Baloise achieves strong growth in the non-life business and generates a high level of cash

For the first time, Baloise has prepared its reporting in accordance with the new IFRS 17 and IFRS 9 accounting standards and on the basis of restated financial results for the first half of 2022.

• Profit attributable to shareholders for the first half of 2023 amounted to CHF 205.7 million (H1 2022: CHF 214.7 million).
   
• The volume of business stood at CHF 5,339.9 million (H1 2022: CHF 5,418.4 million), which was down by 1.5 per cent year on year as a result of unfavourable currency effects. Adjusted for currency effects, there was a small increase of 0.6 per cent.
   
• The volume of premiums in the non-life business rose by a very healthy 4.7 per cent, adjusted for currency effects. Including currency effects, we registered robust growth in gross premiums written of 1.9 per cent to CHF 2,632.5 million (H1 2022: CHF 2,582.5 million).
   
• The Group’s combined ratio shows the excellent underlying quality of the portfolio, improving by 1.7 percentage points compared with the prior-year period to 87.3 per cent in the reporting period (H1 2022: 89.0 per cent).
   
• Profit before borrowing costs and taxes (EBIT) in the non-life business came to CHF 158.2 million, which represented a very good year-on-year increase of 13.3 per cent (H1 2022: CHF 139.7 million).
   
• The level of gross premiums in the life business emphasised the continuing trend towards semi-autonomous occupational pension solutions, falling by 5.8 per cent to CHF 2,277.9 million (H1 2022: CHF 2,416.9 million).
   
• Profit before borrowing costs and taxes in the life business (EBIT) amounted to CHF 104.3 million (H1 2022: CHF 146.0 million).
   
• The asset management business registered very satisfying growth in third-party assets of 8.1 per cent or CHF 1,027.2 million, of which CHF 617.1 million was attributable to net new assets.
   
• Baloise’s capitalisation remained robust. We anticipate that the SST ratio will be over 230 per cent (1 January 2023: 240 per cent). In August 2023, Standard & Poor’s confirmed its rating of A+ for the Baloise Group. The equity attributable to shareholders stood at CHF 3,269.5 million (31 December 2022: CHF 3,405.2 million). The contractual service margin (CSM) after taxes came to CHF 4,104.0 million as at 30 June 2023 (31 December 2022: CHF 4,345.7 million). Comprehensive equity thus totalled CHF 7,373.5 million (31 December 2022: CHF 7,751.0 million).
   
• Continued strong cash generation and continuation of our current attractive dividend policy are expected for the 2023 financial year.
   

Overview of key figures as at 30 June 2023
 

CHF million

H1 2022

H1 2023

Change (%)

Business volume

5,418.4

5,339.9

 -1.5

EBIT

297.4

267.2

 -10.1

Profit attributable to shareholders

214.7

205.7

 -4.2

Non-life – gross premiums written

      2,582.5

2,632.5

 1.9

Non-life – EBIT

139.7

158.2

 13.3

Non-life – combined ratio

89.0%

87.3%

-1.7pp

Life – gross premiums written

      2,416.9

 2,277.9

 -5.8

Life – investment-type premiums

       419.0

 429.5

 2.5

Life – EBIT

146.0

104.3

 -28.6

Net new assets from third parties

712.8

617.1

-13.4

Asset Management & Banking – EBIT

40.2

43.4

7.9

31 Dec 2022

30 Jun 2023

Equity

3,405.2

3,269.5

 -4.0

CSM after taxes

4,345.7

4,104.0

-5.6

Comprehensive equity

7,751.0

7,373.5

-4.9

SST ratio

240%

>230%

S&P rating

A+

A+

Solid profit attributable to shareholders and volume of premiums on a par with the prior-year period
 

The profit attributable to shareholders for the first six months of 2023 was down slightly year on year at CHF 205.7 million (H1 2022: CHF 214.7 million). This reduction was mainly driven by lower profits in the life business that, in turn, were due to the smaller amount released from the contractual service margin (CSM). Further factors in the reduction were higher costs and negative currency effects. These influences are also reflected in the Group’s profit before borrowing costs and taxes (EBIT), which declined by 10.1 per cent compared with the prior-year period to CHF 267.2 million (H1 2022: CHF 297.4 million).

The Group’s volume of premiums came to CHF 4,910.4 million, a year-on-year fall of 1.8 per cent (H1 2022: CHF 4,999.5 million) that was caused by the ongoing shift in occupational pensions in traditional life business towards semi-autonomous solutions. This fall was offset by healthy growth in the non-life business. Combined with the investment-type premiums (calculated in accordance with IFRS 9), this resulted in a business volume for the Group of CHF 5,339.9 million in the first half of 2023. This equated to a small year-on-year decrease of 1.5 per cent (H1 2022: CHF 5,418.4 million). Adjusted for currency effects, we achieved modest growth of 0.6 per cent.
 

Low level of natural disaster claims made up for the impact of inflation in the non-life business, which saw healthy, profitable growth

Stubbornly high inflation in Europe represents a challenge for our non-life business. The segment’s profits were also squeezed by an increased volume of large claims during the reporting period, particularly in Belgium and Germany. Nonetheless, we can present a solid set of results for the first half of 2023 in this business. We generated growth across all business units, with gross premiums written in Swiss francs rising by 1.9 per cent to CHF 2,632.5 million. In local currency terms, we notched up much stronger growth of 4.7 per cent.

Baloise’s growth was particularly impressive in Luxembourg (increase of 9.7 per cent to CHF 91.2 million), while Belgium registered an increase of 6.9 per cent to CHF 877.4 million and Germany a rise of 6.8 per cent to CHF 522.1 million, all in local currency terms. In absolute terms, the biggest contribution to the volume of premiums in the non-life business was made by Baloise in Switzerland, where premiums rose by a healthy 1.8 per cent to CHF 1,106.6 million.

The strong profitability of the non-life business can be seen from the improvement in the combined ratio of 1.7 percentage points to 87.3 per cent, which was attributable to careful and disciplined underwriting. The combined ratio also benefited from higher discounting effects and lower expenses from natural disasters in the period under review. Despite a rise in costs not attributable to underwriting, the rise in premiums translated into a year-on-year increase in profit before borrowing costs and taxes (EBIT) in the non-life business to CHF 158.2 million (H1 2022: CHF 139.7 million).

This encouraging profit was also boosted by gains or losses on investments in the non-life segment, which amounted to a net gain of CHF 62.3 million in the first six months of this year. Within this figure, current income swelled by CHF 12.8 million to CHF 95.4 million. Currency effects and a jump in currency hedging costs had an overall negative impact totalling CHF 19.2 million. The return on investment recognised in other comprehensive income (OCI) amounted to CHF 115.1 million and was heavily influenced by the uptrend in the equity markets and the fall in interest rates in Switzerland. The (non-annualised) investment performance of the non-life business stood at 1.8 per cent in the first half of 2023 (negative performance of 7.2 per cent in the prior-year period).
 

Higher interest margin and good new business margin in the life business

The business volume in the life business fell by 4.5 per cent to CHF 2,707.4 million (H1 2022: CHF 2,835.9 million) owing to the smaller volume of premiums written in the Swiss group life business and in the Belgian life insurance business. As a result, premiums in the life business dropped by 5.8 per cent to CHF 2,277.9 million overall (H1 2022: CHF 2,416.9 million), predominantly due to business in Switzerland and Belgium. Adjusted for currency effects, the decrease was 4.7 per cent.

There was strong growth of 16.6 per cent in the individual life division in the Swiss business, with gross premiums written climbing to CHF 251.5 million (H1 2022: CHF 215.7 million). Overall, the Swiss life business saw a small reduction of 1.8 per cent to CHF 1,722.9 million that was attributable to a reduced volume of group life business (H1 2022: CHF 1,754.8 million). In local currency terms, we registered a decrease in gross premiums of 1.8 per cent to CHF 248.1 million in Germany, 12.2 per cent to CHF 225.1 million in Belgium and 34.5 per cent to CHF 81.9 million in Luxembourg.

Due to application of the new IFRS 17 and IFRS 9 accounting standards, we are recognising the premiums previously accounted for as investment-type premiums in accordance with the new IFRS 9 classification approach. As a result of reclassifications, some of the former investment-type premiums are now recognised under life insurance contracts. This is reflected in the restated figures for the first half of 2022. Investment-type premiums amounting to CHF 429.5 million were written in the first half of 2023 (H1 2022: CHF 419.0 million), representing an increase of 2.5 per cent in Swiss francs and 6.2 per cent in local currency terms. The biggest contribution to this total was made by our business unit in Luxembourg in an amount of CHF 396.4 million.

The Perspectiva collective foundation has continued to deliver encouraging growth this year and now has 4,743 corporate customers with just over 20,000 policyholders.

EBIT in the life business fell year on year to CHF 104.3 million in the first half of 2023 (H1 2022: CHF 146.0 million). This can be explained by an increase in expenses and by a decrease of around CHF 16 million in the amount released from the contractual service margin (CSM) that was due to lower interest rates in Switzerland and guarantee adjustments in the Belgian business.

Gains or losses on investments in the life segment amounted to a net gain of CHF 1,107.2 million. Current income improved to CHF 477.6 million thanks to higher income from fixed-income investments and private assets. The lower level of interest rates in Switzerland and the healthy performance of the equity markets resulted in a contribution to gains or losses on investments of CHF 671.3 million. Moreover, a positive effect of CHF 41.4 million was recognised in other comprehensive income (OCI). This was attributable to bonds recognised in OCI and hedging effects not recognised in profit or loss. The (non-annualised) investment performance of the life business stood at 2.7 per cent in the first half of 2023 (negative performance of 10.2 per cent in the prior-year period).

The new business margin in the life business remained at the good level of the prior-year period at 6.7 per cent in the first half of 2023 (H1 2022: 6.9 per cent). The new business margin is now derived directly from the contractual service margin (CSM) for new business and is calculated relative to the present value of new business premiums.

The interest margin improved to a solid 129 basis points (31 December 2022: 117 basis points). This rise was the result of higher current income and a slight drop in the average guaranteed rate of return.

Asset Management & Banking

As at 30 June 2023, the total assets under management (AuM) of Baloise Asset Management stood at CHF 56,507.4 million, a rise of 1.2 per cent compared with the end of last year (31 December 2022: CHF 55,827.8 million). This growth was primarily attributable to the positive trend in business with third parties.

Continued expansion of business with third parties

The existing growth trend remained intact in spite of the generally difficult investment market.  Net new assets from third parties amounted to CHF 617.1 million in the first six months of this year. Assets under management in the business with third parties rose by 8.1 per cent, from CHF 12.6 billion to CHF 13.7 billion, mainly owing to the net new assets.

Robust level of comprehensive equity, high capitalisation and confirmation of A+ rating

The equity attributable to shareholders stood at CHF 3,269.5 million as at 30 June 2023 (31 December 2022: CHF 3,405.2 million). The contractual service margin (CSM) after taxes came to CHF 4,104.0 million as at 30 June 2023 (31 December 2022: CHF 4,345.7 million). This decrease was mainly the result of the fall in interest rates in Switzerland in the first half of 2023 and negative currency effects.
Comprehensive equity, the new key figure reported in connection with application of the new accounting standards, totalled CHF 7,373.5 million (31 December 2022: CHF 7,751.0 million). It comprises the sum of the contractual service margin after taxes and the equity attributable to shareholders.
Baloise’s comfortable level of capital adequacy was once again confirmed by Standard & Poor’s in August 2023, when it reaffirmed its rating of A+ for the Baloise Group. S&P awarded this credit rating in recognition of Baloise’s excellent capitalisation – which is comfortably above the AAA level according to the S&P capital model – as well as its high operational profitability, solid risk management and robust competitive position in its profitable core markets. The complete report is available at www.baloise.com/ratings.

In the Swiss Solvency Test (SST), we expect a ratio of over 230 per cent as at 30 June 2023.

Outlook

There was a low level of natural disaster claims in the first six months of 2023, whereas we are seeing a cluster of natural disasters in the second half of the year. We believe that the related claims are likely to depress earnings for the second half of 2023 by an amount in the mid-double-digit millions.
Given the changes in economic conditions over the past years, we will focus on strengthening and expanding our core business going forward. Our activities will be tailored accordingly so that we can be more effective and efficient. Consequently, our asset management offering will now be more closely geared to insurance and financial solutions with the aim of generating an additional CHF 5 billion in third-party assets in the period 2022 to 2025. Furthermore, we are bringing our innovation initiatives and the Home and Mobility ecosystems closer to our insurance activities and are reviewing our objectives in these areas of activity. The aim of sharpening our focus in this way is to further improve the customer experience and boost our profitability. We anticipate generating a substantial total sum in cash of CHF 2 billion in the period up to 2025 and expect to continue with our current attractive dividend policy.

“The performance of the attractive non-life business was particularly encouraging in the first six months of 2023, and we achieved strong and profitable growth. The excellent combined ratio is proof positive of the high underlying quality of our portfolio, which we will continue to optimise. As expected, the profit contributions in the life business were smaller than in the past mainly owing to the transition to IFRS 17 and IFRS 9. However, the improved interest margin and the good new business margin in this segment show that the underlying quality of the life business is a long-term phenomenon. The new accounting standards do not affect the healthy generation of cash across all segments, which provides the basis for Baloise’s consistently attractive dividend policy. It is very important to me that we further optimise the solid foundations of our insurance business. We are thus stepping up our focus on our existing strengths and concentrating our efforts on continuing to reliably generate cash.”

Michael Müller, CEO of Baloise