Photos The members of the Board of Directors and Executive Management were photographed by Marc Wetli, Zurich.
Key figures 2006 2005 Change Non-life (%) Funding ratio 154.6% 149.1% Combined ratio (gross) 93.2% 95.2% Combined ratio (net) 94.1% 94.0%
total), followed by Spain (CHF 110.1 million or 20%) and Germany (CHF 51.4 million or 9%).
Value for our shareholders Our successful orientation and development with regards to return, financial strength and growth had very positive results for our shareholders. In the last three years, the price of our share has improved by 143%, far outstripping the performance of both the Swiss Performance Index (+74%) and the insurance stock index (+50%). Management has directed all its energies towards continuing this proof of performance in future. The attractiveness of the Helvetia share should rest not just on purely financial success, but also on the security and stability of our company, as it has done in the past.
For example, new business processing systems and platforms have been put into operation in various important segments as well as in administrative areas. Their purpose is to make business processing more cost effective and to manage the insurance portfolio more sustainably in terms of income. Partly as a result of this, the gross combined ratio in the non-life business could be reduced in 2006 for the third consecutive year by 2 percentage points to 93.2%. The earning power of the life business also increased considerably with respect to interest and risk gains.
The terms of office of Erich Walser, Christoph Lechner and Urs Widmer will end at the Shareholders ’ Meeting 2007. They are available for a further three-year term of office. No new members of the Board of Directors will be proposed at the Shareholders’ Meeting. Once the new CEO assumes office on 1.9.2007, the chairman of the Board of Directors and the chairman of the Executive Management will no longer be the same person. Consequently, the special supervisory function of the Lead Director will cease to apply from this date.
Pierin Vincenz (1956) a St.Gallen, Swiss b Dr. oec. HSG c 1979 – 1982 Schweizerische Treuhandgesellschaft, St.Gallen; 1986 – 1990 Swiss Bank Corporation Global Treasury at the head office in Zurich and Deputy Director Swiss Bank Corporation O’Conner Services L.P. Chicago; 1991 – 1996 Hunter Douglas, Lucerne, Vice-President and Treasurer; since 1996 Raiffeisen Group, St.Gallen: member of the executive board and Head of the Finance department; since 1999 CEO of Raiffeisen Group, St.Gallen; d in particular member of the board committee of the Swiss Bankers Association, Basel; Chairman of the board of directors of VISECA Card Services SA, Glattbrugg; member of the board of directors of Vontobel Holding AG, Zurich; member of the board of directors of the Mortgage Bond Bank of the Swiss Mortgage Institutions, Zurich; member of the board of directors of Telekurs Holding AG, Zurich; member of the board of directors of Plozza Vini SA, Brusio; member of the board of directors of Pflegekinder-Aktion Schweiz, and five board of trustee mandates.
Helvetia wants to meet the demanding legal and ethical expectations of all stakeholders by providing comprehensive and transparent reporting and responsible and value-oriented corporate governance, to the best of its knowledge and in good faith. The main aims here are to further strengthen confidence in the Helvetia Group, to safeguard the interests of our shareholders, and to sustainably enhance the value of the Group. We ensure that the principles of good corporate governance are consistently implemented and continually optimised throughout the Group.
d) Helvetia Beteiligungen AG, St.Gallen, holds 0.8% of Helvetia shares that are classified as ‘treasury shares’.
The composition of the Board of Directors is given on pages 20 to 23.
3.4 Election and term of office The normal term of office for members of the Board of Directors is three years. Members of the Board of Directors are required to step down for reasons of age at the Shareholders’ Meeting that is held in the year in which they turn 70. New members complete the term of office of the retiring members. Terms of office are co-ordinated in such a way as to ensure that, every year, one-third of the members of the Board of Directors are available for election or re-election. Re-election is possible. Every member of the Board of Directors has to be elected by the shareholders.
3.5 Internal organisation Good governance at Helvetia is based on the relevant legal provisions (in particular, company law and stock market legislation) and on internal directives and regulations. The various functions defined by the Board of Directors and the allocation of duties are presented on page 20. The Board of Directors appoints the Chairman, ViceChairmen, Lead Director, chairpersons and members of the various committees, and the secretary of the Board of Directors.
a) The Strategy and Governance Committee prepares the resolutions to be made by the Board of Directors in the event of a change or redefinition of strategy, and deals with mergers, takeovers and disposals of companies or major portfolios, including the preparation of the required resolutions for the Board of Directors. It also secures good corporate governance within the Helvetia Group, assumes duties and powers that have been assigned to the Committee by the Board of Directors, deals with issues entrusted to it by the Chairman and CEO that are not reserved for the Board of Directors in accordance with the law, the articles of incorporation or the Group regulations, and discusses important and urgent issues. It convenes as often as business requires. In order to deal with specific issues, it may call on internal or external specialists to attend its meetings, which
d) The Audit Committee assists the Board of Directors in its duties within the scope of its overall supervision and financial control. It examines the accounts from the points of view of completeness, integrity and transparency, verifies their compliance with applicable accounting standards and external reporting requirements (including the Group’s environmental report), and monitors the functional capacity and effectiveness of external and internal control systems, including risk management and compliance, insofar as tasks and powers have not been delegated to another executive body of the company. It also verifies the independence and quality of the audits by the internal and external auditors. It ensures optimal co-operation between internal and external control units, the Audit Committee, the Chairman and CEO, Lead Director and Executive Management. The Audit Committee approves the internal audit plan and assists with the compilation of external audit plans, examines the results of audits, comments on them for the attention of the Board of Directors, and may if necessary award special audit mandates. It also prepares the election of the statutory and Group auditors, and submits the necessary proposals to the Board of Directors. It verifies the consistency of auditing activities with any existing consulting mandates and examines the overall fee structure. The Chairman and CEO, CFO, representatives of the external auditors and the head of Internal Auditing attend its meetings in an advisory capacity. The attendance rate was one hundred per cent at closing meetings. In order to deal with
+1% change to risk discount rate –7.1% –1% change to risk discount rate +8.7%
“Our activities revolve around employees and managers.” The Human Resources (HR) Strategy to 2010 of the Helvetia Group has set the following specific objectives: Employees throughout the group shall have the unified brand values of trust, dynamism, and enthusiasm firmly fixed in their minds, attitudes and behaviours and practise them in everyday business operations. Thanks to optimised staff recruiting and overall staff care and development, Helvetia shall always have employees, skilled staff and managers in sufficient numbers and with sufficient skills in all business units. All business units shall have professional HR management and HR controlling units. The balanced diversity of staff in respect of age and gender shall be promoted and shall encourage innovation. The HR structures and management shall be state of the art.
As part of a new sales offensive, new and innovative products were introduced in parallel to our ongoing business activities, for example photovoltaic insurance, the VitalPlus accident insurance products for senior citizens (with comprehensive assistance benefits), and variable premium rates for building insurance cover. The new products received a positive reception, and strengthen Helvetia’s foothold in the market as an innovative insurance provider.
The following strategic measures are planned: Transferring successful product solutions to new customer segments and developing special target group-specific concepts Improving the efficiency of our sales force (achieving growth by adding new, experienced general agents), establishing new broker/ multiple agent relationships and developing new sales channels Achieving portfolio growth by continuing the quality and service campaign and implementing targeted marketing measures (such as up-selling/cross-selling measures, measures designed to improve broker loyalty) Improving operations by process optimisation and continuing automation as well as adapting the management structure.
However, in non-life business our growth was ‘only’ 3.2% because, amongst other things, we once again did not participate in the price war in the motor vehicle segment in 2006 due to income considerations. In the meantime, the situation here has clearly improved – after the strong premium erosion in 2005 (–5.5%), only a slight volume decrease (–0.1%) was recorded last year. The number of motor vehicle policies has increased again slightly for the first time. In addition, Helvetia Spain achieved satisfactory growth rates in the multi-risk, transport and accident insurance segments last year. In the overall property business the increase was 4.8%.
On the claims side, the winter with its high volumes of snow stood out as the event with the greatest impact. In Upper Austria and parts of Salzburg, many roofs caved in under the weight of the snow. Claims exceeding CHF 0.5 billion were submitted for damage caused by snow pressure in Austria.
Successful Helvetia For about 15 years, Helvetia France has concentrated exclusively on transport insurance. In the past, we strengthened our position through acquisitions (buyout of the Royal and Sun Alliance transport portfolio in 2002 as well as the British & Foreign transport and marine insurance portfolios
Earnings per share: Basic earnings per share (in CHF) 11.4 49.35 36.18 Diluted earnings per share (in CHF) 11.4 49.35 36.18
Fair value revaluation of investments – – – –125.5 Change in liabilities for contracts with participation features – – – 48.3 Foreign currency translation differences – – – – Deferred taxes – – – 22.4 Gains/losses recognised directly in equity (net) – – – –54.8 Profit for the year – – – – Total recognised income – – – –54.8
Cash and cash equivalents as of 1 January 172.4 168.5 Change in cash and cash equivalents –51.2 3.9 Cash and cash equivalents as of 31 December 121.2 172.4
Amendment to IAS 39 – The fair value option Classification as 'Financial assets designated as at fair value through profit or loss' is now only possible if one of the following conditions is met: n Recognition at fair value eliminates or significantly reduces a measurement inconsistency. n A group of financial assets, financial liabilities or both is managed and its performance measured on a fair value basis in accordance with a documented risk management or investment strategy.
All of the main financial statements included in the scope of consolidation have the same reporting periods. Smaller Group companies with different financial years prepare interim financial statements as of the reporting date of 31.12.
The Helvetia Group does not defer acquisition costs in non-life business.
For funded benefit plans, a surplus in the plan may arise if the fair value of the plan assets exceeds the present value of the defined benefit obligations. Portions of this surplus are only recognised and recorded as an asset if an economic benefit in the form of future reductions in contributions or refunds to the employer arises. Detailed examination must ensure that newly arising actuarial gains or losses do not lead to an increase or decrease in the assets on record.
Notes to the consolidated financial statements of Helvetia Group 2006 2. Summary of significant accounting policies 103
Finance costs –6.0 –5.9 – – Share of profit or loss of associates 0.9 –8.1 – 0.2 Profit or loss before tax 289.0 220.4 51.4 31.7 Income taxes
Notes to the consolidated financial statements of Helvetia Group 2006 1 These include CHF 51.9 million (previous year: CHF 81.2 million) of gains and losses relating to financial assets for the account and risk of life policyholders.
There was no change to the investments in associates in the reporting year. A loan contract exists between Helvetia Schweizerische Lebensversicherungsgesellschaft AG, Basel, and Tertianum AG (debtor) for CHF 7.8 million, which attracts interest at usual market conditions.
Impairment losses: Impairment of the reporting period 2.6 1.2 Reversal of impairment losses of the reporting period – –
Notes to the consolidated financial statements of Helvetia Group 2006 7.7 Financial assets at fair value through profit or loss in CHF million
Options (exchange-traded) – – – – – – – Futures (exchange-traded) – – – – – – –
Release –23.2 – 22.4 Used amounts –1.0 – 0.8 Foreign currency translation differences 0.1 0.0
–277.2 –300.5 –688.9 –677.7 –989.3 –1 000.6 –676.3 –594.1 – – –677.3 –594.9
Expected income taxes 138.7 115.2 Increase/reduction in taxes resulting from: – tax-exempt interest and dividends –0.6 –1.2 – tax-exempt gains from shares and investments –3.9 –8.5 – non-deductible expenses 24.4 30.9 Back taxes 0.9 – 3.3 Change in tax rates –10.8 –13.4 Tax elements related to other periods –10.4 0.4 Disposal of subsidiaries – – Use of previously unrecognised losses carried forward 0.1 –2.2
12.2.3 Operating lease liabilities Helvetia Group is a lessee under a number of different operating leases. As a result, future leasing liabilities expiring in less than one year amount to CHF 1.8 million (previous year: CHF 2.4 million), in one to five years CHF 5.5 million (previous year: CHF 8.6 million), and in more than five years CHF 0.2 million (previous year: CHF 0.2 million).
16.1.2 Risk management process Helvetia Group distinguishes between the following types of risk: financial market risks (including financial market risks of liabilities, liquidity risks), counterparty risks, insurance risks (life and nonlife ), operational risks (including reputational risks as an impacting dimension) and strategic risks.
16.3.1 Individual insurance and unit-linked life insurance Helvetia Group offers private individuals term insurance, endowment and annuity insurance as well as index- and unit-linked products. Depending on the product, premiums are paid as single or regular premiums. Most of the products include a discretionary participation feature for which regulations in certain countries stipulate the minimum amount of profit participation to be paid out to policyholders. Individual life insurance accounts for 35.5% (previous year: 37.3%) of the Group’s gross premium volume in the life insurance sector, with 57.5% (previous year: 53.4%) generated in Switzerland. The share of unit-linked life insurance amounts to 6.5% (previous year: 5.7%) of the Group’s gross premium volume, with 45.8% (previous year: 58.7%) generated in Switzerland.
16.3.2 Group life insurance Group life insurance accounts for 57.9% (previous year: 56.9%) of the Group’s gross premium volume in the life insurance sector, with 94.9% (previous year: 96%) generated in Switzerland. Outside of Switzerland and in a small run-off portfolio within Switzerland, group life insurance products are very similar to individual insurance policies. For this reason we focus on business with occupational benefit plans in Switzerland when referring to group life insurance below.
As at 31.12.2006, Helvetia Group managed assets of CHF 28.9 billion (previous year: CHF 27.8 billion). Since 2001, the Group has shifted a significant portion of its equity investments into fixed-income instruments to reduce the overall volatility of its portfolio.
Maturity schedule of financial liabilities from insurance business in CHF million as of 31.12.2006 more than without up to 1 year 1–5 years 5–10 years 10 years maturity Total
Actuarial reserve for insurance and investment contracts excluding interest guarantee 681.4 – 85.3 – Actuarial reserve for insurance and investment contracts with 0% interest guarantee 329.4 – 84.6 11.8 Actuarial reserve for insurance and investment contracts with positive interest guarantee 15 416.8 64.5 3 457.0 15.5 Average interest guarantee in per cent 2.74 3.17 3.14 3.00
n Counterparty risks from transactions involving derivative financial instruments: this risk primarily results from transactions with OTC derivates.
n Counterparty risks from ceded reinsurance: Helvetia Group transfers part of its risk exposure to others under reinsurance contracts. If the reinsurer defaults, the Group continues to be liable for the reinsured liabilities. The Group therefore periodically analyses the balance sheets and credit ratings of its reinsurers. The Group places its reinsurance contracts with several first-class companies to reduce dependency on one single reinsurance company. The Group also holds collateral in the form of fund deposits and/or letters of credit under related reinsurance treaties. Further counterparty risks arise from the facultative reinsurance business.
Borrowed capital 204.1 204.3 –0.1% Total liabilities and shareholders’ equity 1103.8 985.6 12.0%