“Following careful analysis of our business activities, we have identified substantial potential for raising efficiency along with related cost savings and opportunities for growth in all our business units. To unlock as much of this potential as possible, we are launching our refocusing strategy in which the emphasis is on the performance of our core business and its ability to generate value. This will strengthen the long-term reliability that we offer to our customers, sales partners and employees. It will also lead to an increased return on equity and consistently strong cash remittance. All this, combined with the higher cash payout rate of 80 per cent or more, means we can confirm Baloise as an attractive long-term investment for our shareholders,” says CEO Michael Müller, commenting on the refocusing strategy.
With immediate effect, the Simply Safe strategic program and the related targets and ambitions are replaced by the refocusing strategy, which contains new financial targets, retains the existing ambition of cash remittance of CHF 2 billion by 2025 and extends this ambition to include an additional CHF 1 billion to be remitted by 2027.
Ensuring the long-term profitability of the non-life business
Baloise has been continually optimising its non-life portfolio for more than 20 years. Thanks to these efforts, we have one of the most profitable non-life portfolios in Europe. The combined ratio has remained below 95 per cent since 2012 and the loss ratio has been consistently at a healthy level, outperforming the market average by 2 percentage points on average over the past ten years.
Comparing our expense ratio with that of competitors is difficult at the moment because various approaches have been taken when determining which costs are included following the introduction of the IFRS 17 and IFRS 9 financial reporting standards. Starting in 2024, we will factor the operational portion of the non-attributable costs into our calculation of the combined ratio in order to facilitate a better comparison with our competitors’ ratios. The new approach to costs has no impact on the reported profit but will cause the expense ratio and thus the combined ratio to rise by between 2 and 3 percentage points.
Despite the new calculation method, our ambition remains unchanged and we are aiming for a combined ratio of around 90 per cent in an average interest-rate and claims environment. This percentage is at the lower end of the range of ratios achieved in the past decade. We are confident that, by optimising claims incurred, being more selective in our underwriting and reducing costs, we can achieve this ambition and thus ensure that our non-life portfolio remains attractive over the long term.
Resilient life business: sustained EBIT contribution of at least CHF 200 million and an comprehensive product range
Baloise’s life business is a resilient and stable source of earnings, with a healthy level of cash remittance and an EBIT contribution of at least CHF 200 million. By continually optimising our policy portfolios, for example by protecting them using reinsurance programmes, focusing on capital-efficient new business and taking a selective approach in the Swiss group life business, we are ensuring that the life business can continue to contribute to the Company’s success in the long term without limiting the breadth of the products and services that we offer. As a result, we can be very flexible in meeting customers’ needs and, depending on demand, can offer different provision models. In particular, our business model in Switzerland – comprising insurance and banking – enables us to combine insurance products with tailored banking solutions. This means we are always well positioned to satisfy customers’ needs.
Prudent management of the life business also entails lowering the average guarantees. We succeeded in improving these from 1.9 per cent in 2015 to 1.0 per cent in 2023. During the same period, current returns fell from 3.0 per cent to 2.4 per cent owing to the low level of interest rates. However, current investment returns have been rising again since 2021. As a result, we have achieved a long-term interest margin of more than 100 basis points.
Well positioned thanks to operational efficiency and stronger growth than the market in the target segments
In Switzerland, Belgium, Germany and Luxembourg, Baloise wants to be among the leading insurance companies in its attractive target segments. To this end, we have to increase our cost discipline and achieve sustained profitable growth in the target segments, in doing so growing at a faster rate than the relevant markets. We are therefore setting ourselves the ambition of further improving our cost efficiency by lowering our expense ratio in the non-life business by between 2 and 3 percentage points. To achieve this, we are downsizing by 250 positions across the Group, optimising operating costs and making improvements by deploying new technologies.
The latter will also help us to increase technical profitability, for example by applying dynamic pricing and detecting insurance fraud. We are also using artificial intelligence to accelerate growth in our markets and to provide an even better advisory service to our customers.
Greater capital productivity and ambitious return on equity target
The increase in technical profitability, the improved cost base, the profitable growth of our target segments and a stronger focus on capital efficiency will have a positive impact on return on equity in the medium term. Baloise is now targeting a return on equity of between 12 per cent and 15 per cent.
All business units will contribute to this ambition, and we will use continual portfolio analysis to check what steps need to be taken to achieve it. As before, the Company may decide to acquire portfolios, review and restructure portfolios or even dispose of them if they do not satisfy this new target.
Strong cash remittance underpins dividend; new structure for share buy-backs
Across the business portfolio as a whole, we anticipate broad-based cash remittance amounting to a cumulative amount of over CHF 2 billion in the period 2024–2027. Of the cash remitted, at least 80 per cent is to be distributed in the form of dividends and complementary share buy-backs. This shareholder-oriented dividend policy reflects the focus on the earnings power of the core business and the discontinuation of the ecosystem strategy.
The difference between the dividend payments and the cash payout rate of 80 per cent or more will be accumulated annually. As soon as a minimum of CHF 100 million is reached, this capital will be returned to shareholders in the form of share buy-backs.
Portfolio optimisation in the Belgian life business will result in a one-off cash remittance of CHF 62 million. This amount, combined with cash remittance from operations, means that Baloise anticipates a high level of cash remittance of more than CHF 500 million in 2024. Depending on the effective amount of cash remittance at the end of the year and subject to the dividend decision to be made at the next Annual General Meeting, Baloise will consider a share buy-back of at least CHF 100 million next year. This shareholder-oriented dividend policy – under which we have paid an attractive dividend every year for more than 20 years – and the new framework introduced for share buy-backs make Baloise one of the most reliable stocks in the European insurance industry.
“The past few years have been dominated not only by exceptional developments in the macro environment but also by change within Baloise, particularly at management level. During Michael Müller’s first year as Group CEO, the board of directors initiated a review of the strategy and, together with the group management, conducted an in-depth analysis of the business lines. We are convinced that the refocusing strategy will put Baloise on a successful course,” adds the Chairman of the Board of Directors Thomas von Planta.
In today’s investor update starting at 10.00am, the Company will explain the reasons for the refocusing strategy. Interested investors can register for the webcast using the following link: live video webcast.
The presentation for the investor update can be downloaded here.
Important dates
- Thursday, 12 September 2024, 8.30am: Media conference on the financial results for the first half of 2024
- Thursday, 12 September 2024, 10.00am: Financial results for the first half of 2024 and investor update
- Wednesday, 20 November 2024: Q3 2024 interim statement
Further information
