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.
Financial results for the first half of 2020 in brief
Profit attributable to shareholders for the first half of 2020 amounted to CHF 177.7 million (H1 2019: CHF 395.0 million). The figure for the first half of 2019 had been boosted by a non-recurring tax effect of around CHF 128 million that was not repeated in the first half of this year. Profit attributable to shareholders in the reporting period was adversely affected by coronavirus-related claims incurred. Moreover, turmoil in the capital markets resulted in a decline in the gains on investments achieved for insurance assets.
The claims incurred for 2020 in connection with COVID-19, including the necessary reserves, are expected to amount to up to CHF 200 million gross and, after measures to reduce the impact of claims, CHF 62.6 million net. This amount was recognised in full in the first half of the year.
The business volume contracted by 10.4 per cent to a more normal level of CHF 5,389.2 million (H1 2019: CHF 6,014.1 million). The first half of the previous year had been boosted by a non-recurring effect. In the prior-year period, a competitor in the group life business in Switzerland had withdrawn its comprehensive insurance products from the market, resulting in a sharp rise in customers with single premiums.
The premium volume in the Group’s non-life business increased by 6.9 per cent to CHF 2,419.5 million, partly thanks to the acquisitions of Fidea and the non-life portfolio of Athora (H1 2019: CHF 2,263.6 million). Organic growth was also at the good level of 1.1 per cent (7.3 per cent in local currency terms).
EBIT in the non-life business fell by 40 per cent to CHF 135.7 million (H1 2019: CHF 226.1 million) owing to the claims incurred in connection with coronavirus and the decrease in gains on investments.
The net combined ratio stood at 91.1 per cent (H1 2019: 87.4 per cent) due to the excellent quality of the portfolio and as a result of hedging. The impact of the COVID-19 pandemic caused a net increase of 3.7 percentage points. Baloise expects the ratio for 2020 to be at the lower end of the target range of 90–95 per cent.
As anticipated, the volume of premiums collected in the life business fell by 24.4 per cent to CHF 2,168.1 million (H1 2019: CHF 2,869.8 million) owing to the competitor in the group life business withdrawing its comprehensive insurance products from the market in the prior-year period.
EBIT attributable to the life business rose by 23.5 per cent year on year to CHF 131.3 million (H1 2019: CHF 106.6 million), partly because there was less need to strengthen reserves.
Baloise continues to have a resilient and sound balance sheet, even during the coronavirus crisis. The Standard & Poor’s credit rating of A+ was confirmed in June 2020, underlining Baloise’s excellent capitalisation. Although equity fell to CHF 6,208.4 million (31 December 2019: CHF 6,715.6 million) as a result of the dividend payment, the share repurchase completed in March and a downward adjustment of the valuation of available-for-sale financial assets, it remains at a high level.
Despite the turmoil in the capital markets, asset management and banking reported a net return on insurance assets of 1.0 per cent, which was only down by 0.2 percentage points on the prior-year period (H1 2019: 1.2 per cent). This resulted in a decrease of CHF 54.6 million in gains on investments.
Further capital expenditure on the digital transformation: In the first half of 2020, Baloise extended its ‘Home’ ecosystem by investing in cleaning services company Batmaid and in Keypoint and Immopass, which are both digital assistants for property management. In addition, Baloise entered into a strategic partnership with Tolomeo Capital in order to further expand its capabilities in fully automated and data-driven asset management. More information: www.baloise.com/innovations
Summary of business performance
The COVID-19 pandemic posed huge challenges for the global economy in the first six months of 2020. Nonetheless, Baloise demonstrated a high level of resilience at this demanding time. The Company grew both organically and through strategic acquisitions. This shows that, despite the limitations imposed by the lockdown, the Company upheld its usual high level of customer service, for example by using alternative advisory channels. The level of profitability in the non-life business is also excellent despite high claim payments in connection with the COVID-19 pandemic, which underlines the high quality of the non-life portfolio. Progress in the digitalisation of the business in recent years and the flexibility afforded by Baloise’s corporate culture have enabled the Company to adjust very quickly to the new circumstances and to continue to operate without constraints. The Company remained focused on driving its cultural transformation and expanding its ‘Home’ and ‘Mobility’ ecosystems. Baloise is proving that it is able to achieve its strategic objectives even in challenging circumstances. At the Investor Day in October, the Company will present a plan for the next strategic phase. In the first six months of 2020, Baloise generated profit of CHF 177.7 million (H1 2019: CHF 395.0 million) for its shareholders and a solid business volume of CHF 5,389.2 million (H1 2019: CHF 6,014.1 million). The decline compared with the prior-year period is mainly attributable to non-recurring effects that had a positive impact on the figures for the first half of 2019. Negative factors in connection with the COVID-19 pandemic in the first half of 2020 also had an adverse impact.
The profit attributable to shareholders for the first half-year of 2019 benefited from tax reforms at cantonal level in Switzerland, which resulted in the reversal of deferred tax provisions under International Financial Reporting Standards (IFRS). This reversal provided a non-recurring contribution to earnings of CHF 127.7 million, which was not repeated in the first half of 2020.
Gains on investments achieved for insurance assets were down by CHF 54.6 million due to the turmoil in the capital markets caused by the COVID-19 pandemic. Claim payments and provisions set aside in light of the COVID-19 pandemic resulted in net claims incurred of CHF 62.6 million.
The biggest proportion of COVID-19-related claims arose in the Swiss business with small and medium-sized enterprises (SMEs) as a result of preventive measures implemented by the Swiss government which forced businesses to suspend operations. Together with the Swiss Insurance Association (SIA), Baloise is advocating a private-public solution intended to ensure broad insurance cover for economic operators in future in the event of a pandemic.
The volume of business enjoyed a one-off uplift of CHF 560 million in 2019 as a result of a competitor withdrawing its comprehensive insurance products from the group life insurance segment in Switzerland. Most of this uplift was attributable to single premiums. The volume of business has therefore normalised compared with the prior-year period, with a fall of 10.4 per cent. It is encouraging to see that the customer support and customer acquisition measures implemented in recent months are having an effect and that, in addition to the acquisitions of Fidea and Athora, the attractive non-life business also generated organic growth of just over 1.1 per cent Despite the preventive measures taken by governments in the Company’s core markets, Baloise was able to successfully continue its business activities for existing customers and its acquisition of new customers.
Overview, profit and business volume
The volume of premiums in the non-life business advanced by a very encouraging 6.9 per cent (10.6 per cent in local currency terms) to CHF 2,419.5 million (30 June 2019: CHF 2,263.6 million). All business units in the non-life business reported growth in local currency terms. The largest share of the premium growth was attributable to the two acquisitions in Belgium. The premium volume of the Belgian business unit grew by 24.8 per cent (32.4 per cent in local currency terms) as a result of the acquisitions of Fidea and the non-life portfolio of Athora, earning the business unit a place among the top 4 providers in this market. Non-life premiums in Switzerland increased by a solid 1.4 per cent. The business units in Germany and Luxembourg reported growth in premium volumes of 2.3 per cent and 5.2 per cent respectively in local currency terms.
Profit before borrowing costs and taxes (EBIT) in the non-life business fell to CHF 135.7 million (H1 2019: CHF 226.1 million) due to coronavirus-related claims and lower gains on investments. After measures to reduce the impact of claims, coronavirus-related expenses amounted to CHF 62.6 million, which is consistent with the estimate of a figure in the mid-tens of millions published at the end of April. Nonetheless, the net combined ratio remained at an excellent level of 91.1 per cent (H1 2019: 87.4 per cent) and is within the communicated target range of 90–95 per cent. All business units contributed to this high level of profitability, although the excellent net combined ratio of the Luxembourg business unit (83.7 per cent) and the net combined ratio of the German business unit (93.1 per cent) deserve particular mention. The latter illustrates the encouraging turnaround of the German business. The Swiss business unit’s net combined ratio was excellent as usual, at 88.6 per cent, despite the adverse impact of COVID-19. The Belgian business unit also performed well with a ratio of 92.0 per cent.
The volume of premiums collected in the traditional life business fell by 24.4 per cent year on year to CHF 2,168.1 million (H1 2019: CHF 2,869.8 million). In the prior-year period, the premium volume had benefited from the non-recurring effect of a competitor in the Swiss group life business withdrawing its comprehensive insurance products from the market. The corresponding uplift was mainly attributable to single premiums and was not repeated in the current year. The volume of premiums therefore normalised accordingly. The interest margin stood at a solid 107 basis points and the risk result in the life insurance business came to a healthy CHF 107 million.
The volume of premiums in the business with investment-type premiums was down in comparison with the prior-year period, falling by 9.0 per cent to CHF 801.6 million (H1 2019: CHF 880.7 million). This decline was due to the persistently challenging market conditions for investment-type products in Luxembourg.
Profit before taxes and borrowing costs (EBIT) in the life business improved by 23.5 per cent to CHF 131.3 million (H1 2019: CHF 106.3 million), which was partly attributable to a slightly reduced need to set aside reserves compared with the prior-year period. The new business margin in the life business was healthy at 44.9 per cent in the first half of 2020 (H1 2019: 34.2 per cent).
Non-life and life businesses
The Asset Management and Banking division achieved a solid half-year result with an EBIT of CHF 37.0 million (H1 2019: CHF 42.6 million). EBIT in the Asset Management division remained stable despite the market turmoil, but extraordinary capital investment by Baloise Bank SoBa in the optimisation and improvement of its sales structure, aimed at strengthening its future competitiveness, resulted in a non-recurring charge.
The gains achieved on the investment of insurance assets amounted to CHF 615.8 million and were therefore lower than in the prior-year period (H1 2019: CHF 670.4 million).
The interest-rate environment became more challenging once again in the reporting period. Current income fell below the prior-year level to CHF 571.6 million (H1 2019: CHF 615.0 million). This decline was a direct consequence of the fall in yields to be earned on reinvestments of maturing bonds and mortgages. The net gains recognised in the income statement were up by CHF 64.7 million compared with the first half of 2019 at CHF 311.3 million. Impairment losses increased by CHF 100 million to CHF 148.5 million compared with the prior-year period. This was mainly due to the turmoil in the equity market caused by the COVID-19 pandemic. The currency-related losses of CHF 55.4 million were attributable to currency hedging costs and to currency effects arising on unhedged currency exposures. The gains on investments achieved for insurance assets equated to a net return of 1.0 per cent, which is slightly lower than the figure for the prior-year period (H1 2019: 1.2 per cent). The volume of unrealised gains contracted due to the correction in the equity market and spread movements. 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 – fell by 3.3 percentage points compared with the prior-year period to 0.6 per cent. In spite of the challenging market conditions, Baloise was able to generate an increase in external clients’ assets of CHF 341 million. The total volume of client assets acquired since the start of the strategic realignment in 2017 now stands at CHF 2.4 billion.
Asset management and banking
Despite the challenging nature of the current environment, Baloise is proving its credentials as a solid business with a strong capital base and balance sheet. In the first half of 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. Although equity fell to CHF 6,208.4 million (31 December 2019: CHF 6,715.6 million) as a result of the dividend payment, the share repurchase completed in March and a downward adjustment of the valuation of available-for-sale financial assets, it remains at a high level.
Baloise continued to invest in the ‘Mobility’ and ‘Home’ ecosystems. Investments in the first six months of 2020 were primarily focused on the ‘Home’ ecosystem. In Switzerland, Baloise further expanded its range of offers in this ecosystem by cooperating with and investing in Batmaid, a digital platform for domestic cleaning services. 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. In Belgium, Baloise impressed customers with two 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. In the coming months, Baloise will continue to use the fresh input generated by these innovations in order to offer new and compelling solutions to its customers.
“What we have achieved in the first half of 2020 is extraordinary and it makes me proud to know that, as a company, we were able to deliver our services for all of our stakeholders without interruption and at the high level they have come to expect of us. In the past few months, we have mastered a steep learning curve, improved our efficiency and become quicker thanks to the use of new technologies. This strengthens my confidence that we are going to achieve our Simply Safe goals by 2021 and conclude the 2020 financial year with solid earnings and a level of cash generation as robust as before. Building on these strong foundations, we will move into the next strategic phase with ambition and courage. At our Investor Day in October, we will explain what this phase is going to involve," said Gert De Winter in conclusion.