Baloise-Holding AG Annual Report 2015

Plain-text annual report

Bâloise Holding Ltd ANNUAL REPORT 2015Bâloise Holding Ltd Annual Report 2015 Contents BALOISE Baloise key figures �� 4 At a glance �� 5 Letter to shareholders �� 6 Interview �� 8 Baloise shares �� 12 Our four core markets �� 14 Brand �� 16 Strategy �� 17 REVIEW OF OPERATING PERFORMANCE Group �� 20 Switzerland �� 24 Germany �� 25 Belgium �� 26 Luxembourg �� 27 Consolidated income statement �� 28 Consolidated balance sheet �� 30 Business volume, premiums and combined ratio �� 31 Technical income statement �� 33 Gross premiums by sector �� 34 Banking activities �� 35 Investment performance �� 36 SUSTAINABLE BUSINESS MANAGEMENT Responsibility �� 40 Human resources �� 42 The environment �� 46 Risk management �� 50 Commitment to art �� 54 CORPORATE GOVERNANCE Corporate Governance Report including Remuneration Report �� 58 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel �� 96 FINANCIAL REPORT Consolidated balance sheet �� 104 Consolidated income statement �� 106 Consolidated statement of comprehensive income �� 107 Consolidated cash flow statement �� 108 Consolidated statement of changes in equity �� 110 Notes to the consolidated annual financial statements �� 112 Notes to the consolidated balance sheet �� 182 Notes to the consolidated income statement �� 230 Other disclosures �� 242 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel �� 254 BÂLOISE HOLDING LTD Income statement of Bâloise Holding �� 258 Balance sheet of Bâloise Holding �� 259 Notes to the financial statements of Bâloise Holding �� 260 Appropriation of distributable profit as proposed by the Board of Directors �� 271 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel �� 272 NOTES Glossary �� 276 Addresses �� 280 Information on the Baloise Group �� 281 Financial calendar and contacts �� 282 Baloise Baloise key figures Baloise key figures CHF million Business volume Gross premiums written (non-life) Gross premiums written (life) Sub-total of IFRS gross premiums written1 Investment-type premiums Total business volume Operating profit (loss) Profit / loss before borrowing costs and taxes Non-life Life2 Banking Other activities Profit for the period Balance sheet Technical reserves Equity Ratios (per cent) Return on equity (RoE) Gross combined ratio (non-life) Net combined ratio (non-life) New business margin (life) Investment performance (insurance)3 Embedded value of life insurance policies Embedded value (MCEV) Annual premium equivalent (APE) Value of new business Key figures on the Company’s shares Shares issued (units) Basic earnings per share4 (CHF) Diluted earnings per share4 (CHF) Equity per share4 (CHF) Closing price (CHF) Market capitalisation (CHF million) Dividend per share5 (CHF) 2014 2015 Change (%) 3,358.8 3,816.8 7,175.6 2,130.2 9,305.8 422.7 481.1 73.7 – 48.9 711.9 3,050.0 3,783.4 6,833.4 2,085.1 8,918.6 395.5 277.3 80.8 – 34.4 511.1 48,738.9 45,765.8 5,831.0 5,462.3 13.5 93.7 93.6 15.0 6.9 9.3 92.5 93.3 9.8 1.8 3,610.2 3,876.2 389.6 58.6 367.0 36.1 50,000,000 50,000,000 15.15 14.63 123.4 127.80 6,390.0 5.00 10.96 10.65 116.2 127.60 6,380.0 5.00 – 9.2 – 0.9 – 4.8 – 2.1 – 4.2 – 6.4 – 42.4 9.6 – 29.7 – 28.2 – 6.1 – 6.3 – – – – – 7.4 – 5.8 – 38.4 0.0 – 27.7 – 27.2 – 5.8 – 0.2 – 0.2 0.0 1 Premiums written and policy fees (gross). 2 Of which deferred gains / losses from other operating segments (31 December 2014: CHF 0.6 million; 31 December 2015: CHF –3.3 million). 3 Excluding investments for the account and at the risk of life insurance policyholders. 4 Calculation is based on the profit for the period attributable to shareholders and the equity attributable to shareholders. 5 2015 based on the proposal submitted to the Annual General Meeting. 4 Baloise At a glance At a glance Net combined ratio of 93.3 per cent 3.3 per cent higher business volume1 Profit of CHF 512.1 million (attributable to shareholders) Dividend of CHF 5.00 per share (will be proposed to the Annual General Meeting on 29 April 2016) Equity of CHF 5,462.3 million Return on equity (RoE) of 9.3 per cent Solvency I ratio of 341 per cent New business margin of 9.8 per cent 1 Calculated in local currency on a like-for-like basis and excluding discontinued operations (Austria, Croatia and Serbia). What we want to achieve: By continuing to develop its solid insurance operations, Baloise is once again firmly on track to meet its targets of a combined ratio of between 93 per cent and 96 per cent, a new business margin in excess of 10 per cent and a return on equity of between 8 per cent and 12 per cent. It will continue to pay attractive and consistent dividends. 5 Baloise Letter to shareholders Dr Andreas Burckhardt, Chairman of the Board of Directors (right), and Dr Martin Strobel, Group CEO until 31 December 2015 (left). Baloise meets its targets in a challenging environment DEAR SHAREHOLDERS Baloise has met its targets and has succeeded in consolidating its operational profitability� The challenging, exceptional eco- nomic environment had a significant impact on earnings� The Swiss National Bank’s decision, on 15 January 2015, that it would no longer support the minimum exchange rate against the euro, caused the Swiss franc to strengthen� At the same time, interest rates in Switzerland tumbled, not least because of the introduc- tion of negative interest rates by the Swiss National Bank in an attempt to weaken the Swiss franc� Under the influence of these sharp fluctuations in exchange rates and interest rates, the cost of hedging instruments also increased significantly� These three factors – the stronger franc, lower interest rates and higher hedg- ing costs – had a noticeable effect on Baloise’s earnings, so we are delighted that we managed to generate a healthy profit in 2015 in spite of them� Baloise has a sound capital base� In August 2015, Standard & Poor’s acknowledged this quality by confirming our credit rat- ing of ‘A’ with a stable outlook� The Company’s capital strength in accordance with the Swiss solvency test remains in the green zone� Last year, the Baloise Group demonstrated that its opera- tional excellence and target customer management make it extremely resilient� This strength was also reflected in its prof- it of CHF 512�1 million� In view of the economic environment, the fact that Baloise met the financial targets it had set for 2015 represents a great achievement� The focus on attractive target segments in our four core markets of Switzerland, Belgium, Germany and Luxembourg that we maintained in 2015 has provided a firm basis on which to build the future success of Baloise� While we are in a good position to further expand profitable areas of our business in Switzerland, Belgium and Luxembourg, the business in Ger- many has not yet performed as we anticipated� The problems have been identified and appropriate measures have been taken, or are under way, but the impact has not yet been reflected in the results� Nonetheless, we firmly believe in the importance of the German insurance market and the opportunities it offers� We also believe there are further attractive opportunities in life insurance, although we will continue to prioritise in- novative pension solutions in the future, such as the semi-au- tonomous Perspectiva pension scheme in Switzerland� This will enable us to ensure that our customers’ pensions remain safe 6 Baloise Letter to shareholders in today’s environment of low interest rates� In Switzerland, demand for occupational pensions continues to grow in the segment comprising small and medium-sized companies� Par- ticularly in the current environment, our customers value the fact that their pensions are guaranteed to be safe at all times� Our Swiss insurance companies delivered very solid earn- ings in their life business and reaffirmed their excellent profit- ability in non-life business� Overall, the environment remained competitive, not least because of the SNB’s decision and the persistent upward pressure on costs� Earnings in our German business were depressed by the exceptionally high level of large claims in the non-life segment, the adverse impact of low inter- est rates, and currency effects� The measures taken to optimise the business are starting to take effect, but so far have not had the anticipated impact on comprehensive income� There was encouraging growth in the business volume in Belgium in local- currency terms, particularly in investment-linked life insurance, where the rate of growth showed that the alliances entered into with banks and distribution partners are continuing to pay off� In Luxembourg, as announced in early August, we further strengthened our position in non-life business by acquiring non-life insurer HDI-Gerling Assurances SA, which means we are set to become one of the top three insurers in Luxembourg� The profitability of Baloise’s portfolio was also reflected in an excellent net combined ratio of 93�3 per cent� The chal- lenging environment in the capital markets naturally impacted on investment returns, but a net return of 2�9 per cent enabled us to generate healthy earnings, which clearly reflects the qual- ity of our asset management� Executive Officer, is to stand down� Martin Strobel joined Basler Switzerland in 1999 and has managed Baloise as its Group CEO since 2009� The Board of Directors would like to express their deep gratitude for his outstanding contribution� Under his lead- ership, Baloise blossomed, achieving operational strength and a high level of profitability, but the appointment in October of his successor Gert De Winter, the current CEO in Belgium and the ideal candidate, has laid the foundations for a new chapter in our Company’s success� In 2015, we generated healthy earnings that were in line with expectations� So that our shareholders also benefit from this success, we will propose to the Annual General Meeting on 29 April 2016 that the dividend, which was increased last year to CHF 5�00, be left unchanged at this attractive level� The share buy-back programme launched in 2015 is also well on course to achieve its volume of up to one million shares by 2017� In 2015, we had already purchased more than half a million shares, further concentrating our earnings power for the ben- efit of our owners� The insurance industry is facing game-changing chal- lenges� The change in consumer behaviour resulting from dig- itisation, for example, will influence how we meet the future demands of our customers� It will become increasingly impor- tant to innovate and break into new areas of business� The low- interest-rate phase in Europe, and particularly the negative interest rates in Switzerland and the strength of the Swiss franc, pose additional challenges for us� Thanks to our focus on our core markets, our operational excellence and our unrivalled positioning in terms of safety, security and prevention, we are able to meet these challenges from a position of strength� “ We believe there are further attractive opportunities in life insurance, but we plan to prioritise the latest, innovative pension solutions.” Basel, March 2016 Dr Andreas Burckhardt Dr Martin Strobel Chairman of the Board of Directors Group CEO (until 31 December 2015) We are very grateful to all of our employees, whose skills and ability have made a major contribution to the fact that Baloise remains one of the most profitable insurance companies in Europe, despite the challenges posed by the strong franc and globally low interest rates� From an HR perspective, 2015 was also dominated by the announcement in May that Martin Strobel, a long-standing member of our Corporate Executive Committee and Chief 7 Baloise Interview “We have to create a customer experience.” The Baloise Group has had a new Group CEO, Gert De Winter, since 1 January 2016. De Winter (49), who is Belgian, has been with Baloise for eleven years. In his previous post, he was CEO of Baloise Insurance Belgium. During this interview, he and the Chairman of the Board of Directors, Andreas Burckhardt, explain what this new era means for the future and how Baloise is facing up to the challenges in the insurance industry. By appointing Gert De Winter, isn’t the Board of Directors sticking to the tried-and-tested rather than bringing in a new broom for Baloise? Andreas Burckhardt (ABu): Not at all� That is certainly not how the Board of Directors and I see this appointment� Gert De Winter is obviously very familiar with the Baloise Group, having been here for eleven years� He knows how we operate and embodies our values� But that is not why he was appointed as the new CEO� Gert De Winter beat the external candidates in a lengthy and thorough selection process in which he con- vinced the Board of Directors that he was the best person for the job� His time as CEO in Belgium, his background and his ex- perience of management in both IT and human resources means he will indeed bring new ideas with him that will enable us to begin a new chapter in Baloise’s success� In any case, it’s not as if we were looking for, or needed, someone to usher in change� Baloise is doing well� Gert De Winter should and will build on our tried-and-tested approach, but will also bring the skills and ideas needed to prepare the business for future challenges� What are the challenges that you and the industry face? ABu: Everyone is currently talking about digitisation� It will undoubtedly have a long-term impact on the industry, but even the most qualified experts are unable to tell us when or how� The fact is that the core competence of insurance companies, namely analysing data and using it for their core business of bearing/taking on risk in return for premiums, will no longer be the preserve of insurers� Companies in other industries now collect far more data than the insurance sector and, at some point, they will want to capitalise on this� That is why we as an insurance company need to lay the foundations today so that 8 we can retain our lead when it comes to using data for our customers� This raises the question of whether in future we want to be an insurer that only bears risk or whether we want to broaden our business model� Baloise, with its safety positioning, has built up its expertise in the area of prevention over many years� We are thus facing up to these future challenges from a position of strength� Moreover, we still have to cope with the difficult interest rate situation and the strength of the Swiss franc, despite the signals sent by the US Federal Reserve at the Gert De Winter, Group CEO from 1 January 2016. Baloise Interview Gert De Winter (left), Andreas Burckhardt (right). end of last year� We’ve also been concerned about the huge in- crease in the time and expense required to deal with regulation and the ever more restrictive nature of regulation� Although we cannot influence the environment in which we operate, it is possible for politicians – and therefore for us as citizens – to attempt to fight back against this regulation� Particularly in Switzerland, I would like there to be a better understanding and relationship between business and politicians so that we as a company can continue to compete against our rivals in other countries� What is the new CEO doing differently to his predecessor? Gert De Winter (GDW): It’s not my place to make comparisons� Everyone has their own personality, which in itself means that we all approach things differently� Baloise has worked very well over the past few years, as evidenced by the success and the results it has achieved� So it’s not a matter of doing things fundamentally differently� On the other hand, the industry is facing huge challenges� My task will be to prepare Baloise for these challenges and, at the same time, to explore new oppor- tunities� I will give my all every day to demonstrate these op- portunities to employees, customers, partners and shareholders� I’ll champion these opportunities and make our stakeholders enthusiastic about them too� How do you plan to tackle the challenges mentioned? GDW: As Andreas Burckhardt said, we find ourselves in a climate shaped by the pressures of interest rates at unprecedented low levels, fierce competition and increasing regulation� We pay CHF 5�7 million just for supervisory fees, internal expenses not included� But the market itself is shifting, too� The digital revolution has changed consumer behaviour and will continue to do so� This has an impact on our business as well� Customers are looking for simplicity, flexibility and transparency but still want maximum safety, and this means our services have to deliver a lot� Baloise’s safety positioning is a first step, but we can’t simply rely on it and rest on our laurels� The things that have worked in the past aren’t necessarily a guarantee of success 9 Baloise Interview in the future� Going forward, we want to remain more than simply an insurance company� Our emotional connection as a partner to our customers is crucial in this regard� We have to create a customer experience� Customers should sense every day that we can perform our services easily, quickly and cor- rectly and that, at the end of the day, we are making them safer� This won’t work if we are only a bearer of risk� That’s why I see our role as motivating employees and convincing them that each and every one of them can create these customer experi- ences, even in the supposedly emotionless world of insurance� How are you going to achieve this? GDW: Firstly, we must not neglect the core aspect of our business, i�e� the things that we do best and where our expertise lies� We therefore will not budge from our strategy of target customer management: focusing on profitable target customers who want to feel safe and appreciate it when we help them to ensure that losses do not occur in the first place� Of course we also step up if a loss event arises� In the interests of everyone who is insured with us, however, we seek out customers who want to actively contribute to minimising risk themselves and who don’t just want to insure against a risk� This benefits everyone – the cus- tomer and us as a company – in the long run� So offering insur- ance policies alone isn’t enough� We don’t want to wait until a loss occurs but rather provide services that go beyond the policy itself and help customers to feel safe� These range from safety services to active assistance and prevention� New lines of business besides traditional insurance and chances for growth could therefore emerge for Baloise in future� Nonetheless, the core insurance business is under pressure and the German market remains an issue. How are you going to tackle this? ABu: The life insurance business is not easy as a result of the interest rate situation� It’s now almost impossible to give guar- antees, or they are not appealing enough for customers� New business from traditional life insurance can’t help but suffer in these circumstances� But customers’ need for safety remains the same� For a while now, we have therefore been offering in- novative insurance solutions with lower or even no guarantees 10 Andreas Burckhardt but which offer a basic level of security and enable us to respond better and more quickly to market conditions and to invest accordingly� This can result in very attractive surpluses for policyholders, especially in the group life business� Small and medium-sized enterprises particularly appreciate this� As far as Germany is concerned, we firmly believe in its opportunities and possibilities� Progress is slow – slower than we thought it would be – but we can do well in this market� This can be seen from the successes that we have notched up so far� Baloise is well positioned with its core markets of Switzerland, Germany, Belgium and Luxembourg, and this shouldn’t change� GDW: My experience in Belgium has taught me that you can’t hurry success� I can sometimes be impatient� But if a company and, specifically, its employees, believe in its business model, then success will come� Baloise has a track record of opera- tional excellence� We have to play to this strength and pair it with tenacity� When we launched our target customer manage- ment approach some 15 years ago, we were often asked what we were doing differently� All companies claim to focus on the customer� What makes Baloise any different? The answer is Baloise Interview simple: the difference is that we are resolutely pursuing one objective, an objective to which every single employee is fully committed� Ultimately, this is what has made us one of the most profitable insurers in Europe� Are you now promising the shareholders a strategy of growth? ABu: Growth for growth’s sake is not the direction that Baloise is taking� We have been fostering profitable organic growth for some time, supported by our target customer management� If opportunities arise, we will continue to grow through acqui- sitions, as has been the case in Belgium and Luxembourg in the last few years� We examine acquisition opportunities on the basis of strict criteria� They have to create added value� Our success shows that we and our shareholders have been right in recent years� A case in point is our attractive and sustainable dividend policy� This shouldn’t change going forward, regard- less of any challenges that we may encounter� The interviewer was Dominik Marbet, Head of Group External Communications� Gert De Winter Gert De Winter (1966, BE, MSc) studied ap- plied economics at the University of Antwerp� From 1988 to 2004 he performed various roles at Accenture in Brussels, working as an analyst, consultant, manager and finally partner for issues relating to IT and business transforma- tion management in the financial sector� In 2005 he joined the Baloise Group as Chief Information Officer (CIO) of the Mercator insurance company in Belgium� Since 2009 Gert De Winter has been Chief Executive Officer of Baloise Insurance, which was formed in 2011 from the merger of the three insurance companies Mercator, Nateus and Avéro� As of 1 January 2016 Gert De Winter took up his role as Chief Executive Officer of the Baloise Group� 11 Baloise Baloise shares Sprint finish for Baloise shares Baloise shares* were marked by volatility in 2015, although they remained at a high level. The closing price of CHF 127.60 was on a par with the price at the start of the year. Baloise shares thus outperformed the Swiss Market Index. A dividend yield of 3.9 per cent represents another attractive payout for shareholders. Stock markets experienced a challenging year in 2015� The global sovereign debt crisis led to volatile price movements in financial markets� On 15 January, the Swiss National Bank sur- prised investors with its decision to unpeg the Swiss franc from the euro following a long period of intensive intervention� This came as a shock to the stock markets� The Swiss Market Index fell by a total of 15 per cent within two days and had not recov- ered by the end of the year, ultimately registering an overall decrease of 1�8 per cent� Other events that influenced the global economy were Greece’s default, an economic slowdown in China, an even more expansionary monetary policy from the European Central Bank and a first interest rate hike in the United States� Against this backdrop, Baloise shares shed almost 11 per cent of their value in the first half of last year after delivering a superb performance in previous years� The Swiss Leader Index (SLI) and the Swiss insurance sector index fell by 0�9 per cent and 4�7 per cent respectively� In the second half of the year, Baloise shares climbed by 11�9 per cent, outperforming both the Swiss Leader Index (up 1�0 per cent) and the Swiss insurance sector index (up 4�6 per cent)� Thanks, above all, to a strong recovery in the fourth quar- ter, Baloise shares thus almost offset the decrease registered in the first six months of the year� Closing at CHF 127�60, the shares finished 2015 virtually where they had been at the start of the year� European insurance stocks fared better� The STOXX Eu- rope 600 Insurance (SXIP) index for the European insurance industry achieved an increase of 14�0 per cent compared with its level at the beginning of 2015� Insurers’ profitability contin- ues to be robust and their dividend yields remain attractive owing to the environment of low interest rates in Europe� Baloise shares remain a member of the Swiss Leader Index by virtue of their average market capitalisation and trading volumes� This index comprises the 30 largest and most liquid Swiss equities� DIVIDENDS PAID TO SHAREHOLDERS The Board of Directors of Bâloise Holding Ltd will propose to the Annual General Meeting on 29 April 2016 that another good cash dividend of CHF 5�00 per share be paid for the 2015 finan- cial year� This would represent an attractive dividend yield of 3�9 per cent of the year-end share price� Under the share buy-back programme, which began in April 2015, a total of 507,500 shares at an average price of CHF 116�36 had been acquired by the end of December 2015� As at 31 December 2015, the share buy-back programme was therefore 50�75 per cent complete� Year (CHF million) 2011 2012 2013 2014 2015 Total Cash dividends Share buy-backs Total 225.0 225.0 237.5 250.0 250.0 1,187.5 17.1 – – – 59.1 76.2 242.1 225.0 237.5 250.0 309.1 1,263.7 * Baloise shares = shares of Bâloise Holding Ltd. All figures stated as at 31 December. 12 Baloise Baloise shares SHAREHOLDER STRUCTURE The shares in Bâloise Holding Ltd are widely held and their free float remains unchanged at 100 per cent� There were no disclo- sures about changes to the Baloise shareholder base during the financial year� Further information on Baloise’s significant shareholders as at 31 December 2015 can be found in the table on page 268� STATISTICS ON BALOISE SHARES Price at year-end (CHF) High (CHF) Low (CHF) Market capitalisation (CHF million) Basic earnings per share (CHF) Diluted earnings per share (CHF) Price / earnings (p / e) ratio1 Price / book (p / b) ratio1 Number of shares issued (units) 31.12.2011 31.12.2012 31.12.2013 31.12.2014 31.12.2015 64.40 103.30 60.15 78.50 80.56 58.30 113.60 113.60 80.75 127.80 129.90 101.60 3,220.0 3,925.0 5,680.0 6,390.0 1.30 1.29 49.54 0.78 9.32 9.08 8.42 0.76 9.65 9.38 11.77 1.10 15.15 14.63 8.44 1.04 127.60 136.30 109.60 6,380.0 10.96 10.65 11.64 1.10 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 Minus the number of treasury shares (units) 3,247,273 3,053,746 3,028,943 3,048,791 3,464,540 Number of shares in circulation (units) Average number of shares outstanding2 Dividend per share3 (CHF) Dividend payout ratio3 Dividend yield3 46,752,727 46,946,254 46,971,057 46,951,209 46,535,460 46,900,473 46,831,998 46,896,926 46,921,282 46,721,219 4.50 >100 7.0 4.50 48.3 5.7 4.75 49.2 4.2 5.00 33.0 3.9 5.00 49.0 3.9 1 Calculation is based on profit for the period and equity before non-controlling interests respectively. 2 Relevant for calculation of earnings per share (see page 239 of the Financial Report). 3 For 2015, based on the proposal submitted to the Annual General Meeting. BALOISE SHARES Security symbol Nominal value Security number ISIN Exchange Security type INDEXED SHARE PRICE PERFORMANCE 1 BÂLOISE HOLDING REGISTERED SHARES 2010 – 2015 BALN CHF 0.10 1.241.051 CH0012410517 SIX Swiss Exchange 100 % registered shares 150 100 50 2010 2011 2012 2013 2014 2015 1 31 December 2009 = 100. Bâloise Holding registered shares (BLAN) SWX SP Insurance Price Index (SMINNX) Swiss Market Index (SMI) 13 Baloise Core markets Our four core markets Hamburg Antwerp Brussels BELGIUM Business volume (CHF million) Bad Homburg Life: 144.5 Investment-type premiums: 412.2 Non-life: 888.3 Luxembourg LUXEMBOURG Business volume (CHF million) Life: 73.9 Non-life: 108.6 Investment-type premiums: 1,308.4 Basel Solothurn SWITZERLAND Business volume (CHF million) Life: 3,087.6 Investment-type premiums: 162.4 Non-life: 1,315.5 GERMANY Business volume (CHF million) Life: 477.4 Non-life: 734.5 Investment-type premiums: 202.2 Who we are: Headquartered in Basel, Switzerland, the Baloise Group is a European provider of insurance and pension solutions. In Switzerland, the Group operates as a specialised financial services provider, offering a combination of insurance and banking services. The Group also has a market presence in Germany, Belgium and Luxembourg. Its sales network includes its own sales organisation, as well as brokers and other partners. Baloise operates its innovative pension plan business for private customers throughout Europe with its competence centre in Luxembourg. Bâloise Holding Ltd shares are quoted in the main segment of the SIX Swiss Exchange. The Baloise Group employs some 7,400 people. 14 Baloise Core markets What we stand for: We want people to feel safe. To play our part in this respect, we created the “Safety World”. Everything we do is aimed at safety. As such, we consciously go further than other insurance companies - we combine insurance with smart prevention. In this way, we help to ensure that losses do not occur in the first place. Should something happen never- theless, then we’re right there. Fast and capable as always. SWITZERLAND BELGIUM KEY FIGURES FOR SWITZERLAND KEY FIGURES FOR BELGIUM Employees 2014 3,701 2015 3,657 Employees Business volume (CHF million) 4,510.0 4,565.5 Business volume (CHF million) Gross combined ratio (per cent) 83.9 83.2 Gross combined ratio (per cent) 2014 1,343 1,544.9 102.4 2015 1,297 1,445.0 95.4 GERMANY Business volume (CHF million) Life: 477.4 Non-life: 734.5 GERMANY LUXEMBOURG KEY FIGURES FOR GERMANY KEY FIGURES FOR LUXEMBOURG Employees Business volume (CHF million) Gross combined ratio (per cent) 2014 2,174 1,632.7 101.5 2015 2,036 Employees 2014 395 2015 397 1,414.1 Business volume (CHF million) 1,483.4 1,490.9 106.9 Gross combined ratio (per cent) 89.3 87.9 15 Baloise Brand Our promise – Your safety The Baloise brand “Making you safer” is our brand promise. Everything we do is geared towards enhancing safety and security. We combine insurance with intelligent risk prevention to help ensure losses do not occur in the first place. BRAND VALUES OF THE BALOISE GROUP BRAND ATTRIBUTES OF THE BALOISE GROUP Swiss: Baloise is proud of its Swiss origins, which date back to 1863. We link this to reliability, a humanistic approach, solid security, strong tradition, financial expertise and impartiality. Safety: Safety and security constitute our core competences and lie at the heart of all the products, services and benefits that we offer. They act as an exhilarating and energising force that unlocks huge potential. Innovative: Our strong innovative capabili- ties give us the necessary competitive edge. This is illustrated by our unrelenting and holistic focus on safety and security and by the way we manage our customer relation- ships. We create a climate of continuous innovation across all product lines. Partnership: Our focus on partnership is one of our greatest emotional strengths and is predicated on value creation and mutual respect. We nurture and deepen our rela- tionships with all our stakeholders to ensure that we achieve the desired impact each and every time. Strength: Baloise is a strong partner – strong in terms of its growth, profitability and execution. You can rely on Baloise when you really need it, because its strength gives you the reassuring feeling of having a de- pendable partner at your side. Professionalism: Baloise stands for profes- sionalism. This enables us to be successful and deliver top-quality performance. We excel at understanding our core business, our customers and our sales channels because we know that professional exper- tise provides peace of mind. 16 Baloise Strategy Excellence in safety A strong foundation is further enhanced 17 SAFETY WORLD“Making you safer” is the promise we make to our key cus-tomers. The smart combination of insurance and innovative safety solutions gives us a unique product range that winsover our risk-aware target customers. TARGET CUSTOMER MANAGEMENTOur target customer management approach sets new bench-marks for our industry. The systematic focus on risk-aware key customers is deeply embedded in our culture, in terms of guiding behaviour, processes and remuneration schemes, and provides us with one of the most profitable insurance portfolios in Europe. HIGH CASH FLOW GENERATIONBy consistently implementing our strategy, we have created a robust business model that has ensured reliable profitabil-ity, even during the recent capital market crises.STRONG CAPITALISATIONThanks to the high reliability of our business model, our balance sheet and capitalisation are rock solid. This has also been the basis of our reliable and attractive dividend policy for more than a decade.GROWTH →Enhance target customer and target broker management →New pricing skills →New growth areas EFFICIENCY →Group-wide benchmarking to identify areas for improvement →Systematic business process optimisation →Structural improvements LIFE →Innovative products for affluent customers →Adapt new business to ongoing low-interest environment →Enhance value of the in-force businessNON-LIFE →Further strengthen operational excellence →Improve fraud detection and prevention →Further improvement of claims management processesBUILDING ON A STRONG FOUNDATIONFor more than 150 years, Baloise has made its customers safer. With its focus on risk-aware target customers and its unique selling proposition, the “Safety World”, Baloise operates from a solid platform with high cash flow generation and strong capi-talisation.FOUR FOCUS AREASThe focus areas form the next step in our strategic business development. Starting from the strong foundation we established over the past decade, we aim to expand our core strengths and drive growth and profitability to a new level.4 Baloise 18 Review of operating performance 38 Sustainable business management 56 Corporate Governance 102 Financial Report 256 Bâloise Holding Ltd 274 Notes Review of operating performance GROUP �� 20 Targets achieved in difficult conditions �� 20 SWITZERLAND �� 24 Solid results in a competitive environment �� 24 GERMANY �� 25 Profit and optimisation measures adversely affected by large claims incurred �� 25 BELGIUM �� 26 Another higher profit contribution from the strongest international market �� 26 LUXEMBOURG �� 27 Set to become one of the top 3 �� 27 FINANCIAL INFORMATION �� 28 Consolidated income statement �� 28 Consolidated balance sheet �� 30 Business volume, premiums and combined ratio �� 31 Technical income statement �� 33 Gross premiums by sector �� 34 Banking activities �� 35 Investment performance �� 36 Review of operating performance Group Targets achieved in difficult conditions In 2015, Baloise generated a very healthy profit in its life business and achieved further profitability improvements in its non-life business despite a backdrop of difficult conditions. These solid foundations mean Baloise is ideally placed to deal with current challenges. BUSINESS VOLUME IN 2015 1 (GROSS) BY STRATEGIC BUSINESS UNIT As a percentage Switzerland Germany Belgium Luxembourg 51.2 15.9 16.2 16.7 There was encouraging growth in the EBIT generated by the banking business, which rose by 9�6 per cent to CHF 80�8 mil- lion� Baloise’s balance sheet remained strong, although con- solidated equity fell by 6�3 per cent to CHF 5,462�3 million� This was mainly a result of currency effects and the marking to mar- ket of available-for-sale financial assets� The repurchase of more than half a million shares as part of the share buy-back pro- gramme also had a negative impact on equity� Capital strength in accordance with the Swiss solvency test remains in the green zone� BUSINESS VOLUME1 CHF million Total business volume Life Non-life Investment-type premiums 2014 2015 +/– % 9,176.7 3,798.1 3,260.5 2,118.2 8,918.6 3,783.4 3,050.0 2,085.1 3.3 2.1 0.8 9.2 OVERVIEW In 2015 Baloise achieved a healthy profit of CHF 512�1 million in an uncertain market environment� This figure was 27�9 per cent down on 2014� However, the previous year had been boost- ed by a number of non-recurring effects such as the disposal of Baloise’s shareholdings in Nationale Suisse and Helvetia and the sale of Basler Austria, which accounted for additional rev- enue of around CHF 160 million� In addition to the prolonged phase of low and negative interest rates, the results for 2015 were also subject to currency effects and to higher hedging costs, which were mainly the result of the Swiss National Bank (SNB) releasing the Swiss franc from its peg against the euro� At the average exchange rate in 2014, Baloise’s profit would have been around CHF 30 million higher� The total volume of business generated by continuing op- erations amounted to CHF 8�9 billion, which was equivalent to an increase of 3�3 per cent in local-currency terms, but repre- sented a year-on year decline of 2�8 per cent when reported in Swiss francs� The non-life division generated a volume of pre- mium income reported under IFRS from continuing operations of CHF 3,050�00 million, an increase of 0�8 per cent in local- currency terms� The life-insurance business in continuing op- erations grew by 2�1 per cent in local-currency terms but con- tracted by 0�4 per cent in Swiss-franc terms� Baloise’s life business achieved an EBIT of CHF 277�3 million� The adverse interest-rate situation particularly affected the capital-intensive, traditional life business where earnings were down as the result of lower investment returns� Investments generated net income of CHF 1,841�3 million, which was below the prior-year level of CHF 2,411�4 million, although net income in 2014 had been boosted by non-recurring effects� The net income generated in this very challenging en- vironment equated to a healthy net return on insurance assets of 3�1 per cent (2014: 4�2 per cent), which is in line with the long-term trend� A reinvestment return of 1�9 per cent enabled Baloise to generate sufficient income to meet the guarantees provided on new business� By increasing the duration of invest- ments, it was possible to reduce the interest-rate sensitivity of Baloise’s life business� 1 The key figures on premiums and business volumes mentioned in the review of operating performance in this annual report have been calculated in local currency on a like-for-like basis and exclude discontinued operations (Austria, Croatia and Serbia). 20 Review of operating performance Group NON-LIFE DIVISION: LIFE DIVISION: FURTHER PROFITABILIT Y IMPROVEMENTS There was a small increase of 0�8 per cent in the premium income for non-life business in continuing operations� Belgium and Luxembourg generated the most encouraging growth rates of 5�1 per cent and 6�8 per cent respectively, while premium income was down in Germany and Switzerland� In Switzerland, this was mainly because of the restrictive underwriting policy� The total volume of premium income declined by 6�5 per cent to CHF 3,050�0 million due to currency effects� The quality of the portfolio remained high� Partly because a much lower amount was paid out for large claims, there was a year-on-year fall in the insurance benefits paid, resulting in a lower gross claims ratio� The division’s high level of profitability was reflected in a 1�2 percentage point fall in its gross combined ratio, which declined to 92�5 per cent� In net terms, the combined ratio was 0�3 percentage points lower at 93�3 per cent� Baloise reported a 6�4 per cent fall in EBIT generated by its non-life business, which amounted to CHF 395�5 million� This was partly due to a year-on-year fall in net gains on invest- ments� NET COMBINED RATIO As a percentage 2015 2014 2013 2012 2011 93.3 93.6 94.9 94.1 95.5 MODEST GROWTH The life division reported growth of 2�1 per cent in continuing operations in local-currency terms, compared with a contraction of 0�4 per cent in Swiss-franc terms� Total premium income, including investment-type premiums, amounted to CHF 5,868�5 million� In traditional life business, Switzerland and Belgium reported growth in local-currency terms of 3�4 per cent and 4�5 per cent respectively, while business was down by 4�6 per cent in Germany and by 3�7 per cent in Luxembourg� Group life business performed particularly well in Switzerland where it grew by 5�0 per cent, but individual life insurance declined by 4�8 per cent� Overall, the mix was further optimised towards innovative life products in all countries, because of the particu- larly adverse effect of the prolonged phase of low/negative inter- est rates on earnings in traditional life business� Financial income was down in this business, showing the extent to which the unfavourable interest-rate situation has affected this capital- intensive segment� Together with the modest increase in pre- mium income, this resulted in a decline in EBIT in the life divi- sion to CHF 277�3 million� In the previous year, EBIT in the life division had also benefited from exceptionally high net savings which had been boosted by the proceeds received from the re- alisation of gains on investments, particularly the sale of Baloise’s shareholdings in Nationale Suisse and Helvetia� The positive operating income resulted in an increase in the embedded value of the life insurance business from CHF 3,610�2 million to CHF 3,876�2 million in 2015, which is equiv- alent to a return on embedded value of 8�3 per cent� The new business margin fell to 9�8 per cent (2014: 15�0 per cent) due to lower interest rates in Switzerland� The value of new business amounted to CHF 36�1 million� 21 Review of operating performance Group BANKING DIVISION: ENCOURAGING EARNINGS GROWTH The banking business generated strong earnings and succeeded in maintaining its net interest income at around the same lev- el as in 2014� Overall, its EBIT of CHF 80�8 million represented an increase of 9�6 per cent on the previous year� The main contributors were the two Baloise Asset Management units (CHF 46�9 million) and Baloise Bank SoBa (CHF 25�0 million)� EQUIT Y: BALOISE REMAINS WELL CAPITALISED Baloise’s solid foundations continued to be underpinned by its strong balance sheet and capitalisation� The 6�3 per cent decline in its consolidated equity, which fell to CHF 5,462�3 million, was mainly attributable to currency effects and the marking to market of available-for-sale financial assets� Dividend payments of CHF 235�1 million and the fact that more than 500,000 shares had already been repurchased at a cost of almost CHF 60 million as part of the share buy-back programme announced in 2015, also had a correspondingly negative effect on equity� Capital strength in accordance with the Swiss solvency test remains in the green zone� Our reliable and attractive dividend policy is not linked to potential capital reserves, but is based on our op- erational profitability, which remains strong� The excellent pro- gress that has already been made in the implementation of our ongoing share buy-back programme provides further evidence of the capital strength of Baloise� SIGNIFICANT GAINS ON INVESTMENTS The defining events in 2015 were the abandonment of the euro exchange-rate floor by the Swiss National Bank (SNB) and the introduction of negative interest rates� Quantitative easing car- ried out by the European Central Bank (ECB) in the eurozone also pushed interest rates to ultra-low levels� The US Federal Reserve’s deferral of a change in interest-rate policy in Septem- ber and concerns about the Chinese economy unsettled inves- tors and resulted in a stock-market correction� In early Decem- ber, the fact that the expansion in the ECB’s programme of quantitative easing fell short of investors’ expectations height- ened volatility prior to the markets rallying sharply following the interest-rate hike in the US� The further fall in interest rates in the Swiss market remains one of the medium-term chal- lenges facing those investing and reinvesting insurance assets� The net income generated by Baloise came to CHF 1,841�3 million, which was below the CHF 2,411�4 million reported for 2014 when it had been boosted by non-recurring effects� First- ly, this was because recurring income amounted to CHF 1,521�8 million, which was significantly lower than the prior-year figure PROPRIETARY INVESTMENTS BY CATEGORY1 INVESTMENT COMPONENTS IN 2015 2014 2015 +/– % CHF million Investment property Equities Alternative financial assets 5,962.9 4,028.5 1,341.2 6,251.9 4,357.5 1,259.6 Fixed-income securities 32,701.1 31,620.6 Mortgage assets 11,138.0 10,869.5 As a percentage 4.8 8.2 – 6.1 – 3.3 – 2.4 Fixed-income securities Mortgage assets Investment property Policy loans and other loans Equities Policy loans and other loans 7,027.9 5,787.0 – 17.7 Cash and cash equivalents Derivatives 341.0 363.2 Cash and cash equivalents 1,954.5 1,765.8 Total 64,495.0 62,275.3 6.5 – 9.7 – 3.4 Alternative financial assets Derivatives 50.8 17.5 10.0 9.3 7.0 2.8 2.0 0.6 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties. 22 Review of operating performance Group ASSETS HELD BY BALOISE as at 31 December 2014 CHF million Proprietary investments Investment-linked life insurance1 Total recognised assets Asset management for third parties Total assets under management as at 31 December 2015 CHF million Proprietary investments Investment-linked life insurance1 Total recognised assets Asset management for third parties Total assets under management Non-life Life Banking 9,873.9 47,380.3 7,649.1 10,904.2 9,873.9 58,284.4 7,649.1 Non-life Life Banking 9,160.2 45,406.3 7,902.1 10,873.2 9,160.2 56,279.5 7,902.1 Total for the Group 64,495.0 11,182.6 75,677.6 5,055.3 80,733.0 Total for the Group 62,275.3 11,186.3 73,461.6 4,985.9 78,447.5 1 Including CHF 40.2 million (2014: CHF 53.3 million) in other assets (precious metal holdings from investment-linked life insurance policies). of CHF 1,701�9 million� In addition to the persistently tough investment situation in the low interest-rate environment, the depreciation of the euro following the SNB’s abandonment of the minimum exchange rate also took its toll on net income because the income on foreign-currency investments generated by both Baloise’s foreign entities and its Swiss entities were translated at lower exchange rates than in 2014� Secondly, the gains realised in 2015 were lower than in the previous year when exceptionally large gains were realised� The net income gener- ated in this very challenging environment equated to a healthy net return on insurance assets of 3�1 per cent (2014: 4�2 per cent) and is therefore broadly in line with the long-term trend� The volume of unrealised gains was lower because of currency trans- lation and a slight rise in eurozone interest rates and realised gains� Consequently, the rate of return on insurance assets ac- cording to IFRS – which includes unrealised net gains and losses on investments but excludes gains and losses on held-to- maturity debt instruments – was 1�8 per cent, which was below the prior-year figure of 6�9 per cent� The duration of our fixed-income investments, particu- larly those held by the life companies, was increased signifi- cantly� No impairment losses were recognised on debt instru- ments� Baloise also further increased its equity exposure as measured under IFRS� In terms of alternative financial assets, we increased our position in senior secured loans� The impair- ment losses recognised on financial instruments with charac- teristics of equity totalled CHF 72�0 million (gross)� Investment property continued to yield stable returns and slightly higher valuations� The values and income streams generated by mort- gages remained consistent� 23 Review of operating performance Switzerland Switzerland Solid results in a competitive environment Basel Solothurn KEY FIGURES FOR SWITZERLAND CHF million Business volume Of which: life Of which: non-life Gross combined ratio (per cent) Profit before borrowing costs and taxes 2014 2015 +/– % 4,510.0 3,174.9 1,335.1 83.9 4,565.5 3,250.0 1,315.5 83.2 1.2 2.4 – 1.5 – 587.9 415.3 – 29.4 BASLER VERSICHERUNGEN SWITZERLAND Our Swiss insurance companies reaffirmed their excellent prof- itability in non-life business and delivered solid earnings in their life business� Overall, the environment remained com- petitive, not least because of the SNB’s decision and the persis- tent upward pressure on costs� In non-life business, the high level of the previous year was confirmed in the technical result, but earnings fell as a consequence of lower investment income� The SNB’s decision took its toll on life business and was only partly offset� The profit before borrowing costs and taxes at- tributable to the Swiss entities fell by 29�4 per cent to CHF 415�3 million, contrasting with the previous year that had been boost- ed by exceptionally large gains on investments, the sale of share- holdings in Nationale Suisse and Helvetia, and large profits on claims reserves� The volume of business rose by 1�2 per cent to CHF 4,565�5 million� In the non-life division, premiums were down by 1�5 per cent to CHF 1,315�5 million� The focus on improving profitabil- ity took priority over premium growth, as a result of which a conscious decision was taken to forego premium income in accident and health insurance� Encouragingly, growth contin- ued to be strong in motor vehicle and liability insurance as well 24 Life: 67.6 % Non-life: 28.8 % Investment-type premiums: 3.6 % as in insurance add-ons� The favourable claims environment resulted in a lower claims rate� The gross combined ratio of 83�2 per cent was evidence of the excellent quality of the Swiss non- life portfolio� In the life division, the volume of conventional life insur- ance premiums grew by 3�4 per cent year on year to CHF 3,087�6 million� This increase was mainly attributable to the target cus- tomer segments in the area of comprehensive BVG insurance contracts in group life insurance� In addition, demand for par- tially autonomous pension solutions such as the new Perspec- tiva product line, continues to grow� Market conditions and the political framework for traditional life insurance business are, however, very challenging in view of the current level of inter- est rates� In future, there will continue to be a shift in the busi- ness mix towards partially autonomous solutions and risk in- surance� Overall, premiums in group life insurance grew by 5�0 per cent� Individual life insurance business contracted by 4�8 per cent� Because of its low margins, this business was not prioritised in 2015� The annual premiums declined because new business in the current low-interest environment is unable to compensate for the level of outflows from the portfolio resulting from maturing policies� There was a particularly sharp fall of 14�5 per cent in business involving traditional single premiums (investment-type premiums) as a result of the underwriting restrictions following the SNB’s decision� Premiums for tranche products also declined because, in contrast to 2014, no second tranche was launched� The banking business conducted by Baloise Bank SoBa performed very well� The bank reported operating profit of CHF 38�0 million in its local financial statements, which constitutes an increase of 6�2 per cent� Its profit from interest-earning busi- ness, meanwhile, rose by 2�1 per cent to reach CHF 77�1 million� BUSINESS VOLUME (CHF million),(as a percentage of the Group)4,565.5 (51.2 %)Review of operating performance Germany Germany Profit and optimisation measures adversely affected by large claims incurred Hamburg Bad Homburg KEY FIGURES FOR GERMANY IN LOCAL CURRENCY CHF million Business volume Of which: life Of which: non-life Gross combined ratio (per cent) 2014 2015 +/– % 1,632.7 1,414.1 789.8 842.9 101.5 679.6 734.5 106.9 – 1.6 – 2.2 – 1.0 – Profit before borrowing costs and taxes 62.6 64.9 3.7 BASLER VERSICHERUNGEN IN GERMANY The extremely high level of large claims in the non-life segment, the adverse impact of low interest rates, and currency effects depressed earnings in Baloise’s German business� The measures to optimise the business that had been announced and have already been implemented are starting to take effect, but so far have not had the expected impact on comprehensive income� Premium income fell by 1�6 per cent to CHF 1,414�1 million� The focus on target customer segments worked well, with virtu- ally all of these segments achieving above-average growth rates� Business in non-life target segments outperformed the market by around 1 per cent and the focus in life business was success- fully switched from traditional products and ‘Riester’ state- subsidised pension products to capital-efficient, unit-linked products� The sale of the run-off portfolio of Baloise Life (Direk- tion für Deutschland), consisting almost exclusively of tradi- tional products, that had previously been announced supports this focus on life business and is intended to reduce Baloise’s interest-rate sensitivity� The sale requires the approval of the Life: 33.8 % Non-life: 51.9 % Investment-type premiums: 14.3 % financial supervisory authorities, whose checks that form part of the normal approval process have yet to be completed� Non-life premium income was down by 1�0 per cent to CHF 734�5 million, despite the fact that significant growth of more than 4�0 per cent was achieved in some target segments� However, further profit-driven restructuring measures were also carried out in 2015� The gross combined ratio rose by 5�4 per- centage points to 106�9 per cent� This unsatisfactory outcome was due to the fall in the volume of premium income as well as the repeatedly high level of large claims paid� Of the total claims, CHF 15�2 million alone related to two storm events and CHF 21�8 million to two fires at SMEs� In life business, a year-on-year fall of 2�2 per cent was reported in the volume of premium income, which declined to CHF 679�6 million� In contrast to the contraction in tradition- al life business, investment-type premiums followed an upward trend, with growth of 4 per cent in local-currency terms� The trend in new business in unit-linked products, however, could not compensate for the decline in traditional life business� The process of cutting 400 full-time equivalents by the end of 2017 is going to plan and almost three quarters of the job cuts have already been carried out� As planned, cost savings of EUR 40 million have been achieved, but they have been off- set by substantial IT expenses� Despite the operational progress achieved and the measures taken, the earnings generated by Baloise’s German business are not yet within the range antici- pated� Further optimisation and other measures are required in order to take better advantage of the opportunities offered by this market� 25 BUSINESS VOLUME (CHF million), (as a percentage of the Group)1,414.1 (15.9 %)Review of operating performance Belgium Belgium Another higher profit contribution from the strongest international market Antwerp Brussels KEY FIGURES FOR BELGIUM IN LOCAL CURRENCY CHF million Business volume Of which: life Of which: non-life Gross combined ratio (per cent) Profit before borrowing costs and taxes Life: 10.0 % Non-life: 61.5 % Investment-type premiums: 28.5 % 2014 2015 +/– % 1,544.9 1,445.0 583.7 961.2 102.4 556.7 888.3 95.4 6.3 8.4 5.1 – 141.6 191.7 35.4 business was reflected in a 7 percentage point fall in the gross combined ratio, which improved to 95�4 per cent� In its traditional life business, Baloise Insurance Belgium generated strong growth of 4�5 per cent in a declining market, thus also increasing its total share of the Belgian life insurance market by a small margin� Innovative life-insurance products were the main driver of this above-average growth rate, with the volume of investment-type premiums rising by 9�8 per cent in local-currency terms to a total of CHF 412�2 million� BALOISE INSURANCE BELGIUM There was a further improvement in the quality of the portfolio in Belgium� In local-currency terms, the volume of premium income grew by 6�3 per cent to CHF 1,445�0 million� Profit be- fore borrowing costs and taxes jumped by more than 35 per cent to CHF 191�7 million, which meant that Baloise’s Belgian business significantly outperformed the market average in both its life and non-life divisions� Isolated price increases and bun- dled family and SME products were responsible for the growth in its non-life business� The Belgian business continued to focus on corporate business and regional expansion to Brussels and Wallonia� In its marine business, Belgium benefited from an alliance with Dutch Marine International, a specialist provider of transport and marine insurance� Following the isolated non- recurring effects such as hail storm ‘Ela’ that had an adverse effect on the previous year, EBIT for non-life business rose to CHF 112�3 million in 2015� As a result, the Belgian business contributed around 28 per cent of the Baloise Group’s non-life profit for the period� The high level of profitability in non-life 26 BUSINESS VOLUME (CHF million), (as a percentage of the Group)1,445.0 (16.2 %)Review of operating performance Luxembourg Luxembourg Set to become one of the top 3 Luxembourg Life: 5.0 % Non-life: 7.3 % Investment-type premiums: 87.8 % KEY FIGURES FOR LUXEMBOURG IN LOCAL CURRENCY CHF million Business volume Of which: life Of which: non-life Gross combined ratio (per cent) 2014 2015 +/– % 1,483.4 1,367.8 115.6 89.3 1,490.9 1,382.3 108.6 87.9 11.9 12.4 6.8 – The international life business, which is operated from Luxem- bourg and mainly generates investment-type premiums, held up well� The growth here was partly attributable to Baloise Life Liechtenstein which is integrated into the Luxembourg business� The total volume of premium income amounted to CHF 1,382�3 million, which represented an increase of 12�4 per cent� The strong growth rate of 13�4 per cent in investment-type premiums in local-currency terms more than compensated for the decline of 3�7 per cent in traditional business� Profit before borrowing costs and taxes 20.7 23.5 13.5 BÂLOISE ASSURANCES LUXEMBOURG The volume of premiums in the Luxembourg business unit grew by almost 12 per cent in local-currency terms� In addition, Ba- loise Luxembourg’s purchase of non-life insurer HDI-Gerling Assurances SA consolidated its market position and is set to put Baloise in the top three insurance companies in Luxembourg� There was an encouraging increase in the volume of business in the non-life division, which grew by the excellent rate of 6�8 per cent in local-currency terms� This growth was mainly at- tributable to the motor vehicle division� The launch of the Game of Roads app associated the name Bâloise Assurances with safe driving, which is a perfect fit with the ‘Making you safer’ slogan� However, the non-life division found itself confronted by a num- ber of major claims in the reporting year; each was for between one and two million euros and they were spread across all sec- tors and impacted its profitability� Nonetheless, the gross com- bined ratio improved slightly, falling by 1�4 percentage points to a sound 87�9 per cent� This was proof that Luxembourg’s non-life portfolio is now well diversified� 27 BUSINESS VOLUME (CHF million), (as a percentage of the Group)1,490.9 (16.7 %)Review of operating performance Consolidated income statement FIVE-YEAR OVERVIEW 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 investments2 Income from services rendered Share of profit (loss) of associates Other operating income Income Expense 2011 2012 (restated) 2013 2014 2015 6,806.9 – 176.3 6,630.6 1,766.5 – 943.4 158.6 10.2 140.1 6,731.1 – 176.5 6,554.6 7,212.7 – 167.9 7,044.8 1,782.2 1,765.1 852.9 125.0 16.5 92.0 670.3 119.0 40.5 107.9 7,168.1 – 163.6 7,004.5 1,701.9 1,362.5 110.7 8.1 185.2 6,832.4 – 148.6 6,683.7 1,521.8 386.2 112.6 36.8 136.6 7,762.6 9,423.2 9,747.5 10,372.8 8,877.9 Claims and benefits paid (gross) – 5,311.5 – 5,449.4 – 5,439.7 – 5,666.4 Change in technical reserves (gross) Reinsurance share of claims incurred Acquisition costs Operating and administrative expenses for insurance business Investment management expenses Interest expenses on insurance liabilities Gains or losses on financial contracts Other operating expenses Expense – 639.9 – 867.7 – 1,359.4 – 1,469.5 53.3 – 576.8 – 847.0 – 61.3 – 51.6 324.0 – 507.9 113.2 – 651.0 – 900.0 – 59.0 – 50.5 – 577.8 – 363.2 75.5 – 500.5 – 897.1 – 70.6 – 47.3 – 368.9 – 481.3 146.6 – 569.6 – 866.5 – 66.9 – 42.6 – 462.6 – 446.8 – 5,352.4 – 1,241.9 97.9 – 453.3 – 780.5 – 60.4 – 34.1 – 0.9 – 333.1 – 7,618.7 – 8,805.4 – 9,089.3 – 9,444.3 – 8,158.6 Profit before borrowing costs and taxes 143.9 617.9 658.2 928.6 719.2 Borrowing costs Profit before taxes Income taxes Profit for the period Attributable to Shareholders Non-controlling interests Earnings / loss per share Basic (CHF) Diluted (CHF) Footnotes: see next page. 28 – 55.0 88.9 – 27.6 61.3 60.8 0.5 1.30 1.29 – 61.0 556.8 – 71.6 485.2 479.5 5.7 10.24 9.96 – 50.1 608.1 – 152.7 455.4 452.6 2.8 9.65 9.38 – 43.5 885.1 – 173.2 711.9 710.7 1.3 15.15 14.63 – 40.0 679.3 – 168.2 511.1 512.1 – 1.0 10.96 10.65 Consolidated income statementReview of operating performance Consolidated income statement ADDITIONAL INFORMATION CHF million Gross premiums written and policy fees Investment-type premiums Total business volume Investments for the account and at the risk of life insurance policyholders Gross combined ratio Funding ratio (non-life) (per cent) 2011 2012 (restated) 2013 2014 2015 6,803.3 1,341.2 8,144.5 6,741.7 1,616.6 8,358.3 7,228.9 1,780.6 9,009.5 7,175.6 2,130.2 9,305.8 6,833.4 2,085.1 8,918.6 7,746.8 8,779.3 9,606.8 10,904.2 10,873.2 92.4 195.9 93.2 184.3 93.1 179.8 93.7 182.9 92.5 192.4 1 In line with the accounting principles applied by the Baloise Group, investment-type insurance premiums are not included in premiums earned and policy fees. 2 Including financial liabilities held for trading purposes (derivative financial instruments). 29 Review of operating performance Consolidated balance sheet Consolidated balance sheet Financial instruments with characteristics of liabilities 28,917.5 32,513.3 32,327.1 34,461.6 FIVE-YEAR OVERVIEW CHF million Assets Property, plant and equipment Intangible assets Investments in associates Investment property Financial instruments with characteristics of equity Mortgages and loans Derivative financial instruments Other assets / receivables Deferred tax assets Cash and cash equivalents Total assets CHF million Equity and liabilities Equity 2011 2012 (restated) 2013 2014 2015 559.9 1,300.2 173.5 5,138.0 9,703.9 458.5 1,078.5 227.2 5,441.0 9,475.7 422.5 1,080.3 222.0 5,685.9 379.2 909.2 227.9 5,962.9 11,344.4 13,451.2 18,042.7 18,510.9 18,329.5 18,165.9 334.1 2,586.4 22.2 497.6 2,618.6 32.7 410.7 2,857.7 56.0 613.2 2,153.5 48.3 2,287.8 2,923.7 2,960.8 2,969.6 399.1 814.6 162.3 6,251.9 13,770.8 33,248.4 16,656.6 653.9 3,945.1 41.4 2,839.8 69,066.2 73,777.7 75,696.9 79,342.3 78,783.8 2011 2012 (restated) 2013 2014 2015 Equity before non-controlling interests 3,860.3 4,603.5 4,855.9 5,791.3 Non-controlling interests 33.3 37.8 50.5 39.7 5,427.6 34.7 Total equity Liabilities 3,893.6 4,641.3 4,906.4 5,831.0 5,462.3 Gross technical reserves 45,561.9 46,591.9 47,435.6 48,738.9 Liabilities arising from banking business and financial contracts Derivative financial instruments Other accounts payable Deferred tax liabilities Total liabilities 13,998.1 15,839.6 16,542.1 17,740.8 175.3 4,782.9 654.4 64.4 5,802.0 838.5 68.2 5,862.3 882.3 176.4 5,789.7 1,065.5 45,765.8 19,012.0 250.8 7,379.5 913.3 65,172.6 69,136.4 70,790.5 73,511.4 73,321.5 Total equity and liabilities 69,066.2 73,777.7 75,696.9 79,342.3 78,783.8 30 Review of operating performance Business volume, premiums and combined ratio Business volume, premiums and combined ratio BUSINESS VOLUME 2014 CHF million Non-life Life Sub-total of IFRS gross premiums written1 Investment-type premiums Total business volume Group Switzerland Germany Belgium Luxembourg Other units2 3,358.8 3,816.8 7,175.6 2,130.2 9,305.8 1,335.1 2,985.1 4,320.1 842.9 568.8 961.2 157.2 1,411.7 1,118.3 189.9 221.0 426.5 4,510.0 1,632.7 1,544.9 115.6 87.1 202.7 1,280.7 1,483.4 98.2 18.8 117.0 12.0 129.0 2015 CHF million Non-life Life Sub-total of IFRS gross premiums written1 Investment-type premiums Total business volume Group Switzerland Germany Belgium Luxembourg Other units2 3,050.0 3,783.4 6,833.4 2,085.1 8,918.6 1,315.5 3,087.6 4,403.2 734.5 477.4 888.3 144.5 1,211.9 1,032.8 162.4 202.2 412.2 4,565.5 1,414.1 1,445.0 108.6 73.9 182.5 1,308.4 1,490.9 – – – – – 1 Premiums written and policy fees (gross). 2 Other units: Austria (until 28 August 2014), Croatia and Serbia (until 11 March 2014). 31 Review of operating performance Business volume, premiums and combined ratio GROSS COMBINED RATIO 2014 Group Switzerland Germany Belgium Luxembourg Other units1 as a percentage of premiums earned Claims ratio2 Expense ratio Combined ratio 63.0 30.7 93.7 59.1 24.8 83.9 65.4 36.1 101.5 68.3 34.1 102.4 56.8 32.5 89.3 60.2 33.1 93.3 2015 Group Switzerland Germany Belgium Luxembourg Other units1 62.6 32.8 95.4 Gross 2015 62.4 30.1 92.5 55.5 32.4 87.9 2014 61.7 31.9 93.6 – – – Net 2015 62.1 31.2 93.3 2014 2015 5,879.4 3,213.8 182.9 5,614.9 2,918.9 192.4 as a percentage of premiums earned Claims ratio1 Expense ratio Combined ratio 62.4 30.1 92.5 57.7 25.5 83.2 72.0 34.9 106.9 1 Other units: Austria (until 28 August 2014), Croatia and Serbia (until 11 March 2014). 2 Including the profit-sharing ratio. 2014 63.0 30.7 93.7 GROSS AND NET COMBINED RATIO as a percentage of premiums earned Claims ratio1 Expense ratio Combined ratio 1 Including the profit-sharing ratio. FUNDING RATIO (NON-LIFE) CHF million Technical reserve for own account1 Premiums written and policy fees for own account Funding ratio (per cent) 1 Not including capitalised settlement premiums. 32 Review of operating performance Technical income statement Technical income statement CHF million Gross Gross premiums written and policy fees Change in unearned premium reserves Premiums earned and policy fees (gross) Claims and benefits paid (gross) Change in technical reserves (gross) Change in claims reserve / actuarial reserves1 Change in other technical reserves Technical expenses Total technical result (gross) Ceded to reinsurers Reinsurance premiums ceded Claims and benefits paid Reinsurers’ share of claims incurred Change in other technical reserves Technical expenses Total technical result of ceded business For own account Premiums earned and policy fees Claims and benefits paid Change in claims reserve / actuarial reserves1 Change in other technical reserves Technical expenses Total technical result for own account Investment income (gross) Realised gains and losses on investments2 Investment management expenses Other financial expenses and income Gains or losses on investments Profit before borrowing costs and taxes Borrowing costs Income taxes Profit for the period (segment result) Non-life 2014 2015 2014 Life3 2015 3,358.8 3,050.0 3,816.8 3,783.4 – 7.5 – 1.1 – – 3,351.3 3,048.9 3,816.8 3,783.4 – 2,050.6 – 1,854.0 – 3,615.8 – 3,498.4 – 61.6 – 14.9 – 47.6 – 7.7 – 1,061.9 – 936.3 – 1,006.0 – 387.1 – 460.6 – 741.1 – 445.6 – 353.7 162.2 203.3 – 1,652.7 – 1,255.4 – 143.3 – 129.5 – 20.3 – 19.1 120.5 13.2 0.1 6.2 – 3.3 70.6 18.9 0.0 8.5 8.0 2.7 2.2 1.8 5.1 2.3 0.9 1.5 – 31.5 – 5.6 – 9.3 3,208.0 2,919.4 3,796.5 3,764.4 – 1,930.1 – 1,783.3 – 3,607.8 – 3,493.3 – 48.4 – 14.8 – 28.7 – 7.7 – 1,055.8 – 927.8 – 1,003.3 – 384.9 – 458.8 – 738.7 – 444.7 – 352.3 158.9 265.6 61.9 – 22.7 – 41.0 263.8 422.7 – – 89.6 333.0 171.8 221.4 30.4 – 22.1 – 6.0 223.7 395.5 – – 74.9 320.6 – 1,658.2 – 1,264.6 1,320.2 1,275.9 – 90.1 – 366.7 2,139.3 481.1 – – 90.1 391.0 1,196.5 348.3 – 87.6 84.7 1,541.9 277.3 – – 62.2 215.0 1 Including change in reserve for claims handling costs. 2 Including financial liabilities held for trading purposes (derivative financial instruments). 3 Of which deferred gains / losses from other operating segments (31 December 2014: CHF 0.6 million; 31 December 2015: CHF –3.3 million). 33 Review of operating performance Gross premiums by sector Gross premiums by sector GROSS PREMIUMS BY SECTOR (NON-LIFE) CHF million Accident Health General liability Motor Property Marine Other Inward reinsurance Gross premiums written (non-life) GROSS PREMIUMS BY SECTOR (LIFE) CHF million Business volume generated by single premiums Business volume generated by periodic premiums Investment-type premiums Gross premiums written (life) 2014 2015 +/– % 418.1 124.9 347.1 1,111.9 1,055.8 174.8 81.6 44.7 365.8 117.2 323.8 1,007.8 960.3 180.8 68.8 25.5 3,358.8 3,050.0 – 12.5 – 6.2 – 6.7 – 9.4 – 9.0 3.4 – 15.7 – 43.0 – 9.2 2014 2015 +/– % 3,294.3 2,652.6 3,340.4 2,528.2 – 2,130.2 – 2,085.1 3,816.8 3,783.4 1.4 – 4.7 – 2.1 – 0.9 34 Review of operating performance Banking activities Banking activities PROFIT OR LOSS FROM BANKING ACTIVITIES CHF million Net interest income Net fee and commission income Trading profit Other net income Total operating income Personnel expenses General and administrative expenses Total operating expenses Gross profit Net losses and impairment due to credit risk Depreciation, amortisation and impairment of property, plant and equipment and of intangible assets Profit before taxes Income taxes Profit for the period (segment result) ADDITIONAL INFORMATION CHF million Assets managed for third parties Risk-weighted assets of banking activities ASSET ALLOCATION CHF million Investment property Equities Alternative financial assets Fixed-income securities Mortgage assets Policy loans and other loans Derivative financial instruments Cash and cash equivalents Total 2014 2015 87.6 72.4 0.0 2.6 87.0 77.4 – 0.1 0.9 162.6 165.2 – 60.6 – 14.4 – 75.0 87.6 4.6 – 18.6 73.7 – 12.5 61.2 – 57.4 – 17.4 – 74.8 90.4 1.1 – 10.7 80.8 – 19.9 60.9 2014 2015 5,055.3 3,239.0 4,985.9 3,261.7 2014 2015 – 8.2 – 388.0 6,535.5 273.1 6.6 437.7 – 8.2 – 371.1 6,548.6 275.6 10.2 688.4 7,649.1 7,902.1 35 Review of operating performance Investment performance Investment performance 20141 CHF million Current income Realised gains and losses and impairment losses recognised in profit or loss (net) Change in unrealised gains and losses recognised directly in equity Investment management costs Operating profit Fixed-income securities Equities Investment property Mortgage assets, policy loans and other loans Alternative financial assets, derivatives, cash and cash equivalents Total 835.5 147.4 112.7 249.7 256.0 129.3 480.0 58.5 17.6 190.2 1,701.9 775.1 1,703.5 – 50.8 – – – 116.8 1,535.9 – 29.5 2,656.8 – 4.6 307.1 – 7.8 377.6 – 15.0 523.5 – 8.6 82.3 – 65.6 3,947.3 Average investment portfolio 31,652.6 3,585.9 5,824.4 18,247.7 3,558.1 62,868.6 Performance (per cent) 8.4 8.6 6.5 2.9 2.3 6.3 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties. 20151 CHF million Current income Realised gains and losses and impairment losses recognised in profit or loss (net) Change in unrealised gains and losses recognised directly in equity Investment management costs Operating profit Fixed-income securities Equities Investment property Mortgage assets, policy loans and other loans Alternative financial assets, derivatives, cash and cash equivalents Total 721.4 28.6 133.9 43.5 248.3 112.7 405.0 72.4 13.3 122.0 1,521.8 379.1 – 657.6 – 27.8 – – – 67.1 – 752.6 – 25.4 66.9 – 4.6 144.9 – 8.1 352.8 – 13.8 463.6 – 7.6 60.5 – 59.6 1,088.7 Average investment portfolio 32,160.8 4,193.0 6,107.4 17,411.2 3,512.7 63,385.2 Performance (per cent) 0.2 3.5 5.8 2.7 1.7 1.7 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties. 36 Review of operating performance Investment performance CURRENT INCOME FROM INSURANCE1 CHF million Investment property Equities Alternative financial assets Fixed-income securities Mortgage assets Policy loans and other loans Derivative financial instruments Cash and cash equivalents Total current income Non-life Life 42.6 36.6 2.7 132.5 7.6 43.3 – 0.2 211.2 75.7 13.8 693.7 102.3 222.8 – 0.6 2014 Total 253.8 112.3 16.5 826.3 109.9 266.1 – 0.9 265.6 1,320.2 1,585.7 Non-life Life 36.1 38.4 1.9 106.5 8.6 30.4 – – 0.5 221.4 210.9 95.0 11.7 607.4 94.5 176.9 – 0.1 2015 Total 247.0 133.5 13.7 713.9 103.1 207.3 – – 0.4 1,196.5 1,418.0 REALISED GAINS AND LOSSES IN INSURANCE1 Non-life Life CHF million Investment property Equities Alternative financial assets Fixed-income securities Mortgage assets Policy loans and other loans Derivative financial instruments Cash and cash equivalents Total capital gains and losses ASSET ALLOCATION IN INSURANCE1 CHF million Investment property Equities Alternative financial assets Fixed-income securities Mortgage assets Policy loans and other loans Derivative financial instruments Cash and cash equivalents 2014 Total 129.3 249.8 13.3 147.4 1.2 38.5 189.0 – Non-life Life 19.0 22.3 6.8 – 15.5 0.1 17.7 93.6 21.2 1.6 44.1 – 0.9 56.1 2015 Total 112.6 43.5 8.4 28.6 – 0.8 73.8 – 20.0 130.1 110.1 – 30.4 – – 345.8 376.2 2.6 32.8 2.8 17.0 0.0 10.1 – 3.4 – 61.9 126.7 217.0 10.5 130.4 1.1 28.4 192.4 – 706.4 768.4 Non-life Life 2014 Total Non-life Life 883.0 1,106.6 298.9 5,052.3 2,912.5 1,042.3 5,935.3 4,019.1 1,341.2 913.7 1,282.1 260.8 5,314.2 3,066.0 998.7 2015 Total 6,227.9 4,348.1 1,259.6 5,346.3 26,965.7 32,312.0 4,921.6 26,327.0 31,248.6 435.9 1,281.2 18.9 503.1 4,166.6 6,051.6 299.3 890.0 4,602.5 7,332.8 318.2 1,393.1 418.3 1,047.4 24.8 291.5 3,902.6 4,834.6 320.8 642.3 4,320.9 5,882.0 345.6 933.8 Total 9,873.9 47,380.3 57,254.2 9,160.2 45,406.3 54,566.5 1 Excluding investments for the account and at the risk of life insurance policyholders and third parties. 37 4 Baloise 18 Review of operating performance 38 Sustainable business management 56 Corporate Governance 102 Financial Report 256 Bâloise Holding Ltd 274 Notes Sustainable business management RESPONSIBILIT Y �� 40 HUMAN RESOURCES �� 42 Successful together: engaging in dialogue, shaping the future, making a difference �� 42 THE ENVIRONMENT �� 46 Environmental mission statement �� 46 Protecting the environment over the long term �� 48 RISK MANAGEMENT �� 50 Baloise’s risk management is one of the main pillars of its business model �� 50 COMMITMENT TO ART �� 54 The Baloise Group’s commitment to art �� 54 Sustainable business management Responsibility Responsibility BEING RESPONSIBLE Responsible companies that give something back to society are critical to the success of any economy, not least because their actions help to build the necessary consensus between business and wider society� The concept of companies acting as good citizens is commonly known as corporate social responsibility (CSR)� In spring 2015 the Swiss Federal Council adopted a po- sition paper on corporate social responsibility� It makes the case for responsible companies being a vital factor in the success of the Swiss economy and sets out the government’s intention to help shape the framework for CSR� The position paper also con- tains an action plan featuring specific measures that are to be implemented by the State Secretariat for Economic Affairs (SECO)� Baloise supports these efforts in principle and aligns itself with the position taken by the Federal Council so that it can continually improve its CSR activities� However, it believes that CSR is something that companies should take upon themselves to put into practice and that it should not be prescribed by law� The primary task of the state is – and has to be – to create a legal and regulatory framework that will allow companies to remain competitive and thereby fulfil their role as corporate citizens through their own activities� Baloise was embracing the idea of corporate social re- sponsibility long before the term became popularised� Sustain- ability is at the heart of everything that Baloise does� Because every day, through its insurance and pension solutions, it helps companies, economies and communities to function properly, which in turn boosts economic and social stability� The com- pany can look back on more than 150 years of history and since the day it was founded has been there when its customers have needed it the most� People put their trust in Baloise to look after their futures and in return expect stability, security and a sustainable approach� In life insurance, savings for old age and company pensions for SMEs, Baloise has an investment horizon that stretches several decades� It has to offer the sort of long- term security that simply cannot be sustained by the pursuit of short-term gains alone� Baloise therefore thinks and acts on a long-term basis, examines risks that may arise in the future and mitigates these in a thorough and professional manner� Corporate social responsibility covers a broad range of activities and involves a broad range of stakeholders – from employees and shareholders to customers, partners and the wider public� A RESPONSIBLE EMPLOYER The concept of social partnership has a long tradition at Baloise Insurance in Switzerland� In 2015 the Company’s employee commission (MAKO) celebrated its 40th anniversary� The Baloise MAKO was established long before 1993, when the Swiss federal government passed a co-determination act that made it law for employees to have a say in the workplace and to be giv- en information on particular matters� To this day, the rights of the MAKO go well beyond the provisions of this act� Baloise has always fostered an employee-oriented corporate culture across its organisation� It gives its staff scope to contribute to the success of the Company and to develop both personally and professionally, placing particular emphasis on training and development� In doing so, Baloise secures not only its own long- term viability but also the future employability of its staff in an increasingly competitive economic environment� By giving young people their first experience in the world of work – as trainees, interns and temporary student employees – we are also making an investment in the future of the Company and the employ- ment markets of the countries in which we operate� Every year, across the Baloise Group, we train over 200 people who are at the start of their careers� The value that this adds both for these young employees and the Company provides a solid basis for the future and enables us to create new jobs and preserve exist- ing ones� RESPONSIBILIT Y TO THE CUSTOMER Every day our customers benefit from the value that we add through our intelligent prevention services� These help them to avoid claims arising in the first place, making them feel safer and more secure� Everything that Baloise’s employees do is geared towards enhancing safety and security� But if something does go wrong, Baloise will be on hand to help� Baloise strengthens the insurance collective through its strategy of seeking out customers who are cautious and careful and to whom safety and security are as important as they are to Baloise� The more 40 Sustainable business management Responsibility carefully and considerately customers act, the stronger the effect is for everyone insured� In its group life insurance business, Baloise offers small and medium-sized enterprises security in their occupational pension schemes� Security that they need in order to focus on running their businesses successfully and offering their employees a secure future in their jobs and in retirement� RESPONSIBILIT Y TO THE SHAREHOLDER The capital that is made available to Baloise by its shareholders is invested efficiently and in their interests� Forming an integral part of our strategic management policies, risk management makes a significant contribution to the positioning of the Baloise Group� As a European insurer with Swiss roots, Baloise pos- sesses a strong balance sheet and strong operational profitabil- ity, which have been optimised in terms of the risks taken and the upside potential derived from the business� Baloise’s risk management approach involves managing both risk and value at the same time� Baloise’s risk model is based on innovative standards so that it can always keep its promise of ‘Making you safer’� This has enabled Baloise to pursue a sustainable dividend policy for a number of years now� The strength of Baloise’s risk management approach has been independently verified by Stand- ard & Poor’s� In 2015 the rating agency reaffirmed its assessment from the prior year of ‘A with a stable outlook’� RESPONSIBILIT Y TO THE ENVIRONMENT As a signatory to the declaration for the insurance industry issued by the United Nations Environment Programme, Baloise is committed to reducing its impact on the environment� The Company uses natural resources prudently and responsibly� This responsibility relates to its own energy requirements but also extends to its investments and products� CO2 emissions have been continually reduced� The Company’s focus on en- ergy efficiency, particularly in its IT infrastructure, plays a key part in this� Employees are encouraged to use public transport wherever possible and separate their waste for recycling� Baloise also applies the latest standards in energy efficiency to its real estate� The three new buildings being erected at Baloise Park, the Company’s new headquarters in Basel, meet the standards for sustainable construction in Switzerland (SNBS) and sustain- ability specialists have been involved in their design from the outset� And because Baloise strives to learn from the best in everything that it does, it participates in the ‘environmental platform’, a business initiative of the Basel region� This platform facilitates the sharing of knowledge among businesses and sup- ports climate protection and sustainable development through specific projects� RESPONSIBILIT Y IN SOCIET Y Baloise believes it has a responsibility to society in its role as a corporate citizen and has long been a committed advocate of Switzerland’s milizsystem, in which it falls to volunteers to run public offices� In April 2015 Baloise became a signatory to the declaration by economiesuisse (the umbrella organisation rep- resenting Swiss business) and the Swiss Employers’ Association that commits companies to offering flexible working conditions and working time models that enable employees to participate in the scheme� Baloise not only encourages its employees to engage in voluntary activities but it also meets its own respon- sibility to society as a commercial organisation� It creates and preserves jobs that add value and it pays taxes from its profits that help to fund the public sector� This enables Baloise to be an active partner in many areas of society� For example, the Company has promoted art through the Baloise Art Prize for more than 15 years� Every year this pres- tigious accolade is awarded to two talented young artists at the Art Basel fair� The winning works are acquired by Baloise and donated to two museums that each mount an exhibition devoted to one of the artists� In 2015 it was the turn of the Museum of Modern Art in Frankfurt am Main and MUMOK in Vienna� The award has gained a formidable reputation over the years� The fact that numerous winners of the Baloise Art Prize have gone on to represent their country at the Biennale Venice provides further evidence of its prestige� Many Baloise Art Prize alumni are now established artists and credit the award as being the springboard for their success� In addition, Baloise maintains a long-standing collection of artworks that can be seen not only by employees but also by the public at exhibitions in the Art Forum at the Company’s headquarters� The Baloise companies outside Switzerland also play their part in social, sporting and cultural life in their regions by supporting numerous institutions and events� → www.baloise.com/responsibility 41 Sustainable business management Human resources Successful together: engaging in dialogue, shaping the future, making a difference Baloise is only able to thrive in its challenging market because of the hard work and commit- ment of its employees. It is therefore important to embed tried-and-proven activities and to continue to develop the workforce and the organisation as a whole. KEY FIGURES → 7,387 people (6,754 FTEs) were working for the Baloise Group on 31 December 2015 (end of 2014: 7,599). → 43.9 per cent of all staff members are women (2014: 43.6 per cent). → The Baloise Group employs 212 (2014: 206) apprentices, trainees and interns. → 60.4 per cent of staff members working in our main market of Switzerland participated in our Employee Share Ownership Plan in 2015 (2014: 60.9 per cent). → Baloise employees work at the Company for an average of 14.2 years. → Staff turnover as at 31 December 2015 amounted to 5.5 per cent (end of 2014: 4.8 per cent). With its headquarters in Basel and its national companies in western Europe, Baloise combines the best of two worlds� Swiss characteristics such as quality, solidarity and integrity are united with European openness, diversity and tolerance� The focus is always on safety and security, but without losing sight of the bigger picture� THE CORNERSTONES OF THE BALOISE GROUP’S HR STRATEGY ARE → to nurture an employee-focused corporate culture; → to be the employer of choice in our sector; → to be performance- and results-driven; → to be a highly skilled, learning organisation; → to possess outstanding leadership and management capabilities. FRIENDLY, ACCOMMODATING AND FAIR: THE BALOISE GROUP AS AN EMPLOYER Baloise uses its values to create a unique working environment that enables its employees to make a contribution and actively shape the future� In line with the HR strategy launched in 2014, ‘We add value through our people’, the Baloise Group fosters a culture of con- structive feedback that is characterised by respect, dialogue and continuing personal development� This collaborative working environment is based on integrity and trust� It gives staff the opportunity to take responsibility and the scope to make an individual contribution to the success of the Company� At the heart of this is a spirit of collaboration� Only by working to- gether towards a common objective can challenges be overcome and success achieved� ENGAGING IN DIALOGUE CONTINUOUS DEVELOPMENT AND A CONSENSUAL APPROACH A cornerstone of the working environment at Baloise is the culture of constructive feedback that tallies with our core value ‘Develop and engage – yourself and others!’, which is put into practice across all hierarchy levels� Three formats are currently available that allow managers and employees to engage in a mutual, open and in-depth dialogue that is based on the behav- ioural value ‘Put yourself in the other’s shoes!’� In addition to individual development dialogues, where the focus is on the employee, and management dialogues, in which managers are given feedback by their staff, Baloise carries out an employee engagement survey, the results of which are discussed within the teams� 42 Sustainable business management Human resources All three formats are already firmly established in Switzerland� In 2015 the management feedback process was piloted in Ger- many, Belgium, Liechtenstein and Luxembourg� Full roll-out is scheduled for 2016� The one-on-one meetings between man- agers and employees have proven to be effective and the em- ployee engagement survey was introduced at all national Baloise companies back in 2013� CHALLENGING AND DEVELOPING STAFF WITH A VIEW TO ACHIEVING FUTURE SUCCESS Baloise’s processes for developing skills and talent are a key part of its trust- and performance-based corporate culture� The focus is on continuous learning and on helping employees to make the most of the freedom they are given in their work� One-on-one meetings between managers and employees are the central element in an ongoing dialogue regarding performance and development targets� This gives guidance to employees and provides clarity about shared objectives and continuous learning� Baloise also runs a talent development programme for high-potential employees� Its long-established talent evaluation process is carried out each year and is designed to identify tal- ented young employees and key individuals, find potential suc- cessors and agree staff development activities� 2015 saw the start of a new focus on the introduction of a skills assessment process for talented young employees to help them decide the direction they would like their career at Baloise to follow� In 2016 the talent development programme will be supplemented by local measures that will make it easier to focus on the individual skills of the high-potential employees� THE BALOISE GROUP’S BEHAVIOURAL VALUES → “Put yourself in the other’s shoes.” → “Act authentically and earn trust.” → “Develop and engage.” CHANGING THE MANAGEMENT PHILOSOPHY BALOISE’S BEHAVIOURAL VALUES – THE FOUNDATION FOR LEADERSHIP@BALOISE Baloise operates in an extremely challenging market with high- ly volatile parameters� This situation prompted the Company’s decision to start focusing on growth� After ten years of success- fully striving for operational excellence, Baloise, and in par- ticular its management philosophy, needed to undergo a process of change that would establish the necessary ‘culture of growth’ within the Company� In 2015 we therefore pushed ahead with work on the new managerial philosophy, Leadership@Baloise� The approach is based on Baloise’s established behavioural val- ues� But in future there will be an even greater focus on promot- ing engagement, shaping the process of change and striving for improvement and development in order to achieve better results� In the coming years, the priority will be to embed behav- iours in day-to-day management activities that are conducive to growth� We will be adapting our HR processes accordingly and deploying the Baloise Campus management development programme that has been used across the Group for a number of years� TAKING ACCOUNT OF INDIVIDUAL COUNTRIES’ NEEDS, PURSUING COMMON OBJECTIVES In addition to the aforementioned Group-wide initiatives, the country-specific HR units are focusing on activities that are geared towards the regional requirements of their business and the local legal system� For example, the Corporate Division Switzerland made a commitment to using the Swiss insurance industry’s Cicero register and in doing so has underlined the importance of life- long learning for sales staff� To become a member the advisor must have a recognised qualification (VBV insurance broker or equivalent) and regularly attend training courses� Continuing professional development ensures that the advice given by the brokers is up to the highest standard� At the end of 2015 Baloise completed the roll-out of the programme by registering all its advisors on Cicero� In 2015 preparations were also made for re-introducing the requirement to record the working hours of 43 Sustainable business management Human resources management staff in the inhouse sales team� Baloise changed the way in which working hours were recorded on 1 January 2016 so that it would be compliant with Ordinance 1 of the Swiss Labour Law (ArGV 1)� In Germany, a number of managers have been closely in- volved in the development of a vision for the future� Fostering a culture that takes consideration of cultural aspects but also incentivises and recognises performance plays a key role in this� The introduction of a structured feedback process between the Executive Committee and the department heads represents a further step in this direction� In addition, a standardised pro- gramme of initial training was rolled out across all sites that is ensuring a uniform quality of instruction� Last year Belgium focused on changing its culture and behavioural values� A concept of viral change was used in which it fell to a select group of highly engaged and well-connected individuals to embed the behavioural values in the organisation� There was also a focus on talent development, whereby the de- velopment plans of senior management were supplemented by the management feedback process� Furthermore, a great deal of attention was paid to succession planning� Last year Luxembourg focused its energies heavily on integrating the 90 or so employees who had come on board as a result of Baloise’s acquisition of P&V� Because of the merger with HDI-Gerling Assurances at the beginning of October 2015 the subject of integration and fostering a shared corporate cul- ture will remain on the agenda in 2016 as well� Embedding the values played an important role here, and these were commu- nicated to all employees of the national companies using an ‘onboarding game’ that also focused on subjects such as the Safety World and the Baloise philosophy� Great emphasis was also placed on leadership training and on actively involving rising talents in the various projects� IN BALANCE: EMPLOYEES ARE OUR MOST VALUABLE RESOURCE The Baloise Group’s most valuable resource – and therefore the one that is most crucial to its success – is its workforce and the expertise and skills that they possess� This is why it is so crucial to have a diverse workforce that is challenged and supported in accordance with individual needs and abilities� Accordingly, Baloise believes it is important that employees have a good work- life balance� It helps them to achieve this by offering flexible and part-time working, providing the option of working from home, running facilities such as the Bal4Kids crèche in Basel and providing a working environment that is conducive to good health as well as a wide-ranging corporate health management service� In recent years Baloise’s case management service in Switzerland has extended its sick- ness-prevention activities� The benefits are clear from the figures, with the absence rate in 2015 having fallen, contrary to the prevail- ing market trend� The Friendly Work Space quality seal award- ed by the Swiss Health Promotion Foundation also illustrates how Baloise goes above and beyond the legal requirements to create a healthy working environment� Baloise has held this accreditation since 2010 and will be recertified for the third time in 2016� THE COMPETITION FOR TOP TALENTS IS GETTING TOUGHER PRESENCE, RELEVANCE AND AN AUTHENTIC VOICE Employees are the most valuable resource for all companies, not just Baloise� Which is why the competition for the best peo- ple at various levels is getting tougher all the time� Just a few years ago, apprenticeships were already filled by autumn with highly skilled school-leavers; today the process lasts until well into spring� And it is also proving more and more difficult to recruit new, highly skilled staff in other vocations such as IT and customer service� To counteract this trend and make Baloise more visible as an employer, the Company has been using social media� Through the blog baloisejobs�com and accounts on Facebook, Xing, LinkedIn, Twitter and Pinterest contact is being made 44 Sustainable business management Human resources with potential new employees who are given an authentic picture of what it’s like to work at Baloise� Investment continues to be made in traditional HR mar- keting as well, whereby the focus is on engaging in dialogue with potential employees� At job fairs, current Baloise employ- ees are able to talk about their experiences and give a realistic picture of what it’s like to work for the Company – all in line with our philosophy of being friendly, accommodating and fair� These efforts are complemented by an attractive range of training opportunities� Baloise currently employs 200 appren- tices, interns and temporary student workers� And for the past 23 years, it has been running a management trainee programme whose alumni often go on to forge a career within the Com- pany� ACHIEVING RESULTS, REAPING REWARDS: BALOISE PERFORMANCE MANAGEMENT Many of the aforementioned activities are aimed at offering employees a working environment in which they can perform to the best of their ability� And if they do so, they should be rewarded accordingly� Baloise offers performance- and target- oriented remuneration packages that are based on fair principles and an established framework of performance management� The packages consist of competitive base salaries and a range of variable remuneration components as well as attractive em- ployee incentives and loyalty bonuses� The remuneration paid by the Baloise Group is determined by the following criteria: → Competitiveness in the marketplace → Individual performance and the Company’s success → Fairness and transparency → Sustainability Variable remuneration is based on both individual per- formance and the success of the Company as a whole� Through- out the year, employees attend a series of meetings with their managers to make sure they are on track to achieve the indi- vidual targets that have been agreed upon� To help secure long-term success, part of their remuner- ation is paid in the form of restricted shares, with the senior management team receiving a comparatively high proportion of their pay in the form of shares� This form of remuneration strengthens loyalty to Baloise and gives employees the oppor- tunity to share in the Company’s success� The packages also feature attractive fringe benefits that are awarded regardless of function and seniority� BALOISE’S 7,387 EMPLOYEES IN 2015 BY COUNTRY Switzerland Germany Belgium Luxembourg Per cent Employees 49.4 27.6 17.6 5.4 3,657 2,036 1,297 397 BALOISE GROUP HUMAN RESOURCES ON THE INTERNET Careers website: → www.baloise.com/careers Careers blog: → www.baloisejobs.com Facebook: → www.facebook.com/baloisegroup YouTube: → youtube.com/baloisegroup Xing: → xing.com/companies / baloisegroup LinkedIn: → linkedin.com/company / baloisegroup Twitter: → twitter.com/baloise_jobs Pinterest: → pinterest.com/baloisejobs Google+: → gplus.to / baloisejobs 45 Sustainable business management The environment Environmental mission statement In 1995, Baloise became one of the first insurers to sign the insurance industry declaration on sustainable development formulated by the United Nations Environment Programme (UNEP). It drew up its own environmental guidelines in 1999 in order to give concrete form to this general commitment. From the outset, it was deemed important to embed sustainability throughout the Company and in all day-to-day business activities. What are Baloise’s sustainability principles? Which issues take greatest priority? And what are the key principles? The sustainability guidelines adopted in 1999 provide a framework for action and form the basis of all environmental and social activities at Baloise. PRINCIPLE As a signatory to the UNEP declaration, Baloise strives for sus- tainable development from an ecological, economic and social point of view� As a primary insurer, Baloise is prepared to assume responsibility for the preservation of the natural environment� STAFF AND PUBLIC Baloise trains its employees with regard to environmental mat- ters and raises their awareness of the relevant issues� Its em- ployees are aware of the ecological targets and the most impor- tant initiatives for achieving them� They are kept regularly informed about the implementation of the environmental mis- sion statement and encouraged to suggest measures of their own� Baloise works hand in hand with other companies, or- ganisations and public authorities in finding solutions to envi- ronmental problems� It particularly encourages the sharing of information with other insurance companies, maintains an open dialogue with the public and regularly reports on environmen- tal projects and what has been achieved� ENVIRONMENTAL FOOTPRINT Baloise continually reduces its direct impact on the environment by planning, building and operating its office buildings in a resource-saving and energy-efficient manner� It observes the same principles in the procurement and use of office equipment and materials� In doing so, it pays particular attention to its published energy mission statement and its environmental audit� PRODUCTS AND SERVICES Baloise strives to take environmental aspects into account when developing its products and services and fixing premiums and levels of coverage� Its underwriting policy takes account of its customers’ environmental management practices (e�g� ISO 14001) on the basis of identifiable operational and product-related fac- tors� It also advises industrial clients on risk reduction and risk prevention� 46 Sustainable business management The environment INVESTMENT Baloise’s investment policy is geared towards medium- to long- term earnings targets and consciously incorporates environ- mental criteria whenever possible, especially in the selection of securities and real estate� It also promotes appropriate, envi- ronmentally relevant proprietary and third-party financial products� When it comes to investment in real estate, Baloise pays particular attention to energy-saving and economical de- signs and service systems, as well as the use of environmen- tally friendly construction materials� The environmental audit takes the entire life cycle of the real estate into consideration� ORGANISATION The Corporate Executive Committee bears ultimate responsibil- ity in environmental matters� Each Group company has a co- ordination unit which implements the environmental mission statement� This working group is made up of representatives drawn from all key corporate functions� 47 Sustainable business management The environment Protecting the environment over the long term As a signatory to the UNEP* declaration for the insurance industry, Baloise is committed – among other things – to continuously reducing its carbon footprint. In 2015, further major measures were put in place to achieve this goal. BALOISE IS BUILDING SUSTAINABLE OFFICES THAT WILL APPEAL TO EMPLOYEES AS WELL AS A STATE-OF-THE-ART HOTEL In a project scheduled for completion in 2020 Baloise is erecting three new buildings in the area between Aeschengraben, Park- weg and Nauenstrasse in Basel� The buildings are to be the de- fining landmark of the train station district and reflect Baloise’s commitment to the city� The area, which will be called Baloise Park, will function as an open campus for Baloise employees, third-party tenants and the local population� A public square is being created where the Hilton hotel currently stands� The tower being built on Aeschengraben, which will be around 90 metres in height, will mainly be occupied by the new hotel� The top seven floors will be rented out as office space� Baloise is basing its designs for the buildings on the standards for sustain- able construction in Switzerland (SNBS), which means it will comfortably exceed the legal requirements in terms of energy efficiency� A zero-emission electric minibus connects Baloise headquarters with the temporary offices at which over 500 employees are working while Baloise Park is being built� SOLAR ENERGY FOR ELECTROMOBILIT Y AND HEATING The spring of 2015 saw solar panels with a total output of 21 kWp being installed on one of the flat roofs of the Company’s head office building in Basel� As well as heating the new access ramp to the building the panels generate enough additional electricity to power around 55,000 km of electric vehicle journeys� 100 PER CENT OF BALOISE’S ELECTRICIT Y WILL BE GENERATED BY HYDROPOWER FROM 2016 In 2015 an analysis was carried out of electricity consumption at Baloise’s Swiss offices� This led to a decision being made to run the larger offices using only Swiss-generated hydropower from 1 January 2016� This underlines Baloise’s commitment to sustainability and the Swiss brand value� ELECTROMOBILIT Y FOR CUSTOMERS AND STAFF Baloise is taking its first steps towards zero-emission travel� In 2015 an attractive package was introduced that enabled staff in Switzerland to purchase or lease an electric car� Since 2015, employees have also been able to charge their electric vehicles for free during working hours� A total of 16 staff parking spac- es in Basel have been equipped with charging facilities� Visitors travelling to Baloise’s new customer centre in an electric car can charge their vehicle for free at a fast-charging station in the visitor car park� At the offices in Zurich and Bern charging points will be made available in the first half of 2016� SYSTEMATIC ROLL-OUT OF MODERN WORKSTATIONS The new workstations that have been trialled since summer 2014 were rolled out at the headquarters of Basler Switzerland� Now 600 employees can find a desk where they can work quietly as well as rooms for communicating and working efficiently as a team� Since last year, 400 of the more than 1,100 employees work- ing at Baloise in Belgium have been working from home one day a week� In addition to the positive effects resulting from the more efficient use of office space and reduction in energy con- sumption, employees are given a weekly break from their com- mute, which in some cases can be very stressful� * UNEP = United Nations Environment Programme. 48 Sustainable business management The environment 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 travel Mode of transport 2013 absolute 2014 absolute1 2015 absolute Relative Unit 5,315 141,032 13 5,173 137,276 12 5,716 145,917 16 headcount ERA m2 number of buildings 20,712,643 kWh 19,983,237 kWh 19,866,588 kWh 3,476 kWh / employee 11,513,544 kWh 9,327,534 kWh 8,821,860 kWh 60 kWh / m2 53,769 m3 52,752 m3 48,237 m3 34 l / employee / day 510 t 490 t 439 t 77 kg / employee 5.0 % recycled 72.0 % chlorine-free- bleached 24.0 % chlorine-bleached 71.9 million A4 sheets 1,241 t 73.5 million A4 sheets 68.7 million A4 sheets 12,020 A4 sheets / employee 979 t 961 t 168 kg / employee + / – % 10.5 6.3 4 – 0.6 – 5.4 – 8.6 – 10.4 – 6.5 – 1.8 21.3 million km 19.0 million km 19.1 million km 3,347 km / employee 0.8 47.0 % paper / cardboard 4.0 % other materials 1.0 % special waste 47.0 % misc. waste / refuse 27.4 % km by air 43.5 % km by road 29.1 % km by public transport CO2 emissions 16,020 t 14,864 t 14,738 t 2,578 kg / employee – 0.9 1 The 2014 figures for amount of refuse and business activity were adjusted in 2015 to take account of retrospective adjustments by external suppliers in individual national subsidiaries. ENERGY EFFICIENCY AT BALOISE The total energy and resource consumption revealed by the en- vironmental audit shows the amounts used by the Baloise Group’s large office buildings and its computer centres� The figures re- ported relate to the energy and resources used by 77 per cent of the 7,387 people working for the Baloise Group� Consumption of energy for heating and consumption of electricity per em- ployee were each reduced by a further 10 per cent� Optimisation of internal business processes at all national Baloise companies resulted in a further 15 per cent decrease in paper consumption� As a responsible corporate citizen, Baloise is both obliged and motivated to use resources efficiently in the face of environ- mental changes� → www.baloise.com/responsibility 49 Sustainable business management Risk management Baloise’s risk management is one of the main pillars of its business model Risk management makes a significant contribution to the positioning of the Baloise Group and forms an integral part of its strategic management policies. As a European insurer with Swiss roots, Baloise possesses a strong balance sheet and strong operational profitability, which have been optimised in terms of the risks taken and the upside potential derived from the business. Baloise’s risk management approach involves managing both risk and value at the same time� Its risk model is based on in- novative standards so that it can always keep its promise of ‘Making you safer’� The Company’s enterprise risk management was once again awarded Standard & Poor’s excellent ‘strong’ rating in 2015� This puts it among the top 15 per cent of all European insurance companies� Risk management at Baloise is a standardised strategic and operational system that is applied throughout the Group and covers the following areas: → Risk map: this forms the backbone of Baloise’s risk strat- egy and defines the fundamental risk issues, such as actuarial and market risk as well as the operational risk arising from business activities� → Risk governance and risk culture: this involves encourag- ing risk awareness – how people perceive and respond to risk – and establishing this mindset throughout the organisation� → Risk measurement: this is used to identify, quantify and model the risks inherent in all financial and business processes� → Risk processes: the organisation of risk and its pertinent standards are key aspects of risk management and operate in tandem with reporting, management and evaluation processes� → Strategic risk management: its purpose is to optimise the risks taken by the Baloise Group while maximising earnings potential� RISK MAP The risk map distinguishes between the following categories of risk to which Baloise is exposed: → Business risk → Investment risk → Financial-structure risk → Business-environment risk → Operational risk → Leadership and information risk� A detailed description of the risk map can be found in the Financial Report on page 134� The risk map is firmly embedded in the organisational structure and responsibilities of the entire Baloise Group� Each risk is assigned to a risk owner (with overall responsibility) and to a separate risk controller (responsible for risk management and control)� RISK GOVERNANCE AND RISK CULTURE The development and expansion of risk governance and risk culture has a long tradition at Baloise� It is constantly working to enhance this culture across the entire organisation� Desig- nated risk owners and risk controllers dealing with specific risk issues are as much a part of this culture as committees that meet regularly to discuss risks� At the same time, Baloise’s risk mod- els and processes are continually refined� The internal control system (ICS) and the compliance function are further major planks of this strategy� 50 Sustainable business management Risk management The most senior decision-making body in Baloise’s risk organ- isation is the Board of Directors of Bâloise Holding Ltd, while ultimate responsibility for risk control lies with the Board of Directors’ Audit and Risk Committee� The Chief Risk Officer for the Baloise Group reports regularly to both of these bodies and is partly personally responsible for risk-related issues� The Board of Directors is empowered to determine the risk strategy, which is derived from Baloise’s business strategy and objectives and addresses issues around the Company’s risk appetite and risk tolerance� The Group Risk Committee and the local risk committees in each business unit – which comprise members of the Cor- porate Executive Committee and of the local senior management teams respectively – decide how the risk strategy is developed and designed and how the pertinent policies are implemented in day-to-day business� Bodies specially set up to examine spe- cific risk areas such as asset / liability management, compliance, IT risk and the use of reserves also compile submissions for the committees to facilitate their decision-making on these issues� The Group Risk Management team works closely with the local risk experts� This inclusive risk organisation approach provides Baloise with a platform for sharing and constantly refining best practice� Group Risk Management is responsible for: → developing consistent, mandatory risk models for the entire Baloise Group; → monitoring groupwide standards; → reporting risks; → complying with risk processes and procedures; → communicating with external partners such as auditors, corporate supervisory bodies and credit rating agencies� The business units are responsible for local implementation of the standards and requirements specified by the Baloise Group� Overall responsibility lies with the Baloise Group’s Chief Fi- nancial Officer, followed by its Chief Risk Officer� RISK MEASUREMENT The Baloise risk model standardises the process of quantifying business risks and financial market risks across all strategic business units� It is consistent with the principles and calcula- tion methods applied by the Swiss Solvency Test and with the European Union’s Solvency II directives� As a groundbreaking risk management tool, it provides a firm foundation on which management can make strategic and operational decisions� The economic risk capital derived from Baloise’s models is currently the most advanced market standard� To this end, risk measurement metrics alone are used to calculate a target capital figure – irrespective of any financial accounting treat- ment or regulatory capital requirements under Solvency I – to ensure that the Company remains solvent even in adverse cir- cumstances and can meet its obligations to policyholders at all times� This target capital figure is constantly compared with the capital currently available (the ‘actual’ capital)� In addition to this holistic risk model, Baloise uses the risk map to identify, describe and evaluate specific risks in terms of their likely impact on its operating profit or loss� Baloise’s corporate database of specific risks – which contains a detailed description of the risks concerned, their classification on the risk map, and early-warning indicators – is generated from this standardised process� Baloise uses quantitative methods to sup- plement this description by measuring these risks’ probable financial impact on the Company’s balance sheet� Each risk is documented together with the measures needed to mitigate it� The database is updated every six months� This combination of a holistic risk model with analysis of specific risks ensures that Baloise maintains an adequate over- view of the prevailing risk situation at all times� 51 Sustainable business management Risk management RISK PROCESSES Group-wide risk management standards place the risk process on a mandatory footing� These standards stipulate methods, rules and limits that must be applied throughout the Baloise Group� They determine how the various risk issues are evalu- ated, managed and reported� A number of risk limits act as early-warning indicators to mitigate the risks taken� The Baloise Group uses a system of limits based on eco- nomic risk capital in order to mitigate its risks holistically at an aggregate level� This system tracks the risk capital held by the Baloise Group and individual business units in real time� Issue-specific risks are monitored individually by imposing limits, as illustrated by the following examples: → Actuarial risk is determined by underwriting guidelines on which local underwriters base their decisions� Risk metrics analysis of the deductibles payable supplements the Company’s key reinsurance strategies� → Appropriate reporting procedures are used to monitor market risk and financial-structure risk across all business units� In addition to upper limits on equity exposures, for example, there are clear and binding guidelines on bond ratings� The applicable ‘Basel’ approach and advanced statistical methods are used to assess credit risk� In addi- tion, risk analysis is used to regularly monitor the overall solvency position� → Baloise captures business-environment risk, operational risk and strategic risk on both a standardised and individ- ual basis, and assesses them in terms of their impact on its capital� The Own Risk and Solvency Assessment (ORSA), an annual risk report, is discussed with the decision-makers so that suit- able measures can be developed� The results of the ORSA are also reported to the regulatory authority� In addition, risk managers’ assessment of the risk situation is factored into the remuneration paid to executives� The three criteria used to determine the performance pool payments awarded to indi- vidual managers are personal performance, leadership and conduct� The individual performance pool payment proposed by the respective line manager is discussed by the relevant man- agement team, compared with other departments and divisions, and adjusted where necessary� This process ensures that risk- relevant behavioural attributes are factored into the individual performance pool payments� STRATEGIC RISK MANAGEMENT The internal risk model, which uses standard methods to quan- tify all business risks and financial market risks, forms the ba- sis for strategic discussions about Baloise’s risk appetite� The capital requirements derived from this model constitute mini- mum requirements for Baloise’s ‘actual’ capital� This process provides a 360-degree view of key strategic risks and how they are managed� Strategic risk management provides a clear picture of the risks involved in opening up new business lines and of how to optimise the risk / return profile of existing business� Profit targets for individual business units that factor in their specific risk situation are a major aspect of this risk man- agement system� These targets form part of the overall objectives agreed with local management teams� 52 Sustainable business management Risk management OUR PROFESSIONAL RISK MANAGEMENT DEMONSTRATED ITS PROVEN STRENGTHS IN 2015 Baloise’s risk strategy principles are designed for the long term, as shown by the Company’s excellent risk positioning in 2015� Proof positive of this situation was the Baloise Group’s solven- cy I ratio, which remained very high at 341 per cent and is testimony to its financial strength� Underwriting approaches that have been tried and tested for many years were maintained in 2015: → The Baloise Group’s investment strategy continues to focus on diversification and on the basic principle of only investing in assets that the Company can itself fully and accurately evaluate through risk management� → Baloise continued to actively manage its credit risk and currency risk� → With a net equity exposure of 8�1 per cent at 31 December 2015, Baloise’s equity investments in the reporting year lay comfortably within its risk-bearing capacity� → The high quality of recurrent investment income generated by Baloise’s stable real-estate portfolio proved to be a valu- able source of revenue� → Much of Baloise’s focus is directed at managing its inter- est-rate risk� Wherever possible, payment obligations to customers for future years are reconciled with the income earned from investments� The high quality of recurrent investment income generated by Baloise’s stable real-estate portfolio has proved very helpful in this respect� Baloise also invests in safe long-term bonds denominated in either Swiss francs or euros and supplements this strategy by using derivative financial instruments such as swaptions� → Baloise’s underwriting business has proved to be highly consistent, with the Baloise Group’s net combined ratio of 93�3 per cent demonstrating its excellent capabilities in underwriting and managing non-life risk� Risk management at Baloise will continue to evolve over the coming years, reaffirming its standing as a company with an outstanding risk strategy and risk positioning� Further information on risk management can be found in the 2015 Financial Report (section 5� ‘Management of insurance risk and financial risk’ pages 132 to 174)� 53 Sustainable business management Commitment to art The Baloise Group’s commitment to art Baloise’s art collection is the product of a long-standing commitment to the arts and plays an important part in the Company’s culture. Baloise also sees investment in art as a responsibility: works of art are created to be seen and to provoke discussion. It believes that the privilege of owning art comes with an obligation to make it accessible to the wider public. Baloise’s commit- ment also extends to providing recognition and support for contemporary artists. Today the works of the new collection are categorised in three groups that reflect key movements in contemporary art: the first group is minimal and concept art, which since the 1960s has been dominated by American artists� The second major focus of the collection is the euphorically received art of the 1980s� In Europe this period was dominated by a form of expressive figurative art that led to the establishment of terms such as Neue Wilde and Transavanguardia� The third part of the collection is devoted to influential artists working in the medium of draw- ings� In addition to its works on paper, Baloise maintains a collection of works by artists who realise their artistic goals through the medium of photography� New acquisitions for the collection are made by the Baloise art commission, which comprises six art-loving employees and one external advisor� The items are purchased proactively on an ongoing basis� ART FORUM The Baloise Art Forum mounts themed public exhibitions fea- turing works taken from the Baloise collection and sometimes also relevant loan works� It also hosts talks with artists and runs guided tours for employees and external groups� Every year two exhibitions are mounted� ART COLLECTION Collecting art has a long tradition at Baloise� It is part of the Company’s very identity� The first acquisitions were made in the late 1940s� These pieces, which were mainly by regional artists, exhibited the same characteristics that define the col- lection today: outstanding artistic merit, inner depth and an unusual and often revolutionary form of expression for their time� Two further components underpin the success of the Baloise collection: a clearly defined focus – art created in Basel during the first half of the 20th century – and wherever pos- sible the acquisition of groups of works� Since it first began collecting art in the immediate post-war period, Baloise has remained true to its belief that the Company’s works of art should be accessible both to employees and visitors� Baloise displays its collection in foyers and corridors, meeting rooms and offices, with a large number of works on show in publicly accessible reception rooms at its group head- quarters� Today Baloise collects contemporary art, focusing on ac- quiring works on paper by the artists of today� Works on paper include drawings, gouaches, watercolours, oil on paper, collages and photographic works� These are fully recognised artistic media, which form part of the significant artistic state- ments of the modern day� By deciding to focus on one specific medium, Baloise intended to expand its horizon in its choice of artists� The main criterion for selecting artists is the existence of a persuasive body of work that establishes a close emotional and intellectual connection with the hopes and fears of our time� 54 Sustainable business management Commitment to art Many of the previous prize winners are now leading lights in the international art scene and act as cultural ambassadors for their country at the Venice Biennale� Further information on Baloise’s art activities and on all previous prize winners can be found online� → www.baloise.com/art The Baloise Art Forum BALOISE ART PRIZE Every year since 1999 the Baloise Group has awarded two young artists its Baloise Art Prize� It is Baloise’s way of supporting the development of young, rising talents� The two prizes of CHF 30,000 are presented in the State- ments section of the Art Basel fair by a panel of judges compris- ing international experts� Baloise also acquires groups of works by the prize winners and donates these to two leading European art museums, in 2016 to Frankfurt’s Museum of Modern Art and the MUDAM in Luxembourg� Every year, the Company spends around a quarter of a million Swiss francs in prize money, acquisitions of works and funding for statements, and on arranging for works by winners of its art prize to be exhibited at museums� The Baloise Art Prize has become a prestigious accolade� The awards are presented to the winning artists and galleries at the high-profile Art Basel international fair� In addition to this publicity, the artists are also given the opportunity to have their works displayed in a distinguished art museum� 55 4 Baloise 18 Review of operating performance 38 Sustainable Business Management 56 Corporate Governance 102 Financial Report 256 Bâloise Holding Ltd 274 Notes E C N A N R E V O G E T A R O P R O C Corporate Governance CORPORATE GOVERNANCE REPORT INCLUDING REMUNERATION REPORT �� 58 Structure of the Baloise Group and shareholder base �� 58 Capital structure �� 59 Board of Directors �� 60 Corporate Executive Committee �� 69 Remuneration Report �� 73 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel �� 96 Shareholder participation rights �� 98 Changes of control and poison-pill measures �� 99 External auditors �� 99 Significant amendments to the Articles of Association submitted to the 2015 Annual General Meeting �� 100 Information policy �� 100 Corporate Governance Corporate Governance Report including Remuneration Report Transparent corporate governance As a company that adds value, Baloise has always attached great importance to practising sound, responsible corporate governance and continues this tradition today. Operating in line with the Swiss Code of Best Practice and the SIX Corporate Governance Guidelines, Baloise strives to foster a corporate culture of high ethical standards that emphasises the integrity of the Company and its employees� Baloise is con- vinced that high-quality corporate governance has a positive impact on its long-term performance� The Company therefore rapidly and transparently implemented the requirements under the Swiss Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO)� This chapter reflects the structure of the SIX Corporate Governance Guidelines as amended on 1 September 2014 in order to enhance transparency and, consequently, improve comparability with previous years and other companies� It in- cludes economiesuisse’s Swiss Code of Best Practice for Corpo- rate Governance and, in particular, Appendix 1 to the latter, which contains recommendations on the remuneration paid to the Board of Directors and the Executive Committee� Baloise publishes its own remuneration report as item 5 of its Corporate Governance Report, which meets the criteria specified in circular 2010/1 of the Swiss Financial Market Supervisory Authority (FINMA)� 1. STRUCTURE OF THE BALOISE GROUP AND SHAREHOLDER BASE Structure of the Baloise Group Headquartered in Basel, Switzerland, Bâloise Holding is a public limited holding company that is incorporated under Swiss law and listed on the Swiss Exchange (SIX)� The Baloise Group had a market capitalisation of CHF 6,380 million as at 31 December 2015� → Information on Baloise shares can be found from page 12 onwards� → Significant subsidiaries, joint ventures and associates as at 31 December 2015 can be found from page 250 onwards in the notes to the consolidated annual financial state- ments, which form part of the Financial Report� → Segment reporting by region and operating segment can be found from page 177 onwards in the notes to the consolidated annual financial statements within the Financial Report section� → The Baloise Group’s operational management structure is presented on page 72� Shareholder base As a public company with a broad shareholder base, Bâloise Holding is a member of the SMI Mid (SMIM) Index and the Swiss Leader Index (SLI)� Shareholder structure A total of 20,723 shareholders were registered in Bâloise Holding’s share register as at 31 December 2015� The number of registered shareholders had increased by 5�58 per cent com- pared with the previous year� The “Significant shareholders” section on page 268 provides information on the structure of the Company’s shareholder base as at 31 December 2015� The reports that were submitted to the issuer and to SIX Swiss Exchange AG’s disclosure office during the reporting year in compliance with section 20 of the Swiss Federal Act on Stock Exchanges and Securities Trading (BEHG) and were published on the latter’s electronic reporting and publication platform in compliance with section 21 BEHG can be viewed using the search function at https://www�six-exchange-regulation�com/en/home/ publications/significant-shareholders�html 58 Corporate Governance Corporate Governance Report including Remuneration Report Treasury shares Bâloise held 2,740,262 treasury shares (5�5 per cent of the issued share capital) as at 31 December 2015� Cross-shareholdings There are no cross-shareholdings based on either capital owner- ship or voting rights� 2. CAPITAL STRUCTURE Dividend policy Bâloise Holding pursues a policy of paying consistent, earnings- related dividends� It uses other dividend instruments such as share buy-backs and options to supplement conventional cash dividends� Shareholders have received a total of CHF 1,263�7 million from cash dividends and share buy-backs over the last five years� Baloise has therefore had a combined annual payout rate of between 30 per cent and 50 per cent in recent years� Year (CHF million) 2011 2012 2013 2014 2015 Total Cash dividends Share buy-backs Total 225.0 225.0 237.5 250.0 250.0 1,187.5 17.1 – – – 59.1 76.2 242.1 225.0 237.5 250.0 309.1 1,263.7 All figures stated as at 31 December. Bâloise Holding’s equity The table below shows the changes in equity during the last three reporting years� CHANGES IN BÂLOISE HOLDING’S EQUIT Y (BEFORE APPROPRIATION OF PROFIT) 2013 2014 2015 5.0 11.7 176.3 240.7 56.3 n/a 490.1 5.0 11.7 182.8 52.4 406.5 n/a 658.4 5.0 11.7 3.5 387.7 435.4 – 194.8 648.4 CHF million Share capital General reserve Reserve for treasury shares Other reserves Distributable profit Treasury shares Equity attribut- able to Bâloise Holding All figures stated as at 31 December. The share capital of Bâloise Holding has totalled CHF 5�0 million since 29 April 2008 and is divided into 50,000,000 dividend- bearing registered shares with a par value of CHF 0�10 each� Authorised and conditional capital; other financing instruments Authorised capital A resolution adopted by the Annual General Meeting on 30 April 2015 has authorised the Board of Directors until 30 April 2017 to increase the Company’s share capital by up to CHF 500,000 by issuing up to 5,000,000 fully paid-up registered shares with a par value of CHF 0�10 each (see section 3 [4] of the Articles of Association)� → www.baloise.com/rules-regulations Conditional capital The 2004 Annual General Meeting created conditional capital� This capital enables the Company’s share capital to be increased by up to 5,530,715 registered shares with a par value of CHF 0�10 each (see section 3 [2] of the Articles of Association)� This constitutes a nominal share capital increase of up to CHF 553,071�50� Conditional capital is used to cover any option rights or conversion rights granted in conjunction with bonds and similar 59 Corporate Governance Corporate Governance Report including Remuneration Report securities� Shareholders’ pre-emption rights are disapplied� Holders of the pertinent option rights and conversion rights are entitled to subscribe for the new registered shares� The Board of Directors may restrict or disapply shareholders’ pre-emption rights when issuing warrant-linked bonds or convertible bonds in international capital markets� → www.baloise.com/rules-regulations Other equity instruments The Company has no profit-participation certificates� The Baloise Group’s consolidated equity The Baloise Group’s consolidated equity amounted to CHF 5,462�3 million on 31 December 2015� Details of changes in consoli- dated equity in 2014 and 2015 can be found in the consolidated statement of changes in equity on pages 110 and 111 in the Fi- nancial Report section� All pertinent details relating to 2013 can be found in the consolidated statement of changes in equity on page 98 in the Financial Report section of the 2014 Annual Report� Bonds outstanding Bâloise Holding has issued bonds publicly� Bâloise Holding had a total of eight public bonds outstanding at the end of 2015 (of which one is a convertible bond)� Details of outstanding bonds of Bâloise Holding can be found on pages 228 and 266 and on the internet� → www.baloise.com/bonds Credit rating On 18 August 2015, credit rating agency Standard & Poor’s con- firmed Baloise Insurance Ltd’s rating of ‘A’ with a stable out- look’� S&P awarded this rating in recognition of the firm’s very strong capitalisation, its excellent operational profitability and its solid competitive position in Baloise’s core markets� The agency also rated the firm’s risk management as strong� The rating was awarded to Bâloise Holding Ltd’s Swiss sub- sidiary, Baloise Insurance Ltd, which is a core company of the Baloise Group� → www.baloise.com/s&prating 3. BOARD OF DIRECTORS Election and term of appointment The Board of Directors consisted of nine members at the end of 2015� Since the 2014 Annual General Meeting each member of the Board of Directors has been elected for a term of one year at a time� The average age on the Board of Directors is currently 61� Each member of the Board of Directors is elected individually� Members of the Board of Directors All members of the Board of Directors – including the Chair- man – are non-executives� They were not involved in the day- to-day management of any Baloise Group companies in any of the three financial years immediately preceding the reporting period, and they maintain no material business relationships with the Baloise Group� During the reporting year, Dr Michael Becker, Dr Andre- as Beerli, Dr Georges-Antoine de Boccard, Dr Andreas Burck- hardt, Christoph B� Gloor, Karin Keller-Sutter, Werner Kummer, Thomas Pleines and Dr Eveline Saupper were re-elected as members of the Board of Directors for a one-year term until the end of the next ordinary Annual General Meeting� Because their term of appointment is limited to one year, all members of the Board of Directors will have to be re-elected at the 2016 Annual General Meeting unless they are stepping down from the Board� All members of the Board of Directors, with the exception of Dr Eveline Saupper, are standing for re- election� Dr Eveline Saupper will step down from the Board of Directors at the 2016 Annual General Meeting� She has been a member of the Board of Directors since 1999 and has chaired the Remuneration Committee since 2012� She has made an out- standing contribution to the Baloise Group� The Board of Directors will propose Hugo Lasat (1964, Belgium, Master in Economic Sciences, Master in Finance) for election at the Annual General Meeting on 29 April 2016� He has been CEO of Brussels-based Degroof Petercam Asset Man- agement (formerly Petercam Institutional Asset Management) since 2011� His managerial roles prior to that include CEO of Amonis Pension Fund and CEO of Dexia Asset Management� 60 Corporate Governance Corporate Governance Report including Remuneration Report He is a guest professor at Hogeschool-Universiteit Brussel (HU- Brussel), Chairman of the Belgian Asset Management Associa- tion (BEAMA) and a member of the Board of Directors of the Belgian Financial Sector Federation (Febelfin)� He is also a member of the Financial Committee of the Red Cross and the Financial Committee of the King Baudouin Foundation� Mr Lasat will be an independent, non-executive director� Furthermore, Marie-Noëlle Venturi - Zen-Ruffinen (1975, CH, Prof� Dr� iur�, lawyer) is to be elected as a new member of the Board of Directors� She holds a PhD and master’s degree in law and a master’s degree in philosophy from the University of Fribourg� She is a lawyer and honorary professor at the School of Economics and Management at the University of Geneva, where she mainly lectures on corporate law� Professor MEMBERS Dr Andreas Burckhardt, Chairman, Basel Werner Kummer, Vice-Chairman, Küsnacht Dr Michael Becker, Darmstadt Dr Andreas Beerli, Oberwil-Lieli Dr Georges-Antoine de Boccard, Conches Christoph B. Gloor, Riehen Karin Keller-Sutter, Wil Thomas Pleines, Munich Dr Eveline Saupper, Zurich C: Chair, VC: Vice-Chairman, DC: Deputy Chairman, M: Member. Chairman’s Committee Audit Committee Remuneration Committee Investment Committee Nationality Born in Appointed in C VC M M C DC M M M M DC C C M M DC CH CH D CH CH CH CH D CH 1951 1947 1948 1951 1951 1966 1963 1955 1958 1999 2000 2010 2011 2011 2014 2013 2012 1999 BOARD AT TENDANCE IN 2015: MEETINGS OF THE FULL BOARD OF DIRECTORS Dr Andreas Burckhardt, Chairman Werner Kummer, Vice-Chairman Dr Michael Becker Dr Andreas Beerli Dr Georges-Antoine de Boccard Christoph B. Gloor Karin Keller-Sutter Thomas Pleines Dr Eveline Saupper 20.03.2015 30.04.2015 26.06.2015 25.08.2015 28.10.2015 16.12.2015 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 x x x x x x x x x x x x x x x x = present, 0 = absent, n / a = not applicable. All members were attending the respective committee meetings. 61 Corporate Governance Corporate Governance Report including Remuneration Report Venturi - Zen-Ruffinen was a partner in the Geneva law firm Tavernier Tschanz until 2012, and since that time has been of counsel for the firm� She is president of the Swiss Board Institute foundation and sits on the Board of Management of the Swiss Institute of Directors� She will be an independent non-executive director� → www.baloise.com/rules-regulations Committees of the Board of Directors The Board of Directors has four committees, which support it in its activities� These committees report to the Board of Direc- tors and submit the necessary proposals for their particular areas of responsibility� Further information on the members of the Board of Directors can be found on the internet� → www.baloise.com/board-of-directors Statutory rules concerning the number of permitted activities The 2015 Annual General Meeting approved the addition of a new section to the Articles of Association (section 33) concern- ing the maximum number of directorships held outside the Company� Section 1 stipulates the principle that the number of external directorships held by members of the Board of Direc- tors or Corporate Executive Committee must be compatible with the commitment, availability, capabilities and independence required of them in order to perform their duties as members of the Board of Directors or Corporate Executive Committee� Subsections 2 and 3 then specify numerical restrictions� Interlocking directorates There are no interlocking directorates� Internal organisation Functions and responsibilities of the Board of Directors Subject to the decision-making powers exercised by sharehold- ers at the Annual General Meeting, the Board of Directors is the Company’s ultimate decision-making body� Decisions are taken by the Board of Directors unless authority has been del- egated on the basis of the Organisational Regulations to the Chairman of the Board of Directors, its committees, the Chief Executive Officer or the Corporate Executive Committee� Section 716a of the Swiss Code of Obligations (OR) and clause A3 of the Organisational Regulations state that the Board of Directors’ main functions and responsibilities are to act as the Company’s ultimate managerial and supervisory body, to oversee the Company’s finances and to determine its organi- sational structures� The committees appointed by the Board of Directors gen- erally consist of four members, who are newly elected every year by the Board of Directors� Since 2015, section 7 ERCO has re- quired the members of the Remuneration Committee to be elected by the Annual General Meeting� The Chairman and Vice-Chairman of the Board of Directors are ex officio members of the Chairman’s Committee� The Chairman of the Board of Directors is not allowed to sit on the Audit and Risk Commit- tee� The committees’ basic functions and responsibilities are specified in the Organisational Regulations� Additional spe- cific regulations applicable to individual committees also govern administrative and other aspects� → www.baloise.com/rules-regulations Functions and responsibilities of the committees The Chairman’s Committee provides advice on key transactions, especially those involving important strategic or personnel- related decisions� The Chairman’s Committee also performs the function of a Nominations Committee and prepares personnel- related matters that fall within the remit of the Board of Direc- tors for subsequent approval by the latter� The Investment Committee’s main responsibilities are to oversee the Baloise Group’s investment activities, define the basic principles of its investment policy, specify the asset alloca- tion strategy for all strategic business units and devise the rel- evant investment plan� The Remuneration Committee proposes to the Board of Directors – for subsequent approval by the Annual General Meeting – the structure and amount of remuneration paid to the members of the Board of Directors and of the salaries paid to the members of the Corporate Executive Committee� Under ERCO, the remuneration paid to the Board of Directors and the Corporate Executive Committee has had to be approved by the Annual General Meeting� The Remuneration Committee 62 Corporate Governance Corporate Governance Report including Remuneration Report approves the target agreements and performance assessments that are applied to the Corporate Executive Committee members in order to determine their variable remuneration� It also sanc- tions the remuneration policies applicable to the Corporate Executive Committee members and ensures that they are being correctly implemented� It approves the variable remuneration granted to individual members of the Corporate Executive Com- mittee; this remuneration has to be within the maximum amount approved by the Annual General Meeting� Furthermore, it specifies the total amount available in the performance pool� The Audit and Risk Committee supports the Board of Directors in its non-delegable overarching supervisory and fi- nancial oversight functions (section 716a OR) by ascertaining whether the internal and external control systems, including risk management, are well organised and function properly, by assessing the situation with respect to compliance in the Com- pany and by forming its own view of the Company’s separate and consolidated annual financial statements� It receives regu- lar reports on the work and findings of Group Internal Audit and on cooperation with the external auditors� Meetings of the Board of Directors and its committees The Organisational Regulations stipulate that the full Board of Directors must meet as often as business requires, but no fewer than four times a year� → www.baloise.com/rules-regulations The full Board of Directors of Bâloise Holding met on six oc- casions in 2015� The table on page 61 shows Board of Directors members’ attendance at these meetings� All members of the relevant committee in each case attended every one of the ad- ditional 19 committee meetings� This means that the Board of Directors achieved an overall meeting attendance rate of 100 per cent� The Board of Directors held a seminar for the purpose of training its members� Meetings of the Board of Directors and its committees usually last half a working day each� The Chairman’s Committee convened nine times in 2015, which included one two-day strategy meeting� The Investment Committee met on three occasions� The Audit and Risk Com- mittee held four meetings, and the Remuneration Committee convened three times� Meetings of the Board of Directors are regularly attended by members of the Corporate Executive Committee� Meetings of the Chairman’s Committee are usually attended by the Group CEO and the Chief Financial Officer� Those present at Audit and Risk Committee meetings are primarily the Chief Financial Officer, the Head of the Corporate Centre, the Head of Group Internal Audit and, occasionally, representatives of the external auditors, the Chief Risk Officer, the Chief Investment Officer and the Group Compliance Officer� The main attendees at Re- muneration Committee meetings are the Group CEO, the Head of the Corporate Centre and the Head of Group Human Re- sources� Meetings of the Investment Committee are usually attended by the Group CEO, the Chief Investment Officer and the Heads of Investment Strategy and Investment Control, Baloise Asset Management and Real Estate� The Secretary to the Board of Directors attends the meetings of the full Board of Directors and those of its committees� Division of authorities, functions and responsibilities between the Board of Directors and the Corporate Executive Committee The division of authorities, functions and responsibilities be- tween the Board of Directors and the Corporate Executive Com- mittee is governed by law, the Articles of Association and the Organisational Regulations� The latter are reviewed on an on- going basis and updated as changing circumstances require� → www.baloise.com/rules-regulations Tools used to monitor and obtain information on the Corporate Executive Committee Group Internal Audit reports directly to the Chairman of the Board of Directors� Effective risk management is essential for any insurance group� This is why Baloise has devoted two entire chapters to the subject of financial risk management from page 50 onwards and in the Financial Report section starting on page 132� The members of the Board of Directors receive copies of the minutes of Corporate Executive Committee meetings for their information� The Chairman of the Board of Directors may attend meetings of the Corporate Executive Committee at any time� 63 Corporate Governance Corporate Governance Report including Remuneration Report ← Andreas Burckhardt (1951, Switzerland, Dr iur�, lawyer) has been a member of the Board of Directors since 1999 and its Chairman since 29 April 2011� He studied jurisprudence at the universities of Basel and Geneva� He worked in the legal department of Fides Treuhandgesellschaft from 1982 to 1987 and served as Secretary General of the Baloise Group from 1988 to 1994� He was director and head of the Basel Chamber of Commerce from 1994 to April 2011� In this role he sat on various gov- erning bodies of national and regional business organisations� From 1981 to 2011 he performed political functions in Basel City, and from 1997 to 2011 he served on the Great Council of the Canton of Basel City (as Chairman in 2006 and 2007)� He sits on the Board of Directors of Carl Spaeter AG and is Chairman of the Board of Governors of the Swiss Tropical and Public Health Institute, Basel� He is a member of the Executive Committee of economiesuisse and sits on the Executive Board of the Employers’ Federation for Basel and Regio Basiliensis� Dr Burckhardt performs a non-executive function as Chairman of Baloise’s Board of Directors� Andreas Burckhardt → Werner Kummer (1947, Switzerland, Dipl�-Ing� ETH Zurich, MBA Insead) has been a member of the Board of Directors since 2000 and Vice-Chairman since 2014� From 1990 to 1994 he was CEO of Schindler Aufzüge AG and subsequently, until 1998, sat on Schindler’s Group Management Committee, where he was respon- sible for the Asia Pacific region� Until 2013 he was a member of the Supervisory Board of Schindler Deutschland Holding GmbH� He was CEO of Forbo Holding AG from 1998 until 2004� He is a freelance management consultant, Chairman of the Board of Directors at Gebrüder Meier AG, a member of oth- er supervisory boards of non-listed companies in Switzerland and abroad and an executive director of the Zurich Chamber of Commerce� Mr Kummer is an independent non-executive director� Werner Kummer 64 Corporate Governance Corporate Governance Report including Remuneration Report ← Michael Becker (1948, Germany, Dr iur�) has been a member of the Board of Directors since 2010� He studied law in Hamburg and Tübingen and became Head of Accounting and Finance at Merck KGaA, Darmstadt, in 1998� He was an executive director and general partner at the publicly listed company Merck KGaA from 2000 until the end of 2011, and he was an executive director and general partner at E� Merck KG, Darmstadt, which holds 70 per cent of the share capital in Merck KGaA, from 2002 until 2011� He sits on the Supervisory Board at Symrise AG, Germany� Dr Becker is an independent non-executive director� Michael Becker → Andreas Beerli (1951, Switzerland, Dr iur�) has been a mem- ber of the Board of Directors since 2011� He studied law at the University of Basel� In 1979 he started working as an underwriter for the German market at Swiss Re� From 1985 to 1993 he performed various managerial roles at Baloise, with the main focus on supervising and supporting several foreign units� He then returned to Swiss Re, where he became a member of the Group Executive Committee in 2000, first in the United States as Head of Swiss Re Americas and, most recently, in Zurich as Chief Operating Officer for the entire Swiss Re Group� Since 2009 he has acted as an independent advisor on the boards of directors and advisory boards of companies and professional associations� He is a member of the Board of Directors at Ironshore Europe Inc�, Dublin, a member of the Advisory Board of Accenture Schweiz, and Chairman of the Swiss Advisory Council of the American Swiss Foundation� Dr Beerli is an independent non-executive director� Andreas Beerli 65 Corporate Governance Corporate Governance Report including Remuneration Report → Georges-Antoine de Boccard (1951, Switzerland, Dr med�) has been a member of the Board of Directors since 2011� He studied medicine at the University of Geneva� He has been running his own urological sur- gery practice in Geneva since 1987� Dr Georges-Antoine de Boccard is Chairman of the Board of Directors of Citadel Finance SA and Stellaria Holding SA, sits on the Board of Directors of the Swiss International Prostate Center SA and was Chairman of the Swiss Association of Urology from 2005 to 2006� He chairs the Board of Directors at Citadel Finance SA and was Chairman of the Swiss Association of Urology from 2005 to 2006� He is a member of the Swiss Association of Urology, the European Association of Urology and other professional bodies and associations and sits on the boards of directors of various foundations� Dr de Boccard is an independent non-executive director� Georges-Antoine de Boccard ← Christoph B. Gloor (1966, Switzerland) has been a mem- ber of the Board of Directors since 2014� He holds a university degree in business economics and has been a member of the Executive Committee of Notenstein La Roche Privatbank AG, Basel, since November 2015� He was previously Chief Executive Officer of Basel- based private bank La Roche & Co AG� Prior to joining La Roche & Co AG in 1998, he worked for Swiss Bank Corporation (SBC) before moving to Vitra (Interna- tional)� Christoph B� Gloor served as president of the Association of Swiss Private Banks from November 2013 to February 2015 and was a member of the Board of Directors of the Swiss Bankers Association from September 2013 to February 2015� Mr Gloor is an in- dependent non-executive director� Christoph B. Gloor 66 Corporate Governance Corporate Governance Report including Remuneration Report → Karin Keller-Sutter (1963, Switzerland), who holds a university degree in translation and conference interpreting and has a postgraduate qualifi- cation in education, has been a member of the Board of Directors since 2013� In 1996 she was elected to St� Gallen’s cantonal parliament and became Chairwoman of the FDP (the Swiss Liberal Party) for the canton of St� Gallen before being elected to St� Gallen’s cantonal governing coun- cil in 2000� She was in charge of the security and justice department until May 2012 and chaired the Governing Council in 2006/2007 and again in 2011/2012� She has been a member of the Council of States – the upper chamber of the Swiss parliament – since the autumn of 2011� Ms Keller-Sutter sits on the boards of directors at the NZZ media group and Pensimo Fondsleitung AG� She is also a member of the Board of Directors at the ASGA pension fund and chairs the Board of Trustees at the Pensimo investment trust� She is Chairwoman of the Swiss Retail Federation and a member of the Executive Committee of the Swiss Em- ployers’ Federation� Ms Keller-Sutter is an independent non-executive director� Karin Keller-Sutter ← Thomas Pleines (1955, Germany, lawyer) has been a member of the Board of Directors since 2012� From 2003 to 2005 he was CEO and delegate of the Board of Directors at Allianz Suisse, Zurich, and from 2006 to 2010 he was CEO of Allianz Versicherungs-AG, Munich, and an executive director at Allianz Deutschland AG, Munich� From 1998 to 2013 Mr Pleines sat on the Super- visory Board of Bilfinger SE, Mannheim� Since 2011, he has been Chairman of the Presidential Board at DEKRA e�V�, Stuttgart, Chairman of the Supervisory Board of DEKRA SE, Stuttgart, Chairman of the Su- pervisory Board at SÜDVERS Holding GmbH & Co� KG, Au near Freiburg, Zurich� Mr Pleines is an inde- pendent non-executive director� Thomas Pleines 67 Corporate Governance Corporate Governance Report including Remuneration Report Eveline Saupper 68 ← Eveline Saupper (1958, Switzerland, Dr iur�, lawyer) has been a member of the Board of Directors since 1999� She studied jurisprudence at the University of St� Gallen� She is a lawyer and a certified tax expert� She worked for Peat Marwick Mitchell (now KPMG Fides), Zurich, from 1983 to 1985 and was employed by Baker & McKenzie, Zurich and Chi- cago, from 1985 to 1992� Until mid-2014, she was a partner at Hom- burger AG, Zurich, where she is now of counsel� Dr Eveline Saupper sits on the boards of directors of Syngenta AG, Basel, Georg Fischer AG, Schaffhausen, Stäubli Holding AG, Pfäffikon SZ, and hkp group AG, Zurich� She is also Vice Chairwoman of the Board of Directors of Flughafen Zürich AG, Kloten, and chairs the Board of Directors of Men- tex Holding AG, Schwyz� Dr Saupper is an independent non-executive director� Secretary to the Board of Directors: Dr Philipp Jermann, Buus (BL) Head of Group Internal Audit: Rolf-Christian Andersen, Meilen (ZH) Corporate Governance Corporate Governance Report including Remuneration Report 4. CORPORATE EXECUTIVE COMMITTEE → Martin Strobel (1966, Germany/Switzerland, Dr rer� pol�) studied com- puter science, business management and business information systems at the universities of Kaiserslautern, Windsor (Canada) and Bamberg� From 1993 to 1999 he performed various roles at Boston Consulting Group, Düsseldorf, dealing with strategic IT management issues in the banking and insurance sectors� He joined the Baloise Group at the beginning of 1999� He was initially Head of IT at Basler Switzerland and, within the Baloise Group, was in charge of major cross-functional projects in the areas of insurance and finance� From 2003 to 2008 he was a member of the Corporate Executive Committee with responsibility for Corporate Division Switzerland� Dr Martin Strobel became Group CEO on 1 Janu- ary 2009� He also headed up Corporate Division International from 2013 until the end of 2014� He sits on the boards of directors of the Basel Chamber of Commerce and the Geneva Association� On 27 May 2015, Martin Strobel announced that he would be stepping down on 30 April 2016� On 29 October 2015, the Board of Directors of Bâloise Holding Ltd appointed Gert De Winter to succeed Martin Strobel� Gert De Winter (49) will take up his role as CEO of the Baloise Group (Group CEO) on 1 January 2016� He was previously CEO of Baloise in Belgium and has worked for Baloise since 2005� Martin Strobel ← German Egloff (1958, Switzerland, lic� oec� HSG) graduated in business management from the University of St� Gallen� From 1985 onwards he held various managerial positions at Winterthur Insurance, Switzerland� In 1997, as an executive director, he was put in charge of personal non- life insurance products, which included responsibility for both Wincare and – as Chairman of the Board of Directors – Sanacare� From 1998 to 2002 he was Chief Financial Officer of Winterthur Switzerland and sat on the Board of Directors of Wincare, becoming its Chairman in 2000� From 2002 to 2004 he was Chief Financial Officer at Zurich Financial Services, Switzerland� His responsibilities here comprised finance, human resources, IT, logistics and procurement� Since 1 December 2004, he has been a member of the Corporate Executive Committee (heading up Corporate Division Finance), where he oversees Group Accounting & Finance, Corporate Communications & Investor Relations, Group Risk Management, and Corporate IT� The actuary responsible for Baloise’s business in Switzerland and the Head of Regulatory Affairs also report to German Egloff� 69 German Egloff Corporate Governance Corporate Governance Report including Remuneration Report → Michael Müller (1971, Switzerland, lic� oec� publ�) graduated in economics from the University of Zurich, specialising in insurance and accounting/finance� He began his career with Basler Versiche rungen in 1997, starting as a management trainee, then working in Group Finance and eventually becoming Deputy Head and, in 2004, Head of Financial Accounting for the Baloise Group� In 2009, as Head of Finance and Risk, he became a member of the senior management team in Corporate Division Switzerland, focusing on finan- cial reporting and accounting, actuarial management of the insurance companies, risk management and coordination of logistics processes and the pool of project leaders� He has been a member of the Corporate Executive Committee and CEO of Corporate Division Switzerland since March 2011� Michael Müller is a member of the Board of Foundation of Stiftung Finanzplatz Basel� Michael Müller ← Thomas Sieber (1965, Switzerland, Dr iur�, M�B�L�, lawyer, SDM mediator) studied law at the University of St� Gallen� At the beginning of 1994 he qualified to practise as a lawyer in the Swiss canton of Zurich� From 1999 to 2002 he lectured in corporate law at the University of St� Gallen� After brief spells working at Landis & Gyr and Siemens he joined the Baloise Group in 1997 as Deputy Head of Legal & Tax� He became head of this division in 2001 and, in addition, was secretary to Bâloise Holding’s Board of Directors until April 2012� Since 6 December 2007 he has been a member of the Corporate Executive Committee and, as Head of the Corpo- rate Centre, is responsible for Group Human Resources, Legal and Tax, Group Compliance, Corporate Development, Run-off Business and – since 2009 – Group Procurement� He also sits on the Board of Directors at EuroAirport Basel- Mulhouse-Freiburg� Thomas Sieber 70 Corporate Governance Corporate Governance Report including Remuneration Report → Martin Wenk (1957, Switzerland, lic� iur�) held several posts at a major bank from 1982 to 1992 after graduating in law from the University of Basel� He started out as an investment advisor to institutional clients before becoming a Group Manager in private banking in New York and eventually working as Section Head of Securities Sales, where he pri- marily covered key institutional clients� From 1992 to 2000 he headed up portfolio management in Switzerland for the Baloise Group, where he was responsible for managing the assets of several Swiss companies, including their pension funds� In 2001 he was appointed to the Corporate Executive Committee (as Head of Corporate Division Asset Manage- ment) and, in this capacity, is responsible for the Baloise Group’s asset management activities, which include invest- ment strategy and investment control, Baloise Asset Manage- ment, real estate, and Baloise Investment Services (investment fund business)� He sits on the Board of Directors at Uniges- tion Holding, Geneva, and compenswiss (the Swiss Federal Social Security Funds), Geneva� Martin Wenk Further information on the members of the Corporate Execu- tive Committee can be found on the internet� With the exception of Dr Thomas Sieber and Martin Wenk, no Corporate Executive Committee members serve on the boards of directors at companies outside the Baloise Group� There are no management agreements that assign executive functions to third parties� → www.baloise.com/corporate-executive-committee 71 Corporate Governance Corporate Governance Report including Remuneration Report Management structure (as at: 31 December 2015) GROUP CEO Martin Strobel* CORPORATE SECRETARY Markus von Escher REGIONAL MANAGER Peter Zutter FINANCE ASSET MANAGEMENT CORPORATE CENTER SWITZERLAND GERMANY BELGIUM LUXEMBOURG German Egloff* Martin Wenk* Thomas Sieber* Michael Müller* Jürg Schiltknecht Gert De Winter Romain Braas Group Accounting & Controlling Pierre Girard Investment Strategy & Investment Controlling Corporate Communications & Investor Relations Thomas Schöb Baloise Asset Management Marc Kaiser Matthias Henny Real Estate Renato Piffaretti Baloise Investment Services Robert Antonietti Group Risk Management Stefan Nölker Corporate IT Olaf Romer Appointed Actuary Switzerland Thomas Müller Regulatory Affairs Fabian Berger 72 Corporate Development Sibylle Fischer Group Human Resources Stephan Ragg Group Legal & Tax Andreas Burki Group Compliance Peter Kalberer Run-off Bruno Rappo Group Procurement Manfred Schneider Product Management Commercial Clients Clemens Markstein Product Management Private Custom- ers & Focused Financial Services Wolfgang Prasser Sales & Marketing Bernard Dietrich Baloise Bank SoBa Jürg Ritz Operations & IT Urs Bienz Finance & Risk Carsten Stolz Claims Mathias Zingg Life & Tied agents Markus Jost Finance/Asset Management Kay Bölke Non-Life Alexander Tourneau IT/Operations Ralf Stankat Non-Life Retail Operations Joris Smeulders Daniel Frank Life & Finance Alain Nicolai Non-Life Claude Meyer Non-Life Enterprises & Marine Anne-Marie Seeuws Life / ICT & General Services Erik Vanpoucke Finance Henk Janssen * Member of the Corporate Executive Committee. Corporate Governance Corporate Governance Report including Remuneration Report 5. REMUNERATION REPORT: REMUNERATION, SHARE OWNER- SHIP AND LOANS GRANTED TO MEMBERS OF THE BOARD OF and members of the Board of Directors and to the mem- bers of the Corporate Executive Committee; DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE This remuneration report relates to the 2015 financial year� It describes the remuneration policies adopted and the remu- neration systems in place, and it discloses the remuneration paid to the Board of Directors and the Corporate Executive Committee in 2015� The content and scope of these disclosures are determined by sections 13 to 17 of the Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO), section 663c (3) of the Swiss Code of Obligations (OR), the corporate governance information guidelines published by the SIX Swiss Exchange, the Swiss Code of Best Practice for Corporate Governance, and circular 10/1 of the Swiss Financial Market Supervisory Authority (FINMA) concerning remu- neration systems� 5.1 Remuneration Committee of the Board of Directors The Remuneration Committee set up by the Board of Directors in 2001 is consistent with the Swiss Code of Best Practice and is tasked with helping the Board of Directors to frame the Com- pany’s remuneration policies� The Remuneration Committee has been vested with special decision-making powers and ensures, among other things, that: → the remuneration offered by Baloise is in line with the going market rate and performance-related in order to attract and retain individuals with the necessary skills and character attributes; → the remuneration paid is demonstrably dependent on the Company’s sustained success and individuals’ personal contributions and does not create any perverse incentives; → the structure and amount of overall remuneration paid are consistent with Baloise’s risk policies and encourage risk awareness� The Remuneration Committee’s main functions and re- sponsibilities are to: → submit proposals to the Board of Directors on the struc- ture of remuneration to be paid in the Baloise Group, especially the remuneration to be paid to the Chairman → submit proposals to the Board of Directors – for approval by the Annual General Meeting – on the amount of remu- neration to be paid to the Chairman and members of the Board of Directors and to the members of the Corporate Executive Committee; → approve the basic salaries and the variable remuneration paid to individual members of the Corporate Executive Committee (in compliance with the pay caps stipulated by the Annual General Meeting); → specify the total amount available in the performance pool and the total amount set aside for the allocation of perfor- mance share units (PSUs); → approve inducement payments and severance packages that are granted to the most senior managers and which in individual cases exceed CHF 100,000 (subject to the pro- viso that no severance packages may be granted to mem- bers of the Board of Directors or the Corporate Executive Committee)� The Remuneration Committee consists of at least three independent members of the Board of Directors, who are elect- ed every year by the Annual General Meeting� Dr Eveline Saup- per (Chairwoman), Thomas Pleines (Deputy Chairman), Dr Georges-Antoine de Boccard and Karin Keller-Sutter were elected to the Remuneration Committee by the Annual Gen- eral Meeting on 30 April 2015� The Remuneration Committee maintains an intensive dialogue with senior management throughout the year and generally meets at least twice annu- ally� In addition to the committee secretary being present, these meetings are usually also attended by the Group CEO, the Head of the Corporate Centre and the Head of Group Human Re- sources, who participate in an advisory capacity� The individ- ual members of the Group Executive Committee leave the meet- ing if the Remuneration Committee is discussing or deciding on their personal remuneration� The Chairwoman of the Re- muneration Committee reports to the Board of Directors at its next meeting on the committee’s activities� 73 Corporate Governance Corporate Governance Report including Remuneration Report 5.2 Remuneration policies 5.3 Remuneration system Principles The Company’s success is largely dependent on the skills, ca- pabilities and performance of its workforce� It is therefore es- sential to recruit, develop and retain suitably qualified, highly capable and highly motivated professionals and executives� The level of remuneration offered by Baloise is in line with the going market rate and performance-related� The clearly defined caps approved by the Annual General Meeting for the pay awarded to members of the Board of Directors and Corporate Executive Committee ensure that remuneration is not excessive� Remuneration Guideline and Remuneration Policy Responding to a request from the Remuneration Committee, in 2010 the Board of Directors formally adopted a Remunera- tion Guideline that formulates the remuneration principles and parameters applied across the Baloise Group� This Remu- neration Guideline applies to all employees throughout the Baloise Group� It reflects the Company’s values and principles and can be summarised as follows: → Competitiveness in the marketplace: Baloise aims to pay basic salaries that are in line with the market – i�e� around the market median – and to offer variable remuneration packages in excess of the going market rate to reward out- standing performance by individuals and the Company; → Remuneration that reflects individual and company-wide performance: merit and achievement form the basis for advancement and promotion; → Fairness and transparency: external market-based com- parisons, fair pay and no discrimination; → Sustainability: high correlation between the interests of managers and shareholders, long-term commitment, and a high proportion of restricted shares� The Board of Directors used this Remuneration Guideline as the basis for the Remuneration Policy, which applies to all employees in Switzerland and, by analogy, to all members of staff throughout the Baloise Group� By adopting this Remu- neration Guideline and Remuneration Policy, the Board of Di- rectors has ensured that all aspects of remuneration policy are centrally coordinated� This regulatory framework underpins a remuneration system that meets all the requirements of the Swiss Financial Market Supervisory Authority and, in particular, ensures that variable remuneration even more accurately reflects the value added by the Company� Objectives The objectives of the remuneration system are to further increase the emphasis on performance at Baloise and to strengthen employees’ and executives’ loyalty and commitment to the or- ganisation� The aim of Baloise’s remuneration policies is to pay basic salaries in line with the going market rate� In addition, the variable components of remuneration are structured in such a way that it is possible to grant payments above the market median for years in which individual performance and the Company’s profitability have been good; equally, it is possible to offer payments below the market median for years in which performance and profitability have been poor� As a performance- driven organisation, Baloise clearly and transparently aligns individual employees’ targets with the Company’s targets, which are derived from its strategic priorities� Target agreements, per- formance assessments and remuneration are closely correlated� The total remuneration package – which comprises basic sal- ary and variable remuneration – offers a sophisticated way of linking individuals’ performance to Baloise’s success and rec- ognising both accordingly, and it is designed to reward employ- ees for outstanding achievement without creating an incentive for them to take inappropriate risks� Personal performance provides our talented individuals with the necessary platform for their development, advancement, career planning and pro- motion� Baloise attaches considerable importance to retaining high performers and managing its business sustainably� In ad- dition to paying its staff in line with market rates and according to individual achievement, the Company encourages its execu- tives to focus on the long term and on its shareholders’ interests� Consequently, it pays a substantial proportion of variable re- muneration in the form of shares that are restricted for three years� Furthermore, the three most senior management levels receive performance share units, which means that a further component of their salaries is paid out as shares; these PSUs must be held for three years before being converted into shares as a form of deferred remuneration� As managers’ strategic re- sponsibility and influence grow, the amount of their variable remuneration is largely determined by the Company’s profit- ability and economic value added (allowing for the level of risk taken)� Short-term variable remuneration as a percentage of total compensation as well as the proportion of remuneration paid in the form of restricted shares (i�e� as deferred compensa- tion) increase accordingly� 74 Corporate Governance Corporate Governance Report including Remuneration Report 100 % 75 % 50 % 25 % 0 % Management level 3 Management level 2 Corporate Executive Committee Deferred variable remuneration Cash portion of short-term variable remuneration Basic salary Performance management system Baloise introduced a new performance management system for short-term variable remuneration in 2011� In order to encourage employees to focus relentlessly on performance and results while also taking account of the Company’s success, this system com- prises two clearly distinct tools: performance-related remu- neration and the performance pool� Performance-related re- muneration is used to reward individual employees’ achievements, while the performance pool as a whole takes account of the Company’s performance and value added� The performance management system applies to the most senior level of management and to most other members of the management team throughout the Baloise Group� The individual performance of the members of the Cor- porate Executive Committee is factored into the measurement of the performance pool� Market comparisons Baloise regularly compares the salaries paid to its senior ex- ecutives with those paid in the wider market� The Corporate Key Position Benchmark survey conducted by Kienbaum uses function-specific peer groups� Each function being compared is assigned to one of three distinct peer groups� Assignment is based on which companies Baloise is competing against for the skill-sets and qualifications needed for each function (i�e� re- cruitment market) and which alternative employers – in theo- ry, at least – meet a certain function profile (i�e� competitors)� The first peer group replicates Baloise’s core market and comprises direct insurers in the respective country� This peer group is used for conventional insurance and sales functions and for the local CEOs, executive directors and senior manage- ment functions� The second peer group supplements the core- market group by including further companies from the banking and financial services sector in the respective country� This group is designed to compare functions that demand considerable financial expertise but do not necessarily require an insurance background� The third peer group consists of companies of a similar size and structure from various sectors and is used for interdisciplinary functions� Baloise regularly compares the salaries paid in its insur- ance-specific and insurance-related functions in Switzerland with those of its relevant competitors and takes part in the Club Survey that Kienbaum has been conducting since 1995� This benchmarking survey of the salaries paid in the Swiss insurance sector is constantly being optimised to ensure that it meets par- ticipants’ high professional standards and quality requirements� The comparison mainly covers insurance-specific functions up to middle management level� It also examines insurance-relat- ed, managerial and specialist functions performed by senior executives� Functions not covered by the Kienbaum comparison are regularly reviewed using Towers Watson’s Financial Services Compensation Survey� The findings of these benchmarking surveys are fed into the Company’s regular review of its salary structures and presented to the Remuneration Committee� Baloise also regularly conducts market comparisons of its local functions in the countries outside Switzerland� 75 Corporate Governance Corporate Governance Report including Remuneration Report 5.4 Components of remuneration Baloise views its compensation packages in the round and there- fore factors in not only the basic salary plus short- and long-term variable remuneration but also other material and non-mate- rial benefits such as pension contributions, additional benefits, and staff development� Basic salary The basic salary constitutes the level of remuneration that is commensurate with the functions and responsibilities of the position concerned as well as the employee skills and expertise required in order to achieve the relevant business targets and objectives� When determining the level of its basic salaries, Baloise aims to position itself around the market median, although the way in which this is done will vary depending on local operating and market requirements� This remuneration is paid in cash by bank transfer� In order to ensure fairness and compliance with its code of conduct when determining the level of basic salaries, Baloise applies the internal fair-pay prin- ciple that people who do the same job and have the same qual- ifications should be paid the same amount� The Company’s clearly defined and market-based salary structures help ensure fair pay both inside and outside the organisation� Short-term variable remuneration The key factors determining the amount of short-term variable remuneration paid are an employee’s individual performance and the Company’s profitability and economic value added� The consequent link between individual performance and the Com- pany’s profits is designed to incentivise staff to achieve outstand- ing results� Measurement of the variable remuneration paid to employees who perform control functions (risk management, compliance, Group Internal Audit) is structured in such a way that it is not determined directly by the profitability of the unit being monitored or by the profitability of individual products or transactions� The remuneration paid to the insurance sales force is, by its very nature, strongly performance-related in line with the system of commissions commonly used in the insurance indus- try as a whole� However, these commissions constitute selling expenses rather than being regarded as variable remuneration in the strict sense of the term� Consequently, they are not dis- cussed in this remuneration report� Short-term variable remuneration is paid together with the salary for March of the following year� Baloise attaches considerable importance to managing its business sustainably and ensuring a high correlation between the interests of its shareholders and executives� It therefore pays a substantial pro- portion of variable remuneration in the form of shares� Senior managers can choose what percentage of their remuneration is paid out in cash and what proportion they receive in the form of shares� This choice is limited for the most senior managers, who are obliged to subscribe for shares on a sliding-scale basis: members of the Corporate Executive Committee must receive at least 50 per cent of their short-term variable remuneration in the form of shares, which account for at least 70 per cent of total variable remuneration if the long-term effect of performance share units is included (see page 78)� The shares subscribed in this way are restricted for three years and during this period are exposed to market risk� This mandatory purchase of shares in particular ensures that as senior executives’ managerial responsibilities and total remuneration packages increase, a significant proportion of their compensation is paid in the form of deferred remuneration� This system also raises employees’ risk awareness and encourages them to maintain sustainable business practices� Two plans are available to individuals who wish to subscribe for shares: the Share Subscription Plan and the Employee Share Ownership Plan (see ‘5�6 Share Subscription Plan and Employee Share Ownership Plan’)� The section below describes performance-related remu- neration and the performance pool, which are available as short- term variable remuneration tools� Performance-related remuneration Performance-related remuneration reflects individual employ- ees’ performance and rewards the achievement of their per- sonal targets� To this end, line managers consult their members of staff once a year in order to define the latter’s key individual targets and objectives and then – by no later than February of the following year – assess the extent to which these targets and objectives have been achieved� The target achievement scale ranges from 0 per cent (not achieved) to a maximum of 150 per cent (significantly over-achieved)� When setting these indi- vidual targets, line managers and their staff ensure that they do not agree any targets or objectives that conflict with the Company’s business strategy� The target figure agreed for performance-related remu- neration depends on the employee’s basic salary and varies ac- cording to his or her seniority in the management hierarchy 76 Corporate Governance Corporate Governance Report including Remuneration Report and the importance of his or her function� Those entitled to receive performance-related remuneration are the most senior management level in the Baloise Group (except for the members of the Corporate Executive Committee), the majority of senior managers in Switzerland and the corresponding functions abroad� The members of the Corporate Executive Committee do not receive any performance-related remuneration� Instead, their individual performance is recognised in such a way that the contribution made by each and every member of the Corporate Executive Committee to the achievement of the Company’s targets and objectives is factored into decisions affecting the measurement of the performance pool� Performance pool The performance pool takes account of the entire Baloise Group’s performance; its amount is determined by the Remuneration Committee after the end of the financial year concerned, and it factors in the following indicators resulting from systematic analysis: → Business performance The key metric for this criterion is the profit for the period� → Risks taken The indicators used to gauge the success of the Company’s business from a risk perspective are the Solvency I ratio, the Swiss Solvency Test (SST) ratio, economic profit, the credit rating awarded by Standard & Poor’s, and assess- ments provided by the Chief Risk Officer and the Head of Group Compliance� → Capital-markets perspective compared with competitors The main metric used to evaluate this criterion is the per- formance of Baloise’s share price compared with the almost 40 European insurance companies represented in the STOXX Europe 600 Insurance Index (the composition of this index is shown in the table on page 78)� → Strategy implementation The indicators used here are the changes in the combined ratio and market-consistent embedded value (MCEV) over time as well as the progress made on key strategic initiatives and projects� The assessments by the Chief Risk Officer and the Head of Group Compliance of the risks taken and the evaluations by the Head of Group Human Resources and others of strategy implementation are also based on qualitative criteria and non- financial indicators such as senior managers’ risk behaviour, compliance with procedures and regulations and the practising of a genuine compliance culture, the effectiveness of the inter- nal control system, and the efforts made in respect of talent management and staff engagement� Performance pool payments are awarded to individuals at the discretion of the line manager concerned; no regulatory tar- get figures have been specified� The amount of these payments is mainly determined by a holistic assessment consisting of indi- viduals’ achievement of targets (gauged by the extent to which they have achieved their personal targets and objectives) as well as their leadership and conduct� The individual performance pool payment proposed by the respective line manager is discussed by the relevant management team, compared with other depart- ments and divisions, and adjusted where necessary� This process ensures that risk-relevant behavioural attributes are factored into the performance pool payments awarded to individuals� This chosen system is centred on senior managers’ overall assessment and the validation of individuals’ performance pool payments at roundtable discussions� The aim here is to give due consideration to all aspects of an individual’s performance rather than using just a few parameters to make an assessment that may neglect other key factors� The Remuneration Committee decides on the performance pool payments awarded to the individual members of the Cor- porate Executive Committee� The average expected value amounts to 60 per cent of basic salary� Those considered for performance pool payments are the most senior management level in the Baloise Group, the major- ity of senior managers in Switzerland and the corresponding functions abroad� However, there is no fundamental entitlement to receive payments from the performance pool� For the 2015 financial year the Remuneration Committee decided on a factor of 100 per cent of the normally expected value of performance pool payments� This decision was moti- vated by the following considerations: → Good and solid profit for the year that was in line with expectations, despite a challenging environment; → Good operational profitability, resulting in a strong combined ratio; → Encouraging growth in the target segments; → Key projects and initiatives on track for completion; → Stable balance sheet, despite negative interest-rate environment and a strong Swiss franc� 77 Corporate Governance Corporate Governance Report including Remuneration Report The Remuneration Committee conducts a detailed assessment of the Company’s performance once a year and adjusts the size of the performance pool accordingly, as the table below shows in the form of a comparison with the consolidated profit for the period: 2011 2012 2013 2014 2015 Performance pool (as a percentage of the normal expected value) Consolidated profit for the period (CHF million) 70 % 100 % 120 % 137 % 100 % 61.3 485.2 455.4 711.9 511.1 Long-term variable remuneration: Performance share units In addition, Baloise grants performance share units (PSUs) to the most senior managers as a form of long-term variable re- muneration� The PSU programme enables the top management level to benefit even more from the Company’s performance and helps Baloise to retain high performers in the long run� At the beginning of each vesting period the participating employees are granted rights in the form of PSUs, which entitle them to receive a certain number of shares free of charge after the vesting period has elapsed� The Remuneration Committee specifies the grant date and applies its own discretion in decid- ing which of the most senior management team members are eligible for the programme� It determines the total number of PSUs available and decides how many are to be awarded to each member of the Corporate Executive Committee� PSUs are granted to the other programme participants on the basis of the relevant line manager’s proposal, which must be approved by the line manager’s manager� The number of shares that can be subscribed after three years – i�e� at the end of the vesting period – depends on the performance of Baloise shares relative to a peer group� This comparative performance multiplier can be anywhere between 0�5 and 1�5� The peer group comprises the almost 40 leading European insurance companies contained in the STOXX Europe 600 Insurance Index� One PSU generally confers the right to receive one share� This is the case if Baloise shares perform in line with the median of their peer group� In this case the performance multiplier would be 1�0� Programme participants receive more shares in exchange for their PSUs if Baloise shares outperform their peer group� The multiplier reaches the maximum of 1�5 if the performance of Baloise shares is in the top quartile of companies in the peer group� The multiplier amounts to 0�5 if the performance of Baloise shares is in the bottom quartile of companies in the peer group� If the performance of Baloise shares is in either of the two middle quartiles, a linear scale is used to calculate the performance mul- tiplier� The performance multiplier for the entire vesting period ended is based on the closing stock market prices on the final trading day of the respective vesting period� Companies in the STOXX 600 Europe Insurance Index (as at 31 December 2015) Admiral Group plc Direct Line Insurance Group Phoenix Group Holding Unipol Gruppo Finanziario Aegon NV Ageas Allianz Amlin plc Gjensidige Forsikring Prudential plc Unipolsai Hannover Rück RSA Insurance Group Zurich Insurance Group Helvetia Hiscox Sampo OYJ Scor Assicurazioni Generali Lancashire Holdings Standard Life plc Aviva plc Axa Bâloise Holding Beazly CNP Assurances Legal & General Group plc St. James’s Place Capital Mapfre SA Münchener Rück NN Group Old Mutual plc Swiss Life Swiss Re Topdanmark A / S Tryg Forsikring Source: http://www.stoxx.com/indices/index_information.html?symbol=SXIP 78 Corporate Governance Corporate Governance Report including Remuneration Report Participants receive the pertinent number of shares once the vesting period has elapsed, which means that for the PSUs al- located in 2015 they receive their shares on 1 March 2018� If an individual’s employment contract is terminated during the vest- ing period, the PSUs expire without the person concerned re- ceiving any consideration or compensation� This does not apply if the employment contract ends due to retirement, disability or death� It also does not apply if the contract is terminated but the programme participant does not join a rival company or is not personally at fault for the termination of the contract� In the latter two cases, some of the allocated PSUs will still expire� The number of PSUs expiring is proportional to the amount of time remaining until the end of the vesting period� In addition, the Remuneration Committee has the powers to claw back some or all of the PSUs allocated to an individual or to a group of programme participants if there are specific reasons for doing so� Such specific reasons include, for example, serious breaches of internal or external regulations, the taking of inappropriate risks that are within an individual’s control, and the type of conduct or behaviour that would increase the risks to Baloise� The shares needed to convert the PSUs are purchased in the market as and when required� Measurement of the PSUs at their issue date is based on a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period� This meas- urement incorporates the following parameters: → interest rate of 1 per cent; → the volatilities of all shares in the peer group and their correlations with each other (measured over a three-year track record); → the expected dividend yields; → empirical data on how long eligible programme partici- pants remain with the Company� The value of PSUs is exposed to market risk until the end of the vesting period and may, of course, fluctuate significant- ly, as shown in the table below: PERFORMANCE SHARE UNIT (PSU) PLAN PSUs granted PSUs converted Change in value 2007 2008 2009 2010 2011 2012 2013 2014 2015 Date Price (CHF)1 Date Multiplier Price (CHF)1 Value (CHF)2 01.03.2007 01.01.2008 01.01.2009 01.01.2010 01.01.2011 01.03.2012 01.03.2013 01.03.2014 01.03.2015 125.80 109.50 82.40 86.05 91.00 71.20 84.50 113.40 124.00 01.01.2010 01.01.2011 01.01.2012 01.01.2013 01.01.2014 01.03.2015 01.03.2016 01.03.2017 01.03.2018 1.182 1.24 0.64 0.58 0.77 1.21 41.23 40.90 41.05 86.05 91.00 64.40 78.50 113.60 124.00 4127.60 4127.60 4127.60 101.71 112.84 41.22 45.53 87.47 150.04 4156.95 4114.84 4133.98 1 Price = price of Baloise shares at the PSU grant date or conversion date. 2 Value = value of one PSU at the conversion date (share price at the conversion date times the multiplier). 3 Change in value = difference between the value at the conversion date (multiplier times the share price at the conversion date) and the share price at the grant date, expressed as a percentage of the share price at the grant date; example of the PSU plan in 2007: ([{1.182*86.05}–125.80] / 125.80) 100 = –19 %. 4 Interim measurement as at 31 December 2015. 3 – 19 % 3 % – 50 % – 47 % – 4 % 111 % 486 % 41 % 48 % 79 Corporate Governance Corporate Governance Report including Remuneration Report Fringe benefits Fringe benefits are generally defined as components of the total remuneration package that are not dependent on either an in- dividual’s function or performance or the Company’s perfor- mance� By providing benefits in the form of retirement pensions, subsidies, concessions, and staff training and professional de- velopment, Baloise demonstrates the close partnership that it maintains with its employees and the extent to which it values their contribution� Fringe benefits are granted on a country-by- country basis in line with prevailing local laws� 5.5 Employment contracts, change-of-control clauses, inducement payments and severance packages The employment contracts of senior managers in Switzerland and – in most cases – in other countries as well have been con- cluded for an indefinite period� They stipulate a notice period of six months� All members of the Corporate Executive Com- mittee have a notice period of twelve months� The employment contract with the Chairman of the Board of Directors does not stipulate any notice period; its duration is determined by the term of appointment and by law� There are no change-of-control clauses� The Remuneration Policy adopted by the Board of Direc- tors contains clear guidance on inducement payments and sev- erance packages� Such remuneration may only be paid in justi- fied cases� No severance packages may be awarded to members of either the Board of Directors or the Corporate Executive Committee, and any inducement payments granted to such persons – irrespective of their amount – must be approved by the Remuneration Committee� Inducement payments and sev- erance packages for the most senior managers must be approved by the Remuneration Committee if they exceed CHF 100,000� Each individual case is assessed on a discretionary basis� 5.6 Share Subscription Plan and Employee Share Ownership Plan Two plans are available to individuals who wish to subscribe for shares as part of their short-term variable remuneration: the Share Subscription Plan and the Employee Share Ownership Plan� Share Subscription Plan Since January 2003 those who qualify as eligible persons at Baloise Group companies in Switzerland – and, since 2008, the members of the Executive Committees at companies outside Switzerland as well – have been able to subscribe for shares at a preferential price as part of their short-term variable remu- neration� The subscription date is 1 March of each year; although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold for the duration of a three-year closed period� The parameters used to determine the subscription price are decided each year by the Remuneration Committee� The subscription price is based on the closing price on the first day of the subscription period, on which a discount of 10 per cent is granted (please refer to the accompanying table for details)� Once it has been calculated using this method, the subscription price is published in advance on the intranet� The shares need- ed for the Share Subscription Plan are purchased in the market as and when required� Applicable closing quotation Subscription price from CHF CHF 08.01.2016 121.40 109.26 09.01.2015 127.50 114.75 Share Subscription Plan for 2016 (applies to variable remuneration awarded for the 2015 reporting period) Share Subscription Plan for 2015 (applies to the variable remuneration granted for 2014 and to the shares subscribed by the Chairman and members of the Board of Directors in 2015) 80 Corporate Governance Corporate Governance Report including Remuneration Report Employee Share Ownership Plan Since May 2001 it has been possible for most management team members working in Switzerland to receive part of their short- term variable remuneration in the form of shares from the Em- ployee Share Ownership Plan instead of receiving cash� Within certain limits they are free to choose what proportion of their short-term variable remuneration they receive in the form of such shares� The most senior management team members are subject to upper limits; members of the Corporate Executive Committee – who are obliged to receive at least half of their short-term variable remuneration in the form of shares – are not allowed to receive more than 40 per cent of their entitlement in the form of shares from the Employee Share Ownership Plan� The subscription date is 1 March of each year (the same as for the Share Subscription Plan); although title to the shares pass- es to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold during a three-year closed period� The parameters used to determine the subscription price are decided each year by the Remuneration Committee� The subscription price is based on the closing price on the first day of the subscription period, from which discounted dividend rights are deducted over a period of three years (please refer to the accompanying table for details)� Once it has been calcu- lated using this method, the subscription price is published in advance on the intranet� The shares needed for the Employee Share Ownership Plan are purchased in the market as and when required� Applicable closing quotation Subscription price from CHF CHF 08.01.2016 121.40 106.59 09.01.2015 127.50 112.70 Employee Share Ownership Plan for 2016 (applies to variable remuneration awarded for the 2015 reporting period) Employee Share Ownership Plan for 2015 (applies to the variable remuneration granted for 2014 and to the shares subscribed by the Chairman of the Board of Directors in 2015) In order to increase the impact of this Employee Share Owner- ship Plan, employees are granted loans on which interest is charged at market rates, which enables them to subscribe for shares whose value constitutes a multiple of the capital invest- ed; these shares are purchased at their fair value net of dis- counted dividend rights over a period of three years� Repayment of these loans after the three-year closed period has elapsed is hedged by put options, which are financed by the sale of offset- ting call options� If the price of the shares is below the put op- tions’ strike price when the closed period expires, programme participants can sell all their shares at this strike price, which ensures that they can repay their loans plus interest� In this event, however, they lose all the capital that they have invested� If, on the other hand, the price of the shares is above the call options’ strike price, programme participants must pay the commercial value of these options� Their upside profit potential is thus limited by the call options� If, when the three-year closed period elapses, the price of the shares is between the put options’ strike price and the call options’ strike price, once the loans plus accrued interest have been repaid the employees concerned receive the remaining shares to do with as they wish� 81 Corporate Governance Corporate Governance Report including Remuneration Report EMPLOYEE INCENTIVE PLAN Number of shares subscribed Restricted until Subscription price per share (CHF) Value of shares subscribed (CHF million) Fair value of subscribed shares on subscription date (CHF million) Employees entitled to participate Participating employees Subscribed shares per participant (average) 5.7 Employee Incentive Plan The Baloise Foundation for Employee Participation set up in 1989 offers members of staff working for various Baloise Group companies in Switzerland the opportunity to purchase shares of Bâloise Holding Ltd – usually once a year – at a preferential price in compliance with the regulations adopted by the Board of Foundation� This encourages employees to maintain their commitment to the Company over the long term by becoming shareholders� The subscription price is fixed by the Board of Foundation at the beginning of the subscription period and is then published on the intranet� It equals half of the volume- weighted average share price calculated for the month of August in each subscription year� In 2015 the subscription price amount- ed to CHF 60�40 (2014: CHF 57�30) and a total of 172,796 shares were subscribed (2014: 174,810)� Title to the subscribed shares passes to the relevant employees with effect from 1 September each year, and the shares are subject to a three-year closed period� The Foundation acquired the underlying stock of shares used in this plan from previous capital increases carried out by Bâloise Holding Ltd� It supplements these shareholdings by purchasing shares in the market� The existing shareholdings will enable the Foundation to continue the Employee Incentive Plan over the coming years� The Foundation is run by a Board of Foundation that is predominantly independent of the Cor- porate Executive Committee� The independent Board of Foun- dation members are Peter Schwager (Chairman) and Professor Heinrich Koller (lawyer); the third member of the Board of Foundation is Andreas Burki (Head of Legal & Tax at Baloise)� 82 2014 2015 174,810 172,796 31.8.2017 31.08.2018 57.30 10.0 20.9 3,187 1,949 89.7 60.40 10.4 20.5 3,181 1,920 90.0 5.8 Pension schemes Baloise provides a range of pension solutions, which vary from country to country in line with local circumstances� In Swit- zerland it offers different pension schemes for its insurance and banking employees� The Company provides its employees in Switzerland with an attractive occupational pension solution (Pillar 2) that meets the following objectives: → It covers its insured employees’ needs in the event of old age, death or disability and mitigates the resultant finan- cial consequences by offering an occupational pension scheme based on the principle of social partnership� → It enables its retirees to maintain the standard of living to which they are accustomed by providing them with a sufficiently high level of income replacement (combination of Pillar 1 and Pillar 2 benefits) to compensate for their loss of earnings� → The employer makes a disproportionately high contribu- tion to the funding of its occupational pension scheme� → Its pension solutions are future-proof, robust, predictable and properly costed� The Chairman of the Board of Directors and the members of the Corporate Executive Committee are insured under the pension scheme run by Baloise Insurance Ltd� They are subject to the same terms and conditions as all other insured office- based members of staff� Corporate Governance Corporate Governance Report including Remuneration Report 5.9 Rules stipulated in the Articles of Association Certain rules governing remuneration are stipulated in the Articles of Association: → Section 30 Additional amount for the remuneration paid to Corporate Executive Committee members appointed since the last Annual General Meeting → Section 31 Annual General Meeting votes on remuneration → Section 32 Principles of profit-related remuneration and the granting of equity instruments → Section 34 Loans and advances granted to members of the Board of Directors and the Corporate Executive Committee → www.baloise.com/rules-regulations 5.10 Remuneration paid to the members of the Board of Directors Please refer to the tables on pages 86 and 87� The Chairman of the Board of Directors chairs the meet- ings of both the Board of Directors and the Chairman’s Com- mittee� He also chairs the Investment Committee� He represents the Company externally and, acting in this capacity, maintains contact with government agencies, trade associations and oth- er Baloise stakeholders� The Chairman of the Board of Directors liaises with the Group CEO in formulating proposals on Baloise’s long-term objectives and its strategic direction and development, and these proposals are then discussed and approved by the Board of Directors as a whole� He works closely with the Cor- porate Executive Committee to ensure that the Board of Direc- tors is provided with timely information on all matters of mate- rial importance to the decision-making and monitoring process at Baloise� The Chairman of the Board of Directors is entitled to attend meetings of the Corporate Executive Committee at any time� He takes part in these meetings when necessary in order to maintain a regular dialogue between himself and the Corporate Executive Committee and whenever matters of stra- tegic or long-term importance are being discussed� The Chairman of the Board of Directors performs his various functions on a full-time basis, in return for which he is paid a fixed amount of remuneration� He is not entitled to any vari- able remuneration and, consequently, he receives no performance- related remuneration, no performance pool payments and no allocation of PSUs� He is paid roughly a quarter of his remu- neration in the form of shares, although he is free to choose each year how many shares he receives under the Share Sub- scription Plan and the Employee Share Ownership Plan respec- tively� The shares that he receives under the Share Subscription Plan are subject to a closed period of five years (instead of the usual three years)� The other members of the Board of Directors are paid a lump sum as remuneration for their work on the Board of Directors (CHF 125,000) and for additional functions that they perform on the Board of Directors’ committees (CHF 70,000 for the Chairman and CHF 50,000 for members)� These amounts provide appropriate compensation for the responsibility and workload involved in their various functions and have remained unchanged since 2008� Since 2006 the members of the Board of Directors have received 25 per cent of their annual remuneration in the form of shares that are restricted for three years� Members of the Board of Directors receive a 10 per cent discount on the shares’ market price in line with the Share Subscription Plan available to senior executives� The members of the Board of Directors do not participate in any share ownership programmes that are predicated on the achievement of specific performance targets� No amounts receivable from current or previous members of the Board of Directors have been waived� No remuneration was paid to former members of the Board of Directors� 83 Corporate Governance Corporate Governance Report including Remuneration Report 5.11 Remuneration paid to the members of the Corporate Executive Committee Please refer to the tables on pages 88 to 91� The short-term variable remuneration paid to the members of the Corporate Executive Committee is allocated from the performance pool� The individual performance of each member in achieving the Company’s objectives is factored into the meas- urement of the performance pool� The expected performance pool value amounts to 60 per cent of basic salary� Even in cases of outstanding individual performance and excellent perfor- mance by the Company as a whole, this payment cannot exceed 90 per cent of basic salary (cap of 150 per cent of the expected value)� The members of the Corporate Executive Committee receive performance share units (PSUs) as a form of long-term variable remuneration, which is expected to account for 40 per cent of basic salary� This system complies with Swiss legislation and meets the European standard, which stipulates that the ratio of fixed to variable remuneration should normally be one- to-one (Capital Requirements Directive IV)� In addition, the Annual General Meeting held on 30 April 2015 passed binding votes in which it set a cap on the variable remuneration payable for 2015 and the amount of fixed remu- neration to be paid for 2016� The structure of remuneration paid to the Corporate Ex- ecutive Committee is laid down in the Remuneration Policy� The actual level of remuneration paid is determined as follows (see table below)� The members of the Corporate Executive Committee must re- ceive at least 50 per cent of their short-term variable remu- neration in the form of shares in order to ensure that their own interests are more strongly aligned with those of shareholders� This mandatory purchase of shares coupled with the shares al- located under the PSU programme ensures that, compared with the market as a whole, a significant proportion of their com- pensation is paid in the form of deferred remuneration� The Corporate Executive Committee members’ remuneration is disclosed on pages 88 to 91 in accordance with the accrual principle� The table includes all forms of remuneration award- ed for performance in 2015 even if individual components are not paid until a later date� The total remuneration paid to the Corporate Executive Committee for 2015 was lower than in the previous year (sum total of basic salary plus variable remuneration down by 16�0 per cent)� This can be attributed to several factors: → At 100 per cent, the performance pool is substantially smaller overall than it was in 2014 (137 per cent), which is reflected in the lower variable remuneration for the members of the Corporate Executive Committee� → One member of the Corporate Executive Committee took early retirement with effect from 30 April 2015� His total remuneration was therefore only around 41�0 per cent of his previous year’s remuneration� Excluding the member of the Corporate Executive Com- mittee who retired, the total remuneration of the other members of the Corporate Executive Committee for 2015 was 7�7 per cent lower than for 2014 because of the reduced variable remunera- tion� T YPE OF REMUNERATION DECIDED BY APPLICABLE PERIOD Fixed remuneration Annual General Meeting For the next financial year Variable remuneration – cap Annual General Meeting For the current financial year – individual payment Remuneration Committee (in compliance with the cap set by the Annual General Meeting) 84 Corporate Governance Corporate Governance Report including Remuneration Report The Annual General Meeting held on 30 April 2015 approved a maximum amount of CHF 5�3 million for the variable remu- neration payable for 2015� A total of CHF 4�0 million was paid out, which meant that only around three-quarters of the max- imum amount available was utilised� 5.12 Loans and credit facilities Please refer to the table on page 92� 5.13 Shares and options held Please refer to the tables on pages 93 and 94� 5.14 Amounts of total remuneration and variable remuneration Please refer to the table on page 95� As requested by circular 10/1 issued by the Swiss Finan- cial Market Supervisory Authority on the subject of remune- ration, Baloise has published in the table on page 95 the amounts of total remuneration and variable remuneration and has dis- closed the total amounts of outstanding deferred remunera- tion and the inducement payments and severance packages granted� These figures include all forms of remuneration award- ed for 2015 even if individual components are not paid until a later date� 85 Corporate Governance Corporate Governance Report including Remuneration Report REMUNERATION PAID TO THE MEMBERS OF THE BOARD OF DIRECTORS 2014 CHF Basic remuneration Remuneration for additional functions Total remuneration Pension benefits Total Of which: in shares Number of shares Dr Andreas Burckhardt 1,320,000 0 1,320,000 230,646 1,550,646 311,907 3,064 Chairman of the Board of Directors Dr Georg F. Krayer (until 24 April 2014) 62,500 137,500 0 137,500 68,657 668 Vice-Chairman of the Board of Directors Chairman’s Committee Investment Committee Werner Kummer Vice-Chairman of the Board of Directors (since 24 April 2014) Chairman’s Committee Chair of the Audit and Risk Committee Dr Michael Becker Investment Committee Audit and Risk Committee Dr Andreas Beerli Chairman’s Committee Audit and Risk Committee 125,000 125,000 125,000 Dr Georges-Antoine de Boccard 125,000 Investment Committee (since 24 April 2014) Remuneration Committee Christoph B. Gloor (since 24 April 2014) Investment Committee Karin Keller-Sutter Remuneration Committee Thomas Pleines Audit and Risk Committee Remuneration Committee Dr Eveline Saupper Chairman’s Committee (since 24 April 2014) Investment Committee (until 24 April 2014) Chair of the Remuneration Committee 83,333 125,000 125,000 125,000 25,000 25,000 25,000 33,333 50,000 70,000 50,000 50,000 50,000 50,000 33,333 50,000 33,333 50,000 50,000 50,000 33,333 16,667 70,000 278,333 0 278,333 61,154 595 225,000 0 225,000 56,221 547 225,000 5,743 230,743 56,221 547 208,333 5,743 214,076 43,682 425 116,666 5,743 122,409 0 175,000 5,743 180,743 43,682 225,000 5,743 230,743 56,221 0 425 547 245,000 5,743 250,743 61,154 595 Total for the Board of Directors 2,340,833 814,999 3,155,832 265,104 3,420,936 758,897 7,413 Explanatory notes to the table Christoph B. Gloor was voted in as a new member of the Board of Directors at the 2014 Annual General Meeting. Consequently, he only received a pro-rata share of the usual remuneration. Dr Georg F. Krayer left the Board of Directors at the same time, so he only received half of the usual remuneration. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length-basis was paid to individuals or companies who are related to members of the Board of Directors. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Shares 25 per cent of contractually agreed overall remuneration is paid in shares which remain restricted for three years. They are recognised at market value less 10 per cent (CHF 102.78, in line with the Share Subscription Plan). Shares received by the Chairman of the Board of Directors amounted to 1,517 shares in connection with the Share Subscription Plan (CHF 155,917, with a closed period of five years instead of the usual three years) and 1,547 shares in connection with the Employee Share Ownership Plan (CHF 155,990). Pension contributions The information disclosed for 2014 includes for the first time the contributions payable by the employer into the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund (only for the Chairman of the Board of Directors). 86 Corporate Governance Corporate Governance Report including Remuneration Report REMUNERATION PAID TO THE MEMBERS OF THE BOARD OF DIRECTORS 2015 CHF Basic remuneration Remuneration for additional functions Total remuneration Pension benefits Total Of which: in shares Number of shares Dr Andreas Burckhardt 1,320,000 0 1,320,000 231,607 1,551,607 311,940 2,743 Chairman of the Board of Directors Werner Kummer 125,000 295,000 0 295,000 73,670 642 Vice-Chairman of the Board of Directors Chairman’s Committee Chair of the Audit and Risk Committee Dr Michael Becker Investment Committee Audit and Risk Committee Dr Andreas Beerli Chairman’s Committee Audit and Risk Committee 125,000 125,000 Dr Georges-Antoine de Boccard 125,000 Investment Committee Remuneration Committee Christoph B. Gloor Investment Committee Karin Keller-Sutter Remuneration Committee Thomas Pleines Audit and Risk Committee Remuneration Committee Dr Eveline Saupper Chairman’s Committee Chair of the Remuneration Committee 125,000 125,000 125,000 125,000 50,000 50,000 70,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 70,000 225,000 0 225,000 56,228 490 225,000 5,743 230,743 56,228 490 225,000 5,743 230,743 56,228 490 175,000 5,743 180,743 43,720 175,000 5,743 180,743 43,720 225,000 5,743 230,743 56,228 381 381 490 245,000 5,743 250,743 61,162 533 Total for the Board of Directors 2,320,000 790,000 3,110,000 266,065 3,376,065 759,121 6,640 Explanatory notes to the table Remuneration paid to former members and related parties No remuneration on a non-arm’s-length-basis was paid to individuals or companies who are related to members of the Board of Directors. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Shares 25 per cent of contractually agreed overall remuneration is paid in shares which remain restricted for three years. They are recognised at market value less 10 per cent (CHF 114.75, in line with the Share Subscription Plan). Shares received by the Chairman of the Board of Directors amounted to 1,359 shares in connection with the Share Subscription Plan (CHF 155,945, with a closed period of five years instead of the usual three years) and 1,384 shares in connection with the Employee Share Ownership Plan (CHF 155,995). Pension contributions The information disclosed for 2015 includes the contributions payable by the employer into the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund (only for the Chairman of the Board of Directors). 87 Corporate Governance Corporate Governance Report including Remuneration Report REMUNERATION PAID TO THE MEMBERS OF THE CORPORATE EXECUTIVE COMMIT TEE Basic salary Cash payment (fixed) Cash payment Share Subscription Plan Employee Share Ownership Plan Performance share units (PSUs) Total variable remuneration Variable remuneration remuneration basic salary Non-cash benefits Pension Total contributions remuneration Total basic Variable salary plus remuneration as variable percentage of CHF CHF Number of shares CHF Number of shares 1,150,000 448,557 3,908 448,443 632,500 246,752 2,149 246,598 818,382 99,248 863 99,029 690,000 269,111 2,345 269,089 0 0 0 0 CHF 0 0 0 0 Granted in 2014 Number of PSUs CHF CHF CHF Number of shares 4,037 460,016 3,908 1,357,016 2,507,016 118 % CHF 4,320 CHF CHF 173,398 2,684,734 2,221 253,083 2,149 746,433 1,378,933 118 % 4,320 141,262 1,524,515 2,953 336,494 863 534,771 1,353,153 65 % 102,586 317,772 1,773,511 2,423 276,101 2,345 814,301 1,504,301 118 % 4,320 215,181 1,723,802 621,000 260,913 1,363 156,404 926 104,323 2,180 248,411 2,289 770,051 1,391,051 124 % 4,320 179,123 1,574,494 2014 Dr Martin Strobel Group CEO Michael Müller Head of Corporate Division Switzerland Jan De Meulder Head of SBU Germany German Egloff Head of Corporate Division Finance Dr Thomas Sieber Head of Corporate Division Corporate Centre Martin Wenk 690,000 269,111 2,345 269,089 0 0 2,423 276,101 2,345 814,301 1,504,301 118 % 4,320 215,181 1,723,802 Head of Corporate Division Asset Management Total for the Corporate Executive Committee 4,601,882 1,593,692 12,973 1,488,652 926 104,323 16,237 1,850,206 13,899 5,036,873 9,638,755 109 % 124,186 1,241,917 11,004,858 Explanatory notes to the table Remuneration is disclosed in accordance with the accrual principle. The table includes all forms of remuneration awarded for performance in 2014 even if individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions, etc. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length basis was paid to companies or individuals who are related to members of the Corporate Executive Committee. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Share Subscription Plan Proportion of variable remuneration received directly as shares, which are measured at market value less 10 per cent markdown. Subscription price = CHF 114.75. Employee Share Ownership Plan Proportion of variable remuneration received as shares (excluding loans to purchase shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 112.70. Performance share units (PSUs) These have been disclosed at their value of CHF 113.95 at the grant date and measured using a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period. 88 Corporate Governance Corporate Governance Report including Remuneration Report REMUNERATION PAID TO THE MEMBERS OF THE CORPORATE EXECUTIVE COMMIT TEE Basic salary Cash payment 2014 Dr Martin Strobel Group CEO Michael Müller Jan De Meulder Head of SBU Germany German Egloff Head of Corporate Division Switzerland Head of Corporate Division Finance Dr Thomas Sieber Head of Corporate Division Corporate Centre Head of Corporate Division Asset Management 0 0 0 0 0 0 0 0 0 0 Variable remuneration Total basic salary plus variable remuneration Variable remuneration as percentage of basic salary Non-cash benefits Pension contributions Total remuneration (fixed) Cash payment Share Subscription Plan Employee Share Ownership Plan Performance share units (PSUs) Total variable remuneration Granted in 2014 CHF CHF Number of shares CHF Number of shares CHF Number of PSUs CHF Number of shares CHF CHF 1,150,000 448,557 3,908 448,443 4,037 460,016 3,908 1,357,016 2,507,016 118 % CHF 4,320 CHF CHF 173,398 2,684,734 632,500 246,752 2,149 246,598 2,221 253,083 2,149 746,433 1,378,933 118 % 4,320 141,262 1,524,515 818,382 99,248 863 99,029 2,953 336,494 863 534,771 1,353,153 65 % 102,586 317,772 1,773,511 690,000 269,111 2,345 269,089 2,423 276,101 2,345 814,301 1,504,301 118 % 4,320 215,181 1,723,802 621,000 260,913 1,363 156,404 926 104,323 2,180 248,411 2,289 770,051 1,391,051 124 % 4,320 179,123 1,574,494 Martin Wenk 690,000 269,111 2,345 269,089 2,423 276,101 2,345 814,301 1,504,301 118 % 4,320 215,181 1,723,802 Total for the Corporate Executive Committee 4,601,882 1,593,692 12,973 1,488,652 926 104,323 16,237 1,850,206 13,899 5,036,873 9,638,755 109 % 124,186 1,241,917 11,004,858 Explanatory notes to the table Remuneration is disclosed in accordance with the accrual principle. The table includes all forms of remuneration awarded for performance in 2014 even if individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions, etc. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length basis was paid to companies or individuals who are related to members of the Corporate Executive Committee. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Share Subscription Plan Proportion of variable remuneration received directly as shares, which are measured at market value less 10 per cent markdown. Subscription price = CHF 114.75. Employee Share Ownership Plan Proportion of variable remuneration received as shares (excluding loans to purchase shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 112.70. Performance share units (PSUs) These have been disclosed at their value of CHF 113.95 at the grant date and measured using a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period. Non-cash benefits Based on all remuneration elements required to be declared on the Swiss salary certificate, including long-service awards, taxable benefits relating to shares received in connection with the Employee Incentive Plan (maximum of 100 shares per annum), accommodation costs and non-cash benefits (use of a company vehicle) granted to a Corporate Executive Committee member residing abroad. Pension benefits These comprise the estimated employer contributions to the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund or, alternatively, a compensatory payment in lieu of employer and employee contributions to the Swiss social security scheme and the pension fund (neither of these is payable if the person concerned is working outside Switzerland) and maintenance of disability insurance cover in the home country of a Corporate Executive Committee member residing abroad. 89 Corporate Governance Corporate Governance Report including Remuneration Report REMUNERATION PAID TO THE MEMBERS OF THE CORPORATE EXECUTIVE COMMIT TEE Basic salary Cash payment (fixed) Cash payment Share Subscription Plan Employee Share Ownership Plan Performance share units (PSUs) Total variable remuneration Variable remuneration remuneration of basic salary Non-cash benefits Pension Total contributions remuneration Total basic salary plus Variable remuneration variable as percentage 2015 Dr Martin Strobel Group CEO Michael Müller CHF CHF Number of shares CHF Number of shares 1,150,000 310,592 2,841 310,408 632,500 123,053 2,625 286,808 Head of Corporate Division Switzerland Jan De Meulder 255,762 143,142 0 0 CHF 0 0 0 Granted in 2015 Number of PSUs CHF CHF CHF Number of shares 3,796 460,075 2,841 1,081,075 2,231,075 94 % CHF 3,901 CHF CHF 174,115 2,409,091 2,088 253,066 2,625 662,926 1,295,426 105 % 3,901 141,262 1,440,588 926 112,231 0 255,373 511,135 100 % 62,004 154,443 727,581 0 0 0 Head of SBU Germany (until 30 April 2015) German Egloff Head of Corporate Division Finance Dr Thomas Sieber Head of Corporate Division Corporate Centre 690,000 144,975 1,515 165,529 971 103,496 2,278 276,094 2,486 690,094 1,380,094 100 % 3,901 215,181 1,599,175 621,000 186,318 1,023 111,773 699 74,509 2,050 248,460 1,722 621,060 1,242,060 100 % 3,901 194,648 1,440,609 Martin Wenk 690,000 111,801 3,069 335,319 0 0 2,278 276,094 3,069 723,214 1,413,214 105 % 3,901 215,181 1,632,295 Head of Corporate Division Asset Management Total for the Corporate Executive Committee 4,039,262 1,019,881 11,073 1,209,836 1,670 178,005 13,416 1,626,019 12,743 4,033,741 8,073,003 100 % 81,509 1,094,828 9,249,340 Explanatory notes to the table Remuneration is disclosed in accordance with the accrual principle. The table includes all forms of remuneration awarded for performance in 2015 even if individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions, etc. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length basis was paid to companies or individuals who are related to members of the Corporate Executive Committee. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Share Subscription Plan Proportion of variable remuneration received directly as shares, which are measured at market value less 10 per cent markdown. Subscription price = CHF 109.26. Employee Share Ownership Plan Proportion of variable remuneration received as shares (excluding loans to purchase shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 106.59. Performance share units (PSUs) These have been disclosed at their value of CHF 121.20 at the grant date and measured using a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period. 90 Corporate Governance Corporate Governance Report including Remuneration Report REMUNERATION PAID TO THE MEMBERS OF THE CORPORATE EXECUTIVE COMMIT TEE Basic salary Cash payment 2015 Dr Martin Strobel Group CEO Michael Müller Jan De Meulder German Egloff Head of Corporate Division Switzerland Head of SBU Germany (until 30 April 2015) Head of Corporate Division Finance Dr Thomas Sieber Head of Corporate Division Corporate Centre Head of Corporate Division Asset Management 0 0 0 0 0 0 0 0 Variable remuneration Total basic salary plus variable remuneration Variable remuneration as percentage of basic salary Non-cash benefits Pension contributions Total remuneration (fixed) Cash payment Share Subscription Plan Employee Share Ownership Plan Performance share units (PSUs) Total variable remuneration Granted in 2015 CHF CHF Number of shares CHF Number of shares CHF Number of PSUs CHF Number of shares CHF CHF 1,150,000 310,592 2,841 310,408 3,796 460,075 2,841 1,081,075 2,231,075 94 % CHF 3,901 CHF CHF 174,115 2,409,091 632,500 123,053 2,625 286,808 2,088 253,066 2,625 662,926 1,295,426 105 % 3,901 141,262 1,440,588 255,762 143,142 0 0 926 112,231 0 255,373 511,135 100 % 62,004 154,443 727,581 690,000 144,975 1,515 165,529 971 103,496 2,278 276,094 2,486 690,094 1,380,094 100 % 3,901 215,181 1,599,175 621,000 186,318 1,023 111,773 699 74,509 2,050 248,460 1,722 621,060 1,242,060 100 % 3,901 194,648 1,440,609 Martin Wenk 690,000 111,801 3,069 335,319 2,278 276,094 3,069 723,214 1,413,214 105 % 3,901 215,181 1,632,295 Total for the Corporate Executive Committee 4,039,262 1,019,881 11,073 1,209,836 1,670 178,005 13,416 1,626,019 12,743 4,033,741 8,073,003 100 % 81,509 1,094,828 9,249,340 Explanatory notes to the table Remuneration is disclosed in accordance with the accrual principle. The table includes all forms of remuneration awarded for performance in 2015 even if individual components are not paid until a later date. Amounts are gross, before deduction of social security contributions, etc. Remuneration paid to former members and related parties No remuneration on a non-arm’s-length basis was paid to companies or individuals who are related to members of the Corporate Executive Committee. Related parties are spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them. No amounts receivable from these persons were waived. Share Subscription Plan Proportion of variable remuneration received directly as shares, which are measured at market value less 10 per cent markdown. Subscription price = CHF 109.26. Employee Share Ownership Plan Proportion of variable remuneration received as shares (excluding loans to purchase shares), which are measured at market value less dividend rights discounted over three years. Subscription price = CHF 106.59. Performance share units (PSUs) These have been disclosed at their value of CHF 121.20 at the grant date and measured using a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period. Non-cash benefits Based on all remuneration elements required to be declared on the Swiss salary certificate, including long-service awards, taxable benefits relating to shares received in connection with the Employee Incentive Plan (maximum of 100 shares per annum), accommodation costs and non-cash benefits (use of a company vehicle) granted to a Corporate Executive Committee member residing abroad. Pension benefits These comprise the estimated employer contributions to the state-run social security schemes (up to the pensionable or insurable threshold in each case) and the pension fund or, alternatively, a compensatory payment in lieu of employer and employee contributions to the Swiss social security scheme and the pension fund (neither of these is payable if the person concerned is working outside Switzerland) and maintenance of disability insurance cover in the home country of a Corporate Executive Committee member residing abroad. 91 Corporate Governance Corporate Governance Report including Remuneration Report LOANS AND CREDIT FACILITIES GRANTED TO MEMBERS OF THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMIT TEE (AS AT 31 DECEMBER) Mortgages Loans pertaining to the Employee Share Ownership Plan Other loans 2014 2015 2014 2015 2014 2015 2014 Total 2015 CHF Dr Andreas Burckhardt Chairman Werner Kummer Vice-Chairman Dr Michael Becker Member Dr Andreas Beerli Member Dr Georges-Antoine de Boccard Member Christoph B. Gloor Member Karin Keller-Sutter Member Thomas Pleines Member Dr Eveline Saupper Member Total for the Board of Directors Corporate Executive Committee member with the highest outstanding loan Dr Thomas Sieber Head of Corporate Division Corporate Centre Other members of the Corporate Executive Committee Total for the Corporate Executive Committee 0 0 0 0 0 0 0 0 0 0 0 2,706,237 2,674,203 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,706,237 2,674,203 1,000,000 1,000,000 2,549,704 2,399,986 2,275,000 1,850,000 2,560,621 897,885 3,275,000 2,850,000 5,110,325 3,297,871 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,706,237 2,674,203 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,706,237 2,674,203 0 3,549,704 3,399,986 0 4,835,621 2,747,885 0 8,385,325 6,147,871 Explanatory notes to the table Loans and credit facilities No loans or credit facilities were granted at non-market terms and conditions a) to former members of the Board of Directors or Corporate Executive Committee; b) to individuals or companies related to members of the Board of Directors or Corporate Executive Committee. Related parties are: spouses, life partners, children under 18 years, companies owned or controlled by directors, or legal entities or individuals who act as trustees for them. Mortgages Mortgages of up to CHF 1 million are granted to staff at the following terms and conditions: 1 per cent below the customer interest rate for variable-rate mortgages and at a preferential interest rate for fixed-rate mortgages. Loans associated with the Employee Share Ownership Plan Loans to increase the effect of the Employee Share Ownership Plan (see ‘5.6 Share Subscription Plan and Employee Share Ownership Plan’). Interest is charged on loans at a market rate (2015: 1 per cent), and they have a term of three years. Other loans There are no policy loans. 92 Corporate Governance Corporate Governance Report including Remuneration Report SHARES HELD BY MEMBERS OF THE BOARD OF DIRECTORS (AS AT 31 DECEMBER) Discretionary shares Restricted shares Total share ownership Percentage of issued share capital 2014 2015 2014 2015 2014 2015 2014 2015 Quantity Dr Andreas Burckhardt Chairman Werner Kummer Vice-Chairman Dr Michael Becker Member Dr Andreas Beerli Member Dr Georges-Antoine de Boccard Member Christoph B. Gloor Member Karin Keller-Sutter Member Thomas Pleines Member Dr Eveline Saupper Member Total for the Board of Directors Percentage of issued share capital 4,951 8,809 50,576 43,919 55,527 52,728 0.111 % 0.105 % 4,184 4,927 3,170 3,069 7,354 7,996 0.015 % 0.016 % 1,530 2,197 2,978 2,801 4,508 4,998 0.009 % 0.010 % 0 0 667 2,808 2,631 2,808 3,298 0.006 % 0.007 % 667 2,686 2,509 2,686 3,176 0.005 % 0.006 % 7,000 7,312 1,000 1,381 8,000 8,693 0.016 % 0.017 % 0 0 0 0 1,425 1,806 1,425 1,806 0.003 % 0.004 % 2,141 2,631 2,141 2,631 0.004 % 0.005 % 2,771 20,436 3,438 28,017 3,094 69,878 2,960 63,707 5,865 90,314 6,398 91,724 0.012 % 0.181 % 0.013 % 0.183 % 0.041 % 0.056 % 0.140 % 0.127 % 0.181 % 0.183 % Explanatory notes to the table Shareholdings Includes shares held by related parties (spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them). Restricted shares Shares received in connection with share-based remuneration programmes are subject to a closed period of three years. The closed period for shares received by the Chairman of the Board of Directors in connection with the Share Subscription Plan is five years. Section 20 of the Articles of Association also requires all members of the Board of Directors to lodge 1,000 shares with the Company for the duration of their term of appointment (qualifying shares). Options Members of the Board of Directors do not hold any options on Baloise shares. 93 Corporate Governance Corporate Governance Report including Remuneration Report SHARES HELD BY MEMBERS OF THE CORPORATE EXECUTIVE COMMIT TEE (AS AT 31 DECEMBER) Quantity Dr Martin Strobel Group CEO Michael Müller Discretionary shares Restricted shares Total share ownership Percentage of issued share capital Prospective entitlements (PSUs) 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 100 100 51,044 28,960 51,144 29,060 0.102 % 0.058 % 20,408 14,373 Head of Corporate Division Switzerland 2,679 9,708 10,632 9,931 13,311 19,639 0.027 % 0.039 % 8,654 7,371 Jan De Meulder Head of SBU Germany (until 30 April 2015) 4,593 7,724 11,525 8,607 16,118 16,331 0.032 % 0.033 % 12,033 8,043 German Egloff Head of Corporate Division Finance 7,583 17,457 19,280 9,557 26,863 27,014 0.054 % 0.054 % 9,854 8,269 Dr Thomas Sieber Head of Corporate Division Corporate Centre Martin Wenk Head of Corporate Division Asset Management Total for the members of the Corporate Executive Committee Percentage of issued share capital 3,150 6,050 45,239 36,623 48,389 42,673 0.097 % 0.085 % 9,183 7,441 8,000 9,000 11,098 9,894 19,098 18,894 0.038 % 0.038 % 10,204 8,269 26,105 50,039 148,818 103,572 174,923 153,611 0.350 % 0.307 % 70,336 53,766 0.052 % 0.100 % 0.298 % 0.207 % 0.350 % 0.307 % Explanatory notes to the table Shareholdings Includes shares held by related parties (spouses, life partners, children under 18 years, companies owned or controlled by directors, and legal entities or individuals who act as trustees for them). Restricted shares Includes loan-financed shares connected with the Employee Share Ownership Plan. Shares received in connection with share-based remuneration programmes are subject to a closed period of three years. Options Options held in connection with the Employee Share Ownership Plan are not reported here because they were written to hedge loans and do not originate from a separate option plan. Each put option is also offset by a countervailing call option. Prospective entitlements (PSUs) Number of allocated performance share units (granted as at 1 March 2013, 1 March 2014 and 1 March 2015). 94 Corporate Governance Corporate Governance Report including Remuneration Report TOTAL AND VARIABLE REMUNERATION IN THE BALOISE GROUP In cash In shares Prospective entitlements Total In cash In shares Prospective entitlements 2014 2015 Total 762.3 5.7 5.6 773.6 698.8 5.5 5.1 709.4 Total remuneration CHF million Total variable remuneration (total pool) CHF million Number of beneficiaries 172.3 5,353 5.7 148 5.6 64 183.6 154.7 5,230 5.5 168 5.1 62 165.3 Of which commission paid to insurance sales force CHF million 102.5 0.0 0.0 102.5 99.9 0.0 0.0 99.9 Of which other forms of variable remuneration CHF million 69.8 5.7 5.6 81.1 54.7 5.5 5.1 65.3 Total outstanding deferred remuneration CHF million Debits / credits for remuneration for previous reporting periods recognised in profit or loss 0.0 100.5 17.5 118.0 0.0 94.1 15.5 109.6 CHF million 0.0 0.0 0.0 0.0 – 0.1 0.0 0.0 – 0.1 Total inducement payments made CHF million Number of beneficiaries Total severance payments made CHF million Number of beneficiaries 0.0 1 19.7 157 0.0 0 0.0 0 0.0 0 0.0 0 0.0 19.7 0.2 3 14.7 137 0.0 0 0.0 0 0.0 0 0.0 0 0.2 14.7 Explanatory notes to the table The table includes all forms of remuneration awarded for each year even if individual components are not paid until a later date. Total remuneration All taxable benefits that the financial institution provides to persons directly or indirectly for the work they have performed for it in connection with their employment or directorship. They include cash payments, non-cash benefits, expenditure that creates or increases entitlements to pension benefits, pensions, allotment of shareholdings, conversion rights and warrants, and debt waivers. Variable remuneration Part of total remuneration, the amount or payment of which is at the discretion of the financial institution or which depends on the occurrence of agreed conditions. It includes performance-related and profit-based remuneration such as fees and commissions. Inducement and severance payments also fall under the definition of variable remuneration. Total pool All the variable remuneration that a financial institution allocates for a year regardless of its form, any contractual undertaking in respect of grant dates or payout dates and any terms and conditions attached. Inducement and severance payments made in the relevant year should be included in the total pool. Inducement payment One-off payment agreed when an employment contract is signed. Payments to compensate for lost entitlement to remuneration from a former employer also count as inducement pay. Severance payment Remuneration agreed in connection with the termination of an employment contract. Severance packages are paid only in individual justified cases and are granted only to management team members and to employees, but not to members of either the Board of Directors or the Corporate Executive Committee. 95 Corporate Governance Corporate Governance Report including Remuneration Report Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel STATUTORY AUDITOR’S REPORT ON THE REMUNERATION REPORT FOR 2015 We have audited the remuneration report (pages 73 to 95) of 18 March 2016 published by Bâloise Holding Ltd for the year ended 31 December 2015� Board of Directors’ responsibility The Board of Directors is responsible for the preparation and fair presentation of the remuneration report in accordance with Swiss law and the Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO)� This responsibility includes drafting the Company’s remuneration principles and setting remuneration levels in individual cases� Auditor’s responsibility Our responsibility is to express an opinion on the accompanying remuneration report based on our audit� We conducted our audit in accordance with Swiss Auditing Standards� Those standards require that we comply with professional codes of conduct and that we plan and perform the audit to obtain reasonable assurance about wheth- er the remuneration report is consistent with Swiss law and sections 14 to 16 ERCO� An audit involves performing procedures to obtain audit evidence about the remuneration report’s disclosures on remuneration, loans and credit facilities in accordance with sections 14 to 16 ERCO� The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the remu- neration report, whether due to fraud or error� This audit also includes evaluating the appropriateness of the meth- ods used to measure remuneration elements, as well as evaluating the overall presentation of the remuneration report� We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion� Opinion In our opinion, the remuneration report of Bâloise Holding Ltd for the year ended 31 December 2015 is consistent with Swiss law and sections 14 to 16 ERCO� PricewaterhouseCoopers Ltd Michael Stämpfli Audit expert Peter Lüssi Audit expert Auditor in charge Basel, 18 March 2016 96 Corporate Governance Corporate Governance Report including Remuneration Report This page has been left empty on purpose. 97 Corporate Governance Corporate Governance Report including Remuneration Report 6. SHAREHOLDER PARTICIPATION RIGHTS Voting rights The share capital of Bâloise Holding consists solely of registered shares� Each share confers the right to one vote� No shares carry preferential voting rights� To ensure a broad-based share- holder structure and to protect minority shareholders, no share- holder is registered as holding more than 2 per cent of voting rights, regardless of the size of their shareholding� The Board of Directors can approve exceptions to this provision if a major- ity of two-thirds of all its members is in favour (section 5 of the Articles of Association)� There are currently no exceptions� Each shareholder can appoint a proxy in writing in order to author- ise another shareholder or an independent proxy to exercise his or her voting rights� When exercising voting rights, no share- holder can accumulate more than one fifth of the voting shares at the Annual General Meeting directly or indirectly for his or her own votes or proxy votes (section 16 of the Articles of As- sociation)� The 2015 Annual General Meeting voted for a provision in section 16 (2) of the Articles of Association to the effect that powers of attorney and voting instructions may also be given to an independent proxy electronically without requiring a qualifying electronic signature� Statutory quorums The Annual General Meeting is quorate regardless of the num- ber of shareholders present or proxy votes represented, subject to the mandatory cases stated by law (section 17 of the Articles of Association)� The consent of at least three-quarters of the votes repre- sented at the Annual General Meeting is required to suspend statutory restrictions on voting rights� The votes must also rep- resent at least one third of the total shares issued by the Com- pany� This qualified majority also applies to the cases specified in section 17 (3) lit� a–h of the Articles of Association� Otherwise, resolutions are adopted by a simple majority of the votes cast, subject to compulsory legal provisions (section 17 of the Articles of Association)� Convening the Annual General Meeting The Annual General Meeting generally takes place in April, but must be held within six months of the end of the previous finan- cial year� Bâloise Holding’s financial year ends on 31 December� The Annual General Meeting is convened at least 20 days before the date of the meeting� Each registered shareholder receives a personal invitation, which includes the agenda� The invitation and the agenda are published in the Swiss Official Gazette of Commerce, in various newspapers and on the internet� The Annual General Meeting, the Board of Directors or the external auditors decide whether to convene extraordinary general meetings� Furthermore, legal provisions also require the Board of Directors to convene an extraordinary general meeting if requested by the shareholders (section 11 of the Articles of Association)� Article 699 (3) of the Swiss Code of Obligations (OR) states such requests must be made by share- holders who represent at least 10 per cent of the share capital� Requesting agenda items Article 699 (3) OR states that one or more shareholders who together represent shares of at least CHF 100,000 can request items to be put on the agenda for debate� Such requests must be submitted in writing to the Board of Directors at least six weeks before the ordinary Annual General Meeting is held, giving details of the motions to be put to the AGM (section 14 of the Articles of Association)� Entry in the share register Shareholders are entitled to vote at the Annual General Meeting provided they are registered in the share register as sharehold- ers with voting rights on the cut-off date stated by the Board of Directors in the invitation� The cut-off date should be several days before the Annual General Meeting (section 16 of the Articles of Association)� Section 5 of the Articles of Association determines wheth- er nominee entries are permissible, taking into account any percentage limits and entry requirements� The procedures and requirements for suspending and restricting transferability are set out in the provisions in section 5 and section 17� → www.baloise.com/rules-regulations → www.baloise.com/calendar 98 Corporate Governance Corporate Governance Report including Remuneration Report 7. CHANGES OF CONTROL AND POISON-PILL MEASURES Shareholders or groups of shareholders acting together by agree- ment are required to issue a takeover bid to all other sharehold- ers when they have acquired 33 per cent of all Baloise shares� Bâloise Holding has not made any use of the option to deviate from or waive this regulation� There is no statutory opting-out clause or opting-up clause as defined by the Swiss Federal Act on Stock Exchanges and Securities Trading (Börsengesetz)� The members of the Corporate Executive Committee and the Chairman of the Board of Directors have a notice period of twelve months� Bâloise has not agreed any arrangements in respect of changes of control or non-compete clauses with mem- bers of either the Board of Directors or the Corporate Executive Committee� 8. EXTERNAL AUDITORS The external auditors are elected annually by the Annual Gen- eral Meeting� PricewaterhouseCoopers AG (PwC) or its prede- cessor Schweizerische Treuhandgesellschaft / STG-Coopers & Lybrand has audited Bâloise Holding since 1962� Mr Peter Lüssi has held the post of auditor-in-charge since 2013� In ac- cordance with article 730a (2) OR, the role of auditor-in-charge is rotated every seven years� PwC has been the external auditing firm for almost all Group companies since 2005� A new invitation to tender was issued and the contract awarded in anticipation of the new requirement to change ex- ternal auditors on a regular basis� At the next Annual General Meeting, the Board of Directors will propose that its sharehold- ers elect Ernst & Young (EY), Basel, as the Company’s new ex- ternal auditors� PRICEWATERHOUSECOOPERS’ FEES CHF (rounded to the nearest thousand, including outlays and VAT) Audit fees Consulting fees Tax consultancy and legal advice Insurance-specific consulting Operational consulting Business and IT consulting 2014 2015 5,186,000 5,049,000 608,000 269,000 54,000 175,000 110,000 953,000 229,000 2,000 489,000 233,000 Total 5,794,000 6,002,000 The audit fees include fees for engagements with a direct or indirect connection to a current or future audit engagement and fees for audit-related activities (including support with accounting issues, regulatory issues and statutory special audits). At its meetings, the Audit and Risk Committee receives detailed documentation about the external auditors’ findings, primarily at meetings about the annual and half-year financial statements� The performance of the external auditors and their inter- action with Group Internal Audit, Risk Management and Com- pliance are assessed by the Audit and Risk Committee� The Audit and Risk Committee’s discussions with the external au- ditors focus on the audit work the latter have undertaken, their reports and the material findings and most important issues raised during the audit� 99 Corporate Governance Corporate Governance Report including Remuneration Report The Audit and Risk Committee submits proposals to the Board of Directors regarding the external auditors to be elected by the Annual General Meeting and makes recommendations regard- ing their fees� Before the start of the annual audit, it reviews the scope of the audit and suggests areas that require special atten- tion� The Audit and Risk Committee reviews the external audi- tors’ fees on an annual basis� 9. SIGNIFICANT AMENDMENTS TO THE ARTICLES OF ASSOCIA- TION SUBMITTED TO THE 2016 ANNUAL GENERAL MEETING No amendments to the Articles of Association will be submit- ted to the 2016 Annual General Meeting� Information events Baloise provides detailed information about its business activities as follows: → Details about its financial performance, targets, strategies and operations are provided at press conferences covering its annual and half-year financial statements� → Teleconferences for financial analysts and investors take place when the annual and half-year financial statements are published� The events can then be downloaded as podcasts� → Shareholders are informed about business during the year at the Annual General Meeting� → Roadshows are regularly staged at various financial 10. INFORMATION POLICY centres� Information principles The Baloise Group provides shareholders, potential investors, employees, customers and the public with information on a regular, open and comprehensive basis� All registered share- holders each receive a summary of the annual report once a year and a letter to shareholders every six months, which pro- vide a review of business� The full annual report is sent to share- holders on request� All publications are simultaneously avail- able to the public� All market participants receive the same information� Baloise uses technologies such as webcasting, podcasting and teleconferences to make financial analysts’ meet- ings generally accessible� Ongoing relationships are maintained with analysts, investors and the media� Full details of individual Baloise events can be accessed at www�baloise�com� Information about Baloise shares Information about Baloise shares begins on page 12� → www.baloise.com/baloise-share Information about Baloise bonds Information about Baloise bonds in circulation can be found on pages 228 and 266� → www.baloise.com/bonds Financial calendar Important dates for investors are available at www�baloise�com� This is where the publication dates for the annual and half-year reports and the Q3 interim statement are listed and where the date of the Annual General Meeting, the AGM invitation, the closing date for the share register and any ex-dividend dates are published� → www.baloise.com/calendar Availability of documents Annual and half-year reports, media releases, disclosures, recent announcements, presentations and other documents are avail- able to the public at www�baloise�com� Please register for the latest corporate communications at www�baloise�com/mailinglist� → www.baloise.com/media 100 Corporate Governance Corporate Governance Report including Remuneration Report Contact Corporate Governance Baloise Group Philipp Jermann Aeschengraben 21 4002 Basel, Switzerland Tel� +41 (0)58 285 89 42 philipp�jermann@baloise�com Investor Relations Baloise Group Marc Kaiser Aeschengraben 21 4002 Basel, Switzerland Tel� +41 (0)58 285 81 81 marc�kaiser@baloise�com 101 4 Baloise 18 Review of operating performance 38 Sustainable business management 56 Corporate governance 102 Financial Report 256 Bâloise Holding Ltd 274 Notes Financial Report Consolidated balance sheet �� 104 Consolidated income statement �� 106 Consolidated statement of comprehensive income �� 107 Consolidated cash flow statement �� 108 Consolidated statement of changes in equity �� 110 Reconciliation between the gross investment in financial leases and the present value of minimum lease payments �� 227 Financial liabilities �� 228 Provisions �� 229 Insurance liabilities �� 229 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS �� 112 Basis of preparation �� 112 Application of new financial reporting standards and restatements �� 112 Consolidation principles and accounting policies �� 114 Critical accounting principles and estimate uncertainties �� 130 Management of insurance risk and financial risk �� 132 Basis of consolidation �� 175 Information on operating segments (segment reporting) �� 177 NOTES TO THE CONSOLIDATED BALANCE SHEET �� 182 Property, plant and equipment �� 182 Intangible assets �� 184 Investments in associates �� 187 Investment property �� 189 Financial assets �� 190 Mortgages and loans �� 196 Derivative financial instruments �� 197 Receivables �� 198 Reinsurance assets �� 199 Receivables from reinsurers �� 199 Employee benefits �� 200 Deferred income taxes �� 212 Other assets �� 214 Non-current assets held for sale and discontinued operations �� 215 Share capital �� 216 Technical reserves (gross) �� 217 Liabilities arising from banking business and financial contracts �� 226 NOTES TO THE CONSOLIDATED INCOME STATEMENT �� 230 Premiums earned and policy fees �� 230 Income from investments for own account and at own risk �� 230 Realised gains and losses on investments �� 231 Income from services rendered �� 235 Other operating income �� 235 Classification of expenses �� 236 Personnel expenses �� 236 Gains or losses on financial contracts �� 237 Income taxes �� 238 Earnings per share �� 239 Other comprehensive income �� 240 OTHER DISCLOSURES �� 242 Acquisition and disposal of companies �� 242 Related party transactions �� 243 Remuneration paid to the Board of Directors and the Corporate Executive Committee �� 244 Contingent and future liabilities �� 245 Operating leases �� 248 Claim payments received from non-Group insurers �� 249 Significant subsidiaries, joint ventures and associates as at 31 December 2014 �� 250 Changes to shareholdings �� 252 Consolidated structured entities �� 253 Joint arrangements �� 253 Events after the balance sheet date �� 253 REPORT OF THE STATUTORY AUDITOR TO THE ANNUAL GENERAL MEETING OF BÂLOISE HOLDING LTD, BASEL �� 254 T R O P E R L A I C N A N I F Financial Report Consolidated balance sheet Consolidated balance sheet CHF million Assets Property, plant and equipment Intangible assets Investments in associates Investment property Financial instruments with characteristics of equity Available for sale Recognised at fair value through profit or loss Financial instruments with characteristics of liabilities Held to maturity Available for sale Recognised at fair value through profit or loss Mortgages and loans Carried at cost Recognised at fair value through profit or loss Derivative financial instruments Receivables from financial contracts Carried at cost Recognised at fair value through profit or loss Reinsurance assets Receivables from reinsurers Insurance receivables Receivables from employee benefits Other receivables Receivables from investments Deferred tax assets Current income tax assets Other assets Carried at cost Recognised at fair value through profit or loss Cash and cash equivalents Non-current assets and disposal groups classified as held for sale Total assets The notes form an integral part of the consolidated annual financial statements. 104 Note 31.12.2014 31.12.2015 8 9 10 11 12 12 13 14 15 16 17 18 15 15 19 20 21 379.2 909.2 227.9 399.1 814.6 162.3 5,962.9 6,251.9 4,698.1 8,753.1 4,443.3 9,327.5 8,413.7 8,549.5 24,227.5 23,024.6 1,820.4 1,674.3 17,326.0 15,912.6 839.9 613.2 21.1 – 421.5 79.7 409.0 1.7 375.3 564.5 48.3 64.2 744.0 653.9 9.9 – 410.8 52.3 389.4 1.1 317.5 491.3 41.4 49.5 163.2 53.3 2,969.6 – 164.4 40.2 2,839.8 2,018.7 79,342.3 78,783.8 Financial Report Consolidated balance sheet CHF million Equity and liabilities Equity Share capital Capital reserves Treasury shares Unrealised gains and losses (net) Retained earnings Equity before non-controlling interests Non-controlling interests Total equity Liabilities Technical reserves (gross) Liabilities arising from banking business and financial contracts With discretionary participation features Measured at amortised cost Recognised at fair value through profit or loss Financial liabilities Provisions Derivative financial instruments Insurance liabilities Liabilities arising from employee benefits Other accounts payable Deferred tax liabilities Current income tax liabilities Other liabilities Liabilities included in disposal groups classified as held for sale Total liabilities Total equity and liabilities The notes form an integral part of the consolidated annual financial statements. Note 31.12.2014 31.12.2015 22 23 24 26 27 14 28 18 19 21 5.0 246.6 – 250.0 375.8 5,413.9 5,791.3 39.7 5.0 253.2 – 305.4 – 216.5 5,691.4 5,427.6 34.7 5,831.0 5,462.3 48,738.9 45,765.8 1,766.5 7,342.0 8,632.3 1,702.4 119.3 176.4 1,780.3 1,455.6 571.8 1,065.5 86.7 73.8 – 1,930.1 8,299.2 8,782.8 1,707.8 94.8 250.8 1,650.4 1,355.6 440.6 913.3 85.8 81.6 1,962.9 73,511.4 73,321.5 79,342.3 78,783.8 105 Financial Report Consolidated income statement Consolidated income statement CHF million Income Premiums earned and policy fees (gross) Reinsurance premiums ceded Premiums earned and policy fees (net) Investment income Realised gains and losses on investments Income from services rendered Share of profit (loss) of associates Other operating income Income Expense Claims and benefits paid (gross) Change in technical reserves (gross) Reinsurers’ share of claims incurred Acquisition costs Operating and administrative expenses for insurance business Investment management expenses Interest expenses on insurance liabilities Gains or losses on financial contracts Other operating expenses Expense Profit before borrowing costs and taxes Borrowing costs Profit before taxes Income taxes Profit for the period Attributable to: Shareholders Non-controlling interests Earnings / loss per share Basic (CHF) Diluted (CHF) The notes form an integral part of the consolidated annual financial statements. 106 Note 2014 2015 29 29 29 30 31 32 33 23 23 23 34 34 34 36 34 26 37 38 7,168.1 – 163.6 7,004.5 1,701.9 1,362.5 110.7 8.1 185.2 6,832.4 – 148.6 6,683.7 1,521.8 386.2 112.6 36.8 136.6 10,372.8 8,877.9 – 5,666.4 – 5,352.4 – 1,469.5 – 1,241.9 146.6 – 569.6 – 866.5 – 66.9 – 42.6 – 462.6 – 446.8 97.9 – 453.3 – 780.5 – 60.4 – 34.1 – 0.9 – 333.1 – 9,444.3 – 8,158.6 928.6 719.2 – 43.5 885.1 – 40.0 679.3 – 173.2 711.9 – 168.2 511.1 710.7 1.3 15.15 14.63 512.1 – 1.0 10.96 10.65 Financial Report Consolidated statement of comprehensive income Consolidated statement of comprehensive income CHF million Profit for the period Items not to be reclassified to income statement Change in reserves arising from reclassification of investment property Change in reserves arising from assets and liabilities of post-employment benefits (defined benefit plans) Change arising from shadow accounting Income taxes Total items not to be reclassified to income statement Items to be reclassified to the income statement 2014 2015 711.9 511.1 – 0.5 – 487.4 84.6 93.2 – 310.1 0.8 33.1 – 39.1 – 8.5 – 13.6 Change in unrealised gains and losses on available-for-sale financial assets 1,688.8 – 882.9 Change in unrealised gains and losses on associates Change in hedging reserves for derivative financial instruments held as hedges of a net investment in a foreign operation Change in reserves arising from reclassification of held-to-maturity financial assets Change arising from shadow accounting Exchange differences Income taxes Total items to be reclassified to the income statement Other comprehensive income Comprehensive income Attributable to: Shareholders Non-controlling interests The notes form an integral part of the consolidated annual financial statements. 8.7 – 136.6 – 2.6 – 737.1 177.5 – 245.4 753.3 – 27.6 – 33.7 – 1.7 326.4 – 130.6 167.9 – 582.2 443.2 – 595.8 1,155.1 – 84.7 1,154.6 0.5 – 80.2 – 4.5 107 Financial Report Consolidated cash flow statement Consolidated cash flow statement CHF million Summary Cash flow from operating activities (net) Cash flow from investing activities (net) Cash flow from financing activities (net) Total cash flow Effect of changes in exchange rates on cash and cash equivalents Reclassification to non-current assets and disposal groups classified as held for sale Balance of cash and cash equivalents as at 1 January Balance of cash and cash equivalents as at 31 December Cash flow from operating activities Profit before taxes Adjustments for Note 2014 2015 73.6 213.0 330.6 – 6.5 – 258.6 – 317.8 28.0 – 19.2 0.0 2,960.8 2,969.6 6.2 – 118.2 – 17.9 2,969.6 2,839.8 885.1 679.3 Depreciation, amortisation and impairment of property, plant and equipment and of intangible assets 8 / 9 135.3 Realised gains and losses on property, plant and equipment and on intangible assets Income from investments in associates Realised gains and losses on financial assets, investment property and associates Changes in other financial contracts Changes in technical reserves (gross), including unearned premium reserves Interest expenses on reinsurance liabilities Borrowing costs Amortised cost valuation of financial instruments Additions and disposals of assets and liabilities resulting in a cash flow Purchase / sale of investment property Purchase / sale of financial assets of an equity nature Purchase / sale of financial assets of a debt nature Addition / disposal of mortgages and loans Addition / disposal of derivative financial instruments Addition / disposal of financial contracts and liabilities from banking business Other changes in assets and liabilities from operating activities Taxes paid Cash flow from operating activities (net) The notes form an integral part of the consolidated annual financial statements. 26 – 0.1 – 8.1 – 1,356.8 336.6 1,353.5 0.9 43.5 8.0 – 183.3 – 1,508.5 – 520.9 45.3 – 25.6 598.5 384.9 – 114.7 73.6 70.4 – 0.3 – 36.8 – 375.4 – 111.6 1,178.3 0.0 40.0 10.1 – 312.9 – 1,275.1 – 1,142.7 – 262.2 126.8 1,769.5 99.8 – 126.5 330.6 108 Financial Report Consolidated cash flow statement CHF million Cash flow from investing activities Purchase of property, plant and equipment Sale of property, plant and equipment Purchase of intangible assets Sale of intangible assets Acquisition of companies, net of cash and cash equivalents Disposal of companies, net of cash and cash equivalents Purchase of investments in associates Sale of investments in associates Dividends from associates Cash flow from investing activities (net) Cash flow from financing activities Capital increases Capital reductions Additions to financial liabilities Disposals of financial liabilities Borrowing costs paid Purchase of treasury shares Sale of treasury shares Cash flow attributable to non-controlling interests Dividends paid Cash flow from financing activities (net) Total cash flow Cash and cash equivalents Balance as at 1 January Change during the financial year Reclassification to non-current assets and disposal groups classified as held for sale Effect of changes in exchange rates on cash and cash equivalents Balance as at 31 December Breakdown of cash and cash equivalents at the balance sheet date Cash and bank balances Cash equivalents Cash and cash equivalents for the account and at the risk of life insurance policyholders Balance as at 31 December Of which: restricted cash and cash equivalents Supplemental disclosures on cash flow from operating activities Interest received Dividends received Interest paid Note 2014 2015 8 9 40 40 22 22 26 26 – 26.7 0.6 – 20.1 0.1 – 16.4 267.9 – – 7.6 213.0 – – 149.4 – 150.0 – 38.1 – 60.6 64.9 – 0.6 – 223.6 – 258.6 – 31.4 1.6 – 28.9 0.1 – 6.1 – – 22.7 35.4 – 6.5 – – – – – 34.0 – 107.1 58.4 – 0.5 – 234.7 – 317.8 28.0 6.2 2,960.8 2,969.6 28.0 0.0 – 19.2 2,969.6 6.2 – 17.9 – 118.2 2,839.8 1,954.5 1,765.8 – 1,015.1 2,969.6 6.4 1,069.5 110.0 – 82.1 – 1,074.0 2,839.8 89.8 926.7 126.0 – 61.1 The notes form an integral part of the consolidated annual financial statements. 109 Financial Report Consolidated statement of changes in equity Consolidated statement of changes in equity 2014 Balance as at 1 January 2014 Profit for the period Other comprehensive income Comprehensive income Other changes in equity in 2014 Dividend Capital increase / repayment Purchase / sale of treasury shares Cancellation of (treasury) shares Increase / decrease in non-controlling interests due to change in the scope of consolidation Increase / decrease in non-controlling interests due to change in the percentage of shareholding Note Share capital Capital reserves Treasury shares Other changes in equity Retained earnings Equity before non- controlling interests Non- controlling interests 5.0 233.1 – 240.8 – 68.1 4,926.7 4,855.9 – 710.7 710.7 443.9 – Total equity 4,906.4 711.9 443.2 50.5 1.3 – 0.7 39 22 40 6 – – – – – – – – – – – – – – – – – – – 13.4 – 9.2 – – – – – – 443.9 443.9 – – – – – – 710.7 1,154.6 0.5 1,155.1 – 223.6 – 223.6 – 0.6 – 224.2 – – – – – – 4.2 – – – – – – – 4.2 – – 10.7 – 10.7 – – Balance as at 31 December 2014 5.0 246.6 – 250.0 375.8 5,413.9 5,791.3 39.7 5,831.0 The notes form an integral part of the consolidated annual financial statements. 110 Financial Report Consolidated statement of changes in equity 2015 Balance as at 1 January 2015 Profit for the period Other comprehensive income Comprehensive income Other changes in equity in 2015 Dividend Capital increase / repayment Purchase / sale of treasury shares Cancellation of (treasury) shares Increase / decrease in non-controlling interests due to change in the scope of consolidation Increase / decrease in non-controlling interests due to change in the percentage of shareholding Note Share capital Capital reserves Treasury shares Other changes in equity Retained earnings Equity before non- controlling interests Non- controlling interests 5.0 246.6 – 250.0 375.8 5,413.9 5,791.3 – 512.1 512.1 – 592.3 – 592.3 – – 592.3 512.1 – 80.2 Total equity 5,831.0 511.1 – 595.8 – 84.7 39.7 – 1.0 – 3.4 – 4.5 39 22 40 6 – – – – – – – – – – – – – – – – – – – 6.6 – 55.4 – – – – – – – – – – – – – 234.7 – 234.7 – 0.5 – 235.1 – – – – – – – 48.8 – – – – – – – – – – 48.8 – – – Balance as at 31 December 2015 5.0 253.2 – 305.4 – 216.5 5,691.4 5,427.6 34.7 5,462.3 The notes form an integral part of the consolidated annual financial statements. 111 Financial Report Notes to the consolidated annual financial statements Notes to the consolidated annual financial statements Basis of presentation 1. BASIS OF PREPARATION The Baloise Group is a European direct insurer comprising eleven different insurance companies that operate in virtually every segment of the life and non-life insurance business� Its holding company is Bâloise Holding, a Swiss corporation based in Basel whose shares are listed in the Regulatory Standard for Equity Securities (Sub-Standard: International Reporting) of the Swiss Exchange (SIX)� Its subsidiaries are active in the direct insurance markets in Switzerland, Liechtenstein, Germany, Belgium, Luxembourg, Slovakia and the Czech Republic� Its banking business is conducted by subsidiaries in Switzerland and Germany� In addition, the Baloise Group has a fund manage- ment company in Luxembourg� The Baloise Group’s consolidated annual financial state- ments are based on the historical cost principle and recognise adjustments resulting from the regular fair value measurement of investment property and of financial assets and financial liabilities that are classified as available for sale or recognised at fair value through profit or loss� These consolidated annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), which comply with Swiss law� IFRS 4 deals with the recognition and disclosure of insurance and reinsurance contracts� The measure- ment of these contracts is based on local financial reporting standards� All amounts shown in these consolidated annual financial statements are stated in millions of Swiss francs (CHF million) and have been rounded to one decimal place� Consequently, the sum total of amounts that have been rounded may in isolated cases differ from the rounded total shown in this report� At its meeting on 18 March 2016 the Bâloise Holding Board of Directors approved the annual financial statements and the Financial Report and authorised them for issue� The financial statements have yet to be approved by the Annual General Meeting of Bâloise Holding� 2. APPLICATION OF NEW FINANCIAL REPORTING STANDARDS AND RESTATEMENTS 2.1 Newly applied IFRSs and interpretations IAS 19 Employee Benefits (amendment) As a result of the amendment, contributions from employees or third parties are recognised as a reduction in service cost in the period in which they are paid, provided they are entirely related to the employee’s service in that period� This may be the case, in particular, with contributions that constitute a fixed percentage of salary that is not dependent on the number of years worked at the company by the employee� This change has no material impact on the Baloise Group’s balance sheet or income statement� 2.2 Other standards and interpretations Currently, there are no requirements to apply any other stand- ards or interpretations that have a material impact on the profit for the period or on balance sheet line items� 2.3 New IFRSs and interpretations not yet applied The following new standards and interpretations relevant to the Baloise Group have been published by the IASB but have not yet come into effect and, therefore, have not been applied in the 2015 consolidated annual financial statements: Standard / Inter- pretation IFRS 9 IFRS 15 IFRS 16 Content Financial instruments Revenue from contracts with customers Leasing Applicable to annual periods beginning on or after 1.1.2018 1.1.2018 1.1.2019 112 Financial Report Notes to the consolidated annual financial statements IFRS 9 Financial Instruments IFRS 9 introduces new requirements for the classification and measurement of financial instruments� Classification of finan- cial assets is based on the entity’s business model and on the contractual cash flow characteristics of the financial assets concerned� The following change, for example, is relevant to the carried-at-cost category: If the criteria in respect of the business model and cash flow characteristics for the carried-at-cost category are not met, financial assets are measured at fair value through profit or loss, although certain equity instruments may be measured at fair value through other comprehensive income� As regards structured products with embedded derivatives, the standard now only provides for separate recognition of non- financial host contracts� Structured products with financial host contracts must be classified and measured as combined instruments� The existing requirements for financial liabilities have largely been carried over into IFRS 9� The only material new feature concerns financial liabilities for which the fair value option is elected� The amount of change in a financial liability’s fair value attributable to changes in its credit risk is presented in other comprehensive income� The new impairment model shifts the focus to providing for expected credit losses by recognising loss allowances� IFRS 9 specifies three steps that determine the amount of expected losses and interest revenue to be recognised in future� Credit losses already expected at the time of initial recognition are measured at the present value of the twelve-month expected credit losses (step 1)� The loss allowance is increased to an amount equal to full lifetime expected credit losses if the credit risk of a financial liability has grown significantly since initial recog- nition (step 2)� Where there is objective evidence of impairment, the recognition of interest revenue is based on its net carrying amount (step 3)� As far as hedge accounting is concerned, IFRS 9 has lifted many of the restrictions imposed by IAS 39 and has significantly widened the range of transactions that may be designated as hedges� However, hedging relationships may no longer be vol- untarily discontinued� Such discontinuation is now only per- mitted under IFRS 9 if the risk management objective of the hedging relationship changes� It is not yet possible to fully assess what impact this amend- ment will have on the Baloise Group’s balance sheet and income statement� IFRS 15 Revenue from Contracts with Customers IFRS 15 will replace IAS 18 (Revenue), IAS 11 (Construction Contracts) and a number of other revenue-related interpretations for annual periods beginning on or after 1 January 2018� Appli- cation of IFRS 15 is mandatory for all IFRS users and governs almost all contracts with customers� The main exemptions con- cern leases, financial instruments and insurance contracts� For those customer contracts that are not covered by the aforemen- tioned exemptions, this new standard provides a single, prin- ciples-based five-step model to be applied to the relevant contracts with customers� It is not yet possible to fully assess what impact this new standard will have on the Baloise Group’s balance sheet and income statement� IFRS 16 Leases IFRS 16 applies to all leases (including sub-leases), although certain exceptions are possible� IFRS 16 governs the recognition, measurement, reporting and disclosure requirements in respect of leases in the financial statements of IFRS users� The standard provides a single accounting treatment model for lessees� This model requires lessees to recognise all lease assets and lease liabilities on the balance sheet, unless the term of the lease is twelve months or less or an asset is of low value� By contrast, lessors will continue to distinguish between finance leases and operating leases for accounting purposes� In this regard, the accounting treatment model in IFRS 16 differs only insignifi- cantly from the existing rules in IAS 17 (Leases)� It is not yet possible to fully assess what impact this new standard will have on the Baloise Group’s balance sheet and income statement� 113 Financial Report Notes to the consolidated annual financial statements 3. CONSOLIDATION PRINCIPLES AND ACCOUNTING POLICIES 3.1 Method of consolidation 3.1.1 Subsidiaries The consolidated annual financial statements comprise the financial statements of Bâloise Holding and its subsidiaries, including any structured entities. A subsidiary is consolidated if the Baloise Group controls it either directly or indirectly. As a rule, this is the case if the Baloise Group has exposure or rights to variable profit components as a result of its involvement with the investee and, because of legal positions, has the ability to influence the investee’s business activities that are critical to its financial success and, therefore, to affect the amount of the variable profit components. Companies acquired during the reporting period are included in the consolidated annual financial statements from the date on which control is effectively assumed, while all com- panies sold remain consolidated until the date on which control is ceded. Acquisitions of entities are accounted for under the acquisition method (previously known as the “purchase method”). Transaction costs are charged to the income statement as an expense. The identifiable assets and liabilities of the entity con- cerned are measured at fair value as at the date of first-time consolidation. Non-controlling interests arising from business combinations are measured either at their fair value or accord- ing to their share of the acquiree’s identifiable net assets. The Baloise Group decides which measurement method to apply to each individual business combination. The acquisition cost corresponds to the fair value of the consideration paid to the previous owners on the date of the acquisition. If investments in the form of financial instruments or associates were already held before control was acquired, these investments are remeasured and any difference is recognised in profit or loss. Any contingent consideration recognised as part of the consideration paid for the acquiree is measured at fair value on the transaction date. Any subsequent changes in the fair value of a contingent consideration are recognised in the income statement. If the acquisition cost exceeds the fair value of assets and liabilities plus non-controlling interests, the difference is recognised as goodwill. Conversely, if the identified net assets exceed the acquisition cost then the difference is recognised directly through profit or loss as other operating income. All intercompany transactions and the resultant gains and losses are eliminated. 114 The consolidation of subsidiaries ends on the date on which control is ceded. If only some of the shares in a subsidiary are sold, the retained interest is measured at fair value on the date that control is lost. Gains or losses on the disposal of (some of) the subsidiary’s shares are recognised in the income statement as either other operating income or other operating expenses. The acquisition of additional investments in subsidiaries after assuming control and the disposal of investments in subsid- iaries without ceding control are both recognised directly in equity as transactions with owners. 3.1.2 Structured entities Structured entities are consolidated provided the conditions of IFRS 10 are met. Their inclusion in the consolidated financial statements is governed by the provisions of IFRS 10. 3.1.3 Joint arrangements Joint arrangements are contractual agreements over which two or more parties have joint control. A joint arrangement is classified as either a joint operation or a joint venture. In a joint operation, the involved parties have direct rights and obligations in respect of the assets and liabilities and the income and expenses. By contrast, the parties involved in a joint venture do not have a direct entitlement to the assets and liabilities and, instead, have rights in respect of the net assets of the joint venture owing to their position as investors. Joint ventures are accounted for using the equity method, i.e. the Baloise Group initially recognises the joint ventures at cost (fair value at the date of acquisition) and thereafter recog- nises them under the equity method (the Baloise Group’s share of the entity’s net assets and profit or loss for the period). In the case of joint operations, the Baloise Group includes directly in its consolidated financial statements the share of the assets, liabilities, income and expenses of the joint operation that is attributable to the Baloise Group. Financial Report Notes to the consolidated annual financial statements 3.1.4 Associates Associates are initially carried at cost (fair value at the date of acquisition) and thereafter are measured under the equity method (the Baloise Group’s share of the entity’s profit or loss for the period and other comprehensive income) in cases where the Baloise Group can exert a significant influence over the manage- ment of the entity concerned. Changes in the fair value of associates are generally recognised in profit or loss and take account of any dividend flows. If the Baloise Group’s share of the losses exceeds the value of the associate, no further losses are recog- nised. Goodwill paid for associates is included in the carrying amount of the investment. 3.2.3 Translation of functional currency into reporting currency The annual financial statements of all entities that have not been prepared in Swiss francs are translated as follows when the con- solidated financial statements are being prepared: → Assets and liabilities at the closing rate → Income and expenses at the average rate for the year. The resultant exchange differences are aggregated and recognised directly in equity. When foreign subsidiaries are sold, the exchange differences arising on the disposal are recognised in the income statement as a transaction gain or loss. 3.2.4 Key exchange rates 3.2 Currency translation CURRENCY 3.2.1 Functional currency and reporting currency Each subsidiary prepares its annual financial statements in its functional currency, which is the currency of its primary eco- nomic environment. The consolidated Financial Report is presented in millions of Swiss francs (CHF), which is the Baloise Group’s reporting currency. CHF 1 EUR (euro) 1 USD (US dollar) Balance sheet Income statement 2014 2015 2014 2015 1.20 0.99 1.09 1.00 1.21 0.92 1.07 0.96 3.2.2 Translation of transaction currency into functional currency at Group companies Income and expenses denominated in foreign currency are translated either at the exchange rate prevailing on the transaction date or at the average exchange rate. Monetary and non-mon- etary balance sheet items measured at fair value and arising from foreign-currency transactions conducted by Group companies are translated at the closing rate. Non-monetary items measured at historical cost are translated at the historical rate. Any resultant exchange differences are recognised in profit or loss. This does not include exchange differences that form part of cash flow hedges and are recognised directly in hedging reserves or are used as hedges of a net investment in a foreign operation. Exchange differences arising on non-monetary financial instruments recognised at fair value through profit or loss are reported as realised gains or losses on these instruments. Exchange differences on available-for-sale non-monetary financial instru- ments are recognised in other comprehensive income. Exchange differences arising on available-for-sale monetary financial instruments are recognised in profit or loss. 3.3 Property, plant and equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. The acquisition cost of property plant and equipment includes all directly attributable costs. Subsequent acquisition costs are only capitalised if future economic benefits associated with the property, plant and equipment will flow to the entity concerned and these costs can be measured reliably. All other repairs and maintenance costs are expensed as incurred. Land is not depreciated. Other items of property, plant and equipment are depreciated on a straight-line basis over the following estimated useful lives: → Owner-occupied buildings: 25 to 50 years → Office furniture, equipment, fixtures and fittings: 5 to 10 years → Computer hardware: 3 to 5 years. At each balance sheet date the Baloise Group tests all items of property, plant and equipment for impairment and reviews the suitability of their useful lives. An impairment loss is immediately recognised on items of property, plant and equipment if their recoverable amount is lower than their carrying amount. Gains or losses on the sale of property, plant and equipment are immediately taken to the income statement as either other operating income or other operating expenses. 115 Financial Report Notes to the consolidated annual financial statements 3.4 Leases 3.5 Intangible assets 3.4.1 The Baloise Group as a lessee Finance leases: leases on real estate, office furniture, equipment, fixtures, fittings and other tangible assets are classified and treated as finance leases if they transfer to the Baloise Group substantially all the risks and rewards incidental to ownership. The fair value of the leased property or, if lower, the present value of the lease payments is recognised as an asset at the inception of the lease. All lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated so as to produce a constant periodic rate of interest on the remaining balance of the liability; this is reported on the Baloise Group’s balance sheet as liabilities aris- ing from banking business and financial contracts. Assets held under finance leases are fully depreciated over the shorter of the lease term and their useful life. Operating leases: all other leases are classified as operating leases. Lease payments under operating leases are expensed in the income statement on a straight-line basis over the term of the lease. 3.4.2 The Baloise Group as a lessor Investment real estate let on operating leases is reported as investment property on the consolidated balance sheet. 3.5.1 Goodwill Goodwill represents the excess of an acquiree’s acquisition cost over the fair value of its assets and liabilities plus the acquisi- tion-date amount of any non-controlling interests in the acquiree and the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree. Goodwill is reported as an intangible asset. Goodwill is tested for impairment in the second half of each year. An impairment test may also be conducted in the first half of the year if there are objective indications that goodwill may be permanently impaired. When a new investment is acquired, the date for conducting future impairment tests is fixed and these tests are subsequently carried out at the same time each year. When entities are sold, their share of goodwill is recognised in their profit or loss. Goodwill is allocated to cash- generating units (CGUs) for the purposes of impairment testing. 3.5.2 Present value of future profits (PVFP) on insurance contracts acquired The present value of future profits on insurance contracts acquired arises from the purchase of life insurance companies or life insurance portfolios. It is initially measured in accordance with actuarial principles and is amortised on a straight-line basis. It is regularly tested for impairment as part of a liability adequacy test (see section 3.18.2 for further details). 3.5.3 Deferred acquisition costs (DACs) Costs directly incurred by the conclusion of insurance contracts or financial contracts with discretionary participation features (DPFs) – such as commissions – are capitalised and amortised over the term of these contracts or, if shorter, over the premium payment period. Deferred acquisition costs are tested for impairment at each balance sheet date (see section 3.18.3 for further details). 116 Financial Report Notes to the consolidated annual financial statements 3.5.4 Capitalised investment fees Acquisition costs directly attributable to the generation of asset management investment returns are recognised as intangible assets provided that they can be individually identified and reliably determined and they are likely to be recoverable. They are amortised through profit or loss over the term of the under- lying financial contract in proportion to the returns generated and are tested annually for impairment. 3.5.5 Other intangible assets and internally developed assets Other intangible assets essentially comprise software, external IT consulting (in connection with software that has been developed), internally developed assets (such as software) and assets identified during the acquisition of entities (such as brands and customer relationships). These assets are recognised at cost and are amortised on a straight-line basis over their useful lives. Intangible assets with indefinite useful lives are not amortised and are carried at cost less accumulated impairment losses. All financing for intangible assets is generally obtained from the Baloise Group’s own financial resources. If funding from external sources is required, interest accrued during the assets’ development is capitalised as incurred. 3.6 Investment property Investment property comprises land and / or buildings held to earn rental income or for capital appreciation (or both). If mixed-use properties cannot be broken down into owner- occupied property and property used by third parties, the entire property is classified according to the purpose for which most of its floor space is used. If, owing to a change of use, an investment property held by the Baloise Group becomes the latter’s owner-occupied property, it is reclassified as property, plant and equipment. Any such reclassification is based on the property’s fair value at the reclassification date. By contrast, if one of the Baloise Group’s owner-occupied properties becomes an investment property owing to reclassification, then, on the date this change of use takes effect, the difference between the property’s carrying amount and its fair value is recognised in profit or loss in the event of an impairment; or, if the property’s fair value exceeds its carrying amount, then the difference is recognised directly in equity as an unrealised gain. If an invest- ment property that was reclassified in a previous period is sold, the amount recognised directly in equity is reclassified to retained earnings. Invest ment property is measured at fair value under the discounted cash f low (DCF) method. The current fair value of a property determined under the DCF method equals the sum total of all net income expected in future and discounted to its present value (before interest pay- ments, taxes, depreciation and amortisation) and includes capital expenditure and renovation costs. The net income is determined individually for each property, depending on the opportunities and risks associated with it, and is discounted in line with market rates and on a risk- adjusted basis. The measurement is carried out internally each year by experts using market-based assumptions that have been verified by respected consultancies. In addition, the properties are assessed by external valuation specialists at regular intervals; roughly 10 per cent of the fair value of the real-estate portfolio is sub- ject to such assessments each year. Changes in fair value are taken to income as realised accounting gains or losses in the period in which they occur. 3.7 Financial assets The term “investments” (Kapitalanlagen in German) is used in some places and headings in the Financial Report for clarity’s sake. The IFRSs themselves do not define the term “investments” (or Kapitalanlagen). The term “investments” as used in the Finan- cial Report covers financial assets, mortgages and loans, deriv- ative financial instruments, cash and cash equivalents, and investment property. The asset classes covered by the term financial instruments with characteristics of equity are equities, share certificates, units held in equity, bond and real-estate funds; and alternative financial assets such as private equity investments and hedge funds. Financial instruments with characteristics of equity are generally more frequently exposed to price volatility than finan- cial instruments with characteristics of liabilities. The term financial instruments with characteristics of liabilities covers securities such as bonds and other fixed-income securities. They are usually interest bearing and are issued for a fixed or determinable amount. The Baloise Group classifies its financial instruments with characteristics of equity and its financial instruments with char- acteristics of liabilities as either “recognised at fair value through profit or loss”, “held to maturity” or “available for sale.” The classification of the financial instruments concerned is deter- mined by the purpose for which they have been acquired. 117 Financial Report Notes to the consolidated annual financial statements Mortgages and loans are generally carried at cost. In pursuing its strategy of using natural hedges, however, the Baloise Group applies the fair value option to designate parts of its portfolio as “recognised at fair value through profit or loss”. Appropri- ately designated derivative financial instruments are used to hedge these parts of the portfolio. 3.7.4 Recognition, measurement and derecognition All customary purchases of financial assets are recognised on the trade date. Financial assets are initially measured at fair value. Transaction costs form part of the acquisition cost (with the exception of financial assets recognised at fair value through profit or loss). Financial assets are derecognised if the rights pertaining to the cash flows from the financial instrument have expired or if the financial instrument has been sold and substantially all the associated risks and rewards have been transferred. Cash outflows from reverse repurchase (repo) transactions are offset by corresponding receivables. The financial assets received as collateral security from the transaction are not recognised. The relevant transaction is recognised on the balance sheet on the settlement date. The financial assets transferred as collateral security under repurchase agreements continue to be recognised as financial assets. The pertinent cash flows are offset by corre- sponding liabilities. In its stocklending operations the Baloise Group only engages in securities lending. The borrowed finan- cial instruments continue to be recognised as financial assets. The securities provided as cover for repos, reverse repos and securities lending transactions are measured daily at their current fair value. Available-for-sale financial assets and financial assets recognised at fair value through profit or loss are measured at fair value. Held-to-maturity financial assets are measured at amortised cost using the effective interest method. Realised and unrealised gains and losses on financial assets recognised at fair value through profit or loss are taken to income. Unrealised gains and losses on available-for-sale financial assets are recog- nised directly in equity. If available-for-sale financial assets are sold or impaired, the cumulative amount recognised directly in equity is recognised in the income statement as a realised gain or loss on financial assets. Changes in the fair value of financial assets’ risks that are covered by fair value hedges are recognised in the income statement for the duration of these hedges irrespective of the financial assets’ classification. 3.7.1 Financial assets recognised at fair value through profit or loss This category consists of two sub-categories: held-for-trading financial assets (trading portfolio) and financial assets that are designated to this category. Financial instruments are classified in this category if they have principally been acquired with the intention of selling them in the short term, or if they form part of a portfolio for which there have recently been indications that a gain could be realised in the short term, or if they have been designated to this category. Derivative financial instruments are classified as “held for trading” (trading portfolio) with the exception of derivatives that have been designated for hedge accounting purposes. Also designated to this category are struc- tured products, i.e. equity instruments and debt instruments which, in addition to the host contract, contain embedded derivatives that are not bifurcated and measured separately. Financial assets held under investment-linked life insurance contracts are also designated as “recognised at fair value through profit or loss”. 3.7.2 Held-to-maturity financial assets Held-to-maturity financial assets are non-derivative financial instruments involving fixed or determinable payments. However, they do not include mortgages, loans (section 3.8) or receivables (section 3.9) that the Baloise Group can – and intends to – hold until maturity. 3.7.3 Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial instruments that have been classified as “available for sale” or have not been designated to any of the above-mentioned cate- gories and are not classified as mortgages, loans or receivables. Alternative financial assets – such as private equity invest- ments and hedge funds – are mainly classified as “available for sale”. 118 Financial Report Notes to the consolidated annual financial statements The fair value of listed financial assets is based on prices in active markets as at the balance sheet date. If no such prices are available, fair value is estimated using generally accepted methods (such as the present-value method), independent assessments based on comparisons with the market prices of similar instru- ments or the prevailing market situation. Derivative financial instruments are measured using models or on the basis of publicly quoted prices. If no publicly quoted prices are available for private equity investments, they are measured on the basis of their net asset value using non-public information from independent external providers. These providers use various methods for their estimates (e.g. analysis of discounted cash flows and reference to similar, fairly recent arm’s-length transactions between knowledgeable, willing parties). If the fair value of hedge funds cannot be determined on the basis of publicly quoted prices, then prices quoted by inde- pendent external parties are used for measurement purposes. If such estimates do not enable financial assets to be reliably measured, the assets are recognised at cost (less allowance) and disclosed accordingly. 3.8 Mortgages and loans Mortgages and loans (including policy loans) are non-derivative financial instruments involving fixed or determinable payments that are not traded in an active market. Mortgages and loans classified as “carried at cost” are measured at amortised cost using the effective interest method. They are regularly tested for impairment. Mortgages and loans held as part of fair value hedges (natural hedges) are designated as “at fair value through profit or loss”. Present-value models are used to measure these portfolios. 3.9 Receivables Other receivables are recognised at amortised cost less any impairment losses recognised for non-performing receivables. Amortised cost is usually the same as the nominal amount of the receivables. 3.10 Permanent impairment 3.10.1 Financial assets measured under the amortised-cost method (mortgages, loans, receivables and held-to-maturity financial assets) The Baloise Group determines at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets may be permanently impaired. A financial asset or a group of financial assets is only impaired if, as a result of one or more events, there is objective evidence of impairment that has an impact on the expected future cash flows from the financial asset that can be reliably estimated. Objective evidence of a financial asset’s impairment includes observable data on the following cases: → Serious financial difficulties on the part of the borrower → Breaches of contract, such as a borrower in default or arrears with the payment of principal and / or interest → Greater probability that the borrower will file for bank- ruptcy or undergo some other form of restructuring → Observable data that indicates a measurable reduction in the expected future cash flows from a group of financial assets since their initial recognition Analysts’ reports from banks and evaluations by credit rating agencies are also used to assess the need for impairment losses. If there is objective evidence that loans and receivables or held-to-maturity financial assets may be permanently impaired, the impairment loss represents the difference between the asset’s carrying amount and the present value of future cash flows, which are discounted using the financial asset’s relevant effec- tive interest rate. If the amount of the impairment loss decreases in a subsequent reporting period and if this decrease can be attributed to an event that has objectively occurred since the impairment was recognised, the previously recognised impair- ment loss is reversed. The mortgage portfolio is regularly tested for impairment. If there is objective evidence that the full amount owed under the original contractual terms and conditions or the relevant proceeds of a receivable cannot be recovered, an impairment loss is recognised. Loan exposures are individually evaluated based on the nature of the borrower concerned, its financial position, its credit history, the existence of any guarantors and, where appropriate, the realisable value of any collateral security. 119 Financial Report Notes to the consolidated annual financial statements 3.10.2 Financial assets measured at fair value The Baloise Group determines at each balance sheet date whether there is any objective evidence that available-for-sale financial assets may be permanently impaired. This category includes financial instruments with characteristics of equity. An impair- ment loss must be recognised on financial instruments with characteristics of equity whose fair value at the balance sheet date is more than 50 per cent below their acquisition cost or whose fair value is consistently below their acquisition cost throughout the twelve-month period preceding the balance sheet date. The need for an impairment loss is examined and, where necessary, such a loss is recognised on securities whose fair value at the balance sheet date is between 20 per cent and 50 per cent below their acquisition cost. If an impairment loss is recognised, the cumulative net loss recognised directly in equity is taken to the income statement. Impairment losses on available-for-sale financial instru- ments with characteristics of equity that have been recognised in profit or loss cannot be reversed and taken to income. Any further reduction in the fair value of financial instruments with characteristics of equity on which impairment losses were recognised in previous periods must be charged directly to the income statement. An impairment loss is recognised on available-for-sale financial instruments with characteristics of liabilities if their fair value is significantly impaired by default risk. If the fair value of an available-for-sale financial instrument with characteristics of liabilities rises in a subsequent reporting period and this increase can be objectively attributed to an event that has occurred since an impairment loss was recognised in profit or loss, the impairment loss is reversed and taken to income. 3.10.3 Impairment losses on non-financial assets Goodwill and any assets with indefinite useful lives are tested for impairment at the same time each year or whenever there is objective evidence of impairment. Goodwill is allocated to cash-generating units (CGUs) for the purposes of impairment testing. Insurance companies that sell both life and non-life products (so-called composite insurers) test goodwill for impair- ment at this level. When impairment tests are performed, a CGU’s value in use is determined on the basis of the maximum dis- counted future cash flows (usually dividends) that could poten- tially be returned to the parent company. This process takes appropriate account of legal requirements and internally spec- ified capital adequacy limits. The long-term financial planning approved by management forms the basis for this calculation of the value in use. Permanent impairment losses are recognised in the income statement as other operating expenses. All other non-financial assets are tested for impairment whenever there is objective evidence of such impairment. Impairment losses recognised in previous reporting periods on assets with finite useful lives are reversed if the estimates used to determine the recoverable amount have changed since the most recent impairment loss was recognised. This increase constitutes a reversal of impairment losses. Impairment losses recognised in previous reporting periods on goodwill are not reversed. Impairment losses recognised in previous reporting periods on assets with indefinite useful lives are reversed and taken to income; however, the amount to which they are reversed must be no more than the amount recognised prior to the impairment losses less depreciation or amortisation. 120 Financial Report Notes to the consolidated annual financial statements 3.11 Derivative financial instruments Derivative financial instruments include swaps, futures, forward contracts and options whose value is primarily derived from the underlying interest rates, exchange rates, commodity prices or share prices. The acquisition cost of derivatives is usually either very low or non-existent. These instruments are carried at fair value on the balance sheet. At the time they are purchased they are classified as either fair value hedges, cash flow hedges, hedges of a net investment in a foreign operation or trading instruments. Derivative financial instruments that do not qualify as hedges under IFRS criteria despite performing a hedging function as part of the Baloise Group’s risk management pro- cedures are treated as trading instruments. The Baloise Group’s hedge accounting system documents the effectiveness of hedges as well as the objectives and strategies pursued with each hedge. Hedge effectiveness is constantly monitored from the time the pertinent derivative financial instruments are purchased. Derivatives that no longer qualify as hedges are reclassified as trading instruments. 3.11.1 Structured products Structured products are equity instruments or debt instruments that contain embedded derivatives in addition to the host con- tract. Provided that the economic characteristics and risks of the embedded derivative differ from those of the host contract and that this derivative qualifies as a derivative financial instru- ment, the embedded derivative is bifurcated from the host contract and is separately recognised, measured and disclosed. If the derivative and the host contract are not bifurcated, the structured product is designated as a host contract that is recognised at fair value through profit or loss. 3.11.2 Fair value hedges When the effective portion of hedges is being accounted for, changes in the fair value of derivative financial instruments classified as fair value hedges – plus the hedged portion of the fair value of the asset or liability concerned – are reported in the income statement. The ineffective portion of hedges is recognised separately in profit or loss. 3.11.3 Cash flow hedges When the effective portion of hedges is being accounted for, changes in the fair value of derivative financial instruments classified as cash flow hedges are recognised directly in equity. The amounts reported in equity as “unrealised gains and losses (net)” are taken to the income statement at a later date in line with the hedged cash flows. The ineffective portion of hedges is recognised in profit or loss. If a hedging instrument is sold, terminated or exercised or it no longer qualifies as a hedge, the cumulative gains and losses continue to be recognised directly in equity until the forecasted transaction materialises. If the forecasted transaction is no longer expected to materialise, the cumulative gains and losses recognised in equity are taken to income. 3.11.4 Hedges of a net investment in a foreign operation Hedges of a net investment in a foreign operation are treated as cash flow hedges. When the effective portion of hedges is being accounted for, gains or losses on hedging instruments are recognised directly in equity. The ineffective portion of hedges is recognised in profit or loss. If the foreign operation – or part thereof – is sold, the gain or loss recognised directly in equity is taken to the income statement. 3.11.5 Derivative financial instruments that do not qualify as hedges Changes in the fair value of derivative financial instruments that do not qualify as hedges are recognised in the income state- ment as “realised gains and losses on investments”. 3.12 Netting of receivables and liabilities Receivables and liabilities are offset against each other and shown as a net figure on the balance sheet provided that an offsetting option is available and the Baloise Group intends to realise these assets and liabilities simultaneously. 121 Financial Report Notes to the consolidated annual financial statements 3.13 Non-current assets held for sale and discontinued operations Non-current assets (or disposal groups) held for sale that meet the criteria stipulated in IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” are shown separately on the balance sheet. Those assets described in the standard are measured at the lower of their carrying amount and fair value less costs to sell. Any resultant impairment losses are taken to income. Any depreciation or amortisation is discontinued from the reclassification date. Details of discontinued operations – where available – are disclosed in the notes to the Financial Report. 3.14 Cash and cash equivalents Cash and cash equivalents essentially consist of cash, demand deposits and cash equivalents. Cash equivalents are predomi- nantly short-term liquid investments and cheques that have yet to be cashed. 3.15 Equity Equity instruments are classified as equity unless the Baloise Group is contractually obliged to repay them or to cede other financial assets. Transaction costs relating to equity transactions are deducted and all associated income tax assets are recognised as deductions from equity. 3.15.1 Share capital The share capital shown on the balance sheet represents the subscribed share capital of Bâloise Holding, Basel. This share capital consists solely of registered shares. No shares carry pref- erential voting rights. 3.15.2 Capital reserves Capital reserves include the paid-up share capital in excess of par value (share premium), Bâloise Holding share options, gains and losses on the purchase and sale of treasury shares, and embedded options in Bâloise Holding convertible bonds. 3.15.3 Treasury shares Treasury shares held either by Bâloise Holding or by subsidiaries are shown in the consolidated financial statements at their acquisition cost (including transaction costs) as a deduction from equity. Their carrying amount is not constantly restated to reflect their fair value. If the shares are resold, the difference between their acquisition cost and their sale price is recognised as a change in the capital reserves. Only Bâloise Holding shares are classified as treasury shares. 3.15.4 Unrealised gains and losses (net) This item includes changes in the fair value of available-for-sale financial instruments, the net effect of cash flow hedges, the net effect of hedges of a net investment in a foreign operation, exchange differences and gains on the reclassification of the Baloise Group’s owner-occupied property as investment property. Deductions from these unrealised gains and losses include the pertinent deferred taxes and, in the case of life insurance companies, also the funds that will be used in future to amor- tise acquisition costs and to finance policyholders’ dividends (shadow accounting). Any non-controlling interests are also deducted from these items. 3.15.5 Retained earnings Retained earnings include the Baloise Group’s undistributed earnings and its profit for the period. Dividends paid to the shareholders of Bâloise Holding are only recognised once they have been approved by the Annual General Meeting. 3.15.6 Non-controlling interests Non-controlling interests constitute the proportion of Group companies’ equity attributable to third parties outside the Baloise Group on the basis of their respective shareholdings. 122 Financial Report Notes to the consolidated annual financial statements 3.16 Insurance contracts An insurance contract is defined as a contract under which one party (the insurer) accepts a significant insurance risk from another party (the policyholder) to pay compensation, should a specified contingent future event (the insured event) adversely affect the policyholder. An insurance risk is any directly insured or reinsured risk that is not a financial risk. The significance of insurance risk is assessed according to the amount of additional benefits to be paid by the insurer if the insured event occurs. Contracts that pose no significant insurance risk are financial contracts. Such financial contracts may include a discre- tionary participation feature (DPF), which determines the accounting policies to be applied. The effective interest method is generally used to calculate receivables and liabilities arising from financial contracts (DPF included). The effective interest rate is determined as the inter- nal rate of return based on the estimated amounts and timing of the expected payments. If the amounts or timing of the actual payments differ from those expected or if expectations change, the effective interest rate must be re-determined. The deposit account balance is then remeasured as if this new effective interest rate had applied from the outset, and the change in the value of the deposit account is recognised as interest income or interest expense. Otherwise, the insurance cover financed from the deposit account is amortised over the expected term of the deposit account. The Baloise Group considers an insurance risk to be sig- nificant if, during the term of the contract and under a plausible scenario, the payment triggered by the occurrence of the insured event is 5 per cent higher than the contractual benefits payable if the insured event does not occur. A discretionary participation feature (DPF) exists if the policyholder is contractually or legally entitled to receive benefits over and above the benefits guaranteed and if → the benefits received are likely to account for a significant proportion of the total benefits payable under the contract → the timing or amount of the benefits payable is contractu- ally at the discretion of the insurer, and the benefits received are contractually contingent on the performance of either a specified portfolio of contracts or a specified type of contract, on the realised and / or unrealised capital gains on a specified portfolio of investments held by the insurer, or on the profit or loss reported by the insurer. Captive insurance policies are derecognised from the annual financial statements. This also applies to contracts involving proprietary pension plans, provided that the employees covered by these plans work for the Baloise Group. In addition, IFRS 4 makes exceptions for the treatment of embedded derivatives that form part of insurance contracts or financial contracts with discretionary participation features. If such embedded derivatives themselves qualify as insurance contracts, they do not have to be either separately measured or disclosed. In the case of the Baloise Group this affects, among other things, certain guarantees provided for annuity conversion rates and further special exceptions such as specific guaranteed cash surrender values for traditional policies. 3.17 Non-life insurance contracts All standardised non-life products contain sufficient insurance risk to be classified as insurance contracts under IFRS 4. The non-life business conducted by the Baloise Group is broken down into seven main segments: → Accident All standard product lines typical of each relevant market are available in the accident insurance business. The Belgian market and Switzerland in particular also offer specific government-regulated occupational accident products that differ from the other products usually available. → Health The Baloise Group writes health insurance business in Switzerland and Belgium only. The benefits paid by the products in this segment cover the usual cost of treatment and also include a daily sickness allowance; they are available to individuals as well as small and medium-sized businesses in the form of so-called group insurance. 123 Financial Report Notes to the consolidated annual financial statements → General liability In addition to conventional personal liability insurance the Baloise Group also sells third-party indemnity policies for certain professions. In Switzerland and Germany it offers policies – especially combined products – for small and medium-sized enterprises and for industrial partners that include features such as product liability. → Motor The two standardised products common in the market – comprehensive and third-party liability insurance – are sold in this segment. In some countries there are also products that have been specially designed for collabora- tions with motoring organisations and individual auto- motive companies. → Fire and other property insurance In addition to conventional home contents insurance this segment offers an extensive range of property policies that include fire insurance, buildings insurance and water damage insurance in all the varieties commonly available. → Marine Marine insurance is mainly sold in Switzerland and Germany. These products may include a third-party liability component in addition to the usual cargo insurance. → Miscellaneous This category generally comprises small segments such as credit protection insurance and legal expenses insurance. Provided that financial guarantees qualify as insurance contracts, they are treated as credit protection insurance policies. 3.17.1 Premiums The gross premiums written are the premiums that have fallen due during the reporting period. They include the amount needed to cover the insurance risk plus all surcharges. Premium con- tributions that are attributable to future reporting periods are deferred by contract and – together with health insurance reserves for old age and any deferred unearned premiums – constitute the unearned premium reserves shown on the balance sheet. Owing to the specific nature of marine insurance, premiums are deferred not by contract but on the basis of estimates. Premiums that are actually attributable to the reporting period are recog- nised as premiums earned. Their calculation is based on the premiums written and the change in unearned premium reserves. 3.17.2 Claims reserves At the end of each financial year the Baloise Group attaches great importance to setting aside sufficient reserves for all claims that have occurred by this date. In addition to the reserves that it recognises in respect of the payments to be made for claims that have occurred, it also sets aside reserves to cover the costs incurred during the claims settlement process. In order to calculate these reserves as real- istically as possible, the Baloise Group uses the claims history of recent years, generally accepted mathematical-statistical methods and all the information available to it at the time – especially knowledge about the expertise of those entrusted with the handling of claims. The total claims reserve consists of three components. Reserves calculated using actuarial methods form the basis of the total claims reserve. The second component comprises reserves for those complex special cases and events that do not lend themselves to purely statistical evaluation. These are generally rare claims that are fairly atypical of the sector concerned – usually sizeable claims whose costs have to be estimated by experts on a case-by-case basis. Neither of these components is subject to discounting. The third component consists of reserves for annuities that are discounted using basic actuarial principles such as mortality and the technical interest rate and are largely derived from claims in the motor, liability and accident insurance businesses. Actuarial methods are used to calculate by far the largest proportion of claims reserves. To this end, the Baloise Group selects actuarial forecasting methods that are appropriate for each sector, insurance product and existing claims history. Additional market data and assumptions obtained from insur- ance rates are used if the claims history available on a customer is inadequate. The Baloise Group mainly applies the chain-ladder method, which is the most widely used, tried-and-tested procedure. This method involves estimating the number and amounts of claims incurred over time and the proportion of claims that are reported to the insurer either with a time lag or after the balance sheet date. The proportion of these so-called incurred-but-not-reported (IBNR) claims is excep- tionally important, especially in operating segments involving third- party liability insurance. These estimates naturally factor in emerging claims trends as well as recoveries. The mean ratio of costs incurred to claims actually paid is essentially used to calculate reserves for claims handling costs. 124 Financial Report Notes to the consolidated annual financial statements The forecasting methods used cannot eliminate all the uncer- tainties inherent in making predictions about future develop- ments and trends. Nonetheless, systematic monitoring of the reserves recognised in a given financial year enables the Baloise Group to spot discrepancies as soon as possible and, conse- quently, to adjust the level of reserves and modify the forecasting method where necessary. This analysis is based on the so-called “run-off triangles” presented in aggregated form in section 5.4.5. The relevant calculations for typical property policies such as storm and tempest insurance or home contents insurance are usually based on the payments made over the past ten years. Larger amounts of data and, consequently, claims triangles that go further back in time and are based on both payments and expenses (payments plus reserves) are, of course, used for insurance segments with longer run-off periods, such as third-party liability. To supplement the Baloise Group’s various internal control mechanisms, its reserves – and the methods used to calculate them – are regularly reviewed by external specialists. Mention should be made here of the liability adequacy test described in detail in section 3.17.4. The Baloise Group takes great care to ensure that it complies with the pertinent financial reporting standard by performing the regularly required profitability analysis and examining whether, at the balance sheet date, it can actually meet all the liabilities that it has taken on as an insurer. It immediately offsets any shortfall in its reserves that it identifies. 3.17.3 Policyholders’ dividends and participation in profits Insurance contracts can provide customers with a share of the surpluses and profits generated by their policies (especially those arising from their claims history). The expenses incurred by policyholders’ dividends and participation in profits are derived from the dividends paid plus the changes in the pertinent reserves. 3.17.4 Liability adequacy test A liability adequacy test (LAT) is carried out at each balance sheet date to ascertain whether – taking all known developments and trends into consideration – the Baloise Group’s existing reserves are adequate. To this end, all existing reserves – both claims reserves (including reserves for claims handling costs) and annuity reserves in the non-life segment – are first analysed and, if a shortfall is identified, the relevant reserves are then strengthened accord- ingly. This analysis explicitly includes IBNR claims, thereby ensuring that adequate reserves are available for all claims that have already occurred. The liability adequacy test required by IFRS must also examine whether the Baloise Group has incurred any further liabilities for subsequent periods (future business) besides all its existing contracts maintained during the reporting period. Such business arises, for example, when contracts are auto- matically extended at the end of the year on the same terms and conditions. Taking account of all the latest data and trends, Baloise conducts a profitability analysis of its insurance business during the reporting year in order to check whether an adequate level of premiums has been charged and, implicitly, whether these liabilities are therefore covered. This amounts to an analysis of unearned premium reserves and an impairment test of deferred acquisition costs at the same time. If a loss is expected to be incurred (also applies to other loss-making insurance contracts in existence at the balance sheet date), the deferred acquisition costs are initially reduced by the respective amount. If the total amount of deferred acquisition costs is insufficient or if the resultant liability cannot be covered in full, a separate provision for impending losses equivalent to the residual amount is recognised under other technical reserves. 3.18 Life insurance contracts and financial contracts with discretionary participation features IFRS 4 gives users the option of accounting for insurance contracts and financial contracts with discretionary participation features by continuing to apply the existing accounting policies described in section 1 below both to liabilities and to the assets resulting directly from the pertinent contracts (deferred acquisition costs and present value of future profits from acquired business). 125 Financial Report Notes to the consolidated annual financial statements The following life insurance products offered by the Baloise Group contain sufficient insurance risk to be classified as insurance contracts under IFRS 4: → Endowment policies (both conventional and cost or present value of future profits is reduced and, if this is not enough, the reserve is immediately increased to the minimum level and this increase is recognised in profit or loss. unit-linked life insurance) 3.18.2 Present value of future profits (PVFP) → Swiss group life business (BVG) → Term insurance → Immediate annuities → Deferred annuities with annuity conversion rates that are guaranteed at the time the policy is purchased → All policy riders such as premium waiver, accidental death and disability. on insurance contracts acquired The present value of future profits on insurance contracts acquired constitutes an identifiable intangible asset that arises from the purchase of a life insurance company or life insurance portfolio. It is initially measured in accordance with actuarial principles and is amortised on a straight-line basis. It is regularly tested for impairment as part of a liability adequacy test. 3.18.3 Deferral of acquisition costs Acquisition costs are deferred. They are amortised either over the premium payment period or over the term of the insurance policy, depending on the type of contract involved. They are tested for impairment as part of a liability adequacy test. 3.18.4 Unearned revenue reserve (URR) The unearned revenue reserve comprises premiums that are charged for services rendered in future periods. These premiums are deferred and amortised in the same way as deferred acqui- sition costs. 3.18.5 Policyholders’ dividends A large proportion of life insurance contracts confer on policy- holders the right to receive dividends. Surpluses are reimbursed in the form of increased bene- fits, reduced premiums or final policyholders’ dividends or are accrued at interest to a surplus account. Surpluses already distributed and accrued at interest are reported as policy holders’ dividends credited and reserves for future policyholders’ divi- dends (chapter 23). The relevant interest expense is reported as interest expenses on insurance liabilities. Surpluses that have been used to finance an increase in insurance benefits are recognised in actuarial reserves. All investment income derived from unit-linked life insurance contracts is credited to the policyholder. The accounting policies applied by the Baloise Group are described below. 3.18.1 General accounting policies The accounting policies applied to traditional life insurance vary according to the type of profit participation agreed. Pre- miums are recognised as income and benefits are recognised as expense at the time they fall due. The amount of reserves set aside in each case is determined by actuarial principles or by the net premium principle, which ensures that the level of reserves generated from premiums remains consistent over time. The actuarial assumptions used to calculate reserves at the time that contracts are signed either constitute best estimates with explicit safety margins for specific business lines or they are determined in accordance with local loss reserving practice and thus also factor in safety margins. The assumptions used are locked in throughout the term of the contract unless a liability adequacy test reveals that the resultant reserves need to be strengthened after the deferred acquisition costs (DACs) and the present value of future profits (PVFP) on acquired insurance contracts have been deducted. Unearned premium reserves, reserves for final dividend payments and certain unearned revenue reserves (URRs) are also recognised as components of the actuarial reserve. A liability adequacy test is performed on all life insurance business at each balance sheet date. This involves calculating a reserve at the measurement date that factors in all future cash flows (such as insurance benefits, surpluses and contract- related administrative expenses) based on the best estimates available for the assumptions used at the time. If the minimum reserve calculated in this way for individual business lines exceeds the reserve available at the time, any existing deferred acquisition 126 Financial Report Notes to the consolidated annual financial statements IFRS 4 introduces the concept of a discretionary participation feature (DPF), which is of relevance not only for the classifi cation of contracts but also for the disclosure of surplus reserves according to policyholders’ share of the unrealised gains and losses rec- ognised directly in equity under IFRS and their share of the increases and decreases recognised in profit or loss in the con- solidated financial statements compared with the financial statements prepared in accordance with local accounting stand- ards. IFRS 4 states here that the portion of an insurance contract’s liability that is attributable to a discretionary participation feature (“DPF component”) must be reported separately. This standard does not provide any clear guidance as to how this DPF com- ponent should be measured and disclosed. When accounting for contracts that contain discretionary participation features, the Baloise Group treats measurement differences that are attributable to such contracts and are credited to policyholders according to a legal or contractual minimum quota as a DPF component. Distributable retained earnings and eligible unrealised gains and losses of fully consolidated sub- sidiaries are allocated pro rata to the DPF components of the life insurance company concerned. The DPF component calcu- lated in this way is reported as part of the reserves for future policyholders’ dividends (section 23). These reserves include policyholders’ dividends that are unallocated and have been set aside as a reserve under local accounting standards. If no legal or contractual minimum quota has been stip- ulated, the Baloise Group defines a discretionary participation feature as the currently available reserve for premium refunds after allowing for final policyholders’ dividends. Unless a minimum quota has been stipulated, all other measurement differences between the local and IFRS financial statements are recognised directly in equity. The applicable minimum quotas prescribed by law, contract or Baloise’s articles of association vary from country to country. Life insurance companies operating in Germany and in some areas of Swiss group life business are required by law to distribute a minimum proportion of their profits to policy holders in the form of dividends. Policyholders in Germany must receive a share of the profits generated. Any losses incurred are borne by shareholders. Policy- holders are entitled to 90 per cent of investment income (minus the technical interest rate), 75 per cent of the net profit on risk exposures and 50 per cent of other surpluses. The articles of association of Basler Lebensversicherungs-AG, Germany, addi- tionally stipulate a minimum quota of 95 per cent for part of its insurance portfolio. Minimum quotas are also applied to some of the Baloise Group’s Swiss occupational pensions (BVG) business, which is subject to the legal quotas of 100 per cent for changes in liabil- ities and 90 per cent for changes in assets. 3.19 Reinsurance Reinsurance contracts are insurance contracts between insur- ance companies and / or reinsurance companies. There must be a transfer of risk for a transaction to be recognised as reinsur- ance; otherwise the transaction is treated as a financial contract. Inward reinsurance is recognised in the same period as the initial risk. The relevant technical reserves are reported as gross unearned premium reserves or gross claims reserves for non-life insurance and as gross actuarial reserves for life insur- ance. In non-life insurance they are estimated as realistically as possible based on empirical values and the latest information available, while in life insurance they are recognised as a reserve to cover the original transaction. Outward reinsurance is the business ceded to insurance companies outside the Baloise Group and includes transactions ceded from direct life and non-life business and from inward insurance. Assets arising from outward reinsurance are calculated over the same periods and on the same basis as the original transaction and are reported as reinsurance assets (section 16). Impairment losses are recognised in profit or loss for assets deemed to be at risk owing to the impending threat of insolvency. 127 Financial Report Notes to the consolidated annual financial statements 3.20 Liabilities arising from banking business and financial contracts 3.20.1 With discretionary participation features Financial contracts with discretionary participation features are capital accumulated by customers that entitles them to receive policyholders’ dividends. The accounting principles applied to these financial contracts are the same as those for life insurance contracts; the accounting policies for life insurance are described in section 3.18. The convertible bond issued by Bâloise Holding comprises a liability and an embedded option (right to convert the bond into Bâloise Holding shares). The fair value of the embedded option is determined at the balance sheet date and is recognised separately in equity. The acquisition cost of the liability com- ponent corresponds to the present value of future cash flows at the time the bond is issued. The discount rate used is the market interest rate applicable to similar bonds without any conversion rights or warrants. 3.20.2 Measured at amortised cost Liabilities measured at amortised cost include savings deposits, medium-term bonds, mortgage-backed bonds, other liabilities and financial guarantees that do not qualify as insurance contracts. They are initially measured at their acquisition cost (fair value). The difference between acquisition cost and redemption value is recognised in profit or loss over the term of the liability as “gains or losses on financial contracts” under the amortised-cost method and the effective interest method. 3.20.3 Recognised at fair value through profit or loss This item includes financial contracts for which the holder bears the entire investment risk as well as banking liabilities that are designated as “at fair value through profit or loss” as part of the Baloise Group’s strategy of using natural hedges. 3.21 Financial liabilities The financial liabilities reported under this line item comprise the bonds issued in the capital markets (except for the bonds issued by the Banking operating segment). Financial liabilities are initially measured at their acquisition cost (fair value). Acquisition cost includes transaction costs. The difference between acquisition cost and redemption value is recognised in profit or loss over the term of the liability as borrowing costs under the amortised-cost method and the effective interest method. 3.22 Employee benefits The benefits that the Baloise Group grants to its employees com- prise all forms of remuneration that is paid in return for work performed or in special circumstances. The benefits available include short-term benefits (such as wages and salaries), long-term benefits (such as long-service bonuses), termination benefits (such as severance pay and social compensation plan benefits) and post-employment benefits. The benefits described below may be especially significant owing to their scale and scope. 3.22.1 Post-employment benefits The main post-employment benefits provided are retirement pensions, employer contributions to mortgage payments and certain insurance benefits. Although these benefits are paid after employees have ceased to work for the Baloise Group, they are funded while the staff members concerned are still actively employed. All the pension benefits currently provided by the Baloise Group are defined benefit plans. The projected unit credit method is used to calculate the pertinent pension liabilities. Assets corresponding to these liabilities are only recognised if they are ceded to an entity other than the employer (such as a foundation). Such assets are measured at fair value. Changes to assumptions, discrepancies between the planned and actual returns on plan assets, and differences between the benefit entitlements effectively received and those calculated using actuarial assumptions give rise to actuarial gains and losses that must be recognised directly in other comprehensive income. The Baloise Group’s pension plan agreements are tailored to local conditions in terms of enrolment and the range of benefits offered. 128 Financial Report Notes to the consolidated annual financial statements 3.22.2 Share-based payments The Baloise Group offers its employees and senior executives the chance to participate in various plans under which shares are granted as part of their overall remuneration packages. The Employee Incentive Plan, Share Subscription Plan, Employee Share Ownership Plan, performance quota and performance share units (PSUs) are measured and disclosed in compliance with IFRS 2 Share-based Payment. Plans that are paid in Bâloise Holding shares are measured at fair value on the grant date, charged as personnel expenses during the vesting period and recognised directly in equity. Plans that are paid in cash and whose amount is determined by the market value of Bâloise Holding shares are recognised at fair value on the balance sheet date and reported as a liability. 3.23 Provisions Provisions for restructuring or legal claims are recognised for present legal or constructive obligations when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and a reliable estimate can be made of the amounts of the obligations. The amount recognised as a provision is the best estimate of the expenditure expected to be required to settle the obligation. If the amount of the obligation cannot be estimated with sufficient reliability, it is reported as a contingent liability. 3.24 Taxes Provisions for deferred income taxes are recognised under the liability method, which means that they are based either on the current tax rate or on the rate expected in future. Deferred income taxes reflect the tax-related impact of temporary differ- ences between the assets and liabilities reported in the IFRS financial statements and those reported for tax purposes. When deferred income taxes are calculated, tax loss carryforwards are only recognised to the extent that sufficient taxable profit is likely to be earned in future. Deferred tax assets and liabilities are offset against each other and shown as a net figure in cases where the criteria for such offsetting have been met. This is usually the case if the tax jurisdiction, the taxable entity and the type of taxation are identical. 3.25 Revenue recognition Revenue and income are recognised at the fair value of the con- sideration received or receivable. Intercompany transactions and the resultant gains and losses are eliminated. Recognition of revenue and income is described below. 3.25.1 Income from services rendered Income from services rendered is recognised in the period in which the service is provided. 3.25.2 Interest income Interest income from financial instruments that are not recog- nised at fair value through profit or loss is recognised under the effective interest method. If a receivable is impaired, it is written down to its recoverable amount, which corresponds to the present value of estimated future cash flows discounted at the contract’s original interest rate. 3.25.3 Dividend income Dividend income from financial assets is recognised as soon as a legal entitlement to receive payment arises. 129 Financial Report Notes to the consolidated annual financial statements 4. CRITICAL ACCOUNTING PRINCIPLES AND ESTIMATE UNCERTAINTIES The Baloise Group’s consolidated annual financial statements contain assumptions and estimates that can impact on the annual financial statements for the following financial year. Estimates and the exercise of discretion by management are kept under constant review and are based on empirical values and other factors – including expectations about future events – that are deemed to be appropriate on the date that the balance sheet is prepared. 4.1 Fair value of various balance sheet line items Where available, prices in active markets are used to determine fair value. If no publicly quoted prices are available or if the market is judged to be inactive, fair value is either estimated based on the present value or is determined using measurement methods. These methods are influenced to a large extent by the assumptions used, which include discount rates and estimates of future cash flows. The Baloise Group primarily uses fair values; if no such values are available, it applies its own models. Detailed information about fair value measurement can be found in chapter 5.10. analysis of discounted cash flows and reference to similar, fairly recent arm’s-length transactions between knowl- edgeable, willing parties). If such estimates do not enable financial assets to be reliably measured, the assets are recognised at cost and disclosed accordingly. Publicly quoted prices are used to determine the fair value of hedge funds. If no such prices are available, prices quoted by independent third parties are used to determine fair value. → Mortgages and loans (recognised at fair value through profit or loss) Mortgages and loans are designated as “at fair value through profit or loss” as part of the Baloise Group’s strategy of using natural hedges. Yield curves are used to measure these portfolios. The following financial liabilities are measured at fair value: → Liabilities arising from banking business and financial contracts (recognised at fair value through profit or loss) Liabilities arising from investment-linked life insurance contracts involving little or no transfer of risk are measured at fair value based on the capitalised invest- ments underlying these liabilities. → Derivative financial instruments The following asset classes are measured at fair value: → Investment property Models or quoted market prices are used to determine the fair value of derivative financial instruments. The discounted cash flow (DCF) method is used to determine the fair value of investment property. The assumptions and estimates used for this purpose are described in section 3.6. → Financial instruments with characteristics of equity and financial instruments with characteristics of liabilities (available for sale or recognised at fair value through profit or loss) Fair value is based on prices in active markets. If no quoted market prices are available, fair value is estimated using generally accepted methods (such as the present-value method), independent assessments based on comparisons with the market prices of similar instruments or the pre- vailing market situation. Derivative financial instruments are measured using models or on the basis of quoted market prices. If no publicly quoted prices are available for private equity investments, they are measured on the basis of their net asset value using non-public infor- mation from independent external providers. These providers use various methods for their estimates (e.g. 130 4.2 Financial instruments with characteristics of liabilities (held to maturity) The Baloise Group applies the provisions of IAS 39 when classi- fying non-derivative financial instruments with fixed or determinable payments as “held to maturity”. To this end, it assesses its intention and ability to hold these financial instru- ments to maturity. If – contrary to its original intention – these financial instruments are not held to maturity (with the exception of specific circumstances such as the disposal of minor investments), the Baloise Group must reclassify all held-to-maturity financial instruments as “available for sale” and measure them at fair value. Chapter 12 contains information on the fair values of the financial instruments with characteristics of liabilities that are classified as “held to maturity”. Financial Report Notes to the consolidated annual financial statements 4.3 Impairment The Baloise Group determines at each balance sheet date whether there is any objective evidence that financial assets may be permanently impaired. → Financial instruments with characteristics of equity (available for sale) An impairment loss must be recognised on available- for-sale financial instruments with characteristics of equity whose fair value at the balance sheet date is more than 50 per cent below their acquisition cost or whose fair value is consistently below their acquisition cost throughout the twelve-month period preceding the balance sheet date. The Baloise Group examines whether it needs to recognise impairment losses on securities whose fair value at the balance sheet date is between 20 per cent and 50 per cent below their acquisition cost. Such assessments of the need to recognise impairment losses consider various factors such as the volatility of the securities concerned, credit ratings, analysts’ reports, economic conditions and sectoral prospects. → Financial instruments with characteristics of liabilities (available for sale or held to maturity) Objective evidence of a financial asset’s impairment includes observable data on the following cases: – Serious financial difficulties on the part of the borrower – Breaches of contract, such as a borrower in default or arrears with the payment of principal and / or interest – Greater probability that the borrower will file for bankruptcy or undergo some other form of restructuring – Observable data that indicates a measurable reduction in the expected future cash flows from a group of financial assets since their initial recognition – Analysts’ reports from banks and evaluations by credit rating agencies are also used to assess the need for impairment losses → Mortgages and loans (carried at cost) The mortgage portfolio is regularly tested for impairment. The methods and assumptions used in these tests are also regularly reviewed in order to minimise any discrepancies between the actual and expected probabilities of default. 4.4 Deferred income taxes Unused tax loss carryforwards and other deferred tax assets are recognised if it is more likely than not that they will be realised. To this end, the Baloise Group makes assumptions about the recoverability of these tax assets; these assumptions are based on the financial track record and future income of the taxable entity concerned. 4.5 Estimate uncertainties specific to insurance Estimate uncertainties pertaining to actuarial risk are discussed from chapter 5.4 onwards. 4.6 Provisions The measurement of provisions requires assumptions to be made about the probability, timing and amount of any outflows of resources embodying economic benefits. A provision is recog- nised if such an outflow of resources is probable and can be reliably estimated. 4.7 Employee benefits In calculating its defined benefit obligations towards its employees, the Baloise Group makes assumptions about the expected return on plan assets, the economic benefits embodied in assets, future increases in salaries and pension benefits, the discount rate applicable and other parameters. The most important assump- tions are derived from past experience of making estimates. The assumptions factored into these calculations are discussed in chapter 18.2.7. 4.8 Goodwill impairment Goodwill is tested for impairment in the second half of each year or whenever there is objective evidence of impairment. Such impairment tests involve calculating a value in use that is largely based on estimates such as the financial planning approved by management and the discount rates and growth rates mentioned in chapter 9. 131 Financial Report Notes to the consolidated annual financial statements 5. MANAGEMENT OF INSURANCE RISK AND FINANCIAL RISK The companies in the Baloise Group offer their customers non- life insurance, life insurance and banking products (the latter in Switzerland and, on a restricted basis, in Germany). Conse- quently, the Baloise Group is exposed to a range of risks. The main risks in the non-life insurance sector are natural disasters, major industrial risks, third-party liability and per- sonal injury. The insurance business as a whole is examined regularly by means of extensive analytical studies. The results of this analysis are taken into account when setting aside reserves, fixing insurance rates and structuring insurance products and reinsurance contracts. In the non-life sector, studies focusing on the risks arising from natural disasters have been carried out in recent years. On some of them we worked with reinsurance companies and brokers to determine the level of exposure to these risks and the extent of risk transfer required. The predominant risks in the life insurance sector are the following biometric risks: → longevity risk (annuities and pure endowment policies), → mortality risk (whole-life and endowment life insurance), → disability risk (in the sense of the risk of premiums proving insufficient due to an adverse disability claims history). Because the Group issues interest-rate guarantees, it is also exposed to interest-rate risk. There are also implicit financial guarantees and options which also affect liquidity, investment planning and the income generated by Group companies; they include guaranteed surrender prices when policyholders cancel and guaranteed annuity factors on commencement of the payout phase of annuities. Longevity, mortality and disability rates are risks specific to life insurance and are monitored on an ongoing basis. The companies in the Baloise Group review and analyse mortality rates among their local customer bases, along with the frequency with which policies are cancelled, invalidated and reactivated. For this analysis, they generally use standard market statistics that are compiled by actuaries and include adequate safety mar- gins. The information they gather is used for ensuring that rates are adequate and also for setting aside sufficient reserves to meet future insurance liabilities. Because rates are required by law to be calculated conservatively, and the statistical base is relatively good, the risks in this area are manageable. In the field of annuities, there is an additional trend risk in the form of a steady rise in life expectancy which is resulting in ever longer annuity payout periods. This risk is addressed by the addition of suitable factors to the basis for calculation. Managing participating insurance contracts is an additional method of mitigating risk. For example, bringing policy holders’ dividends into line with altered circumstances as far as per- mitted by local regulations is one option that could be taken if the risk situation were to change. However, the allocation of surpluses between policyholders and the Company is not only subject to local law, it is also governed by market expectations. The main risk categories to which the Banking division of the Baloise Group is exposed are credit risk, interest-rate risk and liquidity risk. These risks are identified and managed locally by the banks. The loan portfolio is reviewed and analysed on an ongoing basis. A range of tools is used for this purpose, including standardised credit regulations and procedures, scoring and rating procedures, focusing on low-risk markets and the use of an automated arrears system. The information obtained is incorporated into credit decisions. Balance sheet risks (interest-rate and liquidity risks) are managed by the bank’s asset and liability management (ALM) committee. The data and key figures required are determined and calculated using a specialist IT application. Deutscher Ring Bausparkasse AG is also exposed to what is known as collective risk, which means that the building society customers are collectively responsible for the fair allocation of home savings contracts over the long term. Mathematical sim- ulations are used to show that this collective responsibility can be met, provided the fluctuation reserve remains at least greater than zero over the long term. Deutscher Ring Bausparkasse uses a simulation model to monitor and manage its collective risk. The model makes a future projection of the building society’s total collective holdings on an individual contract basis, incor- porating new business scenarios and patterns of behaviour observed in the past. Triggered by the threat of a pandemic, the existing disas- ter recovery plans for extraordinary events – such as natural disasters, wildfires, terrorist attacks, etc. – have been reviewed at all Group companies since 2007, and a pandemic scenario has been added. Additional disaster recovery plans have been created to ensure that business operations can be continued with severely reduced staff numbers. Several pandemic contin- gency exercises were carried out at our Swiss site in 2008. In summer 2009, during the WHO phase 6 pandemic alert, all employees in Switzerland were issued with a personal protection kit, and Pandemic Web – the inhouse management and infor- mation system – went online. Since 2008, management decisions before, during and after a crisis have been prepared by Group Crisis Management, the head of which reports directly to the 132 Financial Report Notes to the consolidated annual financial statements Group CEO. The composition of the crisis management team varies according to the type of risk involved (insurance, bank- ing, financial, solvency, reputation). The crisis management team was not convened in 2011 because the E. coli outbreak was largely restricted to Germany and was officially declared at an end in late July 2011. There were no occurrences of any note in either 2012 or 2013. The autumn of 2014 saw the launch of pre-crisis activities in a small core back-office unit to monitor the development of Ebola (Baloise Group and Swiss entities) and prepare communication measures and crisis plans. Towards the end of the year the all-clear was given and these activities were discontinued. In June 2015, a staff notification about MERS (Middle East Respiratory Syndrome coronavirus) was posted on the intranet. No further action was required. 5.1 Organisation of risk management in the Baloise Group The Baloise Group’s insurance and banking activities in various European countries, as well as its global investments, expose it to market risks such as currency risk, credit risk, interest-rate risk and liquidity risk. The Baloise Group has implemented a comprehensive, Group-wide risk management system in all of its insurance and banking entities. Its Group-wide Risk Management Standards focus on the following areas: → Organisation and responsibilities → Methods, regulations and limits → Risk control An overall set of rules governs all activities directly connected with risk management and ensures that they are compatible with one another. At the highest level, internal and external risk bands restrict and manage the overall risks incurred by the Group and the individual business units. At the level exposed to financial and business risk, various limits and regulations restrict the individual risks that have been iden- tified to a level that is acceptable for the Group, or eliminate them completely. Within the Group and within each business unit, a risk owner is responsible for each individual risk that has been identified. Risk owners are allocated according to a hierarchy of responsibility. The Group’s overall risk owner is the Chief Executive Officer of the Baloise Group. Alongside the risk owners, defined risk controllers are responsible for systematic risk control and risk reporting. When selecting risk controllers, particular care is taken to ensure that their role is independent of the risk they control. Risk control within the Baloise Group focuses on investment risk, business risk (actuarial and banking risks), risks to the Group’s financial structure and compliance. The Group’s overall risk controller is the Chief Executive Officer of the Baloise Group. The Baloise Group’s risk map is a categorisation of the risks it has identified. The risks are divided into three levels: → Category of risk → Sub-category of risk → Type of risk The business-risk, investment-risk and financial-structure-risk categories relate directly to the Baloise Group’s core businesses. These risks are deliberately incurred, managed and optimised by the management team and various risk committees. Analysis of these risks is model-based and it ultimately results in an aggregate overview. Business-environment risk, operational risk, and manage- ment and information risk arise as direct or indirect results of the business operations, business environment or strategic activities of each company. Risks of this type are also quantified, assessed and managed. Because all risks are quantified, it is possible to analyse the relevance of each risk to the overall risk situation of the Baloise Group and / or the individual companies. The Baloise Group’s central risk management team forms part of Corporate Division Finance and reports to the Group Chief Risk Officer, who in turn reports to the Group CFO. It 133 Financial Report Notes to the consolidated annual financial statements coordinates intra-Group policies, risk reporting and the technical development of suitable risk-management processes and tools. Every month, it tracks developments in the financial markets and their impact on the risk portfolio and the individual risk capacity of all the business units and the Group as a whole. The relevant risk owners and risk controllers verify the figures that have been computed and incorporate them into their management decisions. RISK MAP Business risks Investment risks Financial Business Operational risks Management / structure risks environment risks information risks Technical risks, Life Market risks Asset liability risks Changes to regulations IT and data security Structure of → Interest guarantee → Interest → Interest fluctuation → Data organisation → Parameter risks → Shares risk Competitive risk → Software / → Worst-case scenario → Currencies → (Re) financing, hardware / network Corporate culture → Creation of → Real estate liquidity External events → Physical reliability provisions → Market liquidity → End User Computing Strategy Technical risks, Non-life → Alternative → Accumulation/ Personnel risks → Risk steering → Derivatives Concentration of risk Investors → Business portfolio → Premiums → Claims investments cluster risk → Skills / capacities → Concentration risk → Knowledge availability Merger and acquisitions → Worst-case scenario Credit risks → Incentive systems → Creation of provisions Reinsurance → Premiums / rating → Default → Active reinsurance Requirements for balance-sheet structure and capital → Solvency ratio → Other regulatory requirements Legal risks → Contracts External communication → Liability and litigation Projection, plan, → Tax budget Compliance Project portfolio Business processes Internal misinformation → Process risks → Project risks → In- / Outsourcing Risk analysis and risk reporting → Risk analysis and risk assessment → Risk reporting 134 Financial Report Notes to the consolidated annual financial statements Non-diversifiable market risk is monitored and managed by central and local units using means such as stochastic methods and comprehensive scenario analysis. Semi-annual reporting is undertaken for each identified risk category. To this end, each business unit compiles an ORSA (Own Risk and Solvency Assessment) report. Key figures for the financial and actuarial risks incurred by the Group and each strategic business unit are reported on a monthly basis using a risk control application. 5.2 Life and non-life underwriting strategies The Baloise Group primarily underwrites insurance risk for private individuals and small and medium-sized enterprises in selected countries in mainland Europe. Industrial insurance in the property and third-party liability, marine and technical insurance sectors is largely provided by Baloise Insurance in Basel or its branch in Bad Homburg (Germany) and our Belgian business unit Baloise Insurance Belgium. In this particularly high-risk segment, central management of industrial insurance ensures consistent quality and a high degree of transparency for the business underwritten. Every business unit in the Baloise Group issues regulations regarding underwriting and risk review. They include clear authorisation levels and underwriting limits for each sector. Underwriting limits are approved by a business unit’s highest decision-making body, and the Corporate Executive Committee is notified of them. In the industrial insurance unit, the maxi- mum net underwriting limit for property insurance has been set at CHF 150 million (2014: CHF 100 million) for Switzerland and at EUR 100 million (2014: EUR 60 million) for Germany and Belgium. The only other comparable underwriting limits in the Group are for marine and liability insurance. Tools for setting the basic premium and for risk-based management of the total portfolio are also used to manage industrial insurance risk. For its exposure to natural hazards the Baloise Group has purchased reinsurance cover for the whole Group amounting to CHF 250 million (2014: CHF 250 million). 5.3 Life and non-life reinsurance strategies The Baloise Group’s non-life treaty reinsurance for all business units in the Group is structured and placed in the market by Group Reinsurance, part of Corporate Division Finance. When structuring the programme, Group Reinsurance focuses on the risk-bearing capacity of the Group as a whole. To date, the Group has only placed non-proportional reinsurance programmes. The Group’s maximum retention for cumulative claims was CHF 20 million (2014: CHF 20 million). The retentions for in- dividual claims were CHF 16 million (2014: CHF 16 million) for property claims, CHF 15 million (2014: CHF 15 million) for marine claims and CHF 13.7 million on a non-indexed basis (2014: CHF 13.7 million) for third-party liability claims. The local Baloise Group business units also use additional facul tative reinsurance cover on a case-by-case basis. This type of reinsur- ance is extremely dependent on the individual risk in each case and it is therefore placed by the business units themselves. Reinsurance contracts may only be entered into with counterparties that have been authorised in advance by Cor- porate Division Finance. Reinsurers must generally have a minimum rating of A– from Standard & Poor’s, but in excep- tional cases – and in specific circumstances – a BBB+ rating or a comparable rating from another recognised rating agency is permitted. However, these reinsurance contracts are only used for property insurance business that can be settled quickly. This rule does not apply to captives and pools that are active re- insurance companies because they do not generally have ratings. Reinsurer credit risk is reviewed on a regular basis. A watch list is kept of reinsurers that are bankrupt or in financial diffi- culties. The list contains details of all relationships the Group has with these reinsurers, receivables due to the Group that are outstanding or have been written off and provisions the Group has recognised. The watch list is updated periodically. The same requirements for reinsurers apply to life insur- ance as to non-life insurance, although reinsurance is a less important instrument for ceding risk in life insurance business. 135 Financial Report Notes to the consolidated annual financial statements 5.4 Non-life 5.4.1 Actuarial risk The Baloise Group primarily underwrites insurance risk for private individuals and small and medium-sized enterprises in selected countries in mainland Europe. Business with industrial clients is also conducted in Switzerland and Germany. Under- writing risk is limited by monitoring and adjusting rates and maintaining underwriting policies and limits appropriate to the size of each portfolio and the country in which it is located. 5.4.2 Assumptions → Claims reserves and claims settlement The portfolios on the Group’s books must be structured in such a way that the data available is sufficiently homo- geneous to enable the use of certain analytical actuarial processes to determine the claims reserves required. One of the assumptions made is that extrapolation of the typical claims settlement pattern of recent years is meaningful. Only cases such as extreme anomalies in settlement behaviour require additional assumptions to be made on a case-by-case basis. → Claims handling costs The ratio of the average claims handling costs incurred in recent years to the payouts made in the same period is used to calculate the level of claims handling reserves to be recognised based on current claims reserves. → Annuities The factors on which annuity calculations are based (mortality tables, interest rates, etc.) are normally specified or approved by the authorities in each country. However, because certain parameters can change relatively quickly, the adequacy of these annuity reserves is reviewed every year (by conducting a liability adequacy test or LAT) and, if there is a shortfall, the reserves are strengthened accordingly. 5.4.3 Changes to assumptions The assumptions on which claims reserves are based generally remain constant, but the factors on which annuity calculations are based are adjusted from time to time over the years, particu- larly with regard to the latest longevity data. 136 5.4.4 Sensitivity analysis As well as the natural volatility inherent in insurance business, there are parameters for determining technical reserves that can significantly impact on the annual earnings and equity of an insurance company. In the non-life sector, sensitivity anal- ysis has been used to investigate the effect on consolidated annual earnings and consolidated equity exerted by errors in estimat- ing claims reserves – including claims incurred but not reported (IBNR) – and reserves for run-off business. At the end of 2015, the Baloise Group’s total reserves calcu- lated using actuarial methods or recognised separately for special claims (including large claims but not run-off or actuarial reserves for annuities) amounted to CHF 4,372.5 million (2014: CHF 4,596.3 million). A variation of 10 per cent in either direction in the requirement for these reserves would result in a rise or fall of around CHF 318.6 million (2014: CHF 334.3 million) in claims payments (after taxes) before reinsurance. The reserves in its run-off business mainly arose from liabilities that the Baloise Group had incurred in the London market since the early 1990s, largely third-party liability claims relating to asbestos and environmental damage. Because of the long settlement period, there is a high degree of uncertainty associated with the calculation of these claims reserves. Both the timing at which cases of this type are iden- tified and their potential loss level are much less certain than any other established claims patterns. Some reserves were calcu- lated using external actuaries’ reports in which best-case and worst-case scenarios were analysed. The Baloise Group’s minimum reserves policy is based on the average of these two scenarios. It is particularly difficult to assess the level of reserves required for IBNR claims, so further fluctuations cannot be ruled out. According to expert estimates, fluctuations of around 10 per cent can be expected, which is equivalent to around CHF 6.6 million after taxes and before reinsurance (2014: CHF 7.0 million) for this reserve. Financial Report Notes to the consolidated annual financial statements 5.4.5 Claims settlement Analysis of gross claims settlement (before reinsurance) broken down by strategic business unit The proportion reinsured was low and would not affect the information given in the claims settlement tables below. ESTIMATED CUMULATIVE CLAIMS INCURRED IN SWITZERLAND 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Year in which the claims occurred 684.1 681.4 641.7 690.7 723.1 777.9 732.2 768.5 733.6 707.8 CHF million At the end of the year in which the claims occurred One year later Two years later Three years later Four years later Five years later Six years later Seven years later Eight years later Nine years later Estimated claims incurred 647.6 633.0 619.0 619.7 607.8 603.2 585.7 576.3 569.2 569.2 693.2 686.6 674.2 662.3 655.7 643.7 628.5 625.6 – 631.4 628.6 623.6 622.6 606.8 597.8 594.3 – – 670.6 657.4 641.0 634.4 638.6 632.8 – – – 685.4 675.1 666.9 659.6 653.0 – – – – 736.5 731.0 729.1 722.7 – – – – – 751.1 736.9 726.3 – – – – – – 768.2 764.1 – – – – – – – 715.7 – – – – – – – – – – – – – – – – – 625.6 594.3 632.8 653.0 722.7 726.3 764.1 715.7 707.8 6,711.5 – – – – – – – – – – Claims paid – 526.9 – 567.5 – 517.1 – 553.7 – 575.9 – 613.4 – 624.6 – 646.2 – 545.3 – 355.7 – 5,526.3 Gross claims reserves 42.3 58.1 77.2 79.1 77.1 109.3 101.7 117.9 170.4 352.1 1,185.2 Gross claims reserves prior to 2006 (including large claims and assumed business) Gross provision for annuities (non-life, including IBNR) Reinsurers’ share Net claims reserves 392.2 796.2 – 323.2 2,050.4 137 Financial Report Notes to the consolidated annual financial statements For greater clarity, the following analysis of claims trends is shown in euros. ESTIMATED CUMULATIVE CLAIMS INCURRED IN GERMANY 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Year in which the claims occurred 283.8 306.7 298.2 288.0 302.5 290.8 297.4 382.9 319.3 319.0 EUR million At the end of the year in which the claims occurred One year later Two years later Three years later Four years later Five years later Six years later Seven years later Eight years later Nine years later Estimated claims incurred 288.7 283.7 278.8 276.9 277.5 275.6 277.3 280.0 279.7 279.7 303.0 295.5 294.1 293.1 299.3 299.8 303.0 304.2 – 296.2 299.7 300.3 301.2 300.6 301.4 301.2 – – 286.4 289.0 294.6 294.8 295.1 297.1 – – – 299.7 305.6 305.8 306.0 307.9 – – – – 297.6 300.9 306.6 309.8 – – – – – 298.4 302.5 304.3 – – – – – – 384.7 385.9 – – – – – – – 330.5 – – – – – – – – – – – – – – – – – 304.2 301.2 297.1 307.9 309.8 304.3 385.9 330.5 319.0 3,139.6 – – – – – – – – – – Claims paid – 274.6 – 300.1 – 296.5 – 289.4 – 298.0 – 294.7 – 288.8 – 342.9 – 257.3 – 150.2 – 2,792.5 347.1 368.5 130.7 – 291.0 555.3 Gross claims reserves 5.1 4.1 4.7 7.7 9.9 15.1 15.5 43.0 73.2 168.8 Gross claims reserves prior to 2006 (including large claims and assumed business) Gross provision for annuities (non-life, including IBNR) Reinsurers’ share Net claims reserves 138 EUR million At the end of the year in which the claims occurred One year later Two years later Three years later Four years later Five years later Financial Report Notes to the consolidated annual financial statements ESTIMATED CUMULATIVE CLAIMS INCURRED IN BELGIUM 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Year in which the claims occurred 188.9 203.2 205.7 228.0 235.1 308.7 1 412.4 2 403.6 483.7 459.9 185.0 182.6 182.6 179.5 179.9 287.1 1 395.1 2 426.5 1 308.0 2 392.2 1 264.5 2 304.0 1 223.0 2 254.0 1 222.6 2 222.5 216.3 213.1 208.7 211.1 217.8 219.0 – 215.2 212.3 216.5 226.7 223.8 – – 248.5 252.2 250.7 252.5 – – – 387.9 392.5 – – – – – 308.1 306.0 – – – – 421.9 412.9 – – – – – – 402.5 398.0 – – – – – – – 494.3 – – – – – – – – – – – – – – – – – 219.0 223.8 252.5 306.0 392.5 412.9 398.0 494.3 459.9 3,349.6 Six years later 1 181.0 2 221.8 Seven years later 2 187.4 Eight years later Nine years later Estimated claims incurred 189.9 190.7 190.7 Claims paid – 153.9 – 172.8 – 180.7 – 210.3 – 249.7 – 312.5 – 338.9 – 317.8 – 377.7 – 214.4 – 2,528.7 Gross claims reserves 36.8 46.2 43.1 42.2 56.3 80.0 74.0 80.2 116.6 245.5 Gross claims reserves prior to 2006 (including large claims and assumed business) Gross provision for annuities (non-life, including IBNR) Reinsurers’ share Net claims reserves 1 The increase in the total estimated claims incurred is primarily due to the addition of Avéro Schadevezekering Benelux NV. 2 The increase in the total estimated claims incurred is primarily due to the addition of Nateus NV and Audi NV. 820.9 295.1 153.7 – 281.6 988.1 139 – – – – – – – – – – Financial Report Notes to the consolidated annual financial statements ESTIMATED CUMULATIVE CLAIMS INCURRED IN LUXEMBOURG 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Year in which the claims occurred 12.7 14.2 15.0 17.5 1 25.0 1 23.6 24.0 23.6 2 36.8 3 43.8 12.0 11.9 11.7 11.6 1 16.4 16.3 16.3 2 29.3 3 34.2 34.2 13.6 13.0 12.9 1 18.9 18.7 18.6 2 35.0 3 40.1 – 40.1 14.9 15.1 1 20.8 21.1 20.9 2 37.9 3 43.4 – – 16.9 1 21.5 21.3 21.1 2 36.2 3 42.0 – – – 1 22.0 21.8 21.7 2 37.0 3 41.9 – – – – 22.7 22.6 2 35.3 3 39.7 – – – – – 24.5 2 36.5 3 39.9 – – – – – – 2 37.8 3 41.2 – – – – – – – 3 40.8 – – – – – – – – – – – – – – – – – 43.4 42.0 41.9 39.7 39.9 41.2 40.8 43.8 407.0 – – – – – – – – – – EUR million At the end of the year in which the claims occurred One year later Two years later Three years later Four years later Five years later Six years later Seven years later Eight years later Nine years later Estimated claims incurred Claims paid – 33.7 – 39.5 – 42.2 – 40.6 – 40.3 – 37.8 – 37.3 – 37.4 – 35.4 – 26.5 – 370.7 Gross claims reserves 0.5 0.6 1.2 1.4 1.6 1.9 2.6 3.8 5.4 17.3 Gross claims reserves prior to 2006 (including large claims and assumed business) Gross provision for annuities (non-life, including IBNR) Reinsurers’ share Net claims reserves 36.3 51.7 0.0 – 36.9 51.1 1 The increase in the total estimated claims incurred is primarily due to the addition of Bâloise Assurances Luxembourg S.A. 2 The increase in the total estimated claims incurred is primarily due to the addition of P & V Assurances. 3 The increase in the total estimated claims incurred is primarily due to the addition of HDI Gerling Assurances S.A. Analysis of claims settlement for the “Other units” segment A large proportion of the reserves relating to this segment is attributable to run-off business. Due to the special nature of this business, it is difficult to conduct meaningful analysis on the basis of our own claims data alone, so the reserves recognised for it are subject to significant uncertainty. The survival ratio – the ratio of reserves to the average claims paid in the past three years – is a commonly used measure for comparing the adequacy of reserves for asbestos and environmental claims. The ratio shows the number of years for which the reserves will cover claims payments. At the end of the year under review the survival ratio was 42.7 years (2014: 35 years). 140 Financial Report Notes to the consolidated annual financial statements 5.5 Life 5.5.1 Actuarial risk Traditional life insurance is called fixed-sum insurance because payments are not made for losses. Instead, a fixed sum is paid on occurrence of an insured event, which can be survival or death. In the case of term insurance, capital and / or pension benefits are insured against premature death (whole-life insurance) or disability (disability insurance), while capital redemption insurance focuses on savings for old age. Endowment life insurance combines risk protection with savings. AVERAGE TECHNICAL INTEREST RATE 31 December 2014 CHF million Technical reserves without guaranteed returns Technical reserves with 0 % guaranteed returns Technical reserves with guaranteed positive returns Average technical interest rate of guaranteed positive returns 31 December 2015 Technical reserves without guaranteed returns Technical reserves with 0 % guaranteed returns Technical reserves with guaranteed positive returns Average technical interest rate of guaranteed positive returns Switzerland individual life Switzerland group life Germany Belgium Luxembourg Other units 616.9 1,816.9 3,667.2 89.8 214.9 676.7 734.2 132.6 109.3 97.6 7,651.0 14,222.5 9,121.5 2,923.1 451.9 2.7 % 2.0 % 3.3 % 3.6 % 2.6 % – – – – Switzerland individual life Switzerland group life 656.4 1,887.1 Germany 3,220.1 Belgium Luxembourg Other units 85.2 195.8 645.7 730.5 74.9 113.6 81.3 7,373.6 15,093.9 6,492.5 2,724.0 444.2 2.6 % 1.5 % 3.3 % 3.5 % 2.5 % – – – – The guaranteed technical interest rate is one of the risks inherent in traditional life insurance and group life business. If interest rates rise, there is the risk that more policies will be cancelled, and the payment of surrender values could cause liquidity problems. This risk can be reduced by imposing surrender charges. In the past, no significant correlation has been observed between rises in interest rates and the number of major policies cancelled. When interest rates fall, there is the risk that investment income may no longer be sufficient to fund the technical interest rate. This risk can be mitigated by means of asset and liability management (ALM) and, in some cases, by adjusting policyholders’ dividends. Unit-linked life insurance generally involves endowment life insurance or a deferred annuity in which the policyholder has more flexibility regarding the investment process. During the deferment period, unit-linked annuities behave in a similar way to endowment life insurance, but during the payout period the policy converts into a traditional annuity. 141 Financial Report Notes to the consolidated annual financial statements If the policyholder dies, the beneficiary receives the sum insured or the fund assets, if the latter exceed the sum insured. A risk premium is periodically charged to the fund to finance the death benefit cover if there is capital at risk (i.e. the positive difference between the sum insured and the fund assets). Depending on the product, the fund underlying the savings process is selected from a range of funds that match the policyholder’s investment profile. The policyholder usually bears the entire investment risk and may benefit from a positive return. Neither the cash surrender value nor the maturity value of unit-linked life insurance is guaranteed, but the maturity value is partly secured by the choice of fund. The funds are typically those with the type of investment strategy (e.g. the proportion of equities falls if share prices fall) that guarantees the maturity value for a specific policy term. This type of business is offered in Switzerland and Germany. The guaranteed maturity value of these specific life insurance policies may differ somewhat from the fund value because of the way the policies are structured. This risk has been factored into actuarial calculations. In Switzerland, there is a closed sub-portfolio with a guaranteed interest rate. The guarantee was issued as part of the statutory pension scheme (Pillar 3a). On the endowment date, the policyholder receives the value of the fund units or the net investment premium plus accrued interest at the technical interest rate (3.25 per cent), whichever is the greater. The funds approved for these policies have a low equity ratio and are therefore not exposed to high volatility. A corresponding actuarial reserve has been recognised for the guarantee. Some closed-end funds in Belgium and Switzerland also offer a guaranteed maturity value. The funds are managed and the guarantees are provided by banks outside the Baloise Group. In Switzerland there is also a closed- end Baloise fund with a guaranteed maturity value which is hedged via investments in bonds issued by banks outside the Group. The Baloise Group has a number of variable annuities products including unit-linked and, in some cases, guaranteed whole-life annuities in its units in Switzerland and in Luxembourg / Liechtenstein. Financial hedges are provided using external reinsurance. Switzerland Germany Belgium Luxembourg Other units 31.12.2014 31.12.2015 31.12.2014 31.12.2015 31.12.2014 31.12.2015 31.12.2014 31.12.2015 31.12.2014 31.12.2015 583.9 620.2 1,798.7 1,736.2 16.0 15.8 279.6 250.5 – – CHF million Actuarial reserves from unit-linked life insurance contracts The major risks accruing from term insurance include epidemics and terrorist attacks but also changes in lifestyle such as lack of exercise. Endowment policies incur significant risks arising from the increase in life expectancy, which is likely to continue due to medical advances and rising living standards. The risks listed above do not vary greatly within this area of activity. 142 Financial Report Notes to the consolidated annual financial statements Our group life business in Switzerland and Belgium focuses on the provision of occupational pensions which, like individual life insurance, covers the risks of death, disability and survival. The distinctive feature of group life business is the influence of political decisions. In Switzerland, the government sets the minimum rate of interest to be paid on savings, and the conversion rate at which accumulated capital is converted into an annuity to provide a pension. However, these regulations only apply to the minimum portion of accumulated capital that is required to provide initial finance for an annuity. For the remaining portion, actuarially appropriate annuity conversion rates are used but any change to the minimum interest rate would also affect the existing statutory portfolio, not just new business, which would normally be the case for individual life business. The technical interest rate for Belgian group life business – unlike individual life business – is also set by the government. However, it is the companies – and not their insurers – that are obliged to guarantee this technical interest rate. Baloise Insurance in Belgium offers group life insurance policies with interest rates that are lower than the rate stipulated by the government. Most disability insurance consists of policy riders (supplementary insurance), i.e. premium waivers should holders of life insurance policies that require periodic payments of premiums become disabled. Separate disability insurance is of minor importance. Measured against total actuarial reserves, disability risk represents around 5 per cent of our business. Traditional insurance Longevity risk Mortality risk Disability risk BVG retirement assets Sub-total Unit-linked Longevity risk Mortality risk Sub-total Total Actuarial reserves 31.12.2014 Actuarial reserves 31.12.2015 CHF million Share (%) CHF million Share (%) 10,651.6 11,995.7 1,945.9 10,494.5 35,087.6 1,339.5 1,338.8 2,678.3 28.2 31.8 5.2 27.8 92.9 3.5 3.5 7.1 9,818.0 10,266.7 1,888.2 11,186.4 33,159.2 1,328.1 1,294.6 2,622.7 27.4 28.7 5.3 31.3 92.7 3.7 3.6 7.3 37,765.9 100.0 35,781.9 100.0 Actuarial reserves were allocated to the categories above by product, i.e. each product was assigned a risk category and actuarial reserves were not split into different risks within one product. Allocation to a category was generally determined by the mortality table used in each case. 5.5.2 Assumptions Actuarial reserves are calculated in accordance with the factors that applied on the date a policy was signed. When setting rates for life insurance products, safety margins are built into these factors to anticipate any adverse trends in the future, principally with regard to technical interest rates and mortality tables. These built-in safety margins, combined with counter-selection effects, explain why annuity tables differ from mortality tables. Cancellations are not factored in when recognising reserves. 143 Financial Report Notes to the consolidated annual financial statements The principles applied are reviewed on an ongoing basis by conducting liability adequacy tests (LATs) which ensure that sufficient reserves have been set aside. The underlying assumptions for conducting these tests are best estimates. The two main assumptions for these tests are expected future investment income and mortality rates. Expected future investment income is calculated using the current investment portfolio and the target investment portfolio (strategic asset allocation). The returns on new money invested are based on capital-market interest rates. Depending on the size of the portfolio, mortality rates are based on publicly available tables adjusted to reflect our own experience or on mortality tables produced inhouse. Cancellations are factored into LATs using assumptions based on the experience of our companies. Changes in assumptions regarding cancellations usually have a negligible impact on LATs. 5.5.3 Sensitivities Sensitivity analysis shows the consequences of realistic changes in risk parameters to which the Baloise Group is exposed at the balance sheet date. These consequences impact on its consolidated equity and its profit for the period. When sensitivities were investigated, only the assumption being tested was varied. The other parameters were kept constant. One exception to this rule was policyholders’ dividends, which were adjusted accordingly. In general, sensitivities do not behave in a linear fashion, so it is not possible to extrapolate from them because they relate to a specific balance sheet date. To identify sensitivities, we investigated the effect of changes in assumptions on profit for the period and on equity, after shadow accounting, deferred gains / losses and deferred taxes (excluding reinsur- ance effects which were immaterial) had been taken into account. The assumptions on which liability adequacy testing is based were changed for each calculation. The following scenarios were run: → 10 per cent increase in mortality → 10 per cent fall in mortality (i. e. increase in longevity) → 50 basis-point increase in receipts of new money → 50 basis-point fall in receipts of new money → 10 per cent increase in mortality A mortality increase of 10 per cent during liability adequacy testing had only a marginal effect in Germany, Belgium and Luxembourg and at Baloise Life (Liechtenstein) AG. This was true of the impact on both the income statement and on equity. In the Swiss life insurance business, an increase in mortality caused a lower amount to be allocated to strengthen annuity reserves, which improved profitability overall by roughly CHF 17 million (2014: by CHF 13 million). The resultant effects on equity were marginal. → 10 per cent fall in mortality Similar to the aforementioned scenario of an increase in mortality, the effects of a reduction in mortality were marginal for the life insurance companies in Germany, Belgium and Luxembourg and for Baloise Life (Liechtenstein) AG. This was true of the impact on both the income statement and on equity. A reduction in mortality in the Swiss life insurance business – with policyholders’ dividends adjusted accordingly – had a negative impact of approximately CHF 69 million (2014: CHF 66 million) on the income statement. In line with the aforementioned scenario of an increase in mortality, the effect on equity in Switzerland was minor. 144 Financial Report Notes to the consolidated annual financial statements → 50 basis-point increase in receipts of new money This scenario was based on the assumption that receipts of new money (including amounts reinvested) rose by 50 basis points. When applied to the German units, this scenario resulted in a reversal of DAC write-downs, changes in the financing of final policyholders’ dividends, and lower amounts being allocated to the provision recognised for impending losses. This adverse impact was exacerbated by impairment losses on interest-rate derivatives. The overall impact was substantially mitigated by the prevailing legal requirements governing the distribution of surpluses. On balance there was a marginal negative effect from the German units’ profitability in the reporting year (2014: marginal negative effect). The negative impact on equity amounted to approximately CHF 5 million (2014: CHF 5 million). In Belgium this scenario resulted in an increase in DACs and to slightly lower amounts being allocated to the provision recognised for impending losses, which constituted a positive effect of roughly CHF 2 million on profitability (2014: CHF 10 million). The negative effect on unrealised gains amounted to CHF 86 million (2014: CHF 95 million). In Luxembourg this scenario produced a marginal negative impact on the income statement and an adverse effect of roughly CHF 11 million (2014: CHF 14 mil- lion) on the unrealised gains and losses recognised in equity. The resultant impact on the profitability and equity of Baloise Life (Liechtenstein) AG was negligible. In Switzerland this scenario resulted in a reversal of DAC write-downs, a reduction in technical reserves, and the offsetting effect of interest-rate hedges. This improved profitability overall by roughly CHF 5 million (2014: CHF 10 million). The adverse impact on equity amounted to approximately CHF 188 million (2014: CHF 154 million). → 50 basis-point fall in receipts of new money This scenario was based on the assumption that receipts of new money (including amounts reinvested) fell by 50 basis points. When applied to the German units, this scenario resulted in changes in DAC write-downs, changes in the financing of final policyholders’ dividends, and the recognition of a provision for impending losses. These adverse effects were slightly more than compensated for by the increase in the fair value of interest-rate derivatives in 2015. The overall impact was mitigated by the prevailing legal requirements governing the distribution of surpluses. On balance there was a marginal positive effect from the German units’ profitability in the reporting year (2014: negative effect of CHF 2 million). The positive impact on their equity amounted to approximately CHF 4 million (2014: CHF 6 million). In Belgium this scenario resulted in an additional DAC write-down and a larger provision for impending losses. The impact on the income statement was greater than in other countries owing to the business model used. Overall there was a negative effect of CHF 18 million on the income statement (2014: CHF 23 million). This adverse impact was more than compensated for by the positive changes in unrealised gains and losses recognised in equity. The positive effect on unrealised gains amounted to CHF 96 million (2014: CHF 99 mil- lion). In Luxembourg this scenario produced a marginal impact on the income statement and a positive effect of roughly CHF 13 million (2014: CHF 14 million) on the unrealised gains and losses recognised in equity. The resultant impact on the profitability and equity of Baloise Life (Liechtenstein) AG was negligible. In Switzerland this scenario resulted in a higher DAC write-down, an increase in technical reserves, and the offsetting effect of interest-rate hedges. On balance these interacting factors had an adverse effect of CHF 46 mil- lion on the income statement (2014: CHF 56 million). The positive impact on equity amounted to approximately CHF 188 million (2014: CHF 153 million). 145 Financial Report Notes to the consolidated annual financial statements 5.5.4 Changes to assumptions Expected future investment income is constantly adjusted in line with market circumstances. It has fallen across all units. Other assumptions, such as cancellation rates and mortality rates, are updated on an ongoing basis. 5.6 Management of market risk Market risk is reflected by losses that arise from changes or fluctuations in market prices that may result in impair- ment of the value of assets held. The degree of risk depends on the extent to which market prices fluctuate and on the level of exposure. As part of their life insurance business, the companies in the Baloise Group also provide investment-linked life insurance contracts for the account of and at the risk of policyholders. The financial liabilities generated in this connection are backed by assets – generally investment fund units – arising from these policies. Because the market risk attaching to the assets underlying these contracts is borne by the policyholder, they are shown separately in the notes to the consolidated annual financial statements. The following sections specifically address the interest-rate risk, currency risk, credit risk, liquidity risk and equity price risk that are relevant to assets held by the Group. 5.6.1 Interest-rate risk Interest-rate risk is the risk that a company’s interest margin, and therefore its income, may be reduced by fluctua- tions in money-market and capital-market interest rates (income effect), or that the fair value of a portfolio of interest-rate sensitive products may decline (asset-price effect). As well as the financial risk generated by holding assets and liabilities with non-matching maturities, variations in accounting policy may result in accounting risk. Consequently, the impact of a movement in interest rates or in the interest-rate curve may be a significant deterioration in terms and conditions if funding has to be rolled over. Benchmark-based maturity management is practised in the non-life units, while maturity management in the life units is driven by liabilities. As part of the Baloise Group-wide Risk Management Standards, investment planning and appropriate asset and liability management ensure that any divergence in maturities and the interest-rate risk incurred are managed within the risk capacity available. Stress tests are also designed and run for this purpose. They act as an early-warning system and their impact can be simulated for all areas of the Group and their performance. The effect of stress testing key financial figures is measured on a monthly basis. The underlying stress scenario (potential loss arising from a risk) is reviewed regularly and modified as necessary. The scale of a stress test is generally based on the simple annual volatility of the financial risk under review, the once-in-a-hundred-years occurrence of a business risk or standard international practice. The life insurance companies in the Baloise Group manage their risk associated with changes in interest rates directly, by means of appropriate strategic asset allocation. Specific factors such as risk-bearing capacity and the ability to fund guarantees are taken into account when allocating assets. The decision-making process also incorporates the asset managers’ expectations regarding the capital markets and customers’ expectations regarding life insurance. The Baloise Group’s chief investment officer (CIO) reviews the strategic asset allocation undertaken by all business units twice a year. The banks also use an appropriate asset and liability management system to monitor and manage interest-rate risk. Interest-rate risk is incurred only in proportion to business volume and business activities. Interest-rate risk is measured using software based on value-at-risk, gap, duration and interest-rate sensitivity methods. The asset and liability mismatch at Baloise Bank SoBa is also actively managed by the use of appropriate interest-rate deriv- atives, generally fair value hedges. 146 Financial Report Notes to the consolidated annual financial statements If all interest rates had fallen by 50 basis points on the balance sheet date but all other variables had remained constant, the profit for the period (after deferred gains / losses and deferred taxes) would have been lower by CHF 69 mil- lion (31 December 2014: CHF 73 million). Including the impact on profit for the period, equity (after shadow accounting, deferred gains / losses and deferred taxes) would have risen by CHF 146 million (31 December 2014: CHF 102 million). If all interest rates had risen by 50 basis points on the balance sheet date but all other variables had remained constant, the profit for the period (after deferred gains / losses and deferred taxes) would have been higher by CHF 5 million (31 December 2014: CHF 21 million). Including the impact on profit for the period, equity (after shadow accounting, deferred gains / losses and deferred taxes) would have fallen by CHF 241 million (31 December 2014: CHF 199 million). 5.6.2 Currency risk Currency risk describes the potential financial loss generated by changes in the exchange rates between currencies. The extent of the effective currency risk depends on: → net foreign exchange exposure, i.e. the net position between assets and liabilities denominated in foreign currencies, → the volatility of the currencies involved and → the correlation of currencies with other risk parameters in a portfolio. Because the Baloise Group invests in foreign-currency bonds (particularly those denominated in euros) for investment or diversification purposes, there may be currency effects in the income statement for both realised and unrealised positions. To ensure compliance with the risk budget set for currency effects recognised in the income statement, the foreign-exchange management team first calculates adequate target hedge ratios, then implements the necessary hedging strategies taking into account these target hedge ratios and the discretionary ranges allowed. It also takes advantage of phases when exchange rates are overreacting by deliberately underweighting or overweighting the hedge ratios in relation to the defined benchmark. These hedging strategies are implemented using forward FX contracts and FX options or combinations of options in which the selection of the instruments to be used in each case depends on factors such as volatility and expected exchange-rates movements. The currency effect of foreign-currency bonds or insurance-related foreign-currency liabilities and changes in the fair value of derivative financial instruments held for hedging purposes are always recognised in the income statement. The Group-wide Risk Management Standards require currency risk and the effectiveness of the currency derivatives transacted to be monitored on a continuous basis. The currency risk incurred must be proportionate to the potential superior return generated by the diversification effect achieved in the portfolio. The Swiss franc and the euro are used almost exclusively for the Baloise Group’s insurance activities, with the result that technical reserves are also mainly in these currencies. There are also small technical liabilities in US dollars and pounds sterling. These reserves are generally covered by investments in the same currencies (natural hedges). Assuming that all other variables remain constant, fluctuations between transactional currencies and the functional currency in financial balance sheet items (after deferred gains / losses and deferred taxes) in the amount of + / – CHF 0.01 (1 centime) would have resulted in a change of + / – CHF 2.4 million (31 December 2014: + / –CHF 5.1 mil- lion) in the profit for the period and also in equity; a positive (+) change of CHF 0.01 would have generated a currency gain and a negative (-) change of CHF 0.01 would have generated a currency loss. 147 Financial Report Notes to the consolidated annual financial statements Derivative financial instruments used as currency hedges of a net investment in a foreign operation The Group’s own companies, Baloise Alternative Investment Strategies Ltd., Jersey, and Baloise Private Equity Ltd., Jersey, manage substantial investments in alternative financial assets such as hedge funds and private equity. The Baloise Group’s FX managers enter into currency hedging transactions in the form of forward contracts to limit the currency risk exposure of its net investment in these two foreign entities whose reporting currency is the US dollar. Restricting the implementation of hedging strategies to forward contracts makes it easier to demon- strate the efficiency of the hedges and to show that hedge accounting is being used. Because hedge accounting is applied, the change in the fair value of these derivatives is aggregated into a separate item under equity and only derecognised via the income statement, together with the accrued currency effects on the net investment in these foreign entities, when the relevant underlying asset is sold. CHF million Forward contracts Swaps OTC options Other Traded options Traded futures Total Fair value assets Fair value liabilities 2014 2015 2014 2015 1.7 7.2 36.9 10.5 – – – – – – – – – – – – – – – – – – – – 1.7 7.2 36.9 10.5 CHF million Amount recognised directly in equity Hedge ineffectiveness reclassified to the income statement 2014 2015 – 124.1 – – 0.2 – Because equity investments are actively managed, additions to and deductions from equity are carried out on a regular basis during the year. Consequently, the year-on-year effects underlying hedge accounting and the recog- nition of cash flows in profit or loss are recognised on a pro-rata basis. For international diversification (risk-spreading), to enhance returns and because there is greater liquidity in certain foreign financial markets, as at 31 December 2015 the Group’s Swiss companies did hold a net position in euros equivalent to CHF 643.8 million (2014: 1,365.4) and a net position in US dollars equivalent to CHF – 11.2 million (2014: CHF 305.4 million). The remaining foreign exchange positions, both assets and liabilities, were negli gible. During the year, the aggregated hedge ratio for the net foreign exchange exposure in US dollars and euros ranged from 80 per cent to 100 per cent. Except for the German business unit no other foreign entity in the Baloise Group had a significant foreign- currency exposure. 148 Financial Report Notes to the consolidated annual financial statements 5.7 Credit risk Credit risk relating to assets held by insurance companies refers to the total potential downside risk arising from a deterioration in the credit quality of a borrower or issuer, or from impairment in the value of collateral. Credit risk is managed by monitoring the credit quality of each individual counterparty and relying heavily on credit ratings. Credit risk increases when counterparties become concentrated in a single sector or geographic region. Economic trends that affect whole sectors or regions can jeopardise an entire group of otherwise unrelated counterparties. For this reason, the Baloise Group tracks counterparty exposure at all times and monitors credit risk on a Group- wide basis. The regional expertise of our business units is also incorporated into decisions about securities selection or changes to the existing credit portfolio. Because the credit risk incurred by the Baloise Group is spread across sectors and geographic regions and among a large number of counterparties and customers, the Baloise Group is not exposed to material credit risk arising from a single counterparty or a specific sector or geographic region. In order to restrict the credit / accumulation risk in the Baloise Group, the proportion that may be invested by Group companies in a single issuer or borrower is strictly limited in the Group-wide Risk Management Standards. The relevant rules are explicitly defined in the Group investment policy. Investments in interest-bearing securities or loans must have an investment-grade issue rating or be backed by a corresponding third-party guarantee or mortgage. A total limit of 15 per cent of all interest-bearing securities and loans is set for investments with a rating of less than “A –” and investments with no rating. Sub-investment-grade investments are not permitted. If any financial instrument in the portfolio becomes sub-investment grade due to a ratings downgrade, it must be sold within twelve months. Approval is required for any exceptions. Financial derivatives are only permitted to be transacted with issuers holding a rating of at least “A –” or with whom there is a special collateral agreement. Investments in pfandbriefs are backed by mortgages. The vast majority of investments in promissory notes and registered bonds are secured by guarantees or covered by the deposit protection fund. These investments carry a reimbursement guarantee from financial institutions. Mortgage loans are secured by property; there are limits on loan-to-value ratios. Please refer to the table of secured financial instruments with characteristics of liabilities in chapter 12. 149 Financial Report Notes to the consolidated annual financial statements FINANCIAL ASSETS EXCEEDING 10 % OF CONSOLIDATED EQUIT Y CHF million Kingdom of Belgium Swiss Confederation Federal Republic of Germany Republic of France European Investment Bank, Luxembourg Republic of Austria Pfandbriefbank schweizerischer Hypothekarinstitute AG Kingdom of the Netherlands Commerzbank AG Pfandbriefzentrale der Schweizerischen Kantonalbanken AG German federal state of North Rhine-Westphalia German federal state of Lower Saxony BNP Paribas FINANCIAL ASSETS EXCEEDING 10 % OF CONSOLIDATED EQUIT Y CHF million Swiss Confederation Kingdom of Belgium Federal Republic of Germany Pfandbriefbank schweizerischer Hypothekarinstitute AG Republic of France European Investment Bank, Luxembourg Pfandbriefzentrale der Schweizerischen Kantonalbanken AG Kingdom of the Netherlands Republic of Austria 150 2014 2,644.3 2,611.5 2,366.3 1,697.5 1,299.4 1,189.4 1,148.6 1,094.5 806.4 759.9 699.7 667.6 587.3 2015 3,639.1 2,522.9 2,193.3 1,657.6 1,567.5 982.6 921.2 865.2 567.1 Financial Report Notes to the consolidated annual financial statements MA XIMUM DEFAULT RISK OF FINANCIAL ASSETS CHF million Financial assets with characteristics of liabilities Public corporations Industrial enterprises Financial institutions Other Mortgages and loans Mortgages Policy loans Promissory notes and registered bonds Time deposits Employee loans Reverse repurchase agreements Other loans Derivative financial instruments Receivables from financial contracts Reinsurance assets Receivables from reinsurers Insurance receivables Other receivables Receivables from investments Cash and cash equivalents 2014 2015 18,955.1 18,838.6 3,738.2 9,987.3 20.5 4,950.7 7,815.9 15.4 11,233.6 10,999.7 163.4 5,945.7 141.0 4,382.5 546.6 32.1 – 344.5 341.0 21.1 421.5 79.7 409.0 375.3 564.5 917.8 28.1 – 323.7 363.2 9.9 410.8 52.3 389.4 317.5 491.3 1,954.5 1,765.8 If no contractually irrevocable future loan commitments have been agreed, the maximum default risk of financial assets corresponds to the carrying amount of the assets for own account and at own risk. In addition, guarantees and collateral for the benefit of third parties totalled CHF 524.3 million (2014: CHF 508.5 million). 151 Financial Report Notes to the consolidated annual financial statements The management and control of credit risk arising from mortgage business are set out in instructions and written procedures in which mandatory lending regulations are specified. These lending regulations lay down strict procedures for the immediate identification, accurate assessment, proper authorisation and continuous monitoring of credit risk. Standard credit documentation is used to record and review loan applications, which are all logged and managed centrally. The relevant credit documentation reflects or incorporates all evaluation criteria and policies. Because a running total of mortgage transactions is kept, it is possible to monitor compliance with credit policy, and corrective action can be taken if necessary. All mortgages are also managed by periodically auditing exposure, including records of overdue interest. Procedures and audit intervals are set out in a separate directive. Senior management regularly receive detailed risk reports on the composition of the mortgage portfolio and risk trends. Policies, directives and authorisation levels set out the terms and conditions for granting mortgages, which consist of the amount, the credit quality of the counterparty, collateral and the term of the transaction as well as the specialist qualifications of the mortgage expert. There are special instructions for valuing collateral and calculating loan-to-value ratios. The purpose of these provisions is to ensure that a standard procedure is used to determine the applicable value of collateral when assessing mortgages. The calculation of fair value and the loan-to-value ratio of real estate is of key importance, particularly with regard to mortgage business. One of the objectives of the active management of mortgages is the early identification of potential downside risk. The mortgage portfolio comprises loans to individuals and to legal entities. The type and degree of risk that may be incurred, together with collateralisation and quality requirements, are set out in directives and authorisation levels. To mitigate risk, the portfolio is as geographically diverse as possible. 152 Financial Report Notes to the consolidated annual financial statements CREDIT RATINGS OF FINANCIAL ASSETS THAT WERE NEITHER OVERDUE NOR IMPAIRED AT THE BALANCE SHEET DATE IN 2014 AAA AA A Lower than BBB or no rating BBB Total CHF million Financial assets with characteristics of liabilities Public corporations Industrial enterprises Financial institutions Other Mortgages and loans Mortgages Policy loans Promissory notes and registered bonds 1,820.5 Time deposits Employee loans Reverse repurchase agreements Other loans Derivative financial instruments Receivables from financial contracts Reinsurance assets Receivables from reinsurers Insurance receivables Other receivables Receivables from investments Cash and cash equivalents 36.2 – – 2.2 144.2 – – – 0.0 3.1 155.6 392.1 6,216.7 10,392.0 771.3 1,468.0 15.3 1,091.4 2,063.6 2,715.1 5.0 1,086.5 792.8 691.8 – 100.5 4,877.4 0.2 98.4 – 977.3 8,475.2 – 3,623.4 277.2 – – 25.9 41.1 – 202.3 14.9 4.0 17.0 164.2 286.0 – 106.5 73.1 – – 113.9 104.1 – 154.3 39.3 23.1 110.4 61.8 1,229.3 928.8 – 148.8 13.9 – – 91.3 14.4 – 7.6 0.0 0.2 12.6 31.1 9.4 168.6 9.9 235.0 – 540.6 163.4 246.6 146.2 32.1 – 79.0 37.2 21.1 54.1 25.4 264.3 228.2 134.0 37.6 18,955.1 3,738.2 9,987.3 20.5 11,020.2 163.4 5,945.7 546.6 32.1 – 312.2 341.0 21.1 418.3 79.6 291.6 371.3 546.9 1,954.4 Total 13,847.0 18,279.6 16,366.2 3,829.3 2,423.4 54,745.5 153 Financial Report Notes to the consolidated annual financial statements CREDIT RATINGS OF FINANCIAL ASSETS THAT WERE NEITHER OVERDUE NOR IMPAIRED AT THE BALANCE SHEET DATE IN 2015 AAA AA A Lower than BBB or no rating BBB Total CHF million Financial assets with characteristics of liabilities Public corporations Industrial enterprises Financial institutions Other Mortgages and loans Mortgages Policy loans 7,114.9 153.0 4,835.2 0.2 99.1 – Promissory notes and registered bonds 1,563.4 Time deposits Employee loans Reverse repurchase agreements Other loans Derivative financial instruments Receivables from financial contracts Reinsurance assets Receivables from reinsurers Insurance receivables Other receivables Receivables from investments Cash and cash equivalents 22.9 – – 2.3 131.9 – – – 0.0 34.6 136.5 663.1 9,507.8 1,199.6 859.3 – 1,163.8 2,484.8 1,214.6 15.2 988.0 8,490.5 – 2,464.1 225.9 – – 28.5 48.3 – 202.7 16.2 4.9 20.6 118.9 412.1 – 43.0 47.2 – – 112.4 94.7 – 154.6 21.2 24.5 110.3 44.7 607.6 988.3 1,104.8 627.6 – 904.7 – 82.5 – – – 80.1 43.5 – 2.8 – 0.7 15.4 30.3 14.0 63.7 8.5 279.2 – 268.0 141.0 229.5 621.9 28.1 – 69.6 44.8 9.9 47.1 14.8 236.6 132.9 141.3 69.1 18,838.6 4,950.7 7,815.9 15.4 10,750.3 141.0 4,382.5 917.8 28.1 – 293.0 363.2 9.9 407.2 52.2 266.8 313.9 471.6 1,765.8 Total 14,757.1 16,096.9 14,629.1 3,894.8 2,406.0 51,783.9 Standard & Poor’s and Moody’s ratings are generally used to assess the credit quality of securities. The lower of the two is used for disclosure. Because the two agencies do not cover the entire Swiss financial market, the SBI composite rating is applied as and when necessary. This consists of ratings issued by the two rating agencies and the following four Swiss banks: Credit Suisse, UBS, Bank Vontobel and Zürcher Kantonalbank. The credit quality of mortgage assets arising from Swiss insurance business is reviewed using risk-management processes. Credit ratings are assigned on this basis. Mortgage assets that show no signs of impaired credit quality receive an A rating. Those that show signs of impaired credit quality are rated lower than BBB or are not rated at all. In 2015, financial assets amounting to CHF 1.8 million (2014: CHF 2.0 million) and cash and cash equivalents of 0.1 million (2014: 0.2 million) from collateral received were used. 154 Financial Report Notes to the consolidated annual financial statements FINANCIAL ASSETS IMPAIRED AT THE BALANCE SHEET DATE CHF million Financial assets with characteristics of liabilities Public corporations Industrial enterprises Financial institutions Other Mortgages and loans Mortgages Policy loans Promissory notes and registered bonds Time deposits Employee loans Reverse repurchase agreements Gross amount Impairment Carrying amount Gross amount Impairment Carrying amount 2014 – – 0.0 – 2015 – – – – – 2.7 0.4 – – – 2.7 – 0.4 – – 3.0 12.5 – – – 3.0 – 12.5 – 142.7 – 32.7 110.0 146.1 – 31.2 114.9 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Other loans 43.5 – 16.0 27.5 38.2 – 13.7 24.5 Receivables from financial contracts Reinsurance assets Receivables from reinsurers Insurance receivables Other receivables Receivables from investments Total – – 0.6 128.8 6.3 19.3 356.7 – – – 0.5 – 38.9 – 2.7 – 1.7 – – 0.1 89.8 3.6 17.6 – 108.0 248.8 – – 0.1 126.3 6.0 21.4 341.3 – – – 0.1 – 38.0 – 2.5 – 1.7 – 90.3 – – 0.0 88.3 3.5 19.7 251.0 155 Financial Report Notes to the consolidated annual financial statements FINANCIAL ASSETS OVERDUE BUT NOT IMPAIRED AT THE BALANCE SHEET DATE Assets as at 31 December 2014 < 3 months 3 – 6 months 7 – 12 months > 12 months Total CHF million Financial assets with characteristics of liabilities Public corporations Industrial enterprises Financial institutions Other Mortgages and loans Mortgages Policy loans Promissory notes and registered bonds Time deposits Employee loans Reverse repurchase agreements Other loans Receivables from financial contracts Reinsurance assets Receivables from reinsurers Insurance receivables Other receivables Receivables from investments Total – – – – 0.5 – – – – – 0.2 – – – 11.1 0.2 – 11.9 – – – – – – – – – – – – – – 7.8 0.1 – 7.9 – – – – – – – – – – – – 3.0 4.3 7.7 – – – – – 0.0 – – – 6.2 0.0 – 9.3 – – – – – 0.1 – 3.2 – 2.5 0.1 – 10.2 – – – – – 0.3 – 3.2 – 27.6 0.4 – 39.2 156 Financial Report Notes to the consolidated annual financial statements Assets as at 31 December 2015 < 3 months 3 – 6 months 7 – 12 months > 12 months Total CHF million Financial assets with characteristics of liabilities Public corporations Industrial enterprises Financial institutions Other Mortgages and loans Mortgages Policy loans Promissory notes and registered bonds Time deposits Employee loans Reverse repurchase agreements Other loans Receivables from financial contracts Reinsurance assets Receivables from reinsurers Insurance receivables Other receivables Receivables from investments Total – – – – 0.2 – – – – – 0.1 – – – 12.7 0.0 – 13.0 – – – – – – – – – – – – – – 9.3 0.0 – 9.3 – – – – – – – – – – – – 1.9 2.1 4.3 – – – – – 0.0 – – – 8.7 0.1 – 10.8 – – – – – 0.1 – 3.7 – 3.7 0.0 – 9.5 – – – – – 0.2 – 3.7 – 34.4 0.1 – 42.6 5.8 Liquidity risk Banks as well as insurance companies incur latent liquidity risk. This refers to the risk of rapid outflows of large volumes of liquidity that cannot be offset by asset sales or for which alternative funding cannot be implemented quickly enough. In extreme cases, a lack of liquidity can result in insolvency. Legal provisions apply and the Group-wide Risk Management Standards require each business unit to plan its liquidity centrally. This is carried out with the close collaboration of the investment, actuarial, underwriting and finance departments of each business unit. 157 Financial Report Notes to the consolidated annual financial statements Liquidity management must take account of the maturity structure of liabilities as follows: MATURITIES OF FINANCIAL LIABILITIES 1 Liquidity risk as at 31 December 2014 ‹ 1 year 2 1 – 3 years 4 – 5 years > 5 years Total Carrying amount CHF million Liabilities arising from banking business and financial contracts With discretionary participation features Measured at amortised cost Recognised at fair value through profit or loss Financial liabilities Financial provisions Derivative financial instruments Insurance liabilities Other liabilities Contingent liabilities and capital commitments Total 1,758.5 0.6 1.1 6.2 1,766.5 1,766.5 5,535.5 3,273.3 34.6 52.5 109.1 1,090.2 601.2 979.8 388.7 15.2 532.1 43.3 25.6 689.0 43.2 12.1 520.5 – 897.2 5,343.8 7,342.0 8,632.3 7,342.0 8,632.3 229.1 1,123.0 1,918.8 1,702.4 9.2 19.4 0.2 0.2 13.3 14.3 22.3 1.0 1.0 1.6 119.3 176.4 1,780.3 645.6 1,006.9 119.3 176.4 1,780.3 645.6 – – 13,434.8 1,749.8 792.9 7,410.5 23,388.0 Liquidity risk as at 31 December 2015 ‹ 1 year 2 1 – 3 years 4 – 5 years > 5 years Total Carrying amount CHF million Liabilities arising from banking business and financial contracts With discretionary participation features Measured at amortised cost Recognised at fair value through profit or loss Financial liabilities Financial provisions Derivative financial instruments Insurance liabilities Other liabilities Contingent liabilities and capital commitments Total 1,866.7 4.8 5.5 53.1 1,930.1 1,930.1 6,348.2 3,203.9 277.1 52.6 156.6 929.4 455.6 1,055.0 371.8 – 284.6 16.5 42.0 720.4 40.2 14.1 468.6 42.8 528.4 22.4 8.7 0.0 3.5 110.8 1,110.5 5,536.0 8,299.2 8,782.8 8,299.2 8,782.8 807.1 1,897.2 1,707.8 3.2 43.6 0.6 22.9 2.0 94.8 250.8 1,650.4 522.2 1,182.0 94.8 250.8 1,650.4 522.2 – – 14,345.1 1,494.5 1,190.9 7,579.0 24,609.5 1 Based on undiscounted contractual cash flows. 2 All demand deposits are included in the first maturity band. 158 Financial Report Notes to the consolidated annual financial statements Please refer to the tables in chapter 23 for the residual terms and maturities of technical reserves. In accordance with the Group-wide Risk Management Standards, asset and liability management committees have been introduced in all strategic business units in the Baloise Group. These asset and liability management committees analyse maturity schedules and the income generated by assets or required for liabilities. As part of tactical and strategic investment planning, care is taken when allocating the assets held by the individual life and non-life insurance units in the Baloise Group to ensure that sufficient liquidity is available to carry out investment activity and for the operational settlement of all business processes. The level of liquidity required is determined on the basis of the maturity structure of investments versus the payout schedule for insur- ance-related liabilities. The average historical pattern of incoming and outgoing cash management payments over the previous five years is also taken into account. Investment planning explicitly includes exceptionally large incoming or outgoing payments that are known in advance. Maintenance of liquidity levels and access to further liquidity via the repo market ensure sufficiently high reserves for payments needed at short notice, such as large claim settlements, until such as time as the reinsurer assumes the costs. Cash pooling among the Baloise Group’s Swiss companies also ensures that excess liquidity in one unit can be used to offset a temporary liquidity squeeze at another unit via an intra-Group interest-bearing overdraft facility. If these precautions fail to meet the need for liquidity, the Baloise Group holds financial assets that can be sold at short notice without significant price losses. They include all equities (excluding long-term equity investments). Because the Group holds a substantial portfolio of government and quasi-government bonds, it is possible to sell relatively large holdings of available-for-sale bonds even in crisis situations. Mortgages and loans are generally held to maturity; early redemption is not considered at present. In terms of alternative financial assets, 75 per cent of hedge funds can be sold within three months. Private-equity investments have to be considered illiquid in this context, and it is not possible to sell investment property to generate immediate liquidity. 159 Financial Report Notes to the consolidated annual financial statements 5.9 Equity price risk The Baloise Group is exposed to equity price risk because it holds financial instruments with characteristics of equity classed as “recognised at fair value through profit or loss” and “available for sale”. Equity price risk is significantly reduced by means of international diversification, i.e. by spreading risk across sectors, countries and currencies. Active overlay management using derivatives also mitigates equity price risk if certain intervention levels are reached or the market and / or risk indicators that are continuously tracked by Baloise suggest heightened hedging activity. Most financial instruments with characteristics of equity are publicly listed. If the market price of all financial instruments with characteristics of equity were to move by + / – 10 per cent on the balance sheet date, the following impact would be observed – after shadow accounting, deferred gains / losses, deferred taxes, derivative hedges and the effect of the impairment rules mentioned in section 3.10.2: CHF million Market price plus 10 % Market price minus 10 % Impact on profit for the period Impact on equity (including profit for the period) 2014 2015 2014 2015 33.3 – 57.1 54.2 – 75.0 264.0 – 265.9 266.8 – 266.3 Because these impairment criteria produce different effects due to assumed changes in market prices if there is a rise compared with an analogous fall, these effects are divergent. The compensatory effects of hedging using derivatives behave in a similar manner. Adjustments in the fair value of financial instruments with characteristics of equity that are classed as “recognised at fair value through profit or loss” have an impact on the profit for the period. Unrealised gains and losses vary due to changes in the fair value of financial instruments with characteristics of equity which are classed as “available for sale”. In a life insurance company, policyholders participate in the firm’s profits, depending on their policy and local circumstances (see section 3.18.5.). The table above takes account of this profit-sharing scheme. 160 Financial Report Notes to the consolidated annual financial statements 5.10 Fair value measurement Where available, quoted market prices are used to determine the fair value of assets and liabilities. They are defined as available if quoted prices can be obtained easily and frequently on an exchange, from a dealer, broker, trade association, pricing service or regulatory authority, provided these prices are current, in sufficient volume and represent regularly occurring arm’s-length transactions in the market. If no quoted market prices are available (e.g. because a market is inactive), the fair value is determined using a market-based measurement process. Market-based means that the measurement method is based on a significant quantity of observable market data (as available). Fair value measurement is divided into the following three hierarchy levels: → Fair value determined by publicly quoted prices (level 1) Fair value is based on prices in active markets on the balance sheet date and it is not adjusted or compiled in any other way. → Fair value determined by using observable market data (level 2) Fair value is estimated using generally recognised methods (discounted cash flow etc.). In this case, measure- ment incorporates a significant quantity of observable market data (interest rates, index performance, etc.). → Fair value determined without the use of observable market data (level 3) Fair value is estimated using generally recognised methods (discounted cash flow, etc.), although it is meas- ured without reference to any observable market data (or only to a very minor degree), either because this data is not available or because it does not permit any reliable conclusions to be drawn with regard to fair value. Detailed information about measurement principles and the measurement methods used can be found in sections 3.7, 3.8, 3.9, 3.11, 3.20 and 4.1. 161 Financial Report Notes to the consolidated annual financial statements Details of the methods used to measure level 2 and level 3 assets and liabilities The table below gives an overview of the measurement methods that the Baloise Group uses to determine the fair value of balance sheet line items classified as level 2 or level 3. The table shows the individual measurement methods, the key input factors used for measurement purposes and – where practicable – the range within which these input factors vary. Balance sheet line item Measurement method Key input factors used for measurement purposes Range of input factors Level 2 Financial instruments with characteristics of equity Available for sale At fair value through profit or loss Financial instruments with characteristics of liabilities Internal measurement methods Price of underlying instrument, liquidity discount, balance sheet and income statement figures Net asset value Net asset value n / a n / a Available for sale Present-value model Yield curve, swap rates, default risk At fair value through profit or loss Present-value model Interest rate, credit spread, market price Mortgages and loans At fair value through profit or loss Present-value model LIBOR, swap rates Black-Scholes option pricing model Black-76 option pricing model Money market interest rate, volatility, price of underlying instrument, exchange rates Volatility, forward interest rate Stochastic present-value model Present-value model Investment fund prices, interest rates, cancellation rate LIBOR, swap rates Derivative financial instruments Liabilities arising from banking business and financial contracts At fair value through profit or loss Level 3 Financial instruments with characteristics of equity Available for sale At fair value through profit or loss Investment property – – – – – – – – – – Net asset value Net asset value DCF method n / a n / a n / a n / a Discount rate 1 3.2 % – 5.7 %3 Rental income 2 290 – 320 CHF million 3 Vacancy costs 1 10 – 15 CHF million 3 Running costs 1 22 – 25 CHF million 3 Maintenance costs 1 25 – 28 CHF million 3 Capital expenditure 2 40 – 70 CHF million 3 Inflation rate 2 0 % – 2 %3 1 The lower these key input factors, the higher the fair value of the investment property. 2 The higher these key input factors, the lower the fair value of the investment property. 3 The input factor ranges shown essentially relate to the real-estate portfolios held by the Baloise Group’s Swiss entities. 162 Financial Report Notes to the consolidated annual financial statements Determining the fair value of assets and liabilities classified as level 3 The Baloise Group organises its operating activities into strategic business units, which are generally combined under a single management team for each region. The financial and management information needed for all relevant executive decisions is held by these strategic business units. This organisational structure is also used to delegate authority and responsibility for proper implementation of, and compliance with, financial reporting standards within the Baloise Group to the individual strategic business units. The organisation of these individual units varies in terms of how they determine the fair value of financial instruments classified as level 3. This process essentially involves the regular discussion of measurement methods, measurement inconsistencies and classification issues by formal or informal committees at each reporting date. Appropriate adjustments are made where necessary. Financial instruments with characteristics of equity classed as “available for sale” or “recognised at fair value through profit or loss” and classified as level 3 are primarily private-equity investments and alternative investments held by the Baloise Group as well as non-controlling interests in real-estate companies. The fair value of such invest ments is usually determined by fund managers (external providers) based on their net asset value (NAV). These external providers generally use non-public information to calculate the individual investments’ NAV. The measurement of investment property classified as level 3 is carried out internally each year by experts using market-based assumptions that have been verified by respected external consultancies. This property is also assessed by external valuation specialists at regular intervals. 163 Financial Report Notes to the consolidated annual financial statements FAIR VALUE OF ASSETS AND LIABILITIES FOR OWN ACCOUNT AND AT OWN RISK Held to maturity Available for sale 8,413.7 10,024.2 24,227.5 24,227.5 Recognised at fair value through profit or loss 59.9 59.9 2014 CHF million Assets measured on a recurring basis Financial instruments with characteristics of equity Available for sale Recognised at fair value through profit or loss Financial instruments with characteristics of liabilities Mortgages and loans Carried at cost Recognised at fair value through profit or loss Derivative financial instruments Receivables from financial contracts Carried at cost Other receivables Carried at cost Receivables from investments Carried at cost Investment property Total carrying amount Total fair value Level 1 Level 2 Level 3 4,698.1 4,698.1 671.6 671.6 2,766.5 242.7 10,024.2 24,188.7 37.4 – – 13.6 – – 17,326.0 18,806.8 839.9 341.0 839.9 341.0 21.1 21.1 375.3 376.3 564.5 564.5 5,962.9 5,962.9 428.1 – 938.7 428.9 – 38.8 22.5 993.0 – – – – – 18,806.8 839.9 327.4 – – 2.2 – – – 21.1 376.3 134.2 5,962.9 Total assets measured on a recurring basis 63,501.4 66,593.8 37,701.2 2,598.4 26,294.3 Liabilities measured on a recurring basis Liabilities arising from banking business and financial contracts Measured at amortised cost 7,342.0 7,488.7 103.1 7,258.2 127.5 Recognised at fair value through profit or loss Derivative financial instruments Financial liabilities Total liabilities measured on a recurring basis 244.3 176.4 1,702.4 9,465.1 244.3 176.4 1,875.8 9,785.2 – 18.6 1,875.8 1,997.5 244.3 157.9 – – – – 7,660.3 127.5 164 Financial Report Notes to the consolidated annual financial statements FAIR VALUE OF ASSETS AND LIABILITIES FOR OWN ACCOUNT AND AT OWN RISK Held to maturity Available for sale 8,549.5 10,007.4 23,024.6 23,024.6 Recognised at fair value through profit or loss 46.6 46.6 2015 CHF million Assets measured on a recurring basis Financial instruments with characteristics of equity Available for sale Recognised at fair value through profit or loss Financial instruments with characteristics of liabilities Mortgages and loans Carried at cost Recognised at fair value through profit or loss Derivative financial instruments Receivables from financial contracts Carried at cost Other receivables Carried at cost Receivables from investments Carried at cost Investment property Total carrying amount Total fair value Level 1 Level 2 Level 3 4,443.3 1,173.8 4,443.3 1,173.8 2,627.7 285.7 10,007.4 23,001.3 28.3 – – 11.0 – – 15,912.6 16,929.6 744.0 363.2 744.0 363.2 9.9 9.9 317.5 318.5 491.3 491.3 6,251.9 6,251.9 359.7 – 872.5 888.1 – 23.3 18.3 943.1 – – – – – 16,929.6 744.0 352.2 – – 1.8 – – – 9.9 318.5 129.9 6,251.9 Total assets measured on a recurring basis 61,328.2 63,804.1 36,321.0 2,900.1 24,583.0 Liabilities measured on a recurring basis Liabilities arising from banking business and financial contracts Measured at amortised cost Recognised at fair value through profit or loss Derivative financial instruments Financial liabilities 8,299.2 8,484.0 322.2 250.8 322.2 250.8 1,707.8 1,864.2 Total liabilities measured on a recurring basis 10,580.0 10,921.2 – – 22.1 1,864.2 1,886.3 8,438.4 45.6 322.2 228.7 – – – – 8,989.3 45.6 The Baloise Group has applied accounting standard IFRS 5 (non-current assets and disposal groups held for sale and discontinued operations) owing to the disposal of the portfolio of life insurance policies held by the German branch of Baloise Life Ltd (Basler Leben DfD [Direktion für Deutschland]). The Baloise Group has assets and liabilities measured at fair value on a non-recurring basis as part of the disposal group recognised for this purpose. Information on the fair value of the disposal group can be found in note 21. 165 Financial Report Notes to the consolidated annual financial statements FAIR VALUE OF ASSETS AND LIABILITIES FOR THE ACCOUNT AND AT THE RISK OF LIFE INSURANCE POLICYHOLDERS AND THIRD PARTIES 2014 CHF million Assets measured on a recurring basis Financial instruments with characteristics of equity Total carrying amount Total fair value Level 1 Level 2 Level 3 Recognised at fair value through profit or loss 8,081.5 8,081.5 7,905.0 – 176.5 Financial instruments with characteristics of liabilities Recognised at fair value through profit or loss 1,760.5 1,760.5 1,729.0 31.5 Mortgages and loans Recognised at fair value through profit or loss Derivative financial instruments Other assets – 272.1 – 272.1 Recognised at fair value through profit or loss 53.3 53.3 – 63.8 53.3 Total assets measured on a recurring basis 10,167.5 10,167.5 9,751.1 Liabilities measured on a recurring basis Liabilities arising from banking business and financial contracts Recognised at fair value through profit or loss 8,388.1 8,388.1 8,388.1 Derivative financial instruments – – – Total liabilities measured on a recurring basis 8,388.1 8,388.1 8,388.1 – 208.4 – 239.9 – – – – – – – 176.5 – – – 166 Financial Report Notes to the consolidated annual financial statements FAIR VALUE OF ASSETS AND LIABILITIES FOR THE ACCOUNT AND AT THE RISK OF LIFE INSURANCE POLICYHOLDERS AND THIRD PARTIES 2015 CHF million Assets measured on a recurring basis Financial instruments with characteristics of equity Total carrying amount Total fair value Level 1 Level 2 Level 3 Recognised at fair value through profit or loss 8,153.7 8,153.7 8,011.7 – 142.1 Financial instruments with characteristics of liabilities Recognised at fair value through profit or loss 1,627.7 1,627.7 1,607.8 19.9 Mortgages and loans Recognised at fair value through profit or loss Derivative financial instruments Other assets – 290.7 – 290.7 Recognised at fair value through profit or loss 40.2 40.2 – 28.0 40.2 Total assets measured on a recurring basis 10,112.3 10,112.3 9,687.7 Liabilities measured on a recurring basis Liabilities arising from banking business and financial contracts Recognised at fair value through profit or loss 8,460.6 8,460.6 8,460.6 Derivative financial instruments – – – Total liabilities measured on a recurring basis 8,460.6 8,460.6 8,460.6 – 262.7 – 282.6 – – – – – – – 142.1 – – – The Baloise Group has applied accounting standard IFRS 5 (non-current assets and disposal groups held for sale and discontinued operations) owing to the disposal of the portfolio of life insurance policies held by the German branch of Baloise Life Ltd (Basler Leben DfD [Direktion für Deutschland]). The Baloise Group has assets and liabilities measured at fair value on a non-recurring basis as part of the disposal group recognised for this purpose. Information on the fair value of the disposal group can be found in note 21. 167 Financial Report Notes to the consolidated annual financial statements ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS FOR OWN ACCOUNT AND AT OWN RISK AND CLASSIFIED AS LEVEL 3 2014 CHF million Assets and liabilities measured on a recurring basis Balance as at 1 January Additions Additions arising from change in the scope of consolidation Additions arising from change in the percentage of shareholding Disposals Disposals arising from change in the scope of consolidation Disposals arising from change in the percentage of shareholding Reclassified to level 3 Reclassified from level 3 Reclassification to non-current assets and disposal groups classified as held for sale Changes in fair value recognised in profit or loss 1 Changes in fair value not recognised in profit or loss 2 Exchange differences Balance as at 31 December Financial instruments with characteristics of equity Available for sale Investment property Recognised at fair value through profit or loss Total 959.0 66.1 – – – 87.5 – – – – – – 9.9 49.3 16.0 993.0 5,685.9 6,645.0 323.9 36.7 – – 140.5 – 30.1 – – – – 24.9 129.3 – – 17.4 5,962.9 390.0 36.7 – – 228.1 – 30.1 – – – – 24.9 119.4 49.3 – 1.4 6,955.9 Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss – 9.9 113.2 103.3 1 Changes in fair value recognised in profit or loss arise from realised gains and losses on investments, impairment losses or the reversal of impairment losses. 2 Changes in fair value not recognised in profit or loss arise from unrealised gains and losses on investments. 168 Financial Report Notes to the consolidated annual financial statements ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS FOR OWN ACCOUNT AND AT OWN RISK AND CLASSIFIED AS LEVEL 3 2015 CHF million Assets and liabilities measured on a recurring basis Balance as at 1 January Additions Additions arising from change in the scope of consolidation Additions arising from change in the percentage of shareholding Financial instruments with characteristics of equity Available for sale 993.0 112.6 – – Total Investment property Recognised at fair value through profit or loss 5,962.9 394.9 6,955.9 507.5 – – – – Disposals – 96.7 – 82.0 – 178.7 Disposals arising from change in the scope of consolidation Disposals arising from change in the percentage of shareholding Reclassified to level 3 Reclassified from level 3 Reclassification to non-current assets and disposal groups classified as held for sale Changes in fair value recognised in profit or loss 1 Changes in fair value not recognised in profit or loss 2 Exchange differences Balance as at 31 December – – – – – 7.8 – 6.1 14.8 – 66.7 943.1 – – 28.2 – 75.5 – 112.7 0.8 – 90.1 6,251.9 – – 28.2 – 75.5 – 7.8 106.6 15.6 – 156.8 7,195.1 Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss – 6.1 107.9 101.8 1 Changes in fair value recognised in profit or loss arise from realised gains and losses on investments, impairment losses or the reversal of impairment losses. 2 Changes in fair value not recognised in profit or loss arise from unrealised gains and losses on investments. 169 Financial Report Notes to the consolidated annual financial statements ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS FOR THE ACCOUNT AND AT THE RISK OF LIFE INSURANCE POLICYHOLDERS AND THIRD PARTIES AND CLASSIFIED AS LEVEL 3 2014 CHF million Assets and liabilities measured on a recurring basis Balance as at 1 January Additions Additions arising from change in the scope of consolidation Additions arising from change in the percentage of shareholding Disposals Disposals arising from change in the scope of consolidation Disposals arising from change in the percentage of shareholding Reclassified to level 3 Reclassified from level 3 Reclassification to non-current assets and disposal groups classified as held for sale Changes in fair value recognised in profit or loss 1 Exchange differences Balance as at 31 December Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss Financial instruments with characteristics of equity Recognised at fair value through profit or loss 84.9 94.4 – – Total 84.9 94.4 – – – 1.0 – 1.0 – – – – – – – – – – 0.0 – 1.8 176.5 0.0 – 1.8 176.5 0.0 0.0 1 Changes in fair value recognised in profit or loss arise from realised gains and losses on investments, impairment losses or the reversal of impairment losses. 170 Financial Report Notes to the consolidated annual financial statements ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS FOR THE ACCOUNT AND AT THE RISK OF LIFE INSURANCE POLICYHOLDERS AND THIRD PARTIES AND CLASSIFIED AS LEVEL 3 2015 CHF million Assets and liabilities measured on a recurring basis Balance as at 1 January Additions Additions arising from change in the scope of consolidation Additions arising from change in the percentage of shareholding Disposals Disposals arising from change in the scope of consolidation Disposals arising from change in the percentage of shareholding Reclassified to level 3 Reclassified from level 3 Changes in fair value recognised in profit or loss 1 Exchange differences Balance as at 31 December Changes in fair value of financial instruments held at the balance sheet date and recognised in profit or loss Financial instruments with characteristics of equity Recognised at fair value through profit or loss 176.5 3.1 – – Total 176.5 3.1 – – – 20.1 – 20.1 – – – – – – – – – 4.1 – 13.4 142.1 – 4.1 – 13.4 142.1 – 4.1 – 4.1 1 Changes in fair value recognised in profit or loss arise from realised gains and losses on investments, impairment losses or the reversal of impairment losses. 171 Financial Report Notes to the consolidated annual financial statements Reclassification of assets and liabilities from level 1 to level 2 and vice versa Assets and liabilities measured at fair value are generally reclassified from level 1 to level 2 if there is no longer deemed to be an active market in these instruments owing to their low daily trading volumes or lack of liquidity or if the instruments concerned have been de-listed. Financial instruments are reclassified from level 2 to level 1 for the exact opposite reasons. No significant amounts of assets or liabilities measured at fair value were reclassified from level 1 to level 2 or vice versa during the reporting period or in 2014. Discrepancy between a non-financial asset’s highest and best use and its current use The fair value of investment property is determined on the basis of its highest and best use. This periodic analysis – which was based on criteria such as the potential to increase a property’s market value by converting it into apartments, the repurposing of some or all of an existing property, the availability of a significant amount of land for further building and development, and the unlocking of added value by demolishing an existing property and building a new one revealed for the reporting period that the highest and best use of only individual investment properties in the Swiss portfolio differed from their current use. For 2014, this revealed that the highest and best use of a small number of investment properties in the Swiss portfolio differed from their current use. 172 Financial Report Notes to the consolidated annual financial statements 5.11 Capital management The general parameters regarding the amount of capital employed are set by regulatory requirements and internal risk-management policies. While the aim of regulatory requirements is primarily the protection of policyholders, internal policies are largely derived from the risk-based management of operating activities 5.11.1 Solvency I ratio at Group level The solvency ratio (calculated on the basis of the legal requirements in force on 30 June 2015) for pure insurance business of CHF 2,126 million (2014: CHF 2,167 million) was met in 2014 and 2015. The cover ratio for the capital adequacy requirement in available funds was 341 per cent at 31 December 2015 (31 December 2014: 354 per cent). The capital currently available consists of IFRS equity, unallocated policyholders’ dividends and the final policy- holders’ dividend reserve. Liabilities are also recognised as capital in accordance with the corresponding options for solvency coverage at individual company level. Deductions from equity include planned dividend payments and intangible assets. 5.11.2 Requirements under local legislation Individual Group companies are also subject to regulation under local legislation which in some cases imposes different solvency rules and permits different methods for defining equity. The ability of the business units, and therefore also of the parent company, to pay dividends is closely linked to the priority placed on meeting these local requirements. Compliance with local solvency requirements is monitored on an ongoing basis. Appropriate action is taken if solvency falls short of these regulations. The relevant requirements for the banking operations of Baloise Bank SoBa are defined by Basel III regulations. The regulatory capital adequacy requirement applicable to Deutscher Ring Bausparkasse AG is the Capital Require- ments Regulation (CRR). 5.11.3 Swiss Solvency Test The Swiss Solvency Test (SST) came into force as a new statutory requirement on 1 January 2011. In this context, the Baloise Group defines its risk-bearing capital and capital required for the SST using an inhouse model which takes into account the Baloise Group’s business model. All activities and processes for developing and structuring the inhouse model are gathered together in the Baloise Internal Solvency System (BISS) and coordinated and managed by Group Risk Management. The inhouse model, which is based on the Swiss Solvency Test (SST), is used to calculate risk-bearing capital. IFRS equity forms the basis for this calculation. The remeasurement of items and the additional incorporation of individual assets and liabilities as well as off-balance-sheet information enable equity to be determined at fair value. As a result, all capital items that can be deployed to cover losses in the event of adverse business developments are taken into consideration. 173 Financial Report Notes to the consolidated annual financial statements Risk-bearing capital is compared with risk-adjusted capital and the capital requirement formulated inhouse. The capital requirement covers actuarial risk, market risk, credit risk and other risks. The capital requirement is determined by means of a correlation-based expected-shortfall method. The actuarial capital requirement is a measurement of the operational funding required to cover actuarial risk. The claims risk is modelled using distributions of normal and large claims, including the prevailing reinsurance structure. At the same time, the investment required to smooth fluctuations in investment value and returns for a given probability is also calculated. Analysis of these risks is based on quantitative models that use statistical methods to evaluate historical data and place it in the context of current exposure. Various scenarios are simulated by means of stress tests, and their potential impact on risk- bearing capacity is analysed. The ratio of risk-bearing capital to risk-adjusted capital is calculated for the strategic business units and the Group. The Group’s risk position is not determined by simply adding together individual risk positions; it also takes into account diversification and consolidation effects. The current ratios of risk-bearing capital to risk-adjusted capital are set with reference to the global risk-management limits laid down in the Group-wide Risk Management Standards. These limits are monitored on an ongoing basis. 5.11.4 Monitoring the solvency situation The risk owner and risk controller responsible for each business unit and for the Group as a whole participate in a regular reporting process. Key figures relating to Solvency I, Solvency II and the inhouse risk model (SST) are reported on a monthly basis, which enables the solvency situation to be monitored in a timely manner, providing the basis for risk-based management decisions within the whole organisation. It also enables the Baloise Group to meet external reporting requirements at all times. 174 Financial Report Notes to the consolidated annual financial statements 6. BASIS OF CONSOLIDATION 6.1 2014 financial year 6.1.1 Acquisitions The Baloise Group acquired the Brussels-based real-estate company Singel Office Antwerpen NV in Belgium during the first half of 2014. This transaction did not give rise to any goodwill. The net assets of the firm P & V Assurances were acquired in Luxembourg. This transaction gave rise to goodwill of CHF 8.5 million. 6.1.2 Disposals All of Baloise’s Croatian and Serbian subsidiaries were sold to the Austria-based UNIQA Group on 11 March 2014. All of its Austrian subsidiaries were then sold to the Helvetia Group on 28 August 2014. Information on the accounting treatment of these disposals can be found in note 21. In Luxembourg the remaining 65 per cent shareholding in the company Barosa S.à.r.l. was sold during the first half of 2014. 6.1.3 Other changes in the group of consolidated companies Further real-estate companies in Germany were merged with existing companies as planned, continuing the process that had begun in 2013. Basler Financial Services GmbH and GROCON Grundstücks- und Beteiligungsgesellschaft GmbH were merged in the second half of 2014. These mergers had no net impact on the Baloise Group’s profit for the period. 175 Financial Report Notes to the consolidated annual financial statements 6.2 2015 financial year 6.2.1 Acquisitions HDI-Gerling Assurances, based in Leudelange, Luxembourg, was acquired during the year under review and was merged with Baloise Assurances Luxembourg S.A. in the same year. This transaction, in which all of its shares were acquired, gave rise to a small amount of goodwill. 6.2.2 Disposals No companies were sold during the year under review. 6.2.3 Other changes in the group of consolidated companies The two Gloucester-based companies Lennox Underwriting Agencies and Lennox Underwriting Management were liquidated in the second half of 2015. There were no other changes to the basis of consolidation. 176 Financial Report Notes to the consolidated annual financial statements 7. INFORMATION ON OPERATING SEGMENTS (SEGMENT REPORTING) The Baloise Group organises its operating activities into strategic business units, which are generally combined under a single management team for each region. The financial and management information needed for all relevant executive decisions is held by these strategic business units. This is also the organisational level at which the chief operating decision-makers are situated. Regardless of where they are headquartered, all Baloise Group entities are therefore assigned to one of the reportable segments → Switzerland → Germany → Belgium → Luxembourg → Other units 1. The “Other units 1” segment contains the strategic business units that do not meet the size criteria for disclosure under IFRS 8. For 2014, these are the Baloise Group entities that have been assigned to → Austria → Croatia → Serbia The “Germany” segment also includes the regional branches of Basler Sachversicherungs-AG and Basler Lebens- versicherungs-AG in the Czech Republic and Slovakia. The “Luxembourg” segment also includes the Baloise Life Liechtenstein unit. The “Group business” segment comprises the units engaged in intercompany reinsurance and financing, as well as corporate IT and the holding companies. The revenue generated by the Baloise Group is broken down into the Non-Life, Life, Banking (including asset management) and Other activities operating segments. The Non-Life segment offers accident and health insurance as well as products relating to liability, motor, property and marine insurance. These products are tailored to the specific needs of our customers – primarily retail clients – and the core competences of the relevant companies in the Baloise Group. The Life segment provides individuals and companies with a wide range of endowment policies, term insurance, investment-linked products and private placement life insurance. The Banking segment essentially comprises Baloise Bank SoBa, which acts as a universal bank in Switzerland, and Deutscher Ring Bausparkasse, which operates in Germany mainly as a conventional building society. The “Other activities” operating segment includes equity investment companies, real-estate firms and financing companies. The accounting policies applied to the presentation of the operating segments (segment reporting) are those used throughout the rest of the Financial Report. No intersegment relationships recognised either on the balance sheet or in the income statement – with the exception of income from long-term equity investments – are offset against each other. 1 Owing to the disposal of Baloise’s Croatian and Serbian subsidiaries (completed on 11 March 2014) and the disposal of its Austrian entities (completed on 28 August 2014), the reportable “Other units” segment is expected to be discontinued after the 2016 reporting period. 177 Financial Report Notes to the consolidated annual financial statements 7.1 Segment reporting by strategic business unit CHF million Income Premiums earned and policy fees (gross) Reinsurance premiums ceded Premiums earned and policy fees (net) Investment income Realised gains and losses on investments Income from services rendered Share of profit (loss) of associates Other operating income Income Intersegment income Income from associates Expense Claims and benefits paid (gross) Change in technical reserves (gross) Reinsurers’ share of claims incurred Acquisition costs Operating and administrative expenses for insurance business – 425.9 – 434.5 Switzerland Germany Belgium Luxembourg Other units Sub-total Group business Eliminated 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 4,328.7 4,408.6 1,416.9 1,205.9 1,112.1 1,041.6 – 173.6 – 167.4 – 92.1 – 83.5 – 75.9 4,155.2 4,241.2 1,324.8 1,122.4 1,036.2 929.0 470.1 38.4 0.0 61.8 884.6 104.3 39.5 0.0 72.3 465.4 437.6 34.0 8.1 45.7 370.3 320.8 32.5 36.8 38.6 264.0 116.0 1.6 0.0 11.9 – 73.2 968.4 238.2 78.8 1.5 0.1 21.6 5,654.5 5,341.9 2,315.7 1,921.4 1,429.6 1,308.6 67.5 0.0 57.8 0.0 48.4 8.1 46.4 36.8 30.6 0.0 31.3 0.1 – 3,418.0 – 3,458.2 – 1,313.3 – 1,142.0 – 753.3 – 651.6 – 861.5 – 764.7 – 391.2 – 320.1 – 166.2 – 124.6 202.2 – 20.2 182.0 181.5 – 19.6 161.9 113.0 – 49.1 63.9 21.4 18.6 317.8 – 104.2 13.3 – 20.3 554.7 2.5 – – 103.6 – 57.4 8.4 – 20.0 – 48.0 – 1.2 – 0.4 – 304.4 – 7.5 – 534.1 – 20.7 – 2.3 18.4 14.9 – 20.5 111.7 0.1 – – 99.0 – 39.3 10.1 – 16.9 – 43.2 – 1.3 – 0.1 113.8 – 12.2 – 88.2 – 23.5 – 2.0 21.5 7.5 7.9 2.5 – 3.8 85.5 47.1 – – 69.7 – 9.8 26.7 – 16.5 – 4.7 – 1.4 – 0.7 – 0.2 – 3.5 – 79.7 5.7 – 5.7 – 1.5 4.3 Total 2015 386.2 112.6 36.8 136.6 – 36.8 97.9 – 453.3 – 780.5 – 60.4 – 34.1 – 0.9 – 333.1 189.9 – 247.4 – 195.1 7,168.1 6,832.4 247.3 0.0 195.1 – 163.6 – 148.6 0.0 7,004.5 6,683.7 – 1.9 – 1.7 1,701.9 1,521.8 – 125.2 – 129.1 – 53.7 – 48.7 1,362.5 110.7 8.1 185.2 – 8.1 373.8 – 180.8 – 179.5 10,372.8 8,877.9 135.7 – 376.9 – 315.2 180.8 179.5 36.8 – 7,172.8 6,837.6 – 410.7 – 343.8 6,762.0 6,493.9 1,687.3 1,511.8 1,349.4 399.7 89.8 8.1 88.3 36.8 143.4 153.0 10,040.0 8,683.5 196.0 8.1 263.6 – 453.8 – 779.1 – 81.6 – 34.3 323.5 – 570.3 – 846.3 – 89.1 – 42.9 – 446.2 – 406.2 242.7 – 0.1 242.5 16.4 13.1 146.1 95.5 513.7 – – 18.8 – 3.1 – 19.2 – 0.3 – 11.1 – – – 818.5 695.4 – 43.5 66.6 – 176.4 – 167.6 642.1 527.8 3.2 69.8 – – – – – – – – – – – – – – – – – – – – – – – – – – – 0.0 189.8 11.7 – 13.5 153.5 – 32.3 – 51.6 – 0.4 – 0.5 – 0.3 – 9.8 – – 7.1 – 40.0 – 16.2 – 0.5 – 16.7 – – – – – – – – 176.0 – 2.2 19.9 – 19.9 33.3 0.3 2.0 145.2 180.8 – 5,658.0 – 5,350.7 – 184.5 – 108.7 107.1 – 5,666.4 – 5,352.4 – 1,486.1 – 1,248.7 58.4 – 1,469.5 – 1,241.9 – 173.8 – 165.4 146.6 2.1 – 18.5 – 305.5 – 185.9 – 171.7 1.1 – 1.1 31.0 0.2 4.2 144.1 – 569.6 – 866.5 – 66.9 – 42.6 – 462.6 – 446.8 – 43.5 885.1 – 40.0 679.3 – 173.2 – 168.2 711.9 511.1 – – – – – – – – – 162.6 – 199.2 – 22.0 – 31.5 – 22.9 – 77.9 – 239.0 – 126.9 – 13.7 – 0.9 – 55.9 – 65.7 – 216.8 – 102.2 – 14.6 – 0.2 – 52.2 – 37.7 – 5,066.6 – 4,926.5 – 2,253.0 – 1,856.4 – 1,288.0 – 1,116.9 – 9,221.5 – 7,988.0 – 403.6 – 350.1 179.5 – 9,444.3 – 8,158.6 – 42.5 – 2.7 – 60.2 – 43.8 – 2.4 – 36.6 – 205.2 – 240.7 – 30.3 – 38.3 – 25.5 57.9 – 89.6 48.9 – 57.5 96.8 121.9 133.6 82.8 – 224.1 – 177.6 – 105.4 Profit / loss before borrowing costs and taxes 587.9 415.3 62.6 64.9 141.6 191.7 20.7 23.5 818.5 695.4 110.0 23.8 928.6 719.2 Borrowing costs Profit / loss before taxes Income taxes Profit / loss for the period (segment result) – – 587.9 415.3 – 112.4 475.5 – 86.4 329.0 – 62.6 – 6.3 56.3 – 64.9 – – 141.6 191.7 – 24.3 40.6 – 53.9 87.7 – 54.9 136.7 Segment assets 42,745.5 44,490.9 16,704.3 15,102.5 9,649.4 9,043.6 9,346.3 9,349.2 – 78,445.5 77,986.1 1,952.1 1,841.7 – 1,055.3 – 1,044.0 79,342.3 78,783.8 178 Investment management expenses Interest expenses on insurance liabilities Gains or losses on financial contracts Other operating expenses Expense Financial Report Notes to the consolidated annual financial statements Switzerland Germany Belgium Luxembourg Other units Sub-total Group business Eliminated 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Total 2015 7.1 Segment reporting by strategic business unit CHF million Income Premiums earned and policy fees (gross) Reinsurance premiums ceded Premiums earned and policy fees (net) Investment income Realised gains and losses on investments Income from services rendered Share of profit (loss) of associates Other operating income Income Intersegment income Income from associates Expense Claims and benefits paid (gross) Change in technical reserves (gross) Reinsurers’ share of claims incurred Acquisition costs Investment management expenses Interest expenses on insurance liabilities Gains or losses on financial contracts Other operating expenses Expense 465.4 437.6 34.0 8.1 45.7 48.4 8.1 370.3 320.8 32.5 36.8 38.6 46.4 36.8 264.0 116.0 1.6 0.0 11.9 30.6 0.0 – 73.2 968.4 238.2 78.8 1.5 0.1 21.6 31.3 0.1 5,654.5 5,341.9 2,315.7 1,921.4 1,429.6 1,308.6 – 3,418.0 – 3,458.2 – 1,313.3 – 1,142.0 – 753.3 – 651.6 – 861.5 – 764.7 – 391.2 – 320.1 – 166.2 – 124.6 96.8 121.9 133.6 82.8 – 205.2 – 240.7 – 30.3 – 38.3 – 25.5 – 162.6 – 199.2 – 22.0 – 31.5 – 22.9 – 77.9 – 239.0 – 126.9 – 13.7 – 0.9 – 55.9 – 65.7 – 216.8 – 102.2 – 14.6 – 0.2 – 52.2 – 37.7 – 224.1 – 177.6 – 105.4 – 5,066.6 – 4,926.5 – 2,253.0 – 1,856.4 – 1,288.0 – 1,116.9 929.0 470.1 38.4 0.0 61.8 67.5 0.0 57.9 – 89.6 – 42.5 – 2.7 – 60.2 884.6 104.3 39.5 0.0 72.3 57.8 0.0 48.9 – 57.5 – 43.8 – 2.4 – 36.6 Operating and administrative expenses for insurance business – 425.9 – 434.5 4,328.7 4,408.6 1,416.9 1,205.9 1,112.1 1,041.6 – 173.6 – 167.4 – 92.1 – 83.5 – 75.9 4,155.2 4,241.2 1,324.8 1,122.4 1,036.2 202.2 – 20.2 182.0 181.5 – 19.6 161.9 113.0 – 49.1 63.9 21.4 18.6 317.8 – 104.2 13.3 – 20.3 554.7 2.5 – – 103.6 – 57.4 8.4 – 20.0 – 48.0 – 1.2 – 0.4 – 304.4 – 7.5 – 534.1 14.9 – 20.5 111.7 0.1 – – 99.0 – 39.3 10.1 – 16.9 – 43.2 – 1.3 – 0.1 113.8 – 12.2 – 88.2 Profit / loss before borrowing costs and taxes 587.9 415.3 62.6 64.9 141.6 191.7 20.7 23.5 Borrowing costs Profit / loss before taxes – – 587.9 415.3 – 64.9 – – 141.6 191.7 Income taxes Profit / loss for the period (segment result) – 112.4 475.5 – 86.4 329.0 – 24.3 40.6 – 53.9 87.7 – 54.9 136.7 – 62.6 – 6.3 56.3 – 20.7 – 2.3 18.4 – 23.5 – 2.0 21.5 7.5 7.9 2.5 – 3.8 85.5 47.1 – – 69.7 – 9.8 26.7 – 16.5 – 4.7 – 1.4 – 0.7 – 0.2 – 3.5 – 79.7 5.7 – 5.7 – 1.5 4.3 Segment assets 42,745.5 44,490.9 16,704.3 15,102.5 9,649.4 9,043.6 9,346.3 9,349.2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 0.0 189.8 11.7 – 13.5 153.5 – 32.3 – 51.6 – 0.4 – 0.5 – 0.3 – 9.8 – – 7.1 7,172.8 6,837.6 – 410.7 – 343.8 6,762.0 6,493.9 1,687.3 1,511.8 1,349.4 399.7 89.8 8.1 88.3 36.8 143.4 153.0 10,040.0 8,683.5 242.7 – 0.1 242.5 16.4 13.1 146.1 – 95.5 513.7 189.9 – 247.4 – 195.1 7,168.1 6,832.4 247.3 0.0 – 1.9 – 195.1 – 163.6 – 148.6 0.0 7,004.5 6,683.7 – 1.7 1,701.9 1,521.8 – 1,362.5 – 125.2 – 129.1 – – – 53.7 – 48.7 110.7 8.1 185.2 386.2 112.6 36.8 136.6 196.0 8.1 135.7 – 376.9 – 315.2 180.8 179.5 36.8 – – – – – 8.1 – 36.8 373.8 – 180.8 – 179.5 10,372.8 8,877.9 – 5,658.0 – 5,350.7 – 184.5 – 108.7 – 1,486.1 – 1,248.7 176.0 – 2.2 107.1 – 5,666.4 – 5,352.4 58.4 – 1,469.5 – 1,241.9 – 173.8 – 165.4 146.6 263.6 – 453.8 – 779.1 – 81.6 – 34.3 18.8 – 3.1 – 19.2 – 0.3 – 11.1 – 323.5 – 570.3 – 846.3 – 89.1 – 42.9 – 446.2 – 406.2 2.1 – 18.5 – 305.5 – 185.9 – 171.7 – 9,221.5 – 7,988.0 – 403.6 – 350.1 818.5 695.4 110.0 23.8 – – 818.5 695.4 – 43.5 66.6 – 176.4 – 167.6 642.1 527.8 3.2 69.8 – 40.0 – 16.2 – 0.5 – 16.7 19.9 – 19.9 33.3 0.3 2.0 145.2 180.8 – – – – – 1.1 – 1.1 31.0 0.2 4.2 144.1 – 569.6 – 866.5 – 66.9 – 42.6 – 462.6 – 446.8 97.9 – 453.3 – 780.5 – 60.4 – 34.1 – 0.9 – 333.1 179.5 – 9,444.3 – 8,158.6 – – – – – 928.6 719.2 – 43.5 885.1 – 40.0 679.3 – 173.2 – 168.2 711.9 511.1 78,445.5 77,986.1 1,952.1 1,841.7 – 1,055.3 – 1,044.0 79,342.3 78,783.8 179 Financial Report Notes to the consolidated annual financial statements 7.2 Segment reporting by operating segment CHF million Income Premiums earned and policy fees (gross) Reinsurance premiums ceded Premiums earned and policy fees (net) Investment income Realised gains and losses on investments Income from services rendered Share of profit (loss) of associates Other operating income Income Intersegment income Income from associates Expense Claims and benefits paid (gross) Change in technical reserves (gross) Reinsurers’ share of claims incurred Acquisition costs Operating and administrative expenses for insurance business Investment management expenses Interest expenses on insurance liabilities Gains or losses on financial contracts Other operating expenses Expense 2014 3,351.3 – 143.3 3,208.0 265.6 61.9 20.3 0.0 76.8 3,632.5 – 53.7 0.0 Non-life 2015 3,048.9 – 129.5 2,919.4 221.4 30.4 20.8 7.4 76.5 3,276.0 – 50.3 7.4 2014 3,816.8 – 20.3 3,796.5 1,320.2 1,275.9 13.8 2.9 127.2 6,536.5 – 33.0 2.9 Life 2015 3,783.4 – 19.1 3,764.4 1,196.5 348.3 16.2 25.1 86.8 5,437.2 – 36.7 25.1 – 2,050.6 – 1,854.0 – 76.4 133.7 – 461.1 – 562.0 – 22.7 – 1.0 – 2.6 – 55.3 89.5 – 389.8 – 509.2 – 22.1 – 0.2 – 0.8 – 167.0 – 3,209.8 – 138.6 – 2,880.5 – 3,615.8 – 1,393.1 – 3,498.4 – 1,186.6 12.9 – 108.5 – 304.5 – 90.1 – 41.6 – 390.4 – 124.3 8.3 – 63.5 – 271.3 – 87.6 – 33.8 48.6 – 75.6 – 6,055.4 – 5,159.9 Profit / loss before borrowing costs and taxes 422.7 395.5 481.1 277.3 – 48.9 – 34.4 928.6 719.2 Borrowing costs Profit / loss before taxes Income taxes Profit / loss for the period (segment result) – 422.7 – 89.6 333.0 – 395.5 – 74.9 320.6 – 481.1 – 90.1 391.0 – 277.3 – 62.2 215.0 Because the management approach within the Belgium strategic business unit has been re-assessed, a small number of long-term equity investments in the “Other activities” segment have been assigned to the “Non-life” and “Life” segments. These reclassifications have had no impact on the profit for the period. The figures for comparative periods have been restated for the purpose of comparability. 180 2014 2014 2015 2014 2015 2014 Other activities Eliminated Banking 2015 126.3 3.3 130.5 – 5.5 265.6 – 64.0 – – – – – – – – – – – 59.5 – 103.3 – 184.8 80.8 – 80.8 – 19.9 60.9 143.4 3.5 124.6 – 6.4 277.9 – 60.7 – – – – – – – – – – – 72.7 – 108.4 – 204.2 73.7 – 73.7 – 12.5 61.2 10,372.8 8,877.9 4.1 21.2 161.9 5.1 18.7 211.1 – 137.7 5.1 – – – – – – – – – 2.5 4.3 160.1 4.3 18.8 190.0 – 139.9 4.3 – – – – – – – – – – 28.5 – 226.4 – 260.0 – 15.3 – 204.6 – 224.4 – 43.5 – 92.4 19.0 – 73.4 – 40.0 – 74.3 – 11.1 – 85.5 – 31.4 – 25.0 – 209.9 – 215.0 – 43.9 – 285.2 285.2 – 51.0 – 291.0 291.0 0.0 74.1 31.7 179.4 285.2 75.9 26.1 189.0 291.0 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 7,168.1 – 163.6 7,004.5 1,701.9 1,362.5 110.7 8.1 185.2 – 8.1 – 5,666.4 – 1,469.5 146.6 – 569.6 – 866.5 – 66.9 – 42.6 – 462.6 – 446.8 – 9,444.3 – 43.5 885.1 – 173.2 711.9 Total 2015 6,832.4 – 148.6 6,683.7 1,521.8 386.2 112.6 36.8 136.6 – 36.8 – 5,352.4 – 1,241.9 97.9 – 453.3 – 780.5 – 60.4 – 34.1 – 0.9 – 333.1 – 8,158.6 – 40.0 679.3 – 168.2 511.1 – 23.0 – 22.0 – 5.1 – 4.6 Financial Report Notes to the consolidated annual financial statements 7.2 Segment reporting by operating segment CHF million Income Premiums earned and policy fees (gross) Reinsurance premiums ceded Premiums earned and policy fees (net) Investment income Realised gains and losses on investments Income from services rendered Share of profit (loss) of associates Other operating income Income Intersegment income Income from associates Expense Claims and benefits paid (gross) Change in technical reserves (gross) Reinsurers’ share of claims incurred Acquisition costs Investment management expenses Interest expenses on insurance liabilities Gains or losses on financial contracts Other operating expenses Expense Borrowing costs Profit / loss before taxes Income taxes Profit / loss for the period (segment result) Operating and administrative expenses for insurance business 2014 2014 Non-life 2015 3,048.9 – 129.5 2,919.4 221.4 30.4 20.8 7.4 76.5 3,276.0 – 50.3 7.4 – 55.3 89.5 – 389.8 – 509.2 – 22.1 – 0.2 – 0.8 – 395.5 – 74.9 320.6 Life 2015 3,783.4 – 19.1 3,764.4 1,196.5 348.3 16.2 25.1 86.8 5,437.2 – 36.7 25.1 8.3 – 63.5 – 271.3 – 87.6 – 33.8 48.6 – 75.6 – 277.3 – 62.2 215.0 3,816.8 – 20.3 3,796.5 1,320.2 1,275.9 13.8 2.9 127.2 6,536.5 – 33.0 2.9 12.9 – 108.5 – 304.5 – 90.1 – 41.6 – 390.4 – 124.3 – 481.1 – 90.1 391.0 3,351.3 – 143.3 3,208.0 265.6 61.9 20.3 0.0 76.8 3,632.5 – 53.7 0.0 – 76.4 133.7 – 461.1 – 562.0 – 22.7 – 1.0 – 2.6 – 422.7 – 89.6 333.0 – 2,050.6 – 1,854.0 – 3,615.8 – 1,393.1 – 3,498.4 – 1,186.6 Profit / loss before borrowing costs and taxes 422.7 395.5 481.1 277.3 – 167.0 – 3,209.8 – 138.6 – 2,880.5 – 6,055.4 – 5,159.9 Because the management approach within the Belgium strategic business unit has been re-assessed, a small number of long-term equity investments in the “Other activities” segment have been assigned to the “Non-life” and “Life” segments. These reclassifications have had no impact on the profit for the period. The figures for comparative periods have been restated for the purpose of comparability. 2014 – – – 143.4 3.5 124.6 – 6.4 277.9 – 60.7 – – – – – – – 23.0 – – 72.7 – 108.4 – 204.2 73.7 – 73.7 – 12.5 61.2 Banking 2015 – – – 126.3 3.3 130.5 – 5.5 265.6 – 64.0 – – – – – – – 22.0 – – 59.5 – 103.3 – 184.8 80.8 – 80.8 – 19.9 60.9 Other activities Eliminated 2014 2015 2014 2015 2014 – – – 4.1 21.2 161.9 5.1 18.7 211.1 – 137.7 5.1 – – – – – – 5.1 – – 28.5 – 226.4 – 260.0 – – – 2.5 4.3 160.1 4.3 18.8 190.0 – 139.9 4.3 – – – – – – 4.6 – – 15.3 – 204.6 – 224.4 – 48.9 – 34.4 – 43.5 – 92.4 19.0 – 73.4 – 40.0 – 74.3 – 11.1 – 85.5 – – – – 31.4 – – 209.9 – – 43.9 – 285.2 285.2 – – – – – 0.0 74.1 – 31.7 179.4 285.2 – – – – – – – – – 25.0 – – 215.0 – – 51.0 – 291.0 291.0 – – – – – – 75.9 – 26.1 189.0 291.0 – – – – – Total 2015 6,832.4 – 148.6 6,683.7 1,521.8 386.2 112.6 36.8 136.6 7,168.1 – 163.6 7,004.5 1,701.9 1,362.5 110.7 8.1 185.2 10,372.8 8,877.9 – 8.1 – 36.8 – 5,666.4 – 1,469.5 146.6 – 569.6 – 866.5 – 66.9 – 42.6 – 462.6 – 446.8 – 9,444.3 – 5,352.4 – 1,241.9 97.9 – 453.3 – 780.5 – 60.4 – 34.1 – 0.9 – 333.1 – 8,158.6 928.6 719.2 – 43.5 885.1 – 173.2 711.9 – 40.0 679.3 – 168.2 511.1 181 Financial Report Notes to the consolidated annual financial statements Notes to the consolidated balance sheet 8. PROPERT Y, PLANT AND EQUIPMENT 8.1 Property, plant and equipment in 2014 2014 CHF million Carrying amount as at 1 January Additions Additions arising from change in the scope of consolidation Disposals Disposals arising from change in the scope of consolidation Reclassification Reclassification to non-current assets and disposal groups classified as held for sale Depreciation and impairment Depreciation Impairment losses recognised in profit or loss 1 Reversal of impairment losses recognised in profit or loss Exchange differences Carrying amount as at 31 December Acquisition costs Accumulated depreciation and impairment Balance as at 31 December Of which: Assets held under finance leases Land Buildings Operating equipment Machinery, furniture and vehicles IT equipment Total 93.6 0.0 240.5 0.9 43.4 6.2 – – – – – – – – – – – – – – – – – – – 12.3 – 25.3 – 9.2 – 1.6 – – – 0.4 93.1 95.1 – 1.9 93.1 – – 2.7 201.1 614.0 – 412.9 201.1 – – 0.1 38.7 124.2 – 85.5 38.7 – 25.9 7.6 0.7 – 0.5 0.0 – – 1.7 19.1 12.0 0.2 0.0 – – – – 6.3 – 10.3 – – – 0.3 25.4 67.8 – – – 0.1 20.9 92.2 422.5 26.7 0.9 – 0.5 0.0 – – 1.7 – 38.2 – 26.8 – – 3.7 379.2 993.3 – 42.4 – 71.3 – 614.0 25.4 – 20.9 – 379.2 – 1 The impairment losses on buildings largely relate to those recognised on owner-occupied property in connection with the reconfiguration and redesign of Baloise’s buildings at its headquarters in Basel (Baloise Park). Depreciation and impairment form part of other operating expenses. 182 Financial Report Notes to the consolidated annual financial statements 8.2 Property, plant and equipment in 2015 2015 CHF million Carrying amount as at 1 January Additions Additions arising from change in the scope of consolidation Disposals Disposals arising from change in the scope of consolidation Reclassification – 26.2 Reclassification to non-current assets and disposal groups classified as held for sale Depreciation and impairment Depreciation Impairment losses recognised in profit or loss Reversal of impairment losses recognised in profit or loss Exchange differences Carrying amount as at 31 December Acquisition costs Accumulated depreciation and impairment Balance as at 31 December Of which: Assets held under finance leases – – – – – 2.2 65.1 66.8 – 1.7 65.1 – Depreciation and impairment form part of other operating expenses. Land Buildings 93.1 0.4 201.1 1.9 – – – – – – 73.4 – – 14.8 – 3.2 – – 12.7 245.7 536.9 – 291.2 245.7 – Operating equipment Machinery, furniture and vehicles IT equipment Total 38.7 10.9 – 25.4 6.4 0.0 20.9 11.7 0.0 – 0.1 – 0.4 – 0.7 – – – – – – – – – – 7.2 – 5.1 – 9.5 – – – 1.7 24.7 65.8 – – – 0.5 21.9 86.8 – – – 0.6 41.7 118.0 – 76.3 41.7 – 379.2 31.4 0.0 – 1.2 – 47.2 – – 36.6 – 3.2 – – 17.7 399.1 874.3 – 41.1 – 64.9 – 475.3 24.7 – 21.9 – 399.1 – 183 Financial Report Notes to the consolidated annual financial statements 9. INTANGIBLE ASSETS 9.1 Intangible assets in 2014 2014 CHF million Carrying amount as at 1 January Additions arising from change in the scope of consolidation Additions Capitalisation of acquisition costs Disposals Disposals arising from change in the scope of consolidation Reclassification Reclassification to non-current assets and disposal groups classified as held for sale Amortisation and impairment Amortisation Write-ups Impairment losses recognised in profit or loss Reversal of impairment losses recognised in profit or loss Changes due to impending losses Change due to unrealised gains and losses on financial instruments (shadow accounting) Exchange differences Carrying amount as at 31 December Acquisition costs Accumulated amortisation and impairment Balance as at 31 December 1 Intangible assets by segment Switzerland Germany Belgium Luxembourg Other units Group business Present value of gains on insurance contracts acquired Deferred acquisition cost (life) Deferred acquisition cost (non-life) Other intangible assets Internally developed intangible assets 41.4 656.6 155.6 Goodwill 64.6 8.5 – – – – – – – – – – – – – 1.3 71.8 217.4 – 145.6 – – – – – – – – 4.3 – – 22.5 – – – – 0.5 14.1 – – – – – – 61.9 237.3 – – – – – – 162.0 9.1 20.1 – – 0.1 – – – 20.3 – 18.7 – 0.4 – 103.7 – 236.5 1.7 – – – 3.4 – 41.0 – 9.1 542.7 – – – – – – 0.5 – – 1.7 135.5 – – – 34.0 – – 9.4 – – – – 2.1 145.0 485.9 – 340.9 71.8 14.1 542.7 135.5 145.0 0.2 909.2 Total 1,080.3 17.6 20.1 299.2 – 0.1 – – – 39.5 0.2 – 0.0 – – – – – – 0.1 – 378.6 – – – – – – 0.2 10.0 – 9.8 1.7 – 32.0 – – 3.9 – 41.0 – 14.8 909.2 – – – – – – – 0.2 0.2 169.4 509.1 170.2 54.4 – 6.1 909.2 – 32.1 16.7 23.0 – – – 14.1 – – – – 89.7 439.3 3.1 10.6 – – 52.8 16.5 62.0 4.2 – – 26.9 7.2 88.3 16.7 – 5.9 Total for geographic regions 71.8 14.1 542.7 135.5 145.0 1 With the possible exception of goodwill, the Baloise Group has no intangible assets with indefinite useful lives. 184 Financial Report Notes to the consolidated annual financial statements 9.2 Intangible assets in 2015 2015 CHF million Carrying amount as at 1 January Additions arising from change in the scope of consolidation Additions Capitalisation of acquisition costs Disposals Disposals arising from change in the scope of consolidation Reclassification Reclassification to non-current assets and disposal groups classified as held for sale Amortisation and impairment Amortisation Write-ups Impairment losses recognised in profit or loss Reversal of impairment losses recognised in profit or loss Changes due to impending losses Change due to unrealised gains and losses on financial instruments (shadow accounting) Exchange differences Carrying amount as at 31 December Acquisition costs Accumulated amortisation and impairment Balance as at 31 December 1 Intangible assets by segment Switzerland Germany Belgium Luxembourg Other units Group business Total for geographic regions Present value of gains on insurance contracts acquired Deferred acquisition cost (life) Deferred acquisition cost (non-life) Other intangible assets Internally developed intangible assets 14.1 542.7 – – – – – – – – 53.3 – – – – 1.9 – 12.7 135.5 0.1 – 214.2 – – – – 145.0 – 28.8 – – 0.1 – – – 2.7 0.2 – 0.1 – – – – – Total 909.2 2.4 28.9 267.5 – 0.1 – – – 17.3 – 1.7 – – 1.1 – – – – 1.4 7.9 – – – 38.4 2.0 – – – 26.8 4.9 – 44.1 480.9 – – – 216.3 – 27.6 – 0.1 – 284.2 – – – 0.8 – – 8.0 126.3 – – – – – – – – 11.0 132.3 469.0 – – – – – – 0.1 9.2 – 336.7 – 9.0 2.0 – 1.1 – – 26.0 4.9 – 71.5 814.6 – – Goodwill 71.8 2.3 – – – – – – – – – – – – – 6.9 67.1 212.7 – 145.6 67.1 7.9 480.9 126.3 132.3 0.1 814.6 – 29.0 15.1 23.0 – – 67.1 – 7.9 – – – – 94.4 376.5 0.5 9.4 – – 53.1 15.4 53.7 4.1 – – 26.0 2.7 84.5 13.6 – 5.5 7.9 480.9 126.3 132.3 – – – – – 0.1 0.1 173.5 431.6 153.7 50.1 – 5.7 814.6 185 1 With the possible exception of goodwill, the Baloise Group has no intangible assets with indefinite useful lives. Financial Report Notes to the consolidated annual financial statements In 2014 an impairment loss of CHF 9.4 million was recognised on other intangible assets in respect of a large-scale IT project. 9.3 Assumptions used to test the impairment of significant goodwill items Assumptions used to forecast future business developments and trends have been reviewed by the local management teams and take account of macroeconomic conditions. Zeus Vermittlungsgesellschaft mbH Basler Financial Services GmbH Bâloise Vie Luxembourg S.A. Bâloise Assurances Luxembourg S.A. Baloise Belgium NV Goodwill Discount rate Growth rate 2014 14.7 15.2 7.6 14.8 16.7 2015 13.2 13.8 6.9 15.6 15.1 2014 10.4 8.3 8.5 8.5 7.0 2015 10.4 8.2 8.5 8.5 7.0 2014 2015 1.0 1.0 2.5 2.5 2.6 1.0 1.0 2.5 2.5 2.6 186 Financial Report Notes to the consolidated annual financial statements 10. INVESTMENTS IN ASSOCIATES 10.1 Significant investments in associates OVB Holding AG is a European sales company for risk cover, retirement pension and healthcare products as well as wealth-building products. It also brokers Basler Versicherungen products. The company is strategically important because it constitutes a significant distribution channel. The financial information reflects the amounts reported in the financial statements of the associate rather than the share of those amounts that is attributable to the Baloise Group. The associate’s financial statements are prepared in accordance with IFRS. OVB Holding is included in the Baloise Group’s consolidated annual financial statements under the equity method. Because the publicly traded OVB Holding’s relevant financial year-end closing information, which is used for measurement purposes, had not been published by the time the Financial Report was being prepared, measurement has been based in each case on the financial closing data for the period ended 30 September of the reporting year. SIGNIFICANT INVESTMENTS IN ASSOCIATES CHF million Investments Other assets Receivables and assets Cash and cash equivalents Actuarial liabilities Other accounts payable Net assets Premiums earned and policy fees (net) Insurance benefits and expenses arising from insurance and asset management business Gains on investments Other income and expenses Borrowing costs Income taxes Profit for the period Other comprehensive income Comprehensive income Dividends paid to the Baloise Group OVB Holding 2014 2015 47.6 25.6 62.4 44.0 – – 81.5 98.1 174.8 – 114.1 0.6 – 50.7 – – 2.8 7.8 0.0 7.8 3.1 48.7 20.8 52.3 45.4 – – 77.2 90.0 165.2 – 109.4 0.4 – 44.9 – – 3.4 7.8 0.3 8.1 3.4 187 Financial Report Notes to the consolidated annual financial statements RECONCILIATION OF SUMMARY FINANCIAL INFORMATION ON SIGNIFICANT INVESTMENTS IN ASSOCIATES CHF million Net assets as at 1 October (2014) Profit for the period Other comprehensive income Net assets as at 30 September Baloise Group’s interest (per cent) Carrying amount as at 30 September Fair value as at 30 September OVB Holding 2014 2015 98.9 11.1 – 11.9 98.1 98.1 10.2 – 18.4 90.0 32.57 % 32.57 % 72.2 96.7 65.7 85.7 10.2 Non-significant investments in associates The Baloise Group holds investments in a number of non-significant associates. 2014 Carrying amount Baloise’s share of CHF million Total 2015 CHF million Total profit or loss for the period from continuing operations profit or loss for the period from discontinued operations other comprehensive income comprehensive income 155.7 10.5 0.0 0.6 11.1 Carrying amount Baloise’s share of profit or loss for the period from continuing operations profit or loss for the period from discontinued operations other comprehensive income comprehensive income 96.6 6.1 0.0 0.4 6.5 There were no contingent liabilities arising from investments in associates and no substantial unrecognised shares of the losses of associates as at either 31 December 2015 or 31 December 2014. As at 31 December 2015, the Baloise Group held more than 20 per cent of the capital of three companies but does not have any influence over these companies’ management. As a result, they are not reported as associates. 188 Financial Report Notes to the consolidated annual financial statements 11. INVESTMENT PROPERT Y CHF million Balance as at 1 January Additions Additions arising from change in scope of consolidation Disposals Disposals arising from change in scope of consolidation Reclassification Reclassification to non-current assets and disposal groups classified as held for sale Change in fair value Exchange differences Balance as at 31 December Operating expenses arising from investment property that generates rental income Operating expenses arising from investment property that does not generate rental income 2014 2015 5,685.9 323.9 36.7 – 140.5 – 30.1 – – 24.9 129.3 – 17.4 5,962.9 394.9 – – 82.0 – – 47.2 – 113.5 – 90.1 5,962.9 6,251.9 68.5 0.6 68.8 0.7 The increase in the portfolio in 2014 was largely attributable to real estate acquired by Baloise’s Swiss entities. Information on the disposal of the investment property relating to the Austrian entities sold during the second half of 2014 can be found in the line item “Reclassification to non-current assets and disposal groups classified as held for sale”. Information on the disposal in 2014 of the remaining 65 per cent shareholding in the company Barosa S.à.r.l. can be found in the line item “Disposals arising from change in the scope of consolidation”. The increase in the portfolio during the reporting year was largely attributable to real estate acquired by Baloise’s Swiss entities. The reclassification from the investment property portfolio was largely attributable to the change of use of one property within the German real-estate portfolio. 189 Financial Report Notes to the consolidated annual financial statements 12. FINANCIAL ASSETS CHF million Financial assets with characteristics of equity Available for sale Recognised at fair value through profit or loss Financial assets with characteristics of equity Held to maturity Available for sale Recognised at fair value through profit or loss Financial assets for own account and at own risk Financial assets for the account and at the risk of life insurance policyholders Recognised at fair value through profit or loss 1 Financial assets as reported on the balance sheet 2014 2015 4,698.1 671.6 4,443.3 1,173.8 8,413.7 8,549.5 24,227.5 23,024.6 59.9 46.6 38,070.8 37,237.7 9,842.0 9,781.5 47,912.8 47,019.2 1 Of which financial assets totalling CHF 98.8 million (2014: CHF 114.7 million) involved insurance policies that had not been fully reviewed by the balance sheet date. 190 Financial Report Notes to the consolidated annual financial statements This page has been left empty on purpose. 191 Financial Report Notes to the consolidated annual financial statements FINANCIAL ASSETS FOR OWN ACCOUNT AND AT OWN RISK CHF million Financial assets with characteristics of equity Publicly listed Not publicly listed Total Financial assets with characteristics of equity Publicly listed, fixed-interest rate Publicly listed, variable interest rate Not publicly listed, fixed-interest rate Not publicly listed, variable interest rate Total Held to maturity Available for sale Recognised at fair value through profit or loss Total Trading portfolio Designated 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 – – – – – – 8,358.3 8,549.5 – 55.4 – – – – 8,413.7 8,549.5 2,788.4 1,909.7 4,698.1 2,651.2 1,792.1 4,443.3 24,067.6 22,992.4 133.5 26.3 – 8.9 23.3 – 24,227.5 23,024.6 0.7 – 0.7 – – – – – – – – – – – – – 242.0 428.9 670.9 0.1 37.3 22.5 – 59.9 285.7 888.1 1,173.8 3,031.1 2,338.6 5,369.7 2,936.9 2,680.2 5,617.1 0.1 28.2 18.3 – 46.6 32,426.0 31,541.9 170.8 104.2 – 37.1 41.6 – 32,701.1 31,620.6 No impairment losses had to be recognised on held-to-maturity financial instruments with characteristics of liabilities, during either the reporting year or the prior year. 192 Financial Report Notes to the consolidated annual financial statements FINANCIAL ASSETS FOR OWN ACCOUNT AND AT OWN RISK Financial assets with characteristics of equity CHF million Publicly listed Not publicly listed Total Financial assets with characteristics of equity Publicly listed, fixed-interest rate Publicly listed, variable interest rate Not publicly listed, fixed-interest rate Not publicly listed, variable interest rate Total Held to maturity Available for sale Recognised at fair value through profit or loss Total Trading portfolio Designated 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 – – – – – 55.4 8,358.3 8,549.5 8,413.7 8,549.5 – – – – – – 2,788.4 1,909.7 4,698.1 2,651.2 1,792.1 4,443.3 24,067.6 22,992.4 133.5 26.3 – 8.9 23.3 – 24,227.5 23,024.6 0.7 – 0.7 – – – – – – – – – – – – – 242.0 428.9 670.9 0.1 37.3 22.5 – 59.9 285.7 888.1 1,173.8 3,031.1 2,338.6 5,369.7 2,936.9 2,680.2 5,617.1 0.1 28.2 18.3 – 46.6 32,426.0 31,541.9 170.8 104.2 – 37.1 41.6 – 32,701.1 31,620.6 193 Financial Report Notes to the consolidated annual financial statements FINANCIAL ASSETS FOR OWN ACCOUNT AND AT OWN RISK CHF million Type of financial asset Equities Equity funds Mixed funds Bond funds Real-estate funds Private equity Hedge funds Financial assets with characteristics of equity Public corporations Industrial enterprises Financial institutions Other Financial assets with characteristics of liabilities Held to maturity Available for sale Recognised at fair value through profit or loss Total Trading portfolio Designated 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 – – – – – – – – – – – – – – – – 7,335.0 24.0 1,034.4 20.3 8,413.7 7,475.8 18.0 1,040.5 15.2 8,549.5 Total 8,413.7 8,549.5 28,925.6 27,467.8 0.7 730.8 1,220.4 38,070.8 37,237.7 Secured financial assets with characteristics of liabilities Public corporations Industrial enterprises Financial institutions Other Total 30.4 – 880.5 – 910.9 27.3 – 975.8 – 1,003.1 Secured financial instruments with characteristics of liabilities are fixed-income securities for which a mortgage or a government bond has been securitised as collateral. 194 4,698.1 4,443.3 0.7 670.9 1,173.8 5,369.7 5,617.1 2,463.0 2,596.1 260.2 149.9 83.8 400.0 640.9 700.3 35.3 145.2 51.6 355.4 587.6 672.0 11,598.9 11,344.6 3,714.2 8,914.2 0.2 4,932.7 6,747.0 0.2 24,227.5 23,024.6 386.2 – 306.3 – 5,805.0 4,369.3 0.2 0.2 6,191.4 4,675.8 – 0.2 0.5 0.0 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 33.4 627.3 10.3 0.0 21.1 38.8 59.9 – – – – – – – – – 1,134.9 – 25.7 13.2 0.0 2,463.0 293.7 777.7 94.1 400.0 640.9 700.3 2,596.1 61.0 1,280.2 64.8 355.4 587.6 672.0 18.1 18,955.1 18,838.6 28.4 3,738.2 9,987.3 20.5 4,950.7 7,815.9 15.4 46.6 32,701.1 31,620.6 416.6 – 333.6 – 6,685.5 5,345.1 0.2 0.2 7,102.3 5,678.9 – – – – – – – – – Financial Report Notes to the consolidated annual financial statements FINANCIAL ASSETS FOR OWN ACCOUNT AND AT OWN RISK CHF million Type of financial asset Equities Equity funds Mixed funds Bond funds Real-estate funds Private equity Hedge funds Public corporations Industrial enterprises Financial institutions Other Total Other Total Public corporations Industrial enterprises Financial institutions Financial assets with characteristics of equity Financial assets with characteristics of liabilities Secured financial assets with characteristics of liabilities Held to maturity Available for sale Recognised at fair value through profit or loss Total Trading portfolio Designated 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2,463.0 2,596.1 260.2 149.9 83.8 400.0 640.9 700.3 35.3 145.2 51.6 355.4 587.6 672.0 4,698.1 4,443.3 11,598.9 11,344.6 3,714.2 8,914.2 0.2 4,932.7 6,747.0 0.2 24,227.5 23,024.6 – 0.2 0.5 0.0 – – – 0.7 – – – – – 8,413.7 8,549.5 28,925.6 27,467.8 0.7 386.2 – 306.3 – 5,805.0 4,369.3 0.2 0.2 6,191.4 4,675.8 – – – – – – – – – – – – – – – – – – – – – – – – – 7,335.0 24.0 1,034.4 20.3 8,413.7 7,475.8 18.0 1,040.5 15.2 8,549.5 30.4 27.3 880.5 975.8 910.9 1,003.1 – – – – – – – – – – – – – – – – – – – – 33.4 627.3 10.3 0.0 – – – 25.7 1,134.9 13.2 0.0 – – 2,463.0 293.7 777.7 94.1 400.0 640.9 700.3 2,596.1 61.0 1,280.2 64.8 355.4 587.6 672.0 670.9 1,173.8 5,369.7 5,617.1 21.1 – 38.8 – 59.9 18.1 – 28.4 – 46.6 18,955.1 18,838.6 3,738.2 9,987.3 20.5 4,950.7 7,815.9 15.4 32,701.1 31,620.6 730.8 1,220.4 38,070.8 37,237.7 – – – – – – – – – – 416.6 – 333.6 – 6,685.5 5,345.1 0.2 0.2 7,102.3 5,678.9 Secured financial instruments with characteristics of liabilities are fixed-income securities for which a mortgage or FAIR VALUE OF FINANCIAL ASSETS CLASSIFIED AS HELD TO MATURIT Y a government bond has been securitised as collateral. CHF million Public corporations Industrial enterprises Financial institutions Other Total Carrying amount Fair value 2014 2015 2014 2015 7,335.0 7,475.8 8,830.2 8,822.3 24.0 18.0 25.6 19.2 1,034.4 1,040.5 1,146.9 1,149.5 20.3 15.2 21.5 16.3 8,413.7 8,549.5 10,024.2 10,007.4 195 Financial Report Notes to the consolidated annual financial statements 13. MORTGAGES AND LOANS CHF million Mortgages and loans carried at cost Mortgages Policy loans Promissory notes and registered bonds Time deposits Employee loans Reverse repurchase agreements Other loans Sub-total Mortgages and loans recognised at fair value through profit or loss Mortgages Policy loans Sub-total Gross amount Impairment Carrying amount Fair value 2014 2015 2014 2015 2014 2015 2014 2015 10,331.1 10,157.1 – 32.7 – 31.2 10,298.4 10,125.9 10,808.3 10,644.2 163.1 5,945.7 140.7 4,382.5 546.6 32.1 – 917.8 28.1 – – – – – – – – – – – 163.1 5,945.7 140.7 4,382.5 175.9 6,872.5 152.6 4,856.1 546.6 32.1 – 917.8 28.1 – 549.0 32.8 – 919.4 28.6 – 356.0 331.4 17,374.6 15,957.5 – 16.0 – 48.7 – 13.7 – 44.9 340.0 317.7 368.2 328.7 17,326.0 15,912.6 18,806.8 16,929.6 839.6 0.3 839.9 743.7 0.3 744.0 – – – – – – 839.6 0.3 839.9 743.7 0.3 744.0 839.6 0.3 839.9 743.7 0.3 744.0 Mortgages and loans 18,214.5 16,701.5 – 48.7 – 44.9 18,165.9 16,656.6 19,646.7 17,673.6 IMPAIRMENT OF MORTGAGES AND LOANS CHF million Balance as at 1 January Usage not recognised in profit or loss Unused provisions reversed through profit or loss Increases and additional provisions recognised in profit or loss Disposal arising from change in scope of consolidation Reclassification Reclassification to non-current assets and disposal groups classified as held for sale Currency translation Balance as at 31 December 2014 2015 – 58.7 – 48.7 6.1 9.3 – 5.4 – – 0.0 0.1 1.3 5.6 – 5.7 – – 0.0 2.5 – 48.7 – 44.9 196 Financial Report Notes to the consolidated annual financial statements 14. DERIVATIVE FINANCIAL INSTRUMENTS CHF million Derivative financial instruments for own account and at own risk Derivative financial instruments for the account and at the risk of life insurance policyholders Fair value assets Fair value liabilities 2014 2015 2014 2015 341.0 272.1 363.2 290.7 176.4 – 250.8 – Derivative financial instruments as reported on the balance sheet 613.2 653.9 176.4 250.8 CHF million Interest-rate instruments Forward contracts Swaps OTC options Other Traded options Traded futures Sub-total Equity instruments Forward contracts OTC options Traded options Traded futures Sub-total Foreign-currency instruments Forward contracts Swaps OTC options Traded options Traded futures Sub-total Total Of which: designated as fair value hedges Of which: designated as cash flow hedges Of which: designated as hedges of a net investment in a foreign operation Contract value Fair value assets Fair value liabilities 2014 2015 2014 2015 2014 2015 – 881.9 1,310.8 0.5 – – – 971.9 1,121.6 0.2 – – – 24.0 192.7 52.1 – – – 63.5 158.2 43.0 – – – 56.4 25.8 8.8 – – – 88.6 13.3 21.2 – – 2,193.2 2,093.6 268.9 264.7 91.1 123.1 – 1,959.7 954.6 – – 2,402.8 607.8 – 2,914.3 3,010.6 517.7 6,900.6 – – 1,050.8 1,149.7 – – – – 1,568.5 8,050.3 – 50.4 13.6 – 64.0 5.0 – 3.1 – – 8.1 – 54.4 11.0 – 65.5 31.5 – 1.5 – – – 5.3 14.0 – 19.3 63.0 – 3.0 – – – 4.9 17.0 – 21.9 104.3 – 1.6 – – 33.1 66.0 105.8 6,675.9 13,154.6 341.0 363.2 176.4 250.8 – – – – 70.0 49.2 – – 1.7 – – 7.2 – – – – 36.9 10.5 The contract value or notional amount is used for derivative financial instruments whose principal may be swapped at maturity (options, futures and currency swaps) and for instruments whose principal is only nominally lent or borrowed (interest-rate swaps). The contract value or notional amount is disclosed in order to express the aggregate amount of derivative transactions in which the Baloise Group is involved. 197 Gross amount Impairment Carrying amount Fair value 2014 2015 2014 2015 2014 2015 2014 2015 21.1 9.9 378.0 566.1 320.0 493.0 965.2 822.9 – – 2.7 – 1.7 – 4.4 – 21.1 9.9 21.1 9.9 – 2.5 – 1.7 375.3 564.5 317.5 491.3 376.3 564.5 318.5 491.3 – 4.2 960.9 818.7 961.9 819.8 2014 2015 – 5.9 1.0 1.9 – 1.4 – – 0.0 – 4.4 – 4.4 0.1 0.9 – 1.1 – 0.0 0.2 – 4.2 Financial Report Notes to the consolidated annual financial statements 15. RECEIVABLES CHF million Receivables carried at cost Receivables from financial contracts Other receivables Receivables from investments Receivables IMPAIRMENT OF RECEIVABLES CHF million Balance as at 1 January Usage not recognised in profit or loss Unused provisions reversed through profit or loss Increases and additional provisions recognised in profit or loss Disposal arising from change in scope of consolidation Reclassification to non-current assets and disposal groups classified as held for sale Currency translation Balance as at 31 December 198 Financial Report Notes to the consolidated annual financial statements 16. REINSURANCE ASSETS CHF million Reinsurers’ share of technical reserves as at 1 January Change in unearned premium reserves Benefits paid Interest on and change in liability Additions / disposals arising from change in scope of consolidation Impairment Reclassification to non-current assets and disposal groups classified as held for sale Exchange differences Reinsurers’ share of technical reserves as at 31 December 17. RECEIVABLES FROM REINSURERS CHF million Reinsurance deposits as at 1 January Additions Disposals Additions / disposals arising from change in scope of consolidation Reclassification to non-current assets and disposal groups classified as held for sale Exchange differences Reinsurance deposits as at 31 December Other reinsurance receivables as at 1 January Additions Disposals Additions / disposals arising from change in scope of consolidation Reclassification to non-current assets and disposal groups classified as held for sale Exchange differences Other reinsurance receivables as at 31 December Impairment of receivables from reinsurers as at 1 January Usage not recognised in profit or loss Unused provisions reversed through profit or loss Increases and additional provisions recognised in profit or loss Disposal arising from change in scope of consolidation Reclassification to non-current assets and disposal groups classified as held for sale Currency translation Impairment of receivables from reinsurers as at 31 December 2014 2015 396.4 1.7 – 128.5 144.4 17.6 – – 4.7 – 5.4 421.5 421.5 1.5 – 75.7 97.0 5.2 – – 1.7 – 36.9 410.8 2014 2015 7.8 0.9 – 0.3 – – – 0.2 8.3 14.2 134.7 – 77.1 – – 0.0 71.8 – 0.3 1.1 0.0 – 1.4 – – 0.0 – 0.5 8.3 1.0 – 0.8 – – – 0.8 7.8 71.8 79.0 – 105.5 – – – 0.8 44.6 – 0.5 – 0.4 0.0 – – 0.0 – 0.1 Receivables from reinsurers as at 31 December 79.7 52.3 199 Financial Report Notes to the consolidated annual financial statements 18. EMPLOYEE BENEFITS 18.1 Receivables and liabilities arising from employee benefits Receivables from employee benefits Liabilities arising from employee benefits 2014 2015 2014 2015 CHF million Type of benefit Short-term employee benefits 1.7 1.1 Post-employment benefits – defined contribution plans Post-employment benefits – defined benefit plans Other long-term employee benefits Termination benefits Total – – – – – – – – 129.5 – 111.7 – 1,280.8 1,200.5 33.5 11.7 30.8 12.7 1.7 1.1 1,455.6 1,355.6 18.2 Post-employment benefits – defined benefit plans The Baloise Group provides a range of pension benefits, which vary from country to country in line with local circumstances. The funded – or partially funded – liabilities relate to the occupational pension provision offered in Switzerland and that of the former Avéro Schadeverzekering Benelux NV. Switzerland has the largest plans. The employer and employee each contribute to these plans; the contributions are used to cover benefits paid in the event of death or invalidity as well as being saved up to fund a pension. The employee has the option of receiving all or part of the accumulated capital as a one-off payment. Some of the benefits granted in this way are governed by binding statutory regulations that are applicable to all Swiss employers and, in particular, stipulate certain minimum benefits. The pensions are the responsibility of separate legal entities (foun- dations) that are run by a committee consisting of employer and employee representatives. In other countries, the benefits are either granted by the employer directly or covered by an insurance policy that, as a rule, is funded by the employer. Directly granted benefits are particularly relevant in Germany, where benefits are agreed between the employer and the employee representatives. The pension benefits on offer also comprise special benefits that the Baloise Group grants to retirees (especially those in Switzerland). These benefits include subsidised mortgages. These benefits and concessions are classified as defined benefit pension obligations under IAS 19. 200 Financial Report Notes to the consolidated annual financial statements 18.2.1 Fair value of plan assets CHF million Balance as at 1 January Interest-rate effect Return on plan assets Employees’ savings and purchases Exchange differences Employer contribution Employee contribution Benefits paid Cash flow between Baloise Group and plan assets (excl. benefits paid to employees and employer contribution) Additions / disposals arising from change in scope of consolidation Reclassification to non-current assets and disposal groups classified as held for sale Gains and losses on plan settlements Balance as at 31 December 18.2.2 Partially funded liabilities under defined benefit plans CHF million Balance as at 1 January Current service cost Interest-rate effect Employees’ savings and purchases Actuarial gains / losses on defined benefit obligations arising from changes in financial assumptions changes in demographic assumptions experience adjustments Exchange differences Unrecognised past service cost Benefits paid Additions / disposals arising from change in scope of consolidation Reclassification to non-current assets and disposal groups classified as held for sale Gains and losses on plan settlements Balance as at 31 December 2014 2015 2,183.0 2,337.4 48.1 120.1 24.1 – 0.2 56.2 29.4 17.7 20.2 32.3 – 1.2 57.4 30.2 – 123.2 – 120.8 – – – – – – – – 2,337.4 2,373.2 2014 2015 – 2,261.1 – 2,721.3 – 73.7 – 53.0 – 24.1 – 438.1 12.0 – 1.1 0.4 – 5.9 123.3 – – – – 90.0 – 20.8 – 32.3 – 33.7 – – 46.0 2.2 – 120.8 – – – – 2,721.3 – 2,821.2 201 Financial Report Notes to the consolidated annual financial statements 18.2.3 Unfunded liabilities under defined benefit plans CHF million Balance as at 1 January Current service cost Interest-rate effect Employees’ savings and purchases Actuarial gains / losses on defined benefit obligations arising from changes in financial assumptions changes in demographic assumptions experience adjustments Exchange differences Unrecognised past service cost Benefits paid Additions / disposals arising from change in scope of consolidation Reclassification to non-current assets and disposal groups classified as held for sale Gains and losses on plan settlements Balance as at 31 December 18.2.4 Net actuarial liabilities under defined benefit plans CHF million Fair value of plan assets Present value of (partially) funded liabilities Present value of unfunded liabilities Effect of the asset ceiling Net actuarial liabilities under defined benefit plans 2014 2015 – 735.6 – 896.9 – 15.1 – 23.1 – – 188.2 – 2.4 – 3.4 14.4 – 1.9 29.2 – 3.3 32.5 – – 16.7 – 12.9 – 1.0 63.7 – 0.4 – 1.4 82.5 – 0.3 27.8 – 0.7 3.8 – – 896.9 – 752.5 2014 2015 2,337.4 2,373.2 – 2,721.3 – 2,821.2 – 896.9 – 752.5 – – – 1,280.8 – 1,200.5 202 Financial Report Notes to the consolidated annual financial statements 18.2.5 Asset allocation CHF million Cash and cash equivalents Real estate Equities and investment funds publicly listed not publicly listed Fixed-interest assets publicly listed not publicly listed Mortgages and loans Derivatives publicly listed not publicly listed Other Fair value of plan assets Of which: Bâloise Holding Ltd shares (fair value) and convertible bonds (fair value) Of which: real estate leased to the Baloise Group The investment funds are mainly fixed-income funds. 18.2.6 Expenses for defined benefit plans recognised in the income statement CHF million Current service cost Net interest cost Unrecognised past service cost Gains and losses on plan settlements Expected return on reimbursement rights Regular employee contribution Total expenses for defined benefit plans recognised in the income statement 2014 2015 108.6 409.4 51.4 430.6 1,289.8 128.2 1,368.2 140.5 99.1 – 288.8 – – 0.8 14.3 98.3 – 292.4 – – 4.0 – 4.1 2,337.4 2,373.2 29.7 – 29.4 – 2014 2015 – 88.9 – 28.1 – 7.8 – – 30.2 – 94.5 – 106.7 – 16.1 – 0.3 – – 30.9 – 92.2 203 Financial Report Notes to the consolidated annual financial statements 18.2.7 Actuarial assumptions Per cent Discount rate Expected wage and salary increases Expected increase in pension benefits Weighted annuity option take-up rate Years Average life expectancy of a 65-year-old woman Average life expectancy of a 65-year-old man 2014 2015 1.0 1.7 0.4 81.4 23.9 21.0 0.9 1.4 0.3 81.3 23.9 21.0 When calculating liabilities and expenses for defined benefit plans, the Baloise Group is required to make actuarial and other assumptions that are determined on a company-by-company and country-by-country basis. The assump- tions shown above are weighted averages. 18.2.8 Sensitivity analysis for liabilities under defined benefit plans Total defined benefit obligation as shown Discount rate plus 1.0 % age points Discount rate minus 1.0 % age points Expected wage and salary increases plus 0.5 % age points Expected wage and salary increases minus 0.5 % age points Expected pension benefits increases plus 0.5 % age points Expected pension benefits increases minus 0.5 % age points Mortality probabilities for 65-year-olds plus 10.0 % age points Mortality probabilities for 65-year-olds minus 10.0 % age points Weighted share of annuity option plus 10.0 % age points 2014 2015 3,618.2 3,573.7 – 446.7 – 431.8 487.0 40.1 – 37.5 203.9 – 39.8 – 90.4 99.4 19.7 413.6 36.0 – 34.1 200.2 – 31.3 – 88.4 96.6 22.7 The Baloise Group determines the sensitivities of liabilities under defined benefit plans by recalculating them using the same models as used for the calculation of the effective value. In this calculation, only one parameter of the base scenario is changed. Possible interaction between individual parameters is not taken into consideration. The effect resulting from various parameters occurring simultaneously may vary from the sum total of individually determined differences. The sensitivity is only calculated for the liability. A possible simultaneous impact on plan assets is not investigated. 204 Financial Report Notes to the consolidated annual financial statements 18.2.9 Funding of plan benefits The plan assets of the Swiss plans are funded jointly by the employer and employee. The amount of individual contributions depends largely on an employee’s remuneration and age. Statutory regulations require employers to contribute a minimum of 50 per cent of the total contributions for part of the insured benefits. 18.2.10 Estimated employer contribution The employer’s contribution for the following year can only be predicted with a limited degree of certainty. The Baloise Group expects to pay employer contributions of approximately CHF 61.9 million for the 2016 financial year. 18.2.11 Maturity profile The maturity profile of liabilities under pension plans differs depending on whether benefits are prospective or current entitlements. For prospective benefit entitlements, the average expected remaining service period is 10.29 years; the average present value factor for current benefit entitlements under pension commitments is 15.83 years. 18.3 Other long-term employee benefits Benefits granted to current employees that are payable twelve months or more after the end of the financial year are accounted for separately and according to specific rules. The accounting policies applied are similar to those used for pension liabilities, except that actuarial gains and losses are recognised in profit or loss. Long-service bonuses constitute the principal benefit paid. The present value of liabilities as at 31 December 2015 totalled CHF 30.8 million (2014: CHF 33.5 million). There were no disposals of plan assets for long-term employee benefits. Benefits paid out amounted to CHF 4.0 million (2014: CHF 4.5 million). 18.4 Share-based payment plans For some time now, the Baloise Group has offered employees and management team members the chance to partici pate in various plans under which shares are granted as part of their overall remuneration packages. The Employee Incentive Plan, the Share Subscription Plan and the Employee Share Ownership Plan are all cash-settled remuner- ation programmes. Performance share units (PSUs) are an equity-settled remuneration programme. In 2015, a sum of CHF 20.8 million (2014: CHF 22.3 million) was recognised as an expense in profit or loss in connection with the following share-based payment plans. 205 Financial Report Notes to the consolidated annual financial statements 18.4.1 Employee Incentive Plan The Baloise Foundation for Employee Participation set up in 1989 offers members of staff working for various Baloise Group companies in Switzerland the opportunity to purchase shares in Bâloise Holding Ltd (usually once a year) at a preferential price in compliance with the regulations adopted by the Board of Foundation. This encourages employees to maintain their commitment to the Company over the long term by becoming shareholders. The sub- scription price is fixed by the Board of Foundation at the beginning of the subscription period and is then published on the intranet. It equals half of the volume-weighted average share price calculated for the month of August in each subscription year. In 2015 the subscription price amounted to CHF 60.40 (2014: CHF 57.30) and a total of 172,796 shares were subscribed (2014: 174,810). Title to the subscribed shares passes to the relevant employees with effect from 1 September each year, and the shares are subject to a three-year closed period. The Foundation acquired the underlying stock of shares used in this plan from previous capital increases carried out by Bâloise Holding Ltd. It supplements these shareholdings by purchasing shares in the market. The existing shareholdings will enable the Foundation to continue the Employee Incentive Plan over the coming years. The Foundation is run by a Board of Foundation that is predominantly independent of the Corporate Executive Committee. The independent Board of Foundation members are Peter Schwager (Chairman) and Professor Heinrich Koller (lawyer); the third member of the Board of Foundation is Andreas Burki (Head of Legal & Tax at Baloise). EMPLOYEE INCENTIVE PLAN Number of shares subscribed Restricted until Subscription price per share (CHF) Value of shares subscribed (CHF million) Fair value of subscribed shares on subscription date (CHF million) Employees entitled to participate Participating employees Subscribed shares per participant (average) 2014 2015 174,810 172,796 31.8.2017 31.08.2018 57.30 10.0 20.9 3,187 1,949 89.7 60.40 10.4 20.5 3,181 1,920 90.0 206 Financial Report Notes to the consolidated annual financial statements 18.4.2 Share Subscription Plan Since January 2003 those who qualify as eligible persons at Baloise Group companies in Switzerland – and, since 2008, the members of the Executive Committees at companies outside Switzerland as well – have been able to subscribe for shares at a preferential price as part of their short-term variable remuneration. The subscription date is 1 March of each year; although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold for the duration of a three-year closed period. The parameters used to determine the subscription price are decided each year by the Remuneration Committee. The subscription price is based on the closing price on the first day of the subscription period, on which a discount of 10 per cent is granted. Once it has been calculated using this method, the subscription price is published in advance on the intranet. The shares needed for the Share Subscription Plan are purchased in the market as and when required. SHARE SUBSCRIPTION PLAN (SSP) Number of shares subscribed Restricted until 1 Subscription price per share (CHF) Value of shares subscribed (CHF million) Fair value of subscribed shares on subscription date (CHF million) Employees entitled to participate Participating employees SSP portion of variable remuneration 2014 46,688 2015 38,386 28.2.2017 28.02.2018 102.78 114.75 4.8 5.3 889 100 16 % 4.4 4.8 908 85 15 % 1 The closed period during which shares are allocated to the Chairman of the Board of Directors is five years instead of three. This means that the shares are restricted until 28 February 2019 and 29 February 2020 respectively. 207 Financial Report Notes to the consolidated annual financial statements 18.4.3 Employee Share Ownership Plan Since May 2001 it has been possible for most management team members working in Switzerland to receive part of their short-term variable remuneration in the form of shares from the Employee Share Ownership Plan instead of receiving cash. Within certain limits they are free to choose what proportion of their short-term variable remuner- ation they receive in the form of such shares. The most senior management team members are subject to upper limits; members of the Corporate Executive Committee – who are obliged to receive at least half of their short-term variable remuneration in the form of shares – are not allowed to receive more than 40 per cent of their entitlement in the form of shares from the Employee Share Ownership Plan. The subscription date is 1 March of each year (the same as for the Share Subscription Plan); although title to the shares passes to the relevant employees on this date without any further vesting conditions having to be met, the shares cannot be sold for the duration of a three-year closed period. The parameters used to determine the subscription price are decided each year by the Remuneration Committee. The subscription price is based on the closing price on the first day of the subscription period, from which discounted dividend rights are deducted over a period of three years. Once it has been calculated using this method, the subscription price is published in advance on the intranet. The shares needed for the Employee Share Ownership Plan are purchased in the market as and when required. In order to increase the impact of this Employee Share Ownership Plan, employees are granted loans on which interest is charged at market rates, which enables them to subscribe for shares whose value constitutes a multiple of the capital invested; these shares are purchased at their fair value net of discounted dividend rights over a period of three years. Repayment of these loans after the three-year closed period has elapsed is hedged by put options, which are financed by the sale of offsetting call options. If the price of the shares is below the put options’ strike price when the closed period expires, programme participants can sell all their shares at this strike price, which ensures that they can repay their loans plus interest. In this event, however, they lose all the capital that they have invested. If, on the other hand, the price of the shares is above the call options’ strike price, programme participants must pay the commercial value of these options. Their upside profit potential is thus limited by the call options. If, when the three-year closed period elapses, the price of the shares is between the put options’ strike price and the call options’ strike price, once the loans plus accrued interest have been repaid the employees concerned receive the remaining shares to do with as they wish. EMPLOYEE SHARE OWNERSHIP PLAN (ESOP) Number of shares subscribed 1 Restricted until Subscription price per share 2 (CHF) Value of shares subscribed 2 (CHF million) Fair value of subscribed shares on subscription date (CHF million) Employees entitled to participate Participating employees ESOP portion of variable remuneration 1 Including shares financed by loans. 2 Net of the discounted dividend right over three years. 208 2014 94,389 2015 79,817 28.2.2017 28.02.2018 100.87 112.70 9.5 10.7 889 88 5 % 9.0 9.9 908 69 5 % Financial Report Notes to the consolidated annual financial statements 18.4.4 Performance share units At the beginning of each vesting period the participating employees are granted rights in the form of PSUs, which entitle them to receive a certain number of shares free of charge after the vesting period has elapsed. The Remuner- ation Committee specifies the grant date and applies its own discretion in deciding which of the most senior management team members are eligible for the programme. It determines the total number of PSUs available and decides how many are to be awarded to each member of the Corporate Executive Committee. PSUs are granted to the other programme participants on the basis of the relevant line manager’s proposal, which must be approved by the line manager’s manager. The number of shares that can be subscribed after three years – i.e. at the end of the vesting period – depends on the performance of Baloise shares relative to a peer group. This comparative performance multiplier can be anywhere between 0.5 and 1.5. The peer group comprises the roughly 40 leading European insurance companies contained in the STOXX Europe 600 Insurance Index. Companies in the STOXX 600 Europe Insurance Index (as at 31 December 2015) Admiral Group plc Direct Line Insurance Group Phoenix Group Holding Unipol Gruppo Finanziario Aegon NV Ageas Allianz Amlin plc Gjensidige Forsikring Prudential plc Unipolsai Hannover Rück RSA Insurance Group Zurich Insurance Group Helvetia Hiscox Sampo OYJ Scor Assicurazioni Generali Lancashire Holdings Standard Life plc Aviva plc Axa Bâloise Holding Beazly CNP Assurances Legal & General Group plc St. James’s Place Capital Mapfre SA Münchener Rück NN Group Old Mutual plc Swiss Life Swiss Re Topdanmark A / S Tryg Forsikring Source: http://www.stoxx.com/indices/index_information.html?symbol=SXIP One PSU generally confers the right to receive one share. This is the case if Baloise shares perform in line with the median of their peer group. In this case the performance multiplier would be 1.0. Programme participants receive more shares in exchange for their PSUs if Baloise shares outperform their peer group. The multiplier reaches the maximum of 1.5 if the performance of Baloise shares is in the top quartile of companies in the peer group. The multiplier amounts to 0.5 if the performance of Baloise shares is in the bottom quartile of companies in the peer group. If the performance of Baloise shares is in either of the two middle quartiles, a linear scale is used to calculate the performance multiplier. The performance multiplier for the entire vesting period ended is based on the closing stock market prices on the final trading day of the respective vesting period. 209 Financial Report Notes to the consolidated annual financial statements Participants receive the pertinent number of shares once the vesting period has elapsed, which means that for the PSUs allocated in 2015 they receive their shares on 1 March 2018. If an individual’s employment contract is terminated during the vesting period, the PSUs expire without the person concerned receiving any consideration or compen- sation. This does not apply if the employment contract ends due to retirement, disability or death. It also does not apply if the contract is terminated but the programme participant does not join a rival company or is not personally at fault for the termination of the contract. In the latter two cases, some of the allocated PSUs will still expire. The number of PSUs expiring is proportional to the amount of time remaining until the end of the vesting period. In addition, the Remuneration Committee has the powers to claw back some or all of the PSUs allocated to an individual or to a group of programme participants if there are specific reasons for doing so. Such specific reasons include, for example, serious breaches of internal or external regulations, the taking of inappropriate risks that are within an individual’s control, and the type of conduct or behaviour that would increase the risks to Baloise. The shares needed to convert the PSUs are purchased in the market as and when required. The value of PSUs is exposed to market risk until the end of the vesting period and may, of course, fluctuate significantly, as shown in the table below: PERFORMANCE SHARE UNIT (PSU) PLAN 2007 2008 2009 2010 2011 2012 2013 2014 2015 PSUs granted PSUs converted Change in value Date Price (CHF) 1 Date Multiplier Price (CHF) 1 Value (CHF) 2 01.03.2007 01.01.2008 01.01.2009 01.01.2010 01.01.2011 01.03.2012 01.03.2013 01.03.2014 01.03.2015 125.80 109.50 82.40 86.05 91.00 71.20 84.50 113.40 124.00 01.01.2010 01.01.2011 01.01.2012 01.01.2013 01.01.2014 01.03.2015 01.03.2016 01.03.2017 01.03.2018 1.182 1.24 0.64 0.58 0.77 1.21 4 1.23 4 0.90 4 1.05 86.05 91.00 64.40 78.50 113.60 124.00 4 127.60 4 127.60 4 127.60 101.71 112.84 41.22 45.53 87.47 150.04 4 156.95 4 114.84 4 133.98 3 – 19 % 3 % – 50 % – 47 % – 4 % 111 % 4 86 % 4 1 % 4 8 % 1 Price = price of Baloise shares at the PSU grant date or conversion date. 2 Value = value of one PSU at the conversion date (share price at the conversion date times the multiplier). 3 Change in value = difference between the value at the conversion date (multiplier times the share price at the conversion date) and the share price at the grant date, expressed as a percentage of the share price at the grant date; example of the PSU plan in 2007: ([{1.182 * 86.05} – 125.80] / 125.80) * 100 = – 19 %. 4 Interim measurement as at 31 December 2015. 210 Financial Report Notes to the consolidated annual financial statements Measurement of the PSUs at their issue date is based on a Monte Carlo simulation, which calculates a present value for the payout expected at the end of the vesting period. This measurement incorporates the following parameters: → interest rate of 1 per cent; → the volatilities of all shares in the peer group and their correlations with each other (measured over a three-year track record); → the expected dividend yields; → empirical data on how long eligible programme participants remain with the Company. PERFORMANCE SHARE UNITS (PSU) Employees entitled to participate at launch of programme Number of allocated PSUs Of which: expired (departures in 2013) Number of active PSUs as at 31 December 2013 Of which: expired (departures in 2014) Number of active PSUs as at 31 December 2014 Of which: expired (departures in 2015) Number of active PSUs as at 31 December 2015 Value of allocated PSUs on issue date (CHF million) PSU expense incurred by the Baloise Group for 2013 (CHF million) PSU expense incurred by the Baloise Group for 2014 (CHF million) PSU expense incurred by the Baloise Group for 2015 (CHF million) 2013 plan 2014 plan 2015 plan 69 72,600 – 1,859 70,741 – 5,026 65,715 – 2,339 63,376 5.6 1.2 1.6 1.7 65 62 49,144 42,162 – – – 2,308 46,836 – 1,129 45,707 5.6 – 1.3 1.9 – – – – 0 42,162 5.1 – – 1.4 211 Financial Report Notes to the consolidated annual financial statements 19. DEFERRED INCOME TAXES 19.1 Deferred tax assets and liabilities DEFERRED TA X ASSETS 2014 CHF million Technical reserves Financial assets Insurance liabilities Other investments Insurance receivables Unrealised losses recognised directly in equity Tax losses carried forward Liabilities arising from banking business and financial contracts Liabilities arising from employee benefits Other Total 2015 CHF million Technical reserves Financial assets Insurance liabilities Other investments Insurance receivables Unrealised losses recognised directly in equity Tax losses carried forward Liabilities arising from banking business and financial contracts Liabilities arising from employee benefits Other Total 212 Carrying amount as at 1 January Change recognised in profit or loss Change recognised directly in equity Carrying amount as at 31 December 416.0 31.3 515.1 38.7 1.2 26.9 36.5 117.8 78.1 57.7 1,319.2 44.1 14.5 86.1 – 22.2 4.3 – 7.0 38.7 – 1.5 – 7.6 163.4 – – – – – 92.7 – – – – 460.1 45.8 601.2 16.5 5.5 119.6 43.5 156.4 76.6 50.1 92.7 1,575.3 Carrying amount as at 1 January Change recognised in profit or loss Change recognised directly in equity Carrying amount as at 31 December 460.1 45.8 601.2 16.5 5.5 119.6 43.5 156.4 76.6 50.1 1,575.3 4.0 – 14.2 52.4 2.5 1.6 – 13.0 – 30.9 – 7.6 – 3.3 – 8.5 – 0.8 464.1 31.6 653.6 19.0 7.1 118.8 30.6 125.5 69.0 46.8 – 0.8 1,566.0 Financial Report Notes to the consolidated annual financial statements DEFERRED TA X LIABILITIES 2014 CHF million Deferred acquisition costs Technical reserves Unrealised gains recognised directly in equity Investment property Depreciable assets Other intangible assets Financial assets Other investments Insurance receivables Long-term equity investments Other Total 2015 CHF million Deferred acquisition costs Technical reserves Unrealised gains recognised directly in equity Investment property Depreciable assets Other intangible assets Financial assets Other investments Insurance receivables Long-term equity investments Other Total Carrying amount as at 1 January Change recognised in profit or loss Change recognised directly in equity Carrying amount as at 31 December 230.1 1,074.4 221.7 329.9 4.1 14.9 54.9 46.9 7.2 100.9 60.5 2,145.4 – 15.2 143.4 – 22.7 0.0 – 10.0 48.4 42.7 – 6.0 – 35.0 10.1 201.0 – – 246.1 – – – – – – – – 215.0 1,217.8 467.8 352.5 4.0 4.9 103.3 89.6 1.2 65.9 70.6 246.1 2,592.5 Carrying amount as at 1 January Change recognised in profit or loss Change recognised directly in equity Carrying amount as at 31 December 215.0 1,217.8 467.8 352.5 4.0 4.9 103.3 89.6 1.2 65.9 70.6 2,592.5 – 22.9 55.9 – 19.5 – 0.5 – 1.6 8.8 – 1.1 0.2 – 11.5 0.1 7.9 – 162.5 192.0 1,273.7 305.3 333.0 3.6 3.3 112.1 88.5 1.5 54.4 70.6 – 162.5 2,437.9 The Baloise Group reports its deferred taxes on a net basis. Deferred tax assets and liabilities are offset against each other in cases where the criteria for such offsetting have been met. This is usually the case if the tax jurisdiction, the taxable entity and the type of taxation are identical. 213 Financial Report Notes to the consolidated annual financial statements The Baloise Group had recognised deferred tax assets on tax loss carryforwards totalling CHF 130.4 million as at 31 December 2015 (2014: CHF 172.1 million). Of this total, CHF 0.1 million will expire after one year, 0.2 million after two to four years and CHF 130.1 million will expire after five years or more. No deferred tax assets had been recognised on tax loss carryforwards amounting to CHF 238.2 million as at 31 December 2015 (2014: CHF 291.2 million) because the relevant offsetting criteria had not been met. Of this total, CHF 3.3 million will expire after one year, a further CHF 27.0 million will expire after two to four years and CHF 208.0 million will expire after five years or more. 19.2 Deferred income taxes CHF million Deferred tax assets Deferred tax liabilities Total (net) Of which: recognised as deferred tax assets Of which: recognised as deferred tax liabilities 2014 2015 1,575.3 1,566.0 – 2,592.5 – 2,437.9 – 1,017.3 48.3 – 1,065.5 – 871.9 41.4 – 913.3 20. OTHER ASSETS “Other assets” include the fair value of precious metals amounting to CHF 40.2 million in connection with private placement life insurance (2014: CHF 53.3 million). The insurance policyholder bears the price risk attaching to these precious metal holdings. 214 Financial Report Notes to the consolidated annual financial statements 21. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS The sale to the Frankfurter Leben Group of the portfolio of life insurance policies, which had been in run-off since the end of 2011, held by the German branch of Baloise Life Ltd (Basler Leben DfD [Direktion für Deutschland]) was formally completed on 16 September 2015. The portfolio that had been held for sale, and the associated assets and liabilities, have been treated as a disposal group in accordance with IFRS 5. CHF million Property, plant and equipment Intangible assets Investment property Financial assets Other investments Receivables Other assets Total assets Technical reserves Liabilities arising from banking business and financial contracts Other financial obligations Other liabilities Total equity and liabilities Unrealised losses directly associated with non-current assets and disposal groups classified as held for sale Disposal groups Non-current assets 31.12.2014 31.12.2015 31.12.2014 31.12.2015 – – – – – – – – – – – – – – – 17.6 – 1,963.1 – 30.3 7.7 2,018.7 1,938.8 – 15.0 9.0 1,962.9 – 3.2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 215 Financial Report Notes to the consolidated annual financial statements 22. SHARE CAPITAL Balance as at 1 January 2014 Purchase / sale of treasury shares Capital increases Share buy-back and cancellation Balance as at 31 December 2014 Balance as at 1 January 2015 Purchase / sale of treasury shares Capital increases Share buy-back and cancellation Balance as at 31 December 2015 Number of treasury shares Number of shares in circulation Number of shares issued Share capital (CHF million) 3,028,943 46,971,057 50,000,000 19,848 – 19,848 – – – – – – – 3,048,791 46,951,209 50,000,000 5.0 – – – 5.0 Number of treasury shares Number of shares in circulation Number of shares issued Share capital (CHF million) 3,048,791 46,951,209 50,000,000 415,749 – 415,749 – – – – – – – 3,464,540 46,535,460 50,000,000 5.0 – – – 5.0 The share capital of Bâloise Holding totals CHF 5.0 million and is divided into 50,000,000 registered, fully paid-up registered shares with a par value of CHF 0.10 each (2014: CHF 0.10). As far as individuals, legal entities, and partner ships are concerned, entry in the share register with voting rights is limited to 2 per cent of the registered share capital entered in the commercial register. The Baloise Group buys and sells its own shares as part of its ordinary investing activities and for employee share ownership programmes. The Annual General Meeting held on 30 April 2015 voted to pay a gross dividend of CHF 5.00 per share for the 2014 financial year. This amounted to a total dividend distribution of CHF 250.0 million. Excluding the treasury shares held by Bâloise Holding at the time that the dividend was paid, the total distribution effectively amounted to CHF 234.7 million. As part of the share buy-back programme that has been running since 16 April 2015, a total of 507,500 shares in Bâloise Holding had been repurchased for a total of CHF 59.1 million by the reporting date (31 December 2015). 216 Financial Report Notes to the consolidated annual financial statements 23. TECHNICAL RESERVES (GROSS) CHF million Unearned premium reserves (gross) Claims reserve (gross) Other technical reserves Technical reserves (non-life) Actuarial reserves (gross) Policyholders’ dividends credited and provisions for future policyholders’ dividends (gross) Technical reserves (life) Technical reserves (gross) 23.1 Technical reserves (non-life) 2014 2015 605.8 5,517.6 89.5 562.7 5,306.7 77.6 6,212.8 5,947.0 38,399.1 36,331.9 4,126.9 3,486.9 42,526.1 39,818.8 48,738.9 45,765.8 CHF million Unearned premium reserves Claims reserve Provision for claims handling costs Gross Reinsurance assets Gross Reinsurance assets Net 2014 605.8 4,955.0 562.6 4.0 609.8 – – – – 562.7 4,777.6 529.1 2.0 – – Net 2015 564.8 – – Claims reserve 5,517.6 – 400.5 5,117.1 5,306.7 – 389.6 4,917.1 Other technical reserves 89.5 – 0.1 89.4 77.6 – 0.1 77.5 Total technical reserves (non-life) 6,212.8 – 396.6 5,816.3 5,947.0 – 387.6 5,559.4 217 Financial Report Notes to the consolidated annual financial statements 23.1.1 Maturity structure of technical reserves CHF million Unearned premium reserves Up to 1 year More than 1 year No determinable residual term Total unearned premium reserves Claims reserve Up to 1 year More than 1 year No determinable residual term Total claims reserve Gross Reinsurance assets 569.1 10.8 25.9 605.8 3.5 0.5 – 4.0 Net 2014 572.6 11.3 25.9 609.8 Gross Reinsurance assets 528.6 9.6 24.5 562.7 1.6 0.4 – 2.0 Net 2015 530.3 10.0 24.5 564.8 1,046.4 3,298.8 1,172.4 5,517.6 – 42.0 – 78.9 – 279.6 – 400.5 1,004.4 3,219.9 892.8 5,117.1 867.3 3,233.7 1,205.7 5,306.7 – 47.6 – 79.6 – 262.4 – 389.6 819.7 3,154.1 943.3 4,917.1 All figures relating to maturities are based on best estimates. The line item “No determinable residual term” mainly comprises old-age health insurance reserves and annuity reserve funds. 23.1.2 Unearned premium reserves CHF million Balance as at 1 January Netted premiums Less: premiums earned during the reporting period Additions arising from acquisition of policy portfolios and insurance companies Disposals arising from sale of policy portfolios and insurance companies Reclassification to non-current assets and disposal groups classified as held for sale Exchange differences Balance as at 31 December Gross Reinsurance assets Gross Reinsurance assets Net 2014 617.6 6.1 623.7 605.8 4.0 3,358.8 – 145.0 3,213.8 3,050.0 – 131.1 Net 2015 609.8 2,918.9 – 3,351.3 143.3 – 3,208.0 – 3,048.9 129.5 – 2,919.4 8.5 – 0.1 8.4 1.8 – 0.2 1.7 – – – – 18.2 – 0.3 – 18.5 – – – – – – – 9.7 605.8 – 0.1 4.0 – 9.7 609.8 – 45.9 562.7 – 0.3 2.0 – 46.2 564.8 Apart from the actual unearned premium reserves, this item includes health insurance reserves for old age and deferred unearned premiums. 218 Financial Report Notes to the consolidated annual financial statements 23.1.3 Other technical reserves CHF million Balance as at 1 January Less: expenditures during the reporting period Additional provisions recognised and unused provisions reversed through profit or loss Additions arising from acquisition of policy portfolios and insurance companies Disposals arising from sale of policy portfolios and insurance companies Reclassification to non-current assets and disposal groups classified as held for sale Exchange differences Balance as at 31 December Gross Reinsurance assets 97.1 – 22.3 – 0.1 0.1 Net 2014 97.0 – 22.1 Gross Reinsurance assets 89.5 – 18.4 – 0.1 0.0 Net 2015 89.4 – 18.3 14.9 – 0.1 14.8 7.7 0.0 7.7 0.0 – – – 0.3 89.5 – – – – – 0.1 0.0 – – – – – – 0.3 89.4 – 1.3 77.6 – – – – – 0.1 – – – – 1.3 77.5 219 Financial Report Notes to the consolidated annual financial statements 23.1.4 Claims reserve (including claims handling costs) CHF million Balance as at 1 January (gross) Reinsurers’ share Balance as at 1 January (net) Claims incurred (including claims handling costs) For the reporting period For previous years Total Payments for claims and claims handling costs For the reporting period For previous years Total Other changes Additions / disposals arising from changes in scope of consolidation Reclassification to non-current assets and disposal groups classified as held for sale Exchange differences Total Balance as at 31 December (net) Reinsurers’ share Balance as at 31 December (gross) 2014 2015 5,527.7 – 379.4 5,148.3 5,517.6 – 400.5 5,117.1 2,014.7 – 36.2 1,835.6 – 23.5 1,978.5 1,812.0 – 914.1 – 1,016.0 – 860.1 – 923.3 – 1,930.1 – 1,783.3 50.5 – 92.6 – 37.6 – 79.7 5.9 – – 234.6 – 228.7 5,117.1 4,917.1 400.5 389.6 5,517.6 5,306.7 The Baloise Group pays particular attention to cases of environmental pollution involving landfill sites, refuse, asbestos or any other materials harmful to human beings or the environment. The relevant net reserves included in the total amounted to CHF 84.7 million at the end of 2015 (2014: CHF 90.4 million). The slight decrease was attributable to commutations of reserves and currency effects. 220 Financial Report Notes to the consolidated annual financial statements 23.2 Technical reserves (life) CHF million Actuarial reserves from non-unit-linked life insurance contracts 1 Actuarial reserves from unit-linked life insurance contracts Reserves for final policyholders’ dividends Unearned revenue reserve Structure of actuarial reserves (life) Policyholders’ dividends credited and provisions for future policyholders’ dividends Total technical reserves (life) 1 The actuarial reserves include unearned premium reserves and claims reserves. 2014 2015 35,087.6 33,159.2 2,678.3 2,622.7 274.1 359.1 201.5 348.5 38,399.1 36,331.9 4,126.9 3,486.9 42,526.1 39,818.8 221 Financial Report Notes to the consolidated annual financial statements 23.2.1 Maturity structure of technical reserves CHF million Actuarial reserves from non-unit-linked life insurance contracts Up to 1 year 1 to 5 years 5 to 10 years More than 10 years No determinable residual term Business from Swiss occupational pension plans 1 Total actuarial reserves from non-unit-linked life insurance contracts Actuarial reserves from unit-linked life insurance contracts Up to 1 year 1 to 5 years 5 to 10 years More than 10 years No determinable residual term Total actuarial reserves from unit-linked life insurance contracts Policyholders’ dividends credited Up to 1 year 1 to 5 years 5 to 10 years More than 10 years No determinable residual term Total policyholders’ dividends credited Provisions for future policyholders’ dividends Up to 1 year No determinable residual term Total provisions for future policyholders’ dividends 2014 2015 1,131.8 3,849.9 3,712.8 7,060.3 8,838.4 1,004.5 3,275.0 3,265.1 6,316.7 8,111.6 10,494.5 11,186.4 35,087.6 33,159.2 66.6 282.5 376.1 396.0 1,557.1 2,678.3 102.7 354.2 314.4 462.0 279.9 66.4 260.1 405.5 366.7 1,524.0 2,622.7 63.8 257.5 220.8 329.1 239.8 1,513.2 1,111.0 119.5 2,494.2 2,613.7 79.7 2,296.2 2,375.9 1 The Swiss pensions business is disclosed separately owing to its specific features. It comprises group contracts which may be cancelled annually by either party, whereas the coverage period for the individuals enrolled is significantly longer. All figures relating to maturities are based on the residual terms of contracts. The line item “No determinable residual term” mainly comprises deferred and current annuities. 222 Financial Report Notes to the consolidated annual financial statements 23.2.2 Actuarial reserves from non-unit-linked life insurance contracts CHF million Balance as at 1 January Change in actuarial reserves Additions arising from acquisition of policy portfolios and insurance companies Disposals arising from sale of policy portfolios and insurance companies Reclassification to non-current assets and disposal groups classified as held for sale Exchange differences Balance as at 31 December 2014 2015 34,592.4 35,087.6 757.1 151.4 – – 195.0 – 218.4 686.5 – – – 1,462.8 – 1,152.0 35,087.6 33,159.2 The actuarial reserves include unearned premium reserves and claims reserves. The actuarial reserves for DPF business as at 31 December 2015 amounted to CHF 32,876.1 million (31 December 2014: CHF 34,788.4 million), while for non-DPF business they totalled CHF 283.1 million (31 December 2014: CHF 299.2 million). The actuarial reserves for assumed business (inward reinsurance) as at 31 December 2015 came to CHF 7.6 million (31 December 2014: CHF 7.4 million). 23.2.3 Actuarial reserves from unit-linked life insurance contracts CHF million Balance as at 1 January Additions Disposals Fees Interest on and change in liabilities Additions arising from acquisition of policy portfolios and insurance companies Disposals arising from sale of policy portfolios and insurance companies Reclassification to non-current assets and disposal groups classified as held for sale Exchange differences Balance as at 31 December 2014 2015 2,521.0 320.3 – 243.0 – 4.9 235.6 0.0 – – 113.2 – 37.5 2,678.3 2,678.3 266.6 – 189.0 – 4.6 79.0 – – – 13.2 – 194.5 2,622.7 223 Financial Report Notes to the consolidated annual financial statements 23.2.4 Reserve for final policyholders’ dividends CHF million Balance as at 1 January Adjustment arising from unrealised gains and losses as at 1 January (shadow accounting) Interest on and change in liability Final policyholders’ dividends paid Additions arising from acquisition of policy portfolios and insurance companies Disposals arising from sale of policy portfolios and insurance companies Reclassification to non-current assets and disposal groups classified as held for sale Adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) Exchange differences Balance as at 31 December 2014 2015 270.2 – 9.5 36.1 – 30.2 – – – 0.1 11.5 – 4.0 274.1 274.1 – 11.5 10.0 – 26.7 – – – 31.2 8.0 – 21.2 201.5 Final policyholders’ dividends, which are only paid upon contract expiry, are funded and accrued over the duration of the policy in proportion to the profits attributable to the contract. 23.2.5 Unearned revenue reserve CHF million Balance as at 1 January Reserved during the reporting period Change in balance Change due to unrealised gains and losses on investments (shadow accounting) Additions arising from acquisition of policy portfolios and insurance companies Disposals arising from sale of policy portfolios and insurance companies Reclassification to non-current assets and disposal groups classified as held for sale Exchange differences Balance as at 31 December 2014 2015 338.3 30.8 9.8 – 0.6 – – – 12.6 – 6.5 359.1 359.1 26.5 – 0.9 – 0.2 – – – 2.2 – 33.8 348.5 224 Financial Report Notes to the consolidated annual financial statements 23.2.6 Policyholders’ dividends credited and reserves for future policyholders’ dividends CHF million Policyholders’ dividends credited as at 1 January Dividends credited to policyholders during the reporting period Policyholders’ dividends paid Additions arising from acquisition of policy portfolios and insurance companies Disposals arising from sale of policy portfolios and insurance companies Reclassification to non-current assets and disposal groups classified as held for sale Exchange differences Balance as at 31 December Provisions for future policyholders’ dividends as at 1 January Adjustment arising from unrealised gains and losses as at 1 January Additions Withdrawals Change in measurement differences between IFRS and national accounting standards recognised in profit or loss 2014 2015 1,658.9 1,513.2 79.7 66.3 – 185.2 – 155.1 – – – 18.1 – 22.2 1,513.2 1,812.5 – 452.9 152.9 – 175.3 226.3 – – – 199.3 – 114.0 1,111.0 2,613.7 – 1,067.6 101.3 – 128.8 338.0 Adjustment arising from unrealised gains and losses as at 31 December (shadow accounting) 1,067.6 722.2 Additions arising from acquisition of policy portfolios and insurance companies Disposals arising from sale of policy portfolios and insurance companies Reclassification to non-current assets and disposal groups classified as held for sale Exchange differences Balance as at 31 December Policyholders’ dividends credited and provisions for future policyholders’ dividends as at 31 December 0.1 – – 4.1 – 13.4 2,613.7 – – – 127.6 – 75.4 2,375.9 4,126.9 3,486.9 225 Financial Report Notes to the consolidated annual financial statements 24. LIABILITIES ARISING FROM BANKING BUSINESS AND FINANCIAL CONTRACTS CHF million With discretionary participation features (DPFs) Financial contracts with discretionary participation features (DPFs) 1 Sub-total Measured at amortised cost Liabilities to banks Repurchase agreements Liabilities arising from time deposits Loans Mortgages Savings and customer deposits Medium-term bonds Mortgage-backed bonds Bonds Liability for future financial lease payments (present value) Other financial contracts Sub-total Recognised at fair value through profit or loss (designated) Other financial contracts Sub-total Carrying amount Fair value 2014 2015 2014 2015 1,766.5 1,766.5 1,930.1 1,930.1 – – – – 157.9 150.0 17.2 – – 5,335.1 250.2 1,221.6 99.9 86.4 23.7 287.7 975.0 8.1 – – 5,375.1 190.7 1,425.4 – 0.0 37.2 158.0 150.0 17.3 – – 5,368.2 276.0 1,305.9 103.1 86.4 23.7 287.8 975.0 8.2 – – 5,437.0 197.6 1,541.1 – 0.0 37.4 7,342.0 8,299.2 7,488.7 8,484.0 8,632.3 8,632.3 8,782.8 8,782.8 8,632.3 8,632.3 8,782.8 8,782.8 Total liabilities arising from banking business and financial contracts 17,740.8 19,012.0 – – 1 There are currently no internationally accepted mathematical methods available for determining the fair value of financial contracts with discretionary participation features (DPFs). Savings deposits and customer deposits essentially consist of savings accounts, business accounts and deposit accounts held by Swiss banking clients. The mortgage-backed bonds reported have all been issued by Pfandbriefbank schweizerischer Hypothekarinstitute AG. The other financial contracts designated as at fair value through profit or loss largely relate to the life insurance liability arising from investment-linked life insurance contracts involving little or no transfer of risk. The year-on-year change in this liability consists entirely of the funds flowing into and out of the pertinent investment portfolio, the latter’s market-related price fluctuations and exchange-rate movements. The bond of Baloise Bank SoBa amounting to CHF 100 million (3.00 per cent, 2007 – 2015, ISIN CH0030870445) was repaid on 12 June 2015. 226 Financial Report Notes to the consolidated annual financial statements 25. RECONCILIATION BETWEEN THE GROSS INVESTMENT IN FINANCIAL LEASES AND THE PRESENT VALUE OF MINIMUM LEASE PAYMENTS CHF million Lease term < 1 year Lease term 1 to 5 years Lease term > 5 years Total minimum lease payments Future borrowing costs Total liability for future financial lease payments (present value) 2014 2015 0.0 86.7 – 86.7 – 0.2 86.4 0.0 – – 0.0 – 0.0 227 Financial Report Notes to the consolidated annual financial statements 26. FINANCIAL LIABILITIES SENIOR DEBT CHF million Balance as at 1 January Issue price of newly issued bonds Embedded derivative Additions (sub-total) Disposals / repayments / conversions Interest expenses Nominal interest rate Interest costs (sub-total) Balance as at 31 December 2014 2015 1,697.6 149.4 – 149.4 – 150.0 43.5 – 38.0 5.4 1,702.4 – – – 0.0 40.0 – 34.6 5.4 1,702.4 1,707.8 No new bonds were issued in the year under review and no bonds were redeemed. The fair value of financial liabilities at the balance sheet date totalled CHF 1,864.2 million (2014: CHF 1,875.8 million). TERMS & CONDITIONS GOVERNING SENIOR DEBT OUTSTANDING Issuer Bâloise Holding Bâloise Holding Bâloise Holding Bâloise Holding Bâloise Holding Bâloise Holding Bâloise Holding Bâloise Holding Type of bond Face value (CHF million) Interest rate Early redemption date Repayment Issued Repayment ISIN Convertible bond Senior bond Senior bond Senior bond Senior bond Senior bond Senior bond Senior bond 242.5 300 250 175 225 150 225 150 1.500 % 2.875 % 3.000 % 2.250 % 1.000 % 2.000 % 1.750 % 1.125 % on or after 8.12.2014 100 % 2009 – – – – – – – 100 % 2010 100 % 2011 100 % 2012 100 % 2012 100 % 2012 100 % 2013 100 % 2014 17.11.2016 14.10.2020 07.07.2021 01.03.2019 12.10.2017 12.10.2022 26.4.2023 19.12.2024 CH0107130822 CH0117683794 CH0131804616 CH0148295014 CH0188295536 CH0194695083 CH0200044821 CH0261399064 228 Financial Report Notes to the consolidated annual financial statements 27. PROVISIONS CHF million Balance as at 1 January Addition arising from change in scope of consolidation Disposal arising from change in scope of consolidation Reclassification to non-current assets and disposal groups classified as held for sale Increases and additional provisions recognised in profit or loss Unused provisions reversed through profit or loss Usage not recognised in profit or loss Unwinding of discount Exchange differences Balance as at 31 December Restructuring Other Total Restructuring Other 22.7 – – – 106.7 0.4 – – 2014 129.4 0.4 – – 34.3 – – – 85.0 1.1 – – Total 2015 119.3 1.1 – – 22.0 67.7 89.7 5.0 15.5 20.5 – 0.2 – 11.3 – 11.6 – 1.5 – 8.9 – 10.4 – 9.6 0.0 – 0.5 34.3 – 78.0 – – 0.6 85.0 – 87.6 0.0 – 1.1 119.3 – 16.0 – 13.3 – 29.3 0.0 – 3.5 18.4 – – 2.9 76.4 0.0 – 6.4 94.8 The balance shown for other provisions includes the usual amounts for legal advice and litigation risks. Other pro- visions utilised but not recognised in profit or loss are primarily attributable to Baloise’s Belgian and Swiss entities. The recognition of restructuring provisions in profit or loss largely relates to the German entities. Other provisions recognised in profit or loss were primarily attributable to Baloise’s German entities and those utilised but not recognised in profit or loss were primarily attributable to its Swiss entities. 28. INSURANCE LIABILITIES CHF million Liabilities to policyholders Liabilities to brokers and agents Liabilities to insurance companies Other insurance liabilities Total insurance liabilities 2014 2015 1,458.9 1,329.2 122.9 176.4 22.1 117.9 182.8 20.6 1,780.3 1,650.4 229 Financial Report Notes to the consolidated annual financial statements Notes to the consolidated income statement 29. PREMIUMS EARNED AND POLICY FEES CHF million Gross premiums written and policy fees 3,358.8 3,816.8 7,175.6 3,050.0 3,783.4 Non-life Life Non-life Life Total 2014 Change in unearned premium reserves Premiums earned and policy fees (gross) Reinsurance premiums ceded Reinsurers’ share of change in unearned premium reserves Total premiums earned and policy fees (net) – 7.5 3,351.3 – 145.0 1.7 – 3,816.8 – 20.3 – – 7.5 7,168.1 – 165.2 1.7 – 1.1 3,048.9 – 131.1 1.5 – 3,783.4 – 19.1 – 3,208.0 3,796.5 7,004.5 2,919.4 3,764.4 6,683.7 Total 2015 6,833.4 – 1.1 6,832.4 – 150.2 1.5 30. INCOME FROM INVESTMENTS FOR OWN ACCOUNT AND AT OWN RISK CHF million Investment property Financial assets with characteristics of equity Available for sale Recognised at fair value through profit or loss Financial assets with characteristics of liabilities Held to maturity Available for sale Recognised at fair value through profit or loss Mortgages and loans Carried at cost Recognised at fair value through profit or loss Cash and cash equivalents 2014 2015 256.0 248.3 117.1 12.2 234.9 596.4 4.2 460.2 19.9 1.1 117.3 30.2 214.5 503.7 3.3 387.4 17.7 – 0.4 Total investment income for own account and at own risk 1,701.9 1,521.8 Income from investment property consists mainly of rental income. Income from financial instruments with char- acteristics of equity primarily comprises dividend income, while income from financial instruments with characteristics of liabilities essentially contains interest income and net income from the recognition and reversal of impairment losses owing to application of the effective interest method. Income from mortgages and loans and from cash and cash equivalents is mainly derived from the interest paid on these assets. Interest income of CHF 3.1 million had been recognised on impaired investments at the balance sheet date (2014: CHF 3.4 million). 230 Financial Report Notes to the consolidated annual financial statements 31. REALISED GAINS AND LOSSES ON INVESTMENTS REALISED GAINS AND LOSSES ON INVESTMENTS AS RECOGNISED IN THE INCOME STATEMENT CHF million Realised gains and losses on investments for own account and at own risk Realised gains and losses on investments for the account and at the risk of life insurance policyholders and third parties 2014 2015 775.1 587.4 379.1 7.1 Realised gains and losses on investments as recognised in the income statement 1,362.5 386.2 231 Financial Report Notes to the consolidated annual financial statements 31.1 Realised gains and losses on investments in 2014 for own account and at own risk 2014 CHF million Realised gains on sales and book profits Investment property Held to maturity 1 Available for sale Recognised at fair value through profit or loss Carried at cost Sub-total Realised losses on sales and book losses Investment property Held to maturity 1 Available for sale Recognised at fair value through profit or loss Carried at cost Sub-total Impairment losses recognised in profit or loss Held to maturity Available for sale Carried at cost Reversal of impairment losses recognised in profit or loss Held to maturity Available for sale Carried at cost Sub-total Total realised gains and losses on investments Financial assets with characteristics of equity Financial assets with characteristics of liabilities Investment property Mortgages and loans Derivative financial instruments 190.9 – – – – 190.9 – 61.6 – – – – – – 331.4 48.5 – 379.8 – – – 75.6 – 5.5 – 2.8 236.4 2.9 – 242.1 – – 33.4 – 70.7 – 1.5 – – – 61.6 – 81.1 – 105.7 – – – 16.9 40.8 57.7 – – – – – – 355.9 – – – 0.0 – 179.0 – 3.1 – 3.1 – – 179.0 – 40.8 355.9 1,226.5 – – – – – – – – – 35.8 – – – – – 35.8 – – – – 10.9 – 10.9 – – – 5.4 – – 9.3 3.9 – – – – – – – 129.3 263.0 147.4 58.5 177.0 775.1 Total 190.9 2.8 567.8 424.3 – 61.6 – 33.4 – 146.3 – 186.0 – 3.1 – 430.4 – – 35.8 – 5.4 – 10.9 9.3 – 20.9 1 Currency effects relating to held-to-maturity financial assets with characteristics of liabilities are reported as realised book profits and / or realised book losses. 232 Financial Report Notes to the consolidated annual financial statements 31.2 Realised gains and losses on investments in 2015 for own account and at own risk 2015 CHF million Realised gains on sales and book profits Investment property Held to maturity 1 Available for sale Recognised at fair value through profit or loss Carried at cost Sub-total Realised losses on sales and book losses Investment property Held to maturity 1 Available for sale Recognised at fair value through profit or loss Carried at cost Sub-total Impairment losses recognised in profit or loss Held to maturity Available for sale Carried at cost Reversal of impairment losses recognised in profit or loss Held to maturity Available for sale Carried at cost Sub-total Total realised gains and losses on investments Financial assets with characteristics of equity Financial assets with characteristics of liabilities Investment property Mortgages and loans Derivative financial instruments 180.9 – – – – 180.9 – 68.2 – – – – – – 247.1 32.5 – 279.6 – – – 106.8 – 48.9 – 0.1 537.4 0.0 – 537.4 – – 177.5 – 339.5 – 2.5 – – – 68.2 – 155.7 – 519.5 Total 180.9 0.1 784.4 967.4 – – – – – – 3.1 931.8 74.4 77.5 – 74.4 931.8 2,007.2 – – – – – – – 3.7 – 818.2 – 68.2 – 177.5 – 446.3 – 873.2 – 1.3 – 5.0 – – 1.3 – 818.2 – 1,566.6 – – – – – – – – – 72.0 – – – – – 72.0 – – – – 10.7 – 10.7 – – – 5.7 – – 5.6 – 0.1 – – – – – – – – – 72.0 – 5.7 – 10.7 5.6 – 61.5 112.7 51.9 28.6 72.4 113.6 379.1 1 Currency effects relating to held-to-maturity financial assets with characteristics of liabilities are reported as realised book profits and / or realised book losses. 233 Financial Report Notes to the consolidated annual financial statements 31.3 Impairment losses on financial assets recognised in profit or loss CHF million Impairment losses on financial assets with characteristics of equity recognised in profit or loss Equities Equity funds Mixed funds Bond funds Real-estate funds Private equity Hedge funds Sub-total Impairment losses on financial assets with characteristics of liabilities recognised in profit or loss Public corporations Industrial enterprises Financial institutions Other Sub-total Impairment losses on mortgages and loans recognised in profit or loss Mortgages Policy loans Promissory notes and registered bonds Time deposits Reverse repurchase agreements Other loans Sub-total 2014 2015 – 24.3 – 46.1 – – 0.0 – 5.1 – 5.9 – 0.4 – 35.8 – – – – – 0.0 – 1.4 – – 12.4 – 6.5 – 5.7 – 72.0 – – – – – – 5.2 – 5.5 – – – – – 0.1 – 5.4 – – – – – 0.2 – 5.7 Total impairment losses on financial assets recognised in profit or loss – 41.1 – 77.8 31.4 Currency gains and losses Excluding exchange-rate losses on transactions involving financial instruments that are recognised at fair value through profit or loss, a currency loss of CHF 377.3 million was reported for 2015 (2014: loss of CHF 77.0 million). A gross currency loss of CHF 127.0 million was recognised directly in equity for the reporting year (2014: gain of CHF 175.5 million). Allowing for hedges of a net investment in a foreign operation (hedge accounting), a net loss of CHF 160.7 million was recognised for 2015 (2014: net gain of CHF 38.9 million). 234 Financial Report Notes to the consolidated annual financial statements 32. INCOME FROM SERVICES RENDERED CHF million Asset management Services Banking services Investment management Income from services rendered 33. OTHER OPERATING INCOME CHF million Interest income from insurance and reinsurance receivables Other interest income Gains on the sale of property, plant and equipment intangible assets Currency gains on assets and liabilities Reversal of impairment losses recognised on receivables External income from owner-occupied property Other income 1 Other operating income 1 The gain on the disposal of the Austrian entities is included in the 2014 financial year. 2014 2015 35.4 22.4 44.2 8.6 41.1 20.3 43.2 8.0 110.7 112.6 2014 2015 11.0 2.5 0.2 – 9.6 7.3 10.9 143.8 185.2 13.1 2.2 0.4 – 26.8 6.4 5.5 82.3 136.6 235 Financial Report Notes to the consolidated annual financial statements 34. CLASSIFICATION OF EXPENSES CHF million Personnel expenses (excluding loss adjustment expenses) – 834.0 – 759.2 2014 2015 Marketing and advertising Depreciation and impairment of property, plant and equipment Amortisation and impairment of intangible assets IT and other equipment Expenses for rent, maintenance and repairs Losses arising from exchange differences in respect of assets and liabilities Commission and selling expenses Fees and commission for financial assets and liabilities not recognised at fair value Fees and commission expenses for assets managed for third parties Expenses arising from non-current assets and disposal groups classified as held for sale Other Total 1 This includes changes in deferred acquisition costs recognised in profit or loss, as shown in table 9. – 32.9 – 65.0 – 70.4 – 78.2 – 55.0 – 11.2 – 33.6 – 39.8 – 30.6 – 72.6 – 50.2 – 16.8 – 526.9 – 462.2 – 17.0 – 3.7 – – 14.1 – 2.8 – – 255.3 – 145.3 – 1,949.8 – 1,627.2 35. PERSONNEL EXPENSES Total personnel expenses for 2015 came to CHF 875.2 million (2014: CHF 959.4 million). 236 Financial Report Notes to the consolidated annual financial statements 36. GAINS OR LOSSES ON FINANCIAL CONTRACTS CHF million With discretionary participation features (DPFs) Financial contracts with discretionary participation features (DPFs) Sub-total Measured at amortised cost Interest on loans Interest due Interest arising from banking business Interest expenses on repurchase agreements Acquisition costs in banking business Interest expenses on bonds Expenses arising from financial contracts Sub-total Recognised at fair value through profit or loss (designated) Change in fair value of other financial contracts Sub-total 2014 2015 – 44.3 – 44.3 – 0.3 – 9.7 – 33.6 0.0 – 15.6 – 3.2 – 17.0 – 79.4 – 338.8 – 338.8 – 50.3 – 50.3 – 0.1 – 9.3 – 20.1 2.3 – 15.7 – 1.5 – 16.0 – 60.4 109.8 109.8 Total gains or losses on financial contracts – 462.6 – 0.9 Of which: gains on interest rate hedging instruments Interest rate swaps: cash flow hedges, balance carried forward from cash flow hedge reserves Interest rate swaps: fair value hedges Total gains on interest rate hedging instruments – – – – – – 237 Financial Report Notes to the consolidated annual financial statements 37. INCOME TAXES 37.1 Current and deferred income taxes CHF million Current income taxes Deferred income taxes Total current and deferred income taxes 2014 2015 – 135.4 – 37.8 – 173.2 – 139.0 – 29.1 – 168.2 37.2 Expected and current income taxes The expected average tax rate for the Baloise Group was 24.73 per cent in 2014 and 26.97 per cent in 2015. These rates correspond to the weighted average tax rates in those countries where the Baloise Group operates. CHF million Profit before taxes Expected average tax rate (per cent) Expected income taxes Increase / reduction owing to tax-exempt profits and losses non-deductible expenses withholding taxes on dividends change in tax rates tax items related to other reporting periods non-taxable measurement differences other impacts 1 Current income taxes 2014 2015 885.1 24.73 % – 218.9 679.3 26.97 % – 183.2 36.0 – 10.2 – 2.6 – 0.3 4.7 2.2 15.9 – 173.2 12.3 – 7.6 – 0.5 7.8 15.9 – 1.1 – 11.6 – 168.2 1 “Other impacts” essentially comprise the offsetting of profits against loss carryforwards for which no deferred tax assets were recognised, the non-capitalisation of losses from the reporting period and the recognition of losses carried forward from previous years. This item also includes the differences between the Baloise Group’s tax rate and the tax rates applied to each individual company (and, in the year 2013, the effect arising from the application of IFRS 5 [Non-current Assets Held for Sale and Discontinued Operations]). 238 Financial Report Notes to the consolidated annual financial statements 38. EARNINGS PER SHARE Profit for the period attributable to shareholders (CHF million) Average number of shares outstanding Basic earnings per share (CHF) Profit for the period attributable to shareholders (CHF million) Adjustment of interest expenses on convertible bonds, including tax effects (CHF million) Adjusted profit for the period attributable to shareholders (CHF million) Average number of shares outstanding Adjustment due to theoretical conversion of convertible bond Adjustment due to theoretical exercise of share-based payment plans Adjustment due to theoretical exercise of put options Adjusted average number of shares outstanding Diluted earnings per share (CHF) 2014 710.7 2015 512.1 46,921,282 46,721,219 15.15 10.96 2014 710.7 7.9 718.6 2015 512.1 8.0 520.1 46,921,282 46,721,219 1,999,712 2,012,374 203,833 115,822 – – 49,124,827 48,849,415 14.63 10.65 The dilution of earnings in 2014 as well as in 2015 was attributable to the Performance Share Units (PSU) share-based payment plan and the convertible bond issued by Bâloise Holding. 239 Financial Report Notes to the consolidated annual financial statements 39. OTHER COMPREHENSIVE INCOME 39.1 Other comprehensive income CHF million Items not to be reclassified to the income statement Change in reserves arising from reclassification of investment property Change in reserves arising from assets and liabilities of post-employment benefits (defined benefit plans) Change arising from shadow accounting Income taxes Total items not to be reclassified to the income statement Items to be reclassified to the income statement Available-for-sale financial assets: Gains and losses arising during the reporting period Gains and losses reclassified to the income statement Total available-for-sale financial assets Investments in associates Gains and losses arising during the reporting period Gains and losses reclassified to the income statement Total investments in associates Hedging reserves for derivative financial instruments held as hedges of a net investment in a foreign operation Gains and losses arising during the reporting period Gains and losses reclassified to the income statement Total hedging reserves for derivative financial instruments held as hedges of a net investment in a foreign operation Reserves arising from reclassification of held-to-maturity financial assets: Gains and losses arising during the reporting period Gains and losses reclassified to the income statement Total reserves arising from reclassification of held-to-maturity financial assets: Change arising from shadow accounting Change arising from exchange differences Income taxes Total items to be reclassified to the income statement 2014 2015 – 0.5 – 487.4 84.6 93.2 – 310.1 0.8 33.1 – 39.1 – 8.5 – 13.6 2,141.4 – 452.6 1,688.8 – 411.1 – 471.8 – 882.9 8.7 – 8.7 – 124.1 – 12.5 – 136.6 – 0.1 – 2.5 – 2.6 – 737.1 177.5 – 245.4 753.3 – 27.6 – – 27.6 – 0.2 – 33.5 – 33.7 – 0.3 – 1.4 – 1.7 326.4 – 130.6 167.9 – 582.2 Total other comprehensive income 443.2 – 595.8 240 Financial Report Notes to the consolidated annual financial statements 39.2 Income taxes on other comprehensive income Amount before taxes Tax expense / tax income Amount net of taxes Amount before taxes Tax expense / tax income Amount net of taxes 2014 – 0.5 0.1 – 0.5 0.8 – 0.2 – 487.4 120.1 – 367.3 33.1 – 20.8 2015 0.7 12.3 84.6 – 403.3 – 27.0 93.2 57.6 – 310.1 – 39.1 – 5.2 12.5 – 8.5 – 26.6 – 13.6 CHF million Items not to be reclassified to the income statement Change in reserves arising from reclassification of investment property Change in reserves arising from assets and liabilities of post-employment benefits (defined benefit plans) Change arising from shadow accounting Total items not to be reclassified to the income statement Items to be reclassified to the income statement Available-for-sale financial assets 1,688.8 – 459.1 1,229.7 8.7 – 136.6 – 2.6 27.6 6.1 – 109.0 – 882.9 – 27.6 – 33.7 Investments in associates Hedging reserves for derivative financial instruments held as hedges of a net investment in a foreign operation Reserves arising from reclassification of held-to-maturity financial assets – 2.6 0.6 – 2.0 – 1.7 Change arising from shadow accounting – 737.1 188.3 – 548.8 Change arising from exchange differences Total items to be reclassified to the income statement 177.5 998.7 – – 245.4 177.5 753.3 326.4 – 130.6 – 750.1 240.2 – 642.7 7.0 6.8 0.5 – 86.5 – 167.9 – 20.6 – 27.0 – 1.2 239.9 – 130.6 – 582.2 Total 595.4 – 152.2 443.2 – 755.3 159.5 – 595.8 241 Financial Report Notes to the consolidated annual financial statements Other disclosures 40. ACQUISITION AND DISPOSAL OF COMPANIES CHF million Investments Other assets Receivables and assets Cash and cash equivalents Actuarial liabilities Other accounts payable Non-controlling interests Net assets acquired / disposed of Funds used / received for acquisitions and disposals Cash and cash equivalents Offsetting Transfer of assets Directly attributable costs Equity instruments issued Reclassification of investments in associates Acquisition / disposal price Net assets acquired / disposed of Other comprehensive income 1 Goodwill / negative goodwill or proceeds from disposals Cash and cash equivalents used / received for acquisitions and disposals Cash and cash equivalents acquired / disposed of Outflow / inflow of cash and cash equivalents 1 This includes primarily historical cumulative exchange differences. Cumulative acquisitions Cumulative disposals 2014 2015 2014 2015 270.6 10.0 53.9 16.2 – 228.2 – 98.5 – 24.1 13.7 0.1 6.4 0.5 – 13.0 – 3.4 – 4.3 30.1 988.0 0.2 1.1 0.0 – 870.8 – 10.9 137.7 32.6 6.6 269.0 – – – – – 32.6 – 24.1 – 8.5 – – – – – 6.6 – 4.3 – 2.3 – – – – – 269.0 – 137.7 – 65.8 65.5 – 32.6 – 6.6 269.0 16.2 – 16.4 0.5 – 6.1 – 1.1 267.9 – – – – – – – – – – – – – – – – – – – – – In 2014, the Baloise Group acquired the Brussels-based real-estate company Singel Office Antwerpen NV in Belgium and the net assets of the firm P & V Assurances in Luxembourg. All of Baloise’s Croatian and Serbian subsidiaries were sold to the Austria-based UNIQA Group on 11 March 2014. All of its Austrian subsidiaries were then sold to the Helvetia Group on 28 August 2014. In Luxembourg the remaining 65 per cent shareholding in the company Barosa S.à.r.l. was sold. HDI-Gerling Assurances, based in Leudelange, Luxembourg, was acquired during the year under review and was merged with Baloise Assurances Luxembourg S.A. in the same year. No companies were sold during the reporting period. 242 Financial Report Notes to the consolidated annual financial statements 41. RELATED PART Y TRANSACTIONS As part of its ordinary operating activities the Baloise Group conducts transactions with associates and with members of Bâloise Holding’s Board of Directors and Corporate Executive Committee. The terms and conditions governing such transactions can be found in the chapter on corporate governance, which forms an integral part of the Financial Report. The executive management team consists of the members of Bâloise Holding’s Board of Directors and Corporate Associates Executive management Other related parties 2014 2015 2014 2015 2014 2015 2014 Executive Committee. RELATED PART Y TRANSACTIONS CHF million Included in the income statement Premiums earned and policy fees Investment income / expenses Other income Expenses Impairment losses on bad debts 15.8 0.0 0.4 – 21.1 – 0.6 32.4 0.6 – 23.5 – 0.2 0.1 0.2 – 14.5 – 0.2 0.1 0.1 – 12.6 – Total income statement – 5.0 10.2 – 14.1 – 12.2 Included on the balance sheet Mortgages and loans Insurance receivables Other receivables Impairment losses on bad debts Other accounts payable Total on the balance sheet Off-balance-sheet transactions Guarantees granted – 0.0 0.0 – 0.7 – 4.5 – 5.2 – 0.0 0.0 – – 9.2 – 9.1 11.1 8.8 – – – – – – – – 11.1 8.8 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Total 2015 0.9 32.5 0.7 – 36.1 – 15.9 0.1 0.6 – 35.6 – – 19.1 – 2.0 11.1 0.0 0.0 – 0.7 – 4.5 5.9 8.8 0.0 0.0 – – 9.2 – 0.3 – – 243 Financial Report Notes to the consolidated annual financial statements EXECUTIVE MANAGEMENT REMUNERATION CHF million Short-term employee benefits Post-employment benefits Payments under share-based payment plans Total 2014 2015 – 8.8 – 1.5 – 4.2 – 7.5 – 1.4 – 3.8 – 14.5 – 12.6 48,008 shares worth CHF 6.0 million were repurchased from members of the Corporate Executive Committee in 2015 (2014: CHF 3.1 million) under the Employee Share Ownership Plan (section 18.4.3). 42. REMUNERATION PAID TO THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE The information to be disclosed in accordance with sections 663b and 663c of the Swiss Code of Obligations (OR) is contained in the Remuneration Report, which can be found on pages 73 to 95 of the chapter on corporate governance. The key information disclosed here includes: → Remuneration paid to the members of the Board of Directors → Remuneration paid to the members of the Corporate Executive Committee → Loans and credit facilities granted to members of the Board of Directors and the Corporate Executive Committee → Shares held by members of the Board of Directors and the Corporate Executive Committee 244 Financial Report Notes to the consolidated annual financial statements 43. CONTINGENT AND FUTURE LIABILITIES 43.1 Contingent liabilities 43.1.1 Legal disputes The companies in the Baloise Group are regularly involved in litigation, legal claims and lawsuits, which in most cases constitute a normal part of its operating activities as an insurer. The Corporate Executive Committee is not aware of any new circumstances having arisen since the last balance sheet date that could have a material impact on the consolidated annual financial statements for 2015. 43.1.2 Guarantees and collateral for the benefit of third parties The Baloise Group has issued guarantees and provided collateral to third parties. These include obligations – in contractually specified cases – to make capital contributions or payments to increase the amount of equity, provide funds to cover principal and interest payments when they fall due, and issue guarantees as part of its operating activities. The Baloise Group is not aware of any cases of default that could trigger such guarantee payments. In the normal course of its insurance business, the Baloise Group provided contractually binding collateral, mainly joint collateral relating to insurance-backed construction guarantees, and professional and commercial surety bonds. CHF million Guarantees Collateral Total guarantees and collateral for the benefit of third parties Of which: for the benefit of partners in joint ventures Of which: from joint ventures Of which: for the benefit of joint ventures CREDIT RATINGS OF GUARANTEES AND COLLATERAL 2014 CHF million Guarantees Collateral 2015 CHF million Guarantees Collateral AAA – – AAA – – AA – – AA – – A 32.4 0.2 A 30.3 0.2 2014 2015 49.1 459.4 508.5 – – – Lower than BBB or no rating BBB – – 16.7 459.2 Lower than BBB or no rating BBB – – 14.7 479.1 45.0 479.3 524.3 – – – Total 49.1 459.4 Total 45.0 479.3 245 Financial Report Notes to the consolidated annual financial statements 43.1.3 Pledged or ceded assets, securities-lending assets and collateral held CARRYING AMOUNTS OF ASSETS PLEDGED OR CEDED AS COLLATERAL CHF million Financial assets under repurchase agreements Financial assets in the context of securities lending Investments Pledged intangible assets Pledged property, plant and equipment Other Total FAIR VALUE OF COLLATERAL HELD CHF million Financial assets under reverse repurchase agreements Financial assets in the context of securities lending Other Total Of which: sold or repledged – with an obligation to return the assets – with no obligation to return the assets 2014 2015 142.4 3,362.8 1,716.8 811.1 3,173.1 1,979.7 – – – – – – 5,222.1 5,963.9 2014 2015 61.4 61.3 4,206.5 3,913.9 – – 4,267.9 3,975.2 – – – – The Baloise Group engages in securities-lending transactions that may give rise to credit risk. Collateral is required in order to hedge these credit risks by more than covering the underlying value of the securities that are being lent (mainly bonds). The value of the counterparty’s lending securities is regularly measured in order to minimise the credit risk involved. Additional collateral is immediately required if this value falls below the value of cover provided. The Baloise Group retains control over the loaned securities throughout the term of its lending transactions. The income received from securities lending is recognised in profit or loss. 246 Financial Report Notes to the consolidated annual financial statements 43.2 Future liabilities 43.2.1 Capital commitments CHF million Commitments undertaken for future acquisition of investment property financial assets property, plant and equipment intangible assets Total commitments undertaken Of which: in connection with joint ventures Of which: own share of joint ventures’ capital commitments CREDIT RATINGS OF CAPITAL COMMITMENTS 2014 2015 40.4 443.9 – 14.1 498.4 – – 84.6 573.0 – – 657.7 – – 2014 CHF million Capital commitments 2015 CHF million Capital commitments AAA 12.6 AAA 110.0 AA 0.3 AA 0.4 A Lower than BBB or no rating BBB Total 33.0 14.4 438.1 498.4 A Lower than BBB or no rating BBB Total 42.0 17.1 488.0 657.7 Obligations undertaken by the Baloise Group to make future purchases of investments include commitments in respect of private equity, which constitute unfunded commitments to invest directly in private equity or to invest in private equity funds. 247 Financial Report Notes to the consolidated annual financial statements 44. OPERATING LEASES 44.1 The Baloise Group as a lessee The Baloise Group has entered into non-cancellable leasing arrangements to lease buildings, vehicles and operating equipment. The average residual term of its leases is between three and five years. DUE DATES OF LEASE PAYMENTS CHF million Due within one year Due after one to five years Due after five years or more Total Minimum lease payments Contingent lease payments Leasing expenses Income from sub-leases during the reporting period Future income from sub-leases Contingent lease payments are made in cases where the lease is indexed. 2014 2015 – 3.2 – 3.4 – – 6.6 – 4.0 – – 4.0 – – – 2.4 – 2.1 – – 4.4 – 3.4 – – 3.4 – – 44.2 The Baloise Group as a lessor The Baloise Group has entered into operating leasing arrangements in order to lease its investment property to third parties. The average non-cancellable residual term of its leases is between four and six years. There were no further leasing arrangements at the balance sheet date. DUE DATES OF CONTRACTUALLY STIPULATED LEASING INCOME CHF million Due within one year Due after one to five years Due after five years or more Total Minimum lease payments Contingent lease payments Leasing income 248 2014 2015 33.3 49.4 9.9 92.6 40.4 0.0 40.4 29.7 39.4 9.7 78.7 36.1 0.0 36.1 Financial Report Notes to the consolidated annual financial statements 45. CLAIM PAYMENTS RECEIVED FROM NON-GROUP INSURERS The companies in the Baloise Group received claim payments totalling CHF 0.2 million in 2015 (2014: CHF 0.1 million) from non-Group insurers in connection with insurance contracts under which the Baloise Group companies are themselves policyholders. Most of these claim payments were made for damage to buildings in Switzerland where, depending on the building’s location, mandatory insurance cover is provided by government agencies. 249 Financial Report Notes to the consolidated annual financial statements 46. SIGNIFICANT SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES AS AT 31 DECEMBER 2015 Group’s share of voting rights / capital (per cent) 2 Direct share of voting rights / capital (per cent) 2 Primary activity Operating segment 1 Method of consoli- dation 3 Currency Share capital (million) Total assets (million) Gross premiums / policy fees (million) Material interests as defined by IFRS 4 – – – – – CHF CHF CHF CHF CHF CHF 5.0 2,305.6 – 75.0 5,169.9 1,323.2 50.0 32,067.5 3,087.6 50.0 7,465.7 0.2 1.5 27.5 33.0 CHF 1.5 14.9 EUR 94.7 406.2 EUR 22.0 9,576.4 361.2 EUR 15.1 1,561.4 599.7 EUR 12.8 546.7 EUR 12.8 234.4 EUR – – EUR 1.5 13.8 EUR EUR EUR – 0.1 – – 35.7 – EUR 0.5 15.6 – – – – – – – – X X X X X X X X X Switzerland Bâloise Holding Ltd, Basel Baloise Insurance Ltd, Basel Baloise Life Ltd, Basel Baloise Bank SoBa AG, Solothurn Haakon AG, Basel Baloise Asset Management Schweiz AG, Basel Baloise Asset Management International AG, Basel Holding Non-life Life Banking Other Investment manage- ment Investment consulting O NL L B O B Holding Holding 100.00 100.00 100.00 100.00 100.00 100.00 74.75 74.75 100.00 100.00 B 100.00 100.00 Germany Basler Versicherung Beteiligungen B.V. & Co KG, Hamburg Basler Lebensversicherungs-Aktiengesellschaft, Hamburg Basler Versicherungsgesellschaft, Bad Homburg Deutscher Ring Bausparkasse Aktiengesellschaft, Hamburg Basler Beteiligungsholding GmbH, Hamburg DePfa Beteiligungs-Holding II GmbH, Düsseldorf Basler Financial Services GmbH, Hamburg OVB Holding AG, Cologne Roland Rechtsschutz Beteiligungs GmbH, Cologne Roland Rechtsschutz Versicherungs AG, Cologne ZEUS Vermittlungsgesellschaft mbH, Hamburg Holding O 100.00 100.00 Life L 100.00 100.00 Non-life NL 100.00 100.00 Banking Holding Other Other Other Other Other Other B O – O – O – O 65.00 65.00 100.00 100.00 26.00 26.00 100.00 100.00 32.57 60.00 32.57 60.00 15.01 25.02 100.00 100.00 1 L: Life, NL: Non-life, B: Banking, O: Other activities / Group business. 2 Shares stated as a percentage are rounded down. 3 F: Full consolidation, E: Equity-accounted investment. 4 Material interest required to be disclosed under IFRS 12. F F F F F F F F F F F F E F F F E F 250 Financial Report Notes to the consolidated annual financial statements Group’s share of voting rights / capital (per cent) 2 Direct share of voting rights / capital (per cent) 2 Primary activity Operating segment 1 Life and non-life Non-life Other L / NL 100.00 100.00 NL NL 100.00 100.00 100.00 100.00 Holding O 100.00 100.00 Non-life NL 100.00 100.00 Life Other L B 100.00 100.00 100.00 100.00 Holding O 100.00 100.00 Belgium Baloise Belgium NV, Antwerp Euromex NV, Antwerp Merno-Immo NV, Antwerp Luxembourg Bâloise (Luxembourg) Holding S.A., Bertrange (Luxembourg) Bâloise Assurances Luxembourg S.A., Bertrange (Luxembourg) Bâloise Vie Luxembourg S.A., Bertrange (Luxembourg) Baloise Fund Invest Advico, Bertrange (Luxembourg) Bâloise Delta Holding S.à.r.l., Bertrange (Luxembourg) Baloise Life (Liechtenstein) AG, Balzers Life L 100.00 100.00 Other territories Bâloise Participations Holding, Amsterdam Baloise Insurance Company (Bermuda) Ltd., Hamilton (Bermuda) Baloise Alternative Investment Strategies Limited, St. Helier (Jersey / Channel Islands) Baloise Finance (Jersey) Ltd., St. Helier (Jersey / Channel Islands) Baloise Private Equity Limited, St. Helier (Jersey / Channel Islands) Holding O 100.00 100.00 Reinsur- ance Investment manage- ment Other NL 100.00 100.00 L / NL 100.00 100.00 O 100.00 100.00 Investment L / NL 100.00 100.00 manage- ment 1 L: Life, NL: Non-life, B: Banking, O: Other activities / Group business. 2 Shares stated as a percentage are rounded down. 3 F: Full consolidation, E: Equity-accounted investment. 4 Material interest required to be disclosed under IFRS 12. Method of consoli- dation 3 Currency Share capital (million) Total assets (million) Gross premiums / policy fees (million) Material interests as defined by IFRS 4 F F F F F F F F F F F F F F EUR 215.2 8,152.8 910.2 X EUR EUR 2.7 17.1 164.4 25.2 CHF 250.0 1,177.3 58.7 – – EUR 15.8 316.6 101.7 EUR 32.7 5,696.1 68.0 EUR 0.1 14.0 EUR 224.3 278.9 – – CHF 7.5 2,805.5 1.2 EUR 10.9 0.8 – CHF 5.0 831.4 147.3 USD 0.0 748.1 CHF 1.3 174.8 USD 0.0 467.5 – – – X X X X X X X X X X 251 Financial Report Notes to the consolidated annual financial statements 47. CHANGES TO SHAREHOLDINGS In 2015 and in 2014 there were no transactions involving non-controlling interests that led to the loss of control over a subsidiary. 48. CONSOLIDATED STRUCTURED ENTITIES The Baloise Group held one consolidated structured entity – Baloise Fund Invest (Lux) – at the end of the reporting year. Baloise Fund Invest (Lux) is a Luxembourg-based firm in the legal form of an investment company with variable capital (SICAV managed by a third party). Baloise Fund Invest (Lux) is an umbrella fund consisting of various pools of assets and liabilities (or “sub-funds”), with each sub-fund pursuing its own investment policy. Baloise Fund Invest (Lux) and its sub-funds collectively constitute a legal entity. However, each sub-fund is deemed to be a separate entity as far as the legal relationship between unitholders is concerned. A sub-fund’s assets are liable to third parties only for the liabilities and obligations relating to this sub-fund. The prime objective of Baloise Fund Invest (Lux) is to enable unitholders to benefit from professional manage- ment strategies based on the principle of risk diversification in line with each sub-fund’s specified investment policy. The holding of units in Baloise Fund Invest (Lux) does not give rise to any contractual obligations. There are no arrangements that oblige the Baloise Group to provide financial support to the consolidated entity Baloise Fund Invest (Lux), and no voluntary financial or other support was provided during the reporting year. 49. JOINT ARRANGEMENTS There were no joint arrangements in 2014 and in 2015. 50. EVENTS AFTER THE BALANCE SHEET DATE By the time that these consolidated annual financial statements had been completed on 18 March 2016, we had not become aware of any events that would have a material impact on the consolidated annual financial statements as a whole. 252 Financial Report Notes to the consolidated annual financial statements This page has been left empty on purpose. 253 Financial Report Report of the statutory auditor Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel REPORT OF THE STATUTORY AUDITOR ON THE FINANCIAL STATEMENTS As statutory auditor, we have audited the consolidated financial statements of Bâloise Holding Ltd, which comprise the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated cash flow statement, consolidated statement of changes in equity and notes to the consolidated financial statements (pages 104 to 253), for the year ended 31 December 2015. Board of Directors’ responsibility The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial state- ments in accordance with the International Financial Reporting Standards (IFRS) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards as well as the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance that the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assess- ment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s prepa- ration and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements for the year ended 31 December 2015 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the International Financial Reporting Standards (IFRS) and comply with Swiss law. 254 Financial Report Report of the statutory auditor REPORT ON OTHER LEGAL REQUIREMENTS We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. PricewaterhouseCoopers Ltd Michael Stämpfli Audit expert Peter Lüssi Audit expert Auditor in charge Basel, 18 March 2016 255 4 Baloise 18 Review of operating performance 38 Sustainable business management 56 Corporate Governance 102 Financial Report 256 Bâloise Holding Ltd 274 Notes Bâloise Holding Ltd Income statement of Bâloise Holding �� 258 Balance sheet of Bâloise Holding �� 259 Notes to the financial statements of Bâloise Holding �� 260 Appropriation of distributable profit as proposed by the Board of Directors �� 271 Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel �� 272 G N I D L O H E S I O L Â B Financial Report Income statement of Bâloise Holding Income statement of Bâloise Holding CHF million Income from long-term equity investments Income from interest and securities Other income Total income Administrative expenses Depreciation, amortisation and impairment Interest expenses Other expenses Total expenses Tax expense Profit for the period Note 2014 2015 2 3 4 5 6 481.2 15.1 8.1 504.4 – 52.4 – – 38.0 – 8.0 – 98.4 328.1 16.6 210.4 555.1 – 35.1 – 45.5 – 34.8 – 3.8 – 119.2 – 0.2 – 1.0 405.8 434.9 258 Financial Report Balance sheet of Bâloise Holding Balance sheet of Bâloise Holding CHF million Assets Cash and cash equivalents Receivables from Group companies Receivables from third parties Prepaid expenses and accrued income Current assets Financial assets Loans to Group companies Other financial assets Long-term equity investments Non-current assets Total assets Equity and liabilities Current liabilities Liabilities to Group companies Liabilities to third parties Deferred income Non-current liabilities Bonds Provisions Liabilities Share capital Statutory retained earnings General reserve Reserve for treasury shares 1 Voluntary retained earnings Other reserves 1 Distributable profit Treasury shares 1 Equity Total equity and liabilities Note 31.12.2014 31.12.2015 7 8 9 10 58.8 70.6 4.0 217.0 350.4 102.0 100.0 1,730.4 1,932.4 58.6 2.0 4.1 167.6 232.3 102.0 194.8 1,874.9 2,171.7 2,282.8 2,404.0 0.7 0.0 38.5 0.1 0.1 28.2 11 1,717.5 1,717.5 9.6 9.7 1,766.3 1,755.6 5.0 11.7 4.9 230.3 406.5 – 141.9 516.5 5.0 11.7 3.5 387.6 435.4 – 194.8 648.4 2,282.8 2,404.0 12 13 1 The comparative prior-year figure has been restated in accordance with the new classification; see notes to the financial statements. 259 Financial Report Notes to the financial statements of Bâloise Holding Notes to the financial statements of Bâloise Holding 1. ACCOUNTING POLICIES General These annual financial statements of Bâloise Holding Ltd domiciled in Basel have been prepared in accordance with the provisions of Swiss accounting law (Title 32 of the Swiss Code of Obligations)� The main policies applied which are not prescribed by law are described below� The comparative prior-year figures have been restated in accordance with the new classification criteria� Cash and cash equivalents Cash and cash equivalents include bank deposits and cash equivalents such as call money, fixed-term deposits and money market instruments provided that these assets’ original maturity period is less than 90 days� Receivables Receivables are recognised at their nominal amount less any impairment losses� Prepaid expenses and accrued income This line item includes expenses relating to the new financial year that have been paid in advance and income from the reporting year that will not be received until a later date� It also comprises dividends approved by subsidiaries’ annual general meetings at the balance sheet date, which Bâloise Holding reports as dividends receivable� Long-term equity investments Long-term equity investments are recognised individually at cost less any impairment losses� 260 Financial Report Notes to the financial statements of Bâloise Holding Loans to Group companies These loans are measured at their nominal amount less any impairment losses� Specific write-downs are recognised for all identifiable risks in accordance with the prudence principle� Other financial assets Marketable securities are recognised at the lower of cost and fair value� Items recognised at fair value are reported separately� Liabilities Liabilities are recognised at their nominal amount� Deferred income and accrued expenses This line item comprises income relating to the new financial year that has already been received, as well as expenses relating to the reporting year that will not be paid until a later date� Bonds Bonds are shown at their par value� Issuance costs – less any premiums – are charged in full to the income statement at the time the bonds are issued� Provisions Provisions to cover any risks that may arise are recognised in accordance with the principles of risk-based management and are charged to the income statement� Treasury shares Treasury shares are recognised at cost on the date of acquisition as deductions from equity� If the shares are subsequently sold, any gains or losses are recognised in profit or loss as financial income or expense� 261 Financial Report Notes to the financial statements of Bâloise Holding NOTES TO THE INCOME STATEMENT 2. INCOME FROM INTEREST AND SECURITIES CHF million Income from treasury shares Interest on loans to Group companies Income from other financial assets Other interest receivable Total income from interest and securities 3. OTHER INCOME CHF million Write-up on long-term equity investment Sundry other income Total other income 2014 2015 9.5 3.2 2.3 0.1 15.1 10.4 3.7 2.6 – 0.1 16.6 2014 2015 – 8.1 8.1 203.5 6.9 210.4 In connection with the implementation of the new financial reporting standards, the principle of itemised measurement applies to long-term equity investments for the first time� The application of this new ruling resulted in the reversal of an impairment loss under commercial law of CHF 203�5 million on the long-term equity investment in Baloise (Luxembourg) Holding in the 2015 annual financial statements� 4. ADMINISTRATIVE EXPENSES CHF million Personnel expenses 1 Other administrative expenses Total administrative expenses 1 Bâloise Holding AG has no direct employees. All staff members are employed by Baloise Insurance Ltd, Basel. 2014 2015 – 38.2 – 14.2 – 52.4 – 22.7 – 12.4 – 35.1 262 Financial Report Notes to the financial statements of Bâloise Holding 5. DEPRECIATION, AMORTISATION AND IMPAIRMENT CHF million Impairment losses on long-term equity investments Total impairment losses on long-term equity investments 2014 2015 – – – 45.5 – 45.5 In connection with the implementation of the new financial reporting standards, the principle of itemised measurement applies to long-term equity investments for the first time� The application of this new ruling resulted in the recognition of an impairment loss of CHF 45�5 million on the long-term equity investment in Baloise Life (Liechtenstein) AG in the 2015 annual financial statements� 6. INTEREST EXPENSES CHF million Interest on bonds Other interest expenses Total interest expenses 2014 2015 – 38.0 0.0 – 38.0 – 34.6 – 0.2 – 34.8 263 Financial Report Notes to the financial statements of Bâloise Holding NOTES TO THE BALANCE SHEET 7. PREPAID EXPENSES AND ACCRUED INCOME The annual general meeting of Haakon AG, Basel, held on 1 March 2016, the AGMs of Baloise Bank SoBa AG, Solothurn, of Baloise Asset Management Schweiz AG and of Baloise Asset Management International AG, Basel, held on 3 March 2016, and the AGM of Basler Versicherung AG, Basel, held on 18 March 2016 voted to recognise the dividends receivable for the 2015 financial year as accrued income (2015: CHF 167�4 million / 2014: CHF 216�8 million)� 8. LOANS TO GROUP COMPANIES CHF million Subordinated loans to Baloise Bank SoBa Subordinated loans to Bâloise (Luxembourg) Holding S.A. Total loans to Group companies 9. OTHER FINANCIAL INSTRUMENTS CHF million Call money Fixed-term deposits Total other financial instruments 2014 2015 40.0 62.0 102.0 40.0 62.0 102.0 2014 2015 – 100.0 100.0 124.8 70.0 194.8 264 Financial Report Notes to the financial statements of Bâloise Holding 10. LONG-TERM EQUIT Y INVESTMENTS Total shareholding as at 31.12.2014 (with voting rights) Total shareholding as at 31.12.2015 (with voting rights) Share capital as at 31.12.2015 Capital share (per cent) 1 (per cent) 1 Currency (million) Company Basler Versicherung AG, Basel Basler Leben AG, Basel Baloise Bank SoBa AG, Solothurn Baloise Asset Management Schweiz AG, Basel Baloise Asset Management International AG, Basel Haakon AG, Basel Baloise Life (Liechtenstein) AG, Balzers Basler Saturn Management B.V., Amsterdam Bâloise (Luxembourg) Holding S.A., Bertrange (Luxembourg) Bâloise Delta Holding S.à.r.l., Bertrange (Luxembourg) Baloise Fund Invest Advico, Bertrange (Luxembourg) Baloise Insurance Company (Bermuda) Ltd., Hamilton, Bermuda 100.00 100.00 100.00 100.00 100.00 74.75 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 74.75 100.00 100.00 100.00 100.00 100.00 100.00 Baloise Finance (Jersey) Ltd, St. Helier, Jersey 100.00 100.00 1 Investments stated as a percentage are rounded down. CHF CHF CHF CHF CHF CHF CHF EUR CHF EUR EUR CHF CHF 75.0 50.0 50.0 1.5 1.5 0.2 7.5 0.0 75.0 50.0 50.0 1.5 1.5 0.1 7.5 0.0 250.0 250.0 224.3 224.3 0.1 5.0 1.3 0.1 5.0 1.3 Further information on the long-term equity investments held directly by Bâloise Holding can be found on pages 250 and 251 in the Financial Report section� 265 Financial Report Notes to the financial statements of Bâloise Holding 11. BONDS AMOUNT CHF 242.5 million (convertible bond) CHF 225 million CHF 175 million CHF 300 million CHF 250 million CHF 150 million CHF 225 million CHF 150 million Interest rate Issued Maturity date 1.500 % 1.000 % 2.250 % 2.875 % 3.000 % 2.000 % 1.750 % 1.125 % 2009 2012 2012 2010 2011 2012 2013 2014 17.11.2016 12.10.2017 01.03.2019 14.10.2020 07.07.2021 12.10.2022 26.04.2023 19.12.2024 Further information on the financial liabilities issued directly by Bâloise Holding can be found on page 158 in the Financial Report section� 12. TREASURY SHARES Number of registered shares Balance on 1 Jan. 2015 Purchases Sales Low in CHF High in CHF Average share price (CHF) Number 2,133,376.0 110.2 – 127.7 – 116.3 537,256.0 – Disposals in connection with employee share ownership programmes Balance on 31 Dec. 2015 – 97,912.0 2,572,720.0 266 Financial Report Notes to the financial statements of Bâloise Holding 13. CHANGES IN EQUIT Y CHF million Share capital Balance as at 1 January Reduced through cancellation of treasury shares as per AGM resolution Total share capital Statutory reserves General reserve Balance as at 1 January Allocated Total general reserve Reserve for treasury shares Balance as at 1 January Reduced through cancellation of treasury shares as per AGM resolution Withdrawn (transferred to other reserves) Allocated (transferred from other reserves) Total reserve for treasury shares 1 Total statutory reserves Other reserves Balance as at 1 January Allocated from distributable profit Withdrawn for distributable profit Allocated (transferred from reserve for treasury shares) Withdrawn (transferred to reserve for treasury shares) Total other reserves 1 Distributable profit Balance as at 1 January Dividend distributed Allocated to other reserves Withdrawn from other reserves Profit for the period Total distributable profit Treasury shares (deductions from equity) 1 Transfer from assets Purchases Sales Disposals from employee incentive plans Total treasury shares 31.12.2014 31.12.2015 5.0 – 5.0 11.7 – 11.7 176.3 – – 6.5 182.8 5.0 – 5.0 11.7 – 11.7 182.8 – – 179.3 – 3.5 194.5 15.2 240.7 – – 181.9 – – 6.5 52.4 56.3 – 237.5 – 181.9 405.8 406.5 52.4 156.0 – 179.3 – 387.7 406.5 – 250.0 – 156.0 – 434.9 435.4 – 141.9 – 62.4 – 9.5 – 194.8 Total equity 1 658.4 648.4 1 In accordance with new financial reporting legislation, treasury shares were transferred from assets to equity and liabilities in 2015. For the same reason, the reserve for treasury shares associated with these treasury shares was reversed. The comparative prior-year figures still reflect the old classification. 267 Financial Report Notes to the financial statements of Bâloise Holding 14. SIGNIFICANT SHAREHOLDERS The information available to the Company reveals that the following significant shareholders and shareholder groups linked by voting rights held long-term equity investments in the Company within the meaning of section 663c of the Swiss Code of Obligations (OR) as at 31 December 2015: Per cent Shareholders Chase Nominees Ltd.1 Black Rock Inc. UBS Fund Management AG LSV Asset Management Mellon Bank N.A.1 Nortrust Nominees Ltd.1 Bank of New York Mellon N.V.1 Credit Suisse Funds AG Total shareholding as at 31.12.2014 Share of voting rights as at 31.12.2014 Total shareholding as at 31.12.2015 Share of voting rights as at 31.12.2015 6.1 >5.0 >3.0 >3.0 3.2 2.9 2.1 <3.0 2.0 <2.0 <2.0 0.0 0.0 0.0 0.0 <2.0 6.0 >5.0 >3.0 >3.0 3.1 2.6 2.8 <3.0 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 counted as part of the free float under the SIX Exchange regulations. Such shareholder groups are not subject to disclosure requirements under Swiss stock market legislation. 268 Financial Report Notes to the financial statements of Bâloise Holding 15. CONTINGENT LIABILITIES CHF million Collateral, guarantee commitments 2014 2015 164.4 58.4 Bâloise Holding has furthermore issued the following letter of comfort: As the owner of Baloise Life (Liechtenstein) AG, Bâloise Holding, Basel, undertakes to ensure that its sub sidiary Baloise Life (Liechtenstein) AG is at all times in a financial position to meet in full its liabilities to its customers arising from the contracts relating to its RentaSafe, BelRenta Safe, RentaProtect and RentaSafe Time products, especially its guarantee commitments� Since October 2012 this letter of comfort has also applied to customers with contracts relating to its RentaProtect Time, RentaSafe Time (D-CHF) and RentaProtect Performance products� The maximum liability corresponds to the actuarial reserves recognised for these products on the balance sheet of Baloise Life (Liechtenstein) AG as at 31 December 2015� Bâloise Holding is jointly and severally liable for the value added tax (VAT) owed by all companies that form part of the tax group headed by Baloise Insurance Ltd� 16. CEDED ASSETS Bâloise Holding lends some of its treasury shares to Baloise Insurance Ltd every year under a securities lending agreement� These shares are used in the Employee Share Ownership Plan run by Baloise Insurance Ltd� No assets had been ceded at the balance sheet date (2014: none)� 17. REMUNERATION PAID TO THE BOARD OF DIRECTORS AND THE CORPORATE EXECUTIVE COMMITTEE The information to be disclosed in accordance with sections 663b and 663c of the Swiss Code of Obligations (OR) is contained in the Remuneration Report, which can be found on pages 73 to 95 of the chapter on corporate governance� The key information disclosed here includes → remuneration paid to the members of the Board of Directors, → remuneration paid to the members of the Corporate Executive Committee, → loans and credit facilities granted to members of the Board of Directors and the Corporate Executive Committee, → shares and options held by members of the Board of Directors and the Corporate Executive Committee� 269 Financial Report Notes to the financial statements of Bâloise Holding 18. NET REVERSAL OF HIDDEN RESERVES In 2015, hidden net reserves totalling CHF 203�5 million were reversed (see note 3)� 19. EXEMPTIONS DUE TO PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS Because Bâloise Holding Ltd has prepared consolidated financial statements in accordance with recognised financial reporting standards (IFRS), in accordance with statutory provisions (article 961d (1) of the Swiss Code of Obligations (OR)), it has dispensed with the notes on long-term interest-bearing liabilities and audit fees as well as the presentation of a cash flow statement or a management report in these annual financial statements� 20. EVENTS AFTER THE BALANCE SHEET DATE By the time that these annual financial statements had been completed on 18 March 2016, we had not become aware of any events that would have a material impact on the annual financial statements as a whole� 270 Financial Report Proposal by the Board of Directors Appropriation of distributable profit as proposed by the Board of Directors DISTRIBUTABLE PROFIT AND APPROPRIATION OF PROFIT The profit for the period amounted to CHF 434,861,183�39� The Board of Directors will propose to the Annual General Meeting that the Company’s distributable profit be appropriated as shown in the table below� CHF Profit for the period Profit carried forward from the previous year Distributable profit Proposals by the Board of Directors Allocated to other reserves Withdrawn from other reserves Dividend Profit to be carried forward 2014 2015 405,812,675.61 434,861,183.39 721,340.00 534,015.61 406,534,015.61 435,395,199.00 – 156,000,000.00 – 185,000,000.00 – – – 250,000,000.00 – 250,000,000.00 534,015.61 395,199.00 The appropriation of profit is consistent with section 30 of the Articles of Incorporation� Each share confers the right to receive a dividend of CHF 5�00 gross or CHF 3�25 net of withholding tax� 271 Financial Report Report of the statutory auditor Report of the statutory auditor to the Annual General Meeting of Bâloise Holding Ltd, Basel REPORT OF THE STATUTORY AUDITOR ON THE FINANCIAL STATEMENTS As statutory auditor, we have audited the financial statements of Bâloise Holding Ltd, which comprise the income statement, balance sheet and notes (pages 258 to 270), for the year ended 31 December 2015� Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the Company’s articles of incorporation� This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error� The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances� Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit� We conducted our audit in accordance with Swiss law and Swiss Auditing Standards� Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement� An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements� The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error� In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system� An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements� We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion� Opinion In our opinion, the financial statements for the year ended 31 December 2015 comply with Swiss law and the Company’s articles of incorporation� 272 Financial Report Report of the statutory auditor REPORT ON OTHER LEGAL REQUIREMENTS We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence� In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors� We further confirm that the proposed appropriation of retained earnings complies with Swiss law and the Company’s articles of incorporation� We recommend that the financial statements submitted to you be approved� PricewaterhouseCoopers Ltd Michael Stämpfli Audit expert Peter Lüssi Audit expert Auditor in charge Basel, 18 March 2016 273 4 Baloise 18 Review of operating performance 38 Sustainable business management 56 Corporate Governance 102 Financial Report 256 Bâloise Holding Ltd 274 Notes Notes GLOSSARY �� 276 ADDRESSES �� 280 INFORMATION ON THE BALOISE GROUP �� 281 FINANCIAL CALENDAR AND CONTACTS �� 282 Notes Glossary Glossary → Actuarial reserves Actuarial reserves are the reserves set aside to cover current life insurance policies� costs incurred by the processing of claims, and changes in related reserves� → Annual premium equivalent The annual premium equivalent (APE) is the insurance indus try standard for measuring the volume of new life insurance business� It is calculated as the sum of the annual premiums earned from new business plus 10 per cent of the single premiums received during the reporting period� → Claims ratio The total cost of claims settled as a percentage of total pre miums� → Claims reserve A reserve for claims that have not been settled by the end of the year� → Assets managed for third parties → Combined ratio These are assets held in trust for clients and partners� → Baloise “Baloise” stands for “the Baloise Group”, and “Bâloise Hold ing” means “Bâloise Holding Ltd”� Baloise shares are the shares of Bâloise Holding Ltd� → Broker Insurance brokers are independent intermediaries� These are firms or individuals who are not restricted to any particular insurance companies when selling insurance products� They are paid commission for the insurance policies that they sell� → Business volume The total volume of business comprises the premium income earned from nonlife and life insurance and from investment linked life insurance policies during the reporting period� The accounting principles used by the Baloise Group do not allow premium income earned from investmentlinked life insurance to be reported as revenue in the consolidated financial statements� → Claims incurred Claims incurred comprise the amounts paid out for claims during the financial year, the reserves set aside to cover un settled claims, the reversal of reserves for claims that no longer have to be settled or do not have to be paid in full, the A nonlife insurance ratio that is defined as the sum of the cost of claims settled (claims ratio), total expenses (expense ratio) and profit sharing (profitsharing ratio) as a percentage of total premiums� This ratio is used to gauge the profitabil ity of nonlife insurance business� → Deferred taxes Probable future tax expenses and tax benefits arising from temporary differences between the carrying amounts of as sets and liabilities recognised in the consolidated financial statements and the corresponding amounts reported for tax purposes� The pertinent calculations are based on country specific tax rates� → Embedded value The marketconsistent embedded value (MCEV) measures the value of a life insurance portfolio for shareholders at the balance sheet date� Please also refer to the separate MCEV report� → Expense ratio Nonlife insurance business expenses as a percentage of total premiums� → Fixed-income securities Securities (primarily bonds) that yield a fixed rate of interest throughout their term to maturity� 276 Notes Glossary → Gross → Investment-linked premium The gross figures shown on the balance sheet or income state ment in an insurance company’s annual report are stated before deduction of reinsurance� → Group life business Insurance policies taken out by companies or their employee benefit units for the occupational pension plans of their entire workforce� → International Financial Reporting Standards Since 2000 the Baloise Group has been preparing its con solidated financial statements in compliance with Inter national Financial Reporting Standards (IFRS), which were previ ously called International Accounting Standards (IAS)� → Impairment An asset writedown that is recognised in profit or loss� An impairment test is carried out to ascertain whether an asset’s carrying amount is higher than its recoverable amount� If this is the case, the asset is written down to its recoverable amount and a corresponding impairment loss is recognised in the in come statement� → Insurance benefit The benefits provided by the insurer in connection with the occurrence of an insured event� → Investments Investments comprise investment property, equities and alter native financial assets (financial instruments with char acteristics of equity), fixedincome securities (financial in struments with characteristics of liabilities), mortgage assets, policy loans and other loans, derivatives, and cash and cash equivalents� Precious metals in connection with investment linked insurance are reported as “other assets�” → Investment-linked life insurance Life insurance policies under which policyholders invest their savings for their own account and at their own risk� Premium income from life insurance policies under which the insurance company invests the policyholder’s savings for the latter’s own account and at his or her own risk� The International Financial Reporting Standards applied by the Baloise Group do not allow the savings component of this premium income to be recognised as revenue on the income statement� → Legal quota A legally or contractually binding percentage requiring life insurance companies to pass on a certain share of their profits to their policyholders� → Minimum interest rate The minimum guaranteed interest rate paid to savers under occupational pension plans� → Net The net figures shown on the balance sheet or income state ment in an insurance company’s annual report are stated after deduction of reinsurance� → New business margin The value of new business divided by the annual premium equivalent (APE)� → Operating segments Similar or related business activities are grouped together in operating segments� The Baloise Group’s operating segments are NonLife, Life, Banking (which includes asset manage ment), and Other Activities� The “Other Activities” operating segment includes equity investment companies, real estate firms and financing companies� 277 Notes Glossary → Performance of investments → Reinsurance Performance in this context is defined as the rates of return that Baloise generates from its investments� It constitutes the gains, losses, income and expenses recognised in the income statement plus changes in unrealised gains and losses as a percentage of the average portfolio of investments held� If an insurance company itself does not wish to bear the full risk arising from an insurance policy or an entire portfolio of policies, it passes on part of the risk to a reinsurance com pany or another direct insurer� However, the primary insurer still has to indemnify the policyholder for the full risk in all cases� → Periodic premium Periodically recurring premium income (see definition of “premium”)� → Policyholder’s dividend An annual, nonguaranteed benefit paid to life insurance policyholders if the revenue generated by their policies is higher and / or the risks and costs associated with their poli cies are lower than the assumptions on which the calculation of their premiums was based� → Premium The amount paid by the policyholder to cover the cost of insurance� → Premium earned The proportion of the policy premium available to cover the risk insured during the financial year, i�e� the premium minus changes in unearned premium reserves� → Profit after taxes Profit after taxes is the consolidated net result of all income and expenses, minus all borrowing costs as well as current and deferred income taxes� Profit after taxes includes non controlling interests� → Profit-sharing ratio Total profit sharing as a percentage of total premiums; profit sharing is defined as the reimbursement of amounts to non life policyholders to reflect the profitability of insurance policies� → Reserves A measurement of future insurance benefit obligations aris ing from known and unknown claims that are reported as liabilities on the balance sheet� → Return on equity A calculation of the percentage return earned on a company’s equity capital during a financial year; it represents the profit generated in a given financial year divided by the company’s average equity during that period� → Risk scoring Risk scoring uses analytical statistical methods to derive risk assessments from collected data based on empirical values� Insurance companies use this kind of scoring to ensure that the premiums they charge reflect the risks involved� → Run-off business An insurance policy portfolio that has ceased to accept new policies and whose existing policies are gradually expiring� → Segment Financial reporting in the Baloise Group is carried out in accordance with International Financial Reporting Standards (IFRSs), which require similar transactions and business activities to be grouped and presented together� These aggre gated operating activities are presented in “segments”, broken down by geographic region and business line� 278 Notes Glossary → Share buy-back programme → Technical result Procedure approved by the Board of Directors under which Baloise can repurchase its own outstanding shares� Compa nies in Switzerland open a separate trading line in order to carry out such buybacks� Baloise calculates its technical result by netting all income and expenses arising from its insurance business� Its tech nical result does not include income and expenses unrelated to its insurance business or the net gains or losses on its investments� → Shares issued The total number of shares that a company has issued; multi plying the total number of shares in issue by their face value gives the company’s nominal share capital� → Unearned premium reserves Deferred income arising from premiums that have already been paid for periods after the balance sheet date� → Single premium → Unrealised gains and losses (recognised directly in equity) Unrealised gains and losses are increases or decreases in value that are not recognised in profit or loss and arise from the measurement of assets� They are recognised directly in equity after deduction of deferred policyholders’ dividends (life insurance) and deferred taxes� These gains or losses are only taken to income if the underlying asset is sold or if impairment losses are recognised� → Value of new business The value added by new business transacted during the reporting period; this figure is measured at the time the policy is issued� Single premiums are used to finance life insurance policies at their inception in the form of a oneoff payment� They are mainly used to fund wealthbuilding life insurance policies, with the prime focus on investment returns and safety� → Swiss Leader Index The Swiss Leader Index (SLI) comprises the 30 largest and most liquid equities on the Swiss stock market� → Solvency Minimum capital requirements that the regulatory authori ties impose on insurance companies in order to cover their business risks (investments and claims)� These requirements are usually specified at a national level and may vary from country to country� → Technical reserve Insurers disclose on their balance sheets the value of the ben efits that they expect to have to provide in future under their existing insurance contracts� This value is calcu lated from a current perspective in accordance with generally accepted principles� 279 LUXEMBOURG Bâloise Assurances 23, rue du Puits Romain Bourmicht L-8070 Bertrange Tel + 352 290 190 1 Fax + 352 290 190 9001 info@baloise.lu www.baloise.lu BELGIUM Baloise Insurance Posthofbrug 16 B-2600 Antwerp Tel + 32 3 247 21 11 Fax + 32 3 247 27 77 info@baloise.be www.baloise.be Notes Addresses Addresses SWITZERLAND Basler Versicherungen Aeschengraben 21 CH-4002 Basel Tel + 41 58 285 85 85 Fax + 41 58 285 70 70 kundenservice@baloise.ch www.baloise.ch Baloise Bank SoBa Amthausplatz 4 CH-4502 Solothurn Tel + 41 58 285 33 33 Fax + 41 58 285 03 33 bank@baloise.ch www.baloise.ch GERMANY Basler Versicherungen Basler Strasse 4 Postfach 1145 D-61345 Bad Homburg Tel + 49 61 72 130 Fax + 49 61 72 13 200 info@basler.de www.basler.de 280 Notes Information on the Baloise Group Information on the Baloise Group The 2015 Annual Report is published in German and English� The German version is authoritative in the event of any discrep ancy� The Financial Report section contains the audited 2015 annual financial statements together with detailed information� The annual report contains all of the elements that, in accordance with section 961c of the Swiss Code of Obligations, make up the management report� AVAILABILIT Y AND ORDERING The 2015 Annual Report and the Summary of the 2015 Annual Report will be available on the internet at www�baloise�com/ annualreport from 22 March 2016� Corporate publications can be ordered either on the inter net or by post from the Baloise Group, Corporate Communi cations, Aeschengraben 21, 4002 Basel, Switzerland� INFORMATION FOR SHAREHOLDERS AND FINANCIAL ANALYSTS Detailed information and data on Baloise shares, the IR agenda, the latest presentations and how to contact the Investor Rela tions team can be found on the internet at www�baloise�com/ investors� This information is available in German and English� INFORMATION FOR MEMBERS OF THE MEDIA You will find the latest media releases, presentations, reports, images and podcasts of various Baloise events as well as media contact details at www�baloise�com/media� CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS This publication is intended to provide an overview of Baloise’s operating performance� It contains forwardlooking statements that include forecasts of future events, plans, goals, business developments and results and are based on Baloise’s current expectations and assumptions� These forwardlooking state ments should be noted with due caution because they inher ently contain both known and unknown risks, are subject to uncertainty and may be adversely affected by other factors� Consequently, business performance, results, plans and goals could differ substantially from those presented explicitly or implicitly in these forwardlooking statements� Among the influencing factors are (i) changes in the overall state of the economy, especially in key markets; (ii) financial market per formance; (iii) competitive factors; (iv) changes in interest rates; (v) exchange rate movements; (vi) changes in the statutory and regulatory framework, including accounting standards; (vii) frequency and magnitude of claims as well as trends in claims history; (viii) mortality and morbidity rates; (ix) renewal and expiry of insurance policies; (x) legal disputes and administra tive proceedings; (xi) departure of key employees; and (xii) negative publicity and media reports� Baloise accepts no obligation to update or revise these forwardlooking statements or to allow for new information, future events, etc� Past performance is not indicative of future results� © 2016 Bâloise Holding Ltd, 4002 Basel, Switzerland Publisher Baloise, Corporate Communications & Investor Relations Concept, design Eclat, Zurich Photography Dominik Plüss, Basel / Marc Wetli, Zurich Publishing Multimedia Solutions AG, Zurich English translation LingServe Ltd (UK) Printing Gremper AG, Pratteln 281 Notes Financial calender and contacts Financial calendar and contacts 22.03.2016 Annual financial results: media conference conference call for analysts 29.04.2016 Annual General Meeting of Bâloise Holding Ltd 30.08.2016 Half-year financial results: conference call for analysts and the media 23.03.2017 Annual financial results: media conference conference call for analysts 28.04.2017 Annual General Meeting of Bâloise Holding Ltd Corporate Governance Baloise Group Philipp Jermann Aeschengraben 21 4002 Basel, Switzerland + 41 58 285 89 42 philipp.jermann@baloise.com Investor Relations Baloise Group Marc Kaiser Aeschengraben 21 4002 Basel, Switzerland + 41 58 285 81 81 investor.relations@baloise.com Media Relations Baloise Group Dominik Marbet Aeschengraben 21 4002 Basel, Switzerland + 41 58 285 84 67 media.relations@baloise.com www.baloise.com 282 BÂLOISE HOLDING LTD Aeschengraben 21 CH-4002 Basel www.baloise.com Making you safer.

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