Baloise-Holding AG
Annual Report 2007

Plain-text annual report

In the middle of life ANNUAL REPORT 2007 BALOISE KEY FIGURES in CHF million Business volume Gross premiums written, nonlife Gross premiums written, life Sub-total of IFRS gross premiums written 1 Investment-type premiums Total business volume Business results Segment income, nonlife 2 Segment income, life 2 Segment income, banking 2 Segment income other activities / corporate business 2 Profi t for the period Balance sheet Investments 3 Technical reserves Equity Ratios in percent Return on equity (RoE) Combined ratio nonlife (gross) Combined ratio nonlife (net) New business margin, life Investment performance Embedded value life insurance Embedded value APE (annual premium equivalent) Value of new business Key share fi gures Shares issued in units Profi t for the period per share in CHF Equity per share 4 in CHF Price at year-end in CHF Market capitalisation in CHF million Dividend per share 5 in CHF 2006 2007 +/– % 3,065.1 3,651.4 6,716.5 774.7 7,491.2 542.2 246.2 63.6 89.4 707.1 3,190.6 3,677.8 6,868.4 1,069.2 7,937.6 516.5 418.9 69.1 30.2 813.8 59,357.1 46,521.8 4,986.5 61,770.0 47,811.0 4,865.6 15.3 90.2 94.0 7.3 4.5 16.9 93.0 95.1 9.5 3.0 2,627.8 3,230.6 217.2 15.9 212.5 20.3 55,307,150 54,000,000 12.93 91.0 121.80 6,736.4 3.80 15.48 92.2 111.50 6,021.0 4.50 4.1 0.7 2.3 38.0 6.0 – 4.7 70.1 8.6 – 66.2 15.1 4.1 2.8 – 2.4 – 2.4 19.7 1.3 – 8.5 – 10.6 18.4 1 Premiums written and policy fees gross. 2 Before taxes and borrowing costs. 3 Including assets for the account and at the risk of life insurance policyholders. 4 Calculated on consolidated equity before minority interests and average number of outstanding shares. 5 2007 based on the proposal to the Annual General Meeting. BALOISE AT A GLANCE WHO WE ARE: Th e Baloise Group is active in selected markets in continen- tal Europe. With approximately 8,600 employees, Baloise provides comprehensive insurance and retirement solutions to private individuals and companies. Th e Group focuses on high value-added customers and distribution partners. Th e registered shares are included in the Swiss Market Index and are traded under the abbreviation BALN. OUR ACHIEVEMENTS IN 2007: Record profi t of CHF 813.8 million, up 15.1% over the previous record high of 2006. Earnings per share of CHF 15.48, up 19.7% over the previous year. Return on equity of 16.9%. Growth of business volume up by 6.0% to CHF 7,937.6 million. Growth of 38.0% to CHF 1,069.2 million in the target segment of investment-type life insurances. Net combined ratio of 95.1% despite storm loss. Embedded value of life insurances rose by CH 2,627.8 million to CHF 3,230.6 million, representing a return on embedded value of 24.5%. WHAT WE AIM TO ACHIEVE: Th e year 2008 will be characterised by volatile fi nancial mar- kets and a further increase in pricing and competitive pres- sure. In this challenging environment, Baloise strives to achieve good results at a high level. Over the cycle, Baloise expects to see a return on equity of 15% and a steady increase in earnings per share. In the nonlife business, it is our objec- tive to keep the combined ratio signifi cantly below 100%. CONTENT BALOISE Key Figures At a Glance Our Markets Our Strategy SHAREHOLDER INFORMATION Letter to Shareholders: “We Want to Make an Active Contribution to the Development” Baloise Share: Resilient Baloise Share in Volatile Financial Markets REVIEW OF BUSINESS YEAR Group: Another Record Result and Accelerated Growth Switzerland: Th oroughly Healthy and Profi table Germany: Strengthened Sales Power Belgium and Luxembourg: High Profi tability Other Countries: Growth and Expansion TRUSTED PARTNER Switzerland: Comprehensive Support in a Complex Environment Germany: “Basler’s Doors are Always Open to Me” Belgium: Excellently Supported by Mercator SUSTAINABLE MANAGEMENT Human Resources: Attractive Employer with Prospects Ecology: Long-Term Protection of the Environment Risk Management: We Invest Constantly in Our Advanced Risk Management CORPORATE GOVERNANCE Corporate Governance Report including Compensation Report ORGANISATIONAL STRUCTURE Board of Directors Management MANAGEMENT INFORMATION Consolidated Income Statement Consolidated Balance Sheet Business Volume, Premiums and Combined Ratio Technical Income Statement Gross Premiums by Industries Embedded Value Banking Activities Asset Performance BÂLOISE-HOLDING Income Statement Balance Sheet Notes Appropriation of the Retained Earnings as Proposed by the Board of Directors GLOSSARY ADDRESSES BALOISE GROUP INFORMATION Cover Cover 4 6 10 12 16 20 21 22 23 26 28 30 34 38 40 46 76 77 80 82 83 85 86 87 90 91 94 95 96 101 102 106 107 KEY DATES AND CONTACTS Cover A safe and fulfi lling life with the right partner. Change is often experienced as a challenge. But change is also an expression of freedom. Freedom to choose; the freedom of giving life a particular direction, or to start all over again. You can rely on us as your trusted partner in any of these situations. Looking at the lives of our clients in all their richness, we offer them support in decision-making situations – wherever they are in life. Going through life together OR RATHER ON YOUR OWN? 4 BALOISE OUR MARKETS OUR MARKETS BALOISE FOCUSES ON MARKETS, CUSTOMERS, DISTRIBUTION CHANNELS AND PRODUCTS WITH HIGH ADDED VALUE. WE PREFER CUSTOMERS WHO ARE PRIVATE INDIVIDUALS, SMALL AND MEDIUM-SIZED BUSINESSES WITH FAVROUABLE RISK AND INCOME PROFILE AND SELECTED INDUSTRIAL CUSTOMERS. In the Swiss home market, Baloise trades SWITZERLAND under the names “Basler Versicherungen” and “Baloise Bank SoBa”. Th e Basler Switzerland is the largest business unit within the Group. As a fi nancial services provider, it focuses on comprehensive insurance and retirement solutions. Customers are private individuals, small and medium-sized businesses and selected industrial companies. Th e heart of the Baloise distribution is the company’s own sales force, which works closely with selected distribution partners for individual product and customer segments, plus external brokers and on the internet. In addition, Baloise Bank SoBa off ers banking products through its insurance sales force to accompany the range of retirement products. In the region of northwest Switzerland, it has also positioned itself as a full-service bank. In the German market, Baloise is represented GERMANY by business units “Basler Versicherungen” and “Deutscher Ring”. With its headquarters in Bad Homburg, Basler Ger- many focuses on property insurance, providing insurance and retirement solutions to private customers, small and medium-sized businesses and selected industrial customers. In sales, Basler Germany works primarily with the company’s own sales force and external brokers. Deutscher Ring in Hamburg specialises in retirement provi- sions for private customers, with retirement and health care as core products. Deutscher Ring is also present in Slovakia and in the Czech Republic. Apart from its own sales force, Deutscher Ring also works with distribution partners OVB and ZEUS and external brokers. KEY FIGURES SWITZERLAND KEY FIGURES BASLER GERMANY Full-time equivalents Business volume in CHF million Combined ratio (gross) Basler Versicherungen in percent 2006 3,516.9 3,730.4 2007 3,449.7 3,742.7 87.8 88.6 Full-time equivalents Business volume in CHF million Combined ratio (gross) Basler Versicherungen in percent 2006 1,152.3 1,067.4 2007 1,126.3 1,083.9 92.6 97.3 KEY FIGURES DEUTSCHER RING Full-time equivalents Business volume in CHF million Combined ratio (gross) Deutscher Ring in percent 2006 1,296.8 1,237.9 2007 1,354.2 1,299.8 94.4 97.2 BALOISE OUR MARKETS 5 In the Belgian market, the Baloise Group is BELGIUM represented in Flanders by the brand “Mercator Verzeke- ringen”. Mercator has established itself as preferred trusted partner to local, professional brokers. Th e company provides a comprehensive range of fi nancial protection and property insurance products to private customers and small and medium-sized businesses. In Austria, “Basler Versicherungen” off ers in- AUSTRIA surance and retirement solutions to private customers and small and medium-sized businesses. In sales, the business unit relies primarily on its own sales force, plus a number of selected brokers. Basler is one of the prime addresses in the target segment medical practitioners and other medical per- sonnel. In the Grand Duchy, “Bâloise Assurances” LUXEMBOURG off ers a full range of products to meet the insurance, retire- ment and wealth building needs of private and business cus- tomers. Beyond its home market, Bâloise Luxembourg also sells retirement and wealth-building products in many coun- tries of the European Union, in cooperation with high-per- formance banking partners. Together with “Osiguranje Zagreb”, CROATIA AND SERBIA which was acquired in July 2007, “Basler Osiguranja” is the fourth largest insurer in the Croatian market. Aft er opening an offi ce in Serbia at the end of 2007, Baloise is now concen- trating on the target segment medical practitioners and dentists, which has already been highly successful in Aus- tria and Croatia, as well as on banking sales. KEY FIGURES BELGIUM KEY FIGURES AUSTRIA Full-time equivalents Business volume in CHF million Combined ratio (gross) Mercator Verzekeringen in percent 2006 680.7 738.7 2007 689.7 792.8 92.7 94.3 Full-time equivalents Business volume in CHF million Combined ratio (gross) Basler Versicherungen in percent 2006 235.8 127.9 2007 241.2 146.7 99.9 99.9 KEY FIGURES LUXEMBOURG KEY FIGURES CROATIA AND SERBIA Full-time equivalents Business volume in CHF million Combined ratio (gross) Bâloise Assurances in percent 2006 128.0 535.2 2007 160.0 770.5 89.7 91.6 Full-time equivalents Business volume in CHF million Combined ratio (gross) Croatia and Serbia in percent 2006 67.0 13.6 95.0 2007 693.7 62.5 117.6 6 BALOISE OUR STRATEGY OUR STRATEGY THE FOCUS OF OUR STRATEGY IS OUR CUSTOMERS, WHOSE LASTING TRUST WE WANT TO ACHIEVE. THIS PARTNERSHIP IS CHARACTERISED BY THE QUALIT Y OF THE RELATIONSHIP AND THE ADDED VALUE. WE FOCUS ON OUR CUSTOMERS We want us and our products and services to excite our cus- tomers and thus become their preferred and trusted partner. Based on this long-term, trusting relationship, together with the mutual generation of added value, we are able to achieve long-term growth and above-average productivity. In turn, this allows us to make investments that benefi t our custom- ers, employees and investors, thus securing our future. Organic growth in customer segments with a high value- added potential will continue to be our primary focus. For targeted acquisitions and strategic partnerships, we will focus on the expansion of market positions in existing markets. For our most important reference groups this means: Our target customers are responsible indi- CUSTOMERS viduals and businesses that take the protection of their property and adequate provisions for the future seriously. With comprehensive solutions, we provide them with security for all situations in life. We are passionate about being a service provider. Our prices and conditions are based on risk assessment features and enable us to off er detailed solutions. SHAREHOLDERS We increase the business value for our shareholders. With the entrusted capital, we aim at a return that is signifi cantly higher than the average cost of capital. We maintain an income-oriented distribution policy. We provide regular und transparent updates to our sharehold- ers on business trends and strategy implementation. BALOISE OUR STRATEGY 7 EMPLOYEES Th e success of our strategy is built on the skills and capabilities of our competent, hard working and loyal employees. We off er them an attractive working envi- ronment with prospects for continuous further develop- ment. We ensure targeted and sustained investment in the skills of our employees. We are committed to working in a fair partnership. Depending on the market, we conduct SALES PARTNERS all or part of our business through sales partners. Th ey are as strongly committed to outstanding customer management and exceptional service quality as we are. We seek to main- tain the same relationship of trust with our sales partners as we do with our customers. THE PUBLIC We are a responsible member of society. As an insurance and pension provider, we contribute to the functioning of national economies, communities and busi- nesses on a daily basis. Th anks to our sizable earning power, we contribute substan- tially to the fi nancing of the public sector. Our sustainable company policy makes us a reliable employer. We create and maintain value-added jobs. We make responsible use of nat- ural resources. Renting a place OR OWNING YOUR OWN HOME? There are different types of dwellings. The goal is to create an environment that enables a good life for everyone. Our lives keep changing – thus, we periodically must adjust our living arrangements. The manifold forms of community require strong partners, who are responsive to the changing needs and conditions. Like Baloise. 10 SHAREHOLDER INFORMATION LETTER TO SHAREHOLDERS “WE WANT TO MAKE AN ACTIVE CONTRIBUTION TO THE DEVELOPMENT” DEAR SHAREHOLDERS It is with great pleasure that we are able to report that the Baloise Group has realised historical earnings of CHF 813.8 million and a 19.7% increase in earnings per share of CHF 15.48 in the fiscal year 2007 – a clear indication that Baloise is in excellent shape. This success confirms the opinion of the Board of Directors and the Corporate Execu- tive Committee that we have the right strategy and that we will continue to efficiently implement it year after year. My sincere thanks go to those who are responsible for this achievement: to all employees, but also to you, dear share- holders. The business results 2007 will allow us to recom- mend a 18.4% higher dividend per share of CHF 4.50 to the Annual General Meeting. This record result – a milestone of a major phase of develop- ment on our way to become a favoured trusted partner – is Dr. Rolf Schäuble, Chairman of the Board of Directors and CEO of Baloise Group the interim high point of our five-year undertaking aimed at attaining mastery in our core business. During this time, we were able to steadily increase our earnings power. Today, Baloise is a respected, highly profitable, financially strong and competitive business, ranking among the leading insur- ance companies in Europe. Our guiding principle in the further implementation of our strategy remains the continued striving for operational ex- cellence in the insurance business. Financial management in the years to come will continue to focus on the high demands of our shareholders. This will include an attractive distribu- tion policy and effective capital structure management, among other things. SHAREHOLDER INFORMATION LETTER TO SHAREHOLDERS 11 Baloise – would offer them the opportunity to increase their efficiency, plus excellent access to the capital market. Th e year 2008 will be characterised by volatile fi nancial markets and a further increase in pricing and competitive pressure. In this challenging environment, Baloise strives to achieve good results at a high level. Over the cycle, Baloise expects to see a return on equity of 15% and a steady in- crease in earnings per share. In the nonlife business, it is our objective to keep the combined ratio signifi cantly below 100%. On behalf of Baloise’s Board of Directors and the Corporate Executive Committee, I would like to thank you for your confi dence and faith in the company, now and in the fu- ture. Basel, March 2008 Rolf Schäuble, Chairman of the Board of Directors and CEO of Baloise Group The European insurance industry is currently undergoing a fundamental change; the consolidation is already a reality today or is foreseeable in the future. With its strong stra tegic positioning as well as its performance and financial strength, Baloise is well prepared. And more than that. From a posi- tion of strength, we want to – and are able to – actively con- tribute to this consolidation process. We want to continue to generate high earnings, while growing significantly at the same time. To achieve our goals, we will continue to grow organically and, with a clear strategy in the market consolidation, we will also consider acquisitions, strategic partnerships or mergers. The prerequisites are already clearly defined: they must be economically viable for our company and provide clear, measurable and long-term financial benefits to our shareholders, employees and customers. Acquisitions or mergers for their own sake are not viable for us. Our focus in the future is still on the markets in which we already op- erate today. Here, we want to grow stronger and make an active contribution to the development. Actively contributing to the consolidation process does not simply mean to join all the numerous other stakeholders in the field. Such a step must serve a superordinate, strategic interest. For Baloise, this interest is tantamount to main- taining its freedom of action and making use of the available room for manoeuvre. As the saying goes: Shape the future, or the future will shape you. A look at the European insurance map shows a heteroge- neous picture: Many insurance markets are typical of the numerous companies of national or regional significance. Many of these companies are well established and have a loyal customer base. But in an increasingly complex and demanding environment they lack the knowledge and skills in critical areas such as value and risk management, under- writing and asset management, whereas Baloise has all these attributes to a great extent. A merger with a financially strong partner that is listed on the stock exchange – such as 12 SHAREHOLDER INFORMATION BALOISE SHARE RESILIENT BALOISE SHARE IN VOLATILE FINANCIAL MARKETS IN 2007, THE BALOISE SHARE REMAINED RELATIVELY CONSTANT IN A VOLATILE FINANCIAL MARKET ENVIRONMENT COMPARED TO OTHER FINANCIAL INSTRUMENTS. THE SWISS INSURANCE INDUSTRY INDEX CLOSED AT – 8.3%, ITS EUROPEAN EQUIVALENT AT – 12.1%. AT YEAR-END, THE BALOISE SHARE PRICE WAS CHF 111.50, DOWN BY 8.5%. In the fi rst quarter, the Baloise share performed stronger than the market as a whole, but weaker than the Swiss in- dustry index. By 31st March 2007, the Baloise share price had gone up by 3.9%. In the same period, the SMI only increased by 2.2%. With the insurance sector being stimulated by the rising interest rate level in the fi rst three months, the Swiss insurance sector index (SWX SP Insurance Price Index) rose by 7.1%. Th e increase in value in the fi rst half of the year could not be sustained in the second half, due to the worsening of the US mortgage crisis. At the end of September, the Baloise share price was CHF 117.80; 3.3% lower than at the beginning of the year. With a gain of only 1.7%, the SMI lost signifi cantly in value compared to the fi rst half of the year. At year-end, the SMI closed with –3.4%. At year-end, the Swiss insurance sector index was 8.3% lower than at the be- ginning of the year, while the European insurance sector index was down by 12.1%. Th e Baloise share was unable to escape the volatile environment and at year-end 2007 closed at CHF 111.50; a drop of 8.5%, compared with the year-end 2006 closing price of CHF 121.80. For the fi scal year DISTRIBUTION TO SHAREHOLDERS 2007, the Board of Directors requests a cash dividend of CHF 4.50 of the Annual General Meeting. Based on the year-end closing price, this represents a cash dividend return of 4.0%. Th e share buy-back programme, announced in March 2006 (total volume: up to 5,530,715 shares) was continued in 2007. A further 3,283,000 shares were acquired via the second trading line. By the end of 2007, 78.8% of the buy-back pro- gramme had been realised. In addition to the cash dividend, shareholders thus received a total of CHF 390.6 million. Buy-back volume (in units) 1,074,000 3,283,000 4,357,000 In % of maxi- mum buy-back volume of 5’530’715 shares 19.4 59.4 78.8 Year 2006 2007 Total Buy-back volume (in CHF million) Average price (in CHF) 113.8 390.9 504.7 105.84 119.00 115.80 Th e Anual General Meeting 2007 decided upon a capital re- duction by cancelling 1,307,150 of the repurchased shares. Th e current status of the share buy-back programme is avail- able at: www.baloise.com share Share buyback program Investor Relations Baloise Baloise has a broadly diversi- SHAREHOLDER STRUCTURE fi ed shareholder base and is listed on the Swiss Market Index (SMI). Th rough the share buy-back, Baloise exceeded the disclosure threshold of 5% on 5th November 2007 and held 5.04% treasury shares. Th erefore, the SMI-relevant free-fl oat has come to 94.96% as of March 2008. On 31st December 2007, Barclays Group held 10.25% of the shares (disclosure report dated 28th August 2007). Th e table on page 100 gives information on the largest registered shareholders as of 31st December 2007. SHAREHOLDER INFORMATION BALOISE SHARE 13 INDEXED SHARE PRICE DEVELOPMENT1 BÂLOISE-HOLDING SHARE REGISTERED 2003 – 2007 Tk, B: BALN; R: BALZn CHF 0.10 1.241.051 CH0012410518 SWX Europe 100% registered shares 250 200 150 100 50 0 2003 2004 2005 2006 2007 1 31st Dezember 2002 = 100 Bâloise-Holding share registered SWX SP Insurance Price Index (SMINNX) Swiss Market Index 30.12.2003 30.12.2004 30.12.2005 29.12.2006 28.12.2007 51.65 63.20 25.45 52.50 63.10 45.75 76.75 77.00 52.70 1.70 30.90 0.86 3.90 13.46 0.83 7.30 10.51 0.97 121.80 126.70 76.40 6,736.4 12.90 9.40 1.34 111.50 135.00 104.90 6,021.0 15.48 7.20 1.21 55,307,150 55,307,150 55,307,150 55,307,150 54,000,000 414,303 1,176,237 887,879 1,849,548 3,997,308 54,892,847 54,130,913 54,419,271 53,457,602 50,002,692 BALOISE SHARE Ticker symbol Face value in CHF million Securities number ISIN Listing Share type SHARE STATISTICS Position Price at year-end in CHF High in CHF Low in CHF Earnings per share in CHF Price / earnings ratio (P / E) Price / carrying value ratio ( P / B ) Number of shares issued in units ./. Number of treasury shares in units Number of shares in circulation in units Market capitalisation in CHF million 2,856.6 2,903.6 4,244.8 Average number of shares outstanding 1 54,794,476.0 54,001,678.0 54,280,154.0 54,086,516 51,887,469 Dividends per share 2 in CHF Payout ratio Return on dividends 2 0.60 36.3 1.2 1.10 28.2 2.1 2.20 30.7 2.9 3.80 30.1 3.1 4.50 29.0 4.0 1 Relevant for the earnings per share calculation (see fi nancial report page 82). 2003 before restatement due to inclusion of the Baloise Foundation for Employee Participation in the consolidation process as of 01.01.2004. 2 2007 based on proposal to Annual General Meeting. New runabout OR NEW TOOLBOX? The decision for new acquisitions is based on complex considerations. Nostalgia or technology, familiar or new. We frequently use our gut instinct when making these decisions, even if we carefully weigh up the costs and benefits. Baloise knows how to deal with its customers’ rational and instinctive decisions and how to find promising solutions. 16 REVIEW OF BUSINESS YEAR GROUP ANOTHER RECORD RESULT AND ACCELERATED GROWTH IN THE FISCAL YEAR 2007, THE BALOISE GROUP AGAIN EXCELLED WITH A RECORD RESULT AND REINFORCED GROWTH MOMENTUM. RESULTS INCREASED BY 15.1% TO CHF 813.8 MILLION (PREVIOUS YEAR: CHF 707.1 MILLLION). WE PROPOSE A 18.4% HIGHER DIVIDEND OF CHF 4.50 PER SHARE FOR OUR SHAREHOLDERS. In a demanding market environment, partly OVERVIEW supported by favourable currency eff ects, Baloise had a suc- cessful year in the insurance business and with investments. We noticed mounting pressure on prices and margins in all our continental markets in the insurance sector. As a quality insurer with a focus on customers with earning potential and a low risk profi le, we respond by off ering our target customers diff erentiated prices, plus attractive service and product off erings. Our focus on operational excellence and aligning sales ac- tivities to best serve target customers, was refl ected in the excellent 2007 results of the business units. Particularly out- standing is the increased profi t contribution from the life insurance sector. Th e total business volume – including investment-type life insurance – rose by 6.0% to CHF 7,937.6 million (previous year: CHF 7,491.2 million). In local currency the increase was of 3.6%. Premium income under IFRS amounted to CHF 6,868.4 million (previous year: CHF 6,716.5 million), an increase of 2.3%. Th e major growth impulses came from investment-type life insurances. Belgium, Luxembourg and Austria, in particular showed marked growth. Th e business volume comprises a balanced mixture of business sectors, with about 60% life insurance and 40% nonlife business. Th e Baloise Group’s scope of consolidation was primarily expanded by Osiguranje Zagreb in Croatia, the Winterthur Europe Vie in Luxembourg and the newly formed compa- nies in Liechtenstein and Serbia. Th e result from investments in the unstable environment of the capital markets rose by 9.5% to CHF 2,515.9 million, thanks to our effi cient asset management. Primary contribu- tors to the results were the 11.5% increase in current income on top of the strategy-driven realisation policy. Th e propor- tion of shares and equity-related investments in the insur- ance business amounted to 13.1% (previous year: 14.1%). Th e performance of 3.0% (previous year: 4.5%) refl ects largely the negative impact of rising interest rates on the fair value of fi xed-income securities. Investments in subprime and CDO instruments amount to 0.04% of the investments. BUSINESS VOLUME 2007 (GROSS) BY REGIONAL SEGMENTS in percent Switzerland Germany Benelux Other countries 47.2 30.0 19.7 3.1 REVIEW OF BUSINESS YEAR GROUP 17 DISTRIBUTION INCOME in CHF million Total business volume Life Nonlife Investment-type insurance premiums Income from services rendered COMBINED RATIO NET PERFORMANCE 2006 2007 +/– % 7,491.2 3,651.4 3,065.1 774.7 7,937.6 3,677.8 3,190.6 6.0 0.7 4.1 1,069.2 38.0 286.4 387.5 35.3 in percent 2007 2006 2005 2004 2003 95.1 94.0 100.0 97.5 103.2 NONLIFE SECTOR: EXCELLENT ACTUARIAL PRACTICE DESPITE STORM LOSS Th anks to a strong operational perfor- mance and a high-quality insurance portfolio, the nonlife sector (indemnity and personal injury insurance) achieved a strong result from investments and earnings before taxes and borrowing costs of CHF 516.5 million (previous year: CHF 542.2 million). Despite the fi nancial strain of approxi- mately CHF 83 million gross due to winter storm “Kyrill”, the results are only somewhat below the record result of the previous year which had suff ered hardly any losses. Com- bined ratio from 93.0% gross (previous year: 90.2%) and 95.1% net (previous year: 94.0%) are within the framework of our objectives; without the “Kyrill eff ect”, the results would have been on the same excellent level as the 2006 re- sults. All strategic business units saw the combined ratio at a very good level. Th e German and Belgian units in particu- lar experienced large claims due to “Kyrill”. Th e business volume (equal to the IFRS premium income) amounted to CHF 3,190.6 million (previous year: CHF 3,065.1 million), an increase of 4.1%. Convincing growth, given the mounting competition and the resulting drop in prices in various segments. Above-average growth was achieved in Belgium with 8.4%, Luxembourg with 11.5% and in Austria with 17.4%. For years, Austria and Luxem- bourg have been achieving double-digit growth rates, well above the market average. From 2005: excluding legally required interest on acturial reserves for pensions. LIFE INSURANCE SECTOR: EARNINGS SURGE Th e life in- surance sector achieved earnings before taxes and borrow- ing costs of CHF 418.9 million (previous year: CHF 246.2 million), an increase of 70.1%. Factors contributing to this outstanding performance are the increased operating effi - ciency, a higher value of the business portfolio and the fa- vourable trend in interest rates. Investments were key to the results. Th e business volume – including investment-type life insurances – amounted to CHF 4,747.0 million (previ- ous year: CHF 4,426.1 million), an increase of 7.3%. Th e de- mand for traditional endowment life insurance remained weak due to continued low interest rates. Single life business in the Swiss market saw a downward trend, while invest- ment-type life insurances signifi cantly improved its market position. Volume rose by 38.0% and for the fi rst time was well over a billion with CHF 1,069.2 million (previous year: CHF 774.7 million). Th ese products continue to be a sound alternative to traditional life insurances, for which there is still only weak demand. Particularly Bâloise Luxembourg, Deutscher Ring and Baloise Switzerland recorded strong growth in investment-type life insurances. In order to take advantage of the many promising opportu- nities for capital market-oriented products, we established Baloise Life Liechtenstein in 2007, which develops innova- tive product off erings in this sector. 18 REVIEW OF BUSINESS YEAR GROUP In the reporting period, the value of the life insurance portfo- lio (embedded value) showed an increase from CHF 2,627.8 million to CHF 3,230.6 million which corresponds to an ex- cellent return on embedded value of 24.5%. In addition, the contribution from investment income, modelled at a higher level for the future, amounted to CHF 454 million. Th e better-than-expected trend on the capital markets in 2007 re- sulted in a further positive contribution of CHF 80 million, aft er taking into account surplus eff ects. Th e value of new business amounted to CHF 20.3 million, while the margin in new business improved to 9.5% (previous year: 7.3%). EMBEDDED VALUE PERFORMANCE in CHF million 2007 2006 2005 2004 2003 3,231 2,628 2,360 2,137 1,980 BANKING: INCREASE IN EARNING POWER Th e banking sector achieved earnings before taxes and borrowing costs of CHF 69.1 million (previous year: CHF 63.6 million), an increase of 8.6%. Baloise Bank SoBa contributed the lion’s share with an increase in earnings under IFRS of 2.8% to CHF 30.4 million (previous year: CHF 29.5 million). Baloise Asset Management realised earnings of CHF 18.5 million (previous year: CHF 21.3 million). Th e Baloise Invest Fund increased its earnings by 12.5% to CHF 8.1 million. As of 31st December 2007, equity of the Baloise EQUIT Y Group amounted to a total of CHF 4,865.6 million (previous year: CHF 4,986.5 million). Th e decrease was a result of the share buy-backs, the dividend distribution and the capital market development, which were almost compensated for by the profi t for the period 2007. Group solvency at the end of 2007 was an excellent 287% (previous year: 320%). INVESTMENTS While stock exchanges worldwide were still reporting strong growth in the fi rst half-year, shares, in particular fi nancial instruments, headed downwards aft er OWN INVESTMENTS BY CATEGORIES 1 in CHF million INVESTMENT COMPONENTS 2007 2006 2007 +/– % in percent Fixed-interest securities 24,231.6 24,227.3 Shares Derivatives Investment property Mortgage assets Policy and other loans Alternative fi nancial investments Cash equivalents Total 6,046.2 75.8 5,312.6 9,941.4 7,860.2 2,214.6 – 0.0 – 5.8 5,695.5 54.2 – 28.5 5,269.5 – 0.8 10,234.8 8,164.4 3.0 3.9 2,145.7 – 3.1 698.1 1,611.7 130.9 56,380.5 57,403.1 1.8 1 Excluding assets for the account and at the risk of life insurance policyholders. 42.2 9.9 0.1 9.2 17.8 14.2 3.7 2.9 REVIEW OF BUSINESS YEAR GROUP 19 BALOISE ASSETS AS OF 31.12.2006 in Mio. CHF Own investments Investment-type life insurance Total recognised investments Asset management for third parties Total managed assets BALOISE ASSETS AS OF 31.12.2007 in CHF million Own investments Investment-type life insurance Total recognised investments Asset management for third parties Total managed assets Nonlife Life Bank Total Group 9,381.8 41,359.8 5,619.9 56,380.5 2,976.6 2,976.6 9,381.8 44,336.4 5,619.9 59,357.1 8,950.6 68,307.7 Nonlife Life Bank Total Group 9,721.7 42,144.4 5,609.8 57,403.1 4,366.9 4,366.9 9,721.7 46,511.3 5,609.8 61,770.0 9,413.8 71,183.8 August in the escalating property and credit markets crisis in the US. It is only due to the interest rate cuts by the US central bank that most equity markets were able to re- cover by the end of the year. Among the major share indices recording a positive development, are Standard & Poor’s with +3.5%, EuroStoxx50 with +6.8% and the MSCI Emerg- ing Markets Free Index with +39.4%. Th e Swiss Performance Index with – 0.1%, however, suff ered enormous setbacks in the second half of the year and subsequently struggled to reach the previous year-end results. Baloise was able to prof- it from the volatile trend of prices, thanks to the above aver- age equity exposure, the diversifi ca-tion in shares from the European and emerging markets, together with the earn- ings realisation, made primarily in the Swiss stock market in the fi rst six months. With our USD-denominated hedge funds and private equity investments, we achieved a performance of 8.8% and 23.6%. Infl ation, due to the price of raw materials, initially triggered a marked interest rate rise in Europe and Switzerland, resul- ting in a price decline for bonds. However, in the second half of the year, the interest rate cuts caused by the credit crisis led the Fed to set off a counter-movement, particularly in USD bonds. European and Swiss bonds, however, still recorded negative performance. With its substantial Eurobond invest- ments, Baloise, as a Swiss franc investor, at least participated in the rise of the euro (+2.8%), although nearly 75% of the risk considerations were hedged. Overall, we were able to increase the current revenue by 11.5%, thus further strengthening the stability of the fi nan- cial result. OUTLOOK Th e year 2008 will be characterised by volatile fi nancial markets and a further increase in pricing and com- petitive pressure. In this challenging environment, Baloise strives to achieve good results at a high level. Over the cycle, Baloise expects to see a return on equity of 15% and a steady increase in earnings per share. In the nonlife business, it is our objective to keep the combined ratio significantly below 100%. 20 REVIEW OF BUSINESS YEAR SWITZERLAND THOROUGHLY HEALTHY AND PROFITABLE SEGMENT SWITZERLAND SIGNIFICANTLY INCREASED ITS EARNING POWER. COMPARED TO 2006, EARNINGS ROSE BY 43.8% WITH A RECORD PERFORMANCE OF CHF 413.8 MILLION. MAIN GROWTH DRIVERS ARE THE EXCELLENT OPERATING PERFORMANCE, INVESTMENTS AND THE FAVOURABLE TREND IN INTEREST RATES. THE BUSINESS MODEL OF THE FOCUSED FINANCIAL SERVICE PROVIDER MANAGED TO SUSTAIN ITS CONVINCING PERFORMANCE. Another record performance BASLER VERSICHERUNGEN thanks to the business unit’s consequent focus on operating excellence and target customers. In the target customer seg- ments, we achieved above-average growth and a further in- crease in profi t contribution. Productivity of distribution channels rose as a result of improved effi ciency. Th is excel- lent operating performance was the result of the measures applied to increase operating excellence, primarily tariff s commensurate with risk, refurbishment and improved loss processes. Th e business volume reached CHF 3,742.7 million (previous year: CHF 3,730.4 million). While the slight increase of 0.3% is due to the above-average growth in targeted segments, pricing pressures slowed down the weak demand in indi- vidual life business, with our selective underwriting policy also curbing the growth momentum. Th e nonlife sector achieved a business volume of CHF 1,285.9 million (previous year: CHF 1,280.5 million). With an in- crease of 0.4% above market average, we were growing above or with the market across all industries. Only in the motor insurance sector was our growth below average, due to our high demands on quality. Despite large claims, the sector achieved a very strong operating performance. Th e combined ratio gross was an excellent 88.6% (previous year: 87.8%), bearing in mind that 2006 was a year with hardly any losses. Aft er years of decline, the business volume of the life insur- ance sector stabilised again. It rose by 0.3% to CHF 2,456.8 million (previous year: CHF 2,449.9 million). As focused fi - nancial service provider, we were able to successfully link life insurance products with bank off ers in the private cus- tomers sector. Th e reinvestment ratio of expired insurance funds amounted to a high 33%. With 20.5% above the mar- ket average, we showed signifi cant growth in investment- linked insurance products. Group life business achieved strong growth of 3.6%. Th e legal quote was 92%, thus ex- ceeding the statutory rate of 90% in favour of our custom- ers. Despite strong competition, Baloise BALOISE BANK SOBA Bank SoBa’s earnings under IFRS rose by 2.8% to CHF 30.4 million (previous year: CHF 29.5 million). Th is excellent re- sult confi rms the Bank’s strategic focus on profi table target customers and the improved effi ciency of business pro- cesses. For the business model “Focused fi nancial service provider”, which sells banking products via the insurance sales force, we managed to increase the infl ow of net new money to a new record high of CHF 540 million, with an asset balance of CHF 1.9 billion. With this business model, we now reach a customer base of approximately 21,000, compared to 4,900 in 2003. Th is corresponds to average an- nual growth of 43.9%. KEY FIGURES SWITZERLAND in CHF million Business volume Of which: life Of which: nonlife Combined ratio (gross) Basler Versicherungen in percent Profi t before tax 2006 2007 +/– % 3,730.4 2,449.9 1,280.5 3,742.7 2,456.8 1,285.9 0.3 0.3 0.4 87.8 88.6 287.8 413.8 43.8 REVIEW OF BUSINESS YEAR GERMANY 21 STRENGTHENED SALES POWER IN A STRONGLY CONTESTED AND STAGNATING MARKET, THE TWO BUSINESS AREAS BASLER VERSICHERUNGEN AND DEUTSCHER RING ACHIEVED COMBINED EARNINGS BEFORE TAXES AND BORROWING COSTS OF CHF 190.0 MILLION (PREVIOUS YEAR: CHF 169.1 MILLION). SUPPORTED BY FAVOURABLE EXCHANGE RATES, BOTH UNITS GREW BY 12.4%. its trust As a result of operational dis- BASLER VERSICHERUNGEN cipline, excellent investment income and the positive eff ect of tax law changes, the business unit was able to increase its profi t contribution considerably compared to the previous year. Business volume increased by 16% to CHF 1,083.9 mil- lion (previous year: CHF 1,067.4 million). Th e core business area property insurance grew by 2.8% to CHF 866.2 million (previous year: CHF 842.4 million). In the tough price war in the German market, Basler Versicherungen continued to put technically sound, selective under- writings, thus strengthening its position in marine, third party liability and technical insurance, renewable energies in particular. Th e combined ratio gross reached 97.3% (pre- vious year: 92.6%). Th e higher fi gure is due to a claims burden of CHF 49 million gross as a result of the storm “Kyrill” in the fi rst six months of 2007. Th e life policy port- folio recorded a slump due to expiring contracts. Despite a market-driven new business, life insurance business volume fell to CHF 217.7 million (previous year: CHF 225.0 mil- lion). in (previous year: CHF 1,237.9 million), an increase of 5.0%. In line with the strategy, the bulk of its growth stems to a large extent from investment-type life insurance products, which appreciated by 22.8% to CHF 256.5 million. Premium income under IFRS amounted to CHF 1,043.3 million (pre- vious year: CHF 1,029.1 million), an increase of 1.4%. In the life insurance sector, investment products off set the weak demand for conventional insurance products; with the sec- tor achieving a business volume of CHF 1,076.6 million (previous year: CHF 1,023.3 million), an increase of 5.2%. Th e property insurance business achieved a business volume of CHF 223.2 million (previous year: CHF 214.6 million), an increase of 4.0% compared to 2006. Due to the large storm damage the gross combined ratio was 97.2% (previous year: 94.4%). Stepping up its commitment in Eastern Europe proved to be very successful for Allfi nanzvertrieb OVB. Deutscher Ring has also been very successful with its distri- bution in Slovakia and the Czech Republic. Overall, Deut- scher Ring Bausparkasse also achieved a positive result aft er taxes and borrowing costs. In the fi scal year 2007, Deutscher Ring DEUTSCHER RING made a substantial contribution to the Baloise Group’s earnings. In the stagnating German life insurance market, only the “Riester” and “Rürup” pension schemes, subsidised by tax concessions, recorded dynamic growth. In spring 2007, Deutscher Ring successfully launched a new investment-type “Riester” pension. Th is product resulted in excellent new business, compared to other products in the market. Special attention is also given to Eastern Europe, primarily because of the selective expansion of the subsidiary OVB. Deutscher Ring generated a business volume of CHF 1,299.8 million KEY FIGURES GERMANY in CHF million Business volume Of which: life Of which: nonlife Combined ratio (gross) Basler Versicherungen in percent Combined ratio (gross) Deutscher Ring in percent Profi t before tax 2006 2007 +/– % 2,305.3 1,248.3 1,057.0 2,383.7 1,294.3 1,089.4 3.4 3.7 3.1 92.6 97.3 94.4 169.1 97.2 190.0 12.4 22 REVIEW OF BUSINESS YEAR BELGIUM AND LUXEMBOURG HIGH PROFITABILITY SEGMENT BENELUX WITH THE FLEMISH MERCATOR AND BÂLOISE LUXEMBOURG ACHIEVED EARNINGS BEFORE TAXES AND BORROWING COSTS OF CHF 183.6 MILLION (PREVIOUS YEAR: CHF 231.1 MILLION). MERCATOR FOCUSES ON PRODUCT INNOVATIONS, UTILISING TARGET BROKERS AND FURTHER BUSINESS PROCESS IMPROVEMENTS. THERE WAS CONTINUED SIGNIFICANT GROWTH FOR BÂLOISE LUXEMBOURG. During the fi scal year 2007, Mercator achieved BELGIUM excellent results. Its foundation is a good loss ratio – despite storm losses of about CHF 16 million gross – and rising cur- rent revenue from investments. Th e exceptionally high earn- ings of the previous year also includes revenue from the sale of participations, which did not meet our needs for a sus- tainable investment policy. Business volume increased by a pleasing 7.3% to CHF 792.8 million (previous year: CHF 738.7 million). Aft er several years, Mercator has managed to achieve growth again, thanks to the improved sales per- formance in the nonlife sector and increased broker sup- port. Business volume increased by 8.4% to CHF 587.4 mil- lion (previous year: CHF 541.7 million). Th e combined ratio was 94.3% gross, primarily due to storm losses. Compared with the 92.7% for the previous year, with hardly any storm losses, this represents a substantial achievement. Launched to stimulate cross-selling, bundled products “Gezinsplan” (family plan) and “KMU-Plan” are selling successfully, while also noticeably increasing the number of policies per customer. The life insurance business volume in- creased by 4.3% to CHF 205.4 million (previous year: CHF 197.0 million). Traditional life insurance products de- veloped at market average, while fi nancial products showed a downward trend in a shrinking market. Being very successful, Bâloise Luxembourg LUXEMBOURG doubled its earnings. Th e basis for this is the solid opera- tional performance, plus positive earnings contribution from the fair values of investment properties. Business volume in- creased by 43.9% to CHF 770.5 million CHF (previous year: 535.2 million). Main drivers were again investment-type life insurances, sold by Baloise, under the free movement of services in the EU, primarily in France and Belgium. Even without these products, premium volume under IFRS in- creased by 5.3% to CHF 96.1 million (previous year: CHF 91.2 million). Particularly successful was the nonlife sector. With 11.5%, its premium income rose signifi cantly above the market average to CHF 53.4 million (previous year: CHF 47.9 million). Today, the business unit has a very compact and effi cient distribution network and attractive products such as the motor product Poly Care, aimed at target cus- tomers. Th e combined ratio gross was an excellent 91.6% (previous year: 89.7%). Th e life insurance division grew by 47.1% to CHF 717.1 million, thanks to booming investment linked products (previous year: CHF 487.3 million). Th e ac- quired Winterthur Europe Vie (now: Bâloise Europe Vie) is part of this growth. Th e traditional life insurances, only sold in Luxembourg, showed a downward trend in a stagnating market, due to an extraordinary single premium in the pre- vious year. KEY FIGURES BENELUX in CHF million Business volume Of which: life Of which: nonlife Combined ratio (gross) Mercator Verzekeringen in percent Combined ratio (gross) Bâloise Assurances in percent Profi t before tax 2006 2007 +/– % 1,273.9 1,563.3 684.3 589.6 922.5 640.8 22.7 34.8 8.7 92.7 94.3 89.7 231.1 91.6 183.6 – 20.6 REVIEW OF BUSINESS YEAR OTHER COUNTRIES 23 GROWTH AND EXPANSION DUE TO TARGETED, QUANTITATIVE AND QUALITATIVE BOOSTING OF SALES POWER, WE WERE ABLE TO ACHIEVE SIGNIFICANT ABOVE-AVERAGE SALES GROWTH IN AUSTRIA. WITH THE ACQUISITION OF OSIGURANJE ZAGREB, BALOISE BECAME THE FOURTH LARGEST INSURER IN THE CROATIAN MARKET. Basler Österreich continued on its way to a cus- AUSTRIA tomer-value driven distribution management and the strengthening of its own sales organisation. Th is resulted in signifi cant growth in business volume by 14.8% to CHF 146.7 million (previous year: CHF 127.9 million). Premiums under IFRS also increased by 13.4% to CHF 140.5 million (previous year: CHF 123.9 million). Due to the strong com- petition, the nonlife insurance market saw signifi cant price reductions, which Basler could not completely escape in the area of new business. However, the eff ect on result and growth was insignifi cant due to an effi cient risk selection. In the nonlife sector, Basler Österreich achieved a sizeable in- crease of 17.4% to CHF 109.6 million (previous year: CHF 93.4 million), signifi cantly above market average. Despite some large claims, the gross combined ratio remained at the previous year’s gross value of 99.9%. Th ere is a strong com- petitive pressure from banks in the Austrian life insurance market. In this environment the Basler maintained its posi- tion with growth in business volume of 7.7% to CHF 37.1 million (previous year: CHF 34.5 million). Sales of unit- linked life insurance products increased by 57.9%. In future, the focus lies on the further expansion of the prevention program “Basler Sicherheitswelt” (Basler world of security) and the increase of sales power. CROATIA AND SERBIA With the acquisition of Osiguranje Zagreb in the second half of 2007, Baloise considerably in- creased its presence in the Croatian market and as fourth largest insurer is now one of the leading providers. Th e com- bined business volume of the two units during the fi scal year 2007 (for Osiguranje six months only) amounted to CHF 62.5 million, with CHF 26.2 million attributable to nonlife business and CHF 36.3 million to life insurance. Due to the acquisition growth, a comparison to the previous year would not be expedient. At the beginning of 2008, we established a new business unit in Serbia, focusing on the successful tar- get segment physicians and dentists in Croatia. REINSURANCE, FINANCE AND HOLDING COMPANIES Th is section deals with reinsurance companies, individual in- vestment schemes, fi nancing and participations and other corporate business. Th e profi t contribution amounted to CHF 247.3 million (previous year: CHF 253.4 million). Next to the reinsurance units, the excellent result is mainly due to the good performance of the private equity and hedge fund companies. KEY FIGURES AUSTRIA, CROATIA, SERBIA AND OTHER COUNTRIES in CHF million Business volume Of which: life Of which: nonlife Combined ratio (gross) Basler Österreich in percent Combined ratio (gross) Croatia and Serbia in percent Profi t before tax 1 After acquisition of Osiguranje Zagreb. 2006 2007 +/– % 181.6 43.6 138.0 247.9 73.4 174.5 36.6 68.8 26.5 99.9 99.9 95.0 253.4 117.61 247.3 – 2.4 With children? OR RATHER WITHOUT? Some decisions we make ourselves. Others catch up with us. No life follows a straight path – and perhaps this is what enriches our lives and makes them worth living. Change is part of life and offers opportunities for growth. Baloise helps you meet these challenges in a positive way. Again and again. 26 TRUSTED PARTNER SWITZERLAND COMPREHENSIVE SUPPORT IN A COMPLEX ENVIRONMENT AT LONG-ESTABLISHED HEGGLI REISEN UND TRANSPORTE AG IN KRIENS IN CENTRAL SWITZERLAND, THE YOUNGER GENERATION HAS JUST TAKEN OVER THE HELM. FOR THE PAST NINE YEARS, BASLER VERSICHERUNGEN HAS BEEN LOOKING AFTER THE NEEDS OF THE 114-YEAR OLD, FAMILY-OWNED BUSINESS – A RELATIONSHIP OF TRUST THAT KEEPS GROWING. BRIGITTE HEGGLI BACHMANN: “THE FRAMEWORK CONDITIONS OF OUR BUSINESS ARE CONSTANTLY CHANGING, BUT BALOISE IS ALWAYS AT OUR SIDE WITH COMPETENT SUPPORT.” Heinrich Heggli’s retire- BALOISE IS ALWAYS PART OF IT ment is imminent. Th e owner of the Kriens-based transport and travel company views the handover to the fi ft h genera- tion with a relaxed attitude. Since early 2008, his daughter Brigitte and his son Marcel have been the majority share- holders. Both have been working in the family business for several years ft er having earned their spurs working for other companies. In 1999, when Heinrich Heggli saw the recession coming, he decided to switch his mortgages from a bank to insurance. Being an astute business man, he then put the contract for employee benefi ts out for tender – conditional on taking on the mortgages as well. Th e contract was awarded to Basler. Since 1999, Heggli has gradually taken on more insurance products from Basler, at fi rst transport, baggage and travel insurance and since 2008 also a sickness cash benefi t plan. According to Heggli, Basler provides expert advice in the legally complex area of transport insurance. Any time. He is full of praise for his contact at the Basler General Agency in Zug/Knonaueramt, stressing that conscientious support and close personal contact are key factors of a trusting relation- ship. “Our tasks and framework conditions have changed greatly over time,” says managing director Brigitte Heggli Bach- mann. “And Basler has been supportive of us throughout,” adds her brother. Established in 1894, the business has grown from 30 to 200 employees since 1974. Well-known personali- ties such as DJ Bobo, Miss India and the Princess of Th ailand have been among their customers. What they did not know: as a trusted partner, Basler was always at their side. TRUSTED PARTNER SWITZERLAND 27 HEGGLI AG, KRIENS, SWITZERLAND TRAVEL AND TRANSPORT Heggli’s business is legally complex. That’s why they trust in Baloise.. FAMILY-OWNED SINCE 1894 Two generations of Hegglis: Heinrich, Brigitte, Yvonne and Marcel. COLOURFUL ‘CARREISEN’ In the region, Heggli is well- known for its colourful cars and coaches. The picture shows a luxurious double-decker coach, the India Coach and the coach of football club FC Lucerne. 28 TRUSTED PARTNER GERMANY “BASLER’S DOORS ARE ALWAYS OPEN TO ME.” THE WEIGEL FAMILY LIVES IN A VILLAGE IN SOUTHWEST GERMANY, WITH A POPULATION OF ABOUT 2000. FOR THE PAST FIVE YEARS THEY HAVE BEEN ENTRUSTING ALL THEIR BELONGINGS TO BASLER VERSICHERUNGEN. THIS TRUSTING PARTNERSHIP IS BASED ON DIRECT PERSONAL CONTACT. JÜRGEN WEIGEL: “THE PERSONAL CONTACT, PROVIDED BY BALOISE HAS BECOME A RARIT Y THESE DAYS.” Grosskarlbach is a sleepy little town not LOCAL SUPPORT far from Mannheim. Th e mayor, Ralf-Peter Riegel, is also a partner in regional offi ce Riegel, Mayer & Hintenlang, the local representative of Basler Versicherungen. He has a friend- ly wave for everyone he meets, and takes visitors on a short walk around the village. Aft er 48 years, the third generation is about to join the business. Th ey all understand the value of be- ing close to their clients and working locally: “Frequently, cli- ents just come by in person with their concerns,” says Riegel. For example, Jürgen Weigel, from nearby Gerolsheim, has been insured with Basler for nearly fi ve years: cars, tractor, caravan, personal liability insurance for the whole family, horses and dogs, household and personal eff ects plus teeth, legal protection, fi re und accident insurance. And he has taken out special insurance for the house his son built in the family’s garden. In one and a half years, the 23-year old single-handedly built a house from scratch. “For me, there is no insurance without trusted partners,” says dad Jürgen Weigel. And here, local ties are important: “I would never take out insurance over the Internet.” He switched to Basler because he was fed up with the faceless, impersonal support of his previous insurance. With Riegel and his employees, he receives competent personal support. Th ey are willing to go the extra mile. Invited by Riegel, Weigel’s children Benjamin and Marlene took part in a road safety training course at the Nürburgring, with great success: already on the way home, Marlene had to dodge a fox. Both survived the unexpected encounter unharmed. TRUSTED PARTNER GERMANY 29 THE WEIGEL FAMILY, GEROLSHEIM, GERMANY PERSONAL CONTACT MATTERS The local offi ce of Basler Ver- sicherungen provides direct and individual support to the Weigel family. HOME, SWEET HOME Benjamin Weigel and his partner posing in his parents’ garden in front of their self-built home, ready to move in. ROAD SAFET Y After Ralf-Peter Riegel of Basler Versicherungen (centre) invited the young Weigels to the road safety training course, he decided to take part as well. 30 TRUSTED PARTNER BELGIUM EXCELLENTLY SUPPORTED BY MERCATOR THE BELGIAN ESTATE AGENT SYSTEM HAS ITS OWN PECULIARITIES. ESTABLISHED 16 YEARS AGO, INSURANCE BROKERS CORNELIS & PARTNERS IN LEDEBERG NEAR GHENT, HAVE BEEN WORKING CLOSELY WITH MERCATOR FOR MANY YEARS. A LOOK AT BELGIUM. JOËL CORNELIS: “MERCATOR’S SUPPORT THROUGH THE CONTACT CENTRE AND SALES TEAMS IS INDISPENSABLE FOR US.” Joël Cornelis is a jovial “I AM NOT READY TO RETIRE YET.” man with a jam-packed diary. Together with his daughter Karien, he founded a small insurance agency in 1992 on a busy road to Ghent. At the time, they bought a small com- pany of Noordstar (now Mercator Verzekeringen). Today, with 28 employees, Cornelis & Partners realises half of its turnover with Mercator. “I am not ready to retire yet,” he says, “my work is my hobby. And I will keep going as long as I feel that way.” Insurance is still the agency’s core business, but with mort- gages and properties they are now also concentrating on two other related areas. Initially, they will off er an indemnity in- surance package for an agreed monthly premium. Only then, will the agency suggest an insurance company. Th ey prefer broker insurance packages by their long-term partner Mercator. “Th e excellent support we receive from the Con- tact Centre and the sales team is indispensable. We can process certain accounts ourselves with the trust they are placing in us,” says Joël Cornelis. In his view, the broker system has the advantage that clients can rely on tailor-made products and services. In addition, they all have their dedicated adviser who is even prepared to visit them at home. “I am convinced that only larger bro- kerage fi rms have a chance of survival,” predicts Joël Cor- nelis. “Consequently, 2008 will again be dominated by expansion.” TRUSTED PARTNER BELGIUM 31 CORNELIS & PARTNERS, GHENT, BELGIUM INSURANCE FLEMISH ST YLE The Belgian broker system allows for tailor-made insurance. This is what Joël Cornelis expects from his trusted partner Mercator as well. A DEDICATED ADVISER FOR EVERYBODY For Joël Cornelis it is a matter of course that each client has their own, personal adviser. A SIGN OF EXPANSION Roughly 50% of Cornelis & Partners’ turnover comes from Mercator, with expansion planned for 2008. Investing OR DO-IT-YOURSELF? Investments in building technology and structure are expensive at the moment. Oft en it is only the next generation that will draw the benefi t of an energy-effi cient building method. Yet, there are always people who are willing to take the jump and try out new living arrange- ments, for the sake of the environment and con- venience. Baloise off ers a helping hand because it views both as important. 34 SUSTAINABLE MANAGEMENT HUMAN RESOURCES ATTRACTIVE EMPLOYER WITH PROSPECTS LOYAL AND CAPABLE EMPLOYEES CONTRIBUTE CONSIDERABLY TO BALOISE’S ADDED-VALUE. WE OFFER OUR EMPLOYEES NEW CHALLENGES AND CONTINUOUS PROFESSIONAL DEVELOPMENT. IN RETURN, WE EXPECT COMMITMENT AND PERFORMANCE EXCELLENCE. WE PLACE REAL EMPHASIS ON WORKING IN PARTNERSHIP. KEY FIGURES As of 31st December 2007, the Baloise Group had 8,643 employees (2006: 7,933). 91 new jobs were created in 2007. In 2007, the Baloise Group invested CHF 20.8 million in workforce training. Employees attended a total of 21,684 days of training and development (an average of 2.5 days per employee). Baloise employed over 300 apprentices, trainees and interns across the Group. Employee turnover as of 31st December 2007 was 7.4% (2006: 9.1%). 65% of those who left did so of their own accord. In our main market Switzerland, 64% of employees took advantage of our employee share ownership pro- grammes. COMPANY STRATEGY SUPPORTED BY PERSONNEL POLICY Baloise’s vision is to become its customers’ trusted partner. Our corporate values “Creating Value”, “Shaping Relation- ships” and “Eff ecting Change” have been developed around this vision. Th e business strategy of Baloise aims for sus- tainable and above-average growth. Th is strategy is support- ed by our personnel policy. Th e success of our strategy is built on the skills and capabilities of our competent, hard- working and loyal employees. Baloise is positioning itself as an employer with three guiding principles: We are an attractive and forward-looking employer and the best in our sector. By retaining and recruiting outstanding employees, we contribute to the company’s long-term success. By developing and retaining employees, we are gaining competitive advantage through performance-driven, motivated and well-trained staff . We are thus making a vital contribution to the company’s added-value. PARTNERSHIP IS ESSENTIAL TO BALOISE Th e Human Re- sources strategy of Baloise is based on six key elements with the objective of positioning the Group as a trusted partner with current and future employees. Th e elements of our strategy are as follows: Preferred employer Performance and results driven Highly qualifi ed, learning organisation Excellent leadership and management skills Strong adaptability and fl exibility Strong, employee-oriented corporate culture Baloise’s objective is to be the best employer in the industry. Th is is true for every stage of the employment relationship ‒ from recruitment, through performance management to the development of employees and retaining talent. SUSTAINABLE MANAGEMENT HUMAN RESOURCES 35 We encourage high levels of commitment, initiative, respon- sible and cost-conscious conduct to provide a solid base from which to achieve high performance. age individual responsibility. Employees receive regular feedback on their performance. In 2007, 66% of all employ- ees were given feedback. PREFERRED EMPLOYER We are committed to becoming a preferred employer and have already received seven exter- nal confi rmations from diff erent countries in 2007. Our commitment, for example, resulted in being rated No. 1 among Austria’s insurance industry in the 2007 “Great Place to Work” survey. To sustain its status as best employer, Ba- loise Austria has to maintain the change process and ensure regular evaluation, with the outcome of the “Great Place to Work” survey, in which it participated for the second time in 2007, providing vital information. Th e response rate of 73% exceeded the result of the previous year (71%) and Baloise Austria again secured a place among the top 25 employers in 2007. In 2007, Baloise Switzerland was named “Best Climber 2007” in the “Universum Graduate Survey” by Swedish con- sulting fi rm Universum. For this annual survey, students at universities and technical colleges are asked about their ide- al employer and working conditions. In early 2007, Mercator in Belgium introduced the “Recruit- ment Award” and the new “Employer Branding Campaign”, with the objective of involving employees in the recruitment of new employees. A company’s own employees are the most trustworthy ambassadors and an indispensable source for the search for new employees. Th is method was instrumen- tal for fi lling several open positions in 2007, with further candidates currently still undergoing the selection process. PERFORMANCE AND RESULT DRIVEN Th e success of our company is built on the skills and capabilities of our hard working employees, who are committed to delivering excel- lent results. To achieve this success, we expect and encour- For the second time in a row, Mercator in Belgium or- ganised workshops on “Effi cient Performance Appraisal In- terviews” with the aim of increasing the benefi t of perform- ance reviews. Th e workshops were attended by around 55% of the total workforce. Th e topics included, among other things, how to prepare for interviews, interview content and communication behaviour. With a good performance ap- praisal interview, employees and managers can better pre- pare for the year ahead and contribute to the success of the company and their own personal development. At Baloise Switzerland, individual performance is measured with the IPM(Individual Performance Management). IPM is a tool for integrated management, evaluation and rewarding of individual performances, with individual objectives de- riving from superordinate company objectives. Via a multi- plier, the company fi nancial performance aff ects the level of performance-related pay (incentive/bonus). Baloise HIGHLY QUALIFIED LEARNING ORGANISATION continually invests in executive personnel and employee development. In 2007, Basler Germany successfully conducted the fi rst part of a series of seminars called “Taking the lead”. With a total of 67 team leaders, the six seminars concentrated on strengthening and developing of managerial skills within the context of the guidelines that were drawn up by the ex- ecutives in 2006. Topics included, in particular, information and communication, dialogue and the ability to handle con- fl ict, trusted partnership, performance and results orienta- tion, employee motivation and employee development. Th e series will be continued in 2008 with a second part on lead- ership issues. 36 SUSTAINABLE MANAGEMENT HUMAN RESOURCES For us, leadership means broad experience and looking at the wider picture. In this context, Deutscher Ring organised the leadership development programme ‘ChangingPlaces’ in 2007. For one week, board members, division and depart- ment heads exchanged their usual place of work at Deut- scher Ring for a completely diff erent working environment. Whether in a young off ender’s institution, in a specialist alcohol detox clinic, in centres for the homeless or drug abuse and AIDS counselling centres, impressions were in- tense and formative. EXCELLENT LEADERSHIP AND MANAGEMENT SKILLS Baloise systematically identifi es and develops talented ex- ecutive staff . In 2007, the continuing education programmes “Strategic Leadership Programme” (SLP) and “Advanced Management Programme” (AMP) were systematically aligned with the implementation of corporate strategy. To become a trusted partner, it takes more than just the de- sire to grow profi tably. It takes the outstanding skills of each individual and a consistent focus on the needs of our customers - topics our managers were discussing at length during the two training courses. Leadership means above all, the strategy to serve, which in turn means serving our customers. With the expansion of our abilities, we ensure that we can improve each day with the help of our most competent specialists and best managers. introduced management- In Switzerland, Baloise has monitoring guidelines in 2007 to strengthen the focus on leadership and development. A business must STRONG ADAPTABILIT Y AND FLEXIBILIT Y be – and remain – adaptable. We create clear areas of re- sponsibility and freedom for professional, dedicated and creative action. At Baloise, we thus focus on change man- agement and creating change. It is also important to us to involve our competent and motivated employees in the change process and to retain them. Of equal importance next to development opportunities are employee satisfac- tion and a good work-life balance. Th e acquisition of Winterthur Europe Vie by Baloise Lux- embourg in 2007 also meant keeping on all the original em- ployees. On the whole, very few positions were fi lled twice as a result of this acquisition. Yet there was still a sense of inse- curity among employees of the former Winterthur and Baloise employees with regard to their future roles in the new structure. In intense discussions between the em- ployees concerned and senior management, we were able to resolve these uncertainties and questions. All key employees subsequently were able to fi nd a position within the new organisation that met their own requirements. STRONG, EMPLOYEE-ORIENTED CORPORATE CULTURE Refl ecting our value “Shaping Relationships”, the strong corporate culture is one aspect that makes working for the Baloise Group such a unique experience. We regularly con- duct employee satisfaction surveys, asking our employees for feedback on our development programmes. In 2006 and 2007, a total of 43% of employees participated in various surveys. Th e growth-oriented champion strategy is a new concept, developed in 2007 by Deutscher Ring together with em- ployees. While also acting as role model, this concept describes the fundamental principles and values as well as the maxims for cooperation and leadership, for example partnership, performance orientation, personal responsibil- ity and social commitment, trust culture, expecting and encouraging. Binding service principles were also drawn up for all employees. SUSTAINABLE MANAGEMENT HUMAN RESOURCES 37 Diversity among our em- BALOISE PROMOTES DIVERSIT Y ployees is an important factor in maintaining the ability to off er new services and products, thus remaining a trusted partner to our customers. Th e Baloise Group will not toler- ate any form of discrimination. We support and promote employees only for three reasons: performance, potential and identifi cation with the values of the company. Baloise employs people from many countries and cultural backgrounds. In Switzerland alone, we employ staff from 40 diff erent countries. Baloise is an attractive employer for men and women. Women make up 46% of our staff , with 24% female exe- cutives (2006: 21%). ANNEMIE D’HULSTER AND BALOISE Having joined Baloise in August 2002, Annemie D’Hulster was appointed CEO of Baloise Liechtenstein on 1st January 2008. With a six-year old daughter, she is looking forward to the new challenge. She enjoys working at Baloise because of the following reasons: the great atmosphere and friendly colleagues the corporate culture leaves room for initiative the size of Baloise allows a holistic approach to subjects performance is rewarded work still leaves her time to spend with the family Delivering top performance requires a good work-life balance. Hence, we off er our employees diff erent models for working full-time, part-time or working from home, with 17% of employees opting for part-time. We are particularly pleased with the childcare we provide for the children of our employees. Th e day nursery set up in Switzerland in 2001 now looks aft er 80 children. TOP LINKS www.baloise.com/careers Facts and fi gures Values and culture Management training Open positions BALOISE IN COMMUNICATION WITH EMPLOYEE REPRESENTA- Baloise respects the right of each employee to be, TIVES or become, a member of an employee representation organi- sation. We maintain an open and constructive dialogue with all employee representatives in all the countries in which we operate. All employees from all countries are represented in the Baloise Europe Forum, guaranteeing direct dialogue with the Corporate Executive Committee. Baloise holds no records of trade union membership. We estimate that approximately 6% of all employees are members of an or- ganisation. 38 SUSTAINABLE MANAGEMENT ECOLOGY LONG-TERM PROTECTION OF THE ENVIRONMENT IN 1995, BALOISE SIGNED THE UNEP* INSURANCE INDUSTRY DECLARATION. IN OUR ENVIRONMENTAL MISSION STATEMENT, WE COMMIT OURSELVES TO CONTINUOUSLY REDUCING THE DIRECT ENVIRONMENTAL IMPACT OF OUR COMPANY BY ENSURING RESOURCE SAVING PROCUREMENT METHODS AND BY THE ECOLOGICALLY EFFICIENT PLANNING, BUILDING AND MANAGING OF COMPANY BUILDINGS. COMMITMENT TO ECOLOGICAL EFFICIENCY Th e material and energy fl ows mentioned in this annual report refer to large operationally used properties, where around 60% of our total workforce are based. In the next fi ve years, we want to reduce electricity consumption by a further 5% to 10%. As a responsible company, environmental changes and the expected rise in the cost of energy obligate and motivate us to make our contribution through the eff ective use of resources. WELCOME REDUCTION IN ELECTRICIT Y AND HEATING CON- Compared to the previous year, electricity SUMPTION and heating consumption and CO2 emissions have gone down considerably. Th e positive result is due to favourable climatic conditions and energy-saving measures. Energy consumption fi gures for our individual international sub- sidiaries can be downloaded at www.baloise.com. SAVING ENERGY WITH NEW TECHNOLOGIES AND CONCEPTS At the end of November 2007, Baloise Germany moved into its new offi ce building in Bad Homburg, with offi ce space for 510 people. Th e new building has been optimised to meet ecological requirements. High-quality building materials increase the useful life of the building. Windows can be opened; yet fresh air is also available to those who prefer their windows closed. To cool the concrete ceilings, cold air is blown through aluminium pipes, primarily at night. Th e cool air is distributed around the room, providing for a comfortable room climate. Th e piped in airfl ow guarantees a regular change of air. Energy costs are 30% of the costs for air-conditioning. In summer, automatically controlled sun- screens reduce the heat from direct sunlight. Th e day-light- responsive lighting control system optimises energy usage for lighting. Roof water is collected in cisterns for the irriga- tion of outside facilities and roof planting. During ECOLOGY AND ECONOMY MARCHING IN STEP 2008/2009, Baloise Switzerland will be refurbishing the open-plan offi ces at their Basel head offi ce with its 700 work stations and overhauling parts of the building services sys- tem. Ceiling lights are controlled by dimmers, sensors and external lighting; with reduced luminosity and individual work station lights, energy consumption is reduced by near- ly 50%, with less energy required to keep the room cool. Upon completion of the redevelopment, we expect annual electricity savings of about 450 MWh, and annual cost-sav- ings of approximately CHF 80,000. With the refurbishment of the open-plan offi ces, we will also be adjusting the room concept to current requirements. In addition to meeting rooms, service centres and small rolling racks, the concept includes modern and high-quality, ergonomically designed work stations with electric height-adjustable desks. Th e new room concept allows better use of offi ce space, with an ad- ditional 100 (+ 10%) work stations. By making better use of existing space and infrastructure, we do not need any addi- tional offi ce space. At the same time, energy and capital ex- penditure per workplace are reduced. *UNEP = United Nations Environment Programme SUSTAINABLE MANAGEMENT ECOLOGY 39 ENVIRONMENTAL AUDIT Employees Energy reference area Locations Electricity consumption Heating consumption Water consumption Paper consumption Paper types Copy paper consumption Amount of refuse Types of refuse Business volume Mode of transport 2005 absolute 2006 absolute 2007 absolute relative unit 4,946 156,948 13 4,618 154,089 13 4,673 147,546 13 headcount ERA m 2 number of buildings 27,445,345 KWh 16,121,210 KWh 26,020,455 KWh 15,613,007 KWh 24,643,300 KWh 13,167,808 KWh 5,274 kWh / employee 89 kWh / m 2 72,936 m3 71,571 m3 72,779 m3 62 l / employee / day 851 t 794 t 747 t 160 kg / employee 85.3 million A4 pages 81.6 million A4 pages 83.3 million A4 pages 3.00% recycled 95.00% chlorine-free 2.00% chlorine-bleached 17,832 A4 sheets / employee 1,059 t 1,019 t 1,115 t 239 kg / employee +/– % 1.19 – 4.25 –/– – 5.29 – 15.66 1.69 – 5.92 2.08 9.42 52.00% paper / cardboard 10.00% other materials 2.00% special waste 36.00% misc. waste / trash 13.15 million km 13.15 million km 15.81 million km 3,383 km / employee 20.23 27.90% km by air 47.30% km by road 24.80% km by public transport CO2 emissions 18,925 t 18,084 t 17,498 t 3,744 kg / employee – 3.24 Consumption fi gures for the Luxembourg unit are not included in the table as the company was moving into new premises. More detailed information on ecology issues is available at: www.baloise.com/sustainability TOP LINKS www.baloise.com/sustainability Activity Environmental mission statement Environmental audit Interview with Rolf Schäuble 40 SUSTAINABLE MANAGEMENT RISK MANAGEMENT WE INVEST CONSTANTLY IN OUR ADVANCED RISK MANAGEMENT DEALING WITH RISKS IS AT THE CORE OF OUR BUSINESS BECAUSE OUR CLIENTS EXPECT US TO MANAGE THEIR RISKS EFFECTIVELY. RISK MANAGEMENT IS THEREFORE AN INTEGRAL PART OF BALOISE’S STRATEGIC MANAGEMENT AND COVERS ALL PARTS OF THE COMPANY. Risk management is developing more and more into risk and value management. Our risk model is based on the latest standards, so we can deliver on the promise we made to our trusted partner at any time. We see risk management as a single, uniform system, valid throughout the strategic and operative system in the Group, with the following sub-areas: Risk map: forms the backbone of the risk considera- tions, defi ning basic risk issues such as underwriting and market risks and also the operational risks of the business. Risk governance and risk culture: fi rmly embedding risk awareness, handling and perception within the entire organisation. Risk measurement: for risk identifi cation, quanti- fi cation and modelling of all business and fi nancial processes. Risk processes: risk organisation and its standards are other important aspects of risk management, together with reporting and evaluation processes. Strategic risk management: the continuous develop- ment of the Group’s risk positions towards the target value. Overall risk management ensures that Baloise can bear its risks at any time, while also utilising opportunities to improve added-value. THE RISK MAP Risk Map distinguishes the following categories: Baloise is exposed to diff erent risks. Th e Actuarial risks Market risks Financial structure risks Business environment risks Operational risks Strategic / information risks (A more detailed presentation can be found in the fi nancial report on page 26.) Th e Risk Map is embedded in the organisation and respon- sibilities of the entire Group. Each risk is allocated to a risk owner (overall responsibility) and a risk controller (responsible for risk monitoring and control). Th e two func- tions are separate. Baloise has a long RISK GOVERNANCE AND RISK CULTURE tradition of continuous risk governance and risk culture development: we established a risk management division within the Group as early as 1998. Since then we have been continuously developing the culture throughout the organi- sation. Th e designation of risk owners and risk controllers for individual risk factors is as much part of it, as is the membership in regularly sitting committees that deal with risk issues. Th is development is accompanied by the con- stant development of risk models and risk processes. SUSTAINABLE MANAGEMENT RISK MANAGEMENT 41 Solvency II directive and thus making the model a pioneer- ing tool of risk management. As the Group standard, it pro- vides the basis for strategic and operational decisions. To be a reliable partner we consciously and consistently align our model with the most up-to-date standards, both internally and externally. Already today our model meets future supervisory regulations of Switzerland and the Euro- pean Union. Baloise’s models are based on economic risk capital – cur- rently the most advanced standard. For risk mathematical considerations alone and regardless of the handling under the fi nancial accounting or regulatory capital fl ow under Solvency I, a debt capital is derived to enable the Company to remain solvent, even under adverse circumstances and to fulfi l its obligations to policyholders. We constantly compare this debt capital with the existing capital entrusted to us by our shareholders. Following are the key questions we encounter each day: Which business decisions do we take, based on a comparison of debt capital with actual capital? How do we achieve the best possible economic return for our capital? Of principal concern is the security of the capital position, on the one hand, the best possible use of capital in the inter- est of profi t optimisation, on the other. Th e risk organisation of Baloise includes the Goup Risk Committee and local risk committees in all business units. Th ese committees consist of members of the Corporate Executive Committee or members of local management. Th ey are responsible for decisions in strategic and risk management. Special committees also prepare decision papers on each risk area for these committees, such as asset liability management, compliance, IT risks, and advance booking. Th is is completed by regular meetings of the Group’s risk management team with local risk specialists. Th is compre- hensive risk organisation is the platform for the exchange of ideas and continuous development of “best practice”. Th e responsibility of corporate risk management includes: the development of consistent and group-wide binding risk models, monitoring of group-wide standards, reporting, compliance with risk processes, communication with external partners such as audit, group monitoring and rating agencies. Responsibility for the local implementation of the Group’s specifi cations lies with the business units. Th e overall responsibility lies with the Group’s Chief Financial Offi cer and aft er him with the Head of Financial Management. Th e ultimate decision on risk tolerance and business objec- tives, risk management strategy and standards lies with the Board of Directors of Bâloise-Holding. Our risk model provides quantita- RISK MEASUREMENT tive standardisation of all business and fi nancial market risks. We have continuously been developing this model since 1998, following the principles and calculation meth- ods of the Swiss Solvency Test and the European Union’s 42 SUSTAINABLE MANAGEMENT RISK MANAGEMENT In addition to this integrated risk model, we identify, de- scribe and evaluate single risks on the basis of the risk map with regard to their likely impact on the business results. From this standard process, we develop our Group-wide database on single risks. Individual risk-specifi c qualitative data, such as the detailed description of risks, their place on the risk map and early warning indicators are included in the database. On the quantitative side, the description is comple- mented by measuring the risks in their likely fi nancial impact on the Company balance sheet. Each risk is set down together with risk-minimising measures. Th e database is up- dated twice a year. Th e combination of overall risk model and individual risk considerations provides Baloise with a reasonable overview at any time. Group-wide Risk Management Stand- RISK PROCESSES ards provide the binding basis for risk processes. Group- wide binding methods, rules and limit values are laid down in this set of rules. Constantly evolving, it is subject to the Group’s risk management control, with the “Group-wide Risk Management Standards” determining how diff erent risk issues will be evaluated, controlled and reported. Risks are restricted by a system of risk limits. For a compre- hensive risk restriction, the Group uses a limit system at ag- gregate level that is based on the economic risk capital. Th e system tracks the risk capital of the Group and individual business units in real time. We also monitor individual risks, subject-specifi c and through limits, detailed in the following examples: Actuarial risks are based on underwriting guidelines that are used by local underwriters for their decisions. Mathematical deductible risk analysis accompanies the key reinsurance decisions. Market structure and fi nancial risks are controlled both locally and centrally in the investment units, with a number of reporting processes. In addition to limits for share exposure, there are clear and binding guide- lines for bond ratings. Credit risks are evaluated using Basel II, but also by means of advanced statistical methods. Business environment risks and operational and strategic risks are recorded individually using stand- ardised procedures and we evaluate their eff ect on the capital. We produce extensive semi-annual risk reporting that we discuss with decision makers. Th e resulting measures are an important part of the risk process. With our monthly INTEGRA Risk Report, we check our overall risk position. Th e emphasis is on capital investments, taking into account unfavourable fi nancial market scenarios, plus reports to the regulatory authorities. Our internal risk model STRATEGIC RISK MANAGEMENT already provides quantitative standardisation of all business and fi nancial market risks and now off ers a basis for a stra- tegic discussion on the willingness of Baloise to take risks. Th e capital requirements derived from this model represent the minimum requirements on debt capital. Th ere is a clear view of strategic risks and their management: for each risk, specifi c limits, methods and measuring sizes are established. Examples: SUSTAINABLE MANAGEMENT RISK MANAGEMENT 43 Shares: Here a maximum share of the capital invest- ments exists in agreement with the risk load capacity. Risk is controlled by realisation and hedging. Interest rate risk: Management of bond maturities in accordance with the terms of the obligations of the life insurance policies is done by sophisticated asset- liability management techniques. Th e strategic risk management includes a clear perspective regarding the development of new business areas and the risk-return optimisation of our existing business. Our strategic risk management project “RM 2010” merges the management of operational, business and fi nancial mar- ket risks to a holistic management framework. Th e objective is to further develop the conventional system into a value and risk management. A key element of this control are the result targets for indi- vidual business units, taking their specifi c risk situation into consideration. Th ese requirements are included in the target agreements with local management. IN 2007 OUR PROFESSIONAL RISK MANAGEMENT AGAIN DELIVERED VISIBLE RESULTS Th e following concrete examples show that professional risk management makes a signifi cant contribution to added-value in the company. Regular elementary damage analysis, carried out by departments Group Reinsurance and Group Risk Management, helps optimise our reinsurance structure. Th anks to our proactive risk underwriting and reinsur- ance policy, storm Kyrill, the largest single damaging event of the past year, had only a slight negative eff ect on Baloise’s results, with net damage of around CHF 30 million. Th e subprime crisis via CDO (collateral debt obliga- tions) and similar structures from the USA have a negligibly small direct impact on Baloise. Th e overall investment policy regarding assets is extremely cautious in relation to such tools. Entering new business areas in the life insurance industry by taking advantage of new market opportu- nities – which subsequently led to the establishment of Baloise Liechtenstein, is always accompanied by thoughts of risk. Here, actuaries, investors and risk managers work together at gaining market advantage for Baloise in this promising area. In summary, we can say that Baloise risk management pro- vides an excellent basis for strategic business decisions. It allows us to create value for the entire company, our policy- holders and shareholders through concrete quantifi able risk-return decisions. In 2008 and beyond, this risk man- agement system will enable further growth for the Group. Its fl exibility and capacity for future expansion makes the handling of future challenges possible. THE THREE MAIN ISSUES Our advanced risk management is an integral part of the strategic management. Th e risk models already meet future regulatory criteria today. Professional risk management provides fi nancial results. Playing it safe OR TAKING A RISK? Some like the kick, others the sofa. Some prefer bungee jumping, others prefer their armchair. Our life is a constant balancing act between taking risks and playing it safe. The key task of a trusted partner in the insurance and financial sector is to understand a client’s needs in this area of conf lict. Like Baloise. 46 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT TRANSPARENT CORPORATE GOVERNANCE AS A VALUES-DRIVEN COMPANY, BALOISE HAS ALWAYS BEEN COMMITTED TO THE HIGHEST STANDARDS OF RESPONSIBLE CORPORATE GOVERNANCE – A TRADITION THAT WE CARRY FORWARD TODAY. Against the backdrop of the Swiss Code of Best Practice and the SWX Corporate Governance Directive, Baloise, above all, adheres to a corporate culture with high ethical stan- dards, with an emphasis on the integrity of company and employees. Baloise is confi dent that outstanding corporate governance will have a positive eff ect on the long-term performance of the Company. For more transparency and better comparability with the previous years and other companies, this section follows the structure of the SWX Corporate Governance guideline in the version of 1st January 2007. Th e Swiss Code of Best Practice has also been taken into account, in particular Ap- pendix 1 regarding the recommendations for remuneration levels published in 2007. In 2007, Baloise published an ac- tual compensation report as Clause 5 of the Corporate Gov- ernance Report. On 6th December 2007, Rolf Schäuble, Chairman of the Board of Directors, took on the additional responsibility of Chairman of the Corporate Executive Committee (Chief Executive Offi cer) of the Baloise Group. His dual mandate is anticipated to end at the Annual General Meeting of 30th April 2009, at the latest. Th e Group division Corporate Center was established on 6th December 2007, uniting the business units Human Re- sources, Legal and Taxes, Compliance, Corporate Develop- ment and Run-off . Th e new Group division Corporate Center is headed by new member of the Corporate Executive Committee, Dr. Th omas Sieber, who previously was Head of Legal, Tax and Compliance and Secretary of the Board of Directors. Dr. Th omas Sieber will continue in his role as Secretary of the Board. 1. GROUP STRUCTURE AND SHAREHOLDERS GROUP STRUCTURE Baloise is as a public limited company incorporated under Swiss law as a holding company with its registered offi ce in Basel. It is listed on the SWX Swiss exchange. As of 31st De- cember 2007, the Baloise Group had a market capitalisation of CHF 6,021.0 million. For information on the Baloise share see page 12 ff of the annual report. Th e notes to the annual fi nancial statement in the fi nancial report on pages 94 ff contain a list of key affi liated companies and participations as of 31st December 2007. Th e segment reporting by geographic regions and business areas is on pages 43 ff of the notes to the annual fi nancial statement in the fi nancial report. Page 77 of the annual report shows the operational Group management structure. SHAREHOLDERS As a public company CHANGES IN SHARE OWNERSHIP with a broad shareholder base, Baloise is part of the Swiss Market Index (SMI) and included in the SWX’s index calcu- lation with 100% free-fl oat. As part of the SMI, the Baloise is among the 20 largest and most liquid stocks of the SPI. As of 31st December 2007, 10.25% of shares outstanding were held by the Barclays Group (disclosure of 28th August 2007). CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 47 A total of 13,513 shareholders SHAREHOLDER STRUCTURE were recorded in the Baloise share register as of 31st Decem- ber 2007. Compared to the previous year, the number of shareholders increased by 0.9%. Th e detailed shareholder composition as of 31st December 2007 can be found in sec- tion “Baloise Share” on page 12 ff of the annual report. In a disclosure notifi cation on 5th No- TREASURY SHARE vember 2007 under Article 20 of the Swiss Stock Exchange Act, in connection with Article 9 and Article 17 of the Ordi- nance of the Swiss Federal Banking Commission on Stock Ex- changes and Securities Trading, Bâloise-Holding announced that it holds 2,723,023 registered shares (inclusive of share buy-back through second trade line). At time of disclosure, this corresponded to 5.04% of voting rights. Th e threshold value of 5% was exceeded on Monday, 5th November 2007. As of 31s December 2007, Bâloise-Holding held 3,997,308 treasury shares (7.4%). holders decided to reduce the share capital of CHF 5,530,715 by CHF 130,715 (corresponds to 2.4%) to CHF 5,400,000 through a capital reduction of 1,307,150 repurchased regis- tered shares with a nominal value of CHF 0.10 per share. At present, no decision has been made by Baloise regarding the use of the repurchased registered shares: possible options are to use the repurchased shares for capital reduction or acquisitions or to resell them. Since the beginning of the share buy-back programme in May 2006, 4,357,000 shares in total were repurchased over the second trade line, of which 1,074,000 shares were repur- chased in 2006 and 3,283,000 shares in 2007. Th us, 78.8% of the maximum buy-back volume of up to a maximum of 5,530,715 shares under the share buy-back programme has been repurchased since the beginning of the programme. Th e buy-back volume and prices are published weekly on the internet. CROSS SHAREHOLDINGS ings of capital or voting rights with any other company. Baloise has no cross sharehold- 2. CAPITAL STRUCTURE DISTRIBUTION POLICY Baloise pursues a policy of income-oriented, continuous payments. Distribution methods such as share buy-backs and options are used in addition to traditional cash divi- dends. As a rule, about one-third of annual earnings is dis- tributed, taking into account the Group’s self-fi nancing needs. SHARE BUY-BACK PROGRAMME Th e Baloise Board of Directors resolved on 10th March 2006 to buy back up to 10% of issued share capital within the next three years. Th is amounts to a maximum of 5,530,715 regis- tered shares with a nominal value of CHF 0.10 each. Th e shares will be repurchased through a separate trading line, aft er redution of withholding tax. At the Annual General Meeting of Bâloise-Holding on 27th April 2007, the share- www.baloise.com share Share buyback program Investor Relations Baloise PAYOUT TO SHAREHOLDERS Th anks to our shareholder-friendly distribution policy, our shareholders have enjoyed payments of CHF 952.7 million through cash dividends and share buybacks over the past fi ve years. Year in CHF million 2003 2004 2005 2006 2007 Total Cash dividends Share buybacks Total 22.1 33.2 60.8 121.7 210.2 448.0 –/– –/– –/– 113.8 390.9 504.7 22.1 33.2 60.8 235.5 601.1 952.7 At the end of each fi scal year on 31st March, and from 2005, each 31st December. 48 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT BÂLOISE-HOLDING EQUIT Y Th e following table shows changes in shareholders’ equity over the last three reporting years. CHANGES IN BÂLOISE-HOLDING EQUITY (BEFORE APPROPRIATION OF PROFIT) in CHF million Share capital General reserves Reserves for treasury shares Unappropriated reserves Retained earnings Bâloise-Holding shareholders’ equity At the end of each fi scal year on 31st December. On 27th April 2007, the Annual General Meeting passed the resolution to reduce the share capital of CHF 5,530,715 by CHF 130,715 to CHF 5,400,000 through a capital reduction of 1,307,150 repurchased registered shares with a nominal value of CHF 0.10 per share. It now amounts to CHF 5.4 mil- lion divided into 54,000,000 dividend-entitled registered shares with a nominal value of CHF 0.10. AUTHORISED AND CONDITIONAL CAPITAL, OTHER FINANCING INSTRUMENTS AUTHORISED CAPITAL capital. Bâloise-Holding has no authorised Contingent capital was created by CONTINGENT CAPITAL the Annual General Meeting 2004 (section 3 of the Articles of Incorporation), thus allowing an increase of share capital by up to a maximum of 5,530,715 registered shares with a nominal value of CHF 0.10 each, an increase in nominal share capital of up to a maximum of CHF 553,072. Th e contingent capital is intended to secure potential con- version rights or options that are granted in connection with bonds or similar debt instruments. To date, no such fi nanc- Fiscal year 2005 Fiscal year 2006 Fiscal year 2007 5.5 11.7 7.9 593.2 138.5 756.8 5.5 11.7 119.1 498.1 258.1 892.5 5.4 11.7 367.7 153.2 314.1 852.1 ing instruments have been issued. Shareholders’ subscrip- tion rights shall be excluded. Th e right to buy these new reg- istered shares is open to current holders of conversion rights and option rights. When issuing options and convertible bonds on international capital markets, the Board of Directors may restrict or exclude shareholders’ preferential subscription rights. Further details on the structure of the conditional capital can be found in sec- tion 3 of the Articles of Incorporation of Bâloise-Holding. Corporate www.baloise.com governance Responsibility Rules and regulation Baloise has not issued OTHER FINANCING INSTRUMENTS any participation certifi cates, bonus certifi cates or convert- ible bonds for company participation rights or options is- sued by the Company. CONSOLIDATED EQUIT Y OF THE BALOISE GROUP On 31st December 2007, the consolidated shareholders’ equity of the Baloise Group amounted to CHF 4,865.6 mil- lion. Performance details for the years 2007 and 2006 are provided on pages 8 and 9 of the fi nancial report in the con- CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 49 solidated statement of changes in shareholders’ equity. For 2005, all relevant details are provided in the consolidated statement of changes in shareholders’ equity on page 8 of the fi nancial report 2006. BONDS OUTSTANDING Bâloise-Holding and other Group companies have issued bonds to the public. By the end of 2007, Bâloise-Holding and other Group companies had a total of six public bonds out- standing. Further information on the bonds outstanding can be found in the notes to the fi nancial statement on page 102 of the fi nancial report and on the Internet. www.baloise.com Investor Relations Bonds RATING Basler Versicherungs-Gesellschaft has been given a fi nancial strength rating of “A-” with a positive rating outlook by Standard & Poor’s Ratings Services. Th is refl ects the Baloise Group’s strong competitive position, strong operating per- formance and strong capitalisation, as well as its high fi nanc- ing fl exibility. 3. BOARD OF DIRECTORS Only the Chairman of the Board of Directors holds an ex- ecutive position. Since 6th December 2007, he has also held the position of Chairman of the Corporate Executive Com- mittee, following the departure of Dr. Frank Schnewlin. His dual mandate is anticipated to end at the Annual General Meeting of Bâloise-Holding on 30th April 2009, at the latest. In line with the Swiss Code of Best Practice and to ensure adequate controls, the Board of Directors has appointed Vice-Chairman Dr. Georg F.Krayer as its Lead Director. Dr. Krayer is an experienced, non-executive member of the Board of Directors. Th e Lead Director ensures that the Board of Directors can operate independently of manage- ment. Th e Lead Director is authorised, if necessary, to inde- pendently call and chair a meeting of the Board of Directors. Except for the Chairman, all other members of the Board of Directors are non-executive and independent. During the three years preceding the reporting period, they were not involved with the management of any company of the Group and have no material business relations with the Baloise Group. MEMBERS Dr. Rolf Schäuble, Chairman Dr. Georg F. Krayer, Vice-Chairman Dr. Christoph J. C. Albrecht Dr. Andreas Burckhardt Dr. Hansjörg Frei Prof. Dr. Gertrud Höhler Dr. Klaus Jenny Werner Kummer Dr. Arend Oetker Dr. Eveline Saupper Nationality Age Appointed in End of mandate CH CH CH CH CH D CH CH D CH 64 65 70 57 66 67 66 61 69 50 1993 1995 1985 1999 2004 1998 2003 2000 1996 1999 2008 2010 2009 2009 2010 2010 2009 2010 2008 2008 50 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 1 2 5 3 4 In the reporting period, the following members were confi rmed in offi ce for a new three-year term: Dr. Georg F. Krayer, Dr. Hansjörg Frei, Prof. Dr. Gertrud Höhler, and Werner Kummer. Rolf Schäuble (1944, Swiss, Dr. oec. HSG) was awarded the degree Dr. oec. HSG aft er completing his studies in Eco- nomics at the University of St. Gallen. From 1975 to 1993, he held various positions with the Zurich Insurance Group in Zurich, most recently as a member of the Group Executive Board. In 1993, Rolf Schäuble became a member of the Board of Directors at Bâloise-Holding and was appointed Chair- man in 1994. Between 1996 and 2002, he was also Managing Director and CEO of the Baloise Group, and between 2002 and December 2007 he served solely as Chairman of the Board of Directors. On 6th December 2007, he also took on the role of interim CEO, to be eff ective until 30th April 2009 at the latest. Rolf Schäuble is also President of the Statis- tische Volkswirtschaft liche Gesellschaft (Society of Eco- nomics and Statistics) Basel. Georg F. Krayer (1943, Swiss, Dr. iur.) has served on the Board of Directors since 1995, as Vice-Chairman since 2004. He was appointed Lead Director on 6th December 2007. He studied Law and holds the degree of Dr. iur. Georg F. Krayer is Chairman of the Board of Directors at Bank Sarasin & Cie AG, Basel, and until 2003 was Chairman of the Swiss Bankers Association. He is an independent non- executive director. 3 Christoph J. C. Albrecht (1938, Swiss, Dr. iur.) has been a member of the Board of Directors since 1985. He studied Law at the University of Basel where he was awarded the de- gree Dr. iur. He is a partner in the law fi rm of Joerin Hopf, Basel, working as an attorney-at-law and notary. Christoph J. C. Albrecht is Chairman of the Board of Directors of Th üring AG, Basel, and sole member of the Board of Direc- tors of Interhaba AG, Basel. He is an independent non-ex- ecutive director. 4 Andreas Burckhardt (1951, Swiss, Dr. iur.) was appoint- ed to the Board of Directors in 1999. He studied Law at the universities of Basel and Geneva and was awarded the de- gree Dr. iur. Between 1982 to 1987, he worked at Fides Treu- handgesellschaft and served as General Secretary of the Ba- loise Group from 1988 to 1994. Andreas Burckhardt is Vice-President of the Swiss Association of Chambers of Commerce. Since 1997 he has been a member of the Great Council of the Canton of Basel-Stadt (President for 2006/2007). He is an independent non-executive director. 5 Hansjörg Frei (1941, Swiss, Dr. iur.) has been a member of the Board of Directors since 2004. He studied Law at the University of Zurich and was awarded the degree Dr. iur. Hansjörg Frei was with Winterthur since 1982, most recently as member of the Group Executive Board for Operations in Switzerland. From 2000 until his retirement in mid-2003, he was a member of the Executive Board (Head of International Country Management) at Credit Suisse Financial Services. From 2000 to 2003, he was Chairman of the Swiss Insurance Association (SIA). Hansjörg Frei is a member of the Board of Directors of Ems-Chemie Holding AG and Chairman of the Pension Fund at the Ems Group. Since February 2006 he has been president of the SVP (Swiss People’s Party) in Zurich canton. He is an independent non-executive director. CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 51 6 7 8 9 10 6 Gertrud Höhler (1941, German, Prof. Dr. phil.) joined the Board of Directors in 1998. She is a business and political con- sultant and was Professor of Literature and German at the Uni- versity of Paderborn from 1976 to 1993. She studied Literature and Art History in Bonn, Berlin, Zurich and Mannheim. Be- tween 1987 to 1990, Gertrud Höhler was public relations con- sultant to Alfred Herrhausen, the Speaker (Chairman) of Deut- sche Bank; and between 1992 and 1995 a non-executive Director of the Grand Metropolitan PLC, London. She is a member of the Board of Directors at Ciba AG, Basel and also of Georg Fischer AG, Schaffh ausen. Gertrud Höhler is an independent non-executive director. 7 Klaus Jenny (1942, Swiss, Dr. oec. HSG) has been a member of the Board of Directors since 2003. He studied Economics at the University of St. Gallen from where he was awarded the de- gree Dr. oec. Klaus Jenny was a member of the General Direc- torate of Schweizerische Kreditanstalt and a member of the Credit Suisse Group Executive Board from 1987, most recently as CEO of the business unit “Credit Suisse Private Banking”. Since 1999 he has been an independent fi nancial advisor for businesses and individuals. He is a member of the Board of Di- rectors of Clariant AG, of Maus Frères SA and various other, unlisted privately held companies. Klaus Jenny is an indepen- dent non-executive director. 8 Werner Kummer (1947, Swiss, Dipl.-Ing. ETH, MBA In- sead) has been a member of the Board of Directors since 2000. From 1990 to 1994 he chaired the Executive Board of Schindler Aufzüge AG, and in 1998 joined the Schindler Group Management Committee with responsibility for the Asia Pacifi c region. From 1998 until March 2004, he was CEO of Forbo Holding AG. Werner Kummer is an inde- pendent business consultant, a member of the Board of Di- rectors of Walter Meier AG, Chairman of the Board of Di- rectors of Gebrüder Meier AG, member of the Supervisory Board Committee of Schindler Germany Holding GmbH and member of the board of the Zurich Chamber of Com- merce. He is an independent non-executive director. 9 Arend Oetker (1939, German, Dr. rer. pol.) has been a member of the Board of Directors since 1996. He studied Management and Political Science at the universities of Ham- burg, Berlin and Cologne and was awarded the degree Dr. rer. pol. from the University of Cologne. He is Managing Partner of Dr. Arend Oetker GmbH & Co. KG, Berlin. Arend Oetker is Chairman of the Supervisory Board of Schwartauer Werke GmbH & Co. KGaA, Bad Schwartau, Chairman of the Board of Directors of Hero AG, Lenzburg, member of the Supervi- sory Board of Merck KGaA, Darmstadt, and Deputy Chair- man of the Supervisory Board of KWS Saat AG, Einbeck. He is also Chairman of the German Council on Foreign Relations and of the Founders Association for German Science. Arend Oetker is an independent non-executive director. 10 Eveline Saupper (1958, Swiss, Dr. iur.) has been a member of the Board of Directors since 1999. She studied Law at the University of St. Gallen where she was awarded the degree Dr. iur. Today she is an attorney-at-law and certifi ed tax expert. From 1983 to 1985 she was with Peat Marwick Mitchell (now KPMG Fides), Zurich, and from 1985 to 1992 with Baker & McKenzie, Zurich and Chicago. Since 1992 she has been a partner with Homburger AG, Zurich. Eveline Saupper is a member of the Board of Directors of Intershop Holding AG, Winterthur, and Homburger AG, Zurich. She is an independ- ent non-executive director. 52 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT Further information about the members of the Board of Di- rectors is available on the Internet. About us www.baloise.com Organization Board of Directors CROSS-INVOLVEMENTS Th ere are no cross-involvements. ELECTIONS AND TERMS OF OFFICE At the end of 2007, the Board of Directors was made up of ten members. Members are elected by the Annual General Meeting of Shareholders for a term of three years. Th e terms of Directors are staggered so that roughly one-third of the terms expire in any year, unless the member gets re-elected. Due to age restrictions, the Board of Directors’ mandate ends at the latest at the Annual General Meeting that follows the completion of the member’s 70th birthday. At present, the average age is about 63. Each member of the Board of Directors is elected individually and, at the shareholders’ request, also granted individual discharge. INTERNAL ORGANISATIONAL STRUCTURE Subject to the deci- TASKS OF THE BOARD OF DIRECTORS sion-making authority of the shareholders at the Annual General Meeting, the Board of Directors is the Company’s highest decision-making body. As a rule, decisions are made by the Board of Directors unless competencies have been delegated to the Chairman of the Board of Directors, the Committees, the Corporate Executive Committee or the CEO under organisation regulations. In compliance with section 716a of the Swiss Code of Obli- gations and paragraph 1 II of the organisation regulations, the main tasks of the Board of Directors are the general management, overall and fi nancial supervision of the Com- pany and determining of the organisational structure. Corporate www.baloise.com governance Responsibility Rules and regulation COMMITTEES OF THE BOARD OF DIRECTORS Th e Board of Directors is supported by four committees. Th ese commit- tees report to the Board of Directors and submit the propos- als for their areas of responsibility. Th e Investment and Compensation Committees in particular have their own decision-making competencies. Each of the committees appointed by the Board of Directors consists of four members, who are elected annually by the Board. Th e Chairman and Vice-Chairman of the Board of Directors are ex offi cio members of the Chairman’s Com- mittee. Th e Chairman of the Board of Directors may not be a member of the Audit Committee. Th e key tasks of the Committees are governed by the organisation regulations and the written regulations for each committee. www.baloise.com governance Responsibility Rules and regulation Corporate CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 53 OVERVIEW OF COMMITTEES Dr. Rolf Schäuble Dr. Georg F. Krayer Dr. Christoph J. C. Albrecht Dr. Andreas Burckhardt Dr. Hansjörg Frei Prof. Dr. Gertrud Höhler Dr. Klaus Jenny Werner Kummer Dr. Arend Oetker Dr. Eveline Saupper C: Chairman, VC: Vice-Chairman, C: Chair, DC: Deputy Chair M: Member Chairman’s Committee Audit Committee Compensation Committee Investment Committee C VC M M DC M M C C DC M M C M DC M TASKS OF THE COMMITTEES Th e Chairman’s Committee provides advice on key business transactions, particularly key strategic and personnel decisions. Th e Chairman’s Com- mittee also acts as Nomination Committee and Investment Committee, approving the Group’s investment policy and property investments for the Group’s own use at head of- fi ce. Th e Compensation Committee sets the structure and amounts of compensation to members of the Board of Direc- tors and the salaries of Corporate Executive Committee members. Within the framework of the incentive plan it de- termines the high-level corporate objectives and their attain- ment. It approves compensation policies for Corporate Exec- utive Committee members and oversees their correct application. Th e Chairman of the Board of Directors is not a member of the committee and in his dual function will only attend meetings on selected topics. Th e Audit Committee supports the Board of Directors in those general and fi nancial supervisory duties that cannot be delegated (section 716a, Swiss Code of Obligations), by forming its own judgment of the organisational structure and functioning of the internal and external auditing sys- tem and the annual and consolidated fi nancial statements. In addition, the Audit Committee evaluates the eff ective- ness of the systems of internal control, including risk man- agement and forms an independent opinion of the compli- ance. Th e Audit Committee has discussed the fi nancial statement for the reporting period 2007 with the manage- ment and with the external auditors. On the basis of these discussions, the Audit Committee recommended that the audited annual fi nancial statements be incorporated into the Group’s annual report for the reporting period ending 31st December 2007 and submitted to the Annual General Meeting. Th e Board of Directors concurred with this pro- posal. 54 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT In BOARD OF DIRECTORS AND COMMITTEE MEETINGS compliance with the organisation regulations, the full Board of Directors meets as oft en as business requires, but no less than four times a year. www.baloise.com governance Responsibility Rules and regulation Corporate In 2007 the full Board of Directors met fi ve times. Th e fol- lowing table shows the directors’ attendance at full Board meetings. With one exception, all Committee members were present at all of the additional 14 committee meetings. Board attendance by members of the Baloise Board of Directors was thus a respectable 97%. In the previous year, the Chairman’s Committee met six times, including for a two-day strategy meeting. Th e Invest- ment Committee met once. Th e Audit Committee met four times and the Compensation Committee three times. Members of the Corporate Executive Committee are regu- larly invited to meetings of the full Board of Directors. Meet- ings of the Audit Committee generally are attended by the Chief Executive Offi cer, the Chief Financial Offi cer, the Head of Corporate Audit, the Secretary of the Board of Directors and representatives of the external auditors. www.baloise.com governance Board attendance Responsibility Corporate BOARD ATTENDANCE 2007: MEETINGS OF THE FULL BOARD OF DIRECTORS Dr. Rolf Schäuble, Chairman Dr. Georg F. Krayer, Vice-Chairman Dr. Christoph J. C. Albrecht Dr. Andreas Burckhardt Dr. Hansjörg Frei Prof. Dr. Gertrud Höhler Dr. Klaus Jenny Werner Kummer Dr. Arend Oetker Dr. Eveline Saupper x = present, o = absent 9.3.07 27.4.07 31.8.07 5.12.07 6.12.07 x x x x x x x x o x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x o x CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 55 DIVISION OF TASKS AND COMPETENCIES BETWEEN THE BOARD 4. CORPORATE EXECUTIVE COMMITTEE OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE Th e division of tasks and competencies between the Board of Directors and the Corporate Executive Committee is gov- erned primarily by the organisation regulations and invest- ment policies. Both documents are reviewed on an ongoing basis and updated as changing circumstances require. With the revision of the organisation regulations in 2007, the func- tion of Lead Director and the Group division Corporate Center were added. www.baloise.com governance Responsibility Rules and regulation Corporate Th e organisational structure of the Baloise Group can be found on page 77. CHANGES IN THE CORPORATE EXECUTIVE COMMITTEE Dr. Frank Schnewlin stepped down as CEO to leave Baloise on 6th December 2007. As of 6th December 2007, Dr. Rolf Schäuble, Chairman of the Board of Directors, took over as interim Chair of the Corporate Executive Committee. His dual mandate will be eff ective until the Annual General Meeting on 30th April 2009, at the latest. TOOLS FOR THE AUDITING AND MONITORING OF THE CORPORATE EXECUTIVE COMMITTEE Th e Corporate Audit department, with its ten auditors, re- ports directly to the Chairman of the Board of Directors. Th e auditors are experts in underwriting, actuarial theory, fi nance and information technology. For an insurance group, effi cient risk management is of central importance. We have thus dedicated a chapter each on the management of fi nancial risks on page ff 40 of the annual report and on page ff 24 of the fi nancial report. With the Corporate Center, a new Group division was estab- lished, uniting business units Human Resources, Legal and Taxes, Compliance, Corporate Development and Run-off . Eff ective 6th December 2007, the new Group division Corpo- rate Center is headed by new member of the Corporate Ex- ecutive Committee, Dr. Th omas Sieber, who previously was Head of Legal, Tax and Compliance and Secretary of the Board of Directors. Dr. Martin Strobel, German Egloff and Martin Wenk continue as members of the Corporate Execu- tive Committee. Members of the Board of Directors receive the minutes of the meetings of the Corporate Executive Committee for in- spection. Th e Chairman of the Board of Directors and the Lead Director may attend the meetings of the Corporate Ex- ecutive Committee at any time. Rolf Schäuble (1944, Swiss, Dr. oec. HSG) was awarded the degree Dr. oec. HSG aft er completing his studies in Eco- nomics at the University of St. Gallen. From 1975 to 1993 he held various positions with the Zurich Insurance Group in Zurich, most recently as a member of the Group Executive Board. In 1993, Rolf Schäuble became a member of the Board of Directors at Bâloise-Holding and was appointed Chair- man in 1994. Between 1996 and 2002, he was also Managing Director and CEO of the Baloise Group, and between 2002 and December 2007 he served solely as Chairman of the Board of Directors. On 6th December 2007, he also took on the role of interim CEO, to be eff ective until 30th April 2009 at the latest. Rolf Schäuble is also President of the Statis- tische Volkswirtschaft liche Gesellschaft (Society of Eco- nomics and Statistics) Basel. 56 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT German Egloff (1958, Swiss, lic. oec. HSG) graduated in Business Economics from the University of St. Gallen. Since 1985 he has held various management positions at Winter- thur Insurance, Switzerland. Between 1990 and 1995, he was Head of Management Support, where his responsibilities in- cluded the development of a new management information system. In 1997, as member of the Executive Board, he be- came responsible for individual non-life insurances and, as Chairman of the Board of Sancare, also for the management of Wincare. From 1998 to 2002, German Egloff was Chief Financial Offi cer of Winterthur Switzerland and member of the Board of Directors of Wincare, since 2000 as their chair- man. From 2002 to 2004, he was Chief Financial Offi cer of Zurich Financial Services, Switzerland, with responsibility for fi nance, human resources, IT, logistics and procurement. Since 1st December 2004, German Egloff has been a member of the Corporate Executive Committee (Head of Corporate Finance), with responsibility for fi nancial relations, fi nan- cial management and fi nancial accounting and with eff ect of 6th December 2007 also for performance management. Th omas Sieber (1965, Swiss, Dr. iur., M.B.L., lawyer) gradu- ated with a degree in Law (lic. iur.) from the University of St. Gallen. At the beginning of 1994, he qualifi ed to practice law in the Canton of Zurich. Subsequently, he spent a year on a Swiss National Science Foundation scholarship at the University of California in Berkeley while working on his thesis. He received a “summa cum laude” distinction for his thesis and the Walther Hug Prize. From 1999 until 2002, he was a lecturer in Corporate Law at the University of St. Gal- len. Th omas Sieber joined the Baloise Group in 1997 as Dep- uty Head of Legal and Taxes. Since 2001, he has been head- ing the division, while also holding the position of Secretary of the Board of Directors of Bâloise-Holding. In 2005, he took on the additional responsibility for Group Compliance. Th omas Sieber has headed several strategic projects at the Baloise Group. During the revision of the Swiss Insurance Supervision Act, he ran the “Supervisory Authority” task force of the Swiss Insurance Association (SIA). Before join- ing Baloise, Th omas Sieber held roles in a Swiss court, in an international corporate law fi rm (Lenz & Staehelin, Zurich), and at the Institute for European Law at the University of St. Gallen, and with the corporate law division of Landis & Gyr later integrated into Elektrowatt/Siemens. On 6th December 2007, Th omas Sieber was appointed Head of the Group division Corporate Center with responsibility for Human Resources, Legal and Taxes, Compliance, Corporate Development and Run-off . Martin Strobel (1966, German, Dr. rer. pol.) studied Com- puter Science, Business Management and Business Informa- tion Systems at the universities of Kaiserslautern, Windsor (Canada) and Bamberg before being awarded his doctorate (Dr. rer. pol.). From 1993 to 1999 he held various positions at Boston Consulting Group, Düsseldorf, in the fi elds of strate- gic IT management in the banking and insurance sector. He joined the Baloise Group at the beginning of 1999, initially as Head of IT Baloise Switzerland, with responsibility for major cross-division projects in the insurance and fi nance divisions of the Baloise Group. He has been on the Corpo- rate Executive Committee since 2003, with responsibility for the Switzerland division. Martin Strobel is a board mem- ber of the Swiss Insurance Association (SIA) and a member of the Board of Directors of Prevo-System AG, Basel. Martin Wenk (1957, Swiss, lic. iur.) graduated from the Uni- versity of Basel with a Law degree (lic. iur.) before he took up a number of positions with a major bank between 1982 and 1992. He initially worked as an investment advisor to insti- tutional clients, then went on to head a private banking group in New York and subsequently became a sector head in securities sales, where he primarily looked aft er major in- stitutional clients. During this time, he attended several professional training courses in Switzerland and the United States. Between 1992 and 2000, he headed the Portfolio Management Switzerland of the Baloise Group with respon- sibility for the Asset Management of various companies in Switzerland und within the Group, including the Pension Fund. He has been a member of Corporate Executive Com- mittee (Head of Corporate Asset Management) since 2001, CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 57 Th is chapter deals with the compensation system of Baloise, disclosing remuneration and loans to the members of the Board of Directors and the Corporate Executive Committee as well as their participations. Th e legal basis for the con- tents and range of this disclosure are sections 663bbis and 663c of the Swiss Code of Obligations, the SWX Directive on Information Relating to Corporate Governance (the SWX Directive) and the Swiss Code of Best Practice for Corporate Governance. Under the provisions of these regulations, certain informa- tion has to be disclosed in the notes to the balance sheet with further information to be provided in the section on Corporate Governance. Baloise regards this chapter as inte- grated reporting and has therefore decided to publish the Compensation Report within the annual report and to a large extent also within the fi nancial report. with responsibility for Asset Management with the units In- vestment Strategy and Investment Controlling, Baloise As- set Management, Real Estate and Baloise Fund Invest units. Martin Wenk is Chairman of the Investment Commission of the Swiss Insurance Association (SIA) and serves on the boards of Unigestion Holding, Geneva, and HW Finanz AG, Pratteln. Further information about the members of the Corporate Executive Committee is available on the Internet. With the exception of Martin Strobel and Martin Wenk, none of the members of the Corporate Executive Committee serve on boards outside the Baloise Group. Th ere are no management contracts that assign executive functions to third parties. www.baloise.com Organization About us Corporate Executive Committee 5.1. REMUNERATION SYSTEM: BASIC SALARY AND INCENTIVES 5. COMPENSATION REPORT: COMPENSATIONS, PARTICIPA- TIONS AND LOANS TO MEMBERS OF THE BOARD OF DIREC- TORS AND THE CORPORATE EXECUTIVE COMMITTEE Baloise is an attractive employer and aims to retain talented employees and executive personnel on a long-term basis while also attracting well-qualifi ed and motivated new em- ployees. Th e success of Baloise is dependent on the skills and commitment of its employees. We strive for a high perform- ing, results-oriented workforce and reward our employees accordingly. Th e foundation of our market-based remunera- tion system is thus the recognition and reward of a consis- tent and lasting performance. As part of a competitive remu- neration, Baloise also off ers attractive incentive/bonus plans together with long-term employee shareholding schemes. STARTING POINT MARKET AND FUNCTION VALUE SYSTEM Baloise regularly compares the salaries of upper level execu- tives with relevant competitors (Dow Jones STOXX Insur- ance Index and local job markets) and endeavours to pay market-related remuneration. To ensure internal compara- bility, Baloise employs a function value system for upper level executives within the Group and for other employees in Switzerland. Th is allows the evaluation and weighting of the demands placed on the employee with regard to abilities, knowledge and experience for a specifi c function/position. Similarly weighted positions are combined into function levels. Th e classifi cation level of a particular function is de- cisive for the determination of the applicable salary range, fringe benefi ts and other contractual components and the allocation to individual executive levels. 58 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT Th e function value system of Baloise covers 9 function levels (FL); levels 1-3 apply to the whole Group, levels 4-9 only ap- ply within Switzerland: BASIC SALARY Th e basic salary amount is determined by the salary bandwidth in the market and is set out in the con- tract. Th e competitiveness of the remuneration is regularly reviewed. FL 1: FL 2 to 4: FL 5 and 6: FL 7 and 8: FL 9: member of the Corporate Executive Committee (incl. Chairman) member of the management executive staff (specialists and team leaders) administrative staff other employees REMUNERATION SYSTEM Th e diagram shows the remuneration system at Baloise: All employees of function levels 1 to 5 are entitled BONUS to a bonus. For the Chairman of the Board of Directors and the Chair of the Corporate Executive Committee, the regu- lations of function level 1 apply with regard to bonuses. As a variable and performance-related salary component, a bonus is dependent on meeting particular objectives. Indi- vidual performance is measured in line with the “Individual Performance Management” process (IPM) that was intro- duced in 2006. Line managers are to defi ne set annual objec- tives with their employees annually and meet by March of the following year at the latest to assess to what extent these objectives have been met. ELEMENTS OF THE REMUNERATION SYSTEM e l b a i r a v d e x fi Performance Share Units Long-term equity instruments Performance quota Discretionary additional variable and performance-related salary component Incentive Variable performance-related salary component Retirement provisions Pension payouts Fringe benefi ts Benefi t in kind/fringe benefi ts Salary Fixed salary component 3 – 1 L F t n e m e g a n a m p o t d n a r o n e S i 5 – 1 L F s e v i t u c e x E 9 – 1 L F l s e e y o p m e l l A CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 59 With an overall achievement rate of 100%, bonuses can reach the following levels (target bonus): FL 1: 54% of basic salary FL 2: 38% of basic salary FL 3: 30% of basic salary FL 4: 22% of basic salary FL 5: 14% of basic salary Apart from meeting individual objectives, the bonus level is determined by the Group’s overall performance. Based on the annual earnings, the Compensation Committee deter- mines a factor (Operational Performance Management, OPM) that is determined by total shareholder value, earn- ings performance, growth and market trends and multiplied by the result of the individual performance. For members of the Corporate Executive Committee and function levels 2 and 3, this OPM factor can range between 0.8 and 1.3, while the range for function levels 4 and 5 can be 0.9 to 1.2. EXAMPLE FOR A MEMBER OF THE MANAGEMENT (FL4) Basic salary: CHF 100,000 Target incentive: 22% of basic salary Achievement rate for objectives: 80% OPM factor (Operational Performance Management): 1.1 Bonus = CHF 100,000 x 0.22 x 0.8 x 1.1 = CHF 19,360 For the purchase of shares, they can choose between two plans: Share Subscription Scheme and Employee Share Ownership Plan (cf sections Share Subscription Scheme and Employee Share Ownership Plan). EMPLOYMENT CONTRACTS, SEVERANCE PAYMENTS, CHANGE OF CONTROL CLAUSE Executive employment contracts are of unlimited duration, with a standard notice period of six months. Four members of the Corporate Executive Committee have a notice period of 12 months. In the event of change of control or a merger, these four members of the Corporate Executive Committee are entitled to a lump sum payment equal to 12 months salary (incl. bonus) in addition to the agreements un- der their employment contract (notice period of 12 months), if their contracts are terminated by the employer (or under certain circumstances by the employee) within 12 months aft er a take-over or merger. Similar rules apply to seven other members of the top management. Th e notice period for the Chairman of the Board of Directors/Chair of the Corporate Executive Committee is six months. Th ere is no a control change clause. 5.2. OVERVIEW OF SHARE-BASED REMUNERATION SCHEMES Th e Baloise Group has off ered employees and top manage- ment members various plans in which shares can be granted as part of the overall remuneration for some time now. Bonuses are paid out together with the June salary. In Swit- zerland, employees are off ered a choice of taking part of their bonus in cash and part of it in company shares. Only senior and top management (FL 1 to 3) must take their bonus in shares: members of the Corporate Executive Committee must take 50% of their bonus in form of company shares. Employee Incentive Plan for all function levels (cf. section 5.3.) Share Subscription Scheme and Employee Share Ownership Plan for function levels 1 to 5 (cf. section 5.4.) Performance quota and performance share units for the function levels 1 to 3 (cf. section 5.5) 60 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 5.3. EMPLOYEE INCENTIVE PLAN 5.4. SHARE SUBSCRIPTION SCHEME (SSS) AND EMPLOYEE Established in 1989, the Baloise Foundation for Employee Participation off ers employees of the diff erent Group compa- nies in Switzerland the opportunity to acquire shares of Bâloise-Holding according to the regulations set by the Board of Trustees, as a rule annually and at a preferential rate. Th e subscription price is determined by the Board of Trustees at the beginning of the subscription period and published on the intranet. Th is corresponds to 50% of the average share price for the month of August in the subscrip- tion year. Th e subscribed shares are always transferred by 1st September and are subject to a lock-up period of three years. Th e foundation acquired the basic stock for these shares through a previous capital increase of Bâloise-Holding and can regulate the share portfolio through acquisitions if re- quired. Th e low cost price of the shares held and the current holdings allow the foundation to continue with the partici- pation programme in the years to come. Th e Foundation is led by a Board of Trustees that is prepon- derantly independent of the Corporate Executive Committee. Th e independent trustees are Peter Schwager (Chairman) and Prof. Dr. Heinrich Koller (Legal Counsel), with Andreas Burki as third trustee (deputy trustee for legal matters and taxes). EMPLOYEE INCENTIVE PLAN Number of subscribed shares Restricted until Subscription price per share in CHF Value of subscribed shares in CHF million Market value of subscribed shares as of subscription date in CHF million Entitled employees Participating employees Subscribed shares per participant (average) 2006 188,901 31.8.09 2007 178,345 31.8.10 49.10 9.3 19.5 3,268 2,146 88.0 54.60 9.7 19.9 3,173 2,018 88.4 SHARE OWNERSHIP PLAN (ESOP) For the part of the bonus subscribed in shares, employees in Switzerland have two plans to choose from: the Share Sub- scription Scheme (SSS) and the Employee Share Ownership Plan (ESOP). SHARE SUBSCRIPTION SCHEME (SSS) Since January 2003, all employees of the Group companies who qualify for incentives can acquire their bonus shares at a preferential rate. Subscription day is always 1st June. Each year, the subscription price is determined by the Corporate Executive Committee and published in advance on the in- tranet. On 23rd April 2007, the Corporate Executive Com- mittee resolved, that the subscription price for this report- ing period would be based on the average market price between 7th – 11th May 2007. A discount of 10% is granted on the average market price calculated in this way. The subscribed shares are subject to a three-year lock-up period. SHARE SUBSCRIPTION SCHEME (SSS) Number of subscribed shares Restricted until Subscription price per share in CHF Value of subscribed shares in CHF million Market value of subscribed shares as of subscription date in CHF million Entitled employees (FL 1 – 5) Participating employees SSS portion of incentive 2006 32,154 31.5.09 83.90 2.7 3.0 491 42 13% 2007 26,628 31.5.10 114.80 3.0 3.4 521 77 14% EMPLOYEE SHARE OWNERSHIP PLAN (ESOP) Since May 2001, the majority of executives in Switzerland have had a choice of receiving part of their bonus in shares instead of cash. Th ere are upper limits for senior and top management (FL 1 to 3); members of the Corporate Execu- CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 61 tive Committee may only take up to 50% of their bonus en- titlement under the Employee Share Ownership Plan in shares. As with the Share Subscription Scheme, subscription day is always 1st June. Each year, the subscription price is determined by the Corporate Executive Committee and published in advance on the intranet. On 23rd April 2007, the Corporate Executive Committee resolved, that the sub- scription price for this reporting period would be based on the average market price between 7th – 11th May 2007. To make the most of the share ownership plan, employees are off ered loans with interest charged at prevailing interest rates, which allows them to receive a multiple of their bonus in shares at fair value, net of the discounted dividend right over three years. Th e repayment of the loan aft er the expiry of the three-year lock-up period is hedged through the pur- chase of a put option fi nanced by the sale of a call option. Aft er expiry of the three-year lock-up period and aft er exer- cising their options and repayment of the loan with accrued interest, employees have the remaining shares at their free disposal. EMPLOYEE SHARE OWNERSHIP PLAN (ESOP) Number of subscribed shares 1 Restricted until Subscription price per share 2 in CHF Value of subscribed shares 2 in CHF million Market value of the subscribed shares as of subscription date in CHF million Entitled employees (FL 1 – 5) Participating employees ESOP portion of incentive 1 Incl. shares fi nanced by loans. 2 Less the discounted dividend right over three years. 2006 259,683 31.5.09 83.53 21.7 24.2 491 157 22% 2007 212,345 31.5.10 115.55 24.5 27.1 521 162 19% 5.5. PERFORMANCE QUOTA AND PERFORMANCE SHARE UNITS (PSU) Competitor and market comparisons for remuneration at senior and top management levels (FL 1 to 3) have shown that up to 2006 variable salary components at Baloise were signifi cantly below market standards and that Baloise has no long-term retaining measures. Based on these fi ndings, two new incentive elements were introduced in 2007 for em- ployees at this level: prformance quota and performance share units. PERFORMANCE QUOTA Introduced in 2007 for employees of FL 1 to 3 (incl. Chair- man of the Board of Directors), the performance quota is a discretionary, fl exible tool of the Compensation Committee of the Board of Directors. It allows this group of individuals to participate in the Group’s success and leads to greater variability in remuneration. Th e tool takes into account the management performance delivered and is determined – as part of the total amount provided by the Compensation Committee – by the employee’s fi rst line or second line man- ager. Th e individual amounts will be established in April and paid out with the June salary. Part of the amount award- ed must be taken in shares; the remainder will be paid in cash (the same provisions for mandatory shares apply as with the bonus). For the part taken in shares, the provisions of the Share Subscription Scheme apply. PERFORMANCE QUOTA Participating employees (FL 1 – 3) Total paid out in CHF million Number of subscribed shares Subscription price per share in CHF Value of subscribed shares in CHF million Market value of subscribed shares as of subscription date in CHF million In cash in CHF million 2006 – – – – – – – 2007 38 2.1 8,358 114.80 1.0 1.1 1.1 62 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT PERFORMANCE SHARE UNITS (PSU) In 2007, the Performance Share Units programme was in- troduced as a tool for participation in the long-term success of the Group and to retain top performers. As long as they stay with Baloise, senior and top management (FL 1 to 3 incl. Chairman of the Board of Directors) may benefi t from the increase in the Group’s long-term value. In this way, the PSU programme establishes an alignment of interests be- tween shareholders and management. Participating employees are allocated entitlements in form of performance share units (PSU) at the beginning of a per- formance period, entitling them to a specifi ed number of free shares at the end of the performance period. Each year, the total amount is determined by the Compensation Com- mittee, which also is responsible for the initial distribution to the participants. Th e number of shares that may be subscribed to aft er three years, i.e. at the end of the performance period, depends on the total shareholder return of Bâloise-Holding shares as compared to industry peers. Values of this comparative per- formance multiplier can be in the range of 0.5 to 1.5. Th is peer group includes the 35 leading European insurance companies listed in the Dow Jones EURO STOXX Insur- ance. One PSU in principle gives the right to subscribe to one share. Th is is then the case when the value development of the Baloise share corresponds to the median of the peer group, the performance multiplier in this case being 1.0. Participants in the scheme receive more shares for their PSU, if the shareholder return of Bâloise-Holding shares exceeds peer group performance. Th e multiplier reaches a maximum of 1.5 if the value development of the Bâloise- Holding share lies in the top quarter of the peer group com- panies. Th e multiplier is 0.5 if it lies in the bottom quarter of the peer group companies. If the value development of the Bâloise-Holding share lies in the two middle quarters, the performance multiplier is computed on a linear scale. Th e performance multiplier is defi ned using the closing ex- change prices on the last trading day of the performance pe- riod concerned for the entire expiring period. Participating employees receive the respective number of shares at the end of the performance period (“vesting”), i.e. on 31.12.2009 for the PSU allocated for 2007. In the event of a termination of employment (other than retirement, disa- bility or death) during the benefi t period, the PSU are ren- dered invalid without substitution or compensation. To un- derline the long-term character of the programme, 50% of the assigned shares are subject to a three-year lock-up peri- od at the end of the performance period. As a rule, the PSU programme runs over a three-year pe- riod. When the scheme was fi rst introduced in 2007, the performance period was shortened, as the PSU were not is- sued until aft er the resolution of the Board of Directors of 9th March 2007. It is at the discretion of the Compensation Committee who among senior and top management (FL 1 to 3) can partici- pate in the programme. Th e Compensation Committee can also specify the total number of PSUs and the allocation date. PERFORMANCE SHARE UNITS (PSU) Entitled employees (FL 1 – 3) Number of allocated PSU Of which: expired without compensation (departures) Number of active PSU as of 31.12.2007 Value of allocated PSU as of issue date in CHF million Expense for the Baloise Group in CHF million 2006 – – – – 2007 45 37,018 – 1,003 36,015 4.2 1.6 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 63 5.6. PENSION BENEFIT SCHEMES RETIREMENT SOLUTIONS/PENSION FUND Baloise has a variety of retirement solutions that are struc- tured according to country-specifi c requirements. In Swit- zerland, there are diff erent pension schemes for insurance and banking employees. Basler Versicherungen off ers its employees in Switzerland an attractive solution within the second pillar of the Swiss social security system that meets the following objectives: It meets the needs of the insured at the occurrence of a risk event (age, death or disability) and takes care of the resulting economic consequences through the occupational pension scheme. It allows a continuation of the current standard of living at a suffi ciently high level of income replacement (combination of pillar 1 and pillar 2 benefi ts) to compensate for the loss of income. Th e employer makes a higher contribution towards the occupational pension fund than employees. It is forward-looking, solid, predictable and cost- eff ective. Th e solution, valid until the end of 2007, can be described as follows: two separate pension funds for offi ce-based and fi eld-based employees benefi t plan with a retirement benefi t of 80% of the fi nal salary pension standard annual income: basic salary without bonus (for offi ce-based employees) or the fi ve-year average of the contractual remuneration (for fi eld-based employees) contribution ratio employer/employee 73% : 27% hedging of the risks age, death and disability through two collective insurance contracts with the Basler Lebensversicherungsgesellschaft Th e Chairman of the Board of Directors and members of the Corporate Executive Committee are covered by the pension fund for offi ce-based employees. Th ey are subject to the same conditions as for all other insured persons. FROM DEFINED BENEFIT PLAN TO DEFINED CONTRIBUTION Aft er extensive preparatory work, Balo- PENSION PLANS ise Pension Foundation Board of Trustees and the Corpo- rate Executive Committee resolved to make the retirement solution fi t for the future. Th e goal: more fl exibility, more individuality, alignment with social and demographic de- velopments. On 1st January 2008, a comprehensive reorgani- sation therefore came into force, which is characterised by the change from defi ned benefi t plan to defi ned contribu- tion pension plans. With the system change, employees will be off ered a range of retirement solutions from age 30. On top of the basic plan, they can make additional contributions to the pension fund as part of the Pension Plan Plus or the Pension Plan Ultra to boost their retirement assets. Th e insured person can switch the elected retirement plan annually. Th e interest rate of the retirement fund is determined by the Board of Trustees at the end of the year, taking into account the BVG minimum rate set by the Swiss Federal Council. Th e applied interest rate will not be split between the BVG and the voluntary area. And the conversion rate for all pen- sion plans will be a standard 6.2%. Offi ce-based employees will see an improvement regarding their relevant annual income, since the portion of their bo- nus subject to AHV (Swiss mandatory retirement pension and survivors’ insurance) is now also covered by the insur- ance. Th e variable salary components of fi eld-based employ- ees were already previously covered by the insurance. 64 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT Th e contribution ratio between employers and workers based on the basic plan remains unchanged. 5.7. REMUNERATION FOR THE MEMBERS OF THE BOARD OF DIRECTORS (EXCL. CHAIRMAN) Th e pension funds for offi ce-based and fi eld-based em ployees administered separately up to now will be merged. Th is will further simplify administration and accounting. Th e members of the Board of Directors, with the exception of the Chairman, receive a lump sum compensation in cash that is determined by the Compensation Committee. Since 2006, the members of the Board of Directors have re- ceived 25% of their annual fee in shares, with a lock-up pe- riod of three years. As under the Share Subscription Scheme for management, the members of the Board of Directors are granted a discount of 10% on the market price. No non-standard or other remuneration has been paid to former members of the Board of Directors pertaining to previous governing body activities in Baloise. Th ere have been only minor changes in the total amount of remuneration paid out to members, compared to the previ- ous year (pro rata entitlement of Lead Director Dr. G. F. Krayer from 6th December 2007). In the reporting period, the following remuneration was paid out to the nine non- executive members of the Board of Directors: Th e “new” pension fund will provide autonomous cover against the risks of old age, death and disability; the existing collective insurance contracts will be liquidated. Th e one-off cost of the conversion amounts to CHF 136 mil- lion. Th e cost will be divided equally between the Baloise Pension Foundation and Baloise. Under the rules applicable until BONUSES NOT COVERED the end of 2007, bonuses were not covered by the pension fund, and FL 1 to 3 employees (incl. the Chairman of the Board of Directors) thus had additional mixed single pre- mium life insurances until recently, i.e. voluntary life insur- ance, taken out on the ordinary retirement age. As insured party, the insurance money was of the employees free dis- posal when benefi ts became payable. Th e single premium is calculated as a percentage of the bonus entitlement, graded according to function level (3.75% for members of the Cor- porate Executive Committee). Two-thirds of the premium was paid by the employer and one-third by employees. Th ese amounts are shown as remu- neration element in the table on page 67. As part of the reorganisation of the pension fund, in par- ticular the inclusion of the bonus portion subject to AHV in the relevant annual income, this service is to be discontin- ued as of 1st January 2008. CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 65 Remuneration for additional functions Additional remuneration Total of which: in cash of which: in shares –/– 235,833 178,333 57,500 REMUNERATION TO THE MEMBERS OF THE BOARD OF DIRECTORS in CHF Dr. Georg F. Krayer Vice-Chairman Board of Directors and (as of 6.12.2007) Lead Director Chair Compensation Committee Deputy Chair Chairman’s Committee and Investment Committee Dr. Christoph J. C. Albrecht Member of the Board of Directors Deputy Chair Audit Committee Dr. Andreas Burckhardt Member of the Board of Directors Member Audit Committee Dr. Hansjörg Frei Member of the Board of Directors Member Chairman’s Committee and Investment Committee Member Audit Committee Prof. Dr. Gertrud Höhler Member of the Board of Directors Member Compensation Committee Dr. Klaus Jenny Member of the Board of Directors Member Chairman’s Committee and Investment Committee Deputy Chair Compensation Committee Werner Kummer Member of the Board of Directors Chair Audit Committee Dr. Arend Oetker Member of the Board of Directors Dr. Eveline Saupper Member of the Board of Directors Member Compensation Committee Total Board of Directors (excl. Chairman) Base salary 100,000 100,000 100,000 100,000 100,000 100,000 100,000 55,833 30,000 50,000 30,000 30,000 50,000 30,000 30,000 50,000 30,000 50,000 100,000 –/– 100,000 900,000 30,000 465,833 –/– 130,000 97,500 32,500 –/– 130,000 97,500 32,500 –/– 180,000 135,000 45,000 –/– 130,000 97,500 32,500 –/– 180,000 135,000 45,000 –/– 150,000 112,500 37,500 –/– –/– 100,000 75,000 25,000 130,000 97,500 32,500 –/– 1,365,833 1,025,833 340,000 Explanatory notes to table Remuneration to former members of the Board and closely related individuals No remuneration was paid to a) former members of the Board of Directors, pertaining to previous governing body activities in Baloise, or that is non-standard. b) individuals or companies with close family ties to members of the Board of Directors and that is non-standard (persons with close family ties: spouse, civil partner, unmarried partner, children). Cash compensation Remuneration as per contract (lump-sum compensation). Shares 25% of the contractually agreed remuneration will be paid in shares which are locked-up for three years. Intrinsic value: fair value minus 10% (as with SSS). Additional remuneration No additional remuneration was disbursed. 66 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 5.8. REMUNERATION TO THE CHAIRMAN OF THE BOARD OF DIRECTORS AND MEMBERS TO THE CORPORATE EXECUTIVE COMMITTEE Th e Compensation Committee determines the type and amount of compensation for the Chairman of the Board of Directors and the members of the Corporate Executive Committee. It consists of the basic salary and the bonus, which is dependent on meeting the Group’s and individual objectives. Th e target bonus is 54% of the basic salary, rising to up to a maximum of 70% for outstanding performance. In addition, the Compensation Committee may take into ac- count the Group’s results under the OPM factor (Operation- al Performance Management) of at least 0.8 and up to a maximum of 1.3. 50% of the bonus must be taken in shares (cf section 5.4 Share Subscription Scheme and Employee Share Ownership Plan). Th e Group’s objectives are developed in a multi-level pro cess and approved by the Compensation Committee for the year to come. Target values are consolidated profi t, combined ratio and the shareholder value (performance of Baloise shares in comparison to STOXX Insurance). Individual goals are closely linked to the areas of responsi- bility of each member of the Corporate Executive Commit- tee. Th ey are determined together with the line managers and also approved by the Compensation Committee. As of 6th December 2007, Dr. Frank Schnewlin, Chairman of the Corporate Executive Committee, has stepped down from this function. His employment ends on 31st January 2009, which according to the regulations allows him to take early retirement. Th us, the 5,962 Performance Share Units allocated to him in March 2007 will not expire. Until the termination of his employment, Frank Schnewlin is due his contractual entitlements. For the year 2007, this amounted to CHF 2.123 million from performance quota and bonus. Th is amount was held back and will be recompensed together with the payments to other employees entitled to a bonus in 2008. Including his basic salary, Dr. Schnewlin’s entitlement for the years 2008 and 2009 amounts to a total of CHF 3.082 million. No non-standard or other remuneration has been paid to former members of the Corporate Executive Committee pertaining to previous governing body activities in the Baloise. Compared to the previous year, the total amount of remu- neration has gone up, adapting to the median of the compa- rable positions in the market. Th is is due to the following factors: In accordance with legal requirements valid as of 1st January 2007, pension provisions will be added to the total remuneration package. With the introduction in 2006 of the IPM process (Individual Performance Management), the bonus will become more variable. As of now, any outstanding performance will be rated with a target value of 130% (currently up to a maximum of 100%). Since 2006, it has been possible to increase or reduce the bonus with the OPM factor, in line with the Group’s performance. Given the excellent results of Baloise in the reporting period 2006, the Compensation Commit- tee has set the OPM at a maximum of 1.3. As new bonus element, the performance quota was fi rst introduced in 2007. Th e variable parts of the total remuneration will be deter- mined in the spring of each year as part of the Individual Performance Management process (cf. 5.1 section Remu- neration system: Basic salary and incentives). Th e following table contains the basic salary and retirement benefi ts for the year 2007, and in the reporting period, the variable re- muneration elements for the previous year. CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 67 Shares Pro- spective entitle- ments Non-cash benefi ts Pension benefi ts Total remuneration Pension fund Indivi- dual life policies REMUNERATION TO THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE MEMBERS OF THE CORPORATE EXECUTIVE COMMITTEE Cash remuneration Em- ployee Incentive Plan Incentive (variable) Share Subscription Scheme Share Ownership Plan Basic remuneration (fi xed) In % of total remunera- tion CHF 1,600,000 45% 886,921 3,927 905,004 CHF CHF CHF CHF –/– Number of PSU 6,359 CHF –/– CHF CHF CHF 144,126 36,505 3,576,483 Dr. Rolf Schäuble, Chairman of the Board of Directors and (as of 6.12.2007) CEO of Baloise Group Dr. Frank Schnewlin CEO of Baloise Group (until 6.12.2007) Other members of the Corporate Executive Committee Total Corporate Executive Committee 1,500,000 46% 771,746 3,927 125,006 663,443 5,962 –/– 128,826 33,170 3,226,118 1,855,000 42% 598,804 11,781 1,090,390 224,976 7,194 12,500 581,933 35,168 4,410,552 3,355,000 44% 1,370,550 15,708 1,215,396 888,419 13,156 12,500 710,759 68,338 7,636,670 Explanatory notes to table Other members of the Corporate Executive Committee: includes Dr. Thomas Sieber, who was appointed member of the CEC on 6.12.2007. Remuneration to former members and persons with close family ties No non-standard remuneration has been paid to individuals or companies with close family ties to the Chairman of the Board of Directors or the members of Corporate Executive Committee. (persons with close family ties: spouse, civil partner, unmarried partner, children under 18). No non-standard or other remuneration has been paid to former members of the Board of Directors pertaining to previous governing body activities in Baloise. Basic salary Basic salary as per contract (gross). Incentive Variable, performance related portion of total remuneration paid in cash (gross). Employee Incentive Plan Portion of remuneration resulting from subscription for company shares at a preferential rate (2007: CHF 54.60). Computation: Market value minus subscription price = benefi t in kind. Share Subscription Scheme (SSS) Portion of incentive received directly in shares. Computation: Fair value minus 10% reduction. Employee Share Ownership Plan (ESOP) Portion of incentives received in shares (exclusive of shares fi nanced by loans). Prospective entitlements (PSU) Entitlements that confer a right to acquire shares at a future date, subject to achieving pre-determined performance conditions (cf. section 5.5. Performance Share Units (PSU)). The accrued value of share awards will only be added to the total remuneration at the conversion into actual shares (i.e. at the end of the three-year performance period), only then can a reliable estimate be provided and only then will they actually have been earned. Non-cash benefi ts Basis: All elements of remuneration in compliance with the new Swiss salary certifi cate. The listed amount is a long service gift to a member of the CEC. Pension benefi ts Employer contributions to the pension fund plus premium payments for single life policies for incentives not insured under the pension fund. Contributions to single life policies will be discontinued in 2008. 68 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 5.9. LOANS TO GOVERNING BODIES Th e following credits and loans to members of the Board of Directors and the Corporate Executive Committee are still outstanding: CREDITS AND LOANS TO MEMBERS OF THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE in CHF Dr. Rolf Schäuble, Chairman of the Board of directors and (as of 6.12.2007) CEO of Baloise Group Dr. Georg F. Krayer, Vice-Chairman of the Board of Directors and (as of 6.12.2007) Lead Director Dr. Christoph J. C. Albrecht, Member Dr. Andreas Burckhardt, Member Dr. Hansjörg Frei, Member Prof. Dr. Gertrud Höhler, Member Dr. Klaus Jenny, Member Werner Kummer, Member Dr. Arend Oetker, Member Dr. Eveline Saupper, Member Total Board of Directors Loans connected with the share ownership plan Mortgages Other loans Total 650,000 650,000 650,000 –/– –/– 650,000 Dr. Frank Schnewlin, CEO of Baloise Group (until 6.12.2007) 7,645,550 Other members of the Corporate Executive Committee 1,000,000 4,195,230 7,645,550 5,195,230 Total Corporate Executive Committee 1,000,000 11,840,780 –/– 12,840,780 Explanatory notes to table Credits and loans No non-standard loans and credits have been granted to a) former members of the Board of Directors and the Corporate Executive Committee b) individuals or companies with close family ties to members of the Board of Directors (persons with close family ties: spouse, civil partner, unmarried partner, children). Mortgages Employees are granted mortgages at preferential rates: 1% below standard variable interest rate for clients, preferential rate for fi xed interest mortgages. The mortgage granted to Dr. A. Burckhardt is charged interest at market conditions since at the time of the conclusion of the contract no employee conditions were granted yet. Loans connected with the Employee Share Ownership Plan Loans to fund leveraged share ownership plan (cf. section 5.4. Share Ownership Plan). Interest is charged at prevailing interest rates (2007: 3%) over a term of three years. Other loans There are no policy loans. CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 69 5.10. PARTICIPATIONS AND OPTIONS Th e following registered shares of Bâloise-Holding are owned by members of the Board of Directors and the Cor- porate Executive Committee or persons close to them (incl., in the reporting year, allocated/subscribed shares from the share-based bonus programmes): SHARES HELD BY MEMBERS OF THE BOARD OF DIRECTORS EXCLUDING CHAIRMAN Number Dr. Georg F. Krayer, Vice Chairman and (as of 6.12.2007) Lead Director Dr. Christoph J. C. Albrecht, Member Dr. Andreas Burckhardt, Member Dr. Hansjörg Frei, Member Prof. Dr. Gertrud Höhler, Member Dr. Klaus Jenny, Member Werner Kummer, Member Dr. Arend Oetker, Member Dr. Eveline Saupper, Member Total Board of Directors (excl. Chairman) Percentage of issued share capital Discretionary shares Restricted shares Share ownership total in % of the share capital issued 23,500 8,020 –/– 1,000 –/– 18,000 –/– 2,000 –/– 52,520 0.097% 2,186 1,670 1,670 1,928 1,670 1,928 1,774 1,516 1,670 16,012 0.030% 25,686 9,690 1,670 2,928 1,670 19,928 1,774 3,516 1,670 68,532 0.127% 0.048% 0.018% 0.003% 0.005% 0.003% 0.037% 0.003% 0.007% 0.003% 0.127% Explanatory notes to table Share-holdings Incl. shares held by individuals or companies with close family ties to members of the Board of Directors (spouse, civil partner, unmarried partner, children under the age of 18). Discretionary shares Shares held in personal custody accounts. Restricted shares Shares subscribed for through share-based remuneration schemes are subject to a three-year lock-up period. Under section 20 of the articles of incorporation, each member of the Board of Directors must deposit 1,000 shares with the Company for the term of his / her offi ce (qualifying shares). Options Members of the Board of Directors do not hold options on Baloise shares. 70 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT SHARES HELD BY THE CHAIRMAN OF THE BOARD OF DIRECTORS AND MEMBERS OF THE CORPORATE EXECUTIVE COMMITTEE Number Dr. Rolf Schäuble, Chairman of the Board of Directors and (as of 6.12.2007) CEO of Baloise Group Dr. Frank Schnewlin, CEO of Baloise Group (until 6.12.2007) German Egloff , CFO of Baloise Dr. Martin Strobel, CEO of Basler Switzerland Martin Wenk, CIO of Baloise Dr. Thomas Sieber, Head of Corporate Center (as of 6.12.2007) Total Chairman of the Board of Directors and members of the Corporate Executive Committee Discretionary shares Restricted shares Share ownership total in % of the share capital issued Prospecitve entitlements 30,566 25,802 56,368 0.104% 6,359 100 –/– –/– 800 –/– 117,627 117,727 26,591 7,973 28,198 15,745 26,591 7,973 28,998 15,745 31,466 221,936 253,402 0.218% 0.049% 0.015% 0.054% 0.029% 0.469% 5,962 2,186 2,623 2,385 857 20,372 Percentage of issued share capital 0.058% 0.411% 0.469% Explanatory notes to table Shares-holdings Incl. shares held by individuals or companies with close family ties to members of the Board of Directors (spouse, civil partner, unmarried partner, children under the age of 18). Discretionary shares Shares held in personal custody accounts Restricted shares Incl. shares subscribed for through the Employee Share Ownership Plan (ESOP) and fi nanced by loans. Shares subscribed for through share-based remuneration schemes are subject to a three-year lock-up period. As per section 20 of the Articles of Incorporation, each member of the Board of Directors must deposit 1,000 shares with the Company for the term of his / her offi ce (qualifying shares). Options Options held in relation to the Employee Share Ownership Plan are not listed here, as they do not originate from their own option plan but have been written to secure the loan. In addition, each put option has a call option as counterpart. Prospective entitlements (PSU) Number of PSUs allocated (allocation as of 9.3.2007). 6. SHAREHOLDER PARTICIPATION RIGHTS VOTING RIGHT Baloise’s share capital consists solely of registered shares. Th e are no shares with preferred voting rights. In order to maintain a broad shareholder base and protect minority shareholders, no shareholder is registered with more than 2% of voting rights, regardless of the number of shares held. Th e Board of Directors may approve exceptions to this rule by a two-thirds majority of all members (section 5, Articles of Incorporation). Currently there are no exceptions. Each share carries the right to one vote. In exercising voting rights, no shareholder may directly or indirectly combine his /her own and proxy votes for a total of more than one-fi ft h of the shares entitled to vote at the Annual General Meeting. Each shareholder may assign the exercise of his/her voting right to another shareholder by a written proxy (section 16, Articles of Incorporation). www.baloise.com governance Responsibility Rules and regulation Corporate CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 71 STATUTORY QUORUMS Th e Annual General Meeting has a quorum regardless of the number of shareholders and proxy votes present, subject to the obligatory cases prescribed by law (section 17, Articles of Incorporation). Waiver of statutory voting rights limitations requires the quo- rum of at least three-quarters of the votes present at the An- nual General Meeting, which must also comprise at least one- third of all shares issued by the Company. Th e same qualifi ed majority applies to other cases specifi ed in section 17, para- graph 3 a–h, Articles of Incorporation. In other cases, resolu- tions are adopted by a simple majority of shares voted (section 17, Articles of Incorporation), subject to mandatory provi- sions of law. www.baloise.com governance Responsibility Rules and regulation Corporate CONVENING THE ANNUAL GENERAL MEETING As a rule, the Annual General Meeting is held in April, but no later than six months aft er the end of the reporting year. Th e Bâloise-Holding reporting period ends on 31st December. At least 20 days’ notice shall be given of an An- nual General Meeting. Each registered shareholder receives a personal invitation with the agenda. Invitation and agenda are published in the Schweizerisches Handelsamtsblatt, in various newspapers and on the Internet. Extraordinary Annual General Meetings may be convened by resolution of the Annual General Meeting, the Board of Direc- tors or external auditors. At the request of the shareholders, the Board of Directors must also call an extraordinary General Meeting, in compliance with applicable law (section 11, Arti- cles of Incorporation). In compliance with section 699, para- graph 3, Swiss Code of Obligations, these shareholders must represent at least 10% of the share capital. Responsibility www.baloise.com governance Rules and regulation Corporate AGENDA ITEMS Under section 699, paragraph 3, Swiss Code of Obligations, one or more shareholders who together represent shares with a face value of at least CHF 100,000 may apply for items to be placed on the agenda. Such applications must be sub- mitted to the Board of Directors in writing, stating the matters to be brought before the Annual General Meeting no later than six weeks before the regular Annual General Meeting (section 14, Articles of Incorporation). www.baloise.com governance Responsibility Rules and regulationn Corporate ENTRY IN THE SHARE REGISTER Entitled to vote at the Annual General Meeting are share- holders who are registered in the share register with voting rights at the cut-off-date stated in the invitation sent out by the Board of Directors, which will be a few days before the Annual General Meeting (section 16, Articles of Incorpo- ration). Admissibility of nominee registrations, with reference to any possible percent clauses and the registration require- ments are governed by section 5 of the Articles of Incorpo- ration. Procedures and requirements to revoke or restrict transferability are governed by the provisions of sections 5 and 17. www.baloise.com governance Responsibility Rules and regulation Corporate 7. CHANGE OF CONTROL AND DEFENCE MEASURES Upon acquiring 33% of all Baloise shares, shareholders or groups of shareholders acting in collusion have an obliga- tion to extend a takeover off er to all remaining shareholders. Baloise has not opted to modify or waive this rule. Th ere is neither a statutory opting-out nor an opting-up clause as specifi ed in the Federal Act on Stock Exchanges and Securi- ties Trading (SESTA). 72 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT Four members of the Corporate Executive Committee have a notice period of 12 months. In addition, as with seven oth- er members of management, they have a claim to a settle- ment in the amount of one annual salary (including bonus), if aft er a change in control or a merger the employer (or un- der certain circumstances the employee) terminates the working relationship within 12 months since the takeover or the merger. For the Chairman of the Board of Directors/ CEO of Baloise, the notice period is six months. Th ere is no change of control clause. 8. AUDITORS PricewaterhouseCoopers (PwC) and its predecessor Schwei- zerische Treuhandgesellschaft /STG-Coopers & Lybrand have been Baloise’s external auditors since 1962, elected annually by the Annual General Meeting. With the start of the report- ing period 2007, Mr. Martin Frei has been appointed lead auditor. PWC has been external auditor for almost all Group companies since 2005. Th e Audit Committee evaluates the performance of the ex- ternal auditors and their cooperation with Internal Audit, Risk Management and Compliance. Primarily, the Audit Committee discusses with the external auditors the ongoing audit and audit reports and any problems, results, reserva- tions or issues arising from the audit. Before the start of the annual audit, the Audit Committee reviews the scope of the examination and proposes areas warranting special attention. Th e Audit Committee subse- quently assesses the independence of the external auditors and proposes the external auditors to the Board of Directors for election by the Annual General Meeting and makes rec- ommendations concerning the auditors’ fees. Th e Audit Committee reviews the external auditors’ fees annually. Th e Audit Committee reviews the adequacy of the external audi- tors’ services that are performed outside the scope of their auditing activities. Th ere is a written directive, stipulating that material services not related to auditing activities re- quire prior approval by Internal Audit. FEES PRICEWATERHOUSECOOPERS in CHF (rounded to the nearest thousand) 2006 2007 Audit fee 5,723,000 5,873,000 Fees for audit-related services 313,000 810,000 Th e rise in consulting fees, compared to the previous year, is primarily due to the utilisation of the auditors for advice on key projects in Switzerland and for tax consultancy and the audit in Germany. Consulting fee Total 1,313,000 1,855,000 7,349,000 8,538,000 9. INFORMATION POLICY Th e Baloise Audit Committee is made up of independent members qualifi ed in fi nance and accounting. During the re- porting period, the Audit Committee met four times, each time with external auditors in attendance. At these meetings, the Audit Committee received detailed documentation on the fi ndings of the external auditors, particularly when dis- cussing the annual and semi-annual fi nancial statements. INFORMATION PRINCIPLES Th e Baloise Group provides regular, transparent and com- prehensive information to shareholders, potential investors, employees, clients and the general public. All registered shareholders receive annual and semi-annual reports that provide a commentary on the review of the business year. Th e fi nancial report will be sent to shareholders upon re- quest. All publications are made available to all shareholders simultaneously. CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT INCLUDING COMPENSATION REPORT 73 All investors enjoy equal information rights. To make our meetings with financial analysts generally accessible, we use technologies such as webcasts, podcasts and telecon- ferences. INFORMATION EVENTS Baloise provides comprehensive business information at: Press conferences: Business results and activities, objec- tives and strategies are presented and explained at media conferences (annual and semi-annual media conferences). Financial analysts meetings: Financial analysts meetings take place at the close of each year and semi-annually, with parallel webcast and teleconference. Th e events are subsequently available for download as a podcast. Annual General Meeting: Th e Annual General Meeting provides shareholders with a review of the business year. Road shows: Regular road shows are organised at nu- merous fi nancial centres. Investor conferences: Key business and strategy topics are reviewed in detail. Individual meetings with analysts, investors and media representatives: ongoing cultivation of relationships with analysts, investors and the media. AVAILABLE DOCUMENTS Media releases, disclosures, presentations, annual reports, fi nancial reports, semi-annual reports and other documents are publicly available on the Internet at www.baloise.com. All documents are available through Investor Relations or for download from the internet. www.baloise.com Media Relations Media kits CONTACTS CORPORATE GOVERNANCE Th omas Sieber Aeschengraben 21 CH-4002 Basel Telephone +41 61 285 86 48 E-mail thomas.sieber@baloise.com INVESTOR RELATIONS Carsten Stolz Aeschengraben 21 CH-4002 Basel Telephone +41 61 285 83 65 E-mail carsten.stolz@baloise.com All information on individual Baloise events is available at www.baloise.com www.baloise.com INFORMATION ON THE BALOISE SHARE For information regarding the Baloise share, see page 12 ff of the annual report. www.baloise.com Responsibility TOP LINKS Investor Relations Baloise Corporate governance Rules and regulation www.baloise.com share FINANCIAL CALENDAR Important data for investors can be found at www.baloise. com. including publication dates of the annual and semi-an- nual fi nancial statements. Date and invitation to the Annual General Meeting, the closure date of the share register and the ex-dividend date, if any, are also published. www.baloise.com Investor Relations IR agenda Investor Relations Share buyback program www.baloise.com Baloise share Bonds Presentations IR agenda www.baloise.com Media Relations Media kits Calendar Employed? OR RUNNING YOUR OWN BUSINESS? A career takes a new direction. It adapts to job opportunities, changing life circumstances, people around us, the blows that fate deals, you and the zeitgeist. But ultimately, it is the individuals who make the decisions and take charge of their lives and careers − with Baloise as a partner at their side. 76 ORGANISATIONAL STRUCTURE BOARD OF DIRECTORS BOARD OF DIRECTORS BOARD OF DIRECTORS MEMBERS Rolf Schäuble, Dr. oec., Chairman, Lenzburg Georg F. Krayer, Dr. iur., Vice-Chairman, Basel Christoph J. C. Albrecht, Dr. iur., Basel Andreas Burckhardt, Dr. iur., Basel Hansjörg Frei, Dr. iur., Mönchaltorf Gertrud Höhler, Prof. Dr. phil., Berlin Klaus Jenny, Dr. oec., Zürich Werner Kummer, Küsnacht Arend Oetker, Dr. rer. pol., Berlin Eveline Saupper, Dr. iur., Pfäffi kon SECRETARY TO THE BOARD OF DIRECTORS Th omas Sieber, Dr. iur., Rheinfelden INTERNAL AUDIT Rolf-Christian Andersen, Meilen AUDITORS PricewaterhouseCoopers AG, Basel BOARD COMMITTEES CHAIRMAN’S COMMITTEE Rolf Schäuble, Dr. oec., Chairman Georg F. Krayer, Dr. iur., Vice Chairman Hansjörg Frei, Dr. iur. Klaus Jenny, Dr. oec. AUDIT COMMITTEE Werner Kummer, Chair Christoph J. C. Albrecht, Dr. iur., Deputy Chair Andreas Burckhardt, Dr. iur. Hansjörg Frei, Dr. iur. COMPENSATION COMMITTEE Georg F. Krayer, Dr. iur., Chair Klaus Jenny, Dr. oec., Deputy Chair Gertrud Höhler, Prof. Dr. phil. Eveline Saupper, Dr. iur. INVESTMENT COMMITTEE Rolf Schäuble, Dr. oec., Chair Georg F. Krayer, Dr. iur., Deputy Chair Hansjörg Frei, Dr. iur. Klaus Jenny, Dr. oec. ORGANISATIONAL STRUCTURE MANAGEMENT 77 MANAGEMENT (AS OF 1ST MARCH 2008) RICHTIGES BILD FOLGT NOCH From left to right: Martin Strobel, Rolf Schäuble, German Egloff , Martin Wenk, Thomas Sieber GROUP CEO Rolf Schäuble, Dr. oec.* (as of 6.12.2007) CORPORATE SECRETARY Markus von Escher, Dr. iur. CORPORATE COMMUNICATIONS Th omas Kähr SWITZERLAND INTERNATIONAL FINANCE ASSET MANAGEMENT CORPORATE CENTER Martin Strobel, Dr. rer. pol.* Rolf Schäuble, Dr. oec.* (as of 6.12.2007) German Egloff * Martin Wenk* Th omas Sieber, Dr. iur.* (as of 6.12.2007) PRIVATE AND CORPORATE CUSTOMERS Franz J. Kaltenbach, Dr. rer. nat. BALOISE BANK SOBA Alois Müller SALES AND MARKETING Daniel Fluri INFORMATION SYSTEMS AND LOGISTICS René Güttinger ACCOUNTING/ CONTROLLING Urs Bienz BASLER GERMANY Frank Grund, Dr. iur. FINANCIAL ACCOUNTING Michael Müller FINANCIAL RELATIONS Carsten Stolz, Dr. rer. pol. FINANCIAL MANAGEMENT Stefan Nölker, Dr. rer. nat. PERFORMANCE MANAGEMENT Martin Kampik Karl Signer DEUTSCHER RING GERMANY Wolfgang Fauter MERCATOR BELGIUM Jan De Meulder BÂLOISE LUXEMBOURG André Bredimus BASLER AUSTRIA Otmar Bodner, Dr. iur. CROATIA AND SERBIA Lothar Mayrhofer, Dr. Mag. oec. INVESTMENT STRATEGY AND INVESTMENT CONTROLLING Bernhard Casar BALOISE ASSET MANAGEMENT Reto Diezi, Dr. oec. publ. REAL ESTATE Hans-Peter Bissegger BALOISE FUND INVEST Robert Antonietti BALOISE LIFE (LIECHTENSTEIN) Annemie D’Hulster (as of 1.1.2008) CORPORATE DEVELOPMENT Th omas Wodrich CORPORATE HUMAN RESOURCES Christoph K. Th oma LEGAL AND TAX Andreas Eugster COMPLIANCE Frank Marti RUN OFF Bruno Rappo * Member of the Corporate Executive Committee Aiming high right away OR STARTING OFF SMALL? Some love to work part-time. Others start blooming when they have a demanding leading position. The balance between work and private life, between performance and recreation, is as unique as people’s life plans. Whatever their decision, Baloise will support them. 80 MANAGEMENT INFORMATION CONSOLIDATED INCOME STATEMENT CONSOLIDATED INCOME STATEMENT FIVE-YEAR OVERVIEW (RESTATED FROM 2004) in CHF million Income Premiums earned and policy fees (gross) 1 Reinsurance premiums ceded Premiums earned and policy fees (net) Investment income Realised gains and losses on investments 2 Income from services rendered Results from investments in associates Other operating income Income Expenses Claims and benefi ts paid (gross) Change in actuarial reserves (gross) Losses incurred ceded to reinsurers Acquisition costs Operating and administrative expenses for insurance business Investment expenses Interest expense on insurance liabilities Expense from fi nancial contracts Other operating expenses Expenses Borrowing costs Profi t before tax Income taxes Profi t for the period Allocated to: Shareholders Minority interests Earnings / loss per share in CHF Diluted Undiluted 2003 2004 2005 2006 2007 7,371.1 – 256.4 7,114.7 6,936.0 – 211.2 6,724.8 6,835.1 – 197.3 6,637.8 6,706.6 – 187.5 6,519.1 6,880.2 – 207.9 6,672.3 2,063.8 1,862.1 1,794.5 1,823.7 2,033.1 – 32.7 319.0 26.4 157.7 265.2 312.2 3.7 137.1 549.4 211.9 35.5 74.3 702.8 286.4 62.0 144.3 598.1 387.5 8.3 125.6 9,648.9 9,305.1 9,303.4 9,538.3 9,824.9 – 5,561.3 – 1,645.4 – 5,418.4 – 1,251.4 – 5,772.1 – 1,094.6 – 5,325.0 – 1,080.8 78.7 – 277.1 – 835.6 – 75.9 – 98.9 – 296.4 – 671.1 51.6 – 475.3 – 806.4 – 75.9 – 90.1 – 248.9 – 612.9 189.7 – 524.8 – 815.1 – 88.1 – 78.5 – 130.0 – 460.6 43.4 – 493.8 – 847.8 – 93.9 – 67.0 – 156.5 – 575.5 – 5,597.9 – 833.6 107.6 – 524.8 – 938.3 – 104.3 – 76.1 – 162.3 – 660.5 – 9,383.0 – 8,927.7 – 8,774.1 – 8,596.9 – 8,790.2 – 42.2 223.7 – 125.4 98.3 91.4 6.9 1.7 1.7 – 52.6 324.8 – 101.5 223.3 210.0 13.3 3.9 3.9 – 53.4 475.9 – 72.4 403.5 395.8 7.7 7.3 7.3 – 28.2 913.2 – 206.1 707.1 699.4 7.7 12.93 12.93 – 28.4 1,006.3 – 192.5 813.8 803.3 10.5 15.48 15.48 MANAGEMENT INFORMATION CONSOLIDATED INCOME STATEMENT 81 ADDITIONAL INFORMATION in CHF million Gross premiums written and policy fees Investment-type premiums Gross premiums written, policy fees and investment-type premiums Assets for the account and at the risk of life insurance policyholders Combined ratio (gross) 3 in percent Funding ratio nonlife in percent 2003 2004 2005 2006 2007 7,374.7 261.0 7,635.7 798.2 97.6 177.4 6,941.3 443.0 7,384.3 6,839.1 554.4 7,393.5 6,716.5 774.7 7,491.2 6,868.4 1,069.2 7,937.6 1,143.6 2,245.8 2,976.6 4,366.9 93.0 179.6 100.6 187.0 90.2 194.8 93.0 195.6 1 In line with the accounting principles used at Baloise Group, investment-type insurance premiums are not included in the premiums earned and policy fees. 2 Inclusive fi nancial liabilities held for trading (derivative fi nancial instruments). 3 From 2005, exclusive legally required interest on actuarial reserves for annuities. 82 MANAGEMENT INFORMATION CONSOLIDATED BALANCE SHEET CONSOLIDATED BALANCE SHEET FIVE-YEAR OVERVIEW (RESTATED FROM 2004) 2003 2004 2005 2006 2007 in CHF million Assets Property, plant and equipment Intangible assets Investments in associates Investment property Financial assets of an equity nature Financial assets of a debt nature Mortgages and loans Derivative fi nancial instruments Other assets / receivables Deferred tax assets 1 Cash and cash equivalents Total assets 696.8 1,091.0 241.0 5,653.4 5,413.7 32,367.0 12,459.1 292.9 4,484.1 905.9 695.9 647.5 1,223.1 152.6 5,619.2 6,757.4 23,208.8 16,995.5 264.9 2,516.9 999.7 698.0 626.3 1,357.2 174.7 5,581.7 9,839.0 22,915.1 17,635.5 48.6 2,652.3 34.5 450.2 638.3 1,357.5 175.0 5,312.6 10,902.3 24,523.3 17,801.6 75.8 2,478.8 25.8 741.5 672.6 1,601.7 177.6 5,269.5 12,137.8 24,288.9 18,399.2 54.2 2,722.3 51.3 1,620.4 64,300.8 59,083.6 61,315.1 64,032.5 66,995.5 in CHF million Equity and liabilities Equity Equity before minority interests Minority interests Total equity Liabilities Technical reserves (gross) Liabilities from banking business and fi nancial contracts Derivative fi nancial instruments Accruals and other liabilities Deferred tax liabilities 1 Total liabilities 2003 2004 2005 2006 2007 3,319.8 40.7 3,360.5 3,433.9 63.9 3,497.8 4,330.4 60.9 4,391.3 4,921.9 64.6 4,986.5 4,781.9 83.7 4,865.6 43,521.2 42,825.8 44,915.9 46,521.8 47,811.0 9,904.1 252.4 5,621.8 1,640.8 5,493.9 160.3 5,395.7 1,710.1 6,062.5 243.4 4,965.1 736.9 6,744.0 44.6 4,929.3 806.3 8,079.1 34.9 5,511.7 693.2 60,940.3 55,585.8 56,923.8 59,046.0 62,129.9 Total equity and liabilities 64,300.8 59,083.6 61,315.1 64,032.5 66,995.5 1 From 2005, deferred tax assets and liabilities have been netted off against each other - provided the IFRS off setting requirements have been met. MANAGEMENT INFORMATION BUSINESS VOLUME, PREMIUMS AND COMBINED RATIO 83 BUSINESS VOLUME, PREMIUMS AND COMBINED RATIO BUSINESS VOLUME 2006 Group Switzer- land Germany Benelux Other countries Basler Deutsch- land Deutscher Ring Total Belgium 3,065.1 1,280.5 3,651.4 2,413.8 842.4 221.7 214.6 1,057.0 814.5 1,036.2 6,716.5 3,694.3 1,064.1 1,029.1 2,093.2 541.7 118.5 660.2 Luxem- bourg 47.9 43.3 91.2 Austria, Croatia and Serbia 97.9 39.6 137.5 Total 589.6 161.8 751.4 in CHF million Nonlife Life Subtotal of IFRS gross premiums written 1 Investment-type premiums 774.7 36.1 3.3 208.8 212.1 78.5 444.0 522.5 4.0 Total business volume 7,491.2 3,730.4 1,067.4 1,237.9 2,305.3 738.7 535.2 1,273.9 141.5 Other 2 Total 40.1 –/– 40.1 –/– 40.1 138.0 39.6 177.6 4.0 181.6 BUSINESS VOLUME 2007 Group Switzer- land Germany Benelux Other countries Basler Deutsch- land Deutscher Ring Total Belgium 3,190.6 1,285.9 3,677.8 2,413.3 866.2 211.0 223.2 1,089.4 820.1 1,031.1 6,868.4 3,699.2 1,077.2 1,043.3 2,120.5 587.4 123.5 710.9 Luxem- bourg 53.4 42.7 96.1 Austria, Croatia and Serbia 135.8 67.2 203.0 Total 640.8 166.2 807.0 in CHF million Nonlife Life Subtotal of IFRS gross premiums written 1 Investment-type premiums 1,069.2 43.5 6.7 256.5 263.2 81.9 674.4 756.3 6.2 Total business volume 7,937.6 3,742.7 1,083.9 1,299.8 2,383.7 792.8 770.5 1,563.3 209.2 Other 2 Total 38.7 –/– 38.7 –/– 38.7 174.5 67.2 241.7 6.2 247.9 1 Premiums written and policy fees (gross). 2 Group business, run-off . 84 MANAGEMENT INFORMATION BUSINESS VOLUME, PREMIUMS AND COMBINED RATIO COMBINED RATIO GROSS, NONLIFE, 2006 1 Group Switzer- land Basler Deutsch- land Deutscher Ring as a percentage of premiums earned Loss ratio Expense ratio Profi t-sharing ratio Combined ratio 59.4 30.1 0.7 90.2 62.0 24.5 1.3 87.8 61.8 30.3 0.5 92.6 41.3 53.1 –/– 94.4 Germany Benelux Other countries Total Belgium 57.7 34.9 0.4 93.0 59.2 33.5 0.0 92.7 Luxem- bourg 51.1 38.5 0.1 89.7 Austria, Croatia and Serbia 59.2 40.5 –/– 99.7 Total 58.6 33.8 0.0 92.4 Other 2 Total 47.4 16.8 1.3 65.5 55.8 33.6 0.4 89.8 COMBINED RATIO GROSS, NONLIFE, 2007 1 Group Switzer- land Germany Benelux Other countries Basler Deutsch- land Deutscher Ring as a percentage of premiums earned Loss ratio Expense ratio Profi t-sharing ratio Combined ratio 61.0 31.5 0.5 93.0 62.8 24.9 0.9 88.6 66.0 30.9 0.4 97.3 43.6 53.6 –/– 97.2 Total Belgium 61.4 35.5 0.4 97.3 57.6 36.7 0.0 94.3 Luxem- bourg 55.9 35.7 –/– 91.6 COMBINED RATIO NONLIFE 1 as a percentage of premiums earned Loss ratio Expense ratio Profi t-sharing ratio Combined ratio RESERVE RATIO NONLIFE in CHF million Technical reserve for own account Premiums written and policy fees for own account Reserve ratio in percent 1 Excluding legally required interest on annuity reserves. 2 Group business, run-off . Total 57.5 36.6 0.0 94.1 2006 59.4 30.1 0.7 90.2 Austria, Croatia and Serbia 63.5 40.4 –/– 103.9 Other 2 Total 42.6 17.1 0.3 60.0 55.3 34.2 0.1 89.6 Gross 2007 61.0 31.5 0.5 93.0 Net 2006 2007 61.6 31.6 0.8 94.0 61.6 33.0 0.5 95.1 2006 2007 5,624.0 5,892.9 2,886.6 3,012.7 194.8 195.6 MANAGEMENT INFORMATION TECHNICAL INCOME STATEMENT 85 2006 3,065.1 – 9.9 3,055.2 Nonlife 2007 3,190.6 11.8 3,202.4 2006 Life 2007 3,651.4 3,677.8 –/– 0.0 3,651.4 3,677.8 – 1,801.9 – 1,882.0 – 3,523.1 – 3,715.9 – 42.3 – 21.4 – 925.2 264.4 – 167.7 132.6 – 97.8 0.1 9.0 – 123.8 – 101.6 – 15.4 – 1,010.2 – 585.6 – 431.6 – 508.1 – 161.1 – 554.7 – 551.2 193.2 – 1,397.0 – 1,305.1 – 182.7 – 19.8 – 25.2 113.2 – 17.0 – 0.8 12.1 – 75.2 6.2 1.6 0.8 3.9 3.3 6.6 1.5 4.4 – 7.3 – 9.4 2,887.5 3,019.7 3,631.6 3,652.6 – 1,669.3 – 1,768.8 – 3,516.9 – 3,712.6 – 140.1 – 21.3 – 916.2 140.6 296.6 121.6 – 19.8 3.2 401.6 –/– 542.2 – 92.4 – 118.6 – 16.1 – 998.1 118.1 340.6 141.3 – 21.0 – 62.5 398.4 –/– 516.5 – 70.0 – 584.0 – 430.8 – 504.2 – 154.5 – 553.2 – 546.8 – 1,404.3 – 1,314.5 1,368.2 1,507.2 474.3 – 73.6 – 118.4 1,650.5 –/– 246.2 – 80.1 438.8 – 79.8 – 132.8 1,733.4 –/– 418.9 – 79.9 449.8 446.5 166.1 339.0 TECHNICAL INCOME STATEMENT in CHF million Gross Gross premiums written and policy fees Change in unearned premium reserves Premiums earned and policy fees (gross) Claims and benefi ts paid (gross) Change in technical reserves (gross) Change in loss reserve / actuarial reserves 1 Expense for surplus participation of policyholders Technical expenses Total technical result (gross) Ceded to reinsurers Reinsurance premiums ceded Claims and benefi ts paid Reinsurance share in losses paid Expense for surplus participation of policyholders Technical expenses Total technical result of ceded business For own account Premiums earned and policy fees Claims and benefi ts paid Change in loss reserve / actuarial reserves 1 Expense for surplus participation of policyholders Technical expenses Total technical result for own account Investment income (gross) Realised gains and losses on investments 2 Investment expenses Other fi nancial expense and income Result from investment income Borrowing costs Profi t before tax Income taxes Profi t for the period 1 Including change in loss adjustment expenses provisions. 2 Including fi nancial liabilities held for trading (derivative fi nancial instruments). 86 MANAGEMENT INFORMATION GROSS PREMIUMS BY INDUSTRIES GROSS PREMIUMS BY INDUSTRIES NONLIFE in CHF million Accident Health General liability Motor Marine Property Other Active reinsurance Gross premiums written, nonlife LIFE in CHF million Single premiums Periodic premiums Investment-type premiums Gross premiums written, life 2006 2007 +/– % 444.8 107.4 340.8 477.9 112.9 353.0 1,002.1 1,028.0 148.0 926.1 42.3 53.6 148.4 968.3 49.4 52.7 3,065.1 3,190.6 7.4 5.1 3.6 2.6 0.3 4.6 16.8 – 1.7 4.1 2006 2007 +/– % 1,697.5 2,728.5 – 774.6 3,651.4 1,972.6 2,774.4 – 1,069.2 3,677.8 16.2 1.7 38.0 0.7 EMBEDDED VALUE DEVELOPMENT OF EMBEDDED VALUE in CHF million; all fi gures “after tax” Embedded value as of 1 st January Operating profi t from policy portfolio, adjusted equity plus earnings from new business Economic changes, including changes in unrealised gains and losses on investments (shares and properties) Dividend and capital movements Exchange diff erences Embedded value as of 31 st December Of which: value of policy portfolio Of which: adjusted equity Of which: cost of solvency NEW BUSINESS Value of new business (VNB) in CHF million APE 1 in CHF million Sensitivities of new business value at risk discount rate (+/– 1.0%) in percent Ratio VNB to APE in percent SENSITIVITIES in percent +/– 1% change in risk discount rate +/– 10% change in the market value of shares +/– 10% change in the market value of properties +/– 0.5% change in new money rate 1 Annual Premium Equivalent = 100% new annual premiums + 10% of single premiums. MANAGEMENT INFORMATION EMBEDDED VALUE 87 2006 2007 2,359.7 2,627.8 134.7 178.1 – 60.2 15.4 253.0 372.7 – 40.6 17.7 2,627.8 3,230.6 1,096.2 2,011.1 – 479.6 1,416.8 2,272.7 – 458.8 2006 15.9 217.2 2007 20.3 212.5 – 31.9 / + 33.9 – 30.3 / + 35.1 7.3 9.5 2006 2007 – 6.3 / + 7.2 – 6.1 / + 7.1 + 6.3 / –6.3 + 5.0 / – 5.0 + 4.5 / –4.5 + 3.8 / – 3.8 + 3.8 / –4.1 + 3.9 / – 4.4 88 MANAGEMENT INFORMATION EMBEDDED VALUE Th e embedded value of life insurance business consists of three elements: fi rstly, the adjusted shareholders’ equity of life insurance activities and secondly, the value of in-force business at the end of the reporting period, with the cost of solvency being deducted. Th e embedded value excludes any value that may be attributed to future new business. For investments, the adjusted shareholders’ equity is based on fair values, while statutory rates were used for actuarial liabilities. Th e most important components of the share- holders’ equity are the sums of unrealised gains and losses on investments (shares and properties), which can be sub- ject to strong fl uctuations. For business from Luxembourg, Austria and Croatia, Serbia and Liechtenstein and for the German company Deutscher PensionsRing, only the em- bedded value disclosed under IFRS will be taken into ac- count. Th e value of the insurance portfolio is equivalent to the re- sultant future earnings that are determined by discounting all expected cash fl ows. Th is requires a large number of as- sumptions; the key assumptions are itemised in the table below. Th e cost of solvency is equivalent to the cost of funding the solvency requirements of the business. ASSUMPTIONS in percent Group Risk discount rate Return on bonds (1 st pojected annual return – long term return) Return on shares Return on properties Switzerland Risk discount rate 2006 2007 7.6 7.6 2.85 – 2.85 3.6 – 3.8 7.2 4.8 7.5 7.2 4.8 7.5 Return on bonds (1 st pojected annual return – long term return) 2.65 – 2.65 3.4 – 3.6 Return on shares Return on properties EU Risk discount rate Return on bonds (1 st pojected annual return – long term return) Return on shares Return on properties 7.0 4.75 8.3 7.0 4.70 8.3 4.0 – 4.0 4.6 – 4.8 8.0 5.2 8.0 5.2 External audit: Deloitte & Touche LLP has examined the calculation method chosen by the Baloise Group and the assumptions and calculations applied to the computation of the embedded value in the life business as of 31st December 2007. Deloitte considers the calculation method and assumptions used by Baloise to be appropriate and reasonable and the disclosures on embedded value, using the chosen methodology and assumptions, to be properly prepared. For the purpose of this report, Deloitte has examined on a test basis some of the data provided by Baloise, relying, however, on the fi nancial information published in the fi nancial report. MANAGEMENT INFORMATION EMBEDDED VALUE 89 2006 2007 2,242.0 861.7 1,756.5 – 376.2 451.4 234.5 320.3 2,646.0 1,107.6 1,891.1 – 352.7 655.8 309.2 452.8 – 103.4 – 106.2 – 65.7 2,627.8 – 71.2 3,230.6 2006 10.2 10.9 106.4 4.5 5.0 2007 14.9 14.1 94.7 5.2 6.1 110.8 117.8 GEOGRAPHIC SPREAD OF EMBEDDED VALUE in CHF million; all fi gures “after tax” Switzerland Of which: value of policy portfolio Of which: adjusted equity Of which: cost of solvency Other Of which: value of policy portfolio Of which: adjusted equity Of which: cost of solvency Consolidation Embedded value as of 31 st December GEOGRAPHIC SPREAD OF NEW BUSINESS New business margin Switzerland in percent Value of new business in CHF million APE in CHF million New business margin EU in percent Value of new business in CHF million APE in CHF million 90 MANAGEMENT INFORMATION BANKING ACTIVITIES BANKING ACTIVITIES RESULTS BANKING ACTIVITIES in CHF million Total interest income Total interest expense Net interest income Net commission and fee income Trading income Other income Total operating income Personnel expenses Material expenses Total operating expenses Gross profi t Losses and impairments due to credit risks Depreciation of intangible assets and property, plant and equipment Profi t before tax and minority interests Income taxes Profi t for the period ADDITIONAL INFORMATION in CHF million Assets managed for third parties Risk weighted assets of banking activities ASSET ALLOCATION in CHF million Fixed-interest securities Shares Derivative fi nancial instruments Alternative fi nancial investments Investment properties Mortgage assets Policy and other loans Cash and cash equivalents Total 2006 2007 181.5 – 81.2 100.3 69.2 – 1.7 3.1 170.9 – 49.5 – 48.1 – 97.6 73.3 – 5.6 – 4.1 63.6 – 12.3 51.3 195.0 – 90.8 104.2 58.8 – 0.4 6.4 169.0 – 51.2 – 38.6 – 89.8 79.2 – 4.4 – 5.7 69.1 – 10.0 59.1 2006 2007 8,950.6 3,443.7 9,413.8 3,415.5 2006 2007 331.2 300.2 1.7 12.4 –/– 0.0 1.7 18.3 –/– –/– 4,909.0 4,913.5 270.7 94.9 267.8 108.3 5,619.9 5,609.8 MANAGEMENT INFORMATION ASSET PERFORMANCE 91 ASSET PERFORMANCE INVESTMENT PERFORMANCE 2006 1 in CHF million Current income Realised gains and losses and impairment loss recognised in profi t or loss (net) Change in unrealised gains and losses on equity Cost of investment management Operational profi t Fixed-interest securities 747.7 73.3 – 446.5 – 33.1 341.4 Shares 139.9 462.6 396.3 – 8.6 990.2 Investment properties Mortgage assets, policy loans and other loans Alternative fi nancial assets, derivatives and cash and cash equivalents 231.1 80.5 – 13.7 297.9 683.3 – 11.8 – 12.2 659.3 21.7 – 37.1 222.9 – 26.1 181.4 Total 1,823.7 567.5 172.7 – 93.7 2,470.2 Average investment portfolio 23,464.7 5,881.2 5,447.1 17,718.6 2,790.8 55,302.4 Performance in percent 1.5 16.8 5.5 3.7 6.5 4.5 INVESTMENT PERFORMANCE 2007 1 in CHF million Current income Realised gains and losses and impairment loss recognised in profi t or loss (net) Change in unrealised gains and losses on equity Cost of investment management Operational profi t Fixed-interest securities 849.9 – 54.8 – 538.4 – 34.8 221.9 Shares 164.2 641.5 – 383.8 – 11.9 410.0 Investment properties Mortgage assets, policy loans and other loans Alternative fi nancial assets, derivatives and cash and cash equivalents 256.4 – 22.2 – 16.5 217.7 710.9 0.6 – 13.4 698.1 51.7 22.0 130.8 – 27.7 176.8 Total 2,033.1 587.1 – 791.4 – 104.3 1,724.5 Average investment portfolio 24,229.5 5,870.7 5,291.1 18,126.9 3,400.1 56,918.3 Performance in percent 0.9 7.0 4.1 3.9 5.2 3.0 1 Excluding assets for the account and at the risk of life insurance policyholders 92 MANAGEMENT INFORMATION ASSET PERFORMANCE CURRENT INCOME, INSURANCE 1 in CHF million Fixed-interest securities Shares Derivative fi nancial instruments Alternative fi nancial investments Investment properties Mortgage assets Policy and other loans Cash and cash equivalents Total current income Nonlife Life 160.3 29.6 –/– 2.5 44.3 11.3 44.0 4.6 571.9 109.6 –/– 5.0 181.6 167.6 324.6 7.9 2006 Total 732.2 139.2 –/– 7.5 225.9 178.9 368.6 12.5 Nonlife Life 186.6 33.7 –/– 4.1 49.1 12.1 43.2 11.8 643.8 130.0 –/– 15.1 202.6 169.9 328.7 17.1 2007 Total 830.4 163.7 –/– 19.2 251.7 182.0 371.9 28.9 296.6 1,368.2 1,664.8 340.6 1,507.2 1,847.8 REALISED GAINS AND LOSSES, INSURANCE 1 Nonlife Life in CHF million Fixed-interest securities Shares Derivative fi nancial instruments Alternative fi nancial investments Investment properties Mortgage assets Policy and other loans Cash and cash equivalents Total capital gains and losses ASSET ALLOCATION, INSURANCE 1 in CHF million Fixed-interest securities Shares Derivative fi nancial instruments Alternative fi nancial investments Investment properties Mortgage assets Policy and other loans Cash and cash equivalents Total 2006 Total 73.6 430.5 76.7 313.4 – 109.8 – 121.1 69.7 1.8 – 2.8 4.5 –/– 85.4 3.6 – 4.8 7.9 –/– – 3.1 117.1 – 11.3 15.7 1.8 – 2.0 3.4 –/– 121.6 353.5 475.1 Nonlife Life 5,244.6 1,258.5 1.7 356.7 942.3 371.3 973.3 233.4 18,309.0 4,763.6 23.2 1,819.6 4,203.2 4,661.1 7,324.8 255.3 2006 Total 23,553.6 6,022.1 24.9 2,176.3 5,145.5 5,032.4 8,298.1 488.7 9,381.8 41,359.8 50,741.6 Nonlife Life – 18.6 154.4 – 16.7 22.2 1.2 0.2 – 1.4 –/– 141.3 – 35.5 478.2 – 116.6 135.1 – 26.6 0.5 – 1.7 –/– 433.4 Nonlife Life 5,421.5 1,124.3 2.0 357.1 912.5 404.3 1,025.6 474.4 9,721.7 18,275.3 4,553.1 22.8 1,746.9 4,211.6 4,917.1 7,522.4 895.2 2007 Total – 54.1 632.6 – 133.3 157.3 – 25.4 0.7 – 3.1 –/– 574.7 2007 Total 23,696.8 5,677.4 24.8 2,104.0 5,124.1 5,321.4 8,548.0 1,369.6 1 Excluding assets for the account and at the risk of life insurance policyholders. 42,144.4 51,866.1 Bâloise-Holding 94 BÂLOISE-HOLDING INCOME STATEMENT INCOME STATEMENT BÂLOISE-HOLDING in CHF million Income from participating interests Interest and securities income Other income Total income Administrative expenses Interest expense Depreciation Other expense Total expenses Tax expenditure Profi t for the period Note 2006 2007 2 3 4 5 6 7 296.4 30.4 2.0 328.8 – 3.7 – 27.2 – 30.0 – 8.7 – 69.6 – 1.8 257.4 399.0 19.8 2.8 421.6 – 25.9 – 27.5 – 50.5 – 3.9 – 107.8 – 0.3 313.5 BALANCE SHEET BÂLOISE-HOLDING in CHF million Assets Cash and cash equivalents Treasury shares Receivables from Group companies Receivables from third parties Accruals Current assets Participations Loans to Group companies Financial assets Non-current assets Total assets Equity and Liabilities Liabilities to Group companies Liabilities to third parties Bonds Provisions Accruals Liabilities Share capital Legal reserves General reserves Reserves for treasury shares Other reserves Retained earnings Equity Total equity and liabilities BÂLOISE-HOLDING BALANCE SHEET 95 Note 31.12.2006 31.12.2007 165.3 113.8 60.0 0.3 66.0 405.4 16.3 340.1 69.9 1.3 49.1 476.7 1,416.1 1,575.3 30.0 11.8 30.0 0.2 1,457.9 1,605.5 1,863.3 2,082.2 34.3 13.7 900.0 9.1 13.7 970.8 5.5 11.7 119.1 498.1 258.1 892.5 4.9 0.2 1,200.0 10.7 14.3 1,230.1 5.4 11.7 367.7 153.2 314.1 852.1 1,863.3 2,082.2 10 8 9 11 12 96 BÂLOISE-HOLDING NOTES NOTES BÂLOISE-HOLDING 1. ACCOUNTING STANDARDS Baloise’s annual accounts are produced in accordance with the regulations of the Swiss Code of Obligations. Valuation of the loans was LOANS TO GROUP COMPANIES made at nominal value taking into account the necessary amortisation. Individual impairments were conducted ac- cording to the prudence principle for all recognisable risks. Cash and cash equivalents CASH AND CASH EQUIVALENTS include cash in banks as well as cash equivalents such as call-, time deposits or money market paper if these have an original maturity of fewer than 90 days. OTHER FINANCIAL ASSETS Marketable securities are ei- ther recognised at the purchase price or at the fair value, with the lower of the two being applied. Treasury shares acquired as part of TREASURY SHARES the share buy-back programme are posted at the buy-back price or at the lower fair value. RECEIVABLES net of the impairments necessary. Receivables are carried at nominal value Accruals take into account both expenses paid ACCRUALS in advance for the new fi scal year as well as revenue from the current fi scal year which is only received later. Included un- der the same heading are dividends decided on the balance sheet date by the Annual General Meeting of the subsidiary companies, which are carried in Bâloise-Holding as divi- dend claims. PARTICIPATIONS tion value net of the amortisation necessary. Participations are recognised at acquisi- NOTES TO THE INCOME STATEMENT AND THE BALANCE SHEET 2. INCOME FROM INTEREST AND SECURITIES in CHF million Income from treasury shares (previous year: income / earnings from securities) Interest on loans to Group companies Income from other fi nancial assets Other interest receivables Total interest and securities income LIABILITIES Liabilities are recognised at nominal value. Bonds are recognised at nominal value. Th e emis- BONDS sion costs, reduced by the premium, are charged in full to the income statement upon issue of the bond. PROVISIONS according to the principles of prudent management. Provisions are accrued to cover any risks Accruals include revenue already received ACCRUALS regarding the new fi scal year and expenses for the fi scal year, which will only be paid later. 2006 25.3 0.1 0.5 4.5 30.4 2007 6.0 1.0 10.9 1.9 19.8 BÂLOISE-HOLDING NOTES 97 2006 2.0 0.0 2.0 2006 1.4 2.3 3.7 2006 26.5 0.7 27.2 2006 30.0 –/– 30.0 2006 1.6 7.1 8.7 2007 1.9 0.9 2.8 2007 15.2 10.7 25.9 2007 26.8 0.7 27.5 2007 29.6 20.9 50.5 2007 1.4 2.5 3.9 3. OTHER INCOME in CHF million Income from services rendered Other fi nancial income Total other income 4. ADMINISTRATIVE EXPENSES in CHF million Personnel expenses Other administrative expenses Total administrative expenses 5. INTEREST EXPENSES in CHF million Interest from bonds Other interest expenses Total interest expenses 6. DEPRECIATION in CHF million Depreciation on participations Depreciation on treasury shares Total Depreciation 7. OTHER EXPENSES in CHF million Expenses incurred for services rendered Other expenses Total other expenses 98 BÂLOISE-HOLDING NOTES 8. PARTICIPATIONS Company Basler, Versicherungs-Gesellschaft, Basel Basler Lebens-Versicherungs-Gesellschaft, Basel Baloise Bank SoBa, Solothurn Baloise Asset Management Schweiz AG, Basel Baloise Asset Management International AG, Basel Haakon AG, Basel Baloise Life (Liechtenstein) AG, Balzers Basler Versicherung Beteiligungsges. mbH, Hamburg Baloise Beteiligungs-Holding GmbH, Bad Homburg Bâloise (Luxembourg) Holding S.A., Bertrange (Luxembourg) Bâloise Delta Holding S.A.R.L., Bertrange (Luxembourg) Baloise Fund Invest Advico, Bertrange (Luxembourg) Baloise Insurance Co, (I.O.M), Ltd, Douglas, Isle of Man Baloise Insurance Company (Bermuda) Ltd., Hamilton, Bermuda Baloise Finance (Jersey) Ltd., St. Helier, Jersey Osiguranje Zagreb d.d., Zagreb Nezivotno osiguranje Basler a.d.o., Beograd Zivotno osiguranje Basler a.d.o., Beograd Th e percentage of interest is rounded up to the nearest per- cent. For additional details of participations owned directly by Bâloise-Holding see pages 94 and 95 of the fi nancial re- port for 2007. 9. LOANS TO GROUP COMPANIES in CHF million Subordinated loan to Baloise Bank SoBa Holding at 31.12.2006 in % Holding at 31.12.2007 in % Shares / holdings at 31.12.2007 in million Currency 100 100 100 100 100 75 –/– 100 100 100 –/– 100 100 100 100 –/– –/– –/– 100 100 100 100 100 75 100 –/– 100 100 100 100 100 100 100 100 100 100 CHF CHF CHF CHF CHF CHF CHF EUR EUR CHF EUR EUR CHF CHF CHF HRK RSD RSD 75.0 50.0 50.0 1.5 1.5 0.2 5.0 –/– 0.0 249.9 150.0 0.1 31.2 5.0 1.3 44.8 245.4 174.9 2006 30.0 2007 30.0 10. ACCRUALS Due to resolutions of the Annual General Meeting of 14th Feb- ruary 2008 of Baloise Fund Invest Advico, Luxembourg, of 28th February 2008 of Baloise Asset Management Schweiz AG, Basel, and the Baloise Asset Management International AG, Basel, of 29th February 2008 of Haakon AG, Basel, and of 11th March 2008 of Baloise Bank SoBa, Solothurn, the accrued dividend claims (income from participating interests) for the fi scal year 2007 were taken into account as deferred expenses. 11. BONDS AMOUNT CHF 300 million CHF 250 million CHF 350 million 1 CHF 150 million CHF 150 million Interest rate 3.250% 3.375% 2.375% 3.250% 3.500% Issued 1998 2003 2004 2007 2007 Repayment 7.4.2008 15.12.2009 20.12.2010 19.6.2012 19.12.2014 1 Increased by CHF 100 million in 2005 BÂLOISE-HOLDING NOTES 99 31.12.2006 31.12.2007 5.5 –/– 5.5 11.7 –/– 11.7 7.8 –/– 111.3 119.1 130.8 593.2 16.2 – 111.3 498.1 138.6 – 121.7 – 16.2 257.4 258.1 5.5 – 0.1 5.4 11.7 –/– 11.7 119.1 – 143.6 392.2 367.7 379.4 498.1 47.3 – 392.2 153.2 258.1 – 210.2 – 47.3 313.5 314.1 892.5 852.1 12. CHANGES IN EQUIT Y in CHF million Share capital As of 1 st January Reduction through cancellation of treasury shares as per AGM resolution Total share capital Legal reserves General reserve As of 1 st January Allocation Total general reserve Reserve for treasury shares As of 1 st January Reduction through cancellation of treasury shares as per AGM resolution Allocation (carry forward from other reserves) 1 Total reserve for treasury shares Total legal reserves Other reserves As of 1 st January Allocation Withdrawal (carry forward to reserve for treasury shares) Total other reserves Retained earnings As of 1 st January Dividend distribution Additional contributions to unappropriated reserves Profi t for the period Total retained earnings Total equity 1 The members of the Baloise Group purchased a total of 267,331 shares (without share buy-back via the second trading line) at an average price of CHF 127. During the reporting period they sold 260,831 shares at an average price of likewise CHF 127 and as of 31st December 2007 together hold 102,060 shares in Bâloise-Holding. In addition, Bâloise-Holding bought back 3,283,000 shares via a second trading line at an average price of CHF 119. These shares are posted under the item “Treasury Shares”. The average buying rate including the shares bought back via the second trading line amounts to CHF 120. At the ordinary Annual General Meeting of Bâloise-Holding on 27th April 2007 it was decided to reduce the share capital by means of a capital reduction to the tune of 1,307,150 registered shares. 100 BÂLOISE-HOLDING NOTES 13. SIGNIFICANT SHAREHOLDERS As of 31st December 2007 one individual shareholder held more than 5% of the outstanding Baloise shares. As of 31st De- cember 2007 this was the Barclays Group with 10.25% of the outstanding shares. Th e table below provides information on the current com- position of the shareholders as of 31st December 2007. SHAREHOLDERS in percent Barclays Group Chase Nominees Group 1 HSBC Overseas Nominee UK 1 Investors Bank & Trust 1 Mellon Bank N. A. 1 Nortrust Nominees Ltd. 1 UBS Group Total holding at 31.12.2006 Share of voting rights 31.12.2006 Total holding at 31.12.2007 Share of voting rights 31.12.2007 5.4 10.5 2.7 3.5 3.2 2.4 2.2 <2.0 2.0 0.0 0.0 0.0 0.0 <2.0 10.3 9.2 5.5 5.5 4.4 2.8 <2.0 <2.0 2.0 0.0 0.0 0.0 0.0 <2.0 1 Custodian nominees who hold shares in trust for third parties are considered as belonging to the free fl oat pursuant to the Swiss Exchange (SWX) regulations. Such shareholder groups are not subject to registration pursuant to stock exchange law. 15. PAYMENTS IN ACCORDANCE WITH OR (OBLIGATIONEN- RECHT) ART. 663B AND ART. 663C Information on payments to the Board of Directors or per- sons entrusted in whole or in part by the Board of Directors with management are carried in the Baloise Group’s con- solidated annual accounts. 14. CONTINGENT LIABILITIES The guarantee liabilities on 31st December 2007 were CHF 136.1 million (previous year: CHF 214.9 million). In addition, a purchase price retention of EUR 5 million was agreed for any guarantee claims with the sellers in the pur- chase agreement regarding the acquisition of Osiguranje Zagreb. Th e sum is deposited in escrow at a bank. Further- more, an earnout was agreed in this purchase agreement with the sellers, the amount of which depends on the in- crease in the premium growth and in net profi ts in 2007, 2008 and 2009. However, the back payment is at most EUR 20 million. Bâloise-Holding is jointly liable for the value-added tax due with all companies, which, under the leadership of the Basler Versicherungs-Gesellschaft , are subject to group taxation. BÂLOISE-HOLDING APPROPRIATION OF RETAINED EARNINGS 101 APPROPRIATION OF THE RETAINED EARNINGS PROPOSED BY THE BOARD OF DIRECTORS RETAINED EARNINGS AND APPROPRIATION OF EARNINGS Retained earnings amount to CHF 313.5 million. Th e Board of Directors proposes to the Annual General Meeting the appropriation of the retained earnings in accordance with the table below. in CHF million Profi t of the period Earnings carried forward Retained earnings Proposals by the Board of Directors Appropriation to unappropriated reserves Dividends Retained earnings to be carried forward Th e distribution of profi ts complies with the provisions of § 30 of the Articles of Incorporation. Th ere is a distribution per share of CHF 4.50 gross or CHF 2.92 net of the with- holding tax. 2006 2007 257.4 0.7 258.1 – 47.3 – 210.2 0.6 313.5 0.6 314.1 – 70.4 – 243.0 0.7 102 GLOSSARY GLOSSARY Actuarial reserves Actuarial reserves refer to the provisions for future cash fl ows under current insurance contracts in life insurance. Annual Premium Equivalent (APE) Th e annual premium equivalent is the industry standard for measuring new business distribution in life insur- ance. It is calculated as the sum of all annual premiums from new business and a tenth of single premiums dur- ing the reporting period. Assets managed for third parties Assets, held in trust for customers and partners. Claims incurred Claims incurred are insurance claims paid out during the reporting period, plus establishing of provisions re- lated to unsettled claims, reversal of provisions for claims that no longer have to be settled or not settled in full, plus cost of processing claims and the performance of related provisions. Combined ratio Ratio of non-life insurance business, expressing the sum of claims incurred (loss ratio), costs (expense ratio) and profi ts-sharing (profi t-sharing ratio) in relation to pre- miums. Th is ratio is used to assess the profi tability of the non-life insurance business. Brokers Insurance agents, also called brokers, are independent insurance brokers. Th ey are companies or individuals who are not tied to any insurance company when placing contracts. Th ey receive a commission on each insurance product they sell. Deferred tax assets and liabilities Estimated future tax assets and liabilities, resulting from temporary diff erences between book value of assets and liabilities, as disclosed in the consolidated fi nancial statements, and their tax value. Computation is based on local, and if known, future tax. Business areas Similar or related operating activities are grouped to- gether in business areas. Th ey are: Non-life, Life, Bank- ing (incl. Asset Management) and Other Activities / Corporate Business. Business area “Other activities/cor- porate business” includes, in particular, holding, prop- erty and investment companies. Business volume Th e business volume includes premium income from non-life and life insurance business and from unit- linked life insurances during the accounting period. Due to the underlying accounting principles of the Baloise Group, the latter may not be disclosed as income in the consolidated fi nancial statements. Embedded value Th e embedded value determines the value of the life in- surance in-force business for the shareholder on the re- porting date. It is calculated using the three following components: adjusted shareholders’ equity value of in-force life business less solvency costs Expense ratio Th e ratio between the cost of non-life insurance business to premiums, expressed in percent. GLOSSARY 103 Fixed-income securities Securities (primarily bonds), yielding interest at a fi xed rate during the whole term. Gross In the annual report of an insurance company, “Gross” generally stands for a balance sheet or income statement item before the deduction of the business ceded to the reinsurer. Group life business Insurance, taken out by companies or their Employee Benefi t Units on behalf of their employees as part of their occupational pension planning. IFRS Since 2000, the Baloise Group has prepared its consoli- dated annual fi nancial statements in accordance with in- ternational accounting standards IFRS (International Financial Reporting Standards, formerly IAS). Insurance benefi ts Th e benefi ts provided by the insurer in connection with the occurrence of an insured event. Investment performance Th e performance measures the economic success of in- vestments, including gains, losses, income, expenses and changes to not yet realised gains and losses as set out in the income statement against the average balance of in- vestments at fair value. Investment-type life insurance Life insurance contracts that allow policyholders to invest their savings/capital for their own account and at their own risk. Investment-type premiums Premium income from life insurance, where insurance companies invest policyholder’s savings for their own account and at their own risk. In accordance with the international accounting standards applied by the Baloise Group, the savings portion of the premium in- come may not be disclosed as income on the income statement. Legal quote Fixed statutory or contractual percentage. It requires life insurance companies to pass on a certain percentage of the profi ts to the policyholders. Loss ratio Th e ratio between claims paid or payable to premiums, expressed in percent. Loss reserve Provisions for claims that have not been settled at year-end. Minimum interest rate Minimum required interest rate for mandatory saved pension capital in occupational pension plans. Net In the annual report of an insurance company “Net” generally stands for a balance sheet or income statement item aft er the deduction of the business ceded to the reinsurer. New business margin Value of new business divided by the Annual Premium Equivalent (APE). 104 GLOSSARY Premium Th e amount paid by the policyholder for insurance. Th e premium consists of three elements: risk premium, costs and a savings element. Premiums earned Th e proportion of the policy premium allocated to the risk covered by an insurer, i.e. premium less change in unearned premium reserves. Profi t aft er tax Th e profi t aft er tax is the fi nal summary of all revenue and expenses, less the borrowing costs and the current and deferred income taxes. Th e profi t aft er tax includes the shares of minority shareholders in the result. Profi t-sharing ratio A key fi gure, expressing the profi t-sharing/premium ratio. Profi t-sharing is a rebate granted to policyholders in the non-life business due to profi table business. Provisions Evaluation of future insurance benefi ts from identifi ed and not yet identifi ed damages, which are disclosed as liabilities in the balance sheet. Periodic premiums Periodically recurring premium income (see defi nition of “premium”). Reinsurance If the insurance company does not want to carry the full risk from an insurance contract, they pass on part of the risk to a reinsurance company or another direct insurer. However, the primary insurer still has to indemnify the policyholder for the full risk. Return on equity Computed return on the shareholders’ equity of a com- pany during the reporting period. Return on equity is calculated by taking the earnings generated during the reporting period and dividing them by the average shareholders’ equity for that year. Run-off business Policy portfolio, that has ceased to enter into new con- tracts, with existing contracts expiring successively. Segment Financial reporting at the Baloise Group is carried out in accordance with international fi nancial accounting standards (IFRS), which requires similar transactions and business activities to be grouped and presented together. Th e grouped business activities are presented in “segments”, by geographic regions and business areas. Share buy-back programme Procedure passed by the Board of Directors under which the company itself may repurchase outstanding shares. In Switzerland, buybacks are carried out over a second trading line, primarily for tax reasons. Shares issued Total number of shares that a company has issued. Th e total number of shares issued, multiplied by their face value is the nominal share capital of a company. Single premium Single premium insurance policies are funded through a one-off single premium at commencement of the con- tract. Primarily used as a fi nancing tool for asset-build- ing life insurance, with special emphasis on profi tability and security aspects. GLOSSARY 105 SMI Swiss Market Index (SMI). Main index for the SWX Swiss Exchange. Value of new business Th e value of new business created during the reporting period, valued at the time the policy is issued. Solvency Required minimum capital for insurance companies specifi ed by the regulatory authorities, to cover business risks (investments, claims, etc.). As a rule, requirements are specifi ed at the national level and may diff er from country to country. Surplus participation Annual, not guaranteed policyholder benefi ts of a life insurance, which are granted when – compared with the assumptions that underlie the premium calculation – revenue is higher and/or risk and cost behaviour patterns are more favourable. Technical reserves On the balance sheet, insurers disclose the value of future benefi ts they expect from the existing insurance contracts, calculated at the present time. Th e value is computed using recognised principles. Technical result Technical result includes a comparison of all expenses and income from the insurance business. Expenses and income unrelated to the insurance business and revenue from investments are not included in the technical result. Unearned premium reserve Th ose parts of the written premiums that have been charged for periods aft er the reporting date. 106 ADDRESSES ADDRESSES SWITZERLAND Basler Versicherungen Aeschengraben 21 CH-4002 Basel Telephone +41 61 285 85 85 Fax +41 61 285 70 70 insurance@baloise.ch www.baloise.ch Baloise Bank SoBa Amtshausplatz 4 CH-4502 Solothurn Telephone +41 32 626 02 02 Fax +41 32 623 36 92 bank@baloise.ch www.baloise.ch GERMANY Basler Versicherungen Basler Strasse 4 P.O. Box 1145 D-61345 Bad Homburg Telephone +49 61 7213 0 Fax +49 61 7213 200 info@basler.de www.basler.de Deutscher Ring Ludwig-Erhard-Strasse 22 D-20459 Hamburg Telephone +49 40 3599 7711 Fax +49 40 3599 2500 service@deutscherring.de www.deutscherring.de AUSTRIA Basler Versicherungen Brigittenauer Lände 50–54 A-1203 Vienna Telephone +43 1 33 160 0 Fax +43 1 33 160 200 offi ce@basler.co.at www.basler.co.at LUXEMBOURG Bâloise Assurances Atrium Business Park 23, rue du Puits Romain Bourmicht L-8070 Bertrange Telephone +352 290 190 1 Fax +352 290 592 info@baloise.lu www.baloise.lu BELGIUM Mercator Verzekeringen Desguinlei 100 B-2018 Antwerp Telephone +32 3 247 21 11 Fax +32 3 247 27 77 info@mercator.be www.mercator.be CROATIA Basler Osiguranja Ulica Grada Vukovara 269 d/I HR-10 000 Zagreb Telephone +385 1 48 17 808 Fax +385 1 48 16 932 info@basler.hr www.basler.hr Osiguranje Zagreb Ožegoviceva 16 HR-10 000 Zagreb Telephone +385 1 2392 999 Fax +385 1 2392 992 osiguranje-zagreb@osiguranje- zagreb.hr www.osiguranje-zagreb.hr SERBIA Basler Osiguranja Resavska 29 RS-11 000 Belgrade Telephone +381 11 324 7716 Fax +381 11 334 29 03 offi ce@basler.co.yu www.basler.co.yu BALOISE GROUP INFORMATION 107 BALOISE GROUP INFORMATION Th e Annual Report 2007 is published in German, English and French. Th e Financial Report 2007 contains the audited 2007 annual fi nancial statements with detailed information. It is available in German and in English. Th e German version is binding. The Annual Report 2007 and FINDING AND ORDERING the Financial Report 2007 are available on the Internet at www.baloise.com/annualreport. Th ey can be ordered through the Internet or at Bâloise-Holding, Corporate Communica- tions, Aeschengraben 21, CH-4002 Basel. INFORMATION FOR SHAREHOLDERS AND FINANCIAL ANALYSTS You will fi nd detailed information and data on the Baloise stock, the IR agenda, dividends, the latest presentations and contacts with Investor Relations on the Internet at www.balo- ise.com/investors. Th e information is available in German and English. At INFORM ATION FOR MEDIA REPRESENTATIVES www.baloise.com/media you will fi nd the latest media kit containing media releases, presentations, reports, pictures and podcast fi les of various Baloise events as well as the me- dia contact details. © 2008 Bâloise-Holding, CH-4002 Basel Published by Baloise, Corporate Communications Concept, design Eclat AG, Erlenbach/Zurich Pictures Gérard Pétremand, Geneva Publishing System Multimedia Solutions AG, Zurich Printing Werner Druck AG, Basel Bâloise-Holding Aeschengraben 21 CH-4002 Basel www.baloise.com e l d d i m e h t n I e f i l f o 7 0 0 2 T R O P E R L A U N N A ING ANNUAL REPORT 2007 7 1 : 5 2 : 8 1 8 0 0 2 . 3 0 . 5 2 5 G U d d n i . 3 3 6 2 

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