REVIEW OF OPERATING PERFORMANCE Group ��������������������������������������������������������������������������������������������������������� 20 Switzerland ��������������������������������������������������������������������������������������������� 24 Germany ��������������������������������������������������������������������������������������������������� 25 Belgium ����������������������������������������������������������������������������������������������������� 26 Luxembourg ������������������������������������������������������������������������������������������� 27 Consolidated income statement ���������������������������������������������������� 28 Consolidated balance sheet ������������������������������������������������������������� 30 Business volume, premiums and combined ratio ����������������� 31 Technical income statement ����������������������������������������������������������� 33 Gross premiums by sector ���������������������������������������������������������������� 34 Banking activities �������������������������������������������������������������������������������� 35 Investment performance ������������������������������������������������������������������ 36
BÂLOISE HOLDING LTD Income statement of Bâloise Holding �������������������������������������� 258 Balance sheet of Bâloise Holding ����������������������������������������������� 259 Notes to the financial statements of Bâloise Holding ������ 260 Appropriation of distributable profit as proposed by the Board of Directors ����������������������������������������� 271 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ������������������ 272
Dividend per share5 (CHF) 5.00 5.00 0.0 1 Premiums written and policy fees (gross).
What we want to achieve: By continuing to develop its solid insurance operations, Baloise is once again firmly on track to meet its targets of a combined ratio of between 93 per cent and 96 per cent, a new business margin in excess of 10 per cent and a return on equity of between 8 per cent and 12 per cent. It will continue to pay attractive and consistent dividends.
(RoE) of 9.3 per cent 1 Calculated in local currency on a like-for-like basis and excluding discontinued operations (Austria, Croatia and Serbia).
Baloise has a sound capital base� In August 2015, Standard & Poor’s acknowledged this quality by confirming our credit rating of ‘A’ with a stable outlook� The Company’s capital strength in accordance with the Swiss solvency test remains in the green zone� Last year, the Baloise Group demonstrated that its operational excellence and target customer management make it extremely resilient� This strength was also reflected in its profit of CHF 512�1 million� In view of the economic environment, the fact that Baloise met the financial targets it had set for 2015 represents a great achievement�
The focus on attractive target segments in our four core markets of Switzerland, Belgium, Germany and Luxembourg that we maintained in 2015 has provided a firm basis on which to build the future success of Baloise� While we are in a good position to further expand profitable areas of our business in Switzerland, Belgium and Luxembourg, the business in Germany has not yet performed as we anticipated� The problems have been identified and appropriate measures have been taken, or are under way, but the impact has not yet been reflected in the results� Nonetheless, we firmly believe in the importance of the German insurance market and the opportunities it offers�
Dr Andreas Burckhardt, Chairman of the Board of Directors (right), and Dr Martin Strobel, Group CEO until 31 December 2015 (left).
We are very grateful to all of our employees, whose skills and ability have made a major contribution to the fact that Baloise remains one of the most profitable insurance companies in Europe, despite the challenges posed by the strong franc and globally low interest rates�
From an HR perspective, 2015 was also dominated by the announcement in May that Martin Strobel, a long-standing member of our Corporate Executive Committee and Chief
Executive Officer, is to stand down� Martin Strobel joined Basler Switzerland in 1999 and has managed Baloise as its Group CEO since 2009� The Board of Directors would like to express their deep gratitude for his outstanding contribution� Under his leadership, Baloise blossomed, achieving operational strength and a high level of profitability, but the appointment in October of his successor Gert De Winter, the current CEO in Belgium and the ideal candidate, has laid the foundations for a new chapter in our Company’s success�
In 2015, we generated healthy earnings that were in line with expectations� So that our shareholders also benefit from this success, we will propose to the Annual General Meeting on 29 April 2016 that the dividend, which was increased last year to CHF 5�00, be left unchanged at this attractive level� The share buy-back programme launched in 2015 is also well on course to achieve its volume of up to one million shares by 2017� In 2015, we had already purchased more than half a million shares, further concentrating our earnings power for the benefit of our owners�
How do you plan to tackle the challenges mentioned? GDW: As Andreas Burckhardt said, we find ourselves in a climate shaped by the pressures of interest rates at unprecedented low levels, fierce competition and increasing regulation� We pay CHF 5�7 million just for supervisory fees, internal expenses not included� But the market itself is shifting, too� The digital revolution has changed consumer behaviour and will continue to do so� This has an impact on our business as well� Customers are looking for simplicity, flexibility and transparency but still want maximum safety, and this means our services have to deliver a lot� Baloise’s safety positioning is a first step, but we can’t simply rely on it and rest on our laurels� The things that have worked in the past aren’t necessarily a guarantee of success
Baloise Interview in the future� Going forward, we want to remain more than simply an insurance company� Our emotional connection as a partner to our customers is crucial in this regard� We have to create a customer experience� Customers should sense every day that we can perform our services easily, quickly and correctly and that, at the end of the day, we are making them safer� This won’t work if we are only a bearer of risk� That’s why I see our role as motivating employees and convincing them that each and every one of them can create these customer experiences, even in the supposedly emotionless world of insurance�
How are you going to achieve this? GDW: Firstly, we must not neglect the core aspect of our business, i�e� the things that we do best and where our expertise lies� We therefore will not budge from our strategy of target customer management: focusing on profitable target customers who want to feel safe and appreciate it when we help them to ensure that losses do not occur in the first place� Of course we also step up if a loss event arises� In the interests of everyone who is insured with us, however, we seek out customers who want to actively contribute to minimising risk themselves and who don’t just want to insure against a risk� This benefits everyone – the customer and us as a company – in the long run� So offering insurance policies alone isn’t enough� We don’t want to wait until a loss occurs but rather provide services that go beyond the policy itself and help customers to feel safe� These range from safety services to active assistance and prevention� New lines of business besides traditional insurance and chances for growth could therefore emerge for Baloise in future�
GDW: My experience in Belgium has taught me that you can’t hurry success� I can sometimes be impatient� But if a company and, specifically, its employees, believe in its business model, then success will come� Baloise has a track record of operational excellence� We have to play to this strength and pair it with tenacity� When we launched our target customer management approach some 15 years ago, we were often asked what we were doing differently� All companies claim to focus on the customer� What makes Baloise any different? The answer is
Baloise Interview simple: the difference is that we are resolutely pursuing one objective, an objective to which every single employee is fully committed� Ultimately, this is what has made us one of the most profitable insurers in Europe�
Are you now promising the shareholders a strategy of growth? ABu: Growth for growth’s sake is not the direction that Baloise is taking� We have been fostering profitable organic growth for some time, supported by our target customer management� If opportunities arise, we will continue to grow through acquisitions, as has been the case in Belgium and Luxembourg in the last few years� We examine acquisition opportunities on the basis of strict criteria� They have to create added value� Our success shows that we and our shareholders have been right in recent years� A case in point is our attractive and sustainable dividend policy� This shouldn’t change going forward, regardless of any challenges that we may encounter�
Stock markets experienced a challenging year in 2015� The global sovereign debt crisis led to volatile price movements in financial markets� On 15 January, the Swiss National Bank surprised investors with its decision to unpeg the Swiss franc from the euro following a long period of intensive intervention� This came as a shock to the stock markets� The Swiss Market Index fell by a total of 15 per cent within two days and had not recovered by the end of the year, ultimately registering an overall decrease of 1�8 per cent� Other events that influenced the global economy were Greece’s default, an economic slowdown in China, an even more expansionary monetary policy from the European Central Bank and a first interest rate hike in the United States�
Against this backdrop, Baloise shares shed almost 11 per cent of their value in the first half of last year after delivering a superb performance in previous years� The Swiss Leader Index (SLI) and the Swiss insurance sector index fell by 0�9 per cent and 4�7 per cent respectively�
Minus the number of treasury shares (units) 3,247,273 3,053,746 3,028,943 3,048,791 3,464,540
Number of shares in circulation (units) 46,752,727 46,946,254 46,971,057 46,951,209 46,535,460
Average number of shares outstanding2 46,900,473 46,831,998 46,896,926 46,921,282 46,721,219 1 Calculation is based on profit for the period and equity before non-controlling interests respectively. 2 Relevant for calculation of earnings per share (see page 239 of the Financial Report). 3 For 2015, based on the proposal submitted to the Annual General Meeting.
INDEXED SHARE PRICE PERFORMANCE 1 BÂLOISE HOLDING REGISTERED SHARES 2010 – 2015
Innovative: Our strong innovative capabilities give us the necessary competitive edge. This is illustrated by our unrelenting and holistic focus on safety and security and by the way we manage our customer relationships. We create a climate of continuous innovation across all product lines.
HIGH CASH FLOW GENERATION By consistently implementing our strategy, we have created a robust business model that has ensured reliable profitability, even during the recent capital market crises.
STRONG CAPITALISATION Thanks to the high reliability of our business model, our balance sheet and capitalisation are rock solid. This has also been the basis of our reliable and attractive dividend policy for more than a decade.
GERMANY ���������������������������������������������������������������������������������������������������� 25 Profit and optimisation measures adversely affected by large claims incurred �������������������������������� 25
BELGIUM ������������������������������������������������������������������������������������������������������ 26 Another higher profit contribution from the strongest international market �������������������������������������� 26
LUXEMBOURG ������������������������������������������������������������������������������������������� 27 Set to become one of the top 3 ���������������������������������������������������������� 27
In 2015, Baloise generated a very healthy profit in its life business and achieved further profitability improvements in its non-life business despite a backdrop of difficult conditions. These solid foundations mean Baloise is ideally placed to deal with current challenges.
The total volume of business generated by continuing operations amounted to CHF 8�9 billion, which was equivalent to an increase of 3�3 per cent in local-currency terms, but represented a year-on year decline of 2�8 per cent when reported in Swiss francs� The non-life division generated a volume of premium income reported under IFRS from continuing operations of CHF 3,050�00 million, an increase of 0�8 per cent in localcurrency terms� The life-insurance business in continuing operations grew by 2�1 per cent in local-currency terms but contracted by 0�4 per cent in Swiss-franc terms� Baloise’s life business achieved an EBIT of CHF 277�3 million� The adverse interest-rate situation particularly affected the capital-intensive, traditional life business where earnings were down as the result of lower investment returns�
Investments generated net income of CHF 1,841�3 million, which was below the prior-year level of CHF 2,411�4 million, although net income in 2014 had been boosted by non-recurring effects� The net income generated in this very challenging environment equated to a healthy net return on insurance assets of 3�1 per cent (2014: 4�2 per cent), which is in line with the long-term trend� A reinvestment return of 1�9 per cent enabled Baloise to generate sufficient income to meet the guarantees provided on new business� By increasing the duration of investments, it was possible to reduce the interest-rate sensitivity of Baloise’s life business�
Baloise’s balance sheet remained strong, although consolidated equity fell by 6�3 per cent to CHF 5,462�3 million� This was mainly a result of currency effects and the marking to market of available-for-sale financial assets� The repurchase of more than half a million shares as part of the share buy-back programme also had a negative impact on equity�
NON-LIFE DIVISION: FURTHER PROFITABILITY IMPROVEMENTS There was a small increase of 0�8 per cent in the premium income for non-life business in continuing operations� Belgium and Luxembourg generated the most encouraging growth rates of 5�1 per cent and 6�8 per cent respectively, while premium income was down in Germany and Switzerland� In Switzerland, this was mainly because of the restrictive underwriting policy� The total volume of premium income declined by 6�5 per cent to CHF 3,050�0 million due to currency effects� The quality of the portfolio remained high� Partly because a much lower amount was paid out for large claims, there was a year-on-year fall in the insurance benefits paid, resulting in a lower gross claims ratio� The division’s high level of profitability was reflected in a 1�2 percentage point fall in its gross combined ratio, which declined to 92�5 per cent� In net terms, the combined ratio was 0�3 percentage points lower at 93�3 per cent�
EQUIT Y: BALOISE REMAINS WELL CAPITALISED Baloise’s solid foundations continued to be underpinned by its strong balance sheet and capitalisation� The 6�3 per cent decline in its consolidated equity, which fell to CHF 5,462�3 million, was mainly attributable to currency effects and the marking to market of available-for-sale financial assets� Dividend payments of CHF 235�1 million and the fact that more than 500,000 shares had already been repurchased at a cost of almost CHF 60 million as part of the share buy-back programme announced in 2015, also had a correspondingly negative effect on equity� Capital strength in accordance with the Swiss solvency test remains in the green zone� Our reliable and attractive dividend policy is not linked to potential capital reserves, but is based on our operational profitability, which remains strong� The excellent progress that has already been made in the implementation of our ongoing share buy-back programme provides further evidence of the capital strength of Baloise�
losses on investments but excludes gains and losses on held-tomaturity debt instruments – was 1�8 per cent, which was below the prior-year figure of 6�9 per cent�
as at 31 December 2014 Non-life Life Banking Total for the
Total assets under management 78,447.5 1 Including CHF 40.2 million (2014: CHF 53.3 million) in other assets (precious metal holdings from investment-linked life insurance policies).
BASLER VERSICHERUNGEN SWITZERLAND Our Swiss insurance companies reaffirmed their excellent profitability in non-life business and delivered solid earnings in their life business� Overall, the environment remained competitive, not least because of the SNB’s decision and the persistent upward pressure on costs� In non-life business, the high level of the previous year was confirmed in the technical result, but earnings fell as a consequence of lower investment income� The SNB’s decision took its toll on life business and was only partly offset� The profit before borrowing costs and taxes attributable to the Swiss entities fell by 29�4 per cent to CHF 415�3 million, contrasting with the previous year that had been boosted by exceptionally large gains on investments, the sale of shareholdings in Nationale Suisse and Helvetia, and large profits on claims reserves� The volume of business rose by 1�2 per cent to CHF 4,565�5 million�
In the non-life division, premiums were down by 1�5 per cent to CHF 1,315�5 million� The focus on improving profitability took priority over premium growth, as a result of which a conscious decision was taken to forego premium income in accident and health insurance� Encouragingly, growth continued to be strong in motor vehicle and liability insurance as well as in insurance add-ons� The favourable claims environment resulted in a lower claims rate� The gross combined ratio of 83�2 per cent was evidence of the excellent quality of the Swiss nonlife portfolio�
In the life division, the volume of conventional life insurance premiums grew by 3�4 per cent year on year to CHF 3,087�6 million� This increase was mainly attributable to the target customer segments in the area of comprehensive BVG insurance contracts in group life insurance� In addition, demand for partially autonomous pension solutions such as the new Perspectiva product line, continues to grow� Market conditions and the political framework for traditional life insurance business are, however, very challenging in view of the current level of interest rates� In future, there will continue to be a shift in the business mix towards partially autonomous solutions and risk insurance � Overall, premiums in group life insurance grew by 5�0 per cent�
The process of cutting 400 full-time equivalents by the end of 2017 is going to plan and almost three quarters of the job cuts have already been carried out� As planned, cost savings of EUR 40 million have been achieved, but they have been offset by substantial IT expenses� Despite the operational progress achieved and the measures taken, the earnings generated by Baloise’s German business are not yet within the range anticipated � Further optimisation and other measures are required in order to take better advantage of the opportunities offered by this market�
Germany Profit and optimisation measures adversely affected by large claims incurred
Premiums earned and policy fees (net) 6,630.6 6,554.6 7,044.8 7,004.5 6,683.7
Realised gains and losses on investments2 – 943.4 852.9 670.3 1,362.5 386.2
Interest expenses on insurance liabilities – 51.6 – 50.5 – 47.3 – 42.6 – 34.1
Gross premiums written and policy fees 6,803.3 6,741.7 7,228.9 7,175.6 6,833.4
Funding ratio (non-life) (per cent) 195.9 184.3 179.8 182.9 192.4 1 In line with the accounting principles applied by the Baloise Group, investment-type insurance premiums are not included in premiums earned and policy fees. 2 Including financial liabilities held for trading purposes (derivative financial instruments).
Sub-total of IFRS gross premiums written1 2015 Group Switzerland Germany Belgium Luxembourg Other units2
Change in claims reserve / actuarial reserves1 – 61.6 – 47.6 – 1,006.0 – 741.1
Total technical result of ceded business – 3.3 – 31.5 – 5.6 – 9.3
Change in other technical reserves – 14.8 – 7.7 – 384.9 – 444.7
Other financial expenses and income – 41.0 – 6.0 – 366.7 84.7
Depreciation, amortisation and impairment of property, plant and equipment and of intangible assets – 18.6 – 10.7
Realised gains and losses and impairment losses recognised in profit or loss (net)
Policy loans and other loans 10.1 28.4 38.5 17.7 56.1 73.8
Total capital gains and losses 61.9 706.4 768.4 30.4 345.8 376.2
COMMITMENT TO ART ���������������������������������������������������������������������������� 54 The Baloise Group’s commitment to art ��������������������������������������� 54
BEING RESPONSIBLE Responsible companies that give something back to society are critical to the success of any economy, not least because their actions help to build the necessary consensus between business and wider society� The concept of companies acting as good citizens is commonly known as corporate social responsibility (CSR)� In spring 2015 the Swiss Federal Council adopted a position paper on corporate social responsibility� It makes the case for responsible companies being a vital factor in the success of the Swiss economy and sets out the government’s intention to help shape the framework for CSR� The position paper also contains an action plan featuring specific measures that are to be implemented by the State Secretariat for Economic Affairs (SECO)�
Baloise was embracing the idea of corporate social responsibility long before the term became popularised� Sustainability is at the heart of everything that Baloise does� Because every day, through its insurance and pension solutions, it helps companies, economies and communities to function properly, which in turn boosts economic and social stability� The company can look back on more than 150 years of history and since the day it was founded has been there when its customers have needed it the most� People put their trust in Baloise to look after their futures and in return expect stability, security and a sustainable approach� In life insurance, savings for old age and company pensions for SMEs, Baloise has an investment horizon that stretches several decades� It has to offer the sort of longterm security that simply cannot be sustained by the pursuit of short-term gains alone� Baloise therefore thinks and acts on a long-term basis, examines risks that may arise in the future and mitigates these in a thorough and professional manner�
Corporate social responsibility covers a broad range of activities and involves a broad range of stakeholders – from employees and shareholders to customers, partners and the wider public�
RESPONSIBILITY TO THE SHAREHOLDER The capital that is made available to Baloise by its shareholders is invested efficiently and in their interests� Forming an integral part of our strategic management policies, risk management makes a significant contribution to the positioning of the Baloise Group� As a European insurer with Swiss roots, Baloise possesses a strong balance sheet and strong operational profitability, which have been optimised in terms of the risks taken and the upside potential derived from the business� Baloise’s risk management approach involves managing both risk and value at the same time� Baloise’s risk model is based on innovative standards so that it can always keep its promise of ‘Making you safer’� This has enabled Baloise to pursue a sustainable dividend policy for a number of years now� The strength of Baloise’s risk management approach has been independently verified by Standard & Poor’s� In 2015 the rating agency reaffirmed its assessment from the prior year of ‘A with a stable outlook’�
The Baloise companies outside Switzerland also play their part in social, sporting and cultural life in their regions by supporting numerous institutions and events�
Baloise is only able to thrive in its challenging market because of the hard work and commitment of its employees. It is therefore important to embed tried-and-proven activities and to continue to develop the workforce and the organisation as a whole.
→ 7,387 people (6,754 FTEs) were working for the Baloise Group on 31 December 2015 (end of 2014: 7,599).
→ 43.9 per cent of all staff members are women (2014: 43.6 per cent).
→ 60.4 per cent of staff members working in our main market of Switzerland participated in our Employee Share Ownership Plan in 2015 (2014: 60.9 per cent).
→ Baloise employees work at the Company for an average of 14.2 years.
→ to nurture an employee-focused corporate culture; → to be the employer of choice in our sector; → to be performance- and results-driven; → to be a highly skilled, learning organisation; → to possess outstanding leadership and management capabilities.
ENGAGING IN DIALOGUE CONTINUOUS DEVELOPMENT AND A CONSENSUAL APPROACH A cornerstone of the working environment at Baloise is the culture of constructive feedback that tallies with our core value ‘Develop and engage – yourself and others!’, which is put into practice across all hierarchy levels� Three formats are currently available that allow managers and employees to engage in a mutual, open and in-depth dialogue that is based on the behavioural value ‘Put yourself in the other’s shoes!’� In addition to individual development dialogues, where the focus is on the employee, and management dialogues, in which managers are given feedback by their staff, Baloise carries out an employee engagement survey, the results of which are discussed within the teams�
All three formats are already firmly established in Switzerland� In 2015 the management feedback process was piloted in Germany, Belgium, Liechtenstein and Luxembourg� Full roll-out is scheduled for 2016� The one-on-one meetings between managers and employees have proven to be effective and the employee engagement survey was introduced at all national Baloise companies back in 2013�
CHALLENGING AND DEVELOPING STAFF WITH A VIEW TO ACHIEVING FUTURE SUCCESS Baloise’s processes for developing skills and talent are a key part of its trust- and performance-based corporate culture� The focus is on continuous learning and on helping employees to make the most of the freedom they are given in their work� One-on-one meetings between managers and employees are the central element in an ongoing dialogue regarding performance and development targets� This gives guidance to employees and provides clarity about shared objectives and continuous learning�
CHANGING THE MANAGEMENT PHILOSOPHY BALOISE’S BEHAVIOURAL VALUES – THE FOUNDATION FOR LEADERSHIP@BALOISE Baloise operates in an extremely challenging market with highly volatile parameters� This situation prompted the Company’s decision to start focusing on growth� After ten years of successfully striving for operational excellence, Baloise, and in particular its management philosophy, needed to undergo a process of change that would establish the necessary ‘culture of growth’ within the Company� In 2015 we therefore pushed ahead with work on the new managerial philosophy, Leadership@Baloise� The approach is based on Baloise’s established behavioural values � But in future there will be an even greater focus on promoting engagement, shaping the process of change and striving for improvement and development in order to achieve better results�
In the coming years, the priority will be to embed behaviours in day-to-day management activities that are conducive to growth� We will be adapting our HR processes accordingly and deploying the Baloise Campus management development programme that has been used across the Group for a number of years�
TAKING ACCOUNT OF INDIVIDUAL COUNTRIES’ NEEDS, PURSUING COMMON OBJECTIVES In addition to the aforementioned Group-wide initiatives, the country-specific HR units are focusing on activities that are geared towards the regional requirements of their business and the local legal system�
Sustainable business management Human resources management staff in the inhouse sales team� Baloise changed the way in which working hours were recorded on 1 January 2016 so that it would be compliant with Ordinance 1 of the Swiss Labour Law (ArGV 1)�
In Germany, a number of managers have been closely involved in the development of a vision for the future� Fostering a culture that takes consideration of cultural aspects but also incentivises and recognises performance plays a key role in this� The introduction of a structured feedback process between the Executive Committee and the department heads represents a further step in this direction� In addition, a standardised programme of initial training was rolled out across all sites that is ensuring a uniform quality of instruction�
THE COMPETITION FOR TOP TALENTS IS GETTING TOUGHER PRESENCE, RELEVANCE AND AN AUTHENTIC VOICE Employees are the most valuable resource for all companies, not just Baloise� Which is why the competition for the best people at various levels is getting tougher all the time� Just a few years ago, apprenticeships were already filled by autumn with highly skilled school-leavers; today the process lasts until well into spring� And it is also proving more and more difficult to recruit new, highly skilled staff in other vocations such as IT and customer service�
To counteract this trend and make Baloise more visible as an employer, the Company has been using social media� Through the blog baloisejobs�com and accounts on Facebook, Xing, LinkedIn, Twitter and Pinterest contact is being made
Investment continues to be made in traditional HR marketing as well, whereby the focus is on engaging in dialogue with potential employees� At job fairs, current Baloise employees are able to talk about their experiences and give a realistic picture of what it’s like to work for the Company – all in line with our philosophy of being friendly, accommodating and fair�
These efforts are complemented by an attractive range of training opportunities� Baloise currently employs 200 apprentices, interns and temporary student workers� And for the past 23 years, it has been running a management trainee programme whose alumni often go on to forge a career within the Company �
ACHIEVING RESULTS, REAPING REWARDS: BALOISE PERFORMANCE MANAGEMENT Many of the aforementioned activities are aimed at offering employees a working environment in which they can perform to the best of their ability� And if they do so, they should be rewarded accordingly� Baloise offers performance- and targetoriented remuneration packages that are based on fair principles and an established framework of performance management� The packages consist of competitive base salaries and a range of variable remuneration components as well as attractive employee incentives and loyalty bonuses� The remuneration paid by the Baloise Group is determined by the following criteria: → Competitiveness in the marketplace → Individual performance and the Company’s success → Fairness and transparency → Sustainability
Variable remuneration is based on both individual performance and the success of the Company as a whole� Throughout the year, employees attend a series of meetings with their managers to make sure they are on track to achieve the individual targets that have been agreed upon�
The packages also feature attractive fringe benefits that are awarded regardless of function and seniority�
PRODUCTS AND SERVICES Baloise strives to take environmental aspects into account when developing its products and services and fixing premiums and levels of coverage� Its underwriting policy takes account of its customers’ environmental management practices (e�g� ISO 14001) on the basis of identifiable operational and product-related factors � It also advises industrial clients on risk reduction and risk prevention�
INVESTMENT Baloise’s investment policy is geared towards medium- to longterm earnings targets and consciously incorporates environmental criteria whenever possible, especially in the selection of securities and real estate� It also promotes appropriate, environmentally relevant proprietary and third-party financial products� When it comes to investment in real estate, Baloise pays particular attention to energy-saving and economical designs and service systems, as well as the use of environmentally friendly construction materials� The environmental audit takes the entire life cycle of the real estate into consideration�
ELECTROMOBILITY FOR CUSTOMERS AND STAFF Baloise is taking its first steps towards zero-emission travel� In 2015 an attractive package was introduced that enabled staff in Switzerland to purchase or lease an electric car� Since 2015, employees have also been able to charge their electric vehicles for free during working hours� A total of 16 staff parking spaces in Basel have been equipped with charging facilities� Visitors travelling to Baloise’s new customer centre in an electric car can charge their vehicle for free at a fast-charging station in the visitor car park� At the offices in Zurich and Bern charging points will be made available in the first half of 2016�
SYSTEMATIC ROLL-OUT OF MODERN WORKSTATIONS The new workstations that have been trialled since summer 2014 were rolled out at the headquarters of Basler Switzerland� Now 600 employees can find a desk where they can work quietly as well as rooms for communicating and working efficiently as a team�
Heating consumption 11,513,544 kWh 9,327,534 kWh 8,821,860 kWh 60 kWh / m2 – 5.4
Copy paper consumption 71.9 million A4 sheets 73.5 million A4 sheets 68.7 million A4 sheets 12,020 A4 sheets / employee
Amount of refuse 1,241 t 979 t 961 t 168 kg / employee – 1.8
Mode of transport 27.4 % km by air 43.5 % km by road 29.1 % km by public transport 1 The 2014 figures for amount of refuse and business activity were adjusted in 2015 to take account of retrospective adjustments by external suppliers in individual national subsidiaries.
RISK MAP The risk map distinguishes between the following categories of risk to which Baloise is exposed: → Business risk → Investment risk → Financial-structure risk → Business-environment risk → Operational risk → Leadership and information risk�
A detailed description of the risk map can be found in the Financial Report on page 134�
Baloise’s risk management approach involves managing both risk and value at the same time� Its risk model is based on innovative standards so that it can always keep its promise of ‘Making you safer’�
The Company’s enterprise risk management was once again awarded Standard & Poor’s excellent ‘strong’ rating in 2015� This puts it among the top 15 per cent of all European insurance companies�
Baloise’s risk management is one of the main pillars of its business model
The Own Risk and Solvency Assessment (ORSA), an annual risk report, is discussed with the decision-makers so that suitable measures can be developed� The results of the ORSA are also reported to the regulatory authority� In addition, risk managers’ assessment of the risk situation is factored into the remuneration paid to executives� The three criteria used to determine the performance pool payments awarded to individual managers are personal performance, leadership and conduct� The individual performance pool payment proposed by the respective line manager is discussed by the relevant management team, compared with other departments and divisions, and adjusted where necessary� This process ensures that riskrelevant behavioural attributes are factored into the individual performance pool payments�
STRATEGIC RISK MANAGEMENT The internal risk model, which uses standard methods to quantify all business risks and financial market risks, forms the basis for strategic discussions about Baloise’s risk appetite� The capital requirements derived from this model constitute minimum requirements for Baloise’s ‘actual’ capital�
OUR PROFESSIONAL RISK MANAGEMENT DEMONSTRATED ITS PROVEN STRENGTHS IN 2015 Baloise’s risk strategy principles are designed for the long term, as shown by the Company’s excellent risk positioning in 2015� Proof positive of this situation was the Baloise Group’s solvency I ratio, which remained very high at 341 per cent and is testimony to its financial strength�
Underwriting approaches that have been tried and tested for many years were maintained in 2015: → The Baloise Group’s investment strategy continues to focus on diversification and on the basic principle of only investing in assets that the Company can itself fully and accurately evaluate through risk management�
→ Baloise continued to actively manage its credit risk and currency risk�
→ Much of Baloise’s focus is directed at managing its interest -rate risk� Wherever possible, payment obligations to customers for future years are reconciled with the income earned from investments� The high quality of recurrent investment income generated by Baloise’s stable real-estate portfolio has proved very helpful in this respect� Baloise also invests in safe long-term bonds denominated in either Swiss francs or euros and supplements this strategy by using derivative financial instruments such as swaptions�
→ Baloise’s underwriting business has proved to be highly consistent, with the Baloise Group’s net combined ratio of 93�3 per cent demonstrating its excellent capabilities in underwriting and managing non-life risk�
Risk management at Baloise will continue to evolve over the coming years, reaffirming its standing as a company with an outstanding risk strategy and risk positioning� Further information on risk management can be found in the 2015 Financial Report (section 5� ‘Management of insurance risk and financial risk’ pages 132 to 174)�
Today Baloise collects contemporary art, focusing on acquiring works on paper by the artists of today� Works on paper include drawings, gouaches, watercolours, oil on paper, collages and photographic works� These are fully recognised artistic media, which form part of the significant artistic statements of the modern day� By deciding to focus on one specific medium, Baloise intended to expand its horizon in its choice of artists� The main criterion for selecting artists is the existence of a persuasive body of work that establishes a close emotional and intellectual connection with the hopes and fears of our time�
BALOISE ART PRIZE Every year since 1999 the Baloise Group has awarded two young artists its Baloise Art Prize� It is Baloise’s way of supporting the development of young, rising talents�
The two prizes of CHF 30,000 are presented in the Statements section of the Art Basel fair by a panel of judges comprising international experts� Baloise also acquires groups of works by the prize winners and donates these to two leading European art museums, in 2016 to Frankfurt’s Museum of Modern Art and the MUDAM in Luxembourg�
The Baloise Art Prize has become a prestigious accolade� The awards are presented to the winning artists and galleries at the high-profile Art Basel international fair� In addition to this publicity, the artists are also given the opportunity to have their works displayed in a distinguished art museum�
CORPORATE GOVERNANCE REPORT INCLUDING REMUNERATION REPORT ��������������������������������������������� 58 Structure of the Baloise Group and shareholder base ������������ 58 Capital structure ������������������������������������������������������������������������������������� 59 Board of Directors ���������������������������������������������������������������������������������� 60 Corporate Executive Committee ����������������������������������������������������� 69 Remuneration Report ��������������������������������������������������������������������������� 73 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ������������������������������������������ 96 Shareholder participation rights ������������������������������������������������������ 98 Changes of control and poison-pill measures ��������������������������� 99 External auditors ������������������������������������������������������������������������������������� 99 Significant amendments to the Articles of Association submitted to the 2015 Annual General Meeting ������������������� 100 Information policy ������������������������������������������������������������������������������ 100
Operating in line with the Swiss Code of Best Practice and the SIX Corporate Governance Guidelines, Baloise strives to foster a corporate culture of high ethical standards that emphasises the integrity of the Company and its employees� Baloise is convinced that high-quality corporate governance has a positive impact on its long-term performance� The Company therefore rapidly and transparently implemented the requirements under the Swiss Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO)�
→ Significant subsidiaries, joint ventures and associates as at 31 December 2015 can be found from page 250 onwards in the notes to the consolidated annual financial statements, which form part of the Financial Report�
Shareholder base As a public company with a broad shareholder base, Bâloise Holding is a member of the SMI Mid (SMIM) Index and the Swiss Leader Index (SLI)�
The reports that were submitted to the issuer and to SIX Swiss Exchange AG’s disclosure office during the reporting year in compliance with section 20 of the Swiss Federal Act on Stock Exchanges and Securities Trading (BEHG) and were published on the latter’s electronic reporting and publication platform in compliance with section 21 BEHG can be viewed using the search function at publications/significant-shareholders�html
Bâloise Holding’s equity The table below shows the changes in equity during the last three reporting years�
Authorised and conditional capital; other financing instruments Authorised capital A resolution adopted by the Annual General Meeting on 30 April 2015 has authorised the Board of Directors until 30 April 2017 to increase the Company’s share capital by up to CHF 500,000 by issuing up to 5,000,000 fully paid-up registered shares with a par value of CHF 0�10 each (see section 3 [4] of the Articles of Association)�
Conditional capital The 2004 Annual General Meeting created conditional capital� This capital enables the Company’s share capital to be increased by up to 5,530,715 registered shares with a par value of CHF 0�10 each (see section 3 [2] of the Articles of Association)� This constitutes a nominal share capital increase of up to CHF 553,071�50�
Corporate Governance Corporate Governance Report including Remuneration Report securities� Shareholders’ pre-emption rights are disapplied� Holders of the pertinent option rights and conversion rights are entitled to subscribe for the new registered shares� The Board of Directors may restrict or disapply shareholders’ pre-emption rights when issuing warrant-linked bonds or convertible bonds in international capital markets�
→ www.baloise.com/s&prating 3. BOARD OF DIRECTORS Election and term of appointment The Board of Directors consisted of nine members at the end of 2015� Since the 2014 Annual General Meeting each member of the Board of Directors has been elected for a term of one year at a time�
During the reporting year, Dr Michael Becker, Dr Andreas Beerli, Dr Georges-Antoine de Boccard, Dr Andreas Burckhardt, Christoph B� Gloor, Karin Keller-Sutter, Werner Kummer, Thomas Pleines and Dr Eveline Saupper were re-elected as members of the Board of Directors for a one-year term until the end of the next ordinary Annual General Meeting�
Statutory rules concerning the number of permitted activities The 2015 Annual General Meeting approved the addition of a new section to the Articles of Association (section 33) concerning the maximum number of directorships held outside the Company� Section 1 stipulates the principle that the number of external directorships held by members of the Board of Directors or Corporate Executive Committee must be compatible with the commitment, availability, capabilities and independence required of them in order to perform their duties as members of the Board of Directors or Corporate Executive Committee� Subsections 2 and 3 then specify numerical restrictions�
The committees appointed by the Board of Directors generally consist of four members, who are newly elected every year by the Board of Directors� Since 2015, section 7 ERCO has required the members of the Remuneration Committee to be elected by the Annual General Meeting� The Chairman and Vice-Chairman of the Board of Directors are ex officio members of the Chairman’s Committee� The Chairman of the Board of Directors is not allowed to sit on the Audit and Risk Committee � The committees’ basic functions and responsibilities are specified in the Organisational Regulations� Additional specific regulations applicable to individual committees also govern administrative and other aspects�
The Remuneration Committee proposes to the Board of Directors – for subsequent approval by the Annual General Meeting – the structure and amount of remuneration paid to the members of the Board of Directors and of the salaries paid to the members of the Corporate Executive Committee� Under ERCO, the remuneration paid to the Board of Directors and the Corporate Executive Committee has had to be approved by the Annual General Meeting� The Remuneration Committee
approves the target agreements and performance assessments that are applied to the Corporate Executive Committee members in order to determine their variable remuneration� It also sanctions the remuneration policies applicable to the Corporate Executive Committee members and ensures that they are being correctly implemented� It approves the variable remuneration granted to individual members of the Corporate Executive Committee; this remuneration has to be within the maximum amount approved by the Annual General Meeting� Furthermore, it specifies the total amount available in the performance pool�
The full Board of Directors of Bâloise Holding met on six occasions in 2015� The table on page 61 shows Board of Directors members’ attendance at these meetings� All members of the relevant committee in each case attended every one of the additional 19 committee meetings� This means that the Board of Directors achieved an overall meeting attendance rate of 100 per cent� The Board of Directors held a seminar for the purpose of training its members� Meetings of the Board of Directors and its committees usually last half a working day each�
Meetings of the Board of Directors are regularly attended by members of the Corporate Executive Committee� Meetings of the Chairman’s Committee are usually attended by the Group CEO and the Chief Financial Officer� Those present at Audit and Risk Committee meetings are primarily the Chief Financial Officer, the Head of the Corporate Centre, the Head of Group Internal Audit and, occasionally, representatives of the external auditors, the Chief Risk Officer, the Chief Investment Officer and the Group Compliance Officer� The main attendees at Remuneration Committee meetings are the Group CEO, the Head of the Corporate Centre and the Head of Group Human Resources � Meetings of the Investment Committee are usually attended by the Group CEO, the Chief Investment Officer and the Heads of Investment Strategy and Investment Control, Baloise Asset Management and Real Estate� The Secretary to the Board of Directors attends the meetings of the full Board of Directors and those of its committees�
Effective risk management is essential for any insurance group� This is why Baloise has devoted two entire chapters to the subject of financial risk management from page 50 onwards and in the Financial Report section starting on page 132�
Werner Kummer (1947, Switzerland, Dipl�-Ing� ETH Zurich, MBA Insead) has been a member of the Board of Directors since 2000 and Vice-Chairman since 2014� From 1990 to 1994 he was CEO of Schindler Aufzüge AG and subsequently, until 1998, sat on Schindler’s Group Management Committee, where he was responsible for the Asia Pacific region� Until 2013 he was a member of the Supervisory Board of Schindler Deutschland Holding GmbH� He was CEO of Forbo Holding AG from 1998 until 2004� He is a freelance management consultant, Chairman of the Board of Directors at Gebrüder Meier AG, a member of other supervisory boards of non-listed companies in Switzerland and abroad and an executive director of the Zurich Chamber of Commerce� Mr Kummer is an independent non-executive director�
Andreas Beerli (1951, Switzerland, Dr iur�) has been a member of the Board of Directors since 2011� He studied law at the University of Basel� In 1979 he started working as an underwriter for the German market at Swiss Re� From 1985 to 1993 he performed various managerial roles at Baloise, with the main focus on supervising and supporting several foreign units� He then returned to Swiss Re, where he became a member of the Group Executive Committee in 2000, first in the United States as Head of Swiss Re Americas and, most recently, in Zurich as Chief Operating Officer for the entire Swiss Re Group� Since 2009 he has acted as an independent advisor on the boards of directors and advisory boards of companies and professional associations� He is a member of the Board of Directors at Ironshore Europe Inc�, Dublin, a member of the Advisory Board of Accenture Schweiz, and Chairman of the Swiss Advisory Council of the American Swiss Foundation� Dr Beerli is an independent non-executive director�
Georges-Antoine de Boccard (1951, Switzerland, Dr med�) has been a member of the Board of Directors since 2011� He studied medicine at the University of Geneva� He has been running his own urological surgery practice in Geneva since 1987� Dr Georges-Antoine de Boccard is Chairman of the Board of Directors of Citadel Finance SA and Stellaria Holding SA, sits on the Board of Directors of the Swiss International Prostate Center SA and was Chairman of the Swiss Association of Urology from 2005 to 2006� He chairs the Board of Directors at Citadel Finance SA and was Chairman of the Swiss Association of Urology from 2005 to 2006� He is a member of the Swiss Association of Urology, the European Association of Urology and other professional bodies and associations and sits on the boards of directors of various foundations� Dr de Boccard is an independent non-executive director�
Christoph B. Gloor (1966, Switzerland) has been a member of the Board of Directors since 2014� He holds a university degree in business economics and has been a member of the Executive Committee of Notenstein La Roche Privatbank AG, Basel, since November 2015� He was previously Chief Executive Officer of Baselbased private bank La Roche & Co AG� Prior to joining La Roche & Co AG in 1998, he worked for Swiss Bank Corporation (SBC) before moving to Vitra (International )� Christoph B� Gloor served as president of the Association of Swiss Private Banks from November 2013 to February 2015 and was a member of the Board of Directors of the Swiss Bankers Association from September 2013 to February 2015� Mr Gloor is an independent non-executive director�
Karin Keller-Sutter (1963, Switzerland), who holds a university degree in translation and conference interpreting and has a postgraduate qualification in education, has been a member of the Board of Directors since 2013� In 1996 she was elected to St� Gallen’s cantonal parliament and became Chairwoman of the FDP (the Swiss Liberal Party) for the canton of St� Gallen before being elected to St� Gallen’s cantonal governing council in 2000� She was in charge of the security and justice department until May 2012 and chaired the Governing Council in 2006/2007 and again in 2011/2012� She has been a member of the Council of States – the upper chamber of the Swiss parliament – since the autumn of 2011� Ms Keller-Sutter sits on the boards of directors at the NZZ media group and Pensimo Fondsleitung AG� She is also a member of the Board of Directors at the ASGA pension fund and chairs the Board of Trustees at the Pensimo investment trust� She is Chairwoman of the Swiss Retail Federation and a member of the Executive Committee of the Swiss Employers ’ Federation� Ms Keller-Sutter is an independent non-executive director�
Thomas Pleines (1955, Germany, lawyer) has been a member of the Board of Directors since 2012� From 2003 to 2005 he was CEO and delegate of the Board of Directors at Allianz Suisse, Zurich, and from 2006 to 2010 he was CEO of Allianz Versicherungs-AG, Munich, and an executive director at Allianz Deutschland AG, Munich� From 1998 to 2013 Mr Pleines sat on the Supervisory Board of Bilfinger SE, Mannheim� Since 2011, he has been Chairman of the Presidential Board at DEKRA e�V�, Stuttgart, Chairman of the Supervisory Board of DEKRA SE, Stuttgart, Chairman of the Supervisory Board at SÜDVERS Holding GmbH & Co� KG, Au near Freiburg, Zurich� Mr Pleines is an independent non-executive director�
Eveline Saupper (1958, Switzerland, Dr iur�, lawyer) has been a member of the Board of Directors since 1999� She studied jurisprudence at the University of St� Gallen� She is a lawyer and a certified tax expert� She worked for Peat Marwick Mitchell (now KPMG Fides), Zurich, from 1983 to 1985 and was employed by Baker & McKenzie, Zurich and Chicago, from 1985 to 1992� Until mid-2014, she was a partner at Homburger AG, Zurich, where she is now of counsel� Dr Eveline Saupper sits on the boards of directors of Syngenta AG, Basel, Georg Fischer AG, Schaffhausen, Stäubli Holding AG, Pfäffikon SZ, and hkp group AG, Zurich� She is also Vice Chairwoman of the Board of Directors of Flughafen Zürich AG, Kloten, and chairs the Board of Directors of Mentex Holding AG, Schwyz� Dr Saupper is an independent non-executive director�
Corporate Governance Corporate Governance Report including Remuneration Report 4. CORPORATE EXECUTIVE COMMITTEE
German Egloff (1958, Switzerland, lic� oec� HSG) graduated in business management from the University of St� Gallen� From 1985 onwards he held various managerial positions at Winterthur Insurance, Switzerland� In 1997, as an executive director, he was put in charge of personal nonlife insurance products, which included responsibility for both Wincare and – as Chairman of the Board of Directors – Sanacare� From 1998 to 2002 he was Chief Financial Officer of Winterthur Switzerland and sat on the Board of Directors of Wincare, becoming its Chairman in 2000� From 2002 to 2004 he was Chief Financial Officer at Zurich Financial Services, Switzerland� His responsibilities here comprised finance, human resources, IT, logistics and procurement� Since 1 December 2004, he has been a member of the Corporate Executive Committee (heading up Corporate Division Finance), where he oversees Group Accounting & Finance, Corporate Communications & Investor Relations, Group Risk Management, and Corporate IT� The actuary responsible for Baloise’s business in Switzerland and the Head of Regulatory Affairs also report to German Egloff�
Corporate Governance Corporate Governance Report including Remuneration Report 5. REMUNERATION REPORT: REMUNERATION, SHARE OWNERSHIP AND LOANS GRANTED TO MEMBERS OF THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE This remuneration report relates to the 2015 financial year� It describes the remuneration policies adopted and the remuneration systems in place, and it discloses the remuneration paid to the Board of Directors and the Corporate Executive Committee in 2015� The content and scope of these disclosures are determined by sections 13 to 17 of the Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO), section 663c (3) of the Swiss Code of Obligations (OR), the corporate governance information guidelines published by the SIX Swiss Exchange, the Swiss Code of Best Practice for Corporate Governance, and circular 10/1 of the Swiss Financial Market Supervisory Authority (FINMA) concerning remuneration systems�
5.1 Remuneration Committee of the Board of Directors The Remuneration Committee set up by the Board of Directors in 2001 is consistent with the Swiss Code of Best Practice and is tasked with helping the Board of Directors to frame the Company ’s remuneration policies� The Remuneration Committee has been vested with special decision-making powers and ensures, among other things, that: → the remuneration offered by Baloise is in line with the going market rate and performance-related in order to attract and retain individuals with the necessary skills and character attributes; → the remuneration paid is demonstrably dependent on the Company’s sustained success and individuals’ personal contributions and does not create any perverse incentives; → the structure and amount of overall remuneration paid are consistent with Baloise’s risk policies and encourage risk awareness�
Corporate Governance Corporate Governance Report including Remuneration Report 5.2 Remuneration policies Principles The Company’s success is largely dependent on the skills, capabilities and performance of its workforce� It is therefore essential to recruit, develop and retain suitably qualified, highly capable and highly motivated professionals and executives� The level of remuneration offered by Baloise is in line with the going market rate and performance-related� The clearly defined caps approved by the Annual General Meeting for the pay awarded to members of the Board of Directors and Corporate Executive Committee ensure that remuneration is not excessive�
The performance management system applies to the most senior level of management and to most other members of the management team throughout the Baloise Group�
Market comparisons Baloise regularly compares the salaries paid to its senior executives with those paid in the wider market� The Corporate Key Position Benchmark survey conducted by Kienbaum uses function-specific peer groups� Each function being compared is assigned to one of three distinct peer groups� Assignment is based on which companies Baloise is competing against for the skill-sets and qualifications needed for each function (i�e� recruitment market) and which alternative employers – in theory, at least – meet a certain function profile (i�e� competitors)�
Baloise regularly compares the salaries paid in its insurance -specific and insurance-related functions in Switzerland with those of its relevant competitors and takes part in the Club Survey that Kienbaum has been conducting since 1995� This benchmarking survey of the salaries paid in the Swiss insurance sector is constantly being optimised to ensure that it meets participants ’ high professional standards and quality requirements� The comparison mainly covers insurance-specific functions up to middle management level� It also examines insurance-related, managerial and specialist functions performed by senior executives� Functions not covered by the Kienbaum comparison are regularly reviewed using Towers Watson’s Financial Services Compensation Survey� The findings of these benchmarking surveys are fed into the Company’s regular review of its salary structures and presented to the Remuneration Committee�
Short-term variable remuneration is paid together with the salary for March of the following year� Baloise attaches considerable importance to managing its business sustainably and ensuring a high correlation between the interests of its shareholders and executives� It therefore pays a substantial proportion of variable remuneration in the form of shares� Senior managers can choose what percentage of their remuneration is paid out in cash and what proportion they receive in the form of shares� This choice is limited for the most senior managers, who are obliged to subscribe for shares on a sliding-scale basis: members of the Corporate Executive Committee must receive at least 50 per cent of their short-term variable remuneration in the form of shares, which account for at least 70 per cent of total variable remuneration if the long-term effect of performance share units is included (see page 78)� The shares subscribed in this way are restricted for three years and during this period are exposed to market risk� This mandatory purchase of shares in particular ensures that as senior executives’ managerial responsibilities and total remuneration packages increase, a significant proportion of their compensation is paid in the form of deferred remuneration� This system also raises employees’ risk awareness and encourages them to maintain sustainable business practices�
The Remuneration Committee decides on the performance pool payments awarded to the individual members of the Corporate Executive Committee� The average expected value amounts to 60 per cent of basic salary�
The Remuneration Committee conducts a detailed assessment of the Company’s performance once a year and adjusts the size of the performance pool accordingly, as the table below shows in the form of a comparison with the consolidated profit for the period: Performance pool (as a percentage of the normal expected value)
At the beginning of each vesting period the participating employees are granted rights in the form of PSUs, which entitle them to receive a certain number of shares free of charge after the vesting period has elapsed� The Remuneration Committee specifies the grant date and applies its own discretion in deciding which of the most senior management team members are eligible for the programme� It determines the total number of PSUs available and decides how many are to be awarded to each member of the Corporate Executive Committee� PSUs are granted to the other programme participants on the basis of the relevant line manager’s proposal, which must be approved by the line manager’s manager�
The number of shares that can be subscribed after three years – i�e� at the end of the vesting period – depends on the performance of Baloise shares relative to a peer group� This comparative performance multiplier can be anywhere between 0�5 and 1�5� The peer group comprises the almost 40 leading European insurance companies contained in the STOXX Europe 600 Insurance Index�
Aviva plc Legal & General Group plc St. James’s Place Capital
Participants receive the pertinent number of shares once the vesting period has elapsed, which means that for the PSUs allocated in 2015 they receive their shares on 1 March 2018� If an individual’s employment contract is terminated during the vesting period, the PSUs expire without the person concerned receiving any consideration or compensation� This does not apply if the employment contract ends due to retirement, disability or death� It also does not apply if the contract is terminated but the programme participant does not join a rival company or is not personally at fault for the termination of the contract� In the latter two cases, some of the allocated PSUs will still expire� The number of PSUs expiring is proportional to the amount of time remaining until the end of the vesting period� In addition, the Remuneration Committee has the powers to claw back some or all of the PSUs allocated to an individual or to a group of programme participants if there are specific reasons for doing so� Such specific reasons include, for example, serious breaches of internal or external regulations, the taking of inappropriate risks that are within an individual’s control, and the type of conduct or behaviour that would increase the risks to Baloise�
Share Subscription Plan Since January 2003 those who qualify as eligible persons at Baloise Group companies in Switzerland – and, since 2008, the members of the Executive Committees at companies outside Switzerland as well – have been able to subscribe for shares at a preferential price as part of their short-term variable remuneration � The subscription date is 1 March of each year; although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold for the duration of a three-year closed period�
Corporate Governance Corporate Governance Report including Remuneration Report 5.7 Employee Incentive Plan The Baloise Foundation for Employee Participation set up in 1989 offers members of staff working for various Baloise Group companies in Switzerland the opportunity to purchase shares of Bâloise Holding Ltd – usually once a year – at a preferential price in compliance with the regulations adopted by the Board of Foundation� This encourages employees to maintain their commitment to the Company over the long term by becoming shareholders� The subscription price is fixed by the Board of Foundation at the beginning of the subscription period and is then published on the intranet� It equals half of the volumeweighted average share price calculated for the month of August in each subscription year� In 2015 the subscription price amounted to CHF 60�40 (2014: CHF 57�30) and a total of 172,796 shares were subscribed (2014: 174,810)� Title to the subscribed shares passes to the relevant employees with effect from 1 September each year, and the shares are subject to a three-year closed period�
→ Section 31 Annual General Meeting votes on remuneration → Section 32 Principles of profit-related remuneration and the granting of equity instruments → Section 34 Loans and advances granted to members of the
Board of Directors and the Corporate Executive Committee → www.baloise.com/rules-regulations 5.10 Remuneration paid to the members of the Board of Directors Please refer to the tables on pages 86 and 87�
No amounts receivable from current or previous members of the Board of Directors have been waived� No remuneration was paid to former members of the Board of Directors�
Corporate Governance Corporate Governance Report including Remuneration Report 5.11 Remuneration paid to the members of the Corporate Executive Committee Please refer to the tables on pages 88 to 91�
The members of the Corporate Executive Committee receive performance share units (PSUs) as a form of long-term variable remuneration, which is expected to account for 40 per cent of basic salary� This system complies with Swiss legislation and meets the European standard, which stipulates that the ratio of fixed to variable remuneration should normally be oneto -one (Capital Requirements Directive IV)�
In addition, the Annual General Meeting held on 30 April 2015 passed binding votes in which it set a cap on the variable remuneration payable for 2015 and the amount of fixed remuneration to be paid for 2016�
The members of the Corporate Executive Committee must receive at least 50 per cent of their short-term variable remuneration in the form of shares in order to ensure that their own interests are more strongly aligned with those of shareholders� This mandatory purchase of shares coupled with the shares allocated under the PSU programme ensures that, compared with the market as a whole, a significant proportion of their compensation is paid in the form of deferred remuneration� The Corporate Executive Committee members’ remuneration is disclosed on pages 88 to 91 in accordance with the accrual principle� The table includes all forms of remuneration awarded for performance in 2015 even if individual components are not paid until a later date�
→ One member of the Corporate Executive Committee took early retirement with effect from 30 April 2015� His total remuneration was therefore only around 41�0 per cent of his previous year’s remuneration�
– individual payment Remuneration Committee (in compliance with the cap set by the Annual General Meeting)
The Annual General Meeting held on 30 April 2015 approved a maximum amount of CHF 5�3 million for the variable remuneration payable for 2015� A total of CHF 4�0 million was paid out, which meant that only around three-quarters of the maximum amount available was utilised�
5.12 Loans and credit facilities Please refer to the table on page 92�
5.13 Shares and options held Please refer to the tables on pages 93 and 94�
As requested by circular 10/1 issued by the Swiss Financial Market Supervisory Authority on the subject of remuneration, Baloise has published in the table on page 95 the amounts of total remuneration and variable remuneration and has disclosed the total amounts of outstanding deferred remuneration and the inducement payments and severance packages granted� These figures include all forms of remuneration awarded for 2015 even if individual components are not paid until a later date�
Dr Georg F. Krayer (until 24 April 2014) 62,500 137,500 0 137,500 68,657 668
Total for the Board of Directors 2,340,833 814,999 3,155,832 265,104 3,420,936 758,897 7,413
Total for the Board of Directors 2,320,000 790,000 3,110,000 266,065 3,376,065 759,121 6,640
Explanatory notes to the table Remuneration is disclosed in accordance with the accrual principle. The table includes all forms of remuneration awarded for performance in 2014 even if individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions, etc. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length basis was paid to companies or individuals who are related to members of the Corporate Executive Committee. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Share Subscription Plan Proportion of variable remuneration received directly as shares, which are measured at market value less 10 per cent markdown. Subscription price = CHF 114.75. Employee Share Ownership Plan Proportion of variable remuneration received as shares (excluding loans to purchase shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 112.70. Performance share units (PSUs) These have been disclosed at their value of CHF 113.95 at the grant date and measured using a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period.
Head of Corporate Division Switzerland 2,679 9,708 10,632 9,931 13,311 19,639 0.027 % 0.039 % 8,654 7,371
Head of Corporate Division Finance 7,583 17,457 19,280 9,557 26,863 27,014 0.054 % 0.054 % 9,854 8,269
Explanatory notes to the table Shareholdings Includes shares held by related parties (spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them). Restricted shares Includes loan-financed shares connected with the Employee Share Ownership Plan. Shares received in connection with share-based remuneration programmes are subject to a closed period of three years. Options Options held in connection with the Employee Share Ownership Plan are not reported here because they were written to hedge loans and do not originate from a separate option plan. Each put option is also offset by a countervailing call option. Prospective entitlements (PSUs) Number of allocated performance share units (granted as at 1 March 2013, 1 March 2014 and 1 March 2015).
An audit involves performing procedures to obtain audit evidence about the remuneration report’s disclosures on remuneration, loans and credit facilities in accordance with sections 14 to 16 ERCO� The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the remuneration report, whether due to fraud or error� This audit also includes evaluating the appropriateness of the methods used to measure remuneration elements, as well as evaluating the overall presentation of the remuneration report�
Peter Lüssi Michael Stämpfli Audit expert Audit expert Auditor in charge
The Audit and Risk Committee submits proposals to the Board of Directors regarding the external auditors to be elected by the Annual General Meeting and makes recommendations regarding their fees� Before the start of the annual audit, it reviews the scope of the audit and suggests areas that require special attention � The Audit and Risk Committee reviews the external auditors ’ fees on an annual basis�
Information about Baloise shares Information about Baloise shares begins on page 12�
Contact Corporate Governance Baloise Group Philipp Jermann Aeschengraben 21 4002 Basel, Switzerland philipp�jermann@baloise�com
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS ������������������������������������������������������������������� 112 Basis of preparation ���������������������������������������������������������������������������� 112 Application of new financial reporting standards and restatements ����������������������������������������������������������������������������������� 112 Consolidation principles and accounting policies ��������������� 114 Critical accounting principles and estimate uncertainties ���������������������������������������������������������������� 130 Management of insurance risk and financial risk ���������������� 132 Basis of consolidation ������������������������������������������������������������������������ 175 Information on operating segments (segment reporting) ��� 177
NOTES TO THE CONSOLIDATED BALANCE SHEET ������������������� 182 Property, plant and equipment ������������������������������������������������������ 182 Intangible assets ����������������������������������������������������������������������������������� 184 Investments in associates ����������������������������������������������������������������� 187 Investment property ��������������������������������������������������������������������������� 189 Financial assets ������������������������������������������������������������������������������������� 190 Mortgages and loans ��������������������������������������������������������������������������� 196 Derivative financial instruments �������������������������������������������������� 197 Receivables ���������������������������������������������������������������������������������������������� 198 Reinsurance assets ������������������������������������������������������������������������������� 199 Receivables from reinsurers ������������������������������������������������������������ 199 Employee benefits �������������������������������������������������������������������������������� 200 Deferred income taxes ����������������������������������������������������������������������� 212 Other assets �������������������������������������������������������������������������������������������� 214 Non-current assets held for sale and discontinued operations ���������������������������������������������������������� 215 Share capital ������������������������������������������������������������������������������������������� 216 Technical reserves (gross) ���������������������������������������������������������������� 217 Liabilities arising from banking business and financial contracts ������������������������������������������������������������������������ 226
Reconciliation between the gross investment in financial leases and the present value of minimum lease payments ��� 227 Financial liabilities ������������������������������������������������������������������������������ 228 Provisions ������������������������������������������������������������������������������������������������ 229 Insurance liabilities ����������������������������������������������������������������������������� 229
OTHER DISCLOSURES ������������������������������������������������������������������������� 242 Acquisition and disposal of companies ������������������������������������� 242 Related party transactions ��������������������������������������������������������������� 243 Remuneration paid to the Board of Directors and the Corporate Executive Committee ��������������������������������� 244 Contingent and future liabilities �������������������������������������������������� 245 Operating leases ����������������������������������������������������������������������������������� 248 Claim payments received from non-Group insurers ���������� 249 Significant subsidiaries, joint ventures and associates as at 31 December 2014 ��������������������������������������� 250 Changes to shareholdings ���������������������������������������������������������������� 252 Consolidated structured entities �������������������������������������������������� 253 Joint arrangements ������������������������������������������������������������������������������ 253 Events after the balance sheet date ���������������������������������������������� 253
REPORT OF THE STATUTORY AUDITOR TO THE ANNUAL GENERAL MEETING OF BÂLOISE HOLDING LTD, BASEL ������� 254
Non-current assets and disposal groups classified as held for sale 21 – 2,018.7
Liabilities included in disposal groups classified as held for sale 21 – 1,962.9
Operating and administrative expenses for insurance business 34 – 866.5 – 780.5
Gains or losses on financial contracts 36 – 462.6 – 0.9
Change in unrealised gains and losses on associates 8.7 – 27.6
Change in reserves arising from reclassification of held-to-maturity financial assets – 2.6 – 1.7
Effect of changes in exchange rates on cash and cash equivalents – 19.2 – 118.2
Balance of cash and cash equivalents as at 1 January 2,960.8 2,969.6
Realised gains and losses on financial assets, investment property and associates – 1,356.8 – 375.4
Changes in technical reserves (gross), including unearned premium reserves 1,353.5 1,178.3
Purchase of property, plant and equipment 8 – 26.7 – 31.4
Acquisition of companies, net of cash and cash equivalents 40 – 16.4 – 6.1
Cash and cash equivalents for the account and at the risk of life insurance policyholders 1,015.1 1,074.0
Profit for the period – – – – 512.1 512.1 – 1.0 511.1
Purchase / sale of treasury shares – 6.6 – 55.4 – – – 48.8 – – 48.8
Notes to the consolidated annual financial statements Basis of presentation 1. BASIS OF PREPARATION The Baloise Group is a European direct insurer comprising eleven different insurance companies that operate in virtually every segment of the life and non-life insurance business� Its holding company is Bâloise Holding, a Swiss corporation based in Basel whose shares are listed in the Regulatory Standard for Equity Securities (Sub-Standard: International Reporting) of the Swiss Exchange (SIX)� Its subsidiaries are active in the direct insurance markets in Switzerland, Liechtenstein, Germany, Belgium, Luxembourg, Slovakia and the Czech Republic� Its banking business is conducted by subsidiaries in Switzerland and Germany� In addition, the Baloise Group has a fund management company in Luxembourg�
At its meeting on 18 March 2016 the Bâloise Holding Board of Directors approved the annual financial statements and the Financial Report and authorised them for issue� The financial statements have yet to be approved by the Annual General Meeting of Bâloise Holding�
2.3 New IFRSs and interpretations not yet applied The following new standards and interpretations relevant to the Baloise Group have been published by the IASB but have not yet come into effect and, therefore, have not been applied in the 2015 consolidated annual financial statements: Standard / Inter- pretation Content
The acquisition cost corresponds to the fair value of the consideration paid to the previous owners on the date of the acquisition. If investments in the form of financial instruments or associates were already held before control was acquired, these investments are remeasured and any difference is recognised in profit or loss. Any contingent consideration recognised as part of the consideration paid for the acquiree is measured at fair value on the transaction date. Any subsequent changes in the fair value of a contingent consideration are recognised in the income statement. If the acquisition cost exceeds the fair value of assets and liabilities plus non-controlling interests, the difference is recognised as goodwill. Conversely, if the identified net assets exceed the acquisition cost then the difference is recognised directly through profit or loss as other operating income.
3.1.2 Structured entities Structured entities are consolidated provided the conditions of IFRS 10 are met. Their inclusion in the consolidated financial statements is governed by the provisions of IFRS 10.
3.2 Currency translation 3.2.1 Functional currency and reporting currency Each subsidiary prepares its annual financial statements in its functional currency, which is the currency of its primary economic environment. The consolidated Financial Report is presented in millions of Swiss francs (CHF), which is the Baloise Group’s reporting currency.
3.2.3 Translation of functional currency into reporting currency The annual financial statements of all entities that have not been prepared in Swiss francs are translated as follows when the consolidated financial statements are being prepared: → Assets and liabilities at the closing rate → Income and expenses at the average rate for the year.
Financial Report Notes to the consolidated annual financial statements 3.4 Leases 3.4.1 The Baloise Group as a lessee Finance leases: leases on real estate, office furniture, equipment, fixtures, fittings and other tangible assets are classified and treated as finance leases if they transfer to the Baloise Group substantially all the risks and rewards incidental to ownership. The fair value of the leased property or, if lower, the present value of the lease payments is recognised as an asset at the inception of the lease. All lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated so as to produce a constant periodic rate of interest on the remaining balance of the liability; this is reported on the Baloise Group’s balance sheet as liabilities arising from banking business and financial contracts. Assets held under finance leases are fully depreciated over the shorter of the lease term and their useful life.
3.5.3 Deferred acquisition costs (DACs) Costs directly incurred by the conclusion of insurance contracts or financial contracts with discretionary participation features (DPFs) – such as commissions – are capitalised and amortised over the term of these contracts or, if shorter, over the premium payment period. Deferred acquisition costs are tested for impairment at each balance sheet date (see section 3.18.3 for further details).
The asset classes covered by the term financial instruments with characteristics of equity are equities, share certificates, units held in equity, bond and real-estate funds; and alternative financial assets such as private equity investments and hedge funds. Financial instruments with characteristics of equity are generally more frequently exposed to price volatility than financial instruments with characteristics of liabilities.
The term financial instruments with characteristics of liabilities covers securities such as bonds and other fixed-income securities. They are usually interest bearing and are issued for a fixed or determinable amount.
3.7.3 Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial instruments that have been classified as “available for sale” or have not been designated to any of the above-mentioned categories and are not classified as mortgages, loans or receivables.
Mortgages and loans held as part of fair value hedges (natural hedges) are designated as “at fair value through profit or loss”. Present-value models are used to measure these portfolios.
If there is objective evidence that loans and receivables or held-to-maturity financial assets may be permanently impaired, the impairment loss represents the difference between the asset’s carrying amount and the present value of future cash flows, which are discounted using the financial asset’s relevant effective interest rate. If the amount of the impairment loss decreases in a subsequent reporting period and if this decrease can be attributed to an event that has objectively occurred since the impairment was recognised, the previously recognised impairment loss is reversed.
Financial Report Notes to the consolidated annual financial statements 3.13 Non-current assets held for sale and discontinued operations Non-current assets (or disposal groups) held for sale that meet the criteria stipulated in IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” are shown separately on the balance sheet. Those assets described in the standard are measured at the lower of their carrying amount and fair value less costs to sell. Any resultant impairment losses are taken to income. Any depreciation or amortisation is discontinued from the reclassification date.
Details of discontinued operations – where available – are disclosed in the notes to the Financial Report.
3.14 Cash and cash equivalents Cash and cash equivalents essentially consist of cash, demand deposits and cash equivalents. Cash equivalents are predominantly short-term liquid investments and cheques that have yet to be cashed.
3.15 Equity Equity instruments are classified as equity unless the Baloise Group is contractually obliged to repay them or to cede other financial assets. Transaction costs relating to equity transactions are deducted and all associated income tax assets are recognised as deductions from equity.
Deductions from these unrealised gains and losses include the pertinent deferred taxes and, in the case of life insurance companies, also the funds that will be used in future to amortise acquisition costs and to finance policyholders’ dividends (shadow accounting).
The effective interest method is generally used to calculate receivables and liabilities arising from financial contracts (DPF included). The effective interest rate is determined as the internal rate of return based on the estimated amounts and timing of the expected payments. If the amounts or timing of the actual payments differ from those expected or if expectations change, the effective interest rate must be re-determined. The deposit account balance is then remeasured as if this new effective interest rate had applied from the outset, and the change in the value of the deposit account is recognised as interest income or interest expense. Otherwise, the insurance cover financed from the deposit account is amortised over the expected term of the deposit account.
→ General liability In addition to conventional personal liability insurance the Baloise Group also sells third-party indemnity policies for certain professions. In Switzerland and Germany it offers policies – especially combined products – for small and medium-sized enterprises and for industrial partners that include features such as product liability.
→ Motor The two standardised products common in the market – comprehensive and third-party liability insurance – are sold in this segment. In some countries there are also products that have been specially designed for collaborations with motoring organisations and individual auto- motive companies.
3.17.1 Premiums The gross premiums written are the premiums that have fallen due during the reporting period. They include the amount needed to cover the insurance risk plus all surcharges. Premium contributions that are attributable to future reporting periods are deferred by contract and – together with health insurance reserves for old age and any deferred unearned premiums – constitute the unearned premium reserves shown on the balance sheet. Owing to the specific nature of marine insurance, premiums are deferred not by contract but on the basis of estimates. Premiums that are actually attributable to the reporting period are recognised as premiums earned. Their calculation is based on the premiums written and the change in unearned premium reserves.
In addition to the reserves that it recognises in respect of the payments to be made for claims that have occurred, it also sets aside reserves to cover the costs incurred during the claims settlement process. In order to calculate these reserves as realistically as possible, the Baloise Group uses the claims history of recent years, generally accepted mathematical-statistical methods and all the information available to it at the time – especially knowledge about the expertise of those entrusted with the handling of claims.
Actuarial methods are used to calculate by far the largest proportion of claims reserves. To this end, the Baloise Group selects actuarial forecasting methods that are appropriate for each sector, insurance product and existing claims history. Additional market data and assumptions obtained from insurance rates are used if the claims history available on a customer is inadequate. The Baloise Group mainly applies the chain-ladder method, which is the most widely used, tried-and-tested procedure. This method involves estimating the number and amounts of claims incurred over time and the proportion of claims that are reported to the insurer either with a time lag or after the balance sheet date. The proportion of these so-called incurred-but-not-reported (IBNR) claims is exceptionally important, especially in operating segments involving third- party liability insurance. These estimates naturally factor in emerging claims trends as well as recoveries. The mean ratio of costs incurred to claims actually paid is essentially used to calculate reserves for claims handling costs.
To this end, all existing reserves – both claims reserves (including reserves for claims handling costs) and annuity reserves in the non-life segment – are first analysed and, if a shortfall is identified, the relevant reserves are then strengthened accordingly. This analysis explicitly includes IBNR claims, thereby ensuring that adequate reserves are available for all claims that have already occurred.
Surpluses are reimbursed in the form of increased benefits, reduced premiums or final policyholders’ dividends or are accrued at interest to a surplus account. Surpluses already distributed and accrued at interest are reported as policy holders’ dividends credited and reserves for future policyholders’ dividends (chapter 23). The relevant interest expense is reported as interest expenses on insurance liabilities. Surpluses that have been used to finance an increase in insurance benefits are recognised in actuarial reserves. All investment income derived from unit-linked life insurance contracts is credited to the policyholder.
IFRS 4 introduces the concept of a discretionary participation feature (DPF), which is of relevance not only for the classifi cation of contracts but also for the disclosure of surplus reserves according to policyholders’ share of the unrealised gains and losses recognised directly in equity under IFRS and their share of the increases and decreases recognised in profit or loss in the consolidated financial statements compared with the financial statements prepared in accordance with local accounting standards.
IFRS 4 states here that the portion of an insurance contract’s liability that is attributable to a discretionary participation feature (“DPF component”) must be reported separately. This standard does not provide any clear guidance as to how this DPF component should be measured and disclosed.
When accounting for contracts that contain discretionary participation features, the Baloise Group treats measurement differences that are attributable to such contracts and are credited to policyholders according to a legal or contractual minimum quota as a DPF component. Distributable retained earnings and eligible unrealised gains and losses of fully consolidated subsidiaries are allocated pro rata to the DPF components of the life insurance company concerned. The DPF component calculated in this way is reported as part of the reserves for future policyholders’ dividends (section 23). These reserves include policyholders’ dividends that are unallocated and have been set aside as a reserve under local accounting standards.
3.19 Reinsurance Reinsurance contracts are insurance contracts between insurance companies and / or reinsurance companies. There must be a transfer of risk for a transaction to be recognised as reinsurance; otherwise the transaction is treated as a financial contract.
The difference between acquisition cost and redemption value is recognised in profit or loss over the term of the liability as “gains or losses on financial contracts” under the amortised-cost method and the effective interest method.
Deferred tax assets and liabilities are offset against each other and shown as a net figure in cases where the criteria for such offsetting have been met. This is usually the case if the tax jurisdiction, the taxable entity and the type of taxation are identical.
→ Financial instruments with characteristics of equity and financial instruments with characteristics of liabilities (available for sale or recognised at fair value through profit or loss) Fair value is based on prices in active markets. If no quoted market prices are available, fair value is estimated using generally accepted methods (such as the present-value method), independent assessments based on comparisons with the market prices of similar instruments or the pre- vailing market situation. Derivative financial instruments are measured using models or on the basis of quoted market prices. If no publicly quoted prices are available for private equity investments, they are measured on the basis of their net asset value using non-public information from independent external providers. These providers use various methods for their estimates (e.g.
analysis of discounted cash flows and reference to similar, fairly recent arm’s-length transactions between knowledgeable, willing parties). If such estimates do not enable financial assets to be reliably measured, the assets are recognised at cost and disclosed accordingly. Publicly quoted prices are used to determine the fair value of hedge funds. If no such prices are available, prices quoted by independent third parties are used to determine fair value.
Financial Report Notes to the consolidated annual financial statements 4.3 Impairment The Baloise Group determines at each balance sheet date whether there is any objective evidence that financial assets may be permanently impaired.
Longevity, mortality and disability rates are risks specific to life insurance and are monitored on an ongoing basis. The companies in the Baloise Group review and analyse mortality rates among their local customer bases, along with the frequency with which policies are cancelled, invalidated and reactivated. For this analysis, they generally use standard market statistics that are compiled by actuaries and include adequate safety margins. The information they gather is used for ensuring that rates are adequate and also for setting aside sufficient reserves to meet future insurance liabilities. Because rates are required by law to be calculated conservatively, and the statistical base is relatively good, the risks in this area are manageable. In the field of annuities, there is an additional trend risk in the form of a steady rise in life expectancy which is resulting in ever longer annuity payout periods. This risk is addressed by the addition of suitable factors to the basis for calculation.
The main risk categories to which the Banking division of the Baloise Group is exposed are credit risk, interest-rate risk and liquidity risk. These risks are identified and managed locally by the banks. The loan portfolio is reviewed and analysed on an ongoing basis. A range of tools is used for this purpose, including standardised credit regulations and procedures, scoring and rating procedures, focusing on low-risk markets and the use of an automated arrears system. The information obtained is incorporated into credit decisions. Balance sheet risks (interest-rate and liquidity risks) are managed by the bank’s asset and liability management (ALM) committee. The data and key figures required are determined and calculated using a specialist IT application.
Triggered by the threat of a pandemic, the existing disaster recovery plans for extraordinary events – such as natural disasters, wildfires, terrorist attacks, etc. – have been reviewed at all Group companies since 2007, and a pandemic scenario has been added. Additional disaster recovery plans have been created to ensure that business operations can be continued with severely reduced staff numbers. Several pandemic contingency exercises were carried out at our Swiss site in 2008. In summer 2009, during the WHO phase 6 pandemic alert, all employees in Switzerland were issued with a personal protection kit, and Pandemic Web – the inhouse management and information system – went online. Since 2008, management decisions before, during and after a crisis have been prepared by Group Crisis Management, the head of which reports directly to the
Group CEO. The composition of the crisis management team varies according to the type of risk involved (insurance, banking, financial, solvency, reputation). The crisis management team was not convened in 2011 because the E. coli outbreak was largely restricted to Germany and was officially declared at an end in late July 2011. There were no occurrences of any note in either 2012 or 2013. The autumn of 2014 saw the launch of pre-crisis activities in a small core back-office unit to monitor the development of Ebola (Baloise Group and Swiss entities) and prepare communication measures and crisis plans. Towards the end of the year the all-clear was given and these activities were discontinued. In June 2015, a staff notification about MERS (Middle East Respiratory Syndrome coronavirus) was posted on the intranet. No further action was required.
Within the Group and within each business unit, a risk owner is responsible for each individual risk that has been identified. Risk owners are allocated according to a hierarchy of responsibility. The Group’s overall risk owner is the Chief Executive Officer of the Baloise Group. Alongside the risk owners, defined risk controllers are responsible for systematic risk control and risk reporting. When selecting risk controllers, particular care is taken to ensure that their role is independent of the risk they control. Risk control within the Baloise Group focuses on investment risk, business risk (actuarial and banking risks), risks to the Group’s financial structure and compliance. The Group’s overall risk controller is the Chief Executive Officer of the Baloise Group.
The business-risk, investment-risk and financial-structure-risk categories relate directly to the Baloise Group’s core businesses. These risks are deliberately incurred, managed and optimised by the management team and various risk committees. Analysis of these risks is model-based and it ultimately results in an aggregate overview.
Financial Report Notes to the consolidated annual financial statements coordinates intra-Group policies, risk reporting and the technical development of suitable risk-management processes and tools. Every month, it tracks developments in the financial markets and their impact on the risk portfolio and the individual risk capacity of all the business units and the Group as a whole. The relevant risk owners and risk controllers verify the figures that have been computed and incorporate them into their management decisions.
Financial Report Notes to the consolidated annual financial statements 5.4 Non-life 5.4.1 Actuarial risk The Baloise Group primarily underwrites insurance risk for private individuals and small and medium-sized enterprises in selected countries in mainland Europe. Business with industrial clients is also conducted in Switzerland and Germany. Underwriting risk is limited by monitoring and adjusting rates and maintaining underwriting policies and limits appropriate to the size of each portfolio and the country in which it is located.
→ Annuities The factors on which annuity calculations are based (mortality tables, interest rates, etc.) are normally specified or approved by the authorities in each country. However, because certain parameters can change relatively quickly, the adequacy of these annuity reserves is reviewed every year (by conducting a liability adequacy test or LAT) and, if there is a shortfall, the reserves are strengthened accordingly.
At the end of 2015, the Baloise Group’s total reserves calculated using actuarial methods or recognised separately for special claims (including large claims but not run-off or actuarial reserves for annuities) amounted to CHF 4,372.5 million (2014: CHF 4,596.3 million). A variation of 10 per cent in either direction in the requirement for these reserves would result in a rise or fall of around CHF 318.6 million (2014: CHF 334.3 million) in claims payments (after taxes) before reinsurance.
Nine years later 569.2 – – – – – – – – – –
Seven years later 277.3 303.0 301.2 – – – – – – – –
Eight years later 280.0 304.2 – – – – – – – – –
Eight years later 189.9 219.0 – – – – – – – – –
Nine years later 190.7 – – – – – – – – – –
Nine years later 3 34.2 – – – – – – – – – –
The survival ratio – the ratio of reserves to the average claims paid in the past three years – is a commonly used measure for comparing the adequacy of reserves for asbestos and environmental claims. The ratio shows the number of years for which the reserves will cover claims payments. At the end of the year under review the survival ratio was 42.7 years (2014: 35 years).
If the policyholder dies, the beneficiary receives the sum insured or the fund assets, if the latter exceed the sum insured. A risk premium is periodically charged to the fund to finance the death benefit cover if there is capital at risk (i.e. the positive difference between the sum insured and the fund assets).
5.5.3 Sensitivities Sensitivity analysis shows the consequences of realistic changes in risk parameters to which the Baloise Group is exposed at the balance sheet date. These consequences impact on its consolidated equity and its profit for the period. When sensitivities were investigated, only the assumption being tested was varied. The other parameters were kept constant. One exception to this rule was policyholders’ dividends, which were adjusted accordingly. In general, sensitivities do not behave in a linear fashion, so it is not possible to extrapolate from them because they relate to a specific balance sheet date. To identify sensitivities, we investigated the effect of changes in assumptions on profit for the period and on equity, after shadow accounting, deferred gains / losses and deferred taxes (excluding reinsurance effects which were immaterial) had been taken into account. The assumptions on which liability adequacy testing is based were changed for each calculation.
→ 10 per cent increase in mortality A mortality increase of 10 per cent during liability adequacy testing had only a marginal effect in Germany, Belgium and Luxembourg and at Baloise Life (Liechtenstein) AG. This was true of the impact on both the income statement and on equity. In the Swiss life insurance business, an increase in mortality caused a lower amount to be allocated to strengthen annuity reserves, which improved profitability overall by roughly CHF 17 million (2014: by CHF 13 million). The resultant effects on equity were marginal.
→ 10 per cent fall in mortality Similar to the aforementioned scenario of an increase in mortality, the effects of a reduction in mortality were marginal for the life insurance companies in Germany, Belgium and Luxembourg and for Baloise Life (Liechtenstein) AG. This was true of the impact on both the income statement and on equity. A reduction in mortality in the Swiss life insurance business – with policyholders’ dividends adjusted accordingly – had a negative impact of approximately CHF 69 million (2014: CHF 66 million) on the income statement. In line with the aforementioned scenario of an increase in mortality, the effect on equity in Switzerland was minor.
→ 50 basis-point increase in receipts of new money This scenario was based on the assumption that receipts of new money (including amounts reinvested) rose by 50 basis points. When applied to the German units, this scenario resulted in a reversal of DAC write-downs, changes in the financing of final policyholders’ dividends, and lower amounts being allocated to the provision recognised for impending losses. This adverse impact was exacerbated by impairment losses on interest-rate derivatives. The overall impact was substantially mitigated by the prevailing legal requirements governing the distribution of surpluses. On balance there was a marginal negative effect from the German units’ profitability in the reporting year (2014: marginal negative effect). The negative impact on equity amounted to approximately CHF 5 million (2014: CHF 5 million). In Belgium this scenario resulted in an increase in DACs and to slightly lower amounts being allocated to the provision recognised for impending losses, which constituted a positive effect of roughly CHF 2 million on profitability (2014: CHF 10 million). The negative effect on unrealised gains amounted to CHF 86 million (2014: CHF 95 million). In Luxembourg this scenario produced a marginal negative impact on the income statement and an adverse effect of roughly CHF 11 million (2014: CHF 14 million ) on the unrealised gains and losses recognised in equity. The resultant impact on the profitability and equity of Baloise Life (Liechtenstein) AG was negligible. In Switzerland this scenario resulted in a reversal of DAC write-downs, a reduction in technical reserves, and the offsetting effect of interest-rate hedges. This improved profitability overall by roughly CHF 5 million (2014: CHF 10 million). The adverse impact on equity amounted to approximately CHF 188 million (2014: CHF 154 million).
Financial Report Notes to the consolidated annual financial statements 5.5.4 Changes to assumptions Expected future investment income is constantly adjusted in line with market circumstances. It has fallen across all units. Other assumptions, such as cancellation rates and mortality rates, are updated on an ongoing basis.
The effect of stress testing key financial figures is measured on a monthly basis. The underlying stress scenario (potential loss arising from a risk) is reviewed regularly and modified as necessary. The scale of a stress test is generally based on the simple annual volatility of the financial risk under review, the once-in-a-hundred-years occurrence of a business risk or standard international practice.
The life insurance companies in the Baloise Group manage their risk associated with changes in interest rates directly, by means of appropriate strategic asset allocation. Specific factors such as risk-bearing capacity and the ability to fund guarantees are taken into account when allocating assets. The decision-making process also incorporates the asset managers’ expectations regarding the capital markets and customers’ expectations regarding life insurance.
If all interest rates had fallen by 50 basis points on the balance sheet date but all other variables had remained constant, the profit for the period (after deferred gains / losses and deferred taxes) would have been lower by CHF 69 million (31 December 2014: CHF 73 million). Including the impact on profit for the period, equity (after shadow accounting, deferred gains / losses and deferred taxes) would have risen by CHF 146 million (31 December 2014: CHF 102 million). If all interest rates had risen by 50 basis points on the balance sheet date but all other variables had remained constant, the profit for the period (after deferred gains / losses and deferred taxes) would have been higher by CHF 5 million (31 December 2014: CHF 21 million). Including the impact on profit for the period, equity (after shadow accounting, deferred gains / losses and deferred taxes) would have fallen by CHF 241 million (31 December 2014: CHF 199 million).
Assuming that all other variables remain constant, fluctuations between transactional currencies and the functional currency in financial balance sheet items (after deferred gains / losses and deferred taxes) in the amount of + / – CHF 0.01 (1 centime) would have resulted in a change of + / – CHF 2.4 million (31 December 2014: + / –CHF 5.1 million ) in the profit for the period and also in equity; a positive (+) change of CHF 0.01 would have generated a currency gain and a negative (-) change of CHF 0.01 would have generated a currency loss.
Except for the German business unit no other foreign entity in the Baloise Group had a significant foreign- currency exposure.
If no contractually irrevocable future loan commitments have been agreed, the maximum default risk of financial assets corresponds to the carrying amount of the assets for own account and at own risk. In addition, guarantees and collateral for the benefit of third parties totalled CHF 524.3 million (2014: CHF 508.5 million).
CREDIT RATINGS OF FINANCIAL ASSETS THAT WERE NEITHER OVERDUE NOR IMPAIRED AT THE BALANCE SHEET DATE IN 2015
Promissory notes and registered bonds 1,563.4 2,464.1 43.0 82.5 229.5 4,382.5
Assets as at 31 December 2015 < 3 months 3 – 6 months 7 – 12 months > 12 months Total
5.8 Liquidity risk Banks as well as insurance companies incur latent liquidity risk. This refers to the risk of rapid outflows of large volumes of liquidity that cannot be offset by asset sales or for which alternative funding cannot be implemented quickly enough. In extreme cases, a lack of liquidity can result in insolvency. Legal provisions apply and the Group-wide Risk Management Standards require each business unit to plan its liquidity centrally. This is carried out with the close collaboration of the investment, actuarial, underwriting and finance departments of each business unit.
Please refer to the tables in chapter 23 for the residual terms and maturities of technical reserves. In accordance with the Group-wide Risk Management Standards, asset and liability management committees have been introduced in all strategic business units in the Baloise Group. These asset and liability management committees analyse maturity schedules and the income generated by assets or required for liabilities.
If these precautions fail to meet the need for liquidity, the Baloise Group holds financial assets that can be sold at short notice without significant price losses. They include all equities (excluding long-term equity investments). Because the Group holds a substantial portfolio of government and quasi-government bonds, it is possible to sell relatively large holdings of available-for-sale bonds even in crisis situations. Mortgages and loans are generally held to maturity; early redemption is not considered at present. In terms of alternative financial assets, 75 per cent of hedge funds can be sold within three months. Private-equity investments have to be considered illiquid in this context, and it is not possible to sell investment property to generate immediate liquidity.
Financial Report Notes to the consolidated annual financial statements 5.10 Fair value measurement Where available, quoted market prices are used to determine the fair value of assets and liabilities. They are defined as available if quoted prices can be obtained easily and frequently on an exchange, from a dealer, broker, trade association, pricing service or regulatory authority, provided these prices are current, in sufficient volume and represent regularly occurring arm’s-length transactions in the market.
→ Fair value determined by using observable market data (level 2) Fair value is estimated using generally recognised methods (discounted cash flow etc.). In this case, measurement incorporates a significant quantity of observable market data (interest rates, index performance, etc.).
Balance sheet line item Measurement method Key input factors used for measurement purposes Range of input factors
At fair value through profit or loss Present-value model Interest rate, credit spread, market price –
Investment property DCF method Discount rate 1 3.2 % – 5.7 %3 1 The lower these key input factors, the higher the fair value of the investment property. 2 The higher these key input factors, the lower the fair value of the investment property. 3 The input factor ranges shown essentially relate to the real-estate portfolios held by the Baloise Group’s Swiss entities.
Financial instruments with characteristics of equity classed as “available for sale” or “recognised at fair value through profit or loss” and classified as level 3 are primarily private-equity investments and alternative investments held by the Baloise Group as well as non-controlling interests in real-estate companies. The fair value of such invest ments is usually determined by fund managers (external providers) based on their net asset value (NAV). These external providers generally use non-public information to calculate the individual investments’ NAV.
Total assets measured on a recurring basis 63,501.4 66,593.8 37,701.2 2,598.4 26,294.3
Recognised at fair value through profit or loss 1,173.8 1,173.8 285.7 888.1 –
Recognised at fair value through profit or loss 744.0 744.0 – 744.0 –
Total liabilities measured on a recurring basis 10,580.0 10,921.2 1,886.3 8,989.3 45.6
Information on the fair value of the disposal group can be found in note 21.
Recognised at fair value through profit or loss 8,081.5 8,081.5 7,905.0 – 176.5
Recognised at fair value through profit or loss 8,388.1 8,388.1 8,388.1 – –
Recognised at fair value through profit or loss 8,153.7 8,153.7 8,011.7 – 142.1
Recognised at fair value through profit or loss 40.2 40.2 40.2 – –
Total assets measured on a recurring basis 10,112.3 10,112.3 9,687.7 282.6 142.1
The Baloise Group has applied accounting standard IFRS 5 (non-current assets and disposal groups held for sale and discontinued operations) owing to the disposal of the portfolio of life insurance policies held by the German branch of Baloise Life Ltd (Basler Leben DfD [Direktion für Deutschland]). The Baloise Group has assets and liabilities measured at fair value on a non-recurring basis as part of the disposal group recognised for this purpose.
Disposals arising from change in the scope of consolidation – – 30.1 – 30.1
Changes in fair value recognised in profit or loss 1 – 9.9 129.3 119.4
Additions arising from change in the scope of consolidation – – –
Disposals arising from change in the scope of consolidation – – –
Reclassification to non-current assets and disposal groups classified as held for sale – 7.8 – – 7.8
Changes in fair value recognised in profit or loss 1 – 4.1 – 4.1
Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss 1 Changes in fair value recognised in profit or loss arise from realised gains and losses on investments, impairment losses or the reversal of impairment losses.
No significant amounts of assets or liabilities measured at fair value were reclassified from level 1 to level 2 or vice versa during the reporting period or in 2014.
For 2014, this revealed that the highest and best use of a small number of investment properties in the Swiss portfolio differed from their current use.
The relevant requirements for the banking operations of Baloise Bank SoBa are defined by Basel III regulations. The regulatory capital adequacy requirement applicable to Deutscher Ring Bausparkasse AG is the Capital Requirements Regulation (CRR).
The net assets of the firm P & V Assurances were acquired in Luxembourg. This transaction gave rise to goodwill of CHF 8.5 million.
6.1.3 Other changes in the group of consolidated companies Further real-estate companies in Germany were merged with existing companies as planned, continuing the process that had begun in 2013. Basler Financial Services GmbH and GROCON Grundstücks- und Beteiligungsgesellschaft GmbH were merged in the second half of 2014. These mergers had no net impact on the Baloise Group’s profit for the period.
Financial Report Notes to the consolidated annual financial statements 6.2 2015 financial year 6.2.1 Acquisitions HDI-Gerling Assurances, based in Leudelange, Luxembourg, was acquired during the year under review and was merged with Baloise Assurances Luxembourg S.A. in the same year. This transaction, in which all of its shares were acquired, gave rise to a small amount of goodwill.
6.2.3 Other changes in the group of consolidated companies The two Gloucester-based companies Lennox Underwriting Agencies and Lennox Underwriting Management were liquidated in the second half of 2015. There were no other changes to the basis of consolidation.
The “Germany” segment also includes the regional branches of Basler Sachversicherungs-AG and Basler Lebensversicherungs -AG in the Czech Republic and Slovakia. The “Luxembourg” segment also includes the Baloise Life Liechtenstein unit.
The “Other activities” operating segment includes equity investment companies, real-estate firms and financing companies.
Claims and benefits paid (gross) – 3,418.0 – 3,458.2 – 1,313.3 – 1,142.0 – 753.3 – 651.6 – 103.6 – 99.0 – 69.7 – – 5,658.0 – 5,350.7 – 184.5 – 108.7 176.0 107.1 – 5,666.4 – 5,352.4
Change in technical reserves (gross) – 861.5 – 764.7 – 391.2 – 320.1 – 166.2 – 124.6 – 57.4 – 39.3 – 9.8 – – 1,486.1 – 1,248.7 18.8 – 51.6 – 2.2 58.4 – 1,469.5 – 1,241.9
Reinsurers’ share of claims incurred 57.9 48.9 96.8 121.9 133.6 82.8 8.4 10.1 26.7 – 323.5 263.6 – 3.1 – 0.4 – 173.8 – 165.4 146.6 97.9
Operating and administrative expenses for insurance business – 425.9 – 434.5 – 240.7 – 199.2 – 126.9 – 102.2 – 48.0 – 43.2 – 4.7 – – 846.3 – 779.1 – 0.3 – 0.3 – 19.9 – 1.1 – 866.5 – 780.5
Premiums earned and policy fees (net) 4,155.2 4,241.2 1,324.8 1,122.4 1,036.2 968.4 182.0 161.9 63.9 – 6,762.0 6,493.9 242.5 189.8 0.0 0.0 7,004.5 6,683.7
Share of profit (loss) of associates 0.0 0.0 8.1 36.8 0.0 0.1 – – – – 8.1 36.8 – – – – 8.1 36.8
Gains or losses on financial contracts – 60.2 – 36.6 – 25.5 – 22.9 – 55.9 – 52.2 – 304.4 113.8 – 0.2 – – 446.2 2.1 – 18.5 – 7.1 2.0 4.2 – 462.6 – 0.9
Profit / loss for the period (segment result) 475.5 329.0 56.3 40.6 87.7 136.7 18.4 21.5 4.3 – 642.1 527.8 69.8 – 16.7 – – 711.9 511.1
Premiums earned and policy fees (gross) 3,351.3 3,048.9 3,816.8 3,783.4 – – – – – – 7,168.1 6,832.4
Premiums earned and policy fees (net) 3,208.0 2,919.4 3,796.5 3,764.4 – – – – – – 7,004.5 6,683.7
Realised gains and losses on investments 61.9 30.4 1,275.9 348.3 3.5 3.3 21.2 4.3 – – 1,362.5 386.2
Claims and benefits paid (gross) – 2,050.6 – 1,854.0 – 3,615.8 – 3,498.4 – – – – – – – 5,666.4 – 5,352.4
Reinsurers’ share of claims incurred 133.7 89.5 12.9 8.3 – – – – – – 146.6 97.9
Gains or losses on financial contracts – 2.6 – 0.8 – 390.4 48.6 – 72.7 – 59.5 – 28.5 – 15.3 31.7 26.1 – 462.6 – 0.9
Profit / loss before borrowing costs and taxes 422.7 395.5 481.1 277.3 73.7 80.8 – 48.9 – 34.4 – – 928.6 719.2
1 The impairment losses on buildings largely relate to those recognised on owner-occupied property in connection with the reconfiguration and redesign of Baloise’s buildings at its headquarters in Basel (Baloise Park).
Carrying amount as at 31 December 65.1 245.7 41.7 24.7 21.9 399.1
Carrying amount as at 31 December 67.1 7.9 480.9 126.3 132.3 0.1 814.6
The financial information reflects the amounts reported in the financial statements of the associate rather than the share of those amounts that is attributable to the Baloise Group. The associate’s financial statements are prepared in accordance with IFRS. OVB Holding is included in the Baloise Group’s consolidated annual financial statements under the equity method. Because the publicly traded OVB Holding’s relevant financial year-end closing information, which is used for measurement purposes, had not been published by the time the Financial Report was being prepared, measurement has been based in each case on the financial closing data for the period ended 30 September of the reporting year.
Insurance benefits and expenses arising from insurance and asset management business – 114.1 – 109.4
Fair value as at 30 September 96.7 85.7 10.2 Non-significant investments in associates The Baloise Group holds investments in a number of non-significant associates.
2014 Carrying amount Baloise’s share of profit or loss for the period from continuing operations profit or loss for the period from discontinued operations other comprehensive income comprehensive income
As at 31 December 2015, the Baloise Group held more than 20 per cent of the capital of three companies but does not have any influence over these companies’ management. As a result, they are not reported as associates.
Disposals arising from change in scope of consolidation – 30.1 –
Reclassification to non-current assets and disposal groups classified as held for sale – 24.9 –
Operating expenses arising from investment property that does not generate rental income 0.6 0.7
Information on the disposal in 2014 of the remaining 65 per cent shareholding in the company Barosa S.à.r.l. can be found in the line item “Disposals arising from change in the scope of consolidation”.
Financial assets for own account and at own risk 38,070.8 37,237.7
Publicly listed, fixed-interest rate 8,358.3 8,549.5 24,067.6 22,992.4 – – 0.1 0.1 32,426.0 31,541.9
Not publicly listed, fixed-interest rate 55.4 – 26.3 23.3 – – 22.5 18.3 104.2 41.6
Derivative financial instruments for own account and at own risk 341.0 363.2 176.4 250.8
Derivative financial instruments for the account and at the risk of life insurance policyholders
Increases and additional provisions recognised in profit or loss – 1.4 – 1.1
Increases and additional provisions recognised in profit or loss – 1.4 0.0
The pension benefits on offer also comprise special benefits that the Baloise Group grants to retirees (especially those in Switzerland). These benefits include subsidised mortgages. These benefits and concessions are classified as defined benefit pension obligations under IAS 19.
Equities and investment funds publicly listed 1,289.8 1,368.2 not publicly listed 128.2 140.5
Discount rate plus 1.0 % age points – 446.7 – 431.8
Expected wage and salary increases minus 0.5 % age points – 37.5 – 34.1
Expected pension benefits increases plus 0.5 % age points 203.9 200.2
Expected pension benefits increases minus 0.5 % age points – 39.8 – 31.3
Mortality probabilities for 65-year-olds minus 10.0 % age points 99.4 96.6
Financial Report Notes to the consolidated annual financial statements 18.2.9 Funding of plan benefits The plan assets of the Swiss plans are funded jointly by the employer and employee. The amount of individual contributions depends largely on an employee’s remuneration and age. Statutory regulations require employers to contribute a minimum of 50 per cent of the total contributions for part of the insured benefits.
18.2.10 Estimated employer contribution The employer’s contribution for the following year can only be predicted with a limited degree of certainty. The Baloise Group expects to pay employer contributions of approximately CHF 61.9 million for the 2016 financial year.
1 The closed period during which shares are allocated to the Chairman of the Board of Directors is five years instead of three. This means that the shares are restricted until 28 February 2019 and 29 February 2020 respectively.
In order to increase the impact of this Employee Share Ownership Plan, employees are granted loans on which interest is charged at market rates, which enables them to subscribe for shares whose value constitutes a multiple of the capital invested; these shares are purchased at their fair value net of discounted dividend rights over a period of three years. Repayment of these loans after the three-year closed period has elapsed is hedged by put options, which are financed by the sale of offsetting call options. If the price of the shares is below the put options’ strike price when the closed period expires, programme participants can sell all their shares at this strike price, which ensures that they can repay their loans plus interest. In this event, however, they lose all the capital that they have invested. If, on the other hand, the price of the shares is above the call options’ strike price, programme participants must pay the commercial value of these options. Their upside profit potential is thus limited by the call options. If, when the three-year closed period elapses, the price of the shares is between the put options’ strike price and the call options’ strike price, once the loans plus accrued interest have been repaid the employees concerned receive the remaining shares to do with as they wish.
Fair value of subscribed shares on subscription date (CHF million) 10.7 9.9
Financial Report Notes to the consolidated annual financial statements 18.4.4 Performance share units At the beginning of each vesting period the participating employees are granted rights in the form of PSUs, which entitle them to receive a certain number of shares free of charge after the vesting period has elapsed. The Remuneration Committee specifies the grant date and applies its own discretion in deciding which of the most senior management team members are eligible for the programme. It determines the total number of PSUs available and decides how many are to be awarded to each member of the Corporate Executive Committee. PSUs are granted to the other programme participants on the basis of the relevant line manager’s proposal, which must be approved by the line manager’s manager.
Employees entitled to participate at launch of programme 69 65 62
Number of active PSUs as at 31 December 2014 65,715 46,836 –
PSU expense incurred by the Baloise Group for 2014 (CHF million) 1.6 1.3 –
The Baloise Group had recognised deferred tax assets on tax loss carryforwards totalling CHF 130.4 million as at 31 December 2015 (2014: CHF 172.1 million). Of this total, CHF 0.1 million will expire after one year, 0.2 million after two to four years and CHF 130.1 million will expire after five years or more.
Financial Report Notes to the consolidated annual financial statements 21. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS The sale to the Frankfurter Leben Group of the portfolio of life insurance policies, which had been in run-off since the end of 2011, held by the German branch of Baloise Life Ltd (Basler Leben DfD [Direktion für Deutschland]) was formally completed on 16 September 2015. The portfolio that had been held for sale, and the associated assets and liabilities, have been treated as a disposal group in accordance with IFRS 5.
Unrealised losses directly associated with non-current assets and disposal groups classified as held for sale
The share capital of Bâloise Holding totals CHF 5.0 million and is divided into 50,000,000 registered, fully paid-up registered shares with a par value of CHF 0.10 each (2014: CHF 0.10). As far as individuals, legal entities, and partner ships are concerned, entry in the share register with voting rights is limited to 2 per cent of the registered share capital entered in the commercial register. The Baloise Group buys and sells its own shares as part of its ordinary investing activities and for employee share ownership programmes.
Financial Report Notes to the consolidated annual financial statements 23.1.3 Other technical reserves
The relevant net reserves included in the total amounted to CHF 84.7 million at the end of 2015 (2014: CHF 90.4 million). The slight decrease was attributable to commutations of reserves and currency effects.
Additions arising from acquisition of policy portfolios and insurance companies 0.0 –
Reclassification to non-current assets and disposal groups classified as held for sale – 113.2 – 13.2
Adjustment arising from unrealised gains and losses as at 1 January (shadow accounting) – 9.5 – 11.5
Reclassification to non-current assets and disposal groups classified as held for sale – 0.1 – 31.2
Change due to unrealised gains and losses on investments (shadow accounting) – 0.6 – 0.2
Reclassification to non-current assets and disposal groups classified as held for sale – 18.1 – 199.3
Provisions for future policyholders’ dividends as at 1 January 1,812.5 2,613.7
Adjustment arising from unrealised gains and losses as at 1 January – 452.9 – 1,067.6
Adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) 1,067.6 722.2
Additions arising from acquisition of policy portfolios and insurance companies 0.1 –
Reclassification to non-current assets and disposal groups classified as held for sale – 4.1 – 127.6
Total liabilities arising from banking business and financial contracts 17,740.8 19,012.0 – –
Savings deposits and customer deposits essentially consist of savings accounts, business accounts and deposit accounts held by Swiss banking clients. The mortgage-backed bonds reported have all been issued by Pfandbriefbank schweizerischer Hypothekarinstitute AG.
Total liability for future financial lease payments (present value) 86.4 0.0
Issuer Bâloise Holding Bâloise Holding Bâloise Holding Bâloise Holding Bâloise Holding Bâloise Holding Bâloise Holding Bâloise Holding
Change in unearned premium reserves – 7.5 – – 7.5 – 1.1 – – 1.1
Premiums earned and policy fees (gross) 3,351.3 3,816.8 7,168.1 3,048.9 3,783.4 6,832.4
Realised gains and losses on investments for own account and at own risk 775.1 379.1
Realised gains and losses on investments for the account and at the risk of life insurance policyholders and third parties
Realised gains and losses on investments as recognised in the income statement 1,362.5 386.2
31.1 Realised gains and losses on investments in 2014 for own account and at own risk
Held to maturity 1 – – – 33.4 – – – 33.4
Available for sale – – 75.6 – 70.7 – – – 146.3
Total realised gains and losses on investments 1 Currency effects relating to held-to-maturity financial assets with characteristics of liabilities are reported as realised book profits and / or realised book losses.
31.2 Realised gains and losses on investments in 2015 for own account and at own risk
Gains on the sale of property, plant and equipment 0.2 0.4 intangible assets – –
Losses arising from exchange differences in respect of assets and liabilities – 11.2 – 16.8
Financial contracts with discretionary participation features (DPFs) – 44.3 – 50.3
Change in fair value of other financial contracts – 338.8 109.8
Total current and deferred income taxes – 173.2 – 168.2 37.2 Expected and current income taxes The expected average tax rate for the Baloise Group was 24.73 per cent in 2014 and 26.97 per cent in 2015. These rates correspond to the weighted average tax rates in those countries where the Baloise Group operates.
Increase / reduction owing to tax-exempt profits and losses 36.0 12.3 non-deductible expenses – 10.2 – 7.6 withholding taxes on dividends – 2.6 – 0.5 change in tax rates – 0.3 7.8 tax items related to other reporting periods 4.7 15.9 non-taxable measurement differences 2.2 – 1.1
Adjustment of interest expenses on convertible bonds, including tax effects (CHF million) 7.9 8.0
The dilution of earnings in 2014 as well as in 2015 was attributable to the Performance Share Units (PSU) share-based payment plan and the convertible bond issued by Bâloise Holding.
Change in reserves arising from reclassification of investment property – 0.5 0.8
Available-for-sale financial assets: Gains and losses arising during the reporting period 2,141.4 – 411.1
Gains and losses reclassified to the income statement – 12.5 – 33.5
Total reserves arising from reclassification of held-to-maturity financial assets: – 2.6 – 1.7
Change arising from shadow accounting 84.6 – 27.0 57.6 – 39.1 12.5 – 26.6
Change arising from exchange differences 177.5 – 177.5 – 130.6 – – 130.6
Net assets acquired / disposed of – 24.1 – 4.3 – 137.7 –
In 2014, the Baloise Group acquired the Brussels-based real-estate company Singel Office Antwerpen NV in Belgium and the net assets of the firm P & V Assurances in Luxembourg.
The Corporate Executive Committee is not aware of any new circumstances having arisen since the last balance sheet date that could have a material impact on the consolidated annual financial statements for 2015.
Commitments undertaken for future acquisition of investment property 40.4 84.6 financial assets 443.9 573.0 property, plant and equipment – –
Bâloise Holding Ltd, Basel Holding O Holding Holding F CHF 5.0 2,305.6 – X
Baloise Life Ltd, Basel Life L 100.00 100.00 F CHF 50.0 32,067.5 3,087.6 X
Haakon AG, Basel Other O 74.75 74.75 F CHF 0.2 27.5 –
OVB Holding AG, Cologne Other – 32.57 32.57 F EUR – – – X
Euromex NV, Antwerp Non-life NL 100.00 100.00 F EUR 2.7 164.4 58.7
1 L: Life, NL: Non-life, B: Banking, O: Other activities / Group business. 2 Shares stated as a percentage are rounded down. 3 F: Full consolidation, E: Equity-accounted investment. 4 Material interest required to be disclosed under IFRS 12.
48. CONSOLIDATED STRUCTURED ENTITIES The Baloise Group held one consolidated structured entity – Baloise Fund Invest (Lux) – at the end of the reporting year. Baloise Fund Invest (Lux) is a Luxembourg-based firm in the legal form of an investment company with variable capital (SICAV managed by a third party). Baloise Fund Invest (Lux) is an umbrella fund consisting of various pools of assets and liabilities (or “sub-funds”), with each sub-fund pursuing its own investment policy. Baloise Fund Invest (Lux) and its sub-funds collectively constitute a legal entity. However, each sub-fund is deemed to be a separate entity as far as the legal relationship between unitholders is concerned. A sub-fund’s assets are liable to third parties only for the liabilities and obligations relating to this sub-fund.
50. EVENTS AFTER THE BALANCE SHEET DATE By the time that these consolidated annual financial statements had been completed on 18 March 2016, we had not become aware of any events that would have a material impact on the consolidated annual financial statements as a whole.
Bâloise Holding Ltd 4 Baloise 18 Review of operating performance 38 Sustainable business management 56 Corporate Governance 102 Financial Report 256 Bâloise Holding Ltd 274 Notes
Bonds Bonds are shown at their par value� Issuance costs – less any premiums – are charged in full to the income statement at the time the bonds are issued�
Total income from interest and securities 15.1 16.6 3. OTHER INCOME
In connection with the implementation of the new financial reporting standards, the principle of itemised measurement applies to long-term equity investments for the first time� The application of this new ruling resulted in the recognition of an impairment loss of CHF 45�5 million on the long-term equity investment in Baloise Life (Liechtenstein) AG in the 2015 annual financial statements�
7. PREPAID EXPENSES AND ACCRUED INCOME The annual general meeting of Haakon AG, Basel, held on 1 March 2016, the AGMs of Baloise Bank SoBa AG, Solothurn, of Baloise Asset Management Schweiz AG and of Baloise Asset Management International AG, Basel, held on 3 March 2016, and the AGM of Basler Versicherung AG, Basel, held on 18 March 2016 voted to recognise the dividends receivable for the 2015 financial year as accrued income (2015: CHF 167�4 million / 2014: CHF 216�8 million)�
Financial Report Notes to the financial statements of Bâloise Holding 10. LONG-TERM EQUITY INVESTMENTS
Further information on the financial liabilities issued directly by Bâloise Holding can be found on page 158 in the Financial Report section�
Financial Report Notes to the financial statements of Bâloise Holding 13. CHANGES IN EQUITY
Financial Report Notes to the financial statements of Bâloise Holding 15. CONTINGENT LIABILITIES
20. EVENTS AFTER THE BALANCE SHEET DATE By the time that these annual financial statements had been completed on 18 March 2016, we had not become aware of any events that would have a material impact on the annual financial statements as a whole�
The Board of Directors will propose to the Annual General Meeting that the Company’s distributable profit be appropriated as shown in the table below�
REPORT OF THE STATUTORY AUDITOR ON THE FINANCIAL STATEMENTS As statutory auditor, we have audited the financial statements of Bâloise Holding Ltd, which comprise the income statement, balance sheet and notes (pages 258 to 270), for the year ended 31 December 2015�
Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the Company’s articles of incorporation� This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error� The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances�
Opinion In our opinion, the financial statements for the year ended 31 December 2015 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�
We further confirm that the proposed appropriation of retained earnings complies with Swiss law and the Company’s articles of incorporation� We recommend that the financial statements submitted to you be approved�
→ Deferred taxes Probable future tax expenses and tax benefits arising from temporary differences between the carrying amounts of as­ sets and liabilities recognised in the consolidated financial statements and the corresponding amounts reported for tax purposes� The pertinent calculations are based on country­ specific tax rates�
→ Fixed-income securities Securities (primarily bonds) that yield a fixed rate of interest throughout their term to maturity�
→ Group life business Insurance policies taken out by companies or their employee benefit units for the occupational pension plans of their entire workforce�
→ Net The net figures shown on the balance sheet or income state­ ment in an insurance company’s annual report are stated after deduction of reinsurance�
→ Policyholder’s dividend An annual, non­guaranteed benefit paid to life insurance policyholders if the revenue generated by their policies is higher and / or the risks and costs associated with their poli­ cies are lower than the assumptions on which the calculation of their premiums was based�
→ Premium The amount paid by the policyholder to cover the cost of insurance�
→ Premium earned The proportion of the policy premium available to cover the risk insured during the financial year, i�e� the premium minus changes in unearned premium reserves�
→ Return on equity A calculation of the percentage return earned on a company’s equity capital during a financial year; it represents the profit generated in a given financial year divided by the company’s average equity during that period�
→ Technical reserve Insurers disclose on their balance sheets the value of the ben­ efits that they expect to have to provide in future under their existing insurance contracts� This value is calcu lated from a current perspective in accordance with generally accepted principles�
The 2015 Annual Report is published in German and English� The German version is authoritative in the event of any discrep­ ancy� The Financial Report section contains the audited 2015 annual financial statements together with detailed information�
Baloise accepts no obligation to update or revise these forward­looking statements or to allow for new information, future events, etc� Past performance is not indicative of future results�
22.03.2016 Annual financial results: media conference conference call for analysts 29.04.2016 Annual General Meeting of Bâloise Holding Ltd 30.08.2016 Half-year financial results: conference call for analysts and the media 23.03.2017 Annual financial results: media conference conference call for analysts 28.04.2017 Annual General Meeting of Bâloise Holding Ltd
Corporate Governance Baloise Group Philipp Jermann Aeschengraben 21 4002 Basel, Switzerland philipp.jermann@baloise.com www.baloise.com