Turnover of employees, Gjensidige Forsikring % 9.7 9.6 8.7 9.7 16.6
Strategic direction In 2016, we carried out a new assessment of our strategic direction up until 2020. We wish to intensify the work on digitalisation of our products and services, in order to be able to interact with our customers in a smarter and more efficient way. We will invest further in analytically driven insurance operations. Data collection, data handling and 6 I Gjensidige annual report 2016
We have high ambitions for the road ahead of us. We aim to be the best in the industry as regards customer orientation. We aim to deliver the best digital customer experience. We want to be relevant in people’s everyday lives and businesses’ day-to-day operations. We shall ensure that our customers are well prepared if something should happen. And we will help them when a loss or accident occurs. We shall know the customer best and care the most – also in 2017.
Outlook In the Commercial segment work is done particularly on improving risk pricing and analytical processes as a tool to enhance customer activities. Continuous initiatives to deliver the best customer experiences, in combination with analysis-based operations and efficient operation will help to ensure that the Company is forward-looking and customer- oriented.
Private % 73.5 72.9 80.0 Commercial % 77.5 79.6 81.2 Nordic % 95.8 90.3 91.9 Baltics % 109.6 115.4 99.9 Total % 83.4 83.7 86.0 Combined ratio discounted 16 % 82.4 82.3 83.4
Ownership At the end of 2016, Gjensidige had about 34,000 shareholders. The 20 largest shareholders held a total of 85.6 per cent of the shares in Gjensidige.
It is important to underline that all the above-mentioned topics are important. The matrix must be read as a prioritised overview of the areas in which it is natural to have expectations of Gjensidige, how great a risk there is of Gjensidige not meeting expectations, and what the consequences could be if the expectations are not met.
We collaborate with the Norwegian Council for Road Safety (Trygg Trafikk) on awareness-raising campaigns in upper secondary schools several places in Norway.
Group’s customer orientation strategy. All competence -raising measures are aimed at this.
We therefore work on preventing and following up sickness absence and on making adaptations for employees with disabilities.
Gjensidige did not cause illegal emissions or receive fines or other sanctions relating to the environment in 2016.
We work continuously to increase the proportion of ‘paperless’ customers, meaning customers who choose to receive information from us through digital channels instead of on paper. With the exception of information that is required by law to be distributed on paper, paperless customers receive all documentation and other information by email, text messages or when they log into our web portal.
Employees also participate in various activities under the auspices of the Church City Mission, including homework help and chess courses for children.
CO2 emissions, Scope 1 and 2 *** Tonn 3,043 2,579 2,164
3. Any deviations from the Code of Practice and regulations are explained under each paragraph.
The Board bases its overall corporate governance on: - Optimising the Company’s assets in a long-term perspective - Equal treatment of all shareholders - Equal and assured access to reliable, relevant and up-to-date information about the Company’s business 36 I Gjensidige annual report 2016
Exclusive customer solutions and concepts will continue to be important in both the private and commercial markets.
Proposed dividend for 2016 The proposed dividend for the 2016 financial year is NOK 3.4 billion. This corresponds to NOK 6.80 per 38 I Gjensidige annual report 2016
The Nomination Committee shall recommend all remuneration to be decided by the general meeting, including the remuneration of members of the Nomination Committee, which is decided by the general meeting, and submit a recommendation concerning whether the proposal for the auditor’s fee shall be approved.
The Chairman of the Board is elected by the general meeting.
Among other things, the CFO is responsible for asset management, risk and capital management, the Actuary function, the planning process and financial performance. Among other things, the Executive Vice President of Group Staff and General Services is responsible for financial reporting and follow-up of limits on the investment activities. This organisation is intended to ensure independence between the leading premise setter for profit performance and those who report the results.
Hansen is up for election to the Board in 2017. Hansen held 12,253 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties as at 31 December 2016 (last change 10 December 2012).
to rationalise internal work processes so that we can continue to improve our service to customers. In addition to offering traditional insurance products, Gjensidige has developed several value-adding services for the Norwegian private market that contribute to brand preference and loyalty.
Products and customer data have been brought together on the same system platform to ensure uniform customer service across distribution channels, standardisation of work processes and cost-efficient operation of ICT systems. A flexible service architecture enables us to use functionality from the core system and information from the customer system for, among other things, self-service solutions, common user interfaces for customer advisers, and in the work on optimising risk selection and tariff setting.
Maintain * Targets communicated at Capital Markets Day 25 November 2014. ** Private Norway
they pay in insurance premiums. During this period, customers have received an annual amount corresponding to 11–16 per cent of their premium. We measure customers’ awareness of the customer dividend on an ongoing basis. At year-end 2016, 90 per cent of customers were aware of the customer dividend model and more than 70 per cent stated that the model is one of the reasons why they continue to be Gjensidige customers. Awareness of the customer dividend system among potential customers was around 60 per cent.
Proposed rule changes for telephone sales In December 2016, the Government adopted a proposal for a legislative amendment that will tighten the rules that apply to telemarketing. The proposal aims to protect consumers who have opted out of this type of telemarketing from such marketing.
2 Underwriting result general insurance = earned premiums - claims incurred etc. - operating expenses 3 Excluding the return on financial assets in Pension and Savings and Retail Bank.
With the exception of claims provisions relating to the Danish workers’ compensation portfolio, Gjensidige’s claims provisions are recognised at nominal value (not discounted). In preparation for expected changes in IFRS and the introduction of Solvency II, Gjensidige has, with effect from the second quarter 2010, calculated but not recognised the effect on the combined ratio of discounting the claims provisions. For 2016, the combined ratio on a discounted basis would have been 82.4, compared with 83.4 based on the recognised nominal amount.
Off-balance sheet commitments and derivatives As part of the Group’s investment activities, an agreement has been entered into for the investment of up to NOK 1,174.3 million (1,643.6) in dept funds with secured loans and various private equity and real estate fund investments, in addition to the amounts recognised in the balance sheet.
General Insurance Nordic The segment includes the Group's operations in the Danish and Swedish private and commercial markets. The segment offers general insurance products in the areas of motor, property, accident and health, liability, agriculture and leisure insurance, among other things.
Wollebekk is up for election to the Board in 2017. Wollebekk did not hold any shares in Gjensidige Forsikring ASA, including any shares held by closely related parties as at 31 December 2016.
7 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige Danmark, and lendings, paid-in capital in Gjensidige Pensjonskasse, profit or loss effects from total return swaps with Gjensidige Pensjonskasse and Gjensidige Pensjonsforsikring AS, hedge funds and finance related expenses.
4. Regulatory uncertainty relating to Solvency II has decreased. All else being equal, this supports the already strong capital position.
Own shares 0.0 (9.9) (9.9) Paid dividend (2,949.6) (2,949.6) Remeasurement of the net defined benefit liability/asset of sold companies (6.7) 6.7
Cash flow from operating activities Premiums paid, net of reinsurance 27,023.8 25,539.7 Claims paid, net of reinsurance (17,547.5) (16,314.5) Net payment of loans to customers (4,545.8) (9,167.6) Net payment of deposits from customers 1,848.1 2,653.9 Payment of interest from customers 1,326.3 1,283.8 Payment of interest to customers (264.7) (311.0) Net receipts/payments on premium reserve transfers (645.2) (759.2) Net receipts/payments from financial assets 953.5 (4,947.7) Net receipts/payments from properties 285.0 Net receipts/payments from sale/acquisition of investment property 130.2 Operating expenses paid, including commissions (4,400.0) (3,785.8) Taxes paid (1,376.5) (1,056.9) Net other receipts/payments 140.8 53.6 Net cash flow from operating activities 2,512.8 (6,396.4)
Foreign currency Foreign currency transactions Every company in Gjensidige determines its functional currency, and transactions in the entities’ financial statements are measured in the functional currency of the subsidiary.
Financial liabilities classified as equity Gjensidige has perpetual tier 1 capital accounted for as equity. The instruments are perpetual, but the principal can be repaid on specific dates, for the first time five years after it was issued. The agreed terms meet the requirements in the EU’s CRR/Solvency II regulations and the instruments are included in Gjensidige’s Tier 1 capital for solvency purposes. These regulatory requirements mean that Gjensidige has a unilateral right not to repay interest or the principal to the investors. As a consequence of these terms, the instruments do not meet the requirement for a liability in IAS 32 and are therefore presented on the line perpetual Tier 1 capital under equity. Further, it implies that the interest is not presented under Total interest expenses but as a reduction in other equity. Correspondingly, seen in isolation, the benefit of the tax deduction for the interest will lead to an increase in other equity and not be presented as a deduction under the line Tax expense, since it is the shareholder who benefits from the tax deduction.
Insurance-related liabilities Use of estimates in calculation of insurance-related liabilities is primarily applicable for claims provisions. Insurance products are divided in general into two main categories; lines with short or long settlement periods. The settlement period is defined as the length of time that passes after a loss or injury occurs (date of loss) until the claim is reported and then paid and settled. Short-tail lines are e.g. property insurance, while long-tail lines primarily involve accident and health insurances. The uncertainty in short-tail lines of business is linked primarily to the size of the loss. For long-tail lines, the risk is linked to the fact that the ultimate claim costs must be estimated based on experience and empirical data. For certain lines within accident and health insurances, it may take ten to 15 years before all the claims that occurred in a calendar year are reported to the company. In addition, there will be many instances where information reported in a claim is inadequate to calculate a correct provision. This may be due to ambiguity concerning the causal relationship and uncertainty about the injured party’s future work capacity etc. Many personal injury claims are tried in the court system, and over time the level of compensation for such claims has increased. This will also be of consequence to claims that occurred in prior years and have not yet been settled. The risk linked to provisions for lines related to insurances of the person is thus affected by external conditions. To reduce this risk, the company calculates its claims liability based on various methods and follows up that the registered provisions linked to ongoing claims cases are updated at all times based on the current calculation rules. See note 3 (in the consolidated group accounts) and 13.
General insurance is Gjensidige’s core business and it accounts for the major part of its operations and risks in the Group. Gjensidige offers different insurance products aimed at private customers, and agriculture and commercial markets through Gjensidige Forsikring in Norway and its branches and subsidiaries in Sweden, Denmark and the Baltic region. Gjensidige also offers pension, investment and savings products through the subsidiaries Gjensidige Pensjonsforsikring (GPF) and Gjensidige Investeringsrådgivning (GIR). In addition, Gjensidige offers banking services through Gjensidige Bank.
The capitalization for the Gjensidige group is determined on the basis of the strictest of three criteria: Regulatory requirements, riskbased requirements and rating requirements. Buffers are adopted for management purposes.
Excess capital is held to assure financial flexibility with regards to organic growth and smaller acquisitions which are not financed by retained profit, in addition to stabilize dividend over time. Gjensidige intends to maintain high and stable regular nominal dividend payments to its shareholders. The Group’s goal is that over time, minimum 70 per cent of earnings after taxes should be used to pay out regular dividends. Dividend decisions will take into account expected future capital requirements.
Insurance operations and the banking business are subject to capital requirements specified by the authorities. All legal entities within the Gjensidige group must fullfil regulatory requirements. Capital and solvency positions are reported for the Group and its subsidiaries to the relevant financial supervisory authorities.
There are restrictions on the tier 2 capital that can be used to cover the minimum capital requirement. Only 20 per cent of the MCR can be covered by tier 2 capital. The total eligible basic own funds to cover minimum consolidated capital requirement is therefore lower than total eligible own funds to meet solvency capital requirement.
Internal risk-based requirement The internal risk-based requirement is based on Gjensidige’s partial internal model. The partial internal model covers market risk and non-life and health underwriting risk in Norway, Sweden and Denmark. Eligible capital is calculated according to Solvency II principles, but differs slightly from the regulatory perspective as the risk margin is calculated based on the internal model instead of the standard formula.
Rating requirement The rating requirement results in the lowest excess capital at group level. Gjensidige’s target financial strength rating is ‘A’ (single A) from Standard & Poor’s or the equivalent from another rating institution. This target has been achieved by an actual rating of A’ (Stable) from Standard & Poor’s (unchanged since 1999, last updated on 30 June 2016). The rating is subject to annual review. Standard & Poor’s capital model is used as an approximation of the capital requirements from this perspective, even though a number of other factors also play an important role in determining the Group’s rating. Based on data as of 31 December 2016, the excess capital relative to the targeted A rating is estimated at NOK 1.3 billion.
The claims handling procedures also include a clear strategy and routines for the purchase of goods and services in an optimal manner. The routines are to use purchase agreements to ensure the quality of our benefits to our customers and to reduce the inflation risk.
Other motor insurance 4,526.4 16.9% 4,128.4 16.5% Marine, aviation and transport insurance 286.0 1.1% 257.9 1.0%
Table 11b – Gross premiums written per line of business, Gjensidige Forsikring ASA
There are several variables that affect the amount and timing of cash flows from the insurance contracts. These variables mainly relate to the characteristics of the different types of risks covered and the risk management procedures applied. The compensation paid is according to the terms specified in the insurance contract. Compensation for claims with respect to bodily injuries is calculated as the present value of lost earnings, rehabilitation expenses and other expenses that the injured party will incur as a result of the accident or disease. In most cases in Norway, and also in the other countries where Gjensidige operates, personal injury claims are paid as a lump-sum. An exception from this is Workers’ Compensation claims in Denmark, where claims may be paid as annuity payments. The calculations for such claims will include information about the severity of the loss, mortality rates, the number of years until retirement age and assumptions about future social welfare inflation. Mortality rates are taken from tables approved by the supervisory authorities.
Compulsory occupational pensions 48% 55% Other defined contribution pensions 52% 45%
Solvency II The standard formula in Solvency II is used for calculations of the insurance risk. After these calculations GPF are mostly exposed to risk of loss of future income due to movements of defined contribution and pension capital (lapse risk). Of other insurance risks, disability risk is the greatest.
SpareBank 1 SR-Bank ASA 1,053.6 SOS International A/S 54.4 Atlantica Tender Drilling 42.6 Core Energy 34.1 READ Well Services 32.4
To illustrate the sensitivity of the equity portfolio to a fall in equity prices, the table below shows the effect of a possible scenario. The figures show the effect on equity, but do not take taxation effects into account. As shown in the table, the sensitivity is slightly reduced since 2015.This is mainly due to reduced investment in equities, among other things from sold shares in Sparebank 1 SRBank ASA.
The following tables show the allocation of the fixed-income portfolio by rating category at year-end in 2016 and 2015.
Cost As at 1 January 2016 3,531.1 1,168.8 46.2 1,132.6 565.7 6,444.4 Additions 54.1 178.2 212.4 444.8 Additions through business combinations 78.7 56.4 135.2 Additions from internal development 45.8 45.8 Disposals/reclassifications (46.4) (10.8) (0.1) (48.3) (11.3) (117.0) Exchange differences (171.7) (60.4) (2.1) (27.3) (33.4) (295.0) As at 31 December 2016 3,391.7 1,208.1 44.0 1,281.0 733.4 6,658.2 Uncompleted projects 126.3 126.3 As at 31 December 2016, including uncompleted projects 3,391.7 1,208.1 44.0 1,407.3 733.4 6,784.5
Gjensidige annual report 2016 | 115 7. Owner-occupied property, plant and equipment
Cost As at 1 January 2016 42.6 682.1 724.7 Additions through business combinations 5.3 5.3 Additions 5.3 43.3 48.6 Disposals (17.1) (180.2) (197.3) Exchange differences (0.9) (9.0) (9.9) As at 31 December 2016 29.9 541.4 571.3 Uncompleted projects 61.2 61.2 As at 31 December 2016, including uncompleted projects 29.9 602.6 632.5
Carrying amount As at 1 January 2016 34.8 289.4 324.2 As at 31 December 2016 29.5 292.5 321.9
Based on the same stress tests as for the pension assets, the liabilities would decrease by approximately 11.7 per cent based on a widening of spreads of 0.9 per cent. In total, the reduction in the liabilities would be slightly higher than the fall in the value of the pension assets. Stock market risk Over the year, the pension fund has been exposed to stock market risk through unit trusts and purchase options. The exposure was 1.4 per cent (3.7) at the end of the year. Derivative contracts bring the market exposure up to 20 per cent. The pension assets have low exposure to the stock market. The greatest stock market risk is deemed to be the risk of a fall in the stock market. Currency risk All investments in foreign fixed-income funds are currency hedged. Investments have been made in currency-hedged funds. Foreign equity investments shall as a rule be currency hedged. Amounts due to the pension assets in Norwegian kroner shall at all times correspond to at least 70 per cent of the actuarial provisions. At year end, approximately one per cent of the pension assets were exposed to currency risk. The pension liabilities are only exposed to Norwegian kroner (NOK). Liquidity risk The liquidity risk in the pension assets is deemed to be low, since there are short-term investments at all times that exceed short-term liabilities. The investments are deemed to be sufficiently liquid. Life expectancy and disability The life expectancy assumptions are based on the table GAP07 developed by Gabler AS, a firm of actuarial consultants. This table has been used since 31 December 2007. The assumptions on which the table is based are systematically followed up every year. The table is unbiased and dynamic, so that life expectancy is improved every year. No information has become available in 2016 to indicate that GAP07 should be changed. A thorough review of GAP07 is scheduled to take place in 2017, however, and life expectancy assumptions for the population and in the banking and insurance sector will be reassessed. There is uncertainty about how life expectancy will develop, especially for men. The Financial Supervisory Authority of Norway has adopted separate minimum requirements for life expectancy prices (K2013) for pension plans. These requirements concern the minimum price a life insurance company or pension fund shall charge to insure benefits. These minimum prices thereby affect the size of the contributions that must be made towards the annual earnings and for the minimum requirement for pension assets. GAP07 has a shorter life expectancy than K2013. Everything else being equal, this will mean that payment of the minimum requirement for pension assets will be based on a higher life expectancy than the corresponding measurement of the liability. This means that a future increase in pensions will be included in the liability as a result of the payment being based on a longer life expectancy. The disability frequency is based on table IR73. It measures disability in the long term. The prevalence of disability is low compared with many other employers. In 2016, the realised value of disability events was lower than expected (gain). Deaths led to a higher realised value than expected (loss). Realised life expectancy was somewhat lower than expected (gain). Overall, a small gain has been recognised for this type of risk. Gjensidige’s employees could be involved in big disaster-like events such as plane crashes, bus crashes, as spectators at sporting events or through incidents in the workplace. If such an event occurs, the pension liability could significantly increase. Gjensidige has invested in disaster insurance that means that it will receive compensation if such an event occurs.
Deductible temporary differences Loans and receivables (111.7) (98.5) Provisions for liabilities (342.1) (332.1) Pension liabilities (362.4) Insurance-related liabilities (15.0) (17.8) Other deductible temporary differences (58.4) (86.6) Total deductible temporary differences (527.3) (897.4) Loss carried forward (54.8) (71.4) Valuation allowance of deferred tax assets (0.3) Net temporary differences 3,388.3 3,285.6
Change in deferred tax recognised directly in the balance sheet Pensions (39.6) 17.5 Companies sold and purchased 40.6 (593.9) Exchange rate differences (2.2) (0.5) Net deferred tax liabilities as at 31 December 852.5 822.9
Owner-occupied properties Rental income from owner-occupied properties 0.1 18.6 Net gains/(losses) from sale of owner-occupied properties 0.4 33.8 Administration expenses related to owner-occupied properties (0.1) (16.4) Total net income and gains/(losses) from owner-occupied properties 0.4 36.0
Total net income and gains/(losses) from buildings and other real estate 38.8 895.1
NOK millions Carrying amount before the transaction Fair value adjustment Fair value at the acquisition date
Carrying amount As at 1 January 2016 1,676.7 281.3 0.2 517.5 47.9 2,523.6 As at 31 December 2016 1,587.0 230.5 540.7 184.4 2,542.5
Försäkringshuset Amb & Rosèn AB Stockholm, Sweden 100% 5.1 5.1 5.1 5.1
• Interest-bearing liabilities (banking activities) measured at fair value. These liabilities are valued based on observable credit spreads.
Financial liabilities at amortised cost Subordinated debt 21 1,197.7 1,155.8 1,197.4 1,135.7 Other liabilities 15 1,252.9 1,252.9 970.4 970.4 Liabilities related to direct insurance and reinsurance 377.8 377.8 474.8 474.8 Accrued expenses and deferred income 15 301.4 301.4 297.2 297.2 Liabilities within the group 22 43.1 43.1 22.2 22.2
Deposits with financial institutions 353.4 737.1 Cash and bank deposits 789.6 967.5 Total cash and cash equivalents 1,143.0 1,704.5
Claims reported and claims handling costs 512.2 356.1 Claims incurred, but not reported 5.7 Total reinsurers' share of claims provision, gross 512.2 361.7
Insurance-related liabilities, net of reinsurance Provision for unearned premiums 8,470.4 8,206.4
Recognition Pension liabilities are valued at the present value of the future pension benefits that, for accounting purposes, are deemed to have been accrued on the reporting date. Future pension benefits are calculated on the basis of the expected salary at the time of retirement. Pension assets are valued at fair value. The net pension liability is the difference between the present value of the future pension benefits and the fair value of the pension assets. A provision is made for employer’s National Insurance contributions during periods when underfunding arise. The net pension liability is shown in the balance sheet on the line for Pension liabilities. Any net excess funding in the funded plan is recognised as Pension assets.
As part of its ongoing financial management, Gjensidige has undertaken to invest up to NOK 1,146.1 million (1,643.6) in loan funds containing senior secured debt and various private equity and real estate investments, over and above amounts recognized in the balance sheet. The timing of the outflow of capital is dependent on when the funds are making capital calls from their investors. Average remaining operating time for the funds, based on fair value, is slightly less than four years (four) and slightly less than six years (six) in average including option for extension.
Cooperating companies Fire Mutuals 30.7 39.9 Gjensidige Pensjonskasse 2 111.0 111.0 Total intercompany balances with cooperating companies 111.0 30.7 111.0 39.9 2 Gjensidige Forsikring ASA is a sponsor of Gjensidige Pensjonskasse and has contributed with funds equivalent to NOK 111.0 million.
Value of goodwill Goodwill is described in Accounting policies (page 81-82), note 2 and 5.