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Helvetia Holding AG

Earnings Release Jul 31, 2007

894_10-q_2007-07-31_af1d2a2f-ecf3-4004-8790-3a3aba286dc1.pdf

Earnings Release

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Ladies and Gentlemen,

2006 was another record year for Helvetia Group. Our business developed outstandingly well in the past year. Profit was up 40.4% on 2005, giving our best ever result of CHF 423.8 million. In both Switzerland and abroad, this success was primarily due to our own achievements. We are particularly pleased with the performance of our non-life business in Switzerland, our earnings power in Spain and the significant progress that has been made in the life business in Germany. Our assumed reinsurance also delivered an excellent result.

Outstanding events in 2006

Since September 2006, we have been active in the market under the unified "Helvetia" brand with the same logo throughout Europe. Our new corporate image has given us very positive momentum and has already brought us a large number of new customers.

In October 2006, the rating agency Standard & Poor's gave Helvetia Schweizerische Versicherungsgesellschaft AG and Helvetia Schweizerische Lebensversicherungsgesellschaft AG an "A-"rating with stable outlook. This quality mark acknowledges our extremely solid performance over the last few years and reflects our strong equity base and our excellent earning power. The new rating improved our market prospects significantly.

Best result of all time

Last year saw us post a net profit before taxes of CHF 562.2 million, representing an increase of CHF 142.0 million (33.8%) and by far our best ever result. Switzerland contributed CHF 68.6 million of this, with all other countries contributing a total of CHF 73.4 million. In the non-life business, the pre-tax result in the reporting period was up 22.5% year-on-year, while the life business improved by 32.0%.

Broken down by country, contributions to the pretax result came from Switzerland (CHF 289.0 million or 51% of the total), followed by Spain (CHF 110.1 million or 20% of the total) and Germany (CHF 51.4 million or 9% of the total).

Further market share gains in several markets

In the past year, we stood out from our competitors in several markets and gained further market shares. Premium growth was, however, "just" 1.5%, considerably more modest than in 2005 (+6.5%). This was partly due to the significant fall in assumed reinsurance, although we are only pursuing income targets, not volume, in this area. In addition, total direct life business suffered a dramatic slowdown in growth, particularly in Italy and Switzerland.

On the other hand, at +3.5% direct non-life business increased substantially compared to 2005. This is very pleasing, considering that motor vehicle insurance continued to suffer price erosion in many countries in 2006.

In terms of turnover, Switzerland continues to be our most important country with a 54% share of the premium total, followed by Germany (15%), Italy (10%) and Spain (9%).

Higher equity ratio and significant dividend increase

During the period under review, equity rose by CHF 257.6 million or 10.4% to CHF 2,738.4 million and the equity ratio increased 2.8 percentage points to an impressive 16.2%. In view of these pleasing results, the Shareholders' Meeting will be asked to approve a dividend increase of CHF 4.50 (50.0%), taking the dividend to CHF 13.50 per share. At approximately 35%, the payout ratio will be well within the target range.

Forthcoming changes in Executive Management

At the end of August 2007, I will step down from my position as CEO of Helvetia Group and will concentrate on my tasks as Chairman of the Board of Directors. The Board of Directors has appointed Stefan Loacker, the present CEO of Helvetia Austria, to succeed me as CEO. After 24 years with us as CFO and Deputy Chairman of the Group Executive Management, Roland Geissman will resign from the Executive Management in mid-2007. We owe him a great debt of gratitude for his successful contribution to the Group's development. The Board of Directors has appointed Paul Norton as his successor.

Outlook

Helvetia Group has made a good start to 2007. We are extremely well equipped to take advantage of any market opportunities that may arise. Our strategic priorities will allow us to develop our business with considerably more speed in future. We want to add momentum to our already healthy growth rate, cut our costs and efficiently utilise the capital at our disposal. To this end, we will focus on products with an attractive return and continue to consolidate our presence in the existing markets.

Sincerely,

Erich Walser Chairman of the Board of Directors and Chief Executive Officer

At a glance

Key share data Helvetia Holding AG 2006 2005 Change
Group profit for the period per share in CHF 49.3 36.2 36.4%
Consolidated equity per share in CHF 319.1 290.0 10.0%
Year-end price of Helvetia registered shares, in CHF 401.5 278.0 44.4%
Market capitalisation at year-end price in CHF million 3474.1 2405.5 44.4%
Price/earnings ratio 8.1 7.7
Dividend per share1 in CHF 13.50 9.00 50.0%
Number of shares issued 8652875 8652875

1 Based on the proposal made at the Shareholders' Meeting

Key data 2006 2005 Change
Income statement in CHF million
Gross premiums written 5255.7 5176.8 1.5%
– of which non-life 2423.3 2386.6 1.5%
– of which life 2832.4 2790.2 1.5%
Investment income 1109.3 1301.5 –14.8%
Profit before tax 562.2 420.2 33.8%
– of which life 184.6 139.9 32.0%
– of which non-life 321.6 262.5 22.5%
– of which other 56.0 17.8 214.6%
Group profit for the period after tax 423.8 301.9 40.4%
Balance sheet in CHF million
Investments 28927.7 27783.2 4.1%
Reserves for insurance and investment contracts (net) 25094.6 23969.9 4.7%
Consolidated equity 2738.4 2480.8 10.4%
Equity ratio 16.2% 13.4%

Profit (in CHF million)

Shareholders' equity (in CHF million)

Premiums (in CHF million)

Dividend per share (in CHF)

Key figures 2006 2005 Change
Non-life (%)
Funding ratio 154.6% 149.1%
Combined ratio (gross) 93.2% 95.2%
Combined ratio (net) 94.1% 94.0%
Life in CHF millions
Embedded value total 1881.7 1673.6 12.4%
– of which value of new business 21.7 19.9 9.0%
Investments (%)
Direct yield 3.1% 3.2%
Investment performance 3.1% 5.5%
Employees 2006 2005 Change
Helvetia Group total 4595 4619 –0.5%
– of which in Switzerland 2239 2236 0.1%

Letter to Shareholders 1.07

Group results

Overview: record result

In 2006, we increased our profit by 40.4% yearon-year, achieving our best ever result of CHF 423.8 million. Equity rose in the reporting period by 10.4% to CHF 2,738.4 million. The equity ratio increased by 2.8 percentage points to an outstanding 16.2%. On the premium front, we stood out from our competitors in many areas and were able to gain further market shares in 2006. Direct nonlife business deserves particular mention. This segment saw a significant premium increase of 3.5% in the past year compared with 2005, while the gross combined ratio improved 2 full percentage points to 93.2%.

Consolidated gross premiums (CHF million) Growth in CHF (%)
2006 2005 2006 2005
Direct business total 5062.5 4947.6 2.3% 6.5%
– non-life 2234.6 2159.5 3.5% – 0.1%
– life 2827.9 2788.1 1.4% 12.1%
Assumed reinsurance total 193.2 229.2 –15.7% 6.4%
Helvetia Group 5255.7 5176.8 1.5% 6.5%

Further market share gains in several markets

All in all, Helvetia Group recorded growth of 1.5% in 2006, 5 percentage points down on 2005 (6.5%). This is partly due to dramatic premium erosion in assumed reinsurance, although we are only pursuing income targets, not volume, in this area.

In total direct business, the 2.3% increase in 2006 was also substantially lower than in the previous year (6.5%), which can be attributed to the very distinct slowdown in growth in the life segment. On the other hand, non-life business registered a considerable increase of 3.5% on the previous year. This is very pleasing, considering that motor vehicle insurance continued to suffer price erosion during the past year in most European countries. The greatest growth in direct non-life business in 2006 was seen in Italy (4.4% in local currency) and Switzerland (4.2%), followed by Spain at 3.2% in local currency. We were able to significantly increase our shares of the market in both Italy and Switzerland. In the other markets, development was more or less in line with the trend in each country and we maintained our positions.

In terms of business lines, property insurance posted growth of 3.5% in 2006 after adjusting for foreign currency differences, followed by liability insurance with an increase of 2.9%.

In the direct life business in 2006, we again achieved double-digit increases of 12.7% and 11.2% in Germany and Spain respectively. On the other hand, our most important market, Switzerland, reported a marked slowdown in growth compared to the previous year (8.8%) due to the capital market environment and relatively low interest rates. However, at +2.0%, we outperformed the sector average (-2%) and were able to increase our market share. In the Italian life business, "consolidation" was our top priority in the reporting year after the enormous growth recorded in the past few years (2004: +42.5%, 2005: +67.5%). For considerations of income, we were particularly cautious when concluding policies with high single premiums, which ultimately led to a fall in premiums of around 24%. All in all, the growth of the Group's total direct life business slowed dramatically to 1.4% (previous year: 12.1%) due to the abovementioned developments in Italy and Switzerland.

In terms of business lines, capital-protecting unitlinked products saw the largest increase by far (14.5%) after adjusting for foreign currency differences. Group insurance grew by 3.1% after adjusting for exchange rate effects.

Best ever result

(CHF million) 2006 2005 %
Profit before tax 562.2 420.2 33.8%
– non-life 321.6 262.5 22.5%
– life 184.6 139.9 32.0%
– other 56.0 17.8 214.6%
Taxes 138.4 118.3 17.0%
Profit for period (after taxes) 423.8 301.9 40.4%

Last year saw the Helvetia Group increase its net profit after taxes by CHF 121.9 million or 40.4% to CHF 423.8 million – by far our best ever result. Once again, the largest contribution to profits came from the non-life business, which posted a pre-tax profit of CHF 321.6 million in 2006, a year-on-year improvement of 22.5%. Total life business shot up by 32.0% in the reporting year to CHF 184.6 million. In the segment "Other", pretax profit more than tripled compared to 2005.

All business units once again generated profits in 2006. Switzerland contributed CHF 289.0 million (or 51%) to the total pre-tax profit of CHF 562.2 million. Excellent development in non-life business gave a year-on-year improvement of CHF 68.6 million or 31.1%. In Spain, the pre-tax profit shot up to CHF 110.1 million, up on 2005 by 76.1%. This dramatic increase is not only due to operational progress, but also to various special influences. The revaluation of the real estate portfolio had a particularly positive impact. In addition, profit in the previous year suffered because of the considerable reinforcement of technical reserves for the life business. In Germany, the result improved

Profit before tax

(CHF million) 2006 2005 %
Switzerland 289.0 220.4 31.1%
Germany 51.4 31.7 62.0%
Italy 27.7 28.1 –1.5%
Spain 110.1 62.6 76.1%
Other total1 84.0 77.4 8.6%
Helvetia Group 562.2 420.2 33.8%

1)Austria, France and assumed reinsurance

by 62.0% to CHF 51.4 million in the past year, whereas in Italy, the 2006 result slipped just 1.5% below the very good level of the previous year. While non-life business continued to impress, our expectations of the life business were not completely met. In the segment 'Other', both assumed reinsurance and France and Austria delivered double-digit CHF million results. This represents a dramatic year-on-year increase for assumed reinsurance. Austria and France dropped slightly below the previous year due to the negative claims situation.

Increased equity ratio

Equity increased in the reporting period by CHF 257.6 million or 10.4% to CHF 2,738.4 million, mostly due to the record results. The equity ratio rose by 2.8 percentage points to an outstanding 16.2%. Total investments grew in 2006 by 4.1% to CHF 28.9 billion. At 3.1%, investment performance fell short of the excellent performance of the previous year (5.5%): while the non-life financial result improved, the life result fell compared to the extraordinarily good result of the previous year. The net technical reserves increased by 4.7% to CHF 25.1 billion and the funding ratio improved by 5.5 percentage points to 154.6%.

Profit contribution from non-life remains high

In non-life, profit before tax in the reporting year improved against 2005 by a further 22.5% to CHF 321.6 million. Once again, all countries delivered positive results in the double-digit CHF million

range. In Switzerland, a significant profit increase was posted thanks to the very favourable claims experience. Assumed reinsurance shone, as did Spain, where the excellent result of the previous year was again surpassed, also under the influence of the special effects mentioned above. In the other areas, pre-tax profit slipped compared to 2005, particularly due to the negative claims experience. In Germany, two major hail storms and several fires had a negative effect. In Italy and France, claims ratios were also slightly higher than the extraordinarily good ratios for the previous year. Austria suffered from the consequences of heavy winter snowfalls.

Helvetia's gross combined ratio improved in 2006 by 2 full percentage points to 93.2%, mostly thanks to the dramatic improvement in the claims ratio (3.1 percentage points to 61.2%). On the other hand, the cost ratio climbed to 31.9%, partly due to the costs incurred with the implementation of the new unified market image. At 94.1%, the net combined ratio was practically on a par with the previous year's outstanding ratio (94.0%). In contrast to the development of the gross ratio, the net ratio saw only a marginal increase, because the reinsurance balance burdened the accounts by approximately CHF 36 million in 2006, while in the previous year it was in our favour. Nevertheless, reinsurance costs remained at a pleasingly low level.

Distinctive increase in life profit

Total life earnings increased in the year under review by 32.0% to CHF 184.6 million, in particular due to a clear improvement in the risk experience for death and disability. Falling gains/losses on investments were absorbed by correspondingly reduced expenses for future profit participation. The substantial reinforcement of provisions for future profit participation made in the previous

Combined ratio gross

Helvetia
Group
CH DE IT ES
2006 93.2% 82.9% 95.2% 97.0% 89.4%
2005 95.2% 105.7% 90.1% 94.6% 87.2%
2004 95.5% 106.0% 88.5% 96.9% 95.9%

year in the wake of the excellent investment performance allows the seamless continuation of the budgeted distributions.

Switzerland accounted for the major share of total pre-tax profit in the life segment. Spain and Germany also delivered results in the double-digit CHF million range in 2006.

Value increase in life business

For the first time, Helvetia Group has published the embedded value for its life insurance business in this report, thereby bringing even more transparency to its financial reporting. At the end of 2006, the embedded value of our Group amounted to CHF 1,881.7 million, which represents an increase of CHF 208.1 million or 12.4% year-on-year. This sizeable increase is mostly due to favourable developments in investment income and the claims experience. The value of underwritten new business also rose (+9.0%) in 2006, in particular influenced by the higher share of equity-protecting products and increased yield from new funds in the area of fixed-income securities.

Segment information

+31.1%

Switzerland

Germany

Group results 9

Italy

Gross premiums 2006: CHF 522.8 million (portion of Group total: 10%) 69.8% 365.0 Direct business non-life

Spain

Gross premiums 2006: CHF 494.8 million (portion of Group total: 9%) Profit before tax (in CHF million) 78.1% 386.5 Direct business non-life 21.9% 108.3 Direct business life Growth 2006 2005 in CHF 6.8% 3.2% in original currency 4.9% 3.0% 110.1 Portion of Group total 20%

Other (Austria, France and assumed re)

Share

2006 was the fourth consecutive good year for equity markets. The environment was almost ideal and the mood was better than it has been for a long time. Inflation stayed within limits and interest rates remained low. Brief concerns about burgeoning inflation and the doldrums on the US real estate market caused a temporary slump in May and June, but the wars and crises in Iraq, North Korea and Lebanon did not manage to upset the capital markets. Good corporate profits and brisk acquisition and merger activities also considerably boosted investor confidence.

Seen overall, the European and US equity markets recorded significant growth in the past year. Only Japan, which was still at the top of the table in 2005, lagged behind. The SPI was up 20.7% in 2006, ensuring that the Swiss stock exchange did very well compared to the other European exchanges.

Outstanding performance of Helvetia share – gains outstrip benchmark

With a price increase of 44.4%, the Helvetia registered share was one of the best performers on the Swiss stock exchange in the past year. It outperformed both the insurance stock index (17.7%) and the Swiss Performance Index (20.7%). This impressive performance was principally due to the consistent implementation of our strategy and the resulting excellent business result. Very good recommendations from numerous financial analysts and notable banking institutions also had a positive impact.

In addition, our new unified, progressive and strong market image gave us a very good foothold in the market. Market opportunities also improved as a result of our "A–" rating awarded by Standard & Poor's, which pays tribute to our strong equity base and the good earning power of Helvetia Group.

Share price trends 1.1.2006 to 23.3.2007 indexed

Stable shareholder structure / strong shareholder loyalty

Our shareholder structure changed only slightly in the past year, which means that our ownership base remained very stable. As of 31.12.2006, a total of 4,366 registered shareholders were entered in the share register. The investor groups comprise:

Shares of investor groups 31.12.06 31.12.05
Private individuals 12.8% 13.9%
Banks and insurance companies 24.8% 24.8%
Other institutional investors 62.4% 61.3%

At the balance sheet date of 31.12.2006, 91.5% of investors were based in Switzerland, while 8.5% lived abroad. The free float stood at 53.7% at the end of 2006 (end 2005: 51.8%).

Shareholder structure 31.12.06 31.12.05
Patria Genossenschaft 30.1% 33.3%
Vontobel 4.0% 4.0%
Raiffeisen 4.0% 2.7%
Munich Re 8.2% 8.2%
Free float 53.7% 51.8%

The purchase of registered Helvetia shares is not subject to any restrictions. Shareholders who purchase the shares in their own name and on their own behalf will be entered in the share register for up to a maximum of 5% of the total number of issued registered shares with voting rights.

Outstanding bond

  • Amount: CHF 200 million
  • Interest rate: 3% p.a.
  • Term: 5.5.2004 5.5.2010
  • Securities number: 1.839.765

Sustained dividend policy

Helvetia has been pursuing an income-oriented, continuous distribution policy for many years. The Group's excellent operating performance and good earning power allow the Board of Directors to request the Shareholders' Meeting of 4 May 2007 to approve the distribution of a dividend of CHF 13.50 per share for the 2006 financial year. Compared to the dividend for the 2005 financial year of CHF 9.00, this represents an increase of 50.0%.

Consolidated income statement

Income
in CHF million
2006 2005
Gross premiums written 5255.7 5176.8
Reinsurance premiums ceded –272.0 –303.1
Net premiums written 4983.7 4873.7
Net change in unearned premium reserve –24.6 2.0
Net earned premiums 4959.1 4875.7
Interest and dividend income 704.4 675.7
Gains and losses on investments (net) 290.9 506.9
Income on investment property 186.4 189.1
Other income 89.4 98.8
Total operating income 6230.2 6346.2
Expenses
in CHF million
Claims incurred including claims handling costs (non-life) –1465.8 –1536.6
Claims and benefits paid (life) –2226.3 –2234.6
Change in actuarial reserve –738.0 –849.8
Policyholder dividends and bonuses –166.7 –291.9
Reinsurers' share of benefits and claims 160.8 244.5
Net insurance benefits and claims –4436.0 –4668.4
Acquisition costs –647.4 –625.2
Operating and administrative expenses –509.3 –476.4
Interest payable –41.6 –51.0
Other expenses –29.5 –88.6
Total operating expenses –5663.8 –5909.6
Profit or loss from operating activities 566.4 436.6
Finance costs –6.0 –9.3
Share of profit or loss of associates 1.8 –7.1
Profit or loss before tax 562.2 420.2
Income taxes –138.4 –118.3
Profit or loss for the period 423.8 301.9
Attributable to:
Shareholders of Helvetia Holding AG 423.0 301.4
Minority interests 0.8 0.5
Earnings per share (CHF) 49.3 36.2

Consolidated balance sheet

Assets
in CHF million
2006 2005
Property and equipment 526.2 426.1
Goodwill and other intangible assets 68.6 62.4
Investments in associates 46.2 45.2
Investment property 3890.0 3883.8
Loans (LAR) incl. money market instruments 6743.2 6379.0
Held-to-maturity investments (HTM) 3469.7 2781.0
Available-for-sale investments (AFS) 11863.7 11832.2
Financial assets at fair value through profit or loss 2914.9 2862.0
Receivables from insurance business 638.1 600.7
Deferred acquisition costs (life) 219.8 221.6
Reinsurance assets 782.4 902.6
Deferred tax assets 49.6 39.0
Current income tax assets 1.5 2.9
Other assets 151.7 127.7
Accrued investment income 323.3 306.8
Cash and cash equivalents 121.2 172.4
Total assets 31810.1 30645.4

Liabilities and equity in CHF million

2006 2005
Share capital 86.5 86.5
Capital reserves 636.1 628.1
Treasury shares –17.1 –24.4
Unrealised gains and losses (net) 127.9 182.3
Foreign currency translation differences 15.6 0.1
Retained earnings 1277.2 1016.5
Valuation reserves for contracts with participation features 608.8 588.6
Equity of Helvetia Holding AG shareholders 2735.0 2477.7
Minority interests 3.4 3.1
Total equity 2738.4 2480.8
Actuarial reserve (gross) 21019.0 20146.3
Provision for future policyholder participation 742.2 688.3
Loss reserves (gross) 2886.1 2792.0
Unearned premium reserve (gross) 890.5 844.7
Financial liabilities from financing activities 199.1 198.8
Financial liabilities from insurance business 1489.5 1719.8
Other financial liabilities 37.2 32.1
Liabilities from insurance business 703.5 754.4
Non-actuarial provisions 64.1 61.2
Employee benefit obligations 272.1 245.7
Deferred tax liabilities 465.7 457.7
Current income tax liabilities 115.9 97.0
Other liabilities and accruals 186.8 126.6
Total liabilities 29071.7 28164.6
Total liabilities and equity 31810.1 30645.4

Cautionary note regarding forward-looking statements

This document was prepared by the Helvetia Group and may not be copied, altered, offered, sold or otherwise distributed to any other person by any recipient without the consent of the Helvetia Group. Although all reasonable effort has been made to ensure that the information provided herein is accurate and that the opinions contained herein are fair and reasonable, this document is selective by nature and is intended to provide an introduction and overview of the business of the Helvetia Group. Where information and statistics are quoted from any external source, such information or statistics should not be interpreted as having been adopted or endorsed by the Helvetia Group. Neither the Helvetia Group nor any of its directors, officers, employees and advisors, nor any other person, shall have any liability whatsoever for loss, however arising, directly or indirectly, from any use of this information. The facts and information contained herein are as up to date as is reasonably possible and may be subject to revision in the future. Neither the Helvetia Group as such nor any of its directors, officers, employees or advisors, nor any other person, makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this document.

This document may contain projections or other forward-looking statements related to the Helvetia Group which, by their very nature, involve inherent risks and uncertainties, and risks exist that predictions, forecasts, projections and other outcomes described or implied in forward-looking statements will not be achieved. We caution you that a number of important factors could cause results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include: (1) changes in general economic conditions, in particular in the markets in which we operate; (2) the performance of financial markets; (3) changes in interest rates; (4) changes in currency exchange rates; (5) changes in laws and regulations, including accounting policies or practices; (6) risks associated with implementing our business strategies; (7) the frequency, magnitude and general development of insured events; (8) mortality and morbidity rates; and (9) policy renewal and lapse rates. We caution you that the foregoing list of important factors is not exhaustive; when evaluating forward-looking statements, you should carefully consider the foregoing factors and other uncertainties. All forward-looking statements are based on information available to the Helvetia Group on the date of its publication and the Helvetia Group assumes no obligation to update such statements unless otherwise required by applicable law.

The purpose of this document is to inform the Helvetia Group's shareholders and the public of the Helvetia Group's business activities during 2006. This document does not constitute an offer or a solicitation to exchange, buy or subscribe for securities, nor does it constitute an offering circular as defined by Art. 652 a of the Swiss Code of Obligations or a listing prospectus as defined by the listing rules of the SWX Swiss Exchange. Should the Helvetia Group make one or more capital increases in the future, investors should make their decision to buy or subscribe for new shares or other securities solely on the basis of the relevant offering circular. This document is also available in German, French and Italian. The German version is binding.

Important dates

Ordinary Shareholders' Meeting in St.Gallen
Publication of half-year financial results for 2007
Financial results for 2007: analysts' and media conference
Ordinary Shareholders' Meeting in St.Gallen
Publication of half-year financial results for 2008

St.Gallen, 29 March 2007

Contact

Wolfgang Lohr Head of Investor Relations P.O. Box, CH-9001 St.Gallen Phone +41 58 280 54 48 Fax +41 58 280 55 89 www.helvetia.com [email protected]

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