Letter to shareholders
Baloise meets its targets in a challenging environment
Baloise has met its targets and has succeeded in consolidating its operational profitability. The challenging, exceptional economic 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 introduction 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 hedging 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 rating 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 operational excellence and target customer management make it extremely resilient. This strength was also reflected in its profit 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 Germany 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 innovative pension solutions in the future, such as the semi-autonomous Perspectiva pension scheme in Switzerland. This will enable us to ensure that our customers’ pensions remain safe 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. Particularly 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 earnings in their life business and reaffirmed their excellent profitability 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 interest 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 localcurrency 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 challenging 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 quality of our asset management.
“We believe there are further attractive opportunities in life insurance, but we plan to prioritise the latest, innovative pension solutions.„
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 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 leadership, 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 benefit of our owners.
The insurance industry is facing game-changing challenges. The change in consumer behaviour resulting from digitisation, for example, will influence how we meet the future demands of our customers. It will become increasingly important to innovate and break into new areas of business. The lowinterest-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.
Basel, March 2016
Chairman of the Board of Directors
(until 31 December 2015)