Sverre Chr. Jarild Oslo Børs page 45, photos page 10, 12-24
May Dividend of NOK 2.35 billion distributed to the shareholders. Through the Gjensidige Foundation, NOK 1.65 billion was passed on to Norwegian general insurance customers.
The customer centre in Gjensidige Bank was rated best in Norway.
this is GjensidiGe 2 A good year 4 Customer first 6 Markets 7 Preserving security 8 Financial key figures 9 Non-financial key figures 10 Financial targets and strategies operations 12 Operations 14 General insurance Private 16 General insurance Commercial 18 General insurance Nordic 20 General insurance Baltic 22 Pension and savings 24 Banking 26 Asset management 28 Additional information perspective 32 Gjensidige and the society 34 A competence-based enterprise 36 Passionate about fire prevention 38 Key figures social responsibility 39 The Gjensidige Foundation
Governance 42 Management and control 44 Solvency II 45 The Gjensidige share 48 Group management 50 Supervisory Board, Control Committee and Nomination Committee 51 Glossary results 54 Report of the Board of Directors 66 Consolidated accounts 132 Parent company account 182 Declaration of the Board and CEO 183 Auditor’s report 185 Statement by the Control Committee 186 Statement by the Supervisory Board
The profit of NOK 2,747.9 million after tax expense provides a basis for paying a dividend in 2012 as well as in previous years. The insurance result in 2011 was very good, with a combined ratio of 91.9 per cent (95,3 per cent in 2010) for the Group’s overall general insurance business. The total return of the share was 26.6 per cent in 2011, and Gjensidige’s share value developed more positively than the main index on Oslo Børs in a year dominated by fluctuations and uncertainty in the financial market.
Our vision – knowing the customers best and caring most – has been an important guiding principle for us throughout 2011, a year that was dominated by climate-related events in both Norway and Denmark. The flood in Eastern Norway in the early summer, the torrential downpour in Copen hagen in July and the two storms Berit and Dagmar resulted in major challenges for many customers and also affected our insurance results. Gjensidige wishes to cooperate with local and national authorities on measures to prevent climate change, and we are eager to share our experience and statistics to ensure that our customers do not suffer. We took several initiatives in 2011, among other things toward the Ministry of the Environment, to push Norwegian municipalities to take greater responsibility for meeting climate change and extreme weather in the years ahead.
The quality of the customer portfolio has improved throughout 2011. Customers who choose to stay with Gjensidige have more products and a lower loss ratio than customers who choose to leave us. Gjensidige has a strong position in the commercial market. In order to meet tomorrow’s challenges in this market, various measures have been implemented to ensure more systematic customer follow-up and marketing in the Commercial segment.
General insurance outside Norway accounts for about a quarter of the Group’s earned premiums. Measures to ensure improved profitability in the portfolio will continue in the time ahead. In addition to general insurance, we offer banking services, pension and savings products to both private and commercial customers in Norway. Individuals and companies with more than one Gjensidige product are among our most satisfied customers. Gjensidige Pensjon og Sparing entered into new distribution agreements and took over responsibility for several customer portfolios in 2011. The business recorded a profit in 2011, for the first time since it was established in 2006. The development in Gjensidige Bank is also positive, with a solid improvement in profit performance, new product launches and the introduction of new consumer loans in 2011. The bank has implemented necessary measures to improve profitability, and the effect of these measures is expected to be fully realised in 2012.
In 2011, we distributed a record-high dividend of NOK 2.35 billion to our owners. The Gjensidige Foundation, our biggest owner, passed on NOK 1.5 billion of the dividend to our customers in Norway. This is a unique model that contributes to customer satisfaction and loyalty. Nearly half of Gjensidige’s employees purchased shares in the Group in connection with the Company’s listing on the stock exchange in 2010, and many of them participate in a newly established share savings programme. This confirms our employees’ belief in the Company.
Tight cost control, rationalisation and capital discipline will be prioritised in 2012. A dedicated programme is aimed at making life easier for both em ployees and customers. The programme involves changed work processes, simplified service solutions, system support and improved self-service solutions. In the course of 2012, we will also renew Gjensidige’s visual profile and our web portals to demonstrate that we are serious about our vision: to know the customer best and care the most.
Gjensidige is one of the leading players in general insurance in the Nordic countries, and has an ambition of taking the position as the most customer oriented company in the Nordic insurance industry.
The figure shows principal operational subsidiaries and branches in Gjensidige * Gjensidiges Arbejdsskadeforsikring A/S and Nykredit Forsikring A/S are owned by Gjensidige Forsikring ASA, but run by the Danish branch
The Gjensidige Experience shall characterise our interactions with our customers. It shall distinguish us from our competitors and ensure that Gjensidige will be one of the most customer-oriented companies in the insurance industry.
The Scandinavian insurance markets are characterised by cost-efficient players that focus on profitability. however, new players have entered the field in recent years – both established financial groups with a more extensive new range of products, foreign insurance companies, as well as a few minor niche players. This has resulted in a market with strong competition among the providers.
In the Baltics, the biggest players are foreign financial groups. Only one of the five largest companies is locally owned. The distribution model deviates somewhat from the Scandinavian one, with more extensive use of agents, as illustrated by the substantially higher cost ratio among the Baltic players.
sources: 1 Finance Norway, general insurance statistics, Q4 2011. Sparebank1 Skadeforsikring and Sparebank1 livsforsikirng presented together. 2 The Danish Insurance Association, general insurance statistics 4th quarter 2010, Nykredit Forsikring included 3 The Swedish Insurance Federation, general insurance statistics, 4th quarter 2011 4 Insurance Supervisory Authorities of latvia, lithuania, Estomia; Estonia Statistics; Gjensidige Baltic reports, Swedbank Varakirdiustus interim report 4th quarter 2011; with manual corrections.
The Scandinavian general insurance markets are consolidated. This is particularly true for Norway and Sweden, where the three largest players account for 67.8 and 63.4 per cent of the market, respectively. In Denmark, the three largest players account for a total of 52.0 per cent of the market.
preservinG security The roots of today’s Gjensidige Group can be traced back to the inner parts of Eastern Norway in the years around 1820, when lands Private Brandassuranceforening was founded as the first mutual fire insurer. By 1920, the number of mutual fire insurers had increased to 260. The Group’s life insurance business can be traced back to the establishment of Christiania Almindelige Gjensidige Forsørgelsesanstalt in 1847.
The Company was established under the name of Samtrygd as a joint reinsurance company for the mutual fire insurers in Norway.
1932 The Watchman was put to use as the logo of Gjensidige liv together with the slogan “Time passes; Gjensidige endures.”
1998 Gjensidige had evolved into a financial group with a full range of general and life insurance, pension and other financial services as well as online banking services.
the Group has been preservinG security for nearly 200 years 2002 Gjensidige NOR was divided into two, cooperating groups: Gjensidige NOR Forsikring, the general insurance group, and Gjensidige NOR ASA, listed banking and life insurance company.
2003 Gjensidige NOR ASA merged with DnB holding ASA and established DnB NOR ASA. A strategic cooperative agreement was established between the new group and Gjensidige.
2007 The online internet bank Gjensidige Bank was established. 25 per cent of the equity in Gjensidige Forsikring BA was re-classified to equity certificate capital, and transferred to the Gjensidige Foundation 2009 Gjensidige Bank acquired Citibank’s Norwegian business in consumer financing.
2010 Gjensidige Forsikring BA was converted into a public limited company (ASA). At the same time, the Gjensidige Foundation was converted into a financial foundation and became the owner of all of the shares in the Group. Gjensidige Forsikring ASA was listed on the stock exchange in December. The Gjensidige Foundation sold nearly 40 per cent of its shares.
Earned premiums, general insurance NOK million 17,548.1 17,063.3 15,660.4 15,481.9 14,848.0
Claims incurred, general insurance NOK million (13,249.3) (13,456.6) (12,071.0) (11,983.8) (11,696.5)
Operating expenses, general insurance NOK million (2,877.9) (2,810.4) (2,771.5) (2,638.3) (2,598.9)
Profit for the year NOK million 2,747.9 2,950.4 2,304.8 252.3 2,470.5
Provisions for unearned premiums, gross NOK million 9,531.4 9,078.3 7,671.7 6,760.9 6,060.2
Total equity and liabilities NOK million 88,491.9 84,106.8 74,868.9 65,551.4 58,159.9
Capital adequacy ratio 9 Per cent 16.2 16.1 18.9 20.7 26.1
Solvency margin capital = Net subordinated capital including share of security provisions (based on the company accounts for Gjensidige Forsikring ASA)
Return on equity = Profit before tax expense / average equity for the period.
Turnover of employees, Gjensidige Forsikring Per cent 16.6 11.6 11.4 12.6 19.6
Average amount spent on skills development per employee* NOK 16,400 10,420 10,000 5,400 9,300
The Group’s focus on the relation-building support areas of banking, pension and savings, and health services shall strengthen the Group’s competitive ness and to help develop Gjensidige as a customer-oriented player. The Group’s substantial customer base represents a unique opportunity to achieve with profitable growth through cross-sales of new services to insurance customers. A diversified product portfolio will allow Gjensidige to capitalise to a greater extent on the value of its existing customer base and distribution platform.
Product simplification and better selfservice solutions shall support the Group’s longterm financial targets of a combined ratio of 90 to 93.
Gjensidige’s overarching target is to be a leading, profitable, customer-oriented general insurance company in the Nordic market. Product simplification and better self-service solutions are important focus areas.
The operations in Gjensidige are divided into six segments: general insurance Private, Commercial, Nordic and Baltic, as well as Pension and savings and Banking. In addition to the six segments, the asset management function manages the Group’s investment portfolio.
General insurance outside norway • General insurance operations in Denmark, Sweden and the three Baltic States • Established position through seven acquisitions in the period 2006-2010 • The private and commercial market in Sweden and Denmark • Insurance to municipalities and municipal operations in Norway, Sweden and Denmark
General insurance norway • General insurance is Gjensidige’s core business • A complete supplier of general and accident and health insurance to private, commercial and agricultural customers in Norway • 753,000 private customers • 165,000 commercial and agricultural customers asset management • The asset management function manages the Group’s investment portfolio within limits set by the Board of Directors • The portfolio consists of investments in a number of asset classes, including bonds and money market instruments, property and shares • Assets under management of NOK 54.5 billion at year-end 2011 the support areas • Pension and savings: A broad range of pension, investment and savings products is offered for both the private and commercial markets in Norway • Banking: Through online banking, banking products are offered to the private and agricultural markets in Norway • The support areas have been established in order to support our core business in Norway
The distribution is based on earned premiums, excluding other income and eliminations income per seGment
operations Private Norway offers a broad range of insurance products and services: • Accident and health insurance • Property insurance • Motor insurance • Travel insurance • Other insurance
UniqUe brand Gjensidige has a strong brand that forms a strong foundation for future development of the Company. In Norway, the Gjensidige brand has the highest degree of brand awarenessl in the insurance market. Over half the population would consider Gjensidige when purchasing a new insurance policy (source: The Competitor and Brand Survey, Private 2011. Ipsos MMI). The Watchman logo is a strong identity hallmark for the brand and is seen as a symbol of insurance, security and tradition in the Nordic countries. These are very attractive qualities to be identified with for a player operating in an industry that is based on trust.
Surveys show that customers who have several Gjensidige products are more satisfied than customers who have only one. It is a priority for the Company to increase the number of customers who have both insurance, banking and pension products in Gjensidige.
the best cUstoMer service in the indUstry In TNS Gallup’s customer service survey in 2011, Gjensidige was rated best in the insurance industry. As many as 59 per cent of the customers described Gjensidige’s customer centre as ‘Excellent’ or ‘Very good’.
MUlti-channel Model Gjensidige has a multi-channel strategy in which products and services are distributed via telephone, online solutions and local branch offices. The customer enjoys the same level of service, regardless of channel.
The roles of the different channels has been redifened in recent years, and the number of local branch offices has been reduced. An additional 16 local branch offices will be closed in 2012. A new office concept is also being developed, with increased focus on financial advisory services, and work on improved self-service solutions is continuing.
Gjensidige’s customer centres are independent sales and customer relations channels that provide service and sell insurance and financial products to private customers by phone. The customer centres are also open in the
Based on earned premiums 2011 Total non-life insurance, based on gross premiums written (Source: Finance Norway (FNO)
White label distribution largely takes place through agents and business partners such as shops, car dealers and banks that wish to expand their product range with insurance products under their own label.
FocUs areas in 2011 cUstoMer satisFaction Customer orientation and measures aimed at retaining customers have been given priority in 2011. Gjensidige’s Customer and Brand School has an important role in the training of managers and personnel who deal with customers. Internal surveys carried out in autumn 2011 showed that there is a clear connection between sales training and customer satisfaction, sales and a reduced loss of customers. Simplifying products and processes will facilitate a higher degree of self-service and contribute to an even better customer experience in future.
optiMal risk pricing Correct pricing of risk is the core of all insurance activity. In recent years, Gjensidige has focused on developing tariff rates and customer selection. By using advanced analytical and modelling tools in combination with more extensive data (internal and external) and risk parameters, Gjensidige has succeeded in developing and launching premium rates that better reflect the underlying insurance risk. The programme has enabled more fine-meshed price differentiation between groups with different risk profiles than is market practice in Norway. The tariff rating tool will contribute to ensuring Gjensidige’s competitiveness in the time ahead. In 2011, new rates were introduced for private travel insurance. New rates for motor and property insurance had been launched previously.
targets and strategies Private Norway shall support the Group’s target of a combined ratio of 90-93: • Distribution and operations will be further rationalised. • Further efforts on pricing and tariffing
Gjensidige shall be leading in customer-orientation: • Differentiation through good customer experiences • Improved availability, simplification of products/processes and a higher degree of self-service oUtlook Satisfactory profitability in the Norwegian general insurance market over several years has led to new competitors entering the market. Small niche companies have gradually increased their market shares, and the competition from established players remains strong. Gjensidige has long prioritised profitability over growth, and that strategy remains unchanged. With a leading brand, a strong focus on customer orientation, a full range of products, advanced tariff rating and increased availability through self-service, Gjensidige is in a good position to meet the competition also in future.
operations Gjensidige offers Norwegian business and industry a wide range of solutions for: • Accident and health insurance • Property insurance (including assets and operating losses) • Agricultural insurance • Motor insurance • General liability insurance • Marine/transport insurance
distribUtion A total of 97 per cent of Gjensidige’s commercial customers (equal to 83 per cent of gross premiums written) are served through a dedicated distribution network, mutual fire insurers, agents and partners. Proximity to customers is also important in this segment. Other customers are served indirectly through insurance brokers.
MUlti-channel Model The Norwegian commercial market mainly consists of small and mediumsized enterprises. This means that pricing is largely based on standardised products and premium rates in the same way as in the Private segment. In the first half-year 2011, multi-channel distribution was also established for the Commercial segment, which means that products and services are distributed via telephone, online solutions and local branch offices. The customer enjoys the same level of service, regardless of channel.
MUtUal Fire insUrers, partners and agents The mutual fire insurers ensure distribution in areas in which Gjensidige does not have its own offices. Cooperating marine insurance associations provide insurance in the field of fisheries/vessels. The agencies supplement Gjensidige’s own distribution in growth areas and only distribute for Gjensidige under the brand name Gjensidige.
FocUs areas in 2011 risk pricing The main focus in 2011 was on underlying profitability and portfolio quality improvement. Price adjustments were implemented on the basis of both overall and customer-specific profitability.
Successful insurance provision is all about correct risk pricing. In 2011, considerable resources were invested in tariffing, where Gjensidige now
Earned premiums 5,411.9 5,401.0 5,662.2 Claims incurred etc. (4,283.4) (4,339.6) (4,491.2)
definitions: 1 loss ratio = claims incurred / earned premiums 2 Cost ratio = operating expenses / earned premiums 3 Combined ratio = loss ratio + cost ratio
is leading in Norway. In the course of 2011, Gjensidige developed and implemented new tariff rates for important areas such as cars, lorries and industrial buildings on the basis of advanced risk and price modelling and with all products adapted to a core system.
tUrnaroUnd The introduction of a multi-channel distribution model, with related organisational changes, and rationalisation measures and activity management, wereimportant focus areas in 2011. Analysis-driven customer relationship management (CRM) and active portfolio management free up time for sales and relationship activities.
Gjensidige’s Customer and Brand School is an important institution for raising competence and teaching employees who deal with customers about the Gjensidige brand and culture. All customer advisers completed certification through Gjensidige’s Customer and Brand School.
Despite several greater fire losses in the second half-year, the agriculture product showed improvement in the claims trend in 2011 compared with the year before due to many frost and winter-related claims in 2010. New premium rates and changes in the portfolio led to considerable improvements in motor insurance claims. In addition, the level of accident and health claims was low.
The scope of natural disaster claims in 2011 was unusually large, and the storms Berit and Dagmar at the end of the year accounted for NOK 145.1 million of claims incurred.
Automation of internal and external processes provides new possibilities for efficient information exchange between customers and the Company. Customers, small commercial customers in particular, are expected to move more of their transactions online, as self-service solutions become avialablke. Simplification and automation will, along with a continued focus on optimal pricing, help to ensure that Gjensidige remains competitive in the Norwegian Commercial market in the future.
Based on gross premiums written 2011 product Groups, commercial norWay market shares, commercial norWay customer satisfaction commercial norWay
operations The main part of the Nordic business is operated through Swedish and Danish branches of the parent company Gjensidige Forsikring ASA. The exception is the business within Danish workers compensation insurance, which is organised as a separate company, Gjensidiges Arbejdsskadeforsikring, and insurance for the private market distributed via the Nykredit group in Denmark by a separate company Nykredit Forsikring.
private and coMMercial cUstoMers Gjensidige offers an almost complete range of products to the segment’s private and commercial customers in Sweden and Denmark. In the private market, this includes motor insurance, property insurance, change-ofownership insurance and accident insurance. In the commercial market, a full range of products is offered with the exception of insurance in the marine segment and guarantee insurance.
the MUnicipal Market Gjensidige is a complete supplier of general insurance products to Scandinavian municipalities and municipal undertakings. This includes workers compensation insurance and the administration of insurance schemes for the municipalities.
distribUtion denMark In connection with the acquisition of Nykredit Forsikring, Gjensidige and the Nykredit group entered into a long-term strategic collaboration on, among other things, the distribution of Gjensidige’s insurance products through the Nykredit group. The strategic collaboration on distribution represents considerable potential for Gjensidige in the Danish market. The Nykredit group provides general insurance on behalf of Gjensidige to both the private and the commercial market.
The private market is served via call centres in Copenhagen and Viby as well as via the internet. In addition, private insurance products are sold via partners, including Kia Motors, the Danish Association of Managers and Executives and EDC, Denmark’s largest estate agency chain.
In the Danish commercial market, sales are conducted in cooperation with brokers and own insurers in the market for small and medium-sized customers and agricultural customers.
the MUnicipal Market Distribution in the municipal market is conducted either directly or through brokers. The market is primarily based on competitive tenders.
nordic FUnctions Gjensidige acquired Nykredit Forsikring in Denmark in April 2010. Considerable resources have been invested in rapid integration of Nykredit Forsikring in the Gjensidige Group, and at the turn of the year, identified annual synergies had been realised.
Nykredit’s portfolio has been converted to a common Nordic platform, and Nordic functions have been established for, among other things, products, price, claims, ICT and communication. Ongoing rationalisation and streamlining efforts to form a uniform group structure continue unabated.
Gjensidige’s Nordic business offers customised solutions to its private and commercial customers in Sweden and Denmark. Gjensidige also has a leading position in the Scandinavian municipal market. In 2011, Nordic functions were established for Product and Price, Claims, ICT and Marketing.
Claims incurred amounted to NOK 2,933.3 million in 2011, compared with NOK 2,882.7 million in 2010. The loss ratio came to 80.7 in 2011, compared with 83.5 the year before. The percentage of weather-related claims was higher than expected in 2011. There was one unusually large frequency claim in 2011, the torrential downpour in Copenhagen on 2 July, which alone accounted for NOK 83.7 million of claims incurred. The figures were also affected by storms in February and November.
targets and strategies The Nordic segment shall support the Group’s target of a combined ratio of 90-93: • Following the acquisition of Nykredit Forsikring, Gjensidige is now of such a size in the Danish market that it provides a basis for increased profitability in the time ahead
• The distribution agreements with the Nykredit group and EDC are expected to contribute to organic growth slightly above market growth, given a normalized property market in Denmark.
Based on earned premiums 2011Source: Forsikring & Pension, fourth quarter 2010 product Group nordicmarket share denmark
operations Gjensidige’s operations in the Baltic market are carried out through the subsidiary Gjensidige Baltic. Target customers are people with medium to high income in the private market, as well as medium-sized enterprises in the commercial market.
Motor insurance accounts for the by far largest proportion of the portfolio, although the proportion of property and accident and health insurance has increased in recent years.
After several challenging years following the financial crisis, there are now signs of improvement in the insurance markets in latvia and lithuania. The market in Estonia stagnated following the introduction of the euro in 2011.
The Baltic states are dominated by a number of big foreign players. Gjensidige had a pan-baltic market share of 7.5 per cent at the end of 2011. Gjensidige’s strongest market position is in latvia, with a market share of 14.1 per cent, whilst the market share in lithuanina and Estonia is respectively 6.7 per cent av 3.1 per cent distribUtion channels Gjensidige has 97 branch offices in the Baltic states and is represented in 73 differ ent towns and cities. The most important distribution channels are direct sales and sales via insurance agents and brokers. The importance of online sales as a distribution channel continues to increase in the Baltic market.
FocUs on costs The insurance markets in the Baltic states have undergone a period of strongly falling insurance volumes and prices as a result of the financial crisis. The latvian market has represented the greatest decline among the Baltic states, resulting in Gjensidige focusing more on Estonia and lithuania.
Gjensidige’s Baltic operations have shown a strong ability to reduce claims incurred and operating expenses in step with falling premium volumes. The measures implemented have had the desired effect, and Gjensidige has delivered positive underwriting results in its Baltic operations for the past four years.
resUlts Earned premiums amounted to NOK 395.8 million in 2011, a reduction from NOK 459.3 million the year before. The reduction was due to a negative trend in the Baltic market in recent years. however, premiums written developed in a positive direction since the second quarter 2011 as a consequence of improved market development. Earned premiums also increased from one quarter to the next throughout the year. Intensive sales training is now being carried out in order to increase the growth in earned premiums. Strengthening of the broker channel in lithuania also is taking place.
Claims incurred amounted to NOK 270.7 million in 2011, compared with NOK 305.3 million in 2010. The loss ratio was 68.4 in 2011, compared with 66.5 the year before. Both years were characterised by a high number of winter-related claims in the first quarter, and also in the fourth quarter 2010. Analyses of several years show that seasonal variations are becoming stronger in the Baltics. There was also one major fire loss and several medium-sized claims during the year. large losses* amounted to NOK 3.9 million in 2011, while there were no large losses in 2010. Run-off gains** in 2011 amounted to NOK 19.8 million, compared with NOK 30.9 million in 2010. The run-off gains were primarily attributable to the reduction in the general price level in the Baltic states.
The cost ratio was 30.9 in 2011, compared with 29.8 in 2010. The nominal operating expenses amounted to NOK 120.2 million, a reduction of NOK 14.5 million compared with the year before. Together with a lower volume of business, cost reduction measures introduced in the two preceding years contributed to lower operating expenses despite an increase in direct and indirect taxes.
• Introduction of customer loyalty programmes. • Further development of online sales as a distribution channel oUtlook The Baltic markets are still at an early stage of development. A large proportion of both the Private and Commercial segments is still uninsured, and we therefore expect solid growth when the general economic situation now shows a sign of improvement.
operations Gjensidige’s pension and savings operations are organised with Gjensidige Pensjon og Sparing holding AS as the holding company for Gjensidige Pensjonsforsikring AS, Gjensidige Investeringsrådgivning AS and Gjensidige Fondene AS. Gjensidige offers a wide range of pension, investment and savings products to the private and commercial markets. Improvements in operations and system solutions in 2011 contributed to creating a sound platform for continued profitable growth and increased competitiveness.
saving • Active management – customised investment solutions for institutional customers • The Vekter (Watchman) Funds – combination funds (equity funds and fixed-income funds) adapted to the customer’s investment horizon, savings ability and willingness to take risk
At the turn of the year, Pension and savings had 86,000 customers. As many as 85 per cent of the customers are also general insurance customers.
The year’s return in addition to guaranteed interest on the paid-up policy portfolio was allocated in its entirety to covering future commitments relating to higher life expectancy. The provision was in accordance with the
assets Under ManageMent The total assets under management increased by NOK 5,376.4 million during 2011 and amounted to NOK 17,747.7 million at the end of the year. The growth can largely be ascribed to a new institutional customer and new distributors during the year. Assets under management in the pension operations amounted to NOK 8,188.9 million at the end of 2011. The group policy portfolio accounted for NOK 2,620.6 million of this amount. Assets under management in the savings operations amounted to NOK 9,558.7 million.
Agreements have been signed in 2011 with Sandnes Sparebank and Sparebanken Møre for portfolio acquisition (defined-contribution pensions) and agency services with effect from 1 January 2012 and 1 November 2011, respectilely. An agreement has also been signed with Saga Forsikring for agency services with effect from 1 January 2012.
targets and strategies Pension and savings shall support the Group’s long-term goal of a return on equity of 15 per cent before tax expense: • Growth in assets under management is an important success factor.
Based on gross premiums written 2011 Source: Finance Norway as at 30 september 2011.
operations Gjensidige Bank mainly targets private customers in Norway. The bank is operated from branch offices in Førde and Oslo. Gjensidige Bank ASA is a wholly-owned subsidiary of Gjensidige Bank holding AS, which in turn is a wholly-owned subsidiary of Gjensidige Forsikring ASA. Gjensidige Bank Boligkreditt AS is a wholly-owned subsidiary of Gjensidige Bank ASA.
satisFied cUstoMers The bank works systematically to realise the Gjensidige Group’s vision: ‘We shall know the customer best and care the most’. In 2011, the bank’s customer centre was voted the best in the Norwegian banking sector by Confex/See You, and customer satisfaction is good.
distribUtion Distribution takes place via gjensidige.no, gjensidigebank.no and Gjensidige’s other distribution networks, including 21 financial advice offices that cover all the large towns and cities in Norway.
The bank has agreements with Tekna, the Confederation of Vocational Unions (YS), the Norwegian Society of Engineers and Technologists (NITO) and the Norwegian Farmers and Smallholders Union (NBS), and it offers products and services to these organisations’ members. The bank has access to covered bond financing through Gjensidige Bank Boligkreditt AS.
Market activities The credit card Fordel Kredittkort, which was launched in the third quarter 2011, is offered to customers in Gjensidige Forsikring’s loyalty programme. It is a credit card that includes insurance.
Gjensidige complies with the Financial Supervisory Authority of Norway’s order relating to restrictions on discount product packages.
Gjensidige Bank is a nationwide online retail bank targeting the Norwegian private market. The bank offers banking products adapted to electronic distribution and it is a strategic support area for general insurance operations in Norway.
Interest expenses and similar expenses (455.8) (375.6) (265.8) net interest and credit commission income 430.8 407.0 57.5 Net other financial income 39.0 37.5 16.5 Operating expenses (308.9) (302.1) (147.3) Impairment losses on loans (94.2) (109.4) (3.0) profit/(loss) before tax expense 66.8 33.1 (76.3)
definitions: 1 Net interest = net interest and credit commission income / average assets under management 2 Capital adequacy = own funds / the basis for calculating credit risk, market risk and operational risk
Run-off gains amounted to NOK 308.9 million in 2011, compared with NOK 302.1 million in 2010. The increase was mainly due to costs in connection with the structural reorganisation. The reorganisation was a result of the integration process in connection with the acquisition of a consumer financing business in 2009.
targets and strategies The bank shall support the Group’s long-term target of a return on equity of 15 per cent before tax expense: • Profitable growth • Contribute to strengthening relations with existing insurance customers in the Private and Agricultural market and attract new customer groups to the Group
• Protect the Group’s market shares against competition from bank insurance.
oUtlook Gjensidige’s financial advice offices offer a wide range of financial services, including banking services, which gives the bank considerable distribution reach. In the time ahead, the bank will further develop service models for sales of banking services via Gjensidige Forsikring’s distribution network.
asset manaGement The primary purpose of the investment portfolio is to cover the insurance-related liabilities, and to achieve the Groups target return-on-equity. At the end of 2011, the portfolio was NOK 54,486.7 million.
Bonds at amortised cost 896.6 925.9 816.5 match portfolio total 1,183.5 1,175.4 1,081.6
Bonds at amortized cost 18,407.8 17,814.1 16,543.1 match portfolio total 29,503.4 30,230.2 25,596.9
Free portfolio free portfolio total 20,505.1 17,841.3 21,288.8 investment portfolio total 54,486.7 52,347.0 50,669.1 1) The item includes discounting effects of the insurance liabilities in Denmark and a mismatch between interest-rate adjustments on the liability side in Denmark and the interest-rate hedging.
The investment portfolio consists of three parts: a match portfolio, a free portfolio and associated companies. The match portfolio corresponds to the group’s actuarial provisions. The portfolio is invested in fixed-income instruments whose duration is adapted to 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. Associated companies mainly comprise the holdings in Storebrand and Sparebank 1 SR-Bank.
fixed income instruments Fixed income instruments accounted for NOK 11.3 billion of the free portfolio at the end of 2011. The fixed-income portfolio consisted of five sub-portfolios: money market instruments, currents bonds, investment grade bonds, high yield bonds and convertible bonds. The average duration was approximately 1.4 years at the end of the year. Investment grade, high yield and convertible bonds are investments in externally-managed internationally diversified funds.
net incoMe FroM investMents The return on the investment portfolio amounted to NOK 2,331.3 million in 2011, compared with NOK 2,704.6 million the year before, which corre sponded to a return on financial assets of 4.4 per cent (5.2). The return on financial assets in 2011 included a gain of NOK 113.4 million on the sale of hjelp24.
Match portFolio The return on the hedging portfolio was 3.9 per cent in 2011, excluding changes in the value of the part of the portfolio that is recognised at amortised cost. Unrealised excess value from bonds valued at amortised cost amounted to NOK 382.1 million at the end of 2011.
equity portfolio The return on shares in the free portfolio was negative in the amount of NOK 192.3 million in 2011. This corresponds to a negative return of 14.9 per cent, which can largely be explained by the fall in the stock market in the second half-year. The return on Private equity (PE) was positive and amounted to NOK 178.1 million, or 14.5 per cent.
When valuing the properties at the end of 2011 (excluding sold properties), the same general required rate of return was used as at the end of 2010, i.e. 6.6 per cent. The individual valuations resulted in a write-up of approximately NOK 57 million as a result of adjustments for some properties. The average required rate of return in the portfolio, excluding the properties sold, was 51 per cent at the end of the year. External valuations of 18 individual properties were carried out in the fourth quarter, corresponding to 51 per cent of the property portfolio. As for the shopping centres the offer price from the sales process is used as market vaule by year end.
The equity portfolio: ten per cent fall in share prices1 (77.7) (250.0) (182.5)
The property portfolio: een per cent fall in market rent (486.6) (372.9) (409.7) The property portf.: 25 bp increase in required rate of return (218.4) (221.5) (210.2)
The period’s earning per share (restated for 2009) 5 NOK 5.50 5.90 4.61
Assets under management, savings, additions in the period NOK million 3,681.5 4,016.6 874.6
Assets under management savings at the end of the period NOK million 9,558.7 5,697.2 1,680.6
Value adjusted return on paid-up policies portfolio 12 % 4.96 5.10 7.08
Number of customers (savings) at the end of the period Number 5,145 5,479 7,670
Customers (pension) with insurance agreements at the end of the period. Number 68,677 56,498 43,907
Customers (savings) with insurance agreements at the end of the period. Number 4,219 4,493 6,282 bankinG
Gross lending, at the end of the period NOK million 15,019.0 14,119.5 11,575.6
Deposits at the end of the period NOK million 9,776.0 9,120.0 6,550.4
Customers with insurance agreement at the end of the period Number 47,396 43,764 36,000 1 Return on finanical assets = Net financial income as percentage of average financial assets including property, excluding Gjensidige Bank and Gjensidige Pensjon og Sparing. 2 Return on equity = Profit before tax expence for the period / average adjusted equity for the period. 3 Capital adequacy ratio = net subordinated capital /risk-weighted calculation basis, calculated on basis of NGAAP for the Group. 4 The solvency margin is calculated at company level and in accordance with the rules of the Financial Supervisory Authority of Norway. 5 Earnings per share in the period = the shareholders’ share of the profit or loss for the period/average number of outstanding shares in the period 6 Premiums = earned premiums / gross premiums written (total general insurance operations) 7 loss ratio = claims incurred / earned premiums 8 Cost ratio = insurance-related operating expenses / earned premiums 8 Combined ratio = loss ratio + cost ratio 10 Profit margin savings, in per cent = management income for the period / average assets under management for the period 11 Recognised return on paid-up policies portfolio = realised return on the portfolio 12 Value-adjusted return on paid-up policies portfolio = total return on the portfolio 13 Deposit-to-loan ratio = deposits as a percentage of gross lending.
14 Net interest income in per cent = Net interest income and credit commission income / average assets under management 15 Registered customers include customers who have signed up to be customers during the last three months (started the ’become a customer’ process) and customers that actively use the bank. The method of measurement was changed from 1 January 2009. Prior to this, customer records older than six months were extracted 16 Capital adequacy = primary capital / net primary capital / calculation basis for credit risk, market risk and operational risk
In our modern society, we are exposed to many types of risk that we cannot handle without insurance. On trips abroad, at the wheel of a car or as the owner of a business. Insurance is, in short, critical to society.
Traffic accidents claimed 169 lives in 2011, and 644 people were seriously injured. That was a significant reduction compared with the year before. The fact that this decline is part of a long-term trend is even more important. Nonetheless, far too many lives are still being wrecked on Norwegian roads.
One important way of helping young people to become better drivers is for them to practice with adults. This kind of practice helps them to gain experience under controlled conditions and increases their awareness and understanding. Gjensidige rewards young drivers who participate in the volume training programme.
Gjensidige also contributes to a research project conducted by the University of Oslo and the Norwegian Institute of Transport Economics that aims to measure the effect of the 65+ programme. The preliminary results suggest that the project has led to a reduction in the number of accidents at junctions.
In an average year, house fires claim between 60 and 70 lives in Norway, and they are a source of great distress even when no lives are lost. Fire prevention has been one of Gjensidige’s key tasks throughout the Company’s history. In 2011, 46 people died as a result of fires in Norway, which is an unusually low figure.
Floods and storms resulted in substantial material damage in 2011. Not since 1995 has there been a year in which the claims resulting from natural disasters were as high. Gjensidige believes that man-made carbon emissions cause global warming, and that this will lead to climate change also in our part of the world. Over a number of years, Gjensidige has worked on acquiring new knowledge about the consequences of climate change. The research that we have contributed to indicates that climate change will result in a higher incidence of water damage in Norwegian homes.
In 2011, Gjensidige initiated a debate on how Norwegian municipalities can prepare better for a wetter climate. One important message was that Gjensidige has a lot of data that it can share with the municipalities.
In 2011, Gjensidige’s activities led to 2,658 tonnes of CO 2 emissions, which is a reduction of 370 tonnes in relation to 2010. Environmental emissions from Gjensidige’s activities are modest. All offices with more than 30 employees shall be certified as Eco-lighthouses. At the end of 2011, eleven offices were Eco-lighthouses.
Our consumption of resources is largely related to our land use. In 2011, our activities occupied 66,500 m2, which was approximately the same as in 2010.
Video conferences are an effective means of reducing emissions linked to travel. In 2011, 13,094 hours of video conferences were held, which was an increase of 15.5 per cent on the year before.
We used 211 tonnes of paper, which was 15 per cent less than in 2010. A total of 409,000 customers have chosen to receive documents electronically instead of on paper. This is a increase of 32 per cent in relation to 2010.
Almost all children under the age of 15 now use helmets at ski centres, and there is also a strong increase in the number of adults and adolescents using helmets. Through our cooperation with the Norwegian Ski Area Association, we supply helmets to many ski centres that children and adolescents can borrow free of charge. Over the course of 15 years, Gjensidige has supplied almost 20,000 helmets. The use of helmets has increased by 60 per cent over the last ten years, according to the Norwegian Ski Area Association.
In line with the industry’s requirements, staff who deal with customers shall either be certified financial advisers or have passed the financial sector’s certification scheme examination. At the end of 2011, all investment advisers and sales personnel who have had the opportunity to take an examination were authorised or approved.
a competence-based enterprise Gjensidige aims to reduce risk for its customers so that they can feel safe both at home and when travelling – both before and after a claim. This means that our sales personnel and claims handlers must be professional and have an understanding of the customers’ needs. Miriam Ridola Ellinggard plays an important role in this work. She is head of Gjensidige’s Customer and Brand School.
All sales personnel hired by Gjensidige are given six weeks’ training under the auspices of the Group’s school. The training concludes with an exam, and those who pass attain the status ‘certified insurance adviser’. The participants undergo training in customer needs, insurance and product knowledge, and ethics.
’Ideally, that is where training should take place. At the school, the employees learn how to train,’ says Miriam.
’We have documented that training leads to increased sales and greater customer satisfaction, and that the increase far outweighs the time spent on training. And the effect seems to be reinforced over time. This is important, of course, in relation to the sales personnel’s motivation for devoting time to training. It is also important in relation to Gjensidige’s strategy. We aim to be customer-oriented and have high customer satisfaction. One topic we spend a lot of time on at the school is customer needs. Good sales personnel understand the customer’s needs and offer solutions to meet them. Those who succeed achieve both increased sales and greater customer satisfaction compared with sales personnel who focus too much on the products.’
’We collaborate with external suppliers. They also work with other enterprises and pick up impulses there. We hold regular meetings with other enterprises ourselves at which we exchange experiences.
work, we are on the right track. We have a school board that consists of representatives of our ’customers’, meaning the sales and claims departments. The board meets four times a year and provides input. We hold revision meetings twice a year at which we make any necessary changes to the training programme.’
’People who have been working and achieving good results for a long time do always not see the point of going to school before they start. But they all give very good feedback after attending the school. Everyone learns something, and those with a lot of experience see the value of sharing their know-how with others,’ says Miriam.
’We have 30 members of staff who help out as instructors, in addition to hired and permanently employed teachers. They are very important in relation to ensuring that the tuition offered by the school matches the company’s needs.’
The bombing of the government building complex and the subsequent massacre at the Utøya island on 22 July represented unusually difficult situations for the employees who handled questions and claims from affected customers.
the GjensidiGe academy Gjensidiges Customer and Brand School is a part of the Gjensidige Academy. The Academy is responsible of competence-building in Gjensidige, and includes e-learning av and management training as well.
’being able to achieve things together with my colleagues as a group means that i look forward to going to work every day.’
passionate aboUt Fire prevention Over the years, Odd Rød has burnt down many houses in the name of loss prevention. his fortieth house meets its end in the Indre Vestfold area on a cold November day in 2011. Decades of wear and tear have left their mark on what was once a charming house on a small farm.på et lite småbruk.
Now, the building will perform one last service for society. Odd, who is Department Director Property, Fire at Gjensidige, has set up a TV set and some furniture in a corner of the living room. he has installed smoke alarms in both the living room and the hall on the ground floor of the house. On the upper floor, where all the bedrooms are, two additional smoke alarms have been installed for the occasion. Most houses in Norway do not have that many smoke alarms. But is your house adequately protected? how quickly would you wake up if you were sleeping on the upper floor and the TV caught fire, as conventional TVs sometimes do?
‘The only way of escaping from the upper floor would be to jump out of the window,’ says Odd.
Gjensidige started out as local mutual fire insurers nearly 200 years ago. We are part of the Norwegian cooperation group for fire prevention in schools, which produces educational material for kindergartens and schools. We take part in a house fire prevention campaign every year together with the Norwegian Fire Protection Association and DSB, and we publish a fire prevention calendar in that connection featuring the Norwegian women’s handball team. And Odd will continue to set fire to houses, all in the name of fire prevention.
* Figures for 2011 based on the Board of Directors’ recommendation. ** Figures not comparable .
For the 2010 financial year, the Gjensidige Foundation received NOK 1.5 billion in dividends, which was converted to customers’ dividend. I 2011, the general insurance customers could choose to transfer the dividend to welfare purposes. More than NOK 2.5 million were divided between Norwegian People’s Aid, The Norwegian heart and lung Patient Organization and the Norwegian Council for Road Safety.
Centralised risk management functions that are independent of business operations have been established in the form of Compliance, Risk and Capital Management and the Actuary function. In addition, the internal audit function serves as an additional, independent control level that reports directly to the Board of Directors. These functions are organised on the basis of the principle of three lines of defence.
External reports are prepared on a quarterly basis in accordance with International Financial Reporting Standards (IFRS) and regulations issued by the Financial Supervisory Authority of Norway. The reports are approved by the Board.
Return on equity is the Company’s principal measure of profitability. Equity and return requirements have been assigned to various parts of the business. Profits in excess of the Company’s required rate of return are a measure of the real value creation.
the risk ManageMent FUnction The Department for Risk and Capital Management is headed by a Chief Risk Officer (CRO). It is responsible for monitoring the overall risk situation and the framework for risk management, including internal control and quantification and aggregation of risk.
In 2008, Gjensidige established a Group Risk Committee that focuses on the risk situation for the Group at the overall level. The committee is chaired by the CEO. It is an advisory and investigatory body in connection with the
coMpliance Gjensidige shall comply with all statutes and regulations that apply to its operations. The risk and capital management policy adopted by the Board describes the main principles for compliance and the organisation of the Compliance function. The Compliance function is an independent function that identifies, assesses, advises on, monitors and reports on the Group’s compliance risk. Assessing compliance risk is part of the Group’s annual risk assessment process. Compliance officers have been appointed in all business and support areas and in the subsidiaries.
The Group Compliance Officer is responsible for the Group’s overall control and reporting of compliance risk and any violations of the regulations that apply to the Group. The Compliance function shall contribute to ensuring: • that management and employees have or are given sufficient insight into or an understanding of compliance risk • that statutes, regulations and standards are complied with and, on its own initiative, that the management is informed about all relevant matters that are or may be of material importance to the area of operations in question
The head of the Compliance function reports to the CEO and the Board. The Compliance function is also responsible for the Group’s notification procedures in the event of malpractices and irregularities, and for preventing and investigating such irregularities.
internal aUditing The Group has its own internal auditing function that covers all the Group’s companies. Group Auditing is an independent, objective supervisory function that, on behalf of the boards and the executive management, reviews and assesses whether sufficient, effective and appropriate management and control have been established and implemented in the Group.
GoveRnAnce corporate Governance The Board of Directors’ Report on corporate governance can be found at: page/ Investor relations/Corporate governance
It is based on the Norwegian Code of Practice for Corporate Governance of 21 October 2010, after the latest amendments of 21 October 2011. As the report shows, Gjensidige has organised all aspects of its operations in accordance with the Code of Practice.
Although the external focus on Solvency II has largely been on the changes to the capital requirements, the authorities and Gjensidige’s focus is that this is an overriding risk management project (‘Enterprise Risk Management’, ERM). In addition to the potential commercial consequences mentioned above, the most important focus areas in the Group’s work on adapting to Solvency II are therefore: • Meeting the requirements for approval of the Company’s own capital adequacy assessment (internal model) as the basis for the legal capital requirement
• Ensuring efficient handling of data for use in the internal model, reporting and risk management
The internal model, improved risk management and the increased requirements for external reporting that follow from Solvency II all make great demands on the quantity, quality and availability of data. Data processing and documentation of this processing is therefore a key part of the project. Few industries are as ‘data-intensive’ as the insurance industry, and this work also has positive effects in other areas of the Group.
In 2010, Gjensidige also started work on adapting to new reporting requirements. Solvency II contains new requirements for what is to be reported to the market in general (‘Solvency and Financial Condition Report’) and what is to be reported to the supervisory authorities (‘Reporting To Supervisors’). The purpose of the increased reporting requirements is to give users of the accounting information a better picture of the risks inherent in the operations seen in relation to the available capital, which will help the market to exercise discipline over companies’ risk-taking. The information requirements will be identical within the EU, so that it is easier to compare companies across national boundaries. The challenge for the companies is that the preliminary specifications from the supervisory authorities are very comprehensive, and it will have to be assessed whether such an extensive amount of information is sensible seen in relation to the object of the new regulations.
gUidelines For investor relations Gjensidige shall have an open dialogue with all its stakeholders. Shareholders, potential investors and other players in the financial market shall have access to relevant, supplementary information about the Group’s strategies and financial targets, financial development and financial position.
All financial information and other investor information is made public simultaneously in Norwegian and English. The information on the Group’s website www.gjensidige.com is also available in both Norwegian and English. Gjensidige follows Oslo Børs’ recommendations for reporting IR information.
Gjensidige publishes four reports a year, in addition to the annual report. Silent periods are practised in the last four weeks before interim reporting, which means limited meetings with investors and analysts during this period. Nor will any comments be given to the media or others about the Group’s performance or prospects during such periods. The purpose is to avoid any doubt about any inconsistency in the information provided.
The profit per share in 2011 was NOK 5.50. The Board of Directors proposes a dividend of NOK 4.55 per share. At the turn of the year, Gjensidige had approximately 45,000 shareholders. The total return on the share was 26.6 per cent in 2011.
As of 31 December 2010, Gjensidige had just under 50,000 shareholders.
Share price high 72.55 Share price low 57.00 Share price average 63.70 Share price at the end of the year 69.30 Market value at the end of the year 34,650,000,000
ees of the Gjensidige Group as part of the Group’s share savings programme as approved by the Board. The minimum and maximum amounts that can be paid per share are NOK 20 and NOK 200, respectively. The authorisation is valid until the next annual general meeting, no longer, however, than until 30 June 2012.
The authorisation can also be used to purchase own shares in the market with a nominal value of up to NOK 50,000,000. The maximum and minimum amounts that can be paid per share are NOK 20 and NOK 200, respectively. Own shares purchased in accordance with this authorisation can only be used for cancellation by means of a capital reduction, cf. the Norwegian Public limited liability Companies Act section 12-1, or before this date as consideration in connection with the acquisition of enterprises. The authorisation is valid until the next annual general meeting, no longer, however, than until 30 June 2012.
The authorisation to purchase own shares as part of the Group’s share savings programme has been used, and 257,175 shares were purchased under this authorisation in 2011.
share savings prograMMe In order to increase interest among employees for the Company’s targets and performance, a share savings programme has been established for employees of Gjensidige Forsikring ASA, its branches in Denmark and Sweden and subsidiaries in Norway.
For 2012, the maximum savings amount per year is NOK/ SEK/ DKK 75,000. The Company will cover part of the purchase amount, limited upwards to NOK 1,500 per year. After two years of ownership, the Company will allocate one bonus share for every fourth share bought in connection with this offer.
The next ordinary general meeting will be held at Gjensidige, Drammensveien 288, on 19 April 2012 at 17.00.
The agenda and case documents will be made available on the Company’s website www.gjensidige.com. The documents relating to the general meeting will sent by post to shareholders free of charge if they so request. The documents can be ordered at www.gjensidige.com.
Financial calendar 19 April Annual general meeting 20 April Ex-dividend date 4 May Q1 results 2012 17 July Q2 results 2012 24 Oct. Q3 results 2012 analysts Nineteen brokers now follow Gjensidige and publish estimates and analyses relating to the Company. An updated list of the brokers that follow Gjensidige is available at www.gjensidige.com.
registrar Gjensidige’s registrar is DNB Bank ASA, Verdipapirservice, NO-0021 Oslo. Tel.: +47 22 48 35 90, fax +47 22 48 11 71, email kua@dnb.no
Mats c. gottschalk strategy and m&a Gottschalk (1977) took up the post in December 2011. he came from the investment bank Goldman Sachs International in london, where he worked as an executive director focusing on strategic consultancy services and M&A in the European financial sector. he also has experience from the investment bank J.P. Morgan in london. Gottschalk holds an MSc in industrial economics and technology management from the Norwegian University of Science and Technology (NTNU) and the University of St. Gallen.
jørgen ringdal Group staff/general services Ringdal (1960) has been Executive Vice President of Group Staff/general services since 2006. he joined Gjensidige in 1996 and has been a member of the senior group management since 1999, including having responsibility for finances. he was manager at KPMG from 1993 to 1996 and assistant chief auditor at Norges Bank from 1989 to 1992. he has been chair of the board of Gjensidige Bank Boligkreditt AS since 2010, of Gjensidige Pensjonskasse since 2008 and of Gjensidige Bank holding AS since 2011. Ringdal has a degree in business economics (siviløkonom) from the Norwegian School of Economics (Nhh) and is a state authorised public accountant.
Bjørn Iversen, Chairman (Chairman of the Gjensidige Foundation) Jan Eyolf Brustad, (Chairman of the nomination committee in the Gjensidige Foundation) John Ove Ottestad Benedikte Bettina Bjørn Kirsten I. Værdal representatives for the employees’ members of the supervisory board who participate in the nomination committee’s work of nominating the chairman of the board of directors. Jon Aniksdal Elisabeth Katai Knudsen
ebita Stands for Earnings before Interest, Taxes and Amortisation. The EBITA margin is EBITA as a percentage of the operating income. In Gjensidige, EBITA is employed as a key figure in the health segment.
retUrn on eqUity beFore tax Earnings before tax as a percentage of average equity during the period.
net oF reinsUrance Premiums and claims can be reported “net of reinsurance”; i.e. a deduction is made for the reinsurer’s portion.
gross preMiUMs written Gross premiums written include the amounts the Company has received or is owed as payment for insurance contracts when the insurance period has started.
Underwriting reserves Accounting provision that cover unearned premiums that have fallen due, claims that are expected to be incurred and expected costs related to closure of claims incurred.
iFrs Stands for International Financial Reporting Standards and is an international accounting standard that is in effect in the EEA. Gjensidige has reported its consolidated accounts in accordance with IFRS since 2007.
earned preMiUMs The sum of premiums from all insurance contracts in a given period (the consideration period). If the contract period for an insurance policy deviates from the consideration period, only the portion of the premium that coincides with the consideration period will be included. Earned premiums are calculated on the basis of the date when the premium is recognised as earned in the income statement, regardless of when the premium is paid.
capital adeqUacy Capital adequacy is an expression for creditworthiness that expresses the insurance company’s ability to handle its insurance liabilities. Capital adequacy is calculated as solvency margin capital as a percentage of solvency margin requirements. Solvency margin capital should exceed the solvency margin requirement.
Underwriting Underwriting is the risk and price assessment that is made when drawing up an insurance contract. The underwriting profit is the earnings of the insurance operations and does not include earnings from financial investments.
white label Insurance products sold by agents or other business partners who prefer using their own brand.
trond veGard andersen board member Andersen has been a member of Gjensidige’s Board since 2009, having served as a member of the owners committee for the East Norway area from 2005. Andersen is managing director of Fredrikstad Energi AS (FEAS). he is chair of the board of all the subsidiaries in FEAS and a board member of Værste AS (district development in Fredrikstad). Andersen is a state authorised public accountant and has a degree in business economics (siviløkonom) from the Norwegian School of Economics (Nhh). he also has 13 years’ experience from auditing and consultancy services in PricewaterhouseCoopers. Andersen has attended eleven board meetings.
mari t. skjærstad board member Skjærstad was elected to the Board of Directors of Gjensidige in 2010. She is a partner in the law firm Johnsrud, Sanderud & Skjærstad AS. Skjærstad is chair of the board of, among others, Furnes-hamjern SCC AS, hedmark Trafikk FKF, BoligPartner AS and Norsk Forening for Kollek tivtrafikk, and is a board member of Mesta AS, Scana Industrier ASA and Østlandsforskning AS, among others. Skjærstad has a law degree from the University of Oslo. Skjærstad has attended nine board meetings.
per arne bjørGe board member Bjørge was elected to the Board of Directors of Gjensidige in 2011. Bjørge is a consultant and general manager of PAB Consulting AS in Ålesund. he is a board member of the Gjensidige Foundation, chair of the board of Borgund Invest AS, PAB Consulting AS, Tanux Shipping KS, Tanux Shipping AS, havskjer AS and havstål AS, and a board member of 3D Perception AS. he has previously worked in auditing and in management positions in banking, including as regional bank manager in Kreditkassen (now Nordea). Bjørge has a bachelor’s degree in business economics and management, is a graduate of the Bank Academy and has completed AFF’s management programme. Bjørge has attended five board meetings.
Gisele marchand board member Marchand was elected to the Board of Directors of Gjensidige in 2010. Marchand is the managing director of Eksportfinans ASA and has previously held various positions, including as managing director of the Norwegian Public Service Pension Fund and Executive Vice President of the corporate and private customer markets in Norway in DnB NOR. She is currently deputy chair of the board of Oslo Børs VPS holding ASA and a board member of Oslo Børs AS, deputy chair of the board and chair of the audit committee of Norske Skogindustrier ASA, board member of the Norwegian Refugee Council, deputy chair of the board and chair resU lts
Gunnar Mjåtvedt of the audit committee of Fornebu Utvikling ASA and a board member of GIE K Kredittforsikring AS. Marchand has been chair of the board of Kommunekreditt AS, and has served as a board member of, among others, Innovation Norway and ED B Business Partner ASA. Marchand has a degree in business economics (siviløkonom) from the Copenhagen Business School. Marchand has attended eleven board meetings.
Gunnar mjåtvedt board member Mjåtvedt was elected to Gjensidige’s Board of Directors as an employee representative in 2007. he is chief employee representative in Gjensidige. Mjåtvedt’s background is in sales and management, and he has more than 20 years’ experience from the industry. Mjåtvedt has attended eleven board meetings.
Gunnhild h. andersen board member Andersen has been an employee representative on Gjensidige’s Board since 2008. She is a customer adviser in Gjensidige and has more than 20 years’ experience in the insurance field. Andersen is the main employee representative for the Claims and ICT Department and is also a member of the Finance Sector Union of Norway’s Østfold branch. Andersen has attended eleven board meetings.
In Norway, Gjensidige’s largest segment, Private, delivered excellent results in 2011, and the Commercial segment rationalised underlying operations through a new distribution model and other measures that contributed to growth in premiums. International operations are on the right track following targeted portfolio management. The Norwegian support areas, Pension and savings and online retail banking, developed positively in 2011. Pensjon and savings achieved a profit before tax expense for the first time.
OPERATIONS Gjensidige Forsikring ASA’s (Gjensidige Forsikring) head office is in Oslo. Gjensidiges mission is to safeguard life, health and assets for customers in the private and commercial markets by offering competitive insurance pro­ ducts and other related services. Gjensidige Forsikring is the parent company of the Gjensidige Group (Gjensidige).
Gjensidige is one of the leading general insurance companies in the Nordic countries, and the biggest Norwegian­owned general insurance player in the Norwegian, Danish, Swedish and Baltic markets. The general insurance operations include both general insurance and accident and health insur­ ance, and more than 78 per cent of the business is related to activities in the Norwegian market. The Norwegian general insurance operations also in­ clude life insurance, which is pure risk insurance with a duration of no more than one year. Group life insurance is the biggest product in this category.
In the private market, the Group offers motor, property, accident and health insurance and other insurance products such as travel and leisure insurance. In the commercial markets, which in Norway also include municipalities, municipal undertakings and agriculture, Gjensidige offers insurance products relating to motor vehicles, property, accident and health, liability, agriculture and marine/ transport. Customer services in Norway are organised in two segments: Private and Commercial. Both segments operate on the basis of a multi­channel strategy to ensure cost efficiency and customer satisfaction. The distribution models enable customers to choose whether they wish to have contact with Gjensi­
TARgETS ANd STRATEgIES Product simplification and self­service solutions are key elements of the strategy for profitable operations and high customer satisfaction. Distri­ bution in the private market is being rationalised. At the same time, a new office concept is being developed for the largest towns and cities, focusing on advisory services.
Two group­wide initiatives will help the Group to achieve the position as the most customer­oriented general insurance company in the Nordic countries: ­ the Gjensidige 2.0 programme, which includes several projects aimed at simplifying products and work processes and facilitating self­service solutions for both the private and the commercial market.
businesses also must deliver results that satisfy the Group’s combined ratio target within two to three years of the acquisition.
Sound capitalisation forms the basis for the Board’s dividend policy. The target is that between 50 and 80 per cent of the profit for the year after tax expense will be distributed as dividend. The dividend policy and the Board’s proposal for dividend for the 2011 financial year are commented on in more detail in the section on allocation of the profit before other income and expenses.
Until 2008, the Group’s target was an average combined ratio of 97 per cent for the Norwegian general insurance operations. The target was changed to a combined ratio of between 90 and 93 per cent from 2011 for the overall general insurance operations. The combined ratio for the general insurance operations was 91.9 per cent in 2011, which is within the stipulated range.
Both the pension and savings operations and the banking operations are still in a start­up phase.
MARkET POSITION Gjensidige was the leading player in Norwegian non­marine general insurance in 2011 with a market share of 26.3 per cent, of a total market of NOK 45.6 billion, down from 27.9 per cent in 2010. (Source: Finance Norway ) The change is mainly due to increasing competition combined with strategic customer selection, which is in line with the strategy of prioritising profitability over growth. The Company had a market share of 23.8 per cent in the private market at the end of 2011. In the commercial market, which from 2011 also includes agricultural insurance products, the market share was 32.0 per cent. In the agricultural market seen in isolation, the market share was 71.2 per cent of a total market of NOK 1,218 million.
The market shares in Denmark and Sweden were 5.9 per cent (based on the most recent statistics from the Danish Insurance Association (as of 31.12.2010) and 1.2 per cent, respectively (source: Insurance Sweden, statistics as of 31.12.2011).
In the Baltic general insurance market, Gjensidige had a market share of 7.5 per cent in 2011 (source: Insurance Supervisory Commission of the Republic of Lithuania, Latvian Insurers Association, Statistics Estonia).
cuSTOMER ORIENTATION Customer orientation is the core of Gjensidige’s strategic positioning. This is rooted in the Group’s vision: ‘We shall know the customer best and care the most’. In a highly competitive market, good customer service and follow­up will become increasingly important in order to stand out from the competi­ tion and achieve customer satisfaction and loyalty.
In 2012, new customer portals and digital campaigns will be developed to increase relevant traffic to Gjensidige’s website. The new brand strategy will be finalised in 2012, based on Gjensidige’s unique characteristics and advantages, and a new visual identity will be developed to help the Group position itself and increase its impact in digital channels.
The roles between the different channels have been redifened in recent years. Sales centres (outbound call centres) have been established to rationalise new sales, and 20 branch offices have been upgraded to financial offices offering advisory services in insurance, banking, pensions and savings.
In the municipal market, distribution largely takes place either directly or via brokers and it is largely based on competitive tendering.
The most important distribution channels in the Baltic market are direct sales and sales via insurance agents and brokers. Sales via the internet are also becoming more widespread in the Baltic market.
Sale of Hjelp24 The health care company Hjelp24 was sold to Hercules Capital in August 2011 for NOK 315.8 million. The sale resulted in a gain of NOK 113.4 million. The business relationship between Gjensidige and Hjelp24 will continue as before.
cHANgES IN FRAMEwORk cONdITIONS Solvency II Throughout 2011, Gjensidige continued its preparations for the Solvency II regulations. They will entail new requirements for calculating capital require­ ments, risk management and the reporting of the risk and capital situation in European insurance companies. The Solvency II regulations are still under development. It is assumed that the regulations will be implemented in Nor­ wegian law with effect from 1 January 2013, while the capital and reporting requirements will have full effect from 1 January 2014.
The Banking Law Commission is working on adapting private occupational pension schemes to the pension reform. The Official Government Report
STATEMENT ON THE ANNuAl AccOuNTS Gjensidige reports consolidated financial information pursuant to Inter­ national Financial Reporting Standards (IFRS).
Pursuant to requirements in Norwegian accounting legislation, the Board confirms that the requirements of the going concern assumption have been met and that the annual accounts have been prepared on this basis.
PROFIT/lOSS The Gjensidige Forsikring Group had an underwriting result in its general insurance operations of NOK 1,421.0 million in 2011, compared with NOK 796.3 million in 2010. The Group’s profit after tax expense was NOK 2,747.9 million, compared with NOK 2,950.4 million in 2010. The profit for the year corresponds to a return on equity before tax expense of 15.9 per cent, compared with 14.4 per cent in 2010. The profit per share (basic and diluted) was NOK 5.50, compared with NOK 5.90 in 2010.
The combined ratio was 91.9 per cent, compared with 95.3 in 2010. The combined ratio for 2011 was affected by major weather­related events in addition to certain non­recurring effects, and the underlying insurance operations recorded a satisfactory result.
Operating income Earned premiums for general insurance operations amounted to NOK 17,548.1 million in 2011, compared with NOK 17,063.3 million in 2010, which corresponds to an increase of 2.8 per cent.
The match portfolio consists of fixed­income instruments such as money market instruments, bonds at amortised cost and current bonds. The portfolio made a stable contribution to the positive return during the year. For 2011, the return on the match portfolio amounted to NOK 1,183.5 million, compa­ red with NOK 1,175.4 million in 2010, corresponding to a return of 3.9 per cent and 4.0 per cent, respectively. Lower interest rates throughout the year were counteracted by a widening of credit spreads.
The classification of indirect claims settlement costs in the Norwegian insur­ ance operations was changed from the fourth quarter 2011. Unlike before, indirect claims settlement costs, for example a share of ICT, management and rent costs, are now classified as claims settlement costs. The reclassi­ fication amounted to NOK 43.5 million in 2011. The new classification will increase the loss ratio in future by approximately 0.9 percentage points on a yearly basis and lead to a corresponding reduction in the cost ratio. The reclassification therefore has no effect on the combined ratio, nor does it entail any changes in previously communicated financial targets.
The run­off gain for previous claim years was somewhat higher in 2011 than in 2010, which had a positive effect on the development of the loss ratio. In 2011, the net run­off gain was NOK 366.3 million, or 2.1 per cent of earned premiums. The corresponding figures for 2010 were NOK 301.1 million and 1.8 per cent, respectively. The run­off gain in 2011 was primarily related to a positive development in previous years’ provision for claims for accident and health insurance, in both the Norwegian and the Danish part of the business.
Work has been carried out in 2010 and in 2011 to further improve claims settlement processes. The goal is to improve customer satisfaction while reducing the Company’s total claims payments. The aim is to contact custo­ mers more quickly when a claim arises, while at the same time reducing case processing times considerably through improved internal processes
The pension and savings operations had total operating expenses of NOK 151.6 million in 2011, of which NOK 104.3 million was related to the insurance business. The corresponding figures for 2010 were NOK 156.7 million and NOK 109.6 million, respectively. The operating expenses for the banking operations amounted to NOK 308.9 million in 2011, compared with NOK 302.1 million in 2010.
BAlANcE SHEET ANd cAPITAl BASE The Group’s balance sheet total at the end of 2011 was NOK 88,491.9 mil­ lion, compared with NOK 84,106.8 million in 2010. This increase was mainly attributable to growth in the Pension and savings segment. Gjensidige’s equity amounted to NOK 23,228.6 million as of 31 December 2011, compared with NOK 23,137.8 million at the turn of the previous year. This corresponded to an increase in equity of 0.4 per cent in 2011.
The Group’s capital adequacy was 16.2 per cent at the end of 2011, com­ pared with 16.1 per cent at the end of 2010. The statutory requirement is eight per cent.
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 746.0 million in various private equity investments and real estate funds, in addition to the amounts recognised in the balance sheet. In order to increase the effectiveness of capital and risk management, the Group enters into financial derivative contracts on a regular basis. They are described in more detail in the notes to the accounts.
The net cash flow from investment activities mainly consists of payments made/received on the acquisition of subsidiaries and associated companies, owner­occupied property, plant and equipment, plus dividend from associa­ ted companies. The net cash flow from investment activities was positive in the amount of NOK 350.1 million in 2011, compared with a negative cash flow of NOK 2,808.2 million in 2010.
THE SEgMENTS PRIvATE NORwAY The segment offers general insurance relating to motor vehicles, property and accident and health in the Norwegian private market. In 2011, the portfolio of insurance policies sold under other brands (White Label) was transferred to the Private Norway segment, while the agriculture portfolio was moved to the Commercial Norway segment.
Earned premiums amounted to NOK 8,082.8 million in 2011, an increase of 4.7 per cent on the year before. The development in earned premiums in 2011 reflects the effect of implemented premium increases. New premium rates for motor and property products ensure more correct pricing of risk. In October 2011, new tariff rates were introduced for travel insurance.
Claims incurred amounted to NOK 5,670.9 million in 2011, compared with NOK 5,895.5 million in 2010. The loss ratio was 70.2. Adjusted for the reclassification of indirect claims settlement costs, the loss ratio would have been 69.9. The loss ratio in 2010 was 76.4. During the first months of the year, the proportion of winter­related claims was considerably lower than in the same period in 2010, and the claims trend for property insurance (excluding natural disaster claims) was therefore substantially improved. The level of compensation for motor, leisure and accident and health insurance was lower in 2011 than in 2010. Three significant natural disaster claims events – the flood in June and two storms at the end of the year – led to total claims incurred of NOK 100.0 million in 2011.
In 2011, large losses accounted for NOK 15.0 million of the claims incurred, while no large losses occurred in 2010. Run­off gains were somewhat higher in 2011 than in 2010, which had a positive effect on claims incurred.
Earned premiums in 2011 amounted to NOK 5,411.9 million, an increase of 0.2 per cent compared with 2010. The increase mainly concerned agricul­ ture, property and assets. Accident and health and motor insurance saw a reduction, partly because of the controlled termination of some customers in order to improve the profitability of accident and health products. The introduction of multi­channel distribution in the first half­year 2011 had a positive effect on sales activity and earned premiums during the year.
Claims incurred in 2011 amounted to NOK 4,283.4 million, compared with NOK 4,339.6 million in 2010. This corresponds to a loss ratio of 79.1 and 80.3, respectively. The reclassification of indirect claims settlement costs had a negative effect on the loss ratio of 0.3 percentage points. Systematic risk management and customer selection made a positive contribution. Despite several large fire losses in the second half­year, the agriculture product showed an improvement in the claims trend in 2011 compared with 2010, which was affected by many frost and winter­related claims in 2010. New tariffs and changes in the portfolio led to considerable improvements in motor insurance claims. In addition, the level of accident and health claims was low. The num­ ber of natural disaster claims was unusually high in 2011, the highest since 1992. The claims were related in particular to the flood in June and the storms Berit and Dagmar at the end of the year. Together, these three events were charged to income in the amount of NOK 145.1 million.
Large losses amounted to NOK 281.6 million in 2011, while they accounted for NOK 251.4 million during the corresponding period in 2010. The run­off gain was somewhat lower in 2011 than in 2010.
The cost ratio for 2011 was 13.6 (12.8). Corrected for the reclassification of in­ direct claims settlement costs, the cost ratio for the year would have been 13.9. The nominal expenses increased by NOK 41.1 million. The increase in nominal expenses was due to a non­recurring effect relating to reorganisation in the first half­year 2011, which was counteracted by the reclassification of indirect claims settlement costs. The recognition of income in connection with the AFP scheme in 2010 reduced the cost ratio in 2011 by 0.5 percentage points.
The combined ratio for 2011 was 92.7 per cent, compared with 93.2 in 2010. The underwriting result amounted to NOK 394.4 million in 2011, compared with NOK 368.5 million the year before.
Earned premiums in 2011 were NOK 3,635.0 million, compared with NOK 3,453.1 million in 2010. The increase was primarily due to higher volumes following the acquisition of Nykredit Forsikring. Changes in the exchange rate had a negative effect of NOK 61.6 million on earned premiums in 2011 compared with 2010. In addition, reinsurance costs in the amount of NOK 65.5 million relating to reinstatement were charged to earned premiums in 2011. Moreover, the focus on profitability has led to losses of customers in the commercial portfolio during the year.
Claims incurred amounted to NOK 2,933.3 million in 2011, compared with NOK 2,882.7 in 2010. This resulted in a loss ratio of 80.7 in 2011, compared with 83.5 the year before. There was a higher percentage of weather­related claims than expected during the period. The torrential downpour in Copenhagen in July was charged to income in the amount of NOK 83.7 million. The figures were also affected by two storms in February and November. Large losses amounted to NOK 132.4 million, compared with NOK 153.8 million in 2010. The run­off gain was significantly higher in 2011 than in 2010, which affected claims incurred positively.
The cost ratio was 17.2 in 2011, down by 1.3 percentage points from the year before. The nominal operating expenses were NOK 14.6 million lower than in 2010. This development was due to increased costs as a result of greater business volume and exchange rate effects, combined with cost re­ ductions as a result of the realisation of synergies following the acquisition of Nykredit Forsikring. Identified cost synergies were fully realised at the end of 2011. Continuous efforts are being made to further improve the efficiency in Nordic business.
The combined ratio for 2011 was 97.9 per cent, compared with 102.0 in 2010. The underwriting result amounted to NOK 75.6 million in 2011, compared with a loss of NOK 70.4 million in 2010.
BAlTIcS Gjensidige’s Baltic operations provide general insurance products to the private and commercial markets in Latvia, Lithuania and Estonia.
Claims incurred amounted to NOK 270.7 million in 2011, compared with NOK 305.3 million in 2010. The loss ratio was 68.4, compared with 66.5 the year before. A high number of winter­related claims had a negative effect in the first quarter in both 2011 and 2010. Analyses of several years show that seasonal variations in the Baltics are becoming stronger. There was also one large fire loss and several medium­sized claims during the year. Large losses charged to the segment amounted to NOK 3.9 million in 2011, while no large losses oc­ curred in 2010. The run­off gain in 2011 was somewhat lower than in 2010.
The cost ratio for 2011 was 30.9 (29.8). The nominal operating expenses amounted to NOK 122.2 million, a reduction of NOK 14.5 million compared with 2010. Together with a lower business volume, cost­cutting measu­ res implemented in the past two years helped reduce operating expenses despite higher direct and indirect taxes.
The combined ratio for 2011 was 99.2 per cent, compared with 96.2 in 2010. The loss and cost ratio are still among the best in the industry in the Baltic states. The underwriting result amounted to NOK 3.0 million in 2011, compared with NOK 17.4 million the year before.
Management income in the savings operations amounted to NOK 31.3 million in 2011, compared with NOK 22.4 million in 2010. The increase in income is due to an increase in assets under management and an increase in other management income. The profit margin for savings was 0.41 per cent in 2011, compared with 0.61 per cent in 2010. The reduction was due to an increasing proportion of large customers with lower margins.
The profit before tax expense amounted to NOK 15.1 million in 2011, com­ pared with a loss before tax expense of NOK 27.9 million in 2010.
Total assets under management amounted to NOK 17,747.7 million at the end of 2011, up from NOK 12,371.3 the year before. Assets under mana­ gement in the pension operations amounted to NOK 8,188.9 million. The group policy portfolio accounted for NOK 2,620.6 million of this amount. Assets under management in the savings operations amounted to NOK 9,558.7 million at the end of 2011.
ONlINE RETAIl BANkINg Gjensidige Bank is a bank for customers in the private and agricultural mar­ ket in Norway. The bank offers day­to­day banking services, secured loans and consumer financing.
Operating expenses for 2011 amounted to NOK 308.9 million, compared with NOK 302.1 million in 2010. The increase was mainly due to costs relating to structural reorganisation as a result of the integration process in connection with the acquisition of a consumer financing business in 2009.
In 2011, the bank expensed NOK 94.2 million in impairment losses and losses on loans. The decrease of NOK 15.2 million compared with 2010 was due to an improvement in the development of the loan portfolio. Total losses and im­ pairment losses are mainly related to increased group impairment losses inten­ ded to cover potential bad debts. The loss situation is in line with expectations.
Deposit-to-loan ratio The deposit­to­loan ratio was 65.1 per cent at the end of 2011, up from 64.6 per cent at the end of 2010. The deposit­to­loan ratio is deemed to be satisfactory.
16.1 per cent at the end of the previous year. The bank’s target is to have core capital adequacy of at least 12 per cent.
Risk management is based on specified targets and strategies and the limits on risk exposure stipulated by the Board. The primary responsibility for good risk management and internal control rests with the first­line management, the CEO and all managers and employees in the operational units, who carry out their work in accordance with the authorisations, instructions and guidelines that ap­ ply to each of them. A risk management function has been established at group level. It is responsible for monitoring the Group’s risk management system and for maintaining an overview of the risks that the Group is or may be exposed to. The risk management function shall ensure that the Group management and the Board have sufficient information about the Group’s risk profile at all times. The Group has a moderate risk profile whereby, in the Board’s view, no individual events will be capable of seriously harming the Company’s financial position.
In the insurance market, Gjensidige is challenged by both traditional Norwegian financial institutions and new players. Loss of business combined with reduced profitability in the insurance operations would have a negative effect on the return on equity and other key figures. Emphasis is therefore placed on Gjensidige’s ability to quickly adapt to consumers’ wishes for new service channels, and its ability to utilise modern technology and support systems in an efficient manner. Continuous efforts are made to develop new, customer­ adapted products and service solutions, at the same time as the organisation, processes and value chains are reviewed and standardised to reduce costs and achieve greater efficiency.
The customers have increasingly high expectations of our employees’ exper­ tise. There is a risk that inadequate or insufficiently adapted expertise will reduce our chances of realising commercial and strategic ambitions. There is also competition to attract and retain capable employees. Active and targeted work is therefore carried out on improve skills and motivation at all levels of the organisation. Competence requirements have been defined for different roles. The Gjensidige Academy offers training of sales personnel, claims handlers and managers based on the Group’s business and brand strategy. Performance­based remuneration models have been introduced for groups of employees, as well as individual scorecards. Targeted work is being carried out on culture and management development and on firmly establishing requirements and expectations of managers and employees.
The Board stipulates annual limits for the Group’s reinsurance programme. The limits are decided on the basis of the need to protect the equity against loss events over and above an amount deemed to be justifiable, and of the need to reduce fluctuations in earnings. The insurance risk is deemed to be moderate based on the reinsurance coverage the Group has purchased. The reinsurance pro­ gramme is described in more detail in Note 3 to the consolidated annual accounts.
The Group’s actuarial function carries out calculations and assessments of the actuarial provisions and develops and maintains adequate models and methods for estimating claims that have occurred but that have not yet been reported to the Group. There is a considerable inherent risk of the provisions being inadequate, but the Group works continuously to improve actuarial methods, and external actuaries are used from time to time to conduct independent reviews of the provisions.
FINANcIAl RISk Gjensidige had NOK 54.5 billion in financial investments (insurance operations) as of 31 December 2011. They mainly consisted of fixed income instruments, property, equities and strategic and financial holdings in associated companies. The investments are exposed to changes in macroeconomic factors.
The Board’s stipulation of strategic asset allocations and a dynamic risk management model set limits that enable risk to be adjusted to changed macroeconomic assumptions. The follow­up of price, interest rate and cur­ rency risk partly takes place through stress tests, where the buffer capital must be sufficient to be able to withstand sharp simultaneous falls in equity and bond prices. For more detailed information about financial risk and stress tests, see Note 3 to the consolidated accounts.
Limits have been defined for the necessary access to liquid assets. They are taken into account in the strategic asset allocation. The liquidity risk is consi­ dered 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 set limits for the credit operations. Credit losses have been insignificant so far. Out standing claims against the Group’s reinsurers may also represent a consi­ derable credit risk. Counterparty risk in the reinsurance market is continuously assessed. The Group’s reinsurers shall at least have a Standard & Poor’s A rating or equivalent from one of the other reputable rating companies.
In the Board’s opinion, carrying out socially responsible operations and maintaining high ethical standards are preconditions for the general public’s trust and our long­term commercial success.
The Board has adopted guidelines setting out goals and limits for the Company’s commitment to social responsibility, including guidelines for socially responsible investments. The guidelines are available at www.gjensidige.com.
The Group’s operations result in minimal pollution of the natural environment. The Group’s environmental measures focus on energy efficiency, reduced tra­ velling through increased use of video conferencing, standardised duplex prin­ ting for printers/photocopiers and responsible waste management. In order to reduce paper consumption and benefit the environment, measures have also been implemented to increase the use of electronic insurance documents.
Gjensidige’s head office at Sollerud was certified as an Eco­Lighthouse already in 2008, and several other offices have achieved the same status in recent years. The work on certifying the Group’s branch offices was completed in spring 2011. All branch offices that have more than 30 employees are now certified Eco­Lighthouses. Gjensidige works continuously to learn more about climate change and the consequences it may entail. Purchasing carbon offsets has been one of the instruments used in the Company’s environmental efforts.
HuMAN RESOuRcES dEMOgRAPHIcS ANd EquAl OPPORTuNITY The Group had 3,116 employees at the end of 2011, 1,969 of whom work in the Norwegian general insurance business.
The average age in the parent company was 44.4 as of 31 December 2011, the same as the year before. Average seniority also remained unchanged at 12.2 years. Cooperation with the employees and the Finance Sector Union of Norway continued to be good in 2011. The Cooperation and Working Environment Committee held regular meetings.
THE gjENSIdIgE AcAdEMY ANd cOMPETENcE-RAISINg The Gjensidige Academy reflects Gjensidige’s focus on management and employee development. The Academy’s training programmes are closely related to the Group’s strategy and shall support the Group’s ability to implement rapid restructuring and development.
Gjensidige’s Customer and Brand School is the Academy’s training centre for all managers and personnel who deal with customers. The School’s program­ mes are intended to help to ensure that customers who have dealings with Gjensidige employees regard it as a positive experience. This is achieved by creating a training culture in which training is a natural part of the working day. This focus is having a positive effect on work quality and work effort, internal motivation and greater job satisfaction, which was verified by a rese­ arch project conducted in collaboration with BI Norwegian Business School.
The Customer and Brand School, which is a part of the Gjensidige Academy, had 4,500 course days in 2011, compared with 5,600 in 2010. The number of exams passed by sales personnel and claims handlers was 370.
In the Private segment, the exam for sales personnel leads to authorisation pursuant to Finance Norway’s (FNO) scheme. Gjensidige’s programme is more comprehensive than the industry’s approval scheme. The school also holds corresponding in­house exams for claims handlers and the Commercial segment in Norway to ensure that all employees who deal with customers have a high level of expertise. Since the start in autumn 2009, a total of 909 managers and employees have passed exams at the school. In 2011, 264 customer advisers from Commercial and Agriculture also passed the Company’s theoretical approval test.
For many years, e­learning has formed an important part of Gjensidige’s trai­ ning strategy. There has been considerable development in this field. One of
the important roles of e­learning is to support the Group in connection with the implementation of new work processes and continuous improvement, by ensuring a good educational approach to training in the different fields. Further focus on e­learning is an important element in the realisation of Gjensidige’s ambitious competence­raising goals.
The e­learning team became part of the Gjensidige Academy organisation in October 2011. In 2011, 620 people have taken and passed certification tests that meet industry and in­house theoretical requirements, and 14,000 e­learning courses have been completed.
At the same time, several management courses have been held for Commercial, Claims handling and Private.
There will be continued focus in 2012 on the development of the Gjensidige Academy, including management and employee programmes that apply to the whole Group. In 2012, programmes will be undertaken to develop the management teams, and a senior management programme will be estab­ lished for executive management levels. The work on training adaptable managers will continue at the same time, and training programmes will be established in new work and cooperation methods that are based on efficient use of the new technology introduced. The goal of creating better customer experiences will form the basis for all management training in Gjensidige.
SYSTEMATIc wORk ON HEAlTH, SAFETY ANd THE ENvIRONMENT (HSE) Systematic HSE work is well­integrated in the organisation. A continuous focus on topics such as the follow­up of sickness absence, written follow­up, the development and integration of new systems and further development of new electronic manuals all help to reduce sickness absence. Cooperation with Hjelp 24 (the Group’s corporate health service supplier) and the Norwegian Labour and Welfare Administration (NAV) has been further improved in the course of 2011.
Efforts are made to ensure that all employees are given the same oppor­ tunities for personal and professional development, and that everyone is treated equally regardless of gender, age, ethnic origin and functional ability. Recruitment and HSE procedures shall ensure compliance with the Anti­ discrimination and Accessibility Act.
SENIOR POlIcY Gjensidige has an active senior policy that aims to get as many employees as possible to work until the age of 67. In 2011, the Company’s senior policy measures were adapted to accommodate changes in the pension reform. The measures include individual agreements to work 90 per cent with full pay bet­ ween the ages of 59 and 62 for employees who need a lighter workload, one extra week’s holiday from the age of 60 and full or partial early­retirement pension (AFP) or reduced working hours from the age of 62. The Company will in particular try to customise competence and training measures for senior employees, so that they remain a valuable labour resource for the Company.
Sollerud, 7 March 2012 The Board of Directors of Gjensidige Forsikring ASA
ers now have their own general insurance companies. The measures that have been implemented in recent years mean that Gjensidige is in a good position to meet this competition. The growth in premiums in Gjensidige’s Norwegian general insurance operations in 2012 is mainly expected to come from implemented and planned premium measures, and Danish and Swedish general insurance operations are expected to contribute most to growth in 2012. The economic outlook for the Baltic countries is slightly more positive, and a gradual improvement is expected in the total market for general insurance.
AllOcATION OF PROFIT BEFORE OTHER INcOME ANd ExPENSES The Group’s profit after tax expense amounted to NOK 2,747.9 million. The Board has adopted a dividend policy that forms the basis for the dividend propo­ sals that are submitted to the general meeting. Gjensidige shall have a competi­ tive dividend policy in relation to comparable investments. When determining the size of the annual dividend, consideration shall be given to the Group’s capital needs, including capital adequacy requirements, and its targets and strategic plans. Unless the capital need indicates otherwise, the Board’s target is that between 50 and 80 per cent of the profit for the year after tax expense will be distributed as dividend. The Board proposes that an ordinary dividend of NOK 2,275.0 million be distributed for the 2011 financial year, corresponding NOK 4.55 per share.
The Board also wishes to thank all its employees for their efforts and contri­ bution to Gjensidige’s results in 2011.
Income statement..........................................................................................132 Balance sheet .................................................................................................134 Statement of changes in equity ....................................................................136 Statement of cash flows ...............................................................................137 Accounting policies ........................................................................................138 notes 2 Use of estimates .................................................................................145 3 Management of insurance and financial risk .....................................145 4 Premiums and claims etc. in general insurance ..................................146 5 Intangible assets ..................................................................................148 6 Shares in subsidiaries and associates .................................................150 7 Owner-occupied property, plant and equipment ...............................152 8 Investestment property .......................................................................153 9 Financial asset and liabilities ...............................................................154 10 Loans and receivables .........................................................................158 11 Cash and cash equivalents ..................................................................158 12 Shares and similar interests.................................................................159 13 Insurance-related liabilities and reinsurers’ share...............................161 15 Provisions and other liabilities .............................................................166 18 Salaries and remuneration ...................................................................169 19 Net income from investments ............................................................174 20 Contingent liabilities ............................................................................175 21 Related party transactions ..................................................................175 22 Events after the balance sheet date ..................................................178 23 Capital ratio ..........................................................................................178 24 Solvency margin ...................................................................................179 25 Restricted funds ..................................................................................179 26 Restricted funds ..................................................................................179 27 Share-based payment .........................................................................180
Declaration from the Board of Directors and the CEO ................................182 Auditor’s report .............................................................................................183 Statement by the Control committee ...........................................................185 Statement by the Supervisory board ............................................................186
results 67 Gjensidige Annual Report 2011 consolidated statement of comPReHensiVe income NOK million 1.1.-31.12.2011 1.1.-31.12.2010
Profit/(loss) for the year 2,747.9 2,950.4 components of other comprehensive income Exchange differences (5.9) (19.4) Share of other comprehensive income of associates (48.2) 17.6 Actuarial gains and losses on pension (339.8) (118.0) Tax on other comprehensive income 89.8 (28.5) total components of other comprehensive income (304.2) (148.4)
Gisele Marchand Gunnar Mjåtvedt Mari T. Skjærstad Randi B. Sætershagen Helge Leiro Baastad CEO
Shares and similar interests 9, 12 4,021.7 4,282.9 Bonds and other securities with fixed income 9 19,747.1 18,389.9 Bonds held to maturity 9 11,693.4 14,497.5 Loans and other receivables 9 24,456.5 19,537.8 Assets in life insurance with investment options 10 5,542.1 4,503.6 Reinsurance deposits 0.8 0.6 Reinsurers' share of insurance-related liabilities in general insurance, gross 13 1,022.8 487.0 Receivables related to direct operations and reinsurance 10 3,791.1 3,585.1
Prepaid expenses and earned, not received income 10 108.9 84.5 Cash and cash equivalents 11, 25 3,513.3 2,889.9 total assets 88,491.9 84,106.8 eQUitY and liaBilities equity Share capital 999.9 999.9 Premium reserve 1,430.0 1,430.0 Other equity 20,798.7 20,707.9
Liabilities in life insurance with investment options 15 5,542.1 4,503.6 Accrued expenses and deferred income 9, 15 262.2 210.7 total liabilities 65,263.4 60,969.1 total eQUitY and liaBilities 88,491.9 84,106.8
Share of other comprehensive income of associates 17.6 17.6 Actuarial gains and losses on pension (118.0) (118.0) Tax on other comprehensive income (28.5) (28.5) total components of other comprehensive income (19.4) (118.0) (10.9) (148.4)
results Gjensidige Annual Report 2011 consolidated statement of casH flows noK million 1.1.-31.12.2011 1.1.-31.12.2010 cash flow from operating activities Premiums paid, net of reinsurance 20,380.9 20,166.5 Claims paid, net of reinsurance (13,307.5) (12,970.2)
Net payment of deposits from customers 656.2 2,569.6 Payment of interest from customers 848.3 731.8 Payment of interest to customers (281.5) (208.1) Net receipts/payments on premium reserve transfers (235.5) (142.6) Net receipts/payments from financial assets (2,095.0) 933.6 Net receipts/payments from properties 1,131.3 (88.8) Operating expences paid, including commissions (3,540.1) (3,932.9) Taxes paid (364.5) (1,155.2) Net other receipts/payments 381.2 642.9 net cash flow from operating activities 2,716.1 4,057.3 cash flow from investing activities Net receipts/payments from sale/aquisition of subsidiaries and associated companies 229.6 (2,629.9) Net receipts/payments on sale/aquisition of owner-occupied property, plant and equipment (56.9) (214.5) Dividends from associated companies 177.4 36.2 net cash flow from investing activities 350.1 (2,808.2)
specification of cash and cash equivalents Cash and deposits with central banks 3,151.4 2,830.7 Deposits with credit institutions 361.9 59.2 total cash and cash equivalents 3,513.3 2,889.9
chanGes in accountinG policies There are no changes in accounting policies in 2011.
January 2012, but have not yet been approved by the EU, will not have any significant effect.
Based on our preliminary assessments and on the basis of Gjensidige’s current operations, other amendments to standards and interpretation statements will not have any significant effect.
results Gjensidige Annual Report 2011 consolidation policies suBsidiaries Subsidiaries are entities in which Gjensidige Forsikring has a controlling influence, which will apply to companies where Gjensidige Forsikring owns more than 50 per cent of the voting shares, either directly or indirectly through subsidiaries. The subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of the subsidiaries have been changed when necessary, to align them with the policies adopted by the Group.
transactions eliminated on consolidation Intra-group balances and transactions, and unrealised income and expenses arising from intra-group transactions, are eliminated in the consolidated financial statements. Unrealised gains arising from transactions with equity accounted companies are eliminated against the investment to the extent of the Group’s interest. Unrealised losses are eliminated in the same way, but only to the extent that there is no evidence of impairment.
Business comBinations Business combinations are accounted for by applying the purchase method. The cost of the business combination is the fair value at the date of exchange of assets acquired, liabilities incurred and equity instruments issued by the Group, in exchange for control of the acquired company, and any expenses directly attributable to the business combination.
recoGnition oF reVenue and eXpenses Operating income and operating expenses consist of income and expenses in relation to the business in the different business areas, see below.
earned premiums From General insurance Insurance premiums are recognised over the term of the policy. Earned premiums from general insurance consist of gross premiums written and ceded reinsurance premiums.
claims incurred Claims incurred consist of gross paid claims less reinsurers’ share, in addition to a change in provision for claims, gross, also less reinsurers’ share. Direct and indirect claims processing costs are included in claims incurred. The claims incurred contain run-off gains/losses on previous years’ claims provisions.
operatinG eXpenses Operating expenses consist of salaries and administration and sales costs.
ForeiGn currencY ForeiGn currencY transactions Every company in the Group determines its functional currency, and transactions in the entities’ financial statements are measured in the functional currency of the subsidiary.
depreciation Each component of owner-occupied property, plant and equipment are depreciated using the straight-line method over estimated useful life. Land is not depreciated. The estimated useful lives for the current and comparative periods are as follows • owner-occupied property 10-50 years • plant and equipment 3-5 years
intanGiBle assets GoodWill Goodwill acquired in a business combination represents cost price of the acquisition in excess of the Group’s share of the net fair value of identifiable assets, liabilities and contingent liabilities in the acquired entity at the time of acquisition. Goodwill is recognised initially at cost and subsequently measured at cost less accumulated impairment losses.
results Gjensidige Annual Report 2011 other intanGiBle assets Other intangible assets which consist of customer relationships, trademarks, internally developed software and other intangible assets that are acquired separately or as a group are recognised at historical cost less accumulated amortisation and accumulated impairment losses. New intangible assets are capitalized only if future economic benefits associated with the asset are probable and the cost of the asset can be measured reliably.
amortisation Intangible assets, other then goodwill is amortised on a straight-line basis over the estimated useful life, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows • customer relationships 10 years • trademarks 10 years • internally developed software 5–8 years • other intangible assets 5–10 years
Impairment losses are recognised in profit or loss if the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to the carrying amount of goodwill and then proportionally to the carrying amount of each asset in the cash-generating unit. Previously recognised impairment losses are reversed if the prerequisites for impairment losses are no longer present. Impairment losses will only be reversed if the recoverable amount does not exceed the amount that would have been the carrying amount at the time of the reversal if the impairment loss had not been recognised.
technical proVisions proVision For unearned premiums, Gross The provision for unearned premiums, gross reflects the accrual of premiums written. The provision corresponds to the unearned portions of the premiums written. No deduction is made for any expenses before the premiums written are accrued.
In the case of group life insurance for the commercial market, the provision for unearned premiums, gross also includes provisions for fully paid wholelife cover (after the payment of disability capital).
reinsurers’ share oF insurance-related liaBilities in General insurance, Gross Reinsurers’ share of insurance-related liabilities in general insurance, gross is classified as an asset in the balance sheet. Reinsurers’ share of provision for unearned premiums, gross and reinsurers’ share of claims provision, gross are included in reinsurers’ share of insurance-related liabilities in general insurance, gross. The reinsurers’ share is less expected losses on claims based on objective evidence of impairment losses.
at Fair Value throuGh proFit or loss Financial assets and liabilities are classified at fair value through profit or loss if they are held for trading or are designated as such upon initial recognition. All financial assets and liabilities can be designated at fair value through profit or loss if • the classification reduces a mismatch in measurement or recognition that would have arisen otherwise as a result of different rules for the measurement of assets and liabilities
aVailaBle For sale Financial assets available for sale are non-derivative financial assets that have been recognised initially in this category, or are not recognised initially in any other category. Subsequent to initial recognition financial assets in this category are measured at fair value, and gain or loss is recognised in other comprehensive income except for impairment losses, which are recognised in profit or loss.
loans and receiVaBles Loans and receivables are non-derivative financial assets with payments that are fixed or determinable. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.
Transaction expenses are recognised in profit or loss when they incur. Subsequent to initial recognition financial derivatives are measured at fair value and changes in fair value are recognised in profit or loss.
Hedge accounting is applied on the largest subsidiaries. Gains and losses on the hedging instrument relating to the effective portion of the hedge are recognised in other comprehensive income, while any gains or losses relating to the ineffective portion are recognised in profit or loss. If subsidiaries are disposed of, the cumulative value of such gains and losses recognised in other comprehensive income is transferred to profit or loss. Where hedge accounting is not implemented, this implies a divergent treatment of the hedged object and the hedge instrument used.
Financial liaBilities at amortised cost Financial liabilites are measured at amortised cost using the effective interest method. When the time horizon of the financial liability’s due time is quite near in time the nominal interest rate is used when measuring amortised cost.
The category financial liabilities at amortised cost comprises the classes deposits from and liabilities to customers, interest-bearing liabilities, other liabilities, liabilities related to direct insurance and accrued expenses and deferred income. Interest-bearing liabilities consist mainly of issued certificates and bonds, and buy-back of own issued bonds.
deFinition oF Fair Value Financial assets and liabilities measured at fair value are carried at the amount each asset/liability can be settled to in a transaction carried out at arm’s length distance.
Impairment losses are reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised.
proVisions Provisions are recognised when the Group has a legal or constructive obligation as a result of a past event, it is probable that this will entail the payment or transfer of other assets to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
restructurinG Provision for restructuring are recognised 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 The fair value of share-based payment arrangements allocated to employees is at the time of allocation recognised as personnel costs, with a corresponding increase in equity. Share-based payment arrangements which are recovered immediately are recognised as expenses at the time of allocation. Vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised shall be based on the number of equity instruments that eventually vest. Non-vesting conditions are reflected in the measurement of fair value, and no adjustment of the amount charged as expenses is done upon failing to meet such conditions.
taX Income tax expense comprises the total of current tax and deferred tax.
transactions With aFFiliated companies The Fire Mutuals operates as agents on behalf of Gjensidige Forsikring. For these services commission is paid. For handling the cooperation and to reinsure the Fire Mutuals’ fire insurance Gjensidige receives cost refunds. Due to the fire policy reinsurance plan, Gjensidige Forsikring also manages assets on behalf of the Fire Mutuals. The Fire Mutuals are credited interest for these assets.
results Gjensidige Annual Report 2011 notes 1 – eQUitY share capital At the end of the year the share capital consisted of 500 million ordinary shares with a nominal value of NOK 2, according to the statutes. All issued shares are fully paid in.
In connection with conversion from limited liability mutual (BA) to public limited liability company (ASA) on 28 June 2010 the equity certificate capital is converted to share capital.
At the end of the year the number of own shares was 60,755 (26,983).
premium reserVe Premium reserve consists of paid in capital and can be used to cover losses.
other paid in equitY Other paid in equity consists of wage costs that are recognised in profit and loss as a result of the share purchase program for employees.
eXchanGe diFFerences Exchange differences consist of exchange differences that occur when converting foreign subsidiaries, and when converting liabilities that hedge the company’s net investment in foreign subsidiaries.
natural perils Fund Operating profit/loss from the compulsory natural perils insurance shall be adjusted against a Natural perils fund. The provision can only be used for claims related to natural perils. Natural peril is defined as claim in direct relation to natural hazard, such as landslide, storm, flood, storm surge, earthquake or eruption.
Guarantee scheme 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.
results 79 Gjensidige Annual Report 2011 2 – Use of estimates The preparation of the financial statements under IFRS and the application of the adopted accounting policies require that management make assessments, prepare estimates and apply assumptions that affect the carrying amounts of assets and liabilities, income and expenses. The estimates and the associated assumptions are based on experience and other factors that are assessed as being justifiable based on the underlying conditions. Actual figures may deviate from these estimates. The estimates and associated prerequisites are reviewed regularly. Changes in accounting estimates are recognised in the period the estimates are revised if the change only affects this period, or both in the period the estimates change and in future periods if the changes affect both the existing and future periods.
inVestment properties Fair value is based on market prices and generally accepted valuation models where there are no market prices. A key parameter of the valuation is the long-term required rate of return for the individual property. A further description of the real estate price risk and a sensitivity analysis of investment properties are given in note 8.
Financial assets and liaBilities The fair value of financial assets and liabilities that are not traded in an active market (such as unlisted shares) is determined by means of generally accepted valuation methods. These valuation methods are based primarily on the market conditions at the reporting date. See note 9.
Pension and savings figure 2 – Business structure 3 – management of insURance and financial RisK oVerVieW Management of risk is an integrated part of the daily operations in Gjensidige. Identification, assessment, management and control of the risk exposure as well as analyses of the effects of potential strategic decisions on the risk profile is an essential part of the operations to ensure that the level of risk-taking is in keeping with the approved risk appetite and to enhance value creation.
An overall management of risks ensures that risks are assessed and handled in a consistent way throughout the Group. Risk management in Gjensidige has two main objectives. First, the risk exposure should not exceed capacity. Secondly, but equally important, a comprehensive risk management should help create value for customers and owners. Through a strong risk management process, risks are identified, analysed, measured and managed not only with the purpose of reducing uncertainty and avoiding extreme losses, but also to maximize the return relative to the risk.
results 81 Gjensidige Annual Report 2011 orGanisation The Board of Directors has the overall responsibility for ensuring that the level of risk-taking in the Group is satisfactory relative to the Group’s financial strength and willingness to take risks. This entails ensuring that necessary policies, routines and reporting are in place to guarantee satisfactory risk management and compliance with laws and regulations and that the risk management and internal control efforts will be appropriately organized and documented.
The responsibility for the execution of investments for the insurance operations is vested in the organization of the CFO. The function for monitoring and reporting financial returns and compliance of limits in investment management of the insurance business reports to the Executive Vice President, Group Staff/ General Services in order to ensure an independent follow-up. In addition, the Chief Risk Officer has an independent line of reporting to the Group’s risk management committee.
Insurance operations and banking business are subject to capital requirements specified by the authorities. Capital adequacy and solvency positions are reported for the Group and subsidiaries to the financial supervisory authorities. In accordance with capital adequacy rules (BIS rules) as at 31 December 2011 the excess capital was NOK 7,332.6 million, equivalent to a capital adequacy ratio of 16.2 per cent. As associated companies, the stakes in Storebrand and SpareBank1 SRBank are consolidated in the calculation of capital adequacy. The Group’s excess capital above the solvency margin requirements was NOK 10,092,9 million as at 31 December 2011. The stake in Storebrand is consolidated in this calculation.
table 1 – capital in excess of legal requirements per company noK million 2011 2010 Requirement
Gjensidige Forsikring 10,633.4 11,066.5 Capital adequacy (8 %) Gjensidiges Arbejdsskadeforsikring 174.9 140.2 Indvidual solvency test Nykredit Forsikring 117.8 1,188.0 Indvidual solvency test Gjensidige Baltic 175.1 100.2 Solvency I requirement (100 %) Gjensidige Bank Group 559.4 617.9 Capital adequacy (8 %) Gjensidige Pensjon og Sparing Holding Group 349.4 239.1 Capital adequacy (8 %)
results Gjensidige Annual Report 2011 2011. In Denmark, an individual solvency calculation was introduced as an adaptation to the upcoming Solvency II regulations. Gjensidige Forsikring and all subsidiaries met all regulatory capital requirements during 2011.
The internal risk based capital requirement is determined in the Group’s risk and capital management policy, which is approved by the Board of Directors. It is defined as the capital that is necessary in order to have a probability of 99.97 per cent of not using up all capital measured over one year, including all of the general insurance group’s assets and liabilities and without counting the expected profit performance during the period as available capital. In this context both profit/loss and available capital are measured according to economic principles, even if these may deviate from the accounting policies, in keeping with the proposals that have been made for the Solvency II regulations. Among other things, this means that actuarial reserves are assessed at the discounted value instead of at recognised (nominal) value. Both method and level of probability are in keeping with what seems to have been established as an industry standard in Europe. The internal requirement is measured by means of Gjensidige’s internal model as described below.
The Group has an overall underwriting policy , approved by the Board of Directors in Gjensidige Forsikring ASA, with more detailed underwriting guidelines for each of the product segments, supported by strictly defined authorisation rules.
results 83 Gjensidige Annual Report 2011 past has been slightly higher than CPI. For accident and health the insurance policies are divided into two main groups, one with fixed sum insured and another part were the compensation is adjusted by a public/government index (in Norway: ‘G’ - The basic amount for national insurance). This is for instance the case in Workers’ Compensation. 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.
Gjensidige manages these risks mainly through close supervision of the development for each LOB, underwriting guidelines and proactive claims handling. The monthly supervision of the results for each LOB contains an overview of both premium and loss development. If there is an adverse development of the profitability, sufficient measures will be put in force. This includes necessary premium increases to ensure that the profitability is within the accepted level. 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.
concentration oF insurance risk The Gjensidige Group still has its concentration in the Norwegian general insurance market, with operations in other Nordic countries and the Baltic. The percentage share of premiums written in Nordic increased in 2010 after the purchase of Nykredit Forsikring.
table 2 – gross premiums written per geographical area noK million gross premiums written
Accident and health - others/default 2,501.8 14.5 % 2,445.6 15.0 %
Fire and other damage to property 6,288.4 36.5 % 5,386.5 33.0 %
The reinsurance programme for the Gjensidige Group, primarily nonproportional reinsurance, is based on calculated exposure, claims history and capitalisation. The limits for the reinsurance programme for each year are set by the Board of Directors. In Norway the exposure to natural perils is limited through Gjensidige’s compulsory membership in the Norwegian Natural perils pool. The pool has its own reinsurance programme on behalf of its members, which further reduces the exposure. Insurance risk is deemed to be moderate with the reinsurance cover the Group has in place.
sources oF uncertaintY in the estimation oF Future claims paYments Gjensidige is liable for insured events that occurred during the term of the contract, even if the loss is discovered after the end of the contract term, and claims are paid according to the policy conditions valid at the time of occurrence. As a result, claims are settled over a long period of time, and there is an element of the claims provision that relates to incurred but not reported claims (IBNR).
The estimated cost of claims includes expenses to be incurred in settling claims, net of the expected recourse amount and other recoveries. Gjensidige takes all reasonable steps to ensure that it has appropriate information regarding its claims exposure. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liabilities established. The liabilities in the financial statements related to these contracts comprise a provision for IBNR, a provision for reported claims not yet paid (RBNS) and a provision for unexpired risks at the balance sheet date (provision for unearned premiums). The amount for bodily injury claims is influenced by the level of court awards, particularly to the development of legal precedence on matters of contract and tort.
The duration (average time between the date of loss until the claim is finally settled) differs significantly between the types of risk considered. Long duration will increase the company’s exposure to inflation. In Motor insurance, physical damage, the duration is less than one year, while in Motor bodily injury claims the average duration is almost eight years. In
Property insurance the average duration is one to two years, in Workers’ Compensation in Norway the average duration is six years. In Group life insurance the duration differs significantly between death and disability coverage. Workers’ Compensation in Denmark has a particularly long duration due to the annuity part. For the other LOBs in the subsidiaries the duration is in line with the similar LOBs in Norway. In the Baltic the duration is significantly shorter due to few bodily injury claims.
sensitiVitY analYsis – underWritinG risk Underwriting risk is the risk that an insurer does not charge premiums appropriate for the insurance contracts. The pricing processes for the different insurance products involve estimates of future frequency and severity of claims, based on statistics from internal and external sources. Even if the underwriting criteria are adequate and the premium calculations are performed on a good statistical basis, the claims cost may deviate from the expected level, due to large claims, natural catastrophes etc.
Prior-year claims provision 1,172.9 total 25,481.1 net of ReinsURance estimated claims cost At the end of the accident year 9,054.1 10,120.5 10,520.1 11,269.6 11,715.2 12,079.1 12,317.5 11,989.7 13,601.0 14,057.0 - Eight years later 9,097.3 10,070.4 - Nine years later 9,105.5
table 6b – analysis of claims development, gjensidige forsikring asa table 6a – analysis of claims development, gjensidige group gRoss estimated claims cost At the end of the accident year 9,591.0 10,371.3 10,638.6 11,760.7 11,820.2 12,326.7 12,471.8 12,014.5 14,071.2 15,144.4 - Eight years later 9,641.6 10,319.7 - Nine years later 9,649.8
results 87 Gjensidige Annual Report 2011 net of ReinsURance estimated claims cost At the end of the accident year 8,266.0 9,550.2 9,692.8 10,552.4 10,848.2 11,417.5 11,499.0 11,131.6 12,587.4 12,803.6 - Eight years later 8,206.7 9,484.1 - Nine years later 8,209.0
As from 1 January 2010 the insurance operations in Denmark, except Gjensidiges Arbejdsskadeforsikring, was reorganised as a branch of Gjensidige Forsikring ASA. After the purchase of Nykredit Forsikring in 2010 the Commercial market insurance portfolio in Nykredit Forsikring was transferred to the Danish branch as from fourth quarter 2010. Tennant Försäkringsaktiebolag and its Norwegian branch were merged with Gjensidige Forsikring ASA as from 14 October 2011. The table is updated, also for previous years, to illustrate the development over time.
The risk inherent in the individual contract, therefore, is the probability that one of the aforementioned events takes place and the uncertainty attaching to the amount of insurance that the person in question was covered by. Some contracts allow the insured party themselves to choose the sum insured, creating an element of variation in the portfolio’s risk profile. In other contracts the sum insured is predetermined, either as an entirely fixed sum or relative to some other variable factor. In occupational pension contracts this variable factor will typically be salary and time remaining to retirement, again creating a chance variation in the portfolio’s risk profile.
In the portfolios concerned recognised theories and methods for calculating probability are used to work out the premium necessary to meet future liabilities. Furthermore, the insurance industry’s own methods for calculating provisions will also be employed for large portfolios to ensure good estimates of future liabilities. During the start-up period of smaller portfolios it will be sufficient, and necessary due to the lack of data, to employ simplified methods for calculating provisions with a conservative estimate.
The challenge for this type of business will be to get customers to pay in a sufficient risk premium to build up claims provisions ample enough to meet future liabilities. When an insurance event does occur it is by no means automatic that any shortfall in the claims provision may be covered by additional insurance premiums from the healthy population.
table 7a – number of members and contracts 2011 number of members number of contracts
Compulsory occupational pensions 62,063 15,535 Other defined contribution pensions 40,145 7,474 total 102,208 23,009
table 7b – number of members and contracts 2010 number of members number of contracts
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 is computed using the industry-wide calculation basis (K2005), including safety margins as directed by the Financial Supervisory Authority of Norway.
The disability risk relates to the exemption from agreed annual contributions by the individual member as well as the disability benefit payable. Since the exemption from contributions is a mandatory benefit under compulsory occupational pension schemes, the largest number of such benefits will relate to pension contributions amounting to two per cent of salary. Pension agreements in excess of the statutory minimum carry correspondingly larger benefits. Disability pensions are linked to defined contribution schemes and paid-up policies. The risk premium for disability risk is based on an internal tariff developed in conjunction with Gjensidige Forsikring ASA, and is based on figures from the Norwegian National Insurance Scheme and in-house claims figures, primarily from Gjensidige Forsikring.
Actual amounts paid out for mortality and disability in 2011 remain modest in size, totalling NOK 26 million. IBNR provisions at the end of 2011 totalled NOK 176 million, accounting for 49 per cent of the overall claims provisions. Provisions for filed and settled claims equal the expected cash value of future liabilities, and totalled NOK 181 million, or 51 per cent of the overall claims provision. Provisions to cover those pensions currently being paid out are within expected parameters.
pension insurance sensitiVitY analYsis Gjensidige Pensjonsforsikring AS has been in operation for six years, which is a relatively short period compared with other pension insurance providers.
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 are based on the industry-wide standard K2005, which has been developed jointly with the trade organisation Finance Norway (FNO).
The agreements with companies are, moreover, of a one year duration, such that the risk premium can be amended at each annual renewal. Overall, this provides a sound financial foundation, with limited likelihood that the accumulated premiums and claims provisions will be insufficient to meet future liabilities. Since the portfolio is still not very large, the bulk of the annual risk premium goes into the claims provision. After some time each year’s risk will be assessed with respect to insurance events and anticipated claims patterns. Since these pension schemes are company-related, it is assumed that the time between an insurance event occurring, in this case death, until the company is notified will be relatively short.
results 89 Gjensidige Annual Report 2011 5.33 per cent return on its paid-up policy portfolio, which provided a net financial income of NOK 35 million. The company has sought and obtained the Financial Supervisory Authority of Norway’s permission to set aside this income for the coming increase in the paid-up policy claims provision that a new basis for calculation will require. This transaction precludes use of the opportunity available in the regulations for modified profit-sharing to keep back up to 20 per cent of net financial income for the owner, and results in a reduction of up to NOK 7 million in the owner’s profit.
In the autumn of 2010, through the work undertaken to prepare for the introduction of Solvency II, Gjensidige Pensjonsforsikring AS participated for the first time in the authorities’ Quantitative Impact Studies (QIS). The company took part in QIS5. When assessing the various “stress situations”, it is primarily reduced mortality and thereby the longevity issue that will be of material importance for insurance risk. Furthermore, each quarter stress reports are sent to the Financial Supervisory Authority of Norway, so-called “risk-based supervision ”. A 10 per cent reduction in the mortality rate, which is the stress factor employed in the study for the fourth quarter 2011, results in an increase in the necessary premium reserve in the order of NOK 50 million.
For policies where the insured has filed a claim on the basis of disability, and a disability pension or exemption from agreed contributions has been granted, a claim provision will be made to cover the cash value of future liabilities until the agreed termination age (retirement age) or the insured recovers their functional capacity. This latter probability is difficult to estimate, and is dealt with by means of a “reactivation deduction” in the claims provision. Sensitivity in the disability claims provision will primarily relate to this assumption. In this context mortality rate assumptions are of less importance. Calculations show that the claims provision must increase by around NOK 20 million with a disability rate of 25 per cent in the first year and 15 per cent in subsequent years.
cash flows The first graph shows the overall cash flow for the company’s insurance liabilities. In addition, it shows the increase in liabilities ascribable to the aforementioned stress factors, i.e. ten per cent reduced mortality (increased longevity) and disability risk (25 per cent in the first year and 15 per cent in the remaining years).
figure 6 – cash flow before and after the “stress scenario”
The second graph shows how the amounts saved in connection with funded agreements will be paid out in the coming years, based on an assumed retirement age of 62 and a ten year payment period.
Gjensidige’s reinsurance programme primarily consists of non-proportional reinsurance. The maximum retention level for the Group was NOK 250 million in 2011, unaltered from 2010. As a general rule Gjensidige purchases reinsurance to limit any single claim or event per insurance product to NOK 100 million. Further reinsurance was purchased in 2011 to reduce the retention in some sectors down to NOK 20 million. Decisions concerning the reinsurance programme are based on analysis of exposure, claims history, model simulations and Gjensidige’s capitalisation.
In Norway the exposure to natural perils disasters is handled through the compulsory membership in the Norwegian Natural Perils Pool. Through this arrangement, Gjensidige is exposed to the market share of the total claims
Equity price risk is defined as a loss in value resulting from a fall in equity prices. This is analogous to real-estate price risk. See amounts below in the stress test and sensitivity analysis. Interest-rate risk is defined as the loss in value resulting from a change in interest rates and is viewed both from the asset-only perspective and in relation to the interest-rate sensitivity of the liabilities. The Board of Directors set a limit of NOK 500 million on the interest-rate risk in the total fixedincome portfolio (excluding bonds at amortized cost and the swaps in Gjensidiges Arbejdsskadeforsikring) for 2011 (given a 100 basis points shift in the yield curve) for the general insurance operations. Asset liability risk is limited to NOK 295 million, or a duration mismatch of maximum one year.
Specific limits for ALM risk and credit spread risk was introduced in 2011. Apart from this, there has not been any material changes in Gjensidige in the processes used to manage risks from previous periods. The investment strategy and other risk management policies are approved by the Board of Directors in each company, but are closely coordinated with the parent company’s overarching policies. The general rule is that the asset allocation in the subsidiaries in general insurance will only be used to ensure the technical reserves against interest and foreign-exchange risk with excess funds invested in interestbearing securities with low risk. Exposures to market risk are recognised in the balance sheet of Gjensidige Forsikring ASA. This is done in order to improve the efficiency of the investment management and capitalization in the Group.
The table below gives the main overview of the asset allocation for the insurance business at year-end 2011 and 2010. The asset allocation is divided in a match portfolio to cover insurance liabilities, and a free portfolio which can be viewed as the invested equity of the Group. The item associated companies are the stakes in Storebrand and SpareBank1 SR-Bank. The actual allocation will vary throughout the year and follow movements in the market, tactical allocation and risk situation.
2 The item consist of total investment grade, high yield and current bonds. 3 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige Denmark.
The development of the financial results is measured continuously relative to the targets and risk limits set by the Board of Directors. 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 half of the risk capacity measured by TVaR was used as at 31 December 2011. TVaR is a statistical measure of maximum loss in NOK million per day given a 95 per cent confidence level. TVaR has fluctuated between 40 and 60 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 of Directors.
Stress parameters for asset risk are closely aligned with the recommendations in the Norwegian FSA’s “risikobasert tilsyn” (RBT), with correlation matrices to visualize diversification effects both between asset classes, and market and insurance risk. The only deviation from the recommendations of the Norwegian FSA is that private equity (PE) and hedge funds are stressed by 25 per cent, and their correlation with shares are set to 0,75.
Hedgefund and private equity 25 % drop (454.7) Currency 12 % change towards NOK 23.1 Credit spread Spread widening (400.6) total undiversified market risk (2,040.2) Diversification effect 333.1 total market risk (1,707.1) Claims provision (552.5) Catastrophe (185.0) Storebrand and SpareBank1 SR-Bank Internal model (2,059.0) Result subsidiaries (GPS and Bank) 10 % drop in ROE (116.8) total insurance risk (2,913.3) Diversification effect market/insurance risk 1,062.4 total decrease in value of stress test (3,558.0) Buffer capital 7,332.6 capital/surplus in stress scenario 3,774.6 table 10b - stress test financial assets 2010 noK million scenario decrease in value assets/risk
Underwriting result 3 percentage points weaker CR Claims provision 2 % increase (567.4) Catastrophe NOK 135 million (135.0) Storebrand og SpareBank1 SR-Bank 1.3 std.deviation (422.3) Reinsurance receivables 2 % loss (10.1) Result subsidiaries (GPS and Bank) 10 % drop in ROE (196.5) total decrease in value of stress test (3,257.5) Buffer capital 6,894.1 capital/surplus in stress scenario 3,636.6 equitY price risk In 2011, Gjensidige’s equity portfolio was reduced from the previous year. The largest exposures are to Storebrand, SpareBank1 SR-Bank and underlying companies in private equity funds. The concentration risk is shown in the table below. The majority of the geographic exposure is to Norwegian shares.
table 13a – largest private equity funds 2011 noK million 31.12.2011
FSN Capital II LP 129.3 HitecVision Private Equity V LP 106.4 HitecVision Private Equity IV LP 85.6 Altor Fund II LP 83.2 Northzone V KS 61.5 total five largest 466.1 total private equity 1,134.9
In one of the Danish operations, Gjensidiges Arbejdsskadeforsikring, the long-tail Workers’ Compensation line of business is hedged against changes in the real interest rate through swap agreements. The real-interest-rate risk relates to outstanding premium- and claims provisions of approximately NOK 3,900 million (discounted value), where a large percentage of the claims are paid out as annuities, the payments of which are linked to the yearly increase in Danish workers compensation awards, determined by the authorities (a function of the wage developments). The risk to the present value of these annuities is hedged through a series of swap agreements stretching out over 40 years and covering inflation and interest-rate risk separately so that the net real-interest-rate risk is removed. The swap agreements are reset once a year and security is provided for outstanding market value between the parties, which reduces the counterparty risk and results in a limited book value. The fixed-income portfolio in Gjensidiges Arbejdsskadeforsikring is invested with a low duration.
table 14 – maturity profile (number of years) fixed income portfolio noK million 31.12.2011 31.12.2010
The next figure shows the corresponding payout pattern for Gjensidige Forsikring ASA. The average duration for Gjensidige Forsikring ASA is slightly shorter than for the Group.
The match portfolio will match these cash flows, with a maximum duration mismatch of one year. The table below shows the duration of discounted liabilities versus the match portfolio as at 30 November 2011.
million duration Hedge, years duration mismatch, years duration mismatch alm versus limit 1 year propertY price risk Real estate constitutes a significant part of the portfolio of Gjensidige Forsikring. The motivation for investing in real estate is primarily that it enhances the risk-adjusted return of the asset portfolio, through an expected rate of return that lies between bonds and equities, and that there is a modest correlation to both of them.
ForeiGn eXchanGe risk Foreign-exchange risk is defined as the financial loss resulting from a fluctuation in exchange rates. Generally, foreign-exchange risk in the investment portfolio is hedged close to 100 per cent, within permitted limit of +/- ten per cent per currency, except for smaller mandates where active currency management is a part.
The parent company hedges its investments, but not future income, in subsidiaries against foreign-exchange risk. For Gjensidige Baltic, the hedging is performed in EUR because periodically there is low liquidity in the market for LVL. In order to counteract the risk that then arises, a percentage of Gjensidige Baltic’s interest-bearing papers are invested in EUR. The results of the hedging are recognised in the income statement while the change of value in the hedged object is recognised in other comprehensive income. In the Danish branch and the subsidiaries Nykredit Forsikring and Gjensidiges Arbejdsskadeforsikring, hedge accounting is employed where only the inefficient part of the hedging is recognised in the income statement. This gives a more consistent accounting of hedging and the hedged object. The hedging is carried out with currency swaps, where the amount is adjusted quarterly.
The Group underwrites insurance in the Scandinavian and Baltic countries, so it has insurance liabilities in these currencies. The foreign-exchange risk at both the group and company levels is generally hedged by matching technical provisions with investments in the corresponding currency. In Gjensidige Baltic, there are investments in EUR-denominated interest-bearing papers that are not equivalent to liabilities in EUR.
table 19 – currency exposure noK million gross position in currency gross position in noK currency contracts net position in currency net position in noK
Risk by 100 bps change in credit spread table 21 – allocation of fixed-income portfolio per sector
AAA 9,035.4 11,079.4 AA 8,040.8 5,513.9 A 9,401.6 9,548.0 BBB 1,264.5 2,276.6 BB 684.0 403.4 B 636.4 323.5 CCC or lower 215.2 365.0 Not rated 11,514.1 8,101.6 total 40,791.9 37,611.4 table 22b – fixed-income portfolio per rating category, internal rating included noK million 31.12.2011 31.12.2010
AAA 9,035.4 11,286.2 AA 9,723.1 6,545.6 A 11,453.4 11,435.0 BBB 5,534.3 5,421.8 BB 775.7 403.4 B 636.4 323.5 CCC or lower 215.2 365.0 Not rated 3,418.5 1,830.9 total 40,791.9 37,611.4
Nykredit Realkredit A/S 1,980.3 DnB NOR ASA 1,591.5 Kongeriket Norge 1,547.0 Svenska Handelsbanken 1,429.7 Skandinaviska Enskilda Banken 1,379.5 Danske Bank A/S 1,372.5 Citigroup 742.7 Barclays Bank London 709.6 J.P. Morgan Chase & Co. 644.3 Sparebanken Nord-Norge 630.1 total ten largest 12,027.4 total fixed income portfolio 40,791.9
Kongeriket Norge 2,499.2 Nykredit Totalkredit 1,779.8 Realkredit Danmark 1,508.6 DnB NOR Bank 1,406.0 Danske Bank 1,367.3 Nordea Kredit 953.5 Statkraft 937.3 Barclays Bank Plc 734.5 Oslo kommune 621.1 UBS AG Jersey Branch 573.6 total ten largest 12,380.8 total fixed income portfolio 37,611.4 credit risk in the insurance operation The table below presents the age distributions of the receivables arising out of direct insurance operations and of the reinsurance receivables.
table 24 – age distribution receivables insurance noK million direct insurance Reinsurance
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 2011 and 2010, i.e. the rating of the reinsurers that would have been drawn in if the losses had occurred.
figure 9a – Potential credit exposure reinsurance per rating category 2011
BBB 0.2 liquiditY risk For most general insurers, the liquidity risk is quite limited. Premium income is paid up front, and claims are paid out at a later stage. Future payments are not based on contractual payment dates, but rather when claims occur and how long the claims handling lasts. See the expected payout pattern presented in previous figure. Liquidity risk in Gjensidige Bank is described separately.
results Gjensidige Annual Report 2011 table 26a – liquidity investment assets 2011, gjensidige forsikring asa noK million total minimum level excess over limit
OECD-bonds with less than 5 years to maurity 1,279.8 Covered bonds 535.0 total 8,279.0 4,000 4,279 table 26b – liquidity investment assets 2010, gjensidige forsikring asa noK million incl bonds held to maturity excl bonds held to maturity minimum level
Fixed income portfolio with rating A or better and maturity less than 6 month manaGement oF Financial risk – GjensidiGe pensjonsForsikrinG Gjensidige Pensjonsforsikring (GPF) has a separate guidelines for asset management and investment strategy approved by the Board of Directors, which specifies targets and limits for and the organization of the investment management activities. A separate investment committee with representatives from GPF, Gjensidige Investeringsrådgivning (GIR) and the Group’s investment and capital management departments gives advice to the CEO on matters pertaining to asset and risk management. The portfolio management is outsourced to GIR. Asset manager selection and asset allocation is based on advice from the Group’s investment centre.
table 27 – asset allocation excluding the unit-linked portfolio, gjensidige Pensjonsforsikring noK million 31.12.2011 31.12.2010
table 28 – sensitivity fixed-income and equity portfolio, gjensidige Pensjonsforsikring noK million 31.12.2011 31.12.2010 100 bps parallell shift up (0.1) (11.5) 10 % drop in equity prices (1.0) (3.9)
results 97 Gjensidige Annual Report 2011 credit risk The credit risk the bank faces is the risk that borrower’s fail to repay a loan or credit or to meet their contractual obligation to the bank. The bank’s credit risk originates from its loans and credits to consumers as a result of its lending operations in Norway.
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.
The bank is one of the leading players in the unsecured consumer finance lending business in the Norway. This portfolio has a different risk and return profile compared to the secured portfolio, with higher returns proportionate to the level of risk in the portfolio. The bank uses risk based pricing models driven by credit scores.
models For calculatinG credit risk The bank uses application score models based on internal and external data of a customer for decisions relating to customer’s application for a loan. In addition the bank uses behaviour score models which predict the probability of default based primarily on the customer’s credit behaviour with the bank. The behaviour score models are used for decisions related to top-ups, collections, group provisioning and other portfolio management decisions. With the help of these score models the lending portfolios in the bank are grouped into several risk categories starting from the lowest risk to the highest risk segments based on their probability of default. These risk categorizations are done mainly to assist in various credit decisions. These are then further grouped into three main risk classes: low risk, medium risk and high risk which is used for the bank’s monthly monitoring, reporting and follow-up of the customer base.
Defaulted loans over 30 days amounted to NOK 325.7million by the end of the year compared to NOK 243,8 million in the corresponding year in 2010. Total impaired balance on loans in 2011 is NOK 254.0 million versus NOK 183.4 million in 2010, which includes NOK 117.1 million as reported in 2010 and NOK 66.2 million in group impairment recognised in the balance sheet on the unsecured consumer loans portfolio. The increase in defaulted loans over 30 days and the impaired balance is primarily related to this unsecured consumer loan portfolio which was acquired in December 2009 and the consequent change in the account rules to IFRS. Defaulted loans over 30 days as a percentage of gross loans represent 2.17 per cent at the end of the quarter.
The bank measures the market risk using a Value at Risk analysis in the bank’s total risk model. As at 31 December 2011 the capital provisions for interest rate risk was NOK 3.1 million with a confidence level of 99.95 per cent.
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
Financial derivatives - net settlement (negative figures yield net payment) (0.4) (0.0) (1.5) (3.7) (5.6)
As at 31 December 2011 the portfolio is geographically diverse, with the greatest lending in the most populous areas of the country. The largest loan is about NOK 9.9 million. The exposure related to the ten largest loans (limit) is about NOK 87.4 million. In the case of the banks liquidity reserves, then bank has the greatest exposure in securities to the Norwegian government. The total exposure in securities to the Norwegian government as at 31 December 2011 is about NOK 515.5 million.
liquiditY risk Liquidity risk is the risk of the bank not being able to meet its debt obligations when due and/or not being able to finance a growth in its assets without incurring a substantial increase in costs in the form of a loss of value on assets that must be realised or in the form of especially expensive financing.
We distinguish between two types of liquidity risk • the bank has its credit rating downgraded as a result of large losses but still has access to liquidity in the financial market • the bank does not have access to liquidity as a result of large losses
The Board of Directors has established limits that restrict the bank’s liquidity needs within different time periods, and targets for long-term liquidity indicators. The bank shall have a liquidity reserve (buffer capital) available in short-term deposits, highly liquid securities and/or committed credit facilities which during an acute liquidity shortage in the market would provide a reasonable time period in which to implement necessary measures.
The liquidity reserve shall cover the total of • 100 per cent of the funding due in the first month in the future • 100 per cent of the funding due in the second month in the future • 75 per cent of the funding due in the third month in the future • 50 per cent of the funding due in the fourth month in the future • 50 per cent of the funding due in the fifth month in the future • 25 per cent of the funding due in the sixth month in the future • An unexpected decline in deposits of nine per cent, based on the deposits published in the most recent quarterly financial statements
Stress tests have also been completed demonstrating the bank’s requirements for a liquidity reserve based on future scenarios of recession and financial crisis.
results 99 Gjensidige Annual Report 2011 geneRal insURance noK million Private norway commercial norway nordic Baltics Pension and savings
Banking eliminations etc. 1 total segment income Segment income - external 8,082.8 5,411.9 3,635.0 395.8 586.0 900.1 369.9 19,381.5 Segment income - group 2 - Claims, interest expenses, loss etc. (5,670.9) (4,283.4) (2,933.3) (270.7) (438.0) (550.0) (91.0) (14,237.2)
segment result/profit/(loss) before tax expense 1,185.7 394.4 75.6 3.0 15.1 66.8 1,906.8 3,647.4 4 – segment infoRmation The group has six reportable segments, as described below, which offers different products and services within different geographical areas. The Group CEO holds regular meetings with its reporting managers concerning performance management, which focuses on future measures to ensure performance and deliveries.
The subsidiary Hjelp24 AS which previously constituted the segment Health care services is sold. Hence the segment is removed from the segment information. Income and expenses related to this segment is included in Eliminations etc. Comparable figures are restated correspondingly.
commercial norWaY Gjensidige is a complete provider of general and life insurance products for Norwegian businesses. The company has a particularly strong position in the market segment for medium-sized enterprises, and it is the clear market leader in accident and health insurances.
nordic The Group offers general insurance products to private and commercial customers in Sweden and Denmark. In both countries the operations are run under the brand Gjensidige.
Furthermore, the Danish operations are the Group’s centre of expertise for insurances to municipalities and other public sector entities in Norway, Sweden and Denmark, under the KommuneForsikring brand. The Norwegian branch of the Swedish operations handles the Group’s white label initiative.
description oF the seGments income and eXpences Segment income is defined as earned premiums for general insurance, earned premiums, management income and other income for Pension and savings and interest and credit commission income and other income for Online retail banking.
Segment expenses are defined as claims incurred for general insurance and for Pension and savings, interest expenses etc. for Online retail banking, operating expenses for all segments, and net income for investments for Pension and savings as well as Online retail banking.
segment income Segment income - external 7,719.9 5,401.0 3,453.1 459.3 372.4 790.9 594.2 18,790.8 Segment income - group 2 - Claims, interest expenses, loss etc. (5,895.5) (4,339.6) (2,882.7) (305.3) (258.1) (484.9) (33.5) (14,199.6)
results Gjensidige Annual Report 2011 5 – intangiBle assets noK million goodwill customer relationship
internally developed software other intangible assets total cost As at 1 January 2010 1,662.2 495.0 155.8 648.7 907.0 3,868.7 Additions 2.6 105.8 8.5 116.9 Additions through business combinations 1,261.0 380.6 2.0 254.1 1,897.8 Additions from internal development 39.6 39.6 Disposals (11.8) 0.3 (901.8) (913.4)
as at 31 december 2010 2,867.6 855.7 146.0 789.7 266.3 4,925.3 Uncompleted projects 76.4 76.4 as at 31 december 2010, including uncompleted projects 2,867.6 855.7 146.0 866.0 266.3 5,001.6 amortisation and impairment losses As at 1 January 2010 (154.7) (156.9) (70.3) (317.1) (899.6) (1,598.5) Amortisation recognised during the period (73.2) (11.4) (136.1) (33.9) (254.6) Disposals (26.0) 897.1 871.1 Impairment losses recognised in profit or loss during the period (111.0) (0.6) (111.6) Exchange differences 4.8 9.1 3.7 3.8 0.9 22.3 as at 31 december 2010 (286.9) (221.1) (78.0) (450.1) (35.4) (1,071.4)
carrying amount As at 1 January 2011 2,580.7 634.6 68.1 416.0 230.9 3,930.2 as at 31 december 2011 2,374.8 531.1 50.9 389.6 230.0 3,576.4
Amortisation method N/A Straight-line Straight-line Straight-line Straight-line Useful life (years) N/A 10 10 5-8 5-10
The Group’s intangible assets are either acquired or internally developed. Goodwill, customer relationships, trademarks and parts of other intangible assets are all acquired through business combinations, and are a result of a purchase price allocation of initial cost of the acquisition. Internally developed software is developed for use in the insurance business. External and internal assistance is used in relation with implementation or substantial upgrade of IT-software, including adjustment of standard systems, are capitalized as intangible assets. Amortization is included in the accounting line Expenses.
The group has not had any substantial additions through business combinations during 2011. The disposals of other intangible assets concerns amortized insurance portfolios. None of the intangible assets have undetermined useful lives. In 2011 and 2010 a technical impairment of goodwill in Oslo Areal has been conducted.
impairment testinG oF GoodWill The carrying amount of goodwill in the Group as at 31 December 2011 is NOK 2,374.8 million. This is primarily related to acquisitions of different subsidiaries/portfolios in the period 2006 to 2011. See table.
Each of the units is considered to be separate cash-generating units. In Oslo Areal is each underlying property defined as a cash-generating unit, and goodwill related to Oslo Areal occurs as a consequence of provision for deferred tax on temporary differences (tax amortization benefit). Goodwill in Gjensidige Bank is established through the purchase of Citibank’s Norwegian portfolio of consumer loans.
the manaGement’s method As far as possible, the management has sought to document the assumptions upon which the models are based through external information.
External information is first and foremost used in the assessment of discount rate and exchange rates. When it comes to future cash flows, the management has also considered the degree of historical achievement of budgets. If expected budgeted results are not achieved, the management has conducted a deviation analysis. These deviation analyses are reviewed by the Board of Directors of the respective subsidiaries, as well as the management in Gjensidige Forsikring.
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 5.5 percentage point in Denmark and Sweden and 6.0 percentage points in the Baltic has been added.
The investment in SpareBank1 SR-Bank is classified as investments in an associate and is carried at cost. Gjensidige Forsikring ASA owns 16.3 per cent of the primary certificate capital and 10.3 per cent of the equity in the bank, and has not, based solely on the interest held alone, significant influence. However, the company is represented in both the board in SpareBank1 SR-Bank and the nomination committee. This gives Gjensidige Forsikring ASA significant influence and thus the opportunity to participate in the financial and operational decisions of the bank.
2 Share of profit (loss) is adjusted for Gjensidige’s net excess values and accounting policies..
Depreciation method Straight-line Straight-line Useful life (years) 10-50 3-5 1 Plant and equipment consist mainly of machinery, vehicles, fixtures and furniture. 2 In 2010, an impairment loss of NOK 2.2 million on an owner-occupied property was recognised. The new value of the property was determined by using the Group’s internal valuation model, cf. Note 8
Note 8 The valuation was not based on observeable market prices or recent transactions. The carrying amount of the property before the impairment was NOK 198.0 million.
Carrying amount of land and owner-occupied property 270.7 318.5 excess value beyond carrying amount 11.9 14.2
results Gjensidige Annual Report 2011 8 – inVestment PRoPeRties noK million 2011 2010 statement of financial position As at 1 January 5,900.3 5,509.9 Additions 140.9 4.1 Additions from subsequent expenditure 4.0 146.1 Additions through business combinations 12.0 412.0 Disposals (892.7) (256.1) Net gains/(losses) from fair value adjustments 83.5 (1.0) Transfer to/(from) owner-occupied property 87.9 Exchange differences (2.7)
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 owner-occupied 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.
The investment properties are mainly located in Oslo and the surrounding area, Lillehammer and Stavanger In addition, the Group has one investment property in Denmark. The average rental period is 4.7 years and the portfolio of investment properties includes offices and shopping centres.
Gjensidige Forsikring’s own 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 will use a new valuation model. This new model had no effect on financial statements in 2011.
There are contractual commitments regarding development of investment properties amounting to NOK 39.0 million (96.0), and also a commitment to invest NOK 15.0 million (45.0) in a residential development project. The latter commitment falls due in the period 2012 to 2013, depending on the progress of the project.
noK Yield average market rent average contractual rent average value per sqm
The adoption of the above parameters implies a significant level of judgement. Emphasis is put on this judgement being consistent with that observed in the market and that the judgement is applied consistently from period to period.
For 2011 the following parameters have been used in the valuation of investment property, which yield the following average value per square meter.
Financial assets held to maturity Bonds held to maturity 11,693.4 12,017.2 14,497.5 14,923.7
Fair Value Financial assets and liabilities measured at fair value are carried at the amount each asset/liability can be settled to in a transaction carried out at arm’s length distance. All financial assets and liabilities are recognised initially at fair value. In the normal course of business, fair value of a financial instrument on initial recognition is the transaction price.
Different valuation techniques and methods are used to estimate fair value depending on the type of financial instruments and to which extent they are traded in active markets. Instruments are classified in their entirety in one of three valuation levels in a hierarchy on the basis of the lowest level input that is significant to the fair value measurement in its entirety. Below the different valuation levels and which financial assets/liabilities are included in the respective levels are accounted for.
The following financial assets/liabilities are classified as level one in the valuation hierarchy • listed shares • Norwegian government/government backed bonds and other fixed income securities • Exchange traded funds
results Gjensidige Annual Report 2011 9 – FINANCIAl ASSETS AND lIABIlITIES (CONT.)
ValUation HieRaRcHY 2011 The table shows a valuation hierarchy where financial assets/liabilities measured at fair value through profit or lossare divided into three levels based on the method of valuation.
amount of net unrealised gains regocnised in profit or loss that are attributable to instruments held as at 31.12.2011
Reconciliation financial assets ValUed Based on non-oBseRVaBle maRKet data (leVel 3) 2011
Bonds and other fixed income securities Decrease in value 10 % 0.9 total 178.1
ValUation HieRaRcHY 2010 The table shows a valuation hierarchy where financial assets/liabilities measured at fair value through profit or loss are divided into three levels based on the method of valuation.
Currency-related contracts - hedging instruments Hedging object nykredit forsikring a/s noK million
Currency-related contracts - hedging instruments 1,256.8 15.7 0.1 Hedging object 1,229.3 gjensidiges arbejdsskadeforsikring a/s noK million
Principal market value as at 31.12.2011 ineffiency recognised in profit or loss asset liability
The effect of the hedge accounting is a gain on the hedging instruments of NOK 6.5 million, which is reclassified from net income from investments to exchange differences on the net investment.
The effect of the hedge accounting is a gain on the hedging instruments of NOK 7.7 million, which is reclassified from net income from investments to exchange differences on the net investment.
Gjensidige Forsikring ASA initiated hedge accounting of the currency exposure of the net investment in the fully owned subsidiary Gjensidige Arbejdsskade forsikring A/S on 1 April 2011. The net investment in Gjensidiges Arbejdsskade forsikring is hedged through currency-related contracts that are renewed every quarter at a principal equal to the value of the investment in Gjensidiges Arbejdsskadeforsikring in Gjensidige’s consolidated financial statements.The credit risk associated with the hedging derivatives is within the limits of Gjensidige’s credit policy.
The effect of the hedge accounting is a gain on the hedging instruments of NOK 2.4 million, which is reclassified from net income from investments to exchange differences on the net investment.
Gjensidige Forsikring ASA initiated hedge accounting of the currency exposure of the net investment in the Danish branch. The net investment in the Danish branch is hedged through currency-related contracts that are renewed every quarter at a principal equal to the value of the investment in the Danish branch.The credit risk associated with the hedging derivatives is within the limits of Gjensidige’s credit policy.
results 109 Gjensidige Annual Report 2011 10 – loans and ReceiVaBles noK million 2011 2010
Receivables related to reinsurance 164.9 44.6 total receivables related to direct operations and reinsurance 3,791.1 3,585.1 noK million 2011 2010
Receivables in relation with property 6.0 11.3 Receivables in relation with asset management 74.8 29.3 Receivables regarding to Gjensidigestiftelsen 1 34.4 Other receivables and assets 146.8 267.2 total other receivables 227.6 342.2 1 See note 21 for transactions with related parties.
Assets in life insurance with investment options consist of equity funds, money market funds, bond funds and combination funds. These assets belong to the customers and the customers bear all risk associated with the investments. A corresponding amount is thus carried as a liability under Liabilities in life insurance with investment options.
Gjensidige considers the credit and liquidity risk associated with policy holders to be small, since the outstanding amount per policyholder is relatively small. Provisions for potentially irrecoverable amounts have been made.
per cent at year end, compared to 1.5 per cent in 2010. Discounting has been conducted in order to take into account the fact that the loans are non-interest -bearing. The discount rate used is 4.66 per cent.
results Gjensidige Annual Report 2011 12 – sHaRes and similaR inteRests noK million interest held beyond 10 % 31.12.2011 gjensidige foRsiKRing asa norwegian financial shares Ringerikes Sparebank 24.0 DnB NOR ASA 11.1 Indre Sogn Sparebank 0.2 total norwegian financial shares 35.3 other norwegian shares Statoil ASA 36.5 Norsk Hydro ASA 22.8 Orkla ASA 18.2 Yara International ASA 13.0 Petroleum Geo-Services ASA 12.0 Telenor ASA 11.6 Aker Solutions ASA 10.1 Schibsted ASA 9.6 Odfjell SE 7.1 Solstad Offshore ASA 6.9 Norwegian Air Shuttle ASA 5.6 Austevoll Seafood ASA 5.3 Other Norwegian shares 4.8 total other norwegian shares 163.5 other foreign shares CSETF ON S&P 500 96.0 Pacific Drilling LTD 11.1 Subsea 7 S A 9.2 Royal Caribbean Cruises 8.5 Other foreign shares 13.1 total other foreign shares 137.9 equity funds Capital Intl Emerging Mkt-I 166.4 Valueinvest Lux GLB-IC 80.0 NUVEEN Trade Global All-Cap ESG Fund 75.7 DnB NOR Globalspar II 0.2 total equity funds 322.2
Cash and bank deposits 3,104.7 2,672.8 total cash and cash equivalents 3,513.3 2,889.9
Weighted average rate for interest earned on cash, bank deposits and deposits with financial institutions is approximately 2.4 per cent (3.1).
results 111 Gjensidige Annual Report 2011 noK million interest held beyond 10 % 31.12.2011
Hedgefunds Winton Futures Fund- Lead Series 191.4 The Winton Evolution Fund 113.6 Sector EuroPower Fund Class A EUR 78.4 Winton Evolution fund, Class H- Euro 67.6 Sector Speculare IV Fund Class A USD 19.8 Sector Maritime Investment Class A 15.5 Sector Speculare II Fund Class A USD 13.4 HORIZON TACTICAL TRAD USD-B 10.1 Sector Maritime Investment Class A1 7.2 Sector Exspec Fund Class A USD 3.9 Sector Consolidare Fund USD 2.4 Sector Spesit I Fund Class A USD 1.9 total hedgefunds 525.2 12 – SHARES AND SIMIlAR INTERESTS (CONT.)
results Gjensidige Annual Report 2011 12 – SHARES AND SIMIlAR INTERESTS (CONT.)
Claims reported and claims handling costs 12,616.0 13,402.6 Claims incurred, but not reported 16,338.0 14,477.3 total claims provision, net of reinsurance 28,954.0 27,879.9
Total insurance related provisions 126.9 119.0 total insurance-related liabilities, net of reinsurance 38,597.1 37,049.6 13 – insURance-Related liaBilities and ReinsUReRs’ sHaRe
Reinsurers’ share net of reinsurance 1 claims and claims handling costs Claims reported and claims handling costs 13,765.0 (362.4) 13,402.6 13,609.7 (218.6) 13,391.1
Claims incurred, but not reported 14,574.4 (97.0) 14,477.3 12,247.5 (8.1) 12,239.4
Claims reported and claims handling costs 13,457.4 (841.4) 12,616.0 13,765.0 (362.4) 13,402.6
Provisions for unearned premiums, gross, short-term insurances As at 1 January 9,078.3 (27.6) 9,050.7 7,671.7 (12.6) 7,659.1 Additions through acquisitions 855.7 (0.3) 855.4 Increase in the period 18,602.9 (916.6) 17,686.3 (17,224.3) 427.0 (16,797.3)
Discounted claims provision, gross - Gjensidiges Arbejdsskadeforsikring A/S 3,960.9 3,515.4 Undiscounted claims provision, gross - Gjensidiges Arbejdsskadeforsikring A/S 5,011.9 4,853.0
The discount rate that is used has been determined by Finanstilsynet (the Financial Supervisory Authority) in Denmark pursuant to Danish accounting standards (Danish GAAP).
Amount recognised as expense for the defined contribution plan is NOK 96.2 million (81.2). Amount recognised in 2011 includes premium to Fellesordningen for LO/NHO.
The plan also includes disability pension and spouse and child’s pension subject to specific rules. In addition, Gjensidige Forsikring has pension liabilities beyond the ordinary collective plan for some employees. This applies to employees with a lower retirement age, employees with salaries above 12 times the social security base amount and supplementary pensions.
In the calculation for 2010 the reduced discount rate and salary adjustment yielded a negative effect on equity of more than NOK 100 million. In 2011, the negative effect on equity of more than NOK 300 million was mainly due to the reduced discount rate.
The group expects to contribute NOK 128.4 million to the defined benefit plan in 2011 (119.4).
actuarial gains and losses recognised in other comprehensive income Cumulative amount as at 1 January (2,124.0) (2,005.9) Recognised during the period (339.8) (118.0) Disposed companies (13.3) Exchange differences 1.0 cumulative amount as at 31 december (2,476.1) (2,124.0)
Change in pension benefits accrued during the year (17.3 %) 22.6 % 18.8 % (15.0 %)
Change in pension benefits accrued during the year (16.2 %) 22.9 % 20.0 % (15.0 %)
Historical information Present value of the defined benefit obligation 2,928.4 2,783.4 2,765.6 3,100.7 2,746.8
The fair value of the plan assets (2,089.4) (2,160.2) (2,080.7) (1,858.1) (1,660.5)
contractual pension (aFp) The liability to pay own risk according to the former arrangement is accounted for as a business specific defined benefit plan. Own risk are still to be paid until the pension liability is fulfilled for the company’s own early retirees choosing the former AFP plan. Pension liability for former employees that have chosen to retire before 1 January 2011 is fulfilled as originally planned until everybody has reached 67 years. Hence there will not be a settlement for this group of employees.
New AFP constitutes a lifelong addition to retirement pension from the National Insurance and is estimated based on pensionable salary including the year in which he or she is 61 years. AFP can earliest be applied for from the age of 62 years. Yearly AFP will increase by a higher age of withdrawal.
The transition to new AFP arrangement is accounted for as a negative past service cost of NOK 96.6 million and is recognised as income in 2010.
results 117 Gjensidige Annual Report 2011 15 – PRoVisions and otHeR liaBilities noK million 2011 2010
Deposits from and liabilities to customers without maturity date 9,391.6 8,902.8
Deposits from and liabilities to customers with maturity date 384.6 217.3 deposits from and liabilities to customers, bank 9,776.2 9,120.0
Cash credit 52.5 Liabilities to credit institutions, bank 513.1 513.1 Certificates and other short-term loan instruments, bank 1,049.8 Liabilities to bond debt, bank 4,750.3 3,639.5 total interest-bearing liabilities 5,263.4 5,254.9
Outstanding accounts Fire Mutuals 165.0 190.2 Accounts payable 125.3 100.4 Liabilities in relation with properties 54.0 26.5 Liabilities in relation with asset management 8.8 Liabilities to public authorities 364.0 466.6 Other liabilities 455.4 450.7 total other liabilities 1,172.6 1,234.4
Liabilities related to reinsurance 223.4 96.7 total liabilities related to insurance 477.1 392.5
Liabilities in life insurance with investment options 5,542.1 4,503.6 total liabilities in life insurance with investment options 5,542.1 4,503.6
Provisions as at 1 January 54.7 72.1 New provisions 50.0 25.0 Provisions used during the year (34.7) (42.4) Provision as at 31 december 70.0 54.7 1 In 2011 it has been decided to make a new provision of NOK 40.0 million in association with the restructurering and new distribution strategy for the Private marked. It has also been decided to make an new provision of NOK 10.0 million in association with the ongoing effeciency improvement measure of Commercial function started in 2010. These processes have been communicated to all business areas involved. During 2011 there have been used NOK 34.7 million of the provisions for 2010.
Tax effect of Tax rate different from 28 % and change in tax rate 5.5 28.1 Disparagement and reversal of loss carried forward in subsidiaries 3.1 Dividend received 344.1 3.4 Tax exempted income and expenses (319.3) 53.2 Associates 120.5 136.9
Impairment loss on goodwill and recognition of negative goodwill (5.4) (31.1)
Non deductible expenses (7.8) (17.3) One-time effect of tax relief decision 16.5 333.0 Other permanent differences 28.3 Correction previous years (35.4) 73.1 total tax expense (899.5) (303.6) Effective rate of income tax 24.7 % 9.3 %
results 119 Gjensidige Annual Report 2011 17 – exPenses oPeRating exPenses noK million 2011 2010
Depreciation and value adjustments (note 5 and note 7) 33.4 6.5 Employee benefit expenses (note 18) 13.5 14.4 Software costs 0.4 0.3 Auditor’s fee (incl. VAT) 1.0 1.4 Consultants’ and lawyers’ fees 2.5 4.7 Other expenses 141.9 115.0 total expenses related to investments 192.6 142.4 otHeR sPecifications noK million 2011 2010 auditor's fee (incl. Vat) Statutory audit 6.1 9.6 Other non-assurance services 7.4 8.3 Tax consultant services 0.7 0.1 total auditor's fee (incl. Vat) 14.2 18.1 employee benefit expenses Wages and salaries 1,482.1 1,536.3 Social security cost 299.0 287.3 Pension cost - defined contribution plan (note 14 incl. social security cost) 96.2 81.2 Pension cost - defined benefit plan (note 14 incl. social security cost) 68.3 (42.0) Stock purchase offering for employees 0.9 7.5 total employee benefit expenses 1,946.5 1,870.3 noK million 2011 2010 tax recognised in other comprehensive income Pensions 95.2 33.1 Deferred tax on hedge accounting (6.8) 20.2 Tax payable on hedge accounting 1.4 41.6 Tax payable on dividend expenses 13.2 exchange differences 89.8 108.2 tax recognised directly in equity Tax payable on dividend expenses 13.2 total tax recognised directly in equity 13.2 16 – SkATT (FORTS.)
taX eXpense In connection with the conversion of Gjensidige Forsikring BA to a public limited company the Ministry of Finance has consented to an exemption from capital gains taxation on the transfer of business to the newly formed public limited company under certain conditions. The consequences of the tax relief decision have been incorporated into the tax expense and tax liabilities from the fourth quarter of 2010. The tax relief decision involves greater complexity and discretionary assessments, which entails a greater degree of uncertainty with respect to the tax expense and tax liabilities until all the effects have ultimately been evaluated by the tax authorities.
decision-makinG process The Board of Directors has established a remuneration committee consisting of three members: the Chairman of the Board of Directors and two board members.
remuneration oF eXecutiVe personnel and emploYees Who can materiallY inFluence the Group’s risk Remuneration of the senior group management is stipulated by the CEO, in accordance with limits discussed with the remuneration committee and on the basis of guidelines issued by the Board of Directors. Correspondingly, the Group’s guidelines are used as the basis for other executive personnel and employees who can materially influence risk.
Members of the senior group management have a period of notice of six
Rights earned in the fin. year according to defined benefit pension plan 8 sharebased
Jørgen Inge Ringdal, Executive Vise President 2,232.4 471.8 202.2 822.1 20.2 292 8,743 2
Hege Yli Melhus, Executive Vise President 1,874.5 10.0 19.4 181.0 8.0 116 2,067 3
Mats C. Gottschalk (19.12.11-31.12.11), Executive Vise President 7.3 3 the Board of directors 5
remuneration oF oFFicers oF the companY and other emploYees With remuneration correspondinG to eXecutiVe personnel The remuneration shall follow the guidelines set out above. There are currently no such employees.
BindinG Guidelines For shares, suBscription riGhts etc. For the upcominG Financial Year Of the variable pay earned in 2012 by the CEO and other employees covered by the Regulations relating to remuneration in financial institutions, 50 per cent of the gross earned variable pay will be given in the form of a promise of shares in Gjensidige Forsikring ASA. One third of the shares will be allocated in each of the following three years.
report on eXecutiVe remuneration in the precedinG Financial Year With the exception of two employees in the finance department who were offered up to 50 per cent variable pay, the Board confirms that the guidelines on the remuneration of executive personnel for 2011 set out in last year’s statement have been complied with.
Tore Vågsmyr (1.6.11-31.12.11), staff representative 7 18.9 580 control committee 5
Bjørn Iversen , Chairman 195.0 1.5 816 Kirsten Indgjerd Værdal, Deputy Chairman 55.5 464 in addition 43 representatives from the company/Fire Mutuals/organisations/employees.
Rights earned in the fin. year according to defined benefit pension plan 8 loans, advance payments, guarantees, outstanding amount number of shares held interest rate 6 applicable conditions and installment plan
Tor Magne Lønnum, Deputy chairman 2,913.7 1,397.0 218.1 663.9 4,213 3
Jørgen Inge Ringdal, Executive Vise President 2,145.5 435.8 194.5 705.5 3,835 2
Petter Bøhler (1.1.10-22.3.10) 1, Executive Vise President 445.3 123.0 46.0 105.8 547.5 3.0 % 20.11.2012 3
Kim Rud-Petersen (15.3-31.12.10) 1, Exec. Vise President 2,115.3 223.1 136.5 2,244 Lise Westly (1.3-31.12.10) 1, Executive Vise President 1,325.8 164.5 309.7 1,502
results 123 Gjensidige Annual Report 2011 18 – SAlARIES AND REMUNERATION (CONT.)
Inge K. Hansen, Chairman 439.0 1.5 5,711 Randi B. Sætershagen, Deputy Chairman 375.0 3.6 2,711
Gunnhild H. Andersen, staff representative 235.0 605 Kjetil Kristensen, staff representative 235.0 406 Gunnar Mjåtvedt, staff representative 280.0 799 the Board of directors, deputies 6
Knut Bertil Øygard (1.1.10-28.6.10) 1, staff representative 13.0 control committee 6
Bjørn Iversen (28.6.10-31.12.10) 1, Chairman 23.0 Trond Bakke (1.1.10-28.6.10) 1, deputy Chairman 107.5 Kirsten Indgjerd Værdal (28.6.10-31.12.10) 1, 11, Deputy Chairman in addition 43 representatives from the company/Fire Mutuals/organisations/employees. 5
results Gjensidige Annual Report 2011 noK million 2011 2010 net income and gains/(losses) from investments in subsidiaries and associated companies Net income from associated companies 431.6 488.9 Net gain/(loss) from sale of associated companies (0.1) Net gain/(loss) from sale of subsidiaries 115.4 total net income and gains/(losses) from investments in subsidiaries and associated companies 547.0 488.7 net income and gains/( losses) from buildings and other real estate Owner-occupied properties Rental income from owner-occupied properties 21.1 14.2 Net gain/(loss) from sale of owner-occupied properties (1.7) 55.0 Administration expenses related to owner-occupied properties (14.2) (11.5) Impairment owner-occupied properties (28.8) (2.2) total net income and gains/(losses) from owner-occupied properties (23.5) 55.5
Investment properties Income from investment properties, excl. unrealised gain/(loss) 398.7 408.6 Net revaluation investment properties 83.5 (1.0) Net gain/(loss) from sale of investment properties 11.7 7.0 Administration expenses related to investment properties (90.7) (80.0) total net income and gains/(losses) from investment properties 403.2 334.6 total net income and gains/(losses) from buildings and other real estate 379.7 390.1 net income and gains/(losses) from financial assets at fair value through profit or loss, designated Derivatives Net interest income/(expenses) from derivatives 51.2 (15.0) Unrealised gain/(loss) from derivatives 71.4 140.7 Realised gain/(loss) from derivatives 419.0 (65.0) total net income from derivatives 541.6 60.7
Shares and similar interests Dividend income 24.7 89.2 Unrealised gain/(loss) from shares and similar interests (72.1) 110.6 Realised gain/(loss) from shares and similar interests (69.9) 175.1 total net income from shares and similar interests (117.4) 374.9
Net other financial income/(expenses) 1 (105.3) (119.2) Discounting of claims provision classified as interest expense (114.7) (130.2) Change in discount rate claims provision (453.0) (21.8)
total net income from investments 2,375.6 2,748.2 19 – net income fRom inVestments
20 – contingent liaBilities guarantees and committed capital Gross guarantees 0.1 0.6 Committed capital, not paid 746.0 705.8 years (ten) in average including option of extention.
Ultimate parent company Gjensigestiftelsen holds 62.83 per cent of the shares in Gjensidige Forsikring ASA Oslo, Norway subsidiaries Fair Forsikring A/S (liquidated during 2011) Copenhagen, Denmark 100.0 % Gjensidiges Arbejdsskadeforsikring A/S Copenhagen, Denmark 100.0 % Gjensidige Baltic Riga, Latvia 100.0 % Gjensidige Bank Holding AS Oslo, Norway 100.0 % Gjensidige Norge AS Oslo, Norway 100.0 % Gjensidige Pensjon og Sparing Holding AS Oslo, Norway 100.0 % Glitne Invest AS Oslo, Norway 100.0 % Nykredit Forsikring A/S Copenhagen, Denmark 100.0 % Oslo Areal AS Oslo, Norway 100.0 % Samtrygd Eigedom AS Førde, Norway 100.0 % Storgata 90 AS Oslo, Norway 100.0 % Strandtorget Drift AS Oslo, Norway 100.0 % Strandtorget Eiendom AS Oslo, Norway 100.0 % Tennant Holding AB Stockholm, Sweden 100.0 %
other related parties Fire Mutuals All over the country, Norway Gjensidige Pensjonskasse Oslo, Norway 94.7 %
1 In addition Gjensidige owns bonds in SpareBank1 SR-Bank amounting to NOK 343.7 million.
Specifications interest income and expenses from financial assets and liabilities not recognised at fair value through profit or loss Interest income from financial assets not recognised at fair value through profit or loss 1,044.3 1,053.2 Interest expense from financial assets not recognised at fair value through profit or loss (87.8) (43.2)
As part of its ongoing financial management, the Company has undertaken to invest up to NOK 746.0 million (705.8) in various private equity and real estate investments, over and above amounts recognised in the balance sheet. Investments in private equity and real estate funds totalled NOK 1,514.9 million (1,303.6) at the end of the year.
loans to related parties As at 31 December 2011 employees have loans in Gjensidige Bank amounting to NOK 1,082.6 million. The loans are offered on normal commercial conditions.
Guarantees Gjensidige Forsikring was until 1 January 2012 responsible externally for any insurance claim arising from the cooperating mutual fire insurers’ fire insurance business, see note 20.
income From inVestments in suBsidiaries and associates The table below shows a summary of contributions/dividends from/to subsidiaries as well as liquidation losses.
total income from investments in subsidiaries and associates 444.9 149.0 292.7 41.4 intercompanY Balance
Primary capital 14,569.5 13,839.8 Primary capital in other financial institutions (108.5) (108.6) net primary capital (a) 14,461.0 13,731.2
Assets with 0 % risk weight 6,097.6 6,459.5 Assets with 10 % risk weight 1,859.8 551.4 Assets with 20 % risk weight 34,159.9 32,445.8 Assets with 35 % risk weight 11,714.5 11,011.7 Assets with 50 % risk weight 1,148.9 2,097.9 Assets with 100 % risk weight 28,942.5 26,131.2 Assets with 150 % risk weight 437.5 743.1 other non-weighted assets Goodwill 2,374.8 2,580.7 Deferred tax assets 7.4 199.4 Other intangible assets 1,201.7 1,349.5 Derivatives 547.4 536.6
Assets with 0 % risk weight 0.0 0.0 Assets with 10 % risk weight 186.0 55.1 Assets with 20 % risk weight 6,832.0 6,489.2 Assets with 35 % risk weight 4,100.1 3,854.1 Assets with 50 % risk weight 574.4 1,049.0 Assets with 100 % risk weight 28,942.5 26,131.2 Assets with 150 % risk weight 656.3 1,114.6 Net basis of calculation for institutions reporting in accordance with Basel II and which are not distributed according to risk weight 48,085.4 46,872.5 total risk weighted assets 89,376.6 85,565.6
Weighted reinvestment cost derivatives 24.5 123.8 Primary capital in other financial institutions (108.5) (108.6) Loss provisions (187.6) (116.5)
Risk weighted calculation base (B) 89,105.0 85,464.3 Capital ratio (A/B) 16.2 % 16.1 %