Baloise-Holding AG
Annual Report 2001

Plain-text annual report

In the best of hands Bâloise-Holding Annual Report 2001 The Baloise Headquartered in Basel (Switzerland) and with operations in Europe, the Baloise Group is a solutions provider in the field of insurance, provision for the future, and asset formation. The Baloise offers its customers a broad range of products and financial services through their preferred sales channels. The Group’s strategic focus is on sustainable, profit-oriented growth in its core markets of Switzerland, Germany, Belgium, Austria and Luxembourg. Bâloise- Holding registered shares are included in the Swiss Market Index (SMI) and are traded on virt-x under the ticker symbol BALN. The essentials at a glance In an exceptionally difficult year for the financial services sector, the Baloise posted earnings of CHF 404 million thanks to a first-class underwriting result. In a move designed to optimize capital and reserves, the Baloise reduced the nominal value of its shares from CHF 9 to CHF 1 last year and repaid CHF 343 million in all to its shareholders. The tradability of its shares was improved by means of a 1:10 split in nominal value. The company pressed ahead with the integration of the Swiss and Belgian banks taken over the previous year. In both markets, customers are being offered first fully integrated financial services. In early 2001, twelve attractive in-house investment funds were launched under the name Baloise Fund Invest catering for a variety of investment goals. With the appointment of Frank Schnewlin as CEO of the Baloise Group, the Board of Directors finalized the separation of overall operational and strategic responsibility. Bâloise-Holding Aeschengraben 21, CH-4002 Basel Phone +41 61 285 85 85 www.baloise.com The most important figures at a glance. Key data Income statement Total premium income of which non-life of which life Investment-type premiums Consolidated net profit Balance sheet Investments Technical provisions Capital and reserves Assets under management 2000 6,701.2 2,541.6 4,175.1 176.4 634.4 53,213.9 35,734.5 7,372.8 2001 6,632.7 2,591.5 4,058.0 248.4 404.4 50,784.8 36,319.5 5,384.8 Change in % - - 1.0 2.0 2.8 40.8 - 36.3 - 4.6 6.2 - 27.0 Total assets under management 58,012.0 55,645.1 - 4.1 in CHF m Ratios Return on equity (ROE) without unrealized gains and losses Internal rate of return (IRR) Combined ratio non-life Technical reserve ratio non-life in percent 19.0 3.0 104.7 186.0 10.5 - 21.2 105.7 184.3 Profit development 1997–2001 750 500 250 0 CAGR 10 % 3 7 2 97* 5 6 3 98* 8 1 5 99 4 3 6 00 4 0 4 01 CAGR: Compounded Annual Growth Rate in CHF m *Based on ARR accounting principles Baloise share price1 1997–2001 400 350 300 250 200 150 100 50 0 Embedded value life insurance – 3,792.5 97 98 99 00 01 Shares issued as of 12.31. in units 56,704,000* 55,307,150 Key share data Equity capital per share as of 12.31. in CHF 130.02* Consolidated net profit per share (adjusted) in CHF 11.25* Bâloise-Holding, registered2 341 Swiss Performance Index (SPI) Insurance 186 Swiss Market Index (SMI) 163 1 indexed (December 1996 = 100) 2 adjusted after 1:10 split of July 24, 2001 Price at year-end in CHF Market capitalization as of 12.31. in CHF m Price-earnings ratio * adjusted after 1:10 split of July 24, 2001 Number of staff Total at December 311 of which Switzerland of which other countries 1 adjusted for degree of employment 1997* 6,563.7 3,263.0 3,300.7 1998* 6,436.1 2,659.6 3,776.5 Premium development 1997–2001 Total premiums of which non-life of which life in CHF m *Based on ARR accounting principles 178* 10,093 15.9 8,425 3,835 4,590 1999 6,085.3 2,500.1 3,585.2 97.36 7.31 153 8,462 20.1 8,623 3,944 4,679 2000 6,701.2 2,541.6 4,175.1 - 2.5 - 25.1 - 35.0 - 14.0 - 16.2 2.4 2.8 1.9 2001 6,632.7 2,591.5 4,058.0 Annual Report of Bâloise-Holding 2001. Contents Letter to Shareholders Insurance, Pensions and Asset Formation Private Banking Today Comments on Business Activities Switzerland Germany Benelux Other countries Investments that retain their value Risk management put to the test Investing in the networks of the future Focus on staff development Optimized market identity and sustainable business practice Financial Service Products for Brokers Organization Financial Perspectives for a Forward-Looking Clientele Corporate Governance A Sales Professional in Action Information for Investors Consolidated Financial Statements of the Baloise Group Consolidated Income Statement Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Equity Segment Reporting by Geographical Segment Segment Reporting by Business Segment Management Information (incl. embedded value) Notes to the Consolidated Financial Statements Report of the Group Auditors Financial Statements of Bâloise-Holding 2001/2002 Income Statement Balance Sheet Notes to the Financial Statements Report of the Statutory Auditors 2 5 11 13 15 17 19 20 22 24 25 26 27 31 33 41 43 51 53 57 59 60 62 64 66 70 74 81 143 144 144 145 146 149 Annual Report 2001 | Bâloise-Holding 1 1 Letter to Shareholders Well on track thanks to healthy insurance business. Dear Shareholders The Baloise Group has successfully weathered an eventful 2001 to present you with another solid and, all in all, gratifying financial statement. Weak stock markets meant that it was impossible to match the previous year’s record result, but with net earnings of CHF 404 million – the third best result in its history – the Baloise still ranks as one of the most profitable financial service providers. This is mainly thanks to the healthy insurance business and the Group’s forward-looking approach to asset management. Despite the stock-market related contraction, the Baloise still has an excellent equity capitalization. The premium volume generated underscores our strong operating perfor- mance, particularly in the Swiss domestic market. In the life and pension segment, for instance, we achieved organic growth of 9.3 percent (in local currency). We see this as a vote of confidence in our ability to find convincing solutions to the prob- lem of securing living standards over long periods of time. We also managed to boost premium income by 5.4 percent (in local currency) in the largely stagnant non-life market. Further, carefully-targeted streamlining of sales and administration processes once more resulted in an at- tractive combined ratio. The non-life sector again made a substantial contribution to our consolidated net profit. The Baloise adopted a proactive approach to the difficult financial mar- kets. Because we put long-term value added ahead of short-term earnings, we were deliberately cautious in relation to capital gains on shares. During the first half of the year, we proceeded with a planned and systematic reduction of our high equity weighting. In the second half of the year, we largely halted sales of equities in response to the “black autumn” and refrained from realizing further gains. This will enable us to act at a more favorable time. Important landmarks have been reached on the road to implementing our all-in-one financial services strategy. In Switzerland and Belgium, the merger of our insurance and banking operations is now well advanced. New private bank- ing branches advise and assist individual clients from all over Switzerland using integrated financial services. The finance portal “balfolio.com” also offers advice on asset investment and securities trading. In the Belgian market, under the brand name “Mercator”, we offer a wide range of services as an integrated insurance and banking group. In Germany, Deutscher Ring’s realignment as a life insurance and pensions specialist is in full swing. With the creation of the asset management business unit, the cen- tralization of the Group’s asset management is now far advanced and has passed its acid test. Our own investment funds, launched in the early part of 2001, complete our existing range of offerings. 2 Bâloise-Holding | Annual Report 2001 With a view to continuing our growth strategy, we strengthened the Cor- porate Executive Committee with the appointment of Frank Schnewlin as our new Chief Executive Officer and the inclusion of the senior internal executives Bruno Dallo, Wolfgang Drunk and Martin Wenk. Urs Berger will remain in charge of Swiss operations. It is pleasing to achieve such a blend of continuity and innovation. This will allow me to concentrate fully on my duties as Chairman of the Board of Direc- tors in future. Carl M. Meyer, our long-standing Chief Financial Officer, retired at the end of 2001. I would like to thank him for his sterling efforts. The Baloise’s shares were not left unscathed by the sharp falls on the stock markets and lost around 14 percent of their value during the course of the year. However, lined up against the relevant indices and the other SMI-listed pri- mary insurers, our stocks’ performance proved to be the best. Shortly before the end of the year, the Dutch-based Strategic Money Management Company B.V. acquired a package of roughly 21 percent of our shares from the Zurich Financial Services Group. At the beginning of 2002, the BZ Group increased its stake in the Baloise to 20 percent, which is not surprising in light of our impressive perfor- mance. Given the positive result and the company’s solid financial situation, we are proposing that the General Meeting distribute the same dividend as last year. 2001 had a big impact on our industry and 2002 will likewise present us with some major challenges. Last year, the Baloises flexibility and excellent per- formance in the insurance business demonstrated our continuing ability to live up to our stakeholders high expectations. This was and will be achieved by focusing on our core competencies and systematically pursuing the targets we have set our- selves. The Board of Directors and the Corporate Executive Committee would like to thank all employees for their exemplary work. We are also grateful to our customers, investors and business partners whose trust has motivated us time and again to achieve outstanding results. Rolf Schäuble Chairman of the Board of Directors Annual Report 2001 | Bâloise-Holding 3 3 Whatever fate may have in store: we shape our destiny with our own hands. 4 Bâloise-Holding | Annual Report 2001 Insurance, Pensions and Asset Formation Financial services are built on trust. Baloise Group’s range of integrated financial services is taking shape. Visible results last year of the growth strategy’s implementation include the opening of four new private banking branches belonging to Baloise Bank SoBa in Switzerland, the merging of our Belgian business units with the insurance and banking group Mercator, and the systematic refocusing of Deutscher Ring as a life insurance and pension specialist. The ever closer ties between banking and insurance products and services are the logical result of a growing demand for individualized overall financial services. Combining banking and insurance Modern information processing facilities and infrastructure enable solutions to be services meets a need for comprehensive customized in a cost-friendly way. Private banking is no longer the domain of a and individualized customer relations. privileged few. Baloise is now on the way to becoming a confidence-inspiring brand in Europe for insurance, provision for the future and asset building. A by- word not only for attractive financial products, but also for comprehensive per- sonal counseling supplemented by user-friendly Internet services. Common denominators for the Group companies Although the operational implementation of our strategy can differ considerably from one country to another, the thrust of all Group companies is based on a number of common strategic denominators: Trust in the integrity, competence and security of Baloise as a partner for top- rate financial services has to be earned anew on a day-to-day basis. Brand value and corporate identity in all the markets we operate in are therefore given consistently high priority. Baloise is a financial partner in the fullest sense, offering all-round products and services from a single source. Customers stand to benefit: they obtain carefully selected and coordinated products and so avoid both gaps and over- laps in their financial provision. Existing insurance and pension plan holders are given preferential treatment when new products are launched. The existing range of asset building instruments is to be consistently expanded while observing the following rule: financial products that cannot be provided better and at lower cost within the Group are bought in. Annual Report 2001 | Bâloise-Holding 5 5 Baloise invests considerable resources in staff training and building up exper- tise among the various local distribution organizations. We try to optimize the combination of personal client relations and online services. All Group companies draw on the expertise and resources of the Baloise Asset Management corporate unit, which also manages the Group companies’ secu- rity portfolios and is responsible for the strategy, investment structure and se- lection of securities for the investment funds managed by Baloise Fund Invest. We give top priority to maintaining a strong basis of trust with customers A solid basis of trust between ourselves and our customers and brokers is of and intermediaries. foremost importance to us. As part of this basis, we need to be recognized as a dynamic company with strong roots in the local markets. On the operational level, the strategy must therefore be implemented flexibly and with sufficient sensitivity for local market conditions. Private banking services for individuals in Switzerland As a leading life and non-life insurer, Baloise maintains an impressive portfolio of long-term customers. We do not just present them with an attractive array of financial products to choose from. Our key focus is on offering comprehensive advisory services in insurance, pension and asset building matters with a careful- ly balanced mix of personal contact and online options. Baloise’s insurance and pension business is supplemented by the banking products of Baloise Bank SoBa and Baloise’s own investment funds. The result is a range of truly integrated financial services. In the past year, we added four new private banking branches, one each in Basel, Bern, St. Gallen and Zurich, to the three existing ones in the canton of Solothurn. Around 50 specialists look after the needs of individuals from the upper income and asset sectors. The roughly 1,000-strong Baloise sales staff in Switzerland can refer their clients to Baloise Private Banking at any time. More than 350 of them have undergone in- tensive training and coaching in investment fund consulting in the last two years. For a financial service relationship to be truly beneficial for customers, Baloise Bank SoBa offers tailor-made, long-term financial planning that takes into account every aspect of insurance, provision for the future and asset building. Together with their clients, our specialists work out budgets, investment and pension strategies and the implementation options. This includes the evaluation of the most suitable financial instruments – Baloise products and others. Our cus- tomer advisors can draw on state-of-the-art IT support which encompasses analy- sis, tax and quotation software specially tuned to the requirements of integrated financial services. Besides, customers have round-the-clock access to user-friendly Internet platforms with home-banking functions and security trading facilities. Strong financial services partner for Belgian brokers In Belgium, insurance and pension products are distributed through independent professional brokers. They provide customer service and settle assignments directly with the financial service providers. Recently, however, competition has Baloise Bank SoBa’s tailor-made financial planning encompasses all aspects of insur- ance, future provision and asset formation. 6 Bâloise-Holding | Annual Report 2001 arisen from traditional retail banks who offer both unit-linked pension and prop- Brokers can count on even better advice from us thanks to our strengthening of staff in the Belgian banking business. erty insurance products. Our growth strategy in Belgium is based on closely-knit partnerships with top-notch local brokers. We provide them with the means to offer all-inclusive customer services and are thus able to build and expand a sustainable market position. We actively support our brokers in their competition with banks. The ac- quisition of HBK-Spaarbank in mid 2000 has enhanced our range of pension pro- vision and asset formation products. By merging the bank with our insurance com- pany in autumn 2001, we have become a market force with a single brand and corporate identity using the well-established and catchy name “Mercator”. The product range has been streamlined and processes have become smoother. Our partners on the market appreciate a wide choice of products from a single source, which considerably reduces the organizational and administrative workload. More- over, with our newly-acquired banking staff we can provide our brokers with even more comprehensive support. Deutscher Ring: proactive client management and multimedia technology By focusing on life insurance and pension solutions for individuals in the low to medium income range, Deutscher Ring has clearly defined its market approach. Its product line comprises pensions, asset formation, accident and disability cover- age, taking special account of the new “Riester” annuity. To enhance the quality of their advisory services, our roughly 1,000 cus- tomer advisors in Germany have all been equipped with v.i.v.a., a visual, interac- tive life insurance and pension assistant. Designed as a virtual library of notebook- Deutscher Ring concentrates on life insurance and pension solutions for individuals in the based multimedia presentation and product modules, v.i.v.a. is currently being lower and middle income segments. used in contacts with around 175,000 clients. The aim is to achieve a sustained improvement in the quality of customer services and in the retention rate, the emphasis being on customized solutions and proactive, lifelong client relations. Annual Report 2001 | Bâloise-Holding 7 7 8 Bâloise-Holding | Annual Report 2001 Annual Report 2001 | Bâloise-Holding 9 9 Let me! Let me! There are phases in life when we want to accomplish everything on our own. Then again there are phases when we are relieved that we don’t have to bear every burden alone. To know that we are in good hands … 10 Bâloise-Holding | Annual Report 2001 Private Banking Today A financial partner for life. Call on March 26: self-employed man, good income, In reality, life rarely follows a planned script. homeowner, some savings, neither time nor know-how So you’ll be glad to know that your financial arrange- to manage his finances himself. Is looking for profes- ments can be modified at short notice. As your person- sional support. Meeting: March 28, 4:30 pm. al advisors, we will be at your service whenever you care to contact us. Besides, you have 24-hour online access “It’s good that you’re not looking for quick-fire to your investments and accounts with us and can make solutions. Before we come up with some suggestions, we would like to go over a number of issues with you. We use of tools such as the finance portal balfolio.com at any time.” would, for instance, like to know something about your mid- and long-term targets in life, your professional and family circumstances. In that way we’ll gain as detailed a picture as possible of your financial situation and pos- sibilities, present and future. As you can see, we are not rushing you into signing a contract. Our approach is to offer you competent and comprehensive advice and to support you not just in the present instance, but over a long period of time. You will soon realize that, to us, integrated financial services mean more than just a compilation of banking and insurance products. They naturally include a full range of solutions from property and personal insurance to pension provision and asset building, but also take into consideration fiscal and legal aspects and the family context. So, provided we come to an agree- ment, our financial advisors will work out a financial masterplan tailored to your specific situation and needs, in consultation with our legal, economic and tax experts wherever necessary. Our financial planning is long-term and based on a series of phased measures. And when I say long- term, you can take that literally. We may, for example, point out to you in a few years from now that, for fiscal reasons, the right moment has come to transform your one-man enterprise into a stock company with your children as co-owners. And when the time comes, we can help ensure that you enjoy a financially care-free transi- tion from professional life to retirement. Within the framework of the masterplan, you will be able to decide for yourself what pension products and investment instruments you prefer. Annual Report 2001 | Bâloise-Holding 11 11 Global networking, round-the-clock availability, digital omnipresence – technology has made us real-time virtuosos. Yet experience shows: being connected is useful, but lasting ties are what bring lasting solutions. 12 Bâloise-Holding | Annual Report 2001 Comments on Business Activities Strong insurance business and forward-looking asset management. In 2001, the financial services industry had to pass some tough tests of strength. Against this background, the Baloise Group posted organic premium growth of 7.8 percent (in local currency), after adjustment for the special effect arising from the purchase of a life portfolio, as well as changes in the scope of consolidation. The impressive underwriting result forms the basis for the consolidated net profit after tax and minor- ity interests of CHF 404 million. Despite the reduction in unrealized gains caused by the massive price falls on the stock markets, the Baloise still has an excellent equity capitalization. The Baloise Group’s scope of consolidation changed during the year under review. As a result of the sale of the entire policy portfolio of Bâloise España at the end of September 2001, the latter’s results only had an impact on the Group’s ac- counts for the first nine months of the year. Moreover, in drawing comparisons with the previous year it needs to be remembered that Amazon Kaskoversicherung (taken over on October 1, 2000), Mercator Bank in Belgium and Baloise Bank SoBa in Switzerland have now been included in the scope of consolidation for a full year In light of the worldwide stock market slump, for the first time. In 2000, the integration of the Sarasura collective foundation had the Group deliberately held back from a one-off impact on premium volumes to the amount of CHF 400 million. realizing capital gains on shares. Group result Non-life Life Banking Other activities Profit before tax and minority interests Tax on income Minority interests Consolidated net profit in CHF m 2000 486.0 310.8 45.0 19.7 732.1 94.6 3.1 634.4 - - - - 2001 293.2 272.8 8.1 51.1 523.0 116.9 1.7 404.4 - - - Change in % - - - - - 39.8 11.9 – 159.4 28.6 23.6 45.2 36.3 In 2001 the Baloise Group reported one of the best results in its history, with net earnings of CHF 404 million. Even so, the result fell short of the previous year’s record figure by 36.3 percent. Because of the worldwide downturn on the capital markets, the Group has deliberately held back from realizing capital gains on shares. In the first half of the year, it began to progressively reduce its equity holdings as planned, but in light of the decidedly less than satisfactory perfor- Annual Report 2001 | Bâloise-Holding 13 13 The combined ratio edged up only slightly mance of the stock markets, share sales were largely halted in the second half of thanks to the excellent result in Switzerland. the year. Thus, the Group decided not to realize capital gains which would have op- timized results in the short term. The consolidated premium volume reached CHF 6.6 billion. In local currencies and after adjustment for one-off effects stemming from the previous year, this corresponds to internal growth of 7.8 percent. In Swiss franc terms, the increase came to 5.7 percent. In life business, premium income added up to CHF 4.0 billion. Compared with the previous year, this represents an increase of 9.3 Premium income by regional segment 2001 percent (again in local currencies and adjusted for special effects) which is large- 3% 11% ly attributable to brisk demand in the individual life business. The non-life sector also made further gains, despite the stagnant state of the market as a whole. With a premium volume of CHF 2.6 billion, the year-back result was surpassed by 5.4 percent (organic and in local currency). The combined ratio (claims incurred, plus expenses, plus dividends to policyholders, as a percentage of premium income) 26% edged up only slightly thanks to the excellent result in Switzerland. 60% Switzerland Germany Benelux Other countries (incl. elimination) Total in CHF m 3,972 1,738 727 196 6,633 All market units are benefiting from the expertise of the new business unit Individual regional segments’ shares of premium volume changed only marginally compared with the previous year. Switzerland accounted for 60 percent (2000: 59 percent), while Germany and the Benelux countries remained at the same levels as the previous year (26 percent and 11 percent respectively). The segment “Other countries” came to a total of only 3 percent – not least as a result of the withdrawal from the Spanish market. The banking business resulted in a profit before tax of CHF 8 million. In the year before, this sector had generated a loss before tax of CHF 45 million as a consequence of special costs and restructuring costs. Despite substantial invest- ments in the expansion of its private banking operations, Baloise Bank SoBa achieved earnings of CHF 22 million (before tax), while in Belgium Mercator Bank reported a loss before tax of CHF 12 million owing to the particular effects of first- time consolidation. However, this gratifying picture was marred somewhat by the investment losses posted by the building and loan arm of Deutscher Ring (Deutscher Ring Bausparkasse). The newly created business unit Baloise Asset Management manages the securities of the Baloise Group. The new business unit also defines the strat- egy, investment structure and stock picking of Baloise Fund Invest’s twelve in- vestment funds launched during the year under review. On December 31, 2001, Baloise Asset Management. the Baloise Group’s assets under management amounted to CHF 55.6 billion, which represents a decrease of 4.1 percent compared with the equivalent year- back figure. Owing to the difficult situation on the capital markets, the Group’s earnings on Group investments came to CHF 2,231 million. At CHF 149 million, the net realized capital gains included in this figure were 81.9 percent lower than in the previous year, mainly because of the very restrictive equity sales in the second half of the year. At the end of the year, capital and reserves stood at CHF 5.4 billion, which is 27.0 percent lower than the year-back figure of CHF 7.4 billion. The decline Despite major investments in the expansion of the private banking sector, the banking business in Switzerland made a significant contribution to earnings. reflects developments on the stock markets, which led to a significant reduction in unrealized capital gains. Nevertheless, the Baloise Group’s equity capitalization remains excellent. 14 Bâloise-Holding | Annual Report 2001 The previous year’s tax expense having been reduced by special effects, the tax burden was once again within the long-term average at 22.4 percent. At the same time, current tax came to CHF 93 million under local law, while deferred tax in accordance with IAS amounted to CHF 24 million. SWITZERLAND In the non-life business, the drive to improve services to existing customers Baloise Switzerland is in excellent shape, as can be seen from its perfor- is clearly paying off. mance figures for 2001, which are impressive in every respect. Premium volume advanced organically by 13.9 percent in the life sector and by 3.2 percent in the non-life sector. The result for insurance operations set a new record. The planned structures and processes for one-stop finan- cial services were set up, and the strong position in the Swiss market was further consolidated. During the year under review, the Baloise continued to give high priority to the swift and systematic expansion of its sales structures. In parallel with further ex- pansion of existing electronic sales channels and the preparation of standardized, Internet-enabled products, it continued to strengthen its own sales organization. With four new private banking branches, the launch of the finance portal bal- folio.com and the introduction of the Baloise Fund Invest range of funds, the Baloise accelerated its transformation into an integrated financial service provider. Key figures: Switzerland 2000 2001 Change in % 4,008.2 2,908.6 1,099.6 100.3 537.5 3,835 3,972.0 2,837.0 1,135.0 98.7 472.3 3,944 - - 0.9 2.5 3.2 – - 12.1 2.8 Gross premium income CHF m of which life CHF m of which non-life CHF m Combined ratio non-life percent Pretax profit CHF m Workforce* Number of employees * incl. corporate functions Non-life In the non-life sector, premium volume rose by 3.2 percent from CHF 1,100 million to CHF 1,135 million. This growth, which is once again above the market average, is partly attributable to a further increase in policy numbers in the automobile and property insurance business. It is also partly due to the drive to improve service to existing customers, which is increasingly paying off. In addition, the introduc- tion of more attractive hybrid products offering sector-specific, comprehensive in- surance solutions for small and medium-sized businesses gave fresh impetus to corporate business. Annual Report 2001 | Bâloise-Holding 15 15 Thanks to its strong market presence and In fiscal 2001, the Baloise was largely spared the consequences of nat- impressive product mix, the Baloise was able ural disasters or other major loss events. Despite an expensive liability case, the to take full advantage of the revival of traditional life products. Baloise Bank SoBa’s customers are entitled to personal advice and provided online access to the loss ratio was slightly lower overall. In general, while the number of claims declined, costs per claim increased. Thanks to the lower loss ratio, continuing strict cost management, an underwriting policy geared to risk and extremely careful management of the poli- cy portfolio, it proved possible to improve the combined ratio (gross) to 98.7 per- cent. This once again puts the Baloise in a leading position by comparison with the Swiss insurance industry as a whole. Life Against the background of the unfavorable conditions on the stock markets, tra- ditional life insurance products experienced a veritable renaissance in 2001. With its strong market presence and diverse range of attractive products, the Baloise benefited from this trend, upping its premium volume by 13.9 percent (adjusted for the one-off effect to the amount of CHF 400 million arising from the integration of the Sarasura collective foundation in 2000) to CHF 2,837 million. Single-premium business and annual premiums for individual life poli- cies were some of the real growth drivers during the year under review. Annuity in- surance policies in particular enjoyed brisk demand, which was further boosted by the introduction of new premium rates. Business with unit-linked life insurance and with the twelve newly launched Baloise funds developed as expected despite the market-related caution displayed by many customers. entire range of products and services. Banking During the year under review, the Baloise came a big step closer to achieving its aim of positioning itself as a supplier of integrated solutions for insurance, future provision and asset formation. With the opening of an initial four private banking branches in Basel, Zurich, St. Gallen and Bern, the training of around 300 customer advisors as fund and financial advisors and the launching of a large number of new products and service combinations, the integration of Baloise Bank SoBa into the processes and organization of the Baloise has already come a long way. Thus, some of the Baloise field operations staff are already brokering bank-issued medium-term notes, savings plans or newly launched Baloise funds. At the same time, Baloise Bank SoBa’s customers are to be given personal advice and online access to the range of products and services. This intention is underscored by the launch of the finance portal balfolio.com as the first electronic platform for insur- ance, future provision and asset formation and by ongoing optimization of the Internet banking service. Baloise Bank SoBa’s full-service banking business in the canton of Solothurn has undergone further restructuring and streamlining. In light of the unfavorable stock market conditions, with income from brokerage fees and fund sales in decline, Baloise Bank SoBa posted a result in ac- cordance to expectations with a contribution to profits (before tax) of CHF 22 million. 16 Bâloise-Holding | Annual Report 2001 GERMANY For the German insurance sector, 2001 was dominated by a largely stag- nant economy, correspondingly low increases in real incomes, and pen- sion reform decisions with key implications for future tax and social welfare policy. The market was characterized by a further intensification of premium-rate competition. The increase in public discussion highlighting the need for private retirement pro- vision has sensitized wide sections of the population to the issue of pensions. This has made people significantly more willing to make private arrangements for their retirement. However, licenses for the government-supported “Riester products” have only been granted for 2002. As a result, the 2001 life business was marked by something of a wait-and-see attitude on the part of many potential customers. The Baloise Group’s two operating units in Germany, Hamburg-based With the “Riester” products due Deutscher Ring and the Baloise branch in Bad Homburg, have made clear progress to be launched in 2002, many customers in the implementation of their market strategies. Major parts of Deutscher Ring’s non-life portfolio were transferred to the Baloise branch so that, since April 1, 2002, the whole of the Group’s automobile and commercial property insurance business in Germany has been handled from Bad Homburg. With a view to these switches, the necessary adjustments to the processes and infrastructure were made during the year under review. approached the life segment with something of a wait-and-see attitude. Key figures: Germany 2000 2001 Change in % Gross premium income CHF m of which life CHF m of which non-life CHF m Combined ratio non-life percent Pretax profit CHF m Workforce Number of employees Deutscher Ring 1,784.9 1,100.0 684.9 99.8 22.1 2,612 1,737.7 1,019.3 718.4 103.3 43.0 2,794 - - 2.6 7.3 4.9 _ 94.6 7.0 For Deutscher Ring, the focus over the past financial year was on the company’s strategic repositioning as a provider of life insurance and pensions for low- and medium-income households. The efficiency and advisory competence of the sales organization was systematically strengthened to enable the advisors to cus- tomize solutions to their clients’ individual needs as far as possible. For this pur- Deutscher Ring has systematically pose, Deutscher Ring expanded the size of its own field operations organization to nearly 1000, and equipped sales staff with innovative technological resources such as an interactive sales software package. The existing network of intermedi- aries and insurance brokers was also enlarged. Premium volume declined by a total of 0.8 percent (in local currency). With the “Riester products” on hold, the life business generated little if any growth strengthened and expanded the efficiency and advisory skills of its sales organization. Annual Report 2001 | Bâloise-Holding 17 17 impetus. By contrast, the non-life sector experienced noticeable growth, thanks mainly to a modest increase in premiums for automobile insurance policies. Nonetheless, because of fire insurance claims, the rise in claims payouts slightly exceeded premium growth. In the non-life business, the overall result before tax remained virtually constant in comparison with the previous year and once again made a substan- tial contribution to the Group result. In the life sector, the pretax profit is down slightly because of the unsatisfactory trend on the financial markets. Basler Versicherungen, Germany Fiscal 2001 saw the Baloise branch in Bad Homburg move significantly closer to its growth targets. The non-life business posted double-digit growth rates in all segments other than accident insurance, leading to a rise in premiums totaling 19.7 percent (in local currency). The loss ratio also edged upwards, but was kept within reasonable limits thanks to targeted measures to restructure individual policy portfolios. In the life sector, premium volume was down by 6.8 percent year-on- The non-life business of Basler Versiche- rungen in Bad Homburg posted double-digit growth rates in virtually all segments. year. The main reason for this decline is that no new business is added in the credit life insurance line any more. The new government-backed private pension is naturally of major im- portance at the Baloise branch in Bad Homburg. By developing an attractive product, efficient management and targeted support for sales, the Baloise is sys- tematically preparing to exploit this opportunity to expand its portfolio. The “Riester pension” is expected to generate positive stimuli in 2002. 18 Bâloise-Holding | Annual Report 2001 BENELUX The year under review saw the Baloise Group acquire the still out- standing 3.9 percent of the Mercator & Noordstar shares. To boost their presence in the core Flemish market and concentrate their forces, HBK-Spaarbank (taken over in 2000) and Mercator & Noordstar were rebranded. Both now operate under the well established and easily In Belgian life business, traditional remembered umbrella brand name “Mercator”. insurance products in particular experienced a distinct rise in demand. Key figures: Benelux Gross premium income CHF m of which life CHF m of which non-life CHF m Combined ratio non-life percent Pretax profit / loss CHF m Workforce Number of employees 2000 693.9 140.4 553.5 119.5 50.1 1,551 2001 726.8 163.7 563.1 118.9 - 3.1 1,567 Change in % 4.7 16.6 1.7 – – 1.0 Mercator Insurance, Belgium Mercator Insurance was able to up its premium income, under difficult market con- ditions, by 3.9 percent in the non-life sector (local currency) and 5.8 percent in the life sector, as a result of the continuing involvement of brokers in the company’s processes and thanks to over-the-counter sales of its own products in banks. Owing to the low level of capital gains realized and to tax effects, the non-life result dropped noticeably compared with the year-back figure. In the life business, traditional insurance products were the main beneficiaries of rising demand. Mercator Bank, Belgium Mercator Bank, which is firmly established in the Flemish retail business, posted a Mercator Bank branches began selling insurance products over the counter. loss in 2001. This is a result of the particular effects of first-time consolidation in 2000, which will continue to have an impact in the coming five years, however to a steadily declining extent. Total assets as at December 31, 2001 came to CHF 4.3 billion. The advantages of integrating banking and insurance have already be- gun to show. Mercator Bank is now selling insurance products over the counter in its branches and, at the same time, has made its banking products available to a wider circle of customers through the established sales channels of Mercator Insurance. Annual Report 2001 | Bâloise-Holding 19 19 Bâloise Assurances, Luxembourg Bâloise Assurances continued to benefit from the favorable business and tax envi- ronment in Luxembourg’s internationally oriented finance and insurance markets. In the life business, it increased its premiums by a higher-than-average 47.9 per- cent (in local currency) and was again able to push up its market share. Another indication of this extraordinary sales performance is the massive rise in sales of unit-linked products. Under IAS rules, by far the greater proportion of the premiums generated by these products are in the nature of investments and are therefore not In Luxembourg, the Group recorded as insurance premiums. continued to expand its market share. In the non-life sector, premium income rose by 6.1 percent (in local cur- rency), partly because of an increase in automobile insurance premiums. The grati- fying premium development was accompanied by a continuing low loss ratio. Overall, the Luxembourg Group company was able to surpass the high level of the previous year’s result. OTHER COUNTRIES Key figures: Other countries Gross premium income CHF m of which life CHF m of which non-life CHF m Combined ratio non-life percent Pretax profit CHF m Workforce Number of employees 2000 501.1 44.7 437.2 87.5 122.4 427 2001 454.3 38.8 415.5 99.0 10.8 318 Change in % - 9.3 - 13.2 - 5.0 – - 91.2 - 25.5 Basler Versicherungen, Austria In many respects, the Austrian financial services market has overcome its stag- nation and is once again showing clear growth trends. After declining for three The medium-term outlook in the Austrian years, earnings also appear to be recovering slightly, which definitely improves financial services sector improved markedly. the medium-term outlook. The Baloise in Austria raised its non-life premium income by 2.2 percent (in local currency) and has reported a very positive claims result. By contrast, pre- mium development in the life sector fell back slightly as a result of a delay in the launch of a new pension product. Basler osiguranje, Croatia As part of a joint venture with the local medical and dental association, the Baloise in Croatia offers non-life and life products tailored to the needs of practicing physi- cians and dentists. In the 16 months since the Baloise began operating in Croat- ia in summer 2000, it has captured a market share of 25 percent in this customer segment. The Baloise is currently working on the possibility of expanding the range to other affinity groups. 20 Bâloise-Holding | Annual Report 2001 Bâloise Seguros, Spain At the end of September 2001, the Group sold the entire policy portfolio of Bâloise España to the Belgian-Dutch group Fortis. The selling price was nearly sufficient to offset the underwriting losses incurred over the first nine months of the financial year. The remaining assets belonging to Bâloise España, including the prop- erty portfolio, are currently being sold off, so that the company can be liquidated presumably in the second half of 2002. Annual Report 2001 | Bâloise-Holding 21 21 Group investments by category 2000 20% 2% 9% 1% 3% 37% 3% 25% INVESTMENTS THAT RETAIN THEIR VALUE At the end of fiscal 2001, the Baloise’s Groupwide assets under man- agement – for its own account and for the account of third parties – were worth CHF 56 billion. Thanks to a targeted and timely reduction in the equity component, the Group was able to limit the consequences of falls in share prices, which were particularly marked in the second half of the year. Over the past financial year, the Baloise achieved a performance of -1.2 percent on its investment portfolio. The causes lie predominantly in the declining prices on all major international stock markets since the beginning of 2001. At the beginning of the year, the Group held 25 percent of its invest- ments for own account in the form of shares. In light of the increasingly bleak out- look on the stock market, the equity component was reduced on a progressive and planned basis, resulting in corresponding capital gains in the first half of the year. Already before the low point on the stock markets in September 2001, the equity component had been lowered to slightly more than 20 percent. At the end of the Group investments by category 2001 year, it stood at 19.8 percent. The equity investments of the Baloise underwent a decline in value of 21.1 percent. 3% 41% 20% 2% 10% 1% 20% 3% Fixed-interest securities Policy and other loans Shares Participating interests in associates Investment property Alternative financial investments Mortgage loans Other short-term capital investments, cash and cash equivalents Derivatives < 1 percent 22 Bâloise-Holding | Annual Report 2001 Group investments by category 2000 2001 Change in % Fixed-interest securities Shares Derivatives Investment property Mortgage loans Policy and other loans Participating interests in associates Alternative financial investments Other short-term capital investments, 19,908.1 13,330.4 85.9 4,965.8 10,438.7 1,856.7 316.3 920.9 20,569.3 10,000.8 19.3 5,042.2 10,500.4 1,663.1 289.1 1,117.2 3.3 - 25.0 - 77.5 1.5 0.6 - 10.4 - 8.6 21.3 cash and cash equivalents 1,391.1 1,583.4 13.8 Total in CHF m 53,213.9 50,784.8 - 4.6 As a result of falls in interest rate levels throughout the world and despite the persisting weakness of the euro, the overall return on fixed-interest securities increased slightly to 5.4 percent. In the context of the reduction in the equity port- folio, the proportion of fixed-interest securities within the Group’s investment mix rose to 41 percent. At 5.6 percent, investment property turned in as strong a performance Thanks to prudent portfolio management, as ever. The proportion of investments accounted for by investment property was the Group sustained only a minor loss of value increased to around 10 percent. Against the background of consistently low loan losses, mortgages and loans also generated a stable return of 4.5 percent. The investment category comprising alternative financial investments, derivatives, participating interests in associates, and other short-term capital investments and cash and cash equivalents sustained a diminishment in value of 2.9 percent owing to the negative development in the private equity investment field. on its equity investments. Annual Report 2001 | Bâloise-Holding 23 23 RISK MANAGEMENT PUT TO THE TEST The core tasks of the Baloise Group’s risk management include the value- oriented control of all business activities and the ongoing streamlining of its capital structure. Every business unit is meant to be equipped with the capital resources needed to enable it to survive a so-called “once- in-five-centuries event”, whether in the form of insurance claims or losses on the capital markets – while remaining fully solvent. 2001 was the year that risk management was put to the test. The Baloise’s risk management lays the foundations for an optimized segment, investment and equity policy with a long-term perspective. All risks are continu- ously examined and assessed using statistical methods and scenario analyses. The biggest challenges are posed by the major customer risks insured, by an accu- Consistent streamlining of its equity mulation of risks in the event of natural disasters and by exchange rate, interest structure enabled the Baloise to pay back rate and counterparty risks in relation to investments. roughly CHF 1.2 billion to its shareholders The Baloise uses an internationally diversified investment portfolio and over the past five years. assumes corresponding currency risks. These risks are partially hedged. The resid- ual risk is consciously accepted in order to benefit from diversification effects. Over the past five years, consistent control and optimization of the structure of capital and reserves involving all business units has enabled the Baloise to perform seven capital transactions and repay around CHF 1.2 billion to its shareholders. The Baloise underscored its active capital management policy most recently in 2001 with capital repayments amounting to CHF 343 million. In fiscal 2001, the main objectives were to integrate the banks acquired in 2000 into the risk management system and improve the asset liability manage- ment for life insurance policies. The terrorist attacks in the United States erased any lingering doubts as to the crucial importance of risk management. The situation was further exacer- bated by the weak share performance already in evidence since the beginning of the year. The Baloise’s professional approach to risk enabled it to address these challenges successfully. As the Group has not been involved in active reinsurance since 1997 and pulled out of the US market in 1998, the direct impact of the losses after September 11 remained limited and did not exceed USD 3.4 million. Various measures already introduced in 2000 and the conscious deci- sion not to realize capital gains on shares from August 2001 onward have proved correct from the point of view of long-term value creation. Despite the stock mar- ket contraction, the Baloise still has an excellent equity capitalization. In the long term, its strategy with regard to equity-based investment positions is proving profitable and sustainable. 24 Bâloise-Holding | Annual Report 2001 INVESTING IN THE NETWORKS OF THE FUTURE Over the period under review, the Baloise invested roughly CHF 230 million in strategic IT projects and in running and maintaining its IT infrastructure. In all markets, the primary focus was on pressing ahead with the expansion of electronic sales channels and on targeted support for the sales force in the form of interactive software. With the launch of the integrated financial platform balfolio.com in Switzerland and the introduction of the “VIP” brokers platform in Germany, two major e-business projects were completed on schedule last year. In Switzerland, we are currently developing an integrated website for insurers and financial services. Deutscher Ring equipped its customer advisors with integrated links to its back office systems from their laptops, enabling them to generate policies on site with customers. In conjunction with the newly introduced electronic document management, this led to a significant increase in efficiency. Local initiatives to improve efficiency are supported by numerous IT projects In Luxembourg, a new portfolio system developed by Baloise Austria at Group level. was brought to production level; a further step forward in IT standardization with- in the Group. This and other initiatives to improve operating efficiency were accom- panied by numerous IT projects at Group level – including first and foremost the development of a standard asset management solution to be introduced in 2002. The step-by-step standardization of the accounting system on the basis of SAP software and Group-wide coordinated purchasing of hardware and software also gave rise to considerable synergies. The “buy-before-make” strategy we have been systematically applying for some years again led to intensive cooperation with external software vendors and developers. The number of IT staff employed throughout the Group rose to more than 600. Annual Report 2001 | Bâloise-Holding 25 25 Employees 4% 18% 32% Switzerland Germany Benelux Other countries Total Number of employees at December 31, 2001 46% 3,944 2,794 1,567 318 8,623 Targeted introductory and advanced training of customer advisors and field staff is given very high priority throughout the Group. FOCUS ON STAFF DEVELOPMENT With the appointment of Bruno Dallo, Wolfgang Drunk and Martin Wenk to the Corporate Executive Committee, the Baloise underlined its con- sistent policy of filling key posts with in-house candidates wherever possible. During the past financial year, the Group invested more than CHF 22 million in basic and advanced training for staff at all levels. As at December 31, 2001, the Baloise employed a total of 8,623 staff members, including 330 apprentices and trainees. More than half of them are in daily contact with our customers. A high degree of technical expertise and excellent communi- cation skills are the criteria that normally determine the outcome of a sales dis- cussion. In light of the much expanded range of products and services in the field of future provision and asset formation, top priority was given to the targeted train- ing of customer advisors and sales staff in several Group companies. One third of the 1,000 or so customer advisors in Switzerland received in-house training and a number have already qualified as certified IAF fund advisors. At Deutscher Ring, nearly all sales people have been intensively trained in the use of a new, inter- active sales software package and prepared for its application in negotiations with customers. In Belgium, Mercator Bank staff began specific training for the sale of products provided by Mercator Insurance. As in the past, high priority was given to executive development. Last year saw the introduction of a structured, Group-wide development program for a new generation of young executives, the Management Development System. With the Advanced Management Program, we successfully launched a further, home- grown management development component for middle-ranking and senior execu- tives. In addition, various Group companies initiated individual training programs to prepare executives for new tasks. The fact that, Group-wide, numerous manage- ment vacancies could be filled with up-and-coming staff from our own ranks more than vindicates the above-average resources that have been and will be invested in developing talented employees. During the year under review, Group employees were once again given the opportunity to buy Baloise shares on favorable terms. At the end of 2001, nearly half the workforce held Baloise shares, which is an impressive reflection of our em- ployees confidence in their company and of their entrepreneurial spirit. 26 Bâloise-Holding | Annual Report 2001 OPTIMIZED MARKET IDENTITY AND SUSTAINABLE BUSINESS PRACTICE In the past year, the Baloise Group took far-reaching measures to strengthen its brands. The Group also reinforced its ecological commit- ment with steps to ensure sustainable business practice in all its activities. On its way to becoming a confidence-inspiring brand for insurance, future provi- sion and asset formation, the Baloise requires not only first-rate products and a high-quality, customer focused distribution network, but also well-established brands. With this in mind, the Baloise has therefore optimized its market identity on the basis of a multi-brand strategy. The “Baloise” and “Basler” brands in particular were given a complete facelift last year. The resulting corporate design principles apply for all Group com- panies using either of the two names. Systematic guidelines are essential for a consistent brand identity and ensure that, whatever market we are present in, we The new corporate design for the brand names “Baloise” and “Basler” and the properly communicate our values. The transition to the new corporate design will rebranding operation in Belgium have visibly be completed by the end of 2002. strengthened our market identity. In Belgium, the Baloise subsidiary Mercator & Noordstar officially changed its name to the more easily communicable Mercator in November 2001, with HBK-Spaarbank (acquired the year before) assuming the name Mercator Bank. Mercator was already a well-established brand in the Flemish market; the new vi- sual identity meant that the brand recognition was again considerably enhanced. Deutscher Ring in Germany continues to operate with its familiar, well-accepted market identity. A convincing market identity must go hand in hand with widely accepted business practice. As a major company we share responsibility for economic, so- cial and ecological developments. In the mid-1990s, the Baloise launched its en- vironment-related activities, which have been consistently expanded ever since. By signing the insurance industry’s environmental declaration (UNEP Declaration) in 1995, the Group underscored its commitment to sustainable, en- vironment-friendly business practice. This includes establishing eco-audits which detail the most significant energy and material flows. In the year under review, Baloise Switzerland published for the first time an environmental report containing the company’s environmental mission statement and its environmental targets. In investments we pursue a long-term policy that also takes the factor of sustainability into account. Since 1999, the Baloise Foundation for Pension Funds has maintained a security portfolio “Sustainability”, which invests in firms that meet the sustainability criteria. And by participating in the company “Precious Woods”, the Baloise supports a project for the sustainable development of tropi- cal rain forests. Another example of the Baloise’s environmental focus is the construc- tion of buildings with minimal energy consumption. In Stäfa (Switzerland), three apartment blocks – with a total of 22 apartments – that meet these minimum en- ergy standards are being built under our guidance. They are scheduled for com- pletion by mid-2002. Annual Report 2001 | Bâloise-Holding 27 27 28 Bâloise-Holding | Annual Report 2001 Annual Report 2001 | Bâloise-Holding 29 29 Sometimes it is just an unwelcome gust of wind – it takes the mood, and blows away the vision. We, too, know this and realize how important it is to have someone who at least looks after the tangible values. 30 Bâloise-Holding | Annual Report 2001 Financial Service Products for Brokers Powerful partner for Belgian brokers. Daddy, you were already in bed when I came home recommend that hairdresser you are so fond of. yesterday. Need to write an essay about your job by We also expect this level of service from our tomorrow! Could you brief me during breakfast? Merci – partners. That’s why we market a lot of Mercator’s prod- Sandrine ucts and services. This partnership offers us numerous advantages and makes our work a lot more straightfor- “Why is it you always come with these requests ward. If, for example, you wanted to put your savings in at the very last moment? But we can talk about that another time. I have to be off in twenty minutes, so we an investment fund, your money would actually be man- aged by Mercator or even by its parent company in don’t have much time. You can click into the Internet Switzerland. Naturally, we would take care of all the afterwards if you need more details. administrative details for you. But, as a customer, you As you know, I work as a customer advisor at a wouldn’t have to worry about what is happening behind medium-sized brokerage firm. We sell insurance prod- the scenes. All you care about is that you have excellent ucts of all sorts, from motor policies to pensions. We solutions to your insurance and investment needs. We, also offer clients ways to invest money at favorable con- in turn, can rely one hundred percent on Mercator, 24 ditions, thus helping them to save efficiently. It’s almost hours a day. Right now, too, since I should have been on like a combination of insurance and banking. The differ- my way ages ago. ence is that we’re not the ones who manage peoples Best of luck with your essay. And don’t forget accounts or pay for a car repair after an accident. Our to visit our website. Or Mercator’s. Nowadays, we handle partners look after that side of the business. The Mercator most of our admin with Mercator through the Internet. Group for example, whose products and services we also See you tonight.” market. What we mean by “market”? Well, our main activity is advising individuals and small companies in all their insurance and money matters, and suggesting appropriate products and services. For instance, I might be sitting opposite a young photographer who wants to open a studio of her own and would like to learn from us what forms of insurance coverage would be best suited to her enterprise. Or a customer who has inherited some money calls us because he needs advice on how to invest this money safely while paying as little tax as possible. Or maybe somebody whose car insurance we organized simply needs our help after an accident. What is important is giving customers the feel- ing they are being well looked after. When people realize that we are always there for them, that we are reliable, flexible and offer more than just run-of-the-mill solu- tions, they will trust us with their whole range of insur- ance and pension matters. And, last but not least, they will recommend us to others. Like you and your friends Annual Report 2001 | Bâloise-Holding 31 31 There are two ways of handling trust: “I have to be able to trust you” or “I trust you”. In the first case we are asking for security. In the second, we are giving. One is guided by caution, the other by hope. Blending the two is where we feel at home. 32 Bâloise-Holding | Annual Report 2001 Organization Board of Directors, management structure and markets. BOARD OF DIRECTORS Expiry of term of office 2002 2002 2004 2003 2003 2003 2003 2004 2004 2002 2002 2004 Rolf Schäuble*, Chairman, Staufen Walter G. Frehner, Vice-Chairman, Riehen Georg F. Krayer, Basel Gaudenz Staehelin, Küsnacht Christoph J. C. Albrecht, Basel Andreas Burckhardt, Basel Dietrich Forcart, Riehen Gertrud Höhler, Berlin Werner Kummer, Küsnacht Eveline Saupper, Pfäffikon SZ Arend Oetker, Köln Jean-Marc Rapp, Lausanne * also CEO and Managing Director until February 28, 2002 BOARD COMMITTEES (cf. page 45) Chairman’s Committee** Audit Committee Compensation Committee ** also functions as Investment Committee SECRETARY OF THE BOARD OF DIRECTORS Bruno Dallo (until March 31, 2002) Thomas Sieber (since April 1, 2002) INTERNAL AUDIT Erich Benischke AUDITORS PricewaterhouseCoopers AG, Basel Annual Report 2001 | Bâloise-Holding 33 33 MANAGEMENT STRUCTURE OF THE BALOISE GROUP CEO Frank Schnewlin* Group Secretariat/ Corporate Communications Thomas Kähr Switzerland Urs Berger International Finance Asset Management Corporate Center Frank Schnewlin Wolfgang Drunk Martin Wenk Bruno Dallo Baloise Asset Management Reto Diezi Real Estate and Mortgage Loans Urs Degen Baloise Fund Invest Robert Antonietti Individual Customers Philippe Egger Business Ruedi Kellenberger Germany, Deutscher Ring Wolfgang Fauter Germany, Basler Versicherungen Financial Relations Carsten Stolz Financial Management Wolfgang Drunk1 Baloise Bank SoBa Winfried Anolick Financial Accounting Urs Bienz Belgium, Mercator Ronald Everaert Luxembourg, Bâloise Assurances André Bredimus Austria, Basler Versicherungen Lothar Mayrhofer Alois Müller1 Private Finance René Stocker Sales Management Daniel Fluri Information Systems Martin Strobel Management Services Bernhard Jöhr Accounting and Controlling Peter Brawand Corporate Development Thomas Wodrich Human Resources Bruno Dallo1 Legal and Taxes Thomas Sieber Compliance Peter Kalberer Run Off Bruno Rappo Member of the Corporate Executive Commitee * since March 1, 2002 1 ad interim 34 Bâloise-Holding | Annual Report 2001 CORPORATE EXECUTIVE COMMITTEE OF THE BALOISE GROUP Frank Schnewlin CEO since March 1, 2002 Rolf Schäuble CEO until February 28, 2002 Urs Berger Switzerland Bruno Dallo Corporate Center Wolfgang Drunk Finance Martin Wenk Asset Management Annual Report 2001 | Bâloise-Holding 35 35 THE BALOISE AND ITS MARKETS Core markets Belgium Mercator Verzekeringen Mercator Bank Luxembourg Bâloise Assurances Switzerland Basler Versicherungen Baloise Bank SoBa Other markets Croatia Basler osiguranje Germany Deutscher Ring Basler Versicherungen Austria Basler Versicherungen 36 Bâloise-Holding | Annual Report 2001 Switzerland Germany Belgium Basler Versicherungen Basler Versicherungen Mercator Verzekeringen Aeschengraben 21 Basler Strasse 4, Postfach 1145 Desguinlei 100 CH-4002 Basel D-61281 Bad Homburg B-2018 Antwerpen Phone +41 61 285 85 85 Phone +49 61 7213 0 Phone +32 3 247 21 11 Fax +41 61 285 70 70 Fax +49 61 7213 200 Fax +32 3 247 27 77 E-mail infoline@basler.ch E-mail info@basler.de E-mail info@mercator.be www.basler.ch www.basler.de www.mercator.be Baloise Bank SoBa Deutscher Ring Versicherungen Mercator Bank Amthausplatz 4 Ludwig-Erhard-Strasse 22 Lange Lozanastraat 250 CH-4500 Solothurn D-20499 Hamburg B-2018 Antwerpen Phone +41 32 626 02 02 Phone +49 40 3599 0 Phone +32 3 247 52 11 Fax +41 32 623 36 92 Fax +49 40 3599 2500 Fax +32 3 247 53 99 E-mail info@soba.ch E-mail Service@DeutscherRing.de E-mail communicatie@mercator.be www.soba.ch www.DeutscherRing.de www.mercator.be Austria Luxembourg Croatia Basler Versicherungen Bâloise Assurances Basler osiguranje Brigittenauer Lände 50-54 1, rue Emile Bian Trg bana Josipa Jelacˇic´a 4 A-1203 Wien L-1235 Luxembourg HR-10000 Zagreb Phone +43 1 33 160 0 Phone +352 290 190 1 Phone +385 1 48 17 808/809 Fax +43 1 33 160 200 Fax +352 290 591 Fax +385 1 48 16 932 E-mail office@basler.co.at E-mail info@baloise.lu E-mail info@basler.hr www.basler.co.at www.baloise.lu www.basler.hr Annual Report 2001 | Bâloise-Holding 37 37 38 Bâloise-Holding | Annual Report 2001 Annual Report 2001 | Bâloise-Holding 39 39 We were already working with local area networks before computers came into being. Experience has taught us that they are only meaningful if they reduce the amount of problems and open gateways to new solutions. 40 Bâloise-Holding | Annual Report 2001 Financial Perspectives for a Forward-Looking Clientele All-round solutions for personal targets. Dear Mr W. Once again, thank you very much for your about their job seriously – clients need to be genuinely time and your patience in answering all my questions. convinced! And finally, we might even know whether The more I think about it, the more I like the line of we’ll be able to open up our own surgery before the end solutions you suggest. I hope my husband will agree. I’ll of the decade without incurring an enormous debt. That discuss the whole matter with him as soon as possible. alone makes it all worthwhile, doesn’t it?” “Darling, we really have to take these insur- ance and pension matters in hand now. In two months time, I’ll stop working at the hospital and who knows how many days we’ll have left then before the baby ar- rives. And there’s still the problem of my parents’ house. We shouldn’t wait any longer. I had a talk with this Mr. W. yesterday. You know, the financial advisor from the Baloise I told you about. He made some helpful recommendations for our pension arrangements. And he also came up with options that should help us realize our dream as soon and with as little risk as possible. Yes, of course I told him about it. How could he possibly give us useful advice if he doesn’t know what we really want? W. believes we have been spreading our assets in a rather uncoordinated way. All these various bank accounts and insurance policies. Your investment funds and securities portfolios and my medium-term notes that Dad left me. All this can be streamlined and – what’s the word – optimized. For tax reasons too. This would pay off all the more if we bought that house. And at the end of the day, there’d be much less paperwork for us. Of course you can go on with your stock ex- change trades! The point is that we have to coordinate our money matters somehow. This mix of personal advice and services on the one hand and various online services on the other, all from the one source, sounded persuasive. That’s why I would like us to go round to the private banking branch of Baloise Bank SoBa in the next few days and have another talk with W. The specialists there can give us in-depth advice and work out a coher- ent financial plan tailored to our needs. I know it would cost something, but we would not be stuck with any obligations. I think this is one reason why those guys go Annual Report 2001 | Bâloise-Holding 41 41 Before taking aim, we have to grasp the prevailing conditions. Yet sometimes, when the moment is right, we can dispense with analytical thinking and rely on our intuition. Those are moments when great things are achieved. 42 Bâloise-Holding | Annual Report 2001 Corporate Governance High degree of transparency up to top management level. Corporate governance, a concept derived from the Anglo-American legal and business system, is becoming increasingly important in Europe and Switzerland. The focus is on business risks, companies’ reputations and corporate responsibility. As a value-oriented company, the Baloise Group recognizes the importance of these issues. In formulating our corporate governance guidelines, we followed, wherever appro- priate, the proposed Swiss Code of Best Practice put forward by “economiesuisse”, the Swiss business confederation, and the draft disclosure guidelines of the SWX Swiss Exchange. We also felt that these two organizations put forward the most succinct definition: “Corporate governance is the totality of principles, in view of shareholders’ inter- ests, that aim at transparency and a proper balance between management inde- pendence and control at the top level of a company, while preserving efficiency and the ability to take decisions.” In the opinion of the Baloise, corporate governance must not lead to recognizes the importance of corporate As a value-oriented company, the Baloise rigid standardization, but must permit solutions appropriate to a given situation. governance. The decisive factor is the transparency of the arrangements in line with the prin- ciple “comply or explain”. The following contains the most important information in concise form and references to additional information in the Annual Report and on our website “www.baloise.com”. Share structure and Group structure Following last year’s capital operation, the share capital of Bâloise-Holding now consists of 55,307,150 registered shares with a nominal value of CHF 0.1 each. The shares are unitary shares (no preference or voting right shares). The registered shares are subject to transfer restrictions: under paragraph 5 of the Articles of Incorporation, no shareholder can be entered in the register of shareholders with voting rights amounting to more than 2 percent of the share capital (currently 1,106,143 registered shares). At the General Meeting, a shareholder may not ex- ercise voting rights in respect of more than a maximum of 20 percent of the shares represented at the meeting (paragraph 16 of the Articles of Incorporation). Both provisions are intended to preserve the company’s status as a publicly held com- pany and to ensure that parties acquiring sizeable minority interests are not giv- en a dominant influence over small shareholders. Annual Report 2001 | Bâloise-Holding 43 43 The company has not issued any options on registered shares. However, third parties have issued numerous options on our shares. More detailed information Subject Annual report www.baloise.com Articles of Incorporation of Bâloise-Holding Own shares Significant shareholders of Bâloise-Holding Shareholdings of the Baloise Group in other listed companies > 5% Baloise Group corporate structure (diagram) List of consolidated Group companies page 147 page 147 page 146 page 140 Board of Directors and Corporate Executive Committee The apportionment of powers and duties between the Board of Directors and the Corporate Executive Committee is laid down in the organizational and investment regulations. Both documents are regularly adapted to organizational changes. The Board of Directors consists of twelve members who – with the ex- ception of the Chairman (until February 28, 2002) – do not exercise any executive powers in the company. Board members’ terms of office are staggered in such a way that one third stand for re-election each year. Members are elected for a three- year term of office, the rules specify an age limit of 70 and the average age is The Compensation Committee lays down currently 58. the compensation for the Board of Directors and the Corporate Executive Committee. The Board of Directors has set up a number of Board Committees. The Chairman’s Committee, consisting of the Chairman, Vice Chairman and two fur- ther members, engages in preliminary discussion of important business, partic- ularly where issues relating to strategy or personnel are involved. Once a year, the Chairman’s Committee meets as the Investment Committee and defines the strategic asset allocation for investment operations. Last summer, a Compensation Committee was formed which, under the management of the Vice Chairman, lays down the compensation for the Board of Directors and the Corporate Executive Committee. At its meeting in March 2002, the Board of Directors decided to set up an Audit Committee. In 2001, the Board of Directors held six meetings and additional meet- ings were held by the Committees. Since 1996, the Baloise Group has been pursuing a strategy of concen- trating on the core markets of Switzerland, Germany, Belgium, Luxembourg and Austria and of corresponding divestment in the remaining countries. In a second phase, the foundations were laid for integrated financial services and a new gen- eration was taken on to the Corporate Executive Committee. These tasks were car- ried out under the guidance of Rolf Schäuble, who held the posts of Chairman of the Board of Directors since 1994 and President of the Executive Committee since 1996. As of March 1, 2002, the two functions were again separated. Rolf Schäuble handed over the presidency of the Executive Committee to Frank Schnewlin and has since concentrated on his duties as Chairman of the Board of Directors. 44 Bâloise-Holding | Annual Report 2001 (cid:2) (cid:2) (cid:2) The members of the Board of Directors receive fixed compensation in cash, the amount of which is set at different levels for the Chairman, the Vice- Chairman, the Committee members and the other Board members. In 2001, the compensation amounted to a total of CHF 1.49 million. The compensation paid to the members of the Corporate Executive Committee consists of a fixed basic salary, plus an incentive dependent on the achievement of corporate and personal targets. 50 percent of the incentive is granted in the form of options on Baloise registered shares; for the remaining 50 percent a choice is offered (cash compensation, further options or Baloise regis- This year’s Annual Report publishes, tered shares). The options are issued by independent third parties under the usu- for the first time, the compensation remitted al market conditions and are listed on the stock exchange. From the time they are to the Board of Directors and the Corporate allocated, they are subject to a two-year lock-in period. If within the freely available Executive Committee. part of his incentive (50 percent) a member of the Corporate Executive Committee decides to take shares, these will be acquired from the company at market value and will be subject to a three-year lock-in period from the time of issue. Compensation paid to members of the Corporate Executive Committee in 2001 (total cash compensation, options and shares) amounted to a sum of CHF 4.15 million. As of December 31, 2001, the total shareholding of the members of the Board of Directors and the Corporate Executive Committee amounted to 0.29 per- cent of the share capital of Bâloise-Holding (shares and options combined). BOARD COMMITTEES AND THEIR MEMBERS Chairman’s Committee* Rolf Schäuble, Chairman Walter G. Frehner, Vice Chairman Georg F. Krayer Gaudenz Staehelin * also functions as Investment Committee Audit Committee Walter G. Frehner, Chairman Christoph J.C. Albrecht, Vice Chairman Dietrich Forcart Werner Kummer Compensation Committee Gaudenz Staehelin, Chairman Georg F. Krayer, Vice Chairman Walter G. Frehner Gertrud Höhler Annual Report 2001 | Bâloise-Holding 45 45 More detailed information Subject Annual report www.baloise.com Articles of Incorporation of Bâloise-Holding Regulations governing the organization and operations Investment rules List of members of the Board of Directors, including details of their terms of office Brief biographies of the members of the Board of Directors, including details of offices held in other listed companies Overview of the Committees of the Board of Directors Organigram Corporate Executive Committee Brief biographies of the members of the Corporate Executive Committee page 33 page 45 page 34 Shareholders’ rights The asset rights and – for shareholders entered in the share register as having voting rights – the participation rights are laid down in law and in the Articles of Incorporation. Under these provisions, the participation rights comprise the right to take part in the General Meeting as well as the right to submit proposals and the right to vote. Up to eight weeks ahead of the General Meeting, shareholders eligible under the law and the Articles of Incorporation can request that items be included on the agenda for debate. The company publishes this time limit in advance. Over For years, the Baloise has pursued a policy of the next four years, the General Meeting will take place on the following dates: returning surplus capital to its shareholders. Tuesday, May 14, 2002; Friday, May 16, 2003; Friday, May 14, 2004; Wednesday, May 18, 2005. Shareholders who do not attend the General Meeting in person may issue powers of attorney to the independent proxy, representatives of the execu- tive bodies or other shareholders to exercise their voting rights. However, no shareholder may command more than 20 percent of the votes represented at the General Meeting. Participation is open to shareholders entered with voting rights in the share register on the reference date. The reference date is a few days be- fore the meeting and will be announced in the invitation. Distribution policy For years, Bâloise-Holding has pursued a policy of returning surplus capital to its shareholders by means of nominal value repayments and share buy-backs. In 2000 and 2001 shares were bought back by means of put options. The dividend is adjusted each year to the annual result of the Baloise Group. Dividend per share (adjusted) has risen from CHF 1.30 in 1996 to CHF 2.40 in 2001. 46 Bâloise-Holding | Annual Report 2001 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Information policy We endeavor to communicate with shareholders, potential investors, employees, customers and the public as comprehensively, openly and regularly as possible. This basic stance is a clear reflection of our partnership-based approach. It en- ables the Baloise to promote an understanding of its aims, strategy and business operations and to ensure a high level of information available on the company. The Baloise provides detailed information on its business activities in its annual and semi-annual reports, at the balance sheet and semi-annual press conferences, meetings for financial analysts and at the General Meeting. Our By regularly providing comprehensive communications are rounded off by the continuously updated web pages under and open information, the Baloise is able “www.baloise.com” and by media briefings on important projects and initiatives. to promote understanding for its At special events and road shows we engage in dialogue with investors and media goals and strategy. representatives. Monitoring and audit The internal audit is the direct responsibility of the Chairman of the Board of Directors. Financial risk management is carried out in the Finance Corporate Division, while the compliance function has been established in the Corporate Center Division. PricewaterhouseCoopers (PwC), Basel, act as the statutory auditors of Bâloise-Holding and as the auditors of the consolidated financial statements. The statutory auditors and the auditors of the consolidated financial statements are appointed by the General Meeting for a one-year term of office. For the past financial year, the remuneration for the audit of the indi- vidual statement of Bâloise-Holding (and of its Swiss subsidiaries) and the audit of the consolidated financial statements came to a total of CHF 1.29 million. For au- dit-related support and for advisory mandates outside of its auditing activities, PwC received fees totaling CHF 1.18 million. Annual Report 2001 | Bâloise-Holding 47 47 48 Bâloise-Holding | Annual Report 2001 Annual Report 2001 | Bâloise-Holding 49 49 The Sixtine Chapel illustrates it perfectly. The strength of a relationship is not revealed by any magnificence of gesture, but by a sense of proportion and a feeling for the right balance of intensity, distance and proximity. 50 Bâloise-Holding | Annual Report 2001 A Sales Professional in Action Convincing answers to personal questions. Looking forward to our meeting. Denise and the children of the paperwork. are fine. Job-wise, I definitely need a change of scenery. But you know what appeals to me most in this Something along the lines of: dynamic sales profes- job? The fact that I have far more time to dedicate to sional looking for new challenge. Regards to Maria. customer relations, to advising and looking after my clients. At Deutscher Ring, we make sure the needs of “I say, Richard, a man with your background existing clients are met before embarking on new acqui- and your winsome ways is bound to find a more interesting job than you have at present. Why not be proactive and sitions. Isn’t that precisely in keeping with what we two have always believed in? join a professional set-up with a great outlook? So you’re really interested? Great! Don’t worry, I can assure you that things are really moving we train our people here, and I mean in-depth training. here at Deutscher Ring. The focus is on customers and Let me give you the number of our human resource their needs – and this is not just an empty phrase. One section. You can get in touch with them right away. Why current example: people are realizing more and more not? Oh yes, you want to know more about our unit- that the state can no longer guarantee them a retirement linked annuity insurance. I was going to mention that free of financial worries. The papers abound with articles anyway. Before coming to meet you here, I took a quick on pension reform. Yet few people know what to do in look at that file of yours. But Richard, do let me write this situation. Just imagine, 80 percent of all Germans down this telephone number before we start discussing are seeking professional advice in pension and invest- your own pension situation.” ment matters, or are planning to do so. 80 percent! Wherever I call, I meet with great interest. And you know yourself that once you’ve got a foot in the door, you can prove your worth by offering your customer in-depth advice and sound financial coverage. We certainly have the corresponding products and services. What people need is someone who knows his way round this field and can offer not just general, but to-the-point advice. Let me give you an idea of how we work in the sales service. Imagine I’m sitting with the client and have just started up my notebook. I run a brief introduc- tory film, which gets us going on the topic of life insur- ance and pensions. I go through the presentation with my client, step by step, entering his replies directly into the computer. I can easily call up further facts and fig- ures on the screen in response to questions. Finally, I just have to press a key and the computer comes up with a series of customized solutions. But that’s not all. In- stead of – or besides – pensions, we can consider in- vestments in funds, or accident or disability insurance, and even then the range covered by the software would not be exhausted. Plus, the system will relieve me of most Annual Report 2001 | Bâloise-Holding 51 51 Pythagoras mused about the sound made by the stars and planets. He said this sound was so deafening that we no longer heard it. The noises of our communication age, apparently, have not yet reached that level. That is why we must shout to be heard. Or else have a partner who understands us even when we whisper. 52 Bâloise-Holding | Annual Report 2001 Information for Investors Solid performance in a difficult stock market environment. Baloise’s share price was not spared in the overall market downturn, dropping by Key Dates 14 percent in the course of the year. Yet benchmarked against the Swiss Performance Index (SPI) Insurance, which ended the year at 39 percent below the May 14, 2002 previous year’s level, or the Swiss Market Index, which lost 21 percent, Baloise Annual General Meeting Bâloise-Holding proved remarkably stable, recording the best performance of all SMI-listed primary insurers. The stock market year 2001 was marked by high volatility and thus high risks for investors. The Baloise Group systematically reduced its overweighted September 12, 2002 Publication of Semi-Annual Report 2002 September 12, 2002 share holdings in the first half of the year. After that, in view of the radically Half-Year Media Conference changed situation on the stock markets, we curtailed the selling and thus the realization of capital gains to avoid long-term loss of value. Under these circum- stances, the net earnings figure of CHF 404 million – the third highest in the his- tory of the Baloise – is a very gratifying result. September 12, 2002 Meeting of Financial Analysts April 3, 2003 Shortly before the end of the year, the Dutch firm Strategic Money Balance Sheet Media Conference Management Company B.V. took over a share package of 21.0 percent from Zurich Financial Services. In early 2002, the Swiss BZ Group raised its stake in the Baloise to 20.1 percent – not surprising in view of Baloise’s strong performance. April 3, 2003 Meeting of Financial Analysts May 16, 2003 Annual General Meeting Bâloise-Holding Share price development1 1997–2001 400 350 300 250 200 150 100 50 0 97 98 99 00 01 Bâloise-Holding, registered2 Swiss Performance Index (SPI) Insurance Swiss Market Index (SMI) 341 186 163 1 indexed (December 1996 = 100) 2 adjusted after 1:10 split of July 24, 2001 Annual Report 2001 | Bâloise-Holding 53 53 (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) Share statistics 19975+7 19985+7 19995 20005 20015 Net earnings per Bâloise-Holding share1 CHF Consolidated capital and reserves per Bâloise-Holding share2 CHF Dividend per registered share CHF 4.3 78.7 1.4 6.1 90.5 1.9 9.1 128 2.4 11.2 130 2.4 7.3 97.4 2.44 Total shares issued Shares 61,285,680 58,620,000 58,620,000 56,704,000 55,307,150 Number of shares entitled to dividend Shares 61,285,680 58,620,000 58,620,000 56,704,000 55,307,150 Time-weighted number of shares entitled to dividend Shares 63,882,930 59,993,000 58,620,000 57,824,280 56,087,855 Ratio, market capitalization/consolidated capital and reserves Percent 115.3 Ratio, market capitalization/gross premiums Percent 84.1 Return on equity (ROE): ROE on capital and reserves as shown in the balance sheet3 Percent 6.6 ROE on capital and reserves minus non-realized gains Daily volume traded shares CHF m Number of shareholders Total Treasury stock Shares Price at year-end CHF High in CHF Low in CHF Market capitalization CHF m Consolidated capital and reserves CHF m and losses3 Percent Annual internal rate of return (IRR) Percent Dividend yield Percent Price-earnings ratio Pay-out ratio Percent All figures as per calendar year or December 31, respectively Bâloise-Holding, registered Ticker symbol: BALN Nominal value: CHF 0.10 Security no. 1.241.051 Listing: virt-x 54 Bâloise-Holding | Annual Report 2001 20 6,506 40 8,819 23 11,016 24.5 8,988 15.4 9,725 983,400 1,424,250 1,761,750 830,000 560,000 90 97 44 5,522 4,788 13.1 45.0 1.6 20.3 31.5 143 155 73 8,353 5,307 157.4 129.8 7.2 17.7 18.1 1.3 22.9 30.5 125 146 109 7,345 7,478 98.2 120.7 7.4 17.2 20.9 1.9 14.2 27.1 178 186 123 10,093 7,373 136.9 150.6 8.5 19.0 3.0 1.3 15.9 29.56 153 183 110 8,462 5,385 157.2 127.6 6.3 10.5 - 21.2 1.6 20.1 32.8 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 Based on ARR accounting principles Thanks to the result achieved and our solid financial situation, we can adhere to our long-term dividend policy. The Board of Directors has proposed the distribution of an unchanged dividend of CHF 2.40 per share, which corresponds to a distribution ratio of 33 percent. This proposal will be submitted for approval to the Annual General Meeting of May 14, 2002. Internal Rate of Return (IRR) The Internal Rate of Return (IRR) is a comprehensive and more revealing indicator than Return on equity (ROE) as far as insurance companies are concerned. With ROE, the Group profit is measured against the average capital and reserves. In the case of IRR, all the funds generated by the Baloise Group are together measured against the capital and reserves at the beginning of the financial year. The funds generated are made up of the group profit and value changes recorded under capital and reserves. At insurance companies, such changes primarily involve non- realized gains/losses. In addition, the IRR calculation adjusts both funds brought in by external equity providers and dividends paid to shareholders. The Baloise Group’s IRR for 2001 amounts to -21.2 percent, reflecting the negative overall trend on the capital markets. Registration as Bâloise-Holding shareholder There are no restrictions on the acquisition of Bâloise-Holding shares. Share- holders who have purchased shares under their own name and for their own ac- count are entered in the share register with voting rights up to a maximum of Contacts 2 percent of all shares issued. This also applies to shares held by nominee com- panies, provided the beneficial owner has been made known to us (Articles of As- sociation, Art. 5). Investor Relations Carsten Stolz Aeschengraben 21, CH-4002 Basel Significant shareholders at March 31, 2001 Total holding Share of voting rights Phone +41 61 285 81 81 Fax +41 61 285 75 62 Strategic Money Management Co. BZ Group Deutsche Bank Nominees Chase Nominees Ltd. UBS Ltd. percent Bonds issued Issuer Baloise Finance (Jersey) Ltd. Bâloise-Holding Bâloise-Holding 21.0 20.1 3.3 2.6 2.1 – 2.1 2.0 1.0 1.5 E-mail investor.relations@basler.ch Media Relations Philipp Senn Aeschengraben 21, CH-4002 Basel Phone +41 61 285 84 67 Fax +41 61 285 90 06 E-mail philipp.senn@basler.ch CHF m Interest rate 200 300 600 1.00% 3.25% 4.25% Issue 1998 1998 2000 Redemption 7.4.2006 7.4.2008 28.9.2005 www.baloise.com Annual Report 2001 | Bâloise-Holding 55 55 56 Bâloise-Holding | Annual Report 2001 Financial Report 2001 Consolidated Financial Statements of the Baloise Group Consolidated Income Statement Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Equity Segment Reporting by Geographical Segment Segment Reporting by Business Segment Management Information (incl. embedded value) Notes to the Consolidated Financial Statements Report of the Group Auditors Financial Statements of Bâloise-Holding 2001/2002 Income Statement Balance Sheet Notes to the Financial Statements Report of the Statutory Auditors Contents 59 60 62 64 66 70 74 81 143 144 145 146 149 Annual Report 2001 | Bâloise-Holding 57 58 Bâloise-Holding | Annual Report 2001 Consolidated Income Statement Income Gross premiums written and policy fees1 Reinsurance premiums ceded Premiums written and policy fees for own account Change in unearned premiums reserves for own account Premiums earned and policy fees for own account Investment income (net) Realized gains and losses on investments (net) Income from other services Other income Total income Expenses Claims incurred including processing costs (non-life) Claims and benefits paid (life) Change in actuarial reserve (life) Surplus and profit allocations to policyholders Acquisition costs Administrative and other operating expenses Interest payable Note 2000 2001 6 18 6,701.2 6,632.7 - 230.8 - 207.4 7.1 7.3 15 16 17 14 27 6,470.4 14.3 6,425.3 8.1 6,484.7 6,433.4 2,154.4 2,081.2 826.7 265.5 108.7 149.4 271.8 154.1 9,840.0 9,089.9 - 1,727.9 - 2,756.5 - 1,680.3 - - 870.9 311.3 - 1,785.0 - 2,896.6 - 1,449.4 - - 177.6 367.8 - 1,267.3 - 1,238.6 - - 380.0 113.7 - - 498.6 153.3 - 9,107.9 - 8,566.9 - - 732.1 94.6 637.5 3.1 634.4 - - 523.0 116.9 406.1 1.7 404.4 Amortization of intangible assets and depreciation of tangible non-current assets 12/13 Total expenses Profit before tax and minority interests Tax on income Net profit after tax before minority interests Minority interests Consolidated net profit in CHF m 21 26 Earnings per share (identical values for “basic” and “diluted”) 25 11.25 7.31 in CHF 1 Additional information Gross premiums written and policy fees Investment-type premiums Gross premiums, policy fees and investment-type premiums in CHF m In accordance with the accounting policies of the Baloise Group, investment-type premiums are not included in gross premiums and policy fees. 6,701.2 176.4 6,632.7 248.4 6,877.6 6,881.1 Annual Report 2001 | Bâloise-Holding 59 Consolidated Balance Sheet Note 12.31.2000 12.31.2001 499.9 160.7 480.9 159.7 19,247.5 19,928.7 195.9 13,134.5 920.9 85.9 4,965.8 10,438.7 1,856.7 316.3 631.2 759.9 198.5 9,802.3 1,117.2 19.3 5,042.2 10,500.4 1,663.1 289.1 695.1 888.3 53,213.9 50,784.8 362.4 512.4 129.6 – 103.2 687.8 80.7 1,001.3 558.9 1,305.9 51.9 876.9 679.8 409.0 447.2 376.8 105.6 – 117.5 646.7 88.3 958.1 584.1 1,377.9 52.3 948.2 695.4 724.1 567.6 289.9 4,706.4 5,239.5 59,284.0 57,494.8 10 8 9 29 6 11 12 12 12 13 13 18 23 14 21 Assets Investements Fixed-interest securities Held for trading Held to maturity Available for sale Shares Held for trading Available for sale Alternative financial assets Derivatives Investment property Mortgage loans Policy and other loans Participating interests in associates Other short-term investments Cash and cash equivalents Total investments Total investments for unit-linked life insurance Intangible and tangible non-current assets Goodwill Present value of profits from insurance contracts acquired Other intangible assets Property, plant and equipment for own use Other tangible non-current assets Total intangible and tangible non-current assets Other assets Investments and deposits arising from reinsurance business Receivables arising out of insurance operations Assets relating to employee benefits Other receivables Accrued investment income Deferred acquisition costs Deferred tax Other assets Total other assets Total assets in CHF m 60 Bâloise-Holding | Annual Report 2001 Liabilities and Equity Note 12.31.2000 12.31.2001 Capital and reserves Share capital Capital reserves Less: treasury stock Unrealized gains and losses Accumulated profit Total capital and reserves Minority interests Liabilities Unearned premiums reserves (gross) Loss reserves (gross) Actuarial reserve life (gross) Policyholder bonuses credited and provision for future policyholder bonuses Technical provisions for unit-linked life insurance Payables arising from insurance operations Deposit fund liabilities arising from reinsurance Liabilities from banking business and loans Derivatives Non-technical provisions Benefits due to employees Deferred tax Other liabilities and deferred income Total liabilities Total liabilities and equity in CHF m 24 7 - 56.7 81.2 94.7 3,495.6 3,834.0 5.5 109.3 - 67.1 1,526.6 3,810.5 7,372.8 5,384.8 26 46.2 41.5 15 16 17 17.2 19 10 20 23 21 629.9 4,021.5 26,314.5 4,768.6 356.7 1,349.7 281.7 10,048.9 84.2 127.5 563.6 1,946.8 1,371.4 380.9 4,182.0 27,558.9 4,197.7 513.7 1,521.2 269.0 9,697.2 59.9 112.6 559.6 1,640.9 1,374.9 51,865.0 52,068.5 59,284.0 57,494.8 Annual Report 2001 | Bâloise-Holding 61 Consolidated Cash Flow Statement Cash flow from operating activities Net profit for the year before tax Adjustments for Realized gains and losses on the sale of investments Income from participating interests in associates Interest income on security deposits Policy fees on investment-type products Amortization of intangible assets and depreciation of tangible non-current assets Foreign exchange gains and losses Note 7 Movements in operating assets and liabilities Investments and assets relating to reinsurance business Deferred acquisition costs Unearned premiums reserves Loss reserves Actuarial reserve (life) Technical provisions for unit-linked life insurance Other movements in operating assets and liabilities Cash flow from operating activities (gross) Tax paid Cash flow from operating activities (net) of which from joint ventures Cash flow from investing activities Purchase of fixed-interest securities and similar Disposal of fixed-interest securities and similar Purchase of shares Disposal of shares Purchase of investment property Disposal of investment property Purchase of other investments Disposal of other investments Acquisition of intangible assets and tangible non-current assets Disposal of intangible assets and tangible non-current assets Cash flow from increase in share of investments held Acquisition of subsidiaries where there is no effect on cash and cash equivalents Disposal of subsidiaries where there is no effect on cash and cash equivalents 5 5 Acquisition of participating interests in associates (net) Dividends received from associates Cash flow from investing activities (net) of which from joint ventures in CHF m 62 Bâloise-Holding | Annual Report 2001 2000 732.1 826.7 14.6 10.2 35.3 113.7 26.8 3.4 24.7 12.1 32.6 1,778.9 6.6 10.4 1,760.5 154.0 1,606.5 69.4 - - - - - - - - - - 2001 523.0 149.4 21.3 25.6 9.5 153.3 27.7 81.9 69.1 237.6 225.4 1,562.7 7.0 257.3 1,633.4 75.0 1,558.4 18.8 - - - - - - - - - - - - 5,406.7 - 10,199.6 4,526.2 - 5,432.2 4,205.4 7,678.3 - 8,961.7 11,069.4 - - - - - - 331.4 152.9 514.1 573.7 86.2 21.4 284.4 369.4 – 31.6 7.8 - 2,968.6 58.3 - - - - - - - 261.1 219.9 950.1 708.5 189.1 100.5 38.4 17.1 – 20.1 8.8 851.8 66.1 Cash flow from financing activities Note 2000 Capital increases Capital reductions Cash inflow from investment-type products Cash outflow from investment-type products Increases in liabilities from banking business and loans Decreases in liabilities from banking business and loans Dividends paid Cash flow from financing activities (net) of which from joint ventures Effect of foreign exchange rate changes on cash and cash equivalents Total movement in cash and cash equivalents Cash and cash equivalents As at January 1 Movement during year As at December 31 in CHF m Additional information on cash flow from operating activities Other interest received Dividends received Interest paid in CHF m - - - - - – 335.3 151.6 29.5 1,964.5 208.7 140.7 1,401.9 1.7 6.3 33.5 726.4 33.5 759.9 2001 – 343.0 188.7 28.8 - - 1,035.8 - 1,255.4 - - - - 136.1 538.8 50.0 39.4 128.4 759.9 128.4 888.3 1,381.7 602.5 1,712.7 225.5 - 364.9 - 488.8 Annual Report 2001 | Bâloise-Holding 63 Consolidated Equity Balance at December 31, 1999 58.6 22.3 - 172.4 4,257.8 3,311.3 7,477.6 Share capital Capital reserves Less: treasury stock Unrealized gains and losses (net) Accumulated profit Total capital and reserves Movement on unrealized gains and losses on investments (gross) Less movement on: Policyholder surplus Deferred acquisition costs charged to equity Deferred tax Foreign exchange differences Minority interests Movement on unrealized gains and losses on investments (net) Dividends Consolidated net profit for the year Purchase/sale of treasury stock Purchase/sale of options on treasury stock Issue/repayment of share capital – – – – – – – – – – – or share options - 1.9 – – – – – – – – – – – – – – – – – – 58.9 77.7 – – – – - 858.6 183.6 150.3 108.1 23.6 40.4 399.8 - - – – – – – – – – – – – – - 140.7 634.4 – – - 858.6 - - - 183.6 150.3 108.1 23.6 40.4 399.8 140.7 634.4 136.6 – - 333.4 - 335.3 Balance at December 31, 2000 56.7 81.2 Application of IAS 39 (Financial Instruments) & 40 (Investment Property) Balance at December 31, 2000 adjusted in CHF m – 56.7 – 81.2 - - 94.7 3,858.0 3,471.6 7,372.8 – 94.7 - 362.4 362.4 0.0 3,495.6 3,834.0 7,372.8 64 Bâloise-Holding | Annual Report 2001 (continued) Share capital Capital reserves Less: treasury stock Unrealized gains and losses (net) Accumulated profit Total capital and reserves Balance at December 31, 2000 adjusted 56.7 81.2 - 94.7 3,495.6 3,834.0 7,372.8 Movement on unrealized gains and losses on investments (gross) Less movement on: Policyholder surplus Deferred acquisition costs charged to equity Deferred tax Foreign exchange differences Minority interests Movement on unrealized gains and losses on investments (net) Dividends Consolidated net profit for the year Purchase/sale of treasury stock Purchase/sale of options in treasury stock Issue/repayment of share capital or share options Balance at December 31, 2001 in CHF m – – – – – – – – – – - - 49.8 1.4 5.5 – – – – – – – – – – – – – – – – – – 28.1 27.6 – – – – - 2,845.1 182.1 255.8 462.7 51.9 27.4 - - 1,969.0 – – – – – – – – – – – – - 136.1 404.4 – – - 291.8 - 2,845.1 182.1 255.8 462.7 51.9 27.4 - - 1,969.0 - - - 136.1 404.4 55.7 49.8 293.2 109.3 - 67.1 1,526.6 3,810.5 5,384.8 Annual Report 2001 | Bâloise-Holding 65 Segment Reporting by Geographical Segment Income Gross premiums written and policy fees Reinsurance premiums ceded Premiums written and policy fees for own account Change in unearned premiums reserves for own account 2000 Switzerland 2001 2000 Germany 2001 4,008.2 3,972.0 1,784.9 1,737.7 - 156.8 - 152.9 - 252.8 - 217.2 3,851.4 7.9 3,819.1 10.3 1,532.1 28.3 1,520.5 4.6 Premiums earned and policy fees for own account 3,859.3 3,829.4 1,560.4 1,525.1 Investment income (net) Realized gains and losses on investments (net) Income from other services Other income Total income 916.7 727.1 15.0 16.2 - 1,049.5 353.7 24.3 0.6 - 940.1 11.4 165.1 28.9 667.4 - 265.6 128.1 51.9 5,501.9 5,256.3 2,705.9 2,106.9 of which between geographical segments of which income from associates 48.7 – 64.7 – Expenses Claims incurred including processing costs (non-life) Claims and benefits paid (life) Change in actuarial reserve (life) Surplus and profit allocations to policyholders Acquisition costs Administrative and other operating expenses Interest payable Amortization of intangible assets and depreciation of tangible non-current assets - 745.7 - 1,795.3 - 1,435.8 - - - - - 284.5 89.8 424.9 151.3 37.1 - 732.6 - 1,961.8 - 1,229.6 - - - - - 107.5 59.2 460.1 192.5 40.7 153.5 6.4 307.9 856.3 177.6 578.6 66.7 528.7 127.8 40.2 - - - - - - - - 168.1 15.4 346.7 826.2 128.6 55.5 155.5 400.0 110.6 40.8 - - - - - - - - Total expenses - 4,964.4 - 4,784.0 - 2,683.8 - 2,063.9 Profit/loss before tax and minority interests Tax on income Profit/loss after tax before minority interests Minority interests Net profit/loss by region in CHF m 537.5 472.3 - 104.7 - 107.6 432.8 – 432.8 364.7 – 364.7 22.1 9.2 31.3 2.0 29.3 - - - 43.0 3.3 39.7 5.4 34.3 66 Bâloise-Holding | Annual Report 2001 Benelux countries Other countries 2000 693.9 49.0 644.9 2.1 642.8 225.8 74.9 72.4 27.9 - - 2001 726.8 45.4 681.4 6.6 674.8 308.5 32.0 96.9 44.7 - - 2000 501.1 59.1 442.0 12.1 429.9 78.8 13.3 13.0 94.8 - - 2001 454.3 50.0 404.3 1.1 403.2 74.2 29.3 22.5 77.0 1,043.8 1,156.9 629.8 606.2 9.6 8.2 436.7 65.0 48.7 7.2 147.6 170.3 98.9 19.3 993.7 50.1 18.9 69.0 0.7 68.3 10.8 5.8 - 233.2 - 280.0 – 0.1 - - - - - - - - 444.3 59.3 89.4 5.5 138.7 223.7 173.3 25.8 - 1,160.0 - - - - 3.1 5.3 8.4 3.7 4.7 - - - - - - - - - - - 262.5 18.2 7.4 0.5 59.6 97.4 44.7 17.1 507.4 122.4 18.0 104.4 0.4 104.0 - - - - - - - - - - 270.1 40.5 0.7 9.1 60.1 109.4 59.5 46.0 595.4 10.8 0.7 10.1 0.0 10.1 - - - - - - - - - - - - - - - - - - - - - - 2000 286.9 286.9 – 7.7 7.7 7.0 – – 26.7 41.4 41.4 – 24.9 21.7 10.8 0.1 52.4 46.0 42.7 – 41.4 – – – – – Elimination 2001 2000 Total 2001 - 258.1 6,701.2 6,632.7 258.1 - 230.8 - 207.4 – 0.9 0.9 6,470.4 14.3 6,425.3 8.1 6,484.7 6,433.4 - - - - - - 18.4 2,154.4 2,081.2 – – 18.9 36.4 36.4 – 8.7 8.8 1.1 0.0 45.7 45.4 37.3 – 36.4 – – – – – 826.7 265.5 108.7 149.4 271.8 154.1 9,840.0 9,089.9 – 14.6 – 21.3 - 1,727.9 - 2,756.5 - 1,680.3 - - 870.9 311.3 - 1,785.0 - 2,896.6 - 1,449.4 - - 177.6 367.8 - 1,267.3 - 1,238.6 - - 380.0 113.7 - - 498.6 153.3 - 9,107.9 - 8,566.9 - - 732.1 94.6 637.5 3.1 634.4 - - 523.0 116.9 406.1 1.7 404.4 Annual Report 2001 | Bâloise-Holding 67 Segment Reporting by Geographical Segment (continued) Additional information Assets by geographical segment of which investments of which participating interests Liabilities by geographical segment of which technical provisions Cash flow from operating activities (net) Cash flow from investing activities (net) Cash flow from financing activities (net) Acquisition of real estate, equipment and furnishings and intangible assets for own use Impairment of value recognized in the income statement Reinstatement of original value recognized in the income statement in CHF m 2000 34,255.0 30,785.8 0.1 28,925.5 19,858.4 Switzerland 2001 33,235.8 28,890.1 0.2 28,482.8 20,907.4 91.0 - 464.7 - 1,382.4 1,859.3 - 91.7 33.8 29.5 17.1 483.1 26.5 - 119.5 112.1 2000 15,466.5 13,650.1 143.7 15,036.5 12,724.1 379.4 209.1 448.4 25.4 74.4 84.9 - - - Germany 2001 14,825.7 12,697.6 121.8 14,440.1 12,186.4 241.5 84.0 119.9 6.4 34.5 27.4 - - - 68 Bâloise-Holding | Annual Report 2001 Other countries 2000 2001 2000 2000 7,697.8 6,412.1 172.5 6,897.8 2,221.8 399.7 303.2 199.4 17.5 26.2 2.5 - - - Benelux 2001 8,109.3 6,497.6 167.1 7,460.0 2,359.0 106.2 4,413.6 2,880.0 – 3,524.9 1,303.8 1,369.9 - 498.0 - 1,693.5 386.7 392.4 - 23.6 25.1 2.5 - 30.5 1.7 – 5,099.6 4,662.3 – 4,156.9 1,140.3 1,682.4 - 292.0 - 1,290.6 - 22.2 0.3 0.6 Elimination 2001 - 3,775.6 - 1,962.8 – - 2,518.9 - 514.1 – - 2,519.7 - 2,471.3 - - 373.6 165.9 619.6 600.8 - - 273.6 7.0 5.1 1.9 – – – – – – 2000 59,284.0 53,213.9 316.3 51,865.0 35,734.5 1,606.5 - 2,968.6 1,401.9 165.1 - 136.1 116.9 Total 2001 57,494.8 50,784.8 289.1 52,068.5 36,319.5 1,558.4 - - - 851.8 538.8 78.7 179.4 142.6 Annual Report 2001 | Bâloise-Holding 69 Segment Reporting by Business Segment Income Gross premiums written and policy fees Reinsurance premiums ceded Premiums written and policy fees for own account Change in unearned premiums reserves for own account 2000 Non-life 2001 2000 Life 2001 2,645.6 2,591.5 4,175.1 4,058.0 - 201.2 - 179.4 - 156.6 - 44.8 2,444.4 15.6 2,412.1 7.2 4,018.5 4,013.2 – – Premiums earned and policy fees for own account 2,460.0 2,419.3 4,018.5 4,013.2 Investment income (net) Realized gains and losses on investments (net) Income from other services Other income Total income of which between business segments of which income from associates Expenses 313.8 389.5 21.3 102.5 281.7 222.0 1.7 75.7 1,579.9 475.2 33.9 64.0 3,287.1 3,000.4 6,171.5 - 202.7 - 2.0 39.4 1.8 95.5 5.8 Claims incurred including processing costs (non-life) - 1,846.5 - 1,794.2 Claims and benefits paid (life) Change in actuarial reserve (life) Surplus and profit allocations to policyholders Acquisition costs Administrative and other operating expenses Interest payable Amortization of intangible assets and depreciation of tangible non-current assets – – 54.3 269.0 567.2 23.4 40.7 - - - - - – – 13.3 306.4 515.0 25.9 52.4 - - - - - – - 2,667.6 - 1,602.2 - - - - - 858.4 63.0 393.5 238.1 37.9 - - 1,354.9 71.4 27.4 53.3 5,377.4 24.1 3.5 – - 2,887.0 - 1,448.5 - - - - - 164.3 63.5 347.1 160.5 33.7 Total expenses - 2,801.1 - 2,707.2 - 5,860.7 - 5,104.6 Profit/loss before tax and minority interests Tax on income Profit/loss after tax before minority interests Minority interests Net profit/loss by business segment in CHF m - - 486.0 35.5 450.5 0.3 450.2 293.2 - 67.3 225.9 3.4 229.3 - - 310.8 52.2 258.6 1.5 257.1 272.8 - 36.6 236.2 0.5 236.7 In the Annual Report 2000, three reinsurance contracts were registered under non- life instead of life. In the 2001 statement, these contracts have been allocated to life. Since this transfer has no influence at all on the equity or the net profit of the Group and only marginal influence on the segment results, no restatement of the previous year’s figures has been drawn up. 70 Bâloise-Holding | Annual Report 2001 2000 – – – – – 238.5 45.6 16.6 33.3 242.8 0.0 0.4 – – – – – 94.9 184.4 8.5 287.8 45.0 6.3 38.7 0.5 38.2 - - - - - - - - Banking 2001 Other Activities 2000 2001 – – – – – 433.3 10.9 27.9 57.8 508.1 6.9 0.5 – – – – – 168.8 319.7 11.5 500.0 8.1 2.1 10.2 0.0 10.2 - - - - - - – – – – – 48.9 7.6 173.0 5.4 234.9 10.0 6.4 – – – – – 170.5 57.5 26.6 254.6 19.7 13.2 32.9 1.8 34.7 - - - - - - - - - - – – – – – 59.9 9.7 214.8 9.9 294.3 19.9 15.5 – – – – – 206.0 83.7 55.7 345.4 51.1 15.1 66.2 5.6 71.8 - - - - - - - - - - - - - - - - - - 2000 119.5 127.0 7.5 1.3 6.2 26.7 – 20.7 96.5 96.3 117.2 – 118.6 88.9 78.1 41.8 20.7 41.2 123.4 – 96.3 – – – – – Elimination 2001 2000 Total 2001 - - - - - - - 16.8 16.8 0.0 0.9 0.9 48.6 – – 42.6 90.3 90.3 – 9.2 9.6 0.9 – 2.1 1.7 91.2 – 90.3 – – – – – 6,701.2 6,632.7 - 230.8 - 207.4 6,470.4 14.3 6,425.3 8.1 6,484.7 6,433.4 2,154.4 2,081.2 826.7 265.5 108.7 149.4 271.8 154.1 9,840.0 9,089.9 – 14.6 – 21.3 - 1,727.9 - 2,756.5 - 1,680.3 - - 870.9 311.3 - 1,785.0 - 2,896.6 - 1,449.4 - - 177.6 367.8 - 1,267.3 - 1,238.6 - - 380.0 113.7 - - 498.6 153.3 - 9,107.9 - 8,566.9 - - 732.1 94.6 637.5 3.1 634.4 - - 523.0 116.9 406.1 1.7 404.4 Annual Report 2001 | Bâloise-Holding 71 Segment Reporting by Business Segment (continued) Additional information Assets by business segment Liabilities by segment Acquisition of real estate, equipment and furnishings and intangible assets for own use in CHF m 2000 10,912.0 – 30.3 Non-life 2001 10,257.8 7,556.4 2000 38,249.2 – Life 2001 37,999.9 35,238.5 28.1 - 10.2 13.3 72 Bâloise-Holding | Annual Report 2001 2000 10,536.2 – 92.3 Banking 2001 11,183.3 10,547.5 Other activities 2000 2001 2000 2,056.2 – 1,975.4 2,647.7 - 2,469.6 – – 7.0 52.7 30.3 Elimination 2001 - 3,921.6 - 3,921.6 2000 59,284.0 – Total 2001 57,494.8 52,068.5 – 165.1 78.7 Annual Report 2001 | Bâloise-Holding 73 Management Information From 2001 on, the same consolidation rules are applied for the Management Information as for the segment reports. This means that, in line with IAS require- ments, Group-internal transactions between the segments are not eliminated. The previous year’s figures of the technical income statement have been adjusted accordingly. 2000 73.7 30.5 0.5 Gross 2001 74.3 30.9 0.5 For own account 2000 2001 73.8 32.2 0.5 74.2 32.7 0.5 104.7 105.7 106.5 107.4 Germany 2001 64.9 38.2 0.2 2000 86.3 33.2 0.0 Benelux 2001 86.6 32.3 0.0 Other countries 2000 2001 63.3 24.5 - 0.3 74.7 24.2 0.1 63.8 36.2 - 0.2 99.8 103.3 119.5 118.9 87.5 99.0 2000 2001 4,352.6 4,372.0 2,340.4 2,372.0 186.0 184.3 Combined ratio: non-life Loss ratio Expense ratio Surplus sharing ratio Combined ratio as a percentage of premiums earned Combined ratio (gross) Switzerland by geographical segment: non-life 2000 2001 2000 73.4 25.4 1.5 100.3 72.2 25.4 1.1 98.7 Loss ratio Expense ratio Surplus sharing ratio Combined ratio as a percentage of premiums earned Reserve ratio: non-life Technical provision for own account Premiums written1 Reserve ratio in percent in CHF m 1 2001: without Bâloise España 74 Bâloise-Holding | Annual Report 2001 Technical income statement Gross Gross premiums written and policy fees Change in unearned premium reserve 2000 2,541.6 16.5 Non-life 2001 2,591.5 8.8 2000 Life 2001 4,175.1 4,058.0 – – Premiums earned and policy fees 2,558.1 2,600.3 4,175.1 4,058.0 Claims and benefits paid Change in loss reserves/actuarial reserve Claims and benefits paid Policyholder bonuses paid Technical costs Total underwriting result (gross) Reinsurance ceded Premiums earned and policy fees Claims and benefits paid Policyholder bonuses paid Technical costs - 1,796.5 - 87.9 - 1,736.3 - 194.2 - 2,783.0 - 1,685.8 - 2,917.0 - 1,452.6 - 1,884.4 - 1,930.5 - 4,468.8 - 4,369.6 - - - - 13.3 780.5 120.1 202.9 145.5 0.7 22.4 - - - - 13.5 805.6 149.3 181.0 136.3 0.2 14.1 - - 858.4 381.1 - 1,533.2 - 44.3 42.0 – 4.7 2.4 - - - - - 164.3 387.5 863.4 44.8 34.1 – 10.1 0.6 Total underwriting result of business ceded - 34.3 - 30.4 Net for own account Premiums earned and policy fees Claims and benefits paid Policyholder bonuses paid Technical costs Total underwriting result for own account Investment income (gross) Realized gains and losses on investments (net) Investment expenses Other non-technical income and expenses Non-technical result Profit before tax and minority interests Tax on income Profit after tax before minority interests Minority interests Net profit in CHF m 2,355.2 2,419.3 4,130.8 4,013.2 - 1,738.9 - 1,794.2 - 4,426.8 - 4,335.5 - - - - - - - 12.6 758.1 154.4 324.3 389.5 10.4 62.0 641.4 487.0 35.5 451.5 0.3 451.2 - - - - - 13.3 791.5 179.7 296.7 222.0 15.0 30.8 472.9 293.2 - 67.3 225.9 3.4 229.3 - - - - - - 164.3 377.4 864.0 1,384.3 71.4 29.4 146.7 - - 858.4 376.4 - 1,530.8 1,611.3 475.2 31.4 214.5 - - - - 1,840.6 1,136.8 309.8 52.2 257.6 1.5 256.1 272.8 - 36.6 236.2 0.5 236.7 Annual Report 2001 | Bâloise-Holding 75 Embedded value The embedded value of life insurance business comprises two elements: the ad- justed capital and reserves for life insurance activities and the value of insurance in force at the end of the period under review. Embedded value does not take into account any new business that will be concluded in the future. The adjusted capital and reserves are based on market value for invest- ments and statutory value for liabilities from insurance operations. The sums of unrealized investment gains and losses, which can be subject to strong move- ments, represent the most significant capital and reserves component. Adjusted capital and reserves also include costs incurred to meet solvency requirements in the life sector. Declared capital and reserves only are considered for the embed- ded value in the case of the Baloise Group’s business from Luxembourg and Austria. The value of insurance in force is understood to be the earnings gener- ated from this insurance in future, established by discounting all the anticipated cash flow. A large number of assumptions need to be made to calculate this value, the most important of which are listed in the table below. B&W Deloitte has reviewed the calculation methods and the assumptions made and considers the results to be appropriate. Development of embedded value Embedded value at January 1 of which value of insurance in force of which adjusted capital and reserves Operating income from insurance in force, adjusted capital and reserves, and earnings from new business Economic changes, especially changes in unrealized gains and losses on investments Dividends to parent companies Differences arising from currency translation Embedded value at December 31 of which value of insurance in force of which adjusted capital and reserves in CHF m; all figures “after tax” Calculation bases (assumptions) Risk discount rate Income from fixed-interest securities Income from shares Income from investment property Tax rate in percent 2001 4,949.5 1,334.0 3,615.5 292.0 - 1,310.0 - - 125.5 13.5 3,792.5 1,341.4 2,451.1 2001 7.7 4.8 7.1 5.1 21.0 76 Bâloise-Holding | Annual Report 2001 Investment performance in 2000 Fixed-interest securities Current investment income Realized gains Realized losses Change in unrealized gains and losses taken to equity Impairment in value recognized in the income statement (net) Investment management costs Operating profit 844.3 67.3 68.6 36.1 0.3 9.0 797.6 - - - - Shares 610.2 989.4 41.4 912.6 31.6 13.3 600.7 - - - - Investment property Mortgage loans, policy loans and other loans Alternative financial assets, derivates and other 211.6 28.5 15.9 38.0 26.7 13.2 - - 492.1 1.4 83.9 – 2.2 9.4 - - 275.7 402.4 42.6 37.3 68.2 52.1 16.2 1.5 46.1 - - - Total 2,200.8 1,123.9 278.0 858.6 19.2 46.4 2,122.5 - - - - Average level of investments 16,455.0 15,355.0 4,813.6 9,807.9 1,851.5 48,283.0 Performance in percent 4.8 3.9 5.7 4.1 2.5 4.4 in CHF m Mortgage loans, policy loans and other loans Alternative financial assets, derivates and other Investment performance in 2001 Current investment income Realized gains Realized losses Change in unrealized gains and losses Fixed-interest securities 1,018.4 159.9 Shares 201.4 637.1 - 134.2 - 481.2 taken to equity 61.9 - 2,729.7 Impairment in value recognized in the income statement (net) Investment management costs - - 2.4 12.0 - - 63.1 20.7 - - Investment property 235.2 70.3 17.8 – – 9.2 - 596.0 0.3 - 79.0 – 41.9 4.3 Operating profit 1,091.6 - 2,456.2 278.5 554.9 Average level of investments 20,238.7 11,665.6 5,003.9 12,229.5 Performance in percent 5.4 - 21.1 5.6 4.5 in CHF m Total 2,142.0 929.8 - 743.6 91.0 62.2 31.4 177.3 - 2,845.1 13.2 14.6 83.3 2,861.6 2.9 - - - - 36.8 60.8 614.5 51,999.3 1.2 - - - - - - Annual Report 2001 | Bâloise-Holding 77 Results from banking business 2000 2001 3.7 167.9 87.1 1.7 260.4 43.1 71.3 62.9 7.1 184.4 76.0 16.6 0.4 11.4 104.4 54.6 40.3 94.9 9.5 46.0 8.5 45.0 6.3 38.7 0.5 38.2 - - - - - - - - - - - - - 6.2 306.4 161.9 0.0 474.5 60.1 117.4 112.6 29.6 319.7 154.8 27.9 3.0 16.6 202.3 98.5 70.3 168.8 33.5 13.9 11.5 8.1 2.1 10.2 0.0 10.2 - - - - - - - - - - Interest income Due from banks Loans to customers Investments Other Total interest income Interest payable Due to banks Due to customers Medium-term fixed-rate notes, bonds and mortgage bonds Other Total interest payable Net interest income Result from commission business and services Realized gains and losses on investments Other income Total income from banking business Expenses related to banking business Staff costs Operating expenses Total expenses related to banking business Gross profit Losses and provisions relating to credit risks Depreciation and amortization Profit /loss before taxes and minority interests Taxes on income Profit /loss after tax before minority interests Minority interests Net profit / loss in CHF m 78 Bâloise-Holding | Annual Report 2001 Assets under management 2000 2001 Own investments Investments for unit-linked life insurance Assets managed for third parties Total in CHF m 53,213.9 50,784.8 362.4 4,435.7 512.4 4,347.9 58,012.0 55,645.1 Sale of fund units 2000 Sale of fund units incl. fund units for unit-linked life insurance 834.0 2001 691.4 in CHF m Annual Report 2001 | Bâloise-Holding 79 80 Bâloise-Holding | Annual Report 2001 Notes to the Consolidated Financial Statements 1. Basis of Accounting The Baloise Group operates solely in Europe. It comprises 13 insurance compa- nies, which provide almost all types of life and non-life insurance. The holding company is Bâloise-Holding, a Swiss stock corporation (Aktiengesellschaft) which has its registered office in Basel, Switzerland. The shares of Bâloise-Holding are quoted on SWX Swiss Exchange. Its subsidiaries operate in Switzerland, Germany, Belgium, Austria, Luxembourg and Croatia. The banking business is carried out by subsidiaries in Switzerland, Germany, Belgium, and Luxembourg (investment fund company). The consolidated financial statements of the Baloise Group are pre- pared on a historical cost basis, taking into account adjustments resulting from regular reassessments of the fair market value of certain investments, and are established in accordance with the International Accounting Standards (IAS), which comply with Swiss legal requirements. As the International Accounting Stan- dards do not currently contain any insurance-specific guidelines, insurance busi- ness has been valued on the basis of the US “Generally Accepted Accounting Principles” (US GAAP). 2. Application of New Accounting Standards International Accounting Standard 39 – Financial Instruments: Statement and Valuation, and IAS 40 – Investment Property (introduced on January 1, 2001), have had the following consequences for the Baloise Group: IAS 39 – Financial Instruments: Statement and Valuation. The standard regulates in detail the way in which financial instruments are to be accounted for. Financial instruments comprise both traditional financial assets and liabilities and derivatives. The standard stipulates that all financial instruments be entered in the balance sheet, basically at market value. The standard also rules on hedging activities. The most important consequences for the Baloise Group relate to the consolidation of the German “Spezialfonds” (special funds) and the recognition in the income statement of foreign currency differences in the monetary assets clas- sified as Available for sale. Following the consolidation of the German “Spezial- fonds”, these “Spezialfonds”, which had before been included under Shares in their entirely, are now classified according to their investment category. This pri- marily engenders a reallocation of shares to Fixed-interest securities and of unre- alized gains and losses to Accumulated profit. The recognition in the income state- ment of foreign currency differences in the monetary assets Available for sale leads to a reallocation of unrealized gains and losses resulting from the revaluation of foreign currency holdings to Accumulated profit. Annual Report 2001 | Bâloise-Holding 81 IAS 40 – Investment Property. The standard requires the inclusion of real estate at fair market value and recognition of value changes in the income statement. The new standard does not affect the valuation of the Baloise Group’s investment property, as this has already been included at fair market value in the past. The application of this standard since its introduction merely entails a re- allocation of unrealized gains and losses to Accumulated profit. In the case of life insurance companies, the amortization of acquisition costs and policyholder bonuses that is deducted from unrealized gains and losses has been adjusted owing to the reallocation of unrealized gains and losses to Accumulated profit. As a result of the introduction of these two new standards, a gross sum of CHF 926.0 m from unrealized gains and losses has been reallocated to Accumulated profit. After taking into account the amortization of acquisition costs, policyholder bonuses and deferred tax, the net sum reallocated comes to CHF 362.4 m. 82 Bâloise-Holding | Annual Report 2001 The following shows a summary of the adjustments to the consolidated balance sheet: Assets Fixed-interest securities Shares Other short-term investments Accrued investment income & other in CHF m Liabilities and Equity Capital and reserves Unrealized gains and losses Fixed-interest securities Shares Investment property Other Subtotal (gross) Less part of: Shares of deferred acquisition costs for policyholders life Policyholder bonuses Deferred tax Other Total (net) Accumulated profit in CHF m Before adjustment 12.31.2000 18,099.1 15,253.4 558.1 633.6 Adjustment 1,809.0 - 1,923.0 73.1 40.9 After adjustment 12.31.2000 19,908.1 13,330.4 631.2 674.5 93.0 5,348.4 673.5 116.7 - - 118.7 394.7 673.5 23.5 211.7 4,953.7 0.0 140.2 6,231.6 - 926.0 5,305.6 - - - - 750.6 500.3 953.7 169.0 3,858.0 3,471.6 256.9 207.4 105.2 5.9 362.4 362.4 - - - - - - 493.7 292.9 848.5 174.9 3,495.6 3,834.0 Owing to the application of IAS 39 (consolidation of the German special funds), the total assets rose by CHF 5.3 million as at December 31, 2000. You will find further information on the new standards in the following section “Accounting Policies”. Annual Report 2001 | Bâloise-Holding 83 3. Accounting Policies 3.1 Method of consolidation The consolidated financial statements consist of the financial statements of Bâloise-Holding and of its subsidiaries. A subsidiary is consolidated where the Baloise Group has over 50 percent of the voting rights, whether directly or indi- rectly, or exercises control over it. All intragroup transactions and profits and loss- es arising therefrom are eliminated. Companies acquired in the course of the year under review are included in the consolidation from the date when effective control was acquired, while all companies disposed of during the year are included in the consolidation until the date of disposal. Companies which are acquired for the purpose of resale are held and accounted for as investments. A joint venture is a contractual arrangement whereby two or more par- ties undertake an economic activity which is subject to joint control. Deutscher Ring Beteiligungsholding is a joint venture in which the Baloise Group has a direct 65 percent interest. The remaining 35 percent are held by Deutscher Ring Kranken- versicherungsverein, a mutual insurance company. The contractual arrangements are such that the majority shareholder does not have overall control. These com- panies are consolidated on a proportionate basis, therefore the Baloise Group reports only its share of assets, liabilities, income and expenses. Participating interests in associates are accounted for under the equity method if the Baloise Group has significant influence on the management of the company and the company is not being held exclusively with a view to its disposal in the near future. 3.2 Foreign currency translation The financial statements of the Baloise Group are stated in Swiss francs (CHF). Foreign currency translation: The financial statements of all business units which were not originally prepared in CHF have been translated at year-end rates (for balance sheet figures excluding goodwill) or at average rates for the year (for the income statement). The total exchange differences arising are taken directly to equity. Assets and liabilities in foreign currencies in the accounts of the indi- vidual companies are translated at year-end rates. Income and expenses are trans- lated at the rate applicable on the transaction date or at the average rate for the year. The resulting exchange differences are taken to the income statement. 3.3 3.3.1 Investments Financial assets The business activities of the Baloise Group include the issuing of insurance poli- cies, as a result of which the Group incurs financial liabilities and assumes guar- antees. To ensure that it is in a position to meet its financial liabilities, the Baloise Group acquires financial instruments which correspond as closely as possible in 84 Bâloise-Holding | Annual Report 2001 type and maturity period to the expected level of claims and benefits payable. The composition of the investment portfolio is therefore determined mainly by the expected investment return for each type of investment, by the availability of risk capital – which is used to even out fluctuations in the price of investments – and by the type of liabilities arising from insurance business. The following criteria are used to classify financial assets: Financial assets which were acquired with the purpose of realizing a short-term gain by taking advantage of fluctuations in market price are shown under the Held for trad- ing heading. Financial assets which are held for an indefinite period of time and may be sold at any time to improve liquidity or to react to changes in market con- ditions are shown as Available for sale. Financial assets with a fixed maturity date are shown under the heading Held to maturity, provided the Baloise Group has the opportunity and intention of holding them until their maturity date. Investments are classified under one of these headings when they are first recorded in the books. The classification is then reviewed at year-end to ensure that it is still appropriate. Alternative financial assets such as private equity investments and hedge funds are held as Available for sale. However, private equity investments that have a substantial influence on management policy are classified under Participating interests in associates. Loans, policy loans and similar financial assets issued by the Baloise Group are shown under the heading Originated by the Group, unless they are held in the trading portfolio. Financial assets under the headings Held for trading and Available for sale are recorded in the balance sheet at fair market value. Financial assets under the headings Held to maturity or Originated by the Group are valued at amortized cost, less any necessary adjustments for per- manent diminution in value (impairment). The effective interest method is used to amortize or write back the difference between cost and the redemption value. An adjustment is made for impairment if the present value of expected future cash flows discounted at the financial instrument’s original effective interest rate, including the effect of any hedging transactions, is lower than the book value and this situation is not expected to be temporary. All purchases and sales of financial assets are recorded at the date when the transaction is completed. Only transactions involving issuing business or relating to capital increases are accounted for at the payment date. Changes in the value of financial assets under Held for trading are recognized as realized book profits/losses in the income statement in the period in which they arise. Financial assets under Available for sale are revalued at their market value, and unrealized gains and losses are taken to equity. In the case of monetary assets classified as Available for sale, any foreign currency revaluation is credited to income. For life insurance companies, deductions are made from the unrealized gains and losses in view of those amounts which will be used in future to amortize acquisition costs and to pay bonuses and dividends to policyholders. When financial assets are disposed of, any unrealized gains or losses are transferred from equity to the income statement. The same applies where an investment has suffered a permanent diminution in value (become impaired). Annual Report 2001 | Bâloise-Holding 85 Changes to the fair values of financial assets which are the subject of a fair value hedge are recognized, regardless of classification, in the income state- ment over the period of the hedge. Interest income from fixed-interest investments which have been written down is recognized when it is received. 3.3.2 Investment property Investment property is shown at fair market value. The fair value of holdings is de- rived principally from future cash flows, using mathematical calculations based on similar transactions. In exceptional cases, external valuation reports are obtained. Scheduled depreciation is not charged on investment property. Changes in value are immediately recognized in the income statement, in the period of occurrence, as realized book gains/ losses. 3.4 Derivatives The main tool for the management of investment risk and return on the asset side of the balance sheet is the strategic allocation of investments to the various in- vestment categories (asset allocation). Derivative instruments are used to under- pin this asset allocation. They are particularly useful for hedging investments, when preparing to purchase or sell investments, or to slightly increase investment income. However, no trading or speculative business is undertaken in derivatives. Derivative transactions are undertaken only with counterparties who have at least an A credit rating from Standard and Poor’s. All derivatives are recorded in the balance sheet at their market value. When the contract is concluded, the derivative is classified either as a hedging instrument against the market value of an asset or a liability (fair value hedge), as a hedge against future transactions (cash flow hedge) or as a trading instrument. Derivatives which do not fulfill IAS requirements for hedging transactions are treat- ed as trading instruments, even if they have a hedging function according to the Baloise Group’s own risk management regulations. Changes in the market value of derivatives which have been classified as fair value hedging instruments are shown in the income statement net, together with changes in the market value of the hedged asset or liability. Changes in the market value of derivatives which have been classified as cash flow hedging instruments are taken directly to equity. The amounts accounted for in equity will be recorded at a later date in the income statement together with the hedged cash flows. Changes in the market value of derivatives which are classified as trad- ing instruments or do not fulfill the requirements of a hedging transaction are shown in the income statement. The Baloise Group keeps records of hedge effectiveness and the aims and strategies pursued for each hedging transaction. Hedge effectiveness is close- ly monitored from the date the contract begins. Derivatives which no longer meet the requirements for a hedging instrument are reclassified as trading instruments. Structured products are financial instruments, either assets or liabili- ties, which consist of a host contract and embedded derivatives. In the majority of cases, the embedded derivatives are not separated from the host contract and 86 Bâloise-Holding | Annual Report 2001 are classified in the trading portfolio of the host business, with the effect that unrealized gains and losses are recorded directly in the income statement. Some derivatives are separated from the host contract and are separately recorded, valued and disclosed. For this to be the case, the following conditions must apply: that the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract and that the embedded derivative itself would meet the definition of a derivative financial instrument. 3.5 Intangible assets 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 acquired before 1995 was directly offset against equity. Good- will 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. Capitalized goodwill is amortized on a straight line basis over its expected useful life, which may not exceed 20 years. The period over which the goodwill is to be amortized is determined mainly by the future economic benefits expected to flow from the company acquired. These depend, among other things, on the type of business acquired, the lifespan of the insurance contracts, rela- tionships with clients and sales channels. Negative goodwill is offset against positive goodwill. Negative goodwill written of is credited to the income statement (offset against the amortization expense) on a systematic basis over the remaining average useful life of the acquired, non-monetary assets, at most, however, over 20 years. The present value of profits from insurance contracts acquired is amor- tized 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. 3.6 Tangible non-current assets Tangible non-current assets are shown at cost less accumulated depreciation. Depreciation is calculated on a straight line basis over the estimated useful life of the asset, as follows: buildings 25 to 50 years, equipment and furnishings 5 to 10 years, computer hardware 3 to 5 years. Land is shown at cost less any neces- sary provisions for impairment. Repairs and maintenance are always charged to the income statement. 3.7 Leasing Lease agreements relating to real estate, fixtures, fittings and other tangible non- current assets, whereby basically all the risks and rewards relating to ownership of the asset are transferred to the Baloise Group, are defined and treated as finance leases. The fair value of the leased property is capitalized at the inception of the Annual Report 2001 | Bâloise-Holding 87 lease and disclosed as a tangible non-current asset. Each lease payment compris- es a depreciation expense for the asset and a finance expense. The depreciation expense is deducted from the liability for the leased asset, which is shown under Liabilities from banking business and loans. Other lease agreements are classified as operating leases. Lease pay- ments under an operating lease are recognized as an expense in the income state- ment on a straight line basis over the lease term. 3.8 Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits and short- term highly liquid investments with maturity periods of up to 24 hours. Cash and cash equivalents are stated at their nominal value. 3.9 Receivables Receivables arising out of insurance operations and other receivables are recog- nized and stated at amortized cost. This generally corresponds to the nominal value of the amount receivable. Permanent diminutions in value (impairment loss- es) are charged directly to the income statement. 3.10 Life insurance Premiums are accounted for as income when due. Claims and benefits payable and costs are accounted for so as to ensure that the profit from the contracts is allocated equally over the anticipated term of the policies. Premiums and services relating to investment-type products are accounted for as follows: the risk and cost element is taken to the income statement, while the savings element is directly credited to or deducted from the policyholder ’s deposit. The actuarial reserve is calculated on the basis of actuarial principles from the cash value of future claims and benefits payable less the cash value of premiums not yet paid. The calculation is made in accordance with the following Financial Accounting Standards: FAS 60, FAS 97 and FAS 120. The accounting prin- ciples (e.g. in respect of interest or mortality) vary depending on the country, prod- uct and year of acquisition and take country-specific empirical values into consid- eration. Unearned premiums and provisions for final policyholder bonuses are included in the actuarial reserve. Deferred acquisition costs: Costs which are directly associated with the acquisition of insurance contracts (e.g. commission) are deferred and written off over the period of the contract, or over the premium payment period, if that is shorter. Deferred acquisition costs are reviewed when the contract is acquired and thereafter on an annual basis for recoverability. Amounts reserved for future surplus shares to policyholders are shown in a separate provision. Financial assets classified as Available for sale are stated at market val- ue. Changes in the value of these investments are treated as unrealized gains and losses and taken to equity. Amounts relating to the future amortization of acqui- sition costs and future policyholder bonuses are deducted from these unrealized 88 Bâloise-Holding | Annual Report 2001 gains and losses. Local statutory regulations and the provisions set out in con- tracts and company byelaws are authoritative in determining the share of policy- holder bonuses. Companies operating in Germany and Austria are required to use approximately 90 percent of the unrealized gains and losses arising from invest- ments available for sale for the policyholder bonuses. The transfer between accounts has no effect on the income statement. Policyholder bonuses credited: Bonuses already allocated which have been accrued on an interest-bearing basis are included in Policyholder bonuses credited and provision for future policyholder bonuses. Investments and technical provisions relating to unit-linked life policies: These amounts relate to investment-type products. With these products, it is the policyholder who bears the investment risk in accordance with specific investment aims. Current investment income and market price fluctuations are directly debit- ed or credited to the policyholders. The investments are held separately and are not available to meet claims arising from other business activities of the Baloise Group. Investments and liabilities are stated at market value. Administrative and redemption costs charged to policyholders are recognized as policy fee income. 3.11 Non-life insurance The term gross is added to technical account headings where these refer to busi- ness concluded by the Baloise itself. The terms net or for own account are used after deducting any reinsurance element. Gross premiums written and policy fees are recognized in the fiscal year in which they fall due. They include the amount required to cover the insurance risk and any loading. Any part of the premium which relates to future fiscal years is deferred under the contract and is included in the unearned premiums reserves in the balance sheet, together with any provisions for premium shortfalls relating to the fiscal year. Premiums which do relate to the fiscal year are referred to as premiums earned. This figure comprises premiums written and the change in the unearned premiums reserves. Provisions for claims outstanding and provisions for the associated claims processing costs are set up for all losses which have occurred before the end of the fiscal year, whether or not these have been notified to the Baloise Group. These provisions represent a projection of all future payments to be made in respect of these losses. The provisions for claims outstanding are calculated on the basis of prior year experience and expected developments in the future. The process involves the application of mathematical, statistical methods and the expertise of claims-handling specialists. The aim is to establish provisions for out- standing claims and for claims processing costs which are as realistic as possible, making allowance for unforeseeable future events. The combined loss reserves have three components. The provisions cal- culated according to actuarial methods form the basis of the combined provision; a second component is provisions for those complex special cases and events which do not lend themselves to purely mathematical calculations. These two com- ponents are determined without discounting. The third component is annuities, which are capitalized on the basis of technical principles such as mortality rates, technical interest rates, etc. Annual Report 2001 | Bâloise-Holding 89 The whole process of projecting the future can never entirely eliminate the uncertainties inherent in future developments. Therefore future developments may well be different to those projected. The provisions established in a particular year are systematically reviewed, which means that variances can be controlled. On the basis of such reviews, the projection process can be adjusted if necessary. Surplus and profit allocations to policyholders: Insurance contracts may provide for surplus sharing with a client arising from the surplus on his contracts. Payments made during the fiscal year and the change in the relevant provisions combine to give the figure referred to in the income statement as Surplus and profit allocations to policyholders. Deferred acquisition costs: All administrative costs which are directly attributable to the acquisition of new insurance contracts and the renewal of existing contracts are deferred. Then they are charged to the income statement over the expected term of the insurance contract. The deferred costs are constantly reviewed for recoverability. The calculations take into account the actuarial principles and allocated investment income. The technical costs shown in the Management Information section com- prise costs arising from insurance operations which have been charged in the fiscal year, including the change in the figure for deferred acquisition costs. Claims processing costs which relate to claims and benefits paid and to the provisions for claims outstanding are not included; neither are other costs of the Baloise Group. 3.12 Reinsurance Reinsurance contracts are insurance contracts between insurance companies. If a transaction is to be recognized as a reinsurance transaction, there must be a transfer of risk as defined in the International Accounting Standards, otherwise the contract would be dealt with outside the income statement as deposit accounting. Reinsurance assumed is recognized in the same accounting period as the initial risk. The technical provisions are included in liabilities under the head- ings Unearned premiums reserves (gross) and Loss reserves (gross). These provi- sions are as realistic as possible and are based on empirical values and the most up-to-date information available. Reinsurance ceded is business which has been ceded to insurance com- panies outside the Group and comprises amounts which relate to direct life and non-life business and reinsurance assumed which is to be ceded. Deposits arising from reinsurance ceded are calculated on the same basis and for the same period as the original transaction and shown in Invest- ments and deposits arising from reinsurance business. Where deposits are at risk due to insolvency, appropriate write-downs are made in the income statement. Receivables and payables from deposit accounting contracts are recog- nized mainly using the interest method. The effective interest rate is calculated on the basis of cash flows which have already occurred or are expected in the future. Otherwise, the insurance coverage financed by the deposit is amortized over the expected term of the deposit. Deposits are included in Investments and deposits arising from reinsurance business, while liabilities are included in Deposit fund liabilities arising from reinsurance. 90 Bâloise-Holding | Annual Report 2001 3.13 Own shares 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. 3.14 Liabilities from banking business and loans Liabilities from banking business and loans are stated at amortized cost. The effective interest rate method is used to amortize or write back the difference be- tween cost and redemption value. The cost figure also includes transaction costs. The convertible loan issued by Baloise Finance Jersey, which confers the right to subscribe for shares in a non-Group company, consists of a liability and an embedded option. When the loan is issued, the market value of the embedded option is determined and shown separately as a derivative financial instrument. The cost of the liability component is the present value of future cash flows, which was calculated when the issue was made. The discount factor applied is the mar- ket interest rate for similar loans without conversion or option rights. 3.15 Financial provisions Financial (non-technical) provisions are recognized when the Baloise has a present obligation (legal or de facto), when it is probable that an outflow of resources will be required to settle the obligation and when a reliable estimate can be made of the amount of the obligation. The amount of the provision is based on the best estimate of possible outcomes. If no reliable estimate can be made of the liability, it is disclosed as a contingent liability. 3.16 Tax The provision for deferred tax in the consolidated financial statements is calculat- ed under the liability method, i.e. based on current or future expected tax rates. Deferred tax takes into account the income tax effects of temporary differences between the assets and liabilities carried in the consolidated balance sheet and their fiscal base. When deferred tax is calculated, unused tax losses are only car- ried forward to the extent that it is probable that future taxable profit will be avail- able against which the tax losses can be utilized and to the extent that establish- ing the provision does not contravene local tax law and regulations. A provision for deferred tax is established for tax payable in future by Bâloise-Holding or its sub- sidiaries on the profits of subsidiaries not yet transferred, provided a distribution is intended and it is therefore probable that a corresponding tax will be charged. 3.17 Benefits due to employees Amounts due from the Baloise Group to employees include all types of employee benefits given in exchange for services rendered by employees or in special circumstances. Annual Report 2001 | Bâloise-Holding 91 The following amounts need to be established: short-term benefits (such as wages), benefits due in the long term (such as anniversary payments) and benefits upon termination of employment (such as severance pay and benefits from redundancy schemes). Because of the amounts involved, the following benefits can be partic- ularly 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 using the Projected Unit Credit Method (accrued benefit method pro-rated on service). Plan assets which match the benefits payable are only recognized if they are brought into an entity which is legally separate from the employer, e.g. a pension fund. The plan assets are stated at market value. If a dif- ference arises between the assets and liabilities when IAS 19 is used, this is shown as an asset or liability in the consolidated balance sheet. An asset is only recognized to the extent that the Baloise controls a resource which may be used to reduce future contributions or improve future benefits, but this resource cannot be returned to the employer. Most of the employees of the Baloise Group are members of defined benefit pension plans. Defined contribution plans are the exception. Pension plans are tailor-made for local circumstances as regards enrolment and the extent of benefits. Benefits in the narrow sense are pension benefits. Other plan benefits may be subsidized premiums or contributions to health insurance and are of minor significance. Payments are made mainly by the employer and in some countries also by the employees. Pension plans are sometimes implemented within compa- nies and sometimes in entities which are legally separate from the employer. Equity benefits: Shares, share participation schemes, and share options are equity benefits. Shares: The Baloise Employee Trust set up in 1989 gives the employees of various Group companies the opportunity, subject to the rules issued by the Trust’s Board, to acquire shares in Bâloise-Holding, usually on an annual basis, at a preferential subscription price. The Trust acquired the shares set aside for this purpose from previous increases in the share capital of Bâloise-Holding. Due to the low acquisition cost of the shares held by the Trust and the number of shares held, Bâloise-Holding will be able to continue with this profit-sharing initiative in the years to come. The trust is managed by a Trust Board which is independent of the management of the Group, reports to the cantonal fund authority of the city of Basel and is not consolidated. Share participation scheme: Most middle and senior managers work- ing in Switzerland can opt to have a freely determinable part of their performance- related earnings (incentive) remitted as shares instead of cash. To boost the effectiveness of the share participation scheme, employees receive a loan at a market rate of interest, enabling them to purchase a far greater number of shares than provided by the incentive scheme. The loan repayment after a three-year blocking period is hedged with a put option that is financed by the sale of a cor- responding call option. After expiry of the three-year blocking period, employees receive the shares remaining after repayment of the loan for their free disposal. 92 Bâloise-Holding | Annual Report 2001 The Baloise does not incur any additional costs by this share participation scheme. Option rights: The members of the Corporate Executive Committee and of the Executive Boards of the subsidiaries, and other employees in key positions, are granted options to purchase shares in Bâloise-Holding as part of their remu- neration. These options are purchased from third parties by the Baloise Group at market value and are quoted on the stock market. The conditions which apply to the option rights are specified at the beginning of the fiscal year. The number of options allotted by the end of the fiscal year depends on whether the parties concerned have met their personal performance objectives. The allotted share options may not be sold for two years. The associated costs are already included in personnel expenses. 3.18 Other liabilities Other liabilities are recognized and stated at amortized cost, which is generally the same as nominal value. 3.19 Fair value of financial assets and liabilities The fair value of financial instruments is based on quoted market values or on estimates (present value method, etc.) and on the following assumptions: Cash, cash equivalents and short-term investments: The amounts shown in the balance sheet are stated at market value (fair value). Fixed-interest securities: The fair value is generally based on quoted prices. If quoted prices are not available, the price is determined by independent valuations or by comparing the market prices of similar financial instruments. Shares: The market value is the quoted market price. Mortgage loans, policy loans and other loans: The fair values are deter- mined by discounting the cash flows, using the current interest rate applied by the Baloise Group to similar loans. Derivatives: Derivatives are stated at market prices as supplied by independent brokers or in accordance with market practice. Other financial assets: The fair value is generally a quoted market price. The fair value of other financial assets is not measured where quoted market prices are not available and the amounts are of little significance to the Baloise Group. Deposits and other amounts due to policyholders: The fair values are determined by discounting the cash flows, using the current interest rate applied by the Baloise Group to similar financial instruments with similar time remaining to maturity. Liabilities from banking business and loans: The fair values are deter- mined by discounting the cash flows, using the current interest rate payable by the Baloise Group for similar financial instruments with similar periods of time to maturity. Other financial liabilities: The fair value is generally a quoted market price. The fair value of financial liabilities is not measured where quoted market prices are not available. Annual Report 2001 | Bâloise-Holding 93 3.20 Permanent diminution in value (impairment) The carrying values of assets are reviewed on a regular basis for recoverability. An impairment loss arises if the recoverable amount of an asset is less than its car- rying amount. The recoverable amount is the higher of an asset’s net selling price (the estimated amount obtainable from the sale of an asset less incremental costs directly attributable to the disposal of the asset) and an asset’s value in use (the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life). The estimated future cash flows are based on reasonable assumptions about the economic con- ditions that will exist over the remaining useful life of the asset and on cash flow projections and budgets/forecasts approved by the Corporate Executive Commit- tee. Permanent diminutions in value are recognized in the income statement. 3.21 Financial assets and liabilities are offset and the net amount reported in the bal- Offsetting assets and liabilities ance sheet when there is a legally enforceable right to set off the recognized amounts and the Baloise Group intends to realize the asset and settle the liability simultaneously. 3.22 Use of accounting estimates In order to prepare annual financial statements in accordance with IAS, it is nec- essary for the Corporate Executive Committee to make assumptions and estimates which have an effect on the amounts disclosed in the balance sheet and income statement for the current fiscal year. Therefore, it is possible that the actual figures may differ from the estimates. 94 Bâloise-Holding | Annual Report 2001 Annual Report 2001 | Bâloise-Holding 95 4. Foreign Currency Translation 4.1 Rates of exchange Currency EUR (euro) USD (US Dollar) GBP (Pound Sterling) in CHF 2000 1.52 1.63 2.44 Balance sheet 2001 1.48 1.67 2.43 Income statement/ Cash flow statement 2001 1.48 1.67 2.43 2000 1.56 1.69 2.56 4.2 Exchange differences Exchange differences arising from transactions in foreign currencies included in the consolidated income statement resulted in a loss of CHF 27.7 m in the 2001 fiscal year (2000: loss of CHF 26.8 m). This also comprises a foreign exchange loss of CHF 57.0 million resulting from monetary investments classified as Available for sale. 5. Acquisitions and Disposals of Subsidiaries and Other Business Units 5.1 Acquisitions and disposals of subsidiaries and other business units in 2000 The Baloise Group acquired the following participating interests in the year 2000: 67 percent in HBK-Spaarbank (now called Mercator Bank) in Antwerp on July 1, 2000, a holding subsequently increased to 100 percent by public tender offer; 100 percent of Baloise Bank SoBa in Solothurn (Switzerland) on July 1, 2000; and the remaining 75 percent of Amazon Insurance in Antwerp on October 1, 2000. No significant disposals were effected in 2000. 5.2 Acquisitions and disposals of subsidiaries and other business units in 2001 The insurance portfolio of the Spanish Group company Bâloise (España) Seguros y Reaseguros was taken over by the Fortis Group per September 30, 2001. The gross premiums for the first nine months of 2001 came to CHF 72.7 million (2000, 12 months: CHF 107.0 million). The insurance portfolio was sold at intrinsic value. The guarantees granted to the buyer are fully covered by reinsurance contracts. The intention is to liquidate the company. 96 Bâloise-Holding | Annual Report 2001 In the course of the year, the remaining outstanding minority share- holdings in Mercator of 3.9 percent were purchased for CHF 38.4 m. Mercator is now 100 percent owned by the Baloise Group. No other significant acquisitions or disposals were effected. 6. Information about Geographical and Business Segments The strategic geographical segments of the Baloise Group are: Switzerland (including the Principality of Liechtenstein), Germany, the Benelux countries and Other countries. The business segments are non-life insurance, life insurance, banking (including asset management and investment funds) and other activities. Non-life insurance includes accident insurance, health insurance and products for liability, automobile, property and transport lines of business. The products are geared to the requirements of our clients – mainly private clients – and the core competen- cies of the companies in the Baloise Group. On the life insurance side, a broad range of pure risk coverage, asset-forming insurance and unit-linked products is provided for private individuals and companies. The banking segment comprises Baloise Bank SoBa, an all-purpose bank operating in Switzerland, Mercator Bank in Belgium, which is involved in all types of savings business, principally financing real estate and small and medium-sized enterprises, and Deutscher Ring Bau- sparkasse in Germany, predominantly active in traditional real estate financing. The accounting principles applied to the segment reporting are the same as apply to the entire financial report. Transactions between business seg- ments and geographical segments within the Baloise Group are conducted on the same terms as transactions with third parties. Information analyzed by geographical and business segments is given in the segment reports, in the Management Information section and in the follow- ing tables. Annual Report 2001 | Bâloise-Holding 97 6.1 6.1.1 Gross premiums by geographical and business segments Gross premiums by geographical and business segments 2000 Non-life Life Elimination Total 1,099.6 684.9 553.5 437.2 - 233.6 - 2,908.6 1,100.0 140.4 44.7 18.6 2,541.6 4,175.1 – – – – - - 15.5 15.5 4,008.2 1,784.9 693.9 481.9 - 267.7 6,701.2 6.1.2 Gross premiums by geographical and business segments 2001 Non-life Life Elimination Total 1,135.0 718.4 563.1 415.5 - 240.5 - 2,837.0 1,019.3 163.7 38.8 0.8 2,591.5 4,058.0 – – – – - - 16.8 16.8 3,972.0 1,737.7 726.8 454.3 - 258.1 6,632.7 6.2 Change in gross premiums by geographical and business segments 2000 2.5 4.0 6.0 9.7 2.6 - Non-life 2001 3.2 10.3 7.0 12.5 4.8 - 2000 27.1 0.6 13.6 24.4 17.5 - Life 2001 1.8 2.6 22.7 10.7 1.3 - - - - 2000 19.2 1.9 7.4 - 13.0 11.3 Total 2001 0.4 2.4 10.2 12.2 1.0 - - Switzerland Germany Benelux Other countries Elimination Total in CHF m Switzerland Germany Benelux Other countries Elimination Total in CHF m Switzerland Germany Benelux Other countries Total in % of original currency 98 Bâloise-Holding | Annual Report 2001 6.3 Gross premiums by line of business Non-life Accident Health General liability Automobile Transport Property Other Reinsurance assumed Total Life 2000 452.6 105.9 246.6 856.6 121.9 652.0 36.5 69.5 2001 442.9 113.6 250.6 896.7 133.7 652.5 36.2 65.3 2,541.6 2,591.5 Single premiums Recurring premiums 2,017.1 2,334.4 1,967.1 2,339.3 Premiums for investment-type products - 176.4 - 248.4 Total in CHF m 4,175.1 4,058.0 Change in % 2.1 7.3 1.6 4.7 9.7 0.1 0.8 6.0 2.0 2.5 0.2 40.8 2.8 - - - - - Annual Report 2001 | Bâloise-Holding 99 6.4 Investments by business segments 2000 Non-life Life Other Total 3,116.4 2,755.3 112.0 11.6 975.8 533.3 97.6 67.9 56.9 303.3 13,628.6 10,159.6 418.9 35.9 3,589.1 4,623.1 1,417.3 100.2 252.7 279.5 3,163.1 415.5 390.0 38.4 400.9 5,282.3 341.8 148.2 321.6 177.1 19,908.1 13,330.4 920.9 85.9 4,965.8 10,438.7 1,856.7 316.3 631.2 759.9 8,030.1 34,504.9 10,678.9 53,213.9 6.5 Investments by business segments 2001 Non-life Life Other Total 3,023.9 2,058.2 127.5 0.5 959.3 530.4 73.1 67.2 139.4 254.8 14,359.8 7,567.2 294.6 3.2 3,659.0 4,546.2 1,285.3 96.2 183.9 398.3 3,185.6 375.4 695.1 15.6 423.9 5,423.8 304.7 125.7 371.8 235.2 20,569.3 10,000.8 1,117.2 19.3 5,042.2 10,500.4 1,663.1 289.1 695.1 888.3 7,234.3 32,393.7 11,156.8 50,784.8 Fixed-interest securities Shares Alternative financial assets Derivatives Investment property Mortgage loans Policy and other loans Participating interests in associates Other short-term investments Cash and cash equivalents Total in CHF m Fixed-interest securities Shares Alternative financial assets Derivatives Investment property Mortgage loans Policy and other loans Participating interests in associates Other short-term investments Cash and cash equivalents Total in CHF m 100 Bâloise-Holding | Annual Report 2001 7. Profits Arising from Investments 7.1 Investment income Fixed-interest securities Shares Alternative financial assets Derivatives Investment property Mortgage loans Policy and other loans Participating interests in associates Other short-term investments and cash and cash equivalents 2000 844.3 609.4 7.0 – 211.6 395.7 96.4 14.6 21.8 2001 1,018.4 201.4 7.7 – 235.2 507.2 88.8 21.3 62.0 Total (gross) 2,200.8 2,142.0 Investment management costs - 46.4 - 60.8 Total (net) of which from associates in CHF m 2,154.4 2,081.2 14.6 21.3 Investment income of CHF 42.1 m from value-adjusted mortgage loans and policy and other loans has accrued as at December 31, 2001, but has not been recognized in the income statement. Annual Report 2001 | Bâloise-Holding 101 Realized gains on disposal and book gains: Held for trading Available for sale Held to maturity Originated by the Group Subtotal Realized losses on disposal and book losses: Held for trading Available for sale Held to maturity Originated by the Group Subtotal Impairment of value accounted for in the income statement Reinstatement of original value accounted for in the income statement 1 Total Cumulative impairment of value accounted for in the income statement (net) in CHF m 7.2 Realized gains and losses: 2000 Fixed-interest securities 26.2 41.1 – – 67.3 18.6 50.0 – – 68.6 0.7 0.4 1.6 0.9 - - - - - Shares 36.7 952.6 – – 989.3 0.0 41.4 – – 41.4 31.4 0.2 916.7 - - - Investment property Other Total 4.7 23.8 – – 28.5 12.2 3.7 – – 15.9 4.7 31.4 39.3 - - - - 10.6 27.0 – 1.2 38.8 57.3 11.4 – 83.4 152.1 99.3 84.9 - - - - - - 127.7 78.2 1,044.5 – 1.2 1,123.9 88.1 106.5 – 83.4 278.0 136.1 116.9 826.7 - - - - - 90.3 838.3 430.4 1,359.9 1 Upon disposal of financial instruments, any impairment in value recognized in the income statements of former periods is registered as reinstatement of origi- nal value in the income statement. The difference between the original purchase value and the income from sale is recorded as profit or loss. 102 Bâloise-Holding | Annual Report 2001 7.3 Realized gains and losses: 2001 Realized gains on disposal and book gains: Held for trading Available for sale Held to maturity Originated by the Group Subtotal Realized losses on disposal and book losses: Held for trading Available for sale Held to maturity Originated by the Group Subtotal Impairment of value accounted for in the income statement Reinstatement of original value accounted for in the income statement1 Total (net) Cumulative impairment of value accounted for Fixed-interest securities 36.4 123.5 – – Shares – 637.1 – – 159.9 637.1 - - - - - 13.7 120.3 0.2 – 134.2 3.3 0.9 23.3 - - - - 9.7 471.5 – – 481.2 103.2 40.1 92.8 Investment property – 70.3 – – 70.3 – 17.8 – – 17.8 – – 52.5 - - Other 41.6 17.6 2.9 0.4 62.5 16.2 15.2 – 79.0 110.4 72.9 101.6 19.2 - - - - - - Total 78.0 848.5 2.9 0.4 929.8 39.6 624.8 0.2 79.0 743.6 179.4 142.6 149.4 - - - - - - in the income statement (net) 3.5 93.9 – 397.8 495.2 in CHF m 1 Upon disposal of financial instruments, any impairment in value recognized in the income statements of former periods is registered as reinstatement of origi- nal value in the income statement. The difference between the original purchase value and the income from sale is recorded as profit or loss. Annual Report 2001 | Bâloise-Holding 103 7.4 Unrealized gains and losses (included in capital and reserves) Fixed-interest securities Shares Alternative financial assets Derivatives held for cash flow hedges Investment property Mortgage loans Policy and other loans Participating interests in associates Other short-term investments Subtotal (gross) Less amounts relating to: Deferred acquisition costs (life) Surplus shares to policyholders (life) Minority interests Deferred tax Foreign exchange differences Total (net) in CHF m - - - - - - Before adjustment 12.31.2000 Adjustment1 After adjustment 12.31.2000 12.31.2001 93.0 5,348.4 – 9.1 673.5 – – 125.7 0.1 118.7 699.3 304.6 23.5 673.5 - - – – – – 211.7 4,649.1 304.6 14.4 – – – 125.7 0.1 273.6 1,919.4 192.6 - 4.6 – – – 79.5 0.0 Movement in business year 2001 61.9 - 2,729.7 - - - - 112.0 19.0 – – – 46.2 0.1 6,231.6 - 926.0 5,305.6 2,460.5 - 2,845.1 750.6 500.3 30.8 953.7 138.2 3,858.0 256.9 207.4 – 105.2 5.9 362.4 - - - - - - - 493.7 292.9 30.8 848.5 144.1 - - - - - 237.9 110.8 3.4 385.8 196.0 255.8 182.1 27.4 462.7 - 51.9 3,495.6 1,526.6 - 1,969.0 Included in fixed-interest securities classified as Available for sale at December 31, 2001, is an amount of CHF 87.6 which relates to securities that have not been stated at market value, as this cannot be reliably measured. During the year 2001, fixed-interest securities with no market value but with book value amounting to CHF 26.7 million were sold. The gains realized on these disposals came to CHF 34,230. 1 The adjustment results from the application of IAS 39 & 40 and the separate statement of alternative financial assets. 104 Bâloise-Holding | Annual Report 2001 7.5 Movement in unrealized gains and losses (included in capital and reserves) At January 1 (gross) Movement in unrealized gains and losses on financial assets available for sale Movement on unrealized gains and losses on real estate Movement on unrealized gains and losses on associates Movement on hedging reserve relating to derivatives held for cash flow hedges At December 31 (gross) in CHF m 2000 2001 7,090.2 5,305.6 - 1,163.2 - 673.5 36.9 15.2 - 2,779.9 – 46.2 19.0 - - 5,305.6 2,460.5 Annual Report 2001 | Bâloise-Holding 105 8. Investment Property At January 1 Additions Additions due to changes in composition of consolidated Group Disposals Disposals due to changes in composition of consolidated Group Impairment of value accounted for in income statement Reinstatement of original value accounted for in income statement Change in market value Exchange differences At December 31 2000 2001 4,661.5 4,965.8 342.7 262.5 87.0 150.2 13.1 - 232.5 – 4.7 31.4 66.1 68.0 – – – 65.1 31.8 - 4,965.8 5,042.2 - - - Cumulative impairment of value accounted for in the income statement (net) 838.3 – in CHF m Investment property comprises residential and commercial buildings and property with mixed use. Most of the real estate is located in Switzerland. 106 Bâloise-Holding | Annual Report 2001 9. Participating Interests in Associates DePfa Beteiligungs-Holding II GmbH Düsseldorf Brinvest, Antwerp Rec-Hold, Brussels Roland Rechtsschutz Versicherungs AG, Cologne Other Total in CHF m 2000 124.3 70.3 45.6 15.4 60.7 316.3 Book value 2001 97.3 58.3 42.1 19.2 72.2 289.1 2000 2.5 1.2 0.0 0.9 10.0 14.6 Share of profit 2001 1.7 1.1 0.0 8.8 9.7 21.3 2000 40.0% 31.2% 29.8% 25.0% – Holding 2001 40.0% 31.2% 30.7% 25.0% – There are no significant amounts due from or to associates. Further information about associates is given in Note 34, “Significant subsidiaries and participating interests at December 31, 2001”. Annual Report 2001 | Bâloise-Holding 107 Fair value: assets Fair value: liabilities 2000 2001 2000 2001 10. Derivatives 2000 – Contract value 2001 – 1,754.8 2,190.4 – – – – – – – – – 36.6 – – – – – 18.2 – – – – 1,754.8 2,190.4 36.6 18.2 – 219.6 44.6 – 264.2 178.8 77.2 2.9 – – – 237.4 23.8 – 261.2 76.3 70.3 203.0 – – 258.9 349.6 – 0.0 45.4 – 45.4 3.9 – 0.0 – – 3.9 – – 0.1 – 0.1 1.0 – 0.0 – – 1.0 2,277.9 2,801.2 85.9 19.3 – 2.0 – – – – 2.0 – 51.7 3.2 – 54.9 3.9 23.4 0.0 – – 27.3 84.2 – 4.4 – – – – 4.4 – 39.3 2.0 – 41.3 1.0 13.2 0.0 – – 14.2 59.9 Interest rate instruments: Forward exchange transactions Swaps OTC options Other Traded options Traded futures Subtotal Equity instruments: Forward exchange transactions OTC options Traded options Traded futures Subtotal Exchange rate instruments: Forward exchange transactions Swaps OTC options Traded options Traded futures Subtotal Total in CHF m 108 Bâloise-Holding | Annual Report 2001 11. Investments for Unit-Linked Life Insurance Fixed-interest securities Shares Alternative financial assets Derivatives Investment property Mortgage loans Policy and other loans Other short-term investments Cash and cash equivalents Total in CHF m 2000 31.9 281.3 – – – – – 39.0 10.2 362.4 2001 94.8 354.4 – – – – – 62.4 0.8 512.4 For technical reasons, it is possible that there may be slight differences between the investments for unit-linked life insurance and the corresponding liabilities. Annual Report 2001 | Bâloise-Holding 109 12. Intangible Assets 12.1 Intangible assets 2000 Book value at January 1 Additions arising from changes in composition of consolidated Group Additions arising from changes in share of investments held Additions from internal development Disposals Disposals arising from changes in composition of consolidated Group Subsequent goodwill adjustment Amortization/write-backs Impairment of value accounted for in income statement Reinstatement of original value accounted for in income statement Deferred interest Exchange differences Book value at December 31 Cost Accumulated amortization and write-downs At December 31 (net) in CHF m Goodwill 127.5 64.9 19.3 – – – – - 29.8 – – – - 0.7 181.2 551.7 - 370.5 181.2 Negative goodwill 8.4 32.2 18.1 - 1.3 – – 8.4 – – – – 51.6 98.7 47.1 51.6 - - - - - - - Present value of profits from insurance contracts acquired – – – – – – – – – – – – – – – – Other intangible assets 76.8 39.1 – 22.4 9.4 – – 24.0 – – – 1.7 103.2 181.4 78.2 103.2 - - - - Total 195.9 71.8 1.2 22.4 10.7 – – 45.4 – – – 2.4 232.8 634.4 - - - - 401.6 232.8 110 Bâloise-Holding | Annual Report 2001 12.2 Intangible assets 2001 Book value at January 1 Additions arising from changes in composition of consolidated Group Additions arising from changes in share of investments held Additions from internal development Disposals Disposals arising from changes in composition of consolidated Group Subsequent goodwill adjustment Amortization/write-backs Impairment of value accounted for in income statement Reinstatement of original value accounted for in income statement Deferred interest Exchange differences Book value at December 31 Cost Accumulated amortization and write-downs At December 31 (net) in CHF m goodwill Negative goodwill 181.2 - 51.6 6.0 17.2 – – – – – – – – – – - 61.0 13.8 – – – – 143.4 574.9 - 431.5 143.4 - - - – – – – 37.8 98.7 60.9 37.8 Present value of profits from insurance contracts acquired – – – – – – – – – – – – – – – – Other intangible assets 103.2 – – 64.1 9.2 – – 39.4 – – – 1.2 117.5 235.1 - - - Total 232.8 6.0 17.2 64.1 9.2 – – 86.6 – – – 1.2 223.1 711.3 - - - - 117.6 - 488.2 117.5 223.1 The estimated amounts for goodwill amortization for the years 2002 to 2007 vary between CHF 5 m and CHF 15 m. Annual Report 2001 | Bâloise-Holding 111 Cost Accumulated depreciation and write-downs At December 31 (net) of which assets under finance leases in CHF m 13. Tangible Non-Current Assets 13.1 Property, plant and equipment for own use: 2000 Land 91.7 – 91.7 – Buildings 849.1 Plant and equipment 150.1 - 299.5 - 103.6 549.6 146.0 46.5 – 13.2 Property, plant and equipment for own use: 2001 Book value at January 1 Additions Additions arising from changes in composition of consolidated Group Disposals Disposals arising from changes in composition of consolidated Group Depreciation Impairment of value accounted for in income statement Reinstatement of original value accounted for in income statement Exchange differences Book value at December 31 Cost Accumulated depreciation and write-downs At December 31 (net) of which assets under finance leases in CHF m Land 91.7 0.0 – - 1.1 – – – – - 0.4 90.2 90.2 – 90.2 – 112 Bâloise-Holding | Annual Report 2001 Total 1,090.9 - 403.1 687.8 146.0 Total 687.8 10.6 – 18.5 – 23.3 – – 9.9 646.7 938.5 - - - Buildings 549.6 5.1 – 16.0 – 19.6 – – 8.5 510.6 760.1 - - - Plant and equipment 46.5 - - - 5.5 – 1.4 – 3.7 – – 1.0 45.9 88.2 - 249.5 - 42.3 - 291.8 510.6 139.0 45.9 – 646.7 139.0 13.3 Other tangible non-current assets: 2000 Cost Machinery/ furniture/ motor vehicles 100.3 Accumulated depreciation and write-downs - 46.7 - At December 31 (net) of which assets under finance leases in CHF m 53.6 0.2 IT equipment 76.8 49.7 27.1 15.2 Total 177.1 - 96.4 80.7 15.4 13.4 Other tangible non-current assets: 2001 Book value at January 1 Additions Additions arising from changes in composition of consolidated Group Disposals Disposals arising from changes in composition of consolidated Group Depreciation Impairment of value accounted for in income statement Reinstatement of original value accounted for in income statement Exchange differences Book value at December 31 Cost Accumulated depreciation and write-downs At December 31 (net) of which assets under finance leases in CHF m Machinery/ furniture/ motor vehicles IT equipment 53.6 22.1 0.5 16.1 – 15.5 – – 0.5 44.1 83.8 - - - 27.1 45.8 0.2 0.3 – - - 27.9 – – - 0.7 44.2 98.1 - 39.7 - 53.9 44.1 0.2 44.2 11.3 Total 80.7 67.9 0.7 16.4 – 43.4 – – 1.2 88.3 - - - 181.9 - 93.6 88.3 11.5 Annual Report 2001 | Bâloise-Holding 113 14. Deferred Acquisition Costs At January 1 Deferred during the year under review 2000 148.5 158.1 Written off in the year under review - 171.6 Written off in the year under review due to anticipated loss Change as a result of unrealized gains and losses on investments Disposals arising from changes in composition of the consolidated Group 0.3 – – Exchange differences - 3.4 - - - Non-life 2001 131.9 204.9 199.4 0.3 – – 2000 129.4 99.6 62.0 - Life 2001 277.1 130.7 2000 277.9 257.7 - 60.4 - 233.6 – – 0.3 149.0 247.4 149.0 1.6 - 38.9 - – – 6.2 – - 42.3 Total 2001 409.0 335.6 259.8 0.3 247.4 – 7.8 - - - At December 31 in CHF m 131.9 135.5 277.1 588.6 409.0 724.1 114 Bâloise-Holding | Annual Report 2001 15. Loss Reserves Including Claims Processing Costs At January 1 (gross) 2000 2001 3,994.5 4,021.5 Amount attributable to reinsurers - 318.2 - 307.1 Loss reserves for own account 3,676.3 3,714.4 Claims incurred (including claims processing costs) For current year For prior years Total Payments made for loss and claims processing costs For current year For prior years Total Other movements Changes in composition of consolidated Group Exchange differences Total At December 31 (net) Loss reserves for own account Amount attributable to reinsurers 1,711.6 16.3 1,750.4 34.6 1,727.9 1,785.0 - - 894.4 747.7 - - 895.8 645.4 - 1,642.1 - 1,541.2 2.5 50.2 47.7 - - - - - 94.1 35.8 129.9 3,714.4 3,828.3 3,714.4 307.1 3,828.3 353.7 Loss reserves at December 31 (gross) 4,021.5 4,182.0 in CHF m Particular attention is paid to environmental claims relating to disposal sites, waste, asbestos material and, in general, substances which are harmful to humans and to the environment. Ascertaining when such cases might arise and determining the potential extent of such claims involves much greater uncertainty than in all traditionally used claims models. Therefore, the provisions set up for these claims are surrounded by a higher level of uncertainty. At the end of 2000, these provisions, which are included in the total provision, amounted to CHF 448.6 m, and they stood at CHF 429.2 m at the end of 2001. Most of these amounts re- late to the processing of long-term claims arising from former insurance activities in the London market. Annual Report 2001 | Bâloise-Holding 115 16. Actuarial Reserve: Life Long-term contracts Contracts with surplus sharing Contracts without surplus sharing Total in CHF m 2000 2001 26,199.5 115.0 27,418.2 140.7 26,314.5 27,558.9 17. Policyholder Bonuses 17.1 Policyholder Bonuses Credited And Provision For Future Policyholder Bonuses Policyholder bonuses credited Provision for future policyholder bonuses Total in CHF m 2000 2001 3,709.3 1,059.3 3,583.6 614.1 4,768.6 4,197.7 Where life insurance policyholders have a right to receive policyholder bonuses on the basis of statutory provisions or contractual agreements, an appropriate provi- sion is set up. The provision consists of the following: Amounts which have irrevocably been set aside for future surplus sharing Policyholders’ share of results disclosed Policyholders’ share of unrealized gains and losses on investments. The provision for final policyholder bonuses is included in the actuarial reserve. Policyholder bonuses credited are understood to be policyholder bonuses that have already been allocated to the policyholder and bear interest like savings assets up to the maturity of the contract. 17.2 Adjustment of previous year’s figures In 2000, policyholder bonuses credited amounting to CHF 1,545.5 million were in- cluded under Payables arising from insurance operations. In the 2001 financial statements, the previous year’s figures have been adjusted correspondingly. 116 Bâloise-Holding | Annual Report 2001 18. Reinsurance 18.1 Technical provisions and deposits arising from reinsurance business Unearned premiums reserves Loss reserves Actuarial reserve: life Policyholder bonuses credited and 2000 629.9 4,021.5 26,314.5 Gross 2001 380.9 4,182.0 27,558.9 provision for future policyholder bonuses 4,768.6 4,197.7 Total technical provisions 35,734.5 36,319.5 Deposits arising from reinsurance Impairment of value accounted for in income statement Total investments and deposits arising from reinsurance business in CHF m – – – – – – Investments and deposits arising from reinsurance business 2001 6.4 353.7 212.0 2000 613.9 3,714.4 26,127.3 Net 2001 374.5 3,828.3 27,346.9 0.1 4,768.3 4,197.6 572.2 35,223.9 35,747.3 2000 16.0 307.1 187.2 0.3 510.6 48.3 – 11.9 – 558.9 584.1 No single reinsurer or reinsurance contract is so material to the Group that its loss would have a significant effect on consolidated net profit. In the year 2001, 3 percent of gross premiums and policy fees were ced- ed to external reinsurers (2000: 3 percent). 81 percent of reinsurance are ceded to reinsurers rated AA (Standard & Poor’s) or better. Basically, no reinsurance is ceded to any company that does not have at least an A rating (S&P). – – – – – – Annual Report 2001 | Bâloise-Holding 117 18.2 Premiums earned and policy fees 18.2.1 Premiums earned and policy fees: 2000 Non-life Life Elimination Total 2,487.3 70.8 4,175.1 – 2,558.1 4,175.1 - 202.9 - 44.3 2,355.2 4,130.8 – 16.0 16.0 14.7 1.3 - - - 6,662.4 54.8 6,717.2 - 232.5 6,484.7 18.2.2 Premiums earned and policy fees: 2001 Non-life Life Elimination Total 2,534.0 66.3 4,058.0 – 0.0 - 16.0 6,592.0 50.3 2,600.3 4,058.0 - 16.0 6,642.3 - 181.0 - 44.8 2,419.3 4,013.2 16.9 0.9 - 208.9 6,433.4 18.3 Deposit funds with reinsurers and deposit fund liabilities relating to deposit accounting Deposits (held as assets) Deposit fund liabilities Total deposits (net) in CHF m 18.4 Movements on deposits in deposit accounting At January 1 Increases in deposits Redemptions Exchange differences At December 31 in CHF m 2000 2001 - - - - 7.0 0.1 6.9 2000 22.3 8.9 5.6 0.9 6.9 - - - 8.8 0.1 8.7 2001 6.9 3.1 0.9 0.4 8.7 Direct gross premiums earned Indirect gross premiums earned Total gross premiums earned Reinsurance ceded Total net premiums earned in CHF m Direct gross premiums earned Indirect gross premiums earned Total gross premiums earned Reinsurance ceded Total net premiums earned in CHF m 118 Bâloise-Holding | Annual Report 2001 19. Liabilities from Banking Business and Loans 19.1 Liabilities from banking business and loans Amounts due to banks Fixed-term deposits payable Loans Mortgages Savings and bank customer deposits Medium-term fixed-rate notes Mortgage bonds Bonds Liabilities under finance leases Total in CHF m 2000 2001 2,051.6 1,330.2 12.6 112.3 0.2 4,349.2 1,813.0 443.1 1,085.4 181.5 12.3 90.2 0.2 4,520.6 1,906.3 576.1 1,088.1 173.2 10,048.9 9,697.2 Of these, CHF 18,9 m relate to subordinated liabilities as at December 31, 2001. 19.2 Bonds At January 1 Initial offer price of newly issued bonds Embedded derivative Deferred tax portion Additions (subtotal) Disposals/redemptions Interest expense Interest paid Accrued interest (subtotal) At December 31 in CHF m 2000 479.5 603.0 – – 603.0 – 21.2 18.3 2.9 - 2001 1,085.4 – – – – – - 39.9 37.2 2.7 1,085.4 1,088.1 Annual Report 2001 | Bâloise-Holding 119 19.3 Terms applicable to the bonds outstanding Nominal value in CHF m Interest rate Effective interest rate Advance redemption date Redemption amount Conversion rights Year of issue Redemption date Security number Bâloise Finance (Jersey) Ltd. Bâloise-Holding Bâloise-Holding 200 1.0% 3.2% – 100% in UBS shares 1998 300 3.25% 3.25% – 100% no 1998 600 4.25% 4.25% – 100% no 2000 April 7, 2006 April 7, 2008 Sept. 28, 2005 SWX 858858 SWX 858851 SWX 1123532 19.4 Reconciliation between minimum lease and their present value Lease period: < 1 year 1–5 years > 5 years Total minimum lease payments 2000 2001 15.5 44.4 224.9 284.8 15.1 43.3 208.2 266.6 Future finance expenses - 103.3 - 93.4 Total present value in CHF m 181.5 173.2 20. Financial Provisions for the Year 2001 At January 1 Currency translation Additional provisions charged to income Unused amounts reversed and released to income Amounts used charged against the provision Increase owing to mark-up for interest Restructuring 34.3 0.0 7.5 - 29.2 – – Other 93.2 0.5 21.4 13.3 0.8 – - - - Total 127.5 0.5 28.9 42.5 0.8 – - - - At December 31 in CHF m 12.6 100.0 112.6 120 Bâloise-Holding | Annual Report 2001 21. Tax on Income 21.1 Current and deferred tax on income Switzerland Current tax Deferred tax Subtotal Germany Current tax Deferred tax Subtotal Benelux Current tax Deferred tax Subtotal Other countries Current tax Deferred tax Subtotal Total: all countries Current tax Deferred tax Total in CHF m 2000 2001 - - - - 67.7 37.0 104.7 20.7 29.9 9.2 1.1 20.0 18.9 4.1 13.9 18.0 93.6 1.0 94.6 - - - 64.1 43.5 107.6 5.9 2.6 3.3 20.8 15.5 5.3 2.3 1.6 0.7 93.1 23.8 116.9 Annual Report 2001 | Bâloise-Holding 121 21.2 Expected and actual tax on income Expected tax on income Increase/decrease due to tax-exempt interest and dividend credits tax-exempt gains from shares and participating interests non-deductible expenses Withholding tax for dividends Change in interest rates Tax elements unrelated to accounting period Disposal of enterprises Other Actual tax on income in CHF m 2000 172.4 5.6 62.9 13.7 5.3 0.7 20.4 – 7.2 94.6 - - - - - 2001 123.1 13.4 11.3 11.1 4.4 0.5 4.4 – 0.9 116.9 - - - - The expected average tax rate of the Baloise Group came to 23.6 percent both in 2000 and 2001. These rates correspond to the weighted average of the tax rates of those countries in which the Baloise Group operates. The reasons for the difference between tax on income calculated on the basis of these rates and the actual tax expense are set out in the table above. 122 Bâloise-Holding | Annual Report 2001 21.3 Deferred tax assets and liabilities 2000 2001 Reasons for deferred tax assets Unearned premiums reserves Loss reserves Actuarial reserve (life) Unrealized losses on investments Losses brought forward Other Total Reasons for deferred tax liabilities Deferred acquisition costs Unearned premiums reserves Loss reserves Actuarial reserve (life) Unrealized gains on financial investments Depreciable assets Other intangible assets Other Total Total (net) in CHF m 15.6 54.6 77.8 5.2 21.7 272.3 447.2 133.0 17.8 190.8 102.1 833.2 43.5 8.4 618.0 11.5 5.2 214.5 2.1 22.3 312.0 567.6 194.1 27.8 170.1 86.6 392.9 32.0 1.0 736.4 1,946.8 1,640.9 1,499.6 1,073.3 The tax on income payable at the end of 2000 and 2001, which is included in other liabilities, amounted to CHF 158.9 m and 114.5 m respectively. At December 2001, the Baloise Group had losses carried forward that can be offset against tax of CHF 58.2 m (which are subject to statutory regulations). Most tax losses and tax credits lapse after five or more years. Annual Report 2001 | Bâloise-Holding 123 22. Number of Employees and Personnel Costs The Baloise had 8,623 employees on December 31, 2001; on December 31, the number of employees was 8,425. Total personnel costs for the fiscal year 2001 amounted to CHF 1,079.4 m, compared with CHF 1,024.6 m the previous year. 23. Benefits Due to Employees The most significant part of total personnel costs consists of actual direct bene- fits provided to employees. These are divided into the following categories: short- term and long-term benefits, postemployment benefits, termination benefits and equity benefits. 23.1 Assets and liabilities relating to employee benefits Assets relating to employee benefits Liabilities relating to employee benefits 2000 2001 2000 2001 11.7 – 39.2 – 1.0 – 51.9 11.6 – 39.2 – 1.5 – 52.3 111.4 3.4 379.1 22.8 46.9 – 563.6 115.5 1.5 383.3 23.0 36.3 – 559.6 Type of benefits Short-term benefits Postemployment benefits: defined contribution plans Postemployment benefits: defined benefit plans Other long-term benefits Termination benefits Equity benefits Total in CHF m 124 Bâloise-Holding | Annual Report 2001 23.2 Benefits from occupational benefit plans Benefits from occupational benefit plans comprise all amounts provided for current employees and pensioners. The following table aggregates pension plans under “pensions” and shows other benefits (such as subsidized mortgages) under “other benefits”. 23.2.1 Liabilities relating to defined benefit plan Present value of funded obligations Fair value of plan assets Funding surplus Present value of unfunded obligations Unrecognized actuarial gains/losses Net pension obligation Liabilities relating to other benefits Net liabilities relating to defined benefit plans of which disclosed as liabilities of which disclosed as assets of which not disclosed as assets in CHF m In countries in which pension plans are effected by means of separate funds into which contributions are made, it is possible that funding surpluses may arise, as evidenced in the table above. Such surpluses are only capitalized and recognized as assets to the extent that they represent future cost savings to the Baloise Group. The plan assets include shares in Bâloise-Holding which had a market value of CHF 183.8 m at December 2001 and CHF 264.4 m at December 2000. The plan assets do not include property leased to the Baloise Group. 2000 2001 - 1,688.3 - 1,737.7 1,873.1 1,815.6 - - - - - - 184.8 323.5 92.2 230.9 16.1 247.0 379.1 39.2 92.9 - - - - - 77.9 348.3 64.1 206.3 20.6 226.9 383.3 39.2 117.2 Annual Report 2001 | Bâloise-Holding 125 23.2.2 Expenses relating to defined benefit plans Current service cost Interest cost 2000 60.2 83.6 2001 65.2 82.8 Expected return on plan assets - 91.9 - 91.6 Redemption of actuarial gains and losses Effect of any changes and use restrictions Employees’ contributions Total expense for pension benefits Expense for other benefits Total expense relating to defined benefit plans in CHF m 23.2.3 Income from plan assets Expected return on plan assets Gains or losses on plan assets Total income from plan assets in CHF m 23.2.4 Net obligations in respect of pension benefits At January 1 Exchange differences Increase due to changes in composition of consolidated Group Decrease due to changes in composition of consolidated Group Amount recognized in income statement Payments by employer At December 31 in CHF m – 21.8 – 23.4 - 11.4 - 12.3 62.3 1.1 63.4 2000 - 91.9 - 56.0 - 147.9 67.5 1.1 68.6 2001 - 91.6 111.2 19.6 2000 322.2 2001 323.5 - 18.5 - 9.5 12.3 – 62.3 - 54.8 323.5 – – 67.5 - 58.0 323.5 126 Bâloise-Holding | Annual Report 2001 23.2.5 Actuarial assumptions Discount rate Expected rate of return on plan assets Expected increases in wages and salaries Expected increases in pension benefits in % 2000 2001 4.4 5.3 2.6 1.2 4.1 5.0 2.2 1.2 Actuarial and other assumptions are used in calculating expenditure and obli- gations relating to defined benefit plans, by company and by country. The as- sumptions set out above are weighted averages. 23.3 Other long-term employee benefits Benefits payable to current employees twelve months or more after the end of the fiscal year are disclosed separately in accordance with specific requirements. The requirements are similar to those applying to pension obligations. Most of the benefits are employee service anniversary benefits. At December 31, 2001, the present value of the obligation was CHF 23.0 m (2000: CHF 22.8 m). No plan assets were deducted for long-term benefits. Other long-term employee benefits amount- ing to CHF 2.7 m (2000: CHF 3.3 m) are included in the income statement. 23.4 Equity benefits: purchase of shares by employees The Baloise Employee Trust set up in 1989 gives the employees of various Group companies the opportunity, subject to the rules issued by the Trust’s Board, to acquire shares in Bâloise-Holding, usually on an annual basis, at a preferential subscription price. The employees pay the subscription price to the Trust during the current fiscal year and determine themselves the blocking period for the sale of the shares, which must be at least three years. During the year under review, 156,951 shares (2000: 184,640 shares) were purchased at a price of CHF 76 (2000: CHF 85). The 2000 figures have been adjusted at a rate of 1:10 as a result of the share split on July 24, 2001. Annual Report 2001 | Bâloise-Holding 127 23.5 Equity benefits: share participation scheme Number of shares subscribed to Blocked until Subscription price per share Value of shares subscribed to (in CHF m) 2001 122,850 5.31.2003 165.96 20.4 23.6 Equity benefits: share option scheme Stock exchange designation for options Number of options issued Blocked until Number of underlying Bâloise-Holding shares Exercise price in CHF Expiry date Expenses of the Baloise Group in CHF m 2000 2001 BALUP 394,866 6.1.2002 39,487 169.4 BALUP 666,604 6.1.2003 66,660 167.8 6.15.2005 6.15.2005 1.4 1.6 128 Bâloise-Holding | Annual Report 2001 24. Equity 24.1 Share capital At December 31, 1999 Capital reduction At December 31, 2000 Capital reduction Reduction of nominal value Share split 1:10 At December 31, 2001 in CHF m Number of shares Share capital 5,862,000 191,600 5,670,400 139,685 - - 58.6 1.9 56.7 1.4 - - – - 49.8 49,776,435 55,307,150 – 5.5 The Bâloise-Holding registered shares are fully paid up and have a nominal value of CHF 0.1 (2000: CHF 10). A total of 83,000 shares at December 31, 2000 (before split) and 560,000 at December 31, 2001 (after split) were held by Group compa- nies. Entry in the share register is limited to 2 percent of voting rights for individ- uals and bodies corporate. In the course of its normal investment business, the Baloise Group purchases and sells its own shares. The Bâloise-Holding Annual General Meeting of May 11, 2001 decided to repurchase 139,685 Bâloise-Holding shares at a price of CHF 2,100 per share. For this purpose, a put option for each share was issued free of charge. By the destruction of the 139,685 registered shares repurchased for a total of CHF 293.2 m, the share capital was reduced by CHF 1.4 m. Then, in accordance with a decision of the Annual General Meeting of May 11, 2001, the nominal value of the shares was reduced by CHF 9 to CHF 1 through repayment to the shareholders, and a 1:10 split was effected. Since then, the share capital of CHF 5.5 m has been made up of 55,307,150 shares with a nominal value of CHF 0.1 each. Capitalization regulations: Under supervisory law, minimum capital regulations (solvency regulations) apply to subsidiaries which carry out insurance business. At December 31, 2000 and December 31, 2001, the subsidiaries com- plied with all relevant supervisory regulations in respect of capitalization. Annual Report 2001 | Bâloise-Holding 129 24.2 Dividends Dividends proposed are not paid until they have been approved by the Annual General Meeting. At the Annual General Meeting on May 14, 2002, a dividend of CHF 2.40 per share (2000: CHF 24) will be proposed for the 2001 fiscal year, a total figure of CHF 132.7 m (2000: CHF 136.1 m). The proposed dividend has not been included in the consolidated financial statements for the 2001 fiscal year. It will be charged to accumulated profit following the adoption of the resolution at the 2002 Annual General Meeting. Restrictions on dividend payments by subsidiaries: Subsidiaries of the Baloise Group which carry out insurance business are subject to certain supervi- sory restrictions relating to dividend payments. 25. Earnings Per Share Consolidated net profit in CHF m Average number of shares 2000 634.4 2001 404.4 56,404,340 55,286,619 Earnings per share in CHF 11.25 7.31 The diluted net earnings coincide with the basic earnings per share because no option rights exist (either for capital market transactions or for employee share schemes) that could raise the current number of outstanding shares. The average number of shares has been adjusted for the years 2000 and 2001 owing to the 1:10 share split of July 24, 2001. 130 Bâloise-Holding | Annual Report 2001 26. Minority Interests At January 1 Share of consolidated net profit Change in share of unrealized gains and losses in equity Increase/decrease due to changes in share of investment held Increase/decrease due to changes in composition of consolidated Group Exchange differences At December 31 in CHF m 2000 157.2 3.1 40.4 58.1 – 15.6 46.2 - - - - 2001 46.2 1.7 27.4 18.1 – 2.9 41.5 27. Interest Payable Interest on policyholder bonuses credited Savings and customer deposits Medium-term fixed-rate notes Mortgage bonds Bonds Other interest Total in CHF m 2000 103.8 114.4 56.5 6.4 21.2 77.7 380.0 2001 105.4 177.5 95.6 17.0 39.9 63.2 498.6 28. Related-Party Transactions In the course of its ordinary business activities, the Baloise Group conducts trans- actions with associated companies and with members of the Board of Directors and the Corporate Executive Committee of Bâloise-Holding. Deutscher Ring Krankenversicherungsverein, a mutual insurance company, is not included in the consolidation of the Baloise Group, yet is linked with Deutscher Ring Lebensver- sicherung and Deutscher Ring Sachversicherung through an organization agree- ment and is therefore considered to be a related party. These transactions are not material to the Baloise Group either individually or in aggregate and are conducted at market conditions. Annual Report 2001 | Bâloise-Holding 131 29. Supplemental Cash Flow Disclosure Cash and bank balances Cash equivalents Total in CHF m 2000 746.3 13.6 759.9 2001 870.4 17.9 888.3 30. Market Risk Relating to Financial Instruments The Baloise Group conducts insurance business in various European countries and holds investments worldwide and is therefore exposed to financial risks, such as currency risk, credit risk, interest rate risk, liquidity risk and market risk. In 1998, the Baloise Group implemented comprehensive, Group-wide risk management at all levels to control these risks. This involves both the active operational management of individual and portfolio risks on the finance and insurance side, and the development of general risk-based business management systems. Not only does this provide security for shareholders and clients; it also leads to a positive rating on the capital market. By benchmarking all activities based on their contribution to value added (measured by the return on risk- adjusted capital), it is possible to focus on the most profitable segments. Decentralized risk management units track economic market develop- ments on a monthly basis and the effects of these on the risk portfolio and indi- vidual risk capacity. In addition, they ensure that limits are being adhered to and market-derived benchmarks monitored, thus ensuring that financial risk is restricted to market risk that cannot be dealt with by diversification. Stochastic and other methods (value at risk for operational short-term management, extreme value methods for long-term management) and extensive scenario analyses are used to manage the remaining market risk. By applying this risk management concept, the Baloise Group is in a position to react quickly to changes in the mar- ket environment and to optimize its strategic long-term-position profitably. 30.1 Derivatives: fair value hedges At the end of 2000 and 2001, no derivatives were held as fair value hedges. 132 Bâloise-Holding | Annual Report 2001 Fair value: assets Fair value: liabilities 2000 2001 2000 2001 30.2 Derivatives: fair value hedges Interest rate instruments: Forward exchange transactions Swaps OTC options Other Traded options Traded futures Subtotal Equity instruments: Forward exchange transactions OTC options Traded options Traded futures Subtotal Exchange rate instruments: Forward exchange transactions Swaps OTC options Traded options Traded futures Subtotal Total in CHF m 2000 – Contract value 2001 – 1,374.2 1,605.5 – – – – – – – – – 36.0 – – – – – 14.8 – – – – 1,374.2 1,605.5 36.0 14.8 – – – – – – – 77.2 – – – 77.2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,451.4 1,605.5 36.0 14.8 30.3 Currency risk The insurance activities of the Baloise Group are conducted almost entirely in Swiss francs and the euro, and therefore the technical provisions are also in these two currencies. Investments held by foreign subsidiaries are to a large extent currency-matched. In order to increase income, the Swiss companies hold a net euro position of CHF 3,153.6 m (2000: CHF 3,153.0 m), a net US dollar position of CHF 2,164.6 m (2000: 1,886.0 m) and a net Japanese yen position of CHF 249.9 (2000: CHF 327.9 m). Other net currency positions, whether assets or liabilities, are of little amount. Foreign currency positions are hedged only to a minor extent, with the exception of one USD 120 m position. – 0.5 – – – – 0.5 – – – – – – – 23.5 – – – 23.5 24.0 – 0.3 – – – – 0.3 – – – – – – – – – – – – 0.3 Annual Report 2001 | Bâloise-Holding 133 30.4 Credit risk Credit risk is defined as the risk that one party or counterparty to a financial in- strument will fail to discharge an obligation. The risk is managed by reviewing the creditworthiness of each individual counterparty, setting high standards as regards their rating. As the credit risk of the Baloise Group is spread over a large number of counterparties, clients, etc., the Baloise Group has no significant credit risk with a single counterparty. 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 abil- ity 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. 30.5 Concentration of credit risks Shares and fixed-interest securities > 10% of consolidated equity Bayerische Hypo- und Vereinsbank, Munich Novartis AG, Basel UBS AG, Zurich Federation of Switzerland Nestlé AG, Vevey Federal Republic of Germany Roche AG, Basel CS Group, Zurich in CHF m 2000 2001 1,043.2 1,105.8 901.2 750.5 734.4 414.3 987.5 749.7 901.4 873.4 838.0 757.9 685.8 656.0 584.2 570.2 30.6 Interest rate risk of financial instruments Interest rate risk refers to the potential fluctuations in the market value of assets and liabilities as a result of changes in market interest rates. In the Baloise Group, the interest rate risk for fixed-interest securities is controlled by regular, active, benchmark-oriented reviews of maturity dates. 134 Bâloise-Holding | Annual Report 2001 30.7 Liquidity risks 30.7.1 Liquidity risk at December 31, 2000 Assets with due date Assets without fixed due date Liabilities with due date Liabilities without fixed due date Net liquidity risk in CHF m 30.7.2 Liquidity risk at December 31, 2001 Fixed-interest securities Mortgage loans Policy and other loans Other investments Other assets Assets without fixed due date Total Liabilities from banking business and loans Payables arising out of insurance operations Other liabilities Liabilities without fixed due date Total Net liquidity risk in CHF m Due in < 1 year Due in 1–5 years Due in > 5 years 12,543.1 12,762.0 9,652.4 – – – - 8,640.9 - 1,753.0 - 4,799.4 – – – Total 34,957.5 24,326.5 - 15,193.3 - 36,671.7 3,902.2 11,009.0 4,853.0 7,419.0 Due in < 1 year 1,831.5 5,337.0 531.7 695.1 4,247.2 – Due in 1–5 years 9,032.5 3,838.2 683.8 – – – Due in > 5 years 9,705.3 1,325.2 447.6 – 4.8 – Total 20,569.3 10,500.4 1,663.1 695.1 4,252.0 19,814.9 12,642.5 13,554.5 11,482.9 57,494.8 - 5,583.0 - 1,896.9 - 1,490.4 – - 2,838.9 - 1,275.3 - - 5.2 36.3 – – - 407.8 – - 9,697.2 - 1,902.1 - 1,934.5 - 38,534.7 - 8,970.3 - 2,880.4 - 1,683.1 - 52,068.5 3,672.2 10,674.1 9,799.8 5,426.3 Annual Report 2001 | Bâloise-Holding 135 30.8 Market value of financial assets and liabilities and market risks The following table contains information on the book and market values of sig- nificant financial assets and liabilities which are not shown in the balance sheet at market or fair value. 30.8.1 Financial assets and liabilities not shown at market value 2000 160.7 10,438.7 1,856.7 10,048.9 Book value 2001 159.7 10,500.4 1,663.1 9,697.2 2000 163.5 10,564.5 1,852.9 10,094.6 Market value 2001 162.7 10,590.0 1,669.8 9,719.4 The market values of these financial assets and liabilities have been determined in accordance with the rules set out in Note 3.19, “Fair value of financial assets and liabilities”. Fixed-interest securities held to maturity Mortgage loans Policy and other loans Liabilities from banking business and loans in CHF m 136 Bâloise-Holding | Annual Report 2001 31. Companies Consolidated on a Proportionate Basis Included in balance sheet and income statement Investments Intangible assets and tangible non-current assets Liabilities Equity Income Expenses in CHF m 2000 2001 889.5 20.2 948.5 103.3 111.5 137.6 812.8 17.3 766.7 83.0 143.1 138.1 Annual Report 2001 | Bâloise-Holding 137 32. Contingent Liabilities and Commitments 32.1 Legal disputes The Baloise Group and its subsidiaries are constantly faced with legal disputes, claims and complaints which in most cases stem from normal insurance opera- tions. However, no new facts in this respect have been reported to the Corporate Executive Committee since the last balance sheet date that could have a signifi- cant impact on the consolidated annual accounts 2001. This also applies with reference to the civil action in connection with the minority stake in Tirrena, Rome, that was sold in 1990. In a first-instance ruling by a judge sitting alone, in Rome, the Baloise was ordered to pay around CHF 70 m. The Baloise has appealed and considers a corresponding cash flow unlikely, and hence provisions have been set aside for the legal costs only. 32.2 Capital commitments Commitments entered into for the future purchase of Investments Tangible non-current assets Intangible assets 2000 2001 159.9 532.6 – – – – Total commitments entered into 159.9 532.6 of which relating to joint ventures of which own share of joint venture capital commitments – – – – in CHF m 32.3 Warranties and guaranties for the benefit of third parties The Baloise Group has issued warranties and incurred obligations to third parties, associates, partnerships and joint ventures. These include obligations under con- tracts to pay capital contributions or contributions to equity or to allocate funds to cover redemptions or interest payments due. The Baloise Group is not aware of any cases of default which could have an effect on warranties. 138 Bâloise-Holding | Annual Report 2001 32.4 Warranties and guaranties for the benefit of third parties Warranties Guaranties 2000 1,040.5 6.9 Total warranties and guaranties for the benefit of third parties 1,047.4 of which for the benefit of partners in joint ventures of which from joint ventures of which for the benefit of joint ventures in CHF m – – – 2001 706.0 3.9 709.9 – – – 32.5 Assets assigned or pledged as security 2000 Assets 2001 Amount of hedged obligation 2000 2001 Investments 1,882.3 2,468.9 1,863.5 1,728.2 Tangible non-current assets Intangible assets Other assets – – – – – – – – – – – – Total in CHF m 1,882.3 2,468.9 1,863.5 1,728.2 32.6 Obligations under operating leases 2002 2003 2004 2005 2006 and later Total in CHF m Lease payments 1.5 0.2 0.1 0.0 0.5 2.3 33. Events after the Balance Sheet Date Up to the completion of the present consolidated financial statements on March 27, 2002, we were not aware of any events that would have a significant effect on the financial statements as a whole. Annual Report 2001 | Bâloise-Holding 139 34. Significant Subsidiaries and Participating Interests At December 31, 2001 Switzerland Principal activity Method of inclusion1 Currency Holding in % Holding 100.00 100.00 100.00 74.75 26.00 100.00 advice 100.00 Holding Non-life Life Banking Other Other Asset management Investment Bâloise-Holding, Basel Baloise Insurance Company, Basel Baloise Life Insurance Company, Basel Baloise Bank SoBa, Solothurn Haakon AG, Basel Prevo-System AG, Basel Baloise Asset Management Switzerland Ltd., Basel Baloise Asset Management International Ltd., Basel Germany Basler Versicherung Beteiligungsgesellschaft mbH, Hamburg Holding 100.00 Deutscher Ring Lebensversicherungs-AG, Hamburg Life 97.77 Deutscher Ring Sachversicherungs-AG, Hamburg Non-life Deutscher Ring Bausparkasse AG, Hamburg Banking 100.00 100.00 Deutscher Ring Beteiligungsholding GmbH, Hamburg Other 65.00 DePfa Beteiligungs-Holding II GmbH, Düsseldorf Deutscher Ring Other 40.00 Financial Services GmbH, Hamburg Other 100.00 Grocon Erste Grundstücksgesellschaft mbH, Hamburg Other 100.00 Grocon Zweite Grundstücksgesellschaft mbH, Hamburg OVB Vermögensberatung AG, Cologne Pylon Unternehmensberatungen GmbH, Hamburg Roland Rechtsschutz Other Other 100.00 70.00 Other 65.00 Beteiligungs GmbH, Cologne Other Roland Rechtsschutz Versicherungs-AG, Cologne Other 60.00 25.02 Zeus Vermittlungsgesellschaft mbH, Hamburg Other 90.10 1 F: fully consolidated, P: consolidated on a proportionate basis, E: stated at equity valuation 140 Bâloise-Holding | Annual Report 2001 Total assets in millions 2,055.8 5,886.1 23,150.8 5,269.5 49.9 – 4.2 1.9 CHF CHF CHF CHF CHF CHF CHF CHF Gross premiums/ policy fees in millions – 1,135.0 2,837.0 – – – – – – DEM 465.0 DEM 15,349.8 1,189.9 DEM DEM DEM DEM DEM DEM DEM DEM DEM DEM DEM DEM 1,780.0 1,205.0 604.0 – 12.5 44.0 49.0 136.2 13.4 43.4 – 30.0 580.3 – – – – – – – – – – – F F F F E F F F F F F/P F/P E F/P F F/P F/P F/P F/P E F/P (continued) Belgium Principal activity Holding in % Method of inclusion1 Currency Total assets in millions Gross premiums/ policy fees in millions Mercator Verzekeringen N.V., Ghent /Antwerp Amazon Insurance N.V., Antwerp Life and Non-life Non-life Mercator, Re N.V., Antwerp Reinsurance HBK-Leven N.V., Antwerp Euromex N.V., Antwerp Mercator Banque S.A., Antwerp Corluy en C° Beurvennootschap N.V., Antwerp Amid N.V., Ghent Antwerp Real Estate N.V., Antwerp Automobielcenter Gent N.V., Ledeberg Belcar N.V., Aartselaar Brinvest N.V., Antwerp Conjuncta N.V., Antwerp Hondius N.V., Antwerp Mercarios N.V., Antwerp Merno-Immo N.V., Ghent Plastic Investment Company, Kortrijk Rec-Hold, Brussels Rubens 2000 N.V., Antwerp Sogaplim N.V., Ghent Luxembourg Bâloise (Luxembourg) Holding S.A., Life Non-life Banking Banking Other Other Other Other Other Other Other Other Other Other Other Other Other 100.00 100.00 100.00 100.00 100.00 100.00 37.50 97.16 84.00 97.38 75.00 31.19 100.00 100.00 50.00 99.75 29.00 29.82 100.00 50.00 Luxembourg Holding 100.00 Bâloise Assurances Luxembourg S.A., Luxembourg Non-life 100.00 Bâloise Vie Luxembourg S.A., Luxembourg Globinvest AG, Luxembourg Life Other 100.00 100.00 Baloise Fund Invest Advico S.A., Investment Luxembourg advice 100.00 1 F: fully consolidated, P: consolidated on a proportionate basis, E: stated at equity valuation F F F F F F E F F F F E F F P F E E F P F F F F F BEF BEF BEF BEF BEF EUR BEF BEF BEF BEF BEF BEF BEF BEF BEF BEF BEF BEF BEF BEF CHF LUF LUF CHF EUR 93,844.5 16,240.8 676.1 253.4 1,729.6 139.8 2,927.0 – 143.1 226.3 226.1 481.3 – 216.4 570.5 422.5 809.0 – – 2,135.3 1,103.9 632.2 513.6 1.1 840.8 694.1 – – – – – – – – – – – – – – – – 4,330.7 935.9 7,229.1 54.3 1.2 611.3 – – Annual Report 2001 | Bâloise-Holding 141 Significant subsidiaries and participating interests at December 31, 2001 (continued) Austria Principal activity Holding in % Method of inclusion1 Currency Total assets in millions Gross premiums/ policy fees in millions Basler Versicherungs-Aktiengesellschaft in Österreich, Vienna Basler osiguranje d.d., Zagreb Basler Zivotno osiguranje d.d., Zagreb Basler Immobilien GmbH, Vienna Life and Non-life Non-life Life Other 100.00 97.00 97.00 100.00 Other countries Baloise Insurance Co. (I.O. M.) Ltd., Douglas/Isle of Man/British Isles Reinsurance 100.00 Baloise Insurance Company (Bermuda) Ltd., Hamilton/Bermuda Reinsurance 100.00 Baloise Alternative Investment Strategies Ltd., Grand Cayman, Asset Cayman Islands management 100.00 Baloise Finance (Jersey) Ltd., St. Helier/Jersey/Channel Islands Baloise Private Equity Ltd., Cayman Islands Bâloise (España) S.A., Madrid Other Asset 100.00 management 100.00 Other 100.00 1 F: fully consolidated, P: consolidated on a proportionate basis, E: stated at equity valuation F F F F F F F F F F ATS HRK HRK ATS CHF CHF USD CHF USD ESP 5,668.8 808.5 23.5 18.1 847.8 5.9 1.6 – 400.4 142.1 427.6 126.7 363.5 598.8 245.9 3,720.0 – – – – 142 Bâloise-Holding | Annual Report 2001 Report of the Group Auditors Report of the Group auditors to the General Meeting of Bâloise-Holding, Basel As auditors of the Group, we have audited the consolidated financial statements (income statement, balance sheet, statement of changes in equity, cash flow state- ment and notes to the financial statements, pages 59 to 73, and 81 to 142)1 of the Baloise Group for the year ended December 31, 2001. These consolidated financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on the financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards pro- mulgated by the Swiss auditing profession and with the International Standards on Auditing issued by the International Federation of Accountants (IFAC), which require that an audit be planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the consolidated financial statements. We have also assessed the accounting principles used, significant estimates made and the over- all presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the net assets, financial position and results of operations in accordance with International Accounting Standards (IAS) and comply with Swiss law. We recommend that the consolidated financial statements submitted to you be approved. PricewaterhouseCoopers AG P. Sütterlin P. Lüssi Basel, April 5, 2002 1 The German version of the Financial Report is binding. Annual Report 2001 | Bâloise-Holding 143 Income Statement: Bâloise-Holding 2000/2001 467,842,628 5,069,322 13,614,944 2,550,754 48,534,350 8,019,795 545,631,793 - - - - - - 15,839,471 35,211,562 10,247,813 – 61,298,846 545,631,793 61,298,846 484,332,947 3,602,437 480,730,510 2001/2002 332,856,261 14,914,048 4,796,089 1,114,935 4,887,719 3,813,593 362,382,645 - - - - - - - 7,098,265 54,578,124 17,940,000 53,567 79,669,956 362,382,645 79,669,956 282,712,689 2,060,363 280,652,326 Income Income from participating interests Interest on loans to Group companies Income from other financial assets Other interest receivable Realized gains on investments Other income Total income Expenses Administrative expenses Interest payable Amortization of capital investments Other expenses Total expenses Overall Result Total income Total expenses Total profit before tax Tax on income and capital Net profit in CHF 144 Bâloise-Holding | Annual Report 2001 Balance Sheet: Bâloise-Holding Assets Bank balances Receivables from Group companies Other receivables Prepayments Current assets Participating interests Loans to Group companies Other investments Non-current assets Total assets Liabilities and Equity Short-term liabilities Payables to Group companies Long-term liabilities Bonds Provisions Deferred income Liabilities Share capital General reserve Reserve for own shares Free reserve Accumulated profit Equity Total liabilities and equity in CHF Note 3.31.2001 5,757 95,912,972 6,227,397 9,806,148 3.31.2002 1,748 – 6,090,167 9,282,052 111,952,274 15,373,967 2 1,265,053,012 220,000,000 450,600,892 1,349,842,891 420,000,000 219,595,192 1,935,653,904 1,989,438,083 2,047,606,178 2,004,812,050 13,602 128,696,298 70,000,000 1 900,000,000 42,169,037 28,025,466 45,531 286,340,729 70,000,000 900,000,000 42,680,800 25,460,732 1,168,904,403 1,324,527,792 5 56,704,000 11,724,001 86,235,419 242,574,781 481,463,574 878,701,775 5,530,715 11,724,001 55,064,335 326,538,907 281,426,300 680,284,258 2,047,606,178 2,004,812,050 Annual Report 2001 | Bâloise-Holding 145 Notes to the Financial Statements of Bâloise-Holding 1. Bonds Outstanding Amount CHF 300 m CHF 600 m Interest rate Issued Maturity date 31⁄4% 41⁄4% 1998 2000 4.7.2008 9.28.2005 2. Participating Interests Company Baloise Insurance Company, Basel Baloise Life Insurance Company, Basel Baloise Bank SoBa, Solothurn Baloise Asset Management Switzerland Ltd., Basel Baloise Asset Management International Ltd., Basel Haakon AG, Basel Basler Versicherung Beteiligungsges.mbH, Hamburg Bâloise (Luxembourg) Holding S.A., Luxembourg Globinvest AG, Luxembourg Baloise FundInvest Advico, Luxembourg Baloise Insurance Co.(I.O.M.) Ltd., Isle of Man Baloise Insurance Company (Bermuda) Ltd., Bermuda Baloise Finance (Jersey) Ltd., Jersey in percent Holding at 3.31.2001 Holding at 3.31.2002 100 100 100 – – 74 100 100 100 99 100 100 100 100 100 100 100 100 74 100 100 100 99 100 100 100 The holdings have been rounded to the nearest percent. Additional information about the participating interests of Bâloise-Holding is given on pages 140 to 142. 3. Significant Shareholders On December 27, 2001, Strategic Money Management Company B.V., Amsterdam (SMM), announced that it had acquired a block of 11,600,000 registered shares (20.97 percent) in Bâloise-Holding. On the same day, Zurich Financial Services an- nounced that it had reduced its investment in Bâloise-Holding to 6.13 percent (consisting of 0.14 percent in shares and 5.99 percent in options). On January 22, 2002, BZ Group Holding AG announced that together with BZ Bank AG it now held 11,097,129 shares (20.1 percent) in Bâloise-Holding. In July 2000, the BZ Group had disclosed a 10 percent stake. BZ Group was entered in the share register in 2000 as a shareholder with the statutory 2 percent of voting rights. At the time of that entry, 2 percent corresponded to 117,240 registered shares. In fiscal 2000 and fiscal 2001, Bâloise-Holding performed capital reduc- 146 Bâloise-Holding | Annual Report 2001 tions and in fiscal 2001 it also implemented a 10 for 1 share split. 2 percent of our share capital is currently equivalent to 1,106,143 registered shares. After the capital reductions and share split, the BZ Group remains entered in the share register as holding the number of registered shares that previously corresponded to 2 percent of voting rights. As at March 31, 2002, the following shareholders or groups of share- holders hold more than 1,106,143 registered shares (2 percent of share capital): Shareholders Strategic Money Management Co. BZ Group Deutsche Bank Nominees Chase Nominees Ltd. UBS AG Zurich Financial Services Group in percent 4. Contingent Liabilities Total holding at March 31, 2001 Share of voting rights at March 31, 2001 Total holding at March 31, 2002 Share of voting rights at March 31, 2002 – 14.0 – 1.9 1.7 9.3 – 2.1 – 1.8 0.6 2.1 21.0 20.1 3.3 2.6 2.1 0.1 – 2.1 2.0 1.0 1.5 0.0 At March 31,2002, warranty obligations amounted to CHF 279.4 m (prior year: CHF 788.5 m). Of these, CHF 204.0 m relates to the warranty in respect of the con- vertible bond issued by Baloise Finance (Jersey) Ltd. The securities needed for hedging are recognized as other investments. Bâloise-Holding is jointly and severally liable for value-added tax payable with all the companies in the tax group set up by the Baloise Insurance Company. 5. Own Shares The companies in the Baloise Group bought a total of 135,560 shares at an average price of CHF 136 per share during the year under review, and sold 464,160 shares at an average price of CHF 172. At March 31, 2002, they together held a total of 501,400 Bâloise-Holding shares. At March 31,2002, an amount of CHF 31.2 m was transferred from the reserve for own shares to the free reserve of Bâloise-Holding. Annual Report 2001 | Bâloise-Holding 147 6. Personnel Expenses Administrative costs include CHF 0.7 m relating to personnel expenses in the year under review (prior year: CHF 0.9 m). 7. Buyback, Capital Reduction, Reduction of Nominal Value, and Share Split The General Meeting of May 11, 2001 decided to reduce the share capital by CHF 1,396,850 to CHF 55,307,150. To this end, Bâloise-Holding issued one free put option for each share (excluding treasury stock). The 139,685 shares thus repurchased at a price of CHF 2,100 each were destroyed on July 18, 2001, thereby reducing the share capital by CHF 1.4 m, and the free reserve by CHF 291.8 m. In the following, based on a further resolution by the General Meeting of May 11, 2001, the nominal value of the shares was reduced - by means of repay- ment to the shareholders - by CHF 9 to CHF 1, which led to a reduction of the share capital by CHF 49.8 m. A 1:10 share split was thus effected. Since then, the Bâloise-Holding share capital of CHF 5.5 m has been made up of 55,307,150 shares with a nominal value of CHF 0.1 each. Proposed allocation of available earnings 2000/2001 2001/2002 Net profit for the year Retained earnings brought forward Available earnings 480,730,510 280,652,326 733,064 773,974 481,463,574 281,426,300 Dividend distribution required by Articles of Incorporation - 2,835,200 - 276,536 Available for distribution by the shareholders at General Meeting Proposed by the Board of Directors Allocation to free reserve Additional dividend distribution 478,628,374 281,149,764 - 344,600,000 - 147,900,000 - 133,254,400 - 132,460,624 Retained earnings carried forward 773,974 789,140 in CHF The above distribution is in accordance with the provisions of Article 30 of the Articles of Incorporation and results in a distribution of CHF 2.40 gross per share (CHF 1.56 after deduction of withholding tax). 148 Bâloise-Holding | Annual Report 2001 Report of the Statutory Auditors Report of the Statutory Auditors to the General Meeting of Bâloise-Holding, Basel As statutory auditors, we have audited the accounting records and the financial statements (income statement, balance sheet and notes to the financial state- ments, pages 144 to 148)1 of Bâloise-Holding for the period of April 1, 2001 to March 31, 2002. These financial statements are the responsibility of the Board of Direc- tors. Our responsibility is to express an opinion on the financial statements based on our audit. We confirm that we meet the legal requirements concerning profes- sional qualification and independence. Our audit was conducted in accordance with auditing standards pro- mulgated by the Swiss auditing profession, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial state- ments are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with Swiss law and the Company’s Articles of Incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers AG P. Sütterlin P. Lüssi Basel, April 5, 2002 1 The German version of the Financial Report is binding. Annual Report 2001 | Bâloise-Holding 149 Publishing Details Bâloise-Holding Annual Report 2001 Published by: Bâloise, Corporate Communications Concept, text, design Ramstein Ehinger Associates AG, Basel Photographs David Willen Christoph Kern Lithography Bildvision, Zurich Printing Werner Druck AG, Basel Paper Enviromentally friendly, wood-free offset paper bleached without chlorine © 2002 Bâloise-Holding, CH-4002 Basel This Annual Report is also available in German and French. The German version is binding. 150 Bâloise-Holding | Annual Report 2001 Bâloise-Holding Aeschengraben 21, CH-4002 Basel www.baloise.com 

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