CORPORATE GOVERNANCE Corporate Governance Report .............................................. 58 Appendix 1: Remuneration Report ....................................... 80 Appendix 2: Remuneration Report Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ............................................. 108
Dividend per share5 (CHF) 5.20 5.60 7.7 1 Premiums written and policy fees (gross).
2 Of which deferred gains / losses from other operating segments (31 December 2016: CHF – 2.0 million; 31 December 2017: CHF 14.5 million). 3 Excluding investments for the account and at the risk of life insurance policyholders.
4 Calculation is based on the profit for the period attributable to shareholders and the equity attributable to shareholders. 5 2017 based on the proposal submitted to the Annual General Meeting.
(will be proposed to the Annual General Meeting on 27 April 2018)
The volume of non-life business reached CHF 3,229.3 million, a year-on-year rise of 2.8 per cent. Switzerland notched up growth (in Swiss francs) of 0.7 per cent, Belgium 5.5 per cent, Luxembourg 5.0 per cent and Germany 3.6 per cent. The performance of the life business was also highly encouraging. Underwriting policy in the traditional life business remained restrictive, resulting in a 1.6 per cent contraction in the volume of business to CHF 3,512.0 million. However, business with investment-type premiums was very successful in 2017 and the volume of premium income grew by 14.6 per cent to CHF 2,519.5 million.
In its partnerships with various start-ups, Baloise has shown that it is capable of breaking away from the mindset of a traditional insurer. The alliances have given rise to new products, such as watch insurance featuring photo recognition software, which is offered in Switzerland and Germany. Other examples include the first cyber-insurance product for retail customers in Switzerland, the first mortgage app in Switzerland, fully digitalised insurance for personal items, which can be taken out with just a few clicks and offers cover for more than 60 individual items, and GoodStart, a simple online home contents insurance product in Luxembourg. Another highlight was the new YounGo insurance line for customers in Switzerland up to the age of 30, which has led to a sharp rise in new customers.
Partnerships with TCS, Bank Cler, BLKB, Möbel Pfister and many others are also important as they give Baloise significantly more opportunities to interact with customers in all markets. Finally, Baloise itself is creating a new digital experience relating to the construction of Baloise Park with an app that shows what the new buildings will look like.
Corporate culture is an important element of the digital transformation, and satisfied employees are central to Baloise’s new strategy. Employees are playing a core role in implementing the strategy. In the remuneration system, we have cancelled the individual performance targets and introduced a new incentive scheme. The focus is now on team targets that actively encourage people to work together. This is rooted in our firm belief that, in future, team achievements rather than exceptional performance on the part of individuals will determine our success and lead to the best solutions.
The main drivers behind the equity market rally were the booming global economy, growing corporate profits and an environment of continued expansionary monetary policy. However, the brightening economic prospects and recovery in the job markets brought discussions about the normalisation of monetary policy increasingly to the fore. While there had only been one rise in the base rate during 2016, the Federal Reserve carried out three further hikes in 2017, raising the benchmark interest rate to between 1.25 per cent and 1.5 per cent. Since 2015, US base rates have therefore increased by a total of 125 basis points. The Fed has also announced its intention to reduce its net monthly asset purchases. Future monetary policy will depend, among other things, on what happens to the rate of inflation. At the end of 2017, this remained below the two central banks’ target of 2 per cent, both in the USA and in the eurozone.
In 2017, the European Central Bank (ECB) once again decided against a significant change to its monetary policy, but let it be known that there are currently no economically justified reasons to intensify expansionary monetary policy measures. It left the base rate for the supply of central bank money to commercial banks unchanged at 0.0 per cent, but plans to halve its monthly net acquisition of assets between January and probably September 2018. The Swiss National Bank decided to leave the benchmark rate and the target range for three-month Libor unchanged in 2017, at – 1.25 to – 0.25 per cent. The Swiss franc has weakened considerably against its main trading partners since the start of the year, which could boost the economic recovery and might lead to a slight rise in the rate of inflation. That would aid the Swiss National Bank in meeting its responsibilities.
Baloise shares were able to benefit from the aforementioned macroeconomic factors, and from the successful launch of the Simply Safe strategy, closing the year at a price of CHF 151.70, 18.2 per cent above the closing price of the prior year. The STOXX Europe 600 Insurance Index (SXIP) rose by an equally respectable 16.7 per cent during the same period. Two of Switzerland’s main share indices also performed well. The Swiss Market Index and the Swiss Leader Index rose by 14.1 per cent and 17.0 per cent respectively for the year as a whole.
DIVIDENDS PAID TO SHAREHOLDERS The Board of Directors of Bâloise Holding Ltd will propose to the Annual General Meeting on 27 April 2018 that a cash dividend of CHF 5.60 per share be paid for the 2017 financial year, an increase of CHF 0.40 compared with the dividend for 2016. This would represent an attractive dividend yield of 3.7 per cent relative to the year-end share price.
Average number of shares outstanding 2 46,896,926 46,921,282 46,721,219 46,381,359 47,641,577 1 Calculation is based on the profit for the period attributable to shareholders and the equity attributable to shareholders. 2 Relevant for calculation of earnings per share (see page 247 of the Financial Report). 3 2017 based on the proposal submitted to the Annual General Meeting.
INDEXED SHARE PRICE PERFORMANCE 1 BÂLOISE HOLDING REGISTERED SHARES 2012 – 2017
Bâloise Holding registered shares (BALN) SWX SP Insurance Price Index (SMINNX) Swiss Market Index (SMI)
Baloise is launching its new strategy and its targets up to 2021 under the banner of Simply Safe. Against a backdrop of changing conditions in the insurance sector, Baloise is thus evolving into an innovative provider of solutions that expand its core business and extend beyond traditional insurance. Customer focus is at the core of the new strategy. But it’s not just about covering and insuring risks; it’s about addressing the wider needs of customers in a changing society. In 2017 the Company is beginning its journey towards future growth with this clear perspective and with three simple yet ambitious objectives focused on employees, customers and shareholders.
SHAREHOLDERS Thanks to sustained improvements in profitability in its life business and its banking business, as well as innovative products and services such as the Mobile Insurer, cash of CHF 2 billion will flow into Bâloise Holding between now and 2021. This benefits shareholders directly because Baloise will continue to pursue its attractive dividend policy and will repurchase three million treasury shares. Indirectly, shareholders will benefit from targeted capital investment in new strategic projects that will generate additional profits in existing and new areas of business.
The new strategy is in line with principles of corporate responsibility and sustainable business management, an approach that Baloise has pursued for a number of years now. The new focus on the customer goes beyond that of a traditional service provider. For this reason, greater importance needs to be attached to the society in which the customers – but also Baloise as a Company – exist. Baloise believes that this new strategy will bolster its efforts to make further improvements in the area of sustainable business management.
ei ne r d er fü hr en de n Ar be itg eber im Sektor eine Million zusätzliche Kunden (+ 30 %
▸ Baloise wants to be the first choice for all those who wish to feel safer. Our customers should always have peace of mind and a sense of reassurance and safety. We want our customers to feel completely safe with Baloise at their side as a reliable partner. This means that we have to consistently align our services and products to the needs of our customers.
Review of operating performance 4 Baloise 16 Review of operating performance 36 Sustainable business management 58 Corporate Governance 110 Financial Report 268 Bâloise Holding Ltd 286 General information
Success during the first year of the new strategic phase .... 18
Portfolio restructuring and disposal of shareholdings lead to losses ............................................. 23
FINANCIAL INFORMATION ........................................... 26 Consolidated income statement ........................................ 26 Consolidated balance sheet .............................................. 28 Business volume, premiums and combined ratio .............. 29 Technical income statement .............................................. 31 Gross premiums by sector ................................................. 32 Banking activities ............................................................. 33 Investment performance ................................................... 34
OVERVIEW In 2017, Baloise’s profit for the period attributable to shareholders advanced by 2.5 per cent to CHF 548.0 million (2016: CHF 534.8 million). Excluding the non-recurring restructuring effects, Baloise would have earned a profit attributable to shareholders of CHF 601.7 million, giving a year-on-year increase of 12.5 per cent. The volume of business grew by 3.9 per cent to CHF 9,260.8 million. This was driven by business with investment-type premiums, which climbed by 14.6 per cent to CHF 2,519.5 million, and by the robust growth of the non-life business in all national subsidiaries.
The non-life business generated premium income reported under IFRS of CHF 3,229.3 million, a year-on-year rise of 2.8 per cent. All business units contributed to this improvement. Profit before borrowing costs and taxes (EBIT) in the non-life business was 5.5 per cent lower than in 2016 at CHF 374.7 million. There were two main reasons for this decrease of around CHF 20 million: the initial financing for FRI:DAY and a voluntary contribution to the employee pension fund in Switzerland. The ongoing restructuring of a portfolio in the German liability insurance segment also had an adverse effect on EBIT. The net combined ratio was on a par with the prior year at a very healthy 92.3 per cent (2016: 92.2 per cent).
Baloise’s balance sheet grew even stronger, with consolidated equity rising by 11.0 per cent year on year to reach CHF 6,409.2 million at the end of 2017.
The positive operating income and economic growth resulted in an increase in the embedded value of the life insurance business from CHF 4,409.4 million to CHF 4,896.8 million in 2017, which is equivalent to a return on embedded value of 12.4 per cent. The new business margin went up in all countries thanks
INVESTMENTS: SOLID RESULTS IN A QUIET MARKET ENVIRONMENT Broad-based growth and the support from the continued expansionary monetary policy of many central banks provided fertile conditions for a good year in the capital markets. Volatility in equity markets was at historically low levels throughout 2017, making it an excellent year for shares. The Swiss Market Index rose by a healthy 14.1 per cent. Three interest rate hikes by the US Federal Reserve led to a widening of the interest spread at the short end compared with Switzerland and the eurozone, whereas long-term interest rates mainly remained within a narrow range.
The gains on the investment of insurance assets amounted to CHF 1,621.6 million, which was above the 2016 level of CHF 1,578.9 million. The interest rate environment remained challenging and this was reflected in the lower recurring current income of CHF 1,300.5 million (2016: CHF 1,379.3 million). Of the total decrease, CHF 54.8 million was attributable to the transfer of the closed life insurance portfolio to the Frankfurter Leben Group. As there was limited appeal in the reinvestment of maturing bonds denominated in Swiss francs, Baloise avoided
At CHF 467.6 million, the gains recognised in the income statement were up by CHF 45.1 million compared with the prior year. Baloise made use of the buoyant equity markets to realise some of the gains. By contrast, it registered significantly smaller gains on bonds than in 2016. The remeasurement of available- for-sale real estate led to extraordinary gains of CHF 39.0 million. As a result of the good market conditions, gross impairment losses fell by CHF 87.6 million year on year to CHF 28.0 million. The currency-related losses of CHF 117.7 million were virtually equal to the currency hedging costs.
Investments for own account and at own risk 9,166.6 46,006.1 8,120.6 62,892.3
Asset portfolio for the account and at risk of life insurance policyholders and third parties 1
Investments for own account and at own risk 9,605.9 48,141.2 7,397.8 64,678.9
BASLER VERSICHERUNGEN SWITZERLAND The profit from business in Switzerland was up significantly year on year and was one of the best results in the history of the Swiss company. This was thanks, in particular, to a very good portfolio resulting from disciplined implementation of the target customer strategy, a healthy profit on claims reserves and fewer large claims in 2017. Large claims are likely to be higher in 2018 as a result of the weather. There was growth in the non-life and life businesses in 2017. The overall volume of business rose by 0.8 per cent to CHF 4,340.6 million. The business model combining banking and insurance gained further momentum, with customer assets generated by the insurance sales force increasing by around CHF 115 million net at Baloise Bank SoBa in 2017. EBIT advanced by an exceptional 13.1 per cent to CHF 618.4 million.
The banking business of Baloise Bank SoBa continues to perform steadily, which is testament to the success of the unique business model of banking and insurance in Switzerland. The number of asset management and investment advice mandates increased by 59 per cent to more than 1,500. EBIT came to CHF 30.7 million, which was below the prior-year figure of CHF 41.7 million. The reduction (in Swiss francs) was due, in particular, to the non-recurring boost to earnings of CHF 11.3 million in 2016 resulting from pension scheme changes (IAS 19).
The non-life division reported encouraging growth of 3.6 per cent with a volume of business of CHF 783.0 million. Non-life business with retail customers is growing at a far stronger rate than the market, especially in the accident, general liability, motor vehicle and property insurance segments. Industrial business is declining, above all due to the scheduled exits and restructuring in these segments. The net combined ratio improved only slightly, falling to 108.3 per cent (2016: 109.7 per cent). The main reasons for this were the strengthening of reserves in the aforementioned portfolio and the high number of moderately large claims below the priority limit for reinsurance. Moreover, the volume of large claims incurred was higher than in 2016.
BALOISE INSURANCE BELGIUM Last year was very successful for the Belgian market. The volume of business increased by 1.6 per cent to CHF 1,587.1 million, which was primarily due to the strong growth of 5.5 per cent in the non-life business. A reduction in large claims incurred and a higher profit on claims reserves resulted in improved profitability. The life business saw growth in both periodic and single premiums. However, EBIT declined by 18 per cent to CHF 140.8 million.
Belgian non-life business again registered strong growth, expanding by 5.5 per cent to CHF 999.0 million (2016: CHF 947.1 million). This shows that Baloise Insurance Belgium was able to hold its own in a very competitive market. The inward reinsurance business notched up particularly buoyant growth due to an agreement entered into with Europe Assistance, an organisation providing emergency assistance and other services. As a result of this growth, the Belgian market now accounts for 31 per cent of the Baloise Group’s total non-life premiums. Business remains highly profitable. Large claims had less of an adverse impact in 2017, and the profit on claims reserves also contributed to performance. As a result, the net combined ratio decreased by 1.5 percentage points to 91.9 per cent.
Against the backdrop of a shrinking Belgian life market, the volume of business fell by 4.3 per cent to CHF 588.1 million. Traditional life business generated growth of 3.7 per cent, mainly thanks to a rise in periodic premiums. Investment-type premiums were down by 6.7 per cent. While unit-linked products achieved healthy growth, sales of products with limited guarantee periods declined.
BÂLOISE ASSURANCES LUXEMBOURG The business unit in Luxembourg significantly increased its volume of business, which grew by 22.3 per cent to CHF 1,963.5 million. It also reported the best profit in its history. The main factors were the growth of the life business, where investment- type premiums were up by 25.2 per cent. The non-life business saw stronger growth and improved profitability, with premium income advancing by 5 per cent to CHF 122.3 million. This increase was primarily driven by motor vehicle insurance and products for small and medium-sized enterprises. A reduction in high- volume minor claims led to better profitability. The net combined ratio decreased by 2.4 percentage points to 91.5 per cent.
Premiums earned and policy fees (net) 7,044.8 7,004.5 6,683.7 6,512.4 6,542.9
For own account and at own risk 210.7 775.1 379.1 303.1 427.8
Operating and administrative expenses for insurance business – 897.1 – 866.5 – 761.3 – 763.9 – 765.8
Interest expenses on insurance liabilities – 47.3 – 42.6 – 34.1 – 30.5 – 21.9
Sub-total of IFRS gross premiums written1 6,711.6 4,195.1 1,222.1 1,090.6 198.3 2017 Group Switzerland Germany Belgium Luxembourg
Sub-total of IFRS gross premiums written1 6,741.3 4,228.9 1,162.2 1,147.8 201.9 1 Premiums written and policy fees (gross).
Gross Net as a percentage of premiums earned 1 Including the profit-sharing ratio.
Funding ratio (per cent) 188.5 193.3 1 Not including capitalised settlement premiums.
Change in unearned premium reserves – 31.0 – 14.9 – –
Claims and benefits paid (gross) – 1,859.7 – 1,881.0 – 3,804.5 – 3,845.5
Change in other technical reserves – 31.5 – 2.5 – 55.2 – 409.2
Total technical result of ceded business – 44.6 – 79.9 – 5.2 – 6.4
Claims and benefits paid – 1,771.6 – 1,825.2 – 3,797.0 – 3,840.5
Change in claims reserve / actuarial reserves1 – 26.9 – 23.9 – 546.1 – 83.5
Total technical result for own account 172.6 211.8 – 1,194.4 – 1,139.6
Realised gains and losses on investments 2 47.6 102.7 616.8 1,001.4
Net losses and impairment due to credit risk – 1.2 0.6
Policy loans and other loans 25.1 156.5 181.6 23.7 108.2 131.8
Total capital gains and losses 47.6 259.2 306.8 102.7 339.3 442.0
Policy loans and other loans 1,092.5 4,847.2 5,939.7 1,084.6 5,384.5 6,469.1 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties.
HUMAN RESOURCES .................................................... 42 Anchoring the culture of growth ........................................ 42
RISK MANAGEMENT ..................................................... 52 Baloise’s risk management is one of the main pillars of its business model ........................................................ 52
Sustainable business management 4 Baloise 16 Review of operating performance 36 Sustainable business management 58 Corporate Governance 110 Financial Report 268 Bâloise Holding Ltd 286 General information
Prevention work in Switzerland Baloise fundamentally supports these efforts and aligns itself with the position taken by the Federal Council so that it can continually improve its CSR activities. However, it believes that CSR is something that companies should take upon themselves to put into practice and should not be prescribed by law. With its new strategy and new focus on customers, Baloise is emphasising that aspects of sustainable business management cannot be viewed in isolation from the commercial management of a company.
Baloise was embracing the idea of corporate social responsibility long before the term was popularised. Sustainability is at the heart of everything that Baloise does. Every day, through its insurance and pension solutions, it helps companies, economies and communities to function properly, which in turn boosts economic and social stability in the countries where it operates. The Company has a history going back more than 150 years, and, since the day it was founded, has always been there when its customers needed it most. People put their trust in Baloise to look after their future and in return expect stability, security and a sustainable approach. In life insurance, savings for old age and company pensions for SMEs, Baloise has an investment horizon that stretches several decades. It must be able to offer the sort of long-term security that cannot be sustained by the pursuit of short-term profits alone. Baloise therefore thinks and acts on a long-term basis, examines risks that may arise in the future and mitigates these in a thorough and professional manner.
Corporate social responsibility covers a broad range of activities and involves a broad range of stakeholders – from employees and shareholders to customers, partners and the wider public.
Education ▸ More than 200 career entrants each year ▸ Creation of new workplaces
Cooperation with the Emilie Leus Foundation in Belgium regarding «Don’t Drink and Drive»
A RESPONSIBLE EMPLOYER Baloise’s responsibility as an employer is manifested in the new strategy with a clear employee-oriented objective. It wants to position itself as one of the most attractive employers in its industry and has recently introduced a system of “pulse checks” to help monitor whether it is on the right track in terms of achieving this objective. Every three months, randomly selected employees are asked to score Baloise in terms of attractiveness. Baloise has worked hard over the years to develop and promote an employee-friendly corporate culture, building on the stable foundations put in place long ago. The concept of social partnership has a long tradition at Baloise Insurance in Switzerland. In 2015, the Company’s employee commission (MAKO) celebrated its 40th anniversary. The Baloise MAKO was established long before 1993, when the Swiss federal government passed a co-determination act that made it law for employees to have a say in the workplace and to be given information on particular matters. To this day, the rights of the MAKO go well beyond the provisions of that legislation. Baloise has always fostered an employee-oriented corporate culture across its organisation. It gives its staff scope to contribute to the success of the Company and to develop both personally and professionally, placing particular emphasis on training and development. In doing so, Baloise secures not only its own long-term viability but also the future employability of its staff in an increasingly competitive economic environment. By giving young people their first experience in the world of work – as trainees, interns and temporary student employees – Baloise is also making an investment in the future of the Company and the employment markets of the countries in which it operates. Every year, across the group, Baloise trains over 200 people who are at the start of their careers. The value that this adds, both for these young employees and the Company, provides a solid basis for the future and enables Baloise to create new jobs and preserve existing ones.
RESPONSIBILITY TO THE CUSTOMER Customer focus is central to Baloise’s strategy. Baloise wants to be more than just an insurer and therefore needs to take account of the wider social environment in which its customers exist. Every day, employees should be asking what they can do to make the customer simply feel safe. One way to meet this requirement is to provide services that go beyond those offered by a traditional insurer. Everything that Baloise’s employees do is geared towards enhancing safety and security. But if something does go wrong, Baloise will be on hand to help. Baloise strengthens the insurance collective through its strategy of seeking out customers who are cautious and careful and to whom safety and security are as important as they are to Baloise. But it is not just about providing security by covering a particular risk, it is also about giving customers everyday peace of mind. Baloise wants to use the means at its disposal to help make customers’ broader environment safer.
RESPONSIBILITY TO THE SHAREHOLDER The capital that is made available to Baloise by its shareholders is invested efficiently and in their interests. Risk management, which forms an integral part of our strategic management policies, makes a significant contribution to the positioning of the Baloise Group. As a European insurer with Swiss roots, Baloise possesses a strong balance sheet and strong operational profitability, which have been optimised in terms of the risks taken and the upside potential derived from the business. Baloise’s risk management approach involves managing both risk and value at the same time. Its risk model is based on innovative standards so that it can always keep its promise. This has enabled Baloise to pursue an attractive and sustainable dividend policy for a number of years now. The strength of Baloise’s risk management approach has been independently verified by Standard & Poor’s. In 2017, the rating agency raised its assessment to “A with a positive outlook”. The Company’s risk management is rated as “strong”. www.baloise.com/de/home/investoren/rating.html
RESPONSIBILITY IN SOCIETY Baloise believes it has a responsibility to society in its role as a corporate citizen and has long been a committed advocate of Switzerland’s milizsystem, in which it falls to volunteers to run public offices. In April 2015, Baloise became a signatory to the declaration by economiesuisse (the umbrella organisation representing Swiss business) and the Swiss Employers’ Association. The declaration requires companies to offer flexible working conditions and working time models that enable employees to participate in the milizsystem. Baloise not only encourages its employees to engage in voluntary activities by holding annual inhouse events but it also meets its own responsibility to society as a commercial organisation. Countless employees also get politically involved at local, cantonal and federal level. Karin Keller-Sutter, a member of the Baloise Board of Directors, was even appointed as President of the Council of States (upper chamber of the Swiss parliament) for 2018, which illustrates the commitment of Baloise to the milizsystem. The Company also creates and preserves jobs that add value and it pays taxes from its profits that help to fund the public sector. This enables Baloise to be an active partner in many areas of society. It also offers vocational training opportunities to more than 200 young people a year in the form of apprenticeships, management traineeships and work placements.
The Baloise companies outside Switzerland also play their part in social, sporting and cultural life in their regions by supporting numerous institutions and events. Some of the Baloise activities and initiatives that enrich sociocultural life are listed here: WEBLINKS TO THE CSR ACTIVITIES OF THE BALOISE GROUP’S BUSINESS UNITS
▸ 64.0 per cent of staff members working in our main market of Switzerland participated in our Share Participation Plan in 2017 (2016: 65.5 per cent).
▸ Staff turnover as at 31 December 2017 amounted to 5.2 per cent (end of 2016: 5.4 per cent).
CHANGING THE ORGANISATION. PAST, PRESENT AND FUTURE. Baloise is pursuing a growth strategy that is based both on its strong core business and on its unique corporate culture. So in 2016, HR invested in establishing a culture of growth across the Group. In 2017, in order to drive forward this cultural shift, Baloise pursued initiatives in areas such as executive development, viral change, performance management and creating a culture of dialogue.
LEADING BY EXAMPLE TO ESTABLISH A CULTURE OF GROWTH Encouraging people to show drive and initiative, to help shape the process of change, to try new things out and to strive for improvement at all levels presents challenges for the managers. They will need to learn how to relinquish control, deal with uncertainty and delegate more, and yet still provide meaning and guidance.
DIALOGUE AS THE BASIS FOR OUR SUCCESS A BROADER SCOPE FOR CONTINUOUS IMPROVEMENT Our three hierarchy-transcending dialogue formats play a key role in the Baloise culture.
3. The employee engagement survey is conducted every two years at departmental level in order to identify areas that have potential for improvement and raise them for discussion. In addition, quarterly “pulse checks” were introduced in October 2017, in which 30 per cent of employees are polled in order to gauge the extent to which the workforce as a whole would recommend the Company as an employer. These surveys provide a good indication of whether Baloise is on the right path to becoming a leading employer in its industry.
BASELINE MEASUREMENT: TOP 30 %. TOP 10 % IS THE TARGET. In December 2016, the employee engagement survey was carried out across the Group for the first time. The questionnaire was designed to measure levels of engagement and enablement among employees. Particular emphasis was given to the aforementioned question as to whether they would recommend Baloise as an employer. The results arrived in February 2017. Around 4,800 of Baloise’s 7,300 employees took part in the survey. The proportion who either agreed or agreed strongly with the statements put to them was 76 per cent for engagement and 74 per cent for enablement. An impressive 78 per cent of employees indicated that they either would or definitely would recommend Baloise as an employer. This result puts Baloise in the top 30 per cent of all European financial institutions – a good start. The target is to be in the top 10 per cent by 2021. The results of the first “pulse check” in October 2017 showed that we are already making good progress. The proportion of employees
Baloise Code ▸ Keep promises: walk the talk. ▸ Ask questions: learn new things all the time. ▸ Speak up: every voice matters. ▸ Share insights: collaborate beyond your role. ▸ Understand the impact of your work: look for constant improvements.
Human resources who would recommend Baloise now stands at 85 per cent, putting the Company in the top 25 per cent in its industry.
▸ In the established annual process of talent development for high-potential employees, Baloise identifies talented young employees and key individuals, finds potential successors and agrees development activities.
Change of perspective Shadow for a day is the shorter version of the two “change of perspective” options. Under this scheme, an employee is given the chance to shadow a colleague for one day, ask them questions and take on board invaluable learnings for their own work. Under the temporary job change initiative, employees perform a new role for a defined period of time or work on groupwide projects, before returning to their original function. These temporary vacancies arise when employees go on parental leave, for example, or when additional resources are needed for a particular project.
The new performance management process will come into play from 2018. The way that it deals with performance and development has been simplified and now better matches the fast pace of real-life business. It rests on the belief that if different departments and parts of the Group interact well together then this will lead to an improvement in performance. Going forward, the focus is being put on agile agreements, overarching team objectives and continuous dialogue between managers and employees. We have made a conscious decision not to weight the targets and not to have a year-end appraisal in which formulas are used to evaluate the degree of target fulfilment. Instead, variable remuneration will be based on the manager’s overall assessment of the employee’s performance.
THE RIGHT WORKING MODEL FOR ALL Flexible. Mobile. Family-friendly. The only way that Baloise will be able to stand out from the competition is through its employees. This strategy is being further reinforced by the new focus communicated in 2016, in which Baloise is committed to offering every employee suitable working conditions in addition to encouraging their development, engaging in honest dialogue with them and giving them the opportunity to help shape the company. This is reflected in its flexible working models, which include options to work part-time and from home, its company crèche and its wide-ranging corporate health management service.
Baloise engages with potential candidates in various different ways, including through its careers blog, through its profiles on social media and at university fairs. To attract the right talent, it uses employee profiles, tips on how to apply, and personal interaction to convey an authentic picture of the Company.
Baloise also puts a great deal of emphasis on the attractiveness of its training opportunities. Around 245 young people currently work for Baloise as apprentices, interns and temporary student workers. The Company’s established graduate trainee programme, meanwhile, gives participants a deep insight into various parts of the business and thus provides the ideal preparation for a management or specialist role. The alumni of the programme, which has been running for 25 years, can today be found in a wide range of roles within the Company. In 2017, trainees were recruited in Belgium and Luxembourg for the first time.
In Switzerland, for example, the focus was on changing the culture to one that is agile and that employees can actively help to shape. This was reflected in initiatives such as the “Baloise wants to know” workshop, which was commissioned by the Swiss HR unit and initiated by the employee commission. The workshop gave staff a platform for making suggestions for how Baloise could do more to become an employer of choice. The results are now in and the first action steps are currently being reviewed. The various sparks initiatives also helped employees to grow more confident – it is now easier for them to speak up and pursue ideas. Agility, meanwhile, played a key role in management. People rotated jobs both at Executive Committee level and below this, which provided fresh impetus. The sales force in the field is also becoming more agile – today, customers are choosing to interact with Baloise in the way that makes most sense for them. In 2017, we developed a new remuneration model
Activities in 2017 – spreading the word about Baloise as an employer
Human resources for sales that takes account of these changes. The transition in January 2018 was communicated transparently and at an early stage, with HR closely involved. The fast pace of digital transformation also presents challenges – particularly for older employees. Baloise is therefore coming up with options for them such as the “career arc”, which incorporates part-time working or coaching roles. This is also the subject of a research project that Baloise is working on together with the University of St. Gallen and the FHNW, a vocational university in north-west Switzerland.
In Belgium, the focus was on driving innovation and enabling employees. Last year, an initiative was successfully launched in which employees were urged to contribute innovative ideas. One of their promising ideas is now at the development stage. In addition, employees were released from their usual duties so that they could temporarily help out in innovation projects in order to advance their development. A decision was also made to stop recording working hours from 2018. This decision was based on the evaluation of a pilot scheme carried out in 2017 and marks a major step away from an approach based on attendance and towards one based on results. An action plan to promote diversity was also agreed. The first measures under this plan, such as part-time working for managers, are being introduced in 2018.
Luxembourg is supporting the change in culture by introducing “sneak preview” training courses with the aim of arousing employees’ interest in continuous professional development. In addition, the number of training options for employees was increased and they were given more time to dedicate to them. Last year, to promote a spirit of innovation, the post of Chief Innovation Officer was created and an innovation lab was launched. Various improvement measures were also launched on the basis of the results of the employee engagement survey.
Friendly Work Space Baloise has been re-certified as a Friendly Work Space for the second time. With an impressive score of 4.3 (out of a possible 5), it is the leading company in the financial services / insurance sector.
FAIR PAY. BASED ON PERFORMANCE AND TARGETS. Baloise’s employees should be rewarded for their performance, including through monetary compensation. Baloise therefore offers performance- and target-oriented remuneration packages that are based on fair principles and an established framework of performance management. The packages consist of competitive base salaries and a range of variable remuneration components as well as attractive employee incentives and loyalty bonuses.
Variable remuneration is based on both the success of the Company as a whole and individual performance. Employees regularly hold meetings with their managers to make sure they are on track to achieve the targets that have been agreed upon.
From 2018, Baloise will be going in a new direction when it comes to performance management. In 2017, to support this, the system for short-term variable remuneration was revised and simplified. The system in which performance-related remuneration was based solely on individual performance was abolished. Now, variable remuneration is being systematically aligned to the attainment of overarching Company targets by means of the performance pool. Although the payment of variable remuneration will continue to be based on an evaluation of individual performance, more emphasis is being put on collaboration, including across departments, divisions and countries, and on the individual’s contribution to the team’s success. This development will be supported by the aforementioned focus on team targets and will play a direct role in achieving the three strategic objectives of “employee focus”, “customer growth” and “cash upstream”.
EMPLOYEE STORIES AND THE LATEST FROM THE WORLD OF INSURANCE. BALOISE GROUP HUMAN RESOURCES ON THE INTERNET Baloise maintains a presence on various media in order to reach potential employees and to convey an authentic picture of the Company. The following platforms are used to present career stories, the corporate culture, employees and the latest news and events at Baloise.
STAFF AND PUBLIC Baloise trains its employees with regard to environmental matters and raises their awareness of the relevant issues. Its employees are aware of the ecological targets and the most important initiatives for achieving them. They are kept regularly informed about the implementation of the environmental mission statement and encouraged to suggest measures of their own. Baloise works hand in hand with other companies, organisations and public authorities in finding solutions to environmental problems. It particularly encourages the sharing of information with other insurance companies, maintains an open dialogue with the public and regularly reports on environmental projects and what has been achieved.
ENVIRONMENTAL FOOTPRINT Baloise continually reduces its direct impact on the environment by planning, building and operating its office buildings in a resource-saving and energy-efficient manner. It observes the same principles in the procurement and use of office equipment and materials. In doing so, it pays particular attention to its published energy mission statement and its environmental audit.
PRODUCTS AND SERVICES Baloise strives to take environmental aspects into account when developing its products and services and fixing premiums and levels of coverage. Its underwriting policy takes account of its customers’ environmental management practices (e. g. ISO 14001) on the basis of identifiable operational and product- related factors. It also advises industrial clients on risk reduction and risk prevention.
INVESTMENT Baloise’s investment policy is geared towards medium- to longterm earnings targets and consciously incorporates environmental criteria whenever possible, especially in the selection of securities and real estate. It also promotes appropriate, environmentally relevant proprietary and third-party financial products. When it comes to investment in real estate, Baloise pays particular attention to energy-saving and economical designs and service systems, as well as the use of environmentally friendly construction materials. The environmental audit takes the entire life cycle of the real estate into consideration.
ORGANISATION The Corporate Executive Committee bears ultimate responsibility in environmental matters. Each Group company has a coordination unit which implements the environmental mission statement. This working group is made up of representatives drawn from all key corporate functions.
Environmental protection at Baloise is focused on reducing CO2 emissions and promoting alternative energy sources. The Company’s initiatives are guided by recognised directives. It always pursues a pragmatic and practical approach and it helps the environment because it believes this is the right thing to do. Baloise has set itself an ongoing objective of making continual improvements in all areas.
2015 absolute 2016 absolute 2017 absolute 1 Relative Unit +/– %
Types of refuse 39.0 % paper / cardboard 21.8 7.0 % other materials 6.0 % special waste 49.0 % misc. waste / refuse
ENERGY EFFICIENCY AT BALOISE The total energy and resource consumption revealed by the environmental audit shows the amounts used by the Baloise Group’s large office buildings and its computer centres. The figures reported relate to the energy and resources used by 72.5 per cent of the 7,300 people working for the Baloise Group. Per-employee consumption of heating has been reduced by 20 per cent and of electricity by 30 per cent over the last ten years. With the objectives of the Paris Agreement in mind, a wide range of energy-saving measures have been analysed and could be implemented over the coming years.
BALOISE IS BUILDING SUSTAINABLE OFFICES THAT WILL APPEAL TO EMPLOYEES AS WELL AS A STATE-OF-THE-ART HOTEL. In a project scheduled for completion in 2020, Baloise is erecting three new buildings at its headquarters in Basel. The buildings are to be the defining landmark of the train station district and reflect Baloise’s commitment to the city. The tower block being built on Aeschengraben, which will be around 90 metres in height, will mainly be occupied by a new hotel. The top seven floors will be rented out as office space. Baloise is basing its designs for the buildings on the standards for sustainable construction in Switzerland (SNBS), which means it will comfortably exceed the legal requirements in terms of energy efficiency. An efficient energy centre will provide power for all three buildings, which will be heated by 100 % renewable district heating.
MEASURES UNDERTAKEN BY BALOISE IN BELGIUM TO REDUCE TRAFFIC PROBLEMS In Belgium, Baloise carried out a transport review in conjunction with the local authorities. Each employee’s journey from home to work was analysed to determine how the route could be optimised and what the best mode of transport for it would be. To make the switch to emission-free modes of transport more attractive, 100 new bicycle “parking spaces” were created, 20 of which can be used to charge electric bikes for free while the employee is at work. Eight charging stations for electric vehicles were also installed in 2017. Furthermore, to support the trend towards commuting to work by bicycle, particularly in urban centres, we are now incentivising employees who cycle to work with EUR 0.22 per kilometer.
The employee vehicle fleet is gradually being moved over to low-CO2 vehicles. As at the end of 2017, the average vehicle in the fleet produced 115.0g / km (2016: 117.5 g / km). www.baloise.com/responsibility
Baloise’s risk management approach involves managing both risk and value at the same time. Its risk model is based on innovative standards so that it can always keep its promise to its customers.
▸ Risk measurement: this is used to identify, quantify and model the risks inherent in all financial and business processes.
Market Risks ▸ Interest Rates ▸ Equities ▸ Currencies ▸ Real Estate ▸ Market Liquidity ▸ Derivatives ▸ Alternative Investments
HR Risks ▸ Skills / Capacities ▸ Availability of Knowledge ▸ Incentive System
Risk Analysis and Risk Reporting ▸ Risk Analysis and Risk Assessment ▸ Risk Reporting
THE RISK MAP The risk map distinguishes between the following categories of risk to which Baloise is exposed: ▸ Business risk ▸ Investment risk ▸ Financial-structure risk ▸ Business-environment risk ▸ Operational risk ▸ Leadership and information risk.
RISK GOVERNANCE AND RISK CULTURE The development and expansion of risk governance and risk culture has a long tradition at Baloise. It is constantly working to enhance this culture across the entire organisation. Designated risk owners and risk controllers dealing with specific risk issues are as much a part of this culture as committees that meet regularly to discuss risks. At the same time, Baloise’s risk models and processes are continually refined. The internal control system (ICS) and the compliance function are further major planks of this strategy.
The Board of Directors is empowered to determine the risk strategy, which is derived from Baloise’s business strategy and objectives and addresses issues around the Company’s risk appetite and risk tolerance.
Group Risk Management is responsible for: ▸ developing consistent, mandatory risk models for the entire Baloise Group; ▸ monitoring groupwide standards; ▸ reporting risks; ▸ complying with risk processes and procedures; ▸ communicating with external partners such as auditors, corporate supervisory bodies and credit rating agencies.
The business units are responsible for local implementation of the standards and requirements specified by the Baloise Group.
This combination of a holistic risk model with analysis of specific risks ensures that Baloise maintains an adequate overview of the prevailing risk situation at all times.
STRATEGIC RISK MANAGEMENT The internal risk model, which uses standard methods to quantify all business risks and financial market risks, forms the basis for strategic discussions about Baloise’s risk appetite. The capital requirements derived from this model constitute minimum requirements for Baloise’s target capital.
This process provides a 360-degree view of key strategic risks and how they are managed. Strategic risk management provides a clear picture of the risks involved in opening up new business lines and of how to optimise the risk / return profile of existing business.
OUR PROFESSIONAL RISK MANAGEMENT DEMONSTRATED ITS PROVEN STRENGTHS IN 2017 Baloise’s risk strategy principles are designed for the long term, as shown by the Company’s excellent risk positioning in 2017. Proof positive of this situation was again the Baloise Group’s positive Standard & Poor’s rating of “A” with a stable outlook and the confirmation of the significance of the enterprise risk management as “high”.
▸ Baloise continued to actively manage its credit risk and currency risk.
▸ With a net equity exposure of 7.0 per cent at 31 December 2017, Baloise’s equity investments in the reporting year lay comfortably within its risk-bearing capacity.
▸ Baloise’s underwriting business has proved to be highly consistent, with the Baloise Group’s net combined ratio of 92.3 per cent demonstrating its excellent capabilities in underwriting and managing non-life risk.
Baloise’s art collection is the product of a long-standing commitment to the arts and plays an important part in the Company’s culture. Baloise also sees investment in art as a responsibility: works of art are created to be seen and to provoke discussion. It believes that the privilege of owning art comes with an obligation to make it accessible to the wider public. Baloise’s commitment also extends to providing recognition and support for contemporary artists.
Due to its prestige, the Baloise Art Prize has also become a springboard for artists to embark on successful careers. The prize money enables the young recipients to continue their work. At the same time, the acquisition of their artworks, which are then donated to well-known museums, offers an ideal platform to present their talent. This combination of prize money, acquisition, donation and exhibition within one art prize is unique, and continues to make the Baloise Art Prize much sought-after and highly acclaimed.
In the corridors of the head office in Basel: on the left works by Teresa Hubbard and Alexander Birchler, on the right works by John Pilson.
concept of the cornerstone for the two remaining buildings of the Baloise Park complex. At an event in the summer of 2017, employees had the opportunity to engrave their wishes for the new Group headquarters on seven metres of copper cladding which is going to be attached to one of the building’s outside supports.
ART FORUM The new Group headquarters at Baloise Park will also provide space to display the Baloise collection. The publicly accessible Art Forum on the ground floor is going to present two exhibitions a year on different themes. New acquisitions for the collection are made by the Baloise art commission, which comprises six art-loving employees from various parts of the company and one external advisor. They will be focusing on acquiring works on paper by contemporary artists. The decisive factor for inclusion in the collection is the persuasive quality of the work and its emotional and intellectual connection to the hopes and fears of our time.
Appendix 1: Remuneration Report ..................................... 80 Appendix 2: Report of the external auditors .................... 108
Baloise is a company that adds value, and, as such, we attach great importance to practising sound, responsible corporate governance.
▸ Significant subsidiaries, joint ventures and associates as at 31 December 2017 can be found from page 258 onwards in the notes to the consolidated annual financial statements, which form part of the Financial Report.
▸ Segment reporting by region and operating segment can be found from page 191 onwards in the notes to the consolidated annual financial statements within the Financial Report section.
Shareholder structure A total of 19,962 shareholders were registered in Bâloise Holding’s share register as at 31 December 2017. The number of registered shareholders had decreased by 5.8 per cent compared with the previous year. The “Significant shareholders” section on page 279 provides information on the structure of the Company’s shareholder base as at 31 December 2017.
Corporate Governance Report 2. CAPITAL STRUCTURE Dividend policy Bâloise Holding pursues a policy of paying consistent, earnings -related dividends. It uses other dividend instruments such as share buy-backs and options to supplement conventional cash dividends. Shareholders have received a total of CHF 1,448.0 million from cash dividends and share buy-backs over the last five years. In recent years, Baloise has therefore had a combined annual payout rate of between 30 to 50 per cent of the profit for the period attributable to shareholders.
Authorised and conditional capital; other financing instruments Authorised capital A resolution adopted by the Annual General Meeting on 28 April 2017 has authorised the Board of Directors until 28 April 2019 to increase the Company’s share capital by up to CHF 500,000 by issuing up to 5,000,000 fully paid-up registered shares with a par value of CHF 0.10 each (see article 3 [4] of the Articles of Association). www.baloise.com/rules-regulations
Conditional capital The 2004 Annual General Meeting created conditional capital. This capital enables the Company’s share capital to be increased by up to 5,530,715 registered shares with a par value of CHF 0.10 each (see article 3 [2] of the Articles of Association). This constitutes a nominal share capital increase of up to CHF 553,071.50.
Conditional capital is used to cover any option rights or conversion rights granted in conjunction with bonds and similar securities. Shareholders’ pre-emption rights are disapplied. Holders of the pertinent option rights and conversion rights are entitled to subscribe for the new registered shares. The Board of Directors may restrict or disapply shareholders’ pre-emption rights when issuing warrant-linked bonds or convertible bonds in international capital markets. www.baloise.com/rules-regulations
The Baloise Group’s consolidated equity The Baloise Group’s consolidated equity amounted to CHF 6,409.2 million on 31 December 2017. Details of changes in consolidated equity in 2016 and 2017 can be found in the consolidated statement of changes in equity on pages 118 and 119 in the Financial Report section. All pertinent details relating to 2015 can be found in the consolidated statement of changes in equity on page 116 in the Financial Report section of the 2016 Annual Report.
Bonds outstanding Bâloise Holding and Basler Leben AG (with Bâloise Holding acting as guarantor) have issued bonds publicly. As at the end of 2017, a total of eight public bonds were outstanding. Details of outstanding bonds can be found on pages 237 and 277 and on the internet. www.baloise.com/bonds
Credit rating On 1 September 2017, credit rating agency Standard & Poor’s raised Baloise Insurance Ltd’s rating of “A“ with a stable outlook to “A” with a positive outlook. Standard & Poor’s awarded this rating in recognition of Baloise’s very strong capitalisation, its excellent operational profitability and its solid competitive position in its profitable core markets. The agency also rated the firm’s risk management as strong. On 30 June 2017 and on 1 September 2017, Standard & Poor’s issued additional ratings for the Swiss unit Basler Life Ltd (“A” with a positive outlook), the Belgian subsidiary Baloise Belgium NV (“A” with a positive outlook), the German subsidiary Basler Sachversicherungs-AG (“A–” with a positive outlook) and Bâloise Holding Ltd (“BBB +” with a positive outlook). www.baloise.com/s&prating 3. BOARD OF DIRECTORS Election and term of appointment The Board of Directors consisted of ten members at the end of 2017. Each member of the Board of Directors has been elected for a term of one year at a time.
Members of the Board of Directors All members of the Board of Directors – including the Chairman – are non-executives. They were not involved in the day-to-day management of any Baloise Group companies in any of the three financial years immediately preceding the reporting period, and they maintain no material business relationships with the Baloise Group.
During the reporting year, Dr Andreas Beerli, Dr Georges- Antoine de Boccard, Dr Andreas Burckhardt, Christoph B. Gloor, Karin Keller-Sutter, Werner Kummer, Hugo Lasat, Thomas Pleines and Prof. Dr Marie-Noëlle Venture - Zen-Ruffinen were re-elected as members of the Board of Directors for a one-year term until the end of the next ordinary Annual General Meeting. Dr Michael Becker stepped down from the Board of Directors at the 2017 Annual General Meeting. Dr Thomas von Planta was newly elected to the Board of Directors.
With the exception of Werner Kummer, who is not available for re-election, all members of the Board of Directors are standing for re-election. Werner Kummer (70) joined the Board of Directors in 2000. He has been on the Audit and Risk Committee (formerly the Audit Committee) since 2002, becoming its chairman in 2004. Werner Kummer is also a member of the Chairman’s Committee and Vice-Chairman of the Board of Directors.
Further information on the members of the Board of Directors can be found on the internet. www.baloise.com/board-of-directors
Internal organisation Functions and responsibilities of the Board of Directors Subject to the decision-making powers exercised by shareholders at the Annual General Meeting, the Board of Directors is the Company’s ultimate decision-making body. Decisions are taken by the Board of Directors unless authority has been delegated on the basis of the Organisational Regulations to the Chairman of the Board of Directors, its committees, the Chief Executive Officer or the Corporate Executive Committee.
Werner Kummer, Vice-Chairman (since 2014), Küsnacht DC C CH 1947 2000
Dr Michael Becker x x x n. a. n. a. n. a. n. a.
Dr Georges-Antoine de Boccard x x x x x x x
Article 716a of the Swiss Code of Obligations (OR) and clause A3 of the Organisational Regulations state that the Board of Directors’ main functions and responsibilities are to act as the Company’s ultimate managerial and supervisory body, to oversee the Company’s finances and to determine its organisational structures. www.baloise.com/rules-regulations
Committees of the Board of Directors The Board of Directors has four committees, which support it in its activities. These committees report to the Board of Directors and submit the necessary proposals for their particular areas of responsibility. The Investment Committee and the Remuneration Committee have their own decision-making powers.
The committees appointed by the Board of Directors generally consist of four members, who are newly elected every year by the Board of Directors. Article 7 ERCO requires the members of the Remuneration Committee to be elected by the Annual General Meeting. The Chairman and Vice-Chairman of the Board of Directors are ex officio members of the Chairman’s Committee. The Chairman of the Board of Directors is not allowed to sit on the Audit and Risk Committee. The committees’ basic functions and responsibilities are specified in the Organisational Regulations. Additional specific regulations applicable to individual committees govern administrative and other aspects. www.baloise.com/rules-regulations
The Investment Committee’s main responsibilities are to oversee the Baloise Group’s investment activities, define the basic principles of its investment policy, specify the asset allocation strategy for all strategic business units and devise the relevant investment plan.
The Remuneration Committee proposes to the Board of Directors – for subsequent approval by the Annual General Meeting – the structure and amount of remuneration paid to the members of the Board of Directors and of the salaries paid to the members of the Corporate Executive Committee. Under ERCO, the remuneration paid to the Board of Directors and the Corporate Executive Committee has to be approved by the Annual General Meeting. The Remuneration Committee approves the target agreements and performance assessments that are
Corporate Governance Report applied to the Corporate Executive Committee members in order to determine their variable remuneration. It also sanctions the remuneration policies applicable to the Corporate Executive Committee members and ensures that they are being correctly implemented. It approves the variable remuneration granted to individual members of the Corporate Executive Committee; this remuneration has to be within the maximum amount approved by the Annual General Meeting. Furthermore, it specifies the total amount available in the performance pool.
Meetings of the Board of Directors and its committees The Organisational Regulations stipulate that the full Board of Directors must meet as often as business requires, but no fewer than four times a year. www.baloise.com/rules-regulations
Division of authorities, functions and responsibilities between the Board of Directors and the Corporate Executive Committee The division of authorities, functions and responsibilities between the Board of Directors and the Corporate Executive Committee is governed by law, the Articles of Association and the Organisational Regulations. The latter are reviewed on an ongoing basis and updated as changing circumstances require. www.baloise.com/rules-regulations
Tools used to monitor and obtain information on the Corporate Executive Committee Group Internal Audit reports directly to the Chairman of the Board of Directors.
Effective risk management is essential for any insurance group. This is why Baloise has devoted two entire chapters to the subject of financial risk management from page 52 onwards and in the Financial Report section starting on page 146.
Andreas Burckhardt (1951, Switzerland, Dr iur., lawyer) has been a member of the Board of Directors since 1999 and its Chairman since 29 April 2011. He studied jurisprudence at the universities of Basel and Geneva. He worked in the legal department of Fides Treuhandgesellschaft from 1982 to 1987 and served as Secretary General of the Baloise Group from 1988 to 1994. He was director and head of the Basel Chamber of Commerce from 1994 to April 2011. In this role he sat on various governing bodies of national and regional business organisations. From 1981 to 2011 he performed various political functions in the Basel civic municipality and in the canton of Basel-Stadt, and from 1997 to 2011 he served on the Great Council of the Canton of Basel-Stadt (as Chairman in 2006 and 2007). Until 2017, he sat on the Board of Directors of Carl Spaeter AG. Dr Andreas Burckhardt is Chairman of the Board of Governors of the Swiss Tropical and Public Health Institute, Basel. He is also a member of the Executive Committee of economiesuisse and sits on the Executive Board of the Employers’ Federation for Basel. Dr Andreas Burckhardt performs a non-executive function as Chairman of Baloise’s Board of Directors.
Andreas Beerli (1951, Switzerland, Dr iur.) has been a member of the Board of Directors since 2011. He studied law at the University of Basel. In 1979 he started working as an underwriter for the German market at Swiss Re. From 1985 to 1993 he performed various managerial roles at Baloise, with the main focus on supervising and supporting several foreign units. He then returned to Swiss Re, where he became a member of the Group Executive Committee in 2000, first in the United States as Head of Swiss Re Americas and, most recently, in Zurich as Chief Operating Officer for the entire Swiss Re Group. Since 2009 he has acted as an independent advisor on the boards of directors and advisory boards of companies and professional associations. He is a member of the Board of Directors at Ironshore Europe Inc., Dublin, a member of the Advisory Board of Accenture Schweiz, and Chairman of the Swiss Advisory Council of the American Swiss Foundation. Dr Andreas Beerli is an independent non-executive director.
Georges-Antoine de Boccard (1951, Switzerland, Dr med.) has been a member of the Board of Directors since 2011. He studied medicine at the University of Geneva. He has been running his own urological surgery practice in Geneva since 1987. Dr Georges-Antoine de Boccard chairs the Board at Stellaria Holding SA and at the asset management companies of Citadel Finance SA and GPP-Gestion Patrimoniale Personnal isée SA. He sits on the Board of Directors at the Swiss International Prostate Center SA and Trillium SA. From 2005 to 2006 he was Chairman of the Swiss Association of Urology. He is a member of the Swiss Association of Urology, the European Association of Urology and other professional bodies and associations. Dr Georges-Antoine de Boccard is an independent non-executive director.
Christoph B. Gloor (1966, Switzerland, university degree in business economics) has been a member of the Board of Directors since 2014. He has also been a member of the Executive Committee of Notenstein La Roche Privatbank AG, St. Gallen, since November 2015. He was previously Chief Executive Officer of Basel-based private bank La Roche & Co AG. Prior to joining La Roche & Co AG in 1998, he worked for Swiss Bank Corporation (SBC) before moving to Vitra (Inter national). Christoph B. Gloor served as president of the Association of Swiss Private Banks from November 2013 to February 2015 and was a member of the Board of Directors of the Swiss Bankers Association from September 2013 to February 2015. He has been a member of the Board of Managing Directors of the Basel Banking Association since 2016. Christoph B. Gloor is an independent non-executive director.
Karin Keller-Sutter (1963, Switzerland, university degree in translation and conference interpreting, postgraduate qualification in education) has been a member of the Board of Directors since 2013. In 1996 she was elected to St. Gallen’s cantonal parliament and became Chairwoman of the FDP (the Swiss Liberal Party) for the canton of St. Gallen before being elected to St. Gallen’s cantonal governing council in 2000. She was in charge of the security and justice department until May 2012 and chaired the governing council in 2006 / 2007 and again in 2011 / 2012. She has been a member of the Council of States – the upper chamber of the Swiss parliament – since the autumn of 2011 and was appointed as Chairwoman in 2017. Karin Keller-Sutter sits on the Board of Directors of the ASGA pension fund. In addition, she chairs the Board of Directors of Pensimo Fondsleitung AG and the Pensimo investment foundation. She is Chairwoman of the Swiss Retail Federation and a member of the executive committee of the Swiss Employers’ Federation. Karin Keller- Sutter is an independent non-executive director.
Gert De Winter (1966, Belgium, MSc) studied applied economics at the University of Antwerp. From 1988 to 2004 he performed various roles at Accenture in Brussels for issues relating to IT and business transformation management in the financial sector. He was made a partner at the firm in the year 2000. In 2005 he joined the Baloise Group as Chief Information Officer (CIO) and Head of HR of the Mercator insurance company in Belgium. From 2009 to 2015 Gert De Winter was Chief Executive Officer of Baloise Insurance, which was formed in 2011 from the merger of the three insurance companies Mercator, Nateus and Avéro. He has been Group Chief Executive Officer since 1 January 2016. Since June 2016 he has been a member of the Management Board of the Basel Chamber of Commerce.
Further information on the members of the Corporate Executive Committee can be found on the internet.
With the exception of the mandates listed above, no Corporate Executive Committee members serve on the Boards of Directors at companies outside the Baloise Group.
There are no management agreements that assign executive functions to third parties. www.baloise.com/corporate-executive-committee
Carsten Stolz * Matthias Henny * Thomas Sieber * Michael Müller * Jürg Schiltknecht Henk Janssen Romain Braas
The report of the statutory auditors on the audit of the remuneration report can be found in Appendix 2 to the Corporate Governance Report (page 108 onwards).
Powers of attorney and voting instructions may also be given to an independent proxy electronically without requiring a qualifying electronic signature (article 16 [2] of the Articles of Association).
The consent of at least three-quarters of the votes represented at the Annual General Meeting is required to suspend statutory restrictions on voting rights. The votes must also represent at least one third of the total shares issued by the Company. This qualified majority also applies to the cases specified in article 17 (3)(a) to (h) of the Articles of Association. Otherwise, resolutions are adopted by a simple majority of the votes cast, subject to compulsory legal provisions (article 17 of the Articles of Association).
Convening the Annual General Meeting The Annual General Meeting generally takes place in April, but must be held within six months of the end of the previous financial year. Bâloise Holding’s financial year ends on 31 December. The Annual General Meeting is convened at least 20 days before the date of the meeting. Each registered shareholder receives a personal invitation, which includes the agenda. The invitation and the agenda are published in the Swiss Official Gazette of Commerce, in various newspapers and on the internet.
The Annual General Meeting, the Board of Directors or the external auditors decide whether to convene extraordinary general meetings. Furthermore, legal provisions also require the Board of Directors to convene an extraordinary general meeting if requested by the shareholders (article 11 of the Articles of Association). Article 699 (3) of the Swiss Code of Obligations (OR) states such requests must be made by shareholders who represent at least 10 per cent of the share capital.
Entry in the share register Shareholders are entitled to vote at the Annual General Meeting provided they are registered in the share register as shareholders with voting rights on the cut-off date stated by the Board of Directors in the invitation. The cut-off date should be several days before the Annual General Meeting (article 16 of the Articles of Association).
Article 5 of the Articles of Association determines whether nominee entries are permissible, taking into account any percentage limits and entry requirements. The procedures and requirements for suspending and restricting transferability are set out in article 5 and article 17 of the Articles of Association. www.baloise.com/rules-regulations www.baloise.com/calendar 7. CHANGES OF CONTROL AND POISON-PILL MEASURES Shareholders or groups of shareholders acting together by agreement are required to issue a takeover bid to all other shareholders when they have acquired 33 per cent of all Baloise shares. Bâloise Holding has not made any use of the option to deviate from or waive this regulation. There is no statutory opting-out clause or opting-up clause as defined by the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FinfraG).
The members of the Corporate Executive Committee have a notice period of twelve months. Bâloise has not agreed any arrangements in respect of changes of control or non-compete clauses with members of either the Board of Directors or the Corporate Executive Committee.
8. EXTERNAL AUDITORS The external auditors are elected annually by the Annual General Meeting. Ernst & Young AG (EY), Basel, have been the external auditing firm for Bâloise Holding since 2016. Stefan M. Schmid has held the post of auditor-in-charge since 2016. In accordance with article 730a (2) OR, the role of auditor-in-charge is rotated every seven years. EY is the external auditing firm for almost all Group companies.
At its four meetings, primarily at meetings about the annual and half-year financial statements, the Audit and Risk Committee receives detailed explanations and documents about the external auditors’ main findings from the auditors’ representatives.
Corporate Governance Report 9. INFORMATION POLICY Information principles The Baloise Group provides shareholders, potential investors, employees, customers and the public with information on a regular, open and comprehensive basis. All registered shareholders each receive a summary of the annual report once a year and a letter to shareholders every six months, which provide a review of business. The full annual report is sent to shareholders on request. In addition, a presentation is created for every set of financial statements that summarises the financial year or period for financial analysts and investors. All publications are simultaneously available to the public. All market participants receive the same information. Baloise offers teleconferences, podcasts, videos and live streaming in order to make information generally and easily accessible.
▸ Teleconferences for financial analysts and investors take place when the annual and half-year financial statements are published. The events can then be downloaded as podcasts.
▸ At its regular Investor Days, the Company presents its corporate strategy and targets as well as any other matters relevant to its business. The documents used for this and the recording of the event are made publicly avail-able on various media.
Information about Baloise shares Information about Baloise shares begins on page 8. www.baloise.com/baloise-share
Contact Corporate Governance Baloise Group Philipp Jermann Aeschengraben 21 4002 Basel, Switzerland philipp.jermann@baloise.com
Basic salary ▸ Aim for a position around the market median ▸ Reflection of the responsibilities of the role and the individual’s long-term performance
Fringe benefits ▸ Not dependent on either an individual’s function or performance or the Company’s performance ▸ Demonstration of Baloise’s close partnership with employees and its respect for them
TSR (%) (left axis) As a percentage of the expected value (right axis)
Allocation ▸ The total amount for the allocation of PSUs is determined by the Remuneration Committee ▸ The Remuneration Committee decides on the allocation of PSUs to each individual Corporate Executive Committee member
▸ PSUs are a performance instrument, enabling clear differentiation using a performance multiplier of between 0.5 and 1.5
Dr. Thomas Sieber 2016 CHF 1.478 million 2017 CHF 1.479 million
German Egloff 3 2016 CHF 1.600 million 2017 CHF 0.923 million
The Remuneration Committee’s main functions and responsibilities are to: ▸ submit proposals to the Board of Directors on the structure of remuneration to be paid in the Baloise Group, especially the remuneration to be paid to the Chairman and members of the Board of Directors and to the members of the Corporate Executive Committee; ▸ submit proposals to the Board of Directors – for approval by the Annual General Meeting – on the amount of remuneration to be paid to the Chairman and members of the Board of Directors and to the members of the Corporate Executive Committee; ▸ approve the basic salaries and the variable remuneration paid to individual members of the Corporate Executive Committee (in compliance with the pay caps stipulated by the Annual General Meeting); ▸ specify the total amount available in the performance pool and the total amount set aside for the allocation of performance share units (PSUs); ▸ approve inducement payments and severance packages that are granted to the most senior managers and which in individual cases exceed CHF 100,000 (subject to the proviso that no severance packages may be granted to members of the Board of Directors or the Corporate Executive Committee).
3. REMUNERATION POLICIES Principles The Company’s success is largely dependent on the skills, capabilities and performance of its workforce. It is therefore essential to recruit, develop and retain suitably qualified, highly capable and highly motivated professionals and executives. The level of remuneration offered by Baloise is in line with the going market rate and is performance-related. The clearly defined caps approved by the Annual General Meeting for the pay awarded to members of the Board of Directors and Corporate Executive Committee ensure that remuneration is not excessive.
Performance management system Baloise introduced the current performance management system for short-term variable remuneration in 2011. In order to encourage employees to focus relentlessly on performance and results while also taking the overall success of the Company into consideration, this system comprises two distinct tools: performance -related remuneration and the performance pool. Performance -related remuneration is used to reward individual employees’ achievements, while the performance pool as a whole takes account of the Company’s performance and value added.
The performance management system applies to the most senior level of management and to most other members of the management team throughout the Baloise Group.
Simple and in step with our strategy. From 2018, Baloise will be going in a new direction when it comes to performance management. The performance management system for short-term variable remuneration, originally introduced in 2011, was revised during the year under review and a simplified version was put in place for 1 January 2018. The short-term variable remuneration is closely linked to achievement of the Company’s goals and is calculated solely on the basis of the performance pool – the individual performance-related pay element has been scrapped. Baloise has thereby returned to having a single standardised system for the variable remuneration of the Corporate Executive Committee (for whom this simplified system was introduced in 2014), the most senior level of management across the entire Group, the majority of management team members in Switzerland and the equivalent functions in other countries.
This remuneration report for the current reporting year is based on the 2011 performance management system that was in force until 31 December 2017 and under which the short-term variable remuneration was paid out for the last time in spring 2018.
Market comparisons Baloise regularly compares the salaries paid to its senior executives with those paid in the wider market. The Corporate Key Position Benchmark survey conducted by Willis Towers Watson (for the whole Baloise Group) and Kienbaum (for Luxembourg ) uses function-specific peer groups. Each function being compared is assigned to one of three distinct peer groups. Assignment is based on which companies Baloise is competing against for the skill sets and qualifications needed for each function (i. e. recruitment market) and which alternative employers – in theory, at least – meet a certain function profile (i. e. competitors).
Baloise also regularly conducts market comparisons of its local functions in the countries outside Switzerland.
5. COMPONENTS OF REMUNERATION Baloise views its compensation packages in the round and therefore factors in not only the basic salary plus short- and long-term variable remuneration but also other benefits such as pension contributions, additional benefits and staff development.
Short-term variable remuneration The key factors determining the amount of short-term variable remuneration paid are the Company’s profitability and economic value added and an employee’s individual performance. The consequent link between the Company’s profits and individual performance is designed to incentivise staff to achieve outstanding results. Measurement of the short-term variable remuneration paid to employees who perform control functions (risk management, compliance, Group Internal Audit) is structured in such a way that it is not determined directly by the profitability of the unit being monitored or by the profitability of individual products or transactions.
The remuneration paid to the insurance sales force is, by its very nature, strongly performance-related in line with the system of commissions commonly used in the insurance industry as a whole. However, these commissions constitute selling expenses rather than being regarded as variable remuneration in the strict sense of the term. Consequently, they are not discussed in this remuneration report.
Performance-related remuneration The performance-related remuneration paid out for the last time in 2017 (see infobox on the performance management system on page 84) reflects individual employees’ performance and rewards the achievement of their personal targets. To this end, line managers consult their members of staff once a year in order to define the latter’s key individual targets and objectives and then – by no later than February of the following year – assess the extent to which these targets and objectives have been achieved. The target achievement scale ranges from 0 per cent (not achieved) to a maximum of 150 per cent (significantly overachieved ). When setting these individual targets, line managers and their staff ensure that they do not agree any targets or objectives that conflict with the Company’s business strategy.
The members of the Corporate Executive Committee do not receive any performance-related remuneration. Instead, their individual performance is recognised in such a way that the contribution made by each and every member of the Corporate Executive Committee to the achievement of the Company’s targets and objectives is factored into decisions affecting the measurement of the performance pool.
Performance pool The performance pool takes account of the entire Baloise Group’s performance; its amount is determined by the Remuneration Committee after the end of the financial year concerned, and it factors in the following indicators resulting from systematic analysis: ▸ Strategy implementation Indicators are the three strategic goals set by Baloise for the period 2017 to 2021, comprising a cash inflow of CHF 2 billion into Bâloise Holding, one million new customers, and a rating as one of the best employers in the sector.
▸ Business performance The key metric for this criterion is the profit for the period, with the combined ratio, the interest margin and the business mix in the life insurance business as sub-criteria.
The assessments by the Chief Risk Officer and the Head of Group Compliance of the risks taken and the evaluations by the Head of Group Human Resources and others of strategy requirements that cannot be precisely measured are also based on qualitative criteria and non-financial indicators such as senior managers’ risk behaviour, compliance with procedures and regulations and the practising of a genuine compliance culture, the effectiveness of the internal control system, and the efforts made in respect of talent management and staff engagement.
Performance pool payments are awarded to individuals at the discretion of the line manager concerned. The amount of these payments is mainly determined by a holistic assessment consisting of individuals’ achievement of targets (gauged by the extent to which they have achieved their personal targets and objectives) as well as their leadership and conduct. The individual performance pool payment proposed by the respective line manager is discussed by the relevant management team, compared with other departments and divisions and adjusted where necessary. This process ensures that risk-relevant behavioural attributes are factored into the performance pool payments awarded to individuals.
This chosen system is centred on senior managers’ overall assessment and the validation of individuals’ performance pool payments at round-table discussions. The aim here is to give due consideration to all aspects of an individual’s performance rather than using just a few parameters to make an assessment that may neglect other key factors.
The Remuneration Committee decides on the performance pool payments awarded to the individual members of the Corporate Executive Committee. The average expected value amounts to 60 per cent of basic salary; the maximum amount that can be allocated per member of the Corporate Executive Committee is 90 per cent of the basic salary, or 150 per cent of the expected value.
Those considered for performance pool payments are the most senior management level in the Baloise Group, the majority of senior managers in Switzerland and the corresponding functions abroad. However, there is no entitlement to receive payments from the performance pool.
For the 2017 financial year the Remuneration Committee decided, on the basis of a positive overall assessment, on a factor of 120 per cent of the normally expected value of performance pool payments. The same factor was agreed for the members of the Corporate Executive Committee and the Group. This decision was motivated by the following considerations: Main indicator Strategy implementation Key question How successfully were the strategic targets implemented? Sub-criteria Cash Upstream
Main indicator Risks taken Key question How should the operating performance be assessed from a risk perspective? Sub-criteria Solvency I
Main indicator Business performance Key question What is the operating profit? Sub-criteria Profit for the period (incl. combined ratio and interest margin in life insurance, as well as the business mix in life insurance) Appraisal Overall, Baloise achieved profit for the period that was above budget, although Germany was significantly below expectations. Switzerland performed well above expectations; with the planned combined ratio being undercut and the interest margin in the life insurance business further increased to 1.4 per cent. Luxembourg built on its good position in the life insurance business. Belgium’s results remained strong.
As the table below illustrates in the form of a comparison with the consolidated profit for the period, when the performance pool factor is set in this way, it goes up or down in line with the Company’s success, although it is not directly derived from this key figure alone: Performance pool (as a percentage of the normal expected value)
Long-term variable remuneration: performance share units In addition, Baloise grants performance share units (PSUs) to the most senior managers as a form of long-term variable remuneration. The PSU programme enables the top management level to benefit even more from the Company’s performance and helps Baloise to retain high performers in the long run.
Companies in the STOXX 600 Europe Insurance Index (as at 31 December 2017)
Remuneration Report multiplier is 0.5 if the performance of Baloise shares is below the bottom quartile of companies in the peer group. If the performance of Baloise shares is between the top and bottom quartiles, a linear scale is used to calculate the performance multiplier. The performance multiplier for the entire vesting period ended is based on the closing stock market prices on the final trading day of the respective vesting period.
Participants receive the pertinent number of shares once the vesting period has elapsed, which means that for the PSUs allocated in 2017 they receive their shares on 1 March 2020. If an individual’s employment contract is terminated during the vesting period, the PSUs expire without the person concerned receiving any consideration or compensation. This does not apply if the employment contract ends due to retirement, disability or death. It also does not apply if the contract is terminated but the participant does not join a rival company or is not personally at fault for the termination of the contract. In the latter two cases, some of the allocated PSUs will still expire. The number of PSUs expiring is proportional to the amount of time remaining until the end of the vesting period. In addition, the Remuneration Committee has the powers to claw back some or all of the PSUs allocated to an individual or to a group of participants if there are specific reasons for doing so. Such specific reasons include, for example, serious breaches of internal or external regulations, the taking of inappropriate risks that are within an individual’s control, and the type of conduct or behaviour that would increase the risks to Baloise.
The value of PSUs is exposed to market risk until the end of the vesting period and may, of course, fluctuate significantly, as shown in the table below: PERFORMANCE SHARE UNIT (PSU) PLAN
6. EMPLOYMENT CONTRACTS, CHANGE-OF-CONTROL CLAUSES, INDUCEMENT PAYMENTS AND SEVERANCE PACKAGES The employment contracts of senior managers in Switzerland and – in most cases – in other countries as well have been concluded for an indefinite period. They stipulate a notice period of six months. All members of the Corporate Executive Committee have a notice period of twelve months. The employment contract with the Chairman of the Board of Directors does not stipulate any notice period; its duration is determined by the term of appointment and by law. There are no change-of-control clauses.
The Remuneration Policy adopted by the Board of Directors contains clear guidance on inducement payments and severance packages. Such remuneration may only be paid in justified cases. No severance packages may be awarded to members of either the Board of Directors or the Corporate Executive Committee, and any inducement payments granted to such persons – irrespective of their amount – must be approved by the Remuneration Committee. Inducement payments and severance packages for the most senior managers must be approved by the Remuneration Committee if they exceed CHF 100,000. Each individual case is assessed on a discretionary basis.
(applies to the variable remuneration granted for 2016 and to the shares subscribed by the Chairman of the Board of Directors in 2017)
Remuneration Report 8. EMPLOYEE INCENTIVE PLAN The Baloise Foundation for Employee Participation set up in 1989 offers members of staff working for various Baloise Group companies in Switzerland the opportunity to purchase shares in Bâloise Holding – usually once a year – at a preferential price in compliance with the regulations adopted by the Board of Foundation. This encourages employees to maintain their commitment to the Company over the long term by becoming shareholders. The subscription price is fixed by the Board of Foundation at the beginning of the subscription period and is then published on the intranet. It equals half of the volume- weighted average share price calculated for the month of August in each subscription year. In 2017 the subscription price amounted to CHF 77.00 (2016: CHF 56.40) and a total of 176,252 shares were subscribed (2016: 183,678). Title to the subscribed shares passes to the relevant employees with effect from 1 September each year, and the shares are subject to a three-year closed period.
The Foundation acquired the underlying stock of shares used in this plan from previous capital increases carried out by Bâloise Holding. It supplements these shareholdings by purchasing shares in the market. The existing shareholdings will enable the Foundation to continue the Employee Incentive Plan over the coming years. The Foundation is run by a Board of Foundation that is predominantly independent of the Corporate Executive Committee. The independent Board of Foundation members are Peter Schwager (Chairman) and Professor Heinrich Koller (lawyer); the third member of the Board of Foundation is Andreas Burki (Head of Legal & Tax at Baloise).
▸ The employer makes a disproportionately high contribution to the funding of its occupational pension scheme.
The members of the Corporate Executive Committee are insured under the pension scheme run by Baloise Insurance Ltd. They are subject to the same terms and conditions as all other insured office-based members of staff. Until May 2016, the pension contributions were also paid on behalf of the Chairman of the Board of Directors, who is also insured. Since June 2016, he has not been entitled to have contributions paid to the pension fund, nor have such contributions been paid to him.
Fair value of subscribed shares on subscription date (CHF million) 21.5 26.9
The other members of the Board of Directors have never been entitled to have contributions paid to the pension fund, nor have such contributions been paid to them.
Board of Directors and the Corporate Executive Committee ▸ www.baloise.com/rules-regulations 11. REMUNERATION PAID TO THE MEMBERS OF THE BOARD OF DIRECTORS Please refer to the tables on pages 98 and 99.
The Chairman of the Board of Directors performs his various functions on a full-time basis, in return for which he is paid a fixed amount of remuneration. He is not entitled to any variable remuneration and, consequently, he receives no performance- related remuneration, no performance pool payments and no allocation of PSUs. He is paid roughly a quarter of his remuneration in the form of shares, although he is free to choose each year how many shares he receives under the Share Subscription Plan and how many under the Share Participation Plan. The shares that he receives under the Share Subscription Plan are subject to a closed period of five years (instead of the usual three years).
The other members of the Board of Directors are paid a lump sum as remuneration for their work on the Board of Directors (CHF 125,000) and for additional functions that they perform on the Board of Directors’ committees (CHF 70,000 for the Chairman and CHF 50,000 for members). These amounts provide appropriate compensation for the responsibility and workload involved in their various functions and have remained unchanged since 2008.
Since 2006 the members of the Board of Directors have received 25 per cent of their annual remuneration in the form of shares that are restricted for three years. Members of the Board of Directors receive a 10 per cent discount on the shares’ market price in line with the Share Subscription Plan available to senior executives. The members of the Board of Directors do not participate in any share ownership programmes that are predicated on the achievement of specific performance targets.
Remuneration Report 12. REMUNERATION PAID TO THE MEMBERS OF THE CORPORATE EXECUTIVE COMMITTEE Please refer to the tables on pages 100 to 103.
The members of the Corporate Executive Committee receive performance share units (PSUs) as a form of long-term variable remuneration, which is expected to account for 40 per cent of basic salary. This system complies with Swiss legislation and meets the European standard, which stipulates that the ratio of fixed to variable remuneration should normally be one-to-one (Capital Requirements Directive IV).
The structure of remuneration paid to the Corporate Executive Committee is laid down in the Remuneration Policy. The actual level of remuneration paid is determined in accordance with the table below.
The total remuneration paid to the Corporate Executive Committee for 2017 was slightly lower overall than in the previous year (sum total of basic salary plus variable remuneration down by 3.6 per cent). The change can be explained as follows: ▸ Because of a change to the composition of the Corporate Executive Committee, fixed remuneration was paid both to the two outgoing members and to the two new members for an overlapping period of six months. This meant a slight increase in the total basic salaries, even though there had also been a similar overlap in 2016 with the change in the Group CEO, and the fixed salaries of the new members of the Corporate Executive Committee are lower than those of their predecessors.
The individual allocation of the performance pool to the members of the Corporate Executive Committee is based on their individual contribution towards the attainment of the targets for the Group’s profit for the period and on the attainment of the individual targets (which focus on the implementation of the agreed strategy, on projects and innovation, and on the conduct of the members of the Corporate Executive Committee).
Total for the Board of Directors 2,424,167 810,000 3,234,167 146,827 3,380,994 758,779 6,980
Dr Michael Becker (until 28 April 2017) 62,500 87,500 0 87,500 43,639 375
Prof. Dr Marie-Noëlle Venturi - Zen-Ruffinen 125,000 175,000 5,966 180,966 43,639 375
Granted in 2016 2016 CHF CHF Number of shares CHF Number of shares CHF Number of PSU CHF Number of shares CHF CHF CHF CHF CHF
Non-cash benefits Based on all remuneration elements required to be declared on the Swiss salary certificate, including long-service awards, taxable benefits relating to shares received in connection with the Employee Incentive Plan (maximum of 100 shares per annum). Pension benefits These comprise the estimated employer contributions to the state-run social security schemes and the pension fund (up to the pensionable or insurable threshold in each case).
Cash payment (fixed) Cash payment Share Subscription Plan Share Participation Plan Performance share units (PSUs) Total variable remuneration
Remuneration paid to former members and related parties No remuneration on a non-arm’s-length basis was paid to companies or individuals who are related to members of the Corporate Executive Committee. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. German Egloff received CHF 30,013 and Martin Wenk received CHF 21,897 in remuneration payments for November and December 2017, for roles performed after the end of their notice period. Share Subscription Plan Proportion of variable remuneration received directly as shares, which are measured at market value less 10 per cent markdown. Subscription price = CHF 140.58. Share Participation Plan Proportion of variable remuneration received as shares (excluding loans to purchase shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 140.80. Performance share units (PSUs) These have been disclosed at their value of CHF 139.90 at the grant date and measured using a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period. The PSUs allocated to Matthias Henny and Carsten Stolz on 1 March 2017 based on the terms and conditions of their employment prior to joining the Corporate Executive Committee and have been recognised pro rata from 1 May 2017 for eight months.
Granted in 2017 2017 CHF CHF Number of shares CHF Number of shares CHF Number of PSUs CHF Number of shares CHF CHF CHF CHF CHF
Explanatory notes to the table Remuneration is disclosed in accordance with the accrual principle. The table includes all forms of remuneration awarded for performance in 2017 even if individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions etc. The basic salary of Matthias Henny and Carsten Stolz is recognised pro rata from 1 May 2017. German Egloff and Martin Wenk received their usual monthly salary until the end of their notice period on 31 October 2017; payments from the performance pool were made for the time served as members of the Corporate Executive Committee until 30 April 2017.
Board of Directors’ responsibility The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration report in accordance with Swiss law and the Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO). The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.
Opinion In our opinion, the remuneration report for the year ended 31 December 2017 of Bâloise Holding Ltd complies with Swiss law and articles 14–16 of ERCO.
Financial Report consolidated balance sheet ............................................. 112 consolidated income statement ....................................... 114 consolidated statement of comprehensive income .......... 115 consolidated cash flow statement ................................... 116 consolidated statement of changes in equity ................... 118
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS .............................. 120 1. Basis of preparation ................................................. 120 2. application of new financial reporting standards ...... 120 3. consolidation principles and accounting policies ..... 123 4. Key accounting judgements, estimates and assumptions ...................................... 143 5. Management of insurance risk and financial risk ...... 146 6. Basis of consolidation .............................................. 190 7. information on operating segments
NOTES TO THE CONSOLIDATED BALANCE SHEET ........ 196 8. property, plant and equipment ................................. 196 10. investments in associates ........................................ 201 13. Mortgages and loans ............................................... 208 14. Derivative financial instruments .............................. 209 17. Receivables from reinsurers ..................................... 212 19. Deferred income taxes ............................................. 222 21. non-current assets and disposal groups classified as held for sale ......................................... 225 23. technical reserves (gross) ....................................... 227 24. liabilities arising from banking business and financial contracts ............................................. 236
REPORT OF THE STATUTORY AUDITOR TO THE ANNUAL GENERAL MEETING OF BÂLOISE HOLDING LTD, BASEL ................................... 262 4 Baloise 16 Review of operating performance 36 Sustainable business management 58 corporate Governance 110 Financial Report 268 Bâloise Holding ltd 286 General information
Recognised at fair value through profit or loss 54.5 70.5 cash and cash equivalents 3,173.3 3,551.6 non-current assets and disposal groups classified as held for sale 21 1,962.0 1,041.1 consolidated balance sheet
Recognised at fair value through profit or loss 9,999.4 12,253.6 liabilities arising from employee benefits 18 1,463.9 1,394.4 other accounts payable 456.6 593.1 current income tax liabilities 44.3 81.5 liabilities included in non-current assets and disposal groups classified as held for sale 21 1,908.3 643.6
Income premiums earned and policy fees (gross) 28 6,680.6 6,726.4 premiums earned and policy fees (net) 28 6,512.4 6,542.9
For the account and at risk of life insurance policyholders and third parties 30 364.1 696.5 income from services rendered 31 110.1 116.9
Expense claims and benefits paid (gross) 23 – 5,664.2 – 5,726.5 change in technical reserves (gross) 23 – 669.1 – 535.0
Reinsurers’ share of claims incurred 23 108.2 80.8 operating and administrative expenses for insurance business 33 – 763.9 – 765.8 interest expenses on insurance liabilities – 30.5 – 21.9
Profit for the period 533.9 531.9 attributable to: non-controlling interests – 0.9 – 16.1 earnings / loss per share 37 consolidated income statement
Items to be reclassified to the income statement change in unrealised gains and losses on available-for-sale financial assets 126.6 – 182.5 change in unrealised gains and losses on associates – 0.4 7.5 change in hedging reserves for derivative financial instruments held as hedges of a net investment in a foreign operation change in reserves arising from reclassification of held-to-maturity financial assets – 1.1 – 2.5 change arising from shadow accounting – 117.3 197.0 exchange differences – 2.5 119.3
Total items to be reclassified to the income statement – 24.9 255.1
Depreciation, amortisation and impairment of property, plant and equipment and of intangible assets 8 / 9 63.1 82.7
Receivables and liabilities arising from banking business and financial contracts 1,426.4 1,872.4
Receivables and liabilities arising from insurance business and from reinsurers – 72.8 72.0 change in other assets and other liabilities from operating acitivities – 349.2 102.0
Sale of investment property 11 49.5 157.7 purchase of financial assets of an equity nature – 2,670.4 – 3,562.6
Disposal of mortgages and loans 3,326.6 2,768.5 addition of derivative financial instruments – 341.0 – 453.4
Cash flow from investing activities purchase of property, plant and equipment 8 – 16.4 – 21.7
Sale of property, plant and equipment 0.6 8.4 purchase of intangible assets 9 – 26.6 – 27.6
Sale of intangible assets 0.1 0.1 acquisition of companies, net of cash and cash equivalents 39 – 20.3 – 250.4
Cash flow from financing activities additions to financial liabilities 25 – 496.5
Borrowing costs paid 25 – 33.4 – 30.9 purchase of treasury shares – 106.9 – 101.9
Sale of treasury shares 228.3 91.9 cash flow attributable to non-controlling interests – 0.3 – 0.3
Balance as at 1 January 2,839.8 3,173.3 change during the financial year 350.0 302.5
Breakdown of cash and cash equivalents at the balance sheet date cash and bank balances 1,935.5 2,133.2 cash equivalents – 0.1 cash and cash equivalents for the account and at the risk of life insurance policyholders 1,237.8 1,418.3
Dividends received 141.4 98.4 interest paid – 57.4 – 40.5 consolidated cash flow statement
Consolidated statement of changes in equity 2016 Note Share capital Capital reserves Treasury shares
purchase / sale of treasury shares – 64.1 57.3 – – 121.4 – 121.4 cancellation of (treasury) shares – – – – – – – –
increase / decrease in non-controlling interests due to change in the scope of consolidation 39 – – – – – – – –
Baloise Group annual Report 2017 Financial Report 2017 Note Share capital Capital reserves Treasury shares
Non- controlling interests Total equity cHF million profit for the period – – – – 548.0 548.0 – 16.1 531.9
the Baloise Group’s consolidated annual financial statements are based on the historical cost principle and recognise adjustments resulting from the regular fair value measurement of investment property and of financial assets and financial liabilities that are classified as available for sale or recognised at fair value through profit or loss. these consolidated annual financial statements have been prepared in accordance with international Financial Reporting Standards (iFRS), which comply with Swiss law. iFRS 4 deals with the recognition and disclosure of insurance and reinsurance contracts. the measurement of these contracts is based on local financial reporting standards. all amounts shown in these consolidated annual financial statements are stated in millions of Swiss francs (cHF million) and have been rounded to one decimal place. consequently, the sum total of amounts that have been rounded may in isolated cases differ from the rounded total shown in this report.
1.1 Presentation changes Minor changes to the presentation of the consolidated income statement were made in the reporting period. the breakdown of realised gains and losses on investments into “own account” and “third party”, which was previously shown in note 30, is now presented directly in the income statement (2016: cHF 667.2 million). By presenting the information in this way, Baloise is taking the different bearers of the risk into consideration and enabling users of the financial statements to see this information directly in the income statement. this adjustment does not otherwise impact on income or other line items.
2. APPLICATION OF NEW FINANCIAL REPORTING STANDARDS AND RESTATEMENTS 2.1 Newly applied IFRSs and interpretations currently, there are no requirements to apply any newly applied standards or interpretations that have a material impact on the profit for the period or on balance sheet line items.
Applicable to annual periods beginning on or after iFRS 9 Financial instruments 1.1.2018 iFRS 15 Revenue from contracts with customers 1.1.2018 iFRS 16 leases 1.1.2019 iFRS 17 insurance contracts 1.1.2021
it is not yet possible to fully assess what impact the amendments to iFRS 9 will have on the Baloise Group’s balance sheet and income statement from 2021.
the modified retrospective method is being used for first-time adoption, which means the cumulative effects will be recognised once directly in equity. the Baloise Group will apply this standard from 1 January 2018 and currently does not anticipate any material effect on its consolidated financial statements owing to the exemptions for insurance contracts and financial instruments.
application of the standard will lead to a slight increase in the size of the balance sheet because the usage rights have to be recognised as assets while, on the other side, the lease liabilities are reported as liabilities. there will also be changes to the presentation of the income statement and cash flow statement because borrowing costs and depreciation, amortisation and impairment will be affected. We do not anticipate a material effect on the profit for the period.
iFRS 17 was published in May 2017 and is required to be applied for annual periods beginning on or after 1 January 2021. Rather than changing the business model of insurers, iFRS 17 affects their reporting. the most important changes relate to the methodology for measuring contracts and policies. Until now, they have been measured primarily in accordance with past developments and on the basis of data that was available at the start of the contracts. analysis will now have a stronger focus on the future, with assessments based on potential cash flows. life insurance contracts, which may have a term of several decades, will be particularly affected.
the Baloise Group has initiated a groupwide project to fully examine the effects of implementing iFRS 17. it is too early to comment on the potential impact on the consolidated financial statements.
Baloise Group annual Report 2017 Financial Report 3. CONSOLIDATION PRINCIPLES AND ACCOUNTING POLICIES 3.1 Method of consolidation 3.1.1 Subsidiaries the consolidated annual financial statements comprise the financial statements of Bâloise Holding ltd and its subsidiaries, including any structured entities. a subsidiary is consolidated if the Baloise Group controls it either directly or indirectly. as a rule, this is the case if the Baloise Group has exposure or rights to variable profit components as a result of its involvement with the investee and, because of legal positions, has the ability to influence the investee’s business activities that are critical to its financial success and, therefore, to affect the amount of the variable profit components.
companies acquired during the reporting period are included in the consolidated annual financial statements from the date on which control is effectively assumed, while all companies sold remain consolidated until the date on which control is ceded. acquisitions of entities are accounted for under the acquisition method (previously known as the “purchase method”). transaction costs are charged to the income statement as an expense. the identifiable assets and liabilities of the entity concerned are measured at fair value as at the date of first-time consolidation. non-controlling interests arising from business combinations are measured either at their fair value or according to their share of the acquiree’s identifiable net assets. the Baloise Group decides which measurement method to apply to each individual business combination.
Baloise Group annual Report 2017 Financial Report 3.1.3 Joint arrangements Joint arrangements are contractual agreements over which two or more parties have joint control. a joint arrangement is classified as either a joint operation or a joint venture. in a joint operation, the involved parties have direct rights and obligations in respect of the assets and liabilities and the income and expenses. By contrast, the parties involved in a joint venture do not have a direct entitlement to the assets and liabilities and, instead, have rights in respect of the net assets of the joint venture owing to their position as investors.
3.2.2 Translation of transaction currency into functional currency at Group companies income and expenses denominated in foreign currency are translated either at the exchange rate prevailing on the transaction date or at the average exchange rate. Monetary and non-monetary balance sheet items measured at fair value and arising from foreign currency transactions conducted by Group companies are translated at the closing rate. non-monetary items measured at historical cost are translated at the historical rate. any resultant exchange differences are recognised in profit or loss. this does not include exchange differences that form part of cash flow hedges and are recognised directly in hedging reserves or are used as hedges of a net investment in a foreign operation.
exchange differences arising on non-monetary financial instruments recognised at fair value through profit or loss are reported as realised gains or losses on these instruments. exchange differences on available-for-sale non-monetary financial instruments are recognised in other comprehensive income. exchange differences arising on available-for-sale monetary financial instruments are recognised in profit or loss.
the resultant exchange differences are aggregated and recognised directly in equity. When foreign subsidiaries are sold, the exchange differences arising on the disposal are recognised in the income statement as a transaction gain or loss.
land is not depreciated. other items of property, plant and equipment are depreciated on a straight-line basis over the following estimated useful lives: ▸ owner-occupied buildings: 25 to 50 years ▸ office furniture, equipment, fixtures and fittings: 5 to 10 years ▸ Machinery, furniture and vehicles: 4 to 10 years ▸ computer hardware: 3 to 5 years at each balance sheet date the Baloise Group tests all items of property, plant and equipment for impairment and reviews the suitability of their useful lives.
an impairment loss is immediately recognised on items of property, plant and equipment if their recoverable amount is lower than their carrying amount.
3.4.2 The Baloise Group as a lessor investment real estate let on operating leases is reported as investment property on the consolidated balance sheet.
3.5 Intangible assets 3.5.1 Goodwill Goodwill represents the excess of an acquiree’s acquisition cost over the fair value of its assets and liabilities plus the acquisition-date amount of any non-controlling interests in the acquiree and the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree. Goodwill is reported as an intangible asset. Goodwill is tested for impairment in the second half of each year. an impairment test may also be conducted in the first half of the year if there are objective indications that goodwill may be permanently impaired. When a new investment is acquired, the date for conducting future impairment tests is fixed and these tests are subsequently carried out at the same time each year. When entities are sold, their share of goodwill is recognised in their profit or loss. Goodwill is allocated to cash-generating units (cGUs) for the purposes of impairment testing.
Baloise Group annual Report 2017 Financial Report 3.5.4 Other intangible assets and internally developed assets other intangible assets essentially comprise software, external it consulting (in connection with software that has been developed), internally developed assets (such as software) and assets identified during the acquisition of entities (such as brands and customer relationships). these assets are recognised at cost and are amortised on a straight-line basis over their useful lives. intangible assets with indefinite useful lives are not amortised and are carried at cost less accumulated impairment losses.
all financing for intangible assets is generally obtained from the Baloise Group’s own financial resources. if funding from external sources is required, interest accrued during the assets’ development is capitalised as incurred.
3.6 Investment property investment property comprises land and / or buildings held to earn rental income or for capital appreciation (or both). if mixed-use properties cannot be broken down into owner-occupied property and property used by third parties, the entire property is classified according to the purpose for which most of its floor space is used. if, owing to a change of use, an investment property held by the Baloise Group becomes the latter’s owner-occupied property, it is reclassified as property, plant and equipment. any such reclassification is based on the property’s fair value at the reclassification date. By contrast, if one of the Baloise Group’s owner -occupied properties becomes an investment property owing to reclassification, then, on the date this change of use takes effect, the difference between the property’s carrying amount and its fair value is recognised in profit or loss in the event of an impairment; or, if the property’s fair value exceeds its carrying amount, then the difference is recognised directly in equity as an unrealised gain. if an investment property that was reclassified in a previous period is sold, the amount recognised directly in equity is reclassified to retained earnings. investment property is measured at fair value under the discounted cash flow (DcF) method. the current fair value of a property determined under the DcF method equals the sum total of all net income expected in future and discounted to its present value (before interest payments, taxes, depreciation and amortisation) and includes capital expenditure and renovation costs. the net income is determined individually for each property, depending on the opportunities and risks associated with it, and is discounted in line with market rates and on a risk-adjusted basis. the measurement is carried out internally each year by experts using market-based assumptions that have been verified by respected consultancies. in addition, the properties are assessed by external valuation specialists at regular intervals; roughly 10 per cent of the fair value of the real estate portfolio is subject to such assessments each year. changes in fair value are taken to income as realised accounting gains or losses in the period in which they occur.
Baloise Group annual Report 2017 Financial Report 3.7.1 Financial assets recognised at fair value through profit or loss this category consists of two sub-categories: held-for-trading financial assets (trading portfolio) and financial assets that are designated to this category. Financial instruments are classified in this category if they have principally been acquired with the intention of selling them in the short term, or if they form part of a portfolio for which there have recently been indications that a gain could be realised in the short term, or if they have been designated to this category. Derivative financial instruments are classified as “held for trading” (trading portfolio) with the exception of derivatives that have been designated for hedge accounting purposes. also designated to this category are structured products, i. e. equity instruments and debt instruments which, in addition to the host contract, contain embedded derivatives that are not bifurcated and measured separately. Financial assets held under investment-linked life insurance contracts are also designated as “recognised at fair value through profit or loss”.
available-for-sale financial assets and financial assets recognised at fair value through profit or loss are measured at fair value. Held-to-maturity financial assets are measured at amortised cost using the effective interest method. Realised and unrealised gains and losses on financial assets recognised at fair value through profit or loss are taken to income. Unrealised gains and losses on available-for-sale financial assets are recognised directly in equity. if available-for-sale financial assets are sold or impaired, the cumulative amount recognised directly in equity is recognised in the income statement as a realised gain or loss on financial assets. changes in the fair value of financial assets’ risks that are covered by fair value hedges are recognised in the income statement for the duration of these hedges irrespective of the financial assets’ classification.
Baloise Group annual Report 2017 Financial Report the fair value of listed financial assets is based on prices in active markets as at the balance sheet date. if no such prices are available, fair value is estimated using generally accepted methods (such as the present-value method), independent assessments based on comparisons with the market prices of similar instruments or the prevailing market situation.
if such estimates do not enable financial assets to be reliably measured, the assets are recognised at cost (less allowance) and disclosed accordingly.
the mortgage portfolio is regularly tested for impairment. if there is objective evidence that the full amount owed under the original contractual terms and conditions or the relevant proceeds of a receivable cannot be recovered, an impairment loss is recognised. loan exposures are individually evaluated based on the nature of the borrower concerned, its financial position, its credit history, the existence of any guarantors and, where appropriate, the realisable value of any collateral security.
3.10.3 Impairment losses on non-financial assets Goodwill and any assets with indefinite useful lives are tested for impairment at the same time each year or whenever there is objective evidence of impairment. Goodwill is allocated to cash-generating units (cGUs) for the purposes of impairment testing. insurance companies that sell both life and non-life products (so-called composite insurers) test goodwill for impairment at this level. When impairment tests are performed, a cGU’s value in use is determined on the basis of the maximum discounted future cash flows (usually dividends) that could potentially be returned to the parent company. this process takes appropriate account of legal requirements and internally specified capital adequacy limits. the long-term financial planning approved by management forms the basis for this calculation of the value in use for a period of at least three years and no more than five years. these values are extrapolated for the subsequent period using an annual growth rate. the growth rate is based on the expected inflation rates of the individual countries. the discount rates include the risk mark-ups for the individual operating segments. permanent impairment losses are recognised in the income statement as other operating expenses. all other non-financial assets are tested for impairment whenever there is objective evidence of such impairment.
Baloise Group annual Report 2017 Financial Report impairment losses recognised in previous reporting periods on assets with finite useful lives are reversed if the estimates used to determine the recoverable amount have changed since the most recent impairment loss was recognised. this increase constitutes a reversal of impairment losses. impairment losses recognised in previous reporting periods on goodwill are not reversed. impairment losses recognised in previous reporting periods on assets with indefinite useful lives are reversed and taken to income; however, the amount to which they are reversed must be no more than the amount recognised prior to the impairment losses less depreciation or amortisation.
3.11 Derivative financial instruments Derivative financial instruments include swaps, futures, forward contracts and options whose value is primarily derived from the underlying interest rates, exchange rates, commodity prices or share prices. the acquisition cost of derivatives is usually either very low or non-existent. these instruments are carried at fair value on the balance sheet. at the time they are purchased they are classified as either fair value hedges, cash flow hedges, hedges of a net investment in a foreign operation or trading instruments. Derivative financial instruments that do not qualify as hedges under iFRS criteria despite performing a hedging function as part of the Baloise Group’s risk management procedures are treated as trading instruments.
the Baloise Group’s hedge accounting system documents the effectiveness of hedges as well as the objectives and strategies pursued with each hedge. Hedge effectiveness is constantly monitored from the time the pertinent derivative financial instruments are purchased. Derivatives that no longer qualify as hedges are reclassified as trading instruments.
3.11.1 Structured products Structured products are equity instruments or debt instruments that contain embedded derivatives in addition to the host contract. provided that the economic characteristics and risks of the embedded derivative differ from those of the host contract and that this derivative qualifies as a derivative financial instrument, the embedded derivative is bifurcated from the host contract and is separately recognised, measured and disclosed. if the derivative and the host contract are not bifurcated, the structured product is designated as a host contract that is recognised at fair value through profit or loss.
if the foreign operation – or part thereof – is sold, the gain or loss recognised directly in equity is taken to the income statement.
3.15 Cash and cash equivalents cash and cash equivalents essentially consist of cash, demand deposits and cash equivalents. cash equivalents are predominantly short-term liquid investments with residual terms of no more than three months.
Baloise Group annual Report 2017 Financial Report 3.16 Equity equity instruments are classified as equity unless the Baloise Group is contractually obliged to repay them or to cede other financial assets. transaction costs relating to equity transactions are deducted and all associated income tax assets are recognised as deductions from equity.
3.16.1 Share capital the share capital shown on the balance sheet represents the subscribed share capital of Bâloise Holding ltd, Basel. this share capital consists solely of registered shares. no shares carry preferential voting rights.
contracts that pose no significant insurance risk are financial contracts. Such financial contracts may include a discretionary participation feature (DpF), which determines the accounting policies to be applied.
the Baloise Group considers an insurance risk to be significant if, during the term of the contract and under a plausible scenario, the payment triggered by the occurrence of the insured event is 5 per cent higher than the contractual benefits payable if the insured event does not occur.
▸ the benefits received are likely to account for a significant proportion of the total benefits payable under the contract, ▸ the timing or amount of the benefits payable is contractually at the discretion of the insurer, and the benefits received are contractually contingent on the performance of either a specified portfolio of contracts or a specified type of contract, on the realised and / or unrealised capital gains on a specified portfolio of investments held by the insurer, or on the profit or loss reported by the insurer.
captive insurance policies are derecognised from the annual financial statements. this also applies to contracts involving proprietary pension plans, provided that the employees covered by these plans work for the Baloise Group.
Baloise Group annual Report 2017 Financial Report 3.18 Non-life insurance contracts all standardised non-life products contain sufficient insurance risk to be classified as insurance contracts under iFRS 4. the non-life business conducted by the Baloise Group is broken down into seven main segments: ▸ accident all standard product lines typical of each relevant market are available in the accident insurance business. the Belgian market and Switzerland in particular also offer specific government-regulated occupational accident products that differ from the other products usually available.
▸ General liability in addition to conventional personal liability insurance the Baloise Group also sells third-party indemnity policies for certain professions. in Switzerland and Germany it offers policies – especially combined products – for small and medium-sized enterprises and for industrial partners that include features such as product liability.
actuarial methods are used to calculate by far the largest proportion of claims reserves. to this end, the Baloise Group selects actuarial forecasting methods that are appropriate for each sector, insurance product and existing claims history. additional market data and assumptions obtained from insurance rates are used if the claims history available on a customer is inadequate. the Baloise Group mainly applies the chain-ladder method, which is the most widely used, tried-and-tested procedure. this method involves estimating the number and amounts of claims incurred over time and the proportion of claims that are reported to the insurer either with a time lag or after the balance sheet date. the proportion of these so-called incurred-but-not-reported (iBnR) claims is exceptionally important, especially in operating segments involving third-party liability insurance. these estimates naturally factor in emerging claims trends as well as recoveries. the mean ratio of costs incurred to claims actually paid is essentially used to calculate reserves for claims handling costs.
the forecasting methods used cannot eliminate all the uncertainties inherent in making predictions about future developments and trends. nonetheless, systematic monitoring of the reserves recognised in a given financial year enables the Baloise Group to spot discrepancies as soon as possible and, consequently, to adjust the level of reserves and modify the forecasting method where necessary. this analysis is based on the so-called “run-off triangles” presented in aggregated form in section 5.4.5. the relevant calculations for typical property policies such as storm and tempest insurance or home contents insurance are usually based on the payments made over the past ten years. larger amounts of data and, consequently, claims triangles that go further back in time and are based on both payments and expenses (payments plus reserves) are, of course, used for insurance segments with longer run-off periods, such as third-party liability. to supplement the Baloise Group’s various internal control mechanisms, its reserves – and the methods used to calculate them – are regularly reviewed by external specialists. Mention should be made here of the liability adequacy test described in detail in section 3.18.4. the Baloise Group takes great care to ensure that it complies with the pertinent financial reporting standard by performing the regularly required profitability analysis and examining whether, at the balance sheet date, it can actually meet all the liabilities that it has taken on as an insurer. it immediately offsets any shortfall in its reserves that it identifies.
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements 3.18.3 Policyholders’ dividends and participation in profits insurance contracts can provide customers with a share of the surpluses and profits generated by their policies (especially those arising from their claims history). the expenses incurred by policyholders’ dividends and participation in profits are derived from the dividends paid plus the changes in the pertinent reserves.
3.18.4 Liability adequacy test a liability adequacy test (lat) is carried out at each balance sheet date to ascertain whether – taking all known developments and trends into consideration – the Baloise Group’s existing reserves are adequate.
to this end, all existing reserves – both claims reserves (including reserves for claims handling costs) and annuity reserves in the non-life segment – are first analysed and, if a shortfall is identified, the relevant reserves are then strengthened accordingly. this analysis explicitly includes iBnR claims, thereby ensuring that adequate reserves are available for all claims that have already occurred.
the liability adequacy test required by iFRS must also examine whether the Baloise Group has incurred any further liabilities for subsequent periods (future business) besides all its existing contracts maintained during the reporting period. Such business arises, for example, when contracts are automatically extended at the end of the year on the same terms and conditions. taking account of all the latest data and trends, Baloise conducts a profitability analysis of its insurance business during the reporting year in order to check whether an adequate level of premiums has been charged and, implicitly, whether these liabilities are therefore covered. this amounts to an analysis of unearned premium reserves and an impairment test of deferred acquisition costs at the same time. if a loss is expected to be incurred (also applies to other loss-making insurance contracts in existence at the balance sheet date), the deferred acquisition costs are initially reduced by the respective amount. if the total amount of deferred acquisition costs is insufficient or if the resultant liability cannot be covered in full, a separate provision for impending losses equivalent to the residual amount is recognised under other technical reserves.
3.19 Life insurance contracts and financial contracts with discretionary participation features iFRS 4 gives users the option of accounting for insurance contracts and financial contracts with discretionary participation features by continuing to apply the existing accounting policies described in section 1 below both to liabilities and to the assets resulting directly from the pertinent contracts (deferred acquisition costs and present value of future profits from acquired business).
the following life insurance products offered by the Baloise Group contain sufficient insurance risk to be classified as insurance contracts under iFRS 4: ▸ endowment policies (both conventional and unit-linked life insurance) ▸ Swiss group life business (BVG) ▸ term insurance ▸ immediate annuities ▸ Deferred annuities with annuity conversion rates that are guaranteed at the time the policy is purchased ▸ all policy riders such as premium waiver, accidental death and disability.
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements the accounting policies applied by the Baloise Group are described below.
3.19.3 Deferral of acquisition costs acquisition costs are deferred. they are amortised either over the premium payment period or over the term of the insurance policy, depending on the type of contract involved. they are tested for impairment as part of a liability adequacy test.
3.19.4 Unearned revenue reserve (URR) the unearned revenue reserve comprises premiums that are charged for services rendered in future periods. these premiums are deferred and amortised in the same way as deferred acquisition costs.
Surpluses are reimbursed in the form of increased benefits, reduced premiums or final policyholders’ dividends or are accrued at interest to a surplus account. Surpluses already distributed and accrued at interest are reported as policyholders’ dividends credited and reserves for future policyholders’ dividends (chapter 23). the relevant interest expense is reported as interest expenses on insurance liabilities. Surpluses that have been used to finance an increase in insurance benefits are recognised in actuarial reserves. all investment income derived from unit-linked life insurance contracts is credited to the policyholder.
iFRS 4 introduces the concept of a discretionary participation feature (DpF), which is of relevance not only for the classification of contracts but also for the disclosure of surplus reserves according to policyholders’ share of the unrealised gains and losses recognised directly in equity under iFRS and their share of the increases and decreases recognised in profit or loss in the consolidated financial statements compared with the financial statements prepared in accordance with local accounting standards. iFRS 4 states here that the portion of an insurance contract’s liability that is attributable to a discretionary participation feature (“DpF component”) must be reported separately. this standard does not provide any clear guidance as to how this DpF component should be measured and disclosed.
When accounting for contracts that contain discretionary participation features, the Baloise Group treats measurement differences that are attributable to such contracts and are credited to policyholders according to a legal or contractual minimum quota as a DpF component. Distributable retained earnings and eligible unrealised gains and losses of fully consolidated subsidiaries are allocated pro rata to the DpF components of the life insurance company concerned. the DpF component calculated in this way is reported as part of the reserves for future policyholders’ dividends (section 23). these reserves include policyholders’ dividends that are unallocated and have been set aside as a reserve under local accounting standards.
if no legal or contractual minimum quota has been stipulated, the Baloise Group defines a discretionary participation feature as the currently available reserve for premium refunds after allowing for final policyholders’ dividends. Unless a minimum quota has been stipulated, all other measurement differences between the local and iFRS financial statements are recognised directly in equity.
Minimum quotas are also applied to some of the Baloise Group’s Swiss occupational pensions (BVG) business, which is subject to the legal quotas of 100 per cent for changes in liabilities and 90 per cent for changes in assets.
inward reinsurance is recognised in the same period as the initial risk. the relevant technical reserves are reported as gross unearned premium reserves or gross claims reserves for non-life insurance and as gross actuarial reserves for life insurance. in non-life insurance they are estimated as realistically as possible based on empirical values and the latest information available, while in life insurance they are recognised as a reserve to cover the original transaction. outward reinsurance is the business ceded to insurance companies outside the Baloise Group and includes transactions ceded from direct life and non-life business and from inward insurance.
assets arising from outward reinsurance are calculated over the same periods and on the same basis as the original transaction and are reported as reinsurance assets (section 16). impairment losses are recognised in profit or loss for assets deemed to be at risk owing to the impending threat of insolvency.
the difference between acquisition cost and redemption value is recognised in profit or loss over the term of the liability as “gains or losses on financial contracts” under the amortised-cost method and the effective interest method.
3.21.3 Recognised at fair value through profit or loss this item includes financial contracts for which the holder bears the entire investment risk as well as banking liabilities that are designated as “at fair value through profit or loss” as part of the Baloise Group’s strategy of using natural hedges.
the benefits available include short-term benefits (such as wages and salaries), long-term benefits (such as long-service bonuses), termination benefits (such as severance pay and social compensation plan benefits) and post-employment benefits. the benefits described below may be especially significant owing to their scale and scope.
3.23.1 Post-employment benefits the main post-employment benefits provided are retirement pensions, employer contributions to mortgage payments and certain insurance benefits. although these benefits are paid after employees have ceased to work for the Baloise Group, they are funded while the staff members concerned are still actively employed. all the pension benefits currently provided by the Baloise Group are defined benefit plans. the projected unit credit method is used to calculate the pertinent pension liabilities.
3.23.2 Share-based payments the Baloise Group offers its employees and senior executives the chance to participate in various plans under which shares are granted as part of their overall remuneration packages. the employee incentive plan, Share Subscription plan, Share participation plan and performance Share Units (pSUs) are measured and disclosed in compliance with iFRS 2 Share-based payment. plans that are paid in Bâloise Holding ltd shares are measured at fair value on the grant date, charged as personnel expenses during the vesting period and recognised directly in equity.
3.26.1 Income from services rendered income from services rendered is recognised in the period in which the service is provided.
3.26.2 Interest income interest income from financial instruments that are not recognised at fair value through profit or loss is recognised under the effective interest method. if a receivable is impaired, it is written down to its recoverable amount, which corresponds to the present value of estimated future cash flows discounted at the contract’s original interest rate.
3.26.3 Dividend income Dividend income from financial assets is recognised as soon as a legal entitlement to receive payment arises.
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements 4. KEY ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS the Baloise Group’s consolidated annual financial statements contain assumptions and estimates that can impact on the annual financial statements for the following financial year. estimates and the exercise of discretion by management are kept under constant review and are based on empirical values and other factors – including expectations about future events – that are deemed to be appropriate on the date that the balance sheet is prepared.
4.1 Fair value of various balance sheet line items Where available, prices in active markets are used to determine fair value. if no publicly quoted prices are available or if the market is judged to be inactive, fair value is either estimated based on the present value or is determined using measurement methods. these methods are influenced to a large extent by the assumptions used, which include discount rates and estimates of future cash flows. the Baloise Group primarily uses fair values; if no such values are available, it applies its own models. Detailed information about fair value measurement can be found in chapter 5.10.
the following asset classes are measured at fair value: ▸ investment property the DcF method is used to determine the fair value of investment property. the assumptions and estimates used for this purpose are described in section 3.6.
▸ Financial instruments with characteristics of equity and financial instruments with characteristics of liabilities (available for sale or recognised at fair value through profit or loss) Fair value is based on prices in active markets. if no quoted market prices are available, fair value is estimated using generally accepted methods (such as the present-value method), independent assessments based on comparisons with the market prices of similar instruments or the prevailing market situation. Derivative financial instruments are measured using models or on the basis of quoted market prices. if no publicly quoted prices are available for private equity investments, they are measured on the basis of their net asset value using non-public information from independent external providers. these providers use various methods for their estimates (e. g. analysis of discounted cash flows and reference to similar, fairly recent arm’s-length transactions between knowledgeable, willing parties). if such estimates do not enable financial assets to be reliably measured, the assets are recognised at cost and disclosed accordingly. publicly quoted prices are used to determine the fair value of hedge funds. if no such prices are available, prices quoted by independent third parties are used to determine fair value.
▸ Derivative financial instruments Models or quoted market prices are used to determine the fair value of derivative financial instruments.
4.3 Impairment the Baloise Group determines at each balance sheet date whether there is any objective evidence that financial assets may be permanently impaired.
▸ Financial instruments with characteristics of liabilities (available for sale or held to maturity) objective evidence of a financial asset’s impairment includes observable data on the following cases: – Serious financial difficulties on the part of the borrower – Breaches of contract, such as a borrower in default or arrears with the payment of principal and / or interest – Greater probability that the borrower will file for bankruptcy or undergo some other form of restructuring – observable data that indicates a measurable reduction in the expected future cash flows from a group of financial assets since their initial recognition – analysts’ reports from banks and evaluations by credit rating agencies are also used to assess the need for impairment losses ▸ Mortgages and loans (carried at cost)
the mortgage portfolio is regularly tested for impairment. the methods and assumptions used in these tests are also regularly reviewed in order to minimise any discrepancies between the actual and expected probabilities of default.
Baloise Group annual Report 2017 Financial Report 4.4 Deferred income taxes Unused tax loss carryforwards and other deferred tax assets are recognised if it is more likely than not that they will be realised. to this end, the Baloise Group makes assumptions about the recoverability of these tax assets; these assumptions are based on the financial track record and future income of the taxable entity concerned.
4.5 Estimate uncertainties specific to insurance estimate uncertainties pertaining to actuarial risk are discussed from chapter 5.4 onwards.
4.6 Provisions the measurement of provisions requires assumptions to be made about the probability, timing and amount of any outflows of resources embodying economic benefits. a provision is recognised if such an outflow of resources is probable and can be reliably estimated.
4.7 Employee benefits in calculating its defined benefit obligations towards its employees, the Baloise Group makes assumptions about the expected return on plan assets, the economic benefits embodied in assets, future increases in salaries and pension benefits, the discount rate applicable and other parameters. the most important assumptions are derived from past experience of making estimates. the assumptions factored into these calculations are discussed in chapter 18.2.7.
4.8 Goodwill impairment Goodwill is tested for impairment in the second half of each year or whenever there is objective evidence of impairment. Such impairment tests involve calculating a value in use that is largely based on estimates such as the financial planning approved by management and the discount rates and growth rates mentioned in chapter 9. this does not apply to impairment tests for start-ups, for which a multiples-based market approach is used.
Baloise Group annual Report 2017 Financial Report 5. MANAGEMENT OF INSURANCE RISK AND FINANCIAL RISK the companies in the Baloise Group offer their customers non-life insurance, life insurance and banking products (the latter in Switzerland and, on a restricted basis, in Germany). consequently, the Baloise Group is exposed to a range of risks.
the main risks in the non-life insurance sector are natural disasters, major industrial risks, third-party liability and personal injury. the insurance business as a whole is examined regularly by means of extensive analytical studies. the results of this analysis are taken into account when setting aside reserves, fixing insurance rates and structuring insurance products and reinsurance contracts. in the non-life sector, studies focusing on the risks arising from natural disasters have been carried out in recent years. on some of them we worked with reinsurance companies and brokers to determine the level of exposure to these risks and the extent of risk transfer required.
the predominant risks in the life insurance sector are the following biometric risks: ▸ longevity risk (annuities and pure endowment policies), ▸ mortality risk (whole-life and endowment life insurance), ▸ disability risk (in the sense of the risk of premiums proving insufficient due to an adverse disability claims history).
Because the Group issues interest rate guarantees, it is also exposed to interest rate risk. there are also implicit financial guarantees and options which also affect liquidity, investment planning and the income generated by Group companies; they include guaranteed surrender prices when policyholders cancel and guaranteed annuity factors on commencement of the payout phase of annuities.
longevity, mortality and disability rates are risks specific to life insurance and are monitored on an ongoing basis. the companies in the Baloise Group review and analyse mortality rates among their local customer bases, along with the frequency with which policies are cancelled, invalidated and reactivated. For this analysis, they generally use standard market statistics that are compiled by actuaries and include adequate safety margins. the information they gather is used for ensuring that rates are adequate and also for setting aside sufficient reserves to meet future insurance liabilities. Because rates are required by law to be calculated conservatively, and the statistical base is relatively good, the risks in this area are manageable. in the field of annuities, there is an additional trend risk in the form of a steady rise in life expectancy which is resulting in ever longer annuity payout periods. this risk is addressed by the addition of suitable factors to the basis for calculation.
Managing participating insurance contracts is an additional method of mitigating risk. For example, bringing policyholders’ dividends into line with altered circumstances as far as permitted by local regulations is one option that could be taken if the risk situation were to change. However, the allocation of surpluses between policyholders and the company is not only subject to local law, it is also governed by market expectations.
Deutscher Ring Bausparkasse aG is also exposed to what is known as collective risk, which means that the building society customers are collectively responsible for the fair allocation of home savings contracts over the long term. Mathematical simulations are used to show that this collective responsibility can be met, provided the fluctuation reserve remains at least greater than zero over the long term. Deutscher Ring Bausparkasse uses a simulation model to monitor and manage its collective risk. the model makes a future projection of the building society’s total collective holdings on an individual contract basis, incorporating new business scenarios and patterns of behaviour observed in the past.
5.1 Organisation of risk management in the Baloise Group the Baloise Group’s insurance and banking activities in various european countries, as well as its global investments, expose it to market risks such as currency risk, credit risk, interest rate risk and liquidity risk.
at the level exposed to financial and business risk, various limits and regulations restrict the individual risks that have been identified to a level that is acceptable for the Group, or eliminate them completely.
Within the Group and within each business unit, a risk owner is responsible for each individual risk that has been identified. Risk owners are allocated according to a hierarchy of responsibility. the Group’s overall risk owner is the chief executive officer of the Baloise Group. alongside the risk owners, defined risk controllers are responsible for systematic risk control and risk reporting. When selecting risk controllers, particular care is taken to ensure that their role is independent of the risk they control. Risk control within the Baloise Group focuses on investment risk, business risk (actuarial and banking risks), risks to the Group’s financial structure and operational risks including compliance. the Group’s overall risk controller is the chief executive officer of the Baloise Group.
the Baloise Group’s risk map is a categorisation of the risks it has identified. the risks are divided into three levels: ▸ category of risk ▸ Sub-category of risk ▸ type of risk notes to the consolidated annual financial statements
Baloise Group annual Report 2017 Financial Report the business-risk, investment-risk and financial-structure-risk categories relate directly to the Baloise Group’s core businesses. these risks are deliberately incurred, managed and optimised by the management team and various risk committees. analysis of these risks is model-based and it ultimately results in an aggregate overview.
Business-environment risk, operational risk and management and information risk arise as direct or indirect results of the business operations, business environment or strategic activities of each company. Risks of this type are also quantified, assessed and managed.
an annual reporting is undertaken for each identified risk category. to this end, each business unit compiles an oRSa (own Risk and Solvency assessment) report. Key figures for the financial and actuarial risks incurred by the Group and each strategic business unit are reported on a monthly basis using a risk control application.
Financial Statements, Forecast, planning project portfolio internal Misinformation notes to the consolidated annual financial statements
Baloise Group annual Report 2017 Financial Report 5.3 Life and non-life reinsurance strategies the Baloise Group’s non-life treaty reinsurance for all business units in the Group is structured and placed in the market by Group Reinsurance, part of corporate Division Finance. When structuring the programme, Group Reinsurance focuses on the risk-bearing capacity of the Group as a whole. to date, the Group has only placed non-proportional reinsurance programmes. the Group’s maximum retention for cumulative claims is cHF 20 million. the retentions for individual claims are cHF 16 million for property claims, cHF 15 million for marine claims and cHF 13.7 million on a non-indexed basis for third-party liability claims. the local Baloise Group business units also use additional facultative reinsurance cover on a case-by-case basis. this type of reinsurance is extremely dependent on the individual risk in each case and it is therefore placed by the business units themselves.
Reinsurance contracts may only be entered into with counterparties that have been authorised in advance by corporate Division Finance. Reinsurers must generally have a minimum rating of a – from Standard & poor’s, but in exceptional cases – and in specific circumstances – a BBB + rating or a comparable rating from another recognised rating agency is permitted. However, these reinsurance contracts are only used for property insurance business that can be settled quickly. this rule does not apply to captives and pools that are active reinsurance companies because they do not generally have ratings.
the same requirements for reinsurers apply to life insurance as to non-life insurance, although reinsurance is a less important instrument for ceding risk in life insurance business.
5.4 Non-Life 5.4.1 Actuarial risk the Baloise Group primarily underwrites insurance risk for private individuals and small and medium-sized enterprises in selected countries in mainland europe. Business with industrial clients is also conducted in Switzerland and Germany. Underwriting risk is limited by monitoring and adjusting rates and maintaining underwriting policies and limits appropriate to the size of each portfolio and the country in which it is located.
▸ claims handling costs the ratio of the average claims handling costs incurred in recent years to the payouts made in the same period is used to calculate the level of claims handling reserves to be recognised based on current claims reserves.
5.4.4 Sensitivity analysis as well as the natural volatility inherent in insurance business, there are parameters for determining technical reserves that can significantly impact on the annual earnings and equity of an insurance company. in the non-life sector, sensitivity analysis has been used to investigate the effect on consolidated annual earnings and consolidated equity exerted by errors in estimating claims reserves – including claims incurred but not reported (iBnR) – and reserves for run-off business.
the reserves in its run-off business mainly arose from liabilities that the Baloise Group had incurred in the london market since the early 1990s, largely third-party liability claims relating to asbestos and environmental damage.
Because of the long settlement period, there is a high degree of uncertainty associated with the calculation of these claims reserves. Both the timing at which cases of this type are identified and their potential loss level are much less certain than any other established claims patterns. Some reserves were calculated using external actuaries’ reports in which best-case and worst-case scenarios were analysed. the Baloise Group’s minimum reserves policy is based on the average of these two scenarios. it is particularly difficult to assess the level of reserves required for iBnR claims, so further fluctuations cannot be ruled out. according to expert estimates, fluctuations of around 10 per cent can be expected, which is equivalent to around cHF 6.0 million after taxes and before reinsurance (2016: cHF 6.5 million) for this reserve.
Seven years later 594.3 617.2 641.8 – – – – – – – –
eight years later 580.7 615.0 – – – – – – – – –
Year in which the claims occurred eUR million at the end of the year in which the claims occurred
Seven years later 301.2 296.2 304.9 – – – – – – – –
nine years later 300.8 – – – – – – – – – –
Net claims reserves 1,012.7 1 the increase in the total estimated claims incurred is primarily due to the addition of avéro Schadevezekering Benelux nV. 2 the increase in the total estimated claims incurred is primarily due to the addition of nateus nV and audi nV.
Net claims reserves 64.9 1 the increase in the total estimated claims incurred is primarily due to the addition of Bâloise assurances luxembourg S.a. 2 the increase in the total estimated claims incurred is primarily due to the addition of p & V assurances. 3 the increase in the total estimated claims incurred is primarily due to the addition of HDi Gerling assurances S.a.
the survival ratio – the ratio of reserves to the average claims paid in the past three years – is a commonly used measure for comparing the adequacy of reserves for asbestos and environmental claims. the ratio shows the number of years for which the reserves will cover claims payments. at the end of the year under review the survival ratio was 85.7 years (2016: 55.7 years).
Baloise Group annual Report 2017 Financial Report 5.5 Life 5.5.1 Actuarial risk traditional life insurance is called fixed-sum insurance because payments are not made for losses. instead, a fixed sum is paid on occurrence of an insured event, which can be survival or death. in the case of term insurance, capital and / or pension benefits are insured against premature death (whole-life insurance) or disability (disability insurance), while capital redemption insurance focuses on savings for old age. endowment life insurance combines risk protection with savings.
Switzerland individual life Switzerland group life Germany Belgium Luxembourg cHF million technical reserves without guaranteed returns 668.5 2,183.3 3,362.5 112.9 248.3 technical reserves with 0 % guaranteed returns 621.8 686.3 82.1 91.3 23.3 technical reserves with guaranteed positive returns 7,095.9 15,461.3 6,365.7 2,766.7 452.6 average technical interest rate of guaranteed positive returns 2.6 % 1.4 % 3.2 % 3.4 % 2.6 %
the guaranteed technical interest rate is one of the risks inherent in traditional life insurance and group life business. if interest rates rise, there is the risk that more policies will be cancelled, and the payment of surrender values could cause liquidity problems. this risk can be reduced by imposing surrender charges. in the past, no significant correlation has been observed between rises in interest rates and the number of major policies cancelled.
if the policyholder dies, the beneficiary receives the sum insured or the fund assets, if the latter exceed the sum insured. a risk premium is periodically charged to the fund to finance the death benefit cover if there is capital at risk (i. e. the positive difference between the sum insured and the fund assets).
Depending on the product, the fund underlying the savings process is selected from a range of funds that match the policyholder ’s investment profile. the policyholder usually bears the entire investment risk and may benefit from a positive return.
Baloise Group annual Report 2017 Financial Report neither the cash surrender value nor the maturity value of unit-linked life insurance is guaranteed, but the maturity value is partly secured by the choice of fund. the funds are typically those with the type of investment strategy (e. g. the proportion of equities falls if share prices fall) that guarantees the maturity value for a specific policy term. this type of business is offered in Switzerland and Germany. the guaranteed maturity value of these specific life insurance policies may differ somewhat from the fund value because of the way the policies are structured. this risk has been factored into actuarial calculations.
Some closed-end funds in Belgium and Switzerland also offer a guaranteed maturity value. the funds are managed and the guarantees are provided by banks outside the Baloise Group. in Switzerland there is also a closed-end Baloise fund with a guaranteed maturity value which is hedged via investments in bonds issued by banks outside the Group.
Switzerland Germany Belgium Luxembourg cHF million actuarial reserves from unit-linked life insurance contracts the major risks accruing from term insurance include epidemics and terrorist attacks but also changes in lifestyle such as lack of exercise. endowment policies incur significant risks arising from the increase in life expectancy, which is likely to continue due to medical advances and rising living standards.
our group life business in Switzerland and Belgium focuses on the provision of occupational pensions which, like individual life insurance, covers the risks of death, disability and survival. the distinctive feature of group life business is the influence of political decisions. in Switzerland, the government sets the minimum rate of interest to be paid on savings, and the conversion rate at which accumulated capital is converted into an annuity to provide a pension. However, these regulations only apply to the minimum portion of accumulated capital that is required to provide initial finance for an annuity. For the remaining portion, actuarially appropriate annuity conversion rates are used but any change to the minimum interest rate would also affect the existing statutory portfolio, not just new business, which would normally be the case for individual life business. the technical interest rate for Belgian group life business – unlike individual life business – is also set by the government. However, it is the companies – and not their insurers – that are obliged to guarantee this technical interest rate. Baloise insurance in Belgium offers group life insurance policies with interest rates that are lower than the rate stipulated by the government.
Unit-linked actuarial reserves were allocated to the categories above by product, i. e. each product was assigned a risk category and actuarial reserves were not split into different risks within one product. allocation to a category was generally determined by the mortality table used in each case.
▸ 10 per cent increase in mortality a mortality increase of 10 per cent had only a marginal effect in Germany, Belgium and luxembourg and at Baloise life (liechtenstein) aG. this was true of the impact on both the income statement and on equity. in the Swiss life insurance business, an increase in mortality caused a lower amount to be allocated to strengthen annuity reserves. this effect improved profitability by around cHF 33 million (2016: cHF 42 million). the effect on equity in Switzerland was minor..
▸ 10 per cent fall in mortality Similar to the aforementioned scenario of an increase in mortality, the effects of a reduction in mortality were marginal for the life insurance companies in Germany, Belgium and luxembourg and for Baloise life (liechtenstein) aG. this was true of the impact on both the income statement and on equity. a reduction in mortality in the Swiss life insurance business – with policyholders’ dividends adjusted accordingly – had a negative impact of approximately cHF 76 million (2016: cHF 75 million) on the income statement. the effect on equity is minor.
Baloise Group annual Report 2017 Financial Report 5.6 Management of market risk Market risk is reflected by losses that arise from changes or fluctuations in market prices that may result in impairment of the value of assets held. the degree of risk depends on the extent to which market prices fluctuate and on the level of exposure.
as part of their life insurance business, the companies in the Baloise Group also provide investment-linked life insurance contracts for the account of and at the risk of policyholders. the financial liabilities generated in this connection are backed by assets – generally investment fund units – arising from these policies. Because the market risk attaching to the assets underlying these contracts is borne by the policyholder, they are shown separately in the notes to the consolidated annual financial statements.
the following sections specifically address the interest rate risk, currency risk, credit risk, liquidity risk and equity price risk that are relevant to assets held by the Group.
consequently, the impact of a movement in interest rates or in the interest rate curve may be a significant deterioration in terms and conditions if funding has to be rolled over. Benchmark-based maturity management is practised in the non-life units, while maturity management in the life units is driven by liabilities.
as part of the Baloise Group-wide Risk Management Standards, investment planning and appropriate asset and liability management ensure that any divergence in maturities and the interest rate risk incurred are managed within the risk-bearing ability available.
the Swiss franc and the euro are used almost exclusively for the Baloise Group’s insurance activities, with the result that technical reserves are also mainly in these currencies. there are also small technical liabilities in US dollars and pounds sterling. these reserves are generally covered by investments in the same currencies (natural hedges).
assuming that all other variables remain constant, fluctuations between transactional currencies and the functional currency in financial balance sheet items (after deferred gains / losses and deferred taxes) in the amount of + / – cHF 0.01 (1 centime) would have resulted in a change of + / – cHF 1.4 million (31 December 2016: + / – cHF 1.4 million) in the profit for the period; a positive (+) change of cHF 0.01 would have generated a currency gain and a negative (–) change of cHF 0.01 would have generated a currency loss.
During the year, the overall aggregated hedge ratio for the net foreign exchange exposure in US dollars ranged from 90 per cent to 100 per cent and in euros ranged from 95 per cent to 100 per cent.
credit risk increases when counterparties become concentrated in a single sector or geographic region. economic trends that affect whole sectors or regions can jeopardise an entire group of otherwise unrelated counterparties. For this reason, the Baloise Group tracks counterparty exposure at all times and monitors credit risk on a Group-wide basis. the regional expertise of our business units is also incorporated into decisions about securities selection or changes to the existing credit portfolio.
investments in pfandbriefs are backed by mortgages. the vast majority of investments in promissory notes and registered bonds are secured by guarantees or covered by the deposit protection fund. these investments carry a reimbursement guarantee from financial institutions. Mortgage loans are secured by property; there are limits on loan-to-value ratios.
please refer to the table of secured financial instruments with characteristics of liabilities in chapter 12.
Receivables from investments 451.6 440.9 cash and cash equivalents 1,935.5 2,133.2 if no contractually irrevocable future loan commitments have been agreed, the maximum default risk of financial assets corresponds to the carrying amount of the assets for own account and at own risk. in addition, guarantees and collateral for the benefit of third parties totalled cHF 560.5 million (2016: cHF 672.8 million).
Because a running total of mortgage transactions is kept, it is possible to monitor compliance with credit policy, and corrective action can be taken if necessary. all mortgages are also managed by periodically auditing exposure, including records of overdue interest. procedures and audit intervals are set out in a separate directive. Senior management regularly receive detailed risk reports on the composition of the mortgage portfolio and risk trends.
there are special instructions for valuing collateral and calculating loan-to-value ratios. the purpose of these provisions is to ensure that a standard procedure is used to determine the applicable value of collateral when assessing mortgages. the calculation of fair value and the loan-to-value ratio of real estate is of key importance, particularly with regard to mortgage business. one of the objectives of the active management of mortgages is the early identification of potential downside risk.
the mortgage portfolio comprises loans to individuals and to legal entities. the type and degree of risk that may be incurred, together with collateralisation and quality requirements, are set out in directives and authorisation levels. to mitigate risk, the portfolio is as geographically diverse as possible.
Receivables from financial contracts – – – – 4.2 4.2 notes to the consolidated annual financial statements
Standard & poor’s and Moody’s ratings are generally used to assess the credit quality of securities. the lower of the two is used for disclosure.
Because the two agencies do not cover the entire Swiss financial market, the SBi composite rating is applied as and when necessary. this consists of ratings issued by the two rating agencies and the following four Swiss banks: credit Suisse, UBS, Bank Vontobel and Zürcher Kantonalbank.
the credit quality of mortgage assets arising from Swiss insurance business is reviewed using risk management processes. credit ratings are assigned on this basis. Mortgage assets that show no signs of impaired credit quality receive an a rating. those that show signs of impaired credit quality are rated lower than BBB or are not rated at all.
Gross amount Impairment Carrying amount Gross amount Impairment Carrying amount cHF million
as at 31.12.2016 < 3 months 3 – 6 months 7 – 12 months > 12 months Total cHF million
Receivables from investments – 0.0 – – 0.0 notes to the consolidated annual financial statements
Receivables from investments – 0.0 – – 0.0 5.8 Liquidity risk Banks as well as insurance companies incur latent liquidity risk. this refers to the risk of rapid outflows of large volumes of liquidity that cannot be offset by asset sales or for which alternative funding cannot be implemented quickly enough. in extreme cases, a lack of liquidity can result in insolvency. legal provisions apply and the Group-wide Risk Management Standards require each business unit to plan its liquidity centrally. this is carried out with the close collaboration of the investment, actuarial, underwriting and finance departments of each business unit.
Baloise Group annual Report 2017 Financial Report liquidity management must take account of the maturity structure of liabilities as follows: MATURITIES OF FINANCIAL LIABILITIES 1
Recognised at fair value through profit or loss 3,406.0 – 6,148.2 445.2 9,999.4 9,999.4 contingent liabilities and capital commitments 1,427.8 172.8 260.2 12.4 1,873.1 –
Recognised at fair value through profit or loss 3,895.9 42.4 7,839.2 476.1 12,253.6 12,253.6 contingent liabilities and capital commitments 923.5 729.1 88.9 6.4 1,747.9 –
if these precautions fail to meet the need for liquidity, the Baloise Group holds financial assets that can be sold at short notice without significant price losses. they include all equities (excluding long-term equity investments). Because the Group holds a substantial portfolio of government and quasi-government bonds, it is possible to sell relatively large holdings of available-for-sale bonds even in crisis situations. Mortgages and loans are generally held to maturity; early redemption is not considered at present. in terms of alternative financial assets, 64 per cent of hedge funds can be sold within three months. private-equity investments have to be considered illiquid in this context, and it is not possible to sell investment property to generate immediate liquidity.
5.9 Equity price risk the Baloise Group is exposed to equity price risk because it holds financial instruments with characteristics of equity classed as “recognised at fair value through profit or loss” and “available for sale”. equity price risk is significantly reduced by means of international diversification, i. e. by spreading risk across sectors, countries and currencies. active overlay management using derivatives also mitigates equity price risk if certain intervention levels are reached or the market and / or risk indicators that are continuously tracked by Baloise suggest heightened hedging activity.
Because these impairment criteria produce different effects due to assumed changes in market prices if there is a rise compared with an analogous fall, these effects are divergent. the compensatory effects of hedging using derivatives behave in a similar manner.
adjustments in the fair value of financial instruments with characteristics of equity that are classed as “recognised at fair value through profit or loss” have an impact on the profit for the period. Unrealised gains and losses vary due to changes in the fair value of financial instruments with characteristics of equity which are classed as “available for sale”. in a life insurance company, policyholders participate in the firm’s profits, depending on their policy and local circumstances (see section 3.19.5.). the table above takes account of this profit-sharing scheme.
Fair value measurement is divided into the following three hierarchy levels: ▸ Fair value determined by publicly quoted prices (level 1)
Financial instruments with characteristics of equity available for sale internal measurement methods price of underlying instrument, liquidity discount, balance sheet and income statement figures
at fair value through profit or loss net asset value n. a. –
at fair value through profit or loss present-value model net asset value interest rate, credit spread, market price n. a.
Financial instruments with characteristics of liabilities present-value model interest rate, credit spread –
Determining the fair value of assets and liabilities classified as level 3 the Baloise Group organises its operating activities into strategic business units, which are generally combined under a single management team for each region. the financial and management information needed for all relevant executive decisions is held by these strategic business units. this organisational structure is also used to delegate authority and responsibility for proper implementation of, and compliance with, financial reporting standards within the Baloise Group to the individual strategic business units.
the measurement of investment property classified as level 3 is carried out internally each year by experts using market-based assumptions that have been verified by respected external consultancies. this property is also assessed by external valuation specialists at regular intervals.
Recognised at fair value through profit or loss 897.0 897.0 – 897.0 –
Receivables from financial contracts carried at cost 4.2 4.2 – – 4.2 other receivables carried at cost 463.1 464.2 – – 464.2
Liabilities measured on a recurring basis liabilities arising from banking business and financial contracts
Recognised at fair value through profit or loss 489.0 489.0 – 489.0 –
Recognised at fair value through profit or loss 29.2 29.2 29.2 – –
Recognised at fair value through profit or loss 776.8 776.8 – 776.8 –
Receivables from financial contracts carried at cost 3.0 3.0 – – 3.0 other receivables carried at cost 403.1 403.5 – – 403.5
Recognised at fair value through profit or loss 518.5 518.5 – 518.5 –
in 2017, Baloise used a revised methodology for classifying the hierarchy levels. the changes mainly relate to mortgages carried at cost, the majority of which can be allocated to level 2 on the basis of observable discount factors (interest rates).
Recognised at fair value through profit or loss 54.5 54.5 54.5 – –
information on the fair value of the disposal group can be found in note 21.
Recognised at fair value through profit or loss 70.5 70.5 70.5 – –
Recognised at fair value through profit or loss 11,735.1 11,735.1 11,639.9 95.2 –
changes in fair value recognised in profit or loss1 – 6.8 59.7 52.9 changes in fair value not recognised in profit or loss2 18.7 8.0 26.7
Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss 1 changes in fair value recognised in profit or loss arise from realised gains and losses on investments, impairment losses or the reversal of impairment losses. 2 changes in fair value not recognised in profit or loss arise from unrealised gains and losses on investments.
Balance as at 1 January 964.0 6,817.5 7,781.5 additions arising from change in the scope of consolidation 0.0 384.5 384.5 additions arising from change in the percentage of shareholding – – –
Reclassification to non-current assets classified as held for sale – – 336.8 – 336.8 changes in fair value recognised in profit or loss1 – 10.4 111.1 100.7 changes in fair value not recognised in profit or loss2 30.0 – 30.0
additions arising from change in the scope of consolidation – – – –
Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss 1 changes in fair value recognised in profit or loss arise from realised gains and losses on investments, impairment losses or the reversal of impairment losses.
changes in fair value recognised in profit or loss1 1.2 – 0.8 – 0.4
no significant amounts of assets or liabilities measured at fair value were reclassified from level 1 to level 2 or vice versa during the reporting period or in 2016.
Discrepancy between a non-financial asset’s highest and best use and its current use the fair value of investment property is determined on the basis of its highest and best use.
this periodic analysis – which was based on criteria such as the potential to increase a property’s market value by converting it into apartments, the repurposing of some or all of an existing property, the availability of a significant amount of land for further building and development, and the unlocking of added value by demolishing an existing property and building a new one revealed for the reporting period that the highest and best use of only individual investment properties in the Swiss portfolio differed from their current use.
5.11 Capital management the general parameters regarding the amount of capital employed are set by regulatory requirements and internal risk management policies. While the aim of regulatory requirements is primarily the protection of policyholders, internal policies are largely derived from the risk-based management of operating activities.
5.11.2 Requirements under local legislation individual Group companies are also subject to regulation under local legislation which in some cases imposes different solvency rules and permits different methods for defining equity. the ability of the business units, and therefore also of the parent company, to pay dividends is closely linked to the priority placed on meeting these local requirements. compliance with local solvency requirements is monitored on an ongoing basis. appropriate action is taken if solvency falls short of these regulations.
Risk-bearing capital is calculated on the basis of a consolidated balance sheet measured using market values. the difference between the assets and liabilities measured at market value gives the risk-bearing capital after any capital deductions and including any eligible supplementary capital. as a result, all capital items that can be deployed to cover losses in the event of adverse business developments are taken into consideration.
5.11.4 Monitoring the solvency situation the risk owner and risk controller responsible for each business unit and for the Group as a whole participate in a regular reporting process. Key figures relating to Solvency i, Solvency ii and the inhouse risk model (SSt) are reported on a monthly basis, which enables the solvency situation to be monitored in a timely manner, providing the basis for risk-based management decisions within the whole organisation. it also enables the Baloise Group to meet external reporting requirements at all times.
Baloise Group annual Report 2017 Financial Report 6. BASIS OF CONSOLIDATION 6.1 2016 financial year 6.1.1 Acquisitions in the second half of 2016, four affiliated real-estate companies were acquired in Belgium (postsite aalst). according to the criteria defined in iFRS 3 Business combinations, this purchase constitutes the acquisition of assets, so goodwill has not been recognised separately in this case.
6.1.2 Disposals no companies were sold during the year under review.
Baloise immobilien Management aG was founded in the second half of 2016 and is headquartered in Basel. also in the second half of 2016, the share of capital and share of voting rights in the real-estate company Sa Keiberg 401 in Belgium was increased from 46.8 per cent to 100 per cent.
6.2 2017 financial year 6.2.1 Acquisitions and foundations on 11 January 2017, a controlling interest in Drivolution nV was acquired in Belgium.
in Germany, a start-up named FRi:DaY was founded as a mobile insurer in Berlin. FRi:DaY was entered in the commercial register on 15 February 2017 as a German branch of Basler Versicherungen luxemburg a.G. in luxembourg, this start-up was entered in the trade and company register under the name “FRiDaY tech” on 19 December 2017. FRi:DaY’s business is to be transferred to this company during 2018 and the digital insurance business is to be relaunched and expanded as a separate legal entity.
on 28 February 2017, anthemis Baloise Strategic Ventures llp was founded in london as part of a fintech investment partnership with the UK-based anthemis Group.
approximately a 71 per cent shareholding in the listed company pax anlage aG was purchased in Basel, Switzerland, on 31 March 2017. this stake was increased to 84.1 per cent in the second quarter of 2017 as a result of a public purchase order followed by additional share purchases. Further purchases were made in the second half of 2017, and the percentage of shareholding according to the share register was 84.9 per cent as at 31 December 2017. pax Wohnbauten aG, a wholly owned subsidiary of pax anlage aG, was included in the purchase. it was renamed Baloise Wohnbauten aG on 3 July 2017.
in Switzerland, 82.6 per cent of the shares in Movu aG, which operates an online platform for home-moving services, were acquired on 13 July 2017. a call option exists on the remaining shares, which Baloise can exercise up to the end of 2021. there is a strong intention to exercise this option, which is why the company has been fully consolidated.
in Belgium, a company named MoBlY was founded on 6 october 2017 that operates an online platform for services relating to second-hand cars.
Baloise Group annual Report 2017 Financial Report 6.2.2 Disposals the two German companies assekuranz Herrmann GmbH and Wilhelm Herrmann assekuranz Makler GmbH were sold to the artus Group in January 2017.
the German branch of Baloise life ltd in Bad Homburg was sold to the Frankfurter leben Group on 3 February 2017.
▸ Switzerland ▸ Germany ▸ Belgium ▸ luxembourg the “Germany” segment also includes the regional branches of Basler Sachversicherungs-aG and Basler lebensversicherungs-aG in the czech Republic and Slovakia. the “luxembourg” segment also includes the Baloise life liechtenstein unit.
the “Group business” segment comprises the units engaged in intercompany reinsurance and financing, as well as corporate it and the holding companies.
the revenue generated by the Baloise Group is broken down into the non-life, life, Banking (including asset management) and other activities operating segments. the non-life segment offers accident and health insurance as well as products relating to liability, motor, property and marine insurance. these products are tailored to the specific needs of our customers – primarily retail clients – and the core competences of the relevant companies in the Baloise Group. the life segment provides individuals and companies with a wide range of endowment policies, term insurance, investment-linked products and private placement life insurance. the Banking segment essentially comprises Baloise Bank SoBa, which acts as a universal bank in Switzerland, and Deutscher Ring Bausparkasse, which operates in Germany mainly as a conventional building society.
Profit / loss before borrowing costs and taxes 546.6 618.4 – 60.9 – 76.0 171.7 140.8 23.3 27.5 680.7 710.6 2.9 – 26.6 – – 683.6 684.1
Profit / loss for the period (segment result) 447.4 520.8 – 48.5 – 65.5 125.5 128.5 24.3 25.1 548.7 608.8 – 14.8 – 76.9 – – 533.9 531.9
Baloise Group annual Report 2017 Financial Report 7.1 Segment reporting by strategic business unit
Switzerland Germany Belgium Luxembourg Sub-total Group business Eliminated Total cHF million
For own account and at own risk 108.6 155.3 100.5 208.3 95.0 42.5 2.5 – 1.7 306.5 404.4 – 3.4 23.4 – – 303.1 427.8
Share of profit (loss) of associates 0.0 0.0 3.0 1.7 – – 4.2 3.8 – – 7.1 5.5
Reinsurers’ share of claims incurred 96.5 67.7 11.7 13.1 – – – – – – 108.2 80.8 operating and administrative expenses for insurance business – 488.5 – 490.6 – 275.4 – 275.3 – – – – – – – 763.9 – 765.8 interest expenses on insurance liabilities – 0.2 – 0.2 – 30.3 – 21.8 – – – – – – – 30.5 – 21.9
Baloise Group annual Report 2017 Financial Report 7.2 Segment reporting by operating segment
For own account and at own risk 47.6 102.7 259.2 339.3 – 3.4 – 15.8 – 0.3 1.6 – – 303.1 427.8
Profit / loss for the period (segment result) 321.5 274.5 191.8 289.0 72.7 66.0 – 52.1 – 97.6 – – 533.9 531.9 notes to the consolidated annual financial statements
Depreciation and impairment impairment losses recognised in profit or loss – 0.1 – 1.1 – – – – 1.1
Baloise Group annual Report 2017 Financial Report 2017 Land Buildings Operating equipment
Machinery, furniture and vehicles IT equipment Total cHF million additions arising from change in the scope of consolidation
Internally developed intangible assets Total cHF million additions arising from change in the scope of consolidation
changes due to impending losses – – – 3.0 – 0.8 – – – 3.8 change due to unrealised gains and losses on financial instruments (shadow accounting)
Segment as at 31 December 2016 1 With the possible exception of goodwill, the Baloise Group has no intangible assets with indefinite useful lives.
Internally developed intangible assets Total cHF million additions arising from change in the scope of consolidation capitalisation of acquisition costs – – 89.1 266.4 – – 355.5
Reclassification to non-current assets classified as held for sale amortisation and impairment
Write-ups – – 2.0 – – – 2.0 impairment losses recognised in profit or loss
Segment as at 31 December 2017 1 With the possible exception of goodwill, the Baloise Group has no intangible assets with indefinite useful lives.
the financial information reflects the amounts reported in the financial statements of the associate rather than the share of those amounts that is attributable to the Baloise Group. the associate’s financial statements are prepared in accordance with iFRS. oVB Holding ltd is included in the Baloise Group’s consolidated annual financial statements under the equity method. Because the publicly traded oVB Holding ltd’s relevant financial year-end closing information, which is used for measurement purposes, had not been published by the time the Financial Report was being prepared, measurement has been based in each case on the financial closing data for the period ended 30 September of the reporting year.
Equity and liabilities 30.9.2016 30.9.2017 non-current liabilities 1.0 1.1 current liabilities 83.8 101.8
Baloise Group annual Report 2017 Financial Report 10.2 Non-significant investments in associates the Baloise Group holds investments in a number of non-significant associates.
as at 31 December 2017, the Baloise Group held more than 20 per cent of the capital of further companies but does not have any influence over these companies’ management. as a result, they are not reported as associates.
Reclassification to non-current assets classified as held for sale – – 336.8 change in fair value 67.7 111.1 exchange differences – 12.0 94.6
Balance as at 31 December 6,817.5 7,480.3 operating expenses arising from investment property that generates rental income 83.2 86.7 operating expenses arising from investment property that does not generate rental income 0.6 0.1 the increase in the portfolio during the reporting year was largely attributable to real estate acquired by Baloise’s Swiss entities. the additions arising from changes in the scope of consolidation resulted from the acquisition of Baloise Wohnbauten aG and Vac De Meander nV. Reclassification to non-current assets and disposal groups classified as held for sale relates to the properties for the launch of the real-estate fund for institutional investors.
Financial assets of an equity nature available for sale 4,357.1 4,402.9
Financial assets for own account and at own risk 37,421.6 38,134.4
Financial assets of a debt nature publicly listed, fixed-interest rate 8,224.6 8,488.9 23,765.6 24,852.3 – – 0.1 0.1 31,990.3 33,341.3 publicly listed, variable interest rate – – 11.8 17.8 – – 25.3 29.1 37.1 46.9 not publicly listed, fixed-interest rate – – 29.3 – – – 5.5 – 34.8 –
Financial assets of a debt nature 8,224.6 8,488.9 23,806.7 24,870.1 – – 30.8 29.2 32,062.1 33,388.2
Secured financial instruments with characteristics of liabilities are fixed-income securities for which a mortgage or a government bond has been securitised as collateral. FAIR VALUE OF FINANCIAL ASSETS CLASSIFIED AS HELD TO MATURIT Y
Baloise Group annual Report 2017 Financial Report 13. MORTGAGES AND LOANS
Mortgages and loans carried at cost promissory notes and registered bonds
Mortgages and loans recognised at fair value through profit or loss notes to the consolidated annual financial statements
Unused provisions reversed through profit or loss 2.1 1.4 increases and additional provisions recognised in profit or loss – 10.5 – 1.5
Balance as at 31 December – 41.7 – 32.9 14. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments for own account and at own risk 363.0 362.4 299.0 145.3
of which: designated as cash flow hedges – – – – – –
of which: designated as hedges of a net investment in a foreign operation the contract value or notional amount is used for derivative financial instruments whose principal may be swapped at maturity (options, futures and currency swaps) and for instruments whose principal is only nominally lent or borrowed (interest rate swaps). the contract value or notional amount is disclosed in order to express the aggregate amount of derivative transactions in which the Baloise Group is involved.
Balance as at 31 December – 3.4 – 2.2 16. REINSURANCE ASSETS
Reinsurance deposits as at 1 January 7.8 8.7 additions / disposals arising from change in scope of consolidation – –
Other reinsurance receivables as at 1 January 44.6 38.9 additions / disposals arising from change in scope of consolidation – –
Reclassification to non-current assets classified as held for sale – –
Impairment of receivables from reinsurers as at 31 December – 0.1 – 0.1
Short-term employee benefits 0.8 3.3 107.7 115.0 post-employment benefits – defined contribution plans – – – –
Balance as at 1 January 2,373.2 2,374.8 interest rate effect 15.0 15.2
Benefits paid – 141.6 – 111.7 cash flow between Baloise Group and plan assets (excl. benefits paid to employees and employer contribution)
additions / disposals arising from change in scope of consolidation – –
Benefits paid 141.6 111.7 additions / disposals arising from change in scope of consolidation – –
Balance as at 31 December – 2,848.5 – 2,929.0 notes to the consolidated annual financial statements
Baloise Group annual Report 2017 Financial Report 18.2.3 Unfunded liabilities under defined benefit plans cHF million
Balance as at 31 December – 843.2 – 852.1 18.2.4 Net actuarial liabilities under defined benefit plans cHF million
Fair value of plan assets 2,374.8 2,538.4 present value of (partially) funded liabilities – 2,848.5 – 2,929.0 present value of unfunded liabilities – 843.2 – 852.1 effect of the asset ceiling – –
Net actuarial liabilities under defined benefit plans – 1,316.9 – 1,242.7 notes to the consolidated annual financial statements
Real estate 456.1 481.5 equities and investment funds publicly listed 1,313.6 1,359.0 not publicly listed 142.4 179.7
18.2.6 Expenses for defined benefit plans recognised in the income statement cHF million current service cost – 106.6 – 104.6 net interest cost – 18.4 – 14.2
Baloise Group annual Report 2017 Financial Report 18.2.7 Actuarial assumptions per cent
Discount rate 0.8 0.7 expected wage and salary increases 1.4 1.4 expected increase in pension benefits 0.3 0.3
When calculating liabilities and expenses for defined benefit plans, the Baloise Group is required to make actuarial and other assumptions that are determined on a company-by-company and country-by-country basis. the assumptions shown above are weighted averages.
18.2.8 Sensitivity analysis for liabilities under defined benefit plans cHF million total defined benefit obligation as shown 3,691.7 3,781.1
Discount rate plus 0.5 % age points – 268.2 – 277.0
Discount rate minus 0.5 % age points 303.8 300.8 expected wage and salary increases plus 0.5 % age points 36.3 30.5 expected wage and salary increases minus 0.5 % age points – 34.4 – 40.2 expected pension benefits increases plus 0.5 % age points 205.4 202.2 expected pension benefits increases minus 0.5 % age points – 36.3 – 41.7
Mortality probabilities for 65-year-olds plus 10.0 % age points – 93.5 – 99.9
Baloise Group annual Report 2017 Financial Report 18.2.9 Funding of plan benefits the plan assets of the Swiss plans are funded jointly by the employer and employee. the amount of individual contributions depends largely on an employee’s remuneration and age. Statutory regulations require employers to contribute a minimum of 50 per cent of the total contributions for part of the insured benefits.
18.2.10 Estimated employer contribution the employer’s contribution for the following year can only be predicted with a limited degree of certainty. the Baloise Group expects to pay employer contributions of approximately cHF 68.5 million for the 2018 financial year.
long-service bonuses constitute the principal benefit paid. the present value of liabilities as at 31 December 2017 totalled cHF 28.5 million (2016: cHF 29.1 million). there were no disposals of plan assets for long-term employee benefits. Benefits paid out amounted to cHF 3.6 million (2016: cHF 4.7 million).
Fair value of subscribed shares on subscription date (cHF million) 21.5 26.9 employees entitled to participate 3,098 3,146 participating employees 2,029 2,007
1 the closed period during which shares are allocated to the chairman of the Board of Directors is five years instead of three. this means that the shares are restricted until 28 February 2021 and 28 February 2022 respectively.
Baloise Group annual Report 2017 Financial Report 18.4.3 Share Participation Plan
Fair value of subscribed shares on subscription date (cHF million) 13.1 12.4 employees entitled to participate 909 889 participating employees 104 96
18.4.4 Performance share units the value of pSUs is exposed to market risk until the end of the vesting period and may, of course, fluctuate significantly, as shown in the table below: PERFORMANCE SHARE UNIT (PSU) PLAN
Date Price (CHF)1 Date Multiplier Price (CHF)1 Value (CHF)2 3 1 price = price of Baloise shares at the pSU grant date or conversion date. 2 Value = value of one pSU at the conversion date (share price at the conversion date times the multiplier). 3 change in value = difference between the value at the conversion date (multiplier times the share price at the conversion date) and the share price at the grant date, expressed as a percentage of the share price at the grant date; example of the pSU plan in 2007: ([{1.182  86.05} – 125.80] / 125.80)  100 = – 19 %. 4 interim measurement as at 31 December 2017.
Plan 2015 Plan 2016 Plan 2017 employees entitled to participate at launch of programme 62 69 65 number of allocated pSU 42,162 40,748 33,698 of which: expired (departures in 2015) 0 – –
number of active pSUs as at 31 December 2015 42,162 – –
of which: expired (departures in 2017) – 139 – 413 – 263 number of active pSUs as at 31 December 2017 39,594 39,731 33,435
Value of allocated pSUs on issue date (cHF million) 5.1 5.3 4.7 pSU expense incurred by the Baloise Group for 2015 (cHF million) 1.4 pSU expense incurred by the Baloise Group for 2016 (cHF million) 1.5 1.3 pSU expense incurred by the Baloise Group for 2017 (cHF million) 1.6 1.9 1.1 notes to the consolidated annual financial statements