• Storebrand Bank is the first bank in Nor­ way to launch mobile banking.
• Storebrand launches a new policy on com­ passionate leave that allows employees up to 10 days paid absence to care for sick parents.
• Storebrand once again qualifies for the renowned socially responsible investments index ­ The Dow Jones Sustainability World Index.
• Storebrand is included on the list of the 100 most sustainable companies in the world.
• Mohammed Yunus and Grameen Bank are awarded the Nobel Peace Prize for their work on microfinancing. Storebrand is the only Norwegian financial institution with investments in microfinancing projects.
• Storebrand arranges a capital markets day for investors, investment analysts, rating agencies and banks.
Storebrand can trace its history back to 1767. The group has offered occupational pensions since 1917, some 50 years before the Norwegian state pension scheme was established. Storebrand Bank opened for business in 1996, and in 2006 the group re­ launched its property and casualty insurance business as part of a comprehensive range of services for retail market customers.
Our employees’ average age is 42, with an average length of service of 10 years. The group employs virtually equal numbers of men and women. Corporate responsibility is an integrated part of the group’s activities. A new two­year corporate responsibility report and plan was produced in 2006.
The Storebrand group is a leading player in the market for long-term savings and insurance. The group’s business areas are life insurance, property and casualty insurance, asset management and banking, representing a comprehensive product range for private individuals, companies, municipalities and independent public sector entities.
Storebrand Skadeforsikring offers standard property and casualty insurance products to the Norwegian retail market. The company was launched in autumn 2006. With cost­effective distribution and an extremely customer­friendly Internet service, the company has quickly established its position as a competitive insurer, offering peace of mind at low prices.
Storebrand Skadeforsikring Launched in record time, with a market-leading internet service
Booked Value adjusted excluding bond held to maturity Value adjusted including bonds held to maturity
Accounts Storebrand ASA 94 Cash flow analysis 96 Accounting principles 2006 97 Notes Storebrand ASA 99
The changes that affected the Norwegian savings and pensions market in 2006 were more extensive than anything seen since the introduction of the national insurance scheme in 1967. The introduction of mandatory employers’ occupational pensions brought over 600,000 Norwegians into membership of an employer’s pension scheme. The reform also sharpened competition, placed new demands on products and systems solutions, and brought about a change in attitude to long-term savings and pensions for some major groups of customers.
The results Storebrand achieved in the occupational pension market demonstrated Storebrand’s ability to deliver what it promises. Reliable and straightforward products delivered at low prices were well received. Key elements were greater efficiency in all product purchasing processes and innovation in product distribution. While other companies used bank branch offices for distribution, we placed the emphasis on setting up agreements with trade organisations and working closely with their main representative bodies, namely the Confederation of Norwegian Enterprise (NHO) and the Federation of Norwegian Commercial and Service Enterprises (HSH).
2006 was a strong year for Storebrand, with good progress in all areas of the group’s activities. Storebrand’s business is created through interaction between our employees and our customers. We are dependent on ensuring that our employees enjoy their work and have the right experience and skills. Through our management development programs and even greater emphasis on training, we will continue to recruit, develop and retain the right people for our business. Our expertise, our capacity for innovation and high levels of customer satisfaction provide a strong foundation for the group’s continuing growth.
Vision: Storebrand’s objective is to be the leading and most respected institution in the Norwegian market for long-term savings and insurance
Knut Hamsun publishes Growth of the Soil. 2 April – USA declares war on Germany.
On 4 May 1847 the P&C insurance company ‘Christiania Almindelige Brandforsikrings-Selskab for Varer og Effecter’ is incorporated by private subscription.
Thomas Edison and Alexander Graham Bell are both born this year.
The union with Denmark comes to an end. Norway adapts its own constitution.
23 June - Norway beats Brazil 2-1 in the football World Cup in France.
The Norden group and Storebrand agree to merge with effect from 1983.
UNI Storebrand’s negotiations with Skandia to establish a major Norwegian-led company fail to reach agreement.
➤ CEO Key figures Corporate Retail Corporate responsibility Board Report Shareholder matters Corporate governance Management Report
No. of employees (full time equivalents) 1 429 1 295 1 224 1 263 1 337
Average number of ordinary shares (1000)1 247 965 258 576 272 933 277 927 277 715
Successful focus on mandatory employers’ pensions The introduction of mandatory occupational pension schemes (OTP) dominated the pensions market in 2006. All companies had to have occupational pension arrangements in place for their employees by the end of the year. Storebrand’s success in this market reflects its experience and expertise, the quality and competitiveness of its pension products and its straightforward and customer-friendly service solutions, combined with collaboration and agreements with the most important trade associations and employers’ organisations.
Storebrand made use of its financial adviser apparatus for both the corporate and retail market to sell its OTP products. In addition, the company focused on collaboration and agreements with employers’ organisations and trade associations. Storebrand entered into agreements with 27 organisations, including the Confederation of Norwegian Enterprise, the Federation of Norwegian Commercial and Service Enterprises and the Norwegian Association of Authorised Accountants. These agreements paved the way for efficient distribution of Storebrand’s OTP product known as Storebrand Folkepensjon, and played a significant role in strengthening Storebrand’s position in this market. A number of large companies such as Norgesgruppen, Manpower, ICA and Statoil Detalj chose Storebrand as their supplier for OTP products.
By the close of 2006, Storebrand had set up OTP schemes for 14,000 companies with 200,000 employees in total. At the start of 2007, 180,000 of these employees are pension scheme members. The number of members will increase over time as part-time employees and seasonal workers build up sufficient service to meet the requirement of 20% employment in order to become a member of their employer’s pension scheme. In February 2007 the number of OTP customers passed 15,500.
“Storebrand’s success in the mandatory employers’ pension market brought in over 15,500 new corporate customers with around 200,000 employees in total.”
A partner for 2006 was the first year for mandatory employers’ pensions in Norway, and Storebrand closed the year with a strong position in this market. Storebrand’s focus on occupational pension products attracted 15,500 new corporate customers, with around 200,000 employees in total. Transfers of pension business gave Storebrand a net inflow of NOK 5.3 billion. The Norsk Kundebarometer survey showed that - for the third year in a row - Storebrand was the insurance company with the highest level of customer satisfaction in the corporate market.
Storebrand’s predecessor Norske Folk sets up the first group pension scheme in Nor­
White Paper on pension reform. New legislation on life insuran­ ce is approved by parliament.
The Norwegian par­ liament approves the main principles of the pension reform, including mandatory employers’ occupa­
Over 600,000 employees become members of an employers’ pension scheme during the year.
The government issues a White Paper on entitlement to state pension and pension benefits.
figures demonstrate that the established pension suppliers won most of the new business in this market. Measured in terms of annual premium, Storebrand’s share of the OTP market is over 30%.
Storebrand’s sales of OTP products and the development of new and more efficient solutions for sales, execution and customer service in this market have made a major contribution to improving operational efficiency and making the company’s systems simpler and more customer friendly.
A winner in the pension transfer market Following the introduction of mandatory employers’ pensions, the future occupational pension market will mainly be a market for transfers between suppliers.
Employee insurance Storebrand placed great emphasis in 2006 on sales of employee insurance products to corporate customers. The annual premium represented by the portfolio of employee insurance business in force showed a significant increase in 2006, with premium income up by over 30%. Employee insurance products have accounted for an important part of Storebrand’s earnings over recent years, and are expected to play an increasing role in future years. Steps were taken in 2006 to improve the systems used in this area to ensure simpler and more efficient administration.
No trade association link Confederation of Norwegian Enterprises framework agreement Trade association member
Changes in the occupational pensions market The emergence of defined contribution pensions on a comparable basis to defined benefit pensions is a relatively recent development in Norway. The legislation permitting pensions where benefits are not defined in advance but depend on the contributions made and the return they earn was approved by the Norwegian parliament in 2001. At that time, the authorities saw defined contribution pensions as a supplement to the established defined benefit schemes, and a simpler alternative for companies that did not have a pension scheme at all.
Many companies that operate defined contribution pension schemes are now re-evaluating their pension arrangements. Around 130 of Storebrand’s corporate customers, representing some 17,000 employees in total, transferred from defined benefit to defined contribution schemes during 2006. In 2002, defined contribution pensions accounted for only 2% of the occupational pensions market. Recent research by FAFO has estimated that the number of employers operating defined contribution schemes will outstrip the number of defined benefit schemes in 2007. However, in terms of the value of accumulated pension assets, defined benefit schemes will continue to dominate for the foreseeable future.
Over recent years, Storebrand has made significant savings in the cost of managing paid-up policies through improved efficiency, and this benefits the level of pension accruing in a paidup policy. High investment returns have meant that the purchasing power of guaranteed pension benefits has increased significantly over recent years.
The government has announced that once the new rules for the national insurance pension scheme have been approved, it will evaluate the need for changes in legislation on private sector occupational pensions, including the question of how a flexible pension age might be introduced in employers’ pensions.
New insurance legislation will create major changes from 2008 New insurance legislation comes into force in Norway from 1 January 2008. The new legislation is intended to make pricing more predictable and transpar-
ent, and introduce a clearer distinction between customers’ assets and the insurance company’s assets. The final form of the regulations to implement the new legislation were issued on 1 July 2006.
Assets under management by Storebrand at 31 December 2006 in respect of public-sector pensions customers totalled almost NOK 16 billion. This represents an increase of NOK 6 billion for the year. Storebrand provide public sector pension solutions for 35 municipalities and over 200 other public sector bodies. 18 of Storebrand’s 50 largest customers are public sector pension scheme customers.
Focus on health and safety Storebrand wishes to encourage its customers in both the private and public sectors to place greater emphasis on health and safety in the working environment (HSE).
Focus on HSE improves employees’ job satisfaction and quality of life. For employers, focus on HSE reduces the cost of absenteeism and contributes to value creation as well as reducing insurance premiums. Moreover, a reduction in absenteeism and a lower incidence of disability pensions benefits society at large.
No. of employees who are members of defined contribution and defined benefit pension schemes
of each employee’s salary (on salary between 1 and 12 times the current National Insurance
Storebrand Life Insurance branch office in Sweden Storebrand Life Insurance opened its Swedish branch office in September 2005. Storebrand’s products are marketed through Swedish brokers and financial advisers, and are based on Norwegian legislation. This means that Storebrand, in contrast to its Swedish competitors, offers a stronger guarantee structure with better security for customers, as well as a statutory right to transfer.
Storebrand’s products and solutions have been well received in the Swedish market. In autumn 2006, Storebrand launched a pension-backed mortgage product in collaboration with Ikano Bank, representing its first product for the Swedish retail market.
CEO Key figures Corporate Retail Corporate responsibility Board Report Shareholder matters Corporate governance Management Report 11Annual Report 2006
The market for long-term saving and insurance continues to grow. With the re-launch of Storebrand Skadeforsikring for P&C insurance, Storebrand is again a total supplier of financial security.
Growing market The market for long-term savings continues to grow. The introduction of (OTP) in 2006 has made Norwegians more aware of the need for private savings. The group gained around 15,500 new corporate customers in 2006, representing some 200,000 employees. This new and sizable customer base will be important for the group’s business with the retail market in future years. These new customers will be offered good solutions for their insurance needs and for building up their own savings.
After 2-3 years of record sales, sales of life insurance savings products levelled off in 2006, partly due to changes in tax legislation (see the commentary below). Despite this, sales of life insurance -related savings account products reached NOK 2.5 billion in 2006.
Sales of mutual funds, combination and bond funds performed well in 2006, particularly in the fourth quarter. This bodes well for 2007. However, the level of demand is disappointing given the very good returns achieved by Norwegian and international equity funds since stock markets bottomed out in winter 2003. An increasing number of mutual fund customers choose to invest in funds through flexible link arrangements, which offer features such as the freedom to switch between funds without additional cost. The fund investments chosen by customers suggest an increasing degree of risk willingness.
Storebrand Bank represents a central element of the group’s focus on the retail market, and is particularly important for attracting new customers to the group. During the course of 2006, Storebrand Bank strengthened its position as a ’no-fees’ bank. The bank attracted a good inflow of new customers, and opened over 21,000 accounts in 2006. In June 2006, Storebrand Bank
became the first bank in Norway to offer customers a complete Internet banking service from their mobile phones, termed ’mobile banking’. In its lending activities, the bank achieved strong growth throughout 2006 thanks to competitive terms for both fixed rate and floating rate mortgage products. A combination of the good credit quality of the bank’s lending and tough competition caused a decline in lending margin for Storebrand Bank.
On 1 January 2006 a new act came into force which allows customers to change their P&C insurance provider at any time. Storebrand Skadeforsikring has established a new industry standard which allows customers to move their insurance without written consent.
People need to build their own pension savings: Many people do not appreciate that they need to build their own savings to ensure financial security in their old age. They believe that the national insurance pension scheme and their work pension will be sufficient.
Choice of media, the message, form and presentation has contributed to lifting the Storebrand brand towards becoming Norway’s leading and most respected supplier of long-term saving and insurance.
Storebrand distributes its products through four channels: financial advisers, direct sales, insurance agents and external distributors.
The direct sales channel serves customers through a customer centre staffed by around 60 advisers handling both incoming and outgoing service and sales dialogue, and also through Storebrand’s website. A combination of excellent accessibility by telephone coupled with high standards of service and advice has helped to ensure increased customer satisfaction. Sales of P&C insurance products take place over the Internet and from a separate customer centre.
Insurance agents are independent insurance brokers which have exclusive distribution agreements with Storebrand. This channel comprises 21 offices and 40 employees.
Sales through external distributors are an important part of Storebrand’s focus on the retail market. The share of new sales to the retail market arranged through this channel, including insurance agents, has increased to 40%. Most trends suggest that Norway will follow the pattern seen elsewhere in Europe for a continued strengthening in the role of external distributors. Rather than viewing this as a threat to its position, Storebrand has chosen to make good use of the opportunities offered by external distribution. In order to further increase its distribution capacity in this market, Storebrand has invested in selected external distributors as a part owner. In December 2006, Storebrand Life Insurance acquired a 34% interest in Caveo ASA, a firm with 65 advisers working from 12 offices around Norway. Prior to this, Storebrand Life Insurance already held a 34% stake in Økonomiforvaltning, a firm with 23 advisers. These two companies will continue as independent distributors, but will collaborate with Storebrand both operationally and strategically.
In autumn 2006, Storebrand launched its innovative Storebrand Optimér product. Storebrand Optimér is the first savings product in Norway to combine investment in shares and real estate. This is an attractive combination since there is little correlation between movements in share prices and real estate prices, and this product is also attractive from the tax viewpoint. Over the last two months of 2006, Storebrand Optimér attracted NOK 134 million of investment. This produced a total fund of NOK 268 million at 31 December 2006, which is invested in a portfolio of three proper-
ties and a share portfolio. The real estate investment is managed by Storebrand Eiendom, while Storebrand Investments manages the equity portfolio.
In May 2006, the Delphi Funds launched Delphi Verden, an actively managed global equity fund. The response was very good, and investment in the fund was NOK 260 million by the close of the year.
Improving efficiency also plays a role in ensuring that the company can cope with increasing business volumes while at the same time improving customer satisfaction.
On 2 February 2007, the Ministry of Finance announced transitional rules which mean that the minimum contractual periods for tax purposes on annuity policies and IPA pension contracts under 1.5 times the basic state pension amount (NOK 94,338) will be abolished from 2007. Storebrand is committed to finding good solutions for its IPA pension and annuity customers and retaining the assets under management for these products.
Future prospects Expectations that interest rates will continue a modest upward trend, labour market conditions will remain strong and property price inflation will slow somewhat in 2007 all point to continuing growth for the Norwegian economy. Storebrand’s focus on the retail market will face increasing competition from both Norwegian and international companies, but Storebrand is well equipped to meet this challenge.
2007 will be a year of cross selling. Storebrand intends to increase the number of products it sells to each customer. With 200,000 new mandatory occupational pension customers in 2006, we have an very strong position for successful cross selling.
“2007 will be a year of cross selling. Storebrand intends to increase the number of products it sells to each customer.“
Markedsandelser pr. Q3 2006, av midler til forvaltning * Share of assets under management No market share figures are available for structured products and real estate funds
Storebrand’s objective is to be the leading and most respected institution in the Norwegian market for long-term savings and insurance. In saying this, we emphasise ‘respected’. This means that our work on corporate responsibility must be firmly anchored in the company ’s overall plans and strategies. For over 10 years we have set targets for building financial worth, social responsibility and environmental issues.
The group’s two-year corporate responsibility report and action plan expired in 2006, and the objectives for 20072008 have been set out in a new report and action plan (see www.storebrand. com). The report is approved by the Board of Directors, and is anchored in all the group’s activities. Performance relative to the objectives is monitored and reported annually (see the separate table).
Experience from the previous action plan period The 2005-2006 period was characterised by extensive activity in the corporate responsibility area. We achieved 28 of the 38 targets we set. Some of the targets in the action plan proved too challenging to achieve within the timetable set for various reasons, but these objectives continue and are included the new two-year action plan period. In other areas, we have achieved more than we originally planned, and have moved on to include new areas.
Corporate responsibility The main role of business is to contribute to society’s value creation through sound profitability. We are here to create value, but we are not indifferent to how this is achieved. We believe that the successful businesses of the future will be those that develop products and services in a way that combines global environmental and social challenges with profitable commercial growth.
Arild Hermstad, managing director, Norwegian NGO Future in Our Hands, interviewed about Storebrand’s position within pension products (Source: Aften­ posten 2006).
Our experience demonstrates that the return on investment is not reduced by these responsible investment restrictions (see chart). Analysis of risk and return carried out by Storebrand’s portfolio managers show that Storebrand’s group standard for responsible investments has only a very limited impact on these parameters.
Competence development Storebrand is a competence-based company, and its employees, their skills and expertise and their job satisfaction play a central role in achieving the group’s business objectives. The group carried out a systematic program of staff development in 2006, and further strengthened its focus on competence development.
In order to ensure that the group has the expertise it needs available at all times, we developed an expertise database tool in 2006 that will come into use during 2007. We also made further improvements to management develop-
1 Including gain on the sale of If. 2 Including extraordinary dividend following the sale of If. 3 Measures availability of customer/employee portal between 07.00 and 01.00 hrs. 4 Return compared to the Morgan Stanley Capital International World Index, annualised, last 5 years. 5 Results will be available during the first six months of 2007. 6 Includes both self-certified and doctor-certified absence. 7 Long-term target of 4% is maintained, but with an interim 2-year target of 4.8%.
8 We now use the survey ’A Great Place to Work’, and this replaces the former ‘employee satisfaction’ target. The target score is reduced to 85% since ‘A Great Place to Work’ is a more demanding measure than ‘employee satisfaction’. 9 No target is specified since this is an internal objective, and is considered less relevant for our stakeholders. Responses will continue to be monitored. 10 Only applies to properties with EOS (energy monitoring system, 14 of 19 properties). 11 Restated due to the merger of Storebrand Fondsforsirkring AS and Storebrand Livsforsikring AS in 2006. 12 Given that we can find acceptable investment opportunities.
Cu st o m er s Percentage of problem-free customer enquiries via internet3 98% 97% 98%
Customer satisfaction - corporate market No. 1 in the sector No. 1 in the sector No. 1 in the sector
Time taken to process complaints - - Maximum of three weeks
Investment return from Storebrand Global SRI relative to benchmark index4 1.49% 0.07% Better than benchmark index
Percentage of employees agreeing that Storebrand is a ‘great place to work’8 93% 90% 85%
Percentage of employees aware of what the ethical guidelines mean for their everyday duties
Waste sorted by type (tenants of managed properties10) 37% 40% 50%
Paper consumption (head office) 56 tonne 61 tonne Reduce by 10%
Water consumption (head office) 26 636 m3 95 461 m3 Stable level
Storebrand’s commitment to corporate responsibility has attracted considerable recognition. In 2006 and 2007 Storebrand was on the Global 100 list of the most sustainable corporations in the word.
The steps we have taken to achieve the 40 per cent target include participation in an external mentoring program for female staff and in the Norwegian Financial Services Association’s management training program for women, as well as setting a 40/60 target for the gender mix on the group’s management development programs. We also insist that external recruitment consultants put forward both male and female candidates on shortlists for management recruiting.
Health and Safety product Illness absence and disability is one of society’s biggest challenges. As an ‘Inclusive Workplace’ signatory with the corporate vision to be Norway’s leading and most respected pension supplier, we have worked on this challenge for many years. In the last action plan period, we set a target to establish a new insurance concept for employers to reduce illness absence and disability. In autumn 2005 we launched a new product for health and safety in the working environment (HSE) for our corporate customers.
This product offers HSE advice alone or HSE advice together with health insurance, which is then called an HSE agreement. The product is available to companies that have entered into an “Inclusive workplace” agreement with the National Insurance Administration.
Environment and climate issues Storebrand strives to reduce the environmen¬tal impact of its activities. We have prioritised concrete targets and measures in the areas of reducing energy, water and paper consumption, recycling IT equipment and sorting waste. These apply both to Storebrand’s head office and to the properties managed by the group. In addition, we want to help build awareness of today’s most serious environmental threat, CO2 emissions. We intend to survey our own emissions in 2007-2008, based on air travel and head office energy consumption. We want to take the first steps on the path to becoming a carbon-neutral company.
International involvement Storebrand has a long history of playing an active role internationally in promoting corporate responsibility. We are an active and supportive member of organisations such as the United Nations Environmental Program (UNEP), Transparency International (TI), the Global Compact and the World Business Council for Sustainable Development (WBCSD). We collaborate in Norway with the MOT Foundation and the Red Cross, and these organisations are important discussion partners for our work in the domestic arena.
The corporate responsibility report 2007-2008 is a natural renewal of Storebrand’s commitment to a longterm work on corporate responsibility, and we believe that this commitment helps the group achieve its overall commercial objectives. We take responsibility for our own activities, and we also want to be a driving force in encouraging business to take an active role in sustainable development of the society of which we are an important part.
Members (elected by employees): Ann-Mari Gjøstein, Rune Pedersen, Astrid Olive Aanerud, Tor Haugom, Per Alm Knudsen, Randi Paulsrud
Deputy members (elected by shareholders): Trond Bjørgan, Lars Tronsgaard, Petter Jansen, Karen Helene Ulltveit-Moe, Marius Steen
Deputy members (elected by employees): Paul Eggen jr., Ann Jeanette Magnussen
Note 11: Remuneration of senior employees and elected officers of the company 73
Note 4: Remuneration of the Chief Executive Officer and elected officers of the company 101
Note 14: Holdings of shares in Storebrand ASA by executive management and members of corporate bodies 105
Erik Haug Hansen (51), employee elected. Sales manager Storebrand Life Insurance. Insurance degree. 1979­1985 Ajungilak AS. 1977­1979 Fred. Olsen Spedisjon AS. 2004­, board member Storebrand ASA. 1998­2002, board member Storebrand Livsforsikring AS.
Halvor Stenstadvold (62), independent advisor. Political science major, University of Oslo. 1996­2006, member of Orkla’s executive management, 1988­1996, various management positions Orkla ASA. 1981­1984 Parliamentary Secretary Ministry of Consumer affairs and Government Administration. 1979­1988 Bank manager Kredittkassen, Oslo. 1975­1979 Deputy Mayor and later Mayor Bærum Municipality. 1974­1979 consultant Norges Industriforbund. 1972­1974 ass. lecturer Universitety of Oslo. 2005­, board member Oslo Børs ASA (Chairman from 2006). 2002­, board member Statkraft. 2000­, board member Storebrand ASA. 1994­2000 Chairman Norges Forskningsråd’s executive board. 1994­2000 member of Board of Representatives Storebrand ASA. 1986­1990 Chairman NRK.
Mette K. Johnsen (61), MBA, Norges Handelshøyskole. 1971­2005 Wilh. Wilhelmsen­gruppen, latest ass. director of finance Wilh. Wilhelmsen ASA and afterwards Wallenius Wilhelmsen Lines AS. 2003­, board member Storebrand ASA. 2005­, board member Treschow Fritzøe AS. 1997­, member of control committee Møller Bilfinans AS. 1987­2005 member corporate assembly Elkem ASA. 1985­2003 member Board of Representatives and board Verdipapirsentralen. 1987­2000 member corporate assembly Dyno Industrier. 1987­2003 member Board of Representatives Storebrand ASA. 1987­2001, board member Den norske Opera. 1992­1997 board member Nationaltheatret. 1991­1995 board member Dagbladet. 1985­1994 member of control committee and Board of Representatives Citibank AS. 1981­1987 Bedriftsdemokratinemda. 1978­1985 board member Industriøkonomisk Institutt. 1979­1982 member of Oslo city counsel for Conservative party (Høyre).
Norway was a major event, and will be an import factor in the performance of the Norwegian financial sector for some years to come. Storebrand strengthened its position in the occupational pensions market by winning a 30% share of the mandatory occupational pensions market and attracting a net inflow of notified pension transfers totalling NOK 2.6 billion in 2006. The market for long-term savings continued to grow in 2006.
Birgitte Nielsen (43), partner, JMI Invest II A/S. 1999 General Management Program CEDEP/Insead. 1986 Bachelor of Commerce, international relations. 1993 Bachelor of Commerce, Economics and finance. 2003­2006 Nielsen + Axelsson Asp, advisor. 1992­2003 FLS Industries AS, latest as CP/CFO. 1983­1992 Danske Bank, 1990­1992 as VP. 2006­, board member JMI Invest II A/S. 2006­, board member Netconcept A/S. 2006­, board member Novenco A/S. 2006­, board member Arkil A/S. 2005­, board member Buy­Aid. 2005­, board member IDEAS A/S. 2005­, board member Storebrand ASA. 2005­, board member Faber A/S. 2005­, board member Energinet.dk. 2004­, board member Team Danmark. 2004­, board member Royal Greenland.
Knut G. Heje (56), CEO Agra Group and managing director AS Agra Industrier. MBA, University of Fribourg. 1976­1978 deputy head AS Agra Margarinfabrikk. 1974­1976, product manager Unilever, Holland and Austria. 2003­, Chairman of Control Committee NHO. 2003­2005 Chairman of Audit Committee Storebrand ASA. 2001­, board member Hotell Continental. 2000­, board member Storebrand ASA. 1999­, executive board member NHO. 1999­2003 member of executive committee NHO. 1996­, board member Løvenskiold Vækerø AS. 1991­, board member Næringsmiddelbedriftenes Landsforening (chairman 1991­1999). 1998­2000 board member Cunard Cruise Lines Ltd. 1994­ 1995 board member Den norske Amerikalinje. 1988­1991 president IFMA. 1984­1987 member of Oslo City Counsel. 1980­1991 board member and Chairman Grand Hotel, Oslo (Chairman from 1989).
Storebrand continues to work in a systematic and co-ordinated manner to realise its vision of being the leading and most respected institution in the Norwegian market for long-term savings and insurance. The key requirement for realising this vision is that Storebrand is recognised for its customer orientation, expertise and corporate responsibility. This work is combined with continuing attention to improving productivity.
1,585 million as compared to NOK 1,453 million in 2005. Earnings per share, based on the average number of shares outstanding over the year, amounted to NOK 6.03 in 2006 and NOK 5.41 in 2005.
The level of operating profit generated by Storebrand Life Insurance for allocation between customers and owner is to a large extent dependent on conditions in the financial markets and the company’s ability to generate investment returns in excess of benchmark indices. In 2006 the company produced a return in excess of benchmark on 10 out of 13 active mandates, and generated an interest result, which is the return in excess of the interest guaranteed to customers, of NOK 5,573 million as compared to NOK 4,402 million in 2005.The administration result was lower than in 2005 due to the investment in the mandatory occupational pensions market and higher costs for asset management.
The profit allocated to the owner of Storebrand Life Insurance was NOK
1,191 million, a reduction of NOK 33 million from 2005. The group’s 50%
interest in Storebrand Helseforsikring produced a profit of NOK 7 million, an improvement of NOK 2 million from 2005.
The group’s banking activities saw a falling trend for net interest income in 2006, mainly due to pressure on margins and increased competition in the lending market, while net fee and commission income was higher following the successful launch of new savings products. Operating costs as a percentage of total operating revenue moved higher. Losses and write-downs on loans and guarantees represented a net write-back of NOK 47 million.
The improved profit reported by Storebrand Investments was mainly due to strong investment performance, a good inflow of assets under management and favourable stockmarket conditions. The company maintained good control of costs, and total costs as a percentage of operating revenue fell in 2006.
The profit reported by other activities, which in addition to Storebrand Skadeforsikring includes the profit reported by Storebrand ASA excluding dividend, group contributions and certain minor subsidiaries, amounted to NOK
21 million in 2006 and NOK 19 million in 2005. Storebrand Skadeforsikring incurred a high level of costs in 2006 in connection with the re-launch of
In accordance with Norwegian accounting legislation, the Board confirms that the company meets the requirements for the accounts to be prepared on a going concern basis.
(OTP) schemes characterised 2006. All companies had to have occupational pension arrangements in place for their employees by 31 December 2006. Storebrand has established a sizeable number of framework agreements with employers’ organisations and trade associations, including the main organisations of the Confederation of Norwegian
Enterprises, and this has played an important role in Storebrand’s sales of OTP products.
Banking: The bank’s growth ambitions were in focus in 2006. Storebrand Bank maintained its position as a ‘no-fees’ bank, while significantly strengthening its competitive position for residential mortgage lending. This resulted in significant growth in both business volumes and customer numbers. As part of its commitment to developing attractive products, Storebrand Bank ASA launched the Storebrand Eiendomsfond
The quality of the bank’s lending portfolio at the close of 2006 was satisfactory. The bank will continue to monitor the growth it expects in 2007 in lending to the retail and corporate markets and the effects this will have for the bank’s earnings, costs and risk exposure in a very competitive market. Storebrand Bank experienced a further decline in lending margins over the course of 2006 as a result of intense competition in the residential mortgage market. The level of risk in the corporate lending portfolio reduced over the course of the year.
217 billion at the close of 2006. During the course of the year, Storebrand Investments attracted 64 new institutional customers, setting a new record. A separate unit of highly qualified investment advisers is responsible for the company’s institutional customers. The unit works closely with customers to develop customised investment strategies that meet the customer’s financial objectives, investment time horizon and risk profile. The company maintained its strong position in the market segments of municipalities, pension funds and other organisations.
The Norwegian P&C insurance market is currently dominated by relatively few companies. Storebrand’s return to this market paves the way for increased price competition and greater mobility among customers.
IFRS the proposed dividend does not reduce equity at year-end. In the consolidated accounts, the dividend payment for 2006 will be charged to equity once it has been approved at the 2007 Annual General Meeting.
Risk management Storebrand is exposed to various categories of risk through its business areas: insurance risk in respect of its insurance activities, investment risk in respect of its financial assets and credit risk in respect of its banking activities, as well as liquidity risk and operational risk. Continuous monitoring and active management of risk is therefore a central and integrated feature of the group’s activities and organisation.
Life insurance activities: The majority of savings-related life insurance products incorporate a guaranteed minimum annual return, currently just under 3.6% on average. The average guaranteed return will fall over time since the return guaranteed on new policies cannot exceed 2.75%. The life company’s financial risk principally relates to its ability to generate an investment return at least equal to the guaranteed minimum. This places particular demands on how the life insurance company allocates its investments between securities and other assets, and on the quality of the company’s risk management.
Total risk capital of the life insurance company increased by NOK 3.2 billion in 2006. Additional statutory reserves increased by NOK 1 billion and the market value adjustment reserve increased by NOK 2 billion.
Risk capital as % of policyholders’ funds excluding additional statury reserves
Storebrand Bank: A separate unit has been established for risk management throughout the group, with particular focus on credit risk, market risk and liquidity risk from the owner’s perspective. In addition, the risk management unit is working on implementing the new capital adequacy rules (Basle 2) that came into force on 1 January 2007. Storebrand expects to be able to use the underlying internal-rating based method (IRB)
from the second quarter of 2009. The transition to the new regulatory framework involves major investments in systems and models as well as changes to the bank’s organisation and its main business processes.
The bank has standard procedures for reviewing its lending, and all new lending is approved in accordance with the bank’s credit policy.
The bank monitors its credit risk through a risk classification system.
business is that it will initially have a small portfolio to absorb claims. This can mean that single large claims may have a disproportionate impact on profit. The largest claims will typically arise from liability cover in motor insurance. In order to offset this risk, Storebrand has arranged reinsurance cover.
Storebrand ASA bought back 7.3 million of its own shares in 2006 at a total cost of NOK 503 million. Storebrand ASA held 4.5 million of its own shares at the close of 2006. The company reduced its share capital in August 2006 by NOK 43.5 million to NOK 1,249.1 million by cancelling 8.7 million own shares held by the company at that time. The group’s equity fell by NOK
209 million in 2006 to stand at NOK 8,900 million at year-end. The group’s capital ratio was 10.6% at 31 December 2006, with a core capital ratio of 7.6%. The minimum capital requirement imposed by the authorities is 8%.
Storebrand ASA had total liquid assets of NOK 2.2 billion at the close of 2006, and also has available an undrawn long-term credit facility of EUR 225 million.
BBB+ and Baa2 respectively by Standard & Poor’s and Moody’s. Standard
Corporate responsibility Storebrand’s commitment to corporate responsibility is an integrated part of the group’s activities. The company sets specific targets for the areas of building financial wealth, social responsibility and environmental issues, and communicates these to its most important stakeholders.
Skills and training: The group carries out a systematic program of staff development, and further strengthened its focus on competence development in 2006. In order to ensure that the group has the expertise it needs available at all times, Storebrand has developed an expertise database tool that will come into use during 2007. All the group’s development and training opportunities are made readily available to employees through
a competence portal. A number of new measures have been introduced to develop expertise in technical areas and management skills. This has included the development of a compulsory module-based management program. Storebrand has a comprehensive system for employee appraisal and remuneration. Training requirements are agreed and documented through the performance appraisal process, and managers are committed to actively monitoring the development of their employees.
of the group’s managers are female. Storebrand implemented targeted measures in the period to encourage more women to take on management responsibility. This included the company’s active participation in an external mentoring program for female staff, and ensuring a virtually equal participation of men and female staff on internal management development programs. The group participated in 2006 in Futura, the Norwegian
Storebrand insists that external recruitment consultants put forward both male and female candidates on short lists for management recruiting. Employee benefits, such as flexi-working, extending full salary for sick leave to include attending to children or parents, and full salary for maternity leave, are seen as important measures in encouraging gender equality.
Storebrand produces salary statistics at specified management levels to facilitate the comparison of salaries between male and female employees.
Ethical guidelines: Storebrand reviewed and updated its ethical guidelines in 2006, and distributed new ethical rulebooks to all employees. In addition, ethical issues were a standard agenda item at a number of employee gatherings. Employees can seek advice anonymously from an ethics page on the Storebrand Intranet, and the company publishes its replies for all employees to see. This can also be used for employees to anonymously communicate concerns directly to the Board of Directors. Storebrand has assisted the Norwegian Financial Services Association in producing ethical guidelines for financial advisers. These guidelines have been distributed to and reviewed by all Storebrand’s advisers.
Storebrand did not incur any reported personal injury, property damage or accidents of significance in 2006.
Board of Representatives: Sven Ullring, Rune Selmar and Anders Berggren retired from the Board of Representatives. Arvid Grundekjøn was appointed as Chairman of the Board of Representatives. Terje Venold and Margareth Øvrum, both deputy members, became full members.
Control Committee. Elisabeth Wille was elected as a new member and chairman of the committee, and Ida Hjort Kraby was elected as a new member.
The strong inflow of customers confirms the group’s competitiveness, and provides the basis for a good level of sales in the future. At the start of 2007, Storebrand launched a major initiative to cross sell the group’s products and to encourage the group’s existing customers to use Storebrand for a greater range of products. This initiative addresses both the retail market and individual employees in companies that have pension arrangements with Storebrand. The launch of P&C
Development in society is considered positive in the areas targeted by Storebrand. Changes in the Norwegian pension system have increased people’s interest in pensions and other welfare benefits.
Storebrand maintains the financial objectives it has previously announced, and will continue to pursue its commitment to being the leading and most respected institution in the Norwegian market for long-term savings and insurance.
At the start of 2007, Storebrand looks forward to particularly exciting market conditions, both in terms of growth in business volumes and the pace of change. Through its long traditions and the expertise and motivation of its employees, Storebrand is well positioned to reach its financial and market objectives.
The Board is of the view that the group’s capital situation is sound relative to Storebrand’s risk profile and rating, and the Board therefore recommends a total dividend of NOK 1.80 per share (excluding shares bought back), equivalent to NOK 442 million. The Board proposes the following application of the profit for the year: Amounts in NOK million: To other equity: 579
Nina Elisabeth Smeby Birgitte Nielsen Erik Haug Hansen Knut Dyre Haug Idar Kreutzer Chief Executive Officer
Share capital and shares Shares in Storebrand ASA are quoted on the Oslo Stock Exchange
(OSE) with the ticker code STB. Share capital at the start of 2006 was NOK 1,293 million. Following a resolution passed by the annual general meeting of the company held on 3 May 2006, the share capital was reduced on 11 August 2006 by cancelling 8,707,140 own shares held by the company. Following this reduction, share capital at 31 December 2006 amounted to NOK 1,249 million, made up of 249,819,105 shares each with a par value of NOK 5.
The company has not issued any options that could dilute share capital.
Share purchase arrangements for employees Every year since 1996, Storebrand ASA has given its employees the opportunity to purchase shares in the company through a share purchase scheme.
Foreign ownership As at 31 December 2006 total foreign ownership amounted to 70.6%, as compared to 66.1% at the end of 2005.
in 2006 in terms of value, with a turnover rate of 222%.
Folketrygdfondet ORD 20 111 600 8.05 NOR Storebrand ASA ORD 4 500 000 1.80 NOR
State Street Bank & Trust Co NOM 12 155 074 4.87 USA Bank of New York, Brussels ORD 4 250 000 1.70 USA
Dresdner Bank AG ORD 11 450 000 4.58 DEU Credit Agricole Investment NOM 4 179 705 1.67 FRA
JPMorgan Chase Bank NOM 10 304 771 4.12 GBR Bank of New York, Brussels NOM 2 551 096 1.02 USA
Fidelity Funds-Europe ORD 10 232 640 4.10 LUX Citibank, N.A. NOM 2 549 037 1.02 GBR
Bank of New York, Brussel ORD 6 864 127 2.75 GBR Standard Life Invest ORD 2 400 600 0.96 GBR
USB AG, London Branch NOM 5 256 796 2.10 GBR State Street Bank & Trust Co. NOM 2 380 169 0.95 USA
Kaupthing Bank NOM 4 915 355 1.97 LUX The Northern Trust Co. NOM 2 179 469 0.87 GBR
Based on the company’s dividend policy and earnings reported for 2006, the Board of Storebrand ASA recommends that the Annual General Meeting approve a dividend of NOK 442 million for 2006, equivalent to NOK
RISK adjustment (Only relevant for Norwegian shareholders.) RISK amounts for shares in Storebrand ASA: As at RISK amount NOK As at RISK amount NOK
Compliance As one of the country’s leading financial institutions, Storebrand is dependent on maintaining an orderly relationship with the financial markets and supervisory authorities. The company therefore places particular emphasis on ensuring that its routines and guidelines satisfy the formal requirements imposed by the authorities on securities trading. In this connection, the company has produced internal guidelines for trading in the company’s shares by insiders based on current legislation and regulations. The company has its own compliance system to ensure that the guidelines are followed.
Investor Relations Storebrand places great importance on comprehensive and efficient communication with financial markets. Maintaining a continuous dialogue with shareholders, investors and analysts both in Norway and internationally is a high priority. The group has a separate investor relations unit responsible for establishing and co-ordinating contact with analysts, the stock exchange, shareholders, investors and others.
All interim reports, press releases and presentations of interim reports are published on the Storebrand website at: www.storebrand.no.
office can also provide guidance and information (Tel: +47 22 31 26 20).
No. of ordinary shares at 31.12 (1,000) 249 819 258 526 278 181 278 070 277 715 1 In 2004 and 2005 the ordinary dividend per share was NOK 1.20 and NOK 1.50 respectively.
In December 2004, a broadly based working group published a Norwegian Code of Practice for Corporate Governance. Storebrand has been actively involved in developing the Norwegian Code of Practice. The Code of Practice takes into account international developments and other national codes, but is built on national considerations such as Norwegian legislation and practice. The Code of Practice is updated annually, most recently on 28 November 2006. The rules of Oslo Børs make it compulsory for listed companies to issue an annual statement of practice in accordance with the Norwegian Code of Practice for Corporate Governance.
An account of the major features of Storebrand's corporate governance is provided below. The account deals with a number of issues that are not included in the Code of Practice, but which we consider to be central to the discussion of corporate governance. The headings used below refer to the equivalent sections of the Code of Practice, with comments on any deviation from the Code. We have chosen to deal with certain other issues related to corporate governance elsewhere. This applies to the account of the use of financial risk management (page 51-53), shareholder matters (Sections 3,4 and 5 of the CoP), and corporate responsibility (pages 16-19).
IMPLEMENTING AND REPORTING THE GROUP'S OBJECTIVES, STRATEGIES AND VALUES (CoP sections 1 and 2) The Articles of Association of Storebrand ASA stipulate that it is the holding company of a financial institution and its objective is to manage its equity interests in the group in compliance with the relevant legislation.
Board of Directors (CoP section 8) The Board of Directors of Storebrand ASA (the “Board”) has nine members, each elected for a two-year term of office so that half the members retire each year. Six members are elected by the Board of Representatives after considering recommendations made by the Election Committee. Three members are elected by and from among the employees. The Chief Executive Officer of Storebrand ASA (the “Group CEO”) is not a member of the Board. None of the members elected by the Board of Representatives have any employment, professional or consultancy relationship with the group other than their appointment to the Board. CVs for the members of the Board are provided on pages 22–23 and on the group's website. The Board of Storebrand ASA satisfies the requirements for the independence of the Board of Directors stipulated in the Norwegian Code of Practice. Deviation from Section 8 of the Code of Practice: None
The Remuneration Committee monitors the remuneration of the group’s senior managers, and assists the Board in setting terms and conditions for the Group CEO. The Remuneration Committee held four meetings in 2006.
The Audit Committee assists the Board by reviewing, evaluating and where necessary proposing appropriate measures in respect of the group’s overall controls, financial and operational reporting, risk management and internal and external auditing. The Audit Committee held seven meetings in 2006, where the external and internal auditors participated. Deviation from Section 9 of the Code of Practice: There is no require­ ment in legislation or the company's Articles of Association for the appointment of a Deputy Chairman to the Board of Storebrand ASA. The Board may elect a Deputy Chairman if it so requires. The question of electing a Deputy Chairman was considered in 2006, but was not considered necessary. The Board considers that such an appointment could cause undesirable differentiation between members of the Board. When necessary, for example due to the absence of the elect­ ed Chairman or because the Chairman is not able to participate in a particular matter, the Board considers it sensible and appropriate to elect one of its members as chairman of the meeting in question as required.
The full text of the Norwegian Code of Practice for Corporate Governance is available on the Oslo Børs website at:
The Control Committee of Storebrand ASA is a legal requirement, and has five members elected by the AGM. The committee is independent of the company's Board and management. Further information on the members of the Control Committee can be found on the group's website. Members are elected for a two-year term of office. The Control Committee is responsible for ensuring that the entire group conducts its activities in a prudent and proper manner. This includes paying particular attention to close collaboration with the control committees of the group companies. The committee ensures that the group adheres to all relevant legislation and regulations, and that it operates in accordance with the Articles of Association and resolutions passed by the group’s corporate bodies. The committee is entitled to look into any matter, and has access to all relevant documentation and information. The committee has the power to demand information from any employee and any member of the company's corporate bodies. The Control Committee met 10 times in 2006 and submitted reports to the Board of Representatives for 2005 and the first six months of 2006 on 28 February 2006 and 29 August 2006 respectively. The control committees for Storebrand Life Insurance and Storebrand Skadeforsikring are identical to the Storebrand ASA Control Committee. Storebrand Bank has its own control committee.
This means that the Chairman of the Board and Group CEO are respectively the Chairman and Managing Director of Storebrand Life Insurance. The Group CEO is chairman of the boards of Storebrand Investments and Storebrand Bank. The other members of the boards of Storebrand Life Insurance, Storebrand Bank and Storebrand Investments are drawn from the group’s senior employees, together with employee representatives, as well as external members with expertise relevant to the business of the company in question. Storebrand re-launched its P&C insurance business in 2006, and the Group Chief Financial Officer is chairman of the board of the P&C insurance company.
Relationship between Storebrand’s corporate bodies and control functions (CoP sections 10 and 15) The internal audit function in Storebrand is founded on a corporate governance model, whereby management is based on group wide policies and internal regulations in areas such as ethics, information management and information security, as well as a value based system for financial and operational risk. The group has a common internal audit function which carries out an independent review of the robustness of the management model. The internal auditor is appointed by and reports to the boards of the respective group companies.
In addition to its own controlling bodies and external audit, the group is subject to statutory supervision by Kredittilsynet (the Financial Supervisory Authority of Norway). Kredittilsynet is responsible for supervising financial institutions to ensure that they operate in a prudent and proper manner in accordance with legislation, business objectives and the Articles of Association. Kredittilsynet supervises all of Storebrand’s activities.
The external auditor is elected by the AGM, and is responsible for the financial audit of the group. The external auditor issues the audit opinion on the annual accounts, undertakes a limited scope review of the interim accounts, attends the Board meetings that approve the quarterly interim accounts, and attends meetings of the Audit Committee as appropriate.
Storebrand’s value-based management system (CoP section 10) The management system is central to the internal audit function and is intended to ensure a relationship between targets and actions at all levels of the group and the overall objective of value creation. The system is based on a balanced scorecard where the four dimensions of finance, customers, processes and skills/growth reflect both shortterm and long-term value creation in the group.
Management through group-wide policies and guidelines Group-wide policies have been approved for the following functions: accounting, finance and risk management, investor relations, corporate communications, branding, IT, human resources and legal services. Internal guidelines have been established for share trading by employees and insiders. The Storebrand group’s Intranet also provides both rules and practical guidance on security of information, contingency planning, money laundering and financial crime.
Guidelines for the remuneration of members of the executive management have previously been submitted to the AGM for information each year, and will from 2007 be submitted to the AGM for advisory voting. The salary and other remuneration of the Chief Executive Officer are decided by the Board. More detailed information on remuneration, loans and shareholdings of the members of executive management can be found in Notes 11 and 14 of the notes to the accounts. Members of the executive management are encouraged to hold shares in the company. Deviation from Sections 11 and 12 of the Code of Practice. None
Information and communications (Section 13 of the Code of Practice) The Board has issued guidelines for the company's reporting of financial and other information and for contact with shareholders other than through the AGM. The group's financial calendar is published both on the Internet and in the company's annual report. All reporting is based on the principle of openness, and takes into account the need for equal treatment of all participants in the securities markets. Further information can be found on pages 30-31. Deviation from Section 13 of the Code of Practice. None
Further information on Storebrand's Corporate Governance can be found at www.storebrand.no/ir, including information on members of Storebrand's corporate bodies, the company's Articles of Association and further information on its ownership principles as an investor.
The Norwegian Code of Practice for Corporate Governance addresses the following major topics: 1) Implementation and reporting on corporate governance 6) General meetings 11) Remuneration of the board of directors 2) Business 7) Nomination committee 12) Remuneration of the executive management 3) Equity and dividends 8) Corporate assembly and board of directors: composition and independence 13) Information and communications 4) Equal treatment of shareholders and transactions with close associates 9) The work of the board of directors 14) Take-overs 5) Freely negotiable shares 10) Risk management and internal control 15) Auditor
Roar Thoresen (49), Executive Vice President, Chief Operating Officer. Programme for Executive Development (PED), IMD Lausanne. MSc in Naval Technology, Norwegian Institute of Technology, Trondheim. 2002-2006 Executive Vice President Strategic Business Development, Storebrand ASA. 1989-2002 Consultant, Managing Partner and CEO, PA Consulting Group AS. 1986-1989 Vice President, Mandator AS.
Maalfrid Brath (41), Executive Vice President, Retail Market. State Authorised Accountant, Norwegian School of Economics and Business Administration (NHH). Master of General Business, Norwegian School of Management (BI). 2002–2004 Head of Storebrand Group Private Sector Distribution. 1999–2002 Deputy Managing Director, Storebrand Livsforsikring AS. 1997–2002 Managing Director Storebrand Fondsforsikring AS. 1995–1996 Vice President, Internal Audit, Storebrand ASA. 1989–1995 Arthur Andersen & Co.
Hans Aasnæs (43), Managing Directors Storebrand investments. Agronomist, Agricultural University of Norway. Advanced studies business analysis, Norwegian School of Economics and Business Administration (NHH). Authorised Financial Analyst (AFA). Program for Executive Development, IMD. 2001-2005 Investment Director, Storebrand Kapitalforvaltning AS. 1994-2001 Portfolio Manager, Norwegian and International equities, Storebrand Kapitalforvaltning AS. 1990-1994 Derivatives Specialist, Orkla Finans.
Lars Aa. Løddesøl (42), Executive Vice President, Corporate Life Insurance. Master of General Business, Norwegian School of Management (BI). MBA, Thunderbird (AGSIM), USA. 2001–2004 Executive Vice President, Finance Director Storebrand ASA. 1994–2001 Vice President, Citibank International plc. 1990–1994 Assistant Treasurer, Scandinavian Airlines Systems.
Odd Arild Grefstad (41), Executive Vice President, Chief Finance Officer. State Authorised Accountant, Norwegian School of Economics and Business Administration (NHH). Authorised Financial Analyst (AFA). 1998–2002 Head of Business Control, Storebrand ASA. 1997–1998 Group Controller, Life Insurance, Storebrand ASA. 1994–1997 Vice President, Internal Audit, Storebrand ASA. 1989–1994 Arthur Andersen & Co.
This report provides an account of the Storebrand group’s financial performance in 2006 set against the background of historical performance and the trends apparent at the start of 2007. Further information on Storebrand’s strategy for the markets in which it operates can be found in the articles earlier in this Annual Report on the group’s activities in the retail and corporate markets.
(All amounts in NOK million unless stated otherwise) 2006 2005 2004 2003 2002
Total policyholders' funds (unit linked and defined contribution pension) 7 364 5 719 4 476 3 975 3 259
Value-adjusted investment return (excl. unrealised gains on hold to maturity bonds) 8.28% 7.55% 7.19% 8.84% 1.92%
Risk capital in excess of the minimum requirement (excl. unrealised gains on hold to maturity bonds) 16 773 13 583 11 053 8 941 4 836
Loan loss provisions as % of non-performing and loss-exposed loans 81% 64% 62% 49% 35%
Of which funds under management for external clients 54 800 49 700 25 400 38 500 32 300
The positive economic picture is favourable for Storebrand in relation to the products and services the company offers.
Storebrand’s vision is to be the leading and most respected institution in the Norwegian market for long-term savings and insurance. The three key themes for Storebrand’s strategic development over the next few years will be growth, productivity and capital efficiency.
Kundebarometer survey showed that - for the third year in a row - Storebrand was the insurance company with the highest level of customer satisfaction in the corporate pensions market.
In the area of asset management for institutional customers, Storebrand has developed a sound position in the Norwegian market over many years. In 2006, Storebrand Investments attracted 64 new institutional customers, and assets under management for institutional customers totalled NOK 30 billion at the close of 2006.
The bank reported a C/I ratio of 71% for 2006, up from 62% in 2005.
The target for the asset management activities is to achieve a C/I ratio of under 75%. This area reported a C/I ratio of 64% in 2006, down from 91% in 2005. The improvement reflects very strong performancebased fee income in 2006 as a result of good investment management performance, particularly in respect of the outperformance achieved for the life company's securities portfolio.
The target announced for Storebrand ASA (the holding company) was a reduction by 2007 of NOK 50 million in annual operating costs from the level at the start of 2004. Operating costs for 2006 were NOK 82 million, which is NOK 31 million lower than at the start of 2004.
Storebrand Life Insurance announced a target in 2004 for costs expressed as a percentage of policyholders’ funds to be 0.7% by the close of 2007. The transition to a new regulatory environment for life insurance in 2008, the introduction of mandatory occupational pensions in 2006 and the expectation that many customers will consider switching from defined benefit pensions to defined contribution pensions have made this target much less relevant. A new target was announced at the capital markets day in 2006, whereby the company is expected to generate a positive administration result for the owner when the new insurance legislation comes into force in 2008. This will accordingly apply to the product area of group pension insurance
Achieving the target for return on capital in any particular year is dependent on normal conditions in the financial markets.
The sale of Fair Forsikring, which was announced at the end of 2005, was completed as planned in the first half of 2006.
Figures for 2004–2006 are based on IFRS. Figures for 2002 and 2003 are based on NGAAP. 1 Includes NOK 1,571 million of profit contribution from the sale of shares in
Strong group profit. The Storebrand group reported a group profit of NOK 1,585 million for 2006 compared to NOK 1,453 million in 2005.
Storebrand ASA (the holding company) held liquid assets of NOK 2.2 billion at the close of 2006. Taking into account expected receipts of net dividends and group contributions from subsidiaries and the proposed dividend payment to shareholders, the holding company had liquid assets of NOK 2.6 billion. Storebrand ASA also has an undrawn long-term committed credit facility of EUR 225 million. The table on the next page shows development in key capital figures for the group.
Storebrand ASA’s dividend policy seeks to contribute towards giving shareholders a competitive return and optimising the company’s capital structure. The Board of Directors of Storebrand ASA has recommended that the 2007 AGM should approve a dividend payment for 2006 of NOK
1.80 per share, representing a total distribution of NOK 442 million.
Taxation The Storebrand group’s effective tax rate for 2006 was 5%. Storebrand’s tax charge is affected by a number of factors that cause the tax rate to differ from the normal rate of 28% for Norwegian companies. This is particularly the case for Storebrand Life Insurance. Investments in shares in the EEA area held by Storebrand Life Insurance have caused sizable permanent differences in the accounts. On the taxation exemption principle, gains and losses and dividends on such shares are not taxable, and similarly losses on such shares are not tax deductible.
The basis figure used for recognising deferred tax asset in the balance sheet has been written down by NOK 10.3 billion. The book value of deferred tax asset in the balance sheet is NOK 0.2 billion, and deferred tax is NOK 0.1 billion. The net book value of deferred tax asset is therefore NOK 0.1 billion. The basis figure has been written down as a result of uncertainty over whether future taxable income will reach a level that will allow all the tax losses carried forward to be used.
The introduction of mandatory occupational pension schemes dominated the pensions market in 2006. All companies had to have occupational pension arrangements in place for their employees by 31 December 2006.
Storebrand has developed a new standard product, Storebrand Folkepensjon, which is specifically designed for companies required to establish a occupational pension scheme for their employees in 2006.
Work on improving the efficiency of customer service systems continued in 2006. The retail market unit carried out a project to improve the efficiency of opening new policies and settlement for life insurance products, as well as projects for the external distribution channel and for deposits and sales support at Storebrand Bank. The objective of this program is to address efficiency in all units before the start of 2009.
NOK 18 billion of investments in IPA pensions and NOK 6.5 billion of annuity policies.
16,805 million in 2005. The largest percentage growth was seen for products with investment choice, where group pension insurance was up by 139% and individual endowment/pension insurance was up by 59%.
Defined benefit group pension insurance and group life insurance showed increases in premium income of 16% and 6% respectively.
Individual endowment insurance showed a decline of 65% due to the restrictions imposed by the company on sales of life insurance related savings products to the retail market. If these savings products are excluded, premium income showed an increase of 21%. Individual annuity /personal pension products showed a decline of 27% from 2005.
Good net pension transfer inflows. Storebrand Life Insurance saw net inflows of pension reserves of NOK 5,260 million in 2006, compared to NOK 564 million in 2005. The main reason for the good net pension inflow was strong sales to both the public and private sectors.
Risk result. The risk result for 2006 was NOK 220 million compared to NOK 365 million in 2005. The decrease of NOK 145 million reflects decreases of NOK 99 million for group pension insurance due to a weaker disability result, NOK 47 million for group life insurance due to reduced premium tariffs and NOK 32 million for non-life insurance lines, mainly due to increased industrial injuries claims. The regulations dictate that an increase in group life insurance business requires an increase in security reserves, leading to a lower risk result. The risk result for individual endowment policies and individual pensions business improved by NOK 9 million and NOK 24 million respectively.
NOK 298 million was caused mainly by increased investment management fees as a result of the good investment return achieved, the launch of the Swedish branch office, and work on mandatory occupational pension products. Policyholders' funds, excluding insurance products with investment choice, increased by 9% in 2006. Costs relative to average policyholders’ funds were unchanged from 2005 at 1.10%. Storebrand Life Insurance aims to improve the efficiency of its working processes to provide a foundation for managing future growth without an equivalent increase in costs.
Additional statutory reserves strengthened. Additional statutory reserves are conditionally allocated policyholders’ funds that act as risk capital to absorb price fluctuations in the investment portfolio.
Tilleggsavsetninger adjustment reserve 1 Including NOK 0.6 billion of additional statutory reserves in excess of one year's interest guarantee.
Changes to the investment portfolio. It is Storebrand Life Insurance’s investment strategy to make efficient use of risk capital in order to increase the expected investment return for the company and its policyholders. The company accordingly increased its equity exposure, including derivatives, from 23% to 28% over the course of 2006. The proportion of
The proportion of the portfolio invested in international bonds held as current assets was somewhat lower than the target allocation throughout 2006, reflecting the low level of international interest rates. The increases in interest rates seen both in Norway and internationally in 2006 caused a fall in the value of bonds in the short term. Over the long term, rising interest rates will lead to an increased return from the investment portfolio and increase the company's risk bearing capacity. The money market portfolio responds relatively quickly to increases in short-term interest rates. In total, the company’s money market and bond investments are robust to changes in interest rates.
A smaller proportion of the company’s unrealised gains on bonds arises from the portfolio of government and government guaranteed bonds held to maturity. The hold to maturity portfolio represented 28% of total investment assets at the close of 2006, with an average duration of around 5 years and an average effective yield in excess of 5.2% on book value.
The allocation of assets to real estate increased over the course of 2006 from around 10% to 13%. The value of the real estate portfolio was written up by NOK 928 million in 2006, partly due to an increase in the value of the portfolio and partly against the background of inflation adjustment.
NOK 169 million for 2006. The growth in premiums earned for own account was equally divided between Norway and Sweden.
Storebrand has issued a separate document on the company’s results for European Embedded Value. This document can be downloaded from: www.storebrand.no/ir.
7. Equity and property risk premiums +1% 15 800 8.6% 752 7.4%
Storebrand is developing new products and systems solutions in order to be as well prepared as possible for the transition. The overall objective of the new legislation is to make the pricing of pension products more predictable and transparent, and to make a clearer distinction between the assets of the insurance company and its policyholders. As an overall rule, the new legislation requires that premiums must be fixed and paid in advance.
The new legislation will introduce a new profit sharing model for paid up policies, with a reduction from 35% to 20% for the maximum proportion of the profit that can be allocated to the company. However, the company will receive the return on all capital in the balance sheet that does not belong to policyholders. In addition, any surplus or deficit on the administration result will be for the owner's account.
The owner must also meet any deficit in the risk result.
In the case of defined benefit group pension schemes, as well as new individual products with guaranteed return, the new Act will bring to an end the traditional allocation of profit between the customer and the life insurance company. The various elements of pension products must in future be priced separately, and the pricing must include the insurance company's remuneration. The following rules will apply to products that are no longer subject to profit sharing: • Premium for the interest rate guarantee: The customer (company or private individual) must pay for the interest guarantee in advance. The investment return in excess of the guaranteed level will accrue to the customer, less any allocations to additional statutory reserves. Additional statutory reserves cannot be used to cover any negative return, but can be used to offset a shortfall in return between 0% and the guaranteed return. The new Act stipulates the maximum size of additional statutory reserves. The insurance company carries all the downside risk, and must carry reserves against the policy if the buffer is not sufficient or not available. The price charged for the interest guarantee will depend on factors such as the level of buffer capital associated with the policy, the level of exposure to equities in the portfolio, the level of the interest guarantee and the current market situation, including the level of interest rates. Currently there is no specific premium for the interest rate guarantee and it is paid for through the allocation of profit between the life insurance company and its policyholders.
• Risk premium: The customer (company or private individual) will receive any surplus from the risk result achieved on insurance cover for death, disability and dependants in the pension policy, but the insurance company will, in principle, be responsible for meeting any deficit on risk result. There is, however, provision for up to half of any risk surplus on a particular line of insurance to be held in a risk equalisation fund. Deficits in subsequent years can then be met out of the equalisation fund before the insurance company is required to contribute from its own equity.
The new legislation will allow companies with defined benefit pension schemes to exercise greater influence over the portfolio's asset allocation and risk profile. The new legislation will also make it possibl for group pension policies to be divided into sub-portfolios with different asset allocation and risk profile.
Asset management activities Markets and strategy Strong performance. Storebrand Investments offers a complete asset management concept that includes discretionary portfolio management of Norwegian and international securities, global special products with absolute return targets, as well as effective management of market risk.
Norwegian institutional customers have historically been the company's main market, but it has recently placed increasing importance on the
Storebrand Investments’ objective is to be the preferred manager for long-term savings and pension assets. It will achieve this by continuing to develop its current asset management concept, extending into specialised investment areas and developing particular expertise in major asset management functions. The company had NOK 217 billion of assets under management at the close of 2006. This is made up of discretionary portfolios and mutual funds marketed under the brand names Storebrand and Delphi.
Meeting new customer requirements. Storebrand Investments expects to see increasing demand from its customers for new types of products. This makes innovation all the more important. Storebrand
financial objectives, investment time horizon and risk profile. 2006 saw increased demand for investment products, particularly from private investment companies, and a larger proportion of customers showed interest in specialised products such as absolute return alpha-products.
Automation. Storebrand Investments works continually to simplify its procedures and standardise and automate its work processes from investment decision through to settlement, control and reporting.
This focus has improved the cost effectiveness and scalability of its activities, ensuring a robust and flexible asset management platform that can produce stand-alone asset management products as well as managing the complex and flexible investment profiles offered through defined contribution pension schemes. One year ago, Storebrand took over management of Gjensidige Forsikring’s investment portfolio. Taking on the responsibility for managing over NOK 30 billion assets did not require any significant investments in systems or staffing. This created an increase in economies of scale, and served to confirm the scalability of the Storebrand Investments operation.
Financial results for 2006 Storebrand’s asset management activities produced an overall pretax profit of NOK 156 million in 2006 compared to NOK 24 million in 2005. The good result for the year is principally due to the very good investment returns achieved, which caused an increase in performance-based fees, as well as higher business volumes and an increase in volume-based fees. The good return also caused an increase in performance-based salaries and so increased total costs.
Stabilising other costs caused an improvement in the ratio of fixed costs to fixed and volume-based revenue from 86% in 2005 to 79%
Storebrand Investments' market share of Norwegian registered mutual securities funds at the close of 2006 was 10.7%, in line with the two previous years. Assets managed by Storebrand in Norwegian registered mutual funds increased by NOK 6.7 billion (22%) in 2006.
Storebrand Investments produced a better return than the comparable benchmark indices in 2006 on 10 of the 13 discretionary portfolios it manages for Storebrand Livsforsikring AS. Performance was strong across the board, but particularly in fixed income markets and in the
Norwegian equity portfolio, which produced a return NOK 220 million ahead of benchmark. The total return on the life company's portfolios was NOK 636 million.
The investment management activities have worked systematically over recent years to develop funds that are not exposed to systematic (market) risk. These hedge funds produced exceptionally strong returns in 2006, and made an important contribution to the total outperformance of NOK 290 million.
Banking Markets and strategy A modern bank. Storebrand Bank’s objective is to be the smart choice for the modern customer. The bank aims to be seen as a bank that is easy to relate to, with popular products at competitive prices. The Storebrand
Financial results for 2006 The Storebrand Bank Group reported a profit before loan losses of
Operating expenses. Operating expenses totalled NOK 355 million, compared to NOK 334 million in 2005, equivalent to 71% of operating income compared to 62% and 84% for 2005 and 2004 respectively.
Non-performing and loss-exposed loans, loan losses and assets repossessed The volume of non-performing and loss-exposed loans with identified impairment amounted to NOK 424 million at the end of 2006. This represents a reduction of NOK 218 million from 31 December 2005. Nonperforming and loss-exposed loans where no impairment is identified totalled NOK 109 million at the close of 2006 compared to NOK 113 million a year earlier. Net non-performing and loss-exposed loans (after individual write-downs) totalled NOK 173 million at the close of 2006 compared to NOK 364 million at the close of 2005. Gross non-performing and loss-exposed loans represented 1.7% of gross lending at the close of the year compared to 2.8% at the close of 2005. The reduction reflects the reduced level of risk in the lending portfolio.
NOK 73 million at 31 December 2006, equivalent to 0.24% of gross lending compared to 0.33% of gross lending at the close of 2005. This represents a provisioning level of 81% at the close of 2006.
Capital adequacy Storebrand Bank’s total assets increased in pace with the growth in its lending portfolio in 2006. The bank's deposit-to-loan ratio was 43% at the close of 2006 compared to 42% in 2005. The bank has a balanced and appropriate funding structure, and bases its funding on ordinary customer deposits, issuing securities and borrowing from the Norwegian and international capital markets. At the close of 2006, the bank had available unused committed credit facilities equivalent to NOK 1.6 billion.
Storebrand Bank group’s net primary capital amounted to NOK 2.4 billion at the close of 2006. This represents a capital ratio of 11.0% and a core capital ratio of 8.8%. Primary capital includes a group contribution of NOK 200 million received from Storebrand ASA.
(IRB) for the new capital adequacy regime that came into force on 1
The preparations for Basle II support the bank’s strategy and competitive position. Increased automation, improved decision support and use of customer data in market modelling pave the way for rapid but controlled growth. Individual risk pricing enables concentration on profitable customers. The systems developments driven by the Basle
Pre-tax profit 41 -41 1 Including dividends/group contributions from subsidiaries. 2 Including elimination of dividends/group contributions from subsidiaries.
Profit from products not subject to profit-sharing (NOK million) 135 122 Very good
Growth in net interest income, last year (SBB) (NOK million) -28 7 Room for improvement
Market share (new business)2 - Occupational pensions (benefit/contribution) excluding transfers 32% 43% Very good - Corporate group life3 23% 40% Satisfactory - Long-term pension savings and mutual funds4 8% 6% Room for improvement - Individual endowment policies 23% 53% Satisfactory - Personal risk products 10% 12% Room for improvement
Transfers of pension business (NOK million) 5 260 712 Very good
Number of products per retail customer6 1.50 1.35 Room for improvement
Number of new banking customers (gross)7 9 631 5 427 Very good
SBL=Storebrand Life SBB=Storebrand Bank SBK=Storebrand Investments SBFF=Storebrand Fondsforsikring 1 Investment return III. Storebrand's ranking in terms of Investment return III vs. SpareBank 1, Nordea, Vital and KLP as at Q3 2006. 2 Norwegian Financial Services Association and Norwegian Mutual Fund Association statistics at Q3 2006. 3 New value driver, identifying corporate sales separately.
4 Equity/combination funds, Unit Linked and Annuity/IPA weighted by total market sales volumes. 5 Scale from 0-100 showing whether corporate customers are satisfied with product delivery, whether we meet their expectations and their experience of Storebrand relative to our competitors. 6 Value driver is increased when a product is added. Comparable figure for 2005 was 1.48. 7 Both retail and corporate customers. Measures number of new customers. 8 New value driver, weekly survey of unprompted recognition as supplier of savings and/or life insurance products carried out by TNS Gallup.
Storebrand ASA’s operating costs were 27% lower in 2006 than in 2005. The company continues to target a reduction in annual operating costs of NOK 50 million from the 2003 level to around NOK 60 million in 2007.
Net financial items were positive in 2006, principally due to unrealised gains on the company’s shares in Steen & Strøm.
insurance completes the group's product range and strengthens its commitment to the retail market. The re-launch was accomplished in line with the original plan and schedule, and the P&C company reports a good inflow of customers.
Oslo Reinsurance Company, 100% owned by Storebrand Skadeforsikring AS, is principally involved in the run-off of its own reinsurance business and managing other companies’ run-off business. Alongside its re-launched activities and Oslo Re, the other activities of Storebrand Skadeforsikring AS are the run-off of its gross insurance commitments (fronting responsibility) which are reinsured with If
NOK 20 million in 2006 compared to NOK 48 million in 2005.
Financial risk management Storebrand assumes financial risk in the ordinary course of its core business activities. Good risk management and control of risk exposure is essential to the group’s profitability and to ensuring that the group has the financial strength to withstand adverse developments and limit the losses these may cause.
Expected return for the next few years is calculated to be between 5% and 6%. Continuous active risk management, together with hedging transactions, reduce the likelihood of a low investment return.
Financial markets can fluctuate widely in a short space of time, affecting the company’s risk exposure. Storebrand continually manages its risk exposure to keep it within limits approved by the Board of
(except products without profit sharing). The profit allocated to the owner is subject to an upper limit of 35% of the year’s profit for investment returns up to between 5% and 6%. Where investment returns are higher, the proportion of surplus allocated to the owner is limited by the profit sharing model already communicated to the market.
When the new Insurance Activities Act comes into force from 2008, parts of the portfolio will be included in a modified profit sharing model, but profit sharing will, in principle, cease to apply to other elements of the portfolio. The introduction of the new legislation will place heavy demands on monitoring, control and management of financial risk. The
Kredittilsynet (Financial Supervisory Authority of Norway) has circulated a proposal for a new stress test for consultation. The proposed stress test is part of the new risk-based supervision methodology that Kredittilsynet is currently developing for Norwegian financial institutions. The test is not intended to determine capital adequacy, but is meant to contribute to better risk management by insurance companies and forms part of the preparations for the new European solvency regulations that are expected to be implemented in 2010 at the earliest.
Norway involves challenges related to the limited size of the Norwegian government bond market, the weak correlation between the
For Norwegian life insurance companies, the annual interest guarantee included in long-term insurance policies creates a number of challenges in respect of interest rate risk. In the short term, the most apparent risk is that the company’s investments will fall in value if bond prices are reduced by an increase in interest rates. In the longer term, however, a low level of interest rates could cause weaker earnings for the company if interest rates and investment returns are close to the return guaranteed to policyholders. Over time this would weaken the company’s ability to build up risk capital and this would, in isolation, increase the possible impact of the short-term risk of a fall in market values. Rising interest rates in 2006 have improved the situation in this area, but Storebrand takes a serious view of the consequences that low interest rates in the future may represent over the longer term, and has implemented measures to limit this risk. The most important measure is that the group has invested in bonds to be held to maturity that generate a higher return than current interest rates.
The company pays great attention to closely evaluating investment opportunities that offer a higher return, but the prospects for higher return are balanced against the risk of losses and falls in the value of such investments. Real estate is an asset class that offers a relatively high future running yield, but where the risk of loss or depreciation is higher than for government bonds. Other alternative investment classes include infrastructure and natural resources (forestry, commodities etc.). Storebrand works continually to develop its investment portfolio to include such new alternative asset classes.
Risk management: Banking Storebrand Bank ASA places great importance on maintaining close relationships with its corporate customers and monitoring credit risk, and has credit review policies in place. A significant proportion of
Storebrand Bank has significantly upgraded its lending policies and credit approval procedures over recent years. Separate credit approval processes are now used for retail lending on the basis of credit scoring, combined with case-by-case evaluation of the borrower’s ability to repay. Approximately 70% of lending to retail customers is secured by mortgages with loan to value ratios not exceeding 60%.
Liquidity risk refers to the risk that the bank is not able to meet all its financial liabilities as they fall due for payment. Storebrand Bank maintains sufficient liquidity to support balance sheet growth and to repay funding and deposits as they mature. The bank manages its liquidity position on the basis of a rolling liquidity gap that shows the mismatch between expected inward and outward cash flows.
Storebrand Bank has established good liquidity buffers, and continuously monitors liquidity reserves against internal limits. Committed credit lines from other banks are also available to the bank if necessary. Storebrand Bank ASA also maintains relationships with a number of international banks, ensuring access to international capital market and providing greater diversity in the group’s funding.
Market risk is the risk that unexpected and adverse movements in interest or exchange rates reduce the value of the bank's assets.
Storebrand Bank manages its exposure to interest rate risk so that net interest rate exposure is low. All instruments with an interest rate fixing period in excess of six months are subject to a specific hedging policy for economic risk,. Moreover, interest rate hedging transactions must be structured so that they do not have a material accounting effect. For exchange rate risk, it is the policy of the bank to fully hedge all exposures arising in connection with foreign currency investments, lending and borrowing. Hedging is primarily done through rolling foreign exchange forward contracts.
As part of its preparations for Basle II, Storebrand Bank has made significant investments in systems, and the bank will use these systems in its risk management in the future.
The group Accounting and Finance function is responsible for financial risk management in all the group's component businesses. This ensures more efficient control and management of the group's overall financial risk exposure.
Net income and gains from financial assets at fair value: - shares and other equity investments 18 6 057.5 7 439.9 4 400.0 - bonds and other fixed-income securities 18 1 356.1 1 585.4 1 227.8 - income from financial assets with investment choice 18 685.4 721.3 252.6
To/from market value adjustment reserve 35 -2 027.3 -1 150.1 -1 077.6
Funds allocated to policyholders - life insurance 35 -2 964.1 -2 336.8 -1 496.0
Majority interest's share of profit 1 496.3 1 418.7 2 351.9
Due from customers and other current receivables 20,21 5 046.5 6 278.0 4 111.4 Financial assets at fair value: - Shares and other equity participations 20,21,25 46 604.0 39 589.1 28 311.3 - Bonds and other fixed-income securities 20,21,26,32,33 50 782.7 57 539.3 51 262.8 - Life insurance assets with investment choice 20,27 7 364.1 5 719.4 4 476.4
Interest, commission and fees received from customers 1 388.0 1 229.9 2 094.7
Net receipts/payments - loans to and claims on other financial institutions -52.1 153.7 -921.5
Net receipts/payments - customer deposits with the banking activities 2 517.0 84.2 -788.2
Net receipts/payments - deposits from Norges Bank and other financial institutions 1 321.7 -687.2 2.4
Net receipts/payments - securities in the trading portfolio: - shares and other equity participations -1 853.9 -7 447.6 -6 606.6 - bonds and other fixed-income securities 8 671.7 -3 787.5 -1 991.6 - financial derivatives and other financial instruments 505.8 2 806.7 1 237.8 - dividend receipts from the trading portfolio 3.2 36.4 134.4
Receipts from issue of bond loans and other long term funding 1 462.3 3 007.6 3 612.5
Net cash flow from financing activities -756.1 1 599.7 2 532.6
Net movement in cash and cash equivalent assets 7 447.3 -1 189.1 1 194.9
Total revenue and costs for the period 4.8 -51.3 1 418.7 1 367,4 3.5 1 375.7
Equity transactions with owners: Profit and loss items applied directly to equity: Pension experience adjustments -239.7 -239.7 -239.7
Accounting Principles The accounting principles used for the preparation of the consolidated accounts are described below. The principles are applied consistently to similar transactions and to other events under similar circumstances.
The consolidated accounts of Storebrand ASA are prepared in accordance with the EU-approved International Financial Reporting
The preparation of the accounts in accordance with IFRS requires management to make valuations and estimates and decide upon assumptions that affect assets, liabilities, revenue, costs, the notes to the accounts and information on potential liabilities. The final values realised may differ from these estimates.
Consolidations The consolidated financial statements combine Storebrand ASA and companies where Storebrand ASA has the power to exercise a controlling influence. A controlling influence is normally achieved where the group owns, directly or indirectly, more than 50% of the shares in a company and the group has the power to exercise control over the company. Minority interests are included in the group’s equity capital.
equity capital) where the company exercises significant influence are consolidated in accordance with the equity method. Interests in jointly controlled businesses are consolidated in accordance with the proportional consolidation method, i.e. by including the proportion of revenue, costs, assets and liabilities in the appropriate lines in the accounts.
Internal receivables and payables, internal profits and losses, interest and dividends, etc. between group companies are eliminated in the consolidated accounts.
In the consolidated accounts, fund investments are consolidated if they are considered to be of particular importance for Storebrand’s investment needs and Storebrand holds more than 50% of the units in the fund and in addition is the fund manager.
Segment reporting The group is organised into life insurance activities, banking activities, asset management activities and other activities, which include
Consideration is given to writing down the value of an asset if there are indications of a fall in its value.
Intangible assets Other than goodwill, the group’s intangible assets largely relate to customised software developed in-house. Such intangible assets are valued at acquisition cost reduced by accumulated depreciation and any write-downs. The depreciation period and the method of depreciation are reviewed annually. New intangible assets are only capitalised if it can be demonstrated that it is likely that the group will gain future commercial benefit that is directly applicable to the asset in question. In addition, it must be possible to estimate the cost price of the asset reliably.
Goodwill is not appreciated, but is tested annually for impairment. If the relevant discounted cash flow is lower than the book value, goodwill is written down to fair value. Write-downs of goodwill are never reversed, even if there is information in future periods that the impairment no longer exists or is of a lesser amount. Gains or losses on the sales of companies in the group include the goodwill related to the company in question
Net premium income comprises premium amounts that fall due during the year, transfers of premium reserve and premiums on reinsurance ceded. Accrual of premiums earned is made through allocations to the premium reserve in the insurance fund.
Claims for own account comprise claims settlements paid out less reinsurance received, premium reserves transferred to other companies, reinsurance ceded and changes in claims reserves. Claims not settled or paid out are provided for by allocation to the claims reserve as part of allocations to technical insurance reserves.
Transfers of premium reserves resulting from transfers of policies between insurance companies are booked to profit and loss as premiums for own account in the case of reserves received and claims for own account in the case of reserves paid out. The recognition of cost/income takes place at the date the insured risk is transferred. The premium reserve in the insurance fund is reduced/increased at the same date.
The guaranteed yield on the premium reserve and on the premium fund is recognised to profit and loss as part of the item ‘changes in insurance reserves’. Other profit allocated to customers is shown under the item
Premium reserve represents the present value (discounted at a rate equivalent to the guaranteed interest rate) of the company’s total insurance obligations including administration costs in accordance with the individual insurance policies, after deducting the present value of future premiums. In the case of individual account policies with flexible premium payments, the total policy value is included in the premium reserve. The premium reserve is equivalent to 100% of the guaranteed surrender/transfer value of insurance policies prior to any charges for early surrender/transfer and the policies’ share of the market value adjustment reserve.
The premium reserve is calculated using the same assumptions as those used to calculate premiums for individual insurance policies, i.e. assumptions on mortality and disability rates, interest rates and costs. Premium tariffs are based on the observed level of mortality and disability in the population with the addition of security margins that take into account, inter alia, expected future developments in this respect.
The company is permitted to make additional statutory allocations to the insurance fund in order to ensure the solidity of its life insurance business. The maximum additional statutory reserve is set at the difference between the premium reserve calculated on the basis of a 3.5% guaranteed return on policies outstanding, and the premium reserve calculated on the basis of the actual guaranteed return in the policies. Kredittilsynet (the Financial Supervisory Authority of Norway) has specified a limit for the additional statutory reserves that apply to each policy defined as the premium reserve for the policy multiplied by twice the basic interest rate for the policy.
The company is permitted to apply a higher multiple of the basic interest rate than that defined by Kredittilsynet. The allocation to additional statutory reserves is a conditional allocation to policyholders that is recognised in the profit and loss account as a statutory reserve and accordingly reduces net profit. Additional statutory reserves can be used to meet a shortfall in the guaranteed return. This is shown in the profit and loss account after the technical (insurance) result as amounts released from additional statutory reserves to meet the shortfall in guaranteed return. The amount released cannot exceed the equivalent of one year’s interest rate guarantee.
The premium fund contains premiums prepaid by policyholders as a result of taxation regulations for individual and group pension insurance and allocated profit share. Credits and withdrawals are not booked through the profit and loss account but are taken directly to the balance sheet.
Amount reserved for claims either not yet reported or not yet settled
The security reserve is a statutory reserve to cover unexpected insurance risks. The calculations are made by an actuary in accordance with regulations published by Kredittilsynet. It is possible to increase the reserve by 50% above the minimum allocation. In special situations Kredittilsynet may permit all or part of the reserve be used to cover a fall in the value of bonds or of shares classified as current assets. In the accounts the entire reserve is shown as a mandatory reserve.
In accordance with IFRS 4, Storebrand Life Insurance has carried out a sufficiency test to ensure that the level of premium reserves is sufficient relative to insurance liabilities to customers, cf. Note 35.
Property and casualty insurance Insurance premiums are recognised to income in pace with the period of insurance. Costs are recognised when they are incurred.
The standard does not provide specific valuation rules other than for certain minor matters. It is permissible to use technical insurance reserves in accordance with Norwegian rules and regulations, save for the rules that require reserves to cover future claims on future policies.
The company maintains the following reserves: The premium reserve is a reserve for unearned premiums in respect of the risk period on current policies. Allocation to the reserve is on a pro rata basis without deductions for costs.
The calculation of the effective interest rate involves estimating all cash flows and all contractual terms of the financial instruments (for example early repayment, call options and equivalent options). The calculation includes all fees and margins paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, independent parties in an arm’s length transaction. For financial assets that are listed on a stock exchange or another regulated market place, fair value is determined as the bid price on the last trading day up to and including the balance sheet date, and in the case of an asset that is to be acquired or a liability that is held, the offer price.
If a market for a financial instrument is not active, fair value is determined by using valuation techniques. Such valuation techniques make use of recent arm’s length market transactions between knowledgeable and independent parties where available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, and options pricing models. If a valuation technique is in common use by participants in the market and this method has proved to provide reliable estimates of prices actually achieved in market transactions, this method is used.
The fair value of loans recognised at amortised cost is estimated on the basis of the current market rate of interest on similar lending. Writedowns of loans are taken into account both in the amortised cost and when estimating fair value. When estimating the fair value of a loan, consideration is also given to the development of the associated credit risk in general.
Classification and measurement of financial assets and liabilities Financial assets are classified into one of the following categories: • available for sale,
cial instruments that are managed together and for which there is evidence of a recent actual pattern of short­term profit­taking, or
• is a derivative except for a derivative that is a designated as an effective hedging instrument.
At fair value through profit and loss in accordance with the fair value option
Upon first recognition, any financial asset or liability can be classified at fair value through profit and loss if it is the case that: • such classification reduces a mismatch that would otherwise have occurred in measurement or recognition as a result of different rules for measurement of assets and liabilities
Hold to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the company has the intention and ability to hold to maturity, with the exclusion of: • assets that are designated at inception as assets at fair value through profit and loss
Hold to maturity investments are valued at amortised cost, using the effective interest method. All investments in this category are owned by
Loans and receivables are valued at amortised cost using the effective interest method. Assets in this category relate principally to loans made by Storebrand Bank.
Loans and receivables that are designated as hedged items are subject to measurement in accordance with the requirements of hedge accounting.
Stock lending A stock loan involves a transfer of shares from Storebrand to a borrower in return for the borrower pledging security in the form of cash or securities. At the maturity of the stock loan, the identical securities
are returned to Storebrand. The borrower is required to compensate the lender for various events related to the shares lent, such as distributions of subscription rights, dividends etc. The borrower is entitled to exercise the voting rights of the shares during the period of the stock loan.
Derivatives are defined as follows: A derivative is a financial instrument or other contract within the scope of IAS 39 with all three of the following characteristics: • its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable (sometimes called the ‘underlying’),
Derivatives that do not meet the criteria for hedge accounting are treated as available for sale financial instruments. The fair value of such derivatives is classified as either an asset or a liability with changes in fair value through profit and loss.
Storebrand Life Insurance. In accordance with the accounting standard for insurance policies (IFRS 4) the market value adjustment reserve is shown as a liability.
Subsequent to inception, all financial liabilities are measured at amortised cost using the effective interest method.
Structured products Storebrand Bank has issued equity index linked bonds. These products principally comprise the issue of a bond and the sale of an equity index option. At the time of issue, the equity index option is measured at fair value since the option is a derivative that is not closely related to the bond issue. The bonds issued are simultaneously measured at amortised cost. No gain is recognised in respect of structured gains at the time of issue (“day 1 gains”).
Estimates and judgements are continually evaluated based on historical experience and expectations of future events. In the future, actual experience may deviate from these accounting estimates, but the estimates are based on best judgement at the time the accounts are produced. The estimates and assumptions that have a significant risk of causing a material adjustment to the balance sheet values of assets and liabilities are discussed below.
Investment properties Investment properties are valued on the basis of a long-term yield requirement specific to the property in question. The overall return is made up of the direct yield earned and increases in value. A small change in the yield requirement has a relatively large effect on the calculated value. Values are calculated using internal models. External valuations are also sought for selected properties. Investment Property Databank LTD produces statistical information that covers real estate worth over NOK 70 billion in Norway. In the latest statistics published by Investment Property Databank, the average yield reported was virtually identical to the average yield requirement on Storebrand›s investment property after taking into account sectoral allocation.
Fixed assets Goodwill is tested annually for impairment. Consolidated goodwill subject to impairment testing relates almost exclusively to the banking activities, where goodwill had a book value of NOK 422 million at 31 December 2006. The recoverable amount is calculated as the net discounted present value of future cash flows based on the group›s rolling planning process as approved by the Board of Directors, which covers a future period of 3 years. In addition, the calculations take into account estimated cash flows in years 4-9 based on annual growth rates varying between 2.5% and 3%. A 10% discount rate is applied, and the calculation assumes that no tax is payable.
Fixed assets and intangible assets, of which intangible assets mainly relate to customised software developed in-house, are reviewed annually to ensure that the depreciation period and method of depreciation used correspond with commercial reality for the asset in question. This also applies to the disposal value. The value of an asset is written down if there are indications of a fall in its value. The future commercial life of the various intangible assets was tested in 2006, and some changes were made. Properties used for the group’s own activities are valued at written-up value less accumulated depreciation and write-downs. The fair value of these properties is tested annually in the same way as described for investment properties. See note 8.
Financial assets - impairment In the case of financial assets that are not recognised at fair value, consideration is given on each balance sheet date to whether there are objective signs that the value of a financial asset or a group of financial assets is impaired.
Storebrand Bank makes use of both individual loan write-downs and write-downs of groups of loans. Grouped write-downs are calculated separately for corporate lending and retail lending. In the case of corporate lending, the objective criteria for determining write-down amounts are judged to be closely correlated with changes in the risk classification of lending relationships. This classification takes the form of three scores in respect of the borrower´s debt service capacity, the loan to value ratio and commercial risk factors. In the case of retail lending, the objective criteria for determining write-down amounts are judged to be closely correlated with default status and the historic payment record. Default status for loans not subject to individual writedowns is divided into 30-90 days and over 90 days. The payment record is updated quarterly in line with the overall performance of the portfolio. See also notes 19 and 31.
Technical insurance reserves: Life insurance: The major areas of risk and uncertainty in life insurance are associated with the incidence of death and disability. Most lines of life insurance include cover for disability either through disability pensions, exemptions from premiums or lump sum disability payments. Pension insurance provides cover for the surviving partner of the assured, with payments starting in the event of the death of the assured. Changes to the rules for payment from the national social security scheme for disability benefits etc. may have a significant effect on insurance companies in terms of the number of claims for disability and disability reserves. In terms of death benefits, increasing life expectancy will affect future expected payments and reserves, although reserves are currently considered to be sufficient. The company´s premium tariffs do not include any assumptions on inflation or voluntary termination/transfers. No changes were made to premium tariffs in 2006 that caused any additions to or withdrawals from the premium reserve. The company also manages its exposure to insurance risk through its reinsurance program. A significant proportion of the company´s insurance liabilities are subject to an annual interest guarantee. If the company produces a return lower than the guaranteed interest rate, up to one year´s guaranteed interest can be met out of additional statutory reserves. The company maintains additional statutory reserves in excess of one year´s guaranteed interest.
The rate of discount applied represents a major assumption for the calculation of pension liabilities. Norwegian insurance companies must base their calculation of discount rate on the return on Norwegian government bonds. With the exception of pensioners of the holding company Storebrand ASA, the payment horizon for pensions paid by Storebrand is estimated to be around 25 years, and there are no Norwegian government bonds with such a long maturity. The discount rate estimated for a 20-30 year duration is arrived at by adding 15 to 20 basis points to the yield on 10-year government
bonds. Other key assumptions include the expected return on pension assets, the expected annual increase in the national insurance base amount (the ‘G’ amount), expected increases in pensions in payment and expected salary inflation. When estimating expected salary inflation, growth in income not eligible for pension benefits is also taken into account.
Deferred tax A number of companies in the group, including Storebrand Livsforsikring AS, have sizeable tax losses carried forward. In order to capitalise the tax asset associated with tax losses carried forward, it is necessary to establish that the company in question will have taxable profits in the future. In a normal year, companies in the group such as Storebrand Livsforsikring AS will have significant tax free income arising from holdings of shares within the EEA area, and this income does not increase taxable profit. A number of companies in the group have therefore decided to write-down their deferred tax assets. See also note 6.
Revenue from other group companies Storebrand Investments manages financial assets for other group companies. Asset management fees are made up of a fixed management fee and a performance-related fee. Performance-related fees apply to the portfolios qualifying for such fees from time to time. The performance-related fee is calculated as 20% of return in excess of benchmark return measured in NOK. If the investment return on a portfolio is less than the benchmark return, no performance-related fee is payable on the portfolio in question.
Storebrand Livsforsikring earns revenue from other group companies for sales and management of products. These services are priced on commercial terms.
Banking The banking business includes the following areas: Corporate: Loans to and deposits from corporate customers of Storebrand Bank relate principally to property developers and property investors. Retail: This area includes deposits from and loans to personal customers, including credit cards. Lending is principally residential mortgage lending. Savings: Includes all structured products (equity index bonds), real estate investment funds and others. Stockbroking: The bank established a stockbroking business in 2006. Its main activity is broking Norwegian and foreign shares. Real estate broking: This segment comprises solely Ring Eiendomsmegling AS, in which the bank had a 70% interest at the close of 2006.
Asset management: Asset management company with license for active management. Manages assets in mutual securities funds and client portfolios for insurance companies, pension funds, municipalities, institutional investors and private individuals.
Tax effect of: - write-down of deferred tax assets -1 667.3 -1 138.6 -468.2
Total losses and allowances carried forards -10 049.0 -7 039.0 -4 619.2
Basis for net deferred tax/tax assets -10 604.8 -6 657.8 -2 738.3
10 Pensions Employees are assured a retirement pension equivalent to 70% of pensionable salary at the time of retirement. The ordinary retirement age is 65. Staff pensions are provided by a group pension scheme with Storebrand Livsforsikring AS. Pension payments from this scheme come into effect from the pension age, which is 67 for employees and 65 for underwriters. Pension payments to employees between 65 and 67 are paid directly by the company. Pension rights are part to the group's collective employment agreement.
Pension assets as fair value -2 747.3 -2 599.4 -2 626.9
Present value of the uninsured pension benefit obligations including employment taxes 454.3 495.4 462.6
The table shows the percentage asset allocation of pension assets managed by Storebrand Livsforsikring at year-end. The booked (realised) investment return on assets managed by Storebrand Livsforsikring was 7.1 % in 2006, 6.9 % in 2005 and 6.4 % in 2004.
Fair value of pension assets 2 747.3 2 599.4 2 626.9
Sverre Bjørnstad 0 1 Comprises company car, telephone, insurance, concessionary interest rate, other contractual benefits and compensation on termination of employment. 2 The summary shows the number of shares owned by the individual, as well as his or her close family and companies where the individual exercises significant influence
Shares in Storebrand ASA held by members of the Board of Representatives
No loans have been made to any member of the Control Committee, and loans to members of the Board of Representatives total NOK 3 million.
Remuneration paid to Deloitte AS (excl. VAT): NOK million 2006 2005
Main accounting figures for associated companies - figures shown are for 100 % of the company/companies.
Nordben Life and Pension Insurance Co. Ltd. 6 804.8 6 165.1 5 766.6
The consolidated accounts include the following companies in the amounts shown: Revenue
Sjølyst Eiendom AS 417.0 1 Company sold in 2006 14 Contingent liabilities and conditional assets
Offices (including parking and storage) 9 648.4 7 643.7 6 881.0 924.6 5.6 639 950 97.0
Shopping centres (including parking and storage) 7 312.0 5 464.1 4 964.0 1 251.2 3.3 390 078 98.5
The group entered into commitments in 2006 to purchase properties for NOK 0.27 billion, but completion of these contracts and transfer of risk does not take place until 2007.
NOK million SB Life Group P&C Group SB Bank Group SB ASA Group Group
Average number of full time equivalentes (FTEs) 1 362 1 260 18 Net income analysed by class of financial instrument
Net gains/losses on disposal of shares, other equity investments and equity derivatives 3 628.9 4 149.3
Total shares and other equity investments 6 057.5 7 439.9 - of which FVO (fair value option) 6 066.0 7 509.9
Net gains/losses on disposal of fixed-income securities and interest rate derivatives -348.0 27.8
Net unrealised gains/losses on fixed-income securities and interest rate derivatives -113.5 -52.6
Total interest expense2 -212.9 -197.1 1 Interest income from financial instruments not at fair value totalled NOK 1,141.5 million in 2006 (compared to NOK 949.9 million in 2005). 2 Interest expense on financial instruments not at fair value totalled NOK 780.3 million in 2006 (compared to NOK 579.9 million in 2005).
Shares and other equity instruments 4 779.9 41 824.1 46 604.0
Shares and other equity instruments 46 604.0 46 604.0 39 589.1 39 589.1
Bonds and other fixed-income securities 50 782.7 50 782.7 57 539.3 57 539.3
Life insurance assets with investment choice 7 364.1 7 364.1 5 719.4 5 719.4
Loans and receivables: Loans to and due from financial institutions, amortised cost 114.9 114.9 41.7 41.7
Loans to customers, fair value 2 598.3 2 598.3 908.9 908.9
Loans to customers, amortised cost 30 489.3 30 484.4 26 033.2 26 033.2
Customer receivables and other short-term receivables 5 046.5 5 046.5 6 278.0 6 278.0
Other bonds at amortised cost 13 176.5 13 086.4 9 259.5 9 898.9
Deposits from banking customers, amortised cost 13 533.7 13 532.8 11 187.0 11 187.0
Security pledged for Futures trading 115.1 1 429.5 1 Security pledged and charges.
Book value of bonds pledged as security for Storebrand Bank's D-facility at Norges Bank 1 698.6 1 703.1
Storebrand Bank uses fair value hedging to hedge interest rate risk. The effectiveness of hedging is monitored at the individual security level, except for structured bond loans where effectiveness is monitored at the portfolio level. Each portfolio consists of swaps and hedged objects with maturity within the same six-month period.
Other bonds at amortised cost 13 141.5 13 184.7 13 176.5 13 086.4 9 259.5 9 898.9
Analysis by sector: Interest accrued but not due totals NOK 1,216 million, total book value including interest accrued but not due is NOK 44,314 million. The effective yield for each security is calculated using the booked value and the observed market price. Calculated effective yields are weighted to give an average effective yield on the basis of each security's share of the total interest rate sensitivity. Sectoral allocation is based on the issuer.
Fund units managed by SB Investments Norway 13 826.1 11 586.7 4 054.7 8 431.7 1 546.5
NOK million Commercial paper Bonds Total Bond funds Total including bond funds Total including bond funds
Direct investments in bonds and commercial paper 4 194.5 45 443.7 49 638.2 49 638.2
Indirect investments in commercial paper and bonds through funds managed by Storebrand 45.2 -3 140.4 -3 095.2 -3 095.2
Interest rate swaps include interest accrued but not due. Investments in credit derivatives relates only to indirect investments in securities funds managed by Storebrand Investments. The above table includes net positions in indirect investments.
Subordinated loan 2003-2013, call 2008 100.0 NOK NIBOR + 2.25% 100.0
Subordinated loan 2003-2023, call 2008 1 526.7 EUR EURIBOR + 2.2% 1 481.1
Liquidity risk Storebrand has established good liquidity buffers in the group companies, and continuously monitors liquidity reserves against internal limits. Committed credit lines from banks have also been established that the companies can draw on if necessary. Storebrand Bank manages its liquidity position on the basis of a rolling liquidity gap and long-term funding indicators. The liquidity gap measures liquidity in excess of the minimum requirement over the next 90 days. The minimum requirement takes into account all deposit maturities and an exceptional outflow of customer deposits at 25% annually. Long-term funding indicators are calculated in accordance with the Kredittilsynet’s guidelines, and show the mismatch between expected future inward and outward cash flows. Storebrand Life Insurance has NOK 14 billion invested in the money market and can therefore meet claims of an equivalent amount at short notice. In addition, the company has sizeable investments in bonds that can be liquidated if required.
Market risk Market risk relates to the risk that the value of the group's assets might be reduced by unexpected and unfavourable movements in the market. At the close of 2006, Storebrand had sufficient risk capital to absorb a fall in market values equivalent to the company’s stress test. The stress test assumes an unexpected simultaneous increase in interest rates of 1 percentage point internationally and 2 percentage points in Norway, combined with a sharp fall in share prices and property values. Market risk is monitored continuously using a range of statistical tools and tests. For instance, Storebrand uses ‘Conditional Value at Risk’ as a method for calculating the potential for loss for the investment portfolio on a one-year horizon for a given probability. This method also takes into account the size of worst-case losses.
risk capital built up from previous surpluses. The owner is responsible for meeting any shortfall that cannot be covered from risk capital. The average guaranteed interest rate is expected to fall in future years. New contracts include a guaranteed interest rate of 2.75%.
Allocation to rating class is based on Standard & Poor's ratings. NIG - Non investment grade
Bonds and other fixed-income securities1 828.7 7 139.4 21 230.3 4 904.5 6 248.4 7 443.8 47 795.1 1 In this note, bonds and other fixed-income securities includes short positions. 2 In this note, derivatives are presented net and excluding short positions.
Total long-term holdings of financial assets -0.7 5.2 -7.8 -265.7 -1 790.3 -2 059.3
NOK million Net balance sheet value Net sales in currency in NOK
The group actively hedges the major part of its foreign currency risk. Currency risk arises from investments in international securities, and to a lesser extent from subordinated loans denominated in foreign currencies. Currency risk is hedged through forward foreign exchange contracts at the portfolio level, and currency positions are regularly monitored within specified total limits. Short positions are closed no later than the business day following the date on which they arise. In addition, there are separate limits for creating active currency positions. These positions are included in the note relating to short-term debt instruments and bonds. The currency positions outstanding at 31 December 2006 are typical of the group's small limits for currency positions.
Reinsurers' share of technical insurance reserves 1 799.7 1 799.7 2 395.5
Receivables in respect of insurance policies 2.0 2.0 0.3 64.8 69.1 63.9 - of which premium income received in advance 642.5 0.1 63.2 21.1 81.0 807.9 780.6
Premium and claims reserves - non-life 2 268.7 2 268.7 2 992.1
P&C insurance: The item Reinsurers’ share of technical insurance reserves includes NOK 353 million that the company assumes will fall due/be recognised to income in 2007. The item Reserves – P&C insurance includes NOK 375 million that the company assumes will fall due/be recognised to income in 2007.
Gains/losses/write-downs - current assets 5 889.7 3 862.5 2 027.2 1 150.1
Gains/losses - bonds held to maturity1 1 096.6 3 573.4 -2 476.8 -639.3 1 Unrealised gains on hold to maturity bonds are not included in the accounts.
In Autumn 2006, Storebrand re-launched sales of P&C insurance products to the Norwegian retail market. Premium and claims reserves for the newly established P&C business amounted to NOK 10 million at the close of 2006. The major part of insurance liabilities at year-end relate to the run-of business of Oslo Reinsurance Company and Storebrand Skadeforsikring. Premium and claims reserves for 2005 include NOK 169 million in respect of Fair Forsikring, which was sold in 2006.
In the short-term the company aims to build up the level of additional statutory reserves to an amount equivalent to the guaranteed return for one year. The allocation to additional statutory reserves from the profit for the represents a balance between this objective (subject to a continuing intention to satisfy this objective by the close of 2007), and the desire to produce a reasonable return on equity, including building up solvency capital, and the desire for the unconditional profit allocation to customers to be of a reasonable size.
Male Female 30 years 45 years 60 years 30 years 45 years 60 years
Life cover, group pension insurance 48 238 1 174 34 124 625
For individual insurance, the premiums for life and accident cover are based on tariffs produced by insurance companies on the basis of their shared experience, namely T1984 for endowment insurance and R1963 for pensions insurance. Disability premiums are based on the company’s own experience, and were last amended in 2002.
The company’s standard tariff for group life insurance, both for life and disability cover, is based on the company’s own experience and was last amended in 2003.
Premiums for group pension insurance follow the industry tariff K1963 for traditional life and dependents’ risk. Premiums for disability pensions are based on the company’s own experience, and were last amended in 2003 for the private sector and 2004 for the public sector. Premiums for risk cover with and without entitlement to a paid-up value taken out in connection with a defined contribution pension are based on the company’s own experience. Expense premiums are determined annually with a view to securing full cover for the next year’s expected costs.
The company’s tariffs do not involve any assumptions on inflation or voluntary termination/transfers.
Premiums and reserves for pension entitlements earned in 2005 and 2006 in group pension insurance are calculated on the basis of a 3% basic interest rate.
Changes to the rules for payment from the national social security scheme for disability benefits etc. may have a significant effect on insurance companies in terms of the number of claims for disability and disability reserves. This currently relates principally to group pension insurance for the public sector, where insurance benefits are fully linked to national social security scheme benefits. The proposed changes to occupational pensions legislation may also cause changes in this respect for private sector occupational pensions.
Right to transfer insurance between companies: The right to transfer insurance between companies, subject to two months’ notice for policies where the transfer value exceeds NOK 300 million, can represent a liquidity risk for smaller life insurance companies if one or more customers elect to transfer large policies to other companies in the space of a short time. The fee that can be charged for transfers is limited to NOK 5,000. For large insurance companies, if transfers out exceed transfers in for an extended period, this will have an adverse effect on future cash flow.
Risk management – life insurance: Evaluation of insurance risk (underwriting): When writing individual risk cover, the customer is subject to a health check. The result of the health check is reflected in the level of premium quoted. When arranging group policies with risk cover, all employees of small companies are subject to a health check, while for companies with many employees Storebrand requires declarations of fitness for work. Underwriting also takes into account the company’s industrial category, sector and sickness record.
Reinsurance: The company also manages its insurance risk through a variety of reinsurance programs. Through catastrophe reinsurance (excess of loss) the company covers losses (single claims and reserves provision) where a single event causes more than 3 deaths or disability. This cover is also subject to an upper limit. Surplus reinsurance on life policies covers death and disability risk that exceeds the maximum risk amount for own account the company is permitted to carry by its articles of association. The company’s maximum risk amount for own account is relatively high, and the risk reassured is therefore relatively modest. Quota reinsurance covers part of the company’s risk for workmen’s compensation insurance. In connection with the re-launch of P&C insurance, the company purchased ”excess of loss” cover for unlimited liability for motor insurance and included travel insurance in the catastrophe reinsurance cover.
Sufficiency test: Storebrand Livsforsikring is required by IFRS 4 to carry out a sufficiency test to ensure that the company has sufficient margins in the various constituent elements that make up the company's reserves. IFRS permits two alternative methods for the sufficiency test. Where a company has an established form of analysis that demonstrate the margins in the various constituent elements, Section 16 of the standard allows this analysis to be used to demonstrate that the test has been satisfied. Where a company has not establish such analysis, it is required to discount future cash flows to present value in accordance with IAS37.
Storebrand continued its existing practice in 2006 whereby, as in the previous years subject to IFRS, it carried out the sufficiency test in accordance with Section 16. The required analysis is carried out on the basis of Norwegian principles for premium reserves, which applies conservative calculation elements. The established form of analysis is based on the assumptions used for the calculation of Embedded Value. This analysis derives expected future surplus to the owner generated by insurance business in force, including the value of free equity. The company uses best judgement estimates of future constituent elements based on current experience. The sufficiency test is carried out by analysing the current margins between the assumptions used for setting reserves and the assumptions of the Embedded Value analysis.
Property and casualty insurance Premiums written by the newly established P.C business in 2006 totalled NOK 8.8 million. Of this, premium earned was only NOK 0.7 million. Cost of claims in 2006 was NOK 0 million. No premiums were received in respect of the run-business which is 100% reinsured by If.
The portfolios with the largest remaining risk exposure are liability insurance and cover for large market losses in the 1980s. In addition, certain types of claim have shown an adverse development over the last 10 years, principally claims related to asbestos and environmental damage, but also other types of health-related claims. For these types of cover, the company estimates its liabilities by evaluating each cedent’s exposure for the types of claim mentioned and evaluating the claims history. The company has some degree of reinsurance for its own risks, but this cover is largely commuted and cover is not complete for asbestos, environmental and health claims.
Oslo Reinsurance Company’s claims experience over recent years has largely been dependent on the extent to which the company has succeeded in commuting its incoming reinsurance contracts, i.e. reaching agreement on early settlement of its liability to policyholders (cedents). The company has been particularly active in commuting policies in liability-related lines, and this has caused a reduction in exposure and IBNR requirements.
Income from investments in subsidiaries 1 1 036.2 1 026.5 643.5
Net income and gains from financial assets at fair value: – shares and other equity investments 74.9 199.9 2 076.5
Total equity capital and liabilities 9 597.8 9 900.4 11 441.0
Net cash flow from financing activities -1 502 -933.1 -2 012.4
Net movement in cash and cash equivalent assets -2.0 -26.5 10.3
Cash and cash equivalent assets at start of the period 92.9 119.4 109.1
Cash and cash equivalent assets at the end of the period 90.9 92.9 119.4
Accounting Principles The accounts of Storebrand ASA have been prepared in accordance with the Accounting Act and Norwegian generally accepted accounting principles. The company has not elected to use IFRS for the company’s unconsolidated accounts.
Use of estimates and assumptions The preparation of the annual accounts has involved the use of estimates and assumptions that have affected assets, liabilities, revenue, costs and information on potential liabilities. Future events may cause these estimates to change. Such changes will be recognised in the accounts when there is sufficient basis to use new estimates.
Classification and valuation principles Assets and liabilities have been valued in accordance with the general valuation rules of the Accounting Act. Assets intended for permanent ownership and use are classified as fixed assets, while assets and receivables due for payment within one year are classified as current assets. Equivalent principles have been applied to liability items.
is the return on capital invested in subsidiaries. Group contributions and dividends received in respect of these investments are therefore recorded as operating income. Proposed and approved dividends and group contributions from subsidiaries are recognised in the unconsolidated accounts of Storebrand ASA as income in the accounting year.
Tangible fixed assets Tangible fixed assets for own use are valued at acquisition cost reduced by accumulated depreciation. Fixed assets are written down if the value in the balance sheet exceeds the recoverable value of the asset.
Pension liabilities in respect of own employees The company uses the Norwegian standard for pensions accounting
(experience adjustments) and changes in assumptions is amortised over the remaining period for accrual of pensions entitlement to the extent that it exceeds 10% of the higher of either the pension liability or pension assets (corridor approach).
Tax The tax charge in the profit and loss account consists of tax payable for the accounting year and changes in deferred tax. Deferred tax and deferred tax assets are calculated on the basis of timing differences between accounting and tax values of assets and liabilities. Deferred tax assets are recorded in the balance sheet to the extent it is considered likely that the company will have sufficient taxable profit in the future to make use of the tax asset. Deferred tax is applied directly to equity to the extent that it relates to items that are themselves directly applied to equity.
Other shares and participations are valued at fair value. Where the share or participation in question is listed on a stock exchange or other regulated market, fair value is determined as the bid price on the last trading day immediately prior to or on the date of the balance sheet.
Bonds and other fixed income securities are recognized at fair value.
Reconciliation of pension assets and liabilities in the balance sheet: Present value of insured pension benefit obligations inc. employer's social security payments 1 914.4 1 905.0 1 978.3
Present value of uninsured pension benefit obligations including employment taxes 200.0 223.7 227.2
Booked in the balance sheet: Reconciliation to show the change in defined benefit pension liability in the period: Net pension liability at 1.1. including provision for employment taxes 2 128.6 2 205.5 2 262.4
Pension assets are based on the financial investments held by Storebrand Livsforsikring, which had the following composition as at 31.12.: Properties and real estate 11% 10% 9%
Net pension cost in the profit and loss account -12.1 -13.4 -3.2
Actuarial: Standardised assumptions on mortality/disability and other demographic factors as produced by the Norwegian Financial Services Association. Average employee turnover rate of 2-3% of entire workforce.
Other services not audit-related 71 2,660 1 Pension cost relates to accrual for the year. 2 The Control Committee covers all the Norwegian companies in the group which are required to have a control committee, except for Storebrand Bank ASA and Oslo Reinsurance
Company ASA which have their own control committees. For further information on senior employees, the Board of Directors and the Control Committee, see note 11 to the accounts of the Storebrand Group.
Write-down of deferred tax assets1 1 866.6 1 810.3 1 389.1
Tax effect of -gains on shares -16.3 130.6 446.1 -write-down of deferred tax assets -15.8 -119.8 -262.3 -previous years 20.9
1 The balance sheet value of deferred tax assets has been written down. This is because future income from subsidiaries will principally be in the form of dividends rather than taxable group contribution. Allowances carried forward date from the years 1998 - 2003, and must be used within 10 years.
Storebrand Felix kurs og konferanse AS Oslo 1.0 1 1,000 100.0% 8.6
Direct investments in bonds and commercial paper 853.8 1 065.8 1 919.6
Base figure for allocation by sector and currency 858.3 1 069.6 1 927.9
Straight line depreciation periods for operating assets are as follows: Equipment, fixtures and fittings: 4 years Vehicles: 6 years IT systems: 3 years 11 Equity capital
2 Share capital reduced by NOK 43.5 million in 2006 by cancellation of 8,707,140 shares. 7,329,140 own shares were bought back in 2006. The company held 4,500,000 own shares at 31.12.2006. Shares have been bought back to help maintain an appropriate capital structure for the group and to benefit shareholders. 3 Effect of implementing NRS 6A as at 01.01.04. 4 No dividend is provided for in respect of holdings of own shares.
14 Holdings of shares in Storebrand ASA by executive management and members of corporate bodies
Elisabeth Wille 88 1 The summary shows the number of shares owned by the individual, as well as his or her close family and companies where the individual exercises significant influence (cf. Accounting Act 7-26).
Profit and loss account items: Group contribution and dividends from subsidiaries 1,036.2 1,026.5 643.5
Payable to group companies 198.4 29.7 15 No. of employees/Full time equivalent positions
Oslo, 13 February 2007 Deloitte AS Translation – not to be signed
With reference to the auditor’s report of 13 February 2007, the Control Committee recommends that the Annual Report and Accounts proposed be adopted as the Annual Report and Accounts of Storebrand ASA and Storebrand Group for 2006.
Board of Representatives’ Statement – 2006 The Board of Directors’ proposal for the Annual Report and Accounts, together with the Auditor’s report and the Control Committee’s statement have, in the manner required by law, been presented to the Board of Representatives. The Board of Representatives recommends that the Annual General Meeting approve the Board of Directors proposal for the Annual Report and Accounts of Storebrand ASA and the Storebrand Group.
Earnings per ordinary share: The calculation of earnings per ordinary share is based on profit after tax adjusted for changes in statutory security reserves after tax in respect of non-life insurance. These statutory reserves include security, reinsurance and administration reserves, as well as the guarantee reserve.
CAPITAL ADEQUACY Capital ratio: Eligible primary capital as a percentage of the risk-weighted balance sheet. Individual assets and off-balance sheet items are given a risk weighting based on the estimated credit risk they represent.
Tier 1 capital: Tier 1 capital is part of primary capital and consists of equity capital less goodwill, other intangible assets and net prepaid pensions.
To be fully eligible as primary capital, the remaining term must be at least five years. If the remaining term is less, the eligible portion is reduced by 20% for each year.
LIFE INSURANCE Administration result: The difference between actual costs and those assumed for the premium tariffs.
pension amount is paid in instalments from an agreed age during the life of the insured. Such insurance can be extended to include spouse, child and disability pensions.
Gross claims: The sum of total claims amount for losses incurred in the period and any changes in losses which occurred in earlier periods.
Premiums earned: Premiums for the risk the company has incurred during the accounting period.
Level repayment loan: Periodic payments (representing both capital and interest ) on a level repayment loan remain constant throughout the life of the loan.
Real rate of interest: The return produced after allowing for actual or expected inflation. Preferably expressed as a nominal rate less the rate of inflation.
Financial Derivates The term financial derivatives embraces a wide range of financial instruments for which the current value and future price movements are determined by equities, bonds, foreign currencies or other traditional financial instruments.
Derivatives require less capital than is the case for traditional financial instruments such as equities and bonds, and are used as a flexible and cost effective supplement to traditional instruments in portfolio management. Financial derivatives can be used to hedge against unwanted financial risks, or to create a desired risk exposure in place of using traditional financial instruments.
Foreign exchange options: A foreign exchange option confers a right (but not an obligation) to buy or sell a currency at a predetermined exchange rate.
Interest rate options: Interest rate options can be related to either bond yields or money market rates. The purchase of interest rate options related to bonds (also known as bond options) confers a right (but not an obligation ) to buy or sell bonds at a pre-determined price. Interest rate options can be used as a flexible instrument for the management of both long and short-term interest rate exposure.
Interest rate swaps/asset swaps: Interest rate swaps/asset swaps are agreements between two parties to exchange interest rate terms for a specified period. This is normally an agreement to exchange floating rate payments for fixed rate payments, and this instrument is used in the management of long term interest rate risk.
Share options: The purchase of share options confers a right (but not an obligation) to buy or sell shares at a pre-determined price. Share options may be related to stock market indices as well as to specific individual stocks.
The sale of share options implies the equivalent one-sided obligation. In the main, exchange traded and cleared options are used.
Oslo Reinsurance Company ASA Ruseløkkveien 14 P.O.Box 1753 Vika NO­0122 Oslo Norway Tel: +47 22 31 28 28 www.oslore.no
Storebrand Helseforsikring AS Filipstad Brygge 1 P.O.Box 1382 Vika NO­0114 Oslo Norway www.storebrandhelse.no
DKV Hälsa, Swedish branch office of Storebrand Helseforsikring AS Rålambsvägen 17, 14th floor, DN Huset P.O.Box 34242 S­100 26 Stockholm Sweden www.storebrandhalsa.com