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.
Progress with the Simply Safe strategic targets in 2018
Employee satisfaction: top 23 per cent of most popular employers in the industry (2017: top 25 per cent; target for 2017–2021: top 10 per cent)
Customer growth in 2018: 186,000 new customers in 2018, which is 58 per cent more new customers than in 2017; total (2017–2018): 304,000 new customers (target for 2017–2021: one million additional customers)
Cash upstream in 2018: CHF 449 million in 2018, which is 8 per cent more than in 2017; total (2017–2018): CHF 864 million (target for 2017–2021: CHF 2 billion)
2018 annual financial results in brief
Profit attributable to shareholders for 2018 amounted to CHF 523.2 million, which was down slightly year on year (2017: CHF 548.0 million).
The overall volume of business fell by 6.3 per cent to CHF 8,678.2 million (2017: CHF 9,260.8 million), primarily because of the restrictive underwriting policy in the traditional life business and a decrease in investment-type premiums.
The Board of Directors intends to ask the Annual General Meeting to increase the dividend to CHF 6.00 per share (2017: CHF 5.60).
Baloise generated an increase in premium income in the non-life insurance business, a strategic target segment. In 2018, gross premiums rose by 5.5 per cent to CHF 3,405.9 million (2017: CHF 3,229.3 million). The net combined ratio improved by 0.6 percentage points to 91.7 per cent.
Earnings before interest and tax (EBIT) in the life business rose yet again, advancing by 8.9 per cent to CHF 333.2 million on the back of the consistently more stable interest-rate situation and further portfolio reallocations (2017: CHF 306.0 million). The new business margin in the life business equated to a substantial 48.5 per cent thanks to the selective underwriting policy and an improved business mix.
Baloise has a strong balance sheet. In 2018, Standard & Poor’s recognised Baloise’s exceptionally robust capitalisation by raising the Company’s credit rating from ‘A’ to ‘A+’. Equity fell due to the share buy-back and the lower valuation of available-for-sale securities with characteristics of liabilities and equity. Nonetheless, equity remained at the very healthy level of CHF 6,008.2 million (31 December 2017: CHF 6,409.2 million). In the Swiss Solvency Test (SST)*, a ratio of over 200 per cent is expected as at 1 January 2019.
Baloise’s asset management was in good shape with a net return on insurance assets of 2.2 per cent (2017: 2.9 per cent). The decrease was attributable to the year-on-year reduction in realised gains. Third party net inflows of CHF 801 million were generated (2017: CHF 406 million).
FRIDAY has entered into a media for equity investment in a volume of around CHF 43 million. SevenVentures – the investment arm of ProSiebenSat.1 Media – and media investor German Media Pool have acquired a stake in the start-up.
Summary of business performance
Overview, profit and business volume
Baloise can look back on a successful 2018. The results show that its chosen strategic direction is the right one. In the last few years, more than 50 initiatives have been launched that are driving the digital and cultural transformation. At the same time, Baloise’s operational success shows that its core business remains strong. The non-life business continues to grow in all markets and profitability remains high. The shift in the life portfolio towards life insurance products that tie up less capital is having a sustained positive effect. The contribution to EBIT from the life business rose significantly again in 2018. The non-life portfolio’s good profitability can be seen from the further improvement of the combined ratio, which was achieved despite the adverse impact of severe winter storms.
In Switzerland, Baloise Asset Management positions itself as a strong brand for asset management services for external customers. It has notched up net inflows of around CHF 1.2 billion since the start of the strategic phase in 2017.
In 2018, Baloise’s profit attributable to shareholders was down slightly year on year at CHF 523.2 million (2017: CHF 548.0 million). The reasons for this decrease were lower realised gains on investments and a higher tax expense than in 2017. There was an encouraging rise in earnings before interest and tax (EBIT), which climbed by 7.8 per cent to CHF 737.5 million (2017: CHF 684.1 million). The volume of business fell by 6.3 per cent to CHF 8,678.2 million (2017: CHF 9,260.8 million), primarily because of a sharp reduction in investment-type premiums and the continuation of the strict underwriting policy in the traditional life business.
The non-life division saw a further rise in the volume of premiums. At CHF 3,405.9 million, it was up by 5.5 per cent compared with 2017. In local currency terms, the increase was 3.1 per cent. All of the strategic business units reported growth. While Switzerland’s growth was 1.9 per cent, Belgium achieved 10.1 per cent, Germany 5.4 per cent and Luxembourg 10.0 per cent. EBIT in the non-life business was only slightly lower than in the prior year, falling to CHF 371.7 million (2017: CHF 374.7 million). The net combined ratio improved to an excellent 91.7 per cent, which was 0.6 percentage points below the good ratio reported a year ago (2017: 92.3 per cent). The main reason for this improvement was a higher profit on claims reserves. The net combined ratio in the German business was also encouraging, as it stabilised at 95.8 per cent.
FRIDAY, Germany’s leading digital insurance company, has entered into a media for equity investment in a volume of around CHF 43 million. SevenVentures – the investment arm of ProSiebenSat.1 Media – and media investor German Media Pool have acquired a stake in the start-up, which Baloise founded around two years ago when it announced its Simply Safe strategy. Following their investment, SevenVentures and German Media Pool now hold a combined 18.2 per cent stake in FRIDAY. With a stake of 81.8 per cent, Baloise remains the majority shareholder and is investing a further sum of around CHF 85 million as part of the ongoing development of this business. FRIDAY enjoyed another successful year in 2018. The Berlin-based firm doubled the number of new customers to around 30,000 (2017: 15,000).
The ongoing improvements to the business mix in view of the extremely low level of interest rates and the sharp contraction of business involving investment-type premiums in Luxembourg were reflected in the decrease in the life business volume, which fell by 12.6 per cent to CHF 5,272.4 million. In the traditional life business, the volume of premiums decreased by 4.3 per cent to CHF 3,360.3 million (2017: CHF 3,512.0 million) in line with the strategy. The volume of investment-type premiums dropped by a substantial 24.1 per cent to CHF 1,912.1 million (2017: CHF 2,519.5 million). This was primarily attributable to the performance of the business in Luxembourg. Following more than ten years of double-digit growth rates, with assets under management more than doubling to CHF 10 billion since 2012, the volume of premiums underwent a correction in 2018 because of reduced demand resulting from volatility and uncertainty in the capital markets last year and from the postponement of sales due to the implementation of new regulatory requirements. At CHF 456.6 million and CHF 112.3 million respectively, the volume of investment-type premiums in Belgium and Switzerland was on a par with the prior-year level. In Germany, investment-type premiums increased by an encouraging 9.7 per cent to CHF 227.1 million (2017: CHF 207.1 million).
EBIT in the life business was even higher than in the prior year, with a further substantial rise of CHF 27.2 million or 8.9 per cent to CHF 333.2 million (2017: CHF 306.0 million). This increase was predominantly driven by the shift in the portfolio towards products that tie up less capital and by the overall reduced need to strengthen reserves thanks to the more stable interest-rate environment. Moreover, the risk result in Switzerland benefited from a non-recurring effect resulting from an adjustment to the biometric basis. The new business margin improved to 48.5 per cent thanks to the selective underwriting policy and the better business mix. The interest margin in the life business stood at 1.3 per cent (2017: 1.1 per cent).
Asset management and banking
Even at a time of challenging conditions in the capital markets, asset management and banking continue to provide a stable source of income. Gains on investments achieved for insurance assets amounted to CHF 1,250.7 million, which was significantly lower than the figure for 2017 of CHF 1,621.6 million. This was due to the substantial drop in realised gains compared with the prior year. The difficulties presented by the interest-rate environment were largely overcome by means of systematic reallocation among the asset classes. Current income decreased slightly, by CHF 17.9 million, to reach CHF 1,282.6 million. The gains on investments achieved for insurance assets equated to a net return of 2.2 per cent. 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 0.7 per cent, representing a decrease on the 2.5 per cent rate of return according to IFRS in 2017. In operational terms, the EBIT generated by the asset management and banking business was encouraging at CHF 92.1 million (2017: CHF 81.8 million). This equated to a year-on-year rise of 12.6 per cent.
Consolidated equity fell by 6.3 per cent year on year to reach CHF 6,008.2 million at the end of 2018 (31 December 2017: CHF 6,409.2 million). This decrease was due to the lower valuation of available-for-sale securities with characteristics of liabilities and equity and to the ongoing share buy-back. Under the programme to buy back more than three million shares, which began in April 2017, a total of 1,336,575 shares had been repurchased by the end of 2018. This meant CHF 198.5 million was returned to the shareholders. Baloise remains strongly capitalised, as confirmed when Standard & Poor’s raised the Company’s credit rating from ‘A’ to ‘A+’ in 2018. In the SST*, a ratio of over 200 per cent is expected as at 1 January 2019.
Based on its solid results for 2018, Baloise is confident of achieving its Simply Safe targets by 2021.
*The SST ratio will be published at the end of April 2019.