IFRS 9 contains three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income, and fair value through profit or loss. Financial assets will be classified as either at amortised cost, at fair value through other comprehensive income, or at fair value through profit or loss, depending on how they are managed and which contractual cash flow properties they have. IFRS 9 introduces a new requirement in connection with financial liabilities earmarked at fair value: where changes in fair value that can be attributed to the liabilities' credit risk are presented in other comprehensive income rather than over profit or loss. According to prevailing rules, impairment for credit losses shall only be recognised when objective evidence of impairment losses exists. Impairment provisions according to IFRS 9 shall be measured using an expected loss model, instead of an incurred loss model as in IAS 39. The impairment rules in IFRS 9 will be applicable to all financial assets measured at amortised cost or at fair value with the changes in fair value recognised in other comprehensive income. In addition, loan commitments, financial guarantee contracts and lease receivables are within the scope of the standard. The measurement of the provision for expected credit losses on financial assets depends on whether the credit risk has increased significantly since initial recognition. At initial recognition and if the credit risk has not increased significantly, the provision should equal 12-month expected credit losses. If the credit risk has increased significantly, the provision should equal lifetime expected credit losses. This dual approach replaces today’s collective impairment model. For individual impairment there are no significant changes in the rules compared with the current rules. Preliminary expectations are that the implementation of IFRS 9 could lead to increased provisions for credit loss due to the change from an incurred loss model to an expected loss model. IFRS 9 is effective from 1 January 2018.
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. Our preliminary assessment is that the standard is not expected to have a significant effect on Gjensidige’s financial statements.
Insurance-related operating expenses Insurance-related operating expenses consist of insurance-related administration expenses including commissions for received reinsurance and sales expenses, less received commissions for ceded reinsurance and profit share.
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 Gjensidige, 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.
Development expenditures (both internally and externally generated) is capitalized only if the development expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable,and Gjensidige intends to and has sufficient resources to complete the development and to use or sell the asset.
Impairment losses are recognised in profit or loss if the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated- first to the carrying amount of goodwill and then proportionally to the carrying amount of each asset in the cash-generating unit. Previously recognised impairment losses are for assets except for goodwill, reversed if the prerequisites for impairment losses are no longer present. Impairment losses will only be reversed if the recoverable amount does not exceed the amount that would have been the carrying amount at the time of the reversal if the impairment loss had not been recognised.
Impairment losses recognised for goodwill will not be reversed in a subsequent period. On disposal of a cash generating unit, the goodwill attributable will be included in the determination of the gain or loss on disposal.
Claims provisions are not normally discounted. For contracts in Denmark with annuity payments over a long horizon, discounting is performed. IFRS 4 permits the use of different policies within Gjensidige in this area.
Gjensidige uses financial derivatives, amongst other to hedge foreign currency exchanges arising from the ownership of foreign subsidiaries with other functional currency.
Financial liabilities at amortised cost Financial liabilities are measured at amortised cost using the effective interest method. When the time horizon of the financial liability’s due time is quite near in time the nominal interest rate is used when measuring amortised cost.
Dividend Dividend from investments is recognised when Gjensidige has an unconditional right to receive the dividend. Proposed dividend is recognised as a liability in accordance with the Accounting Act and Regulations on Simplified Application of International Accounting Standards (FOR 2008-01-21 nr. 57). This implies that dividend reduces equity in the fiscal year the dividend provision relates to.
The defined contribution plan is a post-employment benefit plan under which Gjensidige pays fixed contributions into a separate entity and there is no legal or constructive obligation to pay further amounts. Obligatory contributions are recognised as employee benefit expenses in profit or loss when they are due.
Plan assets are measured at fair value, and reduce pension liabilities in the balance sheet. Any surplus is recognised if it is likely that the surplus can be used. An overfunding in a funded plan cannot be offset against an underfunding in an unfunded plan.
Share-based payment transactions in which Gjensidige receives goods or services as payment for Gjensidige’s own equity instruments are recognised as share-based payment transactions with settlement in equity, regardless of how Gjensidige has acquired the equity instruments. Share-based payment arrangements settled by one of the shareholders in the ultimate mother company is also recognised as a share-based payment transaction with settlement in equity.
Perpetual Tier 1 capital Perpetual Tier 1 capital consists of a perpetual hybrid instrument, classified as equity. In connection with the issuance in 2016 transactions costs amounting to NOK 3.2 million was recognized as a deduction in equity.
Natural perils capital Operating profit/loss from the compulsory natural perils insurance shall be adjusted against the Natural perils capital. The Natural perils capital can only be used for claims related to natural perils. Natural peril is defined as claim in direct relation to natural hazard, such as landslide, storm, flood, storm surge, earthquake or eruption.
Plant and equipment, owner-occupied property and intangible assets Plant and equipment, owner-occupied property and intangible assets are assessed annually to ensure that the depreciation method and the depreciation period used are in accordance with useful life. The same applies to residual value. If indications of impairment losses are present, the recoverable amount of the asset will be estimated.
160 | Gjensidige annual report 2016 4. Premiums and claims etc. in general insurance For segment information according to IFRS 8 please refer to note 4 in the consolidated financial statements. The information below is worked out based on the requirements in the Norwegian Financial Reporting Regulations for Insurance Companies.
Non-life insurance and reinsurance obligations (direct business and accepted proportional reinsurance)
Premiums written Gross - direct business and accepted proportional reinsurance 321.2 1,059.5 1,046.0 2,572.6 4,090.1 277.8 8,016.9 627.7 1,008.5 1,179.9 1,465.4
Premiums earned Gross - direct business and accepted proportional reinsurance 307.9 1,066.0 1,034.8 2,590.6 4,060.6 279.2 7,891.9 639.0 993.1 1,156.6 1,461.8
Claims incurred Gross - direct business and accepted proportional reinsurance (229.0) (673.2) (815.2) (1,205.2) (2,742.9) (105.3) (6,442.0) (344.0) (686.1) (783.4) (953.4)
Provision for unearned premiums, gross 111.0 400.6 297.8 1,268.1 2,029.5 42.6 2,920.8 221.2 447.3 365.9 357.9 Claims provision, gross 153.5 4,417.1 9,992.0 7,785.3 572.9 135.9 4,322.8 906.3 193.0 394.6 1,494.4
Provision for unearned premiums, gross 123.3 8,585.9 Claims provision, gross 25.2 16.3 116.7 276.6 30,802.6
Amortisation and impairment losses As at 1 January 2015 (100.0) (291.3) (31.3) (425.5) (3.1) (851.3) Amortisations (60.5) (6.2) (143.0) (25.8) (235.5) Disposals/reclassifications 199.8 199.8 Exchange differences (17.1) (1.6) (11.9) (1.9) (32.5) As at 31 December 2015 (100.0) (369.0) (39.0) (380.6) (30.9) (919.5)
Cost As at 1 January 2016 1,776.7 650.3 39.2 799.0 78.8 3,343.9 Additions 54.1 145.6 191.3 391.1 Additions internal 2.5 0.7 9.0 12.1 Additions from internal development 45.8 45.8 Disposals/reclassifications (10.7) (47.6) (7.0) (65.3) Exchange differences (92.2) (32.4) (1.5) (25.2) (11.1) (162.3) As at 31 December 2016 1,687.0 662.0 37.7 917.6 261.0 3,565.4 Uncompleted projects 116.0 116.0 As at 31 December 2016, including uncompleted projects 1,687.0 662.0 37.7 1,033.7 261.0 3,681.4
Amortisation method I/A Straight-line Straight-line Straight-line Straight-line Useful life (years) I/A 5-10 1-10 5-8 5-10
The growth rate in terminal value calculation The growth rate is determined to 2.5 per cent in Scandinavia and the same that was used in 2015.
Gjensidige annual report 2016 | 163 6. Shares in subsidiaries, associates and joint ventures
Subsidiaries Gjensidige Bank Holding AS Oslo, Norway 100% 2,131.4 2,152.7 1,931.4 1,952.7 Gjensidige Norge AS Oslo, Norway 100% 195.7 1.2 195.7 1.2 Gjensidige Pensjon og Sparing Holding AS Oslo, Norway 100% 724.7 704.1 741.0 742.7 Gjensidige Baltic AAS ¹ Riga, Latvia 100% 351.5 347.8 Samtrygd Eigedom AS Oslo, Norway 100% 6.9 6.9 6.9 6.9 Lokal Forsikring AS Oslo, Norway 100% 31.4 11.3 31.4 11.3
Mondux Assurance Agentur A/S Copenhagen, Denmark 100% 204.9 213.1 129.0 137.2
NOK millions Assets Equity Liabilities Revenues 4 Profit/(loss) Share of stock value
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) 4 Operating income. For companies where financial income is operating income, financial income is included. For other companies financial income is not included.
Income statement Operating income 423.0 419.8 Operating expenses (75.4) (75.5) Interest income 2.1 1.5 Interest expenses (65.4) (71.5) Fair value adjustments property 111.9 271.7 Gains/losses on sale of property 27.0 3.7 Depreciation and amortisation (3.9) (8.8) Profit/(loss) before tax expense 419.4 540.9 Tax expense (69.4) (92.0) Profit/(loss) before components of OCI 350.0 448.9 Other income and expenses 134.8 0.1 Total comprehensive income 484.8 449.0
Balance sheet items Current assets 34.6 93.0 Fixed assets 6,691.6 6,821.5 Cash and cash equivalents 46.2 30.7 Short term liabilities 784.4 820.6 Long term liabilities 2,840.4 3,076.1 Equity 3,147.6 3,018.0
Gjensidige's share of loan 1,420.2 1,538.0 Total receivables on joint ventures 1,420.2 1,538.0
In 2015, 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. Gjensidige Forsikring has granted a loan to Oslo Areal amounting to NOK 1.4 billion at year end. The loan is interest-bearing.
Part of the agreement is that Gjensidige, through a price-adjustment mechanism, will be exposed to the property market development with an amount corresponding to half of the proceeds during the period until 31 December 2016. Gjensidige will therefore have a higher property-exposure in this period than the 50 per cent holding in Oslo Areal. The exposure that this agreement represents is not recognised. The agreement is recognised at fair value and the unrealised gain was NOK 54.5 million as at 31 December 2016 (16.2).
Gjensidige annual report 2016 | 166 7. Owner-occupied property, plant and equipment
Cost As at 1 January 2015 108.2 561.7 669.9 Additions 0.4 99.0 99.3 Disposals (86.0) (42.0) (128.0) Exchange differences 5.8 5.8 As at 31 December 2015 22.8 624.6 647.3 Uncompleted projects 27.6 27.6 As at 31 December 2015, including uncompleted projects 22.8 652.1 674.8
Carrying amount As at 1 January 2015 79.2 312.3 391.5 As at 31 December 2015 19.0 274.7 293.7
Cost As at 1 January 2016 22.8 624.6 647.3 Additions through business combinations 1.5 1.5 Additions 5.1 33.5 38.6 Disposals (8.7) (177.0) (185.7) Exchange differences (0.2) (6.1) (6.3) As at 31 December 2016 19.0 476.5 495.4 Uncompleted projects 61.2 61.2 As at 31 December 2016, including uncompleted projects 19.0 537.6 556.6
Depreciation and impairment losses As at 1 January 2016 (3.8) (377.4) (381.2) Depreciation for the year (52.8) (52.8) Disposals 3.6 162.5 166.2 Exchange differences 0.2 3.8 3.9 As at 31 December 2016 (263.9) (263.9)
Carrying amount As at 1 January 2016 19.0 274.7 293.7 As at 31 December 2016 19.0 273.8 292.7
Market value of land and owner-occupied property 35.1 34.6 Carrying amount of land and owner-occupied property 19.0 19.0 Excess value beyond carrying amount 16.1 15.6
Owner-occupied property in Gjensidige Forsikring ASA mainly consists of leisure houses and cottages.
The market value of 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.
Valuation based on observable market data When quoted prices in active markets are not available, the fair value of financial assets/ liabilities is preferably estimated on the basis of valuation techniques based on observable market data.
• Real estate funds. The real estate funds are valued based on reported NAV values as reported by the fund administrators. Because of late reporting from the funds, the NAV values from the previous quarterly reporting are used in estimating fair value.
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 1,207.8 1,207.8 275.6 275.6 Financial derivatives subject to hedge accounting 52.2 52.2
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 12 6,134.4 6,134.4 7,130.6 7,130.6 Bonds and other fixed income securities 23,108.2 23,108.2 24,205.7 24,205.7
Financial assets held to maturity Bonds held to maturity 1,226.8 1,286.3 1,797.1 1,925.0
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 1,173.1 1,173.1 366.3 366.3
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 1,207.8 1,207.8
Financial assets at amortised cost Bonds held to maturity 1,925.0 1,925.0 Bonds and other fixed income securities classified as loans and receivables 17,437.5 1.6 17,439.1 Loans 165.1 165.1
Amount of net realised/unrealised gains recognised in profit or loss that are attributable to instruments held as at
Shares and similar interests Decrease in value 10% 156.2 Bonds and other fixed income securities Decrease in value 10% 133.4 Total 289.6
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 2,306.4 63.3 692.0 (530.8) 2,531.0 (85.7)
Hedge accounting Net investment in the foreign operation Gjensidige Forsikring utilized hedge accounting of currency exchange differences on the net investment in the foreign operation until the second half-year of 2015. The net investments were hedged through designated currency-related contracts that were renewed every quarter at a principal equal to the value of the investment. In this way, the hedging efficiency was measured per hedging object. The credit risk associated with the hedging derivatives was within the limits of Gjensidige's credit policy.
Loans and receivables Bonds classified as loans and receivables 15,895.8 16,173.2 Other loans 121.3 163.2 Subordinated loans 3.9 3.7 Provision for impairment losses (2.1) (1.8) Total loans and receivables 16,018.9 16,338.3
Provision for impairment losses Provision for impairment losses as at 1 January 1.8 2.8 Change in provision for impairment losses for the period 0.3 (1.0) Provision for impairment losses as at 31 December 2.1 1.8
Bonds are securities classified as loans and receivables in accordance with IAS 39. Of other loans NOK 80.3 million (101.6) are loans given to agricultural customers. The loans are in their entirety intended for instalment of fire detection systems with these customers. There is no mortgage attached to the loans, and the terms vary from one year to over 20 years. Gjensidige Forsikring has not offered this type of loan to its customers since 2008. The default rate is 1.47 per cent (1.00) at year end.
Weighted average rate for interest earned on cash, bank deposits and deposits with financial institutions is approximately 0.7 per cent (0.8).
Restricted bank deposits Source-deductible tax accounts 72.6 70.5 Total restricted bank deposits 72.6 70.5
Other Norwegian shares Statoil ASA 923 609 016 8.4 Petroleum Geo-Services ASA 916 235 291 4.1 Kongsberg Gruppen ASA 943 753 709 4.1 Telenor ASA 982 463 718 4.1 Yara International ASA 986 228 608 3.4 Norwegian Air Shuttle ASA 965 920 358 3.3 XXL ASA 995 306 158 2.9 DNO ASA 921 526 121 2.1 Total other Norwegian shares 32.4
Private equity investments 1 HitecVision Private Equity V LP 94.1 Argentum Secondary III 91.4 HitecVision Asset Solution KS 81.2 HitecVision VI LP 58.7 SOS International A/S 51.5 Verdane Capital VII KS 43.8 Norvestor V LP 42.2 BaltCap PEF LP 39.9 HitecVision Private Equity IV LP 37.5 Altor Fund II LP 33.3 Viking Venture III DIS 33.1 Norvestor VI LP 32.0 CapMan Buyout X 31.4 Energy Ventures III LP 27.4 Partners Group European Buyout 2005 (A) LP 26.7 Northzone VII L:P 24.1 Argentum Secondary II 22.7 HitecVision VII 21.2 CapMan BO IX LP 20.1 Northzone VI L.P. 17.4 Procuritas Capital Investor V 17.2 Teknoinvest VIII C IS 16.5 Sector Asset Management AS 887 139 342 15.9 NPEP1 IS (Altor fund III) 14.9 FSN Capital II LP 14.9 Norvestor VII LP 14.8 Verdane Capital VI KS 14.4 Partners Group Direct Investments 2006 LP 14.4 Energy Ventures II B IS 14.3 Energy Ventures IV LP 13.8 Norvestor IV LP 13.7 LGT Crown European Private Equity PLC 12.6 NPEP Triton IV IS 12.3 Axcel IV 11.5 Nordic Additonal Funding Programme IS 9.1 NPEP NeoMed V (Neomed V LP og N5 invest IS) 9.0 NPEP EQT VII IS 8.6 Scalepoint Technologies Limited 7.1 Helgeland Invest AS 939 150 234 6.7 Nord II IS 6.1 Energy Ventures II KS 988 015 105 5.7 NPEP Accent Equity 2012 IS 5.5 Viking Venture II AS 987 493 550 5.6 Teknoinvest VIII B DIS 5.4 Teknoinvest VIII KS (inkl. Teknoinv. VIII (GP) KS) 984 641 516/984 641 494 5.2 Viking Venture II B IS 4.4 Energy Venture V LP 3.8 Tun Media AS 982 519 985 3.7 Northzone VIII L.P. 2.8 Northzone IV KS 2.7 Norinnova Technology Transfer AS 957 915 035 2.1 Midvest I A 991 773 754 2.1 NPEP Verdane IX IS 1.5 Fjord Invest AS 983 527 833 1.4 Midvest II A 991 773 762 1.3 Norinnova Invest AS 991 080 961 1.3 Kapnord Fond AS 989 533 800 1.1 Viking Venture II AS (C-shares) 987 493 550 1.1 Other private equity investments 5.5 Total private equity investments 1,139.5 1 Norwegian Private Equity funds organised as internal partnerships doesn't have organisation number
Shares and similar interests owned by branches Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 0.3 Total shares and similar interests owned by branches 0.3
Gjensidige annual report 2016 | 175 13. Insurance-related liabilities and reinsurers' share
Insurance-related liabilities, reinsurers' share Reinsurers' share of unearned premiums, gross 115.5 32.0
Claims reported and claims handling costs 15,080.9 16,682.2 Claims incurred, but not reported 15,209.4 14,608.6 Total claims provision, net of reinsurance 30,290.3 31,290.8
Claims and claims handling costs Claims reported and claims handling costs 17,038.3 (356.1) 16,682.2 15,930.5 (501.0) 15,429.5 Claims incurred, but not reported 14,614.3 (5.7) 14,608.6 16,051.4 16,051.4 Total as at 1 January 31,652.5 (361.7) 31,290.8 31,981.9 (501.0) 31,480.9
Claims reported and claims handling costs 15,593.1 (512.2) 15,080.9 17,038.3 (356.1) 16,682.2 Claims incurred, but not reported 15,209.4 15,209.4 14,614.3 (5.7) 14,608.6 Total as at 31 December 30,802.6 (512.2) 30,290.3 31,652.5 (361.7) 31,290.8
Provisions for unearned premiums As at 1 January 8,238.4 (32.0) 8,206.4 7,836.7 (28.7) 7,808.0 Additions through acquisitions 342.0 (251.2) 90.8 Increase in the period 22,079.9 (431.5) 21,648.4 21,320.2 (449.9) 20,870.3 Earned in the period (21,930.6) 578.0 (21,352.6) (21,024.4) 447.2 (20,577.2) Exchange differences (143.8) 21.2 (122.6) 105.9 (0.6) 105.3 Total as at 31 December 8,585.9 (115.5) 8,470.4 8,238.4 (32.0) 8,206.4 1 For own account.
NOK millions 2016 2015 Discounted claims provision, gross - workers' compensation insurance in Denmark 4,905.2 5,067.4 Nominal claims provision, gross - workers' compensation insurance in Denmark 5,449.1 5,794.7
176 | Gjensidige annual report 2016 14. Pension Gjensidige Forsikring is required to have an occupational pension plan pursuant to the Norwegian Act relating to Mandatory Occupational Pensions. The Company’s pension plans meet the requirements of the Act.
Contributions to the defined contribution plan are recognised as an expense in the year the contribution is paid.
Disability pension, spouse/cohabitant pension and child’s pension are also included in the plan subject to more detailed rules. In addition, Gjensidige has pension liabilities to some employees over and above the ordinary group pension agreement. This applies to employees with a lower retirement age, employees who earn more than 12 times the National Insurance basic amount (G) and supplementary pensions.
Actuarial assumptions The discount rate is based on a yield curve stipulated on the basis of the covered bond yield. The discount rate is based on observed interest approximately ten years ahead. The market’s long-term view of the interest rate level is estimated on the basis of the required real interest rate, inflation and future credit risk. An interpolation has been made in the period between the observed interest and long-term market expectations. A discount curve has thus been calculated for each year in which pensions will be disbursed. The discount rate for a pension payment is 2.44 per cent (2.55) in year 10, 2.77 per cent (2.89) in year 15, 3.02 per cent (3.05) in year 20, 3.19 per cent (3.16) in year 25, 3.31 per cent (3.22) in year 30, and 3.46 per cent (3.30) in year 40.
Gjensidige uses GAP07, which is a dynamic mortality model that takes account of the expected development in life expectancy. The assumptions on which the model is based are tested at regular intervals.
Risk The risk in the net pension liability is a combination of the pension plan itself (including regulatory risk), the pension liability, pension assets, financing level and the co-variation between pension liabilities and pension assets.
Gjensidige annual report 2016 | 177 approximately three per cent in the event of a parallel shift in the yield curve of plus one percentage point. The pension liabilities measured in the pension fund’s accounts have a duration of approximately 12 years. The pension liabilities are exposed to interest rate risk. The discount rate is composed of market interest rates for ten years, while, from year 20, it is based on long-term equilibrium interest rates, and between year ten and year 20, it is interpolated linearly between market interest rates and long-term equilibrium interest rates. A shift in the market interest rates 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 interest rates will only have a marginal effect. An interest rate fall is the biggest risk, due to the long duration of the liability. The pension liability will increase by 11.1 per cent in the event of a parallel shift in the whole yield curve of minus one percentage point. The value will fall by 9.2 per cent in the event of an interest rate increase of one percentage point. Because of the relationship between pension liabilities and pension assets, Gjensidige has an asset ceiling, since not all pension assets can be used to pay future premiums. This means that the effect of a decrease in the interest rate will be limited to liabilities attributable to current employees and that liabilities attributable to retired employees will remain relatively unchanged. An interest rate fall is the biggest risk, due to the long duration of the liability. An increase in the interest rate leads to a fall in the pension liabilities, but much of the fall will lead to a potential pension increase. 35 per cent of the pension assets are attributable to current employees. With time, however, employees will represent an increasingly lower proportion of the pension assets as a result of employees leaving or retiring. A greater proportion of the return will thereby go to retired and former employees, and less to the employer. This has been incorporated in the asset ceiling assessment. Credit risk The pension assets’ exposure to credit risk is deemed to be moderate. The credit risk is managed by setting limits on the biggest commitment and rating for individual investments. Most of the pension fund’s fixed-income investments shall be within “investment grade”. Approximately five per cent of the total pension assets are global high-yield bonds. If the credit risk on a global basis were to increase by a factor corresponding to the factor used in stress tests for pension funds (equal to a deterioration in relation to the 99.5 percentile), this would lead to a fall of approximately nine per cent in the bond portfolio. This corresponds to an average widening of spreads of 1.9 per cent. The pension liabilities are exposed to some credit risk because the Norwegian covered bond yield, which forms the basis for determining the discount rate, entails a certain credit risk. The credit mark-up (on ten-year swaps) at 31 December 2016 was 0.67 per cent. Based on the same stress tests as for the pension assets, the liabilities would decrease by approximately 11.7 per cent based on a widening of spreads of 0.9 per cent. In total, the reduction in the liabilities would be slightly higher than the fall in the value of the pension assets. Stock market risk Over the year, the pension fund has been exposed to stock market risk through unit trusts and purchase options. The exposure was 1.4 per cent (3.7) at the end of the year. Derivative contracts bring the market exposure up to 20 per cent. The pension assets have low exposure to the stock market. The greatest stock market risk is deemed to be the risk of a fall in the stock market. Currency risk All investments in foreign fixed-income funds are currency hedged. Investments have been made in currency-hedged funds. Foreign equity investments shall as a rule be currency hedged. Amounts due to the pension assets in Norwegian kroner shall at all times correspond to at least 70 per cent of the actuarial provisions. At year end, approximately one per cent of the pension assets were exposed to currency risk.
Private collective pension (AFP) As a member of Finance Norway, Gjensidige has a collective (AFP) pension agreement for its employees. AFP is a tariff-based pension plan for private sector employees. The benefit is life-long and can be drawn from the age of 62, provided that the conditions in the AFP statutes are met. AFP is therefore a defined benefit pension plan. The AFP plan is based on a tripartite cooperation between the employers’ organisations, the trade unions and the state. The state covers one-third of the pension expenses for the AFP plan, while the enterprises affiliated to the plan cover two-thirds collectively. The premium the enterprises pay to the plan is stipulated so that it covers current pension expenses and also provides a basis for building up a pension fund. The fund shall provide sufficient security for the coverage of expected future liabilities. In 2016, the premium was 2.5 per cent (2.4) of employees’ earnings between 1 and 7.1 times the National Insurance basic amount (G). 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. If the administrator of the AFP plan presents such allocation figures, this could result in the plan being recognised as a defined benefit plan. It is difficult, however, to arrive at an allocation key that is acceptable to Gjensidige. An allocation key based on the Gjensidige’s share of total annual pay will not be acceptable since such a key is too simple and will not adequately reflect the financial liabilities.
Present value of the defined benefit obligation As at 1 January 2258.8 528.7 2787.6 2,318.5 558.6 2,877.1 Current service cost 32.3 10.1 42.4 34.9 10.7 45.7 Employers' national insurance contributions of current service cost 4.6 1.4 6.0 4.9 1.5 6.4
Removed CPI indexing of current pensions (445.8) (31.0) (476.8) Business combinations (3.6) 10.4 6.7 (3.2) (3.2) The effect of the asset ceiling 132.7 132.7 Foreign currency exchange rate changes (2.4) (2.4) 2.5 2.5 As at 31 December 1,940.1 493.2 2,433.2 2,258.8 528.7 2,787.6
Fair value of plan assets As at 1 January 2,352.0 2,352.0 2,389.0 2,389.0 Interest income 66.0 66.0 59.9 59.9 Return beyond interest income (13.4) (13.4) (5.3) (5.3) Contributions by the employer 133.5 5.1 138.6 5.7 5.7 Benefits paid (91.5) (91.5) (89.5) (89.5) Employers' national insurance contributions of benefits paid (16.5) (5.1) (21.6) (5.7) (5.7)
Business combinations (3.8) (3.8) (2.1) (2.1) As at 31 December 2,426.3 2,426.3 2,352.0 2,352.0
Remeasurement of the net defined benefit liability/asset recognised in other comprehensive income Cumulative amount as at 1 January (2,138.1) (2,207.1) Return on plan assets (13.4) (5.3) Changes in demographic assumptions 5.8 2.6 Changes in financial assumptions (19.0) 71.7 The effect of the asset ceiling (132.7) Cumulative amount as at 31 December (2,297.3) (2,138.1)
Deductible temporary differences Loans and receivables (111.3) (97.9) Provisions for liabilities (327.2) (231.5) Pension liabilities (425.5) Total deductible temporary differences (438.5) (754.9)
Reconciliation of tax expense Profit before tax 5,600.0 4,900.5 Estimated tax of profit before tax expense (25% in 2016 and 27% in 2015) (1,400.0) (1,323.1)
Tax effect of Dividend received 38.0 43.2 Tax exempted income and expenses 45.5 170.8 Non tax-deductible expenses (1.7) (39.5) Change in tax rate 64.5 Correction previous years (4.0) (14.5) Total tax expense (1,322.0) (1,098.5) Effective rate of income tax 23.6% 22.4%
Change in deferred tax recognised directly in the balance sheet Pensions (39.8) 17.1 Exchange differences (0.4) (0.6) Other changes 2.1 Net deferred tax liabilities/(deferred tax assets) as at 31 December 905.4 934.9
In February 2015, Gjensidige received a decision from the Central Tax Office for Large Enterprises in connection with the calculation of a tax gain as a result of the conversion of Gjensidige Forsikring BA into a public limited company (ASA) in 2010. The decision means that the tax payable for 2010 is reduced by around NOK 35 million. The tax will be further reduced for the ensuing years, by a total of around NOK 137 million at known tax rates. Gjensidigestiftelsen received a similar decision, and we have been informed that they have appealed the decision on the grounds that there is no basis for the change and that the tax office has based its decision on an incorrect valuation. Gjensidige agrees with Gjensidigestiftelsen’s assessment. Changing the decision concerning Gjensidigestiftelsen will have tax consequences for Gjensidige in relation to the above-mentioned figures, which will then not materialize. The appeal is still being processed by the tax office.
Depreciation and value adjustments (note 5 and note 7) 2.9 Other expenses 126.1 160.5 Total administration expenses related to financial assets, excl. interest expenses, incl. administration expenses properties 126.1 163.4 1 Other expenses include cost reductions for Gjensidige Forsikring ASA in connection with duties performed for subsidiaries and cost allocations to claims and finance.
Remuneration of executive personnel and employees who can materially influence the Group’s risk Remuneration of the senior group management is stipulated by the CEO, in accordance with limits discussed with the remuneration committee and on the basis of guidelines issued by the Board. Correspondingly, the Group’s guidelines are used as the basis for other executive personnel and employees who can materially influence risk.
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.
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, five 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. Three 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.
Kim Rud-Petersen, Executive Vice President 2,940.0 423.7 231.6 617.6 421.7 3,123 4,021 6,871 9,698 Hege Yli Melhus Ask, Executive Vice President (1.1.16-01.10.16) 9 2,668.1 247.7 160.6 470.9 260.6 1,039 3,221 3,375 11,204 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 For staff representatives only remuneration for the current position is stated. 5 Everyone in the senior group management except for one has pension plans, benefit or contribution based. 6 Including bonus shares in the share saving's programme for employees. See note 25 for terms and further description of the scheme. 7 Remuneration includes participation as Chairman in the Audit Committee honored with NOK 144.5 thousand for 2016. 8 Remuneration includes participation in the Audit Committee honored with NOK 96.0 thousand for 2016. 9 Hege Yli Melhus Ask has been on leave from 1 October to 31 December. Her remuneration is presented for the whole year. 10 Constituted Executive Vice President for Hege Yli Melhus Ask from 1 October to 31 December.
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 25 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.
Gjensidige annual report 2016 | 187 19. Net income from investments
Net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures Net income from investments in subsidiaries, associated companies and joint ventures 110.4 99.0 Impairment investments in subsidiaries, associated companies and joint ventures (94.2) Net gains/(losses) from sale of investments in subsidiaries, associated companies and joint ventures 2.9 681.4 Total net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures 19.1 780.4
Owner-occupied properties Rental income from owner-occupied properties 4.9 Net gains/(losses) from sale of owner-occupied properties 33.8 Administration expenses related to owner-occupied properties (3.6) Total net income and gains/(losses) from owner-occupied properties 35.1
Total net income and gains/(losses) from buildings and other real estate 38.4 77.0
Bonds and other fixed-income securities Net interest income/(expenses) from bonds and other fixed-income-securities 260.7 265.1 Unrealised gains/(losses) from bonds and other fixed-income securities 137.5 (415.6) Realised gains/(losses) from bonds and other fixed-income securities 227.5 96.5 Total net income and gains/(losses) from bonds and other fixed-income securities 625.7 (54.0)
Derivatives Net interest income/(expenses) from derivatives 24.3 (26.9) Unrealised gains/(losses) from derivatives 208.7 156.3 Realised gains/(losses) from derivatives 29.2 (721.5) Total net income and gains/(losses) from derivatives 262.2 (592.1)
Total net income and gains/(losses) from financial assets at fair value through profit or loss, designated 1,121.7 (484.6)
Net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 739.2 800.5 Net gains/(losses) from loans and receivables (3.2) 67.4 Net gains/(losses) from changes in exchange rates on loans and receivables (21.6) 51.7 Total net income and gains/(losses) from loans and receivables 714.5 919.5
Interest income from financial assets not recognised at fair value through profit or loss 858.4 929.7 Interest expenses from financial assets not recognised at fair value through profit or loss (34.3) (35.7)
Guarantees and committed capital Gross guarantees 0.1 0.1 Committed capital, not paid 1,146.1 1,643.6
Gjensidige Forsikring is liable externally for any insurance claim arising in the cooperation mutual fire insurers' fire insurance operations. According to the agreement with Gjensidige Pensjonskasse, the return, if not sufficient to cover the pension plans guaranteed interest rate, should be covered from the premium fund or through contribution from Gjensidige Forsikring.
ISIN NO0010720378 NO0010771546 Issuer Gjensidige Forsikring ASA Gjensidige Forsikring ASA Principal, NOK millions 1,200 1,000 Currency NOK NOK Issue date 02/10/2014 08.09.2016 Maturity date 03/10/2044 Perpetual First call date 02/10/2024 08.09.2021 Interest rate NIBOR 3M + 1.50% NIBOR 3M + 3.60%
Administration expenses Försäkringshuset Amb & Rosèn AB 0.5 9.4 0.4 7.3 ADB Gjensidige 0.6 0.4 Gjensidige Bank ASA owned by Gjensidige Bank Holding AS) 30.4 32.3 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding AS) 3.8 1.4
Gjensidige Pensjon og Sparing Holding AS 8.6 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 61.5 42.2 Gjensidigestiftelsen 5.0 4.6 Mondux Affinity Aps 12.9 Mondux Assurance Agentur A/S 44.8 69.9 25.4 Mondux AB 0.4 0.5 NAF Forsikringsformidling AS 0.3 0.5 Nykredit Forsikring A/S 344.3 260.5 316.3 238.5 Vardia Försäkring AB 55.7 Oslo Areal AS 0.1 0.8 Tennant Assuranse AS (owned by Lokal Forsikring AS) 0.9 11.7
Co-operating companies 1 Fire Mutuals 20.7 142.7 18.6 140.1 Gjensidige Pensjonskasse 5.9 32.1 1 Cooperating companies are defined as companies with which Gjensidige Forsikring has entered into a long-term strategic alliance.
Group contributions Gjensidige Pensjon og Sparing Holding AS 8.8 0.9 Mondux AB 7.9 Tennant Assuranse AS (owned by Lokal Forsikring AS) 0.3 5.9
Gains and losses in connection with sale and liquidation Bilskadeinstituttet AS (liquidated in 2014) 2.0 Byggeriet Forsikringsservice A/S 0.8 Nordisk Forsikrings Service AS 2.3 Oslo Areal AS 1.3 718.6 Vervet AS 8.2 Försäkringproduktion i Sverige AB 4.0
Gjensidige annual report 2016 | 193 25. Share-based payment Description of the share-based payment arrangements As at 31 December 2016, Gjensidige has the following share-based payment arrangements: Share-based remuneration for executive personnel with settlement in equity and cash (remuneration scheme) Gjensidige has established equity-settled share-based payment for the group management and more explicitly defined executive personnel. As described in the Board’s statement on the stipulation of pay and other remuneration in note 18, half of the variable remuneration is paid in the form of shares in Gjensidige Forsikring ASA, one third of which can be sold in each of the following three years. Of this, rather on the big side 50 per cent is distributed as equity and only just 50 per cent is distributed as cash in order to pay tax liabilities (net of tax settlement). 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.
Share-based remuneration for key personnel 5.2 5.6 Share savings programme for employees 5.3 4.4 Total expenses (note 17) 10.5 10.0
The number of bonus shares Outstanding 1 January 71,537 67,370 Granted during the period 38,533 39,841 Movement to/(from) during the period (7) Released during the period (30,713) (30,770) Cancelled during the period (1,623) (896) Forfeited during the period (2,925) (4,008) Outstanding 31 December 74,802 71,537 Exercisable 31 December 0 0
The number of shares Outstanding 1 January 47,131 43,514 59,145 54,863 Granted during the period 17,873 16,517 17,824 16,435 Forfeited during the period (26,831) (24,859) (32,211) (29,225) Quantity adjusted during the period 420) (420) Modification dividend during the period 3,537 3,302 1,953 1,861 Outstanding 31 December 41,710 38,474 47,131 43,514 Exercisable 31 December 0 0 0 0
To the best of our knowledge: • the annual accounts for 2016 for the Group and the parent company have been prepared in accordance with current accounting standards • the information in the accounts gives a true and fair view of the Group’s and the parent company’s assets, liabilities and financial position and results as a whole as per 31 December 2016
• The financial statements of the group, which comprise the balance sheet as at 31 December 2016, and income statement, statement of comprehensive income, statement of changes in equity, statement of cash flow for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
• The accompanying financial statements give a true and fair view of the financial position of the parent company as at 31 December 2016, and its financial performance and its cash flows for the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway.
Claims provision Claims provision is described in Accounting policies (page 82), note 2 Estimates (page 87), note 3 Management of insurance and financial risk (page 92) and note 13.
Description of the matter Our audit approach The claims provision is an estimate for future payments of incidents that, at the reporting date, have incurred, but are not settled. This includes both claims reported to the insurance company and claims incurred but not reported as specified in note 13. There is considerable uncertainty in respect of the claims provision. To calculate the claims provision for claims incurred but not reported, the company uses standard actuarial methods. These methods include among others, assumptions about claim frequency and expected settlement amounts.
Our audit approach includes a combination of procedures comprising both test of the company's established internal controls related to the claims provision and substantive procedures. We have evaluated the design, implementation and effectiveness of controls to determine and update actuarial assumptions.
To challenge management on the applied actuarial methods and assumptions, the audit team (which also consists of actuaries) have performed the following procedures, among others: • compared the applied models and assumptions against industry standards and observed that they are in line with regulatory requirements where applicable.
We have gained an understanding of management's process for determining forecasts and assumptions for the cashgenerating units in the group, where significant goodwill is recognized in the balance sheet. For each cash generating unit, we have challenged management and evaluated their estimates through the following procedures: • evaluated historical accuracy of management's cash flow projections by comparing previous estimates against actual results achieved.
• tested valuation models and calibrated assumptions against external information and used KPMG's own valuation specialists to evaluate various assumptions and calculations.
• evaluated the assumptions and methodology for determining the discount rates and growth rates used to calculate the present value of future cash flows. Our work also included comparison of applied assumptions against market data and industry practices.
Management is responsible for the other information. The other information comprises the Board of Directors’ report, statements on Corporate Governance and Corporate Social Responsibility, but does not include the financial statements and our auditor's report thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements, or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway.
Gjensidige is a leading Nordic insurance group listed on the Oslo Stock Exchange. We have about 4,000 employees and offer insurance products in Norway, Denmark, Sweden and the Baltic states. In Norway, we also offer banking, pension and savings. Operating income was NOK 25.5 billion in 2016, while total assets were NOK 136 billion.