Gert De Winter, have you been satisfied with the first year of Simply Safe?
Gert De Winter (GDW): Yes, I’m very satisfied with the results for year one of the five years of Simply Safe. The impressive figures we are able to present in our annual financial results reflect the work that has been done, while several dozen initiatives, projects and many new insurance solutions and services have also been launched across the Group over the same period. All of this happened in record time. I am deeply impressed and pleasantly surprised at how quickly the Baloise employees have adopted the core idea of Simply Safe and are now working keenly on its implementation. A glance at the annual report clearly shows how much has already been achieved. In it we present around 50 Simply Safe initiatives that are being implemented across the entire Baloise Group. And that is just a selection. We won the Swiss insurance industry’s innovation prize last year, thanks in no small part to this wealth of projects, some of which we are implementing in partnership with innovative start-ups like KASKO. It’s still early days, but we’re heading in the right direction, and I am looking forward to the next few years of Simply Safe.
Simply Safe is more than just a strategic phase, Simply Safe is about changing a mindset.
What is your verdict as CFO, Carsten Stolz?
Carsten Stolz (CS): A very positive one. The numbers speak for themselves. We were able to improve on virtually all of the important key figures, or to maintain them at a very good level. This applies particularly to the three strategic targets we defined for our customers, employees and shareholders. So the foundation for a successful strategic phase up to 2021 has been laid. I am also pleased with the projects that my team and I were able to initiate and/or implement last year. To give some examples, in September 2017 we launched our first hybrid bond with record-low terms and conditions. This very successful issue allowed us to optimise our capital structure with capital that is eligible under both the Standard & Poor’s model and the Swiss Solvency Test. We also initiated projects which will significantly simplify financial management and financial transformation processes. In the true spirit of Simply Safe, we are not just simplifying our services for our customers, but we are also constantly working on improving internal processes and the core business. These optimisations make Baloise faster, more agile and more transparent for relevant financial information.
What is the aim behind the enhancements to the financial processes?
CS: All our stakeholders should ultimately benefit from these enhancements. Our employees will be able to perform their work even better, because the quality of the relevant base data will be higher, and it can be supplied faster and more consistently. Our customers will benefit from the fact that we are able to inspire them more quickly and efficiently with products and services which provide them with further added value. And for our shareholders it means even more efficient and transparent management of resources. The path that will lead us there is challenging, because we are operating at multilateral levels, and consistently require more, and more frequent, IT support for all process steps. In the end, the effort will be worth it, and will make Baloise even more agile.
Can you give an example of this increased transparency?
CS: One example which shows these efforts in practice is our cash radar. As a publicly traded company, we offer our shareholders an attractive dividend policy while also increasing value for them. The challenge is that increased value depends on a number of different variables and cannot simply be expressed in one key performance indicator, such as higher profit. That can be a bit confusing, since profit is understandably seen as being equivalent to available cash. We show how the key performance indicators of cash and profit relate to dividend payments and value generation for our shareholders, in a transparent and straightforward way. Another example is the Swiss Solvency Test. Over the last year, we have become increasingly transparent about where we stand with regard to this. We will publish the exact figures at the end of April, but we can already say that we will significantly exceed a rate of 200 per cent.
Why is profit not sufficient as a performance indicator?
CS: Strictly speaking, profits are book gains, i.e. gains that need to be properly accounted for but do not necessarily mean more cash in the wallet, because initially they exist only on paper. It’s like owning a property that is purchased at some point for a particular amount, and then rises in value over time due to growing demand. In theory, the house is now worth more, but unless it is actually sold – and often this isn’t possible because you are living in it – you don’t end up with any more money in your pocket. And it is precisely that cash in the wallet which is relevant to our shareholders, as that is what we are able to use to pay dividends, or to invest in future growth. So the main focus of our shareholders is not on book gains. For them, cash is king. Our internal metrics now aim to monitor operational cash generation, while taking sustainability and solvency considerations into account. This is reflected in our target of transferring CHF 2 billion in cash to the holding company by 2021. That is exactly what the cash radar was developed for. It allows us to monitor the key factors for cash generation, to increase value and to develop our business.
The main focus for our shareholders is not on book gains. For them, cash is king.
Talking about developing the business, Gert De Winter, where do you see Baloise in the immediate future?
GDW: The published figures for 2017 show that Baloise has made a very successful start in implementing the Simply Safe strategy. This is underlined by the robust core operational business and the strong capitalisation. The more interesting question is where the business is going over the longer term. Baloise has been around for more than 150 years. So now is the time to ask ourselves what we can do to ensure that it will still be around for at least another 150 years. Through our Simply Safe initiatives, we are laying the foundations that we need for the accelerated technological and social change that is taking place.
So Simply Safe is more than a five-year strategy programme?
GDW: Yes, definitely! Simply Safe is more than just a strategic phase. Simply Safe is about changing a mindset. That’s why it is so important to me to motivate each individual employee to join me on this journey. With our radical focus on our customers, we are breaking with established patterns. We are looking for new areas of business, and for partnerships in which we can create real added value in collaboration with third parties who share our aims. The beginnings of this approach are already visible in our cooperation with MOVU. This will allow us to expand our portfolio of services relating to the ‘home’ segment. The same applies to the area of transport, where we provide services to our customers through Drivolution and Mobly in Belgium, and FRIDAY in Germany. In the future, insurance companies will be offering a much broader range of services that are built around people’s everyday needs, but at the same time are less visible. Insurance companies no longer simply provide financial compensation for losses; they also help to prevent losses in the first place and offer services relating to assistance, living, personal transport, health and pensions. The insurers who are quickest off the mark in getting this transformation right will enjoy future success and be able to survive. The best thing is that achieving this isn’t necessarily a question of size, but rather of speed and agility, as well as the willingness to embrace change. Baloise is a medium-size European insurer. Many regard this as a competitive disadvantage. I, on the other hand, see it as a great strength.
In what respect?
GDW: In our successfully completed consolidation strategy we decided to focus our energy on the Swiss, German, Belgian and Luxembourg markets. These are the countries in which we see potential for growth – both now and in the longer term. We have already made a very effective start here. We are not wasting valuable resources on markets that we don’t regard as attractive in the long term. Furthermore, the advent of the digital revolution offers literally limitless possibilities for our business. In future, insurance services will increasingly be sold through digital channels, and, as we all know, those do not pay much heed to geographical borders. So maintaining a costly physical presence with as many national subsidiaries as possible isn’t necessarily an advantage. In a nutshell, I am convinced that Baloise is ideally positioned and is just the right size to tackle the challenges of the future.
Your shareholders seem to agree with you, judging by the performance of the share price last year.
CS: Yes. Baloise shares performed well last year, rising in value by almost 20 per cent. When you also take the dividend payment into account, the resulting overall return amounts to more than 22 per cent. Looking at the total return over the last ten years, the annual average was around 7 per cent. Given our target of transferring CHF 2 billion in cash into the holding company by 2021, and using this for profitable investments, as well as for the benefit of our shareholders, we will continue to remain an attractive investment proposition. The increase of the dividend to CHF 5.60 this year underlines this ambition.