Storebrand Helseforsikring AS Filipstad Brygge 1 P O Box 1382 Vika No-0114 Oslo Norway www.storebrandhelse.no
Storebrand Investments concentrates on selected investment areas and developing specialist expertise in the major asset management functions.
Growth in the markets where Storebrand operates is encouraging many additional players to compete for customers. Storebrand’s position in the market, its long traditions and highly developed expertise provide a good foundation for success. However, past success is no guarantee for the future. Three factors are key to meeting this competition: • Attractive products that meet clearly identified customer needs: We will see greater innovation and more frequent changes in products. This will make it even more important to offer efficient service solutions that reflect customer preferences.
Storebrand for its defined contribution scheme, and Oslo Sporveier appointed Storebrand as the new supplier of its group pension scheme representing over NOK 2 billion of pension assets. In addition, Storebrand was again the most successful company in 2005 in bidding for the municipalities transferring away from
Local and Regional Authorities to submit their pension arrangements to periodic open competition.
Storebrand Life Insurance opened its Swedish branch in September 2005, offering traditional life insurance products to selected sectors of the Swedish market.
Eiendomsfond, is a competitive alternative to other forms of real estate investment. Minimum investment is NOK 50,000, making it possible for private individuals to invest in a class of investment previously only available to institutional investors. The new fund has been well received.
We have therefore implemented targeted measures for a number of years to improve the representation of female staff in senior management. We have met our target for equal participation of men and women in internal management development programs.
Storebrand strives to reduce the environmental impact of its activities. This includes taking steps to reduce energy and paper consumption, sorting waste, monitoring water consumption and recycling all electronic equipment. In addition, we have environmental standards for the management of the company’s premises and we are in the process of introducing environmental and social standards for our suppliers. Storebrand’s forest holdings at Værdalsbruket are certified in accordance with the Living Forest standard.
Among the priority areas for 2006 is the follow-up of the new HSE product, developing a standard contract for suppliers including environmental and social criteria, improving the complaint procedures and increasing the degree of waste sorting. Work on most areas of the action plan is already well under way, and proposals for new measures will also be looked at.
Storebrand continues to work in a systematic and coordinated manner to realise its vision of being the leading and most respected institution in the Norwegian market for long-term savings and life insurance. The key requirement for realising this vision is that Storebrand is recognised for its customer focus, expertise and corporate responsibility. This work is combined with continuing attention to improving productivity.
Storebrand Bank: The bank has standard procedures for reviewing its lending, and all new lending is approved in accordance with the bank’s credit policy. The bank monitors its credit risk through a risk classification system. The overall risk associated with the bank’s lending portfolio reduced in 2005, evidenced by a reduction in the incidence of default and a shift towards retail and mortgage lending.
Further information on Storebrand’s policies and procedures for corporate governance can be found in a separate article on page 36 of the annual report.
Share price development. The Storebrand share produced a total return (including dividend) of 13% over the course of 2005.
Storebrand’s principles for corporate governance correspond in all material respects with the Code of Practice. The question of whether a deputy chairman of the board of directors should be appointed is currently under consideration by the Board of
Committee held five meetings in 2005. The Group CEO and EVP
Board of Directors of Storebrand ASA is currently under consideration by the Board and the Election Committee, and will be decided in 2006. Neither legislation nor the company's Articles of
Figures for 2004 and 2005 are based on IFRS. Figures for 2001–2003 are based on NGAAP.
the 2006 Annual General Meeting (AGM) for a new mandate to buy back more of the company's own shares.
1.8 billion (28% tax rate). This amount includes losses carried forward of NOK 5.7 billion and tax allowances carried forward of NOK
Storebrand has developed a new standardised product known as Storebrand Folkepensjon specifically for small companies facing the new mandatory pension requirements in 2006. A
Approximately NOK 4.6 billion of customers' assets related to unit linked, while NOK 1.1 billion related to defined contribution pensions. Customers’ assets at 31 December 2004 totalled NOK 4.5 billion, of which 66% was invested in mutual funds.
Storebrand decides how a pension policy's assets are invested, and the entire portfolio is managed in the same way. The new legislation will allow companies with defined benefit pension schemes to exercise greater influence over the allocation of pension assets between investment alternatives such as equities, bonds, money market and real estate.
This is the largest asset management mandate ever made available for open competition in the Norwegian market. The mandate is broken down into various asset classes, with fixed-income portfolios making up the major part.
Automation. Storebrand Investments works continually to simplify its procedures and standardise and automate its work processes from investment decision through to settlement, control and reporting. This focus has improved the cost effectiveness and scalability of activities, ensuring a robust and flexible asset management platform that can produce stand-alone asset management products as well as managing the complex and flexible investment profiles offered through defined contribution pension schemes.
Money market funds produced a better return than benchmark, while bond funds were somewhat weaker than benchmark. The
Delphi mutual funds are managed with a distinct and focused investment philosophy which has generated very good results for many years, including 2005.
FINANCIAL RESULTS FOR 2005 The Storebrand Bank Group reported a profit before loan losses of NOK 206.6 million in 2005, as compared to NOK 113.2 million in 2004. Loan losses and provisions represented a net writeback of NOK 34.4 million for 2005, compared to a write-back of
NOK 7.4 million in 2004. Pre-tax profit for 2005 was NOK 241.1 million, up from NOK 120.7 million in 2004. After a tax charge of
BASLE II. Storebrand Bank intends to implement internal ratingbased methods for the new capital adequacy regime. The bank’s preparations for Basle II will focus on the commercial opportunities of the new regime. The transition to Basle II will require major investments in systems and procedures as well as changes to the bank’s organisation and main business processes, but will also create significant commercial gains.
The preparations for Basle II support the bank’s strategy and competitive position. Increased automation, improved decision support and use of customer data in market modelling will pave the way for rapid but controlled growth. Individual risk pricing will enable concentration on profitable customers. The systems developments driven by the Basle II regulations will also be of general commercial benefit for financial management and marketing. This will ensure that the bank retains a competitive position relative to its competitors.
The monthly management report, Storebrand Compass, reports on performance of key figures and value drivers relative to targets for each business area. Storebrand Compass is based on balanced scorecard management principles, with the value drivers divided into the areas of finance, customers, processes and skills/growth. The table below shows, as an example, selected parameters in the categories of finance and customers together with an evaluation of the company's performance in these areas in 2005.
Risk management for life insurance. Risk exposure in respect of the group’s life insurance activities relates to investment of policyholders’ assets until they are paid as benefits, and the contractual commitments that Storebrand has to its policyholders. As an example, all savings-related life insurance policies are guaranteed a minimum annual return, currently 3.6% on average. This places particular demands on how the life insurance company allocates its investments between asset classes.
Insurance Activities Act, the unique Norwegian rules on transfers of insurance business and the level of risk capital in Norwegian insurance companies. Storebrand is of the view that an uncritical acceptance of the proposed regulations may have unfortunate consequences for policyholders and owners. It is as yet unclear whether and to what extent the Ministry of Finance will follow the recommendations made by Kredittilsynet.
Storebrand takes a serious view of the challenge that low interest rates may represent over the longer term, and has implemented a number of measures to limit this risk. The group has invested in bonds to be held to maturity that generate a higher return than current interest rates. These bonds will produce a stable book investment return of 5% to 6% for a number of years.
equity capital) where the company exercises significant influence are consolidated in accordance with the equity method.
Interests in jointly controlled businesses are consolidated in accordance with the proportional consolidation method, i.e. by including the proportion of revenue, costs, assets and liabilities in the appropriate lines in the accounts.
Pensioners’ surplus fund. The pensioners’ surplus fund contains surplus premium reserve amounts allocated in respect of pensions in payment that are part of group pension policies.
To/from additional statutory reserves – life insurance –500.0 –448.9 Funds allocated to policyholders – life insurance –1 519.4 –1 368.9
Capital ratio 11.2% 15.3% Life Insurance Storebrand Livsforsikring Premiums for own account *) 18 318 17 912 Policyholders' funds inc. accrued profit 134 463 121 066 Investment yield I **) 6.9% 6.4% Investment yield II **) 7.5% 7.2% Capital ratio (Storebrand Life group) 10.9% 14.4% Operating costs as % of policyholders' funds 1.06% 0.90% Storebrand Fondsforsikring Premiums for own account 992 619
Ordinary pre-tax profit 1 445.1 2 556.6 Expected tax on income at nominal rate –404.6 –715.8 Tax effect of: Realised/unrealised shares 1 318.3 748.1 Dividends received 129.5 163.8 Associated companies 5.1 53.3 Permanent differences 54.4 5.0 Write-down of deferred tax assets –1 143.8 –472.2
Leiv L. Nergaard 20 000 Halvor Stenstadvold 3 593 Knut G. Heje 8 500 Mette K. Johnsen 997
Dividends from shares and other equity investments 640.9 Net gains/losses on disposal of shares, other equity investments and equity derivatives 3 887.0 Net unrealised gains/losses on shares, other equity investments and equity derivatives 1 488.6 Total shares, other equity investments and equity derivates 6 016.5 Interest income 1 625.1 Net gains/losses on disposal of fixed-income securities and interest rate derivatives 215.0 Net unrealised gains/losses on fixed-income securities and interest rate derivatives –327.3 Total bonds, interest rate derivatives and other fixed-income securities 1 512.8 Net gains/losses on disposal of financial derivatives, realised currency gains/losses –274.3 Net unrealised gains/losses of financial derivatives, unrealised currency gains/losses –6.7 Total financial derivatives and currency gains/losses etc. –281.0 Net income and gains from financial assets at fair value 7 248.3
Market risk Market risk relates to the risk that the value of the group's assets might be reduced by unexpected and unfavourable movements in the market. At the close of 2005, Storebrand had sufficient risk capital to absorb a fall in market values equivalent to the company’s stress test. The stress test assumes an unexpected simultaneous increase in interest rates of 1 percentage point internationally and 2 percentage points in Norway, combined with a sharp fall in share prices and property values. Market risk is monitored continuously using a range of statistical tools and tests. For instance, Storebrand uses ‘Conditional Value at Risk’ as a method for calculating the potential for loss for the investment portfolio on a one-year horizon for a given probability. This method also takes into account the size of worst-case losses.
Storebrand Life Insurance is contractually committed to guarantee an annual return for all its savings customers, and the average return guaranteed is currently 3.6%. The guaranteed annual return places particular demands on how investments are allocated between different classes of security and other assets. Given the current investment portfolio, the annual return will normally fluctuate between 2% and 9%. Active risk management and hedging transactions reduce the likelihood of a low investment return. If investment return is not sufficient to meet the guaranteed interest rate of 3.6%, the shortfall will be met by using risk capital built up from previous surpluses. The owner is responsible for meeting any shortfall that cannot be covered from risk capital. The average guaranteed interest rate is expected to fall in future years. New contracts include a guaranteed interest rate of 2.75%.
RESIDUAL CONTRACTUAL PERIOD FOR FINANCIAL ASSETS 3 MONTHS TOTAL NOK MILLION UP TO 1 MONTH 1-3 MONTHS – 1 YEAR 1-5 YEARS OVER 5 YEARS VALUE
*) Lending is presented excluding write-downs **) In this note, bonds and other fixed-income securities includes short positions **) In this note, derivatives are presented net and excluding short positions
RESIDUAL CONTRACTUAL PERIOD FOR FINANCIAL LIABILITIES 3 MONTHS TOTAL NOK MILLION UP TO 1 MONTH 1-3 MONTHS – 1 YEAR 1-5 YEARS OVER 5 YEARS VALUE
Net annual risk premium for an insured sum of NOK 100,000. In the case of disability pension policies, the premium shown is for an annual disability pension of NOK 10,000 paid until 67 years of age.
The above table includes the premium reserve. deposit reserve and pensioners’ surplus reserve with 3% and additional statutory reserves with 0%.
Total personnel expenses 20.6 71.6 56.6 03 Pension costs and pension liabilities
Net pension liability at 01.01 including provision for employment taxes 88.2 183.0 Net pension cost recognised in the period –13.4 –3.2 Premiums paid –11.9 –16.2 Pensions paid –34.0 –60.7 Other –14.8 Net pension liability at 31.12 28.8 88.2
Straight line depreciation periods for operating assets are as follows: Equipment, fixtures and fittings: 4 years Vehicles: 5 years Computer systems: 3 years 11 Equity capital
Balance sheet items: Subordinated loans to group companies 10.0 271.5 Net accounts payable and receivable (incl. group contribution) 1 031.3 687.4 529.9 15 No. of employees/Full time equivalent positions
Storebrand ASA has issued the following guarantees: CURRENCY TERMS ACCOUNTS PROVISION 1) Institute of London Underwriters (ILU) USD Unlimited 0 1) Counter indemnity of Oslo Reinsurance Company ASA, which is 100% owned by Storebrand Skadeforsikring AS.
Capital ratio: Eligible primary capital as a percentage of the risk-weighted balance sheet. Individual assets and off-balance sheet items are given a risk weighting based on the estimated credit risk they represent.
• The Norwegian Parliament votes to introduce mandatory occupational pensions from
Storebrand Bank opened for business in 1996, and in 1999 the group spun-off its casualty insurance business, which was subsequently sold. Over recent years, Storebrand has focused its activities on financial services and life insurance.
Storebrand Investments’ objective is to be the preferred asset manager for long-term savings and pension assets.