2 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 3
Definitions: 1 Underwriting result, general insurance = earned premiums - claims incurred etc. - operating expenses 2 Run-off results, general insurance = change in estimates from earlier periods 3 Combined ratio = claims ratio + cost ratio 4 Loss ratio = claims incurred etc. /earned premium 5 Cost ratio = operating expenses/earned premium 6 Investment portfolio = includes all investment funds in the Group, except Pension and Savings and Retail Bank 7 Solvency margin capital = net subordinated capital including share of security provisions and natural perils fund (note 24: Solvency margin Gjensidige Forsikring ASA) 8 Solvency margin is calculated at company level according to regulations from the Financial Supervisory Authority of Norway. 9 Capital adequacy ratio = net subordinated capital/risk-weighted calculation basis (note 23: Capital adequacy Gjensidige Group) 10 Return on financial assets = net financial income as a percentage of the average financial assets including property (excluding Pension and Savings and Retail Bank) 11 Return on equity = profit before tax /average equity for the period 4 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 5
Gjensidige is one of the leading players in the Nordic general insurance market. We offer insurance products to private and commercial customers in Norway, Denmark, Sweden and the Baltic states. In Norway, we also offer banking services, pension and savings products.
The year 2012 The premium volume developed in a positive direction in 2012, primarily as a result of a general improvement in the Baltic insurance markets. A continuous focus on more efficient operations has contributed to increased profitability.
Scalable Model growth opportunity 12 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 13
The investment portfolio consists of three parts: a match portfolio, a free portfolio and associated companies. The match portfolio is intended to correspond to the Group’s actuarial provisions. It is invested in fixed-income instruments whose duration is adapted to the disbursement of the actuarial provisions. The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s capitalisation and pertaining risk capacity, as well as the Group’s risk management. Associated companies mainly comprise the holdings in Storebrand and SpareBank1 SR-Bank.
Securities Depository (VPS) carried out by RD:IR. The analysis maps the owners behind the nominee accounts. There is no guarantee that the list is complete. An overview of the 20 largest shareholders as specified in VPS’s register of shareholders is available in Note 26 on page 135.
This voluntary social responsibility shall be practised in line with society’s expectations of Gjensidige’s important social role.
The Board is authorised to buy back the Company’s own shares. The Board shall ensure that the Company complies with the Public Limited Liability Companies Act sections 3-8 and 3-9 in agreements between the Company and parties mentioned there. On entering into not immaterial agreements between the Company and shareholders, closely-related parties, board members or members of the management or close associates of such members, the Board will obtain an assessment from an independent third party. The same applies to agreements with Group companies that have minority shareholders. This follows from the rules of procedure for the Board, which are available at www.gjensidige.no/konsern.
Duties of the Supervisory Board Pursuant to the Act relating to insurance undertakings and Article 2 of the Articles of Association, the duties of the Supervisory Board are to supervise the management of the Company and to ensure that the object of the Company is pursued in accordance with relevant legislation, the Articles of Association and resolutions of the general meeting and the Supervisory Board. The Supervisory Board normally meets three times a year.
The Board of Gjensidige Forsikring ASA has appointed two select committees – an audit committee and a remuneration committee. All members of the two committees are independent of the Company and its general management.
The Board carries out an annual self-evaluation that is submitted to the nomination committee for use as supporting documentation in the committee’s work.
Control committee Financial institutions are required to have a separate elected control committee. The control committee is independent of the Board and management, and is elected by the general meeting. The committee holds regular meetings, and it is tasked with ensuring that the Company operates in an expedient and appropriate manner in accordance with legislation, the Articles of Association, guidelines adopted by the Supervisory Board and instructions from the Financial Supervisory Authority of Norway. The committee shall in particular ensure that the Company has satisfactory management systems and internal control systems. The control committee is identical for all companies in the Group that are obliged to have such a committee. The committee shall also supervise other companies in the Group.
Deviations from the Code of Practice: None 36 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 37
Deputy Members 1. Ivar Kvinlaug 2. Inger Tone Ødegård 3. Hanne Solheim Hansen 4. Kjersti Eline Busch Tønnesen
Representatives for the employees members of the Supervisory Board who participate in the nomination committee’s work of nominating the Chairman of the Board: Elisabeth Katai Knudsen Jon Aniksdal 40 I Gjensidige Annual Report 2012 Gjensidige annual report 2012 I 41
Important initiatives that shall ensure that the Group achieves its long-term financial targets and its ambition of being the most customer-oriented general insurance company in the Nordic region are: Micro-tariffing Sophisticated tariffs based on micro-segmentation of customers and risk.
The customer portal gjensidige.no is becoming increasingly important for Gjensidige’s contact with its customers. Private and commercial customers have a complete over44 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 45
In Sweden, general insurance products are distributed to private customers both directly on the telephone and the internet and through insurance mediators (partners and agents). In the commercial market, distribution mainly takes place through insurance brokers and partners.
The effect of the reclassification of indirect claims settlement costs amounted to 0.9 percentage points.
At the end of 2012, the investment portfolio totalled NOK 56,296.0 million (54,486.7). The financial result was NOK 3,005.1 million (2,331.3), which corresponded to a return on financial assets of 5.4 per cent (4.4).
The Gjensidige Customer and Brand School, e-learning and organisational development Good management and continuous competence-raising measures will give Gjensidige important competitive advantages. The Group’s focus on manage ment and employee development is reflected in the Gjensidige Customer and Brand School. The school’s training programmes are closely related to the Group’s strategy and the business areas’ reported needs, and all training measures shall support the Group’s ability to implement rapid restructuring and development. An important principle is that learning is closely linked to the work situation, so that the participants get to utilise their new expertise and skills during the performance of their work.
The focus is having a positive effect on work quality and work effort, internal motivation and greater job satisfaction. In addition, several in-house surveys have been carried out that show a clear connection between sales training, customer satisfaction, sales and a reduction in the loss of customers.
E-learning has been an important part of Gjensidige’s strategy for customer- oriented training since 1991, but it also supports the implementation of new work processes and improvement processes, the use of new ICT solutions etc. A strong focus on e-learning in the time ahead is an important element in being able to realise Gjensidige’s ambitious competence-raising goals. In 2012, the staff have completed and passed 13,700 e-learning courses, compared with 14,000 in 2011.
The working environment is also a topic in the annual employee satisfaction survey. The results for 2012 were positive concerning clarity of roles and challenges relating to work and management. Perceived job requirements relating to a high workload and decision-making requirements were among the most frequently mentioned improvement areas. The overall analysis of the employee satisfaction survey nonetheless showed that the sum of negative and positive factors in the working environment in Gjensidige indicates a high degree of mastery and job satisfaction among employees. This does not mean that areas where the results do not match expectations will not be followed up. This is done with the help of HR partners/HSE, and, if necessary, external assistance to implement preventive measures.
Interest expenses etc. and write-downs and losses from banking operations (575.1) (550.0)
Effect of exchange rate changes on cash and cash equivalents (15.2) 1.3
Cash and cash equivalents at the end of the period 2,331.5 3,513.3
The accounting policies applied in the consolidated financial statements are described below. The policies are used consistently throughout the entire Group with the exception of one difference that is permitted in accordance with IFRS 4 about insurance contracts. See description under the section Claims provision, gross.
Gjensidige Insurance Group 76 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 77
Subsequent to initial recognition investment properties are measured at fair value, and any changes in fair value are recognized in profit or loss.
The Group uses financial derivatives, amongst other to hedge foreign currency exchanges arising from the ownership of foreign subsidiaries with other functional currency.
Restructuring Provision for restructuring are recognized when the Group has approved a detailed and formal restructuring plan which has commenced or has been announced. Provisions are not made for future expenses attributed to the operations.
Share-based payment transactions in which the company receives goods or services as payment for the company’s own equity instruments is recognized as share-based payment transactions with settlement in equity, regardless of how the company has acquired the equity instruments. Share-based payment arrangements settled by one of the shareholders in the ultimate mother company is also recognized as a share-based payment transaction with settlement in equity.
The provision for guarantee scheme shall provide security to the insured for the right fulfillment of claims covered by the agreement even after the agreement is terminated in Norway.
The necessary capital for the insurance business is allocated to the products in order to set a more correct cost of capital for pricing and assessments of profitability. The excess capital relative to the most binding of the capital requirements is regarded as an additional buffer and is available to finance the Group’s strategic growth targets.
The analysis of the profitability can be tracked further to different groups of customers and portfolios. The underwriting guidelines attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk, industry and location of the risks. Underwriting limits are in place to enforce appropriate risk selection criteria and to ensure that accepted risks are within the limits of the reinsurance contracts.
In terms of concentration risk, the main risks for the Group are the investments in Storebrand and SpareBank1 SR-Bank and the exposure to office properties in the Oslo area. Concentration risk is further analysed under the various market risk factors.
The development of the financial results is measured continuously relative to the targets and risk limits set by the Board. In the liquid part of the free portfolio, daily risk limits in accordance with Tail Value at Risk (TVaR) is measured, see table below. Approximately 25 per cent of the risk capacity measured by TVaR was used as at 31 December 2012. TVaR is a statistical measure of maximum loss in NOK million per day given a 95 per cent confidence level. TVaR has fluctuated between NOK 30 and 50 million throughout the year. In the event of a significant negative development in the financial results, the limit for investments in risky assets will be lowered. The development in the financial results and asset allocation is measured and reported regularly to group management and the Board.
Gjensidige Insurance Group 96 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 97 of reinsurers given a natural catastrophe. Finally, the risk in the subsidiaries outside general insurance (Gjensidige Pension and Savings, Gjensidige Bank) are included by assuming a reduction of ten percentage points in their return on equity and including the losses that this may entail.
Total decrease in value of stress test (3,558.0) Buffer capital 7,332.6 Capital/surplus in stress scenario 3,774.6
Table 22b – Allocation of fixed income portfolio per rating category, internal rating included NOK million 31.12.2012 31.12.2011
Figure 9b – Potential credit exposure reinsurance per rating category 2011
Market risk is the risk of losses associated with unfavorable movements in market prices, which in this context relates to positions and activities in the interest, currency and stock markets.
Debt to credit institutions 4.1 15.1 526.9 546.1 Deposits from and liabilities to customers 9,598.0 6.8 178.3 9,783.2 Debt incurred through the issue of securities 2.7 348.4 1,291.8 3,593.5 5,236.4 Loan approvals and unused drawing rights 3,265.3 3,265.3 Derivatives - gross outflows 1 0.4 0.3 16.3 37.4 54.4 Total liabilities 12,866.4 359.7 1,501.6 4,157.7 18,885.4
Amortisation recognized during the period (78.9) (10.6) (184.9) (36.2) (310.6) Disposals 31.0 17.6 3.7 100.7 8.9 161.8 Impairment losses recognized in profit or loss during the year (19.2) (19.2)
The annual assessment of impairment losses was carried out in the third quarter of 2012. An indication assessment was also carried out in the other quarters in order to assess whether new circumstances calls for new impairment testing of goodwill.
The Group's valuation model has been used both in the quarterly financial statements and at year end. In addition, two independent external advisors were brought in to value selected parts of the portfolio at year end. From 2011 onwards, the Group used a new valuation model. This new model had no effect on financial statements in 2011.
Financial liabilities at fair value through profit or loss, initial recognition Interest-bearing liabilities at fair value through profit or loss 15 308.2 308.2
Receivables from policyholders 4,064.4 3,626.2 Receivables related to reinsurance 48.3 164.9 Total receivables related to direct operations and reinsurance 4,112.7 3,791.1
Gjensidige Insurance Group 116 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 117
Gjensidige Forsikring is required to have an occupational pension plan pursuant to the Mandatory Occupational Pension Act. The company's pension plans meet the requirements of the Act.
Some of Gjensidige Forsikring’s branches and subsidiaries have similar defined contribution plans as Gjensidige Forsikring.
Gjensidige Insurance Group 120 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 121
Deductible temporary differences Plant and equipment and intangible assets (542.7) (600.3) Loans and receivables (66.5) (82.7) Provisions for liabilities (74.3) (139.3) Pension liabilities (134.4) (963.6) Claims provision (3.1) (7.5) Other deductable temporary differences 28.4 (34.2) Total deductible temporary differences (792.7) (1,827.6) Loss carried forward (8.0) (4.5) Net temporary differences 4,544.4 3,578.8
Martin Danielsen, Executive Vice President 2,232.1 255.5 173.9 480.3 375.0 4 478.3 3.50 % 31.01.2021 4,431 4,723 10,683 3
Net income and gains/(losses) from financial assets at fair value through profit or loss, designated Shares and similar interests Dividend income 180.2 24.7 Unrealised gains/(losses) from shares and similar interests 56.1 (72.1) Net realised gains/(losses) from shares and similar interests 191.5 (69.9) Total net income and gains/(losses)from shares and similar interests 427.8 (117.4)
FSAN minimum requirement (C) 7,568.1 7,128.4 Primary capital surplus (A-C) 8,333.8 7,332.6 23. Capital ratio
Solvency margin capital in per cent of requirement 277.7 % 265.9 %
Weighted average number of shares 1 499,930,606 499,966,392 Weighted average number of diluted shares share-based payment programme 78,519 1,531 Weighted average number of shares, diluted 1 500,009,125 499,967,923
Outstanding shares as at 31 December 2012 have an average remaining life of 1.11 years.
Dividend Dividend from investments is recognized when the company has an unconditional right to receive the dividend. Propsed dividend is recognized as a liability in accordance with the Accounting Act and Regulations on Simplified Application of International Accounting Standards (FOR 2008-01-21 nr. 57). This implies that dividend reduces equity in the fiscal year the dividend provision relates to.
156 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 157
Exchange differences (2.5) (2.5) As at 31 December 2012 113.5 478.5 592.0 Uncompleted projects 0.1 35.2 35.4 As at 31 December 2012, including uncompleted projects 113.6 513.7 627.3 7. Owner-occupied property, plant and equipment
There are no restrictions with regard to the sale of the investment properties or how income and cash flows generated by the investment properties can be used.
Gjensidige Forsikring owns no investment properties outside of Norway. The average rental period is 6.2 years, and the portfolio of investment properties includes offices.
Bonds and other fixed income securities 6.5 19.7 0.6 26.8 19.7
Deposits with financial institutions 365.0 324.0 Cash and bank deposits 837.6 1,129.7 Total cash and cash equivalents 1,202.6 1,453.7
Sensitivity mortality mortality rate rate adjustment adjustment 2012 Change in pension benefits accrued during the year (3.8 %) 2.8 % (14.5 %) 18.3 % 15.7 % (13.1 %)
Historical information Present value of the defined benefit obligation 2,431.3 2,991.9 2,626.4 2,528.4 2,894.7 The fair value of the plan assets 2,317.4 2,075.9 2,040.8 1,953.3 1,754.2 Deficit in the plan 113.9 916.0 585.6 575.2 1,140.5
Reconciliation of tax expense Profit before tax 5,149.1 2,965.5 Estimated tax of profit before tax expense (28 %) (1,441.7) (830.3)
Tax effect of Dividend received 123.4 407.8 Tax exempted income and expenses 3.7 (441.3) Non tax-deductible expenses (1.6) (3.1) Consequence of tax relief decision 14.4 16.5 Correction previous years 28.5 (20.8) Total tax expense (1,273.4) (871.2) Effective rate of income tax 24.7 % 29.4 %
Martin Danielsen, Executive Vice President 2,232.1 255.5 173.9 480.3 375.0 4,478.3 3.50 % 31.01.2021 4,431 4,723 10,683 3
Net other financial income/(expenses) 1 (161.0) (104.1) Total net income from investments 2,733.2 1,841.1
Guarantees and committed capital Gross guarantees 0.1 0.1 Committed capital, not paid 1,158.3 746.0
Guarantees Gjensidige Forsikring ASA is responsible externally for any insurance claim arising from the cooperating mutual fire insurers' fire insurance business, see note 20.