Storebrand commits itself to becoming climate neutral from 2008, the first financial institution to do so in the Nordic region.
Storebrand announces the group will acquire SPP, the Swedish life insurance and pensions provider.
The extraordinary general meeting approves the rights issue to finance the acquisition of SPP.
Storebrand’s 2006 Annual Report is named the best with respect to reporting on corporate governance.
Booked Value adjusted incl. bonds held to maturity Value adjusted excl. bonds held to maturity
Profit allocated to policyholders -2 797 -3 994 - of which allocated to additional statutory reserves -400 -1 000
Total premium income (excl. premium reserves transfers) 16 600 13 100
Storebrand can trace its history back to 1767. Storebrand has provided occupational pensions to Norwegian employees since 1917, the same year SPP was established in Sweden. Storebrand Bank opened for business in 1996, and in 2006 the group relaunched its property and casualty insurance business as part of a comprehensive range of services for retail market customers.
Corporate responsibility is an integral part of the group’s activities, and all assets and pension portfolios managed by Storebrand are subject to strict ethical criteria. The group’s corporate responsibility work is based on a dedicated action plan.
Storebrand share (NOK): Market cap at 31.12. (NOK million) 25 510 19 811 15 059
The dividend is equivalent to NOK 2.18 per share in relation to the total number of 1 shares prior to the issue.
Following the acquisition of SPP, the Swedish life insurance and pensions provider, Storebrand is now a leading provider of long-term savings and insurance in the Nordic market. The group consists of life insurance in Norway and Sweden, and property and casualty insurance, asset management and banking in Norway. Storebrand offers a comprehensive range of products to private individuals, companies, municipalities and the public sector.
Forum’s list of the 100 most sustainable companies in the world in 2007, for the second year in a row.
Nordic region’s leading expert group within the field of pensions. We are creating new career and development opportunities for employees on both sides of the border and improving our ability to attract new employees. Storebrand’s objective is to be a leader in occupational pensions and reinforce the resources it allocates to innovation and the development of the next generation of product and service solutions.
The Storebrand brand is built through the interaction between our employees and our customers. Motivated employees, who enjoy their jobs and possess the right competence, form the core of our competitiveness. We plan to continuously attract, develop and retain the right employees through our management development programmes and our focus on competence development. Competence, the ability to innovate and a high level of customer satisfaction are fundamental to our future growth and profitability.
With the acquisition of SPP, Storebrand has gone from being second largest in Norway to being number one in the Nordic region within the core area of life insurance and pensions. In addition, we are building a solid platform for future growth and development. The acquisition of SPP also indicates that we are moving from national markets to a common Nordic domestic market within life insurance and pensions.
Vision: Storebrand´s objective is to be the leading and most respected institution in the Nordic market for long-term savings and insurance
• 1767 In 1767, Den almindelige Brand-ForsikringsAnstalt is established in Copenhagen to administer the compulsory fire insurance scheme for properties in Norwegian towns.
• 1923 Storebrand acquires nearly all of the shares in Idun. The rest, with a couple of exceptions, are acquired during the 1970s.
• 1936 Storebrand acquires Europeiske – the leading travel insurance company in Norway.
• 1978 Storebrand bids farewell to its old logo – the stylised St. Hallvard, patron saint of Oslo – and introduces «the link» as an easily recognisable trademark. The formal name of the holding company is changed to A/S Storebrand-gruppen.
• 1999 Storebrand, Skandia and Pohjola consolidate their P&C insurance activities in the new Nordic, Swedish registered, company, If Skadeförsäkring AB. Storebrand sells its stake five years later.
• 2005 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.
No. of employees (full time equivalents) 2 151 1 429 1 295 1 224 1 263
SPP provides unit linked products, traditional insurance and defined benefit products as well as consulting services covering occupational pensions, and insurance and administrative solutions for municipalities and other organisations.
Clear trend for consolidation within life insurance and pensions market Storebrand sees the following industry trends within the life insurance and pensions market in the Nordic region: the development of more harmonised regu-•
of scale within IT, underwriting, administration, product development and asset management; the advantages of revenue synergies from •
using the best product, personnel and processes from a combined entity; the advantages of capital synergies aris-•
Storebrand and SPP is a good strategic fit and provides advantages to both customers and shareholders.
Growth all life: Growth occupational pension: Occupational Pension % CAGR 1997–2007
Swedish life insurance market are the tickthe -box occupational pensions market, the conventional occupational pensions market, and the private life insurance market, with a share of the overall market of 20 per cent, 37 per cent and 43 per cent respectively in 2007
The occupational pensions market is likely to form an increasing share of the total Swedish life insurance market. Occupational pensions have seen more stable growth than other life insurance segments, which have shown greater sensitivity to financial markets, tax legislation and other factors. In addition, the increased size of the unfunded Swedish municipalities market (estimated at SEK 300 billion7 (NOK 252 billion)) is a potential for further growth. Furthermore, the Swedish occupational pensions market has evolved in recent years and become increasingly complex. The Storebrand Group’s, including SPP, experience, scale and competence in all aspects of the Swedish insurance industry is expected to provide the basis for increased market shares for SPP.
As in most other countries, unit linked products’ relative share of the market is expected to increase at the expense of traditional guaranteed life and pension products.
Furthermore, the relative market share of defined contribution products is expected to increase, while the relative share of defined benefit products is expected to be reduced.
aging broker relationships to significantly strengthen SPP’s distribution capabilities in the Swedish market.
will help Storebrand to further capitalise on the shift in the Norwegian market from traditional life insurance products to unitlinked products.
The integration process has revealed that the initial synergies from the acquisition were conservatively estimated. Storebrand has thus announced the following adjusted synergies resulting from the transaction: Cost synergies: • Cost synergies are expected to amount to approximately NOK
150 million pre-tax per annum and are expected to be phased in 35 per cent in 2008, 75 per cent in 2009 and to take full effect in 2010.
SPP into its asset and liability management processes and principles to increase investment returns and improve results to the owner by more than NOK 100 million per annum.
Revenue synergies: • Storebrand expects to grow SPP’s revenue base to generate in excess of NOK 100 million in additional new business profit by 2010.
Tax benefits: • Based on current tax legislation, Storebrand expects to extract approximately NOK 120 million in tax synergies per annum. The tax synergies are expected to have full effect from 2008.
Distribution synergies: • The relationship with Handelsbanken, an important distributor of Storebrand’s health insurance products in the Swedish market, is expected to be further strengthened by the transaction.
The profit-sharing between SPP and the policyholders with respect to traditional life insurance is stipulated in a well-defined model whereby SPP receives 10 per cent of the return on the policyholders’ assets, subject to returns exceeding the guaranteed level. The administration and risk results are not subject to profit-sharing and are fully at the risk and benefit of the company.
SPP has a strong brand and customer franchise in Sweden. SPP also has long-standing relationships with unions, particularly white collar unions, and employer organisations such as Svenskt Näringsliv. Furthermore, SPP
has a strong position in fee-driven business, in particular pensions consulting and administration and specialised products (for example for top management and expatriates ).
by continuing to build on existing measures and by implementing Storebrand’s standards in SPP. We are already implementing our group standard on responsible investments for the administration of SPP’s assets.
Microfinance involves providing financial services to people who would not normally have access to bank savings, credit and insurance. This has proved to be an effective means of reducing poverty. Storebrand first got involved in microfinancing in 2005, and during 2007 increased its investments from
Corporate responsibility We believe that industry winners in the future will be businesses that develop products and services in a way which unites global, social and environmental challenges with profitable growth. Our most important contribution to resolving society's challenges must therefore come through our core activities.
A total of 91 companies are exclu­ ded from all Storebrand funds and pension portfolios as of 1 January 2008. The number of companies excluded is stated in brackets. Some companies are excluded in more than one area.
Tobacco 10% worst performers in high risk industries expanded the investment scope for this type of investments from NOK 100 million to NOK
In November 2007, we launched a new ethical hedge fund in partnership with the Swedish company Folksam and the Swiss company
Diversity Storebrand wants to recruit more people from groups that are underrepresented in the labour market, including the disabled and people with diverse ethnic backgrounds.
Good health and safety in the working environment (HSE) is also profitable for our customers, who will experience more satisfied employees, increased productivity and lower sick leave costs.
Time taken to process complaints - 65% within 3 weeks 70% within 3 weeks2
Investment return from Storebrand Global SRI relative to benchmark index3 0.07% -6.4% Better than benchmark index
Investment in microfinance USD 9 million USD 15 million Increase, given sensible investment opportunities
Percentage of employees agreeing that Storebrand is a «great place to work» 90% 90% 85%
Energy consumption (managed properties) Reduced by 9% Reduced by 0.1% Reduce by 5%
Waste sorted by type (tenants of managed properties8) 40% 42% 50%
Paper consumption (head office) 61 tonn 73.2 tonn Reduce by 10%
Water consumption (head office) 27 618 m3 26,766 m3 Stable level
Water consumption (managed properties) 95 461 m3 94,957 m3 Monitor consumption
Red Cross and MOT. At the beginning of 2008, we started a new principal partnership with the Norwegian Cancer Society. The partnership agreement aims to help prevent cancer, primarily with respect to Storebrand’s customers and employees. Through this partnership, we also want to offer information and support to customers and employees who have cancer.
A Christmas gift with a difference One very visible social initiative in 2007 was the Christmas gift Storebrand gave to four non-profit organisations. An internal survey revealed that 70 per cent of our employees wanted to give the money spent on
The recipients of the gifts were the Norwegian Cancer Society, the Church City Mission, the Salvation Army and the Norwegian Red
Increased climate focus 2007 was a year in which people focused on the climate and the environment, as was the case in Storebrand. As well as systematically working to achieve the environmental targets we have set for ourselves, including energy, paper and water consumption, waste sorting and recycling, we took new steps to reduce the burden our business operations place on the environment.
Here they will automatically be told the environmental and safety classification, at the same time as they calculate their insurance premium.
First climate neutral financial institution Storebrand also signed up to the Norwegian Climate Campaign in 2007 – an action programme for business organised by the
Since the middle of the 1990s, we have done a lot as far as measures are concerned, both internally and in relation to establishing environmental criteria for our suppliers and the companies in which we invest. We have now also started drawing up our carbon footprint for the company. Our first estimated footprint is based on energy consumption in all of our offices, all the business flights we make, as well as company cars and travel allowances. We have also decided to purchase UN
The single most important event in 2007 for Storebrand was the acquisition of SPP. On 3 September, Storebrand announced that it had signed an agreement with Handelsbanken concerning the take-over of Handelsbanken ’s subsidiary, the life insurance and pensions provider SPP, as well as associated companies, including the fund management company
In addition, geographic diversification produces capital synergies that will be stimulated in future capital adequacy regulations. Concrete effects have been defined in a number of areas that entail that Storebrand and SPP can benefit from each other’s strengths and experience. For example, SPP will be able to draw on Storebrand’s long experience in the pensions transfer market when the Swedish market is expected to permit the transfer of pension schemes sometime in the spring of 2008.
Earnings performance The Storebrand group produces its consolidated accounts in accordance with the EU-approved International Financial Reporting Standards (IFRS).
The accounts of the holding company, Storebrand ASA, are produced in accordance with Norwegian accounting legislation, and the company has elected not to apply IFRS to the holding company’s unconsolidated accounts. The Storebrand group reports an operating profit of NOK 4,803 million for 2007 compared with NOK 5,549 million for 2006. Group profit before tax and changes to security reserves was NOK 2,020 million compared with NOK 1,585 million in 2006. Earnings per share, based on the average number of shares outstanding over the year, amounted to NOK 7.95 in 2007 compared with NOK 6.03 in 2006. No share of the profit from SPP has been included in the 2007 accounts, since SPP had no significant effect on the profit from the transaction date up to 31
The risk result improved for the individual sectors overall and for corporate group insurance, non-life products were at around the same level as in 2006, while retail group pension insurance and group life experienced a minor decline. NOK 3.3 billion was allocated to the premium reserve in 2007 to take account of the population’s increased life expectancy. The profit allocated to the owner of Storebrand Life Insurance pursuant to
IFRS was NOK 1,622 million, which is an improvement of NOK 432 million on the previous year. The profit was affected by a one-time effect of NOK
NOK 78 million, such that the bank’s total pre-tax profit was NOK 235 million. Net interest income experienced a downward trend in 2007, mainly due to pressure on margins, credit risk and increased competition in the lending market. Net fee and commission income increased as a result of the successful launch of new savings products. The underlying cost/
Storebrand Kapitalforvaltning’s (Storebrand Investments’) profit was characterised by high fixed and volume-based income due to the high net inflow of assets under management. Performance-based revenues were lower than in 2006 due to the weaker investment returns. The company maintained good control over its costs throughout the year and thus has a good platform for continued profitable operations in the future. As previously stated, Storebrand Investments’ goal has been to achieve a costs/income rate of less than 75%. This goal has been achieved and the company achieved a profit of NOK 138 million in 2007.
Storebrand ASA achieved a pre-tax profit of NOK 696 million compared with NOK 1,020 million in 2006. The income from investments in subsidiaries amounted to NOK 672 million, which represents a fall of NOK
364 million compared with 2006. Storebrand ASA does not present its company accounts pursuant to IFRS. A dividend payment of NOK 534 million was booked against equity as per 31 December 2007, while it is still included in equity in the consolidated accounts, which are produced pursuant to IFRS. The dividend payment will be booked in the consolidated accounts once it has been approved by the annual general meeting in 2008.
Storebrand ASA, Storebrand Leieforvaltning AS and Storebrand Felix Kurs og Konferansesenter AS together reported a profit totalling NOK 12 million, after eliminations, and a profit contribution of NOK 5 million.
The retail market achieved good sales of pension, savings and risk products in 2007.
In May 2007, Storebrand Life Insurance became the first company in
Norway to launch its own cancer insurance. After two campaign periods,
Following the introduction of mandatory occupational pensions (OTP) the market for occupational pensions will primarily be a transfer market, a market Storebrand is well equipped for. Storebrand was again the winner in the transfer market for occupational pension schemes in 2007 with a net inflow of assets of NOK 4.1 billion.
Banking: The bank primarily focused on growth and improving profitability throughout 2007. Storebrand Bank’s position as a ‘no-fees’ bank and its competitiveness within home mortgages have been maintained.
Booked Value-adjusted excl. unrealised gains on financial fixed assets Value-adjusted incl. unrealised gains on financial fixed assets
In the retail market Storebrand Investments has turned a net departure of NOK 300 million in 2006 into a net inflow of NOK 300 million in 2007.
The inflow was greatest in the fixed income funds. Storebrand Investments has a market share of 8.1% of the total assets under management for Norwegian retail customers, an increase from 7.3% in 2006. In 2007, Storebrand Investments gained 44 new institutional customers. Its strong position within the municipality, pension fund and organisation segments has been maintained. These customers will continue to be important and great emphasis is placed on good customer service. The strategy of directing the sales focus at private investment companies has been successful and will be continued in 2008. In 2007, the unit of highly qualified investment advisers responsible for the company’s institutional customers in cooperation with the department for operational services achieved a breakthrough with respect to sales of investment support services, SIOS (Storebrand Investment Operation Services).
Risk management Storebrand has through the products and policies it has signed with customers established liabilities that generate risks. These vary in nature depending on the product area. Various types of insurance risk are associated with the life insurance and P&C insurance business areas. Storebrand’s financial assets fluctuate in value due to the risk associated with the financial markets – including equities, property, interest rate and credit risk.
The banking business area also generates credit risk, and there are solvency and operational risks associated with the operation of the business areas. Continuous monitoring and active management of risk is therefore a central and integral feature of the group’s activities and organisation.
Identifying and managing operational risk forms an integral part of management responsibility in the organisation. In addition to this, the group’s executive management conducts an annual risk assessment that
ERIK HAuG HANSEN (53), employee elected. Sales Manager, Corporate Market, Storebrand Life Insurance. Higher insurance qualification, University of Oslo. 1979­1985 Ajungilak AS. 1977­1979 Consultant, Fred. Olsen Spedisjon AS. 2004­ board member, Storebrand ASA. 1998­2002, board member, Storebrand Life Insurance.
on average. The average guaranteed return will fall over time since the annual guarantee for new policies cannot exceed 2.75%. The life insurance company’s financial risk principally relates to its ability to generate an annual investment return at least equal to the guaranteed minimum.
At the end of 2004, the Norwegian parliament approved a number of major changes to the Insurance Activities Act. One important aspect of the changes is that insurance companies must, for certain product areas, charge the cost of the interest rate guarantee included in products to the customer in advance. The new operational rules came into effect on 1 January 2008. The allocation of financial assets follows the company’s investment policy. The investment policy establishes guidelines for the composition of financial assets by setting limits and rules for the company ’s risk management. The policy also includes limits and guidelines for credit and counterparty exposure, foreign exchange risk and the use of derivatives. The objective of active risk management is to maintain sound risk-bearing capacity and to continuously adjust financial risk exposure to the company’s solidity. The company expects this to generate a good investment return, both in individual years and over time.
Insurance policies are long-term agreements, and involve uncertainty with respect to calculating future mortality and disability rates. The life insurance company uses tariffs based on historical statistical data that are notified to the authorities. The company follows developments in mortality and disability rates very closely, and adjusts its reserves in accordance with these trends. New premium and reserve tariffs that take into account the increased life expectancy of insured people that has been observed in recent years are being introduced in 2008. NOK 3.3 billion was allocated in the accounts as per 31 December 2007 in connection with this.
Storebrand Life Insurance has practised a policy of solvency-based risk management in connection with the instability in the financial markets at the beginning of 2008 and thus significantly reduced the proportion of equities in the customers’ investment portfolios.
SPP is to a large extent exposed to the same types of risk as Storebrand
Life Insurance, however the terms contained in the insurance products are somewhat different. SPP offers insurance products with a guaranteed return on received premiums and mutual fund products in which the customer bears the financial risk. SPP’s defined benefit products also include inflation adjustment and parts of the portfolio are thus subject to inflation risk.
The company makes provisions in the accounts to meet these and monitors the ongoing risk, including by using ‘Value at Risk’ measurements.
In order to ensure that the insurance company has adequate capital to service its obligations, the Swedish supervisory authority, Finansinspektionen, requires that insurance companies stress test all of their business activities pursuant to a predefined template. The stress tests cover both assets and liabilities in the balance sheet, but are defined differently for defined benefit pensions and defined contribution pensions with guarantees. This is known in Sweden as traffic light reporting. The capital requirements during the stress tests can be reduced by available risk capital (known as ‘conditional bonuses’ in Sweden), which thus results in a net requirement of equity.
The life insurance group’s risk capital reports NOK 2.4 billion from interest-adjusted conditional bonuses in SPP.
Storebrand Bank ASA’s financial risk primarily consists of credit, liquidity, interest rate and foreign currency risk. Credit risk is regarded as the most important. The Board places weight on the bank having a low level of financial risk.
The volume of non-performing and loss-exposed loans totalled NOK 448 million, equivalent to a reduction of NOK 85 million and 1.2% of gross lending over the course of 2007. The bank’s total lending write-downs amounted to NOK 305 million at the end of 2007, of which NOK 58 million related to grouped write-downs.
The bank manages its exposure in the fixed income market such the sensitivity to interest rates is as low as possible. The bank also practises a policy of full hedging and all instruments with an interest rate fixing period in excess of six months are subject to a specific hedging policy.
The main risk for the newly established P&C business is that it will initially have a small portfolio to absorb claims. This could mean that single large claims may have a disproportionate impact on profit. The largest claims will typically arise from liability cover in motor insurance.
Special reinsurance cover has been taken out in order to offset this risk.
’A’, which suggests that this represents a very limited risk exposure for
whereby the capital adequacy in its banking activities should be more than 10% and the solvency margin in the life insurance company should be at least 150%. As per 31 December 2007, Storebrand Bank’s capital adequacy was 10.5% and the solvency margin in Storebrand Life Insurance was 136%.
ASA conducted a share issue that resulted in a net increase in equity of
December 2007, and its core capital adequacy was 6.3%. The authorities’
requirements are 8% for capital adequacy and 4% for core capital.
Storebrand ASA had total liquid assets of more than NOK 1.7 billion at the close of 2007, and also has available an undrawn long-term credit facility of EUR 225 million. Storebrand ASA has a bond issue of NOK 1.6 billion that falls due in 2009 and 2011. Storebrand ASA took out a loan of EUR 580 million in connection with the acquisition of SPP. The loan will be repaid when Storebrand Life Insurance issues new subordinated debt in 2008.
Storebrand Bank’s rating was upgraded in 2007 by Moody from Baa2 to
A2 (stable outlook). Standard & Poor’s rating for Storebrand Bank was
Corporate responsibility The industry winners in the future will be businesses that develop products and services in a way which unites global, social and environmental challenges with profitable growth. Storebrand’s most important contribution to resolving the challenges faced by society must therefore be made through our core activities. The group has ensured that the focus on corporate responsibility will be strengthened further by ensuring that the area is directly represented in the executive management team from
Among the highlights we should like to emphasise are the increased investments in microfinancing, the launch of an ethical hedge fund and our continued listing on sustainability indices, the Dow Jones Sustainability
Index, FTSE4Good and Global 100, which is a list of the 100 most sustainable companies in the world. Development measures associated with the environment and the area of HR are described below.
The environment: 2007 was a year in which people focused on the climate and the environment, including in Storebrand. As well as systematically working to achieve the environmental targets we have set for ourselves, including with respect to energy, paper and water consumption, waste sorting and recycling, Storebrand took new steps to reduce the burden our business operations place on the environment. In June, we developed and launched, in partnership with the environmental
The Norwegian Climate Campaign in 2007 – an action programme for business organised by the Norwegian Ministry of the Environment. In addition to actively working to reduce our CO2 emissions, developing products and services that help increase awareness of climate challenges and reducing emissions, Storebrand has decided to purchase UN certified climate quotas equivalent to our direct emissions as early as 2008. On 1
January 2008, Storebrand thus became the first climate neutral financial player in the Nordic region.
Skills and training: Storebrand places great weight on the development of its employees at all levels and we intensified this work in 2007. Tools for surveying competence and development plans for employees have been fully developed, and managers have undergone specific training in performance management and attaining goals. Managerial development has received extra attention in 2007. The company’s managers undergo mandatory managerial training modules and an internal mentor programme for new managers has been introduced. Besides this, a special training programme is offered to young employees showing promise –
and occupational pensions (new insurance act), undergone skills training within these fields as well.
Financial Services Association’s management training programme for women. This continued in 2007 and in 2008 the effort has been doubled.
Storebrand insists that external recruitment consultants put forward both male and female candidates on short lists for management recruiting.
Employee benefits, such as flexible working hours, extending full salary for sick leave to include attending to children or parents, and full salary during maternity leave, are seen as important measures in encouraging gender equality. Storebrand produces salary statistics at specified management levels to facilitate the comparison of salaries between male and female employees.
Storebrand has its own diversity committee, which in addition to working on gender equality also systematically works to include people from groups that are underrepresented in the labour market, including disabled people and groups from diverse ethnic backgrounds.
Senior policy: Storebrand is committed to offering a good senior policy.
The group employed 34 employees over the pension age of 65 in 2007 compared with 21 in 2006. 30 new members of staff over the age of 45 were recruited in 2007. An increasing number (40%) of senior employees want to continue working after turning 65 years old, and 75% of all employees responded in the annual employee satisfaction survey that the staff are treated fairly regardless of age. Storebrand holds a significant number of seminars about senior policy for external parties every year.
No injuries to people, property damage or accidents of significance were reported within Storebrand in 2007.
Corporate governance Storebrand established its policy on corporate governance in 1998.
The question of whether to elect a Deputy Chairman for the Board of
Storebrand ASA was considered in 2006, but such an appointment was not considered necessary.
Further information on Storebrand’s policies and procedures for corporate governance can be found in a separate article on pages 31–35.
Board of Representatives: Ole Enger, Eli Sætersmoen and Petter Jansen retired from the Board of representatives. Terje Venold was appointed as the new chairman of the Board of Representatives. Trond Bjørgan and
Control Committee: Carl Graff-Wang and Jon Ansteinsson retired from the Control Committee. Ole Klette was elected as a new member.
Future prospects In recent years, Storebrand has achieved solid profitability and strong competitiveness in an attractive and growing market for long-term savings and insurance. The acquisition of SPP expands the group’s market area from one covering Norway to one covering the Nordic region. Storebrand has built up a solid financial and market basis for further positive growth. The company’s future results will depend on developments in a number of areas, including social and macroeconomic developments, general conditions and the competitive situation in the sector.
The social developments in relation to Storebrand’s areas of focus are regarded as positive. Changes in pension systems have increased the public’s interest in pensions and other welfare benefits, and sales of long-term savings and insurance products and services are also being influenced by demographic trends. Increased life expectancy combined with people’s wish to maintain a high standard of living during their retirement is creating demand for Storebrand’s products.
The macroeconomic trends in the world generally, and in Norway and the
a whole. Storebrand has, through active risk management and adjusting its level of risk capital, prepared itself for possible instability in the stock and fixed income markets. It considers the macroeconomic situation in the Nordic region strong, despite the increased uncertainty in the global economy throughout 2007 and at the start of 2008.
On 1 January 2008, the general conditions for life insurance in Norway changed considerably with the introduction of new regulations for life insurance. The regulations significantly affect Storebrand’s business model and the traditional pension products. Storebrand has worked intensively to adapt products and systems to the new regime, and provide extensive guidance to customers in connection with the transition. Storebrand believes that the new regulatory framework represents a positive development, and will permit greater flexibility and improve the group’s quality of earnings.
The strong inflow of customers to Storebrand in recent years confirms the group’s competitiveness, and provides a sound basis for a good level of sales going forward. In 2007, Storebrand launched a major initiative in the Norwegian market that will last for several years aimed at cross-selling the group’s products and encouraging the group’s existing customers to buy additional products. This initiative addresses both the retail market and individual employees in companies that have pension arrangements with Storebrand. The key goal in the Swedish market is to strengthen SPP’s competitiveness further.
Storebrand has experienced accelerating pressure on margins in certain product areas, including in the lending market and in the market for mandatory occupational pensions in Norway. Storebrand is prepared for any further pressure on margins and continuously works to improve operational efficiency. Greater efficiency will ensure that Storebrand can handle increasing business volumes without an equivalent increase in costs. An extensive programme of further product improvement is underway, and will be rolled out across the entire Norwegian group during 2008. Storebrand anticipates significant effects from this. Productivity improvements and synergies have also been defined with respect to SPP’s business.
At the start of 2008, Storebrand looks forward to an important year, especially with respect to the integration of SPP. The acquisition has resulted in the establishment of the leading Nordic provider of life insurance and pensions, and a strong platform for further growth. The acquisition makes it possible to take advantage of the complementary skills and experience in both companies, and through this achieve the planned synergies that follow from the transaction.
Storebrand has, because of its long traditions and experienced and motivated employees, a good basis for successfully achieving the group’s goals.
The dividend is equivalent to NOK 2.18 per share in relation to the total number of shares prior to the issue.
Birgitte Nielsen Knut Dyre Haug Ann-Mari Gjøstein Erik Haug Hansen Idar Kreutzer Chief Executive Officer
The share capital, rights issue and shares Shares in Storebrand ASA are quoted on the Oslo Stock Exchange
The annual general meeting held on 25 April 2007 granted a mandate to the Board to buy back up to 10% of its own shares. Storebrand has used this mandate and as of 31 December 2007 the company held 5,263,700 of its own shares equivalent to 1.17% of the total share capital. The company has not issued any options that could dilute share capital.
Shareholders Storebrand ASA is one of the largest companies listed on the OSE
March 2007, each employee was offered the opportunity to buy between 100 and 500 shares at NOK 65.11 per share. 46% of employees participated and purchased a total of 236,300 shares. See note 15 for information about the shares held by senior management.
Turnover in the Storebrand share Almost 540 million Storebrand shares changed hands in 2007 which was a small reduction compared to 2006. The value of shares traded in 2007 was NOK 39,338 million approximately equal to the same level as last year. This made Storebrand the 19th most traded share
State Street Bank & Trust NOM 11 730 556 2.61 USA
on the OSE in 2007 in terms of value. In relation to the average total number of shares, the turnover rate for Storebrand’s share was 186%.
rose by 11% over the same period. Over the last three years, the
Storebrand share has produced a total return of 41%. while the
NOK 1.20 per share, excluding the company’s holding of bought back shares equivalent to NOK 534 million. The proposed dividend is based on the number of shares prior to the acquisition of SPP and the associated rights issue, since the acquisition took place at the end of 2007. The dividend is equivalent to NOK 2.18 per share in relation to the total number of shares prior to the issue.
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 termed the “shareholder model” and replace the previous RISK and tax credit systems. Under the new shareholder model, the amount of a dividend, less a standard deduction, is taxable, currently at 28%. If shares are sold, any unutilised standard deduction can be deducted from the gain on 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 the risk-free rate of interest. The interest rate for calculating deductions in 2007 is set at 3.3%.
Analysis of shareholders by number or shares and ownership at 31 December 2007 1–200 shares 201–1 000 shares 1 001–
Investor Relations Storebrand places great importance on comprehensive and efficient communication with financial markets. Maintaining a continuous dialogue with shareholders, investors and analysts both in Norway and internationally is a high priority. The group has a separate investor relations unit responsible for establishing and coordinating contact with analysts, the stock exchange, shareholders, investors and others.
All interim reports, press releases and presentations of interim reports are published on the Storebrand website: www.storebrand.no.
General meetings Storebrand has one class of shares, each carrying one vote. The company holds its AGM each year before the end of June. Shareholders who wish to participate in a general meeting must notify the company no later than 16:00 three business days before the meeting.
Shareholders’ contact with the company Shareholders should generally contact the administrator of their share account with queries and notices of changes, e.g. changes of address. Storebrand’s own shareholders’ office can also provide guidance
Historic share prices have been adjusted to take account of the split between shares and subscription rights implemented in 2007.
In terms of the number of shares before the share issue, the dividend is equivalent to NOK 2.18 per share. 1
In December 2004, a broadly based working group published a Norwegian Code of Practice for Corporate Governance. Storebrand has been actively involved in developing the Norwegian Code of Practice.
An account of the major features of Storebrand’s corporate governance is provided below. The account deals with a number of issues that are not included in the Code of Practice, but which we consider to be central to the discussion of corporate governance. The headings used below refer to the equivalent sections of the Code of Practice, with comments on any deviations from the Code. We have chosen to deal with certain other issues related to corporate governance elsewhere. This applies to the account of the use of financial risk management (pages 55–59), shareholder matters (sections 3, 4 and 5 of the CoP), and corporate responsibility (pages 14–17).
Storebrand launched its own principles for corporate governance in 1998, and views the Norwegian Code of Practice as a natural extension of its own principles. The Board of Directors (the Board) has resolved that the company shall adhere to the Norwegian Code of Practice, and its statement on adherence to the Code of Practice can be found on page 26. An account of the definition and implementation of Storebrand ’s corporate values can be found in the Corporate Responsibility
Report and Action Plan for 2007–2008, and also on pages 14–17 of this annual report. The group has produced guidelines for business ethics. Monitoring and compliance with these guidelines is subject to a thorough internal process. Further information in this respect can be found on page 26, and also in the Corporate Responsibility Report and
Action Plan for 2007–2008. Further information on the company’s objectives and main strategies can be found on pages 38–39. In addition,
Storebrand keeps the market advised of its objectives and strategies through investor presentations held in connection with presentations of its interim and annual accounts and other specialised presentations, such as the capital market days that are held every second year.
As a large stock exchange listed company and an important participant in society, Storebrand is committed to building good relationships with its stakeholders, who include shareholders, corporate bodies, management, employees, customers, lenders, and society as a whole. Corporate governance plays a central role in this objective, and defines the legal and operational framework by which Storebrand directs and controls its activities in order to create value for its stakeholders.
Election Committee is independent of the company’s Board and management, and its composition ensures a broad representation of shareholder interests. The Election Committee reviews the annual appraisal of the work of the Board, and is responsible for proposing candidates to the Board of Representatives, the Board of Directors, the Control Committee and the Election Committee, and the remuneration of the members of these bodies. The Election Committee applies specific criteria, and works in accordance with a formal mandate. The members of the Storebrand ASA Election Committee are also members of the election committees for Storebrand Livsforsikring
Articles of Association stipulate that the chairman of the Board of
Representatives is a permanent member of the Election Committee and is the committee’s chairman. This means that the chairman of the
However, the AGM elects 2/3 of the Board of Representatives, which elects the chairman. The arrangement is therefore assumed to satisfy the principle that the composition of an election committee should be decided by the AGM.
and six by the group’s employees. Members are each elected for a two-year term of office so that half the members retire each year.
The duties of the Board of Representatives include making recommendations to the AGM on the Board’s proposal for the annual report and accounts, electing the six shareholder nominated directors, including the Chairman, to the Board of Directors, determining the fees paid to the directors, issuing the mandate for the work of the Control
Board of Directors (CoP section 8) The Board of Directors of Storebrand ASA (the Board) has nine members, who up to now have been elected for a two-year term of office.
The work of the Board is subject to a specific mandate. In order to ensure sound and well-considered decisions, meetings of the Board are well prepared so that all members can participate in the decision making process. The Board prepares an annual schedule for its meetings and the issues to be considered. The agenda is set by the
The Remuneration Committee monitors the remuneration of the group’s senior managers, and assists the Board in setting terms and conditions for the group’s CEO. The Remuneration Committee held six meetings in 2007.
The Board may elect a Deputy Chairman if it so requires. The question of electing a Deputy Chairman was considered in 2006, but was not considered necessary. The Board considers that such an appointment could cause undesirable differentiation between members of the
Board. When necessary, for example due to the absence of the elected
Control Committee The Control Committee of Storebrand ASA is a legal requirement, and has five members elected by the AGM. The committee is independent of the company’s Board and management. Members are elected for a two-year term of office. The Control Committee is responsible for ensuring that the entire group conducts its activities in a prudent and proper manner. Particular attention is paid to close collaboration with the control committees of the group companies. The committee ensures that the group adheres to all relevant legislation and regulations, and that it operates in accordance with the Articles of
GROuP MANAGEMENT Internal management bodies The Chairman of the Board of Storebrand ASA is also the Chairman of the Board of Storebrand Livsforsikring (Storebrand Life Insurance).
Kapitalforvaltning (Storebrand Investments) and Storebrand Bank. The other members of the boards of Storebrand Life Insurance, Storebrand
insurance company. The acquisition of SPP Livförsäkring was completed on 21 December 2007. As a consequence of this, a new group management model was introduced with effect from 14 January 2008.
The Board has issued a written mandate setting out the management responsibilities of the CEO of Storebrand ASA. The role of the group’s
Storebrand’s executive management is charged with implementing the strategies approved by the Board, and is directly responsible for the group’s overall profitability and for making optimal use of resources across the entire group. Storebrand works systematically to build up the system value of expertise across the group, and annually carries out succession planning for the entire executive management team which is dealt with by the Board. In addition, in order to ensure continuity of expertise in key positions, all the members of the executive management team are subject to a written agreement to give six months’ notice of termination of employment. Information on the executive management team can be found on page 36.
Relationship between Storebrand’s corporate bodies and control functions (CoP sections 10 and 15) The internal audit function in Storebrand is founded on a corporate governance model, whereby management is based on group-wide policies and internal regulations in areas such as ethics, information management and information security, as well as a value based system for financial and operational risk. The group has a common internal audit function which carries out an independent review of the robustness of the management model. The internal auditor is appointed by and reports to the boards of the respective group companies.
Storebrand’s value-based management system (CoP section 10) The management system is central to the internal audit function and is intended to ensure a correlation between targets and actions at all levels of the group and the overall objective of value creation. The system is based on a balanced scorecard where the four dimensions of finance, customers, processes and skills/growth reflect both shortterm and long-term value creation in the group.
The system highlights parameters that fall short of targets so that appropriate measures can be implemented.
The appraisal and remuneration 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. Bonus payments are dependent on both the overall level of value creation and individual performance. Storebrand’s remuneration systems follow internationally recognised principles. Remuneration does not include share options. Historical data on share options can be found in the annual reports for 2004 and earlier years.
Management through group-wide policies and guidelines Group-wide policies have been approved for the following functions in the Storebrand group: accounting, finance and risk management, investor relations, corporate communications, branding, IT, human resources, legal services and corporate responsibility.
Deviations from sections 10 and 15 of the Code of Practice: None
Remuneration of the Board and executive management (CoP sections 11 and 12) The remuneration of the members of the Board is decided annually by the AGM. The fees paid to the members of the Board are not linked to profits, option programs or similar arrangements. The members of the Board do not receive incentive-based remuneration, but receive a fixed annual fee plus an additional payment for each Board meeting in excess of 11 meetings in any one year. The shareholder elected members of the Board do not participate in the company’s pension arrangements. None of the shareholder-elected members of the Board carry out any duties for the company other than their appointment to the Board. More detailed information on the remuneration, loans and shareholdings of the members of the Board can be found in notes 12
Guidelines for the remuneration of members of the executive management have previously been submitted to the AGM for information each year, and from 2007 will be submitted to the AGM for required approval. The guidelines are available on the group’s website. The salary and other remuneration of the CEO are decided by the Board. More detailed information on the remuneration, loans and shareholdings of the members of the executive management can be found in notes 12
(Group) and 15 (ASA) of the notes to the accounts. Members of the executive management are encouraged to hold shares in the company.
ROAR THORESEN (50), Executive Vice President, Chief Operating Officer. Programme for Executive Development (PED), IMD Lausanne, Master of Science, Naval Technology, Norwegian Institute of Technology (NTH), 2002–2006 Executive Vice President, Strategic Business Develop­ ment, Storebrand ASA, 1989–2002 Consultant, Managing Partner and CEO, PA Consulting AS, 1986–1989 Vice President, Mandator AS.
ODD ARILD GREFSTAD (42), Executive Vice President, Chief Financial Officer. State Authorised Public Accountant and Authorised Financial Analyst (AFA), Norwegian School of Economics and Business Adminis­ tration (NHH), 1998– 2002 Head of Business Control, Storebrand ASA, 1997–1998 Group Controller, Life Insurance, Storebrand ASA, 1994–1997 Vice President, Internal Audit, Storebrand ASA, 1989–1994 Arthur Ander­ sen & Co.
IDAR KREuTzER (45), CEO. Master’s degree in economics and business administration, Norwegian School of Economics and Business Adminis­ tration (NHH), 1995–2000 CFO Storebrand, 1992–1995 various positions within corporate finance and internal audit Storebrand, 1988–1991 Director, Medinor Project, 1986–1987 Political Advisor, City of Oslo.
ANDERS RøED (39), Chief Marketing Officer, Master’s degree in eco­ nomics and business administration, Norwegian School of Management (BI) and Ecole Superieur de Commerce de Paris (ESCP). 2004–2007 Market ing Director, Storebrand ASA, 2000–2004 Marketing Director, TINE BA, 2000 Sales Director, TINE BA, 1998–2000 Marketing Manager, TINE BA.
EGIL THOMPSON (43), Executive Vice President, Corporate Communications. Master of Science in Political Science, University of Oslo, 1999–2000 Deputy Director, Corporate Communications, Storebrand ASA, 1994–1999 journalist and head of editorial staff Aftenposten, 1990–1994 journalist, NTB.
ELIN M. MyRMEL-JOHANSEN (34), Executive Vice President, Corporate Responsibility. Master of Science in Political Science, University of Bergen, Master of Science in Comparative Politics, LSE, UK, 2005–2008 Manager, Corporate Responsibility, Storebrand, 2004–2005 Internal Brand Manager, Storebrand, 2002–2003 Acting Manager, Corporate Responsibility, Storebrand.
LARS AA. LøDDESøL (43), Executive Vice President, Life and Pension Norway, Managing Director, Storebrand Life Insurance. Master of General Business, Norwegian School of Management (BI), MBA, Thun­ derbird (AGSIM), USA, 2004–2007 Executive Vice President, Corporate Life (2003­2004 Senior Vice President, Storebrand Bank), 2001–2004 Executive Vice President, Finance Director, Storebrand ASA, 1994–2001 Vice President, Citibank International plc, 1990–1994 Asst. Treasurer, Scandinavian Airlines Systems.
Sitting from the left: Roar Thoresen, Göran Holgerson, Odd Arild Grefstad, Idar Kreutzer, Maalfrid Brath, Hans Aasnæs and Anders Røed. Standing from the left: Egil Thompson, Elin M. Myrmel-Johansen and Lars Aa. Løddesøl.
This report should be read in conjunction with the information provided in the Report of the Board of Directors, the consolidated accounts and notes to the accounts. Further information on the accounts and notes to the accounts for subsidiaries can be found in the subsidiaries’ annual reports.
All amounts in NOK million unless otherwise stated 2007 2006 2005 2004 2003
Average number of shares (in million) 251.5 248.0 258.6 272.9 277.9
Total policyholders' funds (traditional life insurance) 241 757 146 155 134 515 121 066 108 760
Total policyholders' funds (unit linked and defined contribution pension) 39 208 7 364 5 719 4 476 3 975
Total premium income (excl. policy transfers) excl. SPP 16 578 13 069 16 805 15 822 9 754
Balance of pension transfers (incl. unit linked) excl. SPP 1 056 5 260 564 -758 1 493
Value-adjusted investment return (excl. unrealised gains on hold to maturity bonds) excl. SPP 7.26% 8.28% 7.55% 7.19% 8.84%
Risk capital in excess of minimum requirement (excl. unrealised gains on hold to maturity bonds) excl. SPP 15 512 16 773 13 583 11 053 8 941
Retail mortgages as proportion of total lending 64% 54% 55% 55% 48%
Volume of non-performing and loss-exposed loans 448 533 754 909 1 717
Percentage of total funds under management invested in equities 23% 22% 23% 21% 17%
Ratio of external funds under management retail/ institutional clients (%) 14 / 86 19 / 81 20 / 80 26 / 74 17 / 83
A vision has been defined for SPP that results in a different geographic and product-related scope compared with the group’s vision: “SPP shall be Sweden’s leading and most respected institution within pensions”. SPP’s vision means that it should deliver the same enhanced value as the rest of the group.
The market for financial services is becoming increasingly complex, as can been seen from the changes in customer composition, the competitive situation and the general conditions. The customers have differing needs, and their priorities vary as far as products and services models are concerned. The general conditions are undergoing significant change, exemplified by the new legislation for life insurance in Norway, the international Solvency II regulations, the opening up of the transfer market for occupational pensions in Sweden and stricter requirements concerning competence within investment advice (MiFiD).
Strategic priorities: The Storebrand group is facing continuous changes in the competition situation and general conditions. This is making great demands with respect to changes in the organisation, core processes and IT systems. Storebrand has focused on cross selling, competitiveness (productivity) and the new life insurance act throughout 2007. This work will be continued in 2008, but there will be greater emphasis on the group’s opportunities for growth. The following areas have the greatest strategic value for the group: • Financial security and pension savings products for the employees of corporate customers (pension schemes) and the retail market
The implementation of the new corporate structure in January 2008 is an important means of realising this customer oriented focus within the aforementioned areas.
Aggressive adaptation to important changes in regulatory framework: The major changes taking place in the regulatory framework will affect nearly all parts of Storebrand. The biggest changes are taking place within the area of life insurance and a brief description of the most important regulatory changes and Storebrand’s responses is provided below.
II, Storebrand and SPP are actively participating in various quantitative studies being conducted for the entire European insurance sector
Statutory, individual tax-stimulated pension saving in Norway: A draft new act concerning individual pension saving (IPS) will be
The main features of the new regulations appear to be that individuals will have an annual savings limit of NOK 15,000 and that the tax deduction will represent 28 per cent of the amount paid in. The draft act facilitates individual additional savings for the group pension schemes. This provides important opportunities for Storebrand, which has about 200,000 mandatory occupational pension scheme (OTP)
members with defined contribution pensions. In addition, the draft act allows more transfers and the merging of different types of pension rights (IPA, IPS and paid-up policies). This provides further new opportunities for Storebrand.
New regulations for life insurance were introduced in Norway at the start of 2008. These are described in more detail on pages 49–50.
Capital efficiency: Storebrand’s subsidiaries currently have sufficient capital resources for the growth expected over the next few years. Storebrand ASA (the holding company) aims to achieve zero net indebtedness over time. This implies that liquid assets shall be equivalent to the level of interest-bearing liabilities. Maintaining an efficient capital base is one of the essential factors in ensuring that the company is able to generate a satisfactory annual profit relative to the group’s equity (return on equity). Due to the acquisition of
Solvency II entail a greater emphasis on financial capital management since assets and liabilities must be valued at their fair value.
Increased focus on corporate responsibility: Storebrand has systematically worked on corporate responsibility for more than 13 years.
We have set new targets and developed group standards for corporate responsibility in Storebrand by continuously developing and improving.
Norway and the world in this area, which its qualification for the DJSI,
Financial objectives for the group Storebrand has published financial objectives for the group and for each business area. This provides the basis for setting targets for each department and employee. Storebrand has communicated its financial objectives to the capital market. The group’s financial goals were adjusted in February 2008 due to the acquisition of SPP. The adjusted objectives represent a sound and efficient use of capital, increased productivity, and growth in profitability and dividends
Administration result for products not subject to profit sharing (traditional group pension Norway)
The return on equity target is expected to be attained from the end of 2009.
In addition to the presentation of consolidated profit and loss account on page 62, the group result can be analysed by business area as shown in the table on the next page. The life insurance figures include Storebrand Livsforsikring AS (including subsidiaries)
Storebrand Alternative Investments ASA. Other activities comprise the holding company Storebrand ASA and Storebrand Skade forsikring AS, with its subsidiary Oslo Reinsurance Company ASA.
The SPP transaction was concluded on 21 December 2007. No significant accounting effects occurred during the period up to the end of
the year. It was therefore consolidated into the accounts based on the equity in the SPP group as per 31 December 2007. The acquisition therefore has no effect on the profit in 2007. The Storebrand Life
Figures for 2004–2007 are based on IFRS. Figures for 2003 are based on NGAAP. Includes NOK 1,571 million of profit contribution from the sale of shares in If Skadeför-1 säkring in 2004.
Capital situation Storebrand pays particular attention to the active management of its equity and borrowings. This management is tailored to the business’
financial risk and capital requirements in which the composition of its business areas and their growth will be an important driver for the group’s capital requirements. The goal of the capital management is to ensure an effective capital structure and reserve an appropriate balance between internal goals in relation to regulatory and the rating companies’ requirements.
The group has set long-term targets for the capital ratio of its banking activities to be 10 per cent and the life insurance solvency margin to be at least 150 per cent. Storebrand Life Insurance also aims to be rated at the A level. The holding company aims to have a net debt ratio of zero over the longer term.
Storebrand ASA (the holding company) held liquid assets of NOK 1.7 billion at the close of 2007. Storebrand ASA also has an undrawn long-term committed credit facility of EUR 225 million. At the end of the year, Storebrand ASA had a net debt ratio of 22 per cent. The increase in relation to 2006 was due to the taking out of a syndicated loan for NOK 4.6 billion in connection with the acquisition of
Storebrand Life Insurance group at the end of the year was 136 per cent. The reduction in the solvency margin was due to the acquisition of SPP and consolidation effects due to the acquisition. Storebrand
Storebrand group: Storebrand ASA: Storebrand Life Insurance group: SPP: Storebrand Bank ASA: Net debt ratio is debt minus liquid assets divided by assets minus liquid assets. 1 Calculated in accordance with IFRS (2003 is based on NGAAP).
Storebrand ASA’s dividend policy shall contribute towards giving shareholders a competitive return and optimising the company’s capital structure. The Board of Directors of Storebrand ASA has recommended that the 2008 AGM should approve a dividend payment for 2007 of NOK 1.20 per share, representing a total distribution of
In connection with the acquisition of SPP, Storebrand ASA conducted a share issue in December that resulted in a net increase in equity amounting to NOK 8,670 million. 200,090,786 new shares were issued at a subscription price of NOK 45 per share. The share capital was correspondingly raised to 449.9 million shares. In 2007, the annual general meeting gave the Board authority to purchase up to 10
At the end of 2007, Storebrand owned 5.3 million of its own shares.
Tax In recent years, the Storebrand group has experienced low tax costs.
In Norway, the normal tax rate for limited companies is 28 per cent, while the effective tax rate for the group in 2007 was 1 per cent.
Storebrand’s tax rate is affected by several factors that result in a departure from the normal tax rate. The largest deviations are associated with the activities of Storebrand Life Insurance, which has permanent differences linked to investments in shares within the
At the end of 2007, there was a basis for entering into the balance sheet a deferred tax asset of NOK 11.5 billion. Please refer to note 7 in the consolidated annual accounts.Tax losses carried forward was
On 3 September 2007, Storebrand signed an agreement with Handelsbanken concerning the take-over of SPP as well as associated companies, including the fund management company SPP Fonder and Euroben. The acquisition was approved by Storebrand’s Board of Representatives and an extraordinary general meeting in October 2007. Approval was granted by the Ministry of Finance on 16 November 2007. The transaction was completed on 21 December 2007.
No significant accounting effects occurred between the time the transaction was concluded and up to 31 December 2007. It was therefore consolidated into the accounts based on the equity in the
Storebrand during the Norwegian market’s transition from traditional policies to unit-linked products. Please also refer to the separate article about SPP on pages 10–13.
Norway’s most satisfied customers: Storebrand Life Insurance’s objective is to be recognised by customers as the most respected and customer-focused life insurance company in Norway. Storebrand’s competitive position was confirmed by the number of major new customers it won in 2007, as well as the high level of customer satisfaction reported by the Norwegian Customer Barometer survey.
Storebrand’s policyholders’ funds as per 31 December 2007, while individual pensions and life insurance products represented 24 per cent of total policyholders’ funds. In terms of profit to the owner, group pension insurance contributed 65 per cent, personal life insurance products contributed 29 per cent and group life insurance contributed 6 per cent in 2007.
With the introduction of mandatory occupational pensions (OTP) in 2006, when around 700,000 employees received occupational pensions, the majority of employees in the private sector are now covered by defined contributions based occupational pension schemes.
Defined contribution pensions accounted for only 2 per cent of the occupational pensions market in 2002. During 2007, the number of employees covered by defined contribution schemes surpassed the number covered by defined benefit schemes. However, in terms of the value of accumulated pension assets, defined benefit schemes will continue to dominate for the foreseeable future.
The Norwegian pension reform will be implemented in 2010. The pensions settlement agreed in the Norwegian parliament in the spring of 2007, clarifies how pension rights will be earned and how the new state pension can be drawn. The government has presented proposal amendments to legislation that will implement the settlement. The job of adapting to the new state pension will start once these legislative amendments have been passed. Among the changes that will affect the occupational pension schemes are the new earnings rules that will make one’s final pay level less relevant as a basis for a pension, and a flexible retirement age.
The pensions settlement agrees to introduce a new scheme for taxstimulated individual pension saving (IPS). The annual savings limit will be NOK 15,000 and the tax rules will be the same as for earlier individual pension saving (the IPA scheme), i.e. a tax credit equivalent to 28 per cent of the paid in amount. Payments will be taxed as pension income. People will be able to link individual pension saving to the occupational pension scheme. This enables, for example, employees with OTP to simply supplement the employer’s saving on an individual basis. The scheme will apply with affect from the 2008 tax year. A group project has been set up to establish IPS and ensure a good market position.
Storebrand wants to stimulate an increased focus on health, safety and the environment (HSE) by our customers’ in both the private and the public sector. A systematic focus on HSE results in better satisfaction and improved life quality for employees. The corporate customers will experience better value creation and lower sick leave costs, as well as lower insurance premiums. Lower sick leave and fewer new people on disability pensions will also result in substantial savings for society as a whole. Our HSE advice helps corporate customers to improve their working environments and reduce sick leave. In the case of the public sector, Storebrand has established an HSE and senior policy fund. The fund can be used for various HSE measures, as well as training and education. In addition, Storebrand offers health insurance and HSE advice to municipalities and other public sector entities.
Throughout 2007, Storebrand has increased the number of products bought by each individual customer and this work on cross-sales will continue in 2008. Customer satisfaction, customer loyalty and the duration of customer relationships increases with the number of products. The increase in the number of product relationships will result in more satisfied customers and at the same time increase earnings.
Gaining 200,000 new OTP customers during the course of the last two years has provided us with a very good basis for succeeding with cross-sales. The new IPS product will be an important cross-sales product in 2008 and beyond.
The introduction of the EU directive “Markets in Financial Instruments Directive” (MiFiD) on 1 November 2007 is affecting players in the savings market. The directive provides consumers in the savings market with greater protection and prohibits providing advice without a licence. Advisers are also obliged to investigate the customer’s financial situation and conduct various tests to assess which products are best suited for the customer. In the second half of the year,
Storebrand actively worked to implement the MiFiD regulations, and the new routines have been well received by advisers and customers.
The following sections provide an account of the financial results of
SPP and other life insurance activities. Finally, information is provided on embedded value figures for Storebrand Life Insurance in accordance with the principles for Market Consistent Embedded Value.
Norwegian insurance companies are not currently permitted to prepare their accounts in accordance with IFRS. Except as otherwise
Total - of which transferred to premium reserve -131 -20 -7 -158 0 -125
NOK 44 million compared with a loss of NOK 77 million in 2006. New premium and allocation tariffs are being introduced in 2008 that take into account the increased life expectancy among policyholders that has been observed in recent years. The premium reserves increased by NOK 3,305 million in 2007, which contributed to the reduced operating profit.
Growth in premium income in most areas: The total premium income for 2007, excluding premium reserve transfers, was NOK 16,578 million. This represents an increase of 27 per cent on 2006 when the total premium income was NOK 13,069 million. Within policies with investment choice, group pension insurance was up by 66 per cent due to the increase in customers within mandatory occupational pensions (OTP), while there was a fall in individual policies of 21 per cent. In the case of group pension policies involving defined benefit schemes and group life insurance there were increases of 21 per cent and 8 per cent, respectively. Individual endowment insurance increased by 28 per cent. Individual annuity/personal pension products increased by 94 per cent compared with 2006. P&C insurance (within the life insurance regulations) increased by 6 per cent.
At the close of 2007 unrealised gains on current asset investments totalled NOK 3,889 million, while unrealised gains on bonds held to maturity totalled NOK 40 million. The overall increase in unrealised gains in 2007 was NOK 3,086 million.
Booked Value adjusted excl. bonds held to maturity Value adjusted incl. bonds held to maturity
NOK 172 million was principally caused by reduced result-dependent investment management fees and an increase following the recognition in the profit and loss account of estimate deviations in our own pension scheme. Policyholders’ funds, excluding insurance products with investment choice, increased by 7 per cent in 2007. Costs relative to average policyholders’ funds were 1.21 per cent in 2007 compared with 1.10 per cent in 2006. Storebrand Life Insurance aims to improve the efficiency of its working processes to provide a foundation for managing future growth without an equivalent increase in costs. The customer fund for policies involving investment choice increased by 21 per cent in 2007 and amounted to NOK 8,929 million.
These strengthened by NOK 400 million in 2007 to stand at NOK
Changes to the investment portfolio: It is Storebrand Life Insurance’s investment strategy to make efficient use of risk capital in order to optimise the expected investment return for the company and its policyholders. The company accordingly increased its equity exposure, including derivatives, from 28 to 26 per cent over the course of 2007. The proportion of Norwegian shares in the equity portfolio decreased in 2007 from around 15 to 4 per cent. The proportion of the portfolio allocated to
Private Equity increased to just under 4 per cent. Hedging programs were again used for the equity portfolio in 2007 to limit the effect on risk capital in the event of a sudden sharp fall in the financial markets.
Financial results SPP (including Euroben) The result described below consists of the SPP group as well as
Euroben, and does not include the result from the asset management activities.
SEK 2.4 billion during the course of 2007, an increase of 21 per cent.
“Conditional bonuses” (the policyholders’ buffer capital) at the end of 2007 amounted to SEK 13,865 million. Euroben has corresponding “conditional bonuses” which amounted to SEK 2,442 million at the end of the year. The total insurance reserves at the end of 2007 amounted to SEK 125 billion (NOK 112 billion), of which SEK 31 billion
The company offers treatment insurance in the corporate and retail markets. Premium income for health insurance products increased by 18 per cent in relation to 2006, and totalled NOK 199 million for 2007. The growth in premiums earned for own account was equally divided between Norway and Sweden.
Storebrand adopted the European EV Principles for the year-ends 2004 to 2006. During 2007, the methodology has been revised from the previously applied top-down approach to allowing for risk via a bottom-up market consistent approach.
The calculation of EV requires the use of a number of assumptions with respect to the business, operating and economic conditions, and
The total EV as at 31 December 2007 for the life insurance business of Storebrand Group after capital movements is NOK 29,940 million.
The present value of future profits amounts to NOK 28,412 million
(including look-through profits of NOK 4,156 million), while shareholder surplus is NOK 7,478 million and cost of capital is NOK 248 million. The EV is reduced by a cost of volatility of NOK 5,701 million.
SPP will be zero. Therefore, a tax rate of 0% has been applied for SPP. The current tax legislation in Norway leads to an effective tax rate of 0% for profits arising in SBL and the group’s asset management company.
2007 embedded value earnings analysis. The EV and EV earnings shown in this section represent SBL only, unless stated otherwise.
EV earnings of NOK 2,609 million (before acquisition of SPP, synergy effects, dividend and other capital transfers and after taking into account look-through profits for SBL). This represents a return on opening EV of 14 per cent.
EEV 2005 EEV 2006 MCEV 2006 MCEV 2007 MCEV 2007 MCEV 2007
Total shareholder surplus at market value 5 512 5 977 5 977 6 931 5 431 7 478
Economic assumption changes and variances can be split into the following main effects: The increase in interest rates in 2007 has lead to higher expected returns and higher expected profits for the shareholders. This is partially offset by the fact that profits are discounted using the higher interest rates. The net effect increases EV
by NOK 1.2 billion. At the same time the implied equity volatility has increased leading to a higher cost of volatility, having a negative EV
Of the total shareholder profit for the year 2007 of NOK 1.3 billion,
The impact of the acquisition of SPP in late 2007 can be divided into the following components: • The issue of additional capital of the net sum NOK 8.9 billion
• The deduction of the book value of SPP in SBL’s accounts of NOK
• In the next step, the EV of SPP of NOK 13.1 billion at 31 December 2007 is added
• As the last step, synergy effects have been taken into account to reflect the proportional decrease of expenses in Storebrand’s asset management company due to the additional assets under management from SPP which will be transferred before the end of 2008.
Present value of future profits comprising 518 - fee based business 260 - non-participating business 101
Sensitivities for Storebrand Group. The sensitivities reflect changes EV based on changes in assumptions.
Before the new regulations came into force, Storebrand decided on behalf of its customers how the pension assets would be managed and all the assets were in the same portfolio. Under the new act corporate customers with defined benefit based pension schemes will have more say about the classes of equities and risk. The new legislation also allows the group portfolio to be divided into sub-portfolios with different equity compositions and risks.
The new legislation also permits a new type of long-term policy. The interest rate guarantee has so far been linked to a single financial year, but it will now be possible to agree a guaranteed return for periods of up to five years. The premium for a guaranteed return over a number of years will be lower than for annual guarantees over the same period. The employer’s liabilities must still be supported by sufficient insurance reserves and if necessary, equity can be used to ensure satisfactory reserves during the agreed guarantee period.
Premium for the interest rate guarantee: The premium shall be calculated for one year at a time and paid in advance, unless agreement has been reached to pay it in instalments.
line of insurance to be held in a risk equalisation fund. Deficits in subsequent years can then be met out of the equalisation fund before the insurance company is required to contribute from its own equity.
Allocation of reserves prior to implementation of the new legislation 31-12-2007
Without profit-sharing (retail) Without profit-sharing (corporate) With profit-sharing (retail) With profit-sharing (corporate)
Storebrand’s acquisition of SPP provides great opportunities in the form of increased volumes, the realisation of synergies and increased value creation in the asset management activities in the years ahead.
Meeting new customer requirements: Storebrand Investments expects to see increasing demand from its customers for new types of products. Innovation is important and Storebrand Investments offers both sophisticated savings products and simple guaranteed products.
The funds are invested in a portfolio, which is actively managed by
Investment strategies are tailored in consultation with the customers to meet the customers’ financial objectives, investment horizons and risk profiles. Our strong positions within the municipality, pension fund and organisation segments were maintained in 2007, and our emphasis was on good customer service. The strategy of directing the sales focus at private investment companies has been successful and will be continued in 2008.
In 2007, the business area, in cooperation with the department for operational services, experienced a positive trend with respect to sales of investment support services, Storebrand Investment Operation Services. Many new customers chose to utilise Storebrand Invest-
A good return, but not at any price: Storebrand is conscious of how its own and its customers’ funds are managed. Storebrand wants to use its role as an investor and owner in such away that in the long-term the company can contribute to a more sustainable development. The objective of this work is not to exclude companies, but to encourage changes for the better. Storebrand has developed analysis methods for selecting the best companies based on corporate responsibility criteria. The goal is to achieve the best possible return, but not at any price, and in Storebrand’s experience the return on investments has not been negatively affected by the corporate responsibility requirements. Storebrand will not invest in companies who contribute to violations of human rights, breaches of labour rights, corruption, serious environmental damage, or the production of landmines, cluster bombs, nuclear weapons and tobacco.
The company will also refrain from investing in companies that are among the 10 per cent worst in the most high-risk industries, or which in some other way have unacceptable business practices. The criteria apply to both shares and bonds in Norway and internationally.
Storebrand’s group standard for socially responsible investments will also be implemented for the assets associated with SPP.
Financial results for 2007 Storebrand’s asset management activities produced an overall pre-tax profit of NOK 138 million in 2007 compared with NOK 156 million in 2006. The result was affected by high fixed and volume based income due to the increase in assets under management. Nonetheless, total income has fallen compared with 2006 due to low performancebased income during the period. Good costs control resulted in low total costs and produced a solid operating margin.
Alternative Investments (SAI) contributed a profit of NOK 52 million to the asset management activities compared with NOK 30 million in 2006.
Fixed costs as a share of the fixed and volume-based income have improved from 79 per cent in 2006 to 69 per cent in 2007. Total costs as share of total income (including SAI) have however increased from 64 per cent in 2006 to 65 per cent in 2007. This was due to lower total income due to lower performance-based fees than in 2006.
Increase in assets under management: Assets under management increased by NOK 10 billion in 2007. The total assets under management amounted to NOK 227 billion at the end of the year. The inflow of assets under management was especially affected by developments in the property market as well as the inflow of capital during the year. Despite the tax benefits from saving in equity funds and the positive development in the equity markets in recent years, the level of interest in equity funds in the retail market is still low in Norway compared with Sweden and Denmark. Norwegian retail customers had placed NOK 142 billion in mutual securities funds at the end of the year. The net realisation in the retail market amounted to NOK
Storebrand Investments turned a net outflow of NOK 300 million in 2006 into a net inflow of NOK 300 million in 2007. The fixed income funds saw the greatest inflow with a net inflow of NOK 700 million in 2007 compared with a net outflow of NOK 130 million in 2006. The total assets under management from the Norwegian retail market customers amounted to NOK 11.4 billion as per 31 December 2007.
Storebrand Investments’ market share of Norwegian registered mutual securities funds at the close of 2007 was 9.8 per cent, which is a slight fall from 2006. The assets managed by Storebrand in Norwegian registered mutual funds increased by NOK 4.3 billion (12 per cent).
Norwegian equities International equities Alpha Norwegian bonds International bonds Credit bonds Norwegian money market International money market Hold to maturity Real estate Other
Return: The 2007 stock exchange year started with growth, but changed in character due to the instability in the credit markets in the last six months of the year. The situation at the end of the 2007 is a substantially more uncertain market than was the case at the same time the year before.
The performance of Storebrand’s funds was varied in 2007. The return was good in the money markets and the fixed income funds. In addition, Norwegian equities and Delphi Verden pulled the return up.
The return on Storebrand Verdi was 16.6 per cent in 2007, while the return on Delphi Verden was 12.5 per cent.
Increased margins: Storebrand Investments’ experienced a further improvement in operating margins. The assets under management increased by 5 per cent, while the operating costs only rose by 3 per cent, as illustrated in the graph below. A solid underlying operating margin provides a good basis for future growth and the utilisation of the potential associated with the SPP transaction.
A year characterised by progress: 2007 was characterised by progress for Storebrand Bank, with respect to both the competitive situation and profitability. The bank maintained its position as a ‘nofees ’ bank, while significantly strengthening its competitive position
The upward trend in customer numbers that started with the launch of free daily banking in 2005 continued in 2007. At year end 2007 the bank had 70,710 retail customer accounts and total assets of NOK
The bank holds a strong position within the corporate customer segment with respect to the professional property market, including property developers and owners. This position improved in 2007, while at the same time a new strategy was drawn up for the area with the primary goal of expanding the range of services for corporate customers. Storebrand Bank’s objective is to be a complete provider of financial services to property investors in key districts.
NOK 156.8 million in 2007, compared with NOK 143 million in 2006.
The profit for the year for the banking group was NOK 169.6 million, compared with NOK 147.3 million in 2006.
income experienced a positive development, driven by the bank’s efficiency measures and increased income.
In 2007, there was a continued fall in the total non-performing and loss-exposed volume from NOK 533 million to NOK 448 million.
December 2007, the fall in non-performing and loss-exposed loans with identified impairment was NOK 343.9 million. The volume of non-performing and loss-exposed loans is normal and the increase in non-performing and loss-exposed loans where no impairment has been identified is mostly explained by the entire customer commitment being classified as non-performing, including in the case of very small outstanding items. At the end of the fourth quarter, the volume of non-performing and loss-exposed loans with no impairments
Losses and write-downs on loans and guarantees represented a net write-back of NOK 78.2 million in 2007. By the close of the year, write-downs of individual loans in the balance sheet totalled NOK
Capital adequacy Storebrand Bank group’s total assets increased in line with the growth in its lending portfolio throughout the year and amounted to
NOK 41.9 billion as per 31 December 2007. The bank’s deposit-toloan ratio was 47.1 per cent compared with 43.4 per cent in 2006.
The bank has a balanced and appropriate funding structure, and bases its funding on ordinary customer deposits, issuing securities and borrowing from the Norwegian and international capital markets.
ASA had sound capital adequacy and liquidity at the close of 2007.
Implementation of Basel II On 1 January 2008, Storebrand Bank ASA started submitting reports in accordance with the standard method pursuant to the new capital adequacy regulations (Basel II). The bank’s objective is to use the internally developed credit models to calculate capital requirements pursuant to Basel II and to continuously develop the models further for the retail and corporate units so it can apply to the Financial
The preparations for Basel II support the bank’s strategy and competitive position. Increased automation, improved decision support and use of customer data in market modelling pave the way for rapid but controlled growth. The systems developments driven by the Basel II
regulations are of general commercial benefit for price setting, financial management and marketing. Making proper use of the migration to the new regime will ensure that the bank retains a competitive position relative to its competitors.
Storebrand Bank ASA will continue its work to create a competitive position through growth, continuous improvement, a high level of customer satisfaction and increased cross-sales. The bank’s position as the “smart choice for the modern customer” will be sustained and developed further through product development and improved customer processes.
Including dividends/group contributions from subsidiaries1 Including elimination of dividends/group contributions from subsidiaries2
accordance with IFRS. The statutory accounts of Storebrand ASA are prepared in accordance with Norwegian accounting legislation and
NGAAP and can be found on page 110. Storebrand ASA reported profit before tax in accordance with IFRS of NOK 1,057 million for 2007 compared with NOK 1,012 million for 2006.
Storebrand ASA’s operating costs were 20 per cent lower in 2007 than in 2006. The company achieved its target of reducing operating costs by NOK 50 million from the 2003 level.
Future-oriented P&C insurance company: Storebrand Skadeforsikring offers standard P&C insurance to the Norwegian retail market.
Online sales are the company’s most important sales channel with 59 per cent of sales coming via the online sales solution in 2007. The distribution costs and correct risk prices allow the company to offer quality products at advantageous prices.
Strong performance: The performance of the P&C business is positive, both with respect to the growth in customers and P&C business.
Price winner: Storebrand Skadeforsikring won most media price tests in 2007. Among other things, the company won four out of five surveys of insurance prices in the Norwegian newspaper Dagbladet, the Norwegian Consumer Council’s comprehensive test of vehicle insurance policies on 20 December 2007, as well as tests in another
Storebrand Skadeforsikring AS, is principally involved in the run-off of its own reinsurance business and managing other companies’ run-off business. Alongside its new activities and Oslo Re, the other activities of Storebrand Skadeforsikring AS are the run-off of its gross insurance commitments (fronting responsibility), which are reinsured with
experienced an operating loss of NOK 18 million in 2007, compared with NOK 21 million the year before.
The monthly management report, Storebrand Compass, reports on the performance of key figures and value drivers relative to targets for each business area. Storebrand Compass is based on balanced scorecard management principles, with the value drivers divided into the areas of finance, customers and processes, as well as learning and growth. The table on page 56 shows, as examples, selected parameters in the categories of finance and customers together with an evaluation of the company’s performance in these areas in 2007.
Storebrand Life Insurance is financial risk and in the Norwegian business this is primarily associated with achieving the annual guaranteed return, which is just over 3.5 per cent on average. In SPP’s activities, the long-term pension liabilities are a key source of financial risk. The annual guaranteed interest rate and the long-term pension liabilities indicate how the capital in Storebrand’s customer and owner portfolios should be invested in various securities and asset classes.
Value at Risk” is used as a method for calculating the potential for loss on a one-year horizon for a given probability, including worstcase losses. This is evaluated in the light of the guaranteed annual return, the long-term pension liabilities and the company’s risk capital financed by policyholders and the owner. This measurement of risk is known as coherent and is thus suitable for comparing the risk in Storebrand’s Norwegian and Swedish business.
The expected return on the investment portfolio is calculated on the basis of asset allocation and the expected return on asset classes.
A new Insurance Activities Act came into force in Norway on 1 January 2008. This entails that company assets and customers’ assets can
Profit from products not subject to profit-sharing (NOK million) 144 135 122 Very good
Growth in net interest income, last year (NOK million) -6 -28 7 Room for improvement
Growth in investement management fees from external clients, last year (SBK) (NOK million) 38 36 -28 Very good
Number of products per retail customer 1.8 1.5 1.35 Room for improvement
Number of new banking customers (gross)5 11 556 9 631 5 427 Very good
assets are divided into two main categories: collective and those with an investment choice. The traditional guaranteed interest rate applies to all the customers in the collective portfolio, while the investment choice category includes both traditional defined benefit pensions, to which the guaranteed interest rate applies, and defined contribution pensions without a guaranteed interest rate. The investment strategy and risk management have been tailored to the new framework with varying assets allocation and risk management measures being practised for the different portfolios. In the case of the collective portfolio, the Norwegian authorities specify that the company’s risk capital is the total of the market value adjustment reserve, additional statutory reserves, core capital in excess of the regulatory minimum and accrued earnings. This risk exposure is monitored using a stress test that estimates potential losses in the event of extreme market movements. In the case of the portfolio of assets with an investment choice, any guaranteed interest rate is linked to the value-adjusted return. The portfolio thus does have an eligible market value adjustment reserve element as part of its risk capital. On the other hand, the guarantee period is extended to five years unlike the collective portfolio. The risk management is designed to reflect these differences.
In the case of the Swedish activities in SPP the portfolio is divided into defined benefit pensions, defined contribution pensions and unit-linked policies. Both the defined benefit pensions and the defined contribution pensions in SPP have associated guarantees. This results in the generation of financial risk in the event of falling stock markets and falling interest rates. In the case of some policies, a risk also arise from strongly rising interests rates. Due to the somewhat more complex financial risk picture in SPP than in the Norwegian activities, the risk the customer portfolio represents against the equity is also managed through derivative transactions in SPP’s company portfolio. The investment strategy and risk management in SPP comprises three main pillars. Asset allocation that results in a good return over time for customers and the owner, the continuous implementation of risk management measures in the customer portfolios, and tailored hedging of certain selected insurance policies in the company ’s portfolio.
Thirdly, risk is managed dynamically in relation to the company’s risk bearing capacity by buying and selling securities with different levels of risk tailored to the customer portfolio to which the assets’
The income of Storebrand’s life insurance companies is linked to the statutorily defined income model that applies to the various product areas and policy portfolios. Following the introduction of the new act relating to insurance activities three different models apply to Norwegian activities involving return guarantees: the old model applies to the existing individual portfolio which, in broad terms, involves an upper limit of contributions to the owner of 35 per cent of the profit.
Rising market interest rates in 2007 have improved the risk situation in this area, but Storebrand takes a serious view of the consequences that low interest rates in the future may represent over the longer term, and has implemented measures to limit this risk. The most important measure is that the group has invested in bonds to be held to maturity that generate a higher return than current interest rates.
These bonds will produce a stable book investment return of 5 per cent to 6 per cent for a number of years.
Real estate is an asset class that offers a relatively high future running yield, but where the risk of loss or depreciation is higher than for government bonds. Other alternative investment classes include infrastructure and natural resources (forestry, commodities, etc).
The Norwegian Financial Supervisory Authority new stress test is being implemented in the sector and is part of the new risk-based supervision methodology that the Norwegian Financial Supervisory
The test will not indicate capital requirements, rather it is meant to contribute to better risk management by insurance companies and forms part of the preparations for the new European solvency regulations, Solvency II, that are expected to be implemented in 2012 at the earliest. Similar stress testing, called traffic light testing, has been introduced in Sweden. The stress tests cover both the assets and the liabilities sides of the balance sheet and provide a net capital requirement for the business. One important difference between the Swedish and Norwegian models is that the profit sharing in Sweden is conditional, and a so-called “conditional bonus” can thus be utilised to reduce the capital requirement during the stress tests.
In short, Solvency II will require the market value of insurers’ liabilities to be assessed via discounting using the current risk-free interest rate applicable at any time with the relevant period for the insurance policies. The assets and liabilities will be subjected to a common stress test and the result of this will provide information about the risk situation in the companies, and indications concerning the reserves needed and the capitalisation of the companies. Introducing such a regime in Norway involves challenges related to the limited size of the Norwegian government bond market, the weak correlation between Norwegian and foreign interest rates, the relationship to the new Insurance Activities Act, the unique Norwegian rules on transfers of insurance business, and the arrangements for unconditional profit sharing in Norwegian insurance companies. Storebrand is of the view that an uncritical acceptance of the proposed regulations may have unfortunate consequences for policyholders and owners, and could contribute to non-optimal asset allocation in the Norwegian financial market with the accompanying negative effects. Storebrand is therefore actively working to contribute to an appropriate formulation and introduction of Solvency II in Norway.
Storebrand actively manages a large portion of its assets. This means that its fund managers are allowed a degree of freedom with the objective of producing a better return than the market. The group’s asset management activities are structured into a number of specialist teams so that each team concentrates solely on taking advantage of investment opportunities in a specific area, subject to clearly defined investment criteria and risk limits. Performance, risk exposure and investment profile are continuously monitored. In addition, the co-variance of the teams’ exposure is monitored to ensure the greatest possible independence in order to achieve the highest possible risk-adjusted return.
Storebrand Bank ASA places great importance on maintaining close relationships with its corporate customers and monitoring credit risk, and has credit review policies in place. A significant proportion of
Storebrand Bank’s corporate lending is linked to real estate in the greater Oslo area. Storebrand follows economic conditions and the real estate market in this region closely.
Separate credit approval processes are now used for retail lending on the basis of credit scoring, combined with case-by-case evaluation of the borrower’s ability to repay. The increase in retail lending is regarded as very important for the bank as a whole with respect to reducing the bank’s risk. Approximately 98 per cent of lending to retail customers is well secured by mortgages or the bank’s own equity linked bonds.
The bank manages its exposure to counterparty risk when placing its liquidity or through other exposure on the basis of the counter-
party’s credit rating and size. The bank places great importance on the quality of its counterparties, and it limits its exposure to any one counterparty in order to avoid loss and ensure high liquidity in its holdings of securities.
Liquidity risk refers to the risk that the bank is not able to meet all its financial liabilities as they fall due for payment. Storebrand Bank maintains sufficient liquidity to support balance sheet growth and to repay funding and deposits as they mature. The bank manages its liquidity position on the basis of rolling short-term, medium term and long-term liquidity gaps that show the mismatch between expected inward and outward cash flows on the balance sheet date.
Note 15: Holdings of shares in Storebrand ASA by executive management and members of corporate bodies 122
Note 19: Net income analysed by class of financial instrument 87
Net income and gains from financial assets at fair value: - shares and other equity investments 19 658.0 6 057.5 7 439.9 - bonds and other fixed-income securities 19 123.9 1 356.1 1 585.4 - income from financial assets with investment choice 19 353.4 685.4 721.3
Net income from bonds at amortised cost 19 2 235.2 2 397.2 2 409.9
To/from additional statutory reserves – life insurance 38 -400.0 -1 000.0 -950.0
Funds allocated to policyholders – life insurance -2 383.5 -2 964.1 -2 336.8
Changes in security reserves etc. – P&C insurance 9.1 -0.2 10.0
Profit is due to: Minority interest's share of profit 3.1 9.5 3.6
Majority interest's share of profit 2 005.7 1 496.3 1 418.7
Real estate at fair value 16 21 358.6 17 447.0 13 503.6
Due from customers and other current receivables 21,22 6 512.6 5 046.5 6 278.0
Financial assets at fair value: - Shares and other equity participations 21,22,28 73 661.1 46 604.0 39 589.1 - Bonds and other fixed-income securities 21,22,29,35,36 112 025.6 50 782.7 57 539.3 - Life insurance assets with investment choice 21, 30 39 083.4 7 364.1 5 719.4
Reserve for life insurance with investment choice 38 39 208.2 7 364.1 5 719.4
Halvor Stenstadvold Sigurdur Einarsson Camilla M. Grieg Barbara Rose Milian Thoralfsson
Net premiums received – direct insurance 20 323.1 10 691.8 16 116.4
Net claims and benefits paid – direct insurance -15 241.7 -13 321.7 -8 629.9
Net receipts/payments – loans to and claims on other financial institutions -234.9 -52.1 153.7
Net receipts/payments – customer deposits with the banking activities 3 988.4 2 517.0 84.2
Net receipts/payments – deposits from Norges Bank and other financial institutions 279.0 1 321.7 -687.2
Net cash flow from operational activities 3 639.9 8 045.8 -2 985.8
Cash/cash equivalents at start of the period for new companies 8 016.5
Profit and loss account items applied directly to equity: Revaluation of properties for own use 4.8 4.8
Total revenue and costs for the period 4.8 -51.3 1 418.7 1 367.4 3.5 1 375.7
Equity transactions with owners: Profit and loss account items applied directly to equity: Pension experience adjustments -239.7 -239.7 -239.7
Total revenue and costs for the period 12.0 -227.9 1 496.3 1 268.4 9.5 1 289.9
Equity transactions with owners: Profit and loss account items applied directly to equity: Pension experience adjustments 143.8 143.8 143.8
Accounting Principles The accounting principles used for the preparation of the consolidated accounts are described below. The principles are applied consistently to similar transactions and to other events involving similar circumstances.
Use of estimates in preparing the annual accounts The preparation of the accounts in accordance with IFRS requires the management to make valuations, estimates and assumptions that affect assets, liabilities, revenue, costs, the notes to the accounts and information on potential liabilities. The final values realised may differ from these estimates.
Standards and interpretations of existing standards and where Storebrand and has not chosen early application The following standards and interpretations, approved by the EU, which are not mandatory for annual accounts prepared as per 31 February 2007 have not been adopted by Storebrand: IFRS 8 Operating segments, revised IAS 23 Borrowing costs, new IAS 1 Presentation of financial statements and IFRIC 11, 12, 13 and 14.
Identified materials and intangible assets and liabilities that have been taken over are valued as their fair value at the time of acquisition. If the acquisition cost exceeds the value of the identified assets and liabilities, the difference is recognised in the accounts as goodwill. If the acquisition costs is less than the identified assets and liabilities, the difference is recognised in the profit and loss account at the time of the transaction. In the event of acquisitions of less than a 100 per cent interest, 100 per cent of the extra value is recognised in the balance sheet, with the exception of goodwill of which only Storebrand's share is recognised.
If an investment property becomes a property used by the group for its own activities, the cost price for the property in own use is deemed to be fair value at the time of reclassification. If a property previously used by the group for its own activities is rented to external tenants, the property is reclassified as an investment property and any difference between book value and fair value at the time of reclassification is recognised as a valuation change to properties carried at written-up value. (See the description for properties held as fixed assets. ) Changes in fair value that arise following the reclassification are applied to profit and loss.
Operational leases Leases in which the majority of the risk is borne by the contractual opposite party are classified as operational leases. Operational leases are not included in the balance sheet.
Goodwill Excess value arising from the acquisition of business activities that cannot be allocated to specific asset or liability items at the date of acquisition is classified as goodwill in the balance sheet.
Pension liabilities for own employees Storebrand’s pension scheme for its own employees is a defined benefit pension scheme. Pension costs and pension liabilities for defined benefit pension schemes are calculated using a linear accrual of entitlement to pension and expected final salary, based on assumptions for discount rate, future salary increases, pensions and benefits from the national insurance fund, the future return on pension assets and actuarial assumptions on mortality, disability and early leavers. The discount rate is equivalent to the risk-free interest rate taking into account the average remaining period for accrual of pension entitlement. The net pension cost for the period is made up of the sum of pension entitlement accrued in the period, interest cost on the calculated pension liability and the expected return on pension assets.
Transfers of premium reserves, etc Transfers of premium reserves resulting from transfers of policies between insurance companies are booked to profit and loss as premiums for own account in the case of reserves received and claims for own account in the case of reserves paid out. The recognition of cost/income takes place at the date the insured risk is transferred. The premium reserve in the insurance fund is reduced/increased at the same date. The premium reserve transferred includes the policy’s share in additional statutory reserves, the market value adjustment reserve and the year’s profit. Transferred additional statutory reserves are not shown as part of premium income but are reported separately as changes in insurance reserves. Transfer amounts are classified as current assets/liabilities until such time as the transfer takes place. Interest arising in the time taken to complete transfers is recognised as part of the item ‘other insurance related income and expenses’.
Premium reserve Premium reserve represents the present value (discounted at a rate equivalent to the guaranteed interest rate) of the company’s total insurance obligations including administration costs in accordance with the individual insurance policies, after deducting the present value of future premiums. In the case of individual account policies with flexible premium payments, the total policy value is included in the premium reserve. The premium reserve is equivalent to 100 per cent of the guaranteed surrender/transfer value of insurance policies prior to any charges for early surrender/transfer and the policies’ share of the market value adjustment reserve.
Additional statutory reserves The company is permitted to make additional statutory allocations to the insurance fund in order to ensure the solidity of its life insurance business. The maximum additional statutory reserve is set at the difference between the premium reserve calculated on the basis of a 3.5 per cent guaranteed return on policies outstanding, and the premium reserve calculated on the basis of the actual guaranteed return in the policies. Kredittilsynet (the Financial Supervisory Authority of Norway) has specified a limit for the additional statutory reserves that apply to each policy defined as the premium reserve for the policy multiplied by twice the basic interest rate for the policy.
Pensioners’ surplus fund The pensioners’ surplus fund contains surplus premium reserve amounts allocated in respect of pensions in payment that are part of group pension policies. The fund is applied each year as a single premium payment to secure additional benefits for pensioners.
Sales costs Sales costs in the Norwegian life insurance business are recognised as costs, while in the Swedish subsidiaries sales costs are recognised in the balance sheet. Pursuant to IFRS 4 non-uniform accounting principles can be used for insurance policies in subsidiaries.
Unit Linked/defined contribution pensions Financial assets are valued at market value. The level of technical reserves required in respect of such policies is determined by the market value of the financial assets. Unit Linked products are not exposed to any investment risk on customers’ funds since they do not guarantee any minimum return. The sole exception is in the event of death, when the deceased’s estate is entitled to a refund of premiums paid for annuity insurance.
Sufficiency test In accordance with IFRS 4 Storebrand Life Insurance has carried out a sufficiency test to ensure that the level of premium reserves is sufficient relative to insurance liabilities to customers.
SPP Life insurance reserves: The life insurance reserve consists of the current value of the company's guaranteed liabilities. The majority (approx. 95 per cent) of the company's liabilities relate to occupational pensions. Cautious estimates must be used when calculating occupational pensions, which entails, among other things, the use of risk free market interest rates as discounting rates. Other assumptions are discounted at the highest interest rate set by Finansinspektionen (the Swedish Financial Supervisory Authority).
The life insurance reserve is calculated for each policy evaluated at the relevant risk free interest rate. The estimated assumptions concerning tax on returns, expenses, mortality and other risk elements affect the value of the life insurance reserve.
Death risk: Assumptions concerning mortality vary depending on the various policies that are signed. The assumptions that are used as the basis are based on general sector statistics. The assumptions that were used until 1990 are used for the majority of the portfolio. During the year, the sector issued new general mortality statistics, the so-called ‹DUS 06›. SPP expects to be able to start using DUS 06 in its calculations during the course of 2009 or 2010.
Conditional Bonus reserves Conditional bonus reserves represent that part of the insurance capital which is not subject to guarantees. Included in this is capital set aside by the company as reserves to secure future guarantees.
General principles and definitions Recognition and derecognition Financial assets and liabilities are included in the balance sheet from such time as Storebrand becomes party to the instrument’s contractual terms and conditions. Normal purchases and sales of financial instruments are booked on the transaction date. When a financial asset or a financial liability is first recognised in the accounts, it is valued at fair value. First time recognition includes transaction costs directly related to the acquisition or issue of the financial asset or the financial liability if it is not a financial asset or a financial liability at fair value in the profit and loss account.
Impairment of financial assets In the case of financial assets that are not recognised at fair value, consideration is given on each balance sheet date to whether there are objective signs that the value of a financial asset or a group of financial assets is impaired.
Available for sale A financial asset is classified as available for sale if it is: – acquired or incurred principally for the purpose of selling or repurchasing it in the near term, is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking, or – it is a derivative except for a derivative that is a designated as an effective hedging instrument.
Available for sale financial assets are measured at fair value on the balance sheet date. Changes in fair value are recognised in the profit and loss account.
A significant proportion of Storebrand’s holdings of financial instruments fall into this category.
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, with the exception of such assets that the company intends to sell immediately or in the short term that are classified as available for sale and such assets that the company designates at inception as assets at fair value in the profit and loss account.
Derivatives Derivatives are defined as follows: A derivative is a financial instrument or other contract within the scope of IAS 39 with all three of the following characteristics: – its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of
Notes Storebrand Group prices or rates, credit rating or credit index, or other variable (sometimes called the ‘underlying’)
– it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors
Accounting treatment of derivatives that are not hedging Derivatives that do not meet the criteria for hedge accounting are treated as available for sale financial instruments. The fair value of such derivatives is classified as either an asset or a liability with changes in fair value in the profit and loss account.
Hedge accounting is principally used for interest rate hedging of fixed rate funding and lending carried out by Storebrand Bank. In view of the unified principles for measuring hedged items and hedging instruments in the other parts of the group, this hedging reflects the group’s ordinary valuation rules.
Cash flow hedging Changes in the fair value of a derivate earmarked as a hedging instrument in cash flow hedging are included directly in equity to the extent the hedging is effective. Otherwise the change in fair value is recognised in the profit and loss account.
Storebrand has chosen to use hedge accounting for cash flow during the period 11 December 2007 and 20 December 2007 for the purchases of the shares in SPP.
Income recognition for asset management activities Asset management fees and performance fees are recognised when the income can be measured reliably and it is likely that Storebrand Kapitalforvaltning AS will receive the commercial benefit arising from the transaction. In accordance with the contractual agreements for performance fees, performance fees are recognised to income at year-end.
Fixed assets Goodwill is tested annually for impairment. Consolidated goodwill subject to impairment testing relates almost exclusively to the banking activities, where goodwill had a book value of NOK 422 million at 31 December 2007. The recoverable amount is calculated as the net discounted present value of future cash flows based on the group's rolling planning process as approved by the Board of Directors, which covers a future period of 3 years. In addition, the calculations take into account estimated cash flows in years 4-9 based on annual growth rates varying between 2.5 per cent and 3 per cent. A 10 per cent discount rate is applied, and the calculation assumes that no tax will be payable before 2010. The goodwill from the acquisition of SPP, which in an interim acquisition analysis amounts to NOK 887 million, had not been tested for impairments as per 31 December 2007.
Following the acquisition of SPP, a provisional purchase analysis has been performed, which is used as a basis for the accounts. Immaterial assets have been acquired in the form of brands customers lists, etc. Intangible assets were acquired with the acquisition of SPP in the form of brand names, customer lists, etc, as well as added value with respect to insurance policies (“value of business in force”). The added value with respect to insurance policies (value of business in force), which amounted to NOK 7.7 billion, will, based on the expected duration of the insurance policies, be amortised over 20 years. The value of this intangible item will be assessed in connection with the pertinent insurance policies with respect to whether the total values are sufficient to meet the pertinent insurance liabilities, cf. the sufficiency test for insurance liabilities in IFRS 4.
Fixed assets and intangible assets, of which intangible assets mainly relate to customised software developed in-house, are reviewed annually to ensure that the depreciation period and method of depreciation used correspond with commercial reality for the asset in question. This also applies to the disposal value. The value of an asset is written down if there are indications of a fall in its value. The future commercial life of the various intangible assets was tested in 2007, and some changes were made. Properties used for the group’s own activities are valued at written-up value less accumulated depreciation and write-downs. The fair value of these properties is tested annually in the same way as described for investment properties. See note 9.
Storebrand Bank makes use of both individual loan write-downs and write-downs of groups of loans. Grouped write-downs are calculated separately for corporate lending and retail lending. In the case of corporate lending, the objective criteria for determining write-down amounts are judged to be closely correlated with changes in the risk classification of lending relationships. This classification takes the form of three scores in respect of the borrower's debt service capacity, the loan to value ratio and commercial risk factors. In the case of retail lending, the objective criteria for determining write-down amounts are judged to be closely correlated with default status and the historic payment record. Default status for loans not subject to individual writedowns is divided into 30-90 days and over 90 days. The payment record is updated quarterly in line with the overall performance of the portfolio. See also notes 20 and 34.
Technical insurance reserves: Life insurance: The major areas of risk and uncertainty in life insurance are associated with the incidence of death and disability. Most lines of life insurance include cover for disability through either disability pensions, exemptions from premiums or lump sum disability payments. Pension insurance provides cover for the surviving partner of the assured, with payments starting in the event of the death of the assured. Changes to the rules for payment from the national social security scheme for disability benefits, etc may have a significant effect on insurance companies in terms of the number of claims for disability and disability reserves. In terms of death benefits, increasing life expectancy will affect future expected payments and reserves, although reserves are currently considered to be sufficient.
P&C insurance: The main risk for the newly established P&C business is that it will initially have a small portfolio with which to absorb claims. This can mean that large, single claims may have a disproportionate impact on profit. In order to offset this risk, Storebrand has arranged reinsurance. The commercial operations of Oslo Reinsurance Company are concentrated on the run-off of its existing reinsurance portfolios, either by paying claims that are reported to the company or by seeking to extricate itself from policies by negotiating a settlement amount with the insured party (cedent) by commuting the cover. Most will be run-off during the course of 2008. For further information on insurance risk, see note 38.
Pensions The discounted current value of pension liabilities depends on the economic and demographic assumptions used in the calculation. The assumptions used must be realistic, mutually consistent and kept up to date in that they should be based on uniform expectations of future economic conditions.
The applied discount rate represents a major assumption for the calculation of pension liabilities. Norwegian insurance companies must base their calculation of discount rate on the return on Norwegian government bonds. With the exception of pensioners of the holding company Storebrand ASA, the payment horizon for pensions paid by Storebrand is estimated to be around 25 years, and there are no Norwegian government bonds with such a long maturity. The fixing of the discount rate and the other financial and demographic assumptions as per 31 December 2007 was based on the guidelines issued by the Norwegian Accounting Standards Board (NASB). The fixed discount rate of 4.70 per cent is almost equal to the bond yield for 10-year government bonds.
The calculation of pension liabilities as per 31 December 2007 was carried out by an actuary. The calculation includes 1,551 active members and 2,231 pensioners. Risk table K2005 has been used.
Earn-out in the event of acquisitions In some cases the acquisition of companies involves some agreed deferred settlement in the form of earn-out. In line with IFRS the discount rate should be added to the acquisition cost of the investment. The discounted earn-out thus affects the magnitude of the extra/shortfall in market value that is allocated. The calculated earn-out is normally based on estimates associated with future results in the business being acquired. If the estimate is changed, this will affect the acquisition cost and thus also the extra/shortfall in market value used as the basis. A discount factor of 12–15 per cent per annum before tax is used as the basis for discounting for the 2007 accounting year.
On 3 September 2007, an agreement was signed between Storebrand Livsforsikring AS and Handelsbanken (Sweden) concerning the acquisition of SPP Livförsäkring AB, its subsidiaries, and some other companies directly owned by Handelsbanken. The purchase sum amounted to SEK 16.2 billion in total, while transactions costs of SEK 265 million were activated as part of the cost price of the shares. The purchase sum amounted to NOK 13.8 billion. The transaction was concluded on 21 December 2007. Since no significant effects arose during the period up to 31 December 2007, SPP was from an accounting point of view consolidated on the basis of its equity as per 31 December 2007. The acquisition therefore had no effect of the profit in 2007.
Storebrand Holding AB, which is a wholly owned subsidiary of Storebrand Livsforsikring AS, was established in connection with the purchase of the shares in SPP. The shares in SPP were purchased by Storebrand Holding AB. Storebrand Holding AB was financed with SEK 8.265 billion in equity and a SEK 8.2 billion subordinated loan from Storebrand Livsforsikring AS. The investment was financed by Storebrand ASA conducting a pre-emption rights issue worth NOK 9 billion. In addition, Storebrand ASA raised a bridging loan of EUR 580 million, due for repayment in September 2008.
An interim acquisition analysis has been conducted, which is used as a basis for the annual accounts as per 31 December 2007 and is presented below. An estimated market value of the acquired insurance contracts was used in the identification of the extra value that was significantly lower than the book value. The difference between the book value and the market value represents the value of the existing portfolio (called the “value of business-in-force” or “VIF”). This value represents around NOK 7.7 billion and is recognised in the balance sheet as an intangible asset. Based on the expected duration of the insurance contracts this item will provisionally be amortised over a period of 20 years. This intangible value will be assessed in connection with the relevant insurance contracts with respect to whether the total value is sufficient to meet the relevant insurance liabilities, cf. the sufficiency test in IFRS 4 insurance contracts.
Storebrand’s accounting principles pursuant to IFRS have been used in the preparation of the proforma profit. Known significant differences between IFRS and other accounting principles have been adjusted in the preparation of the proforma profit.
NOK million Storebrand group SPP Proforma adjustments Note reference Proforma expanded group
2. The interest result includes interest costs associated with the external loan financing of the acquisition in which the loan in the calculations amounts to NOK 4,618 million (hybrid loan capital and other subordinated loan capital). The estimated interest costs amount to NOK 321 million and are based on interest rates of around 6.8 per cent to around 7.1 per cent. The estimated reduced financial income associated with the use of NOK 390 million of own funds amounts to NOK 35 million, in which the return interest rate is calculated at around 8.9 per cent. The amount also includes a calculated reduced return of NOK 67 million (3.85 per cent) for the entire year, related to the fact that SPP took out SEK 2 billion prior to the acquisition taking place. Moreover, an estimated reduced return of NOK 15 million is included in Storebrand associated with the financing of the share issue costs.
4. The item Amortisation of intangible assets includes the amortisation of extra value associated with the acquired insurance contracts (“value of business in force” -VIF) of around NOK 398 million, which corresponds to linear amortisation over 20 years. It also includes the amortisation of other intangible assets of around NOK 102 million, which corresponds to a liner amortisation period over 10 years. These amortisation costs are based on an entirely interim acquisition analysis.
5. The item Asset management activities includes interim estimated increased net income associated with the asset management activities of around NOK 206 million. Storebrand will take over the management of assets one year after the take-over.
8. One-time effects associated with the separation of IT systems and investments in IT are expected. The above profit does not include such costs, including estimations of the amounts associated with the amortisation of such IT investments and synergy effects.
Revenue from other group companies1 69 196 93 -198 -316 -182
Life insurance Revenue from external customers includes total premium income, including savings premiums and transfers of premium reserves from other companies, net investment return and other income.
Products with profit sharing Products with profit sharing include individual endowment insurance with a savings element, personal pension insurance and group pension insurance, including paid up policies.
Other/eliminations Principally comprises the holding company Storebrand ASA and Storebrand Skadeforsikring. Storebrand started selling P&C insurance products in the retail market in 2006. This completes the group›s product range, and strengthens its business in the retail market.
Storebrand Life Insurance1 - of which products with investment choice 2 125 1 763 992
Policyholder's funds incl. accrued profit 280 975 153 568 140 276
Assets under management for external clients 57 661 54 825 49 176
Key figures are presented in accordance with NGAAP, except for premiums and policyholders› funds that are presented in accordance with IFRS.1 Investment yield I: Realised financial income including revaluations (positive or negative) of real estate. 2 Investment yield II: Like Investment yield I but including change in unrealised gains on financial current assets.
Other revenue from companies other than banking and insurance 53.1 123.6 127.0
Calculation of deferred tax assets and deferred tax on temporary differences and losses carried forward: Tax increasing temporary differences
Total tax reducing temporary differences -5 500.4 -2 869.9 -2 754.8
Net deferred tax asset/liability in the balance sheet 395.9 -90.5 -100.4
Intangible assets in connection with the acquisition of SPP are associated with brand name, customer lists and the option for further acquisitions from Handelsbanken. The 1 acquisition analysis is not final. The distribution of the various elements will be made once this has been completed. VIF – “value of business in force” is depreciated over 20 years.2
Real estate 15 years 10 Tangible fixed assets – operational leasing
Future lease income through profit and loss account 16.7 19.2 23.8
Reconciliation of pension assets and liabilities in the balance sheet: Present value of insured pension benefit obligations including employer's NI contributions 2 893.6 3 105.5 2 762.4
Changes in the net defined benefit pension liability in the period: Net pension liability at 1.1. including provision for employer's national insurance contributions 3 559.2 3 257.8 3 307.0
Changes in the fair value of pension assets in the period: Fair value of pension assets at 1.1. 2 723.1 2 599.9 2 627.0
Pension assets are based on the financial investments held by Storebrand Livsforsikring and SPP which had the following composition as at 31.12.: Storebrand Livsforsikring AS SPP
Net pension cost booked to profit and loss account, specified as follows: Current service cost including employer's national insurance contributions 129.8 76.6 81.4
Financial: Expected return on pension fund assets in the period 5.8% 5.6% 6.0%
Expected annual increase in social security pensions 4.3% 4.3% 3.0% 3.0%
Expected annual increase in pensions in payment 1.9% 1.7% 2.0% 2.0%
Fair value of pension assets 2 759.8 2 747.3 2 599.4 12 Remuneration of senior employees and elected officers of the company
Guidelines for the fixing of salary and other remuneration for senior employees in Storebrand Storebrand aims to base remuneration on competitive and stimulating principles that help to attract, develop and retain highly qualified staff. The aim is for total remuneration to move towards a lower proportion of fixed salary and a higher proportion of bonus over time. The salaries of senior employees are fixed on the basis of a position›s responsibilities and complexity. Regular comparisons are made with corresponding positions in the market in order to adjust the pay level to the market. Storebrand does not wish to be a pay leader in relation to fixed pay in the sector.
Senior employees in Storebrand can, in addition to their fixed salary, receive remuneration in the form of an annual bonus, participation in the group›s group pension scheme, usual benefits in the form of free newspapers, telephone, company car scheme, and other personal benefits. Senior employees may also be entitled to an arrangement in which their salary is paid after the end of their employment. This guarantees salary less other income for a specific period of up to 24 months after the end of their employment.
The executive management receive on average less than 25 per cent expected variable remuneration calculated in relation to fixed remuneration.
Of which remuneration paid to Deloitte AS (excl. VAT): Other reporting duties 3.5 0.2 0.7
Main accounting figures for associated companies – figures shown are for 100 % of the company.
Storebrand Livsforsikring AS directly owns 25% of the shares in Nordben Life and Pension Insurance CO. Ltd. and SPP owns 50% of the Shares in Nordben, meaning the group’s 1 total interest has increased to 75% with the acquisition of SPP. 25% of the result in the company has been included in 2007 according to the equity method, while the balance sheet has been consolidated in its entirety. Goodwill has been written down by NOK 23.6 million.2
The company was sold in 20061 The company was sold in 20072 15 Contingent liabilities and conditional assets
Storebrand ASA has issued the following guarantees: Currency Terms Accounts provision
The following amounts are included in the profit and loss account: Rental income from investment properties 1 615.3 1 246.8 977.4
Operating costs (including maintenance and repairs) for investment properties that produced rental income in the period. -180.6 -156.5 -128.3
Offices (including parking and storage) 11 305.1 9 648.4 7 643.7 1 468.0 4.6 637 479 98.1
Average number of fulltime equivalents 1 556 1 362 1 260
The SPP group is included in 2007 with 555 employees and 537 fulltime equivalent, but is not included in the calculation of the average number.1
Total bonds, bond funds and other fixed-income securities 123.9 1 356.1 1 585.4 - of which FVO (fair value option) -714.1 814.6 1 413.4
Net income from bonds at amortised cost 2 235.2 2 397.2 2 409.9
Change in grouped loan write-downs for the period 15.2 15.9 26.5
Reversals of write-downs of individual loans in the period -66.1 -59.6 -103.4
NOK million Loans and receivables Hold to maturity Fair value, trading Fair value,
Investment portfolio Nordben 3 338.1 2 Specification of other current liabilities
NOK million Balance sheet value Fair value Balance sheet value Fair value Balance sheet value Fair value
Financial assets at fair value: Shares and other equity instruments 73 661.1 73 661.1 46 604.0 46 604.0 39 589.1 39 589.1
Loans and receivables: Loans to and due from financial institutions, amortised cost 374.1 374.1 114.9 114.9 41.7 41.7
Loans to customers, fair value 3 019.3 3 019.3 2 598.3 2 598.3 908.9 908.9
Loans to customers, amortised cost 36 474.2 36 473.1 30 489.3 30 484.4 26 033.2 26 033.2
Customer receivables and other short-term receivables 6 512.6 6 512.6 5 046.5 5 046.5 6 278.0 6 278.0
Securities pledged as collateral are linked to lending access in Norges Bank for which, pursuant to the regulations, the loans must be fully guaranteed with collateral in interest-bearing securities and/or the bank’s deposits in Norges Bank . Storebrand Bank ASA has a F loan for NOK 550 million in Norges Bank as per 31.12.2007.
Storebrand Bank ASA Storebrand Bank uses fair value hedging to hedge interest rate risk. The effectiveness of hedging is monitored at the individual security level, except for structured bond loans where effectiveness is monitored at the portfolio level. Each portfolio consists of swaps and hedged objects with maturity within the same six-month period.
Cash flow hedging of the currency risk associated with Storebrand’s net investment in SPP of SEK 16.4 billion has been used since 20 December. The spot element in forward exchange agreements has been used as the hedging instrument. The effective share of the hedging instruments recognised in equity in 2007 is NOK 160.8 million and the hedging efficiency is 100%. The hedging object has had an unrealised loss of NOK 186.4 million in the same period, such that the net amount recognised in equity in 2007 is NOK 25.6 million.
The difference between the booked value of NOK 108.3 million and the amount of NOK 160.8 million included in the equity is due to an unrealised loss of NOK 52.5 million on the interest rate element during the whole period and the currency element during the period prior to using hedge accounting.
Total incl. interest accrued but not due 39 777.8 40 676.1 41 482.7 40 420.1 44 314.8 44 195.3 41 786.6 44 245.0
Analysis by sector: The effective yield for each security is calculated using the booked value and the observed market price. Calculated effective yields are weighted to give an average effective yield on the basis of each security’s share of the total interest rate sensitivity. Sectoral allocation is based on the issuer.
Fund units managed by SB Investments Norway 11 645.7 11 993.5 2 056.9 11 586.7 4 054.7 8 431.7 1 546.5
Other fund units within EEA 13 364.6 12 945.2 13 015.0 2 773.3 2 874.4 2 022.5 2 109.6
Interest accrued but not due 18.0 1 409.1 1 427.0 1 427.0 424.1
Base amount for analysis by sector and currency 12 989.2 97 399.2 110 388.4 780.6 423.3 111 592.3 47 795.1
Notes Storebrand Group 30 Assets in life insurance with investment choice
NOK million Currency Interest rate in % Amount NOK Amount NOK Amount NOK
Perpetual subordinated bond issue 2004 NOK 3 months NIBOR + 1.5% 166.8 166.6 166.4
Subordinated loan 2006-2016, call 2011 NOK 3 months NIBOR + 0.57% 99.8 99.8
Subordinated loan 2003-2023, call 2008 EUR 6 months EURIBOR + 2.2% 1 476.4 1 526.7 1 481.1
Subordinated loan 2004-2014, call 2009 EUR 3 months EURIBOR + 0.9% 1 388.7 1 435.1 1 394.3
Subordinated loan 2007 - 2017, call 2012 NOK 3 months NIBOR + 0.58% 249.6
Subordinated loan 2002, perpetual, period of notice 5 years SEK 3 months STIBOR + 2.0% 840.1
Subordinated loan 2002, perpetual, period of notice 5 years SEK 3 months STIBOR + 2.0% 504.1
NOK FRN December 2003 – December 2008, 3 months NIBOR + 0.45 1 000.0 1 001.3
NOK FRN January 2005 – January 2010, 3 months NIBOR + 0.19 1 500.0 1 501.7
NOK Fixed rate November 2005 – November 2010, 4.25% 970.0 969.7
NOK Fixed rate January 2006 – March 2009, 3.70% 1 053.0 1 047.5
NOK FRN August 2006 – August 2009, 3 months NIBOR + 0.06 1 220.0 1 219.7
Other bonds bought back (equity index bonds + hedge fund bonds) 255.8 247.2
General information Storebrand Life Insurance’s financial risk is principally associated with its ability to meet the annual return guarantee. This makes great demands on how the capital is invested in different securities and assets, and how the company practises its risk management.
Market risk Market risk relates to the risk that the value of the group’s assets might be reduced by unexpected and unfavourable movements in the market. At the close of 2007, Storebrand had sufficient risk capital to absorb a fall in market values equivalent to the company’s stress test. The stress test assumes
General information In the case of the Swedish activities in SPP the portfolio is divided into defined benefit pensions, defined contribution pensions and unit-linked policies. Both the defined benefit pensions and the defined contribution pensions in SPP have associated guarantees. This results in the generation of financial risk in the event of falling stock markets and falling interest rates. In the case of some policies, a risk also arises from strongly rising interests rates. Due to the somewhat more complex financial risk picture in SPP than in the Norwegian activities, the risk the customer portfolio represents against the equity is also managed through derivative transactions in SPP’s company portfolio. The investment strategy and risk management in SPP comprises three main pillars. Asset allocation that results in a good return over time for customers and the owner, the continuous implementation of risk management measures in the customer portfolios, and tailored hedging of certain selected insurance policies in the company’s portfolio.
Liquidity risk Liquidity risk is the risk that the company will not be able to meet its payment obligations when they fall due, or that the company will not be able to sell securities at acceptable prices. This risk is limited by a substantial part of the assets being invested in listed securities with good liquidity.
Market risk Market risk is the risk of price changes in the financial markets, i.e. the interest rate, currency, equity, commodity or property markets, affecting the value of the company’s financial instruments. The company’s chief financial officer, in consultation with an allocation committee, continuously defines a reference portfolio to manage the exposure to different market risks. Stress tests are continuously conducted using historical changes to assess the possible effects on the company’s capital base.
Total gross loans in default and loans past maturity not written down Individual write-downs
Commercial services and real estate operations 79.1 10.3 62.7 152.1 -26.2 125.9 153.7 112
Bonds and other fixed-income securities without contractual maturity dates consist of bond funds, security lending collateral reinvested in interest-bearing securities and 1 bonds in Nordben Life and Pension Insurance Co. Ltd. In this note, derivatives are presented net.2
Total quantified interest rate sensitivity 2007 0.4 -30.2 1.1 -45.3 -1 553.5 -4 815.7 -6 443.2
Interest rate sensitivity is a measure of interest rate risk based on how changes in interest rates will affect the market value of bonds, interest rate derivatives and other interest rate sensitive financial items. This summary shows how the values of financial current assets and financial fixed assets (bonds held to maturity) at 31 December 2007 would be affected by an increase of 1 percentage point in all interest rates. Storebrand creates interest rate positions through its assets in order to partly offset the interest rate risk implicit in the company’s insurance obligations. However, the interest rate risk represented by insurance policies cannot be calculated and quantified in the same way as interest rate risk for financial items.
The group actively hedges the major part of its foreign currency risk. Currency risk arises from investments in international securities, and to a lesser extent from subordinated loans denominated in foreign currencies. Currency risk is hedged through forward foreign exchange contracts at the portfolio level, and currency positions are regularly monitored within specified total limits Short positions are closed no later than the business day following the date on which they arise. In addition, there are separate limits for creating active currency positions. These positions are included in the note relating to short-term debt instruments and bonds. The currency positions outstanding at 31 December 2007 are typical of the group’s small limits for currency positions.
P&C insurance: The item ‘Reinsurers’ share of technical insurance reserves’ includes NOK 365 million that the company assumes will fall due in 2008. The item ‘Reserves – P&C insurance’ includes NOK 287 million that the company assumes will fall due in 2008.
NOK million 2007 2006 2005 Change 2007 Change 2006 Change 2005
Gains/losses/write-downs – current assets 3 853.7 5 889.7 3 862.5 -2 036.0 2 027.3 1 150.1
Group pension insurance – private sector 10 512 8 486 6 929
Includes security reserve, subordinated loan capital, book equity and liability items1
Mortality and disability Net annual risk premium for a sum assured of NOK 100,000. In the case of disability pension policies, the premium shown is for an annual disability pension of NOK 10,000 paid until 67 years of age.
Life cover, group life insurance 55 146 821 33 88 493
Premiums for group pension insurance follow the new industry tariff K2005 with security margins that take into account the reduction in mortality among policyholders observed in recent years. 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.
New business written in 2007 is subject to a 2.75 per cent basic interest rate. In the case of policies transferred to the company, the basic interest rate is determined by the rate applied to the policy by the insurance company from which the business is transferred, subject to a maximum of 4 per cent.
Control and monitoring of insurance risk: Insurance risk is separately monitored for every line of insurance in the current insurance portfolio. The risk result for each product group is broken down into the elements of death, accident and disability. The development of risk result is followed throughout the year. For each type of risk, the ordinary risk result for a period represents the difference between the risk premiums the company has collected for the period and the sum of provisions and payments that must be made for insured events that occur in the period. The risk result takes into account insured events that have not yet been reported but which the company, on the basis of its experience, assumes have occurred.
Reinsurance: The company also manages its insurance risk through a variety of reinsurance programs. Through catastrophe reinsurance (excess of loss) the company covers losses (single claims and reserves provision) where a single event causes more than 3 deaths or disability. This cover is also subject to an upper limit. Surplus reinsurance on life policies covers death and disability risk that exceeds the maximum risk amount for own account the company is permitted to carry by its articles of association. The company’s maximum risk amount for own account is relatively high, and the risk reassured is therefore relatively modest. The company’s risk within workmen’s compensation insurance is covered by both quota reinsurance and “excess of loss” cover purchased by the company. In connection with the relaunch of P&C insurance, the company purchased “excess of loss” cover for unlimited liability for motor insurance and included travel insurance in the catastrophe reinsurance cover.
Sufficiency test: Storebrand is required by IFRS 4 to carry out a sufficiency test to ensure that the company has sufficient margins in the various constituent elements that make up the company’s reserves. IFRS permits two alternative methods for the sufficiency test. Where a company has an established form of analysis that demonstrate the margins in the various constituent elements, Section 16 of the standard allows this analysis to continue to be used to demonstrate that the test is satisfied. Where a company has not established such analysis, it is required to discount future cash flows to present value in accordance with IAS37.
In 2007, Storebrand continued its existing practice from the year before and conducted a test pursuant to Section 16. The required analysis is carried out on the basis of Norwegian principles for premium reserves and applies conservative calculation elements. The established form of analysis is based on the assumptions used for the calculation of Embedded Value in which we use the best estimates for the future base elements based on current experience. The sufficiency test is carried out by analysing the current margins between the assumptions used for setting reserves and the assumptions in the Embedded Value analysis.
Storebrand satisfies the test, as it did in 2006. The test has no profit and loss account effects on the 2007 accounts.
Actual claims experience compared with earlier forecasts Storebrand Skadeforsikring AS has reinsured all its insurance risk with respect to the run-off portfolio, and its claims performance is therefore largely dependent on the requirements imposed by Kredittilsynet for the minimum level of claims reserves that must be held for the various lines of insurance. Storebrand Skadeforsikring AS’ active portfolio achieved a small run-off gain in 2007 for 2006.
Limiting insurance risk Before a risk policy – products that ensure financial compensation in the event of death and illness/disability – is granted, SPP conducts a medical insurance risk assessment of the policyholder. The purpose of this is to determine whether and on which terms the policyholder can take out a policy based on the policyholder’s health status. This is necessary in order to enable the company to offer policies with the correct level of premium in the long-term. The desired policy should satisfy the policyholder’s insurance needs and debt servicing capacity. The assessment of risk therefore also includes an examination of debt servicing capacity.
A 20 per cent fall in mortality would entail an annual risk result that was approx. SEK 95 million lower for SPP. If the probability of reactivation in the event of disability sinks by 20 per cent, this would entail an annual risk result that was approx. SEK 25 million lower. SPP’s cancellation risk is very small since the majority of the policy portfolio cannot be repurchased.
Risk result The risk result is divided into the survival, mortality and disability results, as well as pooling and reinsurance. Pooling and reinsurance are risk-reducing items. The risk result thus results in the following magnitudes: NOK mill.
The mortality result consists of the paid risk premiums and payments in the event of death. If the paid risk premiums equal the payments in the event of death, then the risk result will be zero. If more people die than expected, the risk result will be negative, and if fewer die then it will be positive.
The interest result consists of the difference between the return on the assets being managed on behalf of the policyholders and the share of the return allocated to the policyholders. In the case of unit-linked policies the customers’ assets change with the return regardless of whether the return is positive or negative. The financial result from unit-linked policies equals zero. In the case of guaranteed interest there are two amounts that affect the interest result: the allocation of the return between the customers and the owner, and the capital contribution necessary to pay the guaranteed interest. If the total return exceeds the guaranteed interest, which is between 2.5 per cent and 5.2 per cent, the return is shared. In this case the customers receive 90 per cent, though at least the guaranteed interest, and the company receives 10 per cent. The company’s portion of the total return is in theses circumstances recognised as income in the interest result. The customers’ guaranteed capital shall at least receive the guaranteed interest on the assets. If the value of a customer’s policy should be lower than the guaranteed value, the company must contribute capital up to the guaranteed value.
The item other consists of return on assets not owned by the insurance customers, immaterial assets and interest rate costs on loans issued by the company.
Net income and gains from financial assets at fair value: - shares and other equity investments 97.1 74.9 199.9 - bonds and other fixed-income securities 91.3 65.3 62.2 - financial derivatives/other financial instruments -0.4 -1.6 10.9
Profit and Loss Account Storebrand ASA 1 January – 31 December
Trading portfolio investments: - shares and other equity investments 7.10 143.9 271.4 119.3 - bonds and other fixed-income securities 8.10 1 366.9 1 919.6 2 394.6 - financial derivatives/other financial instruments 1.3
Total long-term liabilities and commitments 1 764.1 2 191.1 2 208.5
Total equity capital and liabilities 22 639.0 9 597.8 9 900.4
Net cash flow from operational activities 1 641.3 1 307.3 507.9
Net cash flow from financing activities 12 328.0 -1 502.1 -933.1
Net movement in cash and cash equivalent assets 166.8 -2.0 -26.5
Cash and bank disposits at the end of the period 257.7 90.9 92.9
Accounting Principles 2007 The accounts of Storebrand ASA have been prepared in accordance with the Accounting Act and generally accepted accounting principles in Norway. Storebrand has elected not to use IFRS for the company’s unconsolidated accounts.
Use of estimates and assumptions The preparation of the annual accounts has involved the use of estimates and assumptions that have affected assets, liabilities, revenue, costs and information on potential liabilities. Future events may cause these estimates to change. Such changes will be recognised in the accounts when there is a sufficient basis for using new estimates.
The effect of changes to the pension scheme is charged to the profit and loss account as incurred, unless the change is conditional on future accrual of pension entitlement. If this is the case, the effect is allocated on a linear basis over the period until the entitlement is fully earned. The employers’ national insurance contributions are included as part of the pension liability, and are included in both the balance sheet value of pension liabilities and in experience adjustments.
Foreign currency Current assets and liabilities are converted at the exchange rate on the balance sheet date. Shares held as fixed assets are converted at the exchange rate on the date of acquisition.
Purchases of the company’s own shares are treated as an equity transaction, and the holding of own shares is reported as a reduction in equity.
Bonds and other fixed income securities are recognised at fair value for instruments that satisfy the criteria in section 5-8 of the Accounting Act. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. For financial assets that are listed on a stock exchange or another regulated market place, fair value is determined as the bid price on the last trading day up to and including the balance sheet date, and in the case of an asset that is to be acquired or a liability that is held, the offer price.
Financial derivatives Financial derivatives that satisfy the criteria in section 5-8 of the Accounting Act are recognised at fair value. Financial derivatives are designated as financial assets or financial liabilities at fair value in the profit and loss account.
Pension assets at fair value -1 957.7 -1 972.8 -1 962.0
Reconciliation to show the change in fair value of pension assets in the period: Fair value of pension assets at 1.1. 1 972.8 1 962.0 2 033.3
Net pension cost recognised in the profit and loss account during the period: Current service cost including employment taxes 5.4 5.9 6.2
Present value of defined benefit pension obligations 1 956.8 2 114.4 2 128.6
The Board’s declaration The Board of Storebrand ASA will submit a statement to the annual general meeting on the salary and other remuneration of senior employees, cf. Section 6-16a of the Public Limited Liabilities Companies Act, based on the group's previously adopted guidelines concerning remuneration for senior employees in Storebrand.
The Board’s Remuneration Committee The Board of Storebrand ASA has had a special Remuneration Committee since 2000. The Remuneration Committee is tasked with providing recommendations to the Board concerning all matters to do with the company's remuneration of the CEO. The Committee shall remain informed about and suggest guidelines for the fixing of remuneration for senior employees in the group. In addition the Committee is the advisory body for the CEO in relation to remuneration regimes that cover all senior employees, including Storebrand's bonus system and pension scheme.
Share programme for employees Like other employees in Storebrand, senior employees have an opportunity to purchase up to 1,000 shares in Storebrand ASA at a discount. The discount in excess of NOK 1,500 is reported as pay. The scheme is subject to a minimum contractual period.
The senior employee remuneration policy practised in 2007 In 2007, senior employee remuneration in Storebrand was fixed according to the guidelines described above. None of the group's executive management received pay increases during the ordinary pay adjustment.
Write-down of deferred tax assets1 1 849.3 1 866.6 1 810.3
The balance sheet value of deferred tax assets has been written down. This is because future income from subsidiaries will principally be in the form of dividends rather than 1 taxable group contribution. Unused allowances carried forward arose in the years 1998 - 2003, and must be used within 10 years.
Tax effect of: - write-down of deferred tax assets 4.8 -15.8 -119.8
Storebrand Felix kurs og konferanse AS Oslo 1.0 1 1 000 100.0% 8.6
Storebrand ASA has provided a group contribution as a capital payment of NOK 200.3 million to Storebrand Bank AS and NOK 2.4 million to Storebrand Alternative Investment 1 AS. In 2007, Storebrand ASA purchased a minority interest of 44% for a cash remuneration of NOK 22.2 million. The final purchase sum depends on the company2 's earnings in the years ahead, and the provision for Earn-out is NOK 34.9 million. In 2007, a received group contribution of NOK 22.7 million was booked as an equity transaction as a reduction in the book value of the shares. The total received group contribution was NOK 51.5 million.
Direct investments in bonds and commercial paper 254.6 1 112.3 1 366.9
Base figure for allocation by sector and currency 257.6 1 118.2 1 375.8
Up to 1 month 1–3 months 3 months – 1 year 1-5 years
Total quantified interest rate sensitivity 2006 -0.1 -2.0 -5.2 -3.9 -11.2
Interest rate sensitivity is a measure of interest rate risk based on how changes in interest rates will affect the market value of bonds, interest rate derivatives and other interest rate sensitive financial items. This summary shows how the values of financial current assets and financial fixed assets (bonds held to maturity) at 31 December 2007 would be affected by an increase of 1 percentage point in all interest rates. Storebrand creates interest rate positions through its assets in order to partly offset the interest rate risk implicit in the company›s insurance obligations. However, the interest rate risk represented by insurance policies cannot be calculated and quantified in the same way as Interest rate risk for financial items.
Storebrand ASA has taken out a syndicated loan of EUR 580 million, equivalent to NOK 4,588.8 million. The loan is booked at amortised cost, and loan costs of NOK 15.8 million have been activated with respect to the loan. The loan falls due for repayment in September 2008. The loan is subject to an interest rate of three months EURIBOR +0.55%.
15 Holdings of shares in Storebrand ASA by executive management and members of corporate bodies
Subordinated loan to Storebrand Livsforsikring AS of EUR 580 million. The lender has the right to repay the loan with 5 days notice, and the loan is subject 1 to an interest rate of 3 months EURIBOR + 2.5%.
Act and generally accepted accounting practice in Norway have been applied to prepare the parent company’s financial statements. The group accounts comprise the balance sheet, the statements of income and cash flows, the statement of changes in equity and the accompanying notes. International Financial Reporting Standards as adopted by the EU have been applied to prepare the group accounts. These financial statements are the responsibility of the Company’s Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on other information according to the requirements of the Norwegian Act on Auditing and Auditors.
• the parent company’s financial statements are prepared in accordance with law and regulations and give a true and fair view of the financial position of the Company as of 31 December 2007, and the results of its operations and its cash flows for the year then ended, in accordance with generally accepted accounting practice in Norway
• the Company’s management has fulfilled its duty to see to proper and well arranged recording and documentation of accounting information in accordance with law and generally accepted bookkeeping practice in Norway
• the information in the Board of Directors’ report concerning the financial statements, the going concern assumption and the proposal in the financial statements for the allocation of the profit, is consistent with the financial statements and complies with law and regulations.
Storebrand ASA reviewed the Board of Directors’ proposed annual report and accounts for 2007 for Storebrand ASA and the Storebrand
Control Committee recommends that the proposed annual report and accounts be adopted as the Annual Report and Accounts of
The Board of Representatives raises no objections to the Board’s proposal regarding the allocation of the profit for the year of Storebrand ASA.
General Duration: The average remaining term of cash flow on interest bearing securities. Modified duration is calculated on the basis of duration and is an expression of sensitivity to changes in underlying interest rates.
Earnings per ordinary share: The calculation of earnings per ordinary share is based on profit after tax adjusted for changes in statutory security reserves after tax in respect of non-life insurance. These statutory reserves include security and administration reserves, natural disaster fund as well as the guarantee reserve. The number of shares used in the calculation is taken as the average number of ordinary shares outstanding over the course of the year. In case of new issues of shares, the new shares are included from the date of subscription.
Subordinated loan capital: Subordinated loan capital is loan capital which ranks after all other debt. Subordinated loan capital forms part of Tier 2 capital in the calculation of capital adequacy.
Capital adequacy Capital adequacy ratio: Eligible primary capital as a percentage of the risk-weighted balance sheet. Individual assets and off-balance sheet items are given a risk weighting based on the estimated credit risk they represent.
Tier 2 capital: Tier 2 capital is part of primary capital and consists of subordinated loan capital. In order to be eligible as primary capital, Tier 2 capital cannot exceed Tier 1 capital. Perpetual subordinated loan capital, together with other Tier 2 capital, cannot exceed 100 per cent of Tier 1 capital, whilst dated subordinated loan capital cannot exceed 50 per cent of Tier 1 capital. To be fully eligible as primary capital, the remaining term must be at least five years. If the remaining term is less, the eligible portion is reduced by 20 per cent for each year.
Life insurance Administration result: The difference between actual costs and those assumed for the premium tariffs.
Conditional bonus: The conditional bonus is that part of the insurance capital in SPP
that is not guaranteed. The conditional bonus increases or decreases in relation to the total yield. It can be both negative and positive.
Return on capital: Return on capital shows net realised income from financial assets and changes in the value of real estate, expressed as a percentage of the year’s average total assets in accordance with rules set by Kredittilsynet. Value-adjusted return on capital shows the total of realised income from financial assets, changes in the value of real estate and the year’s change in unrealised gains or losses, expressed as a percentage of the year’s average total assets at market value.
Claims reserve (allocations for unsettled claims): Reserve for future compensation payments for claims that have been incurred at the end of the accounting year but have not been settled with final effect. The reserve also includes an estimate of the compensation for claims that have been incurred but not yet reported to the company.
Combined ratio: The sum of the cost ratio and the claims ratio.
Premium allocation (allocations for premium income received in advance): That part of the premiums written that is not earned by the end of the accounting year.
Premiums written: Premiums for all insurances policies signed during the course of the accounting year. The agreement falls partly within and partly outside the accounting year.
Banking Annual percentage rate (APR): The true interest rate calculated when all borrowing costs are expressed as an annual payment of interest in arrears. In calculating the
APR, allowance must be made for whether interest is paid in advance or arrears, the number of interest periods during the year and all fees and commissions.
Level repayment loan: Periodic payments (representing both capital and interest) on a level repayment loan remain constant throughout the life of the loan.
Financial derivatives The term ‘financial derivatives’ embraces a wide range of financial instruments for which the current value and future price movements are determined by equities, bonds, foreign currencies or other traditional financial instruments. Derivatives require less capital than is the case for traditional financial instruments such as equities and bonds, and are used as a flexible and cost effective supplement to traditional instruments in portfolio management. Financial derivatives can be used to hedge against unwanted financial risks, or to create a desired risk exposure in place of using traditional financial instruments.
Share options: The purchase of share options confers a right (but not an obligation)
Stock futures (stock index futures): Stock futures contracts can be related to individual shares, but are normally related to stock market indices. Stock futures contracts are standardised futures contracts, which are exchange traded, and are subject to established clearing arrangements. Profits and losses on futures contracts are recognised daily, and are settled on the following day.
Storebrand Filipstad Brygge 1 P O Box 1380 Vika N-0114 Oslo Norway Tel: +47 22 31 50 50 www.storebrand.no
Storebrand Livsforsikring Sverige Swedish branch office Kungsgatan 12–14, level 7 P O Box 5541 S-114 85 Stockholm Sweden www.storebrand.se
Storebrand Kapitalforvaltning AS Norge Swedish branch office Kungsgatan 12–14, level 7 P O Box 5541 S-114 85 Stockholm Sweden www.storebrand.se
C o n ce p t, d e sig n an d p ro d u ctio n : sig n atu r.n o