Financial calendar 2002: 24 April: Annual General Meeting 30 April: 1st quarter results 14 August: 2nd quarter results 30 October: 3rd quarter results
The Storebrand group The Storebrand group is a leading player in the markets for pensions, life and health insurance, banking and asset management. The group’s activities are carried out through four main business areas: Life Insurance, Storebrand Investments, Storebrand Bank and Finansbanken. In addition Storebrand has a 22.5% interest in If Skadeförsäkring.
Storebrand Bank Storebrand Bank has the overall responsibility for distribution, customer service and marketing of financial products and services to the retail market. The bank’s objective is to be a leading supplier of financial services to private individuals with savings and an interest in managing their finances. Storebrand Bank offers this customer group a broad range of high quality financial products and services either through personal contact with its financial advisers, over the Internet or by telephone.
Finansbanken offers specialist expertise for project financing, principally for real estate developments. Finansbanken Forvaltning specialises in private banking and offers attractive asset management products for this market.
Storebrand Bank ■ Deposits NOK 6.5 bn ■ Gross lending NOK 12.4 bn4) ■ No. of banking customers 59,2624)
K m ill io n *) Numbers for 1997 is excluding preferance share capital.
January ■ Official opening of Euroben Life & Pension Ltd, an Irish life insurance company jointly owned by Storebrand and Svenska Handelsbanken /SPP Liv. The company’s Euroben product offers flexible pension solutions for multinational companies.
■ Storebrand ASA becomes the main corporate partner of the Norwegian Cancer Society.
May ■ Sampo and Storebrand announce plans to create a leading Nordic financial group. Sampo makes a cash and shares offer for Storebrand equivalent to NOK 75 per Storebrand share, valuing Storebrand at NOK 20.8 billion. Storebrand ’s board of directors recommends the Sampo offer to shareholders.
August/September ■ Storebrand Investments announces an agreement with Finama Asset Management, the second largest French insurance asset management company. The two companies will jointly market socially responsible investment products throughout Europe.
■ The terrorist attack on the World Trade Center on 11 September has no direct effect on Storebrand. However the subsequent dramatic fall in global securities markets weakens Storebrand’s results both directly through a fall in the value of its investments and indirectly through a drop in sales of products for long-term savings.
November ■ If and Sampo announce the merger of their non-life insurance activities with effect from 1 January 2002. The new, enlarged If will be by far the leading Nordic non-life insurance company.
If will have a 24% share of the Nordic non-life insurance market, with 3.7 million customers.
■ The business of Storebrand Finans is sold to Aktiv Kapital for NOK 175 million.
■ Storebrand Investments becomes the first Norwegian fund manager to provide tactical asset allocation for management of the Norwegian Government Petroleum Fund. Storebrand wins this new mandate in competition with a number of Norwegian and international asset management companies.
Storebrand has also paid close attention to implementing cost-saving measures and making more efficient use of its capital. The business activities carried out by Storebrand Finans have been sold to a third party.
On 21 May 2001 the Finnish financial group Sampo made a cash and shares offer for Storebrand equivalent to NOK 75 per Storebrand share. As part of the process of evaluating strategic alternatives for the group, contacts had been established with a number of possible partners both in Norway and internationally. The Board of Directors unanimously resolved on 2 July 2001 to recommend the Storebrand’s shareholders to accept the Sampo offer. The EU anti-trust authorities approved the proposed acquisition of Storebrand by Sampo. Den norske Bank invited Storebrand to participate in merger negotiations and acquired 9.74 percent of Storebrand’s shares with a view to blocking the Sampo offer. Under Norwegian legislation the offer from Sampo had to be accepted by 90 percent of shareholders.When Sampo decided in October not to extend the offer period it had received acceptances from 86.3 percent of shareholders.
Life Insurance Storebrand Livsforsikring: The overall results for life insurance comprise three elements, namely interest result, risk result and administration result. The realised investment return for 2001 was 3.6 percent. This fell short of the return guaranteed to policyholders, which is on average 3.8 percent. The low level of investment income was caused by the falls seen in international equity markets. This meant that the company recorded a negative interest result, and for the first time in its history Storebrand needed to release additional statutory reserves in order to deliver the guaranteed return. Administration result and risk result both showed improvement in 2001. Following the transfer from additional statutory reserves, the pre-tax loss for the year was NOK 15 million.
A more detailed description of embedded value can be found on page 17.
Storebrand Optima was the best-performing Norwegian equity fund in 2001. While the market as a whole showed a fall in funds under management, the Storebrand Investments group increased its market share of mutual funds under management. The group, including Delphi Fondsforvaltning, increased its share of the market for mutual funds from 9.5 percent at the start of the year to 10.1 percent. Three local authorities awarded SRI (Socially Responsible
Finansbanken The Finansbanken ASA Group reported a profit before loan losses and provisions of NOK 228 million for 2001, equivalent to 1.13 percent of average total assets. This represents a fall in profit of NOK 85 million from the previous year, principally due to a fall in non-interest income caused by a sharp reduction in sales of long-term savings products in 2001. In addition the 2001 accounts are burdened by non-recurring costs for the conversion of the bank’s core systems to Fellesdata, the build-up of private banking operations and reorganisation. After loan losses and provisions totalling NOK 302 million, the group reported a loss of NOK 74 million for the year as compared to a profit of NOK 18 million in 2000. After taking into account Storebrand’s writedown of goodwill, the full-year result was a loss of NOK 102 million. The loss for the year as a whole reflects a large increase in unspecified loan losses and provisions taken in the second quarter.
Finansbanken strengthened its focus on Private Banking in 2001. The Private Banking activities have been reorganised, new management has been recruited and the business area has been spun-off into separate companies in the Finansbanken group.
Non-Life Insurance Activities Storebrand’s non-life activities comprise the 44 percent interest in If Skadeförsäkring and 100 percent interest in Oslo Reinsurance Company held through Storebrand Skadeforsikring AS and a 50 percent interest in Fair Forsikring in Denmark held by Storebrand ASA.
The agreement was completed with effect from 2 January 2002.. By merging with Sampo’s non-life business, If Skadeförsäkring will gain a broader platform in the Nordic region which will make it by far the largest player in the Nordic non-life insurance market.
Fair Forsikring operates a direct non-life insurance business for the Danish retail market. Storebrand’s interest in the company’s pre-tax profit (50 percent) was a loss of NOK 62 million in 2001, as compared to a loss of NOK 36 million in 2000.
Risk Management The group’s exposure to risk relates principally to investment risk, credit risk and insurance risk. Exposure to investment risk is affected by the allocation of investments between different classes of assets. Asset allocation is determined annually by the boards of the individual group companies, and is set out in the companies’ investment policy statements. The boards also approve appropriate procedures for the management of foreign exchange risk, use of derivative instruments and the management of credit risk.
correlated and that are geographically diverse, and to investing in a range of securities in each area of allocation to provide satisfactory risk diversification.
The exposure to credit risk incurred by Finansbanken and Storebrand Bank is managed through standardised credit approval procedures and delegated credit authorities approved by the banks’ boards. The group’s asset management activities incur credit exposure to counterparties, and this is managed by establishing a credit limit for each counterparty based on rating agency classifications supplemented by in-house analysis.
The group’s buffer capital fell in 2001 as the conditions seen in the financial markets and the sales of securities caused a reduction in unrealised gains. The group’s capital base, which is made up of equity, subordinated loans, the market value adjustment reserve and additional statutory reserves, amounted to NOK 18.7 billion at 31 December 2001 as compared to NOK 22.4 billion at the close of 2000. Of these amounts, the life insurance company accounted for NOK 10.4 billion in 2001 versus NOK 13.1 billion for 2000. In addition to the capital needed to meet the minimum capital adequacy requirement of 8 percent, the group has buffer capital of NOK 8.6 billion. This is made up of capital
in excess of the minimum requirement, the market value adjustment reserve and additional statutory reserves equivalent to one year’s interest guarantee.
The level of technical insurance risk incurred by the group is regulated by tariffs that are reported to the authorities. These tariffs are based on historical statistics. Storebrand considers the level of technical insurance risk incurred by companies in the group to be at a moderate level taking into account the reinsurance cover the companies have arranged.
Absence from work on grounds of sickness was 3.61 percent. Sickness leave has been relatively constant over many years, and is clearly better than the industry average. The Board considers absence due to sickness to be at an acceptable level. No personal injuries, damage to property or accidents of any significance were reported in 2001.
Storebrand does not pollute the external environment beyond the normal level for the activities in which the group is engaged.
In 2001 Storebrand Livsforsikring became the first life insurance company in Europe to apply ethical criteria to its entire equity port-folio. The company’s portfolio is managed by Storebrand Investments.
Following the implementation of its Corporate Social Responsibility action plan, Storebrand was added to both the Dow Jones Sustainability Index and the FTSE4good index in 2001. These indices only include companies with a strong commitment to sustainable development. The Swedish environmental foundation MISTRA has identified Storebrand as one of the three best asset management companies in the world in the field of environmental and social investment.
Shareholder Matters Storebrand ASA had 37,717 shareholders at the end of 2001, representing a reduction of 858 over the course of the year. The proportion of share capital held by foreign shareholders fell from 38.6 percent at the end of 2000 to 37.1 percent at the end of 2001. The company has shareholders from all the municipalities in Norway and from 38 foreign countries.
The Storebrand group again carried out a share issue for its employees in 2001. Every employee was given the opportunity to buy 175 shares at a price of NOK 35.50, and approximately 50 percent of employees subscribed for a total of 133,000 shares.
Capital Situation The group’s equity capital fell by NOK 927 million to NOK 9,606 million in 2001. The group’s capital ratio was 12.9 percent at the end of 2001, representing an increase of 0.2 percentage points from the previous year.
Credit rating agencies publish credit ratings for certain companies in the Storebrand Group. Credit ratings have attracted increased attention in 2001 as result of the turbulent conditions seen in the financial markets. Storebrand Livsforsikring is rated A and A2 by Standard & Poor’s and Moody’s respectively. Storebrand Bank and Storebrand ASA are both rated Baa 1 by Moody’s, and Finansbanken is rated A- (long term) by Fitch Ratings.
In view of the weak results reported for 2001 and the established dividend policy, the Board has decided not to recommend a dividend in respect of the 2001 accounting year. The loss for the year of NOK 80 million will be applied against other equity.
Storebrand will continue to focus strongly on its business processes in order to improve profitability. This includes balance sheet optimisation and cost reducing measures. In addition to maintaining a close focus on its business processes, Storebrand will continue to play an active role in the structural changes currently affecting the Nordic financial sector.
Storebrand’s strategy for the non-life activities of If Skadeförsäkring is one of value-maximisation, and in Storebrand’s view the negative trend seen for non-life insurance business can be turned around by the current program of premium increases and a range of other measures. Storebrand therefore expects that If Skadeförsäkring, as a dominant Scandinavian player, will produce significant improvements in future earnings.
Leiv L. Nergaard Halvor Stenstadvold Brit K.S. Rugland Harald Tyrdal Knut G. Heje Chairman
Rune Bjerke Rune Eikeland Arild Thoresen Nina Seiersten Idar Kreutzer Chief Executive Officer
Despite the challenging conditions experienced in 2001, Storebrand maintained a strong position in the markets in which it operates. The company reached its targets in the important public sector pension market, and initiated comprehensive measures to improve profitability. The task of optimising the way the group uses its balance sheet continues, and we are placing even greater focus on our core business. The addition of Sampo’s non-life insurance activities to If will strengthen this business, and will increase the momentum behind the measures needed to improve the profitability of this leading Nordic non-life insurance company.
Future value creation in Storebrand will be based on 3 main elements: ■ A targeted focus on profitable areas of growth where Storebrand is particularly well placed to succeed.
■ The further development of our leading position in straightforward, readily understandable and flexible products and services. In more traditional terms, we will also maintain our competitive position as a highly efficient operation that generates the best net investment return for our customers.
■ A focus on our employees as a core competitive advantage, through our policies of recruitment, staff development and training, and also by cultivating a corporate culture built on our core values.
The market for occupational pension schemes in Norway has developed over a period of some 100 years since the start of the 20th century. Now, the start of the 21st century sees private health insurance begin to gain a foothold in Norway. Storebrand Helseforsikring was first established in 1998, and after a relatively cautious start the new company saw a sizeable increase of 40 percent in its sales to the Norwegian and Swedish markets in 2001. Everything indicates that this trend will continue, and the group’s commitment to health insurance is a clear example of a longterm strategy where the heavy start-up costs are now behind us and the potential for future growth is coming into focus.
Storebrand Bank, which carries the main responsibility for distributing the group’s mutual funds, banking and life insurance products to the retail market, has invested heavily over recent years in the development of its Advisory Bank concept. The bank’s financial advisers, working from 20 financial centres covering all the main population centres of Norway, ensures that Storebrand’s expertise in savings, asset management and personal risk products is offered to the most active part of the retail savings market. Efficient and state-ofthe -art systems for customer service will support this. The Advisory Bank approach is a relatively new concept for Storebrand, in contrast to areas such as life and pension insurance or asset management where our experience has been built over generations. We are therefore following the progress of this new approach very closely, and will make the necessary adjustments along the way to gain experience and ensure profitability.
The high net worth and affluent retail customers, with financial investments in excess of NOK 5 million, need more extensive financial advice. In addition to advice on asset management, we offer a comprehensive approach that includes advice on taxation, inheritance planning, accounting etc. Circa 0.2 percent of the adult Norwegian population, controls almost 25 percent of personal invested assets. Experience from other countries similar to Norway shows that the "private banking" segment to which these individuals naturally belong is growing more rapidly than the overall savings market. The products appropriate for private banking customers offer higher and more
Idar Kreutzer Grete Faremo Hans Henrik Klouman Egil Thompson Odd Arild Grefstad Lars Aa. Løddesøl Erik Råd Herlofsen Roar Thoresen
stable margins than are typical for products in the general retail savings market. Storebrand launched its activities for this market segment in 2001, and we intend to continue with a focused program to ensure the profitable development of this area.
Storebrand’s organisation has changed over recent years in step with the changing nature of the group. Employee numbers have fallen from 4,000 to some 1,500 in the group’s core activities. The proportion of staff with higher education qualifications has risen to 66 percent from around 15 percent just 10 years ago. Woman now occupy 33 percent of senior management positions, and a recent survey shows that we are one of the best listed companies in Norway in this respect. The average age of our staff has fallen to 41 from almost 48 over the last 10 years, but the average period of service is still over 10 years.
Storebrand is an experienced, forward-looking business, based on strong human capital and a long history. The company’s success will be determined by the efforts and ability of our employees, and this places particular demands on our role as an employer. To meet this challenge we run one of the best trainee programs in Norway, and pay great attention to training and personal development across the entire range - from our promising younger staff to our highly experienced managers. We operate a bonus system that helps to ensure that everyone pulls in the same direction and which encourages a sense of commitment from individual members of staff. This commitment is recognised by a close relationship between job performance and remuneration.
Our group is based on a clear and visible platform of corporate values to attract and retain the right staff, managers, owners and customers. It takes time and effort to build confidence and credibility. Storebrand has built and nurtured a common value platform through a combination of core corporate values, guidelines for business ethics and a 10-point action plan for corporate social responsibility.
Our four core values set the tone for everything Storebrand does. We are committed to being seen as dependable, forward-looking, easy to work with and as a creator of new opportunities. These core values permeate our relationships with colleagues, customers and all of Storebrand’s other partners.
Storebrand recognises corporate social responsibility as a natural part of its business and values. This includes a keen awareness that we will not achieve our business objectives unless we operate in harmony with the wider society of which we form a part.
For many years companies have looked at investment return, risk result and costs when choosing a pension supplier.
A well-kept secret The benefits that a company pension scheme represents for employees have for many years been something of a well-kept secret, but companies are no longer happy that employees scarcely recognise the major payments being made on their behalf.
Storebrand has developed systems that meet these requirements. Information on traditional final salary pension schemes is communicated to employees by individual letters, whilst internet systems can provide a broader range of information on the employee’s pension and insurance benefits.
In addition the new defined contribution pension schemes allow employees to make their own decisions on how their pension funds are invested. Employees can use the system to change their choice of investment fund or to contact the customer centre for advice. A detailed savings guide gives employees guidance on how to manage their pension savings to match their own risk preferences.
Storebrand also offers additional network-based systems that give employees access to the full range of benefits provided by their employer. Storebrand’s Wincome concept opens up entirely new opportunities for targeted human resources policies customised to the individual company’s strategies and objectives.
Simplified customer service Storebrand’s customer-service concepts give the staff responsible for a company’s pensions management direct online access to Storebrand’s pension systems. This allows them to use networkbased systems to keep the pension scheme up-to-date. This will be extended in 2002 to allow companies to connect their payroll systems directly to Storebrand’s pension systems. This will further simplify a number of the routine tasks involved in managing a pension scheme.
Competition for skilled workers in a tight labour market makes new demands on how companies present their employee benefits.
Over recent years the authorities have repeatedly tightened the rules that govern a life insurance company’s use of its buffer capital. This has caused a reduction in the proportion of reserves that a company can use to absorb fluctuations in the equity markets. At the same time both customers and the company’s owners would like equities to account for the largest possible proportion of total investments in order to generate higher long-term returns.
Storebrand’s investment policy A reduction in buffer capital reduces the risk exposure capacity of a life insurance company, and therefore reduces the ability to maintain a high proportionate exposure to equities. Storebrand’s investment policy meets this challenge by using sophisticated tools to monitor and manage the risk to which policyholders’ funds are exposed.
Worst fall in share prices in 61 years The days immediately following the 11 September terrorist attacks in the USA saw the biggest fall in share prices for a single week since 1940. Weaker market conditions earlier in 2001 had already reduced life insurance companies’ buffer capital, and in the days after 11 September a number of Norwegian life insurance companies fell below the legal minimum capital adequacy requirement.
On 26 September the Norwegian authorities announced changes to the buffer capital requirements for insurance companies to make it easier to satisfy the legal requirements. Storebrand Livsforsikring managed its position throughout these weeks without falling below the legal minimum requirement for capital adequacy. Moreover Storebrand did not need to turn to its owners for additional capital, nor was it forced to purchase hedging instruments in the capital markets at an unfavourable time.
Valuable tools The dramatic events seen in the equity market in 2001 demonstrate the value of Storebrand’s risk management procedures. The company’s systems ensure that it has full control over the amount of buffer capital available and the margin this represents above legal minimum requirements at all times, even when fluctuations in the equity market are at their worst. Well-developed procedures and systems and the strength of its professional expertise ensure that Storebrand Livsforsikring can maintain prudent control of its asset management and take the necessary measures at the right time.
Storebrand managed the situation throughout the autumn without having to call on its owners for more capital.
Embedded Value Storebrand Livsforsikring has again calculated and published figures for Embedded Value (EmbV) for 2001. These calculations were first made for the 1998 accounting year. EmbV is defined as the current value of future post-tax profits for the company’s owners, and is based on the best possible forecast of the expected post-tax profits from existing business that will be allocated to the company’s owners, plus the value of unrestricted equity. The use of EmbV as an analytical tool to value life insurance companies is becoming increasingly common. The company’s calculations of EmbV are based on international standards and are prepared with assistance from independent external advisers.
The reduction in EmbV in 2001 was modest despite the turbulent conditions seen in the financial markets over the course of the year. This demonstrates that the underlying factors that determine the value of life insurance activities are relatively little affected by the state of the financial markets in a single year, and the long-term strength and stability of the life insurance business will generate good future returns.
Business development The results reported by the group’s life insurance activities in 2001 were not satisfactory. This reflects the very weak investment return that resulted from turbulent conditions in international equity markets. The weak financial results
Corporate market Storebrand’s collective pensions business saw strong growth in both premiums written and premium reserves transferred to the company in 2001. Premiums written for collective pension insurance increased by 13.5 percent, and premium reserves transferred were 46 percent higher than in 2000. Part of the growth in premiums written is due to changes in accruals in connection with the move to linear accrual of premium reserves.
Storebrand’s new defined contribution pension product came into production in 2001, and 2002 is expected to show significant growth in sales of defined contribution pensions. The scope for growth in sales will be further strengthened if pensions become part of collective employment terms as a result of this spring’s round of wage negotiations.
Storebrand attracted a good share of the transfers of municipality pension schemes. Six municipalities representing total premium reserves of NOK 858 million decided to transfer their schemes to Storebrand, including Skedsmo municipality, the largest to leave KLP. In addition Ås, Bø, Mosvik, Storfjord and Sortland chose Storebrand as their pensions supplier. Storebrand now provides pension schemes for 22 of the 68 municipalities that have so far transferred to private sector insurance companies. The pension schemes managed for these 22 municipalities represent funds of NOK 3.3 billion, equivalent to circa 35 percent of all municipality pension fund assets managed by private companies.
municipalities’ own pension funds. Storebrand is still the only company that has not attracted any adverse comments in respect of its public sector pension product from the municipality pensions working group, and this represents a valuable stamp of quality at the start of 2002 from the parties to the municipalities’ national employment conditions.
Retail market Sales of retail market products were weaker than expected in 2001. Sales of savings products were depressed by the turbulent conditions seen in the equity markets in 2001. Storebrand’s unit linked products, which comprise IPA (individual pension agreement) and Annuity Link, achieved sales of circa NOK 1.1 billion. This represents a fall of circa 36 percent from 2000, and is in line with the general reduction for premiums written in the market as a whole.
Storebrand will focus on growth in sales of personal risk products in 2002. A strategy review carried out in 2001 demonstrated that there is a large and under-insured market for such products in Norway. Personal risk products are expected to make an increasing contribution to the life insurance company’s results in future years.
Costs Operating costs for Storebrand Livsforsikring AS totalled NOK 875 million in 2001 as compared to NOK 930 million in 2000. This significant reduction in costs reflects the continuing focus on reducing internal costs as well as reduced use of external consultants, lower commission payments and a reduction in purchases from other group companies. Storebrand has achieved a continuous reduction in its cost ratio over recent years, and costs relative to average policyholder’s funds have fallen from 0.96 percent in 1999 to 0.94 percent in 2000 with a further fall to 0.88 percent in 2001. Storebrand will continue to pay close attention to costs in 2002.
Investment return, solidity and risk capital Generally turbulent conditions in equity markets in 2001 and in particular the terrorist attacks in the USA on 11 September led to weak financial results for Storebrand. Realised investment return was 3.6 percent for the year, with a value adjusted return of 1.5 percent.
The company’s exposure to investment risk is affected by the allocation of investments between different classes of assets, and this is determined by a formal investment policy. Investment policy is defined annually by the Board with the objective of achieving the best possible return for customers and owners over time whilst controlling risk to an acceptable level. An acceptable level of risk implies that exposure to risk will be incurred in a managed and efficient manner within specified limits.
Investment policy therefore pays particular attention to spreading investment across classes of assets that are not closely correlated and that are geographically diverse, and to investing in a range of securities in each area of allocation to provide satisfactory risk diversification. In addition to the work involved in setting formal investment policies, Storebrand attaches great importance to the continual process of risk management through the year.
Satisfactory risk bearing capacity The turbulent conditions seen in capital markets in 2001 caused a reduction in the company’s risk bearing capacity. The company reduced its equity exposure over the first half of the year from 32 percent to around 22 percent, and then maintained this level for the second half of the year. Risk bearing capacity at the end of 2001 was satisfactory. Storebrand starts 2002 with a positive market value adjustment reserve and additional statutory reserves in excess of one year’s interest guarantee. The company’s definition of buffer capital is in accordance with the current regulations, and comprises the market value adjustment reserve, additional statutory reserves equivalent to one year’s guaranteed interest and primary capital in excess of the minimum requirement. In addition the result for the year forms part of buffer capital until it is allocated by the decision of the Annual General Meeting.
Storebrand Livsforsikring intends to strengthen its buffer capital and continue its strategy of holding a well differentiated securities portfolio with a significant international allocation in order to retain the ability to increase risk exposure over time. Buffer capital amounted to NOK 6.6 billion at the close of 2001, equivalent to 7 percent of policyholders’ funds excluding additional statutory reserves.
The life insurance company’s capital ratio was 12 percent in 2001 as compared to 10.5 percent in 2000. The minimum capital requirement is 8 percent.
The combination of a professional asset management function, satisfactory risk bearing capacity and low operating costs compared to competitors gives every reason to expect that Storebrand will continue to produce a competitive net return for its customers.
Interest result is the difference between the book return and the guaranteed return on policies. The average guaranteed return on insurance policies in 2001 was 3.8 percent. Risk result arises as a consequence of the incidence of mortality and disability during the period differing from that assumed for the premium tariffs.
Return on shareholder's equity 364 407 130 218 Return to shareholder on policyholders' fund 376 387 366 339 Risk margin earned by shareholder 55 Extraordinary items 105
Total profit allocated to shareholder’s equity in the company *) -17 836 899 496 557 *) Storebrand Livsforsikring Group reported a loss of NOK 15 million.
Collective Group Individual Individual Non-life pension life capital- pension insurance Total Total Total
NOK million insurance insurance insurance insurance 2001 2000 1999 - of which transferred to premium fund -202.3 -15.0 -217.3 -206.7 -176.5 11. Change in premium reserve/sec. fund-115.0 15.6 36.1 38.1 -25.2 -55.0 -548.3
To(-)/from(+) owner's equity: -net return on share capital b) -363.8 -407.7 -0.40% of policyholders' funds c) -375.5 -386.8 -risk margin earned by owner's equity -55.2 -extraordinary items -104.5 13. Profit for the year 17.0 -835.6 -899.0 14. Drawn from additional statutory reserves 232.8 38.3 136.5 407.6 a) Adjusted to show analysis of results as if subsidiaries were recognised in the accounts by the gross method rather than the equity method. b) Includes: Security reserve, subordinated loan capital and book equity. c) Includes: 0.40% of policyholders' funds in 2000. (0.42% of policyholders' funds in 1999).
Storebrand Investments is one of the largest asset managers in Norway. It provides asset management and advisory services for pension schemes, private and public sector institutions, private individuals and companies within the Storebrand group. The asset management services provided include discretionary portfolio management and a wide range of Norwegian and international mutual funds, as well as real estate investments. We currently serve 150 institutional investors and some 100,000 corporate and retail customers from offices in Oslo, Stockholm, London, Paris and Luxembourg.
These are sectors well suited to our Norwegian base and particular investment skills, and we can demonstrate a strong track record. There is increasing interest in ethical asset management, and this demonstrates the value of our strategic focus on socially responsible investment (SRI). The turbulent conditions seen in equity markets in 2001 also showed just how important it is to reduce risk by diversifying investment across various asset types. We have accordingly launched tactical asset allocation as a separate product, and also take particular interest in non-listed shares (private equity). European fixed-income securities are also an area of focus.
There is increasing demand for products that focus on absolute rather than relative return, partly as result of turbulent conditions in the equity markets and partly reflecting the preference of retail savers to find a home for their funds other than bank deposits or real estate.
A leading player in tactical asset allocation Tactical asset allocation is based on the relative differences in performance between asset types such as equities and fixed-income securities and between different countries or regions. The selection of asset allocation and tactical positioning play an important role in balancing a portfolio’s overall risk and return.
Storebrand Investments is to become the first Norwegian fund manager to apply tactical asset allocation to the management of assets for the
Many customers have responded to falling share prices by reducing equity exposure, and have increased their allocation to money and bond markets. Increased demand for risk diversification and high risk-adjusted returns has created greater interest in corporate bonds as a separate product area. Analysis of volatility and correlation between shares, government bonds and corporate bonds demonstrates that corporate bonds offer risk and return somewhere between shares and government bonds.
Storebrand Investments is, as the first asset manager in the Nordic region, awarded a tactical asset allocation mandate for the NG Petroleum Fund.
Global deregulation and privatisation of the energy market represent another mega trend. Privatisation, alternative energy sources and deregulation of energy markets create exciting new perspectives and attractive investment opportunities. Moreover demand for energy continues to grow.
Attractive mutual fund products and a professional standard of advice are key concepts for our strong focus on long-term savings.
Storebrand reports the performance of its funds in three central areas: financial return, environmental practice and social practice. We produce a competitive return on these investments, and we also know whether, how and to what extent the companies in which we invest achieve environmental and social results. We monitor their ‘triple return’, which is an overall measure of a company’s financial, environmental and social results.
First in Europe In 2001 Storebrand Livsforsikring AS became the first life insurance company in Europe to apply ethical criteria to its entire equity portfolio. On the basis of market research amongst its customers, Storebrand Livsforsikring chose to exclude investments in tobacco, landmines and companies that commit serious breaches of human rights. In addition Storebrand Livsforsikring only invests in European chemicals companies that are among the top 30 percent in their sector in terms of social and environmental criteria.
The survey recognised Storebrand as one of the three best companies in the world within socially responsible investment.
■ Storebrand took the winning position for net new inflows to mutual funds, attracting NOK 1.9 billion of a total market of almost NOK 5.4 billion. ■ Storebrand Optima Norge was the best Norwegian equity fund in 2001, and Storebrand Verdi took fourth place.
■ Tactical allocation asset management mandate from the Norwegian Government Petroleum Fund (NGPF).
Markets and customers Storebrand Investments, including Delphi Fondsforvaltning, manages assets totalling NOK 145 billion. Investments in shares account for 24 per cent of total assets managed, with 64 percent invested in interest bearing securities. The balance is principally made up of real estate and private equity investments. Total assets under management fell marginally in 2001 as a result of the lower values seen in equity markets.
Increased market share Storebrand was the market winner for net new inflows to mutual funds in 2001, and increased its share of total assets under management in this market. Storebrand Fondene, together with Delphi Fondsforvaltning, had a market share of over 10.1% of mutual funds, up from 9.5% at the start of the year. In addition to winning new mandates, a number of institutional clients have transferred assets from discretionary portfolios to fund investments. This offers advantages in terms of flexibility and efficiency for both the customer and the asset Management Company.
New mandate from the Norwegian Government Petroleum Fund Storebrand Investments is to become the first Norwegian fund manager to apply tactical asset allocation to the management of assets for the Norwegian Government Petroleum Fund. Storebrand won this mandate in competition with a number of other Norwegian and international fund managers. This is a relatively new product in the Norwegian market, although Storebrand Investments asset allocation team has carried out management assignments for internal and external clients over a number of years.
The Norwegian central bank, Norges Bank, decided to discontinue the European equity mandate that Storebrand Kapitalforvaltning has managed for three years.
Internationally competitive products FINAMA, one of the largest insurance companies in France, has agreed to distribute a fund managed by Storebrand Investments in accordance with environmental and social criteria. The fund was launched in October 2001, and had total assets of NOK 180 million by year-end.
In competition with a number of international SRI fund managers, Storebrand won an assignment from New Zealand’s largest insurance company, Tower, to carry out a social and environmental analysis of the Tower Australian Ethical Fund. The fund has around NOK 270 million of assets under management. Storebrand manages the Tower Global Responsibility Fund, which was launched in autumn 2001, and this fund had total assets of NOK 110 million at year-end.
Storebrand achieved a breakthrough in the Swedish market for its Private Equity investment products in 2001. The Storebrand International Private Equity (SIPE III) fund attracted SEK 90 million by the close of its subscription period in September 2001.
Earnings and profitability Storebrand Investments reports a pre-tax group profit of NOK 14 million for 2001 as compared to NOK 67 million for 2000. The falls seen in equity
markets, both in Norway and globally, affected the activities and profits of both Storebrand Kapitalforvaltning ASA and Storebrand Fondene AS in 2001. Several years of strong growth in private savings inflows to equity funds came to a halt in early 2001. The equity fund market as a whole saw a net outflow of NOK 1 billion in 2001.
Cost saving measures were introduced early in 2001 in response to the challenge of slower growth in funds under management and lower commission income from equity fund management. These measures ensured zero growth in total costs for 2001. Average annual growth in costs for the period 1997 to 2000 was 18%.
The performance of the international equity portfolio was affected by a greater deterioration in global economic conditions than expected. The variation in performance between the international sub-portfolios is largely due to individual shareholdings, with the European portfolio suffering from some poor choices of company whilst the Asia portfolio succeeded in picking good shares that more than offset the negative effect of an overweight position in growth shares. The North-American portfolio is broadly based and is more closely matched to the reference index.
*) The "relative to index" column shows the manager's performance relative to the relevant benchmark index
In addition the bank operates a customer call centre employing 40 financial advisers and provides a leading Internet banking service.
Storebrand Bank will offer this customer group a broad range of high quality financial products and services through personal contact, the Internet and over the telephone.
Its activities are based on offering financial advice to cater for a customer's total financial situation rather than seeking to sell specific products. The bank's target is to be the main relationship its customers use for all financial products and services, and it will achieve this by offering first class advice, direct services and a customer-oriented product range.
Comprehensive advice Storebrand Bank’s financial advisers spearhead its activities. The Advisory Bank concept reflects a number of marked international trends: ■ Close and long-term customer relationships, with a nominated personal financial adviser playing a central role.
■ Independent financial advice delivered by well-qualified advisers who are kept up-to-date by systematic training and coaching.
■ A broad range of products, including products from third parties in certain areas such as mutual funds.
Customised solutions Storebrand Bank’s financial advisers use their extensive expertise to provide customers with advice and product recommendations suited to their particular personal needs, and they are supported in this by a specially developed financial advice system. A structured financial advice consultation is used to identify the customer’s needs by reviewing both the current financial situation and future plans. This allows the adviser to identify what is needed if the customer is to achieve his or her future objectives. The customer can then see where worthwhile changes can be made to current financial arrangements. For most customers this is best done through a faceto -face meeting.
Focus on expertise Mutual confidence is the key factor in building good customer relationships, and Storebrand Bank supports this process by providing professional training for its financial advisers.
Customer loyalty programs Our objective is for customers to use Storebrand Bank as their main relationship for financial products and services. This is clearly beneficial for customers since it gives them a better overview and control of their own finances, as well as access to advantageous prices and services. It also helps our financial advisers by giving a better basis for fully comprehensive personalised advice. In order to encourage customers to make the greatest possible use of Storebrand Bank we have developed a number of customer loyalty programs: ■ Storebrand Partner is an exclusive program offered to our best customers. Membership of the Partner program offers the most comprehensive level of financial advice (including a detailed personal financial plan) with access to a nominated financial adviser and regular follow-up meetings. ■ The Storebrand Advantage package is automatically provided to customers with a Storebrand account and two other products or policies, and offers free banking transactions.
Main features of 2001 ■ Loss for the year of NOK 11.1 million as compared to profit of NOK 38.0 million in 2000 ■ Storebrand Bank strengthened its market position for mutual funds, unit linked, personal risk and structured products ■ The components of the Advisory Bank concept are largely in place. The business model will be continuously reviewed to improve profitability. ■ Results for 2001 were burdened by weak conditions in the financial markets, reduced product sales and a write-down of the investment in Acta. ■ Extensive program of improvement underway, with particular focus on sales and operational efficiency.
Organisational structure Storebrand Bank AS is a wholly owned subsidiary of Storebrand ASA. The Storebrand Bank group comprises Storebrand Bank AS, its subsidiary Storebrand Finans AS and a 50% interest in Bertel O. Steen Finans AS. The business of Storebrand Finans was sold to Aktiv Kapital ASA for NOK 175 million with accounting effect from 31 December 2001. Bertel O. Steen Finans AS offers financing through the Bertel O. Steen network of car dealers.
Storebrand Bank is responsible for all the functions of the Storebrand group in respect of advisory services, distribution and customer service for sales of savings, banking and insurance products to the retail market and particularly to affluent customers. In addition Storebrand Bank distributes certain products from third-party suppliers.
Non-interest income principally comprises commission income from distribution of life insurance products and products linked to equity and securities funds. The reduction in non-interest income was caused by lower product sales and a drop in the value of assets under management.
The higher level of operating expenses reflects increased staff costs and higher premises rental costs. These increases were offset to some extent by lower commission payments as a result of lower sales. Other operating expenses include a provision for restructuring costs of NOK 20 million. The year's results are also burdened by a write-down of NOK 54.1 million on the investment in Acta. Storebrand Bank's investment in Storebrand Finans was written down by NOK 72.4 million at year-end.
The Advisory Bank concept offers major potential Storebrand Bank's distribution is based on a multi-channel strategy with close integration between financial advisers based at local financial
Net interest income 209.7 208.1 Non-interest income 371.7 362.6 Operating expenses 603.4 564.0
Customer deposits 6 480 5 666 Commercial paper/bonds debt. 4 848 3 799 Lending 11 038 9 157 Primary capital 634 671 Total assets 12 785 11 310 Capital ratio 10.44 % 12.50 %
centres, the central customer call centre and Internet banking. Sales of long-term savings and personal risk products are principally made through the bank’s local financial advisers. Financial advice also plays a central role in sales through the other two distribution channels.
The content of the Advisory Bank concept is largely in place. The main challenge is now to fully implement this strategy in order to realise the potential offered by the investment made in recent years. The bank will continually monitor and adjust this business model to ensure costeffective distribution and improve profitability.
The need to improve profitability became particularly apparent in 2001. An extensive process of business improvement was introduced throughout the entire organisation in the second half of the year. A total of 130 measures to improve profitability were identified, involving both cost savings and income improvement. These measures form part of the bank's action plan for 2002. In addition the bank has reorganised its activities with increased focus on sales and cost-efficient operations. Staffing will be reduced by the equivalent of 53 full-time positions in 2002. These changes will mostly affect the back-office support function, and do not affect the bank's local financial advisers. These measures will have an ongoing annual benefit of NOK 104 million, whilst the benefit realised in 2002 will be NOK 78 million.
Following the sale of the business of Storebrand Finans, the Storebrand Bank group is now fully focused on the core activities represented by the Advisory Bank concept. The bank expects to report a profit for 2002, which will make this the first year to show a profit from core activities. This is somewhat later than was originally envisaged when the bank was launched in 1996. The continuing development of the bank's strategy involving major investment in the Advisory Bank concept, combined with difficult financial market conditions in 2001, held back profitability last year. The investments made have been fully expensed as part of the bank's normal operations.
Storebrand Bank’s policy is to operate with a prudent capital ratio that is at all times in excess of the minimum requirements stipulated by the authorities.
Finansbanken Since it was first incorporated in 1986, Finansbanken has been a specialist bank concentrating on high net worth individuals and selected segments of the corporate market. The bank has now refined its strategy by establishing two independent business units: Finansbanken and Finansbanken Forvaltning, a private banking service. Finansbanken offers specialist expertise for project financing, principally for real estate developments, while
Finansbanken has developed a leading position over the years for financing real estate projects and securities trading. The bank has carried out a thorough review of the shipping portfolio, and is currently restructuring this business area. Finansbanken is recognised for it’s expertise in project financing, and its customers particularly appreciate the short lines of communication and rapid decision-making that characterise its commitment to relationship banking.
Synergies between the two business areas are assured through co-operation on shared operating procedures, corporate culture and corporate values. This ensures that all customers receive efficient, personalised service in all their contacts with
Finansbanken has developed and will maintain a leading position within project finance.
Finansbanken offers private banking as a service for private customers who have wealth and investments of a scale or complexity that makes it advantageous for them to collaborate closely with professional advisers and asset managers.
A lasting personal relationship between the customer and adviser is central to the concept of private banking. The close relationship and personal attention we offer ensures that customers gain maximum benefit from our expertise. Our private banking services are characterised by discretion and flexibility, with products and advice that match the individual customer’s requirements.
Finansbanken Forvaltning aims to attract wealthy private individuals, business owners and senior executives as its customers. Particular attention is paid to entrepreneurs, partners in professional practices, inherited wealth, professional sportsmen and professional artistes. In addition trusts and foundations make up a certain portion of our customer base.
The managers responsible for private banking clients draw upon the combined expertise of Finansbanken and its business partners. Customers typically look to the bank for advice on areas such as portfolio management, taxation and inheritance planning.
Particular attention is paid to ensuring that the staff involved in private banking offer a high level of expertise. Finansbanken arranges an in-house training programme for all account managers with assistance from external advisers. The skills of the account managers in understanding individual customer requirements and building longterm relationships are also very important.
Increasing numbers of wealthy individuals now recognise the value of using professional assistance to manage and protect their financial wealth. We are committed to creating lasting value for our customers, and as part of our advisory concept we offer asset management services to take responsibility for the long-term management of a customer’s entire portfolio
Skilful and attentive customer service and respect for our customers are values that every customer can expect from Finansbanken. We set high standards for ourselves and for our customers - becoming a customer of Finansbanken is the only way to fully appreciate the advantages that we can offer.
Private Banking: 0.2% of the adult population controls 25% of financial assets.
■ Lending stable in total, with growth in real estate lending and securities financing. ■ Private Banking now fully operational as a separate unit.
The difficult conditions seen in financial markets caused a reduction in non-interest income as a proportion of total income from 28.7% in 2000 to 23.7% in 2001.
The Group had 223 (196) employees at yearend, representing 208.8 (191.7) full-time equivalent positions.
Non-interest income was lower in 2001 at NOK 139.1 million (NOK 161.7 million). Turbulent conditions in the financial markets caused a reduction in sales of savings and mutual fund products. Net gains on securities and foreign exchange for the parent bank contributed NOK 29.5 million (NOK 17.7 million), with customer foreign exchange trading accounting for the majority. Net income from commissions and banking fees contributed NOK 21.9 million (NOK 15.7 million). The bank's subsidiaries Delphi Forvaltning AS, Finansbanken Index ASA and Finansbanken A/S (Denmark) accounted for the balance of non-interest income. Finansbanken Index ASA reported non-interest income before consolidation of NOK 20.8 million (NOK 45.4 million), Delphi Forvaltning AS reported NOK 38.1 million (NOK 74.1 million) and Finansbanken A/S (Denmark) reported NOK 30.7 million (NOK 15.2 million - consolidated from 30 June 2000).
Operating expenses amounted to NOK 357.9 million (NOK 250.1 million) equivalent to 1.77% of average total assets or 61.1% of total operating income (44.0% for the parent bank). A provision of NOK 5 million was charged to profit and loss
Net interest income 447 401 329 Non-interest income 139 162 40 Total income 586 563 369 Operating expenses -358 -250 -129
Profit before loan losses and provisions 228 313 240 Loan losses and provisions -302 -295 -72
for the costs involved in closing the bank's branch in Bergen. The balance of the increase in costs principally arose as a result of the consolidation of Finansbanken A/S (Denmark) from 30 June 2000 and the incorporation of Private Banking as a separate unit. The bank made significant investments in 2001 in areas such as technology and staffing in order to establish a strong platform for the future growth of its Private Banking activities. The bank also incurred non-recurring costs in connection with the conversion of its core banking systems from Novit to EDB Fellesdata as a result of the merger of the two suppliers involved.
Total assets were stable throughout the year, with a small reduction towards the end of the year as a result of lower loan volumes. The ratio of deposits to lending was 43%, and the bank aims to increase this in the long term to 50%, partly through increased customer deposits in the Private Banking area. The bank has a well-balanced funding structure, based on customer deposits, the issue of securities, money market borrowings in Norway and deposits from the international interbank market. Total assets at the close of 2001 amounted to NOK 19,703 million (NOK 20,097 million).
Non-performing loans, loan losses and assets repossessed Gross non-performing and problem loans at the end of 2001 amounted to NOK 1,666 million (NOK 1,400 million) of which NOK 435 million (NOK 559 million) represents loans where interest income is no longer accrued. Net nonperforming and problem loans amounted to NOK 1,344 million (NOK 1,114 million) after specific loan loss provisions of NOK 322 million, equivalent to 7.76% of gross lending.
The bank carried out a comprehensive review of its shipping portfolio in autumn 2000 and spring 2001. This resulted in significant increases in loan loss provisions in both the fourth quarter of 2000 and the second quarter of 2001, and the bank established a new, more focused strategy for this area. A separate committee was established to monitor the shipping portfolio, and the bank worked throughout 2001 to reduce its exposure to specific segments of the shipping market. This resulted in a significant reduction in exposure, and the shipping loan portfolio reduced from 24.7% of total gross lending to 18.7% over the course of 2001.
Financial institutions 4 051 4 051 2 597 Deposits from and due to customers 7 421 8 381 5 603 Securities issued 5 588 5 210 3 932 Other liabilities 733 679 418 Subordinated loan 544 543 344 Equity 1 366 1 233 1 035
provisions at the end of 2001 were accordingly NOK 304.6 million (NOK 168.1 million) equivalent to 1.76 % (0.99 %) of gross lending.
Group information and subsidiaries Delphi Forvaltning AS, a 100% owned subsidiary of Finansbanken ASA, entered into an agreement in December 2001 to sell its subsidiary Delphi
Fondsforvaltning ASA to Storebrand Fondene for NOK 35,3 million plus share capital at 31 December 2001. This transaction was carried out to realise the synergies offered by combining these two asset management operations to fulfil a joint product and development role for the Storebrand group. The sale takes accounting effect from 1 January 2002. Delphi Fondsforvaltning accounted for 3.8% of the Group's total operating income in 2001.
Main features of 2001 ■ Operating loss of NOK 767 million as compared to a loss of NOK 72 million in 2000 ■ Weak results at If Skadeförsäkring AB (If) due to a deterioration in underwriting result and lower financial income in line with conditions in the financial markets ■ Sampo’s non-life insurance business (Sampo Skade) merged with If from 2 January 2002. ■ Pro forma operating result for 2001, including Sampo Skade in the results reported by If, shows a loss of NOK 445 million. This is NOK 322 million better than the operating loss reported in Storebrand’s accounts for 2001.
Sampo’s non-life insurance activities were merged into If with effect from 2 January 2002.
Fair Financial Ireland Ltd. has a 100 % shareholding in the Danish company Fair Forsikring AS. This company operates a non-life insurance business for the retail market in Denmark. The company was incorporated in November 1998. Fair has built up a visible presence in the Danish market over a relatively short time, and is growing strongly.
Europeiske Reiseforsikring AS transferred its entire travel insurance business to If when it was incorporated in 1999. The company was merged into Storebrand Skade in 2001, and ceased to exist as a separate company in 2001.
Financial review Non-life insurance activities reported a loss of NOK 566 million in 2001 as compared to a profit of NOK 106 million in the previous year. The year produced an operating loss of NOK 767 million as compared to an operating loss of NOK 72 million in 2000. The weak results are principally due to the deterioration reported by If. Storebrand Skade held a 44% interest in If in 2000 and 2001, and this is recognised in the accounts in accordance with the equity method of accounting.
The addition of Sampo’s non-insurance business will change If significantly. Pro forma figures for the merged business have therefore been prepared for 2001. Storebrand’s share in the pro forma operating result for 2001, based on its revised 22.47% interest, would have been a loss of NOK 445 million. This is NOK 322 million better than the share of operating result recognised in 2001.
If’s results for 2001 were affected by increased claims and a weak financial return in line with the conditions in financial markets. If reported an operating loss of SEK 2,572 million in 2001, representing a deterioration of SEK 1,763 million from 2000. The underwriting result was weaker despite significant increases in premiums. This was largely due to increased claims for motor insurance in Sweden, water damage in Norway and a number of large single claims from industrial and marine insurance lines. The combined ratio was 115.3%, up from 111.2% in 2000. This deterioration is explained by the claims ratio, which weakened by 5.5 percentage points in 2001. The cost ratio improved from 24.4% in 2000 to 23.0% in 2001. In connection with the Sampo agreement, If made transfers to reserves and recognised restructuring costs in the fourth quarter that burdened the combined ratio by 2.6 percentage points. The adjusted combined ratio was 112.7%. If’s investment return in 2001 was 2.5%, down from 3.6% in 2000.
Sampo Skade reported a significantly better technical result than If for 2001. The pro forma combined ratio for the merged activities would have been 113.0%, of which Sampo’s combined ratio was 106.7%.
Oslo Re reported break even in 2001 as compared to a profit of NOK 96 million in 2000. This was largely due to a greater number of income-creating policy commutations in 2000 than was the case in 2001. The company again agreed to commute some policies in 2001 with a view to reducing its exposure to insurance risk. Total technical reserves were reduced by NOK 188 million to stand at NOK 631 million at the close of 2001.
A tax charge was incurred for the year despite the loss before tax. This is because the recognition of operating profit in accordance with the equity method is on a post-tax basis. After adjusting for the effect of the equity method, the effective tax rate for non-life activities was close to 28%.
Storebrand Skadeforsikring AS -383 -705 -132 Oslo Reinsurance Company AS 0 0 96
Non-life insurance operating profit -445 -767 -72 Change insecurity reserve etc. 280 280 336
***) Inc. launch costs. Figures exc. launch costs in second quarter of 2000 were: Cost ratio 23.4% and Combined ratio 110.2%.
Share capital and shares Storebrand ASA’s share capital at the start of 2001 was NOK 1,387.7 million. Following a new issue of shares for employees of NOK 665,000 in December 2001, share capital at 31 December 2001 amounted to NOK 1,388,401,610 made up of 277,680,322 shares each of nominal value NOK 5.
Share purchase arrangements for employees Annual General Meetings of Storebrand ASA have since 1996 empowered the Board to increase the company's share capital to permit shares to be issued to employees of the Storebrand Group. This is intended to involve the employees more closely in value creation in the company. On 25 April 2001 the Annual General Meeting granted the Board a one-year mandated to increase the company's share capital by up to two million shares, each of nominal value NOK 5.
Foreign ownership The EEA Agreement provides for Norwegian and foreign investors to have equal rights to purchase shares. As at 31 December 2001 total foreign ownership amounted to 37.1% as compared to 38.6% at the end of 2000.
Shareholders No single investor is permitted, without the approval of the authorities, to hold more than 10% of the shares in a Norwegian financial institution. The Norwegian regulations on ownership restrictions are expected to be revised and harmonised with EEA legislation during the course of 2002.
nes and guidelines satisfy the formal requirements imposed by the authorities on securities trading. The company has its own compliance system.
Investor relations Storebrand wishes to maintain and further develop the company’s good contacts with all participants in the national and international capital markets. The company has a separate Investor Relations function within its finance department. This function is responsible for establishing and co-ordinating contact between the company and external connections, such as analysts, the stock exchange, shareholders and investors.
Internet Storebrand publishes its quarterly reports, press releases and presentations to analysts on its web pages at
Shareholders’ contact with the company Shareholders should generally contact the administrator of their own share account with queries and notice of changes such as, for example, a new address. In addition, Storebrand’s own shareholders ’ office, Telephone: +47 22 31 26 20, can provide guidance and information.
RISK adjustment The following paragraph is not included in the original Norwegian Annual Report and is included here by way of explanation for the international reader: There are particular rules for shareholders resident in Norway relating to the taxable gain or loss on the sale of shares. When shares in Storebrand ASA are sold by shareholders resident in Norway the acquisition price has to be adjusted by a so-called RISK amount when calculating the taxable gain or loss. The RISK amount is calculated annually and is related to the change in retained capital for the year. Foreign shareholders are subject to the tax regulations of their own domicile and are not affected by the Norwegian RISK regulations.
The information provided in the Norwegian Annual Report for the purposes of shareholders resident in Norway is as follows: The general RISK amounts for shares in Storebrand ASA have been set as follows: On a sale of shares, the opening value/purchase price of the shares will be adjusted by the total of the RISK amounts during the period of ownership. The general RISK amount at 1 January 2002 is estimated as NOK 0,02 per share.
International Accounting Standards (IAS) Storebrand expects that Norwegian publicly listed companies will have to present group accounts in compliance with the IAS International Accounting Standards from year 2005. The final formation of IAS is not decided, but it is expected that the accounting standard will change the accounting of insurance contracts and financial instruments.
Skandia Life Insurance SWE 27,698,330 9.97 Folketrygdfondet NOR 27,671,600 9.97 Orkla ASA NOR 27,648,956 9.96 DnB Markets NOR 27,538,638 9.92 Steen & Strøm Invest NOR 17,500,000 6.30 JP Morgan Chase Bank (NOM) GBR 14,381,516 5.18 Canica AS NOR 10,000,000 3.60 Bankers Trust Company (NOM) USA 8,012,320 2.89 Nordstjernen Holding NOR 7,410,400 2.67 Ferd AS NOR 7,101,895 2.56 Bank of New York CYM 6,204,450 2.23 Euroclear Bank S.A. (NOM) BEL 5,921,780 2.13 Morgan Stanley & Co. (NOM) GBR 5,081,981 1.83 Bank of New York USA 4,800,000 1.73 State Street Bank & Co. (NOM) USA 4,635,726 1.67 Gjensidige NOR Spareforsikring NOR 2,541,208 0.92 JP Morgan Chase Bank (NOM) GBR 1,844,890 0.66 Deutsche Bank AG (NOM) DEU 1,820,124 0.66 Verdipapirfondet Avanse NOR 1,633,965 0.59 Deutsche Bank AG, London GBR 1,582,408 0.57
Loss on sale of securities -20.8 -17.4 -46.3 Unrealised loss on securities -143.4 Write-down of other financial assets -174.9 Other financial expenses -10.2 -2.4 -14.3
Group contribution to subsidiaries (net) -338.8 Dividends received from subsidiaries 470.5 Provision for dividend payment -305.3 -277.4
Total equity capital and liabilities 11 173.6 11 599.1 10 092.0
Insurance claims for own account -9 647.2 -10 326.5 -7 791.5 Change in insurance reserves - life insurance -2 115.8 -1 821.5 -6 499.7 Interest and related expense - banking 20 -2 047.8 -1 691.3 -675.7
Changes in security reserve etc. - non life insurance 278.8 335.7 154.3 Profit on sale of non-life insurance business 3 230.0
Extraordinary revaluation of real estate - life insurance 234.1 Extraordinary allocation to policyholders - life insurance -152.0
Earnings per ordinary share -4.15 1.67 12.23 Earnings per ordinary share excluding extraordinary items 3.54
Premium and claims reserve - non life insurance 608.3 747.5 809.5 Security reserve etc. - non life insurance 508.0 779.1 1 112.5
Liabilities to other financial institutions 35 4 350.7 4 280.5 3 116.8 Deposits from and due to customers 35 13 900.2 14 047.0 10 759.3
Interest, commission and fees received from customers 1 317.2 2 528.2 1 572.9 Interest, commission and fees paid to customers -42.6 -1 371.6 -726.6 Payments to third parties for goods and services -44.0 -24.9 333.7 -2 377.1 -650.8 -1 198.0 Payments to employees, pensioners, employment taxes etc. -146.3 -218.9 -435.3 -1 127.0 -1 235.8 -2 498.2
Deposits from Norges Bank and other financial institutions 23 451.0 18 732.7 662.5 Repayment of deposits from Norges Bank and other financial institutions -23 395.4 -17 569.0 -125.0 Repayment of long term lending -130.7 -1 004.9 -130.7 -192.6 -130.7 -130.7 Receipts from taking up term loans 500.0 932.9 732.5 1 040.6 932.9 Receipts from issue of certificates/short term loans 5 338.6 4 417.3 0.6 Repayment of certificates/short term loans -5 787.9 -1 750.0 Receipts from subordinated loan capital 86.5 198.5 1 238.9 Repayment of subordinated loans -703.1 -78.3 Receipts from issue of bond loans and other long term funding 906.4 1 113.8 965.5 Repayment of bond loans and other long term funding 910.3 -1.0 -121.4 Receipts from issue of new capital 5.8 5.8 14.6 227.8 283.6 Receipts from issue of other capital 197.1 0.2 Payments on redemption of share capital - Dividend payments -644.1 -277.4 - -644.1 -277.4 Receipts/payments of group contribution/dividend 2 598.7 1 589.7 820.6 1 653.5
Net cash flow from financing activities 2 329.7 313.2 1 637.4 2 979.2 8 358.3 4 497.7
Net movement in cash and cash equivalent assets -7.2 -197.4 139.2 -827.5 1 709.4 -1 887.9 Cash and cash equivalent assets at start of the period for new companies 331.9 Cash and cash equivalent assets at start of the period 129.0 326.4 187.2 4 849.3 3 226.2 4 782.2
Control Committee's Statement - 2001 The Control Committee of Storebrand ASA has reviewed the Board of Directors' proposed Annual Report and Accounts for 2001 for the Storebrand Group.
The Board of Representatives raises no objections to the Board's proposal regarding the allocation of the result for the year of Storebrand ASA.
Storebrand Livsforsikring Group Profit and Loss Account 1 January - 31 December
Sales costs (insurance) -248.0 -304.7 -298.6 Insurance related administration costs -503.9 -479.9 -456.7
Expenses arising from financial assets -17 465.6 -20 588.3 -7 943.7 - of which operating expenses -123.2 -144.9 -140.3
To/from market value adjustment reserve 2 154.2 5 598.2 -5 868.4
Transfer from additional statutory reserves in the policyholders' fund to meet the interest guarantee shortfall 407.6
Shares and other equity investments 22 060.4 35 180.3 37 255.8 Bonds and other securities - fixed yield 28 102.4 28 043.5 33 123.4
Prepaid expenses and accrued income 1 727.4 1 333.4 1 522.8
Total insurance related reserves for own account 99 326.0 100 576.6 97 616.6
Note 35: Analysis of deposits from customers and liabilities to other financial institutions 73
The Annual Accounts of the Storebrand Group for 2001 have been prepared in accordance with the Accounting Act and regulations for the annual accounts of insurance companies, asset management companies and banks.
The Banking, Insurance and Securities Commission has issued regulations in respect of the production of consolidated accounts which include life insurance companies. Consolidated profit for the year includes only that part of the life company’s profits which is due to shareholders.
Approval by the authorities for purchases of subsidiaries Financial institutions require approval from the authorities when they purchase other companies. Such new subsidiaries are not normally consolidated until such time as the required licence is granted, but the recognition of surplus value and its application is carried out with effect from the date of the transaction.
Profit and loss recognised in the company acquired in the period between the date of the transaction and the date the licence is granted is applied directly to the group’s capital.
Minority interests In the profit and loss account, the minority interests’ share of the profit after tax is stated. This means that all items in the profit and loss account include minority interests.
Deferred tax The tax charge in the profit and loss account consists of tax payable and deferred tax/tax assets.
Net deferred tax assets are recorded in the balance sheet to the extent that it is considered likely that it will be possible to make use of the benefit they represent at some future date.
Prepaid pension is the difference between the actual value of the pension funds and the present value of estimated pension liabilities, and is booked as a longterm asset in the balance sheet. Correspondingly a longterm liability arises in the accounts when the pension liability is greater than the pension funds. A distinction is made between insured and uninsured schemes. The uninsured scheme will always be entered as a liability since it does not have a pension fund.
The effects of changes in assumptions, deviations between calculated and estimated pension liabilities and the difference between the expected and actual return achieved on pension funds are charged to profit and loss over the remaining period for pension accrual or the expected remaining life once the cumulative effect exceeds 10% of the higher of either the pension liability or pension funds at the start of the year (the ‘corridor approach’).
Properties and real estate are valued at market value in the accounts. Market value is assessed for the purposes of the annual accounts, and any changes in valuation are recognised to profit and loss.
Other Certain properties are owned via Norwegian partnerships. These are treated in the accounts in the same manner as other properties and are included under the same items in the accounts.
Loans Loans advanced are carried at nominal values in the balance sheet, reduced by provisions for losses calculated in accordance with the Banking, Insurance and Securities Commission’s regulations.
Arrangement of long term funding The direct costs involved in taking up long term funding are capitalised and are amortised to the next interest fixing date or maturity. Premiums/discounts on the issue of debt are recognised as income/expense by adjusting the interest expense of the bond issued over the period to maturity or the next interest fixing date. Holdings of own bonds are netted against bond loan indebtedness. Losses or gains arising as a result of the purchase or sale of own bonds in the secondary market are treated in the same way as premium/discounts on issue.
The book value of such shares is the cost price, and write-downs are made on an individual basis if these are not due to reasons which are temporary or of an insignificant nature.
In the group’s banking activities, shares held as current assets that are not intended for short-term trading are valued as a single portfolio at the lowest of purchase cost and market value.
Bonds in default are valued in line with the Banking, Insurance and Securities Commission’s guidelines for loans.
Subordinated loans are also hedged through the use of forward foreign exchange transactions. The accounting treatment is the same as that for currency hedging of financial current assets. In addition subordinated loans which have interest rates fixed for long periods are hedged against interest rate movements through interest rate swaps. The market value surplus to the interest accrued on interest rate swaps used to hedge a subordinated loan is not capitalised in the accounts, nor is any premium or discount on the subordinated loan.
Interest rate swaps Interest income and expense arising from interest rate swaps is accrued continuously. Where interest rate swaps are not used exclusively for hedging purposes, unrealised gains and losses are recognised to profit and loss at the balance sheet date.
Forward foreign exchange contracts Forward foreign exchange contracts are principally used to hedge holdings of securities, other financial instruments and insurance related entries. As part of the accounting recognition of hedging transactions, forward foreign exchange contracts entered into for hedging purposes are valued at market price in the financial accounts, and unrealised gains or losses are taken to profit and loss.
Liquid assets, receivables and liabilities are converted at the exchange rate prevailing on the date of the balance sheet.
Storebrand Livsforsikring AS 642.8 Storebrand Fondene AS 31.0 11.0 Storebrand Kapitalforvaltning ASA 37.0 15.1 Finansbanken ASA 120.0 AS Værdalsbruket
In addition employers' social security contributions in respect of the uninsured scheme totalling NOK 0.6 million were charged to profit and loss in 2001
Pension funds at market value 2 396.1 2 396.1 2 427.5 298.8
Net liability in the balance sheet 479.6 -237.7 -86.4 155.5 73.8 -135.4
Chief Executive Officer Ordinary remuneration 2 636 2 508 2 039 Other taxable benefits 125 117 371 Pension cost 223 157 873
Registered Share No. of Par value Interest Book NOK million office capital shares (1.000) NOK in % value
*) The Control Committee covers all the Norwegian companies in the group which are required to have a Control Committee, except for Storebrand Bank AS, Finansbanken ASA and Oslo Reinsurance Company ASA which have their own Control Committees.
*) Storebrand ASA has sufficient tax losses to carry forward to fully offset its tax liability, see note 11.
Share Par value No. of Interest Acquisition Market NOK million capital (NOK) shares cost value
International shares and fund units Vovi-Beteilungs (Neiv) (Germany) 13 7.5 7.4
International fund units Esg Partners (Bermuda) L.P. 100 2.7 2.7 Head Insurance Investors L.P. 91 36.4 29.3
Subordinated loan Storebrand ASA has granted a subordinated loan to Fair Financial Ireland plc. of DKK 117 million. Interest is charged on the loan at 12%.
Nominal volume Credit Acqui- Market Gross Average Net equivalent sition value
Disposals at acquisition cost -18.4 -18.4 Aggregate depreciation and write-downs at 31.12. -0.7 -375.0 -375.7
New share capital (employee issue) 0.7 0.6 1.4 Write down of share capital 0.7 0.6 1.4
Share capital 31.12. (277,680,322 shares of NOK 5) 1 388.4 1 387.7 1 387.1
Applied to balance sheet 396.4 Balance sheet basis for calculation 620.2
Storebrand ASA (drawn down in June 1993) 1 800.0 NOK 8.5% 2003
20 largest shareholders Skandia Livsforsikring 9.97 Folketrygdfondet 9.97 Orkla ASA 9.96 DnB Markets 9.92 Steen & Strøm Invest 6.3 JP Morgan Chase Bank 5.84 Canica AS 3.6 Bankers Trust Company 2.89 Nordstjernen Holding AS 2.67
Ferd AS 2.56 Bank of New York 3.96 Euroclear Bank S.A./N.V. 2.13 Morgan Stanley & Co. 1.83 State Street Bank & Co. 1.67 Gjensidige Nor Spareforsikring 0.92 Deutsche Bank AG 1.23 Avanse 0.59
**) A number of senior employees are contractually entitled to performance related bonuses. A new bonus system was introduced for the group in 2001. It is intended that this system will extend to all employees by the end of 2002. The central feature of the new system is that bonus payments are related to the group's value-based management system.
***) Idar Kreutzer became entitled upon appointment to his current position to a bonus scheme in respect of 500,000 units representing the difference between the actual share price at a future date and the allocation price. The allocation price was fixed by reference to the average share price over the week before the bonus was awarded (NOK 59.33) and will be increased by 10% annually less the effect of any dividend. The bonus may be exercised no earlier than 1 January 2004 and no later than 31 December 2004, and will be taxed as salary.
****) AN = Level payment loan, SE - Instalment loan, final payment *****) Acting Managing Director of Finansbanken ASA 01.08.01-31.01.02. Per Kumle was appointed Managing Director on 01.02.2002.
The Storebrand group operates a cash bonus scheme for senior management which is linked to the price of the Storebrand share. The bonus falls due for payment between two and three years from the date it is granted, and takes the form of cash settlement equivalent to the difference between the market price of the Storebrand share and the allocation price of NOK 60.
No. of employees at 31.12. 35 No. of full time equivalent positions at 31.12. 34 Average No. of employees 50
Wenche Meldahl 0 Brit Seim Jahre 0 Svein Rennemo 0 Tore Lindholt 156 Anders Renolen 0 Johan H. Andresen jr. 0 Per Alm Knudsen 325 Tor Haugom 180 Inger Lise Gjørv 0 Pål Ersvik 0 Inger Anne Strand 423 Per Ivar Laneskog 0 Alf Bruun 860 May Molderhauer 115 Paul Eggen jr. 860 Margareth Øvrum 0 Astrid Olive Aanerud 115 Jostein Lindgren 0
Balance sheet items: Long term debt within the group 196.0 328.7 457.4 Long-term intra-group receivables 15.0 Net accounts payable and receivable (short-term, inc. group contribution) 1 095.0 1 492.5 1 588.9
Figures for Finansbanken include Storebrand ASA's depreciation of goodwill. Non-life insurance includes Fair Forsikring. Other includes Storebrand ASA. Other costs-life insurance relates to changes in the market adjustment reserve and funds allocated to policyholders.
Income from group and associated companies 7.7 4.5 11.0 -761.6 -283.8 11.0 Income from properties and real estate 942.2 858.9 772.9 943.1 864.0 772.9
Reversal of valuation adjustments - shares 23.0 1.2 30.8 1.2 Reversal of valuation adjustments - interest bearing instruments 0.7 3.6 0.9 0.7 31.5 0.9 Gains on sale of shares 9 976.4 13 748.2 8 160.2 10 077.6 14 381.7 8 167.4 Gains on sale of fixed-income securities 2 504.4 4 054.1 3 588.6 2 547.9 4 067.6 3 589.8
Unrealised gains on fixed-income securities -1 539.4 47.0 9.7 -1 539.1
Total income from financial assets 18 903.4 23 953.8 23 119.7 18 510.9 24 667.2 23 560.9
Interest and related income on loans to and deposits with credit institutions 5.5 2.4 4.3 41.3 59.1 -4.9 46.8 61.5 -0.6 Interest and related income on loans to and claims on customers 805.8 563.1 438.2 1 456.6 1 238.1 407.6 2 262.4 1 801.2 845.8 Interest and related income from certificates, bonds and other interest bearing securities 82.6 56.8 52.9 109.7 95.8 19.2 192.3 152.6 72.1 Other interest and related income 164.6 254.2 6.0 5.0 0.7 0.1 169.6 254.9 6.1
Total interest and related income 1 058.5 876.5 501.4 1 612.6 1 393.7 422.0 2 671.1 2 270.2 923.4
Total interest and related expense -882.5 -698.7 -394.5 -1 165.3 -992.6 -281.2 -2 047.8 -1 691.3 -675.7
Net interest and commission income 176.0 177.8 106.9 447.3 401.1 140.8 623.3 578.9 247.7 *) Figures for Finansbanken are from 1 August 1999 to 31 December 1999.
Unrealised loss on interest bearing instruments 118.4 692.3 110.2 692.7 -0.7
Administration costs are included in the line for operating costs in the group accounts and are netted in the group column in the above table. ***) Group figures include Storebrand Fondsforsikring AS, Storebrand Helseforsikring AS, Storebrand Skadeforsikring AS, Euroben, Fair Forsikring and intra-group netting.
Net pensions costs Pension liabilities accrued -51.3 -17.9 -4.1 -73.3 -84.9 -58.8
Calculated liability Shown below is a reconciliation of the estimated pension liabilities, and the pension funds held in respect of these, to the liability booked in the balance sheet: Note 23: Pension expenses and pension liabilities
Social Security Fund's base amount (G) 3.0% – Annual pension increase 2.5%
Pension expense (inc. employers' social security contributions.) 20.1 17.8 6.3 6.2 50.4 52.1 58.3
Other operating costs/recharges 392.1 -179.7 57.1 20.0 289.5 303.0 -346.5 Depreciation 8.4 7.8 22.8 83.6 122.6 132.2 172.6 *) Of which insurance related 751.9 751.9 860.7 769.8 **) Of which costs incurred by subsidiaries 56.2 56.2
Auditors' fees for group companies Audit fees 7.8 Other control functions 1.0 Fees for advisory services 4.2
Storebrand Systemutvikling AS SB ASA 86.9 60.8 -6.4 Aktuar Systemer AS SB Life 1.8 3.5 -1.8 -1.8 -1.8 20 %
Delphi Forvaltning AS Finansbanken -1.1 14 % Delphi Aktiv Forvaltning AS Finansbanken/D 35.3 42.3 -7.0 -6.0 14 %
Market value of pension funds 2 748.2 2 748.2 2 818.0 969.8
Shares and other equity investments (fixed assets) Intre AS 32.7 32.7 Other shares and equity investments (fixed assets) 2.8 2.8
Norwegian banking and finance shares Acta 7 041 388 11.15% 159.5 44.0
Straight line depreciation is applied over the following periods for operating assets: Equipment and inventory: 4 years Motor cars: 6 years Computer systems: 3 years
Ownership structure: Directly owned 4 124.7 Property company (AS) 6 177.0 Property partnership (ANS) 982.8
Market Ave. rent Term of Sq.m. Percentage NOK million value per sq.m. lease let
Purchase cost as at 1 January 10 170.2 679.1 10 849.3 Revaluation for the year 498.3 Previous revaluations 897.6 897.6
Disposals at purchase cost -238.6 -39.8 -278.4 Reclassification Total depreciation and write-downs at 31 December -64.9 -548.8 -613.7
Total shares and other equity investments - international 13 649.5 13 864.0
Nominal volume Financial derivative contracts are related to underlying amounts which are not capitalised in the balance sheet. In order to quantify a derivative position, reference is made to underlying concepts such as nominal principal, nominal volume, etc. Nominal volume is arrived at differently for different classes of derivative, and gives an indication of the size of the position and risk the derivative creates. Gross nominal volume principally indicates the size of the exposure, whilst net nominal volume gives an indication of the risk exposure. However nominal volume is not a measure which necessarily provides a comparison of the risk represented by different types of derivative.
Long positions and short positions A long position in an equity derivative produces a gain in value if the share price increases. For interest rate derivatives, a long position produces a gain if interest rates fall, as is the case for bonds. A long position in a currency derivative produces a gain if the currency strengthens against the NOK. The gap between long and short positions is taken into account in calculating the total net nominal volume, whereas gross total nominal volume takes no account of the result for a particular instrument of a long versus a short position.
Credit equivalent amounts Credit equivalent amounts are intended to give a measure of the credit risk associated with financial derivatives. In general the credit risk is seen as being limited, since either stock exchange listed and cleared contracts or contracts with well known financial institutions are employed. Credit equivalent values represent the weighted volume of currency and interest rate agreements for the purposes of capital adequacy calculations, where gross nominal volume is taken into account.
Not greater than 60% of valuation 1 153.5 6 335.9 5.4 7 494.8 7 240.6 6 902.2
Long Short Net FX fwd. Net position NOK million position position position contracts in currency in NOK
Norben Life and Pension Insurance Co. Ltd. 4.6 37.7 0.4 33.1 1.3 32.7 Bertel & Steen Finans AS -0.5 2.0 -0.6 2.1 -0.4 2.1 Morningstar Norge AS -0.5 2.6 0.3 3.0 E Trade AS -11.6 33.7 -5.7 34.6 Delphi SMB II AS 1.0 1.0 Delphi Asset Management -0.1 -0.3 0.6 If Skadeforsäkring Holding AB *) -769.3 3 042.3 -306.9 3 371.1 5 075.1 *) Share in profit and loss in If was booked directly to equity in 1999.
Opening balance at 1.03.1999 (date of incorporation) 3 626.3 1 245.1 4 871.4 Opening balance at 1.01.2001 2 144.3 1 226.8 3 371.1 Share in profits of If -1 054.7 -1 054.7 Goodwill depreciation -62.4 -62.4 Tax 295.3 52.4 347.7
Salary account holders (private persons) 5 286.6 2 169.1 7 455.7 7 019.7 5 923.6
Loans and deposits from financial institutions on demand or with no fixed maturity date 6.1 6.1 13.8 6.4 Loans and deposits from financial institutions with agreed notice period or fixed maturity date 300.0 4 044.6 4 344.6 4 266.7 3 110.4
Profit for the year -952.0 705.7 3 500.0 Sale of non-life insurance activities 428.7
Storebrand Livsforsikring AS *) 130.0 Finansbanken 29.8 Storebrand Fondforsikring AS 16.1 Storebrand Bank AS 26.6 Oslo Reinsurance Company (UK) 204.1 Others 127.2
Total 533.8 *) In addition the group has unused allowances deductible from tax of NOK 515.0 million, equivalent to losses carried forward of NOK 1,839.4 million. Unused allowances deductible from tax are divided as to NOK 34.6 million for Storebrand ASA, NOK 409.0 million for Storebrand Livsforsikring AS and NOK 71.4 million in Storebrand Bank AS.
Booked directly to balance sheet/items not giving rise to balance sheet entries -548.2 -180.2 -368.0 -606.2
Deferred tax/tax assets in the balance sheet *) 51.4 125.1 176.5 175.6 *) Difference between this and movement in profit arises from items applied directly to the balance sheet and items which do not give rise to balance sheet entries.
Book value of assets pledged as security for loans etc. 1 226.0 1 517.3 1 115.3 Residual commitment to subscribe capital to Ltd. Partnerships 1 200.0 1 562.0
Own Amount Currency Interest rate Currency NOK million company NOK Currency amount in % Maturity gain/loss
Lender/date drawn down Carl Kierulf, SPN Fonds, Oslo Securities (15.01.1992) SB Life 81.2 NOK 81.2 11.15 % 2002 Chase Manhattan Bank, Oslo (01.12.1997) *) SB Life 479.8 NOK 479.8 5.89 % 2007 Citibank, London (24.02.98) */**) SB Life 1 795.2 USD 200.0 5.88 % Perpetual 17.7 Merrill Lynch International **) SB Life 1 079.0 EUR 135.0 5.55 % 2009 37.8 Convertible subordinated loan **) Finansbanken 9.3 8.50 % Perpetual Subordinated loan, 2000-2010 Finansbanken 90.1 USD 10.0 LIBOR + 1.3% 2010 Subordinated loan, 2000-2010 Finansbanken 110.0 NIBOR + 1.3% 2010 Subordinated loan, 1997-2002 Finansbanken 60.0 6m. NIBOR 2002 Subordinated loan, 1997-2002 Finansbanken 40.0 6.30 % 2002 Subordinated loan, 1998-2008 Finansbanken 109.0 6.31 % 2008 Subordinated loan, 1998-2008 Finansbanken 91.0 NIBOR+1.05% 2008 Subordinated loan, 1999-2009 Finansbanken 35.0 7.75 % 2009 *) Option to redeem after 5 years.
SB Life SB Non-life SB Bank Finans- SB ASA Group Group Group
The annual accounts have been prepared in accordance with Norwegian generally accepted accounting principles (N GAAP). The following tables provide a reconciliation between net income and shareholders’ equity in accordance with N GAAP and the same figures as they would be reported in accordance with United States Generally Accepted Accounting Principles (US GAAP) and show where the differences arise. The figures presented apply only to the group’s life insurance activities, which comprise Storebrand Livsforsikring AS, Storebrand Fondsforsikring AS and Euroben Life & Pension Ltd (50 %), which started underwriting new business in 2001.
Effect of estimated adjustments for US GAAP: Contract acquisition costs 1 450.8 1,551.8
Allocation of P&L adjustments to policyholders 886.0 454.8 Market value adjustment for securities 1 054.3 3 334.3 Life insurance policyholders’ share of mark to market - 790.7 -2 500.7 Tax effect of US GAAP adjustments 1 071.2 595.6 Dividends 530.6
Life insurance - shareholders’ equity - US GAAP 4 351.2 4 950.4
Effect of estimated adjustments for US GAAP: Contract acquisition costs -101.0 -11.9 79.7 Real estate -619.3 -238.9 -401.8 Securities 90.7 264.3 -109.9 Allocation of US GAAP differences to policyholders 431.2 -1.7 283.7 Tax effect of US GAAP adjustments 55.5 -3.3 41.5
US GAAP would also apply a minimum allocation of 65% to the differences in profit which arise between N GAAP and US GAAP which are of a timing nature and affect measurement of the profit available for distribution between policyholders and owners. For Euroben and the unit linked activities carried on by Storebrand Fondsforsikring AS these differences are allocated in full to profit and equity. Under US GAAP where “available for sale” investments which are subject to FAS 115 give rise to a difference between market value and amortised cost in the case of interest bearing securities or between market value and historic cost in the case of equities, these differences are booked directly to equity. Norwegian legislation requires that 75% of any such unrealised gains be allocated to policyholders when policies mature or are transferred. The same percentage is used under US GAAP for allocations to policyholders' funds.
Duration: The average remaining term of cash flow on interest bearing financial instruments. Modified duration is calculated on the basis of duration and is an expression of sensitivity to changes in the underlying interest rates.
Tier 2 capital: Tier 2 capital is part of the 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% of Tier 1 capital, whilst subordinated loan capital which is not perpetual cannot exceed 50% 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% for each year.
Group life insurance: Collective life insurance in which an insured sum is payable on death. Such insurance can be extended to cover disability insurance.
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 rests during the year and all fees and commissions.
The term financial derivatives embraces a wide range of financial instruments for which the current value and future price movements are determined by shares, bonds, foreign currencies or traditional financial instruments. Derivatives require less capital than is the case for traditional financial instruments such as shares 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.
Forward foreign exchange contracts: Forward foreign exchange contracts relate to the purchase or sale of a currency for an agreed price at a future date. Foreign exchange forward contracts are used to hedge the currency exposure arising from currency denominated securities, bank deposits, subordinated loans and insurance reserves.
Storebrand Bank AS 100.0 % NOK 125.0 Bertel O. Steen Finans AS 50.0 % NOK 5.0
Storebrand Kapitalforvaltning Holding AS 100.0 % NOK 50.0 Storebrand Kapitalforvaltning ASA 100.0 % NOK 12.0 Storebrand Fondene AS 100.0 % NOK 1.2 Storebrand Luxembourg S.A. 99.8 % EUR 0.1
Storebrand Skadeforsikring AS 100.0 % NOK 1 380.6 Oslo Reinsurance Company ASA 100.0 % NOK 132.0 - Oslo Reinsurance Company (UK) Ltd. 100.0 % GPB 26.0 If Skadeförsäkring Holding AB 44.0 % SEK 640.0
Banking, savings and mutual funds customer centre: Life and pensions customer service: Tel: +47 810 00 888
Storebrand Kapitalforvaltning ASA Swedish Branch Office Engelbrektsplan 2 P O Box 5541 SE-114 85 Stockholm Sweden www.storebrand.se
Associated companies: If Skadeforsikring Norge Filipstad Brygge 1 P O Box 1374, Vika N-0114 Oslo Non-life insurance customer service: +47 024 00 www.if-forsikring.no