The Baloise Group is more than just a traditional insurance company. The changing security, safety and service needs of society in the digital age lie at the heart of its business activities. The 7,900 or so employees of Baloise therefore focus on the wishes of their customers. The best possible customer service, combined with innovative products and services, makes Baloise the first choice for people who want to feel ‘simply safe’. Located at the heart of Europe, with its head office in Basel, the Baloise Group is a provider of prevention, pension, assistance and insurance solutions. Its core markets are Switzerland, Germany, Belgium and Luxembourg. In Switzerland, the Group also operates as a specialised financial services provider, offering a combination of insurance and banking services. The Group offers innovative pension products to retail customers throughout Europe from its competence centre in Luxembourg. Bâloise Holding Ltd shares are listed in the main segment of the SIX Swiss Exchange.
2017 half-year financial results at a glance
Profit rises by 33.8 per cent to CHF 298.6 million.
Business volume growth in the target segments; non-life up by 1.0 per cent, traditional life down by 0.2 per cent and investment-type premiums up by 2.9 per cent.
Strong improvement in the profitability of the non-life business.
Net combined ratio of 89.7 per cent (H1 2016: 92.5 per cent).
A net combined ratio in Germany of 99.5 per cent.
EBIT of CHF 114.8 million in the life business (H1 2016: CHF 45.5 million).
New business margin in the life business climbs to 24.8 per cent, partly due to the improved business mix.
Asset management defies persistently low interest rates, achieving a net return on insurance assets of 1.4 per cent.
Equity rises by 2.0 per cent to CHF 5,892.0 million (31 December 2016: CHF 5,773.7 million).
Around 8 per cent of up to three million treasury shares repurchased under the share buy-back.
Overview of operating performance
Profit and business volume
Baloise generated a profit of CHF 298.6 million for the first half of 2017. One of the main reasons for this increase of 33.8 per cent compared with the first half of 2016 was the greatly improved combined ratio in the non-life business, which had been adversely affected by one-off additions to reserves in Germany in the prior-year period. In the life business too, the level of interest rates resulted in less strengthening of reserves compared to the first half of 2016. Despite the challenging environment and the sale of a closed life insurance portfolio in Germany, the Baloise Group's business volume continued to grow. At CHF 5,671.0 million, it was 0.8 per cent larger than in the prior-year period. This increase was driven primarily by the target segments, i.e. non-life business and investment-type premiums.
Non-life and life business
The volume of non-life business expanded by 1.0 per cent to CHF 2,149.5 million, despite the negative effects of exchange rates. Adjusted for currency effects, the increase was 1.9 per cent. The excellent net combined ratio of 89.7 per cent for non-life business reflected the strong improvement in profitability, falling by 2.8 percentage points year on year. In all Baloise companies, the net combined ratio for the six-month period was below 100 per cent.
Profit before taxes and borrowing costs (EBIT) in the life business came to CHF 114.8 million (H1 2016: CHF 45.5 million). The main reason for this improvement was more stable interest rates, which resulted in a significant reduction in the strengthening of reserves compared with the first half of last year. Investment-type premiums were up by 2.9 per cent. The premium volume in traditional life insurance business was virtually unchanged. In the German life insurance business, the sale of the closed life insurance portfolio of the German branch of Baloise Life Ltd to the Frankfurter Leben Group is having an adverse impact on growth. The new business margin in the life business advanced to 24.8 per cent (H1 2016: 7.3 per cent), largely because of greatly improved margins in Switzerland, Belgium, and Luxembourg. In Germany, the new business margin is already at a very good level.
Banking & Asset Management
Profit before taxes and borrowing costs (EBIT) in the banking business was down by around a quarter, or CHF 11.6 million, to CHF 41.9 million. This corresponds to the average level in recent years, whereas the figure for the prior-year period had been bolstered by a non-recurring item arising from changes to the pension scheme at Baloise Bank SoBa. The main driving forces in this division are traditionally Baloise Asset Management, whose contribution increased year on year, and Baloise Bank SoBa.
Consolidated equity at the end of the first half of the year stood at CHF 5,892.0 million and was therefore 2.0 per cent higher than at the end of last year (31 December 2016: CHF 5,773.7 million). Rating agency Standard & Poor's re-affirmed Baloise's credit rating of 'A' with a stable outlook this year, underlining the Company's healthy capitalisation. Separate credit ratings for the subsidiaries of Baloise have also been issued for the first time. Baloise Belgium NV achieved 'A' with a stable outlook, while the German company Basler Sachversicherungs-AG was awarded 'A-' with a stable outlook. Under the share buy-back programme announced in the spring, around 8 per cent of up to three million shares have been repurchased since April 2017.
Performance and trends in the segments
The non-life business (indemnity and personal insurance) generated EBIT of CHF 261.2 million (H1 2016: CHF 208.4 million), a year-on-year increase of 25.3 per cent. It should be noted that the one-off strengthening of reserves at Basler Germany had depressed EBIT significantly in the prior-year period. The net combined ratio improved to a very good 89.7 per cent (H1 2016: 92.5 per cent). The reasons for this included not only the improvement in Germany but also the very favourable level of claims incurred in the first half of the year and the significant decrease in large claims incurred compared with the first half of 2016. Moreover, the profit on claims reserves was up year on year. The business volume was CHF 2,149.5 million, a rise of 1.0 per cent compared with the corresponding period of 2016 that was achieved despite the negative effect of exchange rates. Non-life business generated growth in all markets.
EBIT increased by 25.3 per cent
Significant improvement in profitability, strong net combined ratio of 89.7 per cent
The life insurance business generated EBIT of CHF 114.8 million (H1 2016: CHF 45.5 million). The main reason for this change was the reduced strengthening of reserves in the life business owing to the level of interest rates. Furthermore, the volume of life business, including investment-type premiums, was up slightly compared with the prior-year period at CHF 3,521.5 million (H1 2016: CHF 3,495.6 million). The group-wide growth of 2.9 per cent in investment-type premiums, which rose particularly strongly in Luxembourg (by 13.7 per cent), had a positive impact. Adjusted for exchange-rate effects, the Group's growth would have been an impressive 4.3 per cent. The further increase in investment-type premiums reflects the strategic focus on modern life products that are not capital-intensive. The sale of the life insurance portfolio of the German branches of Baloise Life Ltd to the Frankfurter Leben Group had an adverse impact on growth. The better business mix and the level of interest rates had a positive influence on the new business margin, which improved to 24.8 per cent (H1 2016: 7.3 per cent).
EBIT contribution of CHF 114.8 million
Growth of 2.9 per cent in the life target segment 'investment-type premiums', with premium income rising to CHF 1,109.7 million
New business margin at a healthy 24.8 per cent
Banking & Asset Management
The banking business achieved a healthy profit for the half-year period that was on a par with recent years, generating EBIT of CHF 41.9 million (H1 2016: CHF 53.5 million). In the first half of 2016, this figure had been boosted by a non-recurring item arising from a change in the pension scheme at Baloise Bank SoBa. Once again, Baloise Asset Management and Baloise Bank SoBa were the main drivers of this result. Baloise Asset Management's contribution improved by 2.2 per cent. Baloise Bank SoBa also achieved a good result if the positive non-recurring effect in the prior-year period resulting from the pension scheme changes is disregarded. The profit in the brokerage business and the very favourable level of credit risk contributed to the bank's profit. The ongoing phase of low interest rates resulted in a small decrease in Baloise Bank SoBa's net interest income.
Solid result for the banking business
Gains on investments amounted to CHF 769.9 million, which was below the level of CHF 930.4 million achieved in the prior-year period. The challenging interest rate environment caused recurring income to fall to CHF 670.7 million (H1 2016: CHF 730.4 million), although around CHF 28.0 million of this decrease was attributable to the transfer of the closed portfolio of the German branch of Baloise Life Ltd to the Frankfurter Leben Group. As reinvestment yields on Swiss bonds remained unattractive, Baloise continued to build up tangible assets offering regular income and currency-hedged investments denominated in US dollars during the reporting period.
The realised gains and losses declined by CHF 142.7 million year on year. Thanks to the uptrend in the equity markets, the gross impairment losses that had to be recognised on financial assets were lower at CHF 20.6 million (H1 2016: CHF 68.4 million). Book gains on real estate again made a positive contribution to earnings, but to a much lesser extent than in the prior-year period. Despite a weaker US dollar and a resurgent euro from the perspective of a Swiss investor, the effect of exchange rates on earnings was low. This was a consequence of the high proportion of currency hedging on investments through the Group. The return on insurance assets was 1.4 per cent (H1 2016: 1.8 per cent).
Net return of 1.4 per cent on insurance investments for Asset Management
The Swiss business once again demonstrated its strength. As well as being highly profitable, it increased its premiums by 1.8 per cent. All divisions – life, non-life, and business involving investment-type premiums – contributed to this growth. EBIT was up by 31.4 per cent to CHF 316.8 million (H1 2016: CHF 241.1 million). This rise in earnings was partly attributable to the very good net combined ratio of 81.4 per cent. The level of large claims decreased. The profit on claims reserves was lower than in the first half of 2016 but remained on a high level.
The volume of business rose to CHF 3,227.4 million (H1 2016: CHF 3,171.7 million). The market environment in Switzerland remains very challenging because of the very low interest rates.
Premium income in the non-life business advanced slightly, by 0.3 per cent, to CHF 1,051.7 million. With the exception of general liability and motor vehicle insurance, all sectors contributed to this rise. The expense ratio fell slightly. In line with the strategy, new products for young customers made their market debut in the first half of the year. Other new launches included various insurance policies for personal items and a cyber-insurance product for retail customers. In the second half of 2017, the range of traditional insurance solutions will be expanded to encompass innovative services following the acquisition of MOVU, Switzerland's largest digital platform for home-moving services.
Premium income in the life business advanced by 2.5 per cent to CHF 2,124.8 million. This increase was primarily attributable to single premiums, whereas regular premium payments under comprehensive BVG insurance contracts in group life insurance rose only slightly. Single premiums in group life insurance went up as a result of a large contract being signed. The partially autonomous pension solution Perspectiva continues to perform well and again generated significant growth. In individual life insurance, the growth in single premiums was higher than in the first half of 2016. This was mainly attributable to the tranche product Baloise Safe Invest.
Baloise Bank SoBa (all figures reported according to local accounting standards) generated encouraging results in the first half of 2017. Profit for the half year advanced by 1.6 per cent to CHF 13.3 million. The sharp 30 per cent rise in asset management mandates had a positive influence, contributing to the increase in customer assets to CHF 8.9 billion. This is attributable to the collaboration between the bank and the insurance company. Particularly in the current financial market environment, this unparalleled business model offers the best investment variant combining a bank and an insurance company. The very favourable level of credit risk also helped to boost the half-year financial results. As a bank whose main source of earnings is interest income, however, Baloise Bank SoBa continued to face challenging economic conditions.
Premium growth of 1.8 per cent
Excellent combined ratio of 81.4 per cent
Increase in customer assets at Baloise Bank SoBa
The German business returned to profit in the reporting period following the significant negative effect of strengthening reserves by CHF 54.8 million in the non-life business in the first half of 2016. EBIT amounted to CHF 10.6 million in the first six months of 2017. The net combined ratio in the non-life business was much healthier at 99.5 per cent (H1 2016: 116.3 per cent). This was due to the absence of the one-off strengthening of reserves that had taken place in the first half of 2016 and to a year-on-year reduction in large claims incurred. The non-life business expanded by an encouraging 1.4 per cent. This growth was achieved in the target segments. In local currency terms, premium income was up by 6 per cent in the retail customer segment and by 5 per cent in the SME segment, whereas industrial business registered a year-on-year drop of 13 per cent. The life business generated EBIT of CHF 10.1 million. Its premiums fell by 23.6 per cent, resulting in a business volume of CHF 177.9 million (H1 2016: CHF 232.8 million). The decrease was mainly due to the sale of the closed life insurance portfolio of the German branch of Baloise Life Ltd to the Frankfurter Leben Group. This was completed at the start of February, resulting in the elimination of premiums of almost CHF 50 million. Nevertheless, the increase in new business was encouraging and easily outstripped the growth of the market as a whole.
Combined ratio at 99.5 per cent
Growth in the target segments
The EBIT generated by the Belgian business declined to CHF 56.0 million (H1 2016: CHF 70.1 million). At CHF 759.4 million, the total volume of business was also down year on year (H1 2016: CHF 807.3 million). Premium income in the non-life business, however, went up by 2.5 per cent, with growth in almost all sectors. This business remains highly profitable: the net combined ratio was virtually unchanged, falling by 0.1 percentage points to 94.0 per cent. The life business held steady with a decrease of just 0.2 per cent. Investment-type premiums were down significantly, by 26.9 per cent, as a result of changes in insurance rates. Overall, the Belgian business is in an excellent condition and is a rock-solid pillar of Baloise's ongoing success. The very strong performance of the business is opening up opportunities for us to target further organic and inorganic growth in the Belgian market.
Growth of 2.5 per cent in the non-life business
Slightly improved combined ratio of 94 per cent
EBIT for the Luxembourg business rose substantially to reach CHF 13.9 million (H1 2016: CHF 10.3 million). The total volume of business again increased markedly, coming in at CHF 903.4 million (H1 2016: CHF 810.4 million). Growth in the non-life business held steady. The net combined ratio went up by 2.5 percentage points to 89.7 per cent (H1 2016: 87.2 per cent). This was due to losses on claims reserves, whereas the prior-year period had been exceptionally good. These losses can mainly by explained by the less favourable settlement of past large claims.In the life business, traditional business contracted by 5.5 per cent while investment-type premiums achieved another strong increase of 13.7 per cent. Demand primarily stemmed from France and Portugal. By contrast, the Italian market accounted for the majority of demand for products from Liechtenstein.