Great digital commitment We started recruitment of 40 IT employees as part of our commitment to digitalise and automate work processes.
New headquarter in the Baltics We opened a new, Baltic headquarter with 350 employees in Vilnius, Lithuania.
Customer dividend Gjensidige’s general insurance customers in Norway received customer dividend for the eight consecutive year. The Gjensidige Foundation paid about NOK 2.1 billion in customer dividend. That equals 14 per cent of the premiums paid the preceding year.
General Meeting 5 April Ex dividend date 6 April Q1-result 25 April Q2-result 13 July Q3-result 25 October
Gjensidige received Ipsos reputation award 2017 because the company has for a long time had a solid reputation, which has also been strengthened in recent years.
Universum: Climber of the year Gjensidige climbed more than any other company in Norway on the list of preferred employers among IT-people. Among IT-girls we climbed 50 steps.
Sponsorship agreement During the year, a sponsorship agreement has been signed with both the Norwegian Association of Athletes and the Norwegian Ice Hockey Association.
Claims incurred, general insurance NOK million (16,401.7) (15,515.9) (14,597.5) (14,470.4) (13,859.6)
Operating expenses, general insurance NOK million (3,586.5) (3,191.4) (3,217.6) (3,054.0) (2,857.8)
Turnover of employees, Gjensidige Forsikring % 15.3 9.7 9.6 8.7 9.7
Average amount spent on skills development per employee NOK 10,300 15,000 17,500 17,500 15,800
Key figures 2,103 Norway 760 Denmark 620 Baltics 351 Sweden 3,604 General insurance 169 Bank 61 Pension
Gjensidige is in a strong position at year-end 2017. Customer satisfaction and customer loyalty are both at a high level. In Norway, we were awarded the Ipsos Reputation Prize, and we had the best reputation in the financial sector.
We focus strongly on making swift local adaptations outside Norway. We see that joint solutions are not necessarily the right choice everywhere. We are nonetheless on our way to implementing best practice in important areas across organisational and geographical borders.
Social responsibility then and now Social responsibility has always been a natural and important part of our activities as an insurance company. Today, we base our corporate social responsibility on the UN Global Compact principles, which we have endorsed. By doing so, we commit ourselves to promoting fundamental human rights, labour rights, the environment and anti-corruption, through our own activities and in companies we invest in.
In 2017, we have made targeted efforts to adapt our procedures and processes to new regulations, including the General Data Protection Regulation (GDPR).
New regulations can pave the way for new ways of competing, and of carrying out service and sales, than we are used to. Like changes in technology and customer behaviour, this can create new opportunities for both existing and new players.
We will address these developments through new initiatives, and be open to participating in new partnerships and collaborations where the opportunity arises. Size and scale will be more and more important if we are to be able to make use of data, technology and knowledge in increasingly sophisticated ways – and be a relevant partner for the future. Our ambition is to develop into an even bigger Nordic insurance company.
Our ambition is strong and clear. We aim to be the industry leader as regards customer orientation in the Nordic general insurance market, and we will continue to create significant value for our owners.
Gjensidige is the biggest general insurance company in Norway, where our brand is strong. We are in a good position for further growth both in the Nordic region and in the Baltics.
In 2017, Gjensidige’s business has been organised in six operational segments: • General Insurance Private • General Insurance Commercial • General Insurance Nordic • General Insurance Baltics • Pension • Retail Bank
Gjensidige’s position shall be further strengthened through the development of Gjensidige as a pan-Nordic general insurance player that is also taking its share of the growing accident and health insurance market. Acquisitions shall complement organic growth and contribute to the Company delivering on its strategic goals, and the following group targets after 2–3 years: • a return on equity of more than 15 per cent • a combined ratio in the range of 90–93
Changes in technology and customer behaviour mean that increasingly close cooperation is required between our distribution channels. A good understanding of what customers are concerned with in their everyday lives is a prerequisite if we are to develop new, relevant services.
Information is a strategic resource for Gjensidige. The work on ensuring good data quality, efficient data collection processes, availability, reporting and analysis will therefore be further strengthened.
* Dividends based on profit for the year. ** Adjusted for proposed dividend for 2017. *** Adjusted for proposed dividend for 2017. After the balance sheet date, Gjensidige received feedback from the FSA
The Private segment offers a wide range of general insurance products and services in the Norwegian private market, both in property and accident and health insurance. The products are primarily sold through dedicated distribution channels, but also in cooperation with a number of partners. Loyal customers and a strong brand make Gjensidige market leader in the private general insurance market.
Competition is strong, both from established players and from some smaller niche players, but Gjensidige’s competitiveness in the Norwegian private market is still good.
Most of the customer portfolio consists of small and medium-sized enterprises and agricultural customers.
Outlook Work on improved risk pricing and analytical processes as tools for strengthening customer activities is given particular focus in the Commercial segment. Continuous initiatives to deliver the best customer experience in combination with analytics and operational efficiency will help to ensure forward-looking and customer-oriented operations.
In recent years, Gjensidige has consolidated its position as market leader in commercial and agricultural insurance, and is in a good position for the future. In light of market developments, Gjensidige is very pleased with the renewal rate at the beginning of 2018.
Outlook Our Nordic operations shall contribute to economies of scale, diversification of risk and increased competitiveness for the Group. The Nordic general insurance markets are relatively consolidated, but
There is strong competition in the markets Gjensidige operates in. The pressure on prices remains high, especially in the market for larger commercial customers and in the municipal market.
Gjensidige’s Baltic segment offers general insurance products to the private and commercial markets in Lithuania, Latvia and Estonia. The products are distributed through dedicated channels, insurance agents and brokers. The Baltic insurance market is still immature, and Gjensidige is well positioned for future growth.
Operations in brief 2017 GPF offers defined contribution occupational pension schemes for businesses, in addition to individual pension savings agreements and disability pension. Focus was given to the further development of solutions adapted to customer needs in 2017, which contributed to strong portfolio growth.
Outlook Pension is a priority area that helps to ensure that Gjensidige can be a complete supplier of insurance and pension products to private and commercial customers. The business contributes to stronger customer relations and loyalty among our general insurance customers.
The market for defined contributions pensions is growing and Gjensidige is well-positioned to participate in it. The positive growth rate is expected to continue.
Rentenetto i prosent, annualisert = netto renteinntekter delt på gjennom-snittlig forvaltningskapital.
Outlook Gjensidige Bank shall first and foremost support the Norwegian general insurance business by contributing to a broader product range, and increased loyalty among existing general insurance customers in Norway.
Retail Bank Gjensidige Bank is an online bank that will contribute to the sale of a wide range of products to, and loyalty among, general insurance customers in the retail market in Norway. The bank offers housing loans, car financing, unsecured loans, credit cards, day-to-day banking services and savings products. Distribution largely takes place online, and customer service is available by phone, via chat and in Gjensidige’s financial offices. Car financing is also distributed through car dealers.
The purpose of the investment portfolio is primarily to cover the actuarial liabilities and to achieve the Group target return on equity. At the end of 2017, the portfolio totalled NOK 54.9 billion.
The Group’s investment portfolio includes all investment funds in the Group, except for investment funds in the Pension and Retail Bank segments. A large part of the asset management is outsourced to external managers, while the Group’s investment function concentrates on asset allocation, risk management and the selection of managers. Direct property investments take place via the company Oslo Areal, in which Gjensidige has an ownership interest of 50 per cent.
The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s capitalisation and risk capacity, and the Group’s risk appetite at all times. In general, the currency risk in the investment portfolio is hedged up to 100 per cent, with a permitted safety margin of +/- 10 per cent per currency.
Equity per share NOK 47.4 44.7 46.7 Total eligible own funds to meet the group SCR (SF) 3 NOK million 21,052.5 20,377.9 19,491.4
Total eligible own funds to meet the minimum consolidated group SCR (SF) 5 NOK million 13,980.9 14,065.2 14,088.3 Minimum consolidated group SCR margin (SF) 6 % 256.2 266.4 280.9
Share capital Issued shares at the end of the period Number 500,000,000 500,000,000 500,000,000 Earnings per share (basic and diluted) 11 NOK 9.05 9.34 7.57
Recognised return on paid-up policy portfolio 18 % 3.75 4.08 5.43 Value-adjusted return on paid-up policy portfolio 19 % 4.47 4.87 5.42 Customers with insurance agreements at the end of the period 20 % 69.4 70.0 70.9
Retail Bank Gross lending, addition in the period NOK million 4,806.6 4,514.0 9,189.0 Deposits, addition in the period NOK million 2,495.3 1,913.1 2,653.9 Gross lending, at the end of the period NOK million 46,056.1 41,249.5 36,735.5 Deposits at the end of the period NOK million 23,765.7 21,270.4 19,357.2 Deposits-to-loan ratio at the end of the period 21 % 51.6 51.6 52.7 Assets under management savings, at the end of the period NOK million 15,975.1 15,141.6 15,555.1
Common equity Tier 1 capital ratio 28 % 14.7 13.5 12.7 Return on equity, after tax 2 % 14.2 12.0 10.3 1 Return on financial assets = net financial income in per cent of average financial assets including property, excluding Retail Bank and Pension 2 Return on equity = Shareholders’ share of net profit for the period/average shareholders’ equity for the period 3 Total eligible own funds to meet the group SCR (SF) = Total eligible own funds to meet the group SCR under the Solvency II standard formula. Total comprehensive income is included, less a formulaic dividend pay-out ratio in first, second and third quarter of 70 per cent of net profit. 4 Group SCR margin (SF) = Ratio of total eligible own funds to group SCR under the Solvency II standard formula 5 Total eligible own funds to meet the minimum consolidated group SCR (SF) = Total eligible own funds to meet the minimum consolidated group SCR under the Solvency II
standard formula. The proposed dividend has been deducted from the total eligible own funds. 6 Minimum consolidated group SCR margin (SF) = Ratio of eligible own funds to minimum consolidated group SCR under the Solvency II formula 7 Total eligible own funds to meet the SCR (SF) = Total eligible own funds to meet the SCR for Gjensidige Forsikring ASA under the Solvency II standard formula.
The proposed dividend has been deducted from the total eligible own funds. 8 SCR margin (SF) = Ratio of total eligible own funds to SCR for Gjensidige Forsikring ASA under the Solvency II standard formula 9 Total eligible own funds to meet the MCR (SF) = Total eligible own funds to meet the MCR for Gjensidige Forsikring ASA under the Solvency II standard formula.
The proposed dividend has been deducted from the total eligible own funds. 10 MCR margin (SF) = Ratio of eligible own funds to MCR for Gjensidige Forsikring ASA under the Solvency II formula 11 Earnings per share, basic and diluted = the shareholders’ share of the profit or loss for the period/average number of outstanding shares in the period 12 Premiums, net of reinsurance = gross premiums written, net of reinsurance/gross premiums written (general insurance) 13 Loss ratio = claims incurred etc./earned premiums 14 Cost ratio = operating expenses/earned premiums 15 Combined ratio = loss ratio + cost ratio 16 Combined ratio discounted = combined ratio if claims provisions had been discounted 17 Operating margin = operating result/(net insurance-related income + management income etc.) 18 Recognised return on the paid-up policy portfolio = realised return on the portfolio 19 Value-adjusted return on the paid-up policy portfolio = total return on the portfolio 20 Shared customers = customers having both pension and general insurance products with Gjensidige 21 Deposits-to-loan ratio = deposits as a percentage of gross lending 22 Net interest margin = net interest income/average total assets 23 Write-downs and losses = write-downs and losses/average gross lending 24 Cost/income ratio = operating expenses/total income 25 Shared customers = customers having both bank and general insurance products with Gjensidige 26 Capital adequacy ratio = net primary capital/risk-weighted assets. The result of the period is not included in the calculation for the quarters, with the exception of fourth quarter.
27 Tier 1 capital ratio = Tier 1 capital/risk-weighted assets. 28 Common equity Tier 1 capital ratio = common equity Tier 1 capital/risk-weighted assets.
Dividend and dividend policy Gjensidige’s target is to distribute high and stable nominal dividends, and at least 70 per cent of the profit after tax over time. When determining the size of the dividend, consideration will be given to expected future capital needs. Over time, Gjensidige will also distribute excess capital.
The dividend for the 2017 financial year will be adopted by the general meeting on 5 April 2018 and paid to shareholders registered on the date of the general meeting. The Gjensidige share will be traded ex dividend on 6 April 2018, the record date will be 9 April 2018 and the dividend will be disbursed on 16 April 2018.
Customer dividend is allocated to customers based on how much they paid in insurance premiums during the financial year in question. It is then distributed to customers who are still customers at the time of Gjensidige’s general meeting, which adopts the customer dividend.
Distribution of shares excluding shares owned by the Gjensidige Foundation 25 % North Amerika
Customer dividend paid in 2017, based on the profit for 2016, accounted for 14 per cent of premiums paid in 2016.
The Foundation is willing to consider a reduced ownership fraction in the event of any acquisitions or capital increases that are in accordance with Gjensidige’s overall strategy.
For more detailed information about the governing bodies and/or the General Meeting, see page 40–53 and/or www.gjensidige.no/ir.
Gjensidige follows Oslo Børs’s guidance on the reporting of corporate social responsibility. The report is based on an analysis of the most important stakeholders we interface with in our activities, and of CSR matters that are relevant to our relations with these stakeholders.
In 2016, approximately 30 stakeholder groups were identified and assessed, in a processes that involved a number of key personnel in different positions in the Group, including the senior group management.
Of these groups, five were considered to be of particular importance to the risk analysis: • Public authorities • Owners • Employees • Customers • Partner organisations
We meet these stakeholders in various arenas, such as • Written correspondence • Meetings • Conferences • Presentations • Phone calls
The assessment of relevant topics is based on • what topics the stakeholders are concerned with • what consequences it will have for Gjensidige if we fail to meet stakeholder expectations • what consequences it will have for the stakeholders if we fail to meet their expectations
As regards discrimination, on the other hand, the assessment in 2017 is that the risk relating to this topic must be deemed to be significant, even if the Company has not had to deal with any problematic cases so far.
The environment and climate Employment Direct and indirect taxes Support for local communities Discrimination Possibility of whistleblowing Fair competition
Socially responsible capital management Labour rights Product range Protection of privacy Loss prevention Competence-raising Corruption
The Company’s operations are described in more detail on page 8. Our strategy, financial targets and key figures are described on pages 8 and 9, respectively.
When a company is excluded, we will make sure that the company is not part of any portfolios that we manage ourselves, either by not buying securities in the company or by selling any securities we own.
Loss prevention Our core business – insurance – gives customers security by reducing or removing negative financial consequences of damage, injuries and accidents. This is an important welfare need in modern societies. It is nonetheless better for the customer, the insurance company and society as a whole to prevent such events occurring. Loss prevention is therefore a natural and important part of Gjensidige’s core activities and corporate social responsibility.
Through our operations, we have acquired extensive expertise in loss prevention. This know-how shall as far as possible be used for the benefit of society as a whole.
In Estonia, Gjensidige contributes to improving road safety through an annual campaign that encourages pedestrians to wear reflectors.
Bad weather forecast With the help of weather data, we send text messages to customers likely to be affected by bad weather. The messages are based on official weather data and our customer data, so that we avoid distributing false alarms. Every year, we receive feedback from grateful customers who have had time to secure their assets thanks to these messages.
Fire prevention Together with the Norwegian Fire Protection Association, the Directorate for Civil Protection and Emergency Planning (DSB) and local fire brigades, we organised Røykvarslerdagen – the smoke detector awareness day – on 1 December 2017. The goal of the campaign is to raise awareness about how important an early warning is in the event of fire. An important message is that people should change the batteries in their smoke detectors on a set date every year. Gjensidige makes essential contributions to the campaign by planning, making and funding information videos and other material, and through marketing, funding of batteries and participating in stands and home visits. Approximately 40,000 households received a visit from the fire service and an electricity inspector in connection with the campaign. This was the 14th year the campaign was held. Statistics from DSB suggest that the campaign has contributed to a marked reduction in the number of deaths caused by fire.
We also contributed to the development and marketing of educational material on fire prevention for schools. Approximately 20,000 children a year take part in this training.
Sponsorships For many years, we have been the main sponsor of the Norwegian women’s and men’s national handball teams. In 2017, we were also the main partner of the Norwegian Confederation of Sports (NIF) / Olympiatoppen and its 15 individual sport federations. During the year, we signed new sponsorship agreements with the Norwegian Ice Hockey Association, the Norwegian Swimming Federation and the Norwegian Athletics Association.
In 2018, we will initiate projects relating to our three new sponsorship agreements. The projects will benefit the grassroots level of the sports as well as Norwegian society as a whole. We will also continue our grassroots-level handball projects.
Measures to follow up competence and development needs include: 1. A management tool that enables an analytical approach to competence and staff planning. 2. Follow-up and reporting of course days and completed e-learning organised by the Gjensidige Customer and Brand School 3. Follow-up to ensure that all employees have relevant development plans in place based on analyses of Gjensidige’s needs.
At year-end 2017, the Group had a total of 3,834 employees.
Management Good management and continuous competence -raising measures will give Gjensidige important competitive advantages, and the Group can thereby make a contribution to society by being an attractive employer.
Measure: 1. Customised management development programmes have been developed for groups of managers with different experience backgrounds, from newly appointed managers to the senior management group. The management training programme was updated towards the end of 2016 with a view to making the training more individually adapted.
4. Included in the follow-up of managers and the scorecards for the senior group management 5. In 2018, we will become better at following up and learning from best practice
Recruitment and retention We work systematically on recruitment and have developed an employer branding strategy to this end. In 2017, Universum named Gjensidige Norway’s most attractive employer for economists within the insurance industry. Regardless of industry, we came in as number 45 on the list. This is six places lower than the year before, but reflects a trend across the financial industry. We were also named ‘climber of the year’ by working IT professionals, and climbed a total of 14 places to number 38. Among women working in IT, we climbed from number 79 in 2016 all the way to number 28 on this year’s list.
2. We are making targeted efforts to raise Gjensidige’s profile as an employer, both through digital channels and activities at relevant educational institutions, such as stands and presentations to students.
3. We have established an internal mentoring programme, intended as a supplement to the personal growth and development of individual employees and managers. This is a measure we believe will help us to retaining critical expertise, promote Gjensidige’s culture and contribute to internal career development across divisions and business areas. The programme has resulted in 22 mentors being trained in the Company. The programme runs for one year at a time.
Developing our employees The Gjensidige Customer and Brand School ensures that all employees have the necessary prerequisites for implementing the Group’s customer orientation strategy. The school’s main focus areas are sales, claims settlement and management. It offers courses and programmes that underpin our group strategy and requirements for certification of customer advisers.
2. Employees who work in sales and customer advice take part in an extensive course programme leading up to an exam that tests their professional know-how, ethics and the customer dialogue. Advisers targeting the private market are certified in accordance with a national industry scheme for the sale of general insur ance.
3. The Gjensidige Customer and Brand School had 6,960 course days in 2017 (7,113 in 2016). More than 1,700 employees attended courses in 2017 (approx. 1,600 in 2016).
4. We make substantial investments in our customer advisers – both in sales and in claims handling – and in 2017, we spent an average of 10,300 per employee. In 2016, the amount was NOK 15,000. The decrease was due to changes in reporting following a reorganization, and partly due to cost measures.
6. We have an active career development programme in the Company. Among other things, it facilitates internal mobility for the purpose of broadening the employees’ range of competence and experience.
Under Norwegian law, employees of the Group are entitled to be represented on the Company’s governing bodies. Employee representatives are elected by and from among the employees.
The company management maintains a close dialogue with employee representatives in connection with restructuring processes. The company shall attend to those who are affected in the best possible way. This concerns everything from decisions, information, finding alternative positions in the company, to offering assistance from external advisers and finding new jobs for those who are made redundant.
2. Gjensidige has measures in place that help to ensure that older employees can continue working until they reach retirement age. The measures vary between countries. Examples of measures include the possibility of reduced working hours and extra holidays. The average retirement age has increased over time, but fell somewhat in 2016 due to employees taking early retirement in connection with restructuring.
Very few positions in Gjensidige are defined as parttime positions. Part-time work is therefore mainly the result of employees’ own choices. We have not gathered information about why employees choose to work part-time.
No special measures relating to equality or discrimination have been necessary in 2016 or 2017.
Management and employee development is attended to by the Gjensidige Customer and Brand School, which is part of the HR Department and is the responsibility of the EVP of Group Staff and General Services.
Health, safety and the environment (HSE) Systematic health, safety and environmental work is given high priority in Gjensidige. Our goal is not only to prevent sickness absence and injuries, but also to ensure that Gjensidige is a health-promoting workplace. We therefore work on preventing and following up sickness absence and on making adaptations for employees with disabilities.
The work stations of all new employees are inspected as soon as possible by a physiotherapist or an occupational therapist, if practically possible. The purpose of this is to adapt the work station with a view to avoiding repetitive strain injuries, and to provide information about the prevention of health problems.
Special adaptation procedures have been adopted for employees who have health problems that are aggravated by computer work or who wish to prevent such problems arising.
Sickness absence was 3.9 per cent in Norway, Denmark and Sweden in 2017. Our goal is to reduce sickness absence to 3.0 per cent by 2019.
No work accidents resulting in personal injury or material damage occurred in 2017 (none in 2016).
The focus on customers is a key part of product and service development, the training of employees, advisory services, sales, claims settlement and the handling of complaints.
In 2017, Gjensidige’s customer satisfaction index (KTI) was 77.9 at group level, which is an increase of 0.5 from 2016, and the best result we have ever achieved.
The third level is the Norwegian Financial Services Complaints Board (Finansklagenemnda), which is a joint complaints board for the whole insurance industry that comprises representatives of the consumer authorities, the financial industry and independent experts. The composition ensures that the independent representatives decide the outcome of cases in which the consumer authorities and the financial industry disagree.
The number of complaints can provide an indication of how well Gjensidige succeeds in its ambition to deliver high-quality claims settlements.
The Financial Services Complaints Board received 324 complaints from Gjensidige customers in 2017. They accounted for about 12 per cent of all insurance-related complaints to the Board. This must be seen in conjunction with the fact that Gjensidige had a market share of just over 25 per cent in 2017.
Innovation and technology development In order to ensure that our products and customer service maintain a high international level at all times, we collaborate with research institutions on
In 2017, the project focused on two topics: click data from web portals, to give us a better understanding of customer’ online behaviour, and a network analysis of relations between customer that will be used to improve methods for identifying signs of insurance fraud.
Customers and data protection The Norwegian Data Protection Agency has granted Gjensidige a licence to process personal data, and laws and regulations regulate our collection, storage and use of such data. A group policy and instructions provide detailed guidelines on the processing of personal data. Gjensidige’s employees are bound by a statutory duty of secrecy about all matters relating to our customers. Data protection training is mandatory for all new employees and is also a part of the introductory programme. Access to personal customer data shall only be granted to employees who need it in the course of their work. The Company shall not obtain other personal data than what it needs to serve the individual customer.
Data Protection Agency and with customers and employees who have enquiries about personal data. They also have an internal control function.
Customers can request access to the information stored about them at any time, and they can demand that incorrect information be corrected. Requests for access may be rejected in special cases following a concrete assessment, for example in connection with the investigation of insurance fraud.
Notifications addressed to the external mailbox are in principle anonymous, unless the whistleblower chooses to give their own name. Employees may submit notifications to this mailbox anonymously, as may customers, suppliers and other external stakeholders.
Notifications of irregularities or malpractices are dealt with by Gjensidige’s Internal Investigation Unit. The department carries out a preliminary investigation or assessment based on the content of the notification.
If the investigation uncovers matters that warrant criticism, HR will take over the case and ensure that it is dealt with. The CEO will decide whether to report employees to the police.
Our code of ethics describes our values and underlines that all our activities must stand up to public scrutiny. Together with other documents, the code of ethics describes what is acceptable conduct and requires all employees to behave in a respectful, considerate and generally polite manner in relation to colleagues, competitors, customers and others.
The risk of criminal offences and violations of our code of ethics is monitored as part of our internal control system. The Board has chief responsibility for risk management and the compliance programme, and the CEO is responsible for the implementation. Our most important risk areas and the compliance programme are reviewed annually by the Board. Risk management and internal control are described in more detail on page 48 and 73 and in Note 3.
Zero tolerance for corruption For Gjensidige, the risk of corruption will largely be related to the Company’s sale of insurance and investment advice to the private and public sector, entering into agreements and the procurement of goods and services.
It follows from this that our employees are not allowed to offer or receive bribes or facilitation payments. The same applies to gifts that can be regarded as improper. The rules apply to managers and employees at all levels of the Company, also in countries where Norwegian law does not apply. Special rules have been stipulated for employees with responsibility for relations with customers and suppliers.
Money laundering and financing of terrorism Gjensidige Forsikring is required to implement a risk-based approach to money laundering and financing of terrorism. This means that, in the field of insurance, we must take a risk-based approach to customers based on the customer relationship and the type of products and transactions involved. In practice, this means that we carry out a risk assessment in connection with the sale of insurance to new and existing customers, and with the payment of claims. The risk assessment is comprehensive and is based on characteristics of the customer, the customer relationship, the product, the transaction and other matters of relevance.
As part of the risk assessment of individual customers, all customers are checked against sanction lists and lists of politically exposed persons.
If such measures fail to clarify the situation, the Company will carry out more detailed investigations in order to clarify whether the transaction can be carried out. The investigations are carried out by the Company’s investigation department, which comprises employees who have previously worked in the police and have expertise in and experience of investigation.
If money laundering or financing of terrorism can be substantiated, the Company will not enter into the insurance contract or settle the claim, to the extent that such sanctions are permitted by law.
A solid defence against money laundering is not only necessary because of official instructions. In the insurance business, money laundering
often goes hand in hand with insurance fraud. At Gjensidige, we look at the fight against money laundering as a natural part of good risk selection, based on the principle ‘know your customers’.
Underwriting policy Good risk selection is decisive for financial strength and profitability. Gjensidige’s underwriting policy is intended to provide the Company with an overview and control of its risk exposure. It is also intended to ensure that the Company complies with applicable laws and regulations, including EIOPA requirements, and that it acts in a way that is generally perceived as fair and reasonable, and that is in line with Gjensidige’s guidelines for ethical business operations.
Procurements and suppliers All procurements over a certain size must be quality -assured by the Corporate Procurement department.
All procurements shall be as environmentally effective as possible, meaning that they shall seek to achieve maximum value creation and minimum environmental harm.
All material procurements are ordered electronically. As far as possible, all suppliers shall use electronic invoicing. Documents relating to invitations to tender, negotiations and agreements are stored electronically. Competitive tender procedures are carried out through online portals.
In order to ensure that we impact the environment as little as possible, all our 11 Norwegian offices that have more than 30 employees are certified EcoLighthouses. Eco-Lighthouse is a national environmental certification scheme run by the Eco-Lighthouse Foundation. The foundation was established by key organisations in the private and public sector.
The offices that are certified Eco-Lighthouses use an environmental management system for the
The offices must be recertified every three years. It is an extensive process that is carried out by an environmental team at the office in question in cooperation with an external adviser certified by the Eco-Lighthouse Foundation. In 2017, our offices in Bodø, Drammen, Fredrikstad, Moelv, Skien and Steinkjer were recertified.
Annual reporting and regular recertification ensure that our offices live up to the highest standards for environmentally friendly operations.
We work systematically to reduce our impact on the natural environment by limiting our consumption of energy and the generation of various types of waste, such as paper, office supplies, electrical appliances and household waste.
The consumption breaks down as follows: • Electricity: 8,100 MWh • District heating: 1,713 MWh • Fuel oil: 48 MWh
Approximately 63 per cent of the electricity was consumed in Norway.
The emission of greenhouse gases from our operations is extremely modest. We work continuously to further reduce our emissions, and we report our emissions to the Carbon Disclosure Project.
The use of electricity and district heating does not cause greenhouse gas emissions, which must therefore be calculated on the basis of an assumed energy mix. The production of hydropower does not cause emissions either. We have calculated that our operations in 2017 caused emissions of 2,470 tonnes of CO2 equivalents, (scope 1 and 2), compared with 2,164 tonnes the year before. The increase in reported emissions is due to a sizeable increase in the number of company cars as a result of integration of new business in our Baltic operations.
We have established a company car policy that entails that CO2 emissions from company cars cannot exceed 130 grams per kilometre. At our head office, we have three electric cars that employees can use in connection with meetings and private errands, so that we reduce the use of taxis and private cars.
We work continuously to increase the proportion of ‘paperless’ customers, meaning customers who choose to receive information from us through digital channels instead of on paper. With the exception of information that is required by law to be distributed on paper, paperless customers receive all documentation and other information by email, text messages or by logging in to our web portal.
Digital customer communication improves the customer experience and helps to reduce costs and paper consumption.
Risk relating to such factors is largely addressed as part of ordinary underwriting operations and tariff setting. Examples of environmental and climate -related trends are the increase in the number of electric and hybrid cars, and the increase in the extent of damage to buildings due to more extreme weather. We also see an increased risk of higher prevalence of diseases, especially insect-borne diseases.
We continuously assess whether prices, terms and conditions and compensation rules need to be adapted as a consequence of these trends.
In 2017, we have studied the following emerging risks: Extreme weather: We can calculate the risk of this phenomenon based on experience. Climate change can give rise to events that lie beyond our realm of experience. We have therefore used simulation models to calculate worst-case scenarios.
Sharing economy: Platforms that allow consumers and businesses to exchange goods and services without traditional intermediaries can represent a risk to our business model. We have therefore taken a closer look at the threats and possibilities that the sharing economy entails.
Social commitment Gjensidige and the Company’s employees support and are engaged in various social causes both locally and nationally. The purpose is to make a positive contribution in the communities where we do business, and to underpin our social mission, which is to contribute to a safer society.
In Lithuania, we cooperate with the aid organisation Food Bank, which distributes food to the poor. Gjensidige provides free insurance, supports activities and encourages employees to take part in the distribution of food packages. In 2017, we funded food packages for 3,500 people. We are a member of the ‘For a Safe Lithuania’ campaign, the purpose of which is to give children from underprivileged families an increased sense of security and self-esteem.
In Estonia, we cooperate with the Food Bank on the distribution of food to the poor.
Complaints handling • Group policy – complaints handling • Instructions for the customer ombudsman’s complaints handling • Instructions for the companies’ complaintshandling
Money laundering • Risk analysis, money laundering • Anti-money laundering officer, job description
Contributing to a safer society Gjensidige helps to finance the public welfare system by paying direct and indirect taxes and pay to employees. Tax payable amounted to NOK 1,250 million for the Group in 2017. A large amount in value added tax comes in addition. Pay and employee benefits amounted to NOK 2,973 million.
CO2 emissions, Scope 1 and 2 ** Tonn 2,470 2,164 2,579 3,043
Number of excluded companies Number 89 85 80 85 * Based on the Board’s proposal. ** Emissions for 2014 deviates from reported emissions in the Annual report for 2014, when Norwegian only emissions were reported. *** Norway, Denmark and Sweden **** Norway
Corporate governance This statement follows the structure set out in the Norwegian Accounting Act Section 3 –3b: 1. The statement is submitted in compliance with the Norwegian Code of Practice for Corporate Governance of 30 October 2014.
2. The Code of Practice is available at 3. Grounds are stated for any deviations from the Code of Practice and regulations, and they are commented on under each item.
1. Statement on corporate governance Corporate governance is subject to an annual evaluation and discussion by the Board. The Board discussed and prepared this statement at a meeting on 25 January 2018 and adopted it at a meeting on 15 February 2018. Gjensidige’s compliance with the individual items is also described.
The Board bases its overall corporate governance on: – Optimising the Company’s assets in a long-term perspective – Equal treatment of shareholders – Equal and assured access to reliable, relevant and up-to-date information about the Company’s business
Our work on social responsibility is described in more detail on pages 22–39 of the annual report and at Selected quantitative results are presented in the table on page 39.
The working environment, equal opportunities and integration are described in more detail on page 27 of the annual report.
Deviations from the Code of Practice: None 2. The business Operations Pursuant to its Articles of Association, Gjensidige can engage in direct and indirect general and life insurance operations, including taking on pure risk insurance with a duration of no more than one year in the area of life insurance, owning companies that engage in general insurance, life insurance, banking, financing and securities activities, and other related businesses.
Three strategic areas are in focus: digital customer experiences, analytically-driven business processes, and dynamic organisational capabilities.
Our strategic ambitions cannot be realised without motivated, committed managers and employees who have the right expertise and attitudes. A higher pace of change – not least as regards technology and customer behaviour – means that
Deviations from the Code of Practice: None 3. Equity and dividends Equity The Gjensidige Group’s equity amounted to NOK 23.7 billion at the end of 2017.
Dividend Gjensidige’s target is to distribute high and stable nominal dividends, and at least 70 per cent of the profit after tax expense over time. When determining the size of the dividend, consideration will be given to expected future capital needs. Over time, Gjensidige will also distribute excess capital.
Proposed dividend for 2017 The proposed dividend for the 2017 financial year is NOK 3,55 billion. That corresponds to NOK 7,10 per share. The proposed dividend based on the profit for the year corresponds to 78.6 per cent of the Group’s profit after tax expense. The Board’s proposal for the distribution of dividend for the 2017 financial year is explained in more detail in the annual report.
– Authorisation to raise subordinated debt and other external financing limited to NOK 1.5 billion, and to trade in the bonds issued at all times under the Company’s subordinated bond issue and on the conditions stipulated by the Board. The authorisation was not used in 2017. The authorisation was considered as a separate item at the Company’s annual general meeting.
– Authorisation to increase the share capital through new subscription for shares. The authorisation enables the Board to exploit the mechanisms provided for in the Public Limited Liability Companies Act. The purpose can, among other things, be to increase the Company’s financial flexibility in connection with the acquisition of businesses, and to ensure an optimal capital structure. The authorisation enables the Board to increase the Company’s share capital by a total nominal amount of up to NOK 50,000,000, corresponding to 25,000,000 shares with a nominal value of NOK 2. The subscription price and other terms and conditions for subscription are stipulated by the Board. A capital increase within these limits can take place through one or more capital increases, as decided by the Board. The Board may decide that the shareholders’ pre-emption right to the new shares can be waived. The Board may also decide that the share capital contribution can be made in the form of assets other than cash. The Board is hereby authorised to implement the amendments of the Articles of Association that the share capital increase necessitates. The authorisation does not include decisions on mergers pursuant to the Public Limited Liability Companies Act Section 13-5. New shares qualify for dividend from the date on which they are registered in the Register of Business Enterprises. The authorisation is valid until the general meeting in 2018, but no longer than until 30 June 2018. The authorisation was not used in 2017. The authorisation was considered as a separate item at the Company’s annual general meeting.
4. Equal treatment of shareholders The Company has only one class of shares and all shares carry equal rights in the Company.
Existing shareholders have pre-emption rights when new shares are issued. With the approval of at least two-thirds of the total number of votes represented at the general meeting, the general meeting can decide to set aside the pre-emption rights. Grounds must be stated for any proposal to waive pre-emption rights, and this must be documented in the case document submitted to the general meeting.
In cases where the Board decides to issue new shares and the pre-emption right is waived on the basis of an authorisation, the reason will be stated in a stock exchange announcement in connection with the share issue.
The Board shall ensure that the Company complies with the Public Limited Liability Companies Act Sections 3-8 and 3-9 in agreements between the Company and parties mentioned therein. On entering into not immaterial agreements between the Company and shareholders, related parties, board members or members of the management or related parties of such members, the Board shall obtain an assessment from an independent third party. The same applies to agreements with group companies that have minority shareholders. This follows from the rules of procedure for the Board, which are available at
All board members and members of the management shall immediately notify the Board if
they, directly or indirectly, have an interest in a transaction or agreement that the Company is considering. This applies even if the board member is deemed not to be disqualified from considering the matter. These provisions are laid down in the rules of procedure for the Board. The objective is to avoid harming the Company’s reputation in connection with investments where there may be circumstances that can be perceived as an unfortunate close involvement, or a close relationship between the Company and a board member or executive personnel.
Deviations from the Code of Practice: None 6. The general meeting The general meeting is Gjensidige’s supreme body.
The general meeting is open and accessible for all shareholders. The annual general meeting shall be held before the end of April every year. The Company’s Articles of Association do not contain provisions that expand on or deviate from the provisions of the Public Limited Liability Companies Act Chapter 5.
– The CEO, the Chair of the Board and the Chair of the Nomination Committee are required to be present unless this is clearly unnecessary or they have valid grounds for not attending.
– Pursuant to the Articles of Association, the general meeting shall be chaired by the Chair of the Board or another person designated by the Board.
– Shareholders can vote electronically in advance before the general meeting. Voting in advance can be done via the Company’s website www. gjensidige.no, and via VPS Investor Services.
Pursuant to the Articles of Association, the Board may decide that shareholders can attend the general meeting by means of electronic aids, including exercising their rights as shareholders electronically.
Members of the Board are present at the general meeting. In accordance with the Articles of Association, the Chair of the Board and the CEO will normally be present to answer questions.
At present, Gjensidige’s Nomination Committee consists of five members. All members are independent of the Board and other executive personnel. According to the rules of procedure for the Nomination Committee, the members should reflect the interests of the shareholders as a whole. As majority owner, the Gjensidige Foundation is represented by two members. This recommendation was followed in 2017.
One of the board members elected from among the employees attends as a regular member in connection with discussions and recommendations concerning the office of Chair of the Board. The Chair of the committee can invite other board members selected from among the employees to take part in certain important discussions relating to the election of the Chair of the Board.
The Nomination Committee started its preparations for the 2017 election already in autumn 2016. A total of eight meetings were held. In order to arrive at the best possible basis for its assessments, the Nomination Committee had conversations with the Chair of the Board, the board members and the CEO.
The Nomination Committee shall propose candidates for: – the Board, including the Chair of the Board – the Nomination Committee, including the Chair of the committee – the external auditor
The Nomination Committee wishes to ensure that the shareholders’ views are taken into account when members are nominated for the Board. In addition to the Nomination Committee consulting particularly active shareholders to elicit proposals for candidates and ensure support for its recommendations, all shareholders are encouraged on the Company’s website to propose candidates for governing bodies. The deadline for submitting proposals is normally the turn of the year in order to ensure that proposed candidates are considered at the start of the process, and to have time to carry out statutory suitability assessments and obtain the necessary clearances from the financial authorities before the election. The Nomination Committee shall recommend all rates of remuneration to be decided by the general meeting, including the remuneration of members of the Nomination Committee, which is decided by the general meeting, and submit a recommendation concerning whether the proposal for the auditor’s fee should be approved.
Tine G Wollebekk left the Board with effect from 1 June 2017 as a result of her being appointed as CEO of Bank Norwegian and Norwegian Finans Holding from the same date. The Nomination Committee immediately started work on finding her successor.
• The members of the Board should be independent of the Company’s management.
Each gender currently has at least 40 per cent representation among the shareholder-elected members of the Board. For a more detailed presentation of the board members, see pages 55 to 68 of the annual report and the Company’s website
Board members’ shareholdings Seven of the board members own shares in the Company; see the overview in Note 8. The board members follow the general rules for primary insiders, but they have all voluntarily accepted and informed their related parties that trading in the Gjensidige share, or derivative instruments, may only take place within a reasonable time frame after submission of the quarterly report, so that trading can take place on the basis of the same information about the Company and the Company’s financial position as is available to the rest of the market.
Deviations from the Code of Practice: None 9. The work of the Board The work of the Board follows a fixed annual plan and is conducted in accordance with established rules of procedure. The rules of procedure are available at They contain more detailed rules for the work of the Board and how it handles matters, including what matters shall be considered by the Board, rules for notices of meetings and the conducting of meetings. The Board has also issued instructions for the CEO, which regulate the internal division of responsibility and tasks.
The Board of Gjensidige Forsikring ASA has established select committees – an Audit Committee, a Risk Committee and a Remuneration Committee. The committees consist of between three and five members, including at least one elected from among the employees. This contributes to thorough and independent assessments of matters concerning, among other things, internal control, financial reporting and remuneration of executive personnel. The purpose of the committees is to facilitate good and well-prepared discussions at board meetings.
The Audit Committee The Audit Committee is a preparatory and advisory select committee that is tasked with preparing the Board’s follow-up of the financial reporting process and improving the Board’s follow-up of the Group, among other things by contributing to thorough and independent consideration by the Board of matters relating to financial reporting. The committee shall also monitor the systems for internal control and risk management, as well as the Company’s internal audit function. The committee is also in continuous contact with the Company’s elected auditor about the auditing of the annual accounts, and it assesses and monitors the auditor’s independence, cf. Chapter 4 of the Auditors Act.
As of 31 December 2017, the Audit Committee consisted of the following members: – Gisele Marchand (Chair) – Per Arne Bjørge – Gunnar Mjåtvedt – Hilde Merete Nafstad – Tine G Wollebekk (until 1 June 2017)
The Remuneration Committee The Remuneration Committee shall, within the limits of the Board’s responsibility, strengthen the Board’s follow-up of the Group’s remuneration policy in relation to the CEO, the senior management team and key personnel.
The committee shall prepare matters for the Board. It is primarily responsible for: • Drafting proposals for and following up compliance with the Group’s guidelines and framework for remuneration
• Annually preparing and proposing the remuneration of the CEO and director of internal audit
• Assessing the management's proposed ‘Statement on the stipulation of pay and other remuneration for executive personnel’, cf. the Public Limited Liability Companies Act Section 6-16 a.
Reference is otherwise made to the Board’s statement on remuneration in Note 8 in the annual report.
Gjensidige’s internal control system includes the Company’s core values, guidelines for ethics and corporate social responsibility and other governing documents.
Centralised control functions have been established that are independent of business operations: the Risk Management, Compliance and Actuary functions. In addition, the internal audit function serves as an additional, independent control level that reports directly to the Board.
The Risk Management function is an independent function that is responsible for maintaining and further developing the Group's risk management
system to ensure that the system is satisfactory at all times in relation to laws, regulations and the requirements of the Board. The Risk Management function shall prepare guidelines for internal control that cover all types of risks in the risk management system, and ensure that they are implemented and followed up at least annually.
The Compliance function is independent in relation to operations. It identifies, assesses, advises on, monitors and reports on the Group’s compliance risk. Assessing compliance risk is part of the Group’s annual risk assessment process.
The Gjensidige Group publishes four interim reports in addition to the ordinary annual accounts. The accounts shall meet the requirements of laws and regulations and be prepared in accordance with adopted accounting principles.
As part of Gjensidige’s governing documents, an overall description has been prepared of the process relating to the closing of the accounts. Reporting instructions have also been prepared, including accounting principles that subsidiaries and branch offices must use in their reporting. Internal control is based on the principle of division of labour and dualism, and it is documented through descriptions of processes and procedures in important areas. Authorisation structures, reconciliations and management reviews have been established.
Consolidated accounts are prepared every month and reported to the Board on a monthly basis, with comments on and explanations for each business segment. In this connection, Group Accounts cooperates with the Actuary function, Group Performance Management, Reinsurance and the controllers in the business areas in order to quality assure the figures and comments. The insurance provisions are assessed monthly by the Actuary function and reviewed annually by an external actuary. Accounting items that entail a varying degree of discretionary assessment are reviewed and documented in advance of the quarterly closing of accounts. Discretionary accounting items are reviewed by the Board’s Audit Committee at quarterly meetings. The Audit Committee also considers interim reports, company accounts and consolidated accounts. The processes are identical for the Group and the parent company. The annual accounts are adopted by the respective general meetings.
The Group has established a planning process for financial management whereby the CEO, the CFO and the Chief Performance Officer meet with business and support areas at least every quarter to review financial performance and goal attainment, as well as events that affect future developments. Among other things, they assess risks relating to financial reporting, in both the short and long term. The senior group management reviews the monthly financial reporting, including developments in profit/loss and balance sheet items, goal attainment, the forecast for the year, risk assessment and analyses of and comments on results in business and support areas.
The Group is concerned with ensuring that processes relating to financial reporting and financial management are carried out by personnel with the correct expertise for the different tasks involved. Professional updating through self-study, courses and continuing education takes place on the basis of the needs and complexity of the position in question. The goal is that the Group shall have sufficient expertise and resources at all times to be able to carry out timely closing of the accounts without there being material errors in the consolidated and company accounts. This involves fields such as IFRS, NGAAP and the Annual Accounts Regulations for Insurance Companies etc. Gjensidige participates actively in various industry organisations for banks and life and general insurance companies where topical issues are discussed.
When outsourcing, the following shall be assessed and documented: • How a vendor of sufficient quality is to be selected • Details that the written agreement must include • How outsourcing will be managed and monitored • Contingency plans (for both the enterprise and vendor).
Outsourcing shall not: • Significantly impair the quality of Gjensidige’s management • Unduly increase operational risk • Impede supervision of outsourced activities • Undermine continuous and satisfactory service to policyholders.
The Group Procurement function shall report annually to the Board with an overview of all outsourcing agreements reported to the Financial Supervisory Authority. Furthermore, the Group Procurement function shall, on behalf of Executive Vice President Group Staff and General Services of Gjensidige Forsikring ASA, at least annually, report the results to the Group CEO.
Deviations from the Code of Practice: None 11. Remuneration of the Board The Nomination Committee proposes the remuneration of the Board, which is decided by the general meeting. This remuneration is not dependent on the Group’s performance, and none of the board members have share options issued by the Company.
The remuneration of individual board members is described in Note 8 in the annual report. The amount of the remuneration reflects the Board’s responsibility, expertise, time consumption and the complexity of the business. In addition, board members are paid a separate fee for participating in the Board’s Audit Committee, Risk Committee and Remuneration Committee.
The Board’s complete statement on the remuneration of executive personnel is included in Note 8 in the annual report.
This is the most important means of providing identical, simultaneous and relevant information to all stakeholders. A financial calendar is also published on the website, containing dates for the announcement of financial information and information about the Company’s general meetings.
The interim results are presented directly by webcast and teleconference that are open for all stakeholders. The webcast can be followed directly at
A recording is also made available at the same web address.
Guidelines have been adopted for corporate takeovers. These guidelines ensure that all shareholders' interests are safeguarded and they contribute to equal treatment of shareholders.
Deviations from the Code of Practice: None 15. External auditor The external auditor is elected by the general meeting on the Nomination Committee’s recommendation. The Audit Committee, which in practice is the external auditor’s most important point of contact, submits an opinion on the election to the Nomination Committee.
A number of regular meetings are held between the external auditor and the Company’s governing bodies during the course of the year: The auditor presents the main elements of the audit plan to the Audit Committee annually. In addition, the Audit Committee considers the auditor’s assessment of internal control in relation to financial reporting. The auditor attends board meetings when the annual accounts are considered.
At least one meeting is held every year between the Board and the auditor, and between the Audit Committee and the auditor, at which the CEO and other executive personnel are not present.
Guidelines have been drawn up for the management ’s right to use an external auditor for services other than auditing.
The auditor shall under no circumstances carry out advisory assignments or other services if this could affect or give rise to doubts about the auditor’s independence and objectivity. Nor shall the auditor act in a manner that entails a risk that he/she will have to audit the result of his/her own advisory services or other services, or that entails a risk that he/she will perform functions that are part of the Group’s internal decision-making process.
The Audit Committee shall also monitor the auditor’s independence, including what services other than auditing the auditor has provided. The breakdown between the auditor’s fee and consultancy fees for 2017 is described in Note 7.
A new external auditor was elected at the general meeting in 2017.
The Gjensidige Insurance Group delivered a solid underwriting result in 2017. The return on financial assets was very satisfactory seen in relation to the low interest rate level. The profit after tax expense was NOK 4.5 billion, corresponding to NOK 9.05 per share.
The Retail Bank and Pension showed continued positive development, with strong growth in volumes and underlying profitability.
The Board is satisfied that the Group met its financial targets in 2017.
The Board proposes that the Company pay a dividend of NOK 3.55 billion for the 2017 financial year. That corresponds to NOK 7.10 per share and entails a payout ratio of 78.6 per cent. Compared with the previous financial year, the proposal corresponds to an increase of 4.4 per cent in nominal dividend based on the profit for the year.
The Gjensidige Foundation’s share of the dividend amounts to NOK 2.2 billion. Pursuant to the Foundation’s statutes, the dividend will be passed on to Gjensidige’s general insurance customers in Norway. The customer dividend is adopted by the Foundation’s general meeting in April.
The business Gjensidige Forsikring ASA (Gjensidige Forsikring) is a general insurance company with operations in the Nordic region and the Baltics. The company’s head office is in Oslo in Norway. The object of the business is to safeguard life, health and assets for customers in the private and commercial markets by offering insurance on competitive terms. In Norway, we also offer banking, pension and savings products and services. We build stronger relations by offering customers a broad range of products and services. Gjensidige Forsikring is the parent company of the Gjensidige Group (Gjensidige).
Gjensidige is the market leader in general insurance in Norway, and one of the biggest insurance companies in the Nordic region and the Baltics. These markets represent our defined market area for further growth.
Gjensidige’s business model is based on an integrated value chain that includes the development and production of financial services and products, a high degree of direct distribution, service and customer dialogue, and efficient claims handling. Distribution in cooperation with our partners is an important part of the business model, especially in Denmark and Sweden.
We are continuously developing new self-service solutions for PCs, mobile phones and tablets. The core of all these services is user-friendliness and sim-
In 2017, we carried out a number of measures to make it easier and more attractive to report and check the status of claims online. This has led to a considerable increase in the number of digitally reported claims. Customer satisfaction surveys show that customers are more satisfied with the case processing when the claim has been reported online compared with by phone.
In addition to offering traditional insurance pro ducts, Gjensidige has developed several value-adding services for the Norwegian private market, including services relating to property and health. The purpose is to contribute to brand preference and loyalty.
Market position Gjensidige was the biggest player in Norwegian non-marine general insurance also in 2017. According to Finance Norway’s statistics, Gjensidige had a market share of 25.5 per cent of a total marked of just over NOK 56 billion at the end of the third quarter. The market share remained stable throughout the year. Gjensidige prioritises profitability ahead of growth, and the market share development confirms the Company’s strong competitiveness.
The market shares in Denmark and Sweden were 7.7 per cent (based on the most recent statistics from the Danish Insurance Association, fourth quarter 2016) and 2.3 per cent, respectively (source: Insurance Sweden, third quarter 2017).
The market share for group unit-linked defined contribution pensions was 9.3 per cent, while the market share for individual unit-linked pensions was 8.0 per cent. Our market share of transferred defined contribution pension agreements was 19.6 per cent. (Source: Finance Norway, as of the third quarter 2017.)
Both the Private and Commercial segments distribute products and services through a combination of telephony, web-based solutions and local branch offices. The customers can choose their point of contact and the service they want, and they shall experience the same quality and service regardless of which channel they choose.
This model contributes to both good customer experiences and cost-efficient distribution.
Inge K Hansen (1946) has been Chair of the Board of Gjensidige since 2008. He is also Chair of the Board of Siriusungen AS, Troms Kraft AS, Hotel and Restaurant Continental AS, Nets AS, Arctic Securities AS, Point Resources AS and Sissener AS. He is a board member of Fram Museum. He was elected Chair of the Year in Norway and the Nordic Countries in 2012.
customers who contact us to buy or change insurance policies or to seek advice. We have 32 local branch offices that offer advisory services in the fields of insurance and banking. The offices can refer customers to other departments if the queries concern pensions and saving.
Gjensidige Bank plays an important role by offering simple, user-friendly banking and savings services in the Norwegian market. Customers have access to the bank’s services through the online banking and mobile phone solutions, which are adapted for use on smart phones and tablets. Car financing and car insurance are available in common digital solutions at car dealers and at gjensidige.no.
New developments and improvements in mobile interfaces and websites make it easier and easier for our customers to buy products, maintain an overview of their customer relationship, and report and follow up claims. Our internal efficiency is constantly being improved through the reuse of ICT solutions between different entities in the Group and by using new technology that makes us more and more efficient.
Products and customer data have been brought together on the same system platform to ensure uniform customer service across distribution channels, standardisation of work processes and cost-efficient operation of ICT systems. A flexible service architecture enables us to use functionality from the core system and information from the customer system for self-service solutions, common user interfaces for customer advisers, and in the work on optimising risk selection and tariff setting, among other things. An evaluation of system solutions is currently being carried out in the different markets with a view to ensuring competitiveness also in the long term.
The year 2017 Maintains leading position in Norway Gjensidige consolidated its leading position in the Norwegian general insurance market in 2017, despite intense competition. Customer satisfaction was higher than ever. Combined with continued good profitability, this confirms Gjensidige’s sound competitiveness in Norway. Gjensidige was awarded Ipso’s Reputation Prize in 2017.
Sound development for Gjensidige Bank and Gjensidige Pensjonsforsikring Gjensidige Bank has experienced strong, profitable growth over several years and achieved lending volume growth of 11.7 per cent in 2017. The growth was primarily driven by housing and car loans, where the bank plays a strategic role in ensuring that the Group is able to offer its insurance customers a complete range of financial services. Growth was particularly strong in car loans, helped by innovative solutions for combined sales of financing and car insurance through car dealers. This has resulted in Gjensidige Bank being the fifth biggest player in the car financing market in Norway.
Gjensidige Pensjonsforsikring (GPF) achieved a growth in assets for management of 23.5 per cent in 2017 and good underlying profitability development. GPF contributes to the provision of a complete range of products and services to Gjensidige’s commercial customers.
In Denmark, a new pricing mechanism and modernisation of tariffs were given high priority in 2017. Tariffs and terms are being upgraded on a continuous basis, one product group at a time, and this work will continue in 2018. The measures are expected to gradually improve profitability in the Danish business.
Sweden and the Baltics developed according to plan following the integration of acquired businesses, and both markets are expected to be profitable from and including 2018 seen as a whole.
The CR target of 86–89 reflects an expectation of average annual run-off gains in the region of NOK 1 billion in the next 3–5 years. Without run-off gains, the CR target is 90–93.
At the end of 2014, the Group launched six operational key targets for the period until 2018. The development has been positive for all the parameters throughout 2017.
The target for online reporting of claims was achieved already in 2016. In the long term, our ambition is that 80 per cent of all frequency claims will be reported online. Moreover, our ambition is that the handling of 80 per cent of these claims will be fully automated, so that 64 per cent of all frequency claims will be processed entirely digitally.
Three strategic focus areas towards 2020 Gjensidige has defined three strategic focus areas in order to achieve its financial and operational targets: digital customer experiences, analytics -driven operations and dynamic organisational development. See pages 41–42 for a more detailed description of Gjensidige’s strategy. A selection of measures and initiatives that have been implemented in 2017 relating to these focus areas is presented in the following.
Sales through digital channels have increased by more than 30 per cent in 2017, compared with 2016. The proportion of claims reported online or via mobile phone increased from 52 per cent to 63 per cent in the Norwegian private market in 2017.
The claims reporting process was simplified by reducing the number of questions customers have to answer to report a claim. This is a natural consequence of encouraging customers to report claims in our mobile app. This enables customers to report the claim immediately, which, in our experience, contributes to more accurate claims and quicker settlements. By reducing the number of questions, we also facilitate a more standardised claims handling process, which makes it easier to turn it into a digital, automated process. We have established sophisticated analytics models that allow an increasing number of cases to be handled through automatic processes.
One example of this is that we set an unofficial world record in claims handling when a claim was approved just 1.6 seconds after the customer reported the claim. The short processing time is possible because the case is processed by sophisticated algorithms integrated in our core system. For the time being, only travel insurance claims
Customers with >4 GI products 2017 77.9 69 % 63 % Delivered NOK 547 million Maintained Maintained million To be main- tained high
** Adjusted for proposed dividend for 2017. *** Adjusted for proposed dividend for 2017. After the balance sheet date, Gjensidige received feed back from the FSA with regards to the partial internal model. See note 23 for further description. **** Combined ratio target on an undiscounted basis, assuming ~4 pp run-off gains next 3-5 years and normalised large losses impact. Beyond the next 3-5 years, the target is 90-93 given 0 pp run-off.
can be processed in this manner. Claims that are too complex to be processed automatically are forwarded for manual case processing.
We also started using machine learning in an image recognition solution for appraising car collision damage. The possibility of taking a photo of the damage is integrated into our claims reporting app. This can save customers the trouble of having to see a garage to appraise the damage. Damage that cannot be appraised automatically is referred to a garage. The solution will become more accurate with time as it gains more experience to build on.
Business intelligence and analytics Combined with the ability to utilise new insight, access to and analysis of large amounts of data will be an important competitive advantage going forward. For example, Gjensidige has come far in utilising publicly available geographical and building data in all relevant processes. This contributes to better pricing, customer and risk selection and more efficient claims settlements.
The trend towards a more analytical CRM has contributed to better models for predicting loss of customers and more relevant initiatives in relation to our customers.
Eivind Elnan (1974) has been a member of the Board of Gjensidige since 2017. He has during the past ten years founded and built up two technology companies, Securo AS/Scuti AS and Hypoxic Technologies AS, both of which focus on fire protection solutions. He is now general manager of Hypoxic Technologies AS, which in 2017 became part of the German group Wagner Group GmbH. He has a MSc in Industrial Economics and Technology Management from the Norwegian University of Science and Technology (NTNU).
Elnan has been a board member of the Gjensidige Foundation since 2016, and was previously a deputy member of the board.
Restructuring was carried out towards the end of 2016 and the beginning of 2017, both in the management and in the rest of the organisation, to be able to meet the future in an even better and more efficient way. Rationalisation measures were implemented that, among other things, entailed a reduction of 230 full-time equivalents in staff and support functions.
Customer satisfaction is high in Gjensidige Norway, which confirms high satisfaction with our services. Around 70 per cent of our private customers are members of an organisation or loyalty programme, and these customers are characterised by even higher loyalty than average.
Loyalty among our customers in Denmark was stable in 2017, and there is still a potential for developing longer-lasting customer relationships in both the private and commercial markets.
The customer dividend model promotes loyalty The unique arrangement whereby our customers receive customer dividend from Gjensidige’s biggest owner, the Gjensidige Foundation, contributes to both loyalty and our attractiveness. Every year since the Company was listed on the stock exchange, Gjensidige has paid customer dividend to its Norwegian general
Giverholt is Chair in Elopak AS, Ortomedic AS and Lillevold og Partners AS. He is a board member of Aars AS, A Wilhelmsen AS, CEK Holding AS, Fredensborg Eiendom AS and GammelNok AS.
Partnership agreements still important Gjensidige has many years’ experience of partnership agreements, and at the turn of the year, our partner organisations had a total of 1.7 million members. Our partnership agreements are structured so that the customer dialogue takes place directly with Gjensidige.
In 2017, Gjensidige entered into a cooperation agreement with the Norwegian Society for Sea Rescue (Redningsselskapet).The Society has worked to ensure safety at sea for more than 100 years, and has 120,000 members.
At the beginning of 2017, Gjensidige signed a partnership agreement in Denmark with the car importer Interdan. Already in February, private insurance policies were launched for Peugeot, Citroën and Mitsubishi, which have a 17 per cent share of the Danish market for new car sales. The partnership got off to a good start, with considerable sales taking place through dealers. We expect increased sales in 2018, and are working to establish commercial motor policies through the same partner.
With accounting effect from May 2017, Gjensidige acquired Mølholm Forsikring A/S, which is the market leader in health insurance in Denmark, with a premium volume of around DKK 400 million. The acquisition is in line with Gjensidige’s strategy of securing a solid position in the growing market for accident and health insurance in the Nordic region.
Balance sheet and capital optimisation Gjensidige works continuously on balance sheet and capital optimisation in order to ensure attainment of the Group’s financial targets as well as an efficient capital structure and sufficient financial flexibility.
At year-end 2017, the remaining capacity to issue Tier 1 loans amounted to NOK 1.5–1.9 billion. It is not Gjensidige’s ambition to fully utilise this capacity, but it will consider the possibilities for issuing further loans contingent on satisfactory market terms. The capacity to issue Tier 2 loans was fully utilised. In addition, other balance sheet and capital optimisation measures will be continuously assessed.
for reporting on the risk and capital situation. The regulations have been implemented in Norwegian law through the Financial Undertakings Act and pertaining regulations.
Gjensidige has applied for approval of a partial internal model (PIM) for calculating the regulatory capital requirement for parts of the operation. After the balance sheet date, Gjensidige received feedback from the FSA with regards to this. See note 23 for further description. The internal model, as Gjensidige has defined this, gives a good picture of the Company’s risk situation and capital requirements and will still be used for internal management purposes.
The board has gone through a thorough process to ensure understanding of the model, and has on several occasions dicussed the results and methods of the model.
Until such time as new rules are adopted, a tax deduction is granted for technical provisions calculated on the basis of the applicable provision rules, provided that the provisions are deemed to be necessary. February 7. 2018 a consultation paper about changes in the tax rules for insurance- and pension companies was published. Gjensidige will review the consultation paper and look into the consequenses.
Furthermore, there is uncertainty relating to the effect of a risk-reducing effect of deferred tax that is taken into account in the calculation of the capital requirement. This is a tax advantage that will arise should Gjensidige suffer a financial loss equal to the capital requirement. This type of effect can only be taken into account if it is likely that the Company will be able to continue as a going concern, and there is a future profit that makes it possible to utilise this advantage. Work is ongoing at the international level that may result in more specific criteria for when, and if so, how much of the risk-reducing effect of deferred tax can be taken into account in the calculations. This may lead to changes to the capital requirement.
The preparation of the accounts and application of the chosen accounting principles involve using assessments and estimates, and necessitate the application of assumptions that affect the carrying amount of assets and liabilities, income and expenses. The estimates and the pertaining assumptions are based on experience and other factors. The uncertainty associated with this means that the actual figures may deviate from the estimates. It is especially the insurance liabilities that are associated with this type of uncertainty.
Profit/loss The Group recorded a profit before tax expense of NOK 5,829.1 million (6,139.9). The profit from
Key figures general insurance Large losses 4 577.4 871.8 Run-off gains/(losses) 5 1,030.3 1,023.4 1 Large losses in excess of NOK 30.0 million are charged to the Corporate Centre, while claims of less than NOK 30.0 million are charged to the segment in which the large losses occur. As a main rule, the Baltics segment has a retention level of EUR 0.5 million. Large losses allocated to the Corporate Centre amounted to NOK 205.5 million (382.5) for the year as a whole. Accounting items related to written reinsurance and reinstatement premium are also included.
2 Underwriting result general insurance = earned premiums - claims incurred etc. - operating expenses 3 Excluding the return on financial assets in Pension and Retail Bank. 4 Large losses = loss events in excess of NOK 10.0 million. Expected large losses for the quarter were NOK 318.0 million. 5 Run-off gains/(losses) = changes in estimates from earlier periods. Provisions are based on best estimates, and the expected run-off result over time is zero.
general insurance operations, measured by the underwriting result, was NOK 3,410.1 million (3,734.6), corresponding to a combined ratio of 85.4 (83.4).
Adjusted for non-recurring events in 2016, the underwriting result amounted to NOK 3,445.0 million, corresponding to a combined ratio of 84.6.
For the investment portfolio, the return on financial assets was 3.7 per cent (3.9) or NOK 2,002.6 million (2,155.1). The financial result was satisfactory, although somewhat lower than the result in 2016, primarily as a result of a lower return on bonds.
The tax expense amounted to NOK 1,309.8 million (1,474.1), corresponding to an effective tax rate of 22.5 per cent (24.0). The effective tax rate was influenced by realised and unrealised gains from equity investments in the EEA.
The profit after tax was NOK 4,519.3 million (4,665.9), corresponding to NOK 9.05 (9.34) per share.
The underwriting result was positively influenced by a solid growth in premiums of 4.3 per cent, and earned premiums increased to NOK 23.4 billion (22.4). The result reflects continued good control of customer and risk selection and risk pricing. Claims expenses were affected by a favourable weather situation, slightly lower large losses than expected and slightly higher frequency claims, while run-off gains were as expected. The Pension segment made a positive contribution to profit performance, with a higher financial result and management income. The Retail Bank improved its profit performance as a result of an underlying positive development, and a non-recurring effect of NOK 116.6 million from the sale of a portfolio of already written-down, unsecured loans.
Balance sheet and capital base The Group’s balance sheet total at year-end 2017 was NOK 149,072.4 million (135,926.6). This increase was mainly attributable to volume growth in the Retail Bank and Pension segments. Equity amounted to NOK 23,703.1 million (22,326.0) as of 31 December 2017.
From 1 January 2016, the Company became subject to the Solvency II regulations.The solvency margin for the Group at year-end was 137 (147) per cent based on the standard formula and 169 (180) per cent based on the Company’s partial internal model, as defined by Gjensidige. See note 23 for further description of events after the balance sheet date. The guarantee scheme is classified as a liability under Solvency II. If it had been included in solvency capital, the solvency margin for the Group would be 141 (150) per cent based on the standard formula and 172 (183) per cent based on the Company’s partial internal model.
The solvency margin and excess capital are adjusted for the Board’s dividend proposal of NOK 3.55 billion for the 2017 financial year.
Cash flow Gjensidige is primarily an insurance company in which investments are part of the operational cash flow and therefore largely affected by strategic decisions. The Company’s ability to self-finance investments is good. The net cash flow from opera-
The net cash flow from investment activities mainly consists of payments made/received in connection with the acquisition of subsidiaries and associated companies, owner-occupied property, plant and equipment, plus dividend from associated companies and joint ventures. The net cash flow from investment activities was negative in the amount of NOK 834.6 million (minus 248.4) in 2017. The change was largely due to increased payouts in connection with the acquisition of a subsidiary plus plant and equipment.
Earned premiums increased to NOK 8,516.5 million (8,291.3), and Gjensidige’s competitive position remained strong despite intense and increased competition. With effect from October 2016, the Mondux product insurance portfolio was moved from the Nordic segment to the Private segment. Earned premiums in this portfolio amounted to
Earned premiums 8,516.5 8,291.3 Claims incurred etc. (5,226.2) (5,030.8) Operating expenses (1,090.3) (1,063.8)
Amortisation and impairment losses of excess value – intangible assets (22.2) (25.8) Large losses 1 32.3 56.2 Run-off gains/(losses) 2 473.2 377.5 1 Large losses = loss events in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre.
Mjåtvedt has previously held positions as a sales consultant and senior consultant, and he has nearly 30 years’ experience of the insurance sector. He studied mathematics and science subjects at upper secondary School, and is authorized insurance adviser within health and pension.
Claims incurred amounted to NOK 5,226.2 million (5,030.8). At 61.4 (60.7), the loss ratio was still at a very strong level. Motor and leisure showed an increased underlying loss ratio, while property and accident and health insurance showed positive development. Pricing measures were taken throughout the year to mitigate the effects of higher expected claims inflation in motor insurance going forward. Competition has increased during the year, and price adjustments are made based on an analytical, dynamic and segmented approach to ensure a good balance between profitability and growth. In general insurance, effects of price increases to mitigate effects from expected claims inflation will gradually materialise over 12–24 months from implementation. The Mondux product portfolio had a negative effect of 0.5 percentage points on the underlying loss ratio.
Earned premiums were NOK 7,300.5 million (7,257.4). The Norwegian economic upturn is moderate, and the market environment for commercial lines remains highly competitive. Premium growth was driven by a well-balanced book of business, with both market activities and pricing measures contributing positively.
Claims incurred amounted to NOK 4,825.6 million (4,825.1) and the loss ratio was 66.1 (66.5). The lower level of large losses contributed positively to the development. The underlying loss ratio was somewhat weaker, in particular for accident and health insurance and motor insurance. Overall, the underlying profitability was still good in absolute terms. Measures have been taken during the year to mitigate the effects of expected higher claims inflation in motor insurance, and the effects will gradually feed into the portfolio.
Nafstad has had several leading positions in Statoil, Norsk Hydro, Saga Petroleum and the Ministry of Petroleum and Energy. She is a director of the board of SN Power AS, and holds directorships-/chairman positions in a number of Boards of Statoil’s international companies.
Earned premiums 7,300.5 7,257.4 Claims incurred etc. (4,825.6) (4,825.1) Operating expenses (840.1) (801.1)
Claims incurred amounted to NOK 5,354.9 million (4,739.6). Currency effects increased incurred claims by NOK 7.2 million. The loss ratio was 81.6 (80.1). The higher loss ratio was mainly due to higher large losses and a run-off loss in Sweden. The underlying frequency claims development in Sweden was positive. In Denmark, profitability improved, mainly due to lower large losses and higher run-off gains, which offset a less favourable underlying frequency claims development. Pricing measures have been taken during 2017 to compensate for higher expected overall claims inflation in Denmark. In addition, new and more up to date insurance products were launched during the year. They will contribute to better agility, risk pricing and improved renewal processes. Similar initiatives have been taken in the Swedish portfolio.
Operating expenses were NOK 1,016.1 million (930.9). Currency effects increased operating expenses by NOK 0.9 million. The Mølholm acquisition contributed NOK 32.1 million. The cost ratio was 15.5 (15.7).
2 Run-off gains/(losses) = changes in estimates from previous years 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio
Earned premiums increased to NOK 1,074.7 million (1,036.3), although the underlying increase was NOK 6.2 million lower when adjusted for currency effects. The positive premium development was driven by portfolio restructuring and repricing measures.
Earned premiums 1,074.7 1,036.3 Claims incurred etc. (736.0) (748.4) Operating expenses (345.9) (387.4) Underwriting result (7.2) (99.5)
Amortisation and impairment losses of excess value – intangible assets (14.5) (14.9) Large losses 1 Run-off gains/(losses) 2 22.0 12.8 1 Large losses = loss events in excess of EUR 0.5 million. Claims incurred in excess of this per event are as a rule charged to the Corporate Centre.
Management income increased to NOK 130.4 million (83.6), driven by an increase in assets as well as a change in the classification of management costs of NOK 22.9 million, which were previously reported as income reductions but are now treated as operating expenses.
Operating expenses were NOK 227.3 million (191.1) after the change in the classification of management costs as described above and as a result of increased business volume.
The recognised return on the paid-up policy portfolio was 3.75 per cent (4.08). The average annual interest guarantee is 3.34 per cent (3.50).
Gjensidige Investeringsrådgivning AS was merged with Gjensidige Bank in February 2017, and the 2016 figures are restated accordingly in this report.
Administration fees 134.6 127.8 Insurance income 36.3 68.0 Management income etc. 130.4 83.6 Operating expenses (227.3) (191.1) Net operating income 74.0 88.4 Net financial income 29.7 26.4 Profit/(loss) before tax expense 103.7 114.8
Net commission income and other income amounted to NOK 42.9 million (117.7). The decrease was a result of lower gains on financial instruments and higher acquisition costs driven by business growth. In addition, the 2016 financials included a gain on the sale of Visa Europe to Visa International, of which Gjensidige Bank’s share was NOK 12.3 million.
The net interest margin was 2.03 per cent (1.85). The increase was driven by improved funding costs.
Operating expenses were NOK 412.5 million (406.5). The expenses were positively impacted by a change in the bank’s distribution strategy, which allowed for a higher share of the acquisition costs to be amortised over the life of the loans. The positive impact was offset by an increase in expenses driven by the growth of the business. The cost/ income ratio decreased to 39.8 per cent (44.4).
The merger with Gjensidige Investeringsrådgivning AS was finalised in February 2017. The financial reporting was integrated with effect from January 2017, and the 2016 figures are restated accordingly in this segment report.
Interest income and related income 1,631.7 1,408.0 Interest expenses and related expenses (639.4) (610.7) Net interest income 992.3 797.3 Net commission income and other income 42.9 117.7 Total income 1,035.2 915.0 Operating expenses (412.5) (406.5) Write-downs and losses (10.3) (69.5) Profit/(loss) before tax expense 612.3 439.1
Management of financial assets and properties The Group’s investment portfolio includes all investment funds in the Group, except for investment funds in the Pension and Retail Bank segments. The investment portfolio is split into two parts: a match portfolio and a free portfolio. The match portfolio is intended to correspond to the Group’s technical provisions. It is invested in fixed-income instruments with a duration and currency that matches the duration and currency of the technical provisions. The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s capitalisation and risk capacity, as well as the Group’s risk appetite at all times. Results from the use of derivatives for tactical and risk management purposes are assigned to the respective asset classes, depending on whether the derivatives used are equity or fixed-income derivatives. Foreign-exchange risk in the investment portfolio is generally hedged close to 100 per cent, within a permitted range of +/- 10 per cent per currency.
At the end of the year, the investment portfolio totalled NOK 54.9 billion (54.0). The financial result for the year was NOK 2,002.6 million (2,155.1), which corresponds to a return on total assets of 3.7 per cent (3.9).
Bonds recognised at amortised cost amounted to NOK 17.6 billion (17.5). Unrealised excess value amounted to NOK 1.2 billion (1.3) at the end of the period. The reinvestment rate for new investments in the portfolio of bonds held at amortised cost was approximately 3.1 per cent on average during the fourth quarter, and the running yield was 4.0 per cent at the end of the period.
The average duration of the match portfolio was 3.4 years. The average term to maturity for the corresponding insurance liabilities was 3.6 years. The distribution of counterparty risk and credit rating is shown in the charts on page 13. Securities without an official credit rating amounted to NOK 10.7 billion (11.5). Of these securities, 6.5 per cent (10.2) were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies, industry and municipalities. Bonds with a coupon linked to the development in the Norwegian consumer price index accounted for 8.5 per cent (10.1) of the match portfolio.
At the end of the period, the average duration in the portfolio was approximately 2.5 years. The distribution of counterparty risk and credit rating is shown in the charts on the next page. Securities without an official credit rating amounted to NOK 2.3 billion (2.6). Of these securities, 15.2 per cent (12.4) were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies, industry and municipalities.
The geographical distribution1 of the fixed-income instruments in the free portfolio is shown in the chart on page 72.
3 Investments in internationally diversified funds that are externally managed. 4 Investments mainly in internationally diversified funds that are externally managed. In addition, there is negative derivative exposure of NOK 202.9 million. 5 The item includes currency hedging related to Gjensidige Sweden and Gjensidige Denmark, lending, paid-in capital in Gjensidige Pensjonskasse, profit/loss effects from total return swaps with Gjensidige Pensjonsforsikring AS and Gjensidige Pensjonskasse, hedge funds, commodities and finance-related expenses.
Equity portfolio The total equity exposure at the end of the period was NOK 4.8 billion (4.0), of which NOK 3.5 billion (2.9) was current equities and NOK 1.3 billion (1.1) PE funds. The return on current equities was 15.1 per cent (15.1). The return was driven by a good market performance by international equities in general, and by emerging market equities in particular. The return on PE funds was 8.4 per cent (minus 12.5).
Property portfolio At the end of the period, the exposure to commercial real estate in the portfolio was NOK 3.5 billion (3.1). The property portfolio yielded a return of 9.7 per cent (7.9). The good performance was driven by a general price appreciation in the market during the year.
Risk factors Risk is defined as the possibility of a potential event affecting the Group’s goal attainment. In order to understand and manage risk, an assessment is therefore carried out of both the probability of the potential event occurring and its consequences should it occur. Through the Group’s risk management and internal control framework, a common structure has been established that systematically identifies, assesses, communicates and manages risk throughout the Group. The risk assessment process is coordinated with the Group’s planning and strategy processes.
Risk management is based on specified goals and strategies and the limits on risk exposure stipulated by the Board.
The Risk Management function shall ensure that the senior group management and the Board have sufficient information about the Group’s risk profile at all times, and that it is within the adopted risk appetite. The Group has a moderate risk profile and, in the Board’s view, no individual events will be capable of seriously harming the Company’s financial position.
Insurance risk The risk in individual insurance contracts is the probability of an insurance event occurring, and uncertainty concerning the size of the subsequent compensation amount. The insurance risk relating to special types of major risks or exposure is managed through authorisations and lines of reporting for ordinary operations. Clear guidelines have been established for what insurance policies can be taken out. The risk of a generally unsatisfactory premium level is monitored on a continuous basis by the product and actuary department, and increasingly precise methods for pricing are being developed.
An independent Compliance function has been established to help the Group to avoid official sanctions, financial losses or a loss of reputation as a result of failure to comply with external and internal regulations. The Compliance function identifies, assesses, advises on, monitors and reports on the Group’s risk of non-compliance with laws, regulations and internal guidelines.
A group-wide incidents database has been created in order to register, handle and, not least, learn from undesirable incidents.
Gjensidige has established an internal audit function. On behalf of the Board, this function has been assigned the role of monitoring and assessing whether the risk management and internal control systems function as intended.
Strategic risk Strategic risk is related to decisions and strategic choices as well as the implementation of critical measures. Gjensidige’s strategy is monitored continuously in relation to changes in performance, developments in the market and competition, and changes in framework conditions. Factors that have been identified as critical to the Company’s goal attainment are monitored particularly closely. To ensure that Gjensidige stays ahead of developments, strategic risk is managed through continuous monitoring of competitors and the market, follow-up of profitability, and through product development and planning processes.
to quickly adapt to consumer demand for new service channels and its ability to utilise modern technology and support systems in an efficient manner.
Performance-based remuneration models have been introduced for groups of employees, and individual scorecards have also been introduced. Systematic work is being done on the corporate culture and management development, and on firmly establishing requirements and expectations of managers and staff.
Corporate governance Good corporate governance is a priority for the Board. The Board has based the Group’s corporate governance on the Norwegian Code of Practice for Corporate Governance as most recently amended on 30 October 2014, and it has made adjustments to ensure that it complies with the Code in all areas. A more detailed account of how Gjensidige complies with the Code of Practice and the Norwegian Accounting Act’s requirements for reporting on corporate governance is provided on pages 40–53 of the annual report and in a separate document that is available on the Group’s website www.gjensidige.no/corporate-governance.
Gjensidige aims to be a developing and health-promoting workplace. Systematic work is carried out on competence-raising measures for managers and employees, and a number of measures and processes have been established relating to employees’ health, safety and working environment. Information about the working environment, equality, discrimination and the natural environment, cf. the Accounting Act Section 3-3 (ninth to twelfth paragraphs), is provided on pages 22–39 of the report on corporate social responsibility.
2. The annual combined ratio is expected to be at the lower end of the target corridor of 90–93 (undiscounted and given zero run-off effects). The target cost ratio is around 15 per cent. A reduction is expected in the underlying cost ratio and loss ratio, but Gjensidige will aim to strike a balance between good profitability and increased investments in order to ensure strong competitiveness going forward. Extraordinary circumstances relating to the weather and the proportion of large losses and run-off can contribute to a combined ratio that is above or below the target range.
Efforts will be intensified to deliver the best digital customer experiences in the Nordic general insurance industry. To support this, Gjensidige is currently evaluating the need for future investments in a new core system. Such investments are not expected to impact the financial targets.
At the same time, Gjensidige intends to increase its presence in the growing market for health and personal insurance.
Events after the balance sheet date Gjensidige Forsikring ASA and Gjensidige Forsikring Group are granted approval from the Financial Supervisory Authority of Norway (FSA) for a Partial Internal Model (PIM) under the Solvency II regulation with effect from 31 December 2017. The model approved is more conservative than the model Gjensidige applied for.
As of 31 December 2017, the regulatory Solvency II ratio was 137 per cent based on the Standard Formula. Based on the approved Partial Internal Model, the regulatory Solvency II ratio is estimated to be 145-155 per cent.
No significant events, besides the approval of the partial internal model, have occurred after the year end.
Gjensidige’s target is to distribute high and stable nominal dividends, and at least 70 per cent of the profit after tax expense over time. When determining the size of the dividend, consideration will be given to expected future capital needs. Over time, Gjensidige will also distribute excess capital.
It is proposed that the parent company’s profit before other components of income and expense of NOK 3,760.6 million be allocated as follows: NOK millions
The Board has decided to pay employees of Gjensidige Forsikring ASA a collective bonus corresponding to NOK 20,700, including holiday pay, per full-time employee. The bonus is based on the combined ratio achieved, and on the development of the portfolio and customer satisfaction in 2017, as well as a discretionary part based on other elements.
Inge K. Hansen Per Arne Bjørge Eivind Elnan John Giverholt Gisele Marchand Chair
Gunnar Mjåtvedt Hilde Merete Nafstad Anne Marie Nyhammer Lotte Kronholm Sjøberg
Income statement .....................................................143 Statement of financial position ................................. 144 Statement of changes in equity ................................. 146 Statement of cash flows .............................................147
Consolidated income statement ................................ 80 Consolidated statement of comprehensive income ..... 81 Consolidated statement of financial position .............. 82 Consolidated statement of changes in equity ............. 83 Consolidated statement of cash flows ........................ 84
Results from investments in associates and joint ventures 5 255.8 184.1
Net changes in fair value on investments (incl. property) (355.1) (1,040.3)
Tax on items that may be reclassified to profit or loss 9 (88.2) 66.7
Financial liabilities Financial derivatives 13 584.9 1,191.8 Deposits from and liabilities to customers 13, 19 23,765.7 21,270.4 Interest-bearing liabilities 13, 19 23,083.4 19,596.5 Other liabilities 13, 19 1,265.2 1,368.5 Current tax 9 1,131.5 1,272.7 Deferred tax liabilities 9 1,076.8 871.7 Liabilities related to direct insurance and reinsurance 13 1,132.8 555.2 Liabilities in life insurance with investment options 13 22,565.5 17,780.0 Accrued expenses and deferred income 13, 19 500.8 493.3
Total items that are not reclassified subsequently to profit or loss
Total items that may be reclassified subsequently to profit or loss
Cash and cash equivalents at the end of the year 2,685.2 2,158.7
New standards and interpretations not yet adopted A number of new standards, changes to standards and interpretations have been issued for financial years beginning after 1 January 2017. They have not been applied when preparing these consolidated financial statements. Those that may be relevant to
NOK 180.3 million at the end of 2017. The changes generated by the new requirements will be charged against other equity. The
Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (2016)
IFRS 15 Revenue from contracts with customers (2014) IFRS 15 covers all contracts with customers, but insurance contracts, among others, are exempted. Insofar as such contracts cover the provision of several services or other services closely related to the insurance operations are carried out, this may have a bearing on how Gjensidige recognises revenues in its accounts. IFRS 15 is effective 1 January 2018. Our assessment is that
86 | Gjensidige annual report 2017 services beyond what is covered by IFRS 4 about insurance contracts comprise an insignificant part of the income, and the standard will not have a significant effect on Gjensidiges’s financial statements.
Exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form a part of the net investment in the foreign operation and are recognised in other comprehensive income.
Management/CEO and who are responsible for the performance of the segment under their charge. Based on this Gjensidige reports the following operating segments
Group. The Group evaluates all relevant facts and circumstances in order to evaluate whether the Group has control of the entity in which it is invested. Among other things, ownership, voting rights, ownership structure and relative strengths, as well as options controlled by the Group and shareholder agreements or other agreements.
Associates and joint ventures Gjensidige have investments in associates and joint ventures.
See note 5 for a further description of Gjensidige’s joint venture.
In the case of group life insurance for the commercial market, the provision for unearned premiums, gross also includes provisions for fully paid whole-life cover (after the payment of disability capital).
Claims provision, gross The claims provision comprise provisions for anticipated future claims payments in respect of claims incurred, but not fully settled at the reporting date. These include both claims that have been reported (RBNS – reported but not settled) and those that have not yet been reported (IBNR – incurred but not reported). The provisions related to reported claims are assessed individually by the Claims Department, while the IBNR provisions are calculated based on empirical data for the time it takes from a loss or claim occurring (date of loss) until it is reported (date reported). Based on experience and the development of the portfolio, a statistical model is prepared to calculate the scope of post-reported claims. The appropriateness of the model is measured by calculating the deviation between earlier post-reported claims and post-reported claims estimated by the model.
IFRS 4 permits the use of different policies within Gjensidige in this area.
Hedge accounting Gjensidige utilises fair value hedging on currency risk in fixed agreements of acquisition of operations. Changes in the fair value of the hedging instrument are recognised in profit or loss, together with the change in fair value of the fixed agreement. The change in fair value of the fixed agreement is recognised in goodwill when the acquired operation is accounted for.
The bank utilises fair value hedging on interest rate risk. Changes in the value of the hedged object dedicated to the hedged risk are adjusting the hedged objects carrying amount and is recognised in profit or loss. Changes in the value of the hedging instrument are recognised in profit or loss.
Gjensidige annual report 2017 | 91 obligation, and a reliable estimate can be made of the amount of the obligation.
Information about contingent assets are disclosed where an inflow of economic benefits is probable. Information about a contingent liability is disclosed unless the possibility of an outflow of resources is remote.
The cost of share-based transactions with employees is recognised as an expense over the average recovery period. For transactions that are settled in shares, the value of the allocated shares in the period is recognised as a salary expense in the income statement with a corresponding increase in other paid-in equity. For arrangements settled in cash, the value of the options granted is recognised as a salary expense in the income statement for the period with an associated liability in the balance sheet. The liability in the arrangement settled in cash is measured at fair value on each balance sheet date up to and including the date of settlement, and changes in fair value are recognised in the income statement.
The Fire Mutuals operate as agents on behalf of Gjensidige. For these services commission is paid. The Fire Mutuals are also independent insurance companies with fire and natural damage on their own account. Gjensidige provides various services to support this insurance operation. For these services and to reinsure the Fire
Mutuals’ fire insurance Gjensidige receives payment based on arm’s length distance.
Objective evidence means evidence of occurrences indicating that the loan is impaired. This may be information about damaged credit histories, bankruptcy or defaults. For a closer description of the bank, see note 3 in the consolidated group accounts.
Then the different risks and management of these risks will be described. The risk related to the bank business will be described separately. For this reason the term Gjensidige Insurance Group will appear in the text, which is defined as Gjensidige Forsikring
The Board has the overall responsibility for ensuring that the level of risk-taking in the Group is satisfactory relative to the Group’s financial strength and willingness to take risks. It has adopted a risk appetite statement that covers the most important types of risks.
This entails ensuring that necessary governing documents, procedures and reporting are in place in order to secure satisfactory risk management, compliance with laws and regulations and the appropriate organisation and documentation of risk management and internal control efforts.
The Gjensidige Insurance Group is exposed to general insurance risk in Norway, Sweden, Denmark and the Baltics. Gjensidige’s current risk appetite is large in the core area of general insurance in the Nordic and Baltic countries. The risk appetite is the greatest in areas which Gjensidige has high structural competence and access to data. Other business areas shall contribute to the Group’s total growth and profitability, but with limited risk appetite.
• Claim payments being paid out at a different time to that expected.
Motor insurance in Norway, for example, an increase of one percentage point in the level of claims frequency will increase the loss ratio by three to four percentage points.
In Property insurance the severity of claims will be incluenced by inflation and specifically by increased building costs, which in the past has been slightly higher than CPI. For accident and health the insurance policies are divided into two main groups, one with fixed sum insured and another part where the compensation is adjusted in accordance with a public/government index (in Norway: ‘G’ - the basic amount in the National Insurance Scheme). This is the case in Workers’ Compensation, for instance. The Group writes Workers’
At the end of the accident year 12,852.4 12,995.1 12,562.5 14,786.3 15,977.1 13,485.6 15,382.0 14,961.6 12,841.9 13,895.3 14,321.7 - Ten years later 12,222.7
At the end of the accident year 12,571.7 12,825.8 12,531.1 14,290.4 14,988.6 13,280.4 14,624.5 14,836.7 12,841.9 13,652.2 13,797.1 - Ten years later 11,931.4
At the end of the accident year 12,137.9 12,215.4 11,827.1 13,347.1 13,706.9 12,608.9 13,710.6 14,170.0 12,138.9 12,953.6 13,142.8 - Ten years later 11,471.0
Premium risk relates to future exposures, future claims and their related expenses. Exposure arises on unexpired risk from contracts already underwritten (i.e. the “unearned” exposure) and from future underwritten contracts.
Insurance Group and Gjensidige Forsikring ASA. For reserve risk most of the claims provisions and related risk exposure are related to lines of business exposed to personal injury, where it takes long time to settle claims. The lines of business that contribute the most to reserve risk are “Workers' compensation insurance”, “Motor vehicle liability insurance” and “Income protection insurance”. For premium risk the risk exposure is mainly related to “Motor insurance” and “Fire and other damage to property insurance”.
Table 2b – Gross premiums written per line of business, Gjensidige Forsikring ASA
Gjensidige annual report 2017 | 99 reorganisations, process changes, etc., that could affect the level of technical provisions.
Gjensidige’s internal model is used to monitor that risk is within defined risk limits.
The main documents for managing insurance risks are: • Underwriting policy
ASA, and the subsidiaries’ reinsurance exposure is included in the reinsurance programme for the Gjensidige Insurance Group. The maximum retention level per event for the Group, approved by the
Board, was NOK 470 million in 2017, increased from NOK 420 million in 2016. As a general rule, Gjensidige purchases reinsurance to limit any single claim or claim event per insurance product to NOK 100 million. For weather claims the retention is
NOK 200 million. For some insurance risks Gjensidige purchases reinsurance coverage that will reduce the retention level to under 100 million. Decisions concerning the reinsurance programme are based on an analysis of exposure, claims history, Gjensidige’s internal model simulations and Gjensidige’s capitalisation. As a general requirement, all reinsurers need to be rated ‘A-’or better by
Gjensidige is exposed to the risk of increased inflation on most of its technical provisions. Increased inflation will result in higher future claim payments than earlier expected. A large part of this inflation risk is related to Danish workers' compensation, which is hedged through inflation swaps.
Sensitivity tests are performed in order to show how different risks impact the profit or loss for the year, and thereby impact the equity at the year-end, please see table 4. Combined ratio (CR) is the key measure of profitability for the general insurance business. The calculations show the effect of a change of one per cent in CR, which can be caused by both premium risk and reserve risk.
Premium risk related to changes in loss frequency and severity of claims is also shown. Note that tax impact is not included in the calculations. Changes in inflation assumptions will mainly affect the claims provisions (reserve risk), but is counter-acted by inflation swaps. Sensitivity related to inflation is shown in the section for financial risk.
Change in CR (1%-point) 252.3 239.2 219.2 213.5 Change in loss frequency (1%-point)
Gjensidige Pensjonsforsikring AS has a relatively large risk appetite within occupational defined contribution plans and collective disability and survivor benefits, moderate risk appetite within individual disability plans and low risk appetite within capitalintensive and complicated products (paid-up defined benefit policies). In order to describe life insurance risk the most important components are elaborated below, and these are; mortality, longevity, disability, catastrophe, lapse and expense risk.
is liable to pay a defined benefit until death. Since 2014 Gjensidige
Catastrophe risk is defined as the risk of an immediate increase in mortality due to a catastrophic event. Mortality risk is in general low, and the catastrophe scenario for catastrophe risk will have a very small impact on Gjensidige Pensjonsforsikring AS’ portfolio.
Lapse risk is the risk of an increase in lapse rates, i.e. the risk of an increase in customers leaving the company. This is mainly relevant in Solvency II aspects, because Solvency II takes into account expected future profit. Lapse risk reflects the risk of a potential reduction of the expected future profit if customers leave the company. Lapse risk is mainly related to unit-linked products, and represents an important risk for the company in Solvency II.
Expense risk is the risk of actual expenses being higher than expected. The risk is related to the administration result which is the expected administration income minus the expected expenses for the whole lifetime of the products that fall within the contract boundary. Expense risk is larger in Solvency II aspects, because
Gjensidige Pensjonsforsikring AS offers several disability pension products and for this reason disability risk is a material risk. In addition, longevity risk is a substantial risk because of the portfolio of paid up policies. In Solvency II context the risk exposure looks very differently where lapse risk is the dominating risk. This is only the case in Solvency II because future profit is accounted for.
Table 6 – Asset allocation Gjensidige Pensjonsforsikring AS, excluding the unit-linked portfolio
ASA the equity exposures are mainly investments in internationally diversified funds, with the majority focusing on developed markets.
Bank ASA was sold in January 2017, the equity portfolio has been without significant exposure in single shares.
Property risk is the risk related to the value of assets, liabilities and financial instruments due to changes in the level or volatility of market prices of property.
The motivation for investing in real estate is primarily that it enhances the risk-adjusted return, through an expected rate of return on real estate that lies between bonds and equities, with a modest correlation with both of them.
In addition to the amounts invested through funds, an amount of
NOK 8.3 million is committed, but not yet invested for general insurance. The joint venture Oslo Areal AS manages the real estate portfolio. The portfolio consists of investment properties. The real estate portfolio has its largest concentration in offices in the Oslo area, but it also contains property in other major cities in Norway.
Gjensidige Pensjonsforsikring AS has, in addition to the amounts invested through funds, an amount of NOK 778.1 million committed, but not yet invested.
Insurance Group and Gjensidige Forsikring ASA the interest rate risk is small.
Regarding unit-linked products, an interest rate downward shock would increase the assets under management and thus increase the income from asset management. A decrease in the discount curve would also increase the net asset value of future profits. As a consequence, the unit-linked portfolio has a somewhat positive effect in a scenario with a decrease in the interest rate curve, which compensates for a potential loss for the guaranteed products.
The equity investments in Gjensidige Forsikring ASA are mainly investments in internationally diversified funds. Investments are both in developed and emerging markets, together with funds in the
The main governing documents for managing market, credit and liquidity risks: • Policy for investment activities (including definition of allowed asset classes and instruments)
Gjensidige annual report 2017 | 103 the purpose of minimizing currency risk in surplus capital (according to the rating requirement). This is implemented by adjusting assets in foreign branches and subsidiaries so that surplus capital in foreign currencies is minimized.
Interest rate risk is a significant risk factor associated with the
Workers’ Compensation business in Denmark due to the high volume and duration of technical provisions related to the product.
Most of the interest rate risk exposure in insurance liabilities is hedged using interest rate swaps. The advantage of using interest rate swaps in contrast to bonds is that instruments with desired duration are available in the Danish swap market, but not in the bond market.
All managers in Gjensidige are responsible for risk within their areas of responsibility, and shall be able to demonstrate that controls are adequate and functioning. The risk evaluation shall be regularly updated if there are changes or events that trigger the risk situation changes. In addition, there is a requirement for an annual review and reporting of operational risk. “Risk and compliance coordinators” are appointed within each division and operating subsidiary in order to assist managers with operational risk management.
The major operational risks in the business are included in the own risk and solvency assessment (ORSA) and form a part of the annual risk assessment process.
The main governing documents for managing operational risk are: • Group policy for risk management and internal control
Management of specific types of risk is embodied in these governing documents: • Group Policy – handling of irregularities and fraud
Governance of financial and operational risk related to Gjensidige Bank Gjensidige Bank ASA is mainly exposed to credit risk, market risk, liquidity risk and operational risk. The Board approves the strategy and policies for managing the bank's risks including limits for risk appetite.
The Board of Gjensidige Bank ASA has the overall responsibility for ensuring efficient processes for risk management and internal control. The bank’s management is responsible for implementing the guidelines issued by the Board for efficient risk management and internal control processes and keeping the board informed of the risk situation. The bank’s 2nd line risk management functions
Credit risk refers to the risk the bank faces in the event of a borrower’s failure to repay a loan or credit or to meet their contractual obligation to the bank. The bank's credit risk originates
104 | Gjensidige annual report 2017 mostly from loans and credits to consumers in Norway. The bank is also exposed to credit risk through limited commercial exposures and through placements in the liquidity reserve.
Statement. Gjensidige Bank ASA offers a wide range of lending products including secured as well as unsecured loans and credit to meet a variety of needs of consumers in the country.
Secured lending mainly comprises loans and credits secured by residential property. The bank also offers car finance which includes loans and leasing secured by vehicles.
The bank also has a portfolio of unsecured consumer finance lending which is moderate in size compared to the total lending exposure in the bank. The bank has a higher return on this portfolio that is proportionate to the level of credit risk in the portfolio. A large part of the credit losses are consequently related to the unsecured consumer finance lending portfolio. The bank uses risk-based pricing models driven by scores, and the portfolio shows healthy profitability.
The credit risk related to the bank’s liquidity portfolio is assessed as low
applications for a loan. In addition, the bank uses behaviour score models that predict the probability on default in customers for decisions related to top-ups, collections, group write-downs and other portfolio management decisions. For decisions related to commercial exposures, the bank uses company rating provided by external agencies in addition to using internal models to assess the solidity, stability, liquidity and profitability.
With the help of these score models, the lending portfolios in the bank are grouped into risk classes, from the lowest to highest risk, based on their probability of. These risk categorisations are mainly intended to assist in various credit decisions and monitoring. They are then further grouped into three main risk groups: Low risk,
Medium risk and High risk which are used in the bank's monthly portfolio monitoring and reporting. The loans that are already impaired or have been individually provisioned on the reporting date are included in a separate category – Impaired and Write-down. In addition, there are a small group of loans that may not have been classified into each of the above categories due to the fact that these are not scored or rated due to insufficient data on the reporting date.
The bank's maximum exposure to credit risk related to lending portfolio is NOK 54,516.1 million.
The weighted average portfolio loan to value ratio is estimated at 60.6 per cent for the mortgage portfolio. This estimate is based on the exposure on the reporting date as a ratio of the property value as estimated upon loan approval, including any higher priority pledge(s). The bank regularly controls depot values and adjusts in case of significant change. The bank’s credit policy is in accordance with the regulation for new mortgage loans set by the Ministry of
Finance on 15 June 2015. In addition, the bank has also implemented the Guidelines on unsecured loans issued by the FSA
The table below shows the lending portfolio and write-downs as of 31 December 2017 and 31 December 2016 segmented by risk groups.
Based on the above development, the Board considers the credit risk levels in the bank’s portfolio to be satisfactory.
Gross lendings in default for more than 90 days amounted for 0.6 per cent of gross lending as of the end of the year, compared to 1.0 per cent in 2016.
The bank's finance strategy set by the Board provides guidelines and limits for managing market risk.
The interest rate risk limit for all time periods are plus/minus 1,500
As of 31 December 2017, the bank has a negative interest rate exposure of 249 MY in the 3 months to one year interval. The net accumulated interest rate exposure over three months is a positive 389 MY as of 31 December 2017. By investing in sound securities with short-term maturity and with expectations that the value will be less exposed to changes in the credit spread, the bank limits its spread risk on its assets. The market value of the bank’s own bonds varies with changes in the credit spreads.
Currency risk is the risk of loss due to changes in exchange rates. The risk arises from the bank's bond in foreign currency.
As of 31 December 2017 the bank has outstanding bonds in
Concentration risk is the risk of losses due to the bank having large parts of its lending tied to a single borrower or to limited geographic or business areas. The concentration risk is managed using the bank’s risk framework and is measured and assessed through annual stress tests / scenario analyses in the credit area.
As of 31 December 2017, the portfolio is geographically diverse, with the greatest lending in the most populous areas of the country.
Operational risk is the risk of losses resulting from inadequate or failing internal processes or systems, human error or external events and compliance and reputational risk. The bank has its own loss and event database for the evaluation, follow-up and storage of operational incidents.
The liquidity risk due to lack of access to liquidity is managed by having sufficient liquid assets to cover liabilities that reach maturity.
NOK 5,650.8 million in debt securities. Of the latter assets NOK
Bank Boligkreditt AS (eliminated in the consolidated accounts). The net liquid assets were at an adequate level that covers the bond debt that will fall due in the next 26 months. Stress tests have also been carried out to demonstrate the bank’s liquidity need based on future scenarios involving a general recession and/or a bank specific crisis.
NOK millions < 1 month 1-3 months 1-5 years > 5 years No fixed maturity Total
Certificates, bonds and other interest-bearing securities 54.1 207.7 895.4 3,126.6 416.9 394.1 5,094.8
Loans to and claims on customers 335.0 660.7 2,951.5 13,846.5 33,183.9 250.5 51,228.1
Assessing strategic and business risk is a natural part of the strategic analysis and is integrated with the strategy process at the
Group management and Board level. Risk assessments are also a part of the acquisition and integration process. The annual strategic risk assessment processes is integrated into the overall planning process in all relevant divisions and subsidiaries.
Solvency margin levels are expected to be in the upper part of the range in order to support an ‘A’ rating from Standard & Poor’s or similar, to stabilise regular dividends over time, ensure financial flexibility for smaller acquisitions and organic growth not financed through retained earnings, as well as providing a buffer against regulatory uncertainties.
Tier 2 capital, including subordinated debt, in a responsible and value-optimising manner and within the limits set by regulators and rating agencies.
Requirements for Gjensidige’s capitalization are specified in a capital management policy approved by the Board. A department under the CFO is responsible for the capital management and must ensure that the requirements in the capital management policy are followed.
Gjensidige received feedback from the FSA with regards to the internal model. See note 23 for further description. Gjensidige will continue using the internal model, as defined by Gjensidige for internal management purposes.
The Group’s solvency margins at the end of 2017 were calculated to be: • Regulatory requirement based on standard formula: 137 per cent
The capital position is calculated based on Gjensidige’s understanding of requirements and principles given in laws and prescriptions.
Figure 6 – Excess capital in the group from different perspectives
The regulatory capital requirement is calculated based on the standard formula specified in the Solvency II regulation. The capital requirement for the Gjensidige Forsikring Group is NOK 15.3 billion.
Eligible capital is NOK 21.1 billion. This gives a solvency margin of137 per cent. The capital requirement for Gjensidige Forsikring
Total eligible own funds to meet the group solvency capital requirement (SCR) is excess of assets over liabilities, calculated according to Solvency II principles, adjusted for proposed dividend and subordinated liabilities.
The main differences between Solvency II valuation and valuation according to accounting principles are that: • Intangibles are valued to zero under Solvency II
• Held-to-maturity-bonds are valued to market value under Solvency II, while amortized cost are used for accounting purposes
• Policyholders’ receivables are valued to zero according to Solvency II principles, as the related cashflows are included in the calculation of technical provisions (premium provision)
Eligible own funds are divided into three capital groups according to
Gjensidige Forsikring Group the tier 1 capital also includes tier 1 capital from the bank sector. Restricted tier 1 capital for the bank sector is NOK 370 million (nominal amount NOK 370 million) and consists of bonds issued by Gjensidige Bank ASA.
Table 19 – Eligible own funds to meet the Solvency Capital Requirement, split by tiers
The minimum consolidated group solvency capital requirement for the Gjensidige Forsikring Group is NOK 5,457.2 million.
Gjensidige Pensjonsforsikring’s ability to access or use the Group’s assets, as well as settling its obligations. Group contributions added together with dividends must not exceed justifiable payment of dividend based on a company’s financial strength and operations.
The internal risk-based capital requirement is based on Gjensidige’s partial internal model. The partial internal model covers market risk and non-life and health insurance risk in Norway, Sweden and
principles, but differs slightly from the regulatory perspective as the risk margin is calculated based on the internal model instead of the standard formula.
from Standard & Poor’s or the equivalent from another rating institution. This target has been achieved by an actual rating of A’
(Stable) from Standard & Poor’s. The rating is subject to annual review.
There is still some uncertainty about how the calculation of capital requirements and eligible capital should be calculated under the new rules. For general insurance companies the main uncertainties are related to any tax implications of the transition to Solvency II principles for calculating technical provisions and the treatment of the guarantee scheme provision and calculation of the risk-reducing effect of deferred tax in the capital requirement.
FSA argues that the guarantee scheme provision shall be treated as a liability. Gjensidige is of the opinion that the high level of domestic deposits which are actually equity elements should be treated as eligible solvency capital. The company will continue to pursue a regulatory framework in line with this. Until final clarification the guarantee scheme provision is treated as a liability under Solvency II.
Insurance risk (life and non-life) Expected loss CR > 100 (645.0)
The following assumptions apply: • The equity risk stress is 17 per cent. It includes stress on all equities including hedge funds and private equity
• Credit spread risk: 0 per cent loss on government bonds and municipality bonds, 1 per cent loss on Danish mortgage bonds and covered bonds, 1,9 per cent loss on loan funds containing secured debt and 2,7 per cent loss on other bonds
Pension shall contribute to sales of a wide range of products to general insurance customers in Norway by offering pension and savings products, mainly to the Norwegian commercial market. The pension products include defined contribution pensions and related risk for disability and death, private pension savings and individual disability pensions. The savings products include ready-fund packages, funds from reputable asset managers and asset management.
Gjensidige Bank is online pure internet bank which shall contribute to sales of a wide range of products to general insurance customers in Norway. The bank offers mortgages, car financing, unsecured lending, savings, credit cards and day-to-day banking services.
Segment expenses are defined as claims incurred for general insurance and for Pension, interest expenses etc. for Retail Bank, operating expenses for all segments, and net income from investments for Pension and Retail Bank.
Segment income - Claims, interest expenses, loss etc. (5,226.2) (5,030.8) (4,825.6) (4,825.1) (5,354.9) (4,739.6) (736.0) (748.4) (1,661.8) (1,283.5) (649.8) (680.1) (258.9) (172.0) (18,713.3) (17,479.6)
1 Eliminations etc. consist of internal eliminations and other income and expenses not directly attributable to one single segment and large losses of NOK 220.6 million (205.5).
2 There is no significant income between the segments at this level in 2017 and 2016.
Oslo Areal. The agreement was recognised at fair value and the unrealised gain was NOK 54.5 million as at 31 December 2016.
Net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures
Total net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures 255.8 184.1
Net income and gains/(losses) from financial assets at fair value through profit or loss, designated
Total net income and gains/(losses) from shares and similar interests 639.8 230.0
Total net income and gains/(losses) from bonds and other fixed-income securities 401.3 704.0
Total net income and gains/(losses) from financial assets at fair value through profit or loss, designated 1,249.1 1,199.7
Total net income and gains/(losses) from bonds held to maturity 81.3 315.6
Interest expenses from financial assets not recognised at fair value through profit or loss (42.0) (40.7)
Depreciation and value adjustments (note 11 and note 12), excl. depreciation properties 294.0 247.9
Pension cost - defined contribution plan (note 10 incl. social security cost) 243.3 229.0
• Annually considering and proposing the remuneration of the CEO and director of internal audit
Variable remuneration relating to Gjensidige’s performance is decided on the basis of the past two years’ performance. Half of the variable remuneration is paid in the form of a promise of shares in
CEO’s function in the Group, and otherwise be in line with market practice.
The fixed salary is based on the Group’s general principles of competitively, but not leading wages.
Remuneration of officers of the Company and other employees with remuneration corresponding to executive personnel
The remuneration shall follow the guidelines set out above. There are currently no such employees.
Report on executive remuneration in the preceding financial year In accordance with the guidelines, one employee in the finance department has been offered up to 50 per cent variable remuneration. The Board confirms that the guidelines on the remuneration of executive personnel for 2017 set out in last year’s statement have been complied with.
Hege Yli Melhus Ask, Executive Vice President (1.8.17-31.12.17) 9 2,788.3 176.9 160.0 437.0 174.1 1,941 2,112 3,204 12,367 3
Sigurd Austin, Executive Vice President 2,854.1 417.5 158.4 606.4 414.7 3,229 3,422 6,331 11,766 3
Kaare Østgaard, Executive Vice President 2,806.9 334.3 209.9 749.8 331.5 2,601 3,326 5,402 13,326 3
Martin Danielsen, Executive Vice President (1.1.16-30.9.16) 1 1,810.6 20.0 19.3 560.0 0.0 2,286 3,501 5,325 0 3
Sigurd Austin, Executive Vice President 2,725.5 375.2 132.0 614.9 397.8 2,809 3,821 6,524 9,349 3
1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms wil l take effect. 4 For staff representatives only remuneration for the current position is stated. 5 Everyone in the senior group management except for one has pension plans, benefit or contribution based. 6 Including bonus shares in the share saving's programme for employees. See note 22 for terms and further description of the scheme. 7 Remuneration includes participation as Chairman in the Audit Committee honoured with NOK 144.5 thousand for 2016. 8 Remuneration includes participation in the Audit Committee honoured with NOK 96.0 thousand for 2016. 9 Hege Yli Melhus Ask has been on leave from 1 October to 31 December. Her remuneration is presented for the whole year. 10 Constituted Executive Vice President for Hege Yli Melhus Ask from 1 October to 31 December.
Valuation allowance and reversal of loss carried forward in subsidiaries (10.1) (26.5)
Change in deferred tax recognised in profit or loss 259.9 30.9
Gjensidigestiftelsen’s assessment. Changing the decision concerning Gjensidigestiftelsen will have tax consequences for
Gjensidige Forsikring is required to have an occupational pension plan pursuant to the Norwegian Act relating to Mandatory
The sensitivity analysis is based on only one assumption being changed at a time, while all the others remain constant. This is seldom the case, since several of the assumptions co-vary. The sensitivity analysis has been prepared using the same method as
The pension assets’ exposure to credit risk is deemed to be moderate. The credit risk is managed by setting limits on the biggest commitment and rating for individual investments. Most of the pension fund’s fixed-income investments shall be within
The pension liabilities are exposed to some credit risk because the
Norwegian covered bond yield, which forms the basis for determining the discount rate, entails a certain credit risk.
A number of amendments to the Norwegian regulations were proposed in 2016. The amendments have not been adopted yet.
Present value of the defined benefit obligation 2,166.3 577.8 2,744.0 1,954.9 511.5 2,466.3
The expense is recognised in the following line in the income statement
Impairment losses recognised in profit or loss during the period (1.5) (1.5)
As at 31 December 2016, including uncompleted projects 3,820.6 1,416.6 1,594.7 908.4 7,740.2
Board of Directors. The growth in this 5 year period is higher than the long term growth expectancy. In the period after 2021 a lower annual growth has been used than in the budget period to arrive at a normal level before a terminal value is calculated. The terminal value is calculated in 2026. Gjensidige normally has a ten-year horizon on its models, as the acquired companies are in a growth phase and a shorter period will give a less correct view of expected cash flows The long term growth rate beyond the board approved plan, is no higher than the long term growth in the market for the respective cash generating units.
The expected CR level is both in the growth period and when estimating the terminal value considered to be from 87.0 to 101.8.
Country-risk has been adjusted directly in the cash flow of all units.
Gjensidige Forsikring, Danish branch No need for impairment No need for impairment No need for impairment Need for impairment app. NOK 314 million
Nykredit Forsikring No need for impairment No need for impairment No need for impairment Need for impairment app. NOK 28 million
Gjensidige annual report 2017 | 127 12. Owner-occupied property, plant and equipment
As at 31 December 2016, including uncompleted projects 29.9 602.6 632.5
As at 31 December 2017, including uncompleted projects 32.2 574.5 606.7
Owner-occupied property in Gjensidige Group mainly consists of leisure houses and cottages, in addition to owner-occupied property in the Baltic.
The different valuation levels and which financial assets/liabilities that are included in the respective levels are accounted for below.
NAV from the previous quarterly reporting are used in estimating fair value. The NAV is then assessed for discretionary adjustments based on objective events since the last reporting date. Objective events may be the development in underlying values of listed companies since the last reporting, changes in regulations or substantial market movements.
Chief Financial Officer and Chief Executive Officer, and monthly to the Board.
Shares and similar interests in life insurance with investment options 20,034.3 20,034.3 16,002.8 16,002.8
Bonds and other fixed income securities classified as loans and receivables 15 21,032.6 22,475.7 19,045.5 20,530.5
Receivables related to direct operations and reinsurance 5,840.8 5,840.8 5,621.5 5,621.5
Prepaid expenses and earned, not received income 15 189.9 189.9 91.3 91.3
Liabilities in life insurance with investment options 22,565.5 22,565.5 17,780.0 17,780.0
Bonds and other fixed income securities in life insurance with investment options
Bonds and other fixed income securities classified as loans and receivables 17,704.1 4,771.6 22,475.7
Shares and similar interests in life insurance with investment options 15,993.6 9.2 16,002.8
Financial liabilities at fair value through profit or loss, initial recognition
Reconciliation of financial assets valued based on non-observable market data (level 3) 2016
Gjensidige Bank utilizes fair value hedge to manage its interest rate risk. Hedging is performed to prevent from valuation variations of issued fixed rate obligations due to changes in the rate level.
Interest rate swaps designed as hedging instruments are measured at fair value and changes in fair value are recognised continuously in profit or loss. The changes in fair value for the hedging object linked to the hedged risk are accounted as addition or deduction to the carrying value and in profit or loss. Interest rates swaps are renewed every quarter.
Danske Invest Norske Aksjer Institusjon I 981 582 020 Equity fund 371.3
Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 0.3
A considerable amount of receivables in relation with asset management is short-term receivables in relation with sale of securities.
Gjensidige annual report 2017 | 135 16. Insurance-related liabilities and reinsurers' share
Claims reported and claims handling costs 16,978.8 (586.6) 16,392.1 18,331.2 (486.5) 17,844.8
Acquisitions through business combinations and portfolios 115.7 (35.1) 80.7 348.3 (247.7) 100.6
Own shares In the column for own shares in the statement of changes in equity the nominal value of the company’s holdings of own shares is presented. Amounts paid in that exceeds the nominal value is charged to other equity so that the cost of own shares reduces the
At the end of the year the number of own shares was 21,073
A total of 254,863 (199,200) own shares at an average share price of NOK 138.87 (141.75) have been acquired to be used in
Operating profit/loss from the compulsory natural perils insurance shall be adjusted against the Natural perils capital. The Natural perils capital is restricted capital and can only be used for claims related to natural perils in Norway. Natural peril is defined as claim in direct relation to natural hazard, such as landslide, storm, flood, storm surge, earthquake or eruption.
138 | Gjensidige annual report 2017 19. Provisions and other liabilities
Deposits from and liabilities to customers with maturity date, bank 6,400.6 4,655.7
Provision as at 31 December 117.0 194.9 1 In 2017, NOK 54.9 million is allocated to restructuring provision, due to a decision of changes in processes in the group. The processes have been communicated to all entities affected by the changes.
Fire mutuals and Gjensidige Pensjonskasse 20.8 149.3 20.7 148.7 1 Cooperating companies are defined as companies with which Gjensidige Forsikring has entered into a long-term strategic alliance.
As at 31 December 2017 employees have loans in Gjensidige Bank amounting to NOK 1,287.2 million (1,501.0). The loans are offered on normal commercial conditions.
In addition the shares in Gjensidige Investeringsrådgiving AS (GIR) were distributed as dividend from Gjensidige Pensjon og Sparing Holding AS to Gjensidige Forsikring ASA i 2016. This was done according to accounting continuity and recognised as a share split of Gjensidige Pensjon og Sparing Holding AS.
Interest on bank deposits Gjensidige Bank ASA Fire Mutuals 0.7 0.2
As part of its ongoing financial management, Gjensidige has undertaken to invest up to NOK 1,392.5 million (1,174.3) in loan funds containing senior secured debt and various private equity and real estate investments, over and above amounts recognized in the balance sheet.
Description of the share-based payment arrangements As at 31 December 2017, Gjensidige has the following share-based payment arrangements: Share-based remuneration for executive personnel with settlement in equity and cash (remuneration scheme)
As described in the Board’s statement on the stipulation of pay and other remuneration in note 8, half of the variable remuneration is paid in the form of shares in Gjensidige Forsikring ASA, one third of which can be sold in each of the following three years. Of this, rather on the big side 50 per cent is distributed as equity and only just 50 per cent is distributed as cash in order to pay tax liabilities
The fair value at the grant date is measured based on the market price. The amount is recognised as payroll expenses at grant date.
No specific company-related or market-related entitlement criteria apply to the shares, but the Company may carry out a reassessment if subsequent results and development suggest that the bonus was based on incorrect assumptions. The expected allocation is set to 100 per cent. The value of the cash-settled share is adjusted at each reporting period based on the share price at this time. The number of shares is adjusted for dividend paid.
Employees will receive one bonus share for every four shares they have owned for more than two years, provided that they are still employed by the Company or have become retired.
Fair value of shares granted that are to be settled in cash 154.90 149.20 2 The fair value is calculated based on the market value of the share at the time of allocation.
Gjensidige Forsikring ASA and Gjensidige Forsikring Group are granted approval from the Financial Supervisory Authority of
Earnings per share (NOK), diluted 9.04 9.34 1 Holdings of own shares are not included in the calculations of the number of shares.
Tax on items that are not reclassified to profit or loss 9 84.8 39.8
Total items that are not reclassified subsequently to profit or loss (254.5) (119.4)
Total items that may be reclassified subsequently to profit or loss 271.7 (206.5)
Interest-bearing receivables on subsidiaries and joint ventures 13, 20 1,620.1 1,420.2
Reinsurers' share of provision for unearned premiums, gross 16 41.4 115.5
Total reinsurers' share of insurance-related liabilities in general insurance, gross 739.5 627.7
Net receipt/payments from sale/acquisition of customer portfolios - intangible assets (3.9) (45.5)
Effect of exchange rate changes on cash and cash equivalents 21.4 (16.0)
Gjensidige shall account for that obligation as an equity-settled share-based payment transaction. The amendments are effective from 1 January 2018. The tax obligation in Gjensidige’s remuneration scheme will be reclassified from liability to equity as at 1 January 2018. From this date the tax obligation will be accounted for as an equity-settled share-based payment transaction instead of a cash-settled share-based payment transaction. Our preliminary assessment is that the amendment is not expected to have a significant effect on Gjensidige’s financial statements.
39. The impairment rules in IFRS 9 will be applicable to all financial assets measured at amortised cost or at fair value with the changes in fair value recognised in other comprehensive income. In addition, loan commitments, financial guarantee contracts and lease receivables are within the scope of the standard. The measurement of the provision for expected credit losses on financial assets depends on whether the credit risk has increased significantly since initial recognition. At initial recognition and if the credit risk has not increased significantly, the provision should equal 12-month expected credit losses. If the credit risk has increased significantly, the provision should equal lifetime expected credit losses. This dual approach replaces today’s collective impairment model.
IFRS 15 covers all contracts with customers, but insurance contracts, among others, are exempted. Insofar as such contracts cover the provision of several services or other services closely related to the insurance operations carried out, this may have a bearing on how Gjensidige recognises revenues in its accounts.
IFRS 15 is effective 1 January 2018. Our assessment is that services beyond what is covered by IFRS 4 about insurance contracts comprise an insignificant part of the income. Our assessment is that the standard is not expected to have a significant effect on Gjensidige’s financial statements.
(less than 12 months) and leases of low-value assets are exempt from the requirements. A lessee shall recognise a right-of-use assets and a lease liabilities. The interest effect of accounting the lease liability shall be presented separately from the depreciation charge for the right-of-use asset. The depreciation expense will be presented with Gjensidige’s other depreciations, whereas the interest effect of discounting will be presented as a financial item.
IFRS 17 Insurance Contracts establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued. IFRS 17 is a complex standard that includes some fundamental differences to current accounting for liability measurement and profit recognition. Insurance contracts will be recognised at a risk-adjusted present value of the future cash flows plus an amount representing the unearned profit in the group of contracts (the contractual service margin). If a group of contracts is or become loss-making, the loss will be recognised immediately.
Gjensidige annual report 2017 | 149 finance income or expenses will be presented separately. IFRS 17 is effective 1 January 2021. The standard is expected to have an effect on the group’s financial statements, significantly changing the measurement and presentation of income and expenses.
Functional currency is determined for each the company and the branches in Gjensidige, based on the currency within the primary economic environment where each entity operates. Transactions in the company’s/branches’ accounts are measured in the company’s/branches’ functional currency. Transactions in foreign currency are translated to functional currency based on the day rate at the transaction date. At the end of each reporting period, monetary items in foreign currency are translated at the closing rate, non-monetary items are measured at historical cost translated at the time of the transaction and non-monetary items denominated in foreign currency at fair value are translated at the exchange rates prevailing at the date of calculation of fair value. Exchange rate differences are recognised continuously in the income statement during the accounting period.
Goodwill arising on the acquisition of a foreign portfolio and fair value adjustments of the carrying amount of assets and liabilities arising on the acquisition of the foreign branch are treated as assets and liabilities of the foreign branch.
In addition, the company comprises a Swedish and Danish branch that is reported as a part of the segment Nordic in the consolidated financial statements.
Gjensidige has received or is owed for insurance contracts where the insurance period starts before the end of the period (gross premiums written). At the end of the period provisions are recorded, and premiums written that relate to subsequent periods are adjusted for (change in gross provision for unearned premiums).Earned premiums net of reinsurance are calculated by applying equivalent accrual to premium for ceded reinsurance, which reduces the corresponding gross premiums. Premiums for inward reinsurance are classified as gross premiums written, and are earned according to the insurance period.
Operational lease contracts Leases where the most of the risk and return associated with ownership of the asset are not transferred are classified as operating leases. Lease payments are classified as operating expenses and are recognised on a straight-line basis over the contract period.
Goodwill Goodwill acquired in acquisition of portfolios represents cost price of the acquisition in excess of Gjensidige’s share of the net fair value of identifiable assets, liabilities and contingent liabilities in the acquired portfolio at the time of acquisition. Goodwill is recognised initially at cost and subsequently measured at cost less accumulated impairment losses.
Provision for unearned premiums, gross The provision for unearned premiums, gross reflects the accrual of premiums written. The provision corresponds to the unearned portions of the premiums written. No deduction is made for any expenses before the premiums written are accrued.
Claims provision, gross The claims provision comprise provisions for anticipated future claims payments in respect of claims incurred, but not fully settled
Gjensidige annual report 2017 | 151 at the reporting date. These include both claims that have been reported (RBNS – reported but not settled) and those that have not yet been reported (IBNR – incurred but not reported). The provisions related to reported claims are assessed individually by the Claims Department, while the IBNR provisions are calculated based on empirical data for the time it takes from a loss or claim occurring (date of loss) until it is reported (date reported). Based on experience and the development of the portfolio, a statistical model is prepared to calculate the scope of post-reported claims. The appropriateness of the model is measured by calculating the deviation between earlier post-reported claims and post-reported claims estimated by the model.
Interest-free loans are issued to finance fire alarm systems within agriculture for loss prevention purposes. These loans are repaid using the discount granted on the main policy when the alarm system is installed.
Hedge accounting Gjensidige utilises fair value hedging on currency risk in fixed agreements of acquisition of operations. Changes in the fair value of the hedging instrument are recognised in profit or loss, together with the change in fair value of the fixed agreement. The change in
Different valuation techniques and methods are used to estimate fair value depending on the type of financial instruments and to which extent they are traded in active markets. For financial instruments traded in active markets, listed market prices or traders'
Dividend from investments is recognised when Gjensidige has an unconditional right to receive the dividend. Proposed dividend is recognised as a liability in accordance with the Accounting Act and
The Group has a share saving program for employees and a sharebased remuneration scheme for senior executives. The share savings program is an arrangement with settlement in shares, while the remuneration scheme is an arrangement with settlement in both shares and cash.
The share-based payment arrangement is measured at fair value at the time of allocation. Fair value is accrued over the period during which employees acquire the right to receive the shares. Sharebased payment arrangements which are recovered immediately are recognised as expenses at the time of allocation. Vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised shall be based on the number of equity instruments that eventually vest. Non-vesting conditions are reflected in the measurement of fair value, and no adjustment of the amount recognised as expenses is done upon failing to meet such conditions.
Employers' social security costs are recognised in the income statement over the expected vesting period.
Pension The present value of pension liabilities is calculated on the basis of actuarial and financial assumptions. Any change in the assumptions affects the estimated liability. Change in the discount rate is the assumption most significant to the value of the pension liability. The discount rate and other assumptions are normally reviewed once a year when the actuarial calculations are performed unless there have been significant changes during the year. See note 10.
Oslo Areal AS Oslo, Norway 50% 1,086.9 1,086.9 1,086.9 1,086.9 1 Gjensidige Baltic AAS and PZU Lietuva SA were merged into ADB Gjensidige in 2016.
158 | Gjensidige annual report 2017 6. Net income from investments
Net gains/(losses) from sale of investments in subsidiaries, associated companies and joint ventures 0.1 2.9
Total net income and gains/(losses) from buildings and other real estate 42.6 38.4
Total net income and gains/(losses) from shares and similar interests 642.4 233.8
Total net income and gains/(losses) from bonds and other fixed-income securities 361.2 625.7
Net gains/(losses) from changes in exchange rates on bonds held to maturity 16.5 181.2
Total net income and gains/(losses) from bonds held to maturity 68.3 300.9
Interest income from financial assets not recognised at fair value through profit or loss 724.6 858.5
Specification of other financially related income and expenses not recognised in net income from investments
Depreciation and value adjustments (note 11 and note 12), excl. depreciation properties 368.4 332.3
Total auditor's fee (incl. VAT) 3.3 3.2 1 Other expenses include cost reductions for Gjensidige Forsikring ASA in connection with duties performed for subsidiaries and cost allocations to claims and finance.
The remuneration committee shall prepare matters for consideration by the Board. It is primarily responsible for: • Drafting proposals for and following up compliance with the Group’s guidelines and framework for remuneration
CEO has pension rights pursuant to Gjensidige’s closed definedbenefit pension scheme. Pursuant to the CEO’s employment contract, he is entitled to a pension corresponding to 100 per cent of his annual salary on retirement at the age of 62, which is then reduced in steps to 70 per cent upon reaching the age of 67 at full vesting period.
Correspondingly, the Group’s guidelines are used as the basis for other executive personnel and employees who can materially influence risk.
Denmark and the Baltics, there are some individual agreements on early retirement in connection with resignation in Gjensidige
Gjensidige Forsikring ASA. One third of the shares will be released in each of the following three years.
Lotte Kronholm Sjøberg, staff representative 4 306.0 582 1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms wil l take effect. 4 For staff representatives only remuneration for the current position is stated. 5 Everyone in the senior group management except for one has pension plans, benefit or contribution based. 6 Including bonus shares in the share saving's programme for employees. See note 22 for terms and further description of the scheme. 7 Remuneration includes remuneration as Chairman in the Audit Committee honoured with NOK 148 thousand for 2017. 8 Remuneration includes remuneration in other committees. 9 Hege Yli Melhus Ask has been on leave from 1 January to 31 July. Her remuneration is presented for the whole year. 10 Constituted Executive Vice President for Hege Yli Melhus Ask from 1 January to 31 July.
Kim Rud-Petersen, Executive Vice President 2,940.0 423.7 231.6 617.6 422.3 3,123 4,021 6,871 9,698
Deferred tax liabilities and deferred tax assets are offset when there is a legally enforceable right to offset those assets/liabilities and when deferred tax liabilities/deferred tax assets relate to the same fiscal authority. The amounts offset are as follows: Taxable temporary differences
Estimated tax of profit before tax expense (25% ) (1,216.3) (1,400.0)
Tax cost In connection with the conversion of Gjensidige Forsikring BA to a public limited company the Ministry of Finance has consented to an exemption from capital gains taxation on the transfer of business to the newly formed public limited company under certain conditions.
BA into a public limited company (ASA) in 2010. The decision means that the tax payable for 2010 is reduced by around NOK 35 million. The tax will be further reduced for the ensuing years, by a total of around NOK 137 million at known tax rates.
Defined contribution plan Defined contribution pension is a private pension plan that supplements the National Insurance scheme. Benefits from the pension plan come in addition to retirement pension from the
Together with benefits from the National Insurance scheme and any paid-up policies from former employment relationships, the retirement pension amounts to approximately 70 per cent of the final salary, given a full earning period of 30 years. The retirement age is 70, but it is 65 for underwriters.
CPI indexing of current pensions. This was recognised as a plan change in the accounts. Income in the amount of approximately
Actuarial assumptions are shown in the table. The discount rate is the assumption that has the greatest impact on the value of the pension liability. Wage growth, pension increases and the adjustment of the National Insurance basic amount are based on historical observations and expected future inflation. Wage growth is set at 3.1 per cent, like the year before, and is adjusted for age based on a decreasing trend. The year-on-year nominal wage growth 2017/18 is calculated to be 1.5 per cent, similar to last year.
Gjensidige is exposed to financial risk since the pension assets are managed in Gjensidige Pensjonskasse as an investment choice portfolio.The financial risk is related to investments in equities, interest-bearing securities and property. Most of the investments are in securities funds and bonds. The financial risk comprises stock market, interest rate, credit, currency and liquidity risk, whereas the greatest risk factor is interest rate risk. Financial risk in pension assets is estimated using defined stress parameters for each asset class and assumptions about how the development of the different asset classes will co-vary.
Because of the relationship between pension liabilities and pension assets, Gjensidige has an asset ceiling, since not all pension assets can be used to pay future premiums. This means that the effect of a decrease in the interest rate will be limited to liabilities attributable to current employees and that liabilities attributable to retired employees will remain relatively unchanged. An interest rate fall is the biggest risk, due to the long duration of the liability. An increase in the interest rate leads to a fall in the pension liabilities, but much of the fall will lead to a potential pension increase. 32 per cent of the pension assets are attributable to current employees. With time, however, employees will represent an increasingly lower proportion of the pension assets as a result of employees leaving or retiring. A
greater proportion of the return will thereby go to retired and former employees, and less to the employer. This has been incorporated in the asset ceiling assessment.
The credit mark-up (on ten-year swaps) at 31 December 2017 was 0.52 per cent.
Future pension benefits depend on future wage growth and the development of the National Insurance basic amount (G). If wage growth in the Company is lower than the increase in G, the benefits will be reduced. Gjensidige assumes that wage growth is agedependent. A younger employee can expect higher annual wage growth than an older employee. This means that wage growth depends on age.
Wage growth will deviate from the path defined by employees getting higher or lower wage growth than what the job indicates.
If wage growth is one per cent higher, it will lead to a 3.9 per cent increase in the liability. An increase in real wages will increase the liabilities. An increase in inflation will increase wages and pension plans and discount rates and the liabilities will to a small extent change.
Low interest rates can lead to the Financial Supervisory Authority instructing the pension fund to lower interest rates from 2 per cent to 1.5 per cent, or 1 per cent for new earned benefits. Gjensidige expects there to be a high risk of the interest rates being reduced to 1 per cent if long-term government bond yields remain at the 1.3 per cent level.
Net defined benefit obligation/(benefit asset) (204.4) 552.2 347.8 (486.2) 493.2 7.0
Gjensidige annual report 2017 | 169 11. Goodwill and intangible assets
As at 31 December 2016, including uncompleted projects 1,687.0 662.0 1,033.7 298.7 3,681.4
The expected CR level is both in the growth period and when estimating the terminal value considered to be from 89.5 to 100.8.
Gjensidige Forsikring, Swedish branch No need for impairment No need for impairment No need for impairment No need for impairment
As at 31 December 2016, including uncompleted projects 19.0 537.6 556.6
As at 31 December 2017, including uncompleted projects 27.0 502.0 529.0
Quoted prices in active markets are considered the best estimate of an asset/liability’s fair value. A financial asset/liability is considered valued based on quoted prices in active markets if fair value is estimated based on easily and regularly available prices and these prices represent actual and regularly occurring transactions at arm’s length principle. Financial assets/liabilities valued based on quoted prices in active markets are classified as level one in the valuation hierarchy.
The following financial assets are classified as level three in the valuation hierarchy: • Unlisted private equity investments. The private equity investments that are not organized as funds are valued using cash flow analysis, price multiples and recent market transactions. The private equity investments that are organized as funds are valued based on NAV (Net Asset
Value) as reported by the fund administrators in accordance with IPEV guidelines (International Private Equity and Venture capital Valuation. Because of late reporting from the funds, the
Liabilities related to direct insurance and reinsurance 779.4 779.4 377.8 377.8
Bonds and other fixed income securities classified as loans and receivables 17,704.1 4.6 17,708.7
Financial derivatives at fair value through profit or loss 568.6 568.6
Bonds and other fixed income securities classified as loans and receivables 17,158.9 1.5 17,160.4
Bonds and other fixed income securities 1,333.5 65.7 358.5 (929.7) (4.6) 80.9 904.3 2.3
Bonds and other fixed income securities Decrease in value 10% 90.4
Sector Global Equity Kernel Fund Class P USD Equity fund 172.6
Total shares and similar interests owned by Gjensidige Forsikring ASA 6,553.7
Of other loans NOK 63.1 million (80.3) are loans given to agricultural customers. Included in other loans are also NOK 40.0 million (40.0) regarding loans given with regard to sale of subsidiaries.
178 | Gjensidige annual report 2017 16. Insurance-related liabilities and reinsurers' share
Claims incurred, but not reported 15,209.4 0.0 15,209.4 14,614.3 (5.7) 14,608.6
Arising from prior year claims (run-off) (1,159.1) 140.0 (1,019.1) (996.9) (18.0) (1,014.8)
Claims reported and claims handling costs 13,774.4 (698.0) 13,076.4 15,593.1 (512.2) 15,080.9
There are no rights attached to the holding of own shares.
A total of 254.863 (199,200) own shares at an average share price of NOK 138.87 (141.75) have been acquired to be used in
Gjensidige's share-based payment arrangements. Of these 191,277 (169,093) shares have been sold to employees, at the same price, but with a discount in the form of a contribution, see note 22. In addition 33,199 (38,728) shares have been allocated to executive personnel within the share-based remuneration scheme and 36,132 (32,737) bonus shares have been allocated to employees in the share savings programme. Own shares are reduced by 5,745 (reduced by 41,358) through the year.
Perpetual Tier 1 capital Perpetual Tier 1 capital consists of a perpetual hybrid instrument, classified as equity. In connection with the issuance in 2016 transactions costs amounting to NOK 3.2 million was recognised as a deduction in equity.
Total gains and losses in connection with sale, liquidation and impairment losses 49.4 8.2 99.5
The table below shows a summary of receivables/liabilities from/to related parties.
Gjensidige Forsikring is responsible externally for any insurance claim arising from the cooperating mutual fire insurers' fire insurance business, see note 21.
The value of the bonus shares is recognised as payroll expenses over the vesting period, which is two years.
Fair value measurement The fair value of the shares allocated through the share-based payment for executive personnel is calculated on the basis of the share price at grant date. The amount is recognised immediately.
The cash-settled share is adjusted consecutively based on the share price at the reporting time.
Weighted average share price of shares released during the period 133.53 143.59
II regulation with effect from 31 December 2017. The model approved is more conservative than the model Gjensidige applied for.
As of 31 December 2017, the regulatory Solvency II ratio was 137 per cent based on the Standard Formula. Based on the approved
The FSA has specified some areas which have to be further validated and documented to achieve approval for Gjensidige’s original version of the model. The approval and its conditions will be reviewed by the Board of Gjensidige before the appeal deadline.
Besides the above mentioned approval, no significant events have occurred after the year end.
John Giverholt Per-Arne Bjørge Gisele Marchand Board member Board member Board member
Gunnar Mjåtvedt Anne Marie Nyhammer Hilde M. Nafstad Board member Board member Board member
Gjensidige is a leading Nordic insurance group listed on the Oslo Stock Exchange. We have about 3,800 employees and offer insurance products in Norway, Denmark, Sweden and the Baltic states. In Norway, we also offer banking, pension and savings. Operating income was NOK 27 billion in 2017, while total assets were NOK 149 billion.