Contact details Helvetia Group Investor Relations P.O. Box CH-9001 St. Gallen www.helvetia.com info@helvetia.com
Funding ratio 134.9% 152.3% Combined ratio (gross) 88.2% 94.9% Combined ratio (net) 89.9% 94.5%
The acquisition of a specialised insurance port folio in Austria enabled Helvetia to triple its Austrian transport business volume and improve its position to one of the top five insurance providers in this attractive market segment. Constant reviews of the company’s processing efficiency and cost structure also contributed to its success. In the past financial year, substantial cost cuts were realised in this manner. Measures that have already been initiated such as the optimisation of Helvetia’s own sales networks in Germany and Austria, a comprehensive efficiency improvement programme in Switzerland,
The financial year 7 of the difficult competitive environment. In addition to the technical result, the earnings statement also benefited from a one-off contribution of CHF 196.9 million resulting from the review of the reserve loadings carried out in the first half of the year.
Compared to the market, Helvetia’s capital position is unusually good and its risk profile is solid, as indicated by the solvency margin of 208 per cent and the continuing stable equity base of CHF 2,773.7 million (previous year: CHF 2,850.6 million). Our cautious investment policy and integrated approach to risk management will remain important cornerstones of Helvetia’s business operations. By confirming the “A–” rating with stable outlook in October 2008, Standard & Poor’s recognised Helvetia’s strong operating performance and its strategic position.
On the whole, Helvetia is on a profitable path to growth and will continue to position itself in the market as a solid and stable provider of insurance solutions. As always, Helvetia is meeting the challenges posed by the current market environment and in particular the capital markets with the necessary caution and a belief in its own strengths, i.e. its own skills, its enthusiasm for its business, and its commitment to its customers and their needs.
Galletti s.n.c. The Galletti s.n.c., Cremona (IT), has been producing and selling high-quality vinegar to suit many different tastes since 1871.
The excellent operating result in 2008, a very challenging financial year, confirms that Helvetia is on the right path with its strategy of profitable growth: The Group posted healthy organic growth and finalised successful acquisitions. The traditionally excellent quality of the port folio was consistently protected. Operating efficiency and cost structures were improved.
Self-image and key values The most important objective of Helvetia is the creation of sustainable added value for its shareholders, customers and employees. We lay the foundation for the achievement of this objective by ensuring that the Group is on a solid financial footing and enjoys profitable growth in all markets. We do not want to offer “everything for everybody ”, but are sharply focused in our country markets: a provider of insurance products to discerning private and corporate customers and small- and medium-sized enterprises in the best of the Swiss tradition. We distinguish ourselves by providing our customers and partners with individual, personal and competent services and striving to offer them the best and most straightforward solutions possible. With this approach our employees give expression to the central values of Helvetia – trust, drive and enthusiasm – every day, both internally and in their interaction with our customers and partners.
Accelerated growth The economic climate will remain challenging in the coming years. Helvetia Group, however, has all the ammunition it needs to continue a strategy aimed at healthy growth. At country level we want to grow by making our sales channels more dynamic, by exploiting new cooperation opportunities, and by consistently renewing and expand-
Efficient utilisation of capital The efficient allocation of capital and a good funding structure are of the utmost importance in times of financial market turbulence. We constantly monitor the careful and efficient use of our capital, as this is the basis on which the entire Group must be managed. Helvetia successfully strengthened
its market position in the reporting year, not least thanks to its conservative funding strategy, and the Group remained mostly unscathed by the current difficulties on the financial and capital markets. Its constantly high solvency margin, attractive payout ratio boosted by an additional anniversary dividend in 2008, and stable equity base confirm that Helvetia Group makes efficient use of its capital and follows an effective strategy as regards the utilisation of its capital. This year too, the Shareholders ’ Meeting will be asked to approve an attractive dividend of CHF 13.50 per share.
Successful implementation In spite of the challenging market environment Helvetia is on its way to achieving its strategic objectives. The strategy of profitable growth will be consistently implemented in the future in order to secure our continued success and to create sustainable added value for our customers, shareholders and employees.
Do you get any reaction on the part of the insu rance customers? Stefan Loacker: At times the customers made it clear that they were quite worried, but we could always meet these concerns with comprehensive and transparent information on Helvetia’s stable position. We notice that customers now prefer less risky investments and that security and guarantees are becoming more important. As a result, demand for traditional life insurance products and unitlinked products with a capital guarantee is rising.
Erich Walser: It has become very clear that confidence in the financial market is not just empty words. If a company can meet expectations and deliver on its promises, its reputation and the respect it earned over the course of many years are strengthened. Last year too, Helvetia proved to its customers that it is a reliable company where customers have no reason to worry about their pension capital. This provides them with the kind of security that goes far beyond the purely financial level. This is the kind of trust that we are given and that we earn every day.
Stefan Loacker: Our operating result for the 2008 financial year was excellent, and our core business is healthy and profitable. All insurance lines and country markets are contributing to this pleasing trend. We also improved our cost situation, which means that our cost discipline and the Group-wide projects for improving our efficiency are paying off. Due to the worldwide financial market crisis, Helvetia had to book substantial writedowns too, but thanks to our strict risk management, the impact on Helvetia’s balance sheet is not severe. Given the current economic environment Helvetia still has an excellent capital base.
What do you think of Helvetia’s handling of the financial market crisis? Stefan Loacker: Risk calculation is the core business of an insurance company. A successful insurance company is not built on the calculation of customer risks alone, but must also be able to manage the customer funds entrusted to it and its own funds in a responsible manner. It is true that the weak financial market environment had a negative effect on investment results in the reporting year, but Helvetia decided and implemented the required measures rapidly and decisively, which cushioned the negative market trends. This enabled us to keep the Group’s equity base almost stable. Thanks to a balanced investment strategy, good diversification and the generally high quality of our investments, we generated a positive
“Always reliable” Interview with Erich Walser, Chairman of the Board of Directors, and Stefan Loacker, Chief Executive Officer
Apart from the economic developments, by what words will the year 2008 be remembered in the company’s history? Erich Walser: Last year we celebrated our 150th anniversary, an event of which I personally am very proud. Very few companies can look back on such a long and successful history. The celebrations gave us the opportunity to share inspirational moments with everybody – our shareholders, customers, employees and the entire public. Helvetia’s strength is also borne out by the fact that we were able to report the best ever technical result in the anniversary year.
Stefan Loacker: I also have very pleasant memories of Helvetia’s 150th birthday, as this gave us the opportunity not only to look back on our past successes, but also to confirm our fitness for the future. I would like to remind you of our anniversary dividend that was distributed in the form of a nominal value reduction as well as a very popular product created especially for our anniversary. The anniversary, and of course also our continued sponsorship of skiing, enhanced Helvetia’s image in Switzerland.
Marmoles y Granitos la Unión Marmoles y Granitos, Toledo (ES), employs around 15 stonemasons, who mainly carve figures and sculptures from granite and marble.
Office Joined Current Committee memberships term expires SGC CC IRC AC
Erich Walser Chairman (also CEO 2001 2010 •• + • + until August 2007)
The Board of Directors of Helvetia Holding AG serves as the company’s highest executive body. It is responsible for the overall management and strategic direction of the Group, and appoints and oversees the Executive Management. The Board of Directors currently consists of nine members. In a bid to benefit from the specific expertise of the individual Board members and ensure that their know-how is brought into the decision-making process, various committees have been set up. In the Strategy and Governance Committee, the Compensation Committee, the Audit Committee and the Investment and Risk Committee, Helvetia has at its disposal four Board committees designed to ensure effective corporate control and supervision. The committees mostly do preparatory work. The areas where they have the power to take decisions are set out in Appendix I of the organisation regulations: “www.helvetia.com/gruppe/governance”.
•••• Chair + May join meetings at own request and in an advisory capacity 1 until 2008 Shareholders’ Meeting 2 from 2008 Shareholders’ Meeting
Erich Walser (1947) a Rehetobel, Swiss b lic. oec. HSG, lic. iur.
a Place of residence, nationality b Education, title c Professional background, executive responsibilities d Significant business relationships, mandates, official functions, political functions
Genossenschaft, Basel; member of the boards of directors of LZ Medien Holding, Lucerne, and swissgrid ag, Laufenburg; three board member mandates at non-listed companies and three board of trustee mandates; General Manager of the ART MENTOR FOUNDATION LUCERNE; Chairman of the Arbitration Commission of the Central Switzerland Chamber of Commerce, and various commitments at the University of Lucerne and the Lucerne University of Applied Sciences.
Secretary of the Board of Directors: Thomas Oesch, Dr iur., lawyer; from 1.1.2009 Christophe Niquille, Dr oec HSG.
“As an entrepreneur and a private individual it is essential for me to have an absolutely reliable insurance partner. Competent support, continuity in contact persons and a solid insurance offering are decisive factors for me. Helvetia has been providing me with this for years.”
Franz H. Bruder GmbH Franz H. Bruder GmbH, Oppenau (DE), turns, moulds, grinds and cuts teeth in precision parts for different sectors and according to customer requirements, mainly for the machine construction industry.
Changes at the country units Helvetia Switzerland set up a new Operations & Development department to promote its strategic and operational development. The new department reports directly to the Executive Management Switzerland. The Branding department now also reports directly to the Executive Management to ensure that the uniform brand strategy is implemented consistently.
The Executive Management of Helvetia France was strengthened by two new members, Christian Baudiment (Finance) and Philippe Bourge (Courbevoie).
The “Spotlight” chapter (see pages 46 and 47) contains detailed information on the two new companies.
Stefan Loacker (1969) a Speicher, Austrian b lic. oec. HSG; Mag. rer. soc. oec., Vienna University of Economics and Business Administration c Chief Executive Officer (CEO) of Helvetia Group; d 1994–1997 Rentenanstalt/Swiss Life: corporate planning department; 1997 joined Helvetia: Assistant to Head of Staff to Executive Management, Corporate Development; Head of Staff Group Executive Management; 2000 Head of Corporate Development; Member of Senior Management; 2002 Der ANKER, Vienna: Head of Finance and IT; member of the board of directors; 2005 Der ANKER, Vienna: Chief Executive Officer; 2007 since 1.9.2007 in current position with various mandates at subsidiaries of Helvetia Group outside Switzerland; e in particular member of the board of the Swiss Insurance Association, Zurich.
Wolfram Wrabetz (1950) a D-Bad Soden, German b Prof. Dr iur., Certified Business Administrator c Chief Executive Officer of Helvetia Germany; d various positions with the Gerling Group; 1981 joined Helvetia Germany: various management positions; 1995 General Manager for Germany and Chairman of Helvetia Leben and Helvetia International, D-Frankfurt/Main; since 1998 with Helvetia Group in current position; e in particular member of the Chairman’s and Professional Committee for Property Insurance and Chairman of the Legal Committee of the German Insurance Association, D-Berlin; member of the Insurance Advisory Council of the Federal Financial Supervisory Authority, D-Bonn; representative of the Hesse State Government for the insurance industry; Honorary Consul in Germany of the Republic of Ecuador in D-Frankfurt/Main; Vice-Chairman of the Chamber of Commerce and Industry, D-Frankfurt/Main.
Helvetia wants to meet the demanding legal and ethical expectations of its shareholders and all other stakeholders by providing comprehensive and transparent reporting and responsible and value-oriented corporate governance, to the best of its knowledge and in good faith. The main aims here are to further strengthen confidence in Helvetia Group, to safeguard the interests of our shareholders, and to ensure and sustainably enhance the value of the Group. We ensure that the principles of good corporate governance are consistently implemented and continually optimised throughout the Group.
Helvetia Holding AG has its head office in St.Gallen and is listed on the SIX Swiss Exchange in Zurich: security no./ticker 1 227 168/HELN. Key data for investors is given on pages 82 to 84 under “Investor information”.
Versicherungen), and Helvetia Schweizerische Lebens versicherungsgesellschaft AG, Basel (Helvetia Leben) – can be found on pages 66 to 68 and in the Notes on page 199.
1.2 Major shareholders The controlled opening of the Helvetia Holding AG shareholder base was initiated in 2000. In 2002, the holdings of the shareholder pool were reduced in a regrouping process from 50.9 to 45 per cent. In 2004 these were reduced again to 40 per cent following a share capital increase and, by the end of 2006, the holdings were reduced to 37.8 per cent. The aim behind these and other measures was (and remains) to underscore our policy of increasing the volume of tradeable shares so that other investors with a long-term investment horizon can hold a stake in Helvetia Holding AG. As of the reporting date, the following major or otherwise notable holdings were entered in the share register of Helvetia Holding AG: a) Shareholder pool (37.8 per cent), comprising Patria Genossenschaft, Basel (29.8 per cent, with an additional 0.3 per cent outside the pool), Vontobel Beteiligungen AG, Zurich (4.0 per cent), and Raiffeisen Schweiz, St.Gallen (4.0 per cent).
The pool agreement strengthens and promotes Helvetia’s strategic focus on co-operation in areas outside its core business (insurance), and supports the activities of the Group in crucial areas such as sales. It unites the co-operation partners of Helvetia Group in their capacity as long-term investors with a strategic focus who share a common interest in ensuring that Helvetia remains independent and self-sufficient in its relationships with third parties as well as pool members, and is able to continue to develop in the future in accordance with its adopted strategy and without undesirable negative influences. Pool members may only sell their holdings of Helvetia shares with the consent of the other members, who also enjoy the right of first refusal at market conditions. Beyond the scope of normal co-operation activities relating to consulting and the sale of financial, insurance and asset management products and services – in each case at market conditions – there are no significant business relationships between pool members and Helvetia Group.
d) The pension fund of Helvetia Insurance, St.Gallen, holds 2.0 per cent of the shares of Helvetia Holding AG.
e) Helvetia Beteiligungen, St.Gallen, holds 0.8 per cent of the Helvetia shares classified as “treasury shares”.
The conditions for such a share capital increase are set out in Art. 3bis of the articles of association.
In December 2004, an approved share capital increase of CHF 23,598,750 was effected by issuing 2,359,875 registered shares with a nominal value of CHF 10.00 each, as a result of which the share capital increased from CHF 62,930,000 to CHF 86,528,750. In 2007, conditional share capital was introduced: see section 2.2.
Changes in equity are presented on pages 94 and 95, those for the 2006 financial year are presented on page 136 et seq. of the Annual Report 2006, and those for 2007 are presented on page 86 et seq. of the Annual Report 2007.
c) Employee options: The employee share option programme was concluded as of the end of 2002, and expired at the end of October 2005.
Also see the diagram and information provided on pages 18 to 21.
3.1 Members of the Board of Directors The Board of Directors of Helvetia Holding AG consists of nine members. It is identical to the boards of directors of the two subsidiaries, Helvetia Leben and Helvetia Versicherungen. Members of the Board of Directors are required to possess experience and know-how about a wide variety of fields. They should have the requisite expertise to represent their personal opinion in discussions with the Executive Management. Since Helvetia Group conducts a significant proportion of its business abroad, the Board of Directors also includes citizens of different countries and members who have extensive international experience. Members of the Board of Directors should possess strong personal values (including integrity), specialised financial, business and insurance knowledge, experience in strategic and executive management, the ability to think in a visionary manner, social skills and a belief in sustainability. They must also have the necessary amount of time at their disposal for the efficient and proper performance of a director’s mandate. As far as the independence of the Board members is concerned, Helvetia complies with the basic requirements of the Swiss Code of Best Practice for Corporate Governance. For example, the Board consists only of members whose personal and business skills enable them to form an independent opinion and to take decisions that are in the best interests of the company. The committees consist mainly of non-executive and independent directors. The members of the Compensation Committee and the Audit Committee have either never been members of the Executive Management or have not been members of the Executive Management for the past three years or more. The members of the Compensation Committee and the companies represented by them have no or insignificant personal business relationships with Helvetia and also do not hold any cross-directorships. The rule that members must abstain from taking part in meetings when business is dealt with that involves their own interests is consistently applied by all committees. Every year the Board of Directors assesses the level of compliance with these requirements and the quality of the services it has performed, both in its entirety and within each committee, and – where necessary – identifies any improvements that may be required.
3.4 Election and term of office The normal term of office for members of the Board of Directors is three years. Members of the Board of Directors are required to step down for reasons of age at the Shareholders’ Meeting that is held in the year in which they turn 70. New members complete the term of office of the retiring members.
a) The Strategy and Governance Committee prepares the resolutions to be passed by the Board of Directors in the event of a change or redefinition of strategy, monitors the strategic risks within the framework of the defined strategy and the related measures, deals with mergers, takeovers and disposals of companies or major portfolios, and prepares the required resolutions by the full Board of Directors. It prepares the resolutions by the Shareholders’ Meeting regarding the appointment and dismissal of members of the Board of Directors, puts forward proposals regarding personnel decisions and appointments and dismissals of members of the Group Executive Management, handles the appointment and dismissal of the country CEOs and other members of the country Boards, and periodically reviews plans and measures to retain and promote senior managers. It also secures good corporate governance within Helvetia Group, assumes duties and powers that have been assigned to the Strategy and Governance Committee by the Board of Directors, deals with issues entrusted to it by the Chairman that are not reserved for the full Board of Directors in accord ance with the law, the articles of association or Group regulations, and discusses important and urgent issues. It convenes as often as business requires. In order to deal with specific issues, it may call on internal or external specialists to attend
part in its meetings in an advisory capacity. The CEO, CFO, representatives of the external auditors and the head of Internal Auditing attend its meetings in an advisory capacity. The attendance rate was 100 per cent at closing meetings. In order to deal with specific issues, it may call on internal or external specialists to attend its meetings, which is regularly the case. In 2008, the Audit Committee held five meetings, one of them via telephone conference, all of which were attended by all members. Most of the meetings lasted approximately half a day.
Most of its half-day meetings are held at Group head office in St.Gallen, one is held at the head office of Helvetia Switzerland in Basel, while the executive seminar, which usually lasts two days, is generally held at the premises of a subsidiary abroad. The Board is quorate if the majority of the members are present. Its resolutions are carried with a majority of the votes of the members in attendance. Resolutions may also be made by circular letter, which happened once in 2008. As a rule, all members of the Board of Directors and (in an advisory capacity) all members of the Executive Management attend its meetings. In the year under review, six meetings were held, with the absence of one member of the Board of Directors at two meetings, while the members of the Executive Management attended all meetings. In order to deal with specific issues, it may call on specialists to attend its meetings, which is regularly the case. Members of the Board of Directors and all executive bodies are obliged to abstain if business is being dealt with that involves their own interests or the interests of associates (natural persons or legal entities).
Every month, the members of the Board of Directors receive key data concerning the course of business. They also periodically receive reports on current issues relating to governance as well as selected analyses and situation reports concerning market trends, market players and noteworthy occurrences. The regular reports submitted to the Board of Directors and its committees are listed in Appendix II of the organisational regulations: www.helvetia.com/gruppe/governance.
At the meetings, every member of the Board of Directors may ask other members and members of the Executive Management for information concerning all matters pertaining to the Group. Outside of meetings, every member of the Board of Directors may ask the Executive Management to provide information about the general course of business or the course of specific business cases, and/or may inspect any business documents as required.
4.1 Members of the Executive Management The members of the Executive Management are listed on pages 26 to 28. The Executive Management of Helvetia Group was chaired by Erich Walser in his function as CEO from the establishment of Helvetia Holding AG until 31 August 2007. He was also the Chairman of the Board of Directors from 12 December 2003. Stefan Loacker took over as CEO of Helvetia on 1 September 2007.
The Board of Directors’ Compensation Committee uses these principles to study current trends in compensation philosophy and to prepare the different compensation concepts and their implementation as presented in the relevant sections of the Annual Report and Investor Relations Reports and in publications by trade associations such as “Ethos”. Data on other comparable companies published in the media is also taken into account, and the individual members of the Board of Directors contribute their knowledge and experience gained in their own or third-party companies to the discussions. No external advisers are involved in the
Helvetia also offers suitable employee benefits packages to all its employees and managerial staff. The employee benefits insurance provides employees and their dependants with the assurance that they will be financially secure on retirement or if they should become sick or disabled, or in the event of death.
5.1 Board of Directors The compensation principles and individual components of the compensation concept as well as the procedure when determining performance-related payments are set out in the compensation regulations issued by the Board of Directors.
The compensation paid to the members of the Board of Directors consists of the following components, whereby the fixed cash component should be the largest component by far: a) Fixed salary Every member of the Board of Directors receives a fixed salary determined in advance. All members of the Board receive the same basic salary, except for the Chairman, whose salary is higher. The Vice-Chairman and the chairmen and members of the committees also receive an allowance in addition to their basic salary. These payments take account of the responsibility and workload of each of the individual Board members. The compensation for every individual Board member calculated in this way is paid out in cash. When a director leaves the Board, compensation is paid on a pro rata basis up to the end of the month in which he or she leaves the Board of Directors.
b) Variable component The variable component depends on the quantitative and qualitative objectives and their achievement. As the variable component cannot be more than 30 per cent of the basic salary paid to a Board member, there is an upper limit to this payment. No bonuses are paid. The Compensation Committee determines the degree of objective attainment on an individual basis. The Compensation Committee also determines the percentage that will apply to the variable component once the business results, including the financial and actuarial components and data on the performance of the share price, are available, for example 80 per cent. This percentage applies to the members of the Board of Directors, the Executive Management and all employees of Helvetia in Switzerland. The variable component is paid out to the members of the Board of Directors in shares only. The rel evant value is the market value of the share on the date on which the variable salary component is calculated. The shares are blocked for three years from this date. When a director leaves the Board, the variable component is paid on a pro rata basis up to the end of the month in which he or she leaves the Board of Directors.
every year by the Compensation Committee. This salary is determined on an individual basis and takes account of the function and level of responsibility of the individual member of the Executive Management. It also includes all child or education allowances and anniversary bonuses.
b) Variable component The amount of the variable component, which is usually limited to 50 per cent of the fixed salary, is based on the financial results (30 per cent) and the degree of attainment of the personal objectives agreed with the immediate superior (20 per cent). These objectives can contain quantitative and/or qualitative components, depending on the operational responsibility carried by the Executive Management member in question. While the qualitative objectives focus more on the long-term and sustainable development objectives of the business division for which the Executive Management member is responsible or on the objectives for the company as a whole, the quantitative objectives contain target values for every financial year. The component that is dependent on the business result is determined every year by the Compensation Committee once the business result is known and the individual financial and insurance technical components of the result as well as the development of the share price have been evaluated, for example 80 per cent. This percentage applies equally to the members of the Board of Directors, the Exec utive Management and all employees of Helvetia in Switzerland. The salary component that is dependent on the result is smaller for the Executive Management members of the country markets, depending on the statutory regulations in the country in question. This variable salary component is an important feature of Helvetia’s performance culture, under which every individual employee is compensated according to the quality and quantity of his or her work as well as his or her responsibility and workload and also the result achieved by the company as a whole. The variable components are paid out in cash.
c) Special bonus If the business result is excellent, the Compensation Committee can also decide to pay a special bonus in the form of shares. This was the case, for example, in the 2007 financial year when the result was extraordinarily good. The relevant value is the market value of the share on the date on which the special bonus is calculated. The shares are blocked for three years from this date. The members of the Executive Management were not granted a special bonus for 2008.
Helvetia celebrated its 150th anniversary in 2008. To honour this occasion, the Board of Directors offered shares under the abovementioned employee share purchase plan to employees for the symbolic anniversary price of CHF 150 per share. Participation in this programme was totally voluntary. The fair value was CHF 349.40 per share, which equalled the average price on the five trading days following the balance sheet press conference on 17 March 2008. The reported amount resulted from the discount of 16.038 per
As a rule, the Ordinary Shareholders’ Meeting is held in April, but at the latest within six months after the end of the financial year. Extraordinary Shareholders ’ Meetings are convened as necessary.
Shareholders with voting rights who together represent at least 10 per cent of the share capital may request a Shareholders’ Meeting in writing, stating the items on the agenda and the motions to be put forward. Every shareholder receives a personal invitation not later than 20 days before the meeting, including a detailed agenda, a brief explanation of the motions to be put forward, plus other explanations concerning significant occurrences in the year under review. The items on the agenda are also published in various Swiss newspapers and in the electronic media.
CHF 0.10 per share carried out in 2008, the 2009 Shareholders’ Meeting will be requested to reduce the above limit to CHF 2,000 to reflect the reduction in nominal value and to ensure good corporate governance.
6.5 Registration of shares The right to attend the Shareholders’ Meeting (17 April 2009) and exercise voting rights is reserved for persons who were registered in the share register as shareholders with voting rights as of the cut-off date (3 April 2009) specified by the Board of Directors and announced in the Swiss Commercial Gazette and various other newspapers. In the period between the above cut-off date and a few days (14 April 2009) prior to the Shareholders ’ Meeting, shares will still be registered in the register but no additional invitations to the Shareholders’ Meeting will be issued. Shareholders are entitled to a dividend for the 2008 financial year until this date. The share register is only blocked for a few days from 15 to 23 April 2009; during this period no changes can be registered. In exceptional cases, guest tickets for the Shareholders ’ Meeting may be issued, but holders of such tickets do not have any voting rights. Every share registered in the register entitles the holder to cast one vote.
The KPMG Ltd audit team for the 2008 financial year consisted of: Hieronymus T. Dormann, Swiss Certified Accountant, partner Audit Financial Services, lead auditor; Christian Fleig, Swiss Certified Accountant, senior manager Audit Financial Services.
8.2 Audit fees In the year under review, the fees charged by the auditors amounted to: CHF 2,959,201.
External auditors The Audit Committee prepares the election of the auditors, which, as a rule, is scheduled to rotate approximately every seven years. It supervises and assesses their activities, predominantly through the external auditors’ reports on audit results, the reporting process, decisions, for example on IFRS issues, and statements in the local audits. Important findings are summarised in a management letter.
As a rule, Helvetia provides its shareholders with information twice a year as part of the periodic reporting on annual and interim results in the form of a detailed letter to the shareholders. This letter deals with a variety of current issues, including strategy, market positioning and business policy. A brief portrait of Helvetia Switzerland is available to anyone who may be interested. Furthermore, our website (www.helvetia.com) contains a great deal of current and archived information about Helvetia Group, including strategy, organisation, Group structure, facts and figures, corporate governance, sustainability, the insurance markets in which Helvetia is active, investor information, e.g. rating, analysts’ reports, annual and interim reports, share including share price trends, news alert, investor and media contacts as well as other publications, media releases, interviews, and important dates. Helvetia periodically meets with institutional investors and presents the published financial results at special road shows. These presentations can also be called up on our website.
Our Investor Relations team will be pleased to assist with any personal enquiries (contact details are indicated at the end of this report as well as on our homepage). Just ask us!
“Our family distillery has been insured with Helvetia since 1930. The almost 80-year-old partnership is built on security and mutual trust.”
In its 150-year history, Helvetia has made many acquisitions, all of which contributed to the current international focus of the Group. In 2008, the Group substantially improved its strategic position in Italy with two acquisitions in just a short time.
Successful acquisition strategy Financial criteria and qualitative factors that ensure a strategic fit and the integration of the acquired companies into the Group play a central role in our acquisition activities. The focus falls not only on improved customer access and new sales co-operation plans, but also on customer structure, geographic focus and relationships that can be cultivated in a spirit of partnership.
“Chiara Vita” In the reporting year, Helvetia Group acquired 70 per cent of “Chiara Vita” from Banco di Desio with which it also entered into a distribution partnership. The remaining 30 per cent of the company is still owned by the Banco Desio Group, a banking group that has been listed on the stock exchange in Milan since 1995. Under the distribution partnership, Banco di Desio will sell the life insurance products of “Chiara Vita” exclusively via its approximately 150 bank counters in the economically interesting northern regions and centre of Italy.
short period since its establishment, premium volumes have rapidly risen to an impressive level. In 2008 “Chiara Vita” already generated a business volume of around EUR 350 million. These earnings were included in Helvetia Group’s income statement on a pro rata basis from 1 October 2008.
The company’s portfolio comprises approximately one-third each of traditional life insurance products, index-linked policies, and unit-linked policies.
Outlook Thanks to these acquisitions, Helvetia Italy, a company with a joint back office but three independent sales channels with much potential, i.e. a traditional agency network, a bank sales channel and a worksite marketing concept, has many interesting possibilities for development. In terms of quantity, business volumes in Italy will double as a result of these two acquisitions when the full-year sales for 2009 are consolidated in the income statement. This pleasing development highlights the ambition embodied in our Group strategy, according to which we want to continue to enjoy healthy growth and expand our market position step by step in the coming years.
“Helvetia is epitomised by its approximately 4,600 employees in six countries. With their confidence, loyalty and expertise they are an important cornerstone of the company’s success.” These are the words used by Stefan Loacker in the “150 years of Helvetia Insurance” anniversary publication to describe the employees’ commitment to and belief in their Helvetia. Subject expertise, reliability and trustworthiness are our most essential common features. “We are seen everywhere as a service-centric, reliable partner. I have a high regard for Helvetia’s employees because they manage to live up to this challenge every day.” Thinking about enhanced collaboration between all Group divisions, for the CEO this translates into: “The Group is more than the sum of its country markets.”
150 years of insurance experience The Helvetia brand with its values trust, drive and enthusiasm took centre stage in the anniversary celebrations. The anniversary put the company in the spotlight for customers, shareholders and employees. The different events and campaigns that took place throughout the year focused less on the successes of the past than on the requirements and perspectives for a future that is just as successful. With different internal and external publications and communication media, the Group managed in all country markets to strengthen confidence in the employees of Helvetia and in its services and products. The celebration events were bracketed by the anniversary publication issued at the beginning of the year, the anniversary film that came out in summer, and a “Helvetia song”. Another highlight was the anniversary Shareholders’ Meeting, where the former chairman of the Board of Directors and current President of Switzerland, Hans-Rudolf Merz, delivered the anniversary address. A total of almost 50 different events and campaigns took place, which kept Helvetia and its employees in the eye of its Swiss and foreign customers and shareholders and boosted the company’s image.
Living up to our shared values The anniversary events strengthened contacts and relationships within and among the business units as well as between the Group functions. The future success of Helvetia Group will to a significant extent depend on our shared values, the coordination of our available resources, and the exploitation of our pooled know-how and synergy potential.
After its successful start in Switzerland, the concept of systematically recording and managing the potential of top managers and high-potential employees in line with a uniform Group-wide personnel and succession planning programme was implemented at the second management level in the business units in Germany, Austria and Italy. In future, HR managers will be able to arrive at the best possible estimates of the need for managers in individual strategic initiative projects or acquisition projects and to find the best succession solutions and propose the implementation of these solutions.
Effective strategy support throughout the Group The new International Executive Programme (IEP) concept developed by the management development team in cooperation with two research institutes at the University of St.Gallen is very successful. Our accumulated know-how and experience in sustainable corporate and market change were systematically exploited and expanded in each of the four-day strategy modules. The 60 participants chosen from the country markets worked on finding solutions for the practical implementation of three strategic initiatives: “Industrialisation”, “Sales management” and “Unit-linked life business”. The fifth day is reserved for the topic of “Leadership” when the participants can actively exchange their personal experiences and ideas on leadership. The three IEP modules planned for 2009 will focus on the strategic benefits of customer retention and customer loyalty concepts.
The annual two-day Management Forum attended by all members of the Executive Management and Group function managers is another important strategic management tool. This meeting also provides the 65 participants with a platform for developing ideas and exchanging experiences on a strategically relevant topic. In autumn 2008, this event focused on the practical implementation of the strategic initiative “How to combine growth and efficiency”.
“In a company the size of Cremo, risk management plays a very important role. Despite, or perhaps because of the professional and systematic recording of the risks the company is exposed to, Helvetia’s all-risk insurance protects us from any nasty sur prises. It has proved its worth in the past and kept all its promises.”
Helvetia can look back on a very good operational anniversary year 2008. The strategy of profitable growth was confirmed by the good technical performance of both the non-life and the life segments.
Strong and sustainable capital base In view of recent developments on the capital markets, the moderate reduction in equity in the reporting year of only 2.7 per cent to CHF 2,773.7 million (previous year: CHF 2,850.6 million) can be described as a great success. In spite of the dividend paid out to the shareholders and the nominal value reduction, equity is only slightly below that at the previous year end and the equity base is still extremely solid, as is confirmed by the “A–” with stable outlook rating from S&P. This stab ility is also the result of the convincing quality of our bond portfolio. The valuation markups triggered by interest rate trends in the second half of the year almost totally compensated for the losses in value suffered by the equities. At 207.7 per cent, the solvency margin (previous year: 217.4 per cent) is still well above the 200 per cent level, which is excellent. Although the return on equity of 8.2 per cent is substantially lower than the 14.4 per cent of the previous year, it can still be described as satisfactory in light of the current situation on the financial markets, especially as Helvetia will again be able to pay an attractive dividend of CHF 13.50 per share.
Fast-growing life business The life segment shines with an increase in volume in direct business (premiums and deposits from investment contracts) of CHF 241.8 million or 9.4 per cent (growth in CHF: 8.3 per cent). The country market Switzerland made the largest contribution to this result with 9.9 per cent, most of it derived from the unit-linked anniversary product “Jubi+”. Thanks to the acquisition of “Chiara Vita”, Italy also contributed CHF 97.7 million to growth in the fourth quarter. This effect will be much stronger in the next financial year when all quarterly results are included in the consolidated statements. With a growth rate of 14.5 per cent in original currency, Spain developed very well and much above the market average. While Austria performed on a par with the previous year, Germany could not fully compensate for a large contract financed by a single premium reported in the previous year, even though the German life business, adjusted by this one-off effect, again grew substantially more than the market average. At more than 80 per cent, unit-linked life business is still growing strongly in compliance with our strategy, in spite of the negative financial markets.
The current capital market environment and interest rate trends also had a negative impact on the embedded value, which at CHF 1,959.3 million is 11.9 per cent lower year-on-year. This contraction is explained by the economic environment, in particular the reduction in value of the investment portfolio and current interest rate trends. The value of new business fell slightly due to the weak economic outlook, but the increase in unit-linked business helped to improve profitability in the EU markets. If the portfolio of the newly acquired life unit “Chiara Vita” is taken into account, the embedded value of Helvetia Group rose by another CHF 77.9 million to CHF 2,037.2 million. Details on the calculation of the embedded value are provided on pages 59 to 61 of the Annual Report.
That the net combined ratio was improved once again by 4.6 per cent is explained by the very positive claims experience and cost optimisation measures in all countries. The cost ratio was reduced from 32.0 per cent to 31.1 per cent through efficiency gains in the administrative area, and at 58.8 per cent, the claims ratio is also much lower than the prior-year level of 62.5 per cent. This can be attributed to the fact that there were fewer claims for storm and major damage and to the generally good claims experience, which confirms the excellent quality of Helvetia’s insu rance portfolio. To ensure year-to-year operating comparability, the published ratios do not contain the effect of the adjustments to the reserve loadings.
Technical account non-life in CHF million 2008 Gross Reinsurers’ Net share
Claims ratio (incl. policyholder dividend) 63.8% 62.5% Cost ratio 31.1% 32.0% Combined ratio 94.9% 94.5%
Deloitte LLP audited the calculation method selected by Helvetia Group as well as the assumptions applied to the calculation of the embedded value as at 31 December 2008. Deloitte considers the calculation method applied by Helvetia Group and the assumptions to be appropriate and reasonable and the disclosures on embedded value given below and based on the selected calculation method and corresponding assumptions to be in proper form. For the purpose of this report, Deloitte reviewed some of the data provided by Helvetia on a test basis, relying, however, on the financial information published in the financial report.
This year, the Italian life insurance company “Chiara Vita S.p.A.“ was consolidated in the embedded value calculation. The resulting embedded value as at 31 December 2008 was added to the EU embedded value as at 31 December 2008, and was reported separately for the first year.
+1% change to risk discount rate –7.7% –7.1% –1% change to risk discount rate +9.3% +8.6%
–10% change to fair value of equities –1.9% –3.5% –10% change to fair value of real estate –9.3% –8.0% +1% change to new money rate +7.6% +6.2% –1% change to new money rate –7.6% –6.6%
Total Value of new business in CHF million 30.0 32.3 Annual premium equivalent (APE) in CHF million 196.3 202.6 Value of new business (APE) in per cent 15.3% 15.9% Present value of new business premiums (PVNBP) in CHF million 1718.6 1649.0 Value of new business (PVNBP) in per cent 1.7% 2.0%
The gobal economy was haunted all year by the spectre of a worsening financial market and credit crisis. Continuing bad news about threatening bankruptcies eroded confidence in the financial sector and caused severe turbulence on the markets. The collapse of the entire financial system could only be avoided by the co-ordinated actions of governments and central banks. In the second half of the year, the financial market turmoil spilled over into the real economy with devastating effect.
Effective risk management In this unfriendly environment, Helvetia Group continued its security-oriented investment policy dominated by the need to protect the balance sheet. Early in the year the already conservative equity exposure was significantly reduced with targeted hedging measures and substantial sales of equities. After hedging, the equity exposure at the beginning of the second half was only around 3 per cent. By the end of the year this net exposure was reduced further to 0.5 per cent. All through the year the foreign currency exposure was also hedged severely, and from the second quarter our dollar and euro investments were hedged at almost 100 per cent. These measures did much to temper the equity and currency losses as compared to the market, in particular in the second half of the year.
The management of credit risks, however, was a much more difficult undertaking. The severely illiquid markets did not leave much room for manoeuvre. Helvetia never had any direct exposure to the problematic mortgage and credit segments, and the consistently good quality of its bond portfolio meant that the high credit quality of its portfolio could be maintained in the second half, thanks to more than 59 per cent of the interest -bearing securities being rated AAA and 99 per cent with at least an A rating. Except for the isolated case of an investment in the structured investment vehicle Sigma, which had to be written down fully in the second half of the year, Helvetia did not suffer any credit losses. It is particularly encouraging to note that the value of the bond portfolio has actually increased since the end of 2007 thanks to changes in the fair value of many of the bonds.
Driven by prudent risk management principles, the asset allocation changed significantly. The equity component before hedging (3 per cent) was noticeably reduced, while the exposure to bonds (55 per cent), real estate (13 per cent) and mortgages (10 per cent) increased correspondingly. The duration of the bond portfolio is practically unchanged at approximately 6 years.
Interest and dividend income 793.3 793.8 Gains and losses on investments (net) –978.4 130.2 Income on investment property 324.2 194.4 Share of profit or loss of associates 1.4 2.8 Investment income (gross) 140.5 1 121.2
Investment business 63 ble contribution of CHF 1,036.1 million (up 1 per cent from the previous year), Helvetia posted an overall positive investment result for this turbulent year of CHF 72.0 million (including the gains from investments for unit-linked products). This result includes a profit of CHF 304 million on derivatives transactions to hedge equity and currency exposures. Following a loss of CHF 25.9 million as at 30 June for unrealised gains and losses on equity, the gain of CHF 49.1 million at the end of the second half was more or less on a par with the previous year’s result. Thanks to our cautious investment strategy, the overall investment performance (realised and unrealised gains and losses) was around 1 per cent as at 31 December.
In an extremely difficult market environment, Helvetia’s early and comprehensive hedging measures not only protected the substance of the investment portfolio, but also delivered a positive profit contribution. Once again, our top-quality real estate and mortgage portfolio proved to be an important mainstay of our total earnings.
Outlook The financial crisis and global recession will continue to set the trend for investment behaviour in 2009. In this difficult environment we will continue to rely on our investment policy, which focuses on consistency and security. Our risk management approach will remain cautious in order to protect our consistently solid capital base, and we will react to any new market turbulence with a tightly-knit set of hedging measures.
“Helvetia operates on a far-sighted basis. I know that I can rely on the company both today and tomorrow – which is a good feeling, and not only when I’m on my motorbike.”
Gross premiums in 2008 from direct life business in Switzerland in CHF million
Helvetia Switzerland is active as an all-line insurer and has 29 general agencies, around 2,230 employees and around 700,000 customers. It is one of the five largest insurance companies in Switzerland. Strategic partnerships are maintained, among others, with Raiffeisen Switzerland, the Association of Swiss Cantonal Banks, and Bank Vontobel. With a share of more than half the total premiums, Helvetia Switzerland is the largest country market in the Group.
Helvetia Switzerland increased its premium in come by 8.1 per cent year-on-year to CHF 3,052.6 million, thereby continuing the positive trend in the operationally successful first half of the year. As always, the in-house sales force made the largest contribution to this strong growth. In terms of growth, both the life and non-life segments clearly outperformed the market. Additional market share was gained in the domestic market.
The sales of the “Jubi+” unit-linked product that was launched to celebrate Helvetia’s 150th anniversary were very successful, and this product alone generated a premium volume of around CHF 170 million. Against the background of the negative financial market developments, the segment result of CHF 163.5 million for the country market Switzerland was down 26.3 per cent from the previous year. On the other hand, however, the technical result was excellent and improved once again.
year and amounted to CHF 879.6 million. At CHF 818.0 million, single premiums grew by as much as 11 per cent year-on-year. In addition to constant progress in the core employee benefits business for small and medium-sized enterprises, this success is also based on the launch of the innovative “BVG Invest” product and Helvetia’s participation in the Generali Employee Benefit Programme as a Swiss network partner. With this strong performance in 2008, Helvetia gained market share for several consecutive years in a row. The emerging trend towards full insurance models with capital guarantees in employee ben efits insurance and the low termination rate and encouraging number of new contracts give us confidence for 2009 and confirm that Helvetia’s efforts to cultivate its customer relationships are worthwhile.
Gross premiums in 2008 from direct non-life business in Germany in CHF million
Gross premiums in 2008 from direct life business in Germany in CHF million
Demand for the previously extremely successful unit-linked products declined in the second half of the year under pressure of the financial crisis, but growth was still remarkable at 9.6 per cent in original currency. The successful “CleVesto” product family was expanded with the launch of “CleVesto doubleinvest”, a unit-linked Riester pension product. Many other new products will support our future growth. In the first half of the year we launched an innovative annuity insurance which is offered as a traditional as well as a unitlinked product. With “BlueLane” and “SevenLane”
Helvetia operates in Germany as a property and an accident and life insurer. With 748 employees and approximately 850,000 customers it is one of the medium-sized insurance companies in the German market. Two-thirds of new business is acquired via brokers and general agents representing more than one insurance company, and the remaining third comes in through our exclusive sales channels. Helvetia Germany has been working together with renowned cooperation partners in the health and legal expenses insurance, building society and fund investment sectors for many years.
Our innovative concept for the non-life product range was continued in 2008 in order to keep Helvetia on the path of growth. A new family accident insurance product “Family-Plus” including a comprehensive assistance package was introduced, and the “VitalPlus” accident insurance was expanded with a hospital bed guarantee. The range of liability products was also enlarged. The existing environmental liability insurance was expanded and adapted to meet the requirements of the new environmental damage law that entered into effect in 2007. Our product spectrum was also enlarged with the MulitLine policies for the agricultural sector, and our product range for hotels and restaurants was expanded with the Allround commercial policies.
The non-life product range also received an award. The convenience cover provided by our household contents insurance was ranked number 2 by a test institute. Helvetia Germany has also retained its excellent reputation for claims hand ling. In a market study it moved up many places among the insurance companies included in the study. To further strengthen our focus on our customers and services, an active customer management system will be introduced in 2009, not least to receive valuable feedback that can be used to systematically improve our services.
Gross premiums in 2008 from direct non-life business in Italy in CHF million
In Italy, Helvetia operates as an all-line insurer, primarily in the economically strong northern provinces of the country. In 2008, Helvetia Italy strengthened its market position with two acquisitions, making it the second-largest life insurance unit of Helvetia Group. With the finalisation of the integration of the two new companies, Helvetia now serves its customers with 378 employees and a sales network consisting of more than 350 agencies, more than 100 brokers, the 150 bank branches of Banco di Desio, and insurance corners in the administrative offices and operational facilities of the ENI Group.
Solid non-life business In the non-life business Helvetia Italy also outperformed the market with a volume of CHF 392.5 million and encouraging growth of 4.7 per cent (growth in CHF: 0.3 per cent). This growth was mainly driven by the strong performance of the property insurance segment. The profit contribution of the new Group company “Padana” was CHF 12.6 million for five months, and in 2009 this newly acquired company is expected to contribute around EUR 35 million to the premium volume.
The Italian motor vehicle segment is still plagued by a negative growth trend. Thanks to its successful acquisition, however, Helvetia Italy still managed to post 2.8 per cent growth in this fiercely competitive market. The other non-life segments grew by 6.7 per cent in original currency. A large array of sales promotion measures has fostered strong growth in new business, even though the liability and property insurance markets are very competitive and demand is declining in view of waning purchase power. The technical performance of the non-life segment is particularly pleasing. The net combined ratio of 96.0 per cent is 3.4 percentage points down year-on-year. The claims ratio was reduced slightly to 66.4 per cent thanks to
Gross premiums in 2008 from direct life business in Spain in CHF million
processes and specific sales programmes also contributed to this encouraging development. Thanks to efficiency measures, the cost ratio could also be reduced by around 1 per cent year-onyear.
Successful strategy implementation In step with the Group strategy (see pages 10 to 12), the strategy of Helvetia Spain also rests on two pillars: growth and earning power. The past reporting period saw considerable progress in both these areas.
These measures include, among others, initiatives to tap into new customer segments, to better exploit the potential offered by existing customers, and to enhance the productivity of the existing sales channels. Some of these projects were carried out as a component of a Group project.
To improve earning power, the initiatives to improve the quality of our services were continued. The fruits of these efforts can be seen, for example, in the renewal of the ISO 9001 certification for underwriting and claims processes. This initiative will continue in the current financial year, as Helvetia Spain is also aiming for an EFQM award. In the IT field various projects were finalised successfully, including the introduction of processsupporting software which allowed us to further improve our processes.
The non-life segment has proved itself to be sustainably profitable. In spite of heavy competition, Helvetia Spain repeatedly reported an excellent net combined ratio. At 85.6 per cent, the net combined ratio is on a par with the excellent prior year level and far below the sector average. This sustained trend is the result of a cautious underwriting policy and testifies to the quality of our portfolio. The strategic initiative to optimise our products and
At CHF 334.2 million, the Austrian companies posted growth of around 1 per cent in a very trying economic environment (growth in CHF: –3.5 per cent). Following the reorganisation of its market areas and sales processes, particularly in the broker business, non-life growth was compar able to overall market growth. In the life business, the new product range and in particular the unitlinked life products are showing first signs of success. At the turn of the year 2008/09, Helvetia Austria joined the top 5 insurance companies in the transport segment with its acquisition of the transport portfolio of VAV-Versicherung. This will substantially increase volumes in the Austrian niche business in the coming year.
The technical result was influenced on the one hand by net interest income which, due to the chaos on the capital markets, did not meet expectations but was still positive, and on the other by the excellent risk result. For 2009 we expect strong growth impulses from the measures implemented to actively combat cancellations and to streamline our process management as well as from the launch of new products, particularly in unit-linked life insurance. These growth impulses will be supported by our consistently solid technical results.
in the property and motor vehicle segments. In spite of general premium reductions in the motor insurance segment, the above-average increase in new contracts allowed Helvetia to gain market share in this area. The profitable private customer segment performed better than expected, particularly as regards the business carried out via the broker channels. This leads us to believe that, apart from the changes to the product range, our efforts to improve our services and to optimise our processes are now bearing fruit.
After a continuous improvement in the combined ratio over the past few years, we had to digest a higher than expected combined ratio of 102.5 per cent for 2008. This development is explained by the large number of natural disasters and claims for major damage. On the cost side we managed to reduce our outgoings in spite of one-off exceptional expenses, which is reflected in the slight reduction in the cost ratio. As far as premiums are concerned, we expect business to become more dynamic again in 2009 thanks to our restructured and effective sales structures and the introduction of new products. We will also strive to improve our earning power through consistent cost management.
Due to its size and specialisation in transport insurance, Helvetia France is a minor but first-rate player in the French insurance market. However, its focus on transport insurance means that it plays an important role in this segment as the number 5 provider of transport insurance cover. Helvetia France sells freight and liability insurance to forwarding agents via a sales network of around 1,700 brokers. The company employs approximately 90 people who work in the vicinity of Paris and in the most important French agglomerations.
However, the economic downturn is likely to hit the transport sector soon. To counteract this trend and ensure continued healthy growth for Helvetia France, the company sets a high priority on the ongoing development of new and target-specific products. The continued training of employees in this very specialised insurance segment and the cultivation of relationships on a partnership basis with brokers are key factors in the company’s sustained success, especially in the current difficult environment. Its secure position as the fifth-largest transport insurer in France is founded on the excellent reputation that Helvetia enjoys with its customers and partners.
PanGas AG PanGas AG, Dagmersellen (CH), produces and supplies technical, medicinal and special gases. In addition, it offers numerous services in all areas to do with gas.
In 2008, pressure on prices in the reinsurance market continued unabated. The increase in competitive pressure was triggered by the good results of primary insurers and reinsurers in 2007, a year characterised by an excellent claims experience. Helvetia has been very well positioned in the reinsurance business as a quality-centric niche provider for many years. Its good reputation and intact business relationships allowed it to build up a top- quality and consistently profitable reinsu rance portfolio even in the current challenging market environment.
At around 57 per cent of premium income, property insurance still accounts for the largest share of the proportionally structured portfolio. As we are successful and well-diversified with our current mix of insurance lines, no significant changes are planned for the immediate future.
Outlook 2009 The 2009 renewal round was very satisfactory, but we again terminated contracts that did not meet our profit expectations. However, we successfully replaced this business by potentially profitable contracts and expanded existing profitable business relationships. For these reasons we expect premium volume to be slightly higher in 2009 in spite of the economic slowdown. Already before and during the renewal round we saw unmistakable evidence of a hardening of the market, both in the primary and in the reinsurance markets. We believe that this development will be even more pronounced in 2009 and thereafter. Therefore, provided that the claims experience remains normal, we expect another positive technical result
Key figures for investors The Helvetia Holding AG registered share has a nominal value of CHF 0.10 and is part of the Swiss Performance Index (SPI). It is traded on the SIX Swiss Exchange under the symbol HELN and
Helvetia Group Consolidated equity in CHF million 2 773.7 2 850.6 Consolidated equity per share in CHF 323.2 332.1 Group profit for the period per share in CHF 26.9 46.7 Return on equity (ROE) 8.2% 14.4%
Year-end in CHF 228.9 407.0 High for the year in CHF 424.0 540.0 Low for the year in CHF 153.0 340.0
1 Proposal to the Shareholders’ Meeting 2 Based on year-end price
Continued shareholder growth In the past year, the number of shareholders increased by another 1,262. After we reached an all-time high on 30 June 2008 with 6,911 registered shareholders, the number of shareholders grew even further to 7,100 as at 31 December 2008. The new shareholders also include many employees of Helvetia Group, who were given the opportunity in the 150th anniversary year to buy company shares at an attractive price. In total, the number of employee shareholders rose by 609 to 1,792 at the end of 2008. This brings the employees’ share in the share capital to 1.2 per cent, of which around 0.1 per cent is held by the members of the Board of Directors and the Exec utive Management of Helvetia Group.
Private individuals 11.0% 12.6% Banks and insurance companies 27.9% 26.0% Other institutional investors 61.1% 61.4%
Measured against shareholdings, 76.7 per cent (previous year: 77.6 per cent) of the registered shareholders are based in Switzerland and 23.3 per cent (previous year: 22.4 per cent) are based abroad. As far as the important shareholders are concerned, there were no significant changes in the reporting year. As of 31 December 2008, the following important shareholders were registered without any changes with the share register of Helvetia Holding AG: Shareholders as at 31 December 2008
Par value repayment finalised In July 2008, Helvetia Group carried out the par value repayment of CHF 9.90 per share approved at the Shareholders’ Meeting of 25 April 2008. From this date only registered shares with a par value of CHF 0.10 each are officially traded on the main board of the SIX Swiss Exchange. This reduction of the share capital by reducing the par value of the share is a sign of our active capital management.
Active communication with capital market Confidence is a key value for Helvetia. Helvetia wants to gain and strengthen the confidence of capital market players in the company and in its share with the financial information it communi-
cates. We therefore communicate actively, openly and reliably with institutional investors, financial analysts and private investors. We see our relationship with our shareholders as a long-term, fair and balanced partnership. All shareholders registered with the share register automatically receive a shareholders’ letter with a short overview of business operations every six months. We also send the detailed Annual Report and other corporate publications to the shareholders on request.
Gasthof Wellness oase Aumühle The Wellnessoase Aumühle, Grein (AT), is run by Family Schöller and offers year-round health and relaxation in Strudenau in Donauland.
Helvetia actively promotes the conservation of the environment and views sustainable conduct as an important investment in the future. That a pragmatic approach to the protection of the environment can be a good idea is confirmed by Helvetia in its advertising campaigns: at a total of 420 locations, Helvetia used LED bulbs for its neon signs.
The environment Helvetia has been supporting the WWF eastern Switzerland environmental award “Der Grüne Zweig” (The Green Branch) for several years. This prize honours outstanding environmental programmes and concepts developed by groups or private individuals who display great commitment to preserving the environment in which we live. In 2008, the prize was shared by school children from Wil and the “energy agents” from Frauenfeld. The children at the Wil primary school reactivated an old and defunct tree nursery. The energy agents are scholars at the Frauenfeld junior high school who offer to test the energy consumption of private individuals and companies.
Renewable energies are making an ever bigger contribution to electricity generation. In Germany, the generation of electricity using solar cells (photovoltaic) has increased more than fivefold in the past three years. Helvetia in Switzerland and Germany offers photovoltaic insurance to companies that operate photovoltaic plants. The photovoltaic plants can be insured against destruction, damage and theft, as well as the resulting loss of earnings. Nine of the ten leading providers with a total market share of around 90 per cent have already taken out this insurance cover from Helvetia.
A similar campaign took place in Germany on initiative of a major German health insurer and the German cyclists club ADFC. With the “Mit dem Rad zur Arbeit” campaign they motivated the German people to commute to work by bicycle and muscle power and Helvetia also took part in this German national programme.
Social responsibility Helvetia Patria Jeunesse is a foundation that promotes Swiss youth groups, clubs and youth projects in keeping with the foundation’s purpose. One of the highlights of 2008 was its anniversary donation of CHF 500,000 to the national camp of the Swiss Guide and Scout Movement Contura08 in the Linthebene. The national camp was attended by 25,145 scouts and was a resounding success that offered the young people an unforgettable experience. The foundation also granted 46 smaller donations worth CHF 213,841 in total.
Culture and education The third St.Galler Festspiele took place in 2008, for which Helvetia was also the main sponsor. Verdi’s rarely performed opera “Giovanna d’Arco” enjoyed seven performances against the historical backdrop of the Klosterhof in St.Gallen and was greeted with great acclaim by Helvetia’s guests.
Helvetia and the University of St.Gallen enjoy a long collaboration that is complemented by propinquity. Helvetia supports the Institute of Insu rance Economics and numerous scientific and cultural events. By sponsoring a university year, Helvetia is able to support a complete year-group from their first day at university to their finals.
Helvetia Austria entered into a partnership with the Sir Karl Popper school in Vienna. This school offers individualised schooling to highly gifted children. The first project involved the financing of a media library for the school which can be used
by the teachers in their classroom work. In the area of science and research Helvetia Germany supports the Johann Wolfgang Goethe University in Frankfurt and is also a member of various associations that promote insurance science.
Sport In the field of sport, Helvetia Switzerland has been supporting the Swiss Foundation for Sport Assistance since last year. This Foundation helps talented young people to develop into top-class sportspeople and paves their way to the world of elite sport.
The year 2008 was the fourth year of Helvetia’s successful partnership with Swiss Ski. Helvetia proudly supports Switzerland as a ski nation and views this commitment as an investment in the next generation of Swiss skiers, in particular via the “Helvetia Nordic Trophy”. The success that can be achieved with such support is demonstrated by the cross-country skier Dario Cologna. Helvetia Switzerland has been supporting the young man from Graubünden for the past three years, which enabled him to focus on his development as a professional sportsman. As well as supporting individual top sportsmen and sportswomen Helvetia is also a committed sponsor of FIS and mass sporting events (e.g. the Engadine Ski Marathon). Across the borders of Switzerland, Helvetia Germany continued its commitment to winter sport as one of the official main sponsors of the Four Hills Tournament, which was also once again supported by Helvetia Switzerland and Helvetia Austria.
150 years of Helvetia Helvetia Switzerland used its anniversary year to strengthen its national image. In addition to television ads, the company also interacted directly with the public, such as on 31 July 2008, the day before the Swiss National Day, when we surprised commuters at all large train stations with a small gift. Helvetia’s 150th anniversary was also used as an opportunity to thank our employees for their commitment. Apart from numerous activities and campaigns during the entire year, Helvetia invited all its employees to Lucerne in October 2008.
After an eventful day packed with art, culture and comedy, Lucerne was treated to fireworks and a concert with employee bands and well-known Swiss artists.
Income statement 198 Balance sheet 198 Notes to the annual financial statements 199 Report of the Statutory Auditors 202
Claims incurred including claims handling costs (non-life)2 –1 292.6 –1 630.7 Claims and benefits paid (life) –2 703.1 –2 369.8 Change in actuarial reserve –103.7 –591.1 Reinsurers’ share of benefits and claims 135.1 205.9 Policyholder dividends and bonuses –0.8 –173.4 Net insurance benefits and claims –3 965.1 –4 559.1 Acquisition costs –704.5 –692.4 Reinsurers’ share of acquisition cost1 58.2 61.8 Operating and administrative expenses2 –522.8 –514.4 Interest payable –42.8 –44.6 Other expenses –79.0 –51.7 Total operating expenses –5256.0 –5 800.4
Profit or loss for the period 230.5 402.0 attributable to: Shareholders of Helvetia Holding AG3 230.6 401.0 Minority interests –0.1 1.0
Earnings per share: Basic earnings per share (in CHF) 11.4 26.86 46.72 Diluted earnings per share (in CHF) 11.4 26.86 46.72
2 To improve the presentation, the claims handling costs for the country market Spain that were previously included in 'Operating and administrative expenses' were reclassified to 'Claims incurred including claims handling costs (non-life)'. This results in a change to the prior year figures of CHF 19.8 million.
3 Details on this item can be found under 'Consolidated statement of equity'.
Receivables from insurance business 9.5 680.2 696.4 Deferred acquisition costs (life) 9.4.1 224.0 223.2
Valuation reserves for contracts with participation features 11.2.5 513.6 545.8 Equity of Helvetia Holding AG shareholders 2 733.4 2 846.8 Minority interests 40.3 3.8
Unrealised Capital Treasury gains and in CHF million Share capital reserves shares losses (net)
Foreign contracts with Total before currency Retained participation minority Minority Total reserve earnings features interests interests equity 11.2.5
– – –135.1 –361.7 –0.2 –361.9 5.3 – –100.3 –173.5 –0.1 –173.6
Reclassifications to investing and financing activities (affecting cash): Realised gains and losses on property, equipment and intangible assets 0.0 0.4 Realised gains and losses on sale of associates 0.0 – Dividends from associates –1.0 –0.6
Change in operating assets and liabilities: Deferred acquisition costs (life) –3.8 –2.9 Reinsurance assets 185.8 99.9 Actuarial reserve 103.8 590.7 Provisions for future policyholder participation –137.5 61.5 Loss reserves –229.5 87.1 Unearned premium reserve –6.9 38.0 Financial liabilities from insurance business –202.0 –292.5 Changes in other operating assets and liabilities 308.4 –35.7 Purchase of investment property –45.8 –61.3 Sale of investment property 43.2 38.5 Purchase of bonds –3 284.7 –3 403.5 Repayment/sale of bonds 2 571.0 2 653.3 Purchase of shares, investment funds and alternative investments –1 487.3 –2 185.8 Sale of shares, investment funds and alternative investments 1 787.5 2 123.5 Purchase of derivatives –285.0 –117.4 Sale of derivatives 256.6 4.1 Origination of mortgages and loans –345.7 –349.4 Repayment of mortages and loans 388.8 398.1 Purchase of money market instruments –21 762.8 –17 735.6 Repayment of money market instruments 21 400.8 18 114.1 Cash flow from operating activities (gross) 573.2 601.5 Income taxes paid –125.4 –97.2
Cash flow from operating activities (net) 447.8 504.3 1 'Other income and expenses not affecting cash’ primarily contains the change to interest-accruing profit participation of owners of contracts with discretionary participation features.
Purchase of property and equipment –140.9 –135.7 Sale of property and equipment 0.7 3.7 Purchase of intangible assets –15.6 –12.5 Sale of intangible assets 5.1 0.1 Purchase of investments in asscociates –8.5 – Sale of investments in associates 0.0 – Purchase of investments in subsidiaries, net of cash and cash equivalents –168.1 0.0 Dividends from associates 1.0 0.6 Cash flow from investing activities (net) –326.3 –143.8
Decrease of share capital –85.6 – Sale of treasury shares 3.2 3.4 Purchase of treasury shares –7.5 –4.1 Shareholders’ contribution 32.0 9.0 Dividends paid –128.3 –116.2 Lease payments under finance lease –5.7 – Cash flow from financing activities (net) –191.9 –107.9
Other disclosures on cash flow from operating activities: Interest received 753.9 726.8 Dividends received 67.0 86.8 Interest paid 15.3 11.6
1. General information 100 2. Summary of significant accounting policies 100 3. Segment information 115 4. Foreign currency translation 122 5. Property and equipment 123 6. Goodwill and other intangible assets 124 8. Financial liabilities 134 9. Insurance business 137 10. Income taxes 144 12. Provisions, contingent liabilities and other commitments 153 13. Employee benefits 154 14. Share-based payments 159 15. Related party transactions 160 16. Financial instruments by categories 165 17. Risk management 167 18. Events after the reporting date 192 19. Scope of consolidation 193
The consolidated financial statements of Helvetia Group were prepared in accordance with International Financial Reporting Standards (IFRS) and under the historical cost convention with the exception of adjustments resulting from the IFRS requirement to record investments at fair value. The fair value valuation methods are explained in Note 2.4 (page 102).
2.1 Changes in accounting policies 2.1.1 Standards applied for the first time in the reporting year The following published sector-relevant standards (IAS/IFRS), interpretations (IFRIC) and amendments to the standards were applied by the Group for the first time in the reporting year: � IFRIC 14 The limit on a defined benefit asset, minimum funding requirements and their interaction ment and financing activities are managed through subsidiaries and fund companies in Luxembourg and Jersey (UK).
Helvetia Group is an all-lines insurance group which operates in many life and non-life business segments as well as in reinsurance. The holding company, Helvetia Holding AG with headquarters in St.Gallen, is a Swiss public limited company listed on the SIX Swiss Exchange. The Group operates through its branch offices and subsidiaries in the insurance markets of Switzerland, Germany, Austria, Spain, Italy and France, and worldwide in assumed reinsurance business. Parts of its invest-
This IFRIC interpretation provides general guidelines on calculating the maximum amount of the surplus of a pension fund that can be measured as an asset under IAS 19. IFRIC 14 also addresses the interaction between statutory or contractual minimum funding requirements on the measurement of a liability or an asset. The application of this IFRIC interpretation does not have any sig nificant impact on Helvetia Group.
Helvetia Group does not expect the first-time application of IFRS 8 and IAS 1 as revised to have any significant impact on the consolidated financial statements, as this will primarily affect the type and extent of disclosure. Due to the changes to IAS 16 and IAS 40, the Annual Improvements Project will mean that a large part of the real estate under construction will in future be recognised as investment properties and be measured at fair value through profit or loss. The new amendments to standards and interpretations are not expected to have any significant impact on the financial statements.
Subsidiaries The consolidated financial statements include the financial statements of Helvetia Holding AG, its subsidiaries and special purpose entities. Consolidation occurs when Helvetia Holding AG exercises indirect or direct control over the company ’s operations. Subsidiaries acquired during the course of the financial year are included in the consolidated financial statements from the date on which Helvetia Group took effective control. Acquisitions of companies are recorded using the purchase method. Intercompany transactions and balance sheet items are eliminated.
Effective date: to be applied for annual periods beginning on/after: � IFRS 1 rev. First-time adoption of International Financial Reporting 1.1.2009 Standards – presentation of financial statements
� IFRS 2 Share-based payment – vesting conditions and cancellations 1.1.2009 � IFRS 3 rev. Business combinations 1.7.2009 � IFRS 8 Operating segments 1.1.2009 � Amendments to IAS 1 Presentation of financial statements: puttable instruments 1.1.2009 and 1 January 2009 obligations arising from liquidation � Amendments to IAS 23 Borrowing costs 1.1.2009 � Amendment to IAS 27 Consolidated and separate financial statements under IFRS 1.7.2009 � Amendments to IAS 32 Financial instruments: presentation 1.1.2009 � Supplement to IAS 39 Financial instruments: recognition and measurement – 1.7.2009 underlying transactions that qualify as hedged items � IFRIC 13 Customer loyalty programmes 1.7.2008 � IFRIC 15 Agreements for the construction of real estate operation 1.1.2009 � IFRIC 16 Hedges of a net investment in a foreign operation 1.10.2008 � IFRIC 17 Distribution of non-cash assets to owners 1.7.2009 � IFRS changes (Annual Improvements Project IASB) 1.1.2009 2.1.2 Standards not yet applied in the reporting year Due to the effective dates on which they enter into force, the following published sector-relevant standards, interpretations and amendments to standards were not applied to the 2008 consolidated financial statements:
All the significant companies included in the consolidation have the same reporting periods. Smaller Group companies with different financial years prepare interim financial statements as of the reporting date of 31.12.
Foreign currency translation Items included in the financial statements of those entities that do not have the Swiss franc as their functional currency were translated using the applicable closing rate. Items in the income statement are translated at the average exchange rates for the reporting period. The resulting translation differences are recorded in 'Foreign currency trans lation differences' in equity, not affecting profit or loss. Upon disposal of a subsidiary, these differences, attributable to the subsidiary in question and accumulated in equity, are released through income. The rates applied in these financial statements are given in Note 4.1 (page 122).
For non-monetary items classified as availablefor -sale investments, such as shares and shares in investment funds, the unrealised foreign exchange gain is recognised in equity without affecting the income statement until the financial instrument is sold. However, for monetary items such as bonds and loans, the unrealised foreign exchange difference is immediately recognised in the income statement.
The fair value of a financial instrument is the quoted market price for which an asset could be exchanged in an active market between knowledgeable, willing parties in an arm’s length transaction.
� Mortgages and loans: The fair value of mortgages and borrower’s note loans is determined on the basis of discounted cash flows. Mortgages are measured by applying the current interest rates of Helvetia Group for comparable mortgages that have been granted. The Swiss franc swap curve is used to measure borrower’s note loans.
� Derivative financial instruments: The fair value of equity and currency options is determined using option price models (Black-Scholes option pricing), while the fair value of forward exchange rate agreements is determined on the basis of the forward exchange rate on the reporting date. The fair value of interest rate swaps is calculated using the present value of future payments.
Impairment of available-for-sale investments The judgement as to whether an equity instrument classified as available-for-sale is subject to impairment depends on the existence of objective indications.
Fair value of investment property In Switzerland, investment properties are valued in accordance with the discounted cash flow method (DCF). The procedure is described in Note 2.10.1 (page 106).
Accounting estimates specific to insurance The estimate uncertainties in the area of actuarial practise are explained in Note 2.13 (from page 109). Any significant change to the parameters used for reserve calculation is documented in Notes 9.3 (non-life business) and 9.4 (life business).
The following items are fundamentally classified as non-current: 'Property and equipment', 'Goodwill and other intangible assets', 'Investments in associates', 'Investment property' and 'Deferred tax assets and liabilities'.
The following items are fundamentally classified as current: 'Current income tax assets and liabilities', 'Accrued investment income' and 'Cash and cash equivalents'.
All other positions are of a mixed nature. The differentiation between current and non-current balances of relevant positions is set out in the notes. The maturity schedule of financial assets, financial liabilities and reserves for insurance and investment contracts is described in Note 17.4 (from page 177) as part of the risk assessment process.
The following rates of depreciation apply to owneroccupied property: � Supporting structure 1.0–3.5% � Interior completion 1.33–8.0%
Useful life is adjusted if the pattern of consumption of the economic benefit has changed. Investments are offset against the current carrying value in the period and are depreciated over the entire term if an increase in the economic benefit is expected from the investment and reliable estimates exist for the cost. Depreciation is recognised in the income statement under 'Operating and administrative
If a lease agreement transfers all risks and rewards incidental to the ownership to Helvetia Group, the lease is classified and treated as a finance lease. The finance lease agreements of Helvetia Group are limited to lessee agreements. At inception of the lease agreement, recognition occurs at the lower of the present value of the minimum lease payments and the fair value of the lease object. A finance lease obligation of the same amount is recorded as a liability. Lease payments are apportioned between the finance charge and reduction of the outstanding liability so as to achieve a constant rate of interest on the remaining balance of the liability. The depreciation of the asset follows the rules for depreciating tangible assets.
Acquired intangible assets are recognised at cost and amortised over their useful life.
Intangible assets with an indefinite useful life are not amortised, but are reviewed annually for impairment (see Note 2.9, page 106).
The carrying value of tangible assets or an intan gible asset amortised using the straight-line method is tested for impairment if there is evidence for impairment. Goodwill and intangible assets with an indefinite useful life are reviewed for impairment annually in the second half of the year.
An intangible asset is impaired if its carrying value exceeds its recoverable amount. The recoverable amount is measured as the higher of fair value less cost to sell and value in use. Fair value less cost to sell is the amount obtainable from the sale of an asset at current market conditions after deducting any direct disposal costs. Value in use is the pre sent value of estimated future cash flows expected to be generated from the continuing use of an asset and from its disposal at the end of its useful life. For the purpose of impairment testing, the value in use is measured under realistic conditions, with consideration given to planned activities and their resulting cash in- and outflows. If the recoverable amount is less than the carrying value, the difference is charged to the income statement as an impairment loss. This is reported in the position 'Other expenses'.
A reversal of the impairment loss is recognised if there has been a change in the estimates used to determine the recoverable amount since the impairment loss was accounted for. If the new circumstances result in a decreased impairment loss, the reversal impairment is reported up to the maximum of the historical cost and recorded in the income statement in 'Other expenses'.
For the purpose of impairment testing, goodwill is allocated at the time of acquisition to those cash generating units (CGU) that are expected to ben efit from the business combination. These are in general identical to the legal entities of Helvetia Group. If there is no intention to sell, the value in use of the CGU is determined and compared to the carrying value for the purpose of calculating any impairment loss. The value in use is calculated applying the discounted cash flow method (DCF), with future operating cash flows less necessary operating investments (free cash flows) being included. If there is an intention to sell, the fair value less cost to sell is used for impairment testing. If an impairment loss arises, the goodwill is adjusted accordingly. An impairment loss for goodwill cannot be reversed.
2.10.1 Investment property The aim of the investment property portfolio is to earn rentals or achieve long-term capital appreciation. Property held for investment purposes includes both land and buildings and is carried at fair value. Changes in fair value are recognised in the income statement. Companies in Switzerland calculate fair value using a generally accepted discounted cash flow valuation method (DCF). The portfolio is regularly reviewed and appraisal reports are prepared by independent experts. All other countries use independent experts to determine market estimates at least every three years. These estimates are updated between valuation dates.
Helvetia Group does not capitalise properties where it acts as tenant in an operating lease relationship. Rental income is recognised on a straightline basis over the lease term.
2.10.2 Financial assets The recognition and valuation of financial assets follow the IFRS categories: 'Loans' (loans and receivables, LAR), 'Held-to-maturity' (HTM), 'At fair value through profit or loss' and 'Available-forsale ' (AFS).
Helvetia Group records all acquisitions and disposals of financial instruments at trade date. Derecognition of a financial investment occurs on expiration of the contract or at disposal if all risks and control have been transferred and if no rights to cash flows from the investment are retained. Through its securities lending activities, the Group lends out certain securities to other companies for a certain period of time and against payment. The securities lent to third parties remain under the control and in the portfolio of Helvetia Group. Revenues from securities lending are recorded in the income statement under 'Interest and dividend income'.
'Financial assets at fair value through profit or loss' comprise 'financial assets held for trading' and 'financial assets designated as at fair value through profit or loss'. An instrument is classified as 'held for trading' if it is held with the aim of making short-term gains from market price fluctuations and dealer margins. Upon initial recognition, financial investments are irrevocably classified as 'designated as at fair value' only if they are a component of a particular group of financial assets that, according to a documented investment strategy, are managed on a fair value basis, or their recognition as at fair value serves to compensate for market value fluctuations of liabilities due to policyholders. The value fluctuations that result from the fair value valuation are directly recognised in the income statement and reported separ ately from 'Interest and dividend income' in the position 'Gains and losses on investments'.
For LAR and HTM financial investments, the recoverable amount at the reporting date is equivalent to the present value of estimated future cash flows discounted at the original interest rate. Impairments are booked using an allowance account.
The impairment is reversed through profit or loss if a subsequent event causes a decrease in the impairment loss.
Financial liabilities are initially recognised at fair value. Directly attributable transaction costs are offset, except in the case of financial liabilities at fair value through profit or loss. After initial recognition, financial liabilities are carried at fair
2. Summary of significant accounting policies 109 value or amortised cost (AC). The financial liability is derecognised when the obligation has been discharged.
Those financial liabilities not held for trading and also not designated as at fair value through profit or loss are recognised at amortised cost. Interest expenses for financial liabilities that are used for financing purposes are recognised in the income statement as 'Finance costs'. Depreciation and appreciation resulting from the amortised cost method are offset against interest expenses in the income statement.
Direct business includes assumed primary business and business ceded to reinsurers. Indirect business consists of assumed reinsurance business and business retroceded to reinsurers. The actuarial items are described as 'gross' before deduction of ceded business and as 'net' after the deduction.
2.13.2 Life business Helvetia Group classifies all life insurance products containing significant insurance risk as insu rance contracts.
The valuation and accounting principles applied locally by the life companies determine the actua rial items in life business. The assumptions made in setting the reserves are based on best estimate principles that, firstly, take account of the businessspecific situation, such as existing capital investments and the market situation as well as, for example, possible yields from reinvestments, and secondly, local actuarial bases of calculation (e.g. interest rates, mortality). The assumptions vary according to country, product and year of acceptance, and take account of country-specific experiences.
Policyholders with contracts containing discretionary participation features may have the right to participate in local investment returns on capital or local company results under statutory or contractual regulations. Provisions set up for that purpose in accordance with local accounting principles are not changed under IFRS rules and are included under 'Provision for future policyholder participation ' or under 'Actuarial reserve' in the balance sheet.
Portions of the valuation differences in relation to local accounting principles allocated to contracts containing discretionary participation features which affect either the net income or unrealised gains in equity are also reserved under the aforementioned balance sheet item. The portion is equal to the percentage rate which sets the minimum participation level of policyholders in the respective revenues under local statutory or contractual regulations. This participation in income is credited or debited to the position 'Provision for future policyholder participation' through profit or loss. Similarly, the portion of unrealised gains or losses is recognised in the provisions without affecting profit or loss.
Assets from ceded reinsurance business are regularly reviewed for potential impairment and uncollectibility. If there is objective and substantial evidence of impairment at the balance sheet date, the difference between the carrying value and estimated recoverable amount is recognised in the income statement as an impairment loss.
Indirect business accepted by another insurance company is called assumed reinsurance. As in primary insurance business, technical reserves are included in the respective actuarial items on the liabilities side, and are similarly estimated using mathematical-statistical models and the most up-todate information available. They also reflect uncertainties. Non-traditional insurance contracts are treated as financial instruments and are reported under 'Reinsurance assets' or 'Financial liabilities from insurance business' if no significant insurance
Interest income on interest-bearing financial investments and loans that must be allocated to the reporting year is accrued or deferred under financial assets.
Cash and cash equivalents consist of cash on hand, demand deposits and short-term liquid investments with a maturity of 90 days or less from the date of acquisition.
For funded benefit plans, a surplus in the plan may arise if the fair value of the plan assets exceeds the present value of the defined benefit obligations. Portions of this surplus are only recognised and recorded as an asset if an economic benefit in the form of future reductions in contributions or refunds to the employer arises. There is a contribution reduction as defined by IFRS if the employer must pay lower contributions than service cost. A review is carried out to ensure that newly arising actuarial gains or losses do not lead to an increase or decrease in the assets on record.
Assets and liabilities are offset in the balance sheet when there is a legal right to set off the recognised amounts and only the net position has actually been reported.
The management structure of Helvetia Group is primarily based on country markets. Each country has its own management team which is in charge of the operational management of all local business units. This has led to the following reporting segments: Primary segmentation at Helvetia Group is structured by geographical area and follows the reporting responsibility: Switzerland, Germany, Italy, Spain and Others. The segment 'Others' covers the country markets of Austria and France, the financing companies in the UK and Luxembourg, as well as the Group’s assumed and ceded reinsurance business. Special purpose entities are assigned to the individual countries in proportion to their ownership structure. With the exception of the reinsu rance business, the geographical segmentation is based on the location of the legal entity where all service-rendering activities occur. This segmentation also reflects the locations where customers of Helvetia Group reside.
Secondary segmentation is based on the business segments of Helvetia Group: life and non-life business and other activities. In the life segment, Helvetia Group offers various product lines, such as life insurance, pension plans and annuities. The non-life segment offers property, motor vehicle, liability and transport insurance policies as well as health and accident insurance coverage. Other activities refer to the reporting of the non-underwriting activities of the Group’s service, distribution and real estate companies. Special purpose entities are proportionally assigned to the life and non-life segments. Reinsurance contracts are reported in the life or non-life segments depending on the type of contract.
The assignment of individual Group entities to the various business and geographical segments is explained in Note 19 (from page 193).
Interest and dividend income 496.7 506.52 98.1 100.8 Gains and losses on investments (net) –679.2 92.9 –86.7 20.8 Income on investment property 300.7 158.9 1.5 4.8 of which transactions between geographical segments 50.3 49.0 75.3 80.7
Liabilities by geographical segment as of 31.12. 20 634.0 21 420.1 2 434.2 2 705.8 of which technical provisions (gross) 18 983.5 19 136.9 2 017.0 2 271.3
Cash flow from operating activities (net) –367.8 334.1 33.3 42.7 Cash flow from investing activities (net) –79.6 –54.9 –22.1 –32.5 Cash flow from financing activities (net) 282.6 –69.0 –1.4 –1.4
Acquisition of owner-occupied property, equipment and intangible assets 102.1 100.9 14.2 13.2 Depreciation and amortisation of tangible and intangible assets –15.1 –15.6 –3.6 –3.8 Impairment of tangible and intangible assets affecting income – –2.1 – – Reversal of impairment losses on tangible and intangible assets affecting income – 0.0 – – Share-based payment transaction costs –4.3 –0.7 – –
3. Segment information 116 1 To improve the presentation, the position 'Reinsurers’ share of acquisition costs' is now reported separately. This leads to a change in the prior year figures for 'Other income' of CHF 61.8 million in total. 2 The change in the prior year figures results from the improved presentation of technical interest of CHF 21.6 million, which was previously included in 'Operating and administrative expenses' but is now reported under 'Interest and dividend income'. 3 To improve the presentation, the claims handling costs for the c (non
– –2.3 – – – – – –4.4 – – – – – – – 0.0 – – – – – – –4.3 –0.7 3. Segment information 117
Interest payable –39.6 –42.2 –3.2 –2.4 Other expenses –19.9 –15.0 –36.6 –46.2
Other disclosures: Assets by business segment as of 31.12. 27 868.5 25 843.7 5 475.3 6 102.2 Liabilities by business segment as of 31.12. 26 446.5 24 444.9 3 976.1 4 587.5
Notes to the consolidated financial statements of Helvetia Group 2008 1 To improve the presentation, the position 'Reinsurers’ share of acquisition costs' is now reported separately. This leads to a change in the prior year figures for 'Other income' of CHF 61.8 million in total.
2 The change in the prior year figures results from the improved presentation of technical interest of CHF 0.6 million, which was previously included in 'Operating and administrative expenses' but is now reported under 'Interest and dividend income'. To improve the presentation, the claims handling costs for the country market Spain of CHF 19.8 million that were previously included in 'Operating and administrative expenses' were also reclassified to 'Claims incurred including claims handling costs (non-life)'.
3. Segment information 121 3.4 Gross premiums by business line in CHF million
Reinsurance non-life 211.0 232.7 –9.3 –9.3 3.5 Gross premiums and deposits received in CHF million
Deposits received from investment contracts life1 85.0 16.3 422.8 445.4 Gross premiums and deposits received (life) 3 152.0 2 910.2 8.3 9.4
Notes to the consolidated financial statements of Helvetia Group 2008 1 Currently, all deposits from investment contracts life concern the country market Italy.
The Euro, Swiss franc, British pound and US dollar are the functional currencies in the individual business units of Helvetia Group. The following exchange rates apply to the translation of these financial statements and foreign currency trans actions: 4.2 Foreign exchange gains and losses
The foreign exchange results in the 2008 consolidated income statement show a loss of CHF –257.4 million (previous year: CHF 68.9 million ). The foreign exchange gains and losses from financial investments are included in 'Gains and losses on investments' in the consolidated income statement and amount to CHF –224.2 million (previous year: CHF 61.8 million) excluding foreign currency translation differences from investments at fair value through profit or loss.
Acquisition costs: Change in the scope of consolidation – – – – 0.1 – – – 0.1 –
Book value as of 31 December 5.3 5.3 345.0 374.2 21.1 19.4 230.6 161.7 602.0 560.6 Book value as of 1 January 5.3 5.4 374.2 373.0 19.4 20.4 161.7 127.4 560.6 526.2
Accumulated amortisation/impairment: Reversal of impairment losses – – – – – – Disposals amortisation/impairment – – –1.5 –1.2 –1.5 –1.2 Foreign currency translation differences 0.0 0.0 –9.4 2.1 –9.4 2.1
Book value as of 31 December 64.7 24.8 117.9 40.1 182.6 64.9 Book value as of 1 January 24.8 24.2 40.1 44.4 64.9 68.6
Goodwill is tested annually for impairment in accordance with Note 2.9 (page 106). The goodwill from the acquisition of 'Chiara Vita' and 'Padana Assicurazioni' was tested for impairment during the purchase price allocation.
The impairment test carried out in 2008 did not result in any impairment loss. The recoverable amount was determined by calculating the value in use. This calculation required management to make estimates of expected returns. These free cash flows are usually considered for a period of two to five years and are based on the budget approved by management and the strategic planning.
The growth rate was set by management and is based on past experience and future expectations. The risk-free capital market interest rate plus a risk premium were used to determine the discount rate.
Management believes that any reasonable change in any of the key assumptions used to determine the recoverable amount of the individual segments will not result in impairment.
Notes to the consolidated financial statements of Helvetia Group 2008 7. Investments
Interest and dividend income 7.1.1 793.3 793.8 Gains and losses on investments (net) 7.1.3 –978.4 130.2 Income on investment property 7.1.4 324.2 194.4 Share of profit or loss of associates 1.4 2.8 Investment income (gross) 140.5 1 121.2
Investment income (net) 72.0 1 040.0 7.1.1 Interest and dividend income in CHF million
Dividends from shares, investment funds and alternative investments 67.1 86.8 Income of securities lending 3.0 2.3
Thereof: Gains and losses relating to investments for the account and risk of owners of unit-linked products –220.7 –35.4
'Derivatives' comprise gains and losses on derivative financial assets and derivative financial liabilities.
CHF 143.5 million applied to equity instruments. The weak trend on the equity markets and the prudent impairment criteria applied by Helvetia Group resulted in impairment losses of CHF 130.5 million (previous year: CHF 7.5 million) on available -for-sale securities and CHF 13.0 million
Based on notice periods, real estate tenancies will generate future rental income for Helvetia Group of CHF 67.6 million (previous year: CHF 60.9 million ) due in less than one year, CHF 123.6 million 7.2 Investments by business segment in CHF million
Impairment losses: Accumulated impairment losses as of 1 January 7.7 7.7 Impairment losses of the period – – Reversal of impairment losses of the period – – Disposals – – Foreign currency translation differences – –
Notes to the consolidated financial statements of Helvetia Group 2008 7.3 Investments in associates
The additions to the investments in associates recognised in the reporting year came from the purchase of a 26% stake in each of two German companies, i.e. PS Beteiligungs- und Verwaltungsgesellschaft mbH & Co. KG and PS VerwaltungsGmbH.
Long-term liabilities 170.3 129.0 Short-term liabilities 41.2 20.1 Total liabilities 211.5 149.1
Helvetia Group’s share in the liabilities of associates amounted to CHF 42.9 million (previous year: CHF 30.0 million). Associates have total contingent liabilities of CHF 13.4 million (previous year: CHF 13.5 million).
Capitalised subsequent expenditure 29.5 33.5 Disposals –43.2 –38.5 Realised and book gains and losses 81.7 –37.2 Transfer from/to property and equipment 58.3 82.6 Foreign currency translation differences –47.2 12.2
Financial assets at fair value: at fair value through profit and loss (held for trading): Investment funds – equities 0.8 – 1.1 – 0.8 –
The position 'Investment funds for account and risk of life policyholders' includes the value of shares of unit-linked products whose fund investments are managed by third-party companies.
Note 16, page 165, contains information on financial instruments by IFRS categories.
7.5.1 Assets in securities lending At the reporting date, securities with a fair value of CHF 529.2 million (previous year: CHF 1,483.7 million) were committed to securities lending by the Group.
Options (over-the-counter) – – – – – – – Options (exchange-traded) – – – – – – – Futures (exchange-traded) – – – – – – – Total interest rate instruments – – 4.4 4.4 – 0.8 –
Reversal of impairment losses –1.2 –1.0 – –1.5 –1.2 –2.5 Disposals impairment –0.5 –0.1 – – –0.5 –0.1 Foreign currency translation differences –0.1 0.0 0.0 0.0 –0.1 0.0
Helvetia Group classifies financial liabilities according to their origin as financial liabilities from financing activities, financial liabilities from insurance business and other financial liabilities. Helvetia Group’s financial liabilities do not include any financial covenants that will significantly change the terms and conditions of any agreement
Helvetia Holding AG, St.Gallen, issued a 3% bond 2004–2010 in the 2004 financial year. It has a nominal value of CHF 200 million and pays interest at 3% over the bond’s life of six years. The effective interest rate used for the valuation is 3.14%. Repayment at nominal value is scheduled for 5 May 2010. The bond is measured at amortised cost. At the reporting date, the bond’s book value stood at CHF 199.7 million (previous year: CHF 199.4 million). Interest expenses of CHF 6.3 million (previous year: CHF 6.3 million) for the bond were recognised in the income statement under 'Finance costs'.
Financial liabilities at amortised cost: Deposit liabilities for credited policyholder profit participation 829.1 856.4 829.1 856.4 829.1 856.4 Deposit liabilities from reinsurance contracts 111.6 300.6 111.6 300.6 111.6 300.6 Total financial liabilities at amortised cost 940.7 1 157.0 940.7 1 157.0 940.7 1 157.0
Financial liabilities at fair value: Total financial liabilities at fair value 1 675.4 138.3 1 675.4 138.4 1 675.4 138.3
Equity- and equity-index instruments: Forward – – – – – – –
Reinsurance deposit receivables include deposits held by the ceding direct insurer in respect of unearned premiums, future loss payments and actuarial reserves for assumed indirect business. The fair value at the reporting date equals the reported book values. There was no impairment of deposit receivables.
Provision for policyholder participation – non-life contracts 24.4 24.4 – – 24.4 24.4 Provision for policyholder participation – life contracts 547.7 680.7 – – 547.7 680.7 Provision for policyholder participation – investment contracts –18.4 –11.9 – – –18.4 –11.9 Total provision for future policyholder participation 553.7 693.2 – – 553.7 693.2
Loss reserves for insurance contracts non-life 9.3.1 2 665.1 3 017.8 256.2 277.4 2 408.9 2 740.4
Total reserves for insurance and investment contracts 26 164.7 26 380.7 410.3 456.0 25 754.4 25 924.7
Provision for future policyholder Reserves for insurance contracts non-life (gross) Actuarial reserve participation
Balance as of 1 January 642.6 622.3 –11.9 6.2 Change in the scope of consolidation 724.5 – –9.4 –
Balance as of 1 January 148.2 149.0 Change in the scope of consolidation 2.3 – Allocation/release 17.2 21.5 Used amounts –28.2 –26.3 Impairment – – Foreign currency translation differences –14.6 4.0
� The fluctuation of the annual claims incurred is small overall for the well-diversified portfolio even before reinsurance.
Year of loss occurrence before 2002 2002 2003 2004 2005 2006 2007 2008 Total
Loss reserves as of 31 December 2 665.1 9.3 Non-life business
Actuarial methods derived from many years of claims experience that take account of uncertainties associated with claims estimates are applied to determine the required loss reserves. These reserve loadings are reviewed periodically. Based on actual claims experience, the reserve loadings were reduced in 2008. The resulting reduction in the loss reserves affected the result by CHF 202.1 million before taxes. The total reserve loadings on the non-life loss reserves amounted to CHF 173.3 million as at 31 December 2008. No acquisition costs are deferred in non-life business.
The Liability Adequacy Test (LAT) for non-life business resulted in an additional increase in loss reserves of CHF 15.2 million as at 31 December 2008 (previous year: CHF 14.2 million).
Insurance conditions and risks in non-life business are described in Note 17.2 (from page 169). The following table sets out the development of loss reserves for the previous six years.
9. Insurance business 141 9.4.1 Deferred acquisition costs (life) in CHF million
Notes to the consolidated financial statements of Helvetia Group 2008 9.4 Life business
In a third step, the Liability Adequacy Test finally applies Group-wide uniform standards to test whether the actuarial reserves included in the local financial statements (including additional reserve increases less deferred acquisition costs) are sufficient. Across the Group the Liability Adequacy Test required an allocation of additional actuarial reserves of CHF 39.4 million as of 31 December 2008 (previous year: CHF 30.2 million).
Insurance conditions and risks in life business are described in Note 17.3 (from page 172). Sensitivities of actuarial reserves are outlined in Note 17.3.3 (from page 175).
Helvetia Group defers acquisition costs only in individual life business and such deferrals follow local accounting regulations. Impairment of deferred acquisition costs is checked as part of the Liability Adequacy Test. The share of 'Deferred acquisition costs' classified as short-term is CHF 44.4 million (previous year: CHF 41.3 million ).
Due from agents and brokers 9.1 12.5 10.7 8.0 5.7 6.0 3.6 5.6
Due from/due to policyholders 332.5 329.4 681.7 647.2 Due from/due to agents and brokers 86.2 78.5 53.8 55.6 Due from/due to insurance companies 261.5 288.5 30.8 34.3
The expected tax rate applicable to Helvetia Group was 23.0% for 2008 (previous year: 24.1%). This rate is derived from the weighted average of expected tax rates in the individual countries where the Group operates.
Composition of deferred taxes in the balance sheet: Provision for future policyholder participation1 25.7 38.1 7.0 6.6
Tax assets from losses carried forward 10.5.1 1.3 0.7 – –
Expire within 1 year 0.7 0.4 Expire between 2 and 3 years – 0.8 Expire between 4 and 7 years 7.5 – Without expiration 1.2 1.1 Total recognised losses carried forward 9.4 2.3 Resulting tax assets 1.3 0.7
Net tax assets from losses carried forward 1.3 0.7 1 The change in the prior year figures results from the reclassification of provisions for CHF 63.2 million that were previously included in 'Other' to 'Loss reserves'. The line items 'Financial liabilities' and 'Provision for future policyholder participation' were also previously included in 'Other'.
In the reporting year, Patria Genossenschaft paid CHF 32.0 million (previous year: CHF 9.0 million) into the bonus reserves of Helvetia Schweizerische Lebensversicherungsgesellschaft AG. This was credited to the capital reserve without affecting profit or loss and allocated in total to 'Provision for future policyholder participation' under liabilities in accordance with its objective.
11.2.1 Capital reserves Capital reserves consist of assets paid in by third parties. Capital reserves primarily comprise the share premium of shares issued by Helvetia Holding AG and the result from treasury share transactions.
11.2.3 Reserve for 'Foreign currency translation differences' The reserve for 'Foreign currency translation differences' results from the translation of financial statements prepared in foreign currency into the Group’s reporting currency (Swiss franc).
The position is adjusted at the balance sheet date by the portion relating to contracts with discretionary participation features and deferred taxes. The portion reserved for the owners of contracts with mandatory participation features is transferred to 'Liabilities'. This item plus foreign exchange influences amounts to CHF –16.6 million (previous year: CHF –122.5 million) for the period. The remaining portion regarding contracts with discretionary participation features is allocated to the 'Valuation reserves for contracts with participation features in equity' (see Note 11.2.5).
Transfer Available-for-sale of owner-occupied Total unrealised gains investments (AFS) Associates property and losses
Obligations for contracts with participation features in 'Liabilities' –13.2 –29.5 Valuation reserves for contracts with participation features in 'Equity' (gross) 11.2.5 –41.5 –58.4 Minority interests –2.5 –0.3 Deferred taxes on remaining portion –18.5 –21.3
Unrealised gains and losses (net) as of 31 December 49.1 48.2
11.2.5 Valuation reserves for contracts with participation features The valuation reserves for contracts with participation features are created for bonuses from insu rance and investment contracts that arise from IFRS-related adjustments, impact either net income or unrealised gains, and are not considered a liability for policyholders under country-defined
Notes to the consolidated financial statements of Helvetia Group 2008 11.3 Deferred taxes recognised directly in equity
Profit for the year less minority interests 230 536 858 400 972 475 Weighted average number of shares outstanding 8 582 563 8 582 563
All insurance units of Helvetia Group must meet minimum solvency margins (so-called Solvency I), calculated in accordance with Art. 24 et seq. of the Swiss Supervision Ordinance (AVO) for life insurance and Art. 27 et seq. AVO for non-life insurance or similar local requirements.
Helvetia Group is required to report to the Swiss Financial Market Supervisory Authority (FINMA) in Switzerland. FINMA also acts as the European Supervisory Office.
Helvetia Group manages its invested capital in accordance with the IFRS. Helvetia Group’s capital management strategy is unchanged to the prior year and focuses on the following objectives: � Ensuring compliance with regulatory capital requirements at all times
� Optimising the earning power of its equity � Supporting the planned strategic growth � Optimising the Group’s financial flexibility
Equity of Helvetia Group according to Solvency I in CHF million
The decrease in the coverage ratio by 9.7percentage points is dominated by the reduction in the equity by CHF 76.9 million, the increase in goodwill and intangible assets (which cannot be credited towards Solvency I) of CHF 117.7 million, and the reduction in the dividend compared to the prior year by CHF 98.7 million (of which CHF 85.6 million is due to the one-off par value reduction). More information can be derived from the consolidated statement of equity.
As of 31 December 2008, all Group legal entities fulfilled the regulatory capital requirements.
Release –3.4 –10.9 Used amounts –24.7 –15.0 Foreign currency translation differences –3.2 0.7
12.2.2 Assets pledged or assigned Helvetia Group has pledged assets of CHF 53.5 million (previous year: CHF 54.8 million) as security for liabilities. They all relate to financial assets pledged to cover liabilities arising from the underwriting business.
12.2.3 Operating lease liabilities Helvetia Group is a lessee in a number of different operating leases. As a result, future leasing liabilities expiring in less than one year amount to CHF 1.3 million (previous year: CHF 2.2 million), in one to five years CHF 2.4 million (previous year: CHF 5.4 million), and in more than five years CHF 0.0 million (previous year: CHF 0.3 million).
13. Employee benefits 154 13. Employee benefits 13.1 Personnel costs in CHF million
Social security costs 62.8 62.8 Pension costs – defined contribution plans 2.8 2.6 Pension costs – defined benefit plans 13.3.4 49.8 47.0 Other long-term employee benefit expenses 0.8 1.2 Termination benefits 5.8 2.5 Share-based payment transaction costs 4.3 0.7 Other personnel costs 25.1 23.1
Total personnel costs 694.0 683.0 13.2 Employee benefit receivables and obligations in CHF million
'Other long-term employee benefits' primarily include liabilities for service awards. There were no employee contingent obligations or employee contingent receivables.
In Switzerland, employees are covered by the 'Pensionskasse der Helvetia Versicherungen' foundation (Pension Fund of Helvetia Versicherungen) with registered office in St.Gallen. It was founded with the purpose of providing occupational ben efits to employees on retirement and disability as well as after their death to their surviving dependants in accordance with the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG). The benefits provided by the pension fund meet at least the statutory minimum required by the BVG. Contributions to the pension fund are set as a percentage of the employee’s pensionable annual salary, deducted from the salary by the employer and transferred every month to the pension fund, together with the employer’s contributions. In the reporting year there were no significant transactions between the pension fund and Helvetia Group that are not directly related to employee benefits. The Group investments included in the plan assets are set out in Note 13.3.6.
Fair value of plan assets as of 1 January 1 418.6 1 402.4 Expected return on plan assets 68.1 55.4 Actuarial gains (+) / losses (–) –167.9 –27.0 Employer contributions 27.6 28.9 Employee contributions 13.9 13.8 Benefits paid –75.2 –77.2 Change in the scope of consolidation – – The other amounts 17.7 23.2 Foreign currency translation differences –7.1 –0.9
Current service cost 47.9 47.6 Interest cost 49.9 44.8 Expected return on plan assets –68.1 –55.4 Actuarial gains and losses 203.6 73.3 Employee contributions –13.9 –13.8 Change in amounts not recognised as assets –169.6 –49.5 Past service cost – –
Expected rate of return on plan assets 4.7 4.8 4.0 4.1 13.3.6 Actual plan asset allocation (weighted averages) in %
Net pension costs for defined benefit plans are recognised in the income statement under 'Operating and administrative expenses'. Expected employer contributions toward defined benefit plans for the next year amount to CHF 32.0 million.
Notes to the consolidated financial statements of Helvetia Group 2008 13.3.8 Multi-year overview of defined benefit plans in CHF million
Surplus (+) / deficit (–) –193.6 –50.6 6.7 –105.0 Experience adjustments on plan liabilities –15.0 –74.8 0.9 –46.2
As far as investment policy and strategy are concerned, occupational benefit plans in Switzerland focus on total returns. The strategic goal is to optimise rates of return on plan assets, benefit costs and the funding ratio of benefit plans with a diversified mix of shares, bonds, real estate and other investments.
14. Share-based payments 159 14.1 Employees of Helvetia Group in Switzerland
The personnel costs associated with the employee share purchase plan that were recognised in the income statement amounted to CHF 4.3 million (previous year: CHF 0.7 million).
The variable component of the salary which is dependent on the business results is paid to the members of the Board of Directors in the form of shares only. The relevant value is the market value of the share on the date on which the variable payment is announced. These shares are blocked for three years from the same date. The members of the Board of Directors do not participate in any share purchase plans for Helvetia employees.
'Related companies' are the cooperation partners represented in the shareholder pool and on the Board of Directors of Helvetia Group, i.e. Patria Genossenschaft, Vontobel Beteiligungen AG and Raiffeisen Switzerland (see page 31, Note 1.2 [a]) as well as the pension funds and all associates of Helvetia Group. The latter two are discussed in Note 13.3 'Defined benefit plans' (from page 155) and Note 7.3 'Investments in associates' (from page 128).
Helvetia undertakes normal business relationships in the areas of advisory services, the sale of financial and insurance services and asset management services with the members of the shareholder pool. All transactions are executed at normal market conditions. There are no other significant business relationships apart from these regular cooperation activities. Urs Widmer and Pierin Vincenz are members of the boards of directors of Vontobel Holding AG and Helvetia Holding AG. There are no other cross ties or board mandates with the boards of directors of listed companies. In the reporting year, Patria Genossenschaft transferred a total of CHF 32.0 million to Helvetia Schweize rische Lebensversicherungsgesellschaft AG. This amount was made up of an ordinary payment to the bonus reserves of CHF 16.0 million (previous year: CHF 9.0 million) and an amount of CHF 16.0 million (previous year: none) in favour of an anniversary life product issued to commemorate the 150th anniversary of Helvetia Insurance.
'Related persons' include the members of the Board of Directors and Executive Management of Helvetia Group as well as their close family members (partners and financially dependent children).
15.2.1 Members of the Board of Directors a) Compensation The nine members of the Board of Directors received the following fixed salaries in the reporting year, plus variable payments that depend on the 2008 business result and the performance of the share which will be paid in the form of a total of 999 shares at a market price of CHF 163 on 12 March 2009. These shares are subject to a vesting period of three years from the same date. The fixed salary includes all allowances, meeting attendance fees and expenses set out in the compensation regulations.
Fixed Variable Total Fixed Variable Total in CHF salary compensation compensation salary compensation compensation b) Shares The shares held by the members of the Board of Directors and persons closely related to them as of 31 December 2008 are listed in the following table. Some of these shares vest on different dates. The members of the Board of Directors were not part of any option programme. They also do not participate in the employee share purchase plan.
1 The fixed amount paid to the Chairman and former CEO, Erich Walser, includes compensation for his function as Chairman of the Board of Directors until 31 August 2007 on an annual salary of CHF 250,000, from 1 September 2007 on an annual salary of CHF 500,000, plus allowances for committee memberships and meeting attendance fees.
Notes to the consolidated financial statements of Helvetia Group 2008 c) Loans, guarantees No loans or guarantees were granted to or taken over from members of the Board of Directors or persons closely related to them.
15.2.2 Members of the Group Executive Management a) Compensation Total compensation for the reporting period paid to the members of the Group Executive Management is summarised in the table below. For every member of the Executive Management, compensation consists of a fixed and a variable component as well as employer contributions to pension funds. The compensation also includes share-based payments as well as the special discounts on shares granted in 2008 as part of the '150 years Helvetia' share programme.
Salaries and other short-term employee benefits: – fixed salaries (incl. expenses allowances, child/
1 Incl. payments to Markus Gemperle, CSO (Chief 'Strategy & Operations'), member of the Group Executive Management since 1 September 2008. 2 The 2007 compensation includes payments to the Chairman and former CEO Erich Walser for his function as CEO up to the end of August 2007, payments to the current CEO Stefan Loacker from September 2007, payments to the former CFO and Deputy Chairman of the Group Executive Management Roland Geissman up to the end of June 2007, and payments to the current CFO Paul Norton from June 2007.
d) Other benefits in kind or additional services During the reporting year, members of the Group Executive Management received non-monetary benefits as part of the company car programme to the amount of CHF 14,460 (previous year: CHF 8,534). This amount is included in the fixed salaries given above. None of the members of the Group Executive Management or any closely related persons have significant personal business relationships with Helvetia Group. They did not receive any other benefits in kind or bill the company for any additional services. Normal market conditions apply to transactions with members of the Group Executive Management that are not subject to preferential employee conditions.
Discounts under the share programme '150 years Helvetia' 4 64 512 n.a. Employer contributions to pension funds 477 236 538 893 Other long-term and non-monetary benefits n.a. n.a.
n.a. = not applicable 15.2.4 Highest compensation paid to an individual The highest individual amount paid out in the reporting year was paid to Stefan Loacker (CEO). This amounted to CHF 930,824 in total, comprising the following: total salary of CHF 822,023 (fixed salary CHF 587,700, variable component CHF 234,323), share-based payments of CHF 4,204 in the form of a discount of 16.038%
on the 75 shares vesting for three years, discounts of CHF 10,751 under the '150 years Helvetia' share programme, and employer contributions for pension funds of CHF 93,846. In the previous year, Erich Walser (Chairman of the Board of Directors and former CEO of Helvetia Group) was paid CHF 2,626,534 (incl. extraordinary contributions to the pension fund for bridging benefits for early retirement as CEO).
16. Financial instruments by categories 165 16. Financial instruments by categories 16.1 Gains and losses on investments by categories in CHF million
Investment funds 2.6 0.6 Alternative investments 0.0 0.7 Realised gains and losses on AFS investments –182.4 150.2
Realised and book gains and losses on financial assets held for trading including foreign currency gains and losses: Bonds 0.4 –0.2 Shares –6.5 –0.1 Investment funds –12.3 9.5 Derivative financial instruments 304.4 –73.7 Realised and book gains and losses on financial assets held for trading 286.0 –64.5
Realised and book gains and losses on financial assets designated as at fair value through profit or loss including foreign currency gains and losses: Bonds –30.2 –3.0
16. Financial instruments by categories 166 16.2 Financial instruments by categories in CHF million as of 31.12. Notes 2008 2007
Total held-to-maturity investments (HTM) 7.5 3 241.2 3 514.9 Total available-for-sale investments (AFS) 7.5 11 481.0 11 637.0
Financial liabilities Financial liabilities at amortised cost: Financial liabilities from financing activities 8.1 245.3 234.2 Liabilities from insurance business 9.5 766.3 737.1 Deposit liabilities for credited policyholder profit participation 8.2 829.1 856.4 Deposit liabilities from reinsurance contracts 8.2 111.6 300.6
Financial liabilities at fair value through profit or loss: Financial liabilities held for trading
Derivative financial liabilities 8.3.1 31.2 12.1 Financial liabilities designated as at fair value through profit or loss
Total financial liabilities at fair value through profit or loss 1 710.7 157.1
17.1.1 Risk management organisation The Board of Directors of Helvetia Holding AG and the Group Executive Management are the supreme risk owners of Helvetia Group. The Board of Directors of Helvetia Holding AG is responsible for establishing and maintaining appropriate internal controls and the risk management organisation of Helvetia Group. It is the Board’s responsibility in particular to: � Set risk policy principles that support the development of risk awareness and a risk-and-control culture in the Group companies; � Determine a risk strategy/partial risk strategies that cover/s the risk management objectives of all essential business activities; � Set risk tolerance limits and monitor the risk profile of the Group and the individual business units; � Ensure the implementation and application of a comprehensive risk management approach, including an internal control system, that guarantees the efficient allocation of risk capital and systematic control of risks by the Executive Management; � Ensure appropriate monitoring of the effectiveness of the internal control systems by the Executive Management.
Within the stipulated parameters, the Board of Directors delegates operational aspects of risk management. For example, the monitoring of the Group’s risk profile and in particular the monitoring of the market, liquidity, counterparty and insu rance risks are delegated to the Investment and Risk Committee (IRC). The structural aspects of risk management (structure of the risk management organisation and the internal control system) and the monitoring of operational risks in particular are delegated to the Audit Committee. The strategic risks are monitored by the Strategy and Governance Committee.
� The quarterly Risk and Capital Report supports the Risk Committee and risk owners by providing them with detailed information.
17.1.2 Risk management process The risk management process includes all activities related to the systematic management of risks at Helvetia Group. The essential components of this process include the identification, analysis and management of risks, the operational monitoring of the success of the risk management measures, the monitoring of the effectiveness and appropriateness of the risk management measures, and reporting and communication. Helvetia Group distinguishes between the following types of risk that are included in the Group’s risk management process: market risks (including the interest rate and currency risks associated with the liabilities and long-term liquidity risks), medium and shortterm liquidity risks, counterparty risks, insurance risks, operational risks (including reputational risks as an impacting dimension), strategic and latent risks.
Long-term liquidity risks are deemed to fall under market risks and are treated in the same manner. Risks that arise from the insufficient liquidity of the assets are partially taken into consideration, where appropriate, in market price models. Short-term liquidity risks are managed as part of the cash management process. Non-probabilistic methods are used to analyse the medium-term liquidity risks.
Counterparty risks are managed via the investment and reinsurance policies and are monitored on the basis of exposure analyses. Counterparty risk is minimised by working with a range of creditworthy counterparties who are continuously monitored and who are subject to a strict limit system for managing risk clusters.
Strategic risks include the risk that the company’s business activities are not adjusted to changes in the insurance industry and on the insurance market and that fundamental business decisions may jeopardise the long-term success of the Group. This risk is countered by constant observation of developments on the market and among our competitors. The management of strategic risks is carried out as part of the annual strategy check and is an integral component of the strategy process.
Helvetia Group’s consistent focus on a geographically well-diversified portfolio of mainly small risks (private customers and SMEs) encourages risk equalisation and reduces the risk that the cost of claims that are covered by existing contracts but have not yet occurred will be higher than expected (prospective risks). For example, a change in the net claims ratio by 85 percentage points would result in a decrease or increase of CHF 116.6 million (previous year: CHF 115.8 million) in the income statement (without taking account of deferred taxes). In relation to insured events that have already occurred there is a risk that the amount of existing liabilities might exceed expecta-
The Group Reinsurance central unit protects each business unit from such risks through a customised reinsurance programme and purchases the necessary Group-wide protection on the reinsurance market while ensuring diversification. This kind of hedging policy provides a high level of protection at moderate cost. From a Group-wide perspective, the insurance risks in the non-life business are dominated by natural hazards. Reinsurance cover reduces the residual claims from a natural disaster or individual risk at Group level to less than CHF 25 million in most cases. More information on the quality of the reinsurance cover and the claims development over the last five years can be found in Notes 17.5 ('Counterparty risks') and 9 ('Insurance business'). Together with the optional reinsurance business, 9.0% (previous year: 9.3%) of the premiums written in non-life business were ceded to reinsurers in 2008.
17. Risk management 171 17.2.1 Casualty insurance Helvetia Group underwrites liability cover for individual customers, motor vehicles and companies. Liability claims result from action or neglect leading to bodily injury and/or property damage to third parties. Collision cover is also underwritten within the motor insurance sector. The volume of accident insurance business at Group level is small.
(a) Terms of the contract, guarantees and underwriting practices Helvetia Group controls the insurance risks to which it is exposed through risk-appropriate rates, selective underwriting, pro-active claims settlement and a prudent reinsurance policy. The underwriting process ensures that the assumed risks in terms of type, exposure, customer segment and location meet the necessary quality criteria. One example is the decrease in employer’s liability claims as a result of the Group’s stricter underwriting policy since 1999.
(b) Risks arising from clusters, accumulations and trend changes In Europe, the portfolio is well-diversified with a higher weighting in Switzerland and Germany. Large risks are usually hedged through nonproportional treaty reinsurance.
(c) Uncertainties in estimating future loss payments In the liability business in particular, quite some time can pass between the occurrence and the reporting of a claim. In order to cover existing liab ilities not yet asserted by policyholders, Helvetia Group sets up incurred but not reported reserves, which are determined with actuarial methods on the basis of many years of claims experience and with consideration to current developments and given uncertainties.
By definition, the property insurance portfolio is exposed to natural disasters, such as flooding, wind storms and hail. Major events and man-made disasters, such as explosions, fire and oil spills, may result in large claims. The number and extent of disasters that can occur in a certain period are by definition unforeseeable. Helvetia Group effectively guards against catastrophe losses through a multi-level reinsurance programme and its selective underwriting policy.
17.2.3 Transport insurance Helvetia Group offers transport insurance as a niche market in France and to a lesser extent in Switzerland, Germany and Austria. Helvetia Group mainly focuses on cargo/hull insurance, which carries a comparatively low level of risk. Risk exposure is managed by the application of local underwriting guidelines and through the close relationship – made possible by the small volume – with the insurance broker and the customer.
17.2.4 Assumed reinsurance By tradition, Helvetia Group owns a small assumed reinsurance portfolio which is limited in size in compliance with its business strategy. Assumed reinsurance is run by Helvetia Schweizerische Versicherungsgesellschaft AG headquartered in St.Gallen.
(b) Risks arising from clusters, accumulations and trend changes Business is geographically dominated by com panies located in the OECD area. A management information system has been set up to manage major claims. Besides managing risk exposure, cumulative risks arising from natural disasters are monitored and quantified using actuarial methods, and from 2008 are also covered by retroinsu rance.
Helvetia Group offers a comprehensive range of life insurance products. These include risk and pension solutions and are aimed at private individuals (individual life insurance) and companies (group life insurance). The risks associated with these products are explained in detail in the following notes. There is also a small assumed reinsu rance portfolio that is no longer included in the following description due to its lack of size. Life insurance is mostly operated from Switzerland, where 79.1% (previous year: 76.3%) of the Group’s gross premium volume in the life insurance sector is generated. The following table shows the distribution of gross premium income by business line and region. In total, 1.6% (previous year: 1.6%) of the life premiums written was ceded to reinsurers in 2008.
17.3.1 Individual insurance and unit-linked life insurance Helvetia Group offers private individuals term insurance, endowment and annuity insurance as well as index- and unit-linked products. Depending on the product, premiums are paid as single or regular premiums. Most of the products include a discretionary participation feature for which regulations in certain countries stipulate the minimum amount of profit participation to be paid out to policyholders. Individual life insurance accounts for 30.2% (previous year: 33.0%) of the Group’s gross premium volume in the life insurance sector, with 54.0% (previous year: 57.1%) generated in Switzerland. The share of unit-linked life insurance amounts to 11.2% (previous year: 6.6%) of the
Group’s gross premium volume, with 66.4% (previous year: 39.5%) generated in Switzerland.
(a) Terms of the contract, guarantees and profit participation Most of the products include a premium guarantee which means that the assumptions on mortality, disability, interest rates and expenses used to calculate the premiums are guaranteed. These fundamentals are therefore set prudently at the time the contract is underwritten. If the contract develops as expected, profits accrue which are paid out in part to the policyholder in the form of policyholder dividends. There are two important
17.3.2 Group life insurance Group life insurance accounts for 58.4% (previous year: 60.2%) of the Group’s gross premium volume in the life insurance sector, with 94.8% (previous year: 91.1%) generated in Switzerland. Outside of Switzerland and in a small run-off portfolio within Switzerland, group life insurance products are very similar to individual insurance policies. For this reason we focus on business with occupational benefit plans in Switzerland when referring to group life insurance below. In Switzerland, companies are required under the Swiss Federal Law on Occupational Retirement, Survivors ’ and Disability Pension Plans (BVG) to insure their employees against the risks of death and disability and for retirement benefits. Helvetia Group offers products that cover these risks. The majority of these products include a discretionary participation feature with the minimum amount being stipulated by law or by contract.
(a) Terms of the contract, guarantees and profit participation Rate guarantees do not apply to the risk premiums for death and disability and to the expense loadings for most of these products. These premiums may therefore be adjusted annually by Helvetia Group. After a loss has occurred, the benefits that fall due are either guaranteed until the agreed expiry date or for life.
On retirement, a policyholder may choose to have the retirement capital paid out as a lump sum or converted into a retirement pension. The conversion of the mandatory savings capital follows the BVG conversion rate set by the government, while Helvetia Group determines the conversion rate for the extra-mandatory capital. After conversion, retirement pensions and any survivors’ benefits are guaranteed for life.
Notes to the consolidated financial statements of Helvetia Group 2008 rance as for individual insurance. Reinsurance for disaster events also covers group life insurance.
Helvetia Group establishes reserves for its life insurance business to cover its estimated guaranteed and discretionary payments. The amount of life insurance reserves depends on the interest rates applied as well as on actuarial and other parameters. Additionally, the Liability Adequacy Test (LAT) examines whether the reserves in combination with expected premiums are sufficient to finance future benefits. Should this not be the case, local reserves are strengthened accordingly.
Therefore, a 10% increase in mortality in the LAT of all companies of Helvetia Group would have no impact on the reserves. This is because the margins are sufficient, even after the increase in mortality. A reduction in mortality by 10% would only have an impact on the reserves for annuity insurance. This scenario would lead to a reserve reinforcement that would burden the income statement by CHF 32.0 million (previous year: CHF 30.6 million ). However, it should be noted that these sensitivities are usually non-linear, so that extrapolation is not possible. See Note 17.4.2 for the impact of an interest rate change on equity and the income statement.
(c) Disability risk Losses may occur for shareholders if the number of active policyholders becoming disabled exceeds expectations or if fewer disabled policyholders than expected recover and the profit participation system is insufficient to cushion the impact of these variances. As disability benefit policies are almost exclusively taken out in Switzerland and premiums in the group life sector and individual life business may be adjusted for disability benefit contracts sold after mid-1997, the risk in Switzerland is limited to disability benefit policies sold before mid-1997. Here, the portfolio losses that are expected to occur are covered in full by local reserve reinforcements. These reserves are sensitive to the assumed expected loss burden in particular.
(d) Interest rate risk Shareholders may have to bear losses if the guaranteed interest included in premiums and reserves cannot be generated. This could happen, for example, when interest rates remain very low for a long period. To counteract such a development, both the technical interest rate for new individual insurance contracts and the BVG minimum interest rate for new and existing contracts are adjusted to the new interest rate level. At the end of 2008, the individual life segment in Spain had the highest interest-rate guarantees as older policies still include guaranteed minimum interest rates of up to 6%. These guarantees are partly covered by corresponding assets and the residual risk is covered by supplementary reserves. In other countries, the maximum guaranteed interest rate stands at 4% in Euros and at 3.5% in Swiss francs, and it is expected that the structure of the underlying investments for these sub-portfolios will produce such returns. Rising interest rates may lead to higher lapse rates of endowment contracts. This risk, however, is considered to be low for two reasons. Firstly, most countries enforce high tax consequences for premature contract terminations, and secondly, a deduction is usually made on highly interest-sensitive products at the time the contract is cancelled to reflect the lower fair values of the underlying investments.
Long-term interest guarantees on reserves for current benefits are in place in group life business. The BVG minimum interest rate on the mandatoryaccrued savings assets of the insured is reviewed annually by the Swiss Federal Council. This minimum interest rate was 2.5% from 1 January 2005 to 31 December 2007, and was increased to 2.75% with effect from 1 January 2008. This rate was cut to 2% for 2009. Rising rates may lead to higher lapse rates in the group life segment and thus cause losses. Since 2004, no deductions can be made from nominally defined surrender values that reflect the fact that the fair value of the corresponding fixed-income securities may be below the (local) book value for contracts that have been in Helvetia Group’s portfolio for more than five years.
Unit-linked insurance products may include a guaranteed survival benefit. These product components must be separated as embedded derivatives and recognised at fair value. The majority of these guarantees and index-dependent payouts are ser viced by and at the risk of external partners. There are two products in Switzerland where this does not apply and the risk is assumed by Helvetia Group, but these are covered by appropriate reserves. Their amount is determined especially by the volatility of the underlying assets as well as by the level of the risk-free interest rate. A change in the reserve is charged to profit and loss and cannot be compensated with a profit participation component.
17.4.1 Liquidity risk Helvetia Group has sufficient liquid assets at its disposal to meet unforeseen outflows of funds at all times. The proportion of liquid assets (cash, premiums to be invested, liquid shares and bonds) exceeds the scale of annual net flows of funds many times over. Additionally, the Group manages assets and liabilities in terms of their liquidity. The liabilities side of the balance sheet does not contain any significant individual positions. Part of the Group’s investment portfolio consists of investments in assets which are not easily realisable, such as real estate or mortgages. These investments can only be realised over a longer period of time.
Unearned premium reserve (gross) 944.7 – – – – 944.7 Total reserves for insurance and investment contracts (gross) 4 546.0 8 256.1 5 097.0 7 969.7 511.9 26 380.7
Total reserves for insurance and investment contracts (net) 4 438.8 8 080.5 4 995.2 7 898.3 511.9 25 924.7
Financial liabilities from insurance business 994.7 17.2 184.0 17.8 13.3 68.3 1 295.3 Financial liabilities from financing activities – 6.0 227.0 19.8 – – 252.8 Liabilities from insurance business 283.8 453.3 – – – – 737.1 Other financial and other liabilities 1.2 46.8 4.0 – – – 52.0
The figures given above may not reconcile to the amounts reported in the balance sheet, as these represent non-discounted flows of funds. Allocation to the category 'redeemable at any time' is based on the counterparty’s right to cancel that is contained in the contracts. Most of these contracts, both life and non-life, can be terminated within one year at the latest.
Derivative financial liabilities: Interest rate swaps – – – – – Forward exchange transactions –
Options (planned exercise) – – – – – Other (exercise not planned) 31.2 Total derivative financial liabilities 31.2 – – – –
Derivative financial assets: Interest rate swaps – – – – – Forward exchange transactions 5.3
Options (planned exercise) 0.6 11.4 – – – Other (exercise not planned) 10.4 Total derivative financial assets 16.3 16.7 – – –
Derivative financial liabilities: Interest rate swaps – – – – – Forward exchange transactions 6.6
Options (planned exercise) 2.4 57.3 – – – Other (exercise not planned) 3.1 Total derivative financial liabilities 12.1 50.7 – – –
As with most investments, the value of Helvetia Group’s liabilities depends on interest rate levels. Generally speaking, the higher the interest rate, the lower the present value of assets and liabilities.
Actuarial reserve for insurance and investment contracts excluding interest guarantee 743.3 – 183.8 – Actuarial reserve for insurance and investment contracts with 0% interest guarantee 382.1 – 135.3 14.6 Actuarial reserve for insurance and investment contracts with positive interest guarantee 16 099.9 80.9 4 071.9 13.2
The above table analyses the impact of a change in interest rate on Helvetia Group’s equity and income statement, taking account of deferred taxes and the legal quota. The analysis also takes account of the investments at fair value through profit and loss, fixed-interest available-for-sale investments, derivatives, the actuarial reserve, deposits for investment contracts and the interest earned on variable-rate investments. In contrast to the previous year, the 'look through' principle was used in 2008 for significant shares in mixed funds. The impact of a change in interest rate on impairments was not analysed.
Interest rate level 2008 Interest rate level 2007 as of 31.12. +10 bp – 10 bp +10 bp – 10 bp
A 'reasonable possible change' in the risk factors affecting the sensitivity analysis is every bracket that covers a range of possible share price changes where the probability of its occurring over a period of one year is between 10% and 90%. Sensitivities are shown for the borders of the bracket that meets these conditions.
17.4.4 Foreign exchange risk Most of the Group’s assets, including its investments, and most of its liabilities are denominated in Swiss francs and Euros. With the exception of the Swiss business, most liabilities are hedged through investments in matching currencies. In the Swiss business, investments to hedge liabilities in Swiss francs are held in both Swiss francs and Euros for reasons of return and liquidity. The resulting currency risks are hedged to a great extent, using forward exchange transactions on the most important balance sheet currencies (EUR, USD) against the Swiss franc.
Financial liabilities from financing activities 199.7 45.6 – – 245.3 Financial liabilities from insurance business 768.8 1 845.2 2.1 – 2 616.1
Non-actuarial provisions 46.2 27.7 – – 73.9 Employee benefit obligations 32.9 236.8 – – 269.7 Deferred tax liabilities 297.6 145.1 – – 442.7 Current income tax liabilities 15.9 28.8 – – 44.7 Other liabilities and accruals 48.4 199.9 –1.7 0.2 246.8
Property and equipment 333.2 227.4 – – 560.6 Goodwill and other intangible assets 25.5 39.4 – – 64.9 Investments in associates 45.1 3.2 – – 48.3
Deferred tax assets 0.1 49.7 – – 49.8 Current income tax assets 0.4 5.8 – – 6.2
Financial liabilities from financing activities 199.4 34.8 – – 234.2 Financial liabilities from insurance business 789.2 504.9 1.2 – 1 295.3
Non-actuarial provisions 49.9 27.6 – – 77.5 Employee benefit obligations 31.5 255.1 – – 286.6 Deferred tax liabilities 302.8 103.1 – – 405.9 Current income tax liabilities 47.4 82.1 – – 129.5 Other liabilities and accruals 50.4 76.0 –1.3 0.8 125.9
The above table analyses the impact of an exchange rate change on Helvetia Group’s income statement, taking account of deferred taxes and the legal quota. In accordance with the IFRS, only monetary financial instruments and insurance liab ilities in non-functional currencies and derivative financial instruments were included in the analysis.
17.5.1 Risk exposure Helvetia Group is exposed to counterparty risk in the following areas in particular: � Counterparty risks from bonds and money market instruments.
� Counterparty risk from transactions involving derivative financial instruments: 57% of the derivative financial instruments are either traded on a stock exchange or secured by cash collateral, which means that these positions do not harbour any counterparty risk. There is also no counterparty risk for a further 13% of the derivatives, as these were concluded with issuers who have a government guarantee. The remaining 31%, all of them over-the-counter (OTC) derivatives without cash collateral, carry a counterparty risk. However, these are mostly short-term derivatives, which means that this exposure is short-term with a correspondingly reduced risk.
� Counterparty risk from insurance business: The default of other counterparties (policyholders, agents and brokers, insurance companies) can lead to the loss of receivables from insu rance business. On the balance sheet, the maximum gross exposure would correspond to the positions shown in Note 9 'Receivables due from policyholders, agents and brokers and insurance companies' (after deduction of receivables due from reinsurance companies recognised under 'Credit risk exposure from ceded reinsurance'). These receivables, however, are usually mostly short-term. On the other hand, receivables due from policyholders is the largest position in this category. As policyholders pay their premiums in advance and insurance cover is directly dependent on customers’ fulfilment of their contractual obligations, counterparty risk from both non-life and life insurance business plays a minor role.
BB and lower 0.0 0.0 Not rated 15.2 2.7 as of 31.12.2007 Exposure Share in %
17.5.2 Risk clusters or accumulations The Group monitors counterparty risk on a regular basis, and diversifies and avoids this risk as much as possible. Credit risk is well diversified and distributed among a wide range of commercial clients. The largest individual positions are government bonds with prime credit ratings.
Mortgage Bond Bank of the Swiss Mortgage Insitutions not rated 469.2 469.2 –
Book value IFRS as of 31.12.2007 Issuer rating total AAA AA
Money market Derivative Borrower’s Other A not rated instruments financial assets note loans loans 5.1 – – – – – – – – – 111.0 –
– – – – – – – – 90.0 – – –
Money market Derivative Borrower’s Other A not rated instruments financial assets note loans loans
– – – – – – – – – – 37.7 – – – 90.4 – – – – – – – – –
No important events occurred before or on 12 March 2009, the date on which these consolidated financial statements were completed, that are likely to have a significant impact on the financial statements as a whole.
Acquired net assets Acquired identified assets (net) 131.9 195.9 Minority interests –38.2 Goodwill 45.3
Total acquisition costs (all paid in cash) 203.0 1 The purchase price allocation in the above table is provisional.
Germany Helvetia Schweizerische Versicherungsgesellschaft AG, Direktion für Deutschland, Frankfurt a.M.* Non-life 100.00 full EUR – HELVETIA INTERNATIONAL Versicherungs-AG, Frankfurt a.M. Non-life 100.00 full EUR 8.0 HELVETIA Schweizerische Lebensversicherungs-AG, Frankfurt a.M. Life 100.00 full EUR 6.5 Der ANKER Vermögensverwaltung GmbH, Frankfurt a.M. Other 100.00 full EUR 0.0 Helvetia Vermögens- und Grundstücksverwaltung GmbH & Co. KG, Frankfurt a.M. Other 100.00 full EUR 28.8
On 1 January 2008, Helvetia Schweizerische Versicherungsgesellschaft AG, Direktion für Deutschland, Frankfurt a.M., acquired 26% of PS Beteiligungs - und Verwaltungsgesellschaft mbH & Co. KG and 26% of PS Verwaltungs-GmbH. The total amount for both transactions was EUR 3.3 million. No goodwill was recognised on these two transactions. Together, PS Beteiligungs- und Verwaltungsgesellschaft mbH & Co. KG and PS VerwaltungsGmbH hold 100% of Deutsche Familienversicherung AG.
The following is a complete list of all Group companies: Notes to the consolidated financial statements of Helvetia Group 2008
Segment Holding Method Currency Company’s in % of consoli- capital dation in million
Helvetia Grundstücksverwaltung GmbH, Frankfurt a.M. Other 100.00 full EUR 0.0 Hamburger Assekuranz GmbH, Frankfurt a.M. Other 100.00 full EUR 3.1 Helvetia Leben Maklerservice GmbH, Frankfurt a.M. Other 100.00 full EUR 0.0 Helvetia Versicherungs- u. Finanzdienstleistungsvermittlung GmbH, Frankfurt a.M. Other 100.00 full EUR 0.0 DeAM Fonds DFD 1 (Europe) Non-life 100.00 full EUR – PS Beteiligungs- und Verwaltungsgesellschaft mbH & Co. KG, Frankfurt a.M. 26.00 equity EUR PS Verwaltungs-GmbH, Frankfurt a.M. 26.00 equity EUR DFV Deutsche Familienversicherung AG, Frankfurt a.M. 26.00 equity EUR
Italy Helvetia Compagnia Svizzera d’Assicurazioni S.A., Rappresentanza Generale e Direzione per l’Italia, Milan* Non-life 100.00 full EUR – Helvetia Vita – Compagnia Italo Svizzera di Assicurazioni sulla Vita S.p.A., Milan Life 100.00 full EUR 13.4 'Chiara Vita S.p.A.', Milan Life 70.00 full EUR 34.2 'Padana Assicurazioni S.p.A.', Milan Non-life 100.00 full EUR 15.6 GE.SI.ASS Società Consortile a R.L., Milan Other 55.00 full EUR 0.0
Spain Helvetia Holding Suizo, S.A., Madrid Other 100.00 full EUR 90.3 Helvetia Compañía Suiza, Sociedad Anónima de Seguros y Reaseguros, Seville Life and non-life 98.95 full EUR 21.4 Previcia, Sociedad de Inversion de Capital Variable, S.A. (SICAV), Seville Other 99.95 full EUR 2.4 Previsur Agencia de Seguros S.L., Seville Other 100.00 full EUR 0.0 Gesnorte S.A., S.G.I.I.C., Madrid 31.73 equity EUR Gesnorte de Pensiones, S.A., Entidad Gestora de Fondos de Pensiones, Madrid 24.00 equity EUR Gesnorte de Servicios, S.A., Madrid 28.00 equity EUR
Others Austria Helvetia Schweizerische Versicherungsgesellschaft AG, Direktion für Österreich, Vienna* Non-life 100.00 full EUR – Helvetia Versicherungen AG, Vienna Non-life 100.00 full EUR 12.7 Römertor Versicherungsmakler, Immobilien und Bau GmbH, Vienna Other 100.00 full EUR 0.0 Marc Aurel Liegenschaftsverwaltung GmbH, Vienna Other 100.00 full EUR 0.0 Helvetia Financial Services AG, Vienna Other 100.00 full EUR 0.6 ZSG Kfz-Zulassungsservice GmbH, Vienna 33.33 equity EUR France Helvetia Compagnie Suisse d’Assurances S.A., Direction pour la France, Paris* Non-life 100.00 full EUR – UK Helvetia Finance Ltd, Jersey Other 100.00 full CHF 0.1 Luxembourg Helvetia Europe S.A., Luxembourg Other 100.00 full EUR 11.5 VP SICAV Helvetia Fund Euro Bonds Life and non-life 100.00 full EUR – VP SICAV Helvetia Fund European Equity Life and non-life 100.00 full EUR – VP SICAV Helvetia Fund International Equity Life and non-life 100.00 full EUR – Worldwide Helvetia Schweizerische Versicherungsgesellschaft AG, Rückversicherung, Life and St.Gallen* non-life 100.00 full CHF –
Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards and International Standards on Auditing (ISA). Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the consoli dated financial statements in order to design audit procedures that are appropriate in the circum stances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Income statement 198 Balance sheet 198 Notes to the annual financial statements 199 Report to the Statutory Auditors 202
Assets: Loans to Group companies 53.7 111.6 Intangible assets 1.8 8.9 Non-current assets 859.2 924.2 –7.0% Cash and cash equivalents 0.0 0.2 Balances receivable from Group companies 161.5 244.1 Current assets 161.5 244.3 –33.9%
The reported dividend income of Helvetia Holding AG represents the dividend paid simultaneously to Helvetia Holding AG by the subsidiaries Helvetia Schweizerische Versicherungsgesellschaft AG and Helvetia Schweizerische Lebensversicherungsgesellschaft AG from their respective net profits for 2008.
On the balance sheet date, subsidiaries of Helvetia Holding AG held 70,312 registered shares of Helvetia Holding AG (unchanged from 2007).
On the balance sheet date, the following shareholders owning more than 3% of the share capital were recorded in the share register: Patria Genossenschaft 30.09% (previous year: 30.09%), Vontobel Beteiligungen AG 4.0% (previous year: 4.0%), Raiffeisen Switzerland 4.0% (previous year: 4.0%), Munich Re 8.16% (previous year: 8.16%) and Basler Lebens-Versicherungs-Gesellschaft, Basel 3.12% (previous year: 3.12%). On the balance sheet date, the shareholder pool comprised the following shareholders: � Patria Genossenschaft with 30.09% (previous year: 30.09%)
CHF 250,000,000 from other statutory reserves created before 31 December 1998 were allocated to the free reserves. The conversion was approved by the Shareholders’ Meeting of 25 April 2008.
Operational risk includes the impact of reputational risks. The risk management process is carried out by Helvetia Group’s risk management organisation. Helvetia Holding AG is fully integrated in the risk management process of Helvetia Group. This Group-wide risk management process and organisation also takes account of the type and scope of the business activities and specific risks of Helvetia Holding AG.
The Board of Directors of Helvetia Holding AG and the Executive Management are the supreme risk owners of Helvetia Group and its Group
companies. The Board of Directors of Helvetia Holding AG is responsible for establishing and maintaining appropriate internal controls and the risk management organisation of Helvetia Group and its Group companies. It is the Board’s responsibility in particular to: � Set risk policy principles that support the development of risk awareness and a risk-and-control culture in the Group companies; � Ensure appropriate control of the effectiveness of internal control systems by the Executive Board; � Ensure the implementation and application of a comprehensive risk management approach, including an internal control system, that guarantees the efficient allocation of risk capital and systematic control of risks by the Executive Board; � Determine a risk strategy/partial risk strategies that cover the risk management objectives of all essential business activities; � Set risk tolerance limits and monitor the risk profile of the Group and the individual business units.
Within the stipulated parameters, the Board of Directors delegates operational aspects of risk management. For example, the monitoring of the Group’s risk profile and in particular the monitoring of the market, liquidity, counterparty and insurance risks are delegated to the Investment and Risk Committee (IRC). The structural aspects of risk management (structure of the risk management organisation and the internal control system) and the monitoring of operational risks in particular are delegated to the Audit Committee. The strategic risks are monitored by the Strategy and Governance Committee.
Report of the Statutory Auditor on the Financial Statements to the General Meeting of Helvetia Holding AG, St.Gallen
As statutory auditor, we have audited the accom panying financial statements of Helvetia Holding AG, which comprise the balance sheet, income statement and notes for the year ended 31 December 2008.
Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
Opinion In our opinion, the financial statements for the year ended 31 December 2008 comply with Swiss law and the company’s articles of incorporation.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.
Ms Wiesinger-Kollros lives with her family in Amstetten (AT) where she runs her own dental practice.
Available solvency Capital funds available to cover the required level of solvency.
Deferred acquisition costs Costs arising in connection with the conclusion of new insurance contracts or the extension of existing insurance contracts. Such costs are reflected as an asset in the balance sheet and are allocated across the term of the contract as an expense in the income statement.
Equity ratio Profit/loss after tax as a proportion of the average shareholders’ equity as shown in the consolidated balance sheet.
Equity valuation Balance sheet practice for valuation of holdings in associated companies. The valuation of the holding in the balance sheet corresponds to the shareholders’ equity in this company held by the Group. In the context of ongoing evaluation, this valuation is projected forward to take account of changes in proportional shareholders’ equity, while allocating the proportional annual earnings to the Group results.
Finance leasing Leasing contracts under which all the risks and opportunities associated with the property are essentially transferred to the leasing customer.
Liability Adequacy Test Adequacy test that checks whether the book value of an insu rance liability is sufficient to cover estimated future requirements.
Net premiums earned Net premiums written in the financial year, taking into account changes in the reserves for unearned premiums.
Single premium Amount paid for the provision of insurance cover, in the form of a one-time payment on commencement of the insurance.
Total business volume Sum of the gross premiums written and deposits from investment contracts in the reporting year.
Subsidiaries Helvetia Schweizerische Wolfram Wrabetz Weissadlergasse 2 Lebensversicherungs-AG Chairman of the Board of Directors D-60311 Frankfurt a.M. Helvetia International Wolfram Wrabetz Berliner Strasse 56–58 Versicherungs-AG Chairman of the Board of Directors D-60311 Frankfurt a.M. Helvetia Versicherungen AG Burkhard Gantenbein Hoher Markt 10–11
Chairman of the Board of Directors A-1011 Vienna Helvetia Vita Compagnia Italo Fabio Bastia Via G.B. Cassinis 21 Svizzera di Assicurazioni sulla Vita S.p.A. Direttore Generale I-20139 Milan Padana Assicurazioni S.p.A. Michele Colio Via Maastricht 1
Direttore Generale I-20097 San Donato Milanese Chiara Vita S.p.A. Fabio Bastia Via Pietro Gaggia 4
Amministratore Delegato I-20139 Milan Helvetia Compañía Suiza Jozef M. Paagman Paseo de Cristóbal Colón, 26 Sociedad Anónima de Seguros y Reaseguros Director General E-41001 Seville Helvetia Europe S.A. 9, Parc d’Activité Syrdall
Head Office for Switzerland Helvetia Versicherungen, St. Alban-Anlage 26, CH-4002 Basel Tel. 058 280 10 00, Fax 058 280 10 01, www.helvetia.ch, info@helvetia.ch
Helvetia Consulta Gesellschaft für Vorsorgeberatung AG 4002 Basel St. Alban-Anlage 26 058 280 18 05 Peter Gubser
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Key share data Helvetia Holding AG 2004 2005 2006 2007 2008
Group profit for the period per share in CHF 35.9 36.2 49.3 46.7 26.9 Consolidated equity per share in CHF 247.3 290.0 319.1 332.1 323.2 Year-end price of Helvetia registered share in CHF 169.4 278.0 401.5 407.0 228.9 Market capitalisation at year-end price in CHF million 1 465.8 2 405.5 3 474.1 3 521.7 1 980.6
Dividend per share1 in CHF 5.50 9.00 13.50 15.00 13.50 1 Based on proposal to Shareholders’ Meeting
Reserves for insurance and investment contracts (net) 22 707.9 23 969.9 25 094.6 25 924.7 25 754.4
Cautionary statement regarding forward-looking information This document is made by Helvetia Group and may not be copied, altered, offered, sold or otherwise distributed to any other person by any recipient without the consent of Helvetia Group. Although all reasonable effort has been made to ensure the facts stated herein are accurate and that the opinions contained herein are fair and reasonable, this document is selective in nature and is intended to provide an introduction to, and overview of, the business of Helvetia Group.
Helvetia Group nor any of its directors, officers, employees or advisors nor any other person makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this document.
(1) changes in general economic conditions, in particular in the markets in which we operate; (2) the performance of financial markets; (3) changes in interest rates; (4) changes in currency exchange rates; (5) changes in laws and regulations, including accounting policies or practices; (6) risks associated with implementing our business strategies; (7) the frequency, magnitude and general development of insured claim events; (8) the mortality and morbidity experience; (9) policy renewal and lapse rates. We caution you that the foregoing list of important factors is not exclusive; when evaluating forward-looking statements, you should carefully consider the foregoing factors and other uncertainties. All forward-looking statements are based on information available to Helvetia Group on the date of its posting and Helvetia Group assumes no obligation to update such statements unless otherwise required by applicable law.
The purpose of this document is to inform Helvetia Group‘s shareholders and the public of Helvetia Group‘s business activities for the year ended 31.12.2008.
This document does not constitute an offer or a solicitation to exchange, buy or subscribe for securities and it does not constitute an offering circular as defined by Art. 652a of the Swiss Code of Obligations or a listing prospectus as defined by the listing rules of SIX Swiss Exchange. Should Helvetia Group make one or more capital increases in the future, investors should make their decision to buy or to subscribe for new shares or other securities solely on the basis of the relevant offering circular.