Invest or Renta Safe Time achieved good results� We were able to increase the annual premiums further in the Group life business despite the selective underwriting policy�
BaloiSe BanK SoBa: more profit thanKS to growth and coSt reductionS The Baloise Bank SoBa again had a successful year in 2011� Net income increased by 2�3 % to CHF 21�7 million (all figures pursuant to local financial accounting)� Client assets and mortgage receivables continued to increase� The cooperation between the bank and the Basler Switzerland continued to pay off: The volume generated by the insurance sales force increased by 11�7 % to CHF 2,113�6 million� The income from the interestrelated business increased by 1�0 % to CHF 83�8 million despite declining margins� The commission and service business remained constant� The cost-income ratio improved to 64�0 % (previous year: 66�8 %)� The total assets amounted to CHF 6�68 thousand million as of 31 December 2011, an increase of 4�8 %�
The Switzerland segment confirmed its good operative profitability in the insurance and also in the banking division and achieved convincing growth in the nonlife business.
The difficult market environment and major claims impaired the operational earning power� Baloise’s German business generated a loss before borrowing costs and taxes of CHF 1�9 million in the 2011 fiscal year (previous year: profit of CHF 118�7 million)� The annual result of 2010 profited from various positive non-recurrent effects as a result of separating Deutscher Ring Leben und Sach on the one hand, and Deutscher Ring Kranken on the other� Furthermore, the sales company OVB, whose holding was deconsolidated in 2010 no longer contributes to the result� The 2011 business result of the German unit was characterised by the weak capital market development and lower interest rates on the one hand� And on the other and above all in the fourth quarter, considerable major and elementary claims, reserves for claims incurred prior to the reporting period as well as an above-average number of medium-sized claims put a strain on the result� The combined ratio of the property insurance business deteriorated to gross 98�2 % (previous year: 97�1 %)� While the loss ratio increased by 1�5 percentage points, the expense ratio improved by 0�5 percentage points� The costs from separating the companies of the Deutscher Ring dampened the result�
The business volume amounted to CHF 1,774�9 million (previous year: CHF 1,987�1 million), a minus of 10�7 %� This results in a slight plus of 0�2 % after adjustments for effects from exchange rates� The property insurance division achieved a premium volume of CHF 846�7 million (previous year: CHF 938�9 million )� This equates to a pleasing increase in local currencies of 1�2 %� Positive is that the premium erosion due to the separating process of Deutscher Ring Sach could be more than com pensated by the good growth achieved by Basler Germany� The business volume of the life insurance division developed slightly weaker due to the difficult circumstances� It achieved CHF 928�2 million (previous year: CHF 1,048�2 million), a slight decrease in local currencies of 0�6 %� In this division, high single premiums compensated losses in current premiums, contrary to the market trend�
The separation of the Deutscher Ring companies and the merging of Deutscher Ring Leben und Sach with Basler Germany are proceeding according to plan� The formation of a single German business unit with the brand name “Basler Versicherungen ” will be largely completed in 2013�
Mercator now is one of the leading insurers in the nonlife business in Belgium after the purchase of the Avéro Schadeverzekering Benelux NV at the beginning of 2011 and the Nateus companies in the second half-year� The integration of Avéro is already almost completed, whilst Nateus is to be integrated at the beginning of 2013� The Belgian business unit achieved a profit before borrowing costs and taxes of CHF 21�9 million (previous year: CHF 142�9 million)� Impairments on investments and the costs of integrating Avéro dampened the result� Furthermore, the profit of the previous year contains larger revenues from the sale of securities� Through the purchase of the new units, the business volume grew by 36�7 % to CHF 1,091�1 million (previous year: CHF 798�1 million)� The increase in local currency amounted to 53�4 %� Even without the new companies, Mercator increased its business above the market average in the nonlife business and also in life insurances� Due to the consolidation of Avéro and Nateus (last trimester) and also because of the lower settlement profits in comparison to the previous year, the gross combined ratio increased by 1�3 percentage points to 95�3 % (previous year: 94�0 %)�
Measured against the economic circumstances, Bâloise Luxembourg achieved a very good result with a profit before borrowing costs and taxes of CHF 10�0 million (previous year: CHF 14�3 million)� The business unit enjoyed a favourable claims development throughout the fiscal year� The gross combined ratio improved slightly to 81�1 % (previous year: 81�4 %)� The weaker claims ratio could be overcompensated by cost reductions � The cross-border business with investment-type life insurances is starting to return to normal� This means that the business volume that is characterised to a large extent by these products was halved after very strong growth spurts in the previous years, to CHF 598�9 million (previous year: CHF 1,269�9 million)� Bâloise Luxembourg was able to gain further ground in the local core business� Premium volume was CHF 122�6 million (previous year: CHF 133�1 million)� This equates to an increase in local currency of 3�4 %� Likewise currency adjusted, the premiums in the nonlife sector grew by 0�6 % and for life insurances by 7�8 %�
Profit before borrowing costs and taxes auStria: Strong growth Basler Austria continued to grow strongly as in previous years and proceeded to invest in the expansion of the insurance sales force by taking over local agencies� Business volume was CHF 153�7 million (previous year: CHF 161�9 million)� This equates to an increase of 6�5 % in local currencies� The growth rates in the following business divisions were also convincing: The nonlife business achieved a plus in local currencies of 7�7 %, whilst the life insurances, likewise in local currency, increased by 3�0 %� Here investment-type insurances were the driving force� Impairments on investments resulted in a loss before borrowing costs and taxes of CHF 1�0 million (previous year: CHF 2�4 million)� The gross combined ratio improved to 95�0 % (previous year: 97�5 %)�
croatia and SerBia: goodwill impairment in croatia The reappraisal of the business perspectives of the Croatian business unit that became necessary in connection with the weak economic development in Croatia resulted in a goodwill impairment of the Osiguranje Zagreb that was taken over in 2007� This is the main reason for the loss before borrowing costs and taxes of CHF 72�4 million� The Croatian unit continues to make operational progress� Restructuring and optimisation measures together with the favourable claims history improved the gross combined ratio to 107�4 % (previous year: 110�2 %)� Business volume in Croatia and Serbia amounted to CHF 70�4 million; the increase in local currency was 2�5 %�
BaloiSe life, liechtenStein: new orientation The business volume of Baloise Life in Liechtenstein, which specialises in innovative life insurance products, amounted to CHF 343�1 million (previous year: CHF 1,119�0 million)� This business segment, investment-type life insurances, has returned to normal after the strong growth spurts of previous years, especially in Italy� This led to a strong reduction in business volume � At the end of 2011, the unit was newly positioned and downsized accordingly, as part of the strategic orientation of the Group’s life business� It now cooperates with Bâloise Luxembourg that will in future be responsible for coordinating operations in the EU zone�
group BuSineSS The “Group business” segment contains the units for Group internal reinsurance and financing, the holding companies as well as Corporate IT� Profit before borrowing costs and taxes amounted to CHF 95�1 million (previous year: CHF 74�5 million )� The increase can be attributed to the positive result development of the reinsurance unit and the Run Off business in particular�
Basler Austria continues to grow strongly. An impairment to goodwill dampens the result in Croatia.
Premiums earned and policy fees (gross) 1 6,880.2 6,945.2 6,841.5 6,854.3 6,806.9
Realised gains and losses on investments 2 597.5 – 1,680.1 435.6 501.6 – 943.4
Claims and benefits paid (gross) – 5,597.9 – 5,676.7 – 5,383.4 – 5,212.9 – 5,311.5
Interest expenses on insurance liabilities – 76.1 – 73.8 – 69.4 – 61.2 – 51.6 profit before borrowing costs and taxes 1,042.9 579.9 562.1 607.2 143.9
Financial assets of a debt nature 24,433.3 23,115.6 26,502.7 25,840.5 28,917.5 in CHF million equity and liabilities equity liabilities
26 Review of business year Business volume, premiums and combined ratio comBined ratio groSS
comBined ratio groSS and net gross net as a percentage of premiums earned funding ratio nonlife in CHF million
Premiums written and policy fees for own account 2,892.1 2,987.9 funding ratio in percent 180.5 195.9 1 Not including capitalised settlement premiums.
Change in claims reserve / actuarial reserves 1 – 56.2 – 110.4 – 966.9 – 269.4
Expenses for policyholders’ dividends – 17.5 – 17.4 – 352.8 – 243.0 total technical result (gross) 198.3 192.1 – 1,371.1 – 841.8 ceded to reinsurers
Change in claims reserve / actuarial reserves 1 – 79.3 – 121.4 – 967.2 – 264.9
Expenses for policyholders’ dividends – 17.3 – 17.1 – 351.6 – 241.2 total technical result for own account 101.3 88.1 – 1,379.6 – 845.0
Realised gains and losses on investments 2 8.4 – 191.4 499.0 – 720.4
Other financial expenses and income 1.7 – 41.7 – 206.4 333.2 result from investment income 279.0 38.9 1,562.3 860.9 annual result before borrowing costs and taxes 380.3 127.0 182.7 15.9
Gross premiums by sectors groSS premiumS By Sector nonlife in CHF million gross premiums written, nonlife 3,044.9 3,143.5 3.2 groSS premiumS By Sector life in CHF million
Viewed against the comparative period, premium income in the 2011 fiscal year was adversely affected by the exchange rate developments between the Swiss franc and the euro�
Total interest expenses – 83.0 – 75.3 net interest income 99.2 99.0
Risk-weighted assets: banking activities 3,429.4 3,495.3 aSSet allocation in CHF million
realiSed gainS and loSSeS, inSurance 1 nonlife life total nonlife life total in CHF million
total capital gains and losses 8.4 184.8 193.2 – 191.4 – 123.3 – 314.7 aSSet allocation, inSurance 1 nonlife life total nonlife life total in CHF million 1 Excluding assets for the account and at the risk of life insurance policyholders.
Sustainable�business� management 4 Baloise 14 Review of business year 34 sustainable business management 44 Corporate Governance 82 Financial Report 224 Bâloise Holding Ltd 238 NotesPREPRINT
Performance, innovation and partnership are at the heart of our corporate culture. The skills and motivation of our employees are the foundation of our successes – today and tomorrow.
→ In our main market Switzerland 60.2 % (2010: 58.8 %)
→ Baloise invested 2011 CHF 12.1 million (2010: CHF 12.5 million) in employee training in 2011.
→ Employees remain at Baloise for an average of 13 years. → As of 31 December 2011, staff turnover was 9.1 %
emPloyee skills aRe ouR Distinction “Making�you�safer”�is�our�promise�to�our�customers,�shareholders �and�employees��This�means�that�we�actively�contribute�to� preventing�damage��Our�employees�require�relevant�skills�so� that�we�can�achieve�this��Baloise�strengthens�itself�by�encouraging �these�skills�and�focusing�on�our�corporate�values��We�are� guided�our�brand�values�“partnership”,�“innovative”�and�“Swiss”� in�this�regard��These�are�cornerstones�of�our�brand�positioning� and�we�put�these�values�into�practice�with�three�common�principles �of�conduct:�“Develop�and�engage�–�yourself�and�others!”,� “Act�authentically�and�earn�trust!”�and�“Put�yourself� in�the� other’s�shoes!”��
Taken�together,�these�brand�values�and�principles�of�conduct� reinforce�Baloise’s�profile�as�an�attractive�and�forward-looking� employer��They�help�us�to�recruit�and�retain�excellent�employees� and�so�contribute�to�our�enduring�corporate�success��We�make� long-term�investments�in�the�skills�and�the�development�of�our� employees;�we�gain�competitive�advantages�with�achievementdriven, �dedicated�and�well-trained�employees��Our�human�resources �strategy�lays�the�foundations�for�successfully�implementing �these�principles�� The�elements�of�our�human�resources�strategy�are: �→ to�be�the�preferred�employer�in�our�sector� �→ to�be�performance�and�result-driven� �→ to�be�a�highly�qualified,�learning�organisation� �→ to�have�excellent�leadership�and�management�skills� �→ to�be�highly�adaptable�and�flexible� �→ to�have�an�employee-focused�corporate�culture���
We aRe a HigHly QualiFieD, leaRning oRganisation In�a�new,�integrated�concept,�we�introduced�performance�management, �development�planning,�succession�planning�and�talent� identification�Group-wide�in�2011��The�main�objective�of�the� integrated�performance�management�is�to�embed�a�culture�of� performance,�trust�and�continuous�learning�at�Baloise��Sys-� tematic� discussions� were� conducted� with� our� employees� in�� order�to�fix�individual�goals,�evaluate�these�and�define�opportunities �for�development��This�process�was�supported�with�a� uniform�system�across�the�Group�for�the�first�time�in�2011��The� major�focus�of�this�integrated�process�is�the�regular�dialogue� between�management�and�employees��This�aims�to�establish� guidance�and�clarity�regarding�mutual�goals�and�continuous� learning�by�defining�individual�development�targets�and�measures ��
We inVest sPeciFically in continuous aDVanceD tRaining In�2009�Baloise�created�an�innovative�development�programme� for�the�most�senior�staff�members�and�selected�employees�the� Strategic�Leadership�Programme�(SLP)��The�2011�programme� focussed�on�the�cooperation�between�the�participants�as�well� as�the�structure�and�the�development�of�strategic�skills��The�150� SLP�participants�worked�on�expert�topics�such�as�pricing�or�risk� management�as�well�as�on�leadership�topics�and�improved�themselves �and�their�teams�in�these�areas��Knowledge�transfer�and� networking�between�the�participants�are�supported�by�an�annual �meeting;�the�last�was�in�September�2011�in�Jesteburg,�Germany ��The�participants�developed�a�set�of�Group-wide�conduct� principles�� These� principles� of� conduct� derived� from� brand�� positioning�will�be�adopted�across�the�Baloise�Group�beginning� in�2012��
Baloise PRomotes inteRnal moBility In�2010,�we�laid�the�foundations�for�even�stronger�on-the-job� development� by� bringing� performance� management,� talent� identification� and� development� planning� together� to� form�� a�Group-wide�Talent�Management�System��We�want�to�use�this� to�systematically�expand�internal�promotion�as�well�as�internal� mobility��This�means�that�employees�that�perform�well�and�have� potential�will�find�even�more�opportunities�within�Baloise�in� future�����
DiVeRsity anD PaRtneRsHiP WitH tHe emPloyees 45�8�%�(2010:�45�1�%)�of�all�employees�and�20�9�%�(2010:�20�0�%)� of�senior�management�are�women��Baloise�does�not�tolerate�any� form�of�discrimination��The�management�of�our�business�units� and�those�responsible�for�HR�matters�ensure�that�this�maxim� is�followed;�they�are�supported�in�this�by�the�internal�Compliance �Network��Baloise�promotes�its�employees�solely�on�the� basis�of�their�performance,�their�potential�and�their�identification �with�corporate�values�
www.baloise.com/sustainability → Ecology / Environmental mission statement → Ecology / Ecology audit → Risk Management → Interview with Rolf Schäuble at the 2007 General Meeting enViRonmental auDit 2009 absolute 2010 absolute 2011 absolute Relative unit + / – %
Types of refuse 51.0 % paper / cardboard 6.0 % other materials 2.0 % special waste 41.0 % misc. waste / refuse
Business travel 23.46 million km 16.01 million km 18.32 million km 3,817 km / employee 14.4
Mode of transport 26.6 % km by air 40.2 % km by road 33.2 % km by public transport
The 2010 figures for the Austrian subsidiary were adopted due to technical reasons.
As an integral component of Baloise strategic management, risk management makes a major contribution to the Group’s positioning. As a European insurance company with Swiss roots, we possess a strong balance sheet and a high degree of operational earning power, which have been optimised in relation to risks taken on the one hand and earnings opportunities on the other.
Baloise�risk�organisation�includes�the�Group�Risk�Committee �and�local�Risk�Committees�in�all�business�units��These�committees �consist�of�members�of�the�Corporate�Executive�Committee � or� members� of� the� local� management�� They� are� responsible�for�taking�risk�strategy�decisions��
Special�boards�also�prepare�decision�documents�relating�to� specific�risk�areas,�such�as�asset�/�liability�management,�compliance, � IT� risks� and� allocation,� for� these� committees�� This� is� rounded�off�by�close�cooperation�between� the�Group’s�Risk�� Management�team�and�local�risk�experts��This�comprehensive� risk�organisation�is�our�platform�for�sharing�and�continuous� further�development�of�“best�practices�”
Our risk management is an important cornerstone of our business model.
In� order� to� comprehensively� limit� risk� at� an� aggregated�� level,�the�Group�uses�a�system�of�limits�based�on�economic�risk� capital��This�system�tracks�the�Group’s�and�individual�business� units’� risk�capital� in�real� time��We�also�monitor� individual,� issue-specific�risks,�using�limits,�as�illustrated�in�the�following� examples: �→ The�underwriting�risks�are�based�on�underwriting�guidelines, �on�which�local�underwriters�based�their�decisions�� Excess�analyses�calculated�using�risk�mathematics�go� hand�in�hand�with�key�reinsurance�policies��
CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT ������������������������������������������������ 44 Group�and�shareholder�structure������������������������������������������������������ �44 Capital�structure���������������������������������������������������������������������������������������� 45 Board�of�Directors������������������������������������������������������������������������������������� 46 Corporate�Executive�Committee�������������������������������������������������������� 53 Compensation�Report������������������������������������������������������������������������������ 57 Shareholder�participation�rights��������������������������������������������������������� 77 Change�of�control�and�defensive�action������������������������������������������ 77 Auditors���������������������������������������������������������������������������������������������������������� 78 Information�policy������������������������������������������������������������������������������������ 79
This�chapter�mirrors�the�structure�of�the�SIX�Corporate�Governance �Guidelines�in�the�version�dated�29�October�2008��We� apply�these�guidelines�in�order�to�increase�transparency�and�so� improve�the�comparability�with�previous�years�as�well�as�with� other�companies��The�Swiss�Code�of�Best�Practice�for�Corporate� Governance�by�economiesuisse�and�in�particular�Appendix�1� published�in�2007�with�its�recommendations�for�compensation� is�also�taken�into�account��Baloise�publishes�an�actual�Compensation �Report�as�item�5�of�the�Corporate�Governance�Report,� which�also�complies�with�the�guidelines�contained�in�the�circular �2010�/�1�of�the�Swiss�financial�market�supervisory�authority �FINMA�
www.baloise.com → Investor relations → Baloise share → Share buy-back programme
Authorised and contingent capital, other financing instruments Authorised capital The�Annual�General�Meeting�decided�on�29�April�2011�to�renew� the�resolution�from�30�April�2009�and�extend�it�until�29�April� 2013��This�resolution�authorises�the�Board�of�Directors�to�increase� share�capital�by�at�most�CHF�500,000�by�issuing�a�maximum� of�5,000,000�registered�shares�with�a�face�value�of�CHF�0�10�that� are�to�be�fully�subscribed�and�paid�in�full��§�3�section�4�of�the� Articles�of�Incorporation�was�adapted�accordingly� www.baloise.com → Responsibility → Corporate Governance → Rules and regulations
Contingent capital The�2004�Annual�General�Meeting�(§�3�of�the�Articles�of�Incorporation )�created�contingent�capital��This�capital�enables�share� capital�to�be�increased�by�a�maximum�of�5,530,715�registered� shares� each� with� a� face� value� of� CHF� 0�10�� This� equates� to�� a�maximum�nominal�share�capital�increase�of�CHF�553,071�50��
Consolidated equity of the Baloise Group On�31�December�2011,�consolidated�equity�of�the�Baloise�Group� amounted�to�CHF�3,893�6�million��Details�about�trends�in�2010� and�2011�can�be�found�on�pages�88�and�89�in�the�consolidated� statement�on�changes�in�equity�in�the�chapter�Financial�Report� of�the�consolidated�financial�statement��Full�details�on�2009�can� be�found�in�the�consolidated�statement�on�changes�in�equity�on� page�8�of�the�2010�Financial�Report��
It�will�be�proposed�to�the�2012�Annual�General�Meeting�to� elect�Mr�Thomas�Pleines�as�a�member�of�the�Board�of�Directors�� He�was�born�in�1955�and�is�a�German�citizen�and�lawyer��He� has�been�a�member�of�the�board�of�Bilfinger�Berger�SE,�Mann-� heim,�president�of�the�president’s�council�of�DEKRA�e�V�,�Stuttgart, �chairman�of�the�supervisory�board�of�DEKRA�SE,�Stuttgart,� chairman�of�the�supervisory�board�of�SÜDVERS�Holding�GmbH� &�Co��KG,�Au�near�Freiburg,�and�a�member�of�the�board�of� directors�of�KABA�Holding�AG,�Rümlang�near�Zurich,�since� 2011��From�2006�to�2010�Mr�Pleines�was�the�chairman�of�the� board�of�directors�of�Allianz�Versicherungs-AG,�Munich,�and� a�member�of�the�board�of�directors�of�Allianz�Deutschland,� Munich��He�was�the�CEO�and�delegate�of�the�board�of�directors� of�Allianz�Suisse,�Zurich,�from�2003�to�2005�
Dr Hansjörg Frei, Mönchaltorf M M M CH 1941 2004 2012
Dr Klaus Jenny, Zurich M DC M CH 1942 2003 2012
48 Corporate Governance Corporate Governance Report including Compensation Report eveline Saupper
Re�as�of�1979��From�1985�to�1993,�he�held�various�management� posts�at�Baloise,�the�focus�being�on�supervising�and�supporting� different�foreign�units��After�that�he�returned�to�Swiss�Re,�where� he�was�a�member�of�group�management�as�of�2000,�first�in�the� US�as�Head�Swiss�Re�Americas�and,�most�recently,�as�Chief� Operating�Officer�for�the�whole�group�in�Zurich��Since�2009,� he�has�been�an�independent�advisor�on�management�and�advisory �boards�of�companies�and�professional�associations��Dr� Andreas�Beerli�is�a�member�of�the�board�of�Ironshore�Europe� Inc�,�Dublin,�a�member�of� the�advisory�board�of�Accenture�� Schweiz�and�President�of�the�Swiss�Advisory�Council�of�the� American� Swiss� Foundation�� He� is� an� independent,� non-� executive�director�
Georges-Antoine de Boccard (1951,� CH,� Dr� med�)� has� been� a�member�of� the�Board�of�Directors� since�2011��He� studied� medicine�at�the�University�of�Geneva��He�has�been�a�self-employed,� practising� urological� surgeon� in� Geneva� since� 1987�� Dr�� Georges-Antoine�de�Boccard�is�a�member�of�the�Citadel�Finance� SA�and�was�the�president�of�the�Swiss�Association�of�Urology� from�2005�to�2006��He�is�a�member�of�the�Swiss�Association�of� Urology,�the�European�Association�of�Urology�in�addition�to� being�a�member�of�further�associations�and�societies�related�to� his�profession��Dr�de�Boccard�is�independent�and�non-executive�
hansjörg frei (1941,�CH,�Dr�iur�)�has�been�a�member�of�the�Board� of�Directors�since�2004��He�graduated�in�jurisprudence�from� the�University�of�Zurich��Dr�Hansjörg�Frei�joined�Winterthur� in�1982�and�was�most�recently�a�member�of�the�Group�Executive� Board,�with�responsibility�for�operations�in�Switzerland��From� 2000�until�his�retirement�in�mid-2003,�he�was�a�member�of�the� Executive�Board�(Head�of�International�Country�Management)� at�Credit�Suisse�Financial�Services��He�was�Chairman�of�the� Swiss�Insurance�Association�(SIA)�from�2000�to�2003��Dr�Hansjörg� Frei� is�a�member�of�the�Board�of�Directors�of�Ems-Chemie� Holding�AG�and�Chairman�of�the�Pension�Fund�at�the�Ems� Group��He�is�an�independent,�non-executive�director�
Dr Georges-antoine de Boccard n / a n / a x x x
Dr eveline Saupper x x x x x x = present, o = absent, n / a = not applicable.
by�the�Board��The�Chairman�and�the�Vice-Chairman�of�the� Board�of�Directors�are�ex�officio�members�of�the�Chairman’s� Committee��The�Chairman�of�the�Board�of�Directors�may�not� be�a�member�of�the�Audit�Committee��The�key�duties�of�these� committees�are�governed�by�the�organisational�regulations�and� by�the�written�regulations�applying�to�each�committee� www.baloise.com → Responsibility → Corporate Governance → Rules and regulations
As�per�Article�716a�of� the�Swiss�Code�of�Obligations�and� Section�1�II�of� the�organisational�regulations,� the�principal� duties�of�the�Board�of�Directors�are�general�management,�overall �and�financial�supervision�of�the�company�and�specifying� the�organisational�structure� www.baloise.com → Responsibility → Corporate Governance → Rules and regulations
In�2011,�the�full�Board�of�Directors�of�Bâloise�Holding�convened� ordinarily�on�five�occasions��The�table�on�page�50�shows�the� directors’�attendance�at�these�full�Board�of�Directors�meetings�� With�one�exception,�all�members�of�each�relevant�committee� attended�all�of�the�additional�seventeen�committee�meetings�� Board�attendance�by�members�of�the�Board�of�Directors�was� thus�a�very�respectable�98�8�%��One�full�Board�of�Directors� meeting�addressed�the�further�training�of�the�members�with� particular�regard�to�Belgium�and�Human�Resources� www.baloise.com → Responsibility
Members�of�the�Corporate�Executive�Committee�are�regularly �invited�to�attend�full�Board�of�Directors�meetings��Meetings� of�the�Audit�Committee�are�primarily�attended�by�the�Chief� Financial�Officer,�the�Head�of�Corporate�Audit,�the�Secretary� of�the�Board�of�Directors�and�by�representatives�of�the�external� auditors��Meetings�of�the�Compensation�Committee�are�primarily �attended�by�the�Chief�Executive�Officer,�the�Secretary�of� the�Board�of�Directors�and� the�Head�of�Group�Human�Re-� sources��The�Chief�Investment�Officer�attends�all�Investment� Committee�meetings�
4. CORPORATE ExECUTIVE COMMITTEE Martin Strobel (1966,�D�/�CH,�Dr�rer��pol�)�studied�computer� science,�business�management�and�business�information�systems� at�the�Universities�of�Kaiserslautern,�Windsor�(Canada)�and� Bamberg��From�1993�to�1999�he�held�various�posts�at�Boston� Consulting�Group,�Dusseldorf,�dealing�with�strategic�IT�management �issues�in�the�banking�and�insurance�sector��He�joined� the�Baloise�Group�in�1999��Initially�he�was�Head�of�IT�at�Basler� Switzerland,�with�responsibility�for�major�cross-business�projects� in�the�insurance�and�banking�divisions�within�the�Baloise�Group�� He�was�a�member�of�the�Corporate�Executive�Committee�from� 2003�to�2008,�with�responsibility�for�the�Corporate�Division� Switzerland��With�effect�from�1�January�2009,�Dr�Martin�Strobel� took�over�as�Chief�Executive�Officer�
Thomas Sieber (1965,�CH,�Dr�iur�,�M�B�L�,�lawyer)�studied�law� at�the�University�of�St��Gallen��At�the�beginning�of�1994,�he� qualified�to�practice�law�in�the�canton�of�Zurich��From�1999�to� 2002,�he�lectured�in�corporate�law�at�the�University�of�St��Gallen ��After�holding�positions�at�Landis�&�Gyr�and�Siemens,�Dr� Thomas�Sieber�joined�the�Baloise�Group�in�1997�as�the�Deputy� Head�of�the�Legal�and�Tax�division��He�has�headed�this�division� since�2001�and�also�became�Secretary�of�the�Board�of�Directors� of�Bâloise�Holding��As�part�of�the�review�of�the�Swiss�Insurance� Supervisory�Act,�he�managed�the�“Financial�Markets�Supervisory �Authority”�task�force�of�the�Swiss�Insurance�Association� (SIA)��Since�6�December�2007,�Dr�Thomas�Sieber�is�Head�of�the� Corporate�Centre�responsible�for�Group�Human�Resources,� Legal�and�Tax,�Group�Compliance,�Corporate�Development,� Run�Off�and,�since�2009,�also�for�Group�Procurement��Thomas� Sieber�is�also�a�member�of�the�board�of�directors�of�EuroAirport� Basel�Mulhouse�
There�are�no�management�contracts�that�assign�executive� functions�to�third�parties� www.baloise.com → About us → Organisation → Corporate Executive Committee
5.3. Remuneration system Objective The�aim�of�this�remuneration�system�is�to�promote�a�perfor-� mance�culture�in�the�Baloise�Group�and�to�facilitate�the�re-� tention� of� qualified� and� management� personnel� within� the� organisation��The�remuneration�policy�of�Baloise�aims�to�pay� basic�salaries�that�are�in�line�with�the�market��Furthermore,�the� variable� remuneration� components� are� designed� so� that�–�� regarding�individual�performance�and�the�success�of�the�company �–�in�a�very�good�year�payments�above�the�market�average� are�possible,�by�the�same�token�the�amount�paid�can�be�below� the�market�average�in�a�weak�year��
Baloise�places�great�importance�on�the�retention�of�key�personnel �and�on�the�sustainable�management�of�the�business��In� addition�to�remuneration�that�reflects�the�market�and�performance, �a�sustainable�focus�of�our�executive�managers�that�is�geared� towards� the� interests� of� the� shareholders� is� important� to�� Baloise��That�is�why�considerable�proportions�of�the�variable� remuneration�is�paid�in�shares��With�the�performance�share� units,�the�three�highest�management�levels�additionally�receive� a�further�salary�component�as�a�deferred�payment�in�the�form� of�shares�that�are�restricted�for�three�respectively�six�years��
With�increasing�strategic�responsibility�and�effect,�the�variable �remuneration�is�primarily�determined�by�the�overall�result� of�the�company�and�/�or�the�economic�value�creation�–�taking� the�risk�assumed�into�consideration��The�proportion�of�shortterm �variable�remuneration�in�relation�to�total�remuneration� and�the�proportion�in�restricted�shares�to�be�received�increases� accordingly��For�the�members�of�the�Corporate�Executive�Committee, �shares�as�a�proportion�of�variable�remuneration�amount� to�about�70�%�and�the�value�of�the�restricted�shares�they�hold�is� about�three-times�their�basic�salary��Thus�important�elements� of�the�standard�required�by�the�supervisory�authorities�are�fulfilled ��
New Performance Management System as of 1 January 2011 Baloise�reviewed�its�remuneration�system�in�depth�in�2009�/�2010� and�introduced�a�new�Performance�Management�System�for�the� short-term�variable�remuneration�as�of�the�2011�fiscal�year��Based� on�the�objective�to�foster�a�high�performance�and�result-orientation �of�the�employees�and,�at�the�same�time,�incorporate�the� company’s�success,�the�new�system�consists�of�two�clearly�defined� and�separate�instruments:�Performance�remuneration�and�performance �pool��Performance�remuneration�rewards�the�employee ’s�individual�achievement��The�performance�pool�considers � the� overall� performance� or� the� value� creation� of� the� company��In�addition,�all�material�elements�contained�in�the� circular�from�the�Swiss�Financial�Supervisory�Authority�were� considered�when�shaping�the�variable�remuneration�system�
Market comparisons Baloise�regularly�compares�the�salaries�of�senior�executives�with� those�of�relevant�competitors�(STOXX�Europe�600�Insurance� Index�and�/�or�local�employment�markets)��These�comparisons� show�that,�on�average,�Baloise�lies�within�the�market�mean�regarding �total�remuneration,�whereby�the�share�proportion�of� total�remuneration�is�higher�than�that�of�comparable�competitors �as�intended��The�variable�part�of�the�remuneration�package� can�also�vary�strongly,�which�in�turn�confirms�that�linking�it� to�performance�goals�really�has�an�effect��
The�short-term�variable�remuneration�is�always�paid�together �with�the�March�salary�of�the�following�year��Baloise�places� great�importance�on�the�sustainable�management�of�the�business� and�on�a�high�correlation�between�the�interest�of�shareholders� and�management��For�this�reason,�considerable�proportions�of� the�variable�remuneration�are�paid�in�the�form�of�shares��Basically, �members�of�senior�management�can�choose�which�proportion �they�wish�to�receive� in�cash�and�which�as�shares��This� choice� is� limited�for�the�most�senior�management�level;�here�� a�graduated�obligation�to�subscribe�shares�exists:�Members�of� the�Corporate�Executive�Committee�must�draw�at�least�50�%�of� their�short-term�variable�remuneration�in�the�form�of�shares�� These�subscribed�shares�remain�blocked�for�three�years�and�are� subject�to�market�risks�during�this�period��In�particular,�the� mandatory�emoluments�ensure�that�as�responsibility�and�total� remuneration�increase,�a�significant�share�of�the�remuneration� is�paid�with�a�deferred�effect��They�also�promote�risk�awareness�
Performance pool The�Performance�pool�takes�into�account�the�performance�of� the�entire�Baloise�Group,� the�amount� is�determined�by� the� Compensation�Committee�ex�post�at�its�own�discretion��To�this� end,�the�Compensation�Committee�evaluates�the�performance� of�the�entire�Baloise�Group�for�the�past�fiscal�year�and�considers� also�the�following�criteria:�
The�individual�allocation�to�the�employees�is�performed�at�the� discretion�of�the�superior;�no�regulatory�target�values�are�defined ��An�overall�assessment�consisting�of�target�achievement� (in� light� of� the� individual� degree� of� achievement)� and� the� employee’s�conduct�and�behaviour�serve�as�the�main�guidelines� when�determining�the�amount�to�be�allocated��The�supervi-� sory�manager’s�proposal�for�the�individual�allocation�is�discussed� in�the�respective�management�team,�compared�to�other�departments �and�sectors�and�adjusted�where�necessary��This�ensures� that�the�conduct�components�that�are�also�relevant�to�risk,�are� likewise�considered�when�allocating�the�individual�amounts��
Companies in STOxx 600 Europe Insurance Index (as of 31 December 2011)
aviva plc Helvetia RSa Insurance Group vienna Insurance axa ING Groep Nv Sampo oYJ Zurich Financial Services
Plan 2009 Plan 2010 Plan 2011 entitled employees as of start of programme 66 71 73
Number of allocated pSU 81,127 83,441 81,739 of which: expired without compensation (departures 2009) – – –
Number of active pSU as of 31 December 2009 81,127 – –
of which: expired without compensation (departures 2011) – 6,752 – 7,962 – 6,937
2010 pSU expense for the Baloise Group in CHF million 2.0 2.1 –
2011 pSU expense for the Baloise Group in CHF million 2.0 2.4 2.4
Ancillary benefits As�a�rule,�ancillary�benefits�are�components�of�total�remuneration �that�are�not�dependent�on�function�nor�individual�or�corporate �performance��By�providing�benefits�such�as�pension�plans,� benefits,� personnel� development� and� advancement,� Baloise� demonstrates�that�its�high�regard�for�its�employees�and�that�the� relationship�to�them�is�based�on�partnership��Ancillary�benefits� are� awarded� according� to� the� provisions� of� the� respective�� country�
5.5. Employment contracts, change of control clauses, service entry and departure compensation The�employment�contracts�of�senior�members�of�staff�are�concluded �for�an�unlimited�period�in�Switzerland�and�also�abroad� for�the�main�part��They�provide�for�a�notice�period�of�six�months��
5.6. Share Subscription Scheme and Employee Share Ownership Plan There�is�a�choice�of�two�plans�for�the�proportion�of�the�shortterm �variable�remuneration�drawn�as�shares:�Share�Subscription� Scheme�and�Employee�Share�Ownership�Plan���
Employee Share Ownership Plan Since�May�2001,�the�majority�of�senior�staff�in�Switzerland�can� draw�a�proportion�–�freely�selectable�within�certain�ranges�–�of� their�short-term�variable�remuneration�in�shares�instead�of�in� cash��Upper�limits�exist�for�the�most�senior�executives;�members� of�the�Corporate�Executive�Committee,�who�are�obliged�to�draw� at�least�half�of�their�short-term�variable�remuneration�as�shares� may�not�draw�more�than�50�%�of�their�entitlement�in�Employee� Share�Ownership�Plan�shares��As�with�the�Share�Subscription� Scheme,�the�subscription�date�is�always�1�March;�on�this�day� ownership�of�the�shares�is�transferred�to�the�employee�without� further�vesting�conditions��However,�they�may�not�be�sold�during �a�blocking�period�of�three�years��Until�2011,�the�subscription� date�was�1�June��By�bringing�it�forward�to�1�March,�the�subscription �date�is�in�line�with�the�payout�date�for�short-term�variable� remuneration�according�to�the�new�Performance�Management� System�
Employee Share Ownership Plan 2012 (applies to variable renumeration awarded for the 2011 reporting period )
Employee Share Ownership Plan 2011 (applies to shares purchased by the Chairman of the Board of Directors in the reporting period)
Fair value of subscribed shares as of subscription date in CHF million 14.3 12.1 entitled employees 3,189 3,150 participating employees 1,876 1,897
The�basic�salaries�of�the�Corporate�Executive�Committee� remained�unchanged�in�2011��The�total�sum�of�remuneration� for�the�members�of�the�Corporate�Executive�Committee�decreased� by�a�nominal�12�%�compared�to�the�previous�year��This�can�be� ascribed�to�several�factors:�The�proportion�of�short-term�variable �remuneration�in�2011�lies�distinctly�below�the�previous� year’s�value��The�Compensation�Committee�reduced�the�allocation �from�the�performance�pool�for�2011�versus�the�expected� value�of�previous�years�by�30�%��The�unsatisfactory�share�performance �in�2011�also�led�to�a�marked�reduction�of�earnings� gained�from�the�conversion�of�PSU��So�the�reduction�of�the� performance�factor�from�1�24�to�0�64�and�the�lower�share�price� on�the�conversion�date�from�CHF�91�00�to�CHF�64�40�mean�that� the�value�of�a�PSU�converted�into�shares�was�63�%�lower�than�in� the�previous�year��Furthermore,�the�allocation�of�PSUs�that�were� converted�during�the�previous�year�is�lower�for�two�members� of�the�Corporate�Executive�Committee�because�they�did�not� hold�their�current�posts�at�the�time��One�member�of�the�Corporate �Executive�Committee�received�a�reduced�salary�due�to� taking�unpaid�leave��These�factors�and�also�the�changes�in�personnel �on�the�Corporate�Executive�Committee�must�be�considered �in�order�to�achieve�an�objective�comparison��The�reduction� of�total�remuneration�thus�calculated�amounts�to�22�%,�the�reduction �in�variable�remuneration�43�%��These�figures�show�that� while� the�variable�remuneration� is� strongly� tied� to� the�eco-�
of which commission / brokerage to the insurance sales force employees of which other variable remuneration elements
the variable remuneration elements awarded for the 2010 fiscal year had not been determined when last year’s Compensation Report went to print, which is why the details given were partially based on estimates. the previous year’s figures in the table above that were based on estimates have been replaced by the actual amounts in order to ensure a meaningful comparison to the previous year. No significant differences have emerged between those estimates and the effective figures.
REMUNERATION TO ThE MEMBERS Of ThE BOARD Of DIRECTORS (PREVIOUS yEAR)
Explanatory notes to table on page 68: Dr Michael Becker was elected as a new member of the Board of Directors at the annual General Meeting 2010. He therefore received only half of the usual remuneration for 2010. Remuneration to former members of the Board of Directors and related individuals Due to contractual obligations, a one-off payment of CHF 80,000 was paid to a former member of the Board of Directors, in connection with his previous governing body activities in the company. No remuneration was paid to individuals or companies related to members of the Board of Directors or that is not market-standard (closely related individuals: spouses, civil partners, children under 18, companies controlled by or belonging to members of the Board, legal or natural persons who act as fiduciary for them). Furthermore, receivables from this group of persons were not waived. Shares 25 % of the contractually agreed remuneration will be paid in shares, which are blocked for three years. Intrinsic value: Fair value minus 10 % (CHF 73.05, corresponds to Share Subscription Scheme).
PSU 2008 (converted into shares in 2011) Share Awards 2010 Chf In % of total
Shares from converted PSU pSU allocated in 2008 were converted into shares on 1 January 2011. at the end of the performance period on 31 December 2010, the performance of the Baloise share held the 12th rank of 31 companies within the reference group (StoXX europe 600 Insurance Index), in other words, it was in the 2nd quartile. thus the performance factor was 1.24, and the 51,880 outstanding pSU were converted into 64,335 shares (market price on 31.12.2010: CHF 91.00, fair value CHF 5.9 million). Half of these shares remain blocked for three years yet. Non-cash benefits Basis: all elements of remuneration in compliance with the Swiss salary certificate. the tables contain, besides gifts for length of service, also refunds for travel and accommodation expenses and non-cash benefits (use of a company car) to one member of the Corporate executive Committee who has a secondary residence abroad. Pension provisions employer contributions to the pension scheme as well as the maintenance of protection against invalidity in the home country for one member of the Corporate executive Committee who has a secondary residence abroad.
Explanatory notes to the table: Credits and loans No loans and advances that are not market standard have been granted to a) former members of the Board of Directors or Corporate executive Committee; b) individuals or companies with close family ties to members of the Board of Directors (related individuals: spouse, civil partner, children under 18 years, companies belonging to or controlled by Board members, or legal or natural persons that act as fiduciaries for them). Mortgages Mortgages up to CHF 1 million are granted on employee terms: 1 % below the interest rate for customers on variable mortgages, preferential interest rate for fixed mortgages.
Loans pertaining to the ESOP (Employee Share Ownership Plan) Loans to increase the leverage of the eSop (compare “5.6. Share Subscription Scheme and employee Share ownership plan”). Interest is charged on the loans at prevailing interest rates (2011: 3 %) over a term of three years. a loan of CHF 0.2 million to a former member of the Corporate executive Committee still exists from the employee Share ownership plan. Other loans No other policy loans exist.
Head of Corporate Division International 1,566 3,501 4,576 8,915 6,142 12,416 0.012 % 0.025 % 9,567 11,041
Head of Corporate Division Finance 4,675 8,333 36,645 24,655 41,320 32,988 0.083 % 0.066 % 9,046 9,556
Explanatory notes to table: Shareholdings Including shares held by closely related individuals (spouses, civil partners, children under 18, companies controlled by or belonging to members of the Board, legal or natural persons who act as fiduciary for them). Restricted shares Including shares from the employee Share ownership plan financed by a loan. Shares subscribed through share-based remuneration schemes are subject to a three-year blocking period. according to § 20 of the articles of Incorporation, each member of the Board of Directors must deposit 1,000 shares with the company for the term of his / her office (qualifying shares). Options options held in connection with the employee Share ownership plan are not listed here because they do not originate from a stand-alone option plan, but are written rather to secure the loan. In addition, each put option has a call option as counterpart. Prospective entitlements (PSU) Number of performance share units allocated (allocation as of 1.1.2009, 1.1.2010 and 1.1.2011).
The�admissibility�of�nominee�registrations,�with�reference� to�possible�percentage�clauses�and�registration�requirements� are�governed�by�§�5�of�the�Articles�of�Incorporation��Procedures� and�requirements�for�revoking�and�restricting�transferability� are�governed�by�the�provisions�of�§�5�and�§�17� www.baloise.com → Responsibility → Corporate Governance → Rules and regulations www.baloise.com → Investor relations → IR Agenda 7. ChANGE Of CONTROL AND DEfENSIVE ACTION Upon�acquiring�33�%�of�all�Baloise�shares,�shareholders�or�groups� of�shareholders�acting�in�concert�are�obliged�to�submit�a�takeover �bid�to�all�remaining�shareholders��Bâloise�Holding�has�not� opted�to�modify�or�waive�this�rule��There�is�neither�a�statutory� opting-out�nor�opting-up�clause,�as�specified�in�the�Federal�Stock� Exchanges�and�Securities�Trading�Act�(Stock�Exchange�Act)��
Information on Baloise bonds Information�on�outstanding�Baloise�bonds�can�be�found�on� page�229�onwards�in�the�Financial�Report�section� www.baloise.com → Investor relations → Bonds financial calendar Important�dates�for�investors�can�be�found�at�www�baloise�com�� The�publication�dates�of�the�Annual�and�Half-year�Financial� Statements�are�listed�here��In�connection�with�the�Annual�General �Meeting,�the�date�and�invitation�to�the�Annual�General� Meeting,�the�share�register�cut-off�date�and�the�ex-dividend� date,�if�applicable,�are�also�published�here� www.baloise.com → Investor Relations → IR Agenda
Notes to the CoNsolidated balaNCe sheet �������������������� 154 Property, plant and equipment ������������������������������������������������������ 154 Intangible assets ����������������������������������������������������������������������������������� 156 Investments in associates ����������������������������������������������������������������� 159 Investment properties ������������������������������������������������������������������������ 160 Financial assets ������������������������������������������������������������������������������������� 161 Mortgages and loans ��������������������������������������������������������������������������� 166 Derivative financial instruments �������������������������������������������������� 167 Financial receivables �������������������������������������������������������������������������� 168 Reinsurance assets ������������������������������������������������������������������������������� 169 Receivables from reinsurers ������������������������������������������������������������ 169 Employee benefits �������������������������������������������������������������������������������� 170 Deferred income taxes ����������������������������������������������������������������������� 180 Other assets �������������������������������������������������������������������������������������������� 182 Non-current assets held for sale and discontinued business segments ������������������������������������������ 182 Share capital ������������������������������������������������������������������������������������������� 182 Technical reserves (gross) ���������������������������������������������������������������� 183 Liabilities from banking business and financial contracts ��� 192
RepoRt oF the statutoRy auditoR to the GeNeRal meetiNG oF bâloise holdiNG ltd, basel ��������� 220
83Financial Report Consolidated balance sheet in CHF million equity and liabilities
Change in reserves from reclassification of held to maturity financial instruments 39 – 9.2 – 5.5
Change in reserves from reclassification of investment properties 39 0.6 –
Cash flow from financing activities (net) – 426.6 – 38.6 total cash flow – 255.7 89.7
Changes in exchange rates on cash and cash equivalents – 64.1 – 10.8
Balance of cash and cash equivalents as of 1 January 2,528.7 2,208.9 balance of cash and cash equivalents as of 31 december 2,208.9 2,287.8
Impairments and depreciation on fixed and intangible assets 8 / 9 90.7 139.6
Realised gains and losses on financial assets, investment properties and associates
Amortised cost valuation of financial instruments 2.3 18.3 additions and disposals of assets and liabilities resulting in a cash flow
Purchase / sale of financial assets of an equity nature – 1,067.5 – 402.6
Purchase / sale of financial assets of a debt nature – 1,555.0 – 1,385.2
Addition / disposal of mortgages and loans – 340.2 – 304.3
Addition / disposal of financial contracts and liabilities from banking business 2,077.4 842.2
Purchase of property, plant and equipment 8 – 45.8 – 70.2
Acquisition of companies, net of cash and cash equivalents 40 – 27.3 – 117.4
Disposal of companies, net of cash and cash equivalents 40 – 40.7 – 1.8
Changes in exchange rates on cash and cash equivalents – 64.1 – 10.8 balance as of 31 december 2,208.9 2,287.8 structure of the balance of cash and cash equivalents on the balance sheet date
Profit for the period – – – – 433.4 433.4 3.3 436.7 other changes in equity in 2010
Purchase / sale of treasury shares – 4.4 – 40.4 – – – 36.0 – – 36.0
89Financial Report Consolidated statement of changes in equity 2011 Notes share
Purchase / sale of treasury shares – 9.9 – 35.4 – – – 25.5 – – 25.5
The Baloise Group’s Consolidated Annual Financial Statements recognise equity and liabilities at cost, taking adjustments into consideration that result from the regularly appraised fair value of investment properties, and from financial assets and liabilities that are classified as available for sale or recognised at fair value through profit or loss� The Baloise Group’s Consolidated Annual Financial Statements were prepared in confor mity with International Financial Reporting Standards (IFRS), which comply with Swiss law� IFRS 4 governs how to recognise and disclose insurance and reinsurance contracts� The contracts are measured based on local financial reporting guidelines�
At its meeting on 14 March 2012, the Bâloise Holding Board of Directors approved the Annual Financial Statements and the Financial Report and released them for publication� The Financial Statements still have to be approved by the Annual General Meeting of Bâloise Holding�
2. appliCatioN oF New FiNaNCial RepoRtiNG staNdaRds Newly applied iFRs and interpretations iFRiC 14 / ias 19 the limit on a defined benefit asset, minimum Funding Requirements and their interaction On 16 November 2009, the IASB issued an amendment to IFRIC 14� It clarifies that an entity must recognise an asset insofar as the voluntary prepayments on minimum funding requirements would reduce the future contributions�
ias 24 Related party disclosures IAS 24 was amended� Firstly, an exemption has been introduced for companies that are controlled or significantly influenced by a government� This exempts them from having to disclose transactions with the government itself or other companies affiliated with the government�
beginning on / after: IFRS 7 Transfer of financial assets 1.7.2011
IFRS 9 Financial instruments 1.1.2015 iFRs 7 transfer of Financial assets This involves the disclosure requirements in connection with the transfer of financial assets to third parties (e� g� factoring, securities lending, etc�)� Pursuant to IAS 39 “Financial Instruments: Recognition and Measurement,” if the rights to a financial asset are transferred to a third party, or a company undertakes to transfer payments from a financial asset to a third party, it can lead to either the derecognition of the financial asset, to the continued accounting of the financial asset to the amount of the continuing involvement, or to the continued accounting of the total financial asset� Up to now, IFRS 7 required explanatory notes only in the latter two cases� The amendment to the Standard now requires comprehensive information on rights and obligations potentially retained or acquired in the course of the transaction also if the financial asset has been entirely derecognised � This amendment will only affect the disclosure and will not have an impact on the consolidated result or on balance sheet items of the Baloise Group�
ias 1 other Comprehensive income Due to the amendment of IAS 1 Presentation of Items of Other Comprehensive Income (OCI), the IFRS Income Statement will in future consist of only one single statement component: the “Statement of Profit or Loss and Other Comprehensive Income” (previously: one-statement approach)� In addition, it is compulsory that this summarised income statement is divided into two sections in future: One stating the profit or loss and one containing the other comprehensive income� In future, the other comprehensive income is also to be broken down according to whether the expenses and income contained therein will be transferred to the income statement at a later date� The amendment will only affect the disclosure of the other comprehensive income of the Baloise Group�
iFRs 10 Consolidated Financial statements IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when a parent company controls one or more companies� This Standard replaces the existing IAS 27 as well as SIC-12� The investor must determine whether it fulfils the definition of a parent company by identifying whether it controls one or several associate companies� When considering whether the associate company is controlled, the investor must include all significant facts and circumstances� An investor controls an associate company if the investor is exposed, or has rights to variable returns from its involvement with the associate company and has the ability to affect those returns through its power over the associate company� The new
iFRs 13 Fair Value measurement IFRS 13 sets out in a single IFRS the existing framework for measuring fair values� IFRS 13 does not introduce any new or additional fair value measurement and also does not replace any existing principles set out in other Standards� The impact on the balance sheet and the incomes statement of the Baloise Group has not yet been analysed in detail�
ias 27 separate statements The regulations for separate statements remain unchanged and included in the revised IAS 27� IFRS 10 replaces the other parts of IAS 27 (Consolidated Statements)�
ias 19 employee benefits The most important change to IAS 19 is that in future unexpected fluctuations of retirement obligations as well as of plan assets portfolios (actuarial gains and losses) – if any exist – must be immediately recognised in “Other comprehensive income”� The right granted hitherto to choose between immediate recognition in the income statement, in “Other comprehensive income” or delayed recognition using the Corridor Method has been withdrawn� At the end of 2011, these actuarial losses of the Baloise Group amount to to approximately CHF 340 million (before taxes and policyholders’ shares)� A further amendment is that in future the management is no longer to estimate the interest return on the plan assets according to the interest return expected according to asset allocation, but instead an amount is to be recognised that is merely as high as the discount interest rate due to the expected interest return of the plan assets� Based on the assumption elected for the discount rate and the expected plan assets of the 2011 Annual Financial Statements, an increase in pension expenses of approximately CHF 5 million (before taxes and policyholders’ shares) would result� In addition, more extensive explanatory notes are required� The detailed impact on the balance sheet and the income statement of the Baloise Group are the subject of ongoing analyses and as such not yet known�
Companies acquired during the reporting period are included in the Consolidated Annual Financial Statements from the date on which control was effectively assumed; all companies sold are included until the date on which control was ceded� Acquisitions of companies are accounted for using the Acquisition / Purchase Method� Transaction costs are charged to the income statement as an expense� The company’s identifiable assets and liabilities are measured at fair value as of the first consolidation date� During every merger the non-controlling interests are measured either according to their fair value or their proportion of the identifiable net asset of the acquired company� The Baloise Group determines which method is applied individually for each merger�
The acquisition costs are equivalent to the fair value of the consideration transferred to the previous shareholder at the time of the takeover� If shares were held as financial instruments or as an associate before the takeover, a new fair value measurement recognised in profit or loss is performed for these shares� Contingent considerations, which are balanced as part of the consideration transferred for the acquired company, are measured at fair value on the transaction date� Changes to the fair value of the transferred consideration made at a later date are recorded in the incomes statement� Should the acquisition costs exceed the sum of assets and liabilities measured at fair value plus the non-controlling interests, the difference is recognised as goodwill� Conversely, the difference is directly recognised through profit or loss as “Other operating income” if the identified net assets exceed the acquisition costs�
The consolidation of subsidiaries ends on the date control ceases� If a partial disposal of shares in a subsidiary results in loss of control, then the remaining shares are measured at fair value� The result from the (partial) disposal of shares is recognised
3.1.3 Joint ventures Joint ventures are entities managed jointly by two or more partners, governed by a contractual agreement� Proportional consolidation is applied to these companies, this means the Baloise Group recognises its share of assets, liabilities, expenses and revenue� The Baloise Group is currently not involved in any joint ventures�
3.2.2 Conversion of transaction currency into functional currency for Group companies Expenses and income in foreign currencies are measured using the exchange rates on the transaction dates or average exchange rates� Monetary as well as non-monetary balance sheet items assessed at fair value and stemming from foreign currency transactions of Group companies are measured using balance sheet date exchange rates� Non-monetary items assessed at historical acquisition costs are measured using the historical exchange rates� The resulting exchange rate differences are recognised in profit or loss� This excludes exchange rate differences entered directly into the hedging reserves as part of cash flow hedges, or those used to hedge a net investment in a foreign company�
3.2.3 Conversion of functional currency into reporting currency The Annual Financial Statements of all business units that were not prepared in CHF are converted as follows when the Consolidated Financial Statement is being prepared: → assets and liabilities at the exchange rate on the balance sheet date,
→ expenses and income at the annual average rates� The resulting exchange differences are accumulated and recorded directly in equity�
When foreign subsidiaries are sold, the resulting conversion differences are recognised in profit or loss as a transaction gain or expense�
3.3 property, plant and equipment Property, plant and equipment are measured at their acquisition costs less the accumulated depreciation� The acquisition cost of property, plant and equipment is also part of the directly apportionable costs� Subsequent acquisition costs are only capitalised if a future financial benefit related to the property, plant and equipment occurs and these costs can be reliably assessed� All other repair and maintenance costs are charged to the income statement on an ongoing basis�
Property is not depreciated on a systematic basis� Depreciation of other property, plant and equipment is linear on the basis of the estimated useful life as follows: → Buildings for own use: 25 to 50 years → Equipment: 5 to 10 years → Computer hardware: 3 to 5 years
The carrying value of property, plant and equipment is adjusted as soon as the recoverable amount drops below the carrying value�
The profit or loss resulting from the sale of property, plant and equipment is immediately entered in the income state- ment under “Other operating income,” or “Other operating expenses,” respectively�
3.4 leasing 3.4.1 baloise Group as a lessee Financial leasing contracts: Leasing contracts for property, equipment and other tangible assets, for which the Baloise Group essentially assumes all risks and opportunities connected to ownership, are classified and treated as financial leasing contracts � The fair value of the leasing item or the lower cash value of the leasing payments is reported in property, plant and equipment at the beginning of the leasing contract� Each lease payment is broken down into amortisation and interest� The amortisation share is deducted from the liability for future lease payments, which is reported under the item “Liabilities from banking business and financial contracts�” Property, plant and equipment in finance leases are depreciated over the shorter time period of the useful life or the term of the leasing agreement�
Operating leases: Other leasing contracts are classified as operating leases� The lease payments are entered linearly as expenses in the income statement over the term of the leasing relationship�
3.5 intangible assets 3.5.1 Goodwill Goodwill occurs as a surplus between the purchase price and the assets and liabilities, measured at fair value� This includes the sum of all non-controlling interests of the acquired company, as well as the previously held shares measured at fair value at the time of acquisition� Goodwill is reported in intangible assets� Goodwill is subject to an annual impairment test� When a new participation is acquired, the key date for future verification of the recoverability is defined and verification is conducted at the same time each year� In the event of disposal, the proportional goodwill is taken into consideration in the earnings� In order to verify the recoverability of goodwill, it is allocated to definable units (cash generating units, CGUs)�
3.5.3 deferred acquisition costs (daC) The costs incurred that directly depend on the conclusion of insurance contracts and financial contracts with discretionary participation features (DPF) (commission, for example) are capitalised and depreciated over the term of the contracts, or over the shorter premium payment period� The recoverability of deferred acquisition costs is verified on each balance sheet date (see also section 3�18�3)�
3.5.5 other intangible assets and own developments Other intangible assets consist primarily of software, external IT consulting (in connection with software developments), own developments (such as software), as well as identified assets from the acquisition of companies (for example brands, customer relationships, etc�)� These are recognised at their acquisition or production costs and depreciated linearly over their useful life� Intangible assets with an unlimited useful life are not depreciated and are recognised at their acquisition costs less accrued impairment losses�
3.6 investment properties Investment properties comprise land as well as buildings that are held for the purpose of generating rental income and / or for the purpose of value enhancement� If a breakdown is not possible for mixed-use properties (own-use / external-use), then the entire item is allocated on the basis of the majority use of the floor space�
Investment properties are measured based on fair value according to the Discounted Cash Flow (DCF) Method� This is determined each year by experts using close to market assumptions � The fair values are mainly derived from the future cash flow (net cash flow from rental income, maintenance costs, and administrative expenses) and using mathematical methods from comparable transactions� The majority of the directly held real estate portfolio of the Baloise Group is in Switzerland� Here, the interest rate for the calculation is determined on a hedonic basis according to the DCF Method� The expected vacancy development is also included in the calculation� External appraisal reports are obtained at regular intervals� Thus, around 10 % of the fair value of the real estate inventory is verified each year by means of external expert reports� Changes in fair value are entered immediately in the periods in which they occur as realised book profits or losses respectively, recognised in profit or loss�
If an owner-occupied property becomes an investment property as a consequence of a change of use, the difference between the carrying value and the fair value at the time of the change of use is entered directly as a gain or loss in value into equity as unrealised gains and losses in the period� If an investment property that was reclassified in an earlier period is sold, the amount entered in equity is reclassified as retained earnings not recognised in profit or loss�
97Financial Report Notes to the Consolidated Annual Financial Statements 3.7 Financial assets For comprehensibility reasons, the term “Investments” is used in some places in the Financial Report and in headings� The term investments itself is not defined in the IFRS� Besides financial assets, mortgages and loans, derivative financial instruments and cash and cash equivalents, investments also include investment properties�
In financial assets of an equity nature, the following investment categories are entered: shares, share certificates, shares in stock, bond and property funds, as well as alternative financial assets such as private equity investments and hedge funds� Financial assets of an equity nature are, as a rule, subject to more frequent price fluctuations than financial assets of a debt nature�
Mortgages and loans are principally classified as carried at cost� Within the scope of hedge considerations (natural hedge), however, elements of the portfolio are designated as recognised at fair value through profit or loss� These elements are hedged with appropriately designated derivative financial instruments�
3.7.2 held to maturity financial assets Held to maturity financial assets are non-derivative financial instruments with fixed or determinable payments� However, they do not include mortgages, loans (section 3�8) and receivables (section 3�9), which the Baloise Group can and wants to hold until final maturity�
Alternative financial assets, such as private equity investments and hedge funds are mainly classified as available for sale�
3.7.4 entering, evaluating, and charge off All customary financial asset purchases are entered on the trade date� Financial assets are initially measured at fair value� The transaction costs are part of the acquisition costs, with the exception of financial assets recognised at fair value through profit or loss�
Financial assets are charged off, if the rights to the cash flow from the financial instrument have expired or if the financial instrument was sold and all related risks and opportunities have essentially been transferred� The cash outflow from reverse repurchase transactions (repo) is offset by the respective receivables � Financial assets that were obtained from a transaction as securities are not recognised� Booking in the balance sheet takes place on the due date� Financial assets transferred as securities for repurchase transactions continue to be recognised in financial assets� The cash flow is offset by the respective liabilities� Here, Baloise Group is only involved in securities lending� The borrowed financial instruments remain recognised as financial assets� The coverage of the repurchase and reverse repurchase transactions securities, as well as the securities lending transactions takes place daily at the effective fair values�
Financial assets that are available for sale and recognised at fair value through profit or loss are measured at fair value� Financial assets held to maturity are evaluated according to the Amortised Cost Method using the Effective Interest Method� Realised and unrealised gains and losses on financial assets recognised at fair value through profit or loss continue to be
98 Financial Report Notes to the Consolidated Annual Financial Statements recognised in the income statement� Unrealised gains and losses on financial assets that have been classified as available for sale are recorded in equity� If financial assets in the available for sale category are sold or value-adjusted, the accumulated amount is recognised in equity as a realised gain and loss on financial assets� Changes to the fair value of the hedged risks of financial assets that are hedged by a fair value hedge are recognised in the income statement for the duration of the hedge, independent of the classification made�
The fair value of listed financial assets is based on stock market prices� If there is no such value, then the fair value is estimated based on generally recognised methods (Present Value Method, etc�), independent assessments based on comparisons with fair values of similar instruments and the current market situation�
Different methods of appraisal are applied to private equity investments, such as the analysis of the discounted cash flow or reference to comparable transactions in the recent past between knowledgeable, willing parties in an arm’s length transaction provided no fair value is available�
If, in the case of hedge funds, the fair value cannot be calculated on the basis of public price quotations, the valuation is conducted based on price quotations provided by independent third parties�
3.8 mortgages and loans Mortgages and loans (including policy loans) are non-derivative financial instruments with fixed or determinable payments that are not listed on an active market� Mortgages and loans classified as carried at cost are measured using the Amortised Cost Method while applying the Effective Interest Method� Their recoverability is verified as part of an impairment process�
All other receivables are entered in the balance sheet as carried at cost and thus according to the Amortised Cost Method less any value adjustments for receivables at risk� As a rule, the costs carried correspond to the face value of the receivables�
→ observable data indicating a measurable reduction of the expected future cash flow from a group of financial assets since their initial valuation�
Should objective evidence for a sustained impairment of loans and receivables or held to maturity financial assets exist, the impairment loss expense, representing the difference between the carrying value of the asset and the present value of the future cash flow discounted by the respective effective interest rate of the financial asset, is determined� If the impairment value decreases in one of the subsequent reporting periods, and if this decrease can be attributed to an objectively occurring circumstance, then the impairment loss recognised earlier is to be reversed (value recovery)�
The recoverability of the mortgage portfolio is verified at regular intervals� Should there be objective evidence that the entire amount owed as per the original contractual conditions or the respective present value of a receivable cannot be recovered, then an impairment loss is set up� Loan commitments are assessed individually taking the following into consideration: the nature of the borrower, the borrower’s financial situation, his payment history, the existence of a possible guarantor, and, if necessary, the sales value of possible securities�
Impairment losses on available for sale financial assets of an equity nature recognised in profit or loss may no longer be reversed� A further impairment of the fair value is mandatory and charged directly to the income statement for financial assets of an equity nature, which were already loss-impaired in earlier periods�
An impairment on available for sale financial assets of a debt nature is performed when the fair value is distinctly reduced due to a default risk�
If the fair value of an available for sale financial asset of a debt nature increases in one of the subsequent reporting periods and the increase can be objectively attributed to an event that occurred after recognising the impairment loss in profit or loss, the impairment must be reversed and the amount recognised in profit or loss as value recovery�
100 Financial Report Notes to the Consolidated Annual Financial Statements 3.11 derivative financial instruments Derivative financial instruments are swaps, futures, forward and option contracts, etc�, where the value is mainly derived from the underlying interest rates, exchange rates, raw material prices, or shares� As a rule, derivative financial instruments have no or only a low acquisition value� Derivative financial instruments are recognised in the balance sheet at fair value� When a contract is concluded, it is either classified as a hedging instrument for the fair value of an asset or a liability (fair value hedge), as a hedge for future transactions (cash flow hedge), as a hedge for the net investment in a foreign company, or as a trading instrument� Derivative financial instruments that do not comply with the IFRS hedging requirements, although they have a hedge function according to the risk management rules of the Baloise Group, are treated as trading instruments�
The Baloise Group documents the effectiveness of the hedge as well as the targeted goals and strategies for all hedge transactions in hedge accounting� The effectiveness of the hedge is monitored on an ongoing basis after concluding the contract� Derivatives, that no longer fulfil the requirements of hedging, are reclassified as trading instruments�
3.11.3 Cash flow hedge Changes to the fair value of derivative financial instruments classified as cash flow hedge instruments from effective hedge relationships are recognised directly in equity� The amounts recognised in equity under the item “Unrealised gains and losses (net)” are recognised in the income statement at a later time in accordance with the hedged cash flow� The ineffective part of the hedge relationship is recognised in the income statement�
101Financial Report Notes to the Consolidated Annual Financial Statements 3.13 Non-current assets held for sale and discontinued business segments Non-current assets or asset groups which are held for sale and meet the criteria of IFRS 5 “Non-Current Assets Held for Sale and Discontinued Business Segments” are reported separately in the balance sheet� Those assets addressed by the Standard are valued at the lower of carrying value or present value, less selling costs� Adjustments arising are recognised in profit or loss� Any scheduled depreciation is halted as of the reclassification date�
3.14 Cash and cash equivalents Cash and cash equivalents consist predominantly of cash, demand deposits and cash equivalents� Cash equivalents are, in particular, short-term liquid assets with maturities of up to 24 hours, as well as cheques not yet cashed�
3.15.3 treasury shares Treasury shares held by the Bâloise Holding or by subsidiaries appear as a deduction in equity in the Consolidated Financial Statements with their acquisition cost (including transaction costs)� No ongoing adjustment to fair value is performed� Upon resale, the difference between acquisition value and sales price is recognised as a change in capital reserves� Only shares of Bâloise Holding are considered treasury shares�
3.15.5 Retained earnings Retained earnings include Baloise Group’s ploughed-back profits and its income for the fiscal year� Dividend distributions to shareholders of Bâloise Holding are only recognised once they have been approved by the Annual General Meeting�
3.15.6 minority interests Minority interests are those shares in the equity of Group companies, which are allocated to third parties outside the Group on the basis of the relevant ownerships�
The significance of the insurance risk is assessed according to the amount of additional benefits to be paid by the insurer if the insured event occurs�
Receivables and liabilities from financial contracts are primarily calculated on the basis of the Effective Interest Method� The effective interest is determined as an intrinsic interest rate based on the estimated amounts and dates of the expected payments � If the amount or date of the actual payments differs from expectations or the expectations change, the effective interest must be newly determined� The deposit account balance is then revalued as if this new effective interest rate had been in effect from the beginning and the change in the deposit account value is recognised as interest income or expense, respectively� Otherwise, the insurance cover financed from the deposit account is amortised over the expected life of the deposit account�
The Baloise Group considers an insurance risk to be significant if, during the contractual period in a plausible scenario, a payment is linked to the occurrence of the insured event, which is 5 % higher than the contractual benefits if the insured event does not occur�
→ where the outpayment amount or date is contractually at the discretion of the insurer and thus contractually depends on the performance of a specific portfolio or a specific type of contract; the realised and / or unrealised investment income of a specific investment portfolio held by the insurer, or the insurer’s result�
Self-insurance contracts are eliminated from the Annual Financial Statements� This applies particularly to contracts with the company ’s own pension plans, insofar as the employees covered by these plans belong to Baloise Group�
→ Health The Baloise Group writes health insurance only in Switzerland and Belgium� In addition to the typical treatment costs, the products in this sector also comprise benefits such as daily sickness allowance and are offered to individuals as well as small- and medium-sized businesses as so-called group insurance�
→ Fire and other property insurance Beginning with conventional home insurance policies, there is a broad offering of property insurance including fire, building and water damage insurance policies and all the other common features�
→ Marine Marine insurance policies are primarily sold in Switzerland and in Germany� In addition to the typical merchandise insurance, the products may also contain liability components�
→ Miscellaneous Small sectors such as loan and legal protection insurance are normally combined here� Financial guarantees are treated as loan payment protection insurances as long as they fulfil the definition of an insurance contract�
3.17.1 premiums The gross premiums written are those that have become due during the fiscal year� They include an amount necessary for covering the insurance risk as well as all cost markups� Those portions of the premiums attributable to future fiscal years are contractually accrued and, together with any provisions for premium shortfalls for the fiscal year (impending loss) and retirement provisions and any capitalised settlement premiums, comprise the unearned premium reserves disclosed in the balance sheet� Owing to the special characteristics of marine insurance, premiums are deferred not by contract, but on the basis of estimates� The premiums actually attributable to the fiscal year are designated as premiums earned� They are calculated from the premiums written and the change in unearned premium reserves�
The total claims reserve comprises three components� The provisions calculated using insurance-mathematical, so-called actuarial methods, form the basis� The second component is provisions for those complex special cases and events that do not lend themselves to purely statistical valuation� These are, as a rule, rare and rather untypical claims for a sector, usually major claims, whose extent must be individually assessed by claims experts� Both these components are provided without discounting� The third component is made-up of provisions for annuities, which are valued using basic actuarial principles, such as morbidity, technical interest rate, etc� and stem mainly from the motor, liability and accident sectors�
The forecasting methods applied cannot completely eliminate the uncertainties that lie in the forecasting of future developments � However, the systematic monitoring of the provisions created in a certain fiscal year permits the early identification of variances and, based on this, a revision of provisions and an adjustment to the forecasting method can be made where necessary� The bases for these analyses are the so-called claims triangles represented in aggregated form under section 5�4�5� As a rule, for typical nonlife sectors such as storm or household, calculations are performed based on the payments of the past ten years� As a matter of course, for sectors that develop more slowly, such as e� g� liability, larger amounts of data are used and therefore claims triangles that reach much further back in time, based on payments as well as expenses (payments plus provisions)� Alongside different in-house control mechanisms, the Baloise Group has the provisions and the methods applied additionally reviewed at regular intervals by external specialists� In this context, please also note the liability adequacy test described in detail in section 3�17�4� The Baloise Group takes great care to execute the regular profitability analysis and audit required by the reporting standard as to whether the insurer can fulfil all its assumed obligations on the key date� Any under-coverage that arises is promptly balanced�
3.17.4 liability adequacy test (lat) The liability adequacy test (LAT) is used at every balance sheet date to review whether existing provisions are adequate, taking all known developments into consideration�
The liability adequacy test as prescribed by IFRS requires that an analysis also be made as to whether the company entered into further obligations with all current contracts in the reporting period� A profitability analysis of the insurance business for the current fiscal year must therefore be conducted to prove that adequate premiums were demanded and also that the amount of unearned premium reserves for liabilities in the ensuing reporting periods is covered� In addition, there are usually contracts that are automatically renewed for a further year on the same terms, which must likewise be analysed for their profitability � At the same time, this corresponds to an analysis of the recoverability of deferred acquisition costs (DAC)� Here, expected investment income from the relevant unearned premium reserves and existing claims reserves are considered� If a deficit is expected, the deferred acquisition costs are reduced by the respective amount� Should the total deferred acquisition costs not fully cover the resulting obligation, a separate provision for impending losses is set up within unearned premium reserves�
On principle, the following Baloise Group life insurance products contain sufficient insurance risk to be classified as insurance contracts under IFRS 4: → endowment life insurance, conventional life insurance and unit-linked life insurance,
IFRS 4 introduces the concept of a discretionary participation feature (DPF), which is not only relevant to the classification of contracts but also to the disclosure of surplus funds, in accordance with the policyholders’ share in the unrealised gains and losses recognised in IFRS equity and regarding the share of the higher or lower values recognised in profit or loss in the Consolidated Financial Statements – as compared to the financial statement required by commercial law� Hence, the portion of the liability under an insurance contract that is attributable to a discretionary participation feature (discretionary participation feature component) is to be reported separately� The Standard does not provide any clear guidelines regarding the valuation and disclosure of the discretionary participation feature component�
If no contractual or legal minimum quota is stipulated, the Baloise Group defines the discretionary participation feature as the existing reserve for premium refunds after considering final policyholders’ dividends� All other valuation differences between local and IFRS financial statements – in the absence of a minimum quota – are carried as part of equity�
The applicable minimum quotas prescribed by law, contract or the company’s Articles of Association are country-specific�
In Germany, Austria and for some Swiss group life business, life insurance companies are obliged by law to pay out a minimum portion of their profit to policyholders in the form of a surplus�
In Germany, the policyholders must participate in gains� Negative partial results are absorbed by the shareholders� The policyholder has a 90 % share of capital gains (less actuarial interest), up to 75 % of the risk result and 50 % of the remaining result� For part of its portfolio, Deutscher Ring has addi tionally committed itself to the minimum quota of 95 % in its Articles of Association�
Minimum quotas are also applied to some of Swiss BVG business (occupational benefit plan) (which is subject to the legal quota), that is 100 % on change in liabilities and 90 % on change in assets�
Active (i� e� assumed) reinsurance is recognised in the same period as the initial risk� The corresponding technical reserves are included in the “Unearned premium reserves (gross)” and “Claims reserves (gross)” liabilities accounts for the nonlife insurance business and in the “Actuarial reserves (gross)” liabilities accounts for the life insurance business� For nonlife insurance they are estimated as realistically as possible, based on experience values and the most recent information available; for life insurances they are established based on the opening transaction� Passive reinsurance (i� e� insurance ceded) is the business ceded to insurance companies outside the Group and includes imposts from direct life and nonlife business and from active reinsurance�
The difference between acquisition and repayment value is recognised over the term in profit or loss in “Result from financial contracts” pursuant to the Amortised Cost Method using the Effective Interest Method�
107Financial Report Notes to the Consolidated Annual Financial Statements 3.20.3 Recognised at fair value through profit or loss This item states both financial contracts where the holder bears the investment risk himself and liabilities from the banking business which are recognised at fair value through profit or loss as part of hedging considerations (natural hedge) as a result of designation�
The convertible bond issued by Bâloise Holding includes a liability as well as an embedded option (conversion right for Bâloise Holding shares)� The fair value of the embedded option is calculated on the balance sheet date and stated separately in equity� The acquisition cost of the liability component corresponds to the present value of the future cash flow at the time of emission� The market interest rate of similar bonds without conversion or option rights is applied as the discount rate�
3.22 employee benefits The Baloise Group’s benefits to employees include all forms of compensation granted in exchange for services rendered or in special circumstances�
3.22.2 share-based payments The Baloise Group offers employees and senior members of staff various plans in which shares are granted as part of the overall compensation package� Employee Participation Plan, Share Subscription Scheme (SSS), Employee Share Ownership Plan, performance quota and performance share units (PSU) are valued and disclosed in accordance with IFRS 2 “Share-based Payment�” Plans that are serviced by shares in Bâloise Holding are valued at the calculated value on the date of granting and are recognised as personnel expenses during the blocking period and credited to equity� Plans that are serviced in cash and whose amount is based on the fair value of Bâloise Holding shares are recognised at the calculated value on the balance sheet date and reported as a liability�
108 Financial Report Notes to the Consolidated Annual Financial Statements 3.23 Financial provisions Financial provisions for restructuring and legal claims are set up for current legal or actual obligations, which will probably result in a future outflow of funds that can be reliably estimated� The assessment is based on the best possible estimate of the expected outlays� If the liability cannot be estimated with sufficient reliability, it is reported as a contingent liability�
3.24 taxes Provisions for deferred income taxes are set up pursuant to the Liability Method, i� e� they are based on the current or future expected tax rate� Deferred income taxes consider the income tax effects of temporary variances in recognition and valuation of assets and liabilities under IFRS and for tax purposes� When calculating deferred income taxes, unused tax losses are taken into consideration only insofar as it is probable that sufficient taxable profits will be generated in future�
3.25 Recognition of income Income is recognised at fair value of the consideration received or to be claimed� Inter-company transactions and the resulting gains or losses are eliminated� Income is recognised as follows: 3.25.1 income from services rendered Income from services rendered is recognised in the period in which the service is provided�
3.25.2 interest income Interest income on financial instruments, which is not recognised at fair value through profit or loss, is recognised using the Effective Interest Method� If the value of a receivable is adjusted, the recoverable amount is depreciated to equal the difference between the present value of the estimated future cash inflows and outflows and discounted using the original interest rate in the contract�
109Financial Report Notes to the Consolidated Annual Financial Statements 4. CritiCal aCCounting prinCiples and estimation unCertainties The Consolidated Annual Financial Statements of the Baloise Group include estimates and assumptions, which could have an impact on the Annual Financial Statements of the next fiscal year. Estimates and the discretionary power of the management are continuously reviewed and are based on experience and other factors, including expectations of future events that appear reasonable on the date the balance sheet is prepared.
The following investment categories are measured at fair value: → Investment properties Fair value of investment properties is determined using the Discounted Cash Flow Method. The estimates and assumptions applied are listed in section 3.6.
→ Financial assets of an equity or debt nature (available for sale and recognised at fair value through profit or loss) The fair value is based on market prices. Should no quo- tation exist, or the market is assessed as inactive, then the fair value is estimated based on generally approved methods (Present Value Method, etc.), independent evaluations by comparing market prices of similar instru- ments and the effective market situation. Derivative financial instruments are valued based on quoted maket prices or models. For private equity investments, different estimations methods are applied, such as the analysis of discounted cash flows or the reference to comparable recent transactions between knowledgeable, willing partners in an arm’s length transaction should no fair value be available. These financial assets are charged at acquisition value and accordingly disclosed should the estimates not permit reliable valuations. Hedge funds are measured at fair value based on public quotes, if available, otherwise fair value is determined by independent third parties.
The following financial liabilities are measured at fair value: → Liabilities from the banking business and from financial contracts (measured at fair value and recognised through profit or loss) Liabilities from investment-type life insurance policies without or with only marginal risk transfer are – due to the capitalised assets of these liabilities – valued at fair value.
4.2 Financial assets of a debt nature held to maturity The Baloise Group applies the provisions of IAS 39 to classify non-derivative financial instruments with fixed or deter minable payments as held to maturity. To do so, Baloise assesses the positive intent and feasibility of holding these financial instruments to maturity. If, contrary to the original intention, these financial instruments are not held to maturity – disregarding specific circumstances such as the sale of a negligible portion – the Baloise Group must reassign all held to maturity financial instruments to the “available for sale” category with a subsequent valuation at fair value. The fair values of those financial assets of a debt nature classified as “held to maturity” may be found in section 12.
110 Financial Report Notes to the Consolidated Annual Financial Statements 4.3 impairment losses At every balance sheet date, it is ascertained whether objective evidence of sustained impairment of a financial asset exists.
→ Financial assets of a debt nature (available for sale and held to maturity) Objective evidence of an impairment of a financial asset includes observable data to the following cases: – considerable financial difficulties on the part of the debtor, – a breach of contract, such as the failure to pay or delayed payment of interest or repayment instalments, – increased probability that the borrower will declare bankruptcy or enter into other reorganisation proceedings, – observable data indicating a measurable reduction of the expected cash flow from a group of financial assets since their initial evaluation.
Analysts’ reports from banks as well as rating agency appraisals are used to assess an impairment loss.
4.4 deferred income taxes Unused tax losses carried forward and other deferred tax assets are capitalised if it is probable that they will be realised. Assumptions regarding the probability that these tax benefits will be recovered are made for this purpose, based on the financial history and on the future income of the respective taxable entity.
4.7 employee benefits In calculating performance-based payments to employees, assumptions are made regarding the expected return on plan assets, the economic benefit of assets, future pay and pension benefit developments, the applicable discount and other parameters. The most important assumptions are derived from pre vious estimate experience. The assumptions included in the calculation are explained in section 18.2.10.
4.8 impairment of goodwill The recoverability of goodwill is verified annually either towards the end of the year or when objective evidence exists for impairment. For this recoverability audit, a value of benefit is determined, which is primarily based on estimates, such as finance planning approved by management and the discount or growth rates listed in section 9.
In the life insurance sector, the following biometric risks are predominant: → longevity risk in the cases of pension insurance and endowment insurance respectively,
→ disability risk in the sense of a risk of insufficient tarif, due to a disability taking an unfavourable course of development.
The management of insurance contracts with surplus participation features facilitates additional risk equalisation. One possible course of action in a changed risk situation can consist of the surpluses being adapted to local stipulations. However, the unbundling of the surpluses between the insured and the company is subject not only to local law, but also to the demands of the market.
The main risk categories of the banking division of the Baloise Group are credit risk, interest rate risk and liquidity risk. These risks are recorded and managed locally by the banks. The credit portfolio is monitored and analysed on an ongoing basis. In this process, various instruments are used, such as standardised credit stipulations and procedures, scoring and rating pro cedures, focusing on low-risk markets, and automatic dunning. The information gained flows into the loan decisions.
5.1 organisation of risk management of the Baloise group With its insurance and banking activities in various European countries, as well as its worldwide capital investments, the Baloise Group is exposed to market risks such as currency risks, credit risks, risks of interest rate changes and liquidity risks.
In this process, all activities directly related to risk manage- ment are summarised in a collective set of rules and inter- nally coordinated.
At the highest level, the total risks of the Group and the individual business units are restricted and directed by means of corresponding internal and external bandwidths.
At the level of finance risks and business risks, there are various limits and rules, which either reduce the identified individual risks to a level acceptable to the Group or eliminate them completely.
Responsibility is assumed within the Group and each business unit respectively for each individual identified risk by a risk owner. The risk owners are defined all along the line and according to levels of seniority. The Group’s most senior risk owner is the Chief Executive Officer of the Baloise Group. The persons responsible for the implementation of systematic risk controlling and of risk reporting are the risk controllers, defined parallel to the risk owners. In selecting risk controllers, particular care was taken to ensure the independence of the function. Points of emphasis for risk controlling within the Baloise Group are the following areas: investment risks, business risks (risks relating to the technicalities and the bank risks respectively), financial structural risks and compliance. The Group’s most senior risk controller is the Chief Financial Officer of the Baloise Group.
The risk map of the Baloise Group illustrates the categorisation of identified risks. The risks are subdivided into the following three levels: → nature of risk, → secondary nature of risk, → type of risk.
“Business environment risks,” “Operational risks” and “Leadership and information risks” arise directly or indirectly from the operation of the business, the business environment or the strategic activities of any company. The risks of this type are also quantitatively recorded, evaluated and managed.
The non-diversifiable market risk is managed using, amongst other things, stochastic methods and comprehensive scenario analyses from centralised and decentralised units.
For each identified risk category there is a corresponding half-yearly reporting procedure. For this purpose each business unit produces a risk report, serving as a basis for the Group-wide risk report. Key figures for financial risks and technical risks are released internally each month, within the scope of a riskcontrolling tool for both the Group and also for each strategic business unit.
For its elementary damage exposure, Baloise buys in reinsurance capacities to the value of CHF 250 million (previous year: CHF 250 million) for the total Group.
5.3 reinsurance strategy: nonlife and life Contractual reinsurance in the nonlife sector of the Baloise Group is structured by the Finance division for all the business units of the Group through the Group-wide reinsurance and placed in the market. In structuring the programmes, Groupwide reinsurance takes the risk-bearing capacity of the Group as a whole as its reference point. At present, the Group has placed exclusively non-proportional reinsurance programmes. The Group’s maximum excess charge for cumulative damage amounts to CHF 20 million (previous year: CHF 20 million), for in dividual damage it equals CHF 16 million in case of property damage (previous year CHF 16 million), CHF 15 million for transport damage (previous year: CHF 15 million) and CHF 12.5 million (previous year: CHF 12.5 million) for liability damage. In individual cases, the local business units of the Baloise Group take out further optional reinsurance protection. This type of reinsurance is heavily dependent on the respective individual risk and accordingly it is allocated by the business units themselves.
Reinsurance contracts can only be concluded with organisations which have received advance approval from the Finance division of the Group. The reinsurers usually have a minimum “A–” rating from Standard & Poor’s. In exceptional cases, a “BBB+” rating or a comparable rating from another recognised rating agency is approved. However, these reinsurance contracts are only used for nonlife asset insurance, regarding rapidly-handled claims. The provision does not apply to captives and pools acting as active reinsurers that, as a rule, have no rating.
5.4 nonlife 5.4.1 insurance-specific risk Primarily, the Baloise Group underwrites insurance risks of private individuals, as well as of small to medium-sized enterprises, in selected countries of mainland Europe. Apart from that, there is also business with industrial customers in Switzerland and Germany. Underwriting risks are limited by price monitoring and adjustment, as well as directives and limits on underwriting adjusted to the size and the country of the portfolio in question.
The structure of the existing portfolios must generate data that are sufficiently homogenous in order to determine the claims reserve using designated analytical actuarial methods. The typical development pattern of the previous years is considered a particularly reasonable basis for extrapolation. If needs be, additional assumptions might be made in isolated cases that display an extreme breakaway from the usual claims development.
→ Annuities Usually, the bases used for calculating annuities (mortality tables, interest rates, etc.) are provided or approved by the appropriate public authority of the respective country. However, as certain parameters can change relatively quickly, the appropriateness of the annuity provisions is checked yearly (in the course of the liability adequacy test) and additional reserves are allocated in case of insufficient coverage.
115Financial Report Notes to the Consolidated Annual Financial Statements 5.4.3 Changes in the assumptions In principle, the assumptions underlying the formation of claims reserves are constant. In the case of the basis for calculating annuities, adjustments are made time and again over the years. In particular when considering the most recent findings regarding longevity.
The calculation of these claims reserves is always associated with a degree of uncertainty. Both the point in time for recognising such cases and the size of such possible claims contain a substantially higher degree of uncertainty than is the case with all traditionally established claims patterns. The reserves are in part calculated based on reports by external actuaries. In this process, an analysis is usually made of an optimistic and a pessimistic scenario respectively. The Baloise Group’s reserve policy always focuses at least on the mean value of both scenarios. In particular, it is difficult to evaluate the level of reserves for claims incurred but not reported; consequently additional fluctuations can not be ruled out. According to experts’ estimates one must therefore work on the basis that variances of approximately 10 % could occur. This equates to an effect of approximately CHF 8 million after taxes and before reinsurance (previous year: CHF 10 million) regarding the corresponding provision.
116 Financial Report Notes to the Consolidated Annual Financial Statements 5.4.5 Claims development analysis of claims development – gross (before reinsurance) by strategic business units The reinsurance share is small and would not change the validity of the following claims development tables.
Seven years later 746.9 735.6 674.1 – – – – – – – –
Eight years later 742.9 733.8 – – – – – – – – –
Eight years later 391.9 327.0 – – – – – – – – –
Claims reserves – net 784.0 1 The increase in the overall amount of estimated claim payments is primarily due to the addition of the Avéro Schadevezekering Benelux NV.
119Financial Report Notes to the Consolidated Annual Financial Statements estimated Claims inCurred luxemBourg (Cumulative)
Eight years later 10.2 1 15.8 – – – – – – – – –
Nine years later 1 14.2 – – – – – – – – – –
Claims reserves – net 21.9 1 The increase in the overall amount of estimated claim payments is primarily due to the addition of the Bâloise Luxembourg IARD S.A. .
120 Financial Report Notes to the Consolidated Annual Financial Statements 5.5 life 5.5.1 insurance-specific risk Traditional life insurance is referred to as fixed-sum insurance; rather than being an amount due to a claim, a fixed sum is paid out when the insured event (e. g. survival or death) occurs. Capital and / or pension benefits in the event of premature death (death insurance) and disability (disability insurance) are insured in the form of risk insurance, while the savings insurance focuses primarily on savings for old age. The endowment life insurance combines risk protection with the savings process.
average teChniCal interest switzerland individual life switzerland group life germany Belgium luxembourg other units in CHF million
On the other hand, decreasing interest entails the risk that the investment income may no longer be sufficient to finance the technical interest. This risk is reduced by Asset & Liability Management (ALM) and partially by policyholders’ dividends.
In the event of death, the beneficiary receives the insurance sum or the fund balance, in cases where the fund balance exceeds the insurance sum. For the financing of the mortality cover in cases where risk capital exists
The fund underlying the savings scheme is selected from a different number of funds – depending on the product – according to the specifications of the investor profile of the policyholder. Usually, the policyholder bears the full investment risk and benefits from any positive performance.
In Germany, there are still a small number of contracts for which a minimum survival benefit, amounting to the contributions paid, is guaranteed without any fund-based hedging. Since 1999, this product has no longer been offered.
Through its unit in Liechtenstein, the Baloise Group offers variable annuities products (VA) with unit-linked and life-long guaranteed pensions. Financial hedging is effected with an external bank partner and an external reinsurance solution.
Risk insurance can entail substantial risks, e. g. due to epidemics, lifestyle changes such as a lack of exercise, and terror attacks. Contracts that cover the survival risk are mainly subject to longevity risks, which may increase even more due to further progress in the field of medicine and further improvements to the standard of living.
actuarial reserves 31.12.2010 actuarial reserves 31.12.2011 in ChF million share %
The allocation of the actuarial reserves to the above categories has been performed on the basis of the products, i. e. each product has been allocated to a risk type. Within a product, the actuarial reserves have not been distributed to different risks. Usually, the mortality tables that are used are authoritative for the allocation to a category.
The principles used are checked continually by means of an LAT (liability adequacy test). This test ensures the adequacy of the provisions. The assumptions used for this test represent “best estimate” assumptions. The two main assumptions of this test are the prospective investment income and the mortality table. The expected future investment income is determined on the basis of the current and the target investment portfolio (strategic asset allocation). The expected yield on new capital investments is aligned to the capital market interest rates. Depending on the size of the portfolio, the mortality tables are based on publicly accessible tables that are adjusted by empirical values or on the company’s own mortality tables.
123Financial Report Notes to the Consolidated Annual Financial Statements 5.5.3 sensitivities In connection with sensitivities, the effect of changes in the assumptions on the annual result and on the equity was determined after considering shadow accounting, latency calculation, and deferred tax assets and liabilities (but not including reinsurance effects since negligible). In these calculations, the assumptions according to which the liability adequacy test (LAT) was conducted were varied. Simulated scenarios: → increase in mortality by 10 %, → decrease in mortality (i. e. increase of longevity) by 10 %, → reduction of new capital inflow by 100 basis points.
Usually, sensitivities are not linear and therefore extrapolation is not possible.
In Belgium, the scenario results in an additional DAC depreciation and a provision for impending losses. Due to the business model with high guaranteed interest rates and low dividends, the effect on the income statement is higher than in other countries. In total, this results in a negative impact in profit or loss of CHF 50 million (previous year: CHF 11 million). The negative impact on the income statement is overcompensated by the positive change in unrealised gains and losses in equity. The positive impact on the unrealised gains amounts to CHF 85 million (previous year: CHF 42 million).
The resulting effects on the income statement and equity are negligible for Baloise Life (Liechtenstein) AG. In Switzerland, the scenario results in a charge of approximately CHF 48 million to the income statement
(previous year: CHF 56 million). This is due in particular to increased DAC depreciation and increased technical reserves. Equity not recognised through profit or loss amounts to approximately CHF 285 million (previous year: CHF 250 million).
5.5.4 Changes in the assumptions Prospective investment income is continuously adapted to market conditions. Investment income decreased in all units. Further assumptions such as cancellations and mortality are continuously updated.
5.6 market risk management Generally, however, market risks are reflected in losses due to changing or fluctuating market prices, which can result in potential impairment losses of the assets. The degree of risk depends on the extent of price fluctuations in the market and on exposure.
5.6.1 interest rate risks The interest rate risk refers to the risk that the interest margin – and thus also the income of a company (income effect) or the fair value of the interest rate sensitive products portfolio (asset effect) – is reduced due to interest rate fluctuations on the money and capital markets. Apart from the economic risk of asset investments not being maturity-matched in relation to liabilities, the partially different balance sheet regulations entail a balance sheet risk.
Consequently, a change in the interest rate or in the interest structure may result in a considerable deterioration of terms in case a reinvestment becomes necessary. The nonlife units engage in benchmark-oriented maturity management. In the life units, maturity management is driven by the liabilities.
Additionally, stress tests are defined and conducted. These stress tests serve as an early warning system, and their effects can be simulated for all areas of the company and thus for the business result.
The effect of a stress test on the financial figures is measured on a monthly basis. The underlying stress scenario (potential loss due to a risk) is reviewed on a regular basis and adjusted if necessary. The magnitude of a stress test is usually geared to the simple annual volatility of the financial risk under examination, to a 100-year event of a business risk, or to international common practice.
The life insurance companies of the Baloise Group manage their risks in relation to interest rate changes directly by means of suitably geared strategic asset allocation. In determining the asset allocation, in particular the factors of risk capacity and financeability of the guarantees are taken into consideration. Moreover, the expectations of the asset management from the capital markets and the expectations of the customers from the life insurance play a role in the decision process.
The Chief Investment Officer (CIO) of the Baloise Group reviews the strategic asset allocation of all business units twice a year in collaboration with these business units.
At the banks, interest rate risks are also managed and monitored within the scope of a suitable asset & liability management. Interest rate risks are only taken if they are related to the business volume and the business activity. The interest rate risks are measured by a software application using Value at Risk, Gap, Duration, and Interest Sensitivity Methods. The so-called asset & liability mismatch is actively managed by means of suitable interest derivatives, usually fair value hedges.
At the Bank Baloise Soba AG the limits of the interest rate risk are determined in such a way that when the market interest curve exhibits a shift of + / – 100 basis points the fair value of the equity may diminish by no more than 2.5 % (warning limit) or 4.0 % (action limit) per calculation date. In addition to these percentages, absolute values are determined for the warning and action limits on an annual basis and are approved by the Board of Directors. These must also not be exceeded.
Had the general interest rate level been 100 basis points lower with all other variables remaining constant on the balance sheet closing date, the consolidated result (after consideration of latency calculation and deferred tax assets and liabilities) would have decreased by CHF 111 million (previous year: CHF 82 million). Including the impact on the consolidated result, equity (after consideration of shadow accounting, latency calculation, and deferred tax assets and liabilities) would have increased by CHF 426 million (previous year: CHF 376 million).
derivative financial instruments, employed as fair value hedge In the banking business, changes in the interest rate can have a substantial impact on the interest margin and thus on the result of the interest business. These interest rate risks emerge from a variety of factors and include the different fixed-interest periods of loans and liabilities. The interest result also depends on the changes in market interest rates, as the time for the adjustment of the conditions for loans may not always correspond to that of the customer deposits and securitised debts. Assets and liabilities with variable interest rates are also subject to a basic risk due to different interest rate adjustments, e. g. between the interest rates on savings and six-month Libor. Until the end of 2010 and within the scope of hedge accounting, interest rate swaps were mainly employed to hedge such interest risks. Hedge accounting is no longer employed since 1 January 2011.
126 Financial Report Notes to the Consolidated Annual Financial Statements derivative FinanCial instruments emploYed as Fair value hedges
Fair value – assets Fair value – liabilities in CHF million
The Group-wide Risk Management Standards prescribe ongoing monitoring of the currency risks and of the effectiveness of the concluded currency derivatives. Under consideration of the achieved diversification effect in the portfolio, the currency risks that are taken stand in a reasonable relationship to the potential surplus to be gained.
Derivative financial instruments employed to hedge a net investment in a foreign company for protection against currency risks: Substantive alternative financial investments such as hedge funds and private equities are managed by separate, Group-owned companies: Baloise Alternative Investment Strategies Ltd., Jersey, and Baloise Private Equity Ltd., Jersey.
To limit the currency risk of the net investments in these two foreign companies, which report in USD, the currency management team of Baloise performs hedging transactions in the form of forward exchange deals. The limitation of the implementation of hedging strategies to forward exchange deals facilitates the assessment of hedge efficiency and the use of hedge accounting. Due to the use of hedge accounting, the change in fair value of these derivatives is recorded cumulatively under a special equity item and only derecognised in profit or loss upon sale of the underlying investment, together with the accrued currency effects of the net investments in these foreign companies.
Due to the active management of investments in participations, regular capital injections and repatriations are performed during the year. Thus the basic effects and the recognition of cash flow through profit or loss, on which hedge accounting is based, are applied pro rata.
The Baloise Group’s foreign subsidiaries have no significant foreign currency exposure.
129Financial Report Notes to the Consolidated Annual Financial Statements 5.6.3 Credit risk Credit risks on the assets side of insurance companies include all potential risks of loss, which may result due to a decline in the creditworthiness of a debtor or issuer or a value impairment of the securities. The credit risk is managed by means of creditworthiness audits of every individual counterparty and high rating standards.
As a matter of principle, investments in the investments portfolio are only made in bonds, loans, or financial derivatives whose issuer or debtor has at least an “A–” rating from Standard & Poor’s or a comparable rating or for which a third-party guarantee or mortgage exists. For other debtors and issuers whose Standard & Poor’s rating is at least “BBB” and for those who do not have a rating, an additional total limit of 10 % of all fixed-income securities is determined on the basis of their fair value. Exceptions are subject to explicit approval.
An overview of the hedged financial assets of a debt nature can be found in section 12.
Dexia Bank, Brussels 458.7 investments > 10 % oF Consolidated equitY
If no contractually irrevocable loan commitments were agreed, the maximum default risk of financial assets corresponds to the carrying value of the assets for own account and at own risk.
The management and control of credit risks in the mortgage business are specified in directives and work instructions. These define binding loan specifications. In these loan specifications, strict processes are applied to immediately identify credit risks, assess these exactly, authorise them accordingly and continuously monitor them. All loan appli cations are collected using standardised loan templates, which are checked, centrally recorded and managed. This process includes all valuation principles and guidelines, if they are not already contained in the respective loan template.
By continuously recording mortgage transactions, compliance with the loan policy can be controlled and corrective action can be initiated as necessary. Furthermore, periodic exposure audits are performed as part of mortgage management. Outstanding interest lists are kept. The procedure and the periodicity are regulated in a separate directive. Management regularly receives extensive risk reports on risk composition and trends within the mortgage portfolio.
The conditions according to which mortgages are to be granted are recorded in the guidelines, directives and in the competency regulations. These are, on the one hand, amount, creditworthiness of the counterparty, security and tenor of the transaction and, on the other, the qualified assessment through the mortgage specialist.
Valuation and loan-to-value ratio of the collateral are governed by special directives. The purpose of these provisions is to ensure uniform assessment procedures to determine the relevant value of the collateral. Focusing primarily on the mortgage business, determining the fair value and the loan-to-value ratio of the properties are of crucial importance. One of the purposes of active mortgage management is to identify potential loss risks at an early stage.
Promissory notes and registered bonds 1,729.3 3,281.1 82.8 121.4 248.4 5,463.0
Since these agencies do not fully cover the domestic financial market, the SBI Composite Rating is referred to when necessary. This also includes the ratings of four Swiss banks. These are: Credit Suisse, UBS, Bank Vontobel and the Zürcher Kantonalbank.
Mortgage assets from the Swiss insurance business are subject to a credit check due to risk management pro cesses. Following the preceding disclosure, the mortgages granted can be pooled into two main rating categories.
135Financial Report Notes to the Consolidated Annual Financial Statements assets impaired on the BalanCe sheet date gross amount impairment Carrying value gross amount impairment Carrying value in CHF million
Promissory notes and registered bonds 5.3 – 5.3 0.0 0.0 – 0.0 –
136 Financial Report Notes to the Consolidated Annual Financial Statements assets overdue and not impaired on BalanCe sheet date assets as of 31 december 2010 < 3 months 3 – 6 months 7 – 12 months > 12 months total in CHF million
In liquidity management, the maturity structure of liabilities must be taken into consideration: expeCted maturities From FinanCial liaBilities 1 liquidity risk as of 31 december 2010 < 1 year 2 1 – 3 years 4 – 5 years > 5 years no maturity total
Contingent liabilities and capital commitments 1 The undiscounted contractual payment flows constitute the basis. 2 All demand deposits are included in the first maturity range.
The residual terms and maturities of the technical reserves concerned are stated in the tables of section 23. Pursuant to the Group-wide Risk Management Standards, Asset Liabilities Committees have been introduced in all strategic business units of the Baloise Group. For asset liability management purposes, these committees conduct analyses concerning the maturities and realised or required income of the assets and liabilities.
5.6.5 share price risk With its financial assets of an equity nature in the categories “recognised at fair value through profit or loss” and “available for sale,” the Baloise Group is exposed to share price risk. This share price risk is substantially reduced by means of international diversification, e. g. wide spread of risks across industries, countries, and currencies. Moreover, the share price risk is duly limited by means of active Overlay Management via derivatives, when certain intervention levels are reached or market or risk indicators, continually monitored by Baloise, suggest increased hedging activity.
The majority of the financial assets of an equity nature are publicly listed. Should the market prices of all financial assets of an equity nature change by + / – 10 %, it would have the following consequences, after consideration of shadow accounting, latency calculation, deferred tax assets and liabilities, hedging derivatives, and the effect of the value adjustment rules stated in section 3.10.2: PREPRINT
As the effects generated by value adjustment criteria due to an assumed change in market prices are different to those generated in the event of an analogous decrease, the effects differ accordingly. The same applies to compensatory effects from hedging with derivatives.
The profit for the period changes as a result of the changes in the fair value of the financial instruments of an equity nature in the category “recognised at fair value through profit or loss,” which are recognised in profit or loss. Unrealised gains and losses change due to changes in the fair value of the financial instruments of an equity nature in the category “available for sale.” In the case of life insurance companies, the policyholders’ participate in the company’s profit, depending on contract and local circumstances (section 3.18.5). In the above presentation, this profit sharing is also taken into consideration.
Recognised at fair value through profit or loss 54.2 17.9 – 72.1
Recognised at fair value through profit or loss 41.5 – – 41.5 equity and liabilities
Derivative financial instruments 1.1 28.8 – 29.9 total equity and liabilities 1.1 294.2 – 295.3
FinanCial assets and liaBilities For own aCCount and at own risk 2011 level 1 level 2 level 3 total in CHF million assets
Recognised at fair value through profit or loss 81.7 16.8 – 98.5
Recognised at fair value through profit or loss – 223.9 – 223.9
FinanCial assets and liaBilities For the aCCount and at the risk oF liFe insuranCe poliCYholders 2010 level 1 level 2 level 3 total in CHF million assets
Recognised at fair value through profit or loss 846.4 31.9 – 878.3
FinanCial assets and liaBilities For the aCCount and at the risk oF liFe insuranCe poliCYholders 2011 level 1 level 2 level 3 total in CHF million assets
Recognised at fair value through profit or loss 6,102.6 44.9 75.8 6,223.3
144 Financial Report Notes to the Consolidated Annual Financial Statements level 3 financial assets recognised at fair value
Balance as of 1 January 677.7 – – – – – – 677.7
Financial assets of a debt nature mortgages and loans derivative financial instruments receivables from financial contracts total available for sale recognised at fair value through profit or loss available for sale recognised at fair value through profit or loss recognised at fair value through profit or loss recognised at fair value through profit or loss recognised at fair value through profit or loss in CHF million assets
Additions from change in percentage of interest – – – –
Change in fair value of financial instruments held until the balance sheet date recognised in profit or loss
The additions in the reporting period are mainly to private equity investments.
5.8 Capital management The parameters relating to the amount of capital to be used are determined by regulatory requirements as well as internal risk management guidelines. While the regulatory requirements mainly serve to protect the policyholder, the internal guidelines are geared specifically to the risk-focused control of the operating activities.
The relevant requirements for the banking business of the Baloise Bank SoBa are defined by the Basel II regulations. The Solvency Regulation (SolvV) as the regulatory equity requirement is definitive for the Deutscher Ring Bausparkasse. All relevant requirements were fulfilled by the respective Group companies in 2010 and also in 2011.
The Swiss Solvency Test (SST) came into effect on 1 January 2011, as a new legal requirement alongside Solvency I. Within this framework, the Baloise Group determines the risk-bearing capital and the capital requirements for the SST based on an internal model that also considers the Baloise business model. All activities and processes to develop and configure the internal model are grouped under the term Baloise Internal Solvency System (BISS). These are coordinated and controlled by Group Risk Management.
The responsible risk owners and risk controllers of the business units and of the Group are involved in a regular reporting process. Reporting that includes key figures for Solvency I as well as those for the in-house risk model is performed on a monthly basis. This enables the solvency situation to be monitored in real time and the foundation for risk-based management decisions within the whole organisation to be laid. Furthermore, this puts Baloise in the position of being able to comply with external reporting requirements at any time.
6. sCope oF Consolidation 6.1 Fiscal year 2010 6.1.1 Company acquisitions Bâloise Assurances Luxembourg S.A. concluded the purchase of the “Fortis Luxembourg IARD S.A.” on 7 January 2010. The newly acquired company has been fully consolidated from this time on and operates under the name “Bâloise Luxembourg IARD S.A.”. Goodwill amounting to CHF 13.3 million resulted from this acquisition.
6.1.2 Company disposals The Belgian Immo Kappelleveld NV, Antwerpen was sold in the 2010 fiscal year, as was the OVB group as described in section 6.1.3.
6.2 Fiscal year 2011 6.2.1 Company acquisitions The Baloise Group took over the real estate agent and broker companies Wilhelm Herrmann Assekuranz KG and Wilhelm Herrmann Assekuranz Makler GmbH, both headquartered in Ettlingen (Germany) on 1 January 2011. Goodwill amounting to CHF 0.1 million resulted from this takeover.
On 6 January 2011, the Baloise Group concluded the takeover of 100 % of the voting rights to Avéro Schadeverzekering Benelux N.V. The newly acquired company has been fully consolidated since that time and was merged with Mercator Verzekeringen N.V. during the first half-year. Goodwill amounting to CHF 17.3 million resulted from this company acquisition, which was then transferred to Mercator Verzekeringen N.V. through the merger. The most important drivers of goodwill are primarily the expanding Belgian nonlife business, the development of the markets in Brussels and Wallonia, the acquisition of know-how and profitable portfolios in commercial lines and marine / transport, as well as putting cross-selling potentials and cost synergies into practice.
On 6 September 2011, the Baloise Group took over 100 % of the Belgian insurance companies Nateus SA / NV and Nateus Life SA / NV. Both companies and their subsidiaries have been included in the scope of consolidation of the Baloise Group since that time. Badwill amounting to CHF 7.9 million resulted from this acquisition and has been recognised in profit or loss under the item “Other operating income”. The Baloise Group was able to purchase the profitable Nateus companies for an attractive amount which is the reason for the badwill.
Included in the segment “Other units” are those strategic business units, which did not meet the quantitative threshold criteria defined in IFRS 8. These are the Group units belonging to: → Austria → Croatia → Serbia → and Baloise Life Liechtenstein
The revenue of the business segments are split into “Nonlife,” “Life,” “Banking” (including Asset Management) and “Other activities.” Nonlife features accident and health insurances as well as products of the liability, motor, property, and marine sectors. The products are geared to the needs of our customers – mainly private customers – and the core competencies of the companies of the Baloise Group. In the life insurance business, private persons and companies are offered a wide spectrum of capital-forming insurances, pure risk covers, and investment-type wuniversal bank, and Deutscher Ring Bausparkasse in Germany, which mainly operates in the conventional building society business.
The business segment “Other activities” comprises participation, property, and investment companies in particular. The accounting principles applied to present the business segments (segment reporting) are the same as those applied in the other parts of the Financial Report. No relations between the segments that are recognised in the balance sheet or through profit or loss are offset except income from participating interests.
Realised capital gains and losses on investments 45.3 – 184.3 304.5 – 152.6 66.6 – 72.9 257.1 – 175.2 – 149.2 – 330.0 524.3 – 915.0 – 22.7 – 28.4 – – 501.6 – 943.4
Claims and benefits paid (gross) – 3,254.6 – 3,315.1 – 1,358.8 – 1,224.8 – 365.5 – 565.9 – 60.2 – 56.7 – 161.2 – 138.5 – 5,200.3 – 5,301.0 – 141.3 – 137.0 128.7 126.5 – 5,212.9 – 5,311.5
Reinsurance share of claims incurred 41.3 42.0 6.2 11.3 – – – – – – 47.5 53.3
Interest expenses on insurance liabilities – 0.8 – 1.2 – 60.4 – 50.4 – – – – – – – 61.2 – 51.6
Profit / loss for the period (segment result) 315.0 113.1 150.2 7.5 55.1 59.5 – 83.6 – 118.8 – – 436.7 61.3
Premiums earned and policy fees (net) 2,888.1 2,988.3 3,798.0 3,642.3 – – – – – – 6,686.1 6,630.6
8. ProPerty, PLant and equIPment 8.1 Property, plant and equipment 2010
Carrying value as of 1 January 84.8 404.7 54.4 44.2 23.1 611.2
Of which: Assets held under a finance lease 1 1 The assets in finance leases primarily concern a lease agreement with a purchase option for an owner-occupied administrative building. The lease agreement includes a repayment schedule and is contractually fixed until mid-2018.
Carrying value as of 1 January 81.4 340.4 55.5 37.7 20.7 535.7
Carrying value as of 31 december 88.2 361.9 52.4 35.1 22.3 559.9
Carrying value as of 1 January 111.7 50.1 877.6 137.9 165.1 0.2 1,342.6
Capitalisation of acquisition costs – – 87.0 327.7 – – 414.7
The goodwill balance at the end of 2011 can be mainly attributed to Basler osiguranje Zagreb; the Zeus Vermittlungsgesellschaft mbH, Hamburg; Deutscher Ring Financial Services GmbH, Hamburg; as well as Bâloise Luxembourg IARD S.A., and the Avéro Schadeverzekering Benelux NV that was merged with the Mercator NV during the year of acquisition.
9.3 assumptions applied for the impairment test of significant goodwill items The assumptions on the future business development were reviewed by local manangement taking the general macroeconomic situation into consideration.
Since the relevant account information, in other words the evaluation criteria, on the listed OVB group had not been published when the Financial Report was prepared, the evaluation is based on the figures on 30 September of the reporting period.
Operating expenses arising from investment properties that generate rental income 73.1 70.2
In the 2011 reporting period, the additions and disposals can be mainly attributed to transactions in Switzerland, disposals in Germany and acquisitions in Belgium. Additions from changes to the scope of consolidation are connected to the company acquisitions in Belgium explained in section 6.2.1. Disposals from changes to the scope of consolidation result from sales of the Croatian Treci element d.o.o.
Not publicly listed, fixed interest rate – – 38.9 37.8 – – 17.9 16.8 56.8 54.6
The following impairments had to be performed on “Held to maturity financial assets of a debt nature” in the reporting period: ImPaIrments on HeLd to maturIty fInanCIaL assets of a debt nature in CHF million balance as of 1 January – –
Increases and additional provisions recognised in profit or loss – – 7.6
Hedged financial assets of a debt nature are fixed-income securities that are certificated by a mortgage or government bond. These fixed-income securities are issued by companies, which for the most part have a clearly defined and narrowly limited business purpose.
Held to maturity available for sale recognised at fair value through profit or loss total trading portfolio designated in CHF million type of financial asset financial assets of an equity nature – – 3,437.6 3,447.3 – – 78.9 33.3 3,516.5 3,480.6 financial assets of a debt nature 7,105.5 8,027.8 17,784.6 19,855.3 – – 72.1 98.5 24,962.2 27,981.6 secured financial assets of a debt nature
Industrial enterprises – – – 4.3 – – – – – 4.3
Derivative financial instruments for the account and at the risk of life insurance policyholders derivative financial instruments according to the balance sheet 536.3 334.1 29.9 175.3
Contract value fair value – assets fair value – liabilities in CHF million
Of which: designated for fair value hedging 979.7 – 19.0 – 25.1 –
Of which: designated for hedging a net investment in a foreign company
ImPaIrments on fInanCIaL reCeIvabLes in CHF million balance on 1 January – 11.1 – 10.1
Increases and additional provisions recognised in profit or loss – 4.8 – 3.8
Currency translation 0.8 0.1 balance on 31 december – 10.1 – 6.9
16. reInsuranCe assets in CHF million technical reserves ceded to reinsurers as of 1 January 306.4 248.1
Additions / disposals from change in the scope of consolidation 3.3 142.8
Exchange differences – 39.7 – 8.2 technical reserves ceded to reinsurers as of 31 december 248.1 377.5 17. reCeIvabLes from reInsurers in CHF million reinsurance deposits as of 1 January 4.9 7.1
Exchange differences – 0.3 – 0.2 other reinsurance receivables as of 31 december 16.4 12.0
Impairments on receivables from reinsurers as of 1 January – 0.6 – 0.6
18. emPLoyee benefIts 18.1 receivables and liabilities from employee benefits receivables from employee benefits
Employment contract termination benefits – – 28.3 29.3 18.2 retirement benefits Baloise provides a range of retirement benefits. These vary from country to country as circumstances dictate. Liabilities that are (partially) financed by means of a bond are occupational pension schemes valid in Switzerland and liabilities from the newly acquired Avéro Schadeverzekering Benelux NV. Baloise works with a number of different pension plans for employees of the insurance company and bank.
Retirement benefits include – besides annuities – special benefits provided by Baloise to retired personnel. In particular, these involve specific benefits available in Switzerland, such as preferred rates on mortgages. These qualify as defined-benefit liabilities under IAS 19.
Fair value of plan assets 1,996.6 1,947.1 net liability – 54.3 – 122.8
Present value of present value of liabilities not financed – 576.6 – 578.0
Unrecognised assets due to limitation of IAS 19.58b – 182.9 – 189.3 net liabilities from defined-benefit plans – 535.3 – 550.4
balance as of 31 december – 2,050.9 – 2,069.9 18.2.3 Present value of liabilities not financed in CHF million balance as of 1 January – 653.8 – 576.6
Actuarial gains / losses from defined-benefit plan liabilities of the reporting period – 17.8 7.3
18.2.4 fair value of plan assets in CHF million balance as of 1 January 1,955.4 1,996.6
Additions and disposals from changes in the scope of consolidation – 10.6
Experience adjustments on plan assets – 20.2 – 204.6 61.3 – 23.4 – 103.7
Change in assets unrecognised due to limitation of IAS 19.58b 53.9 – 6.4
The calculation of expected returns on plan assets of liabilities (partially) financed by a fund takes the asset allocation and long-term market expectations into consideration. Details concerning the plan assets are considered separately.
18.4 share-based compensation plans The Baloise Group has offered employees a range of share-based plans as part of their total compensation package for quite some time now. Employee participation, Share Subscription Scheme, Employee Share Ownership Plan, and performance quota are all “cash-settled” share-based compensation plans. Performance share units (PSU) constitute an “equity- settled” share-based compensation plan. In the fiscal year 2011, an amount of CHF 20.9 million was charged to the income statement from the share-based compensation plans listed below (previous year: CHF 21.1 million).
18.4.1 employee Participation Plan The Basler foundation for employee participation plans set up in 1989 offers employees from various Group companies in Switzerland the option to buy Bâloise Holding shares at a preferential price, as a rule once a year, according to stipulations laid down in the regulations established by the foundation board. This promotes long-term employee commitment to the company, also as shareholders. The subscription price is determined by the foundation board at the beginning of the subscription period and published on the intranet. It is equivalent to half of the volume weighted average rate determined for the month of August in the subscription year and amounts to CHF 34.80 for the reporting period (2010: CHF 41.90). The subscribed shares are always transferred on 1 September and are subject to a blocking period of three years.
The subscription price is specified by the Corporate Executive Committee each year and is published in advance on the intranet. It is based on the volume-weighted average price of a contemporary measuring period. An accordingly calculated discount of 10 % is granted on the stock average. The shares required for the Share Subscription Scheme are acquired on the market.
Fair value of subscribed shares as of subscription date in CHF million 3.1 4.1
1 As of 2011, the blocking period for shares allocated to the Chairman of the Board of Directors is five instead of the customary three years. This means that these shares remain blocked until 31.5.2016.
The subscription price is determined by the Corporate Executive Committee each year and published in advance on the intranet. It is based on the volume-weighted average price of a contemporary measuring period. The discounted dividend right is deducted from this stock average over the period of three years. The shares required for the Share Subscription Scheme are acquired on the market.
Fair value of subscribed shares as of subscription date in CHF million 21.9 16.7
18.4.4 Performance quota The performance quota was introduced in 2007 for employees at function levels 1 to 3 in Switzerland. In 2008, the group of participants was expanded to include members of the Corporate Executive Committee of foreign business units. As of 2011, the performance quota will be transferred to the performance pool of the new performance management system so that it was applied for the last time in the 2010 fiscal year.
The individual amounts – as part of the total sum provided by the Compensation Committee – were specified by each line manager or other senior staff member for each employee in April and paid together with the June salary. These sums depended on individual performance and the contribution to the company’s success made by the person and varied in their amount and as a proportion of total remuneration. Part of the amount awarded (for members of the Corporate Executive Board 50 %) had to be drawn in shares, for the remainder there was the choice of subscribing for further shares or having this amount paid out in cash. The regulations of the Employee Share Ownership Plan were valid for the part drawn in shares.
In cash in CHF million 1.4 1.5 18.4.5 Performance share units At the beginning of a performance period, participating employees are awarded rights in the form of Performance Share Units (PSU), which entitle them to subscribe for a certain number of shares free of charge after the per formance period has expired. The Compensation Committee specifies the day of allocation and defines those at senior function levels entitled to participate in the programme at its discretion. It defines the total number of PSU available specifies individual allocation to the members of the Corporate Executive Committee.
The number of shares that can be subscribed for after three years, i.e. at the end of the performance period, depends on how Baloise shares have performed relative to a peer group. This comparative performance factor can hereby assume values between 0.5 and 1.5. The peer group includes the most important European insurance companies in the STOXX Europe 600 Insurance Index.
Aegon NV Catlin Group Legal & General Group plc Standard Life plc
Source: In principle, a PSU grants the right to subscribe for a share. This is the case when the Baloise share performance corresponds to the mean of the peer group. The performance factor is 1.0 in this case. The programme participants receive more shares for their PSU if Baloise shares have performed better than the peer group. The factor reaches the maximum of 1.5, when Baloise shares have performed in the upper quartile of peer group company per formance. The factor is 0.5 if performance is in the lower quartile of peer group company performance. If Baloise share performance is in both middle quartiles, the performance factor is calculated using a linear scale. The performance factor is defined for the entire period ending, based on stock exchange closing prices on the last trading day of the respective performance period.
The shares required to convert the PSUs were bought on the market.
(measured against histo rical figures over three years), → expectations on the return on dividend, → and experience values as to the termination behaviour of the eligible group.
Number of active PSU as of 31 December 2009 81,127 – –
Number of active PSU as of 31 December 2010 78,524 82,215 –
change recognised in income statement change recognised in equity carrying value as of 31.12.
Unused tax losses 35.5 – 8.1 – 27.4 carrying value as of 1.1.
Other intangible assets 17.7 – 2.9 – 14.8 carrying value as of 1.1.
Unrealised gains and losses charged to equity 48.6 – 15.8 64.4
Other intangible assets 14.8 6.9 – 21.7 1 The item “Other” includes mainly deferred taxes on participations and financial provisions.
The Baloise Group reports deferred tax assets and liabilities on a net basis. Deferred tax assets and liabilities are offset, if applicable prerequisites are fulfilled. As a rule, these are fulfilled when tax authority, tax entity and tax type are identical.
As of 31 December 2011, the Baloise Group has capitalised tax-offsetable losses carried forward amounting to CHF 194.4 million (previous year: CHF 118.1 million). Of this total, CHF 0.9 million lapse after two to four years and CHF 193.5 million lapse after five or more years.
As of 31 December 2011, tax assets were not capitalised on losses carried forward amounting to CHF 396.0 million (previous year: CHF 341.4 million). Of this total, CHF 45.8 million lapse after one year, a further CHF 40.3 million after two to four years, and CHF 309.9 million after five or more years.
Purchase / sale of treasury shares 447,034 – 447,034 – –
Bâloise Holding registered shares are fully paid-in, with a face value of CHF 0.10 (previous year CHF 0.10). Natural persons and legal entities may hold a maximum 2 % of voting rights per the shareholder register. The Baloise Group purchases and sells its treasury shares as part of normal investment activities and in connection with share-based compensation plans for employees.
The share capital of Bâloise Holding amounts to CHF 5.0 million divided into 50,000,000 fully paid-in, registered shares with a face value of CHF 0.10.
At the Annual General Meeting on 29 April 2011, the payment of a gross dividend of CHF 4.50 per share was decided for the fiscal year 2010. This equates to a total dividend of CHF 225.0 million. After considering Bâloise’s own holdings at the time of the distribution CHF 211.3 million were effectively paid out.
During the reporting period 178,474 shares of Bâloise Holding were bought back for CHF 17.1 million in the course of the share buy-back programme that started in September 2008 and ended on 28 April 2011. Thus a total of 1,776,435 shares amounting to a total value of CHF 141.0 million were repurchased during the course of this programme.
Policyholders’ dividends credited and provisions for future policyholders’ dividends (gross) 3,114.0 3,121.9 technical reserves life 38,051.3 39,426.7 technical reserves (gross) 43,445.7 45,561.9 23.1 technical reserves nonlife gross reinsurance assets net gross reinsurance assets net in CHF million
Reserve for claims handling expenses 455.2 – – 558.5 – –
provisions for surplus and profit sharing 55.6 – 0.0 55.6 55.0 – 0.0 55.0
All maturity information represents best estimates. The item “No determinable residual term” includes in parti cular aging and pension provisions.
23.1.3 provisions for surplus and profit sharing gross reinsurance assets net gross reinsurance assets net in CHF million
23.1.4 claims reserve including claims handling expenses in CHF million balance as of 1 January (gross) 5,198.6 4,853.5 balance as of 1 January (net) 4,913.8 4,625.5 claims incurred including claims handling expenses
For previous years – 115.2 – 119.9 payments for claims and claims handling expenses
Additions / disposals from changes in the scope of consolidation 9.9 459.2 balance as of 31 December (net) 4,625.5 5,139.5 balance as of 31 December (gross) 4,853.5 5,475.2
At the end of 2011, total reserves came to CHF 103.7 million (previous year: CHF 121.7 million). This decrease is due to new actuarial reviews, payment of claims, commutations and, since these reserves are, to a large extent, created for liabilities denominated in foreign currencies, currency effects.
Policyholders’ dividends credited and provisions for future policyholders’ dividends 3,114.0 3,121.9 total technical reserves – life 38,051.3 39,426.7 1 The actuarial reserve also includes unearned premiums and claims reserves.
23.2.2 actuarial reserves for non-unit-linked life insurance contracts in CHF million balance as of 1 January 33,251.0 32,102.9
Additions from the acquisition of insurance portfolios or companies – 1,346.5
Adjustment from unrealised gains and losses as of 1 January (shadow accounting) 2.0 – 3.2
Disposals from sale of policy portfolios or insurance companies – –
balance as of 31 December 1,941.7 1,836.2 provisions for future policyholders’ dividends as of 1 January 1,181.1 1,172.3
Disposals from the sale of insurance portfolios or companies – –
balance as of 31 December 1,172.3 1,285.7 policyholders’ dividends credited and provisions for future policyholders’ dividends as of 31 December
Liability for future financial lease payments (present value) 112.8 103.9 112.8 103.9 recognised at fair value through profit or loss – designated total liabilities from the banking business and financial contracts 12,863.3 13,998.1 – –
1 There are currently no internationally accepted mathematical procedures for financial contracts with discretionary participation features (DPF) to determine fair value.
Other financial contracts – classified as “Recognised at fair value through profit or loss” – primarily concern liabilities in connection with investment-type life insurance contracts with no or with only a low risk transfer, which are part of the life insurance business. The change in this liability compared to the previous year is attributable exclusively to asset inflows and outflows and their market-related currency exchange rate fluctuations.
ISIN CH0030870445 25. reconciliation betWeen the gross investment in financial leases anD the present value of minimum lease payments in CHF million
Future borrowing costs – 13.9 – 9.9 total liability for future lease payments (present value) 112.8 103.9
Including: financial leasing of property for own use in accordance with section 8 of the Financial Report.
Nominal interest rate – 47.1 – 49.3 interest costs (subtotal) 5.7 5.7 balance as of 31 December 1,359.4 1,612.6
As of the balance sheet date, the fair value of financial liabilities amounts to CHF 1,688.9 million (previous year: CHF 1,456.2 million).
Type of finance bond Senior bond Senior bond Senior bond Convertible bond
On 1 March 2012, the Bâloise Holding Ltd issued a new bond over CHF 175 million (2.25 %, 2012 – 2019, ISIN CH0148295014) at an issue price of 100.713 %.
Addition from change in the scope of consolidation – 0.7 0.7
Disposal from change in the scope of consolidation – – –
Increases and additional provisions recognised in profit or loss 12.3 19.6 31.9
Usage not affecting profit or loss – – 15.7 – 15.7
Gross premiums written and policy fees 3,044.9 3,814.9 6,859.8 3,143.5 3,659.8 6,803.3
Change in unearned premium reserves – 5.5 0.0 – 5.5 3.6 0.0 3.6 premiums earned and policy fees (gross) 3,039.4 3,814.9 6,854.3 3,147.1 3,659.8 6,806.9
Reinsurers’ share of change in unearned premium reserves total premiums earned and policy fees (net)
Cash and cash equivalents 5.0 5.7 total investment income for own account and at own risk 1,811.2 1,766.5
31. realiseD gains anD losses on investments realiseD gains anD losses on investments as recogniseD in the income statement in CHF million
Realised gains and losses on investments for own account and at own risk 187.4 – 346.3
Carried at cost – – – 14.9 – 14.9 realised losses on sales and book losses
Held to maturity 2 – – – 294.2 – – – 294.2
Available for sale – – 69.0 – 311.3 – – – 380.3
Carried at cost – – – – 7.5 – – 7.5 impairment loss recognised in profit or loss
Available for sale – – 98.2 – 2.6 – – – 100.8
Carried at cost – – – – 24.6 – – 24.6 reversals of an impairment loss recognised in profit or loss
Carried at cost – – – 28.2 – 28.2 total realised gains and losses on investments 1 In respect of disposal and book losses / profits realised on mortgages and loans recognised at fair value, a fair value hedging gain of CHF 0.3 million was applied.
31.2 realised gains and losses on investments 2011 for own account and at own risk investment properties financial assets of an equity nature financial assets of a debt nature mortgages and loans
Derivative financial instruments total in CHF million realised gains on sales and book profits
Held to maturity 1 – – – 55.4 – – – 55.4
Carried at cost – – – – 13.9 – – 13.9 impairment loss recognised in profit or loss
Carried at cost – – – – 12.0 – – 12.0 reversals of an impairment loss recognised in profit or loss
Share-based funds – 1.4 – 6.7 impairment loss on financial assets of a debt nature recognised in profit or loss
total impairment loss on financial assets recognised in profit or loss – 125.4 – 359.9
In the case of the Greek government bonds, the Baloise Group assessed the market situation to be such that no reliable quoted market prices existed and therefore the fair value of Greek government bonds would have to be determined using an evaluation model (so-called mark-to-model-approach). One of the reasons the Baloise Group sees for the inactivity of the market for Greek government bonds is the significant decline in trade volume as well as the exceptionally broad bid-ask spread of these securities. The Baloise Group’s model approach is underpinned by the second proposal by the International Institute of Finance (IIF) to restructure the Greek government bonds held by private investors. This proposal was supported by the majority of financial institutions.
By the time these Consolidated Annual Financial Statements were approved, the Baloise Group had sold its complete Greek government bond exposure. There was again sufficient liquidity on the market to dissolve this exposure after the swap offer was published on 24 February. The Baloise Group will desist from participating in the debt re-scheduling plan because the offer was – in our own estimation – too unattractive measured against the economic risks involved to be committed here for the next 30 years.
Furthermore, the Baloise Group has reduced its Portuguese government bond exposure completely in view of the considerable deterioration of Portugal’s obligor creditworthiness. This also includes the early sale of financial assets classified as “held to maturity”.
31.4 currency income A foreign currency loss of CHF 98.2 million exists (previous year: loss of CHF 620.7 million) excluding foreign currency losses from transactions with financial interments recognised at fair value through profit or loss.
Investment management 10.6 10.1 income from services rendered 283.4 158.6 33. other operating income in CHF million
Fees and commission for financial assets and liabilities not recognised at fair value – 23.6 – 25.5
Interest rate swaps: cash flow hedges, balance carried forward from cash flow hedge reserve – –
Deferred income taxes – 0.1 12.6 total current and deferred income taxes – 117.7 – 27.6 37.2 expected and actual income taxes The projected average tax rate for the Baloise Group was 28.2 % for 2010 and 38.9 % for 2011. These rates represent the weighted average of tax rates in the countries where the Baloise Group operates.
expected income taxes – 156.3 – 34.6 increase / reduction due to: Tax-exempt profits and losses 47.1 – 9.5
Profit for the period (attributable to shareholders) in CHF million 433.4 60.8
Adjustment of interest expenses on convertible bonds (including tax effects) in CHF million 7.3 –
adjusted profit for the period (attributable to shareholders) in CHF million 440.7 60.8
The diluted result in 2011 is merely due to the share-based compensation programme “Performance Share Units” (PSUs). The conditions resulting in a dilution do not exist in 2011 neither for the “short-put” options issued as part of the Employee Share Ownership Plan nor for the conversion bond.
39. other comprehensive income 39.1 other comprehensive income in CHF million available for sale financial assets: Gains and losses arising during the fiscal year 157.3 – 68.5
Reclassification adjustments for gains (losses) included in profit or loss – 299.7 199.9 total available for sale financial assets – 142.4 131.4 unrealised gains and losses from associates: Gains and losses arising during the fiscal year 11.0 – 17.4 total unrealised gains and losses from associates 11.0 – 17.4 reserve on derivative financial instruments held for cash flow hedging: Gains and losses arising during the fiscal year – –
total reserve on derivative financial instruments held for cash flow hedging – –
Reclassification adjustments for gains (losses) included in retained earnings – 10.5 –
total reserve on derivative financial instruments held for hedging a net investment in a foreign entity 68.4 – 16.1 reserves from reclassification of held to maturity financial instruments: Gains and losses arising during the fiscal year – 2.4 0.4
Income tax on other comprehensive income 30.7 – 11.9 total other comprehensive income – 419.8 – 63.7
Available for sale financial assets – 142.4 43.1 – 99.3 131.4 – 38.9 92.5
Reserve on derivative financial instruments held for hedging a net investment in a foreign entity
net assets acquired / disposed of 17.1 379.7 48.0 2.5 funds used / received for acquisitions and disposals
Cash and cash equivalents acquired or disposed of 3.1 265.6 – 42.0 – 3.0 outflow / inflow of cash and cash equivalents – 27.3 – 117.4 – 40.7 – 1.8
41. relateD party transactions As part of its ordinary operating activities, the Baloise Group conducts transactions with associates, members of the Bâloise Holding Board of Directors and Corporate Executive Committee.
Due to the impact of the demerging contract dated 8 June 2010 (for details see section 6.1.3), the Deutscher Ring Krankenversicherungsverein a.G., Hamburg, has no longer been regarded as a related company in the sense of IAS 24 since 30 June 2010. However, the OVB group has been regarded as a related company since 1 July 2010.
relateD party transactions associates executive management other related parties total in CHF million included in the income statement
During the reporting period, no Bâloise Holding shares (previous year: no shares) were repurchased from Corporate Executive Committee members for the Employee Share Ownership Plan (section 18.4.3).
43.1.2 guarantees and payment guarantees for the benefit of third parties The Baloise Group has provided guarantees and incurred obligations with third parties. These include contractual obligations to contribute, pay in capital or equity or provide funds to cover principal and interest payments or guarantees during operations. The Baloise Group is unaware of any default circumstances effecting such guarantees.
The Baloise Group engages in securities lending transactions that can be subject to credit risk. To hedge these credit risks, securities that cover the base value of the securities borrowed – so called collateral – are claimed. In order to minimise credit risks, an evaluation of the borrowing party’s pledge value is performed regularly. Additional collateral is immediately demanded in the event of a shortfall in the reserve value.
The Baloise Group retains control of loaned securities for the duration of the transaction. Income from securities lending is recognised in profit or loss.
Commitments made for future acquisition of investments also include private equity commitments that are non-financed commitments for direct investment in private equity or investment in private equity funds.
44.2 baloise group as lessor The Baloise Group has entered into operating lease agreements as lessor of investment properties to third parties. The average outstanding non-cancellable residual lease term is four to six years. No other such lease agreements were in place on the balance sheet date.
45. claim payments receiveD from non-group insurers Baloise Group companies received claim payments totalling CHF 0.1 million in the 2011 fiscal year (previous year: CHF 0.2 million) from non-Group insurers in connection with insurance contracts held by Baloise Group com panies as policyholders. Most of these claims payments were for building damage in Switzerland, where buildings are under mandatory coverage by state insurers depending on their location.
Direct share in percent 2 method of consoli- dation 3 currency share capital in million total assets in million gross premiums / policy fees in million switzerland
Baloise Life Ltd, Basel Life L 100.00 100.00 F CHF 50.0 26,911.1 2,724.1
Baloise Bank SoBa AG, Solothurn Banking B 100.00 100.00 F CHF 50.0 6,699.1 –
Haakon AG, Basel Other O 74.75 74.75 F CHF 0.2 22.4 –
OVB Holding AG, Cologne Other – 32.57 32.57 F EUR – – –
Roland Rechtsschutz Versicherungs AG, Cologne Other – 15.01 25.02 E EUR – – –
Direct share in percent 2 method of consoli- dation 3 currency share capital in million total assets in million gross premiums / policy fees in million belgium
Nateus NV, Antwerp Nonlife NL 100.00 100.00 F EUR 27.8 621.4 50.2
Nateus Life NV, Antwerp Life L 100.00 100.00 F EUR 61.7 1,928.0 20.5
Audi NV, Antwerp Nonlife NL 100.00 100.00 F EUR 6.5 37.3 3.7
Baloise Fund Invest Advico, Bertrange (Luxembourg) Other B 100.00 100.00 F EUR 0.1 6.0 –
Baloise Life (Liechtenstein) AG, Balzers Life L 100.00 100.00 F CHF 15.0 2,561.5 8.7
report of the statutory auDitor on the consoliDateD financial statements As statutory auditor, we have audited the consolidated financial statements of Bâloise Holding Ltd, which comprise the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated cash flow statement, consolidated statement of changes in equity and notes to the consolidated financial statements (pages 68 to 76 and 82 to 219), for the year ended 31 December 2011.
1. ACCOUNTING STANDARDS The annual accounts of Bâloise Holding are produced in accordance with the regulations of the Swiss Stock Corporation Law�
Receivables Receivables are stated at face value net of necessary impairments�
Other financial assets Marketable securities are recognised either at their acquisition cost or at fair value, with the lower of the two being applied�
Provisions Provisions are created to cover any risks according to the principles of prudent management�
Share / corporate capital as of 31.12.2011 in % 1 in % 1 Currency in million
Total equity 672.2 641.3 1 Baloise Group companies purchased during the reporting period (not including the share buy-back via the secondary trading line) a total of 646,944 shares at an average price of CHF 88. During the reporting period they sold 351,008 shares at an average price of CHF 91 and together held a total of 2,004,072 Bâloise Holding shares as of 31 December 2011. The balance of Bâloise Holding shares acquired via the secondary trading line amounted to 223,565 shares, as in the previous year. These shares are stated in the balance sheet item “Treasury shares.”
Bank of New York Mellon N.V. 1 2.2 0.0 2.5 0.0 1 Custodian nominees who hold shares in trust for third parties are added to the free float pursuant to the SIX Exchange regulations. Such shareholder groups are not subject to registration pursuant to stock exchange law.
14. CONTINGENT LIABILITIES As of 31 December 2011, the guarantee liabilities amount to CHF 169�6 million (previous year: CHF 164�9 million)�
Bâloise Holding issues the following letter of comfort: as the owner of Baloise Life (Liechtenstein) AG, Bâloise Holding, Basel, warrants that its subsidiary, Baloise Life (Liechtenstein) AG is able to meet its financial obligations to its customers, arising from RentaSafe, BelRenta Safe, RentaProtect and RentaSafe Time contracts, in particular guarantee pledges, in full at any time� The maximum liability corresponds to the actuarial reserve entered in the balance sheet of Baloise Life (Liechtenstein) for these products as of 31 December 2011�
Bâloise Holding is jointly liable for value-added tax due with all companies which, under the leadership of the Baloise Insurance Ltd, are subject to group taxation�
The Board of Directors proposes to the Annual General Meeting the appropriation of retained earnings in accordance with the table below�
The distribution of profits complies with the provisions of § 30 of the Articles of Incorporation� Distribution per share equals CHF 4�50 gross or CHF 2�92 net of withholding tax�
Opinion In our opinion, the financial statements for the year ended 31 December 2011 comply with Swiss law and the company’s articles of incorporation�
Glossary ������������������������������������������������������������������������������������������������� �238 addresses ���������������������������������������������������������������������������������������������� �242 InformatIon on the BaloIse Group �������������������������������������� �243 Key dates and contacts ���������������������������������������������������������������� �244
�→ annual premium equivalent (ape) The�annual�premium�equivalent�is�the�insurance�industry� standard�for�measuring�the�volume�of�new�life�insurance� business��It�is�calculated�as�the�sum�of�all�annual�premiums� from� new� business� and� 10�%� of� single� premiums� of� the�� reporting�period�
�→ deferred tax assets and liabilities Probable�future�tax�expenses�and�tax�relief,�resulting�from� temporary�differences�between�the�reported�value�of�assets� and�liabilities,�as�disclosed�in�the�consolidated�financial�statements, � and� their� tax� value�� The� calculation� is� based� on�� country-specific�tax�rates�
�→ segment Financial�reporting�at�the�Baloise�Group�is�carried�out�in� accordance�with�International�Financial�Accounting�Standards �(IFRS),�which�requires�similar�transactions�and�business� activities�to�be�grouped�and�presented�together��The�bundled� business� activities� are� presented� in� “segments,”� by� geo-� graphic�regions�and�business�segments�
�→ unrealised gains and losses (charged to equity) Unrealised�gains�and�losses�are�gains�or� losses�charged�to� equity,�which�are�not�recognised�in�profit�or�loss�and�result� from�the�valuation�of�assets��These�are�charged�to�equity� after�deducting�deferred�tax�assets�and�liabilities�and�deferred� policyholders’�dividends�(life�insurance�business)��These�gains� or�losses�are�only�transferred�to�the�income�statement�upon� disposal�of�the�underlying�asset�or�upon�impairment�(impairment �loss)�
sWItZerland Basler Versicherungen Aeschengraben 21 CH-4002 Basel Telephone + 41 58 285 85 85 Fax + 41 58 285 70 70 kundenservice@baloise.ch www.baloise.ch
BelGIum mercator Verzekeringen Posthofburg 16 B-2600 Antwerp info@mercator.be www.mercator.be croatIa Basler osiguranje Zagreb Radni�cka cesta 37b HR-10 000 Zagreb info@basler-oz.hr www.basler-oz.hr serBIa Basler osiguranja Resavska 29 RS-11 000 Belgrade office@basler.rs www.basler.rs lIechtensteIn Baloise life Alte Landstrasse 6 FL-9496 Balzers information@baloise-life.com www.baloise-life.com
The�2011�Annual�Report�is�published�in�German�and�English�� The�German�version�is�binding��The�section�Financial�Report� contains� the� audited� 2011� annual� financial� statements� with�� detailed�information��
InformatIon for medIa representatIVes At�www�baloise�com/media�you�will�find�the�latest�media�releases, � presentations,� reports,� pictures� and� podcast� files� of� various�Baloise�events�as�well�as�media�contact�details�
22.3.2012 Annual results: media conference telephone conference financial analysts 27.4.2012 Bâloise Holding Ltd Annual General Meeting 30.8.2012 Half-year results: telephone conference media / financial analysts 19.3.2013 Annual results: media conference telephone conference financial analysts 02.5.2013 Bâloise Holding Ltd Annual General Meeting
Key dates and contacts corporate Governance Baloise Group Andreas Eugster Aeschengraben 21 CH-4002 Basel andreas.eugster@baloise.com www.baloise.com