Code of Practice for Corporate Governance. 2. The Code of Practice is available at www.nues.no. 3. The Board has provided a statement on the
1. Statement on corporate governance Corporate governance is subject to an annual evaluation and discussion by the Board. The Board discussed and prepared this statement at a meeting on 4 February 2014 and adopted it at a meeting on 12 March 2014. Gjensidige’s compliance with the individual items is also described.
Our work on social responsibility is described in more detail on pages 22-28 in the annual report and at www.gjensidige.no/konsern. Qualitative goals have been adopted for socially responsible operations in relation to owners, customers, employees and the environment. The goals and goal attainment are presented in the table on page 29 of the annual report.
New dividend policy, effective from and including the 2014 financial year In October 2013, the Board adopted a new dividend policy. Gjensidige’s target will be to distribute high and stable dividends to its shareholders. It is the Board’s target that, over time, at least 70 per cent of the profit after tax expense will be distributed as dividend. When determining the size of the dividend, expected future capital needs will be taken into account.
50,000,000. The authorisation is valid until the next annual general meeting, no longer, however, than until 30 June 2014. It can only be used for cancellation through a capital reduction, cf. the Public Limited Liability Companies Act Section 12-1, or before this date as consideration for the acquisition of businesses. The reason for the authorisation is to enable the Board to utilise the mechanisms provided for in the Public Limited Liability Companies Act in relation to the distribution of capital to the Company’s shareholders. Buying back own shares will also be an important means of continuously adapting to an appropriate capital structure. A binding agreement has been entered into with the Gjensidige Foundation that ensures that the Gjensidige Foundation’s percentage ownership interest is not changed if the Board decides to use the authorisation. The authorisation was not used in 2013. The authorisation was considered as a separate item at the Company’s annual general meeting.
Pursuant to the Financial Institutions Act Section 2d-3 fourth paragraph, up to a third of the members of the Supervisory Board and the Board of Gjensidige may be employee representatives. In 2011, the Supervisory Board adopted guidelines for its own work. The guidelines are available at www. gjensidige.no/konsern.
This means that a takeover bid for the Company is unlikely to arise.
A number of regular meetings are held between the external auditor and the Company’s governing bodies during the course of the year: The auditor presents the main elements in the audit plan to the audit committee on an annual basis. In addition, the audit committee considers the auditor ’s assessment of internal control in relation to financial reporting. The auditor attends board meetings when the annual accounts are considered.
At least one meeting is held every year between the Board and the auditor, and between the audit committee and the auditor, at which the CEO and other executive personnel are not present. The elected auditor shall attend meetings of the Company’s control committee at least twice a year.
Customer orientation Customer orientation is the core of Gjensidige’s strategic positioning. It is rooted in the Group’s vision: ‘We shall know the customer best and care most’. The brand platform, which was further developed in 2012, defines the Gjensidige Experience as the Group’s framework for customer orientation. Our customers shall feel that we know them, care about them, make things easy for them and help them. Customer satisfaction is measured systematically, at group level and down to the individual employee level, and improvement measures are implemented continuously.
Hansen has previously been an executive vice president in Statoil and CEO of Aker Kværner.
Information technology Efficient processing and utilisation of information about markets, customers and risk factors is becoming an increasingly important competitive advantage in the insurance industry. Gjensidige is well positioned through a joint Nordic ICT platform, where all products and customer data are available on the same system platform. It is also used by the banking and pension and savings businesses. This gives a high degree of flexibility and ensures a uniform customer experience across channels, at the same time as it is cost-efficient.
New head office In November 2013, nearly 800 managers and staff moved into the new head office in the centre of Oslo. There is free seating and the staff work without the use of paper, using modern ICT and interaction solutions. The move has been well received and it is contributing to more dynamic cooperation between staff. The office building is the first in Norway to receive an ‘Excellent’ Breeam rating. Breeam is the world’s foremost environmental assessment method and rating system for buildings, with 250,000 buildings rated so far.
This unique model, which contributes to increased loyalty amongst customers in Gjensidige, is therefore continued and strengthened. In 2013, general insurance customers in Norway received a customer dividend from the Gjensidige Foundation corresponding to around 15 per cent of insurance premiums paid in 2012.
Kjetil Kristensen (1970) has been a member of Gjensidige’s Board as an employee representative since 2008.
General Insurance Private The Private segment offers a wide range of insurance products and services in the Norwegian private market, including insurance relating to motor vehicles, property, travel/leisure and accident and health.
Earned premiums increased to NOK 3,326.4 million (2,909.7), NOK 128.2 million of which was due to changes in the exchange rate. The underlying increase was primarily due to an increase in the number of new commercial customers and the acquisition of Gouda Travel Insurance with accounting effect from 1 November 2013. At the time the agreement was signed, annual premiums in the portfolio amounted to approximately NOK 290 million.
Amortisation and impairment losses of excess value – intangible assets (147.2) (112.8)
She is President and CEO of Eksportfinans ASA, a board member and chair of the audit committee of Selvaag Bolig ASA and a board member of Eiendomsspar AS, Victoria Eiendom AS and the Norwegian Refugee Council.
Outlook and priorities Gjensidige’s goal is to be one of the leading insurance companies in the Baltic states. The market is relatively immature, and a significant proportion of both the private and the commercial segments is still uninsured. Sound growth is expected in step with an improvement in the general economic situation and an increase in the standard of living. Work on rationalising and streamlining distribution and more efficient processing of claims will continue in 2014.
Net insurance revenue in the period increased to NOK 124.4 million (105.8) as a result of higher administration costs due to growth in the portfolios.
The bank expensed NOK 67.1 million (68.4) in write-downs and losses, primarily related to the unsecured lending portfolio. Annualised writedowns and losses as a percentage of average gross lending amounted to 0.32 per cent (0.43). The improvement was due to an increase in payments from customers on previously written-off loans,
1 Net interest margin, annualised = net interest income/average total assets 2 Write-downs and losses, annualised = write-downs and losses/avarage gross lending 3 Cost/income ratio = operating expenses/total income 4 Capital adequacy = primary capital/basis of calculation for credit risk, market risk and operational risk.
Property portfolio At the end of 2013, the property portfolio amounted to NOK 5.1 billion (4.9). The property portfolio yielded a return of 5.7 per cent (5.0). The return on directly owned properties was good, while the return on property funds was negative. The general required rate of return in connection with the valuation of the properties was 6.5 per cent (6.6). The individual valuations resulted in a net increase in value of NOK 81.5 million. External valuations of more than 90 per cent of the properties were carried out at the end of 2013. The portfolio is concentrated in office properties in Oslo, but it also includes office properties in other Norwegian cities and one office building in Copenhagen.
Mjåtvedt has previously held positions as a sales consultant and senior consultant, and he has nearly 20 years’ experience of the insurance sector.
Limits have been defined for the necessary access to liquid assets. They are taken into account in the strategic allocation of assets. The liquidity risk is considered to be very low. The Group is exposed to credit risk through investments in the bond and money market and through lendings. The Board has defined limits for the credit operations. Credit losses have been insignificant to date. Outstanding claims against the Group’s reinsurers may also represent a substantial credit risk. Counterparty risk in the reinsurance market is continuously assessed. The Group’s reinsurers shall at least have an A rating from Standard & Poor’s or an equivalent rating from one of the other reputable rating companies. The Board has assessed the risk of losses on loans, guarantee liabilities and other receivables, and necessary provisions have been made in the accounts.
Rostad has previously been CFO of Aker Verdal, managing director of Aker FDV, and managing director of Clean-Tech Mid-Norway.
being devoted to measures aimed at further rationalising operations and thereby ensuring continued good competitiveness. Priority is given to continuous competence-raising measures in order to ensure that Gjensidige still has the right composition of expertise going forward.
Notes 2 Use of estimates ..................................................84 3 Management of insurance and financial risk .........85 4 Segment information.........................................106 6 Shares in associates ...........................................109 7 Owner-occupied property, plant and equipment 110 8 Financial assets and liabilities .............................111 9 Investment property ..........................................116 10 Loans and receivables ........................................ 117 11 Cash and cash equivalents ................................. 117 12 Shares and similar interests ................................118 13 Insurance-related liabilities and reinsurers’ share .120 15 Provisions and other liabilities .............................125 18 Salaries and remuneration .................................129 19 Net income from investments ............................133 20 Contingent liabilities ..........................................134 21 Related party transactions .................................135 22 Events after the balance sheet date ...................137 23 Capital ratio ......................................................138 24 Solvency margin ................................................139 25 Restricted funds ................................................139 27 Share-based payment .......................................140 28 Earnings per share ............................................. 141
Net income from investments Income from investments in associates 6 192.7 441.5 Operating income from property 331.6 335.0 Interest income and dividend etc. from financial assets 1,495.6 1,610.1 Net changes in fair value on investments (incl. property) 1,006.0 (301.2) Net realized gain and loss on investments (321.0) 1,150.0 Expenses related to investments 17 (166.7) (179.5)
Basis of preparation Statement of compliance The consolidated financial statements have been prepared in accordance with IFRSs endorsed by EU, and interpretations that should be adopted as of 31 December 2013, and additional disclosure requirements in accordance with the Norwegian Financial Reporting Regulations for Insurance Companies (FOR 1998-12-16 nr 1241) pursuant to the Norwegian Accounting Act.
Interest income and credit commission income from banking operations Interest income and interest expenses are calculated and recognized using the effective interest method. The calculation takes into account arrangement fees and direct marginal transaction costs that form an integral part of the effective interest rate. Interest is recognized in profit or loss using the effective interest method both for balance sheet items that are measured at amortised cost and those that are measured at fair value through profit and loss. Interest income on impaired loans is calculated as the effective interest on the impaired value.
Any actuarial gains and losses related to defined benefit plan is recognized in other comprehensive income.
Gjensidige has developed its steering documents for insurance risk to diversify the types of insurance risks and within each of these categories to achieve a sufficiently large population of risks to reduce the fluctuation of the expected outcome.
The Group writes Workers’ Compensation in Norway and Denmark. The regulation for this LOB is quite different in these countries. In Norway Workers’ Compensation covers both accident and diseases, while in Denmark diseases are covered by a governmental body. The compensation in Norway is exclusively restricted to lump sums, while in Denmark the compensation is both lump sums and annuity payments. Annuity payments are calculated according to assumptions about mortality, interest rate and retirement age. For bodily injuries the severity of claims is also influenced by court awards, which tend to increase the compensation more than the general inflation. This is also a significant factor, due to the long period typically required to settle these cases.
Table 3b – Gross premiums written per line of business, Gjensidige Forsikring ASA
Since most contracts are based on the regulations for defined contribution schemes under which on-account payments over a ten year period after retirement age has been reached are so far the most common arrangement, the company has a very small exposure to longevity risk in respect of its ordinary occupational pensions. Most of the paid-up pensions that are transferred to the company pay a lifelong retirement pension, and are thus subject to longevity risk. The risk tariff for this coverage has up to now been computed using the industry-wide calculation basis (K2005), including safety margins as directed by the Financial Supervisory Authority of Norway. The Financial Supervisory Authority of Norway published a new revised minimum calculation basis 8 March 2013: K2013. This tariff is based on the “Medium projection variant” in Statistics Norway’s population projections, with addition of safety margins. Furthermore, the minimum calculation basis is based on a dynamic mortality table, which means that there are assumptions of reduced death rates during the whole projection period. The premium tariff will be in force as from 1 January 2014, and at the introduction of the new tariff the company will be granted a 5 years transition period to finance the necessary increase of premium provisions.
Mortality risk The vast majority of the mortality risk coverage relates to members of occupational pension schemes, which include a surviving spouse, domestic partner or child pension entitlement. The risk period is limited to the member’s term of employment, expiring at the latest when the individual reaches the age of 67. No information relating to the member’s family situation is obtained when the policy is taken out. The premium is therefore calculated using assumptions with respect to mortality, civil status, number of children, as well as their stated age and gender. For Gjensidige Pensjonsforsikring AS these calculations have been based on the industry-wide standard K2005, which was developed jointly with the trade organisation Finance Norway, but will as mentioned be replaced by the new calculation basis K2013 as from 2014.
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. 26.1 per cent of the risk capacity measured by TVaR was used as at 31 December 2013. 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 20 and 60 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.
This stress test based on figures at year-end is shown below (group figures). The capital buffer here is relative to the capital adequacy requirement for the Gjensidige Group, which is calculated according to Norwegian GAAP. Interest rate risk and credit spread risk in the stress test are calculated exclusive of bonds at amortised cost. For purposes of capital adequacy, Gjensidige’s stakes in Storebrand and SpareBank 1 SR-Bank ASA are consolidated so that any decline in the share price of these enterprises will not affect the capital buffer as long as there is no impairment on the assets. This impairment risk is reflected in the stress test. Changes to Storebrand and SpareBank 1 SR-Bank ASA and claim provisions are modelled through Gjensidige’s internal model. Catastrophe risk includes exposure to natural catastrophes together with possible credit risk of reinsurers given a natural catastrophe.
Reinsurance is used to manage insurance risk. This does not, however, discharge Gjensidige from any liability as primary insurer. If a reinsurer fails to pay a claim for any reason, Gjensidige remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered by reviewing their financial strength prior to finalization of any contract. As a general requirement, all reinsurers need to be rated "A-"or better by Standard & Poor’s (or the equivalent from other rating agencies) when entering into the contract with Gjensidige. The figure below shows the breakdown of the purchased reinsurance capacity for 2013 and 2012, i.e. the rating of the reinsurers that would have been drawn in if the losses had occurred.
The table above shows the effect of a ten per cent drop in the stock market and a one percentage point increase in the interest rate level of equity in GPF. The calculations do not take tax effects into consideration nor that a share of the return normally is allocated to the customers.
The Board sets the overall limit for the bank's credit risk appetite through its Credit Strategy and Policy and risk appetite statement. Gjensidige Bank ASA offers a wide range of lending products including secured as well as unsecured loans and credits to meet a variety of needs of the consumers in the country. Secured lending mainly includes loans and credits secured by residential property. The Bank has no single loans exceeding 10 million.
Amortisation and impairment losses As at 1 January 2013 (219.4) (344.2) (90.6) (596.8) (92.3) (1,343.3) Amortisations (85.1) (9.0) (127.4) (30.3) (251.6) Disposals/reclassifications (9.1) 104.8 215.0 18.6 329.3 Impairment losses recognized in profit or loss during the period (29.7) (29.7) Exchange differences (14.4) (46.2) (6.4) (16.5) (12.3) (95.8) As at 31 December 2013 (233.8) (484.6) (30.9) (525.7) (116.2) (1,391.2)
CR-level when calculating terminal value Gjensidige Forsikring, Danish branch 92.1-95.4% 94.7% Gjensidiges workers'compensation insurance 90.0-94.1% 94.1%
Discount rate The discount rate is before tax, and is composed of a risk-free interest rate, a risk premium and a market beta. The risk-free rate is equivalent to a ten-year interest rate on government bonds in the respective countries where the subsidiaries and branches operate in. In addition a risk premium of 6.0 percentage points in Denmark and Sweden and 7.0 percentage points in the Baltic has been added.
Nykredit Forsikring Need for impairment app. NOK 63 million No need for impairment No need for impairment Need for impairment app. NOK 141 million Gjensidige Forsikring, Swedish branch No need for impairment No need for impairment No need for impairment No need for impairment
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 142.2 128.5 270.7 Financial derivatives subject to hedge accounting 76.3 76.3
Reconciliation of financial assets valued based on non-observable market data (level 3) 2013
Nykredit Forsikring A/S Currency-related contracts - hedging instruments 1,020.0 (41.2) 1.2 Hedging object 1,035.3
116 | Gjensidige annual report 2013 9. Investment properties The Gjensidige Insurance Group carries investment properties at fair value. Investment properties consist of commercial properties that are rented to tenants outside the Group, or are acquired in accordance with the company's capital management strategy. Properties used by Group companies are classified as owneroccupied property, see note 7. In properties that are both rented to tenants outside the Group and that are used by the Group's own business, the parts held for rent that can be sectioned are classified as investment property.
Of other loans NOK 158.9 (197.7) million are loans given to agricultural customers. The loans are in their entirety intended for installment of fire detection systems with these customers. There is no mortgage attached to the loans, and the terms vary from one year to over 20 years. Gjensidige Forsikring has not offered this type of loan to its customers since 2008. The default rate is 1.08 (1.31) per cent at year end. Discounting has been conducted in order to take into account the fact that the loans are noninterest -bearing. The discount rate used is 4.66 per cent.
The liquidity risk in the pension assets is deemed to be low, since there are short-term investments at all times that exceed shortterm liabilities. The investments are deemed to be sufficiently liquid.
The expense is recognized in the following line in the income statement Total operating expenses 46.1 52.5
Tax recognized in other comprehensive income Deffered tax pensions 2013 (5.5) (178.5) Change in tax rate on pensions previously included in other comprehensive income (18.1) Deferred tax on hedge accounting 29.3 1.4 Tax payable on hedge accounting 76.0 (46.5) Tax payable on exchange rate differences (20.0) Other changes 36.1
130 | Gjensidige annual report 2013 ratio, the business unit in question and an evaluation of the person in question’s personal contribution, including an overall assessment relating to compliance with the Group’s vision, values, ethical guidelines and management principles. Half of the variable remuneration is in the form of a promise of shares in Gjensidige Forsikring ASA, one third of which are released in each of the following three years. Restricted variable remuneration that has not yet been disbursed may be reduced if subsequent results and developments indicate that it was based on incorrect assumptions.
Kjetil Kristensen 9, staff representative 5 332.5 526 Gunnar Mjåtvedt 9, staff representative 5 332.5 1,820 Per Arne Bjørge 9 8.2 10,542 Mette Rostad 9.7 2,794
Owner-occupied properties Rental income from owner-occupied properties 15.7 13.8 Net gains/(losses) from sale of owner-occupied properties 2.1 Administration expenses related to owner-occupied properties (12.6) (9.9) Impairment owner-occupied properties (3.4)
Gains and losses in connection with sale and liquidation Glitne Invest AS (liquidated in 2012) 237.8 Storebrand ASA 35.3
Gjensidigestiftelsen 1.0 3.983.4 0.9 2.131.7 Nordisk Forsikrings Service AS 37.4 65.8 Nykredit Forsikring A/S 673.4 84.9 38.8 Oslo Areal AS 75.0 107.8 Tennant Assuranse AS (owned by Lokal Forsikring AS) 2.3 1.5 2.7 4.1
Subordinated loans in associates, proportion 1,215.1 1,448.7 45 % of investment properties, unrealized gains, proportion 73.6 41.4
Other assets Plant and equipment 7 243.8 158.8 Cash and cash equivalents 8, 11, 25 1,002.2 1,202.6
Depreciation method, expected useful life and residual values are reassessed annually. An impairment loss is recognized if the carrying amount of an asset is less than the recoverable amount.
At the end of the year the number of own shares was 59,815 (65,799).
Remeasurement of the net defined benefit liability/asset Remeasurement of the net defined benefit liability/asset consists of the return of plan assets and gains/losses occurring by changing the actuarial assumptions used when calculating pension liability.
Claims provision, gross 1,279.5 6,027.3 5,183.3 844.0 73.9 2,558.5 276.2 23.6 10,239.0 Gross loss liability 1,199.6 4,519.1 3,886.4 632.7 73.7 2,511.2 265.6 22.1 8,591.3
Security provision 1,317.9 FSAN 1 minimum require1 The Financial Supervisory Authority of Norway.
Budgets/prognoses and the period for which the cash flows are projected The projection of cash flows is based on budgets for the next four years reviewed by the management and approved by the Board. In the period after 2017 an annual growth of three per cent has been projected until 2022. The terminal value is calculated in 2022. The growth is grounded in the fact that the companies are small and with a solid parent company, which gives them good chances of increasing market shares. The cash flows are estimated to a normal level before a terminal value is calculated. Gjensidige normally has a ten-year horizon on its models, as the portfolios are in a growth phase and a shorter period will not give a correct view of expected cash flows.
Growth rate The growth rate is considered to be 3.0 per cent. This is based on the following assumptions: Long-term real BNP growth 2-3%
Provisions for unearned premiums As at 1 January 6,681.0 (19.1) 6,661.8 6,497.8 (13.1) 6,484.7 Additions through acquisitions 124.3 124.3 Addition through merger 83.5 83.5 Increase in the period 18,961.5 (565.4) 18,396.1 17,294.4 (477.0) 16,817.4 Earned in the period (18,642.1) 569.0 (18,073.1) (17,078.4) 471.5 (16,606.9) Exchange differences 116.9 (0.0) 116.9 (32.8) (0.6) (33.4)
Gjensidige manages employees’ wage growth based on collective agreements and individual agreements.
Bjørn Iversen, Chairman 201.5 2.3 890 Hilde Myrberg, Deputy Chairman 33.1
1 The stated remuneration applies to the period the individual in question has held the position/office.
Restricted bank deposits Source-deductible tax accounts 65.8 63.3 Securities placed as security for insurance operations 0.6 Deposits placed as security for insurance operations 0.1