Update from Baloise on its new financial reporting under IFRS 17/9

Basel, 29 June 2023. At today’s conference call for the capital markets, Baloise is providing information about the transition to the new accounting standards IFRS 17 and IFRS 9. As a result of the transition, there are changes to the presentation of the insurance business on the balance sheet and in the income statement. This does not affect the Group’s strong solvency position, its financial statements prepared in accordance with local accounting standards or its cash remittance. 

The essential information in brief

• Increase in the economic value of the balance sheet: Comprehensive equity (equity and contractual service margin, CSM) amounted to CHF 169 per share at 31 December 2022
   
• The life business reported future profits (CSM) of around CHF 5.4 billion at 31 December 2022. These profits from the insurance business are now recognised over time in a different way, which will result in more stable levels of profit going forward. For 2022, this meant earnings before interest and tax (EBIT) for the life business of CHF 261 million
   
• In the non-life business, EBIT amounted to CHF 99 million for 2022. This was adversely affected by a negative exceptional item of CHF 137 million resulting from the inflation-related strengthening of reserves and interest-rate effects. The adjusted figure for 2022, most notably in respect of the strengthening of reserves, amounted to CHF 237 million. The adjusted combined ratio was 91.6 per cent for 2022
   
• The accounting changes will not decrease Baloise’s total business value or underlying profitability. However, non-recurring items and transition-related effects are included in the income statement for 2022. At Group level, the profit reported for 2022 therefore totalled CHF 245 million. Adjusted for the non-recurring items in the non-life business, profit amounted to CHF 343 million. Going forward, profit will no longer contain components of earnings that are now part of other comprehensive income or are included in the CSM
   
• The switch to the new accounting standards does not affect the Group’s strong solvency position, which is 240 per cent as of 1 January 2023. Nor is there any impact on accounting under local standards, which forms the basis for figures on cash generation and for the dividend distribution
   
• We expect to continue our strong cash generation also in 2023. This provides the basis for maintaining our attractive and reliable dividend policy

Increase in the economic value of the balance sheet, driven by expected future profits in the life business of CHF 5.4 billion

• The contractual service margin (CSM) is a new line item on the balance sheet and amounted to approximately CHF 5.4 billion at 31 December 2022. The CSM represents the expected but not yet earned profits from the life business.
   
• Equity stood at CHF 3.4 billion at 31 December 2022. Comprehensive equity – the sum of expected future profits from the life business (CSM after taxes) and equity – amounted to CHF 7.7 billion.
   
• The value per share for comprehensive equity stood at around CHF 169.

Life business: high CSM; lower, but more stable profit contribution going forward

In the life insurance business, the inclusion of the CSM on the balance sheet means that total future profits are now explicitly reported. These expected profits exceeded CHF 5.4 billion at 31 December 2022.

The life business’s earnings for 2022 under IFRS 4 had been boosted by the jump in interest rates, with the reversal of reserves in an amount of CHF 96 million. Under the new accounting rules, this effect is now initially recognised in the CSM and transferred to profit over time as the CSM is released, which is why it is no longer included in EBIT. However, this should result in more stable profit contributions in future. For 2022, this meant EBIT for the life business of CHF 261 million, which was significantly better than the communicated minimum profit contribution expected for the life business of CHF 200 million.

Non-life business: EBIT squeezed by non-recurring items resulting from shifts between the income statement and other comprehensive income

In the non-life business, the change of accounting standard resulted in a shift of positive effects from the income statement to other comprehensive income. This shift led to a deterioration in the income statement and an improvement in the statement of comprehensive income:

• The inflation-related strengthening of reserves by CHF 120 million had a negative impact in 2022. Under IFRS 4, this negative effect was largely offset by the interest-rate-related reversal of reserves in the accident business and other reversals of reserves. Under IFRS 17, interest-rate-related reversals of reserves are no longer recognised in the income statement. Instead, they are recognised in other comprehensive income. Some other reversals of reserves are also treated differently now and hence no longer contribute to EBIT.
    
• In addition, there was a positive effect from the realisation of gains on equities in an amount of CHF 76 million in 2022. In the non-life business, these gains are also now recognised in other comprehensive income rather than in profit.

During the 2022 transition year, there were also negative non-recurring items that shifted from other comprehensive income to the income statement:

• Previously, changes in the fair value of fixed-income investments were generally recognised in other income. For some fixed-income investments, these changes are now recognised in the income statement, which had an adverse impact on EBIT of CHF 23 million owing to the surge in interest rates in 2022.

These non-recurring items and transition-related effects weighed heavily on the EBIT of the non-life business for 2022, which fell to CHF 99 million. The specific non-recurring items for 2022 came to CHF 137 million. In addition to the inflation-related strengthening of reserves and the change in the fair value of fixed-income investments, they also included positive effects from discounting and other factors. Adjusted for the non-recurring items, the non-life business reported EBIT of CHF 237 million for 2022.

The combined ratio for 2022 was 92.9 per cent. Adjusted for the non-recurring items, this ratio was 91.6 per cent.

Strong ability to generate cash; dividend policy remains attractive

Under IFRS 17/9, the Group’s profit for 2022 totalled CHF 245 million, which was weighed down by negative non-recurring items of CHF 137 million. Going forward, profit will no longer contain components of earnings that are now part of other comprehensive income or are included in the CSM.

We anticipate that we will again generate a strong level of cash in 2023 and are adhering to our objective of generating substantial cash of at least CHF 2 billion by the end of 2025. This provides the basis for maintaining our attractive and reliable dividend policy.

“The new accounting standards have a considerable impact on the presentation of our balance sheet and income statement,” says Baloise CFO Carsten Stolz, commenting on the transition to the new standards. “We are continuing to work on how we apply the standards so that we can provide a representative picture of Baloise’s financial situation under IFRS 17/9.”

Michael Müller, who will shortly be taking over as Baloise CEO, adds: “Simply Safe: Season 2 is a targeted strategy that builds on Baloise’s strengths. We are working on the implementation of this strategy with a firm focus on operational excellence and on the optimisation of our core business. This means we can further improve the cash generation in our operation, reflecting our unchanged ‘up only’ dividend policy.”

We will report in accordance with the new accounting standards for the first time in the half-year financial statements, which will be published on 20 September 2023. These will be followed by the first full Financial Report, containing the 2023 annual financial results, on 26 March 2024.

The conference call takes place today, 29 June 2023, at 10.00am and will be held in English.

• Interested parties can dial in for the question-and-answer session from 9.45am using the following numbers:
   
  • Switzerland/Europe: +41 (0)58 310 5000
  • United Kingdom: +44 (0)207 107 0613
  • United States: +1 (1)631 570 5613
     
• The live webcast can be accessed on the day of the event here.                                                                         

Contact
Baloise, Aeschengraben 21, CH-4002 Basel
Website: www.baloise.com
E-Mail: media.relations@baloise.com / investor.relations@baloise.com
Media Relations: Tel: +41 58 285 82 14
Investor Relations: Tel: +41 58 285 81 81

About Baloise

The focus is firmly on the future at Baloise. We aim to make tomorrow more straightforward, safer and more carefree for our customers, and we are taking responsibility for this today. Baloise is more than just a traditional insurance company. Through our smart finance and insurance solutions, complemented by a whole host of innovative offerings for the home and personal transport, we offer a complete service package. Dependable support, reliable cooperation and trust-based relationships are key aspects of our stakeholder interaction. We take care of financial matters so that our customers can concentrate on the important things in their lives and can find inspiration in the everyday. Baloise, a European company founded in 1863, currently employs 8,000 people at its headquarters in Basel (Switzerland) and across its subsidiaries in Belgium, Germany and Luxembourg. Our services generated a business volume of around CHF 8.8 billion in 2022. Baloise Holding Ltd shares (BALN) are listed on the SIX Swiss Exchange.