Co-operation with Villaägarna in Sweden An agreement with the Villaägarne, a Swedish homeowners’ association with 300,000 members, will strengthen Gjensidige’s position in the Swedish private market.
Key figures 2 Letter from the CEO 6 Operations in brief 8 Additional information 18 Investor information 20 Corporate social responsibility 22 Corporate governance 31 Governing bodies 44 The Board’s report 45 Financial statements and notes 69
Partnership agreement with the Norwegian Automobile Federation (NAF) Gjensidige and NAF entered into a strategic partnership agreement. Starting spring 2015, Gjensidige will offer insurance and car financing to NAF’s 500,000 members.
Key figures Gjensidige recorded a profit before tax of NOK 5.4 billion in 2014, corresponding to a return on equity before tax of 23.3 per cent. For the general insurance operation the premium growth was 8.8 per cent and the combined ratio was 86.0 per cent. The earnings per share was NOK 8.38 and the Board has proposed a dividend of NOK 5.90 per share.
Underwriting result general insurance NOK bn 2 I Gjensidige Annual Report 2014
Earned premiums, general insurance NOK million 20,386.8 18,736.9 17,797.3 17,548.1 17,063.3
Net income from investments NOK million 2,475.6 2,538.1 3,055.8 2,375.6 2,748.2
Claims incurred, general insurance NOK million (14,470.4) (13,859.6) (12,437.7) (13,249.3) (13,456.6)
Other claims incurred, losses etc. NOK million (1,892.4) (1,435.7) (1,150.0) (987.9) (743.0)
Operating expenses, general insurance NOK million (3,054.0) (2,857.8) (2,751.8) (2,877.9) (2,810.4)
Underwriting result, general insurance 1 NOK million 2,862.3 2,019.6 2,607.8 1,421.0 796.3
Run-off results, general insurance 2 NOK million 493.7 299.6 342.0 366.3 301.1
Total equity and liabilities NOK million 113,982.0 108,946.3 94,207.1 88,491.9 84,106.8
Solvency margin capital 7 NOK million 8,953.6 12,905.2 16,288.6 15,179.3 15,712.1 1 Underwriting result, general insurance = earned premiums - claims incurred etc. - operating expenses 2 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. 3 Combined ratio = claims ratio + cost ratio 4 Loss ratio = claims incurred etc. /earned premium 5 Cost ratio = operating expenses/earned premium 6 Investment portfolio includes all investment funds in the Group, except Pension and Savings and Retail Bank 7 Solvency margin capital is the sum of Gjensidige Forsikring ASA’s primary capital, according to the capital ratio calculation, and other solvency margin capital, which in
Gjensidige Forsikring is security provision above 55 per cent of minimum requirement, 25 per cent of natural perils fund and a deduction for relevant discounting effects in claims provision. This year’s solvency margin capital is adjusted for the Board’s proposed dividend for the financial year 2014.
9 Capital adequacy ratio = net subordinated capital/risk-weighted calculation basis, calculated on the basis of NGAAP for the Group. This year’s capital adequacy ratio is adjusted for the Board’s proposed dividend for the financial year 2014.
10 Return on financial assets = net financial income as a percentage of the average financial assets including property (excluding Pension and Savings and Retail Bank) 11 Return on equity = profit before tax expense for the period/average equity for the period 4 I Gjensidige Annual Report 2014
Sickness absence (Self-certified and doctor-certified), Gjensidige Forsikring Norway % 4.5 4.7 5.1 4.6 5.2
Average amount spent on skills development per employee NOK 17,5001 15,800 1 15,800 1 13,200 16,400
Participation in a training programme Days 7,400 8,900 8,900 6,200 4,500 1 Starting in 2013, the amount refers to the Group as a whole. Figures for 2012 are adjusted accordingly.
Employees per business area as at 31.12.2014 2,284 Norway 651 Denmark 383 Baltics 207 Sweden 3,323 General insurance 134 Retail Bank 68 Pension and Savings
A strong year for Gjensidige The pre-tax profit for the year of NOK 5.4 billion was one of the best results ever recorded in the history of the Company. The underwriting result ended at NOK 2.9 billion, and the combined ratio for general insurance operations was 86.0 per cent. The banking and pension operations in Norway also showed positive development.
The cost ratio for the year ended at 15 per cent. We thereby also achieved our target of a cost ratio of 15 per cent by 2015. Good cost control and efficient operations will continue to be high on the agenda going forward.
Loyalty programmes and value-added services are important means of maintaining customer loyalty and establishing relations with new customer groups. Market and customer data, a leading analyst group and advanced models for tariffs and pricing are increasingly contributing to good risk selection and correct pricing of products, in both the private and commercial markets.
In the period up to 2018, we will focus on further developing our distribution model, developing services that can help private and commercial customers in their everyday lives, further digitalisation of our business, a knowledge-based and analytical approach to everything we do, as well as dynamic organisational development.
Uncertainty in the world around us Uncertainty in the global economy, with low oil prices and low interest rates as far as we can see into the future, also affects the economic outlook for Norway. A large proportion of our debt liabilities to general insurance customers are matched by investments in fixed income instruments. This is challenging with regard to the return on the investment portfolio going forward, and the requirements for good profit performance from the general insurance operations will increase correspondingly.
Exciting times ahead Profitability will continue to be more important than growth in Gjensidige. Cost discipline and efficient operations throughout the organisation, combined with a reduction in claims settlement costs, will be essential if we are to deliver on the ambitious financial targets we have set ourselves.
Gjensidige is a Nordic general insurer. The Group safeguards life, health and assets for private and commercial customers in Norway, Denmark, Sweden, Estonia, Lithuania and Latvia. In Norway, products within banking, pension and savings are also offered.
Further development of seamless multi-channel distribution and a shift in focus from products to services are crucial to realising the Group’s customer orientation ambition.
• A higher pace of change in customer preferences and behaviour also means that it is crucial to succeed in reducing the time it takes to develop and launch new customer-oriented services.
Further digitalisation of customer interfaces and underlying processes is also needed in order to underpin the focus on customer orientation and to ensure cost-efficiency and competitiveness.
The strategic role that Gjensidige Bank and Gjensidige Pensjon og Sparing play is important in relation to Gjensidige’s overall position in the Norwegian market. Solutions and concepts for customers with a broad range of products, in both the private and commercial markets, will continue to be important.
Dividend >70 per cent 70.4 per cent Nominal high and stable. >70 per cent of the profit after tax over time
Combined ratio 90-93 per cent 86.0 per cent 90-93 per cent
Highlights 2014 Increased automation and systematic development and simplification of the distribution model in 2014 further improved the customer experience and led to improved operational efficiency in the organisation. In connection with the work on increasing customer satisfaction and improving risk pricing, tools for systematic risk management were introduced for small and medium-sized enterprises as well.
General Insurance Baltics Gjensidige’s Baltic operations offer general insurance products to the private and commercial markets in Latvia, Lithuania and Estonia. The Baltics is still an immature insurance market and Gjensidige has an exciting position for future growth.
There is strong competition in the markets Gjensidige operates in. Gjensidige chooses not to follow the pricing pressure in certain market segments, due to the focus on profitability.
Outlook and priorities Gjensidige’s target is to be one of the leading insurance companies in the Baltic states. The market is relatively immature, and a significant proportion of both the private and the commercial segments is still uninsured. Growth is expected in step with the improvement in the general economic situation and increase in the standard of living.
Source: Baltics Insurance Supervisory Authorities of Latvia and Lithuania, Estonia Statistics, competitor reports, and manual corrections. Based on gross written premiums 2014
Retail Bank Gjensidige Bank is an online bank that mainly targets the Norwegian private market. The bank offers day-to-day banking services, mortgages, savings products and car and consumer financing. By offering competitive banking products, Gjensidige Bank will contribute to the sale of a wide range of products to general insurance customers in Norway.
Highlights 2014 The business showed positive development. Assets under management in the pension and savings businesses increased by 23 per cent and 26 per cent, respectively. 85 per cent of the customers were also general insurance customers.
Outlook and priorities Pension and Savings is a priority area that helps to make Gjensidige a complete supplier of insurance and pension products. The business contributes to stronger customer relations and loyalty among the general insurance customers. 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.
The Bank will continue to offer a wide range of financial services through customer-friendly online solutions, Gjensidige’s financial offices and cooperating car dealers. Based on a full range of banking products and attractive terms for the private market, the bank shall contribute to the Group’s growth and profitability.
Source: Finance Norway, 3rd quarter 2014, Assets under management * Unit linked
The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s capitalisation and pertaining risk capacity, as well as the Group’s ongoing risk management.
Gross premiums written Private NOK million 8,296.3 8,013.8 7,669.0 Commercial NOK million 7,772.6 7,416.5 7,096.0 Nordic NOK million 4,439.1 3,505.0 3,144.8 Baltics NOK million 512.5 532.7 473.0 Corporate Centre/reinsurance NOK million 143.3 163.4 176.5 Total NOK million 21,163.8 19,631.4 18,559.3 Premiums, net of reinsurance 7 % 97.7 97.1 97.4 Earned premiums Private NOK million 8,124.1 7,799.0 7,498.5 Commercial NOK million 7,337.7 7,021.8 6,764.8 Nordic NOK million 4,272.4 3,326.4 2,909.7 Baltics NOK million 523.0 510.8 436.9 Corporate Centre/reinsurance NOK million 129.6 78.9 187.5 Total NOK million 20,386.8 18,736.9 17,797.3 Loss ratio 8
Private % 67.3 70.1 67.4 Commercial % 72.9 74.2 73.1 Nordic % 70.9 72.7 64.7 Baltics % 72.1 67.1 67.0 Total % 71.0 74.0 69.9 Cost ratio 9
Private % 12.7 13.2 13.4 Commercial % 11.5 11.7 12.0 Nordic % 16.7 17.0 17.4 Baltics % 27.8 25.9 28.7 Total % 15.0 15.3 15.5
A dividend of NOK 5.90 per share is proposed for the 2014 financial year. This corresponds to 70.4 per cent of the profit after tax expense. Dividend will be approved by the Annual General Meeting on 23 April 2015 and paid to shareholders registered on the date of the General Meeting. The Gjensidige share is traded ex dividend on 24 April 2015 and dividend is to be paid on 5 May 2015.
The so-called customer dividend is distributed to the customers based on insurance premiums paid for the accounting year the share dividend relates to. It is paid to those who are still customers of Gjensidige at the end of the month prior to the Gjensidige Foundation’s General Meeting approving the customer dividend.
The customer dividend for 2013 represented around 15 per cent of premiums paid. The board of the Gjensidige Foundation has proposed that the dividend for 2014, after a deduction of ex penses, be distributed to Gjensidige’s general insurance customers in Norway.
The Gjensidige share yielded a total return of 22 per cent in 2014. At the end of 2014, Gjensidige was the sixth largest company listed on Oslo Stock Exchange, with a market cap of NOK 61 billion. Earnings per share was NOK 8.38, and the Board has proposed a dividend of NOK 5.90 per share.
Ownership At the end of 2014, Gjensidige had about 34,000 shareholders. The 20 largest shareholders held a total of 82.3 per cent of the shares in Gjensidige.
The Gjensidige Foundation is the largest shareholder, with a holding of 62.2 per cent. In its Articles of Association, the Gjensidige Foundation has stipulated to have an ownership in Gjensidige of at least 60 per cent, and shall contribute to stable ownership and predictability. The Foundation expresses a willingness to consider reducing the holding in the event of any acquisitions or capital increases that are in accordance with Gjensidige’s overall strategy.
For more detailed information about the governing bodies and/or the General Meeting, see page 31-43 and/or www.gjensidige.no/ir.
Per cent 3 Deutsche Bank 3.9 5 Danske Bank 1.2 6 Safe Investment Company 1.0 7 State Street Corporation 1.0 8 Thornburg Investment Mgt 0.9 13 Vanguard Group 0.6 14 Genossenschaftliche FinanzGruppe Volksbanken Raiffeisenbanken 0.5 15 Henderson Group 0.4 17 Beutel Goodman & Company 0.4 18 AXA Group 0.3 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 2014, 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 27 on page 136.
Gjensidige offers general insurance products to private and corporate customers in the Nordic countries and the Baltic states. In Norway, we also offer banking and savings services to private customers and pension products to commercial customers.
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. Based on this, the Board has adopted guide lines that define goals and limits for the Company’s commitment to social responsibility, including guidelines for socially responsible investments.
Socially responsible operations are a precondition for the Company’s competitiveness, as regards attracting capable employees and customers and gaining society’s trust.
In 2014, we have been particularly concerned with the following areas: 1. Social commitment 2. Contributing to a safer society 3. Responsible investments 4. Our employees 5. Ethical operations 6. The environment and climate
A full version of the guidelines for corporate social responsibility and SRI is available at www.gjensidige.no/group
Several other chapters in this annual report are relevant to understanding how Gjensidige exercises its corporate social responsibility. The most important are: • Corporate governance . Page 31 • Note 3, Management of insurance risk and financial risk. Page 84 • Note 18, Pay and remuneration. Page 126 • Note 28, Share-based payment. Page 137
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.
Ethics and compliance with laws and regulations are key aspects of the internal training of our staff.
Social commitment Gjensidige’s social commitment must be seen in conjunction with the Gjensidige Foundation, our biggest owner. The Foundation makes substantial donations that are funded by the return on the capital that was freed up in connection with the stock exchange listing of Gjensidige Forsikring in 2010.
Gjensidige Forsikring cooperates with the Church City Mission on creating a better and safer local community in Oslo city centre, where the Company’s head office is located. On Gjensidige’s part, this cooperation involves a financial contri bution to the Church City Mission and participation by our employees. In 2014, employees from several of our offices all over the country contributed to one of the Church City Mission’s campaigns by knitting scarves. The Church City Mission organises the campaign in the 22 I Gjensidige Annual Report 2014
In Denmark, Gjensidige supports the Christmas Seal Homes foundation (Julemærkehjemmene), which helps around 750 children every year who suffer from bullying or isolation.
Contributing to a safer society Gjensidige helps to finance the public welfare system by paying direct and indirect taxes and pay to employees. In 2014, Gjensidige paid NOK 853 million in tax. A considerable amount of value added tax comes in addition. Pay and other benefits to em ployees amounted to NOK 2.3 billion.
The price customers pay for their insurance is normally strongly affected by the financial risk the customer represents, and customers can influence this risk through their choice of house, car and how they behave. We reward a number of security measures by giving a discount on the insurance premium. Measures that contribute to reducing the risk for both us and the customers include burglar alarms, inspections of electrical systems in buildings, the installation of equipment that reduces the risk of water damage in buildings, and tracking systems for cars.
• We advocated giving the financial industry an opportunity to part-finance road projects, in order to contribute to projects being carried out sooner and more efficiently.
Last year, as in previous years, Gjensidige was represented on a number of national and international councils, committees and boards that work on fire prevention.
The Board of Gjensidige Forsikring has adopted a group policy for ethical investments. It states that our investment portfolio shall comply with inter nationally recognised guidelines for socially responsible investments in the following areas: • Human rights • Labour standards • The environment • Corruption • Weapons
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 the company GES – Global Engagement Services – to carry out continuous monitoring of companies in Gjensidige’s investment portfolios. These investigations form the basis for deciding whether to exclude companies.
When a company is excluded, we will make sure that that company is not part of any of the port folios we manage ourselves.
Meetings on socially responsible investments are held every quarter and as needed. In 2014, it was decided to exclude 11 companies from Gjensidige’s investment portfolio. At year end, a total of 85 companies had been excluded from Gjensidige.
Our employees Gjensidige aims to be a health-promoting workplace where all employees are given opportunities for professional development and competence- raising. We believe that people thrive when they can use their abilities, develop and be part of a larger group. It is our responsibility to facilitate this, but it is also a sound investment if Gjensidige is to succeed in the time ahead.
We are a big company, and at year end 2014, the Group had a total of 3,537 employees.
Diversity and discrimination Efforts are made to ensure that all employees in the Group are given equal opportunities for per sonal and professional development, and that everyone is treated equally regardless of gender, age, ethnic origin and functional ability. Recruit ment and HSE procedures ensure compliance with the Norwegian Anti-discrimination and Accessibility Act.
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 whether to convene the committee. Employees reporting discrimination is a typical reason for holding a meeting. No meetings of the committee were held in 2014.
Gjensidige is an Inclusive Workplace (IW) enterprise and it cooperates with the Norwegian Labour and Welfare Administration (NAV) on job training and pay subsidies for people who have been unemployed. We have had several employees on job training programmes as part of such schemes in 2014.
In Norway, these measures have contributed to the average retirement age increasing by one year since 2011.
Human capital and competence development Good management and continuous competence- raising measures will give Gjensidige important competitive advantages. We also have a responsibility to each individual employee and to society to make sure that employees are sufficiently qualified to be attractive employees.
Management and employee development is attended to by the Gjensidige Customer and Brand School, but we also cooperate with universities and university colleges in several countries. The programmes vary from introductory courses for all new employees to high-level management development.
E-learning is used to provide information about changes to products, procedures and other on going developments. In 2014, our staff have completed and passed 10,369 e-learning courses, divided between 90 titles.
Health, safety and the environment (HSE) Systematic health, safety and environmental work is given high priority in Gjensidige. Our goal is not only to prevent sickness absence and injuries, but also to ensure that Gjensidige is a health- promoting workplace.
Our health-promoting measures include (varies from office to office): • Arrangements to facilitate cycling to work in the form of bicycle parking and changing rooms • Gym rooms • Competitions that motivate moderate physical activity on a daily basis • Short exercise breaks during working hours • Company sports club that organises a range of activities
No work accidents resulting in personal injuries or material damage occurred in 2014.
The response rate in the annual employee satisfaction survey was high in 2014, as in previous years. The results of the survey indicate that the working environment is generally good and that employees are motivated. The survey is followed up at meetings between the HR department and the respective department managers. For each department, one improvement area is defined that it must focus on in particular in the coming year.
Denmark, Sweden and Norway are all among the five countries in the world with the lowest per ceived levels of corruption, according to Transparency International. In Estonia, Latvia and Lithuania, corruption is perceived as a significantly bigger problem, according to the same ranking.
on ethical rules and a speci fication of ethical guidelines relating to hospitality activities, plus guidelines on welfare measures, seminars and gifts are also relevant in this context.
Giving and receiving bribes is prohibited. 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 stipu lated for employees with responsibility for relations with customers and suppliers.
A comprehensive effort was initiated in 2014 to quality assure the Group’s rules, proce dures, processes, incidents, controls and preventive activities.
Customer satisfaction It is Gjensidige’s goal to be the most customer- oriented company in the Nordic insurance indu stry. Customer orientation permeates our behaviour, priorities and communication at all levels of the organisation. The focus on customers is a key part of product and service development, the training of employees, advisory services, sales, claims settlement and the handling of complaints.
Customers’ satisfaction with the Company and individual advisers is measured on a continuous basis, and improvement measures are initiated based on feedback from the customers. Gjensidige has defined clear goals for customer satisfaction. The level of goal attainment influences the payment of bonuses to executive personnel and collec tive bonuses to all employees.
Dissatisfied customers can complain to the Company’s internal customer ombudsman, and then to the Norwegian Financial Services Complaints Board if they find this necessary.
Customers and data protection Gjensidige’s employees are bound by a statutory duty of secrecy about all matters relating to our customers. A group policy and instructions provide detailed guidelines on the processing of personal data.
Data protection training is mandatory for all new employees and is also a part of the introductory programme. Access to personal customer data shall only be granted to employees who need it in the course of their work. Personal data shall only be used and stored for as long as this is necessary, and they shall be deleted immediately when they are no longer needed, unless legal exemptions apply.
Clear procedures have been prepared for how to handle such notifications, and relevant matters are reported to the Group’s risk committee and the Board.
In 2014, we applied for a licence from the Data Protection Agency to establish an external notification channel that guarantees full anonymity for whistleblowers.
Procurements and suppliers We have the same ethical expectations of our suppliers as of ourselves. Procurements over a certain amount must be quality-approved by the Corporate Procurement Department. Most purchase agreements are the result of competitive tendering carried out in accordance with adopted guidelines. All Gjensidige’s suppliers must sign a self-declaration on corporate social responsibility.
By their nature, losses have a negative impact on the environment, since resources are need to repair the damage or replace the loss. The insurance premium is affected by the risk of loss, and, together with our loss prevention work, this contributes to fewer losses and less harm to the environment.
The Group’s environmental measures focus on energy efficiency, reduced travel through in creased use of video conferences, and responsible waste management with extensive use of separation at source.
In the countries where we do business, climate change will most likely cause increased precipi tation and more frequent storms. This will in crease the risk of both personal injuries and material damage.
We have funded and contributed to several studies of how this will affect Norway, and how well-prepared Norwegian society is for a ‘wilder and wetter’ climate. Together with other major insurance companies in the Nordic region, we have funded development of the climate tool ‘VisAdapt’, which can help home owners and house builders in the Nordic countries to adapt to the climate in the best possible way.
Every year, the company carries out an ‘Emerging Risk’ analysis that includes risk relating to climate change. We have quantified possible costs under different scenarios, including a worst case scenario that is statistically likely to occur once every thousand years.
For various reasons, we have chosen not to publish the calculations.
The emission of greenhouse gases from our operations is modest, and we work continuously to further reduce our emissions. We report our emissions to the Carbon Disclosure Project.
Owners Return on equity Per cent before tax 23.3 before tax >15 before tax >15 after tax
Sickness absence (self-certificate and medical certificate) Per cent 4.7 4.5 4 4
** Paid in 2014, based on the 2013 accounts, whereof NOK 3,000 million was approved by the AGM in April 2014, and NOK 2,000 million was approved by the Board in accordance with authorisation, in October 2014.
2. The Code of Practice is available at www.nues.no 3. The Board has provided a statement on the Company’s corporate governance.
4. The main elements in the systems for internal control and risk management relating to financial reporting processes are described in section 10 of the statement.
6. The annual report describes the composition of the Board, the Supervisory Board, the control committee and the Board’s select committees. The main elements of the currently applicable instructions and guidelines for these bodies are described in sections 8 and 9 of the statement.
8. The provisions of the Articles of Association and authorisations that entitle the Board to decide that the enterprise shall buy back or issue own shares are described in section 3 of the statement.
1. Statement on corporate governance Corporate governance is subject to an annual evaluation and discussion by the Board. The Board discussed and prepared this statement at a meeting on 3 February 2015 and adopted it at a meeting on 11 March 2015. Gjensidige’s compliance with the individual items is also described.
The Board’s statement on corporate governance in Gjensidige Forsikring ASA is available at www.gjensidige.no/corporate-governance.
This social responsibility shall be practised in line with society’s expectations of Gjensidige’s social role.
Our internal control systems include the Company’s core values and guidelines for ethics and social responsibility. A dedicated ethics suggestion box has been established for reporting relevant matters. Effective notification procedures have also been
This statement follows from the Norwegian Accounting Act Section 3-3b and Oslo Børs’s requirement that listed companies must report on corporate governance and explain any deviations from the Norwegian Code of Practice for Corporate Governance as last amended on 30 October 2014.
established to ensure that whistleblowers are protected and that matters that are raised receive relevant follow-up.
The Group shall be characterised by high ethical standards. Its corporate governance shall be in accordance with best practice. A good corporate governance policy will improve the Group’s potential for value creation and increase the trust and respect it enjoys in society over time.
Our work on social responsibility is described in more detail on pages 22-30 in the annual report and at www.gjensidige.no/group. Quantitative goals have been adopted for socially responsible operations in relation to owners, customers, employees and the environment. The goals and goal attainment are presented in the table on page 30 of the annual report.
The Company’s financial investments shall comply with generally accepted guidelines for socially responsible investments (SRI). The Company shall not itself invest directly in companies that fail to meet the requirements relating to human rights, labour rights, the environment, corruption or weapons production.
Strategy Gjensidige’s strategy reflects the Company’s belief in customer orientation, a down-to-earth business culture and analytically-driven core operations. In sum, this is intended to give Gjensidige comparative advantages.
Further digitalisation of customer interfaces and underlying processes is also needed – not only to underpin the focus on customer orientation, but also to ensure cost-efficiency and competitiveness.
Our ambitions along the axes of customer orientation and rationalisation are high. They both require a continued focus on information as a strategic resource. The work on achieving good data quality, efficient data collection processes, availability, reporting and analysis shall be strengthened. This applies, not least, to the Group’s ability to process and find relevance in external online data sources and social media – not just for the purpose of sales, service and advice, but also for tariff setting and pricing.
Without motivated managers and employees who possess the right expertise and attitudes the strategic ambitions cannot be realised. A higher pace of change – not least as regards technology and customer behaviour – means that a 32 I Gjensidige Annual Report 2014
Deviations from the Code of Practice: None 3. Equity and dividends Equity The Gjensidige Group’s equity amounted to NOK 21.7 billion (IFRS) at the end of 2014. The capital adequacy was 18.1 per cent (for the Group), and the solvency margin was 366.5 per cent (for Gjensidige Forsikring ASA). Both capital adequacy and the solvency margin have been adjusted to take account of the Board’s dividend proposal for the 2014 financial year. The statutory capital adequacy requirement is eight per cent.
(capital adequacy and solvency margin) • The rating agencies’ requirement for own funds necessary in order to maintain the target rating • Requirement for own funds based on internal risk models
In addition, any future excess capital over and above the capitalisation target will be distributed to the owners over time. By capitalisation target is meant capitalisation that is adapted to Gjensidige’s strategic targets and appetite for risk at all times. The Group shall maintain its financial freedom of action, without this being at the expense of capital discipline.
Proposed dividend for 2014 The proposed dividend for the 2014 financial year is NOK 2,950.0 million, corresponding to NOK 5.90 per share. This amounts to 70.4 per cent of the Group’s profit after tax expense, and it is based on the new dividend policy that applies from the 2014 financial year. The Board’s proposal for the distribution of dividend for the 2014 financial year is explained in more detail in the Board’s report. See also the description of authorisations granted to the Board.
- Authorisation to the Board to decide the distribution of dividend on the basis of the Company’s annual accounts for 2013. The authorisation is valid until the next annual general meeting, no longer, however, than until 30 June 2015. The authorisation is in accordance with the Company’s adopted capital strategy and divi-
The Board shall ensure that the Company complies with the Public Limited Liability Companies Act Sections 3-8 and 3-9 in agreements between the Company and parties mentioned there. On entering into not immaterial agreements between the Company and shareholders, closely-related parties, board members or members of the management or close associates of such members, the Board shall obtain an assessment from an independent third party. The same applies to agreements with group companies that have minority shareholders. This follows from the rules of procedure for the Board, which are available at www.gjensidige.no/group.
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 will be made available on the Group’s website www. 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 www.gjensidige.no/group/ as soon as they are available.
- The case documents shall be sufficiently detailed to provide a basis for considering the matters raised.
- In connection with the elections of supervisory board, control committee and nomination committee at the general meeting, it will be possible to vote for one candidate at a time.
- The CEO, the Chairman of the Board, the Chair of the Supervisory Board and the chair of the nomination committee are required to be present unless this is obviously unnecessary or they have valid grounds for not attending.
- Pursuant to the Articles of Association, the general meeting will be chaired by the Chair of the Supervisory Board, or by the Deputy Chair, or, if they are both absent, by the Chairman of the Board or another person designated by the Board.
- Shareholders may be represented by proxy. The notice of the meeting will contain more detailed information about the procedure for representation by proxy, including an authorisation form. In addition, a person will be appointed who can vote by proxy on behalf of shareholders.
Deviations from the Code of Practice: Pursuant to the Code of Practice, the whole Board, the whole nomination committee and the auditor should be present at the general meeting. Based on the matters that have been submitted to the general meeting for consideration, it has not been necessary so far for the whole Board to attend. The Chairman of the
At present, Gjensidige’s nomination committee consists of five members, including the Chair of the Supervisory Board. All members are independent of the Board and other executive personnel. Three of the members are also members of the Supervisory Board, including the Chair of the Supervisory Board. According to the rules of procedure for the nomination committee, the members should reflect the interests of the shareholders as a whole, and the Gjensidige Foundation should be represented by two members. This recommendation was followed in 2014.
As of 31 December 2014, the nomination committee consisted of the following members: - Bjørn Iversen (chair) - Benedikte Bettina Bjørn - Mai-Lill Ibsen - Ivar Kvinlaug - John Ove Ottestad
The nomination committee shall propose candi dates – with the exception of the employee representatives – for: - the Supervisory Board - the general meeting’s proposals for the election of a Chair and Deputy Chair of the Supervisory Board - the Supervisory Board’s election of a Chair and Deputy Chair - the Board, including the Chairman of the Board - the control committee, including the chair of the committee - the nomination committee, including the chair of the committee - external auditor
Further information about shareholders’ right to submit proposals to the nomination committee is available at www.gjensidige.no/group/.
Duties of the Supervisory Board Pursuant to the Act relating to insurance undertakings and Article 2-8 of the Articles of Association, the duties of the Supervisory Board are to supervise the management of the Company and to ensure that the object of the Company is pursued in accordance with relevant legislation, the Articles of Association and resolutions of the general meeting and the Supervisory Board. The Supervisory Board elects members of the Board, including the Chairman, and stipulates the remuneration of the Board. It also gives an opinion to the general meeting as to whether the Board’s proposal for the annual accounts should be approved, and whether the Board’s proposal for the allocation of profit or coverage of loss should be approved. It then elects the Company’s auditor and decides the auditor’s remuneration, issues rules of procedure for the control committee and considers the committee’s report. Finally, at the proposal of the Board, it will make decisions on matters concerning investments of a significant size relative to the Company’s resources and matters concerning rationalisation or restructuring of the operations that will entail major redeployment of the workforce.
Composition of the Board The Board of Gjensidige shall consist of ten members, three of whom are elected by the employees. It is required by law that the board of a financial institution is elected by its Supervisory Board. The shareholder -elected board members are elected for one year at a time. The Chairman of the Board is directly elected by the Supervisory Board. Board members elected by and from among the employees are elected for two years at time, but such that at least one member is up for election every year.
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. The board members Trond Andersen, PerArne Bjørge and Mette Rostad ar proposed by the Gjensidige Foundation. The other board members are independent of the principal shareholder. All board members are independent of important business associates.
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 www.gjensidige.no/group/. 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 holds regular physical board meetings and holds nine fixed meetings every year. Additional meetings may be held depending on matters at hand and the situation. They can be held by phone or electronically using the board portal. In 2014, a total of 11 board meetings were held, two of which were extraordinary board meetings. One of the ordinary meetings was an annual two-day strategy meeting. At the extraordinary meetings, the Board con sidered, among other things, strategic initiatives and the issuing of subordinated loans.
In 2014, the Board has discussed the Company’s strategy at several meetings, including on a study trip to the USA.
In matters where the Chairman of the Board is or has been actively involved, another board member shall chair the Board’s discussion of the matter.
As of 31 December 2014, the audit committee consisted of the following members: - Hans-Erik F Andersson (chair) - Per Arne Bjørge - Kjetil Kristensen - Gisele Marchand - Gunnar Mjåtvedt
The committee is an advisory body to the Board. It held one meeting in 2014.
Self-evaluation 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.
The Board shall approve agreements between the Company and a board member or the CEO. The Board shall also approve agreements between the Company and a third party in which a board member or the CEO must be deemed to have a particular interest.
Internal Audit is an independent, objective confirmatory and advisory function that shall contribute to the organisation achieving its goals. The manager of Internal Audit 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 Internal Audit annually. The Internal 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).
Control committee Financial institutions are required to have a separate, elected control committee. The control committee is independent of the board and management, and is elected by the general meeting. The committee holds regular meetings, and it is tasked with ensuring that the Company operates in an expedient and appropriate manner in accordance with legislation, the Articles of Association, guidelines adopted by the Supervisory Board and instructions from the Financial Supervisory Authority of Norway. The committee shall in particular ensure that the Company has satisfactory management systems and internal control systems. The control committee is identical for all companies in the Group that are obliged to have such a committee. The committee shall also supervise other companies in the Group.
Publishing deadlines are stipulated by the Board. The tasks that are carried out in the concluding phase are set out in a schedule that specifies the person responsible and the deadline for ensuring timely reporting. The schedule is reviewed prior to each quarter to ensure that any new circumstances are identified and that the schedule continues to be expedient.
As part of Gjensidige’s governing documents, an overall description has been prepared of the process relating to the closing of the accounts. Reporting instructions have also been prepared, including accounting principles that subsidiaries and branch offices must use in their reporting. The internal control is based on the principle of division of labour and dualism, and it is documented through descriptions of processes and procedures in material areas. Authorisation structures, reconciliations and manage ment reviews have been established.
The Group has established a planning process for financial management whereby the CEO, the CFO and the Chief Performance Officer meet with business and support areas at least every quarter and review financial performance and goal attainment as well as events that affect future development. Among other things, they assess risks relating to financial reporting, in both the short and long term. The Senior Group Management reviews monthly financial reporting, including developments in profit/ loss and balance sheet items, goal attainment, the forecast for the year, risk assessment and analysis of and comments on results in business and support areas.
This involves fields such as IFRS, NGAAP and the Annual Accounts Regulations for Insurance Companies etc. We participate actively in various 40 I Gjensidige Annual Report 2014
industry organisa tions for banks and life and general insurance companies where topical issues are dis cussed.
Deviations from the Code of Practice: None 12. Remuneration of executive personnel The Group has established remuneration principles that applies to all employees. The system is intended to ensure that Gjensidige attracts and retains employees who perform, develop, learn and share. The remuneration shall be competitive, but the Group shall not be a wage leader. Employees are expected to see the remuneration and benefits offered by the Group as an overall whole. The Group’s remuneration systems shall be open and performance-based, so that they, as far as possible, are perceived as being fair and predictable. The remuneration that is paid shall correspond to the agreed performance.
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, insurance policies 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.
Variable pay shall be performance-based without being a risk driver, and it shall reflect the results and contributions of both the Company, the division, the department and the individual employee. Other remuneration elements shall be seen as being attractive by both new and existing employees. There is a ceiling on all variable remuneration.
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 ex pertise and experience who promote the Group’s core values and development.
The guidelines are submitted to the general meeting as a separate item in accordance with the Public Limited Liability Companies Act Section ***6-16a. The general meeting’s decision on the guidelines in the statement on remuneration of executive personnel is advisory to the Board, except the part of the document that concerns share-based remuneration, which is binding. As a result, the general meeting holds an advisory vote on the Board’s statement on the stipulation of pay and other remuneration and the Board’s guidelines for the stipulation of pay for executive personnel, as well as a binding vote on the new guidelines for the allocation of shares, subscription rights etc. that the Board proposes pursuant to the Public Limited Liability Companies Act Section 6-16a first paragraph third sentence no 3.
Deviations from the Code of Practice: None 13. Information and communication Gjensidige shall maintain an open dialogue with all stakeholders. All financial market participants shall have simultaneous access to correct, clear, relevant and detailed information about the Group’s historical results, operations, strategy and outlook. The information shall be consistent over time. The Board has adopted guidelines for the reporting of financial information and other information in the form of an IR policy. The guidelines are available at www.gjensidige.no/ir.
In connection with quarterly financial reporting, open presentations will be held for investors, analysts and other stakeholders. The presentations will also be made available at www.gjensidige.no/reporting via webcast.
A capital market day shall be held when it is considered expedient in order to keep the market up-todate about the Group’s development, goals and strategies.
Deviations from the Code of Practice: None 14. Corporate takeovers The Company has one big owner, the Gjensidige Foundation. The Foundation has laid down in its Article of Associations that its ownership interest shall at least amount to 60 per cent of the shares issued in Gjensidige.
Guidelines have nonetheless been adopted for corporate takeovers. These guidelines ensure that all shareholders ’ interests are attended to, and they contribute to equal treatment of shareholders.
In conversations with the bidder and in its other actions, the Board shall endeavour to safeguard the interests of the Company and the shareholders as a whole. The Board shall ensure that all the Company’s shareholders are treated equally and kept up-to-date about relevant matters relating to the bid. The shareholders must receive information as early as possible, to give them time to consider the bid. Endeavours will otherwise be made to avoid undue disruption of other activities during a takeover process.
The Board shall not attempt to prevent bids being made, and, as a rule, it shall seek to facilitate the implementation of bids that may be in the interests of the shareholders. The Board shall not take action as described in the Securities Trading Act Section 6-17 without obtaining instructions from the general meeting. The Company shall not use authorisations to issue shares to prevent a bid.
Deviations from the Code of Practice: None 15. The external auditor An external auditor is elected by the Supervisory Board in accordance with a recommendation from the Company’s 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 will have regular contact with the auditor throughout the year to discuss the result of the external auditor’s work, consequences of new laws and regulations etc.
A number of regular meetings are held between the external auditor and the Company’s governing bodies during the course of the year: The auditor presents the main elements in the audit plan to the audit committee on an annual basis. In addition, the audit committee considers the auditor’s assessment of internal control in relation to financial reporting.
The auditor attends board meetings when the annual accounts are considered.
The audit committee shall also monitor the auditor ’s independence, including what services other than auditing the auditor has provided. The breakdown between the auditor’s fee and consultancy fees for 2014 is described in Note 17 to the annual report. The Supervisory Board approves the auditor’s fee. Information will be provided about the auditor’s fee broken down by auditing and other services at the meeting.
Supervisory Board Bjørn Iversen, chair Christina Stray, deputy chair Benedikte Bettina Bjørn Knud Daugaard Randi Dille Marit Frogner Hanne Solheim Hansen Geir Holtet Pål Olimb John Ove Ottestad Stephen Adler Petersen Lilly T. Stakkeland Even Søfteland Terje Wold
Deputy Members nominated by the employees 1. Marianne Pettersen 2. John Sønsteli 3. Ellen Kristin Enger Susanne Baden Weltz (Nordic)
Control Committee Sven Iver Steen, chair Lise Lotte Aune Lee Hallvard Strømme Vigdis Myhre Næsseth (deputy member)
Nomination Committee Bjørn Iversen, chair, (chair Gjensidigestiftelsen) Benedikte Bettina Bjørn Mai-Lill Ibsen Ivar Kvinlaug, (Chair of the nomination committee in Gjensidigestiftelsen) John Ove Ottestad
The Board proposes a dividend of NOK 3.0 billion for the 2014 financial year, corresponding to NOK 5.90 per share. That is 70.4 per cent of the Group’s profit after tax expense, and it is based on the adopted dividend policy that applies from the 2014 financial year.
The business Gjensidige Forsikring ASA (Gjensidige Forsikring) is a Nordic general insurance company with 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 competitive insurance products. In Norway a wide range of products within banking, pension and savings are also offered, contributing to a broader offering and stronger relations to the customers. Gjensidige Forsikring is the parent company of the Gjensidige Group (Gjensidige).
Gjensidige is the leading general insurance company in Norway, and it is the biggest Norwegian-owned general insurance company in the Nordic countries and the Baltic states. These markets are Gjensidige’s defined market area for further growth, and at year end 2014, Gjensidige was one of the leading general insurance companies in this area. The general insurance operations include general insurance and accident and health insurance. The Norwegian general insurance operations also include life insurance, which is pure risk insurance with a duration of up to one year. Group life insurance is the biggest product in this category.
Customer orientation Gjensidige is working systematically to become the most customer-oriented company in the Nordic general insurance field. The vision is to “know the customer best and care the most”. The customers should feel that Gjensidige knows them, cares about them, makes things easy for them and helps them. Customer satisfaction is measured systematically, at Group level and down to the individual employee level, and improvement measures are implemented continuously.
The Gjensidige Group achieved solid premium growth and good profitability in 2014. Customer satisfaction continued to increase and competitiveness remained good.
Inge K Hansen (1946) has been Chairman of the Board of Gjensidige since 2008. He is also Chairman of the Board of NorSun AS, Harding AS, Troms Kraft AS and Nets AS, and Deputy Chairperson of the Board of Hydro. He was elected Chair of the Year in Norway and the Nordic Countries in 2012.
Hansen has previously been an exe cutive vice president in Statoil and CEO of Aker Kværner. He is a graduate of the Norwegian School of Economics (NHH).
Market position Gjensidige is market leader in the Norwegian general insurance market, where the Group has very high brand recognition and preference. Gjensidige was the leading player in Norwegian non-marine general insurance in 2014 as well, with a market share of 25.2 per cent of a total market of NOK 55.3 billion. The market share is unchanged from 2013. (Source: Finance Norway). The Company prioritises profita bility ahead of growth, and the market share development therefore confirms Gjensidige’s good competitiveness.
The Company had a market share of 23.5 per cent in the private market at the end of 2014. The market share in the commercial market was 27.9 per cent. This includes the agricultural market, where Gjensidige has historically enjoyed a high market share.
The market shares in Denmark and Sweden were 6.0 per cent (based on the most recent statistics from the Danish Insurance Association as of 31 December 2013) and 1,5 per cent, respectively (source: Insurance Sweden, statistics as of 31 December 2014).
Distribution Norway Gjensidige has approximately 760,000 customers in the Private segment and around 150,000 in the
The sales centres and customer service centres are responsible for external sales and for serving customers who contact Gjensidige to buy or change insurance policies or to seek advice. Gjensidige has 38 local branch offices that offer advisory services in the fields of insurance and banking. The offices can refer customers to other departments if the queries concern pensions and saving.
The customer portal gjensidige.no plays an increasingly important role in relations with the customers. There, private and commercial customers can see their own insurance policies and can manage their customer relationship themselves, for example by reporting a claim or tracking the processing of a claim online. A substantial proportion of sales to private customers in Norway are now initiated
In the Danish commercial market, sales are made in cooperation with brokers and call centres and dedicated underwriters in the market for small and medium-sized enterprises and agricultural customers. Distribution in the municipal market takes place either directly or through brokers. The market is to a large extent based on competitive tendering.
In Sweden, general insurance products are distributed to private customers both directly by phone and via the internet, and through insurance mediators (partners and agents). In the commercial market, distribution mainly takes place through insurance brokers and partners.
Other Gjensidige is also positioned to deliver products adapted to other distribution channels, both in Norway and in the other Nordic countries. Distribution largely takes place through agents and business partners such as shops, car dealers and banks that wish to expand their product range with insurance products under their own label (’white label’).
Information technology Gjensidige has a joint Nordic ICT platform, where all products and customer data are available on the same system platform. It is also used by the banking and pension and savings businesses. This gives a high degree of flexibility and ensures a uniform customer experience across channels, at the same time as it is cost-efficient. A flexible service architecture enables use of functionality from the core system and information from the customer system for self-service solutions, internal user interfaces and other support systems, and in the work on for instance optimal customer and risk selection and tariff setting.
The year 2014 Profitable growth Gjensidige achieved solid growth combined with good underlying profitability and customer develop-
Greater customer satisfaction and high customer loyalty Gjensidige works continuously to improve the customer experience in all channels. The training of staff, better data accessibility, digital customer communication and the development of value added services are important measures in this context. Customer satisfaction with the Company and advisers is measured systematically, and customer satisfaction at Group level further increased, from 73.6 in 2013 to 74.8 in 2014. Satisfaction is highest among customers who have had a claim or been in contact with Gjensidige for other reasons.
Gjensidige’s customers show strong loyalty. Private customers in Norway have a customer relationship lasting more than ten years on average. Around 70 per cent of the private customers are members of affinity or loyalty programs and, among these customers, the average customer relationship lasts more than 15 years. Commercial customers in Norway have a customer relationship lasting eight years on average. Loyalty among customers in Denmark is developing positively, but there is a potential for longer customer relationships in both the private and commercial markets.
Recognition and preference for Gjensidige in the Norwegian market is stable and higher than among competitors, and according to IPSOS, Gjensidige had the best reputation of all the biggest companies in the Norwegian financial sector in 2014. In Denmark, determined efforts are being made to increase familiarity with Gjensidige. The development was also positive in 2014, with unaided familiarity in the Danish market of 13.5 per cent on average.
The customer dividend model boosts loyalty Gjensidige’s biggest owner, the Gjensidige Foundation, pays customer dividend to Gjensidige’s general insurance customers in Norway. In 2014, the general insurance customers in Norway received customer dividend from the Gjensidige Foundation corresponding to about 15 per cent of the insurance premiums they had paid in 2013. As many as 77 per cent of Gjensidige’s general insurance customers in Norway say that the customer dividend model is one of the reasons for their remaining Gjensidige customers. Targeted marketing in 2014 contributed to greater awareness of the model among non- customers.
Members of organisations are often Gjensidige’s most loyal customers. Good management of partnerships agreements will be given priority also in the time ahead.
Two small acquisitions The platform for future growth was further strengthened in 2014 through two small acquisitions. Insurance mediator Försäkringshuset Amb&Rosén AB was acquired in June, which gave access to the above-mentioned partnership agreement with Villaägarne in Sweden. In December, Försäkringsproduktion AB in Sweden was aquired. This company specialises in insuring boats, jet skis and snowmobiles, and it gives Gjensidige access to a
Capital and balance sheet optimisation Throughout 2014, Gjensidige has taken various steps to optimise its balance sheet and capitalisation. This means that, at the start of 2015, the Group had a balance sheet and capital structure that supports the target of a 15 per cent return on equity after tax expense with effect from 2015.
In October, the Board decided to maintain its previously announced financial targets: • Return on equity after tax expense from and including 2015: 15 per cent • Combined ratio: 90-93 per cent
(~87-90 per cent discounted) • Cost ratio: ~15 per cent • Dividend from the 2014 financial year: nominal high and stable, >70 per cent of profit after tax over time
• Proportion of frequency claims reported online: >50 per cent (26 per cent in 2014)
An attractive share The Gjensidige share yielded a total return for the shareholders of 21.6 per cent in 2014. The average number of shares traded daily on Oslo Stock Exchange was around 500,000, and the share is among the 25 most liquid shares listed on Oslo Stock Exchange. In addition, a substantial number of shares are traded in other marketplaces. Gjensidige held its first Capital Market Day in London in November 2014, and interest among market players was good.
Changes in framework conditions Solvency II Preparations for the Solvency II regulations have been prioritised in 2014. Solvency II entails new rules for calculating capital requirements and qualifying capital, risk management requirements and requirements for the reporting of the risk and capital situation. The regulations will enter into force on 1 January 2016.
Trond Vegard Andersen (1960) has been a member of the Board of Gjensidige since 2009. He is CEO of Fredrikstad Energi AS (FEAS), a board member in Nettpartner Holding AS and an elected member to the General Meeting of the Gjensidige Foundation.
Andersen is up for election to the Board in 2015. Andersen holds 1,805 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 16 October 2014).
On the letter from the Financial Supervisory Authority of Norway concerning the implementation of the Solvency II Directive in Norwegian law In a letter of 19 June 2014, the Financial Supervisory Authority informed the Ministry of Finance about some of its assessments concerning the implementation of the Solvency II Directive in Norwegian law. Among other things, the letter contains assessments relating to the special Norwegian provisions arrangements, i.e. the natural perils fund, the guarantee scheme and security provisions. All of the above-mentioned provisions are included in the IFRS equity in the consolidated financial statements, and are thus also included in the Group’s qualifying funds in the internal model and the S&P model.
In its letter, the Financial Supervisory Authority also refers to unresolved tax issues in connection with the transition to the Solvency II Directive. They are primarily related to the tax valuation of the technical provisions. Pursuant to the assessment principles in the Solvency II Directive, technical provisions are expected to be a lower amount. They also include the security provision, which is included as part of the technical provisions in both the company and tax accounts. Pursuant to current practice, the same value is used for the technical provisions in the company and tax accounts. If the tax valuation of the technical provisions is adapted to the assessment principles set out in the Solvency II Directive, this could have significant tax consequences.
Andersson is up for election to the Board in 2015. Andersson holds 1,778 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
1 It is pointed out that deferred tax liability, including for the security provision and the guarantee scheme, will not be realised in a financially stressed situation, and that this is used as the basis for calculating qualifying funds.
The capitalisation interest rate In December 2014, the Norwegian Supreme Court pronounced judgment in a case concerning the level of the capitalisation interest rate used when calculating the present value of claims for future losses. The interest rate was reduced from 5 per cent to 4 per cent. Gjensidige had used a somewhat more conservative estimate for the capitalisation interest rate.
Norwegian pension legislation Amendments to the Act relating to Company Pension Schemes mean that unit-linked paid-up policies can be offered provided that the policy has been fully provisioned in relation to the Financial Supervisory Authority’s tariff basis K2013. As a result of few fully provisioned paid-up policies in the market, stringent requirements for advice concerning conversion and the current low interest rate, which makes paid-up policies with a guarantee more valuable, Gjensidige will not offer this product until further notice. More-over, the Financial Supervisory Authority has decided to allow for a provisioning period up to and including 2020.
The preparation of the accounts and application of the chosen accounting principles involve using assessments and estimates and necessitate the application of assumptions that affect the carrying amount of assets and liabilities, income and expenses. The estimates and the pertaining assumptions are based on experience and other factors. The uncertainty associated with this means that the actual figures may deviate from the estimates. It is especially the insurance liabilities that are associated with this type of uncertainty.
Financial targets The financial Group targets applied in 2014 are presented in the table below.
Among other things, Bjørge has previously been a bank director with Kredittkassen (Nordea) and worked as an auditor. He has a bachelor in economics and is a qualified auditor.
Profit/loss The Group recorded a profit before tax expense of NOK 5,399.6 million (4,574.1). The profit from general insurance operations measured by the underwriting result was NOK 2,862.3 million (2,019.6). For the investment portfolio, the return on financial assets was 4.3 per cent (4.3), corresponding to NOK 2,426.3 million (2,480.9).
The profit after tax expense was NOK 4,189.6 million (3,670.6), corresponding to NOK 8.38 (7.34) per share.
Available capital in excess of the risk-based requirement calculated using the Group’s internal model constitutes the Group’s economic excess capital. In addition, a deduction is made for the higher of the calculated supplementary capital required to maintain the current rating (including a five per cent buffer) and the capital required to meet the statutory capital adequacy requirements. Excess capital above and beyond this constitutes the strategic buffer. At year end, the strategic buffer amounted to NOK 1.3 billion, after adjusting for the Board’s proposed dividend for the 2014 financial year.
Two acquisitions have been made since the balance sheet date. Together, they will reduce the buffer by NOK 0.8 billion. Moreover, Standard & Poor’s confirmed that quantitative weight can be given to the internal model in the rating-based capital model. Seen in isolation and based on Gjensidige’s understanding, assumptions and use of the model, this contributes to increasing the buffer by an amount corresponding to NOK 0.8 billion. Both these figures have been calculated on the basis of the capital situation as of 31 December 2014.
Off-balance sheet commitments and derivatives As part of the Group’s investment activities, an agree ment has been entered into for the investment of up to NOK 2,278.6 million in bond funds and various private equity and property fund investments, in addition to the amounts recognised in the balance sheet. In order to increase the effectiveness of its capital and risk management, the Group enters into financial derivative contracts on a regular basis. They are described in more detail in the notes to the accounts.
The net cash flow from operational activities was NOK 3,428.3 million (negative in the amount of 1,127.7) in 2014. There is a large positive cash flow from the insurance operations. The difference between the operating profit and the cash flow from operational activities is due to the nature of the business, whereby investments in financial assets are part of operations. The change in the cash flow in 2014 can largely be explained by the fact that less has been invested in securities because of a higher dividend paid, in addition to a somewhat lower growth rate in the bank.
The net cash flow from investment activities mainly consists of payments made/received in connection with the acquisition of subsidiaries and associated companies, owner-occupied property, plant and equipment, plus dividend from associated companies. The net cash flow from investment activities was NOK 2,955.1 million (643.8) in 2014. The increase is largely due to the sale of the Storebrand shareholding in the first quarter 2014.
Kristensen is up for election to the Board in 2016. Kristensen holds 526 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
Amortisation and impairment losses of excess value – intangible assets (34.6) (9.5) Large losses 1 81.6 49.9 Run-off gains/(losses) 2 181.9 65.0 1 Large losses = loss event in excess of NOK 10.0 million.
Changing the structure of a partnership agreement will mean a reduction in annual premiums of around NOK 120 million from 1 January 2015. This change will not affect profitability.
Competition remains strong, both from established players and from some smaller niche players, but Gjensidige’s competitiveness in the Norwegian private market is good.
Earned premiums 7,337.7 7,021.8 Claims incurred etc. (5,349.9) (5,207.6) Operating expenses (847.5) (821.3)
Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from earlier periods 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio underlying frequency claims development in Norway. The combined ratio was 84.5 (85.9).
Earned premiums increased to NOK 7,337.7 million (7,021.8). Both the Norwegian and the Swedish portfolios showed positive development. The development in earned premiums was particularly positive for the accident and health, liability and property products in Norway, and for the property and motor products in Sweden. The growth was negatively affected by a planned reduction of the municipal portfolio.
Claims incurred amounted to NOK 5,349.9 million (5,207.6) and the loss ratio ended at 72.9 (74.2). A good underlying frequency claims development for most of the main products in Norway was partly outweighed by a weaker development in Sweden.
Operating expenses amounted to NOK 847.5 million (821.3), which corresponds to a cost ratio of 11.5 (11.7). The cost increase was largely due to higher payroll expenses as a result of the establishment of a sales organisation in Sweden.
General Insurance Nordic The segment comprises the Group’s operations in the Danish private and commercial markets, and the Swedish private market. With effect from 2015, the Swedish commercial portfolio will also be part of the Nordic segment.
Continuous strengthening of the distribution collaboration with the Nykredit group and integration activities relating to the acquisitions of Gouda Reiseforsikring and Solid were important priorities in 2014. Continued focus on portfolio restructuring and repricing contributed to maintaining good quality in the portfolios and a satisfactory underlying profitability development.
Earned premiums increased to NOK 4,272.4 million (3,326.4). Of the increase, NOK 227.9 million was due to changes in the exchange rate. The increase in premiums over and above exchange rate effects was primarily due to the acquisition of the Gouda and Solid portfolios, and an increase in the number of new commercial customers. Earned premiums from the two acquired portfolios amounted to NOK 554.1 million for the year. The integration and optimisation of the two portfolios is expected to contribute to somewhat lower earned premiums going forward.
Claims incurred amounted to NOK 3,031.0 million (2,417.0). Of the increase, NOK 177.8 million was due to changes in the exchange rate. The loss ratio was 70.9 (72.7). The lower loss ratio was due to a general improvement in the underlying frequency claims development, for both commercial and private products. There were fewer weather-related claims and the run-off gains were higher than the year before. The Solid portfolio is in an integration phase, and, as expected, it delivered a weaker loss ratio than the rest of the portfolio.
Operating expenses were NOK 712.1 million (567.1). Of the increase, NOK 38.8 million was due to changes in the exchange rate. The cost ratio was 16.7 (17.0). The distribution model in Gouda entails commission expenses that have a negative effect on the cost ratio.
Outlook and priorities The Nordic operations shall contribute to economies of scale, diversification of risk and increased competitiveness. 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. With normalisation of the Danish property market, organic growth is expected to be slightly above market growth. The implementation of new tariffs and steps to achieve a higher proportion of self-service will be prioritised in 2015 as well. Continued focus will be
Earned premiums 4,272.4 3,326.4 Claims incurred etc. (3,031.0) (2,417.0) Operating expenses (712.1) (567.1)
Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from earlier periods 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio
Claims incurred amounted to NOK 377.2 million (342.5). Of the increase, NOK 24.2 million was due to changes in the exchange rate. The loss ratio was 72.1 (67.1). The increase in the loss ratio was mainly due to a run-off loss in 2014 compared with a runoff gain in 2013. The profitability of the commercial portfolio was generally good, while the profitability of the private portfolio was weaker.
Earned premiums 523.0 510.8 Claims incurred etc. (377.2) (342.5) Operating expenses (145.1) (132.5)
Operating expenses were NOK 221.4 million (182.0). The cost increase was due to VAT levied in arears and an increase in the amount of business.
Recognised return on the paid-up policy portfolio 3 4.63 % 4.57 % Value-adjusted return on the paid-up policy portfolio 4 4.63 % 4.67 %
Financial income amounted to NOK 31.2 million (25.3). This includes the return on the group policy portfolio and corporate portfolio. The reason for the increase was a higher return on the rest of the group policy portfolio as a result of increased claims provisions and the realisation of gains on bonds. The Company’s share of the financial profit on the paid-up policy portfolio, which amounted to NOK 30.1 million, was allocated in its entirety as a provision for higher life expectancy. The total increase in provisions thereby amounted to NOK 127.2 million, while the total need for provisions is now expected to be NOK 210.0 million.
At year end, the assets under management in the pension operations amounted to NOK 17,196.3 million (13,953.8). Of this amount, the group policy portfolio accounted for NOK 4,186.8 million (3,553.2).
The recognised return on the paid-up policy portfolio was 4.63 per cent (4.57) for the year. The average annual interest guarantee was 3.6 per cent.
Assets under management for the savings operations amounted to NOK 15,018.2 million (11,896.4) at year end.
The total assets under management increased by NOK 6,364.3 million (5,371.3), amounting to NOK 32,214.5 million (25,850.2) at year end.
Outlook and priorities Pension and Savings is a priority area that helps to make Gjensidige a complete supplier of insurance and pension products. The business contributes to stronger customer relations and loyalty among the general insurance customers. The market for defined contributions pensions is growing and Gjensidige is well-positioned to participate in it. The positive growth rate is expected to continue.
Net interest income was NOK 613.8 million (546.1). This was primarily driven by customer lending growth. Net commission income and other income were NOK 49.4 million (53.3). The decrease was driven by lower gains from financial instruments.
The net interest margin was 2.17 percent (2.42). The decline was a result of strong growth in the secured lending in the past 12 months.
Operating expenses were NOK 357.9 million (341.3). The increase was driven by volume growth and running costs related to the car financing product launched in 2013. The increase in expenses was also driven by fixed assets write off related to systems replacements and changes in the contract with the bank’s systems and technology provider. The cost/ income ratio was 54.0 per cent (56.9), driven by increased income.
Total write-downs and losses were NOK 51.8 million (67.1), predominantly related to the unsecured lending portfolio. The decrease was a result of improved impairment levels and lower provision requirements on loans. Lower portfolio growth compared with the previous year also had a positive impact on the level of write-downs. Write-downs and losses as a percentage of average gross lending amounted to 0.20 per cent (0.32). The decline was driven by an increased share of secured loans in the total lending portfolio and the improved credit quality.
The Bank issued a subordinated bond of NOK 250.0 in the second quarter, among other things to comply with more stringent capital requirements from 1 July 2014.
The Bank will continue its work on ensuring efficient operations through automation and improvements in all parts of the value chain, and by limiting losses on loans.
At the end of the year, the total investment portfolio amounted to NOK 56.5 billion (58.1). The reduction in the portfolio must, among other things, be seen in conjunction with disbursement of excess capital (dividend) in May and November. The financial result was NOK 2,426.3 million (2,480.9), which corresponds to a return on financial assets of 4.3 per cent (4.3).
1 The Loan to value estimate is calculated based on the exposure at the reporting date and the property valuation, including any higher priority pledge(s), at the time the loan was approved.
Match portfolio The match portfolio amounted to NOK 34.7 billion (33.2). The portfolio yielded a return of 3.2 per cent (3.6) excluding changes in the value of the part of the portfolio recognised at amortised cost. Unrealised excess value from bonds valued at amortised cost amounted to NOK 2,193.8 million (1,032.5) at year end.
Fixed-income instruments The fixed-income instruments in the free portfolio amounted to NOK 8.3 billion (9.6). The portfolio yielded a return of 2.7 per cent (4.0). High yield and convertible bonds were negatively affected by increased credit margins.
Risk factors Risk is defined as the possibility of an event affecting the Group’s goal attainment. In order to understand and manage risk, an assessment is therefore carried out of both the probability of the event occurring and its consequences. Through the Group’s risk management and internal control, a structure has been established that systematically identifies, assesses, communicates and manages risk throughout the Group. The risk assessment process is coordinated with the Group’s budget and planning processes.
Financial result from the invesment portfolio 4.3 4.3 2,426.3 2,480.9 56,538.8 58,148.2
Net income from investments 2,475.6 2,538.1 1 The item includes the discounting effects of insurance obligations in Denmark and mismatch between interest rate adjustments on the liability side in Denmark, versus the interest rate hedge. 2 The item consist of total investment grade, high yield and current bonds. Investment grade and high yield are investments in internationally diversified funds externally managed. 3 Investments in internationally diversified funds externally managed.
4 The item includes the investment in SpareBank 1 SR-Bank and effect on profit of the sale of shares in Storebrand. 5 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige Danmark, and lendings, paid-in capital in Gjensidige Pensjonskasse, profit or loss effects from total return swaps with Gjensidige Pensjonskasse and Gjensidige Pensjonsforsikring AS, hedge funds and finance related expenses.
Counterparty risk �xed income instruments at the end of 2014 Per cent
Rostad is up for election to the Board in 2015. Rostad holds 2,794 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
Operational risk Operational risk is the risk of losses due to weaknesses or faults in processes and systems, errors made by employees, or external events. In order to reduce the risk, emphasis has been placed on having well- defined and clear lines of reporting and a clear division of responsibility in the organisation of the business. Set procedures have been established for conducting risk assessments, and the Board evaluates the status annually as part of the Company’s internal control system. An independent Compliance function has been established to help the Group to avoid official sanctions, financial losses or a loss of reputation as a result of failure to comply with laws, regulations and standards. The Compliance function identifies, assesses, advises on, monitors and reports on the Group’s risk of non-compliance with laws, regulations and internal guidelines. An incidents database has been created in order to close, handle and, not least, learn from undesirable incidents.
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 31-43 of the annual report and in a separate document that is available on the Group’s website www.gjensidige.no/corporate-governance.
Employees, corporate social responsibility and the environment Gjensidige’s work on corporate social responsibility is described in a separate statement on pages 22-30 of the annual report. The Board of Gjensidige has adopted guidelines for how the Company shall exercise social responsibility. The guidelines and the Group policy for ethical investments are available at www.gjensidige.no/group.
Outlook In autumn 2014, the Board decided not to change the financial targets. Throughout 2014, Gjensidige took various measures to optimise the balance sheet and capital structure. This means that, at the start of 2015, the Group has a balance sheet and capital structure that supports the target of a 15 per cent return on equity after tax from and including 2015.
Moreover, the cost ratio shall be around 15 per cent. A reduction is expected in the underlying cost ratio and loss ratio, but Gjensidige will endeavour to strike a balance between good profitability and increased investments in order to ensure strong competitiveness in future. In the short and medium term, it is expected that the combined ratio will be in the lower half of the target range. However, extraordinary circumstances relating to the weather and the proportion of large losses, and to run-off effects from previous years, can bring the combined ratio outside the target range in both directions. Gjensidige’s ambition is to become the most customer-oriented general insurance company in the Nordic region, based on profitable operations and a leading position.
In order to ensure strong competiveness in future, investments will primarily be increased in the fields of IT, competence development, brand strength and marketing. The investments will support the five strategic focus areas described on page 32.
Uncertainty about the international economic situation, combined with low interest rates and financial challenges in several key economies, remains a source of uncertainty for Gjensidige as well. Gjensidige has a balanced investment strategy, however. It is financially sound and has a high proportion of its business in the Norwegian general insurance market.
Events after the balance sheet date On 3 February Gjensidige announced the acquisition of 99.88 per cent of the shares of PZU Lietuva from PZU SA at EUR 54 million. The acquisition is in line with Gjensidige’s strategy for growth in the Nordic region and the Baltics. PZU Lietuva is a general insurance company mainly offering motor, property and personal insurance products in Lithuania. The company also has operations in Estonia and Latvia, but these will be separated out before final closing and are not part of the transaction. Gross premiums written for the operations bought in Lithuania were approximately EUR 50 million in 2014. Gjensidige’s market share in the Baltics will increase from around 7 per cent to around 13 per cent, and the acquisition of PZU Lietuva will contribute to critical mass in a market with growth potential and a potential for improved profitability going forward. The acquisition is expected to be closed at the beginning of the third quarter, contingent upon the approval of the relevant authorities.
The Board wishes to thank all employees for their efforts and their contribution to Gjensidige’s good results in 2014.
Consolidated income statement .................................70 Consolidated statement of comprehensive income ......71 Consolidated statement of financial position ...............72 Consolidated statement of changes in equity ..............73 Consolidated statement of cash flows .........................74 Accounting policies .....................................................75
Declaration from the Board and the CEO ...............190 Auditor’s report ......................................................... 191 Statement by the Control committee ........................ 193 Statement by the Supervisory board .......................... 194
Operating income Earned premiums from general insurance 20,386.8 18,736.9 Earned premiums from pension 1,262.4 904.0 Interest income etc. from banking operations 1,327.9 1,135.0 Other income including eliminations 121.6 108.5 Total operating income 4 23,098.7 20,884.5
Net income from investments Income from investments in associates 6 192.0 192.7 Operating income from property 348.7 331.6 Interest income and dividend etc. from financial assets 1,351.6 1,495.6 Net changes in fair value on investments (incl. property) 685.8 1,006.0 Net realised gain and loss on investments 96.8 (321.0) Expenses related to investments 17 (199.3) (166.7) Total net income from investments 19 2,475.6 2,538.1
Claims, loss etc. Claims incurred etc. from general insurance (14,470.4) (13,859.6) Claims incurred etc. from pension (1,126.4) (779.7) Interest expenses etc. and write-downs and losses from banking operations (765.9) (656.0) Total claims, interest expenses, losses etc. (16,362.8) (15,295.3)
Operating expenses Operating expenses from general insurance (3,054.0) (2,857.8) Operating expenses from pension (221.4) (182.0) Operating expenses from banking operations (357.9) (341.3) Other operating expenses (8.7) (10.4) Amortisation and impairment losses of excess value - intangible assets (170.0) (161.7) Total operating expenses 17 (3,812.0) (3,553.2)
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurements of the net defined benefit liability/asset 14 (410.2) 19.6 Share of other comprehensive income from associates (50.9) 102.2 Tax on items that are not reclassified to profit or loss 110.8 12.5 Total items that are not reclassified subsequently to profit or loss (350.3) 134.3
Equity Share capital 999.9 999.9 Share premium 1,430.0 1,430.0 Other equity 19,226.9 23,857.9
Provision for liabilities Subordinated loan 21 1,447.1 Premium reserve in life insurance 13 3,408.3 3,064.6 Provision for unearned premiums, gross, in general insurance 13 8,536.3 7,984.6 Claims provision, gross 13 32,926.9 31,749.6 Other technical provisions 13 168.0 139.9 Pension liabilities 14 590.4 109.8 Other provisions 15 247.6 164.3
Financial liabilities Financial derivatives 8 527.2 347.0 Deposits from and liabilities to customers 8, 15 16,703.4 14,938.3 Interest-bearing liabilities 8, 15 10,300.3 9,771.6 Other liabilities 8, 15 1,006.5 952.2 Current tax 16 1,172.6 726.4 Deferred tax liabilities 16 1,289.1 1,340.6 Liabilities related to direct insurance 8, 15 626.3 654.8 Liabilities in life insurance with investment options 15 12,950.3 10,330.6 Accrued expenses and deferred income 8, 15 424.9 384.1
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset 19.6 19.6 Share of other comprehensive income from associates 102.2 102.2 Tax on items that are not reclassified to profit or loss (23.7) 36.2 12.5 Total items that are not reclassified subsequently to profit or loss (4.1) 138.4 134.3
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 451.2 (0.4) 450.8 Share of exchange differences from foreign operations 128.7 128.7 Exchange differences from hedging of foreign operations (376.0) (376.0) Tax on items that may be reclassified to profit or loss 85.3 Total items that may be reclassified subsequently to profit or loss 160.5 (0.4) 128.7 288.8
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 281.3 (0.1) 281.2 Share of exchange differences from associates (142.4) (142.4) Exchange differences from hedging of foreign operations (237.0) (237.0) Tax on items that may be reclassified to profit or loss 27.3 27.3 Total items that may be reclassified subsequently to profit or loss 71.6 (0.1) (142.4) (70.9)
Cash flows from investing activities Net receipts/payments from sale/acquisition of subsidiaries and associates 3,198.6 628.8 Net receipts/payments on sale/acquisition of owner-occupied property, plant and equipment (285.9) (24.7) Dividends from associated companies 42.4 39.7 Net cash flow from investing activities 2,955.1 643.8
Specification of cash and cash equivalents Deposits with central banks 79.7 875.6 Cash and deposits with credit institutions 2,324.1 1,853.9 Total cash and cash equivalents 2,403.8 2,729.4 74 | Gjensidige annual report 2014
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 (the Group) as at and for the year ended 31 December 2014 comprise Gjensidige Forsikring ASA and its subsidiaries and the Group’s interests in associates. The activities of the Group consist of general insurance, pension and savings and banking. The Group does business in Norway, Sweden, Denmark, Latvia, Lithuania and Estonia.
• IFRS 10 Consolidated Financial Statements (2012) • IFRS 12 Disclosure of interests in other entities • IAS 32 Financial Instruments – presentation
IFRS 10 Consolidated Financial Statements (2012) IFRS 10 (2012) defines the principle of control for deciding whether other entities are to be consolidated. IFRS 10 (2012) introduces a new control model that focuses on whether the group has power over an investment object, exposure or rights to a variable return on its investment object and the ability to use its power to influence this return. The change has not had any significant effect on Gjensidige's accounts.
Functional and presentation currency The consolidated financial statements are presented in NOK. The mother company and the different branches have respectively Norwegian, Swedish and Danish krones and Lithuanian litas and Euro as functional currency. All financial information is presented in NOK, unless otherwise stated.
Gross premiums written include all amounts the company has received or is owed for insurance contracts where the insurance period starts before the end of the accounting period. At the end of the period provisions are recorded, and premiums written that relate to subsequent periods are adjusted for.
Claims incurred Claims incurred consist of gross paid claims less reinsurers’ share, in addition to a change in provision for claims, gross, also less reinsurers’ share. Direct and indirect claims processing costs are included in claims incurred. The claims incurred contain run-off gains/losses on previous years’ claims provisions.
Subsequent costs Subsequent costs are recognised in the asset’s carrying amount when it is probable that the future economic benefits associated with the asset will flow to the Group, and the cost of the asset can be measured reliably. If the subsequent cost is a replacement cost for part of an item of owner-occupied property, plant and equipment, the cost is capitalised and the carrying amount of what has been replaced is derecognised. Repairs and maintenances are recognised in profit or loss in the period in which they are incurred.
and standard of the building. An observation of yields reported from market transactions is also performed. The valuation is carried out both by external and internal expertise having substantial experience in valuing similar types of properties in geographical areas where the Group’s investment properties are located.
Recognition and derecognition Financial assets and liabilities are recognised when Gjensidige becomes a party to the instrument’s contractual terms. Initial recognition is at fair value. For instruments that are not derivatives or measured at fair value through profit or loss, transaction expenses that are directly attributable to the acquisition or issuance of the financial asset or the financial liability, are included. Normally initial recognition will be equal to the transaction price. Subsequent to initial recognition the instruments are measured as described below.
The banking operation has established a liquidity portfolio which is continuously measured and reported at fair value. The bank has a goal of having low interest rate risk and plans and manages the interest rate risk so that one aggregates fixed-rate positions on deposits, loans and placements in a model, and then use interest rate swaps to balance out potential remaining risk. Interest rate swaps are measured at fair value, and in order to avoid inconsistent measurement, bonds and certificates with fixed interest-rates issued before 2013 subject to interest rate hedging are measured at fair value. From 2013 the bank uses hedge accounting for new bonds and certificates with fixed interestrates subject to interest rate hedging.
Investments held to maturity Investments held to maturity are non-derivative financial assets with payments that are fixed or which can be determined in addition to a fixed maturity date, in which a business has intentions and ability to hold to maturity with the exception of
The category loans and receivables comprises the classes loans, receivables related to direct operations and reinsurance, other receivables, prepaid expenses and earned, not received income and cash and cash equivalents and obligations classified as loans and receivables.
Hedge accounting is applied on the largest branches and subsidiaries. Gains and losses on the hedging instrument relating to the effective portion of the hedge are recognised in other comprehensive income, while any gains or losses relating to the ineffective portion are recognised in profit or loss. If subsidiaries are disposed of, the cumulative value of such gains and losses recognised in other comprehensive income is transferred to profit or loss. Where hedge accounting is not implemented, this implies a divergent treatment of the hedged object and the hedge instrument used.
Plan assets are measured at fair value, and are deducted from pension liabilities in the balance sheet. Any surplus is recognised if it is likely that the surplus can be used. An overfunding in a funded plan cannot be offset against an underfunding in an unfunded plan.
Identified functions that are categorised as core activities will be charged out with a reasonable mark up or alternatively at market price if identifiable, comparable prices exist.
A total of 208,030 (204,873) own shares at an average share price of NOK 120.02 (94.68) have in 2014 been acquired to be used in Gjensidige's share-based payment arrangements. Of these 152,960 (151,494) shares have been sold to employees, at the same price, but with a discount in the form of a contribution, see note 28. In addition 31,662 (15,980) shares have been allocated to executive personnel within the share-based remuneration scheme and 19,644 (43,383) bonus shares have been allocated to employees in the share savings programme in 2014. Own shares are increased by 3,764 through the year (reduced by 5,984).
3. Management of insurance and financial risk Overview Managing risk is an integral part of Gjensidige’s day-to-day operations. Identification, assessment, management and control of risk exposure as well as analyses of the effects of potential strategic decisions on the risk profile are an essential part of operations. The aim is to ensure that the level of risk-taking is in keeping with the approved risk appetite and to enhance value creation.
General insurance is Gjensidige’s core business and it accounts for the major part of its operations and risks in the Group, through Gjensidige Forsikring in Norway and its branches and subsidiaries in Sweden, Denmark and the Baltic region. Gjensidige also offers pension, investment and savings products through the subsidiaries Gjensidige Pensjonsforsikring (GPF) and Gjensidige Investeringsrådgivning (GIR). In addition, Gjensidige offers banking services through Gjensidige Bank.
In the areas of pensions, savings and investment advice, there will be insurance and financial risk in the subsidiary Gjensidige Pensjonsforsikring (GPF). 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.
Given the division of operations into operative and reporting segments, the Group has chosen to also divide the information in this note on the basis of the business areas general insurance, life insurance/savings and banking, with the exception of certain contexts where it has been natural to present these areas together. The description of the management of financial risk in general insurance operations focuses on the Group’s total general insurance operations and separate tables have not been produced for Gjensidige Forsikring ASA. This reflects the way in which the financial risk is managed.
The group CEO is responsible for overall risk management in the Group. The Group’s risk committee, chaired by the group CEO, 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. Responsibility for helping to prepare the risk committee’s work and facilitating the Group’s internal control processes is delegated to the Chief Risk Officer. Likewise, the Chief Compliance Officer, who reports on professional matters to the group CEO, is responsible for the Group’s process for preventing and detecting compliance risk pursuant to laws and regulations as well as internal policies and instructions. 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. Moreover, the Group has an independent internal audit function, which monitors risk management and internal control to ensure that they function properly. The audit function reports directly to the Board.
Figure 3 – The management system is organised with three lines of defence
• Overall risk profile and capital needs, both present and during the planning period
The necessary capital for the insurance business is allocated to the products in order to set a more correct cost of capital for pricing and assessments of profitability. The excess capital relative to the most binding of the capital requirements inclusive buffer is regarded as a strategic buffer and is available to meet regulatory uncertainty, equalisation of dividends and financing growth.
Gjensidige Forsikring is adapting to the upcoming Solvency II rules, which will both replace the current capital rules and specify requirements for good risk management and reporting. One of the elements in the new rules is that it allows for the utilisation of the Group’s own model for setting the statutory capital requirements according to clearly defined criteria. Gjensidige participates in the formal pre-application process for internal models with the Norwegian FSA (Financial Supervisory Authority). Gjensidige’s existing model is deemed to be a good point of departure and is further developed for this purpose. There remains some uncertainty about how the capital requirement and own funds should be calculated according to the new rules. The greatest uncertainties for Gjensidige are whether the natural peril’s fund qualifies as own funds, and the tax consequences of Solvency II. The new regulation is expected to require stronger capitalisation compared to Solvency I and other current capital requirement regulations.
Insurance risk The risk under any insurance contract is the probability of the insured event occurring and the uncertainty concerning the amount of the resultant claim. By the very nature of an insurance contract, this risk is random and must therefore be estimated. For a portfolio of insurance contracts where the theory of probability is applied in the calculation of prices and technical provisions, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency and/or severity of claims and benefits are greater than estimated. Insurance events are random, and the actual number and amount of claims and benefits will vary from year to year from the level calculated using statistical techniques.
Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered. Unexpected rise in inflation rate will also have negative effect on claims and benefit payments. Gjensidige writes general insurance in Norway, Sweden, Denmark and the Baltics. General insurance in these countries has many similarities. The description of risks to the insurance business is, with a few exceptions, common for the Group. In case of significant deviations between the countries, these are commented separately.
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 approximately four percentage points.
Motor, other classes 3,980.1 16.7% 3,536.7 15.6% Marine, aviation and transport 234.6 1.0% 253.4 1.1%
Subsidiaries are reinsured by Gjensidige Forsikring ASA, and the subsidiaries’ reinsurance exposure is included in the reinsurance programme for the Group.
Sources of uncertainty in the estimation of future claims payments Gjensidige is liable for insured events that occurred during the term of the contract, even if the loss is discovered after the end of the contract term, and claims are paid according to the policy conditions valid at the time of occurrence. As a result, claims are settled over a long period of time, and an 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 6a and b. This gives an indication of the accuracy of Gjensidige’s estimation techniques for claims payments.
Table 4 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 loss frequency (1 %-point) General insurance Private Norway 559.2 562.3 General insurance Commercial Norway 1237.5 1,328.6
Change in severity of claims (+10%) General insurance Private Norway 546.9 528.3 General insurance Commercial Norway 535.0 520.8
The sensitivity analysis shows the effect of a change in inflation rate of one percentage point on the claim provision. The calculations do not include the effect of inflation swaps.
Table 5 – Sensitivity analysis claims provision Change in inflation (+/- 1 %-point)
Gross Estimated claims cost At the end of the accident year 10,986.5 12,162.1 12,184.0 12,661.7 12,805.4 12,364.2 14,530.5 15,649.3 13,552.6 14,469.0 14,589.9 - One year later 10,907.3 12,120.7 12,043.5 12,697.0 12,881.6 12,308.8 14,401.1 15,885.4 13,509.1 14,362.6 - Two years later 10,972.6 12,109.7 11,970.8 12,572.0 12,789.7 12,151.6 14,427.7 15,927.9 13,433.6 - Three years later 10,883.9 12,057.7 11,784.2 12,512.3 12,766.7 12,159.1 14,353.7 15,749.4 - Four years later 10,820.9 11,885.7 11,773.5 12,531.2 12,725.3 12,019.5 14,274.6 - Five years later 10,697.5 11,875.8 11,787.8 12,454.5 12,598.7 11,959.0 - Six years later 10,712.3 11,878.1 11,743.0 12,364.6 12,555.4 - Seven years later 10,725.0 11,763.5 11,641.5 12,327.1 - Eight years later 10,594.2 11,660.5 11,604.3 - Nine years later 10,531.9 11,661.2 - Ten years later 10,506.6
Total disbursed 9,828.0 10,681.7 10,515.9 10,995.8 11,068.6 10,078.4 11,451.7 12,009.4 10,453.3 10,398.8 8,432.5 115,914.1 Claims provision 678.7 979.5 1,088.5 1,331.3 1,486.8 1,880.6 2,822.9 3,740.0 2,980.3 3,963.8 6,157.4 27,109.8 Prior-year claims provision and loss adjustment provision 4,908.5 Gjensidige Baltic 228.3 Total 32,246.6
Net of reinsurance Estimated claims cost At the end of the accident year 10,861.9 11,601.8 12,071.9 12,393.0 12,641.5 12,335.2 14,043.7 14,726.1 13,070.2 14,374.7 14,479.3 - One year later 10,775.1 11,558.6 11,927.6 12,429.0 12,727.6 12,280.0 13,940.5 14,901.1 13,021.1 14,229.7 - Two years later 10,815.9 11,544.2 11,812.6 12,286.6 12,641.0 12,128.5 13,965.2 14,996.9 12,960.6 - Three years later 10,731.5 11,499.3 11,619.3 12,231.0 12,613.1 12,136.0 13,892.0 14,879.4 - Four years later 10,658.6 11,328.2 11,603.5 12,249.9 12,571.9 11,996.8 13,812.0 - Five years later 10,533.7 11,317.2 11,617.8 12,175.8 12,445.8 11,935.3 - Six years later 10,555.3 11,319.5 11,575.9 12,085.9 12,401.3 - Seven years later 10,568.0 11,205.6 11,473.3 12,048.4 - Eight years later 10,444.8 11,101.7 11,436.1 - Nine years later 10,382.4 11,102.4 - Ten years later 10,357.2
Table 6b – Analysis of claims development, Gjensidige Forsikring ASA NOK million 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total
At the end of the accident year 10,644.1 11,793.0 11,707.2 12,261.0 12,241.4 11,712.5 13,659.4 14,465.6 12,653.2 14,381.0 14,607.1 - One year later 10,579.7 11,758.9 11,582.5 12,274.2 12,342.1 11,641.5 13,575.3 14,703.2 12,657.6 14,195.7 - Two years later 10,627.1 11,745.4 11,525.9 12,163.3 12,247.8 11,497.2 13,597.1 14,735.6 12,597.1 - Three years later 10,542.1 11,695.6 11,342.8 12,103.0 12,212.3 11,499.9 13,523.1 14,561.1 - Four years later 10,491.8 11,521.8 11,332.9 12,108.9 12,171.3 11,364.1 13,426.8 - Five years later 10,372.1 11,514.0 11,336.5 12,028.1 12,045.5 11,298.1 - Six years later 10,387.6 11,516.1 11,288.3 11,941.3 12,001.8 - Seven years later 10,396.3 11,394.2 11,185.5 11,901.7 - Eight years later 10,251.3 11,291.1 11,147.2 - Nine years later 10,183.8 11,287.4 - Ten years later 10,163.7
Total disbursed 9,485.0 10,311.2 10,060.2 10,572.8 10,520.6 9,428.1 10,624.6 10,863.4 9,949.0 10,027.9 8,041.4 109,884.2 Claims provision 678.7 976.2 1,087.0 1,328.9 1,481.2 1,870.0 2,802.2 3,697.7 2,648.1 4,167.8 6,565.7 27,303.5 Prior-year claims provision and loss adjustment provision 4,678.3 Total 31,981.8
At the end of the accident year 10,519.6 11,369.2 11,595.1 11,992.3 12,077.7 11,685.0 13,172.6 13,542.4 12,450.0 13,530.6 14,474.1 - One year later 10,447.6 11,333.2 11,466.6 12,006.2 12,188.3 11,614.2 13,114.7 13,718.9 12,448.7 13,426.3 - Two years later 10,470.4 11,316.4 11,367.7 11,878.0 12,099.3 11,475.7 13,134.6 13,804.7 12,403.3 - Three years later 10,389.7 11,273.7 11,177.9 11,821.7 12,059.0 11,478.4 13,061.4 13,691.1 - Four years later 10,329.5 11,100.8 11,162.9 11,827.7 12,017.9 11,342.9 12,964.3 - Five years later 10,208.3 11,092.0 11,166.5 11,749.5 11,892.6 11,275.8 - Six years later 10,230.7 11,094.0 11,121.2 11,662.6 11,847.7 - Seven years later 10,239.4 10,972.8 11,017.3 11,623.0 - Eight years later 10,101.9 10,868.8 10,979.0 - Nine years later 10,034.4 10,865.1 - Ten years later 10,014.3
Risk of insufficient premium reserve can arise from faulty assumptions about mortality and disability. This is called insurance risk.
Compulsory occupational pensions 68,539 9,668 Other defined contribution pensions 54,674 6,640 Total 123,213 16,308
Compulsory occupational pensions 64,891 9,137 Other defined contribution pensions 55,337 6,705 Total 120,228 15,842
Occupational pensions may include a waiver of premium for disability 2 which exposes GPF to disability risk. Mandatory occupational coverage requires some disability coverage, so a large proportion of disability risk is connected to these plans. Some paid-up policies also include disability coverage where benefits originally were linked to salary. Disability risk premiums are based on a tariff which is developed in collaboration with Gjensidige Forsikring ASA (GF). It is based on national statistics from social security and insurance claims primarily from GF. GPF has lately increased its reserves by NOK 77.7 million and further by NOK 38.9 million in 2014 to cover disability claims.
Mortality and disability claims in 2014 amount to NOK 55 million (NOK 44 million in 2013). IBNR is NOK 680 million at end of year 2014 (NOK 417 million in 2013), and contributes to 63 per cent (54 per cent in 2013) of all disability and survivor’s benefit provisions (excluding paid-up policies).
1 K2013 is based on predictions about life expectancy performed by Statistisk Sentralbyrå (SSB). Three different life expectancy alternatives were made, “High”, “Medium” and “Low”. K2013 uses the medium alternative. FSA required insurance companies to add safety margins to account for higher life expectancy in insured population and their deviating dynamic development in mortality (compared to uninsured). 2 A waiver of premium for disability states that the insurance company will not charge the usual defined contribution premium in case of disability.
Sensitivity analysis pension insurance GPF has been in business for eight years. Since the data material is increasing, GPF has adjusted the premium tariffs. Disability statistics has shown an increasing probability of young people becoming disabled, leading to an increase in the premium tariff. The greatest premium increase has been for the mandatory occupational pension’s disability coverage. The reserves have also increased, partly because the discount rate has been reduced. The current (valid until 31.12.2014) discount rate is 2.5 per cent.
Cash flow Figure 6 displays the compounded cash flow of the insurance obligations. Increased liabilities as a result of reduced mortality (20 per cent reduction of mortality rate) and increased disability (35 per cent first year, then 25 per cent of disability rate) are also illustrated.
Gjensidige Forsikring ASA acts as reinsurer for group subsidiaries, and their exposure is included in the outward reinsurance coverage for the Group. The reinsurance programme for property insurance also includes cooperating mutual fire insurers. The subsidiaries’ reinsurance programmes generally have a lower retention level, as they are smaller entities than Gjensidige Forsikring ASA. In Norway the exposure to natural perils disasters is handled through compulsory membership of the Norwegian Natural Perils Pool. Through this arrangement, Gjensidige is exposed to its market share of the total claims for the Norwegian market as a whole. On behalf of its members the pool has its own reinsurance programme in place, which further reduces the risk exposure. Gjensidige participates as a reinsurer for about 25 per cent of the pool’s programme in 2014, unchanged from last year. This exposure is included in the 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.
There have not been any material changes in Gjensidige’s handling of financial risks during 2014. The investment strategy and other risk management policies are approved by the Board of each company, but are closely coordinated with the parent company’s overarching policies. The general rule is that the asset allocation in the subsidiaries in general insurance will only be used to 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.
Match portfolio Money market 6,144.1 10.9% 4,473.4 7.7% Bonds at amortised cost 18,760.5 33.2% 19,604.0 33.7%
Current bonds 1 9,784.8 17.3% 9,160.6 15.8% Match portfolio total 34,689.3 61.4% 33,237.9 57.2%
Free portfolio Money market 3,570.9 6.3% 4,911.4 8.4% Other bonds 2 3,964.0 7.0% 3,606.5 6.2% Convertible bonds 3 790.9 1.4% 1,121.0 1.9% Current equities 4 3,832.7 6.8% 7,044.2 12.1% PE-funds 1,710.9 3.0% 1,665.3 2.9% Property 5 6,516.2 11.5% 5,097.1 8.8% Other 6 1,463.8 2.6% 1,464.8 2.5% Free portfolio total 21,849.5 38.6% 24,910.3 42.8% Investment portfolio total 56,538.8 100.0% 58,148.2 100.0%
1 The item includes the market value of the interest rate hedge in Denmark. 2 The item consists of total investment grade, high yield and current bonds. Investment grade and high yield are investments in international diversified funds externally managed. 3 Investments in international diversified funds externally managed.
5 The item does not include total return swaps with Gjensidige Pensjonskasse and Gjensidige Pensjonsforsikring AS, which in total reduce the property exposure and increase the money market exposure by NOK 700.0 million for Gjensidige Forsikring ASA. 6 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige Denmark, and loans, paid-in capital in Gjensidige Pensjonskasse, hedge funds and commodities.
Stress testing Stress testing is performed on the value of the investment assets relative to the market, credit, interest rate and foreign exchange risk and to negative scenarios for the insurance activities measured relative to the buffer capital (defined as capital in excess of statutory minimum requirements) and reported regularly to the Board.
Stress parameters for asset risk are closely aligned with the recommendations in the (RBT), and correlation matrices are used to visualise diversification effects both between asset classes, and market and insurance risk. The only deviation from the RBT is that private equity (PE) and commodities are stressed by 25 per cent and their correlation with shares and hedge funds is set to 0.75.
Assets/risk Equities and hedgefund 20% drop (641.2) Interest rate risk 150 bps change (252.4) Property 12% drop (697.9) Private equity 25% drop (427.7)
Assets/risk Equities and hedgefund 20% drop (598.5) Interest rate risk 150 bps change (448.2) Property 12% drop (611.6) Private equity and commodities 25% drop (454.9)
Equity price risk In 2014, Gjensidige’s equity portfolio decreased from the previous year. This is mainly related to the sale of Strorebrand ASA. The largest exposure is to SpareBank 1 SR-Bank ASA. The concentration risk is shown in the table below. Most of the geographic exposure is to Norwegian shares.
Table 12 – Sensitivity analysis equity portfolio NOK million 31.12.2014 31.12.2013 10 per cent drop in equity prices (365.3) (230.4)
Table 13a – Largest private equity funds 2014 NOK million 31.12.2014
Table 13b – Largest private equity funds 2013 NOK million 31.12.2013
In addition to the invested amounts, Gjensidige had committed capital, not invested, amounting to NOK 660.6 million as at 31 December 2014.
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 4,950 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 40 years and covering inflation and interest-rate risk separately, so that the net real interest rate risk is reduced. The swap agreements are reset once a year and security is provided for the outstanding market value between the parties, which reduces the counterparty risk and results in limited book value. The fixed-income portfolio in the Danish branch is invested with a low duration.
The next figure shows the corresponding pay-out pattern for Gjensidige Forsikring ASA. The average duration for Gjensidige Forsikring ASA is slightly shorter than for the Group.
The Group owns most of its properties directly, although a small part of the portfolio is invested in property funds outside Norway. In addition to the amounts invested through funds, an additional NOK 29.6 million is committed, but has not been called up. The directly owned real estate portfolio is managed by the wholly owned subsidiary Oslo Areal. The portfolio consists of both property for own use and investment properties. The real estate portfolio has its largest concentration in offices in the Oslo area, but it also contains offices in other major cities in Norway. Exposure to real estate has increased during the year.
Table 17 – Largest real estate investments NOK million 31.12.2014 31.12.2013
Goldman Sachs Global Opportunities Offshore Fund 462.8 Sector Healthcare - A USD 199.2 Sector EuroPower Fund Class A EUR 104.0 Trient Global Macro Fund USD A-Class 102.9 Sector Zen Fund 83.8 Total five largest 952.6 Total hedgefunds 1,027.2
Goldman Sachs Global Opportunities Offshore Fund 309.8 Sector Healthcare - A USD 158.2 Sector EuroPower Fund Class A EUR 99.1 Balestra Global Ltd. Class B Series 0513 30.2 Omni Macro Fund I Limited Class I-1 29.0 Total five largest 626.2 Total hedgefunds 688.9
The Group underwrites insurance in the Scandinavian and Baltic countries, so it has insurance liabilities in these currencies. The foreign exchange risk at both the group and company levels is generally hedged by matching technical provisions with investments in the corresponding currency.
Currency transactions are performed within strictly defined limits and are employed in both ordinary management and to hedge financial instruments. The table below shows both gross and net positions. Currency hedging (not including the hedging of investments in subsidiaries) is done using forwards or swaps, and the currency position is monitored continuously against exposure limits per currency.
For investments, risk limits for credit risk are set in several ways. As a point of departure a credit limit is set for designated counterparties. For issuers with an official credit rating from a recognised rating agency, this is generally utilised as a criterion. The list of credit limits is approved by the CFO and used for all separate mandates and for derivative counterparties. In addition, the board-approved asset allocation sets limits on global bonds, both bonds with high financial strength ratings (investment grade) and other bonds (high yield). In addition, there is a maximum limits on credit duration measured as a one per cent change in credit spreads that include all fixed-income assets in the balance sheet. This limit was NOK 1,500 million in 2014.The Group’s total fixed-income portfolio of NOK 43,034.8 million as at 31 December 2014 (including the amortised cost portfolio, other bonds, certificates and deposits) consisted of NOK 4,544.8 million issued by government sector entities and NOK 38,490.0 million issued by non-public entities. Most of the latter category was financial institutions. The distribution is shown in the table below.
Table 21 – Allocation of fixed-income portfolio per sector 31.12.2014 31.12.2013
Government 10.6% 12.4% Banks and financial institutions 59.9% 58.0% Corporates 29.5% 29.6%
The following tables show the allocation of the fixed-income portfolio by rating category at year-end in 2014 and 2013.
Nordea Bank AB 2,888.9 Nykredit Realkredit A/S 2,725.4 DnB ASA 2,677.0 Danske Bank A/S 2,511.5 J.P. Morgan Chase & Co. 1,658.4 Niam Fund V Kjøpesenter I Holding AS 1,263.2 Lloyds Bank Covered 1,093.4 Realkredit Danmark A/S 940.2 Bergenshalvøens Kommunale Kraftselskap AS 935.2 BRFkredit A/S 914.4 Total ten largest 17,607.7 Total fixed-income portfolio 43,034.8
Figure 9a – Potential credit exposure reinsurance per rating category 2014
Figure 9b – Potential credit exposure reinsurance per rating category 2013
Table 25 – Reinsurance receivables and reinsurers’ share of claims provisions 2014 2013 Rating NOK million Per cent NOK million Per cent
Bank deposits 1,576.3 Money market instruments 1,236.8 Bonds and certificates coupons with maturity less than 6 months 372.8
Money market instruments 3,178.6 Bonds and certificates coupons with maturity less than 6 months 362.6
Management of financial risk – Gjensidige Pensjonsforsikring Gjensidige Pensjonsforsikring (GPF) has separate guidelines for asset management and investment strategy approved by the Board. They specify targets and limits for and the organisation of the investment management activities. A separate investment committee with representatives from GPF, Gjensidige Investeringsrådgivning (GIR) and the Group’s investment and capital management departments advise the CEO on matters pertaining to asset and risk management. The portfolio management is outsourced to GIR. Asset manager selection and asset allocation are based on advice from the Group’s investment centre.
Money market 1 1,233.5 453.6 Bank deposits 263.3 295.8 Bonds held to maturity 103.5 237.0 Loan and receivables 3,013.2 3,061.7 Current bonds 17.5 7.2 Equities 23.7 2.8 Other 4.9 (0.3) Total 4,659.6 4,058.0 1 The money market exposure is reduced and property exposure increased through a total return swap with Gjensidige Forsikring ASA with notional value of NOK 400.0 million.
The investment portfolio of GPF, excluding the unit-linked portfolio, amounted to NOK 4,659.6 million as of 31 December 2014. This is mainly invested in fixed income instruments and bank deposits, but also contains a small proportion of equities from the trading portfolio of GPF.
The accounting interest rate risk in GPF’s assets is extremely limited as bonds are classified as bonds held to maturity and loans and receivables, and the remaining fixed-income instruments are of short duration. GPF also has a small exposure to equity risk through a minor investment in equities in the trading portfolio.
The table above shows the effect of a ten per cent fall in the stock market and a one percentage point increase in the interest rate level of equity in GPF. The calculations do not take tax effects into consideration, nor that a share of the return is normally allocated to the customers.
AAA 929.2 984.4 AA 513.4 398.6 A 1,408.2 1,401.7 BBB 980.1 783.9 BB 14.7 B 15.6 CCC or lower Not rated 769.9 486.8 Total 4,631.0 4,055.5
Credit risk Credit risk refers to the risk the bank faces relating to a borrower’s failure to repay a loan or credit or to meet their contractual obligation to the bank. The bank's credit risk originates from loans and credits furnished to consumers in Norway. The bank is also exposed to credit risk through placements within the liquidity reserve.
The Board sets the overall limit for the bank's credit risk appetite through its Credit Strategy and Policy and risk appetite statement. Gjensidige Bank ASA offers a wide range of lending products including secured as well as unsecured loans and credit to meet a variety of needs of consumers in Norway. Secured lending mainly comprises loans and credits secured by residential property.
With the help of these scoring models, the lending portfolios in the bank are grouped into several risk categories starting from the best (lowest) risk to the highest (worst) risk segments based on their probability of default. These risk categorisations are mainly intended to assist in various credit decisions. They are then further grouped into three main risk classes: Low Risk, Medium Risk and High Risk which are used in the bank's monthly portfolio monitoring, reporting and follow-up of the customer base.
The Board considers the credit risk levels in the bank’s portfolio to be satisfactory.
The weighted average portfolio loan to value ratio is estimated at 62.4 per cent for the portfolio secured against property. This is estimated based on the exposure on the reporting date as a ratio of the property value as estimated upon loan approval, including any higher priority pledge(s).
The table below shows the portfolio and write-downs as of 31 December 2014 and 31 December 2013 segmented by risk classes.
Low 22,102.9 4,244.2 26,347.1 Medium 3,796.4 944.9 4,741.4 High 1,095.1 72.3 1,167.4 Not classified 1.0 5.0 11.4 17.4 Past due and impaired 551.1 3.3 554.4 Total 27,546.5 5.0 5,272.8 3.3 32,827.7 Group write-downs 351.8 351.8 Total net 27,194.7 5.0 5,272.8 3.3 32,475.8
By investing in sound securities with limited 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 bonds varies with changes in the credit spreads. As a result of general market conditions and an upgrade of the bank’s rating, the credit spread for funding in 2014 has decreased.
Gjensidige Bank ASA does not have currency or equity risk. Gjensidige Bank ASA does not have market risk under Pillar 1 because the bank does not have a trading portfolio.
As of 31 December 2014, the portfolio is geographically diverse, with the greatest lending in the most populous areas of the country. The largest loan is about NOK 11.5 million. The exposure related to the ten largest loans (limit) is approx. NOK 86.7 million. The bank's liquidity reserves are mainly placed in securities issued by the Norwegian government and Norwegian covered bonds (OMF).
Operational risk Operational risk refers to the risk of a loss resulting from human error, external events or fraud, deficiencies and/ or inadequacies in the bank's internal systems, procedures or processes. The bank has its own loss and event database for the evaluation, follow-up and storage of operational incidents.
Departmental managers in the various operational areas are responsible for identifying, limiting and controlling the operational risks within their respective areas. Operational risks are identified and communicated via the bank's internal procedures which are tested regularly. Responsibility for follow-up of internal control rests with the Internal Control Manager.
Liquidity risk Liquidity risk is the risk of the bank not being able to meet its debt obligations when they fall due and/or not being able to finance growth of its assets without incurring a substantial increase in costs.
The bank's finance strategy approved by the Board sets guidelines and limits for managing the bank's liquidity risk. The bank has established guidelines and risk limits for liquidity risk, as well as for the liquidity reserve, stable long-term financing and contingency plans in the event of an extraordinary liquidity need. Stress tests are used to test the robustness of the bank's liquidity situation.
The liquidity risk relating to lack of access to liquidity is handled by having sufficient liquid assets to cover liabilities that reach maturity. The bank shall have a liquidity reserve (buffer) in shortterm deposits, liquid securities and/or committed credit facilities that, in an acute liquidity freeze in the market, allow sufficient time to implement the necessary measures.
Debt to credit institutions Deposits from and liabilities to customers 13,633.3 65.1 1,254.9 14,953.3 Debt incurred through the issue of securities 12.6 35.5 1,251.8 6,338.4 3,319.7 10,958.0 Loan approvals and unused drawing rights 4,915.1 4,915.1 Derivatives - gross outflows 1 0.6 9.7 9.7 40.7 259.4 320.1 Total liabilities 18,561.6 110.3 2,516.4 6,379.2 3,579.0 31,146.5 1 Derivatives gross inflows 0.7 0.4 0.4 69.9 399.3 470.7 Financial derivatives - net settlement (negative figures yield net payment) 9.3 9.3 (29.2) (139.9) (150.6)
Amortisation and impairment losses As at 1 January 2013 (219.4) (344.2) (90.6) (596.8) (92.3) (1,343.3) Amortisations (85.1) (9.0) (127.4) (30.3) (251.6) Disposals/reclassifications (9.1) 104.8 215.0 18.6 329.3 Impairment losses recognised in profit or loss during the period (29.7) (29.7)
Cost As at 1 January 2014 2,796.1 924.5 46.5 906.6 286.1 4,959.8 Additions 60.4 4.5 64.9 Additions through business combinations 147.2 36.8 0.8 0.1 27.0 211.9 Additions from internal development 147.3 147.3 Disposals/reclassifications (36.7) (10.3) (4.7) (18.0) (41.3) (111.0) Exchange differences 177.9 72.5 2.3 26.0 22.8 301.4 As at 31 December 2014 3,084.4 1,023.5 44.9 1,122.4 299.1 5,574.4 Uncompleted projects 109.8 109.8 As at 31 December 2014, including uncompleted projects 3,084.4 1,023.5 44.9 1,232.2 299.1 5,684.2
Amortisation and impairment losses As at 1 January 2014 (233.8) (484.6) (30.9) (525.7) (116.2) (1,391.2) Amortisations (98.0) (9.7) (147.0) (31.0) (285.8) Disposals/reclassifications 10.2 4.7 10.4 9.6 35.1 Impairment losses recognised in profit or loss during the period (22.5) (22.5)
The Group’s intangible assets are either acquired or internally developed. Goodwill, customer relationships, trademarks and parts of other intangible assets are all acquired through business combinations, and are a result of a purchase price allocation of initial cost of the acquisition. Internally developed software is developed for use in the insurance business. External and internal assistance used in relation with implementation or substantial upgrade of software, including adjustment of standard systems, are capitalised as intangible assets. Amortisation is included in the accounting line Expenses.
The group has had a few minor business combinations during 2014. None of the intangible assets have undetermined useful lives.
Nykredit Forsikring Nordic 840.7 791.2 Gjensidige Forsikring, Swedish branch Nordic 141.2 92.5
Lokal Forsikring Privat 22.5 Försäkringshuset Amb & Rosèn 1 Nordic 0.8
Försäkringsproduktion i Sverige 1 Nordic 2.4 1 Swedish insurance broker firm acquired in 2014 and to be included in Swedish branch from 2015.
The annual assessment of impairment losses was carried out in the third quarter of 2014. 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.
There has been an impairment loss on goodwill of NOK 22.5 million related to an underlying agreement in Lokal Forsikring in segment Private. The impairment loss is included in the line amortisation and impairment losses of excess value on intangible assets. Value in use is used for value calculation.
Recoverable amount for the cash-generating unit is determined based on an assessment of the value in use. The value in use is based on a discounting of future cash flows, with a relevant discount rate that takes into account maturity and risk.
Need for impairment app. NOK 52 million No need for impairment Need for impairment app. NOK 137 million Need for impairment app. NOK 750 million
Need for impairment app. NOK 75 million No need for impairment Need for impairment app. NOK 135 million Need for impairment app. NOK 166 million
Nykredit Forsikring Need for impairment app. NOK 104 million No need for impairment Need for impairment app. NOK 143 million Need for impairment app. NOK 464 million
Vervet AS including subordinated loan 2 Tromsø, Norway 25.0% 35.3 5.2 35.3 5.2 1 Bilskadeinstituttet AS was liquidated during 2014. 2 Subordinated loan of NOK 24.0 million is included in cost.
Storebrand ASA 110.3 N/A SpareBank 1 SR-Bank ASA 82.0 N/A Bilskadeinstituttet AS (0.2) N/A Vervet AS 102.1 6.1 96.0 0.5 (2.9) N/A FDC A/S 188.8 88.1 100.8 396.3 0.7 (0.1) N/A Total shares in associates 291.0 94.2 196.8 396.9 (2.2) 192.0
SpareBank 1 SR-Bank ASA 156,985.0 14,056.0 142,929.0 4,498.0 1,860.0 179.0 1,595.6 Bilskadeinstituttet AS 5.5 5.2 0.3 2.3 0.1 N/A Vervet AS 99.5 3.1 96.4 0.8 0.1 N/A FDC A/S 153.3 81.4 71.9 337.7 0.9 0.5 N/A Total shares in associates 607,624.3 36,659.7 570,964.6 57,713.8 3,837.1 192.7 3 Share of profit/(loss) is adjusted for Gjensidige's net excess values and accounting policies. 4 Sold during 2014, see text at the end of the note.
Gjensidige Forsikring ASA is no longer represented on SpareBank 1 SR-Bank’s board and the bank is no longer classified as an associated company for accounting purposes. The shareholding in the bank is recognised at market value with effect from the second quarter 2014.
Gjensidige sold on 26 February 2014 the holding in Storebrand ASA. Accounting gain from the transaction was NOK 114.7 million in the consolidated accounts. The sales amount on sale of 20.1 percent was NOK 3,256.5 million and was received in cash. Following the completion of the sale, Gjensidige will not hold any shares in Storebrand ASA.
Group contributions added together with dividends must not exceed justifiable payment of dividend based on a company’s financial strength and operations. Distributions from life insurance companies must be within profit for the year. Is it desired to distribute more than this then it has to be approved in advance by the Financial Supervisory Authority. The regulatory framework for capital adequacy and solvency margin must be complied, as well as asset management regulations that set requirements which must be met in order to cover the technical provisions. In addition, Gjensidige shall fulfil the capital requirements for an A rating, which ties additional capital.
Depreciation and impairment losses As at 1 January 2013 (32.7) (391.6) (424.3) Depreciation for the year (9.3) (44.2) (53.5) Disposals 71.4 71.4 Exchange differences (0.4) (7.2) (7.6) As at 31 December 2013 (42.4) (371.5) (413.9)
Carrying amount As at 1 January 2013 90.5 163.0 253.4 As at 31 December 2013 288.5 249.5 537.9
Cost As at 1 January 2014 330.7 484.9 815.6 Transferred from/(to) investment property 3.2 3.2 Additions through business combinations 5.0 5.0 Additions 9.0 220.7 229.8 Disposals (16.7) (108.7) (125.4) Exchange differences 0.2 7.1 7.4 As at 31 December 2014 326.5 609.1 935.6 Uncompleted projects 98.7 98.7 As at 31 December 2014, including uncompleted projects 326.5 707.8 1,034.3
Carrying amount As at 1 January 2014 288.5 249.5 537.9 As at 31 December 2014 280.7 321.0 601.8
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 12 7,499.8 7,499.8 6,023.4 6,023.4 Bonds and other fixed income securities 23,748.3 23,748.3 22,398.0 22,398.0 Shares and similar interests in life insurance with investment options 11,725.2 11,725.2 9,230.2 9,230.2 Bonds and other fixed income securities in life insurance with investment options 1,225.1 1,225.1 1,100.4 1,100.4
Loans and receivables Bonds and other fixed income securities classified as loans and receivables 10 19,596.2 21,911.7 18,441.3 19,399.1 Loans 10 27,373.2 27,402.8 24,251.1 24,262.4 Receivables related to direct operations and reinsurance 10 4,629.8 4,629.8 4,290.5 4,290.5 Other receivables 10 823.6 823.6 509.2 509.2 Prepaid expenses and earned, not received income 10 209.0 209.0 153.3 153.3 Cash and cash equivalents 11, 26 2,403.8 2,403.8 2,729.4 2,729.4
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 317.9 317.9 270.7 270.7 Financial derivatives subject to hedge accounting 209.3 209.3 76.3 76.3
Financial liabilities at amortised cost Subordinated debt 21 1,447.1 1,448.6 Deposits from and liabilities to customers, bank 15 16,703.4 16,703.4 14,938.3 14,938.3 Interest-bearing liabilities 15 10,300.3 10,405.6 9,771.6 9,822.8 Other liabilities 15 1,006.5 1,006.5 952.2 952.2 Liabilities related to direct insurance 15 626.3 626.3 654.8 654.8 Accrued expenses and deferred income 15 424.9 424.9 384.1 384.1
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 1,450.3 3,918.0 2,131.5 7,499.8 Bonds and other fixed income securities 10,607.0 12,735.2 406.1 23,748.3 Shares and similar interests in life insurance with investment options 11,716.3 8.9 11,725.2 Bonds and other fixed income securities in life insurance with investment options 1,212.0 13.1 1,225.1
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 219.9 219.9
Shares and similar interests Decrease in value 10% 230.5 Bonds and other fixed income securities Decrease in value 10% 0.1 Total 230.7
Fair value hedging The bank utilises fair value hedge accounting to manage its interest rate risk. Hedging is performed to prevent from valuation variations of issued fixed rate obligations due to changes in the rate level. Interest rate swaps designed as hedging instruments are measured at fair value through profit or loss. The changes in fair value for the hedging object linked to the hedged risk are accounted as addition or deduction to the carrying value and in profit or loss. Interest rates swaps are renewed every quarter.
Gjensidige Forsikring ASA, Danish branch Currency-related contracts - hedging instruments 1,415.0 74.4 1.6 Hedging object 1,449.0
Net investment in the foreign operation Market value as at 31.12.2013
Nykredit Forsikring A/S Currency-related contracts - hedging instruments 1,020.0 41.2 1.2 Hedging object 1,035.3
Gjensidige Bank ASA, group Interest rate swaps - hedging instruments (21.7) (11.8) Obligation debt - hedging object 11.8 Net gain/loss recognised in profit or loss 0.0 112 | Gjensidige annual report 2014
9. Investment properties The Gjensidige Insurance Group carries investment properties at fair value. Investment properties consist of commercial properties that are rented to tenants outside the Group, or are acquired in accordance with the company's capital management strategy. Properties used by Group companies are classified as owneroccupied property, see note 7. In properties that are both rented to tenants outside the Group and that are used by the Group's own business, the parts held for rent that can be sectioned are classified as investment property.
The yield and market rent are the two most significant parameters with regard to the valuation. If the yield increases with 0.25 percentage points, the total property value is reduced by NOK 250.6 million. If the market rent is reduced by ten per cent, total property value is reduced by NOK 528.9 million.
There are no loans with collateral in investments properties in 2013 or 2014.
NOK Yield Average market rent Average contractual rent Average value per sqm.
Yield increases by 0.25 percentage points 5,345.7 5,853.4 6,361.1 Yield 6.20 per cent 5,575.1 6,104.0 6,634.6 Yield decreases by 0.25 percentage points 5,824.5 6,378.2 6,931.9
Loans and receivables Mortgage loans 23,817.4 21,059.3 Bonds classified as loans and receivables 19,596.2 18,441.3 Other loans 181.0 377.3 Impairment to fair value (2.6) Subordinated loans 2.6 9.3 Provision for impairment losses (358.0) (328.0) Loans for consumer goods 3,730.1 3,135.8
Total receivables related to direct operations and reinsurance 4,629.8 4,290.5 Other receivables Receivables in relation with asset management 629.9 262.1 Other receivables and assets 193.7 247.0
Total other receivables 823.6 509.2 Prepaid expenses and earned, not received income Earned, not received interest income 147.8 122.5 Other prepaid expenses and earned, not received income 61.2 30.8
Of other loans NOK 126.3 million (158.9) are loans given to agricultural customers. The loans are in their entirety intended for installment of fire detection systems with these customers. There is no mortgage attached to the loans, and the terms vary from one year to over 20 years. Gjensidige Forsikring has not offered this type of loan to its customers since 2008. The default rate is 1.00 (1.08) per cent at year end. Discounting has been conducted in order to take into account the fact that the loans are noninterest -bearing. The discount rate used is 4.66 per cent.
Weighted average rate for interest earned on cash, bank deposits and deposits with financial institutions is approximately 2.4 per cent (1.9). The interest rate is calculated at company level and we are regarding this as directly attributable to group level as well.
Equity funds INVESTEC GS GLOBAL EQTY-I$ 378.8 Nordea Stabile Aksjer Global 316.2 Storebrand Global Indeks I 303.6 DB Platinum CROCI World ESG Fund 294.0 Fisher Emerging Markets Equity Fund USD 181.2 Nordea Stable EM Fund - X 175.8 Iridian US Equity Fund 121.8 Storebrand Norge 113.6 Wells Fargo Lux Worldwide EM Equity Fund 111.7 Danske Invest Norske Aksjer Institusjon I 111.1 Sector Global Equity Kernel Fund Class P USD 39.4 Total equity funds 2,147.0
NOK million Interest beyond 10% 31.12.2014 Verdane Capital V B KS
Combination funds Parvest Convertible Bond World 790.9 Total combination funds 790.9
Shares and similar interests owned by other branches Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 2.5 Total shares and similar interests owned by other branches 2.5 Total shares and similar interests owned by Gjensidige Forsikring ASA 7,469.5
Claims reported and claims handling costs 16,709.4 14,720.3 Claims incurred, but not reported 16,217.5 17,029.4 Total claims provision, gross 32,926.9 31,749.6
NOK million 2014 2013 Discounted claims provision, gross - Gjensidige's workers' compensation insurance in Denmark 4,844.4 4,138.8 Undiscounted claims provision, gross - Gjensidige's workers' compensation insurance in Denmark 5,458.6 5,203.0
The reason why the claims provisions for Gjensidige’s 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.
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 2.06 per cent (3.92) in year 10, 2.48 per cent (4.41) in year 15, 2.76 per cent in year 20, 2.94 per cent in year 25, 3.06 per cent (4.68) in year 30, and 3.19 per cent in year 40.
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.
The minimum level of the pension assets is also affected by capital adequacy requirements and solvency margin requirements. The regulations relating to pension funds (IORP) are currently under development in the EU, but Norway has decided that life insurance companies and pension funds shall be subject to the same regulations, Solvency II. This could mean that Gjensidige will have to increase its pension assets.
NOK million Funded 2014 Unfunded 2014 Total 2014 Funded 2013 Unfunded 2013 Total 2013
Interest cost 81.1 18.1 99.1 82.2 16.7 98.9 Actuarial gains and losses 283.8 127.9 411.6 (12.2) 35.4 23.2 Benefits paid (85.3) (46.4) (131.7) (86.6) (50.1) (136.7) Employers' national insurance contributions of benefits paid (6.5) (6.6) (0.1) (7.1) (7.2)
Amount recognised in the balance sheet Present value of the defined benefit obligation 2,335.5 588.1 2,923.7 2,019.5 481.8 2,501.4 Fair value of plan assets (2,405.0) (2,405.0) (2,391.6) (2,391.6) Net defined benefit obligation/(benefit
Cumulative amount as at 1 January (1,819.4) (1,838.6) Return on plan assets 2.3 19.6 Changes in demographic assumptions (37.9) Changes in financial assumptions (374.5) Exchange rate differences (0.3) (0.4) Cumulative amount as at 31 December (2,229.8) (1,819.4)
Other specifications Amount recognised as expense for the defined contribution plan 130.6 107.9
Expected contribution to the defined benefit plan for the next year 101.4 30.5 1 Future salary increases represent our expected average future salary increase for the industry. Since Gjensidige has a closed plan, average future salary incrase for our population is 2.0 per cent (2.6). See explanation under Actuarial assumptions.
Sensitivity 10% increased mortality (4.3%) (4.1%) 10% decreased mortality 3.3% 3.1% + 1% point discount rate (11.3%) (10.8%) - 1% point discount rate 15.0% 13.2% + 1% point salary adjustment 4.5% 4.5% - 1% point salary adjustment (3.4%) (3.7%) + 1% point social security base amount (1.7%) (1.8%) - 1% point social security base amount 1.9% 2.0% + 1% point future pension increase 12.2% 10.8% - 1% point future pension increase (9.5%) (9.2%)
NOK million 2014 2013 Other provisions and liabilities Restructuring cost 1 7.1 25.4 Other provisions 240.5 138.9 Total other provisions and liabilities 247.6 164.3 Deposits from and liabilities to customers Deposits from and liabilities to customers without maturity date, bank 15,563.0 13,125.2 Deposits from and liabilities to customers with maturity date, bank 1,140.3 1,813.1 Deposits from and liabilities to customers 16,703.4 14,938.3 Interest-bearing liabilities Cash credit 350.0 Liabilities to bond debt, bank 9,950.3 9,771.6 Total interest-bearing liabilities 10,300.3 9,771.6 Other liabilities Outstanding accounts Fire Mutuals 15.1 16.9 Accounts payable 163.6 167.8 Liabilities in relation with properties 2.3 3.3 Liabilities to public authorities 301.7 372.1 Other liabilities 523.9 392.1 Total other liabilities 1,006.5 952.2 Liabilities related to insurance Liabilities related to direct insurance 530.2 470.2 Liabilities related to reinsurance 96.0 184.6 Total liabilities related to insurance 626.3 654.8 Liabilities in life insurance with investment options Liabilities in life insurance with investment options 12,950.3 10,330.6 Total liabilities in life insurance with investment options 12,950.3 10,330.6 Accrued expenses and deferred income Liabilities to public authorities 25.5 22.8 Accrued personnel cost 249.6 226.1 Other accrued expenses and deferred income 149.7 135.2 Total accrued expenses and deferred income 424.9 384.1 Restructuring cost 1 Provisions as at 1 January 25.4 57.2 Reversal of provisions (9.0) Provisions used during the year (18.3) (22.8) Provision as at 31 December 7.1 25.4 1 There has not been new provisions for restructuring or reorganisation project in 2014.
Taxable temporary differences Properties 2,377.1 1,750.7 Shares, bonds and other securities 165.7 Profit and loss account 287.8 356.9 Security provisions etc. 3,415.0 3,347.3 Total taxable temporary differences 6,079.9 5,620.6
Deductible temporary differences Plant and equipment and intangible assets (116.2) (360.2) Shares, bonds and other securities (353.1) Loans and receivables (98.1) (91.7) Provisions for liabilities (245.5) (88.1) Pension liabilities (457.1) (92.9) Claims provision (4.0) (3.7) Other deductible temporary differences (36.8) 22.8 Total deductible temporary differences (1,310.8) (613.8) Loss carried forward (7.5) (11.3) Net temporary differences 4,761.6 4,995.5
Net deferred tax liabilities/(deferred tax assets) 1,284.1 1,335.6 Of this non-assessed deferred tax assets 5.0 5.0 Gross deferred tax liabilities 1,289.1 1,340.7
Total tax expense (1,210.0) (903.5) Effective rate of income tax 22.4 % 19.8 %
Loss and dividend tax deduction carried forward 2014 2015 2016 2017 2018 Later or no due date 7.5 11.3 Total loss and dividend carried forward 7.5 11.3
Change in deferred tax Deferred tax liabilities as at 1 January 1,335.7 1,263.4 Change in deferred tax recognised in profit or loss (2.3) 138.4
Change in deferred tax recognised directly in the balance sheet Pensions (110.8) 23.7 Hedge accounting (34.5) (29.3) Companies sold and purchased 87.7 (33.0) Exchange differences 8.4 7.5 Other changes (35.0) Net deferred tax liabilities as at 31 December 1,284.1 1,335.6
In February 2015, Gjensidige received a decision from the Central Tax Office for Large Enterprises in connection with the calculation of a tax gain as a result of the conversion of Gjensidige Forsikring BA into a public limited company (ASA) in 2010. The decision means that the tax payable for 2010 is reduced by around NOK 35 million. The tax will be further reduced for the ensuing years, by a total of around NOK 140 million at the current tax rate. Gjensidigestiftelsen has received a similar decision, and we have been notified that it will appeal the decision on the grounds that there is no basis for the change and that the tax office has based its decision on an incorrect valuation. Changing the decision concerning Gjensidigestiftelsen will have tax consequences for Gjensidige in relation to the above-mentioned figures. Gjensidige agrees with Gjensidigestiftelsen’s assessment.
Expenses related to investments Depreciation and value adjustments (note 5 and note 7) 11.4 9.0 Employee benefit expenses (note 18) 15.6 15.5 Software costs 0.5 0.5 Auditor’s fee (incl. VAT) 0.7 0.7 Consultants’ and lawyers’ fees 3.6 2.4 Other expenses 167.5 138.6
Total auditor's fee (incl. VAT) 6.7 9.7 1 Other expenses include cost reductions for Gjensidige Forsikring ASA in connection with duties performed for subsidiaries and cost allocations to claims and finance.
After consulting with the remuneration committee, the CEO may make exceptions for special positions if this is necessary to be able to offer competitive terms. Payments in kind to executive personnel shall be related to their function in the Group, and otherwise be in line with market practice.
Remuneration of officers of the Company and other employees with remuneration corresponding to executive personnel The remuneration shall follow the guidelines set out above. There are currently no such employees.
Martin Danielsen, Executive Vice President 2,358.9 300.9 163.4 479.8 323.8 4,477.6 3.25% 31.12.2021 2,603 3,046 8,021 14,835 3
Sigurd Austin, Executive Vice President 2,463.8 357.3 93.3 382.3 357.3 3,002 2,769 8,279 4,062 3
Hans G. Hanevold, Executive Vice President (4.8.14-31.12.14) 1, 11 1,117.7 280.8 121.7 160.4 116.4 24 9 179 7,111
The Board, deputies Tore Vågsmyr, staff representative 5 655 Lotte Kronholm Sjøberg, staff representative 5 170
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 96.3 thousand for Chairman and NOK 23.0 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 has pension plans, benefit or contribution based. 7 Including bonus shares in the share saving's programme for employees. See note 28 for terms and further description of the scheme. 8 Remuneration includes participation as Chairman in the Audit Committee honored with NOK 137.0 thousand for 2014. 9 Remuneration includes participation in the Audit Committee honored with NOK 91.5 thousand for 2014. 10 Hege Yli Melhus Ask has been on leave from 3 August to 31 December. Her remuneration is presented for the whole year. 11 Constituted Executive Vice President for Hege Yli Melhus Ask from 4 August to 31 December.
Cecilie Ditlev-Simonsen, Executive Vice President 2,124.9 272.4 158.0 172.7 305.0 3,681 439 4,381 2,789 3
Kaare Østgaard, Executive Vice President 2,401.4 359.1 212.0 616.8 359.1 4,114 1,278 7,332 4,190 3
Kjetil Kristensen, staff representative 5, 9 332.5 526 Gunnar Mjåtvedt, staff representative 5,
Lotte Kronholm Sjøberg, staff representative 1, 5 (29.5.13 - 31.12.13) 46
Total net income and gains/(losses) from buildings and other real estate 552.8 351.5
Bonds and other fixed-income securities Net interest income/(expenses) from bonds and other fixed-income-securities 475.8 341.5 Unrealised gains/(losses) from bonds and other fixed-income securities 156.7 239.6 Realised gains/(losses) from bonds and other fixed-income securities 182.1 (127.9) Total net income and gains/(losses) from bonds and other fixed-income securities 814.6 453.2
Derivatives Net interest income/(expenses) from derivatives (5.9) 52.7 Unrealised gains/(losses) from derivatives (236.6) (297.5) Realised gains/(losses) from derivatives (493.4) (534.5) Total net income and gains/(losses) from derivatives (735.9) (779.3)
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 36.4 33.1 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.
Guarantees and committed capital Gross guarantees 0.1 0.1 Committed capital, not paid 2,278.6 1,100.6
As part of its ongoing financial management, the Company has undertaken to invest up to NOK 2,278.6 million (1,100.6) in bond funds and various private equity and real estate investments, over and above amounts recognised 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 above four years (five) and six years (seven) in average including option for of extension.
General terms Regulatory regulation CRD IV Solvency II Regulatory call Yes Yes
Administration expenses Byggeriet Forsikringsservice A/S 16.1 Gjensidige Bank ASA owned by Gjensidige Bank Holding AS) 31.5 28.9 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding AS) 1.6 5.2
Gains and losses in connection with sale and liquidation Bilskadeinstituttet AS (liquidated in 2014) (0.2) Storebrand ASA 114.7 35.3
Impairment losses Lokal Forsikring AS 20.1 Nordisk Forsikrings Service AS 27.4 Storebrand ASA 611.0
Gjensidigestiftelsen 0.3 0.9 3,983.4 Nordisk Forsikrings Service AS 49.8 37.4 65.8 Nykredit Forsikring A/S 32.5 30.3 84.9 Oslo Areal AS 92.0 75.0 Tennant Assuranse AS (owned by Lokal Forsikring AS) 5.4 (3.0) 2.3 1.5 Total intercompany non-interest-bearing debts and receivables 133.2 57.4 164.9 4,137.3
Other transactions Interest on bank deposits Gjensidige Bank ASA Brannkassene 0.5 0.6 Interest on bank deposits and mortgage loans Gjensidige Bank ASA Gjensidigestiftelsen 3.9 6.2 Interest on mortgage loans Gjensidigestiftelsen Gjensidige Bank ASA 0.4
In an integration phase some reduction in the acquired portfolios is expected. The portfolios have higher cost ratios than current operation and will be sought absorbed over time.
Subordinated term debt 1.447,1 Subordinated loans in associates, proportion 1,215.1 45% of investment properties, unrealised gains, proportion 165.3 73.6 Additional capital before 50/50-deductions 1,612.4 1,288.7 Proportion 50/50-deductions (588.9) (54.3) Additional capital 1,023.5 1,234.4
Other non-weighted assets Goodwill 2,819.0 2,562.2 Deferred tax assets 5.0 5.0 Other intangible assets 1,123.5 1,138.2 Derivatives 470.2 219.9
Weighted reinvestment cost derivatives 1,077.3 61.1 Primary capital in other financial institutions (1,177.9) (108.5) Loss provisions (351.8) (321.4)
Risk weighted calculation base (B) 55,414.1 96,610.5 Capital ratio (A/B) 18.1% 13.4% FSAN minimum requirement 8.0% 8.0% FSAN minimum requirement (C) 4,433.1 7,728.8 Primary capital surplus (A-C) 5,583.7 5,187.1
Net primary capital 10,016.8 12,915.9 Proportion of security provision 1,268.1 1,244.2 Proportion of Natural perils fund (up to 25% of the Natural perils fund is included) 576.3 553.9 Deduction due to discounting effects (61.4) (106.4) Solvency margin capital 11,799.8 14,607.6 Solvency margin minimum requirement 3,774.6 5,873.9 In excess of requirement 8,025.2 8,733.7
Restricted bank deposits Source-deductible tax accounts 79.9 76.3 Total restricted bank deposits 79.9 76.3
The shareholder list is based on the VPS shareholder registry as of 31 December 2014. A shareholder list showing the owners behind nominee accounts can be found on page 21.
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 based on breech of expectations in terms of greater negative events and/or developments. 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.
Weighted average share price (NOK) 119.30 89.83 119.85 95.19 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 6.88 5.41 6.88 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 80 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 9.3 8.6 Share savings programme for employees 3.7 3.3 Total expenses (note 17) 13.0 11.9
Weighted average fair value of shares granted 2 119.30 89.83 Weighted average share price of shares released during the period 120.03 89.24 Fair value of shares granted that are to be settled in cash 122.00 115.70 2 The fair value is calculated based on the market value of the share at the time of allocation.
Weighted average number of shares 1 499,935,704 499,918,246 Weighted average number of diluted shares share-based payment 137,306 142,445 Weighted average number of shares, diluted 1 500,073,010 500,060,691
Premiums Gross premiums written 4 20,458.1 18,964.7 Ceded reinsurance premiums (494.1) (565.4) Premiums written, net of reinsurance 19,964.1 18,399.3 Change in gross provision for unearned premiums (311.7) (322.6) Change in provision for unearned premiums, reinsurers' share 12.6 (3.6) Total earned premiums, net of reinsurance 19,665.1 18,073.1
General insurance claims Gross paid claims 4 (14,209.1) (12,360.5) Paid claims, reinsurers' share 446.9 331.6 Change in gross provision for claims 4 103.9 (1,304.8) Change in provision for claims, reinsurers' share (351.0) 45.9 Total claims incurred, net of reinsurance (14,009.3) (13,287.8)
Insurance-related operating expenses Insurance-related administration expenses incl. commissions for received reinsurance and sales expenses 4, 17 (2,888.6) (2,750.2)
Change in security provisions etc. Change in security provision (53.1) (318.9) Total change in security provisions etc. (53.1) (318.9)
Net income from investments Income from investments in subsidiaries and associates 1,407.5 479.8 Impairment losses investments in subsidiaries and associates (47.5) Interest income and dividend etc. from financial assets 1,500.5 1,589.9 Net operating income from property 14.8 15.6 Changes in fair value on investments 790.8 878.8 Realised gain and loss on investments 66.7 (416.1) Administration expenses related to investments, including interest expenses (324.6) (257.9) Total net income from investments 19 3,408.3 2,290.1
Assets Goodwill 1,568.6 1,388.7 Other intangible assets 795.5 763.0 Total intangible assets 5 2,364.1 2,151.7
Receivables Receivables related to direct operations 8 4,362.7 4,073.5 Receivables related to reinsurance 8 64.8 31.1 Receivables within the group 22 133.2 164.9 Other receivables 10 669.3 359.5 Total receivables 5,230.0 4,629.0
Prepaid expenses and earned, not received income Earned, not received interest income 14.1 Other prepaid expenses and earned, not received income 36.7 12.6 Total prepaid expenses and earned, not received income 50.8 12.6 140 | Gjensidige annual report 2014
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 Other paid in equity 22.8 17.1 Total paid in equity 2,452.7 2,446.9
Retained equity Funds etc. Natural perils fund provision 2,305.3 2,215.5 Guarantee scheme provision 596.9 582.4 Other retained earnings 10,809.3 11,038.3 Total retained earnings 13,711.6 13,836.1
Insurance-related liabilities in general insurance, gross Provision for unearned premiums, gross 4, 13 7,836.7 7,325.1 Claims provision, gross 4, 13 31,981.9 31,046.8 Provision for premium discounts and other profit agreements 69.9 68.8 Security provision 4 2,818.0 2,764.9 Total insurance-related liabilities in general insurance, gross 42,706.5 41,205.6
Total equity and liabilities 67,041.7 66,998.3 141 | Gjensidige annual report 2014
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 143.9 0.4 144.3 Exchange differences from hedging of foreign operations (142.5) (142.5) Tax on items that may be reclassified to profit or loss 1.8 1.8 Total items that may be reclassified subsequently to profit or loss 3.1 0.4 3.6
Own shares (0.0) (6.3) (6.3) Accrued and paid dividend (4,948.9) (4,948.9) Equity-settled share-based payment transactions 5.7 5.7 142 | Gjensidige annual report 2014
Cash flows from operating activities Premiums paid, net of reinsurance 19,934.8 18,508.6 Claims paid, net of reinsurance (13,582.4) (12,328.2) Net receipts/payments from financial assets 2,628.5 343.0 Net receipts/payments from properties 32.4 12.1 Operating expenses paid, including commissions (2,683.6) (2,692.1) Taxes paid (765.5) (1,319.8) Net other receipts/payments (6.5) Net cash flow from operating activities 5,564.1 2,517.0
Effect of exchange rate changes on cash and cash equivalents 24.0 16.5 Net cash flow for the period 649.8 (200.4)
Cash and cash equivalents at the start of the period 1,002.2 1,202.6 Cash and cash equivalents at the end of the period 1,652.1 1,002.2 Net cash flow for the period 649.8 (200.4)
Basis of preparation Statement of compliance The financial statements have been prepared in accordance with the Norwegian Accounting Act and Norwegian Financial Reporting Regulations for Insurance Companies (FOR 1998-12-16 nr 1241). The Norwegian Financial Reporting Regulations for Insurance Companies is to a great extent based on IFRSs endorsed by EU, and interpretations.
Subsidiaries and associated companies Subsidiaries and associated companies are recognised using the cost method.
Development expenditures (both internally and externally generated) is capitalized only if the development expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete the development and to use or sell the asset.
Impairment losses are recognised in profit or loss if the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated­ first to the carrying amount of goodwill and then proportionally to the carrying amount of each asset in the cash-generating unit. Previously recognised impairment losses are for assets except for goodwill, reversed if the prerequisites for impairment losses are no longer present. Impairment losses will only be reversed if the recoverable amount does not exceed the amount that would have been the carrying amount at the time of the reversal if the impairment loss had not been recognised. Impairment losses recognised for goodwill will not be reversed in a subsequent period. On disposal of a cash 146 | Gjensidige annual report 2014
Claims provision, gross The claims provision comprise provisions for anticipated future claims payments in respect of claims incurred, but not fully settled at the reporting date. These include both claims that have been reported to the company (RBNS – reported but not settled) and those that have not yet been reported (IBNR – incurred but not reported). The provisions related to reported claims are assessed individually by the Claims Department, while the IBNR provisions are calculated based on empirical data for the time it takes from a loss or claim occurring (date of loss) until it is reported (date reported). Based on experience and the development of the portfolio, a statistical model is prepared to calculate the scope of post-reported claims. The appropriateness of the model is measured by calculating the deviation between earlier postreported claims and post-reported claims estimated by the model.
Reinsurers’ share of insurance-related liabilities in general insurance, gross Reinsurers’ share of insurance-related liabilities in general insurance, gross is classified as an asset in the balance sheet. Reinsurers’ share of provision for unearned premiums, gross and reinsurers’ share of claims provision, gross are included in reinsurers’ share of insurance-related liabilities in general ­insurance, gross. The reinsurers’ share is less expected losses on claims based on objective evidence of impairment losses.
Hedge accounting is applied on the largest branches. Gains and losses on the hedging instrument relating to the effective portion of the hedge are recognised in other comprehensive income, while any gains or losses relating to the ineffective portion are recognised in profit or loss. If subsidiaries are disposed of, the cumulative value of such gains and losses recognised in other comprehensive income is transferred to profit or loss. Where hedge accounting is not implemented, this implies a divergent treatment of the hedged object and the hedge instrument used.
The category financial liabilities at amortised cost comprises the classes subordinated loan, other liabilities, liabilities related to direct insurance and reinsurance, accrued expenses and deferred income and liabilities within the Group.
Provisions Provisions are recognised when the company has a legal or constructive obligation as a result of a past event, it is probable that this will entail the payment or transfer of other assets to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
Restructuring Provision for restructuring are recognised when the company has approved a detailed and formal restructuring plan which has commenced or has been announced. Provisions are not made for future expenses attributed to the operations.
Current and deferred tax Current tax and deferred tax are recognised as an expense or income in the income statement, with the exception of deferred tax on items that are recognised in other comprehensive income, where the tax is recognised in other comprehensive income, or in cases where deferred tax arises as a result of a business combination. For business combinations, deferred tax is calculated on the difference between fair value of the acquired assets and liabilities and their carrying amount. Goodwill is recognised without provision for deferred tax.
At the end of the year the number of own shares was 63,579 (59,815).
Investment properties Fair value is based on market prices and generally accepted valuation models where there are no market prices. A key parameter of the valuation is the long-term required rate of return for the individual property. A further description of the real estate price risk and a sensitivity analysis of investment properties are given in note 9.
Goodwill is tested for impairment annually or more often if there are indications that the amounts may be subject to impairment. The testing for impairment entails determining recoverable amount for the cash-generating unit. Normally recoverable amount will be determined by means of discounted cash flows based on business plans. The business plans are based on prior experience and the expected market development.
Underwriting result Gross premiums written 2,402.3 5,023.7 2,014.2 3,009.5 213.9 532.4 978.0 301.0 9,451.3
Gross claims incurred Incurred during the year (1,890.7) (3,431.2) (1,487.0) (1,944.2) (129.4) (362.0) (635.0) (217.5) (6,665.8) Incurred previous years 35.0 203.3 66.7 136.6 1.6 61.0 8.3 11.0 320.2 Gross claims incurred (1,855.7) (3,227.9) (1,420.3) (1,807.5) (127.9) (301.0) (626.7) (206.6) (6,345.6)
Claims provision, gross 1,254.8 6,394.2 5,498.9 895.3 58.6 2,777.6 294.9 25.0 10,805.1 Gross loss liability 1,180.3 4,984.5 4,286.6 697.9 54.6 2,607.7 252.4 23.3 9,102.8
Security provision 1,470.2 FSAN 1 minimum requirement 1,470.2 1 The Financial Supervisory Authority of Norway.
Gross premiums earned 2,083.1 1,606.9 1,437.3 790.9 646.4 550.0 630.7 274.3 110.6 57.8 60.2 489.8 109.5 1,975.3 9,385.4 Gross claims incurred (1,757.1) (1,050.8) (1,023.3) (487.2) (536.1) (299.9) (451.3) (202.8) (91.0) (84.5) (18.9) (349.3) (81.7) (1,333.6) (6,744.2) Operating expenses gross (332.7) (237.6) (233.6) (141.2) (92.4) (67.6) (61.1) (26.6) (14.3) (8.4) (8.8) (32.1) (15.5) (301.5) (1,339.8) Underwriting result (6.7) 318.4 180.4 162.5 17.9 182.5 118.3 45.0 5.3 (35.1) 32.4 108.4 12.3 340.2 1,301.4
Claims provision, gross 956.6 1,728.0 1,330.5 1,122.3 208.2 883.0 5,846.6 1,825.5 79.1 48.5 17.8 4,907.4 30.6 2,156.0 19,809.6 Gross loss liability 696.8 1,253.8 878.6 741.1 137.5 709.2 3,853.2 899.9 72.4 16.2 11.5 4,844.4 29.3 2,053.3 15,318.6
Underwriting result Gross premiums written 171.0 171.0 840.9 159.3 1,000.2 275.9 20,458.1
Gross premiums earned 175.2 175.2 840.9 159.3 1,000.2 270.8 20,148.2 Gross claims incurred (129.3) (129.3) (656.7) (115.8) (772.5) (113.6) (14,105.2) Operating expenses gross (26.9) (26.9) (114.8) (5.4) (120.2) (2,888.6) Underwriting result 19.0 19.0 69.4 38.1 107.5 157.2 3,154.4
Gross claims incurred Incurred during the year (126.8) (126.8) (656.7) (115.8) (772.5) (184.0) (14,657.8) Incurred previous years (2.5) (2.5) 70.4 552.6 Gross claims incurred (129.3) (129.3) (656.7) (115.8) (772.5) (113.6) (14,105.2)
Cost As at 1 January 2013 1,210.0 407.8 58.7 489.0 50.0 2,215.5 Additions through merger 92.5 24.5 11.3 8.5 33.3 170.0 Additions 26.8 26.8 Additions through business combinations 40.2 23.9 12.1 14.5 90.6 Additions from internal development 112.0 112.0 Disposals/reclassifications (52.0) (124.3) (50.0) (226.3) Exchange differences 146.0 49.1 5.5 26.6 5.3 232.6 As at 31 December 2013 1,488.7 505.2 35.6 538.6 53.1 2,621.2 Uncompleted projects 111.1 111.1 As at 31 December 2013, including uncompleted projects 1,488.7 505.2 35.6 649.7 53.1 2,732.3
Exchange differences (17.2) (2.6) (11.7) (1.2) (32.6) As at 31 December 2013 (100.0) (217.5) (20.2) (231.1) (11.8) (580.5)
Carrying amount As at 1 January 2013 1,110.0 273.7 32.4 346.6 31.4 1,794.1 As at 31 December 2013 1,388.7 287.8 15.4 418.6 41.3 2,151.7
Cost As at 1 January 2014 1,488.7 505.2 35.6 538.6 53.1 2,621.2 Additions 48.0 4.5 52.5 Additions through business combinations 79.5 36.1 2.7 118.3 Additions from internal development 129.3 129.3 Disposals/reclassifications 80.2 (37.9) 42.3 Exchange differences 100.4 36.2 2.1 25.5 1.4 165.7 As at 31 December 2014 1,668.7 577.5 37.7 821.7 23.9 3,129.4 Uncompleted projects 86.0 86.0 As at 31 December 2014, including uncompleted projects 1,668.7 577.5 37.7 907.7 23.9 3,215.4
The company’s intangible assets are either acquired or internally developed. Goodwill, customer relationships and parts of other intangible assets are all acquired through business combinations or mergers, and are a result of a purchase price allocation of initial cost of the acquisition. Internally developed software is developed for use in the insurance business. External and internal assistance used in relation developed software is developed for use in the insurance business. External and internal assistance is used in relation with implementation or substantial upgrade of software, including adjustment of standard systems, are capitalized as intangible assets.
Amortisation is included in Insurance-related administration expenses including commissions for received reinsurance and sales expenses.
The company has had a few minor business combinations during 2014. None of the intangible assets have undetermined useful lives.
Impairment testing of goodwill The carrying amount of goodwill in the company as at 31 December 2014 is NOK 1,568.6 million. See table.
Gouda portfolio 2 81.4 42.1 Gjensidige Forsikring, Swedish branch 227.3 177.4 Gjensidige Forsikring, white label 128.7 128.7 Total 1,568.6 1,388.7 1 Merged with Gjensidige Forsikring, Danish branch from 1 January 2013. 2 Portfolio acquired 1 November 2013 in Denmark, Sweden and Norway.
The annual assessment of impairment losses was carried out in the third quarter of 2014. There has also been carried out indication assessments during other quarters in order to assess whether there is new evidence that calls for a new impairment assessment.
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 four years reviewed by the management and approved by the Board. In the period after 2018 an annual growth of three per cent has been projected until 2023. The terminal value is calculated in 2023. The growth is grounded in the fact that the companies are small and with a solid parent company, which gives them good chances of increasing market shares. The cash flows are estimated to a normal level before a terminal value is calculated. Gjensidige normally has a ten-year horizon on its models, as the portfolios are in a growth phase and a shorter period will not give a correct view of expected cash flows.
The management method As far as possible, the management has sought to document the assumptions upon which the models are based through external information. External information is first and foremost used in the assessment of discount rate and exchange rates. When it comes to future cash flows, the management has also considered the degree of historical achievement of budgets. If expected budgeted results are not achieved, the management has conducted a deviation analysis. These deviation analyses are reviewed by the Board of the respective subsidiaries, as well as the management in Gjensidige Forsikring.
Level of combined ratio (CR) The expected CR level is both in the growth period and when estimating the terminal value considered to be from 86.4 to 101.1.
CR-level when calculating terminal value Gjensidige Forsikring, Danish branch 90.1-94.0% 92.1% Gjensidige's workers' compensation insurance in Denmark 86.4-88.8% 86.4%
Discount rate The discount rate is before tax, and is composed of a risk-free interest rate, a risk premium and a market beta. The risk-free rate is equivalent to a ten-year interest rate on government bonds in the respective countries where the subsidiaries and branches operate in and in addition a risk premium is added. The risk premium is higher in Baltic than in Sweden and Denmark and is increased somewhat from 2013 due to the decline in interest rate on government bonds. The discount rate that has been used is 7.4 percent for Denmark and 7.8 percent for Sweden.
Sensitivity analysis key assumptions The excess values related to the acquisitions are based on different key assumptions. If these assumptions change significantly from what they are expected to be in the impairment models, a need for impairment may arise. See table.
next 3 years All circumstances occur simultanously Gjensidige Forsikring, Danish branch No need for impairment No need for impairment Need for impairment app. NOK 55 million Need for impairment app. NOK 668 million
Need for impairment app. NOK 75 million No need for impairment Need for impairment app. NOK 35 million Need for impairment app. NOK 166 million
Gjensidige Forsikring, Swedish branch No need for impairment No need for impairment No need for impairment Need for impairment app. NOK 100 million
Gjensidige Bank Holding AS Oslo, Norway 100% 1,931.4 1,832.7 1,931.4 1,832.7 Gjensidige Norge AS Oslo, Norway 100% 195.7 1.2 195.7 1.2 Gjensidige Pensjon og Sparing Holding AS Oslo, Norway 100% 741.0 742.1 739.8 741.0 Oslo Areal AS Oslo, Norway 100% 1,828.8 1,828.8 1,828.8 1,828.8 Gjensidige Baltic AAS Riga, Latvia 100% 351.5 347.8 351.5 347.8 Samtrygd Eigedom AS Førde, Norway 100% 6.9 6.9 6.9 6.9 Lokal Forsikring AS Oslo, Norway 100% 31.4 11.3 31.4 31.4
Gjensidige sold on 26 February 2014 the holding in Storebrand ASA. Accounting gain from the transaction was NOK 1,108.7 million in the parent company accounts. The sales amount on sale of 20.1 percent was NOK 3,256.5 million and was received in cash. Following the completion of the sale, Gjensidige will not hold any shares in Storebrand ASA.
Cost As at 1 January 2013 113.5 478.5 592.0 Additions through business combinations 0.4 0.4 Additions 3.6 43.1 46.7 Disposals (84.0) (84.0) Exchange differences 5.3 5.3 As at 31 December 2013 117.0 443.2 560.3 Uncompleted projects 136.1 136.1 As at 31 December 2013, including uncompleted projects 117.0 579.3 696.3
Depreciation and impairment losses As at 1 January 2013 (29.0) (355.0) (384.0) Depreciation for the year (3.7) (41.6) (45.3) Disposals 64.9 64.9 Exchange differences (3.9) (3.9) As at 31 December 2013 (32.8) (335.5) (368.3)
Carrying amount As at 1 January 2013 84.6 158.8 243.3 As at 31 December 2013 84.4 243.8 328.1
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.
8. Financial assets and liabilities Fair value Financial assets and liabilities measured at fair value are carried at the amount each asset/liability can be settled to in an orderly transaction between market participants at the measurements date.
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 324.4 324.4 216.8 216.8
Loans and receivables Bonds and other fixed income securities classified as loans and receivables 10 15,908.1 17,865.2 14,629.7 15,446.6 Loans 10 181.9 181.2 374.4 374.4 Receivables related to direct operations and reinsurance 4,427.5 4,427.5 4,104.6 4,104.6 Receivables from Group companies 22 3,563.7 3,563.7 2,530.9 2,530.9 Other receivables 10 669.3 669.3 359.5 359.5 Prepaid expenses and earned, not received income 50.8 50.8 12.6 12.6 Cash and cash equivalents 11, 26 1,652.1 1,652.1 1,002.2 1,002.2
Financial liabilities at amortised cost Subordinated debt 21 1,197.1 1,198.6 Other liabilities 15 883.2 883.2 833.8 833.8 Liabilities related to direct insurance and reinsurance 467.2 467.2 438.5 438.5 Accrued expenses and deferred income 15 275.6 275.6 237.8 237.8 Liabilities within the group 22 57.4 57.4 153.9 153.9
Gain/(loss) not recognised in profit or loss 2,161.3 1,032.5 160 | Gjensidige annual report 2014
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 216.8 216.8
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 24.7 3,686.5 2,305.2 6,016.4 Bonds and other fixed income securities 7,596.6 12,049.1 1.2 19,646.8
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 142.2 103.0 245.2 Financial derivatives subject to hedge accounting 76.3 76.3 161 | Gjensidige annual report 2014
Shares and similar interests 1 1,859.1 281.2 545.6 (211.5) (186.1) 16.9 2,305.2 10.5 Bonds and other fixed income securities 26.8 16.2 0.4 (42.2) 1.2 Total 1,885.9 297.4 546.0 (253.8) (186.1) 16.9 2,306.4 10.5 1 In 2013, we received pricing information for an equity fund less frequently, which caused its transfer from level 2 to level 3.
Shares and similar interests Decrease in value 10% 230.5 Bonds and other fixed income securities Decrease in value 10% 0.1 Total 230.6
Gjensidige Forsikring, Danish branch Currency-related contracts - hedging instruments 1,756.7 65.7 0.9 Hedging object 1,755.2 162 | Gjensidige annual report 2014
9. Investment properties Gjensidige Forsikring carries investment properties at fair value. Investment properties consist of commercial properties that are rented to tenants outside the Group, or are aquired in accordance with the company's capital management strategy. Properties used by Group companies are classified as owner-occupied property, see note 7. In properties that are both rented to tenants outside the Group and that are used by the Group's own business, the parts held for rent that can be sectioned are classified as investment property.
Yield is determined based on a normal required rate of return adjusted for the location of the property, type, technical standard and the contracts. The normal required rate of return is determined from the required rate of return that can be derived from transactions in the market, and expectations of interest level and risk adjustment. The market rent is determined from existing contracts on the property and comparable properties, observations from contractual negotiations, requests for offers and information from realtors and Arealstatistikk’s database. For the fourth quarter of 2014 parameters used for the portfolio are presented in the table below.
Statement of financial position As at 1 January 177.3 182.2 Additions 3.3 Disposals (12.7) Net gains/(losses) from fair value adjustments 5.1 (8.2) As at 31 December 169.7 177.3
Provision for impairment losses Provision for impairment losses as at 1 January 3.6 4.5 Change in provision for impairment losses for the period (0.8) (0.9) Provision for impairment losses as at 31 December 2.8 3.6
Other receivables Receivables in relation with asset management 607.2 243.4 Intercompany SOS International 29.9 31.2 Other receivables 32.2 84.9 Total other receivables 669.3 359.5
Of other loans NOK 126.3 million (158.9) are loans given to agricultural customers. The loans are in their entirety intended for installment of fire detection systems with these customers. There is no mortgage attached to the loans, and the terms vary from one year to over 20 years. Gjensidige Forsikring has not offered this type of loan to its customers since 2008. The default rate is 1.00 per cent (1.08) at year end. Discounting has been conducted in order to take into account the fact that the loans are noninterest -bearing. The discount rate used is 4.66 per cent.
Included in other loans are also NOK 53.8 million (214.9) regarding loans given with regard to sale of subsidiaries.
Deposits with financial institutions 471.0 154.0 Cash and bank deposits 1,181.0 848.2 Total cash and cash equivalents 1,652.1 1,002.2
Weighted average rate for interest earned on cash, bank deposits and deposits with financial institutions is approximately 2.4 per cent (1.9).
Gjensidige Forsikring ASA Norwegian financial shares SpareBank 1 SR-Bank 1,404.3 Ringerikes Sparebank 27.6 Sparebanken Midt-Norge 13.7 Sparebank 1 Nord-Norge 4.8 Indre Sogn Sparebank 0.3 Total Norwegian financial shares 1,450.7
Private equity investments HitecVision Private Equity V LP 152.3 Northzone V KS 116.6 Argentum Secondary III 100.2 HitecVision Private Equity IV LP 94.1 HitecVision Asset Solution KS 90.4 Norvestor V LP 66.2 Altor Fund II LP 62.0 HitecVision VI LP 58.4 Energy Ventures III LP 57.3 Argentum Secondary II 54.7 SOS International A/S 50.6 Partners Group European Buyout 2005 (A) LP 50.4 Norvestor IV LP 45.9 Energy Ventures II B IS 44.6 Verdane Capital VII KS 44.5 BaltCap PEF LP 44.0 Northzone VI L.P. 41.3 Viking Venture III DIS 39.0 FSN Capital II LP 36.7 Verdane Capital VI KS 34.3 CapMan BO IX LP 32.5 LGT Crown European Private Equity PLC 28.0 Argentum Sec Haniel EQT V IS 27.8 CapMan Buyout X 25.9 NPEP1 IS (Altor fund III) 25.3 Norvestor VI LP 24.6 Nordic Additonal Funding Programme IS 20.2 165 | Gjensidige annual report 2014
Real estate fund CEREP III 103.9 La Salle 27.3 Total real estate funds 131.2 Combination funds Parvest Convertible Bond World 790.9 Total combination funds 790.9
Claims reported and claims handling costs 15,429.5 13,661.1 Claims incurred, but not reported 16,051.4 16,691.2 Total claims provision, net of reinsurance 31,480.9 30,352.2
Acquisitions through business combinations 184.3 (127.1) 57.3 77.8 77.8 Additions through merger 3,781.0 (23.2) 3,757.8 Claims paid, prior year claims (6,167.7) 432.6 (5,735.1) (5,782.5) 326.9 (5,455.6) Increase in liabilities Arising from current year claims 14,607.2 (133.0) 14,474.1 13,973.5 (384.8) 13,588.6 - of this paid (8,041.4) 14.6 (8,026.8) (6,578.0) 4.6 (6,573.3) Arising from prior year claims (run-off) (502.0) 28.5 (473.6) (308.2) 43.0 (265.2) Other changes, including effects from discounting 263.5 0.0 263.5 (214.2) (214.2) Exchange differences 591.2 (22.0) 569.1 891.6 (47.9) 843.7 Total as at 31 December 31,981.9 (501.0) 31,480.9 31,046.8 (694.0) 30,352.8
Claims reported and claims handling costs 15,930.5 (501.0) 15,429.5 14,252.4 (591.3) 13,661.1 Claims incurred, but not reported 16,051.4 16,051.4 16,794.4 (103.2) 16,691.2 Total as at 31 December 31,981.9 (501.0) 31,480.9 31,046.8 (694.6) 30,352.2
NOK million 2014 2013 Discounted claims provision, gross - Gjensidige's workers' compensation insurance in Denmark 4,138.8 4,138.8 Undiscounted claims provision, gross - Gjensidige's workers' compensations insurance 5,203.0 5,203.0 167 | Gjensidige annual report 2014
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. Because the average age of the employees who are members of the defined contribution plan is above 55 years, wage growth does not contain a career supplement, and the determined wage growth may therefore be lower than is otherwise normal in the market. The decreasing wage trend applied to Gjensidige Forsikring for 2014 shows an average salary increase of 2.0 per cent (2.6) in Gjensidige’s population.
Interest rate risk The pension assets’ exposure to interest rate risk is deemed to be moderate because the market value-weighted duration is three years. The portfolio value will fall by approximately NOK 80 million in the event of a parallel shift in the yield curve of plus one percentage point. The value will increase correspondingly in the event of a fall in the interest rate.
The pension liabilities are exposed to credit risk since the covered bond yield is used as the basis for determining the discount rate. The credit mark-up for covered bond exposure is composed of the market mark-up for ten years, while from year 20 it is based on long-term equilibrium mark-ups, and between year ten and year 20, it is interpolated linearly between the market mark-up and the long-term equilibrium mark-ups. A shift in the credit mark-ups will thereby directly affect the value of the cash flows until year ten and then have a falling effect for the next ten years. From year 20, the market mark-ups will only have a marginal effect.
In 2013, Gjensidige Pensjonskasse was ordered to use a life expectancy assumption that deviates significantly from the life expectancy assumptions used pursuant to IAS 19. This requirement increases the minimum requirement for pension assets. Gjensidige expects this minimum requirement to remain unchanged in the years ahead.
Present value of the defined benefit obligation As at 1 January 2,007.5 457.6 2,465.1 1,983.4 447.9 2,431.3 Current service cost 31.2 8.0 39.2 32.2 7.4 39.6 Employers' national insurance contributions of current service cost 4.4 1.1 5.5 4.5 1.0 5.6
Amount recognised in the balance sheet Present value of the defined benefit obligation 2,318.5 558.6 2,877.1 2,007.5 457.6 2,465.1 Fair value of plan assets (2,389.0) (2,389.0) (2,378.1) (2,378.1) Net defined benefit obligation/(benefit asset) (70.5) 558.6 488.2 (370.7) 457.6 87.0
Fair value of plan assets As at 1 January 2,378.1 2,378.1 2,317.4 2317.4 Interest income 95.8 95.8 98.5 98.5 Return beyond interest income 0.7 0.7 48.7 48.7 Contributions by the employer 6.3 6.3 6.9 6.9 Benefits paid (85.3) (85.3) (86.6) (86.6) Employers' national insurance contributions of benefits paid (6.3) (6.3) (6.9) (6.9)
Insurance-related adm. expenses including provisions for received reinsurance and sales expenses
Remeasurements of the net defined benefit liability/asset recognised in other comprehensive income
Cumulative amount as at 1 January (1,804.8) (1,825.1) Return on plan assets 0.7 Changes in demographic assumptions (35.9) Changes in financial assumptions (367.8) 19.3 Exchange rate differences 0.7 1.0 Cumulative amount as at 31 December (2,207.1) (1,804.8)
Other specifications Amount recognised as expense for the defined contribution plan 123.7 101.6
Expected contribution to the defined benefit plan for the next year 100.0 29.9 1 Future salary increases represent our expected average future salary increase for the industry. Since Gjensidige has a closed plan, average future salary incrase for our population is 2.0 per cent (2.6). See explanation under Actuarial assumptions.
Shares and similar interests 143.3 143.3 Bonds 176.8 1,961.3 2,138.1 Derivatives 74.1 74.1 Bank 33.4 33.4 Total 176.8 2,212.2 2,389.0
Shares and similar interests 121.3 121.3 Bonds 64.2 2,128.4 2,192.6 Derivatives 61.8 61.8 Bank 2.4 2.4 Total 64.2 2,313.9 2,378.1 172 | Gjensidige annual report 2014
Other provisions and liabilities Restructuring costs 1 7.1 25.4 Other provisions 238.4 135.9 Total other provisions and liabilities 245.5 161.3
Restructuring costs 1 Provision as at 1 January 25.4 57.2 Reversal of provisions (9.0) Provisions used during the year (18.3) (22.8) Provision as at 31 December 7.1 25.4 1 There has not been any new provisions for restructuring or reorganisation projects in 2014.
Deferred tax liabilities and deferred tax assets Deferred tax liabilities and deferred tax assets are offset when there is a legally enforceable right to offset those assets/liabilities and when deferred tax liabilities/deferred tax assets relate to the same fiscal authority. The amounts offset are as follows: Taxable temporary differences Property, plant and equipment and intangible assets 708.8 453.1 Shares, bonds and other securities 166.9 Profit and loss account 286.8 355.7 Total taxable temporary differences 995.7 975.7
Total tax expense (946.3) (666.8) Effective rate of income tax 15.6% 17.4%
Change in deferred tax Deferred tax liabilities as at 1 January 212.7 199.6 Merged company 15.2 Change in deferred tax recognised in profit or loss (118.8) 29.5
Change in deferred tax recognised directly in the balance sheet Pensions (108.8) 23.5 Hedge accounting (20.1) (18.0) Exchange differences 3.9 (0.8) Other changes (36.2) Deferred tax liabilites/(deferred tax assets) as at 31 December (31.1) 212.7
Insurance-related administration expenses incl. commissions for received reinsurance and sales expenses Depreciation and value adjustments (note 5 and note 7), excl. depreciation properties 273.4 223.6 Employee benefit expenses (note 18) 2,035.8 1,783.2 Fee for customer representatives 4.9 4.6 Software costs 345.2 309.1 Auditor’s fee (incl. VAT) 3.0 5.5 Consultant’s and lawyer’sfees 82.1 107.0 Commissions 484.3 410.5 Other expenses 1 (340.0) (93.3)
Total insurance-related operating expenses incl. commissions for received reinsurance and sales expenses 2,888.6 2,750.2
Other costs Commodity costs and other expenses 4.9 8.0 Total other expenses 4.9 8.0
Auditor's fee (incl. VAT) Statutory audit 2.6 2.6 Other non-assurance services 0.3 2.3 Tax consultant services 0.1 0.6 Total auditor's fee (incl. VAT) 3.0 5.5