High aspirations, greater success: create value, foster relations, bring about change.
Frank Schnewlin: Banking operations developed favorably with a profit before tax and minority interests of CHF 37 million. Core business at Baloise Bank SoBa registered a gratifying 25% increase in profits. Mercator Bank also posted a profit, and restructuring measures are on track at Bausparkasse Deutscher Ring.
After stagnating for a long period, the economy staged a strong recovery in the second half of 2003. The USA and Asia provided the major stimuli, and the euro zone was also able to rise off its lows. Indicators of economic growth point to further improvement in 2004. The negative current account balance and the ballooning budget deficit in the USA, however, remain a cause of concern for the global economy. The pronounced weakness in the US dollar vis-à-vis the euro and the Swiss franc is tangible evidence of this. In March 2003, global equity markets began to recover. This development has been supported by persistently expansive monetary policies on the part of the leading industrialized countries and the resulting low interest rates.
As far as the development of our business volumes are concerned, we are sticking strictly to the principle of “profit before growth.” As we want to further optimize the non-life business quality, we anticipate organic premium growth in line with the market average. In the life business, the improvement in the overall situation is likely to be gradual. Here we expect a slight reduction in premium volume accompanied by further improvement in the IFRS result. All in all, we hope to post another strong increase in profits.
During the year under review, the life business was dominated by the public debate over the future of the occupational pensions system (BVG). Baloise Switzerland is taking various measures to address the continuing unfavorable market conditions and the regulatory framework in the BVG sector. Among other moves, premium rates for disability insurance have been adjusted, cost premiums have been increased and policyholder bonuses cut. In the extramandatory part, a supplementary premium is being levied to cover the excessively high conversion rate and the equally excessive high interest rate guarantee. One important instrument in the life business is the restrictive underwriting policy which is designed to ensure profitability.
Baloise Bank SoBa posted earnings before tax of CHF 13.8 million (2002: CHF 11 million). This represents a 25% increase, although the banking business was affected by keener competition and the sluggish trend on the financial markets. One successful area was Mobile Banking, i.e. sales of banking products by the sales force of the insurance company. Compared with 2002, Mobile Banking was 54% above target, which is a clear sign that its offerings are becoming more attractive as part of Baloise Switzerland ’s focused financial service provider strategy. Compared with 2002, net interest income decreased by 3.8% to CHF 92.8 million. The main reason for this is the continuing switching of variable to fixedinterest mortgages and the extensive interest-rate hedging which this has made necessary. By contrast, income from commission business and services was increased by 0.5% to CHF 20.8 million. Thanks to a prudent lending and risk policy, value adjustments on loans are following a favorable trend. In its core market, Baloise Bank SoBa is still represented by 14 branches. However, the private banking operation has undergone resizing, with the closure of the branches in Zurich and St. Gallen. The Lausanne branch has been downgraded to a representative office. This means a significant reduction in expenses related to the banking business. However, the costcutting measures will only have their full impact in 2004. At the same time, IT services have been significantly expanded. In 2004, the bank will begin operating its new e-banking platform and a new loan platform.
We expect 2004 to see further significant improvements in the operating profitability of the Mercator Group.
A slight improvement in the result for insurance operations contrasts with comparatively high realized losses in the equity portfolio, which led to a small loss overall. The market share was stabilized at a high level. Premium volume grew by 2.1% in local currency terms to CHF 70.2 million (2002: CHF 66.3 million).
weight to the corresponding tasks and projects. Progress was made in the corporate governance field (cf. pages 29ff.) and further emphasis was placed on ALM in life insurance, the management of corporate investment risks, and further optimization of underwriting risks.
The following fees were charged by PricewaterhouseCoopers in the year under review; the figures refer to its groupwide activities.
Above the industry average for eleven out of twelve criteria: assessment of the Baloise’s sustainability performance by SAM Research Inc.
Baloise shares registered a marked recovery in 2003 following the worldwide slump that had stock markets in its grip until mid-March. Reductions in the stakes of some major shareholders led to a broader spread of share ownership and a distinct improvement in trading liquidity.
1 see Notes to the Consolidated Financial Statements, section 25 2 number of shares ranking for dividend at December 31 3 average of beginning and year-end values 4 to be proposed to the Annual General Meeting 5 adjusted due to share split 6 additional free put options 7 not significant
Earnings/loss per share (identical values for “basic” and “diluted”) 25 - 11.56 1.67 in CHF
Movement on unrealized gains and losses on investments (gross) – – – 515.3 – 515.3
Administrative and other operating expenses - 482.5 - 483.9 - 324.0 - 470.0
The Baloise Group determines any impairment of financial assets according to the following rules: If the market value is more than 50% below the purchase value, an impairment entry must be booked in any case. Provided the market value is more than 20% but less than 50% below purchase value, impairment is to be considered and an entry made where applicable. The impairment will be assessed on the basis of reports by bank analysts and ratings by ratings agencies. Dividend developments, underlying capital and other factors will also be taken into account. The prime yardstick for the formation of the impairment is, however, the appraisal by the asset manager responsible. In forming the impairment, the accumulated net loss recorded in the capital and reserves will be transferred to the income statement.
Company acquisitions are accounted for using the purchase method. Under this method, the purchase price is compared on the date of acquisition with the fair values of the assets and liabilities acquired, and the balance is accounted for as goodwill. Goodwill relating to subsidiaries which do not prepare their financial statements in Swiss francs is translated at the exchange rate applicable on the date of the acquisition.
The present value of profits from insurance contracts acquired is amortized over the underlying period of premium payments taken to income. The value of the profits is reviewed on an annual basis. Other intangible assets consist mainly of software and are written off on a straight line basis over their estimated useful life.
company articles of incorporation – as in the case of Belgium, Luxembourg and Switzerland – an allocation to policyholder bonuses will not apply.
� Policyholders’ shares of the reported result, � Policyholders’ shares of unrealized profits and losses on investments.
Own shares (treasury stock) held by Bâloise-Holding or by its subsidiaries are shown at cost in the consolidated financial statements as a deduction from Capital and reserves. The shares are not restated at their current market value. When the shares are sold, the difference between cost and selling price is adjusted under Capital and reserves. Only BâloiseHolding shares are counted as own shares.
Because of the amounts involved, the following benefits can be particularly significant: Postemployment benefits: The main retirement benefits are pensions and insurance contributions assumed by the employer. The benefits are paid when the employee ceases to be employed and are financed during the period in which the employee is working. The retirement pensions in the Baloise Group are predominantly defined benefit plans. The present value of the defined benefit obligation is discounted
Other financial liabilities: The fair value is generally a quoted market price. If no market prices are available, the market value is estimated. If the value cannot be estimated reliably, financial liabilities will be reported at acquisition value.
Disposals due to changes in composition of consolidated Group - 0.3 - 28.6
During the year under review, goodwill arising from various smaller shareholdings was the subject of unscheduled write-downs amounting to CHF 17.6 million based on impairment tests.
Of which assets under finance leases 0.1 5.5 5.6 in CHF m
19. Liabilities from banking business and bonds 19.1 Liabilities from banking business and financing operations
Of these, CHF 106.3 million (2002: CHF 96.2 million) relate to subordinated liabilities as at December 31, 2003.
Cash equivalents 13.2 0.1 in CHF m 30. Market risk relating to financial instruments
Credit risk grows as the concentration of counterparties in a single line of business or geographical area increases. Economic developments which affect entire lines of business or geographical areas can put at risk the debt-paying ability of a whole group of otherwise independent counterparties. For this reason, the Baloise Group permanently reviews its portfolios of counterparties on a group-wide basis.
Of which for the benefit of partners in joint ventures – –
Bâloise (España) S.A., Madrid Other 100.00 F EUR 18.0 17.5 –