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Letter to shareholders

Dear Shareholders

Dr Andreas Burckhardt, Chairman of the Board of Directors (on the right), and Gert De Winter, Group CEO (on the left), testing the Baloise Park augmented reality app, which can be downloaded for free from the Google Play Store and the Apple App Store.

In the autumn of 2016, Baloise formulated the three targets for its new strategy. By 2021, our aim is to generate CHF 2 billion of cash for the holding company, attract an additional one million customers and become one of the most attractive employers in our industry. At the end of the first year, it is clear that we have made a very good start. The profit for the period attributable to shareholders was up by 2.5 per cent to CHF 548.0 million (2016: CHF 534.8 million) and the net combined ratio held steady at 92.3 per cent (2016: 92.2 per cent), demonstrating that Baloise has successfully embarked on this strategic journey. The volume of business grew by 3.9 per cent to CHF 9,260.8 million. Moreover, Baloise launched numerous initiatives in 2017 without neglecting its core business, which is and remains the basis for long-term business success.

The volume of non-life business reached CHF 3,229.3 million, a year-on-year rise of 2.8 per cent. Switzerland notched up growth (in Swiss francs) of 0.7 per cent, Belgium 5.5 per cent, Luxembourg 5.0 per cent and Germany 3.6 per cent. The performance of the life business was also highly encouraging. Underwriting policy in the traditional life business remained restrictive, resulting in a 1.6 per cent contraction in the volume of business to CHF 3,512.0 million. However, business with investment-type premiums was very successful in 2017 and the volume of premium income grew by 14.6 per cent to CHF 2,519.5 million.

Baloise can report initial progress on achieving the strategic targets after just the first year. The holding company has already received CHF 415 million of the total of CHF 2 billion, we have signed up 118,000 new customers and we are among the top 25 per cent of the most attractive employers in our sector in Europe (our ambition: top 10 per cent). Last year, our strategic activities focused on the launch of digitalisation initiatives and the expansion of customer care. Building on its strong and stable core business, Baloise is concentrating on becoming even more customer-centric. In doing so, it is striving to evolve into a service provider for insurance, pension and other services that extend beyond the core insurance business. This transformation of the business model requires, above all, entrepreneurial energy, and this was evident throughout the Company in 2017.

When implementing new initiatives, Baloise focuses on five dimensions: we identify start-ups, develop or help them to mature, enter into alliances, test out new ideas ourselves or buy fledging businesses. This broad-based approach gives the individual initiatives a better chance of success. Working with an investment and consultancy firm in London, Baloise is investing up to CHF 50 million in European and US-based startups that offer the potential to drive forward the process of digitalisation at Baloise. We also benefit from the firm’s experience with digital financial services and are incorporating it into our new strategy. In Switzerland, we are involved with companies that support and develop international fintech startups. This gives Baloise exclusive access to highly promising fintech start-ups, new technologies and business models that have the potential to bring about significant changes in the insurance sector.

Entrepreneurial energy was evident throughout Baloise in 2017.

Baloise also invests in its own start-ups. FRI:DAY, a mobile insurer, made its debut in early 2017 in Germany. The company launched the first mileage-based motor vehicle policy and has already attracted more than 15,000 customers. Another start-up is Mobly, a platform for services in the Belgian used car market that complement traditional motor vehicle insurance. The company began with two products: Mobly Go is a driver assistance system for all vehicle brands in the used car segment, while Mobly Car Expert enables customers to obtain professional support when buying a second-hand car.

In its partnerships with various start-ups, Baloise has shown that it is capable of breaking away from the mindset of a traditional insurer. The alliances have given rise to new products, such as watch insurance featuring photo recognition software, which is offered in Switzerland and Germany. Other examples include the first cyber insurance product for retail customers in Switzerland, the first mortgage app in Switzerland, fully digitalised insurance for personal items, which can be taken out with just a few clicks and offers cover for more than 60 individual items, and GoodStart, a simple online home contents insurance product in Luxembourg. Another highlight was the new YounGo insurance line for customers in Switzerland up to the age of 30, which has led to a sharp rise in new customers. Partnerships with TCS, Bank Cler, BLKB, Möbel Pfister and many others are also important as they give Baloise significantly more opportunities to interact with customers in all markets. Finally, Baloise itself is creating a new digital experience relating to the construction of Baloise Park with an app that shows what the new buildings will look like.

Corporate culture is an important element of the digital transformation, and satisfied employees are central to Baloise’s new strategy. Employees are playing a core role in implementing the strategy. In the remuneration system, we have cancelled the individual performance targets and introduced a new incentive scheme. The focus is now on team targets that actively encourage people to work together. This is rooted in our firm belief that, in future, team achievements rather than exceptional performance on the part of individuals will determine our success and lead to the best solutions.

The first year of the new strategy highlights the energy and speed with which Baloise is tackling the challenges of the digital transformation. We are doing this with a broad spectrum of initiatives and capital expenditure on business models that we think will work, underpinned by our traditionally strong core business. There are four more years to go before we reach the objectives of our new strategy. The first signs of success are already visible and tangible. Not least thanks to its traditionally strong corporate culture, Baloise has the strength to achieve its targets and thus successfully implement its plan. For this reason, the Annual General Meeting will be asked to raise the dividend by CHF 0.40 to CHF 5.60.

Basel, March 2018

Dr Andreas Burckhardt

Chairman of the Board of Directors

Gert De Winter

Group CEO