Head of Sustainability Filippa Bergin ensures that your pension is managed in a sustainable way.
We invest your money in sustainable companies because we expect that they are more profitable and provide you with a better pension.
STOREBRAND GROUP Profit and loss account Statement of total comprehensive income Statement of financial position Reconciliation of group equity Cash flow analysis Notes
Decleration of the Board and the CEO Independent auditor’s report Statement of the Control Comittee and the Board of Representatives
Storebrand initiates a new wave of acquisitions and mergers by acquiring Norrøna, which was experiencing financial problems.
Storebrand acquires Norske Fortuna. Brage and Fram merge to become the country’s largest life insurance company. Storebrand and Idun move into their own new premises in the restored Vest-Vika area of Oslo. Brage-Fram and Norske Folk follow their lead.
The company changes its name to Storebrand ASA and establishes Storebrand Bank ASA.
Norwegian and international stock markets fall sharply from September 2000 to February 2003.
The Storting, the Norwegian parliament, rules that all companies must have an occupational pension scheme in place by 2007. Storebrand responds to the challenge with its new product, Storebrand Folkepensjon.
The financial crisis in the USA spreads to the global financial markets and during 2008 the New York Stock Exchange (Dow Jones DJIA) falls by 34 per cent and the Oslo Stock Exchange by 54 per cent.
As a pension asset manager with long-term commitments, we must understand how these trends will affect companies’ finances ahead, to provide our customers good long-term returns.
Changing consumer habits Consumer awareness is increasing, resulting in higher demands on suppliers of goods and services.
40 thousand corporate customers and 1,9 million individuals have a customer relationship with Storebrand. Our vision is to serve them so well that we are “Recommended by our customers”.
At the turn of the year, the maximum rates for defined contribution pensions increased and became better adapted to the accrual rules in the new National Insurance Scheme. This means that it will be possible now for people to save up to 7 per cent of their salary up to 12 x the National Insurance basic amount “G”, and additional contributions of 18.1 percent of salary between 7.1 and 12 “G” will be allowed. The new higher savings rates are well received by the corporate customers. The higher rates make it easier for companies with a defined benefit pension to offer a competitive defined contribution pension. Converting also ensures the company predictable costs. Some corporate customers that have a defined contribution pension at the old maximum rates would like to increase their rates.
The Group has over 400,000 customers with paid-up policies totalling over NOK 90 billion. For many of Storebrand’s customers, the new rules will make a better pension possible, because more long-term management of the pension assets will result in higher expected pension payments. Storebrand offered investment from 15 October, and the level of interest was good.
Akademikerne (Federation of Norwegian Professional Associations ) chose Storebrand as a new partner for insurance from 2015. DNB has previously had the contract for many years. The membership represents a total of 110,000 potential customers.
After last year’s success with the “Pension Express”, Storebrand embarked on a bus tour to spread knowledge about pensions. A bus filled with biodiesel and pension advisors visited workplaces in a total of 19 cities in Norway.
The Norwegian defined contri- bution customers with the most common savings profile, Storebrand Balanced Pension, earned a return of 10.9 per cent on their pensions in 2014. The asset management business achieved an overall excess return of NOK 2.2 billion for the customers in 2014.
How was this last year for you? The year 2014 was an eventful year. We continue to deliver a good return to our customers, and we have successfully grown our core business – pension savings – both in Norway and Sweden. A highlight was undoubtedly when we won the tender to provide a defined contribution pension for 13,400 employees of Statoil towards the end of the year. This is by far the largest defined contribution pension contract in the Norwegian market, and it confirms our leading market position.
We have also seen that we have been successful in offering attractive solutions to the employees in companies with a occupational pension from Storebrand, and we have acquired 11,000 net new retail customers during the year.
What results are you the most and least satisfied with? The results generally follow the development of the balance sheet, and a growing proportion of the results are generated by non-guaranteed savings.
The analysts are concerned about the low interest rate level being challenging for Storebrand, since the company guarantees the return for a large portion of the customers’ pension assets. What actions are Storebrand taking to continue to earn money, even if the interest rates remain low? The most important action is that we continue to shift the balance sheet from products with guaranteed interest rates to products without a guarantee. In the private sector, there is still a great influx of companies who want to convert to defined contribution pensions, while we have transferred NOK 10 billion out of occupational pensions in the public sector during the year. We have won contracts for pension funds for a corresponding amount at the same time.
“Norway is practically the only country in Europe that does not have a proper scheme for tax-motivated private pension savings. We will continue to stress the importance of this: Individuals have been given more responsibility for their own pension, now they also need the tools required to influence their pension.”
At the same time, I would like to point out that we place very high demands on our own advisory services. All the customers that contact us receive good objective information, so that they are better able to make the choice that is the most correct for him or her. We see that the guarantee is of genuine value to older employees, and we recommend investment options only to those who can expect significantly higher pension payments by trading in their guarantee.
During the year there have been several important clarifications concerning the regulatory framework in the pension area. In January, new higher savings rates for defined contribution pensions were introduced. How has interest in the new savings rates been? It is clear that many companies have been sitting on the fence and waiting for new better savings rates, and the level of interest has been very good. As much as 12 per cent of the new annual savings premiums for defined contribution pensions are from contracts with savings rates that are higher than the old maximum rates. In total, approximately 650 companies have chosen new, higher savings rates.
The main point is that the new savings rates for defined contribution pensions give the customers greater freedom of choice and greater flexibility – regardless of which pension scheme they choose.
It is precisely this opportunity to provide a combination of various pension solutions that is one of our greatest competitive advantages. Many companies have changed their pension schemes in recent years, and they desire of course a transition that is
In the autumn of 2012 you introduced a cost programme with target savings of NOK 400 million in annual costs by 2015. What is the status of this work? The cost programme has ended now, and we achieved the targets we set. I am humbled and impressed by the effort and willingness to change demonstrated by all those involved.
Storebrand has invested over NOK 4.5 billion in green bonds, which makes the Group one of the largest participants in this market in Europe. Will you invest more in green bonds in 2015? Yes, we are happy to invest in green bonds, provided they are of good quality. They are loans that are earmarked for the financing of smart business development, such as energy efficiency improvement or renewable energy. The market is still very small, but there has been strong growth in green bonds over the last year. This is one of very few innovations in the bond market over recent decades, an asset class that will play an ever more important role in adaptation to more sustainable business and industry.
Storebrand has previously aired the idea of sustainability labelling of equity funds. Is this anything that we will see in 2015? Yes, this is something that we will launch early in 2015. We already have good tracking on which companies we will invest more in and which we will stay away from, but most of our customers do not relate to individual companies – they relate to funds. To make our sustainability message even more accessible to most people, we will start to label funds. This will set a new standard in the market with a view to transparency and a focus on sustainability, and it will make it easier for our customers to make informed choices.
It is our ambition that all employees of Storebrand are aware of the outcome of our sustainability work, and find it important. We are therefore pleased to see that in-house support for Storebrand’s work increases every year. We believe that our 2,000 employees are our leading ambassadors for long-term sustainable saving and transition to a sustainable world.
Our ethical rules are an important tool in our daily operation, and are followed up every year through training and monitoring. We also monitor and follow up work against financial crime and corruption. We want to be transparent, and submit annual reports to a number of sustainability indices, including the Carbon Disclosure Project, the Dow Jones Sustainability Index, Vigeo, Sustainalytics and FTSE4Good. Our sustainability reports follow the guidelines from the Global Reporting Initiative (GRI 4). Our main office in Oslo has held environmental certification from the Eco-Lighthouse Foundation for several years now.
The main channel for dialogue with the outside world is social media, where both Twitter and Facebook are important channels for feedback from relevant communities, and for availability for dialogue and questions.
Storebrand is one of 16 companies in the world to have made it on the Dow Jones Sustainability Index 15 years in a row. This is good news for everyone who has their pension assets with us.
Not surprisingly, we also find the pharmaceutical company Novo Nordisk on this list. It is one of the world’s leading companies for the treatment of diabetes and has worked strategically with sustainability for many years and is therefore a company in which we invest pension assets.
SUSTAINABLE COMPANIES ENSURE A GOOD PENSION In addition to financial analysis, Storebrand uses sustainability analysis as a tool for investing smarter. Large volumes of information on 2,500 listed companies are collected for analysis, and the companies are assigned points based on how sustainable they are. Simply put, Storebrand sells the companies that rank the poorest and buy more of the companies that do well. Novo Nordisk is a company that is ranked highly by Storebrand.
It is very natural for a pension provider to have a long-term perspective. We have to pay our customers’ pensions in 30, 40 or 50 years. Storebrand will therefore continue to be a leader in sustainable savings.
Extensive climate change due to man-made emission of greenhouse gases is the greatest challenge of our time. If the world is to succeed at limiting the increase in temperature on earth, all parts of society must make a contribution. As a long-term investor, Storebrand is prepared to assume its share of the responsibility and contribute to financing the solutions. The challenge lies in the fact that the use of fossil fuel is a very integral and important part of society’s economic model. In order not to take too high a risk with our customers’ pension assets, it is necessary that changes in the investment profile take place gradually. Investments in innovative solutions and influencing companies and the authorities in a more climate-friendly direction are just as important as the exclusion of companies that make a negative contribution to climate change.
Storebrand continued its adaptation to a more climate-friendly investment profile in 2014. In addition to excluding companies that primarily produce coal and oil from oil sands, we have focused on other sectors and activities that emit large amounts of CO2 as part of their operations. In the utilities sector, Storebrand has excluded the companies that have the highest power generation from coal and petroleum as a percentage of their total revenues. The production of palm oil has been in the spotlight in recent years due to the significant negative impact on the environment and climate. Storebrand has decided to exclude palm oil producers that do not have good systems for reducing the negative impact of their operations. Storebrand /SPP has in total 49 climate exclusions as at 31 December 2014.
As a provider of savings and pensions, we are concerned about ensuring a long-term and good return for our customers. Climate change is the most comprehensive risk factor with respect to sustainability, and the preservation of forests, particularly rain forests, is completely essential in order to counteract climate change.
INVESTING IN A SUSTAINABLE PRACTICE The company Golden Agri Resources (GAR) was retained because it distinguished itself as a plantation owner. They have the leading standards in the industry for the establishment and operation of plantations. They have also participated in initiatives that contribute to moving the plantation operations in a sustainable direction.
The year 2014 was also the year when Storebrand seriously stepped up its investments in green bonds. A green bond is a loan that is earmarked for the financing of sustainable projects. These bonds can, for example, finance energy efficiency improvement, development of renewable energy, or infrastructure for more efficient management of water and waste. The return on green bonds is completely on par with other bonds from the same issuer.
Green bonds only represent 0.4 per cent of the total bond market, but the market is experiencing a growing demand from institutional investors. In 2014, Storebrand increased its investments in green bonds by 4 billion NOK, which makes Storebrand one if the largest participants in this market in Europe.
Green bonds are not just a very targeted and effective form of sustainable investment, they can also be an important contribution to growth in developing countries. In February 2014, Storebrand/SPP invested SEK 1 billion in a green bond issued by the African Development Bank (AfDB). AfDB is a
To ensure good, long-term returns for our customers, we must understand the effects of global and national changes on the companies’ profitability. By participating in the public debate, Storebrand can share its experiences and influence the regulatory framework for trade and industry to stimulate green innovation.
As one of few listed companies, Storebrand participated at the UN Climate Summit in New York in September. Politicians, businesses and organisations met there to discuss the climate policy of the future, as a warm-up for the climate negotiations in Paris in 2015.
The focus of the meeting was on solutions, value creation and growth. Transition to a low-emission economy – also referred to as the green transition – is not just relevant for our climate, is mellom ordene. a prerequisite for reducing conflicts, improving food security, reducing epidemics, creating jobs and ensuring economic growth. Therefore it is also most certainly relevant for us as a manager of savings and pensions.
The highest level a fund can achieve is level 10. What characterises funds that achieve a high level is the fact that they systematically choose companies based on sustainability criteria. Storebrand’s sustainability fund, Storebrand Trippel Smart, is a good example. This fund selects the most sustainable companies in each sector, based on over 70 underlying indicators. Funds that primarily invest in industries with a low environmental impact, such as IT and Telecom, or in areas with strict government regulation, such as Scandinavia, score relatively high. The funds that score low have as a rule many companies that violate fundamental international conventions, invest heavily in countries with little regulation, or in high-risk industries such as gold and mining. The sustainability level gives accordingly a good indication of the underlying sustainability risk in the fund.
VERIFIED BY DNV GL Storebrand’s system for the sustainability labelling of funds has been developed over the course of several years and is the most comprehensive system of its kind in the market. To ensure confidence in the system and the transparency of our calculation methods, we engaged DNV GL, one of the world’s largest certification companies to review our processes. DNV GL has reviewed our routines and governing documentation for the various activities that are included in the process related to sustainability labelling. DNV GL’s conclusion was that the process is in accordance with the internal governing documents, and that these documents are robust and appropriate.
Storebrand’s customers should be confident that we see sustainability trends and invest in the companies that adapt to these. Therefore, we use sustainability analyzes in addition to traditional financial analysis. Olav Chen Storebrand
Customers experience that all our relationships, solutions and measures are sustainable3 54 of 100 points 53 of 100 points 60 of 100 point
Employee job satisfaction 69 of 100 points 71 of 100 points 71 of 100 points
Diversity 77 of 100 points 79 of 100 points 77 of 100 points
Externally managed properties: Energy consumption 232 kWh/m2 223 kWh/m2 Reduce 5 % to 226 kWh/m2
Average sustainability score for the life balance sheet investments 58 of 100 points 3rd Customer promise – All our relationships, solutions and measures are sustainable 67 of 100 points Two out of three customers should experience the deliverance of the 3rd customer promise
Net Promoter Score (NPS)9 Top 3 in the industry, retail and corporate, Norway and Sweden
3) Assessment for Norway Retail only. Result for 2013 is changed due to yearly calculation not Q4 result.
4) Measures employee awareness, proportion of employees who complete e-learning course (every 3rd year), proportion who participate in dilemma training and proportion of managers who have reported on compliance with the code of ethics.
ABOUT THE SCORECARD The sustainability scorecard shows the sustainability indicators defined by the Group – those that are the most important for Storebrand to report to the stock market. They are a key element in the reports submitted to relevant indices, such as the Dow Jones Sustainability Index and FTSE4Good. The Group’s sustainability manager owns and follows up the sustainability scorecard. Ownership of the indicators is well-established within the Group. The sustainability manager and executive vice presidents for the business areas jointly set targets for Storebrand’s sustainability work. Quarterly status reports are submitted to the executive management, and annual reports are submitted to the Board of Directors.
Shares in Storebrand are listed on Oslo Børs (Oslo Stock Exchange) with the ticker code STB. Storebrand ASA’s share capital at the start of 2014 was NOK 2,249.5 million. The company has 449,909,891 shares with a par value of NOK 5. As at 31/12/2014 the company owned 2,410,792 of its own shares, which corresponds to 0.53 per cent of the total share capital. The company has not issued any options that can dilute the existing share capital.
As at 31 December 2014, total foreign ownership amounted to 62.7 per cent, compared with 53.7 per cent at the end of 2013.
The Board has established as a target that Storebrand shall adapt to the changes in the European solvency regulations without raising new equity. The target is a Solvency II margin of at least 130 per cent, including the use of transitional rules. We will report on this target throughout 2015. The Board is maintaining a payout target in a normal situation of more than 35 per cent of the result after tax, but before amortisation costs. The dividend policy states that dividends shall be adjusted such that the Group is assured the right capital structure.
On 1 January 2006, new rules came into force in Norway concerning the taxation of dividends and gains on shares held by private individuals. The new rules are referred to as the “shareholder model”. Under the shareholder model, dividends, less a standard deduction, are taxable, currently at a rate of 27 per cent. If shares are sold, any unused standard deduction can be deducted from the gain on the sale. The standard deduction is calculated on the basis of the cost price of the share multiplied by the average three-month interest rate on treasury bills, which is effectively a risk-free rate of interest. The interest rate for calculating deductions in 2014 has been set at 0.9 per cent.
Financial calendar 11 February Results 4Q 2014 15 April Annual General Meeting 16 April Ex dividend date 29 April Results 1Q 2015 Embedded Value 2014 15 July Results 2Q 2015 28 October Results 3Q 2015
Norway 35% Great Britain 20% U.S.A. 18% Finland 7% Sweden 4% Others 16%
Norway 50% Great Britain 17% U.S.A. 9% Luxembourg 6% Finland 5% Others 13%
Storebrand’s ambition is to be the best provider of pension savings. The Group offers products within life insurance, property and casualty insurance, asset management and banking, to companies, public sector entities and private individuals. The Group is divided into the segments Savings, Insurance, Guaranteed Pension and Other.
Storebrand’s strategy is twofold. The Group aims to create profitable growth in the Savings and Insurance segments by providing good sustainable pension schemes for companies with a pension agreement with Storebrand, as well as products and additional solutions related to savings, insurance and banking for the employees of these companies.
Storebrand has seen continued strong growth for unit linked savings, delivered a competitive and sustainable return to its customers and increased its assets under management to over NOK 500 billion throughout the year. According to plan, the Group has realised cost reductions of NOK 400 million, announced the Group’s Solvency II position and a forecast that the Group will achieve its goal of adapting to Solvency II by 2016 without raising new equity.
In Sweden, SPP has a strong challenger role, and it has taken important steps in 2014 to make its work with sustainability more visible as a factor that distinguishes SPP from its competitors. The SPP brand has grown stronger, and the sales of unit linked pension savings to companies are increasing.
A growing number of Norwegian companies are choosing to convert from defined benefit to defined contribution pensions due to a desire for predictable costs and higher expected pensions for employees This applies also to Storebrand, and from 1 January 2015 all of the employees in Norway will be members of a defined contribution pension scheme.
On 1 September, the Norwegian authorities gave around one million Norwegians the opportunity to exchange their paid-up policies with a guarantee for paid-up policies with investment choice. Storebrand launched this for its around 400,000 paid-up policy customers as early as 15 October. Storebrand is the only company that offers this to all of its employed paid-up policy customers. This gives many customers an opportunity to manage their pension assets, which may give them a higher return and thus a better pension. Good advice is important, and, both on our websites and over the phone, we focus on giving good advice and recommendations adapted to each individual customer. Storebrand’s CEO, Odd Arild Grefstad, was the first customer to switch to a paid-up policy with investment choice, and by the end of the year around 3,500 customers had done the same with just under NOK 1 billion.
thority of Norway in March 2013 to introduce a new mortality tariffs. The reason for the need to strengthen the reserves is the fact that Norwegians are expected to live longer than assumed earlier in combination with the fact that Storebrand has insurance liabilities with lifelong disbursements. This requires increased premiums and higher insurance technical reserves to cover future liabilities. In April 2014 Storebrand applied to the Financial Supervisory Authority of Norway for a seven-year escalation plan to cover the strengthening of reserves required as a result of the introduction of the new mortality tariffs. Storebrand should complete the strengthening of its reserves by the end of 2020.
It is expected that a minimum of 20 per cent or NOK 2.5 billion of the total required strengthening of the reserves shall be covered by the owner. It is assumed that some of this will be financed through the loss of profit for paid-up policies during the reserve build-up period with the present profit sharing model (20 per cent to the owner). The size of the owner’s contribution depends on the length of the escalation plan, principles for building up the reserves, as well as the return and risk surpluses during the escalation period, and the pension scheme’s portion of the build-up of reserves may thus exceed 20 per cent of the reserve strengthening requirement.
In a period of low interest rates and building up of reserves for higher life expectancy, the profit sharing within group pensions is expected to be reduced. At the same time the bulk of the business is being shifted from guaranteed pensions to unit linked savings. The Board has established as a target that Storebrand shall adapt to the changes in the European solvency regulations without raising new equity. The target is a Solvency II margin of 130 per cent, including the use of transitional rules. We will report on this target throughout 2015. The Board is maintaining a dividend payout target in a normal situation of more than 35 per cent of the result after tax, but before amortisation costs. The dividend policy states that dividends shall be adjusted such that the Group is assured the right capital structure.
Storebrand has the following financial targets: (NOK million) Targets Status 2014
Figure: Storebrands business areas include the segments Savings, Insurance, Guaranteed Pension and Other.
The Storebrand Group’s group result before write-downs and amortisation of intangible assets was NOK 3,032 million in 2014, compared with NOK 2,938 million in 2013. After amortisation, the result was NOK 2,601 million compared with NOK 2,199 million in 2013. Fee and administration income increased 0.5 per cent for the year. Adjusted for discontinued business, the annual growth rate is 5 per cent. The underlying income performance is marked by higher income from products without guaranteed interest rates and a decline in income from products with guaranteed interest rates. The dissolution of reserves in the Swedish business in the fourth quarter had a positive impact on the risk result for life and pension. Insurance premiums increased by 2.7 percent in 2014.
The operating costs declined by NOK 571 million due to the transition from defined benefit to defined contribution pension schemes in the Norwegian business. The underlying operating costs for 2014 declined 2 per cent compared with the previous year1. The cost programme contributed to a reduction of the operating costs for the year, and Storebrand has successfully reduced its operating costs by NOK 400 million in accordance with the target that was announced since 2012.
Profit sharing and loan losses show a good underlying result performance. Changes were made to the actuarial assumptions in the Swedish business towards the end of the year, which had a negative effect on the result. The strengthening of the longevity reserves is charged directly to the result in the amount of NOK 391 million in 2014 and indirectly by means of lost profit sharing amounting to NOK 229 million. NOK 2,282 million has been set aside from customer returns for the year to strengthen the longevity reserves. The income tax expense for 2014 totalled NOK 516 million. The effective tax rate is influenced by the fact that the Group has operations in countries with tax rates that are different from Norway (27 per cent) and the tax effects related to prior years.
1) Adjusted for the non-recurring effects related to pensions in 2014 and pensions and restructuring in 2013. For more information on the total effect of the change to the pension scheme, see Note 25. Without adjustment for these effects, the cost reduction would be 11 per cent. Comments regarding the development of the result figures in the report are exclusive of the aforementioned effects.
Insurance shows good underlying profitability and growth in P & C and health insurance. The result is weaker than the previous year due to the substantial dissolution of reserves in the Swedish business in 2013. The underlying performance for the area is satisfactory.
Results The profit for Savings totalled NOK 1,047 million in 2014, which is an increase of 44 per cent compared with 20133. The earnings improvement is
attributed to a combination of volume and income growth in all parts of the business, good average margins in banking and good cost control.
The asset management business area provides a full range of savings and investment products for institutional, external and internal customers in both Norway and Sweden, as well as mutual funds for the retail market. Of the actively managed equity and combination products, 83 per cent delivered a better return than their benchmark indices. Of the fixed income funds, 79 per cent beat their benchmark indices. The customers’ investment portfolios have achieved a a combined excess return of NOK 2.2 billion in 2014. Assets under management rose by 10 per cent in 2014 to NOK 535 billion at the end of the year. Good volume growth from both external and internal customers resulted in 10 per cent income growth in the asset management area, compared with 2013.
Balance sheet and market trends Unit linked Premium income amounted to NOK 9.9 billion in 2014, which is marginally higher than 2013. Net transfers is significantly lower than in 2013, but still positive at NOK 77 million. While transfers in Norway significantly improved, the Swedish business made a negative contribution due to higher transfers out and less conversion from defined benefit to defined contribution pension schemes. Total reserves for non-guaranteed savings have grown by 23 per cent in 2014.
In the Swedish market, SPP is the third largest participant in the Swedish market in terms of new sales of unit linked insurance in the other occupational pensions segment, with a market share of 14 per cent. Premium income is 4 per cent lower than in 2013 as a result of higher transfers out and lower conversion from defined benefit schemes. New sales remain at approximately the same level as the previous year. In 2013, SPP was chosen to be one of several suppliers in the largest pension platform in Sweden (ITP scheme), and initiated activities that have had a positive effect. Other sales channels are showing net results that are somewhat lower in 2014.
5) Health insurance is owned 50 per cent each by Storebrand ASA and Munich Health.
6) Adjusted for the positive non-recurring effects related to pensions in 2014 and pensions in 2013. Without adjustment for these effects, the reduction would be 16 per cent.
Storebrand enjoys a well-established position in the retail market for personal insurance and is in a challenger position within P&C insurance. The growth in personal insurance was stable and in line with general market growth. The sale of P&C insurance is still increasing and takes place primarily through direct channels, which contributes to a cost-effective distribution model.
Results The profit for Guaranteed Pension totalled NOK 1,074 million in 2014, which was a decline of NOK 302 million compared with 2013.
New subscriptions for guaranteed pensions have been closed for most products, however, premium payments and the accumulation of returns for existing customers is leading to a long-term decline in reserves.
The risk result made a significant contribution to the result in 2014, amounting to NOK 483 million. The result is marked by the dissolution of reserves in SPP (Swedish business) totalling NOK 461 million. Most of this arose towards the end of the year.
In the Norwegian business, NOK 98 million of the risk result that would have normally been transferred to the risk equalisation reserve and the owner’s result, was allocated to the longevity reserves. In addition, the disability reserves were strengthened in 2014.
The strengthening of the longevity reserves was charged directly to the result in the amount of NOK 391 million in 2014 and indirectly by means of lost profit sharing amounting to NOK 229 million. This includes NOK 31 million to strengthen the longevity reserves for paid-up policies as a result of conversion to paid-up policies with investment options. In addition, there is the effect from the risk equalisation reserve mentioned above.
Customer buffers as a % of customer portfolios at Storebrand 6,6% 4,8%
The operating costs have been reduced 14 per cent in 2014, adjusted for changes in the pension scheme in 2014 and 2013, as a result of the effects of the cost programme and downscaling of the corporate bank.
The Life Insurance Group’s solidity capital, which consists of equity and subordinated loans, as well as the market value adjustment reserves, additional statutory reserves, conditional bonus and other solvency capital in the life insurance business, amounted to NOK 64.7 billion at year end, compared with NOK 54.1 billion a year earlier. In addition to the profit for the year of NOK 1.8 billion, the NOK 2.0 billion increase in the market value adjustment reserve, higher additional statutory reserves of NOK 0.7 billion and a higher excess value in bonds held at
amortised cost of NOK 8.2 billion contributed to this. The conditional bonus was, however, reduced by NOK 2.9 billion, primarily as a result of the falling interest rate level in Sweden. For further information, see Note 53 in the financial statements.
RISK Storebrand’s business is to assume and manage various risks in a deliberate, controlled and responsible manner, at the expense of both the customers and the owners. The overall aim is for the Group to receive adequate payment for assuming the risk in relation to defined rates of return.
Risk management is about looking at both the positive and negative aspects of risk. Risk-taking should contribute to Storebrand achieving its strategic and commercial targets, including customers receiving a competitive return on their pension products.
As a business requiring a licence, the Storebrand Group and the individual companies are subject to supervision by the Ministry of Finance. Risk management must satisfy the formal requirements pursuant to legislation and other regulations. The level of risk-taking shall be in accordance with the regulatory requirements and other needs of customers, shareholders, lenders, rating companies, etc. Undesired incidents shall be limited. The future Solvency II regulations expand and formalise the requirements for risk management.
SAVINGS The Savings business area comprises products without guaranteed interest rates for pension savings. The area includes defined contribution pensions in Norway and Sweden, supplemental pension solutions, asset management and bank products to private individuals.
In property and casualty insurance, most of the risk is linked to the development of prices and claims payments from car and home insurance.
A common feature of the products is that Storebrand guarantees a minimum return. The level of the guarantee varies. In Sweden new premiums in IF have a 0.5 per cent guarantee, whereas existing reserves have up to a 5.2 per cent guarantee. In Norway, new premiums are accepted in 2014 with a 2.5 per cent guarantee, whereas existing portfolios primarily have guarantee levels of between 3 and 4 per cent. From 2015, new premiums will have a 2.0 per cent guarantee. Over time new premiums will contribute to the average guarantee level falling.
In Norway, the return must exceed the guarantee in each year, while in Sweden it is sufficient to achieve the guaranteed return as an average. In Norway, a new mortality tariff was introduced for defined benefit occupational pensions and paid-up policies from 2014. For the existing contracts, an application has been submitted for a 7-year escalation plan, and customer returns exceeding the guarantee can contribute to building up reserves. During the escalation period, it gives an increase in risk that may be compared with increasing the interest rate guarantee. Storebrand’s contribution must be at least 20 per cent of the overall reserve strengthening.
reinvestment risk if interest rates fall below the guarantee in the future. Accounting based on the amortised cost of long-term bonds is a key risk management tool. Eliminating the interest rate risk in Norway is not possible. This is due to both product rules with annual guarantees and that there is not sufficient access to long bonds or interest rate swaps. The introduction of Solvency II will make the interest rate risk more visible in the solvency calculation.
The extraordinarily strong bond market in combination with good equity markets has yielded a very good return for the guaranteed customer portfolios in 2014. In Norway, most of the effect of the fall in interest rates was in the form of sharply higher excess amortised cost values reducing the risk that Storebrand’s contribution to reserve strengthening is higher than expected.
Paid-up policies have a particularly high risk in a low interest rate scenario, because there are very limited opportunities for changing the price or terms. From September 2014 amendments were adopted to allow the customers to choose to convert paid-up policies to paid-up policies with investment choice (FMI). Storebrand offered the product from October 2014. It is a prerequisite that the paid-up policy is fully reserved upon conversion, and any reserve shortfalls must be covered by Storebrand. Upon conversion to a paid-up policy with investment choice the financial market performance risk passes to the customer, but, for many customers, this will give a higher expected return and thus larger pension payments. For IF in Sweden, it is also possible for the customer to change to a product without a guaranteed return.
The bulk of guaranteed pension agreements have lifelong disbursements. These give higher disbursements if life span increases more than expected. Dynamic tariffs, that include a trend for increased lifespan, are the most important risk management tools. This has been introduced in Sweden and will be introduced in Norway from 2014 for defined benefit occupational pensions and paid-up policies. In December 2014, adjusted mortality assumptions were introduced in Sweden that entail a strengthening of the longevity reserves.
OTHER Other comprises Storebrand ASA, as well as the company portfolios and smaller subsidiaries in Storebrand Life Insurance and SPP. In addition, this segment comprises lending to commercial enterprises by Storebrand Bank and the activities of BenCo.
EUROPEAN REGULATIONS Solvency II Solvency II is a set of regulations covering solvency that will apply to all insurance companies in the EEA area. The regulations will be introduced from 1 January 2016.
The European supervisory authority EIOPA has made recommendations for ensuring continued progress in preparations for Solvency II. FSA determined that the recommendations shall be followed from and including 1 January 2014. This means that the requirements in Solvency II for business management and controls (pillar 2) will be phased in, including requirements for self-assessment of risk and solvency (ORSA), and that parts of the reporting requirements to the supervisory authorities (pillar 3) will be introduced for annual reporting. The capital requirements (pillar 1) and the reporting requirements for the market will not apply until the formal Solvency II implementation on 1 January 2016.
NORWEGIAN REGULATIONS New mortality tariffs (K2013) The Financial Supervisory Authority of Norway determined in March 2013 that a new mortality basis would be introduced for group pension insurance in life insurance companies and pension funds effective from 1 January 2014. This requires increased premiums and higher insurance technical reserves to cover future liabilities.
On 2 April 2014, the Financial Supervisory Authority of Norway announced the guidelines for the companies’ strengthening of reserves for the new mortality basis. They opened up the possibility of escalation plans with a duration of up to seven years. Customer surpluses may be used to cover the required build-up of reserves. It has been clarified that surpluses cannot be used on a joint and several basis. Surpluses on a specific contract cannot be used to cover this contract’s required strengthening of reserves. A minimum of 20 per cent of the total required strengthening of reserves should be covered by the company with equal contributions each year. The company’s contribution shall be added at the contract level.
Public service pensions The public sector occupational pension schemes have not yet been adapted to the new National Insurance Scheme principles of all-years accrual and flexible pension withdrawal with an opportunity to combine employment and pensions without any reduction of the pension. A longevity adjustment has been introduced, but employees in the public sector born in 1958 or earlier have been given an individual guarantee that the combined benefits from the National Insurance Scheme and occupational pensions will represent at least 66 per cent upon a full contribution period. It is still not clear what will happen with the pension for employees born in 1959 or later.
The Government’s political platform states: “The Government will continue its implementation of the pension reform in both the private and public sectors. This means, for example, that they will find solutions that reduce the differences between the pension systems in the private and public sectors together with the parties in working life.”
It is expected that the Government will start a process related to this by the end of 2015.
SWEDISH REGULATIONS Gransbo report The Swedish authorities have commissioned two official reports to assess whether occupational pensions should be treated in accordance with the EU rules IORP (Occupational Pension Directive) or the Solvency II rules. Both the Barr report from 2012 and the Gransbo report submitted on 27 August conclude that Swedish life insurance companies can choose to treat their occupational pension operations in accordance with IORP, and thus be subject to the same capital requirements as pension funds for this part of their business. The report proposes using the capital requirement in Solvency I as a starting point, supplemented with special risk-based capital requirements.
It is proposed that the rules enter into force on 1 January 2016. The companies will be given the opportunity to choose until 1 January 2017. The proposal has been circulated for consultation, and a bill is expected to be submitted in the middle of January 2015. (uncertain whether this will be ready before the accounts are “printed”, business and industry policy)
Proposal to ban commissions The Ministry of Finance’s report “DS 2014:22 Reinforcing consumer protection in insurance mediation” proposed strengthening consumer protection by regulating the use of commissions. In its consultation comments, the Swedish Financial Supervisory Authority Finansinspektionen proposed prohibiting certain types of commission and requested that the regulatory provisions be delegated to Finansinspektionen. The report has been linked now with the work to implement MIFID II in Swedish law. This report is expected on 31 January 2015, with consultation in the spring of 2015.
FUNDAMENTAL PRINCIPLES Storebrand has signed the UN’s principles for responsible business operation, the Global Compact. These principles provide a foundation for our sustainability guidelines. We support the UN’s human rights conventions, the UN’s environmental conventions, the ILO’s core conventions and the UN Convention against Corruption. We have also signed the UN Principles for Responsible Investment (PRI) and the UN Principles for Sustainable Insurance (PSI).
Sustainable development is characterised by development that meets the needs of the current generation, without being at the expense of opportunities for future generations to satisfy their needs. For Storebrand, sustainability is a matter of our own long-term business outlook and security for our customers. As a supplier of pension saving solutions, it is essential that we are able to take a long-term perspective and generate a return for our customers, without making a negative impact on the world in which our customers will retire.
Every department is tasked with minimising our environmental footprint by focusing on the consumption of resources. The emissions that we nevertheless have, through travel and the consumption of energy, are compensated for through purchasing verified emission allowances within the framework of the REDD programme and Verified Carbon Standard. In 2014, Storebrand established cooperation with Wildlife Works for the purchase of emission allowances from the Kasigau Wildlife Corridor in Kenya, a threatened forest area of high biological importance.
We want to be transparent, and submit annual reports to a number of sustainability indices, including the Carbon Disclosure Project, the Dow Jones Sustainability Index, Vigeo, Sustainalytics and FTSE4Good. In 2014, Storebrand was one of 16 companies in the world who have been a DJSI World member since the start for 15 years in a row. Our sustainability reports follow the guidelines from the Global Reporting Initiative – G4 guidelines.
On the Corporate Knights Inc. list of the 100 most sustainable companies in the world, Storebrand is number 20 and is thus ranked at the most sustainable company in Norway.
Our head office in Oslo holds environmental certification from the Eco-Lighthouse Foundation, and SPP’s new head office in Stockholm was certified at the Sweden Green Building Council “Gold” level and the “Excellent” BREAAM level in 2014. All products and the choice of building materials were approved by Sundahus.
The minimum standard for sustainable investments was renamed the Storebrand Standard in 2014. The purpose of the name change was to clarify that this is Storebrand’s own standard and stress that this is not a low level, but actually the strictest minimum requirements in the market. The Storebrand Standard applies to Storebrand’s self-managed assets. The requirements apply to both equities and bonds, in Norway and internationally. The standard means that we exclude individual companies that are in violation of international norms and conventions or are among the poorest 10 per cent of the companies in high-risk industries. In 2014, we intensified our efforts to reduce our exposure to companies that cause major climate damage. At the end of 2014, 49 companies were excluded on the basis of climate criteria.
Active ownership is exercised to influence companies in the direction of sustainability and to get to grips with challenges related to global sustainability trends. Influencing the companies in our portfolio takes place both through direct contact and cooperation with our external managers and through UNPRI.
Storebrand invests globally on behalf of our customers to ensure a well-diversified portfolio, and we are concerned about the companies in which investments are made being sustainable. This also implies that an attempt shall be made to avoid investing in companies that are involved in corruption and financial crime, including tax evasion.”
SUSTAINABILITY IN INSURANCE Storebrand Insurance contributes to creating a sustainable society by providing financial security to customers if an accident were to occur. Storebrand Insurance works with sustainability in two dimensions: Through beneficial pricing when the customers show sustainable behaviours and by developing products and concepts intended to prevent injury, disability and health problems. Storebrand monitors whether our corporate customers run their businesses on the basis of socially responsible principles. For example, a company that is working well in the areas of health, environment and safety will be rewarded in the form of a lower price on employee insurance. In this way we want to stimulate sustainability in our customers’ operations.
Storebrand wants to focus in particular on the prevention of injury, disability and health problems. Insurance concepts that actively help employees who become ill to return to work quickly and thereby reduce the risk of permanent disability are positive for the individual, society and the insurance company. An important instrument in this context is health insurance, where we can establish dialogue with the employee and implement a course of treatment to bring the employee back to work quickly.
Storebrand Insurance shall strengthen our customer communication and raise the visibility of work that is currently being undertaken, both in relation to the prevention of injuries and product development. We will show customers what opportunities they have to choose socially responsible alternatives within insurance as well. We will carry this out by emphasising what customers can do, through both large and small measures, to contribute to a sustainable society. Our aim is to contribute to our customers having a more sustainable behaviour with respect to social and financial matters, as well as the environment.
REPORTING AND MANAGEMENT SYSTEMS The Group has published environmental reports since 1995, and sustainability reports based on the tripartite bottom line (finances, corporate social responsibility and the environment) since 1999. The sustainability reporting has been an integral part of the annual report and audited by an independent party since 2008. Storebrand follows the guidelines of the Global Reporting Initiative (GRI G4 guidelines) for reporting.
The scorecard for sustainability is a collection of goals that reflect our sustainability ambitions to our customers, owners, employees, suppliers and partners. The scorecard for sustainability contains goals that regulate our work with respect to finances, corporate social responsibility and the environment based on two-year and five-year periods. The goals and development of our scorecard for sustainability is part of our annual report. All of the goals on the scorecard for sustainability have a responsible executive vice president, and their progression is followed up each quarter by the executive management. The scorecard for sustainability is adopted by the Board of Directors of Storebrand ASA.
DIALOGUE WITH THE OUTSIDE WORLD We have an impact on our society, and our society has an impact on us. Our sustainability work relies on a close dialogue with key players in society. Each year we arrange a dialogue with stakeholders in which we answer questions and receive feedback on what is expected of us and our work on sustainability. In 2014, the subject of this dialogue was sustainability and consumer behaviour.
STOREBRAND GROUP’S SUSTAINABILITY GUIDELINES Sustainability is integrated into Storebrand’s values, our vision, core values and promises to customers. In 2014, we expanded our guidelines so that they also encompass the insurance business. Work on sustainability in insurance has been ongoing for a number of years, and we would like to make this part of our sustainability work visible now. The following guidelines are fundamental to our work: • Storebrand’s ambition is to contribute to solving society’s problems and to create sustainable development locally and globally through our products and services.
• Storebrand will combine profitable business operations with social, ethical and environmental goals and activities. • Storebrand makes demands with regard to sustainability, corporate social responsibility, environmental work and ethics within the Group and for all of our partners and suppliers. • Sustainability must permeate our development of new financial products and services, and it must be fully integrated with our asset management.
• Storebrand shall integrate sustainability considerations in our insurance business, in the area of product development, customer service and marketing • Storebrand shall ensure a continuously lower environmental impact from our operations. • Storebrand shall actively seek to prevent any activities that are harmful to society or criminal acts taking place in connection with our operations.
DIVERSITY The Group has increased its diversity along the same lines as society in general. In 2014, the Group received a score of 83 out of 100 in an internal questionnaire regarding the Group’s level of ambition and work with diversity. This is up from 81 for the previous year. The Group works systematically with the composition of the employees to ensure that it reflects our society in general. The average age at Storebrand is 40, and the average seniority is 9 years. Storebrand had 2,232 employees in the Group at year end. This is an increase of 94 employees in comparison with the start of the year.
At the end of the year, 45 per cent of the managers in the Group were women, and 52 per cent of the employees are women. In SPP 53 per cent of the managers are women. This positive trend is a result of our systematic efforts to identify future managerial candidates and promote even gender distribution. There has been a focused effort on management development in the areas of communication and change management. The aim is to ensure that future competence requirements are met, employer branding and that the best managers in the financial sector work for Storebrand. Professional and administrative competence shall have equal status with regard to salary levels and career opportunities. There should be a good balance between women and men at all levels of the company, and Storebrand will therefore strive to have more women in the governing bodies, managerial positions and specialist positions. This will be ensured through various development and training programmes. No significant salary differences have been identified that can be attributed to gender discrimination. Moreover, this is something that the company will follow up and measure regularly.
In 2014, 40 per cent of Storebrand ASA’s board members were women. The proportion on the subsidiaries’ boards is 41 per cent, and, in the executive management, it is 38 per cent, which is the same as the previous year.
ANNUAL EMPLOYEE SURVEY (MTI) The numbers from the MTI survey showed a positive trend. The MTI score for job satisfaction improved from 69 in 2013 to 71 in 2014. Job satisfaction is measured by looking at a combination of the satisfaction and motivation scores, and it is affected indirectly by seven priority areas. This is considered very positive. The employer’s reputation among the employees has improved by two points. When the employees are asked whether they think that it is valuable that the Storebrand Group desires to have a leading position in sustainability, the trend is still positive, with an improvement over 2014.
ABSENCE DUE TO ILLNESS The Group’s absence due to illness rate has been stable for many years or declined somewhat. This trend is continuing. The absence due to illness rate for the Group as a whole in 2014 was 3.4 per cent: it was 3.8 per cent in Norway, 3.3 per cent in SPP and 1.4 per cent in Storebrand Baltic.
Storebrand Norway has been an “inclusive workplace” (IA) company since 2002, and the Group’s managers have over the years built up good routines for following up sick employees. All managers with Norwegian employees must complete a mandatory HSE course, in which part of the training involves following up illnesses.
Storebrand’s health clinics at the head office in Norway provided treatment on more than 2,825 occasions in 2014 and have also provided training guidance and workplace assessments for employees. Health checks and the health clinics, as well as health insurance for all employees, are making a positive contribution to the low absence due to illness rate.
Employees at the head office in Norway can work out in the spinning room, weights room and in a separate sports hall during and outside of working hours. As many as 65 per cent of the employees in Norway are members of Storebrand Sport. All employees in Sweden are members of SPP Leisure, where they have access to subsidised exercise and wellness. Like in the head office in Norway, employees have access to a training facility with a variety of activities and organised training.
Employees take the company’s e-learning course on ethics. The Group has a mandatory ethics course for managers, which includes money laundering and corruption. A total of 16 such courses were held in 2014. Managers work with dilemmas taken from everyday life at Storebrand. Small e-learning modules in ethics are also distributed to all the employees.
The company’s authorised financial advisors complete a specially tailored training programme in ethics.
At Storebrand, all of the employees should have an opportunity to develop in step with the company’s needs. In 2014, the company has focused on the fact that the greatest and most important part of skills development takes place through facilitating development as part of the
everyday work. Skills development should take place be assigning challenging tasks to employees in their positions, and that they are allowed to develop themselves for new requirements and tasks. The professional competence of employees should be made broader, so that it can contribute to greater adaptability for individuals and a greater restructuring capacity for the Group. The Group offers e-learning courses and classroom courses on different subjects. In 2014, 1,300 employees completed e-learning courses and 1,500 have participated in classroom courses on technical insurance subjects.
The Storebrand Academy is the Group’s initiative for custom management development programmes. In 2014, a programme was arranged for intermediate managers that focused on the consequences of the Group’s strategic goals and actions plans on the role of the manager. In 2014, 20 managers completed the programme that has lasted for over a year. A new group of managers started the same programme in the autumn of 2014.
Conversions from defined benefit to defined contribution pension schemes entails the issuance of paid-up policies, which reduces the Group’s earnings. The termination of activities related to defined benefit pensions for the public sector and the business bank will also result in lower income for a transitional period.
Storebrand’s results will during the period from 2014 to 2020 be burdened by a minimum of 20 per cent of the costs associated with strengthening the reserves for higher expected longevity. The final amount will, among other things, depend on risk results and returns to the customer portfolios. The building up of reserves for higher projected life expectancy is described in further detail in the introduction and in Note 3.
RISK Storebrand is exposed to several types of risk through its business areas. Trends in interest rates and the property and equity markets are deemed to be the most significant risk factors that can affect the Group’s result. Over time, it is important to be able to deliver a return that exceeds the interest rate guarantees of the products. Risk management has therefore high priority in the management of the Group. In addition, the disability and life expectancy trends are key risks. The risk associated with the business is described in greater detail in a separate section earlier in the report.
Pursuant to Norwegian accounting legislation, the Board of Storebrand ASA confirms that the company meets the conditions for preparing the financial statements on the basis of a going concern assumption. The Board is not aware of any events of material importance to the annual and consolidated financial statements that have occurred since the balance sheet date.
ALLOCATION OF THE PROFIT FOR THE YEAR The profit for the year ended 31 December 2014 for Storebrand ASA was NOK 273 million, compared with NOK 281 million for 2013.
Good corporate governance is important to ensure that an enterprise can achieve its defined goals, including best possible utilisation of resources and good value creation. The Storebrand Group (“Storebrand”) works continuously on improving both the overall decision-making processes and the day-to-day management of the company.
Storebrand’s principal focus within sustainability is sustainable investments. Storebrand has worked with sustainability systematically and in a goal-oriented manner for almost 20 years. This work is clearly based on Storebrand ’s vision and core values Storebrand’s sustainability guidelines are based on the principles set forth in the UN Global Compact and the UN’s Principles for Responsible Investment. See the separate article in the annual report on page 12-16.
Storebrand has its own code of ethics. Guidelines for whistle-blowing, social events, combating corruption, etc. have also been established. Based on the employee survey conducted in 2014, the employees gave a score of 86 (scale of 1-100) concerning the importance of the ethical guidelines in their day-to-day work.
Storebrand ASA would like to have various tools available for its efforts to maintain an optimal capital structure for Storebrand. At the 2014 Annual General Meeting, the Group’s Board of Directors was granted authorisation to increase the share capital through issuing new shares for a total maximum value of NOK 224,954,945. This authorisation may be used for the acquisition of businesses in consideration for new shares or increasing the share capital by other means. The Group’s Board of Directors may decide to waive the shareholders’ preferential rights to subscribe for new shares in accordance with the authorisation. The authorisation may be used for one or more
Deviation from the Code of Practice: The Board’s authorisations to increase the share capital and buy back shares are not completely limited to defined purposes. No provisions have been made for the General Meeting to vote on each individual purpose to be covered by the authorisations.
The share capital has not been increased in 2014, but an authorisation has been granted to increase the share capital, cf. section 3 above. The Board of Directors may decide to waive the shareholders’ preferential rights in connection with share capital increases.
At the 2010 Annual General Meeting, the Articles of Association were amended so that the requirement in the Norwegian Public Limited Companies Act or the Articles of Association that documents concerning matters to be considered at the General Meeting must be sent to the shareholders does not apply if the documents are made available to the shareholders on the company’s website. This also applies to documents that are to be included in or attached to the notice of the general meeting pursuant to the Norwegian Public Limited Companies Act or the Articles of Association. A shareholder may nevertheless request that the documents concerning the items to be discussed are sent free of charge.
General Meeting. It is also possible to vote by proxy. Provisions have been made so that the proxy form is linked to each individual item to be considered. We will seek whenever possible to design the form so that it allows voting for candidates who are to be elected. The voting rules for the General Meeting allow separate votes for each member of the various bodies. Further information about voting in advance, use of proxies and shareholders’ rights to have matters discussed at the General Meeting is available in the notice of the General Meeting and on Storebrand’s website.
• The General Meeting makes decisions concerning the following: • Approval of the annual report, financial statements and any dividend proposed by the Board.
• Election of an external auditor and fixing the auditor’s remuneration.
The chairman of the Nomination Committee and the other members are elected by the General Meeting. The Articles of Association stipulate that the chairman of the Board of Representatives shall be a permanent member of the Nomination Committee, if the person concerned has not already been elected by the General Meeting. In addition to the shareholder-elected members, a representative for the employees shall participate as a permanent member of the committee in discussions and nominations concerning the election of the Chairman and Deputy Chairman of the Board of Representatives and the Chairman of the Board, as well as in other contexts where it is deemed natural, upon receiving notice from the Chairman of the Committee (as an observer in the latter case).
for the companies’ governing and controlling bodies: competence, experience, capacity, gender distribution, independence and the interests of the community of shareholders. More information about the members has been published on the Group’s website. The Nomination Committee contacts the company’s 15 largest shareholders annually and requests that they propose candidates for the company’s Board of Representatives, Control Committee, Nomination Committee and Board of Directors. A corresponding request to the shareholders is published on the company’s website.
The Nomination Committee is tasked with proposing candidates and fees for the Board of Representatives, Control Committee and Nomination Committee, through recommendations to the General Meeting, and proposing candidates and fees for the Board of Directors, through recommendations to the Board of Representatives. The Nomination Committee for Storebrand ASA is also the nomination committee for the group companies Storebrand Livsforsikring AS, Storebrand Bank ASA and Storebrand Boligkreditt AS.
The duties of the Board of Representatives include making recommendations to the General Meeting regarding the Board’s proposed annual report and financial statements, electing between five and seven shareholder-elected board members, including the Chairman of the Board, fixing the remuneration paid to board members, prescribing the rules of procedure for the Control Committee’s work, and considering reports from the Control Committee. The Board of Representatives is entitled to make recommendations to the Board on any matter.
The Articles of Association stipulate that between five and seven board members shall be elected by the Board of Representatives based on nominations from the Nomination Committee. Two members, or three members if the Board of Representatives elects six or seven directors, shall be elected by and from among the employees. The board members are elected for one year at a time. The day-to-day management is not represented on the Board of Directors. After a by-election to fill a vacancy on the Board of Directors in September 2014, the Board of Directors consisted of ten members (six men and four women).
9. THE WORK OF THE BOARD OF DIRECTORS (NO DEVIATIONS FROM THE CODE OF PRACTICE) Board’s duties The Board meets at least 11 times a year. In 2014, a total of 11 board meetings were held, one of which was held at the subsidiary SPP in Stockholm. Storebrand’s future strategy is discussed at the Board’s annual strategy meeting, which establishes guidelines for the management’s preparation of plans and budgets in connection with the annual financial plan, which must be approved by the Board. The Board shall stay informed about Storebrand’s financial position and development, and it shall ensure that the company’s value creation and profitability are safeguarded in the best possible manner on behalf of the owners. The Board shall also ensure that the activities are subjected to adequate control and ensure that
Storebrand has adequate capital based on the scope of, and risks associated with, its activities. The attendance records of individual board members are provided in the overview of the governing and controlling bodies on page 58. The work of the Board is regulated by special rules of procedure for the Board, which are reviewed annually. In order to ensure sound and well-considered decisions, importance is attached to ensuring that meetings of the Board are well prepared so that all the members can participate in the decision-making process. The Board prepares an annual schedule for its meetings and the topics it will consider. The agenda for the next board meeting is normally presented to the Board based on the approved schedule for the year and a list of matters carried forward from previous meetings.
The Remuneration Committee assists the Board with all matters concerning the CEO’s remuneration. The committee monitors the remuneration of Storebrand’s executive personnel, and proposes guidelines for the fixing of the executive personnel’s remuneration and the Board’s statement on the fixing of the executive personnel’s remuneration, which is presented to the General Meeting each year. In addition, the committee safeguards the areas required by the Remuneration Regulation. The Compensation Committee held five meetings in 2014.
The Audit Committee assists the Board by reviewing, evaluating and, where necessary, proposing appropriate measures with respect to the Group’s overall controls, financial and operational reporting, risk management, and internal and external auditing. The Audit Committee held seven meetings in 2014. The external and internal auditors participate in the meetings. The majority of the Committee’s members are independent of the company. The Board of Directors has found that it is appropriate to have a combined Remuneration Committee for all of Storebrand.
Storebrand has applied for exemption from the requirement of establishing a separate risk committee 10. RISK MANAGEMENT AND INTERNAL CONTROL (NO DEVIATIONS FROM THE CODE OF PRACTICE) MANAGEMENT AND CONTROL Storebrand ASA’s Board of Directors has drawn up general policies and guidelines for management and control. These policies deal with the Board’s responsibility for determining Storebrand’s risk profile, approval of the organisation of the business, assignment of areas of responsibility and authority, requirements concerning reporting lines and information, and risk management and internal control requirements. The Board’s and CEO’s areas of responsibility are defined in the rules of procedure for the Board and instructions for the CEO, respectively.
As an extension of the general policies and guidelines, a code of ethics has been drawn up that applies to all employees and representatives of Storebrand, in addition to corporate rules for areas such as risk management, internal control, financial reporting, handling inside information and share trading by primary insiders. Guidelines and information about information security, contingency plans, measures against money laundering and other financial criminality have also been drawn up. Storebrand is subject to statutory supervision in the countries where it has operations that require a
licence, including the Financial Supervisory Authority of Norway, as well as its own supervisory bodies and external auditor.
Risk assessment forms part of the managerial responsibilities in the organisation. The purpose of this is to identify, assess and manage risks that can hamper a unit’s ability to achieve its goals. Developments in the financial markets are important risk factors in relation to Storebrand’s earnings and solvency position. In addition to assessing the effects of sudden shifts in the equity markets or interest rates (stress tests), scenario analysis is used to estimate the effect of various sequences of events in the financial markets on Storebrand’s financial performance and solvency. This provides important premises for the Board’s general discussion about risk appetite and risk allocation.
The appraisal of Storebrand employees forms an integral part of the value-based management system and is designed to ensure that the Group’s strategies are implemented. The policies for earning and paying bonuses to Storebrand’s risk managers comply with the regulations relating to remuneration in financial institutions. The
Valuations associated with significant accounting items and any changes to policies, etc., are described in a separate document (Valuation Items Memo). The Board’s Audit Committee conducts a preparatory review of interim financial statements and annual financial statements, focusing in particular on the discretional valuations and estimations that have been made prior to consideration by the Board. The external auditor attends meetings of the Board as required and meetings of the Board’s Audit Committee.
11. REMUNERATION OF THE BOARD OF DIRECTORS (NO DEVIATIONS FROM THE CODE OF PRACTICE) The General Meeting fixes the Board’s remuneration annually on the basis of the recommendations of the Nomination Committee. The fees paid to the members of the Board are not linked to earnings, option schemes or similar arrangements. Members of the Board and Board Committees do not receive incentive-based remuneration; instead they receive a fixed annual compensation, either per year or per meeting the member attends, or a combination of such remuneration. The shareholder-elected members of the Board do not participate in the company’s pension schemes. None of the shareholder-elected members of the Board carry out any duties for the company beyond their appointment to the Board. More detailed information on the compensation, loans and shareholdings may be found in notes 26 (Group) and 6 (ASA). Board members are encouraged to hold shares in the company.
12. REMUNERATION OF EXECUTIVE PERSONNEL (NO DEVIATIONS FROM THE CODE OF PRACTICE) The Board determines the structure of the remuneration of executive personnel at Storebrand, and a statement on the fixing of remuneration (executive remuneration statement) is presented to the General Meeting. The executive remuneration statement shall clearly specify which guidelines are binding and which are advisory. From 2015, the General Meeting shall vote separately on the binding and advisory guidelines.
The “target bonus” shall account for 20-40 per cent of the fixed salary. The bonus awarded for a given year is subject to a fixed ceiling and cannot exceed 90 per cent of the fixed salary. More detailed information about the remuneration of executive personnel may be found in notes 26 (Group) and 6 (ASA) and in the Board’s statement on the fixing of salaries and other compensation for executive personnel, which is included in the notice of the General Meeting and available at www.storebrand.no. Executive personnel are encouraged to hold shares in Storebrand ASA, even beyond the lock-in period.
13. INFORMATION AND COMMUNICATIONS (NO DEVIATIONS FROM 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 General Meeting. Storebrand’s financial calendar is published on the Internet and in the company’s annual report. Financial information is published in the quarterly and annual reports, as described under section 10 – Financial information and Storebrand’s accounting process. Any documentation that is published will be available on the company’s website. All reporting is based on the principle of transparency and takes into account the need for the equal treatment of all participants in the securities markets and the rules concerning good stock exchange practice. Further information may be found on page 47. Storebrand has its own guidelines for handling insider information, see also section 10 – Management and control, above.
Further information on Storebrand’s corporate governance can be found at www.storebrand. no > About Storebrand > Facts on Storebrand, where we have also published an overview of the members of Storebrand’s governing and controlling bodies, CVs for the members of Storebrand ASA’s Board of Directors, the Articles of Association, and ownership policies.
1 The principles for Storebrand’s corporate governance have been prepared in accordance with Norwegian law, and they are based on the Norwegian Code of Practice for Corporate Governance published by the Norwegian Corporate Governance Board (NUES).
6 The composition of the governing bodies and a description of the main elements in the current rules of procedure and guidelines can be found in sections 6, 7, 8 and 9 above.
7 The provisions in the Articles of Association that regulate the appointment and replacement of board members are discussed in section 8 above.
8 Provisions in the Articles of Association and authorisations granting the board the authority to buy back or issue the Group’s own shares are discussed in section 3 above.
McPhee has worked for SPP since 2009. She has broad experience from the financial sector and has held executive positions at AMF Pension, Fjärde AP-Fonden and GE Capital Norden.
She has previously been CFO at Opplysningen 1881 AS, CFO / IR Head at Komplett ASA, CFO at Reiten & Co. ASA, Senior Manager at KPMG, and worked for the Nordea Group audit department.
Chairman of Principles of Responsible Investments (PRI) and Fronteer Solutions AS. Chairman of Kommunalbanken AS, Norfund and beCuriou Private Travel.
Caneman previously worked at SEB as Deputy CEO and Member of the Group Executive committee. Her previous roles have included Head of Corporates & Institutions, Head of Retail Services and Head of Nordic and Baltic Operations.
Stenstadvold is an independent adviser. His previous roles have included member of Orkla’s executive management, Managing Director of Orkla’s corporate staff functions, Senior VP at Christiania Bank and Parliamentary Secretary.
Storruste is the Senior Union Representative for Employees and head of the Finance Sector Union of Norway at Storebrand.
Storruste has previously worked at Storebrand Bank ASA as a project manager at the Product and Development department, process owner at the Development department, and senior consultant at the Credit Department Retail. Her previous positions include Gjensidige Bank AS, Incentiva Resultautvikling DA and Sparebankenes Kredittselskap AS.
Dyre Haug is a pension economist at Storebrand ASA. He has previously worked as Marketing Director at Sparebank 1 Livsforsikring and at the BI Centre for Financial Education.
He is Chairman of the Board of the Housing Foundation Youth Housing in Asker, a Board Member of the Asker and Bærum Housing Cooperative, member of the Council for Banking, Insurance and Finance Studies (BI), member of the Professional Council for Financial Education in Europe, Manager of the Project to Coordinate Competence in the Financial Services Industry and a deputy on the Asker municipal council.
Vareberg is Chairman of the Boards of Norsk Hydro ASA, NorDan AS, T.S. Eiendom AS, Malthus AS, I-Park AS, Solstad Trading AS and Lærdal AS. Member of the Boards of Solstad Offshore ASA, Energy Ventures AS, Lærdal Finans AS and Farsund Vekst AS.
DEPUTY MEMBERS (ELECTED BY SHAREHOLDERS) Per Otto Dyb (0) Joakim Gjersøe (0)
MEMBERS (ELECTED BY EMPLOYEES) Caroline Burum Brekke (1,666) Hanne Seim Grave (0) Nina Hjellup (5,880) May Helene Moldenhauer (275) Rune Pedersen (10,674) Trond Thire (0)
DEPUTY MEMBERS (ELECTED BY EMPLOYEES) Cathrine Kjenner Forsland (0) Alina Jakubenaite (8,109)
MEMBERS (ELECTED BY SHAREHOLDERS) Monica Caneman (0) Laila S. Dahlen (0) Gyrid Skalleberg Ingerø (0) Martin Skancke (1,414) Halvor Stenstadvold (8,645) Terje Vareberg (0)
MEMBERS (ELECTED BY EMPLOYEES) Knut Dyre Haug (11,963) Arne Fredrik Håstein (1,511) Heidi Storruste (2,865)
MEMBER Ole Klette (0) Harald Moen (595) Anne Grete Steinkjer (1,800)
MEMBER (ELECTED BY SHAREHOLDERS) Harald Espedal (0) Kjetil Houg (0) Olaug Svarva (0)
Storebrand shall be the best provider of saving for retirement. That means we must be the best in sustainable savings.
Storebrand is working to invest more of my money in the most sustainable companies. It gives good sense for both return and for the future. Kristina Picard Storebrand
Note 43 Bonds and other fixed-income securities Note 44 Derivatives Note 45 Technical insurance reserves - life insurance Note 46 Technical insurance reserves - P&C insurance Note 47 Deposits from Banking customers Note 48 Other current liabilities
Proft and loss account Statement of total comprehensive income Statement of Financial Position Reconciliation of equity Cash flow ananlysis
Note 1 Accounting policies Note 2 Income from investments in subsidiaries Note 3 Net income for various classes of financial instruments Note 4 Personnel costs Note 5 Pensions costs and pension liabilities Note 6 Remuneration to the CEO and elected officers of the company Note 7 Tax Note 8 Parent company’s shares in subsidiaries and associated Note 9 Bonds and other fixed-income securities Note 10 Financial derivatives Note 11 Financial risks Note 12 Tangible fixed assets Note 13 Bond and bank loans Note 14 Hedge accounting Note 15 Shareholders Note 16 Information about close associates Note 17 Number of employees/person-years Note 18 Capital requirements
Declaration by member of th Board and the CEO Independent auditor’s report Statement of the Controll Comittee and The Board of Representatives
Profit/loss for the year attributable to: Majority's share of profit 2,063 1,971
Average number of shares as basis for calculation (million) 447.4 447.1
There is no dilution of the shares 1) In consequence of the changes to the principles, the comparative figures have been restated. See further information in note 1 Accounting policies.
Tax on other result elements that may be classified to profit/loss -1
Intangible assets and excess value on purchased insurance contracts 31 5,710 5,987 6,096
Financial assets at fair value: - Bonds and other fixed-income securities 8,10,14,35,43 26,699 23,294 21,312
Storebrand Group Statement of Financial Position 1 January - 31 December
Financial liabilities: Minority interests in consolidated securities funds 17,036 12,863 5,909
Total equity and liabilities 492,287 463,367 426,205 1) In consequence of the changes to the principles, the comparative figures have been restated. See further information in note 1 Accounting policies.
Lysaker, 10. February 2015 Board of directors of Storebrand ASA. Translation - not to be signed
Total comprehensive income for the period 829 1,735 2,564 27 2,591
Purchase of minority interests -21 -21 -21 1) 449,909,891 shares with a nominal value of NOK 5.
Net cash flow from operations before financial assets and banking customers -10,463 -7,057
Net cash flow from financial assets and banking customers 18,116 11,003
Payments - repayment of subordinated loan capital -1 976 -2 366
Net receipts/payments - lending to and claims from other financial institutions -1 002 -1 470
Net cash flow for the period 1 259 679 - of which net cash flow in the period before financial assets and banking customers -16 858 -10 324
Cash and cash equivalents at start of the period 4 213 3 539
Cash and cash equivalents at the end of the period 1) 5 473 4 219 1) Consist of: Lending to financial institutions 207 152
OPERATIONAL ACTIVITIES A substantial part of the activities in a financial group will be classified as operational. All receipts and payments from insurance activities are included from the insurance companies, and these cash flows are invested in financial assets that are also defined as operational activities. One subtotal is generated in the statement that shows the net cash flow from operations before financial assets and banking customers, and one subtotal that shows the cash flows from financial assets and banking customers. This shows that the composition of net cash flows from operational activities for a financial group includes cash flows from both operations and investments in financial assets. The life insurance companies’ balance sheets include substantial items linked to the insurance customers that are included on the individual lines in the cash flow analysis. Since the cash flow analysis is intended to show the change in cash flow for the company, the change in bank deposits for insurance customers is included on its own line in operating activities to neutralise the cash flows associated with the customer portfolio in life insurance.
FINANCING ACTIVITIES Financing activities include cash flows for equity, subordinated loans and other borrowing that helps fund the Group’s activities. Payments of interest on borrowing and payments of share dividends to shareholders are financial activities.
Storebrand Group offers a comprehensive range of insurance and asset management services, as well as securities, banking and investment services, to private individuals, companies, municipalities, and the public sector. The Storebrand Group consists of the business areas Guaranteed Pensions, Savings, Insurance and Other. The Group’s head office is located at Professor
The liabilities side of the Group’s balance sheet comprises, for the most part, financial instruments (liabilities) and provisions relating to future pension and insurance payments (technical insurance reserves). With the exception of derivatives that are stated at fair value, the majority of the financial liabilities are stated at amortised cost. Technical insurance reserves must be adequate and cover liabilities relating to issued insurance contracts. Various methods and principles are used when assessing the reserves for different insurance contracts. A considerable part of the insurance liabilities relate to insurance contracts with interest guarantees. Recognised liabilities relating to Norwegian insurance contracts with interest guarantees are discounted at the basic interest rate. Recognised liabilities relating to Swedish insurance contracts with interest guarantees are discounted at the market rate. In the case of unit-linked insurance contracts, reserves for the savings element in the contracts will correspond to the value of related asset portfolios. Due to the fact that the customers’ assets in the life insurance business
(guaranteed pension) have historically yielded a return that has exceeded the increased value in guaranteed insurance liabilities, the excess amount has been set aside as customer buffers (liabilities), including in the form of additional reserves, value adjustment reserve and conditional bonus.
Storebrand ASA’s consolidated financial statements are presented using EU-approved International Financial Reporting
Standards (IFRS) and related interpretations, as well as other Norwegian disclosure requirements laid down in legislation and regulations.
No changes have been made to the accounting policies in 2014 that have had a significant impact on the profit for the year.
IFRS 10 and IFRS 11 with effect from the same date. Their effect for the Group is discussed in more detail below.
One of the Investments in the Group, which was previously treated as a joint venture, is now assessed to be a subsidiary in accordance with IFRS 10. Pursuant to IFRS 10, this company is consolidated 100 per cent.
Bonds and other fixed-income securities at fair value 422 -5 417
Result from investments in associated companies/joint controlled operation 74 15 89
New standards and changes in standards that are effective from annual periods begining on or after January 1st 2015 IASB has been working for several years on a new accounting standard for insurance contracts, which is often referred to as
• When entering into a contract, the expected profit is also set aside as a liability, (contractual residual margin), and this is recognised as income over the duration of the contract (provided that the contract is not considered to be a loss contract on the issuing date).
The introduction of a new standard for insurance contracts may have a significant impact on Storebrand’s consolidated financial statements. Implementation will result in changes in the income statements, net income, vaualtion of insurance liabilities and could impact equity.
Storebrand Livsforsikring AS, Storebrand Asset Management AS, Storebrand Bank ASA and Storebrand Forsikring AS are significant subsidiaries owned directly by Storebrand ASA. Storebrand Livsforsikring AS also owns the Swedish holding company
Storebrand Holding AB, which in turn owns SPP Livförsäkring AB and SPP Liv Fondförsäkring AB. The latter two companies are going to be merged in 2015. In connection with the acquisition of the Swedish activities in 2007, the authorities instructed
Storebrand to make an application to maintain a group structure by the end of 2009. Storebrand has submitted an application to maintain the current group structure, and it is of the opinion that it is natural to see possible changes in the group structure in light of the upcoming solvency framework (Solvency II).
Identifiable tangible and intangible assets acquired and liabilities assumed are valued at fair value on the date of acquisition. If the acquisition costs exceed the value of the identified assets and liabilities, the difference is recognised in the financial statements as goodwill. With acquisitions of less than 100 per cent of a business, 100 per cent of the added value and value shortfall are recognised in the statement of financial position with the exception of goodwill, of which only Storebrand’s share is included.
in which the Group exercises significant influence are consolidated in accordance with the equity method.
PREMIUM INCOME Net premium income includes the year’s premiums written (including savings elements), premium reserves transferred and ceded reinsurance. Annual premiums are generally accrued on a straight-line basis over the coverage period. Fees for issuing
Norwegian interest guarantees and profit element risk are included in the premium income and are recognised correspondingly as premium income.
NET INTEREST INCOME – BANKING Interest income is recognised in the income statement using the effective interest method.
If the discounted present value of the estimated future cash flows is less than the carrying value, goodwill will be written down to its fair value. Reversal of an impairment loss for goodwill is prohibited even if information later comes to light showing that there is no longer a need for the write-down or the impairment loss has been reduced. Goodwill is allocated to the relevant cash flow generating units that are expected to benefit from the acquisition so that it can subsequently be tested for impairment. Cash flow generating units are identified according to operational segments.
Intangible assets with finite useful lives are valued at acquisition cost less accumulated amortisation and any write downs. The useful life and amortisation method are reassessed each year. With initial recognition of intangible assets in the statement of financial position, it must be demonstrated that probable future economic benefits attributable to the asset will flow to the
Intangible assets with infinite useful lives are not amortised, but are tested for impairment annually or whenever there are indications that the value has been impaired.
10. INVESTMENT PROPERTIES Investment properties are valued at fair value. Fair value is the amount for which an asset could be exchanged between well-informed, willing parties in an arm’s length transaction. Changes in fair value are recognised as they occur. Income from leases is recognised on an ongoing basis.
Group for its own use and partly let to tenants, the identifiable tenanted portion is treated as an investment property.
transaction date. When a financial asset or a financial liability is initially recognised in the financial statements, it is valued at fair value. Initial recognition includes transaction costs directly related to the acquisition or issue of the financial asset/liability if it is not a financial asset/liability at fair value in profit or loss.
DEFINITION OF AMORTISED COST Subsequent to initial recognition, held-to-maturity investments, loans and receivables as well as financial liabilities not at fair value in profit or loss, are measured at amortised cost using the effective interest method. 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.
FINANCIAL ASSETS ARE CLASSIFIED INTO ONE OF THE FOLLOWING CATEGORIES: • Financial assets held for trading
Assets held to maturity are recognised at amortised costs using the effective interest method. The category is used in the
ACCOUNTING TREATMENT OF DERIVATIVES THAT ARE NOT HEDGING Derivatives that do not meet the criteria for hedge accounting are treated as financial instruments held for trading. The fair value of such derivatives is classified as either an asset or a liability with changes in fair value through profit or loss.
Some of the Group’s insurance contracts contain embedded derivatives such as interest rate guarantees. These insurance contracts do not follow the accounting standard IAS 39 Financial Instruments, but follow the accounting standard IFRS 4 Insurance
Contracts, and the embedded derivatives are not continually assessed at fair value.
Pursuant to IFRS 4, the technical insurance reserves must be adequate. When assessing the adequacy associated with recognised acquired insurance contracts, including related capitalised intangible assets (VIF), reference must also be made to IAS 37
Provisions, Contingent Liabilities and Contingent Assets, and so-called embedded value calculations.
INSURANCE LIABILITIES Premium reserve Premium reserve represents the present value of the company’s total insurance liabilities, including future administration costs in accordance with the individual insurance contracts, after deducting the present value of agreed 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 per cent of the guaranteed surrender/transfer value of insurance contracts prior to any fees for early surrender/transfer and the policies’ share of the market value adjustment reserve.
CLAIMS RESERVE This comprises amounts reserved for claims either occurred but not yet reported or reported but not yet settled (IBNR and
RBNS). The reserve only covers amounts which might have been paid in the accounting year had the claim been settled.
SELLING COSTS Selling costs in the Norwegian life insurance business are expensed, whilst in the Swedish subsidiaries selling costs are recorded in the statement of financial position and amortised.
MARKET VALUE ADJUSTMENT RESERVE The current year’s net unrealised gains/losses on financial assets at fair value in the group portfolio in Storebrand Livsforsikring
RISK EQUALISATION RESERVE Up to 50 per cent of the risk result for group pensions and paid/up policies can be allocated in the risk equalisation fund to cover any future negative risk result. The risk equalisation reserve is not considered to be a liability according to IFRS and is included as part of the equity (undistributable equity).
Read more about this in note 3. For accounting purposes, the expected cover by the owner in the future will be considered a reduction in the expected future surplus, and no special provisions have been made for the expected total cover by the owner that will accrue from 31 December 2014. The assessment will also take into account the projected future returns.
CONDITIONAL BONUS AND DEFERRED CAPITAL CONTRIBUTION The conditional bonus arises when the value of customer assets is higher than the present value of the liabilities, and thus corresponds to the part of the insurance capital that is not guaranteed. In case customer assets are lower than liabilities, the owners’ result is charged via deferred capital contribution allocations. The conditional bonus and deferred capital contribution are recognised on the same line in the statement of financial position.
Storebrand Group has country-specific pension schemes for its employees. The schemes are recognised in the accounts in accordance with IAS 19. Employees in Norway employed on or after 1 January 2011 have a defined-contribution pension.
Most of the other employees in Norway have had a defined-benefit pension. In the fourth quarter of 2014 it was decided to discontinue the defined-benefit scheme for most employees in Norway with effect from 31 December 2014 and replace it with a defined-contribution scheme. Storebrand is a member of the Norwegian contractual early retirement (AFP) pension scheme.
In Sweden, SPP has agreed, in accordance with the Finance Companies’ Service Pension Plan (BTP Plan), defined benefit collective pension plans for its employees. The employees’ pension is thereby calculated as a certain percentage of the employees’
Pension costs and pension obligations for defined-benefit pension schemes are determined using a linear accrual formula and expected final salary as the basis for the entitlements, based on assumptions about the discount rate, future salary increases, pensions and National Insurance benefits, future returns on pension plan assets as well as actuarial estimates of mortality, disability and voluntary early leavers. The net pension cost for the period comprises the total of the accrued future pension entitlements during the period, the interest cost on the calculated pension liability and the expected return on pension plan assets.
The defined contribution pension scheme involves the Group in paying an annual contribution to the employees’ collective pension savings. The future pension will depend upon the size of the contribution and the annual return on the pension savings.
The Group does not have any further work-related obligations after the annual contribution has been paid. No provisions are made for ongoing pension liabilities for these types of schemes. Defined-contribution pension schemes are recognised directly in the financial statements.
Equipment and fittings are valued at acquisition cost less accumulated depreciation and any write-downs.
Deferred tax is calculated on the basis of the Group’s tax loss carryforwards, deductible temporary differences and taxable temporary differences. The Group’s tax-increasing temporary differences also include temporary differences linked to the
The statement of cash flows is prepared using the direct method and shows cash flows grouped by sources and use. Cash is defined as cash, receivables from central banks and receivables from credit institutions with no agreed period of notice.
The Group’s critical estimates and judgements that could result in material adjustment of recognised amounts are discussed below.
LIFE INSURANCE IN GENERAL In the consolidated accounts, insurance liabilities with a guaranteed interest rate are included, but using different principles in the Norwegian and the Swedish activities. An intangible asset (value of business in force – VIF) linked to the insurance
The established analysis is based on the assumptions that apply to the calculation of embedded value, in which the company uses the best estimates for the future basic elements based on the current experience. The test entails then that the company analyses the current margins between the assumptions used as a basis for reserves and the assumptions in the Embedded
Changes in estimates and valuations may entail a change in the return on the customer portfolios. Depending on the size of any impairment in value, such impairment may be offset by a reduction in the market value adjustment reserve and additional statutory reserves, so that the effect on the owner’s result may be limited. Correspondingly, increases in values could, to a large extent, increase the size of such funds.
In the Swedish activities (SPP) there are no contracts with an annual interest rate guarantee. However, there are insurance contracts with a terminal value guarantee. These contracts are discounted by a market-based calculated interest rate where parts of the yield curve used are not liquid. Changes in the discount rate may have a significant impact on the size of the insurance liabilities. If the associated customer assets have a higher value than the recognised value of these insurance liabilities, then the difference will represent a conditional customer allocated fund – conditional bonus (buffer capital). Changes in estimates and valuations may entail a change in the return on the customer portfolios. Depending on the size of any impairment in value, such impairment may be offset by a reduction in the conditional bonus, so that the effect on the owner’s result may be limited. If the value of the individual insurance contract is higher than the associated customer assets, the owner will have to cover the deficient capital.
INVESTMENT PROPERTIES Investment properties are valued at fair value. The commercial real estate market in Norway is not particularly liquid, nor is it transparent. Uncertainty will be linked to the valuations, and they require exercise of professional judgement, especially in
In a letter dated 8 March 2013, the Financial Supervisory Authority of Norway (Finanstilsynet) determined that a new mortality tariff, K2013, would be introduced for group pension insurance schemes in life insurance companies and pension funds with effect from 2014. This requires increased premiums and higher insurance technical reserves to cover future liabilities.
• The period for strenghtening reserves may have a duration of up to seven years (up to and including 2020). Applications for strenghtening periods for reserves must be approved by the Financial Supervisory Authority of Norway.
• The strenghtening of reserves may be funded with excess returns in customer portfolios. Surplus return in one contract cannot be used to strengthen reserves on other contracts (no “solidarity”).
On 27 October the Financial Supervisory Authority of Norway sent a letter to all the life insurance companies and pension funds about the more detailed guidelines on strengthening reserves and the use of excess return in customer portfolios and equity contributions. Storebrand has asked for clarification regarding equity contributions for contracts that were already fully reserved on 31 December 2013. The Financial Supervisory Authority of Norway has clarified that reserves for contracts that are fully reserved shall be given the equity contribution “as soon as possible” and not via an escalation plan of up to seven years.
NOK 2.3 billion is being allocated from the financial and risk results for 2014, NOK 2.1 billion of which is from the financial result.
December 2014. The company started strengthening the reserves in the accounts in 2011. In 2012, 2013 and 2014, Storebrand set aside as much as possible of its financial and risk profits. It must also be expected that during the period in which the reserves are being built-up, all available profit will be set aside for strengthening reserves.
The table below shows the estimated effects on net profit for Storebrand for different average recognised expected returns during the period. If booked annual returns were lower than 4 per cent, Storebrand charges would increase significantly. The effect on net profit is estimated on the basis of a simulation model calibrated such that the average annual return corresponds to the returns in the table. The estimate assumes that the annual expected risk outcome for customers can be used to strengthen the reserves in cases where the equity contribution is higher than 20 per cent. The expected total and annual effect on net profit does not include loss of anticipated profit sharing related to paid-up policies. There is a degree of uncertainty associated with the estimates.
The strengthening of reserves for increased longevity is charged directly to the result in the amount of NOK 391 million for 2014 (NOK 31 million of which is related to the conversion of paid-up policies with investment options) and indirectly by means of lost profit sharing amounting to NOK 229 million. The actual charge of NOK 360 million in the annual financial statements for 2014 is based on the same method that has also been used to calculate the sensitivities in the table above.
The profit and loss account for Storebrand includes result elements relating to both customers and owners. There is a description of the content of profit generation for the owner from guaranteed pensions in the segment note (note 5) below.
STOREBRAND LIFE INSURANCE The administration result ncludes all products apart from traditional individual products with profit sharing.
RISK RESULT The risk result consists of premiums the company charges to cover insurance risks less the actual costs in the form of insurance reserves and payments for insured events such as death, pensions, disability and accidents. After the introduction of the new mortality tariff in 2013 (K2013), the need for increased reserves was identified, see note 3.
SPP LIFE INSURANCE The risk result is in its entirety passed on to the shareholders.
Any negative returns on customer portfolios and returns lower than the interest guarantee that cannot be covered by additional statutory reserves must be covered by the company’s equity and will be included in the net profit-sharing and losses line.
SPP Life Insurance If the total return on assets in one calendar year for a defined contribution contract (DC portfolio) exceeds the contract’s guaranteed interest, profit sharing will be triggered. In the case 90 per cent of the total return on assets is allocated to the policyholder whereas the remaining 10 per cent are passed on shareholders. The shareholders’ share of the total return on assets is included in the financial result.
In the case of defined-benefit contracts (KF portfolio), the company is entitled to charge an indexation fee in case the portfolio ’s consolidation allows for the indexation of benefits. Indexation can equal up to the annual change in Swedish consumer price index (CPI), measured between the previous two September months. Benefits under payout are indexed if the portfolio’s consolidation per 30 September exceeds 107 per cent, and subsequently half of the fee is charged. The whole fee is charged if the portfolio’s consolidation per 30 September exceeds 120 per cent, in which case even paid-up policies are indexed. The total fee equals 0.8 per cent of the portfolio’s insurance capital.
CHANGES IN SEGMENTS Beginning 1 January 2014, certain follow-ups including sickness insurance, one-year life assurance and survivor insurance at SPP
GUARANTEED PENSION Guaranteed pensions consist of products encompassing long-term savings for pensions, where the customers have a guaranteed return or benefit on the saved funds. The area includes defined contribution pensions in Norway and Sweden, paid-up policies and individual capital and pension insurances.
Bank and the activities at BenCo, as well as minority interests in securities funds and property funds.
(NOK million) Reported figures Change IFRS Change in segment Restated figures
Buffer capital in % of customer reserves Storebrand Life Group1 6.6% 4.8%
1) Additional statutory reserves + market value adjustment reserve 2) Conditional bonuses 3) The term solidity capital encompasses equity, subordinated loan capital, the risk equalisation fund, the market value adjustment reserve, additional statutory reserves, conditional bonuses, excess value/deficit related to bonds at amortised cost and accrued profit.
Storebrand’s income and results are dependent on external factors that are associated with uncertainty. The most important external risk factors are the developments in the financial markets and changes in life expectancy in the Norwegian and Swedish populations. Certain internal operational factors can also result in losses, e.g. errors linked to the management of the customers’ assets or payment of pension.
The boards of directors of both Storebrand ASA and the group companies have the overall responsibility for limiting and following up the risks associated with the activities. The boards set annual limits and guidelines for risk-taking in the company, receive
Insurance risk is the risk of higher than expected payments and/or unfavourable changes in the value of an insurance liability due to the actual development differing from what was expected when premiums or provisions were calculated. Traditional life and pension insurance are offered as both group and individual contracts. Contracts are also offered in which the customer has the choice of investment.
3. Death – The risk of erroneous estimation of mortality or erroneous estimation of payment to surviving relatives. Over the last few years, a decrease in mortality and fewer young surviving relatives have been registered, compared with earlier years.
ered to be limited based on the volume and underlying volatility of the products. Within P&C insurance, the risk of house fire and personal injury for motor vehicle insurance constitute the main risks.
INDIVIDUAL CONTRACTS Savings 1. Individual unit-linked insurance is endowment insurance or allocated annuity in which the customer bears the financial risk.
3. Individual endowment insurance provides lump sum payments in the event of attaining a specified age, death or disability. 4. In Sweden, disability coverage is offered with a waiver of premiums and guaranteed ongoing payments. This is most common as an addition to pension insurance.
RISK PREMIUMS AND TARIFFS Guaranteed pensions There is a need for strengthening the premium reserves as they relate to long life expectancy for Norwegian group defined-benefit pensions, including paid-up policies. The need for reserves applies in general to products that involve a guaranteed benefit, but the impact varies depending on the product composition and characteristics, as well as amendments to regulations, as a result of the pension reform, for example.
Starting from 2014 group pension insurance schemes in Norway follow the premiums for traditional retirement and survivor coverage in the industry tariff K2013. The premiums for disability pensions 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. For individual insurance, the premiums for death risk and long life expectancy risk are based on tariffs produced by insurance companies on the basis of their shared experience. This applies to both endowment and pension insurance. Disability premiums are based on the company’s own experience.
In 2014 SPP revised the mortality assumptions used to calculate insurance technical reserves. The company’s assumptions are based on the general mortality tariff DUS 06, adjusted for the company’s own observations. As a result of the review only minor adjustments were performed which resulted in a strengthening of the reserves for guaranteed insurance liabilities by some SEK 215 million for the IF portfolio (defined contribution) and SEK 325 million for the KF portfolio (defined benefit), which is mainly covered by conditional bonus. In case the conditional bonus is not sufficient deferred capital contribution have been increased, leading to a financial result of minus SEK 85 million.
Large claims or special events constitute a major risk for all products. The largest claims will typically be in the group life, occupational injury and personal injury (motor vehicle accidents) segments. The company manages its insurance risk through a variety of reinsurance programmes. Through catastrophe reinsurance (excess of loss), the company covers losses (single claims and reserves provisions) where a single event causes more than two deaths or disability cases. This cover is also subject to an upper limit. A reinsurance agreement for life policies covers death and disability risk that exceeds the maximum risk amount for own account the company practises. The company’s maximum risk amount for own account is relatively high, and the risk reinsured is therefore relatively modest.
The risk result for Storebrand Livsforsikring AS in the table above shows the total risk result before distribution to customers and the owner. See note 4 on risk result for the principles for distributing the risk result between customers and the owner.
The most significant market risks for Storebrand are equity market risk, credit risk, property price risk, interest rate risk and exchange rate risk.
For the life insurance companies, the financial assets are invested in a variety of sub-portfolios. Market risk affects Storebrand’s income and profit differently in the different portfolios. There are three main types of sub-portfolio: company portfolios, customer portfolios without a guarantee and customer portfolios with a guarantee.
The market risk in customer portfolios without a guarantee is at the customers’ risk, meaning Storebrand is not directly affected by changes in value. Nevertheless, changes in value do affect Storebrand’s profit indirectly. Income is based mainly on the size of the reserves, while the costs tend to be fixed. Lower returns on the financial market than expected will therefore have a negative effect on Storebrand’s income and profit.
For customer portfolios with a guarantee, the net risk for Storebrand will be lower than the gross market risk. The extent risk-reduction depends on several factors, the most important being the size and flexibility of the customer buffers and level and duration of the return guarantee. If the investment return is not sufficiently high to meet the guaranteed interest rate, the shortfall will be met by using customer buffers in the form of risk capital built up from previous years’ surpluses. Risk capital primarily consists of unrealised gains, additional statutory reserves and conditional bonuses. The owner is responsible for meeting any shortfall that cannot be covered. This is described in more detail in the section below on guaranteed customer portfolios.
For company portfolios and guaranteed customer portfolios, most of the assets that are in currencies other than the domestic currency are hedged. This limits the currency risk from the investment portfolio. In the consolidated financial statements, the value of assets and results from the Swedish operations are affected by changes in the value of the Swedish krona. Storebrand Livsforsikring AS has hedged part of the value of SPP.
STOREBRAND LIVSFORSIKRING The annual guaranteed return to the customers follows the basic interest rate. The Financial Supervisory Authority of Norway sets the highest permitted basic interest rate for new policies and for new members and new accrual of benefits in group pension insurance. The basic interest rate has been set at 2.5 per cent for new contracts and new premiums from 2011. The Ministry of Finance has decided to change the basic interest rate to 2.0 per cent from 1 January 2015. As part of the adaptation to Solvency II, the Financial Supervisory Authority of Norway has proposed repealing the Regulations on maximum basic interest rate from 1 January 2016.
The interest rate guarantee must be fulfilled on an annual basis. If the company’s investment return in any given year is lower than the guaranteed interest rate, current legislation permits the equivalent of up to one year’s guaranteed return for the individual policy to be covered by transfers from the policy’s additional statutory reserves.
A new mortality tariff has been introduced for defined-benefit pensions and paid-up policies from 2014. For the existing reserve Storebrand has applied for a seven-year escalation plan, and customer returns exceeding the guarantee can contribute to building up reserves. During the escalation period it gives an increase in risk that may be compared with increasing the interest rate guarantee. At least 20 per cent of the individual customer’s building up of reserves must be covered by Storebrand.
Interest rate risk is in a special position because changes in interest rates also affect the value of the insurance liability. Since pension disbursements may be many years in the future, the insurance liability is particularly sensitive to changes in interest rates. In the Norwegian business, greater interest rate sensitivity from the investments will entail increased risk for return below the guaranteed level. The risk management must therefore balance the risk of the profit for the year (interest rate increase) with the reinvestment risk if interest rates fall below the guarantee in the future. Bonds at amortised cost are an important risk management tool.
The tables show the reduction in the buffer capital for Storebrand Life Insurance and SPP as a result of immediate value changes related to financial market risk. The buffer capital consists of customer buffers where changes do not affect the company’s result. Due to the fact that the buffer capital is not evenly distributed among the customers, a negative effect on the result will arise before all the buffers have been exhausted. The effect of the stresses on the result will be significantly lower than a change in the buffer capital. This is described in more detail under the individual companies.
The stresses have been applied to the company portfolio and guaranteed customer portfolios as at 31 December 2014. Products without a guaranteed return, primarily defined-contribution pensions and unit linked, are not included in the analysis. For these products, the customers bear the market risk and the effect of a falling market will not directly affect the buffer capital or result.
The amount of stress is the same that is used for Risk-Based Supervision (RBS), the official reporting tool of the Financial Supervisory Authority of Norway. The stresses include a 20 per cent fall in shares, 12 per cent fall in property, 12 per cent appreciation in currency and a fall in corporate bonds based on the ratings and duration. For interest rates, the stresses include both an increase and fall of 150 basis points, where the most negative is used.
The stress tests were carried out on all investment profiles with a guaranteed return and the effect of each stress changes the expected return in each profile. If the stress causes the return to fall below the guarantee, it will have a negative impact on the result if the buffer is not adequate. Other negative effects on the result are a lower return from the company portfolio and that there is no profit sharing from paid-up policies and individual contracts.
Based on the stress test, SPP has an overall market risk of NOK 3.6 billion, while the buffer capital totals NOK 5.2 billion. The buffer capital consists of the conditional bonus (accrued customer surpluses) minus deferred capital contributions.
For the life insurance companies, the insurance liabilities are long term and the cash flows are usually known long before they fall due. A robust liquidity buffer is nevertheless important to be able to withstand unforeseen events.
Liquidity risk is one of the most important risk factors in banking activities. The company’s risk strategy establishes general limits for how much liquidity risk the banking group is willing to accept. A policy has been drawn up specifying principles for liquidity management, minimum liquidity reserves and financing indicators for measuring liquidity risk. In addition to this, an annual funding strategy and funding plan are being drawn up that set out the overall limits for the bank’s funding activities.
Separate liquidity strategies have been drawn up for the subsidiaries, in line with statutory requirements. These strategies specify limits and measures for ensuring good liquidity and a minimum allocation to assets that can be sold at short notice. The strategies define limits for allocations to various asset types and mean the companies have money market investments, bonds, equities and other liquid investments that can be disposed of as required.
Loan agreements entered into are subject to standard covenants. The terms and conditions have been satisfied for all signed loan agreements in 2014. In accordance with the loan programme in Storebrand Boligkreditt AS the company’s requirements for excess pledges is 109.5 per cent satisfied.
At all times, the size of the available credit facility should cover the interest and repayment of bonds with pre-emptive rights for the coming 12 months.
Storebrand is exposed to risk of losses as a result of counterparties not fulfilling their debt obligations. This risk includes losses on lending in the bank, but also losses related to bank deposits or failure of counterparties to perform under reinsurance agreements or financial derivatives. Credit losses related to the securities portfolio are categorised as market risk and are discussed in note 8 financial market risk.
Total lending to and receivables from customers 2014 33,094 90 3,844 37,028 77 76 33 120
The division into customer groups is based on Statistics Norway’s standard for sector and business grouping. The placement of the individual customer is determined by the customer’s primary business.
LENDING Storebrand has decided to wind up the corporate market at the bank. Lending to commercial enterprises has decreased significantly in 2014 and constitutes some 16 per cent of the bank’s total lending volume.
In the retail market, most of the loans are secured by means of home mortgages. There are housing loans amounting to about NOK 23.8 billion with an additional NOK 2.6 billion in unused credit facilities. Total loans and credit facilities in housing are therefore about NOK 26.4 billion. Customers are checked in accordance with policies, and their ability and willingness to service the loan is evaluated using a liquidity calculation and a risk classification model.
In the case of default, Storebrand Bank ASA will sell the securities or repossess the properties if this is most suitable. The bank has two repossessed properties that are held as part of the Storebrand Bank Group in separate subsidiaries, and internal transactions are eliminated in the normal manner.
The Group has entered into framework agreements with all its counterparties to reduce the risk inherent in outstanding derivative transactions. These regulate how collateral is to be pledged against changes in market values that are calculated on a daily basis, among other things.
Total net currency positions 2013 1,435 2) Equity and bond funds denominated in NOK with foreign currency exposurein i.a. EUR and USD NOK 14,3 billion.
The table above shows the currency positions as at 31 December 2014. The currency exposure is primarily related to investments in the Norwegian and Swedish life insurance business.
STOREBRAND LIFE INSURANCE: The company hedges most of the foreign exchange risk in the customer portfolios on an ongoing basis. Foreign exchange risk exists primarily as a result of investments in international securities, as well as subordinated loans in a foreign currency to a certain extent. Hedging is performed by means of forward foreign exchange contracts at the portfolio level, andt the currency positions are monitored continously against a total limit. Negative currency positions are closed out no later than the day after they arose. In addition, separate limits have been defined so that active currency positions can be taken. Storebrand employs a currency hedging principle called block hedging, which makes the execution of currency hedging more efficient.
SPP: SPP uses currency hedging for its investments to a certain degree. Currency exposure may be between 0 and 30 per cent in accordance with the investment strategy.
Total interest bearing securities stated by rating 89,776 21,893 29,080 27,730 6,247 174,725
Of which derivatives in bond funds, managed by Storebrand 39 62 101
Total derivatives excluding derivatives in bond funds 2013 779 1 058 382 2 220
Most of the risk for the Storebrand Group relates to the guaranteed life insurance businesses. These risks are consolidated in the Storebrand Life Insurance Group which includes the Norwegian life insurance business (Storebrand Livsforsikring AS), the Swedish life insurance businesses (SPP Livförsäkring AB and SPP Liv Fondförsäkring AB) and the business in Ireland and Guernsey (BenCo). Other companies directly owned by Storebrand ASA that are exposed to significant risks are Storebrand Forsikring AS, Storebrand Helseforsikring AS, Storebrand Asset Management AS and Storebrand Bank ASA.
In the short term, an interest rate increase will negatively impact the returns for the life insurance companies. An interest rate increase can also result in bank customers having lower debt-servicing capacity and increased losses for the banking business. The risk from the P&C insurance and health insurance risk in Storebrand Skadeforsikring AS and Storebrand Helseforsikring AS has a low correlation with the risk from the rest of the businesses in the Group.
Loans to and due from financial institutions 207 207 152 207 152
Debt raised by issuance of securities 14,156 14,156 17,228 13,986 17,000
Loans to customers/liabilities to credit institutions/liabilities established by issuing securities for Storebrand Bank: The fair value of loans to customers with adjustable interest is valued at book value. However, the fair value of loans to corporate customers with margin loans is lower than the book value because certain loans run with lower margins that they would have done if they had been taken up as at 31 December 2013. The value shortfall is calculated by discounting the difference between the agreed margin and the current market price over the remaining duration. In addition, the fair value is adjusted for individual write-downs.
The fair value of loans, liabilities to credit institutions and liabilities established by the issuing of securities is based on valuation techniques. The valuation techniques use yield curves and credit spreads from external suppliers, with, however, the exception of loans which are valued using spreads for equivalent new loans.
Bonds and subordinated loans at amortised cost: As a main rule, the fair value for the bonds is based on the prices obtained from Reuters and Bloomberg. Bonds that are not regularly quoted will normally be valued using recognised theoretical models. The latter is particularly applicable to bonds denominated in Norwegian kroner. Discount rates composed of the swap rates plus a credit premium are used as a basis for these types of valuations. The credit premium will often be specific to the issuer, and will normally be based on a consensus of credit spreads quoted by a selected brokerage firm. The write-down test that was carried out has not resulted in the need for any write-downs in 2014.
Unlisted derivatives, including primarily interest rate and foreign exchange instruments, are also valued theoretically. Money market rates, swap rates, exchange rates and volatilities that form the basis for valuations are supplied by Reuters and Bloomberg.
Bonds and other fixed-income securities - Government and government guaranteed bonds 35 543 20 670 56 213 62 312 - Mortage and asset backed securities 45 194 45 194 45 433
LEVEL 2: FINANCIAL INSTRUMENTS VALUED ON THE BASIS OF OBSERVABLE MARKET INFORMATION NOT COVERED BY LEVEL 1 This category encompasses financial instruments that are valued on the basis of market information that can be directly observable or indirectly observable. Market information that is indirectly observable means that the prices can be derived from observable related markets. Level 2 includes shares or equivalent equity instruments for which market prices are available, but where the volume of transactions is too limited to fulfil the criteria in level 1. Shares in this level will normally have been traded during the last month. Bonds and equivalent instruments are generally classified in this level. Moreover, interest rate and foreign exchange swaps, non-standardised interest rate and foreign exchange derivatives are classified as level 2. Fund investments, with the exception of private equity funds, are generally classified as level 2, and encompass equity, interest rate, and hedge funds.
Unlisted equities – including forestry The external valuations are based on models that include non-observable assumptions. Besides the external valuations that have been conducted as at 31 December 2014, the equity investments are valued based on the value-adjusted equity reported by external sources. Comprehensive external valuations were carried out for the largest forestry investments as at 31 December 2014, and these form the basis for the valuation of the company’s investments.
Office properties and shopping centres in Norway: When calculating fair value, Storebrand uses an internal cash flow model. Net cash flows for the individual property are discounted by an individual required rate of return. A future income and expense picture for the first 10 years has been estimated for the office properties and a final value has been calculated for the end of the 10th year based on market rent and normal operating costs for the property. In the net income stream, consideration has been made to existing and future loss of income due to vacancy, necessary investments and an assessment of the future development in the market rent. The majority of contracts have a duration of five or ten years. The cash flows from these lease agreements (contractual rent) are included in the valuations. To estimate the long-term, future non-contractual rental incomes, a forecasting model has been developed. The model is based on historical observations in Dagens Næringsliv’s property index (adjusted by CPI) and market estimates. A long-term, time-weighted average of the annual observations is calculated in which the oldest observations are weighted with the lowest importance. For non-contractual rent in the short-term, the current rental prices and market situation are used.
An individual required rate of return is determined for each property. The required rate of return is viewed in connection with the related cash flow for the property. The knowledge available about the market’s required rate of return, including transactions and appraisals, is used when determining the cash flow.
Lending to customers Fixed-rate lending is valued at fair value. The value of these is determined by discounting future contractual cash flows using a discount rate that takes into account margin requirements (market spread). The assumption for calculating the margin requirement is based on an assessment of market conditions at the end of the accounting period, and an assessment that would form the basis for an external investor’s investment in a corresponding portfolio.
Credit bonds Level 3 financial and corporate bonds include microfinance funds, private equity debt funds and convertible bonds. They are not priced by a discount rate as bonds normally are, and therefore these investments are included in the same sensitivity test as private equity.
Guaranteed pension: Defined Benefit (fee based) Storebrand Life Insurance 7,415 10,482
Of which premium reserve transferred to company -618 4,962 1) Individual life and disability, property and caualty insurance 2) Group life, workers comp. And health insurance
Fixed income and similar income from lending to and receivables from financial institutions 6 18
Fixed income and similar income from lending to and receivables from customers 1,233 1,443
Fixed income and similar income from commercial paper, bonds, and other interest-bearing paper 82 81
Net income lendings and accounts receivable 3,130 66 3,196 36 3,160 3,033
Total gains and losses, bonds at amortised cost 3,809 66 3,874 90 3,784 3,585
Total income real estate 1,674 959 1) Of which real estate for own use 169 141 2) Of which real estate for own use -71 -24
Allocation by company and customers: Total income from real estate 1,674 959
Of which premium reserve transferred to company -2 975 -1 886
Of which premium reserve transferred to company -14 201 -9 003
At end of the policy year 218 327 369 391 461 513 - four years later 215 306 - five years later 214
Change in premium reserve customer funds without guaranteed return -7,788 -11,461 -19,249 -18,360
Total operating costs -2,913 -3,265 1) Includes net income from the change in the pension scheme of NOK 649 million in 2014 (includes cost compensation) and NOK 407 million in 2013.
The new defined-contribution scheme that comes into effect from 1 January 2015 has the following components and premiums: • Saving starts from the first krone of salary • Savings rate of 7 per cent of salary from 0 to 12 G (the National Insurance basic amount “G” is NOK 88,370 at 31 December 2014) • In addition 13 per cent of salary between 7.1 and 12 G is saved • Savings rate for salary over 12 G is 20 per cent
All members of the pension schemes have associated survivor’s and disability cover.
The pension for the employees of Nordben Life and Pension Insurance Company LTD and Euroben Life and Pension LTD is covered by a defined-contribution scheme. In addition, the employees of Nordben are covered by a lump sum upon death during their period of service. Group has country-specific pension schemes.
Net pension liabilities recognised in statement of financial position 555 952
Includes employer contributions on net under-financed liabilities in the gross liabilities
“The table shows the percentage asset allocation of pension assets at year-end managed by Storebrand Life Insurance.”
Actuarial loss (gain) - change in other financial assumptions -139 -43
IAS 19.78 states that high-quality corporate bond rates shall be used as the discount rate. In countries where there is no deep market for such bonds, the government bond rates shall be used.
The average employee turnover rate is 2–3 per cent for the entire workforce as a whole, and falling turnover with increasing age is assumed. The actuarial assumptions in Sweden follow the industry’s mutual mortality table DUS14 adjusted for corporate differences. The average employee turnover rate is estimated to be 4 per cent p.a.
Percentage change in pension: - The period's net pension costs -33% 21% 4% -22% 3% -14%
Storebrand’s risk associated with the pension scheme relates to the changes in the financial and actuarial assumptions that must be used in the calculations and the actual return on the pension funds. The pension liabilities are particularly sensitive to changes in the discount rate. A reduction of the discount rate will in isolation entail an increase in pension liabilities. For the Norwegian companies that have converted to defined contribution pensions as of 1 January 2015, the sensitivity has been estimated at +/- 0.5 per cent of the pension liabilities.
Senior employees 1) Earned bonus at 31.12.14 Senior executives are contractually entitled to performance related bonuses. 50% of the earned bonus is paid in cash.
3) Loan up to NOK 3.5 million hold ordinary employee terms while excess loanamount hold market rate.
4) 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. the Accounting Act, Section 7-26.
“Estimated pension liabilities as at 31 December 2014” minus “Value of paid-up policies issued as at 1 January 2015” minus “Settlement value of direct pension in excess of 12G”.
4) Compensation related to the transition to defined contribution pensions is estimated based on Storebrand’s general compensation model 5) Total amount will be transferred to a pension account with one-fifth of the annual added interest. The amount will be taxed as wage income and the net amount after tax will be transferred to a pension account (“Extra Pension” product).
6) The retirement age for SPP‘s CEO is 62 years old. SPP‘s CEO is covered by a defined contribution based scheme in addition to a defined benefits scheme.
STOREBRAND ASA – THE BOARD’S STATEMENT ON THE FIXING OF SALARIES AND OTHER REMUNERATION TO EXECUTIVE PERSONNEL
7. Facilitate a process connected to establishing goals and goal structures that is clear, transparent and team-based. 8. Ensure that both the development of financial remuneration and job requirements are embedded in the employee’s role, responsibilities and influence in the Group
Storebrand shall have an incentive model that supports the Group’s strategy, with emphasis on the customer’s interests and longterm perspective, an ambitious model of cooperation, as well as transparency that enhances the Group’s reputation. Therefore the company will primarily stress a fixed salary as a means of overall financial compensation, and utilise variable remuneration to a limited extent.
Bonus scheme The Storebrand Group‘s use of variable remuneration for the 2015 financial year complies with the regulations laid down by the Ministry of Finance on 1 December 2010 relating to remuneration schemes in financial institutions.
Pension scheme The company shall arrange and pay for an ordinary group pension insurance common to all employees, from the moment employment commences, and in accordance with the pension rules in force at any given time. As of 2015, the company has defined contribution pension schemes for all its employees. This applies both to salaries above and below 12 G (G = the National Insurance base amount).
For the Group’s executive management team, the estimated cash value of the pension rights for salaries in excess of 12G that had already been earned prior to the change will be paid out over a period of five years. The payment period is fixed regardless of whether the employee leaves the company before the end of this period.
Severance pay The Chief Executive Officer and executive vice presidents are entitled to severance pay if their contracts are terminated by the Company. Entitlement to a severance package is also available if the employee decides to leave the company due to substantial changes in the organisation, or equivalent circumstances, which result in the employee being unable to naturally continue in his position. If the employment is brought to an end due to a gross breach of duty or other material non-performance of the employment contract, the provisions in this section do not apply.
Deductions are made to the severance package for all work-related income, including fees from the provision of services, offices held, etc. The severance package corresponds to pensionable salary at the end of the employment relationship, excluding any bonus schemes. The CEO is entitled to 24 months of severance pay. Other executive vice presidents are entitled to 18 months of severance pay.
2. BINDING GUIDELINES FOR SHARES, SUBSCRIPTION RIGHTS, OPTIONS, ETC. FOR THE COMING 2015 FINANCIAL YEAR To ensure that the executive management team has incentive schemes that coincide with the long-term interests of the owners, a proportion of the fixed salary increase attributed to the discontinuation of the target bonus will be linked to the purchase of physical STB shares with a lock-in period of three years. The purchase of shares will take place once a year.
4. STATEMENT ON THE EFFECTS OF SHARE-BASED REMUNERATION AGREEMENTS ON THE COMPANY AND THE SHAREHOLDERS A proportion of the executive management’s fixed salary increase attributed to the discontinuation of the target bonus will be linked to the purchase of physical STB shares with a lock-in period of three years. The purchase of shares will take place once a year.
The remuneration paid to Deloitte AS and coadjutant companies amounts to: (NOK million) 2014 2013
Tax effect of realised/unrealised shares 10 11 share dividends received 6 associated companies -2 permanent differences 153 344 recognition/write-down of tax assets 13 -68 change in tax rules 24
Net basis for deferred tax and tax assets 2) 4,547 3,050
Storebrand Eiendom Holding AS (SEH), which is owned by Storebrand Livsforsikring AS. If these companies were to be sold, they could be disposed of practically tax-free. The tax-increasing temporary differences related to the difference between the fair value and taxable value of investment properties that have arisen during the period of ownership (around NOK 8.4 billion), are included in the Group’s temporary differences, on which deferred tax is calculated at a nominal tax rate of 27 per cent. In accordance with IAS 12, no provisions have been set aside for deferred tax related to temporary differences that existed when companies were acquired and the transaction was not defined as a business transfer (basis of around NOK 2.1 billion).
Currency differences on converting foreign units 3 8 130 11 151 1,027
2) NOK 32 million was classified as depreciation under operating costs.
The forecast for the various result elements is based on the development in recent years. Assessments have been made for the period from 2015 to 2024, and the annual growth for each element in the income statement has been estimated. The primary drivers of improved results will be the return on total assets, underlying inflation and wage growth in the market, which drive premium growth. The utility value is calculated using a required rate of return after tax of 7.2 per cent. The required rate of return is calculated based on the risk-free interest rate and added to a premium that reflects the risk of the business.
INTANGIBLE ASSETS LINKED TO THE BANKING BUSINESS A cash flow based valuation based on the expected result after tax is used when calculating the utility value of the banking business. The calculation is based on budgets and forecasts approved by the Board for the next three years.
In 2013 the board of SB Bank approved a liquidation plan for the bank’s commercial activities. The cash flow analysis has used the development in the bank’s business portfolio as approved in this plan. In addition, the valuation is based on the budget adopted for 2015 and the associated forecasts for 2015 and 2016. The forecast assumes an improvement in results, which includes implementation of a cost programme and growth in other income based on the development shown and effort made in recent years. A cash flow based valuation has been made based on the forecasts. The cash flow is based on two elements, profit/loss after tax to equity and change in expected regulatory tying-up of capital. It is also assumed that all capital in addition to regulatory tied-up capital, can be withdrawn at the end of each period. For the period after 2016, a growth rate of 2.5 percent has been used for the retail market which is also included in the calculation of the terminal value. The required rate of return to equity is calculated based on the capital asset pricing model (CAPM). Long-term risk-free interest is set at the interest rate for 10 year Norwegian government bonds. The market’s risk premium is set at 5 percent and this is in line with the risk premium in the Norwegian market. Beta of 1.0 is based on observed beta for Norwegian banks, adjusted for the risk profile for Storebrand Bank. Storebrand has assessed the recoverable amount of goodwill as at 31 December 2014 and concluded that no write-down is necessary. Sensitivity analyses have been conducted with respect to the assumptions regarding the development of results and required rate of return. Storebrand believes that the key assumptions made are reasonable.
Value of business in force SPP 20 years 5% Straight line 4,173
Accumulated depreciation and write-downs opening balance -134 -45 4 -175 -186
Allocation by company and customers: Tangible fixed assets - company 91 118
IFRS 10 establishes a model for evaluating control that will apply to all companies, and the content of the control concept has changed in IFRS 10 in relation to IAS 27 and will entail an increased degree of assessment of units that are controlled by the company. Control exists when the investor has power over the investment object and possesses the right to variable yields from the investment object and simultaneously possesses the power and possibility to steer activities in the investment object that affect the yield.
Investors in Storebrand Eiendomsfond Norge KS can submit a redemption request annually. The equity attributable to minority interests is classified as a liability in the consolidated financial statements.
Distribution beween company and customers: Bonds held to maturity - company 15,131
1) Occupancy rate is calculated based on the floor space. The high vacancy rate in Vika / Aker Brygge is attributed, however, to vacancy related to renovation projects in Ruseløkkveien.
TRANSACTIONS: Purchases: Further SEK 70 million of property acquisitions in SPP has been agreed in 4 quarter in addition to the figures that has been finalised and included Sales: No further sales has been agreed on in Storebrand/SPP in addition to the figures that has been finalised and included in the financial statements as of 31 December 2014
Allocation by company and customers: Equities and units - company 121 82
Group - of which RBNS 63 - of which IBNR 509 - of which premium income received in advance
By gross liability is meant the company’s expected future compensation payments for insurance claims that occurred on the date the financial statements were closed, however were not settled.
Debt raised through issuance of securities 3,207 3,531 -49 5,147 5,498 118 1) Book values as at 31.12.
Loans in Storebrand Boligkreditt AS are security for covered bonds (covered bond rate) issued in the company and these assets are therefore mortgaged through the bondholder’s preferential right to the security holding in the company. Storebrand Boligkreditt AS has over-collateralisation (OC) of 35 per cent, however committed OC is 9.5 per cent. Storebrand Bolig- kreditt AS therefore has security that is NOK 2.8 billion more than what is committed in the loan programme. Storebrand Bank ASA considers that the risk linked to the transfer level of home loans to Storebrand Boligkreditt AS is low.
Storebrand Luxembourg SA (Storebrand) is being sued by the bankruptcy estate of Kaupthing Bank HF with a demand for payment of USD 11,812,109 plus interest and costs. The writ of summons was received on 25 June 2012. The claim is primarily against Guy Butler Ltd., secondarily against RBC Europe Limited, and thereafter against Storebrand. The case pertains to a sale of bonds with a nominal value of USD 11,000,000 issued by Kaupthing Bank HF (US48632FAC59), which was performed by Storebrand Active Credit Fund in September 2008. The complainant submits that Kaupthing Bank HF was the real or final buyer of the bonds and that this is therefore a case of forced repayment of a debt that can be reversed. There have been no significant developments in the case during 2014, and no provisions have been made relating to this lawsuit.
The Storebrand Group is a cross-sectoral financial group with capital requirements pursuant to Basel I/II (capital cover) and capital adequacy rules on a consolidated basis. According to the rules on solvency, margin requirements are calculated for the insurance companies in the Group, while for the other companies a capital requirement in relation to the capital adequacy rules is calculated. The calculations in the tables below are in accordance with the §7 of the Regulations concerning capital ratios on a consolidated basis etc. Primary capital may consist of core capital and supplementary capital. According to the Regulations for calculating primary capital, core capital is significantly different from shareholders’ equity in the accounts. The table below shows a reconciliation of core capital relative to equity. Issued hybrid tier 1 capital may account for 15 per cent of the core (tier 1) capital, while any amount exceeding 15 per cent may be included in the tier 2 capital. The core capital will be adjusted for the valuations that are used as the basis for credit calculations at a national level for foreign companies. (§4, 7th paragraph of the Regulations concerning capital adequacy. ) For Storebrand Holding AB this will entail an adjustment of SPP AB’s estimated insurance liabilities for which a different yield curve is used for credit assessment than is used in the financial accounts. Supplementary capital that consists of subordinated debt may not exceed 100 per cent of core capital, while time limited subordinated debt may not exceed 50 per cent of core capital.The Basel Committee’s standards for capital and liquidity management (“Basel III”) have been made applicable to credit institutions and securities firms in the EEA area through the EU Capital Requirements Directive (“CRD IV”), and they are effective from 1 July 2014. For companies that are encompassed by CRD IV, the primary capital requirement is 13.5 per cent. Insurance companies in the Group are included in the capital adequacy with a capital requirement under the Basel I regulations.
In a cross-sectoral financial group, the sum of primary capital and other solvency margin capital, covers the sum of the solvency margin requirement for insurance operations and primary capital requirements for credit institutions and securities business. In the solvency margin requirement used for the insurance companies, this requirement is calculated as 4 per cent of gross insurance fund. This applies to both Norwegian and Swedish operations. In Sweden, the requirement also includes 1 per cent of the conditional bonus and 0.1-0.3 per cent of mortality risk in the insurance funds. The solvency margin capital for insurance differs slightly from the primary capital that is used in the capital cover. The solvency capital includes a proportion of additional provisions and the risk equalization fund.
For further information about close associates, see notes 34 and 48.
Employee share2 -9 -9 1) 449 909 891 shares with a nominal value of NOK 5.
Cash and cash equivalents at start of the period 37 48
Cash and cash equivalents at the end of the period 82 37
Storebrand ASA is the holding company of the Storebrand Group. The Storebrand Group is engaged in life and P&C insurance, banking and asset management, with insurance being the primary business. The financial statements of Storebrand ASA have accordingly been prepared in accordance with the Norwegian Accounting Act, generally accepted accounting policies in Norway, and the Norwegian Regulations relating to annual accounts, etc. for insurance companies. Storebrand ASA has used the simplified IFRS provisions in the regulations for recognition and measurement.
PENSION LIABILITIES FOR COMPANY’S OWN EMPLOYEES Pension costs and pension obligations for defined-benefit pension schemes are determined using a linear accrual formula and expected final salary as the basis for the entitlements, based on assumptions about the discount rate, future salary increases, pensions and National Insurance benefits, future returns on pension plan assets as well as actuarial estimates of mortality, disability and voluntary early leavers.
– of which FVO (Fair Value Option) 54 1 -10 45 49
According to IAS 19 assets and liabilities linked to the defined-benefit scheme shall be derecognised when a non-reversible decision has been made to discontinue a defined-benefit scheme (and it is not replaced by a similar scheme). The assumptions used in the calculations must be updated and the effects of this must be recognised in total comprehensive income. Effects that were recognised in total comprehensive income in previous periods shall not be reclassified to profit or loss (IAS 19.122). Gains and losses on derecognition are recognised through profit or loss.
For the defined-contribution scheme up until 31 December 2014 the saving rates were 5 per cent of salary between 1 and 6 G, 8 per cent of salary between 6 and 12 G, plus a defined-contribution scheme funded through operations that amounts to 20 per cent of the contribution basis for salaries above 12 G per year.
From 1 January 2013 Storebrand has been a member of the AFP contractual early retirement pension scheme. The private AFP pension scheme shall be accounted for as a defined-benefit multi-employer scheme and is financed through annual premiums that are set at 1 per cent of salary between 1 and 7.1 G. There is no reliable information available for recognition of the new liability in the statement of financial position. Storebrand employees in Norway who were born before 1 January 1956 can choose between drawing a contractual early retirement pension (AFP) or retiring at the age of 65 and receiving a direct pension from the company until they reach the age of 67. Payment of AFP is lifelong, and employees can choose to receive an AFP pension from the age of 62 and still continue to work. Storebrand’s direct pension scheme with payment between the age of 65 and 67 has been discontinued for other employees.
Expected premium payments are estimated to be NOK 2 million and the payments from operations are estimated to be NOK 14 million in 2015.
PENSION ASSETS ARE BASED ON THE FINANCIAL ASSETS HELD BY STOREBRAND LIFE INSURANCE, WHICH ARE COMPOSED OF AS PER 31.12.: (NOK million) 2014 2013
Booked returns on assets managed by Storebrand Life Insurance were: 5.4% 3.3%
Net pension cost booked to profit and loss accounts in the period -39 -114
Actuarial loss (gain) - change in other financial assumptions -1 -12
In 2013 Storebrand (Norway) amended the pension rules in the collective schemes for employees and former employees of the company. The change entailed that pensions in payment no longer have a provision concerning annual adjustment by a minimum of 80 per cent of the change in the consumer price index. Specific company conditions including expected direct wage growth are taken into account when determining the financial assumptions.
ACTUARIAL ASSUMPTIONS: In Norway standardised assumptions on rates of mortality and disability as well as other demographic factors are prepared by Finance Norway. With effect from 2014 a new mortality basis, K2013, has been introduced for group pension insurance in life insurance companies and pension funds. Storebrand has used the mortality table K2013BE (best estimate) in the actuarial calculations at 31 December 2014.
Other non-audit services 42 129 1) Odd Arild Grefstad is the CEO of Storebrand ASA and the amount stated in the note is the total remuneration from the Group. He has a guaranteed salary for 24 months after the ordinary period of notice. All work-related income including consulting assignments will be deducted.
2) Senior employees have a performance-related bonus agreement. 50% of the awarded bonus is paid in cash. The remaining amount is converted to synthetic shares based on the market price. These are registered in a share bank with a lock-in period of three years. At the expiration of the three-year period the value of the synthetic shares is calculated with a new market price. Half of the amount paid from the share bank, after tax, shall be used to purchase shares in Storebrand ASA at the market price, with a new three-year lock-in period.
'permanent differences 6 105 change in tax rules -17 capitalisation/write-down of deferred tax assets 6 -82
AS Værdalsbruket3 Værdal 25% 4 4 1) Group contributions of NOK 261 million received have been recognised as the repayment of capital.
2) Group contribution in 2014 of NOK 41 million as capital contribution.
Amounts that can, but are not presented net in the balance sheet Net amountFin. Assets Fin. Liabilities
INTEREST RATE RISK Storebrand ASA has both interest-bearing securities and interest-bearing debt. A change in interest rates will have a limited effect on the company’s equity.
0-6 months 6-12 months 1-3 years 3-5 years > 5 years Total value Carrying amount
Storebrand ASA had as per 31 December 2014 liquid assets of NOK 1.7 billion.
Signed loan agreements have standard covenant requirements. The terms and conditions have been redeemed persuant to signed loan agreements. Storebrand ASA has an unused drawing facility of EUR 240 million.
Profit and loss account items: Group contributions and dividends from subsidiaries 490 626
The consolidated financial statements have been prepared in accordance with the EU-approved International Financial Reporting Standards (IFRS) and the associated interpretations, as well as the other disclosure obligations stipulated in the Norwegian Accounting Act that must be applied as at 31 December 2014. The annual financial statements for the parent company have been prepared in accordance with the Norwegian Accounting Act, Norwegian Regulations relating to annual accounts, etc. for insurance companies and the additional requirements in the Norwegian Securities Trading Act. The annual report for the Group and parent company complies with the requirements of the Norwegian Accounting Act and Norwegian Accounting Standard no. 16 as at 31 December 2014.
II, the size of the capital requirement will be determined by the amount of risk the company is exposed to.
The transfer of part of the risk to another insurance company.
For a more detailed description of the technical insurance reserves and accrual accounting for premiums and compensation, see note 1 – accounting for the insurance business, page 70..
Primary capital as in capital adequacy plus 50 per cent of additional statutory reserves and risk equalisation fund, plus 55 per cent of the lower limit for the contingency funds in P&C
For a more detailed description of the technical insurance reserves and accrual accounting for premiums and compensation, see note 1 - accounting for the insurance business, pages 69.
APR, allowance must be made for whether interest is paid in advance or arrears, the number of interest periods per annum, and all the fees and commissions.
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.
Interest rate futures contracts are related to government bond rates or short-term benchmark interest rates.
Storebrand Group companies 1) SPP Livförsäkring AB owns 29.4 per cent and Storebrand Livsforsikring AS owns 67.7 per cent of SIA Front Real Estate.
2) Storebrand ASA owns 25.1 per cent, and the total stake in Storebrand is 100 per cent of AS Værdalsbruket.
STOREBRAND BANK ASA Storebrand Boligkreditt AS Bjørndalen Panorama AS Filipstad Tomteselskap AS Ring Eiendomsmegling AS