Declaration by the members of the Board and the CEO 169 Independent auditor’s report 170 Statement of the Control Committee and The Board of Representatives 172 Auditor’s report on corporate sustainability 173 Storebrand’s corporate sustainability work – scorecard 174
Better guidance for employees in companies with a pension from Storebrand also strengthens our position as a leading occupational pension provider in the Nordic market.
In 2011 it has been 30 years since Storebrand Fondene was established, under the name Norfond at that time. Storebrand
A reorganisation of the group will make it easier to be a customer in Storebrand.
Norwegian private and corporate market. With cost-effective distribution and a customerfriendly internet solution the company has marked itself as a competitive provider of security at low prices.
Customer insight such as this is the point of departure for what we will be delivering in the future and how.
The implementation of our retail market strategy started early in 2011. We have made organisational adaptations to support the desired development, and many customers have started to notice the changes. Online banking services such as
A decision was made in 2011 to include government bonds in our minimum standard. This means that Storebrand will only invest in government bonds issued by states that respect fundamental political and social rights, maintain basic anti-corruption standards and contribute to maintaining international peace and safety.
Microfinance is about providing poor people with access to financial services, such as loans, insurance or savings. Investing in microfinance is profitable for Storebrand and helps reduce poverty at the same time. These two factors – profitability and development – must be balanced to ensure that microfinance is sustainable.
In 2011 Storebrand increased its focus on microfinance investments, and the asset management business was the first Nordic institution to employ an investment manager in this field. During the year Storebrand invested in a fund aimed at developing financial services for contractors in rural areas in impoverished countries, in addition to a fund that focused in particular on providing access to financial services to poor women.
We require that the companies we invest in work systematically with environmental management, anticorruption and human rights.
Shareholders should generally contact the operator of their securities account for questions or notification of changes, such as address changes.
Storebrand moves into its new head office in Lysaker in December.
In a turbulent market, well-established systems for risk management are key to generating a competitive return to our customers and to protect customers' and the owner's capital. Risk management is an integral part of Storebrand's core business. Measures to ensure the best possible risk management and funding have therefore been a priority in 2011.
In regards of regulatory framework, the key areas are Solvency II and the pensions reform. In 2011, the Banking Law Commission has worked on adapting occupational pension products to the other two main pillars of the new National Insurance: Pension entitlement for all years of service, and life expectancy adjustments. A report with proposals for new regulations for occupational pension schemes is expected in the summer of 2012. This work will complete the adjustments of the private occupational pensions to the pensions reform. Storebrand is participating in the Banking Law Commission's Working Group, which is considering these issues.
The Board of Directors chooses to maintain its financial targets, but the return on equity has been changed to become a target before tax. The effect of the tax change will depend on the final formulation of the rules and the company's adaptation to these. The changes are expected to be clarified in the course of the year.
Profit before tax 481 783 1. Investment result and profit sharing.
In addition to this, Storebrand follows a plan to build up reserves for individual pension insurance and paid-up policies due to lower mortality assumptions. According to plan, NOK 323 million was allocated in 2011. Overall, the owner's profit was charged with NOK 180 million in 2011 as a result of building up longevity reserves.
Balance sheet For customer portfolios with guarantee, allocation to equities in 2011 was reduced in favour of an increase in allocation to long-term bonds. The allocation to long-term bonds in the company portfolio rose and money market exposure declined correspondingly. Assets under management rose in 2011 by approximately NOK 3 billion and aggregated NOK 213 billion at year-end. The increase was driven by the positive return, while net migration of customer assets reduced the increase.
Sales Three local authorities decided in 2010 to transfer their pension schemes from Storebrand with effect from 1 January 2011. The recorded net migration from Storebrand was NOK 4,690 million, compared with a net inflow of NOK 1,859 million in 2010.
The global financial turmoil has not caused problems in the bank's loan portfolio. Total losses, including write-downs of repossessed commitments, result in net income of NOK 10 million against a net cost of NOK 29 million in 2010. There was a reduction in the volume of defaulted loans, and total non-performing loans represent 1.0 per cent of gross loans, compared with 2.0 per cent the previous year.
For guaranteed business, high interest rates over time are preferable to low interest rates. The falling interest rates in 2011 resulted, therefore, all other things being equal, to a higher
SPP SPP is exposed to the same types of risks as Storebrand Life Insurance. Differences in product design, regulatory framework and asset allocation result, however, in a somewhat different risk situation. SPP's benefits based products are inflation adjusted, and thus part of the portfolio is exposed to inflation risk. Interest rate risk is reflected in the liabilities since they are market assessed under the Swedish rules in both in the financial statements and for the calculation of solvency capital. The investment portfolio is adjusted to the current interest rate sensitivity of insurance liabilities in the financial statements. Different calculation methods result in the interest rate sensitivity in the calculation of SPP's solvency is greater than in the financial statements. The sharp fall in long Swedish interest rates in the autumn of 2011 had a moderately negative effect on financial results, but a significant negative effect on the company solvency margin. Negative financial markets and dynamic risk management led to a gradual reduction in the proportion of equities in 2011.
Risk Through its business areas, Storebrand is exposed to several risks. Changes in interest rates, real estate and equity markets are considered the most important risk factors that may affect the Group's results, alongside life expectancy trends and claims arising from sickness. The level of investment return is important if we are to generate a return that exceeds the products' guaranteed interest rate over time. Risk management is a priority core area for
ASA is to manage its equity interests in the group in compliance with the current legislation. The group’s main business areas comprise pension and life insurance, asset management, banking and P&C insurance.
Capital Markets Days, which are held when needed, most recently on 9 March 2011. You can read more about the company’s goals and main strategies on page 28.
General Meeting to vote on each individual purpose to be covered by the authorisation.
Decisions are generally made on the basis of an ordinary majority. Pursuant to Norwegian law, however, a special majority is required for certain decisions, including decisions about setting aside pre-emptive
The AGM fixes the Board’s annual remuneration on the basis of the recommendations of the Nomination Committee. The fees paid to the members of the Board are not linked to earnings, option schemes or similar arrangements. The members of the Board and Board Committees do not receive incentive-based remuneration; instead they receive a fixed annual compensation. The shareholder-elected members of the Board do not participate in the company’s pension schemes. None of the shareholder-elected members of the
performance is followed up by a special monitoring system, in which performance is measured in relation to both the execution of individual action plans and compliance with the Storebrand Group’s corporate policies. The unit and individual results are weighted the same, and the maximum total goal achievement is 150 per cent. The unit’s scorecard and the individual’s action plan are directly linked to the strategy adopted by the Board. This helps to further strengthen agreement between the owners and the management.
Cash and cash equivalents at start of the period 3,146 3,580
Definition of amortised cost Subsequent to initial recognition, hold-to-maturity financial assets, loans and receivables as well as financial liabilities not carried at fair value in the profit and loss account, are stated at amortised cost using the effective interest method. The calculation of the effective interest rate involves estimating all cash flows and all contractual terms of the financial instruments (for example early repayment, call options and equivalent options). The calculation includes all fees and margins paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
The premium reserve is calculated using the same assumptions as those used to calculate premiums for the individual insurance contracts, i.e. assumptions about mortality and disability rates, interest rates and costs. Premium tariffs are based on the observed level of mortality and disability in the population with the addition of security margins that take into account, inter alia, expected future developments in this respect.
Conditional bonus The conditional bonus arises when the value of customer assets is higher than the present value of the liabilities, and thus covers that part of the insurance capital that is not guaranteed. In the case of contracts where customer assets are lower than liabilities, the owners’ result is charged via deferred capital contribution allocations. The conditional bonus and deferred capital contribution are recognised on the same line in the statement of financial position.
The claims reserve is a reserve for expected claims that have been notified but not settled. The reserve also covers expected claims for losses that have been incurred, but have not been reported at the expiry of the accounting period. The reserve includes the full amount of claims reported but not settled. A calculated provision is made in the reserve for claims incurred but not reported (IBNR) and claims reported but not settled (RBNS). In addition, claims reserves shall include a separate provision for future claims on losses that have not been settled.
Some discretion must be used when assessing whether there is an impairment, and if so the size of the impairment. The degree of uncertainty is higher when there is unrest in the financial markets. The assessments include credit, market and liquidity risk. Changes in assumptions for these factors will affect the way one considers whether there is any indication of impairment. There will therefore be uncertainty linked to the size of recognised individual write-downs and group write-downs. This will apply to provisions relating to loans in the private and the corporate markets and to bonds that are recognised at amortised cost.
INTANGIBLE ASSETS Goodwill and intangible assets with undefined useful economic lives are tested annually for impairment. Goodwill is allocated to the Group’s cash flow generating units. The test’s valuation involves estimating the cash flows that arise in the relevant cash flow generating units and
Storebrand’s income, both short-term and long-term, depends on external factors with which uncertainty is associated. The most important external risk factors are the development of the capital markets and changes in life expectancy in the Norwegian and Swedish populations. Certain internal operational factors can also result in losses, e.g. errors in the management of the customers’ assets.
Insurance is about protecting oneself against financial loss when events occur. These could be anything from damage to a car or theft in P&C insurance to disability, death or long life in life insurance. Simply put, insurance involves a sharing of risk between many policyholders in which the risk reflects the probability and consequences.
In the case of health insurance, the company has excess of loss protection for 80 per cent of all claims payments per person per year that exceed NOK 300,000. This means that the level of insurance risk for health insurance for own account is very low.
This note applies to: Storebrand Life Insurance, SPP, BenCo, Storebrand Bank, Storebrand P&C Insurance, Storebrand Health Insurance and Storebrand ASA.
The Group seeks to reduce operational risk through effective internal control with clear routines, unambiguous descriptions of responsibilities, and documented powers of attorney/authority. Risks are followed up through management's quarterly risk reviews, with documentation of risks and measures, as well as current reporting from the line, registration, and following up of events. In addition, Internal Audit carries out an independent control in accordance with audit projects adopted by the Board.
LEVEL 1: FINANCIAL INSTRUMENTS VALUED ON THE BASIS OF QUOTED PRICED FOR IDENTICAL ASSETS IN ACTIVE MARKETS This category encompasses listed equities that over the previous three months have experienced a daily average turnover equivalent to approximately NOK 20 million or more. Based on this, the equities are regarded as sufficiently liquid to be included at this level. Bonds, certificates or equivalent instruments issued by national governments are generally classified as level 1. In the case of derivatives, standardised equity-linked and interest rate futures will be encompassed by this level.
PRIVATE EQUITY The majority of Storebrand’s private equity investments are investments in private equity funds. The Group also has a number of direct investments. Private equity investments are considered long-term investments where Storebrand expects to benefit by its involvement through the duration of the projects.
OTHER Other activities consist of activities in the Group that are not included in the five listed business areas above. Consists of the holding company Storebrand ASA, which invests in and manages subsidiaries. It also includes eliminations from intragroup transactions, which are included in the other segments.
Write-downs and amortisation of intangible assets 1. Income from external customers includes the total premium income including savings premiums and transferred premium fund from other companies, net financial return and other income.
Fixed income and similar income from commercial paper, bonds, and other interest-bearing paper 115 106
The actuarial assumptions in Sweden follow the industry's mutual mortality table DUS06 adjusted for corporate difference. The average employee turnover rate is 4 per cent p.a.
The pension liabilities are especially sensitive to changes in the discount rate. Seen in isolation, a reduction in discount rate would result in an increase in the pension liabilities.
note 24 | Remuneration to senior employees and elected officers of the company
Section 6-16 a of the Public Limited Liabilities Companies Act, based on the Group’s previously adopted guidelines concerning remuneration for senior employees in Storebrand .
1. ADVISORY GUIDELINES FOR THE COMING FINANCIAL YEAR Storebrand aims to base remuneration on competitive and stimulating principles that help to attract, develop and retain highly qualified staff. Optimised financial remuneration helps to create a performance culture with clear goals for all employees and correct assessments by managers that differentiate between good and less good performances,
NOK million 2011 2010 Duration of lease (years) m2 Leased amount in%1
FINANCIAL INSTRUMENTS Equities and units Investments in subsidiaries and associated companies are valued at cost price less any write-down of value. The need for any write-down is assessed at the end of each accounting period.
Bonds and other fixed income securities Financial assets and liabilities are recognised in the statement of financial position from such time Storebrand becomes party to the instrument's contractual terms and conditions. Ordinary purchases and sales of financial instruments are booked on the transaction date. When a financial asset or a financial liability is initially recognised in the accounts, it is valued at fair value plus, in the case of a financial asset or a financial liability that is not at fair value in the profit and loss account, transaction costs directly related to the acquisition or issue of the financial asset or the financial liability.
Net pension liabilities in the statement of financial position 149 153
Core (tier 1) capital Core (tier 1) capital is part of primary capital and consists of the primary capital less the minimum requirement for reinsurance provisions in P&C insurance, goodwill, other intangible assets, net prepaid pensions, 50 per cent of any capital adequacy reserve, and cross-ownership deductions in other financial institutions. Issued hybrid tier 1 capital can account for 15 percent of the core (tier 1) capital, while any excess can be included in the supplementary capital. A proportion of the conditional bonus is included in core (tier 1) capital pursuant to the conditions set by The Norwegian FSA.