Bâloise-Holding Aeschengraben 21 CH-4002 Basel www.baloise.com Addresses Switzerland Basler Versicherungen Aeschengraben 21 CH-4002 Basel Phone +41 61 285 85 85 Fax +41 61 285 70 70 Austria Basler Versicherungen Brigittenauer Lände 50 –54 A-1203 Vienna Phone +43 1 33 160 0 Fax +43 1 33 160 200 E-mail insurance@baloise.ch E-mail office@basler.co.at www.baloise.ch www.basler.co.at “ Finding and retaining the right customers … ” Bâloise-Holding Annual Report 2004 Key dates and contacts May 18, 2005 Annual General Meeting Bâloise-Holding September 7, 2005 Half-Year Media Conference September 7, 2005 Meeting of Financial Analysts March 21, 2006 Annual Media Conference March 21, 2006 Meeting of Financial Analysts April 28, 2006 Annual General Meeting Bâloise-Holding Investor Relations Carsten Stolz Aeschengraben 21 CH-4002 Basel Phone +41 61 285 83 65 Fax +41 61 285 75 62 Media Relations Philipp Senn Aeschengraben 21 CH-4002 Basel Phone +41 61 285 84 67 Fax +41 61 285 90 06 E-mail media.relations@baloise.com www.baloise.com E-mail investor.relations@baloise.com Deutscher Ring Baloise Bank SoBa Amthausplatz 4 CH-4502 Solothurn Phone +41 32 626 02 02 Fax +41 32 623 36 92 E-mail bank@baloise.ch www.baloise.ch Germany Basler Securitas Versicherungen Basler Strasse 4, Postfach 1145 D-61281 Bad Homburg Phone +49 61 7213 0 Fax +49 61 7213 200 E-mail info@basec.de www.basler-securitas.de Versicherungsunternehmen Ludwig-Erhard-Strasse 22 D-20459 Hamburg Phone +49 40 3599 0 Fax +49 40 3599 2500 Belgium Mercator Verzekeringen Desguinlei 100 B-2018 Antwerp Phone +32 3 247 21 11 Fax +32 3 247 27 77 E-mail info@mercator.be www.mercator.be Luxembourg Bâloise Assurances 1, rue Emile Bian L-1235 Luxembourg Phone +352 290 190 1 Fax +352 290 591 E-mail info@baloise.lu www.baloise.lu Croatia Basler osiguranje Trg bana Josipa Jelacˇic´a 4 E-mail Service@DeutscherRing.de HR-10000 Zagreb www.DeutscherRing.de Phone +385 1 48 17 808 Fax +385 1 48 16 932 E-mail info@basler.hr www.basler.hr 4 0 0 2 t r o p e R l a u n n A g n i d l o H - e s i o l â B The Baloise Profile Headquartered in Basel (Switzerland) and with operations in continental Europe, the Baloise Group is a solution provider in the fields of insurance and provision for the future. The Group’s strategic focus is on sustainable, income-oriented growth. Core markets are Switzerland, Germany, Belgium, Austria and Luxembourg. The Baloise Group employs a staff of around 8,000. Bâloise-Holding registered shares are included in the Swiss Market Index (SMI) and are traded on virt-x under the symbol BALN. Our conduct guidelines Create value Value means nurturing and creating quality. We care for the value of rela- tionships and the value to be found in change. We value ourselves and others. We focus on the requirements of our customers, our shareholders and our staff. We employ our time, money and human resources with great care. Creating and adding value are our targets. Foster relations We live in a networked world which links us to a lot of people. We care about these relationships. We talk to others and we are prepared to listen. We are honest, open and communicative. We are critical and able to accept criticism. We create unambiguous mutual expectations. We stand by our word. Together we are strong. Bring about change The world is changing fast. It is changing us. We change. The pressures of a changing world are a call for action. We analyze. We decide. We intervene and we implement. We deliver results. Changing in order to innovate and to add value is our goal. Profit development 2000– 2004 750 625 500 375 250 125 0 –125 –250 –375 –500 –625 –750 in CHF m 4 3 6 4 0 4 1 9 2 2 2 4 3 6 – 2000 2001 2002 2003 2004 The most important figures at a glance Income statement Total premium income (gross) Of which non-life Of which life Investment-type premiums Consolidated net profit Balance sheet Investments Technical provisions Capital and reserves Assets under management 2003 7,374.7 3,088.8 4,301.1 261.0 91.4 2004 7,022.1 3,081.4 3,956.4 443.5 221.7 56,307.7 52,799.3 42,328.7 42,703.3 3,319.8 3,482.5 Change in % –4.8 –0.2 –8.0 69.9 142.6 –6.2 0.9 4.9 Total assets under management 65,551.1 61,274.8 –6.5 Indexed share price development1 2001–2004 140 120 100 80 60 40 20 0 2001 2002 2003 2004 Bâloise Holding, registered2 SWX MS Insurance Price Index (SMINNX) Swiss Market Index 1 December 29, 2000 = 100 2 adjusted after 1:10 split of July 24, 2001 Distributions 2000– 2004 in CHF m Ratios Return on equity (ROE) On capital and reserves as shown in the balance sheet Excl. unrealized gains/losses Combined ratio non-life (net) Combined ratio non-life (gross) Technical reserve ratio non-life in percent Embedded value life insurance Value of insurance portfolio Adjusted capital and reserves Solvency costs Total Of which value new business in CHF m Key share data 2.9 2.9 103.2 97.6 177.4 6.5 6.8 97.5 93.0 179.6 1,236.1 1,008.7 –264.0 1,980.2 15.5 1,181.7 1,400.3 –445.2 2,136.8 15.2 Shares issued as at 12.31. in units 55,307,150 55,307,150 600 550 500 450 400 350 300 250 200 150 100 50 0 1 4 1 6 3 1 0 5 Capital and reserves per share as at 12.31. in CHF Consolidated net profit per share in CHF Price at year-end in CHF Market capitalization as at 12.31. in CHF m Price-earnings ratio Dividend per share in CHF 1 based on proposal to the Annual General Meeting 5 3 3 3 9 2 3 3 1 2 2 3 3 Number of staff Total at 12.31.1 Of which Switzerland 2000 2001 2002 2003 2004 Of which other countries in CHF m 1 adjusted for degree of employment Dividends paid Nominal value repayments Share repurchases 60.02 1.67 51.65 2,857 30.9 0.6 8,745 3,774 4,971 4.9 1.6 62.97 4.04 52.50 2,904 13.1 1.11 8,090 3,781 4,309 –7.5 0.2 –13.3 Publishing details Bâloise-Holding Annual Report 2004 Published by Baloise, Corporate Communications Concept, design Primafila AG, Zurich Text Baloise, Corporate Communications Corin Ballhaus, CLS René Vautravers Photographs Andreas Schwaiger Markus Bühler Production Boncept AG, Zurich Printing Werner Druck AG, Basel Paper Environmentally friendly, wood-free offset paper, bleached without chlorine © 2005 Bâloise-Holding, CH-4002 Basel This Annual Report ist also available in German and French. The German version is binding. The Annual Report can be found under www.baloise.com s001_s027_e 8.4.2005 14:02 Uhr Seite 1 The essentials in brief Annual Report 2004 Contents The Baloise more than doubled its net profit to CHF 222 million (2003: CHF 91 million). All business units raised their operating profitability. The non-life segment generated a net profit of CHF 184.1 million (previous year: CHF 48.5 million). The claims- cost ratio (combined ratio) improved to 93.0% gross and 97.5% net. Since 2002 we have pushed down this key indicator net by over 13 percentage points. The life insurance segment generated a net profit of Frank Schnewlin’s corporate management credo CHF 54.6 million (2003: CHF 34.1 million) despite uncer- Everyday life at the Baloise – a glimpse behind the scenes Dear Shareholders tain financial markets and continuing low interest rates. Review of business year 2004 The embedded value improved to CHF 2,137 million, Corporate governance while the margin in new business advanced from 5.0% to 5.8%. Baloise shares Sustainability Management information The banking unit earned a net profit of CHF 9.7 million Consolidated Financial Statements of the Baloise Group 2 7 9 30 40 52 55 57 67 (2003: CHF 14.3 million). Baloise Bank SoBa boosted its Financial Statements of Bâloise-Holding 2004/2005 123 profit by 25% to CHF 14.5 million. Premium income amounted to CHF 7.0 billion. The 4.8% year-on-year decline reflects our selective underwriting policy that is strictly focused on profitability. Premium income in non-life insurance contracted slightly by 0.2%, while Switzerland, Austria and Luxembourg each registered significant increases. Life insurance premi- ums receded by 8%, with the extremely low global in- terest rate levels proving a major dampening factor. The sales volume in unit-linked life insurance on the other hand surged by 70%. Capital investments performed at 4.1% compared to 4.6% the previous year. Capital and reserves rose 5% year-on-year to CHF 3.5 billion. The solvency margin of 258% (incl. banking assets) was well over the prior years value of 241%. In keeping with our distribution policy, we will propose to the Annual Meeting a dividend of CHF 1.10 per share (2003: CHF 0.60). Bâloise-Holding Annual Report 2004 1 s001_s027_e 8.4.2005 14:02 Uhr Seite 2 Dear Shareholders The Baloise significantly increased its net profit to CHF 222 million in fiscal 2004. Rolf Schäuble, Chairman of the Board of Directors, and CEO Frank Schnewlin, present their views on the business result and look ahead to the future. Have you achieved your goals? 2003. All business units were able to significantly increase ROLF SCHÄUBLE: We are certainly satisfied. Compared with their operating profitability from the previous year. 2004 last year, the group’s profit has more than doubled. Our was just one stage on our journey: we will continue to boost strategic realignment, with the focus on the core business operational profitability in the coming years because we of insurance and pensions, as well as the clear orientation want to achieve a sustainable return on equity of at least toward target customers, are both starting to have a notice- 10% by 2006. able impact. How do you judge the reported profit in terms of quality? FRANK SCHNEWLIN: It is particularly gratifying that the FRANK SCHNEWLIN: As I have already said: the good result is increase in profit has come mainly from the operational based on the continuing improvement in operating perfor- side of business, and that every business area and all of mance, not only in each class of business, but also in the the business units have contributed. I would nevertheless core markets. Our efforts are aimed at strong, sustainable like to emphasize the excellent result in the non-life seg- profitability, something we will achieve by means of a ment where net profit was nearly four times higher than in sound operating performance. Since 2002 we have im- 2 s001_s027_e 8.4.2005 14:02 Uhr Seite 3 Frank Schnewlin (left) and Rolf Schäuble analyzing the Baloise’s successful year 2004. proved the gross non-life combined ratio by more than 12 our relationships with customer and sales partners. Com- percentage points to its current standing of 93.0%, and we petitive cost structures are a prerequisite here. have lowered the net ratio by over 13 percentage points to 97.5%. In the life segment we have written only profitable But other insurers are doing just the same ... new business. The Baloise Bank SoBa has increased net FRANK SCHNEWLIN: That may well be; investing in opera- profit yet again. We have managed to achieve all this by tional business at a time when the capital markets are no focussing resolutely on operational excellence. longer generating the dream returns they used to is hardly “Operational excellence” – what does it mean? rocket science. What we are doing differently is to ensure all our employees have a deep understanding of target cus- FRANK SCHNEWLIN: Our credo is: “Finding and retaining the tomer management and develop the requisite skills. We are right customers.” The challenge is to provide qualified cus- constantly learning from practical experience and optimiz- tomers and sales partners with first-class services while at ing our processes and systems accordingly. On top of that the same time increasing profitability. These are clients we have our values, our passion for performance. I place and sales partners who are risk conscious, loyal, and whose special importance on our company’s distinguishing itself business relationship with us has potential for expansion. through letting “actions speak louder than words.” A busi- Both sides, the customers and the Baloise, stand to gain ness model of this kind cannot be copied, since the skills from such a relationship. It’s a win–win situation. In order and the attitude of the people at the Baloise are the deci- to succeed, we need to run our business in a highly profes- sive factor. sional manner on all fronts, for example in knowing and understanding our customers and their requirements, in How sound is the Baloise? setting rates for products that are commensurate with the ROLF SCHÄUBLE: The Baloise has a sound balance sheet, risk, in our handling of claims, in preserving the value of also with regard to the new requirements under the “Swiss Bâloise-Holding Annual Report 2004 3 s001_s027_e 8.4.2005 14:02 Uhr Seite 4 “ The decisive factor is to ensure that all employees have a deep understanding of target customer management and develop the requisite skills. ” Solvency Test” as far as the latter has been made known to date. Capital and reserves have grown since the end of In Belgium you posted a loss for 2004. When will you return to profit on this market? 2003. The non-life segment is exceptionally well capita- FRANK SCHNEWLIN: Two things have to be borne in mind lized. Liabilities may be mounting in life business, but so concerning Belgium: Firstly, we are making a profit on the too is the eligible capital. At the end of 2004 the solvency operations side, i.e. in the insurance and pensions busi- margin stood at 258% (incl. banking assets), i.e. clearly ness. The new management has clearly aligned Mercator more than double the statutory minimum requirements. toward this core business. The portfolios have been reorga- It was and remains our policy to make responsible use of nized, in non-life we have lowered the long-term combined the capital entrusted to us. The company’s risk capacity has ratio, which currently stands at 95.3%. always been the yardstick for managing our capital and Secondly, the net loss of CHF 116 million in the Benelux investments. And, in recent, turbulent times, we have proven countries was caused by extraordinary expenses in Bel- that we are capable managers; please remember that we gium. The sale of Mercator Bank generated a loss of CHF were one of the very few insurance companies that did not 70.2 million; the rest is attributable to value adjustments require additional capital. Our analysis and management on investments of Mercator Insurance. instruments have been tried and tested and proven effective. We expect Mercator to become profitable again from 2005. The premium volume declined. Are you not aiming for growth? By selling Mercator Bank in Belgium you have downsized FRANK SCHNEWLIN: Of course we would like to see growth. the banking business. What are your aims in this segment? But we have a clear business policy: earnings before growth, FRANK SCHNEWLIN: Mercator Bank was sold because main- i.e. every franc or euro in premium income must generate taining a banking presence in Belgium in the light of the additional value. Over the past two years we have deliber- changed market conditions was no longer sufficiently attrac- ately restructured those portfolios from which we could not tive to us. We had a choice: either to expand within the bank- recover sufficient value – meaning we consciously put the ing segment or to reduce capital investment in this area. We brake on premium development, in Swiss group life busi- decided on the second option and to focus Mercator on the ness for example. In 2004 we remained very selective and core business of insurance and pension provision. yet recorded strong growth in specific areas such as Swiss Our banking strategy remains in force: it is to maintain a non-life business, in Austria and in Luxembourg. selective presence in sufficiently attractive markets in 4 s001_s027_e 8.4.2005 14:02 Uhr Seite 5 conjunction with a firm attachment to the core business of sion to increase the minimum interest rate for occupational insurance and pensions. This is the case in Switzerland – benefits to 2.5%. the business model involving the Baloise Bank SoBa is con- tinuing to put in a positive performance. The insurance What kind of dividend can be expected? sales force sold 10% more banking products in 2004 than ROLF SCHÄUBLE: We have regularly increased dividend pay- in the previous year. The regulatory environment is becoming increasingly tough for insurers. What view do you take? ments since 2002. We intend to maintain our established policy of continuous distributions for investors with a long- term horizon. The excellent result allows us to propose a dividend of CHF 1.10 per share to the Annual General ROLF SCHÄUBLE: I personally regret that the regulatory net- Meeting. work for insurers is becoming more and more dense, espe- cially since certain stipulations hardly lead to greater trans- What goals do you have for 2005? parency. It cannot be allowed to reach the stage where FRANK SCHNEWLIN: We want to see another significant rise investors are no longer able to evaluate the companies. in profit this year, assuming there will be no extraordinary That would lead to an outflow of capital from the industry. events. This will be based on ongoing improvements in In this context the discussions surrounding the valuation operating earnings potential. We are looking for above- of life insurance contracts under IFRS is a particularly average growth in those target customer segments that we delicate issue. have identified as profitable. We are facing up to these challenges, but we expect We are assuming that premium growth in the non-life politicians to set the parameters according to economic cri- and life segments will be in line with the market. We want teria. Where occupational pension provision in Switzerland to at least maintain our combined ratio, but in view of the is concerned we are still waiting for a workable formula for very favorable claims experience in 2004 this will require calculating the minimum interest rate. Moreover, it is time further improvement to our long-term operational earning to face up to the fact that people are generally growing old- power. We anticipate higher profitability in life insurance. er and living longer and that pensions therefore need to last for longer, too. That is the reason why the conversion rate also needs to be lowered. How do you sum up the performance of Baloise shares? What is the strategic focus for the coming years? ROLF SCHÄUBLE: Through our strategic alignment we aim to become one of the most profitable insurers in the long term and to achieve a return on equity of at least 10% by the end ROLF SCHÄUBLE: Baloise stocks rose by 1.6% in 2004. We of 2006. The increasing ability of our employees to recog- are not satisfied with this, although this performance is nize risk-conscious, loyal target customers with develop- clearly above that of our benchmark, the SWX MS Insurance ment potential and to strengthen their partnerships with Price Index, which fell 2.5%. In general, 2004 was not a the Baloise will be the key to above-average, profitable good year for insurance stocks. The low interest rates growth. We will expand our business primarily through impacted on the entire industry and for Swiss group life organic growth and acquisitions in non-life business, espe- providers this was compounded by the government’s deci- cially in Germany and Austria. Bâloise-Holding Annual Report 2004 5 s001_s027_e 8.4.2005 14:02 Uhr Seite 6 s001_s027_e 8.4.2005 14:02 Uhr Seite 7 Frank Schnewlin’s corporate management credo Finding and retaining the right customers The Baloise wants to get to the top. We want to be the trusted partner of choice for our target customers. Our customers are risk-conscious, loyal and have a proven development potential. We offer them first-class products and services and strive to build up a lasting, mutually beneficial partnership. For the benefit of our shareholders and employees, we aim to achieve and sustain an outstanding level of profitability. In doing so, we will secure our future. Building on our corporate values, the following four skills are decisive: 1 Everything we do, we do with the focus on adding value. When we select target customers, markets, business lines and distribution channels. When we design our products and provide services to our customers. 2 4 We consistently act in a highly professional manner. We are the best when it comes to pinpointing, getting to know and retaining target customers. We understand their needs, convince them through the quality of our advice and services, and consoli- date the relationship on an ongoing basis. We maintain competitive cost structures. 3 We are good at implementing. Our actions are characterized by a strong measure of personal responsibility and the motto “actions speak louder than words.” Together we are strong. We are passionate about performance and relationship quality. They represent the heart of the Baloise. No successful implementation without clarity on the basic principles. As noted by Frank Schnewlin in December 2004. Bâloise-Holding Annual Report 2004 7 s001_s027_e 8.4.2005 14:02 Uhr Seite 8 s001_s027_e 8.4.2005 14:02 Uhr Seite 9 Finding and retaining the right customers Everyday life at the Baloise – a glimpse behind the scenes The Baloise wants to be the trusted partner of choice for our target customers. Three examples from everyday life at the Baloise demonstrate how management and staff are putting this strategic goal into practice. A discussion on the skills needed to do so rounds off this look behind the scenes. Management meeting in the Vienna Woods (Austria) page 10 Two Board members and seven sales and marketing executives from Basler Austria take an in-depth look at the procedures for managing target customers, specifically the corporate focus on risk-conscious and high-revenue clients, with the aim of expanding relationships with these customers. What has been reached to date, what still needs to be done. Claims management conference in Biel/Bienne (Switzerland) page 16 Repairing vehicles after an accident is everyday work for the 61 organizations that make up the Baloise partner network. In the first all-Switzerland symposium of its kind, Baloise experts join with accident ana- lysts from the Dynamic Test Center to inform participants about further aspects of efficient claims management. Strategy meeting in Antwerp (Belgium) page 20 The Mercator Group, which operates in the Belgian state of Flanders, is currently undergo- ing a transformation – GoFor is the magic word. Management members hammer out the exact details of how to implement the Group’s growth strategy. The prime focus is on the partnership with brokers. Roundtable discussion on skills development page 24 Bruno Dallo, Baloise Group, Wolfgang Fauter, Deutscher Ring, and Heike Bruch, University of St. Gallen, summarize their views on the topic of enhancing implementation skills as part of change processes. An exchange of experiences from both an in-house and external point of view. Transparency boosts the implementation process. Bâloise-Holding Annual Report 2004 9 s001_s027_e 8.4.2005 14:02 Uhr Seite 10 s001_s027_e 8.4.2005 14:02 Uhr Seite 11 Management meeting in the Vienna Woods (Austria) Focusing on the perfect customer A three-day Basler Austria leadership meeting in a conference hotel in the Vienna Woods. Two Board members and seven sales-and-marketing executives are on retreat here to plan for 2005. The first day is devoted to customer relationship management, in particular the focus on high-revenue customers, with the goal of strengthening relationships with these customers and continually enhancing service quality. E X EC U T I V E D I R EC T O R Lothar Mayrhofer greets the Potential must be utilized more systematically, some participants at precisely 9 a.m. He expresses his satisfac- maintain. But the example also illustrates the challenge tion with the business figures for fiscal year 2004 and that such customer-specific consultation presents for many moves straight on to the topic of focusing on target custom- external salespeople and managers. The executives agree ers. If the customer is doing well, the company does well that the priority is to intensify the use of customer-manage- and vice versa, he explains, adding that it is not enough ment tools among sales managers, and then expand the just to know the customer – one must also understand his use step by step. In the past, small group workshops have needs. “Customers have to be won over by the quality of already provided the best learning experience. Planned our advice and services. Only if we provide first-class ser- marketing activities oriented toward specific customer vices will the customer remain loyal and recommend us to groups, primarily in relation to the new accident product for others,” says Mayrhofer. He calls on the executives to share women and the new children’s savings program, support their experiences in focusing on profitable customers. this approach. These activities build on outstanding selling Praise is given for involving the sales department in technique aids and are aimed at customers with whom developing special offers for target customers, especially there is a high probability of reaching a contract closing. the new accident insurance rate and the new pension prod- uct. More than half of all contracts with target customers Greater involvement of customer advisers are concluded in connection with these special offers, the 10:30 a.m., time for a brief coffee break. Then the meeting, man responsible for controlling adds. Despite this positive now headed by Director Otmar Bodner, continues with an initiative, the 1.8% decline in premium income from target action plan for the new accident insurance rate to be customers is unsatisfactory, Mayrhofer adds. It is therefore launched at the start of 2005. Competitor and revenue analy- necessary to concentrate even more strongly on this seg- sis for the product are complete, rates and premiums have ment and use experience to enhance customer manage- been defined, the marketing manager confirms. Prepara- ment on an ongoing basis. Knowing customers’ needs “But how do target customers know that they are receiving preferential service at the Baloise?” the executives object, pointing out that advisers need to be made more aware of this issue. “What does the quality of customer care actually consist of?” asks Mayrhofer. “Regular customer visits,” says one attendee. “Know your customer, his needs, and his potential,” adds the next. Using this approach, all poli- cies held by a number of claim-free customers with only one Baloise contract were examined, including those of other insurers, and the customers were then sold compre- hensive packages. tions for IT implementation and sales support are likewise under way. This time, at the executives’ request, the special “ Customers have to be won over by the quality of our advice and services. ” Bâloise-Holding Annual Report 2004 11 s001_s027_e 8.4.2005 14:02 Uhr Seite 12 s001_s027_e 8.4.2005 14:02 Uhr Seite 13 s001_s027_e 8.4.2005 14:02 Uhr Seite 14 “ Our product adjustments are based on profound market and customer analyses. ” course, be based on a thorough analysis of the market situ- ation and customer needs, and also be in line with profitabil- ity targets, emphasizes Mayrhofer. After lunch, the executives move on to the very core of customer management: the definition of target customers and selection criteria for high-revenue customers. In 2004, special marketing initiatives focused on customers who, in the two years before, had demonstrated an excellent contri- bution margin of over 60% and had initially concluded life and/or non-life contracts. For 2005, the executives have agreed to make customer selection even more systematic, offers will be coordinated even more closely with the cus- set the frame of reference at eight years of claims experi- tomer advisers. Incorporating their experiences has already ence, and implement restrictions for certain age groups. proven to be a success factor for the new motor vehicle rate. Input from the discussion will be taken into account in the Coordination is especially important this time, emphasize final definition of target customers. participants, who fear difficulties managing the almost simultaneous introduction of the children’s savings product. Unit-linked life insurance Selection criteria for target customers The discussion begins with a description of the typical target customer according to the Head of Controlling: The executives agree that, after introduction of the chil- He/She is at least 25 years old, has generated an average dren’s savings product, unit-linked life insurance is to be margin of 60% over up to eight years, and pays an annual the top priority. It offers the greatest potential, particularly net premium of at least EUR 100, which can be expanded in relation to customers seeking to finance the purchase, through cross-selling. The managers basically agree with construction, or renovation of residential property. The sec- this definition but disagree with the age limit. The duration ond priority, in their view, is a restructuring of conventional of the customer relationship is a more pertinent criterion, life insurance. The changes in these products must, of in their opinion. 14 s001_s027_e 8.4.2005 14:02 Uhr Seite 15 Both customers and the Baloise benefit from a positive loss experience. This is the foundation of a genuine partnership. Starting from the defined base of 20,000 target cus- tomers for 2005, the Head of Controlling demonstrates that BASLER AUSTRIA AS A PIONEER he can produce any number of individual analyses with specific, additional criteria. For example, all customers who have not been sent more than two payment reminders dur- ing a given period can be filtered out, or all women who hold a life insurance policy but no accident policy. The sales staff have the same analysis capabilities for their dai- ly customer service work. For salespeople, such analyses generate important additional data, which allow them to provide specific, needs-based customer care. The data not only enable sys- tematic processing of their customer files, but also demon- strate the potential for cross-selling. The executives agree, however, that managing customers is not limited to spe- cial, product-related marketing offers. On the contrary, a full assessment of the customer’s needs must be carried out and appropriate measures defined to ensure that cus- tomers bring their entire portfolio to Basler Austria. The idea behind this strategy is that a customer with a good claims history over many years will also show good claims performance in his or her other risks. Thus each additional premium will provide a relatively high margin while also increasing customer loyalty. Accompanying measures include “customer accounts” and, with a continuing good claims history, customer bonuses. Such interrelationship is indicative of a genuine partnership. Thorough knowledge of one’s customers and heightened sensitivity to their needs is one of the three premises of the Baloise Group’s Operational Excellence initiative. With this initiative, the Group has made a commitment to differentiate by cus- tomer segment and to focus on relationships with high-revenue customers. This is a shift away from the primary focus on products that is widespread in the insurance industry. Basler Austria, with 300 employees and a premium volume of CHF 114 mil- lion, is a pioneer in customer management within the Baloise Group. In 2004 it created the funda- mental tools for this approach and began to imple- ment them across the board. The approach is based on a set of sales management tools adjust- ed for use down to the level of individual advisers, tools for managing the profitability of customers, products, and distribution, as well as measuring the effectiveness of special initiatives. Bâloise-Holding Annual Report 2004 15 s001_s027_e 8.4.2005 14:02 Uhr Seite 16 s001_s027_e 8.4.2005 14:02 Uhr Seite 17 Claims management conference in Biel / Bienne (Switzerland) On the trail of accidents Repairing vehicles after an accident is everyday work for the 61 organizations in Baloise Insurance’s Swiss partner network. At the first all-Switzerland claims management conference near Biel/Bienne, Baloise specialists and accident analysts from the Dynamic Test Center showed participants what else is necessary for efficient claims management. D E N S E F O G , just before 9 a.m. The silver-grey halls of By now over an hour has passed, and it is time for the the Dynamic Test Center in Vauffelin are barely discernible. attendees to stretch their legs. Glancing at the agenda, we Drivers know they have come to the right place when they see that the next topic is “N&S Issues.” N&S? Baloise’s see the Baloise Insurance “Helpmobile.” Gradually some claims lawyer provides the key: it stands for “neck and 60 garage operators and body shop owners arrive from spine.” Most participants know this phenomenon as whip- every part of Switzerland. They represent Baloise’s partner lash, which affects the seven neck vertebrae. network and are here to take part in the first claims man- N&S issues are of equal concern to physicians, lawyers agement conference. and engineers – and with good reason, as a case example Just before 9:30 a.m., conference leader Eva Staubli reveals. What looks like a mere fender-bender at the scene invites the attendees into the training center, where the of an accident can unexpectedly develop into a whiplash seats are usually occupied by students of the Automotive case with costs running into the millions. The claims lawyer Technology Department of the Bern Technical University. shows that much of the damage, both the physical injury There the attendees split into two groups. In one room the and the financial loss, could have been avoided if the insur- proceedings will be in German, in the other they will be in ance company had become aware of these issues earlier. French. The conference leader opens the official program by But how can the partner organizations help? “By reacting emphasizing that comprehensive motor insurance claims correctly at the right moment,” the claims lawyer answers service is both a core service and a key success factor. simply. This, the participants are told, requires a network of The right moment is when the damaged vehicle is capable partner workshops. Eight of the attendees were brought in to one of the partner shops. Attendees agree present four years ago when Baloise began gathering expe- that, as specialists, they can recognize the signs of a rear rience in a pilot program. Since then, 53 organizations op- impact at a glance. “If you notify the auto expert on the erating at 98 locations have joined. The claims service case, you will have accomplished a great deal with just one team representative is pleased that the network has been phone call,” the claims lawyer says. The Baloise can then functioning nationwide since June 2004 and that delegates provide early input on measures to be taken. from all participating shops can meet here. Looking back, she adds later, the list of criteria by which shops were se- lected has proved its worth. Partnerships for the benefit of all Next, Baloise’s claims specialist uses glass damage as an example of how teamwork and cost cutting can be com- bined. Whenever possible, the Baloise’s partner garages repair a damaged windscreen rather than replacing it at high cost. Thus the garage owners get more work and cus- tomers benefit from top-class services. “ Garage owners get more work and customers benefit from top-class services. ” Bâloise-Holding Annual Report 2004 17 s001_s027_e 8.4.2005 14:02 Uhr Seite 18 Reliable accident analysis requires a careful documentation of traces and other evidence. CLAIMS MANAGEMENT AS A WIN-WIN SCENARIO Motor vehicle insurance remains the leading pillar of the Baloise’s non-life business. Premium revenues grew again in fiscal 2004, providing the largest share of total premiums at about 33%, ahead of property and acci- dent insurance. At the same time, claims payments have become a key expense item in recent years. For growth to continue in the motor vehicle line and provide reliable income, premium revenues and claims must remain in equilibrium. Strict cost discipline is therefore just as essential as improving operating efficiency. This requires tighter control of the entire claims process, with benefits to everyone involved. Accordingly, claims management is a key focus of the Operational Excellence launched by the Baloise in 2003. At its core is a network of partner orga- nizations across all of Switzerland. These shops meet the highest standards for technical equipment and pro- vide both policyholders and the Baloise with quick and initiative professional processing of claims. Some 8% of total vehicle damage claims of some CHF 108 million were processed through the partnership network in 2004. The aim is to achieve a rate of 15 to 20% by 2008. This uncomplicated form of assistance relieves the bur- den on policyholders and reduces claims costs. The involvement of automotive experts where appropriate, lower auto liability rates for car rentals and a decline in fraud have generated savings of CHF 1.2 million this fis- cal year. These savings make lower premiums possible, which in turn benefits the policyholders. Efficient claims management generates added value in three ways: policyholders benefit from comprehensive ser- vice, the partner organizations from greater sales vol- umes, and Baloise Switzerland from optimized claims costs. The Baloise will now implement the claims man- agement concept step by step in other insurance lines. 18 The claims process has been fully professionalized – from which all parties benefit. s001_s027_e 8.4.2005 14:02 Uhr Seite 19 Accident analysis In the event of a whiplash case, technical reports by experts may be required, the claims processor says, ending his talk and providing a link the next speaker, the head of the Dynamic Test Center (DTC). Processing accident analy- ses is a core competence of the DTC. It requires careful doc- umentation of evidence, the DTC manager emphasizes, especially since it may not be processed until six months after the accident. The speaker encourages the attendees to keep pho- tographs of the vehicle damage on file. He presents com- puter simulations showing how such damage photos are used in calculations by accident analysts, adding that it is sometimes necessary to recreate an accident in the real world. Participants, he announces, will have the opportuni- ty to experience such a crash test live that very day. At lunch some lively conversation ensues among the various partner organization delegates and the Baloise rep- resentatives. They discuss billing formalities and their experience with certification. The partner organization rep- resentatives unanimously express their appreciation of the close-knit relationship with the Baloise and of its ini- tiatives. Afterwards the participants gather in the testing hall. Two mid-range cars are in starting positions in the crash- test facility. The DTC manager explains that the rear vehicle will collide at low speed with the stationary one. He asks the audience to stay behind the guardrails and gives the signal to start. Split seconds later, the remote-controlled vehicle smashes into the stationary car with full force. There is a deafening crash, a clatter of metal, sounds of splintering. Immediate accident reporting Back in the classroom, the DTC manager plays back the videotape of the collision test. Only now do the attendees realize how seriously the dummy at the wheel of the station- ary vehicle was affected by the impact. It is surprising how little the body damage to the vehicle, although consider- able, reveals about the effect on the neck vertebrae. The decisive factor is the change in the velocity of the front vehicle as a result of the rear impact, the accident analyst explains. This acceleration is easily seen in the film. The demonstration has clearly shown the importance of reporting rear-impact collisions to the insurance company immediately. As a souvenir and reminder, each attendee receives an add-on headrest which provides protection against whiplash in the event of a rear-impact collision. Now nothing stands between the attendees and a safe drive home. Bâloise-Holding Annual Report 2004 19 s001_s027_e 8.4.2005 14:02 Uhr Seite 20 s001_s027_e 8.4.2005 14:02 Uhr Seite 21 Customer Management Strategy meeting in Antwerp (Belgium) Mercator — success through GoFor The Mercator Group, which operates in the Belgian state of Flanders, is presently undergoing a meta- morphosis. Its banking arm was sold, as it was no longer sufficiently attractive for the Baloise under the changed market circumstances. The Mercator Group is now focusing on the broker channel, and its GoFor growth strategy is putting it back on the road to success. A strategy meeting recently highlighted the challenges facing Mercator and the demanding tasks ahead, which call for total com- mitment from everyone involved. LU C V E R H A E RT , deputy CEO and head of Distribution, early age. In light of such an attitude, it is clear that there is Sales, and Marketing, has made a clear target statement: a great deal of property to insure here. The Belgian insur- the Baloise’s Belgian subsidiary aims to improve its return ance market also has some distinctive traits. Especially in on capital employed. Mercator’s second-in-command the non-life sector, customers generally do not purchase leaves no doubt about how this goal is to be attained: hard- policies directly from the insurer, but rather from one of er work and better performance are the order of the day. 4,400 independent insurance brokers in Flanders. These The organization’s GoFor growth strategy seeks answers to brokers, with over 60% of the non-life market, remain one fundamental questions: How can we not merely assert our- of the most important distribution channels in the country. selves in the market, but also clearly distinguish ourselves It is their standing that Mercator’s management is seeking from the competition? Mercator needs to channel the pas- to leverage. sion and expertise of its staff towards supporting the bro- kers in their day-to-day work, thus contributing to their suc- A genuine partnership with insurance brokers cess. In this arena, Mercator aims to be among the very The top priority for the future will be attracting brokers in- best. This is no simple undertaking for an organization in terested in a genuine, trust-based partnership, emphasizes the midst of transformation. When returns from the banking Sales Director Johan Van Eeckhout, who is responsible for business proved unreliable and the necessary critical mass the sales-related implementation of the GoFor project. Mer- for success was not attained, the Group spun off its bank- cator will offer these brokers the best possible service, so ing activities and is now focused wholly on insurance. In the brokers in turn can advise and serve their customers order to ensure a successful and profitable future, incisive with the greatest possible efficiency. Besides the quality changes are essential to meet the needs and peculiarities requirements for brokers, clearly defined by the Mercator of the Belgian market. Products of doubtful yield potential Group, their growth potential is also of great interest. will be cut from the product range or replaced. Mr. Van Eeckhout puts it very simply: the better the brokers’ The Belgian market performance, the better their chances of making it into the “top group.” The latter currently includes some 540 brokers For the future, Mercator will rely on the property/casualty for whom Mercator is the uncontested number one. Such and life insurance market segments, in which it already per- top brokers, in return, benefit from top-rate Mercator ser- forms strongly. Life insurance especially, in light of political vices. Mercator is also among the top three for another discussions on early retirement and the call for longer 750 independent insurance brokers. Considerable growth working careers in the Benelux countries, looks like a very potential has been identified for this group as well as for a promising growth market. The structure of the market third set of 2,500 brokers also defined as a target group. shows that a commitment to Belgium could be quite lucra- Members of this last category do not yet count Mercator tive. Flanders is one of the more affluent regions in Western among their top insurers, but efforts are being made to Europe, a fact that is reflected in the real-estate market. It build a fruitful relationship. The target customer-manage- is often said that Belgians are born with a brick in their ment guidelines are clear: Mercator’s target market con- body, meaning that the people in this country, bordering on sists of private individuals along with small and medium the Netherlands, Germany, Luxembourg, and France, begin enterprises (SMEs) with an attractive risk potential. These considering the funding of a home of their own at a very two groups already make up the bulk of Mercator’s clien- Bâloise-Holding Annual Report 2004 21 s001_s027_e 8.4.2005 14:03 Uhr Seite 22 Mercator aims to optimize services for local, professional brokers and enhance customer satisfaction. TOP-RANKING PARTNER THANKS TO GOFOR of the company’s property/casualty premium volume. tele: private individuals account for 55% and SMEs for 32% Mercator’s aim is to be the number one partner for brokers in every way. The company is concentrat- ing on optimizing its performance for local profes- sional brokers and on keeping customers satis- fied. This ambitious goal is being pursued through its GoFor growth strategy. The acronym represents the successive phases of the strategy: Go = Ensuring employee commitment and motiva- tion. Enthusiasm and initiative are the determining factors for meeting goals. F = Focus. Courage to make the decisions necessary to achieve the intended results. O = Operational excellence. A high level of profes- sionalism reflected in everything Mercator does. R = Return. The right results ensure long-term returns. It is now evident that an even stronger focus on this seg- ment is needed. The Flemish economy, with growth rates substantially better than those in most other euro-zone countries, is driven primarily by SMEs. Good quality and satisfied brokers In terms of product and service quality, Mercator compares quite favorably to its competitors. This commitment to quality is a central element in GoFor. Mercator wants to be one of the best in the market at helping the brokers to better serve their customers. Broker satisfaction with Mercator already rates among the highest in the country, leaving all other major insurers in Belgium behind. Nevertheless, there is room for improvement in this area as well. To more fully exploit this potential, Marketing Director Dirk Wauters and his team have developed the “We want to do it better” phi- losophy. Mercator has been in business since 1920 and its name is well-known to the Flemish public. This is certainly a 22 s001_s027_e 8.4.2005 14:03 Uhr Seite 23 “ Mercator’s strategy emphasizes highest quality levels. ” major advantage and is recognized as such by the manage- ment. Mercator’s strategy emphasizes highest quality lev- els, which also implies that brokers be given the feeling that Mercator understands their specific needs and is ready to offer them full support. Only in this way can the relation- ships develop into long-term partnerships. There is no doubt that Mercator is going through a chal- lenging transformation. It will take the dedication of the entire workforce for the company to reach its goals. To pro- mote team spirit, Mercator is putting more effort into ana- lyzing the strengths and weaknesses of its own employees as well as those of its brokers. Part of this effort is to ensure that expectations and accountability are clearly defined. Good internal and external communication are therefore of utmost importance. The core of the transformation is not simply the question of what must be changed but also the daily challenge of how to successfully implement the new strategy. The prerequisites are an extraordinary team effort and the determination to give brokers optimum support in their contact with clients. Bâloise-Holding Annual Report 2004 23 s001_s027_e 8.4.2005 14:03 Uhr Seite 24 Roundtable discussion on skills development “Operational excellence and leadership” Strength in execution is the foundation of our strategy. It comprises both professional craftsmanship and the management skills necessary to systematically and effectively drive the change process forward. These were the issues discussed by Group Executive Committee member Bruno Dallo, Deutscher Ring Group CEO Wolfgang Fauter and St. Gallen University Professor and Director of the Institute for Leadership and Human Resource Management Heike Bruch. Mr. Dallo, what are the skills that the Baloise needs most of all to implement its strategy? them the capacity for new things and bringing the two into balance. Completely rebuilding existing structures, dis- Strategy and skills are like twins — you can keep them apart, mantling hierarchies, putting new people in leadership but you don’t get a full picture until you see them both. Our positions and cutting staff levels are all tasks that require strength in execution is based on two skills. The first is op- change management skills. erational excellence, i.e. professional craftsmanship in our BRUCH: The demands these processes place on managers core business of insurance and pensions. The second is the are often underestimated. The boss is the one under pres- ability of our management team to motivate employees, to sure as bearer of everything that affects the employees’ set an example and to drive the change process. everyday actions. This means that managers must set a per- Mr. Fauter, what were the most important challenges for man- agers in the realignment of the German Ring Group? sonal example of commitment, tenacity and determination. They have the responsibility for other people’s strength of execution. Their job is to create the new everyday, that is, No enterprise can develop faster than the ability and will- to be the masters of change. This includes not only devel- ingness of its employees, so the biggest challenge was to oping enthusiasm for change but also soothing fears. get our employees on the right path. This meant not only People who are worried about their own personal future are imbuing them with motivation for change, but also giving not going to be filled with enthusiasm. 24 s001_s027_e 8.4.2005 14:03 Uhr Seite 25 New models of skills development are born at roundtable discussions. Mr. Fauter, you have made substantial investments in developing your employees. What was your main focus? The “old economy” situation in the insurance industry saw a GROUPWIDE STANDARDS FOR INDIVIDUAL PERFORMANCE MANAGEMENT AND SKILLS DEVELOPMENT significant acceleration due to the crisis in the capital mar- All Baloise Group companies are to meet the following standards by kets. Customer and service orientation have become much more important, and this is exactly where we have put our focus: on being closer to salespeople and customers and on the beginning of 2007 at the latest: › Objectives are agreed and their attainment assessed annually for all employees. All managers have a variable salary component, the developing service — although it can be difficult to make amount of which depends on the degree to which objectives are someone who has lived in the traditional world for twenty or attained. The result of the Group company in question features thirty years enthusiastic about new things like scoring and among the managers’ performance objectives. Leadership and gener- customer value models and to quickly build up the needed al aspects of conduct are taken into account besides the objectives skills. We have set up department-specific training pro- grams to cover the skill gaps in the various units. And we have given our management recruitment pro- achievement. › Personal development requirements are discussed annually and the results laid down in writing in the form of a development plan. Corre- gram substantial new inputs. Tomorrow’s managers must sponding training options are offered and supported financially. prove themselves through project-based tasks. A strict Bâloise-Holding Annual Report 2004 25 s001_s027_e 8.4.2005 14:03 Uhr Seite 26 Bruno Dallo builds on managers who can kindle passion in their teams. REVISION OF THE OBJECTIVE SETTING AND PERFORMANCE ASSESSMENT SYSTEM The current objective setting and performance assessment sys- tem, in force now for five years, will be overhauled in the course of 2005. The new system is to ensure that › the individual’s performance is given a comprehensive assess- ment and is focused on the appropriate strategic and operational targets, › the individual’s skills’ development is put on track in a strategy- aligned and systematic way in conformity with the relevant job requirements, › corporate performance is also duly considered in the determina- tion of the performance-related remuneration. In Switzerland, the new system is scheduled for launching in 2006. The Baloise expects this to lead to a significant improve- ment in our Group’s implementation prowess. 26 multi-level selection process involving interviews and assessments is followed by a two-year program in several business units, with no guarantee of ultimately obtaining a management position. DALLO: It is just this job rotation process that is often underestimated. A manager should be someone who has worked in technology and sales and who has experience in financial management. In its Advanced Management Program (AMP) and Strategic Leadership Program (SLP), the Baloise has developed pro- grams that link elements such as strategy, managerial judg- ment and corporate values. What is the importance of these programs? DALLO: Both programs are carefully adapted to our strategic needs. We have been conducting the SLP since 2004 along with the University of St. Gallen. It is a significant element in the further development and enhancement of our strategy and an important component of the change process. Partici- pants include top executives, who take part in the program on a staggered four-year cycle, and group employees with high potential. This enables professional and personal exchanges across hierarchical and business unit lines. The s001_s027_e 8.4.2005 14:03 Uhr Seite 27 AMP offers our upcoming managers a chance for group net- working and learning our strategy in greater depth. Topics proposed by management give these leaders the opportu- nity to work on strategically significant projects, which are presented to the Executive Committee. Mrs. Bruch, what did you experience as an SLP participant? The participation by senior management is what made the experience a positive one. Preparatory work to enable them to participate was one element of the Baloise’s change agenda. In contrast to pure academic education, the point is to supply input that will drive the enterprise and those who act on its behalf forward. The SLP generated an extra- ordinary dynamic and was characterized also by an aston- ishing cordiality. Now I recommend implementing the many good ideas that came out of it with courage and determina- tion. The overarching cooperation should be strengthened; it allows many people to benefit from each other. Mr. Dallo, is the group assuming a greater coaching role here? Open dialogue between CEOs and the Corporate Executive Board is creating a culture of cooperation which will carry us further in the direction that Mrs. Bruch mentioned. Two examples: We have developed a business simulation which we use to train our managers and employees in the applica- tion of such tools as customer value models, scoring and cancellation reduction. The simulation shows the financial consequences of an action, for example in improving the claims cost ratio or the combined ratio. We also have the Opex Award, an award and remuneration for the best mea- sures to improve our core operating business in 2007. Heike Bruch, professor at the University of St. Gallen, discussing leadership issues with Wolfgang Fauter, CEO Deutscher Ring Group. KEY FIGURES Mr. Fauter, what do you expect from the group? The number of staff at the Baloise Group as at December 31, 2004, The group should make best-practice opportunities trans- came to 8,090 (2003: 8,745). parent and continue to promote them. We can learn from each other in the group and benefit as a whole. A program like Staff per country AMP, in which high potentials from all companies work Switzerland together, is beneficial not only in an economic sense. It also allows individuals to peek over the fence and see things that Germany Benelux others may be doing better. I also see value in the exchange of Other countries expertise in risk controlling or risk management, for example. Total 1 of which 255 Group 2003 3,774 3,249 1,417 305 8,745 2004 3,7811 3,025 989 295 8,090 Change 7 –224 –428 –10 –655 As Corporate Executive Committee member for HR, Mr. Dallo, you have certain aims and expectations. What are the most important ones? In 2004, employees spent 12,646 days overall on basic and advanced training courses. The Baloise runs three training centers of its own and For us to succeed in continually driving this cultural trans- invested around CHF 14.3 million in staff training and development. formation process in the group forward. For us to link the Finally, 320 positions offered to apprentices, trainees and interns strategic development of the enterprise with development throughout the Group reflect the significance that the Baloise at- planning for our employees and managers and to strengthen taches to the education and training of young people. both. I expect each individual to use this strategic process to seize opportunities to achieve what is best for himself or herself as well as the company. And for us to realize the opportunity it brings to make our group really thrive. Bâloise-Holding Annual Report 2004 27 s028_s055_e 8.4.2005 14:12 Uhr Seite 28 s028_s055_e 8.4.2005 14:12 Uhr Seite 29 Business Year 2004 Contents Review of business year 2004 Group Switzerland Germany Benelux Other countries Capital investments Risk management Corporate governance Introduction Group structure and breakdown of shareholders Capital structure Board of Directors Corporate Executive Committee Compensation, shareholdings, loans Shareholders’ participation rights Change of control and countermeasures Statutory auditors Information policy Organization Baloise shares Sustainability Management information Management information (incl. embedded value) Five-year review Financial Report 2004 30 33 34 35 35 37 38 40 40 41 42 45 46 47 48 48 49 50 52 55 57 63 67 Bâloise-Holding Annual Report 2004 29 s028_s055_e 8.4.2005 14:12 Uhr Seite 30 Business Year 2004 Review of business year 2004 Operating performance leads to profit surge The Baloise Group more than doubled its net profit against the previous year and achieved its opera- tional goals for 2004. We see this success as a clear confirmation that the numerous measures taken to strengthen operating profitability are working. New business for example is only taken on when it meets our profitability requirements. We have streamlined and refocused our existing business portfolio in accordance with these guidelines. We will build on this foundation in the coming years to focus operations even more sharply on adding value, growing in the attractive target customer segment, and thereby steadily increasing our operating profit. General market developments situation. Very low interest rates raised doubts about the profitability of the insurance business, in particular life in- Positive data from the United States shaped the economic surance. environment in the first half, but the sharp rise in the price For banks, the low interest rate environment strength- of oil and the fall of the US dollar raised doubts about the ened demand for both fixed-interest loans and variable-in- sustainability of a global upswing in the second half of the terest investments. year. Meanwhile, fears grew that China could be approach- ing a hard crash after a time of overheated growth and would thus fail as the second growth engine of the world Baloise Group economy. The terrorist attacks in Madrid, the high price of oil and The Baloise Group achieved a net profit of CHF 222 million the sharp drop in the value of the US dollar had a negative in fiscal 2004, compared to CHF 91 million the previous impact on the financial markets in 2004. High oil prices put year. All business lines contributed to this profit, and every a damper on economic growth. At the same time the low single business unit raised its operating profitability. Here US dollar caused expectations of inflation to lessen, bring- we can emphasize the excellent results of the non-life sec- ing a further easing of interest rates, especially at the long tor, whose net profit lay nearly four times higher than in end. Declining interest rates in turn buoyed share prices, 2003. The gross combined ratio again improved strongly leading to a 10.1% rise in the MSCI EMU index over the from 97.6% to 93.0%. The life insurance sector likewise whole year. The greatest part of this positive movement, saw improved results, although the introduction of the “le- however, came in the fourth quarter, when relief was great gal quote” in Swiss group insurance brought a negative im- that the US economy was again strengthening. pact of around CHF 26 million. New business recorded an The low interest rates also affected the bond markets. At increase in margins. the end of 2004, the yield on 10-year federal bonds was In all Group companies we are implementing extensive only 2.3%. Against all forecasts, bonds once again more or measures to strengthen the profitability of the insurance less held their own compared to the year-on-year perfor- and pension businesses. The focus has been and continues mance of equities. to be on pricing products in line with the corresponding Major currencies were tranquil during the first half of the risks, correctly estimating customer risks, concentrating year. The US dollar was less volatile than in the previous sales efforts on high-revenue customers and enhancing the year. The situation in the second half, however, presented efficiency of business processes. a stark contrast. The US dollar sank to its lowest point in The entire business volume – including the vigorously many years against both the euro and the Swiss franc. Over growing unit-linked life insurance sector – reached an the whole year, the US dollar lost 8.1% against the Swiss amount of CHF 7.5 billion (2003: CHF 7.6 billion), a decline franc. The euro ended the year down 0.9% against the franc by 2.2% in CHF. from the start of the year. Premium incomes, in accordance with IFRS accounting Whereas strong equity market performance triggered an standards, amounted to CHF 7.0 billion as compared to upward trend in insurance shares during the previous year, CHF 7.4 billion in 2003, a decline of 4.8% in CHF. We have performance this year was slowed by the interest rate deliberately throttled premium growth, as we place higher 30 s028_s055_e 8.4.2005 14:12 Uhr Seite 31 Business Year 2004 priority on profitability rather than pure business volume growth. Non-life registered a slight minus of 0.2%, while life insurance contracted by 8.0% in CHF, a clear reflection of the extremely low interest rate levels and our selective un- derwriting policies. Life insurance accounted for 56% of the total premium volume (2003: 58%), 44% came from the non-life sector (2003: 42%). The country units’ share of premium volume remained almost unchanged: Switzerland contributed 57% (2003: 58%), the German companies Basler Securitas and Stock markets performance January 1– December 31, 2004 7,000 6,500 6,000 5,500 5,000 4,500 4,000 200 175 150 125 100 75 50 Deutscher Ring together 30% (2003: 30%), the Benelux SMI 1.1.2004 12.31.2004 MSCI countries 11% (2003: 10%) and Austria 2%. Mercator Bank of Belgium ceased to be Baloise Group SMI company in fiscal 2004. We sold the bank in August 2004 to the Dutch ING Group, as maintaining a banking presence in Belgium had become less desirable under the changed mar- MSCI EMU MSCI ROW ket conditions. Non-life The non-life sector generated a net profit of CHF 184.1 mil- lion (2003: CHF 48.5 million). The combined ratio contin- ued to improve: the gross figure declined 4.6 percentage points to 93.0% (2003: 97.6%), while the net figure fell 5.7 percentage points from 103.2% to 97.5%. Since 2002 we have improved the most important indicator in this line of business by over 13 percentage points net. The combined ratio ended better in all business units; our German sub- sidiaries Basler Securitas and Deutscher Ring saw espe- cially significant improvements. We achieved these clear improvements by consistently directing our business activities toward profitability, opti- Development USD – CHF and EUR – CHF January 1– December 31, 2004 1.6 1.55 1.50 1.45 1.40 1.35 1.30 1.25 1.20 1.15 1.10 mizing costs and processes, selectively restructuring our 1.1.2004 12.31.2004 portfolios, adjusting premium rates and concluding new business on the basis of clear yield targets. A very favorable Euro: –1.5 Swiss cents claims record, especially in the settlement of major claims US dollar: –10.4 Swiss cents and the absence of natural disasters, had an especially strong positive impact. Non-life premium incomes came to CHF 3.1 billion, thus Interest rate development January 1– December 31, 2004 remaining in line with the previous year’s level. Life The life insurance sector generated a net profit of CHF 54.6 million (2003: CHF 34.1 million), a strong performance in view of the uncertain financial markets and continuing low interest rates. Because we also accept only profitable new business in this line, we successfully boosted profits, more 6 5 4 3 2 1 0 than making up for the negative effect of approximately 1.1.2004 12.31.2004 CHF 26 million from the introduction of the “legal quote” in the Swiss group life insurance market. In Switzerland in par- Yield on 10-year government bonds Germany in EUR ticular, the margin in new business is gratifying. Yield on 10-year federal bonds Switzerland in CHF The business volume – including unit-linked life insur- ance – came to CHF 4.4 billion (2003: CHF 4.6 billion), a de- cline of 3.6%. Premium volume in accordance with IFRS ac- Bâloise-Holding Annual Report 2004 31 s028_s055_e 8.4.2005 14:12 Uhr Seite 32 Business Year 2004 Premium income (gross) by regional segment 2003 cially marked at Deutscher Ring and Baloise Luxembourg. in percent Premium income (gross) by regional segment 2004 in percent Switzerland Germany Benelux Other countries (incl. elimination) Total in CHF m 2003 4,269 2,200 745 2004 3,996 2,121 748 161 157 7,375 7,022 Change in % –6.4 –3.6 0.5 –2.7 –4.8 IFRS accounting standards do not permit these “premiums with investment character” to be included in the premium volume. The embedded value of the life business rose from CHF 1,980 million to CHF 2,137 million in the year under review. The lower future investment income anticipated was par- tially offset by lower surplus allocation to policyholders. The value of new business came to CHF 15.2 million. The margin for new business climbed to 5.8% (2003: 5.0%). Banking The bank sector recorded a net profit of CHF 9.7 million (2003: CHF 14.3 million). This strong performance was attributable primarily to Baloise Bank SoBa. Thanks to cost discipline and improvements in the quality of the credit portfolio, the bank boosted net profit by 25%. The insur- ance company’s “mobile banking” business (sales of bank products through the insurance distribution channel) also registered robust growth. In August 2004 we sold Mercator Bank to the ING Group. The Deutscher Ring building and loan society performed according to plan. Investments, capital and reserves, taxes Earnings from investments during the fiscal year grew to CHF 1,996.4 million (2003: CHF 1,988 million). Realized net gains/losses rose to CHF 188 million (2003: CHF –41 mil- lion) as a result of the improved state of the markets and the fact that the year, unlike 2003, passed largely without re- alization of losses. The Baloise Group’s capital and reserves amounted to CHF 3.5 billion at year-end (2003: CHF 3.3 billion). The in- crease was due primarily to significantly improved earn- ings. The Group’s solvency margin (including banking as- sets) stood at 258% at the end of 2004 (2003: 241%), which we consider very solid. counting standards contracted by roughly 8.0% in CHF and Tax outlays for 2004 came to CHF 99.0 million (2003: 8.4% in local currencies to CHF 4.0 billion (2003: CHF 4.3 CHF 125.4 million), of which current income taxes account- billion). This development reflects our business policy, ed for CHF 86.3 million (2003: CHF 114.6 million). The de- which focuses strictly on profitability. We regard this em- crease is explained by special effects in 2003, when phasis as particularly important in the life line, since life in- taxes rose sharply at German life insurance companies due surance is a long-term contract. In Switzerland and in Ger- to changes in the tax code. Deferred taxes are CHF 12.7 mil- many, which account for over 90% of the Group’s life lion (2003: CHF 10.8 million). business, single premiums in the individual life sector experienced an especially sharp decline. In Switzerland, meanwhile — where most of our life business is written — Outlook For 2005 we anticipate continuing uncertainty in the we saw a strong increase in sales in the second half of 2004 economies of our core European markets. We remain cau- in comparison to the previous year. In the Swiss group life tiously optimistic with respect to the financial markets. We business premium income declined somewhat less sharply, shall continue to concentrate on increasing sustainable oper- in line with the slowdown in the market as a whole. ating profitability in all markets with the goal of obtaining re- Unit-linked life insurance did extremely well: thanks to turn on equity of at least 10% by 2006. To do so we are aim- continuing improvements in sales performance, business ing for above-average growth in the customer segments where volume grew 70% to CHF 443 million. Growth was espe- we anticipate the greatest earnings potential in the long term. 32 Business Year 2004 In the non-life sector we expect a combined ratio of at ance declined due to the restructuring forced by technical most 93% gross by the end of 2005, which we rate as a demands. challenging goal in view of the highly favorable claims Owing to consistent cost management and underwriting record of 2004. in line with risk along with judicious premium adjustments, In developing our business we adhere strictly to the prin- Baloise Switzerland recorded a gross combined ratio of ciple of “income before growth”. In non-life and life we 93.1%, again substantially better than the previous year’s anticipate organic premium development in line with the value of 95.9% gross. market. In the life insurance sector we expect increased Major elemental damage claims were largely absent, profit. though obligations increased with respect to motor vehicle Overall, we aim for a further significant profit increase in liability and comprehensive as well as fire insurance. In the the year 2005, provided there are no extraordinary events. accident and health insurance lines the number of new Switzerland Baloise Switzerland, the Baloise’s largest oper- ating unit, put in a significantly stronger per- formance. It achieved a net profit of CHF 127.2 million (2003: CHF 62.1 million), thanks to management’s single-minded focus on those customers providing the highest income and the goal of continuously strengthening operating yields. The Baloise Bank SoBa also saw positive results, achieving a net profit of CHF 14.5 mil- lion, an increase of 25% over the previous year. claims and claim payments decreased substantially as compared to 2003. We were able to successfully restructure our loss-making contracts in these sectors. Life A premium volume of CHF 2.715 billion was achieved in the life insurance sector (2003: CHF 3.032 billion). This de- crease of 10.4% is explained by an underwriting policy fo- cusing strictly on profitability as well as weak demand due to the historically low interest rate levels. Single premiums saw an especially strong decline of 30.7%, but we managed to stem the losses in the second half through a promotional campaign in which we did not charge our customers for the stamp duty. The group life business also declined, but less sharply. With a slightly higher number of contracts, premiums decreased by 6.8%; new business contracted for single premiums, but revenues from recur- Baloise Switzerland, which accounts for 57% of the Baloise ring premiums rose due to rate adjustments. Group’s premiums, considerably improved its operating Despite declining premiums, numerous measures have performance. Despite the new burden of the “legal quote,” succeeded in increasing the earnings performance of the it achieved a net profit of CHF 127.2 million (2003: CHF 62.1 life insurance sector as compared to 2003. Both estab- million). All lines contributed to this strong growth perfor- lished and new business are profitable, and the margin of mance, in which tight cost management, underwriting poli- new business increased in comparison to the previous year. cies focused on profitability, portfolio restructuring and premium adjustments were the deciding factors. The “focused financial service provider” business model (insur- Baloise Bank SoBa Baloise Bank SoBa achieved a net profit of CHF 14.5 million ance with pension banking) continues to bear fruit. (2003: CHF 11.6 million), corresponding to an increase of Baloise Switzerland’s premium income reached CHF 25%. Mobile Banking, the sale of bank products by the in- 3.996 billion (2003: CHF 4.269 billion), a decline of 6.4%, surance company’s field sales force, was again successful; attributable to generally weak demand for life insurance the volume of business acquired was 9.5% greater than the along with our business policy of only concluding profitable previous year, representing a gain of some 6,600 new cus- business. Non-life Premium income in the non-life sector amounted to tomers for the bank. These achievements clearly illustrate the success of the “focused financial service provider” business model. Net interest income was influenced by fierce competition CHF 1.281 billion (2003: CHF 1.238 billion). This represents and a lack of growth in the mortgage business, dropping by an increase of 3.5%. The growth is a result of business de- 8.1% against the previous year to CHF 82.6 million. The velopment and adjustments in premiums for general liabil- bank successfully took measures to increase its commis- ity, property, motor vehicle and transport insurance. Our sion and service income to CHF 20.5 million; various ac- marketing partnership with the Touring Club of Switzerland tions were also taken to reduce costs. The on-line service gave a substantial boost to the motor vehicle insurance contributed, with Internet banking contracts growing by business. Premium income for accident and health insur- about a third. Bâloise-Holding Annual Report 2004 33 s028_s055_e 8.4.2005 14:12 Uhr Seite 34 Business Year 2004 Germany The German market saw a short-term surge in demand for life insurance due to loss of the tax exemption at year’s end, in spite of a general- ly weak economic situation and high unem- ployment. Property insurers benefited from the low major claims level. The fourth quarter saw a price war in motor vehicle insurance. The Baloise’s German business achieved a net profit of CHF 58.5 million (2003: CHF –17.1 million). Highlights at the two units included enhance- ments in operating efficiency, a focus on target customers and the integration work at Basler Securitas. The life insurance sector recorded a premium volume of CHF 242 million (2003: CHF 240 million), an increase of 0.6% in CHF and a decrease of 0.8% in EUR. A moderate de- cline in single premiums stands in contrast to the increased contribution of recurring premiums. The new company Basler Securitas is now firmly estab- lished. Its structures, organization, brand, products, processes, systems and sales structure are mostly in place. In both non-life and life insurance, a new or revised range of products has been developed, some of which have been accorded very good results by independent testing organi- zations. Deutscher Ring The company achieved a business volume – including unit-linked life insurance – of CHF 1,106 billion (2003: CHF 1,120 billion). The premium income in accordance with IFRS accounting standards came to CHF 1.027 billion (2003: The Baloise’s two German units, Deutscher Ring and Basler CHF 1.059 billion), a decrease of 3.0% in CHF or 4.5% in EUR. Securitas, together brought in a premium volume of Life insurance premiums amounted to CHF 897 million CHF 2.121 billion (2003: CHF 2.200 billion), a decline of (2003: CHF 899 million) – including unit-linked products, 3.6% in CHF and 5.0% in EUR. Both units achieved signifi- which registered a growth of 30%. By IFRS accounting cant gains in operating income by lowering costs, thorou- standards, the premium volume came to CHF 818 million ghly restructuring their business portfolios and enhancing (2003: CHF 838 million), a decline by 2.3% in CHF and 3.8% sales efficiency. The two units earned a net profit of CHF in EUR. The decline was caused primarily by a decrease in 58.5 million (2003: CHF –17.1 million). single premiums throughout the market. The company took Basler Securitas Basler Securitas recorded a premium intake of CHF 1.094 advantage of the opportunity provided by the loss of tax- exempt status from 2005 to drive up the number of con- tracts written by 52%, a performance well above the market billion (2003: CHF 1.141 billion) during the 2004 fiscal average of 40%. For the most part, the new business will be year. The decrease of 4.1% in CHF and 5.5% in EUR was the reflected in the premium volume for 2005. result of restructuring the motor vehicle and industrial The property insurance business achieved a combined portfolios. The premium level in life insurance remained ratio of 95.8% gross (2003: 106.8%, of which 103.1% from stable as compared to the previous year. Despite the de- direct property business). We are enjoying a markedly im- cline in premiums, profits rose substantially as compared proved earnings situation in this line due to reduced claim to 2003 thanks to lower costs and a selective restructuring outlays and, once again, significant cost reductions. The of outstanding policies. The excellent combined ratio of previous year’s high figure was the result of a one-time ef- 92.9% gross (2003: 99.9%) proves the success of these fect from stocking up accident annuity reserves. measures. Deutscher Ring focuses exclusively on private customers The property insurance line accounted for a premium in- for old-age and disability pensions, building-related savings come of CHF 853 million (2003: CHF 901 million). The de- and investments. In the year under review it concentrated crease of 6.8% in EUR reflects the reduction caused by ex- on making both its existing insurance portfolio and new tensive restructuring, especially in motor vehicle and business more profitable. At the same time it managed to industrial insurance. These adjustments, along with mea- substantially reduce costs and progress according to plan in sures to increase the efficiency of operations and lower the reorganization of the building society. Friendlier capital costs, have strengthened the operating performance of the markets buttressed the positive trend in its profitability. line substantially. Major claims and elemental damage The building society’s new business performance was claims were largely absent. again significantly above the market level. Earnings improved, and developments continue to meet our expectations. 34 s028_s055_e 8.4.2005 14:12 Uhr Seite 35 Business Year 2004 Benelux The Benelux division, which consists of Mercator in Flanders and Bâloise Luxembourg, saw a net loss of CHF 116.1 million in fiscal year 2004 (2003: CHF –121.9 million). The main causes were the loss of approximately CHF 70.2 million from the sale of Mercator Bank in the second half of 2004 and extraordinary adjustments to the value of Mercator Insurance investments. Opera- tionally, Mercator has achieved a turnaround and successfully restructured its insurance port- folio. Bâloise Assurance, Luxembourg, saw a significant growth in profit over the previous year. increased its profit over the previous year thanks to low claims outlays and the good investment results. In the non-life sector the company achieved premium revenues of CHF 40 million (2003: CHF 39 million), an in- crease of 3.3% in CHF and 1.7% in EUR. The gross com- bined ratio was 99.2%, an improvement over the previous year’s figure of 100.5%. The life insurance sector has performed solidly despite the difficult environment. The premium volume rose to CHF 36 million (2003: CHF 31 million), an increase of 13.6% in CHF and 12.0% in EUR. This growth came mainly in the individual life insurance business owing to a substantial sales effort. The strong position in the group life insurance business was successfully maintained. In cooperation with capable partner banks, Bâloise gained 166% by compari- son with 2003 and achieved a volume of CHF 250 million in unit-linked life insurance, not regarded as premiums under Belgium 2004 marks a milestone in the history of Mercator. The new IFRS rules. management has led the company in a new operational di- rection, with a focus on the core insurance and pension business, whereby Mercator concentrates entirely on bro- Other countries kerage sales and seeks to further develop its above-average consulting quality in the field. The insurance portfolios Austria and Croatia Basler in Austria and its Croatian units brought in a pre- have been restructured, Mercator Bank was sold and the ad- mium income of CHF 114 million (2003: CHF 105 million), ministration of private equity and real estate holdings has which corresponds to a significant increase of 9.0% in CHF been entrusted to professional partners. and 7.4% in EUR. Since 2001 the Austrian company has Mercator recorded a total premium income of CHF 673 invested judiciously in profitable growth: in that period cus- million (2003: CHF 674 million), a decline of 0.3% in CHF tomer and contract figures have grown by approximately a and 1.7% in EUR, nearly equalling the previous year’s level third, the sales organization has been expanded and ad- despite the portfolio restructuring. ministrative overhead substantially reduced. In the non-life sector Mercator achieved a premium in- In the non-life sector — three-quarters of the premium come of CHF 557 million (2003: CHF 545 million), repre- volume — the companies achieved premium growth of senting an increase of 2.4% in CHF and 0.8% in EUR. The 12.6% in CHF and 11.0% in EUR, well above the market av- combined ratio reached 95.3% gross, again improving on erage. The main drivers of this growth were motor vehicle the previous year’s results. Premium growth and the good and accident insurance. A strong increase in sales produc- claims-cost ratio testify that the company has achieved a tivity, differentiated underwriting polices and lower total comfortable operating position in this line, which makes up costs despite expansion of the sales organization resulted 83% of its total business volume. in a substantially improved 105.2% gross combined ratio The life insurance sector saw premium revenues of (2003: 108.0%). CHF 115 million (2003: CHF 130 million). The decline of The life insurance sector saw an increase in premiums by 11.2% in CHF and 12.5% in EUR is a consequence of the 0.3% in CHF and a decrease of 1.2% in EUR due to weak de- sale of Mercator Bank and the concomitant loss of busi- mand in single premium insurance. The increase in recur- ness. Single premiums declined in line with the market, ring premiums was offset by a decline in single premiums. while recurring premiums increased. Mercator Bank was sold in August 2004 to the ING Group as part of the strategy of focusing Mercator on its core insur- ance and pensions businesses. Reinsurance, finance and participation companies This sector includes reinsurance companies, financing operations and participations, and group-level operations. Luxembourg Bâloise Luxembourg’s premium volume reached CHF 76 The positive result of CHF 142.6 million (2003: CHF 190.2 million) is primarily a result of the highly favorable opera- million (2003: CHF 70 million), an encouraging increase of tional performance of the reinsurance companies. Currency 7.9% in CHF or 6.3% in EUR. The company significantly losses were offset by realized investment gains. Bâloise-Holding Annual Report 2004 35 s028_s055_e 8.4.2005 14:12 Uhr Seite 36 Business Year 2004 36 s028_s055_e 8.4.2005 14:12 Uhr Seite 37 Business Year 2004 Investments: continued upswing on the stock markets Own capital investments by category 2003 in percent 2004 was an unexpectedly good year for bonds, even although the central banks began to grad- ually increase key interest rates over the period. The Swiss Bond index (SBI) generated a performance of 4.2% and the Euro BIG index (for EUR bonds) advanced by as much as 7.4%. This corresponds to an increase of more than 6.4% in Swiss franc terms. While yields picked up on the money markets, 1 6 2 3 19 52 10 61 driven by the interest turnaround initiated by the central Own capital investments by category 2004 banks, rates at the long end of the interest curve continued in percent to fall, due to the slowing down of the economy and the moderate inflation levels experienced in the second half of the year. In the wake of these developments, real interest rates (nominal interest rates adjusted for the effect of infla- 19 5 3 3 tion) sank to an all-time low, at the same time as many global bond indices climbed to record highs. Last year’s positive trend on the equity markets carried over into the first few months of 2004. Investors lost confi- 11 dence after the terrorist attacks in Madrid in March and the rapid surge in crude oil and commodity prices. In the months that followed, right up to the US presidential elec- 8 tions at the start of November, a volatile sideways move- Fixed-interest securities ment unfolded on the stock market. The market’s positive Shares response to the reelection of the Bush administration and Derivatives the stabilization of commodity prices triggered an uptrend, Investment property so that the equity markets were able to grow after all in a Mortgage loans year-on-year comparison. The SMI, the Swiss blue chip in- Policy and other loans dex, rose 3.7% in 2004 and the Swiss Performance index, Alternative financial investments which also includes stocks from the small- and mid-cap segments, advanced 6.9%. European equities achieved a performance of 9.4% in local currency terms, gauged by the EuroSTOXX 50 index (8.4% in CHF), and the Standard and Poor’s index of US stocks gained 9.0% (1.0% in CHF). Other short-term capital investment, cash and cash equivalents Participating interests in associates 51 2003 52% 6% 1% 10% 19% 3% 2% 6% 1% On the currency side, performance was dominated by Own capital investments by category the collapse of the dollar against all the major currencies. 2003 2004 This trend is primarily attributable to the US balance of pay- Fixed-interest securities 29,525.4 27,170.3 ments and budget deficits and to the reversal in growth mo- Shares mentum in the US economy. The Swiss franc gained ground Derivatives during the year, thanks to better-than-expected economic Investment property figures and the Swiss National Bank’s raising of the interest Mortgage loans 3,475.9 4,067.2 292.9 262.5 5,653.4 5,619.2 11,002.4 9,798.3 2004 51% 8% 0% 11% 19% 3% 3% 5% 0% Change in % –8.0 17.0 –10.4 –0.6 –10.9 rate by 50 base points. The CHF rose almost 8% against the Policy and other loans 1,456.6 1,400.3 –3.9 dollar and gained approximately 1% on the EUR. The risk situation at the Baloise Group improved as a re- Participating interests in associates 223.8 148.2 sult of the upswing on the financial markets over the last Alternative financial investments 1,337.9 1,636.1 –33.8 22.3 two years and the expansion of its active risk management, which once more allowed a cautious increase in the Group’s equity exposure (shares including participations), within the scope of the investment strategy, to 8.0% as at the end Other short-term capital investments, cash and cash equivalents Total in CHF m 3,339.4 2,697.2 56,307.7 52,799.3 –19.2 –6.2 Bâloise-Holding Annual Report 2004 37 s028_s055_e 8.4.2005 14:12 Uhr Seite 38 Business Year 2004 of 2004. Investments thus profited not only from the per- formance on the bond markets, but also from the positive stock market trends in Europe, the US and the emerging markets. Apart from equities, significant amounts were in- vested in real estate and alternative financial investments. These investments both promise solid returns and help to diversify the portfolio risk. In addition, they reduce the rel- atively high interest exposure in the asset allocation. In real estate, investment property performance came to 3.3%, while alternative investments saw an increase of 2.3%. To reduce the foreign currency exposures, the USD was almost fully hedged and the EUR by over 50%. In addition, fixed-interest investments totalling more than EUR 460 mil- lion were sold, making it possible to offset the majority of currency losses on our foreign currency investments with Growing demands on risk management Internal and external pressure and demands on risk management systems have grown sharply in recent years. In 2004, the regulatory envi- ronment played a major part in this trend. At the Baloise Group, the focus was on the pilot projects for the Swiss Solvency Test and the introduction of a Groupwide standardized risk management system in line with the supervision of conglomerates by the Federal Office of Private Insurance. corresponding gains on the hedging derivatives. Due to the The risks facing insurance companies have increased con- use of hedge accounting (cash flow hedge), however, under siderably in recent years, due in part to the higher volatility IFRS the income from USD currency hedges is primarily re- of investment income relative to overall corporate results, flected in capital and reserves and only to a slight extent in and in part to rising insurance risks. In particular, longer the income statement. life spans, greater stress in people’s lives and the associ- In the mortgage segment, we managed to hold our own ated risks of disability, a high level of economic integration, in a competitive market through BALOISEHYPO PLUS, a prod- increasing population density and changes in the environ- uct launched in Switzerland. In view of the interest turn- ment have contributed to rising costs. These trends con- around initiated by the central banks, many customers pre- tinued unabated in 2004. Examples include the catastrophic ferred to opt for low long-term interest rates, thus effects of the tsunami in Southeast Asia and the excep- increasing the proportion of fixed-rate mortgages in our tionally severe hurricane season in the United States. portfolio. The average yield in the mortgage, policy and other loans segment contracted to 3.2% in 2004 as a result of falling interest rates. A changing regulatory environment Europe’s regulatory authorities and legislatures have taken note of these developments and have begun to review and Successful BFI funds The BFI funds achieved an extremely gratifying result in develop the regulatory framework for the industry in recent years. The Baloise Group is affected by developments in 2004, with all products performing well. In a peer group both the European Union and Switzerland. In all these coun- comparison, 9 of the 12 funds were positioned in the first tries, the focus is on new models for adequate, risk-based and second quartiles, i.e. they performed above the aver- capitalization of insurance companies for the protection of age of comparable products. The impressive performance policyholders, and on bringing finance companies under of the 6 strategy funds should be emphasized. Following on the purview of the supervisory structures. In Switzerland, from their excellent ranking of the previous year, all stood the relevant projects of the Federal Office of Private In- their ground in the first half of 2004. Particular mention surance are the Swiss Solvency Test (SST) and “conglomer- should also be given to the BFI Capital Protect (EUR) guar- ate supervision.” In the EU, the corresponding projects are anteed fund, launched at the start of 2003, which once called Solvency 2 and EU “group supervision.” again experienced a satisfactory increase in value, re- porting a guaranteed performance of 7.7% at the end of December. The positive response of our customers to this The Baloise is active Swiss insurance companies focused on the Swiss Solvency product encourages Baloise Fund Invest to issue further Test in 2004. Unlike the EU’s Solvency 2, the SST has guaranteed funds. 38 reached the stage where a pilot project involving initial cal- culations and analyses has already been carried out with selected Swiss insurance companies. The Baloise Insur- ance Company in particular took an active part, not only contributing to the development of the SST, but also prepar- ing itself in the best way possible for future requirements. In 2004, the Group’s risk management operation con- centrated on implementing the conglomerate supervision s028_s055_e 8.4.2005 14:12 Uhr Seite 39 Business Year 2004 rules set forth by the Federal Office of Private Insurance (BPV) in December 2003. These rules expanded the BPV’s Further improvement in the risk situation The Group’s risk situation continued to improve in 2004, as supervisory authority to cover the entire Baloise Group. In seen in the evolution of its solvency. The solvency ratio rose exercising this authority, it works in close coordination with from 214% at the end of 2003 to 242% at the end of 2004. the EU’s supervisory body in Luxembourg, which is respon- Even more important was the progress made in operations sible for Groupwide supervision. Since 2004, the Baloise at all business units. For example, the combined ratio in the has kept the BPV regularly informed of developments in its non-life business has further improved, the life insurance risk and capital indicators based on its consolidated IFRS line has become more profitable, the integration of non-life balance sheet. In addition, we have implemented the su- insurance in Germany has moved forward decisively and pervisory office’s instructions concerning standardization Mercator in Belgium has undergone a strategic realignment. and organization of the Baloise’s risk management. We These measures will have an ongoing effect in years to have developed Groupwide risk management standards come. Through them and through continuing improvements (RMS) to address the following main points: in our risk management systems, the Baloise will gain fur- (cid:2) Organization and accountabilities ther scope to enhance shareholder value. (cid:2) Methods, rules and limits (cid:2) Risk controlling We have introduced these standards in all insurance and Solvency Group banking units of the Group and have included all activities Insurance requirements directly related to risk management in a common set of rules. The Baloise’s risks are summarized in the table be- Capital and reserves Group low. Individuals responsible for efficient and comprehen- Solvency margin (incl. banking assets) sive risk management have been designated in all business units and in the parent corporation along the lines of the Capital and reserves insurance “risk map” below. We have been especially careful to seg- Solvency margin insurance regate management and controlling functions. 2003 2,076 5,008 241% 4,453 214% 2004 2,096 5,418 258% 5,075 242% 8% of risk weighted assets banks 437 266 in CHF m Baloise Group risk map Business risks Investment risks Financial structure Business environment Risks due to claims _Fluctuations _Catastrophes Credit risks _Counterparties _Countries Asset-liability mismatch risks _Asset/liability structure _Financing/refinancing _Changing standards _Market and competitors _External events _Investors Operating risks _Security _Human resources _Legal risks _Compliance _Settlement/ transactions Market risks _Interest rates _Equities _Currencies _Liquidity _Real estate _Derivatives Premiums/rate setting Credit management Reserves Reinsurance _Premiums/rate setting _Availability _Reinsurance assumed Regulatory requirements _Capital and reserves requirements _Actuarial cover fund/ security fund Management and information risks _Organizational structure _Corporate structure _Business portfolio _Mergers & acquisitions _External communi- cations _Planning & budgeting _Project portfolio _Management information Bâloise-Holding Annual Report 2004 39 s028_s055_e 8.4.2005 14:12 Uhr Seite 40 Business Year 2004 Corporate governance Corporate governance at the Baloise As a value-oriented company, the Baloise is committed to good corporate governance. In keeping with the description of corporate governance in the Swiss Code of Best Practice, we are convinced that – while preserving management’s decision-taking competencies and efficiency – transparency and checks and balances are desirable goals that serve the interests of our shareholders. The first section of this chapter focuses on the steps imple- be found on page 52. A list of important Group companies mented in 2004. The second section then essentially fol- and participations as at December 31, 2004, can be found lows the structure of the SWX guideline with the aim of in the Notes from page 119. Apart from Bâloise-Holding, no increasing transparency and hence comparability with Group companies have a stock exchange listing. other companies. Important changes The Baloise also introduced a number of innovations in 2004 with important consequences for its corporate gover- Segment reporting by regions and business segments can be found from page 86 of the Annual Report. The Group’s operational management structure is presented on page 51. nance. A practical concept was implemented in 2004 for the purposes of training staff in relation to the Code of Conduct, Breakdown of shareholders Changes in share ownership The spread of share ownership and trading liquidity remain introduced in 2003. This involved members of staff, to- unchanged from the previous year. No single shareholder gether with their line managers, developing an awareness owns more than 5% of the registered shares. and understanding of the issues involved, using examples As a widely held joint-stock company, the Baloise is in- of specific dilemma situations, and learning how to apply cluded in the Swiss Market Index (SMI) and continues to the Code. feature in the SWX’s index calculations with a free float of (cid:2) www.baloise.com –› Profile –› Sustainability –› Corporate Culture 100%. At the elections to the Board of Directors held in the year under review, the body was reduced in size from 12 to 10 Shareholder structure As at December 31, 2004, the most significant registered members. This development took place in the context of shareholder (Chase Nominees Ltd.) held 4.0% of the com- optimizing the work processes and decision-making pany’s outstanding shares, of which 2.0% were voting processes of the Board of Directors. At the same time, ad- shares. No shareholder held a stake in the company that ditional members were coopted onto the Board of Directors’ was legally required to be disclosed as at the end of the committees. year. As at December 31, 2004, 16,251 shareholders were The “change of control” agreement exclusively in favor of recorded in the Baloise’s share register. By comparison with the Members of the Board of Directors and the Corporate the previous year, the number of registered shareholders Executive Committee of Baloise-Holding expired in Novem- rose by 8%. ber 2004 and was not renewed. 1. Group structure and breakdown of shareholders Group structure The Baloise is organized as a joint-stock holding company under Swiss law. The company has its head office in Basel The “Baloise Shares” section from page 52 provides fur- ther information on the breakdown of our shareholders as at March 31, 2005. Own shares As at December 31, 2004, the Baloise held 411,992 of its own shares. These shares are used for, inter alia, incentive and employee profit-sharing programs. and is quoted on the SWX Swiss exchange. As at December 31, 2004, the Baloise Group had a market capitalization of Cross-shareholdings There are no cross-shareholdings either in terms of capital CHF 2,903.6 million. Information about Baloise shares can or voting rights. 40 s028_s055_e 8.4.2005 14:12 Uhr Seite 41 Business Year 2004 2. Capital structure Distribution policy The capital changes in recent years were marked by a share- holder-friendly distribution policy. In the last five years alone, over CHF 1.1 billion was paid out to shareholders in the form of cash dividends, share buybacks and nominal value repayments. Distributions to shareholders over the past five years Dividend payments Share buybacks Nominal value repayments 140.7 136.1 132.7 22.1 33.2 335.3 293.2 –/– –/– –/– –/– 49.8 –/– –/– –/– Total 476.0 479.1 132.7 22.1 33.2 Year 2000 2001 2002 2003 2004 Total In CHF m as at March 31 Authorized and conditional capital, other financial instruments Authorized capital Bâloise-Holding does not have any authorized capital. Conditional capital Bâloise-Holding has a conditional capital of a maximum of 10%. This capital can be used to increase the share capital by a maximum of 5,530,715 registered shares with a nomi- nal value of CHF –.10 each, corresponding to a maximum nominal increase in share capital of CHF 553,072. The conditional capital was newly created at the 2004 Annual General Meeting (Articles of Incorporation, Art.3). It serves to safeguard any warrants or conversion rights granted in connection with bonds or other similar instru- ments. No such financial instruments have been issued to date. Shareholders subscription rights shall be waived. The 464.8 628.5 49.8 1,143.1 holders of the warrants or conversion rights, as the case may be, are entitled to subscribe the new registered shares. In connection with the issue of warrants and convertible The Baloise’s distribution policy and details of all distribu- bonds on the international capital markets, shareholders’ tions and capital operations in favor of shareholders since preferential subscription rights may be restricted or waived 1997 are published on the Internet. by a resolution of the Board of Directors. Further details of (cid:2) www.baloise.com –› Investor Relations –› Shares the conditional capital can be found in Article 3 of the Arti- Bâloise-Holding capital and reserves Bâloise-Holding’s share capital stands at CHF 5.5 million, a figure that has not changed in the last three financial years. The table below illustrates the changes in Bâloise-Holding’s capital and reserves over that period. Changes in Bâloise-Holding capital and reserves (before appropriation of profit) Financial year 2002/2003 Financial year 2003/2004 Financial year 2004/2005 5.5 11.7 20.0 509.5 22.8 5.5 11.7 14.0 515.5 41.9 5.5 11.7 16.7 520.8 125.0 Share capital General reserve Reserve for own shares Free reserve Accumulated profit Bâloise-Holding capital and reserves In CHF m as at March 31 cles of Incorporation of Bâloise-Holding. (cid:2) www.baloise.com –› Profile –› Corporate Governance –› Rules and Regulations Other financial instruments There are likewise no participation certificates, dividend rights certificates or convertible bonds relating to partici- pation rights of the company or options issued by the latter. Consolidated capital and reserves of the Baloise On December 31, 2004, the consolidated capital and re- serves of the Baloise Group came to CHF 3,482.5 million, representing a 4.9% increase compared with the previous year. Details of the changes in 2004 and 2003 are shown in the statements of changes in consolidated capital and re- serves on pages 74/75 of the consolidated financial state- 569.5 588.6 679.7 ments in the present Report. For the 2002 financial year, full details can be found in the statement of changes to consol- idated capital and reserves on page 56 of the 2002 Annual Bâloise Holding’s share capital is divided into 55,307,150 Report. registered shares entitled to dividends with a nominal value of CHF 0.10 each. Further information on Baloise shares can be found in the section on “Shareholder’s participation rights.” (cid:2) Shareholders’ participation rights, page 47 Outstanding bonds Bâloise-Holding and other companies in the Group have is- sued bonds on public markets. At year-end 2004 a total of six public bond issues by Bâloise-Holding and other com- Bâloise-Holding Annual Report 2004 41 s028_s055_e 8.4.2005 14:12 Uhr Seite 42 Business Year 2004 panies in the Group were outstanding. Details of the out- standing bonds can be found in the Notes to the Financial Rolf Schäuble (born 1944, CH, Dr. oec. University of St. Gallen) has been a Member of the Board of Directors since Statements from page 104 and on the Internet. 1993 and Chairman since 1994. From 1996 to February 28, (cid:2) www.baloise.com –› Investor Relations –› Bonds 2002, he was also Managing Director and CEO. He gradu- 3. Board of Directors Members of the Board of Directors Name Nationality Age Board member since Expiry of term of office Rolf Schäuble, Chairman Georg F. Krayer, Vice-Chairman Christoph J.C. Albrecht Andreas Burckhardt Hansjörg Frei Gertrud Höhler Klaus Jenny Werner Kummer Arend Oetker Eveline Saupper CH CH CH CH CH D CH CH D CH 61 62 67 54 63 64 63 58 66 47 1993 1995 1985 1999 2004 1998 2003 2000 1996 1999 2005 2007 2006 2006 2007 2007 2006 2007 2005 2005 ated in economics and obtained a doctorate from the Uni- versity of St. Gallen. From 1975 to 1993, Rolf Schäuble held various positions at the Zurich Insurance Group, Zurich, cul- minating in a seat on the Corporate Executive Board. Georg F. Krayer (born 1943, CH, Dr. iur.) has been a Mem- ber of the Board of Directors since 1995 and Vice-Chairman since 2004. He has a PhD in law. He is Chairman of the Board of Directors of Bank Sarasin & Cie AG, Basel, a Mem- ber of the Board of Directors of Pirelli SpA, Milan, and was Chairman of the Swiss Bankers Association until 2003. He is an independent, nonexecutive director. Christoph J.C. Albrecht (born 1938, CH, Dr. iur.) has been a Member of the Board of Directors since 1985. He graduated from the University of Basel with a PhD in law. Today he works as an attorney at law and notary with Joerin Hopf, Basel. Christoph J.C. Albrecht is Chairman of the Board of Directors of Thüring AG, Basel, and sole Member of the Board of Directors of Interhaba AG, Basel. He is an inde- Only the Chairman of the Board of Directors has an execu- pendent, nonexecutive director. tive function. All other Members of the Board of Directors are independent, nonexecutive Members. None of them held executive responsibilities at any Group company in the Andreas Burckhardt (born 1951, CH, Dr. iur.) has been a Member of the Board of Directors since 1999. He studied law past three financial years and none of them has any other at the Universities of Basel and Geneva and obtained a PhD. substantive business relationships with the Group. From 1982 to 1987 he worked for the Fides Treuhandge- In the year under review, Gertrud Höhler, Georg F. Krayer sellschaft and was General Secretary of the Baloise Group. and Werner Kummer were confirmed in office for another He has been Director of the Chamber of Commerce of both three years. Hansjörg Frei, a proven insurance specialist, Basel-Landschaft and Basel-Stadt since 1994. Andreas was elected as a new Member of the Board, with a three- Burckhardt is an independent, nonexecutive director. year term of office. Pursuant to the provisions of the regula- tions, Walter G. Frehner stepped down from the Board, hav- ing latterly been Vice-Chairman of the Board, Chairman of Hansjörg Frei (born 1941, CH, Dr. iur.) has been a Member of the Board of Directors since 2004. He graduated from the the Audit Committee and Vice-Chairman of the Compensa- University of Zurich with a Ph.D. in law, and worked for the tion Committee. Dietrich J.J. Forcart, a long-serving Member insurance company Winterthur from 1982 to 2000, latterly of the Board, died suddenly and unexpectedly in 2004. as Corporate Executive Board Member responsible for Swiss Prof. Jean-Marc Rapp resigned from the Board of Directors, operations. From 2000 until his retirement in mid-2003 he taking the number of Members down from 12 to 10. Georg was on the Executive Board of Credit Suisse Financial F. Krayer took over as Vice-Chairman of the Board, while Services as Head International Country Management. From Hansjörg Frei acquired a seat on the Chairman’s Committee 2000 to 2003 he also served as Chairman of the Swiss In- and the Audit Committee. Werner Kummer took on the chair- surance Association (SVV). Hansjörg Frei is a Member of the manship of the Audit Committee, and Klaus Jenny was made Board of Directors of EMS-Chemie Holding AG. He is an in- Vice-Chairman of the Compensation Committee. Andreas dependent, nonexecutive director. Burckhardt was newly appointed to the Audit Committee and Eveline Saupper to the Compensation Committee. Gertrud Höhler (born 1941, D, Dr. phil.) has been a Member of the Board of Directors since 1998. She is an economic and political consultant, and was a professor of literature and German studies at the University of Paderborn from 1976 to 1993. She studied literature and history of art in 42 s028_s055_e 8.4.2005 14:12 Uhr Seite 43 Business Year 2004 Bonn, Berlin, Zurich and Mannheim. From 1987 to 1990 Mitchell (today KPMG Fides), Zurich, and from 1985 to 1992 Gertrud Höhler was a PR consultant for Deutsche Bank AG, for Baker & McKenzie, Zurich and Chicago. In 1992 she and from 1992 to 1995 a nonexecutive director of Grand joined the firm Homburger Attorneys, Zurich, where she is a Metropolitan PLC, London. She is a Member of the Board of partner. Eveline Saupper is Chairman of the Board of Direc- Directors of Ciba Specialty Chemicals Inc, Basel, and of tors of BZ Bank AG, Freienbach, and Member of the Board of Georg Fischer AG, Schaffhausen. Gertrud Höhler is an inde- Directors of Intershop Holding AG, Winterthur. She is an in- pendent, nonexecutive director. dependent, nonexecutive director. Klaus Jenny (born 1942, CH, Dr. oec. University of St. Gallen) has been a Member of the Board of Directors since Further information about the Members of the Board of Di- rectors can be found on the Internet. 2003. He graduated with a PhD in economics from the Uni- (cid:2) www.baloise.com –› Profile –› Organization –› Board of Directors versity of St. Gallen. From 1987 Klaus Jenny was a Member of the Executive Board of Credit Suisse (later the Credit Su- isse Group), Before leaving the Credit Suisse Group, he was Cross-involvements There are no cross-involvements. CEO of the Credit Suisse Private Banking Business Unit. Since 1999 he is independent financial advisor to com- panies and private individuals. He is also a Member of the Elections and terms of office As at year-end 2004 the Board of Directors consisted of 10 Board of Directors of Maus Frères SA and of various other Members, who are elected by the General Meeting for a nonlisted companies. Klaus Jenny is an independent, term of three years. Each year, one third of the Members nonexecutive director. Werner Kummer (born 1947, CH, Dipl. Ing. ETH, MBA In- sead) has been a Member of the Board of Directors since leave unless reelected (staggered renewal). Under an age restriction, Board mandates end at the latest at the AGM that follows the Member’s 70th birthday. The average age is currently around 60. Each Member of the Board of Directors 2000. From 1990 to 1994 he was CEO of Schindler Elevator is elected – and, at the shareholders’ request, granted dis- Limited and then until 1998 a Member of the Executive charge – individually. Committee of the Schindler Group, responsible for the Asia Pacific region. From 1998 to March 2004 he was CEO of Forbo Holding AG. Werner Kummer is an independent busi- ness consultant and Member of the Board of Directors of Internal organization Functions of the Board of Directors Subject to the decision-making powers of the shareholders WMH Walter Meier Holding AG and a Member of the Board at the General Meeting, the Board of Directors is the high- of the Zurich Chamber of Commerce. He is an independent, est decision-making body of the company. In principle, un- nonexecutive director. Arend Oetker (1939, D, Dr. rer. pol.) has been a Member of the Board of Directors since 1996. He studied business less the organizational regulations delegate powers to the Chairman of the Board of Directors, the committees or the Corporate Executive Committee, decisions are taken by the Board of Directors. management and political science at the Universities of Under Art. 716a of the Swiss Code of Obligations and Hamburg, Berlin and Cologne, obtaining a PhD in political Section 1 II of the organizational regulations, the main science from the University of Cologne. He is Executive Part- tasks of the Board of Directors are to oversee, supervize and ner of Dr. Arend Oetker GmbH & Co., Berlin. Arend Oetker is financially oversee the operations of the company and de- Chairman of the Supervisory Board of Schwartauer Werke termine how it is organized. GmbH & Co. KGaA, Bad Schwartau, Chairman of the Board (cid:2) www.baloise.com –› Profile –› Corporate Governance of Directors of Hero AG, Lenzburg, Member of the Supervi- sory Board of Degussa AG, Düsseldorf, Member of the Su- pervisory Board and Board of Partners of Merck KGaA, Darmstadt, and Deputy Chairman of the Supervisory Board –› Rules and Regulations Committees of the Board of Directors The Board of Directors has four committees to assist it in its of KWS Saat AG, Einbeck. He is an independent, non-exec- work. The committees report to the Board of Directors and utive director. Eveline Saupper (born 1958, CH, Dr. iur.) has been a Mem- ber of the Board of Directors since 1999. She studied law at the University of St. Gallen, where she obtained her PhD. She is an attorney at law and a certified Swiss federal tax expert. From 1983 to 1985 she worked for Peat Marwick submit the necessary proposals for their area of responsi- bility. The Compensation Committee in particular has its own decision-making powers. (cid:2) Board of Directors and Management Structure, page 50 Bâloise-Holding Annual Report 2004 43 s028_s055_e 8.4.2005 14:12 Uhr Seite 44 Business Year 2004 Committees of the Board of Directors Name Rolf Schäuble Georg F. Krayer Christoph J.C. Albrecht Andreas Burckhardt Hansjörg Frei Gertrud Höhler Klaus Jenny Werner Kummer Arend Oetker Eveline Saupper Chairman’s Committee Audit Compensation Committee Committee Investment Committee C VC M M VC M M C C VC M M C M VC M C: Chairman; VC: Vice-Chairman; M: Member Group financial statements for the 2004 financial year with the management and the external auditors. As a result, the Audit Committee recommended that these audited annual statements be incorporated into the Group’s Annual Report for the financial year ended on December 31, 2004, that is to be presented to the General Meeting. The Board of Direc- tors accepted this recommendation. Meetings of the Board of Directors and the committees In accordance with the organizational regulations, the full Board of Directors meets as often as business requires, but at least four times a year. (cid:2) www.baloise.com –› Profile –› Corporate Governance –› Rules and Regulations The committees appointed by the Board of Directors each consist of four Members, reelected annually by the Board of In 2004, the full Board of Directors met six times. Members’ Directors. Further points to bear in mind are that the Chair- attendance at the meetings has been excellent, standing at man and Vice-Chairman of the Board of Directors are ex of- 95.8% in 2003 and 97.0% in 2004. ficio Members of the Chairman’s Committee and that the (cid:2) www.baloise.com –› Profile –› Corporate Governance Chairman of the Board of Directors cannot be a Member of the Audit Committee. The committees’ basic tasks are –› Board and Management/Board Attendance defined by the organizational regulations and the written In 2004 – as in every year – a seminar was held for the Mem- regulations applicable to the committees. bers of the Board of Directors. The subject this year was (cid:2) www.baloise.com –› Profile –› Corporate Governance “Regulatory issues” with the focus on legal and regulatory –› Rules and Regulations requirements. The Chairman’s Committee is responsible for deliberating on particularly important business, especially in connec- ing primarily to corporate strategy. The Chairman’s Committee met six times last year, the tion with major decisions on strategy or personnel. The Investment Committee twice. The Audit Committee held Chairman’s Committee also functions as the Nomination four sessions and the Compensation Committee three. The Board of Directors then went on to devote one meet- Committee. The Members of the Chairman’s Committee also meet as the Investment Committee to approve the Group’s investment policy and investments in real estate for the Group’s own use at Head Office. The Compensation Committee determines the structure and amount of compensation for Board Members and the salaries of the Members of the Corporate Executive Com- mittee. In the incentive plan, it defines the overriding Group objectives and their attainment, and it approves the rules governing compensation for Corporate Executive Commit- tee Members and monitors their correct application. Meetings of the Board of Directors as a whole are regu- larly attended by Members of the Corporate Executive Com- mittee, whereas meetings of the Audit Committee are mainly attended by the President of the Corporate Executive Committee, the Chief Financial Officer, the Head of Internal Audit and representatives of the external auditors. Division of powers and duties between the Board of Directors and the Corporate Executive Committee The Audit Committee assists the Board of Directors in tasks that cannot be delegated relating to supervision and The division of powers and duties between the Board of Di- rectors and the Corporate Executive Committee is laid down financial monitoring (Art. 716a Swiss Code of Obligations) primarily in the organizational and investment regulations. by forming its own judgment on the organization and func- Both documents are continuously reviewed to ensure tioning of the internal and external monitoring systems and that they are appropriate and if need be are adjusted to on the annual and consolidated financial statements. The changes in circumstances. The organizational regulations Audit Committee assesses the functioning of the internal were revised in 2002 and the investment regulations in monitoring system for risk management and reviews the 2003. state of compliance. The Audit Committee discussed the (cid:2) www.baloise.com –› Profile –› Corporate Governance –› Rules and Regulations 44 s028_s055_e 8.4.2005 14:12 Uhr Seite 45 Business Year 2004 Auditing and monitoring the Corporate Executive Committee The ten internal Group auditors report directly to the Chair- rate Executive Committee since 2001, responsible for cor- porate development, human resources, legal, tax, compli- ance and run off. Bruno Dallo is Chairman of the Board of man of the Board. Their specialist knowledge covers the Trustees of the Baloise occupational benefits foundation. fields of underwriting, mathematics, finance and IT. Furthermore, he is a Member of the Basel-Stadt tax appeals Furthermore, the significance of a well-functioning risk committee and the tax and finance committee of the Basel management at an insurance group cannot be emphasized Chamber of Commerce as well as a Member of the Board of enough, which is why this Report devotes a separate chap- Trustees of the “Finanzplatz Basel” Foundation. ter to the risk management at the Baloise (pages 38/39). 4. Corporate Executive Committee German Egloff (born 1958, CH, lic. oec. HSG) studied eco- nomics at the University of St. Gallen, before joining Win- terthur Insurance, Switzerland, in 1985 where he held a variety of management positions. As Head of Management The management structure of the Baloise Group can be Support from 1990 to 1995 he was responsible, among found on page 51. other things, for developing a management information system. In 1997 he became a Member of the Executive Changes on the Corporate Executive Committee Wolfgang Drunk stepped down from the Corporate Execu- Board in charge of Swiss personal line insurance, which also involved managing Wincare and Sancare, the latter as tive Committee on August 31, 2004. German Egloff was ap- Chairman of the Board of Directors. Between 1998 and pointed Chief Financial Officer on December 1, 2004. Mar- 2002 German Egloff was Chief Financial Officer at Win- tin Wenk, Chief Investment Officer, served as Acting Head of terthur Insurance, Switzerland, and a Member of the Win- the Finance Division during the transitional period. care Board of Directors, becoming its Chairman in 2000. Frank Schnewlin (born 1951, CH, Dr. ès. sc. écon., Master of Science LSE, MBA Harvard) studied business management From 2002 to 2004 he was Chief Financial Officer at Zurich Financial Services, Switzerland, his remit including Finance, Human Resources, IT and Logistics and Procurement. at the University of St. Gallen and graduated with a degree German Egloff became a Member of the Corporate Executive in economics (lic. oec. HSG), majoring in insurance and risk Committee (Head of Corporate Finance) on December 1, management. After gaining an M.Sc. at the London School 2004, and is responsible for financial relations, financial of Economics, he took an MBA at Harvard Business School management and financial accounting. in Boston. While a Research Fellow of the Harvard Business School, Frank Schnewlin obtained his doctorate in econom- ics at the University of Lausanne. He worked at the Institut Martin Strobel (born 1966, G, Dr. rer. pol.) studied com- puter science, business management and business sys- für Versicherungswirtschaft in St. Gallen and at Citibank tems at the Universities of Kaiserslautern, Windsor N.A., New York. From 1983 to 2002, he was employed at (Canada) and Bamberg, where he obtained his PhD. From Zurich Financial Services in various positions. In 1993 he 1993 to 1999 he worked for the Boston Consulting Group, was appointed a Member of the Group Management Board Düsseldorf, in different positions dealing with questions of with responsibility for the Business Division Southern Eu- strategic IT management in the banking and insurance sec- rope, Asia/Pacific, Latin America, Middle East and Africa. tors. He joined the Baloise Group at the beginning of 1999. From November 2000 he was Head of Corporate Center and He was Head of IT at Baloise Switzerland and responsible a Member of the Executive Committee of the Group Man- for large interdivisional projects in the fields of insurance agement Board. Frank Schnewlin has been Chief Executive and finance. Since 2003, he has been a Member of the Cor- Officer of the Baloise Group since March 2002 and Head of porate Executive Committee (Head of Corporate Division the International Corporate Division. He is a Board Member Switzerland), responsible for the core Swiss business. of the Basel Chamber of Commerce and Industry. Martin Strobel is a Member of the Board of the Swiss Insur- Bruno Dallo (born 1957, CH, Dr. iur.) graduated from the University of Basel with a PhD in law. He is an attorney at ance Association (ASA/SVV) and a Member of the Board of Directors of Prevo-System AG, Basel. law. After a period in various law offices and in the legal de- partment of a major bank, he joined the Baloise Group in Martin Wenk (born 1957, CH) graduated in law from the Uni- versity of Basel, before working for a large bank in different 1986. From 1994 to 2001 he was General Counsel (Legal positions between 1982 and 1992. After initially working as and Taxes); from 1999 to 2001 he was also Secretary to the an investment advisor to institutional clients, he went on to Board of Directors. He was in charge of various merger and head a Private Banking group in New York and then became acquisition projects. He has been a Member of the Corpo- a sector head in securities sales, attending primarily to the Bâloise-Holding Annual Report 2004 45 s028_s055_e 8.4.2005 14:12 Uhr Seite 46 Business Year 2004 needs of major institutionals. During this period, he com- Compensation during the year under review pleted further training courses in Switzerland and the USA. Cash compensation CHF 1,430,000 From 1992 to 2000 he headed Portfolio Management Allocation in the form of shares Switzerland at the Baloise Group, with responsibility for Allocation in the form of options 0 0 managing the assets of various Baloise Group companies in Switzerland and abroad, including pension funds. In 2001 Ownership of shares and options he was appointed a Member of the Corporate Executive Share ownership 59,520 registered shares Committee, responsible for Corporate Asset Management comprising the units Baloise Asset Management, Real Es- Loans granted by governing bodies1 tate and Mortgages, and Baloise Fund Invest. Martin Wenk Mortgages and policy loans CHF 650,000 (1 person) is a Member of the Board of Directors of Unigestion Holding, Geneva and of HW Finanz AG, Pratteln. 1 Mortgage loans are granted at conditions that apply to employees (1% below the interest rate paid by customers for variable-rate mortgages). There are no outstanding loans against insurance policies. Further information about the Members of the Corporate Ex- ecutive Committee and about other activities and interests can be found on the Internet. With the exception of Martin Strobel and Martin Wenk, The Chairman of the Board of Directors and the Corporate Executive Committee none of the Members of the Corporate Executive Committee The nature and amount of the compensation paid to the holds a seat on the board of any company outside the Chairman of the Board of Directors and the Members of the Baloise Group. Corporate Executive Committee is also determined by the There are no management agreements in which man- Compensation Committee of the Board of Directors. It con- agement functions are transferred to third parties. sists of a basic salary and an incentive, dependent on (cid:2) www.baloise.com –› Profile –› Organization –› Corporate Executive Committee 5. Compensation, shareholdings, loans achieving corporate targets on the one hand and individual targets on the other, up to a maximum amount equal to two- thirds of the basic salary. 50% of the incentive must be taken in the form of shares or options. The corporate objec- tives for the coming year are determined in a multistage process and approved by the Compensation Committee at The compensation for the entire operational management the end of each year. Individual objectives are directly re- consists of a basic salary and an incentive dependent on lated to the respective responsibilities of each Member of achieving corporate targets on the one hand and individual the Corporate Executive Committee; they are set in consul- targets on the other. tation with the superior and approved by the Compensation This section is subdivided into three parts: Committee. (cid:2) Members of the Board of Directors other than the All persons entitled to an incentive can choose between Chairman, two types of share allocation. Shares can either be allo- (cid:2) the Chairman of the Board of Directors and cated directly at a preferential price (a subscription price (cid:2) the Corporate Executive Committee. which is always 10% below the market quotation at that time), or can be linked to a loan to maximize the impact of To facilitate assessment of the Baloise’s compensation pol- the shares allocated (leverage effect). The loan repayment icy, the focus is on gross compensation figures, rather than after a three-year blocking period is hedged with a put on tax figures. Members of the Board of Directors With the exception of the Chairman, the Members of the Board of Directors receive flat-rate compensation in cash, option financed by the sale of a corresponding call option. After expiry of the blocking period, employees receive the shares remaining after repayment of the loan for their free disposal. which is determined by the Compensation Committee of the No options plan is currently in place. Board of Directors. The 2004 figures, required to be published by the guide- lines, are as follows for the nine nonexecutive Members of the Board of Directors: 46 s028_s055_e 8.4.2005 14:12 Uhr Seite 47 Business Year 2004 Chairman of the Board of Directors Rolf Schäuble Compensation during the year under review 6. Shareholders’ participation rights Voting rights The share capital of the Baloise consists exclusively of reg- Cash compensation CHF 1,840,436 istered shares. There are no shares with preferential voting Allocation in the form of shares CHF 451,694 rights. In order to ensure broad-based shareholding and to Allocation in the form of options Additional fees and payments Highest total compensation protect minority shareholders, no shareholder, regardless 0 0 of the size of holding involved, is registered with more than two percent of voting rights. The Board of Directors may ap- CHF 2,292,130 prove exceptions to this rule by a majority of two thirds of all Members (Articles of Incorporation, Art. 5). There are no Ownership of shares and options exceptions. Share ownership 30,566 registered shares Each share gives the right to one vote. In exercising vot- Loans granted by governing bodies1 ing rights, no shareholder may hold more than one-fifth of the shares entitled to vote at the Annual General Meeting Mortgages and policy loans CHF 500,000 either directly or indirectly based on a combination of his 1 Mortgage loans are granted at conditions that apply to employees (1% below the interest rate paid by customers for variable-rate mortgages). There are no outstanding loans against insurance policies. own votes and proxy votes (Articles of Incorporation, Art. 16). Any shareholder may transfer his/her voting rights to Members of the Corporate Executive Committee The Corporate Executive Committee consists of five Mem- bers. Wolfgang Drunk stepped down from his position as Chief Financial Officer on August 31, 2004, and was suc- ceeded by German Egloff on December 1, 2004. No sever- another shareholder by written power of attorney (Articles of Incorporation, Art.16). (cid:2) www.baloise.com –› Profile –› Corporate Governance –› Rules and Regulations Statutory quorums The Annual General Meeting constitutes a quorum regard- ance payments were made during 2004, even accounting for less of the number of shareholders and represented votes Wolfgang Drunk, whose salary is included in the total com- attending the Meeting (Articles of Incorporation, Art. 17). pensation for the Corporate Executive Committee. However, (cid:2) www.baloise.com –› Profile –› Corporate Governance he will receive a severance package in 2005, the amount of which will partly depend on the achievement of Group ob- –› Rules and Regulations jectives in 2004. It will be disclosed in the 2005 Annual Re- Any annulment of restrictions on voting rights imposed by port under the heading of “compensation for former Mem- the Articles of Incorporation will require the agreement of at bers of governing bodies.” Compensation during the year under review Cash compensation Allocation in the form of shares Allocation in the form of options Additional fees and payments Total compensation least three quarters of the votes represented at the Annual General Meeting which must also account for at least one- third of the total shares issued by the company. This quali- CHF 3,860,273 fied majority is also required in the cases envisaged in Art. CHF 1,427,440 17 (3) a–h of the Articles of Incorporation. Otherwise, un- 0 0 less there are compelling statutory requirements to the con- trary, resolutions will be adopted by a simple majority of CHF 5,287,713 votes cast (Articles of Incorporation, Art. 17). Ownership of shares and options Share ownership 223,880 registered shares (cid:2) www.baloise.com –› Profile –› Corporate Governance –› Rules and Regulations Loans granted by governing bodies1 Convening the Annual General Meeting As a rule, the Annual General Meeting takes place in May, Mortgages and policy loans CHF 1,581,200 (2 persons) but no later than six months after the end of the financial 1 Mortgage loans are granted at conditions that apply to employees (1% below the interest rate paid by customers for variable-rate mortgages). There are no outstanding loans against insurance policies. year. Bâloise-Holding’s financial year ends on March 31. Notice of the convening of the Annual General Meeting must be given at least 20 days before the appointed date. Each registered shareholder receives a personal invitation that includes an agenda for the Meeting. Invitation and agenda Bâloise-Holding Annual Report 2004 47 s028_s055_e 8.4.2005 14:12 Uhr Seite 48 Business Year 2004 are also published in the Swiss Commercial Gazette Baloise has never made use of the possibility to deviate (Schweizerisches Handelsamtsblatt), in various newspa- from or waive this regulation. The Articles of Incorporation pers and on the Internet. Extraordinary General Meetings contain neither an opt-out nor an opt-in clause as defined may be convened by decision of the Annual General Meet- in the Federal Act on the stock exchanges and share trading ing, the Board of Directors or the external auditors. Further- (Stock Exchange Law). more, in accordance with the statutory provisions, the Agreements also exist with the Members of the Corpo- Board of Directors has to convene an extraordinary General rate Executive Committee and other Members of senior Meeting if requested to do so by shareholders (Articles of management, whereby severance compensation payments Incorporation, Art. 11). According to Article 699 (3) of the will be triggered in the event of notice being given by the Swiss Code of Obligations, the request must represent at employer (or, under certain conditions, by the employee) least 10% of the company’s share capital. within a certain period of time following the change of con- (cid:2) www.baloise.com –› Profile –› Corporate Governance trol. The amount of these payments is within the usual mar- –› Rules and Regulations ket framework. Including items on the agenda Shareholders’ requests pursuant to Article 699 (3) of the Swiss Code of Obligations for the inclusion of items on the 8. Statutory auditors agenda for discussion may be submitted by one or more PricewaterhouseCoopers (PwC) and its predecessor, shareholders representing at least 10 percent of the Schweizerische Treuhandgesellschaft/STG-Coopers & Ly- share capital or shares with a nominal value of at least brand, have been the statutory auditors of the Baloise since CHF 100,000. Such requests must be submitted to the 1962. The statutory auditors are chosen by the General Board of Directors in writing at least six weeks ahead of the Meeting each year. The lead auditor, Mr. Peter Lüssi, who ordinary General Meeting specifying the proposals (Articles assumed this office in 2002, has worked on the Baloise of Incorporation, Art.14). audit since 1999. (cid:2) www.baloise.com –› Profile –› Corporate Governance –› Rules and Regulations Registration of shares The shareholders entitled to vote at the Annual General The following fees were charged by Pricewaterhouse Coopers in the year under review. Following a tender offer in 2004, PwC was appointed external auditor to all Group com- panies, which is why the fee levels have risen correspond- ingly. This move has already been largely implemented and Meeting will be those who on the reference date specified will be completed in 2005. in the invitation from the Board of Directors (a date a few days ahead of the General Meeting) are entered in the share PricewaterhouseCoopers fees 2003 2004 register as shareholders with voting rights (Articles of In- Auditors’ fees 1,469,000 3,278,000 corporation, Art. 16). Fee for audit-related activity 358,573 499,000 (cid:2) www.baloise.com –› Profile –› Corporate Governance Consultancy fee –› Rules and Regulations Total in CHF 552,302 1,017,000 2,379,875 4,794,000 The admissibility of nominee registrations is dealt with in Article 5 of the Articles of Incorporation (reference being The Baloise has an Audit Committee made up of indepen- made to any percentage clauses or conditions of registra- dent Members qualified in the fields of finance and ac- tion). The procedures and preconditions for cancelling or counting. The Audit Committee met four times in the year un- restricting transferability are determined by the provisions der review, all four times with the external auditors. in Articles 5 and 17 of the Articles of Incorporation. The Audit Committee monitors the coordination between (cid:2) www.baloise.com –› Profile –› Corporate Governance Internal Audit, Risk Management, and Compliance and the –› Rules and Regulations 7. Change of control and countermeasures external auditors. The Audit Committee discusses with the external auditors the audit work performed by them and the reports drawn up by them, as well as the most important re- sults and issues arising from the audit. Prior to the annual audit, the Audit Committee reviews the scope of the audit and suggests areas which require particular attention. Shareholders, whether acting alone or as a group by agree- ment, that acquire 331/3% of all Baloise shares are obliged to submit a take-over bid to all remaining shareholders. The The Audit Committee then verifies the independence of the external auditors. It makes recommendations to the Board of Directors regarding the external auditors to be 48 s028_s055_e 8.4.2005 14:12 Uhr Seite 49 Business Year 2004 elected by the General Meeting and regarding such audi- tors’ remuneration. The Audit Committee reviews the fees Financial calendar Important dates for investors can be found on the Internet, paid to the external auditors on an annual basis. where publication dates for the Annual and Semi-Annual The Audit Committee reviews the benefits of any non- Reports are featured. In connection with the Annual General audit services provided by the external auditors. A written Meeting, the calendar contains the date of and the invita- directive requires that any nonaudit services be preap- tion to the Annual General Meeting, the closing of share- proved by Internal Audit. 9. Information policy holder registration, and, if applicable, the exdividend date. (cid:2) www.baloise.com –› Investor Relations –› IR Agenda (not in EN) Availability of documents Shareholders can access media releases, disclosure re- Basic information principles The Baloise Group provides information for shareholders, ports, presentations, addresses and Annual and Semi- Annual Reports on the Internet. All documents can be ob- potential investors, employees, customers and the public on tained through Investor Relations (see below) or ordered on a comprehensive, open and regular basis. the Internet. All registered shareholders receive a copy of the annual (cid:2) www.baloise.com –› Investor Relations –› Presentations and Speeches and semiannual reports, comprising information on the course of business as well as the financial report. All publi- cations are made available to all shareholders at the same Contacts time. All investors are treated equally with respect to the Investor Relations timing and content of information. We use technologies Carsten Stolz such as webcasts and teleconferencing to make our finan- Head of Financial Relations cial analysts’ meetings publicly accessible. Aeschengraben 21 4002 Basel Information events The Baloise provides detailed information on its business Tel: +41 61 285 83 65 Fax: +41 61 285 75 62 activities at E-mail: carsten.stolz@baloise.com (cid:2) Press conferences: The business results are presented at press conferences (annual and half-year media con- Corporate Governance ferences), and goals, strategies and business activities Thomas Sieber explained. Secretary to the Board of Directors / Head of Legal and Taxes (cid:2) Financial analysts’ meeting: Meetings with financial Aeschengraben 21 analysts are held for the publication of each annual and 4002 Basel semiannual report, with parallel webcasts and telecon- Tel: +41 61 285 86 48 ferencing. These events remain available on the Inter- Fax: +41 61 285 91 90 net, where they can be downloaded at a later date. E-mail: thomas.sieber@baloise.com (cid:2) Annual General Meeting: The shareholders are informed about the course of business at the Annual General www.baloise.com Meeting. Speeches held at the AGM are published on the Internet. (cid:2) Roadshows: Roadshows are regularly held at various financial centers. (cid:2) Individual meetings with analysts, investors and media professionals: An ongoing dialogue is maintained with analysts, investors and media professionals. Information about Baloise shares (cid:2) Information about Baloise shares can be found on page 54. Bâloise-Holding Annual Report 2004 49 s028_s055_e 8.4.2005 14:12 Uhr Seite 50 Business Year 2004 Organization Board of Directors and management structure Board of Directors Board committees Members Rolf Schäuble, Chairman, Lenzburg Georg F. Krayer, Vice Chairman, Basel Christoph J.C. Albrecht, Basel Andreas Burckhardt, Basel Hansjörg Frei, Mönchaltorf Gertrud Höhler, Berlin Klaus Jenny, Zurich Werner Kummer, Küsnacht Arend Oetker, Berlin Eveline Saupper, Pfäffikon SZ Secretary of the Board of Directors Thomas Sieber, Rheinfelden Internal audit Erich Benischke, Basel Auditors PricewaterhouseCoopers AG, Basel Chairman’s Committee Rolf Schäuble, Chairman Georg F. Krayer, Vice-Chairman Hansjörg Frei Klaus Jenny Audit Committee Werner Kummer, Chairman Christoph J.C. Albrecht, Vice-Chairman Andreas Burckhardt Hansjörg Frei Compensation Committee Georg F. Krayer, Chairman Klaus Jenny, Vice-Chairman Gertrud Höhler Eveline Saupper Investment Committee Rolf Schäuble, Chairman Georg F. Krayer, Vice-Chairman Hansjörg Frei Klaus Jenny 50 s028_s055_e 8.4.2005 14:12 Uhr Seite 51 Business Year 2004 Management structure on April 1, 2005 CEO Frank Schnewlin* Group / Regional Performance Management Annemarie D’Hulster Martin Kampik Group Secretariat/ Corporate Communications Thomas Kähr Switzerland Martin Strobel* International Frank Schnewlin* Finance German Egloff* Asset Management Martin Wenk* Corporate Center Bruno Dallo* Private and Corporate Customers Franz Josef Kaltenbach Baloise Bank SoBa Alois Müller Sales Management Daniel Fluri Information Systems and Logistics René Güttinger Accounting/ Controlling Urs Bienz Germany, Deutscher Ring Wolfgang Fauter Germany, Basler Securitas Frank Grund Belgium, Mercator Jan De Meulder Luxembourg, Bâloise André Bredimus Austria, Basler Lothar Mayrhofer Financial Relations Carsten Stolz Financial Management Stefan Nölker Financial Accounting Michael Müller Baloise Asset Management Reto Diezi Real Estate/ Mortgages Urs Degen Baloise Fund Invest Robert Antonietti Corporate Development Thomas Wodrich Human Resources Frank Sigl Legal and Taxes Thomas Sieber Compliance Peter Kalberer Runoff Bruno Rappo * Member of the Corporate Executive Commitee Bâloise-Holding Annual Report 2004 51 s028_s055_e 8.4.2005 14:12 Uhr Seite 52 Business Year 2004 Baloise shares Solid performance in peer comparison 2004 was a satisfactory year for investors, with Swiss Market Index performance up 3.7%. The insur- ance sector, on the other hand, was unable to satisfy investors’ demands, trailing badly behind the rest of the market with a 2.5% drop in performance (SWX MS Insurance Price Index). The second half of the year, which was dominated by the tur- Developments in the second semester were much less moil surrounding the Spitzer cases in the USA and the con- spectacular. With a significant drop in volatility, insurance tinuing decline in interest rates, was largely to blame for the stocks lost more and more ground to the overall market. In poor showing of insurance stocks. Baloise shares closed that same period the performance of Swiss insurance the year at CHF 52.50, equivalent to a 1.7% price rise. stocks fell by 5.2% on average, considerably underperform- In the first two months of 2004 the insurance sector was ing the market (SMI), which was up 1.3%. One of the most able to continue its uninterrupted run of positive perfor- important factors to affect insurance share prices during the mance from the previous year. However, the terrorist attacks second half of the year was the Spitzer cases in the USA. The in Madrid subsequently brought rising prices to a crashing accusations of unfair practices and pocketing money from halt. The uncertainty triggered among investors in the wake special reserves brought by the Attorney General not only of the attacks was reflected in the slump in insurance hit the American insurance sector hard, it also impacted on stocks. While Swiss insurance stocks had kept average per- European companies. Since the Baloise does not conduct formance in double figures up to the end of February, by the business operations in the USA, it was able to once more as- end of March share prices were almost back to their year- sert itself against the rest of the sector during this phase. opening level. Even the Baloise shares were part of this But the Baloise share performance was also influenced trend and, after a 17.8% outperformance in the first two by company-specific and regulatory factors in the last six months of the year, were back to trading at CHF 53.10 at the months of the year. Aside from the announcement of the end of the quarter – just above their year-opening level. first-half figures, the sale of Mercator Bank in Belgium A slight rise in interest rates toward the end of the first should be mentioned. The announcement by the Federal semester helped the insurance sector to gain ground on the Council of its intention to fix the minimum rate of interest for market as a whole, with Baloise shares also benefitting occupational pensions at 2.5%, up again from its 2004 from this trend. The share price finally stood at CHF 54.40 level of 2.25%, was met with dismay by the Swiss insurance at the end of the turbulent first half, representing an in- sector. In particular, the industry criticized the lack of any crease of 5.3%. It thus outperformed the sector by 2.5%. real basis for this interest decision. The Swiss Market Index closed the same period with per- Over the year as a whole, the poor performance of the in- surance sector compared to the SMI can be mainly attrib- uted to the continuous drop in interest rates. While shares generally tend to profit from falling interest rates, very low bond yields have a negative impact on the profitability of insurers, all else being equal. At the end of 2004 10-year federal government bonds were yielding 2.3%, close to their prior-year low. Baloise shares, up 1.7% in a sector comparison, held their own against the SWX MS Insurance Price Index, which fell by 2.5%. Baloise shareholdings remain broadly spread. No single shareholder owns more than 5% of the capital sharehold- ings. The Baloise share’s free float stands at 100%. The number of registered shareholders rose by 8.1% year-on- year to 16,251. formance up by 2.4%. Bâloise-Holding, registered Ticker symbol: Tk, B: BALN; R: BALZn Nominal value: CHF 0.10 Security no.: 1.241.051 ISIN: CH0012410517 Listing: virt-x 52 s028_s055_e 8.4.2005 14:12 Uhr Seite 53 Business Year 2004 Indexed share price development1 Bâloise-Holding, Contacts registered, 2001–2004 140 120 100 80 60 40 20 0 Investor Relations Carsten Stolz Head of Financial Relations Aeschengraben 21 CH-4002 Basel Phone +41 61 285 83 65 Fax +41 61 285 75 62 E-Mail investor.relations@baloise.com 2001 2002 2003 2004 www.baloise.com Bâloise-Holding, registered2 SWX MS Insurance Price Index (SMINNX) Swiss Market Index In this year’s Report, the Swiss Performance Inde Insurance (SXIS) has been replaced by the SMINNX. The time horizon has been reduced to 4 years, as the SMINNX was only created in 2000. 1 December 29, 2000 = 100 2 adjusted after 1: 10 split of July 24, 2001 Significant shareholders at March 31, 2005 Total holding Share of voting rights Chase Nominees Investors Bank & Trust UBS Group Nortrust Nominees Ltd. Mellon Bank N. A. CS Group Deutsche Bank Nominee Fidelity Group Rolex Group in percent Bonds issued 4.8 2.6 2.5 2.4 2.2 2.1 < 2.0 < 2.0 < 2.0 2.0 0.0 2.0 0.0 0.0 1.6 < 2.0 < 2.0 < 2.0 Issuer CHF m Interest rate Issue Redemption Baloise Finance (Jersey) Ltd. Bâloise-Holding Bâloise-Holding Baloise Bank SoBa Bâloise-Holding Bâloise-Holding 200 300 600 175 250 250 1.00% 3.25% 4.25% 3.625% 1998 1998 2000 2002 4.7.2006 4.7.2008 9.28.2005 6.12.2007 3.375% 2003 12.15.2009 2.375% 2004 12.20.2010 Bâloise-Holding Annual Report 2004 53 s028_s055_e 8.4.2005 14:12 Uhr Seite 54 Business Year 2004 Share statistics Net profit per share1 Consolidated capital and reserves per share2 in CHF in CHF Dividend per share in CHF 2000 5 2001 5 11.2 130.0 2.4 7.3 97.4 2.4 2002 –11.6 55.8 0.4 2003 1.7 60.0 0.6 2004 4.0 63.0 1.14 Total shares issued in units 56,704,000 55,307,150 55,307,150 55,307,150 55,307,150 Number of shares entitled to dividend in units 56,704,000 55,307,150 55,307,150 55,307,150 55,307,150 Time-weighted number of shares entitled to dividend in units 57,824,280 56,087,855 55,307,150 55,307,150 55,307,150 Daily volume traded shares in CHF m Number of shareholders Treasury stock in shares Price at year-end in CHF High in CHF Low in CHF Market capitalization in CHF m Consolidated capital and reserves in CHF m Ratio, market capitalization/ consolidated capital and reserves Ratio, market capitalization/gross premium Return on Equity (ROE) On capital and reserves as shown in the balance sheet3 Excl. unrealized gains and losses3 in percent in percent Dividend yield in percent Price-earnings ratio Pay-out ratio in percent 24.5 8,988 15.4 9,725 21.4 23.6 24.2 11,974 15,027 16,251 830,000 560,000 702,540 414,303 411,992 178.0 186.0 123.4 10,093.3 7,372.8 1.37 1.51 153.0 182.6 110.0 8,461.9 5,384.8 1.57 1.28 55.0 155.5 46.3 3,041.9 3,088.1 0.99 0.42 8.5 19.0 1.3 15.9 29.5 6 6.3 10.5 1.6 20.1 32.8 –15.0 –18.3 0.7 n.s. 7 n.s. 7 51.6 63.2 25.45 2,856.6 3,319.8 0.86 0.39 2.9 2.9 1.2 30.9 36.3 52.5 63.1 45.75 2,903.6 3,482.5 0.83 0.41 6.5 6.8 2.14 13.1 27.4 All figures as per calendar year, at December 31. Figures rounded up/down; calculations based on precise figures. 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 not significant 54 s028_s055_e 8.4.2005 14:12 Uhr Seite 55 Business Year 2004 Sustainability Sustainability at every level Sustainability is reflected in many of our activities. Long-term action is at the heart of everything we do. Sustainability for the future: recognizing risks An in-house management training program at the Baloise resulted in the launch of a research project which enables Career sustainability: Bal4Kids – the Baloise crèche For more and more employees, combining career and fam- major social risks to be identified based on the analysis of ily is an increasingly crucial issue. We aim to retain our first- large amounts of social and environmental information. A rate executives and specialized staff when they start a fam- method of systematically mapping the data thus acquired ily or have more children. For the past three years the was also developed. Baloise has provided child-care facilities, built around the With the involvement of a number of reinsurance com- daily routine of children with working parents, at its Basel panies and experts from Federal agencies and Swiss uni- offices. versities, the information gathered was processed in such a The individual needs of children ranging from 8-week- way that allows the relevant trends to be identified. The old babies to youngsters of official school-leaving age are results were presented at the first Emerging Risks Forum, taken care of from 7:00 a.m. to 6:00 p.m. For example, the organized by the Baloise, where they were elaborated on by children can be dropped off at kindergarten in the morning expert speakers and discussed by the floor. The main top- and picked up again at the end of the day. They have their ics focussed on were liability risk, climate change and gene midday meal together at the crèche and schoolchildren do technology. their homework under supervision. Since school holidays Through this project and related activities, the Baloise often leave parents with child-care problems, the day nurs- has again made a contribution to establishing sustainable ery remains open for this period, too. A staff of 12 looks af- thinking and practices in business and society. ter the 53 children who currently attend. This service costs Sustainability in our core business: preventing claims through road safety training Every driver wants to avoid traffic accidents. Together with the parents 8–12% of their gross income, up to a maximum of CHF 2,000 per child per month. The Baloise is making a substantial financial contribution to the running of these child-care facilities. our partner TCS, we are playing an active role in promoting The space occupied by the crèche was expanded in the road safety. By learning to increase their safety behind the summer of 2004, proving that this facility satisifies a con- wheel, customers can also influence the premiums they tinually growing demand, which we as a company actively pay. And by taking part in a one-day training course recog- support. Further information about our sustainability activities on our website (cid:2) www.baloise.com –› Profile –› Sustainability nized by the Swiss Road Safety Council, customers who have motor vehicle insurance with us can take a personal step towards reducing the likelihood of a claim. If they sub- mit their course certificate, they will be credited with two premium levels for liability and collision cover insurance. Such credits can be granted once every five years per con- tract until the maximum bonus has been reached. In conjunction with “Test & Training tcs,” the Baloise is also offering all its remaining customers the opportunity to attend a training course at a heavily discounted price. This represents a long-term success – for our customers, our partner TCS and everyone’s safety. Bâloise-Holding Annual Report 2004 55 s056_s128_e 8.4.2005 14:22 Uhr Seite 56 56 s056_s128_e 8.4.2005 14:22 Uhr Seite 57 Management Information Management information The same consolidation rules are applied for the manage- ment information as for the segment reports. This means that, in line with IFRS requirements, group-internal trans- actions between the segments are not eliminated. Combined ratio: non-life Loss ratio Expense ratio Surplus sharing ratio Combined ratio as a percentage of premiums earned 2003 67.3 29.9 0.4 97.6 Gross 2004 63.0 29.6 0.4 93.0 2003 71.2 31.6 0.4 103.2 Net 2004 66.0 31.1 0.4 97.5 Combined ratio (gross): non-life, Switzerland Germany Benelux Other countries by geographical segment Loss ratio Expense ratio Surplus sharing ratio Combined ratio as a percentage of premiums earned 2003 71.3 23.8 0.8 95.9 2004 68.5 23.7 0.9 93.1 2003 64.9 36.1 0.1 101.1 2004 57.5 35.9 0.1 93.5 2003 67.1 31.2 0.0 98.3 2004 64.4 31.2 0.0 95.6 2003 53.8 18.4 0.2 72.4 2004 61.2 20.2 0.2 81.6 Reserve ratio: non-life Technical provision for own account Premiums written and policy fees for own account Reserve ratio in percent in CHF m 2003 5,097.6 2,873.4 177.4 2004 5,204.9 2,897.8 179.6 Bâloise-Holding Annual Report 2004 57 s056_s128_e 8.4.2005 14:22 Uhr Seite 58 Management Information Technical income statement Gross Gross premiums written and policy fees Change in unearned premiums reserves Premiums earned and policy fees 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 2003 3,088.8 –4.0 3,084.8 Non-life 2004 3,081.4 –4.5 3,076.9 2003 4,301.1 –/– Life 2004 3,956.4 –/– 4,301.1 3,956.4 –1,969.2 –1,527.8 –108.4 –409.2 –2,077.6 –1,937.0 –3,600.1 –1,096.6 –4,696.7 –3,999.3 –292.3 –4,291.6 –12.7 –921.8 72.7 –12.9 –910.6 216.4 –428.1 –301.6 –476.1 –481.2 –1,125.3 –1,292.5 –218.6 –183.3 38.5 0.3 15.7 30.5 –/– 9.5 2,866.2 2,893.6 –2,039.1 –1,906.5 –12.9 –901.1 –53.0 49.0 –/– 4.3 0.3 –61.3 49.9 –/– 6.6 –4.8 4,248.1 –4,647.7 –428.1 –297.3 3,895.1 –4,241.7 –476.1 –474.6 –12.4 –906.1 –91.4 262.8 –43.0 –20.6 –16.0 183.2 91.8 –43.3 48.5 0.0 48.5 73.1 –1,125.0 –1,297.3 265.1 –50.2 –17.3 –26.1 171.5 244.6 –60.5 184.1 0.0 184.1 1,492.8 1,364.2 –66.5 –54.9 –170.6 1,200.8 75.8 –41.7 34.1 0.0 34.1 199.2 –58.2 –144.3 1,360.9 63.6 –9.3 54.3 0.3 54.6 Total underwriting result of business ceded –164.1 –143.3 Net 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)1 Investment expenses Other nontechnical income and expenses Investment result Annual profit before tax and minority interests Tax on income Annual profit after tax and before minority interests Minority interests Annual net profit in CHF m 1 Including financial liabilities held for trading (derivative financial instruments) The reported technical costs comprise costs arising from in- and benefits paid and to loss reserves are not included; surance operations which have been charged in the fiscal neither are other costs of the Baloise Group (especially year, including the change in the figure for deferred acqui- costs incurred by Asset Management). sition costs. Claims-processing costs which relate to claims 58 s056_s128_e 8.4.2005 14:22 Uhr Seite 59 Management Information Embedded value The embedded value of the life insurance business con- of Luxembourg, Austria and Croatia, the embedded value sists of three elements: the adjusted net asset value of the consists only of the shareholders’ capital. life insurance activities, the value of insurance business in The value of insurance business in force corresponds to force and the cost of solvency capital. Embedded value the earnings generated by the insurance portfolio in the does not take into account any new business that will be future. These earnings are obtained by discounting ex- written in the future. pected future cash flows arising from the existing insurance The adjusted net asset value is based on the market contracts. A large number of assumptions need to be made value of investments and the statutory value of liabilities to calculate this value, the most important of which are from insurance operations. The unrealized gains and losses listed in the table below. on investments (equities and properties), which can be The cost of solvency is the charge for the cost of capital subject to significant fluctuations, represent a significant supporting the solvency requirements of the business. part of the adjusted net asset value. For the life operations Assumptions Risk discount rate Bond yield Equity return Property return Tax rate in percent 2003 7.6 2004 7.6 3.5–3.9 2.8–3.4 7.2 5.1 23.7 7.2 5.1 23.6 Bâloise-Holding Annual Report 2004 59 s056_s128_e 8.4.2005 14:22 Uhr Seite 60 Management Information Embedded value Embedded value at January 1 Of which value of insurance business in force Of which adjusted net asset value Of which cost of solvency 2003 1,630.8 855.4 1,192.4 –417.0 2004 1,980.2 1,236.1 1,231.51 –487.41 Operating income from insurance in force, adjusted net asset value and new business contribution 275.7 118.8 Economic changes, including changes in unrealized gains and losses 20.5 26.8 26.4 –5.2 46.6 –3.6 1,980.2 2,136.8 1,236.1 1,008.1 –264.0 1,181.7 1,400.3 –445.2 2003 1,980.2 2004 2,136.8 –7.2/+8.4 –6.9/+8.1 +4.3/–4.8 +4.9/–4.8 +4.6/–7.6 +5.3/–5.3 +17.5/–17.6 +7.8/–8.5 2003 15.5 306.5 2004 15.2 261.0 5.0 5.8 on investments (equities and properties) Dividends and capital movements Differences arising from exchange rates Embedded value at December 31 Of which value of insurance business in force Of which adjusted net asset value Of which cost of solvency in CHF m, all figures “after tax” 1 Unrealized capital gains allocated to Swiss group business are used to cover part of the solvency requirements. The presentation of this element under the legal quote has been changed to be consistent with other Swiss companies. This led to CHF 223.4 million being transferred from cost of solvency to adjusted net asset value. Sensitivities Base value in CHF m +/– 1% change in risk discount rate +/– 10% change in market value of equities +/– 10% change in market value of property +/– 0.5% change in new money rate in percent New business Value new business in CHF m APE1 in CHF m New business margin in percent 1 Annual Premium Equivalent = 100% regular premium of new business +10% single premium External review: Deloitte have reviewed the choice of methodology together with the assumption and calculations made by Baloise Group in the calculation of the embedded value results of its Life Business at December 31, 2004. Deloitte have reported to Baloise that they consider that the methodology is appropriate, Baloise’s assumptions are reason- able and that the embedded value results as published above have been properly compiled on the basis of methodology and assumptions chosen. For the purpose of this report, Deloitte have performed certain checks on data provided. 60 s056_s128_e 8.4.2005 14:22 Uhr Seite 61 Investment performance in 2003 Current investment income Realized gains Realized losses Change in unrealized gains and losses taken to capital and reserves Fixed-interest securities 1,163.5 513.1 –60.8 –307.3 Impairment in value charged to income (net) 10.0 Investment management costs Operating profit –30.8 1,287.7 Shares 95.0 462.4 –1,426.2 642.4 607.6 –8.7 372.5 Management Information Total 2,105.2 1,218.2 Investment property Mortgage loans, policy loans and other loans Alternative financial assets, derivative financial instruments and other 259.9 44.1 –28.3 –/– –/– –9.8 265.9 505.8 21.0 –79.8 –/– 18.4 –10.2 455.2 81.0 177.6 –267.1 –1,862.2 180.2 –33.3 –16.4 122.0 515.3 602.7 –75.9 2,503.3 Average level of investments 26,389.8 4,642.6 5,510.4 12,398.7 5,127.9 54,069.4 Performance in percent 4.9 8.0 4.8 3.7 2.4 4.6 in CHF m Investment performance in 2004 Current investment income Realized gains Realized losses Change in unrealized gains and losses taken to capital and reserves Impairment in value charged to income (net) Investment management costs Operating profit Fixed-interest securities 1,051.3 189.1 –81.5 85.3 –1.6 –27.7 1,214.9 Investment property 262.7 45.0 –109.5 –/– –/– –12.0 186.2 Mortgage loans, policy loans and other loans Alternative financial assets, derivative financial instruments and other 440.3 25.7 –89.7 –/– 15.0 –9.0 382.3 48.7 188.6 –240.1 168.3 –19.7 –20.6 125.2 Total 1,883.8 855.4 –782.3 258.5 115.3 –75.8 2,254.9 Shares 80.8 407.0 –261.5 4.9 121.6 –6.5 346.3 Average level of investments 28,347.9 3,771.5 5,636.3 11,828.8 4,969.0 54,553.5 Performance in percent 4.3 9.2 3.3 3.2 2.5 4.1 in CHF m Bâloise-Holding Annual Report 2004 61 s056_s128_e 8.4.2005 14:22 Uhr Seite 62 Management Information Results from banking business Interest income Due from banks Loans to customers Investments Other Total interest income Interest payable Due to banks and 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 Revaluation, amortization and depreciation of intangible assets and tangible noncurrent assets Annual profit before tax and minority interests Tax on income Minority interests Annual net profit in CHF m Mercator Banque S.A. has been included in the banking business result up to August 2004, the date of its sale. Assets under management Own investments Investments for account and risk of life insurance policyholders Assets managed for third parties Total in CHF m Other sales Sales other than premium type, in particular sale of fund units for unit-linked life insurance in CHF m 62 2003 1.9 261.6 138.5 1.0 403.0 –107.9 –99.5 –27.7 –235.1 167.9 19.2 27.5 8.3 222.9 –93.9 –73.5 –167.4 55.5 –16.6 –9.6 29.3 –15.0 0.0 14.3 2004 1.4 208.8 78.4 0.1 288.7 –70.5 –110.0 –32.4 –212.9 75.8 29.0 49.6 2.1 156.5 –68.1 –48.7 –116.8 39.7 1.9 –8.4 33.2 –23.5 0.0 9.7 2003 2004 56,307.7 52,799.3 798.2 8,445.2 1,143.6 7,331.9 65,551.1 61,274.8 2003 2004 541.8 587.6 s056_s128_e 8.4.2005 14:22 Uhr Seite 63 Five-year review Consolidated income statement Income Management Information 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 Note 6 18 2000 6,701.2 –230.8 6,470.4 14.3 2001 6,632.7 –207.4 6,425.3 8.1 2002 7,274.5 –203.6 7,070.9 –24.9 2003 7,374.7 –253.2 7,121.5 –6.8 2004 7,022.1 –229.3 6,792.8 –5.0 Premiums earned and policy fees for own account 6,484.7 6,433.4 7,046.0 7,114.7 6,787.8 Investment income (net) Realized gains and losses on investments (net)2 Income from other services Other income Total income Expenses 7.1 7.3 2,154.4 2,081.2 826.7 265.5 108.7 149.4 271.8 154.1 2,024.1 –806.5 249.4 183.7 2,029.3 1,808.0 –41.3 254.7 147.2 188.4 254.6 107.2 9,840.0 9,089.9 8,696.7 9,504.6 9,146.0 Claims incurred including processing costs (non-life) 15 –1,727.9 –1,785.0 –1,920.8 –2,031.1 –1,899.5 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 –2,756.5 –2,896.6 –2,946.5 –3,704.2 –3,916.4 –1,680.3 –1,449.4 –2,235.0 –870.9 –311.3 –177.6 –367.8 29.2 –461.7 –952.2 –440.5 –277.1 –332.0 –489.1 –488.0 –1,267.3 –1,238.6 –1,226.5 –1,318.4 –1,200.8 –380.0 –498.6 –464.9 –405.1 –392.1 16 17 14 27 Revaluation, amortization and depreciation of intangible assets and tangible noncurrent assets Total expenses 12 /13 –113.7 –153.3 –184.8 –152.3 –94.4 –9,107.9 –8,566.9 –9,411.0 –9,280.9 –8,812.3 Annual profit/loss before tax and minority interests Tax on income Annual profit/loss after tax and before minority interests Minority interests Consolidated annual net profit/loss in CHF m 1 Additional information Gross premiums written and policy fees Investment-type premiums Gross premiums, policy fees and investment-type premiums in CHF m Combined ratio (gross) Reserve ratio non-life in percent 1 In accordance with the accounting policies of the Baloise Group, investment-type premiums are not included in gross premiums and policy fees. 2 Including financial liabilities held for trading (derivative financial instruments) 21 26 732.1 –94.6 637.5 –3.1 634.4 523.0 –116.9 406.1 –1.7 404.4 –714.3 82.7 –631.6 –2.9 –634.5 223.7 –125.4 98.3 –6.9 91.4 333.7 –99.0 234.7 –13.0 221.7 6,701.2 176.4 6,877.6 6,632.7 7,274.5 7,374.7 7,022.1 248.4 253.0 261.0 443.5 6,881.1 7,527.5 7,635.7 7,465.6 104.7 186.0 105.7 184.3 105.2 181.1 97.6 177.4 93.0 179.6 Bâloise-Holding Annual Report 2004 63 s056_s128_e 8.4.2005 14:22 Uhr Seite 64 Management Information Consolidated balance sheet Assets Investments Fixed-interest securities Shares Alternative financial assets Derivative financial instruments Investment property Mortgage loans Policy and other loans Participating interests in associates Other short-term investments Cash and cash equivalents Total investments Investments for account and risk of life insurance policyholders Deferred tax Other assets Total assets Note 12.31.2000 12.31.2001 12.31.2002 12.31.2003 12.31.2004 19,908.1 20,569.3 21,906.8 29,525.4 27,170.3 10 8 9 29 6 11 21 4,067.2 1,636.1 262.5 5,619.2 9,798.3 1,400.3 148.2 13,330.4 10,000.8 920.9 85.9 1,117.2 19.3 4,965.8 5,042.2 5,752.4 1,039.0 212.8 5,305.7 3,475.9 1,337.9 292.9 5,653.4 10,438.7 10,500.4 10,532.0 11,002.4 1,856.7 1,663.1 316.3 631.2 759.9 289.1 695.1 888.3 1,520.4 286.9 2,829.6 675.8 1,456.6 223.8 2,647.4 2,010.6 692.0 686.6 53,213.9 50,784.8 50,061.4 56,307.7 52,799.3 362.4 447.2 512.4 567.6 550.5 529.9 798.2 905.9 1,143.6 876.1 5,260.5 5,630.0 5,772.0 6,289.0 4,801.8 59,284.0 57,494.8 56,913.8 64,300.8 59,620.8 Liabilities and capital and reserves Capital and reserves Minority interests 7,372.8 5,384.8 3,088.1 3,319.8 3,482.5 26 46.2 41.5 28.1 40.7 63.5 Liabilities Unearned premiums reserves (gross) Loss reserves (gross) Actuarial reserve life (gross) Policyholder bonuses credited and provision for future policyholder bonuses Technical provisions for account and risk of life insurance policyholders Payables arising from insurance operations Deposit fund liabilities arising from reinsurance Liabilities from banking business and loans Derivative financial instruments Nontechnical provisions Benefits due to employees Deferred tax Other liabilities and deferred income Total liabilities 15 16 17 19 10 20 23 21 629.9 4,021.5 380.9 4,182.0 419.3 4,196.1 493.3 494.1 4,786.3 4,829.9 26,314.5 27,558.9 29,757.7 32,985.7 33,158.7 4,768.6 4,197.7 3,685.0 4,063.4 4,220.6 356.7 1,349.7 281.7 10,048.9 84.2 127.5 563.6 1,946.8 1,371.4 513.7 1,521.2 269.0 9,697.2 59.9 112.6 559.6 1,640.9 1,374.9 554.6 1,682.5 205.1 798.1 1,620.7 451.5 1,143.6 1,534.0 403.7 9,659.2 11,411.7 6,272.5 87.0 131.7 596.6 1,211.5 1,611.3 252.4 118.9 680.0 1,640.8 1,637.5 160.3 117.9 663.0 1,638.4 1,438.1 51,865.0 52,068.5 53,797.6 60,940.3 56,074.8 Total liabilities and capital and reserves 59,284.0 57,494.8 56,913.8 64,300.8 59,620.8 in CHF m 64 s056_s128_e 8.4.2005 14:22 Uhr Seite 65 s056_s128_e 8.4.2005 14:22 Uhr Seite 66 s056_s128_e 8.4.2005 14:22 Uhr Seite 67 Financial Report 2004 Contents Consolidated Financial Statements of the Baloise Group Consolidated income statement Consolidated balance sheet Consolidated cash flow statement Consolidated capital and reserves Notes to the consolidated financial statements Report of the Group auditors Financial Statements of Bâloise-Holding 2004/2005 Income statement Balance sheet Notes to the financial statements Proposed allocation of accumulated profit Report of the statutory auditors 69 70 72 74 76 121 123 124 125 127 128 Bâloise-Holding Annual Report 2004 67 s056_s128_e 8.4.2005 14:22 Uhr Seite 68 68 s056_s128_e 8.4.2005 14:22 Uhr Seite 69 Financial Report 2004 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)2 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 Revaluation and amortization of intangible assets Revaluation and depreciation of tangible noncurrent assets Total expenses Annual profit before tax and minority interests Tax on income Annual profit after tax and before minority interests Minority interests Consolidated annual net profit in CHF m Basic earnings per share Diluted earnings per share in CHF 1 In accordance with the accounting policies of the Baloise Group, investment-type premiums are not included in gross premiums and policy fees. 2 Including financial liabilities held for trading (derivative financial instruments) Note 6 18 7.1 7.3 15 16 17 14 27 12 13 21 26 25 25 2003 7,374.7 –253.2 7,121.5 –6.8 7,114.7 2004 7,022.1 –229.3 6,792.8 –5.0 6,787.8 2,029.3 1,808.0 –41.3 254.7 147.2 188.4 254.6 107.2 9,504.6 9,146.0 –2,031.1 –3,704.2 –952.2 –440.5 –277.1 –1,899.5 –3,916.4 –332.0 –489.1 –488.0 –1,318.4 –1,200.8 –405.1 –77.5 –74.8 –392.1 –30.5 –63.9 –9,280.9 –8,812.3 223.7 –125.4 98.3 –6.9 91.4 1.67 1.67 333.7 –99.0 234.7 –13.0 221.7 4.04 4.04 Bâloise-Holding Annual Report 2004 69 s056_s128_e 8.4.2005 14:22 Uhr Seite 70 Financial Report 2004 Consolidated balance sheet Assets Investments Fixed-interest securities Held for trading Held to maturity Available for sale Shares Held for trading Available for sale Alternative financial assets – available for sale Derivative financial instruments – held for trading Investment property Mortgage loans Policy and other loans Participating interests in associates Other short-term investments Held for trading Held to maturity Available for sale Cash and cash equivalents Total investments Total investments for account and risk of life insurance policyholders Other assets Reinsurance assets Receivables arising out of insurance operations Receivables relating to employee benefits Other receivables Accrued investment income Deferred acquisition costs Intangible assets Property, plant and equipment for own use Other tangible noncurrent assets Deferred tax Other assets Total other assets Total assets in CHF m 70 Note 12.31.2003 12.31.2004 334.3 10,348.6 18,842.5 200.6 3,275.3 1,337.9 292.9 5,653.4 11,002.4 1,456.6 223.8 1.2 1,840.7 805.5 692.0 56,307.7 798.2 737.1 1,289.0 41.2 1,385.6 798.2 985.9 122.3 605.3 91.4 905.9 233.0 277.2 10,455.2 16,437.9 219.3 3,847.9 1,636.1 262.5 5,619.2 9,798.3 1,400.3 148.2 –/– 1,715.1 295.5 686.6 52,799.3 1,143.6 627.0 1,108.1 33.3 363.9 657.8 969.7 157.0 564.5 83.0 876.1 237.5 7,194.9 64,300.8 5,677.9 59,620.8 10 8 9 29 6 11 18 23 14 12 13 13 21 s056_s128_e 8.4.2005 14:22 Uhr Seite 71 Financial Report 2004 Liabilities and capital and reserves Capital and reserves Share capital Capital reserves Less treasury stock Unrealized gains and losses (net) 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 account and risk of life insurance policyholders Payables arising from insurance operations Deposit fund liabilities arising from reinsurance Liabilities from banking business and loans Derivative financial instruments Nontechnical provisions Benefits due to employees Deferred tax Other liabilities and deferred income Total liabilities Total liabilities and capital and reserves in CHF m Note 12.31.2003 12.31.2004 24 7 5.5 90.3 –49.7 161.1 3,112.6 3,319.8 5.5 77.6 –50.2 148.5 3,301.1 3,482.5 26 40.7 63.5 15 16 17 19 10 20 23 21 493.3 4,786.3 494.1 4,829.9 32,985.7 33,158.7 4,063.4 798.1 1,620.7 451.5 11,411.7 252.4 118.9 680.0 1,640.8 1,637.5 60,940.3 64,300.8 4,220.6 1,143.6 1,534.0 403.7 6,272.5 160.3 117.9 663.0 1,638.4 1,438.1 56,074.8 59,620.8 Bâloise-Holding Annual Report 2004 71 s056_s128_e 8.4.2005 14:22 Uhr Seite 72 Financial Report 2004 Consolidated cash flow statement Cash flow from operating activities Annual profit/loss 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 Note 7 Revaluation, amortization and depreciation of intangible assets and tangible noncurrent assets Foreign exchange gains and losses Movements in operating assets and liabilities Assets from reinsurance business Deferred acquisition costs Unearned premiums reserves Loss reserves Actuarial reserve (life) Technical provisions for account and risk of insurance policyholders 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 Purchase of intangible assets and tangible noncurrent assets Disposal of intangible assets and tangible noncurrent 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 2003 223.7 41.3 –41.6 0.2 –10.1 152.3 –19.2 –125.5 –218.2 8.1 82.9 1,068.6 4.3 62.4 1,229.2 –26.3 1,202.9 –16.3 2004 333.7 –188.4 –21.7 13.3 –0.8 94.4 –18.4 101.9 –38.1 5.2 66.3 296.4 0.0 1,041.5 1,685.3 –60.2 1,625.1 –24.9 –19,007.7 13,976.1 –5,094.2 7,890.9 –462.8 305.3 –9,968.9 13,606.2 –5,100.4 4,731.4 –155.6 115.3 –9,735.6 –4,679.3 9,256.2 –138.8 47.8 –/– –115.1 37.5 94.4 9.1 4,617.6 –109.5 32.4 0.0 0.0 148.0 –10.4 9.2 –2,936.9 3,236.0 28.3 13.2 72 s056_s128_e 8.4.2005 14:22 Uhr Seite 73 Financial Report 2004 Cash flow from financing activities Note 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 Cash flow from own shares 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 Balance at January 1 Movement during year Balance at December 31 in CHF m Additional information on cash flow from operating activities Other interest received Dividends received Interest paid in CHF m 2003 –/– –/– 354.5 –138.2 1,806.4 –289.5 16.5 –22.1 2004 –/– –/– 360.9 –11.2 964.0 –6,128.5 –13.2 –33.2 1,727.6 –4,861.2 –4.2 22.6 16.2 675.8 16.2 692.0 –38.6 –5.3 –5.4 692.0 –5.4 686.6 1,244.8 47.6 –350.0 1,027.9 60.8 –203.6 Bâloise-Holding Annual Report 2004 73 s056_s128_e 8.4.2005 14:22 Uhr Seite 74 Financial Report 2004 Consolidated capital and reserves Balance at December 31, 2002 Movement on unrealized gains and losses on investments (gross) Less movement on Policyholder surplus Deferred acquisition costs not charged to income Deferred tax Foreign exchange differences Minority interests Movement on unrealized gains and losses on investments (net) Dividends Consolidated annual net profit Purchase/disposal of treasury stock Balance at December 31, 2003 in CHF m Share capital Capital reserves Less treasury stock Unrealized gains and losses (net) Accumulated profit Total capital and reserves 5.5 –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– 5.5 108.9 –84.8 15.2 3,043.3 3,088.1 –/– –/– 515.3 –/– 515.3 –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –18.6 90.3 35.1 –49.7 –141.2 –99.1 –13.6 –115.3 –0.2 145.9 –/– –/– –/– –/– –/– –/– –/– –/– –/– –22.1 91.4 –/– –141.2 –99.1 –13.6 –115.3 –0.2 145.9 –22.1 91.4 16.5 161.1 3,112.6 3,319.8 74 s056_s128_e 8.4.2005 14:22 Uhr Seite 75 Financial Report 2004 Continued Balance at December 31, 2003 Movement on unrealized gains and losses on investments (gross) Less movement on Policyholder surplus Deferred acquisition costs not charged to income Deferred tax Foreign exchange differences Minority interests Movement on unrealized gains and losses on investments (net) Dividends Consolidated annual net profit Purchase/disposal of treasury stock Balance at December 31, 2004 in CHF m Share capital Capital reserves Less treasury stock Unrealized gains and losses (net) Accumulated profit Total capital and reserves 5.5 –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– 5.5 90.3 –49.7 161.1 3,112.6 3,319.8 –/– –/– 258.5 –/– 258.5 –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– –12.7 77.6 –0.5 –50.2 –117.7 –46.0 –6.4 –100.9 –0.1 –12.6 –/– –/– –/– –/– –/– –/– –/– –/– –/– –33.2 221.7 –/– –117.7 –46.0 –6.4 –100.9 –0.1 –12.6 –33.2 221.7 –13.2 148.5 3,301.1 3,482.5 Bâloise-Holding Annual Report 2004 75 s056_s128_e 8.4.2005 14:22 Uhr Seite 76 Financial Report 2004 Notes to the consolidated financial statements 1. Basis of accounting ber 31, 2003. The Baloise Group is adapting its reporting standards for fiscal 2005 accordingly, in particular based The Baloise Group operates solely in Europe. It comprises on the new IFRS 2 “Share-based Payment”, IFRS 3 “Busi- 14 insurance companies, which provide almost all types of ness Combinations”, IFRS 4 “Insurance Contracts”, IFRS 5 life and non-life insurance. The holding company is Bâloise- “Non-Current Assets Held for Sale and Discontinued Opera- Holding, a Swiss stock corporation (Aktiengesellschaft) tions”, as well as the revised IAS 36 “Impairment of which has its registered office in Basel, Switzerland. The Assets”, IAS 38 “Intangible Assets” and IAS 39 “Financial shares of Bâloise-Holding are quoted on SWX Swiss Ex- Instruments: Recognition and Measurement”. change. Its subsidiaries operate in the insurance markets of The effects resulting from the application of the new Switzerland, Germany, Belgium, Austria, Luxembourg and and/or changed standards cannot be assessed yet at the Croatia. The banking business is carried out by subsidiaries time of writing this report. in Switzerland and Germany. The Baloise Group also has an investment fund structure in Luxembourg. The consolidated financial statements of the Baloise Group are prepared on a historical cost basis, taking into 3. Accounting policies account adjustments resulting from regular reassessments of the fair market value of certain investments, and are es- tablished in accordance with the International Financial Re- 3.1 Method of consolidation The consolidated financial statements consist of the finan- porting Standards (IFRS). They comply with Swiss legal re- cial statements of Bâloise-Holding and of its subsidiaries. quirements. As the IFRS do not currently contain any A subsidiary is consolidated where the Baloise Group has insurance-specific guidelines, insurance business has over 50% of the voting rights, whether directly or indirectly, been valued in accordance with the Generally Accepted or exercises control over it. Accounting Principles in the United States (US GAAP). Companies acquired in the course of the year under re- At its meeting of March 23, 2005, the Board of Directors view are included in the consolidation from the date when of Bâloise-Holding approved the annual financial state- effective control was acquired, while all companies dis- ments and the financial report and released them for publi- posed of during the year are included in the consolidation cation. The Bâloise-Holding Annual General Meeting is able until the date of disposal. Companies which are acquired to propose changes to the published financial statements. for the purpose of resale are held and accounted for as financial assets. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity which 2. Application of new accounting standards is subject to joint control. Deutscher Ring Beteiligungshold- ing is a joint venture in which the Baloise Group has a In fiscal 2003 No IFRS or US-GAAP standards affecting the Baloise Group direct 65% interest. The remaining 35% are held by Deutscher Ring Krankenversicherungsverein, a mutual were introduced or modified in fiscal 2003. insurance company. The contractual arrangements are such In fiscal 2004 IFRS 3, which governs the purchase of companies as of These companies are consolidated on a proportionate ba- sis, therefore the Baloise Group reports only its share of as- March 31, 2004, was applied to fiscal 2004 for the first sets, liabilities, expenses and income. that the majority shareholder does not have overall control. time. From fiscal 2005 From January 1, 2005, new and/or revised IFRS/IAS stan- Participating interests in associates are accounted for under the equity method (Baloise Group’s share in the in- trinsic value of the participating interest) if the Baloise Group has significant influence on the management of the dards are to be applied, in part retroactively from Decem- company and the company is not being held exclusively with 76 s056_s128_e 8.4.2005 14:22 Uhr Seite 77 Financial Report 2004 a view to its disposal in the near future. Changes in the value The following criteria are used to classify financial of equity participations, including the effect of any dividend assets: Financial assets which were acquired with the pur- flows, are as a rule recognized in the income statement. pose of realizing a short-term gain by taking advantage of All intragroup transactions or profits and losses arising fluctuations in market price are shown under the “Held for therefrom are eliminated. By contrast, the non-Group share trading” heading. Financial assets which are held for an of intragroup transactions involving companies consoli- indefinite period of time and may be sold at any time to dated on a proportionate basis is not eliminated. improve liquidity or to react to changes in market condi- tions are shown as “Available for sale”. Financial assets with a fixed maturity date are shown under the heading 3.2 Foreign currency translation The financial statements of the Baloise Group are stated in “Held to maturity”, provided the Baloise Group has the op- portunity and intention of holding them until their maturity Swiss francs (CHF). Foreign currency translation: The financial statements of all business units which were not originally prepared in date. Loans, policy loans, mortgage loans and similar fi- nancial assets issued by the Baloise Group are shown un- der the heading “Originated by the Group”. Investments are classified under one of these headings when they are CHF have been translated at year-end rates (for balance first recorded in the books. The classification is then re- sheet figures excluding goodwill) or at average rates for the viewed at year-end to ensure that it is still appropriate. year (for the income statement). The total exchange differ- Alternative financial assets such as private equity ences arising are taken directly to capital and reserves. investments and hedge funds are held as “Available When a foreign subsidiary is disposed of, exchange differ- for sale”. ences from the sale are recognized in the income statement Financial assets under the headings “Held for trading” as transaction income or expenses. and “Available for sale” are recorded in the balance sheet Monetary balance sheet items from foreign currency at fair market value. transactions at individual companies are translated at year- Financial assets under the headings “Held to maturity” end rates. Nonmonetary items are reported using the ex- or “Originated by the Group” are valued at amortized cost, change rate at the date of the transaction. However, non- less any necessary adjustments for permanent diminution monetary foreign currency positions carried at fair value are in value (impairment). The effective-interest method is translated at year-end rates (rate that existed when the fair used to amortize or write back the difference between pur- values were determined). Income and expenses are trans- chase value and the redemption value. lated at the rate applicable on the transaction date or at the All purchases and sales of financial assets are recorded average rate for the year. The resulting exchange differ- at the trade date. ences are taken to the income statement. 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. Fi- 3.3 Investments 3.3.1 Financial assets The business activities of the Baloise Group include the nancial assets under “Available for sale” are revalued at their market value, and unrealized gains and losses are taken to capital and reserves. For monetary financial assets issuing of insurance policies, as a result of which the Group classified as “Available for sale”, on the other hand, the incurs financial liabilities and assumes guarantees. To en- amortized cost determined using the effective-interest sure that it is in a position to meet its financial liabilities, method is recognized in income. The difference between the Baloise Group acquires financial instruments which this and market value is in turn not charged to income. The correspond as closely as possible in type and maturity pe- foreign currency revaluation of such positions is recorded riod to the expected level of claims and benefits paid. The in the income statement. Monetary assets include primarily composition of the investment portfolio is therefore deter- fixed-interest securities. Shares do not count as monetary mined mainly by the expected investment return for each assets. For life insurance companies, deductions are made type of investment by the type of liabilities arising from from the unrealized gains and losses in view of those insurance business and by the availability of risk capital, amounts which will be used in future to amortize acquisi- which is used to even out fluctuations in the price of tion costs and to pay bonuses and dividends to policyhold- investments. ers (shadow accounting). Bâloise-Holding Annual Report 2004 77 s056_s128_e 8.4.2005 14:22 Uhr Seite 78 Financial Report 2004 When financial assets are disposed of, any unrealized gains or losses are transferred from capital and reserves 3.4.2 Other assets The book value of other assets is reviewed on a regular to the income statement. The same applies where an basis for recoverability. A permanent diminution in value investment has suffered a permanent diminution in value (impairment) loss arises if the recoverable amount of an (impairment). asset is less than its book value. The recoverable amount is Changes to the fair values of financial assets which are the the higher of an asset’s net selling price (the estimated subject of a fair value hedge are recognized, regardless of amount obtainable from the sale of an asset less incremen- classification, in the income statement over the period of the tal costs directly attributable to the disposal of the asset) hedge. Interest income from fixed-interest investments which and the present value of estimated future cash flows ex- have been written down is recognized when it is received. pected to arise from the continuing use of an asset and from its disposal at the end of its useful life. 3.3.2 Investment property Investment property comprises land and buildings held to The estimated future cash flows are based on reason- able assumptions about the economic conditions that will earn rental income and/or for capital appreciation. exist over the remaining useful life of the asset and on cash Investment property is shown at fair market value. This flow projections and budgets/forecasts approved by the is determined each year by a valuation based on prevailing Corporate Executive Committee. Permanent diminutions in market conditions and carried out by in-house specialists. value are recognized in the income statement. Any perma- The fair value of holdings is derived principally from future nent diminution in value of majority or minority interests cash flows, using mathematical calculations based on sim- acquired in companies is described in section 3.6. ilar transactions. External valuation reports are obtained at regular intervals. No systematic depreciation is charged on investment property. Changes in value are immediately rec- ognized in the income statement, in the period of occur- 3.5 Derivative financial instruments The main tool for the management of investment risk and rence, as realized book profits/losses. return on the asset side of the balance sheet is the strate- 3.4 Permanent diminution in value 3.4.1 Financial assets The Baloise Group determines any permanent diminution gic allocation of investments to the various investment cat- egories (asset allocation). Derivative instruments are used to underpin this asset allocation. They are particularly use- ful for hedging investments, when preparing to purchase or sell investments, or to slightly increase investment income. in value (impairment) of financial assets classified as However, no trading or speculative business is undertaken “Available for sale” according to the following rules: in derivatives. Derivative transactions are undertaken only If the market value of participating interests is more with counterparties who have at least an A-credit rating than 50% below the purchase value, an impairment entry from Standard & Poor’s. must be booked in any case. Provided the market value is All derivative financial instruments are recorded in the more than 20% but less than 50% below purchase value, balance sheet at their market value. When the contract is impairment is to be considered and an entry made where concluded, the derivative is classified either as a hedging applicable. The impairment will be assessed on the basis instrument against the market value of an asset or a liabil- of reports by bank analysts and ratings by ratings agencies. ity (fair value hedge), as a hedge against future transac- Dividend developments, underlying capital and other fac- tions (cash flow hedge) or as a trading instrument. Deriva- tors will also be taken into account. The prime yardstick for tive financial instruments which do not fulfill IFRS the formation of the impairment is, however, the appraisal requirements for hedging transactions are treated as trad- by the asset manager responsible. In forming the impair- ing instruments, even if they have a hedging function ment, the accumulated net loss recorded in the capital and according to the Baloise Group’s own risk management reserves will be transferred to the income statement. regulations. An investment that is classified as “Held to maturity” or Changes in the market value of derivative financial in- “Originated by the Group” is revaluated if the present value struments which have been classified as fair value hedging of the future cash flows – taking into account actual inter- instruments are shown in the income statement. Changes est rates and any hedging activities – drops below the book in the market value of derivative financial instruments value for more than just a temporary period. which have been classified as cash flow hedging instru- 78 s056_s128_e 8.4.2005 14:22 Uhr Seite 79 Financial Report 2004 ments are taken directly to capital and reserves. The of business acquired, the lifespan of the insurance con- amounts accounted for in capital and reserves will be tracts, relationships with clients and sales channels. The recorded at a later date in the income statement or balance value of capitalized goodwill is assessed annually. If the sheet together with the hedged cash flows. book value of the goodwill is greater than the recoverable Changes in the market value of derivative financial in- amount, the difference will be amortized via the income struments which are classified as trading instruments or do statement. not fulfill the requirements of a hedging transaction are Goodwill capitalized after March 31, 2004, is reevalu- shown in the income statement, under “Realized gains and ated annually and in the event of any extraordinary occur- losses on investments (net)”. rence. If the book value of the goodwill is greater than The Baloise Group keeps records of hedge effectiveness the recoverable amount, the difference will be charged to and the aims and strategies pursued for each hedging income. transaction. Hedge effectiveness is closely monitored from Badwill capitalized before March 31, 2004, is written off the date the contract begins. Derivative financial instru- as income (offset against the amortization expense) on a ments which no longer meet the requirements for a hedg- systematic basis over the remaining average useful life of ing instrument are reclassified as trading instruments. the acquired, nonmonetary assets, at most, however, over Structured products are financial instruments, either as- 20 years. sets or liabilities, which consist of a host contract and em- Badwill accrued after March 31, 2004, is taken directly bedded derivative financial instruments. In the majority of to the income statement. cases, the embedded derivative financial instruments are The present value of profits from insurance contracts ac- not separated from the host contract and are classified in quired is amortized over the underlying period of premium the trading portfolio of the host business, with the effect payments taken to income. The value of the profits is re- that unrealized gains and losses are recorded directly in viewed on an annual basis. Other intangible assets consist the income statement. Some derivative financial instru- mainly of software and external IT-consultancy services and ments are separated from the host contract and are sepa- are written off on a straight-line basis over their useful life, rately recorded, valued and disclosed. For this to be the at most, however, over 5 or 10 years respectively. This fig- case, the following conditions must apply: that the eco- ure also includes software developed in-house, carried for nomic characteristics and risks of the embedded derivative the first time at production cost. 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. 3.6 Intangible assets Company acquisitions (fully consolidated and consolidated 3.7 Tangible noncurrent assets Tangible noncurrent assets are shown at cost less accumu- lated depreciation. Depreciation is calculated on a straight- line basis over the estimated useful life of the asset, as fol- lows: buildings for own use 25 to 50 years, equipment and on a proportionate basis) are accounted for using the pur- furnishings 5 to 10 years, computer hardware 3 to 5 years. chase method. Under this method, the purchase price is Land is shown at purchase value less any necessary provi- compared, on the date of acquisition, with the fair values of sions for impairment. Repairs and maintenance are always the assets and liabilities acquired as well as the intangible charged to the income statement. assets identified but not yet recognized in the balance sheet. The balance is accounted for as goodwill. Goodwill relating to subsidiaries which do not prepare their financial statements in Swiss francs is translated at the exchange 3.8 Leasing Lease agreements relating to real estate, fixtures, fittings rate applicable on the date of the acquisition. and other tangible noncurrent assets, whereby basically all Goodwill capitalized before March 31, 2004, is amor- the risks and rewards relating to ownership of the asset are tized on a straight-line basis over its expected useful life, transferred to the Baloise Group, are defined and treated which may not exceed 20 years. The period over which the as finance leases. The fair value of the leased property, or goodwill is to be amortized is determined mainly by the fu- the present value of the leasing payments if lower, is dis- ture economic benefits expected to flow from the company closed as a tangible noncurrent asset at the inception of acquired. These depend, among other things, on the type the lease. Each lease payment comprises a depreciation Bâloise-Holding Annual Report 2004 79 s056_s128_e 8.4.2005 14:22 Uhr Seite 80 Financial Report 2004 expense for the asset and interest payment. The deprecia- tions and are allocated to a separate provision. This provi- tion expense is deducted from the liability for the leased sion also includes policyholders’ share of the unrealized asset, which is shown under “Liabilities from banking busi- gains and losses covered by the IFRS shareholders’ capital ness and loans”. The value of the leased item is reviewed and reserves and their share of the higher or lower values on the balance sheet reference date. recorded in the consolidated financial statement – as com- Other lease agreements are classified as “Operating pared with the statement based on commercial law – and leases”. Lease payments under an operating lease are rec- taken to income. Statutory regulations and the rules set ognized as an expense in the income statement on a out in contracts and company articles of incorporation are straight-line basis over the lease term. authoritative in determining the share of future policy- holder bonuses. Where there are no such statutory regula- tions or rules set out in contracts and company articles of 3.9 Cash and cash equivalents Cash and cash equivalents comprise cash on hand, de- incorporation – as in the case of Belgium, Luxembourg and in Swiss individual life business – an allocation to policy- mand deposits and short-term highly liquid investments holder bonuses will not apply. with maturity periods of up to 24 hours. Cash and cash Policyholder bonuses credited: Bonuses already allo- equivalents are stated at their nominal value. Term de- cated which have been accrued on an interest-bearing ba- posits are entered under “Other short-term investments.” sis are included in policyholder bonuses credited and pro- vision for future policyholder bonuses. 3.10 Receivables Receivables arising out of insurance operations and other This provision comprises the following: (cid:2) Sums irrevocably set aside for future policyholder receivables are recognized and stated at amortized cost. bonuses, This generally corresponds to the nominal value of the amount receivable. Permanent diminutions in value (impair- (cid:2) Policyholders’ shares of the reported result, (cid:2) Policyholders’ shares of unrealized gains and losses on ment losses) are charged directly to the income statement. investments. Investments and technical provisions relating to unit-linked 3.11 Life insurance Premiums are accounted for as income when due. Claims life policies: These amounts relate to investment-type products. With these products, it is the policyholder who and benefits paid and costs are accounted for so as to en- bears the investment risk in accordance with specific in- sure that the profit from the contracts is allocated equally vestment aims. Current investment income and market over the anticipated term of the policies. Premiums and price fluctuations are directly debited or credited to the services relating to investment-type products are account- policyholders. The investments are held separately and are ed for as follows: the risk and cost element is taken to the not available to meet claims arising from other business ac- income statement, while the savings element is directly tivities of the Baloise Group. Investments and liabilities are credited to or deducted from the policyholder’s deposit. stated at market value. Administrative and redemption The actuarial reserve is calculated on the basis of actu- costs charged to policyholders are recognized as policy arial principles from the present value of future claims and fee income. benefits paid less the present value of premiums not yet paid. The calculation is made in accordance with the fol- lowing Financial Accounting Standards: FAS 60, FAS 97 or FAS 120. The accounting principles (e.g. in respect of inter- 3.12 Non-life insurance The term gross is added to technical account headings est or mortality) vary depending on the country, product where these refer to business concluded by the Baloise and year of acquisition and take country-specific empirical itself. The terms net or for own account are used after values into consideration. Unearned premiums, unearned deducting any reinsurance element. revenue reserves and provisions for final policyholder Gross premiums written are recognized in the fiscal year bonuses are included in the actuarial reserve. in which they fall due. They include an amount required to Amounts for future surplus shares to policyholders are cover the insurance risk and any loading. Any part of the fixed on the basis of local statutory and contractual regula- premium which relates to future fiscal years is deferred un- 80 s056_s128_e 8.4.2005 14:22 Uhr Seite 81 Financial Report 2004 der the contract and is included in the unearned premiums costs are reviewed when the contract is acquired and there- reserves in the balance sheet, together with any provisions after on an annual basis for recoverability. for premium shortfalls relating to the fiscal year. Premiums which do relate to the fiscal year are referred to as premi- ums earned. This figure comprises premiums written and the change in the unearned premiums reserves. 3.14 Reinsurance Reinsurance contracts are insurance contracts between Loss reserves and provisions for the associated claims- insurance companies. If a transaction is to be recognized processing costs are set up for all losses which have oc- as a reinsurance transaction, there must be a transfer of curred before the end of the fiscal year, whether or not risk as defined the US GAAP, otherwise the contract would these have been notified to the Baloise Group. be dealt with outside the income statement as deposit These provisions represent a projection of all future pay- accounting. ments to be made in respect of these losses. Loss reserves Reinsurance assumed is recognized in the same ac- are calculated on the basis of prior-year experience and counting period as the initial risk. The technical provisions expected developments in the future. are included in liabilities under the headings “Unearned The process involves the application of mathematical, premiums reserves (gross)” and “Loss reserves (gross)”. statistical methods and the expertise of claims-handling These provisions are as realistic as possible and are based specialists. The aim is to establish provisions for outstand- on empirical values and the most up-to-date information ing claims and for claims-processing costs which are as re- available. alistic as possible. An additional provision is set for claims- Reinsurance ceded is business which has been ceded to processing costs. insurance companies outside the Group and comprises The combined loss reserves have three components. amounts which relate to direct life and non-life business The provisions calculated according to actuarial methods and reinsurance assumed which is to be ceded. form the basis of the combined provision; a second compo- Assets from reinsurance ceded are calculated on the nent is provisions for those complex special cases and same basis and for the same period as the original transac- events which do not lend themselves to purely mathemati- tion and shown in assets from reinsurance. Where deposits cal calculations. These two components are determined are at risk due to insolvency, appropriate write-downs are without discounting. The third component is annuities, made in the income statement. which are capitalized on the basis of technical principles Receivables and payables from deposit accounting con- such as mortality rates, technical interest rates, etc. tracts are recognized mainly using the interest method. The The whole process of projecting the future can never en- effective interest rate is calculated on the basis of cash tirely eliminate the uncertainties inherent in future devel- flows which have already occurred or are expected in the opments. Therefore, future developments may well be dif- future. Otherwise, the insurance coverage financed by the ferent to those projected. The provisions established in a deposit is amortized over the expected term of the deposit. particular year are systematically reviewed, which means Liabilities are included in “Deposit fund liabilities arising that variances can be controlled. On the basis of such re- from reinsurance”. views, the projection process can be adjusted if necessary. Surplus and profit allocations to policyholders: insur- ance contracts may provide for surplus sharing with a client arising from the surplus on his contracts. Payments made 3.15 Own shares Own shares (treasury stock) held by Bâloise-Holding or by during the fiscal year and the change in the relevant provi- its subsidiaries are shown at purchase value in the consoli- sions combine to give the figure referred to in the income dated financial statements as a deduction from “Capital statement as surplus and profit allocations to policyholders. and reserves”. The shares are not restated at their current 3.13 Deferred acquisition costs Costs which are directly associated with the acquisition of insurance contracts (e.g. commissions) are deferred and written off over the period of the contract, or over the premium payment period, if shorter. Deferred acquisition market value. When the shares are sold, the difference be- tween purchase value and selling price is adjusted under “Capital and reserves”. Only Bâloise-Holding shares are counted as own shares. Bâloise-Holding Annual Report 2004 81 s056_s128_e 8.4.2005 14:22 Uhr Seite 82 Financial Report 2004 3.16 Liabilities from banking business and loans Liabilities from banking business and loans are if not clas- termination of employment (such as severance pay and benefits from redundancy schemes). Because of the sified as Fair Value Hedge, stated at amortized cost. The ef- amounts involved, the following benefits can be particu- fective-interest rate method is used to amortize or write larly significant: back the difference between purchase value and redemp- tion value. The cost figure also includes transaction costs. The convertible loan issued by Baloise Finance Jersey, Postemployment benefits: The main retirement benefits are pensions and insurance contributions assumed by the which confers the right to subscribe for shares in a non- employer. The benefits are paid when the employee ceases group company, consists of a liability and an embedded to be employed and are financed during the period in which option. When the loan was issued, the market value of the the employee is working. The retirement pensions in the embedded option was determined and shown separately Baloise Group are predominantly defined benefit plans. as a derivative financial instrument. The purchase value of The present value of the defined benefit obligation is dis- the liability component is the present value of future cash counted using the Projected Unit Credit Method (accrued flows, which was calculated when the issue was made. The benefit method prorated on service). discount factor applied is the market interest rate for simi- Plan assets which match the benefits payable are only lar loans without conversion or option rights. recognized if they are brought into an entity which is legally separate from the employer, e.g. a foundation. The plan assets are stated at market value. The unrecognized 3.17 Financial provisions Financial (nontechnical) provisions are recognized when actuarial gains and losses which at the end of the previous financial period exeeded by 10% the greater of (1) the pre- the Baloise has a present obligation (legal or de facto), sent value of liabilities relating to defined benefit plans when it is probable that an outflow of resources will be re- and (2) the fair value of plan assets are recognized in the quired to settle the obligation and when a reliable estimate income statement on the basis of the expected average of can be made of the amount of the obligation. The amount the remaining years of service of those employees who of the provision is based on the best estimate of possible participate in the plan. outcomes. If no reliable estimate can be made of the liabil- Pension plans of the Baloise Group are tailor-made for ity, it is disclosed as a contingent liability. local circumstances as regards enrolment and the extent of 3.18 Tax The provision for deferred tax in the consolidated financial benefits. Benefits in the narrow sense are pension ben- efits. Other plan benefits may be subsidized premiums or contributions to health insurance and are of minor signifi- cance. Payments are made mainly by the employer and in statements is calculated under the liability method, i.e. some countries also by the employees. Pension plans are based on current or future expected tax rates. Deferred tax sometimes implemented within companies and sometimes takes into account the income tax effects of temporary in entities which are legally separate from the employer. differences between the assets and liabilities carried in the (IFRS-conform) consolidated balance sheet and their fiscal base. When deferred tax is calculated, unused tax losses Equity benefits: Employee shares, share participation schemes, direct allocation of shares and shares subscribed are only carried forward to the extent that it is probable that through options are equity benefits. future taxable profit will be available against which the tax losses can be utilized. 3.19 Benefits due to employees Amounts due from the Baloise Group to employees include Employee 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 all types of employee benefits given in exchange for ser- acquired the shares set aside for this purpose from previ- vices rendered by employees or in special circumstances. ous increases in the share capital of Bâloise-Holding. Due The following amounts need to be established: short- to the low acquisition cost of the shares held by the Trust term benefits (such as wages), benefits due in the long and the number of shares held, Bâloise-Holding will be term (such as anniversary payments) and benefits upon able to continue with this profit-sharing initiative in the 82 s056_s128_e 8.4.2005 14:22 Uhr Seite 83 Financial Report 2004 years to come. The Trust is managed by a Trust Board which is independent of the Corporate Executive Committee, re- 3.21 Fair value of financial assets and liabilities The fair value of financial instruments is based on quoted ports to the cantonal fund authority of the city of Basel and market values or on estimates (present-value method, etc.) is not consolidated. and on the following assumptions: Share participation scheme: Since May 2001, most middle and senior managers working in Switzerland can Cash, cash equivalents and short-term investments: The amounts shown in the balance sheet are stated at mar- opt to have a freely determinable part of their perfor- ket value (fair value). mance-related earnings (incentive) remitted as shares in- stead of cash. To boost the effectiveness of the share par- ticipation scheme, employees receive a loan at a market Fixed-interest securities: The fair value is generally based on quoted prices. If quoted prices are not available, the price rate of interest, enabling them to purchase a far greater is determined by independent valuations or by comparing number of shares than provided by the incentive scheme. the market prices of similar financial instruments. The loan repayment after a three-year blocking period is hedged with a put option that is financed by the sale of a corresponding call option. After expiry of the three-year Shares: Fair value is the quoted share price. If this is not available, the fair value is estimated using generally recog- blocking period, employees receive the shares remaining nized methods and in light of the current state of the after repayment of the loan for their free disposal. The market. If the value cannot be estimated reliably, stocks are Baloise does not incur any additional costs by this share reported at purchase value. participation scheme. Direct allocation of shares: Since January 2003, em- ployees of all Group companies who are eligible for incen- Mortgage loans, policy loans and other loans: The fair values are determined by discounting the cash flows, using the current interest rate applied by the Baloise Group to tives have been able to subscribe shares at a preferential similar loans. price as part of their variable, performance-related pay component (incentive). The subscription price is always 10% lower than the market value at the time of subscrip- Derivative financial instruments: The market value is stated at prices as supplied by independent brokers or in tion. The shares are committed to safe custody for a block- accordance with market practice. ing period of three years. Option rights: The members of the Corporate Executive Committee and of the Executive Boards of the subsidiaries, Other financial assets: The fair value is generally a quoted market price. If no market prices are available, the market value is estimated. If the value cannot be estimated and other employees in key positions, were, up to 2002, reliably, financial assets are reported at purchase value. granted options to purchase shares in Bâloise-Holding as part of their remuneration. These options were purchased from third parties by the Baloise Group at market value and Deposits and other amounts due to policyholders: The fair values are determined by discounting the cash flows, are quoted on the stock market. The conditions which apply using the current interest rate applied by the Baloise Group to the option rights were specified at the beginning of the to similar financial instruments with similar time remaining fiscal year. The number of options allocated by the end of to maturity. the financial year depended on whether the parties con- cerned met their personal performance objectives. The al- located share options could not be sold for two years. The Liabilities from banking business and loans: The fair val- ues are determined by discounting the cash flows, using the associated costs were included in personnel expenses. current interest rate payable by the Baloise Group for similar financial instruments with similar periods of time to maturity. 3.20 Other liabilities Other liabilities are recognized and stated at amortized Other financial liabilities: The fair value is generally a quoted market price. If no market prices are available, the cost, which is generally the same as nominal value. market value is estimated. If the value cannot be estimated reliably, financial liabilities will be reported at purchase value. Bâloise-Holding Annual Report 2004 83 s056_s128_e 8.4.2005 14:22 Uhr Seite 84 Financial Report 2004 3.22 Offsetting assets and liabilities Financial assets and liabilities are offset and the net 5. Acquisitions and disposals of subsidiaries and other business units amount reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts 5.1 Acquisitions and disposals of subsidiaries and the Baloise Group intends to realize the asset and set- and other business units in 2003 tle the liability simultaneously. The purchase of the German insurance group Securitas was formally and substantively completed as of January 7, 2003. During the course of fiscal 2003 Securitas was 3.23 Use of accounting estimates In order to prepare annual financial statements in accor- merged with parts of the German branch of the Baloise, In- surance Company Limited, Basel, to form Basler Securitas dance with IFRS, it is necessary for the Corporate Executive Versicherungs-Aktiengesellschaft. Committee to make assumptions and estimates which have Gilde Lebensversicherungs AG which forms part of the an effect on the amounts disclosed in the balance sheet and Securitas Group was acquired by the German branch of the income statement for the current fiscal year. Therefore, it is Baloise Life Insurance Company Ltd, Basel. possible that the actual figures may differ from the estimates. DePfa Beteiligungs-Holding II GmbH, Düsseldorf, valued at 4. Foreign currency translation 4.1 Rates of exchange Balance Income statement/ cash flow statement equity, sold its participating interest to DePfa Bank PLC, Dublin, through the stock market in the second half of 2003. During the year under review, the fully consolidated real estate company Rubens 2000 N.V., Antwerp, was sold for CHF 37.5 million. No other significant acquisitions or disposals were ef- Currency EUR (euro) USD (US dollar) GBP (pound sterling) JPY (yen) in CHF 2003 2004 2003 2004 fected. 1.56 1.24 2.21 1.15 1.55 1.14 2.18 1.11 1.52 1.34 2.20 1.15 1.54 1.24 2.28 1.15 5.2 Acquisitions and disposals of subsidiaries and other business units in 2004 In the year under review , other smaller entities were sold in addition to Mercator Banque S.A., Antwerpen. 4.2 Foreign exchange differences Exchange differences arising from transactions in foreign Investments currencies included in the consolidated income statement Cash and cash equivalents resulted in a loss CHF 47.0 million). of CHF 70.1 million in 2004 (2003: gain of Other assets Other liabilities This also comprises a foreign exchange gain of CHF 25.9 Net asset disposed million (2003: gain of 135.6 million) resulting from mone- 2003 2004 4,710.6 4,689.5 93.6 89.0 1,077.3 1,074.2 –5,628.6 –5,647.7 252.8 205.0 tary investments classified as “Available for sale.” Disposal income 140.9 Capital and reserves contain a currency loss (gross) – in CHF m not charged to income – of CHF 100.9 million (2003: loss of CHF 115.3 million). After hedge accounting (taking cash Mercator Banque S.A. was sold on August 11, 2004. This flow hedges into account), there remains a net loss of transaction resulted in a one-time charge against income of CHF 2.3 million (2003: net loss of CHF 13.7 million). CHF 70.2 million in 2004. 84 s056_s128_e 8.4.2005 14:22 Uhr Seite 85 Financial Report 2004 6. Information about geographical and business segments The Baloise Group has strategic operations in the following regions: Switzerland (including the Principality of Liechten- stein), Germany, the Benelux and other countries. The business segments are non-life insurance, life in- surance, banking (including asset management and investment funds) and other activities and Group business. Non-life insurance includes accident insurance, health in- surance 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 competencies of the companies in the Baloise Group. On the life insurance side, a broad range of asset- forming insurance, pure risk coverage and unit-linked prod- ucts is provided for private individuals and companies. The banking segment comprises Baloise Bank SoBa, an all-pur- pose bank operating in Switzerland, and Deutscher Ring Bausparkasse in Germany, predominantly active in tradi- tional real estate financing. The other activities and Group business segment include in particular investment and real estate companies. The accounting principles applied to the segment re- porting are the same as apply to the entire financial report. Transactions between business segments and geographi- cal segments within the Baloise Group are conducted on the same terms as transactions with third parties. Infor- mation analyzed by geographical and business segments is given in the segment reports, in the Management Infor- mation section and in the following tables. Bâloise-Holding Annual Report 2004 85 s056_s128_e 8.4.2005 14:22 Uhr Seite 86 Financial Report 2004 6.1 Segment reporting by region 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 Premiums earned and policy fees for own account Investment income (net) Realized gains and losses on investments (net)1 Income from other services Other income Total income Income between regions Income from associates Expenses 2003 4,269.3 –169.2 4,100.1 –5.9 4,094.2 939.5 –38.3 27.3 28.2 Switzerland 2004 3,996.1 –184.2 3,811.9 –8.7 3,803.2 854.7 149.1 31.2 3.4 2003 2,199.9 –269.6 1,930.3 10.6 1,940.9 769.0 –82.1 96.8 46.6 Germany 2004 2,120.9 –237.8 1,883.1 5.4 1,888.5 701.1 66.0 111.8 32.9 5,050.9 4,841.6 2,771.2 2,800.3 75.4 –0.1 86.9 0.0 179.6 48.9 182.9 16.3 Claims incurred including processing costs (non-life) –836.7 –796.2 –606.4 –484.8 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 Revaluation and amortization of intangible assets Revaluation and depreciation of tangible noncurrent assets –2,372.1 –2,735.3 –1,096.1 –1,054.8 –962.5 –126.8 –83.0 –483.9 –75.8 –14.3 –34.3 –259.3 –196.7 –83.9 –457.8 –104.1 –24.8 –25.3 6.7 –346.9 –30.8 –470.0 –114.7 –8.8 –27.1 –10.9 –287.8 –249.7 –423.7 –121.8 –10.9 –22.4 2003 744.6 –56.7 687.9 –4.3 683.6 268.9 –46.3 102.8 48.1 1,057.1 13.5 –7.2 –386.8 –204.5 15.0 36.6 –141.4 –256.1 –181.4 –30.3 –12.1 Total expenses –4,989.4 –4,683.4 –2,694.1 –2,666.8 –1,161.0 Annual profit/loss before tax and minority interests Tax on income Annual profit/loss after tax and before minority interests Minority interests Annual net profit/loss by region Additional information Assets by geographical segment Of which investments Of which participating interests Liabilities by region Of which technical provisions Cash flow from operating activities (net) Cash flow from investing activities (net) Cash flow from financing activities (net) Acquisition of property, plant and equipment and intangible assets for own use Impairment in value charged to income Reinstatement of original value charged to income in CHF m 1 Including financial liabilities held for trading (derivative financial instruments) 86 61.5 0.6 62.1 –/– 62.1 34,481.6 30,055.1 0.1 31,287.8 23,847.2 722.2 –1,161.8 114.0 33.0 –57.1 502.7 158.2 –31.0 127.2 –/– 127.2 34,761.1 30,293.9 0.1 31,641.1 24,351.4 280.3 –269.6 3.4 32.3 –38.5 100.1 77.1 –87.4 –10.3 –6.8 –17.1 18,193.9 15,255.7 118.7 17,691.2 14,883.5 132.7 –182.5 90.7 17.9 –73.2 219.8 133.5 –61.9 71.6 –13.1 58.5 18,130.7 15,235.4 117.7 17,484.1 14,717.6 –3.3 –96.7 50.4 28.7 –31.2 86.2 –103.9 –18.2 –122.1 0.2 –121.9 10,100.6 7,753.6 104.8 9,891.4 2,829.3 53.2 –1,039.4 1,054.2 32.9 –119.9 135.4 s056_s128_e 8.4.2005 14:22 Uhr Seite 87 Financial Report 2004 Germany 2004 2,120.9 –237.8 1,883.1 5.4 1,888.5 701.1 66.0 111.8 32.9 2,800.3 182.9 16.3 –484.8 –1,054.8 –10.9 –287.8 –249.7 –423.7 –121.8 –10.9 –22.4 –2,666.8 133.5 –61.9 71.6 –13.1 58.5 18,130.7 15,235.4 117.7 17,484.1 14,717.6 –3.3 –96.7 50.4 28.7 –31.2 86.2 03 9.9 9.6 0.3 0.6 0.9 9.0 2.1 6.8 6.6 .2 9.6 8.9 6.4 6.1 6.7 6.9 0.8 0.0 4.7 8.8 7.1 4.1 7.1 7.4 0.3 6.8 7.1 3.9 5.7 8.7 .2 3.5 2.7 2.5 0.7 7.9 3.2 9.8 Benelux Other countries Elimination 2003 744.6 –56.7 687.9 –4.3 683.6 268.9 –46.3 102.8 48.1 1,057.1 13.5 –7.2 –386.8 –204.5 15.0 36.6 –141.4 –256.1 –181.4 –30.3 –12.1 2004 748.4 –65.5 682.9 0.6 683.5 209.5 –91.9 80.0 29.1 910.2 14.3 5.4 –379.4 –112.8 –35.1 0.0 –134.4 –209.0 –129.1 –18.4 –15.0 2003 441.0 –37.8 403.2 –7.6 395.6 57.1 125.4 27.8 33.7 639.6 2004 441.4 –26.5 414.9 –1.6 413.3 46.5 65.2 31.6 50.7 607.3 –282.7 0.0 –297.5 0.0 –209.2 –246.1 –23.6 –10.6 –3.4 –56.2 –74.5 –47.7 –24.1 –1.3 –16.7 –16.8 –4.6 –63.9 –66.9 –49.7 23.6 –1.2 –1,161.0 –1,033.2 –450.6 –442.3 –103.9 –18.2 –122.1 0.2 –121.9 10,100.6 7,753.6 104.8 9,891.4 2,829.3 53.2 –1,039.4 1,054.2 32.9 –119.9 135.4 –123.0 6.8 –116.2 0.1 –116.1 5,061.8 3,525.6 30.3 4,814.7 2,893.0 1,372.1 4,098.0 –5,388.7 14.9 –55.8 61.3 189.0 –20.4 168.6 –0.3 168.3 3,473.3 3,327.6 0.2 4,018.5 1,107.8 299.5 –328.2 239.0 –48.9 –13.4 8.4 165.0 –12.9 152.1 0.0 152.1 4,001.5 3,828.3 0.1 4,469.9 1,218.0 230.1 –494.2 218.1 4.3 –19.1 12.3 2003 –280.1 280.1 –/– 0.4 0.4 –5.2 –/– –/– –9.4 –14.2 14.2 –/– 8.0 –7.9 –0.8 0.0 34.3 –33.9 14.5 –/– –/– 14.2 –/– –/– –/– –/– –/– 2004 –284.7 284.7 –/– –0.7 –0.7 –3.8 0.0 0.0 –8.9 –13.4 13.4 –/– 7.0 3.2 –9.9 –/– 43.9 –43.4 12.6 –/– –/– 13.4 –/– –/– –/– –/– –/– –1,948.6 –2,334.3 –84.3 –/– –83.9 –/– –1,948.6 –2,335.0 –339.1 –4.7 –225.0 229.7 –/– –/– –/– –476.7 –254.1 –1.5 255.6 –/– –/– –/– 2003 7,374.7 –253.2 7,121.5 –6.8 7,114.7 Total 2004 7,022.1 –229.3 6,792.8 –5.0 6,787.8 2,029.3 1,808.0 –41.3 254.7 147.2 188.4 254.6 107.2 9,504.6 9,146.0 –/– 41.6 –/– 21.7 –2,031.1 –3,704.2 –952.2 –440.5 –277.1 –1,899.5 –3,916.4 –332.0 –489.1 –488.0 –1,318.4 –1,200.8 –405.1 –77.5 –74.8 –392.1 –30.5 –63.9 –9,280.9 –8,812.3 223.7 –125.4 98.3 –6.9 91.4 64,300.8 56,307.7 223.8 60,940.3 42,328.7 1,202.9 –2,936.9 1,727.6 34.9 –263.6 866.3 333.7 –99.0 234.7 –13.0 221.7 59,620.8 52,799.3 148.2 56,074.8 42,703.3 1,625.1 3,236.0 –4,861.2 80.2 –144.6 259.9 Bâloise-Holding Annual Report 2004 87 s056_s128_e 8.4.2005 14:22 Uhr Seite 88 Financial Report 2004 6.2 Segment reporting by line of business 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 2003 3,088.8 –215.4 2,873.4 –7.2 Non-life 2004 3,081.4 –183.6 2,897.8 –4.3 2003 4,301.1 –53.0 4,248.1 –/– Life 2004 3,956.4 –61.4 3,895.0 –/– Premiums earned and policy fees for own account 2,866.2 2,893.5 4,248.1 3,895.0 Investment income (net) Realized gains and losses on investments (net)1 Income from other services Other income Total income 242.1 –43.0 –1.7 54.6 247.8 –50.2 –2.2 26.8 1,437.9 –66.5 –8.3 28.6 1,306.0 199.2 –9.3 45.1 3,118.2 3,115.7 5,639.8 5,436.0 Income between business segments Income from associates –32.5 5.3 –26.3 7.4 –25.1 28.0 –14.1 6.1 Expenses Claims incurred including processing costs (non-life) –2,039.1 –1,906.5 –/– –/– 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 Revaluation and amortization of intangible assets Revaluation and depreciation of tangible noncurrent assets –/– –/– –12.4 –342.2 –564.7 –9.4 –32.9 –25.7 –/– –/– –13.0 –381.7 –514.3 –15.5 –18.3 –21.8 –3,696.3 –3,919.6 –951.4 –428.1 64.4 –353.2 –145.9 –16.1 –37.4 –322.1 –476.1 –107.8 –353.0 –140.7 –22.1 –31.0 Total expenses –3,026.4 –2,871.1 –5,564.0 –5,372.4 Annual profit/loss before tax and minority interests Tax on income Annual profit/loss after tax and before minority interests Minority interests Annual net profit/loss by business segment 91.8 –43.3 48.5 0.0 48.5 244.6 –60.5 184.1 –/– 184.1 75.8 –41.7 34.1 0.0 34.1 63.6 –9.3 54.3 0.3 54.6 Additional information Assets by business segment Liabilities by business segment Acquisition of property, plant and equipment and intangible assets for own use in CHF m 1 Including financial liabilities held for trading (derivative financial instruments) 10,489.4 8,179.6 10,756.5 8,158.3 43,943.5 42,696.4 44,930.4 43,348.9 32.8 27.9 15.1 16.7 In fisical 2004, Baloise Alternative Investment Strategies tively in line with the participation ratios. To enable compa- Ltd., Cayman Island and Baloise Equity Ltd., Cayman Island rison, the previous year’s figures were adjusted accordingly. were allocated to the life and non-life segments respec- 88 2003 –/– –/– –/– –/– –/– 354.9 10.9 19.2 56.4 441.4 13.4 0.3 –/– –/– –/– –/– –/– –167.4 –235.1 –3.1 –6.5 –412.1 29.3 –15.0 14.3 –/– 14.3 11,670.6 11,065.6 4.5 s056_s128_e 8.4.2005 14:22 Uhr Seite 89 Financial Report 2004 Life 2004 3,956.4 –61.4 3,895.0 –/– 3,895.0 1,306.0 199.2 –9.3 45.1 5,436.0 –14.1 6.1 –/– –3,919.6 –322.1 –476.1 –107.8 –353.0 –140.7 –22.1 –31.0 –5,372.4 63.6 –9.3 54.3 0.3 54.6 44,930.4 43,348.9 16.7 03 .1 3.0 8.1 /– 8.1 7.9 6.5 8.3 8.6 9.8 5.1 8.0 /– 6.3 .4 8.1 4.4 3.2 5.9 6.1 7.4 4.0 5.8 .7 4.1 0.0 4.1 3.5 6.4 5.1 2003 –/– –/– –/– –/– –/– 354.9 10.9 19.2 56.4 441.4 13.4 0.3 –/– –/– –/– –/– –/– –167.4 –235.1 –3.1 –6.5 Banking 2004 –/– –/– –/– –/– –/– 261.9 51.4 29.0 29.0 371.3 15.1 0.1 –/– –/– –/– –/– –/– –116.8 –212.9 –3.8 –4.6 Other activities/ Group business 2003 2004 –/– –/– –/– –/– –/– 41.2 57.3 245.5 23.6 367.6 –18.2 8.0 –/– –/– –/– –/– –/– –232.7 –77.5 –25.4 –5.2 –/– –/– –/– –/– –/– 26.6 –12.0 237.1 17.8 269.5 –21.2 8.1 –/– –/– –/– –/– –/– –215.7 –68.7 13.7 –6.5 –412.1 –338.1 –340.8 –277.2 29.3 –15.0 14.3 –/– 14.3 33.2 –23.5 9.7 0.0 9.7 26.8 –25.4 1.4 –6.9 –5.5 –7.7 –5.7 –13.4 –13.3 –26.7 2003 –15.2 15.2 –/– 0.4 0.4 Elimination 2004 –15.7 15.7 –/– –0.7 –0.7 2003 7,374.7 –253.2 7,121.5 –6.8 7,114.7 Total 2004 7,022.1 –229.3 6,792.8 –5.0 6,787.8 –46.8 –34.3 2,029.3 1,808.0 –/– –/– –16.0 –62.4 62.4 –/– 8.0 –7.9 –0.8 –/– 0.7 –0.4 62.8 –/– –/– 62.4 –/– –/– –/– –/– 0.0 –/– –/– –11.5 –46.5 46.5 –/– 7.0 3.2 –9.9 –/– 1.5 –1.0 45.7 –/– –/– 46.5 –/– –/– –/– –/– 0.0 –41.3 254.7 147.2 188.4 254.6 107.2 9,504.6 9,146.0 –/– 41.6 –/– 21.7 –2,031.1 –3,704.2 –952.2 –440.5 –277.1 –1,899.5 –3,916.4 –332.0 –489.1 –488.0 –1,318.4 –1,200.8 –405.1 –77.5 –74.8 –392.1 –30.5 –63.9 –9,280.9 –8,812.3 223.7 –125.4 98.3 –6.9 91.4 333.7 –99.0 234.7 –13.0 221.7 11,670.6 11,065.6 5,765.8 5,389.0 1,615.1 2,416.5 1,554.1 2,564.6 –3,417.8 –3,417.8 –3,386.0 –3,386.0 64,300.8 60,940.3 59,620.8 56,074.8 4.5 3.5 –17.5 32.1 –/– –/– 34.9 80.2 Bâloise-Holding Annual Report 2004 89 s056_s128_e 8.4.2005 14:22 Uhr Seite 90 Financial Report 2004 6.3 Gross premiums by geographical and business segments 6.3.1 Gross premiums by geographical and business segments 2003 Switzerland Germany Benelux Other countries Elimination Total in CHF m Non-life 1,237.7 1,122.3 583.4 410.2 –264.8 3,088.8 Life Elimination 3,031.6 1,077.6 161.2 30.8 –0.1 4,301.1 –/– –/– –/– –/– –15.2 –15.2 6.3.2 Gross premiums by geographical and business segments 2004 Switzerland Germany Benelux Other countries Elimination Total in CHF m Non-life 1,281.0 1,061.3 597.5 410.8 –269.2 3,081.4 2,715.1 1,059.6 150.9 30.8 0.0 3,956.4 Life Elimination Total 4,269.3 2,199.9 744.6 441.0 –280.1 7,374.7 Total 3,996.1 2,120.9 748.4 441.4 –284.7 7,022.1 Total 2004 –6.4 –5.0 –1.0 –3.7 –5.4 –/– –/– –/– –0.2 –15.5 –15.7 2003 –8.2 20.9 0.7 2.5 –0.1 6.4 Change in gross premiums by geographical and business segments Switzerland Germany Benelux Other countries Total in percent of original currency 2003 5.3 38.0 0.6 4.1 14.0 Non-life 2004 3.5 –6.8 0.9 –4.3 –1.1 2003 –12.8 7.1 1.0 –3.8 –8.1 Life 2004 –10.4 –3.1 –7.8 –1.2 –8.4 90 s056_s128_e 8.4.2005 14:22 Uhr Seite 91 Financial Report 2004 Change in percent –2.9 –1.3 –1.0 4.7 –7.7 0.6 6.8 –30.6 –0.2 –11.5 2.3 69.9 –8.0 Total 29,525.4 3,475.9 1,337.9 292.9 5,653.4 11,002.4 1,456.6 223.8 2,647.4 692.0 6.5 Gross premiums by line of business Non-life Accident Health General liability Automobile Transport Property Other Reinsurance assumed Total Life Single premiums Recurring premiums Premiums for investment-type products Total in CHF m 6.6 Investments by business segment 6.6.1 Investments by business segment 2003 2003 448.1 122.5 317.2 979.5 164.5 914.3 39.6 103.1 2004 435.0 120.9 314.1 1,026.0 151.8 919.7 42.3 71.6 3,088.8 3,081.4 1,932.4 2,629.7 –261.0 4,301.1 1,709.8 2,690.1 –443.5 3,956.4 Fixed-interest securities Shares Alternative financial assets Derivative financial instruments Investment property Mortgage loans Policy and other loans Participating interests in associates Other short-term investments Cash and cash equivalents Total in CHF m Non-life 4,579.0 634.6 240.2 47.7 1,025.9 396.6 62.5 29.4 542.1 251.5 Life 20,914.2 Banking 3,850.5 2,587.7 1,076.0 166.9 4,077.7 4,818.7 1,088.0 153.4 1,951.5 183.5 11.1 0.0 48.5 45.2 5,787.1 306.1 7.5 55.2 164.5 Other activities/ Group business 181.7 242.5 21.7 29.8 504.6 0.0 –/– 33.5 98.6 92.5 7,809.5 37,017.6 10,275.7 1,204.9 56,307.7 6.6.2 Investments by business segment 2004 Fixed-interest securities Shares Alternative financial assets Derivative financial instruments Investment property Mortgage loans Policy and other loans Participating interests in associates Other short-term investments Cash and cash equivalents Total in CHF m Non-life 4,708.4 932.6 254.3 49.7 1,000.1 379.3 58.9 19.6 558.2 323.8 Life 21,962.1 Banking 332.3 2,905.4 1,356.7 172.3 4,286.1 4,755.1 1,028.2 92.5 1,075.6 221.4 1.6 0.0 40.5 34.2 4,663.8 312.6 0.0 30.4 98.8 Other activities/ Group business 167.5 227.6 25.1 –/– 298.8 0.1 0.6 36.1 346.4 42.6 Total 27,170.3 4,067.2 1,636.1 262.5 5,619.2 9,798.3 1,400.3 148.2 2,010.6 686.6 8,284.9 37,855.4 5,514.2 1,144.8 52,799.3 Bâloise-Holding Annual Report 2004 91 s056_s128_e 8.4.2005 14:22 Uhr Seite 92 Financial Report 2004 7. Profits arising from investments 7.1 Investment income (net) Fixed-interest securities Shares Alternative financial assets Derivative financial instruments Investment property Mortgage loans Policy and other loans Participating interests in associates Other short-term investments, cash and cash equivalents Total (gross) Investment management costs Total (net) Of which from associates in CHF m 2003 1,163.5 2004 1,051.3 95.0 7.5 –/– 259.9 431.8 74.0 41.6 31.9 80.8 2.3 –/– 262.7 379.2 61.1 21.7 24.7 2,105.2 1,883.8 –75.9 2,029.3 41.6 –75.8 1,808.0 21.7 Investment income of CHF 48.8 million (2003: CHF 58.1 and other loans accrued as at December 31, 2004, but has million) from value-adjusted mortgage loans and policy not been recognized in the income statement. 7.2 Realized gains and losses on investments (net) 2003 Derivative Alternative financial assets financial Other short-term investments instruments2 Other investments3 Fixed-interest securities 22.9 490.2 –/– –/– Shares 40.4 422.0 –/– –/– 513.1 462.4 –/– 47.1 –/– –/– 47.1 81.6 14.9 –/– –/– 96.5 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 –29.4 –31.4 –/– –/– –3.3 –1,422.9 –/– –/– –/– –32.1 –/– –/– –217.5 –/– –/– –/– –60.8 –1,426.2 –32.1 –217.5 Impairment in value charged to income Available for sale Held to maturity Reinstatement of original value charged to income1 Available for sale Held to maturity Subtotal –3.6 –/– 13.6 0.0 10.0 –128.9 –/– –39.3 –/– 736.5 –/– 607.6 30.2 –/– –9.1 –/– –/– –/– –/– –/– 0.0 1.4 –/– –/– 1.4 –/– –0.4 –/– –/– –0.4 0.0 –/– –/– –/– 0.0 –/– 32.6 –/– 20.9 53.5 Total 144.9 1,008.2 –/– 20.9 1,174.0 –/– –250.2 –17.0 –1,503.8 –/– –79.8 –96.8 –/– –79.8 –1,833.8 –24.2 –67.6 –196.0 –67.6 –/– 86.0 –5.8 780.3 86.0 602.7 Subtotal financial instruments 462.3 –356.2 5.9 –121.0 1.0 –49.1 –57.1 92 s056_s128_e 8.4.2005 14:22 Uhr Seite 93 Fixed-interest securities Shares Alternative financial assets financial Other short-term investments instruments2 Other investments3 Derivative Financial Report 2004 Total 44.1 –28.3 15.8 –41.3 22.1 356.9 146.9 –/– 0.1 398.3 924.3 Continued Investment property Realized book profits Realized book losses Subtotal investment property Total investments Cumulative impairment in value charged to income (net) in CHF m 7.3 Realized gains and losses on investments (net) 2004 Derivative Alternative financial assets financial Other short-term investments instruments2 Other investments3 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 in value charged to income Available for sale Held to maturity Reinstatement of original value charged to income1 Available for sale Held to maturity Subtotal Fixed-interest securities 23.1 165.9 0.1 –/– Shares 24.6 382.4 –/– –/– 189.1 407.0 –/– 74.5 –/– –/– 74.5 –/– –54.5 –/– –/– 54.2 33.7 –/– –/– 87.9 –77.4 –14.1 –/– –/– –0.5 –261.0 –/– –/– –261.5 –54.5 –91.5 –17.4 –/– –33.5 –/– 139.0 –/– 121.6 2.8 –/– –30.7 –/– –/– –/– –/– –/– –10.8 –47.3 –23.4 –/– –81.5 –4.1 –/– 2.5 –/– –1.6 0.0 2.0 8.7 –/– 10.7 –/– –0.6 –10.0 –/– –10.6 –/– –/– –/– –/– –/– –/– 15.5 –/– 25.7 41.2 Total 101.9 674.0 8.8 25.7 810.4 –/– –83.5 –/– –89.7 –88.7 –461.0 –33.4 –89.7 –173.2 –672.8 –7.2 –82.4 –62.2 –82.4 16.6 99.0 26.0 160.9 99.0 115.3 Subtotal financial instruments 106.0 267.1 –10.7 –3.6 0.1 –106.0 252.9 Investment property Realized book profits Realized book losses Subtotal investment property Total investments Cumulative impairment in value charged to income (net) in CHF m 45.0 –109.5 –64.5 188.4 23.5 233.8 173.9 –/– –/– 355.5 786.7 1 Upon disposal of financial instruments, any impairment in value charged to the income statements of former periods is registered as reinstatement of original value in the income statement. The difference between the original purchase value and the income from sale is recorded as profit or loss. 2 Including financial liabilities held for trading (derivative financial instruments) 3 Mortage loans, policy and other loans, and participating interests in associates Bâloise-Holding Annual Report 2004 93 s056_s128_e 8.4.2005 14:22 Uhr Seite 94 Financial Report 2004 7.4 Unrealized gains and losses (included in capital and reserves) Fixed-interest securities Shares Alternative financial assets Derivative financial instruments 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 2003 690.6 321.4 138.4 96.6 –/– –/– –/– 50.0 –0.2 2004 775.9 326.3 227.0 185.8 –/– –/– –/– 40.3 0.0 Movement in business year 85.3 4.9 88.6 89.2 –/– –/– –/– –9.7 0.2 1,296.8 1,555.3 258.5 –239.3 –275.8 0.1 –129.1 –491.6 161.1 –285.3 –393.5 0.0 –135.5 –592.5 148.5 –46.0 –117.7 –0.1 –6.4 –100.9 –12.6 As in the previons year, the fixed-interest securities classi- Shares not stated at market value to the amount of fied as at December 31, 2004, as “Available for sale” do not CHF 9.3 million (2003: CHF 89.2 million) are included in the include any securities valued at purchase value. financial statements at December 31, 2004. It was not pos- During the year 2004, no fixed-interest securities with- sible to establish a market price or make a reliable estimate out market value were sold. The change in book value is of the value of these shares. They have been entered at due to the reclassification of securities for which, in the purchase value, or lower if there are justifiable reasons meantime, reliable market values have become available. for this. 7.5 Movement in unrealized gains and losses (included in capital and reserves) Balance at January 1 (gross) Movement in unrealized gains and losses on financial assets available for sale Movement in unrealized gains and losses on associates Movement in hedging reserve relating to derivative financial instruments held for cash flow hedges Balance at December 31 (gross) in CHF m 2003 781.5 368.3 61.0 86.0 2004 1,296.8 179.0 –9.7 89.2 1,296.8 1,555.3 94 s056_s128_e 8.4.2005 14:22 Uhr Seite 95 8. Investment property Balance at January 1 Additions Additions due to changes in composition of consolidated Group Disposals Disposals due to changes in composition of consolidated Group Reclassification Change in market value Foreign exchange differences Balance at December 31 in CHF m Financial Report 2004 2003 5,305.7 464.9 84.5 –288.2 –28.6 29.1 –6.2 92.2 2004 5,653.4 155.6 –/– –85.6 –22.3 –/– –68.8 –13.1 5,653.4 5,619.2 As a result of various restructuring measures in Germany Operating expenses for investment property with rental in- and Belgium, vacated properties for the company’s own come came to CHF 76.0 million in 2004 (2003: CHF 80.8 use were converted to investment properties (see also million). Operating expenses for investment property with- table 13.2., “Property, plant and equipment for own use“). out rental income came to around CHF 1.2 million in the Most of the investment property is located in Switzerland. year under review (2003: CHF 1.3 million). 9. Participating interests in associates DePfa Beteiligungs-Holding II GmbH, Düsseldorf Brinvest N.V., Antwerp Roland Rechtsschutz Versicherungs-AG, Cologne Other Total in CHF m Balance sheet value Share of profit 2003 89.9 61.4 20.3 52.2 2004 84.4 –/– 20.1 43.7 223.8 148.2 2003 39.8 –4.8 1.5 5.1 41.6 2004 7.2 –/– 1.2 13.3 21.7 2003 26.0 % 31.2 % 25.0 % –/– Holding 2004 26.0% –/– 25.0% –/– There are no significant amounts due from or to associates. In fiscal 2004, the participating interest in Brinvest N.V., Antwerp, was sold. Further information about associates is given in Note 34, “Significant subsidiaries and partici- pating interests at December 31, 2004“. Bâloise-Holding Annual Report 2004 95 s056_s128_e 8.4.2005 14:22 Uhr Seite 96 Financial Report 2004 10. Derivative financial instruments Interest rate instruments Forward transactions Swaps OTC options Other Traded options Traded futures Subtotal Equity instruments Forward transactions OTC options Traded options Traded futures Subtotal Foreign exchange instruments Forward transactions Swaps OTC options Traded options Traded futures Subtotal Total in CHF m Contract values Fair value: assets Fair value: liabilities 2003 –/– 3,539.7 582.0 –/– 0.2 –/– 2004 –/– 1,661.5 –/– –/– –/– –/– 2003 –/– 135.3 10.0 –/– –/– –/– 2004 –/– 139.8 –/– –/– –/– –/– 2003 –/– 125.2 –/– –/– 0.0 –/– 2004 –/– 121.6 –/– –/– –/– –/– 4,121.9 1,661.5 145.3 139.8 125.2 121.6 –/– 1,281.3 1.4 –/– 1,282.7 –/– 202.5 0.0 –/– 202.5 222.7 22.6 1,213.7 0.2 4,635.9 2,888.5 –/– –/– –/– –/– 4,881.2 4,102.4 –/– 3.7 0.0 –/– 3.7 32.8 –/– 111.1 –/– –/– 143.9 –/– –/– 0.0 –/– 0.0 6.2 –/– 116.5 –/– –/– 122.7 –/– 31.2 0.1 –/– 31.3 36.8 1.3 57.8 –/– –/– 95.9 –/– 27.0 –/– –/– 27.0 0.8 0.2 10.7 –/– –/– 11.7 10,285.8 5,966.4 292.9 262.5 252.4 160.3 11. Investments for account and risk of life insurance policyholders 2003 101.3 599.9 93.1 3.9 798.2 2004 105.3 934.5 92.3 11.5 1,143.6 Fixed-interest securities Shares Other short-term financial instruments Cash and cash equivalents Total in CHF m For technical reasons, it is possible that there may be slight differences between the investments for account and risk of life insurance policyholders and the corresponding liabilities. 96 s056_s128_e 8.4.2005 14:22 Uhr Seite 97 12. Intangible assets 12.1 Intangible assets 2003 Book value at January 1 Additions arising from changes in composition of consolidated Group Goodwill 66.1 Badwill –30.7 7.4 –43.4 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 Revaluation and amortization Amortization/write-backs Impairment in value charged to income Reinstatement of original value charged to income Deferred interest Foreign exchange differences Book value at December 31 Cost Accumulated amortization and revaluation Balance at December 31 (net) in CHF m –/– –/– –3.9 –/– –15.3 –37.6 –/– –/– –/– 16.7 591.0 –574.3 16.7 –/– –/– –/– –/– –/– 15.3 –/– –/– –/– –/– –58.8 –146.6 87.8 –58.8 Financial Report 2004 Total 162.9 –7.6 –/– 58.6 –15.0 –3.9 –/– –39.3 –38.3 –/– –/– 4.9 Present value of profits from insurance contracts acquired Other intangible assets 127.5 0.1 –/– 58.6 –15.0 –/– –/– –37.5 –0.7 –/– –/– 4.9 –/– 28.3 –/– –/– –/– –/– –/– –1.8 –/– –/– –/– –/– 26.5 28.3 –1.8 26.5 137.9 122.3 327.9 –190.0 137.9 800.6 –678.3 122.3 12.2 Intangible assets 2004 Book value at January 1 Additions arising from changes in composition of consolidated Group Additions arising from changes in share of investements held Additions from internal development Disposals Disposals arising from changes in composition of consolidated Group Subsequent goodwill adjustment Revaluation and amortization Amortization/write-backs Impairment in value charged to income Reinstatement of original value charged to income Deferred interest Foreign exchange differences Book value at December 31 Cost Accumulated amortization and revaluation Balance at December 31 (net) in CHF m Goodwill 16.7 Badwill –58.8 Present value of profits from insurance contracts acquired Other intangible assets 26.5 137.9 –/– 11.8 –/– –/– –5.2 –/– –7.5 –8.3 –/– –/– –0.2 7.3 597.4 –590.1 7.3 –/– –3.0 –/– –/– 10.6 –/– 28.8 –/– –/– –/– –/– –22.4 –139.0 116.6 –22.4 –/– –/– –/– –/– –/– –/– 0.2 –/– –/– –/– –0.2 26.5 28.1 –1.6 26.5 –/– –/– 56.1 –2.6 –2.0 –/– –30.4 –13.3 –/– –/– –0.1 145.6 331.7 –186.1 145.6 Total 122.3 –/– 8.8 56.1 –2.6 3.4 –/– –8.9 –21.6 –/– –/– –0.5 157.0 818.2 –661.2 157.0 Bâloise-Holding Annual Report 2004 97 s056_s128_e 8.4.2005 14:22 Uhr Seite 98 Financial Report 2004 13. Tangible noncurrent assets 13.1 Property, plant and equipment for own use 2003 Cost Accumulated depreciation and revaluation Balance at December 31 (net) Of which assets under finance leases in CHF in 13.2 Property, plant and equipment for own use 2004 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 Reclassification Revaluation and depreciation Depreciation Impairment in value charged to income Reinstatement of original value charged to income Foreign exchange differences Book value at December 31 Cost Accumulated depreciation and revaluation Balance at December 31 (net) Of which assets under finance leases in CHF m The assets under financial leasing mainly consist of a lease with purchase option on an administration building occu- pied by the Group. The lease is contractually fixed until mid 2018 and includes a repayment plan. Land 96.6 –/– 96.6 –/– Land 96.6 –/– –/– –6.3 –/– –/– –/– –/– –/– –0.2 90.1 90.1 –/– 90.1 –/– Buildings 764.0 –292.4 471.6 139.8 Plant and equipment 101.0 –63.9 37.1 –/– Buildings 471.6 6.5 –/– –7.1 –/– –/– –18.8 –5.4 –/– –2.7 444.1 693.1 –249.0 444.1 135.2 Plant and equipment 37.1 5.4 0.3 –2.5 –0.3 –/– –9.6 –/– –/– –0.1 30.3 82.4 –52.1 30.3 –/– Total 961.6 –356.3 605.3 139.8 Total 605.3 11.9 0.3 –15.9 –0.3 –/– –28.4 –5.4 –/– –3.0 564.5 865.6 –301.1 564.5 135.2 98 s056_s128_e 8.4.2005 14:22 Uhr Seite 99 Financial Report 2004 13.3 Other tangible noncurrent assets 2003 Cost Accumulated depreciation and revaluation Balance at December 31 (net) Of which assets under finance leases in CHF m 13.4 Other tangible noncurrent assets 2004 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 Revaluation and depreciation Depreciation Impairment in value charged to income Reinstatement of original value charged to income Foreign exchange differences Book value at December 31 Cost Accumulated depreciation and revaluation Balance at December 31 (net) Of which assets under finance leases in CHF m 14. Deferred acquisition costs Balance at January 1 Deferred during the year under review 2003 153.9 266.5 Non-life 2004 174.5 302.3 Written off in the year under review –249.3 –319.2 2003 656.6 135.4 71.4 Machinery/furniture/ motor vehicles 128.6 –69.9 58.7 0.1 IT equipment 138.9 –106.2 32.7 0.7 Total 267.5 –176.1 91.4 0.8 Machinery/furniture/ motor vehicles IT equipment 58.7 11.8 0.7 –9.2 –0.9 –10.5 –/– –/– –0.3 50.3 108.8 –58.5 50.3 0.0 Life 2004 811.4 163.2 32.7 19.6 1.0 –0.8 –0.1 Total 91.4 31.4 1.7 –10.0 –1.0 –19.6 –30.1 –/– –/– –0.1 32.7 122.1 –89.4 32.7 –/– 2003 810.5 401.9 –/– –/– –0.4 83.0 230.9 –147.9 83.0 0.0 Total 2004 985.9 465.5 –107.5 –177.9 –426.7 Written off in the year under review due to anticipated loss Change as a result of unrealized gains and losses on investment (shadow accounting) Disposals arising from changes in composition of the consolidated Group Foreign exchange differences Balance at December 31 in CHF m –2.3 –0.8 –/– –/– –2.3 –0.8 –/– –/– 5.7 174.5 –/– –89.6 –47.9 –89.6 –47.9 –/– –0.9 155.9 –/– 37.6 811.4 –/– –5.4 813.8 –/– 43.3 985.9 –/– –6.3 969.7 Bâloise-Holding Annual Report 2004 99 s056_s128_e 8.4.2005 14:22 Uhr Seite 100 Financial Report 2004 15. Loss reserves including claims processing costs Balance at January 1 (gross) Amount attributable to reinsurers Loss reserves for own account 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 Foreign exchange differences Total Balance at December 31 (net) Loss reserves for own account Amount attributable to reinsurers Loss reserves at December 31 (gross) in CHF m 2003 4,196.1 –280.8 3,915.3 2,017.2 13.9 2,031.1 2004 4,786.3 –353.1 4,433.2 1,957.4 –57.9 1,899.5 –996.7 –885.6 –939.8 –815.8 –1,882.3 –1,755.6 239.7 129.4 369.1 –/– –37.2 –37.2 4,433.2 4,539.9 4,433.2 353.1 4,786.3 4,539.9 290.0 4,829.9 Particular attention is paid to environmental claims relating of 2003, these gross provisions, which are included in the to disposal sites, waste, asbestos material and, in general, total provision, amounted to CHF 320.1 million, and they substances which are harmful to humans and to the envi- stood at CHF 284.0 million at the end of 2004. The decline ronment. Ascertaining when such cases might arise and de- by 36.1 million is due to claims processing amounting termining the potential extent of such claims involves much to CHF 19.5 million and currency effects amounting to greater uncertainty than in all traditionally used claims CHF 16.6 million, as a large part of these provisions are models. Therefore, the provisions set up for these claims held in foreign currencies. are surrounded by a higher level of uncertainty. At the end 100 s056_s128_e 8.4.2005 14:22 Uhr Seite 101 Financial Report 2004 16. Actuarial reserve life Long-term contracts Contracts with surplus sharing Contracts without surplus sharing Total in CHF m 17. Policyholder bonuses credited and provision for future policyholder bonuses Policyholder bonuses credited Provision for future policyholder bonuses Total in CHF m 2003 2004 32,847.5 33,068.4 138.2 90.3 32,985.7 33,158.7 2003 3,214.1 849.3 4,063.4 2004 2,996.7 1,223.9 4,220.6 18. Reinsurance 18.1 Technical provisions and assets from reinsurance 2003 493.3 4,786.3 32,985.7 Gross 2004 494.1 4,829.9 33,158.7 4,063.4 42,328.7 4,220.6 42,703.3 –/– –/– –/– –/– –/– –/– Reinsurance assets 2004 4.5 290.0 244.3 –/– 538.8 88.2 –/– 627.0 2003 489.0 4,433.2 32,691.0 Net 2004 489.6 4,539.9 32,914.4 4,063.4 41,676.6 4,220.6 42,164.5 –/– –/– –/– –/– –/– –/– 2003 4.3 353.1 294.7 –/– 652.1 85.0 –/– 737.1 Unearned premiums reserves Loss reserves Actuarial reserve (life) Policyholder bonuses credited and provision for future policyholder bonuses Total technical provisions Deposits and assets from reinsurance Impairment in value charged to income Total reinsurance assets in CHF m No single reinsurer or reinsurance contract is so material to the Group that its loss would have a significant effect on consolidated annual net profit. In 2004, 3.5% (2003: 3.7%) of gross premiums and pol- icy fees were ceded to external reinsurers. 96% (2003: 99%) of reinsurance is ceded to reinsurers rated A (Stan- dard & Poor’s) or better. Bâloise-Holding Annual Report 2004 101 s056_s128_e 8.4.2005 14:22 Uhr Seite 102 Financial Report 2004 18.2 Premiums earned and policy fees 18.2.1 Premiums earned and policy fees 2003 Direct gross premiums earned Indirect gross premiums earned Total gross premiums earned Reinsurance ceded Total premiums earned and policy fees for own account in CHF m 18.2.2 Premiums earned and policy fees 2004 Direct gross premiums earned Indirect gross premiums earned Total gross premiums earned Reinsurance ceded Total premiums earned and policy fees for own account in CHF m Non-life 2,982.7 102.1 3,084.8 –218.6 2,866.2 Non-life 3,004.4 72.5 3,076.9 –183.4 2,893.5 18.3 Deposit assets and liabilities from deposit accounting Deposit assets Deposit liabilities Balance at January 1 Increases in deposits Redemptions Foreign exchange differences Balance at December 31 Of which deposit assets1 Of which deposit liabilities2 in CHF m 1 Shown in the balance sheet as reinsurance assets 2 Shown in the balance sheet as deposit fund liabilities arising from reinsurance Life Elimination 4,301.1 –/– 4,301.1 –53.0 4,248.1 0.0 –14.8 –14.8 15.2 0.4 Life Elimination 3,956.3 0.1 3,956.4 –61.4 3,895.0 –/– –16.5 –16.5 15.8 –0.7 2003 0.3 –0.2 0.1 41.0 –0.2 1.1 42.0 54.3 Total 7,283.8 87.3 7,371.1 –256.4 7,114.7 Total 6,960.7 56.1 7,016.8 –229.0 6,787.8 2004 54.3 –12.3 42.0 1.4 0.1 –0.4 43.1 64.0 –12.3 –20.9 102 s056_s128_e 8.4.2005 14:22 Uhr Seite 103 Financial Report 2004 19. Liabilities from banking business and bonds 19.1 Liabilities from banking business and financing operations Amounts due to banks Fixed-term deposits payable Loans Mortgages Savings and bank customer deposits Medium-term fixed-rate notes Mortgage bonds Bonds Financial leasing liabilities (present value) Total in CHF m Of these, CHF 12.8 million (2003: CHF 106.3 million) relate to subordinated liabilities as at December 31, 2004. 19.2 Bonds Balance at January 1 Initial offer price of newly issued bonds Embedded derivative Deferred tax portion Additions (subtotal) Disposals/redemptions Interest expense Nominal interest Accrued interest (subtotal) Present value statement owing to application of hedge accounting Balance at December 31 in CHF m 2003 1,313.8 106.3 14.1 0.4 5,513.9 2,064.1 709.0 1,519.9 170.2 11,411.7 2003 1,266.0 251.1 –/– –/– 251.1 –/– 42.2 –39.4 2.8 –/– 2004 185.9 12.8 1.7 0.9 3,124.0 208.7 790.7 1,779.9 167.9 6,272.5 2004 1,519.9 250.5 –/– –/– 250.5 –/– 50.5 –47.7 2.8 6.7 1,519.9 1,779.9 Bâloise-Holding Annual Report 2004 103 s056_s128_e 8.4.2005 14:22 Uhr Seite 104 Financial Report 2004 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 Nominal value in CHF m Interest rate Effective interest rate Advance redemption date Redemption amount Conversion rights Year of issue Redemption date Security number Baloise Finance (Jersey) Ltd. Bâloise-Holding Bâloise-Holding 200 1.0 % 3.200 % –/– 100 % in UBS shares 1998 4.7.2006 300 3.25 % 3.250 % –/– 100 % no 1998 600 4.25 % 4.250 % –/– 100 % no 2000 4.7.2008 9.28.2005 SWX 858858 SWX 858851 SWX 1123532 Baloise Bank SoBa Bâloise-Holding Baloise-Holding 175 3.625 % 3.625 % –/– 100 % no 2002 250 3.375 % 3.375 % –/– 100 % no 2003 250 2.375% 2.375% –/– 100 % no 2004 6.12.2007 12.15.2009 12.20.2010 SWX 1422292 SWX 1726032 SWX 2011789 19.4 Reconciliation between minimum lease and their present value for financial leasing Lease period (cid:2) 1 year 1 – 5 years (cid:3) 5 years Total minimum lease payments Future finance expenses Total present value in CHF m Including property for own use in accordance with section 13 of the Notes. 2003 10.2 45.3 195.4 250.9 –80.7 170.2 2004 10.4 48.8 180.9 240.1 –72.2 167.9 104 s056_s128_e 8.4.2005 14:22 Uhr Seite 105 Financial Report 2004 20. Financial provisions for the year 2004 Balance at January 1 Addition due to changes in composition of consolidated Group Currency translation Additional provisions charged to income Unused amounts released and charged to income Amounts used not charged to income Increase owing to mark-up for interest Balance at December 31 in CHF m Restructuring Other 22.7 –/– –/– 0.7 –17.7 –1.1 –/– 4.6 96.2 –/– –0.6 24.6 –1.4 –5.5 –/– 113.3 Total 118.9 –/– –0.6 25.3 –19.1 –6.6 –/– 117.9 The financial provisions for restructuring primarily contain marked mostly for legal advice and procedural risks in law funds for the reorganization of businesses acquired in the cases. past few years in Switzerland. The other provisions are ear- 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 2003 2004 18.8 –19.3 –0.5 71.0 16.4 87.4 3.3 14.9 18.2 21.5 –1.7 20.3 114.6 10.8 125.4 28.7 2.3 31.0 33.2 28.7 61.9 7.5 –14.3 –6.8 16.9 –4.0 12.9 86.3 12.7 99.0 Bâloise-Holding Annual Report 2004 105 s056_s128_e 8.4.2005 14:22 Uhr Seite 106 Financial Report 2004 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 Nondeductible losses from shares and participating interests Withholding tax for dividends Change in interest rates Tax elements unrelated to accounting period Disposal of enterprises Other factors Actual tax on income in CHF m The expected average tax rate of the Baloise Group came to 17.8% in 2003 and to 23.0% in 2004. These rates correspond to the weighted average of the tax rates of those countries in which the Baloise Group operates. The increase of the actual as against the expected tax on im- come for the disposal of enterprises amounting to CHF 20.4 million results to greatest extent from the sale of Mercator Bank. 2003 39.9 –5.1 –1.7 43.5 –/– –3.4 59.1 –/– –6.9 125.4 2004 76.9 –1.1 –14.4 16.0 0.0 –0.3 10.3 20.4 –8.8 99.0 106 s056_s128_e 8.4.2005 14:22 Uhr Seite 107 Financial Report 2004 21.3 Deferred tax assets and liabilities Reasons for deferred tax assets Unearned premiums reserves Loss reserves Actuarial reserve (life) Unrealized losses on investments Losses carried forward Other Total Reasons for deferred tax liabilities Deferred acquisition costs Unearned premiums reserves Loss reserves Actuarial reserve (life) Unrealized gains on financial assets Depreciable assets Other intangible assets Other Total Total (net) in CHF m The tax on income payable at the end of 2003 and 2004, which is included in the balance sheet under “Other liabili- ties and deferred income”, amounted to CHF 108.5 million and 125.0 million respectively. At December 31, 2004, the Baloise Group capitalized losses brought forward that can be offset against tax amounting to CHF 48.8 million (subject to statutory regulations; 2003: CHF 143.4 million). All expire after five years or more. As at December 31, 2004, no tax assets were capitalized on losses carried forward amounting to CHF 606.7 million (2003: CHF 584.3 million). Of these, CHF 21.4 million ex- pire after one year, a further CHF 0.5 million expire after two to four years and CHF 584.8 million expire after five or more years. 2003 24.7 8.5 362.5 0.4 45.9 463.9 905.9 404.2 29.3 183.3 132.1 134.3 67.3 2.4 2004 20.0 7.8 354.9 3.5 16.1 473.8 876.1 403.1 30.7 194.5 168.9 141.7 60.8 2.8 687.9 1,640.8 734.9 635.9 1,638.4 762.3 Bâloise-Holding Annual Report 2004 107 s056_s128_e 8.4.2005 14:22 Uhr Seite 108 Financial Report 2004 22. Number of employees and personnel costs The Baloise Group had 8,090 employees on December 31, 2004; on December 31, 2003, the number of employees was 8,745. Total personnel costs for the fiscal year 2004 amounted to CHF 1,052.9 million, compared with CHF 1,100.6 million in the previous year. 23. Benefits due to employees The most significant part of total personnel costs consists of actual direct benefits 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 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 23.2 Benefits from occupational benefit plans Benefits from occupational benefit plans comprise all amounts provided for current employees and pensioners. 108 Assets relating to employee benefits Liabilities relating to employee benefits 2003 8.6 –/– 30.2 –/– 2.4 –/– 41.2 2004 8.3 –/– 25.0 –/– –/– –/– 33.3 2003 110.4 2.8 491.9 23.6 51.3 –/– 680.0 2004 93.9 3.0 492.2 24.3 49.6 –/– 663.0 s056_s128_e 8.4.2005 14:22 Uhr Seite 109 23.2.1 Liabilities relating to defined benefit plans Present value of funded obligations Fair value of plan assets Funding surplus/shortfall Present value of unfunded obligations Unrecognized actuarial gains or losses 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 Liabilities for other benefits, previously totalled together as a single item, has been broken down into its individual components and recorded in the table above. Financial Report 2004 2003 –1,785.1 1,716.0 –69.1 –497.2 202.0 –364.3 2004 –1,783.7 1,763.5 –20.2 –526.1 167.1 –379.2 –491.9 –492.2 30.2 97.4 25.0 88.0 In countries in which pension plans are secured by means The net liabilities relating to defined benefit plans do of separate funds into which contributions are made, it is not contain any reimbursement rights. The plan assets in- possible that funding surpluses or shortfalls may arise, as clude shares in Bâloise-Holding which had a market value evidenced in the table above. Such surpluses are only capi- of CHF 38.4 million at December 2003 and CHF 39.1 million talized and recognized as assets to the extent that they at December 2004. They do not include property leased to represent future cost savings to the Baloise Group. the Baloise Group. 23.2.2 Expenses relating to defined benefit plans Current service costs Interest costs Expected return on plan assets Redemption of actuarial losses or gains Effects from plan cuts and plan compensation payments Effects of any changes and use restrictions Employees’ contributions Total expense relating to defined benefit plans in CHF m 2003 66.8 91.0 –50.7 19.6 1.0 –21.5 –13.0 93.2 2004 65.7 88.7 –50.5 1.6 –2.1 –8.5 –15.4 79.5 Expense for other benefits, previously totalled together as a single item, has been broken down into its individual components and recorded in the table above. This expediture has been recorded under “Administrative and other operating expenses.” 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 2003 –50.7 –2.3 –53.0 2004 –50.5 –28.9 –79.4 Bâloise-Holding Annual Report 2004 109 s056_s128_e 8.4.2005 14:22 Uhr Seite 110 Financial Report 2004 23.2.4 Net obligations in respect of pension benefits Balance at January 1 Foreign exchange differences Addition due to changes in composition of consolidated Group Disposal due to changes in composition of consolidated Group Amount recognized in income statement Payments by employer Balance at December 31 in CHF m 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 percent 2003 327.8 29.0 49.4 –0.5 74.8 –56.4 424.1 2004 424.1 –4.2 0.0 –4.2 78.6 –63.9 430.4 2003 2004 4.1 3.0 2.2 1.2 3.8 3.0 1.9 0.8 Actuarial and other assumptions are used in calculating ex- CHF 24.2 million (2003: CHF 23.6 million). No plan assets penditure and obligations relating to defined benefit plans, were deducted for long-term benefits. Other long-term by company and by country. The assumptions set out above employee benefits amounting to CHF 2.8 million (2003: are weighted averages. CHF 3.0 million) are included in the income statement. 23.3 Other long-term employee benefits Benefits payable to current employees twelve months or more 23.4 Equity benefits: employee shares During the year under review, 190,294 shares (2003: after the end of the fiscal year are disclosed separately in 212,744 shares) were purchased through the Baloise accordance with specific requirements. The requirements are Employee Trust set up in 1989 at a price of CHF 23.80 (2003: similar to those applying to pension obligations. Most of CHF 23.10). The fair market value of the shares subscribed the benefits are employee service anniversary benefits. At amounted to CHF 47.65 (2003: CHF 45.90). December 31, 2004, the present value of the obligation was 23.5 Equity benefits: share participation scheme Number of shares subscribed to Blocked until Subscription price per share in CHF Value of shares subscribed to in CHF m Market value of subscribed shares at time of subscription in CHF m 2003 382,601 2004 413,166 5.31.2006 5.31.2007 38.98 14.9 16.4 45.81 18.9 20.8 110 s056_s128_e 8.4.2005 14:22 Uhr Seite 111 Financial Report 2004 23.6 Equity benefits: direct allocation of shares Number of shares subscribed to Blocked until Subscription price per share in CHF Value of shares subscribed to in CHF m Market value of subscribed shares at time of subscription in CHF m 23.7 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 The benefits listed above originate from the share option schemes of the years 2001 and 2002. 24. Capital and reserves 24.1 Share capital Balance at December 31, 2003 Purchase/disposals of own shares Capital increases Share buy-back and cancellation Balance at December 31, 2004 in CHF m 2003 45,613 2004 41,143 5.31.2006 5.31.2007 36.63 1.7 2.0 44.90 1.8 2.1 2001 BALUP 2002 BALIX 6,666,040 2,088,103 1.6.2003 1.6.2004 66,660 167.80 41,762 197.10 15.6.2005 15.6.2005 1.6 1.3 Number of shares in circulation Number of shares issued Share capital 54,892,847 55,307,150 2,311 –/– –/– –/– –/– –/– 5.5 –/– –/– –/– 5.5 Number of own shares 414,303 –2,311 –/– –/– 411,992 54,895,158 55,307,150 The Bâloise-Holding registered shares are fully paid up and have a nominal value of CHF 0.10 (2003: CHF 0.10). Entry in Capitalization regulations: Under supervisory law, mini- mum capital regulations (solvency regulations) apply to the share register is limited to 2% of voting rights for indi- subsidiaries which carry out insurance business. With viduals and bodies corporate. In the course of its normal in- regard to the business years 2003 and 2004, the subsidi- vestment business, the Baloise Group purchases and sells aries complied with all relevant supervisory regulations in its own shares. respect of capitalization. Bâloise-Holding Annual Report 2004 111 s056_s128_e 8.4.2005 14:22 Uhr Seite 112 Financial Report 2004 24.2 Dividends Dividends proposed are not paid until they have been ap- It will be charged to accumulated profit following the adop- proved by the Annual General Meeting. At the Annual Gen- tion of the resolution at the 2005 Annual General Meeting. eral Meeting on May 18, 2005, a dividend of CHF 1.10 per Restrictions on dividend payments by subsidiaries: share (2003: CHF 0.60) will be proposed for the 2004 fiscal Subsidiaries of the Baloise Group which carry out insur- year, a total figure of CHF 60.8 million (2003: CHF 33.2 mil- ance business are subject to certain supervisory restric- lion). The proposed dividend has not been included in the tions relating to dividend payments. consolidated financial statements for the 2004 fiscal year. 25. Earnings per share Consolidated net profit in CHF m Average number of outstanding shares Earnings per share in CHF 2003 91.4 2004 221.7 54,794,476 54’843’390 1.67 4.04 The diluted net earnings coincide with the basic earnings terparty is a financial institution outside the Group, which per share because none of the existing share option plans will procure the shares required on the market if the op- (for capital market transactions or for employee share tions are exercised. schemes) have a dilutive effect. The option holder’s coun- 26. Minority interests Balance at January 1 Share of consolidated net profit Change in share of unrealized gains and losses in capital and reserves Addition/disposal due to changes in share of investment held Addition/disposal due to changes in composition of consolidated Group Dividends paid Foreign exchange differences Balance at December 31 in CHF m 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 112 2003 28.1 6.9 –0.2 11.6 –/– –7.8 2.1 40.7 2003 84.3 107.9 90.3 9.2 42.2 71.2 405.1 2004 40.7 13.0 –0.1 20.3 –1.3 –8.8 –0.3 63.5 2004 80.0 70.5 76.4 33.6 57.2 74.4 392.1 s056_s128_e 8.4.2005 14:22 Uhr Seite 113 Financial Report 2004 28. Related-party transactions 30. Market risk relating to financial instruments In the course of its ordinary business activities, the Baloise Group conducts transactions with associated companies The Baloise Group conducts insurance business in various and with members of the Board of Directors and the Corpo- European countries and holds investments worldwide and rate Executive Committee of Bâloise-Holding. Deutscher is therefore exposed to financial risks, such as currency risk, Ring Krankenversicherung, a mutual insurance company, is credit risk, interest rate risk, liquidity risk and market risk. not included in the consolidation of the Baloise Group, yet In 1998, the Baloise Group implemented comprehen- is linked with Deutscher Ring Lebensversicherung and sive, groupwide risk management at all levels to control Deutscher Ring Sachversicherung through an organization these risks. This involves both the active operational man- agreement and is therefore considered to be a related agement of individual and portfolio risks on the finance party. These transactions are not material to the Baloise and insurance side, and the development of general risk- Group either individually or in aggregate and are conducted based business management systems. Not only does this at market conditions. Included in balance sheet and income statement 2003 Mortgage loans Policy and other loans Receivables arising out of insurance operations Other receivables Other liabilities Gross premiums written and policy fees Investment income Other income in CHF m 2.7 7.7 1.2 0.2 –/– 0.1 3.5 0.4 2004 12.6 11.5 0.9 0.1 –/– 0.2 1.1 0.1 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 pos- sible to focus on the most profitable segments. Decentralized risk management units track economic market developments on a monthly basis and the effects of these on the risk portfolio and individual 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 re- Remuneration remitted to the members of the Board of Di- maining market risk. By applying this risk management rectors and the Corporate Executive Committee amounted concept, the Baloise Group is in a position to react quickly to CHF 9.0 million in fiscal 2004 (2003: CHF 7.7 million). to changes in the market environment and to optimize its In the year under review, provisions amounting to strategic long-term-position profitably. CHF 0.6 million were set aside for expenditure in the event of the termination of employment of persons in key man- agement positions. 29. Supplemental cash flow disclosure Cash and bank balances Cash equivalents Total in CHF m 2003 691.9 0.1 2004 686.5 0.1 692.0 686.6 Bâloise-Holding Annual Report 2004 113 s056_s128_e 8.4.2005 14:22 Uhr Seite 114 Financial Report 2004 30.1 Derivative financial instruments: fair value hedges Interest rate instruments Forward transactions Swaps OTC options Other Traded options Traded futures Total in CHF m Contract values Fair value: assets Fair value: liabilities 2003 –/– 201.6 582.0 –/– –/– –/– 2004 –/– 1,369.0 –/– –/– –/– –/– 783.6 1,369.0 2003 –/– 6.5 10.1 –/– –/– –/– 16.6 2004 –/– 37.7 –/– –/– –/– –/– 37.7 2003 –/– –/– –/– –/– –/– –/– –/– 2004 –/– 21.4 –/– –/– –/– –/– 21.4 30.2 Derivative financial instruments: cash flow hedges Interest rate instruments Forward transactions Swaps OTC options Other Traded options Traded futures Subtotal Foreign exchange instruments Forward transactions Swaps OTC options Other Traded options Traded futures Subtotal Total in CHF m Contract values Fair value: assets Fair value: liabilities 2003 –/– 2,748.8 –/– –/– –/– –/– 2004 –/– 192.6 –/– –/– –/– –/– 2,748.8 192.6 –/– –/– 866.8 –/– 1,313.3 1,408.4 –/– –/– –/– –/– –/– –/– 2003 –/– 28.8 –/– –/– –/– –/– 28.8 –/– –/– 110.9 –/– –/– –/– 2004 –/– 2.0 –/– –/– –/– –/– 2.0 0.2 –/– 116.1 –/– –/– –/– 1,313.3 2,275.2 110.9 116.3 2003 –/– 14.3 –/– –/– –/– –/– 14.3 –/– –/– –/– –/– –/– –/– –/– 4,062.1 2,467.8 139.7 118.3 14.3 2004 –/– 0.2 –/– –/– –/– –/– 0.2 –/– –/– –/– –/– –/– –/– –/– 0.2 114 s056_s128_e 8.4.2005 14:22 Uhr Seite 115 Financial Report 2004 30.3 Currency risk The insurance activities of the Baloise Group are conducted 30.4 Credit risk Credit risk is defined as the risk that one party or counter- almost entirely in Swiss francs and in euro, and therefore party to a financial instrument will fail to discharge an the technical provisions are also predominantly in these two obligation. The risk is managed by reviewing the currencies. Most of the provisions are currency-matched by creditworthiness of each individual counterparty, setting investments. In order to increase income, the Swiss com- high standards as regards their rating. As the credit risk of panies hold a net euro position of CHF 2,807.3 million the Baloise Group is spread over a large number of counter- (2003: CHF 4,119.7 million), a net US dollar position of parties, clients, etc., the Baloise Group has no significant CHF 446.7 million (2003: CHF 237.6 million) and a net credit risk with a single counterparty. Japanese yen position of CHF 23.7 million (2003: CHF 11.0 Credit risk grows as the concentration of counterparties million). The remaining currency excess positions are of lit- in a single line of business or geographical area increases. tle significance. For risk reasons, USD foreign currency expo- Economic developments which affect entire lines of busi- sure was almost fully hedged and EUR exposure hedged to ness or geographical areas can put at risk the debt-paying around one third. ability of a whole group of otherwise independent counter- parties. For this reason, the Baloise Group permanently re- views its portfolios of counterparties on a groupwide basis. 30.5 Concentration of credit risks Shares and fixed-interest securities (cid:3)10% of consolidated capital and reserves Confederation of Switzerland Federal Republic of Germany UBS AG, Zurich/Basel Eurohypo AG, Frankfurt a.M. Bayerische Landesbank, Munich Kingdom of Belgium Landesbank Baden-Württemberg, Stuttgart Hypo Real Estate, Munich Bayerische Hypo- und Vereinsbank, Munich HSH Nordbank, Hamburg/Kiel Republic of Italy Republic of Austria Allgemeine Hypothekenbank Rheinboden AG DZ Bank AG, Frankfurt a.M. Pfandbriefbank Schweizerischer Hypothekarinstitute DePfa Bank plc, Dublin Dexia Bank, Brussels Republic of France Hypothekenbank in Essen in CHF m Time deposits make up CHF 699.0 million of the total amount placed with UBS AG, Zurich/Basel (2003: CHF 668.0 million). 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. 2003 1,507.4 745.5 1,105.9 506.4 311.8 2,714.8 560.6 275.2 322.6 305.0 497.2 491.6 270.6 329.2 236.0 317.2 287.3 318.0 299.0 2004 1,694.6 1,150.5 1,012.1 929.5 820.3 806.3 770.6 584.9 581.0 516.1 486.4 478.0 473.4 473.3 472.9 389.2 378.0 374.1 345.1 Bâloise-Holding Annual Report 2004 115 s056_s128_e 8.4.2005 14:22 Uhr Seite 116 Financial Report 2004 30.7 Liquidity risks 30.7.1 Liquidity risk at December 31, 2003 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, 2004 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: (cid:2)1 year Due in: 1– 5 years 15,387.8 18,995.9 –/– –/– Due in: (cid:3)5 years 14,687.1 –/– –9,049.1 –2,336.1 –4,458.0 –/– –/– –/– Total 49,070.8 15,230.0 –15,843.2 –45,097.1 6,338.7 16,659.8 10,229.1 3,360.5 Due in: (cid:2)1 year 1,107.9 3,719.0 397.7 1,906.6 3,086.1 –/– Due in: 1– 5 years 12,866.8 5,175.7 665.5 104.0 1.0 –/– Due in: (cid:3)5 years 13,195.6 903.6 337.1 –/– –/– –/– 10,217.3 18,813.0 14,436.3 –2,897.6 –2,012.5 –1,532.2 –/– –6,442.3 3,775.0 –1,564.2 –1,810.6 –15.3 –49.6 –/– –1,629.1 17,183.9 –0.3 –519.5 –/– –2,330.4 12,105.9 Total 27,170.3 9,798.3 1,400.3 2,010.6 3,087.1 16,154.2 59,620.8 –6,272.4 –2,028.1 –2,101.3 –45,673.0 –56,074.8 3,546.0 30.8 Market value of financial assets and liabilities and market risks 2003 10,348.6 11,002.4 1,456.6 11,411.7 Book value 2004 10,455.2 9,798.3 1,400.3 6,272.5 2003 10,371.0 11,376.7 1,509.7 11,548.8 Market value 2004 10,765.1 9,964.5 1,432.4 6,351.4 Fixed-interest securities held to maturity Mortgage loans Policy and other loans Liabilities from banking business and loans in CHF m The foregoing table contains information on the book and market values of significant financial assets and liabilities which are not shown in the balance sheet at market or fair value. 116 s056_s128_e 8.4.2005 14:22 Uhr Seite 117 Financial Report 2004 31. Companies consolidated on a proportionate basis Included in balance sheet and income statement Investments Intangible assets and tangible noncurrent assets Liabilities Capital and reserves Income Expenses in CHF m 2003 768.9 31.7 758.0 158.8 149.5 131.6 2004 707.9 36.1 668.8 181.8 158.7 140.1 32. Contingent liabilities and commitments 32.1 Legal disputes The Baloise Group and its subsidiaries are constantly faced Executive Committee since the last balance sheet date that with legal disputes, claims and complaints which in most could have a significant impact on the consolidated annual cases stem from normal insurance operations. No new accounts 2004. facts in this respect have been reported to the Corporate 32.2 Capital commitments Commitments entered into for the future purchase of Investments Tangible noncurrent assets Intangible assets Total commitments entered into Of which relating to joint ventures Of which own share of joint venture capital commitments in CHF m Commitments entered into for the future purchase of in- vestments include private equity commitments, which are unfinanced commitments toward direct investment in pri- vate equity or investment in private equity funds. 2003 469.5 –/– –/– 469.5 –/– –/– 2004 263.5 –/– –/– 263.5 –/– –/– 32.3 Warranties and guaranties for the benefit of third parties The Baloise Group has issued warranties and incurred payments due, or to provide warranties in connection with obligations to third parties, associates, partnerships and their business activities. The Baloise Group is not aware joint ventures. These include obligations under contracts to of any cases of default which could have an effect on pay capital contributions or contributions to capital and re- warranties. serves, to allocate funds to cover redemptions or interest Bâloise-Holding Annual Report 2004 117 s056_s128_e 8.4.2005 14:22 Uhr Seite 118 Financial Report 2004 32.4 Warranties and guaranties for the benefit of third parties Warranties Guaranties Total warranties and guaranties for the benefit of third parties 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 32.5 Assets assigned or pledged and securities lending 2003 634.3 328.3 962.6 –/– –/– –/– 2004 598.8 377.4 976.2 –/– –/– –/– 2003 4,030.6 –/– –/– –/– Assets 2004 3,601.5 –/– –/– 3.7 Amount of hedged obligation 2004 771.4 –/– –/– –/– 2003 1,665.6 –/– –/– –/– 4,030.6 3,605.2 1,665.6 771.4 2.8 2.1 1.8 0.1 0.2 7.0 Investments Tangible noncurrent assets Intangible assets Other assets Total in CHF m 32.6 Obligations under operating leases 2005 2006 2007 2008 2009 and later Total in CHF m 33. Events after the balance sheet date Up to the completion of the present consolidated financial statements on March 23, 2005, we were not aware of any events that would have a significant effect on the financial statements as a whole. 118 s056_s128_e 8.4.2005 14:22 Uhr Seite 119 34. Significant subsidiaries and participating interests at December 31, 2004 Principal activity Business segments1 Holding in percent Method of inclusion2 Currency Share/ company capital in millions Switzerland Bâloise-Holding, Basel Baloise Insurance Company, Basel Baloise Life Insurance Company, Basel Baloise Bank SoBa, Solothurn Haakon AG, Basel Holding Non-life Life Banking Other Baloise Asset Management Switzerland AG, Basel Asset management Baloise Asset Management International AG, Basel Investment advice Germany Basler Versicherung Beteiligungsgesellschaft mbH, Hamburg Baloise Beteiligungs-Holding GmbH, Bad Homburg Deutscher Ring Lebensversicherungs-AG, Hamburg SECURITAS Gilde Lebensversicherung AG, Bremen Holding Holding Life Life Deutscher Ring Sachversicherungs-AG, Hamburg Non-Life Basler Securitas Versicherungs-Aktiengesellschaft, Bad Homburg Deutscher Ring Bausparkasse AG, Hamburg Deutscher Ring Beteiligungsholding GmbH, Hamburg DePfa Beteiligungs-Holding II GmbH, Düsseldorf Deutscher Ring Financial Services GmbH, Hamburg Grocon Erste Grundstücksgesellschaft mbH, Hamburg Grocon Zweite Grundstücksgesellschaft mbH, Hamburg OVB Vermögensberatung AG, Köln Roland Rechtsschutz Beteiligungs GmbH, Cologne Roland Rechtsschutz Versicherungs-AG, Cologne Zeus Vermittlungsgesellschaft mbH, Hamburg Non-Life Banking Other Other Other Other Other Other Other Other Other O NL L B O B B O O L L NL NL B O O O O O O O O O Belgium Mercator Verzekeringen N.V., Ghent/Antwerp Life and non-life L/NL Amazon Insurance N.V., Antwerp Mercator, Re N.V., Antwerp Euromex N.V., Antwerp Corluy en C° Beurvennootschap N.V., Antwerp Amid N.V., Ghent Antwerp Real Estate N.V., Antwerp Automobielcenter Gent N.V., Ledeberg Hondius N.V., Antwerp Merno-Immo N.V., Ghent Plastic Investment Company, Kortrijk Sogaplim N.V., Ghent Non-life Reinsurance Non-life Banking Other Other Other Other Other Other Other NL NL NL B O O O O O O O 1 L: Life, NL: Non-life, B: Banking, O: Other activities/Group business 2 F: Fully consolidated, P: Consolidated on a proportionate basis, E: Stated at equity valuation Holding 100.00 100.00 100.00 74.75 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 65.00 26.00 100.00 100.00 100.00 54.44 60.00 25.02 90.10 100.00 100.00 100.00 100.00 37.50 97.85 84.00 74.38 100.00 99.75 29.00 50.00 F F F F F F F F F F F F F F / P F / P E F / P F F / P F / P F / P E F / P F F F F E F F F F F E P CHF CHF CHF CHF CHF CHF CHF EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR Financial Report 2004 Total assets in millions 2,192.6 Gross premiums/ policy fees in millions –/– 5,516.5 1,281.1 25,230.9 2,715.0 5, 190.4 26.1 15.1 7.7 254.7 115.1 7,771.1 958.3 396.0 953.8 560.5 324.7 –/– 6.1 16.9 14.8 59.4 22.3 –/– 17.6 –/– –/– –/– –/– –/– –/– 528.9 77.3 135.2 442.9 –/– –/– –/– –/– –/– –/– –/– –/– –/– –/– 5.5 75.0 50.0 50.0 0.2 1.5 1.5 20.5 0.0 22.0 4.1 50.0 15.1 12.8 12.8 –/– 0.1 0.7 1.5 10.0 0.1 –/– 0.5 185.0 2,722.0 399.2 3.7 1.2 2.5 –/– 0.5 1.2 0.3 2.5 14.5 –/– 4.2 21.0 5.3 50.6 –/– 2.7 3.1 5.5 10.6 17.9 –/– 17.4 16.7 0.0 19.8 –/– –/– –/– –/– –/– –/– –/– –/– Bâloise-Holding Annual Report 2004 119 Method of inclusion2 Currency Share/ company capital in millions Total assets in millions Gross premiums/ policy fees in millions –/– 26.0 23.0 –/– 437.9 7.5 12.5 0.1 957.2 123.1 456.3 4.1 F F F F F F F F F F F F F F CHF EUR EUR EUR EUR HRK HRK EUR CHF CHF USD CHF USD EUR 5.1 18.0 15.0 14.5 465.4 49.0 30.2 40.0 70.9 16.2 8.0 –/– 31.2 438.5 –/– 5.0 572.7 –/– 0.0 1,137.0 –/– 1.4 0.0 18.0 504.4 309.7 17.4 –/– –/– –/– s056_s128_e 8.4.2005 14:22 Uhr Seite 120 Financial Report 2004 Continued Luxembourg Principal activity Business segments1 Bâloise (Luxembourg) Holding S.A., Luxembourg Bâloise Assurances Luxembourg S.A., Luxembourg Bâloise Vie Luxembourg S.A., Luxembourg Holding Non-life Life Baloise Fund Invest Advico, Luxembourg Investment advice O NL L B Holding in percent 100.00 100.00 100.00 100.00 Austria Basler Versicherungs-Aktiengesellschaft in Österreich, Vienna Basler osiguranje d.d., Zagreb Basler Zivotno osiguranje d.d., Zagreb Basler Immobilien GmbH, Vienna Other countries Baloise Insurance Co. (I.O. M.) Ltd., Douglas / Isle of Man/British Isles Baloise Insurance Company (Bermuda) Ltd., Hamilton / Bermuda Baloise Alternative Investment Strategies Ltd., Grand Cayman, Cayman Islands Baloise Finance (Jersey) Ltd., St. Helier / Jersey / Channel Islands Life and non-life L/NL 100.00 Non-life Life Other Reinsurance Reinsurance NL L O NL NL 97.00 97.00 100.00 100.00 100.00 Asset management L/NL/O 100.00 Other O 100.00 Baloise Private Equity Ltd., Cayman Islands Asset management L/NL/O 100.00 Baloise (España) S.A., Madrid Other NL 100.00 1 L: Life, NL: Non-life, B: Banking, O: Other activities/Group business 2 F: Fully consolidated, P: Consolidated on a proportionate basis, E: Stated at equity valuation 120 s056_s128_e 8.4.2005 14:22 Uhr Seite 121 Financial Report 2004 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, cash flow statement, statement of changes in capital and reserves, and notes to the financial statements, pages 69 to 120)1 of the Baloise Group for the year ended December 31, 2004. These consolidated financial statements are the re- sponsibility of the Board of Directors. Our responsibility is to express an opinion on these consolidated financial state- ments based on our audit. We confirm that we meet the le- gal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession and with the International Standards on Auditing, which require that an audit be planned and performed to obtain reasonable assurance about whether the consolidated financial state- ments are free from material misstatement. We have exam- ined on a test basis evidence supporting the amounts and disclosures in the consolidated financial statements. We have also assessed the accounting principles used, signifi- cant estimates made and the overall consolidated financial statement presentation. 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 financial position, results of operations and the cash flows in accordance with Interna- tional Financial Reporting Standards (IFRS) and comply with Swiss law. We recommend that the consolidated financial state- ments submitted to you be approved. PricewaterhouseCoopers AG Edgar Fluri Peter Lüssi Basel, April 5, 2005 1 The German version of the Financial Report is binding. Bâloise-Holding Annual Report 2004 121 s056_s128_e 8.4.2005 14:22 Uhr Seite 122 122 s056_s128_e 8.4.2005 14:22 Uhr Seite 123 Financial Report 2004 Income statement: Bâloise-Holding Income Income from securities Gains on securities Income from participating interests Interest on loans to Group companies Income from financial assets Other interest receivable Realized gains on noncurrent assets Other income Total income Expenses Administrative expenses Interest payable Amortization of/losses from noncurrent assets Other expenses Total expenses Overall result Total income Total expenses Total profit before tax Tax on income and capital Annual net profit in CHF 2003/ 2004 2004/ 2005 –/– –/– 5,775,682 40,001,336 169,615,616 223,875,840 2,798,352 5,357,325 612,677 2,017,044 1,068,555 2,732,821 19,710,756 11,787,420 3,480,670 2,332,738 201,575,396 289,591,436 –5,347,099 –5,907,108 –40,391,024 –45,336,805 –114,499,511 –62,499,123 –38 –51,253,192 –160,237,672 –164,996,228 201,575,396 289,591,436 –160,237,672 –164,996,228 41,337,724 124,595,208 –119,795 –310,948 41,217,929 124,284,260 Bâloise-Holding Annual Report 2004 123 s056_s128_e 8.4.2005 14:22 Uhr Seite 124 Financial Report 2004 Balance sheet: Bâloise-Holding Assets Bank balances Receivables from Group companies Other receivables Accruals deferrals Securities Current assets Participating interests Financial assets Noncurrent assets Total assets Liabilities and capital and reserves Short-term liabilities Payables to Group companies Bonds Provisions Accruals deferrals Liabilities Share capital General reserve Reserve for own shares Free reserve Accumulated profit Capital and reserves Total liabilities and capital and reserves in CHF 124 Note 3.31.2004 3.31.2005 6,523 85,907,278 183,956,724 194,250,961 1,804,309 589,920 2,276,161 702,693 –/– 173,166,552 186,357,476 456,303,645 1,418,884,115 1,446,124,075 162,625,973 255,758,786 1,581,510,088 1,701,882,861 1,767,867,564 2,158,186,506 2 3 12,769 12,252 3,051,111 1,034,067 4 1,150,000,000 1,400,000,000 73,200 26,118,457 50,704,148 26,724,042 1,179,255,537 1,478,474,509 5 5,530,715 11,724,001 14,005,321 5,530,715 11,724,001 16,698,848 515,497,921 520,804,394 41,854,069 124,954,039 588,612,027 679,711,997 1,767,867,564 2,158,186,506 s056_s128_e 8.4.2005 14:22 Uhr Seite 125 Financial Report 2004 Notes to the financial statements of Bâloise-Holding 1. Basis of accounting 2. Securities The Bâloise-Holding accounts comply with Swiss legal For strategic reasons, shares amounting to CHF 133.2 mil- requirements. lion in value were reclassified from noncurrent assets (financial assets) to current assets. This generated a book profit of CHF 40.0 million. 3. Participating interests Company Baloise Insurance Company, Basel Baloise Life Insurance Company, Basel Baloise Bank SoBa, Solothurn Baloise Asset Management Switzerland AG, Basel Baloise Asset Management International AG, Basel Haakon AG, Basel Basler Versicherung Beteiligungsges. mbH, Hamburg Baloise Beteiligungs-Holding GmbH, Bad Homburg Bâloise (Luxembourg) Holding S.A., Luxembourg Baloise Fund Invest Advico, Luxembourg Baloise Insurance Co. (I.O.M.) Ltd., Isle of Man Baloise Insurance Company (Bermuda) Ltd., Bermuda Baloise Finance (Jersey) Ltd., Jersey The holdings have been rounded to the nearest percent. Additional information about the participating interests of Bâloise-Holding is given on pages 119 to 120. 4. Bonds Amount CHF 300 million CHF 600 million CHF 250 million CHF 250 million Holding at 3.31.2004 in % Holding at 3.31.2005 in % Share/company capital at 3.31.2005 in millions Currency 100 100 100 100 100 75 100 100 100 100 100 100 100 100 100 100 100 100 75 100 100 100 100 100 100 100 CHF CHF CHF CHF CHF CHF EUR EUR CHF EUR CHF CHF CHF 75.0 50.0 50.0 1.5 1.5 0.2 20.5 0.0 437.9 0.1 31.2 5.0 1.4 Interest rate Issued Maturity date 3.25 % 4.25 % 3.375 % 2.375 % 1998 2000 2003 2004 4.7.2008 9.28.2005 12.15.2009 12.20.2010 Bâloise-Holding Annual Report 2004 125 s056_s128_e 8.4.2005 14:22 Uhr Seite 126 Financial Report 2004 5. Own shares 6. Significant shareholders The companies in the Baloise Group bought a total of There were no significant changes in the composition of 523,850 shares at an average price of CHF 54 per share shareholders in the year under review. As at March 31, during the year under review, and sold 472,809 shares at 2005, no shareholder held more than 5% of the outstand- an average price of CHF 50. At March 31, 2005, they ing Bâloise-Holding stock. together held a total of 230,499 Bâloise-Holding shares. As a widely held joint stock company, the Baloise is At March 31, 2005, an amount of CHF 2.7 million was included in the Swiss Market Index (SMI) and features in transferred from the free reserve of Bâloise-Holding to the the SWX’s index calculations with a free float of 100%. reserve for own shares. The following table provides a current breakdown of shareholders as at March 31, 2005. Shareholders Chase Nominees Investors Bank & Trust UBS Group Nortrust Nominees Ltd. Mellon Bank N. A. CS Group Deutsche Bank Nominee Fidelity Group Rolex Group in percent Total holding at 3.31.2004 Share of voting rights 3.31.2004 Total holding at 3.31.2005 Share of voting rights 3.31.2005 4.0 (cid:2) 2.0 (cid:2) 2.0 (cid:2) 2.0 (cid:2) 2.0 (cid:2) 2.0 2.3 2.5 2.0 2.0 (cid:2) 2.0 (cid:2) 2.0 (cid:2) 2.0 (cid:2) 2.0 (cid:2) 2.0 2.0 2.0 2.0 4.8 2.6 2.5 2.4 2.2 2.1 (cid:2) 2.0 (cid:2) 2.0 (cid:2) 2.0 2.0 0.0 2.0 0.0 0.0 1.6 (cid:2) 2.0 (cid:2) 2.0 (cid:2) 2.0 7. Contingent liabilities 8. Personnel expenses At March 31, 2005, warranty obligations amounted to Administrative costs include CHF 1.1 million relating to CHF 446,3 million (prior year: CHF 435.8 million). Of these, personnel expenses in the year under review (2003: CHF 1.1 CHF 204,0 million relate to the warranty in respect of the con- million). vertible bond issued by Baloise Finance (Jersey) Ltd. The se- curities needed for hedging are recognized as “Securities”. 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. 126 s056_s128_e 8.4.2005 14:23 Uhr Seite 127 Financial Report 2004 Proposed allocation of accumulated profit Included in balance sheet and income statement Annual net profit Retained profit carried forward Accumulated profit Dividend distribution required by Articles of Incorporation Available for distribution at General Meeting Proposed by the Board of Directors Allocation to free reserve Additional dividend distribution Retained profit carried forward 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 1.10 gross per share (CHF 0.71 after deduction of withholding tax). 2003/2004 2004/2005 41,217,929 124,284,260 636,140 669,779 41,854,069 124,954,039 –276,536 –276,536 41,577,533 124,677,503 –8,000,000 –63,500,000 –32,907,754 –60,561,329 669,779 616,174 Bâloise-Holding Annual Report 2004 127 s056_s128_e 8.4.2005 14:23 Uhr Seite 128 Financial Report 2004 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 statements, pages 123 to 126)1 of Bâloise-Holding for the financial year ended March 31, 2005. These financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opin- ion on these 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 promulgated by the Swiss profession, which re- quire that an audit be planned and performed to obtain reasonable assurance about whether the financial state- ments are free from material misstatement. We have exam- ined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also as- sessed the accounting principles used, significant esti- mates made and the overall financial statement presenta- tion. 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 the accu- mulated profit comply with Swiss law and the Company’s Articles of Incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers AG Edgar Fluri Peter Lüssi Basel, April 5, 2005 1 The German version of the Financial Report is binding. 128 The Baloise Profile Headquartered in Basel (Switzerland) and with operations in continental Europe, the Baloise Group is a solution provider in the fields of insurance and provision for the future. The Group’s strategic focus is on sustainable, income-oriented growth. Core markets are Switzerland, Germany, Belgium, Austria and Luxembourg. The Baloise Group employs a staff of around 8,000. Bâloise-Holding registered shares are included in the Swiss Market Index (SMI) and are traded on virt-x under the symbol BALN. Our conduct guidelines Create value Value means nurturing and creating quality. We care for the value of rela- tionships and the value to be found in change. We value ourselves and others. We focus on the requirements of our customers, our shareholders and our staff. We employ our time, money and human resources with great care. Creating and adding value are our targets. Foster relations We live in a networked world which links us to a lot of people. We care about these relationships. We talk to others and we are prepared to listen. We are honest, open and communicative. We are critical and able to accept criticism. We create unambiguous mutual expectations. We stand by our word. Together we are strong. Bring about change The world is changing fast. It is changing us. We change. The pressures of a changing world are a call for action. We analyze. We decide. We intervene and we implement. We deliver results. Changing in order to innovate and to add value is our goal. Profit development 2000– 2004 750 625 500 375 250 125 0 –125 –250 –375 –500 –625 –750 in CHF m 4 3 6 4 0 4 1 9 2 2 2 4 3 6 – 2000 2001 2002 2003 2004 The most important figures at a glance Income statement Total premium income (gross) Of which non-life Of which life Investment-type premiums Consolidated net profit Balance sheet Investments Technical provisions Capital and reserves Assets under management 2003 7,374.7 3,088.8 4,301.1 261.0 91.4 2004 7,022.1 3,081.4 3,956.4 443.5 221.7 56,307.7 52,799.3 42,328.7 42,703.3 3,319.8 3,482.5 Change in % –4.8 –0.2 –8.0 69.9 142.6 –6.2 0.9 4.9 Total assets under management 65,551.1 61,274.8 –6.5 Indexed share price development1 2001–2004 140 120 100 80 60 40 20 0 2001 2002 2003 2004 Bâloise Holding, registered2 SWX MS Insurance Price Index (SMINNX) Swiss Market Index 1 December 29, 2000 = 100 2 adjusted after 1:10 split of July 24, 2001 Distributions 2000– 2004 in CHF m Ratios Return on equity (ROE) On capital and reserves as shown in the balance sheet Excl. unrealized gains/losses Combined ratio non-life (net) Combined ratio non-life (gross) Technical reserve ratio non-life in percent Embedded value life insurance Value of insurance portfolio Adjusted capital and reserves Solvency costs Total Of which value new business in CHF m Key share data 2.9 2.9 103.2 97.6 177.4 6.5 6.8 97.5 93.0 179.6 1,236.1 1,008.7 –264.0 1,980.2 15.5 1,181.7 1,400.3 –445.2 2,136.8 15.2 Shares issued as at 12.31. in units 55,307,150 55,307,150 600 550 500 450 400 350 300 250 200 150 100 50 0 1 4 1 6 3 1 0 5 Capital and reserves per share as at 12.31. in CHF Consolidated net profit per share in CHF Price at year-end in CHF Market capitalization as at 12.31. in CHF m Price-earnings ratio Dividend per share in CHF 1 based on proposal to the Annual General Meeting 5 3 3 3 9 2 3 3 1 2 2 3 3 Number of staff Total at 12.31.1 Of which Switzerland 2000 2001 2002 2003 2004 Of which other countries in CHF m 1 adjusted for degree of employment Dividends paid Nominal value repayments Share repurchases 60.02 1.67 51.65 2,857 30.9 0.6 8,745 3,774 4,971 4.9 1.6 62.97 4.04 52.50 2,904 13.1 1.11 8,090 3,781 4,309 –7.5 0.2 –13.3 Publishing details Bâloise-Holding Annual Report 2004 Published by Baloise, Corporate Communications Concept, design Primafila AG, Zurich Text Baloise, Corporate Communications Corin Ballhaus, CLS René Vautravers Photographs Andreas Schwaiger Markus Bühler Production Boncept AG, Zurich Printing Werner Druck AG, Basel Paper Environmentally friendly, wood-free offset paper, bleached without chlorine © 2005 Bâloise-Holding, CH-4002 Basel This Annual Report ist also available in German and French. The German version is binding. The Annual Report can be found under www.baloise.com Bâloise-Holding Aeschengraben 21 CH-4002 Basel www.baloise.com Addresses Switzerland Basler Versicherungen Aeschengraben 21 CH-4002 Basel Phone +41 61 285 85 85 Fax +41 61 285 70 70 Austria Basler Versicherungen Brigittenauer Lände 50 –54 A-1203 Vienna Phone +43 1 33 160 0 Fax +43 1 33 160 200 E-mail insurance@baloise.ch E-mail office@basler.co.at www.baloise.ch www.basler.co.at “ Finding and retaining the right customers … ” Bâloise-Holding Annual Report 2004 Key dates and contacts May 18, 2005 Annual General Meeting Bâloise-Holding September 7, 2005 Half-Year Media Conference September 7, 2005 Meeting of Financial Analysts March 21, 2006 Annual Media Conference March 21, 2006 Meeting of Financial Analysts April 28, 2006 Annual General Meeting Bâloise-Holding Investor Relations Carsten Stolz Aeschengraben 21 CH-4002 Basel Phone +41 61 285 83 65 Fax +41 61 285 75 62 Media Relations Philipp Senn Aeschengraben 21 CH-4002 Basel Phone +41 61 285 84 67 Fax +41 61 285 90 06 E-mail media.relations@baloise.com www.baloise.com E-mail investor.relations@baloise.com Deutscher Ring Baloise Bank SoBa Amthausplatz 4 CH-4502 Solothurn Phone +41 32 626 02 02 Fax +41 32 623 36 92 E-mail bank@baloise.ch www.baloise.ch Germany Basler Securitas Versicherungen Basler Strasse 4, Postfach 1145 D-61281 Bad Homburg Phone +49 61 7213 0 Fax +49 61 7213 200 E-mail info@basec.de www.basler-securitas.de Versicherungsunternehmen Ludwig-Erhard-Strasse 22 D-20459 Hamburg Phone +49 40 3599 0 Fax +49 40 3599 2500 Belgium Mercator Verzekeringen Desguinlei 100 B-2018 Antwerp Phone +32 3 247 21 11 Fax +32 3 247 27 77 E-mail info@mercator.be www.mercator.be Luxembourg Bâloise Assurances 1, rue Emile Bian L-1235 Luxembourg Phone +352 290 190 1 Fax +352 290 591 E-mail info@baloise.lu www.baloise.lu Croatia Basler osiguranje Trg bana Josipa Jelacˇic´a 4 E-mail Service@DeutscherRing.de HR-10000 Zagreb www.DeutscherRing.de Phone +385 1 48 17 808 Fax +385 1 48 16 932 E-mail info@basler.hr www.basler.hr 4 0 0 2 t r o p e R l a u n n A g n i d l o H - e s i o l â B