Bâloise Holding Ltd Annual Report 2014 01_JB_Die Baloise_en�indd 1 24�03�2015 13:16:34
BALOISE Baloise key figures ������������������������������������������������������������������������������������� 4 At a glance ����������������������������������������������������������������������������������������������������� 5 Letter to shareholders ������������������������������������������������������������������������������ 6 Baloise shares ����������������������������������������������������������������������������������������������� 8 Our four core markets �������������������������������������������������������������������������� 10 Brand ������������������������������������������������������������������������������������������������������������ 12 Strategy �������������������������������������������������������������������������������������������������������� 13
REVIEW OF OPERATING PERFORMANCE Group ������������������������������������������������������������������������������������������������������������ 16 Switzerland ������������������������������������������������������������������������������������������������ 20 Germany ������������������������������������������������������������������������������������������������������ 21 Belgium ��������������������������������������������������������������������������������������������������������� 22 Luxembourg ���������������������������������������������������������������������������������������������� 23 Consolidated income statement ������������������������������������������������������� 24 Consolidated balance sheet ���������������������������������������������������������������� 26 Business volume, premiums and combined ratio �������������������� 27 Technical income statement �������������������������������������������������������������� 29 Gross premiums by sector ������������������������������������������������������������������� 30 Banking activities ����������������������������������������������������������������������������������� 31 Investment performance ��������������������������������������������������������������������� 32
FINANCIAL REPORT Consolidated balance sheet ���������������������������������������������������������������� 92 Consolidated income statement ������������������������������������������������������� 94 Consolidated statement of comprehensive income ����������������� 95 Consolidated cash flow statement ��������������������������������������������������� 96 Consolidated statement of changes in equity ���������������������������� 98 Notes to the consolidated annual financial statements ������ 100 Notes to the consolidated balance sheet ������������������������������������ 170 Notes to the consolidated income statement �������������������������� 217 Other disclosures ��������������������������������������������������������������������������������� 229 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ��������������������������������������� 242
NOTES Glossary ���������������������������������������������������������������������������������������������������� 260 Addresses ������������������������������������������������������������������������������������������������� 264 Information on the Baloise Group ����������������������������������������������� 265 Financial calendar and contacts ��������������������������������������������������� 266 01_JB_Die Baloise_en�indd 3 24�03�2015 13:16:34
2 Of which deferred gains / losses from other operating segments (31 December 2013: CHF –1.7 million; 31 December 2014: CHF 0.6 million). 3 Excluding investments for the account and at the risk of life insurance policyholders.
4 Calculation is based on the profit for the period attributable to shareholders and the equity attributable to shareholders. 5 2014 based on the proposal submitted to the Annual General Meeting.
Net combined ratio of 93.6 per cent 5.3 per cent1 higher business volume
By focusing on attractive target segments in our four core markets – Switzerland, Belgium, Germany and Luxembourg – we have completed the process of consolidating our geographical footprint� We will now strengthen our profitability and continue to grow in these units� We also plan to further expand profitable business lines in which we are already well positioned� Two of the ways in which we can achieve this are by using our safety and security features to deliver attractive add-on services in the field of intelligent prevention and by offering innovative pension solutions, such as the semi-autonomous pension scheme ‘Perspectiva’, that provide our customers with financial security in their retirement even in today’s low-interest -rate environment� The life insurance business conducted by our Swiss unit clearly illustrates this point in the case of occupational pensions, where small and medium-sized enterprises ’ demand for our comprehensive insurance solutions remains encouragingly strong� Our customers particularly value the fact that the security of these benefits is guaranteed at all times� The guarantees and services that we offer enable these companies
Dr Andreas Burckhardt, Chairman of the Board of Directors (left), and Dr Martin Strobel, Group CEO (right).
Baloise Letter to shareholders to safeguard their employees’ pensions and concentrate on their own business�
In Belgium our unit-linked life insurance business is growing well because we are meeting the specific needs of the local market and have forged partnerships with banks� Another innovation that we have developed is a new combination of conventional and unit-linked life insurance�
Our insurance operations and reliable, consistent management of assets are our core competence� The net return that we achieved on these in 2014 was an impressive 4�1 per cent, up by 0�8 percentage points on the previous year� Realised gains and book gains have boosted the substantial gains on our investments, while the higher income earned from equities and alternative investments has partially compensated for the lower income received from fixed-income securities� Interest rates have remained at historically low levels in recent months� However, we have learned how to adapt to this environment and, several years ago, we established appropriate hedging instruments to mitigate the effects of low and falling interest rates�
Starting from these solid foundations, we are enthusiastically building Baloise’s future – quite literally! The construction of Baloise Park, whose architectural model serves as the backdrop to the photographs of the Board of Directors and the
Having delivered a superb performance in 2013, Baloise shares shed 8 per cent of their value in the first half of last year� The Swiss Leader Index (SLI) and the Swiss insurance sector index notched up gains of 3�4 per cent and 2�1 per cent respectively �
However, the second half of the year saw Baloise shares pick up momentum� The upgrade of the Company’s credit rating by Standard & Poor’s and the publication of its strong halfyear financial results boosted its share price� Baloise shares jumped by 22�3 per cent, easily outperforming both the Swiss Leader Index (up 2�4 per cent) and the Swiss insurance sector index (up 13�4 per cent)�
Having closed the year at CHF 127�80, Baloise shares generated a return of 12�5 per cent for 2014 as a whole, comfortably outperforming both the Swiss Market Index and the Swiss Leader Index, which had added 9�5 per cent and 5�9 per cent respectively since the beginning of the year� The robust price performance delivered by Baloise’s shares reflects the Company’s impressive operating performance during the reporting year� The Swiss insurance sector index outperformed the broad market, posting a return of 15�8 per cent� Its European counter- part – STOXX Europe 600 Insurance Index (SXIP) – achieved an increase of 9�8 per cent compared with its level at the beginning of 2014�
Baloise shares remain a member of the Swiss Leader Index by virtue of their average market capitalisation and trading volumes� This index comprises the 30 largest and most liquid Swiss equities�
Baloise shares* made further gains from an already high level in 2014, closing the year at CHF 127.80, which amounted to an annual return of 12.5 per cent. They therefore comfortably outperformed the Swiss Leader Index, ranking among the top ten of the 30 largest and most liquid equities on the Swiss stock market.
Baloise Baloise shares together briefly exceeded the notifiable threshold of 3 per cent on 9 July 2014 before falling back below this threshold on 17 July� The shareholding collectively owned by BlackRock, Inc�, and its subsidiaries rose above the threshold of 5 per cent on 8 December 2014 and now amounts to 5�71 per cent� Further information on Baloise’s significant shareholders as at 31 December 2014 can be found in the table on page 253�
Minus the number of treasury shares (units) 2,800,239 3,247,273 3,053,746 3,028,943 3,048,791
Average number of shares outstanding2 47,394,282 46,900,473 46,831,998 46,896,926 46,921,282 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 223 of the Financial Report). 3 2014 based on the proposal submitted to the Annual General Meeting.
INDEXED SHARE PRICE PERFORMANCE 1 BÂLOISE HOLDING REGISTERED SHARES 2009 – 2014
Partnership: Our focus on partnership is one of our greatest emotional strengths and is predicated on value creation and mutual respect. We nurture and deepen our relationships with all our stakeholders to ensure that we achieve the desired impact each and every time.
Professionalism: Baloise stands for professionalism. This enables us to be successful and deliver top-quality performance. We excel at understanding our core business, our customers and our sales channels because we know that professional expertise provides peace of mind.
TARGET CUSTOMER MANAGEMENT Our target customer management sets new benchmarks for our industry. The systematic focus on risk-aware key customers is deeply embedded in our culture, in terms of guiding behaviour, processes and remuneration schemes, and provides us with one of the most profitable insurance portfolios in Europe.
For more than 150 years, Baloise has made its customers safer. With its focus on risk-aware target customers and its unique selling proposition, the “Safety World”, Baloise operates from a solid platform with high cash flow generation and strong capitalisation.
The focus areas form the next step in our strategic business development. Starting from the strong foundation we established over the past decade, we aim to expand our core strengths and drive growth and profitability to a new level.
OVERVIEW The profit that Baloise earned in 2014 was the second-best in its history – the best profit was reported in 2007 – and advanced by 57�0 per cent year on year to CHF 710�7 million� All business divisions and national Baloise companies contributed to this result� In addition to the Company’s improved operating performance, the disposal of its shareholdings in Nationale Suisse and Helvetia and the sale of Basler Austria boosted this outstanding result by around CHF 160 million�
Baloise has a strong balance sheet� Its consolidated equity grew by 18�8 per cent to CHF 5,831�0 million primarily on the back of the outstanding profit for the period and the lower level of interest rates, which resulted in higher valuation reserves for fixed-income securities� The solvency ratio reached an impressive 354 per cent compared with 267 per cent at the end of 2013�
Focusing on attractive target segments 1 The key figures on premiums and business volumes mentioned in the review of operating performance in this annual report have been calculated in local currency on a like-for-like basis and exclude discontinued operations (Austria, Croatia and Serbia).
The low level of interest rates depressed the financial value of life insurance; consequently, the embedded value of this business declined from CHF 3,808�6 million to CHF 3,610�2 million in 2014 despite the impressive level of operating income� The return on embedded value came to minus 4�1 per cent� The value of new business amounted to CHF 58�6 million, and the new business margin was 15�0 per cent (2013: 13�5 per cent)�
EQUIT Y: SOLID FOUNDATIONS Baloise’s solid foundations are underpinned by its strong balance sheet and capitalisation� Its consolidated equity grew by 18�8 per cent to CHF 5,831�0 million on the back of the outstanding profit for the period and the lower level of interest rates, which had a positive impact on the valuation reserves of fixedincome securities� The solvency ratio reached an impressive 354 per cent compared with 267 per cent at the end of 2013� Despite the historically low level of interest rates, Baloise remained within the requirements and in the ‘green zone’ of the Swiss Solvency Test (SST)�
Cash and cash equivalents 1,992.2 1,954.5 – 1.9 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties.
Baloise increased its equity exposure further� Whereas privateequity investments delivered an impressive performance, hedge funds yielded only modest returns� The impairment losses recognised on financial instruments with characteristics of equity totalled CHF 35�8 million (gross)� Investment property continued to yield stable returns and slightly higher valuations� The values and income streams generated by our mortgages remained consistent�
Total assets under management 80,733.0 1 Including CHF 53.3 million (2013: CHF 47.3 million) in other assets (precious metal holdings from investment-linked life insurance policies).
BASLER VERSICHERUNGEN SWITZERLAND Our business in Switzerland underscored its strong market position by delivering an outstanding operating performance and continued to impress the markets with its excellent profitability and highly focused growth� Its profit before borrowing costs and taxes jumped by more than 35�3 per cent to CHF 587�9 million� Its total volume of business grew by 3�4 per cent to CHF 4,510�0 million�
In the life insurance division, Basler Switzerland generated growth in its unit-linked life insurance business, above all in its occupational pension business� Its strong position in this target segment was clearly illustrated by small and mediumsized enterprises’ continuing demand for comprehensive insurance solutions� A particularly appealing feature of these products for customers was that the security of pension benefits is guaranteed at all times� The Basler Versicherungen companies also achieved growth in term insurance business� The volume of conventional product premiums written grew by 2�9 per cent year on year to CHF 2,985�1 million� The Swiss unit expanded the volume of its unit-linked life insurance business by an encouraging 59�6 per cent to CHF 189�9 million� Boosted by nonrecurring effects, the profit contribution from the life insurance division went up by more than 60 per cent�
BÂLOISE ASSURANCES LUXEMBOURG The business unit in Luxembourg completed its acquisition of local firm P&V Assurances, significantly strengthening its position in the highly attractive Luxembourg market� It expanded its share of this market to more than 10 per cent� The integration of this acquisition progressed according to plan, and this business performed very well�
Premiums earned and policy fees (gross)1 6,854.3 6,806.9 6,731.1 7,212.7 7,168.1
Realised gains and losses on investments2 501.6 – 943.4 852.9 670.3 1,362.5
Profit before borrowing costs and taxes 607.2 143.9 617.9 658.2 928.6
Funding ratio (non-life) (per cent) 180.5 195.9 184.3 179.8 182.9 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).
Change in unearned premium reserves – 16.2 – 7.5 – –
Change in claims reserve / actuarial reserves1 – 52.1 – 61.6 – 833.7 – 1,006.0
Claims and benefits paid – 2,006.1 – 1,930.1 – 3,361.3 – 3,607.8
Change in claims reserve / actuarial reserves1 – 48.9 – 48.4 – 834.5 – 1,003.3
Total technical result for own account 74.2 158.9 – 1,211.8 – 1,658.2
Other financial expenses and income – 79.9 – 40.1 – 320.3 – 363.9
Profit for the period (segment result) 291.0 330.4 195.3 388.2 1 Including change in reserve for claims handling costs. 2 Including financial liabilities held for trading purposes (derivative financial instruments). 3 Of which deferred gains / losses from other operating segments (31 December 2013: CHF –1.7 million; 31 December 2014: CHF 0.6 million).
Depreciation, amortisation and impairment of property, plant and equipment and of intangible assets – 19.1 – 18.6
Policy loans and other loans 29.9 6.6 36.5 10.1 28.4 38.5
HUMAN RESOURCES ������������������������������������������������������������������������������ 36 Friendly, pleasant and fair: Baloise as an employer ���������������� 36
Sustainable business management 4 Baloise 16 Review of operating performance 36 Sustainable business management 48 Corporate Governance 92 Financial Report 246 Bâloise Holding Ltd 260 Notes 03_JB_Nachhaltige_Geschaeftsfuehrung_en�indd 35 24�03�2015 13:16:55
→ 7,617 people (6,876 FTEs) were working for the Baloise Group on 31 December 2014 (end of 2013: 8,628).
→ 60.9 per cent of staff members working in our main market of Switzerland participated in our Employee Share Ownership Plan in 2014 (2013: 58.2 per cent).
→ Staff turnover as at 31 December 2014 amounted to 4.8 per cent (end of 2013: 4.9 per cent).
“WE ADD VALUE THROUGH OUR PEOPLE”: BALOISE’S VISION OF CUTTING-EDGE HR ACTIVITIES In order to secure the Company’s lasting appeal for talented individuals, thereby maintaining the high quality of its work, in 2014 the HR heads of the Baloise Group and its national subsidiaries devised a strategy that will shape the Company’s HR activities over the coming years� By pursuing its vision of adding value through its people, Baloise is aligning its HR activities even more closely with its relevant business units and its strategies to ensure that they make a substantial contribution to the value creation process�
TALENT, CULTURE AND LEADERSHIP: THREE FACTORS THAT ARE CRUCIAL TO FUTURE SUCCESS Highly skilled, talented individuals seek to improve their prospects � In order to fulfil this justified aspiration and obtain a realistic appraisal of its employees’ potential, Baloise has been conducting talent evaluations since 2013� These are designed to identify young and key talent, find potential successors and agree staff development activities so that vacancies can ideally be filled by candidates from within the Company�
The Company also remains fully focused on ensuring that its behavioural values are applied� Surveys of staff members have revealed that these values are already firmly embedded within the organisation� However, this is no reason for the Company to rest on its laurels� Baloise will continue to integrate these behavioural values into its activities going forward�
IDENTIFYING, RECRUITING AND DEVELOPING TALENT: CREATING THE SPACE FOR INDIVIDUALS TO EVOLVE Baloise’s most valuable asset is the skills and expertise of its workforce� It therefore ensures that it develops and promotes its staff in a way that reflects their individual performance and potential and the extent to which its behavioural values are implemented�
Baloise applies these principles to both its recruitment process and its efficient talent management system� By doing so, it ensures that it is always in a position to deploy the right people in the right positions and retain the services of its key employees�
In 2010, Baloise became the first all-lines insurer to be awarded the ‘Friendly Work Space’ quality marque by the Swiss health promotion board� This accolade is awarded to firms that are engaged in corporate health management over and above the legal requirements � Baloise offers a working environment in which its employees are happy, stay healthy and can therefore deliver an excellent performance�
By additionally committing itself to the cause of corporate health management in this way, Baloise is honouring its “Making you safer” brand promise to its own staff�
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�
Baloise invests in executive development at local level as well� In 2014 it continued to support new managers in Switzerland by offering its Führung@Baloise programme�
The Company’s General and Insurance trainee programmes remain highly popular with university graduates and at Baloise itself� These programmes provide personalised training for graduates starting their careers� These trainees are highly regarded within the Company and often find permanent employment with Baloise�
Career homepage: → www.baloise.com/career Career blog: → www.baloisejobs.com Facebook: → www.facebook.com/baloisegroup YouTube: → youtube.com/baloisegroup Xing: → xing.com/companies/baloisegroup LinkedIn: → linkedin.com/company/baloisegroup Twitter: → twitter.com/baloise_jobs Pinterest: → pinterest.com/baloisejobs Google+: → gplus.to/baloisejobs 03_JB_Nachhaltige_Geschaeftsfuehrung_en�indd 39 24�03�2015 13:16:56
SUSTAINABLE PLANNING OF REAL ESTATE The three sustainability dimensions (environmental, economic and social factors) are examined in the case of all new builds and maintenance projects and, where necessary, specific modifications are made in order to optimise them� When property is being refurbished or built from scratch, for example, the option of using renewable energy sources is considered and, if feasible, chosen� If heating systems are being overhauled, fuels that generate low CO2 emissions are selected wherever possible� A further key consideration here is the potential for making the Company’s real estate portfolio more compact� Baloise is constantly improving knowledge of sustainability by working closely with universities on specific research projects and by providing its staff with regular training and development in this area�
USING SOLAR POWER TO PROVIDE HEATING IN WINTER The spring of 2015 will see solar panels with a total output of 21 kWp being installed on one of the flat roofs of the Company’s head office building in Basel� The power generated by these panels (around 21’400 kWh per year) will be used, among other things, to heat the new entrance ramp to the building in winter�
ENERGY EFFICIENCY AT COMPUTER CENTRES The Baloise Group has achieved lasting reductions in energy consumption at its computer centres in Switzerland� Panels have been added to the tops and sides of the open racks housing the servers� This separates the cold and warm air zones, which has sharply reduced the amount of air that needs to be cooled� In addition, the energy consumed by our cooling, ventilation and humidification systems in 2014 was cut by 730,000 kWh per year – or 38 per cent – compared with 2013� This represents 7�2 per cent of the power used by our Group headquarters, which has more than 2,000 workstations and includes the central facilities of staff restaurant, auditorium and computer centres�
ADDING VALUE WITH BALOISE’S NEW WORKPLACE CONCEPTS The new workplace concepts being planned by the Baloise Group offer sufficient project spaces and workplaces in pleasant surroundings where people can work in peace and quiet while having enough room for communication and teamwork� Basler Switzerland tested its new ‘Flex Office’ workplace concept in the summer of 2014� In the autumn of that year it was decided to introduce this new concept – which centres on the idea that workstations are not permanently assigned to specific individuals – for 600 members of staff working at Basler Switzerland’s head office� This more efficient use of space enables the Baloise Group to significantly reduce its energy consumption and occupancy costs as well as the amount of office space that it requires�
Electricity consumption 23,312,615 kWh 20,712,643 kWh 19,983,237 kWh 3,863 kWh / employee – 3.5
Heating consumption 13,856,250 kWh 11,513,544 kWh 9,327,534 kWh 68 kWh / m2 – 19.0
Types of refuse 40.0 % paper / cardboard 4.0 % other materials 1.0 % special waste 55.0 % misc. waste / refuse
Business travel 21.82 million km 21.26 million km 16.55 million km 3,199 km / employee – 22.1
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, we possess a strong balance sheet and a high degree of operating earnings power, which we have optimised in terms of the risks that we take and the upside potential that we derive from our business.
RISK MAP The risk map distinguishes between the following categories of risk to which Baloise is exposed: → Actuarial risk; → Market risk; → Financial-structure risk; → Business-environment risk; → Operational risk; → Strategic & information risk�
A detailed description of these risks can be found in the Financial Report section on page 122�
The risk map is firmly embedded in the organisational structure and responsibilities of the entire Baloise Group� Each risk is assigned to a risk owner (with overall responsibility) and to a separate risk controller (responsible for risk management and control)�
The Company’s enterprise risk management was once again awarded Standard & Poor’s excellent “strong” rating in 2014� This puts us among the top 15 per cent of all European insurance companies�
Our risk management is a standardised strategic and operational system that is applied throughout the Baloise Group and covers the following areas: → Risk map: this forms the backbone of our risk strategy and defines the fundamental risk issues, such as our actuarial and market risk as well as the operational risk arising from our business activities�
→ Risk governance and risk culture: this involves encouraging risk awareness – how people perceive and respond to risk – and establishing this mind-set throughout the organisation�
Baloise’s risk management constitutes one of the main pillars of its business model 03_JB_Nachhaltige_Geschaeftsfuehrung_en�indd 42 24�03�2015 13:16:56
The Group Risk Committee and the local risk committees in each business unit – which comprise members of the Corporate Executive Committee and of the local senior management teams respectively – decide how the risk strategy is developed and designed and how the pertinent policies are implemented in day-to-day business� Bodies specially set up to examine specific risk areas such as asset/liability management, compliance, IT risk and the use of reserves also compile submissions for the committees to facilitate their decision-making on these issues� The Group Risk Management team works closely with the local risk experts to complete the picture� This inclusive risk organisation approach provides us with a platform for sharing and constantly refining best practice� Group Risk Management is responsible for
→ developing consistent, mandatory risk models for the entire Baloise Group,
RISK MEASUREMENT Our risk model standardises the process of quantifying our business risks and financial market risks across all strategic business units� It is consistent with the principles and calculation methods applied by the Swiss Solvency Test and with the European Union’s Solvency II directives� As a ground breaking risk management tool, it provides a firm foundation on which management can make strategic and operational decisions�
In addition to this holistic risk model we use the risk map to identify, describe and evaluate specific risks in terms of their likely impact on our operating profit or loss� Our corporate database of specific risks – which contains a detailed description of the risks concerned, their classification on the risk map and early-warning indicators – is generated from this standardised process� We use quantitative methods to supplement this description by measuring these risks’ probable financial impact on the Company’s balance sheet� Each risk is documented together with the measures needed to mitigate it� The database is updated every six months�
→ We use appropriate reporting procedures to monitor market risk and financial-structure risk across all our investment units� In addition to upper limits on equity exposures, for example, there are clear and binding guidelines on bond ratings� The applicable “Basel” approach and advanced statistical methods are used to assess credit risk� In addition, we use our risk analysis to monitor the overall solvency position once a month�
OUR PROFESSIONAL RISK MANAGEMENT DEMONSTRATED ITS PROVEN STRENGTHS IN 2014 Baloise’s risk strategy principles are designed for the long term, as shown by the Company’s excellent risk positioning in 2014� Proof positive of this situation was the Baloise Group’s solvency ratio, which remained very high at 354 per cent and bears testimony to its financial strength�
Underwriting approaches that have been tried and tested for many years were maintained in 2014: → The Baloise Group’s investment strategy continues to focus on diversification and on the basic principle of only investing in assets that we ourselves can fully and accurately evaluate�
Our risk management will continue to evolve over the coming years, reaffirming Baloise’s standing as a company with an outstanding risk strategy and risk positioning�
Shareholder structure A total of 19,627 shareholders were registered in Bâloise Holding’s share register as at 31 December 2014� The number of registered shareholders had decreased by 5�5 per cent compared with the previous year� The “Significant shareholders” section on page 253 provides information on the structure of the Company’s shareholder base as at 31 December 2014�
2. CAPITAL STRUCTURE Dividend policy Bâloise Holding pursues a policy of paying consistent, earningsrelated dividends� It uses other dividend instruments such as share buy-backs and options to supplement conventional cash dividends� Shareholders have received a total of CHF 1,214�3 million from cash dividends and share buy-backs over the last five years� Baloise has therefore had a combined annual payout rate of between 30 per cent and 50 per cent in recent years�
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�
Conditional capital is used to cover any option rights or conversion rights granted in conjunction with bonds and similar securities � Shareholders’ pre-emption rights are disapplied� Holders of the pertinent option rights and conversion rights are entitled to subscribe for the new registered shares� The Board of Directors may restrict or disapply shareholders’ pre-emption rights when issuing warrant-linked bonds or convertible bonds in international capital markets�
The Baloise Group’s consolidated equity The Baloise Group’s consolidated equity amounted to CHF 5,831�0 million on 31 December 2014� Details of changes in consolidated equity in 2013 and 2014 can be found in the consolidated statement of changes in equity on pages 98 and 99 in the Financial Report section� All pertinent details relating to 2012 can be found in the consolidated statement of changes in equity on page 96 in the Financial Report section of the 2013 Annual Report�
Bonds outstanding Bâloise Holding and one other Baloise Group company have issued bonds publicly� Bâloise Holding and one other Baloise Group company had a total of nine public bonds outstanding at the end of 2014� Details of outstanding bonds of Bâloise Holding can be found on pages 215 and 251 and on the internet�
Credit rating Credit rating agency Standard & Poor’s upgraded Baloise Insurance Ltd to ‘A’ with a stable outlook on 27 June 2014� S&P awarded this rating in recognition of the firm’s very strong capitalisation, its excellent operational profitability and its solid competitive position in Baloise’s core markets� The agency also rated the firm’s risk management as strong� The rating was awarded to Bâloise Holding Ltd’s Swiss subsidiary – Baloise Insurance Ltd, which is a core company of the Baloise Group�
The average age on the Board of Directors is currently 60� Each member of the Board of Directors is elected individually�
Because their term of appointment is limited to one year, all members of the Board of Directors will have to be re-elected at the 2015 Annual General Meeting unless they are stepping down from the Board� All members of the Board of Directors are standing for re-election�
Statutory rules concerning the number of permitted activities Section 12 (1) clause 1 of the Swiss Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO) states that the Articles of Association must contain legal provisions concerning the number of permitted activities that the members of the Board of Directors perform on the senior governing 04_JB_Corporate_Governance_en�indd 50 24�03�2015 13:13:18
Karin Keller-Sutter x x x x x x x x x
Andreas Burckhardt (1951, Switzerland, Dr iur�, lawyer) has been a member of the Board of Directors since 1999 and its Chairman since 29 April 2011� He studied jurisprudence at the universities of Basel and Geneva� He worked in the legal department of Fides Treuhandgesellschaft from 1982 to 1987 and served as Secretary General of the Baloise Group from 1988 to 1994� He was director and head of the Basel Chamber of Commerce from 1994 to April 2011� In this role he sat on various governing bodies of national and regional business organisations� From 1981 to 2011 he performed political functions in Basel City, and from 1997 to 2011 he served on the Great Council of the Canton of Basel City (as Chairman in 2006 and 2007)� He sits on the Board of Directors of Carl Spaeter AG and is Vice-Chairman of the Board of Governors of the Swiss Tropical and Public Health Institute, Basel� He is a member of the Executive Committee of economiesuisse and sits on the Executive Board of the Employers’ Federation for Basel and Regio Basiliensis� Dr Burckhardt performs a non-executive function as Chairman of Baloise’s Board of Directors�
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 is Chief Executive Officer of Baselbased private bank La Roche & Co AG� Prior to joining La Roche & Co AG on 1 December 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� He is a designated member of the management board of the future Notenstein La Roche Privatbank AG� Mr Gloor 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� He is Vice-Chairman of the Board of Directors at Citadel Finance 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�
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 was elected to the Council of States – the upper chamber of the Swiss parliament – in 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 nonexecutive director�
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 since 2014� 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; from 2014 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�
Committees of the Board of Directors The Board of Directors has four committees, which support it in its activities� These committees report to the Board of Directors and submit the necessary proposals for their particular areas of responsibility�
The committees appointed by the Board of Directors generally consist of four members, who are newly elected every year by the Board of Directors� Since 2014, 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�
Meetings of the Board of Directors and its committees The Organisational Regulations stipulate that the full Board of Directors must meet as often as business requires, but no fewer than four times a year�
The full Board of Directors of Bâloise Holding met on nine occasions in 2014� The table on page 51 shows Board of Directors members’ attendance at these meetings� All members of the relevant committee in each case attended every one of the additional 15 committee meetings� This means that the Board of Directors achieved an overall meeting attendance rate of 99 per cent� One meeting of the Board of Directors was primarily used to provide its members with further information on the latest developments and trends in the sale of insurance products� 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 and the Secretary to the Board of Directors� Meetings of the Chairman’s Committee are usually attended by the Group CEO, the Chief Financial Officer and the Secretary to the Board of Directors� 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, the Secretary to the Board of Directors, and representatives of the external auditors and, occasionally, 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 Secretary to the Board of Directors�
Dr Martin Strobel, Group CEO (left), Dr Thomas Sieber, Head of Corporate Divsion Corporate Center (right).
Michael Müller (1971, Switzerland, lic� oec� publ�) graduated in economics from the University of Zurich, specialising in insurance and accounting/finance� He began his career with Basler Versicherungen in 1997, starting as a management trainee, then working in Group Finance and eventually becoming Deputy Head and, in 2004, Head of Financial Accounting for the Baloise Group� In 2009, as Head of Finance and Risk, he became a member of the senior management team in Corporate Division Switzerland, focusing on financial reporting and accounting, actuarial management of the insurance companies, risk management and coordination of logistics processes and the pool of project leaders� He has been a member of the Corporate Executive Committee and CEO of Corporate Division Switzerland since March 2011�
Jan De Meulder, CEO of Basler Versicherungen in Germany (left), Michael Müller, Head of Corporate Division Switzerland (right).
With the exception of Dr Thomas Sieber and Martin Wenk, no Corporate Executive Committee members serve on the Boards of Directors at companies outside the Baloise Group�
Statutory rules concerning the number of permitted activities Section 12 (1) clause 1 of the Swiss Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO) states that the Articles of Association must contain legal provisions concerning the number of permitted activities that the members of the Corporate Executive Committee perform on the senior governing or management bodies of legal entities that are required to be entered in the Swiss commercial register or in an equivalent foreign register and that are not controlled by the Company and do not control the Company� The Board of Directors will propose to the 2015 Annual General Meeting that legal provisions to this effect be incorporated into the Articles of Association�
There are no management agreements that assign executive functions to third parties�
→ 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�
→ submit proposals to the Board of Directors on the structure of remuneration to be paid in the Baloise Group, especially the remuneration to be paid to the Chairman and members of the Board of Directors and to the members of the Corporate Executive Committee; → submit proposals to the Board of Directors – for approval by the Annual General Meeting – on the amount of remuneration to be paid to the Chairman and members of the Board of Directors and to the members of the Corporate Executive Committee; → approve the basic salaries and the variable remuneration paid to individual members of the Corporate Executive Committee (in compliance with the pay caps stipulated by the Annual General Meeting); → specify the total amount available in the performance pool and the total amount set aside for the allocation of performance share units (PSUs); → approve inducement payments and severance packages that are granted to the most senior managers and which in individual cases exceed CHF 100,000 (subject to the proviso that no severance packages may be granted to members of the Board of Directors or the Corporate Executive Committee)�
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 Corporate Executive Committee ensure that remuneration is not excessive�
Remuneration Guideline and Remuneration Policy Responding to a request from the Remuneration Committee, in 2010 the Board of Directors formally adopted a Remuneration Guideline that formulates the remuneration principles and parameters applied across the Baloise Group� This Remuneration Guideline applies to all employees throughout the Baloise Group� They reflect the Company’s values and principles and can be summarised as follows: → Competitiveness in the marketplace: Baloise aims to pay basic salaries that are in line with the market – i�e� around the market median – and to offer variable remuneration packages in excess of the going market rate to reward outstanding performance by individuals and the Company; → Remuneration that reflects individual and company-wide performance: merit and achievement form the basis for advancement and promotion; → Fairness and transparency: external market-based comparisons, fair pay and no discrimination; → Sustainability: high correlation between the interests of managers and shareholders, long-term commitment, and a high proportion of restricted shares�
Corporate Governance Corporate Governance Report including Remuneration Report component of their salaries is paid out as shares; these PSUs must be held for three years before being converted into shares as a form of deferred remuneration� As managers’ strategic responsibility and influence grow, the amount of their variable remuneration is largely determined by the Company’s profitability and economic value added (allowing for the level of risk taken)� Short-term variable remuneration as a percentage of total compensation as well as the proportion of remuneration paid in the form of restricted shares (i�e� as deferred compensation ) increase accordingly�
Market comparisons Baloise regularly compares the salaries paid to its senior executives with those paid in the wider market� To do so it uses function-specific peer groups� Each function being compared is assigned to one of three distinct peer groups� In assigning the various functions to these peer groups, Baloise has to consider the question of which companies it is competing against for the skill-sets and qualifications needed in each case (i�e� recruitment market) and which alternative employers – in theory, at least – meet a certain function profile (i�e� competitors)�
The first peer group replicates Baloise’s core market and comprises direct insurers in the respective country� This peer group is used for conventional insurance and sales functions and for the local CEOs, executive directors and senior management functions� The second peer group supplements the coremarket group by including further companies from the banking and financial services sector in the respective country� This group is designed to compare functions that demand considerable financial expertise but do not necessarily require an insurance background� The third peer group consists of companies of a similar size and structure from various sectors and is used for interdisciplinary functions�
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� The findings of this benchmarking survey are fed into the Company’s regular review of its salary structures�
Basic salary The basic salary constitutes the level of remuneration that is commensurate with the functions and responsibilities of the position concerned as well as the employee skills and expertise required in order to achieve the relevant business targets and objectives� When determining the level of its basic salaries, Baloise aims to position itself around the market median, although the way in which this is done will vary depending on local operating and market requirements� This remuneration is paid in cash�
Corporate Governance Corporate Governance Report including Remuneration Report not agree any targets or objectives that conflict with the Company ’s business strategy�
The target figure agreed for performance-related remuneration depends on the employee’s basic salary and varies according to his or her seniority in the management hierarchy� Those entitled to receive performance-related remuneration are the most senior management level in the Baloise Group (except for the members of the Corporate Executive Committee), the majority of senior managers in Switzerland and the corresponding functions abroad� The members of the Corporate Executive Committee do not receive any performance-related remuneration � Instead, their individual performance is recognised in such a way that the contribution made by each and every member of the Corporate Executive Committee to the achievement of the Company’s targets and objectives is factored into decisions affecting the measurement of the performance pool�
Performance pool The performance pool takes account of the entire Baloise Group’s performance; its amount is determined by the Remuneration Committee after the end of the financial year concerned, and it factors in the following indicators resulting from systematic analysis: → Business performance The key metric for this criterion is the profit for the period�
→ Capital-markets perspective compared with competitors The main metric used to evaluate this criterion is the performance of Baloise’s share price compared with the almost 40 European insurance companies represented in the STOXX Europe 600 Insurance Index (the composition of this index is shown in the table on page 66)�
The assessments provided by the Chief Risk Officer and the Head of Group Compliance and the evaluations of strategy implementation are also based on qualitative criteria and nonfinancial indicators such as senior managers’ risk behaviour, compliance with procedures and regulations and the practising of a genuine compliance culture, the effectiveness of the internal control system, and the efforts made in respect of talent management and staff engagement�
For the 2014 financial year the Remuneration Committee decided on a factor of 137 per cent of the normally expected value of performance pool payments� This decision was motivated by the following considerations: → Excellent profitability on the back of exceptionally strong operating activities
One PSU generally confers the right to receive one share� This is the case if Baloise shares perform in line with the median of their peer group� In this case the performance multiplier would be 1�0� Participants in the programme receive more
Companies in the STOXX 600 Europe Insurance Index (as at 31 December 2014)
Aegon NV Direct Line Insurance Group Old Mutual plc Topdanmark A / S
Bâloise Holding Legal & General Group plc St. James's Place Capital
Corporate Governance Corporate Governance Report including Remuneration Report shares in exchange for their PSUs if Baloise shares outperform their peer group� The multiplier reaches the maximum of 1�5 if the performance of Baloise shares is in the top quartile of companies in the peer group� The multiplier amounts to 0�5 if the performance of Baloise shares is in the bottom quartile of companies in the peer group� If the performance of Baloise shares is in either of the two middle quartiles, a linear scale is used to calculate the performance multiplier� The performance multiplier for the entire vesting period ended is based on the closing stock market prices on the final trading day of the respective vesting period�
Participants in the programme receive the pertinent number of shares once the vesting period has elapsed, which means that for the PSUs allocated in 2014 they receive their shares on 1 March 2017� The arrangement applicable until 2013 was that half of the converted shares were then subject to an additional three-year closed period� This closed period has no longer applied since 2014, which brings the deferral period more closely into line with other such periods commonly found in the market�
→ The expected dividend yields → Empirical data on how long eligible programme participants remain with the Company� The value of PSUs is exposed to market risk until the end of the vesting period and may, of course, fluctuate significantly, as shown in the table below: PERFORMANCE SHARE UNIT (PSU) PLAN
Date Price (CHF) 1 Date Multiplier Price (CHF) 1 Value (CHF) 2 3 1 Price = price of Baloise shares at the PSU grant date or conversion date. 2 Value = value of one PSU at the conversion date (share price at the conversion date times the multiplier). 3 Change in value = difference between the value at the conversion date (multiplier times the share price at the conversion date) and the share price at the grant date, expressed as a percentage of the share price at the grant date; example of the PSU plan in 2007: ([{1.182*86.05}–125.80] / 125.80) 100 = – 19 %. 4 Interim measurement as at 31 December 2014.
Fringe benefits Fringe benefits are generally defined as components of the total remuneration package that are not dependent on either an individual ’s function or performance or the Company’s performance � By providing benefits in the form of retirement pensions, subsidies, concessions, and staff training and professional development, Baloise demonstrates the close partnership that it maintains with its employees and the extent to which it values their contribution� Fringe benefits are granted on a country-bycountry basis in line with prevailing local laws�
The remuneration regulations adopted by the Board of Directors contain clear guidance on inducement payments and severance packages� Such remuneration may only be paid in justified cases� No severance packages may be awarded to members of either the Board of Directors or the Corporate Executive Committee, and any inducement payments granted to such persons – irrespective of their amount – must be approved by the Remuneration Committee� Inducement payments and severance packages for the most senior managers must be approved by the Remuneration Committee if they exceed CHF 100,000� Each individual case is assessed on a discretionary basis�
Employee Share Ownership Plan Since May 2001 it has been possible for most management team members working in Switzerland to receive part of their shortterm variable remuneration in the form of shares from the Employee Share Ownership Plan instead of receiving cash� Within certain limits they are free to choose what proportion of their short-term variable remuneration they receive in the form of such shares� The most senior management team members are subject to upper limits; members of the Corporate Executive Committee – who are obliged to receive at least half of their short-term variable remuneration in the form of shares – are not allowed to receive more than 50 per cent of their entitlement in the form of shares from the Employee Share Ownership Plan� The subscription date is 1 March of each year (the same as for the Share Subscription Plan); although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold for the duration of a three-year closed period�
The Foundation acquired the underlying stock of shares used in this plan from previous capital increases carried out by Bâloise Holding Ltd� It supplements these shareholdings by purchasing shares in the market� The existing shareholdings will enable the Foundation to continue the Employee Incentive Plan over the coming years� The Foundation is run by a Board of Foundation that is predominantly independent of the Corporate Executive Committee� The independent Board of Foundation members are Peter Schwager (Chairman) and Professor Heinrich Koller (lawyer); the third member of the Board of Foundation is Andreas Burki (Head of Legal & Tax at Baloise)�
5.8 Pension schemes Baloise provides a range of pension solutions, which vary from country to country in line with local circumstances� In Switzerland it offers different pension schemes for its insurance and banking employees�
Fair value of subscribed shares on subscription date (CHF million) 16.5 20.9
Subscribed shares per participant (average) 90.3 89.7 04_JB_Corporate_Governance_en�indd 70 24�03�2015 13:14:17
In compliance with the Swiss Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO) the Annual General Meeting being held on 30 April 2015 will be asked to approve further provisions in the Articles of Association concerning loans, credit facilities and pension benefits granted to members of the Board of Directors and the Corporate Executive Committee as well as principles governing the granting of equity instruments, conversion rights and warrants�
The Chairman of the Board of Directors chairs the meetings of both the Board of Directors and the Chairman’s Committee � He also chairs the Investment Committee� He represents the Company externally and, acting in this capacity, maintains contact with government agencies, trade associations and other Baloise stakeholders� The Chairman of the Board of Directors liaises with the Group CEO in formulating proposals on Baloise’s long-term objectives and its strategic direction and development, and these proposals are then discussed and approved by the Board of Directors as a whole� He works closely with the Corporate Executive Committee to ensure that the Board of Directors is provided with timely information on all matters of material importance to the decision-making and monitoring process at Baloise� The Chairman of the Board of Directors is entitled to attend meetings of the Corporate Executive Committee at any time� He takes part in these meetings when necessary in order to maintain a regular dialogue between himself and the Corporate Executive Committee and whenever matters of strategic or long-term importance are being discussed�
The table on page 75 includes for the first time (for the 2014 financial year) the contributions payable by the Company into the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund (applies only to the chairman of the Board of Directors)�
Because the expected performance pool value and the fixed remuneration component have been increased to compensate for the discontinuation of performance-related pay, the overall level of remuneration paid to the Corporate Executive Committee has remained unchanged� The expected performance pool payment now amounts to 60 per cent of basic salary instead of 50 per cent� Even in cases of outstanding individual performance and excellent performance by the Company as a whole, this payment cannot exceed 90 per cent of basic salary (cap)�
The members of the Corporate Executive Committee continue to 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 new system complies with the latest 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 24 April 2014 passed binding votes in which it set a cap on the variable remuneration payable for 2014 and the amount of fixed remuneration to be paid for 2015�
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 76 to 79 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�
The total remuneration paid to the Corporate Executive Committee in 2014 was slightly lower than in the previous year (sum total of basic salary plus variable remuneration down by 1�1 per cent) despite the Company’s excellent financial results� This can be attributed to several factors: → The aforementioned modifications made to the structure of remuneration (discontinuation of performance-related pay, increase in basic salary etc�) reduced the variable component of total remuneration year on year from 130 per cent to 100 per cent of basic salary� Consequently, the Company’s excellent profit for the year had less of an impact on remuneration�
5.12 Loans and credit facilities Please refer to the table on page 80�
5.13 Shares and options held Please refer to the tables on pages 81 and 82�
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 83 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 2014 even if individual components are not paid until a later date�
Total for the Board of Directors 2,340,833 806,666 3,147,499 265,104 3,412,603 758,871 10,471
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 2013 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 102.78.
Total for the Corporate Executive Committee 4,056,891 1,794,847 17,497 1,798,341 1,557 157,052 24,113 1,849,227 19,054 5,599,467 9,656,358 138 % 147,411 1,228,975 11,032,744
Granted in 2014 2014 CHF CHF Number of shares CHF Number of shares CHF Number of PSUs CHF Number of shares CHF CHF CHF CHF CHF
LOANS AND CREDIT FACILITIES GRANTED TO MEMBERS OF THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE (AS AT 31 DECEMBER)
Total for the Board of Directors 0 0 2,403,689 2,706,237 0 0 2,403,689 2,706,237
Explanatory notes to the table: Loans and credit facilities No loans or credit facilities were granted at non-market terms and conditions a) to former members of the Board of Directors or Corporate Executive Committee, b) to individuals or companies related to members of the Board of Directors or Corporate Executive Committee. (Related parties are: spouses, life partners, children under 18 years, companies owned or controlled by directors, or legal entities or individuals who act as trustees for them.) Mortgages Mortgages of up to CHF 1 million are granted to staff at the following terms and conditions: 1 per cent below the customer interest rate for variable-rate mortgages and at a preferential interest rate for fixed-rate mortgages. Loans associated with the Employee Share Ownership Plan Loans to increase the effect of the Employee Share Ownership Plan (see ‘5.6. Share Subscription Plan and Employee Share Ownership Plan’). Interest is charged on loans at a market rate (2014: 1 per cent), and they have a term of three years. Other loans There are no policy loans.
Head of Corporate Division Switzerland 2,837 2,679 8,908 10,632 11,745 13,311 0.023 % 0.027 % 7,461 8,654
Peter Lüssi Christian Konopka Audit expert Audit expert Auditor in charge
Corporate Governance Corporate Governance Report including Remuneration Report 6. SHAREHOLDER PARTICIPATION RIGHTS Voting rights The share capital of Bâloise Holding consists solely of registered shares� Each share confers the right to one vote� No shares carry preferential voting rights� To ensure a broad-based shareholder structure and to protect minority shareholders, no shareholder is registered as holding more than 2 per cent of voting rights, regardless of the size of their shareholding� The Board of Directors can approve exceptions to this provision if a majority of two-thirds of all its members is in favour (section 5 of the Articles of Association)� There are currently no exceptions� Each shareholder can appoint a proxy in writing in order to authorise another shareholder or an independent proxy to exercise his or her voting rights� When exercising voting rights, no shareholder can accumulate more than one fifth of the voting shares at the Annual General Meeting directly or indirectly for his or her own votes or proxy votes (section 16 of the Articles of Association )�
8. EXTERNAL AUDITORS The external auditors are elected annually by the Annual General Meeting� PricewaterhouseCoopers AG (PwC) or its predecessor Schweizerische Treuhandgesellschaft / STG-Coopers & Lybrand has audited Bâloise Holding since 1962� Mr Peter Lüssi has held the post of auditor-in-charge since 2013� In accordance with article 730a (2) OR, the role of auditor-in-charge is rotated every seven years� PwC has been the external auditing firm for almost all Group companies since 2005�
At its meetings, the Audit and Risk Committee receives detailed documentation about the external auditors’ findings, primarily at meetings about the annual and half-year financial statements�
Financial calendar Important dates for investors are available at www�baloise�com� This is where the publication dates for the annual and half-year reports and the Q3 interim statement are listed and where the date of the Annual General Meeting, the AGM invitation, the closing date for the share register and any ex-dividend dates are published�
Availability of documents Annual and half-year reports, media releases, disclosures, recent announcements, presentations and other documents are available to the public at www�baloise�com� Please register for the latest corporate communications at www�baloise�com/mailinglist�
Investor Relations Baloise Group Marc Kaiser Aeschengraben 21 4002 Basel, Switzerland marc�kaiser@baloise�com 04_JB_Corporate_Governance_en�indd 89 24�03�2015 13:14:21
Consolidated balance sheet ���������������������������������������������������������������� 92 Consolidated income statement ������������������������������������������������������� 94 Consolidated statement of comprehensive income ����������������� 95 Consolidated cash flow statement ��������������������������������������������������� 96 Consolidated statement of changes in equity ���������������������������� 98
Reconciliation between the gross investment in financial leases and the present value of minimum lease payments ��� 214 Financial liabilities ������������������������������������������������������������������������������ 215 Provisions ������������������������������������������������������������������������������������������������ 216 Insurance liabilities ����������������������������������������������������������������������������� 216
Financial Report 4 Baloise 16 Review of operating performance 36 Sustainable business management 48 Corporate governance 92 Financial Report 246 Bâloise Holding Ltd
Operating and administrative expenses for insurance business 34 – 897.1 – 866.5
Change in reserves arising from reclassification of investment property 0.6 – 0.5
Total items not to be reclassified to income statement 111.5 – 310.1
Change in unrealised gains and losses on available-for-sale financial assets – 531.7 1,688.8
Change in reserves arising from reclassification of held-to-maturity financial assets – 2.7 – 2.6
Balance of cash and cash equivalents as at 1 January 2,923.7 2,960.8
Balance of cash and cash equivalents as at 31 December 2,960.8 2,969.6
Purchase / sale of financial assets with characteristics of equity – 1,078.9 – 1,508.5
Addition / disposal of derivative financial instruments – 56.3 – 16.8
Other changes in assets and liabilities from operating activities 545.8 384.9
Purchase of property, plant and equipment 8 – 21.8 – 26.7
Acquisition of companies, net of cash and cash equivalents 40 – 2.9 – 16.4
Effect of changes in exchange rates on cash and cash equivalents 13.2 – 19.2
Cancellation of (treasury) shares – – – – – – – –
Financial Report Consolidated statement of changes in equity 05_FB_Kapitel_01_bis_02_en�indd 99 24�03�2015 13:12:19
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 main segment 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�
Financial Report Notes to the consolidated annual financial statements 05_FB_Kapitel_01_bis_02_en�indd 100 24�03�2015 13:12:19
The new impairment model shifts the focus to providing for expected credit losses by recognising loss allowances� IFRS 9 specifies three steps that determine the amount of expected losses and interest revenue to be recognised in future� Credit losses already expected at the time of initial recognition are measured at the present value of the twelve-month expected credit losses (step 1)� The loss allowance is increased to an amount equal to full lifetime expected credit losses if the credit risk of a financial liability has grown significantly since initial recognition (step 2)� Where there is objective evidence of impairment, the recognition of interest revenue is based on its net carrying amount (step 3)�
It is not yet possible to fully assess what impact this amendment will have on the Baloise Group’s balance sheet and income statement�
All intercompany transactions and the resultant gains and losses are eliminated.
The acquisition of additional investments in subsidiaries after assuming control and the disposal of investments in subsidiaries without ceding control are both recognised directly in equity as transactions with owners.
3.1.2 Structured entities Structured entities are consolidated. Their inclusion in the consolidated financial statements is governed by the provisions of IFRS 10.
An impairment loss is immediately recognised on items of property, plant and equipment if their recoverable amount is lower than their carrying amount.
3.4.2 The Baloise Group as a lessor Investment real estate let on operating leases is reported as investment property on the consolidated balance sheet. The Baloise Group was not involved as lessor in any other leases during the reporting period.
Financial Report Notes to the consolidated annual financial statements 3.5.4 Capitalised investment fees Acquisition costs directly attributable to the generation of asset management investment returns are recognised as intangible assets provided that they can be individually identified and reliably determined and they are likely to be recoverable. They are amortised through profit or loss over the term of the underlying financial contract in proportion to the returns generated and are tested annually for impairment.
3.6 Investment property Investment property comprises land and / or buildings held to earn rental income or for capital appreciation (or both). If mixeduse properties cannot be broken down into owner-occupied property and property used by third parties, the entire property is classified according to the purpose for which most of its floor space is used. If, owing to a change of use, an investment property held by the Baloise Group becomes the latter’s owner-occupied property, it is reclassified as property, plant and equipment. Any such reclassification is based on the property’s fair value at the reclassification date. By contrast, if one of the Baloise Group’s owner-occupied properties becomes an investment property owing to reclassification, then, on the date this change of use takes effect, the difference between the property’s carrying amount and its fair value is recognised in profit or loss in the event of an impairment; or, if the property’s fair value exceeds its carrying amount, then the difference is recognised directly in equity as an unrealised gain. If an investment property that was reclassified in a previous period is sold, the amount recognised directly in equity is reclassified to retained earnings. Invest ment property is measured at fair value under the discounted cash flow (DCF) method. The current fair value of a property determined under the DCF method equals the sum total of all net income expected in future and discounted to its present value (before interest payments, taxes, depreciation and amortisation ) and includes capital expenditure and renovation costs. The net income is determined individually for each property, depending on the opportunities and risks associated with it, and is discounted in line with market rates and on a risk- adjusted basis. The measurement is carried out internally each year by experts using market-based assumptions that have been verified by respected consultancies. In addition, the properties are assessed by external valuation specialists at regular intervals; roughly 10 per cent of the fair value of the real-estate portfolio is subject to such assessments each year. Changes in fair value are taken to income as realised accounting gains or losses in the period in which they occur.
Financial assets are derecognised if the rights pertaining to the cash flows from the financial instrument have expired or if the financial instrument has been sold and substantially all the associated risks and rewards have been transferred. Cash outflows from reverse repurchase (repo) transactions are offset by corresponding receivables. The financial assets received as collateral security from the transaction are not recognised. The relevant transaction is recognised on the balance sheet on the settlement date. The financial assets transferred as collateral security under repurchase agreements continue to be recognised as financial assets. The pertinent cash flows are offset by corresponding liabilities. In its stocklending operations the Baloise Group only engages in securities lending. The borrowed financial instruments continue to be recognised as financial assets. The securities provided as cover for repos, reverse repos and securities lending transactions are measured daily at their current fair value.
Available-for-sale financial assets and financial assets recognised at fair value through profit or loss are measured at fair value. Held-to-maturity financial assets are measured at amortised cost using the effective interest method. Realised and unrealised gains and losses on financial assets recognised at fair value through profit or loss are taken to income. Unrealised gains and losses on available-for-sale financial assets are recognised directly in equity. If available-for-sale financial assets are sold or impaired, the cumulative amount recognised directly in equity is recognised in the income statement as a realised gain or loss on financial assets. Changes in the fair value of financial assets’ risks that are covered by fair value hedges are recognised in the income statement for the duration of these hedges irrespective of the financial assets’ classification.
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).
3.8 Mortgages and loans Mortgages and loans (including policy loans) are non-derivative financial instruments involving fixed or determinable payments that are not traded in an active market. Mortgages and loans classified as “carried at cost” are measured at amortised cost using the effective interest method. They are regularly tested for impairment.
3.9 Receivables Other receivables are recognised at amortised cost less any impairment losses recognised for non-performing receivables. Amortised cost is usually the same as the nominal amount of the receivables.
Analysts’ reports from banks and evaluations by credit rating agencies are also used to assess the need for impairment losses.
The mortgage portfolio is regularly tested for impairment. If there is objective evidence that the full amount owed under the original contractual terms and conditions or the relevant proceeds of a receivable cannot be recovered, an impairment loss is recognised. Loan exposures are individually evaluated based on the nature of the borrower concerned, its financial position, its credit history, the existence of any guarantors and, where appropriate, the realisable value of any collateral security.
3.10.2 Financial assets measured at fair value The Baloise Group determines at each balance sheet date whether there is any objective evidence that available-for-sale financial assets may be permanently impaired. This category includes financial instruments with characteristics of equity. An impairment loss must be recognised on financial instruments with characteristics of equity whose fair value at the balance sheet date is more than 50 per cent below their acquisition cost or whose fair value is consistently below their acquisition cost throughout the twelve-month period preceding the balance sheet date. The need for an impairment loss is examined and, where necessary, such a loss is recognised on securities whose fair value at the balance sheet date is between 20 per cent and 50 per cent below their acquisition cost.
An impairment loss is recognised on available-for-sale financial instruments with characteristics of liabilities if their fair value is significantly impaired by default risk.
Impairment losses recognised in previous reporting periods on assets with finite useful lives are reversed if the estimates used to determine the recoverable amount have changed since the most recent impairment loss was recognised. This increase constitutes a reversal of impairment losses. Impairment losses recognised in previous reporting periods on goodwill are not reversed. Impairment losses recognised in previous reporting periods on assets with indefinite useful lives are reversed and taken to income; however, the amount to which they are reversed must be no more than the amount recognised prior to the impairment losses less depreciation or amortisation.
3.11.1 Structured products Structured products are equity instruments or debt instruments that contain embedded derivatives in addition to the host contract. Provided that the economic characteristics and risks of the embedded derivative differ from those of the host contract and that this derivative qualifies as a derivative financial instrument, the embedded derivative is bifurcated from the host contract and is separately recognised, measured and disclosed. If the derivative and the host contract are not bifurcated, the structured product is designated as a host contract that is recognised at fair value through profit or loss.
3.11.2 Fair value hedges When the effective portion of hedges is being accounted for, changes in the fair value of derivative financial instruments classified as fair value hedges – plus the hedged portion of the fair value of the asset or liability concerned – are reported in the income statement. The ineffective portion of hedges is recognised separately in profit or loss.
3.11.4 Hedges of a net investment in a foreign operation Hedges of a net investment in a foreign operation are treated as cash flow hedges. When the effective portion of hedges is being accounted for, gains or losses on hedging instruments are recognised directly in equity. The ineffective portion of hedges is recognised in profit or loss.
3.11.5 Derivative financial instruments that do not qualify as hedges Changes in the fair value of derivative financial instruments that do not qualify as hedges are recognised in the income statement as “realised gains and losses on investments”.
3.15.1 Share capital The share capital shown on the balance sheet represents the subscribed share capital of Bâloise Holding, Basel. This share capital consists solely of registered shares. No shares carry preferential voting rights.
3.15.3 Treasury shares Treasury shares held either by Bâloise Holding or by subsidiaries are shown in the consolidated financial statements at their acquisition cost (including transaction costs) as a deduction from equity. Their carrying amount is not constantly restated to reflect their fair value. If the shares are resold, the difference between their acquisition cost and their sale price is recognised as a change in the capital reserves. Only Bâloise Holding shares are classified as treasury shares.
→ the benefits received are likely to account for a significant proportion of the total benefits payable under the contract
→ the timing or amount of the benefits payable is contractually at the discretion of the insurer, and the benefits received are contractually contingent on the performance of either a specified portfolio of contracts or a specified type of contract, on the realised and / or unrealised capital gains on a specified portfolio of investments held by the insurer, or on the profit or loss reported by the insurer.
3.17 Non-life insurance contracts All standardised non-life products contain sufficient insurance risk to be classified as insurance contracts under IFRS 4. The non-life business conducted by the Baloise Group is broken down into seven main segments: → Accident All standard product lines typical of each relevant market are available in the accident insurance business. The Belgian market and Switzerland in particular also offer specific government-regulated occupational accident products that differ from the other products usually available.
→ Fire and other property insurance In addition to conventional home contents insurance this segment offers an extensive range of property policies that include fire insurance, buildings insurance and water damage insurance in all the varieties commonly available.
Actuarial methods are used to calculate by far the largest proportion of claims reserves. To this end, the Baloise Group selects actuarial forecasting methods that are appropriate for each sector, insurance product and existing claims history. Additional market data and assumptions obtained from insurance rates are used if the claims history available on a customer is inadequate. The Baloise Group mainly applies the chain-ladder method, which is the most widely used, tried-and-tested procedure. This method involves estimating the number and amounts of claims incurred over time and the proportion of claims that are reported to the insurer either with a time lag or after the balance sheet date. The proportion of these so-called incurred- but-not-reported (IBNR) claims is exceptionally important, especially in operating segments involving third-party liability insurance. These estimates naturally factor in emerging claims trends as well as recoveries. The mean ratio of costs incurred to claims actually paid is essentially used to calculate reserves for claims handling costs.
The forecasting methods used cannot eliminate all the uncertainties inherent in making predictions about future developments and trends. Nonetheless, systematic monitoring of the reserves recognised in a given financial year enables the Baloise Group to spot discrepancies as soon as possible and, consequently, to adjust the level of reserves and modify the forecasting method where necessary. This analysis is based on the so-called “run-off triangles” presented in aggregated form in section 5.4.5. The relevant calculations for typical property policies such as storm and tempest insurance or home contents insurance are usually based on the payments made over the past ten years. Larger amounts of data and, consequently, claims triangles that go further back in time and are based on both payments and expenses (payments plus reserves) are, of course, used for insurance segments with longer run-off periods, such as third-party liability. To supplement the Baloise Group’s various internal control mechanisms, its reserves – and the methods used to calculate them – are regularly reviewed by external specialists. Mention should be made here of the liability adequacy test described in detail in section 3.17.4. The Baloise Group takes great care to ensure that it complies with the pertinent financial reporting standard by performing the regularly required profitability analysis and examining whether, at the balance sheet date, it can actually meet all the liabilities that it has taken on as an insurer. It immediately offsets any shortfall in its reserves that it identifies.
The liability adequacy test required by IFRS must also examine whether the Baloise Group has incurred any further liabilities for subsequent periods (future business) besides all its existing contracts maintained during the reporting period. Such business arises, for example, when contracts are automatically extended at the end of the year on the same terms and conditions. Taking account of all the latest data and trends, Baloise conducts a profitability analysis of its insurance business during the reporting year in order to check whether an adequate level of premiums has been charged and, implicitly, whether these liabilities are therefore covered. This amounts to an analysis of unearned premium reserves and an impairment test of deferred acquisition costs at the same time. If a loss is expected to be incurred (also applies to other loss-making insurance contracts in existence at the balance sheet date), the deferred acquisition costs are initially reduced by the respective amount. If the total amount of deferred acquisition costs is insufficient or if the resultant liability cannot be covered in full, a separate provision for impending losses equivalent to the residual amount is recognised under other technical reserves.
The following life insurance products offered by the Baloise Group contain sufficient insurance risk to be classified as insurance contracts under IFRS 4: → Endowment policies (both conventional and unit-linked life insurance)
The accounting policies applied by the Baloise Group are described below.
3.18.1 General accounting policies The accounting policies applied to traditional life insurance vary according to the type of profit participation agreed. Premiums are recognised as income and benefits are recognised as expense at the time they fall due. The amount of reserves set aside in each case is determined by actuarial principles or by the net premium principle, which ensures that the level of reserves generated from premiums remains consistent over time. The actuarial assumptions used to calculate reserves at the time that contracts are signed either constitute best estimates with explicit safety margins for specific business lines or they are determined in accordance with local loss reserving practice and thus also factor in safety margins. The assumptions used are locked in throughout the term of the contract unless a liability adequacy test reveals that the resultant reserves need to be strengthened after the deferred acquisition costs (DACs) and the present value of future profits (PVFP) on acquired insurance contracts have been deducted. Unearned premium reserves, reserves for final dividend payments and certain unearned revenue reserves (URRs) are also recognised as components of the actuarial reserve.
3.18.4 Unearned revenue reserve (URR) The unearned revenue reserve comprises premiums that are charged for services rendered in future periods. These premiums are deferred and amortised in the same way as deferred acquisition costs.
Life insurance companies operating in Germany and Austria and in some areas of Swiss group life business are required by law to distribute a minimum proportion of their profits to policyholders in the form of dividends.
In Austria the minimum quota is stipulated in the terms and conditions of each contract. It is usually 90 per cent.
Financial Report Notes to the consolidated annual financial statements 3.20 Liabilities arising from banking business and financial contracts 3.20.1 With discretionary participation features Financial contracts with discretionary participation features are capital accumulated by customers that entitles them to receive policyholders’ dividends. The accounting principles applied to these financial contracts are the same as those for life insurance contracts; the accounting policies for life insurance are described in section 3.18.
The convertible bond issued by Bâloise Holding comprises a liability and an embedded option (right to convert the bond into Bâloise Holding shares). The fair value of the embedded option is determined at the balance sheet date and is recognised separately in equity. The acquisition cost of the liability component corresponds to the present value of future cash flows at the time the bond is issued. The discount rate used is the market interest rate applicable to similar bonds without any conversion rights or warrants.
3.25.1 Income from services rendered Income from services rendered is recognised in the period in which the service is provided.
3.25.2 Interest income Interest income from financial instruments that are not recognised at fair value through profit or loss is recognised under the effective interest method. If a receivable is impaired, it is written down to its recoverable amount, which corresponds to the present value of estimated future cash flows discounted at the contract’s original interest rate.
→ 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.
The following financial liabilities are measured at fair value: → Liabilities arising from banking business and financial contracts (recognised at fair value through profit or loss) Liabilities arising from investment-linked life insurance contracts involving little or no transfer of risk are measured at fair value based on the capitalised investments underlying these liabilities.
→ Derivative financial instruments Models or quoted market prices are used to determine the fair value of derivative financial instruments.
If – contrary to its original intention – these financial instruments are not held to maturity (with the exception of specific circumstances such as the disposal of minor investments), the Baloise Group must reclassify all held-to-maturity financial instruments as “available for sale” and measure them at fair value. Section 12 contains information on the fair values of the financial instruments with characteristics of liabilities that are classified as “held to maturity”.
4.5 Estimate uncertainties specific to insurance Estimate uncertainties pertaining to actuarial risk are discussed from section 5.4 onwards.
Because the Group issues interest-rate guarantees, it is also exposed to interest-rate risk. There are also implicit financial guarantees and options which also affect liquidity, investment planning and the income generated by Group companies; they include guaranteed surrender prices when policyholders cancel and guaranteed annuity factors on commencement of the payout phase of annuities.
Longevity, mortality and disability rates are risks specific to life insurance and are monitored on an ongoing basis. The companies in the Baloise Group review and analyse mortality rates among their local customer bases, along with the fre- quency 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 sta- tistical base is relatively good, the risks in this area are manageable. In the field of annuities, there is an additional trend risk in the form of a steady rise in life expectancy which is resulting in ever longer annuity payout periods. This risk is addressed by the addition of suitable factors to the basis for calculation.
Managing participating insurance contracts is an additional method of mitigating risk. For example, bringing policyholders ’ dividends into line with altered circumstances as far as permitted by local regulations is one option that could be taken if the risk situation were to change. However, the allocation of surpluses between policyholders and the Company is not only subject to local law, it is also governed by market expectations.
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 banks’ asset and liability management (ALM) committees. The data and key figures required are determined and calculated using a specialist IT application.
The model makes a future projection of the building society’s total collective holdings on an individual contract basis, incorporating new business scenarios and patterns of behaviour observed in the past.
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 infor07_FB_Kapitel_05_bis_05. 7_en.indd 120 24.03.2015 13:12:34
Business-environment risk, operational risk, and management and information risk arise as direct or indirect results of the business operations, business environment or strategic activities of each company. Risks of this type are also quantified, assessed and managed.
Non-diversifiable market risk is monitored and managed by central and local units using means such as stochastic methods and comprehensive scenario analysis.
Semi-annual reporting is undertaken for each identified risk category. To this end, each business unit compiles an ORSA (Own Risk and Solvency Assessment) report. Key figures for the financial and actuarial risks incurred by the Group and each strategic business unit are reported on a monthly basis using a risk control application.
The risk map is currently being revised as part of an integrated analysis of operational risk in connection with the internal control system (ICS).
Every business unit in the Baloise Group issues regulations regarding underwriting and risk review. They include clear authorisation levels and underwriting limits for each sector. Underwriting limits are approved by a business unit’s highest decision-making body, and the Corporate Executive Committee is notified of them. In the industrial insurance unit, the maximum net underwriting limit for property insurance has been set at CHF 100 million (2013: CHF 100 million) for Switzerland and at EUR 60 million (2013: EUR 60 million) for Germany and Belgium. The only other comparable underwriting limits in the Group are for marine and liability insurance. Tools for setting the basic premium and for risk-based management of the total portfolio are also used to manage industrial insurance risk.
For its exposure to natural hazards the Baloise Group has purchased reinsurance cover for the whole Group amounting to CHF 250 million (2013: CHF 250 million).
5.4 Non-life 5.4.1 Actuarial risk The Baloise Group primarily underwrites insurance risk for private individuals and small and medium-sized enterprises in selected countries in mainland Europe. Business with industrial clients is also conducted in Switzerland and Germany. Underwriting risk is limited by monitoring and adjusting rates and maintaining underwriting policies and limits appropriate to the size of each portfolio and the country in which it is located.
→ Claims handling costs The ratio of the average claims handling costs incurred in recent years to the payouts made in the same period is used to calculate the level of claims handling reserves to be recognised based on current claims reserves.
At the end of 2014, 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 4,596.3 million (2013: CHF 4,644.2million). 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 334.3 million (2013: CHF 338.4 million) in claims payments (after taxes) before reinsurance.
Seven years later 845.1 585.7 628.5 – – – – – – – –
Nine years later 829.1 – – – – – – – – – –
Seven years later 269.4 277.3 303.0 – – – – – – – –
Eight years later 2 186.2 189.9 – – – – – – – – –
Nine years later 185.8 – – – – – – – – – –
Gross claims reserves prior to 2005 (including large claims and assumed business)
At the end of the year in which the claims occurred
Eight years later 13.5 2 29.3 – – – – – – – – –
Net claims reserves 51.9 1 The increase in the total estimated claims incurred is primarily due to the addition of Bâloise Assurances Luxembourg S.A. 2 The increase in the total estimated claims incurred is primarily due to the addition of P & V Assurances.
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 35 years (2013: 34.3 years).
The Baloise Group offers variable annuities products including unit-linked and, in some cases, guaranteed whole-life annuities via its units in Switzerland and Luxembourg / Liechtenstein. Financial hedges are provided using external reinsurance.
Our group life business in Switzerland and Belgium focuses on the provision of occupational pensions which, like individual life insurance, covers the risks of death, disability and survival. The distinctive feature of group life business is the influence of political decisions. In Switzerland, the government sets the minimum rate of interest to be paid on savings, and the conversion rate at which accumulated capital is converted into an annuity to provide a pension. However, these regulations only apply to the minimum portion of accumulated capital that is required to provide initial finance for an annuity. For the remaining portion, actuarially appropriate annuity conversion rates are used but any change to the minimum interest rate would also affect the existing statutory portfolio, not just new business, which would normally be the case for individual life business. The technical interest rate for Belgian group life business – unlike individual life business – is also set by the government. However, it is the companies – and not their insurers – that are obliged to guarantee this technical interest rate. Baloise Belgium has started to offer group life insurance policies with interest rates that are lower than the rate stipulated by the government.
Most disability insurance consists of policy riders (supplementary insurance), i.e. premium waivers should holders of life insurance policies that require periodic payments of premiums become disabled. Separate disability insurance is of minor importance. Measured against total actuarial reserves, disability risk represents around 5 per cent of our business.
Cancellations are factored into LATs using assumptions based on the experience of our companies. Changes in assumptions regarding cancellations usually have a negligible impact on LATs.
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. Because they relate to a specific balance sheet date, it is not possible to extrapolate from them.
The following scenarios were run: → 10 per cent increase in mortality → 10 per cent fall in mortality (i. e. increase in longevity) → 50 basis-point increase in receipts of new money → 50 basis-point fall in receipts of new money
→ 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, in 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 66 million (2013: CHF 26 million) on the income statement. In line with the aforementioned scenario of an increase in mortality, the effect on equity in Switzerland was minor.
5.6.1 Interest-rate risk Interest-rate risk is the risk that a company’s interest margin, and therefore its income, may be reduced by fluctuations in money-market and capital-market interest rates (income effect), or that the fair value of a portfolio of interest-rate sensitive products may decline (asset-price effect). As well as the financial risk generated by holding assets and liabilities with non-matching maturities, variations in accounting policy may result in accounting risk.
Consequently, the impact of a movement in interest rates or in the interest-rate curve may be a significant deterioration in terms and conditions if funding has to be rolled over. Benchmark-based maturity management is practised in the non-life units, while maturity management in the life units is driven by liabilities.
As part of the Baloise Group-wide Risk Management Standards, investment planning and appropriate asset and liability management ensure that any divergence in maturities and the interest-rate risk incurred are managed within the risk capacity available.
If all interest rates had been 50 basis points lower 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 CHF 73 million lower (31 December 2013 with interest rates 100 basis points lower: CHF 33 million lower). Including the impact on profit for the period, equity (after shadow accounting, deferred gains / losses and deferred taxes) would have risen by CHF 102 million (31 December 2013 with interest rates 100 basis points lower: rise of CHF 370 million).
The Baloise Group’s FX managers enter into currency hedging transactions in the form of forward contracts to limit the currency risk exposure of its net investment in these two foreign entities whose reporting currency is the US dollar. Restricting the implementation of hedging strategies to forward contracts makes it easier to demonstrate the efficiency of the hedges and to show that hedge accounting is being used. Because hedge accounting is applied, the change in the fair value of these derivatives is aggregated into a separate item under equity and only derecognised via the income statement, together with the accrued currency effects on the net investment in these foreign entities, when the relevant underlying asset is sold.
For international diversification (risk-spreading), to enhance returns and because there is greater liquidity in certain foreign financial markets, as at 31 December 2014 the Group’s Swiss companies did hold a net position in euros equivalent to CHF 1,365.4 million (2013: 886.0) and a net position in US dollars equivalent to CHF 305.4 mil- lion (2013: CHF 348.0 million). The remaining foreign exchange positions, both assets and liabilities, were negligible. During the year, the hedge ratio for the net foreign exchange exposure in US dollars and euros ranged from 80 per cent to 100 per cent.
Investments in the investment portfolio may only be made in bonds, loans or financial derivatives whose issuer or borrower has a minimum A– rating from Standard & Poor’s, a comparable rating or is backed by a third-party guarantee or mortgage. For other borrowers and issuers with at least a BBB rating from Standard & Poor’s (or similar), and those with no rating, an additional overall limit of 15 per cent of all fixed-income securities – based on their fair values – is applied. Exceptions require explicit approval.
Investments in pfandbriefs are backed by mortgages. The vast majority of investments in promissory notes and registered bonds are secured by guarantees or covered by the deposit protection fund, which protects investors against banks’ insolvency or inability to pay. These investments carry a reimbursement guarantee from financial institutions. Mortgage loans are secured by property; there are limits on loan-to-value ratios.
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 508.5 million (2013: CHF 516.1 million).
CREDIT RATINGS OF FINANCIAL ASSETS THAT WERE NEITHER OVERDUE NOR IMPAIRED AT THE BALANCE SHEET DATE IN 2013
Standard & Poor’s and Moody’s ratings are generally used to assess the credit quality of securities. The lower of the two is used for disclosure.
In 2014, financial assets amounting to CHF 2.0 million (2013: CHF 2.1 million) and cash and cash equivalents of 0.2 million (2013: 0.2 million) from collateral received were used.
Liquidity risk as at 31 December 2014 ‹ 1 year 2 1 – 3 years 4 – 5 years > 5 years Total Carrying amount
Contingent liabilities and capital commitments 1 Based on undiscounted contractual cash flows. 2 All demand deposits are included in the first maturity band.
Please refer to the tables in section 23 for the residual terms and maturities of technical reserves.
At fair value through profit or loss Net asset value n / a –
Total assets measured on a recurring basis 60,509.0 61,848.3 33,855.8 2,303.4 25,689.1
Total liabilities measured on a recurring basis 9,234.9 9,370.9 1,923.7 7,295.3 151.9
The Baloise Group is obliged to apply accounting standard IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations) owing to the disposal of its Croatian and Serbian units. 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. Information on the fair value of the disposal group can be found in note 21.
Total assets measured on a recurring basis 63,501.4 66,621.7 37,627.6 2,598.4 26,395.8
Total liabilities measured on a recurring basis 9,465.1 9,785.2 1,997.5 7,660.3 127.5 08_FB_Kapitel_05.8_bis_06_en.indd 153 24.03.2015 13:12:41
FAIR VALUE OF ASSETS AND LIABILITIES FOR THE ACCOUNT AND AT THE RISK OF LIFE INSURANCE POLICYHOLDERS AND THIRD PARTIES
Total assets measured on a recurring basis 10,167.5 10,167.5 9,751.1 239.9 176.5
Additions arising from change in the scope of consolidation – 13.0 13.0
Reclassification to non-current assets and disposal groups classified as held for sale
Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss 1 Any reclassification of financial instruments either to or from level 3 during the reporting period was mainly attributable to market inactivity coupled with unobservable inputs or to the cancellation of the lock-up period applicable to certain hedge funds. Investment property reclassified either to or from Level 3 essentially related to real estate that had been repurposed.
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 2013.
In 2013 the fair value of certain items of investment property in the Swiss portfolio was revised upwards – based on the aforementioned criteria – as a result of the first-time adoption of IFRS 13.
Financial Report Notes to the consolidated annual financial statements 5.11 Capital management The general parameters regarding the amount of capital employed are set by regulatory requirements and internal risk-management policies. While the aim of regulatory requirements is primarily the protection of policyholders, internal policies are largely derived from the risk-based management of operating activities.
The solvency margin of the Baloise Group for pure insurance business of CHF 2,167 million (2013: CHF 2,160 million) was met in 2013 and 2014. The cover ratio for the capital adequacy requirement in available funds was 354 per cent as at 31 December 2014 (2013: 267 per cent). The capital currently available consists of IFRS equity, unallocated policyholders’ dividends and the final policyholders’ dividend reserve. Liabilities are also recognised as capital in accordance with the corresponding options for solvency coverage at individual company level. Deductions from equity include planned dividend payments and intangible assets. Individual Group companies are also subject to regulation under local legislation which in some cases permits different methods for defining equity. The ability of the business units, and therefore also of the parent company, to pay dividends is closely linked to the priority placed on meeting these local requirements. Compliance with local solvency requirements is monitored on an ongoing basis. Appropriate action is taken if solvency falls short of these regulations.
Solvency I. In this context, the Baloise Group defines its risk-bearing capital and capital required for the SST using an inhouse model that takes into account the Baloise Group’s business model. All activities and processes for developing and structuring the inhouse model are gathered together in the Baloise Internal Solvency System (BISS) and coordinated and managed by Group Risk Management.
Financial Report Notes to the consolidated annual financial statements 6. BASIS OF CONSOLIDATION 6.1 2013 financial year 6.1.1 Acquisitions The company FIPOP S.A. was acquired in Luxembourg during the reporting year. Goodwill of CHF 0.6 million was recognised in respect of this acquisition.
6.1.2 Disposals Belgian company AXIS Life was sold in the first half of 2013. Also in Belgium, the companies Esplan NV and Hermes Verzekeringsgroep NV were disposed of in the second half of the year. In Germany, the firm Partner in Life S.A. was sold in the first half of 2013. The transactions in Belgium and Germany have had a minor impact on the Baloise Group’s profit for the reporting period.
6.1.3 Other changes in the group of consolidated companies Belgian companies Nateus Life NV and Nateus NV were merged with Mercator Verzekeringen NV with effect from 1 January 2013; these businesses have all been operating in the market under the name of “Baloise Insurance” since the beginning of 2013. Audi NV – another Belgium-based firm – was merged with Euromex NV with effect from the above date. The German companies Avetas Versicherungs-AG and Deutscher Ring Sachversicherungs-AG were merged with the company Basler Securitas Versicherungs-AG retrospectively from 1 January 2013. These companies have been renamed Basler Sachversicherungs-AG. In addition, the company Apoll Vermittlungs-GmbH was merged with IMAS Gesellschaft für Vermögensbildung und -sicherung mbH. And in Germany, a number of property companies have been merged to form a single company.
The net assets of the firm P&V Assurances were acquired in Luxembourg. This transaction gave rise to goodwill of CHF 8.5 million.
All of its Austrian subsidiaries were then sold to the Helvetia Group on 28 August 2014. Information on the accounting treatment of these disposals can be found in note 21.
Financial Report Notes to the consolidated annual financial statements 7. INFORMATION ON OPERATING SEGMENTS (SEGMENT REPORTING) The Baloise Group organises its operating activities into strategic business units, which are generally combined under a single management team for each region. The financial and management information needed for all relevant executive decisions is held by these strategic business units. This is also the organisational level at which the chief operating decision-makers are situated. Regardless of where they are headquartered, all Baloise Group entities are therefore assigned to one of the reportable segments
The “Other units 1” segment contains the strategic business units that do not meet the size criteria for disclosure under IFRS 8. These are the Baloise Group entities that have been assigned to
The revenue generated by the Baloise Group is broken down into the Non-Life, Life, Banking (including asset management) and Other Activities operating segments. The Non-Life segment offers accident and health insurance as well as products relating to liability, motor, property and marine insurance. These products are tailored to the specific needs of our customers – primarily retail clients – and the core competences of the relevant companies in the Baloise Group. The Life segment provides individuals and companies with a wide range of endowment policies, term insurance, investment-linked products and private placement life insurance. The Banking segment essentially comprises Baloise Bank SoBa, which acts as a universal bank in Switzerland, and Deutscher Ring Bausparkasse, which operates in Germany mainly as a conventional building society.
1 Owing to the disposal of Baloise’s Croatian and Serbian subsidiaries (completed on 11 March 2014) and the disposal of its Austrian entities (completed on 28 August 2014), the reportable “Other units” segment is expected to be discontinued after the 2016 reporting period.
Financial Report Notes to the consolidated annual financial statements 7.1 Segment reporting by strategic business unit
Premiums earned and policy fees (gross) 4,249.4 4,328.7 1,504.5 1,416.9 1,104.2 1,112.1 139.5 202.2 217.7 113.0 7,215.4 7,172.8 265.6 242.7 – 268.3 – 247.4 7,212.7 7,168.1
Premiums earned and policy fees (net) 4,075.6 4,155.2 1,407.2 1,324.8 1,034.3 1,036.2 122.2 182.0 140.4 63.9 6,779.5 6,762.0 265.2 242.5 0.0 0.0 7,044.8 7,004.5
Claims and benefits paid (gross) – 3,279.8 – 3,418.0 – 1,279.1 – 1,313.3 – 671.1 – 753.3 – 63.6 – 103.6 – 139.6 – 69.7 – 5,433.3 – 5,658.0 – 150.3 – 184.5 143.9 176.0 – 5,439.7 – 5,666.4
Profit / loss for the period (segment result) 347.6 475.5 52.2 56.3 80.5 87.7 14.4 18.4 – 21.7 4.3 472.9 642.1 – 17.5 69.8 – – 455.4 711.9 09_FB_Kapitel_07_bis_17_en.indd 166 24.03.2015 13:13:00
Operating and administrative expenses for insurance business – 431.1 – 425.9 – 239.2 – 240.7 – 148.9 – 126.9 – 40.0 – 48.0 – 9.7 – 4.7 – 869.0 – 846.3 0.2 – 0.3 – 28.4 – 19.9 – 897.1 – 866.5
Profit / loss for the period (segment result) 347.6 475.5 52.2 56.3 80.5 87.7 14.4 18.4 – 21.7 4.3 472.9 642.1 – 17.5 69.8 – – 455.4 711.9 09_FB_Kapitel_07_bis_17_en.indd 167 24.03.2015 13:13:00
Premiums earned and policy fees (gross) 3,425.5 3,351.3 3,787.2 3,816.8 – – – – – – 7,212.7 7,168.1
Premiums earned and policy fees (net) 3,277.1 3,208.0 3,767.7 3,796.5 – – – – – – 7,044.8 7,004.5
Profit / loss for the period (segment result) 291.0 330.4 195.3 388.2 61.6 61.2 – 92.4 – 68.0 – – 455.4 711.9 09_FB_Kapitel_07_bis_17_en.indd 168 24.03.2015 13:13:01
Operating and administrative expenses for insurance business – 582.8 – 562.0 – 314.3 – 304.5 – – – – 0.0 0.0 – 897.1 – 866.5
Gains or losses on financial contracts – 0.8 – 0.8 – 302.5 – 388.7 – 67.0 – 72.7 – 30.8 – 32.0 32.1 31.7 – 368.9 – 462.6
8. PROPERTY, PLANT AND EQUIPMENT 8.1 Property, plant and equipment in 2013 2013 Land Buildings Operating equipment
Carrying amount as at 1 January 95.2 266.8 43.8 30.1 22.7 458.5
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8.2 Property, plant and equipment in 2014 2014 Land Buildings Operating equipment
Carrying amount as at 1 January 93.6 240.5 43.4 25.9 19.1 422.5
Carrying amount as at 31 December 93.1 201.1 38.7 25.4 20.9 379.2
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Capitalisation of acquisition costs – – 72.2 240.4 – – 312.6
Change due to unrealised gains and losses on financial instruments (shadow accounting)
10. INVESTMENTS IN ASSOCIATES 10.1 Significant investments in associates OVB Holding AG is a European sales company for risk cover, retirement pension and healthcare products as well as wealth-building products. It also brokers Basler Versicherungen products. The company is strategically important because it constitutes a significant distribution channel.
Fair value as at 30 September 114.5 96.7 10.2 Non-significant investments in associates The Baloise Group holds investments in a number of non-significant associates.
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Disposals arising from change in scope of consolidation – 1.7 – 30.1
The increase in the portfolio during the reporting year was largely attributable to real estate acquired by Baloise’s Swiss entities. Information on the disposal of the investment property relating to the Austrian entities sold during the second half of the reporting year can be found in the line item “Reclassification to non-current assets and disposal groups classified as held for sale”.
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Recognised at fair value through profit or loss 1 8,669.1 9,842.0
Financial assets as reported on the balance sheet 43,671.5 47,912.8 1 Of which financial assets totalling CHF 114.7 million (2013: CHF 72.9 million) involved insurance policies that had not been fully reviewed by the balance sheet date.
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Industrial enterprises – – – – – – – – – –
Financial assets with characteristics of equity – – 4,096.4 4,698.1 0.5 0.7 301.5 670.9 4,398.4 5,369.7
Financial assets with characteristics of liabilities 8,100.7 8,413.7 22,431.0 24,227.5 – – 72.4 59.9 30,604.1 32,701.1
Secured financial instruments with characteristics of liabilities are fixed-income securities for which a mortgage or a government bond has been securitised as collateral.
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Increases and additional provisions recognised in profit or loss – 12.2 – 5.4
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Derivative financial instruments as reported on the balance sheet 410.7 613.2 68.2 176.4
The contract value or notional amount is used for derivative financial instruments whose principal may be swapped at maturity (options, futures and currency swaps) and for instruments whose principal is only nominally lent or borrowed (interest-rate swaps). The contract value or notional amount is disclosed in order to express the aggregate amount of derivative transactions in which the Baloise Group is involved.
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Reinsurers’ share of technical reserves as at 1 January 398.6 396.4
Additions / disposals arising from change in scope of consolidation – 17.6
Reclassification to non-current assets and disposal groups classified as held for sale – 3.0 – 4.7
Additions / disposals arising from change in scope of consolidation – –
Impairment of receivables from reinsurers as at 1 January – 0.3 – 0.3
Increases and additional provisions recognised in profit or loss 0.0 – 1.4
Impairment of receivables from reinsurers as at 31 December – 0.3 – 0.5
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In other countries, the benefits are either granted by the employer directly or covered by an insurance policy that, as a rule, is funded by the employer. Directly granted benefits are particularly relevant in Germany, where benefits are agreed between the employer and the employee representatives.
Actuarial gains / losses on defined benefit obligations arising from changes in financial assumptions 88.0 – 438.1 changes in demographic assumptions – 5.1 12.0 experience adjustments – 47.0 – 1.1
Financial Report Notes to the consolidated annual financial statements 18.2.3 Unfunded liabilities under defined benefit plans
Reclassification to non-current assets and disposal groups classified as held for sale – 32.5
Of which: Bâloise Holding Ltd shares (fair value) and convertible bonds (fair value) 25.1 29.7
Discount rate plus 1.0 % age points – 330.4 – 446.7
Expected pension benefits increases minus 0.5 % age points – 28.3 – 39.8
Weighted share of annuity option plus 10.0 % age points 6.4 19.7
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 61.6 million for the 2015 financial year.
Long-service bonuses constitute the principal benefit paid. The present value of liabilities as at 31 December 2014 totalled CHF 33.5 million (2013: CHF 32.6 million). There were no disposals of plan assets for long-term employee benefits. Benefits paid out amounted to CHF 4.5 million (2013: CHF 4.4 million).
Financial Report Notes to the consolidated annual financial statements 18.4.1 Employee Incentive Plan The Baloise Foundation for Employee Participation set up in 1989 offers members of staff working for various Baloise Group companies in Switzerland the opportunity to purchase shares in Bâloise Holding 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 volume-weighted average share price calculated for the month of August in the subscription year and amounts to CHF 57.30 for the reporting year (2013: CHF 50.30). 174,810 shares were purchased in the subscription period (2013: 167,147) Title to the subscribed shares passes to the relevant employees with effect from 1 September each year, and the shares are subject to a three-year closed period.
The parameters used to determine the subscription price are decided each year by the Remuneration Committee. The subscription price is based on the closing price on the first day of the subscription period, on which a discount of 10 per cent is granted. Once it has been calculated using this method, the subscription price is published in advance on the intranet. The shares needed for the Share Subscription Plan are purchased in the market as and when required.
Financial Report Notes to the consolidated annual financial statements 18.4.3 Employee Share Ownership Plan Since May 2001 it has been possible for most management team members working in Switzerland to receive part of their short-term variable remuneration in the form of shares from the Employee Share Ownership Plan instead of receiving cash. Within certain limits they are free to choose what proportion of their short-term variable remuneration they receive in the form of such shares. The most senior management team members are subject to upper limits; members of the Corporate Executive Committee – who are obliged to receive at least half of their short-term variable remuneration in the form of shares – are not allowed to receive more than 50 per cent of their entitlement in the form of shares from the Employee Share Ownership Plan. The subscription date is 1 March of each year (the same as for the Share Subscription Plan); although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold for the duration of a three-year closed period.
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 entitled to participate in 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.
Bâloise Holding Legal & General Group plc St. James’s Place Capital
Participants in the programme receive the pertinent number of shares once the vesting period has elapsed, which means that for the PSUs allocated in 2014 they receive their shares on 1 March 2017. The arrangement applicable until 2013 was that half of the converted shares were then subject to an additional three-year closed period. This closed period has no longer applied since 2014, which brings the deferral period more closely into line with other such periods commonly found in the market.
The arrangement applicable until 2013 was that if an individual’s employment contract was terminated during the vesting period (except in the case of retirement, disability or death), the PSUs expired without the person concerned receiving any replacement or compensation. Since 2014 the arrangement has been that if an employment contract is terminated in such situations, only some of the PSUs expire provided that the programme participant concerned does not join a rival company and is not personally at fault for the termination of the contract. The number of PSUs expiring is proportional to the amount of time remaining until the end of the vesting period. In addition, the Remuneration Committee has the powers to claw back some or all of the PSUs allocated to an individual or to a group of programme participants if there are specific reasons for doing so. Such specific reasons include, for example, serious breaches of internal or external regulations, the taking of inappropriate risks that are within an individual’s control, and the type of conduct or behaviour that would increase the risks to Baloise.
Measurement of the PSUs at their issue date is based on a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period. This measurement incorporates the following parameters: → Interest rate of 1 per cent → The volatilities of all shares in the peer group and their correlations with each other
Of which: expired without compensation (departures in 2012) – 5,132 – –
Of which: expired without compensation (departures in 2013) – 2,247 – 1,859 –
Of which: expired without compensation (departures in 2014) – 5,336 – 5,026 – 2,308
Other intangible assets 14.9 – 10.0 – 4.9 1 “Other” essentially comprises deferred taxes on investments and provisions.
Financial Report Notes to the consolidated annual financial statements 20. OTHER ASSETS “Other assets” include the fair value of precious metals amounting to CHF 53.3 million in connection with private placement life insurance (2013: CHF 47.3 million). The insurance policyholder bears the price risk attaching to these precious metal holdings.
Purchase / sale of treasury shares 19,848 – 19,848 – –
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 (2013: 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.
Total technical reserves (non-life) 6,242.4 – 373.3 5,869.0 6,212.8 – 396.6 5,816.3 10_FB_Kapitel_18_bis_23_en.indd 204 24.03.2015 13:13:02
Additions / disposals arising from changes in scope of consolidation – 50.5
The Baloise Group pays particular attention to cases of environmental pollution involving landfill sites, refuse, asbestos or any other materials harmful to human beings or the environment.
Policyholders’ dividends credited and provisions for future policyholders’ dividends 3,471.4 4,126.9
Total technical reserves (life) 41,193.3 42,526.1 1 The actuarial reserves include unearned premium reserves and claims reserves.
Total provisions for future policyholders’ dividends 1,812.5 2,613.7 1 The Swiss pensions business is disclosed separately owing to its specific features. It comprises group contracts which may be cancelled annually by either party, whereas the coverage period for the individuals enrolled is significantly longer.
Financial Report Notes to the consolidated annual financial statements 23.2.4 Reserve for final policyholders’ dividends
Adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) 9.5 11.5
Reclassification to non-current assets and disposal groups classified as held for sale – – 12.6
Provisions for future policyholders’ dividends as at 1 January 1,838.7 1,812.5
Adjustment arising from unrealised gains and losses as at 1 January – 683.0 – 452.9
Reclassification to non-current assets and disposal groups classified as held for sale – – 4.1
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Financial Report Notes to the consolidated annual financial statements 24. LIABILITIES ARISING FROM BANKING BUSINESS AND FINANCIAL CONTRACTS
Financial contracts with discretionary participation features (DPFs) 1 1,492.7 1,766.5 – –
Total liabilities arising from banking business and financial contracts 16,542.1 17,740.8 – –
1 There are currently no internationally accepted mathematical methods available for determining the fair value of financial contracts with discretionary participation features (DPFs).
The fair value of financial liabilities at the balance sheet date totalled CHF 1,875.8 million (2013: CHF 1,804.4 million).
Usage not recognised in profit or loss – 3.3 – 20.0 – 23.3 – 9.6 – 78.0 – 87.6
Gross premiums written and policy fees 3,441.7 3,787.2 7,228.9 3,358.8 3,816.8 7,175.6
Premiums earned and policy fees (gross) 3,425.5 3,787.2 7,212.7 3,351.3 3,816.8 7,168.1
Total investment income for own account and at own risk 1,765.1 1,701.9
Interest income of CHF 3.4 million had been recognised on impaired investments at the balance sheet date (2013: CHF 4.2 million).
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Realised gains and losses on investments for own account and at own risk 210.7 775.1
Realised gains and losses on investments for the account and at the risk of life insurance policyholders 459.6 587.4
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31.2 Realised gains and losses on investments in 2014 for own account and at own risk
A gross currency gain of CHF 175.5 million was recognised directly in equity for the reporting year (2013: gain of CHF 67.4 million). Allowing for hedges of a net investment in a foreign operation (hedge accounting), a net gain of CHF 38.9 million was recognised for 2014 (2013: net gain of CHF 69.8 million).
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Gains on the sale of property, plant and equipment 1.2 0.2 intangible assets – –
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Depreciation and impairment of property, plant and equipment – 39.3 – 65.0
35. PERSONNEL EXPENSES Total personnel expenses for 2014 came to CHF 959.4 million (2013: CHF 967.1 million).
Financial contracts with discretionary participation features (DPFs) – 42.7 – 44.3
Increase / reduction owing to tax-exempt profits and losses 2.5 36.0 non-deductible expenses – 13.1 – 10.2 withholding taxes on dividends – 2.4 – 2.6 change in tax rates – 0.4 – 0.3 tax items related to other reporting periods 7.0 4.7 non-taxable measurement differences 9.5 2.2
Profit for the period attributable to shareholders (CHF million) 452.6 710.7
Adjusted profit for the period attributable to shareholders (CHF million) 460.3 718.6
Adjustment due to theoretical exercise of share-based payment plans 183,086 203,833
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Reserves arising from reclassification of held-to-maturity financial assets: Gains and losses arising during the reporting period 0.1 – 0.1
Change arising from shadow accounting – 18.4 5.9 – 12.5 84.6 – 27.0 57.6
Available-for-sale financial assets – 531.7 148.3 – 383.4 1,688.8 – 459.1 1,229.7
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Cash and cash equivalents acquired / disposed of 0.0 16.2 – 1.0 – 1.1
Hermes Verzekeringsgroep NV were disposed of in the second half of 2013. In Germany the firm Partner in Life S.A. was sold.
All of Baloise’s Croatian and Serbian subsidiaries were sold to the Austria-based UNIQA Group on 11 March 2014. All of its Austrian subsidiaries were then sold to the Helvetia Group on 28 August 2014. In Luxembourg the remaining 65 per cent shareholding in the company Barosa S.à.r.l. was sold during the first half of the reporting year.
41. RELATED PARTY TRANSACTIONS As part of its ordinary operating activities the Baloise Group conducts transactions with associates and with members of Bâloise Holding’s Board of Directors and Corporate Executive Committee. The terms and conditions governing such transactions can be found in the chapter on corporate governance, which forms an integral part of the Financial Report.
The executive management team consists of the members of Bâloise Holding’s Board of Directors and Corporate Executive Committee.
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42. REMUNERATION PAID TO THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE The information to be disclosed in accordance with sections 663b and 663c of the Swiss Code of Obligations (OR) is contained in the Remuneration Report, which can be found on pages 61 to 83 of the chapter on corporate governance. The key information disclosed here includes: → Remuneration paid to the members of the Board of Directors → Remuneration paid to the members of the Corporate Executive Committee → Loans and credit facilities granted to members of the Board of Directors and the Corporate Executive Committee → Shares held by members of the Board of Directors and the Corporate Executive Committee
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Total guarantees and collateral for the benefit of third parties 516.1 508.5
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Commitments undertaken for future acquisition of investment property 14.8 40.4 financial assets 449.4 443.9 property, plant and equipment – –
Obligations undertaken by the Baloise Group to make future purchases of investments include commitments in respect of private equity, which constitute unfunded commitments to invest directly in private equity or to invest in private equity funds.
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47. SIGNIFICANT SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES AS AT 31 DECEMBER 2014
Bâloise Holding Ltd, Basel Holding O Holding Holding F CHF 5.0 2,293.0 – X
Baloise Insurance Ltd, Basel Non-life NL 100.00 100.00 F CHF 75.0 5,317.4 1,343.5 X
Euromex NV, Antwerp Non-life NL 100.00 100.00 F EUR 2.7 153.6 57.3
Baloise Life (Liechtenstein) AG, Balzers Life L 100.00 100.00 F CHF 7.5 2,856.0 1.8
Carrying amount of interests acquired or sold (transactions with non-controlling interests) 10.5 –
Amount of the consideration received from or paid to non-controlling interests 10.5 –
Net effect of the purchase or sale of non-controlling interests recognised directly in equity – –
In 2014 and in 2013 there were no transactions involving non-controlling interests that led to the loss of control over a subsidiary.
50. JOINT ARRANGEMENTS There were no joint arrangements in 2013 and in 2014.
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Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards as well as the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
Opinion In our opinion, the consolidated financial statements for the year ended 31 December 2014 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the International Financial Reporting Standards (IFRS) and comply with Swiss law.
Financial Report Report of the statutory auditor 11_FB_Kapitel_24_bis_Bericht_en.indd 242 24.03.2015 13:13:31
Financial Report Report of the statutory auditor 11_FB_Kapitel_24_bis_Bericht_en.indd 243 24.03.2015 13:13:31
Income statement of Bâloise Holding ����������������������������������������� 246 Balance sheet of Bâloise Holding �������������������������������������������������� 247 Notes to the financial statements of Bâloise Holding ��������� 248 Appropriation of distributable profit as proposed by the Board of Directors ��������������������������������������� 255 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ����� 256
Financial Report Notes to the financial statements of Bâloise Holding 1. ACCOUNTING POLICIES The annual financial statements of Bâloise Holding have been prepared in compliance with Swiss stock company law� They were prepared in accordance with the transitional provisions of the new financial reporting legislation based on the provisions of the Swiss Code of Obligations concerning bookkeeping and accounting, which had applied until 31 December 2012�
Cash and cash equivalents Cash and cash equivalents include bank deposits and cash equivalents such as call money, fixed-term deposits and money market instruments provided that these assets’ original maturity period is less than 90 days�
Long-term equity investments Long-term equity investments are recognised at cost less any impairment losses�
Other financial assets Marketable securities are recognised at the lower of cost and fair value�
Provisions Provisions are recognised with due care and diligence to cover any risks that may arise�
In 2013 the Company recognised a one-off impairment loss of CHF 151�1 million on the long-term equity investments in its Croatian and Serbian units, which were due to be sold�
6. PREPAID EXPENSES AND ACCRUED INCOME The annual general meeting of Haakon AG, Basel, held on 4 March 2015, the AGMs of Baloise Bank SoBa AG, Solothurn, of Baloise Asset Management Schweiz AG and of Baloise Asset Management International AG, Basel, held on 6 March 2015, and the AGM of Basler Versicherung AG, Basel, held on 20 March 2015 voted to recognise the dividends receivable for the 2014 financial year as accrued income (2014: CHF 216�8 million / 2013: CHF 41�8 million)�
Total loans to Group companies 77.0 102.0 12_FB_Holding_en�indd 250 24�03�2015 13:13:41
Further information on the long-term equity investments held directly by Bâloise Holding can be found on pages 238 and 239 in the Financial Report section�
Financial Report Notes to the financial statements of Bâloise Holding 11. SIGNIFICANT SHAREHOLDERS The information available to the Company reveals that the following significant shareholders and shareholder groups linked by voting rights held long-term equity investments in the Company within the meaning of section 663c of the Swiss Code of Obligations (OR) as at 31 December 2014: Total shareholding as at 31.12.2013
Bank of New York Mellon N.V. 1 2.0 0.0 2.1 0.0
Financial Report Notes to the financial statements of Bâloise Holding 13. CEDED ASSETS Bâloise Holding lends some of its treasury shares to Baloise Insurance Ltd every year under a securities lending agreement� These shares are used in the Employee Share Ownership Plan run by Baloise Insurance Ltd� No assets had been ceded at the balance sheet date (2013: none)�
16. EVENTS AFTER THE BALANCE SHEET DATE On 15 January 2015 the Swiss National Bank announced that it was abandoning its minimum exchange-rate target of 1�20 Swiss francs to the euro with immediate effect� For further information please refer to note 46 of the consolidated annual financial statements�
DISTRIBUTABLE PROFIT AND APPROPRIATION OF PROFIT The profit for the period amounted to CHF 405,812,675�61�
Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel 12_FB_Holding_en�indd 256 24�03�2015 13:13:42
→ Expense ratio Non­life insurance business expenses as a percentage of total premiums�
→ International Financial Reporting Standards Since 2000 the Baloise Group has been preparing its con­ solidated financial statements in compliance with Inter national Financial Reporting Standards (IFRS), which were previ­ ously called International Accounting Standards (IAS)�
→ Investment-linked life insurance Life insurance policies under which policyholders invest their savings for their own account and at their own risk�
→ Investment-linked premium Premium income from life insurance policies under which the insurance company invests the policyholder’s savings for the latter’s own account and at his or her own risk� The International Financial Reporting Standards applied by the Baloise Group do not allow the savings component of this premium income to be recognised as revenue on the income statement�
→ Operating segments Similar or related business activities are grouped together in operating segments� The Baloise Group’s operating segments are Non­Life, Life, Banking (which includes asset manage­ ment), and Other Activities� The “Other Activities” operating segment includes equity investment companies, real estate firms and financing companies�
→ Reserves A measurement of future insurance benefit obligations aris­ ing from known and unknown claims that are reported as liabilities on the balance sheet�
→ Swiss Leader Index The Swiss Leader Index (SLI) comprises the 30 largest and most liquid equities on the Swiss stock market�
→ Unearned premium reserves Deferred income arising from premiums that have already been paid for periods after the balance sheet date�
SWITZERLAND Basler Versicherungen Aeschengraben 21 CH-4002 Basel Telephone + 41 58 285 85 85 Fax + 41 58 285 70 70 kundenservice@baloise.ch www.baloise.ch
LUXEMBOURG Bâloise Assurances 23, rue du Puits Romain Bourmicht L-8070 Bertrange info@baloise.lu www.baloise.lu
The 2014 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 2014 annual financial statements together with detailed information�
© 2015 Bâloise Holding Ltd, 4002 Basel, Switzerland Publisher Baloise, Corporate Communications & Investor Relations Concept, design Eclat, Erlenbach (ZH) Photography Marc Wetli, Zurich Publishing Multimedia Solutions AG, Zurich English translation LingServe Ltd (UK) Printing Gremper AG, Pratteln 05_JB_Anhang_en�indd 265 24�03�2015 13:03:47
26.3.2015 Annual financial results: media conference conference call for analysts 30.4.2015 Annual General Meeting of Bâloise Holding Ltd 27.8.2015 Half-year financial results: conference call for analysts and the media 22.3.2016 Annual financial results: media conference conference call for analysts 29.4.2016 Annual General Meeting of Bâloise Holding Ltd
Corporate Governance Baloise Group Andreas Eugster Aeschengraben 21 4002 Basel, Switzerland andreas.eugster@baloise.com www.baloise.com
BÂLOISE HOLDING LTD Aeschengraben 21 CH-4002 Basel www.baloise.com 05_JB_Anhang_en 268 24.03.2015 15:21:57