Letter to shareholders
Half-Year Report 2016
In the first half of 2016, Baloise generated a profit of CHF 223.6 million (H1 2015: CHF 248.7 million) for its shareholders. The decrease was due to the addition of CHF 54.8 million to reserves in the German non-life business, which resulted in a deduction of CHF 37.9 million from the profit for the period, but taking this action has strengthened the German business. If it had not added to its reserves, Baloise would have generated a profit for its shareholders of CHF 261.5 million. Despite the competitive environment, the Group’s business volume remained unchanged year on year at CHF 5,623.9 million. This was because we were able to continue with the planned switch to capital-efficient risk and unit-linked products in our life business.
Profits were down in Baloise’s non-life business where profit before taxes and borrowing costs (EBIT) amounted to CHF 208.4 million (H1 2015: CHF 262.0 million). Excluding the one-off action in Germany, EBIT would have been up by 0.5 per cent year on year. The net combined ratio remained healthy at 92.5 per cent, just slightly below the prior-year level (H1 2015: 92.3 per cent). The volume of business expanded by 3.1 per cent and amounted to CHF 2,128.3 million for the half-year.
There was an overall decline in the profits from Baloise’s life business, with profit before taxes and borrowing costs (EBIT) falling to CHF 45.5 million (H1 2015: CHF 70.3 million). The focus was on innovative life products, capital-efficient risk products and investment-linked insurance solutions, the latter highlighted by sharp growth of 18.5 per cent in investment-type premiums. The EBIT attributable to the banking business rose to CHF 53.5 million (H1 2015: CHF 42.8 million). Consolidated equity at the end of the first half of the year stood at CHF 5,435.5 million (31 December 2015 restated: CHF 5,453.6 million). This means that Baloise remains very well capitalised, as is also reflected in the fact that rating agency Standard & Poor’s has re-affirmed its credit rating of “A with a stable outlook”.
The challenges for investment have become even more intense, but the decent return on Baloise’s investments demonstrates that it has adjusted well to the new situation. Reallocating investments, primarily in the bond portfolio, and further increasing our real-estate investments has enabled us to respond well to the tough investment climate. The result was an improved net return on insurance assets of 1.8 per cent (H1 2015: 1.6 per cent).
“The foundations for the next strategic phase have been laid.„
Basler Switzerland has maintained its strong position. It dealt extremely well with the competitive environment in the Swiss market, as shown by the higher level of earnings. Together with Baloise Bank SoBa, the Swiss unit again proved that the specialised financial services provider strategy is paying off. Switzerland remains a cornerstone of our Group, which is why we are making a strategic investment at our headquarters in Basel. Construction of the first of three new buildings in Baloise Park is set to start in early 2017. Belgium remained the strongest international market. We outperformed the Belgian market, particularly in terms of the growth in our non-life insurance business. In Germany, action has been taken to stabilise our future financial performance. As a result, the Group’s long-term ability to pay dividends has improved. Given the protracted period of low interest rates in Europe, the annuity reserves in the German non-life business have been strengthened. The claims reserves for existing industrial-liability policies were also increased. In Luxembourg, the premium volume increased and there was a further fall in the net combined ratio.
Baloise is underpinned by very strong foundations and so is fully prepared for the next strategic phase. For our customers, we plan to be more than an insurance company, with our future focus on the ever-changing security demands in the digital age.
For our employees, we want to create an environment that encourages entrepreneurship and for you, our shareholders, our aim is to maintain a consistent, attractive dividend policy. Further information about the key aspects of the next strategic phase will be provided at the strategy conference in the autumn.
Basel, August 2016
Chairman of the Board of Directors