WHAT WE AIM TO ACHIEVE: Th e year 2008 will be characterised by volatile fi nancial markets and a further increase in pricing and competitive pressure.
The Baloise Group is active in selected markets in contine tal Europe. With approximately 8,600 employees, Balois on on tners. Th e e Swiss Market I
Change is often experienced But change is al eed fulfi lling life d as a challe so an expres dom to choo life a
CROATIA AND SERBIA Together with “Osiguranje Zagreb”, which was acquired in July 2007, “Basler Osiguranja” is the fourth largest insurer in the Croatian market. Aft er opening an offi ce in Serbia at the end of 2007, Baloise is now concentrating on the target segment medical practitioners and dentists, which has already been highly successful in Austria and Croatia, as well as on banking sales.
”. Mercator has established itself as preferred trust”. Mercator has established itself as preferred trus r to local, professional brokers. Th e como local, professional brokers. Th e com ehensive range of fi nanciensive range of fi n e products rodu
Rolf Schäuble, Chairman of the Board of Directors and CEO of Baloise Group 11SHAREHOLDER INFORMATION LETTER TO SHAREHOLDERS
DRUCK ty to into i ss to the capital ma to the capital m year 2008 will be characterised by volatilear 2008 will be characterised by volati markets and a further increase in pricing and comarkets and a further increase in pricing and co pressure. In this challenging environmentssure. In this challenging environment achieve good results at a highachieve good results at a hi expects to see a rexpects to see a creasecrea ra tegic financial strengt d more than that we want to – and ute to this consol generate
quarter, the Baloise share performed strongerquarter, the Baloise share performed stronger market as a whole, but weaker than the Swiss in-market as a whole, but weaker than the Swiss inex. By 31x. By 31stst March 2007, the Baloise sharMarch 2007, the Baloise sha 3.9%. In the same period,9%. In the same pe th the insurhe i
In tha ust had ne up by 3.9%. In the same period, the SMI only increased 2.2%. With the insurance sector being stimul ng interest rate level in the fi rst t rance sector index (S
VORABDRUCKnew acquisitions is based o ex considerations. Nostalgia o familiar or new.
tha xcellence and target customers. In the target customer segents, we achieved above-average growth and a further inase in profi t contribution. Productivity of d nnels rose as a result of improve operating performa ed to i oducts with bank ers sector. Th e re funds am
BELGIUM During the fi scal year 2007, Mercator achieved excellent results. Its foundation is a good loss ratio – despite storm losses of about CHF 16 million gross – and rising current revenue from investments. Th e exceptionally high earnings of the previous year also includes revenue from the sale of participations, which did not meet our needs for a sustainable investment policy. Business volume increased by a pleasing 7.3% to CHF 792.8 million (previous year: CHF 738.7 million). Aft er several years, Mercator has managed to achieve growth again, thanks to the improved sales performance in the nonlife sector and increased broker support.
Change is part of life and offers opportunities for growth. Baloise helps you meet these challenges in a positive way. Again and again.
“Our tasks and framework conditions have changed greatly over time,” says managing director Brigitte Heggli Bachmann. “And Basler has been supportive of us throughout,” adds her brother. Established in 1894, the business has grown from 30 to 200 employees since 1974. Well-known personalities such as DJ Bobo, Miss India and the Princess of Th ailand have been among their customers. What they did not know: as a trusted partner, Basler was always at their side.
“I AM NOT READY TO RETIRE YET.“ Joël Cornelis is a jovial man with a jam-packed diary. Together with his daughter Karien, he founded a small insurance agency in 1992 on a busy road to Ghent. At the time, they bought a small company of Noordstar (now Mercator Verzekeringen). Today, with 28 employees, Cornelis & Partners realises half of its turnover with Mercator. “I am not ready to retire yet,” he says, “my work is my hobby. And I will keep going as long as I feel that way.”
In his view, the broker system has the advantage that clients can rely on tailor-made products and services. In addition, they all have their dedicated adviser who is even prepared to visit them at home. “I am convinced that only larger brokerage fi rms have a chance of survival,” predicts Joël Cornelis. “Consequently, 2008 will again be dominated by expansion.”
65% of those who left did so of their own accord. In our main market Switzerland, 64% of employees took advantage of our employee share ownership programmes.
We are thus making a vital contribution to the company’s added-value.
Delivering top performance requires a good work-life balance. Hence, we off er our employees diff erent models for working full-time, part-time or working from home, with 17% of employees opting for part-time. We are particularly pleased with the childcare we provide for the children of our employees. Th e day nursery set up in Switzerland in 2001 now looks aft er 80 children.
Th e Risk Map is embedded in the organisation and responsibilities of the entire Group. Each risk is allocated to a risk owner (overall responsibility) and a risk controller (responsible for risk monitoring and control). Th e two functions are separate.
Overall risk management ensures that Baloise can bear its risks at any time, while also utilising opportunities to improve added-value.
We also monitor individual risks, subject-specifi c and through limits, detailed in the following examples: Actuarial risks are based on underwriting guidelines that are used by local underwriters for their decisions. Mathematical deductible risk analysis accompanies the key reinsurance decisions.
Market structure and fi nancial risks are controlled both locally and centrally in the investment units, with a number of reporting processes. In addition to limits for share exposure, there are clear and binding guidelines for bond ratings. Credit risks are evaluated using Basel II, but also by means of advanced statistical methods.
In summary, we can say that Baloise risk management provides an excellent basis for strategic business decisions. It allows us to create value for the entire company, our policyholders and shareholders through concrete quantifi able risk-return decisions. In 2008 and beyond, this risk management system will enable further growth for the Group. Its fl exibility and capacity for future expansion makes the handling of future challenges possible.
tegic risk management includes a clear perspectiveegic risk management includes a clear perspective ing the development of new business areas and ting the development of new business areas and t urn optimisation of our existing businrn optimisation of our existing busi tegic risk mc ris al debdeb es from the USA hs from the USA
Th e Baloise Board of Directors resolved on 10th March 2006 to buy back up to 10% of issued share capital within the next three years. Th is amounts to a maximum of 5,530,715 registered shares with a nominal value of CHF 0.10 each. Th e shares will be repurchased through a separate trading line, aft er redution of withholding tax. At the Annual General Meeting of Bâloise-Holding on 27th April 2007, the shareholders decided to reduce the share capital of CHF 5,530,715 by CHF 130,715 (corresponds to 2.4%) to CHF 5,400,000 through a capital reduction of 1,307,150 repurchased registered shares with a nominal value of CHF 0.10 per share. At present, no decision has been made by Baloise regarding the use of the repurchased registered shares: possible options are to use the repurchased shares for capital reduction or acquisitions or to resell them.
6 Gertrud Höhler (1941, German, Prof. Dr. phil.) joined the Board of Directors in 1998. She is a business and political consultant and was Professor of Literature and German at the University of Paderborn from 1976 to 1993. She studied Literature and Art History in Bonn, Berlin, Zurich and Mannheim. Between 1987 to 1990, Gertrud Höhler was public relations consultant to Alfred Herrhausen, the Speaker (Chairman) of Deutsche Bank; and between 1992 and 1995 a non-executive Director of the Grand Metropolitan PLC, London. She is a member of the Board of Directors at Ciba AG, Basel and also of Georg Fischer AG, Schaffh ausen. Gertrud Höhler is an independent non-executive director.
Members of the Board of Directors receive the minutes of the meetings of the Corporate Executive Committee for inspection. Th e Chairman of the Board of Directors and the Lead Director may attend the meetings of the Corporate Executive Committee at any time.
Dr. Frank Schnewlin stepped down as CEO to leave Baloise on 6th December 2007. As of 6th December 2007, Dr. Rolf Schäuble, Chairman of the Board of Directors, took over as interim Chair of the Corporate Executive Committee. His dual mandate will be eff ective until the Annual General Meeting on 30th April 2009, at the latest.
www.baloise.com About us Organization Corporate Executive Committee 5. COMPENSATION REPORT: COMPENSATIONS, PARTICIPA-
Th is chapter deals with the compensation system of Baloise, disclosing remuneration and loans to the members of the Board of Directors and the Corporate Executive Committee as well as their participations. Th e legal basis for the contents and range of this disclosure are sections 663bbis and 663c of the Swiss Code of Obligations, the SWX Directive on Information Relating to Corporate Governance (the SWX Directive) and the Swiss Code of Best Practice for Corporate Governance.
As part of the reorganisation of the pension fund, in particular the inclusion of the bonus portion subject to AHV in the relevant annual income, this service is to be discontinued as of 1st January 2008.
Total Board of Directors (excl. Chairman) 900,000 465,833 –/– 1,365,833 1,025,833 340,000
Remuneration to former members of the Board and closely related individuals
No non-standard loans and credits have been granted to a) former members of the Board of Directors and the Corporate Executive Committee b) individuals or companies with close family ties to members of the Board of Directors (persons with close family ties: spouse, civil partner, unmarried partner, children). Mortgages
Dr. Thomas Sieber, Head of Corporate Center (as of 6.12.2007) –/– 15,745 15,745 0.029% 857
As a rule, the Annual General Meeting is held in April, but no later than six months aft er the end of the reporting year. Th e Bâloise-Holding reporting period ends on 31st
December. At least 20 days’ notice shall be given of an Annual General Meeting. Each registered shareholder receives a personal invitation with the agenda. Invitation and agenda are published in the Schweizerisches Handelsamtsblatt, in various newspapers and on the Internet.
Investor conferences: Key business and strategy topics are reviewed in detail.
Interest expense on insurance liabilities – 98.9 – 90.1 – 78.5 – 67.0 – 76.1
Combined ratio (gross) 3 in percent 97.6 93.0 100.6 90.2 93.0
Financial assets of an equity nature 5,413.7 6,757.4 9,839.0 10,902.3 12,137.8
Other fi nancial expense and income 3.2 – 62.5 – 118.4 – 132.8
+/– 1% change in risk discount rate – 6.3 / + 7.2 – 6.1 / + 7.1
Accruals take into account both ex r the new fi scal yea ar w
aloi lois oise Insurance Company (Bermuda) Ltd., Hamilton, Bermu se Finance (Jersey) Ltd., St. Helier, Jersey ranje Zagreb d.d., Zagreb tno osig
Board of Directors iation to unappropriated reserves nings to be carried forw earnings 314
Segment Financial reporting at the Baloise Group is carried out in accordance with international fi nancial accounting standards (IFRS), which requires similar transactions and business activities to be grouped and presented together. Th e grouped business activities are presented in “segments”, by geographic regions and business areas.
Basler Versicherungen Basler Strasse 4 P.O. Box 1145 D-61345 Bad Homburg info@basler.de www.basler.de
Basler Osiguranja Ulica Grada Vukovara 269 d/I HR-10 000 Zagreb info@basler.hr www.basler.hr
Cash fl ow from operating activities (net) 683.5 1,356.2 in CHF million
IFRIC 10 Interim Financial Reporting and Impairment Losses was issued in July 2006. This resolves the issues regarding the reversal of impairment losses in quarterly or half-yearly reports that relate to goodwill, equity instruments or fi nancial assets carried at acquisition cost on the balance sheet date, if the carrying amount of these items would be higher using the same accounting principles (impairment is lower or non-existent). The IFRIC concludes that such impairment recognised in an interim period must remain recognised on the balance sheet date. Adjustments to a higher carrying amount due to the impairment being lower or non-existant on the balance sheet date do not take place. On the balance sheet date, Baloise does not reverse any impairment losses for goodwill,
Method. The company’s identifi able assets and liabilities are measured at fair value as of the fi rst consolidation date, regardless of any minority interests. If the purchase price exceeds the assets and liabilities assessed at fair value, the difference is recognised as goodwill.
Financial assets are charged off, if the rights to the cash fl ow from the fi nancial instrument have expired or if the fi nancial instrument is sold and all related risks and opportunities have essentially been transferred. The cash outfl ow from reverse repurchase transactions
Booking in the balance sheet takes place on the due date. Financial assets transferred as securities for repurchase transactions continue to be recognised in fi nancial assets. The cash fl ow is offset by the respective liabilities. Here, the Baloise Group is only involved in securities lending. The fi nancial instruments used for lending remain recognised as fi nancial assets. The coverage of the repurchase and reverse repurchase transactions securities, as well as the securities lending transactions take place daily at the effective market values.
3.15.2 Capital Reserves Paid-in share capital (premium) in excess of the face value, Bâloise-
3.18.3 Deferral of Acquisition Costs Acquisition costs are deferred as part of the recognised and paid commissions (Deferred Acquisition Costs). Depending on the contract, amortisation occurs over the period of premium payments or insurance period. The Loss Recognition Test is used to check recoverability.
In the case of contracts with a Discretionary Participation Feature, the Baloise Group considers the portion of the valuation differences attributable to these contracts, which are to be credited to policyholders pursuant to a statutory or contractual minimum quota as a Discretionary Participation Feature component. The Discretionary Participation Feature component thus determined is reported under the item
represent an investment by the customer with a surplus participation feature. The accounting principle for these fi nancial contracts with Discretionary Participation Features is the same as that for life insurance contracts, for which the valuation principles are described in Section 3.18.
The assets that correspond to the liabilities are only considered if they are paid to an entity separate than the employer, e.g. a foundation. Such assets are valuated at market value. Unrecognised technical gains and losses that exceeded the greater of the present value of the defi ned-benefi t liabilities or the replacement value of plan assets by 10% at the end of the preceding reporting period are recognised in the income statement based on the expected average of the remaining years of service of the employee participating in the plans.
For extraordinary events such as natural disasters, terrorist attacks or similar emergency plans have also been drawn up in all the companies of the Group, so that the continuation of business operations can be ensured.
The responsible Risk Owners and Risk Controllers evaluate the plausibility of the fi gures submitted, considering them accordingly in their management decisions.
To determine the reserves for losses, the existing portfolios must be structured so that the existing data material is suffi ciently homogeneous to allow the application of certain analysis procedures. In particular, it is assumed that the typical pattern of processing of the last years lends itself to meaningful extrapolation. It is only in cases where, for example, processing performance is subject to extreme breakouts, that additional assumptions might have to be made.
5.4.3 Changes in the Assumptions In principle, the assumptions underlying the formation of loss reserves are constant. In the case of the basis for calculating pensions, adjustments are made time and again over the years. With respect to the previous year, no changes were made to these assumptions.
At the end of the year of the loss occurrence 691.2 735.2 766.3 754.2 951.2 684.1 681.4
The speciality of the Swiss group business is the impact of political decisions. The government determines the minimum interest
In Germany, there are still a small number of contracts for which a minimum survival benefi t amounting to the contributions paid is guaranteed without any fund-based hedging. Since 1999, this product is no longer offered.
In total, this results in a negative effect of CHF 18 million (previous year: CHF 18 million) in the income. The negative effect of the income statement is over-compensated by the positive change in unrealised gains and losses in equity. The positive effect on the unrealised gains amounts to CHF 24 million (previous year: CHF
In the Swiss business, the scenario results in a burden of approximately CHF 19 million on the income statement (previous year: CHF 20 million). This is due in particular to an increased DAC
Baloise Group reviews the strategic asset allocation of all business units twice a year in collaboration with these business units.
The limits of the interest rate risk are determined in such a way that when the market interest curve exhibits a shift of +/– 100 basis points the fair value of the equity may diminish by no more than 2.5% (warning limit) or 4.0% (action limit) per calculation date. In addition to these percentages, absolute values are determined for the warning and action limits on an annual basis and are approved by the Board of Directors. These must also not be exceeded.
The currency effect of the foreign currency bonds and of the actuarial foreign currency liabilities and the change in fair value of the derivative fi nancial instruments held for hedging purposes are always reported in the income statement.
If no contractually irrevocable loan commitments were agreed, the maximum default risk of fi nancial assets corresponds to the book value for own account and own risk.
Receivables from fi nancial contracts –/– –/– –/– –/– 318.3 318.3 in CHF million
Internally developed intangible assets 8.1 Intangible Assets 2006 Life Nonlife Total
Change due to unrealised gains and losses on fi nancial instruments
Depreciation as a result of impending losses –/– –/– –/– –0.8 –/– –/– –0.8
Present value of liabilities partially fi nanced by a fund –1,815.1 –1,855.7
Experience adjustments arising on plan assets 66.6 55.5 –20.6 in CHF million 17.2.6 Expenses for Benefi t Plans 2006 2007
17.4 Share-Based Compensation Plans The Baloise Group offers employees a range of share-based plans as part of their total compensation package. Employee participation, share subscription plan, Employee Share Ownership Plan, and performance quota are all “cash-settled” share-based compensation plans. Performance Share Units (PSU) constitute an “equitysettled ” share-based compensation plan.
Subscribed shares per participant (average) 88.0 88.4 * in CHF million 17.4.2 Share Subscription Scheme (SSS) (Formerly Direct Share Subscription) Since January 2003, incentive-eligible employees of all Group companies have been able to purchase shares at discounted prices as part of their incentive package. The plan subscription date is 1st June. The subscription price is set by the Corporate Executive
* in CHF million 17.4.3 Employee Share Ownership Plan (ESOP) Since May 2001, executive employees in Switzerland have been eligible to voluntarily elect to receive shares instead of cash compensation as part of their incentive package. Maximum limits apply for functional levels 1 – 3; Corporate Executive Committee members may receive a maximum 50% of incentive compensation in the form of shares acquired through the Employee Share Ownership Plan.
PSUs allocated in 2007. PSUs expire worthless upon termination of employment (excluding cases of retirement, invalidity or death). A
Addition resulting from reclassifi cation of held-to-maturity fi nancial assets –/– –/–
In addition to unearned premium reserves, this item also includes aging provisions from the health insurance business and capitalised unearned premiums as well as reserves for pending losses potentially necessary in connection with LAT.
Adjustment from unrealised gains and losses as of 31st December (shadow accounting) 53.1 17.6
Recognised at market value through profi t or loss 14.6 17.9
Total premiums earned and policy fees (net) 2,887.5 3,631.6 6,519.1 3,019.7 3,652.6 6,672.3 in CHF million lents” primarily represents interest. This revenue also includes revenue from assets held for the account and at the risk of life insurance policyholders.
The fi gure includes foreign currency income in the amount of
These were calculated this year based on amounts reported by the individual companies after deduction of income from internal participating interests, rather than on consolidated income. The previous year’s reporting was adjusted accordingly.
Committee members (executive management) totalled CHF 9.0 million in the reporting period (previous year: CHF 9.8 million). Of this amount, CHF 2.5 million (prev. yr.: CHF 3.0 million) stemmed from share-based compensation plans.
Disclosures of compensation, participations as well as loans granted to members of the Board of Directors and Corporate Executive Committee made in the following sections are compliant with 663b and 663c of the Swiss Code of Obligations (OR).
Total Chairman of the Board of Directors and members of the Corporate Executive Committee 31,466 221,936 253,402 0.469% 20,372
of which: own share in the capital commitments of the joint ventures –/– –/–
Statement as a whole. We believe that our audit form ly reliable basis for our opinion.
The cash and cash equivalents include cash in banks as well as cash equivalents such as call-, time deposits or money market papers if these have an original maturity of fewer than 90 days.
Notes on Income Statement and Balance Sheet 2. Income from Interest and Securities