We will make a difference for our customers - interview with the CEO
Following the split from Denmark, management of the fire insurance scheme is transferred to Christiania, as the capital of
ANNUAL REPORT 2013 2013: Everyone sits in an open floor plan at Storebrand's offices at Lysaker. The 35,000 m2 building is interconnected by lifts, stairs and walkways.
The Storting, the Norwegian parliament, rules that all companies must have an occupational pension scheme in place by 2007.
Storebrand acquires SPP, the Swedish life insurance and pensions provider, from
Storebrand’s results for the year have been affected by these disturbances.
Storebrand begins comprehensive change work associated with capital effectiveness, cost reductions, customer orientation and commercialization. The measures will ensure that the group generates value for customers, employees and shareholders.
• Gather your pension agreements in one place to obtain a full overview
The Storebrand Group offers a broad range of products within life insurance, property and casualty insurance, asset management and banking, to companies, public sector entities and private individuals. The group is divided into the segments Savings, Insurance, Guaranteed pension and Other. The Storebrand Group also comprises two sales and marketing units in Norway and Sweden. The group's head office is at Lysaker near Oslo.
"Lifecycle Portfolio" solution, which automatically adapts the equity percentage and risk to the customer's age. Customers are ensured a sensible balance between equity funds, property and fixed-income funds that changes through their lifetime.
The proportion of equities is set at 80 per cent until the policyholder reaches the age of 43 years, after which it is gradually decreased down to 20 per cent by the time they turn 67.
Global 100 list, which ranks the 100 most sustainable companies in the world. Storebrand's work on sustainable investments was also recognised when we received the IAIR Award for Excellence in Sustainable Investments.
Major companies with Storebrand pension schemes have achieved the market's highest customer satisfaction level in many years. In the latest Norwegian Customer Barometer survey conducted by BI (NKB), this area scored 78 on customer satisfaction. This is one of the highest scores NKB has ever recorded in the corporate market in any industry.
Storebrand presents its new group organisation. The new organisation features Nordic units and distinguishes between business in growth and business with guarantees.
Storebrand Pension Figures enables customers to gather all their pension assets in one place and calculate how much pension he / she will need, as well as providing customers with tips on what they can do to increase their pension amount.
PENSIONS ACT On 5 December the Storting approved a new Occupational
Commission concerning the new hybrid models, which provide great flexibility in the design of pension solutions.
Odd Arild Grefstad's first whole year as the CEO of Storebrand has been marked by reorganisation, cost cuts, unclear regulatory conditions and solid earnings growth. – It has been hectic, but a lot of fun, says the CEO himself.
Since Odd Arild Grefstad took over the reins at Storebrand from Idar Kreutzer in the summer of 2012, the company has undergone major changes. Here are his thoughts about the year that has passed –
It has been hectic, but at the same time a lot of fun - not to mention a fantastic learning experience. I feel that we quickly defined a direction and a clear strategy, initially it was related to cost optimisation, but in the next round it was also related to commercialisation. We saw that we needed to strengthen our focus on the retail market, with a clear focus on pension savings.
Yes, I am surprised about how fast we managed to arrive at the strategic platform, and how much we were in agreement internally. I received confirmation during this process that this is a modern organisation with a high level of expertise. When the employees were told that we had to take powerful and drastic measures because the regulatory framework in our market is changing completely, there was a great deal of understanding.
400 million by the end of 2014. Can you give me the status of this work?
The cost programme is following the plan, and I am very satisfied with this. I want to compliment the entire organisation, which has contributed to implementation of the plan in practice. We have become a flatter organisation, with shorter decision paths and less bureaucracy, which makes us more efficient.
I often talk with our customers, and what is pointed out as the strengths of Storebrand is our expertise and the manner in which we serve our customers – good customer service is a competitive advantage for us, and our customer satisfaction has increased further in 2013.
Storebrand delivered a group result of 2,935 million in 2013, up from NOK 1,960 million in 2012. How would you describe
In 2012 we did comprehensive measures to reduce costs and increase income. The results for 2013 show that the measures we have completed and still is working on are giving the desired effect. Our focus now is to keep the pace into 2014.
I am pleased with a lot of things in 2013, but it is especially good to see that we have been able to create very strong return for our defined contribution customers and that we have been able to reduce costs. In 2014 I want us to succeed better with selling to individuals with occupational pension in Storebrand.
The new European solvency regulations for life insurance companies, Solvency II, have been pointed out as the greatest threat to how Norwegian life insurance companies operate today. Even though the industry has been working on adapting to these rules for several years, there is still a certain degree of uncertainty associated with them. How interruptive is this uncertainty?
Recently we have started to feel that things have fallen more in place. We know what the underlying drivers will be, we know what will affect solvency, and we have good models and devices for measuring and following this up at Storebrand.
Solvency II, has said that it wants to get rid of. What do you think about this?
These products are, however, very capital -intensive under Solvency II. In the future, we will employ more resources to ensure that our customers stay with us on the journey from guaranteed to non-guaranteed products. In order to manage this,
"I think that it means something to our customers as well as the company's focus that everything we do concerns being best at pension savings."
– We will make a difference for our customers Interview with CEO Odd Arild Grefstad
ANNUAL REPORT 2013 we must ensure that we still have the best solutions, and we must stay ahead of the developments. The earnings will then come in the areas of non-guaranteed savings and insurance.
With a new strategy in place, it was a natural next step for us to ensure that we have an organisation that supports our strategy in the best possible manner.
There were several factors that played a role here: We wanted to establish a clear distinction between business in growth and business with guarantees, without new sales. Therefore "Guaranteed Pensions" was made a separate business area.
It has been an aim to strengthen our customer orientation, with a clear responsibility for concept and product development in the customer areas. This is the background for the establishment of two customer areas, with total responsibility for the Norwegian and Swedish markets, respectively.
I feel that we have the prerequisites to deliver that now.
It was high time. Our customers have gone far too long without knowing what they can expect. There is still uncertainty whether the current defined benefit pensions will be discontinued or not, but it is an advantage now that there is an alternative in the form of a defined contribution pensions with higher savings rates.
It has been important for us to clarify the situation, so that we can concentrate on giving the best possible advice to our customers.
Act on paid-up policies with investment options to enter into force. Now that it looks like this is close to clarification, how do you think this market will develop?
As the largest company in the paid-up policy market, with a market share of over 40 per cent, it is clear that we are excited about this market. Some clarification remains about the product, but I expect that this will be an attractive product for the majority of our customers. If I were to point out a competitive advantage as a customer of Storebrand, it would be the fact that our "Recommended Pension" solution, which automatically assigns an equity percentage adapted to the customer's age, is very suitable for this product.
It is seamless and an optimal manner in which to do it, but today the regulations in Norway are so restrictive compared with other countries that it is not practically possible to carry out.
The next best solution then is to have good tax incentives in a pure IPS (Individual Pension Savings) scheme. This would entail that the current savings limit of NOK
"being best at pension savings." To ensure that we remain the best, there are several things we must deliver: We must be very good at sustainability, find the right companies, avoid the companies that are not sustainable, but also be able to pick future winners based on the megatrends and challenges we envision ahead. These companies are also the solution to many of the challenges facing us, such as lack of water, corruption and pollution.
Comprehensive changes are being made to the Norwegian occupational pension rules in order to adapt them to the pension reform and the new National Insurance system introducing individual pension holdings, an all-years principle for vesting, the option of flexible pension and life expectancy adjustment.
In December 2013, the Storting passed a new occupational pension act that allows a new hybrid product onto the Norwegian market. It is based on the National Insurance principles of all-years accrual, annual contributions to pension holdings, mortality inheritance, flexible pension from the age of 62 and life expectancy adjustment.
There are several options available for regulation of the pension. Pension holdings may be regulated according to the national salary growth (according to the National Insurance Basic Amount – G) or the company's salary growth. The product may also include an annual zero guarantee or individual investment option. The schemes may be time-limited, with disbursements until a minimum age of 80, or lifelong.
The rules regarding defined-contribution pension have also changed. The maximum savings rate has been raised to 7 per cent of income between 1 and 7.1 G and 25.1 per cent of income between 7.1 and 12 G. The maximum savings in a defined-contribution scheme pursuant to the Defined-contribution Pension Act is now the same as in the hybrid scheme pursuant to the Occupational Pensions Act.
In NOU (Norwegian Official Report) 2012:3, the Banking Law Commission proposed changes that entailed a gradual discontinuing of defined-benefit pension over a threeyear period. The Ministry of Finance did not propose rules regarding this in its bill Prop.
199L (2012-2013). It is therefore possible to continue defined-benefit pension schemes without it being adapted to the new National Insurance vesting system.
Defined-benefit pension is not in line with the principles of the new National Insurance. Defined-benefit pension schemes are based on the old National Insurance accrual rules. The schemes therefore will not provide compensation for reduced benefits in the new National Insurance as a result of introduction of a new vesting system and life expectancy adjustment.
The Banking Law Commission has been asked to study whether it is desirable and possible to develop a new defined-benefit pension product that is adapted to the new National Insurance system. The mandate contains a number of conditions that must be met for such a product. The vesting period must be at least 40 years, as an approach to the all-years vesting principle, and the pensions will be subject to life expectancy adjustment. The product must have a zero per cent calculation basis.
A final decision on the future of defined -benefit pension schemes will likely be made after the Banking Law Commission has submitted its report.
For many people, own pension savings will constitute an important part of the future 's pension disbursements. Own savings will also provide security for people who are no longer able to work. It is therefore important that there are good schemes to stimulate saving. Better tax incentives may make individual pension saving like
IPS (Individual Pension Saving) an option for many people. Another option may be additional saving in the collective scheme
Act has now entered into force, together with a significantly higher limit for saving in defined-contribution schemes, further conversion is expected from guaranteed defined-benefit pension to defined contribution -based schemes with individual investment o'ptions. This allows better and more long-term management of pension funds, without the limitations imposed by the annual guarantee on the composition of investment portfolios for traditional pension products.
Storebrand has launched a new standard profile for our defined contribution-based pension schemes – Anbefalt Pensjon
(Recommended Pension). This profile adapts the split between shares and fixed income securities to the member's age, so that the proportion of equities is high when the person is young, and is gradually reduced as they approach retirement age.
Insurance in 2015 will entail changes to the rules regarding disability pension. The new disability pension will compensate the loss of income due to disability with a maximum of 66 per cent of income up to 6
Insurance. A special additional supplement is proposed of 66 per cent of income between 6 and 12 G, which is not covered by the National Insurance.
National Insurance as a percentage of the final salary at the age of 67
The Insurance business area includes the Group’s risk products1. This business area offers health insurance in the Norwegian and Swedish corporate and retail markets, P&C insurance and personal risk products in the Norwegian retail market and employee insurance and pensions-related insurance in the Norwegian corporate market.
The Guaranteed pension business area includes long-term pension savings products that give customers a guaranteed rate of return.
Buffer capital in % of customer reserves Storebrand 4.8% 4.0% 3.3%
Sustainable development is development that meets current needs, without being at the expense of opportunities for future generations to satisfy their needs. For Storebrand, sustainability is a matter of our own long-term outlook and security for our customers. As a supplier of pension saving solutions, it is essential that we are able to take a long-term perspective and generate a return for our customers, without making a negative impact on the world in which our customers will retire.
Storebrand are aware of the outcome of our sustainability work, and find it important. We are therefore pleased to see that in-house support for Storebrand's work increases every year. We believe that our 2,000 employees are our leading ambassadors for long-term sustainable saving and transition to a sustainable world.
As suppliers of pension saving, we must be able to apply a long-term perspective to our thinking and action. We have a long history of work with sustainable investments, and our strategy covers all investment classes. This is important in order to reduce the risk in our investments and for the customer to be able to feel assured that the investments live up to international norms and rules. Ethical and responsible advisory services for customers are of utmost importance at Storebrand.
The group makes high demands on the companies we invest in, and we make the same high demands on ourself. By making sustainability a clear requirement in our procurements, we play a role in the development of better and a larger number of sustainable products. We are a member of the Swan eco-label's purchaser club.
Best Purchaser. At present the group has excluded 171 companies from investment, and these companies have been disqualified as suppliers to us for several years.
HR has a sharp focus on equal opportunities, development of talent, job satisfaction and a good working environment, and every department works to reduce our environmental footprint by constantly focusing on resource use. We offset our emissions arising from travel and energy consumption through the purchase of
Jones Sustainability Index, Vigeo, Sustainalytics and FTSE4Good. Our sustainability reports follow the guidelines from the
Global Reporting Initiative. Our main office in Oslo has held environmental certification from the Eco-Lighthouse Foundation for several years, and a process is currently under way to environmentally certify SPP's office in Stockholm.
We have an impact on our society, and our society has an impact on us. Our sustainability work relies on a close dialogue with key players in society. The dialogue is partly achieved through our annual discussions with players on sustainability matters. We are active in key sustainability organizations like UNEP FI, Norsif, Swesif and the
The main channel for dialogue with the outside world is social media, where both
Twitter and Facebook are important channels for feedback from relevant communities, and for availability for dialogue and questions.
Storebrand has signed the UN's principles for responsible business, the Global Compact. These principles provide a foundation for our sustainability guidelines. We support the UN's human rights conventions, the UN's environmental conventions, the
World Business Council for Sustainable Development: 9 billion people are living well within the resource limits of the planet.
Our ambition to be a leader in sustainability includes an ambition to be a strong voice in the public discourse, and also to form opinion. During the year, the sustainability team participated in over 175 debates, lectures, podcasts and events, which had an impact on the discourse, also in relation to investment in fossil fuels. We have conducted a dialogue with politicians and ministers on the measures required to achieve a more sustainable financial sector.
We aim to be a leader in sustainability in our industry. We are therefore proud that
Investments for our work with sustainable investments. We were also placed 11th by the Asset Owners Disclosure Project, which ranks the climate change work by investors around the world.
Read more about our sustainability scorecard reporting for 2013 on pages 170-172.
• The Group will combine profitable business operations with social, ethical and environmental goals and activities.
• The Group will ensure a constantly lower environmental impact from our operations.
If international climate policy is successful and we manage to limit global warming to two degrees Celsius, it will mean that a large proportion of the world's fossil reserves cannot be extracted as a source of energy or fuel. Some reserves will end up being worthless, in turn affecting the valuation of fossil exposed companies. To ensure stable, long-term returns for our customers, we must understand how global trends, such as the scarcity of resources and population growth will affect profitability in large, listed companies.
Therefore, Storebrand invests an increasing share of capital in the most sustainable securities. An analysis of companies'
sustainability performance forms the basis for this work. In annual sector analyses, 2,500 companies are compared with their peers, and receive a rating from 0 to 100 comprising both risk and opportunities. The best companies are financially robust, and demonstrate good quality management systems and efficient use of resources. In addition, these companies seek profitable growth through products and services that contribute to sustainable development.
The Group has also invested SEK 750 million in a climate bond issued by the European
• In the Utilities sector, 10 companies have been excluded for basing their electricity production largely on coal.
To effectively limit greenhouse gas emissions, it is critical to preserve tropical rainforests. The production of palm oil is one of the main drivers of deforestation, and recently we have seen several indications of stricter regulation of this type of business globally. Therefore 11 palm oil plantation owners have been excluded from our portfolios as of 31 December 2013.
”Pension is not an easy subject. Therefore this was a good and completely necessary review for me. The advice was straightforward, but thorough. At last I have obtained a good overview of my pension and how I should secure myself.” Storebrand Pluss member
In order to meet the manager's often complex requirements in a busy workday, we have developed Storebrand Pluss. This is a management program designed to provide comprehensive pension advice and follow ups of the manager's situation. Our skilled advisors who provide you with a full overview and good understanding of your pension.
You receive help in understanding the consequences of the new pension system, and what it means for you and your employees. We will provide you and your company with retirement saving solutions based on your requirements and needs.
The company has 449,909,891 shares with a par value of NOK 5. As at 31 December 2013 the company owned 2,716 273 of its own shares, 0.60 per cent of the total share capital. The company has not issued any options that can dilute the existing share capital.
24.42 per share. Around 14 per cent of the employees participated and purchased a total of 318,647 shares.
569 million shares in Storebrand were traded in 2013, which is an reduction of 35.4 per cent over 2012. The trading volume in totalled NOK 17,067 million in 2013, down from NOK 21,924 million in 2012. In monetary terms Storebrand was the 16th most traded share on Oslo Børs in 2013. In relation to the average total number of shares, the turnover rate for shares in Storebrand was 126.5 per cent.
Storebrand generated a total return of 41.3 per cent in 2013. The Oslo Børs OSEBX index rose 23.6 per cent for the corresponding period. Over the last 5 years, Storebrand has shown a total return of minus 29.7 per cent, while the European insurance index
Beinsur showed a return of 22.4 per cent for the corresponding period.
Embedded Value 2013 9 April: Annual General Meeting 10 April: Ex dividend date 7 May: Results 1Q 2014 16 July: Results 2Q 2014 29 October: Results 3Q 2014
Greater clarity in relation to the framework conditions for occupational pensions, a changed organisational structure and a shift from products with guaranteed interest rates to unit linked insurance products are the keywords for Storebrand in 2013.
Pension savings are the core of Storebrand's business activities. It concerns more than saving for retirement. Securing future income through good insurance solutions and repayment of loans is for example closely related to the work of being best at saving for pensions. Storebrand seeks to create good customer experiences where customers can receive advice tailored to their life situation. The customers should be able to contact us through the sales or service channel of their choosing. This means that the advice, prices and impression customers get should be the same in all of Storebrand's distribution channels: the internet, social media, telephone calls, letters and face-to-face meetings.
To date over 60,000 people have established their pension figure by logging in to their online account at storebrand.no. This has led to an increase in the sale of savings agreements.
December 2013. Assembling these into a single unit provides a sound basis for managing the salient risks, namely financial market risk and life expectancy risk. By gathering the expertise associated with products with guaranteed interest rates, Storebrand is seeking to ensure good customers handling and competitive returns on the pension funds. The unit will also have a leading role in the Group's adaptation to Solvency II.
As part of the adaptation to Solvency II and the work on capital effectiveness, the Group has worked actively to inform and advise customers with guaranteed products about the opportunity to transfer to fund-based products both in Norway and Sweden. This work will be particularly important when it is possible to move paid-up policies to products with investment choice. This is expected to occur in 2014, please see the section on amendments to the Norwegian occupational pension rules for further information. The customer promise of providing recommendations that are best suited to you and your situation is a leading principle in all customer dialogue and will be particularly important in relation to Storebrand's advice on paid-up policies and investment choice.
In June 2012 the Group launched a cost programme that is intended to reduce the annual costs by NOK 400 million by 2014. A number of measures have been implemented in 2013 and the effects have contributed to an improvement in financial performance during the year.
In a period of low interest rates and building up of reserves for higher life expectancy, the profit sharing within group pensions is expected to be reduced. At the same time the bulk of the business is being shifted from guaranteed pensions to unit linked savings. This, in conjunction with new tax rules, contributed to the Board of Directors of Storebrand ASA setting new financial targets in February 2013.
The Board has established as a target that Storebrand shall adapt to the changing framework conditions without raising more equity.
The Board is maintaining a distribution target for a normal situation of more than 35 per cent of the result after tax, but before amortisation costs. The dividend policy states that dividends shall be adjusted such that the Group is assured the right capital structure.
In addition Storebrand has the following financial targets: 1) (Result after tax adjusted for amortisation costs)/(opening equity - dividends paid - half of repurchased shares during the year).
All the business areas delivered stronger financial performance in 2013. Savings and Insurance are defined as growth areas in Storebrand 's strategy, and are areas that should grow as a result of greater business volume. During 2013 the financial performance of these business areas was strengthened both as a result of increased business and also due to streamlining operations and lower costs.
From 2013 Storebrand has also reported results categorised by type of costs. The results differentiate between "fixed" fees such as administration and insurance premiums and more volatile earnings such as profit sharing.
From the second quarter of 2013 Storebrand has reorganised its financial reporting. The new reporting format is designed with the intention of clarifying the company's strategy. The reporting clearly sets out key figures that show how the company is realising its strategy. The new segments in the reporting are: Savings, Insurance, Guaranteed Pensions and Other.
Financial performance figures for 2013 show that the results have improved both due to growth in earnings from fees and administration and from insurance premiums of 11 and 14 per cent respectively, but also from a nominal reduction in costs of 18 per cent. In 2012 the costs included a non-recurring charge of NOK 195 million in connection with restructuring. Costs in 2013 are reduced by a total of
As a result of the Corporate market in the Bank being wound up, goodwill in the bank has been written down by NOK 300 million in 2013.
Pursuant to Norwegian accounting legislation, the Board confirms that the company meets the conditions for preparing the financial statements on the basis of a going concern assumption. The Board is not aware of any events of material importance to the annual and consolidated financial statements that have occurred since the balance sheet date.
Total earnings from fees and administration have shown a growth of about 15 per cent in 2013 in comparison with 2012. A number of measures have been initiated for rationalisation and savings with respect to the Group's cost programme. Operating expenses have been reduced by NOK 138 million in comparison with 2012. Of the NOK 138 million in reduced costs, NOK 72 million is attributed to a positive non-recurring effect from restructuring the pension plan for own employees. Increased sales have led to higher distribution costs.
Defined contribution pensions are undergoing strong growth due to a steadily rising number of companies choosing to convert from defined benefit schemes to defined contribution-based schemes. This is increasing both the number of members and the management volume in the defined contribution-based pension schemes in both Norway and Sweden. In addition, rising equity markets contribute to further growth through solid returns on the premium reserves. This gives a total growth in earnings for the Group's defined contribution pension products of 26 per cent in 2013 in comparison with the previous year.
Storebrand Bank is a direct bank which offers a wide spectrum of banking services to the retail market. The banking business shows solid growth in the retail market in 2013, both within deposits and lending. At the same time, the interest margin increased to 1.21 per cent in 2013 compared with 1.02 per cent in 2012. These effects provide a significant boost in income. The loan portfolio in the retail market remains stable at approximately NOK 24 billion. This primarily consists of low-risk home mortgages. Lending losses in 2013 totalled NOK 7.2 million.
Assets under management have risen by 10 per cent during 2013 to NOK 487 billion at the end of the year. Customers' reallocation from equities to products with lower risks and lower margins reduces the income margins, but the strong Swedish krona is contributing to net income growth within asset management of approximately 6 per cent.
0.7 billion. Total reserves within unit linked have grown by 35 per cent from 2012.
Insurance has responsibility for the Group's risk products . The unit provides treatment insurance in the Norwegian and Swedish corporate and retail markets, P&C insurance and personal risk products in the Norwegian retail market and employee- and pension-related insurances in the Norwegian corporate market. forsikringer i det norske bedriftsmarkedet.
1) Health insurance is owned 50 per cent each by Storebrand ASA and Munich Health.
The cost percentage was 15 per cent (19 per cent) for the year. The amendment to the pension rules for Storebrand Group's employees and former employees entailed a positive non-recurring effect of NOK 55 million. The cost percentage after adjusting for this non-recurring effect is 17 per cent. The cost base will be further streamlined through increased automation of end-to-end processes, sourcing of services and exploitation of economies of scale with greater volume, in addition to increased sales via cost-effective and direct-based channels.
Insurance's investment portfolio comprises NOK 5.42 billion and is mainly invested in fixed income securities with a short to medium term duration. The return on the portfolio is satisfactory but a little weaker than in 2012 when gains from realisations were high.
The corporate market is in general a mature market with the exception of health insurance which is a market still exhibiting strong growth. Measured by annual premiums, Storebrand is one of the market leaders within health insurance. With regard to other employee insurance segments, Storebrand is one of several large companies. For risk coverage in connection with defined contribution pensions relatively high growth is expected in the future driven by conversions from defined benefit to defined contribution based pensions.
Guaranteed pensions consist of products encompassing long-term savings for pensions, where the customers have a guaranteed return or benefit on the saved funds. The area includes defined benefit pensions in Norway and Sweden, paid-up policies and individual capital and pension insurance.
The profit for Guaranteed Pensions totalled NOK 1,665 million in 2013, an increase of NOK 472 million compared with 2012. Revenues rose primarily due to price adjustments at the start of the year. Large parts of the Group's cost programme encompass Guaranteed
Pensions, and the costs were reduced by a total of NOK 264 million, of which NOK 106 million is a positive non-recurring effect due to restructuring the pension plan for own employees.
The risk result gives a substantial contribution to the income statement but is a little weaker in 2013 compared with the previous year.
Within group defined benefit pensions in Norway, it is the disability and reactivation result (disabled persons who return to working life) in particular that is impacting positively, while the longevity result remains negative. In the Swedish business it is also risk coverage related to disability that is contributing most to the risk results.
The result from net profit sharing has primarily been generated in the Swedish business. The portfolio that is open to new sales (denoted
Transfers from guaranteed pensions have amounted to NOK 10 billion in 2013 compared with NOK 4.1 billion in the previous year.
The premium incomes for guaranteed pensions were NOK 10.9 billion in 2013, a reduction of almost 10 per cent compared with 2012.
The profit for Other activities is NOK 108 million for 2013, up from NOK 62 million in 2012. The improvement in profit is attributed primarily to low costs and the sale of SPP Liv Pensionstänst AB.
Fee and administration income was softened by reduced activity associated with lending to corporate market customers. The income was reduced due to lower lending volume, however it was first and foremost due to lower fees associated with the arranging and issuance of corporate market loans. Revenues from BenCo totalled NOK 116 million in 2013, down from NOK 130 million in 2012.
Goodwill linked to Storebrand Bank was written down by NOK 322 million (from NOK 422 million to NOK 100 million). This goodwill arose as a result of the acquisition of Finansbanken in 1999, a bank that dealt primarily with corporate market loans. As a result of the discontinuation of corporate market operations in the bank, it was acknowledged that the value could no longer be justified.
The financial result includes the return in the company portfolios of Storebrand Livsforsikring and SPP, the financial result of Storebrand ASA as well as the net result for subsidiaries currently being wound up and started up at SPP. The sale of SPP Liv Pensionstänst
AB to KPA affects the result for 2013 positively by NOK 55 million. The financial result is primarily weakened due to a lower return in the company portfolio in SPP as a result of lower short term interest rates in Sweden. The result is also negatively affected by start-up costs associated with establishing the product concept Investment savings account. The Storebrand Life Insurance Group is funded by a combination of equity and subordinated loans. The proportion of subordinated loans of approximately 25 per cent and interest charges comprise a net amount of approximately NOK 120 million per quarter at the current interest rate level. The company portfolios comprised NOK 20.3 billion at the end of the year. The investments are primarily in short-term interest-bearing securities in Norway and Sweden.
It also allows for a supplement to the yield curve that is used to discount the insurance liabilities, through a supplement to the swap yield curve. The supplement corresponds to an illiquidity premium on the investment side called a volatility adjustment. A proposal has been made to give the individual national authorities the competence to decide the length and arrangement of use of the transitional period and the level of the permanent measures to adapt Solvency II to long-term guarantees.
As the proposed regulation is currently worded it is somewhat better suited to companies that have long-term return guarantees than was previously the case. The significance of the transitional rules will largely depend on the level of interest rates at the time Solvency II is introduced. A higher yield curve through the volatility adjustment will also contribute to reducing the significance of the transitional rules, because the difference between the Solvency II and Solvency I liabilities, which may increase the solvency capital, is reduced.
K2013 entails a need to increase reserves by about NOK 12.5 billion for Storebrand (approximately 8 per cent of the premium reserves).
During the period 2011-2012 Storebrand has allocated NOK 4.3 billion for the building up of future reserves. For 2013 NOK 0.5 billion was set aside. NOK 0.5 billion is used to reserve transferred contracts in 2013 and in January 2014.
Due to the substantial required build-up of reserves the Financial Supervisory Authority of Norway will allow for reserve-building periods that should not exceed five years. Customer surplus may be used to cover the required build-up of reserves. A minimum of 20 per cent of the total required build-up of reserves should be covered by the company with equal contributions each year. The size of the owner's contribution depends on the length of the escalation plan, principles for building up the reserves, as well as the return and risk surpluses during the escalation period. This will likely be clarified in the guidelines for the escalation plans that are expected from the
In December 2013 the Storting approved the proposal by the Ministry of Finance for a new occupational pension act. The new law builds on the Banking Law Commission's proposal in NOU 2012:13.
The new occupational pension act came into force from 1 January 2014.
In NOU 2013:3, the Banking Law Commission proposed changes that entailed a gradual discontinuing of defined benefit pension over a three-year period. The Ministry of Finance did not follow this up in its bill Prop. 199L (2012-2013). The rules therefore make it possible to keep defined benefit pension schemes without adaptation to the new National Insurance accrual system. In the draft legislation the Ministry of Finance writes that the Banking Law Commission is given a mandate to study whether it is desirable and possible to establish a form of defined benefit-based group retirement pension, adapted to the new age accrual in the National Insurance scheme.
In connection with the future work on defined benefit based pension schemes the ministry will assess whether there is a need for additional rules for the transition between the pension schemes.
In 2012 the Storting adopted amendments to legislation that allow the customers to choose to convert paid-up policies to paid-up policies with investment options. Since the legislation has not yet come into force, there is a need to clarify how the conversion will be handled during the building up of reserves to K2013. In November 2013 the ministry sent a memorandum from the Financial Supervisory
Clarification of these points is expected in early 2014, and the law is expected to enter into force at that time.
A 2013 report on higher retirement age in Sweden ("pensjonsaldersutredningen") proposed a new longevity adjustment for pensions.
This entails that the different age limits in connection with pensions be adjusted upwards in line with the increase in projected life expectancy in the population and shall encourage successively higher retirement ages. Another report in 2013, Crossroads for the premium pension ("Veivalg for premiepensjonen"), proposed adjusting the Swedish premium pension system with a reduced funds dividend.
Work has also begun on drawing up a report that will propose amendments to the tax regulations, which will lead to greater tax neutrality between different pension solutions. A report is also being prepared on incorporating the occupational pension directive (IORP II)
All of these reports are expected to be completed in 2014 and will be considered by the government after the election in September 2014.
Continuous monitoring and active risk management are core areas of the Group’s activities. The basis for risk management is laid down in the Board's annual review of the strategy and planning process, which sets the appetite for risk, risk targets and overriding risk limits for the operations. Risk management and internal control form an integral part of management responsibility in Storebrand.
All parts of the company are exposed to operational risk. Operational risk is direct or indirect losses due to inadequate or failing internal processes or systems, human error or external events. Storebrand seeks to reduce operational risk by having plain routines, clear descriptions of responsibilities and documented authorisations. In addition, Internal Audit carries out independent checks through audit projects adopted by the Board. The greatest operational risks are associated with regulatory changes and major IT projects and their accompanying risk of operational and business impacts and failures in customer service and deficiencies in advisory services. The executive management conducts annual risk assessments which result in an overview of risks and improvement measures. The risk assessments are presented to and considered by the boards of the individual companies and the Group's Board of Directors.
Guaranteed pensions include both individual (IF) and group pensions (KF) in Sweden and defined benefit-based occupational pensions include paid-up policies and traditional individual pension products in Norway. The salient risks are financial market risk and life expectancy risk.
A common feature of the products is that Storebrand guarantees a minimum return. The level of the guarantee varies. In Sweden new premiums in IF have a 0.5 per cent guarantee, whereas existing reserves have up to a 5.2 per cent guarantee. In Norway new premiums are taken in with a 2.5 per cent guarantee, whereas existing portfolios primarily have guarantee levels of between 3 and 4 per cent.
Over time new premiums will contribute to the average guarantee level falling.
In Norway the return must exceed the guarantee in each year, while in Sweden it is sufficient to achieve the guaranteed return as an average. In Norway a new lifetime tariff is being introduced for defined benefit pensions and paid-up policies from 2014. For the existing reserve there is a 5 year escalation plan, and customer returns exceeding the guarantee can contribute to building up reserves. During the escalation period it gives an increase in risk that may be compared with increasing the interest rate guarantee.
Even though rising interest rates are negative for investment return in the short term due to capital losses on bonds, they are positive over the long term due to increasing the likelihood of achieving a return that is higher than the guarantee. During 2013 long-term interest rates have risen in both Norway and Sweden. But short-term interest rates have fallen, and the central banks are expected to keep interest rates low during 2014 as well.
KF in Sweden adjusts disbursements for inflation, and that gives an inflation risk. This is reduced by having parts of the portfolio invested in inflation-linked bonds.
Good equity markets have contributed positively to the return on the guaranteed portfolios in 2013, but falling interest rates have given a capital loss on bonds with the result that the return has been weak for the Swedish guaranteed portfolios with low equity percentages. In Norway the return has been above the guarantee for all portfolios with the exception of paid-up policies. The return above the guarantee for 2013 that is utilised to cover the build-up of reserves for long lives amounted to NOK 0.5 billion. Rising long-term interest rates during 2013, particularly in Sweden, have improved the solvency position.
Changes in occupational pension schemes in Norway will reduce the risk over time since defined benefit-based schemes are replaced by defined contribution pensions or hybrid schemes without a guaranteed return. The restructuring has the greatest effect on new premiums, while existing reserves will continue as paid-up policies. For paid-up policy customers it will also be possible to choose to convert to a product with investment choice. For many customers it will give a higher expected return and thus larger pension disbursements. In the short term the transition is limited by the fact that it is a condition that the reserves must be fully built up to the new lifetime tariff before the customer can select investment choice. For IF in Sweden it is possible for the customer to change to a product without a guaranteed return.
Saving comprises products without guaranteed interest rates for pension savings. The area includes defined contribution pensions in
For non-guaranteed pension products the customer has the financial market risk. In Norway the disbursements are time limited and therefore Storebrand does not bear the risk from increased life expectancy. For the new hybrid product the main rule is lifelong disbursements, but the risk for the pension provider is limited to the disbursement period. In Sweden a large portion of the portfolios have lifelong disbursements, but the customer can choose time-limited disbursements.
Asset management offers active management and the management of fund-in-fund structures for the customer‘s account and risk.
Special attention is therefore paid to risks associated with amendments to relevant legislation. The company performs important monitoring tasks for its customers in accordance with the management agreements they sign. Investment portfolios are monitored on a daily basis in relation to a wide range of investment restrictions.
ANNUAL REPORT 2013 and willingness to take risks through actively managed mandates, as well as affect the customers‘ asset composition, which in turn can result in a shift from products with high margins to products with lower margins.
The bank has established good liquidity buffers and attaches great importance to having a balanced funding structure in relation to the various maturities and issuances in various markets.
The bank group's aggregate market risk through interest rate and exchange rate exposure and the maximum risk of loss on its liquidity portfolio are restricted through low exposure limits. Nor does the bank have an active equity portfolio.
The credit quality of the retail market portfolio is considered very good. Almost the entire portfolio is secured on property. The portfolio ’s high collateral coverage indicates a limited risk of loss. The loan to value ratio for the mortgages is relatively low. Only a very limited number of loans exceed 80 per cent of their market value. Such loans are generally only given if the customers can provide additional collateral.
Due to a Group level prioritisation of capital use in Storebrand and a strategic assessment of the future direction for the Group, the corporate market segment in the bank is no longer being prioritised as a core business activity and will be scaled down and ultimately discontinued.
The credit quality of the corporate market portfolio is considered good. The portfolio entirely consists of mortgages for commercial properties. Mortgage-backed loans in which running cash flows cover the loan's interest charges account for around 75 per cent of total exposure (loans and lines of credit). The remainder of the portfolio consists of mortgage-backed loans in connection with property development. The cash flow loans are characterised by a well-diversified tenant profile and good lease durations. Such loans ensure cash flow for the bank from the tenants. At the same time, the buildings provide collateral. Tenant diversification ensures the corresponding diversification of cash flow risk. This considerably minimises the overall risk in the portfolio. Development projects involve somewhat greater risk and the total exposure here is around NOK 2.8 billion. This segment is largely composed of loans to construction projects in the housing and office sector in and around the central Oslo region.
For Storebrand Forsikring AS insurance risk is the greatest risk. A one percentage point rise or fall in the claims ratio will amount to about a NOK 30 million improvement or impairment in the 2013 result. To limit the impact, several risk-reducing measures have been introduced. Ahead of events the most important risk-reducing measures are the underwriting regulations and risk pricing. After events the risk is limited by reinsurance contracts. The need for reinsurance is assessed for each product range in relation to the volatility of the risk results.
Market value adjustment reserve in % of customer funds with guarantee
Insurance has low financial market risk due to a conservative investment profile. The investment portfolios are invested primarily in fixed income securities with short to medium term durations and a low credit risk. The durations of assets and liabilities are well matched.
For one-year risk products the main risk is disability risk, including health insurance in Sweden. Storebrand has the risk of there being more disability cases than expected and/or that fewer disabled persons are fit to work again (reactivation). In Sweden political factors
Compliance and operational risk are monitored closely and systematically as part of the daily management by the unit through regular reviews of identified risk areas, risk assessments of new projects and evaluations of the causes of incidents.
Storebrand pays particular attention to the levels of equity and loans in the Group, which are continually and systematically optimised.
The solvency capital in the life insurance group increased by NOK 7.2 billion in 2013. In addition to the profit for the year (NOK 2.6 billion) the main contributions were the increased market value adjustment reserve (NOK 2.8 billion) and increased buffers in the form of a conditional bonus in SPP (NOK 2.9 billion). The additional statutory reserves comprised NOK 4.5 billion at the end of the year, a reduction of NOK 1.3 billion for the year, largely due to drawing on the additional statutory reserves in consequence of low returns having been recognised for paid-up policies. The excess value of held-to-maturity bonds valued at amortised cost increased by NOK 0.1 billion in 2013 and totalled NOK 5.2 billion at year-end. The excess value of held-to-maturity bonds is not included in the financial statements.
Total reserves for long lives as per 31 December 2013 amounted to NOK 4.5 billion and are not included in the solvency capital.
The Storebrand Life Insurance Group’s solvency margin increased from 162 per cent to 176 per cent at the end of the year. The solvency margin is positively affected by the profit for the year and increased long-term interest rates in Sweden. As at 31 December 2013 the yield curve for discounting the Swedish insurance liabilities in the solvency calculation was changed. This led to a fall in the Group's solvency margin of about 8 percentage points. The new yield curve is better suited to the yield curve that will be utilised under Solvency
SPP Livförsäkring AB's solvency margin was 254 per cent and SPP Liv Fondförsäkring AB's solvency margin was 239 per cent at the end of the year, compared with 222 per cent and 221 per cent respectively in 2012. Increased long-term interest rates have led to the value of insurance liabilities in the solvency calculation being reduced and solvency capital being higher, at the same time as the changed yield curve has had a negative contribution.
Conditional bonus in % of customer funds with guarantee Solvency margin SPP Liv Fondförsäkring AB
The Storebrand Group has worked systematically and purposefully on sustainability for almost 20 years. Sustainable products and relationships are one of Storebrand's customer promises and form an integral part of the Group's brand. During 2013 Storebrand has further strengthened its work on sustainability with the aim of delivering on our customer promise relating to sustainability, and ensuring that sustainability is a differentiating factor that brings us closer to our vision: "Recommended by our customers".
A guiding star for our work is the vision of a sustainable world in 2050 which we developed and supported, in collaboration with many other large enterprises within the framework of the World Business Council for Sustainable Development. The vision: where 9 billion people live well and within the limits of the planet.
At present the Group has excluded 176 companies from investment, and these companies are also automatically disqualified as suppliers to the Group.
Our ethical rules are an important tool in our daily operation, and are followed up every year through training and monitoring. Management teams at all levels of the Group discuss ethical dilemmas and review the rules at least annually. The extent to which the rules are complied with is followed up by an ethics indicator. Each year targets are established for the indicator and performance is reported in the Group's sustainability scorecard.
We want to be transparent, and submit annual reports to a number of sustainability indices, including the Carbon Disclosure Project, the Dow Jones Sustainability Index, Vigeo, Sustainalytics and FTSE4Good. Our sustainability reports follow the guidelines from the Global
Reporting Initiative. Our head office in Oslo holds an environmental certification from the Eco-Lighthouse Foundation, and a process is currently under way to environmentally certify SPP's head office in Stockholm.
The standard means that we exclude individual companies that are in violation of international norms and conventions or that violate
The following topics are covered by the minimum standard: • Human rights, workers' rights and international law
• We also exclude the companies that are the worst performers in relation to sustainability and climate measures in high-risk industries.
Storebrand monitors whether our corporate customers run their businesses on the basis of socially responsible attitudes and actions.
Sustainability is integrated into Storebrand's values, our vision, core values and promises to customers. The following guidelines are fundamental to our work: • The Group's ambition is to contribute to solving society's problems and to create sustainable development locally and globally through its products and services.
• We have implemented requirements with regard to sustainability, corporate social responsibility, environmental work and ethics within the Group and for all of our partners and suppliers.
• Sustainability must run through the development of new financial products and services, and must be fully integrated with our asset management.
• The Group will constantly ensure reduced environmental emissions from our operations.
• The Group will have a transparent management structure that lives up to national and international corporate governance standards.
• All of the Storebrand Group's self-managed assets are subject to the minimum standard for sustainable investments.
For further information on our sustainability work refer to the section on sustainability on page 16, the section on sustainable investments on page 18 and the Sustainability Scorecard on page 170.
50 per cent of Storebrand ASA's board members are women in 2013, compared with 44 per cent in the previous year. The proportion of women on the subsidiaries' boards is 39 per cent and in the executive management it is 38 per cent, compared to 22 per cent in the previous year. At the end of the year, women accounted for 44 per cent of people with managerial responsibilities in the Group and the ratio of women to men was 51/49. In SPP 53 per cent of the managers are women. The positive trend in the proportion of women relative to men is a result of the systematic work of identifying future managerial candidates and promoting an even gender distribution.
Storebrand's head office is located at Professor Kohts vei 9 in Lysaker in the municipality of Bærum. Storebrand's Swedish business, SPP, operates from the business address: Vasagatan 10, Stockholm, Sweden.
The survey also showed that there continues to be strong interest among the employees in skills training and personal development, and this will be followed up in the individual action plans in 2014.
company since 2002 and the Group's managers have over the years built up good routines for following up sick employees. All managers with Norwegian employees must complete a mandatory HES course in which part of the training involves following up illnesses.
The Group has a common code of ethics that is available on our intranet in three languages. Notification routines, brochures, anonymous postbox, dilemma bank, question and answer summaries and presentations are all available to employees on the intranet. Every year all the managers must confirm in writing that they have discussed ethics and ethical dilemmas, information security, financial crime and
HES in departmental meetings. Employees take the company's e-learning course on ethics. The company's authorised financial advisors complete a specially tailored training programme in ethics.
The company's vision, customer promises and core values constitute the heart of company culture. In conjunction they contribute to underpinning priorities with a customer focus for both managers and employees.
During 2013 the company has continued the work of making day-to-day working life a good arena for learning and development. The company has focused on management development in particular. Work has been undertaken on change management to strengthen implementation of the strategy and the work on improving employee appraisals is also well under way. Work has gone into giving employees an appreciation of their own role and mastering skills throughout the year. This will help employees to more easily be able to understand how to prioritise, what support they need and how they can develop themselves both professionally and personally in order to contribute to achieving goals. Among the measures that have been implemented in 2013 are giving managers training in constructive feedback, increasing the frequency of performance appraisals and follow-up conversations, removing the grading system for measuring performance and introducing an annual departmental review of skills and employees. In this way it is easier to obtain an overview of future skills requirements and career wishes. Further improving customer relations forms an important part of achieving our vision: "Recommended by our customers". Training programmes on customer communication and sales are therefore continued from 2013.
During 2013 the following changes to the membership of Storebrand's corporate bodies took place: Board of Directors: Ann Mari Gjøstein (employee representative), Birgitte Nielsen and John S. Dueholm have retired from the Board. Gyrid
Skalleberg Ingerø, Heidi Storruste (employee representative), Laila Dahlen and Terje Vareberg have been elected as new members.
The Board wishes to thank the retiring members of the Board of Directors and Board of Representatives for their valuable contributions to the Group.
Storebrand is exposed to several types of risk through its business areas. Trends in interest rates and the property and equity markets are assessed to be the most significant risk factors that can affect the Group's result. Over time, it is important to be able to deliver a return that exceeds the interest rate guarantees of the products. Risk management is therefore a prioritised core area for the group. In addition, the disability and life expectancy trends are key risks.
Occupational pension statutes in Norway will undergo a series of changes in order to adapt them to National Insurance reforms.
The Norwegian Parliament (Storting) passed the Ministry of Finance's proposed new act for occupational pensions. The new Occupational Pensions Act will give rise to a hybrid product in the Norwegian market. This hybrid product is adapted to the new National Insurance
Scheme. It is based on the National Insurance principles of all-years accrual, annual contributions to pension holdings, death inheritance, flexible pension from the age of 62 and longevity adjustments. The new Act does not change anything about benefits already earned through a defined benefit pension scheme. The Act does not solve the challenges related to paid-up policies under Solvency II as described in NOU 2012:3.
In March 2013 the Financial Supervisory Authority of Norway published a new mortality basis for group pension insurance, K2013. The new mortality basis is dynamic, i.e. it incorporates an expectation that mortality will fall further in the future.
Storebrand ASA‘s official financial statements, which are prepared pursuant to Norwegian accounting law, show a result before tax of
NOK 377 million, compared with minus NOK 66 million in 2012.
The profit for the year ended 31 December 2013 for Storebrand ASA was NOK 281 million in comparison with minus NOK 200 million in 2012. As described above the Board is maintaining the previous dividend rate target.
The Group is in a situation where it needs to strengthen its reserves for higher life expectancy. Given this, the Board has decided to propose to the Annual General Meeting that no dividend be paid and that the net profit for 2013 be allocated to other equity.
Good corporate governance is important to ensure that an enterprise can achieve its defined goals, including best possible utilisation of resources and good value creation in the company. Storebrand focuses strongly on continuous improvement of the Group's overall decision-making processes and the day-to-day management of the company.
Practice in the Board of Directors' Report on page 44. Storebrand complies with the
The Group’s sustainability guidelines are based on the principles set forth in the UN
The Group has its own code of ethics, as well as guidelines for whistle-blowing, social events, combating corruption, etc. An employee survey was conducted within the
Storebrand ASA is the parent company in a financial group. The company's statutory object is to manage its equity interests in the Group in compliance with the current legislation. The Group’s main business areas comprise pension and life insurance, asset management, banking and P&C insurance.
The market is kept informed of the Group's goals and strategies through quarterly investor presentations and other specialised presentations, such as the Capital Markets
Directors' Report. The Board has adopted a dividend policy that states that the dividend paid to shareholders shall normally amount to more than 35 per cent of the profit for the year after tax, but before amortisation costs. The dividend shall be adjusted such that the Group is assured the right capital structure. The dividend is set by the Annual
NOK 224,954,945. This authorisation may be used for the acquisition of businesses in consideration for new shares or increasing the share capital by other means. The
The total holdings of treasury shares must, however, never exceed 10 per cent of the
Group's share capital. The buyback of treasury shares may be a tool for the distribu-
tion of surplus capital to shareholders in addition to dividends. In addition, each year
The Board shall ensure that an independent third party assesses the value of transactions that are not insubstantial in nature.
Transactions with close associates involving the Group’s employees and other officers of the Group are regulated by the Group’s code of ethics. Employees shall on their own initiative immediately report conflicts of interest that may arise to their immediate superior as soon as they become aware of such a situation. In general, an employee is defined as disqualified if circumstances exist that could result in others questioning the person’s impartiality in relation to matters other than the interests of the Group.
section 3 above. The Board of Directors may decide to waive the shareholders’
Børs (Oslo Stock Exchange). The shares are freely negotiable, and the Articles of
Pursuant to the company’s Articles of Association, Storebrand ASA’s Annual General
Meeting shall be held by the end of June each year. The 2013 Annual General Meeting was held on 17 April. All shareholders with a known address will receive notice of the Annual General Meeting, which will be sent out no later than 21 days before the
Annual General Meeting. The deadline for registration is three working days before the Annual General Meeting.
Articles of Association were amended so that the requirement in the Norwegian
Public Limited Companies Act or the Articles of Association that documents concerning matters to be considered at the General
Meeting must be sent to the shareholders does not apply if the documents are made available to the shareholders on the company's website. This also applies to documents that are to be included in or attached to the notice of the general meeting pursuant to the Norwegian Public
Association. A shareholder may nevertheless request that the documents concerning the items to be discussed are sent free of charge.
This provision in the Articles of Association deviates from the main rule in chapter 5 of the Norwegian Public Limited Companies
Meeting. The Board's proposal to amend the Articles of Association on this point was justified by a desire to achieve environmental benefits and cost savings.
Storebrand focuses strongly on continuous improvement of the Group's overall decisionmaking processes and the day-to-day management of the company.
ANNUAL REPORT 2013 advance was exercised for the first time at the Annual General Meeting in 2012 and the practice continued in 2013. This arrangement allows the shareholders to vote in advance without being represented at the
Storebrand’s Articles of Association stipulate that the chairman of the Board of Representatives shall chair the Annual
The Annual General Meeting makes decisions concerning the following: • Approval of the annual report, financial statements and any dividend proposed by the Board.
Norwegian law, however, a special majority is required for certain decisions, including decisions about setting aside pre-emptive rights in connection with any share issues, mergers, demergers, amendments to the
Articles of Association or authorisations to increase or reduce the share capital. Such decisions require approval by at least twothirds of both the votes cast and the share capital represented at the Annual General
ASA and all of the aforementioned subsidiaries or group companies. The committee is independent of the respective boards and management of the companies. The term of office is two years. The Control Committee is responsible for ensuring the Group conducts its activities in a prudent and proper manner. The committee ensures that the
Group complies with all relevant legislation and regulations, and that it operates in accordance with the Articles of Association and resolutions adopted by the Group’s decision-making bodies. The committee is entitled to look into any matter and has access to all relevant documentation and information. The committee has the power to demand information from any employee and any member of the governing bodies.
General Meeting. The Articles of Association stipulate that the chairman of the Board of Representatives shall be a permanent member of the Nomination Committee, if the person concerned has not already been elected by the Annual General Meeting. An employee representative will also participate as a permanent member in discussions and recommendations concerning the election of the chairman and deputy chairman of the Board of Representatives and the
The Nomination Committee is independent of the Board and management, and its composition aims to ensure broad representation of the shareholders’ interests.
Committee and Nomination Committee, and the remuneration for the members of these bodies. The Committee’s members are also members of the nomination committees of Storebrand Livsforsikring AS, Storebrand
Control Committee and boards of the group companies. The Nomination Committee also prepared elections that will be held in 2014.
General Meeting shall reflect the company’s stakeholders, customer structure and function in society. The company’s shareholders are broadly represented through the elections that are held.
Control Committee's work, and considering reports from the Control Committee. The
Nomination Committee. Two members, or three members if the Board of Representatives elects six or seven directors, shall be elected by and from among the employees.
The board members are elected for one year at a time. The day-to-day management is not represented on the Board of
Practice. There are few instances of disqualification during the consideration of matters by the Board. The Board’s assessment of each board member’s independence is commented on in the overview of governing and controlling bodies on page 62. An overview of the number of shares in the
Storebrand Group owned by members of governing bodies as at 31 December 2013 is included in the notes to the financial statements for Storebrand ASA (Information on related parties) on page 120.
In 2013 a total of 12 board meetings were held, one of which was held at the subsidiary SPP in Stockholm, and one of which was held at Storebrand Baltic in Vilnius.
Board’s annual strategy meeting, which establishes guidelines for the management ’s preparation of plans and budgets in connection with the annual financial plan, which must be approved by the Board. The
ANNUAL REPORT 2013 sented to the Board based on the approved schedule for the year and a list of matters carried forward from previous meetings.
The Board has established a Remuneration Committee and an Audit Committee.
Board with all matters concerning the CEO’s remuneration. The committee monitors the remuneration of the Group’s executive personnel, and proposes guidelines for the fixing of the executive personnel’s remuneration and the Board’s statement on the fixing of the executive personnel’s remuneration, which is presented to the Annual General
Meeting each year. In addition, the committee safeguards the areas required by the
The Audit Committee assists the Board by reviewing, evaluating and, where necessary, proposing appropriate measures with respect to the Group’s overall controls, financial and operational reporting, risk management, and internal and external auditing. The Audit Committee held eight meetings in 2013. The external and internal auditors participate in the meetings. The majority of the committee’s members are independent of the Group. The Board has found that it is appropriate to have a combined Remuneration Committee for the entire Storebrand Group.
Group’s risk profile, approval of the organisation of the business, assignment of areas of responsibility and authority, requirements concerning reporting lines and information, and risk management and internal control requirements. The Board’s and
The Group’s corporate responsibility guidelines summarise how corporate responsibility is an integral part of the Group’s management and control processes for investments, product development, purchasing, employee monitoring and internal operations. The Group’s corporate sustainability goals are adopted by the Board, and the sustainability scorecard is followed up by the Group's executive management team The Group also complies with the GRI
As an extension of the general policies and guidelines, a code of ethics has been drawn up that applies to all employees and representatives of the Group, in addition to corporate rules for areas such as risk management and internal control, financial reporting, handling inside information and share trading by primary insiders. Guidelines and information about information security, contingency plans and financial criminality have also been drawn up. The
The responsibility for the Group's control functions for risk management and internal control lies in the CRO function under the management of the Group Chief Risk
The appraisal of Storebrand employees forms an integral part of the value-based management system and is designed to ensure that the Group’s strategies are implemented. The policies for earning and paying bonuses to the Group’s risk managers comply with the regulations relating to remuneration in financial institutions.
The Storebrand Group publishes four interim financial statements, in addition to the ordinary annual financial statements. The financial statements shall satisfy legal and regulatory requirements and be prepared in accordance with the adopted accounting policies and published according to the schedule adopted by the Board of Storebrand ASA.
Board’s Audit Committee conducts a preparatory review of interim financial statements and annual financial statements, focusing in particular on the discretional valuations and estimations that have been made prior to consideration by the Board.
The external auditor attends meetings of the Board as required and meetings of the
Committee. The fees paid to the members of the Board are not linked to earnings, option schemes or similar arrangements.
Committees do not receive incentive-based remuneration; instead they receive a fixed annual compensation. The shareholder -elected members of the Board do not participate in the company’s pension schemes. None of the shareholder-elected members of the Board carry out any duties for the company beyond their appointment to the Board. More detailed information on the remuneration, loans and shareholdings of board members can be found in notes 25 (Group) and 6 (ASA) of the notes to the accounts. Board members are encouraged to hold shares in the company.
The Board determines the structure of the remuneration of executive personnel at
Storebrand, and a statement on the fixing of remuneration is presented to the Annual
The Storebrand Group has chosen to only pay fixed salaries to employees for whom control functions make up a large part of their duties. This is to ensure independence in the execution of the control functions.
For Norwegian executive personnel half of the awarded bonus is paid in cash, while the remaining half is converted to a number of synthetic shares based on a weighted average price before payment. The number of shares is registered in a share bank and will remain there for three years. Actual shares are not purchased. At the end of the period an amount corresponding to the market price of the shares awarded is paid.
The Board has issued guidelines for the company’s reporting of financial and other information and for contact with shareholders other than through the Annual
Group’s accounting process. Any documentation that is published will be available on the company's website. All reporting is based on the principle of transparency and takes into account the need for the equal treatment of all participants in the securities markets and the rules concerning good stock exchange practice. Further information may be found on page 20. Storebrand has its own guidelines for handling insider information, see also section 10 – Management and control, above.
Governance in this role. Storebrand has had an administrative Corporate Governance
Committee since 2006. The committee is responsible for ensuring good corporate governance across the Storebrand Group.
1. The principles for Storebrand's corporate governance have been prepared in accordance with Norwegian law, and they are based on the Norwegian Code of Practice for Corporate Governance published by the Norwegian Corporate
Practice are commented on under each section in the statement above, see the deviations discussed in section 3.
Companies Act with regard to the general meeting are discussed in section 6 above.
6. The composition of the governing bodies and a description of the main elements in the current rules of pro cedure and guidelines can be found in 7. The provisions in the Articles of Association that regulate the appointment and replacement of board members are discussed in section 8 above.
8. Provisions in the Articles of Association and authorisations granting the board the authority to buy back or issue the
Storebrand Group in the autumn of 2012. He previously worked for the SAS Group as Chief
Storebrand Group since 1997 in executive roles in the area of life and pension insurance. He has long experience with business policy issues through roles at
since 2009. She has broad experience from the financial sector and has held executive positions at AMF Pension, Fjärde
Storebrand Group since 2006, primarily as Investment Director at SPP. He previously worked at
Caneman previously worked at SEB as Deputy CEO and Member of the Group Executive committee. Her previous roles have included
and Big Bag AB. She is a Board Member of SAS
Ingerø is a Board Member of Opplysningen 1881 AS and Sporveien i
Stenstadvold is an independent adviser. His previous roles have included member of Orkla's executive management, Managing
With our new digital service, anyone with a Storebrand pension can log in to view their pension figure. You can gather all your pension agreements here, providing you with a full overview. In addition, you will receive advice on simple actions you can take to increase your pension figure.
Through Storebrand Pensjonstall we want to create interest around the topic of pensions, as well as lower the barriers for people to familiarise themselves with their own pension. It is only then you can evaluate and take actions to get the best possible retirement. Your pension figure is defined as the total amount of money that you will live on, on the day you stop working. It consists of your pension from the
Note 25 Remuneration to senior employees and elected officers of the company
Net income from financial assets and real estate for the company: - equities and other units at fair value 16 8 - bonds and other fixed-income securities at fair value 16 422 658 - financial derivatives at fair value 16 24 9 - net income from bonds at amortised cost 16 59 101 - net income from real estate 16 41 33 - result from investments in associated companies 33 74 -3
Tax on other result elements not to be classified to profit/loss 104 -142
Total other result elements not to be classified to profit/loss -236 301
Total comprehensive income due to: Majority's share of total comprehensive income 2,564 1,207
Financial assets at amortised cost: - Bonds held to maturity 10,35,36 347 222 - Lending to financial institutions 10,35 152 255
Financial liabilities: - Liabilities to financial institutions 9,13,35 1,028 2,499 - Deposits from banking customers 9,13,35,48 20,728 19,860
Storebrand Group Reconciliation of Group's equity 1) 449,909,891 shares with a nominal value of NOK 5.
The risk equalisation reserve can only be used to increase allocations to the premium reserve with regard to risk linked to persons. The risk equalisation reserve and contingency reserves are not considered liabilities for accounting purposes in accordance with IFRS and are included in equity in their entirety. Allocations to the risk equalisation reserve and contingency reserves are tax deductible when the allocations are made, and these deductions are treated as permanent differences between the financial and tax accounts in accordance with IAS 12 so that provisions are not made for deferred tax related to permanent differences
Equity changes with the result for the individual period, equity transactions with the owners and items recognised in the total comprehensive income. The share premium and other equity is evaluated and managed together. The share premium and other equity may be used in accordance with the provisions of the Public Limited Liabilities Company Act.
Storebrand pays particular attention to the active management of equity in the Group. This management is tailored to the business-related financial risk and capital requirements in which the composition of its business areas and their growth will be an important driver for the Group’s capital requirements. The goal of the capital management is to ensure an effective capital structure and reserve an appropriate balance between internal goals in relation to regulatory and the rating companies’ requirements. If there is a need for new equity, this is procured by the holding company Storebrand ASA, which is listed on the stock exchange and the Group's parent company.
The Group's goals are to achieve a solvency margin in life and pensions of more than 150 per cent over time. In general, the equity of the Group can be managed without material restrictions if the capital requirements are met and the respective legal entities have adequate solidity. Capital can be transferred from foreign legal entities with the consent of local supervisory authorities.
Net receipts/payments - sale/purchase of property and fixed assets -6 -7
Net receits/payments - purchase/capitalization of associated companies and joint ventures 407 -130
Cash and cash equivalents at start of the period 3,552 4,218
The cash flow analysis shows the Group's cash flows for operational, investment and financial activities pursuant to the direct method.
The cash flows show the overall change in means of payment over the year.
A substantial part of the activities in a financial group will be classified as operational. All receipts and payments from insurance activities are included from the insurance companies, and these cash flows are invested in financial assets that are also defined as operational activities. One subtotal is generated in the statement that shows the net cash flow from operations before financial assets and banking customers, and one subtotal that shows the cash flows from financial assets and banking customers. This shows that the composition of net cash flows from operational activities for a financial group includes cash flows from both operations and investments in financial assets. The life insurance companies' balance sheets include substantial items linked to the insurance customers that are included on the individual lines in the cash flow analysis. Since the cash flow analysis is intended to show the change in cash flow for the company, the change in bank deposits for insurance customers is included on its own line in operating activities to neutralise the cash flows associated with the customer portfolio in life insurance.
Cash/cash equivalents are defined as claims on central banks and claims on financial institutions without notice periods for the company portfolio. The amount does not include claims on financial institutions linked to the insurance customers portfolio, since these are liquid assets that not available for use by the Group.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR MATERIAL STATEMENT OF FINANCIAL POSITION ITEMS
Storebrand Group offers a comprehensive range of insurance and asset management services, as well as securities, banking and investment services, to private individuals, companies, municipalities, and the public sector. The Storebrand Group consists of the business areas
Guaranteed Pensions, Savings, Insurance and Other. The Group's head office is located at Professor Kohts vei 9, in Lysaker, Norway.
The accounting policies applied in the Group accounts are described below. The policies are applied consistently to similar transactions and to other events involving similar circumstances.
and related interpretations, as well as other Norwegian disclosure requirements laid down in legislation and regulations.
The preparation of the annual financial statements in accordance with IFRS requires the management to make judgements, estimates and assumptions that affect assets, liabilities, revenue, expenses, the notes to the financial statements and information on potential liabilities. Actual amounts may differ from these estimates. See note 2 for further information about this.
• as well as items that will not subsequently be reclassified to the profit or loss.
The changes described above have not had any significant effect on the consolidated financial statements.
• The cash flows are discounted by an interest rate that reflects the cash flows' risk.
• When entering into a contract, the expected profit is also set aside as a liability, contractual residual margin, and this is recognised as income over the duration of the contract (provided that the contract is not considered to be a loss contract on the issuing date).
The introduction of a new standard for insurance contracts may have a significant impact on Storebrand's consolidated financial statements. Implementation will result in changes in the income statements, a changed result, changed value of the insurance liabilities and could impact on the equity.
Other amendments to the IFRS regulations that apply or can be applied to IFRS accounts that are prepared after 1 January 2014 are listed below. The amendments are not expected to have any significant effect on the consolidated financial statements.
• Amendments in IAS 39: Amendments in the rules for replacing the counterparty when hedge accounting
• Amendments in IAS 36: Disclosure requirements for recoverable amounts - intangible assets/goodwill
AB, which in turn owns SPP Livförsäkring AB and SPP Liv Fondförsäkring AB. On acquiring the Swedish activities in 2007, the authorities instructed Storebrand to make an application to maintain a group structure by the end of 2009. Storebrand has submitted an application to maintain the current group structure, and it is of the opinion that it is natural to see possible changes in the group structure in light of the upcoming solvency framework (Solvency II).
The Group's presentation currency is Norwegian kroner. Foreign companies included in the Group which use a different functional currency are translated into Norwegian kroner. The income statement figures are translated using an average exchange rate for the year and the statement of financial position is translated using the exchange rate prevailing at the end of the financial year. As differences will arise between the exchange rates applied when recording items in the statement of financial position and the income statement, any translation differences are included in the total comprehensive income.
Investments in associated companies (normally investments of between 20 per cent and 50 per cent of the company's equity) in which the
For investments, including when purchasing investment properties, a decision is made as to whether the purchase is subject to IFRS 3 regulations for business combinations. When these purchases are not regarded as an acquisition of a business, the acquisition method pursuant to IFRS 3 Business combinations is not applied and therefore a determination is not made of any additional value and a provision is not allocated for deferred tax as would have occurred in a business combination.
Interest income is recognised in profit or loss using the effective interest method.
Income from properties and financial assets is described in Sections 9 and 10.
Fees are recognised when the income can be reliably measured and is earned. Fixed fees are recognised as income in line with the delivery of the service, and performance fees are recognised as income once the success criteria have been met.
Additional value on the acquisition of a business that is not directly attributable to assets or liabilities on the date of the acquisition is classified as goodwill on the statement of financial position. Goodwill is valued at acquisition cost on the date of the acquisition. Goodwill arising from the acquisition of subsidiaries is classified as an intangible asset.
If the discounted present value of the pertinent future cash flows is less than the carrying value, goodwill will be written down to its fair value. Reversal of an impairment loss for goodwill is prohibited even if information later comes to light showing that there is no longer a need for the write-down or the impairment loss has been reduced. Goodwill is allocated to the relevant cash flow generating units that are expected to benefit from the acquisition so that it can subsequently be tested for impairment. Cash flow generating units are identified according to operational segments.
Goodwill arising from the acquisition of interests in associated companies is included in investments in associated companies, and the book value is tested annually.
Intangible assets with limited useful economic lives are valued at acquisition cost less accumulated amortisation and any write downs. The useful life and amortisation method are reassessed each year. With initial recognition of intangible assets in the statement of financial position, it must be demonstrated that probable future economic benefits attributable to the asset will flow to the Group. The cost of the asset must also be measured reliably. The value of an intangible asset is tested for impairment when there are indications that its value has been impaired. In other respects intangible assets are subject to write-downs and reversals of write-downs in the same manner as described for tangible fixed assets.
Investment properties primarily consist of centrally located office buildings, shopping centres and logistics buildings. Properties leased to tenants outside the Group are classified as investment properties. In the case of properties partly occupied by the Group for its own use and partly let to tenants, the identifiable tenanted portion is treated as an investment property.
In calculating the fair value of loans the current market rate on similar loans is used. Changes in credit risk are taken into account.
If there is objective evidence that impairment has occurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not occurred)
A financial asset is held for trading if: • it has been acquired principally for the purpose of selling or repurchasing it in the near term, or on initial recognition is part of a portfolio of identified financial instruments that are managed together and has evidence of a recent actual pattern of short-term profit-taking, or
• it is a derivative that is not designated and effective as a hedging instrument.
With the exception of derivatives, only a limited proportion of Storebrand’s financial assets fall into this category.
• the financial assets form part of a portfolio that is managed and reported on a fair value basis
The accounting treatment for trading is the same as that used for the Group (the instruments are valued at fair value and the changes in value are entered in the income statement.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, with the exception of such assets that the company intends to sell immediately or in the near term that are classified as held for trading and those that the company upon initial recognition designates as at fair value through profit or loss.
Derivatives that do not meet the criteria for hedge accounting are treated as financial instruments held for trading. The fair value of such derivatives is classified as either an asset or a liability with changes in fair value through profit or loss.
Derivatives are recognised at fair value through profit or loss. Changes in the value of the hedged item that relate to the hedged risk are applied to the book value of the item and are recognised through profit or loss.
(OCI), while gains and losses that relate to the ineffective part are recognised immediately in the accounts in the profit and loss account.
Su'bsequent to initial recognition, all financial liabilities are measured at amortised cost using an effective interest method, or at fair value.
The accounting standard IFRS 4 Insurance Contracts addresses the accounting treatment of insurance contracts. The Storebrand Group’s insurance contracts fall within the scope of this standard. IFRS 4 is meant to be a temporary standard and it allows the use of nonuniform principles for the treatment of insurance contracts in consolidated financial statements. In the consolidated accounts the technical insurance reserves in the respective subsidiaries, calculated on the basis of the individual countries’ particular laws, are included.
This also applies to insurance contracts acquired via business combinations. In such cases, positive excess values, cf. IFRS 4 no. 31b), are capitalised as intangible assets.
An explanation of the accounting policies for the most important technical insurance reserves can be found below.
assumptions about mortality and disability rates, interest rates and costs. Premium tariffs are based on the observed level of mortality and disability in the population with the addition of security margins that take into account, inter alia, expected future developments in this respect.
(administration reserve). In the case of paid-up policies, the present value of all future administration costs is allocated in full to the premium reserve. In the case of policies with future premium payments, a deduction is made for the proportion of future administration costs expected to be financed by future premium receipts.
Selling costs in the Norwegian life insurance business are expensed, whilst in the Swedish subsidiaries selling expenses are recorded in the statement of financial position and amortised.
Authority of Norway. The allocation to additional statutory reserves is a conditional allocation to policyholders that is recognised in the profit and loss account as a statutory reserve and accordingly reduces net profit. Additional statutory reserves can be used to meet a shortfall in the individual customer’s guaranteed return, and are shown in the profit and loss account in the item to/ from additional
If a return guarantee is linked to a special investments portfolio, a supplementary provision is made to cover the guarantee obligation.
Up to 50 per cent of the risk result for group pensions and paid/up policies can be allocated in the risk equalisation fund to cover any future negative risk result. The risk equalisation reserve is not considered to be a liability according to IFRS and is included as part of the equity (undistributable equity).
contributions. For accounting purposes, the expected cover by the owner in the future will be considered a reduction in the expected future surplus, and no special provisions have been made for this expected cover by the owner as at 31.12.2013.
Since 2009, SPP has used a cash flow model for the calculation of insurance liabilities with interest rate guarantees. The model discounts cash flows by observed swap interest rates for the terms in question up to 10 years, which is the longest term for which the liquidity of the swap interest rates is considered adequate. For cash flows with a term of over 20 years, a normal interest rate is determined as the sum total of assumptions for inflation, real interest rates and maturity premium – based on assessments made by actors such as Riksbanken and the National Institute of Economic Research. For cash flows between 10 and 20 years, discount rates that are the weighted average of the observed 10-year rate and the specified 20-year rate are used.
Norway provides it employees with defined contribution pension schemes. Up until 31 December 2010, Storebrand had a defined benefit scheme for its Norwegian employees. The Norwegian defined benefit scheme was closed to new members with effect from 1 January 2011, and existing members could elect to transfer to the defined contribution scheme. From and including 2013, Storebrand has also been a part of the Norwegian contractual early retirement (AFP) pension scheme The Norwegian contractual early retirement pension scheme is considered to be a defined-benefit scheme, however there is insufficient adequate quantitative information for being able to estimate reliable accounting liabilities and costs.
National Insurance benefits, future returns on pension plan assets as well as actuarial estimates of mortality, disability and voluntary early leavers. The net pension cost for the period comprises the total of the accrued future pension entitlements during the period, the interest cost on the calculated pension liability and the expected return on pension plan assets.
Actuarial gains/losses and the effects of changes in assumptions are included in the total comprehensive income in the income statement for the period in which they occur. The effects of changes in the pension scheme are recognised on an ongoing basis, unless the changes are conditional upon accrued future pension entitlements. In which case the benefit is apportioned on a straight line basis until the entitlement has been fully earned. The employer's National Insurance contributions are included as part of the pension liability and are included in the actuarial gains/losses shown in the total comprehensive income.
The Group has insured and an uninsured pension schemes. The insured scheme in Norway is managed by the Group. Premiums relating to own employees are eliminated in the premium income in the Group result.
The defined contribution pension scheme involves the Group in paying an annual contribution to the employees' collective pension savings. The future pension will depend upon the size of the contribution and the annual return on the pension savings. The Group does not have any further work-related obligations after the annual contribution has been paid. No provisions are made for ongoing pension liabilities for these types of schemes. Defined contribution pension schemes are recognised directly in the financial statements.
Equipment and fixtures and fittings are valued at acquisition cost less accumulated depreciation and any write-downs.
The value of a tangible fixed asset is tested when there are indications that its value has been impaired. Any impairment losses are charged to the income statement as the difference between the carrying value and the recoverable amount. The recoverable amount is the greater of the fair value less related costs of sale and the value in use. On each reporting date a determination is made as to whether to reverse previous impairment losses on non-financial assets.
The tax expense in the income statement comprises current tax and change in deferred tax and is based on the accounting standard
The Group's critical estimates and judgements that could result in material adjustment of recognised amounts are discussed below.
In the consolidated accounts, insurance liabilities with a guaranteed interest rate are included, but using different principles in the Norwegian and the Swedish activities. An immaterial asset (value of business in-force – VIF) linked to the insurance contracts in the Swedish activities is also included. This asset relates to Storebrand's purchase of SPP (acquisition of a business). There are several factors that may have an impact on the size of the insurance liabilities including VIF, such as biometric factors relating to higher life expectancy and invalidity, as well as the development of future costs and legal aspects, such as amendments to legislation and judgments handed down in court cases etc. In the long term, a low interest rate will represent a challenge for insurance contracts with a guaranteed interest rate and, together with a reduced customer buffer, can have an impact on the amount recorded that is linked to the insurance contracts. The Norwegian insurance contracts with guaranteed interest rates are discounted at the premium calculation rate (around 3.3 per cent on average). For the Swedish insurance liabilities with a guaranteed interest rate, the discount is based on an estimated swap yield curve, where portions of the yield curve are not liquid. The non-liquid portion of the yield curve has been estimated based on long-term expectations regarding real interest rates and inflation.
In accordance with the accounting standard IFRS 4 Insurance Contracts, the insurance liabilities that are included shall be adequate and a liability adequacy test shall be performed. The Norwegian insurance liabilities are calculated in accordance with special Norwegian rules, including the Insurance Activity Act and regulations. For the Norwegian life insurance liabilities a test is performed at a general level by conducting an analysis based on the Norwegian premium reserve principles. The established analysis is based on the assumptions that apply to the calculation of embedded value, in which the company uses the best estimates for the future basic elements based on the current experience. The test entails then that the company analyses the current margins between the assumptions used as a basis for reserves and the assumptions in the Embedded Value analysis. This test was also performed for the introduction of IFRS.
Upon the acquisition of the Swedish insurance group SPP, excess values and goodwill related to the value of the SPP Group's insurance contracts were capitalised, while the SPP Group's recognised insurance reserves were maintained in Storebrand's consolidated financial statements. These excess values (Value of business in-force) are tested for their adequacy together with the associated capitalised selling costs and insurance liabilities. The test is satisfied if the recognised liabilities in the financial statements are greater than or equal to the net liabilities valued at an estimated market value, included the expected owner's profit. In this test, the embedded value calculations and IAS 37 are taken into account. A key element of this assessment involves calculating future profit margins using embedded value calculations. Embedded value calculations will be affected by, among other things, volatility in the financial markets, interest rate expectations and the amount of buffer capital. Storebrand satisfies the adequacy tests for 2013, and they have thus no impact on the financial statements for 2013. There will be uncertainty related to the valuation of these capitalised values and the value of related technical insurance reserves.
In the Norwegian life insurance activities, a significant share of the insurance contracts have a series of annual interest rate guarantees.
Changes in estimates and valuations may entail a change in the return on the customer portfolios. Depending on the size of any impairment in value, such impairment may be offset by a reduction in the market value adjustment reserve and additional statutory reserves, so that the effect on the owner's result may be limited. Correspondingly, increases in values could, to a large extent, increase the size of such funds.
In the Swedish activities (SPP) there are no contracts with an annual interest rate guarantee. However, there are insurance contracts with a terminal value guarantee. These contracts are discounted by a market-based interest rate. If the associated customer assets have a higher value than the recognised value of these insurance liabilities, then the difference will represent a conditional customer allocat-
Investment properties are valued at fair value. The commercial real estate market in Norway is not particularly liquid, nor is it transparent.
Uncertainty will be linked to the valuations, and they require exercising judgment, especially in periods with turbulent finance markets.
Uncertainty grows when there is turmoil in financial markets. The assessments include credit, market and liquidity risk. Changes in assumptions for these factors will affect an assessment of whether impairment is indicated. There will thus be uncertainty concerning the recognised amounts of individual and group write-downs. This will apply to provisions relating to loans in the private and the corporate markets and to bonds that are recognised at amortised cost.
Goodwill and intangible assets with undefined useful economic lives are tested annually for impairment. Goodwill is allocated to the
Group's cash generating units. The test's valuation method involves estimating cash flows arising in the relevant cash flow generating unit, as well as applying the relevant discount rate. Tangible fixed assets and other intangible assets are assessed annually to ensure that the method and time period used correspond with economic realities.
Any changes to these estimates including forecast salary growth, withdrawal of early retirement pension, termination of employment and the discount rate can have a substantial effect on the recognised pension liabilities relating to own employees. Estimates of future real interest rates, real salary growth, future adjustments to the National Insurance base amount and future inflation, withdrawal of pensions etc. are subject to significant uncertainty. There will also be uncertainty about whether the defined benefit scheme for the employees will exist in the future or whether the schemes will be changed.
NOTE 3 - BUILDING-UP RESERVES FOR LONG LIFE EXPECTANCY FOR STOREBRAND LIFE INSURANCE
In a letter of 8 March 2013, the Financial Supervisory Authority of Norway determined that a new lifetime tariff, K2013, would be introduced for group pension insurance in life insurance companies and pension funds effective from 2014. In its press release, the Financial
It is expected that a minimum of 20 per cent or NOK 2.5 billion of the total required build-up of reserves shall be covered by the owner.
It is assumed that some of this will be financed through the loss of profit for paid-up policies during the reserve build-up period with the present profit sharing model (20% to the owner). The size of the owner's contribution depends on the length of the escalation plan, principles for building up the reserves, as well as the return and risk surpluses during the escalation period, and the pension scheme's portion of the build-up of reserves may thus exceed 20 per cent of the reserve requirement.
There is yet to be clarification of the final conditions around the building-up of reserves and requirements for provisions when converting paid-up policies with guaranteed returns to paid-up policies with investment choice.
(K2013), which outlined assumptions that shall be used when determining the new mortality basis for group pension insurance. It is assumed that the mortality basis shall be introduced with effect no later than 1 January 2014. A more detailed description of K2013 is provided in the Insurance Risk note (note 7).
Customers can choose long-term contracts with guarantee periods of up to 5 years. Prices for multi-year return guarantees will be lower than for an annual return guarantee over the same period. However, there is a requirement that the liabilities to the insured must at all times be covered by adequate technical insurance reserves, and that, if necessary, equity can also be used to ensure adequate reserves during the agreement period. Greater contractual freedom exists between the customer and the company in the regulations pertaining to multi-year return guarantees. For example, customers can pledge their own buffer capital as collateral for returns under the calculated interest rate applied to the insurance. Such an increase in the customer’s risk also reduces the total price of the return guarantee charged to the customer. These contracts shall be phased out in 2014.
The administration result is the difference between the premiums paid by customers pursuant to the tariff and the company’s actual operating costs. The income consists of fees based on the size of customer assets, premium volumes or numbers in the form of unit prices. Among other things, operating expenses consist of personnel costs, return fees, marketing expenses, commissions and IT costs.
In the case of group defined benefit pensions and paid-up policies, any positive risk result passes to the customers, while any deficit in the risk result must, in principle, be covered by the insurance company. However, up to half of any risk profit on a particular line of insurance may be retained in a risk equalisation fund. A deficit due to risk elements can be covered by the risk equalisation fund. The risk equalisation fund can, as a maximum, amount to 150 per cent of the total annual risk premium. The risk equalisation fund is classified as equity in the balance sheet.
In the case of defined benefit contracts (DB portfolio), the company is entitled to charge an indexing fee if the group profit allows the indexing of the insurance, up to a maximum equalling the change in the consumer price index (CPI). The indexing is based on the return from 1 October until 30 September. Half of the fee is charged if the pensions can be indexed by the entire change in the CPI. The entire fee can be charged if the paid-up policies can also be indexed by the entire change in the CPI. A 100 per cent fee equals 0.8 per cent of the insurance capital.
During the second quarter of 2013, Storebrand changed its corporate organization to include the business areas of Savings, Insurance,
Guaranteed Pensions and Other. These business areas will be the main lines for financial reporting by segment.
Guaranteed pensions consist of products encompassing long-term savings for pensions, where the customers have a guaranteed return or benefit on the saved funds. The area includes defined contribution pensions in Norway and Sweden, paid-up policies and individual capital and pension insurances.
Storebrand Bank and the activities at BenCo which consists of the subsidiaries Euroben and Nordben.
1) Additional statutory reserves + market value adjustment reserve 2) Conditional bonuses 3) The term solidity capital encompasses equity, subordinated loan capital, the risk equalisation fund, the market value adjustment reserve, additional statutory reserves, conditional bonuses, excess value/deficit related to bonds at amortised cost and accured profit.
Continuous monitoring and active risk management are therefore core areas of the Group’s activities and organisation. The basis for risk management is laid down in the Board's annual review of the strategy and planning process, which sets the risk appetite, risk targets and overriding risk limits for the operations. In Storebrand Group, responsibility for risk management and internal control is an integral part of management responsibility.
The Group's organisation of risk management follows a model based on three lines of defence. The objective of the model is to safeguard the responsibility for risk management at both company and Group level.
The boards of Storebrand ASA have overall responsibility for, and will ensure that, the Storebrand Group has established an effective and suitable system for risk management and internal control.
As the first line of defence, the Group management have ownership of and responsibility for risk management and handling as well as compliance with regulations and internal controls.
The basis for good internal control is a good control environment represented by the attitudes, integrity, values and ethics of the board, management and employees as well as the formal and operational organisation of the business: • Risk management and internal control must be a continual process performed by the board, management and employees and integrated into the day-to-day management and running of the company.
• Good risk management and internal control require work with objectives, strategies and action plans, identifying and evaluating risk, reporting and prioritising and implementing improvement measures.
Managers at all levels in the organisation are responsible for risks, risk management and internal control within their own area of responsibility, and shall continuously assess the implementation of risk management and internal control. The units' own risk-control functions must be organised in such a way that they can perform their duties in an objective and independent manner. It is essential to emphasise sufficient independence for the control functions in order to prevent possible conflicts of interest. Situations in which individuals are responsible for a decision-making process for which they also act as control function must be avoided.
As a third line of defence, the internal audit shall give the boards of relevant Group companies confirmation of the practicality and effectiveness of the organisation's assessment and management of risk, including how the first and second lines of defence are functioning.
The proportion of equities in the portfolios is dynamically adjusted based on their risk bearing capacity, in order to dampen the effect of falling markets and at the same time participate in rising markets.
herself, and the insured person can also choose the risk profile himself/herself.
The investment strategy and the main pillars of risk management: • asset allocation that results in a good return over time
A significant proportion of savings products in the Norwegian life insurance business incorporate a guaranteed annual return. Financial risk relates primarily to the ability to meet the customers’ guaranteed return, which for the majority of the products applies for one year at a time. Therefore, risk management in this business aims to reduce the probability of the return falling below the annual guaranteed return for the various product groups in any single year.
In SPP, the portfolios are divided into defined benefit pensions, defined contribution pensions and unit link contracts, and both defined benefit pensions and defined contribution pensions have associated guaranteed returns. In portfolios with a guaranteed return, the differences in the investments’ and the insurance liabilities’ interest rate sensitivity is minimised and the short-term interest risk is therefore substantially reduced.
2. Disability – The risk of erroneous estimation of future illness and disability. There will be uncertainty surrounding the future development of disability.
In the Guaranteed Pensions segment, the Group has a significant insurance risk relating to long life expectancy for group and individual insurance agreements. In addition, there is an insurance risk associated with disability and pensions left to spouses and/or children. The disability coverage in Guaranteed Pensions is primarily sold together with a retirement pension. The risk of mortality is low in Guaranteed Pensions when viewed in relation to other risks.
In the Insurance segment the Group has a life insurance risk associated with disability and death. In addition, there are insurance risks associated with occupational injury, critical illness, cancer insurance, child insurance, accident insurance and health insurance.
Guaranteed pensions 3. Group defined benefit pensions are pension payments guaranteed as a percentage of the final salary from an agreed age for as long as the insured person lives. Alternatively, it can be agreed that the pension will end at a specified age. The product is offered within the private sector. Cover that can be linked includes retirement and survivor pensions. In addition, there can be a link to a group disability pension in Norway.
4. Paid-up policies are individual contracts with accrued rights that are issued upon withdrawal from or termination of group defined-benefit pension agreements.
Guaranteed pensions 2. Individual allocated annuity or pension insurance provides guaranteed payments for as long as the insured person lives. Alternatively, it can be agreed that the pension will end at a specified age. It is offered to waive premiums/payments in the event of disability. The product can be linked to disability pensions.
3. Individual endowment insurance provides lump sum payments in the event of attaining a specified age, death or disability.
4. In Sweden, disability coverage is offered with a waiver of premiums and guaranteed ongoing payments. This is most common as an addition to pension insurance.
When writing individual risk cover, the customer is subject to a health check. The result of the health check is reflected in the level of premium quoted. When arranging group policies with risk cover, all employees of small companies are subject to a health check, while for companies with many employees a declaration of fitness for work is required. Underwriting also takes into account the company’s industrial category, sector and sickness record.
The company manages its insurance risk through a variety of reinsurance programmes. Through catastrophe reinsurance (excess of loss), the company covers losses (single claims and reserves provisions) where a single event causes more than 3 deaths or disability cases. This cover is also subject to an upper limit. Surplus reinsurance on life policies covers death and disability risk that exceeds the maximum risk amount for own account the company practices. The company’s maximum risk amount for own account is relatively high, and the risk reinsured is therefore relatively modest.
The percentage distribution of the insurance reserves by the various basic annual interest rates as at 31.12.2013 is: There is no interest rate guarantee for premium funds, defined-contribution funds, pensioners' surplus funds and additional statutory reserves.
The risk result for Storebrand Livsforsikring AS in the table above shows the total risk result before distribution to customers and owner.
The pension funds are managed in five different profiles depending on the guaranteed interest rate: In Norway, a new lifetime tariff will be introduced for defined benefit pensions and paid-up policies from 2014. For the existing reserve there is a 5 year escalation plan, and customer returns exceeding the guarantee can contribute to building up reserves. During the escalation period it gives an increase in risk that may be compared with increasing the interest rate guarantee.
For non-guaranteed pension products, the customer has the financial market risk.
The market risk for non-guaranteed pensions is primarily related to the risk that future income and costs will change. There is therefore an indirect market risk, because negative investment returns, particularly as a result of weak stock markets, will reduce future incomes.
The stress tests were applied to the investment portfolio as at 31.12.2013 and the outcome shows the estimated effect on profits for
Storebrand Life Insurance has used Risk-based Supervision (RBS), the Financial Supervisory Authority of Norway's official reporting document. The stresses were as follows: shares +/- 20 per cent, interest rates +/- 150 basis points, property +/- 12 per cent, foreign currency +/- 12 per cent, spread based on rating and duration. The buffer capital for market risk consists of, additional statutory reserves that can be recognised as income in 2014, market value adjustment reserve and the unrealised gain reserve. SPP Livförsäkring has used the traffic light, the official reporting document of Finansinspectionen.
The stress tests were carried out in the entire company portfolio and all investment profiles with a guaranteed return and the effect of each stress changes the expected return in each profile. For the negative stress tests (equities down, interest rates up and property down) the return in some individual profiles will fall below the guarantee. The guarantee and buffer situation for each contract will then determine how much equity the company may have to use if the return stays at this level for 2014. Beyond the need for utilising equity to cover returns below the guarantee, it is changes in the profit sharing for paid-up policies and individual contracts, as well as returns and interest expenses in the company portfolio that deviate most from the expected result for 2014. The effect of negative stresses has declined since last year. The most important reason for this is the increased customer buffers in the life portfolios.
In the case of perpetual subordinated loans the cash flow is calculated through to the first call date
Debt raised from issuance of securities 1,664 1,283 7,668 5,758 1,956 18,329 17,000
Lending commitments 77 77 1) Of which the minority interests in Storebrand Eiendomsfond KS amounts to NOK 2,342 million. After 3 years, participants can present a demand for redemption every year. Redemption is conditional on a total demand of NOK 100 million. The redemption sum is set at 98.75 per cent of value-adjusted equity.
The equity of these companies is invested with little or no allocation to high-risk assets, and the products do not entail a direct risk for the company as a result of price fluctuations in the capital market.
In addition to clear strategies and the risk management of liquidity reserves in each subsidiary, the Group’s holding company has established a liquidity buffer. The development of the liquid holdings is continuously monitored at the Group level in relation to internal limits. A particular risk for Storebrand ASA is that during certain periods the financial markets can be closed for new borrowing. Measures for minimising the liquidity risk are to maintain a regular maturity structure for the loans, low costs in the ASA, an adequate liquidity buffer and credit agreements with banks which the company can draw on if necessary.
Credit risk is the risk of incurring losses due to a counterparty's unwillingness or inability to meet its obligations. Maximum limits for credit exposure to individual debtors and for overall credit exposure to rating categories are set by the boards of the individual companies in the Group. Particular attention is paid to ensuring diversification of credit exposure in order to avoid concentrating credit exposure on any particular debtors or sectors. Changes in the credit standing of debtors are monitored and followed up. Thus far, the Group has used published credit ratings wherever possible, supplemented by the company’s own credit evaluation when there are no published ratings.
The Group has entered into framework agreements with all counterparties to reduce the risk inherent in outstanding derivative transactions. These regulate, inter alia, how collateral is to be pledged against changes in market values which are calculated on a daily basis.
Category by issuer or guarantor AAA AA A BBB NIG Total
Government and government guaranteed bonds 56,373 7,550 161 246 720 65,050
Mortgage and asset backed securities 37,739 5,925 1,638 3,516 637 49,456
Category of issuer or guarantor AAA AA A BBB Other NIG Total
Loans to income-generating properties constitute about 75 per cent of the corporate market portfolio and about 14 per cent are loans to property development. The loans are primarily localised in greater Oslo. Loans to the corporate market amount to over NOK 13 billion.
In the retail market, most of the loans are secured by means of home mortgages. Of NOK 23.9 billion in loans in the retail market portfolio, approximately NOK 23.6 billion has been lent in home loans, with just over NOK 2.5 billion in undrawn credit lines. Total exposure to home loans is therefore almost NOK 26.1 billion and other exposure in the retail market portfolio amounts to approximately NOK
1.4 billion. Customers are checked in accordance with policies, and their ability and willingness to service the loan is evaluated using a liquidity calculation and a risk classification model.
Storebrand Life Insurance Group which includes the Norwegian life insurance business (Storebrand Livsforsikring AS), the Swedish life insurance businesses (SPP Livförsäkring AB and SPP Liv Fondförsäkring AB) and the business in Ireland and Guernsey (BenCo). Other companies directly owned by Storebrand ASA that are exposed to significant risks are Storebrand Forsikring AS, Storebrand Helseforsikring AS, Storebrand Asset Management AS and Storebrand Bank ASA.
The financial market and investment risks are largely related to the customer portfolios in the life insurance business. The risk associated with a negative outcome in the financial market is described and quantified in note 7 - financial market risk. The banking business has little direct exposure to risk types other than credit, however a negative market for Norwegian commercial property, which the life insurance business is exposed to, would increase the risk of default and loss for corporate market loans in the banking business.
In the short term, an interest rate increase will negatively impact on the returns for the life insurance companies. An interest rate increase can also result in bank customers having lower debt servicing capacity and increased losses for the banking business.
Solvency II is a set of rules covering solvency that will apply to all ¬insurance companies in the EU and the EEC area. It is expected that final adoption in the EU Parliament could occur in early 2014, and that the regulations will be introduced from1 January 2016. The plan is
ANNUAL REPORT 2013 for transitional rules of up to16 years for the phasing-in of Solvency II valuation of the insurance liability. This also allows for a supplement on the discount interest rate.
January 2014. This involves the requirements in Solvency II for business management and controls (pillar 2) being phased in, including requirements for self-assessment of risk and solvency (ORSA), and that parts of the reporting requirements to the supervisory authorities (pillar 3) be introduced as at 31.12.2014. The capital requirements (pillar 1) and the reporting requirements for the market will not apply before formal Solvency II implementation in 2016.
The maximum contribution rates for defined contribution pensions have been increased/harmonised to the same level as in the Act relating to occupational pensions.
In the hearing for the Banking Law Commission's proposed amendments to the regulations for guaranteed benefits (referred to in NOU
In the draft legislation the Ministry of Finance writes that the Banking Law Commission is given a mandate to study whether it is desirable and possible to establish a form of defined benefit-based group retirement pension, adapted to the new age accrual in the National
The Group conducts a comprehensive process to ensure that financial instruments are valued as closely as possible to their market value. Publicly listed financial instruments are valued on the basis of the official closing price on stock exchanges, supplied by Reuters and
Total bonds and other fixed-income securities 2012 25,388 159,084 1,233 185,704
Liabilities: Liabilities to financial institutions1 997 997 1,986 1) Includes lending to customers/liabilities to financial institutions classified at fair value through profit and loss
Level 1 encompasses listed equities that over the previous six months have experienced a daily average turnover equivalent to approx.
Fixed-rate loans to customers, which are valued at fair value (FVO) for accounting purposes, have been moved from level 2 to level 3 in 1st quarter as uncertainty related to the stipulation of the market's margin requirements for such loans is considered to have increased.
This category encompasses listed equities that over the previous three months have experienced average daily trading equivalent to approximately NOK 15 million or more. Based on this, the equities are regarded as sufficiently liquid to be included at this level. Bonds, certificates or equivalent instruments issued by national governments are generally classified as level 1. When it comes to derivatives, standardised stock index futures and interest rate futures will also be included at this level.
LEVEL 2: FINANCIAL INSTRUMENTS VALUED ON THE BASIS OF OBSERVABLE MARKET INFORMATION NOT COVERED BY LEVEL 1
This category encompasses financial instruments that are valued on the basis of market information that can be directly observable or indirectly observable. Market information that is indirectly observable means that the prices can be derived from observable related markets.
LEVEL 3: FINANCIAL INSTRUMENTS VALUED ON THE BASIS OF INFORMATION THAT IS NOT OBSERVABLE IN ACCORDANCE WITH LEVEL 2
Equities classified as level 3 encompass investments in primarily unlisted/private companies. These include investments in forestry, real estate and infrastructure. Private equity is generally classified as level 3 through direct investments or investments in funds.
Comprehensive external valuations were carried out for the largest forestry investments as of 31 December 2013 and these form the basis for the valuation of the company's investments.
The majority of Storebrand’s private equity investments are investments in private equity funds. The Group also has a number of direct investments. Private equity investments are considered long-term investments where Storebrand expects to benefit by its involvement through the duration of the projects.
The investments in private equity funds are stated on the basis of the values reported by the funds. Most private equity funds report on a quarterly basis, while a few report less often. For investments where Storebrand has not received an updated valuation by the time the annual financial statements are closed, the last valuation received will be used and adjusted for cash flows and any market effects during the period from the last valuation up to the reporting date. These market effects are estimated on the basis of the type of valuations made of the companies in the underlying funds; the financial performance of relevant indexes, adjusted for estimated correlation between the relevant company and the relevant index.
In the case of investments in which Storebrand participates as a co-investor together with a leading investor that conducts a valuation, and no recent transactions exist, Storebrand will use this value after it has been quality assured. In the case of investments for which
The investment properties primarily consist of office buildings located in Oslo and Stockholm and shopping centres in Southern Norway.
Large portions of the portfolio are priced using comparable listed companies, while smaller portions of the portfolio are listed. The valuation of the private equity portfolio will thus be sensitive to fluctuations in global equity markets. Storebrand's private equity portfolio has an estimated Beta relative to the MSCI World (Net – currency hedged to NOK) of around 0.5.
Increase/decrease in fair value per 31.12.2013 NOK Million 340.6 NOK Million -340.6
Increase/decrease in fair value per 31.12.2013 NOK Million 307.2 NOK Million -289.6
• Other factors such as transactions and perception in the market, vacancy and general knowledge about the market and the individual property.
Nonetheless, valuations of forestry investments will be particularly sensitive to the discount rate used in the estimate. The company bases its valuation on external valuations. These utilise an estimated market-related required rate of return. As a reasonable alternative assumption with regard to the required rate of return used, a change in the discount rate of 0.25 per cent would result in an estimated change of around 4.6 per cent in value, depending on the maturity of the forest and other factors.
STOREBRAND BANK: The fair value of loans to customers with adjustable interest is valued at book value. However, the fair value of loans to corporate customers with margin loans is lower than the book value because certain loans run with lower margins that they would have done if they had been taken up as of 31.12.2013. The value shortfall is calculated by discounting the difference between the agreed margin and the current market price over the remaining duration. In addition, the fair value is adjusted for individual write-downs. The fair value of loans, liabilities to credit institutions and liabilities established by the issuing of securities is based on valuation techniques. The valuation techniques use yield curves and credit spreads from external suppliers, however with the exception of loans which are valued using spreads for equivalent new loans.
Guaranteed pension: Defined Benefit (fee based) Storebrand Life Insurance 10,482 11,111
NOTE 16 - NET INCOME ANALYSED BY CLASS OF FINANCIAL INSTRUMENT
Fixed income and similar income from lending to and receivables from financial institutions 18 13
Fixed income and similar income from commercial paper, bonds, and other interest-bearing paper
Interest and similar costs from liabilities to financial institutions -34 -104
Interest and similar costs from deposits from and liabilities to customers -552 -520
Total net interest income 547 490 1) The total interest income for lending, etc, that is not stated at fair value. 1,352 1,300 2) The total interest costs for deposits, etc, that are not stated at fair value. -973 -995
INTEREST COSTS AND VALUE CHANGES ON BORROWING AT FAIR VALUE (FVO): NOK million 2013 2012
Total gains and losses on financial assets at fair value - of which FVO (fair value option) 4,319 2,981 12,845 20,146 432 19,714 16,312 - of which available-for-sale 144
Operating costs (including maintenance and repairs) relating to real estate that have provided rent income during the period2
Guaranteed pension: Defined Benefit (fee based) Storebrand Life Insurance -10,194 -5,324
At end of the policy year 193 290 417 472 512 616 - four years later 199 289 - five years later 200
The table shows the development in the estimate for occurred insurance claims over time and the remaining claims reserve.
Total operating costs -3,310 -4,003 1) Includes in 2013 income of NOK 385 million relating to a change in the pension scheme. See note 24 for a more detailed description.
Write-downs/income recognition for lending and guarantees for the period -11 8
Storebrand Helseforsikring is 50% owned by Storebrand. Employees are added by 50%.
Storebrand's employees in Norway have both a defined contribution pension scheme and a defined benefit pension scheme that have been established in Storebrand Livsforsikring AS. From 1 January 2011 the defined benefit scheme was closed to new members. At the same date a defined contribution pension scheme was established. The contribution based scheme applies to all new employees from 1 January 2011 and to those who chose to transfer from a defined benefit to a defined contribution pension arrangement. In the case of the defined contribution scheme, the cost is equal to the period's contribution to the employees' pension savings, which amounts to 5 per cent of the contribution basis between 1G and 6G (G = National Insurance Scheme basic amount as at 31 December 2013, amounting to NOK 85,245), plus 8 per cent of the contribution basis between 6G and 12G, as well as the defined-contribution scheme that is funded from operations that annually comprises 20 per cent of the contribution basis for salaries over 12G. The contributions are deposited in the employees' pension accounts each month. The future pension depends upon the amount of the contributions and the return on pension savings.
Storebrand employees in Norway also have an existing right to retire at 65 years of age and receive a pension directly from the company until they reach 67 years of age. A provision is made in the accounts relating to direct pensions.
BTP. The amount is 10 per cent of the annual salary up to 7.5 times the basic income amount, which was SEK 56,600 in 2013 and will be SEK
Changes in the net defined benefit pension liabilities in the period 33 389
Net pension liabilities recognised in statement of financial position 957 1 087
Expected annual increase in social security pensions 3.5% 3.3% 3.0% 3.0%
FINANCIAL ASSUMPTIONS: The financial assumptions have been determined on the basis of the regulations in IAS 19. Long term assumptions such as future inflation, real interest rates, real wage growth and adjustment of the basic amount are particularly subject to a high degree of uncertainty.
Storebrand has applied the covered bond rate as of 31 December 2013 as the discount rate. Based on the market and volume development observed, the Norwegian covered bond market must be perceived as a deep market in relation to the provisions in IAS 19 in the opinion of Storebrand. This conclusion is based on the regular activity that takes place in both the primary and secondary markets, as well as the transparency that exists due to the fact that the trades observed on the exchange are close to the indicative levels quoted by the banks. Broad participation by all of the largest bond brokers in the reporting system of the Norwegian Mutual Fund Association
In 2013 Storebrand (Norway) has amended the pension rules in the collective schemes for employees and former employees of the company. The change entails that pensions in payment are no longer annually adjusted by a minimum of 80 per cent of the change in the consumer price index. This entails that pensions will only be increased if there is a sufficient profit in the premium reserve for the pensioners in accordance with the principal rule in the Act relating to Company Pension Schemes. This gives a positive non-recurring effect in the profit or loss in 2013 which is shown in the pension costs as a change to the scheme.
Storebrand has used the mortality table K2013BE in the actuary calculations as of 31 December 2013, while K2005 was used for the previous year. The effect of the increased pension liabilities in accordance with K2013E is included in the actuarial gains/losses that are charged to the total comprehensive income.
A reduction in the discount rate will, in isolation, entail an increase in the pension liabilities.
The period's net pension costs -18% 24% 9% -6% 5% -4%
NOTE 25 - REMUNERATION TO SENIOR EMPLOYEES AND ELECTED OFFICERS OF THE COMPANY
Senior employees * Intervals indicate that there are several loans with differing interest rates and repayment periods.
Anne Grete Steinkjer 236 1,800 * Intervals indicate that there are several loans with differing interest rates and repayment periods.
1) Comprises company car, telephone, insurance, concessionary interest rate, other taxable benefits.
2) Assumes employment at Storebrand when they reach retirement age. The amount is not reduced with pension funds secured in the scheme.
STOREBRAND ASA – THE BOARD OF DIRECTORS' STATEMENT ON THE FIXING OF THE SALARY AND OTHER REMUNERATION
Compensation Committee satisfies the follow-up requirements set forth in the Compensation Regulations.
Storebrand aims to base remuneration on competitive and stimulating principles that help attract, develop and retain highly qualified staff. Optimised financial remuneration helps create a performance culture with clear goals for all employees, and correct assessments by managers, who differentiate between performances that are good and less good.
Financial remuneration should be designed to: 1. Help support continuous improvement, stimulate internal cooperation and create a value-based performance culture 2. Help focus the efforts of employees 3. Ensure that the Group's strategy and plans provide the basis for the goals and requirements set for the employees' performance 4. Ensure that remuneration is based on long-term thinking, balanced goal-oriented management and real value creation 5. Ensure that remuneration is based on an assessment of the individual's results and compliance with corporate principles 6. Facilitate a clear, transparent and team-based process for setting goals and goal structures.
The Storebrand Group‘s bonus scheme for the 2014 financial year complies with the regulations laid down by the Ministry of Finance on 1 December 2010 relating to remuneration schemes in financial institutions. The bonus scheme is robust with regard to ensuring the overall goals of increasing the correspondence between the owners' and executives' incentives, and helping to ensure that management does not take inappropriately large risks.
The main structure of the bonus scheme consists of the following elements: • Funding
The Board of Storebrand ASA sets the target that determines how the risk-adjusted value creation will fund the bonus.
The allocation result depends on both the unit‘s result and individual target attainment. A unit‘s value creation is measured using a scorecard that is based on the unit‘s strategic, financial and operational targets. The scorecard incorporates both quantitative and qualitative targets. Specific targets are also set each year with respect to the senior employees’ performance, which is documented using a
Of the variable remuneration of the CEO and senior employees, 50 per cent of the allocated bonus will be paid in cash, and 50 per cent will be converted to a number of synthetic shares. The number of shares will be registered in a share bank and will remain there for three years. At the end of the three-year period, an amount corresponding to the market price of the allotted shares will be paid. Half of the amount paid, after tax, from the share bank is to be used to purchase actual shares in Storebrand ASA at the market price with a new lock-in period of 3 years. No payments are made from the share bank until the end of the 3-year period, even if the employee withdraws from the scheme or leaves the company, but the payment will be made on the date that was specified at the time the allocation was made.
Like other employees in Storebrand, executive employees have an opportunity to purchase a limited number of shares in Storebrand
ASA at a discount in accordance with the share programme for employees.
ASA at the market price with a new 3-year lock-in period.
THE REMUNERATION PAID TO DELOITTE AS AND COADJUTANT COMPANIES AMOUNTS TO: NOK million 2013 2012
Deferred tax 833 721 1) In December 2013, the Storting agreed to reduce the company tax rate from 28 to 27 per cent with effect from 1 January 2014. Therefore, 27 per cent is used when recognising deferred tax/tax assets. The effect of the reduction in the tax rate entails a reduced tax expense for 2013 equivalent to NOK 24 million.
NOK 7.6 billion), are included in the Group's temporary differences, on which deferred tax is calculated at a nominal tax rate of 27 per cent. In accordance with
IAS 12, no provisions have been set aside for deferred tax related to temporary differences that existed when companies were acquired and the transaction was not defined as a business transfer (basis of around NOK 2.2 billion).
The equity includes a risk equalisation reserve that can only be used to cover a negative risk result. Tax deductions related to the build-up of this reserve are treated as a permanent difference between the financial and tax accounts. See "Reconciliation of the Group's equity" for more details concerning this.
During the year, property shares were sold (covered by the exemption method) which resulted in a reduction in tax-increasing temporary differences and related allocations for deferred tax being reversed.
Currency differences on converting foreign units -10 -1 -29 -448 -487 75
Acc. depreciation and write-downs 31.12 -126 -361 -340 -4 910 -460 -6 196 -4 949 1) Value of business-in-force, the difference between market value and book value of the insurance liabilities in SPP.
Storebrand Livsforsikring AS acquired SPP Livförsäkring AB and its subsidaries in 2007. The majority of the intangible assets associated with
The forecast for the various result elements are based on the development in recent years, effects of measures during the forecast period, as well as assumptions regarding the normalised development of the financial markets based on the current finacial strategy and applicable market interest rates. The administration result is expected to show a positive development as the result of greater cost effectiveness, and growth in the sales of products and services that are cost-effective to manage and require less capital. The primary drives of improved results will be the return on total assets, underlying inflation and wage growth in the market. The utility value is calculated using a required rate of return after tax of 8 per cent. The required rate of return is calculated based on the risk-free interest rate and added to a premium that reflects the risk of the business.
A cash flow based valuation based on the expected pre-tax result is used when calculating the utility value of the banking business.
The calculation is based on budgets and forecasts approved by the Board for the next three years.
In 2013 the board of SB Bank approved a liquidation plan for the bank's commercial activities. The cash flow analysis has used the development in the bank's business portfolio as approved in this plan. The cash flow is based on two elements, profit/loss after tax to equity and change in expected regulatory tying-up of capital. It is also assumed that all capital in addition to regulatory tied-up capital, can be withdrawn at the end of each period. For the period after 2016, a growth rate of 2.5 per cent has been used for the retail market which is also included in the calculation of the terminal value..
interest rate for 10 year Norwegian government bonds. The market's risk premium is set at 5 per cent and this is in line with the risk premium in the Norwegian market. Beta of 1.0 is based on observed beta for Norwegian banks, adjusted for the risk profile for Storebrand Bank
The executive management has valued the recoverable amount for goodwill as of 31 December 2013 and concluded with a write-down of
This primarily concerns lease of office buildings at Lysaker and in Stockholm, as well as some movables. The lease regarding office buildings durate from 2013 until 2019 for buildings in Norway and from 2013 to 2023 for buildings in Sweden, both with an optional renewal.
Allocation by company and customers: Tangible fixed assets - company 119 144
Distribution beween company and customers: Bonds held to maturity - company 347
TRANSACTIONS: Purchases: Further SEK 278 million of property acquisitions in SPP has been agreed in 4 quarter in addition to the figures that has been finalised and included in the financial statements as of 31 December 2013
Total real estate 26,666 30,954 1,168,652 1) The leased amount is calculated in relation to floor space.
4) The average duration of the leases has been calculated proportionately based on the value of the individual properties.
Biological assets booked in the statement of financial statement consist of forests in the subsidiaries AS Værdalsbruket and Foran
Allocation by company and customers: Accounts receivable and other short-term receivables - company 1,890 2,172
Allocation by company and customers: Equities and units - company 82 54
Allocation by company and customers: Bonds and other fixed-income securities - company 23,485 21,496
Financial derivatives are related to underlying amounts which are not recognised in the statement of financial position. In order to quantify the scope of the derivatives, reference is made to amounts described as the underlying nominal principal, nominal volume, etc.
Nominal volume is arrived at differently for different classes of derivatives, and provides some indication of the size of the position and risk the derivative presents.
Hedging is performed by means of forward foreign exchange contracts at the portfolio level, and the currency positions are monitored continuously against a total limit. Negative currency positions are closed out no later than the day after they arose. In addition, separate limits have been defined so that active currency positions can be taken. Storebrand employs a currency hedging principle called block hedging, which makes the execution of currency hedging more efficient.
SPP: SPP uses currency hedging for its investments to a certain degree. Currency exposure may be between 50 and 100 per cent in accordance with the investment strategy.
The excess value of bonds valued at amortised cost totalled NOK 5.160 million at the end of the 4th quarter, a decrease of NOK 65 million since the turn of the year.
Total insurance liabilities - life insurance 1) Including personal risk and employee insurance of the Insurance segment.
Total market value adjustment reserves at fair value 3 823 1 027 2 796 1 027
Book value of bonds pledged as collateral for the bank's lending from Norges Bank 1,499 1,854
Debt raised through issuance of securities 1) Book value as at 31.12.
Of total loans of NOK 37 billion , NOK 14.7 billion has been mortgaged in connection with the issuing of covered bonds (covered bond rate) in Storebrand Boligkreditt AS.
In 2013, Storebrand utilised cash flow hedging for the currency risk linked to Storebrand’s net investment in SPP. 3 month rolling currency derivatives were used in which the spot element in these is used as the hedging instrument. The effective share of hedging instruments is recognised in total profit. The net investment in SPP is partly hedged and therefore the expectation is that future hedge effectiveness will be around 100 per cent.
11,812,109 plus interest and costs. Storebrand received the writ of summons on 25 June 2012. The claim is primarily against Guy Butler Ltd., secondarily against RBC Europe Limited, and thereafter against Storebrand. The case pertains to a sale of bonds with a nominal value of
Financial Services Complaints Board and complaints directly from customers. No concrete errors or defective performances of such significance have been discovered that they are believed to have had a decisive influence on the investors' investment decisions.
When bills matures within the term of the swap agreement, the bank must purchase new bills from the state at the price that is determined by the market price for treasury bills. This roll-over will be on-going throughout the entire term of the agreement. Upon expiry of the swap agreement, the bank is obliged to purchase the covered bonds back from the state at the same price that the state purchased them for. Storebrand Bank ASA will receive the returns on the transferred covered bonds.
Unused credit facilities concern granted and unused overdrafts and credit cards, as well as unused facility for credit loans secured by property.
than is used in the financial accounts. Supplementary capital that consists of subordinated debt may not exceed 100 per cent of core capital, while time limited subordinated debt may not exceed 50 per cent of core capital.
Capital requirements Storebrand Group from capital adequacy statement 12,575 12,137 - capital requirements insurance companies -10,813 -10,218
Storebrand ASA‘s largest owner is Gjensidige Forsikring with an ownership interest of 20,1 per cent. Storebrand Kapitalforvaltning AS
sells some management services to Gjensidige Forsikring. These services are provided on normal commercial conditions.
For further information about close associates, see notes 33, 34 and 49.
Cash and cash equivalents at start of the period 48 126
The financial statements of Storebrand ASA have been prepared in accordance with the Norwegian Accounting Act, generally accepted accounting policies in Norway, and the Norwegian Regulations relating to annual accounts, etc. for insurance companies. Storebrand
In preparing the annual financial statements, Storebrand has made assumptions and used estimates that affect the reported value of assets, liabilities, revenues, costs, as well as the information provided on contingent liabilities. Future events may cause these estimates to change. Such changes will be recognised in the financial statements when there is a sufficient basis for using new estimates.
Assets and liabilities have been valued in accordance with the general valuation rules of the Norwegian Accounting Act. Assets intended for permanent ownership and use are classified as fixed assets, and assets and receivables due for payment within one year are classified as current assets. Equivalent policies have been applied to liability items.
Storebrand ASA's primary income is the return on capital invested in subsidiaries. Group contributions and dividends received in respect of these investments are therefore recorded as ordinary operating income. Proposed and approved dividends and group contributions from subsidiaries at the end of the year are recognised in the financial statements of Storebrand ASA as income in that financial year.
Pension costs and pension obligations for defined benefit pension schemes are determined using a linear accrual formula and expected final salary as the basis for the entitlements, based on assumptions about the discount rate, future salary increases, pensions and National
The tax cost in the profit and loss account consists of tax payable and changes in deferred tax. Deferred tax and deferred tax assets are calculated on the differences between accounting and tax values of assets and liabilities. Deferred tax assets are recorded on the balance sheet to the extent it is considered likely that the company will have sufficient taxable profit in the future to make use of the tax asset.
Deferred tax is applied directly against equity to the extent that it relates to items that are themselves directly applied against equity.
Other equities and units are valued at fair value. For securities listed on an exchange or other regulated market, fair value is determined as the bid price on the last trading day immediately prior to or on the balance sheet date.
When a financial asset or a financial liability is initially recognised in the accounts, it is valued at fair value plus, in the case of a financial asset or a financial liability that is not at fair value through profit or loss, transaction costs directly related to the acquisition or issue of the financial asset or financial liability.
From 1 January 2013 Storebrand has been included in the AFP contractual pension scheme. The private AFP contractual pension scheme shall be accounted for as a defined-benefit multi-purpose scheme and is financed through annual premiums that are determined to be one per cent of salary between 1 and 7.1 G. There is no information available for recognising the new liability in the statement of financial position. Storebrand employees in Norway also have an existing right to retire at 65 years of age and receive a pension directly from the company until they reach 67 years of age. A provision is made in the accounts relating to direct pensions.
The pension for employees aged between 65 and 67 years old and pensions linked to salaries over 12 G are paid out directly from the companies and apply to both members of the defined contribution scheme and the defined benefit scheme. A guarantee has been granted for earned pensions on salaries over 12 G for employees retiring before the age of 65. The pension conditions are determined by the pension regulations. Storebrand is obliged to have an occupational pension scheme pursuant to the Act relating to mandatory occupational pensions. The company's pension scheme satisfies the requirements of the Act.
PENSION ASSETS ARE BASED ON THE FINANCIAL ASSETS HELD BY STOREBRAND LIFE INSURANCE,
Expected return on pension fund assets in the period 4.0% 4.0%
IAS 19.78 states that high quality corporate bond rates shall be used as the discount rate. In countries where there is no deep market for such bonds, the government bond rates shall be used.
(VFF) supports the reliability of the available data. Reference is also made to the advice from the Norwegian Accounting Standards
The pension funds will not increase correspondingly due to the escalation period the life insurance companies have received.
NOTE 6 - REMUNERATION OF THE CEO AND ELECTED OFFICERS OF THE COMPANY
Storebrand ASA at the market price, with a new three-year lock-in period.
Tax base for the year 138 -123 - Use of losses carried forward -138
NOTE 8 - PARENT COMPANY’S SHARES IN SUBSIDIARIES AND ASSOCIATED COMPANIES
AS Værdalsbruket3 Værdal 25% 4 4 1) Group contributions in 2013 of NOK 31.4 million as capital contribution. The shares have been written down by NOK 137 million in 2013 due to a valuation based on the approved budgets for 2014-2016. In spring 2014, the board of Storebrand Bank approved a liquidation plan for the bank's commercial activities.
2) In 2013, Storebrand Fondene AS changed its name to Storebrand Asset Management AS and merged with Storebrand Kapitalforvaltning AS and Storebrand
Undiscounted cash flows for financial liabilities months months years years years
Storebrand ASA has both interest-bearing securities and interest-bearing debt. A change in interest rates will have a limited effect on the company's equity.
Storebrand ASA had as per 31 December 2013 liquid assets of NOK 1.8 billion.
2) In 2013, 408 208 shares were sold to our own employees.
Signed loan agreements have standard covenant requirements. The terms and conditions have been redeemed persuant to signed loan agreements.
(consisting of the parent and consolidated financial statements) and the 2013 annual report for Storebrand ASA.
With reference to the auditor's report of 11 February 2014, the Control Committee finds that the proposed annual report and accounts can be adopted as Storebrand ASA's annual report and accounts for 2013.
Average sustainability score for the life balance sheet investments Baseline assessment; score 53 of 100 points 57 of 100 points 55 of 100 points
Global Topp 1003 481 NOK million 1074 NOK million 850 NOK million
Net Promoter Score4 Replaces previous indicators - 32 -3 3rd Customer promise – All our relationships, solutions and measures are sustainable5
Baseline assessment; score 54 of 100 points 55 av 100 poeng 60 av 100 poeng
Processing time for complaints 70% within 3 weeks 69% within 3 weeks 70% within 3 weeks
Diversity 77 of 100 points 77 of 100 points 77 of 100 points
Environmental requirements for suppliers7 24% 57% 50% of main agreements contain environmental requirements
Waste – rate of recycling 189 kWh/m2 0.35 m3/m2 185kWh/ m2 0.33 m3/m2
Storebrand has published environmental and corporate social responsibility reports since 1995, integrated into the Group's annual report since 2008. Storebrand uses the Global Reporting Initiative (GRI) guidelines as a tool for reporting on sustainability. Our reporting practice is essentially in accordance with GRI's reporting principles and satisfies level B+. See storebrand.no for references as to where information on the individual indicators can be found, and for whether they have been answered in full or in part. Further details regarding the scorecard indicators are also described here. Storebrand desires transparency and requires compliance and quality in its sustainability work. The results have therefore been reviewed and certified by Deloitte AS. This increases the credibility of the reporting and data, and also engenders greater internal confidence that the information has been collected, analysed, and the quality assured in a proper manner.
The sustainability scorecard shows the sustainability indicators defined by the Group – those that are the most important for Storebrand to report to the stock market. They are a key element in the reports submitted to relevant indices, such as the Dow Jones
Sustainability Index and FTSE4Good. The Group's sustainability manager owns and follows up the sustainability scorecard. Ownership of the indicators is well-established within the Group. The sustainability manager and executive vice presidents for the business areas jointly set targets for Storebrand's sustainability work. Quarterly status reports are submitted to the executive management, and annual reports are submitted to the Board of Directors.
1) Status 2013 discontinued due to implementation of the new UNPRI model. Reporting will be resumed and new targets for 2014 set when the new model has been implemented with baseline assessment.
2) Discontinued. Indicator is included in the average sustainability score of the life and balance sheet investments.
3) Result in 2012 are for the period from the Fund was launched on 1 October 2012 to 31 December 2012. Assets under management in the sustainability fund SPP
6) Measures employee awareness, proportion of employees who complete e-learning course (every 3rd year), proportion who participate in dilemma training and proportion of managers who have reported on compliance with the code of ethics.
8) Results for 2012 is changed due to updated figures 9) Results for 2012 is updated with correct FTE figures 10) Results for 2012 is changed with updated information from the suppliers
2)Previous classification of anti-personal mines, cluster munitions and nuclear weapons are reported as controversial weapons in 2013.
Number of external managers contacted about violations of the Minimum standard 18 12
Average sustainability score for the life balance sheet investments 58 of 100 points 3rd Customer promise – All our relationships, solutions and measures are sustainable.
Volume Sustainability fund - Storebrand Trippel Smart - SPP Global Topp 100 2 000 NOK million
Sustainability is a long term issue. Therefore Storebrand has supported our two-year goals with long-term five-year goals. The following targets have been set for the main areas within the Group's long-term commitments to sustainability:
The core (tier 1) capital will be adjusted for the valuations that are used as the basis for credit calculations at a national level for foreign companies. For
Storebrand Holding AB this will entail an adjustment of SPP AB's estimated insurance liabilities for which a different yield curve is used for credit assessment than is used in the financial accounts. Issued hybrid tier 1 capital may account for 15 per cent of the core (tier 1) capital, while any amount exceeding 15 per cent may be included in the tier 2 capital.
For a more detailed description of the technical insurance reserves and accrual accounting for premiums and compensation, see note 1 - accounting for the insurance business, pages 79-82.
An instalment loan is a loan on which the borrower makes regular partial repayments of principal in equal amounts throughout the repayment period. The borrower pays the sum of a fixed instalment amount and a reducing interest amount at each instalment date. Payments accordingly reduce over the life of the loan assuming a fixed interest rate.
The term "financial derivatives" embraces a wide range of financial instruments for which the current value and future price movements are determined by equities, bonds, foreign currencies or other traditional financial instruments.
The purchase of share options confers a right (but not an obligation) to buy or sell shares at a pre-determined price.
Share options may be related to stock market indices as well as to specific individual stocks. The sale of share options implies the equivalent one-sided obligation. In general, exchange traded and cleared options are used.
1) SPP Livförsäkring AB owns 29.4 per cent and Storebrand Livsforsikring AS owns 67.7 per cent of SIA Front Real Estate.