ANNUAL REPORT 2004 Storebrand shall be the leading and most respected institution in the Norwegian market for long-term savings and life insurance
The plans and challenges we have set out for the group will make considerable demands on our organisation. We are therefore very dependent on ensuring that our employees enjoy their work and have the experience and skills needed to meet our customers' needs. We will do everything necessary to recruit, retain and develop the right people for our business. Our expertise and experience are the key to Storebrand’s future success.
With current pension rules, an annual pension contribution of 2% of a typical NOK 300,000 salary should produce a pension at age 67 which, together with the state pension, would be around 60% of retirement salary. If the employee matches the employer's contribution, the total pension upon retirement rises to around 65% of final salary. These calculations assume 43 years of working life.
If they want to take advantage of the flexible pension age by retiring as early as 62, the combined pension will fall to under 40%.
In the area of mutual fund products, Storebrand Investments has performed well against international competition. This was confirmed in 2004 by winning two awards. The Swedish financial magazine Sparöversikt voted Storebrand ‘Fund manager of the year’ and the British magazine Global Investor voted Storebrand Investments ‘Best equity manager in Europe’.
Storebrand carries out regular surveys of customer satisfaction among its corporate clients, and these show that we are staying ahead of our competitors. This confirms our leading position in the corporate market, but we can be – and want to be – even better. With this in mind, we are making a series of planned improvements to areas that customers find important.
Investor Relations. Storebrand places great importance on comprehensive and efficient communication with financial markets.
Meeting (AGM) no later than the end of June each year. The 2004
Storebrand has only one class of shares. All shareholders are entitled to attend general meetings, and arrangements are also made for proxy voting. Storebrand has no specific restrictions on ownership of shares or voting rights in the company other than the restrictions on the ownership of shares in financial institutions imposed by the Financial Institutions Act.
Members are each elected for a two-year term of office so that half the members retire each year. The composition of the Board of Representatives is laid down by the Articles of Association. The duties of the Board of Representatives include: • Make recommendations to the AGM on whether to approve the profit and loss statement and balance sheet proposed by the Board and its proposal to apply profit or meet the loss for the year.
Committee and an Audit Committee. Each committee comprises three members of the Board.
The Board of Representatives issues the mandate for the work of the
Life Insurance. The Group CEO is chairman of the boards of
Compass management reporting system in the main areas of finance (efficient use of capital), customers (business development ), processes (improved productivity) and skills/growth
A formal statement of principles for Storebrand’s approach to corporate governance in its role as an investor was first published in 1998, and Storebrand’s web site at www.storebrand.no provides information on the principles it employs.
PROCESSES Do we meet the requirements of cost efficiency in our internal processes?
The Storebrand Bank Group reported profit before loan losses and losses on securities of NOK 121 million for 2004 as compared to
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 2004. This can be seen both by a reduction in the incidence of default and by a shift in the portfolio towards retail and mortgage lending.
After allowing for the dividend, the group’s equity fell by NOK 478 million in 2004 to stand at NOK 8,917 million at year-end. The minimum capital requirement imposed by the authorities is 8%.
Employment equality measures currently in progress include ensuring equal participation of male and female staff on internal management development programs, arranging for female staff to participate in external mentoring programs and the recruitment of women to Female Future, a training programme for future board members. Storebrand also insists that external recruitment consultants put forward both male and female candidates when it recruits managers. Storebrand produces salary statistics at specified management levels to facilitate the comparison of salaries between male and female employees.
Action Plan aims to enhance the group's ability to reach its commercial targets, and represents a further development of
Environment: Storebrand is committed to reducing its impact on the environment. This involves limiting the group’s consumption of energy and paper and recycling waste. Storebrand sets environmental standards for its suppliers and for the management of the company's properties. Improvements have been achieved in some areas, while greater effort is required in others.
Changes in the membership of Storebrand’s corporate bodies in 2004 were as follows: Board of Directors: Erik Haug Hansen was elected as a new employee representative to replace Arild Thoresen, who had been a member of the Board since 2000.
The market for personal risk products (life insurance) is growing, and Storebrand has ambitious plans for product development in this area. Lending products, principally residential mortgage lending, are seen as an important way to attract new customers, and
Financial Reporting Standards’ that allow the effect of deviations in pension scheme estimates to be applied directly to equity.
– of which transferred to premium reserve -125 0 0 -9 0 -134 -127 -162
Embedded Value model’s assumptions, was NOK 589 million. The effect of changes in tax legislation on Storebrand Life Insurance make it appropriate to assume a zero future tax rate, causing an increase in Embedded Value of NOK 1,018 million. A tax rate of 28% has been assumed for Storebrand Fondsforsikring. The fall in the general level of interest rates and the consequent reduction in the assumed longterm rate of return has caused a reduction in the assumed margin earned by the owner on policyholders funds from 0.40% to 0.25%
In December 2004 the government published a White Paper on pensions reform. The proposed changes are addressed in a separate article on pages 4–5.
ASA and Storebrand Bank AS. Work on improving efficiency continues, and the bank expects to achieve further improvements. Balance sheet growth and economies of scale in banking production will help to reduce the bank’s cost/income ratio to 55%
Pre-tax profit 125 -109 -448 *) Excluding depreciation of group goodwill
Q1 2005 and implemented in Q2. A more efficient capital base combined with improving earnings will help the bank to generate a significantly stronger return on equity in future periods.
Interest and related expense – banking 22 -744.7 -1 311.2 -1 996.7
Net receipts/payments from securities in the trading portfolio: – Bonds and other securities with fixed income -2 612.2 980.3 -358.3 -1 991.6 4 408.4 -8 271.6
In our opinion, • the financial statements, as shown on pages 52–82, are prepared in accordance with the law and regulations and present the financial position of the Company and of the Group as of 31 December 2004, and the results of its operations and its cash flows for the year then ended, in accordance with generally accepted accounting principles in Norway
Note 4: Remuneration of the Chief Executive Officer and elected officers of the company page 64
General loss provisions are intended to cover losses which, due to matters existing on the balance sheet date, must be expected to occur on facilities which have not been identified and valued in accordance with the rules for specific loss provisions. The provisions are made on the basis of past experience and sector data and by applying a risk classification system, which appraises the borrower and the value of any collateral security.
FRAs – Forward rate agreements. Forward rate agreements (FRAs) are valued at market value and are settled on the first day of the period which is the subject of the agreement.
Transfers of premium reserves. Premium reserves in the insurance fund transferred between insurance companies are booked to the profit and loss account at the date of risk transfer. The year’s mandatory allocations to the premium reserve are reduced accordingly. The premium reserve transferred also includes the policy’s share in the year’s realised and unrealised profit.
Short-term debt instruments and bonds held as current assets 1 716.3 1 726.7 1 574.1 1 574.0 3 290.2 3 300.7 *) Convertible bonds issued by Storebrand Bank ASA
EUR/NOK put option purchased 06.03.06 1 317.2 7.685 23.6 8.6 EUR/NOK call option purchased 06.03.06 106.2 8.3 4.4 2.4
No analysis by geographic area is provided since there are no material differences in risk and return profile between geographic areas.
Net accrued pension costs are shown in the table below: Net pensions costs 2004
Deviations from estimates not applied to profit and loss *) 344.9 -63.4 281.5 298.5 232.9 Change in deviation caused by changed assumptions at 31.12. 318.0 36.7 354.7 32.3 Change in deviation not applied to profit and loss caused by changed assumptions 662.9 -26.7 636.2 330.7 232.9 Scheme changes not applied to profit and loss **) 3.2 0.8 3.9 2.0 2.1 Net pension liability as shown in the balance sheet 705.6 -411.9 293.7 205.5 134.7 Provision for employer's social security contributions -0.1 -51.4 -51.5 -57.3 -57.8 Total incl. provision for employer's social security contributions 705.5 -463.3 242.2 148.2 76.9 *) Deviations from estimates are booked against the "corridor" in accordance with Norwegian Accounting Standards and amounts in excess of the corridor are recognised to profit and loss over the remaining period for accrual of pension rights (cf. Accounting Principles). **) The effects of scheme changes are applied over the average remaining period of accrual for pension benefits.
Other changes in equity capital 6.5 -0.4 -1.0 Equity capital excluding minority interests 8 916.1 9 394.9 8 534.5
Charging the deviation from estimates directly to equity and the change in the discount rate caused an increase in pension liabilities at 1 January 2004 of NOK 713 million.
CERTAIN IMPLICATIONS FOR STOREBRAND’S BANKING ACTIVITIES ARE DESCRIBED BELOW: Loan loss provisions. Where there is objective evidence that the value of an individual loan has fallen, IAS 39 requires that the loan is valued at the discounted value of future cash flows. This discounting effect has not previously been applied, and provides the basis to increase specific loan loss provisions/loan write-downs by just over NOK 30 million at 1 January 2005. The reduction in the discounting effect on a loan as the cash flow moves closer in time will be recognised as interest income, and will have a positive effect on future net interest income.
Hedge accounting and use of actual values for derivatives and investment assets by the banking activities. The bank makes extensive use of interest-rate derivatives to hedge most of its net interest rate exposure. Unrealised gains and losses on interest rate
Insurance premiums for own account 18 746 18 746 Reinsurance (reinsurers' share) -6 -6
LIFE INSURANCE Administration result: The difference between actual costs and those assumed for the premium tariffs. Annuity/pension insurance: Individual life insurance where the annuity/pension amount is paid in instalments from an agreed age during the life of the insured. Such insurance can be extended to include spouse, child and disability pensions. Average yield: Average yield is an expression for the average return the company has obtained on the policyholders' fund during the year.
Storebrand Kapitalforvaltning AS Swedish branch office Engelbrektsplan 2 P O Box 5541 S-114 85 Stockholm Sweden www.storebrand.se
> Exclusion criteria for the life company's investments extended to include corruption.
1) Increase in employees results from reorganisation as part of the new group management structure. Excludes Storebrand Helseforsikring (49) and Fair Forsikring (123).