BÂLOISE HOLDING LTD Income statement of Bâloise Holding Ltd .......................... 270 Balance sheet of Bâloise Holding Ltd ................................ 271 Notes to the financial statements of Bâloise Holding Ltd .. 272 Appropriation of distributable profit as proposed by the Board of Directors ................................................... 282 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel ..... 283
Dr Andreas Burckhardt, Chairman of the Board of Directors (on the right), and Gert De Winter, Group CEO (on the left), testing the Baloise Park augmented reality app, which can be downloaded for free from the Google Play Store and the Apple App Store.
CUSTOMERS Baloise is becoming the first choice for people who want to feel “simply safe”. An even stronger focus on customer needs, tailored omnichannel communication and innovative products and services in the areas of insurance, assistance and pensions will help Baloise to attract an additional one million customers by 2021. This would represent an increase of 30 per cent on 2016.
BANKING DIVISION: EARNINGS REMAIN STABLE If the prior-year positive non-recurring effect of CHF 11.3 million arising from a change in the pension scheme at Baloise Bank SoBa is excluded, the banking division’s earnings improved slightly in operational terms. EBIT in the banking business amounted to CHF 81.8 million (2016: CHF 92.1 million), a yearon -year fall of 11.2 per cent. As in prior years, the main contributors to profit were Baloise Asset Management, whose contribution was up slightly at CHF 44.9 million, and Baloise Bank SoBa, which contributed CHF 30.7 million.
Change in claims reserve / actuarial reserves 1 – 35.3 – 35.7 – 547.2 – 87.7
▸ Baloise employees work at the Company for an average of 13.0 years.
VIRAL CHANGE AND PERSONAL INITIATIVE: DRIVING CHANGE FROM THE BOTTOM UP In 2017, in addition to the top-down change, Leandro Herrero’s concept of viral change was deployed. To prepare for this, a groupwide survey was carried out at the end of 2016 to identify highly engaged and well-connected employees – the “sparks” – who were then invited to help with the change. These 300 employees now act as beacons for the new corporate culture and provide authentic examples of the eight behaviours enshrined in the Baloise Code. They are proactive in launching initiatives and projects that accelerate the change in the corporate culture. The sparks’ mindset is catching on; more and more employees are joining in and adding to the viral effect through their behaviour.
What are Baloise’s sustainability principles? Which issues take greatest priority? And what are the key principles? The sustainability guidelines adopted in 1999 provide a framework for action and form the basis of all environmental and social activities at Baloise.
PRINCIPLE As a signatory to the UNEP declaration, Baloise strives for sustainable development from an ecological, economic and social point of view. As a primary insurer, Baloise is prepared to assume responsibility for the preservation of the natural environment.
The Company’s enterprise risk management was once again awarded Standard & Poor’s excellent “strong” rating in 2017. This puts it among the top 15 per cent of all European insurance companies.
▸ Baloise captures business-environment risk, operational risk and strategic risk on both a standardised and individual basis, and assesses them in terms of their impact on its capital.
Profit targets for individual business units that factor in their specific risk situation are a major aspect of this risk management system. These targets form part of the overall objectives agreed with local management teams.
The full Board of Directors of Bâloise Holding met on seven occasions in 2017. The table on page 64 shows Board of Directors members’ attendance at these meetings. All members of the relevant committee in each case attended every one of the additional 16 committee meetings. This means that the Board of Directors achieved an overall meeting attendance rate of 99.3 per cent. The Board of Directors held a seminar for the purpose of training its members on the topic of value management. Meetings of the Board of Directors and its committees usually last half a working day each.
Hugo Lasat (1964, Belgium, Master in Economic Sciences, Master in Finance) has been a member of the Board of Directors since 2016. He has been CEO of Brussels-based Degroof Petercam Asset Management (formerly Petercam Institutional Asset Management) since 2011. His managerial roles prior to that include CEO of Amonis Pension Fund and CEO of Candriam In vestors Group (previously known as Dexia Asset Management ). He is a guest professor at KU Leuven (Brussels Campus) and VIVES University College, member of the Board of Directors of the Belgian Asset Management Association (BEAMA) and a member of the Financial Commission of the Financial Committee of the Belgian Red Cross. Hugo Lasat is an independent non-executive director.
Short-term variable remuneration ▸ Influencing factors: the Company’s economic value added and the individual’s performance ▸ Designed to incentivise staff to achieve outstanding results
Conversion ▸ Performance criterion: profit for shareholders relative to the peer group (STOXX Europe 600 Insurance) after three years
The Board of Directors used this Remuneration Guideline as the basis for the Remuneration Policy, which applies to all employees in Switzerland and, by analogy, to all members of staff throughout the Baloise Group. By adopting this Remuneration Guideline and Remuneration Policy, the Board of Directors has ensured that all aspects of remuneration policy are standardised for the entire group. This regulatory framework underpins a remuneration system that meets all the requirements of the Swiss Financial Market Supervisory Authority and, in particular, ensures that variable remuneration accurately reflects the value added by the Company.
This adjustment to the performance management system also underpins the implementation of Baloise’s “Simply Safe” strategy, as it puts the focus on achieving the three strategic pillars: “cash upstream”, “customer growth” and “employees”.
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 and the importance of his or her function. 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.
Main indicator Capital markets perspective Key question How did Baloise perform relative to other companies on the stock market? Sub-criteria Total shareholder return Appraisal The total shareholder return for 2017 is 23 per cent, clearly outperforming the market. In its peer group of companies on the STOXX Europe 600 Insurance Index, Baloise is just below the upper quartile. Rating Positive
The Company provides its employees in Switzerland with an attractive occupational pension solution (Pillar 2) that meets the following objectives: ▸ It covers its insured employees’ needs in the event of old age, death or disability and mitigates the resultant financial consequences by offering an occupational pension scheme based on the principle of social partnership.
14. SHARES AND OPTIONS HELD Please refer to the tables on pages 105 and 106.
Disposal of companies, net of cash and cash equivalents 39 – 37.7 purchase of investments in associates – –
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements 2.2 New IFRSs and interpretations not yet applied the following new standards and interpretations relevant to the Baloise Group have been published by the iaSB but have not yet come into effect and, therefore, have not been applied in the 2017 consolidated annual financial statements: Standard / Inter- pretation Content
IFRS 17 Insurance Contracts iFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts that are within the scope of this standard. the objective of iFRS 17 is to ensure that reporting entities provide relevant information that faithfully represents their insurance contracts. this information provides a basis for users of financial statements to assess the effect that insurance contracts have on an entity’s financial position, financial performance and cash flows.
3.2 Currency translation 3.2.1 Functional currency and reporting currency each subsidiary prepares its annual financial statements in its functional currency, which is the currency of its primary economic environment. the consolidated Financial Report is presented in millions of Swiss francs (cHF), which is the Baloise Group’s reporting currency.
the Baloise Group classifies its financial instruments with characteristics of equity and its financial instruments with characteristics of liabilities as either “recognised at fair value through profit or loss”, “held to maturity” or “available for sale”. the classification of the financial instruments concerned is determined by the purpose for which they have been acquired.
Mortgages and loans are generally carried at cost. in pursuing its strategy of using natural hedges, however, the Baloise Group applies the fair value option to designate parts of its portfolio as “recognised at fair value through profit or loss”. appropriately designated derivative financial instruments are used to hedge these parts of the portfolio.
3.16.5 Retained earnings Retained earnings include the Baloise Group’s undistributed earnings and its profit for the period. Dividends paid to the shareholders of Bâloise Holding ltd are only recognised once they have been approved by the annual General Meeting.
▸ Marine Marine insurance is mainly sold in Switzerland and Germany. these products may include a third-party liability component in addition to the usual cargo insurance.
the total claims reserve consists of three components. Reserves calculated using actuarial methods form the basis of the total claims reserve. the second component comprises reserves for those complex special cases and events that do not lend themselves to purely statistical evaluation. these are generally rare claims that are fairly atypical of the sector concerned – usually sizeable claims whose costs have to be estimated by experts on a case-by-case basis. neither of these components is subject to discounting. the third component consists of reserves for annuities that are discounted using basic actuarial principles such as mortality and the technical interest rate and are largely derived from claims in the motor, liability and accident insurance businesses.
3.26 Revenue recognition Revenue and income are recognised at the fair value of the consideration received or receivable. intercompany transactions and the resultant gains and losses are eliminated. Recognition of revenue and income is described below.
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. chapter 12 contains information on the fair values of the financial instruments with characteristics of liabilities that are classified as “held to maturity”.
5.2 Life and non-life underwriting strategies the Baloise Group primarily underwrites insurance risk for private individuals and small and medium-sized enterprises in selected countries in mainland europe. industrial insurance in the property and third-party liability, marine and technical insurance sectors is largely provided by Baloise insurance in Basel or its branch in Bad Homburg (Germany) and our Belgian business unit Baloise insurance Belgium. in this particularly high-risk segment, central management of industrial insurance ensures consistent quality and a high degree of transparency for the business underwritten.
Baloise Group annual Report 2017 Financial Report 5.4.2 Assumptions ▸ claims reserves and claims settlement the portfolios on the Group’s books must be structured in such a way that the data available is sufficiently homogeneous to enable the use of certain analytical actuarial processes to determine the claims reserves required. one of the assumptions made is that extrapolation of the typical claims settlement pattern of recent years is meaningful. only cases such as extreme anomalies in settlement behaviour require additional assumptions to be made on a case-by-case basis.
Analysis of claims settlement for the “Other units” segment a large proportion of the reserves relating to this segment is attributable to run-off business. Due to the special nature of this business, it is difficult to conduct meaningful analysis on the basis of our own claims data alone, so the reserves recognised for it are subject to significant uncertainty.
▸ 50 basis-point increase in receipts of new money this scenario was based on the assumption that receipts of new money (including amounts reinvested) rose by 50 basis points. When applied to the German units, this scenario resulted in a reversal of Dac write-downs, changes in the financing of final policyholders’ dividends, and to an attribution of unearned revenue reserve. this adverse impact was exacerbated by impairment losses on interest rate derivatives. the overall impact was substantially mitigated by the prevailing legal requirements governing the distribution of surpluses. on balance there was a marginal effect from the German units’ profitability in the reporting year (2016: cHF 2 million). the negative impact on equity amounted to approximately cHF 5 million (2016: cHF 5 million). in Belgium, this scenario resulted in a slight increase in Dacs and to lower amounts being allocated to the provision recognised for impending losses, which constituted a positive effect of roughly cHF 12 million on profitability (2016: cHF 7 million). the negative effect on unrealised gains amounted to cHF 119 million (2016: cHF 94 million). in luxembourg, this scenario produced a marginal positive impact on the income statement and an adverse effect of roughly cHF 16 million (2016: cHF 14 million) on the unrealised gains and losses recognised in equity. the resultant impact on the profitability and equity of Baloise life (liechtenstein) aG was negligible. in Switzerland, this scenario resulted in a reversal of Dac write-downs, a reduction in technical reserves, and the offsetting effect of interest rate hedges. this improved profitability overall by roughly cHF 10 million (2016: cHF 4 million). the adverse impact on equity amounted to approximately cHF 186 million (2016: cHF 196 million).
Because the Baloise Group invests in foreign currency bonds (particularly those denominated in euros) for investment or diversification purposes, there may be currency effects in the income statement for both realised and unrealised positions. to ensure compliance with the risk budget set for currency effects recognised in the income statement, the foreign exchange management team first calculates adequate target hedge ratios, then implements the necessary hedging strategies taking into account these target hedge ratios and the discretionary ranges allowed. it also takes advantage of phases when exchange rates are overreacting by deliberately underweighting or overweighting the hedge ratios in relation to the defined benchmark. these hedging strategies are implemented using forward FX contracts and FX options or combinations of options in which the selection of the instruments to be used in each case depends on factors such as volatility and expected exchange rate movements.
Receivables from reinsurers 47.5 38.2 insurance receivables 383.5 444.1 other receivables 489.7 432.9
Financial instruments with characteristics of liabilities available for sale present-value model Yield curve, swap rates, default risk
Reclassification of assets and liabilities to and from level 3 in the reporting period, a small volume of financial assets were reclassified owing to changed market activity and new knowledge concerning the composition of investments.
the “other activities” operating segment includes equity investment companies, real estate firms and financing companies. the accounting policies applied to the presentation of the operating segments (segment reporting) are those used throughout the rest of the Financial Report. no intersegment relationships recognised either on the balance sheet or in the income statement – with the exception of income from long-term equity investments – are offset against each other.
For the account and at the risk of life insurance policyholders and third parties
Notes to the consolidated balance sheet 8. PROPERTY, PLANT AND EQUIPMENT
2016 Carrying amount Baloise’s share of profit or loss for the period from continuing operations profit or loss for the period from disposal groups held for sale other comprehensive income comprehensive income cHF million 2017 Carrying amount Baloise’s share of profit or loss for the period from continuing operations profit or loss for the period from disposal groups held for sale other comprehensive income comprehensive income cHF million there were no contingent liabilities arising from investments in associates and no substantial unrecognised shares of the losses of associates as at either 31 December 2017 or 31 December 2016.
post-employment benefits – defined benefit plans – – 1,316.9 1,242.7 other long-term employee benefits – – 29.1 28.5 termination benefits – – 10.2 8.2 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.
Balance as at 31 December 2,374.8 2,538.4 18.2.2 Partially funded liabilities under defined benefit plans cHF million
actuarial gains / losses on defined benefit obligations arising from changes in financial assumptions – 88.2 14.6 changes in demographic assumptions – 1.9 – 3.0 experience adjustments – 1.3 – 3.6 exchange differences 10.1 – 68.1
18.3 Other long-term employee benefits Benefits granted to current employees that are payable twelve months or more after the end of the financial year are accounted for separately and according to specific rules. the accounting policies applied are similar to those used for pension liabilities, except that actuarial gains and losses are recognised in profit or loss.
Baloise Group annual Report 2017 Financial Report 19. DEFERRED INCOME TAXES 19.1 Deferred tax assets and liabilities
Baloise Group annual Report 2017 Financial Report 23.2.4 Reserve for final policyholders’ dividends cHF million
Policyholders’ dividends credited and provisions for future policyholders’ dividends as at 31 December 3,409.4 3,681.5 notes to the consolidated annual financial statements
Total investment income for own account and at own risk 1,476.6 1,392.5 income from investment property consists mainly of rental income. income from financial instruments with characteristics of equity primarily comprises dividend income, while income from financial instruments with characteristics of liabilities essentially contains interest income and net income from the recognition and reversal of impairment losses owing to application of the effective interest method. income from mortgages and loans and from cash and cash equivalents is mainly derived from the interest paid on these assets.
Held to maturity1 – – – 19.5 – – – 19.5 available for sale – – 41.7 – 61.8 – – – 103.5
Impairment losses on financial assets of an equity nature recognised in profit or loss equity funds – –
Directly attributable costs – – – – 7.8 equity instruments issued – – – –
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements 42. CONTINGENT AND FUTURE LIABILITIES 42.1 Contingent liabilities 42.1.1 Legal disputes the companies in the Baloise Group are regularly involved in litigation, legal claims and lawsuits, which in most cases constitute a normal part of its operating activities as an insurer.
Baloise Group annual Report 2017 Financial Report notes to the consolidated annual financial statements the Baloise Group engages in securities-lending transactions that may give rise to credit risk. collateral is required in order to hedge these credit risks by more than covering the underlying value of the securities that are being lent (mainly bonds). the value of the counterparty’s lending securities is regularly measured in order to minimise the credit risk involved. additional collateral is immediately required if this value falls below the value of cover provided.
oVB Holding aG, cologne other – 32.57 32.57 e eUR – – –
Baloise Belgium nV, antwerp life and non-life euromex nV, antwerp non-life nl 100.00 100.00 F eUR 2.7 188.9 64.1
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the section Auditor’s responsibilities for the audit of the consolidated financial statements of our report. Accordingly, our audit included procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the consolidated financial statements.
Financial assets loans to Group companies 6 102.0 102.0 long-term equity investments 7 1,849.5 1,860.8
Deferred income 22.9 27.7 non-current liabilities long-term interest-bearing liabilities to Group companies – 340.0 long-term interest-bearing liabilities to third parties 8 1,250.0 1,250.0
Baloise Group annual Report 2017 Bâloise Holding ltd notes to the financial statements of Bâloise Holding ltd 7. LONG-TERM EQUITY INVESTMENTS
Basler Saturn Management B. V., amsterdam 100.00 100.00 eUR <0.1 <0.1
profit for the period 289,202,029.24 367,343,969.45 profit carried forward from the previous year 395,199.00 597,228.24
Distributable profit 289,597,228.24 367,941,197.69 proposals by the Board of Directors: allocated to free reserves – 29,000,000.00 – 94,000,000.00
▸ operating segments Similar or related business activities are grouped together in operating segments. the Baloise Group’s operating segments are non-life, life, Banking (which includes asset management), and other activities. the “other activities” operating segment includes equity investment companies, real estate firms and financing companies.
▸ Shares issued the total number of shares that a company has issued; multiplying the total number of shares in issue by their face value gives the company’s nominal share capital.