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Letter to shareholders

Baloise exceeds expectations

Dear Shareholders

Gert De Winter und Andreas Burckhardt sitzen in Ledersesseln und schauen den Betrachter des Bildes direkt an
Dr Andreas Burckhardt, Chairman of the Board of Directors (right), and Gert De Winter, Group CEO (left).

Baloise is ready for the future. We are relying on innovation, agility and an entrepreneurial culture – without neglecting our core insurance business. The Simply Safe strategy sets out ambitious targets for Baloise to achieve by 2021. At the Investor Day in late October, Baloise presented the targets for the coming five years, in which it will be focusing on employees, customers and shareholders. Against a backdrop of changing conditions in the insurance sector, Baloise is thus evolving into an innovative provider of solutions that expand its core business and extend beyond traditional insurance business.

Gert De Winter joined as Group CEO in early 2016. He has been tasked with looking after the existing business and, at the same time, daring to embark on new ventures in order to tackle the challenges of a changing environment. The Company’s track record over the past decade has been excellent.

Baloise has one of the most profitable non-life portfolios in Europe, a strong market position in its core markets, cuttingedge IT systems and digitalised processes, plus forward-looking capital and risk management. These attributes and our shareholder- friendly dividend policy have long made Baloise one of the most attractive stocks in the sector. A fact that I am sure you already appreciate as shareholders.

Building on its successful past, Baloise is further strengthening its core business and also stepping up its activities outside the traditional insurance business in areas such as safety services, active assistance and prevention. The Company is thus equipping itself for the changing requirements of today’s customers. On this journey, Baloise will measure its performance using three clear and simple goals.

  1. Baloise aims to become the first choice for people who want to feel ‘simply safe’. By ensuring an even stronger focus on customer needs, tailored omnichannel communication and innovative products and services in the areas of insurance, assistance and pensions, Baloise is striving to attract an additional one million customers by 2021. This equates to an increase of 30 per cent.
  2. The workforce is key to implementing the new corporate strategy. Baloise wants to become an employer of choice in its industry. This will be measured in terms of how strongly its employees recommend it as an employer. Currently, Baloise is in the top third of the market for European financial services providers. The aim is to make it into the top 10 per cent.
  3. Finally, you, our shareholders, are to benefit directly from Baloise continuing to pursue an attractive dividend policy and repurchasing up to three million more treasury shares. At the same time, targeted capital investment in new strategic projects will indirectly generate additional profits in existing and new areas of business. We anticipate a cash inflow to Bâloise Holding of CHF 2 billion between now and 2021 that will pave the way for this consistently attractive shareholder policy and profit-bringing new capital expenditure.

The workforce is key to implementing the new corporate strategy.

However, 2016 was not just about the new strategy. Important foundations for the future were laid in Germany. The strengthening of reserves in the German industrial and liability business, the shift in the business mix towards profitable retail and SME customers and measures to increase the company’s sales capability are putting the German business on a firm footing. This strengthening of reserves reduced profit for the period by CHF 37.9 million net. In Switzerland, however, pension plan changes for banking and insurance employees resulting from IAS 19 had a positive impact. The profit for the period of CHF 534.8 million was therefore 4.4 per cent higher than in 2015.

In the life business, our efforts to change the business mix are already having an impact. Premiums from traditional life business declined in all countries, whereas investment-type premiums rose by 5.5 per cent across the Group. In the non-life business, the rise was 3.0 per cent. The net combined ratio improved by 1.1 percentage points year on year to 92.2 per cent. The net return on insurance assets came to 2.9 per cent, which was in line with the long-term trend (2015: 3.0 per cent). This is further proof of the stability of our asset management.

The Swiss business significantly increased its earnings and remains highly profitable. Earnings from the German business were influenced by the strengthening of reserves in non-life insurance. The business volume in Germany remained stable. Thanks to the steps taken, earnings are predicted to improve in future. In Belgium, the volume of business and the profitability of the non-life business grew. However, earnings were down year on year due to a decline in the life business. Luxembourg enjoyed a good year in 2016. Although earnings fell slightly (by 0.9 per cent), the business volume increased once again and the profitability of the non-life business continues to be very good.

We owe a huge debt of gratitude to our employees for achieving good results once again against a backdrop of continued uncertainty and challenging economic conditions. Day in, day out, our employees contribute to Baloise’s success on many different levels.

The profit that we generated in 2016 exceeded expectations. For this reason, the Board of Directors will ask the Annual General Meeting to raise the dividend to CHF 5.20. Moreover, the share buy-back programme launched in 2015 will finish earlier than planned. We have already announced a new programme, in which up to three million shares are to be repurchased over the next three years.

Under its new strategy, Baloise has set itself three clear targets in respect of employees, customers and shareholders. These will enable us to measure our performance over the next five years. We believe the targets are ambitious, especially because low interest rates and the strong Swiss franc continue to present us with difficulties. In view of the challenges facing our industry, we have to be innovative and dare to embark on new ventures. However, we have the necessary strength with which to pursue this strategy successfully. We believe Baloise is very well positioned to get through even difficult periods and achieve the targets that it has set.

Basel, March 2017

Dr Andreas Burckhardt

Chairman of the Board of Directors

Gert De Winter

Group CEO