Review of operating performance
Status of target achievement
The macroeconomic impact of the Covid-19 pandemic and particularly the measures adopted to contain the spread of the virus significantly affected many sectors of the economy. The insurance industry permeates all areas of the economy and has therefore been especially hard hit, primarily due to payouts on claims for financial losses. Against the backdrop of this global crisis, Baloise can nevertheless look back on a successful 2020. The Company has helped thousands of customers in difficult circumstances and has mitigated risks. In addition to granting payouts for loss or damage, it also offered assistance in the form of deferrals of invoice payments and, in some cases, even rent waivers. The full range of services was provided to customers without restriction throughout the entire year, with rigorous hygiene protocols being observed. As a result, the Company was able to maintain high profit levels and generate growth in relevant target segments, both organically and through acquisitions. Baloise has thus proven its resilience in a crisis and demonstrated that its business model with a focus on long-term success, its strong corporate culture and its investment in digitalisation in recent years have paid off, particularly during this time of global challenges.
Business volume in 2020 (gross) by strategic business unit
Baloise considers itself within touching distance of achieving the three strategic goals for the phase from 2017 to 2021. The goal of becoming one of the top 10 per cent of employers in the financial sector in Europe was already achieved in the second half of 2020. Baloise thus managed to improve its performance in the benchmark index by more than 20 percentage points within just four rather than five years and now ranks among the top 8 per cent of its peer group.
The Company also wants to attract one million additional customers by the end of 2021. In 2020, around 225,000 new customers were gained, bringing the total number of new customers since 2017 to around 738,000. This figure does not include around 500,000 customers that were added as a result of acquisitions in Belgium in 2019.
The generation of cash is also progressing according to schedule and came to around CHF 424 million in 2020. Since 2017, a total of CHF 1,743 million of the targeted CHF 2 billion has been generated.
Baloise is therefore well on track to achieve its ‘Simply Safe’ targets by 2021. Based on the successes achieved in previous years, it can now also tackle the next strategic phase ‘Simply Safe: Season 2’ from a position of strength. This phase will start in 2022 and was presented at the Investor Day.
Profit attributable to shareholders for 2020 amounted to CHF 434.3 million and was therefore 37.4 per cent lower than in the previous year (2019: CHF 694.2 million). The figure for 2019 had been boosted in part by a non recurring tax effect of around CHF 149 million that was not repeated in 2020. Other factors that contributed to this decline in profit alongside the tax effect were expenses in connection with the Covid-19 pandemic and a fall in net financial income, as previously communicated in the 2020 half-year financial statements. Gains on investments came to CHF 1,270.5 million and thus fell short of the prior-year figure by 6.3 per cent (2019: CHF 1,355.7 million). This was attributable to disruptions in the capital markets caused by the Covid-19 pandemic and the resulting impairment losses on securities and to the persistent environment of low interest rates.
The gross expenses incurred for 2020 in connection with Covid-19, including the necessary reserves, amounted to around CHF 178 million. Net expenses incurred for 2020 in connection with Covid-19 after reinsurance came to around CHF 72 million. Payouts to cafés, bars and restaurants in Switzerland that were forced to close temporarily as a result of government-imposed measures to combat the spread of coronavirus accounted for the bulk of the volume. Baloise is thus helping thousands of business customers during this period of crisis. The majority of the net expenses were posted in the first half of 2020.
Earnings before interest and tax (EBIT) came to CHF 602.9 million, which represents a year-on-year decline of 16.7 per cent (2019: CHF 723.9 million). This fall was caused to a significant extent by lower gains on investments.
Business volume and combined ratio
The growth in the volume of business was encouraging. In 2019, the withdrawal of a competitor from business involving comprehensive insurance solutions resulted in a positive non-recurring effect of around CHF 569 million. Against this backdrop, the business volume for 2020 was down by 6.1 per cent year on year at CHF 8,926.5 million (2019: CHF 9,509.9 million). In local currency terms, the decrease was 4.2 per cent. The selective underwriting policy in the life business further contributed to the reduction in business volume. In its target segments, especially in the attractive non-life business, Baloise generated both organic growth and growth through acquisitions.
Net Combined Ratio (as a percentage)
In the non-life business, Baloise was able to maintain profitability almost on a par with the record level achieved in 2019. The net combined ratio – including net claims incurred in connection with Covid-19 – was 91.2 per cent and thus at the lower end of the communicated target range of 90–95 per cent (2019: 90.4 per cent). All core markets contributed to this excellent result. The achievement of such a solid performance in a year that was severely impacted by Covid-19 demonstrates that the portfolio is of outstanding quality and that reinsurance cover was taken out prudently.
Equity, dividend and capitalisation: confirmation of a dividend of CHF 6.40 requested
Consolidated equity went up by 4.0 per cent year on year to reach CHF 6,985.7 million at the end of 2020 (31 December 2019: CHF 6,715.6 million). In June 2020, Standard & Poor’s (S&P) confirmed its rating of A+ for Baloise. The outlook for the German business unit Basler Sachversicherungs-AG was upgraded from ‘stable’ to ‘positive’ by S&P in light of its improved profitability. In the Swiss Solvency Test (SST)*, a ratio of over 180 per cent is expected as of 1 January 2021. Baloise was thus able to reaffirm its strong capitalisation in spite of challenging conditions. The repurchase programme for more than three million shares that was initiated in April 2017 reached completion in March 2020. As a result of this programme, CHF 481.2 million was returned to shareholders. Of this volume, 565,925 shares worth CHF 92.8 million in total were bought back in 2020. In light of the solid results, the Board of Directors of Bâloise Holding Ltd intends to propose to the Annual General Meeting on 30 April 2021 that the dividend be maintained at the same attractive level as in 2019, at CHF 6.40 per share.
* The SST ratio will be published at the end of April 2021.
Non-life division: healthy growth and a good combined ratio
The premium volume in the non-life business increased by 7.3 per cent to CHF 3,802.5 million (2019: CHF 3,542.1) thanks to the inclusion of Fidea NV and the non-life portfolio of Athora in Belgium for the first full year following their acquisition and to encouraging organic growth in all core markets. In local currency terms, the rate of growth came to an even more impressive 10.1 per cent. After adjustment for the acquisitions in Belgium, the growth rate in local currency was still a very good 4.3 per cent. The premium volume in Switzerland amounted to CHF 1,368.4 million, up by a solid 1.8 per cent compared with the previous year (2019: CHF 1,344.2 million). Translated into Swiss francs, the volume of premiums in Germany fell by 1.7 per cent to CHF 776.4 million (2019: CHF 790.0 million). But in local currency terms, the volume saw a healthy increase of 2.1 per cent. Belgium and Luxembourg recorded strong growth in the volume of premiums, both in Swiss francs and in the local currency. The Belgian business benefited significantly from the two acquisitions. The volume of premiums there jumped by 18.9 per cent to CHF 1,487.4 million (2019: CHF 1,251.1 million), which equated to growth of 23.6 per cent in local-currency terms (7.5 per cent excluding the acquisitions). This shows that the Belgian business is diversifying the portfolio at Group level and helping to create stability. Luxembourg also delivered healthy growth of 1.4 per cent to reach CHF 138.6 million (2019: CHF 136.7 million). This equated to growth of 5.3 per cent in local currency terms.
EBIT in the non-life business fell by 24.2 per cent year on year to CHF 302.2 million (2019: CHF 398.9 million), which was mainly attributable to lower gains on investments. Nevertheless, profitability in the non-life business remained very strong, which highlights the high quality of Baloise’s non-life portfolio. The net combined ratio was maintained at a very good level of 91.2 per cent (2019: 90.4 per cent). This was mainly due to the fact that the majority of Covid-19-related expenses were covered by reinsurance and that the general level of claims and the number of large claims and natural disasters was otherwise low in 2020. All business units contributed to this very strong result.
Life business: normalisation in premium volume and a solid profit contribution
The volume of business in the life insurance business fell by 14.1 per cent year on year to CHF 5,124.0 million (2019: CHF 5,967.7 million). In local currency terms, the decrease was 12.7 per cent. This was mainly attributable to a selective underwriting policy for occupational pension products and a non-recurring positive effect in this segment of the Swiss market the previous year. A competitor in the group life business withdrew its comprehensive insurance products from the market in 2019, which resulted in a sharp rise in business volume that was mainly driven by single premiums. All in all, this gave the business volume in the life insurance business an uplift of around CHF 569 million in 2019. In 2020, the volume of premiums in the traditional life business normalised as expected, contracting by 18.9 per cent to CHF 3,291.3 million (2019: CHF 4,060.3 million). For the Swiss business, this translated into a decline in gross premiums written in the traditional life business of 22.6 per cent to CHF 2,648.2 million (2019: CHF 3,422.9 million). In Swiss francs, the German business recorded a slight uptick of 0.6 per cent in gross premiums written, reaching CHF 380.2 million. In local currency terms, the rate of growth was 4.6 per cent. Gross premiums written in Belgium grew by 4.7 per cent in Swiss francs to CHF 190.3 million, which equated to growth of 8.8 per cent in local currency terms. In Luxembourg, the volume of gross premiums written in the life business contracted by 5.6 per cent to CHF 72.5 million. This equated to a decline of 1.9 per cent in local currency terms.
The volume of investment-type premiums dropped by 3.9 per cent year on year to CHF 1,832.7 million (2019: CHF 1,907.5 million). This was due to persistently challenging market conditions for the ‘Freedom of Service’ business. But with more than CHF 10 billion in assets under management, Baloise is maintaining its position as a key player in this segment. Negative currency effects and Baloise’s market-driven decision not to offer a tranche product in Switzerland in 2020 that had generated a positive effect in the prior-year period also contributed to this decline.
EBIT in the life business amounted to a solid CHF 282.2 million, thus exceeding the minimum expected profit contribution of CHF 200 million (2019: CHF 274.8 million). Net financial income in the life business was also adversely affected by impairment losses. This was counteracted by positive effects in technical reserves. The amount needed to strengthen reserves was lower than in 2019. As a result, EBIT increased slightly. The interest margin stood at a good level of 102 basis points (2019: 109 basis points). The average guaranteed rate of return in the traditional life business dropped from 1.2 per cent to 1.1 per cent due to the interest rate-related strengthening of reserves and an improved business mix.
The new business margin in the life business was very healthy at 42.7 per cent in 2020, representing a return to a more normal level compared with the prior-year figure, which had been influenced by a one-off spike in volume in the group life business in Switzerland (2019: 37.3 per cent).
Following the outbreak of Covid-19 in early 2020, the ensuing lockdowns caused economic activity to grind to a halt in an unprecedented manner in March. In response, the financial markets rapidly plunged into turmoil. After a crash that saw global share prices plummet by 34 per cent within 24 trading days, most markets quickly began to recover. Concerns in connection with the pandemic intermittently caused volatility, but the central banks’ policy of low interest rates and new asset purchase programmes as well as comprehensive support packages provided by governments boosted the stock markets and stabilised bonds.
Insurance assets: solid investment yield in an unusual trading year
In light of the market turmoil, gains on the investment of insurance assets were lower than in the previous year at CHF 1,270.5 million (2019: CHF 1,355.7 million). Current income fell to CHF 1,101.0 million owing to the persistently low level of interest rates (2019: CHF 1,176.5 million). This trend was mitigated, to an extent, by reallocating assets to private debt and building up positions in corporate bonds at attractive credit spreads.
At CHF 579.1 million, the capital gains recognised in the income statement were up by CHF 5.6 million compared with the prior year. This was attributable to high contributions from bonds and equities. Impairment losses were up by CHF 122.5 million year on year. This increase was mainly driven by European equities and was linked to the disruption in the capital markets caused by the Covid-19 pandemic.
The net gains and losses relating to currency hedging costs and currency effects arising on unhedged currency exposures improved by CHF 102.3 million to a gain of CHF 74.9 million owing to lower currency hedging costs and exchange rate movements. The gains on investments achieved for insurance assets equated to a net return of 2.1 per cent, which was down a little on the 2019 figure of 2.3 per cent. Unrealised gains rose by CHF 546.2 million owing to changes in interest rates and the narrowing of spreads. The rate of return on insurance assets according to IFRS – which includes unrealised net gains and losses on investments, but excludes gains and losses on held-to-maturity debt instruments – was 3.0 per cent, representing a decrease on the 4.7 per cent rate of return according to IFRS in 2019.
Significant increase in external customers’ assets
As at 31 December 2020, the total assets under management stood at CHF 66.2 billion, a rise of 4 per cent on the prior year. The increase in volume was due not only to the recovery in the financial markets in the second half-year and a strong performance towards the end of 2020, but also to additional inflows, which included both insurance assets and assets in business with external customers. The latter was primarily attributable to growth in assignments for real estate portfolio management.
On average over the year, the volume of assets under management remained lower than in 2019 and thus generated lower returns. Alongside the smaller average volume, other one-off effects also contributed to the decline. Most notably, additional non-recurring income was generated in 2019 as a result of the capital increase of the Baloise Swiss Property Fund. Business with external customers was once again expanded substantially in 2020. Net new assets amounted to CHF 1,244.4 million, a year-on-year increase of 48 per cent. The volume of business with external customers was thus increased significantly and further skills and expertise were accumulated.
The asset management mandates at Baloise Bank SoBa also made a significant contribution to the rise in net new assets. The number of asset management mandates increased to 3,212 (up by 21.4 per cent), highlighting the benefits of the bank’s unique offering in Switzerland of insurance, banking and asset management from a single source, and of integrating pension and wealth management services.
The real estate segment saw strong growth. At the start of 2020, Baloise acquired two plots of land that form part of the Giessen development in Dübendorf. Plans for the approximately 35,000 square metre site include the construction of around 500 new homes, as well as commercial units and green spaces, by 2026. In August 2020, the Group’s new headquarters at Baloise Park was officially opened. The complex, which comprises three buildings, is a striking new landmark in Basel right by the central train station. In addition to the Group headquarters, two investment properties were constructed that have already been almost fully let.
Baloise also further underpinned its ambitions as a real estate service provider by entering into a partnership with Pensionskasse Basel-Stadt at the end of 2020.
In the market for liquid assets, the Baloise Global Bonds CHF Optimized fund and the Baloise Senior Secured Loans fund enjoyed strong demand and became the flagship portfolios in their respective product categories. In the summer of 2020, Baloise Asset Management invested in Zurich-based asset manager Tolomeo Capital AG as part of a strategic partnership, which strengthened its position as one of Switzerland’s leading rule-based asset managers. The Group entities Baloise Asset Management Schweiz AG and Baloise Immobilien Management AG were merged in order to simplify the structure. They now operate under the single name Baloise Asset Management AG. In addition, Baloise continued to evolve its culture in order to become an increasingly customer-oriented organisation. To this end, employees now collaborate in self-organised cross functional teams with end-to-end responsibility. The aim behind this change is to strengthen the focus on customers and increase efficiency.
Baloise Asset Management contributes to the sustainability strategy of the Baloise Group by taking a responsible investment approach. The Baloise Responsible Investment Policy (RI Policy) provides a fundamental framework for the implementation of a sustainable value creation process. In 2020, the scope of the sustainable investment approach was expanded to all assets managed by Baloise in products for external customers, the Baloise Senior Secured Loans fund, the selection of third-party funds and real estate investments.
The climate strategy and the launch of the active ownership approach in the first quarter of 2021 mark two milestones in the implementation of the sustainable investment strategy. The aim of the climate strategy is to reduce risks that arise in connection with climate change and to manage these risks prudently in the portfolio. The active ownership approach focuses on an active dialogue with companies on specific issues and sustainability topics. This enables us to generate a positive environmental and social impact with the assets we manage. In addition, the requirements of the European regulator under the EU Action Plan are being implemented in order to improve transparency on the subject of sustainability for investors.
At the Investor Day in October 2020, Baloise presented the next strategic phase, ‘Simply Safe: Season 2’, which covers the period 2022 to 2025. This phase will be decisive for digital advances at Baloise. The aim is to become a technology-driven financial services provider and a key actor within the Home and Mobility ecosystems, making Baloise an indispensable partner to customers in their everyday lives. In addition to its core insurance business and its asset management and banking activities, the Company is therefore also focusing on innovation, the third pillar of its business model. The ambition is to reach a value creation figure of approximately CHF 1 billion with the Baloise innovations by 2025 and to generate additional business volume of more than CHF 350 million in this area over the same period.
Alongside the core insurance business, the Group-wide innovation focus will be on the Home and Mobility ecosystems, which were further expanded in 2020. We expect the business volume in each of these ecosystems to grow to around CHF 100 million by 2025. The target for our digital insurance service FRIDAY is to reach a business volume of more than CHF 150 million in 2025.
In Switzerland, Baloise invested in cleaning services provider Batmaid in the first half of 2020 and established a partnership with quitt., a leading platform facilitating hiring, payroll and social security administration processes for domestic support workers. It thus expanded its existing range of partnerships with Movu, Bubblebox and Devis in the Home ecosystem.
Customers visiting the batmaid.ch website can hire properly insured and qualified cleaning staff online within one minute. The company’s integrated trust service registers workers and takes care of payroll taxes on behalf of its customers. The cleaning staff have the benefit of declared work and social insurance cover. Quitt. is a leading provider of registration and administration services for domestic support workers in compliance with legal requirements in Switzerland. The company takes care of registering workers with all relevant authorities, running the payroll and organising the necessary insurance cover, thus guaranteeing that all domestic support workers are properly employed and insured. To this end, quitt. collaborates with all cantonal compensation offices and tax authorities in Switzerland and also offers customers a pension fund solution of its own. In September 2020, Baloise invested in the start-up Houzy, a Zurich-based technology platform that enables owners of houses and apartments to manage every aspect of their property digitally in one place. Houzy intelligently connects its customers with the right partners, whether they are buying, renovating, maintaining or selling their property.
In Belgium, Baloise impressed customers with three new innovations. In collaboration with the Belgian start-up Keypoint, Baloise has developed a new digital assistant designed to simplify the work of property managers. In a bid to address the shortage of professional property managers in Belgium, Keypoint has developed a digital platform that brings all relevant parties together and helps them to carry out property management tasks. The second innovation involved an investment by Baloise in the Walloon start-up ImmoPass, a service provider in the field of technical property checks. Potential buyers or property managers can use the ImmoPass system to assess the technical condition of their building in order to avoid unexpected renovation costs.
The third investment in Belgium, towards the end of the year, was made in Rentio – an innovative Flemish start-up that digitalises, centralises and automates all manner of tasks in connection with lettings processes. Property management companies, landlords and tenants can use the frictionless functionalities of its online platform or app to enter into contracts, monitor payments, exchange documents and sort out everyday problems such as a broken radiator or a routine boiler service.
In addition, Baloise used this period of widespread working from home as an opportunity to expand the offering of its B-Tonic health platform in Belgium in order to support the mental and physical well-being of its employees, brokers and customers. The platform provides tips on how to stay resilient, especially during the pandemic, for example by eating healthily and taking daily exercise. B-Tonic uses a combination of activities such as the ‘Healthy in 100 days’ challenge, free health guides, webinars and Facebook live sessions to provide useful input. This successful concept is on track to become a firmly established part of Baloise’s activation offers in Belgium.
Baloise continued to drive forward the expansion of the Mobility ecosystem in 2020. In addition to existing investments and partnerships, e.g. with Drivolution, Gowago and Stratos*, Baloise launched two further initiatives in the second half of 2020. Its subsidiary Mobly founded the mobility platform Moveasy in collaboration with the roadside assistance company Europ Assistance. Moveasy uses the concept of ‘mobility as a service’ and integrates more than 20 transport service providers in Belgium with the aim of providing residents in urban areas with sustainable and environmentally-friendly alternatives to the car as a mode of transport, while always enabling users to keep an eye on their travel budget.
In November 2020, Baloise announced a partnership with TWIICE, a Swiss start-up that specialises in the development of exoskeletons. This project enables Baloise to better integrate the mobility needs of a specific target group, i.e. people with musculoskeletal conditions. In line with its approach to sustainability and its commitment to fulfilling its corporate social responsibility, Baloise is taking this opportunity to shape the future of mobility in a way that makes it open to everyone, including those with disabilities.
At the end of the year, Baloise also announced the foundation of aboDeinauto and an investment in Ben Fleet Services in Germany. aboDeinauto is a start-up founded by Baloise with support from Berlin-based corporate venture builder Bridgemaker and the first car subscription service to focus specifically on used vehicles. Its concept is based on close collaboration with car dealers who gain the opportunity to get involved in the rapidly growing market of car subscription services through aboDeinauto. The monthly fee is affordably priced and the subscription model is simple and flexible. aboDeinauto enables customers to use a second-hand car of their choice on a monthly subscription basis with no long-term commitment. The close relationships with car dealers allow it to draw on a large pool of second-hand vehicles and to offer them at particularly attractive rates. This differentiates aboDeinauto from existing car subscription services in the market.
Ben Fleet Services was founded in 2019 and its digital service platform has been revolutionising the market for fleetbased services ever since. Its portfolio of services, which can be used for individual vehicles or entire fleets, includes on-site cleaning, refuelling and charging, maintenance and repairs, and delivery and collection. The company looks after not only cars (both conventional and electric) but also vans, buses and trains, bicycles and e-scooters. The platform efficiently integrates these services with existing customer systems via digital interfaces. Its automated processes generate time and cost savings and offer customers a high degree of flexibility.
* Formerly ‘Carhelper’.
FRIDAY achieved its targets for the 2020 financial year and now has a base of more than 100,000 customers. The outbreak of the Covid-19 pandemic caused a dip in new vehicle registrations in Germany, but thanks to its digital offering, FRIDAY was still able to meet its growth targets. Gross premiums written by FRIDAY doubled year on year to more than CHF 30 million in 2020. This growth was accompanied by high customer satisfaction and continuous improvement of the claims ratio. FRIDAY intends to achieve further growth in 2021. The company’s planned market launch in France will be an important step in this regard. FRIDAY plans to generate a contribution of more than CHF 150 million to total business volume by 2025.
The good results for 2020 show that Baloise is well on track to achieve its targets for the Simply Safe strategic phase by 2021 despite the substantial challenges posed by the Covid-19 pandemic. A reliably strong balance sheet, solid profitability levels and a healthy volume of business show that Baloise is continuing to operate in a prudent and sustainably successful way despite challenging conditions. At the Investor Day on 29 October 2020, the Baloise Group presented the content of ‘Simply Safe: Season 2’, the next phase of its strategy that sets out the Company’s targets and ambitions for the period 2022 to 2025. By 2025, Baloise is aiming to be in the top 5 per cent of the best companies to work for in Europe, to have gained 1.5 million new customers and generated CHF 2 billion in cash. Of this cash, it intends to distribute 60 to 80 per cent as dividends. Baloise also wants to further exploit the substantial potential for growth of its digital insurance enterprise FRIDAY. And in addition to the two existing pillars of insurance and asset management & banking, it wants to establish the Home and Mobility ecosystems – along with further innovations – as a new third pillar of its business and reach a value creation figure of CHF 1 billion in these new areas.