1.8 billion in dividend, for the customers representing 13 per cent of premiums paid.
Acquisition in Lithuania Gjensidige acquired the general insurance company PZU Lietuva.
Key figures 2 Letter from the CEO 6 Operations in brief 8 Asset management 16 Additional information 18 Investor information 20 Corporate social responsibility 22 Corporate governance 35 The Board’s report 49 Financial statements and notes 73
About the reporting Gjensidige publishes a web-based annual report on www.gjensidige.no/reporting. The annual report 2015 will not be printed.
Risk scoring for commercial customers 9,000 small and medium-sized companies performed risk evaluation based on digital solutions tailormade for specific industries.
* Dividend reinvested ** Non-weighted average in local currency for Tryg, Topdanmark, Sampo and Alm.Brand.
Net income from investments NOK million 1,473.3 2,475.6 2,538.1 3,055.8 2,375.6
Other claims incurred, losses etc. NOK million (1,927.8) (1,892.4) (1,435.7) (1,150.0) (987.9)
Operating expenses, general insurance NOK million (3,217.6) (3,054.0) (2,857.8) (2,751.8) (2,877.9)
Run-off results, general insurance 2 NOK million 724.8 493.7 299.6 342.0 366.3
Gjensidige Forsikring is security provision above 55 per cent of minimum requirement, 25 per cent of natural perils fund and a deduction for relevant discounting effects in claims provision. This year’s solvency margin capital is adjusted for the Board’s proposed dividend for the financial year 2015.
Sickness absence (Self-certified and doctor-certified), Gjensidige Forsikring Norway % 4.1 4.7 5.1 4.6 5.2
Customer loyalty remained high, and the company enjoyed the best reputation among Norwegian financial players last year as well. We have succeed in offering our customers a wide range of relevant products and services in combination with good customer experiences throughout the value chain. Moreover, our unique customer dividend model had a positive effect on our competitiveness in Norway in 2015 as well.
In 2016, Gjensidige will celebrate that it has a history in Norway dating back 200 years. We are well prepared for the next 200. Time passes – Gjensidige endures.
Strategy A strong focus on customers is the core of Gjensidige’s strategy. Backed by a down-to-earth business culture and analytically-driven core operations, this will give Gjensidige a competitive advantage.
Gjensidige is working systematically to become the most customer-oriented general insurance company in the Nordic region. It is a bold ambition that requires continuous improvement of the customer experience in all channels and in connection with all events. The customer perspective shall also form the basis for the efficiency and improvement agenda throughout the Group.
Further development of seamless multi-channel distribution and a shift in focus from products to services are crucial to realising the Group’s ambition for customer orientation. • Changes in technology and customer behaviour mean that increasingly close cooperation is required between the channels. For example, more and more customers expect to be served via call centres, while also being able to contact Gjensidige on the internet.
• A good understanding of customers’ everyday processes is fundamental if we are to succeed in developing new, relevant services.
• Customers’ needs and behaviour are changing faster than ever. It is therefore paramount to reduce the time it takes to develop and launch new customer -oriented services.
Good self-service solutions combined with more automated processes will underpin the focus on customer orientation and ensure continued cost-efficiency and competitiveness.
Gjensidige Bank and Gjensidige Pensjon og Sparing play an important strategic role in relation to Gjensidige’s position in the Norwegian market. Customer solutions and concepts for customers holding a broad product range will continue to be important in both the private and commercial markets.
Customer orientation and measures aimed at retaining customers were the main priorities in the Private segment in 2015. At the same time, continuous work on the tariffs and improved customer and risk selection contributed to better quality in the customer portfolio, solid growth and good profitability.
Outlook Continuous work is being done in the Private segment on measures aimed at retaining customers and improving the quality of all customer processes. Improved availability, simplification of products and processes and more digitalisation are prioritised in order to support the Group’s financial targets and improve customer orientation.
Outlook The Commercial segment is particularly focused on efforts to improve risk pricing and processes relating to simplification and automation. Continuous focus on delivering the best customer experience in combination with analytically-driven and efficient operations will help to ensure that the Company is forward-looking and customer-oriented.
There is increasing competition for commercial customers among established and new insurance companies, at the same time as the growth rate in the market is slowing down. The pressure on prices is expected to continue. Seen in light of the market conditions, Gjensidige is pleased with the renewals into 2016.
General Insurance Commercial Commercial Norway offers a wide range of general insurance products to the commer­ cial, agriculture and municipality markets in Norway. The sale is primarily through own distribution channels, and only 20 per cent of the premium volume is brokered business. Gjensidige is the market leader within general insurance to the commercial market. The main part of the customer portfolio consists of small and medium­sized enterpri­ ses and agricultural customers.
Distribution earned premiums 20.0% Motor 29.6% Property 27.4% Accident and health 4.2% Marine/cargo 5.5% Liability 1.2% Other
Market shares 27.8% Gjensidige 25.0% If 14.0% Tryg 4.2% SpareBank1 29.0% Other
Important priorities in 2015 included integration activities relating to companies and portfolios acquired in the last few years. Further, work has been done towards continuous strengthening of the distribution collaborations. The focus on continuous development of the business model, portfolio management and repricing contributed to maintaining good quality in the portfolios and a satisfactory profitability development.
Gjensidige bought PZU Lietuva in 2015 and almost doubled its size in the Baltics. Profitability is given priority in a market with considerable price competition, and targeted efforts to rationalise operations and restructure and reprice portfolios were prioritised in 2015.
Outlook Gjensidige’s target is to be one of the leading insurance companies in the Baltic states. The market is relatively immature, and a significant proportion of both the private and the commercial segments is still uninsured. Growth is expected in step with the improvement in the general economic situation and increase in the standard of living.
General Insurance Baltics Gjensidige’s Baltic operations offer general insurance products to private and commercial customers in Lithuania, Latvia and Estonia. The products are distributed through own channels, agents and brokers. In 2015 Gjensidige aqcuired PZU’s business in Lithuania, and is now the 4th largest player pan­Baltic. The Baltics in­ surance market is immature, and Gjensidige is well positioned for future growth.
Source: Baltics Insurance Supervisory Authorities of Latvia and Lithuania, Estonia Statistics, competitor reports, and manual corrections. Based on gross written premiums for 2015.
Source: The Danish Insurance Association, based on gross premiums earned 4th quarter 2014
Pension and Savings is a growth area for Gjensidige in Norway. As many as 85 per cent of the customers were also general insurance customers at year-end 2015. Further development of competitive products and customer solutions was prioritised in 2015, and portfolio growth was good.
The purpose of the investment portfolio is primarily to cover the actuarial liabilities and to achieve the Group target return on equity. At the end of 2015, the portfolio totalled NOK 57.2 billion.
The Group’s investment portfolio includes all investment funds in the Group, except for investment funds in the Pension and Savings and Retail Bank segments. A large part of the management is outsourced to external managers, while the Group’s investment function concentrates on asset allocation, risk management and the selection of managers. Direct property investments are made via the 50% owned property company Oslo Areal.
The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s capitalisation and risk capacity, as well as the Group’s risk appetite at all times. Generally, currency risk in the investment portfolio is hedged close to 100 per cent, within a permitted limit of +/- ten per cent per currency.
At year-end 2015, the investment portfolio totalled NOK 57.2 billion. The financial result was NOK 1.5 billion, which corresponds to a return on financial assets of 2.6 per cent.
Financial result from the investment portfolio 2.6 4.3 4.3 1,492.4 2,426.3 2,480.9
Group Return on financial assets 1 % 2.6 4.3 4.3 Equity NOK million 23,330.6 21,656.8 26,287.8 Return on equity before tax 2 % 23.2 23.3 18.3 Return on equity after tax 2 % 17.4 18.1 14.6 Equity per share NOK 46.7 43.3 52.6 Capital adequacy ratio 3 % 17.1 18.1 13.4 Solvency margin capital Gjensidige Forsikring 4 NOK million 12,806.7 12,312.9 12,905.2 Solvency margin Gjensidige Forsikring 5 % 351.6 366.5 423.8
General insurance Market share non-marine insurance Norway (Finance Norway) % 25.3 25.3 25.3 Gross premiums written
Private % 60.2 67.3 70.1 Commercial % 68.2 70.0 72.9 Nordic % 74.6 75.4 75.0 Baltics % 81.8 72.1 67.1 Total % 68.6 71.0 74.0 Cost ratio 9
Private % 12.7 12.7 13.2 Commercial % 11.4 11.3 11.4 Nordic % 15.6 16.6 16.9 Baltics % 33.6 27.8 25.9 Total % 15.1 15.0 15.3
Private % 72.9 80.0 83.3 Commercial % 79.6 81.2 84.3 Nordic % 90.3 91.9 92.0 Baltics % 115.4 99.9 93.0 Total % 83.7 86.0 89.2 Combined ratio discounted 11 % 82.3 83.4 85.9
6 Earnings per share in the period = the shareholders’ share of the profit or loss for the period/average number of outstanding shares in the period 7 Premiums, net of reinsurance = gross premiums written, net of reinsurance/gross premiums written (general insurance) 8 Loss ratio = claims incurred etc./earned premiums 9 Cost ratio = operating expenses/earned premiums 10 Combined ratio = loss ratio + cost ratio 11 Combined ratio discounted = combined ratio if claims provisions had been discounted 12 Operating margin = operating result/(net insurance-related income + management income etc.) 13 Recognised return on the paid-up policy portfolio, in per cent = realised return of the portfolio 14 Value-adjusted return on the paid-up policy portfolio, in per cent = total return of the portfolio 15 Deposit-to-loan ratio = deposits as a per centage of gross lending 16 Net interest margin = net interest income/average total assets 17 Write-downs and losses = write-downs and losses/average gross lending 18 Cost/income ratio = operating expenses/total income 19 Capital adequacy = primary capital/basis of calculation for credit risk, market risk and operational risk 20 Core capital adequacy = core capital/basis of calculation for credit risk, market risk and operational risk.
Every quarter, the results and business operations are discussed in meetings with analysts and investors. As a main principle, investor relations is always present at these meetings, possibly in addition to the CEO and/ or CFO or other relevant senior management from the company.
Dividend will be approved by the Annual General Meeting on 7 April 2016 and paid to shareholders registered on the date of the General Meeting. The Gjensidige share is traded ex dividend on 8 April 2016, the record date is 11 April 2016, and dividend is to be paid on 19 April 2016.
Customer dividend The Gjensidige Foundation is the largest shareholder in Gjensidige. It distributes the share dividends it receives from Gjensidige, to Gjensidige’s general insurance customers in Norway. The customer dividend is based on dividends related to the annual result, whereas dividends related to distribution of excess capital is managed by the Gjensidige Foundation.
The customer dividend is distributed to the customers based on insurance premiums paid for the accounting year the share dividend relates to. It is paid to those who are still customers of Gjensidige at the time of the Gjensidige Foundation’s General Meeting approving the customer dividend.
Distribution of shares excluding shares owned by the Gjensidige Foundation 38% Norway 23% North America 10% UK 4% Asia 23% Europe excl.
The customer dividend for 2014 represented around 13 per cent of premiums paid. The Board of the Gjensidige Foundation has proposed that the dividend for 2015 be distributed to Gjensidige’s general insurance customers in Norway.
For more detailed information about the governing bodies and/or the General Meeting, see page 35-47 and/or www.gjensidige.no/ir.
Distribution of shares excluding shares owned by the Gjensidige Foundation 20 largest shareholders
Gjensidige offers general insurance products to private and commercial customers in the Nordic region and the Baltic states. In Norway, we also offer banking and savings services to private customers and pension products to commercial customers.
Corporate social responsibility is an integral part of our business operations – we are an insurance company and wish to use our expertise and influence in areas where we can play a significant role. Based on this, the Board has adopted guidelines that define goals and limits for the Company’s commitment to social responsibility, including guidelines for socially responsible investments (SRI).
We shall seek to engage in dialogue with all interest groups affected by our activities.
A full version of the guidelines for corporate social responsibility and SRI is available at www.gjensidige.no.
The Company’s employees also participate in various activities under the auspices of the Church City Mission, including homework help and chess courses for children.
Starting from 2016, Gjensidige’s employees will have a say in which humanitarian organisation should receive a Christmas donation from the Company.
Contributing to a safer society Gjensidige helps to finance the public welfare system by paying direct and indirect taxes and pay to employees. In 2015, Gjensidige paid NOK 1,265.0 million in tax. A considerable amount of value added tax comes in addition. Pay and employee benefits amounted to NOK 2,545 billion.
The price customers pay for their insurance is normally strongly affected by the financial risk the customer represents. This risk is affected by the customer’s choice of house, car and behaviour, among other things. We reward a number of security measures by giving a discount on the insurance premium. Measures that contribute to reducing the risk for both us and the customers include burglar alarms, inspections of electrical systems in buildings, the installation of equipment that reduces the risk of water damage in buildings, and tracking systems for cars.
In 2015, we launched the ‘Hold fokus’ (‘Stay focused’) campaign in cooperation with the Norwegian Council for Road Safety. The campaign focuses on how dangerous it is to use a mobile phone while driving. The measure is important, because a third of all road accidents are wholly or partly due to the driver’s inattentiveness.
The campaign was followed up by the innovative concept ‘digital lay-bys’ (‘tasteplass’ in Norwegian) where selected lay-bys / roadside picnic areas get free Wi-Fi and are marked with the sign ‘Tasteplass’. The purpose is to encourage drivers to take a break instead of using the mobile phone, the internet and social media while driving. The concept is a collaboration between Gjensidige, the Norwegian Council for Road Safety, the Norwegian Public Roads Administration and the mobile phone company OneCall.
With the help of weather data, we send text messages to customers likely to be affected by bad weather. The messages are based on official weather data and our customer data, so that we avoid distributing false alarms. We have received a lot of feedback from grateful customers who have had time to secure their assets thanks to these messages.
In 2015, the Company was represented on the Government-appointed ‘Overvannsutvalget’ (‘surface water committee’), which presented a report on how society can strengthen its emergency response efforts against water damage as a result of climate change.
Our investor relations department is engaged in continuous dialogue with investors and analysts, via our web portal, at presentations of quarterly results, investor meetings and conferences.
When a company is excluded, we will make sure that that company is not part of any of the portfolios we manage ourselves.
Meetings on socially responsible investments are held every quarter and as needed. In 2015, it was decided to exclude six companies from Gjensidige’s investment portfolio. At year-end, a total of 80 companies had been excluded.
Our employees Gjensidige aims to be a health-promoting workplace where all employees are given opportunities for professional development and competence-raising. We believe that people thrive when they can use their abilities, develop and be part of a larger group. It is our responsibility to facilitate this, but it is also a sound investment if Gjensidige is to succeed in the time ahead.
At year-end 2015, the Group had a total of 3,908 employees.
The cooperation between the Company’s management and the employees’ trade unions is systematic and good, and it is based on a well-established structure, where various committees meet regularly. Rules have been adopted for what processes and decisions employee representatives shall be involved in. Employee representatives are paid by the Company.
In addition to the Senior Group Management, the Group had 355 employees in executive positions in 2015. Thirty-seven per cent were women.
Human capital and competence development Good management and continuous competence-raising measures will give Gjensidige important competitive advantages. We also have a responsibility to each individual employee and to society to make sure that employees are sufficiently qualified to be attractive employees.
In 2015, Universum named Gjensidige Norway’s most attractive employer for economists in the insurance industry. When including all professions and industries, we were number 44 on the list.
Management and employee development is attended to by the staff entity the Gjensidige Customer and Brand School and Organisational Development, which is organised under the EVP of Group Staff and General Services.
We work systematically on talent recruitment and have developed an employer branding strategy to this end. We make targeted efforts to highlight Gjensidige as an employer through digital channels. We visit relevant educational institutions with stands and presentations for students.
In 2015, we also participated in Norway’s first virtual job fair, with more than 3,000 participants, where selected employees communicated with students via web chat.
E-learning is used to provide information about changes to products, procedures and other ongoing developments. In 2015, our staff have completed and passed 6,100 e-learning courses, divided between 110 titles. In addition, approximately 4,500 internal tests were organised for the purpose of competence mapping.
Customised management development programmes have been developed for groups of managers with different experience backgrounds, from newly appointed managers to the senior management group. In addition to the individual programmes, programmes have been created with a view to developing management teams, change competence and communication skills.
The work stations of all new employees are inspected as soon as possible by a physiotherapist or an ergonomist, if practically possible. The purpose of this is to adapt the work station with a view to avoiding repetitive strain injuries and to provide information about the prevention of health problems.
In 2015, we carried out a joint Nordic HSE audit for the first time. The result shows that the Company takes a systematic approach to health, safety and the environment, and that relevant measures are successfully implemented. The nonconformities that were found have been assessed and closed.
No work accidents resulting in personal injuries or material damage occurred in 2015.
The response rate in the annual employee satisfaction survey was high in 2015, as in previous years. The results of the survey indicate that the working environment is generally good and that employees are motivated. The survey is followed up at meetings between the HR department and the respective department managers. For each department, one improvement area is defined that it must focus on in particular in the coming year.
In Estonia, Latvia and Lithuania, corruption is perceived as a bigger problem, according to the same ranking.
For Gjensidige, the risk of corruption will largely be related to the Company’s sale of insurance and investment advice to the private and public sector, and to the procurement of goods and services in connection with claims payments.
Gjensidige’s internal regulations state that the Company has zero tolerance for corruption, greasing and anything resembling corruption. The regulations consist of instructions and a group policy adopted by the Board. Group policies on ethical rules and a specification of ethical guidelines relating to hospitality activities, plus guidelines on welfare measures, seminars and gifts are also relevant in this context.
The risk assessment may result in more extensive customer due diligence measures. Customer service staff are subject to clear guidelines for when such measures shall be initiated, and how to handle such a situation.
If such measures fail to clarify the situation, the Company will carry out more detailed investigations in order to clarify whether the transaction can be carried out. The investigations are carried out by the Company’s Investigation department, which comprises employees who have previously worked in the police and have expertise in and experience of investigations.
the Company complies with applicable laws and regulations, and that it acts in a way that is generally perceived as fair and reasonable, and that is in line with Gjensidige’s guidelines for ethical business operations.
Customer satisfaction and product quality It is Gjensidige’s goal to be the most customer-oriented company in the Nordic insurance industry. Customer orientation permeates our behaviour, priorities and communication at all levels of the organisation. The focus on customers is a key part of product and service development, the training of employees, advisory services, sales, claims settlement and the handling of complaints.
Gjensidige’s customer centres for insurance and banking were awarded for good customer service in their respective business areas during the ‘Kundeserviceprisen’ award in 2015. The award is based on an annual ‘mystery shopper’ survey carried out by SeeYou.
The quality of insurance products is not directly measureable. Quality for the individual customer will depend on the extent to which their expectations are met in connection with claims settlements. It is Gjensidige’s ambition that all customers shall receive the right settlement as soon as possible. Both factors are important to their perception of quality.
The first level is the case officer. If the case officer does not reverse his/her decision, the customer can complain to the second level – the customer ombudsman, which is the Company’s internal complaints board. The customer ombudsman service is staffed by highly experienced case officers, who can take a fresh look at the case without being influenced by the case officer’s personal assessment. The third level is the Norwegian Financial Services Complaints Board (Finansklagenemnda), which is a joint complaints board for the whole insurance industry that comprises representatives of the consumer authorities, the financial industry and independent experts. The composition ensures that the independent representatives decide the outcome of cases in which the consumer authorities and the financial industry disagree.
Innovation and technology development In order to ensure that our products and customer service maintain a high international level at all times, we collaborate with research institutions on innovation. In the period 2015 to 2022, we participate in a research collaboration with, among others, the University of Oslo, the University of Bergen and the Norwegian Computing Centre on several projects that we expect will give us new insight into topics relating to extensive data. Examples include risk pricing, forecast and trend analyses and insurance fraud.
Data protection training is mandatory for all new employees and is also a part of the introductory programme. Access to personal customer data shall only be granted to employees who need it in the course of their work. The Company shall not obtain other personal data than what it needs to serve the individual customer. Personal data shall only be used and stored for as long as this is necessary, and they shall be deleted immediately when they are no longer needed, unless special exemptions are authorised by law.
Notification of matters warranting criticism Employees are encouraged to report matters warranting criticism and matters they perceive as ethically dubious. Everyone has a duty to report criminal matters, or if life or health is at risk. A poster with instructions on the procedure for whistleblowing is easily accessible on our intranet site.
Whistleblowing is facilitated through two electronic mailboxes: • An internal mailbox for reporting ethics-related matters
Notifications to the external mailbox are in principle anonymous, unless the whistleblower chooses to give his/her own name. Employees may submit notifications to this mailbox anonymously, as may customers, suppliers and other external stakeholders.
Notifications of irregularities or malpractices are dealt with by Gjensidige’s Internal Investigation Unit. The department carries out a pre-investigation or assessment based on the content of the notification.
The environmental measures focus on energy efficiency, reduced travel through increased use of video conferences, and responsible waste management with extensive use of separation at source.
In 2015, we generated 203 tonnes of waste at our offices in Norway and Denmark, 40 per cent of which was recycled.
We have established a company car policy that entails that CO2 emissions from company cars cannot exceed 130 grams per kilometre. At head office, we have three electric cars that employees can use in connection with meetings and private errands, so that we reduce the use of taxis and private cars.
We work continuously to increase the proportion of ‘paperless’ customers, meaning customers who choose to receive information from us through digital channels instead of on paper. With the exception of information that is required by law to be distributed on paper, ‘paperless’ customers receive all documentation and other information by email, text messages or when they log into our web portal.
In 2015, the proportion increased from 57 to 62 per cent.
Climate change and insurance Global warming and climate change will affect our business, our customers and the society we are part of.
The emission of greenhouse gases from our operations is very modest. We work continuously to reduce our emissions further, and we report our emissions to the Carbon Disclosure Project.
The use of electricity and district heating do not cause greenhouse gas emissions and must therefore be calculated on the basis of an assumed energy mix. The production of hydropower does not cause emissions either. We have calculated that our operations in 2015 caused emissions of 2,579 tonnes of CO2 equivalents (scope 1 and 2), compared with 3,043 tonnes the year before. The change in reported emissions is largely due to improved data quality and better methods for calculating emissions.
Number of excluded companies Number 80 85 * Based on the Board’s proposal for 2015. ** Payout ratio for 2015 is exclusive of the NOK 1 billion of the proposed dividend which is related to distribution of excess capital. *** Emissions for 2014 differs from that reported in the annual report for 2014, when only Norwegian emissions were reported.
The Board bases its corporate governance on: – Optimising the Company’s assets in a long-term perspective – Equal treatment of all shareholders – Equal and assured access to reliable, relevant and upto -date information about the Company’s business
2. The Code of Practice is available at 3. The Board has provided a statement on the
8. The provisions in the Articles of Association and authorisations that empower the Board to decide that the Company shall buy back or issue own shares are described in section 3 of the statement.
The Board’s statement on corporate governance in Gjensidige Forsikring ASA is available at gjensidige.no/group/investor-relations/corporate- governance.
Gjensidige’s internal control systems include the Company’s core values and guidelines for ethics and social re sponsibility. A dedicated ethics suggestion box
has been established for reporting relevant matters. Effective notification procedures have also been established to ensure that whistleblowers are protected and that matters that are raised receive relevant follow-up.
The Company’s work on social responsibility is described in more detail on pages 22-34 of the annual report and at Quantitative goals have been adopted for socially responsible operations in relation to owners, customers, employees and the environment. The goals and goal attainment are presented in the table on page 34 of the annual report.
The Group’s efforts in relation to the working environment, equal opportunities and integration are described in more detail in the annual report.
Gjensidige’s goal is to become the most customer-oriented general insurance company in the Nordic region, based on profitable operations and a leading position.
Gjensidige is working systematically to become the most customer-oriented general insurance company in the Nordic region. It is a bold ambition that requires continuous improvement of the customer experience in all channels and in connection with all events. The customer perspective shall also form the basis for the whole Group’s rationalisation and improvement agenda.
• A good understanding of the customers’ everyday processes is fundamental to succeed in developing new, relevant services.
Information is a strategic resource for Gjensidige. The work on ensuring good data quality, efficient data collection processes, availability, reporting, analysis and security shall therefore be strengthened.
managers and employees. Competence-sharing shall increasingly take place through computer-driven work processes, and an overall understanding created through internal rotation of managers and staff.
The strategic role that Gjensidige Bank and Gjensidige Pensjon og Sparing play is important in relation to Gjensidige’s position in the Norwegian market. Exclusive customer solutions and concepts, in both the private and commercial markets, will continue to be important.
In addition, any future excess capital over and above the capitalisation target will be distributed to the owners over time. By the capitalisation target is meant capitalisation that is adapted to Gjensidige’s strategic targets and appetite for risk at all times. The Group shall maintain its financial freedom of action, without this being at the expense of capital discipline.
– Authorisation to raise subordinated loans and other external financing limited upwards to NOK 3 billion and on the conditions stipulated by the Board. The authorisation was not used in 2015.
The Board shall ensure that the Company complies with the Public Limited Liability Companies Act Sections 3-8 and 3-9 in agreements between the Company and parties mentioned there. On entering into not immaterial agreements between the Company and shareholders, closely-related parties, board members or members of the management or close associates of such members, the Board shall obtain an assessment from an independent third party. The same applies to agreements with group companies that have minority shareholders. This follows from the rules of procedure for the Board, which are available at
Deviations from the Code of Practice: None 5. Freely negotiable shares The shares in the Company are freely negotiable pursuant to the Articles of Association. Gjensidige is a Norwegian financial institution. Norwegian framework legislation contains general licensing provisions that apply to all Norwegian financial institutions in connection with large acquisitions of shares (ten per cent or more).
Deviations from the Code of Practice: None 6. New Financial Institutions Act As a consequence of the new Financial Institutions Act that entered into force on 1 January 2016, the general meeting decided on 27 April 2015 to dispense with the Supervisory Board and control committee. The changes apply from 1 January 2016. In addition, the general meeting decided to make necessary changes to other provisions as a result of the changes. This statement describes the situation as it was in 2015 before the above-mentioned changes entered into force. Consequently, the description will not be the same on all points in 2016.
The general meeting is open and available to all shareholders. The annual general meeting shall be held every year before the end of May. The Company’s Articles of Association do not contain provisions that expand on or deviate from the provisions of the Public Limited Liability Companies Act Chapter 5.
The general meeting is conducted in accordance with the Code of Practice: – The Articles of Association stipulate that three weeks’ notice must be given. The notice of the meeting and case documents will be made avail able on the Group’s website gjensidige.no/group/. Shareholders may nonethe38 I Gjensidige annual report 2015
– Shareholders who wish to attend the general meeting must notify the Company in writing at least five days before the meeting. The registration deadline is based on practical considerations in connection with the organisation of the general meeting.
– The CEO, the Chairman of the Board, the Chair of the Supervisory Board and the chair of the nomination committee are required to be present unless this is obviously unnecessary or they have valid grounds for not attending.
– Shareholders may be represented by proxy. The notice of the meeting will contain more detailed information about the procedure for representation by proxy, including an authorisation form. In addition, a person will be appointed who can vote by proxy on behalf of shareholders.
Members of the Board are present at the general meeting. The Chairman of the Board and the CEO are normally present to answer questions.
Deviations from the Code of Practice: Pursuant to the Code of Practice, the whole Board, the whole nomination committee and the auditor should be present at the general meeting. Based on the matters that have been submitted to the general meeting for consideration, it has not been necessary so far for the whole Board to attend. The Chairman of the Board, the chair of the nomination committee, the Company’s auditor and the CEO are always present to answer any questions, however.
The nomination committee shall propose candidates – with the exception of the employee representatives – for: – the Supervisory Board – the general meeting’s proposals for the election of a Chair and Deputy Chair of the Supervisory Board – the Supervisory Board’s election of a Chair and
Rules of procedure for the nomination committee’s work have been drawn up and adopted by the general meeting. The rules of procedure are available at
In 2015, the Supervisory Board comprised 21 members, 14 elected by the shareholders and 7 elected by the employees.
The Supervisory Board’s independence The Supervisory Board has had a diverse composition, and the majority of the members have been independent of special interests (directly, indirectly or through employment) in the Company. Seven of the 14 shareholder-elected representatives have been independent of the Gjensidige Foundation.
In line with the new Financial Institutions Act, the general meeting of Gjensidige Forsikring ASA decided on 27 April 2015 to dispense with the Supervisory Board with effect from 1 January 2016.
Composition of the Board The Board of Gjensidige shall consist of ten members, three of whom are elected by the employees. Until the new Financial Institutions Act entered into force, the Board was required to be elected by the Supervisory Board. The shareholder-elected board members are elected for one year at a time. The Chairman of the Board was directly elected by the Supervisory Board. Board members elected by and from among the employees are elected for two years at time, but such that at least one member is up for election every year.
The Board of Gjensidige shall be broadly composed, and consideration shall be given to the Board being able to work well as a collective. In the rules of procedure for the nomination committee, the general meeting sets out the following guidelines for the nomination committee’s work: • The nomination committee shall emphasise that all proposed candidates to the Board have the necessary experience, qualifications and capacity to carry out the duties of the office in a satisfactory manner.
Board members’ shareholdings Nine of the board members own shares in the Company; see the overview in the table. The board members follow the general rules concerning primary insiders, but they have all voluntarily accepted and informed their closely related parties that trading in the Gjensidige share or derivative instruments will only take place within a reasonable time frame after submission of the quarterly report, so that trading can take place on the basis of the same information about the Company and the Company’s financial position as is available to the market in general.
The Board holds regular physical board meetings and holds nine fixed meetings every year. Additional meetings may be held depending on matters at hand and the situation. They can be held by phone or electronically using the board portal. In 2015, a total of 13 board meetings were held, 3 of which were extra ordinary board meetings. One of the ordinary meetings was an annual two-day strategy meeting. At the extraordinary meetings, the Board considered, among other things, strategic initiatives and amendments of the Articles of Association.
The Board carries out an annual self- evaluation that is also submitted to the nomination committee for use as documentation in connection with the committee’s work. In 2015, the Board carried out this self-evaluation with external assistance from the Administrative Research Institute (AFF).
The audit committee The audit committee is a preparatory and advisory select committee that consists of board members elected by the Board. The audit committee is tasked with preparing the Board’s follow-up of the financial reporting process and improving the Board’s follow-up of the Group, among other things by contributing to thorough and independent consideration by the Board
• Annually drafting proposals for the CEO’s scorecard • Acting as adviser to the CEO in connection with the annual assessment of the remuneration of other executive personnel
As of 31 December 2015, the remuneration committee consisted of the following members: – Inge K Hansen (chair) – Trond Vegard Andersen – Tine Gottlob Wollebekk
The Board’s impartiality The Group’s rules of procedure for the Board regulate matters concerning board members’ impartiality. A board member is disqualified from participating in considering or deciding matters that are of such great importance to the board member or his/her related parties that he or she must be deemed to have a direct or indirect personal or financial interest in the matter. The same applies to the CEO. Board members are also dis qualified when other special circumstances could undermine trust in their motives for participating in deciding a matter.
Deviations from the Code of Practice: None 11. Risk management and internal control The Board focuses on risk management and internal control, and this is an integral part of the Board’s systematic work. The Board has adopted a group policy for risk management and internal control. Among other things, the document describes the main principles for risk management and internal control, in addition to describing the division of responsibility. The document is available at 42 I Gjensidige annual report 2015
Gjensidige’s internal control system includes the Company’s core values, guidelines for ethics and social responsi bility and other governing documents.
The CEO’s responsibilities: • The CEO shall ensure that Gjensidige’s risk management and internal control are implemented, documented, monitored and followed up in a satisfactory manner. The CEO shall issue instructions and guidelines for how the Group’s risk management and internal control shall be carried out in practice and establish expedient control processes and functions.
The Risk Management and Compliance function is responsible for monitoring the overall risk situation and the framework for risk management, including internal control and the quantification and aggregation of risk.
Control committee Until 1 January 2016, financial institutions were re quired to have a separate, elected control committee, but this will discontinue from and including 2016. The control committee is independent of the board and management, and is elected by the general meeting. The committee holds regular meetings, and it is tasked with ensuring that the Company operates in an expedient and appropriate manner in accordance with legislation, the Articles of Association, guidelines adopted by the Supervisory Board and instructions from the Financial Supervisory Authority of Norway. The committee shall in particular ensure that the Company has satisfactory management systems and internal control systems. The control committee is identical for all companies in the Group that are obliged to have such a committee. The committee shall also supervise other companies in the Group.
In 2015, the control committee consisted of the following members: • Sven Iver Steen (chair) • Liselotte Aune Lee • Hallvar Strømme • Vigdis Myhre Næsseth (attending deputy member)
Financial reporting and financial management Among other things, the CFO is responsible for asset management, risk and capital management, the Actuary function, the planning process and financial performance. Among other things, the Executive Vice President of Group Staff and General Services is responsible for financial reporting and follow-up of limits on the investment activities. This organisation is intended to ensure independence between the leading premise setter for profit performance and those who report the results.
Consolidated accounts are prepared every month and reported to the Board on a monthly basis, with comments on and explanations of each business segment. In this connection, Group Accounts cooperates with the Actuary function, Group Performance Management, reinsurance and the controllers in the business areas on quality assurance of figures and comments. The insurance provisions are assessed monthly by the Actuary function and reviewed annually by an external actuary. Accounting items that entail a varying degree of discretionary judgement and assessment are reviewed and documented in advance of the quarterly closing of accounts. Discretionary accounting items are reviewed by the Board’s audit committee at quarterly meetings. The audit committee also considers the interim reports, company accounts and consolidated accounts. The processes are identical for the Group and the parent company. The annual accounts are adopted by the respective general meetings.
In connection with the outsourcing of material work processes, such as payroll and ICT services, the Group obtains statements in accordance with ISA3402 in order to assess the contracting party’s internal control. The purpose of this is to ensure that the contracting party has satisfactory internal control.
The Group is concerned with ensuring that processes relating to financial reporting and financial management are carried out by personnel with the right expertise for the different tasks. Professional updating in the form of self-studies, courses and continuing education takes place on the basis of the needs and complexity of the position in question. The goal is that the Group shall have sufficient expertise and resources at all times to be able to carry out timely closing of the accounts without there being material errors in the consolidated and company accounts. This involves fields such as IFRS, NGAAP and the Annual Accounts Regulations for Insurance Companies etc. Gjensidige participates actively in various industry organisations for banks and life and general insurance companies where topical issues are discussed.
Group’s performance, and none of the board members have share options issued by the Company.
The remuneration of individual board members is described on page 134 of the annual report. The amount of the remuneration reflects the Board of Director’s responsibility, expertise, time consumption and the complexity of the business. In addition, board members are paid a separate fee for participating in the Board’s audit committee and remuneration committee. As a rule, board members or companies with which they are associated shall not take on specific assignments for the Company in addition to their office as board member. If such assignments nonetheless arise, the whole Board shall be informed of this. No such assignments were carried out in 2015, and no fees have therefore been paid to board members over and above the fee they receive as members of the Board.
Deviations from the Code of Practice: None 13. Remuneration of executive personnel The Group has established a remuneration system that applies to all employees. The system is intended to ensure that Gjensidige attracts and retains employees who perform, develop, learn and share. The remuneration shall be competitive, but the Group shall not be a wage leader. Employees are expected to see the remuneration and benefits offered by the Group as an overall whole. The Group’s remuneration systems shall be open and performance-based, so that they, as far as possible, are perceived as being fair and predictable. The remuneration that is paid shall correspond to the agreed performance.
Variable pay shall be performance-based without being a risk driver, and it shall reflect the results and contributions of both the Company, the division, the department and the individual employee. Other remuneration elements that are offered shall be perceived as attractive by both new and current employees.
The Board’s guidelines for stipulating the remuneration of the Senior Group Management and executive personnel meet the requirements of the Regulations relating to remuneration systems in financial institutions of 1 December 2010, most recently amended on 22 August 2014.
The remuneration of the CEO is stipulated by the Board on the basis of an overall assessment that takes into account Gjensidige’s remuneration system and the market salary for corresponding positions. The fixed salary is assessed and stipulated annually on the basis of wage growth in society in general and in the financial industry in particular. Variable remuneration (bonus) is decided by the Board on the basis of agreed goals and deliveries. It can amount to up to 50 per cent of the fixed salary including holiday pay. Variable remuneration is earned annually and is based on an overall assessment of financial and non-financial performance over the past two years. Half of the variable remuneration is in the form of a promise of shares in Gjensidige Forsikring ASA, one third of which are allocated in each of the following three years. Restricted variable remuneration that has not yet been disbursed may be reduced if subsequent results and developments indicate that it was based on incorrect assumptions.
The fixed salary is assessed and stipulated annually on the basis of wage growth in society in general and in the financial industry in particular. Variable remuneration (bonus) for executive personnel is earned annually and is based on an overall assessment of financial and non- financial performance over the past two years. Individual variable pay, including holiday pay, may amount to up to 30 per cent of the annual salary. Variable pay is not included in the pension basis. Half of the variable remuneration is in the form of a promise of shares in Gjensidige Forsikring ASA, one third of which are allocated in each of the following three years. Restricted variable remuneration that has not yet been disbursed may be reduced if subsequent results and developments indicate that it was based on incorrect assumptions.
A capital market day shall be held when it is considered expedient in order to keep the market up-to-date about the Group’s development, goals and strategies.
The Company most recently held a capital market day on 25 November 2014 in London.
relevant matters relating to the bid. The shareholders must receive information as early as possible, to give them time to consider the bid. Endeavours will otherwise be made to avoid undue disruption of other activities during a takeover process.
Deviations from the Code of Practice: None 16. The external auditor Until 1 January 2016, the external auditor was elected by the Supervisory Board on the recommendation of the Company’s nomination committee. The external auditor normally performs an interim audit every autumn in addition to auditing the annual accounts. The interim audit focuses on the Company’s internal control relating to the presentation of the accounts. The accounting department will have regular contact with the auditor throughout the year to discuss the result of the external auditor’s work, consequences of new laws and regulations etc.
The audit committee shall also monitor the auditor’s independence, including what services other than auditing the auditor has provided. The breakdown between the auditor’s fee and consultancy fees for 2015 is described in Note 17 to the annual report. Until 2016, the Supervisory Board approved the auditor’s fee. Information will be provided about the auditor’s fee broken down by auditing and other services at the meeting.
The profit from insurance operations was record-strong in 2015, while the return on the investment portfolio was satisfactory given the prevailing market conditions. The profit after tax expense was NOK 3.8 billion, corresponding to NOK 7.57 per share.
The underwriting result increased by more than 20 per cent from 2014, ending at NOK 3.5 billion. The result was positively influenced by a solid growth of 4.3 per cent in premiums and a good underlying frequency claims development, among other things as a result of good customer and risk selection and risk pricing, in addition to a favourable weather situation. Higher run-off gains also made a positive contribution to the improvement in the result. The financial result was NOK 1.5 billion, which was 28 per cent lower than in 2014. The Retail Bank and Pension and Savings also made a positive contribution to the good profit performance by the Group. The Board is satisfied that the Group delivered on its financial targets in 2015.
The Gjensidige Foundation’s share of the total dividend amounts to NOK 2.6 billion, of which NOK 2.0 billion is related to the profit for the year. The board of the Gjensidige Foundation has proposed that this part of the dividend, after a deduction for expenses, be distributed to Gjensidige’s general insurance customers in Norway as customer dividend.
The business Gjensidige Forsikring ASA (Gjensidige Forsikring) is a Nordic general insurance company with its head office in Oslo in Norway. The object of the business is to safeguard life, health and assets for customers in the private and commercial markets by offering competitive insurance products and services. In Norway, Gjensidige also offers banking, pension and savings products and services, which means that the Group’s customers have a wide range to choose from and helps to build strong customer relations. Gjensidige Forsikring is the parent company of the Gjensidige Group (Gjensidige).
Gjensidige is market leader in Norway, and it is the biggest Norwegian-owned general insurance company in the Nordic countries and the Baltic states. These markets are Gjensidige’s defined market area for further growth. The general insurance operations include general insurance and accident and health insurance. The Norwegian general insurance operations also include life insurance, which is pure risk insurance with a duration of up to one year. Group life insurance is the biggest product in this category.
Gjensidige’s business model is based on an integrated value chain that includes the production of financial services and products, a high degree of direct distribution, service and customer dialogue, and efficient claims settlements. Distribution in cooperation with partners is an important part of the model, especially in Denmark and Sweden.
Customer orientation Gjensidige is working systematically to become the most customer-oriented company in the Nordic general insurance field. The vision is to ‘know the customer best and care the most’. The customers should feel that Gjensidige knows them, cares about them, makes things easy for them and helps them. Customer satisfaction is measured systematically, at group level and down to the individual employee level, and improvement measures are implemented continuously. Customer satisfaction was record-high in 2015. The training of staff, development of digital services and use of data and insight to ensure relevance to the customers’ everyday lives are important tools in this context.
The Gjensidige Group achieved its best-ever underwriting result in 2015. Customer satisfaction increased to a new record-high level, and competitiveness remained good.
Inge K Hansen (1946) has been Chairman of the Board of Gjensidige since 2008. He is also Chairman of the Board of Siriusungen AS, World Championships Biathlon 2016, Harding AS, Troms Kraft AS, Hotel and Restaurant Continental AS, Core Energi AS, Nets AS, Arctic Securities AS and NorSun AS. Further he is Deputy Chairperson of the Board of Hydro and board member of Fram Museum and Sissener AS. He was elected Chair of the Year in Norway and the Nordic Countries in 2012.
The market shares in Denmark and Sweden were 6.4 per cent (based on the most recent statistics from the Danish Insurance Association as of 31 December 2014) and 1.6 per cent, respectively (source: Insurance Sweden, as of 31 December 2015).
In the Baltic general insurance market, Gjensidige had a market share of 12.5 per cent at year-end (source: Insurance Supervisory Commission of the Republic of Lithuania, Latvian Insurers Association, Statistics Estonia). The acquisition of PZU Lietuva largely explains the increase in the market share from 6.9 per cent in 2014.
The market share for group unit-linked defined contribution pensions was 9.2 per cent, while the market share for individual unit-linked pensions was 8.7 per cent. The market share of transferred defined contribution pension agreements was 15.7 per cent. The corresponding market share for private pension assets was 14.2 per cent (source: Finance Norway, third quarter 2015).
Distribution Norway Gjensidige has approximately 780,000 customers in the Private segment and slightly less than 150,000 customers in the Commercial segment in Norway .
Gjensidige’s own distribution network is largely responsible for sales and advisory services, but agents and brokers are also used in some cases. Gjensidige also cooperates with several local mutual fire insurers. Gjensidige has cooperation agreements with several large national trade unions and interest organisations. These agreements give members of the organisations advantages as customers of Gjensidige. Gjensidige’s commercial customers in Norway are primarily serviced through own sales channels (around 80 per cent of the premium volume). In addition, some customers are serviced via brokers.
In the Danish commercial market, sales are made in cooperation with brokers and call centres and dedicated underwriters in the market for small and medium-sized enterprises and agricultural customers.
In Sweden, general insurance products are distributed to private customers both directly via telephone and the internet and through insurance mediators (partners and agents). In the commercial market, distribution mainly takes place through insurance brokers and partners.
Other matters Gjensidige is also positioned to deliver products adapted to other distribution channels, both in Norway and in the other Nordic countries. Distribution largely takes place through agents and via business partners such as shops and car dealers that wish to expand their product range with insurance products under their own label (‘white label’).
Gjensidige Bank and the general insurance business are cooperating closely in the Norwegian private market. Digital solutions have been developed that make it simple for car dealers to offer financing and insurance products to their customers, and products and concepts are being developed that target younger customers in particular. Gjensidige Pensjon og Sparing cooperates closely with the Commercial segment on the distribution of pension and savings products to small and medium-sized enterprises in Norway.
Technology and development The world is becoming increasingly digital, both for private individuals and for enterprises. Gjensidige needs to adapt and change to keep up with developments. Striking a balance between continuity and renewal will continue to be important. New technology is providing more and more opportunities to collect and utilise market and customer data, and to assess risk even better. Gjensidige is investing in technology and
Andersen is up for election to the Board in 2016. Andersen holds 1,805 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 16 October 2014).
expertise on a continuous basis in order to generate and utilise relevant insight.
Digitalisation of business and customer-processes is given high priority. An improved online shop adapted to mobile phone and tablet users, a new app for insurance and banking services and personalised advice on log-on pages were among the services launched in 2015. This has contributed to increased sales and increased use of self-service solutions through digital channels. The work on digitalising the business will continue in the years ahead.
The year 2015 Leading position in Norway strengthened Gjensidige strengthened its leading position in the Norwegian market in 2015 relative to the biggest competitors, despite a more demanding macroeconomic situation and intense competition. Customer satisfaction was higher than ever before, and, combined with record-strong profitability, this confirms Gjensidige’s good competitiveness in Norway.
Goal attainment – financial and operational targets The financial targets for 2015 were achieved by a wide margin.
The Board has decided to uphold the current targets, but has made a technical adjustment of the CR target for the next three to five years from 90–93 to 86–89. The adjustment reflects that average annual run-off gains for the period are expected to be in the region of NOK 800 million.
At the end of 2014, Gjensidige launched six operational key targets for the period up until 2018. The development has been positive for all the parameters throughout 2015.
Customers with >4 GI products 2015 76.2 62% 34% On track Maintained Maintained
Further digitalisation Gjensidige will develop digital service solutions in step with changed customer preferences and meet the need for continuously more efficient operations. For example, the proportion of claims reported online or via mobile phone increased from 26 per cent to 34 per cent in 2015. In addition, self-service sales increased by more than 30 per cent after introducing new online shop adapted for mobile phone and tablet users and with a simplified purchasing process. In 2016, among other things, self-service solutions in Denmark will be improved.
Organisational capabilities Increased technological understanding and mobility in the organisation are preconditions for the capacity for change and development. During 2015, about 30 top-managers and many more employees changed jobs internally in the Group. Transfer of best practice and improved cooperation in combination with training and education, for example via the Gjensidige Customer and Brand School, will help to ensure having the right expertise in the right place also in the years ahead.
Broad range of products boosts loyalty Gjensidige’s most loyal insurance customers are those who have the most products. In addition to a broad range of insurance products, banking, pension and 54 I Gjensidige annual report 2015
The customer dividend model boosts loyalty The unique arrangement whereby the customers receive customer dividend from Gjensidige’s biggest owner, the Gjensidige Foundation, makes a positive contribution to both loyalty and attractiveness. Every year since the Company was listed on the stock exchange, the Gjensidige Foundation has paid customer dividend to Gjensidige’s general insurance customers in Norway based on how much they pay in insurance premiums. During this period, customers have received an annual amount corresponding to 11–15 per cent of their premium. A survey carried out by Ipsos MMI for Gjensidige in the autumn of 2015 confirmed previous surveys showing that 90 per cent of the customers are familiar with the customer dividend model and that more than 70 per cent say that the model is one of the reasons why they continue to be Gjensidige customers. Familiarity with the customer dividend model among potential customers has increased significantly as a result of targeted marketing in recent years, reaching a record-high 57 per cent in November 2015.
Renewal of partnership agreements Gjensidige has many years’ experience of partnership agreements, and at the turn of the year, the partner organisations had a total of 1.6 million members. In 2015, Gjensidige renewed its agreements with Tekna (the Norwegian Society of Graduate Technical and Scientific Professionals), the Norwegian Farmers’ Union and the Norwegian Trekking Association. The agreement with the Norwegian Association of Hunters and Anglers was extended. Members of organisations are Gjensidige’s most loyal customers and those with the widest range of products. Gjensidige works closely with its strategic partners, and good management of partnership agreements will be given priority also in the time ahead.
Two acquisitions Gjensidige’s platform for future growth was further strengthened in 2015 through two acquisitions. The acquisition of Mondux in Denmark, with an annual premium volume of around DKK 250 million, took effect from the second half-year 2015. The acquisition strengthens Gjensidige’s position in the Danish motor insurance market and gives greater insight into the product insurance market.
Further capital and balance sheet optimisation In addition to the proposed dividend NOK of 3.2 billion based on the profit for the year 2015, Gjensidige’s Board has also proposed distributing excess capital corresponding to NOK 1.0 billion. The Board has also decided to consider issuing subordinated debt under the Tier 1 criteria in the Solvency II regulations in 2016, provided that market terms are satisfactory. Both these measures will contribute to further capital and balance sheet optimisation.
An attractive share The Gjensidige share yielded a total return for the shareholders of 22 per cent in 2015. The return on Oslo Stock Exchange was 6 per cent in the same period. Since the Company was listed on the stock exchange in December 2010, the Gjensidige share has yielded a total return of 255 per cent. The average number of shares traded daily on Oslo Stock Exchange was around
Hans Erik F. Andersson (1950) has been a member of the Board of Gjensidige since 2008. He is an adviser, Chairman of the Board of SinterCast AB and of Skandia, Board member of JLT Risk Solutions AB and Anticimex International AB.
Changes in framework conditions Solvency II Preparations for the Solvency II regulations have been prioritised in 2015. Solvency II entails new rules for calculating capital requirements and qualifying funds, risk management requirements and requirements for the reporting of the risk and capital situation. The regulations entered into force on 1 January 2016. The Group is well-prepared for the regulatory changes.
Further, a proposal was submitted in 2015 to change the tax deduction right with effect from 1 January 2016. The proposal entailed that the deduction right would be limited to provisions calculated in accordance with the Solvency II regulations. In its original form, the proposal could have had significant negative tax consequences for Gjensidige, both upon its introduction and in the future. As a result of the consultation submissions received, the decision was postponed. The Ministry of Finance decided that a more thorough assessment is needed of the factors that were pointed out during the consultation round. The Ministry has indicated that new rules will not be introduced until 2017 at the earliest because of this work. It is still unclear whether the new deduction rules will be introduced and, if so, how they will be worded. Until such time, a tax deduction is granted for technical provisions calculated on the basis of the applicable provision rules for 2015, provided that the provisions are deemed to be necessary.
Per Arne Bjørge (1950) has been a member of the Board of Gjensidige since 2011. He is Chairman of the Board and general manager of PAB Consulting AS, a board member of the Gjensidige Foundation and of 3D Perception AS, and Chairman of the Board of Borgund Invest AS, Tanux Shipping KS, Tanux Shipping AS, Havskjer AS, Havstål AS and in the co-ownership Øvre Volsdalsberga.
General Insurance Private 2,208.1 1,624.0 General Insurance Commercial 1,440.8 1,285.4 General Insurance Nordic 509.1 384.3 General Insurance Baltics (98.9) 0.6 Corporate Centre/costs related to owner (331.8) (311.4) Corporate Centre/reinsurance 1 (270.5) (120.5) Underwriting result general insurance 2 3,456.9 2,862.3
Pension and Savings 84.2 43.9 Retail Bank 303.6 253.5 Financial result from the investment portfolio 3 1,492.4 2,426.3 Amortisation and impairment losses of excess value – intangible assets (209.6) (170.0) Other items (77.7) (16.5) Profit/(loss) for the period before tax expense 5,049.7 5,399.6
Profit/loss The Group recorded a profit before tax expense of NOK 5,049.7 million (5,399.6). The profit from general insurance operations measured by the underwriting result was NOK 3,456.9 million (2,862.3).
For the investment portfolio, the return on financial assets was 2.6 per cent (4.3), or NOK 1,492.4 million (2,426.3).
The tax expense was NOK 1,265.0 million (1,210.0), corresponding to an effective tax rate of 25.1 per cent (22.4). The effective tax rate was influenced to a large extent by realised and unrealised gains from equity investments in the EEA, especially the gain on the sale of 50 per cent of the shares in Oslo Areal. The effective tax rate was also influenced by a reduction in deferred tax and the deferred tax asset resulting from a change in the Norwegian corporate tax rate from 27 to 25 per cent from 2016.
The financial result was weaker than in 2014 because of a widening of credit spreads and a weak return on equity investments. The sale of 50 per cent of Oslo Areal made a positive contribution. The return in 2014 was positively affected by a gain on the sale of the shares in Storebrand and the reclassification of SpareBank1 SR-Bank from associated company to an ordinary equity investment. The Retail Bank and Pension and Savings also made a positive contribution.
With the exception of claims provisions relating to the Danish workers’ compensation portfolio, Gjensidige’s claims provisions are recognised at nominal value (not discounted). In preparation for expected changes in IFRS and the introduction of Solvency II, Gjensidige has, with effect from the second quarter 2010, calculated but not recognised the effect on the combined ratio of discounting the claims provisions. For 2015, the combined ratio on a discounted basis would have been 82.3, compared with 83.7 based on the recognised nominal amount.
Expenses for research and development have not been charged to income in Gjensidige’s consolidated accounts in 2015 or 2014. Nor have such expenses been capitalised during these two financial years. The parent company has continued its collaboration with the Norwegian Computing Centre and SFI (Statistics for Innovation), which are carrying out projects relating to risk assessment and data analysis.
Balance sheet and capital base The Group’s balance sheet total at the end of 2015 was NOK 129,264.4 million (113,982.0). The increase was mainly attributable to volume growth in the Retail Bank and Pension and Savings segments. Gjensidige’s equity amounted to NOK 23,330.6 million (21,656.8) as of 31 December 2015. The increase was due to the fact that the profit for 2015 exceeded the dividend paid in 2015 for the accounting year 2014.
The return on equity was 17.4 per cent (18.1). The capital adequacy ratio was 17.1 per cent (18.1), and the solvency margin2 was 351.6 per cent (366.5). The year’s figures for capital adequacy and the solvency margin have been adjusted to take account of the Board’s dividend proposal for the 2015 financial year. The statutory capital adequacy requirement is 8 per cent.
Available capital in excess of the risk-based requirement calculated using the Group’s partial internal model constitutes the Group’s economic excess capital. In addition, a deduction is made for the higher of the calculated supplementary capital required to maintain the current rating and the capital required to meet the statutory solvency requirements. Excess capital above and beyond this constitutes the strategic buffer. At the end of the year, the buffer amounted to NOK 0.9 billion, after the Board’s proposed dividend of NOK 4.2 billion for the 2015 financial year had been deducted.
Off-balance sheet commitments and derivatives As part of the Group’s investment activities, an agreement has been entered into for the investment of up to NOK 1,643.6 million (2,278.6) in debt funds and various private equity and commercial real estate funds, in addition to the amounts recognised in the balance sheet. In order to increase the effectiveness of its capital and risk management, the Group enters into financial derivative contracts on a regular basis. They are described in more detail in the notes to the accounts.
Cash flow Gjensidige is an insurance company in which investments are part of the operational cash flow and therefore largely affected by strategic decisions. The Company’s ability to 2 Solvency margin for Gjensidige Forsikring ASA
The net cash flow from operational activities was negative in the amount of NOK 6,396.4 million (plus 3,428.3) in 2015. There is a large positive cash flow from the insurance operations. The difference between the operating profit and the cash flow from operational activities is due to the nature of the business, whereby investments in financial assets are part of operations. The change in the cash flow in 2015 can largely be explained by the fact that more was invested in securities as a consequence of a lower dividend paid in 2015 compared with 2014. In addition the growth rate in the bank was somewhat higher.
The net cash flow from investment activities mainly consists of payments made/received in connection with the acquisition of subsidiaries and associated companies, owner-occupied property, plant and equipment, plus dividend from associated companies. The net cash flow from investment activities was NOK 2,463.8 million (2,955.1) in 2015.
The net cash flow from financing activities mainly consists of payments made/received in connection with external debt financing and the payment of dividend to shareholders. The net cash flow from financing activities was NOK 4,647.7 million (minus 6,745.3)
in 2015. The change is largely due to a lower dividend paid and more lending from credit institutions.
Earned premiums increased to NOK 8,152.3 million (8,124.1) driven by premium increases. The total number of customers at the end of the year was around the same as in 2014, demonstrating Gjensidige’s strong competitiveness in a highly competitive market showing signs of a somewhat slower growth. The previously announced changes to the structure of a partnership agreement had a negative effect of NOK 118.1 million on the premium volume during the year. The underwriting result was not affected by the changes in the agreement, however.
Amortisation and impairment losses of excess value – intangible assets (12.0) (34.6)
Claims incurred amounted to NOK 4,908.5 million (5,468.5). The loss ratio was 60.2 (67.3). The weather situation was relatively favourable during the year, resulting in a much lower impact from underlying frequency claims than can normally be expected, especially in property and motor insurance. The underlying development in motor insurance was better compared with 2014, also when adjusting for an effect of around NOK 70 million from a revised actuarial model for calculating claims provisions. The development in property insurance was positive due to lower claims from fires and water damage. Accident and health products recorded a stable loss ratio, while the leisure product showed an increased loss ratio compared with the year before. In both 2015 and 2014, large losses mainly affected the property product.
Operating expenses amounted to NOK 1,035.7 million (1,031.5), and the cost ratio was 12.7 (12.7).
General Insurance Commercial The segment offers general insurance products in the areas of liability, property, agriculture, accident and health and motor insurance, as well as aquaculture, marine and transport insurance in Norway.
Profit performance The underwriting result amounted to NOK 1,440.8 million (1,285.4) in 2015. The improved underwriting result was mainly due to growth in earned premiums and increased run-off gains, partly offset by higher large losses. The combined ratio was 79.6 (81.2).
Run-off gains/(losses) 2 341.8 132.2 1 Large losses = loss event in excess of NOK 10.0 million.
Earned premiums increased to NOK 7,076.8 million (6,847.2), driven by growth in the main product lines, particularly property, business interruption and motor insurance. Premium growth is slowing down as a result of generally weaker macroeconomic trends and softening market conditions for commercial lines of business.
Claims incurred amounted to NOK 3,905.2 million (3,589.8). NOK 226.7 million of the increase was due to currency effects. The loss ratio was 74.6 (75.4). The lower loss ratio was mainly due to a lower proportion of large losses. The underlying frequency claims development was negatively impacted by property products due to a more normal claims development than in the year before. The underlying frequency claims development for other product lines was almost unchanged. The profitability of the Danish portfolio was satisfactory. Profitability was generally weak in the Swedish portfolio, but improved significantly during the year. Measures are introduced to gradually re-price the Swedish portfolio and achieve a less volatile exposure in the commercial portfolio.
Earned premiums 5,233.3 4,762.9 Claims incurred etc. (3,905.2) (3,589.8) Operating expenses (819.0) (788.9) Underwriting result 509.1 384.3
Amortisation and impairment losses of excess value – intangible assets (175.2) (130.2)
Run-off gains/(losses) 2 145.8 153.8 1 Large losses = loss event in excess of NOK 10.0 million.
Profit performance The underwriting result was minus NOK 98.9 million (plus 0.6) in 2015. The weakening of the result was due to a combination of weak underlying growth, an unfavourable claims development and the consolidation of PZU Lietuva with effect from the fourth quarter. Strengthening of claims provisions and restructuring measures also had a negative effect on the result. The combined ratio was 115.4 per cent (99.9).
Nominal operating expenses amounted to NOK 216.0 million (145.1). NOK 10.2 million of the increase was due to currency effects. The cost ratio increased to 33.6 per cent (27.8). The increase was mainly due to a higher run rate in the acquired company, combined with increased investments in IT systems and distribution turnaround.
1 Large losses = loss event in excess of EUR 0.5 million.
Pension and Savings Pension and Savings shall contribute to sales of a wide range of products to Norwegian general insurance customers and offer various pension and savings products, mainly to the commercial market. The pension products include defined contribution plans in the field of group occupational pensions, individual pensions, individual disability pensions and the management of paid-up policies and pension capital certificates. Gjensidige Investeringsrådgivning is an independent fund provider that offers saving and investment solutions to the private and commercial markets.
Operating expenses amounted to NOK 222.0 million (221.4). The expenses in 2014 included the above -mentioned VAT effect. The underlying cost base increased as a result of increased business volume and a stronger focus on distribution.
Net financial income, including the return on both the group policy portfolio and the corporate portfolio, amounted to NOK 30.8 million (31.2). The company’s share of the profit relating to the paid-up policy portfolio was allocated in its entirety as a provision for longevity.
The recognised return on the paid-up policy portfolio was 5.43 per cent (4.63). The average annual interest guarantee was 3.5 per cent.
Recognised return on the paid-up policy portfolio 3 5.43% 4.63% Value-adjusted return on the paid-up policy portfolio 4 5.42% 4.63%
Mjåtvedt has previously held positions as a sales consultant and senior consultant, and he has nearly 20 years’ experience of the insurance sector. He studied mathematics and science subjects at upper secondary school.
Mjåtvedt is up for election to the Board in 2016. Mjåtvedt holds 1.907 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 9 November 2015).
Profit performance The profit before tax expense amounted to NOK 303.6 million (253.5). The positive development was mainly the result of increased net interest income.
Net interest income amounted to NOK 721.2 million (613.8). The improvement was driven by business growth combined with lower financing costs. A change in the accrual of the fee for the deposits guarantee scheme gave a positive none-recurring effect of NOK 12.6 million in 2015. According to the letter from the FSA dated 19 November 2015, the fee will instead be accrued in full in the first quarter 2016. Net commission income and other income amounted to NOK 4.1 million (49.4). The decrease was primarily driven by losses on financial instruments. The widening of credit spreads in the bond market resulted in mark-to-market losses in the liquidity reserve portfolio. Commission costs relating to car financing also increased.
The net interest margin was 2.12 per cent (2.17). The development was the result of an increased share of secured loans in the total lending portfolio.
Operating expenses amounted to NOK 359.3 million (357.9). The increase in expenses driven by business growth was offset by decreased depreciation expenses and no write-offs of fixed assets. In 2014, the bank wrote off fixed assets relating to systems replacements and changes in the contract with the bank’s systems and technology provider. The cost/income ratio was 49.5 per cent (54.0).
Total write-downs and losses amounted to NOK 62.3 million (51.8), mainly relating to the unsecured lending portfolio. The increase was driven by growth in car financing. The portfolio continues to be of high quality. Write-downs and losses as a percentage of average gross lending were 0.20 per cent (0.20).
The deposits to loans ratio was reduced to 52.7 per cent (60.6), driven by higher growth in the lending portfolio than for deposits.
Interest income and related income 1,311.0 1,327.9 Interest expenses and related expenses (589.8) (714.1) Net interest income 721.2 613.8 Net commission income and other income 4.1 49.4 Total income 725.2 663.2 Operating expenses (359.3) (357.9) Write-downs and losses (62.3) (51.8) Profit/(loss) before tax expense 303.6 253.5
Net interest margin 1 2.12% 2.17% Write-downs and losses 2 0.20% 0.20% Cost/income ratio 3 49.5% 54.0% 1 Net interest margin = net interest income/average total assets 2 Write-downs and losses = write-downs and losses/avarage gross lending 3 Cost/income ratio = operating expenses/total income 3 The Loan to value ratio estimate is calculated based on the exposure on the reporting date and the property valuation, including any higher priority pledge(s), at the time the loan was approved.
As a result of portfolio growth and more stringent capital requirements from 1 July 2015, the bank increased its capital by a total of NOK 520.0 million. The bank issued two perpetual Tier 1 capital instruments with a total nominal value of NOK 300.0 million, and one Tier 2 subordinated bond with a nominal value of NOK 100.0 million. Equity was increased by NOK 120.0 million through capital injections from the parent company.
Management of financial assets and properties The Group’s investment portfolio includes all investment funds in the Group, except for investment funds in the Pension and Savings and Retail Bank segments. The investment portfolio is split into two parts: a match portfolio and a free portfolio. The match portfolio is intended to correspond to the Group’s technical provisions. It is invested in fixed-income instruments with a duration matched to the duration of the technical provisions. The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s capitalisation and risk capacity, as well as the Group’s risk appetite at all times. Generally, currency risk in the investment portfolio is hedged close to 100 per cent, within a permitted limit of +/- ten per cent per currency.
Match portfolio The match portfolio amounted to NOK 36.0 billion (34.7). The portfolio yielded a return of 2.8 per cent (3.2), excluding changes in the value of bonds recognised at amortised cost.
Rostad is up for election to the Board in 2016. Rostad holds 1,550 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 November 2015).
credit rating amounted to NOK 2.1 billion (1.7). Of these securities, 11.1 per cent (1.1) were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies or government-guaranteed companies. A third-party internal rating existed for 65.7 per cent (71.2) of the portfolio without an official rating.
The geographical distribution5 of the fixed-income instruments in the free portfolio is shown on page 67.
In the fourth quarter, Gjensidige entered into an agreement with AMF Pensionsforsäkring to sell 50 per cent of the shares in Oslo Areal. Part of the agreement was that Gjensidige, through a price-adjustment mechanism, will be exposed to the property market development in an amount corresponding to half of the proceeds during the period until 31 December 2016. Gjensidige will therefore have higher property exposure in this period than the 50 per cent holding in Oslo Areal. The intention is to reinvest the proceeds so that the total property exposure gradually increases to a level close to the level prior to the transaction. The strategic rationale behind the agreement is to enhance Oslo Areal’s ability to utilise attractive investment opportunities in the market, and to take part in larger transactions and development projects.
A gain of NOK 379.1 million was recorded from the transaction, of which around NOK 250 million was due to reversal of net deferred tax relating to temporary differences. From the fourth quarter 2015, the investment in Oslo Areal is classified as a joint venture.
Risk factors Risk is defined as the possibility of a potential event affecting the Group’s goal attainment. In order to understand and manage risk, an assessment is therefore carried out of both the probability of the event occurring and its consequences. Through the Group’s risk management and internal control framework, a structure has been established that systematically identifies, assesses, communicates and manages risk throughout the Group. The risk assessment process is coordinated with the Group’s strategy processes.
The Risk Management function shall ensure that the Senior Group Management and the Board have sufficient information about the Group’s risk profile at all times. The Group has a moderate risk profile whereby, in the Board’s view, no individual events will be capable of seriously harming the Company’s financial position.
5 The geographical distribution is related to issuers and does not reflect actual currency exposure 66 I Gjensidige annual report 2015
Financial income in Pension and Savings and Retail Bank 15.9 58.9
Net income from investments 1,473.3 2,475.6 1 The item includes the discounting effects of insurance obligations in Denmark and mismatch between interest rate adjustments on the liability side in Denmark, versus the interest rate hedge. 2 The item consist of total investment grade, high yield and current bonds. Investment grade and high yield are investments in internationally diversified funds externally managed. 3 Investments in internationally diversified funds externally managed.
4 The item includes the investment in SpareBank 1 SR-Bank and effect on profit of the sale of shares in Storebrand. 5 Gjensidige halved its property exposure through the sale of 50 per cent of Oslo Areal AS during the fourth quarter 2015. In addition there is a forward contract on the IPD index, further increasing Gjensidige’s property exposure of approximately NOK 1.6 billion throughout 2016.
6 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige Danmark, and lendings, paid-in capital in Gjensidige Pensjonskasse, profit or loss effects from total return swaps with Gjensidige Pensjonskasse and Gjensidige Pensjonsforsikring AS, hedge funds and finance related expenses.
36.4% Norway 1.6% Sweden 1.0% Denmark 39.2% USA 9.7% UK 12.1% Other
More and more is expected of staff and managers in terms of expertise. There is a risk that inadequate or insufficiently adapted expertise will reduce the chances of realising commercial and strategic ambitions. There is also competition to attract and retain capable employees. Targeted efforts are therefore being made to ensure the right expertise at all levels of the organisation, including through systematic staffing and succession planning and arrangements that ensure good internal employee mobility.
Insurance risk The insurance risk relating to special types of major risks or exposure is managed through authorisations and lines of reporting for ordinary operations. Clear guidelines have been established for what insurance policies can be taken out. The risk of a generally unsatisfactory premium level is monitored on a continuous basis by the product and actuary department, and increasingly precise methods for pricing are being developed.
The Group’s actuary function is responsible for coordinating the calculation and control of technical provisions in the insurance companies. This responsibility has been centralised to the Group’s actuary department. The department carries out calculations and assessments of the technical provisions and develops
Among other things, Kronholm Sjøbrg has previously held position as a consultant in the change og ownership -departement in Nykredit Forsikring. Among other things, she has studied at Copenhagen Business School and has an Master Degree in mediation and conflict resolution from Faculty of Law, Copenhagen University.
Through the Board’s adoption of strategic allocation of assets, with pertaining limits for the different risk types, and a dynamic risk management model, limits are set that make it possible to rapidly adjust risk to changed macroeconomic assumptions. Price, interest rate and currency risk is also followed up through stress tests, where the buffer capital must be sufficient at all times to be able to withstand sharp simultaneous falls in equity and bond prices.
Among other things, Wollebekk has previously had several managing positions in Skandinaviska Enskilda Banken, latest as CEO in SEB Kort and Country Manager for SEB Norway. She holds a Master of Science degree in International Business from Copenhagen Business School.
Wollebekk is up for election to the Board in 2016. Wollebekk does not hold any shares in Gjensidige Forsikring ASA, including any shares held by closely related parties.
Gjensidige works actively to combat corruption, and a dedicated anti-corruption programme has been established to reduce the risk of irregularities and corruption. The programme comprises a combination of preventive activities, control and detection activities and clear and consistent follow-up and sanction patterns. On behalf of the Board, Gjensidige’s internal audit function has been assigned the role of monitoring and assessing whether the risk management and internal control systems function as intended.
Corporate governance Good corporate governance is a priority for the Board. The Board has based the Group’s corporate governance on the Norwegian Code of Practice for Corporate Governance as most recently amended on 30 October 2014, and it has made adjustments to ensure that it complies with the Code in all areas. A more detailed account of how Gjensidige complies with the Code of Practice and the Norwegian Accounting Act’s requirements for reporting on corporate governance is provided on pages 35-47 of the annual report and in a separate document that is available on the Group’s website www.gjensidige.no/foretaksstyring.
Employees, corporate social responsibility and the environment Gjensidige’s work on corporate social responsibility is described in a separate statement on pages 22-34 of the annual report. The Board of Gjensidige has adopted guidelines for how the Company shall exercise social responsibility. The guidelines and the group policy for ethical investments are available at www.gjensidige. no/konsern.
Gjensidige aims to be a developing and health- promoting workplace. Systematic work is carried out on competence-raising measures for managers and employees, and a number of measures and processes have been established relating to employees’ health, safety and working environment. Information about the working environment, equality, discrimination and the natural environment, cf. the Accounting Act Section 3-3 (ninth to twelfth paragraphs), is provided on pages 22-34 of the report on corporate social responsibility.
• Finally, regulatory uncertainty relating to Solvency II has decreased, and is expected to decrease further in 2016. All else being equal, this will support the already strong capital position.
Over time, dividend payouts will reflect Gjensidige’s policy not to build capital in excess of the targeted capitalisation. Given reasonable market conditions, Gjensidige will consider utilising capacity for issuing Tier 1 compatible hybrid capital to further optimise the capital structure.
Competition is strong and increasing in the Norwegian general insurance market, partly driven by a more challenging macroeconomic environment. Gjensidige’s competitiveness is regarded as good. Solid growth in premiums and volume is combined with good profitability and high customer satisfaction in the Norwegian market. The growth rate is expected to slow down somewhat. Continued efforts to retain and strengthen Gjensidige’s position in the Norwegian market are given priority. At the same time, new, profitable opportunities for growth will be considered in the Nordic region and the Baltic states in order to ensure good utilisation of a scalable business model and best practice. Great emphasis will also be placed on further developing cooperation with partners and distributors.
There is still uncertainty, although it is diminishing, relating to changes to the regulatory framework conditions for the financial sector in Norway and internationally. The Solvency II regulations were implemented in Norway on 1 January 2016. Gjensidige will submit an application for using its own partial internal model (PIM) during the first half-year 2016. Endeavours have been made to win acceptance for inclusion of the guarantee provision as solvency capital. This matter is expected to be clarified in 2016.
Allocation of the profit before other income and expenses The Group’s profit after tax expense amounted to NOK 3,784.7 million. The Board has adopted a dividend policy that forms the basis for the dividend proposal submitted to the general meeting. The Board proposes a dividend of NOK 4.2 billion for the 2015 financial year. This corresponds to NOK 8.40 per share, NOK 6.40 of which is based on the profit for the year and the expected dividend capacity going forward. This corresponds to an increase in nominal dividend of 8.5 per cent compared with 2014, and a payout ratio of 84.5 per cent. The dividend flow shall be high and stable over time in nominal terms and grow in periods of growth in earnings. The remaining NOK 2.00 per share is related to the distribution of excess capital as part of the process of ensuring an optimal capital structure.
It is proposed that the parent company’s profit before other components of income and expense of NOK 3,741.6 million be allocated as follows: NOK million
The Board has decided to pay employees of Gjensidige Forsikring ASA a collective bonus of NOK 22,500 including holiday pay per full-time employee. The bonus is based on the combined ratio achieved and on the development of the portfolio and customer satisfaction in 2015.
The Board wishes to thank all employees for their efforts and their contribution to Gjensidige’s good results in 2015.
Income statement ....................................................146 Statement of financial position ................................. 147 Statement of changes in equity ................................. 149 Statement of cash flows ............................................150 Accounting policies ................................................... 151
Notes 2 Use of estimates ................................................158 3 Management of insurance and financial risk .......158 4 Premiums and claims etc. in general insurance ...159 6 Shares in subsidiaries and associates ..................163 7 Owner-occupied property, plant and equipment 166 8 Financial assets and liabilities ............................. 167 10 Loans and receivables ........................................ 171 11 Cash and cash equivalents ................................. 171 12 Shares and similar interests ................................ 172 13 Insurance-related liabilities and reinsurers’ share . 174 15 Provisions and other liabilities ............................. 179 18 Salaries and remuneration .................................182 19 Net income from investments ............................186 22 Related party transactions .................................188 23 Events after the balance sheet date ................... 190 28 Share-based payment ....................................... 193
Declaration from the Board and the CEO ................... 195 Auditor’s report ......................................................... 196
Operating income Earned premiums from general insurance 21,272.0 20,386.8 Earned premiums from pension 1,431.5 1,262.4 Interest income etc. from banking operations 1,311.0 1,327.9 Other income including eliminations 140.8 121.6 Total operating income 4 24,155.4 23,098.7
Net income from investments Results from investments in associates and joint ventures 6 49.7 192.0 Operating income from property 366.7 348.7 Interest income and dividend etc. from financial assets 1,199.3 1,351.6 Net changes in fair value on investments (incl. property) 189.0 685.8 Net realised gain and loss on investments (102.7) 96.8 Expenses related to investments 17 (228.8) (199.3) Total net income from investments 19 1,473.3 2,475.6
Claims, loss etc. Claims incurred etc. from general insurance (14,597.5) (14,470.4) Claims incurred etc. from pension (1,275.7) (1,126.4) Interest expenses etc. and write-downs and losses from banking operations (652.2) (765.9) Total claims, interest expenses, losses etc. (16,525.4) (16,362.8)
Profit/(loss) for the year attributable to: Owners of the company 3,788.8 4,189.6 Non-controlling interests (4.1) Total 3,784.7 4,189.6
Goodwill 5 3,224.5 2,819.0 Other intangible assets 5 1,343.6 1,123.5 Deferred tax assets 16 12.9 5.0 Investments in associates and joint ventures 6 1,547.8 44.3 Interest-bearing receivables from associates and joint ventures 6 1,538.0 Owner-occupied property 7 34.8 280.7 Plant and equipment 7 289.4 321.0 Investment properties 9 6,104.0 Pension assets 14 93.1 71.8
Financial assets Financial derivatives 8 486.5 470.2 Shares and similar interests 8, 12 7,202.3 7,499.8 Bonds and other securities with fixed income 8 30,626.4 23,748.3 Bonds held to maturity 8 2,635.6 2,955.9 Loans and receivables 8, 10 55,837.3 46,969.5 Assets in life insurance with investment options 8 15,109.6 12,950.3 Reinsurance deposits 0.9 0.8 Reinsurers' share of insurance-related liabilities in general insurance, gross 13 533.0 551.8 Receivables related to direct operations and reinsurance 10 4,997.4 4,629.8 Other receivables 10 502.7 823.6 Prepaid expenses and earned, not received income 10 96.7 209.0 Cash and cash equivalents 11, 26 3,151.9 2,403.8
Financial liabilities Financial derivatives 8 403.5 527.2 Deposits from and liabilities to customers 8, 15 19,357.2 16,703.4 Interest-bearing liabilities 8, 15 17,804.7 10,300.3 Other liabilities 8, 15 1,065.4 1,006.5 Current tax 16 1,295.1 1,172.6 Deferred tax liabilities 16 835.8 1,289.1 Liabilities related to direct insurance and reinsurance 8, 15 619.4 626.3 Liabilities in life insurance with investment options 15 15,109.6 12,950.3 Accrued expenses and deferred income 8, 15 485.3 424.9
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss
Exchange differences from foreign operations 281.3 (0.1) 281.2 Share of exchange differences from associates (142.4) (142.4) Exchange differences from hedging of foreign operations (237.0) (237.0)
Tax on items that may be reclassified to profit or loss 27.3
Total items that may be reclassified subsequently to profit or loss 71.6 (0.1) (142.4) (70.9)
Tax on items that may be reclassified to profit or loss (114.3) (114.3)
Own shares (0.0) (9.9) (9.9) Paid dividend (2,949.6) (2,949.6) Remeasurement of the net defined benefit liability/asset of sold companies (6.7) 6.7
Equity as at 31.12.2015 attributable to the owners of the company (0.1) 1,430.0 31.6 298.8 438.3 (1,584.1) 21,690.7 23,306.3
Cash flow from investing activities Net receipts/payments from sale/acquisition of subsidiaries and associates 2,521.7 3,198.6 Net receipts/payments on sale/acquisition of owner-occupied property, plant and equipment (58.0) (285.9) Dividends from associated companies 42.4 Net cash flow from investing activities 2,463.8 2,955.1
Effect of exchange rate changes on cash and cash equivalents 33.1 36.2 Net cash flow for the period 748.1 (325.6)
Cash and cash equivalents at the start of the period 2,403.8 2,729.4 Cash and cash equivalents at the end of the period 3,151.9 2,403.8 Net cash flow for the period 748.1 (325.6)
New standards and interpretations not yet adopted A number of new standards, changes to standards and interpretations have been issued for financial years beginning after 1 January 2015. They have not been applied when preparing these consolidated financial statements. Those that may be relevant to Gjensidige are mentioned below. Gjensidige does not plan early implementation of these standards.
IFRS 9 Financial instruments (2014) IFRS 9 introduces new requirements for the classification and measurement of financial assets, including a new expected loss model for the recognition of impairment losses, and changed requirements for hedge accounting.
IFRS 16 Leasing (2016) IFRS 16 requires all contracts that qualify under its definition as a lease to be reported on a lessee’s balance sheet as right of use assets and lease liabilities. Earlier classification of leases as either operating leases or finance leases are removed. Short-term leases (less than 12 months) and leases of low-value assets are exempt from the requirements. A lessee shall recognise right-of-use assets and lease liabilities. Interest expense on the lease liability shall be presented separately from the depreciation charge for the right-ofuse asset. Interest expense is a component of finance costs. IFRS 16 is effective 1 January 2019. The standard will increase the total balance and split the leasing expense in operating expenses and financial expenses.
Segment reporting According to IFRS 8, the operating segments are determined based on the Group’s internal organisational management structure and the internal financial reporting structure to the chief operating decision maker. In Gjensidige Insurance Group the Senior Group Management is responsible for evaluating and following up the performance of the segments and is considered the chief operating decision maker within the meaning of IFRS 8. Gjensidige reports on six operating segments, which are independently managed by managers responsible for the respective segments depending on the products and services offered, distribution and settlement channels, brands and customer profiles. Identification of the segments is based on the existence of segment managers who report directly to the Senior Group Management/CEO and who are responsible for the performance of the segment under their charge. Based on this Gjensidige reports the following operating segments
If the fair value, after a reassessment of the Group’s share in the net fair value of identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess amount is recognised immediately in profit or loss.
Subsequent costs Subsequent costs are recognised in the asset’s carrying amount when it is probable that the future economic benefits associated with the asset will flow to the Group, and the cost of the asset can be measured reliably. If the subsequent cost is a replacement cost for part of an item of owner-occupied property, plant and equipment, the cost is capitalized and the carrying amount of what has been replaced is derecognised. Repairs and maintenances are recognised in profit or loss in the period in which they are incurred.
Investment properties Investment properties are properties held either to earn rental income or for capital appreciation, or for both. These properties are not used in production, deliveries of goods and services, or for administrative purposes.
In 2015 the Group sold 50 per cent of its investment in Oslo Areal AS. The investment is after the sale classified as a joint venture and hence the investment properties are not presented in a separate line in the statement of financial position.
Impairment of non-financial assets Indicators of impairment of the carrying amount of tangible and intangible assets are assessed at each reporting date. If such indicators exist, then recoverable amount of an assets or a cash generating unit is estimated. Indicators that are assessed as significant by the Group and might trigger testing for an impairment loss are as follows
Goodwill is tested for impairment annually. The annual testing of goodwill is performed in the third quarter.
• at fair value through profit or loss • available for sale • investments held to maturity • loans and receivables • financial derivatives • financial liabilities at amortised cost • financial liabilities classified as equity
• those that the business designates as at fair value through profit or loss at initial recognition
Financial liabilities classified as equity The bank classifies perpetual tier 1 capital as equity. The instruments are perpetual, but the bank can repay the capital on specific dates, for the first time five years after it was issued. The agreed terms for the instruments meet the requirements in the EU’s CRR regulations and it is included in the Group’s Tier 1 capital for capital adequacy purposes. This means that the bank has a unilateral right not to repay interest or the principal to the investors. As a consequence of these terms, the instruments do not meet the requirement for a liability in IAS 32 and are therefore presented on the line perpetual Tier 1 capital under equity. Further, it implies that the interest is not presented under Total interest expenses but as a reduction in other equity. Correspondingly, seen in isolation, the benefit of the tax deduction for the interest will lead to an increase in other equity and not be presented as a deduction under the line Tax expense, since it is the shareholder who benefits from the tax deduction.
NOK 6.40 (5.90) based on profit for the year 3,200.0 2,950.0
NOK 2.00 (0) based on excess capital distribution 1 Proposed dividend for 2015 is not recognised at the reporting date, and it does not have any tax consequences.
88 | Gjensidige annual report 2015 3. Management of insurance and financial risk Overview Managing risk is an integral part of Gjensidige’s day-to-day operations. Identification, assessment, management and control of risk exposure as well as analyses of the effects of potential strategic decisions on the risk profile are an essential part of operations. The aim is to ensure that the level of risk-taking is in keeping with the approved risk appetite and to enhance value creation.
In addition, the Group has an independent internal audit function, which monitors that the risk management and internal control systems function. The audit function reports directly to the Board.
Capital management The core function of insurance is the transfer of risk, and the Group is exposed to risk in both its insurance and investment operations. Identification, measurement and management of risk are essential parts of the operations. All insurance companies must adapt their risk exposure to their capital base. On the other hand, solvency capital, or equity, has a cost. A key objective of capital management is to balance these two aspects. Gjensidige’s overall capital management objectives are to ensure that the capitalisation of the Group can sustain an adverse outcome without giving rise to a financially distressed situation and that the Group’s capital is used in the most efficient way.
• Capital allocation to lines of business and products • Capital consequences of asset allocation • Requirements for and optimisation of reinsurance
Using the internal model and the definition of internal capital stated above, the internal capital requirement for the insurance group was set at NOK 11,072 (10,850) million at the end of 2015. Excess capital over and above the internal capital requirement is NOK 9,671 million.
Change in regulatory framework Solvency II took effect 1 January 2016. Gjensidige will initially calculate the Solvency II position based on the standard formula. An application for a partial internal model is expected to be submitted during the first half-year 2016, and approval is expected before year-end.
The Solvency II regulation is based on principles. Based on Gjensidige’s current understanding of the Solvency II regulation and how it will be implemented in Norway, the solvency margins at the end of 2015 were calculated to be: • Standard Formula (SF): 145 per cent • Partial Internal Model (PIM): 187 per cent.
Motor, other classes 4,128.3 16.5% 3,980.1 16.7% Marine, aviation and transport 257.9 1.0% 234.6 1.0%
Third-party liability 625.0 2.9% 564.6 2.8% Other general insurance 1,859.7 8.8% 1,585.0 7.7% Total 21,251.1 100.0% 20,458.1 100.0%
The estimated cost of claims includes expenses to be incurred in settling claims, net of the expected recourse amount and other recoveries. Gjensidige takes all reasonable steps to ensure that it has appropriate information regarding its claims exposure. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liabilities established. The liabilities in the financial statements relating to these contracts comprise a provision for IBNR, a provision for reported claims not yet paid (RBNS) and a provision for unexpired risks as of the balance sheet date (provision for unearned premiums). The amount for bodily injury claims is influenced by the level of court awards, particularly by the development of legal precedence on matters of contract and tort.
Liability insurance contracts are also subject to the emergence of new types of latent claims, but no allowance is included for this on the balance sheet date.
Calculation of claims provisions is based on empirical data, where the basis is the development of claims cost over time. This includes development for both reported claims (RBNS provisions) and incurred, but not reported claims (IBNR provisions). Based on experience and the development of the portfolio statistical models are prepared to calculate the claims provisions. The fit of the model is measured by looking at the deviation between earlier postreported claims and those estimated by the model.
The methods used will depend on the LOB and the time period of data available. To the extent that these methods use historical claims development information, they assume that the historical claims development pattern will occur in the future. There are reasons why this may not be the case, which, insofar as they can be identified, have been allowed for by modifying model parameters.
• Changes in the mix of insurance contracts incepted • The impact of large losses
The actuarial function in Gjensidige is centralised, and the actuaries in the Gjensidige Group working with technical provisions meet regularly, as a part of keeping a high professional level.
Change in CR (1%-point) General insurance Private 81.5 81.2 General insurance Commercial 70.8 73.4 General insurance Nordic 52.3 42.7 General insurance Baltics 6.4 5.2 Pension and savings 14.3 12.6 Corporate Centre/reinsurance 1.7 1.3
Table 5 – Sensitivity analysis claims provision Change in inflation (+/- 1%-point)
Net of reinsurance Estimated claims cost At the end of the accident year 11,576.6 12,045.5 12,370.2 12,618.3 12,311.3 14,016.9 14,697.4 13,049.7 14,349.2 13,952.9 14,477.6 - One year later 11,533.8 11,901.9 12,405.8 12,704.9 12,255.7 13,914.1 14,871.0 13,001.6 14,205.3 13,583.7 - Two years later 11,519.2 11,787.5 12,265.0 12,618.7 12,105.0 13,937.9 14,966.5 12,941.5 14,115.9 - Three years later 11,474.7 11,595.9 12,209.6 12,591.0 12,112.0 13,865.7 14,849.8 12,774.6 - Four years later 11,305.1 11,580.1 12,228.5 12,549.7 11,974.4 13,786.1 14,656.8 - Five years later 11,294.2 11,594.2 12,154.8 12,424.6 11,913.0 13,679.7 - Six years later 11,296.5 11,552.5 12,065.3 12,380.1 11,868.0 - Seven years later 11,183.5 11,450.8 12,027.8 12,334.5 - Eight years later 11,080.2 11,413.8 11,979.6 - Nine years later 11,081.0 11,467.3 - Ten years later 11,150.7
Table 6b – Analysis of claims development, Gjensidige Forsikring ASA NOK millions 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total
At the end of the accident year 11,346.7 11,574.0 11,974.0 12,060.8 11,668.3 13,155.5 13,527.0 12,436.4 13,514.6 13,954.6 13,846.1 - One year later 11,311.0 11,446.1 11,987.7 12,171.7 11,597.4 13,097.5 13,702.1 12,435.7 13,411.0 13,587.9 - Two years later 11,294.1 11,347.6 11,861.0 12,083.1 11,459.5 13,116.6 13,787.6 12,390.4 13,331.8 - Three years later 11,251.6 11,159.5 11,804.9 12,043.1 11,461.8 13,044.4 13,674.8 12,235.3 - Four years later 11,080.3 11,144.5 11,811.0 12,002.0 11,327.8 12,947.9 13,484.8 - Five years later 11,071.5 11,147.9 11,733.2 11,877.7 11,260.9 12,839.0 - Six years later 11,073.6 11,103.0 11,646.8 11,832.7 11,212.9 - Seven years later 10,953.3 10,999.8 11,607.2 11,785.7 - Eight years later 10,849.9 10,961.8 11,558.8 - Nine years later 10,846.4 11,012.5 - Ten years later 10,919.3
Total disbursed 9,923.9 9,888.1 10,353.4 10,398.3 9,567.4 11,067.7 11,563.7 10,158.9 10,578.7 10,673.2 7,775.2 111,948.7 Claims provision 995.4 1,124.4 1,205.3 1,387.4 1,645.5 1,771.2 1,921.1 2,076.4 2,753.1 2,914.7 6,070.9 23,865.4 Prior-year claims provision and loss adjustment provision 7,425.4 Total 31,290.8
Occupational pensions are defined contribution plans which are usually paid out within 10 years. For this reason, occupational pensions hardly expose GPF to any longevity risk. Most of the paidup policies which have been transferred to GPF have lifelong payment for the old-age pensioners and thus represent longevity risk.
Occupational pensions may include a waiver of premium for disability 2 and disability cover, which expose GPF to disability risk. Mandatory occupational coverage requires some disability coverage, so a large proportion of disability risk is connected to these plans where annual payment is two per cent of the salary. Some paid-up policies also include disability coverage where benefits originally were linked to salary. Disability risk premiums are based on a tariff which is developed in collaboration with Gjensidige Forsikring ASA (GF). It is based on national statistics from social security and insurance claims primarily from GF. GPF has lately increased its reserves by NOK 116.6 million and further by NOK 59.8 million in 2015 to cover disability claims.
Insurance risk is satisfactory per December 2015, and provisions for claims are considered to be sufficient to account for uncertainty. GPF protects itself against fluctuations in claims by a reinsurance contract where GF is the reinsurer. In addition, GPF benefits from exchanging knowledge with GF. Increasing data material enables GPF to observe significant changes in disability trends, for insured and uninsured, in early stages.
Mortality and disability claims in 2015 amount to NOK 71.9 million (NOK 54.7 million in 2014). IBNR is NOK 863.7 million at end of year 2015 (NOK 680.4 million in 2014), and contributes to 60.7 per cent (63.0 per cent in 2014) of all disability and survivor benefit provisions (excluding paid-up policies).
Mortality risk Mandatory occupational pension contracts are signed on a yearly basis, so GPF is able to adjust survivor pension premium tariffs at renewal if needed. Survivor pension claims are reported fairly quickly, which makes it possible to adjust the premium tariffs in time. Survivor pension only accounts for minor part of the business and the majority of the risk premium is used for reserving. In addition, GPF is exposed to mortality risk in paid-up policies.
Longevity risk The new K2013 mortality tariff is dynamic, which means that GPF will hold premium reserve for future development in mortality. Considering this, the new mortality tariff is considered a strong tariff.
Calculations show that disability provisions need to increase by NOK 72 million if the disability rate increases by 25 per cent the first year and then 15 per cent the following years.
Cash flow Figure 6 displays the compounded cash flow of the insurance obligations. Increased liabilities as a result of reduced mortality (20 per cent reduction of mortality rate) and increased disability (25 per cent first year, then 15 per cent of disability rate) are also illustrated.
3 Risk year is the year where GPF has underwritten the insurance risk. First risk year for GPF is 2006 4 The rate of minimum return is also used as discount rate for the reserves and premiums. The FSA regulate the level of the rate. It has been reduced several times the last few years, but changes usually just apply for future contracts. This means that reserves belonging to old contracts (contract made before a change in the discount rate) can use another discount rate than current contracts. The average discount rate can because of this deviate from the current discount rate.
Gjensidige Forsikring ASA acts as reinsurer for group subsidiaries, and their exposure is included in the outward reinsurance coverage for the Group. The reinsurance programme for property insurance also includes cooperating mutual fire insurers. The subsidiaries’ reinsurance programmes generally have a lower retention level, as they are smaller entities than Gjensidige Forsikring ASA. In Norway the exposure to natural perils disasters is handled through compulsory membership of the Norwegian Natural Perils Pool. Through this arrangement, Gjensidige is exposed to its market share of the total claims for the Norwegian market as a whole. On behalf of its members the pool has its own reinsurance programme in place, which further reduces the risk exposure. Gjensidige participates as a reinsurer for about 25 per cent of the pool’s programme in 2015, unchanged from last year. This exposure is included in the outwards reinsurance programme. In Gjensidige’s other geographies natural perils claims are included in the ordinary property reinsurance coverage. An event resulting in claims in several countries where Gjensidige does business will be aggregated into one event with respect to reinsurance.
Match portfolio Money market 6,836.6 12.0% 6,144.1 10.9% Bonds at amortised cost 18,747.7 32.8% 18,760.5 33.2%
Table 9 – TVaR utilization of risk limits in the liquid part of the free portfolio 31.12.2015 31.12.2014 NOK millions Risk Limit Risk Limit
Pension commitments (298.0) Total undiversified insurance risk, major company investments, subsidiaries and pension commitments
Assets/risk Equities and hedge funds 20% drop (641.2) Interest rate risk 150 bps change (252.4) Property 12% drop (697.9) Private equity 25% drop (427.7)
Total market risk (1,971.3) Insurance risk General insurance Internal model (404.5)
Table 13a – Largest private equity funds 2015 NOK millions 31.12.2015
Table 13b – Largest private equity funds 2014 NOK millions 31.12.2014
In addition to the invested amounts, Gjensidige had committed capital, not invested, amounting to NOK 659.9 million as at 31 December 2015.
In the Danish Workers’ Compensation operations, the long-tail Workers’ Compensation line of business is hedged against changes in the real interest rate through swap agreements. The real interest rate risk relates to outstanding premium and claims provisions of approximately NOK 5,150 million (discounted value), where a large percentage of the claims are paid out as annuities, the payments of which are linked to the yearly increase in Danish workers compensation awards determined by the authorities (a function of wage growth). The risk to the present value of these annuities is hedged through a series of swap agreements spread over approximately 40 years and covering inflation and interest rate risk separately, so that the real interest rate risk is reduced. Most swap agreements have yearly coupon payments and security is provided for the outstanding market value between the parties, which reduces counterparty risk. The fixed-income portfolio in the Danish branch is invested with a low duration in Danish covered mortgage bonds and loan funds. The loan funds are senior secured debt with and without security in real estate. In addition to the invested amount, Gjensidige had committed capital, not invested, amounting to NOK 953.6 million, in loan fund with security in real estate, as at 31 December 2015.
Table 14 – Maturity profile (number of years) fixed-income portfolio NOK millions 31.12.2015 31.12.2014
Asset and liability management (ALM) risk fixed income Figure 8a shows the expected pay-out pattern for the Group’s premium and claims provisions at year-end 2015 and 2014, respectively. Approximately one third of the provisions are expected to be paid out within one year.
The match portfolio will match these cash flows, as well as the cash flows related to the issued subordinated loan, with a duration mismatch limit, which as of 2015 includes total pension commitments and the investment portfolio of Gjensidige Pensjonskasse, of maximum one year and a maximum net interest rate sensitivity of NOK 370 million. The table below shows this as of 30 November 2015.
The Group owns most of its properties through Oslo Areal AS, although a small part of the portfolio is invested in property funds outside Norway. In addition to the amounts invested through funds, an additional NOK 30.1 million is committed, but has not been called up. The joint venture Oslo Areal AS manages the real estate portfolio. The portfolio consists of investment properties. The real estate portfolio has its largest concentration in offices in the Oslo area, but it also contains property in other major cities in Norway. In addition, there is approximately a NOK 1,600 million forward contract on the IPD index which runs throughout 2016. Total exposure to real estate decreased during the year due to the sale of 50 per cent of Oslo Areal AS.
Goldman Sachs Global Opportunities Offshore 432.4 Sector Healthcare - A USD 267.1 Winton Futures Fund- Lead Series 162.5 Sector EuroPower Fund Class A EUR 123.6 Trient Global Macro Fund USD A-Class 114.6 Total five largest 1,100.2 Total hedge funds 1,294.4
Goldman Sachs Global Opportunities Offshore Fund 462.8 Sector Healthcare - A USD 199.2 Sector EuroPower Fund Class A EUR 104.0 Trient Global Macro Fund USD A-Class 102.9 Sector Zen Fund 83.8 Total five largest 952.6 Total hedge funds 1,027.2
Credit risk Gjensidige is exposed to credit risk, i.e. the risk that a counterparty is not able or willing to settle its liability on the due date or the risk that the credit spreads will increase (credit risk premium). The Group is primarily exposed to credit risk in the investments in the insurance companies, and through receivables from insurance customers and reinsurers. Credit risk in Gjensidige Bank is covered in a separate section.
Government 12.0% 10.6% Banks and financial institutions 52.9% 59.9% Corporates 35.1% 29.5%
The following tables show the allocation of the fixed-income portfolio by rating category at year-end in 2015 and 2014.
Table 21 – Fixed-income portfolio per rating category NOK millions 31.12.2015 31.12.2014
AAA 11,687.6 10,743.6 AA 4,707.8 1,774.8 A 11,070.4 13,775.4 BBB 3,201.2 2,526.9 BB 1,789.9 760.9 B 1,684.9 607.3 CCC or lower 126.0 110.9 Not rated 13,551.2 12,735.1 Total 47,818.9 43,034.8
Nordea Bank AB 2,888.9 Nykredit Realkredit A/S 2,725.4 DNB ASA 2,677.0 Danske Bank A/S 2,511.5 JPMorgan Chase & Co. 1,658.4 NIAM V Kjøpesenter I Holding AS 1,263.2 Lloyds Bank Covered 1,093.4 Realkredit Danmark A/S 940.2 BKK AS 935.2 BRFkredit A/S 914.4 Total ten largest 17,607.7 Total fixed-income portfolio 43,034.8
Credit risk in the insurance operation The table below presents the age distributions of the receivables arising from direct insurance operations and of the reinsurance receivables.
Reinsurance is used to manage insurance risk. However, this does not discharge Gjensidige of its liability as primary insurer. If a reinsurer fails to pay a claim for any reason, Gjensidige remains liable for the payment to the policyholder. The creditworthiness of reinsurers is assessed by reviewing their financial strength prior to finalisation of any contract. As a general requirement, all reinsurers need to be rated ‘A-’or better by Standard & Poor’s (or the equivalent from other rating agencies) when entering into a contract with Gjensidige. The figure below shows the breakdown of the purchased reinsurance capacity for 2015 and 2014, i.e. the rating of the reinsurers that would have been drawn on if the losses had occurred.
AAA AA 235.9 45.4% 243.8 41.3% A 251.0 48.3% 317.0 53.7% BBB 3.6 0.7% 0.4 0.1% BB 0.4 0.1% 0.3 0.1% B 0.6 0.1% 0.4 0.1% Not rated 28.2 5.4% 28.3 4.8% Total 519.8 100.0% 590.3 100.0%
GPF has separate strategies for the funds in each portfolio, unitlinked, paid-up policy, other group policy and company portfolios. GPF does not carry investment risk for the unit-linked portfolio. Both positive and negative returns are passed on in full to the customers. The other portfolios expose the Company’s equity to risk. For the company and other group policy portfolios, little risk is taken, since the funds are mainly invested in bank deposits and fixed-income instruments with high creditworthiness. The company portfolio is financed by the Company’s equity and, in addition to bank deposits, it also includes a small trading portfolio to support incoming capital in the customer portfolios. The other group policy portfolio is funded by premium reserves, claims provisions for unreported and/or unsettled claims and the risk equalisation fund. The paid-up policies pay a minimum guaranteed interest to customers at the same time as the customers receive a percentage of any excess return above this amount. Therefore, for the paid-up policy portfolio, the objectives are to be able to offer the customers a competitive return over a period of time, at the same time as the risk relative to the strain on equity is kept at a targeted low level.
Money market 1 1,756.1 1,233.5 Bank deposits 363.8 263.3 Bonds held to maturity 61.1 103.5 Loan and receivables 3,122.6 3,013.2 Current bonds 26.4 17.5 Equities 11.9 23.7 Other 5.6 4.9 Total 5,347.4 4,659.6 1 The money market exposure is reduced and property exposure increased through a total return swap with Gjensidige Forsikring ASA with notional value of NOK 600.0 million.
The investment portfolio of GPF, excluding the unit-linked portfolio, amounted to NOK 5,347.4 million as of 31 December 2015. This is mainly invested in fixed income instruments and bank deposits, but also contains a small proportion of equities from the trading portfolio of GPF.
Table 29 – Fixed-income portfolio per rating, Gjensidige Pensjonsforsikring NOK millions 2015 2014
AAA 1,145.7 929.2 AA 807.3 513.4 A 1,801.5 1,408.2 BBB 1,277.1 980.1 BB 13.2 14.7 B 8.8 15.6 CCC or lower Not rated 276.5 769.9 Total 5,330.0 4,631.0
Credit risk Credit risk refers to the risk the bank faces in the event of a borrower’s failure to repay a loan or credit or to meet their contractual obligation to the bank. The bank's credit risk originates mostly from loans and credits to consumers in Norway. The bank is also exposed to credit risk through limited commercial exposures and through placements in the liquidity reserve.
The bank also has a sizable portfolio of unsecured consumer finance lending. The bank has a higher return on this portfolio that is proportionate to the level of credit risk in the portfolio. A large part of the credit losses are related to the unsecured consumer finance lending portfolio. The bank uses risk-based pricing models driven by credit scores, and the portfolio shows healthy profitability.
The credit risk related to the bank’s liquidity portfolio is assessed as low.
The weighted average portfolio loan to value ratio is estimated at 63.7 per cent for the mortgage portfolio. This is estimated based on the exposure on the reporting date as a ratio of the property value as estimated upon loan approval, including any higher priority pledge(s). The bank’s credit policy is in accordance with the new regulation for mortgage loans set by the Ministry of Finance on 15 June 2015.
The table below shows the portfolio and write-downs as of 31 December 2015 and 31 December 2014 segmented by risk classes.
As of 31 December 2015 the bank has a negative interest rate exposure in the three months to one year interval of 206 MY. The net accumulated interest rate exposure over three months is a positive 234 MY as at 31 December 2015.
By investing in sound securities with short-term maturity and with expectations that the value will be less exposed to changes in the credit spread, the bank limits its spread risk on its assets. The market value of the bank’s own bonds varies with changes in the credit spreads.
As of 31 December 2015 the bank has outstanding bonds in Swedish krone of 800 million.
As of 31 December 2015, the portfolio is geographically diverse, with the greatest lending in the most populous areas of the country. The largest loan is about NOK 240.0 million. The exposure related to the ten largest loans (limit) is about NOK 515.0 million. The bank's liquidity reserves are mainly placed in securities issued by the Norwegian government and Norwegian covered bonds (OMF).
The bank's finance strategy approved by the Board provides guidelines and limits for managing the bank's liquidity risk. The bank has established guidelines and limits for liquidity risk and risk tolerance, guidelines for liquid assets, guidelines for stable longterm funding and contingency plans. Stress tests are used to test the robustness of the bank's liquidity situation.
NOK millions < 1 month 1-3 months 1-5 years More than 5 years Without maturity Total
General insurance is the Group’s core activity. General insurance is divided into four segments, mainly based on the customer’s geographical placement. Other operational segments deliver products and services mainly to customers in Norway.
Description of the segments General Insurance Private The Private segment offers a wide range of general insurance products and services in the Norwegian private market, including insurance relating to motor veichles, property, travel/leisure and accident and health.
General Insurance Commercial The Commercial segment offers a wide range of general insurance products to the commercial and municipality markets in Norway.
Segment expenses are defined as claims incurred for general insurance and for Pension and Savings, interest expenses etc. for Retail Bank, operating expenses for all segments, and net income for investments for Pension and Savings as well as Retail Bank.
Segment income – group 2 - Claims, interest expenses, loss etc. (4,908.5) (5,468.5) (4,826.7) (4,791.1) (3,905.2) (3,589.8) (524.8) (377.2) (1,275.7) (1,126.4) (652.2) (765.9) (432.4) (243.8) (16,525.4) (16,362.8)
2 There is no significant income between the segments at this level in 2015 and 2014.
Cost As at 1 January 2014 2,796.1 924.5 46.5 906.6 286.1 4,959.8 Additions 60.4 4.5 64.9 Additions through business combinations 147.2 36.8 0.8 0.1 27.0 211.9 Additions from internal development 147.3 147.3 Disposals/ reclassifications (36.7) (10.3) (4.7) (18.0) (41.3) (111.0) Exchange differences 177.9 72.5 2.3 26.0 22.8 301.4 As at 31 December 2014 3,084.4 1,023.5 44.9 1,122.4 299.1 5,574.4 Uncompleted projects 109.8 109.8 As at 31 December 2014, including uncompleted projects 3,084.4 1,023.5 44.9 1,232.2 299.1 5,684.2
Amortisation and impairment losses As at 1 January 2014 (233.8) (484.6) (30.9) (525.7) (116.2) (1,391.2) Amortisations (98.0) (9.7) (147.0) (31.0) (285.8) Disposals/ reclassifications 10.2 4.7 10.4 9.6 35.1 Impairment losses recognised in profit or loss during the period (22.5) (22.5)
Carrying amount As at 1 January 2014 2,562.2 439.9 15.6 512.7 169.9 3,700.4 As at 31 December 2014 2,819.0 407.8 7.2 558.7 149.7 3,942.4
Amortisation method I/A Straight-line Straight-line Straight-line Straight-line Useful life (years) I/A 10 10 5-8 5-10
The group has in 2015 acquired the company PZU Lietuva in Lithuania and Mondux in Denmark. In addition 50 percent of Oslo Areal is sold in the fourth quarter. The remaining investment is after the sale classified as joint venture and recognised according to the equity method. None of the intangible assets has indefinite useful life.
Impairment testing of goodwill The carrying amount of goodwill in the Group as at 31 December 2015 is NOK 3,224.5 million. See table.
Each of the units above is the smallest identifiable group of assets that generates cash inflows and are considered as separate cashgenerating units. The annual assessment of impairment losses was carried out in the third quarter of 2015. An indication assessment was also carried out in the other quarters in order to assess whether new circumstances calls for new impairment testing of goodwill.
The management’s method As far as possible, the management has sought to document the assumptions upon which the models are based through external information. External information is first and foremost used in the assessment of discount rate and exchange rates. When it comes to future cash flows, the management has also considered the degree of historical achievement of budgets. If expected budgeted results are not achieved, the management has conducted a deviation analysis. These deviation analyses are reviewed by the Board of the respective subsidiaries, as well as the management in Gjensidige Forsikring.
Discount rate The discount rate is before tax, and is composed of a risk-free interest rate, a risk premium and a market beta. The risk-free rate is equivalent to a ten-year interest rate on government bonds in the respective countries where the subsidiaries and branches operate in and in addition a risk premium is added. The risk premium is higher in Baltic than in Sweden and Denmark and is increased somewhat from 2014 due to the decline in interest rate on government bonds. The discount rate that has been used is 7.5 per cent for Denmark and Sweden and 8.5 per cent for Baltic.
Need for impairment app. NOK 54 million No need for impairment Need for impairment app. NOK 611 million Workers' compensation insurance in Denmark 1
Need for impairment app. NOK 96 million No need for impairment No need for impairment Need for impairment app. NOK 118 million
Nykredit Forsikring Need for impairment app. NOK 171 million No need for impairment No need for impairment Need for impairment app. NOK 292 million Gjensidige Forsikring, Swedish branch No need for impairment No need for impairment No need for impairment No need for impairment
110 | Gjensidige annual report 2015 6. Shares in associates and joint ventures
Vervet AS including subordinated loan 1, 2 Tromsø, Norway 25.0% 35.3 11.2 35.3 5.2
Total shares in associates and joint ventures 1,127.4 1,547.8 40.5 44.3 1 Reversal of impairment loss resulted in a gain of NOK 6.0 million. 2 Subordinated loan of NOK 24.0 million is included in cost.
Total shares in associates and joint ventures 349.2 84.4 264.8 433.0 (13.9) 49.7 3 Profit recognised for the period as a joint venture.
Income statement Operating income 419.8 Operating expenses (75.5) Interest income 1.5 Interest expenses (71.5) Fair value adjustments property 271.7 Gains/losses on sale of property 3.7 Depreciation and amortisation (8.8) Profit/(loss) before tax expense 540.9 Tax expense (92.0) Profit/(loss) before components of OCI 448.9 Other income and expenses 0.1 Total comprehensive income 449.0
Balance sheet items Current assets 93.0 Fixed assets 6,821.5 Cash and cash equivalents 30.7 Short term liabilities 820.6 Long term liabilities 3,076.1 Equity 3,018.0
Gjensidige's share of loan 1,538.0 Total receivables on joint ventures 1,538.0
There are contractual commitments regarding development of investment properties in Oslo Areal AS amounting to NOK 71.0 million (80.0). The commitment falls due during the period until December 31. 2017.
Gjensidige Forsikring ASA is no longer represented on SpareBank 1 SR-Bank’s board and the bank is no longer classified as an associated company for accounting purposes. Since the second quarter 2014, the shareholding in the bank is recognised at market value.
An insurance company may not grant loans or provide guarantees for another company in the Group beyond settlement accounts in the Group bank unless there exist exceptions based on regulations and/or individual decisions by the Financial Supervisory Authority.
Depreciation and impairment losses As at 1 January 2014 (42.4) (371.5) (413.9)
Transferred from/(to) investment property 6.4 6.4 Additions through business combinations 11.0 5.7 16.7 Additions 6.5 102.0 108.4
Disposals (308.9) (43.3) (352.2) Exchange differences 0.9 8.5 9.4 As at 31 December 2015 42.6 682.1 724.7 Uncompleted projects 27.6 27.6 As at 31 December 2015, including uncompleted projects 42.6 709.6 752.3
Following the sale of two owner-occupied properties to Oslo Areal, the owner-occupied property in Gjensidige Group mainly consists of leisure houses and cottages, in addition to owner-occupied property in the Baltic.
The market value of land and owner-occupied property exceeds the carrying amount as shown above. For plant and equipment there is no material difference between the carrying amount and the market value. Some equipment, such as furniture, is fully depreciated, but still in use.
The following financial assets/liabilities are classified as level two in the valuation hierarchy
The following financial assets are classified as level three in the valuation hierarchy
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 12 7,202.3 7,202.3 7,499.8 7,499.8 Bonds and other fixed income securities 30,626.4 30,626.4 23,748.3 23,748.3 Shares and similar interests in life insurance with investment options 13,720.6 13,720.6 11,725.2 11,725.2 Bonds and other fixed income securities in life insurance with investment options 1,389.0 1,389.0 1,225.1 1,225.1
Financial assets held to maturity Bonds held to maturity 2,635.6 2,800.5 2,955.9 3,185.7
Debt in life insurance with investment options 15,109.6 15,109.6 12,950.3 12,950.3
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 403.5 403.5
Reconciliation of financial assets valued based on non-observable market data (level 3) 2015
Sensitivity of financial assets valued based on non-observable market data (level 3) 2015
Reconciliation of financial assets valued based on non-observable market data (level 3) 2014
Sensitivity of financial assets valued based on non-observable market data (level 3) 2014
Gjensidige Bank ASA, group Interest rate swaps - hedging instruments 144.7 8.1 Obligation debt - hedging object (8.1) Net gain/loss recognised in profit or loss 0.0
Net investment in the foreign operation Market value as at 31.12.2014
The investment properties are mainly commercial property located in Oslo and the surrounding area, as well as Drammen, Fredrikstad and Stavanger. The average rental period is 5.1 years and the portfolio of investment properties includes principally offices.
The investment properties are valued at fair value.The valuation model is developed by Oslo Areal AS over multiple years. The valuation model has been used both in the quarterly financial statements and at year end. In addition, by half year and year end independent valuations from external advisors are gathered for selected parts of the portfolio. The assumptions in the model are reconciled against external observable property transactions.
Yield is determined based on a normal required rate of return adjusted for the location of the property, type, technical standard and the contracts. The normal required rate of return is determined from the required rate of return that can be derived from transactions in the market, and expectations of interest level and risk adjustment. The market rent is determined from existing contracts on the property and comparable properties, observations from contractual negotiations, requests for offers and information from realtors and Arealstatistikk’s database. For the fourth quarter of 2015 parameters used for the portfolio are presented in the table below.
Determination of parameters implies a significant level of judgment. Emphasis is put on this judgment being consistent with that observed in the market and that the judgment is applied consistently from period to period. The table below shows how the sensitivity of the yield and the market rent affects the value of the portfolio, as it stands as at 31 December 2015.
The yield and market rent are the two most significant parameters with regard to the valuation. If the yield increases with 0.25 percentage points, the total property value is reduced by NOK 143.5 million. If the market rent is reduced by ten per cent, total property value is reduced by NOK 295.3 million.
There are no loans with collateral in investments properties in 2014 or 2015.
NOK millions Market rent reduced by 10% Market rent as at 31.12.2015 Market rent increased
Total other receivables 502.7 823.6 Prepaid expenses and earned, not received income Earned, not received interest income 46.7 147.8 Other prepaid expenses and earned, not received income 50.0 61.2
Mortgage loans consist mainly of loans from the Gjensidige Bank Group. Primarily this is loans with floating rate to customers in the private segment.
Consumer loans are loans without a collateral requirement offered to private customers. The loans are given with floating rate.
A considerable amount of receivables in relation with asset management as at 31 December 2015 is short-term receivables in relation with sale of securities.
Weighted average rate for interest earned on cash, bank deposits and deposits with financial institutions is approximately 0.8 per cent (2.4). The interest rate is calculated at company level and we are regarding this as directly attributable to group level as well.
120 | Gjensidige annual report 2015 12. Shares and similar interests
Private equity investments HitecVision Private Equity V LP 125.0 Argentum Secondary III 98.5 HitecVision Asset Solution KS 74.1 HitecVision VI LP 64.6 Energy Ventures III LP 59.9 Norvestor V LP 56.0 SOS International A/S 54.4 Altor Fund II LP 52.4 BaltCap PEF LP 50.6 Verdane Capital VII KS 48.8 HitecVision Private Equity IV LP 47.0 Partners Group European Buyout 2005 (A) LP 41.1 Argentum Secondary II 40.1 Energy Ventures II B IS 37.6 FSN Capital II LP 37.5 Norvestor VI LP 36.3 Norvestor IV LP 35.0 CapMan BO IX LP 32.3 Viking Venture III DIS 29.3 CapMan Buyout X 28.1 LGT Crown European Private Equity PLC 22.5 Northzone VI L.P. 22.2 Partners Group Direct Investments 2006 LP 19.8 NPEP1 IS (Altor fund III) 18.6
NOK millions Interest beyond 10% 31.12.2015 Verdane Capital VI KS 17.7 Teknoinvest VIII C IS 17.4 Energy Ventures IV LP 17.2 Northzone VII L:P 17.2 Nordic Additonal Funding Programme IS 16.5 Viking Venture II AS 14.2 NPEP Triton IV IS 14.1 HitecVision VII 14.1 Axcel IV 12.3 Procuritas Capital Investor V 9.7 Teknoinvest VIII KS (inkl. Teknoinv. VIII (GP) KS) 8.3 Scalepoint Technologies Limited 7.9 Energy Ventures II KS 7.4 Teknoinvest VIII B DIS 7.2 Sector Asset Management AS 6.9 NPEP NeoMed V (Neomed V LP og N5 invest IS) 6.8 Viking Venture II B IS 6.2 Nord II IS 5.2 NPEP Accent Equity 2012 IS 4.5 Northzone IV KS 4.3 Fjord Invest AS 4.2 Helgeland Invest 4.0 Tun Media AS 3.7 BTV Investeringsfond AS 3.0 Norinnova 2.1 Midvest I A 2.1 NeoMed Innovation IV LP 1.5 Verdane Capital V B KS 1.4 Midvest II A 1.3 Norinnova Invest AS 1.3 Other private equity investments 5.7 Total private equity investments 1,376.9
Hedge funds Goldman Sachs Global Opportunities Offshore S1 325.9 Sector Healthcare - A USD 267.1 Winton Futures Fund- Lead Series 162.5 Sector EuroPower Fund Class A EUR 123.6 Trient Global Macro Fund USD A-Class 114.6 Goldman Sachs Global Opportunities Offshore S105 106.5 Incentive Active Value Fund Class A 57.0 Sector Zen Fund Class L NOK 45.8 Sector Zen Fund Class A NOK 43.7 Sector Global Investments Fund Class A USD 21.6 Sector Speculare IV Fund Class A USD 12.4 Sector Global Investments Fund Class A1 USD 10.1 Sector Speculare II Fund Class A USD 3.2 Sector Spesit I Fund Class A USD 0.6 Total hedge funds 1,294.4
Real estate funds CEREP III 84.3 La Salle 21.8 Total real estate funds 106.1
Total shares and similar interests owned by Gjensidige Forsikring ASA 7,130.6
Total shares and similar interests owned by other group companies Aksjer og andeler eid av PZU Lietuva 36.3 Aksjer og andeler eid av Gjensidige Bank ASA 17.1 Aksjer og andeler eid av Gjensidige Pensjonsforsikring AS 11.9 Aksjer og andeler eid av Nykredit Forsikring A/S 6.2 Aksjer og andeler eid av Gjensidige Baltic AAS 0.2 Total shares and similar interests owned by other group companies 71.6
Total shares and similar interests owned by the Gjensidige Insurance Group 7,202.3
122 | Gjensidige annual report 2015 13. Insurance-related liabilities and reinsurers' share
Insurance-related liabilities, gross Premium reserve in life insurance 3,867.2 3,408.3 Provision for unearned premiums, gross from general insurance 9,230.0 8,536.3
Insurance-related liabilities net of reinsurance Premium reserve in life insurance 3,867.2 3,408.3 Provision for unearned premiums from general insurance 9,189.3 8,507.6
Claims reported and claims handling costs 17,844.8 16,186.3 Claims incurred, but not reported 14,841.4 16,217.5 Total claims provision, net of reinsurance 32,686.2 32,403.7
Claims and claims handling costs Claims reported and claims handling costs 16,709.4 (523.1) 16,186.3 14,720.3 (608.6) 14,111.7 Claims incurred, but not reported 16,217.5 16,217.5 17,029.4 (103.2) 16,926.1 Total as at 1 January 32,926.9 (523.1) 32,403.7 31,749.6 (711.8) 31,037.8
Acquisitions through business combinations 283.3 (60.4) 222.9 184.3 (127.1) 57.3 Claims paid, prior year claims (7,085.1) 333.3 (6,751.8) (6,688.6) 448.0 (6,240.6)
The difference between the estimated pension liability and the estimated value of pension assets as of the previous financial year and the actuarial pension liability and the fair value of the pension assets as of the beginning of the year is recognised under Other comprehensive income. In 2015 this yielded a positive effect on equity of approximately NOK 70 million and was mainly due to a increased discount rate. In the calculation for 2014 this difference amounted to more than NOK 400 million, and was mainly due to a reduced discount rate.
No information has become available in 2015 to indicate that GAP07 should be changed. There is uncertainty about how life expectancy will develop, especially for men. The Financial Supervisory Authority of Norway has adopted separate minimum requirements for life expectancy prices (K2013) for pension plans. These requirements concern the minimum price a life insurance company or pension fund shall charge to insure benefits. These minimum prices thus affect the size of the contributions that must be made towards the annual earnings and for the minimum requirement for pension assets.
The disability frequency is based on table IR73. It measures disability in the long term. The prevalence of disability is low compared with many other employers.
Minimum requirement for the level of pension assets The pension assets must meet certain minimum requirements defined in Norwegian laws, regulations and in orders issued by the Financial Supervisory Authority of Norway (FSA).
The liability to pay a contribution pursuant to the old scheme is recognised as a company-specific defined benefit plan. A contribution still has to be paid in connection with the Company’s own early retirement pensioners who choose the old AFP plan until the pension promise has been fully honoured. The pension promise to former employees who have chosen to retire on a pension before 1 January 2011 will thus be honoured as originally agreed until they have all reached the age of 67. As a result, there will be no reduction or settlement for this group of employees.
Business combinations (4.8) (2.0) (6.8) Foreign currency exchange rate changes 2.5 2.5 3.5 3.5 As at 31 December 2,275.7 555.9 2,831.6 2,335.5 588.1 2,923.7
Amount recognised in the balance sheet Present value of the defined benefit obligation 2,275.7 555.9 2,831.6 2,335.5 588.1 2,923.7 Fair value of plan assets (2,366.0) (2,366.0) (2,405.0) (2,405.0) Net defined benefit obligation/(benefit asset) (90.3) 555.9 465.6 (69.5) 588.1 518.6
Fair value of plan assets As at 1 January 2,405.0 2,405.0 2,391.6 2,391.6 Interest income 60.2 60.2 96.3 96.3 Return beyond interest income (5.4) (5.4) 2.3 2.3 Contributions by the employer 5.9 5.9 0.2 6.5 6.7 Benefits paid (90.2) (90.2) (85.3) (85.3) Employers' national insurance contributions of benefits paid (5.9) (5.9) (6.5) (6.6)
Pension expense recognised in profit or loss Current service cost 35.9 11.3 31.9 8.6 40.6 Interest cost 57.3 13.0 81.1 18.1 99.1 Interest income (60.2) (96.3) (96.3) Employers' national insurance contributions 5.1 1.6 4.5 1.2 5.7 Total defined benefit pension cost 37.9 25.9 63.8 21.2 27.9 49.1
Shares and similar interests 88.5 88.5 Bonds 965.8 1,169.3 2,135.1 Bank 54.9 54.9 Derivatives 87.5 87.5 Total 965.8 1,400.2 2,366.0
Other provisions and liabilities Restructuring cost 1 85.8 7.1 Other provisions 259.8 240.5 Total other provisions and liabilities 345.6 247.6
Deposits from and liabilities to customers Deposits from and liabilities to customers without maturity date, bank 16,233.4 15,563.0 Deposits from and liabilities to customers with maturity date, bank 3,123.8 1,140.3 Deposits from and liabilities to customers 19,357.2 16,703.4
Interest-bearing liabilities Cash credit 350.0 Liabilities to bond debt, bank 17,804.7 9,950.3 Total interest-bearing liabilities 17,804.7 10,300.3
Liabilities in life insurance with investment options Liabilities in life insurance with investment options 15,109.6 12,950.3 Total liabilities in life insurance with investment options 15,109.6 12,950.3
Specification of tax expense Tax payable (1,139.3) (1,203.7) Correction previous years (9.9) (8.6) Change in deferred tax (115.7) 2.3 Total tax expense (1,265.0) (1,210.0)
Deductible temporary differences Plant and equipment and intangible assets (231.4) Shares, bonds and other securities (237.9) Loans and receivables (98.5) (98.1) Provisions for liabilities (332.1) (245.5) Pension liabilities (362.4) (457.1) Insurance-related liabilities (17.8) (4.0) Other deductible temporary differences (95.8) (36.8) Total deductible temporary differences (906.6) (1,310.8) Loss carried forward (71.4) (7.5) Valuation allowance of deferred tax assets 9.2 Net temporary differences 3,285.6 4,761.6
Auditor's fee (incl. VAT) Statutory audit 5.0 4.8 Other assurance services 0.1 0.6 Other non-assurance services 0.5 1.3 Tax consultant services 0.7 0.1
Total auditor's fee (incl. VAT) 6.3 6.7 1 Other expenses include cost reductions for Gjensidige Forsikring ASA in connection with duties performed for subsidiaries and cost allocations to claims and finance.
The Board’s statement on the stipulation of pay and other remuneration Gjensidige’s remuneration policy The Group has established a remuneration system that applies to all employees. The system shall secure that Gjensidige attracts and keeps colleagues who performs, develops, learns and shares. The remuneration shall be competitive, but the Group shall not be a wage leader. Employees are expected to see the remuneration and benefits offered by the Group as an overall whole. The Group’s remuneration systems shall be open and performance-based, so that they, as far as possible, are perceived as being fair and predictable. The remuneration that is paid shall correspond to the agreed performance.
• Considering the management’s proposed ’Statement on the stipulation of pay and other remuneration for executive personnel’ cf. the Public Limited Liability Companies Act section 6-16a
Variable remuneration relating to Gjensidige’s performance is decided on the basis of the past two years’ performance. Half of the variable remuneration is paid in the form of a promise of shares in Gjensidige Forsikring ASA, 1/3 of which will be released in each of the following three years. Restricted variable remuneration that has not yet been disbursed may be reduced if subsequent results and developments indicate that it was based on incorrect assumptions. The CEO does not receive performance-based benefits over and above the above-mentioned bonus, but may receive payments in kind such as a company car and the coverage of costs for electronic communication. Payments in kind shall be related to the CEO’s function in the Group, and otherwise be in line with market practice.
The CEO has a period of notice of six months, and is not entitled to severance pay or termination benefits if he leaves the Company earlier.
The fixed salary is assessed and stipulated annually on the basis of wage growth in society in general and in the financial industry in particular. Variable remuneration (bonus) to executive personnel is
132 | Gjensidige annual report 2015 earned annually, and is based on an overall assessment of financial and non-financial performance over the two last years. The assessment takes into account a combination of the enterprise’s overall performance targets for return on equity adjusted for extraordinary dividends and transactions and combined ratio, as well as developments in customer satisfaction. In addition, it evaluates the target achievement of the business unit in question, as well as personal contribution relating to compliance with the Group’s vision, values, ethical guidelines and management principles. Half of the variable remuneration is in the form of a promise of shares in Gjensidige Forsikring ASA, one third of which are released in each of the following three years. Restricted variable remuneration that has not yet been disbursed may be reduced if subsequent results and developments indicate that it was based on incorrect assumptions.
Cecilie Ditlev-Simonsen, Executive Vice President 2,266.3 272.5 176.6 299.2 328.8 2,376 2,688 5,973 6,389 3
Sigurd Austin, Executive Vice President 2,618.5 337.4 75.3 711.9 377.9 2,785 4,354 7,000 6,805 3
1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 4 Annual fee of NOK 93.5 thousand for Chairman and NOK 41.8 thousand for Deputy Chairman. In addition, fee as Chairman of the Nominating committee. 5 For staff representatives only remuneration for the current position is stated. 6 Everyone in the senior group management except for one has pension plans, benefit or contribution based. 7 Including bonus shares in the share saving's programme for employees. See note 28 for terms and further description of the scheme. 8 Remuneration includes participation as Chairman in the Audit Committee honored with NOK 141.0 thousand for 2015. 9 Remuneration includes participation in the Audit Committee honored with NOK 94.0 thousand for 2015. 10 Hege Yli Melhus Ask has been on leave from 1 January to 11 May. Her remuneration is presented for the whole year. 11 Constituted Executive Vice President for Hege Yli Melhus Ask from 1 January to 11 May. 12 Borrower in Gjensidige Bank ASA with NOK 4,474.0 thousand outstanding. Applicable conditions are 2.40% in interest rate and loan maturity 31.01.2021.
Net income and gains/(losses) from buildings and other real estate Investment properties Rental income from investment properties, excl. unrealised gains/(losses) 348.0 326.6 Net revaluation investment properties 208.0 279.3 Net gains/(losses) from sale of investment properties 355.9 0.5 Administration expenses related to investment properties (52.7) (61.9) Total net income and gains/(losses) from investment properties 859.1 544.5
Owner-occupied properties Rental income from owner-occupied properties 18.6 22.0 Net gains/(losses) from sale of owner-occupied properties 33.8 3.1 Administration expenses related to owner-occupied properties (16.4) (16.9) Total net income and gains/(losses) from owner-occupied properties 36.0 8.3
Total net income and gains/(losses) from buildings and other real estate 895.1 552.8
Bonds and other fixed-income securities Net interest income/(expenses) from bonds and other fixed-income-securities 289.5 475.8 Unrealised gains/(losses) from bonds and other fixed-income securities (447.1) 156.7 Realised gains/(losses) from bonds and other fixed-income securities 81.5 182.1 Total net income and gains/(losses) from bonds and other fixed-income securities (76.1) 814.6
Net income and gains/(losses) from financial liabilities at amortised cost Net interest income/(expenses) from subordinated debt (43.8) (14.0) Total net income and gains/(losses) from financial liabilities at amortised cost (43.8) (14.0)
Net other financial income/(expenses) 1 (251.2) 216.2 Discounting of claims provision classified as interest expense (57.1) (80.7) Change in discount rate claims provision 57.6 (182.8)
Specifications Interest income and expenses from financial assets and liabilities not recognised at fair value through profit or
The timing of the outflow of capital is dependent on when the funds are making capital calls from their investors. Average remaining operating time for the funds, based on fair value, is slightly above four years (four) and six years (six) in average including option for of extension.
Principal, NOK millions 100 250 1,200 Currency NOK NOK NOK Issue date 5/21/2015 6/17/2014 10/2/2014 Maturity date 5/21/2025 6/17/2024 10/3/2044 First call date 5/22/2020 6/17/2019 10/2/2024 Interest rate 19 NIBOR 3M + 1,65% NIBOR 3M + 1,55% NIBOR 3M + 1,5%
General terms Regulatory regulation CRD IV CRD IV Solvency II Regulatory call Yes Yes Yes
Subsidiaries Försäkringshuset Amb & Rosèn AB Stockholm, Sweden 100.0% Försäkringsproduktion i Sverige AB Piteå, Sweden 100.0% Gjensidige Baltic AAS Riga, Latvia 100.0% Gjensidige Bank Holding AS Oslo, Norway 100.0% Gjensidige Norge AS Oslo, Norway 100.0% Gjensidige Pensjon og Sparing Holding AS Oslo, Norway 100.0% Lokal Forsikring AS Oslo, Norway 100.0% Mondux Affinity Aps Copenhagen, Denmark 100.0% Mondux Assurance Agentur A/S Copenhagen, Denmark 100.0% Mondux Service A/S Copenhagen, Denmark 100.0% Mondux AB Malmö, Sweden 100.0% NAF Forsikringsformidling AS Oslo, Norway 66.0% Nykredit Forsikring A/S Copenhagen Denmark 100.0% PZU Lietuva SA Vilnius, Lithuania 99,9% Samtrygd Eigedom AS Oslo, Norway 100.0%
Gross premiums written Gjensidige Baltic AAS 16.0 13.7 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 4.0 1.9 Nykredit Forsikring A/S 1,037.2 819.1 PZU Lietuva SA 2.8
Gross paid claims Gjensidige Baltic AAS 3.9 20.2 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 45.3 22.5 Nordisk Forsikrings Service AS 4.3 Nykredit Forsikring A/S 760.3 740.9
Administration expenses Försäkringshuset Amb & Rosèn AB 0.4 7.3 Gjensidige Baltic AAS 0.4 Gjensidige Bank ASA owned by Gjensidige Bank Holding AS) 32.3 31.5 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding AS) 1.4 1.6
Gjensidige Pensjon og Sparing Holding AS 8.6 9.3 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 42.2 47.7 Gjensidigestiftelsen 4.6 4.1
Co-operating companies 1 Fire Mutuals 18.6 140.1 17.7 130.0 Gjensidige Pensjonskasse 47.1 48.2 1 Cooperating companies are defined as companies with which Gjensidige Forsikring has entered into a long-term strategic alliance.
Loans As at 31 December 2015 employees have loans in Gjensidige Bank amounting to NOK 1,225.3 million (1,364.1). The loans are offered on normal commercial conditions.
Group contributions Gjensidige Pensjon og Sparing Holding AS 0.9 1.5 Oslo Areal AS 22.0 Tennant Assuranse AS (owned by Lokal Forsikring AS) 5.9 4.0
Total gains and losses in connection with sale, liquidation and impairment losses 381.1 13.5 114.7 47.3
Reinsurance deposits Nykredit Forsikring A/S 523.7 576.7 Total reinsurance deposits 523.7 576.7
Cooperating companies Fire Mutuals 39.9 15.7 Gjensidige Pensjonskasse 2 111.0 111.0 Total intercompany balances with cooperating companies 111.0 39.9 111.0 15.7 2 Gjensidige Forsikring ASA is a sponsor of Gjensidige Pensjonskasse and has contributed with funds equivalent to NOK 111.0 million.
Other intercompany balances Bank deposits Brannkassene Gjensidige Bank ASA 15.5 14.2
Assets with 0% risk weight 3,596.6 2,761.7 Assets with 10% risk weight 3,037.0 4,089.0 Assets with 20% risk weight 46,213.7 40,543.7 Assets with 35% risk weight 30,298.9 23,559.8 Assets with 50% risk weight 923.4 962.8 Assets with 100% risk weight 38,517.9 35,699.1 Assets with 150% risk weight 1,609.3 1,948.3
Weighted reinvestment cost derivatives 1,169.2 1,077.3 Primary capital in other financial institutions (827.2) (1,177.9) Loss provisions (352.9) (351.8)
Risk weighted calculation base (B) 61,533.8 55,414.1 Capital ratio (A/B) 17.1% 18.1% FSAN minimum requirement 8.0% 8.0% FSAN minimum requirement (C) 4,922.7 4,433.1 Primary capital surplus (A-C) 5,588.4 5,583.7
The shareholder list is based on the VPS shareholder registry as of 31 December 2015. A shareholder list showing the owners behind nominee accounts can be found on page 21.
The fair value at the grant date is measured based on the market price. The amount is recognised as payroll expenses at grant date. No specific company-related or market-related entitlement criteria apply to the shares, but the Company may carry out a reassessment if subsequent results and development suggest that the bonus was based on incorrect assumptions. The expected allocation is set to 100 per cent. The value of the cash-settled share is adjusted at each reporting period based on the share price at this time. The number of shares is adjusted for dividend paid.
The number of shares Outstanding 1 January 87,603 80,907 77,879 72,749 Granted during the period 26,861 24,527 29,763 26,881 Forfeited during the period (48,579) (43,903) (31,662) (29,575) Quantity adjusted during the period 601 (601) Modification dividend during the period 2,826 2,743 11,623 10,852 Outstanding 31 December 69,312 63,673 87,603 80,907 Exercisable 31 December 0 0 0 0
All terms and conditions related to the acquisition were clarified and the payment was transferred by the end of September, so the acquisition date was set at 30 September 2015. PZU Lietuva is recognised in the consolidated accounts of Gjensidige Forsikring as from that date.
The acquisition is a result of the Group’s intention to increase its market share in the Baltics. As a result of the acquisition, Gjensidige’s market share in general insurance in the Baltics will increase from about seven to about 13 per cent. The market share in general insurance in Lithuania increases from about seven to about 21 per cent. The acquired business has gross earned premiums of about EUR 50 million, divided between 40 per cent in the Private market and 60 per cent in the Commercial market. Through PZU Lietuva, Gjensidige has got 334 new employees.
EUR millions Carrying amount before the transaction Fair value adjustment Fair value at the acquisition date
General insurance claims Gross paid claims 4 (14,919.7) (14,209.1) Paid claims, reinsurers' share 201.9 446.9 Change in gross provision for claims 4 916.3 103.9 Change in provision for claims, reinsurers' share (148.1) (351.0) Total claims incurred, net of reinsurance (13,949.5) (14,009.3)
Insurance-related operating expenses Insurance-related administration expenses incl. commissions for received reinsurance and sales expenses 4, 17 (3,117.5) (2,888.6)
Change in security provisions etc. Change in security provision (5.4) (53.1) Total change in security provisions etc. (5.4) (53.1)
Net income from investments Income from investments in subsidiaries, associates and joint ventures 777.3 1,407.5 Impairment losses investments in subsidiaries, associates and joint ventures (47.5) Interest income and dividend etc. from financial assets 1,275.8 1,500.5 Net operating income from property 11.9 14.8 Changes in fair value on investments 8.6 790.8 Realised gain and loss on investments (365.4) 66.7 Administration expenses related to investments, including interest expenses (272.0) (324.6) Total net income from investments 19 1,436.2 3,408.3
Assets Goodwill 1,676.7 1,568.6 Other intangible assets 846.9 795.5 Total intangible assets 5 2,523.6 2,364.1
Investments Buildings and other real estate Investment properties 169.7 Owner-occupied property 7 19.0 79.2 Subsidiaries and associates Shares in subsidiaries 6 5,421.2 6,344.7 Shares in associates and joint ventures 6, 9 1,098.4 5.5 Interest bearing receivables within the group incl. joint ventures 22 1,538.0 3,430.5 Financial assets measured at amortised cost Bonds held to maturity 8 1,797.1 2,421.7 Loans and receivables 8, 10 16,338.3 16,089.9 Financial assets measured at fair value Shares and similar interests (incl. shares and similar interests measured at cost) 8, 12 7,130.6 7,469.5 Bonds and other fixed-income securities 8 24,205.7 19,888.5 Financial derivatives 8 327.8 324.4 Reinsurance deposits 524.6 577.4 Total investments 58,400.7 56,801.1
Receivables Receivables related to direct operations 8 4,671.0 4,362.7 Receivables related to reinsurance 8 25.7 64.8 Receivables within the group 22 61.0 133.2 Other receivables 10 367.2 669.3 Total receivables 5,124.8 5,230.0
Other assets Plant and equipment 7 274.7 312.3 Cash and cash equivalents 8, 11, 26 1,704.5 1,652.1 Deferred tax assets 16 31.2 Pension assets 14 93.1 70.5 Total other assets 2,072.4 2,066.0
Retained equity Funds etc. Natural perils fund provision 2,171.0 2,305.3 Guarantee scheme provision 616.2 596.9 Other retained earnings 10,768.2 10,809.3 Total retained earnings 13,555.4 13,711.6
Provision for liabilities Pension liabilities 14 528.7 558.6 Current tax 16 1,145.6 1,030.1 Deferred tax liabilities 16 229.1 Other provisions 15 335.8 245.5 Total provision for liabilities 2,239.2 1,834.2
The security provision will be reclassified from liabilities to equity and provision for deferred tax on the security provision will be recognised. These changes will be implemented from 1 January 2016. Discounting and risk margin are expected to be implemented at a later stage in Group and company accounts, in connection with the implementation of IFRS 4 phase II.
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset 69.0 69.0 Tax on items that are not reclassified to profit or loss (17.1) (17.1) Total items that are not reclassified subsequently to profit or loss 51.9 51.9
Net receipts/payments on sale/acquisition of owner-occupied property, plant and equipment (75.5) (214.5)
Effect of exchange rate changes on cash and cash equivalents 11.7 24.0
Cash and cash equivalents at the start of the period 1,652.1 1,002.2
Cash and cash equivalents at the end of the period 1,704.5 1,652.1
The accounting policies applied in the financial statements are described below. The policies are used consistently throughout the entire Group with the exception of one difference that is permitted in accordance with IFRS 4 about insurance contracts. See description under the section Claims provision, gross.
IFRS 15 Revenue from contracts with customers (2014) IFRS 15 covers all contracts with customers, but insurance contracts, among others, are exempted. Insofar as such contracts cover the provision of several services or other services closely related to the insurance operations carried out, this may have a bearing on how Gjensidige recognises revenues in its accounts. IFRS 15 is effective 1 January 2018. Our preliminary assessment is that services beyond what is covered by IFRS 4 about insurance contracts comprise an insignificant part of the income.
IFRS 16 Leasing (2016) IFRS 16 requires all contracts that qualify under its definition as a lease to be reported on a lessee’s balance sheet as right of use assets and lease liabilities. Earlier classification of leases as either operating leases or finance leases are removed. Short-term leases (less than 12 months) and leases of low-value assets are exempt from the requirements. A lessee shall recognise a right-ofuse assets and a lease liabilities. Interest expense on the lease liability shall be presented separately from the depreciation charge for the right-of-use asset. Interest expense is a component of finance costs. IFRS 16 is effective 1 January 2019. The standard will increase the total balance and split the leasing expense in operating expenses and financial expenses.
Functional and presentation currency The financial statements are presented in NOK. The mother company and the different branches have respectively Norwegian, Swedish and Danish kroner as functional currency. All financial information is presented in NOK, unless otherwise stated.
Gjensidige holds an investment portfolio that is designated at fair value at initial recognition, and that is managed and evaluated regularly at fair value. This is according to the Board approved risk management and investment strategy, and information based on fair value is provided regularly to the Senior Group Management and the Board.
Loans and receivables Loans and receivables are non-derivative financial assets with payments that are fixed or determinable. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.
Gjensidige annual report 2015 | 155 the cost price of the share when the acquired operation is accounted for.
The fair value of share-based payment arrangements allocated to employees is at the time of allocation recognised as personnel costs, with a corresponding increase in equity. Share-based payment arrangements which are recovered immediately are recognised as expenses at the time of allocation. Vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised shall be based on the number of equity instruments that eventually vest. Nonvesting conditions are reflected in the measurement of fair value, and no adjustment of the amount recognised as expenses is done upon failing to meet such conditions.
Deferred tax liabilities are recognised for temporary differences resulting from investments in subsidiaries and associates, except in cases where the Group is able to control the reversal of temporary differences, and it is probable that the temporary difference will not be reversed in foreseeable future. Deferred tax assets that arise from deductible temporary differences for such investments are only recognised to the extent that it is probable that there will be sufficient taxable income to utilise the asset from the temporary difference, and they are expected to reverse in the foreseeable future.
At the end of the year the number of own shares was 68.175 (63,579).
A total of 259.515 (208,030) own shares at an average share price of NOK 128.51 (120.02) have in 2015 been acquired to be used in Gjensidige's share-based payment arrangements. Of these 173,499 (152,960) shares have been sold to employees, at the same price, but with a discount in the form of a contribution, see note 28. In addition 48,579 (31,662) shares have been allocated to executive personnel within the share-based remuneration scheme and 32,841 (19,644) bonus shares have been allocated to employees in the share savings programme in 2015. Own shares are increased by 4,596 (3,764) through the year.
158 | Gjensidige annual report 2015 2. Use of estimates The preparation of the financial statements under IFRS and the application of the adopted accounting policies require that management make assessments, prepare estimates and apply assumptions that affect the carrying amounts of assets and liabilities, income and expenses. The estimates and the associated assumptions are based on experience and other factors that are assessed as being justifiable based on the underlying conditions. Actual figures may deviate from these estimates. The estimates and associated prerequisites are reviewed regularly. Changes in accounting estimates are recognised in the period the estimates are revised if the change only affects this period, or both in the period the estimates change and in future periods if the changes affect both the existing and future periods.
Gross claims incurred Incurred during the year (1,838.2) (3,154.3) (1,367.3) (1,787.0) (146.7) (358.9) (584.2) (263.6) (6,345.9) Incurred previous years (6.6) 283.7 267.2 16.5 (6.5) 83.5 (69.9) (19.6) 264.7 Gross claims incurred (1,844.8) (2,870.5) (1,100.1) (1,770.5) (153.2) (275.4) (654.2) (283.2) (6,081.2)
Technical provisions Provision for unearned premiums, gross 1,517.1 2,643.6 1,192.3 1,451.3 90.0 323.7 418.5 109.5 5,102.4
Security provision 1,471.8 FSAN 1 minimum requirement 1,471.8 1 The Financial Supervisory Authority of Norway.
Gross claims incurred Incurred during the year (1,664.5) (1,101.1) (1,260.9) (490.7) (770.1) (373.5) (443.4) (211.2) (106.8) (99.1) (20.0) (322.0) (81.1) (1,345.9) (7,029.5) Incurred previous years 78.7 18.9 (10.1) (10.5) 0.4 24.9 139.7 (7.8) 3.9 0.8 6.0 100.3 0.3 10.8 366.2 Gross claims incurred (1,585.8) (1,082.2) (1,270.9) (501.2) (769.7) (348.7) (303.7) (219.1) (103.0) (98.3) (14.0) (221.6) (80.9) (1,335.1) (6,663.3)
Gross claims incurred Incurred during the year (126.9) (126.9) (687.2) (30.9) (718.1) (380.8) (14,601.3) Incurred previous years 18.8 18.8 (29.4) (53.4) (82.8) 31.0 597.9 Gross claims incurred (108.1) (108.1) (716.6) (84.3) (800.9) (349.8) (14,003.4)
Technical provisions Provision for unearned premiums, gross 15.5 15.5 119.7 8,238.4
Carrying amount As at 1 January 2014 1,388.7 287.8 15.4 418.6 41.3 2,151.7 As at 31 December 2014 1,568.6 286.2 6.4 482.2 20.7 2,364.1
The company’s intangible assets are either acquired or internally developed. Goodwill, customer relationships and parts of other intangible assets are all acquired through business combinations or mergers, and are a result of a purchase price allocation of initial cost of the acquisition. Internally developed software is developed for use in the insurance business. External and internal assistance used in relation developed software is developed for use in the insurance business. External and internal assistance is used in relation with implementation or substantial upgrade of software, including adjustment of standard systems, are capitalized as intangible assets. Amortisation is included in Insurance-related administration expenses including commissions for received reinsurance and sales expenses.
The company has had a few minor additions through business combinations during 2015.
Goodwill Gjensidige Forsikring, Danish branch 1,091.9 1,016.7 Workers' compensation insurance in Denmark 121.1 114.5
The annual assessment of impairment losses was carried out in the third quarter of 2015. There has also been carried out indication assessments during other quarters in order to assess whether there is new evidence that calls for a new impairment assessment.
Budgets/prognoses and the period for which the cash flows are projected The projection of cash flows is based on budget and forecast for the next four years reviewed by the management and approved by the Board. In the period after 2019 an annual growth of two and a half and three per cent has been projected until 2024. The terminal value is calculated in 2024. The growth is grounded in the fact that the companies are small and with a solid parent company, which gives them good chances of increasing market shares. In the forecast period the Swedish branch has a higher premium growth than the other cash generating units because several measures are established in 2015 to increase growth and improve profitability. The cash flows are estimated to a normal level before a terminal value is calculated. Gjensidige normally has a ten-year horizon on its models, as the portfolios are in a growth phase and a shorter period will not give a correct view of expected cash flows.
The growth rate in terminal value calculation The growth rate is determined to 2.5 per cent in Scandinavia, down from 3.0 that was used in 2014.
Discount rate The discount rate is before tax, and is composed of a risk-free interest rate, a risk premium and a market beta. The risk-free rate is equivalent to a ten-year interest rate on government bonds in the respective countries where the subsidiaries and branches operate in and in addition a risk premium is added. The risk premium is increased somewhat from 2014 due to the decline in interest rate on government bonds. The discount rate that has been used is 7.5 per cent for Denmark and Sweden.
NOK 118 million Gjensidige Forsikring, Swedish branch No need for impairment No need for impairment No need for impairment No need for impairment Gjensidige Forsikring, white label No need for impairment No need for impairment No need for impairment No need for impairment Gouda portfolio No need for impairment No need for impairment No need for impairment No need for impairment
Gjensidige annual report 2015 | 163 6. Shares in subsidiaries, associates and joint ventures
Associates - additional information Vervet AS 100.0 4.3 95.7 0.7 (1.7) N/A Total shares in associates 100.0 4.3 95.7 0.7 (1.7)
6 Operating income. For companies where financial income is operating income, financial income is included. For other companies financial income is not included.
In November, Gjensidige sold 50 per cent of the shares in Oslo Areal to AMF Pensionsforsäkring (AMF). The transaction implies that Gjensidige and AMF will own Oslo Areal together as a joint venture, as each party has rights to its share of the net assets of the arrangement. The parties will make joint investments in the Norwegian real estate market through Oslo Areal. The investment is recognised at cost of NOK 1.1 billion at year end. Principles for valuation of real estate investments are disclosed in Note 9 Investment property. Gjensidige Forsikring has granted a loan to Oslo Areal amounting to NOK 1.5 billion at year end. The loan is interest-bearing.
There are contractual commitments regarding development of investment properties in Oslo Areal AS amounting to NOK 71.0 million (80.0). The commitment falls due during the period until 31 December 2017.
Gjensidige sold on 26 February 2014 the holding in Storebrand ASA. Accounting gain from the transaction was NOK 1,108.7 million in the consolidated accounts. The sales amount on sale of 20.1 per cent was NOK 3,256.5 million and was received in cash. Following the completion of the sale, Gjensidige will not hold any shares in Storebrand ASA.
Depreciation and impairment losses As at 1 January 2015 (29.0) (348.2) (377.2) Depreciation for the year (2.6) (56.8) (59.5) Disposals 28.1 31.1 59.2 Exchange differences (3.5) (3.5) As at 31 December 2015 (3.8) (377.4) (381.2)
Depreciation method Straight-line Straight-line Useful life (years) 10-50 3-10 1 Plant and equipment consist mainly of machinery, vehicles, fixtures and furniture.
Market value of land and owner-occupied property 34.6 97.6 Carrying amount of land and owner-occupied property 19.0 79.2 Excess value beyond carrying amount 15.6 18.4
Following the sale of two owner-occupied properties to Oslo Areal, the owner-occupied property in Gjensidige Forsikring ASA mainly consists of leisure houses and cottages.
Gjensidige annual report 2015 | 167 8. Financial assets and liabilities Fair value Financial assets and liabilities measured at fair value are carried at the amount each asset/liability can be settled to in an orderly transaction between market participants at the measurements date at the prevailing market conditions.
Financial assets held to maturity Bonds held to maturity 1,797.1 1,925.0 2,421.7 2,628.1
Loans and receivables Bonds and other fixed income securities classified as loans and receivables 10 16,173.2 17,439.1 15,908.1 17,865.2 Loans 10 165.1 165.1 181.9 181.2 Receivables related to direct operations and reinsurance 4,696.7 4,696.7 4,427.5 4,427.5 Receivables from Group companies 22 61.0 61.0 3,563.7 3,563.7 Other receivables 10 367.2 367.2 669.3 669.3 Prepaid expenses and earned, not received income 25.7 25.7 50.8 50.8 Cash and cash equivalents 11, 26 1,704.5 1,704.5 1,652.1 1,652.1
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 366.3 366.3 297.0 297.0 Financial derivatives subject to hedge accounting 209.3 209.3
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 1,092.2 4,110.6 1,927.9 7,130.6 Bonds and other fixed income securities 7,462.6 14,568.6 2,174.5 24,205.7
Shares and similar interests 2,124.9 (142.3) 278.3 (333.0) 1,927.9 (226.9) Bonds and other fixed income securities 406.0 56.1 1,749.7 (37.3) 2,174.5 Total 2,530.9 (86.2) 2,028.0 (370.3) 4,102.4 (226.9)
Shares and similar interests Decrease in value 10% 192.8 Bonds and other fixed income securities Decrease in value 10% 217.4 Total 410.2
Gjensidige Forsikring, Danish branch Currency-related contracts - hedging instruments 0.0 0.0 0.0 Hedging object 0.0
The investment properties were mainly located in Oslo and the surrounding area, as well as Drammen, Fredrikstad and Stavanger. The average rental period is 5.1 years and the portfolio of investment properties includes principally offices.
The valuation model is developed by Oslo Areal AS over multiple years. The valuation model has been used both in the quarterly financial statements and at year end. In addition, by half year and year end independent valuations from external advisors are gathered for selected parts of the portfolio. The assumptions in the model are reconciled against external observable property transactions.
Yield is determined based on a normal required rate of return adjusted for the location of the property, type, technical standard and the contracts. The normal required rate of return is determined from the required rate of return that can be derived from transactions in the market, and expectations of interest level and risk adjustment. The market rent is determined from existing contracts on the property and comparable properties, observations from contractual negotiations, requests for offers and information from realtors and Arealstatistikk’s database.
Gjensidige Forsikring does not have any investment properties for leasing or classified as available for sale.
Statement of financial position As at 1 January 169.7 177.3 Disposals (176.1) (12.7) Net gains/(losses) from fair value adjustments 6.4 5.1 As at 31 December 0.0 169.7
Loans and receivables Mortgage loans 1.0 Bonds classified as loans and receivables 16,173.2 15,908.1 Other loans 163.2 181.0 Subordinated loans 3.7 2.6 Provision for impairment losses (1.8) (2.8) Total loans and receivables 16,338.3 16,089.9
Included in other loans are also NOK 60.7 million (53.8) regarding loans given with regard to sale of subsidiaries.
Deposits with financial institutions 737.1 471.0 Cash and bank deposits 967.5 1,181.0 Total cash and cash equivalents 1,704.5 1,652.1
Gjensidige Forsikring ASA Norwegian financial shares SpareBank1 SR-bank 1,053.6 Sparebanken Midt-Norge 16.5 Sparebank 1 Nord-Norge 13.7 Sparebanken Vest 10.6 Indre Sogn Sparebank 0.3 Total Norwegian financial shares 1,094.7
Other Norwegian shares Petroleum Geo-Services 4.7 Austevoll Seafood 4.5 Solstad Offshore 3.4 Norsk Hydro 3.3 Total other Norwegian shares 15.9
Other foreign shares Volvo B 11.9 Grand City Properties SA 8.4 LEG Immobilien AG 7.8 Deutsche Wohnen AG 7.7 Vonovia SE 7.5 Total other foreign shares 43.3
Equity funds Nordea Stabile Aksjer Global 404.0 INVESTEC GS GLOBAL EQTY 392.5 Winton UCITS Funds plc - Winton Global Equity Fund 255.1 DB Platinum CROCI World ESG Fund 244.2 Nordea 1 SICAV Stable Emg. Market Equity B1- USD 151.7 Fisher Emerging Markets Equity Fund USD 149.2 Sector Global Equity Kernel Fund Class P USD 143.2 Iridian US Equity Fund 136.8 Danske Invest Norske Aksjer Institusjon I 58.5 Storebrand Norge 55.2 Storebrand Global Indeks I 31.2 Wells Fargo Lux Worldwide EM Equity Fund 0.1 Total equity funds 2,021.6
Private equity investments HitecVision Private Equity V LP 125.0 Argentum Secondary III 98.5 HitecVision Asset Solution KS 74.1 HitecVision VI LP 64.6 Energy Ventures III LP 59.9 Norvestor V LP 56.0 SOS International A/S 54.4 Altor Fund II LP 52.4 BaltCap PEF LP 50.6 Verdane Capital VII KS 48.8 HitecVision Private Equity IV LP 47.0 Partners Group European Buyout 2005 (A) LP 41.1 Argentum Secondary II 40.1 Energy Ventures II B IS 37.6 FSN Capital II LP 37.5 Norvestor VI LP 36.3 Norvestor IV LP 35.0 CapMan BO IX LP 32.3 Viking Venture III DIS 29.3 CapMan Buyout X 28.1 LGT Crown European Private Equity PLC 22.5 Northzone VI L.P. 22.2 Partners Group Direct Investments 2006 LP 19.8 NPEP1 IS (Altor fund III) 18.6 Verdane Capital VI KS 17.7
Real estate fund CEREP III 84.3 La Salle 21.8 Total real estate funds 106.1
Combination funds Parvest Convertible Bond World (USD) - SICAV 655.5 Shenkman Finsbury Global 410.8 Total combination funds 1,066.4
Shares and similar interests owned by other branches Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 0.4 Total shares and similar interests owned by other branches 0.4
174 | Gjensidige annual report 2015 13. Insurance-related liabilities and reinsurers' share
Claims reported and claims handling costs 17,038.3 15,930.5 Claims incurred, but not reported 14,614.3 16,051.4 Total claims provision, gross 31,652.5 31,981.9
Insurance-related liabilities, reinsurers' share Reinsurers' share of unearned premiums, gross 32.0 28.7
Claims reported and claims handling costs 356.1 501.0 Claims incurred, but not reported 5.7 Total reinsurers' share of claims provision, gross 361.7 501.0
Claims paid, prior year claims (6,592.7) 199.8 (6,392.9) (6,167.7) 432.6 (5,735.1) Increase in liabilities Arising from current year claims 14,739.6 (2.6) 14,736.9 14,607.2 (133.0) 14,474.1 - of this paid (8,327.0) 2.2 (8,324.8) (8,041.4) 14.6 (8,026.8) Arising from prior year claims (run-off) (736.2) (30.8) (767.0) (502.0) 28.5 (473.6) Other changes, including effects from discounting (0.5) (0.5) 263.5 263.5 Exchange differences 536.9 (29.3) 507.6 591.2 (22.0) 569.1 Total as at 31 December 31,652.5 (361.7) 31,290.8 31,981.9 (501.0) 31,480.9
Provisions for unearned premiums As at 1 January 7,836.7 (28.7) 7,808.0 7,325.1 (15.5) 7,309.6 Additions through acquisitions 88.0 88.0 Increase in the period 21,320.2 (449.9) 20,870.3 20,486.7 (494.0) 19,992.7 Earned in the period (21,024.4) 447.2 (20,577.2) (20,146.5) 481.4 (19,665.1) Exchange differences 105.9 (0.6) 105.3 83.4 (0.6) 82.7 Total as at 31 December 8,238.4 (32.0) 8,206.4 7,836.7 (28.7) 7,808.0 1 For own account.
Defined contribution plan Defined contribution pension is a private pension plan that supplements the National Insurance scheme. Benefits from the pension plan come in addition to retirement pension from the National Insurance scheme. The retirement age is 67.
Recognition Pension liabilities are valued at the present value of the future pension benefits that, for accounting purposes, are deemed to have been accrued on the reporting date. Future pension benefits are calculated on the basis of the expected salary at the time of retirement. The estimated liability on the reporting date is used when measuring the accrued pension liability. Pension assets are valued at market value (transfer value). The estimated value on the reporting date is used for the valuation of pension assets. The net pension liability is the difference between the present value of the pension liability and the value of the pension assets. A provision is made for employer’s National Insurance contributions during periods when underfunding arise. The net pension liability is shown in the balance sheet on the line for Pension liabilities. If there is a net overfunding in the funded plan, this is recognised as Pension assets.
The pension liabilities are exposed to credit risk since the covered bond yield is used as the basis for determining the discount rate. The credit mark-up for covered bond exposure is composed of the market mark-up for ten years, while from year 20 it is based on long-term equilibrium mark-ups, and between year ten and year 20, it is interpolated linearly between the market mark-up and the longterm equilibrium mark-ups. A shift in the credit mark-ups will thereby directly affect the value of the cash flows until year ten and then have a falling effect for the next ten years. From year 20, the market mark-ups will only have a marginal effect.
A real wage growth will increase the liabilities. An increase in inflation will increase wage, pension regulations and discount rate.
If the level of the pension assets falls below a lower limit, Gjensidige will have to pay extra pension contributions to bring them up to the lower limit. On certain conditions, the Group will also be repaid pension assets.
In 2016, a number of changes in the Norwegian regulation are carried out, and the FSA’s practice of the rule changes is uncertain. Thus, the pension funds run into a period of political risk.
Low interest rates can lead to the FSA imposes the Pensjonskasse to lower interest rates from 2 per cent to 1.5 per cent, or 1 per cent for new accrued benefits. Gjensidige expects that there is a high risk that interest rates will be lowered to 1 per cent if long-term government bond yields will remain at 1.3 per cent level.
The minimum level of the pension assets is also affected by capital adequacy requirements and solvency margin requirements. The
Gjensidige annual report 2015 | 177 regulations relating to pension funds (IORP) are currently under development in the EU, but Norway has decided that life insurance companies and pension funds shall be subject to the same capital requirements to protect future pensions through Solvency II regulations or an adjusted version.
Collective pension (AFP) As a member of Finance Norway, Gjensidige has a collective (AFP) pension agreement for its employees. AFP is a defined benefit plan that is financed jointly by very many employers. The administrator of the pension plan has not presented calculations that allocate the pension assets or liabilities in the plans to the individual member enterprises. Gjensidige therefore recognises the plan as a defined contribution plan.
Present value of the defined benefit obligation As at 1 January 2,318.5 558.6 2,877.1 2,007.5 457.6 2,465.1 Current service cost 34.9 10.7 45.7 31.2 8.0 39.2 Employers' national insurance contributions of current service cost 4.9 1.5 6.4 4.4 1.1 5.5
Interest cost 56.8 12.3 69.1 80.6 17.1 97.6 Actuarial gains and losses (63.6) (11.1) (74.7) 280.4 122.5 402.9 Benefits paid (89.5) (40.2) (129.7) (85.3) (44.9) (130.2) Employers' national insurance contributions of benefits paid (5.7) (5.7) (6.3) (6.3)
Amount recognised in the balance sheet Present value of the defined benefit obligation 2,258.8 528.7 2,787.6 2,318.5 558.6 2,877.1 Fair value of plan assets (2,352.0) (2,352.0) (2,389.0) (2,389.0) Net defined benefit obligation/(benefit asset) (93.1) 528.7 435.6 (70.5) 558.6 488.2
Business combinations (2.1) (2.1) Settlements (0.3) (0.3) As at 31 December 2,352.0 2,352.0 2,389.0 2,389.0
Expense recognised in profit or loss Current service cost 34.9 10.7 45.7 31.2 8.0 39.2 Interest cost 56.8 12.3 69.1 80.6 17.1 97.6 Interest income (59.9) (59.9) (95.8) (95.8) Employers' national insurance contributions 4.9 1.5 6.4 4.4 1.1 5.5 Total defined benefit pension cost 36.8 24.5 61.4 20.4 26.2 46.6
NOK millions Funded 2015 Unfunded 2015 Total 2015 Funded 2014 Unfunded 2014 Total 2014
Other specifications Amount recognised as expense for the defined contribution plan 142.1 123.7
Sensitivity 10% increased mortality (4.3%) (4.3%) 10% decreased mortality 3.3% 3.3% + 1% point discount rate (11.0%) (11.2%) - 1% point discount rate 14.7% 15.0% + 1% point salary adjustment 4.3% 4.5% - 1% point salary adjustment (3.3%) (3.4%) + 1% point social security base amount (1.6%) (1.7%) - 1% point social security base amount 1.8% 1.9% + 1% point future pension increase 11.9% 12.2% - 1% point future pension increase (9.4%) (9.5%)
Shares and similar interests 88.0 88.0 Bonds 960.1 1,162.3 2,122.4 Bank 54.6 54.6 Derivatives 87.0 87.0 Total 960.1 1,391.9 2,352.0
Restructuring costs 1 Provision as at 1 January 7.1 25.4 New provisions 84.9 Provisions used during the year (7.1) (18.3) Exchange rate difference 0.9 Provision as at 31 December 85.8 7.1 1 In 2015 NOK 84.9 million is allocated to restructuring provision, due to a decision of changes in processes in Norway, Denmark and Sweden. The processes have been communicated to all entities affected by the changes.
Correction previous years (14.5) (20.5) Change in deferred tax (243.7) 118.8 Total tax expense (1,153.5) (946.3)
Deferred tax liabilities and deferred tax assets Deferred tax liabilities and deferred tax assets are offset when there is a legally enforceable right to offset those assets/liabilities and when deferred tax liabilities/deferred tax assets relate to the same fiscal authority. The amounts offset are as follows: Taxable temporary differences Property, plant and equipment and intangible assets 1,214.1 708.8
Shares, bonds and other securities 227.6 Profit and loss account 229.5 286.8 Total taxable temporary differences 1,671.2 995.7
Deferred tax liabilities/(deferred tax assets) 25% in 2015 and 27% in 2014 229.1 (31.2)
Reconciliation of tax expense Profit before tax 4,895.1 6,067.6 Estimated tax of profit before tax expense (27%) (1,321.7) (1,638.3)
Tax recognised in other comprehensive income Deferred tax pensions (18.4) 108.8 Change in tax rate on pensions from 27% to 25% 1.4 Deferred tax on hedge accounting 20.1 Tax payable on hedge accounting (16.9) 18.4 Tax payable on exchange rate differences (79.8) (36.7) Total tax on items in other comprehensive income (113.8) 110.6
182 | Gjensidige annual report 2015 18. Salaries and remuneration The average number of employees in the Group was 2,926 (2,881).
The retirement age for members of the senior group management is 62, but one member of the group management has a retirement age of 70, in accordance with the national labour legislation. Of the current members of the senior group management, four are members of the closed Norwegian defined-benefit pension scheme. Given the full earnings period, they are entitled to a pension of 70 per cent of final salary at the full vesting period of 30 years. Five members are part of the Company’s defined-contribution pension scheme. The Company continues a previously agreed individual pension agreement for one member of the senior group management.
With exception from one employee in the Group, there are no severance pay arrangements for executive personnel who leave their position in Gjensidige Forsikring ASA. In accordance with practice in Denmark, there are certain individual agreements on severance pay in connection with resignation in Gjensidige Forsikring ASA in Denmark.
Jørgen Inge Ringdal, Executive Vice President 2,521.1 285.7 175.4 851.6 345.7 2,621 4,598 6,931 17,167 2
Martin Danielsen, Executive Vice President 12 2,425.1 275.4 160.3 670.3 334.2 2,400 4,434 6,236 17,863 3
Control committee Sven Iver Steen, Chairman 172.5 1,778 Hallvard Strømme 108.0 1.7 Lieslotte Aune Lee 108.0 Vigdis Myhre Næsseth, Deputy 97.5
Martin Danielsen, Executive Vice President 12 2,358.9 300.9 163.4 479.8 323.8 2,603 3,046 8,021 14,835 3
The Board Inge K. Hansen, Chairman 535.7 8.2 12,253 Trond V. Andersen 281.2 13.8 1,805 Hans-Erik Andersson 8 411.4 5.9 1,778 Mari T. Skjærstad (1.1.14-27.5.14) 1 188.4 4.7 Gisele Marchand 9 359.1 3.0 1,481 Gunnhild H. Andersen, staff representative 5 274.4 785 Kjetil Kristensen, staff representative 5, 9 365.9 526 Gunnar Mjåtvedt, staff representative 5, 9 365.9 1,838 Per Arne Bjørge 9 365.9 6.7 10,542 Mette Rostad 267.6 8.9 2,794 Tine Wollebekk (27.5.14-31.12.14) 1 64.5 1.2
186 | Gjensidige annual report 2015 19. Net income from investments
Derivatives Net interest income/(expenses) from derivatives (26.9) (5.9) Unrealised gains/(losses) from derivatives 156.3 (164.0) Realised gains/(losses) from derivatives (721.5) (668.6) Total net income and gains/(losses) from derivatives (592.1) (838.5)
Total net income and gains/(losses) from financial assets at fair value through profit or loss, designated (484.6) 1,346.8
Net income and gains/(losses) from financial liabilities at amortised cost Net interest income/(expenses) from subordinated debt (34.6) (9.5) Total net income and gains/(losses) from financial liabilities at amortised cost (34.6) (9.5)
Net other financial income/(expenses) 1 (327.1) 146.1 Discounting of claims provision classified as interest expense (57.1) (80.7) Change in discount rate claims provision 57.6 (182.8)
Guarantees and committed capital Gross guarantees 0.1 0.1 Committed capital, not paid 1,643.6 2,278.6
The timing of the outflow of capital is dependent on when the funds are making capital calls from their investors. Average remaining operating time for the funds, based on fair value, is slightly above four years (four) and six years (six) in average including option for extension.
Notes FRN Gjensidige Forsikring ASA 2014/2044 SUB ISIN NO0010720378 Issuer Gjensidige Forsikring ASA Principal, NOK millions 1,200 Currency NOK Issue date 10/2/2014 Maturity date 10/3/2044 First call date 10/2/2024 Interest rate 19 NIBOR 3M + 1,5%
Overview Gjensidige Forsikring ASA is the Group's parent company. As at 31 December 2015 the following companies are regarded related parties.
Transactions Income statement The table below shows transactions with related parties recognised in the income statement.