Baloise delivers strong earnings and impressive growth in first half of 2009
Basel, 27 August 2009. Posting a profit of CHF 234.6 million and a 3.1% increase in business volume in local currency terms, the Baloise Group turned in an excellent performance in the first half of 2009. Baloise shares outperformed the relevant stock market indices. The balance sheet was further strengthened, while the solvency margin of 209% was outstandingly good for the sector.
"We are fully on track to meet our goal of becoming one of Europe's most profitable and fastest growing insurers by 2012. In terms of our core insurance business we are in excellent shape, we are achieving growth in difficult times, and we are handling the challenges of the volatile investment markets extremely well", an upbeat Martin Strobel was pleased to report today to the media and financial analysts. "Thanks to our unique growth initiative, the "Baloise Safety World", our proven focus on target customers and our efficiency drives, we are set to consistently generate a further CHF 200 million in profit by 2012", added Chief Executive Officer Martin Strobel.
Group performance
The excellent Group result of CHF 234.6 million is only marginally below first half profits of CHF 263.2 million in 2008. Given the backdrop of the extraordinarily tough economic conditions, this is testament to the fact that Baloise is in excellent shape. Business volume rose to CHF 4,991.3 million (2008: CHF 4,967.7 million), an increase of 3.1% in local currency terms. Due to unfavourable exchange rates, growth of 0.5% as expressed in Swiss francs was less strong. IFRS gross premiums rose by 1.0% in local currencies to CHF 4,492 million. Switzerland, Belgium and Austria saw pronounced increases, as did the domestic market in Luxembourg and German property insurance.
Nonlife (property and personal insurance): This segment showed an outstanding underwriting result. At 90.6%, the net combined ratio was a clear improvement against 92.3% in the same period last year. The gross value of 88.1% remained at the record level of 2008. The foundation for this impressive performance is our policy of systematically targeting high net worth, risk-conscious customers. This segment achieved earnings before taxes and financing costs of CHF 229.3 million (2008: CHF 230.7 million). Business volume (identical to IFRS gross premiums) amounted to CHF 2,068.8 million (2008: CHF 2,123.9 million), an increase of 0.8% in local currency terms. Due to unfavourable exchange rates, this represented a decline of 2.6% as expressed in Swiss francs.
Life insurance: This segment achieved earnings before taxes and financing costs of CHF 54.0 million (2008: CHF 88.1 million), mainly due to lower investment income for own account. Business volume rose to CHF 2,922.5 million (2008: CHF 2,843.8 million), an increase of 4.9% in local currency terms and 2.8% in Swiss francs. This encouraging growth stems primarily from the occupational pensions business (group life) in Switzerland and from Baloise Life in Liechtenstein, which has been offering innovative life insurance and pension products for various European markets since the beginning of 2009. As a consequence, investment-linked life insurance saw a rise of 26.8% in local currencies.
Embedded value: In the first half of 2009 embedded value rose from CHF 2,446.2 million to CHF 2,796.2 million, representing a return on embedded value of 14.4%. Higher projected investment income contributed CHF 282.6 million. The lower than expected investment income in the first half of 2009 depressed embedded value by CHF 70.4 million (after allowing for policyholder dividend effects). The value of new business amounted to CHF 23.7 million, while the new business margin climbed to 15.3% (2008: 14.3%).
Banking: At CHF 30.2 million, earnings before taxes and financing costs were approximately the same as for the same period last year (CHF 30.9 million).
Asset management: Despite the exceptionally difficult financial market environment, investments performed solidly. Net income of CHF 766.3 million (2008: CHF 828.7 million) corresponds to a net yield of 1.4%. Recurring income amounted to CHF 984.3 million (2008: CHF 1,080 million). The lower value adjustments had a positive effect on net income. In contrast to the same period last year, IFRS performance of 1.5% (non-annualized, by cost) was positive.
Equity hedging continued through the first half of the year. After hedging positions, equities and equity-like instruments accounted for 4.7% (year end 2008: 5.1%) of total investments. The hedge funds made a positive contribution to first-half performance. The value of investments in private equities fell. Value adjustments for financial assets of an equity nature of CHF 165.0 million gross were lower than in the previous year. As a key earnings pillar, real estate holdings continued to deliver high earnings. Investment results benefited from the recovery of the euro and the US dollar. 95% of stocks in the bond portfolio are rated "A" or higher. Thanks to these excellent borrower ratings, value adjustments amounted to only 0.03% of investment holdings. Through the cautious expansion of its corporate bonds portfolio, Baloise was able to benefit from the intermittently very high credit risk premiums and subsequent falls.
Shareholders' equity: Thanks to operational earnings power and favourable exchange rates, consolidated shareholders' equity rose to CHF 4,000.4 million, compared with CHF 3,895.6 million at the end of 2008. Baloise thus retains a very strong solvency margin of 209%.
Baloise shares
Despite difficult financial markets, Baloise shares performed well in the first half of 2009: after six months they were 2.7% higher than at the start of the year. Over the same period the Swiss Market Index fell by 2.4% and the Swiss Insurance Index suffered a fall in value of 16.2%. Its European counterpart closed 8.6% below its value at the beginning of the year.
In May 2009 the share buy-back programme launched in September 2008 was extended by one year to 30 April 2010. A maximum of two million registered shares will be repurchased. This corresponds to a maximum of 4% of the shares issued. As at 30 June 2009, a total of 992,890 shares had been repurchased. This represents the halfway point of the programme.
Performance in markets
Switzerland: Despite the challenging economic climate, Baloise's largest business unit impressed with its high and stable operational earnings power. Of particular note is the outstanding performance in the nonlife sector. Earnings before taxes and financing costs came to CHF 157.1 million (2008: CHF 172.2 million). Business volume reached CHF 2,889.8 million (2008: CHF 2,838.9 million), an increase of 1.8%. The occupational pensions business (group life) accounted for most of this growth.
The Swiss nonlife business again demonstrated its excellent quality and was a strong earnings driver. An even greater improvement was achieved on last year's record-breaking gross combined ratio, with the value sinking to an all-time low of 78.6% (2008: 83.6%). In the main there were no major claims. Systematic target customer management focusing on risk-conscious customers made a major contribution. Business volume declined by 0.4% to CHF 982.0 million (2008: CHF 986.2 million), above all as a result of price pressures in the market. Accident, general liability and transport insurance showed growth, while the motor vehicle business declined.
The Swiss life insurance business demonstrated its capacity to deliver high operational earnings. However, good investment performance and favourable interest rate trends also played a role. Business volume rose 3.0% to CHF 1,907.8 million (2008: CHF 1,852.7 million). With a growth rate of 5.6%, the occupational pensions business (group life) turned in a very positive performance. In difficult times customers tend to rely increasingly on the all-round expertise of providers offering the all-inclusive insurance model. The individual life business declined as a result of low interest rates. Following its launch on the Swiss market, the "RentaSafe" product from Baloise Life showed some promising initial success.
The focused financial service provider business model, selling banking services through the insurance sales force, continued to be successful: the volume of new business was an excellent CHF 283.2 million.
Baloise Bank SoBa achieved respectable growth in new customer deposits and loans. The bank gained over 6,100 new customers. Thanks to this gratifying increase, income from interest grew despite falling margins. The general uncertainty across all financial markets during the first quarter depressed commission income from securities and investments. Net profit (by local accounting standards) came to CHF 11.8 million, a fall of 10.9% compared with 2008.
Germany: Basler, Deutscher Ring Sachversicherungs-AG and Deutscher Ring Lebensversicherungs-AG units were placed under single management to leverage synergies and provide an efficient platform for significant growth. Baloise aims to achieve net synergies of around EUR 20 – 25 million a year by 2012 from the integration of the German business units. Earnings before taxes and financing costs came to CHF 39.5 million (2008: CHF 91.7 million) in the first half of 2009. Major claims and value adjustments on investments had a negative impact on the result. Business volume amounted to CHF 1,179.1 million (2008: CHF 1,271.3 million), a decline of 1.1% in local currency terms. The German property insurance business showed welcome growth of 1.3% in local currency terms, higher than the market average. The gross combined ratio was 94.2% (2008: 91.5%). The decline is attributable to major claims. By contrast, operational costs fell. The life insurance segment achieved a business volume of CHF 548.7 million (2008: CHF 608.0 million), a decline of 3.7% in local currency terms. In a weak market, traditional life insurance shrank by 7.9%, while investment-linked products gained 10.7%.
Belgium: Flanders-based Mercator achieved earnings before taxes and financing costs of CHF 34.2 million (2008: CHF 61.2 million). Business volume amounted to CHF 412.1 million (2008: CHF 425.6 million), which represents a 3.3% increase in local currency terms. After adjusting for currency translation, the nonlife business grew by 3.4%. Business volume for life insurance rose by 2.6% in local currency, while investment-linked life insurance surged by 11.3%. These excellent growth rates are attributable to the high level of acceptance by sales partners: according to a survey, 345 brokers rated Mercator the number one nonlife insurer. The gross combined ratio for the nonlife business rose to 96.8% (2008: 91.1%). This is attributable to the higher claims burden occasioned by a hailstorm.
Luxembourg: Baloise Luxembourg is active in two markets: investment-linked life insurance in the EU, and also traditional insurance products in the Luxembourg domestic market. It again demonstrated exceptionally strong growth in its domestic market. IFRS gross premiums rose by 15.0% in local currency to CHF 64.3 million (2008: CHF 59.6 million). The nonlife business grew by 5.7%, while growth in life insurance surged by 27.8%. The gross combined ratio of 95.6% in the nonlife sector represented an improvement over the previous year (97.6%). In contrast to the high growth of previous years, the investment-linked life insurance business levelled off. Business volume for this segment totalled CHF 197.5 million (2008: CHF 217.1 million), a fall of 3.0% in local currency terms. In view of the turbulent financial markets, however, this is a respectable result.
Austria, Croatia, Serbia: Baloise Austria continued its successful growth, achieving a business volume of CHF 82.1 million (2008: CHF 82.3 million), which represents a 6.4% increase in local currency terms. The nonlife business showed a marked growth of 5.5%, as did life insurance which grew by 9.1%. Despite a major claim, the combined ratio rose to 99.8% (2008: 101.6%). Business volume for the Croatian and Serbian units came to CHF 47.7 million (2008: CHF 55.0 million). This decline is attributable to portfolio restructuring.
Baloise Life: At the beginning of the year, Liechtenstein-based Baloise Life commenced operating with innovative life insurance. Its target markets are Switzerland and the EU. Already over its first six months it achieved an impressive business volume of CHF 104.3 million.
Outlook
For the remainder of 2009 we anticipate continued volatility in financial markets and an uncertain economic outlook. We are cautious in our forecasts of how business is likely to develop. Building on the sound state of our finances, and especially on our highly profitable and productive core business, as before we are targeting return on equity of 15% over the insurance cycle and aiming continually to increase earnings per share. In the nonlife sector, we are aiming to achieve a combined ratio of significantly less than 100%.
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Headquartered in Basel, Switzerland, the Baloise Group is a European provider of insurance and pension solutions. It positions itself as an insurer with a smart prevention concept, the "Safety World". In Switzerland, the Group operates as a focused financial services provider, offering a combination of insurance and banking services. The Group also has a market presence in Germany, Austria, Belgium, Luxembourg, Liechtenstein, Croatia and Serbia. The sales network spans the Group's own sales organization, plus brokers and other partners. Baloise operates its innovative pension plan products business for private customers throughout Europe with its competence centres in Luxembourg and Liechtenstein.
Bâloise-Holding shares are listed on SIX Swiss Exchange, Main Market Segment. The Baloise Group employs some 9,400 people.