Gjensidige defended its market shares and achieved record high customer satisfaction in 2016. Good and efficient operations contributed to another strong result.
About the reporting Gjensidige publishes a web-based annual report on www.gjensidige.no/reporting. The annual report 2016 will not be printed.
Operations in Baltics integrated The former PZU Lietuva business was integrated with Gjensidige’s other operations in the Baltics.
Gjensidige acquired the swedish general insurance portfolio from Vardia Insurance Group.
Gjensidige recorded a profit after tax of NOK 4.7 billion in 2016, corresponding to a return on equity of 21.4 per cent. For the general insurance operation the premium growth was 5.5 per cent and the combined ratio was 83.4 per cent. The earnings per share was NOK 9.34 and the Board has proposed a dividend of NOK 6.80 per share.
Net income from investments NOK million 2,196.1 1,473.3 2,475.6 2,538.1 3,055.8
Claims incurred, general insurance NOK million (15,515.9) (14,597.5) (14,470.4) (13,859.6) (12,437.7)
Other claims incurred, losses etc. NOK million (1,963.7) (1,927.8) (1,892.4) (1,435.7) (1,150.0)
Profit for the year NOK million 4,665.9 3,784.7 4,189.6 3,670.6 4 ,280.1
Regular dividend per share (Based on profit for the year) NOK 6.80 6.40 5.90 6.80 6.85
Provisions for unearned premiums, gross NOK million 13,654.9 13,097.2 11,944.6 11,049.2 10,141.6
Total equity and liabilities NOK million 135,926.6 129,264.4 113,982.0 108,946.3 94,207.1 1 Underwriting result, general insurance = earned premiums - claims incurred etc. - operating expenses 2 Large losses = loss events in excess of NOK million 3 Run-off gains/(losses) = changes in estimates from earlier periods. Reserving is based on best estimate, and expected run-off result over time is zero. 4 Combined ratio = claims ratio + cost ratio 5 Loss ratio = claims incurred etc. /earned premium 6 Cost ratio = operating expenses/earned premium 7 Investment portfolio includes all investment funds in the Group, except Pension and Savings and Retail Bank 8 Return on financial assets = net financial income as a percentage of the average financial assets including property (excluding Pension and Savings and Retail Bank) 9 Return on equity, annualised = Shareholders’ share of net profit for the period/average shareholders’ equity for the period, annualised 4 I Gjensidige annual report 2016
In addition to the financial statements according to IFRS, Gjensidige uses different alternative performance measures (APM) to present the business in a more relevant way for its different stakeholders. The alternative performance measures have been used consistent over time, and relevant definitions have been disclosed in the quarterly reports. Comparable figures are provided for all alternative performance measures in the quarterly reports.
Sickness absence (Self-certified and doctor-certified), Gjensidige Forsikring Norway % 3.9 4.1 4.7 5.1 4.6
Average age Gjensidige Forsikring Scandinavia Year 43.0 44.3 43.1 44.4 44.3
As a major asset manager, it is especially important that we set requirements for socially responsible operation in the companies we invest in. At the end of 2016, 85 companies had been excluded from our investment portfolio because they did not meet our criteria.
good, facts-based analyses will form the basis for all our activities relating to pricing, claims settlement and customer service.
At the same time, we must strengthen the organisation’s ability to meet a future that requires modernisation and increasingly rapid changes.
Gjensidige is a Nordic general insurer. The Group safeguards life, health and assets for private and commercial customers in Norway, Denmark, Sweden, Lithuania, Latvia and Estonia. In Norway, products within banking, pension and savings are also offered.
Gjensidige is market leader in the Norwegian general insurance market, where the Group has high brand recognition and preference. Gjensidige was the leading player in Norwegian non-marine general insurance in 2016 as well, and has a solid position for further growth in the Nordic countries and Baltic states.
Analytical use of data in order to offer attractive products and services and ensure profitable operations is crucial if we are to realise our ambition of being the most customer-oriented general insurance company in the Nordic region.
Without motivated, committed managers and employees who possess the right expertise and attitudes, our strategic ambitions cannot be realised. A higher pace of change – not least as regards technology and customer behaviour – means that a transition is needed from traditional training-based competence-raising measures to a dynamic learning culture driven by individual managers and employees. Competence shall increasingly be shared through data-driven work processes and cooperation-based solutions. A stronger overall understanding shall be created through internal rotation of managers and staff.
Gjensidige Bank and Gjensidige Pensjon og Sparing play an important strategic role in relation to Gjensidige’s position in the Norwegian market. Exclusive customer solutions and concepts will continue to be important in both the private and commercial markets.
Outlook In the Private segment we work all the time with measures aimed at retaining customers and improving the quality of all customer processes. Improved availability, simplification of products and processes and more digitalisation are prioritised in order to support the Group’s financial targets and improve customer orientation. Competition is strong, both from established financial players and from some smaller niche players, but Gjensidige’s competitiveness in the Norwegian private market is still good.
General Insurance Private The Private Segment offers a wide range of general insurance products and services in the Norwegian private market. The products are sold mainly through own distribution channels. With loyal customers and a strong brand Gjensidige is the market leader in the general insurance market for private customers.
Competitive sales activities and renewals were the main priorities in the Commercial segment in 2016. In connection with the work on increasing customer satisfaction and improving risk pricing, the methodology for systematic risk management was further refined. New products and digital solutions were launched in order to satisfy changing customer behavior. Strategic work force planning helped improve operational efficiency in the organisation.
The Norwegian Commercial market is characterized by fierce and somewhat increasing competition. Gjensidige, being the largest player, is faced with competition both from big, established players and a number of smaller players. The competition entails price pressure in all areas, and especially within Accident and health. Seen in light of the market conditions, Gjensidige is pleased with the renewals into 2017.
Key figures Commercial 26,5 % Accident and health 4,4 % Marine/cargo
Important priorities in 2016 continued to include integration activities relating to companies and portfolios acquired in the last few years. Further, work has been done towards continuous strengthening of the distribution collaborations and streamlining of operational processes. The focus on continuous development of the business model, portfolio management and repricing contributed to a strengthening of the quality in the portfolios and the profitability development in the Swedish operations.
Outlook Gjensidige’s Nordic operations shall contribute to economies of scale, diversification of risk and increased competitiveness Pan-Nordic. The Nordic general insurance markets are relatively consolidated, but Gjensidige expects that it will be possible to grow selectively through a patient, rational approach to new opportunities. The implementation of new tariffs and steps to achieve a higher proportion of self-service will continue to be prioritised in 2017. There will be focus on integrating and capitalising on business synergies in connection with portfolio acquisitions and distribution collaborations, and the volatility in the Swedish portfolio will be further reduced.
Source: Insurance Sweden, based on earned premiums 2016 30.2 % Länsförsäkringar 15.1 % Trygg-Hansa 9.7 % Alm Brand
Source: Baltics Insurance Supervisory Authorities of Latvia and Lithuania, Estonia Statistics, competitor reports, and manual corrections. Based on gross written premiums for 3rd quarter 2016.
In 2016 the Baltic operations were characterized by integration processes as a result of the acquisition of PZU Lietuva the year before. The operations were integrated by the end of the year.
The competition is fierce and there is considerable pressure on prices, but new and more sophisticated tariffs are expected to contribute to better portfolio quality. The Baltic operation is expected to be profitable from 2018.
Pension and Savings offers defined contribution pension plans and good investment opportunities for companies, as well as disability pension plans for individuals. Further development of solutions based on customers’ needs was prioritised in 2016, and helped create good portfolio growth.
Outlook Pension and Savings is a priority area that helps to make Gjensidige a complete supplier of insurance and pension products to the Commercial segment. The business contributes to stronger customer relations and loyalty among the general insurance customers. In February 2017 the Savings operations Gjensidige Investeringsrådgivning was merged with Gjensidige Bank. The Pensions operations carry on as Gjensidige Pensjonsforsikring.
The market for defined contribution pensions is growing and Gjensidige is well-positioned to participate in it. The positive growth rate is expected to continue.
Retail Bank Gjensidige Bank is a pure internet bank which shall contribute to sales of a wide range of products to general insurance customers in Norway. The bank offers mortgages, car financing, unsecured lending, savings, credit cards and day-to-day banking services. Distribution is mostly online, and customer service may be reached on the phone, via chat and at Gjensidige’s financial offices. Car financing is also distributed through car dealers.
The investment portfolio is split into two parts: a match portfolio and a free portfolio. The match portfolio is intended to correspond to the Group’s technical provisions. It is invested in fixed-income instruments with a duration matched to the duration of the technical provisions.
At year-end 2016, the investment portfolio totalled NOK 54.0 billion. The financial result was NOK 2.2 billion, which corresponds to a return on financial assets of 3.9 per cent.
Group Return on financial assets 1 % 3.9 2.6 4.3 Equity NOK million 22,326.0 23,330.6 21,656.8 Return on equity, annual 2 % 21.4 17.4 23.3 Equity per share NOK 44.7 46.7 18.1 Total eligible own funds to meet the group SCR (SF) 3 NOK million 20,377.9 19,491.4 Group SCR margin (SF) 4 % 146.8 138.8 Total eligible own funds to meet the minimum consolidated group SCR (SF) 5 NOK million 14,065.2 14,088.3 Minimum consolidated group SCR margin (SF) 6 % 266.4 280.9
Gjensidige Forsikring ASA Total eligible own funds to meet the SCR (SF) 7 NOK million 18,625.0 18,659.7
Private % 12.8 12.7 12.7 Commercial % 11.0 11.4 11.3 Nordic % 15.7 15.6 16.6 Baltics % 37.4 33.6 27.8 Total % 14.2 15.1 15.0 18 I Gjensidige annual report 2016
Pension and Savings Assets under management pension, at the end of the period NOK million 23,237.3 20,033.0 17,196.3 of which the group policy portfolio NOK million 5,409.6 4,877.5 4,186.8 Assets under management savings, at the end of the period NOK million 15,141.6 15,555.1 15,018.2 Operating margin 17 % 30.47 19.37 5.43 Recognized return on paid-up policy portfolio 18 % 4.08 5.43 4.63 Value-adjusted return on paid-up policy portfolio 19 % 4.87 5.42 4.63 Customers with insurance agreements at the end of the period 20 % 70.0 84.5 84.6 Return on equity, annual 2 % 14.5 14.1 7.8
Retail Bank Gross lending, addition in the period NOK million 4,514.0 9,189.0 3,352.6 Deposits, addition in the period NOK million 1,913.1 2,653.9 1,765.1 Gross lending, at the end of the period NOK million 41,249.5 36,735.5 27,546.5 Deposits at the end of the period NOK million 21,270.4 19,357.2 16,703.4 Deposit-to-loan ratio at the end of the period 21 % 51.6 52.7 60.6 Net interest margin 22 % 1.85 2.12 2.17 Write-downs and losses 23 % 0.18 0.20 0.20 Cost/income ratio 24 % 42.9 49.5 54.0 Customers with insurance agreement at the end of the period 25 % 76.2 77.0 Capital adequacy 26 % 17.1 16.1 15.9 Core capital adequacy 27 % 15.0 14.2 14.1 Common equity Tier 1 capital ratio 28 % 13.5 12.7 14.1 1 Return on financial assets = net financial income in per cent of average financial assets including property, excluding Pension and Savings and Retail Bank 2 Return on equity, annualised = Shareholders’ share of net profit for the period/average shareholders’ equity for the period, annualised 3 Total eligible own funds to meet the group SCR (SF) = Total eligible own funds to meet the group SCR under the Solvency II standard formula. Total comprehensive income is included, less a formulaic dividend pay-out ratio in first, second and third quarter of 70 per cent of net profit. 4 Group SCR margin (SF) = Ratio of total eligible own funds to group SCR under the Solvency II standard formula 5 Total eligible own funds to meet the minimum consolidated group SCR (SF) = Total eligible own funds to meet the minimum consolidated group SCR under the Solvency II
Every quarter, the results and business operations are discussed in meetings with analysts and investors. As a main principle, investor relations is always present at these meetings, possibly in addition to the CEO and/or CFO or other relevant senior management from the company.
Dividend and dividend policy Gjensidige targets high and stable nominal dividends, over time a minimum of 70 per cent of the profit after tax. When determining the size of the dividend, the expected future capital need will be taken into account. Over time, Gjensidige will also pay out excess capital above the targeted capitalisation.
Customer dividend The Gjensidige Foundation is the largest shareholder in Gjensidige with 62.2 percent of the shares. The Foundation distributes the regular dividends it receives from Gjensidige related to the annual result, to Gjensidige’s general insurance customers in Norway. Special dividends related to distribution of excess capital is retained and managed by the Gjensidige Foundation.
Paid customer dividend in 2016, based on the accounting year 2015, equalled 13.5 percent of paid premiums in 2015.
The Gjensidige share yielded a total return of 5 per cent in 2016. At year-end Gjensidige was the eighth largest company listed on Oslo Stock Exchange, with a market cap of NOK 69 billion. Earnings per share was NOK 9.34 in 2016, and the Board has proposed a dividend of NOK 6.80 per share.
Per cent 3 Deutsche Bank 3.6 4 Caisse de Depot et Placement du Quebec 3.3 5 Danske Bank 2.8 8 State Street Corporation 0.8 9 Vanguard Group 0.8 11 Safe investment Company 0.6 12 JPMorgan Chase & Co 0.6 14 Fidelity Worldwide Investment (FIL) 0.5 15 William Blair & Company 0.4 17 Genossenschaftliche FinanzGruppe Volksbanken Raiffeisenbanken 0.4 18 Thornburg Investment Mgt 0.4 19 BNP Paribas Group 0.4 20 Legal & General Group 0.3 1 The list of shareholders is based on an analysis of the register of shareholders in the Norwegian Central Securities Depository (VPS) as at 31 December 2016, carried out by Orient Capital Ltd. The analysis maps the owners behind the nominee accounts. There is no guarantee that the list is correct. An overview of the 20 largest shareholders as specified in VPS’s register of shareholders is available in Note 24 on page 143.
General Meeting The next ordinary General Meeting will be held at Gjensidige’s offices in Schweigaards gate 21, Oslo, on 6 April 2017, at 17:00 CET.
Gjensidige’s object is to create value for society through safeguarding life, health and assets and by relieving customers of risk. We shall ensure that our experience and expertise in loss prevention benefit society at large. Our activities shall contribute to a good, sustainable society characterised by respect for human rights and the environment we live in.
In 2016, approximately 30 stakeholder groups were assessed, and 5 of them were considered to be of particular importance to the risk analysis: • Public authorities • Owners • Employees • Customers • Partner organisations
Renewable energy Waste handling Water consumption Environmental emissions Sustainable products Insurance for the financially disadvantaged
Si gn ifi ca nc e to st ak eh ol de rs 22 I Gjensidige annual report 2016
One example of this could be waste handling, which is not considered material to us, although it is an important topic in general. Gjensidige does not have any processes that generate significant amounts of waste. Our waste production is largely related to office supplies, the running of cafeterias and hygiene. For that reason, it is not natural for stakeholders to be very concerned with Gjensidige’s waste production. This does not mean that we neglect the topic, however. We have sound systems in place for separation at source and recycling, and make constant efforts to minimise the amount of waste we generate.
Corporate social responsibility is an integral part of our business operations. We are an insurance company and wish to use our expertise and influence in areas where we can play a significant role.
We shall ensure as little negative impact on the environment and climate as possible. The Board and the management have adopted policies, guidelines and instructions that detail and specify the framework our employees must adhere to in different situations. Documents that are particularly relevant to the exercise of our corporate social responsibility are listed in a table on page 35.
A full version of the guidelines for corporate social responsibility (CSR) and socially responsible investments (SRI) is available at www.gjensidige.no.
The price customers pay for their insurance is normally strongly affected by the financial risk the customer represents. This risk is affected by the customer’s choice of house, car and behaviour, among other things. We reward a number of security measures by giving a discount on the
Young drivers are especially at risk of being involved in accidents. In order to reduce the number of such accidents, Gjensidige therefore has several measures targeting this group in particular.
In Latvia, Gjensidige contributes to improving road safety through an annual campaign that encourages pedestrians to wear reflectors.
Fire is something that severely affects our customers, both financially and, not least, personally. Together with the Norwegian Fire Protection Association, the Directorate for Civil Protection and Emergency Planning (DSB) and local fire brigades, we organised the ‘Aksjon Boligbrann’ fire prevention campaign in autumn 2016. It involved visiting 40,000 homes. We also contributed to the development and marketing of educational material on fire prevention for schools. Approximately 20,000 children take part in this training every year.
Every year, Gjensidige is represented on a number of councils, committees and boards, both in
Socially responsible capital management Our investment activities are globally oriented, and we invest in countries where respecting human rights is not a matter of course. By doing so, we risk becoming part-owner of companies that contribute to violating human rights through their production of goods and services or their treatment of employees, suppliers, the local community or other interest groups.
The Group’s Chief Investment Officer is responsible for ensuring compliance with the guidelines. Follow-up requires both time and special expertise. We have therefore hired two external consultancy firms to carry out continuous monitoring of companies. The external consultants prepare lists of companies that they believe Gjensidige should not invest in, and why.
Diversity and discrimination We work to ensure that all employees in the Group have equal opportunities for personal and professional development. We do not tolerate discrimination on the basis of • gender • age • disabilities • ethnic origin • sexual orientation • religion
One measure aimed at ensuring such compliance is the compilation of pay statistics to shed light on any differences in pay for the same work or work of equivalent value. Any nonconformities will be followed up by actions. No special measures relating to equality or discrimination have been necessary in 2016.
The Group’s Board had ten members in 2016, five of whom were women. Of the seven representatives who were not elected by and from among the employees, three were women.
In addition to the Senior Group Management, 395 employees in Norway, Sweden and Denmark held executive positions in 2016. Of these, 64 per cent were men and 36 per cent women.
has contributed to a higher proportion of female managers over time.
In 2016 we surveyed differences between male and female employees in Gjensidige Forsikring Norway when it comes to pay and working conditions.The survey showed that • 52 percent of employees are men, and 48 percent women • 98 percent of male employees work full time • 87 percent of female employees work full time • Average annual salary for full time employed women amounts to 84 percent of average annual salary for full time employed men
We have an equality and discrimination committee that meets when necessary. The committee comprises staff from the HR department and employee representatives. It is the Group’s HSE manager who decides when to convene the committee. Employees reporting discrimination is a typical reason for holding a meeting. The committee held one meeting in 2016. The topic was equal pay for women and men. No wage disparities on the basis of gender were identified in Gjensidige.
Gjensidige shall be an inclusive workplace for all employees. We are an Inclusive Workplace (IW) enterprise and cooperate with the Norwegian Labour and Welfare Administration (NAV) on job training for people who, for various reasons, have been unemployed. NAV pays subsidies for employees who suffer from chronic illnesses but still manage to work. We have had employees on job training through this programme in 2016.
All our big office buildings are of universal design in order to accommodate employees with disabilities.
A family-friendly company By law, parents are entitled to paid leave in connection with childbirth in all the countries where Gjensidige has employees.
In 2016, Universum named Gjensidige Norway the most attractive employer for economists in the insurance industry. When all professions and industries are included, we were number 39 on the list, 5 places higher than the year before.
Management and employee development is attended to by the staff entity the Gjensidige Customer and Brand School, which is part of HR and is organised under the EVP of Group Staff and General Services.
The HR Department is responsible for strategic staffing planning, including mapping of critical roles and expertise in the Company. The plan ensures that there are successors to all critical positions in the Company, and that we always cultivate talents who can take over key positions.
We work systematically on talent recruitment and have developed an employer branding strategy to this end. We make targeted efforts through digital channels to highlight Gjensidige as an employer. We visit relevant educational institutions with stands and presentations for students.
We have established an internship scheme, where students work for us for a whole academic year. In 2016, we had 13 students in internships. The work is intended to be relevant for their studies and to contribute to putting theory into practice.
Every year we organise the ‘Gjensidige Day’ at Gjensidige’s head office, which offers a varied programme for students. In 2016, 60 students participated in presentations, workshops, group interviews and a social event in the afternoon.
All new Gjensidige employees take part in an introduction day where the CEO and other key personnel talk about the Company’s strategy, competence-building, culture, brand, ethics and more practical information.
The Gjensidige Customer and Brand School had 7,113 course days in 2016. Almost 1,600 employees participated in courses organised by the Gjensidige Customer and Brand School in 2016.
In all, we spent NOK 15,000 per employee on competence-raising measures in 2016, which is somewhat less than in 2015. That was in part because of cost reductions and in part because the number of employees increased due to acquisitions. We have an active career development programme in the Company. Among other things, it facilitates internal mobility for the purpose of broadening the employees’ range of competence and experience.
Special adaptation procedures have been adopted for employees who have health problems that are aggravated by computer work or who wish to prevent such problems arising. The Company has not been notified of any repetitive strain injuries in 2016.
Working environment issues are integrated in the annual employee satisfaction survey.
In 2016, 92 per cent of our employees in six countries chose to take part in the survey. That is a very high response rate. The survey measures various criteria on a scale from 0 to 100, where 100 indicates an optimal condition.
The following are a selection of key results from the 2016 survey: • Job satisfaction: 73 • Contentment: 72 • Motivation: 74
In 2016, Gjensidige’s customer satisfaction index (KTI) was 77.4 at group level, which is an increase of 1.2 from 2015, and a very good result.
The possibility of efficient but thorough complaints handling is part of delivering high-quality claims settlements. Gjensidige has established a complaints system whereby customer complaints can be considered at three levels.
The first level is the case officer. If the case officer does not reverse his/her decision, the customer can complain to the second level – the customer ombudsman – which is the Company’s internal complaints board. The customer ombudsman service is staffed by highly experienced claims settlement personnel, who can take a fresh look at the case without being influenced by the original case officer’s personal assessment.
Of the cases reported to the Financial Services Complaints Board, the Board found in favour of the customer in whole or in part in 21 per cent of the cases. A high percentage would indicate that the threshold for succeeding with a complaint internally in Gjensidige was high.
Innovation and technology development In order to ensure that our products and customer service maintain a high international level at all times, we collaborate with research institutions on innovation. In the period 2015 to 2022, we are participating in a research collaboration with, among others, the University of Oslo, the University of Bergen and the Norwegian Computing Centre on several projects that we expect to give us new insight into topics relating to the processing of large data volumes (big data). Examples include risk pricing, forecast and trend analyses and insurance fraud.
The Senior Group Management has overriding responsibility for the processing of personal data and internal control relating thereto. Other managers are responsible for ensuring that employees who have access to personal data have the competence and other qualifications required to be able to comply with the regulations and protect the customer’s personal data.
The data protection officers have an independent role and are in contact with the Norwegian Data Protection Agency and with customers and employees who have enquiries about personal data. They also have an internal control function.
Whistleblowing is facilitated through two electronic mailboxes: • An internal mailbox for reporting ethics-related matters • An external mailbox for reporting irregularities and malpractices
Notifications to the external mailbox are in principle anonymous, unless the whistleblower chooses to provide his/her name. Employees may submit notifications to this mailbox anonymously, as may customers, suppliers and other external stakeholders.
If the investigations uncover matters that warrant criticism, HR will take over the case and ensure that it is dealt with. The CEO will decide whether to report employees to the police.
internal control procedures. Risk management and internal control are described in more detail on page 68 and in note 3.
Our definition of corruption follows the definition used in Norwegian law: abusing one’s position to obtain an advantage for the company, oneself or others. The work on combating corruption requires clearly defined rules and active enforcement of the rules.
It follows from this that our employees are not allowed to offer or receive bribes or facilitation payments. The same applies to gifts that can be regarded as improper. The rules apply to managers and employees at all levels of the Company, also in countries that are not covered by Norwegian law. Special rules have been stipulated for employees with responsibility for relations with customers and suppliers.
Other measures that, together with the regulations, make up our anti-corruption programme include: • Risk assessments • Internal control • The anti-corruption handbook • Whistleblowing procedures • Procedures for handling nonconformities and violations • Dilemma training • E-learning
The programme gives a detailed description of what is meant by corruption, examples of acceptable and unacceptable behaviour, and assignments intended to contribute to reflection on difficult situations.
The rules are available at gjensidige.no, on the intranet and in e-learning courses, and managers shall contribute to ensuring that employees are aware of the rules. The purpose is to prevent and help to put a stop to activities that can entail a breach of the regulations at an early stage.
The money laundering regulations for banking and investment services deviate slightly from the insurance industry. Separate money laundering instructions have been established for Gjensidige Bank, as well as clear procedures for uncovering and dealing with suspected money laundering. An anti-money laundering officer has been appointed, who follows up cases that the customer service staff cannot resolve themselves.
Underwriting policy Good risk selection is decisive for financial strength and profitability. Gjensidige’s underwriting policy is intended to provide the Company with an overview and control of its risk exposure. It is also intended to ensure that the Company complies with applicable laws and regulations, and that it acts in a way that is generally perceived as fair and reasonable, and that is in line with Gjensidige’s guidelines for ethical business operations.
The use of electronic tools ensures that all processes are documented and verifiable, and this prevents irregularities.
The environment and climate Gjensidige’s activities do not pollute the natural environment to any great extent. Our CSR policy states that the we shall have as little negative impact on the environment and climate as possible.
An annual environmental report is prepared for all these offices that documents the status of implemented environmental measures and action plans for the coming year. Among other things, the report covers waste handling, energy consumption, procurements, paper consumption, transport and climate accounts.
The offices must be recertified every three years. It is an extensive process that is carried out by an external adviser certified by the Eco-Lighthouse Foundation.
The Group’s energy consumption in 2016 was 12,000 MWh. Most of our energy consumption is related to lighting, heating and computers. The energy carriers are electricity, which in Norway is almost exclusively based on hydropower; district heating, which is largely based on waste incineration; and fuel oil.
In the course of the year we reduced the energy consumption at our head office by a considerable amount by optimizing ventilation, cooling and heating. The energy consumption in our Baltic offices increased due to an acquisition.
We help our employees to be environmentally friendly, both in the performance of their duties, as employees in general and in their spare time, among other things through information published on our intranet site. The information includes tips on how to reduce the production of waste and how to recycle, how to achieve maximum energy savings and how to reduce the use of polluting transport and travel.
Sustainable products In cooperation with the Norwegian Automobile Federation (NAF), the member organisation for car owners, we have developed an environmentally friendly car loan for hybrid, hydrogen and electric cars. The loan is distributed by NAF and furnished by Gjensidige Bank.
In 2016, the proportion increased from 60 to 65 per cent.
In Oslo, Gjensidige cooperates with the Church City Mission on creating a better and safer environment in the city centre, where the Company’s head office is located. On Gjensidige’s part, this cooperation involves a financial contribution to the Church City Mission and participation by our employees. In 2016, employees from several offices all over the country contributed to the Church City Mission’s knitting campaign, which is organised before Christmas every year to get people involved and raise money for a Christmas celebration for disadvantaged people.
In 2016, the Company donated NOK 1 million as a Christmas gift to the Red Cross in support of the organisation’s refugee work in Syria. The Company’s employees decided which cause would receive the gift through a vote.
In Denmark, Gjensidige supports the Christmas Seal Homes foundation (Julemærkehjemmene), which helps around 750 children every year who are victims of bullying or isolation.
In Lithuania, we cooperate with the aid organisation Food Bank, which distributes food to the poor.
In addition to the formal contact with our customers, we seek dialogue through social media and email newsletters, and various customer events.
Governing documents of particular relevance to the exercise of corporate social responsibility
Complaints handling • Group policy – complaints handling • Instructions for the customer ombudsman’s complaints handling • Instructions for the companies’ complaints handling
Ethics • Code of ethics for Gjensidige • Specification of ethical guidelines relating to gifts and hospitality activities • Policy on prohibited restriction of competition
Employees, proportion men/women *** Per cent 50/ 50 52/ 48 53/ 47
Average pay full time employed women as a percentage of average pay full time employed men, non-managers ****
Number of excluded companies Number 85 80 85 * Based on the Board’s proposal for 2016.
5. The Company’s Articles of Association do not contain provisions that in whole or in part expand on or deviate from the provisions of Chapter 5 of the Public Limited Liability Companies Act.
1. Statement on corporate governance The Financial Undertakings Act entered into force on 1 January 2016. Transitional rules were issued that applied until 1 January 2017.
In accordance with the Storting’s recommendation, the Board proposed in 2015 that the general meeting dispense with the Supervisory Board and its Control Committee with effect from 1 January 2016. The general meeting adopted a resolution in line with the Board’s recommendation, and this has brought the owners closer to the Board, which is the body that, by law, manages the Company. The Nomination Committee’s position has been strengthened, and it is working on adapting to its role and responsibility. The Board’s audit committee has for many years served as a preparatory committee in relation to the Board’s control responsibility, and it maintains most of the functions of the Control committee.
Under the Financial Undertakings Act, the Board is obliged to establish a dedicated risk committee, i.e. a preparatory committee corresponding to the audit committee. While the audit committee is a retrospective committee, the risk committee will take a forward-looking perspective in relation to the Company’s strategy, risk appetite and risk ability. These committees are preparatory only. The purpose is to strengthen and make the Board’s discussions more efficient. The Board’s collective responsibility remains unchanged. It was decided in 2016 to establish the risk committee with effect from 1 January 2017. The audit committee has fulfilled both roles for many years, and the Board has started work on finding an appropriate work form for the future.
The Board’s statement on corporate governance in Gjensidige Forsikring ASA is available at www. gjensidige.no
Through our operations, we have acquired extensive expertise in loss prevention. This know-how shall as far as possible be used for the benefit of society as a whole. Traffic and fire are especially important areas in which the Company’s expertise in loss prevention can help to save lives and assets. Other important areas are awareness-raising campaigns aimed at combating fraud and other crime, and efforts to promote physical and mental health in the population. The Company’s extra efforts in the area of corporate social responsibility will be concentrated on loss prevention in the broadest sense.
Gjensidige’s internal control systems include the Company’s core values and guidelines for ethics and corporate social responsibility. A dedicated ethics suggestion box has been established for reporting relevant matters. Effective notification procedures have also been established that make it easy to notify the management and/or the Board of inappropriate conduct that it has not been possible to change through established management systems, and that also ensure that whistleblowers are protected and that matters that are raised receive relevant follow-up.
The Group’s efforts in relation to the working environment, equal opportunities and integration are described in more detail on page 25 in the annual report.
Information is a strategic resource for Gjensidige. The work on ensuring good data quality, efficient data collection processes, availability, reporting and analysis will therefore be strengthened further.
Deviations from the Code of Practice: None 3. Equity and dividends Equity The Gjensidige Group’s equity amounted to NOK 22.3 billion at the end of 2016.
Based on Gjensidige's understanding of the rules and the way it has been implented in Norway, the Solvency margin was 147 per cent at year end based on the Standard formula, and 180 per cent based on the Partial internal model.
internal model • Rating requirements: Insurer financial strength rating A from S&P or equivalent from other rating agencies
Dividend Gjensidige’s goal is to distribute high, stable nominal dividends, at least 70 per cent of the profit after tax expense over time. When determining the size of the dividend, consideration will be given to expected future capital needs.
share. The proposed dividend based on the profit for the year corresponds to 73per cent of the Group’s profit after tax expense. The Board’s proposal for the distribution of dividend for the 2016 financial year is explained in more detail in the Board´s report.
Authorisations granted to the Board Gjensidige’s annual general meeting granted the following authorisations to the Board in 2016: - Authorisation to purchase own shares in the market with a total nominal value of up to NOK 1,000,000. The authorisation is valid until the next general meeting, no longer, however, than until 30 June 2017. It can only be used for sale and transfer to employees of the Gjensidige Group as part of the Group’s share savings programme as approved by the Board, or to executive personnel in accordance with the remuneration regulations and the pay policy adopted by the Board. The minimum and maximum amounts that can be paid per share are NOK 20 and NOK 200, respectively. The purpose of this measure is to promote a good business culture and loyalty by making employees part-owners in the Company. The authorisation was used to buy shares in 2016. The authorisation was considered as a separate item at the Company’s annual general meeting.
All board members and members of management shall immediately notify the Board if they, directly or indirectly, have an interest in a transaction or agreement that the Company is considering entering into. This applies even if the board member is deemed not to be disqualified from considering the matter These provisions are laid down in the rules of procedure for the Board. The objective is to avoid harming the Company’s reputation in connection with investments where there may be circumstances that can be perceived as an unfortunate close involvement, or a close relationship between the Company and a board member or executive personnel.
The general meeting is conducted in accordance with the Code of Practice: - The Articles of Association stipulate that three weeks’ notice must be given. The notice of the meeting and case documents are made available on the Group’s website gjensidige.no/group/. Shareholders may nonetheless demand that the case documents be sent to them by post free of charge. The minutes will be published at group/ as soon as they are available.
- The CEO, the Chairman of the Board and the Chair of the Nomination Committee are required to be present unless this is clearly unnecessary or they have valid grounds for not attending.
- If necessary, and if the nature of the matter so requires, the whole Board and the whole Nomination Committee will be present at the meeting.
More information about the use of proxy and shareholders’ right to have matters considered by the general meeting is provided in the notice of the meeting and at konsern.
7. Nomination Committee Gjensidige has decided in its Articles of Association that the Company shall have a Nomination Committee consisting of four to six members elected by the general meeting. The Chair and members of the Nomination Committee are elected for a term of one year.
One of the board members elected from among the employees takes part as a permanent member in discussions and proposals for the election of Chairman of the Board. The leader of the Committee can invite other board members elected from among the employees to certain important discussions about the election of the Chairman.
The Nomination Committee shall contribute to the election of competent and engaged officers with a focus on the creation of value. The objective is that, together, the elected officers shall be capable of challenging and inspiring the day-to-day management in the Company’s business areas.
The Nomination Committee shall propose candidates for: - the Board, including the Chairman of the Board - the Nomination Committee, including the Chair of the committee - external auditor
A reasoned recommendation containing relevant personal details shall be enclosed with the notice of the meeting.
The Nomination Committee wishes to ensure that the shareholders’ views are taken into account when members are nominated for the Board. In addition to the Nomination Committee consulting particularly active shareholders for proposals for candidates and support for its recommendations, all shareholders are invited to propose candidates for governing bodies via a request on the Company’s website. The deadline for submitting proposals is normally the turn of the year in order to ensure that proposed candidates are considered at the start of the process, and to have time to carry out the statutory suitability assessment and receive necessary clearance from the financial authorities before the election.
• The members of the Board should be independent of the Company’s day-to-day management.
Trond Vegard Andersen (member until 4 April 2016) 1 of 3 1,805*
Kjetil Kristensen (member until 31 August 2016) 5 of 5 593*
Knud Peder Daugaard (member from 7 April 2016) 6 of 7 3,000
Today, each gender has at least 40 per cent representation among the shareholder-elected members of the Board. For a more detailed presentation of the board members, see pages 49 to 63 of the annual report, and the Company’s website https:// www.gjensidige.no/group/.
The Board’s independence No member of the Company’s general management is a member of the Board. All shareholder -elected board members are independent of executive personnel. Board members Knud Peder Daugaard, Per-Arne Bjørge and Mette Rostad were elected on the proposal of the Company’s biggest owner, the Gjensidige Foundation. All board members are independent of important business associates.
Board members’ shareholdings 7 of the board members own shares in the Company; see the overview in the table. The board members follow the general rules concerning primary insiders, but they have all voluntarily accepted and informed their closely related parties that trading in the Gjensidige share or derivative instruments will only take place within a reasonable time frame after submission of the quarterly report, so that trading can take place on the basis of the same information about the Company and the Company’s financial position as is available to the market in general.
Deviations from the Code of Practice: None 9. The work of the Board The work of the Board follows a fixed annual plan and is conducted in accordance with established rules of procedure. The rules of procedure are available at They set out more detailed rules for the work of the Board and how it handles matters, including what matters shall be considered by the Board, rules concerning notices of meetings and the conducting of meetings. The Board has also issued instructions for the CEO, which regulate the internal division of responsibility and tasks.
The Board carries out an annual self-evaluation that is also submitted to the Nomination Committee for use as documentation in connection with the committee’s work.
• Drafting proposals for principles and a declaration on the stipulation of pay and other remuneration for executive personnel, employees and officers of the Company who have duties that are of material importance to the Company’s 42 I Gjensidige annual report 2016
The committee is an advisory body to the Board. It held one meeting in 2016.
The Gjensidige Group has been granted permission by the authorities to establish a joint remuneration committee for the whole Group, with effect from 1 January 2017.
Gjensidige’s internal control system includes the Company’s core values, guidelines for ethics and social responsibility and other governing documents.
The Risk and Compliance function is responsible for monitoring the overall risk situation and the framework for risk management, including internal control and the quantification and aggregation of risk.
The internal audit function is an independent, objective confirmatory and advisory function that shall contribute to the organisation achieving its goals. The head of the internal audit function is appointed and dismissed by the Board and submits reports on the Group’s risk management and internal control to the Board and the CEO at least once a year. The Board approves resources and plans for the internal audit function annually. The Group Audit Director reports quarterly to the Board and the CEO on the results of the audit work. The audit work is carried out in accordance with international internal auditing standards (IIA).
The Gjensidige Group publishes four interim reports in addition to the ordinary annual accounts The accounts shall meet the requirements in laws and regulations and be prepared in accordance with adopted accounting principles.
In connection with the outsourcing of material work processes, such as payroll and ICT services, 44 I Gjensidige annual report 2016
As a rule, board members or companies with which they are associated shall not take on specific assignments for the Company in addition to their office as board member. If such assignments nonetheless arise, the whole Board shall be informed about this. No such assignments were carried out in 2016, and no fees have therefore been paid to board members over and above the fee they receive as members of the Board.
Guidelines for remuneration and career development shall be linked to achievement of the Group’s strategic and financial goals and core values, and both quantitative and qualitative targets shall be taken into consideration. The measurement criteria shall promote the desired corporate culture and long-term value creation, and, as far as possible, take actual capital costs into account. The remuneration system shall contribute to promoting and providing incentives for good risk management, prevent excessive risk-taking and contribute to avoiding conflicts of interest. A fixed basic salary shall be the main element of the overall remuneration, which also consists of variable pay, pension and insurance schemes and payments in kind. Variable pay shall be used to reward achievements that exceed expectations, where both results and behaviour in the form of compliance with core values, brand and management principles will be assessed.
in Gjensidige Forsikring ASA, one third of which are allocated in each of the following three years. Restricted variable remuneration that has not yet been disbursed may be reduced if subsequent results and developments indicate that it was based on incorrect assumptions.
The overall remuneration is decided on the basis of the need to offer competitive terms in the different business areas. It shall contribute to attracting and retaining executive personnel with the desired expertise and experience who promote the Group’s core values and development.
Quarterly financial results are presented directly via webcast and a telephone conference, which is open to anyone interested. The webcast may be followed directly at Recordings are made available at the same place.
Deviations from the Code of Practice: None 15. The external auditor The external auditor is elected by the general meeting on the Nomination Committee’s recommendation. The audit committee, which in practice is the external auditor’s most important liaison point, submits an opinion on the election to the Nomination Committee.
The external auditor normally performs an interim audit every autumn in addition to auditing the annual accounts. The interim audit focuses on the Company’s internal control relating to the presentation of the accounts. The accounting department and executive personnel have regular contact with the auditor throughout the year.
The Gjensidige Insurance Group delivered a solid underwriting result in 2016. The return on financial assets was satisfactory. The profit after tax expense was a record-strong NOK 4.7 billion, corresponding to NOK 9.34 per share.
The underwriting result was NOK 3.7 billion, corresponding to a combined ratio of 83.4. The result was 8 per cent higher than in 2015, driven by premium growth of 5.5 per cent and continued good customer and risk selection, and risk pricing. The proportion of large losses was lower than expected, while run-off gains were higher than the expected level.
The return on financial assets was 3.9 per cent, or NOK 2.2 billion, an increase of 44 per cent from 2015.
The Board is satisfied that the Group met its financial targets in 2016.
The Gjensidige Foundation’s share of the dividend amounts to NOK 2.1 billion. Pursuant to the Foundation’s statutes, the dividend will be passed on to Gjensidige’s general insurance customers in Norway. The customer dividend is adopted by the Foundation’s general meeting in May.
The business Gjensidige Forsikring ASA (Gjensidige Forsikring) is a general insurance company with operations in the Nordic and Baltic states. The company has its head office in Oslo in Norway. The object of the business is to safeguard life, health and assets for customers in the private and commercial markets by offering insurance on competitive terms. In Norway, we also offer banking, pension and savings products and services. We build stronger relations by offering customers a broad range of products and services. Gjensidige Forsikring is the parent company of the Gjensidige Group (Gjensidige).
We are continually developing new user-friendly self-service solutions that can be used on PCs, mobile phones and tablets. This means that customers can buy and amend insurance policies, seek advice and report claims on the internet whenever it suits them. At the same time, continuous efforts are being made
Market position According to Finance Norway’s statistics, Gjensidige was the biggest player in Norwegian non-marine general insurance also in 2016, with a market share of 25.6 per cent of a total market of NOK 56 billion. Our market share increased, and our market position relative to our biggest competitors was further strengthened in 2016. Gjensidige prioritises profitability ahead of growth, so that the development of our market share confirms the good competitiveness.
Gjensidige had a market share of 24.5 per cent in the private market at the end of 2016. The market share in the commercial market was 27.7 per cent. This includes the agricultural market, where Gjensidige has historically had a high market share.
In the Baltic general insurance market, Gjensidige had a market share of 11.3 per cent as of 30 September 2016. (Source: Insurance Supervisory Commission of the Republic of Lithuania, Latvian Insurers Association, Statistics Estonia).
This model contributes to both positive customer experiences and cost-efficient distribution.
Nordic Gjensidige distributes general insurance products in Denmark through its own sales network and in cooperation with the Nykredit group. In addition, private insurance products are sold through a number of partners, especially travel agents, car dealers and estate agents. Otherwise, the private market is served directly via underwriters, call centres and the internet.
In Sweden, general insurance products are distributed to private customers both directly by phone and via the internet as well as through insurance mediators (partners and agents). In the commercial market, distribution mainly takes place through insurance brokers and partners.
Baltics The most important distribution channels in the Baltic states are direct sales and sales through insurance agents and brokers. Sales via the internet are increasing. Gjensidige aims to develop cost-efficient, multi-channel distribution models also in the Baltic market, with the emphasis on web-based solutions and telephony.
Gjensidige Bank plays an important role by offering simple, user-friendly banking services in the Norwegian market. Customers have access to the bank’s services through the online banking and mobile phone solutions, which are adapted for use on smart phones and tablets. Car financing and car insurance are available in common digital solutions at car dealers and at gjensidige.no.
Pension and Savings cooperates closely with the Commercial segment on the distribution of pension and savings products to small and medium-sized enterprises in Norway.
We have merged our development and technology capacity and expertise to form a single effective group entity, Technology and Development. This entity shall be a driving force for the realisation of projects in Gjensidige's strategic focus areas and shall ensure increased use of best practice across the Group.
One important task is to develop and improve digital user interfaces and services for our customers. New developments and improvements in mobile interfaces and websites make it easier and easier for
Per Arne Bjørge (1950) has been a member of the Board of Gjensidige since 2011. He is Chairman of the Board and general manager of PAB Consulting AS. Bjørge is Chairman of the board of Borgund Invest AS, Havskjer AS, Havskaar AS and Tanux Shipping KS and AS. He is board member of the Gjensidige Foundation and of 3D Perception AS and of Tafjord Kraft AS.
Bjørge is up for election to the Board in 2017. Bjørge held 10,542 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties as at 31 December 2016 (last change 10 December 2012).
We implemented a number of measures to automate internal processes in 2016. These efforts will continue with full force in 2017. We see cognitive computing as an exciting new area for further improvement of internal processes and customer-oriented activities.
Scalable business model in the Nordic region and the Baltics In 2016, Gjensidige continued to develop opportunities for growth in the Nordic region outside Norway and in the Baltics. The premium volume from this part of the business amounted to 31 per cent of the total premium volume in general insurance operations.
Gjensidige has a scalable business model. Utilisation of best practice across national borders represents a potential for growth and profitability going forward. Gjensidige has consolidated its position as a rational challenger in the Danish market. In Sweden and the Baltic states, measures have been introduced to ensure the implementation of best practice and good profitability in the longer term. We are on track to achieve profitability in Sweden during 2017 and in the Baltics from 2018. New opportunities for growth, both organic and structural, are continually assessed.
Rating Maintain A rating from S&P A rating confirmed in June 2016
Cost ratio ~15 per cent 14,2 per cent 15,5 per cent adjusted****
* Dividends based on profit for the year. ** Adjusted for proposed dividend for 2016. *** Combined ratio target on an undiscounted basis, assuming ~4 pp run-off gains next 3-5 years and normalised large losses impact. Beyond the next 3-5 years, the target is 90-93 given 0 pp run-off. **** Adjusted for one off effects
In connection with the introduction of the Solvency II regulations with effect from 1 January 2016, Gjensidige also introduced solvency margin targets. Other financial targets are unchanged. The CR target of 86–89 reflects an expectation of average annual run-off gains in the region of NOK 900 million in the next 3–5 years. Without run-off gains, the CR target is 90–93.
Gjensidige aims to be the most customer-oriented general insurance company in the Nordic region. At the end of 2014, the Group launched six operational key targets for the period until 2018. The development has been positive for all the parameters throughout 2016.
The target for the reporting of claims online was achieved already in 2016. In the long term, our ambition is that 80 per cent of all frequency claims
will be reported online. Moreover, our ambition is that the handling of 80 per cent of these claims will be fully automated, so that 64 per cent of all frequency claims will be processed entirely digitally.
Three strategic focus areas towards 2020 Gjensidige has defined three strategic focus areas in order to achieve its financial and operational goals: digital customer experiences, strengthen business intelligence and analytics, and build dynamic organisational capabilities. See pages 37–38 for a more detailed description of Gjensidige's strategy. A selection of measures and initiatives that have been implemented in 2016 relating to these focus areas is presented in the following.
We use electronic mailboxes where possible. In Denmark, we established a solution in 2016 for sending documents to E-boks, the market leading digital mailbox in Denmark. In Norway, an increasing percentage of customers receive their documents through "Din Side".
Gjensidige’s group-wide contact centre solution ensures increasingly customised dialogue with customers via telephony, web-based and chat solutions. During 2016, this solution was developed further and new, improved functions were added in order to ensure a better customer experience across staffed and self-service distribution channels.
In 2017, the automation of both internal and customer-related processes has high priority. The aim is both to increase efficiency and to create better customer experiences.
Moreover, the trend towards a more analytical CRM has contributed to better models for predicting loss of customers and more relevant initiatives in relation to our customers. CRM is an area with a considerable potential, also in the time ahead.
The development of different products and services based on insight via ‘the internet of things’ and telematics in the fields of health, motor and property insurance will continue to be on the agenda going forward.
Dynamic organisational development Rapid development and changes make great demands in terms of management, expertise, dynamic organisational development and the corporate culture. Increased technological understanding and mobility in the organisation are prerequisites for our capacity for change and development.
Restructuring was carried out in 2016 in both the management and the rest of the organisation to be able to meet the future in an even better and more efficient way. Streamlining measures were implemented that, among other things, entail a reduction of 230 full-time equivalents in staff and support functions. The intention is to create room for investments in more digital day-to-day operations, including investing in technology, the brand and relevant competences.
As regards the Gjensidige Customer and Brand School, there will still be a great need for traditional sales training, but more and more of the training will have to gradually be transferred to digital learning methods. Transfer of best practice and increased cooperation between different departments in the Group, in combination with training and courses, for example through the Gjensidige Customer and Brand School, will help to ensure that we have the right expertise in the right place at the right time, also in the years ahead.
In 2017, we will give priority to strengthening the work on developing digital and analytical skills, and to further developing a culture for mastery and uniform performance management.
The customer satisfaction rate showed positive development and increased from 76.2 in 2015 to a record-strong 77.4 in 2016. Satisfaction is highest among customers who have reported a claim or been in dialogue with Gjensidige for other reasons.
Loyalty is developing positively among customers in Denmark, but there is still a potential for developing longer-lasting customer relationships in both the private and commercial markets.
The customer dividend model promotes loyalty The unique arrangement whereby our customers receive customer dividend from Gjensidige’s largest owner, the Gjensidige Foundation, contributes to both loyalty and our attractiveness. Every year since the Company was listed on the stock exchange, The Gjensidige Foundation has paid customer dividend to Gjensidige's Norwegian general insurance customers based on how much
Knud Peder Daugaard (1950) has been a member of the Board of Gjensidige since 2016. He is a senior adviser with Nortura SA and chair of the board of a number of subsidiaries in the Nortura group. Daugaard has been a member of the General Meeting of the Gjensidige Foundation since 2016. He was previously Executive Vice President and deputy CEO of Nortura, and Managing Director of Gilde Agro Fellesslakteriet.
He is a holder of a master's degree in business economics (siviløkonom) from Handelshøyskolen i Århus (business school) in Denmark.
Gjensidige works closely with its strategic partners, and good management of partnership agreements will be given priority also in the time ahead.
At the beginning of 2017, Gjensidige signed important partnership agreements in Denmark with Interdan and Dansk Supermarked, respectively. The agreement with Interdan gives Gjensidige direct access to more than one-third of the market for new car sales, doubling our previous access. The agreement with Dansk Supermarked is exclusive and gives us access to a unique platform for increased brand recognition, development of a digital platform and CRM activities contributing to further organic growth in Denmark.
Growth through acquisitions Gjensidige has clear ambitions for growth in the Nordic region and the Baltics. Since 2005, Gjensidige has acquired 17 small and medium-sized companies and/or portfolios in these markets. With accounting effect from the second half-year 2016, Gjensidige acquired the Swedish general insurance portfolio from Vardia Insurance Group, including the distribution company Vardia Försäkring AB, which has an annual premium volume of around SEK 650 million. Our market share in the Swedish market increased from 1.6 per cent to 2.5 per cent as a result.
The acquisition of complementary portfolios enables us to utilise best practice across the Group based on a scalable business model.
Further capital and balance sheet optimisation Gjensidige works continuously on balance sheet and capital optimisation in order to ensure attainment of the Group’s financial targets as well as an efficient capital structure and sufficient financial flexibility.
terms corresponding to 3-month NIBOR + 360bp. The loan was listed on Oslo Børs in October.
The issuing of a subordinated loan, the sale of the holding in Sparebanken1 SR-Bank and the distribution of excess capital were part of the balance sheet and capital optimisation.
At year-end 2016, the remaining capacity to issue Tier 1 loans amounted to NOK 1.6 billion. It is not Gjensidige’s ambition to fully utilise this capacity, but will consider the possibility of issuing further dept provided that market terms are satisfactory. The capacity to issue Tier 2 loans was fully utilised. In addition, other balance sheet and capital optimisation measures will be continually assessed.
Changes in framework conditions Solvency II Solvency II entails new rules for calculating capital requirements and eligible own funds, risk management requirements and requirements for reporting the risk and capital situation. The regulations have been implemented in Norwegian law through the Financial Undertakings Act and pertaining regulations. They entered into force on 1 January 2016. Gjensidige has been well prepared for the regulatory changes, and capitalisation is satisfactory in relation to the new requirements.
We have applied for approval of a partial internal model (PIM) for calculating the regulatory capital requirement for parts of the business. We expect an answer from the Financial Supervisory Authority of Norway during 2017. The internal model gives a good picture of the Company’s risk situation and capital needs.
Although the regulations have entered into force, there is still some uncertainty in regards to how the calculation of capital requirement and available capital will take place under the new rules. For Gjensidige, the main remaining uncertainty is whether provisions for the guarantee scheme will be included in eligible own funds.
The Financial Supervisory Authority takes the view that the guarantee scheme provisions shall be treated as a liability. In Gjensidige's opinion, special Norwegian provisions that are actually an equity element must be treated as solvency capital. We will continue to make endeavours to ensure that the regulations are in line with this view.
A proposal was submitted in 2015 to change the tax deduction right with effect from 1 January 2016. The proposal meant that the deduction right would be limited to provisions calculated in accordance with the Solvency II regulations. In its original form,
The decision was postponed as a result of consultation submissions received. The Ministry of Finance decided that a more thorough assessment is needed of the factors that were pointed out during the consultation round. The Ministry has indicated that new rules will not be introduced until 2017 at the earliest because of this work. It is still unclear whether the new deduction rules will be changed and, if so, how.
Until such time as new rules are adopted, a tax deduction is granted for technical provisions calculated on the basis of the current applicable provision rules, provided that the provisions are deemed to be necessary.
As a consequence of several objections to the amendments, a transitional period of six months is proposed from the resolution is adopted until the amendments enter into force. The Norwegian parliament will consider the proposal in spring 2017.
Profit/loss The Group recorded a profit before tax expense of NOK 6,139.9 million (5,049.7). The profit from general insurance operations, measured by the underwriting result, was NOK 3,734.6 million (3,456.9), corresponding to a combined ratio of 83.4 (83.7).
A restructuring provision of approximately NOK 164 million was made in the second half-year to cover the downsizing of staff and support functions by 230 full-time equivalents. The downsizing is part of the communicated strategy to reduce the underlying cost base in order to create room for investments in technology, the brand and new 56 I Gjensidige annual report 2016
Pension and Savings 125.4 84.2 Retail Bank 428.5 303.6 Financial result from the investment portfolio 3 2,155.1 1,492.4 Amortisation and impairment losses of excess value – intangible assets (254.2) (209.6) Other items (49.5) (77.7) Profit/(loss) for the period before tax expense 6,139.9 5,049.7
Run-off gains/(losses) 5 1,023.4 724.8 1 Large losses in excess of NOK 30.0 million are charged to the Corporate Centre, while claims of less than NOK 30.0 million are charged to the segment in which the large losses occur. As a main rule, the Baltics segment has a retention level of EUR 0.5 million. Large losses allocated to the Corporate Centre amounted to NOK 205.5 million (382.5) for the year as a whole. Accounting items related to written reinsurance and reinstatement premium are also included.
4 Large losses = loss events in excess of NOK 10.0 million. Expected large losses for the quarter were NOK 318.0 million. 5 Run-off gains/(losses) = changes in estimates from earlier periods. Provisions are based on best estimates, and the expected run-off result over time is zero.
The removal of an annual minimum regulation clause for pension payments under the defined benefit plan contributed non-recurring income of NOK 476.6 million in the first quarter. The amount was classified as a reduction in operating expenses and recognised in full in the Corporate Centre.
The return on financial assets was 3.9 per cent (2.6) or NOK 2,155.1 million (1,492.4).
The profit after tax was NOK 4,665.9 million (3,784.7), corresponding to NOK 9.34 (7.57) per share.
The underwriting result was positively influenced by a solid growth in premiums of 5.5 per cent, and earned premiums increased to NOK 22.4 billion (21.3). The result also reflects continued good control of customer and risk selection, and risk pricing. Large losses were below expectations, and somewhat lower than last year. Run-off gains exceeded the expected run-rate.
Expenses for research and development have not been charged to income in Gjensidige’s consolidated accounts in 2016 or 2015. Nor have such expenses been capitalised during these two financial years. The parent company has continued its collaboration with the Norwegian Computing Centre and SFI (Statistics for Innovation), which are carrying out projects relating to risk assessment and data analysis.
Balance sheet and capital base The Group’s balance sheet total at the end of 2016 was NOK 135,926.6 million (129,264.4). This increase was mainly attributable to volume growth in the Retail Bank and Pension and Savings segments. Gjensidige’s equity amounted to NOK 22,326.0 million (23,330.6) as of 31 December 2016. The reduction was mainly due to the fact that the dividend paid in 2016 exceeded the profit for 2016.
Available capital in excess of the risk-based requirement calculated using the Group’s partial internal model constitutes the Group’s economic excess capital.
Earned premiums 8,291.3 8,152.3 Claims incurred etc. (5,030.8) (4,908.5) Operating expenses (1,063.8) (1,035.7) Underwriting result 2,196.7 2,208.1
Anne Marie Nyhammer (1964) has been a member of Gjensidige’s Board as an employee representative since 2016. She is technical manager in Gjensidige and employee representative.
Earned premiums 7,257.4 7,076.8 Claims incurred etc. (4,825.1) (4,826.7) Operating expenses (801.1) (809.3) Underwriting result 1,631.3 1,440.8
Run-off gains/(losses) 2 486.5 341.8 1 Large losses = loss events in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre.
Operating expenses amounted to NOK 1,063.8 million (1,035.7) and the cost ratio was 12.8 (12.7).
General Insurance Commercial The Commercial Segment in Norway offers a wide range of general insurance products to the commercial, agricultural and municipal markets in Norway. Sales primarily take place through dedicated distribution channels, and only about 20 per cent of the premium volume is brokered business. Gjensidige is the market leader in general insurance for the commercial market. Most of the customer portfolio consists of small and medium-sized enterprises, and agricultural customers.
Development during the year The underwriting result increased to NOK 1,631.3 million (1,440.8). The increase in the underwriting result was driven by premium growth combined with a somewhat more favourable underlying frequency claims level and higher run-off gains. The combined ratio was 77.5 (79.6).
Mette Rostad (1964) has been a member of the Board of Gjensidige since 2012. She is self-employed. Rostad is chairman of the board of Innherred Boligbyggelag and Visit Innherred. She is deputy chairman of Innherred Renovasjon.
Rostad is up for election to the Board in 2017. Rostad held 1,550 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties as at 31 December 2016 (last change 10 November 2015).
Operating expenses amounted to NOK 801.1 million (809.3), corresponding to a cost ratio of 11.0 (11.4).
Development during the year The underwriting result was NOK 247.3 million (509.1). The decline in the underwriting result was driven by a higher proportion of large losses and a less favourable underlying frequency claims development in Denmark. The Vardia portfolio also contributed to the weaker result. The combined ratio was 95.8 (90.3).
Run-off gains/(losses) 2 150.7 145.8 1 Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre.
Among other things, Kronholm Sjøbrg has previously held position as a consultant in the change and ownership-departement in Nykredit Forsikring. Among other things, she has studied at Copenhagen Business School and has a Master Degree in mediation and conflict resolution from Faculty of Law, Copenhagen University.
Sjøberg is up for election to the Board in 2017. Sjøberg held 429 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties as at 31 December 2016 (last change 9 November 2016).
portfolio. The underlying premium development in the Swedish portfolio was negative, mainly due to repricing measures implemented to improve the profitability of the commercial portfolio. The private portfolio developed positively.
Claims incurred amounted to NOK 4,739.6 million (3,905.2). Currency effects had a negative impact of NOK 119.9 million on claims. The loss ratio was 80.1 (74.6). The higher loss ratio was due to a higher proportion of large losses in combination with a less favourable underlying frequency claims development in Denmark in commercial motor insurance, property insurance and product insurance. Profitability improved in the Swedish portfolio compared with the year before, mainly driven by private motor insurance and commercial property insurance. The Swedish portfolio is on track to achieve profitability during 2017.
Operating expenses were NOK 930.9 million (819.0). Currency effects had a negative impact of NOK 25.7 million. The cost ratio was 15.7 (15.6).
General Insurance Baltics Gjensidige's Baltic operations offer general insurance products to the private and commercial markets in Latvia, Lithuania and Estonia. The target customers are people with medium to high income in the private market, and small and medium-sized enterprises in the commercial market.
The underwriting result was minus NOK 99.5 million (minus 98.9). The underwriting result was negatively affected by several medium-sized frequency claims, and investments related to integration activities. The combined ratio was 109.6 (115.4). After the acquisition of PZU Lietuva, the new joint organisation is on track with the integration of IT systems and initiatives related to claims handling and distribution channels. The number of FTEs has been reduced by 49.
2 Run-off gains/(losses) = changes in estimates from previous years 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio 62 I Gjensidige annual report 2016
The Baltic segment is on track to deliver profitability from and including 2018.
Pension and Savings Pension and Savings shall contribute to the sale of a wide range of products to general insurance customers in Norway and shall offer pension and savings products, mainly to the Norwegian commercial market. The products are distributed either directly by Gjensidige or via selected partners. Gjensidige is the fourth biggest provider in the Norwegian defined contribution pension market.
Net insurance revenue was NOK 195.9 million (155.9) and management income was NOK 126.2 million (119.5). The positive development was driven by higher volumes and reclassification of income previously reported as financial income following clarification from the Norwegian FSA.
Net financial income, including the return both on the group policy portfolio and the corporate portfolio, amounted to NOK 27.3 million (30.8). The decrease was due to the above mentioned
Recognised return on the paid-up policy portfolio 2 4.08 % 5.43 % Value-adjusted return on the paid-up policy portfolio 3 4.87 % 5.42 % 1 Operating margin = net operating income/(net insurance revenue + management income etc.) 2 Recognised return on the paid-up policy portfolio = realised return on the portfolio 3 Value-adjusted return on the paid-up policy portfolio = total return on the portfolio
Tine Gottlob Wollebekk (1962) has been a member of the Board of Gjensidige since 2014. She is a Senior Vice President responsible for Global Financial Services in Telenor Group. Wollebekk is chair of the board of Tameer Microfinance Bank. She is member of the board of Telenor Kapitalforvaltning AS, Aars AS, Digital Money Myanmar and Finn Clausen Gruppen AS.
In total, assets under management increased by NOK 2,790.7 million. Total assets under management amounted to NOK 38,378.8 million (35,588.1) at the end of the year.
The Retail Bank Gjensidige Bank is one of Norway’s leading online banks. By offering competitive prices over time and a range of products and services that meet retail customers’ banking needs, the Retail Bank shall contribute to the sale of a wide range of products to Gjensidige’s general insurance customers in Norway.
Development during the year The profit before tax expense increased to NOK 428.5 million (303.6). The increase was a result of higher income driven by portfolio growth and improved returns on financial instruments.
Operating expenses were NOK 373.6 million (359.3). The increase was mainly driven by business
Net interest margin, annualised 1 1.85% 2.12% Write-downs and losses, annualised 2 0.18% 0.20% Cost/income ratio 3 42.9% 49.5%
Business growth led to an increased need for capital during the period. The total capital was increased by NOK 300 million, split between the issuing of a Tier 2 subordinated bond amounting to NOK 100 million and an equity increase of NOK 200 million from the parent company.
Gjensidige Bank ASA received a licence from the Norwegian Financial Supervisory Authority to provide investment services in order to pursue a merger with Gjensidige Investeringsrådgivning AS. The merger plan was officially registered with the Brønnøysund Register Centre, and the merger was approved in the first quarter 2017. The merger is expected to improve competitiveness in the savings market and ensure more efficient operations within the Group.
Financial result from the invesment portfolio 3.9 2.6 2,155.1 1,492.4 53,957.7 57,173.9
4 Investments in internationally diversified funds externally managed. 5 The item includes the investment in SpareBank 1 SR-Bank and effect on profit of the sale of shares in Storebrand. 6 Gjensidige halved its property exposure through the sale of 50 per cent of Oslo Areal AS during the fourth quarter 2016. In addition there is a forward contract on the IPD index, further increasing Gjensidige’s property exposure of approximately NOK 1.6 billion throughout 2016.
Geographic distribution �xed income instruments in free portfolio at the end of 2016
Counterparty risk �xed income instruments at the end of 2016 Per cent
Credit rating �xed income instruments at the end of 2016 66 I Gjensidige annual report 2016
The average duration of the match portfolio was 3.5 years. The average term to maturity for the corresponding insurance liabilities was 3.7 years. The distribution of counterparty risk and credit rating is shown in the charts on page 66. Securities without an official credit rating amounted to NOK 11.5 billion (11.5). Of these securities, 10.2 per cent (13.5) were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies or municipalities. A third-party internal rating existed for 64.7 per cent (67.4) of the portfolio without an official rating. Bonds with a coupon linked to the development in the Norwegian consumer price index accounted for 10.1 per cent (11.2) of the match portfolio.
At the end of 2016, the average duration in the portfolio was approximately 2.5 years. The distribution of counterparty risk and credit rating is shown in the charts on page 66. Securities without an official credit rating amounted to NOK 2.6 billion (2.1). Of these securities, 12.4 per cent (11.1) were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies or municipalities. A third-party internal rating existed for 74.4 per cent (65.7) of the portfolio without an official rating.
The geographical distribution1 of the fixed-income instruments in the free portfolio is shown in the chart on page 66.
Equity portfolio The total equity exposure at the end of the period was NOK 4.0 billion (4.6), of which NOK 2.9 billion (3.3) was current equities and NOK 1.1 billion (1.4) PE funds. The return on current equities was 15.1 per cent (minus 10.3). The good return on equities was due to a combination of a strong return on the remaining equity holding in SpareBank 1 SR-Bank and a moderate return on the diversified equity portfolio which was mostly exposed to international equities, including emerging markets. In October 2016, approximately half of the investment in SpareBank 1 SR-Bank was sold at NOK 46 per share with a limited realised gain in the fourth quarter, resulting in an ownership at year-end of 4.8 per cent. In January 2017, the stake was further reduced to 0.9 per cent through a sale at NOK 61 per share with a limited realised gain in the first quarter 2017. The proceeds have been reinvested such that concentration risk in the portfolio is reduced. The return on PE funds was minus 12.5 per cent (minus 6.8). The negative return was particularly driven by a fall in the net asset value of funds exposed to the oil sector during the first quarter. Exposure to oil-related PE funds was around NOK 600 million at the end of the year.
Insurance risk The risk in individual insurance contracts is the probability of an event occurring that affects the insured party, and uncertainty concerning the size of the subsequent compensation amount. The insurance risk relating to special types of major risks or exposure is managed through authorisations and lines of reporting for ordinary operations. Clear guidelines have been established for what insurance policies can be taken out. The risk of a generally unsatisfactory premium level is monitored on a continuous basis by the product and actuary department, and increasingly precise methods for pricing are being developed.
The statutory actuary function is carried out by the Group’s actuary department. The actuary function is responsible for controlling technical provisions, including that the data used to calculate technical provisions are of sufficient quality. It shall also state an opinion on guidelines for taking out insurance policies and reinsurance schemes in the insurance companies. This responsibility has been centralised to the Group’s actuary department. In order to ensure the actuary function’s independence, employees included in this function are not responsible for calculating the technical provisions. This is done by other employees in the actuary department. The head of the actuary function reports to the CEO.
The technical provisions are intended to cover claims that have arisen and been reported to the Company, and claims that have arisen but not yet been reported. There will always be a risk that these provisions will be insufficient. Gjensidige therefore makes continuous efforts to further develop methods and models based on new experience and knowledge. External actuaries are sometimes used to perform independent calculations of the best estimate for technical provisions.
Through the Board’s adoption of strategic allocations of assets, with pertaining limits for the different risk types and a dynamic risk management model, limits are set that make it possible to rapidly adjust risk to changed macroeconomic assumptions. Price, interest rate and currency risk is also followed up through stress tests, where the buffer capital must be sufficient at all times to be able to withstand sharp simultaneous falls in equity and bond prices.
Ethical issues are discussed at training courses for new employees and they are also discussed regularly by management groups and at departmental staff meetings. This is intended to reduce the risk of breaches of procedures and guidelines, while also contributing to a good working environment. Employees have also signed a personal data
For a more detailed description of risk management, reference is made to Note 3 to the consolidated annual accounts.
Corporate governance Good corporate governance is a priority for the Board. The Board has based the Group's corporate governance on the Norwegian Code of Practice for Corporate Governance as most recently amended on 30 October 2014, and it has made adjustments to ensure that it complies with the Code in all areas. A more detailed account of how Gjensidige complies with the Code of Practice and the Norwegian Accounting Act's requirements for reporting on corporate governance is provided on pages 36–47 of the annual report, and in a separate document that is available on the Group's website www.gjensidige.no/corporate-governance.
1. Organic growth is expected to be in line with nominal GDP growth in Gjensidige’s market areas in the Nordic countries and the Baltic states over time. In addition, profitable growth will be achieved by pursuing a disciplined acquisition strategy, as has been done successfully over the past ten years.
2. The annual combined ratio is expected to be at the lower end of the target corridor of 90–93 (undiscounted and given zero run-off effects). The target cost ratio is around 15 per cent. A reduction is expected in the underlying cost ratio and loss ratio, but Gjensidige will aim to strike a balance between good profitability and increased investments in order to ensure strong competitiveness going forward. Extraordinary circumstances relating to the weather and the proportion of large losses and run-off can contribute to a combined ratio above or below the target range.
It is Gjensidige’s ambition to become the most customer-oriented general insurance company in the Nordic region, based on profitable operations and a leading position.
The strategic priorities in the period up until 2020 are: • Digital customer experiences • Business intelligence and analytics • Building organisational capabilities
In order to support the three strategic priorities and ensure strong competiveness in future, efficiency measures are being taken to create room for increased investments primarily in the fields of technology, competence development and brand strength.
Competition is still increasing in the Norwegian general insurance market. Gjensidige has managed to capitalise on its position as market leader in Norway, and its competitiveness remains good. It has strengthened its leading position relative to its main competitors in parallel with delivering good profitability and high customer satisfaction. The growth rate is expected to remain subdued in the short to medium term, although an uptick in inflation and growth will lead to increased insurance premiums. Continued efforts to maintain and further strengthen Gjensidige’s position in the Norwegian market will be prioritised, with particular focus on ensuring cost-efficiency and improving digital customer experiences. At the same time, new, profitable opportunities for growth will be considered in the Nordic region and the Baltic states in order to ensure good utilisation of a scalable business model and best practice. Strong emphasis will also be placed on further developing cooperation with partners and distributors.
Low interest rates and financial challenges in several key economies as well as in the Nordic countries reflect an uncertain economic situation and remain a source of uncertainty. Gjensidige has a robust investment strategy, although returns are affected by challenging market conditions. The Group is financially sound and has a high proportion of its business in the Norwegian general insurance market. Although the macroeconomic situation is challenging, the outlook for the Norwegian and Nordic general insurance operations is still regarded as good.
There are still some outstanding uncertainties relating to changes to the regulatory framework for the financial sector in Norway and internationally. The Solvency II regulations were implemented in Norway on 1 January 2016. Gjensidige has submitted an application to use its own partial internal model (PIM), and approval is expected in 2017. Endeavours will continue to be made to win acceptance for inclusion of the guarantee provision as solvency capital.
Events after the balance sheet date No significant events have occurred after the balance sheet date.
Allocation of the profit before other income and expenses The Group’s profit for the year after tax expense amounted to NOK 4,665.9 million. The Board has adopted a dividend policy that forms the basis for the dividend proposal submitted to the general meeting. The Board proposes a dividend of NOK 3.4 billion for the 2016 financial year. This corresponds to NOK 6.80 per share, or 73 per cent of the Group’s profit after tax. In addition, excess capital of NOK 2 billion, corresponding to NOK 4.00, was distributed in November 2016.
financial freedom of action, without this being at the expense of good capital discipline.
It is proposed that the parent company’s profit before other components of income and expense of NOK 4,278.0 million be allocated as follows: NOK millions
Income statement .................................................... 147 Statement of financial position .................................148 Statement of changes in equity .................................150 Statement of cash flows ............................................ 151 Accounting policies ................................................... 152
Consolidated income statement .................................74 Consolidated statement of comprehensive income ......75 Consolidated statement of financial position ...............76 Consolidated statement of changes in equity ..............77 Consolidated statement of cash flows .........................78 Accounting policies .....................................................79
Net income from investments Results from investments in associates and joint ventures 6 184.1 49.7 Operating income from property 0.0 366.7 Interest income and dividend etc. from financial assets 1,262.0 1,199.3 Net changes in fair value on investments (incl. property) (1,040.3) 189.0 Net realised gain and loss on investments 1,920.8 (102.7) Expenses related to investments 17 (130.5) (228.8) Total net income from investments 19 2,196.1 1,473.3
Claims, interest expenses, loss etc. Claims incurred etc. from general insurance (15,515.9) (14,597.5) Claims incurred etc. from pension (1,283.5) (1,275.7) Interest expenses etc. and write-downs and losses from banking operations (680.1) (652.2) Total claims, interest expenses, loss etc. (17,479.6) (16,525.4)
Operating expenses Operating expenses from general insurance (3,191.4) (3,217.6) Operating expenses from pension (223.9) (222.0) Operating expenses from banking operations (373.6) (359.3) Other operating expenses (24.8) (45.1) Amortisation and impairment losses of excess value - intangible assets (254.2) (209.6) Total operating expenses 17 (4,068.0) (4,053.6)
Oslo, 8 March 2017 – The Board of Gjensidige Forsikring ASA
Goodwill 5 3,140.2 3,224.5 Other intangible assets 5 1,360.5 1,343.6 Deferred tax assets 16 19.1 12.9 Investments in associates and joint ventures 6 1,601.6 1,547.8 Interest-bearing receivables from joint venture 6 1,420.2 1,538.0 Owner-occupied property 7 29.5 34.8 Plant and equipment 7 292.5 289.4 Pension assets 14 488.7 93.1
Total equity and liabilities 135,926.6 129,264.4 76 I Gjensidige annual report 2016
Total equity 1.1.-31.12.2015 Profit/(loss) (the controlling interests' share) 4.5 3,784.3 3,788.8
Equity-settled share-based payment transactions 6.0 6.0 Perpetual Tier 1 capital 298.2 294.3 Perpetual Tier 1 capital - interest paid (3.9) (3.9)
Equity as at 31.12.2015 attributable to the owners of the company 1,000.0 (0.1) 1,430.0 31.6 298.8 438.3 (1,583.0) 21,690.7 23,306.3
Equity as at 31.12.2015 23,330.6 1.1.-31.12.2016 Profit/(loss) (the controlling interests' share) 21.4 4,649.0 4,670.4
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset (158.7) (158.7)
Exchange differences from foreign operations (391.3) (391.3) Investments available for sale (12.5) (12.5) Tax on items that may be reclassified to profit or loss 66.6 0.1 66.7
Own shares 0.1 (3.8) (3.7) Paid dividend (6,196.6) (6,196.6) Equity-settled share-based payment transactions 7.6 7.6 Perpetual Tier 1 capital 997.7 997.7 Perpetual Tier 1 capital - interest paid (19.6) (19.6)
Cash and cash equivalents at the start of the year 3,151.9 2,403.8 Cash and cash equivalents at the end of the year 2,158.7 3,151.9 Net cash flow (993.2) 748.1
Specification of cash and cash equivalents Deposits with central banks 57.0 548.7 Cash and deposits with credit institutions 2,101.7 2,603.2 Total cash and cash equivalents 2,158.7 3,151.9
Accounting policies Reporting entity Gjensidige Forsikring ASA is a publicly listed company domiciled in Norway. The company’s head office is located at Schweigaardsgate 21, Oslo, Norway. The consolidated financial statements of the Gjensidige Insurance Group (Gjensidige) as at and for the year ended 31 December 2016 comprise Gjensidige Forsikring ASA and its subsidiaries and Gjensidige’s interests in associates and joint ventures. The activities of Ggjensidige consist of general insurance, pension and savings and banking. Gjensidige does business in Norway, Sweden, Denmark, Latvia, Lithuania and Estonia.
New standards and interpretations not yet adopted A number of new standards, changes to standards and interpretations have been issued for financial years beginning after 1 January 2016. They have not been applied when preparing these consolidated financial statements. Those that may be relevant to Gjensidige are mentioned below. Gjensidige does not plan early implementation of these standards.
Amendments to IFRS 2: Classification and measurement of share-based payment transactions (2016) IFRS 2 has been amended regarding the classification and measurement of share-based payment transactions with a net settlement feature for withholding tax obligations. If the entity is obliged to withhold an amount for an employee’s tax obligation associated with a share-based payment, and transfer that amount in cash to the tax authority on the employee’s behalf, then the entity shall account for that obligation as an equity-settled share-based payment transaction. The amendments are effective from 1 January 2018. The tax obligation in the Group’s remuneration scheme will be reclassified from liability to equity as at 1 January 2018. From this date the tax obligation will be accounted for as an equity-settled share-based payment transaction instead of a cash-settled sharebased payment transaction. Our preliminary assessment is that the amendment is not expected to have a significant effect on Gjensidige’s financial statements.
IFRS 9 contains three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income, and fair value through profit or loss. Financial assets will be classified as either at amortised cost, at fair value through other comprehensive income, or at fair value through profit or loss, depending on how they are managed and which contractual cash flow properties they have. IFRS 9 introduces a new requirement in connection with financial liabilities earmarked at fair value: where changes in fair value that can be attributed to the liabilities' credit risk are presented in other comprehensive income rather than over profit or loss. According to prevailing rules, impairment for credit losses shall only be recognised when objective evidence of impairment losses exists. Impairment provisions according to IFRS
9 shall be measured using an expected loss model, instead of an incurred loss model as in IAS 39. The impairment rules in IFRS 9 will be applicable to all financial assets measured at amortised cost or at fair value with the changes in fair value recognised in other comprehensive income. In addition, loan commitments, financial guarantee contracts and lease receivables are within the scope of the standard. The measurement of the provision for expected credit losses on financial assets depends on whether the credit risk has increased significantly since initial recognition. At initial recognition and if the credit risk has not increased significantly, the provision should equal 12-month expected credit losses. If the credit risk has increased significantly, the provision should equal lifetime expected credit losses. This dual approach replaces today’s collective impairment model. For individual impairment there are no significant changes in the rules compared with the current rules. During 2016, Gjensidige Bank continued the process to analyse the need for changes to the bank’s models and IT systems following the implementation of the new rules for impairment provisions. The work has started and is expected to continue during 2017. It is currently too early to estimate the expected impact to the group’s financial statements. Preliminary expectations are that the implementation of IFRS 9 could lead to increased provisions for credit loss due to the change from an incurred loss model to an expected loss model. IFRS 9 is effective from 1 January 2018.
IFRS 15 Revenue from contracts with customers (2014) IFRS 15 covers all contracts with customers, but insurance contracts, among others, are exempted. Insofar as such contracts cover the provision of several services or other services closely related to the insurance operations are carried out, this may have a bearing on how Gjensidige recognises revenues in its accounts. IFRS 15 is effective 1 January 2018. Our preliminary assessment is that services beyond what is covered by IFRS 4 about insurance contracts comprise an insignificant part of the income. Our preliminary assessment is that the standard is not expected to have a significant effect on Gjensidiges’s financial statements.
Joint ventures Joint ventures are defined as companies where there exists a contractual agreement giving joint control together with one or more parties. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
Joint ventures are accounted for using the equity method and initial recognition is at cost. The investor’s share of the investee’s profit or loss is recognised in the investor’s profit or loss. Distributions received from an investee reduce the carrying amount of the investment.
See note 6 for a further description of Gjensidige’s joint venture.
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 Gjensidige, in exchange for control of the acquired company, and any expenses directly attributable to the business combination.
Earned premiums from pension Earned premiums from pension consist of earned risk premium and administration expenses in relation to the insurance contracts.
Net income from investments Financial income consist of interest income on financial investments, dividend received, realised gains related to financial assets, change in fair value of financial assets at fair value through profit or loss, and gains on financial derivatives. Interest income is recognised in profit or loss using the effective interest method.
For investments accounted for according to the equity method, carrying amount of goodwill is included in the carrying amount of the investment.
• customer relationships 5–10 years • trademarks 1–10 years • internally developed software 5–8 years • other intangible assets 5–10 years
• significant changes in Gjensidige’s use of assets or overall strategy for the business
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.
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.
The category financial liabilities at amortised cost comprises the classes subordinated loan, 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.
Share-based payment transactions in which Gjensidige receives goods or services as payment for Gjensidige’s own equity instruments are recognised as share-based payment transactions with settlement in equity, regardless of how the company has acquired the equity instruments. Share-based payment arrangements settled by one of the shareholders in the ultimate mother company is also recognised as a share-based payment transaction with settlement in equity.
See note 25 for a further description of Gjensidige’s share-based payment arrangements.
A total of 199,200 (259,515) own shares at an average share price of NOK 141.75 (128.51) have in 2016 been acquired to be used in Gjensidige's share-based payment arrangements. Of these 169,093 (173,499) shares have been sold to employees, at the same price, but with a discount in the form of a contribution, see note 25. In addition 38,728 (48,579) shares have been allocated to executive personnel within the share-based remuneration scheme and 32,737 (32,841) bonus shares have been allocated to employees in the share savings programme in 2016. Own shares are reduced by 41,358 (increased by 4,596) through the year.
Other paid-in capital Other paid in equity consists of wage costs that are recognized in profit and loss as a result of the share purchase program for employees.
Perpetual Tier 1 capital Perpetual Tier 1 capital consists of a perpetual hybrid instrument in Gjensidige Bank ASA and Gjensidige Forsikring ASA, classified as equity. In connection with the issuance in 2016 and 2015, NOK 3.2 million and NOK 1.8 million were recognized as a deduction in equity.
Loans and receivables For financial assets that are not measured at fair value, it is assessed whether there is objective evidence that there has been a reduction in the value of a financial asset or a group of financial assets on each reporting date. See note 9. Individual write-downs are assessed before the write-down on groups is determined. If there is objective evidence that a financial asset is impaired, a write-down is made for the estimated loss. Objective evidence means evidence of occurrences indicating that the loan is impaired. This may be information about damaged credit histories, bankruptcy or defaults. For a closer description of the bank, see note 3 in the consolidated group accounts.
The subsidiary Gjensidige Pensjonsforsikring (GPF) takes insurance and financial risk in the areas of pensions, savings and investment advice in the Norwegian market. In the commercial market GPF offers defined-contribution occupational pensions with related risk coverage such as disability insurance, disability pensions and child and spouse pensions. In addition GPF manages funds relating to paid-up policy portfolios. In the private market, GPF offers life and pension products and pure risk products, such as disability pensions. Mortality and disability risks are the two main insurance risks in GPF, whereas the greatest financial risk is related to the guaranteed return on the paid-up policies.
Organisation The Board has 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, and it has adopted a risk appetite statement that covers the most important types of risks. This entails ensuring that necessary governing documents, procedures and reporting are in place in order to secure satisfactory risk management and compliance with laws and regulations and that the risk management and internal control efforts are appropriately organised and documented. Financial Undertakings Act requires the Board to establish a separate risk committee, ie a similar preparatory committee that the audit committee. Risk Committee will have a forward-looking perspective in relation to the company's strategy, risk appetite and risk capacity. The committee was established by decision in 2016 with effect from 1.januar.2017.
The group CEO is responsible for overall risk management in the Group. The Group’s capital committee has an advisory role with regard to the assessment and proposal of changes in use of capital. Similarly the Group’s risk committee has a supervisory role with regard to the Group’s total risk situation and an advisory role in relation to the group CEO with regard to risk management. Both committees are chaired by the group CEO. Responsibility for ongoing risk management is delegated to the responsible line managers in their respective areas. Gjensidige has centralised risk control functions, such as risk management, compliance and actuarial functions.
The Group has a strong capitalization with respect to all the three capital perspectives.
The current regulatory requirement is based on the standard formula specified by the Solvency II regulation. Gjensidige aims for a partial internal model for calculating the regulatory requirement. Application for an approval is sent to the Norwegian financial supervisory authorities, and a decision is expected in 2017.
The following are the target solvency margin ranges for the Gjensidige Group: • Regulatory requirement based on standard formula: 115 -140 per cent
The Group’s solvency margins at the end of 2016 were calculated to be: • Regulatory requirement based on standard formula: 147 per cent
• Internal risk-based requirement based on partial internal model: 180 per cent.
The figures are adjusted according to proposed dividend of NOK 3.4 billion.
The capital position is calculated based Gjensidige’s understanding and interpretation of the requirements and premises given in the regulation.
Note that the solvency margin for 2015 has changed from the last annual report in the regulatory perspective based on standard formula and in the internal risk-based perspective based on the partial internal model. This is a result of changed principles for the treatment of the guarantee scheme provision which currently is treated as a liability after instruction from the FSA. There are in addition some changes in the principles for calculating tax effects where tax effects are determined based on the difference in assets and liabilities between Solvency II valuation and the valuation for tax purposes.
The necessary capital for the insurance business is allocated to the insurance products in order to set a more correct cost of capital for pricing and assessments of profitability.
Total eligible own funds to meet the SCR 18,625.0 18,659.7 20,377.9 19,491.4
In addition to the Solvency Capital Requirement (SCR), there is a defined minimum level of capital. The latter is called Minimum Capital Requirement (MCR) for solo companies and minimum consolidated group Solvency Capital Requirement for insurance groups. If the capital falls below this level, the company or group will be prohibited to continue the business any further. Minimum consolidated group SCR applies for insurance groups excluding the bank sector.
Total eligible own funds to meet the group solvency capital requirement (SCR) is excess of assets over liabilities calculated according to Solvency II principles, adjusted for proposed dividend and subordinated liabilities. For the Gjensidige group eligible capital and capital requirement from the bank sector is added to eligible capital and capital requirement for the insurance group in order to arrive at the Groups final capital figures.
Table 3 - Eligible capital to cover the Solvency Capital Requirement
Own shares (0.1) (0.1) (0.1) (0.1) Proposed dividend (3,400.0) (4,200.0) (3,400.0) (4,200.0) Subordinated liabilities (insurance) 2,183.0 1,197.4 2,487.5 1,197.4
Basic own funds 18,625.0 18,659.7 16,737.8 16,453.6 Own funds of other financial sectors 3,640.1 3,037.8
Gjensidige annual report 2016 | 91 is different from accounting principles where the guaranteed interest rate is used. Also, the main difference between accounting and Solvency II principles, for index- and unit-linked insurance, is the inclusion of future profits in Solvency II.
Note that the Solvency II interest rate curves with no volatility adjustment are used for determining the Solvency II technical provisions, and that no transitional measures are used for the calculations.
Eligible own funds are divided into three capital groups according to Solvency II regulations. Gjensidige has mainly tier 1 capital, which is considered to be capital of best quality. Of the total amount of tier 1 capital, NOK 1,025 million comes from the restricted tier 1 category. This is the market value of bonds issued by Gjensidige Forsikring ASA (nominal amount of NOK 1,000 million). For Gjensidige Group the tier 1 capital also includes tier 1 capital from the bank sector. Restricted tier 1 capital for the bank sector is NOK 298 million (nominal amount NOK 300 million) and consists of bonds issued by Gjensidige Bank ASA.
Tier 1 15,200.8 15,291.3 13,009.1 13,085.3 Of this; Restricted tier 1 capital 1,025.0 1,025.0
The solvency capital requirement is based on different sources of risks. The main risks for Gjensidige Forsikring ASA and Gjensidige Group are non-life and health underwriting risk and market risk. Non-life and health underwriting risk is mainly related to uncertainty in underwriting result for the next year (premium risk) and the risk of the claims provisions not being sufficient (reserve risk). Counterparty default risk and operational risk also contribute to the capital requirement. A diversification benefit is accounted for as all risks will not occur at the same time. The capital requirement is also adjusted for future tax benefit which would occur if a loss equal to the solvency capital requirement should occur. This tax benefit can only be accounted for if it is reasonable that the company is able to continue with its business after such a loss.
Capital available 18,625.0 18,659.7 20,377.9 19,491.4 Capital charge for nonlife and health uw risk 7,896.7 7,704.6 8,110.7 7,829.1
The minimum consolidated group solvency capital requirement for the Gjensidige Group is NOK 5,280.5 million.
Gjensidige Group 6,498.2 5,453.3 Gjensidige Forsikring ASA 8,362.8 8,112.1 Nykredit Forsikring A/S 198.3 211.6 ADB Gjensidige 94.9 198.2 Gjensidige Pensjonsforsikring AS 437.2 124.9 Gjensidige Bank Holding Group 258.7 130.0
Capital available 20,670.9 19,893.0 Capital charge for non-life and health uw risk 6,168.5 5,634.3
Diversification (4,491.7) (4,350.4) Basic SCR 9,450.3 9,306.2 Operational risk 936.9 966.1 Adjustments (risk-reducing effect of deferred tax) (2,302.2) (2,104.2)
The Group has an overall underwriting policy, approved by the Board of Gjensidige Forsikring ASA, with more detailed underwriting guidelines for each of the product segments, supported by strictly defined authorisation rules.
An increase in the frequency of claims can be due to seasonal effects and more sustainable effects. During the winter season snow and cold weather will cause an increase in the frequency of claims in Motor insurance. In Property insurance, a cold winter will cause an increase in the frequency of claims due to frozen water pipes and increased use of electrical power and open fire places for heating of the houses. More permanent shifts in the level of claims frequency may occur due to e.g. change in customer behaviour and new types of claims. The effect on the profitability of a permanent change in the level of claims frequency will be high. In Motor insurance in Norway, for example, an increase of one percentage point in the level of claims frequency will increase the loss ratio by three to four percentage points.
The analysis of the profitability can be traced further to different groups of customers and portfolios. The underwriting guidelines endeavour 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 insurance portfolio of the Gjensidige Group is still concentrated in the Norwegian general insurance market, with operations in other Nordic countries and the Baltic.
General insurance Private 8,375.9 31.2% 8,269.1 33.0% General insurance Commercial 7,446.1 27.8% 7,434.9 29.7%
General insurance Nordic 6,262.4 23.3% 5,430.0 21.7% General insurance Baltics 1,080.6 4.0% 702.9 2.8% Pension and savings 3,604.2 13.4% 3,078.0 12.3% Corporate Center-
Medical expense insurance 481.1 1.8% 370.1 1.5% Income protection insurance 1,218.4 4.5% 1,269.5 5.1%
Medical expense insurance 321.2 1.5% 283.9 1.3% Income protection insurance 1,059.5 4.8% 1,067.9 5.0%
Other motor insurance 4,090.1 18.5% 3,718.1 17.5% Marine, aviation and transport insurance 277.8 1.3% 254.3 1.2%
Fire and other damage to property insurance 8,016.9 36.2% 6,623.7 31.2%
The reinsurance programme for the Gjensidige Group, primarily non-proportional reinsurance, is based on calculated exposure, claims history and capitalisation. The limits for the reinsurance programme for each year are set by the Board. In Norway the exposure to natural perils is limited through Gjensidige’s compulsory membership in the Norwegian Natural Perils Pool. 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 normally paid according to the policy conditions valid at the time of occurrence. As a result, claims are settled over a long period of time. The provision for reported but not settled claims (RBNS) is calculated based on the size of the claim; another element of the claims provision relates to incurred but not reported claims (IBNR).
In estimating the liability for the cost of reported claims not yet paid, Gjensidige considers any information available from claims reports, loss adjusters, medical certificates and information about the costs of settling claims with similar characteristics in previous periods. All claims are assessed on a case-by-case basis by a claims handler. Claims with potential for distortive effects of their development are handled separately and projected to their ultimate by an additional provision (e.g. bodily injury claims in Motor insurance). Where possible, Gjensidige applies multiple techniques to estimate the required level of provision. This provides a greater understanding of the trends inherent in the experience being projected. The projections resulting from the various methodologies also assist in estimating the range of possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year. The development of the estimate of ultimate claim cost for claims incurred in a given year is presented in Tables 14a and b. This gives an indication of the accuracy of Gjensidige’s estimation techniques for claims payments.
The provisions related to reported claims are assessed individually by a claims handler and registered in the claims system. The development of provisions for notified claims is supervised by the claims managers. In case of adverse development necessary efforts are put in force.
Gjensidige has regular processes where external actuarial firms calculate best estimates of the technical provisions. This is done to get a second opinion on the level of the provision from independent, recognised actuarial firms.
Table 12 below shows the impact on profit or loss for the year, and thereby on equity at year-end, of changes in Combined Ratio (CR). Tax impact is not included in the calculations. CR is the key measure of profitability in the general insurance business. The calculations show the effect of a change of one per cent in CR for each segment. An increase in CR can be caused by an increase in the loss frequency and/or an increase in the severity. In some LOB there is a risk that the loss frequency and the severity of claims are correlated so that an increase in the underlying insurance risk may affect both the frequency and severity of claims.
Change in CR (1%-point) General insurance Private 82.9 81.5 General insurance Commercial 72.6 70.8 General insurance Nordic 59.2 52.3 General insurance Baltics 10.4 6.4 Pension and savings 14.8 14.3 Corporate Centre/reinsurance (0.6) 1.7
Table 13 – Sensitivity analysis claims provision Change in inflation (+/- 1%-point)
Total disbursed 10,435.9 10,846.5 11,114.8 10,346.6 12,494.9 13,190.1 11,095.1 12,273.3 11,991.4 9,512.2 7,291.2 120,592.1 Claims provision 875.6 1,018.8 1,157.5 1,409.1 1,082.8 1,369.3 1,509.8 1,668.0 2,110.7 3,057.4 6,095.7 21,354.9 Prior-year claims provision and loss adjustment provision 8,077.2 Gjensidige Baltic 511.3 Total 29,943.4
Gross Estimated claims cost At the end of the accident year 11,710.0 12,263.3 12,243.1 11,713.2 13,655.7 14,463.0 12,648.1 14,257.0 14,097.2 11,950.8 12,980.6 - One year later 11,585.2 12,276.6 12,343.8 11,642.3 13,571.4 14,701.4 12,652.3 14,190.7 13,728.6 11,919.1 - Two years later 11,528.5 12,165.4 12,249.4 11,497.9 13,593.5 14,733.7 12,591.9 14,026.7 13,605.2 - Three years later 11,345.2 12,105.1 12,213.9 11,500.7 13,519.4 14,558.9 12,437.0 13,848.6 - Four years later 11,335.3 12,111.0 12,173.0 11,364.7 13,423.0 14,365.0 12,259.6 - Five years later 11,338.9 12,030.1 12,047.0 11,298.6 13,314.0 14,244.6 - Six years later 11,290.7 11,943.2 12,003.2 11,250.6 13,187.6 - Seven years later 11,187.7 11,903.6 11,956.4 11,109.6 - Eight years later 11,149.3 11,855.2 11,869.7 - Nine years later 11,198.1 11,715.7 - Ten years later 11,019.4
Total disbursed 10,099.0 10,651.8 10,636.1 9,703.0 11,754.6 12,740.7 10,583.1 11,789.7 11,405.6 8,961.1 6,913.1 115,237.8 Claims provision 920.4 1,063.9 1,233.6 1,406.6 1,433.0 1,504.0 1,676.6 2,058.8 2,199.6 2,958.0 6,067.6 22,522.0 Prior-year claims provision and loss adjustment provision 7,196.9 Total 29,718.9
Life insurance Insurance risk Gjensidige Pensjonsforsikring AS (GPF) offers products, such as occupational pensions, including disability protection and survivor benefit, individual disability protection and pension saving products. Their purpose is to provide financial security after retirement, and protection in case of disability or death.
Risk is transferred from the customer to GPF, and GPF is compensated by charging a risk premium. The risk premium is based on tariffs that reflect the actual risk. GPF use reserving techniques to estimate future obligations. If data is scarce, simplified reserving techniques may be used. Sufficient reserving is the foundation of GPF’s business. This is especially challenging for the paid-up policies that GPF also has on its balance sheet. GPF has no possibility of charging additional premium so the premium reserve must suffice.
GPF is exposed to mortality, longevity and disability risk respectively because of the products survivor benefits, defined benefit pensions (with guaranteed payments until a given age, or lifelong payments) and disability protection. The greatest risk contributor is disability, followed by longevity and mortality.
Furthermore, GPF makes assumptions about the likelihood of number of survivors (spouse, live-in partner and children), their age and benefit amounts. If empirical data deviates from the assumptions, the premium reserve may be insufficient. The liability duration, likelihood of claims and insured amounts create the time span of cash out-flow, but also affect the risk. The following section describes the products that represent the greatest insurance risk for GPF.
GPF’s main business focus is occupational pension products. This can be mandatory pension plans, defined contribution plans exceeding the minimum level and supplementary pensions such as disability protection and survivor benefits. Furthermore, GPF administers a portfolio of paid-up policies, and offers individual disability pension and other pension savings products. Among these products, the occupational pension’s supplementary coverage, paid-up policies and individual disability protection represent the greatest insurance risk for GPF.
The tables below show the number of members and contracts for mandatory occupational pension and other defined contribution pension plans, respectively.
Compulsory occupational pensions 64,565 8,872 Other defined contribution pensions 70,437 7,373 Total 135,002 16,245
Occupational pensions are defined contribution plans which are usually paid out within ten years. For this reason, occupational pensions hardly expose GPF to any longevity risk. Most of the paidup policies which have been transferred to GPF have lifelong payment for the old-age pensioners and thus represent longevity risk.
Mortality risk is caused by survivor benefit as part of occupational pension. This can be a widow/widower pension or survivor pension to children. Survivor pension is most common supplementary coverage to defined contribution plans which exceed minimum levels (a contribution of 2 per cent of salary). The paid-up policies also contain some survivor benefit, but these benefits are generally lower. The duration of survivor benefit linked to an occupational pension is often limited. However, the duration of survivor benefit linked to paid-up policies is longer and benefits are often guaranteed for lifetime.
Paid-up policies require a minimum return every year4. The rate of minimum return is also used as the discount rate, and the FSA regulate the level of this rate. If a minimum return is not achieved, GPF must add funding, or supplementary reserves can be used. The average level of minimum return is approximately 3.45 per cent for paid-up policies in GPF. This yearly guarantee exposes GPF to market risk. This is discussed further under the chapter “Management of financial risk”.
Mortality risk Mandatory occupational pension contracts are signed on a yearly basis, so GPF is able to adjust survivor pension premium tariffs at renewal if needed. Survivor pension claims are reported fairly quickly, which makes it possible to adjust the premium tariffs in time. Survivor pension only accounts for minor part of the business and the majority of the risk premium is used for reserving. In addition, GPF is exposed to mortality risk in paid- up policies.
3Risk year is the year where GPF has underwritten the insurance risk. First risk year for GPF is 2006 4The rate of minimum return is also used as discount rate for the reserves and premiums. The FSA regulate the level of the rate. It has been reduced several times the last few years, but changes usually just apply for future contracts. This means that reserves belonging to old contracts (contract made before a change in the discount rate) can use another discount rate than current contracts. The average discount ratecan because of this deviate from the current discount rate.
Calculations show that disability provisions need to increase by NOK 200 million if the disability rate increases by 35 per cent the first year and then 25 per cent the following years.
Figure 6 – Cash flow before and after the “stress scenario”
Mortality risk 0.2 % 0.3 % Longevity risk 8.3 % 13.1 % Disability risk 12.3 % 7.6 % Lapse risk 74.9 % 72.6 % Expense risk 4.2 % 6.3 % Catastrophe risk 0.0 % 0.1 % Total 100.0 % 100.0 %
Reinsurance Gjensidige purchases reinsurance to protect the Group’s equity capital and reinsurance is a capital management tool. The Group’s established models and methodologies for evaluation of the internal risk based capital allocation are used to analyse and buy reinsurance. The maximum retention is Board approved. Gjensidige’s reinsurance programme is non-proportional. The maximum retention level for the Group was NOK 420 million in 2016, increased from NOK 400 million in 2015. As a general rule, Gjensidige buys reinsurance to limit any single claim or claim event per insurance product to NOK 100 million. For some segments Gjensidige will, periodically, purchases reinsurance that reduces the retention level to under 100 million. The reinsurance programme is each year based on analysis of exposure, claims history, model simulations and Gjensidige’s capitalisation. Gjensidige Forsikring ASA acts as reinsurer for the group subsidiaries, and their exposure is included in the outward reinsurance programme for the Group. The reinsurance programme for property insurance also includes affiliated mutual fire insurers. The subsidiaries’ reinsurance programmes are adapted to each individual company’s size and capitalization. In Norway the exposure to natural perils events is handled through compulsory membership of the Norwegian Natural Perils Pool. Through this arrangement, Gjensidige is exposed to its market share of the total aggregated claims for the Norwegian market. The pool each year, on behalf of its members, buys a reinsurance programme for the pool exposure. In 2016 Gjensidige, as per previous years, acts as reinsurers for the pool with a share equivalent to its market share. This exposure is included in Gjensidiges’ outwards reinsurance programme. In Gjensidige’s other geographies natural perils claims are included in the ordinary property reinsurance coverage. An event resulting in claims in several countries where Gjensidige does business will be aggregated into one event with respect to reinsurance.
The investment strategy and risk management policies are approved by the Board of each company, but are closely coordinated with the parent company’s overarching strategy and policies. The general rule is that the asset allocation in the subsidiaries in general insurance will only be used to hedge the technical provisions against interest rate and foreign exchange risk, with excess funds being invested in interest-bearing 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 investment management and capitalisation in the Group.
In terms of concentration risk, one of the main risks for the Group is the investments in SpareBank 1 SR-Bank ASA. This concentration has been reduced significantly after Gjensidige sold shares in January 2017. Furthermore, the portfolio involves substantial concentration in the fixed-income portfolio towards Norwegian financial institutions, as well as exposure to office properties in the Oslo area through the joint venture Oslo Areal AS. Concentration risk is further analysed under the various market risk factors.
The development of the financial results is measured continuously relative to the targets and risk limits set by the Board. In the liquid part of the free portfolio, risk is measured daily against limits in accordance with Tail Value at Risk (TVaR); see the table below. As of 31 December 2016, NOK 45.1 million of the risk capacity measured by TVaR was used. TVaR is a statistical measure of expected loss in the for instance 5 per cent worst outcomes (confidence level) over a given period of time. For this purpose a confidence level of 95 per cent and 1-day time horizon is used. TVaR has fluctuated between NOK 40 and 65 million throughout the year. In the event of a significant negative development in the financial results, the limit on investments in risky assets will be lowered. The development in the financial results and asset allocation are measured and reported regularly to the Group management and the Board.
Stress testing Regulatory changes with the Solvency II directive in effect from the beginning of 2016 caused larger changes in the internal stress test for the Group. Earlier the stress test has been to the capital adequacy requirement for the Gjensidige Group, which was calculated according with Norwegian GAAP. From 2016 the stress test is to the standard formula in the Solvency II directive. The internal stress test is somewhat simplified compared with the standard formula, with the purpose of showing the Group’s remaining legal surplus capital in a scenario where market conditions put the balance sheet in significant stress. The stress test is reported regularly to the Board.
The precise figures will generally vary with changes in asset allocation and year-to-date profit. A rule for capital management actions with escalation to the CEO or Board, is implemented if the Group’s capitalisation (solvency) fall below a stipulated level.
Diversification effect market/insurance risk 418.1 Total decrease in value in stress scenario (3,267.9) Buffer capital 5,589.1
Table 21 – Sensitivity analysis equity portfolio 10 per cent drop in equity prices (251.1) (266.5)
In addition to the invested amounts, Gjensidige had committed capital, not invested, amounting to NOK 581.6 million as at 31 December 2016.
In the Danish Workers’ Compensation operations, 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 5,000 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 wage growth). The risk to the present value of these annuities is hedged through a series of swap agreements spread over approximately 35 years and covering inflation and interest rate risk separately, so that the real interest rate risk is reduced. Most swap agreements have yearly coupon payments and security is provided for the outstanding market value between the parties, which reduces counterparty risk. The fixed-income portfolio in the Danish branch is invested with a low duration in Danish covered mortgage bonds and loan funds containing secured debt. In addition to the invested amount, Gjensidige had commited capital, not invested, amounting to NOK 552.8 million, in loan funds containing secured debt, as at 31 December 2016.
The table below shows the maturity profile of the Group’s fixedincome portfolio.
Table 23 – Maturity profile (number of years) fixed-income portfolio NOK millions 2016 2015
Table 24 – Sensitivity fixed-income portfolio 100 bps parallell shift up (219.0) (337.7)
Hedge requirement 37,586.8 Duration hedge requirement 4.3 Match portfolio 39,729.0 Duration match portfolio 3.6 Duration mismatch in years (0.6) 1.0 Duration mismatch in NOK (216.2) 350.0 Mismatch in match portfolio and hedge requirement 5.7% 10.0%
Hedge requirement 38,104.2 Duration hedge requirement 4.5 Match portfolio 40,050.3 Duration match portfolio 3.5 Duration mismatch in years (0.8) 1.0 Duration mismatch in NOK (314.0) 370.0 Mismatch in match portfolio and hedge requirement 5.1% 10.0%
Goldman Sachs Global Opportunities Offshore 432.4 Sector Healthcare - A USD 267.1 Winton Futures Fund- Lead Series 162.5 Sector EuroPower Fund Class A EUR 123.6 Trient Global Macro Fund USD A-Class 114.6 Total five largest 1,100.2 Total hedgefunds 1,294.4
Foreign exchange risk Foreign exchange risk is defined as the financial loss resulting from fluctuations in exchange rates. Generally, foreign exchange risk in the investment portfolio is hedged close to 100 per cent, within a permitted limit of +/- ten per cent per currency, except for smaller mandates with active currency management.
The table below shows the foreign currency exposure by currency type. The gross positions show exposure from investments. Currency positions related to the currency hedging strategy, where the surplus capital of the subsidiaries are minimised, together with active currency management, are not included.
Risk by 100 bps change in credit spread 3.4 (1,719.9) (2,000.0)
AAA 11,517.0 11,699.0 AA 6,815.2 6,147.6 A 11,067.4 14,411.0 BBB 7,626.7 7,442.6 BB 1,222.7 1,860.1 B 2,078.8 1,684.9 CCC or lower 108.2 126.0 Not rated 4,729.3 4,447.8 Total 45,165.1 47,818.9
A large part of the Norwegian fixed-income portfolio consists of issuers without a rating from an official rating company. However, many asset managers and brokerages conduct their own internal evaluation of the creditworthiness, and used to assign rating categories in the same way as rating agencies. For completeness, the second table also includes the allocation using the last received internal rating of Gjensidige’s main asset manager, Storebrand Asset Management. The following tables show the largest issuers as of 31 December 2016 and 31 December 2015, respectively.
Figure 9a – Potential credit exposure reinsurance per rating category 2016
Figure 9b – Potential credit exposure reinsurance per rating category 2015
Based on this kind of scenario, the Board has set a liquidity requirement for 2016 of at least NOK 3,000 million in the most liquid assets, which includes deposits in banks, covered bonds (OMF), bonds and certificates issued by OECD countries or guaranteed by these countries and money market instruments rated A or better that have a due date within six months. The current allocation meets these requirements. The table below shows the classification used and the amounts as at 31 December 2016 and 2015 for Gjensidige Forsikring ASA.
Bank deposits 1,704.8 Money market instruments 1,373.5 Bonds and certificates coupons with maturity less than 6 months 303.6
Management of financial risk – Gjensidige Pensjonsforsikring Overview and organisation The organisation of asset management in Gjensidige Pensjonsforsikring AS is adapted to official requirements and endeavours to utilise the Gjensidige Group’s expertise in asset management, risk management and control. It is underlined that responsibility for the asset management rests with Gjensidige Pensjonsforsikring AS, even though its performance may be contracted out to other companies in the Gjensidige Group.
The capital management policy sets out overarching principles for capital management and the company’s risk tolerance with respect to capitalisation. It contains guidelines for the company’s capitalisation criteria, capital management elements and future capital needs.
Gjensidige Pensjonsforsikring AS has separate strategies for each portfolio: the unit-linked, paid-up policy, other group policy and corporate portfolios. Gjensidige Pensjonsforsikring AS is not
2. Self-defined targets over and above the statutory requirements, corresponding to 115 per cent of SCR.
Requirement 2 will by definition always be higher than requirement 1.
Because of fluctuating business volume and the market’s requirement to always be perceived as financially sound, the company must have capital over and above the minimum requirement in order to run the business area efficiently. The need for capital in addition to statutory requirements depends, however, on the possibilities the company has to raise more capital and/or adaptation through reinsurance or adjusting the asset balance. This must be seen in connection with the requirements for return on equity.
The company uses a ‘traffic light’ system that indicates different levels of solvency capital in relation to SCR and pertaining measures.
NOK 1,718.8 million. This gives a solvency margin of 134.0 per cent.
Eligible own funds to meet SCR 1,718.8 1,221.7 Solvency capital requirement (SCR) 1,282.9 1,216.2 Solvency capital surplus 436.0 5.5 SCR margin 134.0 % 100.4 %
Financial risk is a generic term for several types of risk relating to financial assets. Financial risk can be broken down into market risk, credit risk and liquidity risk. Financial risk also includes the risk that the value of the insurance liabilities will develop differently from the assets. The different types of financial risk are described in more detail below. The operational risk relating to asset management is monitored and managed. The requirements for operational risk management are described in the policy for investment activities adopted by the Board.
Meeting its commitments to customers is a fundamental goal for the company. To avoid losses against equity, assets must grow at least in step with liabilities (the insurance liabilities). The requirement applies both on an annual basis and in the long term. The company is subject to several regulatory regimes that must be taken into account in an ALM perspective.
The paid-up policies have an annual interest guarantee that will be allocated to the customer from the recognised return on the portfolio. The result is recognised in the company’s financial accounts. Under the same accounting rules, the liabilities are recognised based on a fixed base interest rate. In practice, this means that, in the accounting context, the liability side of the balance sheet remains unchanged in relation to changes in the interest rate. GPF has adapted to this by investing in loans and receivables that are subject to favourable accounting treatment in that the return is accrued over the term to maturity of the bonds.
Stock market risk is defined as a fall in value resulting from reduced equity prices. Interest rate risk is defined as a fall in value resulting from a change in the interest rate level, and it is viewed separately from both a purely asset perspective and in relation to interest rate sensitivity on the liability side. Currency risk is the risk of loss as a result of changes in foreign exchange rates. Credit risk is defined as a loss that arises if an issuer fails to fulfil its obligations or because of increased risk premiums for bonds with credit risk. Liquidity risk is defined as an inability to make payments when they fall due, or because investments have to be realised at a high cost in order to make payments. The business is exposed to these types of risk through the company’s investment activities, and they are managed at the aggregated level and addressed in guidelines for asset management and investment strategies developed for Gjensidige Pensjonsforsikring AS.
The most important components of the company’s financial risk relating to investments in the group policy portfolio are risk in connection with the interest rate level, interest rate risk, credit risk and property risk in the paid-up policy portfolio. Gjensidige Pensjonsforsikring AS has an active management agreement with Gjensidige Investeringsrådgivning AS for the development and management of the group policy portfolio in accordance with the investment strategy adopted by the Board of Gjensidige Pensjonsforsikring AS.
The strategy for the unit-linked portfolio for corporate customers, external agents and private customers is defined in the investment
Gjensidige annual report 2016 | 107 strategy. The risk profile portfolios have an automatic reduction of risk in the portfolios in the last 7 to 10 years until final retirement age. In addition, an age-adapted risk profile has been introduced with a gradual reduction over 30 years.These portfolios do not expose Gjensidige Pensjonsforsikring AS’s equity to investment risk.
Investment portfolios with equity risk include the corporate portfolio, the paid-up policy portfolio for which no provision for longevity has been made, the paid-up policy portfolio for which provision for longevity has been made, and other group policy portfolios. The Board decides the strategy for these portfolios, assigning a weight to each asset class. The Board also adopts upper and lower limits for each asset class, and asset allocation must be kept within these limits.
Table 38 – Sensitivity fixed-income and equity portfolio, Gjensidige Pensjonsforsikring 100 bps parallell shift up in the yield curve (14.6) (2.4) 10% drop in equity prices (1.3) (1.2)
AAA 1,346.2 1,145.7 AA 536.5 807.3 A 738.8 1,801.5 BBB 865.6 1,277.1 BB 100.5 13.2 B 104.8 8.8 CCC or lower 21.2 Not rated 1,892.4 276.5 Total 5,605.9 5,330.0
A large part of the fixed income portfolio in Gjensidige Pensjonsforsikring AS has an official rating. These securities are mainly invested in Norwegian banks and financial institutions.
Secured lending mainly comprises loans and credits secured by residential property. The bank most recent business is car finance launched in 2013 which includes loans and leasing secured by vehicles.
Models for monitoring credit risk The bank uses application score models based on internal and external customer information for decisions relating to customers’ applications for a loan. In addition, the bank uses behaviour score models that predict the probability of default in customers for decisions related to top-ups, collections, group write-downs and other portfolio management decisions. For decisions related to commercial exposures, the bank uses company rating provided by external agencies in addition to
The bank's maximum exposure to credit risk related to lending portfolio is NOK 48,261.2 million.
Low 35,447.1 3.5 6,491.2 41,941.8 Medium 3,962.9 260.4 4,223.3 High 1,017.5 90.0 1,107.4 Not classified 355.1 536.2 891.3 Impaired and written down 466.9 9.0 475.9 Total 41,249.5 3.5 7,377.7 9.0 48,639.7 Group write-downs 378.5 378.5 Total net 40,871.0 3.5 7,377.7 9.0 48,261.2
Low 32,184.6 78.5 4,954.1 37,217.2 Medium 3,035.8 1,185.2 4,221.0 High 953.3 68.0 1,021.3 Not classified 138.6 14.3 152.9 Impaired and written down 423.5 6.1 429.6 Total 36,735.8 78.5 6,221.6 6.1 43,042.1 Group write-downs 352.9 352.9 Total net 36,382.9 78.5 6,221.6 6.1 42,689.1
Based on the above development, the Board considers the credit risk levels in the bank’s portfolio to be satisfactory
Gross lendings in default for more than 90 days amounted to NOK 399.5 million by the end of the year, compared to NOK 339.2 million in 2015. The total written-down balance on loans in 2016 amounted to NOK 387.6 million compared with NOK 359.1 million in 2015. Gross lendings in default for more than 90 days amounted for 1.0 per cent of gross lending as of the end of the year, compared to 0.9 per cent in 2015.
The interest rate risk limit for all time periods are plus/minus 1,500 MY. The bank’s limit for cumulative exposure to interest rate risk is 1,500 MY. Interest rate risk under three months is measured and reported, but the exposure is not included in the interest risk limits. When the limit is fully utilised, the loss for the bank given a one percentage point change in the yield curve will be NOK 15 million. Utilisation of this limit is reported monthly to the Board.
As of 31 December 2016, the bank has a negative interest rate exposure of 111 MY in the 3 months to one year interval. The net accumulated interest rate exposure over three months is a positive 360 MY as of 31 December 2016. By investing in sound securities with short-term maturity and with expectations that the value will be less exposed to changes in the credit spread, the bank limits its spread risk on its assets. The market value of the bank’s own bonds varies with changes in the credit spreads.
Gjensidige annual report 2016 | 109 the bond is converted from currency into a bond in NOK based on NIBOR. Under IFRS the changes in the fair value of the derivative related to changes in cross currency basis swaps are recognised as value change in financial instruments.
As of 31 December 2016 the bank has outstanding bonds in Swedish krone of 800 million.
As of 31 December 2016, the portfolio is geographically diverse, with the greatest lending in the most populous areas of the country. The largest loan is about NOK 290.0 million. The exposure related to the ten largest loans (limit) is about NOK 555.3 million. The bank's liquidity reserves are mainly placed in securities issued by the Norwegian government and Norwegian covered bonds (OMF).
The bank’s management regularly reviews its internal controls. The bank has a complex IT infrastructure that must function at all times. It therefore has a particular focus on risks related to ICT/security.
Loans to and claims on credit institutions 63.0 63.0 Loans to and claims on customers 335.0 660.7 2,951.5 13,846.5 33,183.9 250.5 51,228.1 Certificates, bonds and other interest-bearing securities 103.3 6.8 710.0 2,440.5 405.8 3,666.5 Other financial assets 34.5 132.3 166.9 Derivatives – gross inflows 290.3 11.2 1,149.7 1,233.4 2,684.6 Total financial assets 763.2 678.7 4,811.2 17,520.4 33,589.7 445.8 57,809.0
Deposits and liabilities to customers 17,301.8 998.2 2,995.3 21,295.3 Liabilities opened for the issue of securities 3.5 66.6 1,221.3 17,284.0 2,983.6 21,559.0 Loan offers and unused credit facilities 8,239.3 8,239.3 Derivatives – gross outflows 139.9 15.6 68.5 46.9 271.0 Total liabilities 25,684.5 1,080.4 4,285.1 17,330.9 2,983.6 51,364.6
110 | Gjensidige annual report 2016 4. Segment information The group has six reportable segments, as described below, which offers different products and services within different geographical areas. The Groups reportable segments are identified based on the Group’s internal reporting. The Group CEO holds regular meetings with its reporting managers for the different segments, concerning performance management, which focuses on future measures to ensure performance and deliveries.
General Insurance Commercial The Commercial segment offers a wide range of general insurance products to the commercial, agriculture and municipality markets in Norway, including insurances related to motor, property, accident and health and marine/cargo.
Segment income – group 2 - Claims, interest expenses, loss etc. (5,030.8) (4,908.5) (4,825.1) (4,826.7) (4,739.6) (3,905.2) (748.4) (524.8) (1,283.5) (1,275.7) (680.1) (652.2) (172.0) (432.4) (17,479.6) (16,525.4)
Segment result/profit/(loss) before tax expense 2,196.7 2,208.1 1,631.3 1,440.8 247.3 509.1 (99.5) (98.9) 125.4 84.2 428.5 303.6 1,610.3 602.8 6,139.9 5,049.7 1 Eliminations etc. consist of internal eliminations and other income and expenses not directly attributable to one single segment and large losses of NOK 205.5 million (382.5).
2 There is no significant income between the segments at this level in 2016 and 2015.
Amortisation and impairment losses As at 1 January 2015 (265.4) (615.7) (37.7) (673.5) (149.4) (1,741.7) Amortisations (104.7) (7.0) (171.1) (71.7) (354.6) Disposals/ reclassifications (17.6) 5.8 0.8 199.8 2.5 191.4 Impairment losses recognised in profit or loss during the period (13.5) (13.5)
Exchange differences (10.2) (38.3) (2.2) (12.1) (13.2) (75.9) As at 31 December 2015 (306.6) (752.9) (46.0) (656.9) (231.8) (1,994.3)
Exchange differences 10.2 38.7 2.1 14.1 14.7 79.8 As at 31 December 2016 (251.5) (848.0) (44.0) (795.6) (344.7) (2,283.8)
Impairment testing goodwill The carrying amount of goodwill in the Group as at 31 December 2016 is NOK 3,140.2 million. See table.
Nykredit Forsikring Nordic 842.0 876.2 Gjensidige Forsikring, Swedish branch Nordic 160.4 158.2
Each of the units above is the smallest identifiable group of assets that generates cash inflows and are considered as separate cashgenerating units. The annual assessment of impairment losses was carried out in the third quarter of 2016. An indication assessment was also carried out in the other quarters in order to assess whether new circumstances calls for new impairment testing of goodwill.
Budgets/prognoses and the period for which the cash flows are projected The projection of cash flows is based on budget and forecast for the next five years reviewed by the management and approved by the Board of Directors. In the period after 2020 a lower annual growth has been used than in the budget period. The terminal value is calculated in 2025. The cash flows are estimated to a normal level before a terminal value is calculated. Gjensidige normally has a tenyear horizon on its models, as the acquired companies are in a growth phase and a shorter period will give a less correct view of expected cash flows. In 2016 the profitability in the Danish market has been challenged more than in other markets, which has resulted in several actions in the autumn 2016. These will be completed in 2017/2018 and are primarily focused on improving the claims ratio through better tariffing and risk-selection.
Growth rate in terminal value calculation The growth rate is determined to 2.5 per cent in Scandinavia and 3.0 per cent in Baltics. This is the same growth as in 2015.
Gjensidige Forsikring, Danish branch No need for impairment No need for impairment No need for impairment Need for impairment app. NOK 249 million
Gjensidige Forsikring, Swedish branch No need for impairment No need for impairment No need for impairment No need for impairment ADB Gjensidige No need for impairment No need for impairment No need for impairment No need for impairment Gouda porfolio No need for impairment No need for impairment No need for impairment No need for impairment
Vervet AS including subordinated loan 1 Tromsø, Norway 25.0% 35.3 11.2
Joint ventures Oslo Areal AS Oslo, Norway 50,0 % 1,086.9 1,573.8 1,086.9 1,509.0
Vervet AS, profit sale of shares and subordinated loan 8.8 N/A
Total shares in associates and joint ventures 349.2 84.4 264.8 433.0 (13.9) 49.7 2 Profit recognised for the period as a joint venture.
Statement of financial position - items Current assets 34.6 93.0 Fixed assets 6,691.6 6,821.5 Cash and cash equivalents 46.2 30.7 Short term liabilities 784.4 820.6 Long term liabilities 2,840.4 3,076.1 Equity 3,147.6 3,018.0
In 2015, Gjensidige sold 50 per cent of the shares in Oslo Areal to AMF Pensionsforsäkring (AMF). The transaction implies that Gjensidige and AMF will own Oslo Areal together as a joint venture, as each party has rights to its share of the net assets of the arrangement. The parties will make joint investments in the Norwegian real estate market through Oslo Areal. The investment is recognised according to the equity method at NOK 1.6 billion at year end. Gjensidige Forsikring has granted a loan to Oslo Areal amounting to NOK 1.4 billion at year end. The loan is interestbearing.
Part of the agreement is that Gjensidige, through a price-adjustment mechanism, will be exposed to the property market development with an amount corresponding to half of the proceeds during the period until 31 December 2016. Gjensidige will therefore have a higher property-exposure in this period than the 50 per cent holding in Oslo Areal. The exposure that this agreement represents is not recognised. The agreement is recognised at fair value and the unrealised gain was NOK 54.5 million (16.2) as at 31 December 2015.
Cost As at 1 January 2015 326.5 609.1 935.6 Transferred from/(to) investment property 6.4 6.4 Additions through business combinations 11.0 5.7 16.7 Additions 6.5 102.0 108.4 Disposals (308.9) (43.3) (352.2) Exchange differences 0.9 8.5 9.4 As at 31 December 2015 42.6 682.1 724.7 Uncompleted projects 27.6 27.6 As at 31 December 2015, including uncompleted projects 42.6 709.6 752.3
Carrying amount As at 1 January 2015 280.7 321.1 601.8 As at 31 December 2015 34.8 289.4 324.2
Each component of owner-occupied property, plant and equipment are depreciated using the straight-line method over estimated useful life. Land is not depreciated. Estimated useful life for the period and comparable periods are between ten and 50 years for property, with technical installations having the highest depreciation rate, and between three and ten years for plant and equipment. Owner-occupied property in Gjensidige Group mainly consists of leisure houses and cottages, in addition to owner-occupied property in the Baltic.
There are no restrictions on owner-occupied property, plant and equipment. Owner-occupied property, plant and equipment are not pledged as security for liabilities. The market value of land and owner-occupied property exceeds the carrying amount as shown above. For plant and equipment there is no material difference between the carrying amount and the market value. Some equipment, such as furniture, is fully depreciated, but still in use.
• Currency derivatives, equity options and forward rate agreements, in which fair value is derived from the value of underlying instruments. These derivatives are valued using common valuation techniques for derivatives (option pricing models etc.).
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 1,335.4 1,335.4 434.3 434.3 Financial derivatives subject to hedge accounting 0.0 0.0 52.2 52.2
Loans and receivables Bonds and other fixed income securities classified as loans and receivables 9 19,045.5 20,530.5 16,173.2 17,439.1 Loans 9 40,985.0 41,005.0 39,664.1 39,973.7 Receivables related to direct operations and reinsurance 9 5,621.5 5,621.5 4,997.4 4,997.4 Other receivables 9 945.9 945.9 502.7 502.7 Prepaid expenses and earned, not received income 9 91.3 91.3 96.7 96.7 Cash and cash equivalents 10, 11 2,158.7 2,158.7 3,151.9 3,151.9
Debt in life insurance with investment options 17,780.0 17,780.0 15,109.6 15,109.6
Financial assets at amortised cost Bonds held to maturity 382.8 1,319.5 1,702.3 Bonds and other fixed income securities classified as loans and receivables 20,529.0 1.5 20,530.5 Loans 41,005.0 41,005.0
Financial assets at amortised cost Bonds held to maturity 810.2 1,990.3 2,800.5 Bonds and other fixed income securities classified as loans and receivables 17,437.5 1.6 17,439.1 Loans 3,364.6 36,609.1 39,973.7
Shares and similar interests 1,943.7 (342.8) 905.7 (199.3) (0.3) 2,307.1 (303.9) Bonds and other fixed income securities 2,174.6 (114.4) 324.2 (119.2) (832.9) (98.7) 1,333.5 24.0 Total 4,118.3 (457.2) 1,229.9 (318.5) (832.9) (99.0) 3,640.6 (279.9)
Shares and similar interests Decrease in value 10% 230.7 Bonds and other fixed income securities Decrease in value 10% 133.4 Total 364.1
Shares and similar interests 2,131.6 (132.5) 278.3 (333.6) 1,943.7 (226.9) Bonds and other fixed income securities 406.1 56.0 1,749.7 (37.3) 2,174.6 32.8 Total 2,537.7 (76.5) 2,028.0 (370.9) 4,118.3 (194.1)
Shares and similar interests Decrease in value 10% 194.4 Bonds and other fixed income securities Decrease in value 10% 217.5 Total 411.8
Gjensidige Bank ASA, group Interest rate swaps - hedging instruments 125.0 (35.2) Obligation debt - hedging object 35.9 Net gain/loss recognised in profit or loss 0.7
Nykredit Forsikring A/S Currency-related contracts - hedging instruments 0.0 0.0 0.7 Hedging object 0.0
Mondux Assurance Agentur A/S Currency futures - hedging instruments 2.1 Acquisition liability - hedging object (2.5) Net gain/loss recognised in profit or loss (0.4)
Other receivables Receivables in relation with property 54.5 16.2 Receivables in relation with asset management 700.0 279.4 Other receivables and assets 191.4 207.0
Prepaid expenses and earned, not received income Earned, not received interest income 46.9 46.7 Other prepaid expenses and earned, not received income 44.4 50.0
The loans for consumer goods are loans without a collateral requirement offered to private customers. The loans for auto financing are loans secured by motor vehicles, primarily cars. All loans are mainly given with floating rate. Gjensidige considers the credit and liquidity risk associated with receivables to policyholders to be small, since the outstanding amount per policyholder is relatively small. Provisions for potentially irrecoverable amounts have been made. Receivables related to reinsurance arise when Gjensidige issues claims towards reinsurers in accordance with reinsurance contracts. Provision for potentially irrecoverable amounts has been made. Note 3 table 33 shows the age distribution of these receivables. A considerable amount of receivables in relation with asset management as at 31 December 2016 is short-term receivables in relation with sale of securities.
Restricted bank deposits Source-deductible tax accounts 85.7 85.6 Total restricted bank deposits 85.7 85.6
122 | Gjensidige annual report 2016 12. Shares and similar interests
Gjensidige Forsikring ASA Norwegian financial shares Sparebank 1 SR-Bank ASA 937 895 321 747.7 Sparebank 1 SMN 937 901 003 6.8 Sparebank 1 BV 944 521 836 6.6 Aker ASA 886 581 432 5.8 Sparebanken Vest 832 554 332 4.4 Total Norwegian financial shares 771.5
Real estate funds CEREP III 35.8 La Salle 13.0 Total real estate funds 48.8
Total shares and similar interests owned by the Gjensidige Insurance Group 6,892.1
Claims reported and claims handling costs 586.6 486.5 Claims incurred, but not reported 0.1 5.9 Total reinsurers' share of claims provision, gross 586.7 492.3
Insurance-related liabilities net of reinsurance Premium reserve in life insurance 4,127.0 3,867.2 Provision for unearned premiums from general insurance 9,407.8 9,189.3
Transfer of pension savings (680.1) (23.5) (703.6) (805.6) (805.6) Exchange differences (585.2) 34.6 (550.7) 580.2 (32.7) 547.5 Total as at 31 December 32,447.5 (586.7) 31,860.8 33,178.5 (492.3) 32,686.2
Claims reported and claims handling costs 16,978.8 (586.6) 16,392.1 18,331.2 (486.5) 17,844.8 Claims incurred, but not reported 15,468.8 (0.1) 15,468.7 14,847.2 (5.9) 14,841.4 Total as at 31 December 32,447.5 (586.7) 31,860.8 33,178.5 (492.3) 32,686.2
The claims provisions shall cover future claims payments. The claims provisions for workers’ compensation insurance in Denmark are converted to present value (discounted), whereas other provisions are undiscounted. The reason why the claims provisions for workers’ compensation insurance in Denmark are discounted is that this portfolio consists exclusively of Danish workers’ compensation business with very long payment flows and substantial future interest income. The claims for occupational injuries in Denmark are paid either as annuities or as lump-sum indemnities (which are calculated mainly as discounted annuities). Therefore, it is most expedient to regard the whole portfolio as annuities. The discount rate used is the swap rate.
14. Pension Gjensidige Forsikring is required to have an occupational pension plan pursuant to the Norwegian Act relating to Mandatory Occupational Pensions. The Company’s pension plans meet the requirements of the Act. The defined benefit pension plan is a closed plan. New employees become members of the defined contribution pension plan.
Defined benefit plan Description of the plan Together with benefits from the National Insurance scheme and any paid-up policies from former employment relationships, the retirement pension amounts to approximately 70 per cent of the final salary, given a full earning period of 30 years. The retirement age is 70, but it is 65 for underwriters. Disability pension, spouse/cohabitant pension and child’s pension are also included in the plan subject to more detailed rules. In addition, Gjensidige has pension liabilities to some employees over and above the ordinary group pension agreement. This applies to employees with a lower retirement age, employees who earn more than 12 times the National Insurance basic amount (G) and supplementary pensions. The ordinary retirement pension is a funded plan where the employer contributes by paying into the pension assets. Pension over and above the ordinary group pension agreement is an unfunded plan that is paid for through operations. With effect from 2016, Gjensidige removed the clause concerning CPI indexing of current pensions. This was recognised as a plan change in the accounts. Income in the amount of approximately NOK 480 million was recognised in the pension expense and the pension liability was reduced correspondingly. Recognition Pension liabilities are valued at the present value of the future pension benefits that, for accounting purposes, are deemed to have been accrued on the reporting date. Future pension benefits are calculated on the basis of the expected salary at the time of retirement. Pension assets are valued at fair value. The net pension liability is the difference between the present value of the future pension benefits and the fair value of the pension assets. A provision is made for employer’s National Insurance contributions during periods when underfunding arise. The net pension liability is shown in the balance sheet on the line for Pension liabilities. Any net excess funding in the funded plan is recognised as Pension assets. The difference between the estimated pension liability and the estimated value of pension assets as of the previous financial year and the actuarial pension liability and the fair value of the pension assets as of the beginning of the year is recognised under Other comprehensive income. In 2016, this had a negative effect on equity of approximately NOK 26 million. In addition, non-available excess funding of approximately NOK 133 million was recognised, so that the sum of the negative effect on equity was approximately NOK 159 million. In 2015, this had a positive effect on equity of approximately NOK 70 million, which was primarily due to a increased discount rate. Actuarial assumptions The discount rate is based on a yield curve stipulated on the basis of the covered bond yield. The discount rate is based on observed interest approximately ten years ahead. The market’s long-term view of the interest rate level is estimated on the basis of the required real interest rate, inflation and future credit risk. An interpolation has been made in the period between the observed interest and long-term market expectations. A discount curve has thus been calculated for each year in which pensions will be disbursed. The discount rate for a pension payment is 2.44 per cent (2.55) in year 10, 2.77 per cent (2.89) in year 15, 3.02 per cent (3.05) in year 20, 3.19 per cent (3.16) in year 25, 3.31 per cent (3.22) in year 30, and 3.46 per cent (3.30) in year 40. The discount rate is the assumption that has the greatest impact on the value of the pension liability. Wage growth, pension increases and the adjustment of the National Insurance basic amount are based on historical observations and expected future inflation. Wage growth is set at 3.1 per cent, like the year before, and is adjusted for age based on a decreasing trend. The year-on-year nominal wage growth 2016/17 is calculated to be 1.5 per cent, which is a decrease from last year’s 1.6. The reason for the low wage growth is that the pension plan is closed to new members and that the average age of employee members is 56.6 years. Gjensidige uses GAP07, which is a dynamic mortality model that takes account of the expected development in life expectancy. The assumptions on which the model is based are tested at regular intervals. The sensitivity analysis is based on only one assumption being changed at a time, while all the others remain constant. This is seldom the case, since several of the assumptions co-vary. The sensitivity analysis has been prepared using the same method as the actuarial calculation of the pension liability in the balance sheet is based on. Risk The risk in the net pension liability is a combination of the pension plan itself (including regulatory risk), the pension liability, pension assets, financing level and the co-variation between pension liabilities and pension assets. Gjensidige’s pension assets are managed by Gjensidige Pensjonskasse as an investment choice portfolio. This means that
Wage growth Future pension benefits depend on future wage growth and the development of the National Insurance basic amount (G). If wage growth in the Company is lower than the increase in G, the benefits will be reduced. The Group assumes that wage growth is agedependent. A younger employee can expect higher annual wage growth than an older employee. Wage growth is based on expectations of growth in real wages in Norway and inflation in Norway. Inflation is also part of the interest rate. An increase in inflation will thus influence both wage growth and the increase in the interest rate. Normally, this could reduce the pension liability somewhat. Real wage growth is estimated for Norway and is largely based on macroeconomic projections. The prevailing consensus in macroeconomic circles is that it should be in the range of 1.5 to 2 per cent. The average for the last 20 years has been 1.9 per cent. Real wage growth is corrected for the age effect, so that the real wage growth for younger employees is stronger than for older employees. A pension plan rarely has the same age composition as the economy as a whole. This is particularly the case for Gjensidige’s pension plan, which is closed to new entrants. Real wage growth will lead to an increase in the liabilities. Higher inflation will lead to an increase in wages, pensions and the discount rate. Gjensidige manages employees’ wage growth based on collective agreements and individual agreements. Salary levels can increase strongly from one year to the next. Operational risk Responsibility for administering the pension plans has been transferred to Gjensidige Pensjonskasse. Gjensidige Pensjonskasse has its own employees and makes substantial purchases of services from professional suppliers of pension fund management and asset management services. The pension fund is subject to internal control. Gjensidige considers the operational risk to be low. Minimum requirement for the level of pension assets The pension assets must meet certain minimum requirements defined in Norwegian laws, regulations and in orders issued by the Financial Supervisory Authority of Norway (FSA). If the level of the pension assets falls below a lower limit, Gjensidige will have to pay extra pension contributions to bring them up to the lower limit. On certain conditions, Gjensidige will also be repaid pension assets.
A number of amendments to the Norwegian regulations were proposed in 2016. The amendments have not been adopted yet. One of the proposed amendments is to make pension assets in the pension fund subject to a funding requirement in line with Solvency II. The level of the pension assets is entering a period of political risk. Low interest rates can lead to the Financial Supervisory Authority instructing Gjensidige Pensjonskasse to lower interest rates from 2 per cent to 1.5 per cent, or 1 per cent for new earned benefits. Gjensidige expects there to be a high risk of the interest rates being reduced to 1 per cent if long-term government bond yields remain at the 1.3 per cent level. Gjensidige assumes that a continued low interest rates in future and changes in EU based rules could entail an increase in future contributions to the funded pension plan.
Interest cost 62.5 13.6 76.0 57.3 13.0 70.3 Actuarial gains and losses 6.9 6.4 13.3 (63.0) (11.8) (74.8) Benefits paid (91.6) (39.2) (130.7) (90.2) (41.7) (131.9) Employers' national insurance contributions of benefits paid (16.7) (5.3) (22.0) (0.0) (5.9) (5.9)
Removed CPI indexing of current pensions (449.3) (33.3) (482.6) Business combinations (3.2) (3.2) (4.8) (2.0) (6.8) The effect of the asset ceiling 132.7 132.7 Foreign currency exchange rate changes (2.4) (2.4) 2.5 2.5 As at 31 December 1,954.9 511.5 2,466.3 2,275.7 555.9 2,831.6
Fair value of plan assets As at 1 January 2,366.0 2,366.0 2,405.0 2,405.0 Interest income 66.4 66.4 60.2 60.2 Return beyond interest income (12.7) (12.7) (5.4) (5.4) Contributions by the employer 135.1 5.3 140.4 0.0 5.9 5.9 Benefits paid (91.6) (91.6) (90.2) (90.2) Employers' national insurance contributions of benefits paid (16.7) (5.3) (22.0) (0.0) (5.9) (5.9)
Business combinations (3.4) (3.4) (3.7) (3.7) As at 31 December 2,443.2 2,443.2 2,366.0 2,366.0
Pension expense recognised in profit or loss Current service cost 33.2 13.8 46.9 35.9 11.3 47.1 Interest cost 62.5 13.6 76.0 57.3 13.0 70.3 Interest income (66.4) (66.4) (60.2) (60.2) Removed CPI indexing of current pensions (449.3) (33.4) (482.7) Employers' national insurance contributions 4.7 1.9 6.6 5.1 1.6 6.6 Total defined benefit pension cost (415.4) (4.1) (419.5) 37.9 25.9 63.8
Cumulative amount as at 1 January (2,167.5) (2,229.8) Return on plan assets (12.7) (5.4) Changes in demographic assumptions 6.1 1.3 Changes in financial assumptions (19.4) 73.0 Sold companies (6.7) The effect of the asset ceiling (132.7) Cumulative amount as at 31 December (2,326.2) (2,167.5)
Other specifications Amount recognised as expense for the defined contribution plan 202.6 150.7
Expected contribution to the defined benefit plan for the next year 0.0 0.1 1 Future salary increases represent our expected average future salary increase for the industry. Since Gjensidige has a closed plan, average future salary increase for our population is 1.5 per cent (1.6). See explanation under Actuarial assumptions.
Shares and similar interests 88.5 88.5 Bonds 965.8 1,169.3 2,135.1 Bank 54.9 54.9 Derivatives 87.5 87.5 Total 965.8 1,400.2 2,366.0 15. Provisions and other liabilities
Other provisions and liabilities Restructuring costs 1 194.9 85.8 Other provisions 147.2 259.8 Total other provisions and liabilities 342.1 345.6
Deposits from and liabilities to customers Deposits from and liabilities to customers without maturity date, bank 16,614.7 16,233.4 Deposits from and liabilities to customers with maturity date, bank 4,655.7 3,123.8 Deposits from and liabilities to customers 21,270.4 19,357.2
Interest-bearing liabilities Liabilities to bond debt, bank 19,596.5 17,804.7 Total interest-bearing liabilities 19,596.5 17,804.7
Other liabilities Outstanding accounts Fire Mutuals 30.4 40.0 Accounts payable 247.4 185.7 Liabilities in relation with properties 3.4 1.2 Liabilities in relation with asset management 5.1 0.0 Liabilities to public authorities 507.9 354.1 Other liabilities 574.2 484.4 Total other liabilities 1,368.5 1,065.4
Accrued expenses and deferred income Liabilities to public authorities 35.8 28.3 Accrued personnel cost 300.2 276.3 Other accrued expenses and deferred income 157.3 180.7 Total accrued expenses and deferred income 493.3 485.3
Taxable temporary differences Property, plant and equipment and intangible assets 96.2 466.1 Shares, bonds and other securities 196.9 119.2 Profit and loss account 210.7 229.5 Pension assets 29.6 Security provision etc. 3,437.3 3,439.6 Total taxable temporary differences 3,970.7 4,254.4
Reconciliation of tax expense Profit before tax 6,139.9 5,049.7 Estimated tax of profit before tax expense (25% in 2016 and 27% in 2015) (1,535.0) (1,363.4)
Tax effect of Different tax rate in foreign subsidiaries (13.6) (9.2) Change in tax rate 76.6 Valuation allowance and reversal of loss carried forward in subsidiaries (26.5) (7.6) Dividend received 38.0 18.9 Tax exempted income and expenses 81.3 42.7 Associates and joint ventures 23.4 Impairment loss on goodwill and recognition of negative goodwill (2.0) Non tax-deductible expenses 5.0 (34.5) Correction previous years (23.3) (9.9) Total tax expense (1,474.1) (1,265.0) Effective rate of income tax 24.0 % 25.1 %
Loss carried forward 2017 2018 2019 2020 2021 Later or no due date 54.8 71.4 Total loss carried forward 54.8 71.4
Employee benefit expenses Wages and salaries 2,137.0 1,922.9 Social security cost 451.1 383.9 Pension cost - defined contribution plan (note 14 incl. social security cost) 229.0 176.2 Pension cost - defined benefit plan (note 14 incl. social security cost) (419.5) 63.3 Share-based payment (note 25) 13.7 13.0
Decision-making process The Board has established a remuneration committee consisting of three members; the Chairman of the Board and two board members.
Cecilie Ditlev-Simonsen, Executive Vice President (1.1.16-11.11.16) 1 1,874.7 146.4 423.2 2,295 3,358 5,341 3
Jostein Amdal, Executive Vice President (1.10.16-31.12.16) 1 781.1 104.4 40.8 97.5 117.2 32 38 283 13,193 3
Krister Georg Aanesen, Executive Vice President (1.10.16-31.12.16) 1, 10 662.3 90.5 37.7 57.5 80.7 25 197 854
The Board, deputies Tore Vågsmyr, staff representative (1.1.16-6.4.16) 1, 4 702 Ellen Kristin Enger, staff representative (1.1.16-6.4.16) 1, 4 577
1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 4 For staff representatives only remuneration for the current position is stated. 5 Everyone in the senior group management except for one is part of the Group’s pension plans, benefit or contribution based. 6 Including bonus shares in the share saving's programme for employees. See note 25 for terms and further description of the scheme. 7 Remuneration includes participation as Chairman in the Audit Committee honored with NOK 144.5 thousand for 2016. 8 Remuneration includes participation in the Audit Committee honored with NOK 96.0 thousand for 2016. 9 Hege Yli Melhus Ask has been on leave from 1 October to 31 December. Her remuneration is presented for the whole year. 10 Constituted Executive Vice President for Hege Yli Melhus Ask from 1 October to 31 December.
Hege Yli Melhus Ask, Executive Vice President (11.5.15-31.12.15) 1, 10 2,572.6 111.1 158.4 255.5 150.2 1,422 4,604 5,286 9,366 3
The Board, deputies Tore Vågsmyr, staff representative 5 655 Ellen Kristin Enger, staff representative (28.5.15-31.12.15) 1, 5 495
1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 4 Annual fee of NOK 93.5 thousand for Chairman and NOK 41.8 thousand for Deputy Chairman. In addition, fee as Chairman of the Nominating committee. 5 For staff representatives only remuneration for the current position is stated. 6 Everyone in the senior group management except for one is part of the Group’s pension plans, benefit or contribution based. 7 Including bonus shares in the share saving's programme for employees. See note 25 for terms and further description of the scheme. 8 Remuneration includes participation as Chairman in the Audit Committee honored with NOK 141.0 thousand for 2015. 9 Remuneration includes participation in the Audit Committee honored with NOK 94.0 thousand for 2015. 10 Hege Yli Melhus Ask has been on leave from 1 January to 11 May. Her remuneration is presented for the whole year. 11 Constituted Executive Vice President for Hege Yli Melhus Ask from 1 January to 11 May. 12 Borrower in Gjensidige Bank ASA with NOK 4,474.0 thousand outstanding. Applicable conditions are 2.40% in interest rate and loan maturity 31.01.2021.
Net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures Net income from subsidiaries, associated companies and joint ventures 47.7 Net gains/(losses) from sale of subsidiaries, associated companies and joint ventures 184.1 2.0 Total net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures 184.1 49.7
Net income and gains/(losses) from buildings and other real estate Investment properties Rental income from investment properties, excl. unrealised gains/(losses) 348.0 Net revaluation investment properties 38.4 208.0 Net gains/(losses) from sale of investment properties 355.9 Administration expenses related to investment properties (52.7) Total net income and gains/(losses) from investment properties 38.4 859.1
Net income and gains/(losses) from financial assets at fair value through profit or loss, designated Shares and similar interests Dividend income 46.8 72.1 Unrealised gains/(losses) from shares and similar interests (369.8) (493.5) Realised gains/(losses) from shares and similar interests 553.0 615.7 Total net income and gains/(losses) from shares and similar interests 230.0 194.3
Bonds and other fixed-income securities Net interest income/(expenses) from bonds and other fixed-income-securities 288.9 289.5 Unrealised gains/(losses) from bonds and other fixed-income securities 175.8 (447.1) Realised gains/(losses) from bonds and other fixed-income securities 239.3 81.5 Total net income and gains/(losses) from bonds and other fixed-income securities 704.0 (76.1)
Total net income and gains/(losses) from financial assets at fair value through profit or loss, designated 1,199.7 (544.4)
Net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 749.9 741.1 Net gains/(losses) from loans and receivables (3.2) 67.4 Net gains/(losses) from changes in exchange rates on loans and receivables (21.6) 51.7 Total net income and gains/(losses) from loans and receivables 725.1 860.1
Net income and gains/(losses) from financial liabilities at amortised cost Net interest income/(expenses) from subordinated debt (37.9) (43.8) Total net income and gains/(losses) from financial liabilities at amortised cost (37.9) (43.8)
Net other financial income/(expenses) 1 10.1 (251.2) Discounting of claims provision classified as interest expense (44.9) (57.1) Change in discount rate claims provision (194.5) 57.6
Specification of other financially related income and expenses not recognised in net income from investments Commission arising from the investment of assets on behalf of individuals 39.4 1 Net other financial income/(expenses) include financial income and expenses not attributable to individual classes of financial assets or liabilities, and financial administration costs.
As part of its ongoing financial management, Gjensidige has undertaken to invest up to NOK 1.174,3 million (1,643.6) in loan funds containing senior secured debt and various private equity and real estate investments, over and above amounts recognized in the balance sheet.
The timing of the outflow of capital is dependent on when the funds are making capital calls from their investors. Average remaining operating time for the funds, based on fair value, is slightly less than four years (four) and slightly less than six years (six) in average including option for of extension.
Principal, NOK millions 250 100 100 300 1,200 Currency NOK NOK NOK NOK NOK Issue date 17/06/2014 21/05/2015 19/05/2016 23/06/2016 02/10/2014 Maturity date 17/06/2024 21/05/2025 19/05/2026 23/06/2026 03/10/2044 First call date 17/06/2019 22/05/2020 19/05/2021 23/06/2021 02/10/2024 Interest rate NIBOR 3M + 1.55% NIBOR 3M + 1.65% NIBOR 3M + 2.55% NIBOR 3M + 2.90% NIBOR 3M + 1.50%
General terms Regulatory regulation CRD IV CRD IV CRD IV Solvency II Solvency II Regulatory call Yes Yes Yes Yes Yes
Principal, NOK millions 150 150 1,000 Currency NOK NOK NOK Issue date 21/05/2015 15/09/2015 08/09/2016 Maturity date Perpetual Perpetual Perpetual First call date 22/05/2020 15/09/2020 08/09/2021 Interest rate NIBOR 3M + 3.15% NIBOR 3M + 3.40% NIBOR 3M + 3.60%
Overview Gjensidige Forsikring ASA is the Group's parent company. As at 31 December 2016 the following companies are regarded related parties. Registered office Interest held
Change in gross provision for claims ADB Gjensidige 8.7 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 10.8 5.9 Nykredit Forsikring A/S 40.1 44.8
Gjensidige annual report 2016 | 141 2016 2015 NOK millions Income Expense Income Expense
Total gains and losses in connection with sale, liquidation and impairment losses 8.8 1.3 720.6 10.4
Intercompany interest-bearing debts and receivables Oslo Areal AS 1,420.2 1,538.0 Total intercompany interest-bearing debts and receivables 1,420.2 1,538.0
Other transactions Interest on bank deposits Gjensidige Bank ASA Brannkassene 0.2 0.3
Other intercompany balances Bank deposits Brannkassene Gjensidige Bank ASA 12.7 15.5
144 | Gjensidige annual report 2016 25. Share-based payment Description of the share-based payment arrangements As at 31 December 2016, Gjensidige has the following share-based payment arrangements: Share-based remuneration for executive personnel with settlement in equity and cash (remuneration scheme) Gjensidige has established equity-settled share-based payment for the group management and more explicitly defined executive personnel. As described in the Board’s statement on the stipulation of pay and other remuneration in note 18, half of the variable remuneration is paid in the form of shares in Gjensidige Forsikring ASA, one third of which can be sold in each of the following three years. Of this, rather on the big side 50 per cent is distributed as equity and only just 50 per cent is distributed as cash in order to pay tax liabilities (net of tax settlement). The fair value at the grant date is measured based on the market price. The amount is recognised as payroll expenses at grant date. No specific company-related or market-related entitlement criteria apply to the shares, but the Company may carry out a reassessment if subsequent results and development suggest that the bonus was based on incorrect assumptions. The expected allocation is set to 100 per cent. The value of the cash-settled share is adjusted at each reporting period based on the share price at this time. The number of shares is adjusted for dividend paid.
Equity-settled share savings program for employees Gjensidige has established a share savings programme for employees of the Group with the exception of employees of Gjensidige Baltic. All employees are given an opportunity to save an annual amount of up to NOK 75,000. Saving take the form of fixed deductions from salary that is used to buy shares four times a year. The employees are offered a discount in the form of a contribution of 20 per cent, limited upwards to NOK 1,500 kroner per year, which corresponds to the maximum tax-exempt discount. Employees will receive one bonus share for every four shares they have owned for more than two years, provided that they are still employed by the Company or have become retired. The fair value at grant date is based on the market price. The discount is recognised as payroll expenses at the time of allocation. The value of the bonus shares is recognised as payroll expenses over the vesting period, which is two years.
Fair value measurement The fair value of the shares allocated through the share-based payment for executive personnel is calculated on the basis of the share price at grant date. The amount is recognised immediately. The cash-settled share is adjusted consecutively based on the share price at the reporting time. Fair value of the bonus shares allocated through the share savings program is calculated on the basis of the share price at grant date, taking into account the likelihood of the employee still being employed after two years and that he/she has not sold his/her shares during the same two-year period. The amount is recognised during the vesting period which is two years.
Weighted average share price (NOK) 143.60 131.40 141.86 128.91 Expected turnover N/A N/A 10% 10% Expected sale N/A N/A 5% 5% Lock-in period (years) 3 3 2 2 Expected dividend (NOK per share) 1 6.67 5.41 6.67 5.41 1 The expected return is based on the Group's actual profit/loss after tax expense as of the third quarter, grossed up to a full year, plus the maximum distribution of dividend corresponding to 70 per cent of the profit after tax expense. This was carried out as a technical calculation because the Company's forecast for the fourth quarter result was not available at the time the calculations were carried out.
Share-based remuneration for key personnel 8.0 8.3 Share savings programme for employees 5.7 4.7 Total expenses (note 17) 13.7 13.0
The number of bonus shares Outstanding 1 January 76,655 72,144 Granted during the period 41,881 43,012 Released during the period (32,737) (32,841) Cancelled during the period (1,751) (923) Forfeited during the period (3,192) (4,737) Outstanding 31 December 80,856 76,655 Exercisable 31 December 0 0
Average remaining life of outstanding bonus shares 0.96 1.00 Weighted average fair value of bonus shares granted 122.90 112.88 Weighted average share price of bonus shares released during the period 142.43 128.75
The number of shares Outstanding 1 January 69,312 63,673 87,603 80,907 Granted during the period 27,573 25,201 26,861 24,527 Forfeited during the period (38,728) (35,730) (48,579) (43,903) Quantity adjusted during the period 601 (601) Modification dividend during the period 5,280 5,032 2,826 2,743 Outstanding 31 December 63,437 58,176 69,312 63,673 Exercisable 31 December 0 0 0 0
Earnings per share (NOK), basis 9.34 7.57 Earnings per share (NOK), diluted 9.34 7.57 1 Holdings of own shares are not included in the calculations of the number of shares.
146 | Gjensidige annual report 2016 27. Acquisition of Vardia On 27 April 2016, Gjensidige Forsikring ASA agreed to acquire the Swedish insurance portfolio of Vardia Insurance Group ASA. Gjensidige has also entered into an agreement to acquire 100 per cent of the shares in Vardia Försäkring AB from Vardia Holding AB. The acquisition price for the insurance portfolio and the shares were SEK 200.0 million adjusted for net debt and SEK 54.2 million respectively, with a conditional additional purchase price for the shares of maximum SEK 30.0 million. The distribution company Vardia Försäkring AB is responsible for new sales, customer support, product development and claims handling. In addition to being a general agent for Vardia Insurance Group ASA in Sweden, Vardia Försäkring also distributes for another risk carrier a premium volume corresponding to approximately SEK 40 million. Vardia Försäkring AB has some 125 employees. The voting share is equal to the ownership share. Through its voting rights and in the absence of any contractual arrangements, Gjensidige has control over Vardia Försäkring AB. All terms and conditions related to the acquisition were clarified and the payment was transferred the first of July, so the acquisition date was set at 1 July 2016. The Vardia portfolio and Vardia Försäkring AB are recognised in the consolidated accounts of Gjensidige Forsikring as from that date. The acquisition is a result of the Group’s intention to expanding its presence and distribution power in the Swedish market. As a result of the acquisition, Gjensidige’s market share in Sweden will increase from approximately 1.6 per cent to approximately 2.5 per cent based on 2015 numbers. Gross premiums written for the Swedish portfolio were approximately SEK 600.0 million in 2015, of which 75 per cent were retail premiums and 25 per cent were commercial SME premiums. The accounting of the acquisition was based on the acquisition method. The analysis of acquired assets and liabilities is presented in the table below and is considered to be temporary. The difference between the acquisition price and the identifiable acquired assets and assumed liabilities is recognised as goodwill in the consolidated financial statement. Excess value is identified for customer relationships and databases for claims history. Provisions were made for deferred tax liability for excess value with the exception of goodwill. Goodwill consists of expected synergies from the merging of the Private and Commercial business areas and optimization of the reinsurance cover for the Group as a whole. Profit before tax expense for Vardia Försäkring AB for the period 1 January 2016 to 31 May 2016 amounted to SEK 4.5 million.
Fair value of each major class of transaction price Vardia Försäkring AB including Vardia portfolio
Net defined assets and liabilities (213.9) 307.9 94.0 Transaction price 94.0
Premiums Earned premiums, gross 4 21,930.6 21,024.4 Ceded reinsurance premiums (578.0) (447.2) Total earned premiums, net of reinsurance 21,352.6 20,577.2
General insurance claims Gross claims 4 (15,205.3) (14,055.3) Claims, reinsurers' share 497.1 53.9 Total claims incurred, net of reinsurance (14,708.2) (14,001.4)
Insurance-related operating expenses Insurance-related administration expenses incl. commissions for received reinsurance and sales expenses 4, 17 (2,973.4) (3,117.5)
Received commission for ceded reinsurance and profit share 23.7 4.6 Total insurance-related operating expenses (2,949.7) (3,112.9)
Net income from investments Income from investments in subsidiaries, associates and joint ventures 113.3 777.3 Impairment losses of investments in subsidiaries, associates and joint ventures (94.2) Interest income and dividend etc. from financial assets 1,266.1 1,275.8 Net operating income from property 11.9 Changes in fair value on investments (1,053.4) 8.6 Realised gain and loss on investments 1,889.6 (365.4) Administration expenses related to investments, including interest expenses (218.9) (272.0) Total net income from investments 19 1,902.5 1,436.2
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operation (273.0) 293.9 Exchange differences from hedging of foreign operation 62.7 Tax on items that may be reclassified to profit or loss 66.6 (96.7) Total items that may be reclassified subsequently to profit or loss (206.5) 259.9
Investments Buildings and other real estate Owner-occupied property 7 19.0 19.0 Subsidiaries and associates Shares in subsidiaries 6 5,741.7 5,421.2 Shares in associates and joint ventures 6 1,086.9 1,098.4 Interest bearing receivables within the group incl. joint venture 22 1,420.2 1,538.0 Financial assets measured at amortised cost Bonds held to maturity 8 1,226.8 1,797.1 Loans and receivables 8, 9 16,018.9 16,338.3 Financial assets measured at fair value Shares and similar interests (incl. shares and similar interests measured at cost) 8, 12 6,134.4 7,130.6 Bonds and other fixed-income securities 8 23,108.2 24,205.7 Financial derivatives 8 1,207.8 327.8 Reinsurance deposits 457.8 524.6 Total investments 56,421.6 58,400.7
Reinsurers' share of insurance-related liabilities in general insurance, gross Reinsurers' share of provision for unearned premiums, gross 13 115.5 32.0 Reinsurers' share of claims provision, gross 13 512.2 361.7 Total reinsurers' share of insurance-related liabilities in general insurance, gross 627.7 393.7
Other assets Plant and equipment 7 273.8 274.7 Cash and cash equivalents 8, 10, 11 1,143.0 1,704.5 Pension assets 14 486.2 93.1 Total other assets 1,903.0 2,072.4
Equity and liabilities Paid in equity Share capital 1,000.0 1,000.0 Own shares (0.1) (0.1) Share premium 1,430.0 1,430.0 Perpetual Tier 1 capital 999.2 Other paid in equity 36.7 29.3 Total paid in equity 3,465.9 2,459.2
Provision for liabilities Pension liabilities 14 493.2 528.7 Current tax 16 1,149.4 1,145.6 Deferred tax liabilities 16 905.4 934.9 Other provisions 15 327.2 335.8 Total provision for liabilities 2,875.1 2,945.1
Liabilities Liabilities related to direct insurance 8 289.6 392.1 Liabilities related to reinsurance 8 88.2 82.7 Financial derivatives 8 1,173.1 366.3 Accrued dividend 3,400.0 4,200.0 Other liabilities 8, 15 1,252.9 970.4 Liabilities to subsidiaries and associates 8, 22 43.1 22.2 Total liabilities 6,246.9 6,033.7
Accrued expenses and deferred income Other accrued expenses and deferred income 8, 15 301.4 297.2 Total accrued expenses and deferred income 301.4 297.2
The security provision was reclassified from liabilities to equity and provision for deferred tax on the security provision was recognised. These changes were implemented from 1 January 2016 and the corresponding figures have been changed accordingly. This was caused by changed legislation which also applies for some other minor changes. Discounting of reserves and introduction of risk margin are expected to be implemented at a later stage in Group and company accounts, in connection with the implementation of IFRS 17 Insurance Contracts.
Tax on items that are not reclassified to profit or loss 39.8 39.8 Total items that are not reclassified subsequently to profit or loss (119.4) (119.4)
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations (273.0) (273.0) Tax on items that may be reclassified to profit or loss 66.6 66.6
Cash flow from operating activities Premiums paid, net of reinsurance 21,273.0 20,709.6 Claims paid, net of reinsurance (15,563.1) (14,629.4) Net receipts/payments from financial assets 3,890.5 (2,025.6) Operating expenses paid, including commissions (3,245.1) (2,988.9) Taxes paid (1,251.0) (891.3) Net other receipts/payments 0.5 22.1 Net cash flow from operating activities 5,104.8 196.5
Cash flow from financing activities Payment of dividend (6,139.5) (2,949.6) Net receipts/payments on bonds and commercial papers issued (31.4) (36.9) Net receipts/payments on other short-term liabilities 1,532.7 Payments regarding intra-group equity transactions (291.8) 369.1 Net receipts/payments on sale/acquisition of own shares (3.7) (9.9) Net receipts from issuance of perpetual Tier 1 capital 997.0 Payments of interest issued perpetual Tier 1 capital (11.9) Net cash flow from financing activities (5,481.3) (1,094.6)
Effect of exchange rate changes on cash and cash equivalents (16.0) 11.7 Net cash flow (561.5) 52.4
Cash and cash equivalents at the start of the year 1,704.5 1,652.1 Cash and cash equivalents at the end of the year 1,143.0 1,704.5 Net cash flow (561.5) 52.4
Accounting policies Reporting entity Gjensidige Forsikring ASA is a publicly listed company domiciled in Norway. Gjensidige’s head office is located at Schweigaardsgate 21, Oslo, Norway. The activities of Gjensidige consist of general insurance. Gjensidige does business in Norway, Sweden and Denmark.