BALOISE Baloise key figures ���������������������������������������������������������������������������������� 4 At a glance �������������������������������������������������������������������������������������������������� 5 Letter to shareholders ��������������������������������������������������������������������������� 6 Interview ����������������������������������������������������������������������������������������������������� 8 Baloise shares ����������������������������������������������������������������������������������������� 12 Our four core markets ����������������������������������������������������������������������� 14 Brand ��������������������������������������������������������������������������������������������������������� 16 Strategy ����������������������������������������������������������������������������������������������������� 17
“ We believe there are further attractive opportunities in life insurance, but we plan to prioritise the latest, innovative pension solutions.”
Baloise Interview end of last year� We’ve also been concerned about the huge increase in the time and expense required to deal with regulation and the ever more restrictive nature of regulation� Although we cannot influence the environment in which we operate, it is possible for politicians – and therefore for us as citizens – to attempt to fight back against this regulation� Particularly in Switzerland, I would like there to be a better understanding and relationship between business and politicians so that we as a company can continue to compete against our rivals in other countries�
Gert De Winter (1966, BE, MSc) studied applied economics at the University of Antwerp� From 1988 to 2004 he performed various roles at Accenture in Brussels, working as an analyst, consultant, manager and finally partner for issues relating to IT and business transformation management in the financial sector� In 2005 he joined the Baloise Group as Chief Information Officer (CIO) of the Mercator insurance company in Belgium� Since 2009 Gert De Winter has been Chief Executive Officer of Baloise Insurance, which was formed in 2011 from the merger of the three insurance companies Mercator, Nateus and Avéro� As of 1 January 2016 Gert De Winter took up his role as Chief Executive Officer of the Baloise Group�
Sprint finish for Baloise shares * Baloise shares = shares of Bâloise Holding Ltd.
LIFE DIVISION: MODEST GROWTH The life division reported growth of 2�1 per cent in continuing operations in local-currency terms, compared with a contraction of 0�4 per cent in Swiss-franc terms� Total premium income, including investment-type premiums, amounted to CHF 5,868�5 million� In traditional life business, Switzerland and Belgium reported growth in local-currency terms of 3�4 per cent and 4�5 per cent respectively, while business was down by 4�6 per cent in Germany and by 3�7 per cent in Luxembourg� Group life business performed particularly well in Switzerland where it grew by 5�0 per cent, but individual life insurance declined by 4�8 per cent� Overall, the mix was further optimised towards innovative life products in all countries, because of the particularly adverse effect of the prolonged phase of low/negative interest rates on earnings in traditional life business� Financial income was down in this business, showing the extent to which the unfavourable interest-rate situation has affected this capitalintensive segment� Together with the modest increase in premium income, this resulted in a decline in EBIT in the life division to CHF 277�3 million� In the previous year, EBIT in the life division had also benefited from exceptionally high net savings which had been boosted by the proceeds received from the realisation of gains on investments, particularly the sale of Baloise’s shareholdings in Nationale Suisse and Helvetia�
BASLER VERSICHERUNGEN IN GERMANY The extremely high level of large claims in the non-life segment, the adverse impact of low interest rates, and currency effects depressed earnings in Baloise’s German business� The measures to optimise the business that had been announced and have already been implemented are starting to take effect, but so far have not had the expected impact on comprehensive income� Premium income fell by 1�6 per cent to CHF 1,414�1 million� The focus on target customer segments worked well, with virtually all of these segments achieving above-average growth rates� Business in non-life target segments outperformed the market by around 1 per cent and the focus in life business was successfully switched from traditional products and ‘Riester’ statesubsidised pension products to capital-efficient, unit-linked products� The sale of the run-off portfolio of Baloise Life (Direktion für Deutschland), consisting almost exclusively of traditional products, that had previously been announced supports this focus on life business and is intended to reduce Baloise’s interest-rate sensitivity� The sale requires the approval of the financial supervisory authorities, whose checks that form part of the normal approval process have yet to be completed�
BÂLOISE ASSURANCES LUXEMBOURG The volume of premiums in the Luxembourg business unit grew by almost 12 per cent in local-currency terms� In addition, Baloise Luxembourg’s purchase of non-life insurer HDI-Gerling Assurances SA consolidated its market position and is set to put Baloise in the top three insurance companies in Luxembourg� There was an encouraging increase in the volume of business in the non-life division, which grew by the excellent rate of 6�8 per cent in local-currency terms� This growth was mainly attributable to the motor vehicle division� The launch of the Game of Roads app associated the name Bâloise Assurances with safe driving, which is a perfect fit with the ‘Making you safer’ slogan� However, the non-life division found itself confronted by a number of major claims in the reporting year; each was for between one and two million euros and they were spread across all sectors and impacted its profitability� Nonetheless, the gross combined ratio improved slightly, falling by 1�4 percentage points to a sound 87�9 per cent� This was proof that Luxembourg’s non-life portfolio is now well diversified�
Policy loans and other loans 43.3 222.8 266.1 30.4 176.9 207.3
HUMAN RESOURCES ������������������������������������������������������������������������������ 42 Successful together: engaging in dialogue, shaping the future, making a difference ��������������������������������������� 42
For example, the Company has promoted art through the Baloise Art Prize for more than 15 years� Every year this prestigious accolade is awarded to two talented young artists at the Art Basel fair� The winning works are acquired by Baloise and donated to two museums that each mount an exhibition devoted to one of the artists� In 2015 it was the turn of the Museum of Modern Art in Frankfurt am Main and MUMOK in Vienna� The award has gained a formidable reputation over the years� The fact that numerous winners of the Baloise Art Prize have gone on to represent their country at the Biennale Venice provides further evidence of its prestige� Many Baloise Art Prize alumni are now established artists and credit the award as being the springboard for their success� In addition, Baloise maintains a long-standing collection of artworks that can be seen not only by employees but also by the public at exhibitions in the Art Forum at the Company’s headquarters�
→ Staff turnover as at 31 December 2015 amounted to 5.5 per cent (end of 2014: 4.8 per cent).
BOARD ATTENDANCE IN 2015: MEETINGS OF THE FULL BOARD OF DIRECTORS
Short-term variable remuneration The key factors determining the amount of short-term variable remuneration paid are an employee’s individual performance and the Company’s profitability and economic value added� The consequent link between individual performance and the Company ’s profits is designed to incentivise staff to achieve outstanding results� Measurement of the variable remuneration paid to employees who perform control functions (risk management, compliance, Group Internal Audit) is structured in such a way that it is not determined directly by the profitability of the unit being monitored or by the profitability of individual products or transactions�
Performance-related remuneration Performance-related remuneration reflects individual employees ’ performance and rewards the achievement of their personal targets� To this end, line managers consult their members of staff once a year in order to define the latter’s key individual targets and objectives and then – by no later than February of the following year – assess the extent to which these targets and objectives have been achieved� The target achievement scale ranges from 0 per cent (not achieved) to a maximum of 150 per cent (significantly over-achieved)� When setting these individual targets, line managers and their staff ensure that they do not agree any targets or objectives that conflict with the Company’s business strategy�
Those considered for performance pool payments are the most senior management level in the Baloise Group, the majority of senior managers in Switzerland and the corresponding functions abroad� However, there is no fundamental entitlement to receive payments from the performance pool�
Admiral Group plc Direct Line Insurance Group Phoenix Group Holding Unipol Gruppo Finanziario
Fair value of subscribed shares on subscription date (CHF million) 20.9 20.5
5.14 Amounts of total remuneration and variable remuneration Please refer to the table on page 95�
Total for the Board of Directors 0 0 2,706,237 2,674,203 0 0 2,706,237 2,674,203
Corporate Governance Corporate Governance Report including Remuneration Report 7. CHANGES OF CONTROL AND POISON-PILL MEASURES Shareholders or groups of shareholders acting together by agreement are required to issue a takeover bid to all other shareholders when they have acquired 33 per cent of all Baloise shares� Bâloise Holding has not made any use of the option to deviate from or waive this regulation� There is no statutory opting-out clause or opting-up clause as defined by the Swiss Federal Act on Stock Exchanges and Securities Trading (Börsengesetz)�
The members of the Corporate Executive Committee and the Chairman of the Board of Directors have a notice period of twelve months� Bâloise has not agreed any arrangements in respect of changes of control or non-compete clauses with members of either the Board of Directors or the Corporate Executive Committee�
Total items not to be reclassified to income statement – 310.1 – 13.6
If the fair value of hedge funds cannot be determined on the basis of publicly quoted prices, then prices quoted by independent external parties are used for measurement purposes.
Inward reinsurance is recognised in the same period as the initial risk. The relevant technical reserves are reported as gross unearned premium reserves or gross claims reserves for non-life insurance and as gross actuarial reserves for life insurance. In non-life insurance they are estimated as realistically as possible based on empirical values and the latest information available, while in life insurance they are recognised as a reserve to cover the original transaction. Outward reinsurance is the business ceded to insurance companies outside the Baloise Group and includes transactions ceded from direct life and non-life business and from inward insurance.
Assets arising from outward reinsurance are calculated over the same periods and on the same basis as the original transaction and are reported as reinsurance assets (section 16). Impairment losses are recognised in profit or loss for assets deemed to be at risk owing to the impending threat of insolvency.
Financial Report Notes to the consolidated annual financial statements 3.22.2 Share-based payments The Baloise Group offers its employees and senior executives the chance to participate in various plans under which shares are granted as part of their overall remuneration packages. The Employee Incentive Plan, Share Subscription Plan, Employee Share Ownership Plan, performance quota and performance share units (PSUs) are measured and disclosed in compliance with IFRS 2 Share-based Payment. Plans that are paid in Bâloise Holding shares are measured at fair value on the grant date, charged as personnel expenses during the vesting period and recognised directly in equity. Plans that are paid in cash and whose amount is determined by the market value of Bâloise Holding shares are recognised at fair value on the balance sheet date and reported as a liability.
4.4 Deferred income taxes Unused tax loss carryforwards and other deferred tax assets are recognised if it is more likely than not that they will be realised. To this end, the Baloise Group makes assumptions about the recoverability of these tax assets; these assumptions are based on the financial track record and future income of the taxable entity concerned.
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 150 million (2014: CHF 100 million) for Switzerland and at EUR 100 million (2014: 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 (2014: CHF 250 million).
Depending on the product, the fund underlying the savings process is selected from a range of funds that match the policyholder’s investment profile. The policyholder usually bears the entire investment risk and may benefit from a positive return.
→ 50 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 50 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 slightly more than compensated for by the increase in the fair value of interest-rate derivatives in 2015. The overall impact was mitigated by the prevailing legal requirements governing the distribution of surpluses. On balance there was a marginal positive effect from the German units’ profitability in the reporting year (2014: negative effect of CHF 2 million). The positive impact on their equity amounted to approximately CHF 4 million (2014: CHF 6 million). In Belgium this scenario resulted in an additional DAC write-down and a larger provision for impending losses. The impact on the income statement was greater than in other countries owing to the business model used. Overall there was a negative effect of CHF 18 million on the income statement (2014: CHF 23 million). This adverse impact was more than compensated for by the positive changes in unrealised gains and losses recognised in equity. The positive effect on unrealised gains amounted to CHF 96 million (2014: CHF 99 million ). In Luxembourg this scenario produced a marginal impact on the income statement and a positive effect of roughly CHF 13 million (2014: CHF 14 million) on the unrealised gains and losses recognised in equity. The resultant impact on the profitability and equity of Baloise Life (Liechtenstein) AG was negligible. In Switzerland this scenario resulted in a higher DAC write-down, an increase in technical reserves, and the offsetting effect of interest-rate hedges. On balance these interacting factors had an adverse effect of CHF 46 mil- lion on the income statement (2014: CHF 56 million). The positive impact on equity amounted to approximately CHF 188 million (2014: CHF 153 million).
Adjustments in the fair value of financial instruments with characteristics of equity that are classed as “recognised at fair value through profit or loss” have an impact on the profit for the period. Unrealised gains and losses vary due to changes in the fair value of financial instruments with characteristics of equity which are classed as “available for sale”. In a life insurance company, policyholders participate in the firm’s profits, depending on their policy and local circumstances (see section 3.18.5.). The table above takes account of this profit-sharing scheme.
Risk-bearing capital is compared with risk-adjusted capital and the capital requirement formulated inhouse. The capital requirement covers actuarial risk, market risk, credit risk and other risks. The capital requirement is determined by means of a correlation-based expected-shortfall method. The actuarial capital requirement is a measurement of the operational funding required to cover actuarial risk. The claims risk is modelled using distributions of normal and large claims, including the prevailing reinsurance structure. At the same time, the investment required to smooth fluctuations in investment value and returns for a given probability is also calculated. Analysis of these risks is based on quantitative models that use statistical methods to evaluate historical data and place it in the context of current exposure. Various scenarios are simulated by means of stress tests, and their potential impact on risk- bearing capacity is analysed. The ratio of risk-bearing capital to risk-adjusted capital is calculated for the strategic business units and the Group. The Group’s risk position is not determined by simply adding together individual risk positions; it also takes into account diversification and consolidation effects. The current ratios of risk-bearing capital to risk-adjusted capital are set with reference to the global risk-management limits laid down in the Group-wide Risk Management Standards. These limits are monitored on an ongoing basis.
Profit / loss for the period (segment result) 333.0 320.6 391.0 215.0 61.2 60.9 – 73.4 – 85.5 – – 711.9 511.1
Financial assets with characteristics of liabilities 8,413.7 8,549.5 24,227.5 23,024.6 – – 59.9 46.6 32,701.1 31,620.6
Total technical reserves (life) 42,526.1 39,818.8 1 The actuarial reserves include unearned premium reserves and claims reserves.
Usage not recognised in profit or loss – 9.6 – 78.0 – 87.6 – 16.0 – 13.3 – 29.3
Fees and commission for financial assets and liabilities not recognised at fair value – 17.0 – 14.1
Adjustment due to theoretical exercise of share-based payment plans 203,833 115,822
Goodwill / negative goodwill or proceeds from disposals 8.5 2.3 65.5 –
HDI-Gerling Assurances, based in Leudelange, Luxembourg, was acquired during the year under review and was merged with Baloise Assurances Luxembourg S.A. in the same year.
46. SIGNIFICANT SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES AS AT 31 DECEMBER 2015
47. CHANGES TO SHAREHOLDINGS In 2015 and in 2014 there were no transactions involving non-controlling interests that led to the loss of control over a subsidiary.
49. JOINT ARRANGEMENTS There were no joint arrangements in 2014 and in 2015.
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 that the consolidated financial statements are free from material misstatement.
Total equity and liabilities 2,282.8 2,404.0 1 The comparative prior-year figure has been restated in accordance with the new classification; see notes to the financial statements.
Financial Report Notes to the financial statements of Bâloise Holding 5. DEPRECIATION, AMORTISATION AND IMPAIRMENT
19. EXEMPTIONS DUE TO PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS Because Bâloise Holding Ltd has prepared consolidated financial statements in accordance with recognised financial reporting standards (IFRS), in accordance with statutory provisions (article 961d (1) of the Swiss Code of Obligations (OR)), it has dispensed with the notes on long-term interest-bearing liabilities and audit fees as well as the presentation of a cash flow statement or a management report in these annual financial statements�
→ Claims reserve A reserve for claims that have not been settled by the end of the year�