We will propose to the Annual General Meeting on 24 April this year that our dividend be raised by 5�6 per cent to CHF 4�75 per share� This constitutes a continuation of the attractive and consistent dividend policy that we have been pursuing in recent years� Our strong growth, our impressive profit for the period and our payout rate of almost 50 per cent for 2013 once again demonstrate that Baloise continues to enhance the already high profitability of its business and, consequently, remains an attractive and reliable investment for its shareholders�
Having closed the year at CHF 113�6, Baloise shares generated a return of 44�7 per cent for 2013 as a whole, thereby comfortably outperforming both the Swiss Market Index and the Swiss Leader Index, which had gained 20�2 per cent and 21�2 per cent respectively since the beginning of the year� Baloise’s impressive share price performance shows that investors are looking for companies with highly profitable and reliable business models� The Swiss insurance sector index performed more or less in line with the market as a whole, gaining 20�1 per cent over the year, while its European counterpart (Euro Stoxx 600 Insurance, SXIP) achieved a stronger increase of 29�0 per cent compared with its level at the beginning of 2013�
Baloise shares are included in the SLI� This index comprises the 30 largest and most liquid Swiss equities�
Cash and cash equivalents 2,034.4 1,992.2 – 2.1 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties.
Tips on how to lead a healthy lifestyle both at work and at home are provided in the form of seminars, workshops, information events and other initiatives� Flexible and part-time working, as well as the “Bal4Kids” crèche in Basel, have been
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�
Operating in line with the Swiss Code of Best Practice and the SIX Corporate Governance Guidelines, Baloise strives to foster a corporate culture of high ethical standards that emphasises the integrity of the Company and its employees� Baloise is convinced that high-quality corporate governance has a positive impact on its long-term performance�
Corporate Governance Corporate Governance Report including Remuneration Report pension fund and chairs the Board of Trustees at the Pensimo investment trust� She is Chairwoman of the Swiss Retail Federation and a member of the Executive Committee of the Swiss Employers’ Federation� Ms� Keller-Sutter is an independent non-executive director�
The Investment Committee’s main responsibilities are to oversee the Baloise Group’s investment activities, define the basic principles of its investment policy, specify the asset allocation strategy for all strategic business units and devise the relevant investment plan� Until now the Remuneration Committee has specified 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 the VegüV, the remuneration of the Board of Directors and Corporate Executive Committee has to be approved by the Annual General Meeting from 2014� The Remuneration Committee will therefore submit the necessary proposals to the Board of Directors for presentation to the Annual General Meeting� The Remuneration Committee approves the target agreements and performance assessments that are applied to the Corporate Executive Committee members in order to determine their variable remuneration� It also sanctions the remuneration policies applicable to the Corporate Executive Committee members and ensures that they are being correctly implemented� It approves the variable remuneration granted to individual members of the Corporate Executive Committee; 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�
Jan De Meulder (1955, Belgium) studied mathematics and actuarial mathematics at the universities of Antwerp and Leuven, Belgium� From 1978 to 1992 he worked for De Vaderlandsche Insurance, which was part of the ING Group in Antwerp� His responsibilities here included life insurance product development and production� After working for two years as General Manager at Life Association of Scotland, he moved to the Fortis Group in Brussels in 1994, where he performed various senior managerial roles, eventually becoming CEO of Fortis Corporate Insurance � In 2004 he joined the Baloise Group as CEO of the Belgian subsidiary Mercator Verzekeringen in Antwerp� He has been a member of the Corporate Executive Committee since 1 January 2009 and, in this function, headed up Corporate Division International from 2009 to 2012� He has also been the CEO of the insurance companies in Germany since 1 January 2013�
Performance management system Baloise introduced a new performance management system for short-term variable remuneration in 2011� In order to encourage employees to focus relentlessly on performance and results while also factoring in the Company’s success, this system comprises two clearly distinct tools: performance-related remuneration and the performance pool� Performance-related remuneration is used to reward individual employees’ achievements, while the performance pool as a whole takes account of the Company’s performance and value added�
Short-term variable remuneration is paid together with the salary for March of the following year� Baloise attaches considerable importance to managing its business sustainably and ensuring a high correlation between the interests of its shareholders and executives� It therefore pays a substantial proportion of variable remuneration in the form of shares� Senior managers can choose what percentage of their remuneration is paid out in cash and what proportion they receive in the form of shares� This choice is limited for the most senior managers, who are obliged to subscribe for shares on a sliding-scale basis: members of the Corporate Executive Committee must receive at least 50 per cent of their short-term variable remuneration in the form of shares� The shares subscribed in this way are restricted for three years and during this period are exposed to market risk� This mandatory purchase of shares in particular ensures that as senior executives’ managerial responsibilities and total remuneration packages increase, a significant proportion of their compensation is paid in the form of deferred remuneration � This system also raises employees’ risk awareness and encourages them to maintain sustainable business practices�
Explanatory notes to the table Thomas Pleines was voted in as a new member of the Board of Directors at the 2012 Annual General Meeting. Consequently, he only received a pro-rata share of the usual remuneration. Klaus Jenny left the Board of Directors at the same time, so he only received half of the usual remuneration. Remuneration paid to former members and related parties No remuneration was paid to individuals or companies who are related to members of the Board of Directors and to whom the arm’s-length principle does not apply. 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. Shares 25 per cent of contractually agreed overall remuneration is paid in shares which remain restricted for three years. They are recognised at market value less 10 per cent (CHF 65.58, in line with the Share Subscription Plan). Shares received by the Chairman of the Board of Directors amounted to 2,378 shares arising from the Share Subscription Plan (CHF 155,949, with a restriction period of five years instead of the usual three years) and 2,607 shares arising from the Employee Share Ownership Plan (CHF 155,991). Baloise also paid the regulatory employer contributions to the pension fund (CHF 210,818).
Purchase / sale of financial assets of an equity nature 10.1 – 1,078.9
IFRS 12 Disclosure of Interests in Other Entities The objective of IFRS 12 is to create a new single core standard requiring an entity to disclose information that enables users of its financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows� A particular new feature is the express requirement for entities to disclose risks arising from off-balance-sheet structured vehicles, a development that has been demanded for some time by capital market players� This standard impacts on the disclosures made in the notes to the financial statements for the Baloise Group�
Claims and benefits paid (gross) – 5,449.3 – 0.1 – – 5,449.4
The acquisition of additional investments in subsidiaries after assuming control and the disposal of investments in sub­ sidiaries without ceding control are both recognised directly in equity as transactions with owners.
Financial Report Notes to the consolidated annual financial statements 3.1.4 Associates Associates are initially carried at cost (fair value at the date of acquisition) and thereafter are measured under the equity method (the Baloise Group’s share of the entity’s profit or loss for the period and other comprehensive income) in cases where the Baloise Group can exert a significant influence over the management of the entity concerned. Changes in the fair value of associates are generally recognised in profit or loss and take account of any dividend flows. If the Baloise Group’s share of the losses exceeds the value of the associate, no further losses are recognised. Goodwill paid for associates is included in the carrying amount of the investment.
Financial Report Notes to the consolidated annual financial statements 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 available­for­sale financial assets may be permanently impaired. This category includes financial instruments with characteristics of equity. An impair­ ment 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 twelve­month 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.
Assets arising from outward reinsurance are calculated over the same periods and on the same basis as the original trans­ action and are reported as reinsurance assets (section 16). Impair­ ment losses are recognised in profit or loss for assets deemed to be at risk owing to the impending threat of insolvency.
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 com­ ponent corresponds to the present value of future cash flows at the time the bond is issued. The discount rate used is the mar­ ket interest rate applicable to similar bonds without any con­ version or option rights.
→ Financial instruments with characteristics of equity (available for sale) An impairment loss must be recognised on available­ for­sale 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 through­ out the twelve­month period preceding the balance sheet date. The Baloise Group examines whether it needs to recognise impairment losses on securities whose fair value at the balance sheet date is between 20 per cent and 50 per cent below their acquisition cost. Such assessments of the need to recognise impairment losses consider various factors such as the volatility of the securities concerned, credit ratings, analysts’ reports, economic conditions and sectoral prospects.
Nine years later 14.5 – – – – – – – – – –
The guaranteed technical interest rate is one of the risks inherent in traditional life insurance and group life business. If interest rates rise, there is the risk that more policies will be cancelled, and the payment of surrender values could cause liquidity problems. This risk can be reduced by imposing surrender charges. In the past, no significant correlation has been observed between rises in interest rates and the number of major policies cancelled.
→ 10 per cent increase in mortality A mortality increase of 10 per cent during liability adequacy testing had only a marginal effect in Germany, Belgium and Luxembourg and at Baloise Life (Liechtenstein) AG. This was true of the impact on both the income statement and on equity. A mortality increase in the Swiss life insurance business caused a lower amount to be allocated to strengthen annuity reserves, which improved profitability overall by roughly CHF 23 million (2012: by CHF 29 million). The resultant effects on equity were marginal.
→ 100 basis-point fall in receipts of new money This scenario was based on the assumption that receipts of new money (including amounts reinvested) fell by 100 basis points. When applied to the German units, this scenario resulted in changes in DAC write-downs, changes in the financing of final policyholders’ dividends, and the recognition of a provision for impending losses. These adverse effects were largely compensated for by the increase in the fair value of interest-rate derivatives in 2013. The overall impact was substantially mitigated by the prevailing legal requirements govern- ing the distribution of surpluses. On balance there was a negative effect of roughly CHF 1 million on the German units’ profitability in the reporting year (2012: positive effect of CHF 2 million). The positive impact on their equity amounted to approximately CHF 7 million (2012: CHF 4 million).
If all interest rates had fallen by 100 basis points on the balance sheet date but all other variables had remained constant, the profit for the period (after deferred gains/losses and deferred taxes) would have been lower by CHF 33 million (2012: CHF 97 million). Including the impact on profit for the period, equity (after shadow accounting, deferred gains/losses and deferred taxes) would have risen by CHF 370 million (2012: CHF 267 million).
5.9 Equity price risk The Baloise Group is exposed to equity price risk because it holds financial instruments with characteristics of equity classed as “recognised at fair value through profit or loss” and “available for sale”. Equity price risk is significantly reduced by means of international diversification, i.e. by spreading risk across sectors, countries and currencies. Active overlay management using derivatives also mitigates equity price risk if certain intervention levels are reached or the market and / or risk indicators that are continuously tracked by Baloise suggest heightened hedging activity.
Balance as at 31 December 714.0 – – – – – – 714.0
Disposals arising from change in the scope of consolidation – – – –
Gains or losses on financial contracts – 68.8 – 59.5 – 31.0 – 18.2 – 63.8 – 54.1 – 401.1 – 222.7 – 0.4 – 0.3 – 565.1 – 354.7 – 14.3 – 16.6 1.6 2.4 – 577.8 – 368.9
Non-life Life Banking Other activities Eliminated Total 2012 (restated) 2013 2012 (restated) 2013 2012 (restated) 2013 2012 (restated) 2013 2012 (restated) 2013 2012 (restated) 2013
9.3 Assumptions used to test the impairment of significant goodwill items Assumptions used to forecast future business developments and trends have been reviewed by the local management teams and take account of macroeconomic conditions.
Financial assets of a debt nature 8,188.5 8,100.7 22,433.4 22,431.0 – – 71.7 72.4 30,693.6 30,604.1
Termination benefits – – 11.0 11.3 18.2 Post-employment benefits – defined benefit plans The Baloise Group provides a range of pension benefits, which vary from country to country in line with local circumstances. The funded – or partially funded – liabilities relate to the occupational pension provision offered in Switzerland and that of the former Avéro Schadeverzekering Benelux NV.
Expected wage and salary increases minus 0.5 % age points – 34.7 – 31.4
Expected pension benefits increases minus 0.5 % age points – 32.2 – 28.3
Admiral Group plc Catlin Group Mapfre SA St. James’s Place Capital
Of which: expired without compensation (departures in 2012) – 5,667 – 5,132 –
PSU expense incurred by the Baloise Group for 2013 (CHF million) 1.8 2.0 1.2
Policyholders’ dividends credited and provisions for future policyholders’ dividends (gross) 3,579.1 3,471.4
Total technical reserves (life) 40,442.7 41,193.3 1 The actuarial reserves include unearned premium reserves and claims reserves.
Total liabilities arising from banking business and financial contracts 15,839.6 16,542.1 – –
Gains on the sale of property, plant and equipment 0.5 1.2 intangible assets – –
The dilution of earnings in 2013 was attributable to the Performance Share Units (PSU) share-based payment plan and the convertible bond issued by Bâloise Holding.
Total guarantees and collateral for the benefit of third parties 505.2 516.1
44.2 The Baloise Group as a lessor The Baloise Group has entered into operating leasing arrangements in order to lease its investment property to third parties. The average non-cancellable residual term of its leases is between four and six years. There were no further leasing arrangements at the balance sheet date.
Net effect of the purchase or sale of non-controlling interests recognised directly in equity – -
Financial Report Notes to the consolidated annual financial statements 49. CONSOLIDATED STRUCTURED ENTITIES The Baloise Group held one consolidated structured entity – Baloise Fund Invest (Lux) – at the end of the reporting year. Baloise Fund Invest (Lux) is a Luxembourg-based firm in the legal form of an investment company with variable capital (SICAV managed by a third party). Baloise Fund Invest (Lux) is an umbrella fund consisting of various pools of assets and liabilities (or ‘sub-funds’), with each sub-fund pursuing its own investment policy. Baloise Fund Invest (Lux) and its sub-funds collectively constitute a legal entity. However, each sub-fund is deemed to be a separate entity as far as the legal relationship between unitholders is concerned. A sub-fund’s assets are liable to third parties only for the liabilities and obligations relating to this sub-fund.
8. PREPAID EXPENSES AND ACCRUED INCOME The annual general meeting of Baloise Bank SoBa AG, Solothurn, held on 6 March 2014, the AGM of Haakon AG, Basel, held on 18 March 2014 and the AGMs of Baloise Asset Management Schweiz AG, Basel, and of Baloise Asset Management International AG, Basel, held on 20 March 2014 voted to recognise the dividends receivable for the 2013 financial year as accrued income (2013: CHF 41�8 million / 2012: CHF 31�7 million)�
Baloise Finance (Jersey) Ltd, St. Helier, Jersey 100.00 100.00 CHF 1.3
Reduced through cancellation of treasury shares as per AGM resolution – –
→ Single premium Single premiums are used to finance life insurance policies at their inception in the form of a one­off payment� They are mainly used to fund wealth­building life insurance policies, with the prime focus on investment returns and safety�
INFORMATION FOR SHAREHOLDERS AND FINANCIAL ANALYSTS Detailed information and data on Baloise shares, the IR agenda, the latest presentations and how to contact the Investor Rela­ tions team can be found on the internet at www�baloise�com/ investors� This information is available in German and English�